PETITIONER:
KASTURI LAL LAKSHMI REDDY
Vs.
RESPONDENT:
STATE OF JAMMU AND KASHMIR & ANOTHER
DATE OF JUDGMENT09/05/1980
BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
TULZAPURKAR, V.D.
PATHAK, R.S.
CITATION:
1980 AIR 1992 1980 SCR (3)1338
1980 SCC (4) 1
CITATOR INFO :
D 1984 SC 415 (6)
F 1985 SC1147 (12)
R 1986 SC 180 (39)
RF 1986 SC1003 (1,6,7)
R 1987 SC 251 (37)
R 1987 SC 558 (15)
R 1987 SC1086 (28)
R 1987 SC1109 (30,36)
RF 1988 SC 157 (8,10)
R 1988 SC1989 (12)
F 1989 SC1629 (4,14)
F 1989 SC1642 (25,26,27)
RF 1991 SC 537 (29)
RF 1991 SC1153 (12)
RF 1992 SC 1 (132)
ACT:
Government contracts-Limitations on the Government to
grant contracts-Test of reasonableness-Concept of
reasonableness and concept of public interest, explained-
Articles 14 & 19 of the Constitution.
HEADNOTE:
Resin is a forest produce extracted from certain pieces
of trees popularly known as Chir trees. The process of
extraction is called tapping, involves several steps, and
requires employment of skilled labour and involves a
considerable amount of expenditure. The State of Jammu &
Kashmir started tapping operation in respect of its Chir
trees since about 1973 by giving contracts to private
parties for extraction and collection of resin. The
contracts were of three types; one was contract on wage
basis commonly known as wage contract which was given by
auctioning the blazes to the person who was prepared to
undertake the work of extraction and collection of resin at
the lowest rates of labour charges and in such contract the
entire resin extracted and collected by the contractor would
belong to the State and the contractor would be entitled
only to the wage or labour charges for extraction and
collection of resin; the second type of contract was on the
basis of royalty without load and under this contract which
was given by auction stipulating for payment of royalty per
blaze, the entire resin extracted and collected by the
contractor would belong to him and he would be free to sell
or process it as he likes; the third type of contract was on
the basis of royalty with load and under this contract which
was also given by auction, the royalty was payable per blaze
and out of resin extracted and collected by the companies, a
certain part would have to be surrendered to the State,
while the balance would remain with the contractor.
Every year, the State auctioned the blazes in the
different forests within its territory and about 40 per cent
of the forests were given on royalty basis, some with load
and some without load, while the balance of about 60 per
cent were given on wage contract basis. Most of the
contractors bidding at the auction were having their
factories outside Jammu & Kashmir either in U.P. or in
Punjab. The State in furtherance of its policy to bring
about rapid industrialisation decided that from the year
1979-80 onwards the resin extracted from its forests should
not be allowed to be exported outside the territories of the
State and should be utilised only by industries set up
within the State. The State, in fact, entered into contracts
with three manufacturers, namely, Prabhat Turpentine &
Synthetics Pvt. Ltd., Dujedwala Resin and Turpentine Co.
Ltd. and Pine Chemicals Ltd. Under these contracts the three
manufacturers agreed to set up factories in the State for
the manufacture of resin turpentine and other derivatives
and the State agreed to make available to them respectively
an ensured supply of 4000, 3500 and 8000 metric tonnes of
resin per year. The State had also commitments to supply
resin to its own concerns namely, J&K Industries Ltd. which
was running a factory for manufacture of resin and
turpentine as also to various small scale units which are
set up in the State. Since
1339
the total requirement of these 24,000 metric tonnes always
fell short it was decided at a meeting held on 9th December,
1976 of the Forest officials that the increase of target of
production could be achieved only through replacement of
royalty contracts by wage contracts wherever possible and
hence in future blazes should be auctioned for tapping only
on wage contract basis.
There were certain forests in Resin and Ramban Division
of the State which was out of access on account of their
distance from the roads and so were some forests in the
Poonch Division near the line of actual control and there
were 1,28,856 blazes situated in the lower regions of
inaccessible forests and no contractors could be found for
taking tapping contracts even on the basis of royalty
without load for blazes in the higher regions of the
inaccessible areas. In the Rasi Division out of 6,08,115
blazes which were attempted to be given for tapping in the
year 1976-77 on royalty contract basis without load, only
1,28,856 blazes were taken by one Prem Kumar Sood and that
too on royalty of only Rs. 2.55 per blaze as against royalty
of about Rs. 6 per blaze obtained by the State in other
inaccessible areas by giving contract on royalty basis with
load of 3 Kg. per blaze. For the year 1978-79 no one came
forward to make a bid for taking the contract even on
royalty basis without load, with the result that practically
no tapping was done from these 6,08,115 blazes in the
forests of the Rasi division upto 1979-80. There were also
some new blazes marked in the forests of the Rasi division
for the year 1979-80 and out of them 4,20,340 blazes were in
areas which were inaccessible on account of their being at a
distance of 8 to 40 kilometers from the road side. Even out
of the old 6,08,115 there were 3,10,604 blazes which were
situated in the same category of inaccessible areas. So far
as the forests in the Ramban Division are concerned there
were 1,24,400 blazes which were equally inaccessible "due to
long lead up to coupe boundaries and transit depots" and the
position in regard to 3,30,000 blazes which were under
tapping in Poonch Division was also similar to that of the
inaccessible areas in Rasi and Ramban Division with the
additional handicap of their being situated along the line
of actual control. There were thus in all about 11,85,414
blazes in the Rasi, Ramban and Poonch Division which were
inaccessible areas and having regard to the high cost of
extraction and collection of resin as also the scarcity of
trained labour in those areas it was not possible to give
out those blazes by auction on wage contract basis. The past
experience showed that even on the basis of royalty without
load contractors were not forthcoming for taking contracts
in respect of blazes in the inaccessible areas of the Rasi
Division and giving out of the aforesaid blazes in the Rasi
Ramban and Poonch Division on wage contract basis was,
therefore, almost an impossible proposition. The Chief
Conservator of Forests and other Forest Officers accordingly
decided at the meeting held on December 9, 1978 that those
blazes could not be tapped through wage contract because
"apart from the total non-availability of local labour in
these areas cost of production due to long lead up to coupe
boundaries and transit depots would be prohibitive" and all
such areas should, therefore, be excluded from tapping
through wage contract. These decisions taken at the meeting
on 9th December, 1978 were confirmed at a subsequent meeting
which took place between Forest Minister, the Forest
Secretary, the Chief Conservative Forest Officer and other
Forest Officers on 26th December, 1978. It was further
decided in this meeting that the "departmental tapping
through wage contract should be confined to accessible Chir
forests" only and so far as 11,85,414 blazes in the
inaccessible areas of the Rasi, Ramban and Poonch Division
are concerned the consensus was that "these blazes should be
allotted to some private party
1340
as procurement of resin from them through wage contracts was
not feasible being difficult and costly" and "the financial
status and experience in extraction of resin from forest and
its distillation in the factory should be decisive factors"
in regard to such allotment. Therefore, the second
respondent who had earlier addressed a letter dated 15th
April, 1978 to the State Government offering to set up a
factory for manufacture of resin turpentine oil and other
derivatives in the State with the latest know-how under the
supervision of the State Government and seeking allotment of
10,000 metric tonnes of resin annually for the purpose was,
by an Order of the State Government dated 27th April, 1979,
sanctioned allotment of 11.85 lacs blazes in the
inaccessible areas of Rasi, Ramban and Poonch Divisions for
a period of 10 years on the terms and conditions set out in
the order.
The petitioners, thereupon challenged this order made
by the State Government under Article 32 of the Constitution
on the grounds, namely, (a) that the order is arbitrary,
mala fide and not in public interest, inasmuch as a huge
benefit has been conferred on the 2nd respondents at the
cost of the State; (b) the order creates monopoly in favour
of the 2nd respondent who is a private party and constitutes
unreasonable restriction on the right of the petitioners to
carry on tapping contract business under Art. 19(1)(g) of
the Constitution; and (c) the State has acted arbitrarily in
selecting the 2nd respondent for awarding tapping contract,
without affording any opportunity to others to complete for
obtaining such contract and this action of the State is not
based on any rational or relevant principle and is,
therefore, violative of Art. 14 of the Constitution as also
of the rule of administrative Law which inhibits arbitrary
action by the State.
Dismissing the petitions, the Court
^
HELD: (1) With the growth of the welfare state, new
forms of property in the shape of Government largess are
developing, since the Government is increasingly assuming
the role of regulator and dispenser of social services and
provider of a large number of benefits including jobs,
contracts, licences, quotas, mineral rights etc. There is
increasing expansion of the magnitude and range of
governmental functions, as we move closer to the welfare
state, and the result is that more and more of our wealth
consists of these new forms of property. Some of these forms
of wealth may be in the nature of privilege. The law has
however not been slow to recognise the importance of this
new kind of wealth and the need to protect individual
interest in it and with that end in view, it has developed
new forms of protection. Some interests in Government
largess, formerly regarded as privileges, have been
recognised as rights, while others have been given legal
protection not only by forging procedural safeguards but
also by confining, structuring and checking Government
discretion in the matter of grant of such largess. [1354 F-
H, 1355 A]
The discretion of the Government is not unlimited in
that the Government cannot give largess in its arbitrary
discretion or at its sweet will or on such terms as it
chooses in its absolute discretion. There are two
limitations imposed by law which structure and control the
discretion of the Government in this behalf. The first is in
regard to the terms on which largess may be granted and the
other, in regard to the persons who may be recipients of
such largess.
[1355 A-B]
So far as the first limitation is concerned, it flows
directly from the thesis that, unlike a private individual,
the State cannot act as it pleases in the matter
1341
of giving largess. Though ordinarily a private individual
would be guided by economic considerations of self-gain in
any action taken by him, it is always open to him under the
law to act contrary to his self-interest or to oblige
another in entering into a contract or dealing with his
property. But the Government is not free to act as it likes
in granting largess such as awarding a contract or selling
or leasing out its property. Whatever be its activity, the
Government is still the Government and is, subject to
restraints inherent in its position in a democratic society.
The constitutional power conferred on the Government cannot
be exercised by it arbitrarily or capriciously or in an
unprincipled manner; it has to be exercised for the public
good. Every activity of the Government has a public element
in it and it must therefore, be informed with reason and
guided by public interest. Every action taken by the
Government must be in public interest; the Government cannot
act arbitrarily and without reason and if it does, its
action would be liable to be invalidated. If the Government
awards a contract or leases out or otherwise deals with its
property or grants any other largess, it would be liable to
be tested for its validity on the touch-stone of
reasonableness and public interest and if it fails to
satisfy either test, it would be unconstitutional and
invalid. [1355 B-F]
Ramana Dayaram Shetty v. The International Airport
Authority of India & Ors. [1979] 3 S. C. R. 1014,
reiterated.
(2) In forming his own conception of what is
reasonable, in all the circumstances of a given case, it is
inevitable that the social philosophy and the scale of
values of the judge participating in the decision, would
play an important part, but even so, the test of
reasonableness is not a wholly subjective test and its
contours are fairly indicated by the Constitution. The
concept of reasonableness in fact pervades the entire
constitutional scheme. The requirement of reasonableness
runs like a golden thread through the entire fabric of
fundamental rights and, as several decisions of this Court
show, this concept of reasonableness finds its positive
manifestation and expression in the lofty ideal of social
and economic justice which inspires and animates the
Directive Principles. Article 14 strikes at arbitrariness in
State action and since the principle of reasonableness and
rationality, which is legally as well as philosophically an
essential element of equality or non-arbitrariness, is
projected by this article, it must characterise every
governmental action, whether it be under the authority of
law or in exercise of executive power without making of law.
So also the concept of reasonableness runs through the
totality of Art. 19 and requires that restrictions on the
freedoms of the citizens, in order to be permissible, must
at the least be reasonable. Similarly Art. 21 in the full
plenitude of its activist magnitude as discovered by Maneka
Gandhi's case, insists that no one shall be deprived of his
life or personal liberty except in accordance with procedure
established by law and such procedure must be reasonable,
fair and just.
[1355 G-H, 1356 A-D]
State of Madras v. V. G. Rao [1952] SCR 597; Maneka
Gandhi v. Union of India [1978] 2 SCR 621; E. P. Royappa v.
State of Tamil Nadu [1974] 2 SCR 348 referred to.
(3) The Directive Principles concretise and give shape
to the concept of reasonableness envisaged in Articles 14,
19 and 21 and other Articles enumerating the fundamental
rights. By defining the national aims and the constitutional
goals, they set forth the standards or norms of
reasonableness which must guide and animate governmental
action. Any action taken by the Government
1342
with a view to giving effect to any one or more of the
Directive Principles would ordinarily, subject to any
constitutional or legal inhibitions or other overriding
considerations, qualify for being regarded as reasonable,
while an action which is inconsistent with or runs counter
to a Directive Principle would incur the reproach of being
unreasonable. [1356 D-F]
(4) The concept of public interest must as far as
possible receive its orientation from the Directive
Principles. What according to the founding fathers
constitutes the plainest requirement of public interest is
set out in the Directive Principles and they embody par
excellence the constitutional concept of public interest.
If, therefore any governmental action is calculated to
implement or give effect to a Directive Principle, it would
ordinarily, subject to any other overriding considerations,
be informed with public interest. [1356 A-H, 1357 A]
(5) Where any governmental action fails to satisfy the
test of reasonableness and public interest and is found to
be wanting in the qualities of reasonableness or lacking in
the element of public interest, it would be liable to be
struck down as invalid. It must follow as a necessary
corollary from this proposition that the Government cannot
act in a manner which would benefit a private party at the
cost of the State; such an action would be both unreasonable
and contrary to public interest. The Government, therefore,
cannot, for example, give a contract or sell or lease-out
its property for a consideration less than the highest that
can be obtained for it, unless of course there are other
considerations which render it reasonable and in public
interest to do so. Such considerations may be that some
Directive Principle is sought to be advanced or implemented
or that the contract or the property is given not with a
view, to earning revenue but for the purpose of carrying out
a welfare scheme for the benefit of a particular group or
section of people deserving it or that the person who has
offered a higher consideration is not otherwise fit to be
given the contract at the property. These considerations are
referred to only illustratively for there may be an infinite
variety of considerations which may have to be taken into
account by the Government in formulating its policies and it
is on a total evaluation of various considerations which
have weighed with the Government in taking a particulars
action, that the Court would have to decide whether the
action of the Government is reasonable and in public
interest. [1357 A-E]
But one basic principle which must guide the Court in
arriving at its determination on this question is that there
is always a presumption that the Government action is
reasonable and in public interest and it is for the party
challenging its validity to show that it is wanting in
reasonableness or is not informed with public interest. This
burden is a heavy one and it has to be discharged to the
satisfaction of the Court by proper and adequate material.
The Court cannot lightly assume that the action taken by the
Government is unreasonable or without public interest
because, there are a large number of policy considerations
which must necessarily weigh with the Government in taking
action and therefore the Court would not strike down
governmental action as invalid on this ground, unless it is
clearly satisfied that the action is unreasonable or not in
public interest. But where it is so satisfied, it would be
the plainest duty of the Court under the Constitution to
invalidate the governmental action. This is one of the most
important function of the Court and also one of the most
essential for preservation of the rule of law. [1357 E-H]
1343
It is imperative in a democracy governed by the rule of
law that governmental action must be kept within the limits
of the law and if there is any transgression, the Court must
be ready to condemn it. It is a matter of historical
experience that there is a tendency in every government to
assume more and more powers and since it is not an uncommon
phenomenon in many countries that the legislative check is
getting diluted, it is left to the Court as the only other
reviewing authority under the Constitution to be
increasingly vigilant to ensure observance with the rule of
law and in this task, the Court must not finch or falter.
This ground of invalidity, namely, that the governmental
action is unreasonable or lacking the quality of public
interest, is different from that of mala fides though it
may, in a given case, furnish evidence of mala fides. [1358
A-C]
(6) The second limitation on the discretion of the
Government in grant of largess is in regard to the persons
to whom such largess may be granted. The Government is not
free like an ordinary individual, in selecting the
recipients for its largess and it cannot choose to deal with
any person it pleases in its absolute and unfettered
discretion. The law is now well established that the
Government need not deal with anyone, but if it does so, it
must do so fairly without discrimination and without unfair
procedure. [1358 C-E]
Where the Government is dealing with the public,
whether by way of giving jobs or entering into contracts or
granting other forms of largess, the Government cannot act
arbitrarily at its sweet will and, like a private
individual, deal with any person it pleases, but its action
must be in conformity with some standard or norm which is
not arbitrary, irrational or irrelevant. The governmental
action must not be arbitrary or capricious, but must be
based on some principle which meets the test of reason and
relevance. [1358 B]
In the instant case;
A. The impugned order cannot be said to be
disadvantageous to the State or in any way favouring the
second respondents at the cost of the State. [1363 B]
(i) It was not a tapping contract simpliciter which was
intended to be given to the second respondents. The whole
object of the impugned order was to make available 3500
metric tonnes of resin to the second respondents for the
purpose of running the factory to be set up by them. [1361
B, E]
(ii) The advantage to the State was that a new factory
for manufacture of resin, turpentine oil and other
derivatives would come up within its territories offering
more job opportunities to the State and increasing their
prosperity and augmenting the State revenues and in addition
the State would be assured of a definite supply of at least
1500 metric tonnes of resin for itself without any financial
involvement or risk and with this additional quantity of
resin available to it, it would be able to set up another
factory creating more employment opportunities. [1361 E-G]
(iii) The State would be able to secure extraction of
resin from the inaccessible areas on the best possible term
instead of allowing them to remain unexploited or given over
at ridiculously low royalty. [1361 E-H]
(iv) No huge benefit was conferred on the second
respondents at the cost of the State. The terms of the
contract made it clear that the second respon-
1344
dents would have to extract at least 5000 metric tonnes of
resin from the blazes allotted to them in order to be
entitled to retain 3500 metric tonnes. [1362 A-B]
(v) Under the impugned order the State would get 1500
metric tonnes of resin at the rate of Rs. 114/-per quintal
while the second respondent would have to pay at the rate of
Rs. 474/- per quintal for the balance of 3500 metric tonnes
retained by them. Obviously, a large benefit would accrue to
the State under the impugned order. If the State were to get
the blazes in these inaccessible areas tapped through wage
contract, the minimum cost would be Rs. 175/- per quintal,
without taking into account the additional expenditure on
account of interest, but under the impugned order the State
would get 1500 metric tonnes of resin at a greatly reduced
rate of Rs. 114/- per quintal without any risk or hazard.
The State would also receive for 3500 metric tonnes of resin
retained by the second respondent price or royalty at the
rate of Rs. 474/- per quintal which would be much higher
than the rate of Rs. 260/- per quintal at which the State
was allotting resin to medium scale industrial units and the
rate of Rs. 320/-per quintal at which it was allotting resin
of small scale units within the State. [1362 G-H, 1363 A-B]
B. The impugned order neither created any monopoly in
favour of the second respondent nor imposed unreasonable
restriction on the right of the petitioner to carry on
tapping business under Article 19(1)(g). [1364 D]
(i) The impugned order did not hand over the tapping of
the entire forest area in the State exclusively to the 2nd
respondent so as to deny the opportunity of tapping any
forest areas to the petitioner. What was done under the
impugned order was merely to allot 11,85,414 blazes in the
inaccessible areas of Rasi, Ramban and Poonch divisions to
the 2nd respondent so that the respondent could have an
assured supply of 3500 metric tonnes of resin for the
purpose of feeding the factory to be set up by them in the
State and a large number of blazes amounting to about 60
lacks in other forest areas of the State were left available
for tapping by the petitioners and other forest contractors.
[1364 D-G]
(ii) The petitioner and other forest contractors could
bid for wage contract in respect of the other blazes which
were more than five times in number than the blazes allotted
to the second respondent. The petitioners in writ petition
481 of 1979, in fact, obtained a wage contract for
extraction of resin from an easily accessible forest in
Rajouri Division for the aggregate sum of Rs. 2,80,250/- in
the year 1979-80 and though it is true that the petitioners
in writ petition No. 482/79 did not obtain any wage contract
for tapping in this year, it was not because blazes were not
available for tapping, but because the petitioner did not
get their registration renewed. [1364 F-H]
C. Neither the impugned order in favour of the second
respondents could be said to be arbitrary and unreasonable.
[1365 A]
(i) The State was not unjustified in excluding
11,85,414 blazes situated in the inaccessible areas of Rasi,
Ramban and Poonch divisions from the auctions, since the
past experience showed that even on the basis of royalty
without load, it was difficult to attract bidders and the
maximum that could be obtained, and that too only in one
solitary year, was Rs. 2-55 per blaze without load, which
was an absurdly low return and it was, therefore, felt quite
1345
justifiably, that it would be futile to include these
blazes in the auctions for tapping on wage contract bases.
The State also could not award a contract simpliciter for
tapping on the basis of royalty with or without load because
as a matter of policy, with a view to encouraging
industrialisation, the State did not want resin to go
outside its territories but wanted it to be used only for
the purpose of feeding industries set up within the State
and even if a condition could legitimately be imposed on the
contractor that he should sell the resin extracted and
retained by him only to industries within the State, it
would be difficult to ensure observance of such condition
and moreover the object of the State to make resin available
to the local industries at a reasonable price might be
frustrated, because the contractor taking advantage of
scarcity in supply of resin might, and in all probability
would, try to extract a much higher price from the
industries needing resin. It was thus found to be an
impracticable proposition to tap these blazes either on wage
contract basis or on the basis of royalty with or without
load. [1365 A-F]
(ii) The impugned Order was unquestionable and without
doubt in the interest of the State and even with a
microscopic examination there in nothing in it which could
possibly incur the reproach of being condemned as arbitrary
or irrational. [1366 B-C]
(iii) It is true that no advertisements were issued by
the State inviting tenders for award of tapping contract in
respect of these blazes or stating that tapping contract
would be given to any party who is prepared to put up a
factory for manufacture of resin, turpentine oil and other
derivatives within the State, but it was not a tapping
contract simpliciter which was being given by the State. The
tapping contract was being given by way of allocation of raw
material for feeding the factory to be set up by the 2nd
respondent [1366 A-C]
The predominent purpose of the transaction was to
ensure setting up of a factory by the 2nd respondent as part
of the process of industrialisation of the State and since
the 2nd respondent wanted assurance of a definite supply of
resin as a condition of putting up the factory, the State
awarded the tapping contract to the 2nd respondent for that
purpose. If the State were giving tapping contract
simpliciter there can be no doubt that the State would have
to auction or invite tenders for securing the highest price,
subject, of course, to any other relevant overriding
considerations of public weal or interest, but in a case
like this where the State is allocating resources such as
water, power, raw material etc., for the purpose of
encouraging setting up of industries within the State, the
State is not bound to advertise and tell the people that it
wants a particular industry to be set up within the State
and invite those interested to come up with proposals for
the purpose. The State may choose to do so if it thinks fit
and in a given situation, it may even turn out to be
advantageous for the State to do so, but if any private
party comes before the State and offers to set up an
industry, the State would not be committing breach of any
constitutional or legal obligation if it negotiates which
such party and agrees to provide resources and other
facilities for the purpose of setting up the industry. The
State is not obliged to tell such party; "Please wait I will
first advertise, see whether any other offers are
forthcoming and then after considering all offers, decide
whether I should let you set up the industry". It would be
most unrealistic to insist on such a procedure, particularly
in an area like Jammu and Kashmir which on account of
historical, political and other reasons, is not yet
industrially developed and where entrepreneurs have to be
offered attractive terms in order to persuade them to set up
an
1346
industry. The State must be free in such a case to negotiate
with a private entrepreneur with a view to inducing him to
set up an industry within the State and if the State enters
into a contract with such entrepreneur for providing
resources and other facilities for setting up an industry,
the contract cannot be assailed as invalid so long as the
State has acted bona fide, reasonably and in public
interest. If the terms and conditions of the contract or the
surrounding circumstances show that the State has acted mala
fide or out of improper or corrupt motive or in order to
promote the private interests of some one at the cost of the
State, the Court will undoubtedly interfere and strike down
State action as arbitrary, unreasonable or contrary to
public interest. But so long as the State action is bona
fide and reasonable, the Court will not interfere merely on
the ground that no advertisement was given or publicity made
or tenders invited. [1366 C-H, 1367 A-D]
JUDGMENT:
ORIGINAL JURISDICTION : Writ Petitions Nos. 481-482 of
1979.
(Under Article 32 of the Constitution of India).
K. N. Bhatt for the Petitioner.
Altaf Ahmed for Respondent No. 1.
E. C. Agarwal for Respondent No. 2.
The Judgment of the Court was delivered by,
BHAGWATI, J.-These two writ petitions under Art. 32 of
the Constitution raise questions of some importance in the
field of constitutional law, but they are not exact
questions which can be divorced from the facts giving rise
to them and in order to resolve them satisfactorily, it is
necessary to state the facts in some detail. Though the
petitioners in the two writ petitions are different, the
respondents are the same and the same Order of the State of
Jammu and Kashmir is challenged in both the writ petitions.
Hence whatever we say in regard to the first writ petition,
applies equally in regard to the second.
The dispute in these writ petitions relates to the
validity of an Order dated 27th April, 1979, passed by the
Government of Jammu and Kashmir, allotting to the 2nd
respondents 10 to 12 lacs blazes annually for extraction of
resin from the inaccessible chir forests in Poonch, Reasi
and Ramban Divisions of the State for a period of 10 years
on the terms and conditions set out in the Order. The
validity of the Order has been challenged on various grounds
which we shall presently set out, but in order to understand
and appreciate these grounds, it is necessary to state
briefly the circumstances in which the Order came to be
passed by the Government of Jammu and Kashmir. There is a
commodity called Oleo-resin, which we shall hereafter refer
shortly as resin, which is a forest produce extracted from
certain species of trees popularly known as chir trees. The
process of extraction is called `tapping’ and it involves
several steps. Chir trees are annually given one or two
1347
wounds which are technically called blazes and cups and lips
are fixed at the bottom of each blazes for collection of
resin. The actual collection of resin starts from 1st April
and ends on 31st October every year. The maximum flow of
resin from blazes is during the months of May and June and
in the subsequent months of the working season, namely, July
to October, the flow gradually decreases due to the rainy
season followed by fall in temperature. The tapping of resin
is a continuous process and the initial blazing have to be
followed by freshening given every week. If the blazes are
not freshened regularly, the resin ducts get blocked and the
blazes become dry and once a blaze becomes dry, the flow of
resin stops completely. The resin that is collected in the
cups is transferred to tin containers every week-end or
earlier if required, and the tin containers are then
transported to the transit depots for being carried to the
destination. This process of tapping requires employment of
skilled labour and involves a considerable amount of
expenditure. The State of Jammu and Kashmir started tapping
operations in respect of its chir trees since about 1973 by
giving contracts to private parties for extraction and
collection of resin. The contracts were of three types :
(1) One was contract on wage basis, commonly
known as wage contract, which was given by
auctioning the blazes to the person who was
prepared to undertake the work of extraction
and collection of resin at the lowest rates
of labour charges and in such contract, the
entire resin extracted and collected by the
contractor would belong to the State and the
contractor would be entitled only to the wage
or labour charges for extraction and
collection of resin.
(2) The second type of contract was on the basis
of royalty without load and under this
contract, which was again given by auction
stipulating for payment of royalty per blaze,
the entire resin extracted and collected by
the contractor would belong to him and he
would be free to sell or process it as he
liked.
(3) The third type of contract given by the State
was on the basis of royalty with load and
under this contract, which was also given by
auction, the royalty was payable per blaze
and out of the resin extracted and collected
by the contractor, a certain part would have
to be surrendered to the State while the
balance would remain with the contractor.
Every year the State auctioned the blazes in the different
forests within its territory and about 40 per cent of the
forests were given on royalty
1348
basis, some with load and some without load, while the
balance of about 60 per cent were given on wage contract
basis.
The resin, which was thus obtained by the State by
giving out blazes on contract whether on royalty-cum-load or
on wage basis, was auctioned by the State from time to time
and manufacturers having factories for manufactures of
resin, turpentine and other derivatives purchased it at the
auctions. It is common ground that most of these purchasers
were manufacturers having their factories in Hoshiarpur
district of Punjab and at the material time, they depended
for their requirement of raw-material solely on the resin
available at the auction held by the State since supply of
resin had ceased to be available from Uttar Pradesh and
Himachal Pradesh on account of the policy adopted by the
Governments in these territories. The State, however, in
furtherance of its policy to bring about rapid
industrialisation, decided that from the year 1979-80
onwards, the resin extracted from its forests should not be
allowed to be exported outside the territories of the State
and should be utilised only by industries set up within the
State. The State in fact entered into contracts with three
manufacturers, namely, Prabhat Turpentine and Synthetics
Pvt. Ltd., Dujodwala Resin and Turpentine Pvt. Ltd. and Pine
Chemicals Ltd. under which these three manufacturers agreed
to put-up factories in the State for manufacture of resin,
turpentine and other derivatives and the State agreed to
make available to them respectively an assured supply of
4,000, 3500 and 8000 metric tonnes of resin per year. The
validity of these contracts was challenged before us in writ
petitions Nos. 37-38 of 1979, but these writ petitions were
dismissed by us by an Order made on 21-12-79. The State had
also commitments to supply resin to its own concern, namely,
J & K Industries Ltd., which was running a factory for
manufacture of resin and turpentine as also to various small
scale units which were set-up in the State. It appears that
the total requirements of the State for the purpose of
meeting these commitments was in the neighbourhood of 24,000
metric tonnes of resin. Now in view of the fact that quite a
large number of forests were being given out by the State
for tapping on royalty contract basis, sometimes even
without load, the aggregate quantity of resin which was
being collected by the state was very much short of the
total requirement of 24,000 metric tonnes and it was,
therefore, felt to be absolutely necessary for the State to
increase its procurement of resin so as to be able to meet
its commitments. With this end in view a meeting of the
Chief Conservator of forests and other forest officials was
held on 9th December, 1978 for the purpose of discussing
ways and means for achieving a higher target of production
of resin. It was decided at this meeting that the increased
target of production could be achieved only through
replacement of royalty contracts by wage con-
1349
tracts wherever possible and hence in future blaze should be
auctioned for tapping only on wage contract basis.
Now there were certain forests in Reasi and Ramban
Divisions of the State which were difficult of access on
account of their distance from the roads and so were some
forests in the Poonch Division near the line of actual
control. So far as the forests in the Rea i Division were
concerned, there were 6,08,115 blazes which were attempted
to be given for tapping in the year 1976-77 on royalty
contract basis without load but out of them only 1,28,856
blazes were taken by one Prem Kumar Sood and that too on a
royalty of only Rs. 2.55 per blaze, as against royalty of
about Rs. 6/- per blaze obtained by the State in other
inaccessible areas by giving contract on royalty basis with
load of 3 Kg. per blaze. Moreover, these 1,28,856 blazes
were situate in the lower reaches of inaccessible forests
and no contractors could be found for taking tapping
contracts, even on the basis of royalty without load, for
blazes in the higher regions of the inaccessible areas. The
same 1,28,856 blazes were again put-up for auction for the
year 1977-78, but no bidders came forward to take a contract
even on royalty without load basis. Then for the year 1978-
79, out of these 1,28,856 blazes, 72,951 blazes were once
again put-up for auction and though these were situate in
less inaccessible areas than the rest of the blazes, the
response was most discouraging and no one came forward to
make a bid for taking the contract even on royalty basis
without load. The result was that practically no tapping was
done from these 6,08,115 blazes in the forests of the Reasi
Division upto 1979-80. There were also some new blazes
marked in the forests of the Reasi Division for the year
1979-80 and out of them, 4,20,340 blazes were in areas which
were inaccessible on account of their being at a distance of
8 to 40 k.ms. from the roadside. Even out of the old
6,08,115 blazes there were 3,10,674 blazes which were
situate in the same category of inaccessible areas. So far
as the forests in the Ramban Division are concerned, there
were 1,24,400 blazes which were equally inaccessible “due to
long lead upto coupe boundaries and transit depots” and the
position in regard to 3,30,300 blazes which were under
tapping in Poonch Division, was also similar to that of the
inaccessible areas in Reasi and Ramban Divisions with the
additional handicap of their being situate along the line of
actual control. There were thus in all about 11,85,414
blazes in the Reasi, Ramban and Poonch Divisions which were
in inaccessible areas and having regard to the high cost of
extraction and collection of resin as also the scarcity of
trained labour in those areas, it was not possible to give
out these blazes by auction on wage contract basis. The past
experience showed that even on the basis of royalty without
load, contractors were not forth-coming for taking contracts
in respect of
1350
blazes in the inaccessible areas of the Reasi Division and
giving out of the aforesaid blazes in the Reasi, Ramban and
Poonch Divisions on wage contract basis was, therefore,
almost an impossible proposition. The Chief Conservator of
Forests and other forest officers accordingly decided at
their meeting of December 9, 1978 that these blazes could
not be tapped through wage contract because “apart from the
total non-availability of local labour in these areas, cost
of production due to long lead upto coupe boundaries and
transit depots would be prohibitive” and all such areas
should, therefore, be excluded from tapping wage contracts.
These decisions taken in the meeting of 9th December,
1978 were confirmed at a subsequent meeting which took place
between the Forest Minister, the Forest Secretary, the Chief
Conservator of Forests and other forest officers on 26th
December, 1978. It was further decided in this meeting that
“the departmental tapping through wage contracts should be
confined to accessible chir forests” only and so far as
11,85,414 blazes in the inaccessible areas of the Reasi,
Ramban and Poonch Divisions were concerned, the consensus
was that “these blazes should be allotted to some private
party as procurement of resin from them through wage
contracts was not feasible, being difficult and costly” and
“the financial status and experience in extraction of resin
from forests and its distillation in the factory should be
decisive factors” in regard to such allotment. Now it is
necessary to point out that, prior to the date of this
meeting, the 2nd respondents had addressed a letter dt. 15th
April 1978 to the Minister for Industries, offering to setup
a factory for manufacture of resin, turpentine oil and other
derivatives in the State “with the latest know-how under the
supervision of the State Government” and seeking allotment
of 10,000 metric tonnes of resin annually for that purpose.
The 2nd respondents pointed out in their letter that they
possessed vast experience in processing of resin and re-
processing of resin and turpentine oil and manufacture of a
wide range of derivatives, since they had 2 factories for
manufacture of resin and turpentine oil, one in Hoshiarpur
and the other in Delhi and moreover, they had also been
working as resin extraction contractors since 1974 and were
also bulk purchasers of resin at the auctions held by the
State. It was also stated by the 2nd respondents that they
had reliably learnt that Camphor and Allied Products Ltd.
and Prabhat General Agencies were being considered by the
State for allotment of resin to feed the units to be set-up
by them within the State and they expressed their
willingness to take the allotment of resin for their
proposed factory on the same terms and conditions. This
offer of the 2nd respondents was forwarded to the Forest
Minister, but despite the policy of the State to encourage
setting-up of resin-based industrial units in the State, it
1351
was not found possible, having regard to the commitments
already made by the State, to make any allotment of resin to
the 2nd respondents. A proposal was, therefore, mooted by
the forest officials that about 10 to 12 lacs blazes in
inaccessible areas could be made available for tapping to
the 2nd respondents on certain terms and conditions, so that
out of the quantity tapped, a certain portion could be
retained by the 2nd respondents for being utilised in the
factory to be set-up by them within the State and the
balance could be surrendered to the Government. The 2nd
respondents were agreeable to this proposal and in fact they
put it forward as an alternative proposal for consideration
by the State, but no decision was taken on it until the
meeting of 26th December, 1978. When, as a result of
discussions at this meeting, the consensus was reached that
11,85,414 blazes in the inaccessible areas of Reasi, Ramban
and Poonch Divisions should be allotted to some private
party for ensuring supply of resin to be utilised in the
factory to be set-up by such party within the State, the
proposal of the 2nd respondents was considered alongwith the
applications of some others including the petitioners in the
light of the factors agreed upon at the meeting and having
regard to the vast experience of the 2nd respondents in
extraction and processing of resin and in view of the fact
that they were large purchasers of resin at the auctions
held by the State, it was decided that the case of the 2nd
respondents should be processed for submission to the
Government.
It appears that J & K Resin Contractors Association
(hereinafter referred to as the association) came to know
sometime in October, 1978 that the 2nd respondents had
approached the State Government and there was a proposal to
allot to them “certain resin coupes on royalty system of 10
years” on the basis that they would install a factory for
manufacture of resin and turpentine at Jammu with sizable
investment. The association thereupon addressed a letter to
the Chief Minister in October, 1978 complaining against
giving of contract to an outside party by private
negotiations and pleading that contract, whether on royalty
basis or otherwise, should be given only by open auction. It
is significant to note that no offer was made by the
association in this letter to set up a resin-based
industrial unit in the State and the only plea was that
tapping contract should not be given by private negotiations
to a non-state party, but should be given only by open
auction. Since the decision was taken at the meetings of 9th
December, 1976 and 26th December, 1978 that blazes in the
inaccessible areas Reasi, Ramban and Poonch Divisions should
not be given on wage contract basis, they were excluded from
the auctions held by the State and the association,
therefore, addressed a letter dated 22nd January 1979 to the
Chief Conservator of Forests
1352
requesting him to include these blazes in the auctions. This
was followed by another letter dated 5th February, 1979
addressed by the association to the Forest Minister where
the request for inclusion of these blazes in the auctions
was repeated by the association. The association also
pleaded with the Forest Minister that instead of adopting
the wage contract method for giving out blazes for tapping
contracts, “The system of royalty contract with increased
load” should be continued in the forests divisions including
Reasi, Ramban and Poonch. The same request was repeated by
the association in a letter dated 8th March, 1979 addressed
to the Chief Minister. There was obviously no reply to these
communications since it had already been decided that
tapping of blazes in the accessible chir forests should be
done only through wage contracts and 11,85,414 blazes in the
inaccessible areas of Reasi Ramban and Poonch Divisions
should be allotted to some private party, which was prepared
to set-up a factory for manufacture of resin, turpentine and
other derivatives in the State.
The 2nd respondents presumably, on coming to know that
their alternative proposal for allotment of 10 to 12 lacs
blazes in inaccessible areas was being processed by the
Government, addressed a letter dated 22nd February, 1979 to
the Secretary to the Forest Department formulating the broad
terms of the proposal and requesting the State Government to
consider the proposal favourably and come to a decision
immediately, since the tapping season was commencing from
1st April, 1979. The association by its letter dated 18th
March, 1979 addressed to the Chief Minister protested
against the blazes in the Reasi, Ramban and Poonch Divisions
being given to the 2nd respondents by negotiations on
royalty basis for 10 years and urged that doing so would be
contrary to the interests of the local contractors and local
labour and “will also be a source of huge loss to the
Government exchequer” since the price of resin was
increasing day by day. Once again a plea was made by the
association that these blazes should be given out for
tapping contract by public auction. The petitioners also
complained to the Chief Minister by a letter addressed in
March, 1979 against giving of contract to the 2nd
respondents who were an outside party and offered to take
“all the untapped forests in the State on 2 to 3 years’
lease on rotational basis” stating that they would pay 50
paise per blaze more than that offered under any other
proposal and that out of the quantity tapped by them they
would retain 3,000 metric tonnes which they would utilise
for manufacturing resin, turpentine oil and other
derivatives in a new modern factory to be set-up by them in
some backward area of the State. The State did not accept
this offer made by the petitioners and
1353
decided to go ahead with giving tapping contract in respect
of these blazes to the 2nd respondents.
The State accordingly, passed an order dated 27th
April, 1979 sanctioning allotment of 11.85 lacs blazes in
the inaccessible areas of Reasi, Ramban and Poonch Divisions
to the 2nd respondents for a period of 10 years on the terms
and conditions set out in the order. The 2nd respondents
were required by clause II(iii) of the order to surrender
25% of the annual resin collected by them, subject to a
minimum of 1500 metric tones per annum, to the State for
feeding the new resin distillation plant which J & K
Industries Ltd. proposed to set up Rajouri/Sunderbani and
they could retain the balance of the extracted resin subject
to a maximum of 3500 metric tones per annum. Clauses II (iv)
and V of the order provided that the 2nd respondents shall
set-up a resin distillation plant in the small scale sector
for processing of upto 3500 metric tones of resin and the
extracted resin which is allowed to remain with them under
the order shall be utilised only in the plant to be set-up
by them and shall not be removed outside the State. Clause
II(v) of the order stipulated that the 2nd respondents
shall:
“(a) be paid the same wages for part of the resin
extracted and delivered to the department as would
be sanctioned by the Forest Department from year
to year for other departmental resin extruction
contracts for the adjoining blocks in the
respective locality;
(b) get proportionate rebate in royalty on the
quantity thus surrendered (i.e. no royalty shall
be charged for such quantity); and
(c) deliver such resin at the JKL factory at Rajouri/
Sunderbani for which no transport charges will be
allowed.
Clause III provided that the price of resin retained by the
2nd respondents shall be Rs. 350/- per quintal and it shall
be subject to review after three years and every year
thereafter and so far as the royalty is concerned, Clause IV
stated that it shall be worked out by a committee, the basis
of calculation being the cost of resin extraction and
collection in adjoining areas given out on wage-contracts
from year to year and the sale price of resin as fixed at
Rs. 350/- per quintal, for a period of three years after
which it shall be reviewed annually.” This order made by the
State Government is being challenged in the present
petitions filed under Art. 32 of the Constitution.
1354
There were in the main three grounds on which the
validity of the order was assailed on behalf of the
petitioners. They were as follows:
(A) That the Order is arbitrary, malafide and not in
public interest, inasmuch as a huge benefit has
been conferred on the 2nd respondents at the cost
of the State.
(B) The order creates monopoly in favour of the 2nd
respondents who or a private party and constitutes
unreasonable restriction on the right of the
petitioners to carry on tapping contract business
under Art. 19 (1) (g) of the Constitution.
(C) The State has acted arbitrarily in selecting the
2nd respondents for awarding tapping contract,
without affording any opportunity to others to
compete for obtaining such contract and this
action of the State is not based on any rational
or relevant principle and is therefore, violative
of Art. 14 of the Constitution as also of the rule
of administrative law which inhibits arbitrary
action by the State.
We shall examine these grounds in the order in which we have
set them out. but, before we do so, we may preface what we
have to say by making a few preliminary observations ill
regard to the law on the subject.
It was pointed out by this Court in “Ramana Dayaram
Shetty v. The International Airport Authority of India ors.
that with the growth of the welfare state, new forms of
property in the shape of Government largess are developing,
since the Government is increasingly assuming the role of
regulator and dispenser of social services and provider of a
large number of benefits including jobs, contracts,
licences, quotas, mineral rights etc. There is increasing
expansion of the magnitude and range of Governmental
functions, as we move closer to the welfare state, and the
result is that more and more of our wealth consists of these
new forms of property. Some of these forms of wealth may be
in the nature of legal rights but the large majority of them
are in the nature of privileges. The law has however not
been slow to recognise the importance of this new kind of
wealth and the need to protect individual interest in it and
with that end in view, it has developed new forms of
protection. Some interests in Government largess, formerly
regarded as privileges, have been recognised
1355
as rights, while others have been given legal protection not
only by forging procedural safeguards but also by confining,
structuring and checking Government discretion in the matter
of grant of such largess. The discretion of the government
has been held to be not unlimited in that the Government
cannot give largess in its arbitrary discretion or as its
sweet will or on such terms as it chooses in its absolute
discretion. There are two limitations imposed by law which
structure 1 and control the discretion of the Government in
this behalf. The first is in regard to the terms on which
largess may be granted and the other. In regard to the
persons who may be recipients of such largess.
So far as the first limitation is concerned, it flows
directly from the thesis that, unlike a private individual,
the State cannot act as it pleases in the matter of giving
largess. Though ordinarily a private individual would be
guided by economic considerations of self-gain in any action
taken by him, it is always open to him under the law to act
contrary to his self-interest or to oblige another in
entering into a contract or. dealing with his property. But
the Government is not free lo act as it likes in granting
largess such as awarding a contract or selling or leasing
out its property. Whatever be its activity, the Government
is still the Government and is, subject to restraints
inherent in its position in a democratic society. The
constitutional power conferred on the Government cannot be
exercised by it arbitrarily or capriciously or in and
unprincipled manner; it has to be exercised for the public
good. Every activity of the Government has a public element
in it and it must therefore, be informed with reason and
guided by public interest. Every action taken by the
Government must be in public interest; the Government cannot
act arbitrarily and without reason and if it does, its
action would be liable to be invalidated. If the Government
awards a contract or leases out or otherwise deals with its
property or grants any other largess, it would be Liable to
be tested for its validity on the touch-stone of
reasonableness and public interest and if it fails to
satisfy either best, it would be unconstitutional and
invalid.
Now what is the test of reasonableness which has to be
applied in order to determine the validity of governmental
action. It is undoubtedly true, as pointed out by Patanjali
Shastri, J. in State of Madras v. V.G. Rau, that in forming
his own conception of what is reasonable, in all the
circumstances of a given case, it is inevitable that the
social philosophy and the scale of values of the judge
participating in the decision, would play an important part,
but even so, me test of reasonableness is not a wholly
subjective test and its contours are fairly indicated by the
Constitution. The concept of reason-
1356
ableness in fact pervades the entire constitutional scheme.
The interaction of Arts. 14, 19 and 21 analysed by this
Court in Maneka Gandhi v. Union of India, clearly
demonstrated that the requirement of reasonableness runs
like a golden thread through the entire fabric of
fundamental rights and, as several decisions of this Court
show, this concept of reasonableness finds its positive
manifestation and expression in the lofty ideal of social
and economic justice which inspires and animates the
Directive Principles. It has been laid down by this Court in
E.P. Royappa v. State of Tamil Nadu, and Maneka Gandhi’s
case (supra) that Art. 14 strikes at arbitrariness in State
action and since the, principle of reasonableness and
rationality, which is legally as well as philosophically an
essential element of equality or non-arbitrariness, is
protected by this article, it must characterise every
governmental action, whether it be under the authority of
law or in exercise of executive power without making of law.
So also the concept of reasonableness runs through the
totality of Art. 19 and requires that restrictions on the
freedoms of the citizen, in order to be permissible, must at
the best be reasonable. Similarly Art. 21 in the full
plenitude of its activist magnitude as discovered by Maneka
Gandhi’s case, insists that no one shall be deprived of his
life or personal liberty except in accordance with procedure
established by law and such procedure must be reasonable,
fair and just. The Directive Principles concretise and give
shape to the concept of reasonableness envisaged in Articles
14, 19 and 21 and other articles enumerating the fundamental
rights. By defining the national aims and the constitutional
goals, they setforth the standards or norms of
reasonableness which must guide and animate governmental
action. Any action taken by the Government with a view to
giving effect to any one or more of the Directive Principles
would ordinarily, subject to any constitutional or legal
inhibitions or other over-riding considerations, qualify for
being regarded as reasonable, while an action which is
inconsistent with or runs counter to a Directive Principle
would incur the reproach of being unreasonable.
So also the concept of public interest must as far as
possible receive its orientation from the Directive
Principles. What according to the founding fathers
constitutes the plainest requirement of public interest is
set out in the Directive Principles and they embody par
excellence the constitutional concept of public interest.
If, therefore, any governmental action is calculated to
implement or give effect to a
1357
Directive Principle, it would ordinarily, subject to any
other overriding considerations, be informed with public
interest.
Where any governmental action fails to satisfy the test
of reasonableness and public interest discussed above and is
found to be wanting in the quality of reasonableness or
lacking in the element of public interest, it would be
liable to be struck down as invalid. It must follow as a
necessary corollary from this proposition that the
Government cannot act in a manner which would benefit a
private party at the cost of the State; such an action would
be both unreasonable and contrary to public interest. The
Government, therefore, cannot, for example, give a contract
or sell or lease out its property for a consideration less
than the highest that can be obtained for it, unless of
course there are other considerations which render it
reasonable and in public interest to do so. Such
considerations may be that some Directive Principle is
sought to be advanced or implemented or that the contract or
the property is given not with a view to earning revenue but
for the purpose of carrying out a welfare scheme for the
benefit of a particular group or section of people deserving
it or that the person who has offered a higher consideration
is not otherwise fit to be given the contract or the
property. We have referred to these considerations to only
illustratively, for there may be an infinite variety of
considerations which may have to be taken into account by
the Government in formulating its policies and it is on a
total evaluation of various considerations which have
weighed with the Government in taking a particular action,
that the Court would have to decide whether the action of
the Government is reasonable and in public interest. But one
basic principle which must guide the Court in arriving at
its determination on this question is that there is always a
presumption that the Governmental action is reasonable and
in public interest and it is for the party challenging its
validity to show that it is wanting in reasonableness or is
not informed with public interest. This burden is a heavy
one and it has to be discharged to the satisfaction of the
Court by proper and adequate material. The Court cannot
lightly assume that the action taken by the Government is
unreasonable or without public interest because, as we said
above, there are a large number of policy considerations
which must necessarily weigh with the Government in taking
action and therefore the Court would not strike Down
governmental action as invalid on this ground, unless it is
clearly satisfied that the action is unreasonable or not in
public interest. But where it is so satisfied, it would be
the plainest duty of the Court under the Constitution to
invalidate the governmental action. This is one of the most
important functions of the Court and also one of the most
essential for preservation of the rule of law.
1358
It is imperative in a democracy governed by the rule of law
that governmental action must be kept within the limits of
the law if there is any transgression the Court must be
ready to condemn it. It is a matter of historical experience
that there is a tendency in every government to assume more
and more powers and since it is not an uncommon phenomenon
in countries that the legislative check is getting diluted,
it is left to the Court as the only other reviewing
authority under the Constitution to be increasingly vigilant
to ensure observance with the rule of law and in this task,
the court must not flinch or falter. It may be pointed out
that this ground of invalidity, namely, that the
governmental action is unreasonable or lacking in the
quality of public interest, is different from that of mala-
fides though it may, in a given case, furnish evidence of
mala-fides.
The second limitation on the discretion of the
Government in grant of largess is in regard to the persons
to whom such largess may be granted. It is now well settled
as a result of the decision of this Court in Ramana D.
Shetty v. International Airport Authority of India & Ors.
(supra) that the Government is not free like an ordinary
individual, in selecting the recipients for its largess and
it cannot choose to deal with any person it pleases in its
absolute and unfettered discretion. The law is now well
established that the Government need not deal with anyone.
but if it does so, it must do so fairly without
discrimination and without unfair procedure. Where the
Government is dealing with the public, whether by way of
giving jobs or entering into contracts or granting other
forms of largess. the Government cannot act arbitrarily at
its, sweet will and, like a private individual, deal with
any person it pleases, but its action must be in conformity
with some standard or norm which is not arbitrary,
irrational or irrelevant. The governmental action must not
be arbitrary or capricious, but must be based on some
principle which meets the test of reason and relevance. This
rule was enunciated by the Court as a rule of administrative
law and it was also validated by the Court as an emanation
flowing directly from the doctrine of equality embodied in
Art. 14. The Court referred to the activist magnitude of
Art. 14 as evolved in E. P. Royappa v. State of Tamil Nadu
(supra) and Maneka Gandhi’s case (supra) and observed that
it must follow “as a necessary corollary from the principle
of equality enshrined in Art. 14 that though the State is
entitled to refuse to enter into relationship with anyone,
yet if it does so, it cannot arbitrarily choose any person
it likes for entering into such relationship and
discriminate between persons similarly circumstanced, but it
must act in conformity with some standard or principle which
meets the test of reasonableness and non-discrimination and
any departure from such standard or
1359
principle would be invalid unless it can be supported or
justified on some rational and non-discriminatory ground.”
This decision has reaffirmed the principle of reasonableness
and non-arbitrariness in governmental action which lies at
the core of our entire constitutional scheme and structure.
It is in the light of these two limitations on the
discretion of the Government in the matter of grant of
largess that we must proceed to examine the grounds of
attack urged on behalf of the petitioners.
Re Ground A:
The argument under this head of challenge was that the
State had under the impugned order granted tapping contract
to the 2nd respondents on terms which were highly
disadvantageous to the State and involved considerable loss
of revenue to the Government exchequer. The petitioners
contended that the price of resin realised at the auction
held in December 1978 was Rs. 484/- per quintal; it was Rs
520/- per quintal at the auction held in January 1979 and it
rose to Rs. 720/- per quintal at the auction held in April
1979 but despite this phenomenally high price which could
have been obtained in auction, the State chose to sell resin
to the 2nd respondents at a low price of Rs. 350/- per
quintal for a period of 3 years under the impugned order,
conferring huge benefits on the 2nd respondents at the cost
of the Government exchequer. The impugned order therefore
said the petitioners, was wholly arbitrary, unreasonable and
contrary to public interest and was liable to be struck down
as invalid. This argument plausible though it may seem at
first blush, is in our opinion not well founded and a closer
look at the facts will clearly show that it cannot be
sustained.
We may first clear the ground by stating a few
undisputed facts. The practice which was being followed by
the State until the year 1979-80 was to give out blazes in
the chir forests either on wage contract basis or on royalty
basis with or without load. The result was that about 50 per
cent of the resin extracted used to be taken away by the
contractors and the balance of 50 per cent remained with the
State which the State partly made available to its own
factories and small scale units in the State and partly sold
by auction and out of the quantity auctioned the bulk was
purchased by manufacturers having factories in Hoshiarpur.
It appears’ that from about 1975 onwards the State embarked
upon a policy of industrialisation and in furtherance of
this policy, it decided some time in the later half of 1978,
that from the year 1979-80, no resin should be allowed to he
exported outside the State territories and that it should be
made available for being utilised only in industries set up
within the State. But this measure by itself was not enough,
because so long as
1360
contracts for extracting resin were given on royalty basis
with or without load, a sizable quantity of resin extracted
would go into the hands of the contractors and would not
become available to the State for fulfilling its
commitments. The State, therefore, decided as a matter of
policy to replace royalty contracts by wage contracts
wherever possible and to auction blazes for tapping only on
wage contracts basis. But, as pointed out above, there were
certain forests in Reasi, Ramban and Poonch Divisions which
were difficult of access on account of their distance from
the roads and some of the forests in Poonch Division were
near the line of actual control and consequently it was
found impracticable to give them for tapping on wage
contract basis. It was difficult to give them for tapping
even on the basis of royalty without load and the maximum
that could be obtained for a part of the blazes in the
Reasi, Division in the year 1976-77 was royalty of Rs. 2.55
per blaze without load. It was, therefore, decided by the
State to exclude about 11,85,414 blazes in the Reasi, Ramban
and Poonch Divisions from tapping through wage contract and
they were kept out of the auctions held by the State. The
Association undoubtedly made representations requesting the
State to include these blazes in the auctions, but as is
evident from the letters dated 5th February 1979 and 8th
March 1979 addressed respectively to the Forest Minister.
and the Chief Minister, the emphasis of the Association was
that the system of working should be changed from wage’
contract to royalty contract” and that these blazes should
be put to auction on royalty basis. The State obviously, in
view of its policy, could not accede to this request made on
behalf of the Association and since, having regard to past
experience. it was felt that it would be futile to offer
these blazes for tapping through wage contract, the State
was not unjustified in not including them in the auctions.
Now the second respondents offered to set up a factory for
manufacture of resin, turpentine oil and other derivatives
in the State and requested to State to make allotment of
resin annually for this purpose on the same terms and
conditions on which allotment was proposed to be made to
Camphor and Allied Products Ltd. and Prabhat General
Agencies. The State, in view of its policy of
Industrialisation, was interested in the setting up of the
factory by the second respondents, particularly since the
second respondents had two factories for manufacture of
resin, turpentine oil and other derivatives and they
possessed larger experience in processing of resin and
reprocessing, of resin, turpentine oil and other
derivatives. But, having regard to the commitments already
made by it, it was not possible for the State to make any
definite allotment of resin to the second respondents. The
State, however, had these blazes in the Reasi, Ramban and
Poonch Divisions which it was finding impracticable to tap
1361
through wage contract and the State, therefore, decided to
give them for tapping to the second respondents on certain
terms and conditions, so that the second respondents could
if they were prepared to tap these blazes in inaccessible
areas, secure an assured supply of 3500 metric tones of
resin for the purpose of the factory to be set up by them
within the State. It was in these circumstances that the
impugned order dated 27th April 1979 came to be passed by
the State.
It is clear from the back-drop of the facts and
circumstances in which the impugned order came to be made
and terms and conditions set out in the impugned Order that
it was not a tapping contract simpliciter which was intended
to be given to the second respondents. The second
respondents wanted to be assured of regular supply of raw
material in the shape of resin before they could decide to
set up a factory within the State and it was for the purpose
of ensuring supply of such raw material that the impugned
order was made giving tapping contract to the second
respondents. It was really by way of allocation of raw
material for running the factory that the impugned order was
passed. The terms of the impugned order show beyond doubt
that the second respondents were under an obligation to set
up a factory within the State and that 3500 metric tones of
resin which was permitted to be retained by the second
respondents out of the resin extracted by them was required
to be utilised in the factory to be set up by them and it
was provided that no part of the Resin extracted should be
allowed to be removed outside the State. The whole object of
the impugned order was to make available 3500 metric tones
of resin to the second respondents for the purpose of
running the factory to be set up by them. The advantage to
the State was that a new factory for manufacture of resin,
turpentine oil and other derivatives would come up within
its territories offering more job opportunities to the
people of the State increasing their prosperity and
augmenting the State revenues and in addition the State
would be assured of a definite supply of at least 1500
metric tones of resin for itself without any financial
involvement or risk and with this additional quantity of
resin available to it, it would be able to set up another
factory creating more employment opportunities and, in fact,
as the counter affidavit of Ghulam Rasul, under secretary to
the Government filed on behalf of the State shows the
Government lost no time in taking steps to set up a public
sector resin distillation plant in a far flung area of the
State, namely, Sundarbani, in Rajouri District. Moreover,
the State would be able to secure extraction of resin from
these inaccessible areas on the best possible terms instead
of allowing them to remain unexploited or given over at
ridiculously low royalty. We cannot accept the contention of
the petitioners that under the im-
1362
pugned order a huge benefit was conferred on the second
respondents at the cost of the State. It is clear from the
terms of the impugned order that the second respondents
would have to extract at least 5000 metric tones of resin
from the blazes allotted to them in order to be entitled to
retain 3500 metric tones. The counter affidavit of Ghulam
Rasul on behalf of the first respondent and Guran Devaya on
behalf of the second respondents show that the estimated
cost of extraction and collection of resin from these
inaccessible areas would be at the least Rs. 175/ per
quintal, though according to Guran Devaya it would be in the
neighbourhood of Rs. 200 per quintal, but even if we take
the cost at the minimum figure of Rs. 175/ per quintal, the
total cost of extraction and collection would come to Rs.
87,50,000/- and on this investment of Rs. 87,50,000/-
required to be made by the second respondents the amount of
interest at the prevailing bank rate would work out to about
Rs. 13,00,000/-. Now, as against this expenditure of Rs.
87,50,000/- plus Rs. 13,00,000/- the second respondents
would be entitled to claim from the State in respect of 1500
metric tones of resin to be delivered to it only at the rate
sanctioned by the Forest Department for the adjoining
accessible forests which were being worked on wage contract
basis. It is stated in the counter affidavits of Ghulam
Rasul and Guran Devaya and this statement is not seriously
challenged on behalf of the petitioners, that the cost of
extraction and collection as sanctioned by the Forest
Department for the adjoining accessible forests given on
wage contract basis in the year 1979-78 was Rs. 114/- per
quintal and the second respondents would, thus, be entitled
to claim from the State no more than Rs. 114/- per quintal
in respect of 1500 metric tones to be delivered to it and
apart from bearing the difference between the actual cost of
extraction and collection and the amount received from the
State at the rate of Rs. 114/- per quintal in respect of
1500 metric tones, the second respondents would have to pay
the price of the remaining 3500 metric tones to be retained
by them at the rate of Rs. 350/- per quintal. On this
reckoning, the cost of 3500 metric tones to be retained by
the second respondents would work out at Rs. 474/- per
quintal. The result would be that under the impugned order
the State would get 1500 metric tones of resin at the rate
of Rs. 114/- per quintal while the second respondents would
have to pay at the rate of Rs. 474/- per quintal for the
balance of 3500 metric tones retained by them. Obviously, a
large benefit would accrue to the State under the impugned
order. If the State were to get the blazes in these
inaccessible areas tapped through wage contract, the minimum
cost would be Rs. 175/- per quintal, without taking into
account the additional expenditure on account of interest,
but under the impugned order the State would get 1500 metric
tones of resin at a greatly reduced rate of Rs. 114/- per
1363
quintal without any risk or hazard. The State would also
receive for 3500 metric tones of resin retained by the 2nd
respondents price or royalty at the rate of 474/- per
quintal which would be much higher than the rate of Rs.
260/- per quintal at which the State was allotting resin to
medium scale industrial units and the rate of Rs. 320/- per
quintal at which it was allotting resin to small scale units
within the State. It is difficult to see how on these facts
the impugned order could be said to be disadvantageous to
the State or in any way favouring the second respondents at
the cost of the State. The argument of the petitioners was
that at the auctions held in December 1978, January 1979 and
April 1979, the price of resin realised was as much as Rs.
484/-, Rs. 520/- and Rs. 700/- per quintal respectively and
when the market price was so high, it was improper and
contrary to public interest on the part of the State to sell
resin to the second respondents at the rate of Rs. 320/- per
quintal under the impugned order. This argument, plausible
though it may seem, is fallacious because it does not take
into account the policy of the State not to allow export of
resin outside its territories but to allot it only for use
in factories set up within the State. It is obvious that, in
view of this policy no resin would be auctioned by the State
and there would be no question of sale of resin in the open
market and in this situation, it would be totally irrelevant
to import the concept of market price with reference to
which the adequacy of the price charged by the State to the
2nd respondents could be judged. If the State were simply
selling resin, there can be no doubt that the State must
endeavour to obtain the highest price subject, of course, to
any other overriding considerations of public interest and
in that event its action in giving resin to a private
individual at a lesser price would be arbitrary and contrary
to public interest. But, where the State has, as a matter of
policy, stopped selling resin to outsiders and decided to
allot it only to industries set up within the State for the
purpose of encouraging industrialisation, there can be no
scope for complaint that the State is giving resin at a
lesser price than that which could be obtained in the open
market. The yardstick of price in the open market would be
wholly inept, because in view of the State policy, there
would be no question of any resin being sold in the open
market. The object of the State in such a case is not to
earn revenue from sale of resin, but to promote the setting
up of industries within the State. Moreover, the prices
realised at the auctions held in December 1978? January 1979
and April 1979 did not reflect the correct and genuine price
of resin, because by the time these auctions came to be
held, it had become known that the State had taken a policy
decision to ban export of resin from its territories with
effect from 1979-80 and the prices realised at the auctions
were therefore scarcity prices. In fact, the
1364
auction held in April 1979 was the last auction in the State
and since it was known that in future no resin would be
available for sale by auction in the open market to
outsiders, an unduly high price of Rs. 700/- per quintal was
offered by the factory owners having their factories outside
the State, so that they would get as much resin or the
purpose of feeding their industrial units for some time. The
counter affidavits show that, in fact, the average sale
price of resin realised during the year 1978-79 was only Rs.
433/- per quintal and as compared to this price, the 2nd
respondents were required to pay price of royalty at a
higher rate of Rs. 474/- per quintal for 3500 metric tones
of resin to be retained by them under the impugned order. It
is in the circumstances impossible to see how it can at all
be said that any benefit was conferred on the second
respondents at the cost of the State. The first head of
challenge against the impugned order must, therefore, be
rejected.
RE. GROUND “B”:
It is difficult to appreciate how the impugned order
could be assaulted on the ground that it created monopoly in
favour of the 2nd respondents or imposed unreasonable
restriction on the right of the petitioners to carry on
tapping business under Article 19(1) (g). The impugned order
did not hand over the tapping of the entire forest area in
the State exclusively to the 2nd respondents so as to deny
the opportunity of tapping any forest areas to the
petitioners. What was done under the impugned order was
merely to allot 11,85,414 blazes in the inaccessible areas
of Reasi, Ramban and Poonch divisions to the 2nd respondents
so that the 2nd respondents could have an assured supply of
3500 metric tones of resin for the purpose of feeding the
factory to be set up by them in the State and a large number
of blazes amounting to about 68 lacs in other forest areas
of the State were left available for tapping by the
petitioners and other forest contractors. No monopoly was
created in favour of the second respondents; the petitioners
and other forest contractors could bid for wage contract in
respect of the other blazes which were more than five times
in number than the blazes allotted to the second
respondents. The petitioners in writ petition 481 of 1979,
in fact, obtained a wage contract for extraction of resin
from an easily accessible forest in Rajouri Division for the
aggregate sum of Rs. 2,80,250/- in the year 1979-80 and
though it is true that the petitioners in writ petition No.
482/79 did not obtain any wage contract for tapping in this
year, it was not because blazes were not available for
tapping, but because the petitioners did not get their
registration renewed.
1365
RE. GROUND “C”
The third and last ground of challenge is also
difficult to sustain. We fail to see how the action of the
State in making the impugned order in favour of the 2nd
respondents could be said to be arbitrary or unreasonable.
It is clear from the facts we have narrated above and we
need not repeat those facts again, that the State was not
unjustified in excluding 11,85,414 blazes situate in the
inaccessible areas of Reasi, Ramban and Poonch Divisions
from the auctions, since the past experience showed that
even on the basis of royalty without load, it was difficult
to attract bidders and the maximum that could be obtained,
and that too only in one solitary year, was Rs. 2.55 per
blaze without load, which was an absurdly low return and it
was, therefore, felt quite justifiably, that it would be
futile to include these blazes in the auctions for tapping
on wage contract basis. The State also could not award a
contract simpliciter for tapping on the basis of royalty
with or without load, because, as a matter of policy, with a
view to encouraging industrialisation, the State did not
want resin to go outside its territories but wanted it to be
used only for the purpose of feeding industries set up
within the State and even if a condition could legitimately
be imposed on the contractor that he should sell the resin
extracted and retained by him only to industries within the
State, it would be difficult to ensure observance of such
condition and moreover the object of the State to make resin
available to the local industries at a reasonable price
might be frustrated, because the contractor taking advantage
of scarcity in supply of resin, might, and in all
probability would, try to extract a much higher price from
the industries needing resin. It was thus found to be an
impracticable proposition to tap these blazes either on wage
contract basis or on the basis of royalty with or without
load.
Now the 2nd respondents had made an offer for putting
up a modern plant for manufacture of resin, turpentine oil
and other derivatives within the State provided they were
assured a definite supply of resin every year. But having
regard to the commitments already made by it, it was not
possible for the State to make any definite allocation of
resin to the 2nd respondents and a proposal was therefore
mooted that 11,85,414 blazes in inaccessible areas of Reasi,
Ramban and Poonch Divisions could be allocated to the 2nd
respondents for tapping on certain terms and conditions, so
that the 2nd respondents could tap these blazes and out of
the resin extracted, obtain for themselves an assured supply
for running the factory to be set up by them and make the
balance quantity available to the State for its own purpose.
The 2nd respondents were agreeable to this proposal
1366
and they accordingly put forward an alternative proposal on
these lines for the consideration of the State and
eventually, the impugned order came to be made in favour of
the 2nd respondents. We have already discussed the terms of
the impugned order and it is clear from what we have said
that the impugned order was unquestionable and without
doubt, in the interest of the State and even with a
microscopic examination we Pail to see anything in it which
could possibly incur the reproach of being condemned as
arbitrary or irrational. It is true that no advertisements
were issued by the State inviting tenders for award of
tapping contract in respect of these blazes; or stating that
tapping contract would be given to any party who is prepared
to put up a factory for manufacture of resin, turpentine oil
and other derivatives within the State, but it must be
remembered that it was not tapping contract simpliciter
which was being given by the State. The tapping contract was
being given by way of allocation of raw material for feeding
the factory to be set up by the 2nd respondents. The
predominant purpose of the transaction was to ensure setting
up of a factory by the 2nd respondents as part of the
process of industrialisation of the State and since the 2nd
respondents wanted assurance of a definite supply of resin
as a condition of putting up the factory, the State awarded
the tapping contract to the 2nd respondents for that
purpose. If the State were giving tapping contract
simpliciter there can be no doubt that the State would have
to auction or invite tenders for securing the highest price,
subject, of course, to any other relevant overriding
considerations of public weal or interest, but in a case
like this where the State is allocating resources such as
water, power, raw materials etc. for the purpose of
encouraging setting up of industries within the State, we do
not think the State is bound to advertise and tell the
people that it wants a particular industry to be set up
within the State and invite those interested to come up with
proposals for the purpose. The State may choose to do so, if
it thinks fit and in a given situation, it may even turn to
be advantageous for the State to do so, but if any private
party comes before the State and offers to set up an
industry, the State would not be committing breach of any
constitutional or legal obligation if it negotiates with
such party and agrees to provide resources and other
facilities for the purpose of setting up the industry. The
State is not obliged to tell such party; “Please wait. I
will first advertise, see whether any other offers are
forthcoming and then after considering all offers, decide
whether I should let you set up the industry.” It would be
most unrealistic to insist on such a procedure particularly
in an area like Jammu and Kashmir which on account of
historical, political and other reasons, is not yet
industrially developed and where entrepreneurs have to be
offered attractive terms in order to persuade them to set up
an industry. The State
1367
must be free in such a case to negotiate with a private
entrepreneur A with a view to inducing him to set up an
industry within the State and if the State enters into a
contract with such entrepreneur for providing resources and
other facilities for setting up an industry, the contract
cannot be assailed as invalid so long as the State had acted
bona fide, reasonably and in public interest. If the terms
and conditions of the contract or the surrounding
circumstances show that the State has acted mala fide or out
of improper or corrupt motive or in order to promote the
private interests of someone at the cost of the State, the
Court will undoubtedly interfere and strike down State
action as arbitrary, unreasonable or contrary to public
interest. But so long as the State action is bonafide and
reasonable, the Court will not interfere merely on the
ground that no advertisement was given or publicity or made
or tenders invited. Here, the 2nd respondents approached the
State for the purpose of setting up a modern factory for
manufacture of resin, turpentine oil and other derivatives
and asked for allocation or resin and the State, with a view
to offering an incentive to the 2nd respondents to set up
the factory, made the impugned order awarding the tapping
contract in respect of these blazes to the 2nd respondents
as a part of a package deal. We have already pointed out and
w need not repeat again, that the impugned order was
reasonable and in the interest of the State and in the
circumstances, we are clearly of the view that it cannot be
assailed as invalid merely because no advertisements were
issued inviting offers for setting up a factory and taking
the tapping contract as an integral part of the transaction.
It may, however, be pointed out that though no
advertisements were issued by the State, the Chief Minister
of Jammu and Kashmir had in the course of three speeches
delivered by him-one in Bombay. the other in Calcutta and
the third in New Delhi invited entrepreneurs to set up
industries within the State with a view to bringing about
rapid industrialisation and economic development of the
State by utilising its “peculiar natural resources” and
converting them into finished or semi-finished products and
promising “various forms of assistance and incentives” for
the purpose. These speeches were widely advertised in the
newspapers and it was, therefore, known to entrepreneurs
that the State would be willing to provide resources and
other facilities to those who were interested in setting up
industries within the State and, in fact. the State was
anxious to attract entrepreneurs to start industries and it
was in pursuance of this invitation that Prabhat Tarpens and
Synthetics Private Limited, Dujodwala Resins and Tarpens.
Pvt. Ltd., Pine Chemicals Limited and the second respondents
made their respective offers for putting up factories within
the State. It is, there fore, in any event not correct to
say that the petitioners had no oppor-
1368
tunity of making an offer of setting up a factory and
obtaining a tapping contract for the purpose.
It is also necessary to point out that the claims of
the petitioners in writ petition No. 481 of 1978 and some
others were considered by the Forest Minister and other
forest officials at the meeting held on 25th December, 1978
and applying the criterion of “financial status and its
distillation in the factory”-which criterion cannot be said
to be irrational or irrelevant-the application of the 2nd
respondents was unanimously accepted. This decision cannot
be said to be mala fide or prompted by improper or corrupt
motive. There is, in fact, no evidence before us to show or
even as much as to suggest that any favour was conferred on
the 2nd respondents at the cost of the State or that the 2nd
respondents were preferred to some others without any basis
or justification. The petitioners in writ petition No. 481
of 1979 had very little experience of extraction of resin,
since they had taken tapping contract for the first time
only in 1978-79 and so far as processing of resin is
concerned, they had no experience at all, as they did not
have any factory for processing of resin nor had they at any
time in the past, participated in any auction of resin. The
petitioners in writ petition No. 481 of 1979 were
principally grocery and provision merchants and though they
had taken some tapping contracts in the past, they had no
experience at all in processing of resin since they did not
own any factory. The 2nd respondents, on the other hand, had
large experience in extraction of resin from inaccessible
forests of Poonch Division and they also possessed
considerable experience in distillation and processing of
resin since they had two factories, one in Hoshiarpur and
the other in Delhi. The State had in fact given two
contracts to the 2nd respondents in the year 1974-75 to
install factories for manufacture of resin and turpentine
oil in the public sector and these contracts have been
carried out by the 2nd respondents to the entire
satisfaction of the State. Therefore, so far as the relative
merits of the petitioner on one hand and the 2nd respondents
on the other were concerned, the 2nd respondents were
definitely superior and it cannot be said that the State
acted unreasonably or contrary to public interest in
preferring the 2nd respondents and permitting them to put up
a factory within the State and awarding them tapping
contract in respect of these blazes for the purpose of the
factory. It may be pointed that the petitioners in writ
petition No. 482 of 1979 had not even got their registration
renewed for the year 1979-80 and hence no tapping contract
could possibly be given to them. We must, accordingly,
reject the third ground of challenge urged on behalf of the
petitions.
1369
We are, therefore, of the view that there is no
substance in any of the contentions raised on behalf of the
petitioners and it was for this reason that by an order
dated 15-2-1980, we dismissed both these writ petitions with
no order as to costs.
S.R. Petitions dismissed.
1370