Full Judgment Text
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PETITIONER:
K.N. OIL INDUSTRIES AND ANR.
Vs.
RESPONDENT:
STATE OF MADHYA PRADESH AND OTHER
DATE OF JUDGMENT: 09/07/1997
BENCH:
G. N. RAY, G. T. NANAVATI
ACT:
HEADNOTE:
JUDGMENT:
WITH
CIVIL APPEAL NO. 4313 of 1997
(Arising out of S.L.P.[C] No. 19796 of 1995)
J U D G M E N T
G.N. RAY, J.
Leave granted. Heard learned counsel for the parties.
All the three special leave petitions namely S.L.P.
(Civil) No. 19729 of 1995, S.L.P. (Civil) No. 20137 of 1995
and S.L.P. (Civil) No. 19796 of 1995 are directed against
common judgment dated 9.5.1995 passed by the Madhya Pradesh
High Court respectively in Misc Petitions No. 1371 of 1992,
M.P. No. 1980 of 1992 and M.P. No. 2315 of 1992. All the
said Misc Petitions were filed before the Madhya Pradesh
High Court under Article 226 of the Constitution challenging
the legality and validity of agreements made by the State
Government of Madhya Pradesh with M/s Bastar Oil Mills and
Industries Ltd. and M/s Sal Udyog (Pvt.) Ltd. for supply of
sal seeds grown in the State of Madhya Pradesh on payment of
determined royalty by alleging inter alia that the writ
petitioner namely K.N. Oil Industries and M.P. Oil
Extraction Ltd have been subjected to hostile discrimination
in the matter of grant of laregesse so far as distribution
of sal seeds in concerned by favourably treating the said
Bastar Oil Mills and Industries Ltd. and M/s Sal Udyog
(Pvt.) Ltd. thereby affecting the economic viability of the
writ petitioner. It may be indicated here that before the
said writ petitions were filed in the Madhya Pradesh High
Court, as series of litigations were fought between the
parties to these appeals both in the Madhya Pradesh High
Court and in this Court. In 1981, the appellants M.P. Oil
Extraction Limited and K.N. Oil Industries filed writ
petitions numbered as M.P. No. 559 and 1404 of 1981, in the
Madhya Pradesh High Court challenging the agreement between
Bastar Oil Mills and Industries Ltd. and Sal Udyog (Pvt.)
Ltd. and State government of Madhya Pradesh of distribution
of specified amount of Sal seeds to the said concerns
annually by alleging hostile discrimination against the said
writ petitioner in the matter of distribution of sal seeds.
Such writ petitions were dismissed by the Division Bench of
the High Court by order dated 21.8.1981. The said decision
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has been reported in AIR 1982 M.P. 1. Against the said
decision, both the writ petitioners filed special leave
petitions before this Court in which leave was granted in
C.A. No. 2994 and 2295 of 1982. In terms of the interim
order dated 5.5.1982 and 6.5.1983, the State of Madhya
Pradesh has to supply 5000 M.T. of sal seeds in favour of
each of the said appellants namely M.P. Oil Extraction
Limited and K.N. Oil Industries in 1982 and 1983. M/s Bastar
oil Mills and Sal Udyog (Pvt.) Ltd. did not receive the
contractual quality of sal seeds in the said years. It,
however, appear that after obtaining the said interim orders
on two occasions, both the appellants withdraw C.A. Nos.
2994 and 2995 of 1982 and the said appeals stood disposed of
and the impugned judgment of the High Court become final. It
may be state here that under separate agreements by the M.P.
State Government, both the appellant namely M.P. Oil
Extraction and K.N. Oil Industries got reservation of 13 to
17 sal seeds producing forest units in their favour. Such
reservation of forests was challenged before the High Court
in M.P. No. 261 and 266 of 1980 and by judgment dated
25.9.1980 the Division Bench of M.P. High Court allowed the
writ petitions and set aside the said agreement for
reservation of forests in favour of the appellants. During
the year 1983, both the appellant against managed to get
reservation and allotment of 7500 M.T. of sal seeds per
annum under two separate but identical agreements dated
12.12.1983 from the State Government for a term of 12 years.
Such agreement were challenged by M/s General Foods Private
Limited in M.P. No. 1364 of 1964 before the M.P. High Court.
A Division Bench of High Court by order dated 11.6.1985
quashed the said agreements executed in favour of both the
appellants. It may be indicated here that before the said
agreements were annulled by the High Court, the appellant
got 7500 M.T. of Sal seeds per annum for the years 1984 and
1985 in terms of the said invalid agreements. The
respondents Bastar Oil Mills and M/s Sal Udyog (Pvt) Ltd has
to receive much lesser quantity of sal seeds which were due
to them in terms of the agreements made in their favour.
Both the appellants moved special leave petitions
before this Court assailing the said judgment dated
11.6.1985 of the High Court. Such leave petitions were
disposed of by this Court by order dated 10.4.1986 (reported
in AIR 1986 SC 1927). By the said order, this Court upheld
allotment and reservation of sal seeds in favour of Bastar
Oil Mills and M/s Sal Udyog (Pvt) Ltd and M/s Allied Oil
Industries (Pvt) Ltd and M/s M.P. Glychem Industries being
the four units selected by the State Government of Madhya
Pradesh under the 1977 Industrial Policy. It appear that
after all such futile attempts, the appellant did not give
up their pursuits to get allotment of sal seeds from the
Government. In 1986, both the appellants filed two separate
but identical writ petitions being M.P. No. 645 and 644 of
1996 challenging the reservation and allotment of 10,000
M.T. of sal seeds in favour of M/s M.P. Glychem Industries
which was also selected under 1977 Industries Policy. Such
writ petitions were also dismissed by the High Court by
order dated 6.5.1986. Thereafter, the writ petitions were
again filed by both the appellants challenging the renewal
of lease in favour of the respondent M/s Bastar Oil Mills
and M/s Sal Udyog Pvt. Ltd. by treating such renewals as new
leases and also challenging the determination of royalty to
be paid for the sal seed to be supplied to the respondents.
Such writ petitions have also been dismissed by the Division
Bench of Madhya Pradesh High Court and the present appeals
are direct against the decision of the High Court passed in
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the said writ petitions.
Mr. Sanghi, the learned Senior counsel appearing for
the appellants K.N. Oil Industries has submitted that the
appellant has set up their first solvent extraction plant in
1966 using bran rice as raw material. The appellant made
suitable modification in their plant for processing of sal
sees and also set up a new plant for extraction of sal seeds
vide letter dated 24.1.1970 of the State Government to the
effect :-
"Since sal seeds are available in huge quantity in
nearby ares, spare capacity of your plant, if any be
utilised after modification in the existing plant."
The appellant have been using sal seeds and rice bran
as raw material, alternatively in their solvent extraction
plant from 1973 onwards. As the availability of sal seeds
was seasonal and limited, no solvent plant could exclusively
depend on sal seed for running its business.
Mr. Sanghi has contended that the Industrial Policy
laid down by the M.P. Government in 1977 envisaged supply of
sal seeds to the new units as well as to the existing old
units. Such position has been noticed by the High Court in
its decision reported in AIR 1982 MP 1 at page 3. The said
Industrial Policy also laid down that new units should be
encouraged to set up their plants with concessions during
the initial period for a period of 5 to 10 years. Such fact
has also been noticed by the High Court in its decision
reported in AIR 1982 MP 1 page 2. Mr. Sanghi has submitted
that the said industrial Policy was framed on the basis of
expert committee’s finding that the estimated annual sal
seed potential is over 10 lacs M.T. The said Industrial
Policy was modified in 1981 by making reservation for sal
Udyog and Bastar Oil Mills as new units and the surplus to
be sold in auction.
Mr. Sanghi has further contended that the agreements in
favour of Bastar Oil and Sal Udyog for supply of 10,000 M.T.
of Sal Seeds were entered in the year 1979 on the premises
of the expert committee’s findings as already indicated.
Both the agreements were to subsist for a period of 12 year.
Mr. Sanghi has submitted that average yield per year as per
the State Government’s estimate is around 60,000 M.T. After
meeting the commitments of the State Government, the
available surplus was only in the region of 37000 M.T. of
sal seeds. Inspite of the fact that annual yield of sal
seeds in the State of M.P. for the year 1990 and 1991 was
4768 M.T. and 190809 M.T. respectively, the State Government
treated Bastar Oil Mils and Sal Udyog (Pvt) Limited as most
favoured industrial concerns and executed fresh agreement
for a further period of 12 years with effect from 1991. The
agreements contains provisions for further renewal. In the
case of Baster Oil Mills the quantity was increased to
20,000 M.T. while in the case of Sal Udyog (Pvt) Ltd. the
quantity was fixed at 10,000 M.T.
Mr. Sanghi has contended that as a result of such fresh
agreements with Bastar Oil Mills and Sal Udyog the state
Government is now committed to supply annually sal seeds
grown in the State of M.P. in the following manner:
i) Baster Oil Mills - 20,000 M.T.
ii) Sal Udyog - 10,000 M.T.
iii) Allied Oil Mills - 10,000 M.T.
iv) M.P. Glychem - 10,000 M.T.
-------------
Total 50,000 M.T.
Mr. Sanghi has contended that the State Government
being fully aware of the availability of sal seeds in 1991
which was a meagre 19809 M.T. acted mala fide in treating
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only few of the industrial units of the State in a very
favoured manner by entering into fresh agreements for supply
of 50,000 M.T. of sal seed to the new units. Such action has
amounted to deliberate hostile action in ensuring non
availability of sal seeds for distribution, to other units
operating in the State of Madhya Pradesh including the
appellants. Such hostile discrimination is clearly violative
of Articles 14 and 19 of the Constitution of India.
Mr. Sanghi has further contended that there is no
earthly reason to be completely oblivious of the need of
other industrial units operating in the state which also
require sal seeds for their units. The need of old units was
recognised by this Hon’ble Court when it directed the State
Government to allot 5000 MT to both the appellant by interim
order dated 6.5.1982. The appeals were disposed of by this
Court on 10.4.1986 and the matters were remanded to M.P.
High Court for determining the basis of distribution of sal
seeds among the old units. On remand, the High Court by
order dated 18.10.89 held that the surplus would be
distributed amongst old units on the basis of their
capacity. In order to perpetuate the hostile discrimination,
the State Government entered into fresh agreements thereby
ensuring that there would be no surplus to be distributed to
old units like the appellants.
Mr. Sanghi has also contended that the State Government
was fully aware of the need of sal seeds for the old units
like the appellants. As as matter of fact, considering the
hardship of the appellants in not getting regular supply of
sal seeds from the Government, the State Government entered
into agreements with the appellants in 1983 of supply of
7500 M.T. of sal seeds per year for 12 years. Unfortunately
such agreements were cancelled by the High Court on a
finding that there was no justification for any concession
to the old units.
Mr. Sanghi has submitted that even in the Industrial
Policy of 1977, the State Government recognised the need of
sal seeds by the old units like the appellants and its was
clearly stipulated in the Industrial Policy that sal seeds
should be made available to both old and new units. Even in
1981 when the old policy of 1981 was revised it was
indicated that after meeting the annual allotments of 10000
M.T. of sal seeds to Bastar Oil Mills and Sal Udyog (Pvt)
Ltd., the surplus should be allotted to the old units. ON
the face of actual availability of sal seeds in the State,
and after recognition of the need of sal seeds by old units
and accepting such need in the industrial policy of 1981,
fresh agreement in favour of Bastar Oil Mills and Sal Udyog
(P) Ltd. in 1991 are wholly unjustified and mala fide and
illegal being vitiated with arbitrariness and abuse of power
by discriminatory action in the matter of distribution of
sal seeds to other industrial units operating in the State.
Mr. Sanghi has further submitted that Bastar Oil Mills
and Sal Udyog (P) Ltd. got preferential treatment ever since
1979 onward for a period of 12 years by way of assured
supply of sal seeds by the State Government on the footing
that the said concerns were new units and deserved special
protection by the State for some time. But after 12 year,
both the said units can no longer be treated as new units
for the purpose of receiving preferential treatment. Hence,
at the present moment, all the units in the State must be
treated at par and the agreement in 1991 in favour of the
said units must be held as wholly unjustified and illegal
and should be struck down.
Mr. Sanghi has contended that the agreements in 1979
with the said units for 12 years had a clause for renewal.
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In the new agreements of 1991 there is also clause for
renewal. The result is that there has been assured supply of
sal seeds in favour of the said units in perpetuity to the
total exclusion of the other units. Mr. Sanghi has submitted
that the State Government cannot be permitted to treat some
units in the State more favourably that other in the absence
of any strong and valid reason for such discriminatory
treatment. Law settled that in the matter of distribution of
largesse, the State Government is bound to act fairly and
reasonably and cannot resort to hostile discrimination
against some units and treat some other units with undue
favour when all the units must be treated as old units and
therefore similarly circumstanced.
Mr. Sanghi has contended that even in the matter of
royalty to be paid by the said respondent, there has been
naked favouritism. The royalty to be paid by the said
respondent for the sal seed to be supplied by the State
government under the impugned agreement is absolutely
minimal and much less than the auction price for sal seed.
In view of such paltry royalty payable by the said
respondent, the respondents, the respondents are not only
getting assured supply of sal seeds from the State
Government but they are getting such supply almost at a
throw away price. As a result, the appellants are facing
unjust competition from the said favoured child of the State
Government. Mr. Sanghi has, therefore, submitted that the
appeals should be allowed and the impugned agreements in
favour of the said respondent should be set aside. This
court should also direct the State Government of Madhya
Pradesh to distribute sal seeds to all the existing units
which require sal seeds for their units on the pro rata
basis with reference to their productive capacity and actual
annual requirement.
Mr. Kale, the learned senior counsel appearing for the
appellant M.P. Oil Extraction Limited has supported Mr.
Sanghi in his submissions. Mr. Kale has contended that by
the impugned agreement, the State Government has given
largesse to the said respondents without inviting any tender
and excluding the appellant from obtaining any allotment of
sal seeds from the government even thought the appellant
badly requires sal seeds for its productive activity and it
has set up extraction plant long back after examining
economic viability with reference to availability of sal
seeds in the State of Madhya Pradesh as assured by the State
Government. Mr. Kale has submitted that the appellant has
been using sal seeds ever since the extraction plant of the
appellant was commissioned in 1974.
Mr. Kale has submitted that sal seeds is a seasonal
natural forest produce grown in the Government forests in
M.P. The production of sal seeds varies from year to year.
According to the Government’s calculation, the average yield
of sal seeds for the last seven years from 1985 to 1991 is
36950 M.T.
If the average production of sal seeds from 1974 to
1990 i.e a period of 18 years is taken into consideration,
it works out to be 40600 M.T. Sal seeds as a forest produce
was brought under the monopoly of the State Government with
effect from May 5, 1975 under M.P. Vanopaj (Vyapar
Viniyaman) Adhiniyam, 1969. After 1975, the plant of the
appellant and other existing plants were totally dependent
on the State Government of M.P. for supply of sal seeds as a
raw material. Sal seeds used to be sold by auction or by
invitation of tender. The oil content of sal seeds was being
used as a raw material for extraction of oil. The collection
of sal seeds is made by tribal residing in forest area and
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collection season is from 3rd week of May upto onslaught of
monsoon.
Mr. Kale has also submitted that the State Government
of M.P. formulated a detailed policy in 1978 know as "Raw
material policy for forest based industries." The basis
object of industrial policy was to provide for assured
supply of raw material to such industries as are employment
oriented. The said policy envisaged assured supply to the
industrial units established within the State and to prevent
its drain outside the State. The policy of 1978 was made for
the maximum utilisation of forest resources within the State
and did not speak of industrialisation of any particular
area whether backward or otherwise.
Mr. Kale has further contended that the State
Government invited application for setting up extraction
plants on the assurance for supply of 10000 M.Ts of sal
seeds annually for a period of 12 years. Pursuant to such
invitation the following two agreement were executed in
1979:
i) Agreement in favour of M/s
Bastar Oil Industries Ltd. whose
plant is situated in Jagdalpur on
5.10.1979.
ii) Agreement dated August 30, 1979
in favour of M/s Sal Udyog Pvt.
Ltd. Its plant was situated in the
Industrial Estate, Raipur.
The rate of royalty was fixed at Rs. 300/- and the rate
was fixed Rs. 312.50 per mt. respectively.
The State Government invited applications from
entrepreneurs for establishing three extraction plants on
the basis of similar assurance of supply of 10000 MTs. of
sal seeds annually for a period of 12 years.
Mr. Kale has contended that the two agreement with the
M/s Sal seeds Udyog Pvt. Ltd. and Bastar Oil Mills were
challenged by contending that the two agreement has resulted
in discrimination against the appellant because no sal seeds
would be left of the existing plants including that of the
appellant as the average annual yield of sal sees was only
54000 M.T. Such Writ Petitions were, however, dismissed by
the High Court inter alia on the finding that classification
between the old plants (existing plants) and the new plant
was justified. The contention of the appellant that no sal
seeds would be left for allotment to the other existing
plants was repelled on the ground that the estimated
production of sal seed in the State was to the tune of one
lac M.T. according to the report of the committee on the
Industrial Policy. The appellant filed special leave
petition against the said decision of the High Court before
this Court and obtained interim orders from this Court to
get supply of 5000 M.Ts. of sal seeds in May, 1982 at the
royalty rate of Rs. 630/- per mt. During the pendency of the
proceeding, the State Government of M.P. formulated another
policy on May 9, 1983. Under the said policy, the estimated
surplus of 20000 M.T. of sal seeds was to be distributed
among the existing plants in proportion of their consumption
of sal seeds during the last five years. In accordance with
the said policy, an agreement was entered between the State
Government and the appellant in December, 1983 for supply of
7500 M.T. of sal seeds to the appellant at the royalty rate
of Rs. 750/- per M.T. for a period of 12 years. Such
agreement was, however, challenged by M/s General Foods Pvt.
Ltd. of Indore on the ground of discrimination between the
existing plants. The High Court quashed the said agreement.
The High Court gave the direction for distribution to their
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capacity. The High Court also held that the rate of royalty
of Rs. 750/- per M.T. was concessional rate. Such decision
of the High Court was challenged by the appellant before
this Court and the matter was remanded to the High Court and
was finally disposed of by the High Court on October 18,
1989. The High Court directed for making equal distribution
of sal seeds to the existing plants. It was noted by the
High Court that tremendous increase in demand of sal seeds
coupled with short supply and non-availability in the open
market due to the State monopoly, had resulted in heated
rivalry among the industrial units.
Mr. Kale has submitted that the market price of sal
seeds has two components, namely, royalty and collection
charges. In 1979, royalty rate was Rs. 300/- per M.T. and
such rate was concessional. In 1983, the rate of royalty was
Rs. 750/- per M.T. and in the agreement dated September 12,
1983 in favour of the appellant, the rate of royalty was
fixed at Rs. 750/- per M.T. In the agreement in favour of
the appellant Allied Oil Industries in 1983, the rate of
royalty was fixed by the State Government at Rs. 1030/- for
the block period of two years from November, 1987 and
November, 1989. Such fixation, however, was set aside
because the price was not fixed in accordance with the
clause 7 of the agreement in favour of M/s Allied Oil
Industries by the High Court in Misc. Petition No. 1653 of
1988. The appellant had offered to purchased sal seeds in
1988 on August 27, 1988 at the total rate of Rs. 2250/- per
M.T. The rate of royalty works out to be Rs. 700/- per M.T.
For the year 1991 the appellant offered to purchase sal
seeds at the royal rate of Rs. 1200/- per M.T. The appellant
also offered to purchase sal seeds at a royalty of Rs.
1225/- per M.t. Mr. Kale has submitted that fixation of the
rate of royalty in favour of M/s Bastar Oil Industries at a
ridiculously low rate of Rs. 400/- for the period of two
years and with a stipulation for increase at the rate of 5%
thereafter is wholly arbitrary, unjustified and
discriminatory. Such agreement is also against the interest
of the revenue of the State. Mr. Kale has contended that by
fixing such a law rate of royalty, the State Exchequer has
incurred a loss of crores of rupees. Such fixation of rate
of royalty itself is arbitrary as the rate of royalty will
depend on the rate of demand and supply in market of sal
seeds. Mr. Kale has also submitted that the impugned
agreement dated September 7, 1991 has resulted in a hostile
discrimination against the existing plants. The State
Government has raised the quantity of sal seeds from 10000
M.T. to 20000 M.T. in favour of Bastar Oil Mills and by
similar agreement the State Government has agreed to supply
sal seeds of 10000 M.T. to Sal Udyog. The said Sal Udyog is
not situated in any backward area. It is situated in the
industrial stated at Raipur and the unit of the appellant is
also situated very close to that of Sal Udyog.
Mr. Kale has supported the contention made by Mr.
Sanghi that after meeting the demands in favour of Baster
Oil Industries, M/s Allied Oil Industries, M/s M.P. Glychem,
no sal seed would be left for being sold to the existing
plant. Mr. Kale has submitted that therefore the impugned
agreement have resulted in monopoly of getting sale seeds by
the said respondent. Mr. Kale has contended that the
executive action in 1991 in entering into fresh agreements
after being fully aware of the supply position of sal seeds,
in favour of the respondents with a further renewal clause,
is patently unjust and has resulted in monopoly without any
just cause and reasonable basis. Mr. Kale has contended that
the appellant and other existing units in the State have a
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right to be considered fairly and reasonably for the
distribution of sal seeds by the State Government in a
reasonable and unbiased manner. He has, therefore, submitted
that the impugned agreement should be cancelled by this
Court and the State Government should be directed to
distribute sal seeds to all the existing units on a pro rate
basis.
Dr. A.M. Singhvi, learned senior counsel appearing for
the respondent M/s Sal Udyog Pvt. Ltd., has disputed the
contention of the appellant. Dr. Singhavi has contended that
there is a fundamental difference between the two categories
of industries operating in the State of Madhya Pradesh using
sal seeds for production i.e. those which have a specific
agreement with the State of Madhya Pradesh entered into
under the mandate of the specific policy inviting new
entrepreneurs to the State and execution of special
agreement with them after selection as opposed to the second
category which consists of together units existing prior to
the policy not selected by the government of Madhya Pradesh
and having no privacy of agreement or contract with the
State of M.P. Such specific dual classification of users of
sal seed for productive activity have been repeatedly
recognised and judicially upheld as valid in a number of
decisions rendered between the same parties. In support of
this contention, Dr. Singhvi has drawn the attention of this
Court to the decision in M.P. Oil Extraction Pvt. Ltd.,
Raipur and Anr. Vs. State of M.P. and Ors. (AIR 1982 M.P. 1)
M/s K.N. Oil Industries etc. Vs. Secretary to Ministry of
Forest, Bhopal and Ors. (AIR 1986 SC 1927 para 4), M/s K.N.
Oil Industries and Anr. etc. Vs. State of M.P. and Ors. etc.
(AIR 1986 SC 1929). The said judicial pronouncements
categorically upheld the classification users of sal seed
into two categories. The Courts have also upheld the
agreement in favour of the respondent as well as the
reservation of specific quantity of sal seeds in favour of
those units having agreement and the provision of
concessional rate for such units during the first four years
of agreement. Dr. Singhvi have also contended that since
such agreement in question in the present case were also the
subject matter of challenge in the earlier proceeding and
fell for scrutiny and adjudication by the Court in the
earlier proceedings which ultimately upheld the entire
contract including the renewal clauses, there is no occasion
for the appellants to challenge the said contract and the
renewal clauses collaterally. By the impugned decision, such
challenge has been rightly rejected by the High Court.
Dr. Singhvi has also contended that all contention
regarding the impugned agreement and the clauses in the
agreement have been upheld. Therefore repeated challenges to
different clauses of the agreement are precluded. Dr.
Singhvi has also submitted that even if it is assumed that
particular argument regarding the validity of any clause of
the agreement was not specifically raised or specifically
considered, such a plea at a subsequent stage is precluded
and barred by principle akin to res judicate and
constructive res judicate. In support of such contention,
reliance has been placed on the decisions of this Court in
Smt. Somawanti & Ors. etc. Vs. State Punjab and Ors. etc.
(AIR 1963 SC 151 para 22), State of U.P. Vs. Nawab Hussain
(AIR 1977 SC 1680 para 8), Mohd. Ayub Khan Vs. Commissioner
of Police, Madras & Ors. (AIR 1965 SC 1623), Narayanrao Vs.
State (AIR 1981 Bombay 271 para 13, 15 = 1973 SC 973 para
10).
Dr. Singhvi has also submitted that since the renewal
clause was necessarily upheld being part of the agreement
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and the agreement was upheld in successive proceeding, the
present case does not per se raise any issue of Article 14
relating to the validity of the renewal clause. Dr. Singhvi
has submitted that at the highest, the case of the appellant
cannot be said to be higher than a challenge under Article
14 or under common law principle of judicial review of
administrative action, namely, to the actual discretionary
act of renewal in September, 1991.
Dr. Singhvi has submitted that such challenge should be
considered in the context of fundamental difference in the
two categories of units consuming sal seed in their plants
and the difference have already been recognised. Since the
validity of the contract including the renewal clause itself
is upheld as binding by judicial verdict, the actual
exercise of power of renewal cannot be held to be arbitrary
because such renewal clause was essentially necessary had
inevitable to give effect to the protection for which
agreement has been made. Dr. Singhvi have contended that
unless significance and material facts and circumstances
demonstration the violation of administrative discretion by
recourse to irrelevant considerations or on perverse or
unreasonable criteria are established by the appellant, such
exercise of administrative discretion cannot be invalidated.
Dr. Singhvi has submitted that the appellant have failed to
demonstrate any such fact, even remotely, as vitiating the
exercise of the actual power of renewal. Dr. Singhvi has
submitted that principle of administrative discretion and
judicial review have been clearly indicated in the decision
of this Court in Barium Chemicals Ltd. and Anr. Vs. Company
Law Board and others (AIR 1967 SC 295), C.I.T. Bombay Vs.
Mahindra and Mahindra (AIR 1984 SC 1182 para 11), State of
U.P. Vs. Renu Sagar (AIR 1988 SC 1737 para 83). Dr. Singhvi
has also submitted that the renewal clause is divisible and
severable into i) the act of renewal itself and ii) the
actual terms and conditions upon which the renewal is
granted. The latter follows only upon the prior and
threshold decision regarding the former.
Dr. Singhvi has contended that not only the agreement
in favour of the four units including the respondents M/s
Sal Udyog Pvt. Ltd. and M/s Bastar Oil Mills under the
Industrial Policy of the State have been upheld in the
earlier proceeding but equally the agreements dated November
16, 1983 and December 12, 1983 purported to be entered into
by the State of M.P. with both the appellants namely K.N.
Oil and M.P. Oil Extraction Ltd. respectively have been
struck down and held to be constitutionally invalid. The
decision of the Division Bench in M.P. No. 1364 of 1984 has
been upheld by this Court in M/s K.N. Oil Industries and
Anr. Vs. State of M.P. & Ors. (AIR 1986 SC 1929) Dr. Singhvi
has also submitted that it is significant to note that the
agreement with the appellant since struck down contained an
identical renewal clause and the appellants gladly accept
such renewal clause in the agreement in their favour though
such agreements being illegal for different reasons were
struck down by the court. Dr. Singhvi has further submitted
that the renewal clause must give some kind of protectable
right, interest or claim to the grantee, additional to the
right available to a person without any renewal clause at
all. The renewal clause has to be given some meaning, effect
and scope and cannot be rendered superfluous, otoise or
redunant.
Dr. Singhvi has also submitted that the existence of
the renewal clause in the context of the classification of
two categories of the industrial units as already explained
must itself and necessarily lead to the exclusion of all
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other form of public dealing like tender, auction etc. As
long as the classification and the reservation made in
favour of units invited under industrial policy along with
the agreement with renewal clause are upheld, the act of
renewal cannot be invalidated on the ground of absence of
invitation of tender or holding auction. Dr. Singhvi has
submitted that in the present case, the power of negotiation
stood conferred and tender/auction stood automatically and
necessarily excluded from the very date of the two contract
in 1979 which contained the renewal clause. Dr. Singhvi has
further submitted that in any event, it is well established
that tender/auction is not the only or sole method of
distribution of state largesse. Even in the absence of
specific contracts or agreements, state largesse may be
dealt with by negotiation and not thought tender or auction.
In support of the contention that in appropriate case by
negotiation state largesse can be dispensed with Dr.
Singhvi has relied on the decisions of this Court in Kasturi
Lal Vs. J.K. (AIR 1980 SC 1992 para 19, 22), State of M.P.
and Ors. Vs. Nandlal Jaiswal & Ors. (1986 (4) SCC 566 para
38), Sachidanand Pandey and Anr. Vs. State of West Bengal &
Ors. (1987 (2) SCC 295 para 34, 40), Brij Bhushan Vs. J K
(1986(2) SCC 354 para 7) G.B. Mahajan Vs. Jalgaon (1991 (3)
SCC 91 para 26, 43).
Dr. Singhvi has submitted that any act or omission of
the state of M.P. leading to non renewal of the agreements
of the respondents would itself stand vitiated on grounds of
illegal, arbitrary and unsustainable exercise of
discretionary administrative power unless the State of M.P.
is able to establish specific misconduct or any serious
lapse or act or omission by the respondents disentitling the
respondents from the benefit of renewal. Dr. Singhvi has
further submitted that non renewal by the State of M.P.
should fully justify and sustain an action by the respondent
for mandamus to effectuate renewal of agreement. The
"legitimate expectations" of respondents as persons having
agreement with specific renewal clauses which constitute
both a representation and established post practice by the
State of M.P. cannot be denied or thwarted unless
overwhelming and specific higher public interest is shown to
override those legitimate expectations. According to Dr.
Singhvi, this doctrine of ‘legitimate expectations’ operates
in the domain of public law, and is not merely a procedural
right subsumed within the requirement of natural justice or
elementary cannons of fair play. It constitutes a
substantive, enforceable and protectible interest as a facet
of Article 14 itself. The doctrine applies a fortiori and
proprio vigore to cases of contract and renewals thereof.
Dr. Singhvi has submitted that this doctrine has been
specifically recognised, asserted and reiterated by this
Court in the decisions FCI Vs. Kamadhenu (JT 1992 Vol. 6 SC
259), Nav Jyoti Cooperative Society (JT 1992 (5) SC 621),
Union of India Vs. Hindustan Development Corporation (JT
1993 Vol. 3 SC 15). Dr. Singhvi has submitted that as a
matter interpretation, the expression "may" under the
renewal clause two of the agreement should necessarily be
read as "shall". Dr. Singhvi has submitted that the renewal
clause in the instant case, confers a
contractual/administrative power coupled with a duty upon
the authority concerned whose exercise must necessarily be
fair, reasonable and non arbitrary.
Dr. Singhvi has also submitted that the issue of low
rate of royalty raised by the appellants is a red herring
and should be rejected. Dr. Singhvi has submitted that none
of the three revisions of royalty by the State of M.P. at
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Rs. 750/- per M.T. for the 1983-85 block or Rs. 1030/- M.T.
for 1985-87 block or Rs. 1030/- per M.T. for 1987-89 block
have ever been upheld by any Court. These revisions of
royalty had been challenged and the same were scrutinised,
adjudicated and struck down by the Court which has directed
re-determination of the rate of royalty as per the
established weighted average formula. The arbitration as to
rate of royalty in terms of the Court’s order has been held
for determining the royalty on the principle of established
weighted average formula and the royalty has been refixed at
Rs. 300/- per M.T. in place of Rs. 750/-, Rs. 300/- per M.T.
in place of Rs. 1030/- and rs. 294/- in place of Rs. 1030/-
for the three blocks of 1983-85, 1985-87 and 1987-89
respectively.
Dr. Singhvi has contended that the appellants are
making attempts to mislead this Court by suggesting and
arguing as if the weighted average price formula is a
magical formula which is different in nature or content for
the market price. There is no substance in such contention.
The weighted average formula is a known method and modality
of arriving at and determining the market price itself. The
weighted average formula is nothing except the taking of
price received for the sale of sal seeds at different
occasions in different parts of M.P. for the preceding 12
months period and averaging them on the basis of quantum of
seeds sold at those occasions to arrive at the true market
price.
Dr. Singhvi has also contended that the use of word "price"
for sal seeds produce would be highly misleading unless it
is clarified to the court that the total price per M.T. of
sal seeds comprises the following significant components:
i) The collection charges payable
which are notified by the
State and which are intended
to be paid to and realised by
the poor tribals. Collection
charges from an overwhelming
and predominant component of
the total price as is evident
from the chart of collection
charges, for example, when the
royalty in 1991 was Rs.
386.25, collection charges
were as high as Rs. 1675/- to
1775/-.
ii) Royalty which is the amount of
money realised by the State,
apart from collection charges.
This has normally upon
application of weighted
average varied around Rs.
300/- per M.T. and is now
fixed for 1993 season at Rs.
400/- per M.T.
iii) Other expenses and taxes like
transportation etc.
Dr. Singhvi has further submitted that this Court is
not required to determine the true price of sal seeds in the
present proceedings. This Court should not be converted
either into an appellate forum or a price fixation agency by
the appellants. Once the Court is broadly satisfied with the
fixation of prices for 1993 season in the context of the
royalty of Rs. 300/- and Rs. 294/- and Rs. 386/- for the
earlier years and finds that this is broadly reasonable,
fair and based upon valid consideration, the Court would not
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interfere in the exercise of governmental discretion in
matter relating to price fixation or any economic policy
factors. Dr. Singhvi has submitted that the scope of
judicial review of the Court in writ jurisdiction under
Article 226 in matter of economic policy and price fixation
is minimal and highly circumscribed. In support of such
contention, Dr. Singhvi has relied on the decision of this
Court in State of M.P. Vs. Vijay Bahadur Singh (1982 (2) SCC
365), Kasturilal Vs. JK (AIR 1990 SC 1992), India Cement Vs.
Union of India (1990 (4) SCC 356), Sitaram Sugar Company
Ltd. and Anr. Vs. Union of India and Others (1990 (3) SCC
223).
Dr. Singhvi has also submitted that so far as M/s Sal
Udyog Pvt. Ltd. in concerned, the State Government purported
to terminate the original agreement dated 3.8.1979. A
disputed was raised on the question of validity of such
termination of the agreement and the matter was referred to
arbitration initially before a retired Judge of this Court
and latter on to the District Judge. While the arbitration
dispute was pending before the District Judge, Raipur, M/s
Sal Udyog’s term of original agreement expired. However,
during the pendency of the said proceedings, the State
Government of M.P. took up a policy decision that the
agreement of all the four units selected under the 1979
Industrial Policy would be renewed on the same term and
conditions on which the original agreement dated 5.10.1979
had been directed to be renewed. After the said policy
decision dated 13th August, 1991 negotiations were held
between Sal Udyog and the State Government for the amicable
settlement of the said old and long pending arbitration
dispute with the consent of parties. The State government
referred all the matter in dispute arising out of the said
termination to the Nationalised Forest Produce Inter
Department Committee. The said high powered committee, after
thoroughly examining the matter, found the action of
termination illegal and recommended to the State Government
to recall the termination order dated 17.111983 and to renew
the agreement of M/s Sal Udyog. The State Government
accepting the recommendation of the said committee, renewed
the original agreement of Sal Udyog for a fresh term of 12
years. The impugned agreement dated 30.4.1992 executed by
the State Government in favour of M/s Sal Udyog is
essentially not a new or fresh agreement. It is only a
renewal of the original agreement.
Dr. Singhvi has, therefore, submitted that there is no
substance in the contention sought to be raised by the
appellants and the appeals should, therefore, be dismissed
with exemplary cost.
Mr. Anil Diwan, learned Senior counsel appearing for
other respondent, namely, M/s Bastar Oil Mills, has
supported the submissions made by Dr. Singhvi. Mr. Diwan has
also submitted that Bastar Oil Mills Industries has been
established in a backward tribal area of M.P. at Jagdalpur.
The said industrial unit has opened the employment
potentiality for the backward tribal people residing in the
areas. The State Government invited industrial units to be
set up in such backward area and had assured supply of sal
seeds for the plant to be operated in such backward area at
concessional rate. It has been held by the High Court and by
this Court in the earlier proceeding that the respondent,
namely, the Bastar Oil Mills has been rightly treated on a
separate footing on the basis of industrial policy of the
government and there was nothing illegal in such industrial
policy. Mr. Diwan has submitted that classification, on the
basis of geographical consideration, does not offend Article
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14 of the Constitution. For such contention, reliance has
been made to the decision of this Court in Budhan Chaudhary
and Other versus State of Bihar (AIR 1955 SCC 191 para 4, 5,
7), Video Electronics Pvt. Ltd. and Anr. Vs. State of Punjab
(AIR 1990 SC 820 para 1, 36, 38), Goodwill Paint and
Chemical Industry Vs. Union of India and Anr. (1992 Supll. 1
SCC 16). Mr. Diwan has, therefore, submitted that the appeal
should be dismissed with cost.
The learned counsel appearing for the State of Madhya
Pradesh has also disputed the contention made by the learned
counsel for the appellant and it has been submitted by the
learned counsel for the State that the industrial policy was
framed by the State Government after taking into
consideration the relevant facts and there was no
arbitrariness is such policy. Such policy was also taken
into consideration by the High Court and by this Court and
the same was not found to be unreasonable or arbitrary. It
has also been contended by the learned counsel for the State
the production of sal seeds varies from year to year.
Initially it was expected that the production of sal seeds
would be increased considerably so that the demand of the
industrial units in their State would be easily met. But the
estimated target, however, had not been achieved. The State
Government even now reasonably expect that the production of
sal seed will go up. The learned counsel has also submitted
that even after meeting the commitments of the State
Government for supply of sal seeds in terms of the
agreements in force to the selected units, there will be
some surplus of sal seeds for distribution to other units.
The learned counsel for the State has submitted that
for the year 1996 total seeds available to the State is
estimated to be 79359 M.T. A high level committee i.e. Inter
Department Coordination Committee formulated policy for the
distribution of sal seed. Such decision, however, has been
finalised in a meeting presided over by the Chief Minister
of the State. It has been decided in the said meeting that
the surplus sal seeds after meeting the commitments to the
contracted industries for the current year as well as
backlog of past years of 1992, will be disposed of in open
auction by inviting tender from all the industries. The
learned counsel for the State has submitted that even after
meeting such obligation, some amount of sal seeds will be
placed for action and the appellants can participate in such
auction. The learned counsel for the State has also
submitted that the State Government expects that in coming
years, the position may further improve and the old
industries are expected to get larger quantity of sal seeds
from the State Government by participating in the auction to
be held for the surplus quantity. The learned counsel for
the State has, therefore, submitted that there is no merit
in these appeals and the same should be dismissed with
costs.
After giving careful consideration to the facts and
circumstance of the case and to the submissions made by the
learned counsel for the parties, it appears to us that the
industrial policy of 1979 which was subsequently revised
from time to time cannot be held arbitrary and based on no
reason whatsoever but founded on mer ipsidixt of the State
Government of M.P. The executive authority of the State must
be held to be within it competence to frame policy for the
administration of the State. Unless the policy framed is
absolutely capricious and, not being informed by any reason
whatsoever, can be clearly held to be arbitrary and founded
on mere ipsidixit of the executive functionaries thereby
offending Article 14 of the Constitution or such policy
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offends other constitutional provisions or comes in conflict
with any statutory provision, the court cannot and should
not outstep its limit and tinker with the policy decision of
the executive functionary of the State. This Court, in no
uncertain term, has sounded a note of caution by indication
that policy decision is in the domain of the executive
authority of the State and the Court should not embark on
the unchartered ocean of public policy and should not
question the efficacy or otherwise of such policy so long
the same does not offend any provision of the statute or the
Constitution of India. The supremacy of each of three organs
of the State i.e. legislature, executive and judiciary in
their respective field of operation needs to be emphasised.
The power of judicial review of the executive ad legislative
action must be kept within the bounds of constitutional
scheme so that there may not be any occasion to entertain
misgivings about the role of judiciary in outstepping its
limit by unwarranted judicial activism being very often
talked of in these days. The democratic set up to which the
polity is so deeply committed can not function properly
unless each of the three organs appreciate the need for
mutual respect and supremacy in their respective field.
In the instant case, the State Government of M.P.
framed industrial policy in 1979 and thereafter revised the
same from time to time according to felt need. There is no
material on record from which it can be reasonably found
that the same was not informed by any reason whatsoever..
That apart, such policy has been taken into consideration by
the High Court of M.P. and also by this Court in the earlier
proceedings and the industrial policy has not been found to
be arbitrary or capricious. On the contrary, the agreement
made in favour of the appellants was struck down by the High
Court by indicating that unlike other class of industrial
units like the respondents Bastar Oil Mills and Sal Udyog
Pvt. Ltd. which were entitled to special treatment under the
industrial policy, the appellants were not entitled to any
special treatment which was not given to other existing old
industrial units in the State, similarly circumstanced.
It has been held by the High Court that the industrial
units which were commissioned on the invitation of the State
to undertake oil extraction operation on the assurance of
supply of sal seeds by the State, stand on a separate
footing. Such decision of the High Court though challenged
before this Court, has not been upset. The distinctive
feature between the industrial units set up at the instance
of the State Government and old existing units are based on
objective criteria. Therefore, the said two classes of
industries are not similarly circumstanced. Article 14
prohibits discrimination amongst the equals but it should be
appreciated that Article 14 has unbuilt flexibility and it
also permits different treatment to unequals. It may also be
noted here that Bastar Oil Mills is situated at Jagdalpur
which is admittedly a backward and tribal area. The special
treatment given to Bastar Oil Mill by assuring supply of
20,000 M.T. of sal seeds under the impugned agreement cannot
be held to be per se illegal and arbitrary. Classification
on the basis of geographical situation has a rational basis
and has been recognised by this Court as indicated in the
decision referred to hereinbefore. It may also be noted that
the agreement of M/s Sal Udyog was terminated by the State
Government for which reference to arbitration was made in
term of the agreement between the parties. Initially, the
dispute was referred to the arbitration of a retired Judge
of this Court but since the same could not be completed
within the time frame, the arbitration was later on referred
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to a District Judge. During the pendency of arbitration
proceedings, the industrial policy of the State Government
was reviewed by a high power committee formed by the State
Government. Such committee consideration the question of
continuance of protective measure to the selected industries
by assuring supply of sal seeds by the State Government. The
case of M/s Sal Udyog was also considered by such high power
committee and the committee recommended in favour of M/s Sal
Udyog. Thereafter, the State Government renewed the
agreement with the usual renewal clause. Such action of the
State Government cannot be held to be illegal or arbitrary.
The renewal clause in the impugned agreement execute in
favour of the respondent does not also appear to be unjust
or improper. Whether protection by way of supply of sal
seeds under the terms of agreement requires to be continued
for a further period, is a matter for decision by the State
Government and unless such decision is patently arbitrary,
interference by the Court is not called for. In the facts of
the case, the decision of the State Government to extend to
protection for further period cannot be held to be per se
irrational, arbitrary or capricious warranting judicial
review of such policy decision. Therefore, the High Court
has rightly rejected the appellant’s contention about the
invalidity of renewal clause. The appellant’s contention
about the invalidity of the renewal clause. The appellants
failed in earlier attempts to challenge the validity of the
agreement including the renewal clause. The subsequent
challenge of the renewal clause, therefore, should not be
entertained unless it can be clearly demonstrated that the
fact situation has undergone such changes that the
discretion in the matter of renewal of agree should not be
exercised by the State. It has been rightly contended by Dr.
Singhvi that the respondent legitimately expect that the
renewal clause should be given effect to in usual manner and
according to past practice unless there is any special
reason not to adhere to such practice. The doctrine of
‘legitimate expectation’ has been judicially recognised by
this court in a number of decisions. The doctrine of
"legitimate expectation" operates in the domain of public
law and in appropriate case, constitutes a substantive and
enforceable right.
Although to ensure fair play and transparency in the
state action, distribution of largesse by inviting open
tenders or by public auction is desirable, it cannot be held
that in no case distribution of such largesse by negotiation
is permissible. In the instant case, as a policy decision
protective measure by entering into agreement with selected
decision protective measure by entering into agreement with
selected industrial units for assured supply of sal seeds at
concessional rate has been taken by the government. The rate
of royalty has also been fixed on some accepted principle of
pricing formula as will be indicated hereafter. Hence,
distribution or allotment of sal seed at the determined
royalty to the respondents and other units covered by the
agreement cannot be assailed. It is to be appreciated that
in this case, distribution by public auction or by open
tender may not achieve the purpose of the policy of
protective measure by way of supply of sal seeds at
concessional rate of royalty to the industrial units covered
by the agreements on being selected on valid and object
consideration.
So far as the contention that royalty for the sal seed
to be supplied to the respondent has been fixed unreasonably
in order to ensure naked favouritism to the said respondents
is concerned, the appellants have failed to demonstrate such
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naked favouritism. The fixation of rate of royalty on the
basis of weighted average formula has a rational basis and
is also a know method and modality for determining market
price. It also appears to us that the price per M.T. of sal
seed has different component of which collection charges is
the principal factor. It may also be noted here that the
revisions of royalty by the State Government at Rs. 750/-,
Rs. 1030/- and Rs. 1030/- per M.T.l respectively for 83-85,
85-87 and 87-89 blocks had been challenged and such
revisions were struck down by the High Court of M.P. and the
High Court directed redetermination of the rate of royalty
as per the established weighted average formula. Arbitration
was held for determining the appropriate royalty and the
royalty thereafter was held for determining the appropriate
royalty and the royalty thereafter was refixed at Rs. 300/-
per M.T. in place of Rs. 750/-, Rs. 300/- per M.T. in place
of Rs. 1030/- and Rs. 294/- per M.T. in place of Rs. 1030/-
for the said three blocks. In the aforesaid facts, it cannot
be held that the fixation of royalty in the impugned
agreement is without any basis and wholly arbitrary and
designed only to ensure favouritism, as alleged. If there is
an object and rational foundation for the fixation of
royalty, the Court will not interfere with the exercise of
governmental decision by itself undertaking an exercise to
find out as to whether better fixation was possible or not.
It needs to be noted that in matter of economic rights and
policy decision, the scope of judicial review is limited and
circumscribed. It may also be indicated here that within the
ambit of protective measure of assured supply of sal seeds,
such supply at concessional price is also a relevant
consideration. The State Government may not be dictated by
the only consideration of more revenue.
The anxiety of the appellants to also get allotments of
reasonable quantity of sal seeds from the State Government
can be appreciated but the policy decision of the State
Government and consequential state action in entering into
agreements with the respondents cannot be struck down on
the vice of irrationality and arbitrariness. It has been
submitted by the learned counsel for the State that the
State Government is not oblivious of such need and also not
averred to old industrial units which also use sal seeds for
their plants. We reasonably expect that the government will
be alive to the need of sal seeds by the industrial units
operating in the state of M.P. and in future when the policy
will be reviewed by the State Government, it will take into
consideration the felt need of proper distribution of sal
seeds to different classes of industrial units with
appropriate pragmatism.
We, therefore, find no reason to interfere with the
impugned decision of the High Court. These appeals
therefore, fail and are dismissed. There will be, however,
no order as to cost.