Maharashtra Asbestos Pvt. Ltd. and another vs State of Maharashtra and others

Suresh, J.—By a resolution dated August 19, 1985, the Government of Maharashtra took to policy decision that whenever tenders are called for procurement of Asbestos Cement Pressure Pipes by various Corporations/Councils and autonomous bodies sponsored by Government, orders be placed on units situated in Maharashtra to the extent of their manufacturing capacities. Further, while placing the orders, priority be given to small case industries to the extent of their manufacturing capacities and only thereafter the order be placed in medium and large scale units to the extent of their manufacturing capacities. However, as far as the standards and price are concerned, there could be no preference to small scale industries and they are to participate in the tender pari -- passu with others. This is further clarified by a subsequent resolution dated October 14, 1986, whereby the Government has directed that the Asbestos Cement Pressure Pipers and related components should be purchased form Industrial Units in Maharashtra State up to their manufacturing capacity. If the orders to be placed are beyond the capacity of the Industrial Units Maharashtra State, then alone the Units outside the Maharashtra State may be considered. It appears that earlier by a resolution dated August 21, 1984, the Government had reserved 50% of the quantity of each item for purchase through small scale industrial units the District area leaving the remaining 50% of the quantity to be purchased form other medium and large scale units. The appellate/petitioners, who are medium scale industrial units in a backward area at Bhandara, think that by virtue of the present policy of getting the entire purchase form the small scale industrial units, to the extent of their manufacturing capacity, a monopoly has been tended to be created in favour of such small scale units, while eliminating any chance for any medium or large scale unit to procure such purchase orders. This, they contend, it ultra vires Art. 14 and Art.19(1)(g) of the Constitution of India.

The immediate cause of action is the invitation of tender called by the Directorate of Industries, the Central Stores Purchasing Orgnisation (Respondent No. 2 ), for the supply of Asbestos Cement Pressure Pipes of various diameters and classes. This tender was published in the Government of Maharashtra Gazette, Part II, dated June 1, 1989. This tender contained a clause which is as follows:

"7. As per Government Policy, capacity to the fullest extent of SSI units based in Maharashtra State shall be considered first, for placement of orders and thereafter Medium and Large Scale Units in Maharashtra shall be considered for placement of the orders and units form outside Maharashtra shall be considered thereafter, if need be. The placement of order against such reservation or otherwise shall be considered on the basis of valid ISI license for the class and diameter of pipes being manufacturing (sic) by participating SSI units up to 250 mm and the for the pipes above 250 mm other units shall be considered as mentioned above."

The petitioner''s contention is that this would in effect eliminate petitioners and other medium scale units and that, therefore, they submit that this condition is totally arbitrary and discriminatory.

Before the learned single Judge, two contentions were raised, viz., A) There is discrimination so far as 33% purchase price is concerned, and B) the weight basis adopted is not legal and valid. The first contention was advanced on the basis that the petitioners were entitled to a purchase preference of 33% on the basis that they had established an industry in a backward area and under a certain package scheme of 1979 formulated for promoting industries in the developing areas of Maharashtra State by the 1st respondent through the State Industrial and Investment Corporation of Maharashtra Limited (hereinafter referred to as " SICOM"). The contention was that the Cl. 7 of the conditions of tender eliminated even this 33% purchase preference given to them by SICOM. When this contention was advanced, the first and the second respondent, after taking instructions form the Directorate of Industries, made a statement before the Court which was recorded, to the effect that all other conditions being equal, 33% purchase preference will be first carved out and distributed to equitable basis amongst all nine small scale industrial units (viz. respondent No. 4 of 12) and the appellate/petitioners. The learned Judge accepted the said statement and rightly came to the conclusion that that should meet the contention of the Council of the appellants on the question of purchase preference, and we are in agreement with the said observation made by the learned Judge. As regards the second contention it is based on certain clause in the general terms and condition of the tender. The learned Judge negatived the same, and as far as we are concerned, no arguments had been advanced in that behalf.

Mr. Singhvi, appearing for the appellant, relying on the case of Punjab Drugs Manufacturers Association Vs. State of Punjab and Others, , submitted that the said Cl. 7 virtually creates a monopoly in favour of the small scale industrial units and that would amount of discrimination and denial of guarantee of equal protection of law and, therefore, is violative of Art. 14 of the Constitution of India. His further submission is that while the State has every power to carry on trade or purchase or sale of property and State enter into contract for any purpose, the State cannot arbitrarily deny any individual, opportunity to trade with it. He submits that while the appellants cannot insists that the contract should have been given to them, they can certainly insists that they have a right to be considered along with others to offer tenders and quotations for the purchase or sale of goods.

In the Punjab case, what had happened was that the Government took a policy decision to the effect that all purchasers of drugs shall purchase form the six approved sources whose names were mentioned in the said policy and that so long as a medicine is available with the approved source, it should be purchased form them only and not from any other firm. This was challenged in a writ petition before the Division Bench of the Punjab and Haryana High Court. The High Court found that as a result of the policy of the Government only limited tenders were invited form the approved sources only and many other manufacturers of drugs and medicines in private sector who have been previously supplying drugs and medicines to the Government and had a legitimate interest in and reasonable expectation of the continuance of this arrangement, were excluded form offering to supply drugs/medicines. The High Court also found also that as a result of this policy, they have been denied the opportunity to quote the prices and submit tenders for supply of drugs/medicines and it is in this context the policy was struck down. It is true that the learned Judge considered number of authorities for the purpose of deciding the question that was before them.

The question, as far as we are concerned, is not so much as the restriction alleged to have been imposed by the Government in inviting tenders, but, whether it could be said that the Government was justified in classifying the small scale industries as against medium scale and large scale industries, and whether the said classification has any rationed nexus to the object that is sought to be achieved. Undoubtedly, it cannot be said that there cannot be any classification between a small scale industry in medium of large scale industry. If the classification cannot be said to be irrational, as obviously a small scale industry cannot compete with medium or large scale industry in the open market, it cannot be said that by inserting cl. 7 of condition of tender, the Government has acted in any arbitrary manner. It is only when the power of discretion of the Government in the grant of largesse, such as in the matter of awarding contracts etc., is exercised on the basis of the pick and choose, it could be said that it was not based on a rational considered, and the action of the Government would be liable to be struck down. But not otherwise. In the present case, the impugned condition itself mentioned that reservation of purchase form the small scale industry is only up to the pipes of the size of 250 mm and for the pipes above 250 mm size, other units shall be considered as mentioned above. In other words, by virtue of this condition, small scale industrial units, without mentioning their names as such, have been given an opportunity to give their tenders for purchase of pipes up to a certain limited size, and all pipes beyond the said dimension are open to the entire marked. It is true that the petitioners contend that they also manufacture pipes of similar dimensions and to that extent they would not be allowed to offer their tenders. But, it cannot be said that thereby a monopoly had been created in respect of small scale industrial units. If no such protection is given obviously small scale industrial units will not be able to compete with medium or large scale units and if al such manufacturers are allowed to offer their tenders the small scale industrial units themselves will be eliminated form the field. Thought, in theory, all might get an equal chance, but, in reality, having regard to the fact that we are in an unequal society, the weak is bound to be eliminated by the stronger, and in the present context, a monopoly would, then result in favour of the stronger viz., medium and large scale industrial units. This is, precisely, to remedy such a situation, the Government came with a policy which we consider as rationed and certainly cannot be described as irrelevant.

Mr. Singhvi submitted that if the Government wants to impose any reasonable restrictions as contemplated under Art. 19(6)(ii) of the Constitution of India, the Government can do so by making a law and not by policy or by any executive action. In our view, it is not necessary for us to go into that question as it cannot be said that the appellants'' right to trade under Art. 19(1)(g) of the Constitution of India has been infringed at all.

In the suit result, we dismiss the appeal.

Since we have dismissed the appeal limine before the same was numbered, we direct that the appellants should have the appeal numbered and the same be shown, in the records, as disposed of, and in that, we dispense with the requirement of the removal of office objections, if any.

Appeal dismissed.