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TMI Blog1993 (4) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... y. There are 12 suppliers in the field who have been regularly supplying these items. Two new firms Simplex and Beekay also entered the field. Among them admittedly M/s H.D.C., Mukand and Bharatiya are bigger manufacturers having capacity to manufacture larger quantities. On 25.10.91 a Iimited tender notice for procurement of 19000 cast steel bogies was issued to the regular suppliers as well is 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 Railways was 27.11.91 by 2.30 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 subject 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 30% of the ordered quantity during the currency 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. M/s H.D.C., Mukand and Bharatiya w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order among all the manufacturers, then negotiations may not he 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 immediately sent to the Member (Mechanical), the net higher authority, The, 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 ₹ 77,666 had formed a cartel. He also considered the offers made by M/s H.D.C. and Mukand and observed that these three manufacturers who quoted a cartel price intended to get a larger order on the basis of such negotiated price which would eventually nullify the competition from the other manufacturers and lead to their industrial sickness and subsequently to monopolistic price situation. He, however, approved the Tender Committee's recommendations that a counter-offer of ₹ 76,000 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult in saving much more. The file was then again sent to and was considered by the Financial Commissioner who noticed this endorsement made by the Chairman, Railway Board. The however noted that so far all the other firms are concerned it is ₹ 3305 less than the present contract price but it would not be equitable to offer the lower price put forward by the three manufacturers as it Would make the other units unviable and that incidentally the price of ₹ 76,000 now proposed to be counteroffered to the other firms is also in line with the recommendations of the Tender Committee. The, however, noted that some of the units were sick units and owe a lot of money to the nationalised banks and it would therefore be in the national interest to accept dual-pricing Therefore the file was again put up to the approving authority who agreed with the recommendations of the Financial Commissioner and the Tender Committee and directed that the same may be implemented. In view of this final decision taken by the approving authority a telegram was issued to the three manufacturers giving them a Counter-offer of ₹ 65,000 per bogie. The counter-offer was also made to the other nin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment cannon( 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 hearings any by the impugned judgment allowed the writ petitions filed by M/s H.D.C. and Mukand and directed that all the suppliers should make the supplies at the rate of ₹ 67,000 per bogie and also set aside 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 Committee. 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 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 fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 67,000 made by M/s H.D.C. and Mukand alongwith the data that would given by them 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 and the stand of the railways to adopt dual pricing under the circumstances is bonafide and not malafide. M/s H.D.C., Mukand and Bharatiya must be deemed to be in a position to supply at the rate of ₹ 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. 4) If the price that to be fixed by the Tender Committee as directed by us happens to be more than ₹ 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 ₹ 67,000. (5) The price thus fixed by the Tender Committee which applies only to the smaller manufacturers shall he deemed to be final and the respective contracts shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sibal, learned counsel appearing for the Union of India, however, contended that it is a matter of policy decision by the Government and that where the Government realises that the lowest ,)rice offered is not reasonable and realistic, it may for a variety of good and sufficient reasons reject the same. It is true, as it is today, that the Government in a welfare State has the wide powers in regulating and dispensing of special services like leases, licences. and contracts etc. The magnitude and range of such Governmental function is great. The Government while entering into contracts or issuing quotas is expected not to act like private individual but should act in conformity with certain healthy standards and norms. Such actions should not be-arbitrary, irrational or irrelevant. In the matter of awarding contracts inviting tenders is considered to be one 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 manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unter offer could be made. Then as already mentioned there was post-tender correspondence and ultimately a dual price was fixed. In this regard the submission is that having entertained post-tender correspondence, the Government either should have accepted the same or rejected the same and in any event the lowest offer should have been accepted. 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 the Board, it is clear that ₹ 76,000 per bogie can be the reasonable price and ₹ 67,000 was not a reasonable price. It is also clear that the post-tender offer at a lower price was made with the hope that they would get the entire or larger quantity allotted. The stand taken by the Railways is that the three big manufacturers originally formed a cartel and the post-tender offers at least by two of them confirmed the same and if these three big manufacturers are allotted entire or larger quantity that would result in monopoly extinguishing the smaller manufacturers. The question is whether such a stand taken by the Government as a policy, is unfair and arbitrary as to warrant interferen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, malafide and not in public interest and the same created monopoly in favour of that party and that the contract was awarded without affording an opportunity to others to compete and the same is not based on any rational or relevant principle and therefore was violative of Article 14 of the Constitution and also the rule of administrative law which inhibits the arbitrary action by the State. A Bench of this Court while approving the principles laid down in the above cases further observed thus: "Though ordinarily a private individual would be guided by economic considerations of self- gain any action taken by him, it is always open to under the law to act contrary to his self-interest or to oblige another in entering into a contract or dealing with his property. But the Government is not free to act is it likes in granting largess such as awarding a contractor selling or leasing out its property. Whatever be its activity, the Government is still the Government and is, subject to restraints inherent in its position in a democratic society. The constitutional power conferred on the Government cannot be exercised by it arbitrarily or capriciously or in an unprincipled manner; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed above and is found to be wanting in the quality of reasonableness or lacking in the element of public interest, it would be liable to be struck down as invalid. It must follow as a necessary corollary from this proposition that the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action would be both unreasonable and contrary to public interest. The Government therefore, cannot, for example give a contract or sell or lease out its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which render it reasonable and in public interest t o do so. Such considerations many that some Directive Principle is sought to be advanced or implemented or that the contract or the property is given not with a view to earning revenue but for the purpose of carrying out a welfare scheme for the benefit of a particular group or secretion of people deserving it or that the person who has offered a higher consideration is not otherwise fit to be given the contract or the property. We have referred to these considerations only illustratively, for there may be an infinite v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without discrimination and without unfair procedure. where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or granting other forms of largess, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with some standard or norm which is not arbitrary, irrational or irrelevant. The governmental action must not be arbitrary or capricious, but must be based on some principle which meets the test of reason and relevance. This rule was enunciated by the Court as a rule of administrative law and it was also validated by the Court as an emanation flowing directly from the doctrine of equality embodied in Art.14." (emphasis supplied) In State of Uttar Pradesh and others v. Vijay Bahadur Singh and others [1982] 2 SCC 365 this Court considered the circumstances under which the Government is not always bound to accept the highest bid offered in a public auction under which a contract was to be awarded to fell trees and exploit forest produce and held as under: "It appears to us that the High Court had clearly misdirected itself. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whether the pi-ice offered in an auction sale is adequate. While accepting or rejecting a bid, it is merely performed and executive function. The correctness of its conclusion is not open 'to judicial review. We fail to see how the plea of contravention of Art. 19 (1) (g) or Art. 14 can arise in these cases. The Government's power to sell the exclusive privileges set out in s. 22 was not denied. It was also not disputed that those privileges could be sold by public auction. Public auctions are held to get the best possible price. Once these aspects are recognised, there appears to be no basis for contending that the owner of the privileges in question who had offered to sell then cannot decline to accept the highest bid if he thinks that the price offered is inadequate. There is no concluded contract till the bid is accepted. Before there was a concluded contract, it was open to the bidders to withdraw their bids-see Union of India and ors. v. M/s Bhimsen Walaiti Rani [1970] 2 SCR 594. By merely giving bids, the bidders had not acquired any vested rights. The fact that the Government was the seller does not change the legal position once its exclusive right to deal with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the solitary exception of M/s. Travancore Cement Ltd. Kottayam for which justification has been shown. was on a rational basis taking into account all relevant data and factors including the cement industry's acceptance of the principle of a uniform retention price for the entire industry. the only difference being in die price actually fixed it ₹ 100 per tonne instead of ₹ 104 per tonne claimed by the cement industry. It is obvious that the fixation of ₹ 100 per tonne being shown to be made on a principle which has not been faulted. the actual fixation of ₹ 100 instead of ₹ 104 to be received by the industry is not within the domain of permissible judicial review, if the principle of a Uniform retention price for the entire industry cannot be faulted. (emphasis supplied) The Bench in die above case, after referring to die decision of the Constitution Bench in Shri Sitaram Sugar Co. Lid. v. Union of India [1990] 3 SCC 223, observed thus: " It was pointed out that what is best for the industry and in what manner the policy should be formulated and implemented. hearing in mind the object of supply and equitable distribution of the commod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inue to be an uneconomic unit like M/s Travancore Cement Limited, Kottayam deserving, a similar treatment. The counter affidavit. therefore. shows a rational basis for classifying M/s Travancore Cement Limited, Kottayam differently as a sub-standard and an uneconomic unit without any scope for improvement in comparison to other units. This argument also is untenable." In R.K. Garg v. Union of India, [1981]4 SCC 675, a Constitution Bench of this Court observed as under: " Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude. than laws touching the civil rights such as freedom of speech religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-.jacket formula and this is particularly true in case of legislaion dealing with economic matters, where having regard to the nature of the problems required to be dealt with. greater play in the joints has to he allowed to tile legislature. The Court should feel more inclined to give judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve such task to the expert bodies. This Court has repeatedly said that matters of economic policy ought to be left to the government." At this juncture it is also necessary to consider whether the policy of the Government in the matter of fixation of price and in allotment of the largess from the point of' view of prohibiting monopolistic tendencies and encouraging healthy competition among the units, is in any manner unreasonable or arbitrary. As submitted by the learned counsel, the policy of the Government is to promote efficiency in the administration and to provide an incentive to the uneconomic units to achieve efficiency. The object underlying the Monopolies and Restrictive Trade Practices Act, 1969 C'MRTP Act' for short ) is to prevent the concentration of economic power and to provide for a control on monopolies prohibition of monopolistic trade practices and restrictive trade practices. The Monopolies Inquiry Commission in its report stated that: "There are different manifestations of economic power in different fields of economic activity. One such manifestation is the achievement by one or more units in an industry of such a dominant position tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of view of public interest is to prohibit concentration of economic power and to control monopolies so that the ownership and control of the 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. Bearing the above principles in mind, we shall now proceed to examine the action taken by the Railways in the matter of fixation of the price and distribution of quantities and see whether the same has been done pursuant to a policy and thus reasonable or whether there has been an arbitrary exercise of power. We have already noted that it is a case of limited tender meant for the 12 manufacturers who have been supplying the railway bogies. The offers made by the tenders were got technically evaluated by the RDSO and thereafter they were examined by the-render Committee as well as by the Railways Board and finally by competent authority. The assessed capacity of each manufacturer is the one assessed by the RDSO, a wing of the Railways and the same is based on the molten capa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. This was done on 4. 2. 92 and then the post- tender correspondence was there %%,hereby two of the three big manufacturers offered to reduce their price if negotiations be held. Then the file went to the Railway Board. Advisor (Finance) particularly indicated that a view has to be taken whether a large number of manufacturers should be continued manufacturing these bogies in small quantities as at present or to permit a small number of manufacturers to expand their production at the cost of other prices and that the policy which has been followed by the Railways so far is to encourage a large number of parties to manufacture the bogies, with the idea of generation competition as also by way of encouraging small scale industries. fie, however, pointed out that since the review of policy would take time, the tender could be decided on the basis of the existing policy. The Member (Mechanical) agreed with this recommendation. Then the file went to Financial Commissioner. He noted that the three big manufacturers have formed a cartel and they have given offer to reduce their price if negotiations are held and their intention apparently is to get a larger share on the basis of such n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing implemented. he, however. noted that the Minister for Railways may consider whether the lower price could be counter offered to all the companies. The Financial Commissioner again noted that dual pricing would be in the national interest and finally the Minister having noted these endorsements of the Member (Mechanical) as well as the Financial Commissioner made an endorsement that if some are allowed to hold monopoly instead of giving protection to smaller units, who have formed a cartel, they may gang up and fight and fritter the smaller ones and that Railways should always demonstrate of its own vision of long term Railway interest and not short-terms gains and finally agreed with the recommendations of the Financial commis- sioners and also the recommendation of the 'Fender Committee and directed the implementation of the same without further delay. The above documents would show that a particular policy has been adopted by the Government, though it resulted in a change as compared to the previous one. As held by the courts, change of policy by it self does not affect the pursuant action provided it is rational and reasonable However, the submission is that the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l its production, sale, and price, and to obtain a monopoly in any particular industry or commodity.Also, an association by agreement of companies or sections of companies having common interests, designed,, to prevent extreme or unfair competition and allocate markets, and to promote the interchange of knowledge resulting from scientific and technical research, exchange of patent rights, and standardization of products." In American Jurisprudence 2d Vol. 54 page 677 it is mentioned thus: "A cartel is an association by agreement of companies or sections of companies having common interests, designed to prevent extreme or unfair competition and to allocate markets, and perhaps also to exchange scientific or technical knowledge or patent rights and to standardize products, with competition regulated but not eliminated by substituting computational in quality, efficiency, and service for price-cutting. An international cartel arrangement providing for a worldwide division of a market has been held a per se violation of 15 USC S 1. An American corporation violates the Sherman Act by entering into agreements with English and French companies to (1) allocate world trade terri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er se violation is whether the activity on its face seems to be such that it would always or almost always restrict competition and decrease output instead of being designed to increase economic efficiency and make the market more rather than less competitive." Matsushita Electric Industrial Co., Ltd. et al v. Zenith Radio Corporation et al 89 L.Ed. 2d 538 is a case where American manufacturers of consumer electronic products brought suit against a group of their Japanese competitors in the United States District Court alleging that these competitors had violated Sections 1 and 2 of the Sherman Act and other federal statutes. It was alleged that the Japanese companies had conspired since 1950 to drive domestic firms from the American Market, by maintaining artificially high prices for these products in Japan while selling them at a loss in the United States. The District Court after excluding bulk of evidence, finally granted the Japanese companies' motion for summary judgment dismissing the claims. The United States Court of Appeal reversed and remanded for further proceeding. On a certiorari, the United States Supreme Court while considering the standards supplied by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ators to forgo profits that free competition would offer them. It was also held therein as under: "To survive a motion for a summary judgment, a plaintiff seeking damages for a violation of S 1 of the Sherman Act must present evidence "that tends to exclude the possibility" that the alleged conspirators acted independently. Thus, respondents here must show that the inference of a conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could not have harmed respondents. (emphasis supplied) Therefore mere offering of a lower price by itself, though appears to be predatory, can not be a factor for inferring formation of a cartel unless an agreement amounting to conspiracy is also proved. In webster Comprehensive Dictionary International Edition. The meaning of the word "Predatory" is given as under: "predatory-1. characterized by or under taken for plun- dering. 2. Addicted to pillaging: 3. Constituted for living by preying upon others, as a beast or bird; raptorial. " In A Dictionary of Modern Legal Usage by Bryan A. Garner, "predatory" is defined thus: "Predatory preying on oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is just as illegal as the fixing of prices by direct joint action. A price-fixing combination is illegal even though the prices are fixed only by one member and without consultation with the others." (emphasisd supplied) A mere offer of a lower price by itself does not manifest the requisite 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 can not readily be inferred. In the instant case, the fact that two of the three big manufacturers entered into post-tender correspondence and also offered a lower price of ₹ 67,000 is not dispute. Though they did not place the necessary material in support of their offer as to how it is viable and workable, they, however, sought to contend before us that the price offered by them is not predatory and is only a reasonable price. By our earlier order dated 14th January, 1993 we directed the Tender Committee to examine the matter afresh regarding the reasonable price on the basis of the data that may be placed by these big manufacturers in support of their offer of ₹ 67,000. Therefore no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were bound to follow the rules and standards pertaining to the tender system and on the basis of these provisions and the course of conduct followed by the Railways in the matter of fixation of price and allotment of quota in the past let the manufacturers believe that the same course of conduct would be followed and the manufacturers legitimately expected that they would be treated equally and in a non-arbitrary manner and such legitimate expectation is a right guaranteed under Article 14. In Food Corporation of India v. M/s Kamdhenu Cattle Feed Industries JT (1992) 6 S.C. 259 Justice J.S. Verma Speaking for the Bench observed as under: "In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrari- ness is a significant facet. There is no unfettered discretion in public law. A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is fairplay in action'. Due observance of this obligation as a part of good administration raises a reasonable or legitimate expectation in every citizen to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceive such treatment. The existence of legitimate expectation' may have a number of different consequences and one of such consequences is that the authority ought not to act to defeat the 'legitimate expectation without some overriding reason of public policy to justify its doing so. In a case of 'legitimate expectation' if the authority proposes to defeat a person's 'legitimate expectation' it should afford him an opportunity to make representations in the matter. In this connection reference may be made to the discussions on 'legitimate expectation' it page 151 of volume 1(1) of Halsbury's Laws of England Fourth Edition (Re- issue). We may also refer to a decision of the House of Lords in Council of civil Service Union and others versus Minister for- Civil Service reported in [1985] 3 All England Reporter page 935. It has been held in the said decision that an aggrieved person was entitled to judicial review if he could show that a decision of the public authority affected him of some benefit or advantage which in the past he had been permitted to enjoy and which he legitimately expected to be permitted to continue to enjoy either until he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different sources but should be for valid reasons to be recorded in writing for splitting the tendered quantity." Annexure 213 contains the Railway Board letter dated 19.4.90 addressed to General Managers, All Indian Railways and others dealing with the subject of Non-acceptance of late/delayed/post/ Tender-offers. The relevant portion reads thus: "2. Instances have come to notice of the Board where on a strict application of the above instructions even late Tenders submitted by Public Sector firms for highly specialised equipments have been rejected. 3.The matter, has therefore been reconsidered by the Board and it has been decided that where late Tenders from established/reliable suppliers and conferring a substantial financial advantage is to be considered, notwithstanding the general ban, it will be open to the Railways to seek the Board's approval for the consideration of such Tenders, since this should be a very exceptional situation, such cases should be recommended for consideration of the Board with the personal approval of the General Manager, duty concuffed in by the F.A. & C.A.O. 4. The Railways should not enter into any dialogue with the agency submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding an implied representation, or from consistent past prac- tice. The existence of a legitimate expectation may have a number of different consequences'; it may give locus standi to seek leave to apply for `judicial review; it may mean that the authority ought not to act so as to defeat the expectation without some overriding reason of public policy to justify its doing so; or it may mean that, if the authority proposes to defeat a person's legitimate expectations, it must afford him an opportunity to make representation on the matter. The courts also distinguish, for example in licensing cases, between original applications, to renew and revocations; a party who has been granted a licence may have legitimate expectation that it will be renewed unless there is some good reason not to do so, and may therefore be entitled to greater procedural protection than a mere applicant for a grant." (emphasis supplied) We find that the concept of legitimate expectation first stepped into the English Law in Schmidt v. Secretary, of State for Home Affairs (1969) 2 Ch. 149 wherein it was observed that an alien who had been given leave' to enter the United Kingdom for a li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade union membership. xxxxxxxx xxxxxxx xxxxxxxx Once the Minister produced evidence that her decision not to consult the staff before withdrawing the right to trade union membership was taken for reasons, of national security, that overrode any right to judicial review which the appellants had arising out of the denial of their legitimate expectation of consultation. The appeal would therefore be dismissed. xxxxxxxx xxxxxxxx xxxxxxxx Administrative action is subject to control by judicial review under three heads: (1) illegality where the decision making authority has been guilty of an error of law, e g by purporting to exercise a power it does not possess; (2) irrationality where the decision-making authority has acted so unreasonably that no reasonable authority, would have made the decision, (3) procedural impropriety, where the decision making authority has failed in its duty to act fairly. (emphasis supplied) Therefore the claim based on the principle of legitimate expectation can be sustained and the decision resulting in denial of such expectation can be questioned provided the same is found to be unfair, unreasonable, arbitrary and violative of principles of natura ..... X X X X Extracts X X X X X X X X Extracts X X X X
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