Supreme Court of India
UNION OF INDIA AND ORS.versusHINDUSTAN DEVELOPMENT CORPN. AND ORS. ETC. ETC.
- Citation
- 1993 INSC 16
- Decided
- 14 January 1993
- Disposal
- Dismissed
- Bench
- K JAYACHANDRA REDDY
Holding
The Supreme Court held that there was no sufficient material to conclude that a cartel existed and that the railway authorities acted bona fide, thereby setting aside the High Court’s price direction and directing the Tender Committee to reconsider a reasonable price.
Summary
The Railway Board issued a tender for 1,900 cast steel bogies, receiving identical low bids from three large manufacturers (H.D.C., Mukand, Bhartiya) and higher bids from nine others. The Tender Committee, suspecting a cartel, recommended a reduced price of Rs. 76,000 and later a dual pricing scheme: Rs. 65,000 for the three and Rs. 76,000 for the rest. The three manufacturers offered a further reduction to Rs. 67,000, leading the Minister and Finance Commissioner to approve dual pricing and a redistribution of quantities, which was challenged in writ petitions. The Delhi High Court set aside the dual pricing, directing a uniform price of Rs. 67,000 for all manufacturers and a fresh allocation of quantities. On appeal, the Supreme Court held that there was insufficient evidence to prove a cartel, that the railway authorities acted in good faith, and that the price and allocation decisions must be reconsidered by the Tender Committee. Consequently, the Court set aside the High Court’s price direction, ordered the Tender Committee to fix a reasonable price after considering the Rs. 67,000 offers, and left the existing allocation for smaller manufacturers undisturbed.
Issues considered
- Whether the identical bids of the three manufacturers constitute proof of a cartel under competition law.
- Whether the dual pricing and differential allocation of quantities violate Article 14 of the Constitution.
- Whether the railway authorities and the Minister acted bona fide in fixing prices and allocating contracts.
- Whether the High Court’s direction to fix a uniform price of Rs. 67,000 for all manufacturers is legally valid.
- Whether the reduction of quota for the three manufacturers as a punitive measure is justified.
Legislation cited
- Indian Contract Act, 1872s. 38, s. 5, s. 8
Subjects
CartelTenderDual pricingArticle 14Indian Contract ActPrice fixationAllocation of quantitiesRailway BoardSpecial Leave Petition
Judgment
A U.0.1. AND ORS. ETC. ETC
v.
HINDUSTAN DEVELOPMENT CORPN.
AND ORS. ETC. ETC.
B
.JANUARY. 14. 1993
[ K . .JA YACHANDRA REDDY AND G.N. RAY. .J.J.]
Indian Contract Act. 1872 : Sections 5,8,38-Gornmmem
co11tract-Te11de.r to supply of cast steel bogies to Railway-Formation
C ofcartel by tllree tenders-Rai/v.·a)' 'sfinding-Wllet//er bonafide-Dual
pricing-Wlletl!er discriminatory~Allotment of quantity to.
tenders~Supreme Court directions.
The Railway Board entered into contracts with 12 manufactur-
D ers for the suppl)· of cast steel bogies to be used for building the
wagons, e\'ery )'ear. Among them H.D.C., Mukand and Bharti)·a had
capacity to manufacture larger quantities. In 1991 two new firms
Simplex and Beekay also entered the field.
For the year '1992-93, a tender notice for procurement of 1900
E
cast steel bogies was issued to the Regular suppliers as well as to
Simplex and Beekay the new entrants.
The tender notice stated therein that the last date for submission
of offers was 27.11.91 by 2.30 P.M. and the tenders to he opened at 3
F P.M. on the same day; that the price was subject to the price ''ariation
clause and the base date for escalation purpose was I.9.91; that the
Railways resened the right to order additional quantity upto 30% of
the quantit,y ordered during the currency of the contract on the same
price and terms and conditions with suitable extensions in deli\'er)'
G period.
The price quoted b)· H.D.C., Mukand and Bhartiya firms was
identical, i.e. Rs. 77. 666 per bogie. Other tenderers price ,·aried
•
between Rs. 83.000 and Rs. 84, 500 per bogie.
H The Government's announcement of reduction of custom dut)'
108
U.0.1. v. H.D.C. 109
on the import of steel scrap and dispensation of freight equ~lisation A
fund for steel came after the opening of the tenders and before the
finalisation of the tenders.
The Tender Committee recommended that the three manufac-
turers who quoted an identical lowest rates without any cushion for
escalation between 1.7.91 and 1.9.1991 formed a cartel; that the B
- reasonable rate per bogie was to be Rs. 76,000 by taking into consid-
eration of the two concessions announced by the Government; and
that the existing procedure to be followed on the question of distribu-
tion of quantities to the tenderers.
c
On 4.2.92, the Committee signed the recommendations. On the
same date, the Member (Mechanical) of the Committee received
letter from H.D.C. and l\tukand, wherein the tenderers offered to
substantially reduce the prices because of the concessions.
D
The Ad,·isor (Finance) examined the matter and observed that
if it was intended to continue the existing policy of fixing a rate and
distributing the order among all the tenderers, then negotiations
might not be useful; that review of the existing policy would take time;
and that the present tender be decided on the basis of the existing
polic~··
E
The Member (Mechanical), the next higher authority recom-
mended the acceptance of the Tender Committee's recommendation.
The Finance Commissioner approving the recommendations of. F
the committee, noted that the tenderers who quoted the identical rates
had formed a cartel; that a counter offer of Rs. 76,000 be accepted but
in the case of H.Q.C., a price lower by Rs.11,000 to be offered as per
their post-tender letter dated 4.2.92; that the present formula
regarding the distribution of quantities be applied to all tenderers G
except the three who formed a cartel; that some.recoveries from the
three tenderers be made on the basis of their letters wherein they
quoted prices which were much less than the updated price on 1.9.91
of Rs. 79.305; that the post-tender letters be ignored and that f~r
short-term gains the Department could not sacrifice long-term healthy
compensation. H
110 SUPREME COURT REPORTS (19931 3 S.C.R.
A The Minister for Railways, the approving authority agreeing
with the recommendations of the Finance Ad,·isor, noted that the
three tenderers had formed~ cartel und they be offered a price lower
by Rs.11.000 with reference to the counter-offer recommended by the
Tender Committee and the quantities also be ~uitable adjusted to
break the cartel and ordered ·for redistribution of the quantities
B exercising 30 % option. .
•The Chairman, Railwa~' Board, when received the file for imple-
mentation of the orders from the Minister, noted that action be taken
as decided by the Minister, which had resulted in dual-pricing,
C namel~·, one to the three tenderers and the higher one to the other
tenderers and therefore, the Minister.to consider whether they could
counter-offer the lower price to all the tenderers as that would result
in sa,•ing much more.
\Vhen the matter was sent to the Finance Commissioner, he
D
observed that as some of the units were sick units and owe a lot of
mone~· to the nationalised banks; it would be in the national interest
to accept dual-pricing.
Therefore, the file was again put up to the approving authority.
E He agreed with the recommendations of the Commissioner and the
Tender Committee and directed for their implementation.
As per the final decision taken by the approving authqrit~", the
three tenderers were issued a counter-offer ofRs.65,000 per bogie b~·
F telegram and other tenderers were gi\'en a counter-offer of Rs. 76,000/
-per bogie.
After the receipt of the telegram dated 18.3.92 H.D.C. and
Mukand filed writ petitions in the Delhi High Court challenging the
discriminator~· counter-offer. Bharti~·a had filed a writ petition_in the
G
Calcutta High Court. It was withdrawn and another writ petition was
filed later in the Delhi High Court.
In the writ petitions filed h~· H.D.C. and Mukand, the High Court
issuing notice to the respondents, stayed the operation of the telegram
ff dated 18.3.92.
U.0.1. I', H.D.C. 111
..
~
In reply to the telegram, H.D.C. and l\lukand also wrote to the A
Minister of Railwa)'S offering to supply the bogies at the rate of
Rs.67.000 per bogie, which was accepted b)' the Railway.
Pending the writ petitions, the High Court passed an interlocu-
tory order, directing the Railwa)· to accept the allocation of bogies
B
-
recommended b)· the Tender Committee at the rate of Rs.67.000 per
bogie subjected to the final decision in the writ petitions.
The Railway's petition for special leave to appeal filed against the
interlocutor)' order of the High Court was dismissed.
c
Thereafter, the High Court allowed the writ petitions filed by
H.D.C and Mukand and directed that all the tenderers should make
the supplies at the rate of Rs. 67~000 per bogie and allocation of
quantity to be considered afresh on a reasonable basis.
D
The Union of India filed appeal by special lea\'e (S.L.P. (c) Nos.
11897-98/92) against the judgment of the High Court. The other SLPs
were filed by the affected tenderers who figured as respondents Nos.
4 to 12 in the ~rit petitions before the High Court. The High Court
disposed of Bharati)·a's writ petition in terms of the judgment in the
other two writ petitions (W.P.Nos. 1152 and 1157/ 92) wherein the)' E
were shown as respondent No. 13). As Bharatiya alias Besco did not
question the judb'lllent of the High Court, they were arra)·ed as
respondent in the S.L.P. filed b)· the Union of India.
. .
The Union oflndia submitted that the three big manufactures i.e. F
M/s H.D.C., Mukand and Bhartiya formed a cartel and the same was
evident from the fact that each one of them quoted an identical price
which was a cartel price'; that the Go,·ernment in the matters of
economic poliq for good and sufficient reasons and in the public
interest could reject the lowest offer with a view not to allow any G
monopol)' and to encourage competition among the recognised manu-
facturers; that the dual pricing adopted by the Railways ,!Jnder the
circumstan<:es was not discriminatory; that the Railway~:h;.d rightly
· taken into account the two concessions and found that the price at the
rate of Rs.67,000 per bogie was not reasonable and~*drkable and it
was only a cartel price and that Rs. 76,000 was the :reasonable price H
112 SUPREME COURT REPORTS (1993] 3 S.C.R.
A and on that basis made a counter-offer to.other manufacturers except
to these three big manufacturers; that the Railways took into consid-
eration all the relevant factors and on rational basis the quantities
were allotted; and, therefore, they were not given larger share.
The nine smaller manufacturers in general supported the sub-
B missions of the Union of India.
The respondent- Mis H.D.C. supporting the finding of the High
Court submitted that the award of the contract for supply ofbogies
was vitiated by malafUJes and that diseroportionate allotment of
C quota of bogies and. dual pricing were based on malafides and
es~raneous considerations violating Article 14 of the Constitution;
that the reasons put forward on behalf of the Railways were disin-
genuous and bereft of rationale.
D Mis Mukand-respondent submitted that the dual set of counter
offers and allocation of disproportionate quantities were highly arbi-
trary and that the practice and police of the past 10 years of placing
orders on all manufacturers in respect of the quantities worked out on
the basis of standard quantity formula at a uniform price, gave rise to
legitimate expectations.among all bogie manufacturers and irrational
E departure from the existing policy was arbitrary and unreasonable;
that the making of law tender offers could not by itself be visited with
punty consequences like dual prici~g and reducing the allotment of
legitimate quantities. ·
F Mis. Bhartiya submitted that the Tender Committee erred in
treating m/s Bhartiya also as a member of the cartel and that the
allotment of quantities was arbitrarily.reduced; that Mis Bhartiya
never made an offer of Rs. 67,000 and there was nothing in writing to
that effect and that merely becaus-e of.the statement of the coun~el
during the proceedings before the High Court, it should not be
G understood that they were willing to supply at the rate of Rs. 67,000
and that they should not be treated differently from the other nine
manufacturers.'
Disposin~ ~f the Special Leave Petitions, this Co~rt,
H
U.0.1. I". H.D.C. 113
HELD: 1.1. Since the offers of the threetenderers were identical A
and the price wa.s somewhat lower, the Tender Committee enter-
tained a suspi~ion that a cartel had been formed and the same got
further strengthened by the post-tender attitude of the said manufac-
turers which further resulted in entertaining the same suspicion by
the other authorities in the hierarchy of decision making bod)'
- including the Minister of Railways. (124-D)
1.2. All the Railway authorities including the Minister acted in a
B
bonafide mannerin taking the stand that the three manufacturers
formed a cartel. (124-F)
.
1.3. T~ere is no enough of material to conclude that 1\1/S H.D.C.,
c
Mukand and Bhartiya formed a cartel. Because of mere quoting
identical tender offers by the Said three manufacturers for which
there is som'I! basis, the conclusion, that the said manufacturers had
formed a cartel does not appear to be correct. (124-C)
D
1.4. The current contract priced based on the updated price is
Rs.79,:;os. The three manufacturers offered at Rs. 77,600. Taking into
consideration the later concessions, the Tender Committee decided·
that the price of Rs. 76,000 is reasonable. (124-F)
E
- l.5. The fixation of price at Rs. 67,000 per bogie straightaway
without necessar)· and proper consideration and appraisal regarding
the ,·iability and other aspects by some experts, is notjust and fair
from many points ohiew. A fresh con~~~~ration is called for, particu-
larl)· from the point of view of safeguarding the interests of the public F
exchequer and giving necessaQ' protection to the smaller manufac-
---
( turers. (125-B)
· 1.6. The Tender committee is directed to reconsider the question
of fixation of reasonable price. The Tender Committee shall consider G
the offer of Rs. 67 ,000 made b)· 1\1/s H.D.C. and Mukand alongwith the
data that would be given by them in support of that and the percentage
of profits available to all the manufacturers and other relevant aspects
and then fix a resonable price, at which the manufacturer woold be
able to supply. (125-C)
H
114 SUPREME COURT REPORTS [1993) 3 S.C.R.
A 1.7. At a helated post tender stage the Railway authorities did not
deem it fit to reconsider the (fUestion of fixation of price in the light of
the post tender .offers made by 1\-1/s H.D.C. and Mukand, as b)' then
...-
the)· were of the opinion that the three big manufacturers have
formed a cartel and quoted a cartel price. The stand by the Railways
to adopt dual pricing under the circumstances is bonafide and not
8 malafide. Howe\·er, dual pricing on principle may not appear to be
rational since the Railwa)'S ha\'e been following certain formula in
fixing the price which is made applicable to all the manufacturers. But
under certain circumstances dual pricing may be reasonable.·
(125-E-F)
c
1.8. 1\1/s H.D.C. and Mukand came forward with firm offer of a
price at Rs. 67,000 per bogie. M/s Uhartiya also got committed to
supply at the same price. All the three of them did not even challenge
the order of the ~Ugh Court. These three big manufacturers must be
D deemed to be in a position-to supply at the rate of Rs.67,000 and thus
they form a distinct categor)". The smaller manufacturers belong to a
different categOQ' and if a different price is fixed for them it is not
discriminatorv. (125-F-G) ·
1.9. If the price that is to be fixed by the Tender Committee as
E directed by the Court happens to be'more than Rs. 67,000 then that
would be applicable to the smaller manufacturers only and.not to Ml
s H.D.C., Mukand and Bhartiya who on their own commitment have
to supply at the rate of R.,. 67,000. (126-A)
F 1.10. The price thus fixed by the Tender committee which applies
only to the smaller manufacturers shall be deemed to be final and the
respective contracts shall be deemed to be concluded so for the price
is concerned. (126-B)
1.11. The formation of an opinion that a cartel was formed had
G
no firm factual foundation; reduction of quota by wa)· of reprisal can
not be justified. The Minister of Railways as the final authority, after
considering various relevant factors, may be justified in taking a
particular decision in the matter of allotment of quota but such
deci!iion must be taken on objective basis. But, in this case, all the
H smaller manufacturers deserving a favourable treatment in the mat-
U.0.1. l". H.D.C. 115
ter of allotment of quota, have not been equally treated in the sense A
that one or two of them got larger quantities. Though this does not
appear to be a serious departure, yet in these matters the Govt. is
expected to be just and fair to one and all. In future the authorities
would make a proper consideration of the relevant factors in respect
of each tenderer in an objective manner in allotting the quantities.
(126-E-H) B
1.12. The three manufacturers-Mis H.D.C., Mukand and
Bhartiya-should be allocated the quantities as per the recommenda-
tions of the Tender Committee. However, this Court does not want to
disturb at this stage the quantities finally allotted by the competent C
authority to the small manufacturers as that would cause great
hardship to them. (127-C)
The Railway authorities was left to make necessary adjustments
next year in the matter of allocation of quantities to them taking irito D
consideration these allotments given to them this year. It will be open
to the Railways to exercise 30 % option if not already exercised. The
time to complete the supply is extended upto 31.3.1993. (127-D-F)
CIVIL APPELLATE JURISDICTION: S.L.P (C) Nos. 11897-
98 of 1992 etc. etc. E
From the judgment and Order dated 28.8.1992 of the Delhi High
Court in Civil Writ Petition Nos. 1152 & 1157of1992.
V.R. Reddy, Addl. Solicitor General, Kapil Sibbal, P.P. Rao, F •
Rama Jois, A. Temton, Dr. Shankar Ghosh, K.K Venugopal, Harish
Salve, F.S. Nariman, A.N. Haksar, Shanti Bhushan, K.N. Bhat, T.R.
Andhyarujina, C.V. Subba Rao, P.P. Singh, Mrs B. Sunita Rao, Sudhir
Kulshreshtha, Rohit Tandon, Parijat Sinha, Ms Sunanda Roy, Ms. S.
Bhattacharya, B.D. Ahmed, Man Mohan Singh, Gopal Subramanium, G
D.N. Mishra, A.M. Dittia, P.K. Ganguli, Manoj K. Das, ArnitPrabhat,
Tripurary Roy, K.L. Mehta, S. Ganesh, Pratap Venugopal, K.J. John,
Pr.amod Dayal, Ajay K. Jain and D.N. Najjunda Reddy for the
appearing parties.
The following Order of the Court was delivered by : H
ll6 SUPREME COURT REPORTS [1993) 3 S.C.R.
A K. JA YA CHANDRA REDDY, J. All these Special Leave Peti-
tions arise out of the conunon judgment of the High Court of Delhi in
Civil Writ Petitions Nos. l l52and 1157/92. We heard these matters for
considerable length of time. Eminent counsel appearing on both sides
advanced detailed arguments. After the conclusion of the hearing it
was represented that having regard to the constraint of time factor,
B namely that the contracts ·with the Railways entered into by the
manufacturers who are, parties, have to be completed very soon the
judgment in these matters has to be delivered as early as possible or at.
least the conclusions have to be given soon. We are conscious of the
fact that it is likely to take considerable time to deliver a detailed
c judgment. However having gone through the records carefully and --
after due considera'tion of the various arguments advanced, we have
reached the conclusions given hereunder and we propose to cteli ver the
detailed judgment at a later stage giving all the reasons in support of
these conclusions. We, however, think it necessary to state a few
relevant facts and the issues involved in a concised form before we set
D out our conclusions.
Every year the Railway Board enters into contracts with the
manufacturers for the supply of cast steel bogies which are used in turn
for building the wagons. Cast steel bogies come under a specialised
E item procured by the Railways from the established sources of proven
ability. There are 12 suppliers in the field who have been regularly
supplying these items. Two new firms Simplex and Beekay also
entered the field. Among them admittedly M/s H.D.C .. Mi.1kand and
Bhartiya are bigger manufacturers having capacity to manufacture
F larger quantities. On 25.10.91 a limited tender notice for procurement
of 19000 cast steel bogies was issued to the regular suppliers as well
as the above two new entrants for the year namely from 1.4.1992 to
31.3.93. The last date for submission of offers to the Ministry of
Railways was 27.11.91by2.30P.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
G subject to the price variation clause and the base date for the purpose
of escalation was l.9.91 and that. the Railway reserved the right to
order additional quantity upto 30% of the ordered quantity during the
currency of the contract on the same price and terms and conditions
with suitable extensions in delivery period. The offers were to remain
H open for a period of 90 days. On that day the tenders were opened in
the presence of all parties. The price quoteq by the three manufacturers
U.O.l. v. H.D.C.[REDDY. J.] 117
i.e Mis H.D.C., Mukand and Bharatiya was an identical price of Rs. A
77,666 per bogie while other tenderers quoted between 83.000 and
84,500 per bogie. After the tenders were opened and before the same
could be finalised, the Government of India announced two major
concessions namely reduction of custom duty on the import of steel
scrap and dispensation of freight equalisation fund for steel. The
tenders were put up and and placed before the Tender Committee of B
the Railways which considered all the aspects. The comfnittee con-
cluded that three of the tenderers namely Mis H.D.C., Mukand and
Bharatiya who hact' quoted identical rates without any cushion for
escalation between 1. 7. 91 and I. 9. 91, have apparently formed a cartel.
The Tender committee also noted that the rates quoted by th~.m were c
the lowest. Taking into consideration the reduction of Rs.1500 as a
result of the concessions in respect of the reduction of custody duty on
the import of steel scrap and dispensation of the freight equalisation
fund for steel, the Tender Committee concluded that the reasonable
rate would be Rs. 76,000per bogie. On the question of distribution of
quantities to the various manufacturers the Tender committee decided D
to follow the existing procedure. The Tender Committee_ signed these
reconunendations on 4.2.92 but on the same day the Member (Me-
chanical) of the Committee received letters from Mis H.D.C. and
Mukand. Mis H.D.C. ill its letter stated that in view of the concessions
and also on the basis that per kg. rate of casting per bogie could be E
reduced fromRs.37.50 to Rs.29 the cost of casting can also be reduced
and therefore they would be in a position to supply the bogies at a lesser
rate, in case a negotiation meeting is called. 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 F
prices as low as possible and asked for negotiations. Though this was
post-tender correspondence, the Department felt that the offers made
- 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
elaborate note he observed that the need for encouraging open compe-
tition to improve quality and bring down costs has been rec'om- G
mended by the Government and if it Is intended to continue the
existing policy of fixing a rate and dist.Iibuting the order among all
\'lie 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 8
118 SUPREME COURT REPORTS [1993) 3 S.C.R.
A existing policy would take time. the present tender can be decided on
the basis of the existing policy. With this noting the file was immedi-
ately sent to the Member (Mechanical), the nest higher authority. He
with some observation, however recommended the acceptance of the
Tender Committee's recommendations. The file was then put up to
Financial -Commissioner, He noted that the Tender Committee was
B convinced that the three manufacturers who quoted identical price of
Rs. 77 ,666 had formed a cartel. He also considered the offers made by
M/s H.D.C. and Mukand and observed that these three manufacturers
who quoted a cartel price intended to get a larger order on the basis of
such negotiated price which would eventually numfy the competition
c form the other manufacturers and lead to their industrial sickness and
subsequently to monopolistic price situation. He, however, approved --...
the Tender committee's recommendations that a counter-offer of Rs.
76,000 may be accepted but in the case ofM/s H.D.C. a price lower by
Rs. 11,000 may be offered as per their letter dated 4.2.92. He also
recommended that the two manufacturers M/s. Cin1IUco and Texmco
D may the given orders to the extent of their capacity or quantity offered
by them whichever is lower in view of the fact that they are wagon
builders and the present formula regarding the· distribution of quanti-
ties may be applied to all manufacturers except the three who have
formed a cartel. He also recommended some recoveries from these
E three manufacturers who are alleged to have formed a cartel on the
basi~ of their letters wherein they have quoted prices which \Vere much
less than the updated price as on 1.9.91 of Rs. 79,305. He also made
certain other recommendations and finally concluded that the post-
tender letters may be ignored and that for short-term gains the
Department can not sacrifice long- term healthy competition. After
F
these recommendations of the Financial commissioner the file was put
up to the approving authority i.e. the Minister for Railways, who in
general agreed with the recommendations of the Financial Advisor. He
also noted that these tl,1ree manufacturers have formed a cartel. He also
noted that subsequent· to the Financial commissioner's note, besides
<; ~/s H.D.C. and Mukand has also offered to reduce the price by lO!fr
11r.more vide their letter dated 19.2.92if called for negotiations. Taking
thc~c circumstances into consideration the Minister ordered that all
these three finns may be offered a price lower by Rs. 11,000 with
reference to the counter-offer recommended by the Tender committee
and the quantities also be suitably adjusted so that the cartel is broken.
8
The Minister also noted that as a result of this a savi~g of about Rs. 1!
1-
U.0.1. v. H.D.C. (K.J.REDDY. J.] 119
--.. crores would be effected. In his note, the Minister also ordered A
redistribution of the quantities. He also ordered that 309C option should
straightaway be exercised. Aftl1.i; the approving authority took these
decisions, the file went to he Chairman. Railway Board for implement-
ing the decisions. He noted that action will be taken as decided by the
Minister but added that action will be taken as decided by the Minister
but added that it results in dual-pricing namely one to the three B
manufacturers and the higher one to the others and therefore the
Minister may consider whether they could counter-offer the lower
price to all the manufacturers as that would result in saving much more.
The file was then again sent to and was considered by the financial
Commissioner who noticed this endorsement made by the Chairman, c
Railway Board. He however noted that so far all the other firms are
concerned it is Rs.3305 less than the present contract price but it would
not be equitable to offer the lower price put forward by the three
manufacturers as it would make the other units enviable and that
incidentally the price of Rs. 76,000 now proposed to be counter-
offered to the other finqs is also in line with the recommendation of the D
Tender committee. He:.however, noted that some of the units were sick
units and owe a lot of money to the nationalised ban_ks and it would
therefore be in the national interest to accept dual-pricing. Therefore
the file was again put up to the approving authority who agreed with
.. the recommendations of the Financial Commissioner and the Tender E
Committee and directed that the same may be implemented. In view.
of this final decision taken by the approving authority a telegram was
issued to the three manufacturers giving them a counter-offer of
Rs. 65 ,000 per bogie. The counter-offer was also made to the other
nine manufacturers at the rate of Rs. 76,000 per bogie namely the price
F
worked out by the Tender committee. Soon after the receipt of this
telegram dated 18.3. 92 Mis H.D.C. andMukand filed writ petitions in
the Delhi High Court challenging the so-called discriminatory counter-
offer. M/s Bhartiya also filed a similar petition in Calcutta High Court
but the same was withdrawn but another writ petition was filed later
in the Delhi High Court. In the writ petitions filed by M/s H.D.C. and G
Mukand, the High Court s stayed the operation of the telegram dated
18.3.92 and issued notice to the Union of India and to the Executive
Director and Director of the Railways (Stores) who figured as respon-
dents in those writ petitions. M/s H.D.C. and Mukand also wrote to the
Minister of Railways in reply to the telegram that they were not
H
prepared to accept the counter-offer at the rate of Rs.65,000 ano
120 SUPREME COURT REPORTS ( 199~) 3 S.C.R.
A instead they offered to supply the bogies at the rate of Rs 67,000 ·per
bogie. The Railways accepted thfs offer andintimated M/s H.D.C. and
.....
...
Mukand accordingly. The High Court, in an interlocutory stage
pending the writ petitions, passed an order on 2.4.92 directing the
Ministry to accept the allocation of bogies recommended hy the
Tender committee and to pay a price at the rate of Rs. 67,000 only per
B bogie and that would be subject to the final decision of the writ
petitions. Being aggrieved by this order, the Railways filed a petition
for special leave to appeai'no. 5512/92 and this court while refusing to
interfere at that interlocutory stage made the following observations on
,8.Zl-.j92:
c
"However, we may observe-and so direct - that
during the pendency of the writ petition if any of the ~
suppliers in terms of the package of distribution
indicated by the High Court (including the petitioners
in the High Court in the writ.petition), seek an "on-
D
account" .payment representing the difference be-
tween the sum of Rs. 67,000 indicated as price by the
High Court and the sun of Rs 76,000 contemplated by
the Railways; the order of the High Court shall not
..
prohibit the Government making such on-account
E payment to such suppliers on each wagon on the
condition that the said on-11ccount payment of Rs.
9,000 per bogie should be covered by a bank guarantee
·~
for its prompt repayment together with interest at 20% -1m
per anum in the event the on-account payment cannot
be observed in the price structure that r'nay ultimately
F
come to be determined pursuant to the final decision
in the writ petitions.
The special leave petitions are disposed of accord-
ingly."
G
Thereafter the High Court took up the writ petitions for final
hearing and by the impugned judgment allowed the writ petitions filed
by Mis 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
H the quantity al.location and directed that the same should be considered
l1.0.I. 1·. H.D.C. (K. J. REDDY. J.J 121 .
afresh on a reasonable basis and pending such fresh consideration A
future supplies should be made on the basis of the recommendations of
the Tender Committee. In the course of the judgment, the High Court
also made certain observation to the effect that the decision of the
approving authority is arbitrary and that this Government has no
justification to offer a higher price than the market price to any supplier
to rehabilitate it. It was further observed that the stand of the Railways B
that those three manufacturers formed a cartel is based on extraneous
considerations. The learned judges of the High Court also observed
that they failed to understand as to why the Railways authorities could
not initiate negotiations with those manufacturers who had offered to
reduce their offer which could result in saving crores of rupees to the c
Railways. Aggrieved by this judgment of the High Court the Union of
India filed S.L.P. (civil) Nos. 11897-98/92. Befort: the High Court in
the two writ petitions filed by M/s H.D.C. and Mukand the other
manufacturers figured as respondents Nos. 4 to 12 and M/s Bharatiya
otherwise Known as Besco figured as respondent No. 13. The other
S.L.Ps. are filed by those nine manufacturers. M/s Bharatiya, respon- D
dent No. 13. has not questioned the judgment of the High Court. As
mentioned above M/s Bharatiya filed a separate writ petition No. 1753/
92 in the Delhi High Court after withdrawing an earlier writ petition
filed in the Calcutta lligh Court. The same also was disposed of in
terms of the judgment in the other two writ petitions Nos.1152 and E
1157/92. But they have not questioned the same. Consequently Mis
Bharti ya figures as a respondent before us in the SLP filed by the Union
of India. Before we proceed further, we \vould like to briefly indicate
the main submissions made on behalf of all the parties to the extent
relevant and important for arriving at the necessary conclusions.
F
Learned counsel have advanced arguments on several other aspects
which are incidental. We propose to deal with them and give our
findings in our detailed judgment at a later stage.
Mr. Kapil Sibal, learned counsel appearing forthe Union of India
submitted that the three big manufacturers i.e. M/s H.D.C.. Mukand G
and Bharti ya fonned a cartel and the same is evident from the.f-act that
each one of them quoted an identical price which is a cartel price; and
that the Government in the matters of economic policy for good and
sufficient reasons and in the public interest can reject the lowest offer
with a view not to allow any monopoly and to encourage competition H
<>mong the recognised manufacturers and that the dual pricing adopted
122 SUPREME COURT REPORTS [1993) 3 S.C.R.
A by the Railways under the circumstances is not discriminatory. In this
context it is also submitted that the Railways had rightly taken into
account the two concessions and found that the price at the rate of Rs.
67 ,000 per bogie was not reasonable and workable and it was only a
cartel price and that Rs. 76,000 was the reasonable price and on that
basis made a counter-offer to other manufacturers except to these three
8 big manufacturers. The Railways had no option except to accept the
offer of Rs. 67 ,000 by the three big manufacturers as they took firm
stand that the price is reasonable and that they would be able to supply
on that rate and thereby a binding contract came into force so far these
three manufacturers are concerned. Regarding the allocation of quan-
C tities the Railways have taken into consideration all the relevant
factors namely that three of the nine manufacturers were BIFR
companies and the two others arc also wagon builders having their
entire business with Railways only and on that rational basis the
quantiles were allotted. It is also his submission that since the three big
manufacture originally offered a cartel price and all of them later
D apparently offered Rs. 67,000/-, an unworkable price. the Railways
felt that they attempted to destroy the competition. Therefore they
were not gi~en larger share. Learned counsel relied on several authori-
ties particularly touching the scope and ambit of Article 14 and rhe
power of the court under Article 226 of the constitution of India. Mr.
E Sibal also strongly contended that the High Court grossly erred in
making certain observations against the Railways namely that the
stand of the Railways that those three manufacturers formed a cartel
is based on extraneous considerations and somewhat similar observa-
tions in respect of the decision of the Railways on the question of price
fixation. The other counsel appearing for the nine smaller manufac-
F turers in general supported these suhmissions and also highlighted
certain aspects in their individual cases.
Shri K.K. VenugopaL learned counsel appearing for the respon-
dent namely Mis H.D.C. submitted that the award of the contract for
G supply of bogics was vitiated by ma/a/ides and that disproportionate
allotment of quota of bogies and dual pricing were based on malafides
and extraneous considerations violating Artick 14 of the Constitution.
He further submitted that the reasons put forward on behalf of the
Railways are disingenuous and bereft of rationale. He supported the
H finding of the High Court that the price should be fixed at Rs. 67 ,000
U.0.1. ''· H.D.C. [K. I.REDDY, J.I 123
for every manufacturer. Shri Nariman, learned counsel appearing for A
M/s Mukand, another respondent submitted that the dual set of counter
offers and allocation of disproportionate quantites are highly arbitrary
and that the practice and policy of the past 10 years of placing orders
on all manufacturers in respect of the quantities worked out on the basis
of standard quantity formula at a uniform price, gave rise to legitimate
expectations among all bogie manufacturers and irrational departure B
from the existing policy is arbitrary and unreasonable. He furthJr
submitted that the making of law tender offers can not by itself be
visited with punty consequences like dual pricing and reducing the
allotment of legitimate quantities.
c
.. Shri Shanti Bhaushan, learnedcounsel appearing for M/s. Bhartiya
submitted that the Tender Conunittce erred in treating Mis. Bhartiya
also as a member of the cartel and that the allotment of quantities has
been arbitrarily reduced. He however made one special submission
namely that M/s Bharti ya never made an offer of Rs. 67,000 and there
D
is nothing in writing to that effect and that merely because of the
statement of the counsel during the proceedings before the High Court,
it should not be understood that they are williri~ to supply at·the rate of
Rs. 67,000 and that they should not be treated by treated differently
from the other nine manufacturers.
E
Taking all the aspects into consideration and for the purpose of
giving our conclusions it may broadly be stated that M/s H.D.C. and
Mukand gave post-tender offers at a low pride with the hope that they
would get a larger quantity allotted. M/s Bharti ya also fell in line with
them though did not specifically put it in writing. But during the course F
of the hearing of the writ proceedings, it was represented on behalf of
M/s Bharatiya that they would be willing to supply at Rs. 67 ,000 if the
court fixes that price. This is noted by the High Court in its judgment.
The Railways authorities however concluded that in the begin-
ning itself these three have formed a cartel and the price quoted by G
them was only a cartel price. The note by the Financial Commissioner
is somewhat elaborate on this aspect and the Minister for Railways, the
competent authority ·agreed with him and also directed that the
quantities be suitably adjusted so that the cartel is broken. He also took
into consideration the fact that some of the smaller units are sick and H
(.
/'
124 SUPREME COURT REPORTS [1993) 3 S.C.R.
A therefore they_ should be given a larger quantity to enable them to
rehabilitate. The other recommendations of the authorities were also
accepted. However in giving any directions we must bear in mind that
the contract period is going to end shortly and till now all the
manufacturers have been manufacturing and supplying.pursuant to the
interim orders_. We may indicate atthis stage that we shall discuss all
8 the.se aspects later in detail in our judgment. After due and careful
consideration of all the aspects, our conclusions are as follows:
1) 1bere is no enough material to conclude that M/s H.D.C..
Mukand and Bhartiya formed a cartel. Because of mere quoting
C identical tender offers by the said three manufacturers for which there
is so1111.: basis, the conclusion that the said manufacturers had formed
a cartel does not appear to he correct. However sinc.e the offers of the
said three tenders were identicle and the price was somewhat lower.
the Tender Committee entertained a suspicion that a cartel had been
D formed and the same got further strengthened by· the post-tender
attitude of the said manufacturers which further resulted in entertain-
ing the same suspicion by the other authorities in the hierarchy of the
decision making body including the Minister o( Railways. Though
there is no enough of material to establish formation of a cartel as is
understood in the legal parlance but at the same time it cannot be
E contended that such an opinion entertained by the concerned authori-
ties including the Minister wasperse malicious or was actuated by any
extraneous considerations. After a careful examination of the entire
record and facts and circumstances of the case we are of view that all°
the Railway authorities including the Minister acted in a bonafide
F manner in taking the stand that the three manufactures formed a cartel.
2) The current contract price based on the updated price is Rs.
79,305 The three manufacturers offered at Rs. 77,6000. Taking into
consideration the later concessions, the Tender Committee decided
that the price of Rs. 76,000 is reasonable. In the post tender correspon-
G dence M/s H.D.C. and Mukand offered to supply at a price of Rs.
67 ,000 per bogie, but no particulars as to _how it would be reasonable,
were given._ However they have come forward before us with some
particulars. M/s Bharti ya clid not gave any such offer in writing, but fell
in line with ~hem and did not choose to question the order of the High
H court fixing the price at Rs. 67,000The Railways were of the view that ·
1
U.O.I. v. H.D.C. [K. J. REDDY. J.] 125
it is an unreasonable price an smaller manufacturers cannot supply at A
that price and consequently they will get extinguished resulting in a
monopoly by the big manufacturers.'The High court has directed that
supply should be at Rs. 67,000 by everyone. 'faking into consideration
all these aspects we are of the view that the fixation of price at Rs.
67,000 per bogie straightaway without necessary and proper consider-
ation and appraisal regarding the viability and other aspects by .some B
experts, is not just and fair from many points of view-_ A fresh
consideration is called for, particularly. from the point of view of
safeguarding the interests of the public exchequer and giving neces-
sary protection to the smaller manufacturers. Consequently we set
aside this direction of the High Court and direct the Tender Committee c
to reconsider the question of fixation of reasonable price. The Tender
committee shall consider the offer of Rs, 67.000 made by Mis H.D.C.
and Mukand along with the data that would be given by them in support
of that and the percentage of profits available to all the 3 manufacturers
and other relevant aspects and then fix a reasonable price. at which the
manufacturer would be able to supply. The Tender Committee shall D
within two weeks from today complete the process.
3) At a belated post tender stage the Railways authorities did not
deem it fit to reconsider the question of fixation of price in the light of
the post tender offers made by Mis H. D. C. and Mukand, as by then they E
were of the opinion that the three big manufactu.rers have formed a
carte 1and quoted a cartel price. The stand by the Railways to adopt dual
pricing under these circumstances is bonafide and not malafide.
However, dual pricing on principle may not appear to be rational since
the railways have been following certain formula in fixing the price F
which is made applicable to all the manufacturers. But under certain
circumstances dual pricing may be reasonable. In the instant case Ml
s H.D.C. and Mukand came forward with firm offer of a price at Rs.
67,000 per bogie. Mis Bharatiya also got committed to supply at the
same price. All the three of them did not even challenge the order of
the High Court. These three big manufacturers just be deemed to be in G
a position to supply at the rate of Rs. 67,000 and thus they form a
distinct category. The smaller manufacturers belong to a different
category and if a different price is fixed for them it is not discrimina-
tory.
H
126 SUPREME COURT REPORTS {199313 S.C.R.
A 4) If the price that is to be fixed by the Tender Committee as
directed by us happens to be more than Rs. 67.000 then that would be
applicable to the smaller manufacturers only and not to M/s H.D.C.,
Mukand and Bhartiya who on their own commitment have to supply
at the rate of Rs. 67 ,000.
B
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 shalJ be deemed to be concluded so for the price
is concerned.
c (6) Now coming to the allotment of quota of bogics 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
Financial commissioner and other authorities. I k has however not '\
D accepted these recommendations fully. In making these variations, the
Minister accepting. ultimately reduced the allotment of quota to the
said three tenderers substantially by way of reprisal. In view of our
finding that the formation of an opinion that cartel was formed had no
firm factual foundation; such a reduction of quota by way of reprisal
can not be justified. we are however, not inclined to accept the
E contention made on behalf of M/s H.D.C., Mukand and Bharti ya that
no departure from the recommendations of the Tender committee is
permissible in the absence of any established policy which was also
known by the tenderers. From the records it appears that in the past also
there have been such variations. In our view. the Minister of Railways
F as the final authority, after considering various relevant factors, may
be justified in taking a particular decision in the matter of allotment of
quota but such decision must be taken on objective basis. But, in this
case. it appears to us that all the smaller manufacturers deserving a
favourable treatment in the matter of allotment of quota, have not been
equally treated in the sense that one or two of them got larger
G quantities. Though this does not appear to be a serious departure, yet
in these matters the Govt. is expected to be just and fair to one and all.
We hope that in future the authorities would make a proper consider-
ation of the relevant factors in respect of each tenderer in an objective
manner in allotting the quantities.
H
U.O.l. 1·. H.D.C. [K. J. REDDY. J.) 127
- (7) In view of the interim orders, during the pendency of writ A
petitions before the High Court, and until now all the manufacturers
have been supplying as per the allotments by the Tender Conunittee.
The High Court in its judgment finally directed the Railways to
reconsider the allocation on reasonahle basis. It is submitted on behalf
ofthl! smaller manufacturers that they have made necessary manufac-
turing arrangements on the basis of the final allotment. On behalf of the B
M/s H.D. C., Mukand and Bharti ya, it is submitted that their legitimate
quotas also are cut short and that they are entitled to larger quantities
in view of the low price offered by them. Having considered the
contentions made by aU the manufacturers we direct that the there
manufacturers M/s H.. D.C.. Mukand and Bhartiya should be allocated c
the quantities as per the recommendations of the Tender committee.
We, however, do not want to disturb at this stage the quantities finally
allotted by the competent authority to the small manufacturers as that
would cause great hard<;hip lo them. We leave it to the Railway
authorities to make necessary adjustments next year in the matter of
allocation of quantities to them taking into consideration these allot- D
ments given to them this year. To that extent we modify the order of
the High Court.
(8) It will be open the Railways to exercise 30'k option. if not
already exercised. E
. (9) Taking all the circumstances and the time faqor into consid-
eration the time to complete the supply is extended upto 31.3. 1993.
Accordingly these Special Leave petitions are disposed of. There F
will be no order as to costs.
V.P.R. SLPs disposed of.
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