1995 (2) TMI 293 - SC - Companies Law

Supreme Court validates MoU between HAL and MGB, dismissing bias claims. Fair consideration for collaboration.

The Supreme Court upheld the validity of the Memorandum of Understanding (MoU) between HAL and MGB, dismissing allegations of bias against the Managing ... Whether the technology can be obtained directly rather than going through the process of a joint venture? Whether the technology indigenously would be adequate to achieve the objective of running HAL profitably? In the event such a joint venture proposal as proposed by HAL management materialises, how best the interest of the employees can be protected ? The penicillin plant of HAL is a profit centre. Whether such a proposal for joint venture would leave HAL with (non-profit making centres ? Held that:- Appeal dismissed. As explained by the respondents that the said order of the Minister of State was revised by the Minister for Chemicals and Fertilizers even before the issuance of the directive. Moreover, Torrent having entered the picture very late cannot complain of lack of fuller consideration. It is equally evident that since it was already in the process of setting up its own plant and also because its technology too was that of Biotica of Slovakia, which was already rejected in the case of PBG, no useful purpose would be served even by asking a reconsideration of its proposals. Before parting with this matter, we must say that the MoU entered into with MGB is subject to the final approval of the Government of India, as expressly provided in the directive dated June 20, 1994. We are sure that the Government would examine all the terms of the MoU carefully before according its approval. It is obvious that it is always open to the Government to seek such modification of the terms of the MoU as it thinks appropriate and as are feasible. But if it approves the MoU in the present form or in the modified firm as the case may be, it is but in the interest of all concerned that the project is given a concrete shape without any further loss of time. Issues Involved:1. Validity of the Memorandum of Understanding (MoU) between HAL and MGB.2. Allegations of bias and mala fides against the Managing Director of HAL.3. Fair consideration of offers from other appellants.4. Compliance with Article 14 of the Constitution.5. Authority and validity of the Government directive under Article 117 of the Articles of Association of HAL.Issue-wise Detailed Analysis:1. Validity of the Memorandum of Understanding (MoU) between HAL and MGB:The Supreme Court examined the process leading to the signing of the MoU between Hindustan Antibiotics Limited (HAL) and Max-GB (MGB). The appellants argued that their offers to collaborate with HAL were superior and offered more advantageous terms, but were rejected due to bias and improper conduct by the Managing Director of HAL, Sri A.K. Basu. The Court noted that HAL had been trying to improve its production and quality of penicillin-G and found that GB was the leading producer with the best technology. The Court observed that the MoU was signed after thorough consideration and evaluation by HAL's board of directors and a sub-committee, and after receiving a directive from the Government of India.2. Allegations of bias and mala fides against the Managing Director of HAL:The appellants alleged that the Managing Director, Sri A.K. Basu, was biased and had a predisposition towards collaborating with MGB. The Court acknowledged that Sri Basu was keen on a tie-up with GB due to its superior technology but found no evidence of mala fides or extraneous reasons. The Court emphasized that the presumption is that the Managing Director acted in the best interests of HAL, and this presumption was not displaced in this case. The Court noted that the board of directors, and not Sri Basu alone, made the final decision to collaborate with MGB.3. Fair consideration of offers from other appellants:The Court examined the offers from the appellants, SPIC, PBG, and Torrent, and found that their proposals were duly considered by HAL's board of directors and sub-committee. The board rejected the offers from SPIC and PBG on the grounds that their proposed technologies were either unproven at the commercial level or not superior to the existing technology employed by HAL. Torrent's proposal was also rejected as it entered the picture late and offered the same technology (Biotica of Slovakia) which was already rejected. The Court concluded that there was fair consideration of the offers and no bias or arbitrary action by HAL.4. Compliance with Article 14 of the Constitution:The appellants argued that HAL, being a government-owned corporation, was bound to consider all offers in a fair and impartial manner, giving equal opportunity to all competitors, in compliance with Article 14 of the Constitution. The Court acknowledged that while selling public property or granting its lease, the normal method is auction or calling for tenders. However, it held that in this case, HAL was not merely leasing out its plant but was seeking to obtain the best possible technology to improve its production and quality. The Court found that HAL's decision to collaborate with GB, the world leader in penicillin-G production, was in the best interest of the company and justified under the circumstances.5. Authority and validity of the Government directive under Article 117 of the Articles of Association of HAL:The appellants challenged the validity of the Government directive issued under Article 117 of the Articles of Association of HAL, arguing that it should have been issued by the President of India personally. The Court rejected this argument, holding that the directive issued by the Government of India, with the approval of the Minister for Chemicals and Fertilizers, was valid and binding on HAL. The Court stated that the President, like the Queen of England, is a constitutional head, and it would be reasonable to understand the expression 'President' in Article 117 as referring to the Government of India. The Court concluded that the directive was valid in law and binding on HAL.Conclusion:The Supreme Court dismissed the appeals, upholding the validity of the MoU between HAL and MGB, and found no evidence of bias or mala fides against the Managing Director of HAL. The Court held that the offers from the appellants were fairly considered, and the decision to collaborate with GB was justified and in compliance with Article 14 of the Constitution. The Government directive under Article 117 was found to be valid and binding on HAL. The appeals were dismissed with no costs.