Union of India & Ors Vs. Dinesh
Engineering Corpn. & Anr [2001] Insc 491 (18 September 2001)
N. Santosh
Hegde & S N Phukan Santosh Hegde, J.
(With
CA No.5625/1994)
These
appeals are preferred against the judgment and order dated 15.10.1993 passed by
the High Court of Judicature at Allahabad in Civil Miscellaneous Writ Petition No.12355/93 filed by the first
respondent herein. The brief facts necessary for disposal of the appeals are as
follow :
The
respondent - M/s. Dinesh Engineering Corporation - (hereinafter referred to as
'the writ petitioner') claims to manufacture certain spare parts of GE
governors used by the Indian Railways to control the speed in diesel
locomotives. It is stated that originally the diesel governor was manufactured
only by M/s. General Electric Company of the United States of America ('GE' for short) and till the year
1974, the same was being imported as also its spare parts. Thereafter, while
stopping the import of governors in regard to the spare parts required for
replacement in the governors manufactured by General Electric Co., the Railways
were approaching the local manufacturers.
On
9.12.1991, it is stated that a tender was floated by the Controller of Stores,
Diesel Locomotive Works, Varanasi, for supply of certain items of
spare parts for use in GE governors.
It is
stated that only the writ petitioner responded to the tender but its tender was
not considered nor was it rejected till 23.10.1992 on which date the writ
petitioner received a letter from the Director, Mechanical Engineering (Tr.),
Diesel Locomotive Works, Varanasi, wherein it was informed that the Railway
Board had reviewed the policy of purchase of GE- EDC governor spares in the
context of sophistication, complexity and high degree of precision associated
with governors. Consequently, its tender was not acceptable to the Railways.
Challenging
this decision of the Railways both in regard to the policy purported to have
been adopted by the Board as also the rejection of its tender, the writ
petitioner moved the High Court seeking a writ in the nature of mandamus
commanding the respondents in the writ petition to finalise the offer of the
writ petitioner regarding the tender and also for issuance of a writ of
certiorari quashing the letter dated 23.10.1992 written by the Director,
Mechanical Engineering (Tr.) in regard to purchase of spare parts.
The
High Court in the impugned order came to the conclusion that on the basis of
the material placed before it that the writ petitioner was manufacturing spare
parts for GE governors and was supplying the same to various Divisions of the
Indian Railways who had found it to be satisfactory and, in regard to which, as
a matter of fact, some of these Divisions had also issued certificates of
efficiency and appreciation. It also accepted the plea of the writ petitioner
that the spare parts supplied by it were certified to have given satisfactory
service by various Divisions of the Railways like the Central Railways etc.,
and held that the writ petitioner was the sole competitor to M/s. Engineering
Devices & Controls (EDC) for the supply of spare parts in regard to
GE-governors. It also held that the policy put forth by railways in its letter
dated 23.10.1992 amounted to creating a monopoly in favour of EDC and the same
was wholly arbitrary and discriminatory. It also rejected the contention of the
Railways that the tender notice dated 9.12.1991 was rejected because the same
was not in conformity with the terms of the tender. The High Court also
rejected the contention of the Railways based on Clause 16 of the Guidelines
which gave a unilateral right to the Railways to reject the tender without
assigning any reason. On the above basis, the High Court while allowing the
writ petition held the orders of the Railways dated 14.7.1993 i.e. rejecting
the tender of the writ petitioner and the letter dated 23.10.1992 reflecting
the policy of the Railways in regard to purchase of spare parts for the
governors were quashed.
As
stated above, it is against this judgment that these appeals have been
preferred before this Court. It is to be noted that this Court having stayed
the operation of the impugned judgment of the High Court, in the normal course,
these appeals could have been disposed of as having become infructuous, but the
appellant contended that the issue involved in these appeals is of substantial
importance to the Railways and in view of the observations of this Court while
granting 'leave' in these appeals, irrespective of the final outcome of the
impugned tender in the original writ petition, the question involved requires
consideration by this Court.
It is
to be noted that this Court while granting 'leave' on 12.8.1994 observed :
"Since this is a matter which can be decided on the present set of paper
books, no printing is necessary. The matter is otherwise urgent and requires
settling so that the Railways should know how to deal with the matter of the
kind. This may be listed in the month of November, 1994 subject to the pleasure
of my Lord the Chief Justice. Liberty to
mention, if necessary." As things would have it, though the matter was
listed for hearing starting from 24.1.1995, for various reasons mentioned in
the concerned orders the matter was not taken up for hearing until the same
reached the stage of hearing this day before us.
Therefore,
we have considered it appropriate to decide these appeals on their merits.
Mr.
P.P. Malhotra and Mr. T.L.V. Iyer, learned senior counsel appearing for the
appellants in these appeals, strenuously contended that the respondent was a
small-time supplier of spare parts and did not have the necessary expertise and
infrastructure for the manufacture of required sophisticated spare parts,
therefore, keeping in mind the necessity to have genuine spare parts required
for this sophisticated equipment, the Railways after taking into consideration
all the aspects of the matter, had taken a policy decision as reflected in its
letter dated 23.10.1992 and this being a policy decision, the High Court ought
not to have interfered with the said decision. It was also contended on behalf
of the appellants that the Railways had the right to choose the supplier of
spares bearing in mind the quality of the goods it wanted to purchase. It is
contended that such right of the Railways becomes all the more important in the
purchase of sophisticated items like spare parts to the governors which plays a
very important role in maintaining safety in the movement of locomotives. It
was also contended that the High Court was in error in coming to the conclusion
that the policy was an afterthought or that it would create a monopoly in favour
of EDC. It was pointed out that in the letter reflecting the policy, it is
clearly pointed out that the Board had decided to make purchases of these spare
parts and meet future needs of governors from the EDC only till such time as
other persons capable of developing such equipment as well as spare parts to
the satisfaction of the Railways were available.
Therefore,
this temporary creation of monopoly, if any, would not be either unreasonable
or arbitrary. According to the appellants, the writ petitioner does not have
the requisite expertise nor the capacity to manufacture a governor or its
genuine spare parts, hence, the High Court ought not to have passed the
impugned order.
In
regard to the rejection of the offer made by the writ petitioner pursuant to
the tender notification, it is stated that the Railways had called for tenders
for supply of 98 items which were required as spare parts for the governors
while the writ petitioner had quoted only for 36 items, hence, the offer was
not in conformity with the requirement of the tender. It is also contended that
the writ petitioner had not submitted any drawings or specifications and had
also not offered any warranty for the working of the equipment. In such a
situation, it was not obligatory on the part of the Railways to have accepted
the tender. Further, the appellants placing reliance upon certain
correspondence between the Railways and the writ petitioner also pointed out
that the writ petitioner was not in a position to manufacture the governors as
per the requirement of the Railways for want of necessary infrastructure. Based
on these grounds the appellant contends that it is safer to place orders for
the spare parts of the governors with an original manufacturer of governors,
and since EDC alone has been manufacturing governors which are compatible to
the GE governors already in use with the Railways, there was nothing
unreasonable or arbitrary in placing orders with the EDC for purchase of spare
parts also till such time as some other parties are ready to make similar
supplies.
Mr.
M.D. Adkar, learned counsel appearing for the writ petitioner, seriously
challenged the contentions advanced on behalf of the appellants and supported
the judgment of the High Court. He contended that the policy put forth by the
appellants was only an excuse not to accept the offer made by the writ
petitioner for supply of spare parts to the GE governors which it has been
supplying to the Railways for the last over 17 years to their satisfaction. He
also contended that the policy in question was put forward only for creating a
monopoly in favour of the EDC and since EDC is not the original manufacturer of
GE governors as they have been manufacturing only their own governors they
cannot be treated as spare parts' suppliers of original equipment. Negativing
the contention of the appellants that the writ petitioner lacked the expertise
or the infrastructure to either manufacture the governors or spare parts for
the governors, he pointed out that the writ petitioner has been registered as a
supplier of governor drives including mounting and linkage under Item 1029 of
the Registration of Firms for items procured by Railways, and relied upon the
document reflecting this position which was produced along with his counter
affidavit before this Court. He also contended that he has been supplying spare
parts to the governors used by the Railways for the last over 17 years and
pointed out that various Divisions of the Indian Railways e.g. Western Railway,
Southern Railway, South-Central Railway and also Northern Railway have issued
the registration certificates to the said effect. He contended that between the
period 1979 and 1993, the writ petitioner had supplied spare parts for
governors to the Railways worth more than 2 crores of rupees, therefore, the
contention of the appellants that the writ petitioner does not have the
necessary expertise or the infrastructure to produce the spare parts for the
GE-governors, cannot be countenanced.
In the
backdrop of the arguments addressed before us and bearing in mind the findings
of the High Court, we will now discuss the two issues which arise for our
consideration. We will first take up the question of policy put forth by the appellant
as per its letter dated 23.10.1992. For this purpose, it is necessary for us to
reproduce in verbatim the relevant part of that letter which reads as follows :
"Board
have reviewed the policy on procurement of CE/EDC Governor spares in the context
of the sophistication, complexity and high degree of precision associated with
the governor. Keeping in view the need to assure their reliable and quality
performance, it has been decided that :-
(i)
GE/EDC Governor spares should in procured on proprietary basis from M/s
Engineering Devices and Controls Pvt. Ltd. (EDC) who are the original equipment
manufacturers the supplies from whom will be supported be guarantees/warranties
:
(ii)
DLW should intensify its efforts to development alternative sources for
manufacturing of complete governors which is fully inter-changeable and matches
in performance with the GE type Governor so as to generate competition;
(iii)
The procurement of GE/EDC Governor spares on proprietary basis from M/s. EDC
would be reviewed once alternative factory sources of supply of these Governors
become available.
This
issues with the concurrence of the Finance Directorate." A perusal of the
said letter shows that the Board adopted this policy keeping in mind the need
to assure reliability and quality performance of the governors and its spare
parts in the context of sophistication, complexity and high degree of precision
associated with governors. It is in this background that in para (i) the letter
states that the spares should be procured on proprietary basis from EDC. This
policy proceeds on the hypothesis that there is no other supplier in the
country who is competent enough to supply the spares required for the governors
used by the Indian Railways without taking into consideration the fact that the
writ petitioner has been supplying these spare parts for the last over 17 years
to various Divisions of the Indian Railways which fact has been established by
the writ petitioner from the material produced both before the High Court and this
Court and which fact has been accepted by the High Court. This clearly
establishes the fact that the decision of the Board as found in the letter
dated 23.10.1992 suffers from the vice of non-application of mind. On behalf of
the appellants, it has been very seriously contended before us that the
decision vide letter dated 23.10.1992 being in the nature of a policy decision,
it is not open to courts to interfere since policies are normally formulated by
experts on the subjects and the courts not being in a position to step into the
shoes of the experts, cannot interfere with such policy matters. There is no
doubt that this Court has held in more than one case that where the decision of
the authority is in regard to a policy matter, this Court will not ordinarily
interfere since these policy matters are taken based on expert knowledge of the
persons concerned and courts are normally not equipped to question the
correctness of a policy decision. But then this does not mean that the courts
have to abdicate their right to scrutinise whether the policy in question is
formulated keeping in mind all the relevant facts and the said policy can be
held to be beyond the pale of discrimination or unreasonableness, bearing in
mind the material on record. It is with this limited object if we scrutinise
the policy reflected in the letter dated 23.10.1992, it is seen that the
Railways took the decision to create a monopoly on proprietary basis on EDC on
the ground that the spares required by it for replacement in the governors used
by the Railways required a high degree of sophistication, complexity and
precision, and in the background of the fact that there was no party other than
EDC which could supply such spares. There can be no doubt that an equipment of
the nature of a spare part of a governor which is used to control the speed in
a diesel locomotive should be a quality product which can adhere to the strict
scrutiny/standards of the Railways, but then the pertinent question is : has
the Board taken into consideration the availability or non-availability of such
characteristics in the spare parts supplied by the writ petitioner or, for that
matter, was the Board alive to the fact that like EDC the writ petitioner was
also supplying the spare parts as the replacement parts for the GE governors
for the last over 17 years to the various Divisions of the Railways. A perusal
of the letter dated 23.10.1992 does not show that the Board was either aware of
the existence of the writ petitioner or its capacity or otherwise to supply the
spare parts required by the Railways for replacement in the governors used by
it, an ignorance which is fatal to its policy decision. Any decision be it a
simple administrative decision or a policy decision, if taken without
considering the relevant facts, can only be termed as an arbitrary decision. If
it is so then be it a policy decision or otherwise, it will be violative of the
mandate of Article 14 of the Constitution.
It is
next contended that EDC is admittedly manufacturing complete governors by
itself and the same being compatible to the GE-governors in use with the Railways,
EDC should be considered as the supplier of spares for the original equipment.
Therefore, it is always safer to buy spare-parts from an original equipment
manufacturer than from a manufacturer of only a spare-part. This argument would
have been an acceptable argument if EDC was manufacturing GE-governors itself.
It is an admitted case that EDC manufactures its own governors and not
GE-governors nor are they licensed to manufacture GE-governors. All and
any/sundry governors' manufacturer cannot be treated as a manufacturer of
original equipment for the supply of spares for GE-governors. The status of EDC
vis-à-vis the writ petitioner will be the same in regard to the supply of
spares to GE-governors. This observation of ours does not of course amount to
giving a certificate of approval to the writ petitioner as to the spare parts
manufactured by it or that it is compatible with the GE- governors. That is a
matter to be decided by the experts but suffice it to say that the writ
petitioner cannot be excluded from consideration for the supply of spare parts
to the GE-governors on the sole ground that it does not manufacture governors
by itself.
Here
it is to be noted that substantial number of governors used in the locomotives
of the Indian Railways are those manufactured by GE, therefore, the
requirements of spare parts are also substantial for replacement in these
governors.
Hence,
the Board ought not to have created a monopoly in favour of the EDC. It is,
however, open to the Railways if it comes to the genuine conclusion that the
spare parts manufactured by the writ petitioner are not acceptable on the
ground of sophistication, complexity and high degree of precision then certainly
it is for the Railways or for that matter if the terms of offer are not
acceptable for justifiable reasons, it will be open to the Railways to reject
the offer of the writ petitioner. But then, none of the above form the basis
for creating a monopoly in favour of the EDC. As held by the High Court, that
creation of this monopoly in favour of the EDC is unreasonable and arbitrary
with which we agree.
Coming
to the second question involved in these appeals, namely, the rejection of the
tender of the writ petitioner, it was argued on behalf of the appellants that
the Railways under clause 16 of the Guidelines was entitled to reject any
tender offer without assigning any reasons and it also has the power to accept
or not to accept the lowest offer. We do not dispute this power provided the
same is exercised within the realm of the object for which this clause is
incorporated. This does not give an arbitrary power to the Railways to reject
the bid offered by a party merely because it has that power. This is a power
which can be exercised on the existence of certain conditions which in the
opinion of the Railways are not in the interest of the Railways to accept the
offer. No such ground has been taken when the writ petitioner's tender was
rejected. Therefore, we agree with the High Court that it is not open to the
Railways to rely upon this clause in the Guidelines to reject any or every
offer that may be made by the writ petitioner while responding to a tender that
may be called for supply of spare parts by the Railways. Mr. Iyer, learned
senior counsel appearing for the EDC, drew our attention to a judgment of this
Court in Sterling Computers Ltd. etc. v. M/s. M & N Publications Ltd. &
Ors. (1993 1 SCC 445) which has held :
"Under
some special circumstances a discretion has to be conceded to the authorities
who have to enter into contract giving them liberty to assess the overall
situation for purpose of taking a decision as to whom the contract be awarded
and at what terms. If the decisions have been taken in bona fide manner
although not strictly following the norms laid down by the courts, such
decisions are upheld on the principle laid down by Justice Holmes, that courts
while judging the constitutional validity of executive decisions must grant
certain measure of freedom of "play in the joints" to the
executive." But then as has been held by this Court in the very same
judgment that a public authority even in contractual matters should not have
unfettered discretion and in contracts having commercial element even though
some extra discretion is to be conceded in such authorities, they are bound to
follow the norms recognised by courts while dealing with public property.
This
requirement is necessary to avoid unreasonable and arbitrary decisions being taken
by public authorities whose actions are amenable to judicial review. Therefore,
merely because the authority has certain elbow room available for use of
discretion in accepting offer in contracts, the same will have to be done
within the four corners of the requirements of law especially Article 14 of the
Constitution. In the instant case, we have noticed that apart from rejecting
the offer of the writ petitioner arbitrarily, the writ petitioner has now been
virtually debarred from competing with the EDC in the supply of spare parts to
be used in the governors by the Railways, ever since the year 1992, and during
all this while we are told the Railways are making purchases without any tender
on a proprietary basis only from the EDC which, in our opinion, is in flagrant
violation of the constitutional mandate of Article 14. We are also of the
opinion that the so-called policy of the Board creating monopoly of EDC suffers
from the vice of non- application of mind, hence, it has to be quashed as has
been done by the High Court.
As
stated above, so far as the tender dated 9.12.1991 is concerned, the same has
become infructuous by passage of time, hence, the relief granted in this regard
by the High Court has also become infructuous. However, we are in agreement
with the High Court that the Board cannot purchase the spare parts under a
proprietary basis from the EDC without calling for tenders and considering the
offers received on merits.
For
the reasons stated above, we hereby direct that to meet the future requirements
of the Railways in regard to the spares for governors to be used in the diesel
locomotives are concerned, same shall be purchased by a public tender and
offers so received shall be considered on their merits without reference to the
policy referred to in the letter dated 23.10.1992.
Accordingly,
these appeals fail and the same are hereby dismissed. No costs.
..........................J.
(N. Santosh
Hegde) ...........................J.
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