COREIP TECHNOLOGY PRIVATE LIMITED vs UNION OF INDIA & ORS.

$~30
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 25th JANUARY, 2024
IN THE MATTER OF:
+ W.P.(C) 5566/2023 & CM APPL. 21856/2023
COREIP TECHNOLOGY PRIVATE LIMITED ….. Petitioner
Through: Mr. Kumar Visalaksh and Mr. Udit Jain, Advs.

versus

UNION OF INDIA & ORS …… Respondents
Through: Mr. Sandeep Kumar Mahapatra, CGSC with Mr. Tribhuvam, Adv.

CORAM:
HON’BLE MR. JUSTICE SUBRAMONIUM PRASAD
JUDGMENT (ORAL)
1. Petitioner has approached this Court challenging an Order dated 09.02.2023 passed by Respondent No.1 debarring the Petitioner for a period of two years from participating in the procurements of Department of Telecommunications (DoT) and its attached/subordinate offices, autonomous bodies, Central Public Sector Undertaking etc. on the ground of false declarations of local content by the Petitioner, which according to the Respondent is a breach of Code of Integrity under Rule 175(1)(i)(h) of the General Financial Rules and in terms of Para 9(f) of the DPIIT PPP-MII Order dated 19.09.2020.
2. Shorn of details, the facts leading to the instant writ petition are that the Petitioner is engaged in software development and hardware design in the domain of unified communication. It is stated that the Petitioner hosted three products on the Government Electronic Marketplace (GeM) portal which are Core IP UMGW-128S/H Gateway, Core IP UMGW_48s Analog VoIP Gateway and Core IP T58 W SIP phone.
3. A show cause notice was issued to the Petitioner on 23.01.2023 stating that a complaint has been received by the Respondent against the Petitioner/company regarding mis-labeling Chinese products as Indian branded products. It is stated in the show cause notice that the local content in the three products named above are 49.36%, 59.30% and 15.6% is below the local content requirement as per the DoT PPP-MII notification dated 29.08.2018. The Petitioner was directed to show cause as to why the Petitioner should not be debarred from participating in the procurement of Core IP UMGW-128S/H Gateway, Core IP UMGW_ 48s Analog VolP Gateway and Core IP T58 W SIP phone. Replies have been filed by the Petitioner on 30.01.2023 and 01.02.2023. A personal hearing was afforded to the Petitioner.
4. Material on record discloses that the Expert Committee had meetings on various dates and a decision was taken that there was indeed a mis- branding on the part of the Petitioner. Paragraph 4 and 5 of the said order dated 09.02.2023, reads as under:-
“4, M/s Core IP submitted to the committee that it has listed only three products on GeM portal namely Core IP UMGW-128S/1 Gateway, Core IP UMGW_48s Analog VoIP Gateway and Core IP T58 W SIP phone. M’s CoreIP had provided the details of local and imported contents of these three products only. Therefore, the committee was constrained to verify the Local content for these three items only.
4.1 Calculation of Local content in T58 W SIP Phone:

M/s CoreIP had claimed 20% LC for T58W SIP Phone on GeM portal. The total cost of the product is shown as Rs 34,378 of which Rs 21 ,667 is given as the cost of imported T58W SIP phone. The imported T58W SIP Phone has same model number i.e., T58W SIP phone shown in catalogue of M/s Yealink (Xiamen) Network Technology Co. Ltd. China. The cost break up of SIP Phone submitted by M/s CoreIP shows LC as 36.97%.

The local content is claimed against inward freight, power adapter, packaging material, printing of labels, cost of software designed and developed by M/s CoreIP, installation cost at client location and outward freight, insurance and handling. However, the committee found out that inward fright cost should not be part of local content but should be part of import cost. Further, installation cost at client locations and outward fright, insurance and handling are not admissible towards local contents as per DPIIT OM dt. 04.03.2021. The cost of software design claimed by M/s CoreIP is 21.82% of the total cost wherein the admissible limit for design cost including hardware and software as per Table-C of the DoT Gazette Notification, dated 29.08.2018, is 15% for IP Phone category. The power adapter is purchased from M/s Adapter point. Committee after examination and deliberation found out that the admissible component of local content from the break-up of the cost provided which could be allowed without any doubt are cost of power adapter, packaging material and printing of lables. Though, M/s CoreIP did not provide any documentation to substantiate the claim of software design cost claimed by them, considering that the cost of software design (with upper limit of 15%) if allowed as local content, the total local content in the T58W SIP Phone of M/s CorelP will be 15.6% which is below the claimed local content (20%) on the GeM Portal which is further below the required local content of 40% for IP Phones as per DoT Notification dated 29.08.2018.

4.2 Calculation of local content in UMGW-128S/H and UMGW 48s Analog VoIP Gateway: –

The cost of UMGW-128 S/H and the local content claimed in the calculation submitted by M/s CoreIP is Rs 1,67,217/- and 67.64% respectively and for UMGW_48s is Rs. 1,16,646/- and 77.15% respectively.

For both gateway products, Chassis with AC power supply is being manufactured at the EMS facility of M/s Parswa exports. For this component, M/s CoreIP has claimed 85% cost of Chassis with power supply as local components and 15% as the imported component. Based on the visit of M/s Parswa Exports, the committee agreed with the aforesaid LC claims.

M/s Core IP has shown the FXS16 populated PCB board and CPU Card Populated PCB Board being purchased from M/s Dreamcom Infosys Pvt. Ltd. for both gateways. Out of total cost, 85% is shown as import and 15% is shown as Local content towards distributor margin and inward freight. The committee opine that the 15% claim of Local Content cannot be allowed as it is towards the distributor margin and inward freight and the items are being imported and supplied without any value addition by M/s Dreamcom. Further, the local content claimed for cables, connectors and misc. parts, packaging material, printing of lables; cost of software design, PCB layout of FXS 16 PCB Board and CPU Card Populated PCB Board, assembly, installation cost at client location and outward freight, insurance and handling. Similar to SIP Phone, the committee did not accept the installation cost at client location and outward freight, insurance and handling cost towards local content. As per DoT notification dt. 29.08.2018, the upper ceiling limit of Domestic Local Content for Assembly/ Integration/ Testing in respect of the referred telecom products is 10% of the total Bill of Material. Further, Maximum ceiling for design (Software and hardware) as Local Content out of total LC for Media Gateway is 45%.

Committee during deliberations found out that software design cost claimed by M/s CoreIP for UMGW 128 S/H is 23.91% and for UMGW 48s is 25.72% and M/s CoreIP did not provide necessary documents to substantiate the claim of Local content for aforesaid software design. As far as software design cost is concerned, C-DoT has the capability to examine if the software is locally developed but it may be a time consuming process. Though, the committee was unable to have a final view w.r.t software design cost, even then, considering the software design cost as local content, the total local content for UMGW 128 S/H and UMGW 48s comes to 49.36% and 59.30% respectively against local content claim of 50% on GeM portal and requirement of 65% as per DoT notification dated 29.08.2018.

5. The TEC committee after finalizing its enquiry submitted its report vide Ref(ii). The committee concluded that the local content percentage found out for CoreIP T58W SIP Phone, CoreIP UMGW 128 S/H and CoreIP UMGW 48s is 15.6%, 49.36% and 59.30% respectively, which is below the local content requirement as per DoT PPP-MII notification dated 29.08.2018.”

5. It is this order which is under challenge in the instant writ petition.
6. Learned Counsel for the Petitioner contends that the General Financial Rules (GFR) does not contain any provision regarding the percentage of local component that has to be present before a product is hosted on the GeM portal. He also states that there was no mis-declaration on the part of the Petitioner before hosting the product either GeM portal and, therefore, the allegation by the Respondent that the Petitioner has mis- branded the product is not correct. He states that the mis-branding occurs only when there is a declaration by the Petitioner regarding the local content and foreign content on the component and without any declaration on the part of the Petitioner, the Petitioner cannot be accused of any mis-declaration.
7. Learned Counsel for the Petitioner draws the attention of this Court to Rule 149 and more particularly to Rule 149(i)(ii) and (iii) to substantiate his contentions. He states that the GFR only provides about the rates of the products which are available on the portal and that there is no requirement that the said product must state about the percentage of foreign component in the product. He states that the Rules only stipulates about the quality and the rates and that there is no mention of the percentage of the foreign component in the product which are to be hosted on the GeM portal.
8. Per contra, Mr. Sandeep Kumar Mahapatra, learned CGSC for the Respondent, draws the attention of this Court to Rule 153(iii) to contend that the Central Government by notification has provided for mandatory procurement of goods or services from any category of bidder or provide for preference to bidders on the ground of locally manufactured goods or locally provided services. Rule 153(iii) of the General Financial Rules reads as under:-
“Rule 153 (iii) The Central Government may, by notification, provide for mandatory procurement of any goods or services from any category of bidders, or provide for preference to bidders on the grounds of promotion of locally manufactured goods or locally provided services. ”

9. He further draws the attention of this Court to a notification dated 16.09.2020 issued by the Department of Promotion of Industry and Internal Trade (DPIIT). He states that the said notification has been issued for the purposes of encouraging ‘Make in India’ and promote manufacturing and production of goods in India with a view to enhancing income and employment. He states that the said notification provides for the minimum percentage of local content which is required in a product when the product is hosted for the purposes of supply in the GeM portal. For this purpose, he draws the attention of this Court to paragraph 5 of the notification dated 16.09.2020, which reads as under:-
“5. Minimum local content: The local content’ requirement to categorize a supplier as Class-I local supplier’ is minimum 50%. For ‘Class-II local supplier’, the ‘local content’ requirement is minimum 20%. Nodal Ministry/Department may prescribe only a higher percentage of minimum local content requirement to categorize a supplier as Class-I local supplier/Class-II local supplier. For the items, for which Nodal Ministry/Department has not prescribed higher minimum local content notification under the Order, it shall be 50% and 20% for ‘Class-I local supplier’/ ‘Class-II local supplier’ respectively.”

10. He further points to Paragraph 8 of the said notification which reads as under:
“8. Government E-marketplace: In respect of procurement through the Government Emarketplace (GeM) shall, as far as possible, specifically mark the items which meet the minimum local content while registering the item for display, and shall, wherever feasible. make provision for automated comparison with purchase preference and without purchase preference and for obtaining consent of the local supplier in those cases where purchase preference is to be exercised.”

11. He also states that the supplier has also to self-certify that the product does not have foreign component more than minimum prescribed under the notification.
12. Heard learned Counsel for the parties and perused the material on record.
13. Rule 149 of the General Financial Rules on which reliance has been placed by the Petitioner specifically provides that the goods which are hosted in the portal must meet the requisite quality and the specifications for the purposes of promoting Make in India products. The Government has issued specific notifications specifying the percentage of foreign component which is permissible in various commodities before it is hosted. It is not the case of the Petitioner that the components offered by the Petitioner on the GeM portal did in fact meet the requirements as specified in the notification dated 16.09.2020. The product of the Petitioner has been analyzed by experts on the field who are of the opinion that the product offered by the Petitioner on the GeM portal do not meet with the minimum qualifications as prescribed under the notification dated 16.09.2020.
14. It is also pertinent to mention that the Department of Telecommunication has also issued a notification dated 29.08.2018 which prescribes the minimum local content and foreign content. Paragraph 5 and 6 of the said notification reads as under:-
“5. In terms of clauses 2, 3 and 11 of PPP-MMI Order. the Department of Telecommunications has prepared a list of telecom products, services and works for their purchase preference from local suppliers far public procurement. The list of telecom products, services and works along with their Preference to Make in India (PMI) and their Local Content (LC) is in Table-A. The local supplier has to manufacture equipment from component level in India and also develop local vendors for procurement of raw materials, components and parts for increasing local content. The Department has identified conditions for the inputs to be qualified as Local Content and maximum ceiling for design as LC out of total LC which are in Table-B and Table-C respectively.

6. In terms of clauses 3(a) and 11 of the PPP-MII Order, it is declared that list of telecom product, services and works in Table-A have sufficient local capacity and local competition. It is hereby notified that the procuring entities will procure a minimum percentage as indicated under Preference to Make in India (PMI) of their telecom products, services or works requirements fulfilling Local Content (LC) criterion prescribed against each item as in Table A.”

15. Since a panel of experts has analyzed the components and has come to a conclusion that the products offered by the Petitioner do not meet with the minimum standards and the minimum amount of foreign content which is permitted in a commodity which is hosted in a GeM portal, this Court does not want to substitute its own conclusion to the one arrived at by the experts.
16. The Apex Court in Tata Motors Limited vs. Brihan Mumbai Electric Supply & Transport Undertaking (BEST) and Others, 2023 SCC OnLine SC 671 has observed as under:
“52. Ordinarily, a writ court should refrain itself from imposing its decision over the decision of the employer as to whether or not to accept the bid of a tenderer unless something very gross or palpable is pointed out. The court ordinarily should not interfere in matters relating to tender or contract. To set at naught the entire tender process at the stage when the contract is well underway, would not be in public interest. Initiating a fresh tender process at this stage may consume lot of time and also loss to the public exchequer to the tune of crores of rupees. The financial burden/implications on the public exchequer that the State may have to meet with if the Court directs issue of a fresh tender notice, should be one of the guiding factors that the Court should keep in mind. This is evident from a three-Judge Bench decision of this Court in Association of Registration Plates v. Union of India, reported in (2005) 1 SCC 679.
53. The law relating to award of contract by the State and public sector corporations was reviewed in Air India Ltd. v. Cochin International Airport Ltd., reported in (2000) 2 SCC 617 and it was held that the award of a contract, whether by a private party or by a State, is essentially a commercial transaction. It can choose its own method to arrive at a decision and it is free to grant any relaxation for bona fide reasons, if the tender conditions permit such a relaxation. It was further held that the State, its corporations, instrumentalities and agencies have the public duty to be fair to all concerned. Even when some defect is found in the decision-making process, the court must exercise its discretionary powers under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference, the court should interfere.
54. As observed by this Court in Jagdish Mandal v. State of Orissa, reported in (2007) 14 SCC 517, that while invoking power of judicial review in matters as to tenders or award of contracts, certain special features should be borne in mind that evaluations of tenders and awarding of contracts are essentially commercial functions and principles of equity and natural justice stay at a distance in such matters. If the decision relating to award of contract is bona fide and is in public interest, courts will not interfere by exercising powers of judicial review even if a procedural aberration or error in assessment or prejudice to a tenderer, is made out. Power of judicial review will not be invoked to protect private interest at the cost of public interest, or to decide contractual disputes.”
17. The Apex Court in N.G. Projects Ltd. vs. Vinod Kumar Jain, (2022) 6 SCC 127 has observed as under:
“23. In view of the above judgments of this Court, the writ court should refrain itself from imposing its decision over the decision of the employer as to whether or not to accept the bid of a tenderer. The Court does not have the expertise to examine the terms and conditions of the present day economic activities of the State and this limitation should be kept in view. Courts should be even more reluctant in interfering with contracts involving technical issues as there is a requirement of the necessary expertise to adjudicate upon such issues. The approach of the Court should be not to find fault with magnifying glass in its hands, rather the Court should examine as to whether the decision-making process is after complying with the procedure contemplated by the tender conditions. If the Court finds that there is total arbitrariness or that the tender has been granted in a mala fide manner, still the Court should refrain from interfering in the grant of tender but instead relegate the parties to seek damages for the wrongful exclusion rather than to injunct the execution of the contract. The injunction or interference in the tender leads to additional costs on the State and is also against public interest. Therefore, the State and its citizens suffer twice, firstly by paying escalation costs and secondly, by being deprived of the infrastructure for which the present day Governments are expected to work.”

18. The Apex Court in Silppi Constructions Contractors vs. Union of India, (2020) 16 SCC 489 has observed as under:
“19. This Court being the guardian of fundamental rights is duty-bound to interfere when there is arbitrariness, irrationality, mala fides and bias. However, this Court in all the aforesaid decisions has cautioned time and again that courts should exercise a lot of restraint while exercising their powers of judicial review in contractual or commercial matters. This Court is normally loathe to interfere in contractual matters unless a clear-cut case of arbitrariness or mala fides or bias or irrationality is made out. One must remember that today many public sector undertakings compete with the private industry. The contracts entered into between private parties are not subject to scrutiny under writ jurisdiction. No doubt, the bodies which are State within the meaning of Article 12 of the Constitution are bound to act fairly and are amenable to the writ jurisdiction of superior courts but this discretionary power must be exercised with a great deal of restraint and caution. The courts must realise their limitations and the havoc which needless interference in commercial matters can cause. In contracts involving technical issues the courts should be even more reluctant because most of us in Judges’ robes do not have the necessary expertise to adjudicate upon technical issues beyond our domain. As laid down in the judgments cited above the courts should not use a magnifying glass while scanning the tenders and make every small mistake appear like a big blunder. In fact, the courts must give “fair play in the joints” to the government and public sector undertakings in matters of contract. Courts must also not interfere where such interference will cause unnecessary loss to the public exchequer.

20. The essence of the law laid down in the judgments referred to above is the exercise of restraint and caution; the need for overwhelming public interest to justify judicial intervention in matters of contract involving the State instrumentalities; the courts should give way to the opinion of the experts unless the decision is totally arbitrary or unreasonable; the court does not sit like a court of appeal over the appropriate authority; the court must realise that the authority floating the tender is the best judge of its requirements and, therefore, the court’s interference should be minimal. The authority which floats the contract or tender, and has authored the tender documents is the best judge as to how the documents have to be interpreted. If two interpretations are possible then the interpretation of the author must be accepted. The courts will only interfere to prevent arbitrariness, irrationality, bias, mala fides or perversity. With this approach in mind we shall deal with the present case.”

19. It is well settled that writ courts while exercising jurisdiction under Article 226 of the Constitution of India looks only into the decision making process and if the decision making process is just, fair and reasonable, then the writ courts loathe to interfere with the decision arrived at by the authorities unless the decision arrived at is so perverse that it shocks the conscience of the Court. The present case does not fall under those parameters in which this Court should exercise its jurisdiction under Article 226 of the Constitution of India.
20. The products of the Petitioner do not meet the requirements stipulated under the various notifications and the Petitioner could not have listed its products on the GEM Portal for offering them to various Government Departments. The Order of debarment, therefore, does not warrant any interference.
21. Resultantly, the writ petition fails. The writ petition is disposed of along with pending application(s), if any

SUBRAMONIUM PRASAD, J
JANUARY 25, 2024
hsk

W.P.(C) 5566/2023 Page 14 of 14