IMPORTANT POINT
High Court was right in holding that rejection of respondent s only tender was arbitrary and that the Board cannot purchase the spare parts under a proprietary basis from another supplier viz. EDC without calling for tenders and considering the offers received on merits.

Headnote:(i) Constitution of India-Articles 14, 226 and 136-Union of India as owners of Railways inviting tender for supply of certain spare parts of GE Governors used by Railways to control the speed in diesel locomotives-Earlier imported from M/s. GES of USA-Respondent 1 was the only tenderer-Rejected on ground of policy decision dated 23.10.1992 to purchase on proprietary basis (i.e. without calling tender) from another Indian firm M/s. EDC-Writ to High Court-High Court holding this was discriminatory under Article 14 and quashed policy decision dated 23.10.92 as tending to create monopoly-Whether correct? (Yes).
       Held : On Policy decision dated 23.10.92 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. (Para 12)
       (ii) Constitution of India-Articles 14, 226 and 136-Govt. contract through Tender-Respondent No. 1 only Tenderer-Govt. rejecting-No application of mind-Tenderer was supplying spares required-No complaint-Tender rejected on the sole ground that Tenderer does not manufacture governors by itself for which spares are required-EDC was preferred-Whether proper? (No).
       Held : 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-a-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. (Para 13)
       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. (Para 14)
       (iii) Govt. contract-Through tender-Clause 16 of the guidelines giving power to reject any tender offer without assigning reasons-Tender of respondent 1 rejected-Writ to High Court-High Court held rejection was arbitrary-Appeal to Supreme Court-Appeal becoming infructuous by passage of time-Decision sought on scope of judicial review of administrative action-Whether High Court was right in quashing the decision of Govt. to reject tender? (Yes)-Appeal dismissed with direction for future-1993(1) SCC 445 relied on.
       Held : 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 arc 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 the 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. (Paras 16, 17 & 18)

JUDGMENT

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.

2. 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 received 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.

3. 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.

4. 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.

5. As stated above, it is against this judgment that these appeals have been preferred before this Court. It is to b

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2001 Supreme(SC) 1295

IMPORTANT POINTHigh Court was right in holding that rejection of respondent s only tender was arbitrary and that the Board cannot purchase the spare parts under a proprietary basis from another supplier viz. EDC without calling for tenders and considering the offers received on merits.

Cases Referred (1)

IMPORTANT POINT
High Court was right in holding that rejection of respondent s only tender was arbitrary and that the Board cannot purchase the spare parts under a proprietary basis from another supplier viz. EDC without calling for tenders and considering the offers received on merits.