'Projects Of National Importance': Delhi HC Upholds DRDO Decision To Bar Entities With Pending Criminal Cases From Defence Contracts

Upholding Defence Research and Development Organisation (DRDO)'s policy decision to keep away entities with pending criminal investigations from participating in its tender processes, the Delhi High Court has said that the condition, requiring the bidders to submit an undertaking that there is no ongoing enquiry against them, is imperative to maintain the integrity of projects which deal with matters of national importance, security and that are of immense public importance.

The division bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad in the ruling dated August 1 said that the tenders are for procurement of instruments which are necessary for the security of the country and even generally the scope of judicial review under the tender jurisdiction is limited.

"Keeping in mind the nature of tender, it cannot be said that the Impugned condition, which warrants that an undertaking should be given by the Bidder firm/company/vendor that in the past they have never been banned/debarred for doing business dealings with Ministry of Defence/Govt. of India/ any other Govt. organisation and that there is no enquiry going on by CBI/ED/any other Govt. agency against them, is bad in law or is violative of Article 14 of the Constitution of India," said the court.

The verdict has been passed on a petition filed by Trident Infosol Private Limited seeking a direction for allowing it to bid for the tenders floated in 2021 by DRDO's Electronics and Radar Development Establishment and Naval Physical and Oceanographic Laboratory despite pendency of an Enforcement Case Information Report [ECIR]. The petitioner had also challenged Clause 7.2.19 of the DRDO Procurement Manual, 2020 under which it faced a rejection from the Technical Evaluation Committee of the Electronics and Radar Development Establishment in June 2021 after it declared that it had pending ECIR against it.

The division bench said that courts generally follow a "hands off approach" when the government fixes the eligibility conditions in the matters pertaining to tenders, especially those that pertain to matters of national security. "While the State‟s instrumentalities ought to act fairly entering contracts with private parties, this cannot impinge upon the right of the Government in setting the terms of the tender. Hence, this Court ought only to intervene if the condition is arbitrary, discriminatory, mala fide or actuated by bias," it said.

Considering the nature of the work undertaken by the DRDO and its labs, the court said, it is "evident" that the impugned condition is "not arbitrary, discriminatory, mala fide or actuated by bias".

"As has been noted, the present tender was floated by Labs of Respondent No. 2 [DRDO], which are specialised labs engaged in research pertaining to critical defence technologies and systems. It is in this context that the Respondent Nos. 3 and 4 [DRDO Labs] have imposed the Impugned Condition to sift through entities which have criminal proceedings/investigation pending against them. This condition is imperative to maintain the integrity of such projects which deal with matters of national importance, security and are of immense public importance," said the division bench.

Trident Infosol in the petition earlier informed the court that the company in 2017 merged with one Alligator Designs Pvt. Ltd. (ADPL) whose directors have been under criminal investigation since 2013. The court was told the Directors are accused of having forged and fabricated several 'non-transfer & use' certificates in the name of Chhattisgarh Police for American Technologies Inc. There is also an allegation that they have applied for import licence from Directorate General of Foreign Trade "on the basis of photocopies issued by Bihar Police", according to the petition.

The Enforcement Directorate registered an ECIR in the matter in 2019 and in 2020 provisionally attached the assets of Trident Infosol on the ground that it allegedly was holding the proceeds of crime generated by ADPL. Following rejection of its offer, Trident Infosol in a clarificatory letter told the DRDO that it has been made a party by ED only on account of amalgamation with ADPL.

Submitting there is no allegation that Trident Infosol was involved in the predicate offence, Senior Advocate Sandeep Sethi for the petitioner argued that the pendency of the ED proceedings would continue to prejudice the company for an indefinite period leading to its civil death. Citing the High Court's decision in 'M/s Good Year Security Services (Regd) v. Union of India & Ors.', Sethi argued that an entity cannot be debarred from participating in a tender process for an indefinite period of time.

The counsel representing the Centre in response argued that the condition has been incorporated to maintain high standards of integrity and is in conformity with public interest. Advocate Vikram Jetly, a Central Government Standing Counsel, also told the court that Trident Infosol is sister concern of ADPL and Directors of the two companies are the same. Proceeds of crime to the tune of Rs 2,36,25,000 received by ADPL were transferred to the Trident, as per the government counsel.

Ruling that there is no infirmity in the decision of the DRDO, the court said that the material on record shows that there are allegations that the key managerial personnel, nature of work and functioning of Trident Infosol is same as ADPL and the former company has allegedly benefited from the proceeds of crime. "Hence, the Petitioner cannot claim that it has been unfairly excluded the Petitioner from participating in the bid," reads the order.

Case Title : TRIDENT INFOSOL PVT LTD v UNION OF INDIA & ORS.

Citation: 2022 LiveLaw (Del) 779

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