# UNION OF INDIA AND ORS v. HINDUSTAN DEVELOPMENT CORPN. AND ORS

- **Citation:** [1993] 3 S.C.R. 128
- **Court:** Supreme Court of India
- **Decided:** 1993-04-15
- **Case number:** Civil Writ Petition Nos. 1152 & 1157 of 1992
- **Bench:** K. Ja Ya Chandra ~Eddy, G.N. Ray
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-and-ors-v-hindustan-development-corpn-and-ors-11803
- **Pages:** 71

## Headnote

Constitution of India, 1950:
Articles 12, 14, 19, 32. 136, 226. 298, 299-Government
Contracts._:_Railway Board-Tender to supply cast steel bogies-Tl1ree
C of the tenderers quoting idemical price-Inference of formation of
cartel-Board's decision of du alp ricing to control unfair trade practice
and not to accept lovrest price-Held, dual pricing under certain
circumsta11ces may be reaso11able-Rai/'.vays decision to adopt dual
pricing u11der the circumstances was bonajide.
D
Adrninistrative Law:
.,
Govemmellt comracts-Judicial review of
Doctrine of Legitimate E.\pectatio11-Co11cept, scope and applicaE bilit)1 of
Words a11d Phrases:
"Cartel", "predatory "-Meaning of
These special lea\'e petitions were disposed of by this Court's
F order dated 14.1.1993. By the said order the Court gave its conclusions
and certain directions obsen·ing that reasons in support thereof
would be given at a later stage.
G
H
Gh·ing the reasons in support of the conclusions, this Court,
HELD:l.1 The Government in a Welfare State has the wide
powers in regulating and dispensing of special services like leases,
licences, and contracts etc. The Government while entering into
contracts or issuing quotas is expected not to act like a private
individual but should act in conformity with certain healthy stan128
-
-
-
--
-
·'
UNION OF INDIA ,._ H. D. C.
129
dards and norms. Such actions should not be arbitrary, irrational or A
irrelevant. In the matter of awarding contracts, inviting tenders is
considered to be one of the fair ways. If there are any reservations or
restridions then they should not be arbitrary and must be justifiable
on the basis of some policy or valid principles which by themselves are
reasonable and not discriminatory. (144-G~H, i.45-A)
Erusian Equipment and Chemicals Ltd. v. State of West
Bengal [1975] 2 SCR 674,
Ramana Dayaram. Shett)' v. The International Airport
Authority of India and Ors. [1979] 3 SCR 1014, and Kasturi Lal
Lakshmi Reddy v. State of Jammu and Kashmir and Anr. [1980] 3
SCR 133'8, relif:d on.
.
B
c
1.2 The concept of reasonableness finds its positive manifestation
and expression in the lofty ideal of social and economic justice which D
inspires and animates the Directive Principles, and Article 14 strikes
at arbitrari-ness in State action. (149-C)
Maneka Gandhi v. Union of India. [1978] 2 SCR 621, and
E.P. Royappa v. State of Tamil Nadu & Anr. [1974] 2 SCR 348,
relied on.
1.3 The policy of the Government is to promote efficiency in the
administration, to provide an incentive to the uneconomic units to
achieve efficiency, to prohibit concentration of economic power and
E
to control monopolies so that the ownership and control of the F
material resources of the community are so distributed as best to
subserve the common good, and to ensure that while promoting
industrial growth there is reduction in concentration of wealth and
that the economic power is brought about to secure social and
economic justice .. (159-F, 161-C)
Monopolies Inquiry Commission's Report, referred to.
American Jurisprudence 2 vol. 54. p . 668, referred to.
G
1.4 In view of the conditions in the tender notice, validity whereof
was not questioned, the Government had the right to either accept or H
130
SUPREME COURT REPORTS
[1993] 3 S.C.R.
A
reject the lowest offer. From a perusal of the proceedings of the
Tender Committee as well as the opinion expressed by the Financial
Commissioner and the other members of Railway Board, it is clear
that Rs. 76,000 per bogie could be the reasonable price and the posttender offer at a lower price was made with the hope that the three big
manufacturers would get the entire or larger c1uantity allotted, which,
B if accepted, would result in monopoly extinguishing the smaller
manufacturers. (46 D-G)
State of Uttar Pradesh and others v. Vijay Balzadur Singh
and others [1982] 2SCC365, StateofOrissaand Ors. v. Harinarayan
C Jaiswal and Ors. [1972] 3 SCR 784, G.B. Mahajan and others v.
n
Jalgaon Municipal Council and others [19

## Text

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A
B
UNION OF INDIA AND ORS
v.
HINDUSTAN DEVELOPMENT CORPN. AND ORS
APRIL 15, 1993
[K. JA YA CHANDRA ~EDDY AND G.N. RAY, JJ.]
Constitution of India, 1950:
Articles 12, 14, 19, 32. 136, 226. 298, 299-Government
Contracts._:_Railway Board-Tender to supply cast steel bogies-Tl1ree
C of the tenderers quoting idemical price-Inference of formation of
cartel-Board's decision of du alp ricing to control unfair trade practice
and not to accept lovrest price-Held, dual pricing under certain
circumsta11ces may be reaso11able-Rai/'.vays decision to adopt dual
pricing u11der the circumstances was bonajide.
D
Adrninistrative Law:
.,
Govemmellt comracts-Judicial review of
Doctrine of Legitimate E.\pectatio11-Co11cept, scope and applicaE bilit)1 of
Words a11d Phrases:
"Cartel", "predatory "-Meaning of
These special lea\'e petitions were disposed of by this Court's
F order dated 14.1.1993. By the said order the Court gave its conclusions
and certain directions obsen·ing that reasons in support thereof
would be given at a later stage.
G
H
Gh·ing the reasons in support of the conclusions, this Court,
HELD:l.1 The Government in a Welfare State has the wide
powers in regulating and dispensing of special services like leases,
licences, and contracts etc. The Government while entering into
contracts or issuing quotas is expected not to act like a private
individual but should act in conformity with certain healthy stan128
-
-
-
--
-
·'
UNION OF INDIA ,._ H. D. C.
129
dards and norms. Such actions should not be arbitrary, irrational or A
irrelevant. In the matter of awarding contracts, inviting tenders is
considered to be one of the fair ways. If there are any reservations or
restridions then they should not be arbitrary and must be justifiable
on the basis of some policy or valid principles which by themselves are
reasonable and not discriminatory. (144-G~H, i.45-A)
Erusian Equipment and Chemicals Ltd. v. State of West
Bengal [1975] 2 SCR 674,
Ramana Dayaram. Shett)' v. The International Airport
Authority of India and Ors. [1979] 3 SCR 1014, and Kasturi Lal
Lakshmi Reddy v. State of Jammu and Kashmir and Anr. [1980] 3
SCR 133'8, relif:d on.
.
B
c
1.2 The concept of reasonableness finds its positive manifestation
and expression in the lofty ideal of social and economic justice which D
inspires and animates the Directive Principles, and Article 14 strikes
at arbitrari-ness in State action. (149-C)
Maneka Gandhi v. Union of India. [1978] 2 SCR 621, and
E.P. Royappa v. State of Tamil Nadu & Anr. [1974] 2 SCR 348,
relied on.
1.3 The policy of the Government is to promote efficiency in the
administration, to provide an incentive to the uneconomic units to
achieve efficiency, to prohibit concentration of economic power and
E
to control monopolies so that the ownership and control of the F
material resources of the community are so distributed as best to
subserve the common good, and to ensure that while promoting
industrial growth there is reduction in concentration of wealth and
that the economic power is brought about to secure social and
economic justice .. (159-F, 161-C)
Monopolies Inquiry Commission's Report, referred to.
American Jurisprudence 2 vol. 54. p . 668, referred to.
G
1.4 In view of the conditions in the tender notice, validity whereof
was not questioned, the Government had the right to either accept or H
130
SUPREME COURT REPORTS
[1993] 3 S.C.R.
A
reject the lowest offer. From a perusal of the proceedings of the
Tender Committee as well as the opinion expressed by the Financial
Commissioner and the other members of Railway Board, it is clear
that Rs. 76,000 per bogie could be the reasonable price and the posttender offer at a lower price was made with the hope that the three big
manufacturers would get the entire or larger c1uantity allotted, which,
B if accepted, would result in monopoly extinguishing the smaller
manufacturers. (46 D-G)
State of Uttar Pradesh and others v. Vijay Balzadur Singh
and others [1982] 2SCC365, StateofOrissaand Ors. v. Harinarayan
C Jaiswal and Ors. [1972] 3 SCR 784, G.B. Mahajan and others v.
n
Jalgaon Municipal Council and others [1991] 3 SCC 91, State of
Madhya Pradesh & ors. i·. Nan dial Jaiswa/ & Ors. [ 1987] 1 SCR 1,
Sltri Sitaram Sugar Co. Ltd. v. Union of India [1990] 3 SCC 223,
R.K. Garg v. Union of Indi~ [1981] 4 SCC 675, and Peerless
General Finance and Ini·estmellt Co. Limited and another etc. v.
Resen:e Bank of India etc. [1992] 2 SCC 348, relied on.
2.1 The cartel' is an association of producers who hy agreement
among themselves attempt to control production, sale and prices of
the product to obtain a monopoly in any particular· industry or
E commodity. It amounts to an unfair trade practice which is not in the
public interest. The intention to acquire monopoly power can be spelt
out from formation of such a cartel by some of the producers.
(167 B-C)
F
Collins English Dictionary; Webster comprehensive DicG
H
tionary. lllfemational Edition; chamber's English Dictionary;
Black's Law Dictionary; A Dictionary' of Modem Legal Usage by
Bryan A. Garner; American Jurisprudence 2d Vol. 54, page 677referred to.
2.2 However, the determination whether an agreement unreasonably restrains the trade depends on the nature of the agreement
and on the surrounding circumstances that give rise to an inference
that the parties intended to restrain the trade and monopolise the
same. {167 C-D)
--
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UNION OF INDIA l'. H. D. C.
131
National Electrical contractors Associations, Inc, et, al, v.
A
National constructors Associations et. al., Federal Reporter 2d
Series, 678 page 492; Matsusliita Electric Industrial Co. Ltd., et. al
. v. Zenitl! Radio Corporation etal, 89 L.Ed. 2d 538, referred to.
2.3 Monopoly is the power to control prices or exclude competiB
tion from any part of the trade or commerce among the producers.
The"price fixation is one of the essential factors. (171-E)
American Jurisprudence 2d Vol. 54, referred to.
2.4 A mere offer of a lower price by itself though may appear to C
be predatory, does not manifest the requiste intent to gain monopoly
and in the absence of a specific agreement by way of a concerted action
suggesting conspiracy, the formation of a cartel among the producers
who offered such lower price cannot readily be inferred. (172 B-C)
Matsushita Electric Industrial Co. Ltd. et. al. v. Zenitli
Radio C01poration et. al. 89 L.Ed. 2d 538, referred to.
Webster Compreliensive Dictionm)'. /11ternatio11al Edition; A dictionary of Modern Legal Usage by Bryan A. Garner;
Collins Englisli Dictionary; Black's Law Dictionary; The oxford
E11g/isfl Dictional}' Vol. VIII, referred to.
D
E
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2.5 The opinion of the Tender Committee that the identical price
quoted by the three big manufacturers was a cartel price, was only a
suspicion which got strengthened by post-tender attitude of the said F
manufacturers who quoted a muchlesser price, and cannot positively
.,._
be concluded on the basis of these two circumstances alone. There is
not enough material to conclude that in fact there was formation of a
cartel. (173 B-C)
2.6 A mere quotation of identical price and an offer of further
reduction by themselves could not entitle the said manufacturers
automatically to corner the entire market by way of monopoly since
the final allotment of quantities vested in the authorities who in their
G
H
132
SUPREME COURT REPORTS
[1993] 3 S.C.R.
A discretion can distribute the same to all the manufacturers including
these three big manufacturers on certain basis. Besides. the authorities reserved a right to reject a lower price. (172-F,173-A-B)
2.7 However, the opinion regarding formation of a cartel entertained by the concerned' authorities including the Minister was not
B malicious nor was actuated by any extraneous considerations. They
entertained a reasonable suspicion based on the record anci other
surrounding circumstances and only acted in a bo11afule manner in
taking the stand that the three big manufacturers formed a cartel.
(173-C)
c
3.1 The legitimacy of an expectation can be inferred only. if it is
founded on the sanction oflaw or custom or an established procedure
followed in regular and natural sequence. It is distinguishable from a
genuine expectation. Such expectation should be justifiably legitiD mate and protectable. Every such legitimate expectation does not by
itself fructify into a right and therefore it does not amount to a right
in the conventional sense, A case of legitimate expectation would arise
when a body by representation or by past practice aroused expectation which it would be within its powers to fulfil. The claim based on
the principle of legitimate expectation can be sustained and the
E
decision resulting in denial of such expectation can be quashed
provided the same is found to be unfair, unreasonable, arbitracy and
violative of principle of natural justice. (182-C, 192-A)
Food C01poration of India v. Ws Kamdllenu Cattle Feed
F
Industries JT (1992) 6 S.C. 259, relied on.
G
Halsbury's Law of England. fourth Edition, vol. I (I) 151,
Administrative Laws of England, Sixth Edition by H.W.R. Wade,
page 424, 522, referred to.
Schmidt v. Secretary' of State for Home Affairs (1969) 2 Ch.
149;A.G. of Hong Kongv. Ng YeunShiu (1983).2A.C.629;In Council
of Civil Service Unions and others v. Minister for tile Civil
Sen;ice (1984) Vol.3 All E.R. 935, Amarjit Singh Ahluwalia
v. The State of Punjab & Ors. (1975] 3 SCR 82; Att. Gen. for
H New South Wales v. Ouin [1990) Vol. 64 Australian Law
-"-
-
ll
UNION OF INDIA 1·. H. D. C.
133
Journal Reports 327; 'R. i·. Secretm}' of Stare for tile Home DepartA
ment, ex parte Ruddock & Ors. (1987)2 All E R 518, Breen v.
Ama/camated Engineering Union & Ors. (1971) 2 Law Reports
Queen Bench Division 173, referred to.
3.2 Legitimate expectation gives the applicant sufficient locu.~ B
standi for judicial review and the doctrine oflegitimate expectation is
to be confined mostly to. right of a fair hearing before a decision which
results in negativing a promise or withdrawing an undertaking is
taken. The doctrine does n<>t give scope to claim relief straightaway
from the administrative authorities as no crystalised right as such is
involved. (191-F)
C
Navyoti Coo-Group Housing Society etc. i·. Union of flldia
& Others (1992) 2 Scale 548; Findlay v. Secretai}' of State for tlle
Home Department (1984) 3 All ER 801 and Council of Civil Sen·ice
Unions case Lord diplock--
3.3 Legitimate expectation being less then right operate in the
field of public and not private law and to some extent ought to be
protected thought not guaranteed. (193-C)
3.4 Legitimate expectations may come in various forms and owe
their existence to different kind of circumstances. By and large they
arise in cases of promotions which are in normal course expected,
though not guaranteed by way of a statutory right, in cases of
contracts, distribution oflargessby the Government and in somewhat
D
E
similar situations. (193-D)
F
3.5 Protection of legitimate expectation would not be available
where an overriding public interest requires otherwise. The protection is limited to that extent and a Judicial review can be within those
limits. (191-H; 192-A-B)
3.6 A person who bases his claim on the doctrine of legitimattexpectation, in the first instance, must satisfy that there is a founJ.1tion and thus has locus standi to make such a claim. The decision taken
H
U4
[1993) 3 S.C.R. ~
A by the authority must be found to be arbitrary, unreasonable and not
taken in public interest. It that be so then what should be the relief is
again a matter which depends on several factors. (192-C-D-E)
SUPREME COURT REPORTS
B
c
D
3.7 The courts jurisdiction to interfere is very much limited and
much less in granting any relief in a claim based purely on the ground
of 'legitimate expectation'. A decision denying a legitimate expectation based on a policy or change of an old policy, or in the public
interest eith~r by way of G.O., rule or is made by way of a legislation
does not qualify for inter~erence unless in a gi\'en case, the decision or
action taken amounts to an abuse of power. (193-E-F)
Att. Gen.for New South Walels v. Quin [1990) Vol. 64
Australian Law Journal Reports 327, referred to.
Public Lmr and Politics-edited by Carol Harlow,
referred to.
3.8 Therefore the limitation is extremely confined and if the
according of natural justice does not condition the exercise of the
power. The concept oflegitimate expectation can have no role to play
and the Court must not usurp the discretion of the public authority
which is empowered to take the decisions under law and the court is
E expected to apply an objective standard which leaves to the deciding
authority the full range of choice which the legislature is presumed to
have intended. Even in a case where the decision is left entirely to the
discretion ofthe deciding authority without any such legal bounds and
if the decision is taken fairl)' and objecth·ely, the court will not
F interfere on the ground of procedural fairness to a person whose
interest based on ligitimate expectation might be affected. (193-G-A;
194-A)
·--
3.9 If a denial of legitimate expectation in a given case amounts
.JI
to denial of right guaranteed or is arbitrary, discriminatory, unfair or
biased, gross abuse of power or violation of principles of natural
justice, the same can be questioned on the well-known grounds
attracting Article 14 but a claim based on mere legitimate expectation
without anything more cannot ipso facto· give a right to invoke these
principles. It can be one oftl:ie grounds to consider but the court must
lift the ,·eiJ and see whether the decision is violative of these principles
-..,.
warranting interference. (194._E-F)
UNION OF INDIA i·. H. D. C.
135
3.10 The concept of ligitimate expectation is ''not the key which A
unlocks the treasury of natural justice and it ought not to unlockthe
gates which shuts the court out of review on the merits," particularly
when the element of speculation and uncertainty is inherent in that
very concept. The courts would restrain themselves and restrict such
claims duly to the legal limitations. It is a well-meant caution. Other:.
8
wise a resourceful litigant having vested interests in contracts, licences etc. can successfully indulge in getting welfare activities mandated by directive principles thwarted to further is own interests. The
caution, particularly in the changing scenario, becomes all the more
important. (194-G-H; 195-A-B)
Att. Gen. for l'{ew South Wales v. Quin 1990 Vol. 64
Austraian Law Journal Reports 327, referred to.
c
3.11 In the instant case, the Rules for entering into contracts lay
down certain norms and contain guidelines. They provide for constiD
tution of Tender Committee and the procedure to be followed in the
matter of im·iting tenders. They also provide for negotiations but lay
down that selectio-n of contracts by negotiations is an exception rather
than a rule and can be resorted to only under certain circumstances.
As per the notice inviting tender, the price quoted is subject to price
variation clause and the Railways reserved a right to accept the lowest E
price or accept the whole or any part or the tender or portion of the
quantity offered. The tenderer cannot expect that his entire tender
should be accepted in respect of the quantity. In the past also there
were many instances where the Railways as per the procedure
followed, arriYed at decisions in respect of both price and quantity for F
good and justifiable reasons. (178-A-B-C)
-. 3.12 There is no legally fixed procedure regarding t'ixation of
pri~e and particularly regarding allotment giving scope to a legitimate
expectation. The Tender Committee is not a statutory authority and
its proposals are recommendatory in nature and have to be considG
ered in the distribution procedure culminating in the decision of the
approving authority who as a matter of fact, also can take decisions in
respect of price and allotment of quantities taking into consideration
various other a·spects from the point of view of public interest.
(178-D-E)
H
136
SUPREME COURT REPORTS
[1993] 3 S.C.R.
A
4. The modifications in the decision of the Railwa)'S by way of
B
judicial review are not on the ground of legitimate expectation and
violation of principles of natural justice but on the other ground
namely the decision of the authorities was based on wrong assumption
of formation of r;:artel. ( 195 F -G)
5. The status of a manufacturer beinga BIFR com pan)' or a small
manufacturer was not taken into account so far as the fixation of' the
price is concerned and these considerations were deemed relevant
· only forthe purpose of allocation of' quantities. The stand taken by the
Railways is that smaller manufacturers should survive from the point
C of' view of arresting monopolistic tendencies and from the point of
view of public interest. The Tender Committee proceedings would
indicate that on the basis of certain formulae namely the past performance, capacity etc, the allotment was being made. Therefore, these
cannot be said to be irrele,·ant considerations and as a matter of fact
D they had been duly given effect to and weightage was given accordingly in respect of allotment of quantities to various manufacturers
within the four corners of the limited tender. (196 C-E)
E
CIVIL APPELLATE JURISDICTION: S.L.P. (C) Nos. 11897-·
98/92 etc. etc.
From the Judgment and Order dated 28.8.1992 of the Delhi High
Court in Civil Writ Petition Nos. 1152 & 1157 of 1992.
V.R. Reddy, Addl. Solicitor General, Kapil Sibbal. P.P. Rao,
F Rama fois, A. Temton, Dr. Shankar Ghosh K.K. Venugopal, Harish
Salve, ·F.S. Nariman, A.N. Haksar, Shanti Bhushan, KN Bhat, T.R.
Andhyarujina, C. V Subba Rao, P.P. Singh, Mrs. B. Sunita Rao, Sudhir
Kulshreshtha, Rohit Tandon,_farijat Sinha, Ms. Sunanda Roy, Ms. S.
Bhattacharya, B.D. Ahmed, Man Mohan Singh, Gopal Subramanium,
D.N. Mishra, A.M. Dittia, P.K. Ganguli, Manoj K. Das. Amit Prabhat,
G Tripurary Roy. K.LMehta, S. Ganesh; Pratap Venugopal, K.J. John,
Prarnod Dayal, Ajay K. Jain and D.N Nanjunda Reddy for the
appearing parties.
TI1e judgment of the Court was delivered by
1
I \
•
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UNION OF INDIA v. H. D. C. (K. J. REDDY.J.]
137.
K . .JAY A CHANDRA REDDY, J. By our order dated 14th JariuA
ary, 1993 while disposing of these special leave petitions we gave our
conclusions and we proposed to deliver the detailed judgment at a later
stage giving all the reasons in support of those conclusions. We hereby
deliver the detailed judgment
In our earlier order we stated the relevant facts and the issues
involved in a concised form. However. we think it appropri~te and
necessary to refer to some of them for a better appreciation of the
reasons in their proper perspective.
B
Every year the Railway Board enters into contracts with the C
manufacturers for the supply of cast steel bogies which are used in turn
for building the wagons. Cast steel bogics come under a specialised
item procured by the. Railways from the established sources of proven
ability. There are 12 suppliers in the field who have been regularly
supplying these items. Two new firms Simplex and Beekay also 0
ents;red the field. Among them admittedly M/s H.D.C., Mukand and
Bharatiya are bigger manufacturers having capacity to manufacture
larger quantities. On 25. l 0. 91 a limited tender notice for procurement
of 19000 cast steel bogies was issued to the regular suppliers as well
as the above two new entrants for the year namely from 1.4.92 to
31.3. 93. The last date for submission of offers to the Ministry of E
Railways was 27. 11.91by2.30 P.M. and the tenders were to be opened
on the same day at 3 P.M. It was also stated therein that the price was
suhje<.:t to the price variation clause and the base date for the purpose
of escalation was 1. 9. 91 and that the Railways reserved the right to
order additional quantity upto 30lk- of the ordered quantity during the F
<.:urrency of the contract on the same price and terms and conditions
with suitable extensions in delivery period. The offers were to remain
open for a period of 90 days. On that day the tenders were opened in
the presence of all parties. The price quoted by the three manufacturers
i.e. Mis H.D.C., Mukand and Bharatiya was an identical price of Rs.
77 ,666 per bogie while other tenders quoted between 83,000 and G
84,500 per bogie. After the tenders were opened and before the same
could be finalised, the Government of India announced two major
concessions namely reduction of custom duty on the import of steel
scrap and dispensation of freight equalisation fund for steel. The
tenders were put up and placed before the Tef!der Committee of the H
Railways which considered all the aspects. The Committee concluded
138
SUPRP.fE COllRT REPORTS
[1993) 3 S.C.R.
A that three of the tenderers namely Mis H.D.C., Mukand and Bharatiya
who had quoted identical rates without any cushion for escalation
between l.7.91 and 1.9.91, have apparently formed a cartel. The
Tender Committee also noted that the rates quoted by them were the
lowest .. Taking into consideration the reduction of Rs. 1500 as a result
of the concessions. in respect of the reduction of customs duty on the
B import of steel scrap and dispensation of the freight equalisation fund
for steel. The Tender Committee concluded that the reasonable rate
would be Rs. 76,000 per bogie. On the question of distribution of
quantities to the various manufacturers the Tender Committee decided
to follow the existing procedure. The Tender Conunittee signed these
c recommendations on 4.2.92 but on the same day the Member
(Mechanical) of the Conunittee received letters from Mis H.D.C. and
Mukand. Mis H.D.C. in its letter stated that in view.of the concessions
and also on the basis that per Kg. rate of casting per bogie could be
reduced from Rs. 37 .50 to Rs. 29 the cost of casting can also be reduced
and therefore they would be in a position to supply the bogies at a lesser
D rate, in case a negotiation meeting is called. Mis Mukand in its letter
also offered to substantially reduce the prices and they would like to
co-operate with the Railways and the Government and bring down the
prices as low as possible and asked for negotiations. lbough this was
post-tender correspondence the Department felt that the offers made
E by Mis H.D.C. and Mukand could be considered. The whole matter
was examined by the Advisor (Finance) in the first instance and by an
collaborate note he observed that the need for encouraging open
competition to improve quality and bring down costs has been recommended by the government and if it is intended to continue the existing
policy of fixing a rate and distributing the order among all the
F manufacturers, then negotiations may not be useful as uniform prices
offered to all manufacturers have to be sufficient even for the smaller
and less economical units and that as any review of the existing policy
would take time, the present tender can be decided on the basis of the
existing policy. With this noting the file was inunediately sent to the
G Member (Mechanical), the net higher authority, He, with some
observations however recommended the acceptance of the Tender
Committee's recommendations. The file was then put up to Financial
Commissioner. He noted that the Tender Committee was convinced
that the three. manufacturers who quoted identical price of Rs. 77 ,666
had formed a cartel. He also considered the offers made by Mis H.D .C.
H and Mukand and observed that these three manufacturers who quoted
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UNION OF INDIA,., H. D. C. (K. J. REDDY.J.)
139
a cartel price intended to get a larger order on the basis of such A
negotiated price which would eventually nullify the competition from
the other manufacturers and lead to their industrial sickness anc
subsequently to monopolistic price situation. He. however, approved
the Tender Committee's recommendations that a counter-offer of Rs.
76.000 may be accepted but in the case of M/s H.D.C. a price lower by
Rs. 11.000 may be offered as per their letter dated 4.2.92. He also B
recommended that the two manufacturers M/s Cimmco and Texmaco
may be given orders to the extent of their capacity or quantity offered
by them whichever is lower in view of the fact that they are wagon
builders and the present formula regarding the distribution of quantities may tie applied to all manufacturers except the three who have c
formed a cartel. He also recommended some recoveries from these
three manufacturers who are alleged to have formed a cartel on the
basis of their letters wherein they have quoted prices which were much
less than the updated price as on l.9.91 of Rs. 79,305. He also made
certain other recommendations and finally concluded that the posttender letters may be ignored and that for short-term gains the
Department can not sacrifice long-term healthy competition. After
these recommendations of the Financial Commissioner the file was put
up tu the approving authority i.e. the Minister for Railways, who in
general agreed with the recommendations of the Financial Advisor. He
also noted that these three manufacturers have formed a cartel. He also E
noted that subsequent to the Financial Commissioner's note, besides
Mis H.D.C. and Mukand has also offered to reduce the price by lO'k
or more vide their letter dated 19.2.92 if called for negotiations. Taking
these circumst:mces into consideration the Minister ordered that all
these three firms may be offered a price lower by Rs. 11,000 with F
reference to the counter-offer reconunended by the Tender Committee
and the quantities also be suitably adjusted so that the cartel is broken.
The Minister also noted that as a result of this a saving of about Rs. 11
crores would be effected. In his note, the Minister also ordered
redistribution of the quantities. I le also ordered that 30% option should
straightaway be cxerdscd. After the approving authority took these G
decisions. the file went to the Chairman. Railway Board for implementing the decisions. He noted that action will be taken as decided by
the Minister but added that it results in dual-pricing namely one to the
three manufacturers and the higher one to the others and therefore the
Minister may consider whether they could counter-offer the lower H
price to all the manufacturers as that would result in saving much more.
140
SUPREME COl.fRT REPORTS
I 1993] 3 S.C.R.
A The file was then again sent to and was considered by Lhe Financial
---
Commissioner who noticed this endorsement made by the Chairman.
Railway Board. He however noted that so far all the other firms are
concerned it is Rs. 3305 less than the present contract price but it would
not be equitable to offer the 'tower price put forward by the three
manufacturers as it would make the otner -units unviable and that
B incidentally the price of Rs. 76,000 now proposed to be counteroffered to the other firms is also in line with the reconunendations of
the Tender Committee. He. however. no1ed that some of the units were
sick units and owe a lot of money 10 1he nationalised banks and it would
therefore be in the national interest to accept dual-pricing. Therefore
c the file was again put up to the approving authority who agn:ed with
the recommendations of the Financial Conunissioner and the Tender
Conunittee and directed that the same may be implemented. In view
of this final decision lakcn by lhe approving authority a telegram was
issued to the three manufacturers giving them a cou111er-offer of Rs.
65.000 per bugie. The counter-offer was also made to 1he other nine
D manufactun:rs al the rate of Rs 76.000 per bogic namely the price
worked ou1 by the Tender Committee. Soun after the receipt of this
telegramdaled 18.3. 1>2M/s1-1.D.C. and Mukaml filed writ petitions in
the Delhi High Court challenging the so-called discriminatory counleroffer. Mis Bharati ya also filed a similar pdition in Calcutta High Court
E but the same was withdrawn but another writ petition was filed later
in the Delhi High Courl. In the writ petitions filed by M/s H.D.C. and
Mukand. the High Court stayed the operation of the telegram dated
' '
18.3.92 arid issued nolicc to the Union of India and 10 the Executive
--
F
Director and Director or the Railways (Stores) who figured as respondents in those writ petitions, Mis H.D.C. and Mukand also wrote to the
Minister of Railways in reply to the telegram that they were not
prepared to accept the counter-offer at the rate of Rs. 65,000 and
instead they offered to supply the bogies al the rate of Rs. 67.000 per
bogie. The Railways accepted this offer and in1imated M/s H.D.C. and
Mukand accordingly. The High Court. at an interlocutory stage
G pending the writ petitions. passed an order on 2.4.92. directing the
Ministry to accept the allocation of bogies reconunended by the
Tender Committee and to pay a price at the rate of Rs. 67.000 only per
bogie and that would be subject to the final decision of the writ
petitions. Being aggrieved by this order. the Railways filed a petition
H for special leave to appeal no. 5512/92 and this Court while refusing
to interfere at that interlocutory stage made the following observations
on 28.4.92:
l 'NION OF l~DIA ,._ H.D.C. [K. J. REDDY,J.]
141
"However, we may observe-and so direct -that
during the pendency of the writ petition if any of the
suppliers in terms of the package of distribution
indkated by the High Court (including the petitioners
in the High Court in the writ petition) seek an "onaccount" payment representing the difference between the sum of Rs. 67,000 indicated as price by the
High Court and the sum of Rs. 76,000 contemplated
by the Rai !ways; the order of the High Court shall not
prohibit the government making- such on-account
payment to such suppliers on each wagon on the
condition that the said on-account payment of Rs.
9.000 perhogie should he covered by a bank guarantee
for its prompt repayment together with interest at 20£k
per annum in the event the on-account payment cannot be observed in the price structure that may ultimately come to be determined pursuant to the final
decision in the writ petitions.
The special leave petitions are disposed of accordingly."
Thereafter the High Court took up the writ petitions for final
hearing any by the impugned judgment allowed the writ petitions filed
A
B
c
D
E
by M/s H.D.C. and Mukand and directed that all the suppliers should
make the supplies at the rate of Rs. 67 ,000 per bogie and also set aside F
the quantity allocation and directed that the same should he considered
afresh on a reasonable basis and pending such fresh consideration
future supplies should be made on the basis of the recommendations of
the Tender Commiuee. In the course of the judgment. the High Court
also made certain observations to the effect that the decision of the
approving authority is arbitrary and that the Government. has no G
justification to offer a higher price than the market price to any supplier
to rehabilitate it. It was further observed that the stand of the Railways
that those three manufacturers formed a cartel is based on extraneous
considerations. The learned judges of the High Court also observed
that they failed to understand as to why the Railway authorities could H
142
SUPREME COURT REPORTS
(1993) 3 S.C.R.
A not initiate negotiations with those manufacturers who had offered to
reduce their offer which could result in saving crores of rupees to the
Railways. Aggrieved by this judgment of the High Court the Union of
India filed S.L.P. (Civil) Nos. 11897-98192. Before the High Court in
the two writ petitions filed by Mis H.D.C and Mukand the other
n
manufacturers figured as respondents Nos. 4 to 12 and Mis Bharatiya
otherwise known as Besco figured as respondent No. 13. The other
S.L.Ps. are filed by those nine manufacturers. M/s Bharatiya, respondent No. 13. has not questioned the judgment of the High Court. As
mentioned above Mis Bharatiya fikd a separate writ petition No. 1753/
92 in the Delhi High Court after withdrawing an earlier writ petition
c filed in the Calcutta High Court. The same also was disposed of in
terms of the judgment in the other two writ petitions Nos. 1152 and
1157/92. But they have not questioned the same. Consequently Mis
Bharatiya figures as a respondent before us in the SLP filed by the
Union of India.
D
In our earlier order we have already referred to the various
submissions made by the learned counsel on behalf of lJ1tion of India
and on behalf of the respondents particularly Mis H.D.C. Mukand and
Bharatiya and other smaller manufacturers. After considering the
various submissions and issues involved we have given our concluE sions in our earlier order which briefly stated are as follows:
I) There is no enough or material to conclude that Mis H.D.C.,
Mukand and Bharatiya formt!d a cartel. However. there was scope for
enter trai1ting suspicion by the Tender Committee that they formed a
F cartel sin~e all the three of them quoted identical price and the opinion
entertained by the concerned authorities including the Mittister that
these three big manufacturers formed a carteL was not per se malicious
or was actuated by any extraneous considerations and the authorities
acted in a bonajide manner in taking the stand that the three oig
manufacturers fanned a cartel.
G
2) The direction of the High Court that the supply ofbogie should
be at Rs.67,000 by every manufacturer can not be sustained and that
a fresh consideration of a reasonable price is called for. The Tender
Committee shall reconsider the question of fixation of reasonable
H . price. While doing so it shall consider the offer of Rs. 67,000 made by
(
--
;
UNION OF INDIA''· H. D. C. [K. J. REDDY.J.]
143
M/s H.D.C. and Mukand alongwith the data that would given by them A
in support of their offer and the percentage of profits available to all
the manufacturers and other relevant aspects and then fix a reasonable
price at which the manufacturers would be able to supply.
3) Dual pricing under certain circumstances may be reasonable 8
and the stand of the railways to adopt dualpricing under the circumstances is bonafide and not malafide. Mis H.D.C., Mukand and
Bharatiya must be deemed to be in a position to supply at the rate of Rs.
67,000 per bogie and thus they form a distinct category. The smaller
manufacturers belong to a different category and if a different price is
fixed for them it is not discriminatory.
C
4) If the price that to be fixed by the Tender Committee as directed
by us happens to be more than Rs. 67 ,000 than that would be applicable
to the smaller manufacturers only and not to M/s H.D.C., Mukand and
Bharatiya who on their own commitment have to supply at the rate of D
Rs. 67,000.
(5) The price thus fixed by the Tender Committee which applies
only to the smaller manufacturers shall be deemed to be final and the
respective contracts shall be deemed to be concluded so for the price
is concerned.
E
(6) Coming to the allotment of quota of bogies the Tender
Committee made recommendations on the basis of the existing practice. The Minister of Railways in his ultimate decision has made some
variations taking into consideration the recommendations of the F
Financial Commissioner and other authorities. In making these variations, the Minister accepting the suggestion that a cartel was formed
by the three big manufacturers reduced the allotment of quota to them
by way of reprisal. Since we are of the view that formation of a carte]
is not established, such a reduction of quota can not be justified. The
Minister of Railways as the final authority as be justified in taking a G
particular decision in the matterof a1lotment of quota but such decision
must be taken on objective basis. In aUotting these quotas the Government is expected to be just and fair to one and al1.
7) The three big manufacturersM/sH.D.C., MukandandBharatiya H
144
St'l'REME COl-'RT REPORTS
[1993] 3 S.C.R.
A should be allotted the quantities as per the recommendations of the
Tender Committee. However. the quantities finally allotted by the
competent authority to the smaller manufacturers need not be disturbed and the railway authorities may make necessary adjustments
next year in the matter of allocation of quantities to them taking into
consideration the allotments given to them this yeac
R
( 8) It will be open to the Railways to exercise 30'/C option. if not
already exercised.
(9) Taking all the circumstances and the time factor into considC eration the time to complete the supply is extended upto 31.3.1993.
Before we proceed to consider each of these issues and give our
reasons, we shall deal with few general submissions regarding the
tender system and the economic policy of the Government in the matter
D of stopping monopolistic tendencies.
Shri K.K. Vcnugopal, learned counsel appearing for M/s 1-1.D.C.
ai the outset submitted that in a case ofthis nature the Government must
either by way of puhlic auction or by way of inviting tenders work out
the lowest price and award the contract accordingly, as that would
E safeguard the interests of the public exchequer. The further submission
in this regard is that the Railways having invited tenders and having
further entertained post-tender correspondence offering the lower
price, should have accepted the price quoted by the three big manufacturers. Shri Sibal, learned counsel appearing for the Union of India,
F however, contended that it is a matter of policy decision by the
Government and that where the Government realises that the lowest
price offered is not reasonable and realistic, it may for a variety of good
and sufficient reasons reject the same .
G
. It is tme, as it is today, that the Government in a welfar..: State has
the wide powers in regulating and dispensing of special ~..:n·in:s like
leases, licences, and contracts etc. The magnitude and ran~L· t if such
Governmental function is great. The Government while en!L'ring into
contracts or issuing quotas is expected not to act like private i ndi vidua.l
hut ·should act in conformity with certain healthy standards and norms.
H Such actions should not be arbitrary, irrational or irrelevant. ln the
I-
•
.............
--
_..,
-
UNION OF INDIA "· H: D. C. [K. J. REDDY.J.]
145
matter of awarding contracts inviting tenders is considered to be one A
of the fair ways. If there are any reservations or restrictions then they ·
should not be arbitrary and must be justifiable on the basis of some
policy or valid principles which by themselves are reasonable and not
discriminatory. In the instant case the Railways every year used to
enter into contracts with the established manufacturers for the supply
of cast steel bogies and there are 12 such suppliers. On 25. IO. 91 a B
limited tender notice for the procurement of steel bogies was issued
to these suppliers. Under Clause 5 of the Tender notice the Railways
reserved the right to order additional quantity of 30% of the ordered
quantity during the currency of the contract on the same price and
terms with suitable extension in delivery period. Clause 7 is to the c
effect that the tender will be governed by the IRS conditions of the
contract. In the instructions appended to the Tender notice it is again
reiterated that the contracts made under the tender would be governed
by the IRS conditions of contract and also the instructions in the
invitation of tender. Clause 9.3 of the instructions lays down that the
J)
price is subject to price variation clause and the base date for tlw
purpose of escalation is 1.9.91. Under Clause 23it is made clear that
the Depa11ment does not pledge itself to accept the lowest or any tender
and reserves to itself the right of acceptance of the whole or any part
of the tender.