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PETITIONER: U.O.I. AND ORS.  ETC.  ETC

       Vs.

RESPONDENT: HINDUSTAN DEVELOPMENT CORPN.AND ORS.  ETC.  ETC.

DATE OF JUDGMENT14/01/1993

BENCH: REDDY, K. JAYACHANDRA (J) BENCH: REDDY, K. JAYACHANDRA (J) RAY, G.N. (J)

CITATION:  1994 AIR  980            1993 SCR  (3) 108  1993 SCC  (1) 467        JT 1993 (1)    94  1993 SCALE  (1)56

ACT: Indian  Contract  Act. 1872  :  Sections  5,8,38--Government contract--Tender--to   supply  of  cast  steel   bogies   to Railway--Formation  of  cartel by  three  tenders--Railway’s finding--Whether--bona      fide-Dual       pricing--Whether discriminatory--Allotment  of quantity  to  renders--Supreme Court directions.

HEADNOTE: The Railway Board entered into contracts with 12 manufactur- ers  for  the  supply of cast steel bogies to  be  used  for building the wagons, every year.  Among them H.D.C.,  Mukand and Bhartiya had capacity to manufacture larger  quantities. In  1991 two new firms Simplex and Beekay also  entered  the field. For  the  year 1992-93, a tender notice for  procurement  of 1900  cast steel bogies was issued to the Regular  suppliers as well as to Simplex and Beekay the new entrants. The  tender  notice stated therein that the  last  date  for submission  of  offers  was 27.11.91 by 2.30  P.M.  and  the tenders  to  be opened at 3 P.M. on the same day;  that  the price was subject to the price variation clause and the base date  for escalation purpose was 1.9.91; that  the  Railways reserved the right to order additional quantity upto 30 % of the quantity ordered during the currency of the contract  on the  same  price  and terms  and  conditions  with  suitable extensions in delivery period. The  price quoted by H.D.C., Mukand and Bhartiya  firms  was identical,  i.e.  Rs. 77. 666 per  bogie.   Other  tenderers price varied between Rs. 83.000 and Rs.. 84, 500 per bogie. The Government’s announcement of reduction of custom duty 109 on  the  import of steel scrap and dispensation  of  freight equalisation  fund for steel came after the opening  of  the tenders and before the finalisation of the tenders. The  Tender  Committee recommended that the  three  manufac- turers  who  quoted an identical lowest  rates  without  any cushion for escalation between 1.7.91 and 1.9.1991 formed  a cartel;  that  the reasonable rate per bogie was to  be  Rs. 76,000  by taking into consideration of the two  concessions announced    by  the  Government;  and  that  the   existing

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procedure to be followed on the question of distribution  of quantities to the tenderers. On 4.2.92, the Committee signed the recommendations.  On the same date, the Member (Mechanical) of the Committee received letter from H.D.C. and Mukand, wherein the tenderers offered to   substantially   reduce  the  prices  because   of   the concessions. The Advisor (Finance) examined the matter and observed  that if it was intended to continue the existing policy of fixing a  rate and distributing the order among all the  tenderers, then  negotiations might not be useful; that review  of  the existing policy would take time; and that the present tender be decided on the basis of the existing policy. The  Member (Mechanical), the next higher  authority  recom- mended   the   acceptance   (if   the   Tender   Committee’s recommendation. The  Finance Commissioner approving the  recommendations  of the  committee,  noted  that the tenderers  who  quoted  the identical rates had formed a cartel; that a counter offer of Rs.  76,000 be accepted but in the case of H.D.C.,  a  price lower  by Rs.1 1,000 to he offered as per their  post-tender letter dated 4.2.92; that the present formula regarding  the distribution  of  quantities  be applied  to  all  tenderers except  the three who formed a cartel; that some  recoveries from  the  three  tenderers he made on the  basis  of  their letters wherein they quoted prices which were much less than the  updated  price on 1.9.91 of Rs.79.305; that  the  post- tender letters be ignored and that for short-term gains  the Department    could   not   sacrifice   long-term    healthy compensation. 110 The Minister for Railways, the approving authority  agreeing with the recommendations of the Finance Advisor, noted  that the three tenderers had formed a cartel and they he  offered a price lower by Rs.  1 1.000 with reference to the counter- offer recommended by the Tender Committee and the quantities also  be suitable adjusted to break the cartel  and  ordered for redistrib ution of the quantities exercising 30% option. The  Chairman,  Railway Board, when received  the  file  for implementation  of the orders from the Minister, noted  that action  be  taken  as decided by  the  Minister,  which  had resulted in dual-pricing, namely, one to the three tenderers and the higher one to the other tenderers and therefore, the Minister  to consider whether they could  counter-offer  the lower  price  to all the tenderers as that would  result  in saving much more. When  the  matter was sent to the Finance  Commissioner,  he observed that as some of the units were sick units and owe a lot  of money to the nationalised banks; it would be in  the national interest to accept dual-pricing. Therefore,  the  rile  was again put  up  to  the  approving authority.   He  agreed  with  the  recommendations  of  the Commissioner and the Tender Committee and directed for their implementation. As  per the final decision taken by the approving  authority the three tenderers were issued a counter-offer of Rs.65,000 per  bogie  by  telegram and other tenderers  were  given  a counter-offer of Rs.76,000/ per bogie. After  the receipt of the telegram dated 18.3.92 H.D.C.  and Mukand  riled  writ  petitions  in  the  Delhi  High   Court challenging the discriminatory counter-offer.  Bhartiya had- riled  a writ petition in the Calcutta High Court.   It  was withdrawn  and another writ petition was riled later in  the Delhi High Court. In  the writ petitions filed by H.D.C.and Mukand,  the  High

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Court issuing notice to the respondents,stayed the operation of the telegram dated 18.3.92. 111 In  reply to the telegram, H.D.C. and Mukand also  wrote  to the  Minister of Railways offering to supply the  bogies  at the  rate of Rs.67.000 per bogie, which was accepted by  the Railway. Pending  the  writ  petitions,  the  High  Court  passed  an interlocutory  order,  directing the Railway to  accept  the allocation of bogies recommended by the Tender Committee  at the  rate  of  Rs.67.000 per bogie subjected  to  the  final decision in the writ petitions. The  Railway’s  petition for special leave to  appeal  filed against  the  interlocutor%,  order of the  High  Court  was dismissed. Thereafter, the High Court allowed the writ petitions  riled by  H.D.C  and Mukand and directed that  all  the  tenderers should make the supplies at the rate of Rs. 67.000 per bogie and  allocation  of quantity to be considered  afresh  on  a reasonable basis. The Union of India filed appeal by special leave (S.L.P. (c) Nos.  11897-98/92) against the judgment of the  High  Court. The  other  SLPs. were riled by the affected  tenderers  who figured  as respondents Nos. 4 to 12 in the  writ  petitions before   the  High  Court.   The  High  Court  disposed   of Bharatiya’s  writ petition in terms of the judgment  in  the other  two  writ  petitions (W.P.Nos.  1152  and  1157/  92) wherein they were shown as respondent No. 13).  As Bharatiya alias Besco did not question the judgment of the High Court, they  were arrayed as respondent in the S.L.P. riled by  the Union of India. The Union of India submitted that the three big manufactures i.e. M/s H.D.C., Mukand and Bhartiya formed a cartel and the same was evident from the fact that each one of them  quoted an  identical  price  which was a cartel  price’;  that  the Government  in the matters of economic policy for  good  and sufficient  reasons and in the public interest could  reject the lowest offer with a view not to allow any monopoly  and to encourage competition among the recognised manufacturers; that  the  dual pricing adopted by the  Railways  under  the circumstances was not discriminatory; that the Railways  had rightly  taken  into account the two concessions  and  found that  the price at the rate of Rs.67,000 per bogie  was  not reasonable and, workable and it was only a cartel price  and that Rs. 76,000 was the reasonable price 112 and   on   that  basis  made  a   counter-offer   to   other manufacturers except to these three big manufacturers;  that the  Railways  took  into  consideration  all  the  relevant factors and on rational basis the quantities were  allotted; and, therefore, they were not given larger share. The nine smaller manufacturers in general supported the sub- missions of the Union of India. The  respondent-  M/s H.D.C. supporting the finding  of  the High  Court  submitted that the award of  the  contract  for supply  of  bogies  was  vitiated  by  mala-fides  and  that disproportionate  allotment  of quota of  bogies  and.  dual pricing    were   based   on   malafides   and    estraneous considerations  violating  Article 14 of  the  Constitution; that the reasons put forward on behalf of the Railways  were disingenuous and bereft of rationale. M/s Mukand-respondent submitted that the dual set of counter offers  and allocation of disproportionate  quantities  were highly  arbitrary  and that the practice and police  of  the past  10  years of placing orders on  all  manufacturers  in

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respect  of  the  quantities  worked out  on  the  basis  of standard  quantity formula at a uniform price, gave rise  to legitimate  expectations among all bogie  manufacturers  and irrational departure from the existing policy was  arbitrary and unreasonable; that the making of law tender offers could not  by Itself be visited with punty consequences like  dual pricing and reducing the allotment of legitimate quantities. M/s.  Bhartiya submitted that the Tender Committee erred  In treating  m/s  Bhartiya also as a member of the  cartel  and that  the allotment of quantities was  arbitrarily  reduced; that  M/s  Bhartiya never made an offer of  Rs.  67,000  and there was nothing in writing to that effect and that  merely because   of  the  statement  of  the  counsel  during   the proceedings  before  the  High  Court,  it  should  not   be understood  that they were willing to supply at the rate  of Rs.  67,000 and that they should not be treated  differently from the other nine manufacturers. Disposing of the Special Leave Petitions, this Court, 113 HELD:     1.1. Since the offers of the three tenderers  were identical  and  the  price was somewhat  lower,  the  Tender Committee  entertained  a suspicion that a cartel  had  been formed  and the same got further strengthened by  the  post- tender  attitude  of the said  manufacturers  which  further resulted  in  entertaining the same suspicion by  the  other authorities  in  the  hierarchy  of  decision  making   body including the Minister of Railways. (124-D) 1.2. All  the  Railway authorities  including  the  Minister acted in a bonafide mannerin taking the stand that the three manufacturers formed a   cartel. (124F) 1.3. There  is  no enough of material to conclude  that  M/S H.D.C.,  Mukand  and Bhartiya formed a cartel.   Because  of mere  quoting  identical  tender offers by  the  Said  three manufacturers for which there is some basis, the conclusion, that  the  "id manufacturers had formed a  cartel  does  not appear to be correct. (124-C) 1.4. The current contract priced based on the updated  price is Rs.79,505. The three manufacturers offered at Rs. 77,600. Taking into consideration the later concessions, the  Tender Committee   decided  that  the  price  of  Rs.   76,000   is reasonable. (124-F) 1.5. The   fixation  of  price  at  Rs.  67,000  per   bogie straightaway without necessary and proper consideration  and appraisal regarding the viability and other aspects by  some experts,  is not just and fair from many points of view.   A fresh  consideration  is called for, particularly  from  the point  of view of safeguarding the interests of  the  public exchequer  and  giving necessary protection to  the  smaller manufacturers. (125-B) 1.6. The  Tender  committee is directed  to  reconsider  the question  of  fixation  of  reasonable  price.   The  Tender Committee  shall consider, the offer of Rs. 67,000  made  by M/s  H.D.C.  and Mukand along with the data  that  would  he given  by  them  in support of that and  the  percentage  of profits  available  to  all  the  manufacturers  and   other relevant  aspects and then fix a resonable price,  at  which the manufacturer would be able to supply. (125-C) 114 1.7. At a belated post tender stage the Railway  authorities did  not deem it fit to reconsider the question of  fixation of price in the light of the post tender offers made by  M/s H.D.C. and Mukand, as by then they were of the opinion  that the three big manufacturers have formed a cartel and  quoted a  cartel  price.  The stand by the Railways to  adopt  dual pricing  under  the  circumstances  is  bona  fide  and  not

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malafide.  However, dual pricing on principle may not appear to  be  rational  since the  Railways  have  been  following certain formula in fixing the price which is made applicable to  all the manufacturers.  But under certain  circumstances dual pricing may be reasonable.-(125-E-F) 1.8. M/s H.D.C. and Mukand came forward with firm offer of a price  at  Rs.  67,000 per bogie.   M/s  Bhartiya  also  got committed  to  supply at the same price.  All the  three  of them  did  not even challenge the order of the  High  Court. These  three  big manufacturers must be deemed to  be  in  a position  to supply at the rate of Rs.67,000 and  thus  they form a distinct category.  The smaller manufacturers  belong to  a different category and if a different price  is  fixed for them it is not discriminatory. (125-F-G) 1.9. If  the  price  that  is to  be  fixed  by  the  Tender Committee  as directed by the Court happens to be more  than Rs.  67,000  then that would he applicable  to  the  smaller manufacturers  only  and  not to  M/s   H.D.C.,  Mukand  and Bhartiya  who on their own commitment have to supply at  the rate of Rs. 67,000. (126-A) 1.10.     The price thus fixed by the Tender committee which applies only to the smaller manufacturers shall be deemed to be final and the respective contracts shall be deemed to  he concluded so for the price is concerned. (126-B) 1.11.     The  formation  of an opinion that  a  cartel  was formed had no firm factual foundation; reduction of quota by way  of  reprisal  can not be justified.   The  Minister  of Railways  as the final authority, after considering  various relevant  factors, may be justified in taking a particular decision  in  the  matter of allotment  of  quota  but  such decision  must  be taken on objective basis.  But,  in  this case,  all the smaller manufacturers deserving a  favourable treatment in the mat- 115 ter of allotment of quota, have not been equally treated  in the  sense  that one or two of them got  larger  quantities. Though  this does not appear to be a serious departure,  yet in  these matters the Govt. is expected to be just and  fair to  one  and all.  In future the authorities  would  make  a proper  consideration of the relevant factors in respect  of each  tenderer  in  an objective  manner  in  allotting  the quantities. (126-E-H) 1.12.     The  three  manufacturers M/s H.D.C.,  Mukand  and Bhartiya-should  be  allocated  the quantities  as  per  the recommendations  of  the Tender  Committee.   However,  this Court does not want to disturb at this stage the  quantities finally  allotted  by the competent authority to  the  small manufacturers  as that would cause great hardship  to  them. (127-C) The   Railway  authorities  was  left  to   make   necessary adjustments  next  year  in  the  matter  of  allocation  of quantities   to   them  taking  into   consideration   these allotments given to them this year.  It will be open to  the Railways  to exercise 30% option if not  already  exercised. The time to complete the supply is extended upto  31.3.1993. (127-D-F)

JUDGMENT: CIVIL APPELLATE JURISDICTION: S.L.P (C) Nos. 1189798 of 1992 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.

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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. Najjunda Reddy for  the appearing parties. The following Order of the Court was delivered by 116 K.   JAYACHANDRA REDDY, J. All these Special Leave Petitions arise out of the common judgment of the High Court of  Delhi in  Civil Writ Petitions Nos. 1 152 and 1 157/92.  We  heard these  matters  for considerable length  of  time.   Eminent counsel appearing on both sides advanced detailed arguments. After the conclusion of the hearing it was represented  that having regard to the constraint of time factor, namely  that the  contracts  with  the  Railways  entered  into  by   the manufacturers  who  are parties, have to be  completed  very soon  the judgment in these matters has to be  delivered  as early  as  possible or at least the conclusions have  to  be given soon.  We are conscious of the fact that it is  likely to  take considerable time to deliver a  detailed  judgment. However having gone through the records carefully and  after due consideration of the various arguments advanced, we have reached  the conclusions given hereunder and we  propose  to deliver  the detailed judgment at a later stage  giving  all the  reasons in support of these conclusions.  We,  however, think  it  necessary to state a few relevant facts  and  the issues  involved  in a concised form before we set  out  our conclusions. Every year the Railway Board enters into contracts with  the manufacturers for the supply of cast steel bogies which  are used  in  turn for building the wagons.  Cast  steel  bogies come under a specialised item procured by the Railways  from the  established  sources of proven ability.  There  are  12 suppliers  in  the field who have been  regularly  supplying these items.  Two new firms Simplex and Beekay also  entered the  field.   Among them admittedly M/s H.D.C.,  Mukand  and Bhartiya   are  bigger  manufacturers  having  capacity   to manufacture  larger  quantities.   On 25,  10.91  a  limited tender notice for procurement of 19000 cast steel bogies was issued to the regular suppliers as well as the above two new entrants  for the year namely from 1.4.1992 to 31.3.93.  The last  date  for  submission of offers  to  the  Ministry  of Railways  was 27.11.91 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 Railway reserved the  right  to  order additional quantity upto 30% of the ordered quantity  during the currency of the contract on the same price and terms and conditions with suitable extensions in delivery period.  The offers were to remain 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 117 i.e M/s H.D.C., Mukand and Bharatiya was an identical  price of Rs. 77,666 per bogie while other tenderers quoted between 83.000 and 84,500 per bogie.  After the tenders were  opened and  before the same could be finalised, the  Government  of India  announced two major concessions namely reduction.  of custom duty on the import of steel scrap and dispensation of

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freight  equalisation fund for steel.  The tenders were  put up  and  and  placed  before the  Tender  Committee  of  the Railways  which considered all the aspects.   The  committee concluded  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 acartel.  The Tender committee also  noted that the rates quoted by them were the lowest.  Taking  into consideration  the reduction of Rs. 1500 as a result of  the concessions  in respect of the reduction of custody duty  on the  import of steel scrap and dispensation of  the  freight equalisation fund for steel, the Tender Committee  concluded that  the reasonable rate would be Rs.76,000per  bogie.   On the  question of distribution of quantities to  the  various manufacturers  the  Tender committee decided 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  the prices  and they would like to co-operate with the  Railways and  the  Government  and bring down the prices  as  low  as possible and asked for negotiations.  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 elaborate note he observed that the need for encouraging open competition to improve quality and bring down costs has 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  be  useful  as uniform  prices  offered  to all manufacturers  have  to  be sufficient  even for the smaller and less  economical  units and that as any review of the 118 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  nest  higher  authority.   He  with  some observation,  however  recommended  the  acceptance  of  the Tender  Committee’s recommendations.  The file was then  put up  to  Financial  Commissioner, He noted  that  the  Tender Committee  was  convinced that the three  manufacturers  who quoted  identical price of Rs. 77,666 had formed  a  cartel. He also considered the offers made by M/s H.D.C. and  Mukand and  observed  that these three manufacturers who  quoted  a cartel price intended to get a larger order on the basis  of such  negotiated  price which would eventually  nullify  the competition  from the other manufacturers and lead to  their industrial  sickness and subsequently to monopolistic  price situation.  lie,  however, approved the  Tender  committee’s recommendations  that a counter-offer of Rs. 76,000  may  be accepted but in the case of M/s H.D.C. a price lower by  Rs. 1 1,000 may be offered as per their letter dated 4.2.92. lie also recommended that the two manufacturers M/s.  Cimmco and Texaco may the given orders to the extent of their  capacity or  quantity offered by them whichever is lower in  view  of the  fact  that  they are wagon  builders  and  the  present formula  regarding  the distribution of  quantities  may  he

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applied  to  all  manufacturers except the  three  who  have formed  a cartel.  He also recommended some recoveries  from these  three manufacturers who are alleged to have formed  a cartel  on  the  basis of their letters  wherein  they  have quoted prices which were much less than the updated price as on  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.   He also  noted that subsequent to the Financial  commissioner’s note,  besides  M/s H.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 be offered a price lower by Rs.  1 1,000 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.  11 119 crores  would be effected.  In his note, the  Minister  also ordered  redistribution of the quantities.  Heal so  ordered that3O% options should straightaway be exercised.  After the approving authority took these decisions,the file went to he Chairman Railway Board for implementing the decisions.   The noted  that action will be taken as decided by the  Minister but  added  that  action will be taken  as  decided  by  the Minister  but added that it results in  dual-pricing  namely one  to  the three manufacturers and the higher one  to  the others and therefore the Minister may consider whether  they could counter-offer the lower price to all the manufacturers as that would result in saving much more.  The file was then again   sent  to  and  was  considered  by   the   financial Commissioner  who  noticed  this  endorsement  made  by  the Chairman,  Railway Board.  He however noted that so far  all the  other firms are concerned it is Rs.3305 less  than  the present  contract  price but it would not  be  equitable  to offer the lower price put forward by the three manufacturers as  it  would  make  the  other  units  enviable  and   that incidentally  the  price of’ Rs. 76,000 now proposed  to  be counteroffered  to the other firms is also in line with  the recommendation 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 render  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. 76,000per 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  Bhartiya  also filed a similar petition in Calcutta High Court but the same was  withdrawn but another writ petition was filed later  in the  Delhi High Court.  In the writ petitions filed  by  M/s

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H.D.C.  and Mukand, the High Courts 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 H.D.C. and Mukand also wrote to the Minister of  Railways  in reply to the telegram that  they  were  not prepared  to  accept  the  counter-offer  at  the  rate   of Rs.65,000 and 120 instead they offered to 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, in an interlocutory stage pending the writ petitions, passed  an order on 2.4.92 directing the Ministry to  accept the allocation of bogies recommended 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 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  sun  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.  9,000  per  bogie should  be  covered  by  a bank  guarantee  for  its  prompt repayment  together  with interest at 20% per  anum  in  the event the on-account payment cannot 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 hearing and 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 be considered 121 afresh  on  a  reasonable  basis  and  pending  such   fresh consideration future supplies should he made on the basis of the  recommendations ofthe Tender Committee.  In the  course of   the  judgment,  the  High  Court  also   made   certain observation to the effect that the decision of the approving authority  is  arbitrary  and that this  Government  has  no justification to offer a higher price than the market  price to any supplier to rehabilitate it.  It was further observed that   the   stand  of  the  Railways   that   those   three manufacturers  formed  a  cartel  is  based  on   extraneous considerations.   The learned judges of the High Court  also observed  that  they  failed to understand  as  to  why  the Railways  authorities could not initiate  negotiations  with those  manufacturers who had offered to reduce  their  offer which  could  result  in  saving crores  of  rupees  to  the Railways.  Aggrieved by this judgment of the High Court  the Union  of  India  filed S.L.P. (civil)  Nos.  1  1897-98/92. Before the High Court in the two writ petitions filed by M/s H.D.C.  and  Mukand  the  other  manufacturers  figured   is respondents  Nos. 4 to 12 and M/s Bharatiya otherwise  Known

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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. 1  152 and  1157/92.   But  they  have  not  questioned  the  same. Consequently M/s Bhartiya figures as a respondent before  us in  the SLP filed by the Union of India.  Before we  proceed further.  we  would  like  to  briefly  indicate  the   main submissions made on behalf of all the parties to the  extent relevant  and  important  for  arriving  at  the   necessary conclusions.  Learned  counsel have  advanced  arguments  on several  other aspects which are incidental.  We propose  to deal  with  them  and  give our  findings  in  our  detailed judgment at a later stage. Mr. Kapil Sibal, learned counsel appearing for the Union  of India  submitted that the three big manufacturers  i.e.  M/s H.D.C.. Mukand and Bhartiya formed a cartel and the same  is evident  from  the  fact that each one  of  them  quoted  an identical  price  which  is a cartel  price;  and  that  the Government  in the matters of economic policy for  good  and sufficient reasons and in the public interest can reject the lowest  offer with a view not to allow any monopoly  and  to encourage competition among the recognised manufacturers and that the dual pricing adopted 122 by   the   Railways   under   the   circumstances   is   not discriminatory.   In this context it is also submitted  that the  Railways  had  rightly  taken  into  account  the   two concessions  and  found that the price at the  rate  of  Rs. 67,000 per bogie was not reasonable and workable and it  was only  a cartel price and that Rs. 76,000 was the  reasonable price  and  on  that  basis  made  acounter-offer  to  other manufacturers except to these three big- manufacturers.  The Railways  had  no option except to accept the offer  of  Rs. 67,000  by  the three big- manufacturers as they  took  firm stand  that the price is reasonable and that they  would  be able  to supply on that rate and thereby a binding  contract came  into  force  so  far  these  three  manufacturers  are concerned.   Regarding  the  allocation  of  quantities  the Railways  have  taken into consideration  all  the  relevant factors  namely  that three of the nine  manufacturers  were BIER  companies and the two others are also  wagon  builders having their entire business with Railways only and on  that rational basis the quantities were allotted.  It is also his submission  that since the three big manufacture  originally offered  a  cartel price and ill of  them  later  apparently offered Rs. 67,000/-, in unworkable price, the Railways felt that  they attempted to destroy the competition.   Therefore they were not given larger share.  Learned counsel relied on several  authorities  particularly touching  the  scope  and ambit of Article 14 and the power of the court under Article 226  of the constitution of India.  Mr. Sibal also  strongly contended  that  the  High Court  grossly  erred  in  making certain  observations against the Railways namely  that  the stand of the Railways that those three manufacturers  formed a cartel is based on extraneous considerations and  somewhat similar  observations  in  respect of the  decision  or  the Railways  on  the  question of price  fixation.   The  other counsel  appearing  for the nine  smaller  manufacturers  in general  supported  these submissions and  also  highlighted certain aspects in their individual cases.

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Shri  K.K.  Venugopal.  learned counsel  appearing  for  the respondent namely M/s H.D.C. submitted that the award of the contract for supply of bogies was vitiated by malafides  and that disproportionate allotment of quota of bogeis and  dual pricing    were   based   on   malafides   and    extraneous considerations violating Article 14 of the Constitution. tie further submitted that the reasons put forward on behalf  of the Railways are disingenuous and bereft of rationale.   The supported  the  finding  of the High Court  that  the  price should he fixed at Rs. 67,000 123 for  every  manufacturer.   Shri  Nariman,  learned  counsel appearing for M/s Mukand, another respondent submitted  that the   dual   set  of  counter  offers  and   allocation   of disproportionate quantites are highly arbitrary and that the practice  and policy of the past 10 years of placing  orders on all manufacturers in respect of the quantities worked out on  the  basis  of standard quantity formula  at  a  uniform price, gave rise to legitimate expectations among all  bogie manufacturers  and  irrational departure from  the  existing policy is arbitrary and unreasonable.  He further  submitted that  the making of law tender offers can not by  itself  be visited  with  punty  consequences  like  dual  pricing  and reducing the allotment of legitimate quantities. Shri  Shanti  Bhaushan, learned counsel appearing  for  M/s. Bhartiya  submitted  that  the  Tender  Committee  erred  in treating  M/s.  Bhartiya also as a member of the cartel  and that  the  allotment  of  quantities  has  been  arbitrarily reduced.  He however made one special submission namely that M/s Bhartiya never made an offer of Rs. 67,000 and there  is nothing in writing to that effect and that merely because of the  statement of the counsel during the proceedings  before the  High Court, it should not be understood that they  are, willing  to supply at the, rate of Rs. 67,000 and that  they should not be treated by treated differently from the  other nine manufacturers. Taking  all  the  aspects into  consideration  and  for  the purpose  of giving our conclusions it may broadly be  stated that M/s H.D.C. and Mukand gave post-tender offers at a  low pride  with the hope that they would get a  larger  quantity allotted.   M/s Bhartiya also fell in line with them  though did  not  specifically put it in writing.   But  during  the course  of  the  hearing of the  writ  proceedings,  it  was represented  on behalf of M/s Bharatiya that they  would  be willing  to  supply at Rs. 67,000 if the  court  fixes  that price.  This is noted by the High Court in its judgment. The  Railways  authorities  however concluded  that  in  the beginning  itself these three have formed a cartel  and  the price  quoted by them was only a cartel price.  The note  by the  Financial  Commissioner is somewhat elaborate  on  this aspect   and  the  Minister  for  Railways,  the   competent authority  agreed  with  him  and  also  directed  that  the quantities  be  suitably  adjusted so  that  the  cartel  is broken.  He also took into consideration the fact that  some of the smaller units are sick and 124 therefore  they should be given a larger quantity to  enable them  to  rehabilitate.  The other  recommendations  of  the authorities  were  also  accepted.  However  in  giving  any directions we must bear in mind that the contract period  is going to end shortly and till now all the manufacturers have been  manufacturing  and supplying pursuant to  the  interim orders.  We may indicate at this stage that we shall discuss all  these aspects later in detail in our  judgment.   After due  and  careful  consideration of  all  the  aspects,  our

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conclusions are as follows: (1)  There  is  no  enough material  to  conclude  that  M/s H.D.C.,  Mukand  and Bhartiya formed a cartel.   Because  of mere  quoting  identical  tender offers by  the  said  three manufacturers for which there is some basis, the  conclusion that  the  said manufacturers had formed a cartel  does  not appear to be correct.  However since the offers of the  said three  tenders  were identical and the  price  was  somewhat lower,  the Tender Committee entertained a suspicion that  a cartel had been formed and the same got further strengthened by the post-tender attitude of the said manufacturers  which further  resulted in entertaining the same suspicion by  the other  authorities in the hierarchy of the  decision  making body including the Minister of Railways.  Though there is no enough of material to establish formation of a cartel as  is understood  in  the legal parlance but at the same  time  it cannot be contended that such an opinion entertained by  the concerned  authorities  including  the  Minister  was  perse malicious or was actuated by any extraneous  considerations. After  a careful examination of the entire record and  facts and  circumstances of the case we are of view that  all  the Railway  authorities  including  the  Minister  acted  in  a bonafide   manner  in  taking  the  stand  that  the   three manufactures formed a cartel. (2)  The  current contract price based on the updated  price is  Rs.  79,305  The  three  manufacturers  offered  at  Rs. 77,6000.  ’Faking into consideration the later  concessions, the Tender Committee decided that the price of Rs. 76,000 is reasonable.   In the post tender correspondence  M/s  H.D.C. and  Mukand offered to supply at a price of Rs.  67,000  per bogie, but no particulars as to how it would be  reasonable, were  given.  However they have come forward before us  with some  particulars.   M/s  Bhartiya did  not  gave  any  such offering  writing,  but fell in line with them and  did  not choose  to question the order of the High court  fixing  the price at Rs. 67,000 The Railways were of the view that 125 it is an unreasonable price an smaller manufacturers  cannot supply  at  that  price  and  consequently  they  will   get extinguished   resulting   in   a  monopoly   by   the   big manufacturers.   The  High court has  directed  that  supply should   be  at  Rs.  67,000  by  everyone.    Taking   into consideration all these aspects we are of the view that  the fixation  of  price  at Rs. 67,000  per  bogie  straightaway without  necessary  and proper consideration  and  appraisal regarding  the viability and other aspects by some  experts, is  not  just and fair from many points of  view.   A  fresh consideration is called for, particularly from the point  of view  of safeguarding the interests of the public  exchequer and   giving_   necessary   protection   to   the    smaller manufacturers.  Consequently we set aside this direction  of the High Court and direct the Tender Committee to reconsider the  question of fixation of reasonable price.   The  Tender committee shall consider the offer of Rs, 67,000 made by M/s H.D.C. and Mukand along with the data that would be given by them  in  support  of that and  the  percentage  of  profits available  to  all the 3 manufacturers  and  other  relevant aspects  and  then  fix a reasonable  price.  at  which  the manufacturer would be able to supply.  The Tender  Committee shall within two weeks from today complete the process. (3) At a belated post tender stage Railways authorities  did not  deem it fit to reconsider the question of  fixation  of price  in  the light of the post tender offers made  by  M/s H.D.C. and Mukand, as by then they were of the opinion  that the three big manufacturers have formed a cartel and  quoted

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a  cartel  price.  The stand by the Railways to  adopt  dual pricing  under  these  circumstances  is  bonafide  and  not malafide.  However. dual pricing on principle may not appear to  be  rational  since the  railways  have  been  following certain formula in fixing the price which is made applicable to  all the manufacturers, But under  certain  circumstances dual  pricing may be reasonable.  In the instant case  M/  s H.D.C. and Mukand came forward with firm offer of a price at Rs.  67,000 per bogie.  M/s Bharatiya also got committed  to supply  at  the same price.  All the three of them  did  not even challenge the order of the High Court.  These three big manufacturers  just be deemed to be in a position to  supply at  the  rate of Rs. 67,000 and thus they  form  a  distinct category.   The smaller manufacturers belong to a  different category  and if a different price is fixed for them  it  is not discriminatory. 126 (4)  If  the  price  that  is to  be  fixed  by  the  Tender Committee  as  directed by us happens to be  more  than  Rs. 67.000  then  that  would  be  applicable  to  the   smaller manufacturers  only  and  not  to  M/s  H.D.C.,  Mukand  and Bhartiya  who on their own commitment have to supply at  the rate of Rs. 67,000. (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)  Now  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 tile recommendations of the Financial commissioner and other authorities.    The   has   however   not   accepted   these recommendations  fully.   In making  these  variations,  the Minister accepting ultimately reduced the allotment of quota to  the  said  three  tenderers  substantially  by  way   of reprisal.   In view of our finding that the formation of  an opinion   that  cartel  was  formed  had  no  firm   factual foundation; such a reduction of quota by way of reprisal can not be justified. we are however, not inclined to accept the contention made on behalf of M/s H.D.C., Mukand and Bhartiya that  no  departure from the recommendations of  the  Tender committee  is permissible in the absence of any  established policy  which  was also known by the  tenderers.   From  the records  it  appears that in the past also there  have  been such  variations.  In our view, the Minister of Railways  as the  final  authority. after  considering  various  relevant factors, may he justified in taking a particular decision in the  matter of allotment of quota but such decision must  be taken on objective basis.  But, in this case. it appears  to us that all the smaller manufacturers deserving a favourable treatment in the matter of allotment of quota, have not been equally  treated in the sense that one or, two of  them  got larger  quantities.   Though this does not appear  to  be  a serious  departure,  yet  in  these  matters  the  Govt.  is expected  to be just and fair to one and all.  We hope  that in future the authorities would make a proper  consideration of  the relevant factors in respect of each tenderer  in  an objective manner in allotting the quantities. 127 (7)  In  view of the interim orders, during the pendency  of writ petitions before the High Court, and until now all  the manufacturers  have been supplying as per the allotments  by the  Tender  Committee.   The High  Court  in  its  judgment finally  directed the Railways to reconsider the  allocation

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on  reasonable  basis.   It is submitted on  behalf  of  the smaller manufacturers that they have made necessary manufac- turing arrangements on the basis of the final allotment.  On behalf  of  the  M/s  H.D.C., Mukand  and  Bhartiya,  it  is submitted  that their legitimate quotas also are  cut  short and  that they are entitled to larger quantities in view  of the  low  price  offered by  them.   Having  considered  the contentions  made by all- the manufacturers direct that  the there  manufacturers M/s H.D.C., Mukand and Bhartiya  should be  allocated the quantities as per the  recommendations  of the  Tender committee.  We, however. do not want to  disturb at  this  stage  the  quantities  finally  allotted  by  the competent authority to the small manufacturers as that would cause  great hardship to them.  We leave it to  the  Railway authorities  to make necessary adjustments next year in  the matter  of  allocation of quantities to  them  taking,  into consideration these allotments given to them this year.   To that extent we modify the order of the High Court. (8)  It will he open 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. Accordingly  these Special Leave petitions are disposed  of. There will he no order as to costs. V. P. R.                  SL Ps disposed of. 128