Supreme Court of India
UNION OF INDIA AND ORSversusHINDUSTAN DEVELOPMENT CORPN. AND ORS
- Citation
- 1993 INSC 154
- Decided
- 15 April 1993
- Disposal
- Disposed off
- Bench
- K JAYACHANDRA REDDY
Holding
The authorities' decision to adopt dual pricing and allocate quantities, based on a reasonable suspicion of a cartel but without conclusive proof, was bonafide, non‑arbitrary, and within the scope of their discretionary power.
Summary
The Railway Board invited tenders for cast steel bogies and three large manufacturers (H.D.C., Mukand and Bharatiya) quoted an identical low price, leading the Tender Committee to suspect a cartel and recommend a counter‑offer of Rs. 76,000 per bogie. Post‑tender, the three firms offered a further reduced price of Rs. 67,000, prompting the Minister to adopt a dual‑pricing scheme—Rs. 65,000 for the three big firms and Rs. 76,000 for the others—along with a revised allocation of quantities. The petitioners challenged the dual pricing and the reduction in their allotted quantities on grounds of arbitrariness, violation of Article 14, and breach of legitimate expectation. The Supreme Court held that there was insufficient evidence of a cartel, that the authorities acted in good faith, and that dual pricing under the circumstances was reasonable; the claim of legitimate expectation could not override the policy decision. The Court dismissed the special leave petitions, directed the Tender Committee to reconsider the reasonable price, and upheld the dual‑pricing approach.
Issues considered
- The existence of a cartel among the three large manufacturers.
- The legality and reasonableness of dual pricing for the same contract.
- Whether the authorities acted arbitrarily or in violation of Article 14.
- The applicability of the doctrine of legitimate expectation to the petitioners.
- The proper exercise of discretion in price fixation and quantity allocation under the tender rules.
Legislation cited
- Constitution of Indias. Article 12, s. Article 136, s. Article 14, s. Article 19, s. Article 226, s. Article 298, s. Article 299, s. Article 32
- Monopolies and Restrictive Trade Practices Act, 1969
Subjects
CartelDual pricingLegitimate expectationAdministrative lawReasonablenessArticle 14MonopoliesTenderRailway contractsPublic interest
Judgment
UNION OF INDIA AND ORS
A
v.
HINDUSTAN DEVELOPMENT CORPN. AND ORS
-
APRIL 15, 1993
B
[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 ofdu 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 ofLegitimate E.\pectatio11-Co11cept, scope and applica-
E bilit) of
1
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.
Gh·ing the reasons in support of the conclusions, this Court,
G
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
H
contracts or issuing quotas is expected not to act like a private
individual but should act in conformity with certain healthy stan- --
128
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)
B
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 c
Lakshmi Reddy v. State of Jammu and Kashmir and Anr. [1980] 3
SCR 133'8, relif:d on. .
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,
E
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
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)
G
Monopolies Inquiry Commission's Report, referred to.
American Jurisprudence 2 vol. 54. p . 668, referred to.
·' 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 post-
tender 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.
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
n 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 Dic-
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 677-
referred to.
G
2.2 However, the determination whether an agreement unrea-
sonably restrains the trade depends on the nature of the agreement
and on the surrounding circumstances that give rise to an inference
H
that the parties intended to restrain the trade and monopolise the
same. {167 C-D)
-
UNION OF INDIA l'. H. D. C. 131
- National Electrical contractors Associations, Inc, et, al, v.
National constructors Associations et. al., Federal Reporter 2d
Series, 678 page 492; Matsusliita Electric Industrial Co. Ltd., et. al
A
. v. Zenitl! Radio Corporation etal, 89 L.Ed. 2d 538, referred to.
2.3 Monopoly is the power to control prices or exclude competi-
B
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)
D
Matsushita Electric Industrial Co. Ltd. et. al. v. Zenitli
Radio C01poration et. al. 89 L.Ed. 2d 538, referred to.
Webster Compreliensive Dictionm)'. /11ternatio11al Edi-
tion; A dictionary of Modern Legal Usage by Bryan A. Garner;
E
Collins Englisli Dictionary; Black's Law Dictionary; The oxford
E11g/isfl Dictional}' Vol. VIII, referred to.
----- 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)
G
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
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 authori-
ties reserved a right to reject a lower price. (172-F,173-A-B) -
"-
2.7 However, the opinion regarding formation of a cartel enter-
tained 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 legiti-
D 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 expecta-
tion 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.
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.
G
Schmidt v. Secretary' ofState for Home Affairs (1969) 2 Ch.
149;A.G. ofHong 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
-
UNION OF INDIA 1·. H. D. C. 133
Journal Reports 327; 'R. i·. Secretm}' ofStare for tile Home Depart- A
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 ofCivil Sen·ice
Unions case Lord diplock-- D
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 E
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
similar situations. (193-D) F
ll 3.5 Protection of legitimate expectation would not be available
where an overriding public interest requires otherwise. The protec-
tion 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 legitimatt-
expectation, in the first instance, must satisfy that there is a founJ.1-
tion and thus has locus standi to make such a claim. The decision taken
H
U4 SUPREME COURT REPORTS [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)
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
B
of 'legitimate expectation'. A decision denying a legitimate expecta-
tion 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)
c
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.
D
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:.
wise a resourceful litigant having vested interests in contracts, li- 8
cences etc. can successfully indulge in getting welfare activities man-
dated 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)
c
Att. Gen. for l'{ew South Wales v. Quin 1990 Vol. 64
Austraian Law Journal Reports 327, referred to.
3.11 In the instant case, the Rules for entering into contracts lay
down certain norms and contain guidelines. They provide for consti- D
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 consid- G
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
1
136 SUPREME COURT REPORTS [1993] 3 S.C.R.
I
A 4. The modifications in the decision of the Railwa)'S by way of
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)
B
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 perfor-
mance, 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 accord-
ingly in respect of allotment of quantities to various manufacturers
within the four corners of the limited tender. (196 C-E)
CIVIL APPELLATE JURISDICTION: S.L.P. (C) Nos. 11897-·
98/92 etc. etc.
E
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
UNION OF INDIA v. H. D. C. (K. J. REDDY.J.] 137.
K . .JAYA CHANDRA REDDY, J. By our order dated 14th Jariu- A
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
B
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.
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 recom-
mended 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
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 quanti-
ties 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 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 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 imple-
menting 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 counter-
offered 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 counler-
offer. 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 --
Director and Director or the Railways (Stores) who figured as respon-
dents in those writ petitions, Mis H.D.C. and Mukand also wrote to the
F
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
l ' NION OF l~DIA ,._ H.D.C. [K. J. REDDY,J.] 141
on 28.4.92 : A
"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
B
in the High Court in the writ petition) seek an "on-
account" payment representing the difference be-
tween 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 c
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 can-
D
not be observed in the price structure that may ulti-
mately come to be determined pursuant to the final
decision in the writ petitions.
The special leave petitions are disposed of accord-
ingly." E
Thereafter the High Court took up the writ petitions for final
hearing 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 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
manufacturers figured as respondents Nos. 4 to 12 and Mis Bharatiya
n otherwise known as Besco figured as respondent No. 13. The other
S.L.Ps. are filed by those nine manufacturers. M/s Bharatiya, respon-
dent 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 conclu-
E 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 circum-
stances 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 prac-
tice. 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 varia-
tions, 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 Govern-
ment is expected to be just and fair to one and al1.
7) The three big manufacturersM/sH.D.C., MukandandBharatiya H
I-
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 dis-
turbed 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 consid-
C 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 manufac-
turers. 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 .
. It is tme, as it is today, that the Government in a welfar..: State has
G
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
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. Pursuant to this notice and subject to the conditions
mentioned therein, 12 manufacturers in the field a well as two new E
manufacturers Mis Simplex and Beekay submitted their offers and
_.., they are as follows:
"NAME OF THE FIRMS PRICE QUOTED
FOR 20.3.T AXLE LOAD
F
l.Himmat 84,510
2. Texmaco 83,950
3. Titagarh 84,IOO G
4. BECO Ltd. 83,350
5, Anup 84,980
- 6. Sri Ranga 84,600
H
7. Orient 84,750
146 SUPREME COURT REPORTS [1993) 3 S.C.R.
-~
A 8. Bym Standard 83,000
9. CIMMCO · 84,800
-:'
IO. Mukand 77,666
11. Bharatiya 77,666
B 12. HDC 77,666
13. Simplex 78,100
14. BEEKAY 75,000"
These offers were got technically evaluated by the Research,
C Development and Standard Organisation ('ROSO' for short). There-
after a three-men Tender Committee comprising the officers of the
rank of Joint Secretary designated as Executive Directors in the
Railways Board considered the offers. Since the three big suppliers
namely M/s H.D.C., Mukand and Bharatiya quoted an identical price.
D of Rs. 77 ,666 which was lower than the updated price of the previous
contract, the base date of which was 1,9,91, the Tender Committee
formed an opinion that they have formed la cartel. The offers made by
the two new firms, however, were not accepted. The Tender Commit-
tee made their own recommendations and fixed Rs. 76,000 as a
reasonable price at which counteroffer could be made. Then as already
E 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 ac-
cepted 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
F Tender Committee as well as the opinion expressed by the Financial
Commissioner and the other members of the Board, it is cleit that
Rs. 76,000 per bogie can be the reasonable price and Rs. 67,000 was
not a reasonable price. It is also clear that the post-te,u.der 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 tµe
G 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 suc)1 a stand taken by the Government as a policy,
H is unfair and arbitrary as to warrant interference by the courts.
UNIOl'\ OF INDIA 11• H. D. C. [K. J. REDDY .J.J 147
It must be mentioned at this stage that the validity of the A
conditions in the tender as such are not questioned. Consequently the
povernment had the right to either accept or reject the lowest offer but
that of course, if done on a policy, should he on some rational and
reasonable grounds. In Eurasian Equipmem and C11emica!s Ltd. v.
Statl of West Bengal [1975] 2 SCR 674, this court observed as under:
B
"When the Government is trading with the public,
"the democratic form of Government demands equal-
ity and absence of arbitrariness and discrimination in
such transactions. The activities of the government
have a public element and, therefore, there should be C
fairness and equality. The State need not enter into
any contract with anyone, but if it does so, it must so
fairly without discrimination and without unfair pro-
cedure."
D
Approving these princip~es. a Bench of this Court in Ramana
Dayaram Sltetry v. The lmemational Ailport Authority o.fl11diaai1d Ors.
[1979] 3 SCR 1014, held thus:
"This proposition would hold good in all cases of
dealing by the Government with the public, where the E
interest sought to be protected is a privilege. It must,
therefore, be taken to be the law that where the
Government is dealing with the public, whether by
... way of giving jobs or entering into contracts or issuing
quotas or licences or granting other forms of largess,
the Government cannot act arbitrarily at its sweet will
F
and, like a private individual, deal with any person it
pleases, but its action must be in conformity with
standard or norms which is not arbitrary, irrational or
irrelevant. The power or discretion or the Govern-
ment in the matter of grant of largess including award G
of jobs, contracts, quotas, licences etc. must be con-
fined and structured by rational, relevant and non-
discriminatory standard or norm and if the Govern-
ment departs from such standard or norm in any
particular case or cases, the action of the Government H
148 SUPREME COURT REPORTS [1993) ~ S.C.R.
A . woufd be liable to be struck down. unless it can be
shown by the Government that the departure was not
arbitrary. but was based on some valid principle
which in itself was not irrational. unreasonable or
discriminatory ...
n In Kasturi Lal Lakshmi Redd~' v. State of Jammu and Kasf1111ir and
Anr. L1980] 3 SCR 1338 an order awarding contract by the Govern-
ment to a party was questioned on the ground that it was arbitrary.
ma!ajide and not in public interest and the same aeated monopoly in
favour of that party and that the contract was awarded without
C affording an opportunity to others to compete and the same is not based
on any rational or relevant principle and therefore was viol~Hive of
Article 14 of the Constitution and also the rule of administrative law
--
which inhibits the arbitrary action hy the State. A Bench of this Court
while approving the principles laid down in the above cases further
D observed thus:
"Though ordinarily a private indivi.dual would be
guided by economic considerations of self-gain in any
action taken by him, it is always open to him under the
law to .act contrary to his self-interest or to oblige
E another in entering into a contract or dealing with his
property. But the Government is not free to act as it
likes in granting largess such as :1warding a contractor
selling or leasing out its property. Whatever be its
activity. the Ciovernment is still the Government and
F is, subject to restraints inherent in its position in a
-
democratic soci.ety. The constitutional power con-
terred on the Government cannot be exercised by it
arbitrarily or capriciously or in an unprincipled man-
ner; it has to be exercised for the public good. Every
activity of the Government has a public element in it
G and it must therefore, be informed with reason and
guided by public interest. Every action taken by the
Government must be in public interest; the Govern-
H
ment cannot act arbitrarily and without reason and if
it does. its action would be liable to be invalidated. If
the Government awards a contract of leases out or --
'
~.' UNION OF INDIA"· JI. D. C. [K. J. REDDY,J.J 149
otherwise deals with its property or grants any other A
largess, it would be liahle to be tested for its validity
on the touch-stone of reasonableness and public inter-
est and if it fails to satisfy either test, it would be
unconstitutional and invalid."
... Now coming to the test of reasonableness which pervades the
B
"" constitutional scheme, this Court in several cases particularly with
_..._ reference to Articles 14, 19 and 21 has considered this concept of
reasonableness and has held that the same finds its positive manifes-
tation and expression in the lofty ideal of social and economic justice
which inspires and animates the Directive Principles and that Article c
......_ 14 strikes at arhitrariness in State action. (vide Maneka Gandhi v .
Union of lnd(a, [ 1978) 2 SCR 621 and E.P. Ro)•appa v. Stare of Tamil
Nadu &Anr. [ 1974) 2 SCR 348. After referring to these decisions it was
further held in Kasruri Lal Lakshmi Reddy 's case (supra) as under:
D
"Any action taken by the Government with a view to
giving effect to any one or more of the Directive
Principles would ordinarily, subject to any constitu-
tional or legal inhibitions or other over-riding consid-
erations, qualify for being regarded as reasonable.
while an action which is inconsistent with or runs E
counter to a Directive Principle would incur the
reproach of being unreasonable. So also the concept
of public interest must as far as possible receive its
orientation from the Directive Principles. What ac-
cording to the founding fathers constitutes the plainest F
requirement of public interest is set out in the Direc-
tive Principles and they embody par excellence the
constitutional concept of public interest. If, therefore,
any governmental action is calculated to implement or
give effect to a Directive Principle, it would ordi-
narily. subject to any other overriding considerations, G
be informed with public interest. Where any govern-
· ment action fails to satisfy the test of reasonableness
and public interest discussed 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 H
I
.~
150 SUPREME COURT REPORTS (199~13 S.C.R.
A 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
·B contract or sell or lease out its property for a consid-
eration 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 to do so.
Sucl1 considerations may tliat some Di rec rive Principle
c is sought to be advanced or implememed or that tile
contract or the property is given not v.-itli a view to
eaming revenue but for tlie purpose of carrying out a
welfare sc/1emefor tlie benefit ofa particular group or
secretion ofpeople deserving it or that the person who
has offered a higher consideration is not otherwise fit
D to be given the contract or the property. We have
referred to these considerations only illustratively, for
there may be an infinite variety of considerations
wl1icl1 may lwrn to be taken i11to accoum by ti1e Gorern-
ment in formulating its policies and it is on a total
E e\·aluation of various considerations wllicli have
weighed with the Government in taking a particular
action, that the Court would have to decide whether
the action of the Government is reasonable and in
public interest."
(emphasis supplied)
F
On the question of courts interference in an action taken by the
Government, it was further observed as under:
"But one basic principle which must guide the Court
G in arrh"ing at its determinarion 011 tliis question is tliat
there is always a presumption that tile Governmental
action is reasonable and in public interest and it is for
the party challenging its validity to show that it is
wanting in reasonableness or is not informed with
H public interest. This burden i!! a heavy one and it has
UNION OF INDIA\'. H. D. C. [K. J. REDDYJ.J 151
to be discliarged to the satisfaction of tl1e Court by A
proper and adequate material. Tile Court cannot liglttly
assume that tl1e action taken by tile Goi:emmellt is
unreasonable onritlwut public interest because, as we
said above, there are a large number of policy consid-
erations which must necessarily weigh with the Gov-
ernment in taking action and therefore the Court B
would not strike down government action as invalid
on this ground, unless it is clearly satisfied that the
action is unreasonable or not in public interest. But
where it is so satisfied, it would be the plainest duty of
--- the Court under the Constitution to invalidate the
governmental action. nus is one of the most impor-
tant functions of the Court and also one of the most
essential for preservation of the rule of law."
c
(emphasis supplied)
D
On the question of the power of the Government in granting largess,
it was also observed that:
"The second limitation on the discretion of the Gov-
ernment in grant of largess is in regard to the persons
to whom such largess may be granted. It is now well E
settled as a result of the decision of this Court in
Raman a D. Site tty v. International Ailport Authority of
India & Ors. (supra) that the Government is not free
like an ordinary individual, in selecting the recipients
for its largess and it cannot choose to deal with any F
person it pleases in its absolute and unfettered discre-
tion. The law is now well established that the Govern-
ment need not deal withanyone,butifitdoes so. it must
do so fairly without discrimination a11dwitl10ut unfair
procedure. Where tile Goi:emmem is dealing witlt tlte
public. wlletller by way of git·ing jobs or entering into G
contracts or granting other/arms of largess, tile Gov-
ernment 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 stan-
dard or norm which is not arbitrary, irrational or H
152 '
SlJPREME COURT REPORTS I 1993) 3 S.C.R. ).._
A irrelevant. The governmemaJ action must not be arbi-
tr~ry or capricious, but must be based on some prin-
. ciple 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
B doctrine of ~quality 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
C under which the Government is not always bo.und 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
n misdirected itself. The Conditions of Auction made it
perfec::tly dear that the Government was under no
obligation to accept the highest bid and that no rights
accrued to the bidder merely because his bid happened
to be the highest. Under Condition 10 it was expressly
provided that the acceptance of bid at the time of
E auction was entirely provisional and was subject to
ratification by the competent authority, namely, the
State Government. Therefore, the Government had
the right, for good and sufficient reason, we may say,
not to accept the highest bid but et·en to prefer a
F tenderer other than tile highest bidder. Tile High Court
. -~·ms clearly bi'error in holding that the Governmellt
could not refuse to accept the /Jig/Jest bid except 011 tile
ground ofinadequacy of tile bid. Condition I 0 does not
so restrict tile power of tile Government nor. to accept
tile bid. There is no reason why the power vested in the
G Government to refuse to accept the highest bid should
be confined to inadequacy of bid only. There may be a
variety of good and sufficient reasons, apart from
inadequacy of bids, which may impel the Govemmellt
not to accept the highest bid. 111 fact, to give an anti-
H thetic if lustration, tile very enormity ofa bid may make
UNION OF INDIA v. H. D. C. [K. J. REDDY.J.I 153
ir suspect. Ir may lead tile Government to realise t/Jat A
no bona fide bidder could possibly offer such a bid if lte
meant to do honest business. Again the Government
may change or refuse its policy from time to time and
. we see no reason why change of policy by the Govern-
ment, subsequent to the auction but before its confir-
mation, may not be a sufficient justification for the B
refusal to accept the highest bid. It cannot be dispute
that the Government has the right to change its policy
from time to time, according to the demands of the
time and situation and in the public interest. If the
government has the power to accept or not to accdpt c
the highest bid and· if the Government has also the
power to change its policy from time to time, it must
follow that a change or revision of policy subsequent
to the provisional acceptance of the bid but before its
final acceptance is a sound enough reason for the
D
Government's refusal to accept the highest bid at an
auction. That is precisely what has happened here."
(emphasis supplied)
In State<~( Orissa and Ors. v. Hari11araya1t Jainral and Ors. [1972] 3
SCR 784 it was observed as under: E
"It is for rite Government ro decide w//etl1er tile price
offered in an auction sale is adequate. While accepting
or rejecting a bid, iris merely pe1formed and e.\:ecurive
fj,/llction. Tl1e correctness of its co11clusio11 is not open F
'ro jt.Jicial review. We fail to. see how tile plea of
contrare11tio11 of Art. 19 ( J) (g) or Art. 14 can arise in
these cases. T/Je GO\:ernment 's power to sell the exclu-
sive privileges set out ins. 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 G
possible price. Once .these aspects are recognised,
there appears to be no basis. for contending that the
ownerofthe privileges in question who had offered to
sell them cannot decline to accept the highest bid if he
thinks that the price offered is inadequate. There is no H
154 SUPREME COURT REPORTS 1199313 S.C.R.
concluded contract till the bid is accepted. Before
A
there was a concluded contract. it was open to the
-·-
. bidders to withdraw their bids-see Union ofIndia and
ors. v. Mis Bltimsen Walaiti Ram l I 9701 2 SCR 594.
By merely giving bids, the bidders had not acquired
. any vested rights. The fact that the Government was
B the seller does not change the legal position once its
exclusive right to deal with those privileges is con-
ceded. If the Government is the exclusive owner of
those privileges. reliance on Art. 19 (1) (g) or Art. 14
becomes irrelevant: Citizens cannot have any funda-
c mental right to trade or carry on business in the
properties or rights belonging to the Government. nor
can there be any infringement of Art. 14, if the
Government tries to get the best available price for its
valuable rights."
(emphasis supplied)
D
In G.B. Maflajan and others v. Jalgaon Municipal Co1111cil and
others [ 1991 J 3 SCC 91 it was observed thus:
" ' The reasonableness' in administrative law must,
E therefore, distinguish between proper use and im-
proper abuse of power. Nor is the test the court· s own
standard of 'reasonableness' as it might conceive it in
a given situation."
F In State of Madlwy Prades/1 & ors. r. Nandlal Jainl"af & ors.
( 1987] l SCR 1 it was observed thus:
" We must not forget that in complex economic
matters every decision is necessarily empiric and it is
based on experimentation or what one may call 'trial
G
and error method' and. therefore. its validity cannot
be tested on any rigid a ' priori' considerations or on
the application of any straight-jacket formula. The
court must while adjudging the constitutional validity
of an executive decision relating to economic matters
H grant a certain measure of freedom or play in the
D!!Ol\ OF INDIA''· H. 0. C. [K. J. REDDY.J.) 155
'joints' to the executive. A
xxxxxxxx xxxxxxxx xxxxxxxx
xxxxxxxx xxxxxxxx xxxxxxxx
The Court cannot strike down a policy decision taken
B
by the State Government merely because it feels that
another polky decision would have been fairer or
wiser or more scientific or logical. The Court can
interfere only if the policy decision is patently arbi-
trary, discriminatory or ma/a fide. It is against the
background of these observations and keeping them in C
mind that we must now proceed to deal with the
contention of the petitioners based on Article 14 ol'the
Constitution."
lnlndiu Cement Ltd. and others v. Union ofIndia ai1d others [ 1990] 0
4 SCC 356. a question arose whether the fixation of Rs. 100 per tonne
of cement as the uniform retention price for the entire industry with the
exception of M/s Travancorc Cement Ltd. was rational and reason-
able. This Court held as under:
"It is. therefore, clear that fixation of Rs. 100 per tonne as E
t11c unifonn retention price for the entire industry wit11 tJ1e
solitary exception ofM/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 U1e cement industry· s acceptance of U1e principle
ofa unifonn retention price for the entire industry. the only F
difference bdng in U1e price actually fixed at Rs. 100 per
tonne instead of Rs. 104 per tonne claimed hy the cement
industry. It is obvious U1at ·u1e fixation of Rs. 100 per tonne
being shown to be made on a principle which has not been
faulted. the actual fixation of Rs. 100 instead of Rs. 104 to
G
be received by tile ind11stry is not within tile domain of
per111issible judicial review ({ t/1e principle of a uniform
retention price for the entire industry cannot be faulted.
(emphasis supplied)
The Bench in ihe above case. after referring to the decision of the Constitution H
st:PREME COURT REPORTS [199J) 3 S.C.R.
A Bench in S//ri Siraram Sugar Co. l.Jd. v. Union q{lndia [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. bearing in mind the object of supply
B and equitahle distribution of the commodity at a fair
price in the hest interest of the general public. is a
matter for decision exclusively within the province of
the Central Government and such matters do not
ordinarily attract the power of judicial review. It was
also held that even if some persons are at a disadvan-
c tage and have suffered losses on account of the
formulation and implementation of the government
policy. that is not by itself sufficient ground for
interference with the governmental action. Rejection
of the principle of fixation of price unitwise on actual
D cost basis or each unit was reiterated and it was
. pointed out that such a policy promotes efficiency and
provides and incentive to cut down the cost introduc-
ing an element of healthy competition among the
units.
E xxxxxxxx xxxxxxxx xxxxxxxx
xxxxxxxx xxxxxxxx xxxxxxxx
It is. thaeforc. dear that the principle of fixation of
uniform price for the industry is an ai:ccpted principle
F and this has to be done hy fixing a uniform prkc on the
basis of the cost of a reasonably efficient and eco-
nomic representative cross-section of manufacturing
·units and not with reference tu the cost in relation to
each unit. Ohviously, such a practice is in larger
public interest and also promotes efficiency in the
( .•
-,
industry providing an incentive to the uneconomic
units to achieve efficiency and to reduce their cost."
Regarding the differential treatment given to M/s Travancore
Cement Ltd. this Court held that:
H
UNION OF l~DIA ,., H. D. C. [K. J. REDDY,J.) 157
"The only surviving question for consideration is the A
argument in Civil Appeal No. 2193 of 1972 for a
differential treatment to the appellant, M/s Chettinad
cement Limited, on the anology of M/s Travancore
Cement Ltd., Kottayam. In the counter-affidavit of·
Shri G. Ramanathan, Under Secretary to the Govern-
ment of India, the reason for treating Travancore
Cement Limited differently has been clearly stated. It
has been stated that it is a sub-standard unit with a
capacity of 50,000 tonnes per annum only without any
scope for expansion whik the standard capacity for a
unit is two lakh tonnes per annum; so that this unit is c
not capable of expanding the capacity and it is on the
whole an uncconumk unit deserving a special consid-
eration. No material has been produced by the appel-
lant, M/s Chettinad Cement Corporation Limited. to
show that it is a similar sub-standard unit without any
D
capacity for expansion. so that it too must continue to
be an uneconomic unit like M/s Travancore Cement
Limited, Kuttayam deserving a similar treatment.
The counter affidavit. therefore, shows a rational
basis for classifying M/s Travancore Cement Lim-
ited, Kottayam, differently as a sub-standard and an E
uneconomic u1iit without any scope for improvement
in comparison to other units. This argument also is
untenable.'"
lnR.K. Garg v. Union ofIndia, [ 1981] 4 SCC 675, a Constit~1tion Bem;h f
of this Court observed as under:
"Another rule ofequal importance is that laws relating
to economic actidties should be viewed with greater
latitude than laws touching tile civil rights sue// as
Ji·eedom of speech. religion etc. It has been said by no G
less a person than Holmes, J. that the legislature
should he 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-jai:ket
formula and this is particularly true in case of legisla- H
158 SUPRE'.\1E COt;RT REPORTS ( 1993 J 3 S.C.R.
tion 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 the legislature. The Court should feel more inclined
to give judicial deference to legislative judgment in
the field of economic regulation then in other areas
B where fundamental human rights are involved. No-
where has ihis admonition been more felicitously
expressed than in Morey v. Doud 354 US 457 where
Frankfurter, J. said i·n his inimitable style:
c 'In the utilities, tax and economic regulation cases,
there are good reasons for judicial self-restraint if not
judicial deference to legislative jm.lgment. The legis-
lature after all has the affirmative responsibility the
courts have only the power to destroy. not to reeon-
stmct. When these are a'1ded to the complesity of
I>
economic regulation, the uncertainty, the liability to
error, the hewildering conflict of the experts, and the
numhcr of time;> the judges have been overmled by
cvcnts--sclf-limitation can be seen to be the path of
judieial wisdom and institutional prestige and stabil-
E ity.' ,,
(emphasis supplied)
In Peerles.1· Ge11eral Finance and Jm·es1111e111 Co. Limi1ed and
A1101/1en·. Resen·e Hank of India e1c. 1l91J2) 2 SCC 343. the accent of
F power of the eourts interfering in such economic policy matters was
eonsidt:red and it was held as under:
" The function of the Court is to see that lawful
authority is not abused but not to appropriate to itself
the task entrusted to that authority. It is well settled
G that <l public body invested with statutory powers must
take care not to exceed or ahuse its power. It must keep
within the limits of the authority committed to it. It
must act in good faith and it must act reasonably.
~ourts are not to interfere with economic policy
H which is the function of experts. It is not the function
UNION OF l!\DIA "· H. D. C. (K. J. REDDY..!.) 159
__ ,,.. of the courts to sit in judgment over matters of A
economk policy and it must necessarily be left to the
expert bodies. In such matters even expert can seri-
ously and doubtlessly differ. Courts cannot be ex-
pected to decide them without even the aid of ex-
perts'."
B
_;
It was further observed thus:
"The function of the Court is not to advise in matters
relating to financial and economic policies for which
bodies like Reserve Bank are fully competent. The
Court can only strike some or entire directions issued
c
by the Reserve Bank in case the Court is satisfied that
· the directions were wholly unreasonable rir violative
of any Provisions of the Constitution or any statute. It
would be hazardous and risk)' for the courts to tread an
unknown path and should leave such task to the expert D
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 E
of the largess from the point or 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 Restric- F
tive 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 restricli ve
trade practices. The Monopolies Inquiry Commission in its report
stated that: G
" 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 that
they are able to control the market by regulating prices H
160 SUPRD1E COl.lRT REPORTS [199313 S.CR.
A or output or eliminating competition. Another is the
adoption hy some producers and distrihutors, even
though they do not enjoy such a dominant position. of
practices which restrain competition and thcrehy de-
prive the conu11unity of the beneficent effects of the
rivalry between producers and producers, and dis-
B tributors and distributors to give the best service. It is
needless to say that such practices must inevitably
impede the best utilisation of the nation's means of
production Economic power may also manifest itself
in obtaining control of large areas of economic activ-
c ity by a few industrialists by diverse means. Apart
from affecting the economy of the country, this nften
results in the creation of industrial empires, tending to
cast their shadows over political democracy and so-
cial values."
D
In l T.S.A. under the Sherman /\ct of 1890 . c~cry contrnct or
com hi nation in the form of trust or otherwise or cons pi racy in restraint
of trauc or conum:rce is declared to be illegal. By that at every person
who monopolised or attempted to monopolise or combined or con-
spired with any other person or persons to monopolise any part of the
E trade or commerce was guilty of mis-uemeanour.
Regarding the constitutionality of the said /\ct. a passage in
America11 jurisprude11ce 2d, vol. 54 pages 668-669 reads thus:
" 2. Constitutionality.
F
The Sherman Acr ( 15 USC SS 1-7) is a constitutional
exercise of the commerce power. lts general language
uoes not render it invalid as an unconstitutional del-
egation of legislative power to the courts or as an
unconstitutionally vague criminal statue. Its applica-
{'
~· tion to a monopolistic association of newspaper pub-
lisher does not abridge freedom of the press; nor does
its application to the continuance, after its enactment.
of a contract made previously subject it to attack as ex
post facto legislation."
H
UNION OF INDIA,.. H. 0. C. [K. J. REDDY.J.J 161
In England, the Competition Act, 1980 con,trols anti-competitive A
practices and if a person in the course of his business pursues a course
of conduct which has or is intended to have or it likely to have the effect
of restricting, distorting or preventing competition in connection with
the production, supply or acquisition of goods is deemed to engage in
anti-competition practices, which is illegal.
B
Therefore, the avowed policy of the Government particularly
from the point 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 whil.e C
- 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 0
examine the action taken by the Railways in the matter of fixation of
the price and distribution of quantites 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 hogies. The offers made by the tenders were got E
technically evaluated by the RDSO and thereafter they were examined
by the Tender 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 ROSO, a wing of the Railways and the same
is based on the molten capacity of the manufacturers and other relevant F
factors. After fixing the reasonable price, the quantity distribution can
be determined based on the assessed actual capacity of the manufac-
turers, best performance, outstanding orders to be executed and on the
average of previous four years' performance. It is not in dispute that
this formula was evolved in_ 1983. Later, to avoid certain inequalities
and better utilisation of the installed capacity by larger units and G
uneconomic ordered quantity and under utilisation of capacity by
smaller units, it was felt that in the interest of the economy, an equitable
distribution has to be effected. A perusal of the Tender Committee's
recommendations, the endorsements made by the members of the
Railway Board an~ the views expressed by the competent authority H
162 SCPRE:'\1E COL'RT REPORTS [I 993 J 3 S.C.R.
A would show that for the year in question they want to bring about some
changes in the policy of distribution pending a permanent policy being
evolved. The Tender Committee in the first instance ex.amined the
prices quoted.by the tendcrers. The Conunittee decided that while
placing orders, only the ROSO permitted deviations will be allowed
and the suppliers have to adhere to rest of the specifications as was
8 being done in the earlier years. Then coming to the prices, the Tender
Committee noted that the three big manufacturers quoted indentical
price in terms hy forming a cartel among themselves. Having applied
the price variation formula, the updated price was fixed at Rs. 79,305
as on I. 9. 91. However, taking into consideration the two concessions
c in respect or import duty and thl.' freight equalisation the Committee
ultimately reconunended the price of Rs. 76.000 The Tender Commit-
tee also noted that this price is very near to the lowest among the
updated price. Regarding the distribution of quantities the Tender
Conunittee recommended that the same may be distributed among the
various manufacturers as shown in tht: anncxurc to their recommenda-
D
tions. In rcconunending such distribution to various manufacturers the
Tender Commitlee has taken into consideration the fact that the four
wagon builders namely M/s H.D.C. Texmaco. Cimmco and Burn
should be given weightage. The Tender Conunittce ultimately recom-
mended that a counter-offer at the price of Rs. 76,000 for 20. 3 T bogies
E can be made and the quantities can be distributed as indicated in the
anncxure. This was done on 4. 2. 92 and then the post- tender
correspondence was there whereby two of the three big manufacturers
· offered to reduce their pricl.:! 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
F
be continued manufacturing these ,bogies in small quantities as at
present or to permit a small nmnberof manufacturers to expand their
production at the cost of other i;w 1 , ... s and that the policy which has
been followed by the Railwa)'~ "·'' iar is to encourage a large number
of parties to manufacture the bogies, \vith the idea of generating
G competition as also by way of encouraging small scale industries. He,
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 manufac-
H turers have formed a cartel und they have given offer to reduce their
price if negotiations are held and their intention apparently is to get a
---
Ul\ION OF INDIA,.. H. D. <·.1K. J. RELJDY ..1.J 163
larger share on the basis of such negotiated price which would A
eventually nullify the competion from the other manufacturers and
subse4uently to monopolistic price situation. Having stated so he
recommended that the wagon builders and other smaller manufactur-
ers must he given larger quantities and that the three big manufacturers
should be given the balance. In the last paragraph, the Financial
Commissioner noted thus: B
"Now, due to the new economic policy, the structural
changes are in a flux and as a monopoly buyer it is
incumbeilton the part of the Railway not to precipitate
any crisis by resorting to negotiation on the basis of c
· HDCs letter at SN 26 but treat carefully and protect
smaller firms from being gobbled up. In other words,
for short-term gains, we may be sacrificing long-term
healthy competition. I, therefore, advocate that this
post-tender letter may be ignored as the prices quoted
D
by firms are in the close range or prices updated by
Tender Committee for counter-offer."
With these notings, the file went to the Railway Minister and in his
order, he noted that the three big manufacturers have formed a cartel
and thnt under the circumstances all the three of them may be offered E
a price lower by .Rs. l l.000 and the quantities also should be suitably
adjusted so that the cartel is broken and he ordered 1795, 2376 and 2500
numberofbogies to Mis H.D.C., Mukand and Bharatiya respectively.
The Minister further observed that since the present formula suffers
from serious blemishes as pointed out by the Financial Commissioner, F
a judicious distribution of order is called for between the other
suppliers and that some of them are sick units and owe a lot of money
to the nationalised banks and their cases are pending before BIFR. and
that it would be in the national interest to give them sufficient order so
that they are able to rehabilitate themselves and repay the loans. In this
view of the matter, he ordered re-distribution of the balance quantities G
as follows:
"Bum 500
Cimmco 1200
H
Texmaco 1200
164 Sl."PREME COURT REPORTS [199313 S.C.R.
A Sri Ranga
An up
Orient
TSL
1560
IB6
1050
1400
..
H llimmat 1150
BECO 1600"
The Minister also orde_rcd that straightaway 30'k option should be
exercised. He further noted that as a result of this policy. the Railways
c would be effecting a saving of about Rs. 11 crorcs. Then the file with
· this order went back to the Member (Mechanical) and others for bdng
implemented. He, however. noted that the Minister for Railways may
consider whether the lower price could be counter offered to all the
companies.The Finandal Commissioner again noted that dual pricing
would bl: in the national interest and finally the Minister having noted
D these endorsements of the Member (Mechanical) as well as the
Financial Commissioner made an endorsement that if some arc
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
E vision of long term Railway interest and not short-terms gains and
finally agreed with the reconm1endations of the Financial commis-
sioners and also the recommendation of the Tender Committee and
directed the implementation of the same without further delay. The
above documents would shmv that a particular policy has heen adopted
by the Government. though it resulted in a change as comparl.!d to the
F previous one. As held by the courts, change of policy by itself docs not
affect the pursuant action provided it is rational and reasonahk.
However. the submission is that the decision taken pursuant to
. this policy in the matter of fixatjon of price and distribution of
G quantities is based on wrong grounds and suffers from the vice of
unreasonableness. S/Shri Nariman. Venugopal and Shanti Bhushan,
learned counscl appearing for Mis Mukand, H.D.C. and Bharatiya
respectively submitted in this context that the grounds namely that the
three big manufacturers formed a cartel and that the post-tender price
H offerecJ by them was predatory are unfounded and that dual pricing and
the ultimate allotnient of the quantities in a punitive manner arc based
UNION OF INDIA v. H. D. C. [K. J. REDDY,J.] 165
on a wrong premise a·nd the final decision arrived at is consequently A
......_ unreasonable and arbitrary. The further submission is that these
manufacturers have a legitimate expectation of being treated in certain
ways by the administrative authorities on the basis of practice and
policy of the previous years and such a <,1ecision, which is punitive and
which defeats such legitimate expectation and which is taken without
affording an opportunity to these manufacturers to explain, is violative B'
of principles 0f natural justice.
First we shall consider the submissions regarding the formation
of cartel by these big manufacturers. The word "Cartel" has a particu-
lar meaning with reference to monopolistic control o( the market. In C
collins English Dictionary, the meaning of the word "Cartel" is given
as under:
" cartel - 1 . also called: trust, a collusive international
association of independent enterprises formed to mo- D
nopolize production and distribution of a product or
service, control prices etc.- - - - - "
In Webster Comprehensive Dictiona1) International
1,
Edition, the meaning of the word "Cartel" is given
thus: 1
·
E
"cartel--- - - - -.,- - - xx- - - -
3. An international combination of independent enter-
prises in the same branch of production, aiming at a F
monopolistic control of the market by means of
weaking or eliminating competition.- - -xx--"
In Chambers' English Dictionary the word "Cartel" is defined thus:
G
"Cartel-A combination of firms for certain purposes
especially to keep up prices and kill competition---
-xxx--------
In Black's Law Dictionary, fifth edition the meaning .
of the word "Cartel" is given thus: H
166 SUPREME COURT REPORTS (1993) 3 S.C.R.
A "Cartel-A combination of producers of any product
joined together to control its production, sale, and
price, and to obtain a monopoly in a_ny particular
industry or commodity. Also, an association by agree-
ment of companies or sections of companies having
common interests, designeQ. to- prevent extrem~ or
B unfair competition and allocate markets, and to pro-
mote the interchange of knowledge resulting from
scientific and technical research, exchange of pa~nt
rights, and standardization of products."
c In American Jurisprudence 2d Vol. S4 page· 677 it is mentioned
thus:
"A cartel is an association by agreement of companies
or sections· of companies having common interests,
D designed to prevent extreme or unfair competition and
to allocate markets, and perhaps also to exchange
scientific or techinical know ledge or patent rights and
to standardize products, with competition regulated
but not eliminated by substituting computational in
quality, efficiency, and service .for price-c.utting. An
E international cartel arrangement providing for a world-
wide 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
F world trade.territories among themselves; (2) "fix
prices on products of one sold in the territory of the
others; (3) co-operate to protect each other's markets
arid eliminate outside competition; and (4) participate
in cartels to restrict imports_ to and exports from the
United States.''
lnA Dfctionary ojModern Legal Usage by Bryian A. Gerner, it is
noted thus:
·H
"~artelize=to organize into a carteL See - IZE. Yet
cartel has three quite different meanings; (1) " an
-
UNION OF INDIA v. H. 0. C. [K. J. REDDY,J.] 167
agreement between hostile nations"; (2) "an A
anticompetitive combination usu. that fixes commer-
cial prices"; and (3) "a combination of political groups
that work toward common goals." Modem usage
favours sense (2)."
B
The cartel therefore is an association of producers who by
agreement among themselves attempt to control production, sale and
prices of the product to obtain a monopoly in any particular industry
or commodity. Analysing the object of formation of a cartel in other
words, it amounts to an unfair trade practice which is not in the public
• interest. The intention to acquire monopoly power can be spelt out C
from formation of such a cartel by some of the producers. However,
the determination whether such 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. Dealing with the provi-
0
sions of Sherman Anti-Trust Act, inNatirmal Electrical Contractors As
sbciatio11s, l11c. et al. v. National Constructors Association et al Federal
Reporter 2d Series, 678 page 492 it was observed as under:
"We know of no better statement of the rule than that
of this court in United States v. Society ofInd. Gasoline E
Marketers, 624 F. 2d 461. 465 (4th Cir. 1979) cert.
den. 101 S.Ct. 859, 449, U.S. 1078, 66 L.Ed. 2d 801,
. where stated: "Since in a price-fixing conspiracy the
conduct is illegal per se further inquiry on the issues
of intent or the anti-competitive effect is not required. F
The mere existence of a price-fixing agreement estab-
lishes the defendants' illegal purpose since the aim
and result of every price-fixing agreement, if effec-
tive, is the elimination of one form of competition."
It was also observed that: G
"The critical analysis in determining whether a par-
ticular activity constitutes a p~r se violation is whether
the activity on its face seems to be such that it would
always or. almost always restrict competition and
H
168 SUPREME COURT REPORTS [1993) 3 S.C.R.
A decrease output in.stead of being designed to increase
economic efficiency and make the market more rather
than less competitive."
Matsushita Electric Industrial Co., Ltd. et al v. Z.enith Radio
Corporation et al 89 L.Ed. 2d 538 is a case where American manufac-
B
turers ~f 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
C 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
D further proceeding. On a certiorari, the United States Supreme Court
while considering the standards supplied by the Court of Appeals in
evaluating the summary judgment, observed thus:
. "To survive petitioners motion for sunimary judg-
ment respondents must establish that there is a genu-
E ine ~ssue of material
I
(475 us 586)
~
fact as
to whether petitioners entered into an illegal con-
spiracy that caused respondents to suffer a cognizable
injury."
F
It was further observed that:
"A predatory pricing conspiracy is by nature specula-
tive. Any agreement to price below the competitive level
requires the conspirators to forgo profits that free
G. competition \'vould offer them. The forgone profits
may be considered an investment in the future. For the
investment "to be rational
(4 7 5 US 589) the conspirators must have a reasonable
expectations of recovering, in the form of later mo-
H nopoly profits, more than the losses suffered.
UNION OF INDIA v. H. D. C. [K. J. REDDYJJ 169
xxxxxxxx xxxxxxxx xxxxxxxxx A
xxxxxxxx .XX.XXXXXX xxxxxxxx
The alleged conspiracy's failure to achieve its ends in
the two decades of its asserted operation is strong
evidence that the conspiracy does not in fact exist.
B
....... Since the losses in s~ch a conspiracy accrue before the
gains, they must be "repaid" with interest. And be-
cause the alleged losses have accrued ovetthe course
of two decades, the conspirators could well require a
correspondingly long time to recoup. Maintiaining
supra competitive prices turn depends on the contin- c
ued cooperation of the conspirators, on the inability of
other would-be competitors to enter the market, and
not incidentally on the conspirator~ ability to escape
antitrust liability for their minimum price-fixing cartel.
Each ofthese factors weighs more heavily as the time
D
needed to recoup lossed grows. If the losses have been
substantial - as would likely be necessary
(475 us 593)
in order to drive out the competition- petitioners E
would most likely have to sustain their cartel for
years simply to break even."
(emphasis supplied)
In this context, one of the submissions is that the price of Rs.
67 ,000 offered by these manufacturers during the posHender stage F
was not predatory and that the view taken by the authorities that such
an offer of lower price was predatory one confirming the formation of
a cartel, is also unwarranted. In Matsushita's case (supra) it was
observed that predatory pricing conspiracies are by nature speculative
and that the agreement to price below the competition level requires G
the conspirators to forgo profits that free competition would offer
them. It was also held therein as uhder:
"To survive a motion for a swnmary judgment, a
plainti(fseeking damages for a violationofS 1 of the
H
Sherman Act must present evidence "that tends to
170 SUPREME COURT REPORTS [1993] 3 S.C.R.
A exclude the possibility'' that the alleged conspirators
acted independently. Thus, respondellts here must
show that the inference ofa conspiracy is reasonable in
-
light of the competing inferences ofindependem action
or collusive action that could not have harmed respon-
dents."
B (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.
c
In \Vebster ComprehensA·e Dictionary, International Edition.
The meaning of the word "Predatory" is given as under:
"predatory-1. characterized by or undertaken for plun-
D 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, "preda-
tory" is defined thus:
E
"Predatory - preying on other animals. The word is
applied figuratively in the phrase from antitrust law,
predatory pricing. The forms predaceous, predatorial,
and predative are needless variants. The spelling
predacious has undergone differentiation and means"
F
devouring; rapacious."
In col/ins Englisl1 ·'Dictio1iary', "Predatory" is defined thus:
"predatory- I. another word for predacious (sense 1 )
G • 2. of, involving, or.characterized by plundering, rob-
bing, etc ............. xxxx .................... "
'·
In Blacks s Law Dictionary', "Predatory intent" is defined as under:
"Predatory intent. "predatory intent," in purview of
Robinson-patmen Act, means that alleged prjce dis-
UNION OF INDIA v. H. D. C. [K. J. REDDY,J.) 171
criminator must have at least sacrificed present rev- A
enues for purpose of driving competitor out of market
with hope of recouping losses through subsequent
higher prices. International Air Industries, Inc. v.
American Excelsior Co., C.A. Tex. 517 F. 2d 714,
723."
B
In The oxford English Dictionary• Vol. VIII, "t'redatory" is de-
fined thus"
"Predatory - 1. Of, pertaining to, characterized by, or
consisting in plundering, pillaging, or robbery-xx - C
- - - - - - - - 2. Addicted to, or living by,
plunder; plundering, marauding, thieving, in modem
use sometimes applied to the criminal classes of great
cities.- - -xx- - - - 3. Destructive, consum-
ing, wasteful, deleterious,--xx----4. Of an D
animal; That preys upon otlier animals; that is a beast,
bird, or other creature of prey; carnivorous. Also, of
its organs of capture. - - - - - x x - - - - -
We ha.ve noticed that monopoly is the power to control prices or E
exclude competition from any part of the trade or commerce a:6\ong the
produce~s. The price fixation .is one of the essential f~~~rs. In
American jurisprudence 2d Volume 54, a passage at page 695 reads
thus:
"The Sherman Act does not out law price uniformity. An
acciden.tal or incidental price uniformity, or even pure
conscious price parallelism, is not itself unlawful.
· Moreover, a competitor's sole decision to follow price
leadership is not a violation of 15 USC S 1.
G
On the other hand, a price- fixing conspiracy does not
necessarily. involve an express agreement, oral or
written. It is sufficient that a concert of action is
contemplated and that the defendants confonn to the
arrangement. The fixing of prices by one member of H
172 SUPREME COURT REPORTS [1993) 3 S.C.R.
A a group pursuant to express d<!:legation, acquiescence,
orunderstanding 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)
B
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{;.onspiracy, the
formation of. a cartel among the producers who offered such lower
C price can not readily be inferred. In the instant case, the fact that two
of the three big manufacturers entered into post-tender correspon-
dence and also offered a lower price of Rs. 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
D 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 Rs.
67 ,000. Therefore no conclusion can be reached definitely that offer
E of the price of Rs. 67 ,000 by itself was predatory an<!_ the manufacturers
who offered such a price consequently formed a cartel.
Therefore, whether in a given case, there was formation of cartel
by some of the manufacturers which amounts to an unfair trade
a -
F practice, depends upon the available evidence and the surrounding
circumstances. In the instant case, initially the Tender Committee
formed the opinion that the three big manufacturers formed a cartel on
the groun_? that the price initially quoted by them was identical and was
only a cartel price. This, in our view, was only a suspicion which of
course got strengthened by post-tender attitude of the said manufactur-
G ers who quoted a much lesser price. As noticed above it can not
positively be concluded on the basis of these two circumstances alone.
In the past these three big manufacturers also offered their own
quotations and th.ey were allotted quantities on the basis of the existing
practice. However a mere quotation of identical price and an offer of
H further reduction by themselves would not entitle them automatically
UNION OF INDIA v. H. D. C. [K. J. REDDY,J.] 173
___;:,- to corner the entire market by way of monopoly since the final A
allotment of quantities vested in the authorities who in their discretion
can distribute the same to all the manufacturers including ~ese three
big manufacturers on certain basis. No doubt there was an apprehen-
sion that if such predatory price has to be accepted the smaller
manufacturers will not be in a position to compete and may result in
elimination of free competition. But there again the authorities re- B
served a right w reject such lower price. Under these circumstances
though the attitude of these three big manufacturers gave rise to a
suspicion that they formed a cartel but the.re is not enough of material
to conclude that in fact there was such formation of a cartel. However,
such an opinion entertained by the concerned authorities including the c
Minister. was not malicious nor was actuated by any extraneous
considerations. They entertained a reasonable suspicion based on the
- record and other surrounding circumstances and only acted in a
bonpfide manner in taking the stand that the three big manufacturers
formed a cartel. ·
D
S/Shri Nariman, Venugopal and Shanti Bhushan, learnedcounsel
appearing for Mis Mukand, H.D:C. and Bha.ratiya respectively con-
tended that the Railways were bound to follow the rules and standard~
pertaining to the tendersystem and on the basis of these provisions and
the course of conduct followed by the Railways in the matter of E
·fixation of price and allotment of q~ota 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
guararnted under Article 14.
In Food Corporation of India v. Mis Kamdllenu 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 G
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
I
powers only to use them for public good. This imposes H
174 SUPREME COURT REPORTS (1993) 3 S.C.R.
A the duty to act fairly and to adopt a procedure. which
is 'fairplay in action'. Due observance of this obliga:-
tion as a part of good administration raises a reason-
able or ligitimate expectation in every citizen to be
treated fairly in his interaction with the state and its
instrumentalities, with this element forming a neces-
B sary component of the decision making process in all
State actions. To satisfy this requirement of non-
arbitrariness in a State action, it is therefore, neces-
sary to consider and give due weight to the reasonable
or legitimate expectations of the persons likely to be
c affected by the decision or else that unfairness in the
exercise of the power may amount to an abuse or
excess of power apart from affecting the bona/ides of
the decision in a given case. The decision so made
would be exposed to challenge on the ground of
arbitrariness. Rule of law does not completely elimi-
D
nate discretion in the exercise of power, as ..it is
unrealistic, but provides for control of its exercise by
judicial review.
The,.. mere reasonable or legitimate expectation of a
E citizen, in such a situation, may not by itselfbe a distinct
enforceable right, but failure to consider and give due
weight to it may render the decision arbitrary, and this
is flow the requirement of due consideration of a
legitimate e.\pectation forms part of tile principle of
non-arbitrariness, a necessary concomitant ofihe rule
F
of law. Every legitimate expectation is a relevant
factor requiring due consideration in a fair decision
making process. Whether the expectation of the claim-
ant is reasonable or Legitimate in· the context is a
question of fact in each case. Whenever tile question
G arises, it [3,,nJ be determined not according to the
claimant's pe>-ception but in larger public interest
wherein other niore important co.!i~tperatio11s. may
H
outweigh what w'cmld otherwise'lrave been the legiti-
mate expectation o~the claimant. A bona fide decision
of the public authority reached in this manner would -
UNION OF INDIA v. H. D. C. [K. J. REDDY,J.] 175
satisfy the requirement of non-arbitrariness and \".'ith- A
stand judicial scrutiny. The doctrine of legitimate
expectation gets assimilated in the rule of law and
operates in our legal system in this manner and to this
extent."
(emphasis supplied) B
In Navjyoti coo-Group Housing Society etc. v. Union of India &
Others ( 1992) 2 SCALE 548, justice G.N. Ray speaking for the Bench
observed as under:
c
"In the afort~said facts, the Group Housing Societies
were entitled to 'legitimate expectation' of following
consistent past practice in the matter of aHotment,
even though they may not have any legal right in
private law to.receive such treatment. The existence
of 'legitimate expectation' may have a number of D
different consequences and one of such consequences
is that the authority ought not to act to defeat the
'legiti1nate expectation' without some overriding rea-
son of public policy to justify its doing so. In a case of
'legitim~te expectation' if the authority proposes to
E
defeat a person's 'legitimate expectation' it should
afford him an oppo~nity to make representations in
- the matter. In this connection reference may be made
to the discussions on 'legitimate expectation' at page
. 151 of volume l d) of Halsbury's Laws of E11gland-
F
Fourth Edition (Re-issue). We may also refer to a
-- decision of the House of Lords in Council (f Civil
Sen-ice Union and others versus Minister for Civil
Sen-ice 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 ~how that a decision of the public authority
G
affected him of some benefit or advantage w//icfl in the
'past he had been permiHed to enjoy and v.·f1icT1 lie
-- legitimately e.\pected to be permitted to collli11ue to
e1~oy either until he ~ 1 as given reasons for withdrawal
and the opportunity to comment on suclz reasons. H
176 SUPREME COURT REPORTS [1993) 3 S.C.R.
A It may be i11dicated here that the doctrine of'legitimate
expectation' imposes in essence a duty 011 public au-
thority to act fairly by taking into consideration all
relevant factors relating to such 'legitimate expecta-
tion'. Witlzi11 the conspectus of fair dealing in case of
'legitimate expectation', the reasonable 9pportunities
B to make representation by the parties likely to be
affected by any change of consistent passed policy,
come in. We have not been shown any compelling
reasons taken into. consideration by the Central Gov-
ernment to make a departure from the existing policy
c of allotment with reference to seniority in Registra-
tion by introducing a new guideline."
(emphasis supplied)
Relying on these decisions, ti was contended that the decision of
D the Railways in fixing the price and in allotment of the quantities is
arbitrary and unreasonable affecting the. right to such legitimate
expectation.
To appreciate these contentions, it becomes necessary to refer to
some of the rules governing these contracts and followed by the
E Railways, before we examine the impact of the doctrim; of 'legitimate
expectation'. The Rules prescribed by the Minister for Railways for
entering into contracts lay down certain _norms and contains guide-
lines. The rules provide for constitution of Tender Committee and the
procedur~ to be followed in the matter of inviting tenders. They also
F provide for negotiations but lays down that selection of contracts by
negotiations is an exception rather than a rule and can be resorted to
only under certain circumstances. Regarding splitting of tendered
quantity in more than one form, we find some guidelines in Annexure
50 which reads as und~r:
G "3.0. Where warranted, the tendered quantity may be
split and tender decided in favourofoneormore firms
on merits of each case, in consultation with Associate
Finance and with the approval of the authority col!lpe- --1-
tent to accept the tender having due regard to the
H following factors:-
UNION OF INDIA, v. H. D. C. [K. J. REDDY,J .] 177
(i) Vital/Critical nature of the items; A
.. (ii) Quantity to be procured;
(iii) Delivery requirements;
(iv) Capacity of the firms in the zone of consideration;
·n
(v) Past performance of firms.
xxxxxxx . xxxxxxxx xxxxxxxxx
5.0 Splitting should not be done merely with a view to
utilising developed capacity of the different sources
. but should be for. valid reasons to be recorded in C
writing for splitting the tendered quantity.".
Annexure 213 contains the Railway l}oard letter dated 19.4.90
addressed to General Manalers, AU Indian Railways and others
dealing with the subject of Non-acceptance of late/delayed/post/ D
Tender·offers. The relevant portion reads thus:
"2. Instances have come to notke of the Board where
on a strict application of the above instructions even
late Tenders submitted by Public Sector firms for
E
highly specialised equipments have been rejected.
3. The matter, ha·s 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, F
notwithstanding the general ban, it will be open to the
Railways to seek the Board's approval for the consid-
eration of such Tenders, since this should be a very
exceptional situation, such cases should be recom-
mended for consideration of the Board with the per-
G
sonal approval of the General Manager, duty' con-
curred in by the F.A. & C.A.O.
4. The Railways should not enter into any di;llogue
with the agency submitting a delayed Tender ~ithout
obtaining Board's prior clearance". H
178 SUPREME COURT REPORTS [1993) 3 S.C.R.
A Now coming to the notice inviting tender in the instant case, we
have alrea!ly noted that the price quoted is subject to price variation·
clause and the Railways reserved a right to accept the lowest price or
accept the whole or any part of the tender of portion of the quantity
offered. The notice however, mentioned that the tenderer is at liberty
to tender for the whole or any portion or to state in the tender that the
B rate quoted shall apply only if the entire quantity is taken from him.
From these provisions it becomes clear that th<;! ·tenderer can not expect
that his entire tender should be accepted in respect of the quantity and
that the Railways have.a right to accept the tender as a whole or a part
ofitorportionofthe quantity offered. Itis not in dispute that in the past
c also there were many instances where the Railways as per the
procedure followed, arrived at decisions in respect of both price and
quantity for good and justifiable reasons. In the year 1991 the quanti-
ties of Mis H.D.C. and Bharatiya were in fact reduce ·from the
allocations made by the Tender Committee which made its rec·ommen-
dations on the basis of certain data. It has to be noted that the Tender
D
Committee is not a statutory iluthority and.its proposals are recommen-
dat~ry in nature and have to be considered 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 aspects from the
E point of view of public interest. Therefore it is evident that there is no
legally fixed procedure regarding fixation of price and particularly
regarding allotment giving scope to a legitimate expectation. How-
ever, with this factui;e backgrourtd, we shall consider the contention
regarding 'legitimate expectation'.
F
In Halsbury's Laws ofEngland, Fourth Edition, Volume l (1) 151
a passage explaining the scope of .. legitimate expectations" runs thus:
"81. Legitimate expectations. A person may have a.
legitimate expectation of being treated in a certain
G way by an administrative authority even though he has
no legal right in private law to receive such treatment.
The expectation may arise either from a representa-
tion or promise made by the authority, including an.
implied representation, or from consistent past prac-
H tice.
UNION OF INDIA v. H. D. C. [K. J. REDDY,J.] 179
The existence of a legitimate expectation may have a 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 expectr;uion 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 legiti-
mate expectations, it must afford him an opportunity
B
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 c
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
- a
than a mere applicant for grant."
(emphasis supplied)
D
..
.
W ~find that the conceptofligitimate expectation first
st-.!pped into the English Law in Schmidt v. Secretal)'
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 limhed period had. E
a legitimate expe~tation of being allowed to stay for
the permitted time and if that permission was revoked
before the time expires, that alien ought to be given an
opportunity of making representations. Thereafter the
concept has been considered in a number of cases. In
F
A.G. ofHong Kongv. Ng Yeun shiu, [1983] 2 A.C. 629
Lord Fraser said that "the pnnciple that public authoF-
ity is bound by its undertakings as to the procedure it
will follow, provided they do not conflict with its duty,
is applicable to the undertaking given by the govern-
ment of Hong Kong to the respondent... ...... that each G
case would be considered on its merits."
In Council of Civil Service Unions and others v. Minister for the
~ Civil Service ( 1984) Vol. 3 All E.R. 359, a question arose whether the
decision ofthe Minister withdrawing the right to trade union member- H
180 SUPREME COURT REPORTS [1993] 3 S.C.R.
A ship without consulting the staff which according to the appellant was
his legitimate expectation arising from the existence of a regular
practice of consultation was valid. It was contended that the Minister
had a duty to consult th.e staff as per the existing practice and that
though the employee did not have a legal right, he had a legitimate
expectation that the eJtjsting practice would be followed. On behalf of
B the Minister on the basis of the evidence produced, it was contended
that the decision not to consult was taken for reasons of national
security. The Court hel~ as under:
"An aggrieved person was entitled to invoke judicial
c review if he showed that a decision of a public
authority affected him by depriving him of some .
benefit or advantage which in the ~ast he had been
permitted to enjoy and which he could legitimately
D
e~ect to be permitted to continue to enjoy either until
he was given reasons for its withdrawal and the
opportunity to comment on those re.asons or because
-
he had received an assurance that it would not be
-
withdrawn before he had been given the opportunity
of making representations against the withdrawal.
The appellants legitimate expectation arising from the
E existence of a regular practice of consultation appel-
lants could reasonably expect to continue gave rise to
an implied limitation on the Minister's exercise of the
power contained in Art. 4 of the 1982 order, namely
an obligation to act fairly by consulting the GCHQ
staff before withdrawing the benefit of trade union
F
membership.
xxxxxxxx xxxxxxx XX:xxxxxx
. Once the Minister produced evidence that' her deci-
sion not to consult the staff before withdrawing the
G right to trade union membership was taken for reasons.
of national security, that overrode a:ny 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.
H xxxxxxxx xxxxxxxx xxxxxxxx
UNION OF INDIA 1•. H. D. C. [K. J. REDDY.J.) 18 l
Administrative action is subject to control by judicial A
review under three heads: (1) illegality, wl!ere tlze
decision-making authority has been guilty of an error
of law, e g bypU1porting to exercise apmver it does not
possess: (2) irrationality, wl!ere the decision-making
autl!ority has acted so unreasonably that 110 reason-
able authority would have made the decision: (3) B
- procedural impropriety, vd1ere the decision-making
authority has failed in its duty to act fairly."
(emphasis supplied)
Therefore the claim based on the principle of ligitimate expectation C
can be sustained and the decision resulting in denial of such expecta-
tion can be questioned provided the same is found to be unfair,
unreasonable, arbitrary and violative of principles of natural justice.
(vide Food Co17Joration of India's case and Naijyoti Coo-Group
Housing Society's case (supra).
D
The learned counsel for these three big manufacturers, however,
relied on various decision in Amaijit Singlz Alzluv..·alia v. Tiie State of
Punjab & Ors. [ 1975] 3 SCR 82, Ramana Dayaram S/Jetty 's case and
Peerless General Finance and /m·estment Co. Limited's case (supra)
· and contended that failure to follow the existing procedure resulting in E
denial of a right directly arising out of ligitimate expectation is per se
arbitrary and unreasonable and therefore illegal and consequently
violative of Article 14 of the constitution.
Of late the doctrine oflegitimate expectation is being pressed into
service in many cases particularly in contractual sphere while canvass- F
ing the implications underlying the administrative law. Since we have
not come across any pronouncement of this court on this subject
explaining the meaning and scope of th~ doctrine of legitimate
expectation, we would like to examine the same a little more elabo-
ratclY,. at this stage. Who is the expectant and what is the nature of thL· ~.
expectaion? When does such an expectation become a legitimall' 1 Hl~
and what is the foundation for the same? What are the duties (if the
administrative authorities while taking a decision in cases attracting
the doctrine of legitimate expectation.
.Time is a three-fold present: the present as we experience it, the H
182 SUPREME COURT REPORTS [1993] 3 S.C.R.
A past as a present memory and future as a present expectation. For legal
purposes, the expectation can not be the same as anticipation. It is
different from a wish, a desire or a hope nor can it amount to a claim
-
or demand on the ground of a right. However earnest and sincere a
wish. a desire or a hope may be and however confidently one may look
to them to be fulfilled, they by themselves can not amount to an
B assertable expectation and a mere disappointment does not attract legal
consequences. A pious hope even leading to a moral obligation can not
amount to a legitimate exnectation. The legitimacy of an expectation
c~n be inferred only if it is founded on the sanction of law or custom
or 3.Jl'established procedur~ followed in regular and natural sequence.
c Again itjs distinguishable from a genuine expectation. Such expecta-
tion should be justifiably legitimate 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.
It has to be noticed that the concept of legitimate expectation in
D administrative law has now, undoubtedly, gained sufficient impor-
tance. It is stated that "Legitimate expectation" is the latest recruit to
a long list of concepts fashioned by the courts for the review of
administrative action and this creation takes its place beside such
principles as the rules of natural justice, unreasonableness, the fidu-
E ciary duty of local authorities and "in future, perhaps, the principle of
proportionality." A passage in Administra(ive Law, Sixth edition by
H.W.R. Wade page 424 reads thus:
"These are revealing decisions. They show that tile
courts now expect government departments to honour
their published statements or else to treat tile citizen
with tile fullest personal consideration. Unfairness in
tile form of unreasonableness here comes close to
unfairness in ihe form of violation of natural justice,
and the doctrine of legitimate expectation can operate
in both colltexts. It is obvious, furthermore, that this
G principle of substantive, as opposed to procedural,
fairness may undermine some of the established rules
about estoppel and misleading advice, which tend to
operate unfairly. Lord Scarman has stated emphati-
H
cally that unfairness in the purported exercise of a
power can amount to an abuse or excess of power, and --
UNION OF INDIA'" H. D. C. [K. J. REDDY,J.]
this seems likely to develop into an important ~eneral A
- doctrine."
Another passage at page 522 in the above book reads thus:
"/twas in fact for tlze purpose of restricting the right to
B
be heard that 'legitimate expectation' was introduced
-
into tlze law. It made its first appearauce in a case where
alien students of 'scientology' were refused extension
of their entry permits as an act of policy by the Home
Secretary, who had announced that no discretionary
benefits would be granted to this sect. The Court of c
Appeal held that they had no legitimate expectation of
extension beyond the permitted time, and so no right
to a hearing, though revocation of their permits within
that time would have been countrary to legitimate
expectation. Official statements of policy, there~ore, D
may cancel legitimate expectation, just as they may
create it, as seen above. In a different context, where
car-hire drivers had habitually offended against air-
port byelaws, with many convictions and unpaid
fines, it was held that they had no legitimate expecta-
tion of being heard before being banned by the airport E
authority.
Tllere is some ambiguity in t/ze dicta about legiti-
- maie expectation, which may mean either expectation
of a fair hearing or expectation of the licence or other
benefit which is being sought. But the result is the
same in either case; absence of legitimate expectation
F
will absolve the public authority from affording a
hearing."
(emphasis supplied)
In some cases a question arose whether the concept of legitimate G
expectation is an impact only on the procedure or whether it also can .
have a substantive impact and if so to what extent Att. Gen. For New
South Wales v. Quin (1990) Vol. 64 Australian Law Jouqial Reports
327 is a case from Australia in which this aspect is dealt with. In that
case the Local Courts Act abolished Courts of Petty Sessions and ff
.,.
184 SUPREME COURT REPORTS [1993] 3 S.C.R.
A replaced them by Local Courts. Section 12 of the Act empowered the
Governor to appoint any qualified person to be a magistrate in the new
Couru System, Mr. Quin, who had been a Stipendiary Magistrate in
charge of a Court of petty Sessions under the old system, applied for,
but was refused, an appointment under the new system. That was
challenged. The challenge was upheld by the appellate .court on the
B ground that the selection committee had taken into account an adverse
report on him without giving a notice to him oftbe contents of the same.
In the appeal by the Attorney General against that order before the
High Court, it was argued on behalf of Mr. Quin that he had a legitimate
expectation that he would be treated in the same way as his former
-
' c colleagues considering his apP.lication on its own merits. Coming to
the nature of the substantive impact of the doctrine, Brennan, J.
observed that the doctrine of legitimate expectations ought not to
"unlock the gate which shuts the court out of review on the merits," and
that the Courts should not trespass "into the forbidden field of the
merits" by striking down admi.nistrative acts or decisions which failed
D to fulfill the expectations. In the same case Mason, C.J. was of the view
that if substantive protection is to be accorded to legitimate expecta-
tions that would encounter the objection of entailing "curial interfer-
ence with administrative decisions on the merits by precluding the
decision-maker from ultimately making the decision which he or she
E considers most appropriate in the circumstances."
In R v_. Secretwy of State for the Home Department. ex parte
Ruddock and others [ 1987] 2 All ER 518, Taylor, J. after referring to
the ratio laid down in some of the above cases held thus:
F
"On these authorities I conclude that the doctrine of
legitimate expectation in essence.imposes a duty to act
fairly. Whilst most of the cases ure concerned, as Lord
Roskill said, with a right to be heard, I do not think the
doctrine is so confined. Indeed, in a case y,://ere ex
hypothesis there is no rigllt to be heard. it may be
thought tile more important to fair dealing that a
promise or undertaking given by a minister as to how
he will proceed should be kept. Of co_urse such promise
or undertaking must not conflict with his statutory
l duty, or her duty as here, in the exercise of a prero ga-
UNION OF INDIA v. H. D. C. [K. J. REDDY,J.] 185
-- tive power. I accept the submission of counsel for the
Secretary of State that the respondent cannot fetter his
A
discretion. By declaring a policy he does not preclude
any possible need to change it. But then if the practice
has been to publish the current policy, it would be
incumbent on him in dealing fairly to publish the new
policy, unless again that would conflict with his B
duties. Had the criteria here needed changing for
i;iational security reasons, no doubt the respondent
could have changed them. Had those reasons pre-
-- vented him also from publishing the new criteria, ho
doubt he could have refrained from doing so. Had he
even decided to keep the criteria but depart from them
in this single case for national ,security reasons, no
doubt those reasons would have afforded him a de-
c
fence to judicial review as in the GCHQ case."
(emphasis supplied)
D
In Breen v. Amalgamated Engineering Union and Others {1971] 2 Law
Reports Queen Bench Division 175, Lord Denning observed as under:
"If a man seeks a privilege to which he has no
particular claim-such as an appointment to some post E
or other-then he can be turned away without a word.
He need not be heard. No explanation need be given;
see the cases cited in Schmidt v. Secretary of State for
Home Affairs (1969) 2 Ch. 149, 170-171. But if he is
a man whose property is at stake, or who is being F
deprived of his livelihood, then reasons should be
given why he is being turned down, and he should be
given a chance to be heard. I go further. If lie is a man
who has some right or interest. or some legitimate
e.\pectation, ofwhich it would not be fair to deprive f1im
without a Ilea ring. or reasons given.,t/Jen these should G
be afforded him, according as tile case may demand".
(emphasis supplied)
At this stage it is necessary to consider the scope of judicial review
when a challenge is made on the basis of the doctrine of h~gitimate H
SUPREME COURT REPORTS (1993] 3 S.C.R.
A expectation. In Findlay v. Secrewry of State for the Home Department,
[ 1984] 3 All E R 80 l it was observed as under:
--
"The doctrine of legitimate expectation has an impor-
. tant place in the developing law of judicial review. ll
is, however, not necessary to explore the doctrine in
':B
this case. it is enough merely to note that a ligitimate
expectation can provide a sufficient interest to enable
one who cannot point to the existence of a substantive
right to obtain the leave of the court to apply for
judicial revie.w. These two applicants obtained leave.
c But their submission goes further. It is said that the
refusal to accept them from the ricw policy was an
unlawful act on the part of the Secretary of State in
that his decision frustrated their expectation. But what
was their legitimate expectation? Given the substance
and purpose of the legislative provisions governing
D
parole. the most that a convicted prisoner can legiti-
mately expect is that his case will be examined
individually in the light of whatever policy the State
sees fit to adopt, provided always that the adopted
policy is a lawful exercise of the discretion conferred
E on him by the statute. Any other view would entail the
conclusion that the unfettered discretion conferred by
the Statute on the minister can in some cases be
restricted so as to hamper, or even prevent, changes of
policy. Bearing in mind the complexity of the issues
which the Secretary of State has to consider and the
F
importance of the public interest in the administration
of parole, I cannot think that Parliament intended the
desecration to be restricted in this way."
In Council of Cii·i! Service Unions' case Lord Dip lock observed thus:
G
"To qualify as a subject for judicial review the deci-
sion must have consequences which affect some
person (or body of persons) other than the decision-
maker. although it may affect him too. It m~st affect
H such other person either (a) by altering rights or
UNION OF INDIA'" H. D. C. [K. J. REDDY.J.] 187
obligations of that person which are enforceable by or A
against him in private law or (b) by depriving him of
some benefit or advantage which either (i) he has in
the past been pennitted by the decision-maker to
enjoy and which he can legitimately expect to be
pennitted to continue to do until there has been
communicated to him some rational ground for with- B
drawing it on which he has been given an opportunity
to comment or (ii) he has received assurance from the
decision-maker will not be withdrawn without giving
him first an opportunity of advancing reasons for
contending that they should not be withdrawn. (1) c
prefer to continue to call the kind of expectation that
qualifies a decisio·n for inclusion in class (b) a 'legiti-
mate expectation' rather than a 'reasonable. expecta-
tion', in order thereby to indicate that it has conse-
quences to which effect will be given in public law,
D
whereas an expectation or hope that some benefit or
advantage would continue to be enjoyed, although it
might well be entertained by a 'reasonable' man,
would not necessarily have such consequences."
In Attorney General/or New South Wales' case it is observed as under: E
"Some advocates of judicial intervention would en-
courage the courts to expand the scope and purpose of
judicial review, especially to provide some check on
the Executive Government which nowadays exer- F
cises enormous powers beyond the capacity of the
parliament to supervise effectively. Such adv9cacy is
misplaced. If the courts were to assume a jurisdiction
to review ad1ninistrative acts or decisions which are
"unfair" in the opinion of the court - not to product of
procedural fairness. but unfair on the merits- the G
courts would be assuming a jurisdiction to do the very
thing which is to be done by the repository of an
administrative power, namely, choosing among the
courses of action upon which reasonable minds might
differ. H
188 SUPREME COURT REPORTS [ 1993) 3 S.C.R.
A xxxxxx xxxxxx xxxxxx
xxxxxx xxxxxx xxxxxx
. If judicial review were to trespass on the merits of the
exercise of administrative power, it would put its own
legitimacy at risk. The risk must be acknowledged for
n a reason which Frankfurter J. stated in Trop v. Dulles
[1958] 356 US 86 at 119:
All power is, in Madison 'sphrase, '(~fan encroach-
ing nature'......... Judicial power is not immune against this
human weakness. It also must be on guard against en-
c croaching beyond ifs proper hounds, and not he less so since
the only restraint upon it is seff-restraint."
If t/Je courts were to postulale rules ostensibly related
to limitations 011 admi11istrati1·e pmver but in reality
D calculated to open to tlle gate into tlieforbiddenfield of
tl!e merits of its exercise. tile function of tlle courts
would hee.rceeded: ofR v. Nat Bell Liquors Ltd_. [1992]
2 AC 128 at 156. If tile courts were to define tile del/fine
of legitimate expectations as somet/Jing less tfian a
legal right and were to protect wl!at would he t/Jus
E defined by striking down administratii·e acts or deci-
sions wl1icf1 failed to fulfil tl1e e.\pectations. t/Je courts
v.:ould be truncating t/Je powerw/Jicll are naturally apt
to affect t/Jose e.\pectations. To strike down t/Je exercise
·of administrarire power solely on tile ground ofavoid-
F ing the disappoimment oftl1e legitimate e.\pectations l{
an indil'idual would be to set the courts adript 011 a
featureless sea ofpragmatism. Moreover, the notion of
a legitimate e.\pectation (falling slwrt of a legal
rig lit) is too nebulous to form a basis for inrnlidating
tile exercise of a power wflen its exercise otllerwise
G accords witll law. Tile authority of the courts and their
salutary capacity judicially to review the exercise of
administrative power depend in the last analysis on
their fidelity to the rule of law, exhibited by the
articulation of general principles .
-
••
UNION OF INDIA, .. H. D. C. [K . .I. REDDY.J.J 189
To lie wi11Ii11 tile limits ofjudicial power tile notion A
of "legitimate expectation" must be restricted to tlze
illumination of what is the legal limitation on tile
exercise of administrative power in a particular case.
ofcourse. if a legitimate expectation were to amount to
a legal right, the court would define the respective
- limits of the right and any power which might be
exercised to infringe it so as to accommodate in part
both the right and the power or so as to accord to one
B
priority over the other (That is a common place of
cruial declarations.) but a power which might be so
exercised as to affect a legitimate expectation falling c
s.hort of a legal right cannot be truncated to accommo-
date the expectation.
So long as the notion of legitimate expectation is
seen merely as indicating "the factors and kinds of
D
factors which are relevant to any consideration of
what are the things which must be done or afforded"
to accord procedural fairness to an applicant for the
exercise of an administrative power (see per Mahoney
.JA in Macrae, at 285), the notion can. with one
important proviso, be useful. If. but only if. the power E
is so created that the according of natural justice
conditions its exercise, the notion oflegitimate expec-
tation may useful focus attention on the content of
natural justice in a particular case; that is. on what
must be done to give procedural fairness to a person
F
whose interests might be affected by an exercise of the
-~ - power. But ifthe according of natural justice does not
condition the exercise of the power, the notion of
legitimate expectation can have no role to play. If it
were otherwise, the notion would become a stalking
• horse for excesses of judicial review."
(emphasis supplied)
G
----
I
In this very case, Brennan J. after reterring to Schmidt's case (supra)
observed thus:
H
190 SUPREME COURT REPORTS (199313 S.C.R.
A "Again, when a court is decidsing what must be done
in order to accord procedural fairness in a particular
case, it has regard to precisely the same circumstances
as those to which the court might refer in considering
whether the applicant entertains a legitimate expecta-
tion, but the inquiry whether the applicant entertains
B
-
a legitimate expectation is superfluous. Again if an
express promise be given or a regular practice be
adopted by a public authority, and the promise or
practice is the source of a legitimate expectation, the
repository is bound to have regard to the promise or
c practice in exercising the power, and it is unnecessary
to inquire whether those factors give rise to a legiti-
mate expectation. But the court must stop short of
compelling fulfillment of the promise or practice
unless the statute so requires or the statute permits the
repostitory of the powerto bind itself as to the manner
D of the future dercise of the pov.:er. It follows that rite
11otio11 of legitimate e.\pectatio11 is not tile key i-.:f1icft
unlocks rite treasury of natural justice and it ougftt not
unlock tfte gate wlticfJ shuts tlte court out o.fre\·iew 011
tile merits. Tlte notion of legitimate expectation was
E introduced at a time when the courts were developing
the common law to suit modern conditions and were
sweeping away the unnecessary archaisms of the
prerogative writs, but it should not be used to subvert
the principled justification for curial intervention in
the exercise of administrative power."
F
(emphasis supplied)
In the same case, Dawsom, J. observed thus:
"It also follows tltat rite required procedure may very
G according to tlte dictates of fainzess in tlte particular
case.
Thus, in order to succeed. the respondent must be
able to point to something in the circumstances of the
H case which would make it unfair not to extend to him
l'NION OF INDIA"· H. D. C. [K. J. REDDYJ.I 191
the procedure which he seeks. There is no doubt that A
the respondent had a legitimate expectation of con-
tinuing in his position as a stipendiary magistrate such
that it should, apart from statute, have been unfair to
remove him from that position without according him
a hearing. If the principle of judicial independence
B
expended to a stipendiary magistrate, then, no doubt,
that would have strengthened his expectation. But the
respondent was not removed from his position of
stipendiary magistrate by administrative decision. He
was removed by a statute which abolished the position
of stipendiary magistrate and established the new (
position of magistrate. Not only that, the statute, the
Local Courts Act. clearly contemplated that not all the
former stipendiary magistrates would be appointed as
magistrates pursuant to its terms. Accordingly it made
provisjon for those who where not so appointed. It
J
may be possible to deprecate the manner in which the
statute removed the respondent from office, but it is
not possible to deny its effect. Any unfairness was the
product of the legislation which conferred no right
upon the respondent to a procedure other than that
which it laid down." I
(emphasis supplied)
- On examination of some of these important decisions tt 1s
generally agreed that legitimate expectation gives the applicant suffi-
cient locus standi for judicial review and that the doctrine oflegitimate
1
expectation is to be confined mostly to right of a fair hearing before a
decision w,hich results in negativing a promise or withdrawing an
undertaking is taken. The doctrine does not give scope to claim relief
straightaway from the administrative authorities as no crystallised
.right as such is involved. The protection of such legitimate expectation
does not require the fulfillment of the expectation where an overriding G
public interest requires otherwise. In other words where a person's
legitimate expectation is not fulfilled by taking a particular decision
then decision-maker should justify the denial of such expectation by
showing some overriding public interest. Therefore even if substan-
tive protection of such expectation is contemplated that does not grant H
192 SUPREME COURT REPORTS [199313 S.C.R.
A an absolute right Lo a particular person. It simply ensures the drcum-
stances in which that expectation may be denied or restricted. 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 fulfill. The protection is limited to that extent and a judicial
review can be with.in those limits. But as ~iscussed above a person who
8 bases his daim on the doctrine of legitimate expectation, in the first
instance. must satisfy that there is a foundation and thus. has locus
standi to make such a claim. In considering the same several factors
whkh give rise to such legitimate expectation must be present. The
decision taken by the authority must be found to be arbitrary. unreason-
C able and not taken in public interest. If it is a question of policy, even
by way of change of old policy, the courts cannot interfere with a
decision. In a given case whether there are such facts and circum-
stances giving rise to a legitimate expectation, it would primarily be a
question of fact. If these tests arc satisfied and if the court is satisfied
that a case or legitimate expectation is made out then the next question.
D
would be whctha failure to give an opportunity of hearing before the
decision affecting such legitimate expectation is taken has resulted in
failure of justi~e and whetha on that ground the decision should be
quashed. If that be so then what should be the relief is again a matter
which depends on sevral factors.
E
We find in Atl(Jrney Genera/for Ne"tt' South ~Vales' case that the
entire case law on the doctrine of legitimate expectation has been
considered. We also find that on an elaborate an erudite discussion it
is held that the courts' jurisdiction to interfere is very much limited and
F much less in granting any relief in a claim based purely on the ground
of 'legitimate expectation'. In Public Law wid Politics edited.by Carol
Harlow, we find an article by Gabriele Ganz in which the learned
author after examining the views expressed in the cases decided by
eminent judges to whom we have referred to above, concluded thus:
G "The confusion and uncertainty at the heart of the
concept stems from its origin. It has grown from two
separate roots. natural justice or fairness andestoppeL
but the stems have become entwined to such an extent
that it is impossible to disentangle tham. This makes
H
it that it is very difficult to predict how the hybrid will
~
l. 193
LiNION OF INDIA\'. H. D. C. [K. J. REDDY,J.)
develop in future. This could be regarded as giving the A
concept a healthy flexibility, for the intention behind
it is benig; it has been fashioned to protect the indi-
vidual -
. a1rninst administrative action which is against
~
his interest. On the other hand, the uncertainty of the
concept has led to conflicting decisions and conflict-
. ing. interpretations in the same decision." B
However, it is generally accepted and also clear that legitimate
expectation being less than right operate in the field of public and not
private law and that to some extent such legitimate expectation ought
to be protected though not guaranteed. C
Legitimate expectations may come in various forms and owe their
existence to different kind of circumstances and it is not possible to
give an exhaustive list in the context of vast and fast expansion of the
governmental activities. They shift and change so fast that the start of 0
. our list would be obsolete before we reached the middle. 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 of largest by the Government and in somewhat similar
situations. For instance in cases of discretionary grant of licences,
permits or the like, carries with it a reasonable expectation, though not E •
a legal right to renewal or non-revocation, but to summarily disappoint
that expectation may be seen as unfair without the expectant person
being heard. But there again the court has to see whether it was done
asa policy or in the public interest either byway ofG.O., rule or by way
of a legislation. If that be so, a decision denying a legitimate expecta- F
tion based on such grounds does not qualify for interference unless in
a given case, the decision or action taken amounts to an abuse of power.
Therefore the limitation is extremely confined and if the according of
natural justice does not condition the exercise of the power, the concept
of legitimate expectation can have no role to play and the court must
not usurp the discretion of the public authority which is empowered to G
take the decisions under law and the court·is expected to apply and
objective standard which leaves to the decising 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 of the
deciding authority without any such legal bounds and if the decision is H
194 SUPREME COURT REPORTS [1993) 3 S.C.R. ~
A taken fairly and objectively, the court will not interfere on the ground
of procedural fairness to a person whose interest based on legitimate
expectation might be affected. For instance if an authority who has full
discretion to grant a licence and ifhe prefers an existing licence holder
to a new applicant, the decision can not be interfered with on the
ground of legitimate expectation entertained by the new ~pplicant
B applying the principles of natural justice. It can therefore be seen that
legitimate expectation can at the most be one of the grounds which may
give rise to judicial review but the granting of relief is very much
limited. It would thus appear that there are stronger reasons as to why
the legitimate expectation should not be substantively protected than
c the reasons as to why it should be protected. In other words such a legal
obligation exists whenever the case supporting the- same in terms of
legal principles of different sorts, is stronger than the case against it.
As observed in Attorney General for New South Wales· case "To strike
down the exercise of administrative power solely on the ground of
--
avoiding the disappointment of the legitimate expectations of an
D
individual would be to set the courts adrift on a featureless sea of
pragmatism. Moreover, the notion of a legitimate expectation (falling
short of a legal right) is too nebulous to form a basis for invalidating
the exercise of power when its exercise otherwise accords with law."
If a denial of legitimate expectation in a given case amounts to denial
E of right guaranteed or is arbitrary, discriminatory unfair or based, gross
abuse of power or violation of principles of natural justice, the same
can be questioned on the well-known grounds attracting Arti~le 14 but
a claim biased on mere legitimate expectation without anything more
cannot ipso facto give a right to invoke these principles. It can be one
of the ground to consider but the court must lift the veil and see whether
F
the decision is violative of these principles warranting interference. It
depends very much on the facts and the recognised general principles
of administrative law applicable to such facts and the concept of
legitimate expectation which is the latest recruit to a long list of
concepts fashioned by the courts for the review of administrative
G action, must be restricted to the general legal limitations applicable and
binding the manner of the future exercise of administrative power in
a particular case. It follows that the concept of legitimate expectation
is "not the key which unlocks the treasury of natural justice and it ought
. . not to unlock the gates which shuts the court out of review on the.
merits," particularly when the element of speculation and uncertainty
H
is inherent in that very concept. As cautioned in Attonle)' General for
li'.'IION OF INDIA"· H. D. C. [K. J. REDDY.J.] 195
New South Wales' case the courts should restrain themselves and A
restrict such claims duty to the legal limitations. It is a well-meant
caution. Otherwise a resourecful litigant having vested interests in
contracts. licences etc,. can successfully indulge in getting welfare
activities mandated by directive principles thwarted to further his own
interests. The caution, particularly in the changing scenario, becomes
all the more important. B
In view of our conclusions in respect of the quantities allotted and
the price fixed it tnay not be necessary for us to enter into further
discussion on this aspect. We have already directed that the Tender
Committee should consider afresh as to what should be the reasonable C
price and to that extent the price of Rs. 67,000 fixed in respect of
smaller manufacturers is set aside and directed to be revised. So far
these three big manufacturers are concerned, we held that on their own
commitment they are bound to supply at the rate of Rs. 67,000 per
bogie. So far the quantities are concerned, we held that these three big
0
manufacturers should be allotted the quantities as per the recommen-
dations of the Tender Committee. However, we considered this aspect
to some extent only to show that the decision in respect of price fixation
as well as allotment of quantities even though to some extent at
variation with the procedure followed during the previous years, was
not based on any irrelevant consideration. The Railways particularly E
the Financial Commissioner as well as the Minister and initially the
Tender Committee formed an opinion that these three big manufactur-
ers formed a cartel and also quoted and unworkable predatory price at
the post-tender stage. Therefore from the point of view of preventing
monopoly in the public interest the decision in question was taken in F
a bonafide manner. However, on a factual basis we held that the alleged
formation of cartel was only in the realm of suspicion and in that view
the decision was modified, as already indicated. H<?wever, we make it
clear that the said modifications by way of judicial review is not on the
ground of legitimate expectation and violative of principles of natural
justice but on the other ground namely the decision of the authorities G
was based on wrong assumption of formation of a cartel.
The next submission is that the decision taken by the Railways
resulting in reduction of the quant;ities and making a counter-offer of
Rs. 65,000 to these three big manufacturers is punitive in nature H
\ .
\-;' ~- ' .~. :_ , __
,:f
·196{ \ [1993) 3 S.C.R.
-~ '.
. ,. - - >' -
visiting \vith civil consequences and such a decision taken \Vithout
giZring an oppOrtUnity to these manuf.ic_turefs is violative o~ principles
of natural justice. In view o( our ·ati()ve 'mentioned conclusions
resulting in modification of the decision of th~ authorities both in
respect of price fixation and in allotment of quantities. there is no
·necessity to consider this aspect again in detail.··.
B
It wa·~ ~·ext contended that the consideration that some manufac-
~... -~ ·-. -·-
turers are small and others are BIFR companies taken into account by
the- approving authority for deviating from the age-old practice in
· allocatioo of quantities is irrelevant and discriminatory and therefore
· C the decision is bad. It may be mentioned that status of a manufacturers ·
being 'a BIFR coinpany or a small 1rianufacturers was not taken into
· account so t'ar as the fixation of the price is concerned and these
considerations were deemed relevant only f.irthcpurpose of allocation
of quantities. The stand taken by the Railways is that smaller manufac-
turers should sllrvive from the .,Oint of vie\V of arresting nl.ullopolistic
)),
tendencies-and from !lie point ofview of public interest. The Tender
Co.mmittee proceedings would indicate that on the basis of cenain
fonnulae namely the past performance, capacity etc. the allotment was
being made. Therefore these can not be said to be irrelevant consider-
ations· and as a matter of fact they 1iad been duly given effect to and
E weightage was given accordingly in respect of allotment of quantities
to various manufacturers within th~ four comers of the liffiitcd tender.
The learned counsel, however; conteni.led that the allotment of the
quantities to the smaller manufacturers also is not based on any
F acceptable.principle and that sorrie'ofttiem arc given larger quantities
without ariy justification rendering the decision bad because of arbi-
trariness. The proceedings mentioned above panicularlythe notingsof
·the Financial commissioner as well as the competent authority would
. show. that some of the smaller manufacturers namely Mis Himmat,
Tex~co and Sri Ranga were BIFR c_ompanies. As no'price preferen-
G tial treatment was giveri tci any one of them, the approving authoritY.. -.cc.. .
.. considered that enhancement in allocation of quantities was necessary. :·
Like\vlse M/s. Cimmco and Texmaco who are wagon builders and T
whose business in entirely with the Railways were also given some
wcightage. \Ve can not say that these are irrelevant considerations for
II
·-:;',,,--:: ·,,. :\
' ~, ,: _;'--: __ .
'
UNIO~ OF L'<DlA v. H. D. C. \K. J. REDDY ).I
t · 197
L - • - : -
the purpose of arriving at a decision. In the past also there.were such A
. '
?": · . variations
-
based on these circum5tances. -In· any- event for- different
. . \ - -. ---
reasons we have varied this decision and directed that the three big
manufacturers should be giv~n allotment as per the recommendations
of the Tender Committee. In our earlier order we.have noticed that
there has ..been some depanure in respect of one or two smaller
manufacturers in allotting the quantities. We have already indicated 8
that the Railways authorities should in future make a proper consider-
ation of the relevant factors in respect of each tenderer in an objective
manner in allotting the quantities.
Now coming to the question of dual pricing, the submission is that C
in respect of same set of manufacturers, some of them can not be made
to supply at a lower price and the others namely smaller manufacturers
-~-
can not be given advantage to supply at a higher price and such dual
pricing is unreasonable and arbitrary. As already noted, the Tender
. '
Committee worked out an. upgraded price and taking into other
relevant factor~ like cost of the material etc. into consideration and D
applying the formula as was being done in the past and panicularly
taking into considcfation the t\VO concessions in respect of custom and
freight fixed Rs. 76,000 as the reasonable price. This was very close
to the price quoted by the three big manufacturers. Ilut at a post-tender
stage, they entered into correspondence offering a lower price and E
ultimately the three big manufacturers committed themselves to
supply at the ·rate of Rs. 67.000 per bogie. In our earlier order \ve
indicated that these big manufacturers formed a different category
namely that they may be in a pi>sition to supply at that rate as is evident
from their own commitment but to apply the same pri"e which is much F
lower than the reasonable and workable price fixed by the Tender
Committee to other smaller manufacturers would again result in
ending the competition between the big and the small which ultimately
would result in monopoly of the market by the three big manufacturers.
That is a very imponant consideration from the point of view of public
interest However, as already mentioned we directed the Tender G
Committee to consider the matter afresh an even if it results in dual
pricing, it would not be bad in the circumstances mentioned above.
H
/
\
/
\·.'198.\ '
"
'<'
-': .·•
,..
_,.
.
' -
\. .
. ';. ----~------
(199313 S.C.R.
·. A\\·,
\
Theseareallthereasonsinsupporfofourconclusionsgiveninour ~- -(
order dated 14th Ja!'uary, 1993. \ . , ·
V.P.R.
\ SLPs disposed of,
·-
-~..-1: ".·
-- J__ _
-----
II . _..:;_
\ .
I
I;,--.~~~~
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Cartel"Sign in to search