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CASE NO.: Transfer Case (civil)  4 of 2004

PETITIONER: Caterpillar India Pvt. Ltd

RESPONDENT: Western Coal Fields Ltd. and Ors

DATE OF JUDGMENT: 18/05/2007

BENCH: Dr. ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT: J U D G M E N T

TRANSFERRED CASE (CIVIL) NO. 4 OF 2004 With T.C. (C) Nos.11/2004, 5/2004, 12/2004 and 3/2005)  and Civil Appeal No 2738/2007 (Arising  out of SLP (C) No.24219/2003

Dr. ARIJIT PASAYAT, J.

       Leave granted in SLP (C) No. 24219/2003.

       The point involved in these cases essentially is the  purchase preference given to Public Sector Enterprises (in  short the ’PSEs’). The petitioners have made a grievance that  the key players in the market are petitioners-Caterpillar   and  Bharat Earth Movers Ltd. Most important purchaser for all  these are coal fields, for example Western Coalfield and its  subsidiaries-Coal India Ltd. They are invariably the  purchasers in respect of earth moving machines. Prior to 1992  price preference was given to PSEs. Post 1992 purchase  preference was given and the lowest and the second lowest  bidders were being described as L-1 and L-2. Purchase orders  were issued by the Coal India Ltd., broadly in the ratio of  60/40 and the L-2 was required to match the L-1 price. The  language used earlier was "may" as indicated by Circular  dated 13.1.1992. The purchase preference policy was extended  by office memorandum dated 15.3.1995 for a further period of  two years.  It was further extended till 21.3.2000 by office  memorandum dated 31.10.1997, subject to purchase being in  excess of Rs.5 crores.  By office memorandum dated  14.9.2000, the policy was extended till 31.3.2002.  However,  the minimum value of purchase was brought down to rupees  one crore.  By office memorandum dated 14.6.2002, the policy  was extended till 31.3.2004 and the scheme was made valid  for purchase of rupees five crores and above.  By office  memorandum dated 26.10.2004, which extended the policy for  one year upto 31.3.2005 retrospectively from 1.4.2004.  By  office memorandum the policy was extended for a period of  three years retrospectively with effect from 18.7.2005. The  word ’may’ was substituted by the word ’will’ by this office  memorandum.  According to the petitioners the intention was  to give somewhat longer period for stabilizing all PSEs. It never  intended to create any monopoly.  

       Grievance is made that by substitution of the word ’may’  by the word ’will’ is arbitrary. The word ’may’ gives a wider  option to the tenderers and all the tenderers were on a level

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playground without any unnecessary protection to any of the  parties.  

       It is pointed out that on 15.3.1995 office memorandum  was issued extending the time to purchase preference upto  31st March, 1997. It was further re-introduced for a period of  three years upto 31st March, 2000. Again, it was extended  upto 31st March, 2002. By further office memorandum dated  14th June, 2002 the existing purchase preference is for  products and services to central public sector enterprise was  extended by two years upto 31st March, 2004. The legality of  the office memorandum dated 14th June, 2002 is challenged  contending that it is arbitrary and affects the legitimate  expectation of the various parties. In fact it creates a monopoly  and the policy without any sanctity of law.  

       The respondents opposed the petition primarily on the  ground that there is no substance in the allegations. Benefit is  not given only in respect of the parties covered by these  petitions.   The office memorandum dated 13.1.1992 was  issued by the Department of Public Enterprises, Ministry of  Industry, Government of India stating that in respect of  granting price preference to PSEs, Government may grant  purchase preference to PSEs by price quoted by them which is  less than 10% of the lowest price other conditions being  equivalent. It was stated that the policy was valid for three  years period as transaction within which PSEs were to adjust  to the global new business environment and improve  competitiveness efficiency.          The above purchase preference policy was extended on  15.3.1995 for a further period of 2 years and it was stated that  the said extension was final and the earlier policy would  automatically lapse. During 1997 the purchase preference was  further extended upto 31.3.2000. This was in relation to  purchases in excess of Rs.5 crores. By the office memorandum  dated 14.9.2000 the policy was extended till 31.3.2002 and  the minimum value of purchase was brought down to Rs.1  crore from Rs.5 crores.  

       By Office Memorandum dated 14.6.2000 the PSEs  purchase preference was extended for a further period of 2  years till 31.3.2004 and the scheme was made valid in respect  of purchase of Rs.5 crores and more.  

       Grievance is made that with a view to show preference  the practice of splitting the tender was introduced. This  according to the petitioners had caused immense difficulties.  By Office Memorandum dated 18.7.2005 Government of India  re-introduced/extended the earlier purchase preference policy  retrospectively from 1.4.2005 for a period of 3 years till  31.3.2008. This policy contains certain modified conditions  which were different from the past policies. These policies are  basically under challenge. The language used unlike the  earlier policy on 14.6.2002 which used the expression that  purchase preference may be granted, was ’will’.  

       We find that the basic challenge is that by imposing a  condition like purchase preference no option is left and a  monopoly is being created. The increase in effectiveness of  PSEs cannot be done on a uniform policy without examination  as to whether such protection is necessary for a particular  PSE. It has to be examined individually as to whether any  differential treatment is called for. It is pointed out that there  may be no competition left if 10% margin is given. In essence,  the submission is that the preference should be given PSE

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specific and the margin also has to be examined rationally.  

We feel that these are the aspects which need to be  considered by the concerned Ministries. We, therefore, direct  that industry-wise assessment be done and if there is already  cost effectiveness in any PSEs there may not be any need for  the preference being given. The examination should be on the  line as to whether any preference is called for and what would  be the margin of preference which would ensure level playing  field. It should also be fixed specifically and while fixing the  minimum amount it should be ensured that breaking of the  quantity should be rational, so that there is no likelihood to  introduce an element of uncertainty. If the object was to invite  foreign direct investment, the impact of the preference on such  investment has to be considered. It shall also be considered as  to whether some amount of discretion as was given earlier has  to be re-introduced. There cannot be certainly any rigid  inflexible policy. Because of the substitution of the word ’may’  by ’will’ there is essentially reversal of the policy. Therefore,  the applications are disposed of with the following directions:

(1)     the exercise, as noted above, shall be undertaken by the  concerned Ministry of the Central Government within a  period of 4 months from today;

(2)     The interim arrangements operative presently shall  continue till a fresh re-reconsideration is made by the  concerned departments of the Government of India.    

(3)     The interim orders shall not be restricted to the  petitioners, appellant and the respondents. It shall only  be binding on the parties who are L-1 and L-2 in the  concerned transaction. While fixing the norms, the  capacity to delivery of the concerned PSEs and the  competitors has also to be taken note of.  

Appeal and applications are accordingly disposed of.