TMI Blog1980 (5) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ze. 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 situa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplaining 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 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 wag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd area of the State. The State did not accept this offer made by the petitioners and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as rights, while others have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stri, 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- 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 lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 175/ per quintal, though according to Guran Devaya it would be in the neighbourhood of ₹ 200 per quintal, but even if we take the cost at the minimum figure of ₹ 175/ per quintal, the total cost of extraction and collection would come to ₹ 87,50,000/- and on this investment of ₹ 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 ₹ 13,00,000/-. Now, as against this expenditure of ₹ 87,50,000/- plus ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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 ₹ 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 2,80,250/- in the year 1979-80 and though it is true that the petitioners in writ petition No. 482/79 did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order to persuade them to set up an industry. The State 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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