A

B

UNION OF INDIA AND ORS

v.

HINDUSTAN DEVELOPMENT CORPN. AND ORS

APRIL 15, 1993

[K. JA YA CHANDRA ~EDDY AND G.N. RAY, JJ.]

Constitution of India, 1950:

Articles 12, 14, 19, 32. 136, 226. 298, 299-Government

Contracts._:_Railway Board-Tender to supply cast steel bogies-Tl1ree

C of the tenderers quoting idemical price-Inference of formation of

cartel-Board's decision of du alp ricing to control unfair trade practice

and not to accept lovrest price-Held, dual pricing under certain

circumsta11ces may be reaso11able-Rai/'.vays decision to adopt dual

pricing

u11der

the circumstances was bonajide.

D

Adrninistrative Law:

.,

Govemmellt comracts-Judicial review of

Doctrine of Legitimate E.\pectatio11-Co11cept, scope and applica­

E bilit)

1 of

Words a11d Phrases:

"Cartel", "predatory "-Meaning of

These special lea\'e petitions were disposed of by this Court's

F order dated 14.1.1993. By the said order the Court gave its conclusions

and certain directions obsen·ing that reasons in support thereof

would be given at a later stage.

G

H

Gh·ing the reasons in support of the conclusions, this Court,

HELD:l.1 The Government in a Welfare State has the wide

powers in regulating and dispensing of special services like leases,

licences,

and contracts etc. The Government while entering into

contracts or issuing quotas is expected not to act like a private

individual but should act in conformity with certain healthy stan-

128

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UNION OF INDIA ,._ H. D. C. 129

dards and norms. Such actions should not be arbitrary, irrational or A

irrelevant. In the matter of awarding contracts, inviting tenders is

considered to be one of the fair ways. If there are any reservations or

restridions then they should not be arbitrary and must be justifiable

on the basis of some policy or valid principles which by themselves are

reasonable and not discriminatory. (144-G~H, i.45-A)

Erusian Equipment and Chemicals Ltd. v. State of West

Bengal

[1975] 2

SCR 674,

Ramana Dayaram. Shett)' v. The International Airport

Authority of India and Ors. [1979] 3 SCR 1014, and Kasturi Lal

Lakshmi Reddy v. State of Jammu and Kashmir and Anr. [1980] 3

SCR 133'8, relif:d on. .

B

c

1.2 The concept of reasonableness finds its positive manifestation

and expression in the lofty ideal of social and economic justice which D

inspires and animates the Directive Principles, and Article 14 strikes

at arbitrari-ness in State action. (149-C)

Maneka Gandhi v. Union of India. [1978] 2 SCR 621, and

E.P. Royappa v. State of Tamil Nadu & Anr. [1974] 2 SCR 348,

relied

on.

1.3 The policy of the Government is to promote efficiency in the

administration, to provide an incentive to the uneconomic units to

achieve efficiency, to prohibit concentration of economic power and

E

to control monopolies so that the ownership and control of the F

material resources of the community are so distributed as best to

subserve the common good, and to ensure that while promoting

industrial growth there is reduction in concentration of wealth and

that the economic power is brought about to secure social and

economic justice .. (159-F, 161-C)

Monopolies Inquiry Commission's Report, referred to.

American Jurisprudence

2 vol. 54. p . 668, referred to.

G

1.4 In view of the conditions in the tender notice, validity whereof

was not questioned, the Government had the right to either accept or H

130 SUPREME COURT REPORTS [1993] 3 S.C.R.

A reject the lowest offer. From a perusal of the proceedings of the

Tender Committee as well as the opinion expressed by the Financial

Commissioner and the other members of Railway Board, it is clear

that Rs. 76,000 per bogie could be the reasonable price and the 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.

n

Jalgaon Municipal Council and others [1991] 3 SCC 91, State of

Madhya Pradesh & ors. i·. Nan dial Jaiswa/ & Ors. [ 1987] 1 SCR 1,

Sltri Sitaram Sugar Co. Ltd. v. Union of India [1990] 3 SCC 223,

R.K. Garg v. Union of Indi~ [1981] 4 SCC 675, and Peerless

General Finance

and

Ini·estmellt Co. Limited and another etc. v.

Resen:e Bank of India etc. [1992] 2 SCC 348, relied on.

2.1 The cartel' is an association of producers who hy agreement

among themselves attempt to control production, sale and prices of

the product to obtain a monopoly in any particular· industry or

E commodity. It amounts to an unfair trade practice which is not in the

public interest. The intention to acquire monopoly power can be spelt

out from formation of such a cartel by some of the producers.

(167 B-C)

F Collins English Dictionary; Webster comprehensive Dic-

G

H

tionary. lllfemational Edition; chamber's English Dictionary;

Black's Law Dictionary; A Dictionary' of Modem Legal Usage by

Bryan A. Garner; American Jurisprudence 2d Vol. 54, page 677-

referred to.

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

that the parties intended to restrain the trade and monopolise the

same. {167 C-D)

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UNION OF INDIA l'. H. D. C. 131

National Electrical contractors Associations, Inc, et, al, v. A

National constructors Associations et. al., Federal Reporter 2d

Series, 678 page 492; Matsusliita Electric Industrial Co. Ltd., et. al

.

v.

Zenitl! Radio Corporation etal, 89 L.Ed. 2d 538, referred to.

2.3 Monopoly is

the power to control prices or exclude 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)

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;

Collins Englisli Dictionary; Black's Law Dictionary; The oxford

E11g/isfl Dictional}' Vol. VIII, referred to.

D

E

----- 2.5 The opinion of the Tender Committee that the identical price

quoted by the three big manufacturers was a cartel price, was only a

suspicion which got strengthened by post-tender attitude of the said F

manufacturers who quoted a muchlesser price, and cannot positively

.,._ be concluded on the basis of these two circumstances alone. There is

not enough material to conclude that in fact there was formation of a

cartel. (173 B-C)

2.6 A

mere quotation of identical price and an

offer of further

reduction by themselves could not entitle the said manufacturers

automatically to corner the entire market by way of monopoly since

the final allotment of quantities vested in the authorities who in their

G

H

132

SUPREME COURT REPORTS [1993] 3 S.C.R.

A discretion can distribute the same to all the manufacturers including

these three big manufacturers on certain basis. Besides. the 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.

G

Halsbury's Law of England. fourth Edition, vol. I (I) 151,

Administrative Laws of England, Sixth Edition by H.W.R. Wade,

page 424, 522, referred to.

Schmidt v. Secretary' of State for Home Affairs (1969) 2 Ch.

149;A.G. of Hong Kongv. Ng YeunShiu (1983).2A.C.629;In Council

of Civil Service Unions and others v. Minister for tile Civil

Sen;ice (1984) Vol.3 All E.R. 935, Amarjit Singh Ahluwalia

v. The State of Punjab & Ors. (1975] 3 SCR 82; Att. Gen. for

H New South Wales v. Ouin [1990) Vol. 64 Australian Law

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UNION OF INDIA 1·. H. D. C. 133

Journal Reports 327; 'R. i·. Secretm}' of Stare 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 of Civil Sen·ice

Unions case Lord diplock--

3.3 Legitimate expectation being less then right operate in the

field of public and not private law and to some extent ought to be

protected thought not guaranteed. (193-C)

3.4

Legitimate expectations may come in various forms and owe

their existence to different kind of circumstances. By and large they

arise in cases of promotions which are in normal course expected,

though not guaranteed by way of a statutory right, in cases of

contracts, distribution oflargessby the Government and in somewhat

D

E

similar situations. (193-D) F

3.5 Protection of legitimate expectation would not be available

where an overriding public interest requires otherwise. The 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

[1993) 3 S.C.R. ~

A by the authority must be found to be arbitrary, unreasonable and not

taken in public interest. It that be so then what should be the relief is

again a matter which depends on several factors. (192-C-D-E)

SUPREME COURT REPORTS

B

c

D

3.7 The courts jurisdiction to interfere is very much limited and

much less in granting any relief in a claim based purely on the ground

of 'legitimate expectation'. A decision denying a legitimate 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)

Att. Gen.for New South Walels v. Quin [1990) Vol. 64

Australian Law Journal Reports 327, referred to.

Public Lmr and Politics-edited by Carol Harlow,

referred to.

3.8 Therefore the limitation is extremely confined and if the

according of natural justice does not condition the exercise of the

power. The concept oflegitimate expectation can have no role to play

and the Court must not usurp the discretion of the public authority

which is empowered to take the decisions under law and the court is

E

expected to apply an objective standard which leaves to the deciding

authority the full range of choice which the

legislature is presumed to

have intended. Even in a case where the decision is left entirely to the

discretion ofthe deciding authority without any such legal bounds and

if the decision is taken fairl)' and objecth·ely, the court will not

F interfere on the ground of procedural fairness to a person whose

interest based on ligitimate expectation might be affected. (193-G-A;

194-A)

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3.9 If a denial of legitimate expectation in a given case amounts .JI

to denial of right guaranteed or is arbitrary, discriminatory, unfair or

biased, gross abuse of power or violation of principles of natural

justice, the same can be questioned on the well-known grounds

attracting Article 14 but a claim based on mere legitimate expectation

without anything more cannot ipso facto· give a right to invoke these

principles. It can be one oftl:ie grounds to consider but the court must

lift the ,·eiJ and see whether the decision is violative of these principles -..,..

warranting interference. (194._E-F)

UNION OF INDIA i·. H. D. C. 135

3.10 The concept of ligitimate expectation is ''not the key which A

unlocks

the treasury of natural justice and it ought not to unlockthe

gates which shuts the court out of review on the

merits," particularly

when the element of speculation and uncertainty is inherent in that

very concept. The courts would restrain themselves and restrict such

claims duly to the legal limitations. It is a well-meant caution. Other:.

8

wise a resourceful litigant having vested interests in contracts, li­

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)

Att. Gen. for l'{ew South Wales v. Quin 1990 Vol. 64

Austraian Law Journal Reports 327, referred to.

c

3.11 In the instant case, the Rules for entering into contracts lay

down certain norms and contain guidelines. They provide for 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

136 SUPREME COURT REPORTS [1993] 3 S.C.R.

A 4. The modifications in the decision of the Railwa)'S by way of

B

judicial review are not on the ground of legitimate expectation and

violation of principles of natural justice but on the other ground

namely the decision of the authorities was based on wrong assumption

of formation of r;:artel. ( 195 F -G)

5. The status of a manufacturer beinga BIFR com pan)' or a small

manufacturer was not taken into account so far as the fixation of' the

price is concerned and these considerations were deemed relevant

· only forthe purpose of allocation of' quantities. The stand taken by the

Railways is that smaller manufacturers should survive from the point

C of' view of arresting monopolistic tendencies and from the point of

view of public interest. The Tender Committee proceedings would

indicate that on the basis of certain formulae namely the past 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)

E

CIVIL APPELLATE JURISDICTION: S.L.P. (C) Nos. 11897-·

98/92 etc. etc.

From the Judgment and Order dated 28.8.1992 of the Delhi High

Court in Civil Writ Petition Nos. 1152 & 1157 of 1992.

V.R. Reddy, Addl. Solicitor General, Kapil Sibbal. P.P. Rao,

F

Rama fois, A. Temton, Dr.

Shankar Ghosh K.K. Venugopal, Harish

Salve, ·F.S. Nariman, A.N. Haksar, Shanti Bhushan, KN Bhat, T.R.

Andhyarujina, C. V Subba Rao, P.P. Singh, Mrs. B. Sunita Rao, Sudhir

Kulshreshtha, Rohit Tandon,_farijat Sinha, Ms. Sunanda Roy, Ms. S.

Bhattacharya, B.D. Ahmed, Man Mohan Singh, Gopal Subramanium,

D.N. Mishra, A.M. Dittia, P.K. Ganguli, Manoj K. Das. Amit Prabhat,

G Tripurary Roy. K.LMehta, S. Ganesh; Pratap Venugopal, K.J. John,

Prarnod Dayal, Ajay K. Jain and D.N Nanjunda Reddy for the

appearing parties.

TI1e judgment of the Court was delivered by

1

I

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UNION OF INDIA v. H. D. C. (K. J. REDDY.J.] 137.

K . .JAY A CHANDRA REDDY, J. By our order dated 14th 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

In

our earlier order we stated the relevant facts and the issues

involved in a concised form. However.

we think it

appropri~te and

necessary to refer to some of them for a better appreciation of the

reasons in their proper perspective.

B

Every year the Railway Board enters into contracts with the C

manufacturers for the supply

of cast steel bogies which are used in turn

for building the wagons. Cast steel bogics come under a specialised

item procured

by the. Railways from the established sources of proven

ability. There are

12 suppliers in the field who have been regularly

supplying these items.

Two new firms Simplex and Beekay also

0

ents;red the field. Among them admittedly M/s H.D.C., Mukand and

Bharatiya are bigger manufacturers having capacity to manufacture

larger quantities. On 25. l 0. 91 a limited tender notice for procurement

of 19000 cast steel bogies was issued to the regular suppliers as well

as the above two new entrants for the

year namely from 1.4.92 to

31.3. 93. The last date for submission

of offers to the Ministry of E

Railways was 27.

11.91by2.30 P.M. and the tenders were to be opened

on the same day at 3 P.M. It was also stated therein that the price was

suhje<.:t to the price variation clause and the base date for the purpose

of escalation was 1. 9. 91 and that the Railways reserved the right to

order additional quantity upto 30lk-of the ordered quantity during the F

<.:urrency of the contract on the same price and terms and conditions

with suitable extensions in delivery period. The offers were to remain

open for a period

of

90 days. On that day the tenders were opened in

the presence

of all parties. The price quoted by the three manufacturers

i.e.

Mis H.D.C., Mukand and Bharatiya was an identical price of Rs.

77 ,666 per bogie while other tenders quoted between 83,000 and G

84,500 per bogie. After the tenders were opened and before the same

could be finalised, the Government

of India announced two major

concessions namely reduction

of custom duty on the import of steel

scrap and dispensation

of freight equalisation fund for steel. The

tenders were put up and placed before the

Tef!der Committee of the H

Railways which considered all the aspects. The Committee concluded

138 SUPRP.fE COllRT REPORTS [1993) 3 S.C.R.

A that three of the tenderers namely Mis H.D.C., Mukand and Bharatiya

who had quoted identical rates without any cushion for escalation

between l.7.91 and 1.9.91, have apparently formed a cartel. The

Tender Committee also noted that the rates quoted by them were the

lowest

.. Taking into consideration the reduction of Rs.

1500 as a result

of the concessions. in respect of the reduction of customs duty on the

B import

of steel scrap and dispensation of the freight equalisation fund

for steel. The Tender Committee

concluded that the reasonable rate

would be Rs. 76,000 per bogie. On the question of distribution of

quantities to the various manufacturers the Tender Committee decided

to follow the existing procedure. The Tender Conunittee signed these

c recommendations on 4.2.92 but on the same day the Member

(Mechanical) of the Conunittee received letters from Mis H.D.C. and

Mukand. Mis H.D.C. in its letter stated that in view.of the concessions

and also on the basis that per Kg. rate of casting per bogie could be

reduced from Rs. 37 .50 to Rs. 29 the cost of casting can also be reduced

and therefore they would be in a position to supply the bogies at a lesser

D rate, in case a negotiation meeting is called. Mis Mukand in its letter

also offered to substantially reduce the prices and they would like to

co-operate with the Railways and the Government and bring down the

prices as low as possible and asked for negotiations.

lbough this was

post-tender correspondence the Department felt that the offers made

E by

Mis H.D.C. and Mukand could be considered. The whole matter

was examined by the Advisor (Finance) in the first instance and by an

collaborate note he observed that the need for encouraging open

competition to improve quality and bring down costs has been 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

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UNION OF INDIA,., H. D. C. (K. J. REDDY.J.) 139

a cartel price intended to get a larger order on the basis of such A

negotiated price which would eventually nullify the competition from

the other manufacturers and lead to their industrial sickness anc

subsequently to monopolistic price situation. He. however, approved

the

Tender Committee's recommendations that a counter-offer of Rs. 76.000 may be accepted but in the case of M/s H.D.C. a price lower by

Rs. 11.000 may be offered as per their letter dated 4.2.92. He also B

recommended that the two manufacturers M/s Cimmco and Texmaco

may be given orders to the extent

of their capacity or quantity offered

by

them whichever is lower in view of the fact that they are wagon

builders and the present formula regarding the distribution

of 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 --

F

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

Minister of Railways in reply to the telegram that they were not

prepared to accept the counter-offer at the rate of Rs. 65,000 and

instead they offered to supply the bogies al the rate of Rs. 67.000 per

bogie. The Railways accepted this offer and in1imated M/s H.D.C. and

Mukand accordingly. The High Court. at an interlocutory stage

G pending the writ petitions. passed an order on 2.4.92. directing the

Ministry to accept the allocation of bogies reconunended by the

Tender Committee and to pay a price at the rate of Rs. 67.000 only per

bogie and that would be subject to the final decision of the writ

petitions. Being aggrieved by this order. the Railways filed a petition

H for special leave to appeal no. 5512/92 and this Court while refusing

to interfere at that interlocutory stage made the following observations

on 28.4.92:

l'NION OF l~DIA ,._ H.D.C. [K. J. REDDY,J.] 141

"However, we may observe-and so direct -that

during the pendency of the writ petition if any of the

suppliers in terms

of the package

of distribution

indkated by the High Court (including the petitioners

in the High Court in the writ petition) seek an "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

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

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."

Thereafter the High Court took up the writ petitions for final

hearing any by the impugned

judgment allowed the writ petitions filed

A

B

c

D

E

by

M/s

H.D.C. and Mukand and directed that all the suppliers should

make the supplies at the rate

of Rs. 67

,000 per bogie and also set aside F

the quantity allocation and directed that the same should

he considered

afresh

on a reasonable basis and pending such fresh consideration

future supplies should be made

on the basis of the recommendations of

the Tender Commiuee. In

the course of the judgment. the High Court

also made certain observations to the effect that the decision

of the

approving authority is arbitrary and that the Government. has no G

justification to offer a higher price than the market price to any supplier

to rehabilitate it.

It was further observed that the stand of the Railways

that those three manufacturers formed a cartel is based on extraneous

considerations. The learned judges of the High Court also observed

that they failed to understand as to why the Railway authorities

could H

142

SUPREME COURT REPORTS (1993) 3 S.C.R.

A not initiate negotiations with those manufacturers who had offered to

reduce their

offer

which could result in saving crores of rupees to the

Railways. Aggrieved by this

judgment of the High Court the

Union of

India filed S.L.P. (Civil) Nos. 11897-98192. Before the High Court in

the

two writ petitions filed by

Mis H.D.C and Mukand the other

n

manufacturers figured as respondents Nos. 4 to 12 and Mis Bharatiya

otherwise known as

Besco figured as respondent No. 13. The other S.L.Ps. are filed by those nine manufacturers. M/s Bharatiya, 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

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 .

G

. It is tme, as it is today, that the Government in a welfar..: State has

the wide powers in regulating and dispensing of special ~..:n·in:s like

leases, licences, and contracts etc.

The magnitude and

ran~L· t if such

Governmental function is great. The Government while en!L'ring into

contracts or issuing quotas is expected not to act like private i ndi vidua.l

hut ·should act in conformity with certain healthy standards and norms.

H

Such actions should not

be arbitrary, irrational or irrelevant. ln the

I-

•

.............

--

_..,

-

UNION OF INDIA "· H: D. C. [K. J. REDDY.J.] 145

matter of awarding contracts inviting tenders is considered to be one A

of the fair ways. If there are any reservations or restrictions then they ·

should not be arbitrary and must be justifiable on the basis of some

policy or valid principles which by themselves are reasonable and not

discriminatory. In the instant case the Railways every

year used to

enter into contracts with the established manufacturers for the supply

of cast steel bogies and there are 12 such suppliers.

On 25. IO. 91 a B

limited tender notice for the procurement of steel bogies was issued

to these suppliers. Under Clause 5 of the Tender notice the Railways

reserved the right to order additional quantity

of

30% of the ordered

quantity during the currency

of the contract on the same

price and

terms with suitable extension in delivery period. Clause

7 is to the c

effect that the tender will be governed by the IRS conditions of the

contract. In the instructions appended to

the Tender notice it is again

reiterated that the contracts made under the tender would be governed

by the IRS conditions of contract and also the instructions in the

invitation

of tender.

Clause 9.3 of the instructions lays down that the

J)

price is subject to price variation clause and the base date for tlw

purpose of escalation is 1.9.91. Under Clause 23it is made clear that

the Depa11ment does not pledge itself to accept the lowest or any tender

and reserves to itself the right of acceptance of the whole or any part

of the tender. 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

l.Himmat

2. Texmaco

3. Titagarh

4. BECO Ltd.

5, Anup

6. Sri Ranga

7. Orient

PRICE QUOTED

FOR 20.3.T AXLE LOAD

84,510

83,950

84,IOO

83,350

84,980

84,600

84,750

F

G

H

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 1

1

• 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 pro­cedure."

Approving these princip~es. a Bench of this Court in Ramana

Dayaram Sltetry v. The lmemational Ailport Authority o.f l11diaai1d 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

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

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

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

D

E

F

G

H

A

n

148 SUPREME COURT REPORTS [1993) ~ S.C.R.

. 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 ...

In Kasturi Lal Lakshmi Redd~' v. State of Jammu and Kasf1111ir and

Anr. L 1980] 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:

E

F

G

H

"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

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

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

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

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

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

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

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:

"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

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

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,

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

A

B

c

D

E

F

G

H

A

·B

c

D

E

F

G

H

I

.~

150 SUPREME COURT REPORTS (199~13 S.C.R.

struck down as invalid. It must follow as a necessary

corollary from this proposition that the Government

cannot act in a

manner which would benefit a private

party at the cost

of the State; such an action would be

both unreasonable and contrary to public interest.

The

Government therefore, cannot, for example give a

contract

or sell or lease out its property for a 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

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 of people deserving it or that the person who

has offered a higher consideration is not otherwise fit

to be given the contract

or the property. We have

referred to these considerations only illustratively, for

there may

be an infinite

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\·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)

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

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

public interest.

This burden

i!! a heavy one and it has

-

---

-

UNION OF INDIA\'. H. D. C. [K. J. REDDYJ.J

to be discliarged to the satisfaction of tl1e Court by

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

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."

(emphasis supplied)

151

A

B

c

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

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

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

F

G

H

'

152 SlJPREME COURT REPORTS I 1993) 3 S.C.R. ).._

A

B

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

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:

n

E

F

G

H

"It appears to us that the High Court had clearly

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

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

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 of inadequacy 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

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

thetic if lustration, tile very enormity of a 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

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

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

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

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:

"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

'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

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

A

B

c

D

E

F

G

H

A

B

c

D

E

154 SUPREME COURT REPORTS 1199313 S.C.R.

concluded contract till the bid is accepted. Before

there was a concluded contract. it was open to the

. bidders to withdraw their bids-see Union of India and

ors. v. 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

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

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)

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,

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.

G

H

( 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

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

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.

xxxxxxxx xxxxxxxx xxxxxxxx

xxxxxxxx xxxxxxxx xxxxxxxx

The Court cannot strike down a policy decision taken

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

A

B

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 of India 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

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

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

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)

E

F

G

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:

B

c

D

E

F

(

-,

.•

H

" 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

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 disadvan­tage 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

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.

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

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:

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

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-

D

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 of India, [ 1981] 4 SCC 675, a Constit~1tion Bem;h f

of this Court observed as under:

"Another rule of equal 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

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-

G

H

158

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c

I>

E

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

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:

'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

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

ity.' ,,

(emphasis supplied)

In Peerles.1· Ge11eral Finance and Jm·es1111e111 Co. Limi1ed and

A1101/1en·. Resen·e Hank of India e1c. 1l9

1

J2) 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:

G

H

" 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

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

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

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'."

_;

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

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

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

A

B

c

D

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:

" 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

G

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c

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160 SUPRD1E COl.lRT REPORTS [199313 S.CR.

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

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

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."

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.

F

{'

~·

H

Regarding the constitutionality of the said /\ct. a passage in

America11 jurisprude11ce 2d, vol. 54 pages 668-669 reads thus:

" 2. Constitutionality.

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."

-

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.

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

B

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

F

· 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

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

· 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

by firms are in the close range

or prices updated by

Tender Committee for

counter-offer."

c

D

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

Cimmco

Texmaco

500

1200

1200

H

164 Sl."PREME COURT REPORTS [199313 S.C.R.

A Sri Ranga 1560

An up IB6

Orient 1050

TSL 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

B'

affording an opportunity to these manufacturers to explain, is violative

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

nopolize production and distribution

of a product or

service, control prices

etc.-- - - -

"

In Webster Comprehensive Dictiona1)

1

, International

Edition, the meaning of the word "Cartel" is given

thus:

1

·

"cartel---

- - --.,-- -xx-- - -

3. An international combination of independent enter-

D

E

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:

"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:

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E

F

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166 SUPREME COURT REPORTS (1993) 3 S.C.R.

"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

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."

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,

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

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

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:

"~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)."

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

B

• 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 of Ind. 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.

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:

"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

F

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168 SUPREME COURT REPORTS [1993) 3 S.C.R.

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-

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:

E

F

G.

H

. "To survive petitioners motion for sunimary judg­

ment respondents must establish that there is a genu­

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."

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

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

nopoly profits, more than the losses suffered.

.......

UNION OF INDIA v. H. D. C. [K. J. REDDYJJ 169

xxxxxxxx xxxxxxxx xxxxxxxxx

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.

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

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

of these factors weighs more heavily as the time

needed to recoup lossed grows.

If the losses have been

substantial -as would likely be necessary

(475 us 593)

A

B

c

D

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

Sherman Act must present evidence

"that tends to

H

A

B

c

D

E

F

170 SUPREME COURT REPORTS [1993] 3 S.C.R.

exclude the possibility'' that the alleged conspirators

acted independently. Thus, respondellts here must

show that the inference of a conspiracy is reasonable in

light

of

the competing inferences of independem action

or collusive action that could not have harmed respon­

dents."

(emphasis supplied)

Therefore mere offering of a lower price by itself, though appears to

be predatory,

can not be a factor

for inferring formation of a cartel

unless an agreement amounting

to conspiracy is also proved.

In

\Vebster ComprehensA·e Dictionary, International Edition.

The meaning of the word "Predatory" is given as under:

"predatory-1. characterized by or undertaken for plun­

dering. 2. Addicted to pillaging: 3. Constituted for

living by preying upon others, as a beast

or bird; raptorial."

In A Dictionary of Modern Legal Usage by Bryan A. Garner, "preda­

tory" is defined thus:

"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"

devouring; rapacious."

In col/ins Englisl1 ·'Dictio1iary', "Predatory" is defined thus:

G •

"predatory-I. another word for predacious (sense 1 )

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."

In The oxford English Dictionary• Vol. VIII, "t'redatory" is de­

fined thus"

"Predatory -1. Of, pertaining to, characterized by, or

B

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

animal; That preys upon otlier animals; that is a beast,

bird,

or other creature of prey; carnivorous. Also,

of

its organs of capture. - ----xx-----

D

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.

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

G

arrangement. The fixing of prices by one member of H

A

B

172 SUPREME COURT REPORTS [1993) 3 S.C.R.

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)

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

a cartel

by

some of the manufacturers which amounts to an

unfair trade

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. ·

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

D

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

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

G

H

A

B

c

D

E

F

G

H

174

SUPREME COURT REPORTS (1993) 3 S.C.R.

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

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

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

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

citizen, in such a situation, may not by itself be 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

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

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

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.]

satisfy the requirement of non-arbitrariness and \".'ith­

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."

175

A

(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:

"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

c

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

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

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

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 ~

1as given reasons for withdrawal

and the opportunity to comment on suclz reasons.

E

F

G

H

176

A

B

c

SUPREME COURT REPORTS [1993) 3 S.C.R.

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

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

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

H

"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

tent to accept the tender having due regard to the

following factors:-

--1-

..

UNION OF INDIA, v. H. D. C. [K. J. REDDY,J .]

(i) Vital/Critical nature of the items;

(ii) Quantity to be procured;

(iii) Delivery requirements;

177

(iv) Capacity

of the firms in the zone of consideration;

(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

A

·n

. 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

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,

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

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".

E

F

G

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-

D

dations on the basis of certain data. It has to be noted that the Tender

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

G

H

In Halsbury's Laws of

England, 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

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

tice.

-

-

. ..

UNION OF INDIA v. H. D. C. [K. J. REDDY,J.]

The existence of a legitimate expectation may have a

number

of

different consequences'; it may give locus

standi to seek leave to apply

for judicial review; it may

mean that the authority ought

not to act so as to defeat

the 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

to make representation on the matter. The courts also

distinguish, for example in licensing cases, between

original applications, to renew and revocations; a

party who has been granted a licence may have

legitimate expectation that it will

be renewed unless

there is some good reason not to do so; and may

therefore

be entitled to greater procedural protection

than a mere applicant for

a grant."

(emphasis supplied)

179

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.

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

A.G. of Hong 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

case would be considered on its

merits."

In Council of Civil Service Unions and others v. Minister for the

A

B

c

D

E

F

G

~ Civil Service ( 1984) Vol. 3 All E.R. 359, a question arose whether the

decision

of the 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:

c

D

E

F

G

H

"An aggrieved person was entitled to invoke judicial

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 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

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

membership.

xxxxxxxx xxxxxxx

XX:xxxxxx

. Once the Minister produced evidence that' her deci­

sion not to consult the

staff before withdrawing the 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.

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)

procedural impropriety, vd1ere the decision-making

authority has failed in its duty to act fairly."

(emphasis supplied)

B

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).

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)

D

· 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.

H

.Time is a three-fold present: the present as we experience it, the

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:

G

H

"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

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

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

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

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

B

c

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

will absolve the public authority from affording a

hearing."

(emphasis supplied)

F

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."

F

l

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:

"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

duty, or her duty as here, in the exercise of a prero ga-

-

--

--

UNION OF INDIA v. H. D. C. [K. J. REDDY,J.]

tive power. I accept the submission of counsel for the

Secretary of State that the respondent cannot fetter his

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

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

fence to judicial review as

in the GCHQ

case."

(emphasis supplied)

185

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

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

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,

of

which it would not be fair to deprive f1im

without a Ilea ring. or reasons given.,t/Jen these should

be afforded him, according as tile case may demand".

(emphasis supplied)

A

B

c

D

E

F

G

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:

':B

c

D

E

F

G

H

"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

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.

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

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

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

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:

"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

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

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

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)

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,

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."

A

B

c

D

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

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

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.

F

G

H

188

A

n

c

D

E

F

G

••

SUPREME COURT REPORTS [ 1993) 3 S.C.R.

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

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

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

calculated to open to tlle gate into tlieforbiddenfield of

tl!e merits of its exercise. tile function of tlle courts

would hee.rceeded: of R 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

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 of avoid­

ing the disappoimment oftl1e legitimate e.\pectations l{

an indil'idual would be to set the courts adript 011 a

featureless sea of pragmatism. 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

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 .

-

-

-

-~

•

I

----

UNION OF INDIA, .. H. D. C. [K . .I. REDDY.J.J 189

To lie wi11Ii11 tile limits ofjudicial power tile notion

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.

of course. 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

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

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

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

A

B

c

D

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

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)

In this very case, Brennan

J. after reterring to

Schmidt's case (supra)

observed thus:

F

G

H

190

A

B

c

D

E

F

G

H

SUPREME COURT REPORTS (199313 S.C.R.

"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

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

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

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

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."

(emphasis supplied)

In

the same

case, Dawsom, J. observed thus:

"It also follows tltat rite required procedure may very

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

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

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

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

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."

(emphasis supplied)

A

B

(

J

I

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

E

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.

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

H

"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

it that

it is very difficult to predict how the hybrid will

~

l.

LiNION OF INDIA\'. H. D. C. [K. J. REDDY,J.)

develop in future. This could be regarded as giving the

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."

193

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

A

B

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

B

ground of legitimate expectation entertained by the new

~pplicant

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

D

avoiding the disappointment of the legitimate expectations of an

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

F

of the ground to consider but the court must lift the veil and see whether

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 .

H

merits," particularly when the element of speculation and uncertainty

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

B

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·196{ [1993) 3 S.C.R.

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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.··.

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 of view 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 consider­ations· 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.. .

II

.. 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

. '

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' t

UNIO~ OF L'<DlA v. H. D. C. \K. J. REDDY ).I · 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

- - ---. ----. .

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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

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'<' \·.'198. '

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·. A\·, Theseareallthereasonsinsupporfofourconclusionsgiveninour

~--(

order dated 14th Ja!'uary, 1993. . , ·

(199313 S.C.R.

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V.P.R.

SLPs disposed of,

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