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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.= If the country wishes to play a substantial role in the Indian Ocean and Arabian Sea, India must ensure high standards of defence power comparing with the neighbouring countries and it should have modernized submarines. Modernized submarines require submarine batteries with high sophisticated standard under the aegis of DGQA. The Government cannot put the life of its defence personnel and submarine worth crores of rupees to risk simply because the respondent claims to have the capability and can supply submarine batteries. For such defence critical spare parts like submarine batteries, there cannot be any open advertisement inviting tenders. Advertisements are issued calling for tenders only for common use items which are normally available in the open market with a wide range of sources. Submarine batteries do not fall under this category of common use items. The respondent cannot claim any vested right to be issued a development indent or RFP or a supply order simply because it has made investments to manufacture submarine batteries. Straightway RFP cannot be issued to the respondent by ignoring the procedure for issuing a development indent and testing the batteries. 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. The impugned order of the High Court is set aside and this appeal is allowed. In the facts and circumstances of the case, we make no order as to costs.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 3193 OF 2006


       UNION OF INDIA & ANR.                              ..Appellants

                                   Versus

       HBL NIFE POWER SYSTEMS LTD.                        ..Respondent



                               J U D G M E N T

R. BANUMATHI, J.



            This appeal assails the order dated  27.10.2005  passed  by  the
High Court of Delhi allowing the appeal  in  LPA  No.2448  of  2005  thereby
directing  the  Union  of  India  to  issue  an  advertisement  in   leading
newspapers having  wide  circulation  inviting  tenders  for  the  submarine
batteries  mentioning  the  detailed  technical   specifications   and   the
appellants  to  consider  all  the  products  which   meet   the   technical
specifications and thereby proceed to select the best product in  accordance
with law.
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   to
‘develop/indigenise’ critical 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.
3.          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
Proposal’ (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.
6.          Ms. Pinky Anand,  learned Additional Solicitor General of  India
alongwith Mr. Qadri  appearing  for  the  appellants  contended  that  while
tender is  issued  for  common  use  items,  purchase  of   specialized  and
critical spare parts for the Defence Ministry cannot  be  done  by  an  open
tender and in the instant case,  there  were  justifiable  reasons  for  the
Government to classify  submarine  batteries  as  critical  and  specialized
defence product and to procure the same only from those suppliers  who  have
developed the submarine batteries under the  aegis  of  DGQA  and  are  duly
approved/registered  with  DGQA.  It  was  submitted  that  in  relation  to
essential defence supplies/critical spare parts, the Government must  ensure
that   the   supplier   has   the   necessary   technical    qualifications,
infrastructure and capacity to develop the product  and  in  critical  spare
parts like submarine batteries, the Government cannot put the  life  of  its
defence personnel and submarine worth  several  crores  of  rupees  to  risk
simply because the  respondent  claims  to  have  the  capability.   It  was
submitted that the High Court was not right in directing the Government  for
issuing tenders for critical spare parts like  submarine  batteries  without
knowing whether the said product can  withstand  all  the  thirteen  quality
tests and render reliable performance on board.
7.          Per contra, learned counsel for the  respondent  submitted  that
the respondent for the first time  vide  its  letter  dated  06.10.1999  had
shown its intention to develop the submarine  batteries  and  requested  the
appellant to provide the specifications of the same and in response  to  the
same,  appellants vide letter dated 22.11.1999 duly provided  the  technical
specifications and on the  basis  of  the  same,  respondent  had  developed
prototype cells of the said batteries for testing which were offered to  the
appellants for evaluation way back in March 2004 and despite such  offering,
the appellants did not carry out any test. Contention of the  respondent  is
that they continued to invest huge sums for developing  prototype  cells  of
submarine batteries under legitimate expectation that the  respondent  would
be considered as an alternative source for  supplying  submarine  batteries.
Further contention of the respondent is that  the  goods  purchased  without
any tender  on  proprietary  basis  only  from  one  source  is  a  flagrant
violation of the constitutional mandate of Article 14 and  by  directing  to
issue an advertisement, the High Court rightly held against the monopoly  of
single source for supply of submarine batteries.
8.          We have carefully considered the  rival  contentions    advanced
by the parties and perused the details of the procedure for  development  of
submarine batteries and various  tests  required  to  be  conducted  on  the
submarine batteries and other material on record.
9.          The defence procurement can be classified into two broad heads:-

(i)    First  category  are  common  use  items  of  generic  or  commercial
specifications and these are available  in  open  market.  For  example  car
batteries, spare of various vehicles etc.  These items are procured  by  the
Ministry of Defence by Open Tender Enquiry (OTE) i.e. by  advertisements  in
the press and website.

(ii)  Second category are those materials  which  do  not  fall  within  the
above ‘common use’ category. These spares are ‘mission  critical’  strategic
defence products, which  are  procured  only  from  those  firms  which  are
registered  with  Director  General  of  Quality  Assurance   (DGQA)   which
functions under the Ministry of Defence. The supplier has to  be  registered
with DGQA for the supply of that specific product.

Defence Ministry/DGQA has a very stringent procedure before  any  vendor  is
registered with DGQA for supplying the  product.  In  the  second  category,
though the product is manufactured by a private supplier, it is  not  as  if
the Government is totally disassociated from the production process  of  the
product.  As is seen from the Standing Orders of the  DGQA  (Annexure  P-1),
prior to grant of registration, the Government pays the vendor to  ‘develop’
the product under its supervision for over a period of time.   Officials  of
the DGQA are posted at the factory of the supplier to ensure that the  goods
so produced are absolutely in order. The inspectors of  DGQA  inspect  every
stage of production right from the sourcing of  the  raw  materials  by  the
vendor as it is  quite  possible  that  the  vendor  may  purchase  inferior
quality material which may be difficult to  detect  in  the  final  product.
Development of the second source would  require  upto  a  maximum  of  three
years, as the development process involves drawing up of detailed  technical
specifications and performance criteria based  on  which  the  firm  has  to
prepare a  detailed  design  for  each  and  every  component  to  meet  the
stringent military standards.
10.         The subject-matter of the present case is  submarine  batteries.
The  importance  of  submarine  batteries   to   a   submarine   cannot   be
underestimated as it is strategically  a  vital  equipment  for  submarines.
Submarines or diesel electrical vessels run on battery power. Power  to  the
submarine is provided by about 240 to 528 batteries, weighing about 800  kgs
each, depending on the nature of submarine.  The only source of power  to  a
submarine when it dives beyond  nine  metres  into  sea/ocean  is  submarine
batteries.  Improvement in battery technology  and  capacity  is  always  an
important  goal  in  submarine  design.   Batteries  are  unique  source  of
electric  energy  in  underwater  navigation.  When  a  submarine  is  under
surface, all  its  equipments  are  powered  from  the  batteries,  electric
machines, lights, internal communication etc. which means  that  right  from
the first stage, the submarine batteries are vital for operating  submarine.
 Survival of submarine depends on its radio noise levels which are  directly
related to the efficient functioning  of  onboard  equipment  and  machinery
especially when the batteries which is the only source of power and  energy.
 If the batteries fail, submarine will be without  power  and  it  can  have
catastrophic consequences on men as  also  submarine  would  be  lost.  DGQA
therefore ensures that  it  is  associated  during  the  production  of  the
batteries by the approved vendor and only those  batteries  which  pass  the
thirteen tests are purchased by the Navy. In case  of  submarine  batteries,
before a particular vendor is approved for supply  of  submarine  batteries,
as per the policy, first the government issues  development  indent  to  the
lowest bidder and the Government pays the proposed  vendor  to  develop  the
product and the product is developed by the vendor under the supervision  of
the DGQA officials. Product so developed under the supervision of  DGQA  has
to undergo thirteen  tests  as  stipulated  in  Annexure  P-2.  Ministry  of
Defence/Navy authorities cannot  accept  the  final  product  without  being
fully associated with the development of the product right  from  the  stage
of procurement of raw material to the stage of final product.   As  per  the
policy, RFP could be issued only to a firm which  is  duly  registered  with
DGQA for supply of the product after development of the  product  under  the
aegis of DGQA.  Having regard to  the  requirements  of  a  highly  critical
spare part like submarine batteries, the Government has  framed  the  policy
for  issuance  of  the  development  indent,  developing  the   source   and
registration with DGQA. It is pertinent to note that in the  writ  petition,
policy itself was not under challenge.   In  fact,  in  the  writ  petition,
respondent-company itself prayed only for issuance of request  for  proposal
under the policy.  The High Court did not keep in view  the  policy  of  the
Government and the mandatory requirement of DGQA being associated  with  the
development of submarine batteries which is a critical defence  spare  part.

11.         If the country wishes to play a substantial role in  the  Indian
Ocean and Arabian Sea, India must ensure high  standards  of  defence  power
comparing with the neighbouring countries  and  it  should  have  modernized
submarines. Modernized submarines  require  submarine  batteries  with  high
sophisticated standard under the aegis of DGQA.  The Government  cannot  put
the life of its defence personnel and submarine worth crores  of  rupees  to
risk simply because the respondent claims to have  the  capability  and  can
supply submarine batteries.  For such  defence  critical  spare  parts  like
submarine  batteries,  there  cannot  be  any  open  advertisement  inviting
tenders. Advertisements are issued calling for tenders only for  common  use
items which are normally available in the open market with a wide  range  of
sources. Submarine batteries do not fall under this category of  common  use
items. The  respondent  cannot  claim  any  vested  right  to  be  issued  a
development indent or RFP or a supply  order  simply  because  it  has  made
investments to manufacture submarine batteries.  Straightway RFP  cannot  be
issued  to  the  respondent  by  ignoring  the  procedure  for   issuing   a
development indent and testing the batteries.
12.         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  meet  DGQA’s  stipulated  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 under:-
“8.  …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 28.05.2015

9. ..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.”

Though the subsequent developments may not  be  relevant  to  determine  the
issue, we have referred to the written submission in extenso  for  the  sake
of completion.
13.         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.
14.         The impugned order of the High  Court  is  set  aside  and  this
appeal is allowed. In the facts and circumstances of the case,  we  make  no
order as to costs.




                                                             ..…………………….CJI.
           (T.S. THAKUR)


                                                              ..……………………….J.
                                 (R. BANUMATHI)
New Delhi;
January 20, 2016

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