Delhi High Court says Defence Ministry guidelines on suspension of contractors could lead to abuse of power

The Delhi High Court recently observed that while discretion of authorities in the area of defence procurement has to be wide and broad due to security considerations, it cannot be untrammelled. [Defsys Solutions Private Limited versus Union of India & Anr].Justice Prathiba M Singh made the observation while issuing guidelines in respect of the procedure to be followed by the Ministry of Defence (MoD) for the suspension of business dealings with contractors. The Court ruled that such suspension cannot be indefinite and there must be compulsory review of the same every six months. .“While there can be no doubt that in the area of defence procurement due to security considerations the discretion with the Competent Authority has to be wider and broader, the same cannot be untrammelled,” the Court explained..To address these issues, the court issued the following guidelines:.The suspension (of the business entity or contractor) cannot be for an indefinite period and after the initial period or reasonable extensions, if the same is extended for a longer period, the procedure prescribed for the purposes of banning would have to be resorted to.A show-cause notice ought to be issued to the suspended entity within a reasonable period after suspension orders are issued, preferably within a six month period. Such a show-cause ought to set out the grounds and any material which may form its basis ought to be communicated.If a show-cause notice is not to be issued, proper reasons ought to be recorded for the same, to justify that national security considerations exist.A committee headed by a two star or equivalent officer would have to be appointed to evaluate the allegations independently in review.If satisfied with grounds, the suspension can be extended but such grounds ought to be spelt out in a reasoned manner, so as to stand the test of scrutiny.If the competent authority decides to ban the entity or person, the period of ban has to be then fixed bearing in mind the period of suspension already undergone..The Court dealing with a petition filed by Defsys Solutions Private Limited, which was under investigation in the Agustawestland VVIP Helicopter case. Defsys Solutions contended that it was not informed about its sudden suspension from dealing with the MoD..The Union government had, in 2016, issued ‘Guidelines for Penalties in Business Dealings with Entities’, which permits such actions on various grounds including national security considerations, public interest, corrupt practices and violation of agreements..However, Justice Singh concluded that the government's procedure was "not within the spirit of fairness, impartiality, rigor and correctness." It took critical note that under the existing "ambiguous and vague" MoD guidelines, the authorities have “unbridled power” while suspending an entity..“The MoD Guidelines, the Procedures for Penal Action and the FAQs as they stand could lead to abuse of power and, thus, have to be read in a manner consistent with sound and legally established principles. It would not be permissible to have a perpetual state of suspension without show cause notice, that too for an indefinite period,” the Court ruled. .The Court, therefore, issued guidelines to be followed in such matters, after also opining that there was a need for clarity and uniformity in the substantive powers of the competent authority as well as the procedure applicable. .The Court emphasised that there has to be a semblance of fairness, non-arbitrariness and compliance with the principles of natural justice even in such cases and that the guidelines would have to be read with these aspects in mind..On the other hand, the Court found that documents issued by the MoD indicated that the suspension of an entity, as per its guidelines, could be indefinite, without a show cause notice, without any opportunity of reply and without any grounds being provided.The Court further noted though there is a procedure for review every six months, the guidelines do not give the entity an opportunity to rebut allegations or evidence..The Court added that if any of the procedures prescribed are not adhered to, there has to be exceptional circumstances or overwhelming reasons to do so, with sufficient material to back the same..As regards the present case, the Court directed the authorities to issue a show cause notice setting out the reasons for the suspension Defsys Solutions and also to provide relevant material to the company about the same. While disposing of the petition, the Court also said that an opportunity to reply or hearing should be provided and a reasoned order must be passed in the matter within three months. .Senior Advocates Sandeep Sethi and Rajshekar Rao along with Advocates Pawan Sharma, Aditya Chatterjee, Major Nirvikar Singh (Retd), Rishabh Sharma, Nikita Garg and Shubhansh Thakur represented Defsys Solutions.Standing Counsel Kirtiman Singh with Advocates Vidhi Jain and Waise Ali Noor represented the Union of India..[Read Judgment]