UNION OF INDIA BHILLAI ENGINEERING CORPN ANUPMALLEABLES" BURN STANDARD CO TEXMACO CIMMCO TITAGARH STEELS Vs. HINDUSTAN DEVELOPMENT CORPN:UNION OF INDIA

JUDGEMENT

(1.) All these Special Leave Petitions arise out of the common judgment of the High Court of Delhi in Civil Writ Petitions Nos. 1152 and 1157/92. 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.

(2.) 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 Bharatiya 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 1-4-92 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 up to 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 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 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 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 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. 76,000/- 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 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 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 next higher authority. He, with some observations, however recommended the acceptance of the Tender Committee's recommendations. The file was then put up to Financial Commissioner. He noted that the Tender Committee was convinced that the three manufacturers who quoted identical price of Rs. 77,666/- had formed a cartel. He also considered the offers made by 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. He, however, approved the Tender Committee's recommendations that a counter-offer of Rupees 76,000/- may be accepted but in the case of M/s H.D.C. a price lower by Rs. 11,000/-may be offered as per their letter dated 4-2-92. He also 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. 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 up dated 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 cannot sacrifice long time 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. 11,000/- with reference to the counteroffer 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. He also ordered that 30% option should straightway be exercised. After the approving authority took these decisions, the file went to the Chairman, Railway Board for implementing the decisions. He noted that action will be taken as decided by the Minister but added that it results in dual-pricing namely one to the three manufacturers and the higher one to the others and therefore the Minister may consider whether they could counter-offer the lower 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 unviable and that incidentally the price of Rs. 76,000/- now proposed to be counter-offered to the other firms is also in line with the recommendations of the Tender Committee. He, 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 lender 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 counter-offer. M/ s. Bharatiya also filed a similar petition in Calcutta High Court but the same was with drawn but another writ petition was filed later in the Delhi High Court. In the writ petitions filed by M/s H.D.C. and Mukand the high Court stayed the operation of the telegram dated 18-3-92 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 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:

(3.) Mr. Kapil Sibal. learned counsel appearing for the Union of India submitted that the three big manufacturers i.e. M/s. Mukand and Bharatiya 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 monpoly and to encourage competition among the recognised manufacturers and that the dual pricing adopted 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 a counter-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 BIFR 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 manufacturers originally offered a cartel price and all of them later apparently offered Rs. 67,000/-, an 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 Art. 14 and the power of the court under Art. 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 of 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.