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PETITIONER: G.D. ZALANI AND ANR. ETC. ETC.

       Vs.

RESPONDENT: UNION  OF INDIA AND ORS.

DATE OF JUDGMENT02/02/1995

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) SEN, S.C. (J)

CITATION:  1995 AIR 1178            1995 SCC  Supl.  (2) 512  JT 1995 (2)   420        1995 SCALE  (1)437

ACT:

HEADNOTE:

JUDGMENT: 1.   Leave granted. 2.   Hindustan  Antibiotics Limited (H.A.L.) is  engaged  in the  manufacture  of  several  antibiotic  drugs   including Penciling.  It  has  a  plant at  Pimpri  in  the  State  of Maharashtra.  Though the installed capacity of the plant  is 1600MMM,  , it has been able to produce only 850MMU.  H.A.L. is  a  Government company fully owned by the  Government  of India.  There is another government company, I.D.P.L.,  pro- ducing the same drug.  We arc told that at present there  is only one unit in private sector, Alembic, which is producing the  said drug.  The total production of Penn-G  within  the country  is  sufficient to meet only 45%  of  the  country’s total  requirement.   The remaining 55% is  being  imported. The price of the imported Penn-G is half the price at  which the locally produced drug is sold. 3.   Penn-G  is produced through complex fermentation  under controlled  conditions  of strains of the  fungus  Pecillium Notatum  and Pencillium Chrysogenum.  It is stated that  the companies all over the world have been trying to develop the strains  to improve the quality and yield.  H.A.L.M.,  which has  been  producing the drug in this country for  over  two decades, has also been trying to improve the strain as  also the  quality  and yield of the said drug.   From  1976  upto 1986,  it was using the Filamentous Toyo Jozo  Strains  from Japan.   Since  the  said  technology  became  outdated,  it switched over in 1986 to Pellety Strains from Panlabs  Inc., U.S.A.  Even so, the production could not exceed 55% of  the installed capacity.  For all these reasons, H.A.L. has  been trying  to devise ways and means to improve the  production, quality and yield. 4.   Gist  Brocades of Holland (hereinafter referred  to  as ’G.B.’) is the leading producer of Penn-G in the world.   At present,  it controls 20 % of the world market.  It has  got plants in several parts of the world. 5.   According   to  a  Government  of   India   publication

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"Technology  in  Indian Pencillin-G/V Industry" -  a  status report  prepared  under  the national  register  of  foreign collaboration  (published  in April, 1991)  -  Panlabs  have developed strains capable of yielding above 60,000  units/ml within a relatively short period.  Antibioticos of Spain has developed strains yielding 60,000 units/ml whereas G.B.  are working at R&D level with strains capable of yielding  above 80,000  units/ml.  The production capability of most of  the companies  around the world is 60,000 units/ ml.  Only  G.B. seems  to be ahead.  The said publication also  states  that most  of  the important information  relating  to  Pencillin technology  is not published since the companies keep  it  a closely guarded secret. 6.s  a result of the negotiations between H.A.L. and  Max-GE (a company 424 formed by G.B. and Max India coming together), a  Memorandum of Understanding (MoU) was signed between H.A.L. and  M.G.B. on  June 20, 1994.  The appellants in these  three  appeals, viz.,  Torrent Gujarat Biotec Limited, SPIC and  P.B.G.  had also  offered to collaborate with H.A.L. for the purpose  of improving the quality and yield of Penn-G and to achieve the full  installed capacity.  Each of them had also offered  to being    foreign    technology   through    their    foreign collaborators.   Their  offers  were. not  accepted  by  the H.A.L. which entered into a MoU with M.G.B. on June  20,1992 as aforesaid.  Soon thereafter, these three appellants filed writ  petitions  in  the Delhi High  Court  questioning  the validity  of the said MoU.  Their case was that though  they offered  to  provide  equally superior  technology  and  had indeed  offered  more advantageous terms  to  H.A.L.,  their offers were rejected mainly because of the bias on the  part of  the  Managing Director of H.A.L., Sri  A.K.Basu.  It  is alleged that Sri Basu was interested in having collaboration only with M.G.B. and with nobody else and for that reason he managed  to see that the offers of all others are  rejected. Different  reasons  were offered by Sri  Basu  to  different parties  who  approached for such cooperation.  He  did  not provide them the opportunity to inspect the plant of  H.A.L. nor  did he provide them the relevant information to  enable them  to formulate a specific offer.  The malafides  on  the part  of  Sri Basu, it is alleged, are responsible  for  the impugned  MoU whereunder the H.A.L. has agreed to lease  out its  plant and all other facilities for an annual amount  of Rs. 17 crores to the proposed Joint Venture Company (J.V.C.) to  be formed by H.A.L. and M.G.B., whereas  the  appellants were  prepared  to offer a lease amount far above  the  said figure.   The malafides on the part of Sri Basu  is  evident from  the  fact  that  though the  Board  of  Directors  had stipulated  a  minimum  low amount  of  Rs.31.68  crores  he flouted  the said stipulation and agreed to a low figure  of Rs.  17  crores.   It  is submitted  that  H.A.L.,  being  a government  owned  corporation, is an authority  within  the meaning of Article 12 and that it was bound to consider  all the offers received in a fair and impartial manner giving an equal opportunity -to all competitors to give their bids and select the most suitable among them.  This fairness has  not been observed by the H.A.L. in arriving at the impugned MoU. Indeed, the submission is that the Government/H.A.L.  should have  called for tenders. or offers on a  competitive  basis and  selected  the most suitable among them.   This,  it  is submitted,  is the requirement of Article 14.  The  impugned MoU  has,  however, been arrived at in a hush  hush  manner. Even  today, nobody knows what are the terms and  conditions of  the  said MoU except the lease amount.   A  public  body

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cannot  and  should  not  adopt  such  a  procedure,  it  is submitted.   There  should be transparency in  its  dealings which is woefully lacking in this case.  Reliance is  placed upon  the decisions of this Court in Tata Cellular v.  Union of India (1 994 J.T.(4) 532) and Sterling Computers  Limited v.  M/s.M  &  N  Publications  Limited  &  Ors.  (1993   (1) S.C.C.445)  as  well as the decision of the  Allahabad  High Court in Churk Cement Mazdoor Sangh & Ors. v. State of Uttar Pradesh  (A.I.R. 1992 All.88). The High Court, however,  has repelled  all  the said contentions and dismissed  the  writ petitions. 7.   The  case  of the respondents*, on the other  hand,  is that  this  was not a case where the government  could  have followed 425 the practice of inviting the tenders.  Such a procedure  was just not possible in the circumstances.  This was not a case of  awarding a contract or a simple case of granting  lease. It  was  a case where H.A.L. was trying to import  the  best technology in the world to achieve its installed  production and to improve its quality and yield while at the same  time reducing  the  cost of production so as to  compete  in  the world market.  With the liberalization policy, there was  an apprehension of import of Penn-G being placed on the  O.G.L. (Open  General Licence) in which case the H.A.L. would  have been  driven  out  of  market because  the  cost  of  Penn-G produced  by  it  is double the price  of  imported  Penn-G. Hence the urgency.  No foreign company was prepared to  part with  technology except by way of J.V.C. Each of the  appel- lants  have  or proposed to have, a foreign company  as  its partner and each of them was offering the technology of  its foreign  partner.  H.A.L., however, found that G.B.  is  the world leader in the field that it has the best technology in the  world  and has a share of 20% in the world  market.   A tieup  with such market leader is bound to prove  beneficial to  H.A.L.  Over  the last  several  years,  several  Indian companies  including the H.A.L. have been trying  to  obtain technology  from  G.B. but they failed.  Only  in  the  year 1993,   did  G.B.  agree  to  the  H.A.L’s.   proposal   for collaboration  but  only through its Indian  partner,  viz., M.G.B.  The foreign collaborators of some of the  appellants do not have technology comparable to G.’B. and none of  them have a               *The respondents to the writ petitions in High               Court  and in these appeals are (1)  Union  of               India represented by the Secretary to Ministry               of  Chemicals and Fertilizers,  (2)  H.A.L.(P)               Ltd., (3) Sri A.K.Basu, M.D. of H.A.L. and (4)               Max-G.B. sizeble  share  in  the  world  market.  According  to   the respondents, the  position in 1993 is the following. ------------------------------------------------------------ Company                             Rating        % share of                                                   world’s                                                   production                                                   in 1993 ------------------------------------------------------------ Gist Brocades, Holland              I             20.0 Biochcmie, Austria                  II            11.5 Antibioticos, Spain                 III           11.0 Beecham, UK.                        IV             8.5 Bristol Myers, UK.                  V              7.5 Synpac, UK.                         VI             6.0 Hoeschst, Germany                   VII            5.0 ------------------------------------------------------------

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8.   It is stated further by the respondents that while SPIC offered the technology of Cipan, Torrent and P.B.G.  offered the  technology  of Biotica of Slovakia.   The  technologies offered  alongwith  the  facts relevant  to  each  of  these appellants  was considered and their offers rejected by  the Board  of  Directors  of H.A.L. In  the  circumstances,  the appellants cannot complain that their offers were not  fully and  fairly considered.  The real reason for the  appellants approaching  the  court  is that they are  afraid  of  being driven  out of market if the proposed collaboration  between M.G.B.  and H.A.L. bears fruit.  Because of  their  inferior technology,  they will not be in a position to compete  with the proposed J.V.C. and this is the real reason why they are out  to  scuttle  the  MoU  between  H.A.L.  and  M.G.B.  In particular, it is stated that in the case of P.B.G. it did 426 not  even disclose the name of its foreign  collaborator  in the first instance and only much later did it indicate  that its  foreign  collaborator  was Biotica  of  Slovakia.   The letter enclosed by them from the said foreign company was  a vague  one  in  the  sense  that  it  only  expressed  their willingness  to cooperate with H.A.L in providing  technical knowhow subject to their inspection of H.A.L. facilities and satisfactory terms being negotiated between them.  So far as SPIC  is concerned, it is installing its own plant  and  the technology being adopted by it has been proved only at pilot plant  level and not at commercial plant level,  H.A.L.  did not wish to experiment with this new technology.  So far  as Torrent  is  concerned, its tie-up is also with  Biotica  of Slovakia,  whose  technology was found to be  inferior  than G.B.   It  is  stated  further  that  notwithstanding   such rejection,  their offers were reevaluated by H.A.L.  at  the instance of Government of India.  Even on such reevaluation, it was found that the collaboration with G.B. is more in the interest   of  HAL  than  collaboration  with  any  of   the appellants or their foreign collaborators.  The  allegations of  bias  and malafides attributed to Sri  Basu  are  denied specifically. 9.   Before  we  deal  with the  contentions  urged  by  the appellants, it would be appropriate to examine the, relevant facts  and to note how the offers of the appellants and  the offer of M.G.B. were dealt with and processed by H.A.I.. 10.  In  August, 1993, the Managing Director of the  H.A.L., Sri  A.K.Basu, sought permission of the Government to  visit Holland  between  August 30, 1993 and September 2,  1993  to discuss  and  finalise a MoU (Memorandum  of  Understanding) between H.A.L. and Max-GB with whose representative,  H.A.L. was having discussions.  In this letter, the Managing Direc- tor set out the broad outline of the proposed J.V.C. between H.A.L.  and M.G.B. While approving the visit, Government  of India  directed that Managing Director should  not  finalise the MoU or enter into any commitment.  It directed that  all the  alternative  proposals  should be  examined  for  their relative merits and advantages. 11.  In the meeting of the Board of Directors of H.A.L. held on 20th September, 1993, the Managing Director explained  in detail the progress of Pencillin production and also gave  a detailed  account  of  the discussion he had  with  G.B.  in Holland.  He explained the salient features of the draft MoU proposed  to be entered into with M.G.B. He stated that  the technology to be obtained from G.B. would be the best in the world  and that it is a lifetime opportunity for  H.A.L.  to get   this   technology.   He  stated   that   with   little modification, the production of pencilling can be  increased substantially.  He placed before the Board a profile of  the

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increased production and profitability with the induction of the  M.G.B. technology.  He also explained why the offer  of Ranbaxy  labs,  who offered to bring in  the  technology  of Hoescht,  AG,  Germany was not definite or  acceptable.   He pleaded  for  approval of the draft MOU between  M.G.B.  and H.A.L.  The  Chairman of the Board, however,  expressed  his opinion  that  since  approval of  the  proposed  Mou  would require the approval at the highest level in the government, the  company  should formulate its proposal  indicating  the examination  of available options including the  possibility of direct tie-up for acquiring technology and participation. Accordingly,  it  was  decided  to  explore  the   available options.  The Managing Director 427 was asked to obtain extension of time by a month for signing the proposed MoU with M.G.B. 12.  At  the  meeting  of the Board  of  Directors  held  on October 10, 1993, the Managing Director explained in  detail the    discussions   the   company   officials   had    with Hoescht/Ranbaxy  during  their  visit  to  Pimpri  on   17th September,   1993.    He   explained   that   the    foreign collaborators were not agreeable to transfer the  technology on  exclusive basis on the already agreed lumpsum, viz.,  on one  million  DN1,  and hence the  agreement  could  not  be finalised. The Board noted the statement. 13.  The  matter came up before the Board again  on  October 26, 1993.  At this meeting, the Managing Director emphasised the   need  for  upgrading  the  Pencillin  technology   and reiterated  his opinion that technology of G.B. is the  best in  the  world  and that H.A.L. should not  forego  the  op- portunity  of  obtaining its technology.  He  indicated  the high   profits   which  H.A.L.  would  earn   through   such collaboration.   The  Managing Director  also  informed  the Board  about  the  discussions he had with  the  P.B.G.  and expressed  his opinion that right now the said group had  no technology  but that they would be able to arrange  for  the technology and would be getting in touch with H.A.L. by 27th November,  1993.   The Managing Director  further  submitted that  the offers of M.G.B. and others would be available  by last  week of November and that it is better that all  these offers  arc  evaluated  by  a  subcommittee  of  the  Board. Accordingly,   the   Board   constituted   a   Sub-Committee consisting of S/ Sri P.C.Rawal, N.Gopalan and Dr. P.K.Ghosh, Directors, to evaluate the proposals received. 14.  At the meeting of the Board held on 5th December, 1993, the Managing Director informed the Board that though  P.B.G. had  earlier  informed  that they would get  in  touch  with H.A.L.  by  27th November, 1993 there was no  response  from them.   He  stated that P.B.G. had no proven  technology  to offer  to  H.A.L. At this meeting the Board noted  that  the need  for  Pencillin  technology for  the  company  was  not considered by the Board earlier and the process for  signing MOU  was initiated by the Managing Director without any  ap- proval of the Board, The Chairman stated that in addition to M.G.B., P.B.G. and Ranbaxy-Hoescht, another party, SPIC  has also expressed interest in offering Pencillin technology  to H.A.L.  The Board noted that SPIC is setting up a  Pencillin plant  with Cipan technology which is in no way superior  to the   technology  presently  employed  by  H-A.L.   It   was accordingly  decided to reject the offer of SPIC.   At  this meeting  the Managing Director informed the Board that  once H.A.L.  gets  top grade technology, the units of  the  other licencees  within  the country would become  uneconomic  and that  is why they were trying to stall H.A.L.  from  getting the  best  technology.  He also stressed the  need  for  up-

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grading  the  present technology by H.A.L. and  stated  that with  G.B.  technology  the production  of  H.A.L.  will  be doubled  to 2000MMU in two years’ time without any need  for further  fermentors.   The  Board  then  decided  that   all interested parties be informed to submit their proposals  by 20th  December,  1993  and that no  further  time  shall  be granted.   The date, 20th December, 1993 was later  extended to  31st December, 1993, in the Board meeting hold  on  20th December,  1993.  At this meeting (20th December, 1993)  the Board rejected the offer of P.B.G. on the ground that the 428 technology  of  Biotica of Slovakia offered by  it  was  not superior to the technology presently employed by H.A. L. 15.  At the Board meeting held on February 4, 1994 the Board was informed that the proposal of M.G.B. has been  received. The  Board  directed  that  these  proposals  be  sent   for evaluation to the Sub-Committee appointed earlier. 16.  At its meeting held on 28th March, 1994, the Board  was informed that SPIC and P.B.G. (whose proposals were rejected by  the Board) have represented to the Government  of  India that   they  should  be  given  a  further  opportunity   of explaining  their  proposals whereupon  the  Government  has directed the Board to give a further opportunity to the said two  companies.  Accordingly, the representatives  of  these two  companies were heard by the Board which  rejected  both the   proposals   again.    The   Board   then   heard   the representatives  of  M.G.B.  about  their  proposals.    The representative  of  M.G.B.  did  not  agree  to  having  49% interest in the proposed Joint Venture Company (J.V.C.)  and insisted upon equal sharing, i.e., 50% each. 17.  By  the  date of the next Board meeting  on  April  28, 1994,  the report of the Sub-Committee (which was  appointed in the Board meeting dated October 26, 1993 to evaluate  the proposals  for  upgradation  of  Pencillin  technology)  was received.   It would be appropriate to briefly refer to  the salient  points  in the report of the SubCommittee  at  this stage. 18.  Pursuant to the directions of the Government, the  Sub- Committee  says,  it looked into the following  four  issues also  in  addition  to the evaluation of  the  proposals  of collaboration’received  from  various  parties.   The   four issues referred by the Government are:               "(i)  The  need for obtaining  technology  for               upgradation  of the production  capacities  in               the Pencillin Plant and whether the technology               can  be  obtained directly rather  than  going               through the process of a joint venture;               (ii)  Whether   the  technology   indigenously               would be adequate to achieve the objective  of               running HAL profitably;               (iii) In the event such a joint venture               proposal   as  proposed  by   HAL   management               materialises,  how  best the interest  of  the               employees can be protected-, and               (iv)  Pencillin  plant  of  HAL  is  a  profit               centre.   Whether  such a proposal  for  joint               venture  would  leave HAL  with  non-  (profit               making centres?)" 19.  The  Subcommittee  held several sittings  at  which  it heard a number of officials of H.A.L. and others.  It  found inter  alia that the cost of production of H.A.L. is  higher than I.D.P.L. which in the opinion of the Sub-Committee  was totally  unwarranted.   It  was  of  the  opinion  that   by rationalising  the  cost of production and by  carrying  out other  measures,  H.A.L.  would  be in  a  position  to  cam

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substantial  profits by itself without any tie-up  with  the foreign  company.   It also commented upon  the  failure  of H.A.L., which is the pioneer and the largest manufacturer in the  country,  in  not  approaching  the  leading  Pencillin manufacturers  in  the  world directly  for  acquisition  of technology  and instead waiting for the Indian companies  to enter  into agreements with foreign technology  sources  and then  entering into discussion with these Indian  firms  for collaboration.  The Sub- 429 Committee stated:               "59.   As  a result of the evaluation  of  the               HAL’s   production  efficiencies,  the   Sub--               Committee is firmly of the view that there  is               tremendous  scope for improvements and  higher               level of efficiency and cost reduction in  the               pencillin  production operations of  HAL  even               with  the existing technology.  It came  as  a               surprise to the SubCommittee that HAL which is               the largest pencillin producer in the country,               what  to  talk of  comparing  internationally,               does   not   compare  favourable   with   IDPL               pencillin production operation insofar as  raw               material land utility costs are concerned.   A               draft  on latest cost price study  report  for               the  year 1994-97 on pencillin first  crystals               production as prepared by BICP a copy of which               could be had by 2 1 st April, 1994 contain the               actuals  for the ye= 1992-93.  In  respect  of               raw materials costs per capital of  pencilling               production, HAL has been Rs.334 which is Rs.73               higher  than  Rs.261 spent by IDPL.   For  the               utilities  HAL  spends Rs.259 which  is  Rs.69               higher Om Rs. 190 spent by the IDPL.  Even  if               HAL’s  cost of raw materials and utilities  in               the short term cannot be brought to the  level               of   IDPL,  in  the  year  1995-96  when   the               production of HAL is expected to be II 00  MMU               it  should  be  possible  for  HAL  to  attain               improvements  and  cost reduction  to  achieve               profit  of  Rs.288 per Bu  as  examined  above               which  should  give  the  profit  of  Rs.31.68               crores (at current sale price for Pen.G  first               crystal at a production level of II 00 MMU for               HAL.)" 20.  The Sub-Committee then noted the fact   that, offers of SPIC and P.B.G. have been     rejected  by the  Board  which rejection was  reiterated after re-hearing them pursuant  to Government directions. 21.     The Sub-Committee also noted that since Ranbaxy  has failed to submit its proposal within the time specified  the only  proposal left was that of M.G.B. After evaluating  the proposal  of G.B. and its offer of Rs. 13 crores rental  per annum and after considering the potential of 14.A.L. and its performance, the Sub-Committee expressed its opinion in  the following words:               "62.  The Sub-Committee is of the opinion that               the   proposal   of  leasing   out   pencillin               production  facilities of HAL to JVC in  which               both  HAL and Max GB would have fifty per  cad               equity  each  should be decided by  the  Board               keeping   in  view  of  the   possibility   of               increasing  production  and  productivity   of               pencillin operations in HAL without  induction               of  new technology but by making  improvements

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             and  achieving efficiency particularly in  the               areas   of   raw  material   consumption   and               utilities  to  substantial reduce  cost.   The               acquisition  of now technology  if  considered               absolutely  and if the same is to be  inducted               through  ’the methodology of the  proposed  NC               then the lease rental of the HAL’s  production               facilities  to  be paid by the JVC  should  be               computed   keeping  in  view   the   financial               parameters suggested by the Sub-Committee. 22.Now  coming back to the Board meeting held on  April  28, 1994,  an elaborate discussion took place on the  report  of the  Sub-Committee  whereafter the Board took  the  decision which is recorded in the minutes.  Paras 205.10.11 and 12 of the Minutes read as follows:               "205.10.11.  After detailed discussion on  the               report  of the Sub-Committee the Board  agreed               that  the  Company  should go  in  for  higher               levels  of production beyond II 00  MMU  which               can  be achieved with the present  technology.               and  for which the costs could be  reduced  to               the levels suggested               430               by the Sub-Committee.  It was decided that the               Company should acquire technology for reaching               a  production level of 1800-2000  MMU  without               addition  of more fermentors (except  the  two               which  are yet to be installed).  It was  also               decided  by the Board that the only  available               option   of  acquisition  of  the   technology               offered  through the route of JVC as  proposed               by  Max-GB with HAL having 50% equity each  in               the  JVC  be  accepted but  the  lease  rental               payable  by the JVC to HAL should be  computed               taking  into  account the profit  of  Rs.31.68               crores at the level of production of 1100 MMU.               To  this, MD stated that this may not  be  ac-               ceptable  to Max-GB and he felt that  at  best               Max-GB may agree to the increase in the  lease               rental offer of Rs.13 crores by Rs.one or  two               crores.   He stated that the lease  rental  of               Rs.  13  crores  had been found  to  be  fully               justified  by the evaluation presented  before               the Sub-Committee.  However, the directors  of               the  Board  except the MD  agreed  that  lease               rental  of Rs.31.68 crore as computed  by  the               SubCommittee  should  form the  basis  of  the               calculation as this level of profitability  is               achievable  at 1 100 MMU production  and  with               reduction  of materials and utilities cost  by               Rs.  110 as suggested by the SubCommittee.               205.10.12.The  Board accordingly decided  that               the lease rental should be calculated at  this               assessed profitability of Rs.31.68 crores  and               this   should  be  adjusted  to  account   for               depreciation, proportionate interest on  lease               rental  paid  by HAL on leased assets  in  the               Pencilli  Plant and adjustment for the  income               tax  liability.  (Reference - para 44  of  the               SubCommittee’s report.)               The  Board  authorised the MD to  compute  the               lease rental as above and communicate to  Max-               GB the lease rentals that would be  acceptable               to  HAL from the JVC and in due course  inform               the Board of their acceptance."

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23.The  Managing  Director of H.A.L., Sri Basu who  did  not agree  with  the  Board Resolution  aforesaid,  addressed  a letter  dated  May  3, 1994 to the  Secretary,  Ministry  of Chemicals  and Fertilisers.  This is a very detailed  letter enclosing  several  work  sheets.   After  setting  out  his reasons in detail as to why the Board resolution stipulating a minimum lease amount of Rs.31.68 crores is not appropriate -  and after setting out the several advantages  that  would flow  from the proposed J.V.C. between H.A.L. and  M.G.B.  - the letter concluded:               "2.0  To conclude, the Sub-Committee’s  report               has   not   taken   into   consideration   the               following:-               (a)HAL’s present technological limitations.               (b)The   opportunity  at  hand  for   HAL   in               particular  and  India at large in  forming  a               Joint Venture between HAL and MaxGB.               (c)Future   fluctuations  in   the   Pencillin               pricing  policy  and  the  vagaries  of  price               escalation of raw materials and utilities.               (d)Also  the calculations of profit and  other               parameters as contained in the report need  to               be  verified  as  indicated  earlier  in  this               letter.               It  is, therefore, my request that the  report               may  be got evaluated by you keeping  in  mind               the points that have been raised by me." 24.       After  receiving  the  letter  of  the    Managing Director  aforesaid,  the Government of India  obtained  the advice of Padmabhushan Prof M.M.Sharma, Direc- 431 tor and Head of the Department of Chemicals and  Technology, University  of  Bombay.  Prof.  Sharma is a  fellow  of  the Royal  Society  and also a fellow of the Indian  Academy  of Sciences.   The  judgment of the High Court  refers  to  the substance   of   the  opinion  tendered  by   Prof   Sharma. Prof.Sharma   is  stated  to  have  opined  that  the   best technology for Penn-G in the world was with G.B. and that it was in the interest of H.A.L. as well as in the interest  of the country to acquire that technology. lie also opined that such  first  grade technologies in the frontier  areas  were just  not  available irrespective of their  cost.   He  also approved the proposal of J.V.C. and was of the opinion  that it  was  in the commercial interest of  H.A.L.  besides  the national interest.  It is after receiving this report that a "directive" under Article 117 of the Articles of Association was  issued.   The "directive" is container  in  the  letter dated  June  20, 1994 addressed to  Sri  A.K.Basu,  Managing Director,  H.A.L. It directs H.A.L. to enter into a  MoU  at the  earliest with the M.G.B. for establishing a J.V.C.  The letter reads as follows:               "Sir,               I   am  directed  to  refer  to  your   letter               No.MD/IV/40 IO dated the 3rd May. 1994 on  the               subject cited above and to say that the matter               relating to the proposed collaboration between               Hindustan  Antibiotics Limited (HAL) and  MAX-               GB.  a joint venture company of Max India  and               Gist-Brocades  of Netherlands. for setting  up               of  a joint venture in the existing  plant  of               Hindustan Antibiotion Limited for  manufacture               of  Pencillin,  has  been  considered  by  the               Government in the light of the position/issues               raised in your above letter.               2.    It has been decided with the approval of

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             the Minister for Chemicals and Fertilisers  to               issue  the  following directive  to  Hindustan               Antibiotics  Limited in exercise of the  power               under  article  1  17 of  the  Memorandum  and               Articles   of   Associations   of    Hindustan               Antibiotics Limited;               (i)   Hindustan Antibiotics Limited may  enter               into  a Memorandum of Understanding  (MoU)  at               the earliest with MAX-GB for establishing  the               proposed  joint  venture,  subject  to   final               approval of the Central Government.               (ii)The  lease  rent to be paid  to  Hindustan               Antibiotics  Limited  by  the  Joint   Venture               Company be negotiated immediately with  MAX-GB               by   a  Committee  comprising   the   Managing               Director,  Hindustan Antibiotics Limited,  the               Joint   Secretary   and   Financial   Advisor,               Ministry of Chemicals and Fertilisers, a part-               time  official,  Director  on  the  Board   of               Hindustan  Antibiotics Limited and Shri  Vinod               Vaish,  Joint Secretary to the  Government  of               India  in  the  Department  of  Chemicals  and               PetroChemicals  and the agreed amount  be  in-               corporated in the Memorandum of Understanding.                                        Yours faithfully                                              sd/-                                            (C.Lal                                      Dy. Secretary to the                                       Govt of India." 25.  Pursuant  to  the  aforesaid  letter,  a  Committee  as contemplated  in  Para 2(ii) thereof was  constituted.   The Committee held negotiations with the representatives of  the M.G.B.  and a MoU was signed on the same day stipulating  an annual  rental of Rs. 17 crores.  On behalf of H.A.L.,  only the  Managing Director , Sri Basu, signed witnessed  by  two officials of the H.A.L. 26.  At  this stage, going back a little, it may  be  stated that a Board meeting was 432 held  on  May  25,  1994.  At  this  meeting,  the  Managing Director  brought  to  the notice of the  Board  the  letter written  by him to the Secretary, Ministry of Chemicals  and Fertilizers.  The Board took objection to certain statements made in the said letter. The Board was also critical of Prof Sharma’s  expertise in antibiotic fermentation  processes  - indeed with the very consultation with him in the manner  it was done. 27.  After  the  MoU was signed on June 20, 1994,  the  said fact was brought to the notice of the Board of Directors  at its  meeting  held on September 6, 1994.  The  Board  merely "noted" the fact. 28.  We  are told that the Government of India has  not  yet approved  the MoU.  The respondents’ counsel explained  that this was because of the pendency of the writ petition in the High Court and these matters in this Court. 29.  It  would  be  noticed that there is  no  reference  to Torrent  Gujarat  Biotech  Limited  in  any  of  the   Board Resolutions  or in the Sub-Committee report.   According  to Torrent,  they  have  obtained technology  from  Biotica  of Slovakia and have set up a plant which according to them was to go into production by the end of 1994.  Torrent says that it addressed a letter on April 12, 1994 to the Government of India expressing their interest in upgrading the  technology of  H.A.L.  and  in improving the  production  by  investing Rs.40-50 crores.  It is stated that their offer was rejected

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by   H.A.L.  on  May  21,  1994  and  that  thereafter   its representatives  met the Minister of State on June  3,  1994 and represented their case.  On June 15, 1994, it is stated, the Minister of State asked the Managing Director of  H.A.L. to  consider  Torrent’s  proposal.  Its  grievance  is  that without considering its case, the Managing Director  entered into MoU with M.G.B. on June 20, 1994 in an unseemly hurry. 30.  It would be evident from the facts narrated above  that the  Managing Director of H.A.L., Sri A.K.Basu was  all  out for a technological tie-up with G.B. and with no other.   To start  with, he sought the permission of the  Government  of India to go to Holland in August/September, 1993 to  discuss and finalise the MoU with M.G.B. While permitting him to  go and   have  discussion  there,  the  Government   of   India instructed  him  not  to enter into a MoU  or  to  make  any commitment since the Government was of the opinion that  all the alternative proposals should be examined and a  decision taken  after examining the merits of each proposal.  In  the meeting  of  the  Board  of  Directors  of  H.A.L.  held  on September  20, 1993, Sri Basu explained the advantages  that will  accrue from a tie-up with M.G.B. According to him,  it was  a lifetime opportunity for H.A.L. which it  should  not forego.   This  was his theme throughout in  all  the  Board meetings.  (Indeed,  in one of the meetings,  the  Board  of Directors  found  fault  with Sri  Basu  for  entering  into negotiations  with  G.B./M.G.B. without  its  approval.   It appears  obvious that Sri Basu had taken the  permission  of only the Government of India for entering into  negotiations with G.B./M.G.B. and informed the Board only after his visit to Holland.) Finally, when the Board of Directors decided on April 28, 1994 that the lease amount payable by the proposed J.V.C.  (to be formed by H.A.L. and M.G.B. with 50  %  share holding  each) should not be less than Rs.31.68  crores  per annum and instructed 433 him  accordingly,  Sri Basu wrote a letter directly  to  the Secretary to the Government of India, Ministry of  Chemicals and  Fertilizers  setting  out  in  detail  why  the   Board resolution  was not appropriate and why it is not  realistic to accept lease amount at that level.  It also appears prob- able  that  it was at his instance that  the  Government  of India   sought  the  opinion  of  an  expert,   Viz.,   Prof M.M.Sharma. After receiving the opinion of Prof Sharma,  the Government   of  India  gave  the  "directive"  to   H.A.L., addressed  to  Sri Basu on June 20, 1994, to  enter  into  a collaboration   agreement   with M.G.B. in the  form  of   a Joint Venture Company.  For the said purpose, the Government of  India  itself constituted a Committee of  three  members including the Managing Director, Sri A.K.Basu. On that  very day,  i.e., 20th June, 1994, negotiations were held and  MoU signed between H.A.L. and M.G.B. It does not appear that the Board  of  Directors of H.A.L. was having any  part  in  the negotiations  or in the matter of or entering into  the  MoU with M.G.B. The MoU was signed by Sri Basu on behalf of  the H.A.L.  The alacrity with which MoU was signed on  the  very day on which the Government directive was issued also  shows the deep interest the Managing Director had in collaboration with  M.G.B. But it is not possible to say beyond this.   It is  quite likely that Sri Basu was actuated by the  best  of intentions,  that he was of bona fide belief  that  entering into  a  technological agreement with M.G.B.  (which  really meant  technical collaboration with G.B. of Holland)  was  a lifetime opportunity for H.A.L. which it should not  forego. It could also be that he was genuinely satisfied that  since G.B. is the world leader and has the best technology, it can

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deliver goods far better than any other foreign company.  It is  also possible that Sri Basu was for  collaboration  with M.G.B. for all the wrong reasons. We are not able to say one way  or  the  other.   The presumption  is  that  being  the Managing  Director  of  H.A.L., he was acting  in  its  best interests.  This presumption is not displaced in this  case. The  fact  remains that G.B. is the world leader  in  Penn-G field.   Its technology is one of the best if not the  best. It has a 20 % sham of the world market and has got units all over the world.  As against it, the three appellants (we are treating Torrent too on pair with SPIC and P.B.G. though  as a  fact it was not in the picture at the relevant  time,  as stated  hereinebefore)  were offering technology  either  of Cipan  or of Biotica of Slovakia and the Board of  Directors of  H.A.L.  was of the opinion that both of  them  were  not acceptable,  - Cipan for the reason that its technology  was not  yet  proved  at the  commercial  production  level  and Biotica  of Slovakia on the ground that its technology   was no superior to the. technology presently employed by  H.A.L. Among  the seven world leaders mentioned hereinbefore,  both Cipan and Biotica of Slovakia are not to be found.   Another Indian company,, Ranbaxy (not a writ petitioner or appellant before us) offered to obtain the technology of Hoescht  (one of the seven world leaders) but it did not pursue its  offer and  failed to submit its proposals.  This left only  M.G.B. in  the  field, as stated by the  Sub-Committee.   In  other words,  there was, unfortunately not much of a  choice.   In this  connection,  it must be emphasised that  rejection  of Cipan  and  Biotica of Slovakia technology was  not  by  Sri Basu,  but by the Board of Directors and that too  not  once but twice. 31.  There  is  yet another fact.  Most of  these  companies keep their processes and 434 technology  a guarded secret.  More better  the  technology, more  fervently it is guarded.  And HAL needed a  technology superior to the one it was already having.  Not only it  was producing  only 55% of its installed capacity, its  cost  of production  was far higher than what it ought to be.  It  is true,  cost  of production could have been reduced  to  some extent by rationalising and streamlining the working methods (as pointed out by the Sub-Committee in its report) but  the more  important  need  was to increase the  yield  from  the strains and achieve full capacity production.  On account of efforts  made  over the years, production had  increased  to some extent but it was still way behind its installed capac- ity,  i.e.,  full capacity production.  Thus, it was  not  a case  of merely leasing out a Government company but a  case where  the Government company was trying to obtain the  best possible technology.  In such matters, sights have to be set far  into  the future and arrive at a  reasonable  prognosis keeping in mind the best interests of the company.  Floating of  tenders  may not have been a proper method to  adopt  in these  circumstances.   In any event,  among  the  available technologies, not only has the G.B. the best technology,  it was  the  only  source  available,  the  other  having  been rejected as already stated.  Probably it is for this  reason that  the  Government of India gave the  directive  on  20th June, 1994.  In the above circumstances and, on the  present material, we cannot say that Sri Basu was either actuated by malafides or that he was acting out of extraneous reasons. 32.  Next   question   is   whether  there   was   no   fair consideration of the offers made by the appellants.  So  far as  SPIC is concerned, even when it was putting forward  its proposals,  it was in the process of setting up a  plant  of

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its own for manufacture of Penn-G.  For that reason, it  was perceived  more  as a competitor rather than as  a  probable partner.   Secondly, its technology was as yet  unproven  at commercial  production level, which meant that there was  an element   of   risk  involved  in  adopting   that   (Cipan) technology.   Rejection of its proposals by the Board -  and not  by  the  Managing Director,  Sri  Basu,  as  emphasised hercinbefore  - cannot, therefore, be held to be either  ’no consideration’  or mechanical rejection.  No  malafides  are attributed  to  the  Board.  -  In  the  circumstances,  the complaint  of not furnishing full information or not  giving inspection  of  the  H.A.L.  plant  cannot  be  said  to  be motivated  or arbitrary.  We do not also think it  necessary to refer to the correspondence that passed between SPIC  and Sri A.K.Basu - to which our attention has been drawn by  Sri Raval  - for the reason that rejection of proposals of  SPIC was  not  by Sri Basu but by the Board  of  Directors.   The board proceedings referred to hereinbefore do establish that Board  was acting in its own independent judgment  in  these matters  and was not being led away by the opinions  of  Sri Basu.  So far as P.B.G. is concerned, it appears that it did not  disclose the name of its foreign partner in  the  first instance;  it  did so only later.  Moreover, the  letter  of Biotica of Slovakia, (P.B.G’s. foreign partner) was found to be vague.  Above all, the Board of Directors of H.A.L.  were satisfied that the technology of Biotica was no superior  to the one being employed by H.A.L. Biotica of Slovakia is also not one of the world’s seven leading manufacturers of Penn-G and, therefore, the Board thought that there was no point in pursuing  the proposals of P.B.G. It cannot be said that  it was not a 435 fair  decision nor can it be insisted that before  rejecting the  proposals  of SPIC and P.B.G., the Board  of  Directors ought  to have obtained technical opinion or the opinion  of an  expert  committee.   The representatives  of  these  two companies  were  heard  in person by  the  Board  and  their presentation  fully  noted and considered.  More  cannot  be insisted  upon  as a matter of law or in the facts  of  this case.   Now coming to Torrent, it entered the picture  quite late.   Its  foreign  partner is the very  same  Biotica  of Slovakia.  (It  needs  to  be stressed  that  each,  of  the appellants, as also M.G.B., were offering the technology  of their respective foreign partners and hence, the comparative merits  of  these foreign partners  becomes  relevant.)  The complaint  of  not  affording a proper  opportunity  to  put forward  their proposal made by Torrent, cannot,  therefore, be entertained. Similarly, the argument of Sri K.K.Venugopal and  Sri  F.S.Nariman that the terms  stipulated  by  M.G.B. should  have been put to the appellants and  their  response ascertained before finalising the deal, is beside the  point in the circumstances aforestated. 33.  ’ We may also point out that one other Indian  company, Ranbaxy,  (not an appellant before us) offered in the  first instance to bring in the technology of Hoescht - one of  the seven  leaders  in  the field - but it did  not  pursue  its offer.   It  did not submit its proposals  within  the  time prescribed. 34.  In  the  circumstances,  the  only  grievance  of   the appellants  is about the lower rental of Rs.17 crores  being accepted in the MoU as against the minimum Rs. 31.68  crores stipulated by the Board of Directors of H.A.L. Firstly, once the appellant’s offers/proposals are found to have been  re- jected  rightly,  they cannot be heard to  complain  of  the amount  of lease agreed between H.A.L. and M.G.B.  Secondly,

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it  appears that the Government of India was satisfied  with Sri Basu’s presentation and agreed with him that stipulation of  Rs.31.68  crores’ rental was not feasible. in  the  cir- cumstances  and that is why it gave the directive to him  to enter  into  a  MoU  with  M.G.B.  "at  the  earliest"   for establishing  the  proposed joint venture.  The  opinion  of Prof  Sharma must also have weighed with the  Government  in deciding to go in for J.V.C. with M.G.B. participation.   It should  be remembered that the Board of Directors of  H.A.L. had also decided to have a technological collaboration  with M.G.B. It would have been a different matter if the Board of Directors had agreed with the recommendation of the Sub-Com- mittee  that  there  is tremendous scope  of  improving  and achieving  higher level of efficiency and cost reduction  in the  operations  of H. A.L. itself with the  existing  tech- nology and without obtaining any foreign technology and that the H.A.L. should first try that course.  On the other hand, the Board decided in its meeting held on April 28, 1994 that H.A.L.  should  go in for technological  collaboration  with M.G.B.  in  the form of a J.V.C. Yet another  fact  is  that negotiations  with M.G.B- were held on June 20, 1994 not  by Sri A.K.Basu alone but a Committee of three members of  whom one  appears to have been a member of the  Sub-Committee  as well. 35.  We  must reiterate that this was not a simple  case  of granting of lease of a Government company, in which case the court  would  have  been justified  in  insisting  upon  the authorities following a fair method consistent with  Article 14, i.e., by 436 calling  for  tenders.  We agree that while  selling  public property or granting its lease, the normal method is auction or  calling  for  tenders so  that  all  intending  purchas- ers/lessees  should have an equal opportunity of  submitting their  bids/tenders.  Even there, there may  be  exceptional situations where adopting such a course may not be  insisted upon.   Be  that  as it may, the  case  here  is  altogether different.   H.A.L.  was  trying to  improve  not  only  the quantum  of  production but also its quality  and  for  that purpose  looking for an appropriate partner.  They  went  in for the best.  It must be remembered that this technology is not  there for the mere asking of it.  All the leading  drug companies  keep  their processes and  technology  a  guarded secret.   Being  businessmen, they like  to  derive  maximum profit  for  themselves.   It  is  ultimately  a  matter  of bargain.   In such cases, all that need be ensured  is  that the  Government  or the authority, as the case may  be,  has acted   fairly  and  has  arrived  at  the  best   available arrangement in the circumstances. 36.  It  is then submitted that when the Board of  Directors had  asked  the Managing Director not to agree for  a  lease amount  of less than Rs.31.68 crores and to report  back  to the Board the lease amount which M.G.B. is prepared to  pay, the Managing Director should have reported back to the Board instead  of entering into a MoU for a lesser amount.  It  is submitted that the Managing Director was bound to and  ought to  have  carried out the instructions of  the  Board.   The Managing  Director  was trying to over-reach  the  Board  of Directors  by  several means, one of which  was  his  letter dated May 3, 1994, it is submitted.  In reply to this, it is pointed out by the learned counsel for the respondents  that Sri Basu did write to M.G.B. on May 10, 1994 as directed  by the  Board but that the M.G.B. did not agree to  the  figure stipulated  by the Board (vide M.G.B. letter dated  May  17, 1994)  and  that both these letters were placed  before  the

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Board.  Be that as it may, once the Government directive was issued, all this controversy lost its relevance. 37.  It is then argued that the power to give directives  is vested  by  Article 117 in the President alone and  that  no such directive can be given by the Government of India.   It is  submitted  that  the Rules of  Business  framed  by  the President of India under Article 77 are relevant only in the case  of executive power of the Union and that Article II  7 of  the Articles of Association of H.A.L. is no part of  the executive power of the Union.  Accordingly, it is submitted, the  authentication  of  the said directive  by  the  Deputy Secretary   to   the   Government  of   India   is   equally incompetent.Now, the directive in this case is  issued    by the Government of India.  The letter    says  that  it   was being issued with the approval of the Minister for Chemicals and  Fertilizers.   ’Mere  is indeed  no  reference  to  the President  at  all.  The question, however, is  whether  the President in Article 1 17 of the Articles of Association  of H.A.L.  means and refers only to the President of India  and whether  it  is  a power to be exercised  by  the  President personally?  We do not think that it would be reasonable  to construe  Article 117 as suggested by the  appellants.   The President of India like the Queen of England is a  Constitu- tional  Head. [See Rai Sahib Ram Jawaya Kapur & Ors. v.  The State of Punjab (1995 5 (2)   S.C.R.225) and Shamsher  Singh & Anr. v. State of Punjab (1975 (1) S.C.R.814)] H.A.L. is  a Government company.  It was 437 really an agency, an instrumentality of Government of  India though given a corporate shape.  Article 117 is one form  of control the government has over these corporate bodies.   In the circumstances, it would be reasonable to understand  the expression  "President" in Article 117 as referring  to  the Government  of  India.   To say that this  power  should  be exercised  by the President himself is  neither  practicable nor  consistent  with  the dignity  of  the  President.   Of course, while the directive must be expressed in the name of the  President but that is ultimately a matter of form,  and the form has been held to be mandatory.  In this view of the matter, it is unnecessary to consider whether it is open  to the appellants to raise this contention.  We are, therefore, unable to say that the directive issued is not valid in  law or that it was not issued by the competent authority.  It is not  disputed that the directive is binding upon H.A.L.  and all  its  authorities.   If so, the  corporate  identity  or corporate  existence of H.A.L. is in no way violated by  the directive  given.  It cannot also be stipulated that  before giving the directive, the appellants should have been heard. Not only giving of directive was an internal matter  between H.A.L.  and the Government of India, there was no  point  in giving  notice to SPIC and P.B.G. whose offers were  already rejected  by  the Board once and again  after  re-evaluation directed by the Government. 38.  Lastly,  it is argued that in the case of Torrent,  the Minister  of  State  had asked the H.A.L.  to  evaluate  its proposal on June 15, 1994 and that without any reference  to the  said order, the MoU was entered into on June 20,  1994. It  is, however, explained by the respondents that the  said order  of the Minister of State was revised by the  Minister for  Chemicals and Fertilizers even before the  issuance  of the directive.  Moreover, Torrent having entered the picture very  late cannot complain of lack of fuller  consideration. It  is  equally  evident that since it was  already  in  the process  of  selling up its own plant and also  because  its technology  too was that of Biotica of Slovakia,  which  was

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already  rejected in the case of P.B.G., no  useful  purpose would  be  served even by asking a  reconsideration  of  its proposals. 39.  Before  parting with this matter, we must say that  MoU entered into with M.G.B. is subject to the final approval of the  Government  of  India, as  expressly  provided  in  the directive  dated  20th  June, 1994.  We are  sure  that  the Government  would  examine all the terms  of  MoU  carefully before  according  its approval.  It is obvious that  it  is always  open to the Government to seek such modification  of the  terms  of  MoU  as it thinks  appropriate  and  as  are feasible.  But if it approves the MoU in the present form or in  the modified form as the case may be, it is but  in  the interest  of  all  concerned that the  project  is  given  a concrete shape without any further loss of time. 40.  For  the  above  reasons,  the  appeals  fail  and  are dismissed.  No costs. 438