(Prayer: Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Mandamus directing the 1st Respondent to issue the notification under Section 4(1) of the Special Economic Zones Act, 2005 for the Establishment of the SEZ project by the 4th respondent herein in Puducherry.
Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorarified Mandamus calling for the entire records leading to the issue of the impugned G.O.Ms.No.3/2013-Ind.A dated 19.8.2013 issued by the 2nd respondent and quash the same, so far as the petitioners concern and further forbear the respondents from in any manner acting contrary to the Agreements, viz. (i) Development and State Support Agreement dated 28.8.2006 entered into between the 2nd and 4th respondent (ii) Share Subscription and Shareholders Agreement dated 28.8.2006 entered into between the petitioner and the 3rd respondent and (iii) the Lease and Possession Agreement dated 13.2.2008 executed by the 3rd respondent in favour of the 4th respondent.
1. The Union Territory of Pondicherry adopted a noval procedure unheard of anywhere, for selecting a private promoter for establishing the Special Economic Zone, by adopting a unique method, which would appear like a beauty contest (selection solely on the basis of ten minutes presentation) without recording the relative merits as to how the selected developer presented in a better manner when compared to the performance of other bidders and after selection directing the developer to prepare the project report of its own and permitting a third party to join through back door as consortium partner later without any application earlier. The records also indicate that not even a minimum verification was conducted with regard to the background of the private developer and the strange conduct of the then Administrator of the Union Territory of Pondicherry directing initiation of action against the Development Commissioner, a Senior Member of the Indian Administrative Service on account of his note to ascertain the background of the developer before awarding the project, in view of its strategic importance. The information received later shows that M/s. Subash Projects and Marketing Limited was blacklisted by SEBI and indicated by Calcutta High Court for asserting undue influence through the Minister for Power to award a contract (the finding was upheld by the Supreme Court) and therefore it is clear that the need felt by the Development Commissioner to ascertain the antecedent of the developer was correct. The records produced before the Court including the note made by the Union of Home Ministry, clearly indicates that the very process of selection of private developer who earlier secured the contract for development of Pondicherry Port was a predetermined one, making conditions tailor made.
2. The Government of Pondicherry took a policy decision to establish a Special Economic Zone (SEZ) at Pondicherry. The Government issued an advertisement calling for applications from private promoters to participate in the establishment of project. The Government have decided to constitute a Special Purpose Vehicle (SPC) for this purpose. The Puducherry Industrial Promotion Development and Investment Corporation Limited (PIPDIC) was appointed as a nodal agency for the project. The advertisement calling for expression of interest was published in the leading newspapers during the month of December 2004. The Government received bids from twenty companies. Finally, eleven companies were invited to give presentation. M/s. Subash Projects and Marketing Limited (hereinafter referred to as 'SPML Infra Limited' on account of its reconstitution) was one among the eleven companies, which had given their presentation on 10 March 2005. The Internal Committee set up by the Government of Pondicherry under the Chairmanship of the then Chief Secretary, shortlisted three applications. M/s. SPML Infra Limited was placed at No.1 in the order of preference.
3. The Government issued a Letter of Intent of M/s. SPML Infra Limited on 31 May 2005. The company was requested to submit a Detailed Project Report (DPE) within a period of 45 days from the date of issuance of the letter of intent. The company prepared the DPR and submitted on 15 July 2005. The Government approved the DPR without changes. In the meantime, M/s. SPML Infra Limited requested the Government to include M/s. Om Metal Infra Projects Limited as a Strategic Partner. The Government of Pondicherry readily agreed for the said request. Subsequently, Special Purpose Vehicle by name M/s. Pondicherry Special Economic Zone Company Limited (hereinafter referred to as 'SPC') for undertaking the development, desing, financing, construction, marketing and maintenance of SEZ at Sedarapet and Karasur Villages in the State of Pondicherry, was incorporated on 19 June 2006. The writ petitioners, PIPDIC and their nominees were the shareholders of SPV.
4. The Board of Directors of SPV approached the Ministry of Commerce and Industry, Union of India for formal approval of the multi-product SEZ. The SPV informed the Government of India that about 336 hectares envisaged for SEZ project has already been acquired and the same is in their possession. The Ministry of Commerce and Industry, Government of India granted its formal approval for the development, operation and maintenance of Multi-product SEZ by SPV vide proceedings dated 21 August 2006.
5. Since the Government of India granted approval, 'Development and State Support Agreement' was executed between the Government of Pondicherry and SPV on 28 August 2006. Similarly, 'Share Subscription and Shareholders Agreement' was executed between the petitioners and PIPDIC inter alia providing for 26% equity to be allotted to PIPDIC and the balance to be allotted to the developers including M/s. Om Metal Infra Projects Limited in the SPV with a view to carry out the SEZ project.
6. The Government of Pondicherry, thereafter approached the Ministry of Home Affairs, Government of India for grating ex-post facto approval for transfer of land to SPV. The Union Home Ministry vide its letter dated 6 August 2007 conveyed its ex-post facto approval for 336.12.52 hectares of land already transferred to SPV for speedy implementation of SEZ Project. Thereafter several steps have been taken for the implementation of SEZ project including execution of Share Subscription and Shareholders Agreement.
7. The Development Commissioner, MEPZ inspected the site and it was found that the parcels of lands acquired for the project was intercepted by pathways and canals. Therefore a suggestion was made for acquiring another 10.36.12 hectares for establishing contiguity. Since permission of the Government of India was necessary for this purpose, a request was made to the Union Home Ministry for permission. The Board extended formal approval for SEZ project by a year from 20 August 2009.
8. The private developers having found that the Government failed to issue final notification under Section 4(1) of SEZ Act, 2005 and taking into account the fact that the approval would expire by 21 August 2010, filed writ petitions in W.P.No.17059 of 2010 (M/s. Om Metal Infra Projects Limited) and W.P.No.107060 of 2010 (M/s. SPML Infra Limited) praying for issuance of a writ of Mandamus directing the Ministry of Commerce and Industry, Government of India to issue a notification under Section 4(1) of SEZ Act, 2005. The Ministry of Commerce and Industry filed a counter affidavit in those two writ petitions indicating that the Home Ministry has come up with an allegation that the selection of developer was not through a transparent procedure and there was a direction to cancel the agreement and resume the land. The petitioners came to know of the said fact from the counter affidavit filed by the Government of India.
9. The Joint Secretary to Ministry of Commerce and Industry in his counter affidavit in W.P.Nos.17059 and 17060 of 2010 further contended that the Planning Commission and the Department of Economic Affairs questioned the process adopted to select the strategic partner. The Central Government was kept in darkness. The Central Government took a decision taking into account the background facts and a request was made to the Pondicherry Government vide letter dated 6 August 2009 to withdraw from the deal. The Joint Secretary further contended that the land in the possession of SPV was not contiguous and public thoroughfare like roads, irrigation tanks, irrigation channels were found. Therefore it was not in a position to issue the notification.
10. While the writ petitioner were pending, the Government of Pondicherry issued an order in G.O.Ms.No.3/2013-Indi.A dated 19 August 2013 cancelling the agreement entered into for executing the project and as a consequential action M/s. PIPDIC issued a proceedings dated 20 August 2013 in No.PIPDIC/SP/SEZ/1/2003/3920, cancelling the agreements executed with SPV. The Government Order in G.O.Ms.No.3 of 2013 dated 19 August 2013 and the related proceedings issued by PIPDIC are challenged in W.P.No.23801/2013 (M/s. SPML Infra Lmited) and W.P.No.23802 of 2013 (M/s. Om Metal Infra Projects Limited).
11. The Joint Development Commissioner, Ministry of Commerce and Industry filed a counter affidavit on behalf of the first respondent in W.P.Nos.23801 and 23802 of 2013. According to the first respondent, in view of the direction issued by the Union Home Ministry, it was not possible to take any follow up action to establish the SEZ. The three year validity period indicated in the formal letter of approval dated 21 August 2006 lapsed on 21 August 2009. In short, the Ministry of Commerce and Industry took a specific contention that the validity of the approval expired and therefore it was not possible to issue the notification in response to the prayer in W.P.Nos.17059 of 17060 of 2010.
12. The Under Secretary to Government of India, Ministry of Home Affairs filed a counter affidavit on behalf of the Home Ministry. According to the Home Ministry, ex-post facto approval was originally granted on 8 August 2007. Subsequently, the Government of Pondicherry wanted transfer of land to an extent of 10.36.13 hectares to the SPV. The issue was considered in detail at that point of time. The Planning Commission and the Department of Economic Affairs questioned strategic partner and pointed out several infirmities. The Home Ministry considered the issue in detail and having found that a transparent procedure was not adopted while selecting the Strategic Partner called upon the Government of Pondicherry to cancel the entire deal.
13. The Government of Pondicherry filed a counter affidavit contending that the Union Territory is administered by the President through the Administrator appointed under Article 239 of the Constitution of India. It is not possible for the Government of Ministry of Home Affairs. The Ministry of Home Affairs took a conscious decision to cancel the selection of private promoter on account of several infirmities in the selection process. The Government of Pondicherry acted in the advice given by the Central Government and accordingly the agreement were cancelled.
14. The Managing Director, PIPDIC filed a very detailed counter affidavit in answer to the contentions raised in the affidavits filed in support of the writ petitions. PIPDIC contended that M/s. Om Metal infra Projects Limited was not at all a hidder. The said developer was included later at the instance of M/s. SPML Infra Limited. Several such serious mistakes and illegalities committed during the selection process vitiated the very selection process and as such the Government of India was fully correct in issuing a direction to cancel the selection. PIPDIC further contended that the Home Ministry before taking its decision consulted the Planning Commission and the Department of Economic Affairs and it was only after arranging at a factual finding that there was no transparent bidding process followed by the Government of Pondicherry, a decision was taken to cancel the entire deal. The Government of Pondicherry issued orders in G.O.Ms.3 of 2013 dated 19 August 2013 cancelling the agreements. It was followed by proceedings dated 20 August 2013 cancelling the Share Subscription and Share Holders Agreement and Lease and Possession Agreement. It was further contended that the direction given by the Central Government was enclosed in the typed set of papers filed in W.P.No.17060 of 2010 and in spite of clear knowledge about the said decision, the petitioners have not taken any effort to challenge the said order within a reasonable period. It was only after cancelling the agreements by the Government of Pondicherry and PIPDIC, the petitioners have come up with the subsequent writ petitions. PIPDIC therefore wanted the writ petitions to be dismissed.
15. Thiru R. Muthukmaraswamy, learned Senior Counsel appearing for M/s. SPML Infra Limited, contended that the Home Ministry has already given ex-post facto approval vide letter dated 6 August 2007. It was only thereafter the Ministry entertained certain doubts with regard to the process adopted to select the developer. The Government of Pondicherry submitted a detailed explanation indicating the method adopted for selecting the developer. The selection was made only by the Government of Pondicherry to cancel the bidding process and resile from the promise already made. The learned Senior Counsel contended that the Government of Pondicherry was stopped from contending that the selection process was not transparent. The learned Senior Counsel further contended that the petitioner invested considerable amount and as such it is not correct on the part of Government of Pondicherry to withdraw from the deal at this point of time.
16. Thiru P.S.Raman, learned Senior Counsel appearing for M/s. Om Metal Infra Projects Limited contended that the petitioner was included as a strategic partner by the Government of Pondicherry. Therefore it is not open to PIPDIC to contend at this point of time that the entry of M/s. Om Metal Infra Projects Limited was a back door entry and as such the writ petition at its instance is not maintainable. The learned Senior Counsel contended that the Home Ministry has no connection with the establishment of SEZ or the selection of developer. The Ministry cannot be allowed to reopen the concluded transactions between private parties and the Government of Pondicherry. M/s. SPML Infra Limited has given best presentation and taking to account the credentials, the government of Pondicherry selected the developer. The selection was approved by the cabinet. The dispute was only relating to ten acres of land. However the entire project was cancelled notwithstanding the transfer of 336.12.52 hectares of land which has already been transferred to the Special Purpose Vehicle. The impugned order would involve civil consequences to the petitioners and as such opportunity of hearing should have been given.
17. Thiru P. Wilson, learned Additional Solicitor General contended that almost 5% of the land in Pondicherry was given to a private company without adopting a transparent tender process. The Government of Pondicherry without analysing the implications of the contract and without even preparing a project report called for tenders. The Government of India was put in darkness. Even though the Government of Pondicherry made a request to grant ex-post facto approval, the fact remains that the name of the private developer was not disclosed earlier. According to the learned Additional Solicitor General, the name of the Special Purpose Vehicle alone was disclosed originally and as such the Ministry of Home Affairs was not in a position to ascertain the details of the private developer. It was only subsequently the Ministry got information that the Government of Pondicherry accepted the bid submitted by M/s. SPML Infra Limited. Subsequent enquiry found that another company (M/s. Om Metals Infra Projects Limited) no way connected with the tender process was taken as a partner through back door. The issue was considered at the high level involving the Ministry of Commerce and Industry, the Planning Commission and the Home Ministry. The Home Ministry found that by handing over the land to the Special Purpose Vehicle, without the permission of Government of India, Section 5 of the Pondicherry (Administration) Act, 1962 was violated. The Ministry entertained serious doubt about the credentials of the private developer and the process adopted for selection and therefore rightly advised the Government of Pondicherry to withdraw from the deal and to adopt a transparent method for selecting the developer.
18. Thiru T. Murugesan, learned Senior Government Pleader for Pondicherry admitted the factual position that there was no project report prepared by the Government of Pondicherry before calling for bids to select the developer. According to the learned Senior Government Pleader, preparation of DPR is a mandatory requirement before calling for notification for selection of private developer to establish SEZ. Since Pondicherry ws not having prior experience in the matter of establishing SEZ, the Government committed a bona fide error in issuing the notification for selection first and to prepare the project report later and that too by the selected private developer. In short, the learned Senior Government Pleader on instructions from the Government of Pondicherry submitted that by complying with the direction given by the Ministry of Home Affairs, the Government of Pondicherry was in fact rectifying a bonafide error committed by it in the matter of selection of private developer. It was submitted that Government of Pondicherry and SPV were not in possession of the required land which is contiguous and as such SPV failed to fulfil the eligibility criteria for notification under Section 4 of the SEX Act. The learned Senior Counsel admitted the mistake committed by taking M/s. Om Metals Infra Projects Limited as a partner without submission of bids or even a presentation like other bidders. The learned Senior Government Pleader submitted that the Government of Pondicherry has now abandoned the proposal to establish the SEZ and the land will be used for any other public purpose to boost the economic development of the Union Territory.
10. The learned Standing Counsel for PIPDIC re-iterated the contentions taken in the counter affidavit. According to the learned counsel, the writ petition at the instance of private developer is not maintainable. The writ petition at the instance of a shareholder is therefore not maintainable. According to the learned Standing Counsel, the decision taken by the Ministry of Home Affairs, Government of India was known to the petitioners even during the currency of the earlier two writ petitions. However, the petitioners failed to take any action. Therefore, it is not open to the petitioners to take a contention of this nature at a later point of time. M/s. Om Metals has not made its presentation before the committee or before the Administrator. The Committee has not made spot inspection of the projects executed by M/s. Om Metals or M/s. SPML Infra Limited in spite of the fact that such a requirement was there in the notification. The learned counsel submitted that the petitioners have not spent any amount for the project. They have spent money for paying salaries to their staff besides meeting travelling expenses. The petitioners were aware of the decision taken by the Central Government in 2010 itself. The communication of decision has to be treated as a notice. The present proceedings are only consequential proceedings. Therefore it cannot be said that there was a procedural violation.
20. The Government of Pondicherry issued a notification in G.O.Ms.No.9 of 2004, Department of Industrial Development (Industries and Commerce) dated 9 August 2004 for the purpose of implantation of Special Economic Zone in the Union Territory of Pondicherry. The Government of Pondicherry was guided by the norms prescribed by Government of India in the matter of public, private participation for developing Special Economic Zone. The Government agreed to extend legislative support, environmental clearance, water supply, power, transport incentive, sales tax exemption, Labour Regulations, Single Window Clearance, Escort Services besides maintaining very good law and order situation to establish industries in the Special Economic Zone.
21. The Government of Pondicherry through PIPDIC issued a notification calling for expression of interest for preparation of Techno Economic Feasibility Study/Detailed Project Report (DPR) for received several applications. However, for the reasons best known, the Government directed PIPDIC to return the applications to the applicants informing that a decision was taken not to proceed with the preparation of Detailed Project Report. The prior preparation of DPR was an essential requirement for appointing a private developer. However, without any such DPR, the Government issued notification calling for applications for selection of Developer. The Government received Expression of Interest from 20 companies. Since nine companies failed to enclose the Earnest Money Deposit Receipts, those applications were rejected. The Government invited 11 companies to give presentation based on the expression of interest. M/s. SPML Infra Limited was one among such companies invited by the Government to give presentation. The Internal Committee on the basis of mere power presentation, shortlisted three private parties in the order of preference. M/s. SPML Infra Limited was placed at first. The Government called upon the selected developer to prepare its own project report.
22. The file produced by the Government of Pondicherry does not contain the minutes of the meeting. There are no documents to show the merit assessed by the committee. It is a wonder as to how the Committee assessed M/s. SPML, Infra Limited as the eligible developer and the factors which made it to place the other two bidders below them in the order of preference.
23. M/s. SPML Infra Limited brought M/s. Om Metal Infra Projects Limited through back door after issuing the letter of intent.
24. The Government of Pondicherry permitted PIPDIC to transfer 336/12/52 hectares of land to SPV. Thereafter the Government of Pondicherry addressed a letter to the Union Home Ministry dated 23 April 2007 to grant ex-post facto approval for transfer of land in favour of SPV. The Government of India, Ministry of Home Affairs by its letter dated 6 August 2007 conveyed its ex-post facto approval for transfer of land with a condition that henceforth no such application for ex-post factor approval would be entertained.
25. The petitioners are now harping on the point that the Home Ministry having given ex-post facto approval on 6 August 2007 was not justified in raising the question with regard to the selection of developer and the procedure adopted, at a later point of time.
Why Selection is Bad:
26. The Union Territory of Pondicherry wanted to establish a Special Economic Zone at Pondicherry Region. The Government acquired 336.12.52 hectares of land by invoking the provisions Land Acquisition Act. This would come about 5% of the total land available in Pondicherry Region.
27. The Government of Pondicherry was aware that a detailed project report should be prepared for the project before calling for applications for selection of developer. This was the reason for issuing notification to appoint the Consultant. The Government appointed PIPDIC as the social agency for implementing the project. PIPDIC issued notification calling for Expression of Interest for SEZ project consultancy. The file shows that as many as 16 applications from various consultants including TATA Consultancy Services and L & T-Ramboll Consulting Engineers Ltd., and Price Waterhouse Coopers Pvt. Ltd., were received by PIPDIC. However, for the reasons best known, consultant was not appointed.
28. The then Chief Secretary, vide his note dated 6 January 2005 very clearly stated that a project report should be prepared before proceeding further. However, without any such report and in a hasty manner the Government of Pondicherry proceeded to call for applications for selection of developer.
29. The notification issued by PIPDIC shows that the 'parties will prepare their own DPR for developing SEZ.' The last date for submission of application was on 20 January 2005. The condition regarding eligibility criteria reads thus:
(i) Pre-qualification of parties for selection of Strategic partner will be based on Technical and Financial criteria.
(ii) The developer should have participated or invested in construction of infrastructure projects of comparable magnitude during the last five years.
30. There were eleven valid applicants including reputed companies like M/s. Larsen and Toubro Limited. The PIPDIC called upon the applicants to give power presentation for 10 minutes at 11 as on 10 March 2005 in the Committee Hall of Chief Secretariat, Pondicherry.
31. M/s. Om Metals, petitioner in W.P.Nos.17059 of 2010 and 23802 of 2013 was not applicant. The name of the said company was not even referred to as a partner in the application submitted by M/s. SPML Infra Limited.
32. The Committee shortlisted the following companies in the order of preference.
(i) M/s. SPML Infra limited (Petitioner)
(ii) M/s. Kris Heavy Engineering & Construction Limited
(iii) M/s. DLF Universal Limited.
33. Except recording the name of shortlisted bidders in the order of preference, there were no minutes prepared by the Committee with regard to the comparative performance, assessment of past performance, plan of action of concerned companies etc. Even for selecting an LPG dealer by Petroleum Companies, selection committee would prepare minutes indicating the comparative merits and award of marks. Even though the entire files were produced by the Government of Pondicherry and SPV including the so called minutes of selection, unfortunately there is nothing on record to show the comparative merits of three shortlisted companies in the order of preference and the demerits of others including the marks given to each of them. It is therefore not clear as to the basis adopted to place M/s. SPML Infra Limited in the rank list as the first shortlisted applicant.
34. it is unbelievable that a private developer for such a massive project, involving 336.12.52 hectares of land acquired from the poor people of Pondicherry was selected after watching the power point presentation for 10 minutes. The Union Home Ministry was therefore fully correct in observing that it was not a transparent selection process based on a project document and evaluation of bids.
35. M/s. SPML Infra Limited was directed to prepare a project report vide letter dated 31 May 2005. They have prepared a project report to suit their convenience.
36. The petitioners have contended that the Ministry of Commerce granted in-principle approval to the SEZ and as such the said Ministry was aware of the composition of SPV. The in-principle approval was given by the Board of Approval at its meeting held on 23 November 2004. The petitioner (M/s. SPML Infra Limited) was not in the picture at that point of time. Therefore it is clear that in-principle approval was not given to SPV in which M/s. SPML Infra limited was a party. The in-principle approval issued on 23 December 2004 before selection of developers was valid for a period of one year. It was extended for a period of six months from 23 December 2005 as per order dated 29 November 2005.
37. The records would show that after selecting the developer, M/s. KITCO Limited a Government of Kerala establishment was requested to prepare a project report, which again appears to be a very strange procedure (preparation of project after selecting the developer).
38. Even though M/s. OM Metals was not in the picture at all, M/s. SPML Infra Limited introduced the said company to the Government of Pondicherry. The note prepared by the Industries Department, Pondicherry contain the proposal to include M/s. Om Metals as consortium partner.
39. The Development Commissioner, Government of Pondicherry appears to be an upgirht officer. The said officer in his detailed note dated 23 February 2006 expressed his concern about selecting the developer without preparing DPR and a competitive bidding. He also wanted the background of M/s. SPML Infra Limited tobe looked into before proceeding further. The note reads thus:
'159. It may be pertinent to recall that initially the Government floated an advertisement inviting bids for techno-economic feasibility study (para 3-8 of P.1-3/nf). Subsequently, it was ordered that an advertisement be issued for a developer (para 28 of p-10/nf). The interested parties were ten asked to make a presentation and group of officers chose a party vide para 87-98 of p-29-32/nf. This party M/s. SPML was then asked to prepare detailed project report at their cost – letter issued to M/s. SPML may be seen in file at page-243. Hence no estimate has been prepared by any Government body nor competitive bidding resorted to. However, the procedure prescribed in the GFE and detailed guidelines of CVC is of preparing estimates and then on that basis inviting ids after due publicity. The bids are in the form of technical qualification and then of financial bids. We may as a matter of abundant caution seek the views of the Finance Department specifically seeking their opinion whether the procedure followed will stand scrutiny. Similarly, the views of the Vigilance Department may be sought as to whether the procedure followed is on the basis of the detailed guidelines issued by the CVC. This will obviate future problems pertaining to audit and vigilance.
164. A proper evaluation of the credentials and antecedents of the company will have to be done to safeguard the interest of the Government of Pondicherry. This concern has also been shared by the LG vide his tick mark on para 67/nf-22. We may confirm from the State Governments where the proposed developer claims to have done work, about the quality of the work. This should be ascertained in the first instance. The Annual report of M/s. SPML, for atleast for the last five years, be procured and studied carefully. The same exercise should be done for the proposed consortium partner M/s. Om Metal limited, too.
Development Commissioner –cum- Secretary (Industries)'
40. The Chief Secretary to Government of Pondicherry instead of supporting such a decision made the following observation:
'168. The purpose of writing the above note at this stage does not appear to be clear. However, the Under Secretary (Industries) in his note at para 149 & 150/nf dated 15.2.2006 made it abundantly clear that all statutory requirements will have to be fulfilled.
160. Submitted for others.
41. The following note made by the Minister for Industries shows that he was also not in favour of discussing the merits of the selection process and the need to enquire into the background of the developer.
170. This project has got the approval of the Cabinet and to the height of it His Excellency the Lt. Governor too has cleared the proposal. I feel that this long note should have been avoided as most of the points have already been discussed.
Minister for Industries & Welfare, Pondicherry'
42. The Administrator, Pondicherry (Lt. Governor) criticised the Development Commissioner and approved the proposal to select the Developer. The note reads thus:
171. It is surprising that the Secretary (Industries) who attended the Cabinet meeting did not raise any point in that. In spite of clear directions, he has raised a number of irrelevant issued or issued already covered. Least he could have done was studied the whole case.
His explanation may please be called for non-compliance of orders without any valid reason and unnecessary delaying an important development project.
25 February 2006.'
43. The Government of Pondicherry was fully aware of the legal position that the selection of Private Developer must obtain the previous consent of the Central Government in view of various exemption from taxes. The file not reads thus:
(b) We may also request the Government of India to approve M/s. Subash Project and Marketing Ltd., as co-developer with a request to give letter of approval under sub-section 12 of Section 3.
176. It may be pointed out that any letter/authority given by the State Government of Pondicherry to the firm will have no value and will not be recognised by the Central Government, as the SEZ also involves exemption of various Central Taxes including Income Tax, Customs duty, Central Excise Tax, etc.
177. I have discussed the matter in person on 01.03.2006 with Development Commissioner, appointed by Central Government under sub-section 1 of Section 11 of the Special Economic Zone Act 2005 and he has confirmed that the State Government has no powers to notify any developer without concurrence of the Central Government, and accordingly the above line of action is proposed.'
44. It is to be noted that no such prior approval was taken from the Central Government. It was only this fundamental mistake which is now rectified by the Government of Pondicherry by cancelling the deal, as admitted by the learned Senior Government Pleader.
45. The next question is whether the Union Home Ministry having given ex-post facto approval was correct in directing cancellation of deal later.
46. The file produced by the Government of Pondicherry, PIPDIC and Home Ministry discloses that a conscious attempt was made not to reveal the name of the private developer to the Union Home Ministry. The Government of Pondicherry at all point of time referred only the name of Special Purpose Vehicle. Its composition was not disclosed.
47. The letter sent by the Secretary to Government Industries Department, Pondicherry dated 23 April 2007 seeking ex-post facto approval does not contain the name of the private developer.
48. The Government of Pondicherry along with the request for ex-post facto approval forwarded a copy of the extract of the Minutes of the Council of Ministers Meeting held on 8 June 2007. The extract does not contain the name of the private promoter. It reads thus:
'Resolution No.2007/M.7/34. Setting up of SEZ.
Approved subject to (1) amend Clause-6.6.2 of Development and State Support Agreement in consultation with the Developer to enable the Government for promotion of other Multi product SEZ in Puducherry region after a period of 10 years. (2) regarding payment of lease premium to meet the entire compensation paid by PIPDIC for acquisition of land, the SPV would issue Rs.22 crorers worth of share to PIPDIC towards the cost of land and to pay the remaining balance of Rs.52 crores over a period of 07 years in equal annual instalments commencing from the date of handing over of the land with interest at 6% per annum, after the expiry of a period of 02 years.'
49. The Home Ministry was not having any occasion earlier to examine the selection process undertaken by the Government of Pondicherry to select the private developer.
50. The ex-post facto approval dated 6 August 2007 shows that the approval of Central Government was given to the action taken by the Government of Pondicherry transferring 336.12.52 hectares of land to the SPV. It was not an approval of the selection of promoter as such. Therefore, it cannot be said that the Central Government having approved the selection of M/s. SPML cannot direct the Government of Pondicherry later to cancel the selection.
51. The Central Government examined the legality and correctness of the procedure adopted for selection of private developer only after receipt of proposal for transfer of 10.36.13 hectares of Government land to the SPV. This is clear from the file produced by the Union Home Ministry.
52. It was only at the meeting held on 23 April 2008, the Union Ministry for the first time examined the selection process. The Home Ministry vide its letter dated 15 May 2008 sought details of selection of private developer.
53. The Secretary to Government, Industries Department, Pondicherry vide his letter dated 3 July 2008 informed the Ministry of Home Affairs with regard to the procedure adopted for selection of developer. Paragraph 5 of the letter contain the background of M/s. SPML Infra Limited and the relevance of the query raised by the then Development Commissioner to verify the antecedents.
'5. As per the information given by the party, it is understood that M/s. Subash Projects and Marketing Ltd. (SPML) was debarred by SEBI for 5 years which was reduced to 3 years by the appellate authority. The party claims that their debarring by SEBI does not debar them from executing Government contracts. They further claim to have been awarded a number of contracts by the Central Government agencies and Union Territory Government which they are presently implementing.
54. The so called claim made by M/s. Subash Projects and Marketing ltd. was not cross verified by the Government of Pondicherry at any point of time.
55. The issue was referred to the Planning Commissioner for his views by the Home Ministry. The Planning Commission vide its Office Memorandum dated 14 October 2008 opined that award of project was not based on a transparent and open bidding process. The note reads thus:
'The proposal of Govt. of Pondicherry/MHA for setting up of a SEZ at Sedarpet, Karasur, Puducheery has been examined and the comment/observations are indicated below:
1. All the PPP project of State Govts., seeking viability gap funding under VGF Scheme would have to be got approved by the Empowered Institution (EI) and Empowered Committee, chaired by Additional Secretary and Secretary, DEA respectively.
2. All the PPP projects of Govt. of India, its undertakings and Statutory Entities under the administrative control of the Ministries of Govt. of India have to be approved by Public Private Partnership Projects Approval Committee (PPPAC) chaired by Secretary, DEA.
3. In this case, no VGF Grant has been sought. MHA has to take a view whether this project falls under the category of State Project or Central Project. In case, it is considered as a Central Project, then approval of PPPAC is mandatory.
4. M/s. Subhash Projects & Marketing Ltd., has been selected as the private developer for the SEZ project. The aware of project is not based on a transparent and open competitive bidding process. The bidding should have been based on a specific bidding parameter.
5. Approval of MHA should have been obtained or the representatives of MHA should have been involved in the negotiations/process right from the beginning so that GOP could have got a better advice/feedback from Govt. of India.
6. The commercial parameters of the project, revenue sharing pattern, pre-fixed tariff and pre-fixed formula for revision of tariff, latest cost estimates, etc. have not been clearly indicated. These should have been settled before the award of the project and entering into the Agreement with the private developer.
7. Govt. of Pondicherry, has not obtained services of professional consultants and experts in the field of award of PPP project on BOT basis.
8. The Leasing Authority as well as the lessee are same i.e. PIPDIC for this SEZ Project. This is not proper as there is a conflict of interest involved in the transaction.
9. The Management Control of the SPV to implement the SEZ has been vested to the private developer, although it has spent only Rs.4.58 crore, while PIPDIC ha spent Rs.70.61 crore. While GOP can appoint two Directors on the Board, private developer has been conceded to the power to appoint 3 directors on the Board of SPV. This is not fair.
10. As per the equity sharing arrangement, the PIPDIC has contributed Rs.22 crore (26% of equity), the developer should have contributed Rs.63 crore (74% of the equity).The private developer, as can be seen, has contributed only Rs.4.58 crore and acquired much greater powers in excess of the financial commitment made by it.
11. GoP has provided Rs.52 crore, towards land acquisition, to the Company at an interest rate of 6% p.a. This arrangement is very lopsided and the interest rate charged (6%) is very low. The private partner would, thus, derive undue benefit from this arrangement which is not in fair.
12. GoP has not conveyed its response to the conditions/queries of MHA raised in the meeting held on 23.04.2008, regarding transfer of 10.36 ha of land and other issues.
13. The response of GOP regarding a corruption complaint in award of Port Project is awaited. GOP also needs to clarify/respond to the observation of MHA regarding the CVC angle and also the procedure adopted for selection of the private developer for the SEZ project."
56. The Central Government examined the matter at length and ultimately arrived at a finding that a transparent process was not adopted. The communication dated 6 August 2009 reads thus:
Government of India
Ministry of Home Affairs
North Block, New Delhi
Dated the 6th August 2009
The Chief Secretary
Government of Puducherry
Sub: Setting up of a Special Economic Zone at Siderpet-Karasur, Puducherry, as a PPP venture.
I am directed to refer to Government of Puducherry’s D.O. Letter No.11017/5/2003/Indi-A dated 19.6.2009 on the subject mentioned above and to say that the matter has been examined in the Ministry of Home Affairs in consultation with Planning Commission and Department of Economic Affairs. It has been observed that while potential bidders were shortlisted on the basis of the advertisement (EOI) dated 24.12.2004, neither technical and financial criteria was indicated nor bids invited on the basis of such technical and financial criteria. Further final selection was not made on the basis that the selected person/firm best satisfied the technical and financial criteria. On the contrary it appears that six persons/firms were asked to make presentations, three were short-listed, DPR was invited only from the first of the three short listed firms, that DPR was evaluated by M/s. KITCO, and that the firm was selected as the strategic partner.
2. In view of the several infirmities in the selection process of the strategic partner and as no transparent bidding process was followed by Government of Puducherry for selecting the strategic partner, this Ministry cannot approve the selection of M/s. Subash Projects and Marketing Limited as the strategic parent. The Ministry also cannot give approval to transfer any land to the PIPDIC or the SPV in which the strategic partner is a member.
3. Government of Pudhcerry are, therefore, advised to cancel the entire agreement with the strategic partner and not to part with the land in favour of the PIPDIC or the SPV. In case any part of the land has already been transferred to PIPDIC or the SPV, it should be resumed immediately.
4. This issues with the approval of Union Home Minister.
Deputy Secretary to the Govt. of India (ANL)'
57. The instruction given by the Central Government was in the nature of advise to the Union Territory of Pondicherry. The Government of Pondicherry found merit in the view taken by the Central Government and accordingly agreements were cancelled. The communication dated 6 August 2009 has already been produced by the Government of India and PIPDIC in W.P.Nos.17059 of 2010. Therefore the decision was known to the petitioners earlier. However, only when further proceedings were issued by the Government of Pondicherry, the petitioners have come up with a grievance that the Central government was not correct in advising the Union Territory of Pondicherry to withdraw from the project. In fact, even before filing the writ petitions, the Central Government has taken a decision not to transfer land to SPV.
Why no Mandamus:
58. Special Economic Zone Rules and more particularly Rule 5 provides that the developer of SEZ shall have a contiguous area. Even according to the petitioners the SPV has no contiguous area and it was only on account of that deficiency application was given before the Central Government to grant permission to transfer 10.36.12 hectares of land. When it is made out that SPV has not satisfied the essential requirement of contiguous area, there is no question of issuing a mandamus to publish the notification under Section 4 of the Act.
59. The validity of the initial approval expired on 21 August 2010. The petitioners filed the writ petitions few days before the expiry of approval. The petitioners are only share holders of SPV. The writ petitions were not filed by SPV. The writ petitions at the instance of share holders is not maintainable, in so far as the prayer for direction to the Government to notify the SEZ is concerned. It is to be mentioned here that the initial approval was not given to SPV. The petitioners have come up with incompetent writ petitions for mandamus.
Violation of Principles of Natural Justice
60. The petitioners earlier filed two writ petitions for mandamus to issue SEZ notification under Section 4 of SEZ Act. The Government as well as PIPDIC in the respective counter affidavits very clearly stated that Central Government have directed cancellation of the project. The Advice given by the Central Government was produced in Court along with counter affidavit. The petitioners therefore were aware of the decision in 2010 itself. However, they have not challenged the decision. The impugned proceedings are all consequential. There is no question of giving an opportunity of hearing or notice before passing the consequential proceedings in view of the non challenge to the decision taken by the Government of India which was later accepted by the Government of Pondicherry.
61. Since the Government of Pondicherry and PIPDIC made it very clear in W.P.Nos.17059 and 17060 of 2010 that the Central Government have already advised to cancel the deal and as such the writ petitions have become infructuous, the said intimation should be construed as a notice. The petitioners failed to utilise the available opportunity. It was only after about two and half years, the impugned consequential proceedings were issued.
62. The notice in a case of this nature would be an empty formality. In fact, the petitioners were aware of the decision taken by the Central Government and communicated to the Government of Pondicherry through letter dated 6 August 2009 at least from the counter affidavit filed in W.P.Nos.17059 and 17060 of 2010. Even otherwise no other order could be passed in the matter in view of several infirmities committed by the Pondicherry administration and the ultimate realisation of such mistakes by the Union Territory Government.
63. The Government of Pondicherry has now taken a decision not to establish the SEZ and to use the land for other public purpose to improve the economic condition. Therefore, there is no question of directing the Government to issue notice to the petitioners and to reconsider the decision.
64. The Supreme Court in Ashok Kumar Sonkar v. Union of India, (2007) 4 SCC 54, observed that the Court should not insist on compliance of useless formality.
'27. It is also, however, well settled that it cannot put any straitjacket formula. It may not be applied in a given case unless a prejudice is shown. It is not necessary where it would be a futile exercise.
28. A court of law does not insist on compliance with useless formality. It will not issue any such direction where the result would remain the same, in view of fact situation prevailing or in terms of legal consequences. Furthermore in this case, the selection of the appellant was illegal. He was not qualified on the cut-off date. Being ineligible to be considered for appointment, it would have been a futile exercise to give him an opportunity of being heard.'
65. The Supreme Court in Aligarh Muslim University & others v. Mansoor Ali Khan (2000) 7 SCC 529 observed that 'useless formality' theory is an exception to Audi Alteram Partem.
Contract incapable of performance:
66. The provisions of SEZ requires contiguous land for establishment of SEZ. It was only on the expectation that the Central Government would permit transfer of Government land, the Government of Pondicherry initiated action to establish SEZ and selected the developer. The contract was for establishing SEZ. Since the Government of Pondicherry failed to procure contiguous land, Central Government would not approve and notify SEZ. The correspondence shows that the Government of Pondicherry was under the bona fide impression that the Central Government would transfer land for making the required land contiguous. It was only on account of the unforeseen event that the Government of Pondicherry failed to get the required contiguous land. The case therefore would come under Section 56 of Indian Contract Act.
Antecedents of Private Developer:
67. The learned Additional Advocate General cited Subash Projects & Marketing ltd. v. W.B. Power Development Corporation Ltd. (2005 8 SCC 438 with a view to prove that antecedent of Subash Projects was not above board.
(a) In Subash Projects & Marketing Limited, the issue before the Supreme Court was in respect of a contract awarded to Subash Projects Limited, the petitioner in W.P.No.17060 of 2010 and 23801 of 2013. The West Bengal Power Development Corporation Limited floated a tender, M/s. Larson and Toubro ('L & T in short') and Subash Projects Limited participated in the said contract. Even though L & T was the lower bidder and in spite of the fact that the offer made by L & T was Rs.64 corers, less than the bid submitted by M/s. Subash Projects, the Minister of State for Power, Government of India interfered in the matter and wanted to evaluate the tender process once again to favour M/s. Subash Projects. The West Bengal Power Development Corporation stuck to its position that the tender submitted by L & T was the lowest and they fully qualified for grant of contract. However, the Minister of State for Power persisted in his demand and ultimately contract was awarded to M/s. Subash Projects.
(b) L & T took the matter before the Calcutta High Court. The learned Single Judge found that Minister for Power interfered in the tender process at the instance of Subash Projects. However, taking into account the fact that by the time the writ petition was decided, M/s. Subash Projects executed part of the work, the learned Single Judge directed M/s. Subash Projects Limited to pay a sum of Rs.1 crore with interest to L & T. The finding given by the learned Single Judge with respect to the illegal action taken by the Minister of State for Power to favour M/s. Subash Projects was upheld by the Division Bench.
(c) M/s. Subash Projects Limited in its Special Leave Petition, contended before the Supreme Court that the High Court was not correct in observing that they have exerted undue influence though the Minister for Power to secure the contract.
(d) The Honourable Supreme Court analysed the entire facts in the light of the findings and documents referred to by the High Court and confirmed the view that Subash Projects had secured the contract by dubious means. The Supreme Court concurred with the finding given by the High Court that there were materials to draw an inference which it has drawn meaning thereby M/s. Subash Projects has taken illegal means to secure the contract.
68. This is not a case of cancelling the agreements overnight. The Government of Pondicherry and PIPDIC in its counter affidavit have already disclosed the decision of the Central Government and the difficulty to proceed with the deal. The petitioners could have challenged the decision taken by the Central Government before cancelling the agreements by the Government of Pondicherry and PIPDIC. The cancellation of agreements were the culmination of process. The petitioners were fully aware of the developments. Therefore the subsequent writ petitions suffer from the vice of laches.
69. The petitioners have argued that the Central Government have no role to play in the establishment of SEZ. The petitioners have not however, analysed the relationship between Central Government and a Union Territory.
70. The Government of Pondicherry is a tiny Union Territory without any substantial income of its own. Even for payment of salary it has to approach the Central Government. The Union Territory is administered with the annual grant received from the Central Government. It was only out of the said grant 336.12.52 hectares of land was acquired by paying compensation to the land owners. The Central Government therefore must satisfy that the amount was spent for profitable purposes and in public interest.
71. The Union Territories are centrally administered under the provisions of Article 239 of the Constitution of India. It is true that the President who is the Executive Head of the Part-C States is not functioning in his capacity as the Executive Head of the Central Government. The President administers the Union Territories in his position as the head of the State by virtue of the specific powers conferred on him under Article 239 of the Constitution of India.
72. The Supreme Court in Govt. of NCT Delhi v. All India Central Civil Accounts (2001) 1 SCC 344 observed that the Administrator of Union Territory functions as a delegate of the President and will have to act under the orders of the President, that is, Central Government.
73. The Supreme Court in Devji Vallabhbhai v. Administrator, Goa, Damon & Diu (AIR 1982 SC 1029) in the context of proviso to Section 44(1) of Union Territories Act indicated the position of the union Territory Government vis--vis Central Government.
'6. ……… Virtually, therefore, in the event of a difference of opinion between the Council of Ministers of the union Territory and the Administrator, the right to decide would vest in the Union Government and the Council of Ministers of the Union Territory would be bound by the view taken by the Union Government. Further, the Administrator enjoys still some more power to act in derogation of the advise of the Council of Ministers.'
74. The available records clearly shows that M/s. SPML was brought to the scene by a group of authorities at higher level having vested interest. The notings by those who are instrumental in taking a decision in the matter clearly supports this view. The ent
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ry of M/s. OM Metals as a strategic partner through back door after completing the entire process and the speed at which approval was granted to include Om Metals would speak volumes. These factors were considered by the Home Ministry after furnishing information by the Government of Pondicherry with regard to the composition of SPV. 75. The Supreme Court in Sahadursingh Lakhbhai Gohil v. Jagadishbhai M. Kamalia (2004) 2 SCC 65 by following the earlier decision in S.P. Kapoor (Dr) v. State of Himachal Pradesh (1981) 4 SCC 716 held that when a thing is done in a haste manner, malafide would be presumed. 76. The Senior Government Pleader on instructions from the Government of Pondicherry submitted that the Government has not carried out any exercise before issuing the notification. According to him, the Government failed to enquire into the antecedents of the developer. According to the Senior Government Pleader there was no discussion at the Government level regarding the entry of Om Metals. The agreements prepared were all heavily loaded in favour of the private developer. The Government of Pondicherry never realised the basic fact that the available land was not contiguous and as such there was no possibility to obtain approval of SEZ. According to the learned Government Pleader, it was only after Central Government pointed out all these serious drawbacks, the Government of Pondicherry realised the mistake and cancelled the agreements. 77. The submission made by the learned Senior Government Pleader supports the decision taken by the Central Government. The Government of Pondicherry has now realised the fundamental mistakes committed earlier and rightly cancelled the agreements. 78. The learned Senior Counsel for the petitioners contended that the Government of Pondicherry acted on the advise of the Government of India. According to the learned Senior Counsel, the Central Government have no authority to advise the Government of India. Even if it is made out that the Central Government has no role to play in the matter, still I am not inclined to exercise the equity jurisdiction in favour of the petitioner in view of the background facts. The private promoter has already obtained the contract for development of Pondicherry Port on build, operate and transfer basis. The statement made by the learned Government Pleader and the records clearly shows that M/s. SPML Infra Limited was having an upper hand and they were in a position to dominate and turn the events to their side. The political clout enjoyed by M/s. SPML Infra Limited made them the private developer of SEZ by giving mere ten minutes power presentation. This is also clear from their ability to bring M/s. OM Metals, through back door. The equity is therefore not in favour of the petitioners. 79. The Supreme Court in ONGC Ltd. v. Sendhabhai Vastram Patel, (2005) 6 SCC 454, held that the Superior Court need not exercise the equity jurisdiction merely because law was in favour of the said party. '23. It is now well settled that the High Courts and the Supreme Court while exercising their equity jurisdiction under Articles 226 and 32 of the Constitution as also Article 136 thereof may not exercise the same in appropriate cases. While exercising such jurisdiction, the superior courts in India even may not strike down a wrong order only because it would be lawful to do so. A discretionary relief may be refused to be extended to the Appellant in a given case although the Court may find the same to be justified in law. 24. A similar view has been taken by this Court in a large number of decisions including High Court of Judicature at Bombay v. Brij Mohan Gupta (2003 2 SCC 390, N.K. Prasada v. Govt. of India (2004) 6 SCC 299, Inder Parkash Gupta v. State of J&K (2004) 6 SCC 786 and Board of Control for Cricket in India s. Netaji Cricket Club (2005) 4 SCC 741.' 80. The petitioners have placed heavy reliance on Villianur Iyarkkai Padukappu Maiyam v. Union of India (2009) 7 SCC 561. The said judgment has nothing to do with the issue raised in this writ petition, except for clarifying the legal question regarding the interpretation of Section 5 of the Pondicherry (Administration) Act 1962. The very same private developer (M/s. Subash Projects) was the successful bidder in the said matter. The Supreme Court found that Pondicherry Port was a minor port not covered by the provisions of the Major Ports Act, 1908 and as such Central Government has no role to play. The lis therein was initiated by an organisation complaining of environmental issues and corruption. 81. However, here the Central Government itself found several serious infirmities in the selection of private developer. The Government of Pondicherry realised the gravity of the situation and cancelled the agreements. Therefore Port case cannot be compared with the selection of private developer for SEZ. Conclusion: 82. The prayer in W.P.No.17059 and 17060 of 2010 is to direct the Union of India represented by the Ministry of Commerce and Industry to issue a notification under Section 4(1) of the Special Economic Zone ct, 2005 for establishment of SEZ project by SPV at Pondicherry. The period of approval expired long back. Moreover, SPV failed to procure contiguous land which is a mandatory requirement for notification of SEZ. There is no question of issuing a mandamus and that too at the instance of the shareholders of SPV without satisfying the mandatory eligibility criteria. 83. The proceedings challenged in W.P.Nos.23801 and 23802 of 2013 are all consequential proceedings pursuant to the advise given by the Central Government. The Government of Pondicherry took a conscious decision to withdraw from the project on account of several infirmities. The petitioners were also aware of the events in view of their position as shareholders of SPV. The Government of Pondicherry rightly took a decision to withdraw from the establishment of Special Economic Zone at Pondicherry. Therefore I do not find any merit in the contention taken by the petitioners. 84. In the upshot, I dismiss the writ petitions. Consequently, the connected MPs are closed. No costs.