P. P. WADHWA ( 1 ) BY this judgment we are deciding Writ Petitions Nos. 3181/94, 3160/94 and 3161 /94 since grounds of challenge are the same and so also the issues and the prayers. In this judgment we will refer to the facts of the case of G. D. Zilani (CWP No. 3181/94) and shall refer to other two petitions wherever necessary. ( 2 ) FIRST petitioner is the shareholder of the second petitioner M/s. Torrent Gujarat Biotech Ltd. ("torrent" for short), which is a company and is in the process of setting up its own penicillin plant. By this petition under Article 226 of the Constitution the petitioners seek a writ of mandamus or any other appropriate order or direction quashing and/ or recalling the decision of the first respondent-Union of India in the Ministry: of Chemicals and Fertilizers in allowing the second respondent- Hindustan Antibiotics Ltd. ("hal" for short) to enter into a contract with the third respondent, Max-GB Ltd. (Max-GB), for leasing out the penicillin G (Pen-G) plant (Unit) of HAL to the third respondent. Petitioners have. also prayed that a direction be issued to the Union of India, i. e. , the Central Government, and HAL to give equal opportunity to the petitioners to put forward their proposal regarding the leasing out the penicillin-G unit of HAL and to consider the same. We may note that there are four respondents and the fourth respondent is Mr. A. K. Basu, Managing Director (M. D.) of HAL. ( 3 ) PETITIONERS complain that actions of the Central Government and HAL are arbitrary as the contract which HAL proposes to enter into with Max-GB to lease out the penicillin-G unit of HAL to Max-GB an annual rental of approximately Rs. 17. 00 crores when the fair rent estimated by an expert committee (Sub Committee) constituted by the Board of Directors of HAL was Rs. 32. 00 to Rs. 35. 00 crores. Petitioners also complain that HAL has not followed the normal procedure by inviting tenders and has instead discouraged and in fact prevented other interested parties from formulating any proper offer for giving more lease money as these interested parties were denied inspection of the facilities and material information necessary to make a meaningful offer. 00 to Rs. 35. 00 crores. Petitioners also complain that HAL has not followed the normal procedure by inviting tenders and has instead discouraged and in fact prevented other interested parties from formulating any proper offer for giving more lease money as these interested parties were denied inspection of the facilities and material information necessary to make a meaningful offer. Petitioners then complain that HAL clandestinely and secretly entered into negotiations with Max-GB for leasing out its penicillin-G plant under the guise of upgrading the technology and that there was no notice inviting tenders nor any advertisement was given, nor any shortlisting of probable bidders was done nor any invitation to them to bid. The complaint about the fourth respondent, the Managing Director of HAL, is that he has been unduly favourable to Max-GB when he has given inspection to Max-GB of all the facilities including penicillin-G plant of HAL and also gave all material information which had been denied to the petitioners and other similarly situated persons, and, thus, the fourth respondent had sacrificed the commercial interest of HAL for pecuniary benefits to Max-GB. ( 4 ) RESPONDENTS have denied the allegations of the petitioners. They say that Pen-G was the main product of HAL and this company was in the need of superior technology to achieve higher levels of production, productivity and, thus, remain competitive in changing economic scenario in the country. Production of Pen-G is a highly complex technical process and as to what technology HAL should acquire would be its own decision keeping in view the commercial requirements, and in this there, should be no difference in a public sector company and a private sector company. Respondents say that Gist-Brocades (GB) of Holland possesses the best technology for production of Pen-G and this foreign company is a world leader in this field. GB issued a letter of intent for production of Pen-G in this country in favour of Max-GB, with which HAL proposes to enter into joint venture for production of Pen-G, on the basis of technology transfer by GB. Once it is decided after exploring the world market that GB has the best technology and that HAL should acquire the same. then necessarily negotiations have to be entered into with the Max-GB and the question of issuing any tender for that would not arise and no question of distributing any largesse arises. Once it is decided after exploring the world market that GB has the best technology and that HAL should acquire the same. then necessarily negotiations have to be entered into with the Max-GB and the question of issuing any tender for that would not arise and no question of distributing any largesse arises. Respondents question the motives of the petitioners in bringing these petitions. ( 5 ) WE will go into these rival contentions in detail a little later, and at this stage it would be advantageous to know some what about the Pen-G. In April 1991 a book on thy Technology in Indian Penicillin-G/ V Industry has been brought out by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India. This book also contains a Status Report prepared under the National Register of Foreign Collaborations. This book contains the history of penicillins, its uses, manufacturing process and developments in technology, as well as the international trends in penicillin technology. It also describes the penicillin production in India and the status of Indian manufacturers, and points out the technology gaps and the need for upgradatin and modernisation in the manufacture of penicillin. Penicillin is an antibiotic substance. It is not a single substance. It is the generic name for family of antibiotics all having a common nucleus of B-lactam thiazolidine ring, but with different side-chains attached to them. From the large scale fermentation production point of view, only two of them are of importance: (I) penicillin-G which is benzyl penicillin and (ii) penicillin- V which is phenoxymethyl penicillin. Both these are the first two antibiotics produced by the highly aerobic submerged fermentation technology under aseptic conditions and are still being produced in largest quantities among the antibiotics produced in the world. It is expected that penicillin-G, particularly, will still keep the lead as the largest produced antibiotic for decades to come. Penicillin-G is very useful therapeutic agent for a large number of infectious diseases. Penicillin is produced by micro-organisms and is capable of inhibiting the growth of, or even destroying, other microorganisms. Penicillin is produced from strains of the fungus Penicillium notatum and Penicillin Chrysogenum. Different companies all over the world have been experimenting with the development of these strains, to improve their quality and yield. Penicillin is produced by micro-organisms and is capable of inhibiting the growth of, or even destroying, other microorganisms. Penicillin is produced from strains of the fungus Penicillium notatum and Penicillin Chrysogenum. Different companies all over the world have been experimenting with the development of these strains, to improve their quality and yield. The name "penicillin" now designates a number of antibiotic substances produced by the growth of various Penicillium species or by other means. Still one better known natural penicillin is Pen-G. The process of manufacture of Pen-G consists broadly of three stages: (1) selection of a strain of the organism and preparing stock-culture therefrom: (b) fermentation; (c) recovery process. Broadly, the micro-organisms in the strain may take the following forms(A) Pellety, i. e. like small round balls; or (b) Filamentous, i. e. thread-like. Both the pellety-type and filamentous strains have their own advantages and limitations in the production process. The strains developed or mutated by the different companies are of either the pellety-type or filamentous-type. Strains developed by M/s. Toyo Jozo of Japan are of the filamentous type and strains developed by M/s. Panlabs Inc. of USA are of the pellety type. . . ( 6 ) IT will appear that the action by these petitioners started when Central Government issued on 20 June 1994, directions to Mr. A. K. Basu, Managing Director, HAL, on the subject of collaboration in the nature of a joint venture for production of penicillin. We may as well reproduce this letter. :- "sir, I am directed to refer to your letter No. MD/iv/ 4010 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 sector company of Max India and Gist-brocades of Hetherlands, for setting up of a joint venture in the existing plant of Hindustan Antibiotics Limited for manufacture of Penicillin, has been considered by the Government in the light of the position/issues raised in your above letter. 2. 2. It has been decided with the approval of the Minister for Chemicals and Fertilizers to issue the following directive to Hindustan Antibiotics Limited in exercise of the powers under Article 117 of the Memorandum and Articles of Association 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 Adviser, Ministry of Chemicals and Fertilizers, 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 incorporated in the Memorandum of Understanding. Yours faithfully, Sd. /- (C. LAL) Deputy Secretary to the Govt. of India. " ( 7 ) ON the same day, the Committee as mentioned in the letter was constituted, negotiated the matter and it was agreed that lease rent would be Rs. 17. 00 crores per annum. MOU was also signed on the same day. That everything should have been done on the same day has also been subject to severe comment by the petitioners and on this question also action of Mr. A. K. Basu is made a subject of suspicion. ( 8 ) ARTICLE 117 of the Articles of Association of HAL is as under :- Notwithstanding anything contained in any of these Articles, the President may, from time to time, issue such directives as he may consider necessary in regard to the finances, conduct of the business and affairs of the. Company and in like manner vary and annul such directives. The company shall give immediate effect to the directives so issued. Company and in like manner vary and annul such directives. The company shall give immediate effect to the directives so issued. In particular the President will have the powers : (I) to give directions to the Company as to the exercise and performance of its functions in matters involving national security and substantial public interest; (i) to call for such returns, accounts and other information with respect to the property and activities of the Company as may be required from time to time; (iii) to approve the Company s Five Year Plans, Annual Plans of Development and the Company s Capital Budget; (iv) to approve the Company s Revenue Budget in case there is an element of deficit which is proposed to be met by obtaining funds from the Government, and (v) to approve agreements involving foreign collaboration proposed to be entered into by the Company. " ( 9 ) THIS letter dated 20 June 1994 of the Central Government has not been specifically challenged in these petitions, but since the whole process culminating in the entering into the MOU by HAL with Max-GB is under challenge this letter of the Central Government is necessarily under challenge as well. At this stage we may as well see as to how this letter came to be issued. ( 10 ) AS the book on Technology in Indian Penicillin-G/v Industry would show, in April 1991 there were four Indian manufacturers for penicillin-G and two of these were public sector undertakings, namely, HAL and Indian Drugs and Pharmaceuticals Ltd. , and other two, namely, Alembic Chemical Works Co. Ltd. and Standard Pharmaceuticals Ltd. were in the private sector. All these four companies acquired their technology for production of penicillin-G from abroad. HAL acquired its technology and the strain in 1954 frorn W. H. O. with the aid of U. N. I. C. E. F. and then in 1976 from Toyo Jozo Co. , Japan. As seen above, strains developed by this Japanese company which HAL used exclusively till 1988 were of filamentous type. Then since 1988 HAL started using strains developed by M/s. Panlabs Inc. of USA which were of the pellety type. These strains are also offered by M/s. Biotika of Slovakia. , Japan. As seen above, strains developed by this Japanese company which HAL used exclusively till 1988 were of filamentous type. Then since 1988 HAL started using strains developed by M/s. Panlabs Inc. of USA which were of the pellety type. These strains are also offered by M/s. Biotika of Slovakia. It is stated that the strain now offered by GB of Netherland (Holland) to HAL is of a modified filamentous variety, which removes the limitations of the filamentous variety and reaps the advantages of both the pellety and filamentous varieties. On the choice of the strain by HAL will depend the quality and yield of its penicillin-G first crystals output; It is then pointed out in the aforesaid book that injection of new technology with high yielding strains is an urgent necessity for the four existing units and also for the new units. It is also mentioned that the indigenous production during 1984-85 has reduced due to import of penicillin-G and even penicillin-V to some extent by the 6-APA manufacturers, who have been permitted to use 60% of the imported penicillin-G because the indigenous penicillin-G is costlier by more than 100%. This aspect has to be considered carefully, when deciding about the country s demand for different penicillins and licensing new capacities. ( 11 ) THE world leaders in penicillin-G production, as stated by HAL, are as under :- Company Rating % share of world s production in 1993 Gist Brocades, Holland. I 20. 0 Biochemie, 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 Hoechst, Germany. VII 5. 0 301 This fact has not been disputed by the petitioners except to say that there are other leading manufacturers of Pen-G and that the chart aforesaid gives the rating in respect of percentage of share of world production and not in relation to the quality of technology. HAL, however, contends that GB is not only the world s largest producer of penicillin, but also possesses the best Pen-G strain and technology in the world. HAL, however, contends that GB is not only the world s largest producer of penicillin, but also possesses the best Pen-G strain and technology in the world. HAL stated that that during the past about seven years the Central Government has embarked upon a policy of allowing private producers to enter into the field and in pursuance to this policy certain private sector companies including Torrent, SPIC (CWP No. 3161/94), were given licences to set up their penicillin production plants. While Torrent has collaboration with Biotika of Slovakia, SPIC has with CIPAN of Portugal. PEG (CWP No. 3160/94), though itself not a manufacturer, offered technology of Biotika to HAL and then also wrote to the Central Government enclosing therewith a letter from M/s. Antibioticos of Spain, another manufacturer of Pen-G, expressing their intention to associate with PBG in upgradation of technology at HAL. ( 12 ) IN order to upgrade. its technology and achieve higher production the Board of Directors of HAL ( board for short) constituted a Special Committee in November 1992 to evaluate the proposal of Max-GB (R-3), GB s joint venture company in India, who offered the technology and. technical support of GB for production of Pen-G in this country. Max- GB s proposal was for 50:50 shareholding between HAL and Max-GB for formation of a joint venture company (JVC ). JVC was to take on lease HAL s plant for lease rent of Rs. 13. 00 crores per annum and would run the same by inducting the best available technology of GB of Holland, the highest producer of penicillin in the world, and also possessing the best penicillin technology in the world. The Sub-Committee consisted of three members of the Board, namely, (1) the Joint Secretary (Pharmaceutical Industry) in the Department of Chemicals, (2) Joint Secretary and Financial Adviser, Ministry of Chemicals and Fertilizers, and (3) the Director in the Department of Biotechnology in the same Ministry. As a matter of fact, the Board itself comprised of five members and the other two being the Managing Director (R-4), and the Financial Adviser, the latter also being full-time Director of HAL. Under Article 70 of the Articles of Association of HAL, all Directors in effect are appointed by the Central Government. HAL is a fully Central Government owned company though a company is characterised as a Government company if it has 51% Government share in its capital. Under Article 70 of the Articles of Association of HAL, all Directors in effect are appointed by the Central Government. HAL is a fully Central Government owned company though a company is characterised as a Government company if it has 51% Government share in its capital. The Sub-Committee submitted its report on 27 April 1994 and the Board met on the following day to consider it. The Board by majority accepted the recommendation of the Sub-Committee thatHAL should itself go for higher production of Pen-G without any foreign collaboration as the Sub-Committee felt that HAL could achieve that with present technology and for which cost could be reduced to the level suggested by the Sub- committee. The relevant portion of the Board s resolutions dated 28 April 199,4, which we directed the HAL to bring on record, is as under :- "205. 10. 11 After detailed discussions on the report of the Sub-Committee the Board agreed that the Company should go in for higher levels of production beyond 1100 MMU which can be achieved with the present technology and for which the costs could be reduced to the levels suggested by the Subcommittee. 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 acceptable to Max-GB and he felt that at best Max-GB may agree to the increase in "the lease rental offer of Rs. 13. 00 crores by Rs. 1. 00 or 2. 00 crores. He stated that the lease rental of Rs. 13. 00 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. 13. 00 crores by Rs. 1. 00 or 2. 00 crores. He stated that the lease rental of Rs. 13. 00 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 crores as computed by the Sub-Committee should form the basis of the calculation as this level of profitability is achievable at 1100 MMU production and with reduction pf materials and utilities cost by Rs. 110. 00 as suggested by the Sub Committee. 205. 10. 12 The Board accordingly decided that the assessed 3063 profitability of Rs. 31. 68 crores and this should be adjusted to account for deprecitation, proportionate interest on lease rental paid by HAL on leased assets in the Penicillin Plant and adjustment for the income-tax liability. (Reference - para 44 of the Sub-Committee 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. " ( 13 ) THE report of the Sub-Committee and the Board s resolution were sent to the Central Government. On 3 May 1994 Mr. Basu (R-4) wrote a letter to the Central Government giving his own views and not agreeing with the majority resolution of the Board. He gave his own perception of the whole thing and concluded his letter by stating that the Sub- committee had 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 Max-GB. (c) Future fluctuations in the Penicillin 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. " ( 14 ) THE Central Government examined the matter of its own. It obtained the advice of Padamabhushan Prof. M. M. Sharma, Director and Head of the Department of Chemical Technology, University of Bombay. Prof. " ( 14 ) THE Central Government examined the matter of its own. It obtained the advice of Padamabhushan Prof. M. M. Sharma, Director and Head of the Department of Chemical Technology, University of Bombay. Prof. Sharma is a Fellow of the Royal Society and Fellow of the Indian Academy of Sciences. It is not disputed that he is an eminent scientist in his own right, though the petitioners said that he was not a man of finance. Prof. Sharma gave his advice and indicated that the best technology for penicillin-G in the world was with the GB and it was in the interest of HAL as well as in the interest of the country to acquire that technology. He further, gave his opinion that such first-rate technologies in the frontier areas were just not available irrespective of fees. Prof. Sharma was also of the view that the proposed mechanism of obtaining the technology and setting up of the joint venture company in which GB would have equity stake were steps in the right direction and were expected to protect very well the commercial interests of the HAL and was in the national interest. The Central Government, who was having all the material including the report of the Sub-Committee of the Board, after examining the matter issued directions under Article 117 of the Articles of Association. These directions make it quite clear that allowing HAL to go ahead with the signing of the MOU was again subject to approval of the Central Government. Before entering into the MOU the lease rent payable to HAL by the JVC was fixed after negotiations with Max-GB by a committee comprising of Mr. Basu (R-4); Joint Director and Financial Adviser, Ministry of Chemicals and Fertilizers; and Joint Secretary to the Government of India in the Department of Chemicals and Petrochemicals. It was stated that the third member was also in know of the things. ( 15 ) THE Central Government in its affidavit stated that in August 1993 itself HAL wanted to enter into MOU with Max-GB, and since an Indian party expressed an interest in providing a world class technology to HAL, HAL was advised to explore the same. The exercise was carried out by HAL but it did not ultimately materialise. ( 15 ) THE Central Government in its affidavit stated that in August 1993 itself HAL wanted to enter into MOU with Max-GB, and since an Indian party expressed an interest in providing a world class technology to HAL, HAL was advised to explore the same. The exercise was carried out by HAL but it did not ultimately materialise. Thus, the Central Government said that keeping the overall circumstances in view and the lapse of time that had occurred the Central Government allowed HAL in June 1994 to enter into a MOU with Max-GB, a joint venture company of MAX (India) and GB of Netherlands for upgradation of the penicillin production technology, and further that this MOU and also the proposed setting up of JVC was subject to the approval of the Central Government. ( 16 ) MR. Venugopal appearing for Torrent (CWP No. 3181/94) said that the principal issue in the case was: Whether there was a duty on the part of the Central Government and HAL to invite competitive offers after setting out parameters for the offers before the Government approval and the HAL entering into the MOU with Max-GB. The second issue, he said, was the bias on the part of Mr. Basu (R-4) in favour of Max- GB. It was submitted that it was the decision making process which would be subject-matter of judicial review and not the ultimate decision, and if the technology was found best to the authorities the court could not go into that question. Mr. Venugopal said that in the present case HAL, firstly, could have laid prequalifications, technical criteria and then offers invited in that direction; secondly, there should have been commercial shortlisting of the tenders after having looked into the past record of the tenderers; and, third step should have been the financial bids. Mr, Venugopal said that the issue was sought to be clouded by inducting the concept of world class technology which he said was really a red herring. He said the predominant and sole consideration in entering into JVC was profit. According to Mr. Venugopal, the joint venture was a means to achieve larger returns and higher profits and was not a end in itself and hence a need to have a competitive offer. He said the predominant and sole consideration in entering into JVC was profit. According to Mr. Venugopal, the joint venture was a means to achieve larger returns and higher profits and was not a end in itself and hence a need to have a competitive offer. He said the net result of JVC was merely in terms of earning profit in rupees, annas and pie, and that was the reason for upgrading the technology and to have the production at a cheaper cost, and that the JVC when formed would give lease rental + dividend of 50%, all out of profits. Mr. Venugopal pointed out that HAL s penicillin plant was working at a capacity of 53% and earning a profit of Rs. 12. 00 crores per annum and as regards other activities of HAL there was a loss of Rs. 10. 00 crores every year and, thus, the HAL was earning a net profit of Rs. 2. 00 crores a year. It was stated that a great deal of loss has been caused to public exchequer by not adhering to the recommendation of the Sub-Committee which had fixed the rental at Rs. 31. 60 crores per annum. According to Mr. Venugopal, in the ultimate analysis the product was the same. He also referred to the offers made by the petitioners in the three writ petitions and said that those were arbitrarily rejected when these were no proper offers as inspection had not been allowed and same facilities were not granted as were granted to Max-GB (R-3 ). Rejection of these offers, he said, itself showed malafides on the part of the respondents. Then elaborating as to whether the action was malafide, Mr, Venugopal submitted as under :- (1) Fear of competition made Max-GB (R-3) to raise its offer from Rs. 2. 00 crores to Rs. 5. 00 crores and then to Rs. 17 crores. (2) Offer of Rs. 17. 00 crores was less than half of the rental which the Board had expected as being reasonable value of the Penicillin Plant of HAL. (3) Failure of Managing Director to put this Rs 31. 60 crores to Max-GB which had been recommended by the Sub-Committee and accepted by the Board. (4) M. D.-- (R-4) did not go back to the Board giving his objections as to why Rs. 31. (3) Failure of Managing Director to put this Rs 31. 60 crores to Max-GB which had been recommended by the Sub-Committee and accepted by the Board. (4) M. D.-- (R-4) did not go back to the Board giving his objections as to why Rs. 31. 60 crores was high and he did not take the Board into confidence and then went to the Central Government complaining of gross errors in the report of the Sub,committee which he could have pointed out to the Board. (5) M. D. (R-4) was forced by the Government to look into offers and he rejected them.- (6) M. D. (R-4)insistedupon offers from the petitioners - without disclosing the. parameters of the joint venture product and riot permitting inspection of the plant even when the petitioners said that they will be bound by any confidential agreement between the HAL and Max-GB. (7) Finalising the MOU on 20 June 1994 post-haste by. doing the impossible, the letter of the Government directing the HAL to enter into MOU was of 20 June 1994 and could not have reached the M. D. on the same day. On this very day itself a high powered committee of two Joint Secretaries and the M. D. (R-4) himself is set up for evaluating the financial parameters, negotiations done on the same day with R-3, MOU drafted, sealed and signed. This was bureaucratically impossible. This was in the face of the order dated 1 5 June 1994 of the Minister of State directing the M. D. to consider the proposal of Torrent. The action of the M. D. showed pre-determination to favour R-3 causing tremendous loss to HAL. ( 17 ) MR. Nariman appearing for Pharmaceutical Business Group (India) Ltd. ( pbg for short) (CWP No. 3160/94) referred to the correspondence exchanged between PBG, HAL and Max-GB. Mr. Nariman said that petitioner had no fundamental right to claim that he should be awarded the joint venture but he said that petitioner had sufficient foothold and interest to challenge the action of HAL and Max- GB which he said was full of malafides. Further submission of Mr. Nariman was that what the petitioner expected was that there should have been legitimate consideration of its offer. He said the decision to enter into MOU was vitiated with malafides because it was in contravention of the Company Law and the Articles of Association of the HAL. Further submission of Mr. Nariman was that what the petitioner expected was that there should have been legitimate consideration of its offer. He said the decision to enter into MOU was vitiated with malafides because it was in contravention of the Company Law and the Articles of Association of the HAL. He said there was procedural impropriety as well, and on that ground he said that the action of the respondents had to be struck down. He said the aspect of the illegality and procedural impropriety was gone into even where tenders were not invited though he said tenders should have been invited in the present case as well. According to Mr. Nariman the direction issued by the Central Government was vitiated. He referred to the recommendations of the Sub-Committee of the Board and said that R-4 being M. D. was the servant of the Board. He also referred to section 2 (26) of the Companies Act and the second proviso thereto giving the definition of the managing Director and then he referred to section 6. 17 as to what the government Company would mean. He. said under section 620 of the Companies Act, the Central Government had power to modify the provisions of the Companies Act in its applicability to a Government company, but that this power was not exercised by the Central Government and the Managing Director was what was defined in section 2 (26) of that Act. He referred to Articles 71,72 and 73 of the Articles of Association of the HAL to contend that M. D. was to act under the control of the Board. He said his writing the letter dated 3 May 1994 to the Central Government was a unilateral act and without the authority of the Board, and the necessary inference was that he by passed the Board and acted in an illegal manner. Mr. Nariman said that the MOU signed was contrary to the resolutions of the Board, and the Government company was to function like any other company, and that the Government itself could not override the Board. When it was pointed out that under Article 1 17 the Central Government could issue directions, Mr. Nariman said that there was no such direction given by the President of India which had to be in a proper form. Mr. When it was pointed out that under Article 1 17 the Central Government could issue directions, Mr. Nariman said that there was no such direction given by the President of India which had to be in a proper form. Mr. Nariman said that letter on the basis of which the MOU was entered into was not a "directive" and that every letter was not a direction and that direction meant that formalities had to be completed. ( 18 ) MR. Kirit Rawal, who appeared for Southern Petrochemicals Industrial Corporation Ltd. ( sp1c for short) (CWP No. 3161/94), adopted the arguments addressed by Mr. Venugopal and Mr. Nariman and said that only the decision making process had been challenged and the case for issue of the writ as prayed was clearly made out. ( 19 ) MR. Chandrasekharan, Additional Solicitor General, appering for the Union of India, submitted with reference to the Memorandum and Articles of Association of the HAL that under Article 117 it was the President, i. e. , the Central Government, which could approve agreements involving foreign collaboration proposed to be entered into by HAL. He said that it was wrong to allege, as was made out by the petitioners, that HAL was leasing out the plant to Max-GB at a very low lease rent, and that leasing in any case was to the joint venture company to be formed. He said this was a case of technological upgradation of the existing plant of HAL and the financial and technical parameters were closely interrelated and needed to be viewed as a whole and not severally and individually. He said petitioners were competitors or prospective competitors of HAL and that though HAL, being a public sector company, was on par in the market with any other company operating in the pharmaceutical industry sector, including the petitioners themselves, they are not in any way acting in public interest, or in a manner so as to benefit the exchequer. Mr. Chandrasekharan said that it was the admitted case that the MOU between the HAL and Max-GB involved the technology transfer from GB of Holland which was amongst the best in the world as the petitioners themselves admitted. The three petitioners themselves were having collaboration agreements with foreign companies for the production of Pen-G in the country. Mr. Chandrasekharan said that it was the admitted case that the MOU between the HAL and Max-GB involved the technology transfer from GB of Holland which was amongst the best in the world as the petitioners themselves admitted. The three petitioners themselves were having collaboration agreements with foreign companies for the production of Pen-G in the country. It was submitted that HAL was a major producer of Pen-G in the country and lately had been on the look out for superior technology and had been making efforts in the past to get technology from all leading producers including GB, Glaxo of UK, Hoechst AG of Germany, Biochemie of Austria, Antibioticos of Spain and Others, and that it was only recently in 1993 that HAL got a positive response from GB through its joint venture company R-3 (Max-GB) in India, indicating that the technology could now be made available to HAL. Mr. Chandrasekharan said that HAL was the first company to produce Penicillin in India and was in a better position than any of the petitioners to assess the suitability of the particular technology or the level of a particular technology in Penicillin. It was submitted that choice of technology has to be essentially the company s own decision, keeping in view the commercial requirements, and there could be no difference in a public sector company and a private sector company. Since HAL had been successful in getting the offer of technology of GB for upgradation of existing penicillin manufacturing facilities through the mechanism of a joint venture which would utilise the existing plant of HAL and in which HAL would have a substantial share in the equity. Mr. Chandrasekharan then submitted that it was in August 1993 that HAL wanted to enter into a MOU with Max-GB. At the instance of the Central Government, HAL also explored the possibility of getting a world class technology from an Indian party, but it did not materialise ultimately. The Central Government, therefore, in June 1994 allowed HAL to enter into MOU with R-3, a joint venture company of Max (India) and GB of the Netherlands for upgradation of Penicillin production technology, but even then the MOU and also the proposed setting up of joint venture was subject to approval of the Central Government which approval had yet not been granted. Mr. Mr. Chandrasekharan said the Central Government, at the stage of permission to HAL to sign the MOU, had satisfied itself that, subject to the final approval being given by it, the technological upgradation proposal was basically on the right lines. Nevertheless, the Central Government obtained the advice of Prof. M. M. Sharma. Mr. Chandrasekharan said that since the Central Government had all the material including the report of the Sub-Committee of the Board of HAL on which the petitioners relied while allowing the HAL to go ahead with the signing of MOU. It was submitted that the report of the Sub-Committee of the Board of Directors, the views of the Board of HAL as well as the advice of Prof. M. M. Sharma were confidential in nature as they contained vital commercial information about the HAL which could not be available to its competitors being the petitioners herein. Mr. Chandrasekharan submitted he had received a notice from the petitioner for production of record and that all the records are available in court and that the court could go through the same, and that the Central Grovernment was ready to produce thedocuments if the court so desired. It was then submitted that it was not a case of distribution of any largesse to any parly, and as noted earlier the plant of HAL was proposed to be technologically upgraded with the help of world class technology through the mechanism of a new joint venture company, in which HAL would have 50% equity shares and 50% share in. the profits besides equal right in control of management and that ownership of the plant will always remain with the HAL. It was then submitted that there was no question of any tender or notice being issued and HAL, though a public sector organisation, was at par with any other commercial organisation in the market including the petitioners themselves and that technology was not a commodity or an equipment but knowledge which could not be obtained by inviting tenders or public notice. It was stressed that it was inconceivable that the holder of the technology specially in high technology area would respond to any tender and that the petitioners themselves being in business for some time were very much aware of this fact and they would have themselves obtained technology of their products from foreign collaborators by direct contact and negotiations and not by inviting tenders. Then Mr. Chandrasekharan said that the Central Government was quite satisfied that there was reasonable examination by HAL wherever offers were made by the petitioners even though they were competitors or prospective competitors. It was then contended by Mr. Chandrasekharan that permission to HAL to sign the MOU with R-3 was given as it was intended to ensure that HAL does not miss the opportunity of a technological tie- up for a world class technology involving negligible financial burden on HAL and the exchequer and that the Central Government would take decision after a detailed evaluation of the merits of the proposal in the interest of HAL which would be of paramount consideration. It was also asserted that the petitioners could not be given any information or facility of inspection nor could there be any open bidding or transparency in the circumstances of the present case. The petitioners being competitors of HAL could not be allowed to have access to business and commercial affairs of HAL. Lastly, it was submitted that decision taken in signing the MOU could not be subject-matter of judicial review. ( 20 ) MR. Chandrasekharan also stressed as to how the penicillin was manufactured by different methods and it was for the HAL to adopt the best method so that the product is of high quality and is available at a reasonable price to the consumers. Negotiation Committee as mentioned in the letter dated 20 June 1994 of the Central Government consisted of Managing Director; Joint Secretary and Financial Adviser; and Joint Secretary in the Department of Chemicals and Petrochemicals. This Joint Secretary, he said, was not the same as in the Subcommittee, constituted earlier by the Board, but he had been handling the case and was a drug-policy person being well aware of the case. This Joint Secretary, he said, was not the same as in the Subcommittee, constituted earlier by the Board, but he had been handling the case and was a drug-policy person being well aware of the case. He said no argument could be based or adverse inference drawn that the negotiation committee met on the same day and everything was finalised on 20 June 1994 itself in terms of the letter of the Central Government. Mr. Chandrasekharan said that there was nothing wrong in the M. D. approaching the Central Government and there has not been any violation of any provisions of the Companies Act or breach of any Articles of Association or overreaching the Board. He said that if there was any violation of the Companies Act, the remedies could be found in the Act itself and that no such ground had been taken by the petitioners. Then he said it was not necessary to issue the directive under any set proforma. Lastly, Mr. Chandrasekharan said that there had been objective assessment and petitioners had no right to file the present proceedings which were only motivated so that HAL remains out of the competitive field in the production of Pen-G. ( 21 ) IN answer to the argument of the petitioners that on 15 June 1994 Minister of State forwarded the representation of one of the petitioners to HAL for consideration but on 20 June 1994 MOU was signed; Mr. Chandrasekharan said that this was only a half truth. He said he had brought the relevant file to show that the Minister of State did recommend that representation would be forwarded to HAL for examination, but when the file was put up to the Cabinet Minister he said that he had already passed an order in the connected file that MOU might be entered. ( 22 ) AT the outset Mr. Ganguly, learned counsel appearing for HAL and M. D. , referred to Delegation of Powers to the Managing Director by the Board, to submit that the M. D: has power to institute, conduct, defend, compound or abandon any legal proceedings by or against the Company or its officers or otherwise concerning the affairs of the company, and further that he has power to sign and execute contracts for works, supplies, sales or services after approval of the competent authority. Mr. Mr. Ganguly said that it was the import of bio-technology, technical know-how and it was not some article as such which was to be imported. Quality, according to him, was the main thing. He said petitioners could not. be heard as saying that they themselves had foreign technology which HAL must buy from them. He said one must see the background of the case to examine, if at all there could be any invitation to offer in a case like this. . He formulated the following points in this regard : (1) Nature of product is in the realm of microbiology and it is purchase of knowledge and not commodity. (2) HAL has been in the business for manufacture of Penicillin for the last four decades and is fully acquainted with the information as to the knowledge and technology possessed by leading companies of the world. (3) Since preparation of the base is a matter of art and not a standard product, the question of calling tenders in such cases does not arise. (4) There has never been any invitation to tender in the circumstances like this at any time. ( 23 ) MR. Ganguly said that the in the atmosphere of liberalisation these days and imports could be freely made, it was an arena of competition and one has to look for the best technology world wide. He said GB was known internationally for the cost effectiveness, and by importing such technology there were two distinct advantages: " (1) upgrading ourselves and match performance, and (2) we will otherwise be having no match to compete with GB. " Mr. Ganguly said that R-4 (M. D.) went to Holland in August 1993 in connection with the MOU and there could be no argument that he went there of his own. Mr. Ganguli said that details could not be made available to the petitioners and they could not have any access to the record of the HAL as they were the competitors. He said the shareholding of the HAL was wholly held by the Central Government. He also mentioned that the plea regarding "directive" was never taken by the petitioners though argued by Mr. Nariman. Lastly, Mr. Ganguly defended the action of R-4 (M. D.) and said he acted all through in the best interest of HAL. He said the shareholding of the HAL was wholly held by the Central Government. He also mentioned that the plea regarding "directive" was never taken by the petitioners though argued by Mr. Nariman. Lastly, Mr. Ganguly defended the action of R-4 (M. D.) and said he acted all through in the best interest of HAL. He said that the submissions of the petitioners that R-4 had any motive in the whole deal had no basis. ( 24 ) MR. Salve appearing for Max GB (R-3) referred to Palmer s Company Law (1992 Edition) (page 8107) to contend that, under the Company Law, the shareholders can ratify the action of the Board. Palmer says that the powers of Directors are limited in two ways by the company s constitution : First, the object clause in the company s Memordandum of Association limits the capacity of the company, and secondly, other provisions of the Memorandum, or more likely of the Articles of Association, might limit the authority of the Directors to act on behalf of the company, even though the transaction contemplated is within the company s capacity. Act of the Directors beyond the company s capacity may be ratified by the shareholders by a special resolution. Mr. Salve also pointed that every Board Resolution of a Government Company is sent to the Secretary of the concerned Ministry. It was submitted that the Sub-Committee constituted by the Board was wearing the hat both of the Central Government and that of the Company inasmuch as all the three members were Government officials. He said one has to see the ground reality and M. D. could not go back to the Board again as its (Board s) constitution shows and the M. D. did not step out of line when he wrote to the Central Government pointing out, errors in the Board resolution in which Board meeting he. was in minority. He said any Director could write to the Government which was the sole shareholder of the company. No allegation of corruption or bias against R-4 has been made out as to why he went to the Government. As to why R-4 was interested in Max GB or GB, nothing has been said. by the petitioners. ( 25 ) STRESSIRIG on the question of ratification Mr. Salve queried as. No allegation of corruption or bias against R-4 has been made out as to why he went to the Government. As to why R-4 was interested in Max GB or GB, nothing has been said. by the petitioners. ( 25 ) STRESSIRIG on the question of ratification Mr. Salve queried as. to who could complain if the action of R-4 or of the Board was against the interest of the company and answered that it were the shareholders, and could not be the persons likethe petitioners who were competitors undoubtedly of HAL in the field of production of penicillin. Government not only ratified but also issued directions under Article 117 of the Articles of Association of HAL and that directive , Mr. Salve said, was not under challenge. He said it is not that the petitioners were unaware of the directive as otherwise they knew everything including the Board s resolution. Production of penicillin is in high-tech field and the aim of a company, much less a Government company, is to have final product at the lowest cost. It is the public policy and in public interest. Mr. Salve said the approach of the petitioners was misconceived. They are only making grievance of the lease rent oblivious of the quality. What you lose in rent you recover in quality. It is not a distribution of largesse. If it was merely giving the plant on rent, then, perhaps, petitioners could be right that bids should have been invited but that was not so. In substance, what the Government company wants is to acquire world class technology and there is no other way to get this world class technology from GB, the world known leaders in production of Pen- G, except through a joint venture with Max GB (R-3 ). Thus, the paramount consideration is to have a world class technology and rent is an incidental part. Focus is to bring into production a product of high quality for manufacture of life savings drugs at reasonable cost. In the present case, the Government acted on expert advice. He said it is good if Professor Sharma is not a man of Finance. The Government chose the path of technology and not the path of profit. That is a policy choice and is not amenable to writ jurisdiction. In the present case, the Government acted on expert advice. He said it is good if Professor Sharma is not a man of Finance. The Government chose the path of technology and not the path of profit. That is a policy choice and is not amenable to writ jurisdiction. Once the Government is satisfied that GB has best technology, further question of inviting bids does not arise and the submission that decision making process would mean inviting of bids, etc. would have no meaning. Mr. Salve said that we had to see the true meaning of the transaction and then to apply the guidelines, and only then comes the question and scope of judicial review. The transaction in question, he said, was not distribution of any Government largesse but transfer of technology. The executive Government was not parting with any property for one to complain, also it was not franchising any part of its monopoly. As a matter of fact there was no monopoly, no reserve sector and no privilege which was being parted with. If there is no malafide or bad faith and it is not shown that anyone acted unfairly, court will not interfere. He asked, was it not that the respondents followed a right procedure for what they had set out to achieve? He said, the first step was the selection of technology, the need for that is not disputed. He said it was also not correct factually that the Government only looked at GB, and in this connection he referred to the affidavit of respondents 2 and 4 that even Hoechst of Germany was considered. He said once it is decided that GB is to be collaborator, and that ultimately a contract is to be signed with it, the question of calling for tenders would not arise. He said that all the three petitioners had also earlier approached GB for collaboration but their offers were spurned by the GB. In this connection he referred to letter dated 20 December 1985 of SPIC (CWP No. 3161/94) to GB where the SPIC showed its desire to diversify and setting up its pharmaceutical division giving its background and its desire to get latest technology for the production of penicillin. It said that GB being one of the largest producer of this antibiotic, SPIC wanted to know the availability of its technology and know-how of this antibiotic. It said that GB being one of the largest producer of this antibiotic, SPIC wanted to know the availability of its technology and know-how of this antibiotic. M/s. Themis Chemicals Ltd. , stated to be a constituent of PBS, wrote a letter dated 12 August 1986 (CWP No. 3161/94) to GB, giving the proposal for possible joint venture between Themis Chemicals and GB in India for manufacture of penicillin-G. Mr. Salve also pointed out that various companies, both in private and public sectors as well as the State of West Bengal, wanted to have collaboration with GB for production of penicillin-G as GB had most sophisticated technology in that field. GB always declined saying that it had at. that point of time no plans to transfer the penicillin-G technology to India. On 4 November 1993, GB wrote letter to the Central Government which, in relevant part, is as under :- ". . . As regards your comments on your approach,, we would like to re-confirm that the proposed project with HAL will be done exclusively by our Joint Venture Company in India, Max-GB Ltd. , being solely in charge of enacting the global role we want to play from your country. You can be sure at the same time of our fullest involvement and co-operation from Holland. "mr. Salve then referred to letter dated 30 November 1993 from Max-GB to the M. D. which we may reproduce in full:- "dear Mr. Basu,- The proposed project between MGB and HAL was discussed and reviewed during the Review/board Meeting of MGB held in Delhi on Friday and Saturday, Nov. 26 and 27. Those present in these discussions, apart from others included Mr. Simon Quist from GB Corporate, Director Finance and Administrative, Dr. Den Toom, Managing Director and Mr. Ulf Kallaker General Manager from IPPD. The discussions had the benefit of the background of the due diligence visit made by Gist Brocades to HAL in Pimpri for the full duration of week 47. Further, the proposal to be made to HAL was discussed in detail and very importantly the issue of submitting the same and the procedure HAL/government would adopt in receiving and acting on the proposal. In this regard, I must inform you that MGB has serious reservations on the issue of the timing and confidentiality of submitting its proposal. Further, the proposal to be made to HAL was discussed in detail and very importantly the issue of submitting the same and the procedure HAL/government would adopt in receiving and acting on the proposal. In this regard, I must inform you that MGB has serious reservations on the issue of the timing and confidentiality of submitting its proposal. The questions that arise are Is there any deadline and cut off date for submitting the proposals. If not, a date should be fixed. If Yes, have all the interested parties been informed in writing ? How will HAL/government ensure there is no leakage of information so as to prevent another party from taking advantage from prior knowledge about the concept and details of the proposal being submitted. I am afraid that enough has been published in the press in the last six weeks or so, which suggests that it has not been possible to maintain confidentiality and intentionally or unintentionally as the case may be, information is getting leaked out. . We apprehend that tall claims may be made by the competing parties in an attempt to justify their candidature. Therefore, at a minimum, we would like to suggest that the proposal submitted should be co-signed by the foreign company or atleast a Director level person of the Foreign collaborator/ partner. As is obvious from the above, we have serious concern about the procedure HAL and Government may use in its valuation and decision making process. Finally, please note that we are almost ready with our proposal and on receiving an assurance from you/ Government about the procedural issues linked to the aforementioned we are ready to go ahead. With respect, I have to point out that it has been rather embarassing for me personally, to explain the confusion and press coverage that got sparked off after your visit to Holland in late August/early September. It is therefore necessary that this matter be handled carefully, as another confusion could influence Gist Brocades against going ahead with this collaboration. This point is being made notwithstanding Gist Brocades s willingness to compete for this project based on merit. I look forward to hearing from you soon and assure you of our fullest cooperation. Sincerely yours, Sd/- (BHAI ANLJIT SINGH)"a copy of this letter was also endorsed to Mr. P. C. Rawal, Joint Secretary, Ministry of Chemicals and Fertilizers, and GB, Holland. I look forward to hearing from you soon and assure you of our fullest cooperation. Sincerely yours, Sd/- (BHAI ANLJIT SINGH)"a copy of this letter was also endorsed to Mr. P. C. Rawal, Joint Secretary, Ministry of Chemicals and Fertilizers, and GB, Holland. ( 26 ) MR. Salve criticised the petitioners and said that there was consistent pattern of obstructive dealing by them as, he said, the record would show. He said the petitioners had been acting in concert with one object, that the joint venture in questionmight not come through as that would affect them adversely and one of them even may be wiped out. In this connection he referred to a letter dated 7 March 1994ofpbg (CWP No. 3160/94) to the Secretary to the Government of India in the Ministry of Chemicals and Fertilizers wherein it is stated that PBG is a consortium of five pharmaceutical companies, viz. , Kopran Ltd. , Themis Chemicals Ltd. , Lyka Laboratories Ltd. , Anantand Co. , and Cadila Laboratories Ltd.- and Avik Pharmaceuticals Pvt. Ltd. In this letter, PBG said that HAL, a public sector unit, had been manufacturing phamaceutical formulations and bulk drugs mainly antibiotics from the basic stage, i. e. , fermentation, and that one of these was Pen-G, a life saving drug. PBG wrote that Pen- G plant of HAL had been running with the help of Toyo Suzu of Japan technology/strain, and three years ago HAL again changed its strain to Panjab, USA, but despite these changes in the strain twice, HAL had not been able to get the international levels of yields and economies though the quality of HAL was probably one of the best in the world, better than leading manufacturers like GB-Holland; Hoechst-Germany, etc. The letter further records that HAL had been looking for technology to upgrade its yields and expand its capacity and that it expected a technology to reduce its cost through higher activity of strain and increased yield in the down-stream processing. Then the letter says that HAL negotiated with GB in the early part of 1993 to lease the penicillin-G plan into a joint venture between HAL and Max-GB on 50:50 basis and it was proposed to expand the capacity through the technology given by Max-GB which would be sourced from GB. Then the letter says that HAL negotiated with GB in the early part of 1993 to lease the penicillin-G plan into a joint venture between HAL and Max-GB on 50:50 basis and it was proposed to expand the capacity through the technology given by Max-GB which would be sourced from GB. It said that if this proposal would have been implemented, while HAL would have got some nominal return as operating charges, Max-GB would have had a virtual control of the penicillin-G market, apart from technology fees and royalty. Then the letter mentions as under :- "considering the world monopoly of Gist Brocad-;s, ' companies like Ranbaxy, Kopran, Rujarat Lyka, Standard Organics, Morepan, Cepham Laboratories etc. would- have been wiped out. "mr. Salve said it was this reason that PBG never wanted the joint venture to. go through. He referred to the explanation given by PBG in its affidavit in rejoinder, that this para was written in the letter as it was well known the predatory practice followed by GB in increasing the market share, and that this practice followed by GB was to reduce the prices in order to eliminate competiting manufacturers and achieve a monopoly status for themselves, and subsequently prices were raised high, and that GB had been known to make super profits by this practice. PBG said that apprehensive of the monopolistic tendencies of GB, it wrote letter dated 7 March 1994 expressing its apprehension's. We think it is a poor explanation at that and Mr. Salve was right when he submitted that. in order to avoid-suffering a set back on account of joint venture between Max-GB and HAL that PBG adopted delaying tactics. Mr. Salve then referred to the prospectus issued by Torrent (CWP No. 3181/94) in respect to the public issue opening on 14 December 1992 of secured redeemable partly convertible debentures, wherein it was stated that Torrent was going on for manufacture of Pen-G and was looking forward to higher profits. Mr. Salve said by this representation the company was raising money from the public to invest, and the present deal of HAL with GB would have adversely affected its profits. Mr. Salve also drew our attention to letter dated June 9, 1994 from PBG to Mr. Mr. Salve said by this representation the company was raising money from the public to invest, and the present deal of HAL with GB would have adversely affected its profits. Mr. Salve also drew our attention to letter dated June 9, 1994 from PBG to Mr. P. C. Rawal, Joint Secretary in the Ministry of Chemicals and Fertilizers wherein it was stated that earlier it was told whether it would be possible for it to get any other technology apart from M/s. Biotika, and that now M/s. Antibiotics of Spain had indicated its desire to participate with PBG in giving technology to HAL for upgradation of HAL's facilities. A copy of this letter was endorsed to SPIC (CWP NO. 3161/94 ). Mr. Salve said that after all, all the three petitioners were competitors and there could be no other reason why this letter by PBG should have been endorsed to SPIC unless they were acting in concert in the obstructive process. He said that first PBG offered to have a joint venture with HAL and when it was not successful, SPIC came in the picture, and when offer of SPIC also did not find favour, it was the turn of Torrent to approach HAL with the sole object that the joint venture between HAL and Max-GB might not go through as otherwise their interest would have been harmed; they being themselves prospective producers and consumers of Pen-G, all having got technologies bought from the foreign companies. ( 27 ) WE may refer to some of the correspondence that was exchanged between the petitioners, the Central Government, and HAL. PBG (CWP No. 3160/94) addressed a letter to the M. D. on 6 September 1993 expressing its desire to tie-up with HAL in such manner that HAL gets the maximum return for its fermentation plant through the manufacture of Pen-G. In this letter PBG had stated that it was a consortium of five pharmaceutical companies. A similar letter was also addressed to the Minister of State, Chemicals and Fertilizers. Another letter dated 5 November 1993 was addressed to the M. D. giving some specific proposal for the tie-up and also requesting that PBG be allowed to have an inspection of the facilities and a meeting with the technical people of HAL. It was also desired that certain information be given to PBG. Another letter dated 5 November 1993 was addressed to the M. D. giving some specific proposal for the tie-up and also requesting that PBG be allowed to have an inspection of the facilities and a meeting with the technical people of HAL. It was also desired that certain information be given to PBG. M. D. replied on 8 November 1993 stating that HAL was not in a position to disclose the information as desired by PBG since it did not have any information about PBG's foreign collaborators as to whether they possessed world class technology that would be suitable for HAL and, secondly, there was no confidentiality agreement signed between PBG, HAL and foreign collaborator in question, and, thirdly, HAL was not aware of any tie-up between PBG and its collaborator. M. D. , therefore, said that since the information so far received from PBG was vague regarding source of technology, level of technology and willingness on the part of the foreign collaborator to part with their technology, HAL would not wait indefinitely to discuss technology matters with PBG. M. D. on 12 November 1993 also addressed a letter to Mr. Surendra Somani, Director of PBG, referring to his meetings of 20 October 1993 and 27 October 1993 wherein M. D. said that though Mr. Somani had expressed the desire that PBG would be interested in having cooperation on penicillin with HAL, he had mentioned that his group had not yet been able to tie-up with aforeign collaborator for this purpose. M. D. said that in the absence of a tie-up with the source of technology, a plant visit to HAL would be meaningless. Mr. Somani was told that if his group was unable to have a tie-up with a world class penicillin producer and if no proposal was received by HAL before 20 November 1993, it would be presumed that PBG had nothing to offer. On 16 November 1993, PBG again wrote to M. D. saying that PBG was agreeable to sign a confidential agreement and in fact wanted some more time to give its elaborate proposal. As regards the disclosure of the name of the foreign collaborators, it was mentioned that M. D. was in the penicillin and fermentation business since years and he was aware that foreign collaborators did not disclose their involvement prematurely. As regards the disclosure of the name of the foreign collaborators, it was mentioned that M. D. was in the penicillin and fermentation business since years and he was aware that foreign collaborators did not disclose their involvement prematurely. It was stated that PBG had excellent experience in the field of fermentation and sophisticated R and D setup, and that it was totally geared up to meet the requirements for the improvement in technology and expansion of HAL. PBG also addressed letters to the Secretary in the Ministry of Chemicals and Fertilizers and to Mr. P. C. Rawal, Joint Secretary in the same Ministry giving upgradation and expansion proposal for Pen-G plant of HAL. In its letter dated 14 December 1993 to Mr. P. C. Rawal, Joint Secretary, PBG said that since Mr. Rawal had insisted that PBG should reveal the name of its foreign collaborator, it was being disclosed and 'that was M/s. Biotika a. s of Slovakia. It was stated that Biotika was one of the oldest companies in the field of penicillin and it had tremendous experience in penicillin, and was a very large pharmaceutical company in eastern Europe. In this letter it was also mentioned that Biotika a. s, had also given technology to M/s. Torrent (CWP No. 3181/ 94) for its new penicillin venture. A similar letter was also addressed to M. D. On 24 December 1993, M. D. replied. It was mentioned that HAL was already having a technology which was the best available in the country and HAL was looking for the best technology for penicillin available in the world and that the Board of Directors of 3-cw 3181. 94 HAL had considered the offer of PBG of bringing the technology of M/s. Biotika a. s. and had decided that itdid not meet with the requirement of HAL for penicillin technology upgradation. It was also noted that M/ s. Biotika a. s. had offered technology to M/s. Torrent as well. In these circumstances, it was mentioned that HAL was not in a position to collaborate with PBG for upgradation of penicillin technology. With this state of affairs, PBG wrote a letter dated 7 March 1994 to the Secretary to the Government of India in the Ministry of Chemicals and Fertilizers expressing apprehension that many companies producing penicillin would be wiped out. This letter we have already mentioned above. With this state of affairs, PBG wrote a letter dated 7 March 1994 to the Secretary to the Government of India in the Ministry of Chemicals and Fertilizers expressing apprehension that many companies producing penicillin would be wiped out. This letter we have already mentioned above. PBG in its petition also filed a copy of letter dated 10 May 1994 written by M. D. to Torrent (CWP No. 3181 / 94 ). In this letter M. D. acknowledged letters of Torrent addressed to him as well as to the Secretary, Ministry of Chemicals and Fertilizers and the fact that now that Torrent had made good progress in setting up a new penicillin plant near Baroda. It was stated that as per information of HAL it would take some time for Torrent to be able to assimilate the new technology in its plant and -get optimum guaranteed productivity of penicillin G, and it might take 2-3 years to reach that stage. It was then mentioned that Torrent had not indicated the source of its technology and any other information regarding the strain and technology. M. D. said that since Torrent's own plant was yet to be set up and the technology assimilated, it would not serve any purpose for HAL to have a tie-up at this stage because it itself had not gone into production. M. D. , therefore, said that HAL had no thing to gain by proposing a technology tie-up with Torrent group of companies in the field of penicillin. This letter has also been filed by Torrent in its writ petition (CWP No. 3181/94 ). Earlier in its letter to the Secretary and Joint Secretary, Department of Chemicals and Petrochemicals and also to M. D. , Torrent had given its proposal to team up with HAL. It was stated that in spite of such competence, HAL could not keep pace with international developments in penicillin production and probably that was the reason for its seeking technical assistance from GB through Max-GB. Torrent stated that it had acquired state-of-the-art technology for penicillin production and was in the process of establishing a plant near Baroda which was stated, to go into production by the end of the year. It was mentioned that its proposal, if accepted, would lead to substantial gains to HAL and to the country. ( 28 ) SPIC (CWP No. 3161/94) in its letter dated. It was mentioned that its proposal, if accepted, would lead to substantial gains to HAL and to the country. ( 28 ) SPIC (CWP No. 3161/94) in its letter dated. 12 November 1993 to the Minister of State, Chemicals and Fertilizers, said that it had come to know that HAL, a public sector enterprise, producing penicillin G and other antibiotics, was considering tying up with third parties for upgradation of technology, increasing production, and supply of penicillin G for conversion of 6-APA, 7-ADCA and further down-stream products. It was mentioned that SPIC was setting up India's largest penicillin plant in Tamil Nadu, and that technology for penicillin G had been obtained from CIPAN, Portugal, whose experience in fermentation process, etc. , was well-proven in other parts of the world. The letter said that SPIC was eminently suited for joint venture partner for HAL, and the proven track record of SPIC in mobilising financial resources and effectively handling new technologies would go a long way in successfully collaborating with HAL in its bid to privatise and grow to international levels of production of penicillin G. This letter was replied by M. D. on December 15, 1993. . It acknowledged the fact of SPIC setting up a penicillin plant in Tamil Nadu with foreign collaboration and said that HAL was the leader in the field of penicillin in India and was looking for penicillin technology of the highest order. Request of SPIC was declined. On the request ofspic, a meeting was held on 28 March 1994 between the representative ofspic and the Board of HAL where SPIC explained its proposal. However, the proposal ofspic did not find favour with the Board. ( 19 ) IN Tata Cellular v. Union of India, JT 1994 (4) S. C. 532, the court considered the scope of judicial review in administrative matters and deduced the following principles (at para 113) :- (1) The modern trend points to judicial restraint in administrative action. (2) The Court does not sit as a court of appeal but merely reviews the manner in which the decision was made. (3) The Court does not have the expertise to correct the administrative decision.- If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible. (2) The Court does not sit as a court of appeal but merely reviews the manner in which the decision was made. (3) The Court does not have the expertise to correct the administrative decision.- If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible. (4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively be experts. (5) The Government must have freedom of contract. In other words, fairplay in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides. (6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure. ". ( 30 ) WE were also referred to a decision of the Supreme Court in Food Corporation of India v. M/s. Kamdhenu Cattle Feed Industries, (1993) 1 SCC 71 , wherein the court invoked the principle of fairness in the case of a tender. Food Corporation of India had invited tenders for sale of its damaged stocks of foodgrains in accordance with the terms and conditions contained in the tender notice. It, however, did not award the tender to the highest bidder. The court rejected the argument of the Food Corporation of India that it had unfattered discretion in the matter as in the tender notice a right was reserved to reject all tenders, including the highest tender. The court said that despite the term in the tender notice the rejection must be for valid reasons because every public body was under a duty to act fairly. As would be seen, the court viewed the matter not from the perspective of the individual tender but focussed on the obligation of a public body. The court said that despite the term in the tender notice the rejection must be for valid reasons because every public body was under a duty to act fairly. As would be seen, the court viewed the matter not from the perspective of the individual tender but focussed on the obligation of a public body. The court observed as under (para 7 of the judgment) :- "in contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law: A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is 'fairplay in action'. Due observance of this obligation as a part of good administration raises a reasonable or legitimate expectation in every citizen to be treated fairly in his interaction with the State and its instrumentalities, with this element forming a necessary component of the decision-making process in all State actions. To satisfy this requirement of non-arbitrariness in a State action, it is, therefore, necessary to consider and give due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision or else that unfairness in the exercise of the power may amount to an abuse or excess of power apart from affecting the bona fides of the decision in a given case. The decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion in the exercise of power, as it is unrealistic, but provides for control of its exercise by judicial review. "this judgment in our view cannot be made applicable in the facts of the present case. As we have seen above, once having come to the conclusion that it was necessary to tie-up with GB for acquiring its technology for the upgradation of technology in HAL and for higher yield and that GB was a world leader both in production and technology of Pen-G, it was no longer necessary for the respondents to call any tenders. Only Max-GB could provide the technology which respondents 1 and 2 are looking for. Only Max-GB could provide the technology which respondents 1 and 2 are looking for. ( 31 ) IT could not be disputed that HAL and Central Government were the best judge as to need for expansion of the HAL unit for production of Pen-G and for upgradation of the technology. As to what best technology was suitable, again it was for HAL and the Central Government to decide. Mr. Venugopal did give a chart giving the specifications of - Pen-G of various foreign companies and also HAL in the production of Pen-G. These foreign companies are Synpack, Hoechst, Biochem, Soon Growth, Antibiotica and GB. The standards of Pen-G manufactured by these companies respecting appearance, transmittance, PH of 1% Soln. , potency and assay vary and, perhaps, on this an argument was sought to be raised that technology of GB could not be the best. We are unable to agree with such a submission. It is not for the court to examine which technology is best suitable to the public undertaking, HAL in this case. One of the principles of judicial review, as laid by the Supreme Court and reproduced above, is that court does not sit as a court of appeal. It merely reviews the manner in which the decision was made. Mr. Nariman rightly said that petitioners had no fundamental right to claim that they should be awarded the joint venture. He, however, said that what the petitioners expected was that there should have been a legitimate consideration of their offers. To this submission as well we are unable to agree because of the view we have taken though we find their offers were duly considered. The only aspect which we think we have to see is whether there was any "procedural impropriety" in entering into MOU or whether there was any illegality that procedure adopted was in contravention of any provision of law. Section 2 (26) of the Companies Act, 1956, defines 'managing Director' to mean a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or, by its Board of directors or, by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him. It is also provided therein that the managing director of a company shall exercise all his powers subject to the superintendence, control and direction of its Board of directors. This definition of managing director is applicable to HAL and R-4 as well. We have already seen above that under the Articles of Association of HAL all directors shall be appointed by the Central Government provided, however, the directors, other than the Chairman and/or the Managing Director and Government representative to the Board, shall be appointed in consultation with the Chairman. The Central Government shall also have the power to remove any director including the Chairman. and Managing Director from office at any time in its absolute discretion and right to fill any vacancy as well in the office of director. Article 71 gives the general powers of the company which are vested in Directors, and Article 72 specifies the powers to Directors. After the Board's resolution dated 28 April 1994 which was majority resolution and in which the M. D. was in the minority,the M. D. went to the Central Government giving his views in the matter. We do not think it was necessary for the Managing Director to refer the matter to the Board for reconsideration. After all it was a right of the Central Government to approve agreements involving foreign collaboration proposed to be entered into by the company. The Board did resolve that HAL should go in for higher levels of production which could be achieved with the present technology and that the company should acquire technology for reaching to higher levels of production. As noted above, the Board also decided 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. The Board itself, therefore, opted for the technology of GB. Petitioners themselves knew that the ultimate decision to enter into foreign collaboration lay with the Central Government and that was the reason that they have been writing to the Central Government all this period. 31. 68 crores at the level of production of 1100 MMU. The Board itself, therefore, opted for the technology of GB. Petitioners themselves knew that the ultimate decision to enter into foreign collaboration lay with the Central Government and that was the reason that they have been writing to the Central Government all this period. The Central Government which held all the shares in HAL examined the matter independently and issued directive under Article 117 of the Articles of Association of HAL. This Article also provides that the company shall give immediate effect to the directive so issued. There is no form prescribed for issuing the directive and one has to understand the word "directive" in its ordinary meaning. A directive is an authoritative instruction or direction. The direction dated 20 June 1994 issued by the Central Government is valid and HAL had no choice except to act on the same. A great deal of argument was based that every thing was done on 20 June 1994 itself with top speed which is very unlike a Government department or a public undertaking. We do not think petitioners can draw any advantage from this. It was as far back in August 1993 that M. D. had gone to Holland with prior approval of the Central Government for the specific purpose of discussing tie-up arrangement with GB. MOU which was signed on 20 June 1994 was, therefore, proceeded with negotiations over a long period of time and arrived at after considering relevant factors. Members of the Evaluation Committee who went into the matter as per the directive were well-versed with the whole case and then the matter was negotiated with the Max-GB (R-3 ). It, therefore, cannot be said that there has been any procedural irregularity or illegality in the Government issuing the directive, and MOU entered into. It also could not be disputed that GB is the world leader in the production of Pen-G and has the best technology. We have seen above how some of the petitioners and others had been trying to acquire the technology of GB and wanted to have a tie-up with GB but they were unsuccessful. HAL itself is the biggest producer of penicillin in the country and having collaboration. We have seen above how some of the petitioners and others had been trying to acquire the technology of GB and wanted to have a tie-up with GB but they were unsuccessful. HAL itself is the biggest producer of penicillin in the country and having collaboration. It must be given credit of possessing knowledge as to who in the world is the best company in the production of Pen-G and whose technology it should acquire to upgrade its own technology and to expand the production. Petitioners themselves are having foreign collaborators. A commercial organisation functioning in a highly competitve area cannot be coerced or circumscribed at the instance of its competitors to opt for a particular technology which the organisation thinks is unsuitable and give up alternatives which are commercially and technologically much superior. Once the public sector company decided to have a particular technology it could not go for tenders as no other company in the country had the technology of GB which Max-GB (R-3) has. Only what remained was the holding of negotiations with GB and/or Max-GB. We think the grievance of the petitioners that the lease money being charged as per the MOU is almost half of what the Board had suggested, is without any basis. For one thing, petitioners have no right in the matter. Secondly, we cannot view the lease money in isolation. The charging of lease money and the transfer of technology are matters of negotiations. In fact pursuant to the directive of the Central Government the Committee negotiated with Max-GB and made them agree to raise the lease money to Rs. 17 crores per annum. Assuming for a moment that lease money being charged is less than what HAL otherwise would have got from the petitioners, HAL would make up the loss from the profits. The principal considerations are quality and yield of the product. It is not for the petitioners to tell HAL as to what technology it shouldemploy. If quality of the product is good, HAL will sell more and earn more. Loss of lease money, if any, can well be compensated by more profits. Court certainly cannot go into such a question. It is difficult to understand what right of the petitioners has been violated in the present case. ( 32 ) AFTER having selected the technology it was not necessary to call any tenders. Loss of lease money, if any, can well be compensated by more profits. Court certainly cannot go into such a question. It is difficult to understand what right of the petitioners has been violated in the present case. ( 32 ) AFTER having selected the technology it was not necessary to call any tenders. Yet, we find, HAL examined the offers made by the petitioners to have a tie-up with any of them and these offers were declined for valid reasons. HAL could not be saddled with a technology or tie-up with any of the petitioners when it does not want that. It does appear to us that the petitioners are making grievance of the lease money oblivious of the quality of the product. It is also not a case where there is a distribution of any largesse. If it was merely giving the plant on rent by HAL, then perhaps petitioners could be right that bids should have been invited, but that was not so. In substance, what HAL wants is to acquire world class technology and there is no other way to get this world class technology from GB, the world known leader in the production of Pen-G, except through a joint venture with Max-GB (R-3 ). Profit is certainly motive of any commercial organisation, even a public undertaking, but that is not an end in itself shutting eyes to all other relevant factors. For sake of some extra profit quality of the product could not be sacrificed. Mr. Chandrasekharan, Additional Solicitor General of India, is right i,n his submission that it was a case of technological upgradation of the existing plant of HAL and the financial and technical parameters were closely interrelated and needed to be viewed as a whole and not severally and individually. We find the stand of the Central Government and HAL is quite correct and we find no procedural irregularity or illegality in their coming to the conclusion to acquire the technology of GB for the production of Pen-G and for entering into MOU with Max-GB. Thus, we find respondents acted within the four corners of the Memorandum and Articles of Association of HAL, and it is difficult, nay impossible, to believe that they have not acted in good faith but with any ulterior motives. Thus, we find respondents acted within the four corners of the Memorandum and Articles of Association of HAL, and it is difficult, nay impossible, to believe that they have not acted in good faith but with any ulterior motives. Heavy burden lay on the petitioners to have the decision of the Central Government set aside on the ground of procedural illegality or impropriety which they have failed to discharge. The Central Government and HAL exercised their jurisdiction within the ambit of their powers. ( 33 ) A great deal of criticism had been levelled on M. D. that he is the person who acted unfairly and got to Max-GB an advantage which otherwise that company could not have. We find any criticism of the conduct of the M. D. to be unwarranted. He acted in the best interest of HAL of which he is the Managing Director, and we also do not find that he has any personal interest in the matter to give any advantage to Max-GB. No malafides could be attributed to him inasmuch as (1) Subcommittee constituted by the Board itself recommended that collaboration could be had with the GB; and (2) Government directive was issued after an independent examination and no malafides had been alleged against the Central Government nor against Prof. M. M. Sharma. Proposals for tie-up given by the petitioners had been rejected by the Board. It was not necessary for the M. D. to revert back to the Board, again as he was in minority there and we find nothing improper in his writing to the Central Government giving his views differing with the Board especially since the Central Government was already seized of the matter. All shareholdings in the company are with the Central Government who have the powers to issue directions under Article 117 - of the Articles of Association of HAL. Action of the M. D. appears to us to be above board and we think he has been unnecessarily subjected to criticism. We find no merit in the submission of the petitioners that there was any circumstance from which it could be inferred that M. D. was not acting in the best interest of HAL, or that he was to give any undue benefit to Max-GB. We find no merit in the submission of the petitioners that there was any circumstance from which it could be inferred that M. D. was not acting in the best interest of HAL, or that he was to give any undue benefit to Max-GB. We also do not think that petitioners can have any grievance that MOU was signed on 20 June 1994 itself on which date the directive was issued by the Government. One has to keep in view the letter dated 30 November 1993 of Max-GB and there appears to he no reason why signing of MOU should have been delayed. ( 34 ) THE petitioners have made a grievance that they have been kept ignorant of the process which had gone into in selecting GB, and then entering into MOU with Max-GB. No doubt, it is the constitutional obligation of the authorities and adjudicators to disclose reasons for their decision, but the petitioners here have not questioned the decision Of the Central Government to be in any way as arbitrary or irrational. Their whole weight in the argument was thrown against HAL and particularly against M. D. It is not that whenever a petition is filed the petitioner would have access to whole of the files of the Government, or records of the public undertaking. The petitioner must lay foundation for the purpose and show his bona fides and infringement of his constitutional and statutory rights. In the present case, no right of the petitioners is shown to have been infringed. We, therefore, cannot permit the petitioners to have access to official records not that any privilege is being claimed, but business secrets of GB containing vital information as to technical know-how will be unnecessarily exposed to the petitioners to the great disadvantage of GB and the joint venture company. There is a great deal of confidentiality attached to the joint venture and the petitioners, themselves in the business of production of Pen-G with foreign collaboration, do not have any right to have a look at that. ( 35 ) DURING the course of hearing the petitioners filed three applications for inspection of various records both of the HAL and the Central Government. These applications are not maintainable. ( 35 ) DURING the course of hearing the petitioners filed three applications for inspection of various records both of the HAL and the Central Government. These applications are not maintainable. Moreover, from the pleadings of the petitioners it is quite apparent that they are well aware of all the records and they have unnecessarily created a spectre of their being ignorant of the records. To illustrate, the petitioners said that letter dated 3 May 1994 of the M. D. to the Central Government had been shown to Mr. Salve by HAL while they were denied inspection of the same. When we bad just taken this letter in hand the petitioners said, that we should see para 1. 8 of this letter. It really surprised us how would they know as to what para 1. 8 contained, and thereafter no argument was addressed that they were not in know of the contents of the letter. ( 36 ) IN view of our discussion above, we find no merit in these writ petitions and these are dismissed with costs. Counsel fee Rs. 5,000. 00 in each of these petitions. Rule is discharged.