Case: Union Of India  Vs. Hbl Nife Power Systems Ltd

2. The subject-matter involved in the present case is submarine batteries required for the Indian Navy. Indian Navy has three types of submarines for which three different types of batteries are used. Type-I battery for EKM submarines, Type-II battery for SSK class submarines and Type-III battery for Foxtrot class submarines. Initially, these batteries were imported from the Original Equipment Manufacturer. In view of the recurring requirement of the batteries, subsequently a decision was taken to progress their indigenisation. Director General Quality Assurance (DGQA) working under the Ministry of Defence has a detailed procedure tocritical items/spares. As per the said procedure, the Government identifies the possible vendors and assesses their capacity/technical qualifications and thereafter a development order is placed on the proposed supplier. During this period of development of the spares, the Government carries out regular inspection and the product is developed under the aegis of officials of the Defence Ministry and officers of the DGQA are associated throughout the development process right from the time of sourcing of raw materials to ensure that the product not only meets the technical qualifications but is fully reliable and free from any errors in actual performance.By following the above rigorous procedure, M/s. Standard Batteries Ltd. was developed as an indigenous manufacturer for supplying Type-III submarine batteries. M/s. Standard Batteries Ltd. was subsequently developed as a manufacturer of Type-I submarine batteries in the year 1988. M/s. Exide Industries Ltd. was developed as an indigenous manufacturer of Type-II submarine batteries in 1989. In the year 1998, M/s. Standard Batteries Ltd. sold its business to M/s. Exide Industries Ltd. Since then, M/s. Exide Industries Ltd. has become a single vendor in supplying batteries for all three classes of submarines to the Indian Navy. Officers of DGQA are constantly associated with the manufacturing of the submarine batteries in Exide Industries Ltd. as and when they are required by the Indian Navy. As M/s. Exide Industries Ltd. has become the single vendor, in 2004, Government started exploring the possibility of developing another supplier as second source for submarine batteries. But as per the policy, the Government cannot register anyone for supply of submarine batteries without following the procedure or putting the vendor through the process of the development. In any event, the requirement of the supervision of DGQA in development of the product and thirteen quality tests intended to test submarine batteries could never be dispensed with.4. The respondent made its representation in October 2004 to the Ministry of Defence claiming that it had developed submarine batteries and that they are under internal evaluation. On 31.03.2005, the respondent requested the Ministry of Defence for a development order so that the respondent can be developed as the second source of submarine batteries and the respondent agreed to undergo stringent tests before it could be registered for supplying the product. As the residual life of the existing batteries was coming to an end, in July 2005, the Government has been processing the request by the Navy to purchase submarine batteries. Since only M/s. Exide Industries Ltd. was then the only approved supplier of all types of submarine batteries, it was proposed to issue ‘Request For(RFP) to M/s. Exide Industries Ltd. alone and the Defence Minister gave approval to issue RFP to M/s. Exide Industries Ltd. for supplying eleven sets of submarine batteries.5. Respondent filed writ petition before the Delhi High Court on 17.09.2005 claiming that it should be issued a request for proposal as well, as it was registered for some other products namely torpedo batteries. Be it noted that the submarine batteries claimed to have been developed by the respondent were neither developed under the aegis of the DGQA nor the Government paid for development of the prototype cells. The learned Single Judge vide order dated 05.10.2005 dismissed the writ petition observing that if the extant policy envisages selection or shortlisting of a party for purposes of raising a development indent for an alternative indigenous source of equipment, this stage must be successfully crossed before venturing further into the issuance of request for proposal and thereafter issuance of a PAC. The learned Single Judge further held that procurement method was a policy matter and the policy did not suffer from any illegality and in any event, the policy has not been challenged by the respondent in the writ petition. Aggrieved by dismissal of the writ petition, the respondent filed LPA No.2448/2005 which was allowed vide the impugned judgment dated 27.10.2005 and the High Court issued directions to the Ministry of Defence to procure even the critical spare parts like submarine batteries only after issuing advertisement and calling for open tender. Assailing the impugned judgment, the appellant-Union of India has preferred this appeal.

Reasoning:
As the matter was pending for over a decade, we have asked the appellant-Union of India about the subsequent development of the second source for supply of submarine batteries and for the status of the respondent. In response, on instruction Mr. S.W.A. Qadri, onbehalf of the appellant has filed elaborate written submission. It is stated that after grant of stay order dated 16.12.2005 by this Court against the impugned order, the appellant initiated a case for development of an alternate vendor for submarine batteries seeking development indents from IHQ (N)/DEE as per directives of Ministry of Defence vide ID No.3536/04/D(N-I) dated 08.02.2005. Accordingly, open tender was issued in newspapers on 29.05.2006 wherein several firms including the respondent responded. For development of a second source of Type-I batteries, development order was placed on the respondent HBL Ltd. on 22.03.2007, as per which the firm was to develop four Type-I cells at a cost of Rs.11.16 lakhs with a delivery schedule of eighteen months. The prototype batteries manufactured by respondent-HBL failed to meetstipulated standard for relevant discharge (C2) test. Thereafter, on 12.07.2011, a meeting was held with the participants of DEE and M/s. HBL representatives. Post detailed deliberation, the respondent was asked to manufacture four cells afresh and present them for type testing. Test of batteries was completed at the factory premises in June 2012 and batteries were transferred to BCF, Sewri in January 2013. However, on receipt at BCF, Sewri, visible bulging was observed in all batteries and lead tape discontinuity in one battery during first maintenance charge. During analysis in February 2013, bulging was found to exceed permissible limit of 12 mm on all batteries post first full charge. However, respondent opined that the bulging was due to improper packaging whilst transporting batteries from the premises (Hyderabad) to Mumbai. Thereafter, respondent firm–HBL agreed on certain conditions for manufacturing of four new prototype cells with a lead time of three-six months and agreed to complete manufacturing of test cells by February 2014. However, there was delay on the part of the respondent and finally the trial of test cells was completed on 14.11.2014 and the trials were validated by CQAE, Secunderabad. Test cells were received at BCF, Sewri in January 2015. Charging/discharging trials commenced wherein charging parameters were examined and found to be satisfactory. In this regard, in the written submission filed by UOI, it is stated as…The performance report forwarded by ASD (Mbi)/BCF wherein all parameters of the cells were examined, indicates satisfactory test results. In view of the satisfactory completion of indigenization efforts by respondent herein (M/s. HBL, Hyderabad) the firm was nominated as IHQ MOD (N) approved vendor for supply of Type-I submarine batteries for EKM submarines on 28.05.20159. ..the next procurement case shall have an additional qualified vendor for Type-I submarine batteries to increase the market competence for both technical and financial aspects.The aforesaid discussion and also the written submission as to how the respondent developed the batteries over a period of time reiterate that the development of second source could only be as per the guidelines of DGQA and under the supervision and inspection of the officials of the DGQA and not independently. The High Court did not keep in view the policy of the Government in purchasing the critical spare parts for the defence and in particular, in developing submarine batteries under the aegis of the Defence Ministry and the High Court erred in directing the appellants to issue an advertisement giving details about the technical specifications for submarine batteries and in selecting the product submitted in response to the advertisement and the impugned order is not sustainable.