Apar Industries Ltd v. Union of India

6. On 1st December 2017, Apar Industries submitted a quality assurance plan or QAP for HDGC wires.

7. On 22nd June 2018, Apar Industries obtained a running contract for this supply. Against this contract, purchase or supply orders were issued periodically.

8. As our 25th November 2022 order notes, one of the raw materials for the manufacturing HDGC wires is what are called CCC rods. These must be purchased from an approved supplier. An approved supplier of CCC rods is Hindustan Copper Limited or HCL. In turn, copper cathodes are used in the manufacture of CCC rods. To trace this in reverse, copper cathodes are used to make CCC rods, and these CCC rods are then used to make HDGC wires. While there is quality control and manufacture to specifications required throughout, copper cathodes must conform to the requirements of the London Metal Exchange Grade A specification.

9. The only charge against Apar Industries is that it got copper cathodes from a third party and supplied these to HCL to manufacture CCC rods. Apar Industries is accused of engaging in what is described “job-work”. It is true that Apar Industries bought the copper cathodes from Sumitomo Japan as these met the required London Metal Exchange Grade-A specification.

10. The 4th Respondent is the Rail India Technical and Economic Service Limited or RITES. It has inspected the CCC rods and HDGC wires and certified these as meeting the quality requirements and specifications.

11. On 25th February 2021, the 2nd Respondent, the Central Organisation for Railway Electrification, withheld or recovered about Rs.38 crores due to Apar Industries for the supply of HDGC wires. Apar Industries invoked arbitration. Mr Doctor accepts that payment for the HDGC wires was actually made, but what was withheld related to the supply of HDGC wires which did not use CCC rods obtained from HCL.

12. On 30th March 2021, the Research Designs and Standards Organisation (RDSO), the 3rd Respondent, issued a notice delisting the Petitioner for alleged job-work.

13. Apar Industries filed a Writ Petition on 22nd April 2021. This Court directed the Respondents to accept Apar Industries’ bid for Railway tenders and not to award tenders until final disposal of Apar Industries appeal before the Appellate Authority. Time to dispose of the appeal was periodically extended and, in the meantime, Apar Industries was allowed to participate in all tenders, these not to be finalized. On 9th June 2021, the Appellate Authority confirmed the order of de-listing. Apar Industries filed a second Writ Petition challenging the Appellate Authority’s order. That order was stayed by this Court. One of the reasons was that the show-cause notice did not indicate a proposed de-listing. It also noted that there was no quality defect, deficiency or deviation from quality.

14. In the meantime, in the arbitral proceedings, there came to be made an arbitral award directing the Railways to release all amounts due to the Petitioners. Mr Doctor would have us read the arbitral tribunal’s findings, but we do not believe that this material is for our purposes today. What is relevant is that on 21st December 2021, the Respondents withdrew the show cause notice and consequently Apar Industries withdrew its Writ Petition.

15. The Railways have challenged the arbitral award under Section 34 of the Arbitration & Conciliation Act, 1996.

16. Nothing seems to have happened till 2nd August 2022, when the Railways issued the impugned show cause notice, now asking Apar Industries to show cause why it should not be de-listed. This led ultimately, after Apar Industries had filed a Reply, to the impugned order of 10th November 2022, which said only that Apar Industries’ reply was found not to be acceptable.

17. Mr Doctor poses a question, presumably to himself, “why not?” The question provides its own answer because the impugned order has no reasons that we are able to discern. There is rank speculation about a deviation from the QAP — actually worded as conjecture saying that this “may lead to quality issues”.

18. On the face of it, the impugned order cannot be sustained. De-listing for any period of time has serious consequences. As a matter of administrative law, no order with such consequences can be made on what is the purest speculation. Nowhere in the papers to be found a single record to indicate that (i) there has ever been a deviation from specifications of quality or, (ii) that because Apar Industries supplied the Sumitomo copper cathodes to HCL for manufacturing CCC rods, after which it could make its HDGC wires, there has been any degradation, deterioration, variation or fall in prescribed quality or specifications.

19. We understand the prohibition or proscription against jobwork. The reason is self-evident. It has to do with quality control. But the mere fact that a person has obtained the copper cathodes from another vendor and sent them to HCL for manufacture of CCC rods does not inevitably lead to a factual conclusion that there has been a variation in quality standards.

20. This is one reason we find that the impugned order at page 79 could not possibly have speculated as to what might happen. If there was to be a blacklisting, this could only be done on the basis that there was indeed and in fact a deterioration in quality. Once the supply by Apar Industries was found to be non-conforming in quality, then it really would make no difference why that nonconformity took place. It could then perhaps be further attributed to the fact that Sumitomo copper cathodes were being supplied to HCL. But this is a factual determinant, and it cannot be left to the realm of speculation, conjecture and surmise.

21. The other factual aspect is that the prohibition against jobwork was actually introduced in the year 1st January 2021. The RDSO (the 3rd Respondent) specifications in force prior to that date did not contain such a prohibition.

22. Strangely, the impugned order makes reference in its subject line to these RDSO specifications with effect from 1st January 2021 but applies them to supplies made between 2019 and 2020. That could never have been done.

23. Lastly on the factual aspect of the matter, the following points must be kept in mind. (a) The copper cathodes from Sumitomo were inspected and found to conform to the necessary London Metal Exchange Standards. (b) The CCC rods manufactured by HCL using these copper cathodes were inspected and duly certified by the 4th Respondent.

(c) The HDGC wires made by Apar Industries from the

(d) HCL is an approved vendor of CCC rods.

(e) HCL has certified that the CCC rods were procured using LME Grade A quality-compliant copper cathodes and that these were checked internally by HCL’s quality control team. (f) At no point has the Railways rejected the HDGC wires manufactured in this manner by Apar Industries. On the contrary, these supplies have been accepted and have actually been used. (For some reason that we cannot understand Apar Industries offered to replace these wires. If they were compliant then there was nothing to replace, but the point is that the Railways never acted on this).

24. We do not understand how a party can be de-listed for no demonstrable fault. A prohibition or a standard is sought to be applied retrospectively. Relevant factors have been completely ignored, namely quality control, and, most importantly, the acceptance of Apar Industries’ products and their actual deployment by the Railways. The entirely irrelevant factor of the 2021 specification was used —irrelevant because it was applied to supplies of a previous period although it came into effect only from 1st January 2021.

25. As a matter of administrative law, this action fails both the primary and the secondary tests of judicial review — where fundamental rights are involved, and where they are not. It is entirely disproportionate. It also completely meets or fits the standard of Wednesbury nnreasonableness as enunciated in Associated Provincial Picture Houses Limited v Wednesbury Corporation.[1] Lord Greene said: “… It is true that discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology used in relation to exercise of statutory discretions often use the word ‘unreasonable’ in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with a discretion must, so to speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting ‘unreasonably’. Similarly, there may be something so absurd that no sensible person could even dream that it lay within the powers of the authority. … In another, it is taking into consideration extraneous matters. It is unreasonable that it might almost be described as being done in bad faith; and in fact, all these things run into one 1 [1948] 1 KB 223. another.” … “… it must be proved to be unreasonable in the sense that the court considers it to be a decision that no reasonable body can come to. It is not what the court considers unreasonable. … The effect of the legislation is not to set up the court as an arbiter of the correctness of one view over another.”

26. In Council of Civil Service Unions v Minister for the Civil Service,[2] Diplock LJ for the House of Lords spoke of ‘irrationality’ in these words: By ‘irrationality’ I mean what can by now be succinctly referred to as Wednesbury unreasonableness. It applies to a decision which is so outrageous in its defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it. (Emphasis added)

27. Even as Wednesbury unreasonableness continued to inform decisions of Courts with the power of judicial review, not only here but in many other jurisdictions, there came into ascendance a parallel doctrine of proportionality. This is not necessarily linked to the award of punishment. It is a facet of reasonableness. Its tests are slightly different from those of Wednesbury unreasonableness. The doctrine tells us that in any executive or administrative action, the act or thing done or ordered to be done cannot be so disproportionate to the cause for that order. To put it more 2 [1983] UKHL 6: [1984] 3 All ER 935: [1984] 3 WLR 1174. colloquially, an administrator or an executive cannot use our hammer to kill an ant.[3]

28. In CCSU, Diplock LJ foresaw the advent of the proportionality doctrine: “Judicial review has I think developed to a stage today when, without reiterating any analysis of the steps by which the development has come about, one can conveniently classify under three heads the grounds on which administrative action is subject to control by judicial review. The first ground I would call ‘illegality’, the second ‘irrationality’ and the third ‘procedural impropriety’. That is not to say that further development on a case-by-case basis may not in course of time add further grounds. I have in mind particularly the possible adoption in the future of the principle of‘proportionality’… ”

29. The CCSU standard was accepted in Union of India & Anr v G Ganayutham.[4] The two doctrines received an elucidation in Om Kumar & Ors v Union of India,[5] particularly on the question of primary judicial review (where fundamental rights are involved) and secondary judicial review (where they are not).[6]

30. The scope of the proportionality principle came to be examined in Coimbatore District Central Cooperative Bank v

3 See: R v Goldstein, [1983] 1 WLR 151: [1983] 1 All ER 434: per Diplock LJ: “This would indeed be using a sledge-hammer to crack a nut.”

6 See also: Kerala State Beverages (M&M) Corporation Ltd v PP Suresh & Ors, (2019) 9 SCC 710. Coimbatore District Central Cooperative Bank Employees Association & Anr.[7] The Supreme Court said:

17. So far as the doctrine of proportionality is concerned, there is no gainsaying that the said doctrine has not only arrived in our legal system but has come to stay. With the rapid growth of administrative law and the need and necessity to control possible abuse of discretionary powers by various administrative authorities, certain principles have been evolved by courts. If an action taken by any authority is contrary to law, improper, irrational or otherwise unreasonable, a court of law can interfere with such action by exercising power of judicial review. One of such modes of exercising power, known to law is the “doctrine of proportionality”.

18. “Proportionality” is a principle where the court is concerned with the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. The very essence of decision-making consists in the attribution of relative importance to the factors and considerations in the case. The doctrine of proportionality thus steps in focus true nature of exercise—the elaboration of a rule of permissible priorities. …

21. The doctrine has its genesis in the field of administrative law. The Government and its departments, in administering the affairs of the country, are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without abuse of discretion. There can be no “pick and choose”, selective applicability of the government norms or unfairness, arbitrariness or unreasonableness. It is not permissible to use a

31. As the Supreme Court itself noted, the proportionality principle is a test of whether the decision-maker has achieved the correct balance: Chairman, All India Railway Recruitment Board & Anr v K Shyam Kumar & Ors.[8] In Ganayutham, the Supreme Court said: To arrive at a decision on “reasonableness” the Court has to find out if the administrator has left out relevant factors or taken into account irrelevant factors. The decision of the administrator must have been within the four corners of the law, and not one which no sensible person could have reasonably arrived at, having regard to the above principles, and must have been a bona fide one.

32. Some learning seems to suggest that the doctrine of proportionality now has greater prevalence than Wednesbury unreasonableness: Jitendra Kumar & Ors v State of Haryana & Anr.[9] Paragraph 62 of this decision is telling:

62. Our attention has also been drawn to the following passage of Sir William Wade's Administrative Law, 9th Edn., pp. 371-72: “Goodbye to Wednesbury? The Wednesbury doctrine is now in terminal decline, but the coup de grâce has not yet fallen, despite calls for it from very high

9 (2008) 2 SCC 161; authorities. Lord Slynn said in the Alconbury case [R. v. Secy. of State for Environment, Transport & the Regions ex p Alconbury Development Ltd., (2001) 2 All ER 929 (HL)], with reference to proportionality: ‘I consider that even without reference to the Human Rights Act, 1998 the time has come to recognise that this principle is part of English administrative law not only when judges are dealing with community acts but also when they are dealing with acts subject to domestic law. Trying to keep the Wednesbury principle and proportionality in separate compartments seems to me to be unnecessary and confusing.’ and in the Daly case [R. v. Secy. of State for the Home Deptt., ex p Daly, (2001) 3 All ER 433 (HL)] Lord Cooke said: ‘I think that the day will come when it will be more widely recognised that Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn. was an unfortunately retrogressive decision in English administrative law, insofar as it suggested that there are degrees of unreasonableness and that only a very extreme degree can bring an administrative decision within the legitimate scope of judicial invalidation.’ Although quoting and sympathising with these weighty opinions, and acknowledging that ‘the Wednesbury test is moving closer to proportionality’, the Court of Appeal has held that ‘it is not for this Court to perform the burial rites’. That task must be left to the House of Lords, and meanwhile the law as laid down by the House in Brind case [R. v. Secy. of State for the Home Deptt., ex p Brind, (1991) 1 AC 696: (1991) 1 All ER 720: (1991) 2 WLR 588 (HL)], in which proportionality was rejected as part of English law, must linger on. Lord Irvine, L.C. has, however, suggested, in a human rights context, that ‘there is a profound difference between the convention margin of appreciation and the common law test of rationality’, and has raised the question, ‘How long the courts will restrict their review to a narrow Wednesbury approach in non-convention cases, if used to inquiring more deeply in convention cases?’ The difference that he observes is in substance the same as that detected by the House of Lords, and his question is whether it will be eliminated by ‘spill-over effect’ from human rights and EU law. This is exactly the kind of convergence which European influences are likely to bring about. It is evident already in the numerous references to proportionality which Judges are making freely, and which are paving the way for its general acceptance.” We, with greatest respect, do not have any such problem. This Court not only has noticed the development of law in this field but applied the same also.

33. Thus, we have not seen a judgment in India which says that only one can be applied and not the other; All India Recruitment Board points to the contrary. Indeed, the proportionality principle’s origins have been traced to the Wednesbury unreasonableness doctrine: Maharashtra Land Development Corporation & Ors v State of Maharashtra & Ors.10

34. As we note, there is here a procedural irregularity in the absence of cogent reasons, the failure to take into account relevant material and the reliance on extraneous or immaterial factors. That meets the Wednesbury unreasonableness standard. As to proportionality, nowhere in the impugned order we find a justification for a de-listing for nine months. We can only presume that it was less than 12 months because someone might have described that as a blacklisting, and hence completely illegal. But that still does not answer why it should be this particular period.

35. It is impossible to sustain the impugned order at Exhibit “A”.

36. Accordingly, the Petition succeeds. Rule is made absolute in terms of prayer clauses (a) and (b).

37. This leaves the question of what is to happen about the existing tender that we have just been shown. This is Tender No.16225056 on which there was an auction on 7th February 2023. The Petitioner bid for the tender and Mr Doctor informs us on instruction that in fact the Petitioner was the lowest bidder. But the Petitioner has been excluded and its technical bid rejected on the ground that it was not eligible for participation.

38. Mr Suresh Kumar tells us that tender has not been awarded.

39. The result is that so far as this tender is concerned, Tender No.16225056, the Petitioners’ technical bid will have to be accepted, opened, and examined by the Respondents. The Petitioners must be allowed to participate in that tender and in that bid. There is no question of them being ineligible to participate in that tender.

40. This will also apply to Tender No. 40225026A, and Tender No. 04225030. In all these tenders the Petitioner’s bid has not been considered on the ground that it is not eligible to participate. Indeed, we are surprised by this in view of previous interim orders. In this context, we note our further order of 23rd January 2023, where after noting the previous facts in paragraphs 4, 5 and 6 we held as follows: “4. In the meantime, Railways has proceeded with several other tenders. The Petitioner is being blocked from participating these other tenders.

5. As we have noted on 25th November 2022, there is no affirmative finding of quality deficiency in the Petitioner’s supplies or products. There is no positive finding of a safety issue at all. Prima facie, the only objection seems to emanate for some form of an accounting entry discrepancy or objection relating to certain invoices for the process that we described in paragraphs 3 and 4 of our order dated 25th November 2022 order.

6. In this view of the mater, we have no hesitation in extending the protection in paragraph 6 of our 25th November 2022 order to all other ongoing tenders and any that are floated by the Railways between now and the next date.”

41. The Petition is disposed of in these terms.

42. In the facts and circumstances of the case there will be no order as to costs.

43. We clarify that Section 34 Petition filed by the Railways will be decided on its merits uninfluenced by any observations we have made in this order.

44. The Interim Application is infructuous and disposed of accordingly. (Neela Gokhale, J) (G. S. Patel, J)