Caterpillar India Pvt. Ltd Vs. Western Coal Fields Ltd. and Ors  Insc 628
(18 May 2007)
Dr. ARIJIT PASAYAT & S.H. KAPADIA
TRANSFERRED CASE (CIVIL) NO. 4 OF 2004 With T.C. (C) Nos.11/2004, 5/2004,
12/2004 and 3/2005) and Civil Appeal No 2738/2007 (Arising out of SLP (C)
No.24219/2003 Dr. ARIJIT PASAYAT, J.
Leave granted in SLP (C) No. 24219/2003.
The point involved in these cases essentially is the purchase preference
given to Public Sector Enterprises (in short the 'PSEs'). The petitioners have
made a grievance that the key players in the market are petitioners-Caterpillar
and Bharat Earth Movers Ltd. Most important purchaser for all these are coal
fields, for example Western Coalfield and its subsidiaries-Coal India Ltd. They
are invariably the purchasers in respect of earth moving machines. Prior to
1992 price preference was given to PSEs. Post 1992 purchase preference was
given and the lowest and the second lowest bidders were being described as L-1
and L-2. Purchase orders were issued by the Coal India Ltd., broadly in the
ratio of 60/40 and the L-2 was required to match the L-1 price. The language
used earlier was "may" as indicated by Circular dated 13.1.1992. The
purchase preference policy was extended by office memorandum dated 15.3.1995
for a further period of two years. It was further extended till 21.3.2000 by
office memorandum dated 31.10.1997, subject to purchase being in excess of Rs.5
crores. By office memorandum dated 14.9.2000, the policy was extended till
31.3.2002. However, the minimum value of purchase was brought down to rupees
one crore. By office memorandum dated 14.6.2002, the policy was extended till
31.3.2004 and the scheme was made valid for purchase of rupees five crores and
above. By office memorandum dated 26.10.2004, which extended the policy for one
year upto 31.3.2005 retrospectively from 1.4.2004. By office memorandum the
policy was extended for a period of three years retrospectively with effect
from 18.7.2005. The word 'may' was substituted by the word 'will' by this office
memorandum. According to the petitioners the intention was to give somewhat
longer period for stabilizing all PSEs. It never intended to create any
Grievance is made that by substitution of the word 'may' by the word 'will'
is arbitrary. The word 'may' gives a wider option to the tenderers and all the
tenderers were on a level playground without any unnecessary protection to any
of the parties.
It is pointed out that on 15.3.1995 office memorandum was issued extending
the time to purchase preference upto 31st March, 1997. It was further
re-introduced for a period of three years upto 31st March, 2000. Again, it was extended upto 31st March, 2002. By further office memorandum dated 14th June,
2002 the existing purchase preference is for products and services to central
public sector enterprise was extended by two years upto 31st March, 2004. The
legality of the office memorandum dated 14th June, 2002 is challenged
contending that it is arbitrary and affects the legitimate expectation of the
various parties. In fact it creates a monopoly and the policy without any
sanctity of law.
The respondents opposed the petition primarily on the ground that there is
no substance in the allegations. Benefit is not given only in respect of the
parties covered by these petitions. The office memorandum dated 13.1.1992 was
issued by the Department of Public Enterprises, Ministry of Industry,
Government of India stating that in respect of granting price preference to
PSEs, Government may grant purchase preference to PSEs by price quoted by them
which is less than 10% of the lowest price other conditions being equivalent.
It was stated that the policy was valid for three years period as transaction
within which PSEs were to adjust to the global new business environment and
improve competitiveness efficiency.
The above purchase preference policy was extended on 15.3.1995 for a further
period of 2 years and it was stated that the said extension was final and the
earlier policy would automatically lapse. During 1997 the purchase preference
was further extended upto 31.3.2000. This was in relation to purchases in
excess of Rs.5 crores. By the office memorandum dated 14.9.2000 the policy was
extended till 31.3.2002 and the minimum value of purchase was brought down to Rs.1
crore from Rs.5 crores.
By Office Memorandum dated 14.6.2000 the PSEs purchase preference was
extended for a further period of 2 years till 31.3.2004 and the scheme was made
valid in respect of purchase of Rs.5 crores and more.
Grievance is made that with a view to show preference the practice of
splitting the tender was introduced. This according to the petitioners had
caused immense difficulties.
By Office Memorandum dated 18.7.2005 Government of India
re-introduced/extended the earlier purchase preference policy retrospectively
from 1.4.2005 for a period of 3 years till 31.3.2008. This policy contains
certain modified conditions which were different from the past policies. These
policies are basically under challenge. The language used unlike the earlier
policy on 14.6.2002 which used the expression that purchase preference may be
granted, was 'will'.
We find that the basic challenge is that by imposing a condition like
purchase preference no option is left and a monopoly is being created. The
increase in effectiveness of PSEs cannot be done on a uniform policy without
examination as to whether such protection is necessary for a particular PSE. It
has to be examined individually as to whether any differential treatment is
called for. It is pointed out that there may be no competition left if 10%
margin is given. In essence, the submission is that the preference should be
given PSE specific and the margin also has to be examined rationally.
We feel that these are the aspects which need to be considered by the
concerned Ministries. We, therefore, direct that industry-wise assessment be
done and if there is already cost effectiveness in any PSEs there may not be
any need for the preference being given. The examination should be on the line
as to whether any preference is called for and what would be the margin of
preference which would ensure level playing field. It should also be fixed
specifically and while fixing the minimum amount it should be ensured that
breaking of the quantity should be rational, so that there is no likelihood to
introduce an element of uncertainty. If the object was to invite foreign direct
investment, the impact of the preference on such investment has to be
considered. It shall also be considered as to whether some amount of discretion
as was given earlier has to be re-introduced. There cannot be certainly any
rigid inflexible policy. Because of the substitution of the word 'may' by
'will' there is essentially reversal of the policy. Therefore, the applications
are disposed of with the following directions:
(1) the exercise, as noted above, shall be undertaken by the concerned
Ministry of the Central Government within a period of 4 months from today;
(2) The interim arrangements operative presently shall continue till a fresh
re-reconsideration is made by the concerned departments of the Government of
(3) The interim orders shall not be restricted to the petitioners, appellant
and the respondents. It shall only be binding on the parties who are L-1 and
L-2 in the concerned transaction. While fixing the norms, the capacity to
delivery of the concerned PSEs and the competitors has also to be taken note
Appeal and applications are accordingly disposed of.