Full Judgment Text
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PETITIONER:
U.O.I. AND ORS. ETC. ETC
Vs.
RESPONDENT:
HINDUSTAN DEVELOPMENT CORPN.AND ORS. ETC. ETC.
DATE OF JUDGMENT14/01/1993
BENCH:
REDDY, K. JAYACHANDRA (J)
BENCH:
REDDY, K. JAYACHANDRA (J)
RAY, G.N. (J)
CITATION:
1994 AIR 980 1993 SCR (3) 108
1993 SCC (1) 467 JT 1993 (1) 94
1993 SCALE (1)56
ACT:
Indian Contract Act. 1872 : Sections 5,8,38--Government
contract--Tender--to supply of cast steel bogies to
Railway--Formation of cartel by three tenders--Railway’s
finding--Whether--bona fide-Dual pricing--Whether
discriminatory--Allotment of quantity to renders--Supreme
Court directions.
HEADNOTE:
The Railway Board entered into contracts with 12 manufactur-
ers for the supply of cast steel bogies to be used for
building the wagons, every year. Among them H.D.C., Mukand
and Bhartiya had capacity to manufacture larger quantities.
In 1991 two new firms Simplex and Beekay also entered the
field.
For the year 1992-93, a tender notice for procurement of
1900 cast steel bogies was issued to the Regular suppliers
as well as to Simplex and Beekay the new entrants.
The tender notice stated therein that the last date for
submission of offers was 27.11.91 by 2.30 P.M. and the
tenders to be opened at 3 P.M. on the same day; that the
price was subject to the price variation clause and the base
date for escalation purpose was 1.9.91; that the Railways
reserved the right to order additional quantity upto 30 % of
the quantity ordered during the currency of the contract on
the same price and terms and conditions with suitable
extensions in delivery period.
The price quoted by H.D.C., Mukand and Bhartiya firms was
identical, i.e. Rs. 77. 666 per bogie. Other tenderers
price varied between Rs. 83.000 and Rs.. 84, 500 per bogie.
The Government’s announcement of reduction of custom duty
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on the import of steel scrap and dispensation of freight
equalisation fund for steel came after the opening of the
tenders and before the finalisation of the tenders.
The Tender Committee recommended that the three manufac-
turers who quoted an identical lowest rates without any
cushion for escalation between 1.7.91 and 1.9.1991 formed a
cartel; that the reasonable rate per bogie was to be Rs.
76,000 by taking into consideration of the two concessions
announced by the Government; and that the existing
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procedure to be followed on the question of distribution of
quantities to the tenderers.
On 4.2.92, the Committee signed the recommendations. On the
same date, the Member (Mechanical) of the Committee received
letter from H.D.C. and Mukand, wherein the tenderers offered
to substantially reduce the prices because of the
concessions.
The Advisor (Finance) examined the matter and observed that
if it was intended to continue the existing policy of fixing
a rate and distributing the order among all the tenderers,
then negotiations might not be useful; that review of the
existing policy would take time; and that the present tender
be decided on the basis of the existing policy.
The Member (Mechanical), the next higher authority recom-
mended the acceptance (if the Tender Committee’s
recommendation.
The Finance Commissioner approving the recommendations of
the committee, noted that the tenderers who quoted the
identical rates had formed a cartel; that a counter offer of
Rs. 76,000 be accepted but in the case of H.D.C., a price
lower by Rs.1 1,000 to he offered as per their post-tender
letter dated 4.2.92; that the present formula regarding the
distribution of quantities be applied to all tenderers
except the three who formed a cartel; that some recoveries
from the three tenderers he made on the basis of their
letters wherein they quoted prices which were much less than
the updated price on 1.9.91 of Rs.79.305; that the post-
tender letters be ignored and that for short-term gains the
Department could not sacrifice long-term healthy
compensation.
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The Minister for Railways, the approving authority agreeing
with the recommendations of the Finance Advisor, noted that
the three tenderers had formed a cartel and they he offered
a price lower by Rs. 1 1.000 with reference to the counter-
offer recommended by the Tender Committee and the quantities
also be suitable adjusted to break the cartel and ordered for redistrib
ution of the quantities exercising 30% option.
The Chairman, Railway Board, when received the file for
implementation of the orders from the Minister, noted that
action be taken as decided by the Minister, which had
resulted in dual-pricing, namely, one to the three tenderers
and the higher one to the other tenderers and therefore, the
Minister to consider whether they could counter-offer the
lower price to all the tenderers as that would result in
saving much more.
When the matter was sent to the Finance Commissioner, he
observed that as some of the units were sick units and owe a
lot of money to the nationalised banks; it would be in the
national interest to accept dual-pricing.
Therefore, the rile was again put up to the approving
authority. He agreed with the recommendations of the
Commissioner and the Tender Committee and directed for their
implementation.
As per the final decision taken by the approving authority
the three tenderers were issued a counter-offer of Rs.65,000
per bogie by telegram and other tenderers were given a
counter-offer of Rs.76,000/ per bogie.
After the receipt of the telegram dated 18.3.92 H.D.C. and
Mukand riled writ petitions in the Delhi High Court
challenging the discriminatory counter-offer. Bhartiya had-
riled a writ petition in the Calcutta High Court. It was
withdrawn and another writ petition was riled later in the
Delhi High Court.
In the writ petitions filed by H.D.C.and Mukand, the High
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Court issuing notice to the respondents,stayed the operation
of the telegram dated 18.3.92.
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In reply to the telegram, H.D.C. and Mukand also wrote to
the Minister of Railways offering to supply the bogies at
the rate of Rs.67.000 per bogie, which was accepted by the
Railway.
Pending the writ petitions, the High Court passed an
interlocutory order, directing the Railway to accept the
allocation of bogies recommended by the Tender Committee at
the rate of Rs.67.000 per bogie subjected to the final
decision in the writ petitions.
The Railway’s petition for special leave to appeal filed
against the interlocutor%, order of the High Court was
dismissed.
Thereafter, the High Court allowed the writ petitions riled
by H.D.C and Mukand and directed that all the tenderers
should make the supplies at the rate of Rs. 67.000 per bogie
and allocation of quantity to be considered afresh on a
reasonable basis.
The Union of India filed appeal by special leave (S.L.P. (c)
Nos. 11897-98/92) against the judgment of the High Court.
The other SLPs. were riled by the affected tenderers who
figured as respondents Nos. 4 to 12 in the writ petitions
before the High Court. The High Court disposed of
Bharatiya’s writ petition in terms of the judgment in the
other two writ petitions (W.P.Nos. 1152 and 1157/ 92)
wherein they were shown as respondent No. 13). As Bharatiya
alias Besco did not question the judgment of the High Court,
they were arrayed as respondent in the S.L.P. riled by the
Union of India.
The Union of India submitted that the three big manufactures
i.e. M/s H.D.C., Mukand and Bhartiya formed a cartel and the
same was evident from the fact that each one of them quoted
an identical price which was a cartel price’; that the
Government in the matters of economic policy for good and
sufficient reasons and in the public interest could reject
the lowest offer with a view not to allow any monopoly and
to encourage competition among the recognised manufacturers;
that the dual pricing adopted by the Railways under the
circumstances was not discriminatory; that the Railways had
rightly taken into account the two concessions and found
that the price at the rate of Rs.67,000 per bogie was not
reasonable and, workable and it was only a cartel price and
that Rs. 76,000 was the reasonable price
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and on that basis made a counter-offer to other
manufacturers except to these three big manufacturers; that
the Railways took into consideration all the relevant
factors and on rational basis the quantities were allotted;
and, therefore, they were not given larger share.
The nine smaller manufacturers in general supported the sub-
missions of the Union of India.
The respondent- M/s H.D.C. supporting the finding of the
High Court submitted that the award of the contract for
supply of bogies was vitiated by mala-fides and that
disproportionate allotment of quota of bogies and. dual
pricing were based on malafides and estraneous
considerations violating Article 14 of the Constitution;
that the reasons put forward on behalf of the Railways were
disingenuous and bereft of rationale.
M/s Mukand-respondent submitted that the dual set of counter
offers and allocation of disproportionate quantities were
highly arbitrary and that the practice and police of the
past 10 years of placing orders on all manufacturers in
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respect of the quantities worked out on the basis of
standard quantity formula at a uniform price, gave rise to
legitimate expectations among all bogie manufacturers and
irrational departure from the existing policy was arbitrary
and unreasonable; that the making of law tender offers could
not by Itself be visited with punty consequences like dual
pricing and reducing the allotment of legitimate quantities.
M/s. Bhartiya submitted that the Tender Committee erred In
treating m/s Bhartiya also as a member of the cartel and
that the allotment of quantities was arbitrarily reduced;
that M/s Bhartiya never made an offer of Rs. 67,000 and
there was nothing in writing to that effect and that merely
because of the statement of the counsel during the
proceedings before the High Court, it should not be
understood that they were willing to supply at the rate of
Rs. 67,000 and that they should not be treated differently
from the other nine manufacturers.
Disposing of the Special Leave Petitions, this Court,
113
HELD: 1.1. Since the offers of the three tenderers were
identical and the price was somewhat lower, the Tender
Committee entertained a suspicion that a cartel had been
formed and the same got further strengthened by the post-
tender attitude of the said manufacturers which further
resulted in entertaining the same suspicion by the other
authorities in the hierarchy of decision making body
including the Minister of Railways. (124-D)
1.2. All the Railway authorities including the Minister
acted in a bonafide mannerin taking the stand that the three
manufacturers formed a cartel. (124F)
1.3. There is no enough of material to conclude that M/S
H.D.C., Mukand and Bhartiya formed a cartel. Because of
mere quoting identical tender offers by the Said three
manufacturers for which there is some basis, the conclusion,
that the "id manufacturers had formed a cartel does not
appear to be correct. (124-C)
1.4. The current contract priced based on the updated price
is Rs.79,505. The three manufacturers offered at Rs. 77,600.
Taking into consideration the later concessions, the Tender
Committee decided that the price of Rs. 76,000 is
reasonable. (124-F)
1.5. The fixation of price at Rs. 67,000 per bogie
straightaway without necessary and proper consideration and
appraisal regarding the viability and other aspects by some
experts, is not just and fair from many points of view. A
fresh consideration is called for, particularly from the
point of view of safeguarding the interests of the public
exchequer and giving necessary protection to the smaller
manufacturers. (125-B)
1.6. The Tender committee is directed to reconsider the
question of fixation of reasonable price. The Tender
Committee shall consider, the offer of Rs. 67,000 made by
M/s H.D.C. and Mukand along with the data that would he
given by them in support of that and the percentage of
profits available to all the manufacturers and other
relevant aspects and then fix a resonable price, at which
the manufacturer would be able to supply. (125-C)
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1.7. At a belated post tender stage the Railway authorities
did not deem it fit to reconsider the question of fixation
of price in the light of the post tender offers made by M/s
H.D.C. and Mukand, as by then they were of the opinion that
the three big manufacturers have formed a cartel and quoted
a cartel price. The stand by the Railways to adopt dual
pricing under the circumstances is bona fide and not
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malafide. However, dual pricing on principle may not appear
to be rational since the Railways have been following
certain formula in fixing the price which is made applicable
to all the manufacturers. But under certain circumstances
dual pricing may be reasonable.-(125-E-F)
1.8. M/s H.D.C. and Mukand came forward with firm offer of a
price at Rs. 67,000 per bogie. M/s Bhartiya also got
committed to supply at the same price. All the three of
them did not even challenge the order of the High Court.
These three big manufacturers must be deemed to be in a
position to supply at the rate of Rs.67,000 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. (125-F-G)
1.9. If the price that is to be fixed by the Tender
Committee as directed by the Court happens to be more than
Rs. 67,000 then that would he applicable to the smaller
manufacturers only and not to M/s H.D.C., Mukand and
Bhartiya who on their own commitment have to supply at the
rate of Rs. 67,000. (126-A)
1.10. 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 he
concluded so for the price is concerned. (126-B)
1.11. The formation of an opinion that a cartel was
formed had no firm factual foundation; reduction of quota by
way of reprisal can not be justified. The Minister of
Railways as the final authority, after considering various
relevant factors, may be justified in taking a particular
decision in the matter of allotment of quota but such
decision must be taken on objective basis. But, in this
case, all the smaller manufacturers deserving a favourable
treatment in the mat-
115
ter of allotment of quota, have not been equally treated in
the sense that one or two of them got larger quantities.
Though this does not appear to be a serious departure, yet
in these matters the Govt. is expected to be just and fair
to one and all. In future the authorities would make a
proper consideration of the relevant factors in respect of
each tenderer in an objective manner in allotting the
quantities. (126-E-H)
1.12. The three manufacturers M/s H.D.C., Mukand and
Bhartiya-should be allocated the quantities as per the
recommendations of the Tender Committee. However, this
Court does not want to disturb at this stage the quantities
finally allotted by the competent authority to the small
manufacturers as that would cause great hardship to them.
(127-C)
The Railway authorities was left to make necessary
adjustments next year in the matter of allocation of
quantities to them taking into consideration these
allotments given to them this year. It will be open to the
Railways to exercise 30% option if not already exercised.
The time to complete the supply is extended upto 31.3.1993.
(127-D-F)
JUDGMENT:
CIVIL APPELLATE JURISDICTION: S.L.P (C) Nos. 1189798 of 1992
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.
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Rao, Rama Jois, A. Temton, Dr. Shankar Ghosh, K.K Venugopal,
Harish Salve, F.S. Nariman, A.N. Haksar, Shanti Bhushan,
K.N. Bhat, T.R. Andhyarujina, C.V. Subba Rao, P.P. Singh,
Mrs B. Sunita Rao, Sudhir Kulshreshtha, Rohit Tandon,
Parijat 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, Tripurary
Roy, K.L. Mehta, S. Ganesh, Pratap Venugopal, K.J. John,
Pramod Dayal, Ajay K. Jain and D.N. Najjunda Reddy for the
appearing parties.
The following Order of the Court was delivered by
116
K. JAYACHANDRA REDDY, J. All these Special Leave Petitions
arise out of the common judgment of the High Court of Delhi
in Civil Writ Petitions Nos. 1 152 and 1 157/92. We heard
these matters for considerable length of time. Eminent
counsel appearing on both sides advanced detailed arguments.
After the conclusion of the hearing it was represented that
having regard to the constraint of time factor, namely that
the contracts with the Railways entered into by the
manufacturers who are parties, have to be completed very
soon the judgment in these matters has to be delivered as
early as possible or at least the conclusions have to be
given soon. We are conscious of the fact that it is likely
to take considerable time to deliver a detailed judgment.
However having gone through the records carefully and after
due consideration of the various arguments advanced, we have
reached the conclusions given hereunder and we propose to
deliver the detailed judgment at a later stage giving all
the reasons in support of these conclusions. We, however,
think it necessary to state a few relevant facts and the
issues involved in a concised form before we set out our
conclusions.
Every year the Railway Board enters into contracts with the
manufacturers for the supply of cast steel bogies which are
used in turn for building the wagons. Cast steel bogies
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 entered
the field. Among them admittedly M/s H.D.C., Mukand and
Bhartiya are bigger manufacturers having capacity to
manufacture larger quantities. On 25, 10.91 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 1.4.1992 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 Railway 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
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i.e M/s H.D.C., Mukand and Bharatiya was an identical price
of Rs. 77,666 per bogie while other tenderers quoted between
83.000 and 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
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freight equalisation fund for steel. The tenders were put
up and and placed before the Tender Committee of the
Railways which considered all the aspects. The committee
concluded that three of the tenderers namely M/s H.D.C.,
Mukand and Bharatiya who had quoted identical rates without
any cushion for escalation between 1.7.91 and 1.9.91, have
apparently formed acartel. 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 custody duty on
the import of steel scrap and dispensation of the freight
equalisation fund for steel, the Tender Committee concluded
that the reasonable rate would be Rs.76,000per bogie. On
the question of distribution of quantities to the various
manufacturers the Tender committee decided to follow the
existing procedure. The Tender Committee. signed these
recommendations on 4.2.92 but on the same day the Member
(Mechanical) of the Committee received letters from M/s
H.D.C. and Mukand. M/s 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
rate, in case a negotiation meeting is called. M/s 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. Though this was post-
tender correspondence, the Department felt that the offers
made by M/s H.D.C. and Mukand could be considered. The
whole matter was examined by the Advisor (Finance) in the
first instance and by an elaborate 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
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
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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 nest higher authority. He with some
observation, 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 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. lie, 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.
1 1,000 may be offered as per their letter dated 4.2.92. lie
also recommended that the two manufacturers M/s. Cimmco and
Texaco may the 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 he
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applied to all manufacturers except the three who have
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 1.9.91 of Rs. 79,305. He also made certain other
recommendations and finally concluded that the post tender
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 to 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 noted that subsequent to the Financial commissioner’s
note, besides M/s H.D.C. and Mukand has also offered to
reduce the price by 10% or more vide their letter dated
19.2.92 if called for negotiations. Taking these
circumstances into consideration the Minister ordered that
all these three firms may be offered a price lower by Rs. 1
1,000 with reference to the counter-offer recommended 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
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crores would be effected. In his note, the Minister also
ordered redistribution of the quantities. Heal so ordered
that3O% options should straightaway be exercised. After the
approving authority took these decisions,the file went to he
Chairman Railway Board for implementing the decisions. The
noted that action will be taken as decided by the Minister
but added 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 price to all the manufacturers
as that would result 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. 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 lower price put forward by the three manufacturers
as it would make the other units enviable and that
incidentally the price of’ Rs. 76,000 now proposed to be
counteroffered to the other firms is also in line with the
recommendation 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 render 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 Rs. 65 000 per
bogie. The counter-offer was also made to the other nine
manufacturers at the rate of Rs. 76,000per bogie namely the
price worked out by the Tender committee. Soon after the
receipt of this telegram dated 18.3.92 M/s H.D.C. and Mukand
filed writ petitions in the Delhi High Court challenging the
so-called discriminatory counteroffer. M/s Bhartiya also
filed a similar petition in Calcutta High Court but the same
was withdrawn but another writ petition was filed later in
the Delhi High Court. In the writ petitions filed by M/s
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H.D.C. and Mukand, the High Courts stayed the operation of
the telegram dated 18.3.92 and issued notice to the Union of
India and to the Executive Director and Director of the
Railways (Stores) who figured as respondents in those writ
petitions. M/s 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
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instead they offered to supply the bogies at the rate of Rs
67,000) per bogie. The Railways accepted this offer and
intimated M/s H.D.C. and Mukand accordingly. The High
Court, in an interlocutory stage pending the writ petitions,
passed an order on 2.4.92 directing the Ministry to accept
the allocation of bogies recommended 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 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:
"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 indicated by the High
Court (including the petitioners in the High Court in the
writ petition), seek an "on account" payment representing
the difference between the sum of Rs. 67,000 indicated as
price by the High Court and the sun of Rs 76,000
contemplated by the Railways; 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 per bogie
should be covered by a bank guarantee for its prompt
repayment together with interest at 20% per anum 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 and 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
Rs. 67,000 per bogie and also set aside the quantity
allocation and directed that the same should be considered
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afresh on a reasonable basis and pending such fresh
consideration future supplies should he made on the basis of
the recommendations ofthe Tender Committee. In the course
of the judgment, the High Court also made certain
observation to the effect that the decision of the approving
authority is arbitrary and that this 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 failed to understand as to why the
Railways authorities could 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. 1 1897-98/92.
Before the High Court in the two writ petitions filed by M/s
H.D.C. and Mukand the other manufacturers figured is
respondents Nos. 4 to 12 and M/s Bharatiya otherwise Known
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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 M/s Bharatiya filed a
separate writ petition No. 1753/ 92 in the Delhi High Court
after withdrawing an earlier writ petition filed in the
Calcutta High Court. The same also was disposed of in terms
of the judgment in the, other two writ petitions Nos. 1 152
and 1157/92. But they have not questioned the same.
Consequently M/s Bhartiya figures as a respondent before us
in the SLP filed by the Union of India. Before we proceed
further. we would like to briefly indicate the main
submissions made on behalf of all the parties to the extent
relevant and important for arriving at the necessary
conclusions. Learned counsel have advanced arguments on
several other aspects which are incidental. We propose to
deal with them and give our findings in our detailed
judgment at a later stage.
Mr. Kapil Sibal, learned counsel appearing for the Union of
India submitted that the three big manufacturers i.e. M/s
H.D.C.. Mukand and Bhartiya formed a cartel and the same is
evident from the fact that each one of them quoted an
identical price which is a cartel price; and that the
Government in the matters of economic policy for good and
sufficient reasons and in the public interest can reject the
lowest offer with a view not to allow any monopoly and to
encourage competition among the recognised manufacturers and
that the dual pricing adopted
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by the Railways under the circumstances is not
discriminatory. In this context it is also submitted that
the Railways had rightly taken into account the two
concessions and found that the price at the rate of Rs.
67,000 per bogie was not reasonable and workable and it was
only a cartel price and that Rs. 76,000 was the reasonable
price and on that basis made acounter-offer to other
manufacturers except to these three big- manufacturers. The
Railways had no option except to accept the offer of Rs.
67,000 by the three big- manufacturers as they took firm
stand that the price is reasonable and that they would be
able to supply on that rate and thereby a binding contract
came into force so far these three manufacturers are
concerned. Regarding the allocation of quantities the
Railways have taken into consideration all the relevant
factors namely that three of the nine manufacturers were
BIER companies and the two others are also wagon builders
having their entire business with Railways only and on that
rational basis the quantities were allotted. It is also his
submission that since the three big manufacture originally
offered a cartel price and ill of them later apparently
offered Rs. 67,000/-, in unworkable price, the Railways felt
that they attempted to destroy the competition. Therefore
they were not given larger share. Learned counsel relied on
several authorities particularly touching the scope and
ambit of Article 14 and the power of the court under Article
226 of the constitution of India. Mr. Sibal also strongly
contended that the High Court grossly erred in making
certain observations against the Railways namely that the
stand of the Railways that those three manufacturers formed
a cartel is based on extraneous considerations and somewhat
similar observations in respect of the decision or the
Railways on the question of price fixation. The other
counsel appearing for the nine smaller manufacturers in
general supported these submissions and also highlighted
certain aspects in their individual cases.
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Shri K.K. Venugopal. learned counsel appearing for the
respondent namely M/s H.D.C. submitted that the award of the
contract for supply of bogies was vitiated by malafides and
that disproportionate allotment of quota of bogeis and dual
pricing were based on malafides and extraneous
considerations violating Article 14 of the Constitution. tie
further submitted that the reasons put forward on behalf of
the Railways are disingenuous and bereft of rationale. The
supported the finding of the High Court that the price
should he fixed at Rs. 67,000
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for every manufacturer. Shri Nariman, learned counsel
appearing for M/s Mukand, another respondent submitted that
the dual set of counter offers and allocation of
disproportionate quantites are highly arbitrary and that the
practice and policy of the past 10 years of placing orders
on all manufacturers in respect of the quantities worked out
on the basis of standard quantity formula at a uniform
price, gave rise to legitimate expectations among all bogie
manufacturers and irrational departure from the existing
policy is arbitrary and unreasonable. He further submitted
that the making of law tender offers can not by itself be
visited with punty consequences like dual pricing and
reducing the allotment of legitimate quantities.
Shri Shanti Bhaushan, learned counsel appearing for M/s.
Bhartiya submitted that the Tender Committee erred in
treating M/s. Bhartiya also as a member of the cartel and
that the allotment of quantities has been arbitrarily
reduced. He however made one special submission namely that
M/s Bhartiya never made an offer of Rs. 67,000 and there is
nothing in writing to that effect and that merely because of
the statement of the counsel during the proceedings before
the High Court, it should not be understood that they are,
willing to supply at the, rate of Rs. 67,000 and that they
should not be treated by treated differently from the other
nine manufacturers.
Taking all the aspects into consideration and for the
purpose of giving our conclusions it may broadly be stated
that M/s H.D.C. and Mukand gave post-tender offers at a low
pride with the hope that they would get a larger quantity
allotted. M/s Bhartiya also fell in line with them though
did not specifically put it in writing. But during the
course of the hearing of the writ proceedings, it was
represented on behalf of M/s Bharatiya that they would be
willing to supply at Rs. 67,000 if the court fixes that
price. This is noted by the High Court in its judgment.
The Railways authorities however concluded that in the
beginning itself these three have formed a cartel and the
price quoted by them was only a cartel price. The note by
the Financial Commissioner is somewhat elaborate on this
aspect and the Minister for Railways, the competent
authority agreed with him and also directed that the
quantities be suitably adjusted so that the cartel is
broken. He also took into consideration the fact that some
of the smaller units are sick and
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therefore they should be given a larger quantity to enable
them to rehabilitate. The other recommendations of the
authorities were also accepted. However in giving any
directions we must bear in mind that the contract period is
going to end shortly and till now all the manufacturers have
been manufacturing and supplying pursuant to the interim
orders. We may indicate at this stage that we shall discuss
all these aspects later in detail in our judgment. After
due and careful consideration of all the aspects, our
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conclusions are as follows:
(1) There is no enough material to conclude that M/s
H.D.C., Mukand and Bhartiya formed a cartel. Because of
mere quoting identical tender offers by the said three
manufacturers for which there is some basis, the conclusion
that the said manufacturers had formed a cartel does not
appear to be correct. However since the offers of the said
three tenders were identical and the price was somewhat
lower, the Tender Committee entertained a suspicion that a
cartel had been formed and the same got further strengthened
by the post-tender attitude of the said manufacturers which
further resulted in entertaining the same suspicion by the
other authorities in the hierarchy of the decision making
body including the Minister of Railways. Though there is no
enough of material to establish formation of a cartel as is
understood in the legal parlance but at the same time it
cannot be contended that such an opinion entertained by the
concerned authorities including the Minister was perse
malicious or was actuated by any extraneous considerations.
After a careful examination of the entire record and facts
and circumstances of the case we are of view that all the
Railway authorities including the Minister acted in a
bonafide manner in taking the stand that the three
manufactures formed a cartel.
(2) The current contract price based on the updated price
is Rs. 79,305 The three manufacturers offered at Rs.
77,6000. ’Faking into consideration the later concessions,
the Tender Committee decided that the price of Rs. 76,000 is
reasonable. In the post tender correspondence M/s H.D.C.
and Mukand offered to supply at a price of Rs. 67,000 per
bogie, but no particulars as to how it would be reasonable,
were given. However they have come forward before us with
some particulars. M/s Bhartiya did not gave any such
offering writing, but fell in line with them and did not
choose to question the order of the High court fixing the
price at Rs. 67,000 The Railways were of the view that
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it is an unreasonable price an smaller manufacturers cannot
supply at that price and consequently they will get
extinguished resulting in a monopoly by the big
manufacturers. The High court has directed that supply
should be at Rs. 67,000 by everyone. Taking into
consideration all these aspects we are of the view that the
fixation of price at Rs. 67,000 per bogie straightaway
without necessary and proper consideration and appraisal
regarding the viability and other aspects by some experts,
is not just and fair from many points of view. A fresh
consideration is called for, particularly from the point of
view of safeguarding the interests of the public exchequer
and giving_ necessary protection to the smaller
manufacturers. Consequently we set aside this direction of
the High Court and direct the Tender Committee to reconsider
the question of fixation of reasonable price. The Tender
committee shall consider the offer of Rs, 67,000 made by M/s
H.D.C. and Mukand along with the data that would be given by
them in support of that and the percentage of profits
available to all the 3 manufacturers and other relevant
aspects and then fix a reasonable price. at which the
manufacturer would be able to supply. The Tender Committee
shall within two weeks from today complete the process.
(3) At a belated post tender stage Railways authorities did
not deem it fit to reconsider the question of fixation of
price in the light of the post tender offers made by M/s
H.D.C. and Mukand, as by then they were of the opinion that
the three big manufacturers have formed a cartel and quoted
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a cartel price. The stand by the Railways to adopt dual
pricing under these circumstances is bonafide and not
malafide. However. dual pricing on principle may not appear
to be rational since the railways have been following
certain formula in fixing the price which is made applicable
to all the manufacturers, But under certain circumstances
dual pricing may be reasonable. In the instant case M/ s
H.D.C. and Mukand came forward with firm offer of a price at
Rs. 67,000 per bogie. M/s Bharatiya also got committed to
supply at the same price. All the three of them did not
even challenge the order of the High Court. These three big
manufacturers just be deemed to be in a position to supply
at the rate of Rs. 67,000 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.
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(4) If the price that is to be fixed by the Tender
Committee as directed by us happens to be more than Rs.
67.000 then that would be applicable to the smaller
manufacturers only and not to M/s H.D.C., Mukand and
Bhartiya who on their own commitment have to supply at the
rate of Rs. 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 deemed to be
concluded so for the price is concerned.
(6) Now 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
tile recommendations of the Financial commissioner and other
authorities. The has however not accepted these
recommendations fully. In making these variations, the
Minister accepting ultimately reduced the allotment of quota
to the said three tenderers substantially by way of
reprisal. In view of our finding that the formation of an
opinion that cartel was formed had no firm factual
foundation; such a reduction of quota by way of reprisal can
not be justified. we are however, not inclined to accept the
contention made on behalf of M/s H.D.C., Mukand and Bhartiya
that no departure from the recommendations of the Tender
committee is permissible in the absence of any established
policy which was also known by the tenderers. From the
records it appears that in the past also there have been
such variations. In our view, the Minister of Railways as
the final authority. after considering various relevant
factors, may he justified in taking a particular decision in
the matter of allotment of quota but such decision must be
taken on objective basis. But, in this case. it appears to
us that all the smaller manufacturers deserving a favourable
treatment in the matter of allotment of quota, have not been
equally treated in the sense that one or, two of them got
larger quantities. Though this does not appear to be a
serious departure, yet in these matters the Govt. is
expected to be just and fair to one and all. We hope that
in future the authorities would make a proper consideration
of the relevant factors in respect of each tenderer in an
objective manner in allotting the quantities.
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(7) In view of the interim orders, during the pendency of
writ petitions before the High Court, and until now all the
manufacturers have been supplying as per the allotments by
the Tender Committee. The High Court in its judgment
finally directed the Railways to reconsider the allocation
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on reasonable basis. It is submitted on behalf of the
smaller manufacturers that they have made necessary manufac-
turing arrangements on the basis of the final allotment. On
behalf of the M/s H.D.C., Mukand and Bhartiya, it is
submitted that their legitimate quotas also are cut short
and that they are entitled to larger quantities in view of
the low price offered by them. Having considered the
contentions made by all- the manufacturers direct that the
there manufacturers M/s H.D.C., Mukand and Bhartiya should
be allocated the quantities as per the recommendations of
the Tender committee. We, however. do not want to disturb
at this stage the quantities finally allotted by the
competent authority to the small manufacturers as that would
cause great hardship to them. We leave it to the Railway
authorities to make necessary adjustments next year in the
matter of allocation of quantities to them taking, into
consideration these allotments given to them this year. To
that extent we modify the order of the High Court.
(8) It will he open the Railways to exercise 30% option, if
not already exercised.
(9) Taking all the circumstances and the time factor into
consideration the time to complete the supply is extended
upto 31.3.1993.
Accordingly these Special Leave petitions are disposed of.
There will he no order as to costs.
V. P. R. SL Ps disposed of.
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