Issue show cause for suspending business with company over AgustaWestland probe: HC to Centre

 The Delhi High Court has asked the Centre to issue a reasoned show cause notice along with relevant material to Defsys Solutions, a defence equipment supplier, with which the government suspended business over a CBI probe in relation to the AgustaWestland VVIP helicopter case.

The court, while dealing with a petition by the company challenging a December 9, 2022 order of suspension by the defence ministry, said non-issuance of a show cause notice before the suspension merely on the fact that the business involved defence procurement was not justified.

It directed that an opportunity to reply be afforded to the petitioner before a reasoned order is passed by the competent authority within 3 months.

The suspension itself, the court said, cannot be indefinite and has to result in due process being followed for banning or it has to be revoked.

“A show cause notice shall be issued to the petitioner within a period of 2 weeks from today setting out the reasons for suspension. Any relevant material in respect of allegations against the petitioner shall be put to the petitioner along with the show cause notice,” said Justice Prathiba M Singh in an order dated September 5.

“An opportunity to reply shall be afforded to the petitioner and if a hearing is sought, the same shall be granted. After affording a hearing, a reasoned order shall be passed within 3 months,” the judge ordered.

In its 51-page order, the court asserted the principles of natural justice can be given a go by when national security concerns outweigh the duty of fairness but there has to be a justification for it as merely citing national security considerations is not enough.

The court said it cannot be held that the suspension orders, which are part of the banning process as an interim measure, can be issued without complying with the principle of letting the other side to be heard.

“It is only when national security concerns overweigh the duty of fairness that the said procedure can be given a go by. In each and every case when the principles of natural justice are not followed, there has to be a justification and merely citing national security considerations is not enough.

“The material should reveal that there would be national security considerations, justifying non-grant of opportunity of reply or hearing,” the court said.

The court added that suspension has to be compulsorily reviewed every 6 months by the authorities and, if they decide to ban the entity/person, such period of ban has to be fixed bearing in mind the period of suspension already undergone.

In the present case, the court observed, the suspension order was merely based on the intimation letters issued by the CBI stating that an investigation is underway against one of the ex-directors of the petitioner and his companies, and no notice was issued prior to the suspension, no reply was called for and no hearing was held.

“In the overall conspectus, till date, there is no clarity as to what is the nature of allegations, what is the nature of investigation and since when the investigation has been continuing as no reasons are spelt out.

“If it is presumed that the investigation against the petitioner started in 2013, along with the investigation against AgustaWestland, it is not clear as to why the CBI gave an intimation to the Respondent No.1 for the first time only in December, 2021 i.e., 9 years after inception of the AgustaWestland investigation,” the court said.

The court maintained that while it cannot be said that there is no application of mind in the suspension, the same itself cannot be indefinite and principles of natural justice would have to be complied with.

“In the facts of this case, the mere fact that it involves defence procurement, does not justify non-issuance of a show-cause notice. Within a reasonable period a show cause notice shall have to be issued,” the court said.

The court said for the existing contracts of the petitioner, the interim arrangement already in place shall continue.

In December last year, the court had said the Centre’s order suspending business dealings with the petitioner will not affect the ongoing contracts between the parties.

The petitioner had submitted it was doing business with the Union of India and was a regular supplier of various defence equipment and parts since 2007 and the reason given for the suspension was an alleged “intimation from the CBI regarding ongoing investigation against the (petitioner) in relation to the AgustaWestland VVIP Helicopter case”.

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The CBI case pertains to a Rs 3,600-crore alleged scam in the purchase of 12 VVIP helicopters from AgustaWestland. The agency, in its charge sheet, has alleged an estimated loss of 398.21 million euros (about Rs 2,666 crore) to the exchequer due to the deal that was signed on February 8, 2010 for the supply of VVIP choppers worth 556.262 million euros.

The petitioner had claimed that the order passed by the Defence Ministry on December 9, 2022, which suspended business dealings with it for a period of one year or until further orders, was a “complete surprise” as no notice was issued to it prior to the suspension and it has even given bids in response to the various ‘Request for Proposal’.

The petitioner had argued that the intimation seemed to be incorrect as it has no connection with the AgustaWestland case and it is neither an accused nor has it ever been called for investigation in the case. It had said the order was liable to be stayed.

The Centre had earlier argued that when an intimation is received from an investigation agency, a suspension can be ordered even without notice, especially in cases involving national security, in terms of the guidelines of the Ministry of Defence for penalties in business dealing, which includes the procedure for penal action.

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