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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3193 OF 2006

UNION OF INDIA & ANR.       ..Appellants

Versus

HBL NIFE POWER SYSTEMS LTD.                       ..Respondent

J U D G M E N T

R. BANUMATHI, J.

This appeal assails the order dated 27.10.2005 passed  

by the High Court of Delhi allowing the appeal in LPA No.2448 of  

2005 thereby directing the Union of India to issue an advertisement  

in leading newspapers having wide circulation inviting tenders for  

the  submarine  batteries  mentioning  the  detailed  technical  

specifications and the appellants to consider all the products which  

meet the technical specifications and thereby proceed to select the  

best product in accordance with law.

2. The  subject-matter  involved  in  the  present  case  is  

submarine batteries required for the Indian Navy.  Indian Navy has  

three  types  of  submarines  for  which  three  different  types  of  

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batteries  are  used.  Type-I  battery  for  EKM submarines,  Type-II  

battery for SSK class submarines and Type-III battery for Foxtrot  

class submarines. Initially, these batteries were imported from the  

Original  Equipment  Manufacturer.  In  view  of  the  recurring  

requirement of the batteries, subsequently a decision was taken to  

progress their indigenisation. Director General Quality Assurance  

(DGQA)  working  under  the  Ministry  of  Defence  has  a  detailed  

procedure to ‘develop/indigenise’ critical items/spares. As per the  

said procedure, the Government identifies the possible vendors and  

assesses  their  capacity/technical  qualifications  and  thereafter  a  

development order is placed on the proposed supplier.  During this  

period of development of the spares, the Government carries out  

regular inspection and the product is developed under the aegis of  

officials  of  the  Defence  Ministry  and  officers  of  the  DGQA  are  

associated throughout the development process right from the time  

of sourcing of raw materials to ensure that the product not only  

meets the technical qualifications but is fully reliable and free from  

any errors in actual performance.     

3. By  following  the  above  rigorous  procedure,  

M/s.  Standard  Batteries  Ltd.  was  developed  as  an  indigenous  

manufacturer  for  supplying  Type-III  submarine  batteries.  

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M/s.  Standard  Batteries  Ltd.  was  subsequently  developed  as  a  

manufacturer  of  Type-I  submarine  batteries  in  the  year  1988.  

M/s.  Exide  Industries  Ltd.  was  developed  as  an  indigenous  

manufacturer of Type-II submarine batteries in 1989.  In the year  

1998, M/s. Standard Batteries Ltd. sold its business to M/s. Exide  

Industries Ltd.  Since then, M/s. Exide Industries Ltd.  has become  

a   single  vendor  in  supplying  batteries  for  all  three  classes  of  

submarines to the Indian Navy.  Officers of DGQA are constantly  

associated with the manufacturing of the submarine batteries in  

Exide Industries Ltd. as and when they are required by the Indian  

Navy.  As M/s. Exide Industries Ltd. has become the single vendor,  

in 2004, Government started exploring the possibility of developing  

another supplier as second source for submarine batteries. But as  

per the policy, the Government cannot register anyone for supply of  

submarine batteries without following the procedure or putting the  

vendor through the process of the development.  In any event, the  

requirement  of  the  supervision  of  DGQA  in  development  of  the  

product  and  thirteen  quality  tests  intended  to  test  submarine  

batteries could never be dispensed with.

4. The  respondent  made  its  representation  in  October  

2004  to  the  Ministry  of  Defence  claiming  that  it  had  developed  

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submarine batteries and that they are under internal evaluation.  

On 31.03.2005, the respondent requested the Ministry of Defence  

for a development order so that the respondent can be developed as  

the  second  source  of  submarine  batteries  and  the  respondent  

agreed to undergo stringent tests before it could be registered for  

supplying the product. As the residual life of the existing batteries  

was coming to an end, in July 2005,  the Government has been  

processing  the  request  by  the  Navy  to  purchase  submarine  

batteries.  Since only M/s. Exide Industries Ltd. was then the only  

approved  supplier  of  all  types  of  submarine  batteries,  it  was  

proposed  to  issue  ‘Request  For  Proposal’  (RFP)  to  M/s.  Exide  

Industries Ltd.  alone and the Defence Minister gave approval  to  

issue RFP to M/s. Exide Industries Ltd. for supplying eleven sets of  

submarine batteries.   

5. Respondent  filed  writ  petition  before  the  Delhi  High  

Court on 17.09.2005 claiming that it should be issued a request for  

proposal  as  well,  as  it  was  registered  for  some  other  products  

namely torpedo batteries.  Be it noted that the submarine batteries  

claimed to  have been developed by the respondent were  neither  

developed under the aegis of the DGQA nor the Government paid  

for development of  the prototype cells.  The learned Single Judge  

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vide order dated 05.10.2005 dismissed the writ petition observing  

that if the extant policy envisages selection or shortlisting of a party  

for  purposes  of  raising  a  development  indent  for  an  alternative  

indigenous source of equipment,  this stage must be successfully  

crossed before venturing further into the issuance of request for  

proposal  and  thereafter  issuance  of  a  PAC.  The  learned  Single  

Judge further held that procurement method was a policy matter  

and the policy did not suffer from any illegality and in any event,  

the policy has not been challenged by the respondent in the writ  

petition.  Aggrieved by dismissal of the writ petition, the respondent  

filed  LPA  No.2448/2005  which  was  allowed  vide  the  impugned  

judgment dated 27.10.2005 and the High Court issued directions  

to the Ministry of Defence to procure even the critical spare parts  

like  submarine  batteries  only  after  issuing  advertisement  and  

calling  for  open  tender.  Assailing  the  impugned  judgment,  the  

appellant-Union of India has preferred this appeal.   

6. Ms. Pinky Anand,  learned Additional Solicitor General  

of  India  alongwith  Mr.  Qadri  appearing  for  the  appellants  

contended  that  while  tender  is  issued  for  common  use  items,  

purchase of  specialized and critical spare parts for the Defence  

Ministry cannot be done by an open tender and in the instant case,  

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there  were  justifiable  reasons  for  the  Government  to  classify  

submarine batteries as critical and specialized defence product and  

to procure the same only from those suppliers who have developed  

the submarine batteries  under the aegis  of  DGQA and are  duly  

approved/registered with DGQA. It was submitted that in relation  

to essential defence supplies/critical spare parts, the Government  

must  ensure  that  the  supplier  has  the  necessary  technical  

qualifications, infrastructure and capacity to develop the product  

and  in  critical  spare  parts  like  submarine  batteries,  the  

Government  cannot  put  the  life  of  its  defence  personnel  and  

submarine worth several crores of rupees to risk simply because  

the respondent claims to have the capability.  It was submitted that  

the  High  Court  was  not  right  in  directing  the  Government  for  

issuing  tenders  for  critical  spare  parts  like  submarine  batteries  

without knowing whether the said product can withstand all the  

thirteen quality tests and render reliable performance on board.

7. Per  contra,  learned  counsel  for  the  respondent  

submitted that the respondent for the first time vide its letter dated  

06.10.1999  had  shown  its  intention  to  develop  the  submarine  

batteries and requested the appellant to provide the specifications  

of the same and in response to the same,  appellants vide letter  

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dated 22.11.1999 duly provided the technical specifications and on  

the basis of the same, respondent had developed prototype cells of  

the said batteries for testing which were offered to the appellants  

for evaluation way back in March 2004 and despite such offering,  

the  appellants  did  not  carry  out  any  test.  Contention  of  the  

respondent  is  that  they  continued  to  invest  huge  sums  for  

developing prototype cells of submarine batteries under legitimate  

expectation  that  the  respondent  would  be  considered  as  an  

alternative  source  for  supplying  submarine  batteries.  Further  

contention of the respondent is that the goods purchased without  

any tender on proprietary basis only from one source is a flagrant  

violation  of  the  constitutional  mandate  of  Article  14  and  by  

directing  to  issue an advertisement,  the High Court  rightly  held  

against  the  monopoly  of  single  source  for  supply  of  submarine  

batteries.

8. We  have  carefully  considered  the  rival  contentions  

advanced by the parties and perused the details of the procedure  

for development of submarine batteries and various tests required  

to be conducted on the submarine batteries and other material on  

record.

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9. The  defence  procurement  can  be  classified  into  two  

broad heads:-

(i) First  category  are  common  use  items  of  generic  or  commercial  specifications  and  these  are  available  in  open  market. For example car batteries, spare of various vehicles etc.  These items are procured by the Ministry of Defence by Open  Tender Enquiry (OTE) i.e.  by advertisements in the press and  website.

(ii) Second  category  are  those  materials  which  do  not  fall  within  the  above  ‘common  use’  category.  These  spares  are  ‘mission critical’ strategic defence products, which are procured  only from those firms which are registered with Director General  of  Quality  Assurance  (DGQA)  which  functions  under  the  Ministry  of  Defence.  The  supplier  has  to  be  registered  with  DGQA for the supply of that specific product.        

Defence Ministry/DGQA has a very stringent procedure before any  

vendor is registered with DGQA for supplying the product. In the  

second category, though the product is manufactured by a private  

supplier, it is not as if the Government is totally disassociated from  

the  production  process  of  the  product.   As  is  seen  from  the  

Standing  Orders  of  the  DGQA (Annexure  P-1),  prior  to  grant  of  

registration,  the  Government  pays  the  vendor  to  ‘develop’  the  

product under its supervision for over a period of time.  Officials of  

the DGQA are posted at the factory of the supplier to ensure that  

the goods so produced are absolutely in order. The inspectors of  

DGQA inspect every stage of production right from the sourcing of  

the raw materials  by the vendor as it  is  quite  possible that  the  

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vendor  may  purchase  inferior  quality  material  which  may  be  

difficult to detect in the final product. Development of the second  

source  would  require  upto  a  maximum  of  three  years,  as  the  

development  process  involves  drawing  up  of  detailed  technical  

specifications and performance  criteria  based on which the  firm  

has to prepare a detailed design for each and every component to  

meet the stringent military standards.

10. The  subject-matter  of  the  present  case  is  submarine  

batteries. The importance of submarine batteries to a submarine  

cannot be underestimated as it is strategically a vital equipment for  

submarines. Submarines or diesel electrical vessels run on battery  

power. Power to the submarine is provided by about 240 to 528  

batteries, weighing about 800 kgs each, depending on the nature of  

submarine.  The only source of power to a submarine when it dives  

beyond  nine  metres  into  sea/ocean  is  submarine  batteries.  

Improvement  in  battery  technology  and  capacity  is  always  an  

important goal in submarine design.  Batteries are unique source of  

electric  energy  in  underwater  navigation.  When  a  submarine  is  

under surface, all its equipments are powered from the batteries,  

electric machines, lights, internal communication etc. which means  

that right from the first stage, the submarine batteries are vital for  

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operating submarine.  Survival of submarine depends on its radio  

noise levels which are directly related to the efficient functioning of  

onboard equipment and machinery especially when the batteries  

which is the only source of power and energy.  If the batteries fail,  

submarine  will  be  without  power  and  it  can  have  catastrophic  

consequences  on  men  as  also  submarine  would  be  lost.  DGQA  

therefore ensures that it is associated during the production of the  

batteries by the approved vendor and only those batteries which  

pass  the  thirteen  tests  are  purchased  by  the  Navy.  In  case  of  

submarine  batteries,  before  a  particular  vendor  is  approved  for  

supply  of  submarine  batteries,  as  per  the  policy,  first  the  

government issues development indent to the lowest bidder and the  

Government pays the proposed vendor to develop the product and  

the product is developed by the vendor under the supervision of the  

DGQA  officials.  Product  so  developed  under  the  supervision  of  

DGQA has to undergo thirteen tests as stipulated in Annexure P-2.  

Ministry  of  Defence/Navy  authorities  cannot  accept  the  final  

product without being fully associated with the development of the  

product right from the stage of procurement of raw material to the  

stage of final product.  As per the policy, RFP could be issued only  

to  a  firm which is  duly registered with  DGQA for  supply of  the  

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product after development of the product under the aegis of DGQA.  

Having regard to the requirements of a highly critical spare part  

like submarine batteries, the Government has framed the policy for  

issuance  of  the  development  indent,  developing  the  source  and  

registration  with  DGQA.  It  is  pertinent  to  note  that  in  the  writ  

petition, policy itself was not under challenge.  In fact, in the writ  

petition,  respondent-company  itself  prayed  only  for  issuance  of  

request for proposal under the policy.  The High Court did not keep  

in  view  the  policy  of  the  Government  and  the  mandatory  

requirement  of  DGQA being  associated  with  the  development  of  

submarine batteries which is a critical defence spare part.   

11. If the country wishes to play a substantial role in the  

Indian Ocean and Arabian Sea, India must ensure high standards  

of defence power comparing with the neighbouring countries and it  

should  have  modernized  submarines.  Modernized  submarines  

require  submarine  batteries  with  high  sophisticated  standard  

under the aegis of DGQA.  The Government cannot put the life of  

its defence personnel and submarine worth crores of rupees to risk  

simply because the respondent claims to have the capability and  

can supply submarine batteries.  For such defence critical spare  

parts  like  submarine  batteries,  there  cannot  be  any  open  

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advertisement inviting tenders.  Advertisements are issued calling  

for tenders only for common use items which are normally available  

in  the  open  market  with  a  wide  range  of  sources.  Submarine  

batteries do not fall under this category of common use items. The  

respondent  cannot  claim  any  vested  right  to  be  issued  a  

development indent or RFP or a supply order simply because it has  

made  investments  to  manufacture  submarine  batteries.  

Straightway RFP cannot be issued to the respondent by ignoring  

the  procedure  for  issuing  a  development  indent  and  testing  the  

batteries.  

12. As the matter was pending for over a decade, we have  

asked  the  appellant-Union  of  India  about  the  subsequent  

development of the second source for supply of submarine batteries  

and for the status of the respondent.  In response, on instruction  

Mr.  S.W.A.  Qadri,  onbehalf  of  the  appellant  has  filed  elaborate  

written submission.  It is stated that after grant of stay order dated  

16.12.2005  by  this  Court  against  the  impugned  order,  the  

appellant initiated a case for development of an alternate vendor for  

submarine  batteries  seeking  development  indents  from  IHQ  

(N)/DEE  as  per  directives  of  Ministry  of  Defence  vide  ID  

No.3536/04/D(N-I)  dated  08.02.2005.   Accordingly,  open  tender  

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was  issued  in  newspapers  on  29.05.2006  wherein  several  firms  

including the respondent responded.  For development of a second  

source of  Type-I  batteries,  development order was placed on the  

respondent HBL Ltd. on 22.03.2007, as per which the firm was to  

develop four Type-I cells at a cost of Rs.11.16 lakhs with a delivery  

schedule of eighteen months. The prototype batteries manufactured  

by respondent-HBL failed to meet DGQA’s stipulated standard for  

relevant discharge (C2) test. Thereafter, on 12.07.2011, a meeting  

was  held  with  the  participants  of  DEE  and  M/s.  HBL  

representatives.  Post  detailed  deliberation,  the  respondent  was  

asked to manufacture four cells afresh and present them for type  

testing. Test of batteries was completed at the factory premises in  

June 2012 and batteries were transferred to BCF, Sewri in January  

2013.  However,  on  receipt  at  BCF,  Sewri,  visible  bulging  was  

observed in all batteries and lead tape discontinuity in one battery  

during  first  maintenance  charge.  During  analysis  in  February  

2013, bulging was found to exceed permissible limit of 12 mm on  

all batteries post first full charge.  However, respondent opined that  

the  bulging  was  due  to  improper  packaging  whilst  transporting  

batteries  from the  premises  (Hyderabad)  to  Mumbai.  Thereafter,  

respondent  firm–HBL  agreed  on  certain  conditions  for  

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manufacturing of four new prototype cells with a lead time of three-

six months and agreed to complete manufacturing of test cells by  

February  2014.   However,  there  was  delay  on  the  part  of  the  

respondent  and  finally  the  trial  of  test  cells  was  completed  on  

14.11.2014 and the trials were validated by CQAE, Secunderabad.  

Test  cells  were  received  at  BCF,  Sewri  in  January  2015.  

Charging/discharging  trials  commenced  wherein  charging  

parameters were examined and found to be satisfactory.  In this  

regard,  in  the  written  submission  filed  by  UOI,  it  is  stated  as  

under:-

“8. …The performance report forwarded by ASD (Mbi)/BCF  wherein  all  parameters  of  the  cells  were  examined,  indicates  satisfactory  test  results.   In  view  of  the  satisfactory  completion  of  indigenization  efforts  by  respondent  herein  (M/s.  HBL,  Hyderabad)  the  firm was  nominated as IHQ MOD (N) approved vendor for supply of  Type-I  submarine  batteries  for  EKM  submarines  on  28.05.2015

9.  ..the next  procurement case shall  have an additional  qualified vendor for Type-I submarine batteries to increase  the  market  competence for  both technical  and financial  aspects.”

Though  the  subsequent  developments  may  not  be  relevant  to  

determine the issue, we have referred to the written submission in  

extenso for the sake of completion.  

13. The  aforesaid  discussion  and  also  the  written  

submission as to how the respondent developed the batteries over a  14

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period  of  time  reiterate  that  the  development  of  second  source  

could  only  be  as  per  the  guidelines  of  DGQA  and  under  the  

supervision and inspection of  the officials  of  the DGQA and not  

independently.  The High Court did not keep in view the policy of  

the  Government  in  purchasing  the  critical  spare  parts  for  the  

defence and in particular, in developing submarine batteries under  

the  aegis  of  the  Defence  Ministry  and  the  High  Court  erred  in  

directing  the  appellants  to  issue an advertisement giving  details  

about the technical specifications for submarine batteries and in  

selecting the product submitted in response to the advertisement  

and the impugned order is not sustainable.  

14. The impugned order of the High Court is set aside and  

this appeal is allowed. In the facts and circumstances of the case,  

we make no order as to costs.

                                                              ..…………………….CJI.            (T.S. THAKUR)

..……………………….J.     (R. BANUMATHI)  

New Delhi; January 20, 2016

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