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PETITIONER:

UNION OF INDIA AND ORS

Vs.

RESPONDENT:

HINDUSTAN DEVELOPMENT CORPN. AND ORS

DATE OF JUDGMENT15/04/1993

BENCH:

REDDY, K. JAYACHANDRA (J)

BENCH:

REDDY, K. JAYACHANDRA (J)

RAY, G.N. (J)

CITATION:

1994 AIR 988 1993 SCR (3) 128

1993 SCC (3) 499 JT 1993 (3) 15

1993 SCALE (2)506

ACT:

Constitution of India, 1950:

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

Contracts.-Railway Board-Tender to supply, cast steel

bogies-Three of the tenderers quoting identical price-

Inference of formation of cartel-Board's decision of

dual pricing to control unfair trade practice and not to

accept lowest price-Held, dual pricing under certain

circumstances may be reasonable-Railways decision to adopt

dual pricing under the circumstances was bonafide.

Administrative Law:

Government contracts-Judicial review of.

Doctrine of Legitimate Expectation-Concept,scope and

applicability of.

Words and Phrases.-

"Cartel ", "predatory. "-Meaning of.

HEADNOTE:

These special leave petitions were disposed of by this

Court's order dated 14.1.1993.By the said order the Court

gave its conclusions and certain directions observing that

reasons In support thereof would be given at a later stage.

Giving the reasons in support of the conclusions, this

Court,

HELD: 1.1 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-

129

dards and norms. Such actions should not be arbitrary,

irrational or irrelevant. In the matter of awarding

contracts, inviting tenders is considered to be one of the

fair ways. If there are any reservations or restrictions

then they should not be arbitrary and must be justifiable on

the basis of some policy or valid principles which by

themselves are reasonable and not discriminatory. (144-G-H,

145-A)

Erusian Equipment and Chemicals Ltd. v. State of West Bengal

[1975] 2 SCR 674,

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Ramana Dayaram Shety 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

1338, relied on.

1.2 The concept of reasonableness rinds its positive

manifestation and expression in the lofty ideal of social

and economic justice which inspires and animates the

Directive Principles, and Article 14 strikes at

arbitrariness 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 to control monopolies so

that the ownership and control of the material resources of

the community are so distributed as best to subserve the

common good, and to ensure that while promoting industrial

growth there is reduction in concentration of wealth and

that the economic power is brought about to secure social

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

Monopolies Inquiry Commission's Report, referred to.

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

1.4 In view of the conditions in the tender notice,

validity whereof was not questioned, the Government had the

right to either accept or

130

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 quantity allotted,-which, if

accepted, would result in monopoly extinguishing the smaller

manufacturers. (46 D-G)

State of Uttar Pradesh and others v. Vijay Bahadur Singh

and others [1982]2 SCC365, State of Orissa and Ors. v.

Harinarayan Jaiswal and Ors. [1972] 3 SCR 784, G.B. Mahajan

and others V. Jalgaon Municipal Council and others [1991] 3

SCC 91, State of Madhya Pradesh & ors. v. Nandial Jaiswal &

Ors. [1987] 1 SCR 1, Shri Sitaram Sugar Co. Ltd. V. Union

of India [1990] 3 SCC 223, R.K. Garg v. Union of India

[1981] 4 SCC 675, and Peerless General Finance and

Investment Co. Limited and another etc. v. Reserve Bank of

India etc. [1992] 2 SCC 348, relied on.

2.1 The cartel 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. 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.(167B-C)

Collins English Dictionary; Webster comprehensive Dictionary

International Edition; chamber's English Dictionary; Black's

Law Dictionary: A Dictionary of Modern 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)

131

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National Electrical contractors Associations, Inc, et, at,

National constructors Associations et. al., Federal Reporter

2d Series, 678 page 492, Matsushita Electric Industrial Co.

Ltd., et. at v. Zenith Radio Corporation et al, 89 L.Ed.

2d 538, referred to.

2.3 Monopoly is the power to control prices or exclude

competition 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 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. Zenith

Radio Corporation et. al. 89 L.Ed. 2d 538, referred to.

Webster Comprehensive Dictionary, International Edition; A

dictionary of Modern Legal Usage by Bryan A. Garner; Collins

English Dictionary Black's Law Dictionary; The oxford

English Dictionary Vol. VIII, referred to.

2.5 The opinion of the Tender Committee that the identical

price quoted by the three big manufacturers was a cartel

price, was only a suspicion which got strengthened by post-

tender attitude of the said manufacturers who quoted a

much lesser 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

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discretion can distribute the same to all the manufacturers

including these three big manufacturers on certain basis.

Besides. the authorities reserved a right to reject a lower

price. (172-F, 173-A-B)

2.7 However, the opinion regarding formation of a cartel

entertained by the concerned authorities including the

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 bonafide manner in taking

the stand that the three big manufacturers formed a cartel.

(173-C)

3.1 The legitimacy of an expectation can be Inferred only

if it is founded on the sanction of law or custom or an

established procedure followed in regular and natural

sequence. It Is distinguishable from a genuine expectation.

Such expectation 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, 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 fulfil. The claim based on

the principle of legitimate expectation can be sustained and

the 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)

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Food Corporation of India v. M/s Kamdhenu Cattle Feed

Industries JT (1992) 6 S.C. 259, relied on.

Halsbury's Law of England. fourth Edition, vol. 1 (1) 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 Kong v. Ng Yeun Shiu (1983) 2A.C.629;In

Council of Civil Service Unions and others v. Minister for

the Civil Service (1984) Vol.3 All E.R. 935, Amarjit Singh

Ahluwalia v. The State of Punjab & Ors. [1975] 3 SCR 82;

Att. Getz. for New South Wales v. Ouin [1990] Vol. 64

Australian Law

133

Journal Reports 327; 'R. v. Secretary of State for the Home

Department ex parte Ruddock & Ors. (1987)2 All E R 518,

Breen v. Amalcamated Engineering Union & Ors. (1971) 2 Law

Reports Queen Bench Division 173, referred to.

3.2 Legitimate expectation gives the applicant sufficient

locus standi for judicial review and the doctrine of

legitimate 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 not give scope to claim relief straightaway

from the administrative authorities as no crystalised right

as such is involved. (191-F)

Navyoti Coo-Group Housing Society etc. v. Union of India &

Others (1992) 2 Scale 548; Findlay v. Secretary of State for

the Home Department (1984) 3 All E R801 and Council of Civil

Service 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 of

largess by the Government and in somewhat similar

situations. (193-D)

3.5 Protection of legitimate expectation would not be

available where an overriding public interest requires

otherwise. The protection 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

legitimate expectation, in the first instance, must satisfy

that there is a foundation and thus has locus standi to make

such a claim. The decision taken

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by the authority must be found to be arbitrary, unreasonable

and not taken in public interest. It that be so then what

should be the relief is again a matter which depends on

several factors. (192-C-D-E)

3.7 The courts jurisdiction to interfere is very Much

limited and much less in granting any relief in a claim

based purely on the ground of 'legitimate expectation'. A

decision denying a legitimate expectation based on a policy

or change of an old policy, or in the public interest either

by way of G.O., rule or is made by way of a legislation does

not qualify for interference unless in a given case, the

decision or action taken amounts to an abuse of power. (193-

E-F)

Att. Gen. for New South Wales v. Quin [1990]

Vol. 64 Australian Law Journal Reports 327,

referred to.

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Public Law 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 of legitimate

expectation can have no role to plan 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

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 of the

deciding authority without any such legal bounds and if the

decision is 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. (193-G-A; 194-A)

3.9 If a denial of legitimate expectation in a given case

amounts to denial 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

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 of the grounds to

consider but the court must lift the veil and see whether

the decision is violative of these principles warranting

interference. (194-E-F)

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3.10 The concept of legitimate expectation is "not the key

which unlocks the treasury of natural justice and it ought

not to unlock the gates which shuts the court out of review

on the merits," particularly when the element of speculation

and uncertainty 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.

Otherwise a resourceful litigant having vested interests in

contracts, licences etc. can successfully indulge In getting

welfare activities mandated 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 New South Wales v. Quin 1990

Vol. 64 Austraian Law Journal Reports 327,

referred to.

3.11 In the instant case, the Rules for entering into

contracts lay down certain norms and contain guidelines.

They provide for constitution of Tender Committee and the

procedure to be followed in the matter of inviting tenders.

They also provide for negotiations but lay down that

selection 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 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 man-,, instances where the Railways as per

the procedure followed, arrived at decisions in respect of

both price and quantity for good and justifiable reasons.

(178-A-B-C)

3.12 There is no legally fixed procedure regarding fixation

of price and particularly regarding allotment giving scope

to a legitimate expectation. The Tender Committee is not a

statutory authority and its proposals are recommendatory in

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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 point of view

of public interest. (178-D-E)

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4. The modifications In the decision of the Railways by

way of judicial review are not on the ground of legitimate

expectation and violation of principles of natural justice

but on the other ground namely the decision of the

authorities was based on wrong assumption of formation of

Cartel. (195 F-G)

5.The status of a manufacturer being a BIFR company 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 for the purpose of allocation of

quantities. The stand taken by the Railways is that smaller

manufacturers should survive from the point 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 performance, capacity etc, the allotment was being

made. Therefore, these cannot be said to be irrelevant

considerations and as a matter of fact they had been duly

given effect to and weightage was given accordingly in

respect of allotment of quantities to various manufacturers

within the four corners of the limited tender. (196 C-E)

JUDGMENT:

CIVIL APPELLATE JURISDICTION: S.L.P. (C) Nos. 1189798/92

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, Rama Jois, A. Temton, Dr. Shankar Ghosh K. K.

Venugopal, Harish Salve, F.S. Nariman, A.N. Haksar, Shanti

Bhushan, K.N Bhat, T.R. Andhyarujina, C.V Subba Rao, P.P.

Singh, Mrs. B. Sunita Rao, Sudhir Kulshreshtha, Rohit

Tandon, Parijat Sinha, Ms. Sunanda Roy, Ms. S. Bhattacharya,

B.D. Ahmed, Man Mohan Singh, Gopal Subramanium, D.N. Mishra,

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

Tripurary Roy. K.L. Mehta, S. Ganesh, Pratap Venugopal,

K.J. John, Pramod Dayal, Ajay K. Jain and D.N Nanjunda Reddy

for the appearing parties.

The judgment of the Court was delivered by

137

K. JAYACHANDRA REDDY, J. By our order dated 14th January,

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

appropriate and necessary to refer to some of them for a

better appreciation of the reasons in their proper

perspective.

Every year the Railway Board enters into contracts with the

manufacturers for the supply of cast steel bogies which are

used in turn for building the wagons. Cast steel bogies

come under a specialised item procured by the Railways from

the established sources of proven ability. There are 12

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suppliers in the field who have been regularly supplying

these items. Two new firms Simplex and Beekay also entered

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

Bharatiya are bigger manufacturers having capacity to

manufacture larger quantities. On 25.10.91 a Iimited tender

notice for procurement of 19000 cast steel bogies was issued

to the regular suppliers as well is the above two new

entrants for the year namely from 1.4.92 to 31.3.93. The

last date for submission of offers to the Ministry of

Railways was 27.11.91 by 2.30 P.M. and the tenders were to

be opened on the same day at 3 P.M. It was also stated

therein that the price was subject to the price variation

clause and the base date for the purpose of escalation was

1.9.91 and that the Railways reserved the right to order

additional quantity upto 30% of the ordered quantity during

the currency of the contract on the same price and terms and

conditions with suitable extensions in delivery period. The

offers were to remain open for a period of 90 days. On that

day the tenders were opened in the presence of all parties.

The price quoted by the three manufacturers i.e. M/s H.D.C.,

Mukand and Bharatiya was an identical price of Rs. 77,666

per bogie while other tenders quoted between 83,000 and

84.500 per bogies 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 Tender Committee of the Railways

which considered all the aspects. The Committee concluded

138

that three of the tenderers namely M/s H.D.C., Mukand and

Bharatiya who had quoted identical rates without any cushion

for escalation between 1.7.91 and 1.9.91, have apparently

formed 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 result of the

concessions in respect of the reduction of customs duty on

the import of steel scrap and dispensation of the freight

equalisation fund for steel. The Tender Committee concluded

that the reasonable rate would be Rs. 76,000 per bogie. On

the question of distribution of quantities to the various

manufacturers the Tender Committee decided to follow the

existing procedure. The Tender Committee signed these

recommendations on 4.2.92 but on the same day the Member

(Mechanical) of the Committee received letters from M/s

H.D.C. and Mukand. M/s H.D.C. in its letter stated that in

view of the concessions and also on the basis that per Kg.

rate of casting per bogie could be reduced from Rs. 37.50 to

Rs. 29 the cost of casting can also be reduced and therefore

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

rate, in case a negotiation meeting is called. M/s Mukand

in its letter also offered to substantially reduce (he

prices and they would like to co-operate with the Railways

and the Government and brings down the prices as low is

possible and asked for negotiations. Though this was post-

tender correspondence the Department felt that the offers

made by M/s H.D.C. and Mukand could be considered. The

whole matter was examined by the Advisor (Finance) in the

first instance and by an collaborate note lie observed that

the need for encouraging open competition to improve quality

and brings down costs his been recommended by the government

and if it is intended to continue the existing policy of

fixing a rate and distributing the order among all the

manufacturers, then negotiations may not he useful as

uniform prices offered to all manufacturers have to be

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sufficient even for the smaller and less economical units

and that as any review of the existing policy would take

time, the present tender can be decided on the basis of the

existing policy. With this noting the file was immediately

sent to the Member (Mechanical), the net higher authority,

The, with some observations however recommended the

acceptance of the Tender Committee's recommendations. The

file was then put up to Financial Commissioner. He noted

that the Tender Committee was convinced that the three

manufacturers who quoted identical price of Rs. 77,666 had

formed a cartel. He also considered the offers made by M/s

H.D.C. and Mukand and observed that these three

manufacturers who quoted

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a cartel price intended to get a larger order on the basis

of such negotiated price which would eventually nullify the

competition from the other manufacturers and lead to their

industrial sickness and subsequently to monopolistic price

situation. He, however, approved the Tender Committee's

recommendations that a counter-offer of Rs. 76,000 may he

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 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 quantities may be

applied to all manufacturers except the three who have

formed a cartel. The also recommended some recoveries from

these three manufacturers who are alleged to have formed a

cartel on the basis of their letters wherein they have

quoted prices which were much less than the updated price as

on 1.9.91 of Rs. 79,305. He also made certain other

recommendations and finally concluded that the post tender

letters may be ignored and that for short-term gains the

Department can not sacrifice long-term healthy competition.

After these recommendations of the Financial Commissioner

the file was put up to the approving authority i.e. the

Minister for Railways, who in general agreed with the

recommendations of the Financial Advisor. He also noted

that these three manufacturers have formed a cartel. lie

also noted that subsequent to the Financial Commissioner's

note, besides M/s 1 1. D. C. and Mukand has also offered to

reduce the price by 10% or more vide their letter dated

19.2.92 if called for negotiations. Taking these

circumstances into consideration the Minister ordered that

all these three firms may he offered a price lower by Rs.

11,000 with reference to the counter-offer recommended by

the Tender Committee and the quantities also be suitably

adjusted so that the cartel is broken, 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. The also ordered

that 30% option should straightaway be exercised. After the

approving authority took these decisions, the file went to

the Chairman. Railway Board for implementing the decisions.

The 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 price to all the manufacturers

as that would result in saving much more.

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The file was then again sent to and was considered by the

Financial Commissioner who noticed this endorsement made by

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the Chairman, Railway Board. The however noted that so far

all the other firms are concerned it is Rs. 3305 less than

the present contract price but it would not be equitable to

offer the lower price put forward by the three manufacturers

as it Would make the other units unviable and that

incidentally the price of Rs. 76,000 now proposed to be

counteroffered to the other firms is also in line with the

recommendations of the Tender Committee. The, however,

noted that some of the units were sick units and owe a lot

of money to the nationalised banks and it would therefore be

in the national interest to accept dual-pricing Therefore

the file was again put up to the approving authority who

agreed with the recommendations of the Financial

Commissioner and the Tender Committee and directed that the

same may be implemented. In view of this final decision

taken by the approving authority a telegram was issued to

the three manufacturers giving them a Counter-offer of Rs.

65,000 per bogie. The counter-offer was also made to the

other nine manufacturers at the rate of Rs 76,000 per bogie

namely the price worked out by the Tender Committee. Soon

after the receipt of this telegram dated 18.3.92 M/s H.D.C.

and Mukand filed writ petitions in the Delhi high Court

challenging the so-called discriminatory counteroffer. M/s

Bharatiya also filed a similar petition in Calcutta High

Court but the same was withdrawn but another writ petition

was filed later in the Delhi High Court. In the writ

petitions filed by M/s H.D.C. and Mukund the High Court

stayed the operation of the telegram dated 18.3.92 and

issued notice to the Union of India and to the Executive

Director and Director of the Railways (Stores) who figured

as respondents in those writ petitions. M/s M. 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 lo supply the bogies at the rate of Rs. 67,000 per

bogie. The Railways accepted this offer and intimated M/s

H.D.C. and Mukand accordingly. The High Court. at an

interlocutory stage pending the writ petitions. passed an

order on 2.4.92. directing the Ministry to accept the

allocation of bogies recommended by the Tender Committee and

to pay a price at the rate of Rs. 67,000 only per bogie and

that would be subject to the final decision of the writ

petitions. Being aggrieved by this order, the Railways

filed a petition for special leave to appeal no. 5512/92 and

this Court while refusing to interfere at that interlocutory

stage made the following observations

141

on 28.4.92:

"However, we may observe-and so direct that

during the pendency of the writ petition if

any of the suppliers in terms of the package

of distribution indicated by the High Court

(including the petitioners in the High Court

in the writ petition) seek an "on account"

payment representing the difference between

the sum of Rs. 67,000 indicated as price by

the High Court and the sum of Rs. 76,000

contemplated by the Railways; the order of the

High Court shall not prohibit the government

making such on-account payment to such

suppliers on each wagon on the condition that

the said on-account payment of Rs. 9.0000) per

bogie should he covered by a bank guarantee

for its prompt repayment together with

interest at 20% per annum in the event the on-

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account payment cannon( be observed in the

price structure that may ultimately come to be

determined pursuant to the final decision in

the writ petitions.

The special leave petitions are disposed of

accordingly."

Thereafter the High Court took up the writ petitions for

final hearings any by the impugned judgment allowed the writ

petitions filed by M/s H.D.C. and Mukand and directed that

all the suppliers should make the supplies at the rate of

Rs. 67,000 per bogie and also set aside the quantity

allocation and directed that the same should he considered

afresh on a reasonable basis and pending such fresh

consideration future supplies should be made on the basis of

the recommendations of the Tender Committee. In the course

of the judgment, the High Court also made certain

observations to the effect that the decision of the

approving authority is arbitrary and that the Government has

no justification to offer a higher price than the market

price to any supplier to rehabilitate it. It was further

observed that the stand of the Railways that those three

manufacturers formed a cartel is based on extraneous

considerations. The learned judges of the High Court also

observed that they failed to understand as to why the

Railway authorities could

142

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. 11897-98/02. Before the High Court in the two

writ petitions filed by M/s H.D.C and Mukand the other

manufacturers figured as respondents Nos. 4 to 12 and M/s

Bharatiya otherwise known as Besco figured as respondent No.

13. The other S.L.Ps. are filed by those nine

manufacturers. M/s Bharatiya, respondent No. 13, has not

questioned the judgment of the High Court. As mentioned

above M/s Bharatiya filed a separate writ petition No. 1753/

92 in the Delhi High Court after withdrawing an earlier writ

petition filed in the Calcutta High Court. The same also

was disposed of in terms of the judgment in the other two

writ petitions Nos. 1152 and 1157/92. But they have not

questioned the same. Consequently M/s Bharatiya figures as

a respondent before us in the SLP filed by the Union of

India.

In our earlier order we have already referred to the various

Submissions made by the learned counsel on behalf of Union

of India and on behalf of the respondents particularly M/s

H.D.C. Mukand and Bharatiya and other smaller

manufacturers. After considering the various submissions

and issues involved we have given our conclusions in our

earlier order which briefly stated are as follows:

1)There is no enough of material to conclude that M/s.

H.D.C., Mukand and Bhartiya formed a cartel. However. there

was scope for enter training suspicion by the Tender

Committee that they formed a cartel since all the three of

them quoted identical price and the opinion entertained by

the concerned authorities including the Minister 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 bonafide manner in taking the

stand that the three big manufacturers formed a cartel.

2)The direction of the High Court that the supply of

bogie should be at Rs.67000 by every manufacturer can not he

sustained and that a fresh consideration of a reasonable

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price is called for. The Tender Committee shall reconsider

the question of fixation of reasonable price. While doing

so it shall consider the offer of Rs. 67,000 made by

143

M/s H.D.C. and Mukand alongwith the data that would given by

them in support of their offer and the percentage of profits

available to all the manufacturers and other relevant

aspects and then fix a reasonable price at which the

manufacturers would be able to supply.

3) Dual pricing under certain circumstances may be

reasonable and the stand of the railways to adopt dual

pricing under the circumstances is bonafide and not

malafide. M/s H.D.C., Mukand and Bharatiya must be deemed

to be in a position to supply at the rate of 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.

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 Rs. 67,000.

(5) The price thus fixed by the Tender Committee which

applies only to the smaller manufacturers shall he deemed to

be final and the respective contracts shall be deemed to be

concluded so for the price is concerned.

(6) Coming to the allotment of quota of bogies the Tender

Committee made recommendations on the basis of the existing

practice. The Minister of Railways in his ultimate decision

has made some variations taking into consideration the

recommendations of the Financial Commissioner and other

authorities. In making these variations, the Minister

accepting the suggestion that a cartel was formed by the

three manufacturers reduced the allotment of quota to them

by way of reprisal. Since we are of the view that formation

of a cartel is not established, such a reduction of quota

can not be justified. The Minister of Railways as the final

authority as be justified in takings a particular decision

in the matter of allotment of quota but such decision must

be taken on objective basis. In allotting these quotas the

Government is expected to be just and fair to one and all.

7)The three big manufacturers M/s H.D.C.,Mukandand Bharatiya

144

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 disturbed and the railway

authorities may make necessary adjustments next year in the

matter of allocation of quantities to them takings into

consideration the allotments given to them this year;

(8)It will be open to the Railways to exercise 30% option,

if not already exercised.

(9)Taking all the circumstances and the time factor into

consideration the time to complete the supply is extended

upto 31.3.1993.

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 of stopping monopolistic

tendencies.

Shri K.K. Venugopal, learned counsel appearing for M/s

H.D.C. at the outset submitted that in a case of this nature

the Government must either by way of public auction or by

way of inviting tenders work out (he lowest price and award

the contract accordingly, as that would safeguard the

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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 manufacturers. Shri Sibal, learned

counsel appearing for the Union of India, however, contended

that it is a matter of policy decision by the Government and

that where the Government realises that the lowest ,)rice

offered is not reasonable and realistic, it may for a

variety of good and sufficient reasons reject the same.

It is true, as it is today, that the Government in a welfare

State has the wide powers in regulating and dispensing of

special services like leases, licences.

and contracts etc. The magnitude and range of such

Governmental function is great. The Government while

entering into contracts or issuing quotas is expected not to

act like private individual but should act in conformity

with certain healthy standards and norms. Such actions

should not be-arbitrary, irrational or irrelevant. In the

145

matter of awarding contracts inviting tenders is considered

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

or restrictions then they should not be arbitrary and must

be justifiable on the basis of some policy or valid

principles which by themselves are reasonable and not

discriminatory. In the instant case the Railways every year

used to enter into contracts with the established

manufacturers for the supply of cast steel bogies and there

are 12 such suppliers. On 25.10.91 a 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 term: with suitable extension in delivery

period. Clause 7 is to the 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 price is subject to price

variation clause and the base date for the purpose of

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

the Department 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 (lie conditions mentioned therein, 12

manufacturers in the field a well as two new manufacturers

M/s Simplex and Beekay submitted their offers and

they are as follows:

NAME OF THE FIRMS

PRICE QUOTED

FOR 20.3.T AXLE LOAD

1. Himmat 84,510

2. Texmaco 83,950

3. Titaoarh 84,100

4. BECO Ltd. 83,350

5, Anup 84,980

6. Sri Ranga 84,600

7. Orient 84,750

146

8. Bum Standard 83,000

9. CIMMCO 84,800

10. Mukand 77,666

II. Bharatiya 77,666

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12. HDC 77,666

13. Simplex 78,100

14. BEEKAY 75,000"

These offers were got technically evaluated by the Research,

Development and Standard Organisation (RDSO' for short).

Thereafter 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 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 law carte

1. The offers made by the two new firms, however, were not

accepted. The Tender Committee made their own

recommendations and fixed Rs. 76,000 as a reasonable price

at which counter offer could be made. Then as already

mentioned there was post-tender correspondence and

ultimately a dual price was fixed. In this regard the

submission is that having entertained post-tender

correspondence, the Government either should have accepted

the same or rejected the same and in any event the lowest

offer should have been accepted. From a perusal of the

proceedings of the Tender Committee as well as the opinion

expressed by the Financial Commissioner and the other

members of the Board, it is clear that 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-tender

offer at a lower price was made with the hope that they

would get the entire or larger quantity allotted. The stand

taken by the Railways is that the three big manufacturers

originally formed a cartel and the post-tender offers at

least by two of them confirmed the same and if these three

big manufacturers are allotted entire or larger quantity

that would result in monopoly extinguishing the smaller

manufacturers. The question is whether such a stand taken

by the Government as a policy, is unfair and arbitrary as to

warrant interference by the courts.

147

It must be mentioned at this stage that the validity of the

conditions in the tender as such are not questioned.

Consequently the Government 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 Equipment and Chemicals Ltd. v. State of West

Bengal [1975] 2 SCR 674, this court observed as under:

"When the Government is trading with the

public, " the democratic form of Government

demands equality and absence of arbitrariness

and discrimination in such transactions. The

activities of the government have a public

element and, therefore, there should be

fairness and equality. The State need not

enter into any contract with anyone, hut if it

does so, it must so fairly without

discrimination and without unfair procedure.

Approving these principles, a Bench of this Court in Ramana

Dayaram Shetty v. The International Air-port Authority of

India and Ors[1979] 3 SCR 10 14, 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 job

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so 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 Government 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

nondiscriminatory standard or norm and if the

Government departs from such standard or norm

in any particular case or cases, the action of

the Government

148

would be liable to be struck down, unless it

can he shown by the Government that the

departure %%,as not arbitrary, but was based

on some valid principle which in itself was

not irrational, unreasonable or

discriminatory."

ln Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir

and Anr. [1980] 3 SCR 1338 an order awarding contract by the

Government to a party was questioned on the ground that it

was arbitrary, malafide and not in public interest and the

same created monopoly in favour of that party and that the

contract was awarded without affording an opportunity to

others to compete and the same is not based on any rational

or relevant principle and therefore was violative of Article

14 of the Constitution and also the rule of administrative

law which inhibits the arbitrary action by the State. A

Bench of this Court while approving the principles laid down

in the above cases further observed thus:

"Though ordinarily a private individual would

be guided by economic considerations of self-

gain any action taken by him, it is always

open to under the law to act contrary to his

self-interest or to oblige another in entering

into a contract or dealing with his property.

But the Government is not free to act is it

likes in granting largess such as awarding a

contractor selling or leasing out its

property. Whatever be its activity, the

Government is still the Government and is,

subject to restraints inherent in its position

in a democratic society. The constitutional

power conferred on the Government cannot be

exercised by it arbitrarily or capriciously or

in an unprincipled manner; 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 Government 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

149

otherwise deals with its property or grants

any other largess, it would be liable to be

tested for its validity on the touch-stone of

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reasonableness and public interest 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 manifestation and expression in

the lofty ideal of social and economic justice which

inspires and animates the Directive Principles and that

Article 14 strikes at arbitrariness in State action. (vide

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

Royappa v. State of Tamil Nadu & Anr. f 1974 12 SCR 348.

After referring to these decisions it was further held in

Kasturi 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 constitutional 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 according to the founding

fathers constitutes the plainest requirement

of public interest is set out in the Directive

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 ordinarily,

subject to any other overriding considerations

be informed with public interest. Where any

government 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

150

struck down as invalid. It must follow as a

necessary corollary from this proposition that

the Government cannot act in a manner which

would benefit a private party at the cost of

the State; such an action would be both

unreasonable and contrary to public interest.

The Government therefore, cannot, for example

give a contract or sell or lease out its

property for a consideration less than the

highest that can be obtained for it, unless of

course there are other considerations which

render it reasonable and in public interest t

o

do so. Such considerations many that some

Directive Principle is sought to be advanced

or implemented or that the contract or the

property is given not with a view to earning

revenue but for the purpose of carrying out a

welfare scheme for the benefit of a particular

group or secretion of people deserving it or

that the person who has offered a higher

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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 which may have to be

taken into account by the Government in

formulating its policies and it is on a total

evaluation of various considerations which

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 arriving at its determination on this

question is that there is always a presumption

that the 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 is a heavy

one and it has

151

to be discharged to the satisfaction of the

Court by proper and adequate material. The

Court cannot lightly assume that the action

taken by the Government is unreasonable or

without public interest because as we said

above, there are a large number of policy

considerations which must necessarily weigh

with the Government 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. 'I-his is one of the most important

functions of the Court and also one of the

most essential for preservation of the rule of

law."

(emphasis supplied)

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 Government in grant of largess is in

regard to the persons to whom such largess may

be granted. It is now well settled as a

result of the decision of this Court in

Ramanad Shetty v.International Airport

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 discretion. The law is now well

established that the Government need not deal

with anyone, but if it does so, it must do so

fairly without discrimination and without

unfair procedure. where the Government is

dealing with the public, whether by way of

giving jobs or entering into contracts or

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granting other forms of largess, the

Government cannot act arbitrarily at its sweet

will and, like a private individual, deal with

any person it pleases, but its action must be

in conformity with some standard or norm which

is not arbitrary, irrational or

152

irrelevant. The governmental action must not

be arbitrary or capricious, but must be based

on some principle which meets the test of

reason and relevance. This rule was

enunciated by the Court as a rule of

administrative law and it was also validated

by the Court as an emanation flowing directly

from the doctrine of equality embodied in Art.

14."

(emphasis supplied)

In State of Uttar Pradesh and others v. Vijay Bahadur Singh

and others [1982] 2 SCC 365 this Court considered the

circumstances under which the Government is not always bound

to accept the highest bid offered in a public auction under

which a contract was to be awarded to fell trees and exploit

forest produce and held as under:

"It appears to us that the High Court had

clearly misdirected itself. The Conditions of

Auction made it perfectly clear that (lie

Government was under no obligation to accept

the highest bid and that no rights accrued to

the bidder merely because his bid happened to

he 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 even to

prefer a tenderer- other than the highest

bidder. The High Court was clearly in error

in holding that the Government could not

refuse to accept the highest bid except on the

ground of inadequacy of the bid. Condition 10

does not so restrict the power of the

Government not to accept the 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 Government not to accept the highest bid.

In fact, to give an antithetic illustration,

the very enormity of a bid may make

153

it suspect. It may lead the Government to

realise that no bonafide bidder could possibly

offer such a bid if he 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

confirmation, 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

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the time and situation and in the public

interest. If the government has the power to

accept or not to accept the highest hid 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 of Orissa and Ors. v. Harinarayan Jaiswal and Ors.

[1972] 3 SCR 784 it was observed as under:

"It is for the Government to decide whether

the pi-ice offered in an auction sale is

adequate. While accepting or rejecting a bid,

it is merely performed and executive function.

The correctness of its conclusion is not open

'to judicial review. We fail to see how the

plea of contravention of Art. 19 (1) (g) or

Art. 14 can arise in these cases. The

Government's power to sell the exclusive

privileges set out in s. 22 was not denied.

It was also not disputed that those privileges

could be sold by public auction. Public

auctions are held to get the best possible

price. Once these aspects are recognised,

there appears to be no basis for contending

that the owner of the privileges in question

who had offered to sell then cannot decline to

accept the highest bid if he thinks that the

price offered is inadequate. There is no

154

concluded contract till the bid is accepted.

Before there was a concluded contract, it was

open to the bidders to withdraw their bids-see

Union of India and ors. v. M/s Bhimsen Walaiti

Rani [1970] 2 SCR 594. By merely giving bids,

the bidders had not acquired any vested

rights. The fact that the Government was the

seller does not change the legal position once

its exclusive right to deal with those

privileges is conceded. 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 he any infringement

of Art. 14, if the Government tries to get the

best available price for its valuable rights."

emphasis supplied)

In G.B. Mahajan and others v. Jalgaon Municipal Council and

others [1991] 3 SCC 91 it was observed thus:

" The reasonableness' in administrative law

must, therefore, distinguish between proper

use and improper abuse of power. Nor is the

test the court's own standard of

'reasonableness' as it might conceive it in a

given situation."

In State of Madhay Pradesh & ors v. Nandlal Jaiswal & ors.

[1987] 1 SCR 1 it was observed thus:

" We must not forget that in complex economic

matters every decision is necessarily empiric

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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

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 policy decision would

have been fairer or wiser or more scientific

or logical. The Court can interfere only if

the policy decision is patently arbitrary,

discriminatory or mala fide. It is against

the back-round of these observations and

keeping the mind that we must now proceed to

deal with the contention of the petitioners

based on article 14 of the Constitution."

In India Cement Ltd. and others v. Union of India and

others[1990] 4SCC 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

Travancore Cement Ltd. was rational and reasonable. This

Court held as under:

"It is. therefore, clear that fixation of Rs.

100 per tonne as die uniform retention price

for the entire industry with the solitary

exception of M/s. Travancore Cement Ltd.

Kottayam for which justification has been

shown. was on a rational basis taking into

account all relevant data and factors

including the cement industry's acceptance of

the principle of a uniform retention price for

the entire industry. the only difference being

in die price actually fixed it Rs. 100 per

tonne instead of Rs. 104 per tonne claimed by

the cement industry. It is obvious that the

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 the

industry is not within the domain of

permissible judicial review, if the principle

of a Uniform retention price for the entire

industry cannot be faulted.

(emphasis supplied)

The Bench in die above case, after referring to die decision

of the Constitution

156

Bench in Shri Sitaram Sugar Co. Lid. v. Union of India

[1990] 3 SCC 223, observed thus:

" It was pointed out that what is best for the

industry and in what manner the policy should

be formulated and implemented. hearing in mind

the object of supply and equitable

distribution of the commodity at a fair price

in the best interest of the general public, is

a matter for decision exclusively within the

province of the Central Government and such

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matters do not ordinarily attract the power of

judicial review. It was also held (hit 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 unit wise on actual cost basis of' each

unit was reiterated and it was pointed out

that such a policy promotes efficiency and

provides and incentive to cut down the cost

introducing an element of healthy competition

among the units.

xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx

xxxxxxxx

It is. therefore. clear that the principle of

fixation of uniform price for the industry is

an accepted principle and this has to be done

by fixing a uniform price on the basis of the

cost of a reasonably efficient and economic

representative cross-section of manufacturing

units and not with reference to the cost in

relation to each unit. Obviously, 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:

157

The only surviving question for consideration

is the 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 Government

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 while the standard capacity for a

unit is two lakh tonnes per annum; so that

this unit is not capable of expanding the

capacity and it is on the whole an uneconomic

unit deserving a special consideration. No

material has been produced by the appellant.

M/s Chettinad Cement Corporation Limited. to

show that it is a similar substandard uni

t

without any capacity for expansion. so that it

too must continue to be an uneconomic unit

like M/s Travancore Cement Limited, Kottayam

deserving, a similar treatment. The counter

affidavit. therefore. shows a rational basis

for classifying M/s Travancore Cement Limited,

Kottayam differently as a sub-standard and an

uneconomic unit without any scope for

improvement in comparison to other units.

This argument also is untenable."

In R.K. Garg v. Union of India, [1981]4 SCC 675, a

Constitution Bench of this Court observed as under:

" Another rule of equal importance is that

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laws relating to economic activities should be

viewed with greater latitude. than laws

touching the civil rights such as freedom of

speech religion etc. It has been said by no

less a person than Holmes, J. that the

legislature should be allowed some play in the

joints, because it has to deal with complex

problems which do not admit of solution

through any doctrinaire or strait-.jacket

formula and this is particularly true in case

of legisla-

158

(ion dealing with economic matters, where

having regard to the nature of the problems

required to be dealt with. greater play in the

joints has to he allowed to tile legislature.

The Court should feel more inclined to give

judicial deference to legislative judgment in

the field of economic regulation then in other

areas where fundamental human rights are

involved. Nowhere has this admonition been

more felicitously expressed than in Morey v.

Doud 354 US 457 where Frankfurter, J said in

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 judgment. The legislature after

all has the affirmative responsibility the

courts have only the power to destroy not to

reconstruct. When these are added to the

complesity of economic regulation, the

uncertainty, the liability to error. the

bewildering conflict of the experts, and the

number of times the judges have been overruled

by events--self-limitation can be seen to be

the path of judicial wisdom and institutional

prestige and stability."

(emphasis supplied)

In Peerless General Finance and Investment Co. Limited and

Another v. Reserve Bank of India etc. [1992] 2 SCC 343 the

accent of power of the Courts interfering. in such economic

policy matters was considered and it was held as under:

"The function of the Court is to see that

lawful authority is not abused but not to

appropriate to itself' the task entrusted to

that authority. It is well settled that a

public body invested with statutory powers

must take care not exceed or abuse 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. Courts

are not to interfere with economic policy

which is the function of experts. It is not

the function

159

of the courts to sit in judgment over matters

of economic policy and it must necessarily be

left to the expert bodies. In such matters

even expert can seriously and doubtlessly

differ. Courts cannot be expected to decide

them without even the aid of experts."

It was further observed thus:

" The function of the Court is not to advise

in matters relating to financial and economic

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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

or violative of any Provisions of the

Constitution or any statute. It would be

hazardous and risky 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 of the Government in the matter of fixation of

price and in allotment of the largess from the point of'

view of prohibiting monopolistic tendencies and encouraging

healthy competition among the units, is in any manner

unreasonable or arbitrary. As submitted by the learned

counsel, the policy of the Government is to promote

efficiency in the administration and to provide an incentive

to the uneconomic units to achieve efficiency. The object

underlying the Monopolies and Restrictive Trade Practices

Act, 1969 C'MRTP Act' for short ) is to prevent the

concentration of economic power and to provide for a control

on monopolies prohibition of monopolistic trade practices

and restrictive trade practices. The Monopolies Inquiry

Commission in its report stated that:

"There are different manifestations of

economic power in different fields of economic

activity. One such manifestation is the

achievement by one or more units in an

industry of such a dominant position that they

are able to control the market by regulating

prices

160

or output or eliminating competition. Another

is the adoption by some producers and

distributors, even though they do not enjoy

such a dominant position. of practices which

restrain competition and thereby deprive the

community of the beneficent effects of the

rivalry between producers and producers, and

distributors 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 activity by a few industrialists by

diverse means. Apart from affecting the

economy of the country, this often results in

the creation of industrial empires, tending to

cast their shadows over political democracy

and social values."

In U.S.A. under the Sherman Act of 1890. every contract or

combination in the form of trust or otherwise or conspiracy

in restraint of trade or commerce is declared to be illegal.

By that at every person who monopolised or attempted to

monopolise or combined or conspired with any other person or

persons to monopolise any part of the trade or commerce was

guilty of mis-demeanour.

Regarding the constitutionality of the said Act. a passage

in American jurisprudence 2d, vol. 54 pages 668-669 reads

thus:

2. Constitutionality.

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The Sherman Act (15 USCSS 1-7) is a

constitutional exercise of the commerce power.

Its general language does not render it

invalid as an unconstitutional delegation of

legislative power to the courts or as an

unconstitutionally vague criminal statue. Its

application to a monopolistic association of

newspaper publisher 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."

161

In England, the Competition Act, 1980 controls anti-

competitive 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 as best to subserve the

common good and to ensure that while promoting industrial

growth there is reduction in concentration of wealth and

that the economic power is brought about to secure social

and economic justice.

Bearing the above principles in mind, we shall now proceed

to examine the action taken by the Railways in the matter of

fixation of the price and distribution of quantities and see

whether the same has been done pursuant to a policy and thus

reasonable or whether there has been an arbitrary exercise

of power. We have already noted that it is a case of

limited tender meant for the 12 manufacturers who have been

supplying the railway bogies. The offers made by the

tenders were got technically evaluated by the RDSO and

thereafter they were examined by the-render Committee as

well as by the Railways Board and finally by competent

authority. The assessed capacity of each manufacturer is

the one assessed by the RDSO, a wing of the Railways and the

same is based on the molten capacity of the manufacturers

and other relevant factors. After fixing the reasonable

price, the quantity distribution can be determined based on

the assessed actual capacity of the manufacturers, 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 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 he effected. A perusal of the

Tender Committee's recommendations, the enclorsements made

by the members of the Railway Board and the views expressed

by the competent authority

162

could 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 'render Committee in

the first instance examined the prices quoted-by the

tenderers. The Committee decided that while placing orders,

only the RDSO permitted deviations will be allowed and the

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suppliers have to adhere to rest of the specifications as

was being done in the earlier years. Then coming to the

prices, the Tender committee noted that the three big

manufacturers quoted identical price in terms by forming a

cartel among themselves. Having applied the price variation

formula, the updated price was fixed at Rs. 79,305 as on 1.

9.91. However, taking into consideration the two concessions

is respect of import duty and (fie freight equalisation the

Committee ultimately recommended the price of Rs. 76.000.

The Tender Committee also noted that this price is very near

to the lowest among the updated price. Regarding the

distribution of quantities the Tender committee recommended

that the same may be distributed among the various

manufacturers as shown in (he annexure to their recommenda-

tions. In recommending such distribution to various

manufacturers the Tender committee 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 Committee ultimately recommended that

a counter-offer at the price of Rs. 76,000 for 20.3 T bogies

can be made and the quantities can be distributed as

indicated in the be annexure. This was done on 4. 2. 92 and

then the post- tender correspondence was there %%,hereby two

of the three big manufacturers offered to reduce their price

if negotiations be held. Then the file went to the Railway

Board. Advisor (Finance) particularly indicated that a view

has to be taken whether a large number of manufacturers

should be continued manufacturing these bogies in small

quantities as at present or to permit a small number of

manufacturers to expand their production at the cost of

other prices and that the policy which has been followed by

the Railways so far is to encourage a large number of

parties to manufacture the bogies, with the idea of

generation competition as also by way of encouraging small

scale industries. fie, however, pointed out that since the

review of policy would take time, the tender could be

decided on the basis of the existing policy. The Member

(Mechanical) agreed with this recommendation. Then the file

went to Financial Commissioner. He noted that the three big

manufacturers have formed a cartel and they have given offer

to reduce their price if negotiations are held and their

intention apparently is to get a

163

larger share on the basis of such negotiated price which

would eventually nullify the competion from the other

manufacturers and Subsequently to monopolistic price

situation. Having stated so he recommended that the wagon

builders and other smaller manufacturers 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:

" Now, due to the new economic policy, the

structural changes are in a flux and as a

monopoly buyer it is incumbent on the part of

the Railway not to precipitate any crisis by

resorting to negotiation on the basis of II

DC's 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.

1, 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."

With these nothings, the file went to the Railway Minister

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and in his order, he noted that the three big manufacturers

have formed a cartel and that under the circumstances all

the three of them may be offered a price lower by Rs. 11.000

and the quantities also should be suitably adjusted so that

the cartel is broken and he ordered 1795, 2376 and 2500

number of bogies to M/s H. D.C., Mukandand Bharativa

respectively. The Minister further observed that since the

present formula suffers from serious blemishes as pointed

out by the Financial Commissioner, 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 redistribution of the balance quantities as

follows:

Bum 500

Cimmco 1200

Texmaco 1200

164

Sri Ranga 1560

Anup 1136

Orient 1050

TSL 1400

Himmat 1150

BECO 1600"

The Minister also ordered that straight away 30% option

should be exercised. The further noted that as a result of

this policy, the Railways would be effecting a saving of

about Rs. 11 crores. Then the file with this order went

back to the Member (Mechanical) and others for being

implemented. he, however. noted that the Minister for

Railways may consider whether the lower price could be

counter offered to all the companies. The Financial

Commissioner again noted that dual pricing would be in the

national interest and finally the Minister having noted

these endorsements of the Member (Mechanical) as well as the

Financial Commissioner made an endorsement that if some are

allowed to hold monopoly instead of giving protection to

smaller units, who have formed a cartel, they may gang up

and fight and fritter the smaller ones and that Railways

should always demonstrate of its own vision of long term

Railway interest and not short-terms gains and finally

agreed with the recommendations of the Financial commis-

sioners and also the recommendation of the 'Fender Committee

and directed the implementation of the same without further

delay. The above documents would show that a particular

policy has been adopted by the Government, though it

resulted in a change as compared to the previous one. As

held by the courts, change of policy by it self does not

affect the pursuant action provided it is rational and

reasonable

However, the submission is that the decision taken pursuant

to this policy in the matter of fixation of price and

distribution of quantities is based on wrong grounds and

suffers from the vice of unreasonableness. S/Shri Nariman,

Venugopal and Shanti Bhushan, learned counsel appearing for

M/s 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

offered by them was predatory are unfounded and that dual

pricing and the ultimate allotment of the quantities in a

punitive manner are based

165

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on a wrong premise and the final decision arrived at is

consequently 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 decision, which is

punitive and which defeats such legitimate expectation and

which is taken without affording an opportunity to these

manufacturers to explain, is violative of principles of

natural justice.

First we shall consider the submissions regarding the

formation of cartel by these big manufacturers, The word

"Cartel" has a particular meaning with reference to

monopolistic control of the market. In collins English

Dictionary, the meaning of the word "Cartel" is given as

under:

" cartel I also called: trust, a collusive

international association of independent

enterprises formed to monopolize production

and distribution of a product or service,

control prices etc.------------------------"

In Webster Comprehensive Dictionary,

International Edition, the meaning of the word

"Cartel" is given thus:

"cartel-------------------------

xx-----------

3. An international combination of

independent enterprises in the same branch of

production, aiming at a 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------------XX---------------

In Black's Law Dictionary, fifth edition the

meaning of the word "Cartel" is given thus:

166

"Cartel-A combination of producers of any

product joined together to control its

production, sale, and price, and to obtain a

monopoly in any particular industry or

commodity.Also, an association by agreement of

companies or sections of companies having

common interests, designed,, to prevent

extreme or unfair competition and allocate

markets, and to promote the interchange of

knowledge resulting from scientific and

technical research, exchange of patent rights,

and standardization of products."

In American Jurisprudence 2d Vol. 54 page 677 it is

mentioned thus:

"A cartel is an association by agreement of

companies or sections of companies having

common interests, designed to prevent extreme

or unfair competition and to allocate markets,

and perhaps also to exchange scientific or

technical knowledge or patent rights and to

standardize products, with competition

regulated but not eliminated by substituting

computational in quality, efficiency, and

service for price-cutting. An international

cartel arrangement providing for a worldwide

division of a market has been held a per se

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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 and eliminate outside

competition; and (4) participate in cartels to

restrict imports to and exports from the

United States.'

In a Dictionary of Modern Legal Usage by Bryian A.Gemer,it

is noted thus:

"cartlize=to organize into a cartel. See-

IZE. Yet cartel has three quite different

meanings; (1) " an

167

agreement between hostile nations"' (2) "an

anticompetitive combination usu. that fixes

commercial prices"; and (3) "a combination of

political groups that work toward common

goals." Modern 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 interest.

The intention to acquire monopoly power can be spelt out

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-

sions of Sherman Anti-Trust Act, in National Electrical

Contractors Associations, Inc. etal. v. National Contractors

Association etal 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 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

establishes the defendants' illegal purpose

since the aim and result of every price-fixing

agreement, if effective, is the elimination of

one form of competition."

It was also observed that:

"The critical analysis in determining whether

a particular activity constitutes a per se

violation is whether the activity on its face

seems to be such that it would always or

almost always restrict competition and

168

decrease output instead of being designed to

increase economic efficiency and make the

market more rather than less competitive."

Matsushita Electric Industrial Co., Ltd. et al v. Zenith

Radio Corporation et al 89 L.Ed. 2d 538 is a case where

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American manufacturers of consumer electronic products

brought suit against a group of their Japanese competitors

in the United States District Court alleging that these

competitors had violated Sections 1 and 2 of the Sherman Act

and other federal statutes. It was alleged that the

Japanese companies had conspired since 1950 to drive

domestic firms from the American Market, by maintaining

artificially high prices for these products in Japan while

selling them at a loss in the United States. The District

Court after excluding bulk of evidence, finally granted the

Japanese companies' motion for summary judgment dismissing

the claims. The United States Court of Appeal reversed and

remanded for further proceeding. On a certiorari, the

United States Supreme Court while considering the standards

supplied by the Court of Appeals in evaluating the summary

judgment, observed thus:

"To survive petitioners motion for summary

judgment respondents must establish that there

is a genuine issue of material

(475 US 586) fact as

to whether petitioners entered into an illegal

conspiracy that caused respondents to. suffer

a cognizable injury."

It was further observed that:

A predatory pricing conspiracy by nature

speculative. Any agreement to price below the

competitive level requires the conspirators to

forgo profits that free competition would

offer them. The forgone profits may be

considered an investment in the future. For

the investment to be rational

(475 US 589) the conspirators must have a

reasonable expectations of recovering, in the

form of later monopoly profits, more than the

losses suffered.

169

xxxxxxxx xxxxxxxx xxxxxxxxx

xxxxxxxx xxxxxxxx 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 such a conspiracy accrue before the

gains, they must be "repaid" with interest.

And because the alleged losses have accrued

over the course of two decades, the

conspirators could well require a

correspondingly long time to recoup.

Maintaining supra competitive prices turn

depends on the continued cooperation of the

conspirators, an the inability of other would-

be competitors to enter the market, and not

incidentally on the conspirator; ability to

escape antitrustliability for their minimum

price-fixing cartel. Each of these factors

weighs more heavily as the time needed to

recoup losses grows. If the losses have been

substantial as would likely be necessary

(475 US 593)

in order to drive out the competition-

petitioners 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 post-

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tender stage 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 the conspirators to forgo profits

that free competition would offer them. It was also held

therein as under:

"To survive a motion for a summary judgment, a

plaintiff seeking damages for a violation of S

1 of the Sherman Act must present evidence

"that tends to

170

exclude the possibility" that the alleged

conspirators acted independently. Thus,

respondents here must show that the inference

of a conspiracy is reasonable in light of the

competing inferences of independent action or

collusive action that could not have harmed

respondents.

(emphasis supplied)

Therefore mere offering of a lower price by itself, though

appears to be predatory, can not be a factor for inferring

formation of a cartel unless an agreement amounting to

conspiracy is also proved.

In webster Comprehensive Dictionary International Edition.

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

"predatory-1. characterized by or under taken for plun-

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

by preying upon others, as a beast or bird; raptorial. "

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

"predatory" is defined thus:

"Predatory preying on 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 collins English Dictionary, "Predatory" is

defined thus:

"predatory- 1. another word for predacious

(sense 12. of, involving, or characterized by

plundering, robbing, etc.............

xxxx......................

In Black's Law Dictionary, "Predatory intent"

is defined asunder:

"Predatory intent. "predatory intent," in

purview of Robinson-patmen Act, means that

alleged price dis-

171

criminator must have at least sacrificed

present revenues 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,

"predatory" is defined thus"

"Predatory 1. Of, pertaining to,

characterized by, or consisting in plundering,

pillaging, or robbery-xx - 2. Addicted

to, or living by, plunder; plundering,

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marauding, thieving, in modern use sometimes

applied to the criminal classes of great

cities.- xx- 3. Destructive, consuming,

wasteful, deleterious,- xx 4. Of an

animal; That preys upon other animals; that is

a beast, bird, or other creature of prey;

carnivorous. Also, of its organs of capture,

xx

We have noticed that monopoly is the power to control prices

or exclude competition from any part of the trade or

commerce among the producers. The price fixation is one of

the essential factors. In American jurisprudence. 2d Volume

54, a passage at page 695 reads thus:

"The Sherman Act does not out law price

uniformity. An accidental 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 conform to the

arrangement. The fixing of prices by one

member of

172

a group pursuant to express

delegation,acquiescence, or under standing is

just as illegal as the fixing of prices by

direct joint action. A price-fixing

combination is illegal even though the prices

are fixed only by one member and without

consultation with the others."

(emphasisd supplied)

A mere offer of a lower price by itself does not manifest

the requisite intent to gain monopoly and in the absence of

a specific agreement by way of a concerted action suggesting

conspiracy, the formation of a cartel among the producers

who offered such lower price can not readily be inferred.

In the instant case, the fact that two of the three big

manufacturers entered into post-tender correspondence and

also offered a lower price of 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 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 of the price of Rs. 67,000 by itself was

predatory and 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 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 ground 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 manufacturers who quoted a much lesser

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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 they were allotted quantities on the basis of

the existing practice. However a mere quotation of

identical price and an offer of further reduction by

themselves would not entitle them automatically

173

to comer the entire market by way of monopoly since the

final allotment of quantities vested in the authorities who

in their discretion can distribute the same to all the

manufacturers including these three big manufacturers on

certain basis. No doubt there was an apprehension 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 reserved a right to 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 there 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 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 bonafide

manner in taking the stand that the three big manufacturers

formed a cartel.

S/Shri Nariman, Venugopal and Shanti Bhushan, learned

counsel appearing for M/s Mukand, H.D.C. and Bharatiya

respectively. contended that the Railways were bound to

follow the rules and standards pertaining to the tender

system and on the basis of these provisions and the course

of conduct followed by the Railways in the matter of

fixation of price and allotment of quota in the past let the

manufacturers believe that the same course of conduct would

be followed and the manufacturers legitimately expected that

they would be treated equally and in a non-arbitrary manner

and such legitimate expectation is a right guaranteed under

Article 14.

In Food Corporation of India v. M/s Kamdhenu Cattle Feed

Industries JT (1992) 6 S.C. 259 Justice J.S. Verma Speaking

for the Bench observed as under:

"In contractual sphere as in all other State

actions, the State and all its

instrumentalities have to conform to Article

14 of the Constitution of which non-arbitrari-

ness is a significant facet. There is no

unfettered discretion in public law. A public

authority possesses powers only to use them

for public good. This imposes

174

the duty to act fairly and to adopt a

procedure which is fairplay in action'. Due

observance of this obligation as a part of

good administration raises a reasonable or

legitimate expectation in every citizen to be

treated fairly in his interaction with the

state and its instrumentalities, with this

element forming a necessary component of the

decision making process in all State actions.

To satisfy this requirement of non-

arbitrariness in a State action, it is

therefore, necessary to consider and give due

weight to the reasonable or legitimate

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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 bonafides 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 eliminate 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

it self be a distinct enforceable right; but

failure to consider and give due weight to it

may render the decision arbitrary and this is

how the requirement of due consideration of a

legitimate expectation forms part of the

principle of non-arbitrariness, a necessary

concomitant of the rule of law. Every

legitimate expectation is a relevant factor

requiring due consideration in a fair decision

making process. Whether the expectation of

the claimant is reasonable or Legitimate in

the context is a question of fact in each

case. Whenever the question arises, it is to

be determined not according to the claimant's

perception but in larger public interest

wherein other more important considerations,

may outweigh what would otherwise have been

the legitimate expectation of the claimant. A

bonafide decision of the public authority

reached in this manner would

175

satisfy the requirement of non-arbitrariness

and withstand judicial scrutiny. The doctrine

of legitimate expectation gets assimilated in

the rule of law and operates in. our legal

system in this manner and to this extent."

(emphasis supplied)

In Navjoti 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 aforesaid facts, the Group Housing

Societies were entitled to legitimate

expectation of following consistent past

practice in the matter of allotment,

even though they may not have any legal right

in private law to receive such treatment. The

existence of legitimate expectation' may have

a number of different consequences and one of

such consequences is that the authority ought

not to act to defeat the 'legitimate

expectation without some overriding reason of

public policy to justify its doing so. In a

case of 'legitimate expectation' if the

authority proposes to defeat a person's

'legitimate expectation' it should afford him

an opportunity to make representations in the

matter. In this connection reference may be

made to the discussions on 'legitimate

expectation' it page 151 of volume 1(1) of

Halsbury's Laws of England Fourth Edition (Re-

issue). We may also refer to a decision of

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the House of Lords in Council of civil Service

Union and others versus Minister for- Civil

Service reported in [1985] 3 All England

Reporter page 935. It has been held in the

said decision that an aggrieved person was

entitled to judicial review if he could show

that a decision of the public authority

affected him of some benefit or advantage

which in the past he had been permitted to

enjoy and which he legitimately expected to be

permitted to continue to enjoy either until he

was given reasons for withdrawal and the

opportunity to comment on such reasons.

176

It may be indicated here that the doctrine of

'legitimate expectation imposes in essence a

dun, on-public authority to act fairly, by

taking into consideration all relevant factors

relating to such 'legitimate expectation'.

Within the conspectus of fair dealing in case

of 'legitimate expectation', the reasonable

opportunities 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 Government

to make a departure from the existing policy

of allotment with reference to seniority in

Registration by introducing a new guideline."

(emphasis supplied)

Relying on these decisions, it was contended that the

decision of 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 Railways, before we examine the impact of

the doctrine of 'legitimate expectation'. The Rules

prescribed by the Minister for Railways for entering into

contracts lay down certain norms and contains guidelines.

The rules provide for constitution of Tender Committee and

the Procedure to be followed in the matter of inviting

tenders. They also 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 under:

"3.0. Where warranted, the tendered quantity

may be split and tender decided in favour of

one or more firms on merits of each case, in

consultation with Associate Finance and with

the approval of the authority competent to

accept the tender having due regard to the

following factors:-

(i) Vital/Critical nature of the items;

(ii)Quantity to be procured;

(iii)Delivery requirements;

(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 but should be for valid

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reasons to be recorded in writing for

splitting the tendered quantity."

Annexure 213 contains the Railway Board letter dated 19.4.90

addressed to General Managers, All Indian Railways and

others dealing with the subject of Non-acceptance of

late/delayed/post/ Tender-offers. The relevant portion

reads thus:

"2. Instances have come to notice of the Board

where on a strict application of the above

instructions even late Tenders submitted by

Public Sector firms for highly specialised

equipments have been rejected.

3.The matter, has therefore been

reconsidered by the Board and it has been

decided that where late Tenders from

established/reliable suppliers and conferring

a substantial financial advantage is to be

considered, notwithstanding the general ban,

it will be open to the Railways to seek the

Board's approval for the consideration of such

Tenders, since this should be a very

exceptional situation, such cases should be

recommended for consideration of the Board

with the personal approval of the General

Manager, duty concuffed in by the F.A. &

C.A.O.

4.The Railways should not enter into any

dialogue with the agency submitting a delayed

Tender without obtaining Board's prior

clearance".

178

Now coming to the notice inviting tender in the instant

case, we have already 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 rate quoted shall apply only if the entire

quantity is taken from him. From these provisions it

becomes clear that the tenderer can not expect that his

entire tender should be accepted in respect of the quantity

and that the Railways have a night to accept the tender as a

whole or a part of it or portion of the quantity offered.

It is not in dispute that in the past 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

quantities of M/s H.D.C. and Bharatiya were in fact reduce

from the allocations made by the Tender Committee which made

its recommendations on the basis of certain data. It has to

be noted that the Tender Committee is not a statutory

authority and its proposals are recommendatory 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 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. However, with this facture background, we

shall consider the contention regarding 'legitimate

expectation'.

In Halsbury's Laws of England, Fourth Edition, Volume 1(1)

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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

representation or promise made by the

authority, including an implied

representation, or from consistent past prac-

tice.

179

The existence of a legitimate expectation may

have a number of different consequences'; it

may give locus standi to seek leave to apply

for `judicial review; it may mean that the

authority ought not to act so as to defeat the

expectation without some overriding reason of

public policy to justify its doing so; or it

may mean that, if the authority proposes to

defeat a person's legitimate expectations, it

must afford him an opportunity to make

representation on the matter. The courts also

distinguish, for example in licensing cases,

between original applications, to renew and

revocations; a party who has been granted a

licence may have legitimate expectation that

it will be renewed unless there is some good

reason not to do so, and may therefore be

entitled to greater procedural protection than

a mere applicant for a grant."

(emphasis supplied)

We find that the concept of legitimate

expectation first stepped into the English Law

in Schmidt v. Secretary, of State for Home

Affairs (1969) 2 Ch. 149 wherein it was

observed that an alien who had been given

leave' to enter the United Kingdom for a

limited period had a legitimate expectation 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 Kong v. Ng

Yeun shiu, [1983] 2 A.C. 629 Lord Fraser said

that "the principle that public authority 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 government 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 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-

180

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 the

staff as per the existing practice and that though the

employee did not have a legal right, he had a legitimate

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expectation that the existing practice would be followed.

On behalf of 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 held

as under:

"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 past he had been permitted to

enjoy and which he could legitimately expect

to be permitted to continue to enjoy either

until he was given reasons for its withdrawal

and the opportunity to comment on those

reasons 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 appellants 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 xxxxxxxx

Once the Minister produced evidence that her

decision not to consult the staff before

withdrawing the right to trade union

membership was taken for reasons, of national

security, that overrode any right to judicial

review which the appellants had arising out of

the denial of their legitimate expectation of

consultation. The appeal would therefore be

dismissed.

xxxxxxxx xxxxxxxx xxxxxxxx

181

Administrative action is subject to control by

judicial review under three heads: (1)

illegality where the decision making authority

has been guilty of an error of law, e g by

purporting to exercise a power it does not

possess; (2) irrationality where the

decision-making authority has acted so

unreasonably that no reasonable authority,

would have made the decision, (3) procedural

impropriety, where the decision making

authority has failed in its duty to act

fairly.

(emphasis supplied)

Therefore the claim based on the principle of legitimate

expectation can be sustained and the decision resulting in

denial of such expectation can be questioned provided the

same is found to be unfair, unreasonable, arbitrary and

violative of principles of natural justice. (vide Food

Corporation of India's case and Navjyoti Coo-Group Housing

Society's case (supra).

The learned counsel for these three big manufacturers,

however, relied on various decision in Amarjit Singh

Ahluwalia v. The State of Punjab & Ors. [1975] 3 SCR 82,

Ramana Dayaram Shetty's case and Peerless General Finance

and Investment Co. Limited's case (supra) and contended

that failure to follow the existing procedure resulting in

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denial of a right directly arising out of legitimate

expectation is per se arbitrary and unreasonable and

therefore illegal and consequently violative of Article 14

of the constitution.

Of late the doctrine of legitimate expectation is being

pressed into service in many cases particularly in

contractual sphere while canvassing 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 the doctrine of

legitimate expectation, we would like to examine the same a

little more elaborately at this stage. Who is the expectant

and what is the nature of the expectation? When does such

an expectation become a legitimate one and what is the

foundation for the same? What are the duties of the

administrative authorities while taking a decision in cases

attracting the doctrine of legitimate expectation.

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

it, the

182

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 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 expectation. The legitimacy of an expectation

can be inferred only if it is founded on the sanction of law

or custom or an established procedure followed in regular

and natural sequence. Again it is distinguishable from a

genuine expectation. Such expectation 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 administrative law has now, undoubtedly,

gained sufficient importance. 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 fiduciary duty of local authorities

and "in future, perhaps, the principle of proportionality."

A passage in Administrative Law, Sixth edition by H.W.R.

Wade page 424 reads thus:

"These are revealing decisions. They show that the courts

now expect government departments to honour their published

statements or else to treat the citizen with the fullest

personal consideration. Unfairness in the form of

unreasonableness here comes close to unfairness in the form

of violation of natural justice, and the doctrine of

legitimate expectation can operate in both contexts. 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

emphatically that unfairness in the purported exercise of a

power can amount to an abuse or excess of power, and this

seems likely to develop into an important general doctrine."

Another passage at page 522 in the above book reads thus:

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"It was in fact for the purpose of restricting

the right to be heard that legitimate

expectation was introduced into the law. It

made its first appearance 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

contrary to legitimate expectation. Official

statements of policy, therefore, 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 airport bye-laws, with many

convictions and unpaid fines, it was held that

they had no legitimate expectation of being

heard before being banned by the airport

authority.

There is some ambiguity in the dicta about

legitimate 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)

In some cases a question arose whether the concept of

legitimate 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 Journal 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

184

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 Courts 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

ground that the selection committee had taken into account

an adverse report on him without giving a notice to him of

the 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 colleagues considering his application 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 administrative acts or decisions

which failed 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 expectations that would

encounter the objection of entailing "curial interference

with administrative decisions on the merits by precluding

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the decision-maker from ultimately making the decision which

he or she considers most appropriate in the circumstances."

In R v. Secretary of State for the Home Department. ex parte

Ruddock and others [1987] 2 All E R 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 are concerned, as Lord Roskill said,

with a right to be heard, I do not think the

doctrine is so confined. Indeed, in a case

where ex hypothesis there is no right to be

heard, it may be thought the more important

to fair dealing that a promise or undertaking

given by a minister as to how he will proceed

should be kept. Of course such promise or

undertaking must not conflict with his

statutory duty, or her duty as here, in the

exercise of a preroga-

185

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 national security reasons, no doubt the

respondent could have changed them. Had those

reasons prevented him also from publishing the

new criteria, no 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

defence to judicial review as in the GCHQ

case."

(emphasis supplied)

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 he is a man who has some right

or interest, or some legitimate expectation,

of which it would not be fair to deprive him

without a hearing, or reasons given, then

these should he afforded hint, according as

the case may demand".

(emphasis supplied)

At this stage it is necessary to consider the scope of

judicial review when a challenge is made on the basis of the

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doctrine of legitimate

186

expectation. In Findlay v. Secretary of State for the Home

Department, 19841 3 All E R 801 it was observed as under:

"The doctrine of legitimate expectation has an

important place in the developing law of

judicial review. It is, however, not

necessary to explore the doctrine in this

case, it is enough merely to note that a

legitimate 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 review. These two applicants

obtained leave. But their submission goes

further. It is said that the refusal to

accept them from the new 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

legitimately expect is that his case will he

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 th

e

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 Civil Service Unions case Lord Diplock

observed thus:

"To qualify as a subject for judicial review

the decision must have consequences which

affect some person (or body of persons ) other

than the decisions, although it may affect him

too. It must affect such other person either

(a) by altering rights or

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 permitted by the decision-maker to enjoy

and which he can legitimately expect to be

permitted to continue to do until there has

been communicated to him some rational ground

for withdrawing it on which he has been given

an opportunity to comment or (ii) lie 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 decision for

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inclusion in class (b) a 'legitimate

expectation' rather than a 'reasonable

expectation in order thereby to indicate that

it has consequences to which effect will be

given in public law, whereas an expectation or

hope that some benefit or advantage would

continue to he enjoyed, although it might well

be entertained by a 'reasonable' man, would

not necessarily have such consequences."

In Attorney General for New South Wales case it is observed

as under:

"Some advocates of judicial intervention would

encourage the courts to expand the scope and

purpose of judicial review, especially to

provide some check on the Executive Government

which nowadays exercises enormous powers

beyond the capacity of the parliament to

supervise effectively. Such advocacy is

misplaced. If the courts were to assume a

jurisdiction to review administrative 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.

188

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's phrase of an

encroaching nature.......... Judicial power is

not immune against this human weakness. It

also must he on guard against encroaching

beyond its proper bounds and not he less so

since the only restraint upon it is sell-

restraint.

If the courts were to postulate rules

ostensibly related to limitations on

administrative power but in reality calculated

to open to the gate into the forbidden field

of the merits of its exercise, the function of

the courts would be exceeded of R v. Nat Bell

Liquors Ltd. [1992] 2 A C 128 at 156. If the

courts were to define the destine of

legitimate expectations as something less than

a legal right and were to protect what would

be thus defined by striking down

administrative acts or decisions which failed

to fulfil the expectations, the courts would

be truncating the power which are naturally

apt to affect those expectations. 7o

strike down the exercise of administrative

power solely on the ground of avoiding the

disappointment of the legitimate expectations

of an individual would be to set the courts

adript on a featureless sea of pragmatism.

Moreover the notion of a legitimate

expectation (falling short o a legal right) is

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too nebulous to form a basis for invalidating

the exercise of a power when its exercise

otherwise accords with law. The 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.

189

To lie within the limits of judicial power the

nation of "legitimate expectation " must be

restricted to the illumination of what is the

legal limitation on the exercise of

administrative power tit 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 short of a

legal right cannot be truncated to accommodate

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 IA in Macrae, at 285), the notion

can, with one important proviso, be useful.

If. but only if, the power is so created that

the according of natural justice conditions

its exercise, the notion of legitimate 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 he affected by an exercise of

the power. But if the 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 referring to Schmidt's

case (supra) observed thus:

190

"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 expectation,

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

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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 legitimate 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 power to hind itself as

to the manner of the future exercise of the

power. It follows that the notion of

legitimate expectation is not the key which

unlocks the treasury of natural justice and it

ought not unlock the gate which shuts the

court out of review on the merits. The notion

of legitimate expectation wits 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 I-or

curial intervention in the exercise of

administrative power."

(emphasis supplied)

In the same case, Dawsom. J. observed thus:

"It also follows that the required procedure

may very according to the dictates of

fairness in the 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

191

the procedure which he seeks. There is no

doubt that the respondent had a legitimate

expectation of continuing 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 provision 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)

On examination of some of these important decisions it is

generally agreed that legitimate expectation gives the

applicant sufficient locus standi for judicial review and

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that the doctrine of legitimate 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 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 public interest requires otherwise. In other

words where a person's legitimate expectation is not

fulfilled by taking a particular then decision-maker should

justify the denial of such expectation by showing some

overriding public interest. Therefore even if substantive

protection of such expectation is contemplated that does not

grant

192

an absolute right to a particular person. It simply ensures

the circumstances 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 within those limits. But as discussed above a

person who bases his claim 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 which give

rise to such legitimate expectation must be present. The

decision taken by the authority must be found to be

arbitrary, unreasonable 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 circumstances

giving rise to a legitimate expectation, it would primarily

be a question of fact. If these tests are satisfied and if

the court is satisfied that a case of legitimate expectation

is made out then the next question Would be whether failure

to give an opportunity of hearing before the decision affect

such legitimate expectation is taken has resulted in failure

of' justice and whether on that ground the decision should

he quashed. If that be so then what should be the relief is

again a matter which depends on several factors.

We find in Attorney General for New South wales' 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 much less

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

of 'legitimate expectation'. In Public Law and 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:

"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 and estoppel., but the stems have

become entwined to such an extent that it is

impossible to disentangle them. This makes it

that it is very difficult to predict how the

hybrid will

193

develop in future.This could be regarded as

giving the concept a healthy flexibility, for

the intention behind it is being it has been

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fashioned to protect the individual against

administrative action which is against his

interest. On the other hand, the uncertainty

of the concept has led to conflicting

decisions and conflicting interpretations in

the same decision."

However, it is generally accepted and also clear that

legitimate expectation beings less than right operate in the

field of public and not private law and that to some extent

such legitimate expectation ought to be protected though not

guaranteed.

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 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 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 as a policy or in the public

interest either by way of G.O., rule or by way of a

legislation. If that be so. a decision denying a legitimate

expectation based on such (,rounds 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 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

194 .

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 if he prefers an existing licence holder

to a new applicant, the decision can not be interfered with

on the ground of legitimate expectation entertained by the

new applicant 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 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 Attornry General for New South

Wales' case "To strike down the exercise of administrative

power solely on the ground of avoiding the disappointment of

the legitimate expectations of an individual would be to set

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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 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 Article 14 but a claim biased on mere

legitimate expectation without anything more cannot ipso

facto give a right to invoke these principles. It can be

one of the ground to consider but the court must lift the

veil and see whether 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 action, must be restricted to the general

legal limitations applicable and binding the manner of the

future exercise of administrative power in a particular

case. It follows that the concept of legitimate expectation

is "not the key which unlocks the treasury of natural

justice and it ought not to unlock the gates which shuts the

court out of review on the merits," particularly when the

element of speculation and uncertainty is inherent in that

very concept. As cautioned in Attorney General for

195

New South Wales' case the courts should restrain themselves

and restrict such claims duty to the legal limitations. It

is a well-meant caution. Otherwise a resourceful 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.

In view of our conclusions in respect of the quantities

allotted and the price fixed it may not be necessary for us

to enter into further discussion on this aspect. We have

already directed 0that the Tender Committee should consider

afresh as to what should be the reasonable 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 manufacturers should

be allotted the quantities as per the recommendations 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 the

Financial Commissioner as well as the Minister and initially

the Tender Committee formed an opinion that these three big

manufacturers 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 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. However, we make it clear that the said

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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 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 quantities and making

a counter-offer of Rs. 65,000 to these three big

manufacturers is punitive in nature

196

visiting with civil consequences and such a decision taken

without giving an opportunity to these manufacturers is

violative of principles of natural justice. In view of our

above mentioned conclusions resulting in modification of the

decision of the authorities both in respect of price

fixation and in allotment of quantities, there is no

necessity to consider this aspect again in detail.

It was next contended that the consideration that some

manufacturers are small and others are BIFR companies taken

into account by the approving authority for deviating from

the age-old practice in allocation of quantities is

irrelevant and discriminatory and therefore the decision is

bad. It may be mentioned that status of a manufacturers

being a BIFR company or a small manufacturers was not taken

into account so far as the fixation of the price is

concerned and these considerations were deemed relevant only

for the purpose of allocation of quantities. The stand taken

by the Railways is that smaller manufacturers should survive

from the point 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 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 had been duly given effect to and weightage was given

accordingly in respect of allotment of quantities to various

manufacturers within the four corners of the limited tender.

The learned counsel, however, contended that the allotment

of the quantities to the smaller manufacturers also is not

based on any acceptable principle and that some of them are

given larger quantities without any justification rendering

the decision bad because of arbitrariness. The proceedings

mentioned above particularly the nothings of the Financial

commissioner as well as the competent authority would show

that some of the smaller manufacturers namely M/s Himmat,

Texmaco and Sri Ranga were BIFR companies. As no price

preferential treatment was given to any one of them. the

approving authority considered that enhancement in

allocation of quantities was necessary. Likewise M/s.

Cimmco and Texmaco who are wagon builders and whose business

in entirely with the Railways were also given some

weightage. We can not say that these are irrelevant

considerations for

197

the purpose of arriving at a decision. In the past also

there were such variations based on these circumstances. In

any event for different reasons we have varied this decision

and directed that the three big manufacturers should be

given allotment as per the recommendations of the Tender

Committee. In our earlier order we have noticed that there

has been some departure in respect of one or two smaller

manufacturers in allotting the quantities. We have already

indicated that the Railways authorities should in future

make a proper consideration of the relevant factors in

respect of each tenderer in an objective manner in allotting

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the quantities.

Now coming to the question of dual pricing, the submission

is that 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 factors like cost of the material etc. into

consideration and applying the formula as was being done in

the past and particularly taking into consideration the two

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. But at a post-

tender stage, they entered into correspondence offering a

lower price and ultimately the three big manufacturers

committed themselves to supply at the rate of Rs. 67,000 per

bogie. In our earlier order we indicated that these big

manufacturers formed a different category namely that they

may be in a position to supply at that rate as is evident

from their own commitment but to apply the same price which

is much 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

important consideration from the point of view of public

interest. However, as already mentioned we directed the

'render Committee to consider the matter afresh an even if

it results in dual pricing, it would not be had in the

circumstances mentioned above.

198

These are all the reasons in support of our conclusions

given in our order dated 14th January, 1993.

V.P.R. SLPs disposed of,

199