Full Judgment Text
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PETITIONER:
RASHBIHARI PANDA ETC.
Vs.
RESPONDENT:
STATE OF ORISSA
DATE OF JUDGMENT:
16/01/1969
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
HIDAYATULLAH, M. (CJ)
RAMASWAMI, V.
MITTER, G.K.
GROVER, A.N.
CITATION:
1969 AIR 1081 1969 SCR (3) 374
1969 SCC (1) 414
CITATOR INFO :
RF 1970 SC 564 (70)
E 1971 SC 733 (5,6)
RF 1971 SC1461 (435)
D 1974 SC 366 (92)
D 1974 SC 651 (16)
R 1979 SC1628 (22,23)
RF 1980 SC1789 (36)
R 1981 SC 679 (16,37,38,42,43,49)
R 1984 SC 657 (16)
R 1984 SC1527 (23)
RF 1987 SC1086 (28)
RF 1987 SC1109 (30,34)
ACT:
Orissa Kendu Leaves (Control of Trade) Act (28 of 1961) s.
10-Scheme of Government for sale and disposal of leaves
purchased by it Contracts with, and invitation to offer,
restricted to licencees of previous year-If violative. of
Arts. 14 and 19(1) (g) of Constitution-Art. 19(6) (ii)-
Monopoly of Government-Tests for validity-Bona fides of
Government and error of judgment by Government-If a defence
to discrimination.
HEADNOTE:
Kendu tree is a wild growth and its leaf is used mainly in
the manufacture of bidis. To regulate trade in Kendu leaves
and prevent exploitation of growers and pluckers the
respondent-State adopted diverse measures. In 1961, the
Orissa Kendu Leavs (Control of Trade) Act, 1961, was
enacted. By s. 3 of the Act no person other than the
Government, an authorised officer of the Government, or an
agent appointed by the Government shall purchase or
transport Kendu leaves; and under- s. 4 the Government is,
authorised to fix the price at which the leaves shall be
purchased from the growers by the officer or agent of the
Government. Section 10 provides that the Kendu leaves
purchased shall be sold or disposed of in such manner as the
Government may direct, and under s. II, at least one half of
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the net profits derived by the Government is to be paid to
Samitis and Gram Panchayats. A grower of Kendu leaves chal-
lenged ss. 3 and 4 and r. 7(5) made under the Act as
infringing his fundamental rights under Arts. 14 and
19(1)(f) and (g). This Court, in Akadasi Padhan v. State of
Orissa, [1963] Supp. 2 S.C.R. 691, held that ss. 3 and 4 did
not infringe Art. 19(6) (ii), but that the State was in-
competent to implement the provisions of the Act and give
effect to its monopoly, because, the agents appointed were
not really agents of the Government but were authorised to
carry on trade in the leaves purchased not on behalf of the
Government but on their own account, and that it thus gave
rise to a monopoly in favour of the agents which was not
protected by Art. 19(6) (ii) since the law cannot be used by
the State for the private benefit of agents. Thereafter,
the State made some changes in the implementation of its
monopoly. In 1966, it invited tenders from persons desirous
of purchasing Kendu leaves purchased by the officers and
agents of the Government. During the years 1966 and 1967,
the prices of Kendu leaves ruled very high and when sales
were effected by public auction, prices considerably in
excess of those at which tenders were accepted were
realised. Early in 1968, the State evolved another scheme
under which, the State offered to renew the licences of
those traders who in the State’s view had worked
satisfactorily in the previous year and had paid the amounts
due from them regularly’ The scheme was objected to, and
realising that, the scheme arbitrarily excluded many persons
interested in the trade, and hence was objectionable, the
Government decided to invite offers for advance purchases of
Kendu leaves but restricted the invitation to those
individuals who had carried out the contracts in the
previous year without default and to the satisfaction of the
Government, that is, the existing contractors were given the
exclusive right to make offers to
375
purchase Kendu leaves. This new method of offering to
enter into agreements for advance purchases of Kendu leaves
by private offers in preference to open competition, was
challenged by writ petitions in the High Court as violative
of the petitioner’s fundamental rights under Arts. 14 and
19(1)(g).
The High Court held that under s. 10 of the Act the
Government could dispose of the leaves in such manner as it
thought fit, that the only question for the Court was
whether in adopting the new scheme of offering to enter into
advance purchase contracts by private negotiation the
Government had acted bona fide, and that the petitioners
failed to show that in exercising its discretion the
Government acted arbitrarily or without bona fides.
In appeal to this Court,
HELD : The validity of a law by which the State assumed the
monopoly to trade in a given commodity ‘as to be judged by
the test whether the entire benefit arising therefrom is to
enure to the State, and the monopoly is not used as a cloak
for conferring private benefit upon a limited class of
persons. The monopoly of purchasing Kendu leaves under S. 3
may be held to be valid if, it be administered only for the
benefit of the State. Similarly,, the right to sell or
dispose of Kendu leaves by the State under s. 10, in such
manner as the Government may direct, would be valid if it be
exercised in public interest and not to serve the private
interests of any person or class of persons. The profit
resulting from the sale must be for the public benefit and
not for private gain. Section 11 also emphasises the
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concept that the machinery of sale or disposal of the leaves
must also be geared to serve the public interest. if the
scheme of disposal creates a class of middle men who could
purchase from the Government at concessional rates and earn
large profits disproportionate to the nature of the,service
rendered or duty performed by them, it cannot claim the
protection of Art. 19(6) (ii) as it is not open to the
Government to create a monopoly in favour of third parties
from its own monopoly. [383 385A-D]
In the present case, the right to make offers being open to
a limited class of persons it effectively shut out all other
persons carrying on trade in Kendu leaves as well as new
entrants into the trade. Both the schemes, evolved by the
Government, namely the one of offering to enter into
contracts with certain named licencees, and the other of
inviting tenders from licencees who had in the previous year
carried out their contracts satisfactorily gave rise to a
monopoly in the trade in the leaves to certain traders and
singled out other traders for discriminating treatment.
Therefore, they were violative of the fundamental right of
the petitioners under Arts. 14 and 19(1)(g) and as the
’schemes were not ’integrally and essentially’ connected
with the creation of the monopoly they were not protected by
Art. 19(6) (ii). [384 E-H; 385 B-D]
(a) If the only anxiety of the Government was to ensure due
performance by those who submitted tenders, Government could
devise adequate safe guards. But the classification based
on the circumstance that certain existing contractors had
carried out their obligation in the previous year ,regularly
and to the satisfaction of the Government is not based on
any real and substantial distinction bearing a just and
reasonable relation to the objects sought to be achieved
namely, the effective execution of the monopoly in public
interest, the prevention of exploitation of pluckers and
growers of Kendu leaves, or the securing of the full benefit
from the trade, to the State. [384G-H; 386B-D]
376
(b) The scheme could not be supported on the ground that it
imposed reasonable-restrictions, within the meaning of Art.
19(6), on the fundamental rights of traders to carry on
business in Kendu leaves. [38SC-D]
(c) The plea that the action of the Government was bona
fide cannot be an effective answer, because, the Government
had not considered, the prevailing prices of Kendu leaves
about the time when offers were made, the estimated crop,
the conditions in the market, offers of higher prices and
the likelihood of offerors of higher prices carrying out
their obligations and whether it was in the, interests of
the State to invite tenders in the open market from all
persons irrespective of their having taken contracts in the
previous year. [385H; 386A-B]
(d) It could not also be said that the Government merely
committed an error of judgment in adopting the impugned
scheme. It is not a case of the Government erring in the
exercise of its discretion, but the action of the
Government was itself not valid. [386 B-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1472 to 1474
of 1968.
Appeals by special leave from the judgment and order dated
May 8, 1968 of the Orissa High Court in O.J.C. Nos. 49, 52
and 132 of 1968.
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J. B. Dadachanji, for the appellant (in CAs. Nos. 1472 and
1473 of 1968).
A. S. R. Chari, Govind Das and J. B. Dadachanji, for the
appellant (in C.A. No. 1474 of 1968).
C. K. Daphtary, Santosh Chatterjee and R. N. Sachthey, for
the respondent (in all the appeals).
The Judgment of the Court was delivered by
Shah, J. These appeals arise out of orders passed in peti-
tions moved before the High Court of Orissa challenging the
scheme adopted by the Government of Orissa for sale of Kendu
leaves in which the State has assumed a monopoly of trading,
by the Orissa Kendu Leaves (Control of Trade) Act 28 of
1961.
Kendu tree is a wild growth. Its leaf is used mainly in the
manufacture of bidis. To regulate the trade in Kendu leaves
the State of Orissa has adopted diverse executive, and
legislative measures. In exercise of the powers conferred
by S. 3(1) of the Orissa Essential Articles Control and
Requisitioning (Temporary Powers) Act, 1947 the Government
of Orissa issued the Orissa kendi. Leaves (Control and
Distribution) Order, 1949, providing for the is-sue of
licences to person trading in Kendu leaves. The District
Magistrates were authorised to fix the minimum rates for
purchase of Kendu leaves and the Order provided that the
licensees shall purchase Kendu leaves from the pluckers or
37 7
owners of private trees and forests at rates not below the
minimum prescribed. A trader in Kendu leaves challenged the
validity of the Act and the Order before the High Court of
Orissa on the plea that the State Legislature was
incompetent to enact the Act and that in any event the Act
and the Order infringed the guarantee of fundamental freedom
to carry on business under Art. 19(1)(g) of the
Constitution. A Division Bench of the Orissa High Court
upheld the validity of the Act : Jagdish Patel v. Patel
Tobacco Company(1). The Court observed that the main
purpose of the Order was to prevent indiscriminate and
unrestricted competition in the trade in Kendu leaves and to
protect the growers and pluckers from exploitation.
The Order of 1949 was replaced by another Order issued in
1960, but without any substantial changes in its principal
provisions. Thereafter the State Legislature enacted the
Orissa Kendu Leaves (Control of Trade) Act 28 of 1961. By
s. 3 of the Act no person other than (a) the Government; (b)
an officer of Government authorised in that behalf; (c) an
agent in respect of the unit in which the leaves have grown
shall purchase or transport Kendu leaves. By s. 4 it was
enacted that the Government shall, after consultation with
the Advisory Committee, fix the price at which Kendu leaves
shall be purchase( any officer or agent from growers, of
Kendu leaves during any year. By s. 8 the Government was
authorised to ’appoint agents for different units to
purchase Kendu leaves. Section 10, provided that : .
"Kendu leaves purchased by Government or by
their officers or agents under this Act shall
be sold or otherwise disposed of in such
manner as Government may direct."
Out of the net profits derived by the Government, from the
trade in Kendu leaves under the Act, by s. 1 1, an amount
not less than one half was to be paid to Samitis and Grama
Panchayats. Sections 14, 15 and 16 dealt with penalties,
attempts and abetment of offences and procedure of courts.
Section 18’ conferred upon the Government power to make
rules for carrying out the purposes of the Act.
Agents were appointed by the Government of Orissa to pur-
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chase Kendu leaves. The agents were, authorised under the
agreements to purchase the Kendu leaves and also to trade in
the Kendu leaves purchased.
A grower of Kendu leaves moved a petition in this Court
contending that the principal provisions of the Act
infringed his
(1) A.I . 1952 Ori 260.
378
fundamental rights under Arts. 19(1)(f) & (g) and Art. 14.
He challenged ss. 3 and 4 and rule 7(5) as infringing the
fundamental right under Art. 19(1)(f) and (g) of the Consti-
tution, and ss. 5, 6 and 9 as contravening the equality
clause of the Constitution. This Court held in Akadasi
Padhan v. The State of Orissa(1) that the Orissa Kendu
(Control of Trade) Act, 1961, was a valid piece of
legislation, and creation of a State monopoly in Kendu
leaves was protected by Art. 19(6) as amended by the
Constitution (First Amendment) Act, 1951. In the opinion of
the Court, fixation of prices prescribed by S. 4 was
reasonable and in the ’interest of the general public both
under Art. 19(5) and Art. 19(6) and S. 4 of the Act was on
that account valid. The Court further held that section 3
which allowed the Government or an officer of the Government
authorised in that behalf or an agent in. respect of the
unit in which the leaves were grown, to purchase or
transport Kendu leaves for and on behalf of the Government
was not open to attack. But in the view of the Court the
categories of persons mentioned in cls. (b) & (c) of S. 3
i.e. officers of the Government and agents were intended to
work for the Government and all their actions and dealings
in pursuance of the provisions of the Act had to be actions
and dealings on behalf of and for the benefit of the
Government, and since under the agreement obtained from the
agent under r. 7 (5) to work the monopoly of the State, the
appointees were not made agents in the strict sense of- the
term, and were appointed to carry on trade on their own
account, the agreements were invalid. The Court accordingly
held that the State Government was incompetent to implement
the provisions of the Act through the Agents appointed under
those agreements.
Thereafter the Government of Orissa made some changes in the
machinery for implementation of the monopoly and entered
into agreements, of sale of Kendu leaves after inviting
tenders from traders. Even against this scheme objections
were raised. It was claimed by persons interested in the
Production and trade in Kendu leaves that the Government of
Orissa merely resorted to a device of introducing purchasers
who were mere associates or nominees of the "so called
agents," and that the position remained practically the same
as in the days before the judgment of this Court.
On February 2, 1966, the Government of Orissa invited
tenders from persons desirous of purchasing Kendu leaves
purchased or collected by Government or by their officers or
Agents under the provisions of the Orissa Kendu Leaves
(Control of
(1) [1963] Supp. 2 S.C.R. 691.
37 9
Trade) Act, 1961, in the units as constituted under s. 5 of
the Act. In the last paragraph of the tender notice it was
stated
"If the person appointed as Purchaser during
the currency of his agreement in respect of
any Unit duly observes and performs all the
terms and conditions to the satisfaction of
the Government and if the Government are
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satisfied that the Purchaser has been prompt
in taking delivery of leaves and making
payments, the Government may grant to the
Purchaser a renewal of ’his appointment for
one year on such terms and conditions as may
be mutually agreed upon."
During the years 1966 and 1967 the prices of Kendu leaves
ruled very high and when sales were effected on behalf of
the Government of Orissa in certain cases by public
auctions, prices considerably in excess of those at which
tenders were accepted were realized. Early in 1968 letters
were addressed to certain traders intimating that it had
been decided by the-Government of Orissa to renew "leases of
Kendu leaf Units" held by them, for the year 1968 if they
accepted the terms set out therein. Under this scheme the
Government ’Offered to those licensees who in their view had
worked satisfactorily in the previous year and had paid the
amounts due from them regularly to continue their licences
with the added provision that the agents with whom they had
been working in 1967, will also work during 1968. The link
between the agent and the purchaser which had been the
subject matter of agitation in previous years. it was
claimed, was extended by the scheme.
On January 24, 1968, a petition was moved by Rashbihari
Panda in the High Court of Orissa under Art. 226 of the Con-
stitution challenging the action, of the Government. The
Government, it appears, had second thoughts and the offers
to renew the previous licenses were withdrawn and the
licensees were informed that the Government had decided to
invite offers for advance-purchases from persons who had
purchased Kendu leaves from individual units during the year
1967 and had not committed default in payment of the dues.
Other writ petitions were filed challenging the legality of
the new method adopted by the State Government of offering
to enter into agreements for advance purchases of Kendu
leaves by private offers in preference to open competition.
It was urged on behalf of the petitioners that in seeking to
enter into agreements for advance purchase contracts, for
Kendu leaves by private negotiation the State Government
sought I to support their party interests in preference to
public ’benefit envisaged by the State monopoly, and that
the so-called State
380
monopoly trade in Kendu leaves "was a colourable device to
make, ’it appear constitutional and permissible under Art.
19(6) (ii) of the Constitution", whereas in truth it was
intended to benefit only the supporters of the party in
power, and the scheme on that account "was a fraud on the
Constitution". The new scheme, it was said, was devised for
the purpose of increasing the party funds to the detriment
of public revenue, and on that account the act of the State
Government was "mala fide and unconstitutional". The
petitioners claimed that the Government of Orissa had
classified the units into five sections raising the royalty
or share of profit from the purchaser from Rs. 44 to a
maximum amount of Rs. 64 whereas the offer of one of the
petitioners who offered Rs. 1 00 per bag in addition to the
rates offered by the Government by a telegram early in
January 1968 and followed by a confirmatory letter, was not
accepted. It was further said that an offer made by a
manufacturer of bidis to purchase the entire crop for a
total amount of rupees three crores was also not accepted.
On behalf of the State it was submitted that till 1967 no
rate was fixed for dried and processed leaves in the hands
of the growers but when the new Ministry assumed office in
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1967 the minimum price was fixed at Rs. 35 per bag of
processed leaves in the hands of the growers, which was
later raised to Rs. 45 per bag, and the remuneration payable
to pluckers was also raised under orders issued by the
Government, and as a result thereof it was anticipated that
the pluckers and growers would earn Rs. 47 lakhs in addition
to the amount they had earned in 1967; that the scheme of
making an offer to established licensees was evolved with a
view to "close the channels of corruption and the policy had
eliminated all sorts of negotiations or personal approach in
the matter of sale of Kendu leaves by the Government", and
after careful consideration, the Government determined the
fair price that may be realized by selling Kendu leaves,
that the dealers who were given contracts for two years by
the previous Ministries had been offered options to purchase
the leaves at rates higher than ’those obtaining during the
last few years and that under the new policy the profits
earned rose from Rs. 1, 00,75,000 in 1962-63 to Rs.
1,91,00,000 in 1968-69. It was also submitted that under s.
10 of the Kendu Leaves (Control of Trade) Act, the
Government was authorised to dispose of the Kendu leaves in
such manner as the Government may direct and thereby the
authority vested in the Government to use their discretion
"was not amenable to the writ jurisdiction of the High
Court", and that from the data furnished it was clear that
the Government had acted in the best interests of the State
and the "figures showed their bona fides in the matter".
381
The High Court Was of the view that the State having assumed
monopoly of trading ’in Kendu leaves was alone entitled to
purchase the Kendu leaves from the primary producers, and
was by s. 10 authorise to dispose of the leaves "in such
manner as the Government ’may direct’. Section 10, in the
view of the High Court Placed no restriction on the manner
in which the Government may sell Kendu leaves, and the only
question which the Court had to consider was whether in
adopting the new scheme of offering to enter into advance
purchase contracts by private negotiations for selling Kendu
leaves in 1968 the, Government had acted bona fide. The
High Court observed:
". . . . . we hold that the Government’s
exercise of the power or discretion under s. 1
0 cannot be said to be arbitrary as it is open
to the Government to direct the sale or
disposal of Kendu leaves in any manner they
may direct-either by advance purchase
contracts by private negotiations or by public
auction or by tender; it is not a case where
the State Government has exercised this power
or discretion without jurisdiction. The Court
is not concerned with the propriety of the
Government’s action in adopting the particular
manner of sale or disposal as it purported to
direct. Evidently, the Government acted, as
any prudent businessman would do, for the
purpose of getting the maximum revenue-net
profits-from the trade in Kendu leaves.
Government’s direction, in exercise of the
power of discretion conferred on them under s.
10, as to whether a particular-manner of sale
or disposal will be suitable in a particular
year, will depend entirely on their subjective
satisfaction, upon consideration of a number
of factors which may vary from year to year.
Such direction by the State Government as to
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the particular manner of sale or disposal in a
particular year, as dependent on the
subjective satisfaction of the Government as
aforesaid, is not justiciable. There is also
nothing on record to show lack of bona
fides on
the part of the State Government in adopting
the manner it did private negotiations-in the
matter of sale of Kendu leaves in 1968; nor
have we been shown any material to hold that
its action was capricious or arbitrary or in
excess of its jurisdiction."
Article 19 (1) (f ) guarantees the citizens the right to
acquire, hold and dispose of property, and Art. 19(1) (g)
guarantees the right to practise any profession, or to carry
on any occupation, trade or business. The right under cl.
(f) is subject to reasonable restrictions which the State
may impose on the exercise of the right in the interests of
the general public or for the pro
P C.1.169-6
382
tection of the interests of any scheduled tribe. Clause (6)
of Art. 19 which was amended, by the, Constitution (First
Amendment) Act, 1951, sets out the restrictions which may be
,up 1 on the right to practise a profession or to carry on
any occupation, trade or business. It states
"Nothing in sub-clause (g) of the said clause
shall affect the operation of any existing law
in- so far as it ,imposes, or prevent the
State from making any law imposing, in the
interests of the general public, reasonable
restrictions on the exercise of the right con-
ferred by the said sub-clause, and, in
particular, nothing in the said sub-clause
shall affect the operation of any existing law
in so far as it relates to, or prevent the
State from making any law relating to,
(ii) the carrying on by the State, or by a
corporation owned or controlled by the State,
of any trade, business, industry or service,
whether to the exclusion, complete or partial,
of citizens or otherwise."
In Akadsi Padhan’s case(1) this Court held that by the
amendments in Art. 19(6) it was intended that the State
monopoly in respect of any trade or business must be
presumed to be reasonable and in the interests of the
general public; that the expression "law relating to"
occurring in cl. (ii) means "essential and basic provisions"
enacted to give effect to the monopoly i.e. provisions
"integrally and essentially connected with the creation ,of
the monopoly "; that the provisions which are incidental or
subsidiary to the creation or operation of the monopoly must satis
fy. the test of the main clause, and that if the law
infringes any other fundamental right in cl. (1) of Art. 19
it must be tested under the appropriate provision governing
it. ’Me Court accordingly held that ss. 3 and 4 of the Act
were valid but declined in substance to give effect to the
monopoly because the agents appointed were not agents of the
Government merely for purchasing Kendu leaves but were
’authorised to carry on trade in leaves purchased on their
own account. The operation of the State monopoly was in the
view of the Court to give rise to a monopoly in favour of
the agents which had not the protection of Art. 19 (6) (ii).
The Court observed that the appointee must be "an agent of
the Government strictly so-called" acting-for and on behalf
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of the Government and not on his own behalf., the ’Court
while upholding the grant of monopoly by S. 3 of the Act to
the Government to carry on the business of purchasing Kendu
leaves was of the view that the law cannot be used by the
State for the- private benefit of agents; it must only be
administered
(1) [1963] Supp. 2 S.C.R. 691.
383
for the benefit of the general public, and any, arrangement
in which under the guise of a monopoly the State permitted a
Set of persons to make profit for themselves by carrying on
business in Kendu leaves on their own behalf was invalid.
It is urged by the appellants that the machinery devised by
the Government for sale of Kendu leaves in which they had
acquired a monopoly to trade was violative of the
fundamental, rights guaranteed under Arts. 14 and 19 (1) (g)
of the Constitution. It is said that the purchasers are
merely nominees of the agents. ’It is also claimed that
after this Court struck down a scheme under,which the agents
were to carry on business in Kendu leaves on their own
account and to make profit for themselves, the Government
with a view to help their party-men set up a body of persons
who were to be purchasers to whom the monopoly sales were to
be made at concessional rates and that the benefit which
would have otherwise been earned by the State accrued to
those purchasers.
Section 10 of the Act is a counter-part of s. 3 and
authorises the Government to sell or Otherwise dispose of
Kendu leaves in such manner as the Government may direct.
If the monopoly of purchasing Kendu leaves by s. 3 is valid,
insofar as it: is intended to be administered only for the
benefit of the State, the sale or disposal of Kendu leaves
by the Government must also be in the public interest and
not to serve the private interests of any person or class of
persons. It is true that it is for the Government, having
regard to all the circumstances, to act as a prudent
business-man would, and to sell or otherwise dispose of
Kendu leaves purchased under the monopoly acquired under S.
3. but the profit resulting from the sale must be for the
public benefit and not for private gain’ Section 11 which
provides that out of the net profits derived by the
Government from the trade in Kendu leaves an amount not less
than one half is to be paid to the Samitis and Grama
Panchayats emphasises the concept that the machinery of sale
or disposal of Kendu leaves must also be geared to serve the
public interest. If the scheme of disposal creates a class
of middle-men who would purchase from the Government Kendu
leaves at concessional rates and would earn large profits
disproportionate to the nature of the service rendered or
duty performed by them, it cannot claim the protection of
Art. 19(6) (ii).
Section 10 leaves the method of sale or disposal of Kendu
leaves to the Government as they think fit. The action of
the Government if conceived and executed in the interest of
the general public is not open to judicial scrutiny. But it
is not given to the Government thereby to create a monopoly
in favour of third parties from their own monopoly.
384
Validity of the schemes adopted by the Government of Orissa
for sale of Kendu leaves must be adjudged in the light of
Art. 19(1)(g) and Art. 14. Instead of inviting tenders the
Government offered to certain old contractors the option to
purchase Kendu leaves for the years 1968 on terms mentioned
therein. The reason suggested by the, Government that these
offers were made because the purchasers had carried out
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their obligations in the previous year to the satisfaction
of the Government is not of any significance. From the
affidavit filed by the State Government it appears that the
price fetched at public auctions before and after January
1968 were much higher than the prices at which Kendu leaves
were offered to the old contractors. The Government
realised that the scheme of offering to enter into contracts
with the old licensees and to renew their terms was open to
grave objection, since it sought, arbitrarily to exclude
many persons interested in the trade. The Government then
decided to invite offers for advance purchases of Kendu
leaves but restricted the invitation to those individuals
who had carried out the contracts in the previous year
without default and to the satisfaction of the Government.
By the new scheme instead of the Government making an
offer, the existing contractors were given the exclusive
right to make offers to purchase Kendu leaves. But insofar-
as the right to make tender-, for the purchase of Kendu
leaves was restricted to those persons who had obtained
contracts in the previous year. the scheme was open to the
game objection. The right to make offers being open to a
limited class of persons it effectively shut out all other
persons carrying on trade in Kendu leaves and also new
entrants into that business. It was ex facie
discriminatory, and imposed unreasonable restrictions upon
the right of persons other than existing contractors to
carry on business. In our view, both the schemes evolved by
the Government were violative of the fundamental right of
the petitioners under Art. 19(1)(g) and Art. 14 because the
schemes gave rise to a monopoly in the trade in Kendu leaves
to certain traders, and singled out other traders for
discriminatory treatment.
The classification based on the circumstance that existing
contractors had carried out their obligations in the pre-
vious year regularly and to the satisfaction of the
Government is not based on any real and substantial
distinction bearing a just and reasonable relation to the
object sought to be achieved i.e., effective execution of
the monopoly in the public interest. Exclusion of all
persons interested in the trade, who were not in the
previous year licensees is ex facie arbitrary : it had no
direct relation to the object of preventing exploitation of
pluckers and growers of Kendu leaves, nor had it any just or
reasonable relation to the securing of the full benefit from
the trade, to the State.
385,
Validity of the law by which the State assumed the monopoly
to trade in a given commodity has to be judged by the, test
whether the entire benefit arising therefrom is to enure to
the State, and the monopoly is not used as a cloak for
conferring private benefit upon a limited class of persons.
The scheme adopted by the Government first of offering to
enter into contracts with certain named licensees, and later
inviting tenders from licensees who had in the previous year
carried out their contracts satisfactorily is liable to be
adjudged void on the ground that it unreasonably excludes
traders in Kendu leaves from carrying on their business.
The scheme of selling Kendu leaves to selected purchasers or
of accepting tenders only from a specified class of
purchasers was not "integrally and essentially" connected
with the creation of the monopoly and was not on ,,the view
taken by this Court in Akadasi Padhan’s case(1) protected by
Art. 19(6)(ii): it had therefore to satisfy the requirement
of reasonableness under the first part of Art. 19(6). No
attempt was made to support the scheme on the ground that it
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imposed reasonable restrictions on the fundamental rights of
the traders to carry on business in Kendu leaves. The High
Court also did not consider whether the restrictions imposed
upon per.sons excluded from the benefit of trading satisfied
the test of reasonableness under the first part of Art.
19(6). The High Court examined the problem from the angle
whether the action of the State Government was vitiated on
account of any oblique motive, and whether it was such as a
prudent person carrying on business may adopt.
No explanation has been attempted on behalf of the State as
to why an offer made by a well-known manufacturer of bidis
interested in the trade to purchase the entire crop of Kendu
leaves for the year 1968 for rupees three crores was turned
down. If the interests of the State alone were to be taken
into consideration, the State stood to gain more than rupees
one crore by accepting that offer. We are not suggesting
that merely because that offer was made, the Government was
bound to accept it. The Government had to consider, as a
prudent businessman, whether, having regard to the
circumstances, it should accept the offer, especially in the
light of the financial position of the offeror, the security
which he was willing to give and the effect which the
acceptance of the offer may have on the other traders and
the general public interest.
The learned Judges of the High Court have observed that in
their view the exercise of the discretion was not shown to
be arbitrary, nor was the action shown to be lacking in bona
fides. But that conclusion is open to criticism at the
government is not shown to have considered the prevailing
prices of Kendu
(1)[1963] Sup 2 S.C.R. 691
386
leaves about the time when offers were made, the estimated
crop of Kendu leaves, the conditions in the market and the
likelihood of offerors at higher prices carrying out their
obligations, and whether it was in the interests of the
State to invite tenders in the open market from all persons
whether they had or hid not taken contracts in the previous
year. If the Government was anxious to ensure due
performance by those who submitted tenders for purchase of
Kendu leaves, it was open to the Government to devise
adequate safeguards in that behalf. In our judgment, the
plea that the action of the Government was bona fide cannot
be an effective answer to a claim made by a citizen that his
fundamental rights were infringed by the action of the Gov-
ernment, nor can the claim of the petitioners be defeated on
the plea that the Government in adopting the impugned scheme
committed an error of judgment. The plea would have
assisted the Government if the action was in law valid and
the objection was that the Government erred in the exercise
of its discretion. It is unnecessary in the circumstances
to consider whether the Government acted in the interest of
their party-men and to increase party funds in devising the
schemes for-sale of Kendu leaves in 1968.
During the pendency of these proceedings the entire year for
which (the contracts were given has expired. The persons to
whom the contracts were given are not before us, and we
cannot declared the contracts which had been entered into by
the Government for the sale of Kendu leaves for the year
1968 unlawful in these proceedings. Counsel for the
appellants agree that it would be sufficient if it be
directed that the tenders for, purchase of Kendu leaves be
invited by the Government in the next season from all
persons interested in the trade. We trust that in accepting
tenders, the State Government will act in the interest of,
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the general public and not of any class of traders so that
in the next season the State may get the entire benefit of
the monopoly in the trade in Kendu leaves and no
disproportionate share thereof may be diverted to any
private agency. Subject to these observations we make no
further order in the petitions out of which these appeals
arise.
There will be no order as to costs in all these appeals
throughout.
V.P.S. Scheme declared invalid.
387