CATERPILLAR INDIA PVT. LTD. versus WESTERN COAL FIELDS LTD. AND ORS.

Citation: [2007] 7 S.C.R. 251 · Decided: 18-05-2007 · Supreme Court of India · Bench: ARIJIT PASAYAT · Disposal: Disposed off
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Judgment (excerpt)

CATERPILLAR INDIA PVT. LTD. 
A 
-.r 
v. 
WESTERN COAL FIELDS LTD. AND ORS. 
MAY 18, 2007 
[DR. ARIJIT PASAYA T AND S.H. KAPADIA, JJ.] 
B 
-1 
"" 
Constitution of India, 1950; Article 14: 
) 
... 
Purchase preferences-Private sector and public sector-Machines 
manufactured by Public Sector Enterprise and Private Limited Company- c 
Respondent Coal Fields purchasing the machines-Allegedly purchase 
preferences given to PSEs arbitrarily in terms of an Office Memorandum 
issued by Government-Discrimination-Held: Before allowing such purchase 
preference protection to Public Sector Enterprises as a matter of uniform 
policy, necessity of such protection has to be examined individually and D 
differential treatment is called for-The Central Government is directed to. do 
... , 
the industry-wise assessment in terms of the detailed directions given in the 
,., 
judgment to identify such enterprises-In case there is already cost effectiveness 
in any PSE, there may not be any need for the trade preference being given 
to such public sector (i!nterprises. 
E 
Government policy-Memorandums-Substitution of the word "shall" 
in place "may"-Effect of-Discussed 
The petitioners/appellants have made a grievance that the key players 
in the market are petitioners, a Private Sector Company and Bharat Earth 
Movers Ltd., a Public Sector Enterprise. The earth moving machines F 
~ 
manufactured by them are purchased by the respondents-Coalfields.· Prior 
to 1992 purchase preference was given and the lowest and the second lowest 
bidders were being described as L-1 and L-2. The purchase preference policy 
kept on extending by issuing Office Memorandums to that effect The policy 
was last extended for a further period of three years retrospectively with effect G 
from 18.7.2005 and the word "may" was then substituted by the word "will" 
in the Circular/Office Memorandum. The legality of the Office Memorandum 
was challenged by the petitioners on the ground that by substitution of the 
~ 
word 'may' by the word 'will' is arbitrary. The word 'may' gives a wider option. 
251. 
H 
252 
SUPREME COURT REPORTS 
(2007) 7 S.C.R. 
A to the tenderers and all the tenderers were on a level playground without any 
...__ 
unnecessary protection to any of the parties. 
The issue arose for determination in these transferred petitions and 
appeals was validity of Circular/Office Memorandum issued by the Central 
B 
Government providing for purchase preference to Public Sector Enterprises. · 
Appellant contended that the Office Memorandum whereby purchase 
preference given to Public Sector Enterprises is arbitrary and effects the 
legitimate expectation of the various parties since it creates a monopoly and 
)._ 
t.-., 
the policy is without any sanctity or la~. 
' 
~ 
c 
Disposing of the petitions and appeal, the Court 
HELD: 1.1. The increase in effectiveness of Public Sector Enterprises 
cannot be done on a uniform policy without examination as to whether such 
protection is necessary for a particular PSE. It has to be examined individually 
D 
as to whether any differential treatment is called for. These are the aspects 
which need to be considered by the concerned Ministries. It is, therefore, 
directed ttiat industry-wise assessment be done and if there is already cost 
.I.-
effectiveness in any PSEs there may not be any need for the preference being 
" 
given. The examination should be on the line as to whether any preference is 
called for and what would be the margin of preference which would ensure 
E level playing field. It should also be fixed specifically and while fixing the 
minimum amount it should be ensured that breaking orthe quantity should 
·be rational, so that there is no likelihood to introduce an element of 
uncertainty. If the object was to invite foreign direct investment, the impact of 
the preference on' such investment has to. be considered. It shall also be 
F 
considered as to whether some amount of discretion as was given earlier has 
to be re-introduced. There cannot be certainly any rigid inflexible policy. 
Because of th~ substitution of the word 'may' by 'will' there is essentially 
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reversal of the policy. (Paras9 andlO) (255-D,.E; F•H) 
1.2. The following directions are issued: 
G 
(1) The exercise, as noted above, shall be undertaken by the concerned 
Ministry ofthe Centriil Government: 
(2) The interim arrangements operative presently shall continue till a 
"-. 
fresh re-consideration is made by the concerned depar
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