M J Antony: Grin and bear with monopolies

OUT OF COURT

Although we are a nuclear power and have sent satellites into space, it seems that we cannot produce high security registration plates for motor vehicles.

A few foreign companies have acquired a monopoly in the business for the next 15 years, according to last week's judgement of the Supreme Court in Association of Registration Plates vs Union of India.

Indian manufacturers had challenged the tender conditions in various high courts arguing that the terms were tailor-made to help the foreign firms and keep the indigenous one out of the competition.

The high courts were passing varying orders. Therefore, the Supreme Court transferred all the cases to itself and heard them early this year.

However, even the judges of the Supreme Court could not agree on the question of foreign monopoly at first instance and, therefore, the issue was placed before a larger bench. It has now spoken the final word "" the tenders were valid and Indian manufacturers have no legal right to complain.

High security number plates are being introduced from next year to prevent theft and misuse of vehicles by criminals and terrorists. The Motor Vehicles Rules were amended last year for this purpose.

According to the rules, the regional transport office will issue the registration plates with technical features specified in the rules. Rule 50 goes into the most minute of details of the plates, which are non-reusable and non-replaceable.

The Indian manufacturers challenged the notice inviting tenders since its conditions were so harsh that no indigenous firm could fulfil them.

Some of the controversial conditions were: the bidder, promoter or any of the members of the joint venture should be working in at least five countries for licence plates and in a minimum of three countries with licence plates having security features.

The firm must have a minimum annual turnover of Rs 30 crore "" at least 25 per cent of this must be from the business of making licence plates.

The contract will be for 15 years and there will be no others employed to do the job. The Indian manufacturers were thus practically wiped out from the competition.

However, the Supreme Court ratified these conditions. On the question of monopoly, the Supreme Court remarked: "The notice inviting tender is open to response by all and even if one single manufacturer is ultimately selected for a region or state, it cannot be said that the state has created a monopoly of business in favour of a private party. Rule 50 permits regional transport officers concerned to implement the policy or to get it implemented through a selected approved manufacturer."

Selecting one manufacturer through a process of open competition is not a creation of monopoly, according to the court. It does not violate the fundamental right to trade, nor is it arbitrary or discriminatory.

The operation of the scheme would get "complicated and confused" if several manufacturers are involved. Unless the action of the tendering authority is found to be malicious and involving misuse of statutory powers, the tender conditions cannot be assailed, said the judgement.

Regarding the condition of high turnover of the company, the answer was that the magnitude of the job required huge investments. The first two years are going to be busy indeed, as the plates on the existing vehicles have to be changed within that period.

After that the business may slow down, as only new vehicles will require number plates. This means that the company that undertakes the work must start with adequate capacity and capability.

Indian manufacturers failed in both because the government wants the entire process to take just two years.

Since India has to acquire know-how in several such fields, the present judgement has deep implications for future tenders. The Supreme Court has ruled that what appears to be a monopoly should be borne with a grin.

Therefore, a foreign company with advanced skills can set up Indian firms, technically fulfilling the legal requirements, and carry on business for many years without fearing competition.

The effect on the ultimate consumer could be upsetting. According to one estimate, the new number plates are going to cost Rs 2,000 a pair.