Delhi High Court
Tirupati Cylinders Pvt. Ltd. & Anr vs Indian Oil Corporation Limited & ... on 21 September, 2017
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 30.05.2017 & 14.07.2017
Pronounced on: 21.09.2017
+ W.P.(C) 3162/2017 & CM No.13795/2017
TIRUPATI CYLINDERS PVT. LTD. & ANR ..... Petitioners
versus
INDIAN OIL CORPORATION LIMITED & ANR
..... Respondents
+ W.P.(C) 3163/2017 & CM No.13797/2017
BHIWADI CYLINDERS PVT. LTD. & ORS ..... Petitioners
versus
BHARAT PETROLEUM CORPORATION LIMITED & ANR
..... Respondents
+ W.P.(C) 3165/2017 & CM Nos.13801/2017 & 16990/2017
TIRUPATI CYLINDERS PVT. LTD. & ANR ..... Petitioners
versus
HINDUSTAN PETROLEUM CORPORATION LTD. & ANR
..... Respondents
+ W.P.(C) 3167/2017 & CM No.13806/2017
BHIWADI CYLINDERS PVT. LTD. & ORS ..... Petitioners
versus
INDIAN OIL CORPORATION LTD. & ANR ..... Respondents
W.P.(C) No.3162/2017 & connected matters Page 1 of 53
+ W.P.(C) 3168/2017 & CM No.13808/2017
TIRUPATI CYLINDERS PVT. LTD. & ANR ..... Petitioners
versus
BHARAT PETROLEUM CORORATION LIMITED & ANR
..... Respondents
+ W.P.(C) 3169/2017 & CM No.13810/2017
BHIWADI CYLINDERS PVT. LTD. & ORS ..... Petitioners
versus
HINDUSTAN PETROLEUM CORPORATION LTD. & ANR
..... Respondents
+ W.P.(C) 4771/2017
HYDERABAD CYLINDERS PVT. LTD. & ORS ..... Petitioners
versus
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 4772/2017
HYDERABAD CYLINDERS PVT. LTD. & ORS ..... Petitioners
versus
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 4776/2017 & CM No.20710/2017
FOX HILL CYLINDERS PVT. LTD. & ANR ..... Petitioners
versus
W.P.(C) No.3162/2017 & connected matters Page 2 of 53
HINDUSTAN PETROLEUM CORPORATION LIMITED & ORS
..... Respondents
+ W.P.(C) 4777/2017
HYDERABAD CYLINDERS PVT. LTD. & ORS ..... Petitioners
versus
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 4778/2017
VANDANA KISHOR KELA & ORS ..... Petitioners
versus
UNION OF INDIA & ORS ..... Respondents
+ W.P.(C) 4779/2017
LAURUS INDUSTRIES PVT. LTD. ..... Petitioner
versus
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 4780/2017 & CM No.20717/2017
FOX HILL CYLINDERS PVT. LTD. & ANR ..... Petitioners
versus
BHARAT PETROLEUM CORPORATION LIMITED & ORS
..... Respondents
+ W.P.(C) 4782/2017 & CM No.20722/2017
DAKINI HEALTH FOODS ..... Petitioner
versus
BHARAT PETROLEUM CORPORATION LIMITED & ORS
..... Respondents
W.P.(C) No.3162/2017 & connected matters Page 3 of 53
+ W.P.(C) 4808/2017 & CM No.20804/2017
DAKINI HEALTH FOODS & ORS ..... Petitioners
versus
INDIAN OIL CORPORATION LIMITED & ORS ..... Respondents
+ W.P.(C) 4809/2017 & CM No.20805/2017
FOX HILL CYLINDERS PVT. LTD. & ANR ..... Petitioners
versus
INDIAN OIL CORPORATION LIMITED & ORS ..... Respondents
+ W.P.(C) 4810/2017 & CM No.20806/2017
DAKINI HEALTH FOODS & ORS ..... Petitioners
versus
HINDUSTAN PETROLEUM COPORATION LIMITED & ORS
..... Respondents
+ W.P.(C) 5667/2017
KRISHNA CYLINDERS AND ANR ..... Petitioners
versus
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 5668/2017
KRISHNA CYLINDERS AND ANR ..... Petitioners
versus
W.P.(C) No.3162/2017 & connected matters Page 4 of 53
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 5676/2017
DAYA INDUSTRIES & ORS ..... Petitioners
versus
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 5677/2017
DAYA INDUSTRIES & ORS ..... Petitioners
versus
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 5678/2017
DAYA INDUSTRIES & ORS ..... Petitioners
versus
UNION OF INDIA & ANR ..... Respondents
+ W.P.(C) 5692/2017
M/S KRISHNA CYLINDERS ..... Petitioner
versus
UNION OF INDIA & ANR ..... Respondents
Present: Mr. Balbir Singh, Sr. Adv., Mr. Akhil Sibal, Sr. Adv. with
Mr. Amol Sinha, Mr. Anshum Jain, Mr. Rahul Kochar &
W.P.(C) No.3162/2017 & connected matters Page 5 of 53
Mr. Vijay Verma, Advs. for petitioners in W.P.(C)
Nos.3162/2017, 3163/2017, 3165/2017, 3167/2017, 3168/2017
& 3169/2017.
Mr.Abhijit Banerjee with Mr. Amit Goel, Advs. for petitioners
in W.P.(C) Nos.5667/2017, 5668/2017, 5676/2017, 5677/2017,
5678/2017 & 5692/2017.
Mr. Tushar Mehta, ASG with Mr. Rajat Nair, Ms. Ayushi
Gupta & Ms. Tannishtha Singh, Advs. for IOCL in W.P.(C)
Nos.3162/2017, 3165/2017, 3167/2017 & 3169/2017.
Mr. Rajeev Mishra with Mr. Sanand Ramakrishnan &
Mr. Madan Mohan Bora, Advs. for BPCL in W.P.(C) Nos.
3163/2017 & 3168/2017.
Mr. Neeraj Kumar Raheja, Adv. for HPCL in W.P.(C) Nos.
3165/2017, 3169/2017, 4776/2017 & 4810/2017.
Mr. Dayan Krishnan, Sr. Adv. with Mr. Rishi Agrawala,
Ms. Niyati Kohli and Ms. Aakashi Lodha, Advs. for applicants
in CM No.16990/2017 in W.P.(C) No.3165/2017.
Mr. Arpit Shukla, G.P. for R-2.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE YOGESH KHANNA
MR. JUSTICE S. RAVINDRA BHAT
%
Facts
:
1. The Petitioners have been manufacturers and suppliers of LPG
cylinders including 14.2 kg LPG cylinders across the country for the last
several years. They challenge the tender conditions published by the Indian
Oil Corporation Limited (hereafter "IOL", the first respondent), a Central
Public sector undertaking and an oil marketing company ("OMC") and other
OMCs (BPCL, HPCL) inter alia, for procurement of 14.2 kg LPG capacity
cylinders, as discriminatory and arbitrary. The Union of India through its
Ministry of Petroleum ("the Union" hereafter) is arrayed as the second
respondent (Both respondents are collectively referred to, hereinafter as "the
Respondents").
2. This court had indicated after consultation with counsel for the parties
(when all these proceedings were taken up and bunched) that WP 3162/2017
would be treated as the lead case, for discussing facts, as all legal issues
involved are identical. The petitioners have separate units situated in
Muzzafarnagar, U.P., Dehradun and Bangalore, and have been supplying
cylinders to OMCs including to IOL on a regular basis. IOL published a
tender ("NIT" hereafter) for the procurement of about 234.59 lakh of 14.2
kg LPG cylinders with IS - 3196 (latest) specifications, with SC Valves
(hereafter "the product") at various LPG bottling plants on 30.03.2017. The
bids were to be submitted till 19.04.2017 and the tender was opened on
20.04.2017 at 3.30 P.M. This tender was floated by the Respondents in a
state wise manner, and for the first time it introduced a price band width, by
mentioning the floor rate price and the ceiling rate price, and in case a bid by
any tenderer fell outside of the band it could not be accepted.
3. The NIT created or classified the country into two geographical
zones, for the purpose of allotment of supply contracts. It directed that
special preference is to be given to manufacturers situated in the region
defined as Zone 1 (comprising the entire states of Bihar, Jharkhand,
Chhattisgarh, Odisha, West Bengal, the North Eastern states, Eastern
Madhya Pradesh and Easter Uttar Pradesh) over the manufacturers situated
in Zone- 2 (remaining part of the country other than Zone-1) for the supply
of 14.2 kg capacity LPG cylinders procurement in Zone-1. While evaluating,
preference or priority in allotment was given to the manufactures/bidders
situated in the said Zone 1 over other bidders situated in Zone 2. Any bidder
from Zone 1 who quoted in Zone 1 states was to be given preference over
the bidders situated in Zone 2 even if the bidders quoted same floor rates.
4. This NIT, based on the policy formulated by the Union, the
controlling authority over centrally owned OMCs, is questioned in all these
writ petitions as discriminatory and arbitrary. This court had issued notice to
the Respondents and was informed that an effort to centralize similar
proceedings pending in various High Courts was on, in the form of a transfer
petition before the Supreme Court. Eventually, by order of the Supreme
Court, dated 27 April 2017, the transfer petitions were disposed of; various
writ petitions pending before the Allahabad, Andhra Pradesh, Punjab &High
Courts were transferred to the file of this court. On account of this
development, this court accommodated counsel appearing on behalf of
petitioners in those proceedings as well and heard submissions on their
behalf.
5. Before proceeding to outline the rival submissions and contentions, it
would be advantageous to notice the salient features of the NIT. It classified
(Clause 2) prospective bidders into three categories, i.e., (i) "existing
bidders" manufacturers of cylinders who should have supplied a minimum
of 50,000 Nos. of 14.2 kg cylinders from all units put together and having
the same PAN number, to all PSU OMCs during any three previous years
(March 2014-February 2015; March 2015-February 2016; March 2016-
February 2017). The bidders also had to possess valid PESO and BIS
licenses for manufacture of 14.2 LPG cylinders in terms of IS-3196 Part I
and relevant ISO 9001:2015 certifications. (ii) "New vendors" are
manufacturers with valid PESO and BIS licenses for manufacture of 14.2 kg
LPG cylinders in terms of IS-3196 Part I; (iii) "Upcoming new vendors"
were bidders who "are already in the process of setting up a new unit for
manufacturing of cylinders and are in a position to submit acknowledged
copies of the receipt of application from PESO and BIS as on the due date of
tender". Echoing the classification laid down in Clause 2, Classification 3,
(which deals with pre-qualification conditions) additionally sets out that
Existing, New and Upcoming new vendors should also possess PAN
number; importantly, it prescribed that these three categories of bidders
should not be in the "Holiday list/Black Listed by IOCL/BPCL/HPCL
and/or MOP & NG" (Clause 3.0 to Clause 3.3). Clause 3.4 stated that if
Upcoming New Bidders did not obtain and furnish PESO and BIS license
within 3 months from their date of Letter of Intent ("LOI"), their LOIs
would be cancelled (Clause 3.4). The minimum quantity offered for each
tenderer was 1,00,000 units of 14.2 kg cylinders per unit and multiples of
10,000 thereafter for the contract period (Clause 4). Clauses 6 and 7
indicated a separate category of preference- to firstly, central Public
Enterprises, in terms of extant policies and to Micro and Small Enterprises
(MSEs) and MSE owned by Scheduled caste or Scheduled tribe
entrepreneurs in terms of purchase preference under prevailing state policy,
for which separate conditions were detailed.
6. The most contentious part of the NIT is contained in Annexure 5 to
the bid document which is part of the NIT (in the case of IOC; in the case of
other OMCs, the conditions are identical, but they may be located at a
different part of the NIT). It would be convenient to extract the same, at this
stage:
"a.Classification of Zones for the purpose of Order Allotment:
Order allotment shall be carried out separately for two
different Zones. Zone-1 comprises of the following 8 nos.
States/Group States:
a. Entire State of Bihar
b. Entire State of Jharkhand
c. Entire State of Chhattisgarh
d. Entire State of Odisha
e. Entire State of West Bengal
f. North East States comprising of entire states of Assam,
Meghalaya, Manipur, Mizoram, Tripura, Nagaland, Sikkim
g. Eastern Madhya Pradesh comprising of Jabalpur, Satna,
Rewa, Chhindwara, Katni, Shahdol, Mandla, Singroli, Panna,
Damoh, Anuppur, Umaria, Sidhi, Dindori, Balaghat, Seoni,
Narsimhapur districts
h. Eastern Uttar Pradesh comprising of Gorakhpur,
Jaunpur, Varanasi, Allahabad, Faizabad, Basti, Gonda, Balia,
Azamgarh, Sultanpur, Balrampur, Kushinagar, Deoria, Mau,
Gazipur, Chandoli, Mirzapur districts
Zone-2 covers the rest of India not included in Zone-1
b. Evaluation Criteria:
i. Through this tender, BPCL seeks to surface the lowest price
supplier for each state. Hence, price bid evaluation shall be
done at the level of individual state.
ii. Tender will be evaluated State-wise on the basis of "Net cost
to BPCL" quoted by the tenderer. Only "Net cost to BPCL"
that fall within the price band declared by BPCL shall be
acceptable and valid.
iii. Ranking of tenderers will be based on valid "net cost to
BPCL" quoted by them. Order distribution shall be done such
that there are minimum two tenderers for each state and not
more than 80% requirement of any state is allocated to a single
tenderer.
iv. Considering the afore-mentioned distribution rule, order
allotment shall be done such that the procurement at the floor
rate of the price band of each state is maximized.
v. Further, Cylinder manufacturing units situated in Zone-1
would be given orders up to their offered quantity subject to
such units offering floor rates in at least 5 States/ Group States/
Region out of the 8 States/ Group States/ Region that comprise
of Zone-1. This preferential allotment would however be limited
to the tendered quantity of these States/ Group States/Regions
for only those vendors whose bids are received at floor rate in
these States/ Group States/Regions.
It may be noted that vendor quoting for the State of UP & MP
shall be considered to have quoted for the Eastern Madhya
Pradesh (Region) & Eastern Uttar Pradesh (Region) of Zone
1. Vendors quoting in one or more states in Assam, Sikkim
and North east would be treated as single state for the purpose
of determining the eligibility for preferential treatment in
Zone-1
This preferential treatment would not be applicable for the
purpose of risk purchase or pruning & reallocation.
c. Order Allotment Criteria at Floor rates:
Based on the above, order allotment would be done in a three-
step process described below:
1 Order allotment at floor rates for Zone-1:
In this step, order allotment for only Zone-1 shall be done to
cylinder manufacturing units situated in Zone-1 and qualifying
for a preferential allotment (pl. refer clause B.v above). They
would be given orders up to the quantity offered by such units,
limited to the tendered quantity of the Zone- 1 States/ Group
States/Regions where such units have quoted at the floor rates.
In the event of the total offered quantity by units situated in
Zone-1 exceeds the tendered quantity of all the State/ Group
State/Region lying in Zone-1, allocation of quantity shall be
equally divided (unit-wise) amongst all the tenderers qualifying
for preferential allotment and have quoted at the floor rate in
that state/group state/region, subject to the offered quantity of
such tenderers (unit-wise).
In case any tendered quantity of Zone-1 remains unallocated as
above, it shall flow to the next step of allotment.
(2) Order allotment at floor rates for Zone-2 and unallotted
quantity of Zone-1:
In the next step, only quotes received at the floor rates shall be
considered and 75% requirement of Zone-2 and 75% of the
unallotted requirement of Zone-1 would be allotted.
In case several vendors quote at the floor rate of any state then
its 75% requirement would be distributed amongst them in the
ratio of their proven capacity. A proven capacity based on past
performance would be determined for all existing vendors by
the following method:
Quantity Quantity
Weighted Weighted
supplied in 12 supplie d to Weight
Period Weightage performance for performance for
months to all Corporation age
all OMCs Corporation
OMCs in 12 months
Mar'14 -
D1 25% D1*25% = X1 A1 100% A1*100% =X4
Feb'15
Mar'15 -
D2 25% D2* 25% = X2 A2 100% A2*100% = X5
Feb'16
Mar'16 -
D3 25% D3* 25% = X3 A3 100% A3*100%= X6
Feb'17
Proven capacity of nth vendor (Vn) = Highest of X1nor X2n or X3n or
X4nor X5norX6n
Thereafter, one state shall be taken at a time and 75% requirement of
that state would be divided amongst all the existing bidders who have
quoted at floor rate in the ratio of their proven capacity as calculated
above. Balance quantity of each Zone-1 vendor (i.e. total quantity
offered less allotment already done in previous step, if any) would be
considered available for this step.
If this part order exceeds the quantity offered by that vendor, then his
order allotment would be reduced to the quantity offered. For all such
cases, the difference between the sum total of the part order and the
quantity offered would be carried forward to the next step of
allotment.
(c) Allotment of balance quantity
Allotment of balance quantity would be done on least cost-to-BPCL
basis. In this step, all the valid quotes received would be considered
and all bidders (including existing /new / upcoming new unit/units)
quoting the same rate for any state shall be treated at par and
accordingly balance requirement would be equally divided amongst
the units (for vendors having multiple units, each unit would be
considered as a separate entity) to the extent of balance quantity of
each vendor. Balance quantity of each vendor (i.e. total quantity
offered less allotment already done in previous steps, if any) would be
considered available for this step.
Adding the allotments made in steps (1), (2) and (3) as mentioned
above would give total allotment on each vendor.
(4) Order Reallocation
The entire allotment done at the floor rates as described above would
be reallocated amongst those states where such orders have been
allotted and vendors who have quoted at floor rates, such that the
overall vendor accrual is maximized without changing the state-wise
allotment at floor rates, vendor-wise allotment at floor rates and the
net cash outflow of OMC.
(5) Minimum order assurance for vendors quoting at floor rate in
minimum 10 states
If required the allotment in step C above would be redone to ensure
that the order on all tenderers who have quoted at floor rates in at
least ten states, is minimum 50,000 cylinders. However, for vendors
having multiple units (i.e. group of units having same PAN number),
allocation would be redone only if the aggregate order allotment (at
group level) on such vendors is less than 50,000 multiplied by the
number of units of the vendor, provided he has quoted at floor rates in
at least ten states in such units.
Say, a vendor has 3 units (A, B and C) and gets total order allotment
of 80,000, 20,000 and 30,000 cylinders in units A, B and C
respectively aggregating to 1,30,000 in regular course.
If all the three units/vendor have quoted in at least 10 states then his
order entitlement would be
50,000 x 3 = 1,50,000 cylinders
Thus an additional order of 20,000 cylinders would be added to units
B and C.
Another, vendor has 3 units (D, E and F) and gets total order
allotment of 80,000, 50,000 and 30,000 cylinders in units D, E and F
respectively aggregating to 1,60,000 in regular course.
Even if all the three units/vendor has quoted in at least 10 states, he is
not entitled for any additional orders i.e. his order entitlement would
remain the same i.e. 1,60,000 as his order entitlement would be
50,000 x 3 = 1,50,000 cylinders.
In case one or more tenderers who have quoted at floor rates in at
least ten states are not getting 50,000 cylinders (or vendor with
multiple units are not getting minimum orders as explained above)
even after redoing step C-3, then the allocation in step C-2 would also
be redone to allot the shortfall."
Contentions of parties
I. Submission of petitioners
7. The Petitioners attack the new policy as making unreasonable changes
in the terms and conditions to the prevailing LPG cylinders procurement
policies, thereby significantly altering the entire public policy in
procurement of such LPG cylinders. These drastic changes were not
preceded by any notice/ nor prior intimation was issued on part of the
Respondents, inviting the associated bidders for their objections and
suggestions. Unilaterally, the Respondents made sweeping and wide-ranging
changes that adversely impacts the petitioners' right to carry on business and
commerce, in relation to manufacture and supply of LPG cylinders.
8. The Petitioners contend that the OMC abused their dominant position
as purchasers of the products. They were fully aware that only 3 OMCs
could obtain these cylinders and the suppliers/bidders including the
Petitioners could not supply the cylinders to any third parties, as it is
impermissible under the law. The wholesale changes in the procurement
policy impugned would adversely affect the supply and diminish fair
competition with such one sided conditions that favoured only the bidders
situated in Zone-1.
9. It was submitted that Clause 3.1 of the said tender was contrary to the
prevailing policy of the OMCs, whereby any individual/manufacturer not
possessing a license became entitled to bid for the tender. This is clearly
arbitrary and without any justification as the same requires a mandatory
license before bidding for the tender.
10. The Petitioners argue that the impugned policy discloses clear
arbitrariness and unreasonableness which is established by the fact that the
new upcoming bidders located in Zone- 1 are to be given preference
treatment for tenders on their offered quantity (of LPG cylinders bid by
them in the said zone). In other words, such new and upcoming suppliers
were to be preferred for the quantities offered by them, over the Petitioners,
who were proven and established suppliers. The Petitioners argue that
various other clauses of the tender document were arbitrary, unreasonable,
unfair and biased.
11. It was argued on behalf of the petitioners by Mr. Vikas Singh,
Mr. Balbir Singh and Mr. Akhil Sibal, Senior Counsels, that the zoning
policy put in place by the tender based on the respondents' creation of two
zones is without any justification, and is contrary to public policy and places
business units and manufacturers in Zone 2 at a disadvantage. This amounts
to hostile discrimination, based on location of the business enterprise,
inasmuch as it assures preference to units in zone 1 on the one hand, and
does not confer equal preference to zone 2 units in the zone 2 areas. Such
geographical allocation is not based on any cogent reasons and fosters
differences.
12. It was argued that manufacturers situated in Zone 1 have been given
preference over the manufacturers situated in Zone 2 arbitrarily, with no
visible rationale. The terms and conditions of the tender showed a clear
monopoly and bias on the part of the respondents for the manufacturers
situated in Zone 1, which affects the installation capacity and supply of the
cylinders of the Petitioners and others located in zone 2.
13. It is argued that the impugned terms and conditions depicted that the
Petitioners would get orders in Zone 1 only in case any tendered quantity of
Zone 1 remained unallocated from the bids quoted by the manufacturers
situated in the said Zone 1. Thus, as between two sets of bidders, an artificial
geographical based discrimination, having no nexus with the object sought
to be achieved by the tender policy, was created. It was argued in this
context that the ratio of total quantity offered in Zone 1 and Zone 2 were
almost 45%: 55%, however, the ratio of units situated in Zone 1 and Zone 2
were around 10%: 90%. This has resulted in difference (in allocable
proportions of quantities to be given to suppliers) created by the UOI/OMC
without any criteria or rationale. This difference is purely geographical,
unsupported by any reasonable or tested classification premised on scientific
or reasonable study. It has the results in treating equals, unequally and thus
violates Article 14. It is further submitted that the NIT, on the basis of the
UOI's new policy artificially creates or divides states like Eastern Uttar
Pradesh and Eastern Madhya Pradesh based on no rational objective and
criteria that has no sustainable basis. Furthermore, it is argued that the
quantity wise allocation of 106,61,920 (for Zone 1 states, in aggregate) and
127,97,030 (for Zone 2 states) has no co-relation with the production
capacity of manufacturers of the said two zones. In this context it is urged
that as against the established manufacturing capacity available for Zone 1,
i.e., 37,72,305 cylinders, the capacity of Zone 2 manufacturers - as on 31-
03-2017 was 4,07,51,943. This meant that the capacity of Zone 1
manufacturers to cater to demands of consumers in that zone was extremely
limited. To require them to establish capacity within a short time to gear up
to meet the colossal demand, even while shutting out established lines of
supply from opportunity of carrying on business on equal terms, starkly
violated the principle of equality of law, under Article 14 of the Constitution
of India.
14. It is submitted that the tender process is based on a two bid system,
priced and un-priced. The tender, de hors the impugned clauses, while
granting a special status to the regions comprising Zone 1, did so, with a
view to develop those regions in line with the Government of India's thrust
towards backward areas. However, the apparent underlying reason instead
seemed to be that most steel suppliers were based in Eastern India and
freight would be less for vendors/bidders based in Eastern India. This
reasoning is unsound and incorrect because if Zone 2 vendors based on their
efficiency can deliver or supply cylinders at the same price then they cannot
be discriminated against on grounds of efficiency in public procurement.
Here it was emphasized that the zoning differentia, based on location and
proximity to raw material availability, advanced by the respondents to
justify the policy is per se unsound, because it ignores efficiencies acquired
by established producers in other zones, who, because of experience and
knowledge in business, can deliver the product at the same rates as those in
Zone 1. In such a case, where bidding or award of tender is to be considered,
the origin of the manufacturer, or the product is irrelevant; rather, it is the
price at which it is offered, other things being equal. As between
manufacturers from either zone, who bid in one particular zone, the sole
relevant criterion would be the price at which they offer the goods or
articles. In abandoning such a uniform norm and establishing the preference-
based regime, the respondents have manifestly discriminated between two
sets of manufacturers.
15. It is argued that the conditions insisted for established manufacturers
in the country as a whole on the one hand, and relaxation for the cylinder
manufacturing units situated in Zone 1 which are extended to some and
denied to others, is not sustainable and is liable to be set aside. It is argued
that the impugned tender, under the garb of economic backwardness of
Zone 1 encourages procurement of cylinders from existing vendors only,
and will not lead to any new capacity creation or new development as the
tender seeks to incentivize only existing vendors. Counsel also argued that
allowing upcoming new vendors to apply for obtaining all requisite licenses
for operating as manufactures contravenes prescribed regulations for
checking the supply of LPG cylinders, an essential commodity and governed
by the LPG Control Order of 2000 and the Gas Cylinder Rules, 2004 issued
under the provisions of the Essential Commodities Act, 1955 in which the
new bidders do not have any say.
16. The petitioners' counsel submit that the Union and OMCs acted
irrationally in ignoring these regulations. The impugned policy, in
facilitating those who merely apply for licenses (and not confining itself to
those who have them) subordinates public interest to the private interests of
the so-called units and enterprises whose capacities are unproved and
untested. Counsel underscored that the Union and OMCs cannot justifiably
equate those having essential and mandatory licenses and permissions with
those who do not possess such clearances. It is argued that permitting both a
level playing field in terms of same norms of participation, rewards those
not deemed qualified in terms of the essential conditions of the policy and
the law, by privileging them, as against those who in fact answer such
prerequisites, because such privileged category are allowed an illegitimate
advantage, unfairly.
17. It is contended that the order of allotment criteria designed by the
Respondents in terms of clause C of the special terms and conditions of the
tender are illegal, biased and arbitrary as the order of allotment is designed
in such a way that even though the bidders who are situated outside Zone 1
(including the Petitioners) bid for the same floor rates, they would not be
considered. This amounts to hostile discrimination based on nothing more
than geographical location. It is premised on a bland straightjacket
assumption that all units in the two zones are different, which is factually
baseless. Learned counsels submit that if indeed, the Respondents were to
promote new units, granting preferences to such new entrants or
manufacturers in both zones would have been logical and acceptable.
However, by preferring zone 1 new entrants to the extent of granting
dispensation even from mandatory licensing on the one hand, and not
showing any preference to new entrants in zone 2 for similar treatment, or in
regard to allocations (in zone 1) the Respondents have resorted to
discrimination. Learned counsel submit that besides violating Article 14,
such pure geographical classification violates Article 15 (1) and 19 (1) (d) of
the Constitution of India. Learned senior counsel relied upon the judgments
reported as D.S. Nakara Vs. UOI AIR 1983 SC 130; Mahabir Auto Mills v
State of J & K 1996 (11) SCC 39, Sarbananda Sonowal v Union of India
2005 (5) SCC 665; State of Maharastra v Indian Hotels and Restaurants
Association 2013 (8) SCC 519; Gharda Chemicals Limited vs. Central
Warehousing Corporation, 118 (2005) DLT 159; National Council for
Teachers Education v Shri Shyam Shiksha Prashikishan Sansthan & Ors
2011 (3) SCC 238 and Nidamarti Maheshkumar v State of Maharastra 1986
(2) SCC 534.
18. It is argued that the ratio of total quantities offered in Zone 1 and
Zone 2 are almost 45%: 55%. However, the ratio of units situated in Zone 1
and Zone 2 are around 10%: 90%. The ensuing distribution disparity created
by the Respondents through the policy is therefore, discriminatory and
violates Articles 14 and 301 of the Constitution of India. The Respondents'
hostile intent is most evident in the effect as well as the choice of favouring
Zone 1 suppliers on the one hand, and discriminating against Zone 2
manufacturer-suppliers on the other. The advantages of the latter category
are neither inherent nor conferred because of conscious state policy of the
areas where they are located; rather they are the result of entirely subjective
factors such as innovation, entrepreneurial ingenuity, capital generation
capacity, employment practices and a host of other factors that are uniquely
developed, over the years. Therefore, the industrial capabilities established
by the exertions and work of Zone 2 units, cannot be the legitimate basis of
the disadvantage showed to them and the barriers to trade, created by the
impugned policy. Indeed, if the respondents wished to promote new units,
there were other reasonable and legitimate techniques, such as granting
quotas for new entrants, relaxation in previous performance norms, etc.
Even parity of new enterprises in both zones, in regard to opportunities to
secure the contracts, would have resulted in fresh capacity generation,
without disrupting existing units. However, the zoning and the resultant
bundle of preferences shown to zone 1 units, without anything more, is
arbitrary and discriminatory. It is stated that the so called differentia is
nothing but a disguised illogical geographical based class, forbidden by
Article 14. In this regard, it was argued that the irrationality writ large in the
classification strikes at the root of the classification, outlawing it. Counsel
relied on the judgment reported as Tata Cellular v Union of India 1994 (6)
SCC 651, Monarch Infrastructure (P) Ltd v Ulhasnagar Municipal
Corporation 2000 (5) SCC 287; Michigan Rubber (India) Limited Vs. State
of Karnataka & Others(2012) 8 SCC 216 and Quippo Oil & Gas
Infrastructure v Oil Natural Gas Corporation 2016 (230) DLT 384.
19. It is further argued that the stated objective of economic development
of Zone 1 underlies a guarantee of supply contract of a certain minimum
number of cylinders for which new vendors are to bid, in order to
incentivize supply in Zone 1. The rationale of the Respondents is that of
optimal freight cost for East India (Zone 1) based producers. Yet, that
subsidy burden for cylinders through means of the present policy will be
reduced, is a flawed premise, because 'cooking gas' is what is subsidized and
not the cylinder. Besides, argue the petitioners, the rationale of freight cost
and minimal raw material movement is a simplistic argument, given that the
structure of bidding presupposes floor prices, which will tend to drive down
the cost, rather than increase it. In other words, the underlying advantage
seen to be in favour of Zone 1 manufacturers is in fact imaginary, because
they, in order to be competitive, are to bid at the lowest possible rates, like
all other tenderers.
20. It is submitted that the Respondents' action, in encouraging uniform,
all India, capacity expansion in the past- on the one hand, and the sudden
volte face, by creating an artificial restraint on supply of such increased
capacity to manufacturers of one zone (Zone-1) on the other hand, is biased
and unreasonable. The ostensible objective of the impugned policy is based
on improper facts and assumptions, as the existing registered production
capacity is less than the requirement. Therefore there is no reasonable basis
for creating the impugned tender conditions specifically for Zone 1
manufacturers. Tender conditions for the requirements of Zone 1, requiring
existing vendors to quote floor price for 5 out of 8 Eastern states, violates
the tender condition for price discovery for these states and are thus liable to
be set aside.
21. Mr. Sibal also argued that the said gas policy is only for the 14.2 kg
cylinder and not for the 5kg cylinder. However both are used for cooking
and the Ujwala Yojana programme with cylinders generally, not
differentiating between the 14.2 kg and the 5kg cylinders. This fact, counsel
argues, exposes the conjectural nature of the classification, rendering it
suspect. Counsel stated that for Zone-2 the proven capacity is 5.38 crore,
whereas the total requirement is 5. 51 crore units and the allocated quantum
is 3.17 crore. According to Mr. Sibal this ipso facto showed the impact and
inefficiency of the policy move.
22. Counsel argues that inasmuch that the rationale behind the policy has
been stated to be penetration (i.e. availability of gas cylinders to households)
such a rationale is valid if the number of bottling units were increased and
diversified. Even accepting the policy aims and objectives, its terms are
destructive of the object. He argues that a manufacturer in Zone-2 who is
closer to the bottling plant is actually deprived in preference to a much
farther located Zone-1 manufacturer.
23. Learned counsel also argued that the NIT violates the MSME
procurement norms as issued by the Government of India, which provide
that 25% of all public procurement has to be done through MSMEs and in
fact most of the cylinder manufacturers are MSMEs. The tender seeks to
carve out eastern based vendors who are MSMEs for preferential treatment
which is not the intention of the policy.
II. Submissions of the Respondent
24. The OMCs argue that the impugned tenders seek to procure a total
quantity of 551.60 lakh LPG Gas cylinders at an estimated value of ₹
6668.84 within 12 months from the date of placement of purchase orders.
The break-up of the quantity of cylinders to be procured by the OMCs are as
under:
(i) BPCL- 167.01 lakh cylinders at a total cost of ₹1968.02
crores.
(ii) HPCL- 150.00 lakh cylinders at total cost of ₹ 1833.44
crores.
(iii) IOCL- 234.59 lakh cylinders at total cost of ₹ 2867.38
crores.
25. The purpose of the procurement and the system evolved for it (which
is under challenge) has public interest intrinsically woven into it. The
reasons given by the respondents for the zonal classification are that all the
three OMCs have their bottling plants in each state. In many states, the states
are divided into zones from where LPG gas can be filled. However, as on
date a substantial number of manufacturers are situated only in NCR,
Himachal Pradesh and Hyderabad and they enjoy the dominant position in
the country. The respondents point out that as on date, the existing
manufactures (situated mainly in the northern part of the country) source
steel (which is the main ingredient in manufacture of LPG gas cylinder)
from Jharkhand, Orissa or Chhattisgarh and after manufacturing the
cylinders transport them back to the eastern region (which again mainly
consists of Jharkhand, Orissa, Chhattisgarh and other North Eastern States)
resulting into avoidable increase in costs of empty gas cylinders.
26. The existing cylinder manufacturers are not only in a dominant
position in the country to stall every competition, but have acquired a
monopolistic character. As a matter of fact, the Competition Commission of
India had to pass a detailed order holding that the existing manufacturers are
even guilty of "cartelization". The Union, given the above circumstances,
aims for a benevolent long term economic policy to reach poor women
belonging to backward class communities and falling in the below poverty
line (BPL) category. It is submitted that the Union announced its pan-India
socio-economical long term policy i.e. Pradhan Mantri Ujjwala Yojna
(PMYU) scheme under which crores of women belonging to BPL (initially
targeted at 5 crore women) and who were using conventional fossil fuel till
date are to be allotted new LPG cylinder connections free of cost. The CG
has earmarked ₹ 8000 crores for this initially.
27. The selection of beneficiaries, under the said scheme would be as
under:
"5. Selection of beneficiaries
While the selection of beneficiaries would be from BPL families
only, preference would be given to SC/ST and weaker sections
of society. While providing the new connections to BPL
households, priority would be given to the states which have
lower LPG coverage (compared to the national average) as on
January 1, 2016."
28. The NIT was issued by OMCs in furtherance of and to give effect to
the national socio-economic policy evolved by the Central Government viz.,
PMUY. It is urged that to give effect to the said policy in letter and spirit
and to ensure that the said policy is sustained and given effect to in the years
to come, a commercial decision was taken by OMCs to classify the country
in two zones so as to create self-sufficient local market zones and to achieve
other objects elaborated in the affidavits/counters. It is argued that OMCs as
commercial entities enjoy a legitimate right and choice as to with whom and
on what terms they contract with. Further, as OMCs are dealing with a
notified essential commodity, scarcity of which leads to adverse civil
consequences, they also have a constitutional obligation to equitably
distribute the product. In discharging that obligation the respondents can
identify areas/sectors which need promotion to ensure self-sufficient
market/zones are created, where right from cylinder manufacturers, bottling
plants and consumers- all would be located in one zone/area, so as to meet
the ever increasing demand of the consumers.
29. In the peculiar case of distribution of LPG gas cylinders as domestic
fuel, timely delivery of LPG gas cylinders to consumers, at their doorstep, is
essence of the said mandate. The said mandate cannot be sustained for years,
implemented or executed till all the facilities/ancillary industries, including
LPG cylinder manufacturing units required to produce and deliver the final
product, i.e. LPG, is also equitably and proportionally manufactured across
the country. In absence thereof, disruption of supply chain is inevitable. In
the longer run, the OMCs cannot rely on supplies from a limited part of the
country to meet the demand in the rest of the country. It is stated that to cater
to the domestic fuel requirement of the citizens located in different
geographical locations, it is imperative for OMCs to develop and/or promote
all the facilities/industries such as bottling units, cylinder manufacturing
units etc. in the same or nearby area where consumers of domestic fuel i.e.
bottled LPG reside.
30. Mr. Tushar Mehta, learned Additional Solicitor General, who
appeared for the Respondents, argued that for implementation of the policy
objectives, keeping in mind monopolistic concentration of cylinder
manufacturing in a particular geographical areas the OMCs decided to
promote greater competition procurement of LPG cylinders, to develop
cylinder manufacturing industries in areas where cylinders are actually to be
supplied and to bring in an equitable policy of granting level playing field to
cylinder manufacturers by bifurcating the procurement market of LPG
cylinders into two geographical markets. This is a bona fide effort, inter
alia: (a) To bridge the gap between demand and supply of LPG cylinders in
eastern area of the country; (b) to remove entry barriers, if any, for
new/existing manufactures of LPG cylinders located in under-developed
geographical markets of eastern India (where demand for LPG cylinders has
grown manifold) and which areas have remained under developed over the
years-from where not only the raw material, i.e. steel, used in manufacturing
gas cylinders is sourced, but is an area in which the bottled LPG is also
sought to be sold and consumed. The ASG argued that the impugned
decision is also aimed at curbing the menace of monopolistic pattern clearly
visible amongst cylinder manufacturers based in other parts of the country.
31. Counsel urged that to secure a continuous LPG cylinder supply
having regard to local demand i.e. within local zones of the state (that are
directly dependent on the availability of the empty gas cylinders procured
from private manufacturers), the OMCs, considering the larger public
interest, as a matter of policy, thought it appropriate to develop self-
sufficient local manufacturing markets, where not only the bottling plant,
but also, the cylinder manufacturing units would also be located in the same
zone or at a place near to the bottling plant. This apart from bridging the
demand and supply gap, in the considered anticipation of the OMCs, was
also to result in lowering the price of the cylinders (economies of scale) in
the eastern areas categorized by OMCs under Zone 1 where OMCs could
obtain cost advantages due to size, output or scale of operation.
32. The ASG urges that the standard adopted for selecting the
"economically backward region" under the PMUY scheme was based on
parameters such as per capita income as represented by gross state domestic
product (GSDP) per capita; LPG penetration as representation by the
percentage of total household having LPG connections vis-à-vis the total
number of households in a state. The tabular representation of the relative
data for the selected states/region was highlighted. The same is reproduced
as follows:
S. No. State GSDP per capita Penetration as in
(2013-14) INR Jan 16
1. Bihar 31,199 30.6%
2. Jharkhand 46,131 26.8%
3. Odisha 52,559 30.0%
4. Madhya Pradesh 51,798 41.3%
5. Chhattisgarh 58,547 30.2%
6. Uttar Pradesh 36,250 54.1%
7. North East 52,495 45.3%
8. West Bengal 70,059 50.3%
9. National Average 73,591 61.3%
Thus, as per the aforesaid, the priority states having less than national
average as on 01.01.2016 were identified as State of Bihar, Jharkhand,
Odisha, Madhya Pradesh, Chhattisgarh, Uttar Pradesh, West Bengal and the
North Eastern states.
33. It was argued that as on date it was observed from the website of BIS
(licensing authority) that there were in all 133 BIS licensed manufacturers.
However, out of this 133, only 23 vendors were from the eastern part of the
country (Zone-1 under the present tender). At this stage since the launch of
PMUY w.e.f. 01.05.2016, quantities supplied by the manufacturers falling in
Zone-1 and Zone-2 needs to be pointed out which were as under:
OMC Supplies by Zone-1 vendors Supplies by Zone-2
from 01.05.16 to 31.03.17 vendors from 01.05.16 to
31.03.17
IOCL 16,59,478 1,74,05,506
BPCL 9,39,913 1,16,44,271
HPCL 11,72,914 1,17,02,166
Total 37,72,305 4,07,51,943.
The ASG urged that the figures illustrate the disparity in the supply
and monopolistic dominant position of suppliers situated in Zone-2. In the
current year, the projected requirement for OMCs is estimated to be as
under:
OMC Total tender quantity Zone-1 requirement Available balance
(cyls. In lakhs) (cyls. In lakhs) quantity in zone II
(cyls. in lakhs)
IOCL 234.59 106.60 127.99
BPCL 167.01 66.80 100.21
HPCL 150.00 60.30 89.70
Total 551.60 233.70 317.90
34. Since the demand on Zone 1 surged to 233.70 lakh cylinders,
therefore, the OMCs in public interest, applying norms of commercial
prudence to develop the Zone-1 capacity commensurate with the
requirement of cylinders in Zone-1, formulated the present tender conditions
to enhance capacity in Zone-1. This scheme would ultimately lead to
creation of more robust and efficient systems being placed to meet the
energy requirement of the country. The scheme further helps
underdeveloped areas to develop and ensure that monopolistic trends in the
LPG manufacturing industry are effectively addressed. It is also highlighted
that with improvement of manufacturing capacities in Zone-1, OMCs will
get cost and consequential benefits.
35. The ASG argued that demand for empty cylinder after the PMUY
scheme nearly doubled- classification of zones in this changed scenario,
instead of entailing any detrimental effect on the business of petitioners in
fact gives them an opportunity to increase their supply/business as compared
to last year, under the present tender. Reliance was placed on the following
figures:
OMC Total procurement Total procurement % increase
from 01.05.2016 to from 01.05.2015 to
31.03.2017 31.03.16
IOCL 17,493,285 17,666,415 0.98
BPCL 12,584,184 7,490,528 68.00
HPCL 12,875,080 8,141,181 58.15
Total 42,952,549 33,298,124 28.99
After the launch of PMUY w.e.f. May, 2016, the total requirement of
BPCL and HPCL has gone up by 68% and 58.15% respectively, while total
requirement of three OMCs put together has gone up by 29%. Also Zone-1
requirement for the current tender is only about 40% of the total requirement
of the country. Thereby, at least 60% requirement of the total quantity of
cylinder sought to be procured would still be available for Zone-2 cylinder
manufacturers. According to counsel, that demand for Zone 2 can increase,
because the NIT does not place any embargo for Zone-2 manufacturers to
participate in Zone 1 bidding, though ...... lower in the process. Given the
deficit in proven capacity of the Zone-1 manufacturers viz., the total
requirement in Zone-1, the said percentage is most likely to go up. The
break-up of the total requirement of all the OMCs viz., zone wise
requirement of the OMC for this year is as under:-
OMC Total requirements Total requirement Total requirement
of new empty LPG of new empty LPG of new empty LPG
cylinders this year cylinders this year cylinders this year
(in lakhs) in Zone 1 (in lakhs) in Zone 2 (in lakhs)
IOCL 234.59 106.60 127.99
BPCL 167.01 66.80 100.21
HPCL 150.00 60.30 89.70
Total 551.60 233.70 317.90
36. It was argued by the ASG that in order for cost efficiency to be
achieved by bifurcating the country into two zones- that after much
deliberation and analysis of the aforesaid data available with the OMCs, it
was decided that they should change its procurement policy giving priority
to the manufacturers situated and doing manufacturing activities in priority
States, to place the OMCs in an advantageous position. It is additionally
argued that no embargo has been placed, under the impugned tender for the
petitioners to participate in Zone-1 bidding- No price preference is given to
manufacturers located in Zone-1. Furthermore, the preference given to
Zone-1 cylinder manufacturers is also circumscribed by onerous conditions
of eligibility prescribed under the tender document.
37. It was argued that permitting the upcoming new bidders to be at par
with the existing bidders to participate in the tender who do not have
requisite licenses and approvals under BIS and PESO at the time of opening
of tender, is a further reasonable classification made to satisfy the legitimate
expectation of new cylinder manufacturers of participating in the tender
process and to grant them a fair opportunity to attain requisite qualifications
for supply of LPG cylinders within 3 months of the date of issue of the letter
of intent and before the date when the contract is to be actually performed.
The ASG also provided a tabular statement, in the written submissions, to
say that several manufacturers (including five petitioners) had units in both
Zone 1 and Zone 2.
38. The ASG argued that judicial review of matters concerning award of
tenders, is limited. As there was a clear public interest in the matter, the
Courts should not interfere with this policy decision. Moreover, it was
contended that the terms of invitation to tender were not amenable to
judicial review. In support Reliance Telecom Limited v. Union of India,
2017 SCC Online SC 36; Census Commissioner v. R. Krishnamurthy (2015)
2 SCC 796 Union of India v. M. Selvakumar (2017) 3 SCC 504; Villianur
Iyarkkai Padukappu Maiyam v. Union Of India, (2009) 7 SCC 561 were
relied upon.
39. It was contended by the Respondents that in economic matters
especially, the government enjoys wide latitude of discretion. In such
matters, geographical classification which is based on sound rationale and
proper reasons is not per se violative of Article 14. In support of this
argument, Parisons Agrotech (P) Ltd v. Union Of India, (2015) 9 SCC 657;
Anant Prasad Lakshminiwas Generiwal v. State of AP, AIR 1963 SC 853
State of Kerala v. TP Roshana, (1979) 1 SCC 572; State of MP v. Nandlal
Jaiswal (1986) 4 SCC 566; Arun Kumar Agrawal v. Union Of India, (2013)
7 SCC 1; Narmada Bachao Andolan v. Union Of India, (2000) 10 SCC 664;
BALCO Employees Union v. Union Of India, (2002) 2 SCC 333 were relied
on.
40. Mr. Dayan Krishnan, learned Senior Counsel appearing for some of
the OMCs argued that there is no inherent infirmity in geographical
classification. It was submitted that the state or public agencies, to promote
objectives of their schemes or programmes, can always classify persons,
things, or other objects, based on different criterion peculiarly suited to
achieve the objectives. Whereas in the case of one policy or enactment, the
classification may be based on income, in another, depending on objective,
it may be based on merit or individual competence or ability, premised on
fulfilling pre defined criteria, such as marks obtained in exams or interviews.
There can be yet others, where region, levels of development, availability of
resources or scarcity, form prominent bases for classification. One such
known method is geographical backwardness, tested on relevant
predetermined criteria.
41. It was submitted that contrary to the petitioners' arguments, the
mandate of Article 14 is not one of bland equality; rather it is equality before
law, and equal opportunity. Given that levels of development in the country
are not uniform, frequently states and the Union, to promote
industrialization and employment, provide incentives to people or trades in
backward regions, in the form of tax holidays for a certain number of years,
subsidies, grants, etc. These have economic consequences of promoting
prosperity and the targeted objective for the peculiar scheme or enactment.
In this case, the objective of the geographical based classification was to
ensure that greater number of Zone 1 units were promoted, to augment
production of LPG cylinders, nearer to the homes of the ultimate consumers;
equally it was to optimize available resource utilization of raw materials on
the one hand, and also minimize transportation, on the other. This would
ultimately lead to greater employment generation in the longer run and also
promote the primary objective of the scheme, to ensure overall development
of the LPG cylinder manufacturing in the country.
42. Learned Senior Counsel relied on the judgments reported as MP Oil
Extraction and other v. State of MP, (1997) 7 SCC 592; State of MP v.
Bhopal Sugar Industries AIR 1964 SC 1179; Harshendra Choubisa v. State
of Rajasthan, (2002) 6 SCC 393 and Lakshman v. State of MP, 1983 3 SCC
275.
Analysis and Conclusions
43. The first question that needs to be addressed is that of geographical
classification. To recollect, Article 14 does not forbid classification per se,
but jurisprudence evolved over the last six decades insists that classification,
to pass the test of constitutionality, is to satisfy the twin test of intelligible
classification that bears a rational nexus with the object (of the state or
public agency, which relies on the classification, in its enactment, or policy)
of such policy or measure. The "intelligibility" of the classification too,
should be reasonable: it should not artificially divide objects, people or
things, which fall within the same grouping. Geographical basis for
classification is not inherently offensive under the Constitution, as the
Supreme Court has repeatedly held, in the last 50 years. In Gopal Narain v
State of UP AIR 1964 SC 370, the court held as follows:
"This Court in more than one decision held that equality clause
does not forbid geographical classification, provided the
difference between the geographical units has a reasonable
relation to the object sought to be achieved. This principle has
been applied to a taxation law in Khandige Sham Bhat's Case
In that case, this Court also accepted the principle that the
legislative power to classify is of wide range and flexibility so
that it can adjust its system of taxation in all proper and
reasonable ways. It is indicated in "Willis, Constitutional Law".
at p. 590, that a State can make a territory within a city a unit
for the purpose of taxation. So, the impugned section in
permitting in the matter of taxation geographical classification
which has reasonable relation to the object of the statute,
namely, for providing special amenities for a particular unit the
peculiar circumstances whereof demand them, does not in any
way impinge upon the equality clause. "
Even earlier, in Ajaib Singh v State of Punjab AIR 1953 SC 10, the
Court observed that
"the fact that the Act is extended only to the several States
mentioned in section 1 (2) does not make any difference, for a
classification may well be made on a geographical basis. "
Lachman Das (supra) cited by the respondents was a case, where
geographical classification, based on operation of different laws in the same
subject matter, in different parts of a state, was upheld, on the ground that
such differentia was based on pre-existing laws operating in states that
existed before re-organization. In Anakapalle Co-op Industrial &
Agricultural Society v Union of India AIR 1973 SC 734, geographical
classification was upheld by the Supreme Court in the following terms:
"The Commission has pointed out that there is only a small
number of units in each one of these States and the costs are
more or less similar. Bihar has been divided into two zones and
U.P. into three zones. The' reasons are given in para 8.16 of
Chapter VIII of the 1969 report. It has been pointed out that the
climatic conditions of the' two areas, namely, the Meerut
Division of the Western U.P., and Gorakhpur Division are
different as they are separated by 300 miles. The units in
Central U.P. had also, for the same reasons,' to be constituted
into a separate group. On similar basis the units in Bihar had
been sub-divided into two zones, North and South. It is,
therefore, altogether futile to say that the zoning' should not
have been done state-wise. If any other system had been
followed it would have become impossible to work out a proper
cost schedule for the zone. For instance, if the Chittoor Coop.
Sugars Ltd. which is in Andhra Pradesh towards the extreme
end and which is very near the State of Tamil Nadu had been
grouped with the factories in Tamil Nadu or if the Nizam Sugar
factory and the Nizamabad Coop. Sugar Ltd, which are quite
near the border of Maharashtra State had been grouped with
the factories in Maharashtra, it would have created several
problems and difficulties particularly with reference to all the
taxes, duties etc. which are levied by each State and also the
wages which are payable to the workers in the different States
which admittedly vary from State to State."
There are other decisions too, which hold that geographical criterion
can be a valid basis for valid classification and also justifiable in an Article
14 based challenge. (See D.P, Joshi v State of Madhya Bharat AIR 1955 SC
334; Kishan Singh v State of Rajasthan AIR 1955 SC 795; Gopi Chand v
Delhi Administration AIR 1959 SC 609, Kangshari Haldar v State of West
Bengal AIR 1960 SC 457; Shree Sitaram Sugar Company v Union of India
AIR 1990 SC 1277 and Clarence Pais v Union of India 2001 (4) SCC 325).
44. In view of the above discussion, the petitioners' threshold argument
that per se a geographical based classification is impermissible, cannot be
sustained. That does not, however end the discussion on the subject. The
court has to, in the next step, proceed to determine, if the rationale given by
the Respondents, is sufficient, in the facts and circumstances of the case, for
a geographical classification. Sarbananda Sonowal (supra) is a typical
example where the court held geographical based classification to be invalid.
The Supreme Court had to deal with the application of the Illegal Migrants
Determination (Determination by Tribunals) Act (IMDT Act), which
authorized the detection and determination after inquiry through a prescribed
procedure, of illegal migrants. The enactment was made applicable only to
the state of Assam. The court flagged how, in the absence of any
justification, the measure fell afoul of the Constitution, in the following
words:
"the mere making of a geographical classification cannot be
sustained where the Act instead of achieving the object of the
legislation defeats the very purpose for which the legislation
has been made. As discussed earlier, the provisions of the
Foreigners Act are far more effective in identification and
deportation of foreigners who have illegally crossed the
international border and have entered India without any
authority of law and have no authority to continue to remain in
India. For satisfying the test of Article 14, the geographical
factor alone in making a classification is not enough but there
must be a nexus with the objects sought to be achieved. If
geographical consideration becomes the sole criteria
completely overlooking the other aspect of "rational nexus with
the policy and object of the Act" it would be open to the
legislature to apply enactments made by it to any sub- division
or district within the State and leaving others at its sweet will.
This is not the underlying spirit or the legal principle on which
Article 14 is founded. Since the classification made whereby
IMDT Act is made applicable only to the State of Assam has no
rational nexus with the policy and object of the Act, it is clearly
violative of Article 14 of the Constitution and is liable to be
struck down on this ground also."
45. In the Indian Hotel & Restaurants Association case (supra) the court
again applied the test of whether there was a rational criterion to justify the
differentia. Commenting and upholding the High Court's finding about the
exemption provisions' discriminatory effect, in exempting certain
establishments, situated in certain localities from the prohibition to hold
dance performances, the court said:
"The so called distinction is based purely on the basis of the
class of the performer and the so called superior class of
audience. Our judicial conscience would not permit us to
presume that the class to which an individual or the audience
belongs brings with him as a necessary concomitant a
particular kind of morality or decency. We are unable to accept
the presumption which runs through Sections 33A and 33B that
the enjoyment of same kind of entertainment by the upper
classes leads only to mere enjoyment and in the case of poor
classes; it would lead to immorality, decadence and depravity.
Morality and depravity cannot be pigeon-holed by degrees
depending upon the classes of the audience. The aforesaid
presumption is also perplexing on the ground that in the
banned establishments even a non-obscene dance would be
treated as vulgar. On the other hand, it would be presumed that
in the exempted establishments any dance is non-obscene. The
underlying presumption at once puts the prohibited
establishments in a precarious position, in comparison to the
exempted class for the grant of a licence to hold a dance
performance. Yet at the same time, both kinds of establishments
are to be granted licenses and regulated by the same
restrictions, regulations and standing provisions.
103. We, therefore, decline to accept the submission of
Mr. Subramaniam that the same kind of dances performed in
the exempted establishments would not bring about sexual
arousal in male audience as opposed to the male audience
frequenting the banned establishments meant for the lower
classes having lesser income at their disposal. In our opinion,
the presumption is elitist, which cannot be countenanced under
the egalitarian philosophy of our Constitution. Our
Constitution makers have taken pains to ensure that equality of
treatment in all spheres is given to all citizens of this country
irrespective of their station in life. {See: Charanjit Lal
Chowdhury Vs. Union of India & Ors. (supra), Ram Krishna
Dalmia's case (supra) and State of Uttar Pradesh Vs.
Kaushailiya & Ors. (supra)}. In our opinion, sections 33A and
33B introduce an invidious discrimination which cannot be
justified under Article 14 of the Constitution.
104. The High Court, in our opinion, has rightly declined to
rely upon the Prayas and Shubhada Chaukar's report. The
number of respondents interviewed was so miniscule as to
render both the studies meaningless. As noticed earlier, the
subsequent report submitted by SNDT University has
substantially contradicted the conclusions reached by the other
two reports. The situation herein was not similar to the
circumstances which led to the decision in the case of Radice
(supra). In that case, a New York Statute was challenged as it
prohibited employment of women in restaurants in cities of first
and second class between hours of 10 p.m. and 6 a.m., on the
ground of (1) due process clause, by depriving the employer
and employee of their liberty to contract, and (2) the equal
protection clause by an unreasonable and arbitrary
classification. The Court upheld the legislation on the first
ground that the State had come to the conclusion that night
work prohibited, so injuriously threatens to impair women's
peculiar and natural functions. Such work, according to the
State, exposes women to the dangers and menaces incidental to
night life in large cities. Therefore, it was permissible to enable
the police to preserve and promote the public health and
welfare. The aforesaid conclusion was, however, based on one
very important factor which was that "the legislature had
before it a mass of information from which it concluded that
night work is substantially and especially detrimental to the
health of women." In our opinion, as pointed out by the learned
counsel for the respondents, in the present case, there was little
or no material on the basis of which the State could have
concluded that dancing in the prohibited establishments was
likely to deprave, corrupt or injure the public morality or
morals."
Like Indian Hotels (supra) Shri Shyam Shiksha Prashikishan
Sansthan & Ors (supra) cited by the Petitioners does not aid their case. The
court generally reviewed its previous judgments on the doctrine of
classification and what criteria are applicable for a valid legislative or
executive action; however, the cut off date, challenged as discriminatory in
its effect, was upheld. Nidamarti Maheshkumar (supra) on the other hand,
discusses an interesting facet of the geographical based classification.
Holding to be unconstitutional a region wise classification within a state,
reserving seats in public medical colleges, the court nevertheless recognized
that some region-wise and geographical classifications may not only be
justified, but necessary:
"But we would like to make it clear that it would not be
unconstitutional for the State Government to provide for
reservation or preference in respect of a certain percentage of
seats in the medical college or colleges in each region in favour
of those who have studied in schools or colleges within that
region and even if the percentage stipulated by the State
Government is on the higher side, it would not fall foul of the
constitutional mandate of equality. There are two reasons why
such reservation or preference would be constitutionally
permissible. In the first place it would cause a considerable
amount of hardship and inconvenience if students residing in
the region of a particular university are compelled to move to
the region of another university for medical education which
they might have to do if selection for admission to the medical
colleges in the entire State were to be based on merit without
any reservation or preference region wise. It must be
remembered that there would be a large number of students
who, if they do not get admission in the medical college near
their residence and are assigned admission in a college in
another region on the basis of relative merit, may not be able to
go to such other medical college on account of lack of
resources and facilities and in the result, they would be
effectively deprived of a real opportunity for pursuing the
medical course even though on paper they would have got
admission in the medical college. The opportunity for medical
education provided to them would be illusory and not real
because they would not be able to avail of it. Moreover some
difficulty would also arise in case of girls because if they are
not able to get admission in the medical college near the place
where they reside they might find it difficult to pursue medical
education in a medical college situated in another region where
hostel facilities may not be available and even if hostel facilities
are available, the parents may hesitate to send them to the
hostels. We are therefore of the view that reservation or
preference in respect of a certain percentage of seats may
legitimately be made in favour of those who have studied in
schools or colleges within the region of a particular university,
in order to equalise opportunities for medical admission on a
broader basis and to bring about real and not formal, actual
and not merely legal, equality. The only question is as to what
should be the extent of such reservation or preference. But on
this question we derive considerable light from the decision in
Dr. Pradeep Jain's case (supra) where we held that reservation
based on residence requirement or institutional preference
should not exceed the outer limit of 70 per cent of the total
number of open seats after taking into account other kinds of
reservations validly made and that the remaining 30 per cent of
the open seats at the least should be made available for
admission to students on All-India basis irrespective of the state
or the university from which they come. We would adopt the
same principle in case of region wise reservation or preference
and hold that not more than 70 per cent of the total number of
open seats in the medical college or colleges situate within the
area of jurisdiction of a particular university, after taking into
account other kinds of reservations validly made, shall be
reserved for students who have studied in schools or colleges
situate within that region and at least 30 per cent of the open
seats shall be available for admission to students who have
studied in schools or colleges in other regions within the State."
46. There is also other authority for the proposition that geographical
classification cannot, per se, be brushed aside, unless upon inquiry the court
concludes that such classification is unwarranted given the objective of the
policy or legislative measure: Parisons Agrotech ( P) Ltd v Union of India
2015 (9) SCC 657 for instance stated that -
"This Court in more than one decision held that the equality
clause does not forbid geographical classification, provided the
difference between the geographical units has a reasonable
relation to the object sought to be achieved."
Again, in State of Mysore v M.L. Nagade, 1983 (3) SCC 253, the
court held that -
"Again we fail to see how the decision would help us because
geographical classification based on population criterion is a
valid basis for classification."
This Court also notices that in Kailash Chand Sharma v State of
Rajasthan, 2002 (6) SCC 562, "the lack of material to establish nexus
between the geographical classification and the object sought to be achieved
thereby was thus held to be violative of Article 14."
47. The question therefore is whether the justification provided by the
Respondents for the geographical classification can pass muster under
Article 14 in these cases. The Respondents answer the charge of an
unintelligible differentia, against what the petitioners say is a homogenous
class of manufacturers, by pointing at empirical data. The data relied on is
the proportion of manufacturing units, as compared with the demand, in
Zone 1. It is pointed out that the gross state domestic product (GSDP) an
indicator of development, in all the Zone 1 states, is less than the national
average GSDP- in some states, significantly lower to the extent of half or
nearly half the national average. Likewise, to demonstrate the relative
backwardness of Zone 1 states, the respondents rely on the penetration of
LPG availability in households: as against the national average of over 61%
of the households, these states have at least 20% less; in many cases, it is
half or less than half the national average.
48. So far as the comparison between the manufacturing units of the two
zones is concerned, the figures shown to the court disclose that there were in
all 133 BIS licensed manufacturers. Of these 133, only 23 vendors were
from the eastern part of the country (Zone-1 under the present tender). The
supplies, likewise revealed a similar story: 37,72,305 cylinders were
supplied by manufacturers in Zone 1 and 4,07,51,943 cylinders were
supplied by Zone 2 manufacturers. The 5.51 crore LPG cylinders tendered
for include 2.33 crore cylinders for Zone 1. These statistics are telling. Zone
1 accounts for 42.36 % share of the 5.51 crore cylinders that the
Respondents propose to procure through the NIT in question. Zone 2, on the
other hand, accounts for 56.64%, i.e. the major share.
49. If one keeps these basic figures in mind, compares it with the relative
population spread of Zone 1 states as compared with Zone 2 states that need
to be targeted by the scheme, i.e., ensuring greater inclusiveness in regard to
supply of LPG cylinders and further takes note of the fact that the level of
these states is significantly below the national average in regard to this
relevant factor, the Respondents' rationale of making the differentia in these
cases, cannot be brushed aside. The further explanation of the respondents is
that framing a policy that would promote units in Zone 1 by incentivizing
their establishment, in the concerned states, is a legitimate concern. Its
argument that these areas are actually sources of raw materials that are used
to produce LPG cylinders, thus reducing the logistics of ferrying and
transportation, is also relevant. The Petitioners' argument that the auctioning
methodology adopted by the NIT, where locational advantages are
neutralized by floor quotations is no doubt relevant. Yet, that cannot trump
the Respondents' submission that the geographical classification broadly, is
to be supported for varied reasons.
50. The second limb of the classification test is the rational nexus
between the differentia and the object sought to be achieved by the LPG
policy. Here again, the broad policy objective underlined by the state
agencies is the need to ensure the greatest inclusivity. As discussed earlier,
the Pradhan Mantri Ujjwala Yojna (PMYU) scheme is a long term socio-
economic policy whereby crores of women belonging to the BPL category
(initially targeted at 5 crore women) and who were using conventional fossil
fuel as of now are to be allotted new LPG cylinders connections free of cost.
The Central Government has earmarked ₹ 8000 crores for this, initially. The
matrix adopted to determine backwardness is not merely population, but
availability of LPG in the concerned states, as compared with the national
average of availability. As a good measure, the GSDP average of these
states, to see the broad economic development, have apparently been
considered. The Union articulates in Para 5 of its policy that "While
providing the new connections to BPL households, priority would be given
to the states which have lower LPG coverage (compared to the national
average) as on January 1, 2016." Thus there is a rational nexus between the
geographical differentia and the objective of the policy.
51. It would now be relevant to consider some of the details of specific
challenges made to the policy. A general argument, addressed by all
counsel, was that as between an upcoming new bidder in Zone 1 and
upcoming new bidder in Zone 2, there should be no discrimination in the
preference given in either Zone. Instead, the respondents are preferring Zone
1 Upcoming new bidders, and equating them with existing bidders (of Zone
2) thus treating unequals equally and violating the mandate of Article 14 of
the Constitution of India. At first blush, this argument seems attractive. The
policy differentiates between Upcoming new bidders and existing bidders, to
the extent that the latter are to possess valid PESO and BIS licenses for
manufacture of 14.2 LPG cylinders in terms of IS-3196 Part I and relevant
ISO 9001:2015 certifications. New vendors are described as manufacturers
with valid PESO and BIS licenses for manufacture of 14.2 LPG cylinders in
terms of IS-3196 Part I. "Upcoming new vendors" are bidders who "are
already in the process of setting up a new unit for manufacturing of
cylinders and are in a position to submit acknowledged copies of the receipt
of application from PESO and BIS as on the due date of tender". Now, if
the rationale for the basic geographical based differentia is understood, the
fact that either of the three classes of manufacturers (Existing, new vendor
or upcoming new vendor) of Zone 2 is not afforded equal opportunity with
Zone 1 cannot, per se, be discriminatory. The essential idea of marking the
geographical differentia is to promote Zone 1 units (who, regardless of their
status as existing, new or upcoming new bidders) are to submit a threshold
quantified bid as an eligibility condition, through the preference. That state
policy of promoting growth of the industrial units in Zone 1, which possibly
would result in creation of employment, livelihoods and other indirect
economic benefits to the concerned local populations would be lost, if blind
equality were to be mandated by the court, as between two classes (say
existing bidders of Zone 1 and existing bidders of Zone 2 or upcoming new
vendors of Zone 1 and upcoming new bidders of Zone 2).
52. All classification no doubt, results in some discrimination. However,
all discriminatory consequences as a result of classification are not
necessarily hostile. As long as the state policy does not fall within the Scylla
and Charybdis of under classification and over classification and as long as
the classification is shown- as in this case- to yield perceptible economic
benefits, the courts would not interfere with a policy judgment. There is
sufficient evidence on the record to show that even in Zone 2 there is more
than 50% (nearly 57%) demand of the overall demand for LPG cylinders in
the country. The respondents' concern, in promoting Zone 1 manufacturers
by first preferring them in the consideration of bids, before moving on to
Zone 2 bidders (in Zone 1 bids) therefore cannot be said to result in hostile
discrimination, inviting the wrath of Article 14. Nor are the Zone 2 bidders
correct in contending that they would stand to lose substantially. If indeed,
the capacity of Zone 1 bidders is not yet developed, the Zone 2 bidders will
have their "look in" i.e., opportunity to successfully bid in Zone 1 slots, that
are left out.
53. The reference to Zone 2 bidders' right to freely carry on trade,
commerce and occupation under Article 19 (1) (g) or their rights under
Article 19 (1) (d) i.e. "move freely throughout the territory of India" has to
necessarily be seen from two standpoints, i.e whether the so called
restrictions complained of, rob them of their rights altogether, or at least
impair the rights to a substantial degree and whether the conditions which
the respondent has set as terms for their procurement, are unduly restrictive
as to be called unreasonable restrictions. As far as the first aspect is
concerned, the judgments of the Supreme Court right from the decision in
State of Madras v V.G. Row AIR 1952 SC 196 have ruled that -
"The nature of the right alleged to have been infringed, the
underlying purpose of the restrictions imposed, the extent and
urgency of the evil sought to be remedied thereby, the
disproportion of the imposition, the prevailing conditions at the
time, should all enter into the judicial verdict. In evaluating
such elusive factors and forming their own conception of what
is reasonable, in all the circumstances of a given case. it is
inevitable that the social philosophy and the scale of values of
the judges participating in the decision should play an
important part, and the limit to their interference with
legislative judgment in such cases can only be dictated by their
sense of responsibility and self-restraint and the sobering
reflection that the Constitution is meant not only for people of
their way of thinking but for all.."
54. It is also settled that the reasonableness of the restraint has to be
judged by the magnitude of the evil which the restraint proposes to curb or
to eliminate (Collector of Customs v. Sampathu Chetty, AIR 1963 SC 316).
The court however, has insisted at times, that the restriction, in order to be
within the constitutional framework during normal times, must be
proportionate i.e., should not be "beyond what is required in the interests of
the public" (Chintaman Rao v State of MP AIR 1951 SC 118) and, recently,
that a restriction should be "narrowly tailored" (Shreya Singhal v Union of
India 2015 (5) SCC 1). Similarly, the restriction imposed upon Advocates
from practicing in Land Tribunals under a state enactment was upheld in
H.S. Srinivasa Raghavachar Etc. v State Of Karnataka & Ors AIR 1987 SC
1518. Pertinently, it was held in Municipal Corporation for the city of
Ahmedabad v Jan Mohammed Usmanbhai & Anr AIR 1986 SC 1205 that
the state is free to recognize degrees of harm and may confine its restrictions
to those cases where the need is deemed to be the clearest.
55. In the present cases, it is noteworthy that Zone 2 units are not
absolutely barred from bidding in Zone 1. It is only that the consideration of
their bids will be postponed or rather, would await the effect given to the
bidding choices of Zone 1 unit bidders. The data provided shows that
existing Zone 1 units could cater to roughly 10% of the consumers of that
zone. In other words, without the policy, or capacity augmentation, Zone 1
units cannot compete even within their zone, with producers and suppliers
located in Zone 2. Capacity augmentation cannot be reasonably expected to
happen overnight or instantaneously. This leads to the reasonable inference
that not only would Zone 2 producers and units have sufficient opportunity
to supply within their zone but also in Zone 1 states.
56. As far as the complaint with respect to a different standard applicable
to upcoming new vendors, i.e., the lower threshold of their having to merely
show that they are "in the process of setting up a new unit for
manufacturing of cylinders and are in a position to submit acknowledged
copies of the receipt of application from PESO and BIS as on the due date of
tender" goes, the particular mode shown by way of preference to
newcomers as opposed to a higher threshold applicable to existing suppliers,
cannot be a point of discrimination. There is sufficient safeguard in this
regard, because such upcoming new vendors should acquire the certification
and license within 3 months, failing which the grant of tender, would be
cancelled. The next grant, naturally would go to those waiting for a vacant
slot. Likewise, the complaint that MSME applicants have not been shown
any preference is not entirely correct. Clauses 6 and 7 of the applicable NIT
conditions show separate categories of preferences- to central Public
Enterprises, in terms of extant policies and next, to Micro and Small
Enterprises (MSEs) and MSE owned by Scheduled caste or Scheduled tribe
entrepreneurs in terms of purchase preference under prevailing state policy,
for which separate conditions are detailed. The grievance of no preference to
MSME categories is therefore not warranted.
57. Unless the conditions imposed by the state or its instrumentalities are
so demonstrably onerous that the right to carry on business is rendered
virtually illusory, the court cannot conclude that the circumstances,
perceived to be restrictive are unreasonable. The mere prospect of a
diminished business, or reduced profits would not render a decision of the
state or its agency, taken in the larger public interest, a restriction within the
meaning of Article 19 (6). The arguments of the petitioners that the
respondents did not consult with them while changing the policy of gas
procurement, in the opinion of this court, are inconsequential. No legislation
or policy statement of the respondents ever holding out that the prevailing
policy would remain unchanged, or would not be changed for some length
of time, was pointed out. Unlike certain statutory policies (notably the
Export Import policies) which are framed and apply for a given period of
time, executive policies and decisions are necessarily dynamic. A
procurement policy, unless expressed to be defined in time duration, would
pursue its objectives and goals. The change of a procurement policy in this
case cannot result in the violation of any fairness norm or standard, or result
in the expectation, much less an enforceable legitimate expectation, of any
manufacturing unit.
58. The aphorism "free play in the joints" is most often used when
considering a commercial or economic policy decision of the executive or its
agency or department. In R.K. Garg v Union of India AIR 1981 SC 2138
this principle was articulated in the following manner:
"laws relating to economic activities should be viewed with
greater latitude than laws touching civil rights such as freedom
of speech, religion etc. It has been said by no less a person than
Holmes, J., that the legislature should be allowed some play in
the joints, because it has to deal with complex problems which
do not admit of solution through any doctrinaire or strait-jacket
formula and this is particularly true in case of legislation
dealing with economic matters, where, having regard to the
nature of the problems required to be dealt with, greater play in
the joints has to be allowed to the legislature. The court should
feel more inclined to give judicial deference to legislative
judgment in the field of economic regulation than in other areas
where fundamental human rights are involved."
59. More pointedly, in BALCO Employees Union v Union of India (2002)
2 SCC 333 it was held that it is -
"neither within the domain of the courts nor the scope of the
judicial review to embark upon an enquiry as to whether a
particular public policy is wise or whether better public policy
can be evolved. Nor are our courts inclined to strike down a
policy at the behest of a petitioner merely because it has been
urged that a different policy would have been fairer or wiser or
more scientific or more logical .....In matters relating to
economic issues, the Government has, while taking a decision,
right to "trial and error" as long as both trial and error are
bona fide and within limits of authority."
In Sri Sitaram Sugar Co v Union of India AIR 1990 SC 1277, it was
held as follows:
"The correctness of the reasons which prompted the
Government in decision making taking one course of action
instead of another is not a matter of concern in judicial review
and the Court is not the appropriate forum for such
investigation.
The policy decision must be left to the Government as it alone
can adopt which policy should be adopted after considering all
the points from different angles. In matter of policy decisions or
exercise of discretion by the Government so long as the
infringement of fundamental right is not shown Courts will have
no occasion to interfere and the Court will not and should not
substitute its own judgment for the judgment of the executive in
such matters. In assessing the propriety of a decision of the
Government the Court cannot interfere even if a second view is
possible from that of the Government."
60. All India Bank Employees v National Industrial Tribunal AIR 1962
SC 171 is authority for the proposition that the exercise of a fundamental
right does not carry with it the further right to claim the fulfillment of its
object. Thus, the right to form an association does not carry with it the
neighboring right or concomitant right to achieve the objects of the
association. Likewise, the right to carry on business does not carry on the
concomitant right to achieve the object of setting up that business. It must be
remembered that what is guaranteed is a fundamental right to carry on trade,
business or an occupation. That right however does not extend to a right to
derive profits. In essence, restrictions in government policy are normal
business risks which every tradesman undertakes when he or she carries on
business in some commodities or goods, or provides services. The
vicissitudes of fortune, dependent upon market conditions, government
policies, regulatory changes and taxation laws are factors which businesses
and commercial ventures have to contend and adapt to, in a rapidly evolving
economy such as India's.
61. This court is of the opinion therefore, that the policy concerns, which
impelled the respondents in framing the NIT conditions and the PMUY
scheme are not such as can be reviewed appropriately under Article 226 of
the Constitution. Nor is there anything manifestly or palpably arbitrary or
unreasonable in any element of the policy. The allegations of impaired
business opportunities, forming the basis of challenge on the ground of
Article 19 (1) (g), and of irrational geographical classification, being the
basis of challenge under Article 14, cannot be sustained. As far as the latter
goes, the court also recollects that in Ajoy Kumar Banerjee & Ors. v Union
Of India AIR 1984 SC 1130 it was observed - pertinent to the present
context - that -
"in the matter of economic legislation or reform, a provision
would not be struck down on the vice of under inclusion, inter
alia, for the reasons that the legislature could not be required
to impose upon administrative agencies task which could not be
carried out or which must be carried out on a large scale at a
single stroke. It was further reiterated that piecemeal approach
to a general problem permitted by under-inclusive
classifications, is sometimes justified when it is considered that
legislatures deal with such problems usually on an
experimental basis. It is impossible to tell how successful a
particular approach might be, what dislocation might occur,
and what situation might develop and what new evil might be
generated in the attempt. Administrative expedients must be
forged and tested."
62. There is authority for the proposition that award of a contract, by a
public authority, is a commercial transaction. The agency's choice of
decision making, framing policy, relaxation of the policy, however, should
be for bona fide reasons. State agencies and authorities have the added
obligation to act fairly toward all, in their decision making process. The
exercise of such discretion, unless illegal or mala fide, would not be
interfered with by courts under the discretionary jurisdiction of judicial
review. (BSN Joshi & Sons v Nair Coal Services Ltd (2006) 11 SCC 548
Master Marine Services (P) Ltd v Metcalfe & Hodgkinson (P) Ltd & Ors
(2005) 6 SCC 138 and Jagdish Mandal v State of Orissa (2007) 14 SCC
517).
63. Clearly, therefore, without any proven illegality, palpable
arbitrariness, unfairness, or mala fides, it is not the business of courts to
busy themselves with how the state or public agencies carry on their
business. No such findings can be rendered in these cases. In view of the
above discussion and findings, the petitions have to fail. They are
accordingly dismissed but without any order as to costs.
S. RAVINDRA BHAT, J
SEPTEMBER 21, 2017 YOGESH KHANNA, J
