CASE NO.: Appeal (civil) 4312 of 1997 PETITIONER: M.P. OIL EXTRACTION AND ANR. ETC. RESPONDENT: STATE OF MADHYA PRADESH AND ORS. DATE OF JUDGMENT: 09/07/1997 BENCH: G.N. RAY & G.T. NANAVATI JUDGMENT:

JUDGMENT 1997 Supp (1) SCR 671 With C.A. 4314 of 1997 The Judgment of the Court was delivered by <NAME>, <NAME> granted. Heard learned counsel for the parties.

All the three special leave petitions namely S.L.P. (Civil) No. 19729 of 1995, S.L.P. (Civil) No. 20137 of 1995 and S.L.P. (Civil) No. 19796 of 1995 are directed against common judgment dated 9.5.1995 passed by <ORG> respectively in Misc. Petitions No. 1371 of 1992, M.P. No. 1980 of 1992 and M.P. No. 2315 of 1992. All the said Misc. Petitions were filed before <ORG> under Article 226 of the Constitution challenging the legality and validity of agreements made by <ORG> with <ORG> and <ORG> for supply of sal seeds grown in the State of Madhya Pradesh on payment of determined royalty by alleging inter alia that the writ petitioners namely <ORG> and <ORG> have been subjected to hostile discrimination in the matter of grant of largesse so far as sal distribution of sal seeds is concerned by favourably treating the said <ORG> and <ORG> thereby affecting the economic viability of the writ petitioners. It may be indicated here that before the said writ petitions were filed in <ORG>, a series of litigations were fought between the parties to these appeals both in <ORG> and in this Court. In 1981, the appellants <ORG> and <ORG> filed writ petitions numbered as M.P. No. 559 and 1404 of 1981, in <ORG> challenging the agreements between <ORG> and <ORG> and State government of Madhya Pradesh for distribution of specified amount of Sal seeds to the said concerns annually by alleging hostile discrimination against the said writ petitioners in the matter of distribution of sal seeds. Such writ petitions were dismissed by <ORG> of <ORG> by order dated 21.8.1981. The said decision has been reported in AIR 1982 M.P. 1. Against the said decision, both the writ petitoners filed special leave petitions before this Court in which leave was granted in C.A. No. 2994 and 2295 of 1982. In terms of the interim orders dated 5.5.1982 and 6.5.1983, the State of Madhya Pradesh had to supply 5000 M.T. of sal seeds in favour of each of the said appellants namely <ORG> and <ORG> in 1982 and 1983. <ORG> and <ORG> did not receive the contractual quality of sal seeds in the said years. It, however, appears that after obtaining the said interim orders on two occasions, both the appellants withdraw C.A. Nos. 2994 and 2995 of 1982 and the said appeals stood disposed of and the imugned judgment of <ORG> became final. It may be stated here that under two separate agreements by the <ORG>, both the appellants namely <ORG> and <ORG> got reservation of 13 to 17 sal seeds producing forest units in their favour. Such reservation of forests was challenged before <ORG> in M.P. No. 261 and 266 of 1980 and by judgment dated 25.9.1980 <ORG> of <ORG> allowed the writ petitions and set aside the said agreement for reservation of forests in favour of the appellants. During the year 1983, both the appellants again managed to get reservation and allotment of 7500 M.T. of sal seeds per annum under two separate but identical agreements dated 12.12.1983 from <ORG> for a term of 12 years. Such agreements were challenged by <ORG> in M.P. No. 1364 of 1964 before the <ORG>. A Division Bench of <ORG> by order dated 11.6.1985 quashed the said agreements executed in favour of both the appellants. It may be indicated here that before the said agreements were annulled by <ORG>, the appellants got 7500 M.T. of Sal seeds per annum for the years 1984 and 1985 in terms of the said invalid agreements. The respondents <ORG> and <ORG> had to receive much lesser quantity of sal seeds which were due to them in terms of the agreements made in their favour. Both the appellants moved special leave petitions before this Court assailing the said judgment dated 11.6.1985 of <ORG>. Such leave petitions were disposed of by this Court by order dated 10.4.1986 reported in AIR (1986) SC 1927. By the said order, this Court upheld allotment and reservation of sal seeds in favour of <ORG> and <ORG> and <ORG> and <ORG> being the four units selected by <ORG> under the 1977 Industrial Policy. It appears that after all such futile attempts, the appellants did not give up their pursuits to get allotment of sal seeds from the Government. In 1986, both the appellants filed two separate but identical writ petitions being M.P. No. 645 and 644 of 1996 challenging the reservation and allotment of 10,000 M.T. of sal seeds in favour of <ORG> which was also selected under 1977 Industrial Policy. Such writ petitions were also dismissed by <ORG> by order dated 6.5.1986. Thereafter, the writ petitions were again filed by both the appellants challenging the renewal of lease in favour of the respondents <ORG> and <ORG> by treating such renewals as new leases and also challenging the determination of royalty to be paid for the sal seeds to be supplied to the respondents. Such writ petitions have also been dismissed by <ORG> of Madhya Pradesh <ORG> and the present appeals are directed against the decision of <ORG> passed in the said writ petitions.

Mr. <NAME>, the learned Senior counsel appearing for the appellants <ORG> has submitted that the appellant had set up their first solvent extraction plant in 1966 using bran rice as raw material. The appellant made suitable modification in their plant for processing of sal seeds and also set up a new plant for extraction of sal seeds on the basis of an assurance of availability of sal seeds vide letter dated 24.1.1970 of <ORG> to the effect:

"Since sal seeds are available in huge quantity in nearby area, spare capacity of your plant, if any, be utilised after modification in the existing plant."

The appeallants have been using sal seeds and rice bran as raw material, alternatively in their solvent extration plant from 1973 onwards. As the availability of sal seeds was seasonal and limited, no solvent plant could exclusively depend on sal seed for running its business. Mr. <NAME> has contended that the Industrial Policy laid down by <ORG> in 1977 envisaged supply of sal seeds to the new units as well as to the existing old units. Such position has been noticed by <ORG> in its decision reported in AIR (1982) MP 1 at page 3. The said Industrial Policy also laid down that new units should be encouraged to set up their plants with concessions during the initial period for a period of 5 to 10 years. Such fact has also been noticed by <ORG> in its decision reported in AIR (1982) MP 1 page 2. Mr. <NAME> has submitted that the said Industrial Policy was framed on the basis of expert committee's finding that the estimated annual sal seed potential is over 10 lacs M.T. The said Industrial Policy was modified in 1981 by making reservation for sal Udyog and Bastar Oil Mills as new units and the surplus to be sold in auction.

Mr. <NAME> has further contended that the agreements in favour of <ORG> and <ORG> for supply of 10,000 M.T. of Sal Seeds were entered in the year 1979 on the premise of the expert committee's findings as already indicated. Both the agreements were to subsist for a period of 12 years. Mr. <NAME> has submitted that average yield per year as per <ORG> estimate is around 60,000 M.T. After meeting the commitments of <ORG>, the available surplus was only in the region of 37,000 M.T. of sal seeds. Inspite of the fact that annual yield of sal seeds in the State of M.P. for the year 1990 and 1991 was 4768 M.T. and 190809 M.T. respectively, <ORG> treated <ORG> and <ORG> (Pvt.) Limited as most favoured industrial concerns and executed fresh agreements for a further period of 12 years with effect from 1991. The agreements contain provisions for further renewal. In the case of <ORG> Mills the quantity was increased to 20,000 M.T. while in the case of <ORG> (Pvt.) Ltd. the quantity was fixed at 10,000 M.T.

Mr. <NAME> has contended that as a result of such fresh agreements with <ORG> and <ORG>, <ORG> is now committed to supply annually sal seeds grown in the State of M.P. in the following manner :

(i) <ORG> - 20,000 M.T. (ii) Sal Udyog - 10,000 M.T. (iii) <ORG> 10,000 M.T. (iv) <ORG> 10,000 M.T. Total 50,000 M.T.

Mr. <NAME> has contended that <ORG> being fully aware of the availability of sal seeds in 1991 which was a meagre 19809 M.T. acted malafide in treating only few of the industrial units of the State in a very favoured manner by entering into fresh agreements for supply of 50,000 M.T. of sal seeds to the new units. Such action has amounted to deliberate hostile action in ensuring non availability of sal seeds for distribution, to other units operating in the State of Madhya Pradesh including the appellants. Such hostile discrimination is clearly violative of Articles 14 and 19 of the Constitution of India.

Mr. <NAME> has further contended that there is no earthly reason to be completely oblivious of the needs of other industrial units operating in the State which also require sal seeds for their units. The need of old units was recognised by <ORG> when it directed <ORG> to allot 5000 MT to both the appellants by interim order dated 6.5.1982. The appeals were disposed of by this Court on 10.4.1986 and the matters were remanded to <ORG> for determining the basis of distribution of sal seeds among the old units. On remand, <ORG> by order dated 18.10.89 held that the surplus would be distributed among old units on the basis of their capacity. In order to perpetuate the hostile discrimination, <ORG> entered into fresh agreements thereby ensuring that there would be no surplus to be distributed to old units like the appellants.

Mr. <NAME> has also contended that <ORG> was fully aware of the need of sal seeds for the old units like the appellants. As a matter of fact, considering the hardship of the appellants in not getting 'regular supply of sal seeds from the <ORG>, <ORG> entered into agreements with the appellants in 1983 for supply of 7500 M.T. of sal seeds per year for 12 years. Unfortunately such agreements were cancelled by <ORG> on a finding that there was no justification for any concessions to the old units. Mr. <NAME> has submitted that even in the Industrial Policy of 1977, <ORG> recognised the need of sal seeds by the old units like the appellants and it was clearly stipulated in the Industrial Policy that sal seeds should be made available to both old and new units. Even in 1981 when the old policy of 1981 was revised it was indicated that after meeting the annual allotments of 10,000 M.T. of sal seeds to <ORG> and <ORG>, the surplus should be allotted to the old units. On the face of actual availability of sal seeds in the State, and after recognition of the need of sal seeds by old units and accepting such need in the industrial policy of 1981, fresh agreements in favour of <ORG> and <ORG> in 1991 are wholly unjustified and mala fide and illegal being vitiated with arbitrariness and abuse of power by discriminatory action in the matter of distribution of sal seeds to other industrial units operating in the State.

Mr. <NAME> has further submitted that <ORG> and <ORG> got preferential treatment ever since 1979 onwards for a period of 12 years by way of assured supply of sal seeds by <ORG> on the footing that the said concerns were new units and deserved special protection by the <ORG> for some time. But after 12 years, both the said units can no longer be treated as new units for the purpose of receiving preferential treatment. Hence, at the present moment, all the units in the <ORG> must be treated at par and the agreements in 1991 in favour of the said units must be held as wholly unjustified and illegal and should be struck down.

Mr. <NAME> has contended that the agreements in 1979 with the said units for 12 years had a clause for renewal. In the new agreements of 1991 there is also clause for renewal. The result is that there has been assured supply of sal seeds in favour of the said units in perpetuity to the total exclusion of the other units. Mr. <NAME> has submitted that <ORG> cannot be permitted to treat some units in the <ORG> more favourably than others in the absence of any strong and valid reason for such discriminatory treatment. Law is well settled that in the matter of distribution of largesse, the <ORG> Government is bound to act fairly and reasonably and cannot resort to hostile discrimination against some units and treat some other units with undue favour when all the units must be treated as old units and therefore similarly circumstanced. Mr. <NAME> has also contended that even in the matter of royalty to be paid by the said respondents, there has been naked favouritism. The royalty to be paid by the said respondents for the sal seeds to be supplied by the <ORG> government under the impugned agreement is absolutely minimal and much less than the auction price for sal seeds. In view of such paltry royalty payable by the said respondents, the respondents are not only getting assured supply of sal seeds from the <ORG> Government but they are getting such supply almost at a throw away price. As a result, the appellants are facing unjust competition from the said favoured child of the <ORG> Government. Mr. <NAME> has, therefore, submitted that the appeals should be allowed and the impugned agreements in favour of the said respondents should be set aside. This Court should also direct the <ORG> Government of Madhya Pradesh to distribute sal seeds to all the existing units which require sal seeds for their units on the pro rata basis with reference to their productive capacity and actual annual requirement.

Mr. <NAME>, the learned senior counsel appearing for the appellant <ORG> has supported Mr. <NAME> in his submissions. Mr. <NAME>, has contended that by the impugned agreements, <ORG> has given largesse to the said respondents without inviting any tender and excluding the appellant from obtaining any allotment of sal seeds from the government even though the appellant badly requires sal seeds for its productive activity and it had set up extraction plant long back after examining economic viability with reference to availability of sal seeds in the State of Madhya Pradesh as assured by <ORG>. Mr. <NAME> has submitted that the appellant has been using sal seeds ever since the extraction plant of the appellant was commissioned in 1974.

Mr. <NAME> has submitted that sal seeds is a seasonal natural forest produce grown in the <ORG> forests in M.P. The production of sal seeds varies from year to year. According to the <ORG>'s calculation, the average yield of sal seeds for the last seven years from 1985 to 1991 is 36950 M.T.

If the average production of sal seeds from 1974 to 1990 i.e. a period of 18 years is taken into consideration, it works out to be 40600 M.T. Sal seeds as a forest produce was brought under the monopoly of <ORG> with effect from May 5, 1975 udner M.P. Vanopaj (Vyapar Viniyaman) Adhiniyam,l969. After 1975, the plant of the appellant and other existing plants were totally dependent on <ORG> of M.P. for supply for sal seeds as a raw material. Sal seeds used to be sold by auction or by invitation of tenders. The oil content of sal seeds was being used as a raw material for extraction of oil. The collection of sal seeds is made by tribals residing in forest area and collection season is from 3rd week of May upto onslaught of monsoon.

Mr. <NAME> has also submitted that <ORG> formulated a detailed policy in 1978 known as "Raw material policy for forest based industries". The basic object of industrial policy was to provide for assured supply of raw material to such industries as are employment oriented. The said policy envisaged asssured supply to the industrial units established within the <ORG> and to prevent its drain outside the <ORG>. The policy of 1978 was made for the maximum utilisation of the forest resources within the <ORG> and did not speak of industrialisation of any particular area whether backward or otherwise.

Mr. <NAME> has further contended that <ORG> invited applications for setting up extraction plants on the assurance for supply of 10000 M.Ts. of sal seeds annually for a period of 12 years. Pursuant to such invitation, the following two agreements were executed in 1979:

(i) Agreement in favour of <ORG> <ORG> whose plant is situated in Jagdalpur on 5.10.1979.

(ii) Agreement dated August 30, 1979 in favour of <ORG> <ORG> Its plant was situated in the Industrial Estate, Raipur.

The rate of royalty was fixed at Rs. 300 and the rate was fixed Rs. 312.50 per mt. respectively.

<ORG> invited applications from entrepreneurs for establishing three extraction plants on the basis of similar assurance for supply of 10000 MTs. of sal seeds annually for a period of 12 years.

Mr. <NAME> has contended that the two agreements with <ORG> and <ORG> were challenged by contending that the two agreements had resulted in discrimination against the appellant because no sal seeds would be left for the existing plants including that of the appellant as the average annual yield of sal seeds was only 54000 M.T. Such Writ Petitions were, however, dismissed by <ORG> inter alia on the finding that classification between the old plants (existing plants) and the new plants was justified. The contention of the appellant that no sal seeds would be left for allotment to the other existing plants was repelled on the ground that the estimated production of sal seeds in the <ORG> was to the tune of one lac M.T. according to the report of the committee on <ORG>. The appellant filed special leave petition against the said decision of <ORG> before this Court and obtained interim orders from this Court to get supply of 5000 M.Ts. of sal seeds in May, 1982 at the royalty rate of Rs. 630 per mt. During the pendency of the proceedings, <ORG> formulated another policy on May 9,1983. Under the said policy, the estimated surplus of 20000 M.T. of sal seeds was to be distributed among the existing plants in proportion of their consumption of sal seeds during the last five years. In accordance with the said policy, an agreement was entered between <ORG> and the appellant in December, 1983 for supply of 7500 M.T. of sal seeds to the appellant at the royalty rate of Rs. 750 per M.T. for a period of 12 years. Such agreement was, however, challenged by <ORG> of Indore on the ground of discrimination between the existing plants. <ORG> quashed the said agreement. <ORG> gave the direction for distribution of surplus quantity of sal seeds to the existing units in proportion to their capacity. <ORG> also held that the rate of royalty of Rs. 750 per M.T. was a concessional rate. Such decision of <ORG> was challenged by the appellant before this Court and the matter was remanded to <ORG> and was finally disposed of by <ORG> on October 18, 1989. <ORG> directed for making equal distribution of sal seeds to the existing plants. It was noted by <ORG> that the tremendous increase in demand of sal seeds coupled with short supply and non-availability in the open market due to the <ORG> monopoly, had resulted in heated rivalry among the industrial units.

Mr. <NAME> has submitted that the market price of sal seeds has two components, namely, royalty and collection charges. In 1979, royalty rate was Rs. 300 per M.T. and such rate was concessional. In 1983, the rate of royalty was Rs. 750 per M.T. and in the agreement dated September 12, 1983 in favour of the appellant, the rate of royalty was fixed at Rs. 750 per M.T. In the agreement in favour of the appellant <ORG> in 1983, the rate of royalty was fixed by <ORG> at Rs. 1030 for the block period of two years from November, 1987 and November, 1989. Such fixation, however, was set aside because the price was not fixed in accordance with the clause 7 of the agreement in favour of M/s. <ORG> by <ORG> in Misc. Petition No. 1653 of 1988. The appellant had offered to purchase sal seeds in 1988 on August 27, 1988 at the total rate of Rs. 2250 per M.T. The rate of royalty works out to be Rs. 700 per M.T. For the year 1991 the appellant offered to purchase sal seeds at the royal rate of Rs. 1200 per M.T. The appellant also offered to purchase sal seeds at a royalty of Rs. 1225 per M.T. Mr. <NAME> has submitted that fixation of the rate of royalty in favour of M/s. Bastar Oil Industries at a ridiculously low rate of Rs. 400 for the period of two years and with a stipulation for increase at the rate of 5% thereafter is wholly arbitrary, unjustified and discriminatory. Such agreement is also against the interest of the revenue of the <ORG>. Mr. <NAME> has contended that by fixing such a low rate of royalty, the <ORG> Exchequer has incurred a loss of crores of rupees. Such fixation of rate of royalty itself is arbitrary as the rate of royalty will depend on the rate of demand and supply in the market of sal seeds. Mr. <NAME> has also submitted that the impugned agreement dated September 7, 1991 has resulted in a hostile discrimination against the existing plants. The <ORG> Government has raised the quantity of sal seeds from 10000 M.T. to 20000 M.T. in favour of Bastar Oil Mills and by similar agreement <ORG> has agreed to supply sal seeds of 10000 M.T. to Sal Udyog. The said Sal Udyog is not situated in any backward area. It is situated in the industrial estate at Raipur and the unit of the appellant is also situated very close to that of Sal Udyog.

Mr. <NAME> has supported the contention made by Mr. <NAME> that after meeting the demands in favour of <ORG>, <ORG>, <ORG>, no sal seeds would be left for being sold to the existing plants. Mr. <NAME> has submitted that therefore the impugned agreements have resulted in monopoly of getting sal seeds by the said respondents. Mr. <NAME> has contended that the executive action in 1991 in entering into fresh agreements after being fully aware of the supply position of sal seeds, in favour of the respondents with a further renewal clause, is patently unjust and has resulted in monopoly without any just cause and reasonable basis. Mr. <NAME> has contended that the appellant and other existing units in the <ORG> have a right to be considered fairly and reasonably for the distribution of sal seeds by the <ORG> Government in a reasonable and unbiased manner. He has, therefore, submitted that the impugned agreements should be cancelled by this Court and the <ORG> Government should be directed to distribute sal seeds to all the existing units on a pro rota basis.

Dr. <NAME>, learned senior counsel appearing for the respondent <ORG>, has disputed the contentions of the appellants. Dr. <NAME> has contended that there is a fundamental difference between the two categories of industries operating in the State of Madhya Pradesh using sal seeds for production i.e. those which have a specific agreement with the State of Madhya Pradesh entered into under the mandate of the specific policy inviting new entrepreneurs to the State and execution of special agreement with them after selection as opposed to the second category which consists of together units existing prior to the policy not selected by the government of Madhya Pradesh and having no privity of agreement or contract with the State of M.P. Such specific dual classification of users of sal seed for productive activity has been repeatedly recognised and judicially upheld as valid in a number of decisions rendered between the same parties. In support of this contention, Dr. <NAME> has drawn the attention of this Court to the decisions in <CITATION> ., AIR (1982) M.P. 1; <ORG> v. Secretary to Ministry of Forest, Bhopal and Ors., AIR (1986) SC 1927 para 4 and M/s. K.N. Oil Industries and <ORG> v. <ORG>, AIR (1986) SC 1929. The said judicial pronouncements categorically upheld the classification of users of sal seed into two categories. The <ORG> have also upheld the agreement in favour of the respondents as well as the reservation of specific quantity of sal seeds in favour of those units having agreements and the provision of concessional rate for such units during the first four years of agreement. Dr. <NAME> has also contended that since such agreements in question in the present case were also the subject matter of challenge in the earlier proceedings and fell for scrutiny and adjudication by the <ORG> in the earlier proceedings which ultimately upheld the entire contract including the renewal clauses, there is no occasion for the appellants to challenge the said contract and the renewal clauses collaterally. By the impugned decision, such challenge has been rightly rejected by <ORG>.

Dr. <NAME> has also contended that all contentions regarding the impugned agreement and the clauses in the agreement have been upheld. Therefore repeated challenges to different clauses of the agreement are precluded. Dr. <NAME> has also submitted that even if it is assumed that particular argument regarding the validity of any clause of the agreement was not specifically raised or specifically considered, such a plea at a subsequent stage is precluded and barred by principles akin to res judicata and constructive res judicata. In support of such contention, reliance has been placed on the decisions of this Court in Smt. Somawanti & <ORG> v. State of Punjab and <ORG>, AIR (1963) SC 151 para 22; <CITATION> , AIR (1977) SC 1680 para 8; <CITATION> ., AIR (1965) SC 1623 and <CITATION> , AIR (1981) Bombay 271 para 13, 15 = (1973) SC 973 para 10.

Dr. <NAME> has also submitted that since the renewal clause was necessarily upheld being part of the agreement and the agreement was upheld in successive proceedings, the present case does not perse raise any issue of Article 14 relating to the validity of the renewal clause. Dr. <NAME> has submitted that at the highest, the case of the appellants cannot be said to be higher than a challenge under Article 14 or under common law principles of judicial review of administrative action, namely, to the actual discretionary act of renewal in September, 1991.

Dr. <NAME> has submitted that such challenge should be considered in the context of fundamental difference in the two categories of units consuming sal seed in their plants and the differences have already been recognised. Since the validity of the contract including the renewal clause itself is upheld as binding by judicial verdict, the actual exercise of power of renewal cannot be held to be arbitrary because such renewal clause was essentially necessary and inevitable to give effect to the protection for which agreement has been made. Dr. <NAME> has contended that unless significance and material facts and circumstances demonstrating the violation of administrative discretion by recourse to irrelevant considerations or on perverse or unreasonable criteria are established by the appellants, such exercise of administrative discretion cannot be invalidated. Dr. <NAME> has submitted that the appellants have failed to demonstrate any such fact, even remotely, as vitiating the exercise of the actual power of renewal. Dr. <NAME> has submitted that principles of administrative discretion and judicial review have been clearly indicated in the decisions of this Court in <CITATION> , AIR (1967) SC 295; <CITATION> , AIR (1984) SC 1182 para 11 and <CITATION> , AIR (1988) SC 1737 para 83. Dr. <NAME> has also submitted that the renewal clause is divisible and severable into (i) the act of renewal itself and

(ii) the actual terms and conditions upon which the renewal is granted. The latter follows only upon the prior and threshold decision regarding the former.

Dr. <NAME> has contended that not only the agreements in favour of the four units including the respondents <ORG> and <ORG> under the Industrial Policy of the State have been upheld in the earlier proceedings but equally the agreements dated November 16, 1983 and December 12, 1983 purported to be entered into by the State of M.P. with both the appellant namely <ORG> and <ORG> respectively have been struck down and held to be constitutionally invalid. The decision of <ORG> in M.P. No. 1364 of 1984 has been upheld by this Court in <CITATION> ., AIR (1986) SC 1929. Dr. <NAME> has also submitted that it is sig-nificant to note that the agreement with the appellants since struck down contained an identical renewal clause and the appellants gladly accepted such renewal clause in the agreement in their favour though such agree-ments being illegal for different reasons were struck down by the court. Dr. <NAME> has further submitted that the renewal clause must give some kind of protectable right, interest or claim to the grantee, additional to the right available to a person without any renewal clause at all. The renewal clause has to be given some meaning, effect and scope and cannot be rendered superfluous, otiose or redundant.

Dr. <NAME> has also submitted that the existence of the renewal clause in the context of the classification of two categories of the industrial units as already explained must itself and necessarily lead to the exclusion of all the other forms of public dealing like tender, auction etc. As long as the classification and the reservation made in favour of units invited under the industrial policy along with the agreement with renewal clause are upheld, the act of renewal cannot be invalidated on the ground of absence of invitation of tender or holding auction. Dr. <NAME> has submitted that in the present case, the power of negotiation stood conferred and tender/auction stood automatically and necessarily excluded from the very date of the two contracts in 1979 which contained the renewal clause. Dr. <NAME> has further submitted that in any event, it is well established that tender/auction is not the only or sole method of distribution of <ORG> largesse. Even in the absence of specific contract or agreements, <ORG> largesse may be dealt with by negotiation and not through tender or auction. In support of the contention that in appropriate case, by negotia-tion, <ORG> largesse can be dispensed with, Dr. <NAME> has relied on the decisions of this Court in <NAME> v. <NAME>, AIR (1980) SC 1992 para 19, 22; <CITATION> .,  4 SCC 566 para 38; <CITATION> .,  2 SCC 295 para 34, 40; <NAME> v. <NAME>,  2 SCC 354 para 7 and <CITATION> ,  3 SCC 91 para 26, 43.

Dr. <NAME> has submitted that any act or omission of the State of M.P. leading to non renewal of the agreements of the respondents would itself stand vitiated on grounds of illegal, arbitrary and unsustainable exercise of discretionary administrative power unless the State of M.P. is able to establish specific misconduct or any serious or material lapse or act or omission by the respondents disentitling the respondents from the benefit of renewal. Dr. <NAME> has further submitted that non renewal by the State of M.P. should fully justify and sustain an action by the respon-dents for mandamus to effectuate renewal of agreements. The "legitimate expectations" of the respondents as persons having agreement with specific renewal clauses which constitute both a representation and established past practice by the State of M.P. cannot be denied or thwarted unless overwhelming and specific higher public interest is shown to override those legitimate expectations. According to Dr. <NAME>, this doctrine of 'legitimate expectations' operates in the domain of public law, and is not merely a procedural right subsumed within the requirement of natural justice or elementary cannons of fair play. It constitutes a substantive, enforceable and protectible interest as a facet of Article 14 itself. The doctrine applies a fortiori and proprio vigore to cases of contract and renewals thereof. Dr. <NAME> has submitted that this doctrine has been specifically recognised, asserted and reiterated by this <ORG> in the decision FCI v. <NAME>, JT (1992) Vol. 6 SC 259; <ORG>, JT (1992) 5 SC 621 and <CITATION> (1993) Vol. 3 SC 15. Dr. <NAME> has submitted that as a matter of interpretation, the expression "may" under the renewal clause two of the agreement should necessarily be read as "shall". Dr. <NAME> has submitted that the renewal clause in the instant case, confers a contrac- tual/administrative power coupled with a duty upon the authority con-cerned whose exercise must necessarily be fair, reasonable and non arbitrary.

Dr. <NAME> has also submitted that the issue of low rate of royalty raised by the appellants is a red herring and should be rejected. Dr. <NAME> has submitted that none of the three revisions of royalty by the State of M.P. at Rs. 750 per M.T. for the 1983-85 block or Rs. 1030 M.T. for 1985-87 block or Rs. 1030 per M.T. for 1987-89 block have ever been upheld by any <ORG>. These revisions of royalty had been challenged and the same were scrutinised, adjudicated and struck down by the <ORG> which has directed re-determination of the rate of royalty as per the established weighted average formula. The arbitration as to rate of royalty in terms of the court's order has been held for determining the royalty on the principle of established weighted average formula and the royalty has been refixed at Rs. 300 per M.T. in place of Rs. 750, Rs. 300 per M.T. in place of Rs. 1030 and Rs. 294 in place of Rs. 1030 for the three blocks of 1983-85, 1985-87 and 1987-89 respectively.

Dr. <NAME> has contended that the appellants are making attempts to mislead this <ORG> by suggesting and arguing as if the weighted average price formula is a magical formula which is different in nature or content from the market price. There is no substance in such contention. The weighted average formula is a known method and modality of arriving at and determining the market price itself. The weighted average formula is nothing except the taking of prices received for the sale of sal seeds at different occasions in different parts of M.P. for the preceding 12 months' period and averaging them on the basis of quantum of seeds sold at those occasions to arrive at the true market price.

Dr. <NAME> has also contended that the use of word "price" for sal seeds produce would be highly misleading unless it is clarified to the court that the total price per M.T. of sal seeds comprises the following significant components:

(i) The collection charges payable which are notified by the <ORG> and which are intended to be paid to and realised by the poor tribals. Collection charges form an overwhelming and predominant component of the total price as is evident from the chart of collection charges, for example, when the royalty in 1991 was Rs. 386.25, collection charges were as high as Rs. 1675 to 1775.

(ii) Royalty which is the amount of money realised by the <ORG>, apart from collection charges. This has normally upon ap-plication of weighted average varied around Rs.300 per M.T. and is now fixed for 1993 season at Rs. 400 per M.T.

(iii) Other expenses and taxes like transportation etc. Dr. <NAME> has further submitted that this <ORG> is not required to determine the true price of sal seeds in the present proceedings. This <ORG> should not be converted either into an appellate forum or a price fixation agency by the appellants. Once the <ORG> is broadly satisfied with the fixation of prices for 1993 season in the context of the royalty of Rs. 300 and Rs. 294 and Rs. 386 for the earlier years and finds that this is broadly reasonable, fair and based upon valid considerations, the <ORG> would not interfere in the exercise of governmental discretion in matters relating to price fixation or any economic matters involving the application of a diverse mix of economic policy factors. Dr. <NAME> has submitted that the scope of judicial review of the <ORG> in writ jurisdiction under Article 226 in matters of economic policy and price fixation is minimal and highly circumscribed. In support of such contention, Dr. <NAME> has relied on the decision of this <ORG> in <CITATION> ,  2 SCC 365, Kasturilal v. <NAME>, AIR (1990) SC 1992, <CITATION> ,  4 SCC 356, <CITATION> ,  3 SCC 223.

Dr. <NAME> has also submitted that so far as <ORG> is concerned, <ORG> purported to terminate the original agreement dated 3.8.1979. A dispute was raised on the question of validity of such termination of the agreement and the matter was referred to arbitration initially before a retired Judge of this Court and later on to the District Judge. While the arbitration dispute was pending before the District Judge, Raipur, <ORG> term of original agreement expired. However, during the pendency of the said proceedings, <ORG> of M.P. took up a policy decision that the agreement of all the four units selected under the 1979 Industrial Policy would be renewed on the same terms and conditions on which the original agreement dated 5.10.1979 had been directed to be renewed. After the said policy decision dated 13th August, 1991 negotiations were held between <NAME> and <ORG> for the amicable settlement of the said old and long pending arbitration dispute with the consent of parties. <ORG> referred all the matters in dispute arising out of the said termination to <ORG>. The said high powered committee, after thoroughly examining the matter, found the action of termination illegal and recommended to <ORG> to recall the termination order dated 17.11.1983 and to renew the agreement of <ORG> <NAME>. <ORG> accepting the recommendations of the said committee, renewed the original agreement of <NAME> for a fresh term of 12 years. The impugned agreement dated 30.4.1992 executed by <ORG> in favour of <ORG> <NAME> is essentially not a new or fresh agreement. It is only a renewal of the original agreement.

Dr. <NAME> has, therefore, submitted that there is no substance in the contention sought to be raised by the appellants and the appeals should, therefore, be dismissed with exemplary costs.

Mr. <NAME>, learned Senior counsel appearing for other respon-dent, namely, <ORG> <ORG>, has supported the submissions made by Dr. <NAME>. Mr. <NAME> has also submitted that <ORG> In-dustries has been established in a backward tribal area of M.P. at Jag-dalapur. The said industrial unit has opened the employment potentiality for the backward tribal people residing in the area. <ORG> invited industrial units to be set up in such backward area and had assured supply of sal seeds for the plant to be operated in such backward area at concessional rate. It has been held by <ORG> and by this Court in the earlier proceedings that the respondent, namely, the <ORG> had been rightly treated on a separate footing on the basis of industrial policy of the government and there was nothing illegal in such industrial policy. Mr. <NAME> has submitted that classification, on the basis of geographical considerations, does not offend Article 14 of the Constitution. For such contention, reliance has been made to the decisions of this Court in <NAME> and Others v. State of Bihar, AIR 1955 SC 191 para 4, 5, 7, <CITATION> , AIR 1990 SC 820 para 1, 36, 38, <CITATION> .,  Suppl. 1 SCC 16. Mr. <NAME> has, therefore, sub-mitted that the appeal should be dismissed with cost.

The learned counsel appearing for the <ORG> of Madhya Pradesh has also disputed the contentions made by the learned counsel for the appellants and it has been submitted by the learned counsel for the <ORG> that the industrial policy was framed by the <ORG> Government after taking into consideration the relevant facts and there was no arbitrariness in such policy. Such policy was also taken into consideration by <ORG> and by this Court and the same was not found to be unreasonable or arbitrary. It has also been contended by the learned counsel for the <ORG> that production of sal seeds varies from year to year. Initially it was expected that the production of sal seeds would be increased considerably so that the demands of the industrial units in their <ORG> would be easily met. But the estimated target, however, had not been achieved. The <ORG> Government even now reasonably expect that the production of sal seed will go up. The learned counsel has also submitted that even after meeting the commitments of the <ORG> Government for supply of sal seeds in terms of the agreements in force to the selected units, there will be some surplus of sal seeds for distribution to other units.

The learned counsel for the <ORG> has submitted that for the year 1996 total sal seeds available to the <ORG> is estimated to be 79359 M.T. A high level committee i.e. <ORG> formulated policy for the distribution of sal seed. Such decision, however, has been finalised in a meeting presided over by the Chief Minister of the <ORG>. It has been decided in the said meeting that the surplus sal seeds after meeting the commitments t9999o the contracted industries for the current year as well as backlog of past years of 1992, will be disposed of in open auction by inviting tenders from all the industries. The learned counsel for the <ORG> has submitted that even after meeting such obligation, some amount of sal seeds will be placed for auction and the appellants can participate in such auction. The learned counsel for the <ORG> has also submitted that the <ORG> Government expects that in coming years, the position may further improve and the old industries are expected to get larger quantity of sal seeds from the <ORG> Government by participating in the auction to be held for the surplus quantity. The learned counsel for the <ORG> has, therefore, submitted that there is no merit in these appeals and the same should be dismissed with costs.

After giving our careful consideration to the facts and circumstances of the case and to the submissions made by the learned counsel for the parties, it appears to us that the industrial policy of 1979 which was subsequently revised from time to time cannot be held arbitrary and based on no reason whatsoever but founded on mere ipsi dixit of the <ORG> Government of M.P. The executive authority of the <ORG> must be held to be within its competence to frame policy for the administration of the <ORG>. Unless the policy framed is absolutely capricious and, not being informed by any reason whatsoever, can be clearly held to be arbitrary and founded on mere ipsi dixit of the executive functionaries thereby offending Article 14 of the Constitution or such policy offends other constitutional provisions or comes in conflict with any statutory provision, the <ORG> cannot and should not outstep its limit and tinker with the policy decision of the executive functionary of the <ORG>. This <ORG>, in no uncertain term, has sounded a note of caution by indicating that policy decision is in the domain of the executive authority of the <ORG> and the <ORG> should not embark on the unchartered ocean of public policy and should not question the efficacy or otherwise of such policy so long the same does not offend any provision of the statute or the Constitution of India. The supremacy of each of three organs of the <ORG> i.e. legislature, executive and judiciary in their respective field of operation needs to be emphasised. The power of judicial review of the executive and legislative action must be kept within the bounds of constitutional scheme so that there may not be any occasion to entertain misgivings about the role of judiciary in outstepping its limit by unwarranted judicial activism being very often talked of in these days. The democratic set up to which the polity is so deeply committed can not function properly unless each of the three organs appreciate the need for mutual respect and supremacy in their respective field.

In the instant case, <ORG> framed industrial policy in 1979 and thereafter revised the same from time to time according to felt need. There is no material on record from which it can be reasonably found that the same was not informed by any reason whatsoever. That apart, such policy has been taken into consideration by <ORG> and also by this Court in the earlier proceedings and the industrial policy has not been found to be arbitrary or capricious. On the contrary, the agreement made in favour of the appellants was struck down by <ORG> by indicating that unlike other class of industrial units like the respondents <ORG> and <ORG> which were entitled to special treatment under the industrial policy, the appellants were not entitled to any special treatment which was not given to other existing old industrial units in the State, similarly circumstanced.

It has been held by <ORG> that the industrial units which were commissioned on the invitation of the <ORG> to undertake oil extraction operation on the assurance of supply of sal seeds by the <ORG>, stand on a separate footing. Such decision of <ORG> though challenged before this Court, has not been upset. The distinctive features between the industrial units set up at the instance of the <ORG> Government and old existing units are based on objective criteria. Therefore, the said two classes of industries are not similarly circumstanced. Article 14 prohibits discrimination amongst the equals but it should be appreciated that Article 14 has inbuilt flexibility and it also permits different treatment to unequals. It may also be noted here that Bastar Oil <ORG>ills is situated at Jagdalpur which is admittedly a backward and tribal area. The special treatment given to Bastar Oil <ORG>ill by assuring supply of 20,000 <ORG>.T. of sal seeds under the impugned agreement cannot be held to be per se illegal and arbitrary. Classification on the basis of geographical situation has a rational basis and has been recognised by this Court as indicated in the decisions referred to hereinbefore. It may also be noted that the agreement of <ORG> <NA<ORG>E> was terminated by the <ORG> Government for which reference to arbitration was made in terms of the agreement between the parties. Initially, the dispute was referred to the arbitration of a retired Judge of this Court but since the same could not be completed within the time frame, the arbitration was later on referred to a District Judge. During the pendency of arbitration proceedings, the industrial policy of the <ORG> Government was reviewed by a high power committee formed by the <ORG> Government. Such committee considered the question of continuance of protection measures to the selected industries by assuring supply of sal seeds by the <ORG> Government. The case of <ORG> <NA<ORG>E> was also considered by such high power committee and the committee recommended in favour of <ORG> <NA<ORG>E>. Thereafter, the <ORG> Government renewed the agreement with the usual renewel clause. Such action of the <ORG> Government cannot be held to be illegal or arbitrary.

The renewal clause in the impugned agreements executed in favour of the respondents does not also appear to be unjust or improper. Whether protection by way of supply of sal seeds under the terms of agreement requires to be continued for a further period, is a matter for decision by <ORG> and unless such decision is patently arbitrary, interference by the <ORG> is not called for. In the facts of the case, the decision of <ORG> to extend the protection for further period cannot be held to be per se irrational, arbitrary or capricious warranting judicial review of such policy decision. Therefore, the High <ORG> has rightly rejected the appellant's contention about the invalidity of the renewal clause. The appellants failed in earlier attempts to challenge the validity of the agreement including the renewal clause. The subsequent challenge of the renewal clause, therefore, should not be entertained unless it can be clearly demonstrated that the fact situation has undergone such changes that the discretion in the matter of renewal of agreement should not be exercised by the <ORG>. It has been rightly contended by Dr. <NAME> that the respondents legitimately expect that the renewal clause should be given effect to in usual manner and according to past practice unless there is any special reason not to adhere to such practice. The doctrine of 'legitimate expectation' has been judicially recognised by this <ORG> in a number of decisions. The doctrine of "legitimate expectation" operates in the domain of public law and in appropriate case, constitutes a substantive and enforceable right.

Although to ensure fair play and transparency in the <ORG> action, distribution of largesse by inviting open tenders or by public auction is desirable, it cannot be held that in no case distribution of such largesse by negotiation is permissible. In the instant case, as a policy decision protective measure by entering into agreements with selected industrial units for assured supply of sal seeds at concessional rate has been taken by the government. The rate of royalty has also been fixed on some accepted principle of pricing formula as will be indicated hereafter. Hence, distribution or allotment of sal seed at the determined royalty to the respondents and other units covered by the agreements cannot be assailed. It is to be appreciated that in this case, distribution by public auction or by open tender may not achieve the purpose of the policy of protective measure by way of supply of sal seeds at concessional rate of royalty to the industrial units covered by the agreements on being selected on valid and objective considerations.

So far as the contention that royalty for the sal seed to be supplied to the respondents has been fixed unreasonably in order to ensure naked favouritism to the said respondents is concerned, the appellants have failed to demonstrate such naked favouritism. The fixation of rate of royalty on the basis of weighted average formula has a rational basis and is also a known method and modality for determining market price. It also appears to us that the price per M.T. of sal seed has different components of which collection charges is the principal factor. It may also be noted here that the revisions of royalty by <ORG> at Rs. 750, Rs. 1030 and Rs. 1030 per M.T. respectively for 83-85, 85-87 and 87-89 blocks had been challenged and such revisions were struck down by <ORG> and <ORG> directed redetermination of the rates of royalty as per the established weighted average formula. Arbitration was held for determining the appropriate royalty and the royalty thereafter was refixed at Rs. 300 per M.T. in place of Rs. 750, Rs. 300 per M.T. in place of Rs. 1030 and Rs. 294 per M.T. in place of Rs. 1030 for the said three blocks. In the aforesaid facts, it cannot be held that the fixation of royalty in the impugned agreements is without any basis and wholly arbitrary and designed only to ensure favouritism, as alleged. If there is an objective and rational foundation for the fixation of royalty, the <ORG> will not interfere with the exercise of governmental decision by itself undertaking an exercise to find out as to whether better fixation was possible or not. It needs to be noted that in matters of economic rights and policy decision, the scope of judicial review is limited and circumscribed. It may also be indicated here that within the ambit of protective measure of assured supply of sal seeds, such supply at concessional price is also a relevant consideration. <ORG> may not be dictated by the only consideration of more revenue.

The anxiety of the appellants to also get allotments of reasonable quantity of sal seeds from <ORG> can be appreciated but the policy decision of <ORG> and consequential <ORG> action in entering into agreements with the respondents cannot be struck down on the vice of irrationality and arbitrariness. It has been submitted by the learned counsel for the <ORG> that <ORG> is not oblivious of such need and also not averse to old industrial units which also use sal seeds for their plants. We reasonably expect that the government will be alive to the need of sal seeds by the industrial units operating in the <ORG> of M.P. and in future when the policy will be reviewed by <ORG>, it will take into consideration the felt need of proper distribution of sal seeds to different classes of industrial units with appropriate pragmatism.

We, therefore, find no reason to interfere with the impugned decision of <ORG>. These appeals, therefore, fail and are dismissed. There will be, however, no order as to costs.


IN THE HIGH COURT OF <ORG> PRESENT: THE HONOURABLE MR.JUSTICE V.CHITAMBARESH WEDNESDAY, THE 13TH DAY OF AUGUST 2014/22ND SRAVANA, 1936 OP(C).No. 1860 of 2014 (O) --------------------------- (IN IA NO.72/2013 IN OA NO.210/2007 OF <ORG>, SASTHAMCOTTA) PETITIONER(S): -------------- <NAME>, KADAPPAMURI, MAINAGAPALLI. BY <NAME>): -------------- 1. <NAME>, PRAYAS VILLAI, KADAPPAMURI, MAINAGAPPALLI VILLAGE PIN-690579. 2. <NAME>, PRAYS VILLAI, KADAPPAMURI, MAINAGAPPALLI VILLAGE. PIN-690579. THIS OP (CIVIL) HAVING COME UP FOR ADMISSION ON 13-08-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: rvs/ OP(C).No. 1860 of 2014 (O) APPENDIX PETITIONER(S)' EXHIBITS : ----------------------- EXHIBIT P1. COPY OF THE ORIGINAL SUIT NO.210/2010. EXHIBIT P2. COPY OF THE WRITTEN STATEMENT. EXHIBIT P3. COPY OF THE IA 1381/2011 FILED BY THE RESPONDENTS FOR THE APPOINTMENT OF ADVOCATE COMMISSIONER. EXHIBIT P4. COPY OF THE COMMISSION REPORT DATED 24.09.12. EXHIBIT P4(A). COPY OF THE PLAN PREPARED BY THE SURVEYOR PRODUCED ALONG WITH THE COMMISSION REPORT. EXHIBIT P5. COPY OF THE OBJECTION AND THE INTERLOCUTORY APPLICATION NO. 72/2013 FILED BY THE PETITIONER TO SET ASIDE THE COMMISSION REPORT AND THE PLAN. EXHIBIT P6. COPY OF TEH TITLE DEED OF A SCHEDULED PROPERTY. EXHIBIT P7. COPY OF THE INTERLOCUTORY APPLICATION NO.10/2013 FILED BY THIS PETITIONER IS OS 210/2007. EXHIBIT P8. COPY OF THE ORDER PASSED BY THE LEARNED MUNSIFF/MAGISTRATE OF SASTHAMCOTTA IN IA 72/2013 IN OS 210/2007. RESPONDENT(S)' EXHIBITS: ----------------------- NIL. /true copy/ P.A.TO JUDGE rvs/ V. CHITAMBARESH, J., --------------------------------------- O.P.(C) No. 1860 OF 2014 --------------------------------------- Dated this the 13th day of August, 2014 JUDGMENT

I do not find any sufficient ground to quash the order refusing to set aside the report and plan of the Advocate Commissioner. But the petitioner has a grievance that all the aspects requested in I.A. No. 10 of 2013 have not been reported by the Advocate Commissioner.

2. I permit the petitioner to apply for remitting the report and plan to the same Advocate Commissioner in order to make it complete. Motion if any made in that regard shall be dealt with by the court below untrammeled by the impugned order. The court below shall also consider whether the assistance of the Taluk Surveyor is required if a further report by the same Advocate Commissioner is necessary.

3. The trial of the suit in O.S. No. 210 of 2007 on the file of <ORG>, <NAME> is deferred by two months. This is to enable the petitioner to make a motion in the court below as indicated above.

The original petition is disposed of.

Sd/-

V. CHITAMBARESH JUDGE sd // TRUE COPY // P.A. TO JUDGE


CASE NO.: Appeal (civil) 3276 of 1990 PETITIONER: STATE OF MADHYA PRADESH AND ORS. RESPONDENT: <NAME> DATE OF JUDGMENT: 21/09/1994 BENCH: K. RAMASWAMY & N. VENKATACHALA JUDGMENT:

JUDGMENT 1994 SUPPL. (3) SCR 747 The following Order of the Court was delivered :

The respondent was initially granted Mining lease in the year 1966 for a period of 20 years to extract limestone in the forest area. The Forest (Conservation) Act 69 of 1980 has come into force with effect from 25.10.80. Under Section 2 of the Act grant or renewal after the Act has come into force shall be made, in the event of the State <ORG> deciding to grant lease or renewal, with the prior approval of <ORG>. The object of the Act is to maintain ecology and preservation of the forest. It is also the object under Section 3 to regenerate the forests by planting trees and the forest growth. In 1986 after the expiry of the lease the respondent had approached the <ORG> for renewal. Though the <ORG> had taken the decision and passed an order on February 7, 1986 to grant further renewal for a period of 20 years in terras of the original grant, it was objected to by <ORG>. Consequently it was cancelled. The respondent had approached <ORG> in Miscellaneous Petition No. 2758 of 89 and <ORG> by its order dated August 18, 1989 following the ratio in State of Bihar v, <NAME> and Others, (A.I.R. 1985 S.C. 814) directed to grant renewal on the ground that the part of the leased area had already been broken and, therefore, renewal should be granted.

The appellant contends that this Court in <CITATION> ., (A.I.R. 1988 SC 2187) and <ORG> v. State of Gujarat and Others, (A.I.R. 1987 SC 1073) had held that even the renewal of the lease cannot be granted without the prior occurrence of <ORG>. We find force in the contention. It is settled law that the grant or renewal is a fresh grant and mast be made consistent with law. Section 2 prohibited the grant or renewal. In case the State Government decides to grant fresh lease or renewal of the lease it is mandatory that it should obtain prior approval of <ORG>. Admittedly, no prior approval of <ORG> had been obtained under Section 2 of the Act. <ORG> thus had realised the mistake in directing renewal when <ORG> had objected to the renewal of the lease in favour of the respondent". Therefore, the cancellation of the order, before it came into effect by registering, had been properly made by the appellant. <ORG> was, therefore, not right in directing grant of renewal of the lease.

It is brought to our notice that under contempt proceedings the lease deed was directed to be registered and it was accordingly registered. It is declared that the registration is illegal and is invalid.

The appeal is accordingly allowed. No costs.