Delhi High Court Directs Centre To Clarify Suspension Of A Private Firm Accused In AgustaWestland VVIP Chopper Scam

The Delhi High Court has directed the central government to explain the reasons for suspending a private company from doing business with Ministry of Defence (MoD), reported Indian Express.

The private company — Defsys solutions — is under investigation by the Central Bureau of Investigation (CBI) in relation to the AgustaWestland VVIP chopper scam case.

In an order on 5 September, Justice Prathiba Singh, a single-judge bench, emphasised that although the competent authority's discretion in defence procurement must be wider and broader due to security considerations, it cannot be unlimited.

The court highlighted the importance of fairness, non-arbitrariness, and compliance with the principles of natural justice even in cases involving defence procurement guidelines.

These observations were made in response to a plea by Defsys Solutions Private Limited, which challenged the Defence Ministry's order on 9 December 2022, suspending the company from any business dealings with the Centre for a period of one year or until further orders.

The ministry received information from the CBI regarding an ongoing investigation against Defsys in connection with the AgustaWestland VVIP helicopter case.

Based on the Ministry of Defence's 2016 "Guidelines for Penalties in Business Dealings with Entities," which includes provisions for suspending business dealings on grounds of national security, the competent authority suspended Defsys.

Justice Singh, in reference to the guidelines and accompanying documents, expressed concern over the extensive power granted to authorities in the case of entity suspension.

“It gives unbridled power to the authorities in the case of suspension of an entity,” Justice Singh said.

Justice Singh emphasised the importance of adhering to the principles of natural justice, stating that national security concerns should only override the duty of fairness in exceptional cases.

Mere citation of national security considerations is insufficient; there must be a valid justification for not following the principles of natural justice.

According to the High Court, suspension is a form of urgent/interim measure preceding debarment or banning and should be considered as such.

The court ruled that indefinite suspension without following the prescribed safeguards for banning is not permissible.

The High Court expressed concern over the lack of clarity regarding the allegations, investigation, and duration of the investigation against Defsys.

It noted that no reasons have been provided for these aspects. The court questioned why the CBI only informed the Ministry of Defence about the investigation in December 2021, nine years after the start of the AgustaWestland investigation.

Justice Singh ordered the authorities to issue a show cause notice to Defsys within two weeks, explaining the reasons for the suspension. The court also directed the authorities to provide relevant material to the company regarding the suspension.

In disposing of the petition, the High Court ruled that "an opportunity to reply or hearing should be provided to Defsys and a reasoned order must be passed in the matter within three months."

Defsys, a company that manufactures air borne and land systems for military platforms, has stated that it was not given a show cause notice or provided with a hearing or reasons for the suspension order.

The company argues that being deprived of notice or hearing on the grounds of 'national security' is unjustifiable.

However, the Centre has countered Defsys' claims by referring to the 2016 guidelines which state that the competent authority can suspend business dealings with an entity upon receiving information about the initiation of a criminal investigation or enquiry against that entity.

Therefore, the Centre argues that a show cause notice is not required in such cases.

The High Court has further elaborated on the steps to be followed in accordance with the 2016 guidelines.

It mandates that in cases of entity suspension, a show cause notice must be issued to the entity within a reasonable period after the suspension orders are issued, preferably within six months. The notice should outline the grounds for suspension and any supporting evidence, which must be communicated to the entity, as stated by the court.