K. JAYACHANDRA REDDY - (1.) THE Judgment of the court was delivered by -
(2.) BY our order dated 14/01/1993 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 suppliers in the field who have been regularly supplying these items. Two new firms Simplex and Beekay also entered the field. Among them admittedly M/s H.D.C., Mukand and Bhartiya are bigger manufacturers having capacity to manufacture larger quantities. On 25/10/1991 a limited tender notice for procurement of 19,000.00 cast steel bogies was issued to the regular suppliers as well as the above two new entrants for the year namely from April 1, 199 2/03/1993. The last date for submission of offers to the Ministry of Railways was 27/11/1991 by 2.30 p.m. and the tenders were to be opened on the same day at 3 p.m. It was stated therein that the price was subject to the price variation clause and the base date for the purpose of escalation was 1/09/1991 and that the railways reserved the right to order additional quantity up to 30% of the ordered quantity during the currency of the contract on the same price and terms and conditions with suitable extensions in delivery period. The offers were to remain open for a period 508 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 Bhartiya was an identical price of Rs. 77,666.00 per bogie while a other tenderers quoted between 83,000.00 and 84,500.00 per bogie. After the tenders were opened and before the same could be finalised, the government of India announced two major concessions namely reduction of custom duty on the import of steel scrap and dispensation of freight equalisation fund for steel. The tenders were put up and placed before the Tender Committee of the railways which considered all the aspects. The Committee concluded that three of the tenderers namely M/s H.D.C., Mukand and Bhartiya who had quoted identical rates without any cushion for escalation between 1/07/1991 and 1/09/1991, 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. 1,500.00 as a 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. 76,000.00 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 4/02/1992 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. 29.00 the cost of casting can also be reduced and therefore they would be in a position to supply the bogies at a lesser rate, in case a negotiation meeting is called. M/s Mukand in its letter also offered to substantially reduce the prices and that they would like to cooperate with the railways and the government and bring down the prices as low as possible and asked for negotiations. Though this was post-tender correspondence, the department felt that the offers made by M/s H.D.C. and Mukand could be considered. The whole matter was examined by the Advisor (Finance) in the first instance and by an elaborate note he observed that the need for encouraging open competition to improve quality and bring down costs has been recommended by the government and if it is intended to continue the existing policy of fixing a rate and distributing the order among all the manufacturers, then negotiations may not be useful as uniform prices offered to all manufacturers have to be sufficient even for the smaller and less economical units and that as any review of the existing policy would take time, the present tender can be decided on the basis of the existing policy. With this noting the file was immediately sent to the Member (Mechanical), the next higher authority. He, with some observations, however recommended the acceptance of the Tender Committee's 509 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. 77,666.00 had formed a cartel. He also considered the offers made by M/s H.D.C. and Mukand and observed that these three manufacturers who quoted a cartel price intended to get a larger order on the basis of such negotiated price which would eventually nullify the competition from the other manufacturers and lead to their industrial sickness and subsequently to monopolistic price situation. He, however, approved the Tender Committee's recommendations that a counter-offer of Rs. 76,000.00 may be accepted but in the case of M/s H.D.C. a price lower by Rs. 11,000.00 may be offered as per their letter dated 4/02/1992. He also recommended that the two manufacturers M/s Cimmco and Texmaco may be given orders to the extent of their capacity or quantity offered by them whichever is lower in view of the fact that they are wagon builders and the present formula regarding the distribution of quantities may be applied to all manufacturers except the three who have formed a cartel. He also recommended some recoveries from these three manufacturers who are alleged to have formed a cartel on the basis of their letters wherein they have quoted prices which were much less than the updated price as on 1/09/1991 of Rs. 79,305.00. He also made certain other recommendations and finally concluded that the post-tender letters may be ignored and that for short-term gains the department cannot sacrifice long- term healthy competition. After these recommendations of the Financial Commissioner the file was put up to the approving authority i.e. the Minister for Railways, who in general agreed with the recommendations of the Financial Advisor. He also noted that these three manufacturers have formed a cartel. He also noted that subsequent to the Financial Commissioner's note, besides M/s H.D.C. and Mukand, M/s Bhartiya has also offered to reduce the price by 10% or more, vide their letter dated 19/02/1992 if called for negotiations. Taking these circumstances into consideration the Minister ordered that all these three firms may be offered a price lower by Rs. 11,000.00 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. He 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. He noted that action will be taken as decided by the Minister but added that it results in dualpricing 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 510 in saving much more. The file was then again sent to and was considered by the Financial Commissioner who noticed this endorsement made by the Chairman, Railway Board. He however noted that so far all the other firms are concerned it is Rs. 3,305.00 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. 76,000.00 now proposed to be counter-offered to the other firms is also in line with the recommendations of the Tender Committee. He, however, noted that some of the units were sick units and owe a lot of money to the nationalised banks and it would therefore be in the national interest to accept dual-pricing. Therefore the file was again put up to the approving authority who agreed with the recommendations of the Financial Commissioner and the 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. 65,000.00 per bogie. The counter-offer was also made to the other nine manufacturers at the rate of Rs. 76,000.00 per bogie namely the price worked out by the Tender Committee. Soon after the receipt of this telegram dated 18/03/1992 M/s H.D.C. and Mukand filed writ petitions in the Delhi High court challenging the socalled discriminatory counter-offer. M/s Bhartiya also filed a similar petition in Calcutta High court but the same was withdrawn but another writ petition was filed later in the Delhi High court. In the writ petitions filed by M/s H.D.C. and Mukand, the High court stayed the operation of the telegram dated 18/03/1992 and issued notice to the Union of India and to the Executive Director and Director of the Railways (Stores) who figured as respondents in those writ petitions. M/s H.D.C. and Mukand also wrote to the Minister of Railways in reply to the telegram that they were not prepared to accept the counter-offer at the rate of Rs. 65,000.00 and instead they offered to supply the bogies at the rate of Rs. 67,000.00 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 2/04/1992 directing the Ministry to accept the allocation of bogies recommended by the Tender Committee and to pay a price at the rate of Rs. 67,000.00 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 of 1992 and this court while refusing to interfere at that interlocutory stage made the following observations on 28/04/1992: "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. 67,000.00 511 indicated as price by the High court and the sum of Rs. 76,000.00 contemplated by the railways; the order of the High court shall not prohibit the government making such on-account payment to such suppliers on each wagon on the condition that the said on-account payment of Rs. 9,000.00 per bogie should be covered by a bank guarantee for its prompt repayment together with interest at 20% per annum in the event the on-account payment cannot be observed in the price structure that may ultimately come to be determined pursuant to the final decision in the writ petitions. The special leave petitions are disposed of accordingly." Thereafter the High court took up the writ petitions for final hearing and by the impugned judgment allowed the writ petitions filed by M/s H.D.C. and Mukand and directed that all the suppliers should make the supplies at the rate of Rs. 67,000.00 per bogie and also set aside the quantity allocation and directed that the same should be 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 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 Special Leave Petition (Civil) Nos. 11897-98 of 1992. Before the High court in the two writ petitions filed by M/s H.D.C. and Mukand the other manufacturers figured as respondents 4 to 12 and M/s Bhartiya otherwise known as Besco figured as respondent 13. The other Special Leave Petitions are filed by those nine manufacturers. M/s Bhartiya, respondent 13, has not questioned the judgment of the High court. As mentioned above M/s Bhartiya filed a separate Writ Petition No. 1753 of 1992 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 Petition Nos. 1152 and 1157 of 1992. But they have not questioned the same. Consequently M/s Bhartiya figures as a respondent before us in the Special Leave Petition filed by the Union of India.
(3.) 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 Bhartiya and other smaller manufacturers. After considering the various 512 submissions and issues involved we have given our conclusions in our earlier order which briefly stated are as follows: (1 There is not enough material to conclude that M/s H.D.C., Mukand and Bhartiya formed a cartel. However, there was scope for entertaining 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 bona fide 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. 67,000.00 by every manufacturer cannot be sustained and that a fresh consideration of a reasonable 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. 67,000.00 made by M/s H.D.C. and Mukand along with the data that would be 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 bona fide and not mala fide. M/s H.D.C., Mukand and Bhartiya must be deemed to be in a position to supply at the rate of Rs. 67,000.00 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 is to be fixed by the Tender Committee as directed by us happens to be more than Rs. 67,000.00 then that would be applicable to the smaller manufacturers only and not to M/s H.D.C., Mukand and Bhartiya who on their own commitment have to supply at the rate of Rs. 67,000. (5 The price thus fixed by the Tender Committee which applies only to the smaller manufacturers shall be deemed to be final and the respective contracts shall be deemed to be concluded so far 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 big 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 cannot be justified. The Minister of Railways as the final authority 513 may be justified in taking 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., Mukand and Bhartiya 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 taking 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 up to 31/03/1993. 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.;