http://JUDIS.NIC.

IN SUPREME COURT OF INDIA Page 1 of 48

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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 48
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,
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 31 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 32 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 33 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 34 of 48
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)
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 35 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 36 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 37 of 48
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:
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 38 of 48
"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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 39 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 40 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 41 of 48
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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 42 of 48
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