1993 (4) TMI 306 - SC - Law of Competition

Notice inviting tender - economic policy of the Government in the matter of stopping monopolistic tendencies - principle of fixation of uniform price for the industry - Dual Pricing - Time to complete the supply - test of reasonableness - word Cartel - scope of legitimate expectations - Railway Board enters into contracts with the manufacturers for the supply of cast steel bogies - HELD THAT - 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. 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. 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. 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 . 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. 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 1992 (11) TMI 275 - SUPREME COURT .

Summary

Issues Involved:
1. Formation of Cartel
2. Reasonable Price Fixation
3. Dual Pricing
4. Allocation of Quotas
5. Legitimate Expectation

Summary:

1. Formation of Cartel:
The Supreme Court found that there was no sufficient material to conclusively determine that M/s. H.D.C., Mukand, and Bharatiya formed a cartel. However, the identical pricing quoted by these manufacturers gave rise to a suspicion of cartel formation. The authorities, including the Minister, acted in a bona fide manner in suspecting the formation of a cartel based on the identical pricing and post-tender behavior of these manufacturers.

2. Reasonable Price Fixation:
The High Court's direction that all suppliers should supply bogies at Rs. 67,000 was deemed unsustainable by the Supreme Court. The Tender Committee was directed to reconsider the reasonable price, taking into account the offers and data provided by M/s. H.D.C. and Mukand, and other relevant aspects. The Tender Committee should fix a reasonable price at which the manufacturers would be able to supply.

3. Dual Pricing:
The Supreme Court held that dual pricing may be reasonable under certain circumstances. The Railways' decision to adopt dual pricing was found to be bona fide and not mala fide. M/s H.D.C., Mukand, and Bharatiya were considered to form a distinct category capable of supplying at Rs. 67,000 per bogie, while smaller manufacturers belonged to a different category. A different price for smaller manufacturers was not discriminatory.

4. Allocation of Quotas:
The Supreme Court found that the reduction of quotas to the three big manufacturers by the Minister, based on the suspicion of cartel formation, was unjustified. The three big manufacturers should be allotted quantities as per the Tender Committee's recommendations. The allocations to smaller manufacturers need not be disturbed, and necessary adjustments could be made in the subsequent year. The Railways were allowed to exercise the 30% option if not already exercised.

5. Legitimate Expectation:
The Supreme Court acknowledged the concept of legitimate expectation, emphasizing that the Government must act fairly and not arbitrarily. The manufacturers had a legitimate expectation based on past practices and policies. However, the final decision must consider public interest and be reasonable. The Court found that the authorities acted within their rights and followed a rational policy aimed at preventing monopolistic tendencies and encouraging competition among manufacturers.

General Submissions on Tender System and Economic Policy:
The Supreme Court reiterated that the Government, in a welfare state, has wide powers in regulating and dispensing special services like contracts. The Government must act fairly and not arbitrarily, and its actions should be based on rational and reasonable grounds. The Court emphasized the importance of preventing monopolistic tendencies and ensuring healthy competition, aligning with the Directive Principles of State Policy and public interest.