Bhhaskar Shrachi Alloys Limited vs Union Of India (Uoi) And Ors.
2002 Latest Caselaw 963 Del

JUDGMENT

A.K. Sikri, J.

1. SDIC Inserts (hereinafter referred to as 'Goods', for short) are purchased in huge quantities by the Indian Railways exclusively. This product otherwise has no market. The manufacturers of these Goods, therefore, depend entirely on the Indian Railways for sale of this product. Railways purchase the Goods from various vendors through the process of annual tenders. As per Clause 6.1 and 6.2 of the said Special Conditions of Contract a supplier/vendor intending to supply for the first time has to qualify and is initially given only an educational/development order for a small quantity out of which an initial quantity of 20,000 pieces has to be inspected and passed by Railway Research Design and Standards Organisation (hereinafter referred to as RDSO, for short), respondent No. 3 herein. Upon passing/approval by RDSO of first 20,000 pieces, an inspection certificate is granted to a vendor confirming, its approval as vendor of Goods. On becoming a "RDSO Approved Firm" it becomes entitled to be placed with bulk orders. The balance quantity above 20,000 pieces is inspected by RITES.

2. As would be noted in detail hereinafter, the respondent No. 1 issued Notice Inviting Tender (NIT) No. CS-146 of 2001 for purchase of 275 lakhs pieces of the Goods. Against this tender, the petitioner offered to supply 40 lakh pieces. When the tenders were opened on 16th March, 2001 the offer of the petitioner was found to be the lowest (L-1) - the rate quoted was Rs. 27.75p per piece amongst the RDSO approved firms. The n ext higher bidder (L-2) offered a rate of Rs. 27.95p per piece. As RDSO approved firm, the petitioner could get the Order of entire 40 lakh pieces offered by it at 'L-1' rates. However, the petitioner being treated as unapproved firm was given an Order of only 20,000 pieces. It is in these circumstances the petitioner approached this Court and claims that it should be treated as a RDSO firm and on that basis the Railways should place an Order of 40 lakh pieces.

3. The factual matrix as stated in the Petition leading to this controversy is an under:-

4. The petitioner is an ISO 9002 company manufacturing the Goods in question. It upgraded its plant and machinery and invested huge amount of money to install testing equipments, etc. to meet tough standards of respondents for supply of the Goods. The Goods are very significant material for ensuring safety in the working of the Railways and if standards are not maintained, it may cause rail accidents. Therefore per policy and procedure, an order for supply of only 1 lakh pieces of Goods, which was a development order was placed on the petitioner on 1st may, 2000 by the respondent No. 2 with a condition for getting initial 20,000 pieces to be inspected from RDSO. However, inspection beyond 20,000 pieces was to be done by RITES in order to qualify for bulk order in future. The petitioner offered 20,000 pieces for inspection by RDSO

- respondent No. 3. On approval, two inspection certificates dated December 4, 2000 and December 8, 2000 for a total quantity of 20,000 pieces were issued. Balance quantity of 80,000 pieces was offered from bulk inspection by RITES on 19th December, 2000 and was supplied within the prescribed period by the petitioner to the respondent No. 1.

5. In the meantime, on 31st October, 2000 the respondent No. 2 placed another development order for 1.68 lakh pieces on the petitioner. Out of this development order of 1.68 lakh pieces the petitioner offered 1.17 lakh pieces for inspection between 27th January, 2001 and 28th April, 2001. After the inspection and the approval by RITES the same was supplied during the aforesaid period. The balance 51,000 pieces were also inspected by RITES on 28th April, 2001. Although the petitioner claims that they were ready with the goods even earlier but could not be dispatch the same due to delay in issuance of dispatch instructions and after the inspection by RITES on 28th April, 2001 the total supplies were completed within the contract delivery period.

6. The aforesaid facts would show that two development orders were placed on the petitioner: one on 1st May, 2000 for supply of 1 lakh pieces and the other on 31st October, 2000 for supply of 1.68 lakh of pieces which were duly completed and executed by the petitioner.

7. When this process was on, as already mentioned above, the respondent No. 1 issued NIT dated 13th March, 2001 for purchase of 275 lakh pieces of Goods against which the petitioner offered to supply 40 lakh pieces and when the tenders were opened its rates were found to be the lowest among the RDSO approved firms. The petitioner was expecting to get the Order for supply of entire lot of 40 lakh pieces, as per the RDSO approved firms whose rate is found to be the lowest gets the order of entire supply offered by such firm. However, on or about 18th July, 2001 the petitioner learnt that the respondent No. 1 and 2 in utter disregard of facts and the representations made by it, even without replying to the representations had decided to term and treat it as an 'unapproved firm' as on the date of the opening of the tender i.e. March 16, 2001. This was in view of the fact that the petitioner was brought on Part II approved list vide letter dated June 12/13, 2001.

8. The case of the petitioner is that when the tender in question was opened on 16th March, 2001 the petitioner had already supplied 2.17 lakhs pieces of the Goods to the Railways. These supplies were made after 20,000 pieces were passed by the RDSO and 1.97 pieces by RITES. On this reckoning, as per the policy of the respondent No. 1, the petitioner had become an approved supplier as on 16th March, 2001 and therefore it could not be treated as unapproved supplier. In fact, the petitioner points out, since it emerged to be the lowest bidder, the price quoted by it, namely, Rs. 27.75p per piece amongst the RDSO approved firms was made the bench mark to make counter offer to all bidders. In these circumstances, the petitioner legitimately expected that being L-1 in terms of the past policy of respondents it was likely to get the entire offered quantity i.e. 40 lakh pieces.

9. It may mentioned above that the respondent No. 3 issued letter dated June 12/13, 2001 a copy of which was marked to the petitioner, as per which the petitioner was cleared for bulk manufacturer of the Goods and was included in the approved list of manufacturers. This letter of RDSO was based on the inspection of 20,000 pieces carried out by it on 4th and 8th December, 2000. Thus according to the petitioner, on the basis of aforesaid supply and inspection by RDSO although the petitioner has been brought on the approved list of bulk manufacturers for the Goods, in the process the respondent No. 3 has issued the aforesaid letter which adversely affects the petitioner.

10. It is the contention of the petitioner that on the basis of this letter the respondent No. 1 is treating the petitioner as approved firm only with effect from the date of issuance of this letter, which is issued belatedly. Had the certificates been issued immediately after the inspection was carried out by RDSO in December, 2000, the petitioner would have been treated as an approved supplier even on the date of opening of the tender in question i.e. 16th March, 2001. It is the contention of the petitioner that for this lapse on the part of the respondent, the petitioner cannot be made to suffer. It is also the case of the petitioner that this letter of 12/13th June, 2001 does not give the precise dated w.e.f. which the petitioner is to be treated as approved supplier, hence the petitioner should be treated as approved supplier from the date of inspection. In these circumstances, the petitioner poses following issue:-

"Can petitioner be denied an order for making supply of bulk quantity of SGCI Inserts, inspite of it being an approved vendor? Can petitioner be denied quantity of 40 lacs pieces by respondents against their past policy, procedure and practice? Is the petitioner entitled only for 2.5 lac pieces, as stated by respondent, although other firms which had made higher offers but were otherwise similarly placed as petitioner have been awarded a quantity of 9 lac pieces?"

11. In this respect the relevant prayer in the prayer clause reads as under:-

"treat the petitioner as a RDSO Approved Firm from 8.12.2000, i.e., the date of issuance of the certificate by RDSO, respondent No. 3 herein, and not from June 12/13, 2001, i.e., communication of respondent No. 3 to determine the status of petitioner for placement of bulk orders, pursuant to petitioner's offer in tender No. CS-146 of 2001."

12. The respondents have filed their counter affidavit defending their action in treating the petitioner as approved firm only w.e.f. June 2001 and therefore treating the petitioner as 'unapproved firm' as on 16th March, 2001 when the tender in question was opened. It is explained in the counter affidavit that the Goods are very important for the working of the railways and if any of the Goods are not as per the specifications the same may cause rail accidents and other mishappenings. The Goods are vital safely items as they work as an anchorage between PSC Sleeper and the rail. Any failure/defects of the Goods may lead to derailment and loss of life and property. For this reason, bulk procurement of this item is done only from RDSO approved bulk suppliers borne on Part I list of approved suppliers. According to the respondents, the development of new vendors, development orders for small quantities are placed on the new firms. After placement of development orders, the firms are required to develop infrastructural facilities for producing these Goods to the specifications prescribed by Railways. The firms are also required to develop testing facilities for these Goods. In the process, the firms are guided by RDSO. After the firm completes development of infrastructure to produce the material as per specifications and also develops required testing facilities, the firm is allowed to undertake initial production of 20,000 pieces. After the firm completes production of these 20,000 pieces, the product of the firm is thoroughly tested by RDSO and inspection certificates are issued in favor of the firm for passing of the material as per specifications. Further, inspection of Goods is then handed over to the RITES and further supplies are made by the firm after testing of the product by RITES.

13. Explaining the factual position so far as it relates to the case of the petitioner, it is explained that the petitioner firm was cleared for initial production and supply of 20,000 pieces vide RDSO letter No. CT/INSP/INSERT/BSAL/CAL dated 24.4.2000. It is stated that after the product of the firm is cleared by RDSO for initial production of 20,000 pieces, the firm is considered for enlistment as Part II bulk supplier, subject to satisfying the following conditions:- (i) Central Excise Registration Certificate; (ii) Sales Tax Registration Certificate; (iii) Factory License of Municipality/State Government; (iv) Income-tax' Clearance Certification; (v) Land and Building ownership and (vi) Registration document under Company Law. On scrutiny of the petitioner firm, as per check list for grant of Part II status, it was found that the firm had not submitted documents under items (i), (ii) & (iii) listed above. These documents were asked for from the firm on 1st June, 2001 which were received on 8th June, 2001 and after consideration of the case, the firm was brought on the list of Part II bulk supplies on 12th June, 2001.

14. The respondents have also explained that in view of the aforesaid position merely on issuance of certificates dated 4th and 12th December, 2000, the petitioner could not be enlisted as 'approved firm' for bulk supplies automatically. It was subject to satisfying various conditions and also subject to submission of documents in support of letter which was received only on 8th June, 2001 and immediately thereafter by letter dated 12th June, 2001 the petitioner firm was enlisted as 'approved bulk supplier' for further bulk supplies. Therefore, it is only this date on which the petitioner has to be treated as 'approved firm' and consequently as on 16th March, 2001 the petitioner has to be treated as 'unapproved firm'. According to the respondents as per policy of the Railways tender quantity is divided amongst various firms. New firms and Part-II firms are placed orders for 20% quantity only and keeping that in view order of 2.5 lakh pieces have placed on the petitioner.

15. The petitioner sought to controvert that the aforesaid plea of the respondent by alleging that it is a false stand taken by the respondent inasmuch as the compliance of the aforesaid contention was neither the part of the tender condition or even otherwise never practiced by the respondent. It is further stated that in any case the alleged documents sought to be obtained for the alleged scrutiny were with the petitioners since a long time and there was no reason for the petitioner to hold back these documents. The petitioner denies the suggestion of the respondent to the effect that Central Excise registration, Sales Tax Registration, Factory License, ITCC, Land and Building ownership, Registration document under Company Law etc. are required for enlistment as Part II bulk supplier. If the respondents have such a condition to check all the above documents before participation of the petitioner in the tenders floated by it, then all the above mentioned documents ought to have been insisted upon at that time, i.e. even prior to placement of the initial educational order. The payments, Modvat certificates, Sales Tax forms that the respondents have released in respect of 2.68 lakh pieces already supplied by the petitioner, would further indicate the manipulations being done by the respondents, to somehow substantiate their malafide acts. The reference to Excise payments, Sales Tax in the bills, already verified and cleared by the respondents in December 2000 indicates and confronts the respondents with wrong and incorrect facts stated by them. Similarly, the factory license etc. are examined by RDSO, initially at the time of registration only.

16. We find force in the submission made by the learned counsel for the petitioner. As already noted above, it is the respondent's own policy to place development order pieces in the first instance on an unapproved firm and supplies to be inspected by RDSO and if the supplier is able to execute this order satisfactorily and the same is approved by RDSO/RITES, it is brought on Part-II list of approved suppliers for bulk supplies. The petitioner made first supply of 20,000 pieces initially which were inspected by RDSO. It issued certificates dated 4th and 8th December, 2000. Thereafter another supply of 20,000 pieces was inspected by RITES on 19th December, 2000. In fact on the basis of these supplies only the respondents have now brought the petitioner on the Part-II list of approved suppliers but letter to this effect was issued only on 12/13th June, 2001. It is because of this belated issuance of this letter in June 2001 that the respondent is treating the petitioner as unapproved firm as on 16th March, 2001 when the tender is question was opened. However, there is no denial of the fact that by March 2001 the petitioner had made supplies to the extent of 2.17 lakh pieces. It is also not in dispute that no short-comings or defects have been found in the goods supplied by the petitioner of the aforesaid magnitude. When the main criteria for bringing a supplier on Part II list of approved supplier is the aforesaid supplies which were completed by the petitioner way back in December 2000 can the respondent delay the date on which the petitioner is brought on the Part-II bulk supplier list in June 2001 merely on the ground that the respondent had to issue such letter subject to satisfying certain conditions as stated in the counter affidavit. No doubt if certain other conditions are to be satisfied by a supper, till those conditions are complied with the said supplier cannot claim enlistment as Part-II bulk supplier. However, the policy for vendor's approval produced by the respondent does not specifically stipulate furnishing of aforesaid documents to be one of the requirement. What it stipulates is that initially "vendor would be accredited approval in the list of Part-II suppliers after assessment of manufacturing and testing facilities and satisfactory testing of the product as per prevalent procedure for respective items". No such requirement for production of aforesaid documents is mentioned in this policy. Therefore, even if such documents are required to be obtained, this could be only procedural formality and therefore cannot determine the date on which a vendor is to be treated as 'approved supplier'. Further more even if it is presumed that the respondent needed these documents, it did not ask for these documents either before placing the order of 20,000 pieces or immediately after the petitioner executed the order of 20,000 pieces each in December 2000. As per the respondents' own showing these documents were asked for from the petitioner only on 1st June, 2001. Petitioner immediately responded by supplying the documents on 8th June, 2001 i.e. within one week from the date when the documents were demanded by the respondent. The respondent therefore cannot be allowed to take advantage of their own wrong. In the first instance, it is nowhere stipulated that such documents are to be furnished by the supplier and therefore the petitioner had no knowledge about the same and secondly the respondent did not demand these documents for almost six months after the initial supplies made by the petitioner.

17. Interestingly, in the meantime the respondents kept on placing orders on the petitioner. On 31st October, 2000 the respondent No. 2 had placed a development order for 1.68 lakh pieces out of which the petitioner offered 1.17 lakh pieces for inspection between 27th January, 2001 and 28th April, 2001 which was supplied during this period. Balance 51,000 pieces were also inspected by RITES on 28th April, 2001 and was supplied immediately thereafter. Nodoubt the item in question is a safety item and any failure/defect of goods may lead to derailment. Even against the tender in question the respondents have placed an order of 2.5 lakh pieces on the petitioner. However, Goods supplied by the petitioner to the extent of 2.17 lakh pieces are treated as conforming to the standards and therefore, by necessary implication, conforming to safety standards as well but when it comes to making bulk supplies the petitioner is not treated as approved supplier as on 16th March, 2001 when most of the aforesaid supplies, on the basis of which the petitioner is treated as approved supplier were made before 16th March, 2001. The decision of the respondent does not appear to be bonafide in treating the petitioner as approved supplier only on 12th June, 2001 when the letter to this effect is issued. It is stated at the cost of repetition that the letter is issued on the basis of performance shown by the petitioner much before the 16th March, 2001. If on the basis of said performance much prior to 16th March, 2001, the petitioner can be approved as Part-II bulk supplier why the petitioner cannot be treated to be so on 16th March, 2001? By effecting the supplies to the satisfaction of respondents and on getting certificates to that effect the petitioner would have legitimate expectation of being treated as 'bulk supplier' in respect of tender issued thereafter. The delay in decision making process on the part of respondent would not be fair as it deprives the petitioner of its legitimate right and would be against Wednesbury's principle of arbitrariness. For all these reasons we are of the opinion that the petitioner should be treated to be Part-II bulk supplier even as on 16th March, 2001 when the tender in question was opened and petitioner's tender should be considered accordingly treating him as Part-II approved supplier.

18. The Writ Petition accordingly stands disposed of.

There shall be no order as to costs.