1990 (10) TMI 368 - SC - VAT / Sales Tax

Summary

The core legal questions considered in this judgment include:

1. Whether the Orissa Forest Produce (Control of Trade) Act, 1981 ("Act 22 of 1981") and the notifications issued under Section 1(3) of the Act apply to and affect the contracts entered into between the contractors and the State of Orissa for the cutting and removal of bamboos from specified areas.

2. Whether the rights of the contractors under the bamboo contracts are contractual rights or rights in the nature of profits a prendre (a benefit arising out of land), and if the latter, whether such rights survive statutory rescission of contracts under Act 22 of 1981 and its amendments.

3. The validity of the amendments made to Act 22 of 1981, particularly the Orissa Forest Produce (Control of Trade) (Amendment) Act, 1989 ("Act 4 of 1989"), including the retrospective effect provisions and the inclusion of grants of profits a prendre within the scope of rescission.

4. Whether Section 1(3) of Act 22 of 1981, which empowers the State Government to bring the Act into force in specified areas and for specified forest produce by notification, is valid or suffers from excessive delegation of legislative power.

5. Whether Act 22 of 1981 and the Orissa Forest Act, 1972 deal with identical subjects such that the former is rendered surplusage or inconsistent.

6. Whether the rescission of contracts and creation of State monopoly under Act 22 of 1981 amounts to acquisition of property requiring compensation under constitutional or statutory provisions.

Issue-wise Detailed Analysis

1. Applicability of Act 22 of 1981 and Notifications to Bamboo Contracts

The contractors had exclusive rights and licenses under agreements with the State of Orissa to fell, cut, and remove bamboo for pulp manufacture. These contracts were rescinded by Act 22 of 1981, which came into force in respect of bamboos in Government forests on 1-10-1988 by notification under Section 1(3). The contractors contended that their rights were unaffected by the Act and notifications.

The Court examined the legislative purpose of Act 22 of 1981, which was enacted to create a State monopoly to prevent smuggling and regulate trade in forest produce, including bamboo. The Act's provisions, particularly Section 5(1), rescinded all contracts for purchase, sale, gathering, or collection of specified forest produce in notified areas and prohibited purchase or transport by any person other than the State or its appointed agents.

The notifications issued on 21-09-1988 brought bamboo in Government forests under the Act's control from 1-10-1988, effectively rescinding the contractors' bamboo contracts and appointing the Orissa Forest Corporation Ltd. as the sole agent for bamboo extraction and trade.

The High Court had rejected the contractors' claim that their rights survived, holding the contracts rescinded and the contractors replaced by agents. The Supreme Court concurred, holding that the Act and notifications validly applied to the bamboo contracts, rescinding them as of the notified date.

2. Nature of Contractors' Rights: Contractual or Profits a Prendre

The contractors argued that their rights arose not merely from contract but as grants of profits a prendre, a property interest in immovable property (the right to take bamboo from land), and thus could not be rescinded by statute.

The Court analyzed the decision in the earlier case of State of Orissa v. Titaghur Paper Mills Co. Ltd. (1985), which held that bamboo contracts confer a benefit arising out of land (profits a prendre) and are not contracts of sale of goods. However, the Court clarified that Titaghur did not hold that such rights arose independent of contract or that they survived statutory rescission. The rights were created by and dependent on the contracts themselves.

The Court emphasized that all rights, including profits a prendre, granted or recognized under the bamboo agreements were contractual in nature and subject to statutory control. The subsequent amendment by Act 4 of 1989 explicitly included rescission of grants of profits a prendre, confirming that such rights do not survive the statutory rescission of contracts.

Further, no evidence was presented to show that any profits a prendre arose independently of or prior to the contracts. The Court held that no right or interest, contractual or otherwise, can survive valid superseding legislation.

3. Validity and Retrospective Effect of Act 4 of 1989

Act 4 of 1989 amended Section 5 of Act 22 of 1981 to expressly provide that on notification under Section 1(3), all contracts and grants of profits a prendre stand rescinded, notwithstanding any other law, except customary tribal rights. The amendment was made retrospective to the date when the principal Act was notified (5-9-1981).

The contractors contended that the amendment could not be brought into force without a fresh notification under Section 1(3) and that retrospective application was invalid.

The Court rejected these contentions, holding that the deeming provisions of Act 4 of 1989 required reading the amended provisions into the principal Act as if originally enacted. The notification issued under Section 1(3) of the principal Act in respect of bamboo on 21-09-1988 applied to the Act as amended, bringing the rescission provisions into effect from 1-10-1988.

The Court relied on authoritative principles of statutory construction that an amending Act with retrospective effect is to be read as part of the principal Act, and that the notification bringing the principal Act into force in specified areas and for specified produce applies equally to the amended provisions.

4. Validity of Section 1(3) of Act 22 of 1981 (Conditional Legislation vs Excessive Delegation)

The contractors challenged Section 1(3) as an excessive delegation of legislative power to the executive to bring the Act into force by notification in specified areas and for specified forest produce.

The Court held that Section 1(3) is a valid example of conditional legislation, not forbidden delegation. The legislature enacted a complete law and left the executive with the limited power to specify the timing and areas of enforcement based on prevailing facts and circumstances.

The Court cited precedents establishing that such conditional legislation, where the legislature itself makes the law and leaves the timing or area of operation to executive discretion, is valid unless constitutionally prohibited. The power conferred on the State Government was held to be neither excessive nor invalid.

5. Relationship between Act 22 of 1981 and Orissa Forest Act, 1972

The contractors argued that the two Acts address identical subjects, rendering Act 22 of 1981 surplusage or inconsistent.

The Court distinguished the two statutes. The Orissa Forest Act, 1972, concerns protection and management of forests, including acquisition of land rights under the Land Acquisition Act, 1984. In contrast, Act 22 of 1981 is aimed at controlling and regulating trade in forest produce by creating a State monopoly, without acquisition of land.

The Court held that the two enactments have distinct objects and operate in different spheres, and that Act 22 of 1981 validly rescinds contracts and grants related to forest produce trade without conflicting with the Forest Act, 1972.

6. Acquisition and Compensation Issues

The contractors contended that the statutory rescission of contracts and creation of State monopoly amounted to acquisition of property without compensation.

The Court held that Act 22 of 1981 does not acquire land or property rights but regulates trade in forest produce by State monopoly. The contractors were given reasonable opportunity to remove felled bamboo and were offered compensation for felled but unremoved bamboo.

The Court held that no fundamental right was infringed, and the exclusion of contractors from trade was a lawful exercise of legislative power for public interest, particularly to curb smuggling and protect the economy.

Significant Holdings

"The bamboo contracts conferred upon the contractors a benefit to arise out of land. It was a contractual right relating to immovable property and not relating to goods... The decision in Titaghur is confined to matters directly and substantially in issue in that case and is neither precedent nor res judicata for any other matter."

"All rights and interests contrary to and inconsistent with the statute accordingly stand rescinded."

"No right or interest or grant, whether contractual or prerogative in character or origin, whatever be nature, source and scope, can survive a superseding valid legislation."

"Section 1(3) of Act 22 of 1981 is a true example of conditional legislation, and not delegated legislation, and it is perfectly valid."

"The deeming provisions of Act 4 of 1989 require that the amended provisions be read into the principal Act as if originally enacted, and the notification issued under Section 1(3) applies equally to the amended provisions."

"The legislative measures creating State monopoly to control trade in forest produce are rationally related to the object sought to be achieved and are presumed to be reasonable and in the interests of the general public."

"No fundamental right of the contractors is affected by such control through State monopoly, particularly when the contractors have been given full liberty to remove all felled bamboos within the stipulated period."