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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 132 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 134 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) 135 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) 136 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 139 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. 140 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