Full Judgment Text
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CASE NO.:
Appeal (civil) 7519-7520 of 1995
PETITIONER:
M/s. Rayalseema Paper Mills Ltd. & Another
RESPONDENT:
Government of A.P. & Others
DATE OF JUDGMENT: 25/10/2002
BENCH:
V.N. Khare, Ashok Bhan & S.B. Sinha
JUDGMENT:
WITH
CIVIL APPEAL NOS.7521-22 OF 1995, CIVIL APPEAL NOS.7523-24
OF 1995 AND CIVIL APPEAL NOS.7525-7526 OF 1995
J U D G M E N T
BHAN, J.
1. These sets of appeal arise from a common judgment of the Division
Bench of the High Court of Judicature at Andhra Pradesh whereby the said
High Court has rejected the appellants’ challenge to the fixation of rates of
royalty on bamboo and hardwood to the paper industry in Andhra Pradesh.
For the sake of convenience, we would refer to the facts and contentions in
Civil Appeal Nos.7519-20 of 1995 arising from Writ Appeal No. 591 of
1984 and Writ Petition No.3927 of 1987 filed by Sree Rayalaseema paper
Mills Ltd. It was stated by the counsel for both the parties before us, as was
done before the High Court, that these appeals can be taken as representative
of the facts and contentions in all the appeals.
2. Relevant facts for determining the points raised in these appeals are:
Till the year 1975 there were only two Paper Mills in the State of
Andhra Pradesh, namely, (1) Sirpur Paper Mills, and (2) Andhra Pradesh
Paper Mills Ltd. to which the Government was supplying hard and soft
wood for manufacture of paper at concessional rates. These rates were
being fixed every five years. By a memorandum dated 2nd September, 1975
the Government of Andhra Pradesh in Forest and Rural Development
Department, fixed royalty rates at Rs.30/- per Tonne for barked hardwood
and Rs.60/- per Tonne for barked softwood for a period of 5 years
commencing from 1-10-975. The Chief Conservator of Forests was
requested to get the agreement drafted and furnish to the Government for
approval after enquiring into the needs of the mills and after locating the
areas in consultation with the mills for the supply of hard and soft wood.
The duration of agreement was to be for 20 years. Pending the finalisation
of the agreement, the Chief Conservator of Forests was requested to allow
the mills to have the wood on payment of royalty, as indicated above, on
adhoc basis after obtaining an undertaking from the mills that they would
abide by the conditions prescribed by the Government for the supplies to be
effected.
3. Another factor which needs to be mentioned although not relevant for
the purpose of these appeals is that on a representation made by
Rayalaseema Paper Mills Limited and Bhadrachalam paper Boards Limited
which were set up in a backward area, Government of Andhra Pradesh by
G.O.Ms. No.665 dated 15th July, 1976, a further concession in the rate of
royalty on bamboo and hard wood by 50% was extended to these two mills
for a period of 5 years from the date of their going into production. On a
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further request made by them the period of concession was extended from 5
to 10 years subject to the condition that Government reserved its right to
review the position after first 5 years. This concession commenced from
1.10.1978. Concessional period of first five years expired on 30th
September, 1983. The Government of Andhra Pradesh reviewed the matter
and issued orders contained in G.O.Ms. No.65 dated 9.2.1984 withdrawing
the said concession altogether w.e.f. 1.10.1983. G.O.Ms. No.65 dated
9.2.1984 was challenged by filing writ petitions which were dismissed by
the single Judge of the High Court. Further appeal filed before the Division
Bench was also dismissed. However, it was held that the said G.O.Ms.
being administrative in character, could not be given retrospective effect.
This judgment became final between the parties.
4. To continue with the facts from the previous paragraph the rates of
royalty fixed by the Government Memorandum dated 2.9.1975 @ Rs.60/-
per Tonne for barked soft including Bamboo and Rs.30/- per Tonne for
barked hard wood were valid for the period 1-10-1975 to 30th September,
1980. The Government desired to fix revised royalty rates for the next five
years. It appears that the Chief Conservator of Forests submitted proposals
in February and June, 1980 suggesting a rate of Rs.425/- per Metric Tonne
for bamboo and Rs.75/- per Metric Tonne for mixed hardwood for supply to
Paper Mills. He based his figures on the minimum cost of production as per
policy accepted by the Central Board of Forests. The Government, however,
appointed a Committee of officials to consider the factors relating to fixation
of royalty rates on the forest produce to be supplied to wood based industries
on a sustained basis, and to make recommendations to the Government. The
Committee consisted of
1. Secretary to Government, Forests & Rural Development
Department(Chairman)
2. Joint Secretary, Industries and Commerce
Department(Member),
3. Deputy Secretary, Finance & Planning(Member),
4. Managing Director, A.P.Forest Development
Corporation(Member), and
5. Chief Conservator of Forests(member/Secretary).
5. The Committee called upon the wood-based industries for such
information, as they liked, for consideration of the committee. After
looking into the material supplied by the Mills and other material gathered
by it, and after examining the several alternative methods for determining
the price of forest produce, the committee was of the opinion that the cost
of regeneration be taken to be the price at which the forest produce shall be
supplied to these industries. On this basis, it opined that for the five year
period commencing from 1.10.1980, the rate of royalty for bamboo may be
fixed at Rs.284/- per Metric Tonne and for hardwood at Rs.135/- per Metric
Tonne. The Committee further recommended that instead of fixing a
uniform flat rate for the entire 5 year period, it would be desirable to fix
royalty at a sliding rate with annual increases limited to the prevailing rates
of interest. The Government accepted the recommendations of the
Committee and accordingly issued G.O.Ms. No.538 dated 4.11.1981. It
directed that the "rates for royalty on the forest raw materials, namely, the
bamboo and the hardwood which are to be supplied to the wood based
industries shall, with effect from the base year 1980-81 be as follows:
Year (Bamboo per M.T. Hardwood per M.T.
w.e.f. 1.10.1980) (w.e.f. 1.4.1980)
1 2 3
1980-81 210 100
1981-82 233 111
1982-83 258 123
1983-84 287 137
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1984-85 318 152".
In paragraph 6 of the said G.O., the Government stated:-
"6. The Committee has also envisaged that the
arrangements should be worked out to ensure that
adequate funds are provided for raising pulpwood
plantations and for improving the management of
forests for sustained supply to the industries.
Accordingly, the Government have to decide to
create the ’Industrial Plantation Fund’ from out of
the additional royalty revenues revised annually to
meet the said requirements."
6. As per this G.O., the rates of royalty for bamboo suddenly went up
from Rs.60/- to Rs.210/- per Metric Tonne and the rates continued to rise
with each passing year. However, so far as Rayalaseema Paper Mills and
Bhadrachalam Paper Boards Limited were concerned, they were entitled to
50% concession for a period of five years commencing from 1.10.1978. It
was liable to pay only half of the said royalty rate. The five year concession
period expired on 30th September, 1983. It was not extended further as
indicated earlier in para No.3 of this judgment.
7. The validity of G.O.Ms No.538 dated 4.11.1981 was challenged by
filing writ petitions on two grounds:
(i) by an executive order the Government cannot enhance the rates
of royalty for purposes of developmental activities of the State.
Such an enhancement amounts to levy of tax, and no tax can be
levied except under a Statute; and
(ii) the increase in the rates of royalty contrary to agreement is
unreasonable.
8. On behalf of the State preliminary objection was raised with respect
to the maintainability of the writ petitions. It was submitted that the
revision in the rates of royalty had been made in accordance with the
conditions of the agreement entered into between the parties and that, in
such a case, Article 14 of the Constitution has no application.
9. The single Judge upheld the preliminary objection and held that where
there was a concluded contract, Article 14 could not be invoked, even
though one of the contracting parties was the Government. On this ground
alone all the writ petitions except the writ petition No.1641 of 1982 filed by
A.P.Rayans Limited were ordered to be dismissed. So far as the writ
petition No.1641 of 1982 is concerned, the learned Judge found that the
facts of that case were different inasmuch as the original period of five
years in its case had not expired and the Government could not increase the
rates before the expiry of five years stipulated in the Government G.O. It
was left open to the Government to revise the rates or apply the rates
contemplated in G.O.Ms. No.538 dated 4.11.1981 to A.P.Rayons Limited
as well after the expiry of five years from the date the agreement was
entered upon.
10. Single Judge had disposed of the writ petitions by a common
judgment. Appellants being aggrieved filed writ appeals. In writ appeals
the appellants did not question the correctness of the judgment of the Single
Judge, in so far as it held that the enhancement of royalties did not amount to
levy of tax. Counsel, however, disputed the correctness of the other findings
including the finding regarding the maintainability of the writ petitions. The
Division Bench upheld the objections raised by the appellants regarding the
maintainability of the writ petitions and held that the writ petitions were
maintainable and proceeded to examine the matters on merits. During the
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pendency of the writ appeals, the Government further revised the rates for
the next quinquennium started from 1985-86 to 1989-90 by issuing G.O.Ms.
No.378 dated 12th September, 1985. Appellants filed writ petitions which
were admitted and ordered to be disposed of with the writ appeals
challenging the order of the Single Judge for the earlier quinquennium from
1980 to 1985 upholding the G.O.Ms. No.538 dated 4.11.1981.
11. On merits the Division Bench examined the dispute between the
parties in great detail. After examining the report submitted by the
Committee and the order passed thereon by the Government rejected the
contentions of the counsel appearing for the appellants to the effect that what
was sold to the appellants natural growth(bamboo), replacement cost should
not be the criteria for fixing the rates of royalty. It was held that not only
can the replacement cost be the criteria, but the State could also fix the price
keeping in mind several other factors, like, public revenue, ecology and
environment, availability of forest produce, the need of other consumers and
even to compel the mills to turn to alternative raw materials. That the State
could not be called upon in the absence of any law laying down the criteria
for fixing the rates of royalty, to account for the manner in which, or the
basis upon which the State has to determine the royalty as explained in the
reasoning of the said judgment.
12. Shri Shanti Bhushan, learned senior counsel appearing for the
appellants did not dispute the propositions that price fixation is neither the
function nor the forte of the court, it is neither concerned with the policy
nor the rates. But the Court cannot deny to itself to jurisdiction to enquire
into the question, in appropriate proceedings, whether relevant
consideration have gone in and irrelevant considerations kept out of the
determination of the price. Referring to the facts of the present case, it was
contended that the Government, in a arbitrary and in unrealistic manner,
unmindful of the question of survival of the paper industries, could not
increase the rates 5 times from Rs. 60/- to Rs. 210/-. Public interest
demands that the paper industries should be kept alive. In such a situation,
fixation of an ’impossible’ price, which the mills cannot bear, would be an
unreasonable and arbitrary act on the part of the Government requiring the
stepping in of the courts. Such an act would be adverse to the public
interest and totally arbitrary. It was further contended that even if
conceding that the government could revise the rates after every five years,
it could not stagger the rates of royalty over the period, thus, giving an
increase for every subsequent year within the same quinquennium which
amounted to increase of rates of royalty for every year instead of being after
every five years. That because of the arbitrary increase in price some of the
mills have become sick and unviable. Counsel appearing in the other
appeals supplemented these two basic submissions of Shri Shanti Bhushan.
13. We now proceed to examine these contentions.
14. Before we enter the discussion, it is made clear that the determination
of rates of royalty for supply of forest produce to paper mills is not
governed by any statute or a statutory order. The Government while
entering into the agreement with the paper mills had undertaken to supply a
certain specified quantity of wood each year for a period of 20 years. The
government had not assured the mills that it will supply bamboo and other
forest produce required by them at a particular rate. Nor was there an
agreement between them with respect to the manner in which the rates of
royalty would be determined. There was no assurance that the mills would
be consulted or associated while fixing the rates of royalty. Even where the
matter is governed by a statute or a statutory order, the scope of judicial
enquiry is limited. This Court in Union of India & Another vs. Cynamide
India Limited & Another [(1987) 2 SCC 720] examined the scope of
judicial interference in the matters of price fixation and observed:
"We start with the observation, ’Price fixation is
neither the function nor the forte of the Court’.
We concern ourselves neither with the policy nor
with the rates. But we do not totally deny
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ourselves the jurisdiction to enquire into the
question, in appropriate proceedings, whether
relevant considerations have gone in and irrelevant
considerations kept out of the determination of the
price. For example, if the legislature has decreed
the pricing policy and prescribed the factors which
should guide the determination of the price, we
will, if necessary, enquire into the question
whether the policy and the factors are present to
the mind of the authorities specifying the price.
But our examination will stop there. We will go
no further. We will not deluge ourselves with
more facts and figures. The assembling of the raw
materials and the mechanics of price fixation are
the concern of the executive and we leave it to
them. And, we will not re-evaluate the
considerations even if the prices are demonstrably
injurious to some manufacturers or producers. The
court will, of course, examine if there is any
hostile discrimination. That is a different ’cup of
tea’ altogether.
The second observation we wish to make is,
legislative action, plenary or subordinate, is not
subject to rules of natural justice. In the case of
parliamentary legislation, the proposition is self-
evident. In the case of subordinate legislation, it
may happen that Parliament may itself provide for
a notice and for a hearing-there are several
instances of the legislature requiring the
subordinate legislating authority to give public
notice and a public hearing before say, for
example, levying a municipal rate in which case
the substantial non-observance of the statutorily
prescribed mode of observing natural justice may
have the effect of invalidating the subordinate
legislation. The right here given to rate payers or
others is in the nature of a concession which is not
to detract from the character of the activity as
legislative and not quasi-judicial. But, where the
legislature has not chosen to provide for any notice
or hearing, no one can insist upon it and it will not
be permissible to read natural justice into such
legislative activity.
Occasionally, the legislature directs the
subordinate legislating body to make ’such enquiry
as it thinks fit’ before making the subordinate
legislation. In such a situation, while such enquiry
by the subordinate legislating body as it deems fit
is a condition precedent to the subordinate
legislation, the nature and the extent of the enquiry
is in the discretion of the subordinate legislating
body and the subordinate legislation is not open to
question on the ground that the enquiry was not as
full as it might have been. The provision for ’such
enquiry as it thinks fit’ is generally an enabling
provision, intended to facilitate the subordinate
legislating body to obtain relevant information
from all and whatever source and not intended to
vest any right in anyone other than the subordinate
legislating body. It is the sort of enquiry which the
legislature itself may cause to be made before
legislating, an enquiry which will not confer any
right on anyone."
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15. This Court was examining the scope of judicial scrutiny in the matters
of price fixation where it was governed by statutory provisions. The scope
of judicial scrutiny would be far less where the price fixation is not
governed by the statute or a statutory order. Where the legislature has
prescribed the factors which should be taken into consideration and which
should guide the determination of price, the courts would examine whether
the considerations for fixing the price mentioned in the statute or the
statutory order have been kept in mind while fixing the price and whether
these factors have guided the determination. The courts would not go
beyond that point. In the present appeals, there is no law, or any statutory
provision laying down the criteria or the principles which must be followed,
or which must guide the determination of rates of royalty. No doubt, any
arbitrary action taken by the State would be subject to the scrutiny by the
courts because arbitrariness is the very antithesis of rule of law. But this
does not mean that this Court would act as an appellate authority over the
determination of rates of royalty by the government. Government is the
owner of the products. While it had agreed to supply a particular quantity
every year for specified period, it had never agreed to supply at a particular
rate; not did it stipulate with the mill owners the basis upon which it would
determine the rates of royalty. It is open to the government to fix such price
as it thinks appropriate having regard to public interest, which interalia,
may include interest of revenue, environmental, ecology, the need of mills
and the requirements of other consumers. The price is not to be fixed
keeping in mind the requirements of the mills alone.
16. We could have ended our enquiry at this point but since the appeals
were argued at great length and the point was examined by the High Court
as well, we proceed to examine the correctness of the contentions raised by
Shri Shanti Bhushan in this regard. G.O.Ms.No.538 dated 4.11.1981 recites
the following facts:
"On a review at the end of the quinquennium
1975-80 in respect of the rates of royalty on
bamboo and wood, the Chief Conservator of
Forests submitted proposals in February and June,
1980 suggesting Rs.425/- per MT for bamboo and
Rs.75 per MT for mixed hard wood to be supplied
from natural forest, based on the minimum cost of
production as per the policy accepted by the
Central Board of Forestry.
2. To consider the factors relating to the
fixation of royalty rates on the forest produce to be
supplied to the wood based industries on a
sustained basis and to make recommendations to
the Government, a Committee was constituted
consisting of:
1
Secretary to Government,
Forests & Rural Develop-
Ment Department
Chairman
2
Joint Secretary, Industries
& Commerce Department
Member
3
Deputy Secretary, Finance
& Planning Department
Member
4
Managing Director, A.P.
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Forest Development Corpn.
Member
5
Chief Conservator of
Forests
Member/
Secretary
The Committee requested each of the wood
based industrialists to present their views. After
hearing their views, the Committee also called for
such additional information as they would like to
place before the Committee. The information
made available to the Committee by the
Industrialists was also considered by the
Committee. Besides, the Committee took note of
the following relevant factors relating to the supply
of forest raw material for wood-based industries,
namely:-
(i) Forests are no longer naturally renewable
resources but have been rendered wasted
assets due to over-exploitation without
corresponding regeneration, resulting in
serious environmental and ecological
imbalance.
(ii) The forest resources in Andhra Pradesh are
heavily depleted over the years resulting in
heavy shortages of raw materials for the
wood-based industries.
(iii) If the raw material is regenerated within the
State itself over a period of time, it will not
only ensure sustained supplies but it will
also aid such industries getting part of their
supplies now from distant States to save the
heavy transportation cost.
(iv) To reduce the pressure on reserve forests
increasing to almost alarming proportions,
replacement or regeneration coupled with
improved management, should be at least as
fast as the pace of exploitation.
(v) The depletion of wood resources due to over
exploitation is so acute that an analysis of
the potential for pulp and paper industries
development upto the year 2000 Ad.
prepared by the pulp and paper Industries
Development Programme of the United
Nations, Rome, in February 1980, does not
indicate any additional capacities in Andhra
Pradesh, in view of the fact that the existing
wood resources are already over-strained.
(vi) If raw material supply to the wood-based
industry is to be ensured on a sustained
basis, the depleting trend has to be recovered
by putting back into Nature, what is taken
out of it.
(vii) The cost of other inputs in paper
manufacture, such as chemicals, dyes, coal,
furnace, oil, etc. over the years, has been on
the increase due to market prices, while the
royalty rates on forest produce were pegged
to law level neglecting the need for adequate
finances to take up plantations for sustained
supplies.
(viii) The need for raising new plantations and
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improved management of the forest call for
heavy investment and the rates of royalty
have to necessarily be adequate to meet the
cost and improve finances to ensure
sustained supply of raw material to wood-
based industries.
(ix) The experience in implementing bankable
plantation schemes refinanced by
Agricultural Refinance & Development
Corporation has to be kept in view in fixing
the rates of royalty since such schemes are
financed on long term basis by A.R.D.C. on
well established principles."
17. Reading of G.O.Ms. shows that the government has accepted the
report of the Committee implicitly. It would, therefore, be instructive to
examine the report of the Committee, which is a part of the record.
Relevant portions of the report of the Committee has been verbatim taken
and reproduced in the G.O. which has been reproduced in the previous
paragraph.
18. We have gone through the report of the Committee in fixation of the
rates of royalty. The committee took into consideration the status of the
paper industry in the country and in the State of Andhra Pradesh.
Thereafter the Committee proceeded to examine the various alternative
methods for fixing the rates of royalty. It was noted that the Committee did
not come across any norms evolved so far anywhere in the country for
determining the rates of royalty when captive forest resources are offered by
the State to the industry. They referred to a study by the Central Board of
Forestry(1973) in which the Central Board of Forestry commended the
guiding principle as follows:
"The incentive of the produce be kept alive and a
proper price be paid for the raw material which
will enable the Forestry sector to carry out the
needed maintenance and improvement of natural
forests as well as grow plantations which are
economically viable from the point of Forestry
Sector."
19. After examining the various methods including the past rates, rates
prevalent in the neighbouring States, administrative cost/expenses on
silvicultural needs, market price, cost of production of paper, replacement
cost for manmade forest material, market price as royalty etc., it adopted the
method of replacement cost to be the guiding principle for fixing the rates of
royalty. The relevant factors which prevailed with the committee for
adopting the regeneration/replacement cost method were detailed in the
report which have been referred to and reproduced by us in this judgment.
It would be noted that the committee came to the conclusion that forests are
no longer naturally renewable resource but have been rendered wasted
assets due to over-exploitation without corresponding regeneration, resulting
in serious environmental and ecological imbalance. To reduce the pressure
on reserved forests, increasing to almost alarming proportions, replacement
or regeneration coupled with improved management, should be at least as
fast as the pace of exploitation. The forest resources in the State of Andhra
Pradesh depleted over the years resulting in heavy shortages of raw materials
for the wood-based industries. In order to ensure the supply of raw material,
on sustained basis, the depleting trend could be arrested by putting back into
nature, what was taken out of it. After taking into consideration the cost of
inputs neede d for raising the new plantations, the cost of other inputs in
paper manufacture, the need for raising new plantations and improved
management of the forest call for heavy investment and to generate enough
resources to meet the cost and improve finances to ensure sustained supply
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of raw material to wood-based industries and the experience in
implementing bankable plantation schemes refinanced by Agricultural
Refinance & Development Corporation the Committee made
recommendations indicating an over all rate of Rs.284/- per Metric Tonne
for bamboo and Rs.135/- per Metric Tonne for hard wood as the rates of
royalty for the next five years beginning from 1980. The rates of royalty of
Rs.284/- per Metric Tonne for bamboo and Rs.135/- per Metric Tonne for
hard wood were arrived at by an involved process which is indicated in the
report, which to us seems to be fair and reasonable. The Government did
not arrive at the rates of royalty in an arbitrary manner. It had appointed a
Committee of experts which went into the question of fixation of rates of
royalty in great detail and after examining the different methods adopted/
accepted the ’regeneration’ or ’replacement’ cost of the wood as the
reasonable criteria for fixing the rates of royalty. The Government
thereafter considered the report and accepted the same. It cannot be said that
the method adopted or the price determined was either arbitrary or
unreasonable. To us, it seems to be reasonable, fair, realistic and keeping in
mind the requirement of the wood for the future generations as well.
20. We cannot agree with the contention urged by some of the
counsel appearing for the appellants that since what is sold to the appellants
is natural growth (bamboo), the replacement cost should not be the criteria
for fixing the rates of royalty. Not only can be the replacement cost be the
criteria, but the State can fix the price keeping in mind several other factors,
like public revenue, ecology and environment, availability of forest produce
in future, the need of other consumers and some other such relevant
considerations.
21. Though the Committee had arrived at flat rates of royalty of
Rs.284/- and Rs. 135/- per Metric Tonne for bamboo and hard wood
respectively for the entire quinquennium period of 1980-85, the Committee
suggested that instead of fixing the uniform flat rate for the entire
quinquennium it is desirable to fix royalty at a sliding rate with annual
increases limited to the prevailing interest rates starting from Rs. 210/-per
metric tonne for bamboo and Rs. 100/- per metric tonne for hardwood for
the base year 1980-81. The Government could have fixed a higher royalty
rates applicable for the entire period but thought it is better to fix a lower
rates in the beginning and gradually increasing it in the final year as by that
time selling price of paper will also increase as was noted by the general
trend. We do not agree with the contention raised by Shri Shanti Bhushan
that the Government could not fix the sliding rates especially in view of the
fact that the rates of royalty for the 1980-85 was fixed for Rs. 284/- per
metric tonne for bamboo and Rs. 135/- per metric tonne for hardwood which
was reduced to Rs. 210/-per metric tonne for bamboo and Rs. 100/- per
metric tonne for hardwood for the base year 1980-81 with gradually
increasing at the bank rates for the coming years. Since the rates of royalty
was reduced for the base year from the suggested price it shows the fairness
on the part of the State Government in dealing with the appellants. This was
done for the benefit of the appellants and perhaps at their instance.
22. For the reasons stated above, we do not find any infirmity in
the impugned judgment, accordingly, the appeals are dismissed. The
interim order granted by the High Court, which was later on permitted to be
continued by this Court, stands vacated. The State Government is put at
liberty to encash the Bank Guarantee and recover the amount due to it from
the appellants in accordance with law. No orders as to costs.