UNION OF INDIA AND ORS v. HINDUSTAN DEVELOPMENT CORPN. AND ORS

UNION OF INDIA v. H. D. C. [K. J. REDDY,J.] 175

satisfy the requirement of non-arbitrariness and \".'ith- A stand judicial scrutiny. The doctrine of legitimate expectation gets assimilated in the rule of law and operates in our legal system in this manner and to this extent." (emphasis supplied) B

In Navjyoti coo-Group Housing Society etc. v. Union of India & Others ( 1992) 2 SCALE 548, justice G.N. Ray speaking for the Bench observed as under: c "In the afort~said facts, the Group Housing Societies were entitled to 'legitimate expectation' of following consistent past practice in the matter of aHotment, even though they may not have any legal right in private law to.receive such treatment. The existence of 'legitimate expectation' may have a number of different consequences and one of such consequences is that the authority ought not to act to defeat the 'legiti1nate expectation' without some overriding rea- son of public policy to justify its doing so. In a case of 'legitim~te expectation' if the authority proposes to defeat a person's 'legitimate expectation' it should afford him an oppo~nity to make representations in

- the matter. In this connection reference may be made to the discussions on 'legitimate expectation' at page . 151 of volume l d) of Halsbury's Laws of E11gland- F Fourth Edition (Re-issue). We may also refer to a

-- decision of the House of Lords in Council (f Civil Sen-ice Union and others versus Minister for Civil Sen-ice reported in [1985] 3 All England Reporter page 935. It has been held in the said decision that an . aggrieved person was entitled to judicial review if he could ~how that a decision of the public authority G

affected him of some benefit or advantage w//icfl in the 'past he had been permiHed to enjoy and v.·f1icT1 lie

-- legitimately e.\pected to be permitted to collli11ue to e1~oy either until he ~ 1 as given reasons for withdrawal and the opportunity to comment on suclz reasons. H

176 SUPREME COURT REPORTS [1993) 3 S.C.R.

A It may be i11dicated here that the doctrine of'legitimate expectation' imposes in essence a duty 011 public au- thority to act fairly by taking into consideration all relevant factors relating to such 'legitimate expecta- tion'. Witlzi11 the conspectus of fair dealing in case of 'legitimate expectation', the reasonable 9pportunities B to make representation by the parties likely to be affected by any change of consistent passed policy, come in. We have not been shown any compelling reasons taken into. consideration by the Central Gov- ernment to make a departure from the existing policy c of allotment with reference to seniority in Registra- tion by introducing a new guideline." (emphasis supplied)

Relying on these decisions, ti was contended that the decision of D the Railways in fixing the price and in allotment of the quantities is arbitrary and unreasonable affecting the. right to such legitimate expectation.

To appreciate these contentions, it becomes necessary to refer to some of the rules governing these contracts and followed by the E Railways, before we examine the impact of the doctrim; of 'legitimate expectation'. The Rules prescribed by the Minister for Railways for entering into contracts lay down certain _norms and contains guide- lines. The rules provide for constitution of Tender Committee and the procedur~ to be followed in the matter of inviting tenders. They also F provide for negotiations but lays down that selection of contracts by negotiations is an exception rather than a rule and can be resorted to only under certain circumstances. Regarding splitting of tendered quantity in more than one form, we find some guidelines in Annexure 50 which reads as und~r:

G "3.0. Where warranted, the tendered quantity may be split and tender decided in favourofoneormore firms on merits of each case, in consultation with Associate Finance and with the approval of the authority col!lpe- --1- tent to accept the tender having due regard to the H following factors:-

UNION OF INDIA, v. H. D. C. [K. J. REDDY,J .] 177

(i) Vital/Critical nature of the items; A

.. (ii) Quantity to be procured;

(iii) Delivery requirements; (iv) Capacity of the firms in the zone of consideration; ·n (v) Past performance of firms. xxxxxxx . xxxxxxxx xxxxxxxxx 5.0 Splitting should not be done merely with a view to utilising developed capacity of the different sources . but should be for. valid reasons to be recorded in C writing for splitting the tendered quantity.".

Annexure 213 contains the Railway l}oard letter dated 19.4.90 addressed to General Manalers, AU Indian Railways and others dealing with the subject of Non-acceptance of late/delayed/post/ D Tender·offers. The relevant portion reads thus:

"2. Instances have come to notke of the Board where on a strict application of the above instructions even late Tenders submitted by Public Sector firms for highly specialised equipments have been rejected.

3. The matter, ha·s therefore been reconsidered by the Board and it has been decided that where late Tenders from established/reliable suppliers and conferring a substantial financial advantage is to be considered, notwithstanding the general ban, it will be open to the Railways to seek the Board's approval for the consid- eration of such Tenders, since this should be a very exceptional situation, such cases should be recom- mended for consideration of the Board with the per- G sonal approval of the General Manager, duty' con- curred in by the F.A. & C.A.O.

4. The Railways should not enter into any di;llogue with the agency submitting a delayed Tender ~ithout obtaining Board's prior clearance". H

178 SUPREME COURT REPORTS [1993) 3 S.C.R.

A Now coming to the notice inviting tender in the instant case, we have alrea!ly noted that the price quoted is subject to price variation· clause and the Railways reserved a right to accept the lowest price or accept the whole or any part of the tender of portion of the quantity offered. The notice however, mentioned that the tenderer is at liberty to tender for the whole or any portion or to state in the tender that the B rate quoted shall apply only if the entire quantity is taken from him. From these provisions it becomes clear that th<;! ·tenderer can not expect that his entire tender should be accepted in respect of the quantity and that the Railways have.a right to accept the tender as a whole or a part ofitorportionofthe quantity offered. Itis not in dispute that in the past c also there were many instances where the Railways as per the procedure followed, arrived at decisions in respect of both price and quantity for good and justifiable reasons. In the year 1991 the quanti- ties of Mis H.D.C. and Bharatiya were in fact reduce ·from the allocations made by the Tender Committee which made its rec·ommen- dations on the basis of certain data. It has to be noted that the Tender D Committee is not a statutory iluthority and.its proposals are recommen- dat~ry in nature and have to be considered in the distribution procedure culminating in the decision of the approving authority who as a matter of fact, also can take decisions in respect of price and allotment of quantities taking into consideration various other aspects from the E point of view of public interest. Therefore it is evident that there is no legally fixed procedure regarding fixation of price and particularly regarding allotment giving scope to a legitimate expectation. How- ever, with this factui;e backgrourtd, we shall consider the contention regarding 'legitimate expectation'. F In Halsbury's Laws ofEngland, Fourth Edition, Volume l (1) 151 a passage explaining the scope of .. legitimate expectations" runs thus:

"81. Legitimate expectations. A person may have a. legitimate expectation of being treated in a certain G way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representa- tion or promise made by the authority, including an. implied representation, or from consistent past prac- H tice.

UNION OF INDIA v. H. D. C. [K. J. REDDY,J.] 179

The existence of a legitimate expectation may have a A number of different consequences'; it may give locus standi to seek leave to apply for judicial review; it may mean that the authority ought not to act so as to defeat

- the expectr;uion without some overriding reason of public policy to justifY its doing so; or it may mean that, if the authority proposes to defeat a person's legiti- mate expectations, it must afford him an opportunity B

to make representation on the matter. The courts also distinguish, for example in licensing cases, between original applications, to renew and revocations; a party who has been granted a licence may have c legitimate expectation that it will be renewed unless there is some good reason not to do so; and may therefore be entitled to greater procedural protection

- a than a mere applicant for grant." (emphasis supplied) D

.. . W ~find that the conceptofligitimate expectation first st-.!pped into the English Law in Schmidt v. Secretal)' of State for Home Affairs ( 1969) 2 Ch. 149 wherein it was observed that an alien who had been given leave' to enter the United Kingdom for a limhed period had. E a legitimate expe~tation of being allowed to stay for the permitted time and if that permission was revoked before the time expires, that alien ought to be given an opportunity of making representations. Thereafter the concept has been considered in a number of cases. In F A.G. ofHong Kongv. Ng Yeun shiu, [1983] 2 A.C. 629 Lord Fraser said that "the pnnciple that public authoF- ity is bound by its undertakings as to the procedure it will follow, provided they do not conflict with its duty, is applicable to the undertaking given by the govern- ment of Hong Kong to the respondent... ...... that each G case would be considered on its merits."

In Council of Civil Service Unions and others v. Minister for the ~ Civil Service ( 1984) Vol. 3 All E.R. 359, a question arose whether the decision ofthe Minister withdrawing the right to trade union member- H

180 SUPREME COURT REPORTS [1993] 3 S.C.R.

A ship without consulting the staff which according to the appellant was his legitimate expectation arising from the existence of a regular practice of consultation was valid. It was contended that the Minister had a duty to consult th.e staff as per the existing practice and that though the employee did not have a legal right, he had a legitimate expectation that the eJtjsting practice would be followed. On behalf of B the Minister on the basis of the evidence produced, it was contended that the decision not to consult was taken for reasons of national security. The Court hel~ as under:

"An aggrieved person was entitled to invoke judicial c review if he showed that a decision of a public authority affected him by depriving him of some . benefit or advantage which in the ~ast he had been permitted to enjoy and which he could legitimately

D e~ect to be permitted to continue to enjoy either until he was given reasons for its withdrawal and the opportunity to comment on those re.asons or because - he had received an assurance that it would not be

- withdrawn before he had been given the opportunity of making representations against the withdrawal. The appellants legitimate expectation arising from the existence of a regular practice of consultation appel- lants could reasonably expect to continue gave rise to an implied limitation on the Minister's exercise of the power contained in Art. 4 of the 1982 order, namely an obligation to act fairly by consulting the GCHQ staff before withdrawing the benefit of trade union membership. xxxxxxxx xxxxxxx XX:xxxxxx . Once the Minister produced evidence that' her deci- sion not to consult the staff before withdrawing the right to trade union membership was taken for reasons. of national security, that overrode a:ny right to judicial review which the appellants had arising out of the denial of their legitimate expectation of consultation. The appeal would therefore be dismissed. H xxxxxxxx xxxxxxxx xxxxxxxx

UNION OF INDIA 1•. H. D. C. [K. J. REDDY.J.) 18 l

Administrative action is subject to control by judicial A review under three heads: (1) illegality, wl!ere tlze decision-making authority has been guilty of an error of law, e g bypU1porting to exercise apmver it does not possess: (2) irrationality, wl!ere the decision-making autl!ority has acted so unreasonably that 110 reason- able authority would have made the decision: (3) B

- procedural impropriety, vd1ere the decision-making authority has failed in its duty to act fairly." (emphasis supplied)

Therefore the claim based on the principle of ligitimate expectation C can be sustained and the decision resulting in denial of such expecta- tion can be questioned provided the same is found to be unfair, unreasonable, arbitrary and violative of principles of natural justice. (vide Food Co17Joration of India's case and Naijyoti Coo-Group Housing Society's case (supra). D The learned counsel for these three big manufacturers, however, relied on various decision in Amaijit Singlz Alzluv..·alia v. Tiie State of Punjab & Ors. [ 1975] 3 SCR 82, Ramana Dayaram S/Jetty 's case and Peerless General Finance and /m·estment Co. Limited's case (supra) · and contended that failure to follow the existing procedure resulting in E denial of a right directly arising out of ligitimate expectation is per se arbitrary and unreasonable and therefore illegal and consequently violative of Article 14 of the constitution.

Of late the doctrine oflegitimate expectation is being pressed into service in many cases particularly in contractual sphere while canvass- F ing the implications underlying the administrative law. Since we have not come across any pronouncement of this court on this subject explaining the meaning and scope of th~ doctrine of legitimate expectation, we would like to examine the same a little more elabo- ratclY,. at this stage. Who is the expectant and what is the nature of thL· ~. expectaion? When does such an expectation become a legitimall' 1 Hl~ and what is the foundation for the same? What are the duties (if the administrative authorities while taking a decision in cases attracting the doctrine of legitimate expectation.

.Time is a three-fold present: the present as we experience it, the H

182 SUPREME COURT REPORTS [1993] 3 S.C.R.

A past as a present memory and future as a present expectation. For legal purposes, the expectation can not be the same as anticipation. It is different from a wish, a desire or a hope nor can it amount to a claim - or demand on the ground of a right. However earnest and sincere a wish. a desire or a hope may be and however confidently one may look to them to be fulfilled, they by themselves can not amount to an B assertable expectation and a mere disappointment does not attract legal consequences. A pious hope even leading to a moral obligation can not amount to a legitimate exnectation. The legitimacy of an expectation c~n be inferred only if it is founded on the sanction of law or custom or 3.Jl'established procedur~ followed in regular and natural sequence. c Again itjs distinguishable from a genuine expectation. Such expecta- tion should be justifiably legitimate and protectable. Every such legitimate expectation does not by itself fructify into a right and -- therefore it does not amount to a right in the conventional sense. It has to be noticed that the concept of legitimate expectation in D administrative law has now, undoubtedly, gained sufficient impor- tance. It is stated that "Legitimate expectation" is the latest recruit to a long list of concepts fashioned by the courts for the review of administrative action and this creation takes its place beside such principles as the rules of natural justice, unreasonableness, the fidu- E ciary duty of local authorities and "in future, perhaps, the principle of proportionality." A passage in Administra(ive Law, Sixth edition by H.W.R. Wade page 424 reads thus: "These are revealing decisions. They show that tile courts now expect government departments to honour their published statements or else to treat tile citizen with tile fullest personal consideration. Unfairness in tile form of unreasonableness here comes close to unfairness in ihe form of violation of natural justice, and the doctrine of legitimate expectation can operate in both colltexts. It is obvious, furthermore, that this G principle of substantive, as opposed to procedural, fairness may undermine some of the established rules about estoppel and misleading advice, which tend to operate unfairly. Lord Scarman has stated emphati-

H cally that unfairness in the purported exercise of a power can amount to an abuse or excess of power, and --

UNION OF INDIA'" H. D. C. [K. J. REDDY,J.]

this seems likely to develop into an important ~eneral A

- doctrine."

Another passage at page 522 in the above book reads thus:

"/twas in fact for tlze purpose of restricting the right to B be heard that 'legitimate expectation' was introduced

- into tlze law. It made its first appearauce in a case where alien students of 'scientology' were refused extension of their entry permits as an act of policy by the Home Secretary, who had announced that no discretionary benefits would be granted to this sect. The Court of c Appeal held that they had no legitimate expectation of extension beyond the permitted time, and so no right to a hearing, though revocation of their permits within that time would have been countrary to legitimate expectation. Official statements of policy, there~ore, may cancel legitimate expectation, just as they may create it, as seen above. In a different context, where car-hire drivers had habitually offended against air- port byelaws, with many convictions and unpaid fines, it was held that they had no legitimate expecta- tion of being heard before being banned by the airport authority. Tllere is some ambiguity in t/ze dicta about legiti-

- maie expectation, which may mean either expectation of a fair hearing or expectation of the licence or other benefit which is being sought. But the result is the same in either case; absence of legitimate expectation F

will absolve the public authority from affording a hearing." (emphasis supplied) In some cases a question arose whether the concept of legitimate G expectation is an impact only on the procedure or whether it also can . have a substantive impact and if so to what extent Att. Gen. For New South Wales v. Quin (1990) Vol. 64 Australian Law Jouqial Reports 327 is a case from Australia in which this aspect is dealt with. In that case the Local Courts Act abolished Courts of Petty Sessions and ff .,.

184 SUPREME COURT REPORTS [1993] 3 S.C.R.

A replaced them by Local Courts. Section 12 of the Act empowered the Governor to appoint any qualified person to be a magistrate in the new Couru System, Mr. Quin, who had been a Stipendiary Magistrate in charge of a Court of petty Sessions under the old system, applied for, but was refused, an appointment under the new system. That was challenged. The challenge was upheld by the appellate .court on the B ground that the selection committee had taken into account an adverse report on him without giving a notice to him oftbe contents of the same. In the appeal by the Attorney General against that order before the High Court, it was argued on behalf of Mr. Quin that he had a legitimate expectation that he would be treated in the same way as his former - ' c colleagues considering his apP.lication on its own merits. Coming to the nature of the substantive impact of the doctrine, Brennan, J. observed that the doctrine of legitimate expectations ought not to "unlock the gate which shuts the court out of review on the merits," and that the Courts should not trespass "into the forbidden field of the merits" by striking down admi.nistrative acts or decisions which failed to fulfill the expectations. In the same case Mason, C.J. was of the view that if substantive protection is to be accorded to legitimate expecta- tions that would encounter the objection of entailing "curial interfer- ence with administrative decisions on the merits by precluding the decision-maker from ultimately making the decision which he or she considers most appropriate in the circumstances."

In R v_. Secretwy of State for the Home Department. ex parte Ruddock and others [ 1987] 2 All ER 518, Taylor, J. after referring to the ratio laid down in some of the above cases held thus: F "On these authorities I conclude that the doctrine of legitimate expectation in essence.imposes a duty to act fairly. Whilst most of the cases ure concerned, as Lord Roskill said, with a right to be heard, I do not think the doctrine is so confined. Indeed, in a case y,://ere ex hypothesis there is no rigllt to be heard. it may be thought tile more important to fair dealing that a promise or undertaking given by a minister as to how he will proceed should be kept. Of co_urse such promise or undertaking must not conflict with his statutory l duty, or her duty as here, in the exercise of a prero ga-

UNION OF INDIA v. H. D. C. [K. J. REDDY,J.] 185

-- tive power. I accept the submission of counsel for the Secretary of State that the respondent cannot fetter his A

discretion. By declaring a policy he does not preclude any possible need to change it. But then if the practice has been to publish the current policy, it would be incumbent on him in dealing fairly to publish the new policy, unless again that would conflict with his B duties. Had the criteria here needed changing for i;iational security reasons, no doubt the respondent could have changed them. Had those reasons pre-

-- vented him also from publishing the new criteria, ho doubt he could have refrained from doing so. Had he even decided to keep the criteria but depart from them in this single case for national ,security reasons, no doubt those reasons would have afforded him a de- c

fence to judicial review as in the GCHQ case." (emphasis supplied) D In Breen v. Amalgamated Engineering Union and Others {1971] 2 Law Reports Queen Bench Division 175, Lord Denning observed as under:

"If a man seeks a privilege to which he has no particular claim-such as an appointment to some post or other-then he can be turned away without a word. He need not be heard. No explanation need be given; see the cases cited in Schmidt v. Secretary of State for Home Affairs (1969) 2 Ch. 149, 170-171. But if he is a man whose property is at stake, or who is being deprived of his livelihood, then reasons should be given why he is being turned down, and he should be given a chance to be heard. I go further. If lie is a man who has some right or interest. or some legitimate e.\pectation, ofwhich it would not be fair to deprive f1im without a Ilea ring. or reasons given.,t/Jen these should be afforded him, according as tile case may demand". (emphasis supplied)

At this stage it is necessary to consider the scope of judicial review when a challenge is made on the basis of the doctrine of h~gitimate H

SUPREME COURT REPORTS (1993] 3 S.C.R.

A expectation. In Findlay v. Secrewry of State for the Home Department, [ 1984] 3 All E R 80 l it was observed as under: -- "The doctrine of legitimate expectation has an impor- . tant place in the developing law of judicial review. ll is, however, not necessary to explore the doctrine in ':B this case. it is enough merely to note that a ligitimate expectation can provide a sufficient interest to enable one who cannot point to the existence of a substantive right to obtain the leave of the court to apply for judicial revie.w. These two applicants obtained leave. c But their submission goes further. It is said that the refusal to accept them from the ricw policy was an unlawful act on the part of the Secretary of State in that his decision frustrated their expectation. But what was their legitimate expectation? Given the substance and purpose of the legislative provisions governing parole. the most that a convicted prisoner can legiti- mately expect is that his case will be examined individually in the light of whatever policy the State sees fit to adopt, provided always that the adopted policy is a lawful exercise of the discretion conferred on him by the statute. Any other view would entail the conclusion that the unfettered discretion conferred by the Statute on the minister can in some cases be restricted so as to hamper, or even prevent, changes of policy. Bearing in mind the complexity of the issues which the Secretary of State has to consider and the importance of the public interest in the administration of parole, I cannot think that Parliament intended the desecration to be restricted in this way."

In Council of Cii·i! Service Unions' case Lord Dip lock observed thus: G "To qualify as a subject for judicial review the deci- sion must have consequences which affect some person (or body of persons) other than the decision- maker. although it may affect him too. It m~st affect such other person either (a) by altering rights or

UNION OF INDIA'" H. D. C. [K. J. REDDY.J.] 187

obligations of that person which are enforceable by or against him in private law or (b) by depriving him of some benefit or advantage which either (i) he has in the past been pennitted by the decision-maker to enjoy and which he can legitimately expect to be pennitted to continue to do until there has been communicated to him some rational ground for with- B drawing it on which he has been given an opportunity to comment or (ii) he has received assurance from the decision-maker will not be withdrawn without giving him first an opportunity of advancing reasons for contending that they should not be withdrawn. (1) c prefer to continue to call the kind of expectation that qualifies a decisio·n for inclusion in class (b) a 'legiti- mate expectation' rather than a 'reasonable. expecta- tion', in order thereby to indicate that it has conse- quences to which effect will be given in public law, D whereas an expectation or hope that some benefit or advantage would continue to be enjoyed, although it might well be entertained by a 'reasonable' man, would not necessarily have such consequences."

In Attorney General/or New South Wales' case it is observed as under: E

"Some advocates of judicial intervention would en- courage the courts to expand the scope and purpose of judicial review, especially to provide some check on the Executive Government which nowadays exer- F cises enormous powers beyond the capacity of the parliament to supervise effectively. Such adv9cacy is misplaced. If the courts were to assume a jurisdiction to review ad1ninistrative acts or decisions which are "unfair" in the opinion of the court - not to product of procedural fairness. but unfair on the merits- the G courts would be assuming a jurisdiction to do the very thing which is to be done by the repository of an administrative power, namely, choosing among the courses of action upon which reasonable minds might differ. H

188 SUPREME COURT REPORTS [ 1993) 3 S.C.R.

A xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx . If judicial review were to trespass on the merits of the exercise of administrative power, it would put its own legitimacy at risk. The risk must be acknowledged for n a reason which Frankfurter J. stated in Trop v. Dulles [1958] 356 US 86 at 119: All power is, in Madison 'sphrase, '(~fan encroach- ing nature'......... Judicial power is not immune against this human weakness. It also must be on guard against en- c croaching beyond ifs proper hounds, and not he less so since the only restraint upon it is seff-restraint."

If t/Je courts were to postulale rules ostensibly related to limitations 011 admi11istrati1·e pmver but in reality D calculated to open to tlle gate into tlieforbiddenfield of tl!e merits of its exercise. tile function of tlle courts would hee.rceeded: ofR v. Nat Bell Liquors Ltd_. [1992] 2 AC 128 at 156. If tile courts were to define tile del/fine of legitimate expectations as somet/Jing less tfian a legal right and were to protect wl!at would he t/Jus E defined by striking down administratii·e acts or deci- sions wl1icf1 failed to fulfil tl1e e.\pectations. t/Je courts v.:ould be truncating t/Je powerw/Jicll are naturally apt to affect t/Jose e.\pectations. To strike down t/Je exercise ·of administrarire power solely on tile ground ofavoid- F ing the disappoimment oftl1e legitimate e.\pectations l{ an indil'idual would be to set the courts adript 011 a featureless sea ofpragmatism. Moreover, the notion of a legitimate e.\pectation (falling slwrt of a legal rig lit) is too nebulous to form a basis for inrnlidating tile exercise of a power wflen its exercise otllerwise G accords witll law. Tile authority of the courts and their salutary capacity judicially to review the exercise of administrative power depend in the last analysis on their fidelity to the rule of law, exhibited by the articulation of general principles . - ••

UNION OF INDIA, .. H. D. C. [K . .I. REDDY.J.J 189

To lie wi11Ii11 tile limits ofjudicial power tile notion A of "legitimate expectation" must be restricted to tlze illumination of what is the legal limitation on tile exercise of administrative power in a particular case. ofcourse. if a legitimate expectation were to amount to a legal right, the court would define the respective

- limits of the right and any power which might be exercised to infringe it so as to accommodate in part both the right and the power or so as to accord to one B

priority over the other (That is a common place of cruial declarations.) but a power which might be so exercised as to affect a legitimate expectation falling c s.hort of a legal right cannot be truncated to accommo- date the expectation.

So long as the notion of legitimate expectation is seen merely as indicating "the factors and kinds of factors which are relevant to any consideration of what are the things which must be done or afforded" to accord procedural fairness to an applicant for the exercise of an administrative power (see per Mahoney .JA in Macrae, at 285), the notion can. with one important proviso, be useful. If. but only if. the power is so created that the according of natural justice conditions its exercise, the notion oflegitimate expec- tation may useful focus attention on the content of natural justice in a particular case; that is. on what must be done to give procedural fairness to a person whose interests might be affected by an exercise of the -~ - power. But ifthe according of natural justice does not condition the exercise of the power, the notion of legitimate expectation can have no role to play. If it were otherwise, the notion would become a stalking

• horse for excesses of judicial review." (emphasis supplied) G

---- I In this very case, Brennan J. after reterring to Schmidt's case (supra) observed thus: H

190 SUPREME COURT REPORTS (199313 S.C.R.

A "Again, when a court is decidsing what must be done in order to accord procedural fairness in a particular case, it has regard to precisely the same circumstances as those to which the court might refer in considering whether the applicant entertains a legitimate expecta- tion, but the inquiry whether the applicant entertains B

- a legitimate expectation is superfluous. Again if an express promise be given or a regular practice be adopted by a public authority, and the promise or practice is the source of a legitimate expectation, the repository is bound to have regard to the promise or c practice in exercising the power, and it is unnecessary to inquire whether those factors give rise to a legiti- mate expectation. But the court must stop short of compelling fulfillment of the promise or practice unless the statute so requires or the statute permits the repostitory of the powerto bind itself as to the manner of the future dercise of the pov.:er. It follows that rite 11otio11 of legitimate e.\pectatio11 is not tile key i-.:f1icft unlocks rite treasury of natural justice and it ougftt not unlock tfte gate wlticfJ shuts tlte court out o.fre\·iew 011 tile merits. Tlte notion of legitimate expectation was introduced at a time when the courts were developing the common law to suit modern conditions and were sweeping away the unnecessary archaisms of the prerogative writs, but it should not be used to subvert the principled justification for curial intervention in the exercise of administrative power." F (emphasis supplied)

In the same case, Dawsom, J. observed thus:

"It also follows tltat rite required procedure may very according to tlte dictates of fainzess in tlte particular case.

Thus, in order to succeed. the respondent must be able to point to something in the circumstances of the case which would make it unfair not to extend to him

l'NION OF INDIA"· H. D. C. [K. J. REDDYJ.I 191

the procedure which he seeks. There is no doubt that the respondent had a legitimate expectation of con- tinuing in his position as a stipendiary magistrate such that it should, apart from statute, have been unfair to remove him from that position without according him a hearing. If the principle of judicial independence expended to a stipendiary magistrate, then, no doubt, that would have strengthened his expectation. But the respondent was not removed from his position of stipendiary magistrate by administrative decision. He was removed by a statute which abolished the position of stipendiary magistrate and established the new ( position of magistrate. Not only that, the statute, the Local Courts Act. clearly contemplated that not all the former stipendiary magistrates would be appointed as magistrates pursuant to its terms. Accordingly it made provisjon for those who where not so appointed. It J may be possible to deprecate the manner in which the statute removed the respondent from office, but it is not possible to deny its effect. Any unfairness was the product of the legislation which conferred no right upon the respondent to a procedure other than that which it laid down." I (emphasis supplied)

- On examination of some of these important decisions tt 1s generally agreed that legitimate expectation gives the applicant suffi- cient locus standi for judicial review and that the doctrine oflegitimate 1 expectation is to be confined mostly to right of a fair hearing before a decision w,hich results in negativing a promise or withdrawing an undertaking is taken. The doctrine does not give scope to claim relief straightaway from the administrative authorities as no crystallised .right as such is involved. The protection of such legitimate expectation does not require the fulfillment of the expectation where an overriding G public interest requires otherwise. In other words where a person's legitimate expectation is not fulfilled by taking a particular decision then decision-maker should justify the denial of such expectation by showing some overriding public interest. Therefore even if substan- tive protection of such expectation is contemplated that does not grant H

192 SUPREME COURT REPORTS [199313 S.C.R.

A an absolute right Lo a particular person. It simply ensures the drcum- stances in which that expectation may be denied or restricted. A case of legitimate expectation would arise when a body by representation or by past practice aroused expectation which it would be within its powers to fulfill. The protection is limited to that extent and a judicial review can be with.in those limits. But as ~iscussed above a person who 8 bases his daim on the doctrine of legitimate expectation, in the first instance. must satisfy that there is a foundation and thus. has locus standi to make such a claim. In considering the same several factors whkh give rise to such legitimate expectation must be present. The decision taken by the authority must be found to be arbitrary. unreason- C able and not taken in public interest. If it is a question of policy, even by way of change of old policy, the courts cannot interfere with a decision. In a given case whether there are such facts and circum- stances giving rise to a legitimate expectation, it would primarily be a question of fact. If these tests arc satisfied and if the court is satisfied that a case or legitimate expectation is made out then the next question. D would be whctha failure to give an opportunity of hearing before the decision affecting such legitimate expectation is taken has resulted in failure of justi~e and whetha on that ground the decision should be quashed. If that be so then what should be the relief is again a matter which depends on sevral factors. E We find in Atl(Jrney Genera/for Ne"tt' South ~Vales' case that the entire case law on the doctrine of legitimate expectation has been considered. We also find that on an elaborate an erudite discussion it is held that the courts' jurisdiction to interfere is very much limited and F much less in granting any relief in a claim based purely on the ground of 'legitimate expectation'. In Public Law wid Politics edited.by Carol Harlow, we find an article by Gabriele Ganz in which the learned author after examining the views expressed in the cases decided by eminent judges to whom we have referred to above, concluded thus:

G "The confusion and uncertainty at the heart of the concept stems from its origin. It has grown from two separate roots. natural justice or fairness andestoppeL but the stems have become entwined to such an extent that it is impossible to disentangle tham. This makes it that it is very difficult to predict how the hybrid will ~

l. 193 LiNION OF INDIA\'. H. D. C. [K. J. REDDY,J.)

develop in future. This could be regarded as giving the concept a healthy flexibility, for the intention behind it is benig; it has been fashioned to protect the indi- vidual - . a1rninst administrative action which is against ~

his interest. On the other hand, the uncertainty of the concept has led to conflicting decisions and conflict- . ing. interpretations in the same decision." B

However, it is generally accepted and also clear that legitimate expectation being less than right operate in the field of public and not private law and that to some extent such legitimate expectation ought to be protected though not guaranteed. C

Legitimate expectations may come in various forms and owe their existence to different kind of circumstances and it is not possible to give an exhaustive list in the context of vast and fast expansion of the governmental activities. They shift and change so fast that the start of 0 . our list would be obsolete before we reached the middle. By and large they arise in cases of promotions which are in normal course expected, though not guaranteed by way of a statutory right, in cases of contracts, distribution of largest by the Government and in somewhat similar situations. For instance in cases of discretionary grant of licences, permits or the like, carries with it a reasonable expectation, though not E • a legal right to renewal or non-revocation, but to summarily disappoint that expectation may be seen as unfair without the expectant person being heard. But there again the court has to see whether it was done asa policy or in the public interest either byway ofG.O., rule or by way of a legislation. If that be so, a decision denying a legitimate expecta- F tion based on such grounds does not qualify for interference unless in a given case, the decision or action taken amounts to an abuse of power. Therefore the limitation is extremely confined and if the according of natural justice does not condition the exercise of the power, the concept of legitimate expectation can have no role to play and the court must not usurp the discretion of the public authority which is empowered to G take the decisions under law and the court·is expected to apply and objective standard which leaves to the decising authority the full range of choice which the legislature is presumed to have intended. Even in a case where the decision is left entirely to the discretion of the deciding authority without any such legal bounds and if the decision is H

194 SUPREME COURT REPORTS [1993) 3 S.C.R. ~

A taken fairly and objectively, the court will not interfere on the ground of procedural fairness to a person whose interest based on legitimate expectation might be affected. For instance if an authority who has full discretion to grant a licence and ifhe prefers an existing licence holder to a new applicant, the decision can not be interfered with on the ground of legitimate expectation entertained by the new ~pplicant B applying the principles of natural justice. It can therefore be seen that legitimate expectation can at the most be one of the grounds which may give rise to judicial review but the granting of relief is very much limited. It would thus appear that there are stronger reasons as to why the legitimate expectation should not be substantively protected than c the reasons as to why it should be protected. In other words such a legal obligation exists whenever the case supporting the- same in terms of legal principles of different sorts, is stronger than the case against it. As observed in Attorney General for New South Wales· case "To strike down the exercise of administrative power solely on the ground of -- avoiding the disappointment of the legitimate expectations of an individual would be to set the courts adrift on a featureless sea of pragmatism. Moreover, the notion of a legitimate expectation (falling short of a legal right) is too nebulous to form a basis for invalidating the exercise of power when its exercise otherwise accords with law." If a denial of legitimate expectation in a given case amounts to denial of right guaranteed or is arbitrary, discriminatory unfair or based, gross abuse of power or violation of principles of natural justice, the same can be questioned on the well-known grounds attracting Arti~le 14 but a claim biased on mere legitimate expectation without anything more cannot ipso facto give a right to invoke these principles. It can be one of the ground to consider but the court must lift the veil and see whether the decision is violative of these principles warranting interference. It depends very much on the facts and the recognised general principles of administrative law applicable to such facts and the concept of legitimate expectation which is the latest recruit to a long list of concepts fashioned by the courts for the review of administrative action, must be restricted to the general legal limitations applicable and binding the manner of the future exercise of administrative power in a particular case. It follows that the concept of legitimate expectation is "not the key which unlocks the treasury of natural justice and it ought . . not to unlock the gates which shuts the court out of review on the. merits," particularly when the element of speculation and uncertainty is inherent in that very concept. As cautioned in Attonle)' General for

li'.'IION OF INDIA"· H. D. C. [K. J. REDDY.J.] 195

New South Wales' case the courts should restrain themselves and restrict such claims duty to the legal limitations. It is a well-meant caution. Otherwise a resourecful litigant having vested interests in contracts. licences etc,. can successfully indulge in getting welfare activities mandated by directive principles thwarted to further his own interests. The caution, particularly in the changing scenario, becomes all the more important. B

In view of our conclusions in respect of the quantities allotted and the price fixed it tnay not be necessary for us to enter into further discussion on this aspect. We have already directed that the Tender Committee should consider afresh as to what should be the reasonable C price and to that extent the price of Rs. 67,000 fixed in respect of smaller manufacturers is set aside and directed to be revised. So far these three big manufacturers are concerned, we held that on their own commitment they are bound to supply at the rate of Rs. 67,000 per bogie. So far the quantities are concerned, we held that these three big 0 manufacturers should be allotted the quantities as per the recommen- dations of the Tender Committee. However, we considered this aspect to some extent only to show that the decision in respect of price fixation as well as allotment of quantities even though to some extent at variation with the procedure followed during the previous years, was not based on any irrelevant consideration. The Railways particularly E the Financial Commissioner as well as the Minister and initially the Tender Committee formed an opinion that these three big manufactur- ers formed a cartel and also quoted and unworkable predatory price at the post-tender stage. Therefore from the point of view of preventing monopoly in the public interest the decision in question was taken in F a bonafide manner. However, on a factual basis we held that the alleged formation of cartel was only in the realm of suspicion and in that view the decision was modified, as already indicated. H<?wever, we make it clear that the said modifications by way of judicial review is not on the ground of legitimate expectation and violative of principles of natural justice but on the other ground namely the decision of the authorities G was based on wrong assumption of formation of a cartel.

The next submission is that the decision taken by the Railways resulting in reduction of the quant;ities and making a counter-offer of Rs. 65,000 to these three big manufacturers is punitive in nature H

\ . \-;' ~- ' .~. :_ , __ ,:f ·196{ \ [1993) 3 S.C.R. -~ '. . ,. - - >' - visiting \vith civil consequences and such a decision taken \Vithout giZring an oppOrtUnity to these manuf.ic_turefs is violative o~ principles of natural justice. In view o( our ·ati()ve 'mentioned conclusions resulting in modification of the decision of th~ authorities both in respect of price fixation and in allotment of quantities. there is no ·necessity to consider this aspect again in detail.··. B It wa·~ ~·ext contended that the consideration that some manufac- ~... -~ ·-. -·- turers are small and others are BIFR companies taken into account by the- approving authority for deviating from the age-old practice in · allocatioo of quantities is irrelevant and discriminatory and therefore · C the decision is bad. It may be mentioned that status of a manufacturers · being 'a BIFR coinpany or a small 1rianufacturers was not taken into · account so t'ar as the fixation of the price is concerned and these considerations were deemed relevant only f.irthcpurpose of allocation of quantities. The stand taken by the Railways is that smaller manufac- turers should sllrvive from the .,Oint of vie\V of arresting nl.ullopolistic )), tendencies-and from !lie point ofview of public interest. The Tender Co.mmittee proceedings would indicate that on the basis of cenain fonnulae namely the past performance, capacity etc. the allotment was being made. Therefore these can not be said to be irrelevant consider- ations· and as a matter of fact they 1iad been duly given effect to and weightage was given accordingly in respect of allotment of quantities to various manufacturers within th~ four comers of the liffiitcd tender.

The learned counsel, however; conteni.led that the allotment of the quantities to the smaller manufacturers also is not based on any acceptable.principle and that sorrie'ofttiem arc given larger quantities without ariy justification rendering the decision bad because of arbi- trariness. The proceedings mentioned above panicularlythe notingsof ·the Financial commissioner as well as the competent authority would . show. that some of the smaller manufacturers namely Mis Himmat, Tex~co and Sri Ranga were BIFR c_ompanies. As no'price preferen- G tial treatment was giveri tci any one of them, the approving authoritY.. -.cc.. . .. considered that enhancement in allocation of quantities was necessary. :· Like\vlse M/s. Cimmco and Texmaco who are wagon builders and T whose business in entirely with the Railways were also given some wcightage. \Ve can not say that these are irrelevant considerations for II

UNIO~ ' t OF L'<DlA v. H. D. C. \K. J. REDDY ).I · 197 L - • - : -

the purpose of arriving at a decision. In the past also there.were such A . ' ?": · . variations - based on these circum5tances. -In· any- event for- different . . \ - -. --- reasons we have varied this decision and directed that the three big manufacturers should be giv~n allotment as per the recommendations of the Tender Committee. In our earlier order we.have noticed that there has ..been some depanure in respect of one or two smaller manufacturers in allotting the quantities. We have already indicated 8 that the Railways authorities should in future make a proper consider- ation of the relevant factors in respect of each tenderer in an objective manner in allotting the quantities.

Now coming to the question of dual pricing, the submission is that in respect of same set of manufacturers, some of them can not be made to supply at a lower price and the others namely smaller manufacturers -~- can not be given advantage to supply at a higher price and such dual pricing is unreasonable and arbitrary. As already noted, the Tender . ' Committee worked out an. upgraded price and taking into other relevant factor~ like cost of the material etc. into consideration and applying the formula as was being done in the past and panicularly taking into considcfation the t\VO concessions in respect of custom and freight fixed Rs. 76,000 as the reasonable price. This was very close to the price quoted by the three big manufacturers. Ilut at a post-tender stage, they entered into correspondence offering a lower price and ultimately the three big manufacturers committed themselves to supply at the ·rate of Rs. 67.000 per bogie. In our earlier order \ve indicated that these big manufacturers formed a different category namely that they may be in a pi>sition to supply at that rate as is evident from their own commitment but to apply the same pri"e which is much lower than the reasonable and workable price fixed by the Tender Committee to other smaller manufacturers would again result in ending the competition between the big and the small which ultimately would result in monopoly of the market by the three big manufacturers. That is a very imponant consideration from the point of view of public interest However, as already mentioned we directed the Tender G Committee to consider the matter afresh an even if it results in dual pricing, it would not be bad in the circumstances mentioned above.

-': .·• . . ,. ' _,. - \. . . ';. ----~------ (199313 S.C.R.

·. A\\·, \ Theseareallthereasonsinsupporfofourconclusionsgiveninour ~- -( order dated 14th Ja!'uary, 1993. \ . , ·

V.P.R. \ SLPs disposed of,