CASE NO.: Appeal (civil) 5624 of 1994 PETITIONER: UNION OF INDIA & ORS. Vs. RESPONDENT: DINESH ENGINEERING CORPN. & ANR. DATE OF JUDGMENT: 18/09/2001 BENCH: N. Santosh Hegde & S N Phukan JUDGMENT:
(With CA No.5625/1994)
J U D G M E N T
SANTOSH HEGDE, J.
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.
September 18, 2001. (S N Phukan)
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