Sanchayita Lahkar

The High Court of Delhi Division Bench of Justice Navin Chawla and Justice Madhu Jain set aside successive suspension orders issued by the Ministry of Defence against a private defence company under the Guidelines of the Ministry of Defence for Penalties in Business Dealings with Entities. The Court held that the suspensions, premised only on general inputs of an ongoing investigation from the Central Bureau of Investigation, were unsustainable. While rejecting the challenge to the Guidelines themselves on the ground of constructive res judicata, the Court quashed the third, fourth, and fifth suspension orders, thereby directing that the petitioner could not be barred from business dealings on the basis of vague and repetitive assertions of investigation.

The petitioners in this matter comprised a private limited company engaged in the design, manufacture, and integration of complex airborne and land systems used on military platforms, along with the company’s director. The company’s portfolio included external fuel tanks, missile launchers, bomb racks, and related defence equipment supplied to the Government of India and its approved buyers. Since 2007, the petitioner company had been a regular supplier to the armed forces through direct transactions with the Ministry of Defence.

Also Read: Supreme Court | DGFT and CBIC Directed to Upgrade Systems | Genuine Exporters’ MEIS Entitlements Cannot Be Defeated by Clerical Errors in Shipping Bills

The controversy originated with the Central Bureau of Investigation’s inquiry into the AgustaWestland case in 2013. Despite three charge-sheets being filed in 2017, 2020, and 2022, the petitioner company was neither named in the FIR nor in any of the charge-sheets. However, in December 2022, the Ministry of Defence issued a suspension order against the company under Clause C and Clause D of the MoD Guidelines for Penalties in Business Dealings with Entities, citing a mere intimation from the CBI that the company was “under investigation.”

The company challenged this first suspension order through W.P.(C) 17456/2022. A Single Judge disposed of the petition in September 2023, directing the Ministry to issue a show cause notice, supply relevant material, grant the company an opportunity to reply and a hearing, and thereafter pass a reasoned order within three months. Both parties appealed. The Division Bench in December 2023 upheld the Single Judge’s order, clarifying that suspension could not continue indefinitely without notice and material grounds.

In compliance, the Ministry issued a show cause notice in December 2023 and passed a second suspension order in January 2024, again relying only on vague references to “latest inputs” from the CBI. The petitioner challenged this order in W.P.(C) 431/2024. In May 2024, the Division Bench quashed both the first and second suspension orders, observing that the suspension of AgustaWestland itself had been revoked in 2021 despite the filing of a charge-sheet, while the petitioner, not named as an accused, was indefinitely restrained from business on the basis of a bare intimation of investigation. The Court held that Clause D.2 could not be invoked independently of Clause C.1(a) to (f).

The Ministry, however, issued a third suspension order in July 2024, retrospectively effective from June 2024, citing “new inputs” from the CBI without disclosure of any material. During the pendency of the writ petition challenging this order, the Ministry further extended the suspension by a fourth order in January 2025 and a fifth order in June 2025. Both were premised on identical formulations of “latest inputs” and the assertion of an “ongoing investigation.”

The petitioners contended that these subsequent suspension orders were identically worded to those previously quashed, passed without notice or hearing, and unsupported by any new material. They argued that Clause D of the MoD Guidelines could not be exercised absent the existence of grounds under Clause C.1 (a) to (f). Reliance was placed on earlier judgments of the High Court and on decisions of the Supreme Court affirming the primacy of natural justice.

The Ministry, through its counsel, argued that the challenge to the Guidelines themselves was barred by res judicata, as no substantive submissions had been made on that point in the earlier writ petition of 2024. On merits, it submitted that further inputs from the CBI warranted continued suspension, and referred to the arrest of one of the petitioner’s founders by the Enforcement Directorate in 2019 in connection with money laundering allegations in the AgustaWestland matter. Several precedents were cited to support the power of the Government to suspend dealings in sensitive matters involving defence procurement.

The Court examined the sequence of suspension orders, the previous rulings, and the documents produced by the Ministry to justify the repeated suspensions.

The Division Bench recorded in its judgment: “A reading of the above Impugned Suspension Order would show that the respondent has again, in a most cryptic manner, based the same on ‘new inputs from the CBI’ in the ongoing investigation … without even detailing what this so-called ‘new input’ reveals, if not with complete details but at least sufficiently to give to the petitioners some indication of why it is being suspended from doing business with the Government of India.”

Upon examination of the office file, the Court noted: “The ‘new inputs from the CBI’ is an intimation received from the CBI stating that further investigations regarding some dubious transactions … are under-way. This was the same position/input which had resulted in the first two Suspension Orders, which stand quashed by this Court.”

With respect to the fourth suspension order, the Court stated: “This Court has already held … that the mere fact that the CBI is investigating the petitioner No. 1 is not sufficient to suspend it under the Impugned Guidelines, given the circumstances mentioned hereinabove and taken note of by this Court in its earlier judgments.”

Regarding the fifth suspension order, the Court observed: “Having perused the above correspondence exchanged … it is apparent that the circumstances which were mentioned by this Court in its Order dated 31.05.2024 while quashing the First and the Second Suspension Order still sustain, and have been ignored by the respondent while passing the Impugned Third, Fourth, and Fifth Suspension Orders.”

It further recorded: “The petitioner No.1 is still not an accused in the AgustaWestland Case; the Suspension Order against AgustaWestland, which is the prime accused, stands withdrawn … there is no mention of any evidence with the respondent or with the CBI against the petitioner … apart from an ‘apprehension’ … the respondent has not given any Show Cause Notice or a hearing … the circumstances mentioned in Clause C.1 (a) to (f) … are still not satisfied.”

The Court described the successive orders as: “in abuse of the power vested in the respondent under the Impugned Guidelines … In spite of repeated Judgments of this Court in favour of the petitioner No.1, the petitioner No.1 continues to suffer the agony of suspension on almost identically worded orders and on almost similar inputs from the CBI.”

On the challenge to the Guidelines, the Court held: “As far as the challenge to the Impugned Guidelines is concerned, we agree with the submission of the learned counsel for the respondent that the same would be barred by the principles of constructive res judicata. The Guidelines had also been challenged … in W.P.(C) 431/2024 … Therefore, quite clearly, there is an inter-linkage between the grounds of suspension and banning … the former is a pro tem measure while the latter is the final decision that UOI/MOD may take.”

The Court conclusively stated: “We, however, set aside the Third Suspension Order dated 05.07.2024, the Fourth Suspension Order dated 01.01.2025, and the Fifth Suspension Order dated 24.06.2025, passed by the respondent against the petitioners.”

Also Read: Delhi High Court | Dismissal Of Plea Under Section 8 Of Arbitration Act Operates As Res Judicata | Section 11 Court Cannot Subsequently Refer Parties To Arbitration

The Bench clarified that while the suspension orders themselves were quashed, the Ministry retained the liberty, as per law, to resort to the Guidelines in future should actual material establishing the petitioners’ involvement in the AgustaWestland case emerge. The Court underscored that in the absence of substantive evidence, repetitive suspensions premised only on ongoing investigations could not be sustained.

The Court concluded: “In view of the above finding of this Court, the challenge to the Impugned Guidelines cannot be sustained. The prayer in that regard is, accordingly, rejected.”

The writ petition and pending applications were disposed of in these terms.

Advocates Representing the Parties

For the Petitioners: Mr. Neeraj Kishan Kaul, Senior Advocate with Mr. Rishi Agarwal, Mr. Pawan Sharma, Mr. Nirvikar Singh, Ms. Devika Mohan, Mr. Parminder Singh, Mr. Tejasvi Chaudhry, Ms. Pritha Suri, Mr. Ankit Banati, Mr. Aditya Chatterjee, Advocates

For the Respondents: Mr. Ruchir Mishra, Mr. Mukesh Kumar Tiwari, Ms. Reba Jena Mishra, Ms. Poonam Shukia, Advocates

Case Title: Defsys Solutions Private Limited v. Union of India

Neutral Citation: 2025: DHC: 7403 - DB

Case Number: W.P.(C) 9906/2024, with connected CM Applications

Bench: Justice Navin Chawla, Justice Madhu Jain