KASTORI LAL LAKSHMI REDDY v. STATE OF JAMMU AND KASHMIR & ANOTHER

Citation: [1980] 3 S.C.R. 1338

Court: Supreme Court of India

Bench: P.N. BHAGWATI, V.D. TULZAPURKAR, R.S. PATHAK

Case summary

The dispute in these writ petitions relates to the validity of an Order dated 27th Apri~ 1979, passed by the Government of Jammu and Kashmir, allotting to the 2nd respondents 10 to 12 lacs blazes annuiilly· f for extraction of resin from the inaccessible chir forests in...

Judgment text

1 :138 KASTOR! LAL LAKSHMI REDDY v. . • STATE OF JAMMU AND KASHMIR & ANOTHER A May 9, 1980 ~ 8 [P. N, BHAGWATI, V. D. TULZAPURKAR AND R. S. PATHAK, JJ. ] Government co11tracts-Limita1ions -on the Government to gr(lll. t contracts -Test of reasonableness-Concept of reasonableness and concept of public interest, explained-Articles 14 & 19 of the Constitution. Resin is a forest produce extracted from certain pieces of trees popularly / . C known as Chir trees. The process of extraction is called tapping, involves -"\ several steps, and requires elnployment of skilled labour and involves a considerable a. mount 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 prepar- D ed.

to undertake the work of extraction and Co11ection of resin at the lo"WeSt rates of labour charges and in such contract the entire resin extracted and d. uected by the contractor would belong to the State and the contractor would be entitled only to the wage or labour charges for ex. traction 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 Y V. STAT!! OF . r. & K· 1339 1! 1e total requirement of theee 24,000 metric tonnes a. lways fell abort it wu deeided at a meeting held on 9th Deoember, 1976 of . the . Forest officials that the increue of target of production could be achievi:d only through replace- . A ment of royalty contracts by wage contracts wherever possible and hence Jn future blazes should be auotionecl for tapping only on was• contract baiis.

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 torests 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 fowid ·for taking tapping contracts even on the basis of royalty without load for blazes in the higher regions of the inacoesoible areas. Jn the Rasi Division out of 6,08,115 bla. zes which were attempted to be given "'rfor 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 "-"" 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 kilo-metres from the mad side. Even out of the olli 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 con~ rerned there were 1,24. 400 blazes which .

were equally inaccessible "due to tong lead up to coupe boundaries and transit depots" and the position in regard to 3,39,000 blazes which were under tapping in Poonch Division was also similar to that of the inaccessible areas in Rasi and Ramban Division wi~h the addi· tional handicap of their bein2 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 eX· traction and collection of resin as also the scarcity 61 trained labour in those . areas it was not possi&te t6 give out those blazes by auction on wage contract bn. sis. The past experience showed that even on the basis of royalty without contractors were not forthcoming for taking contracts in respect of blazetr be inaccessible areas of the Rasi Division and giving out of the aforesaid azes fo the Rasi Ramban and Poonch Division on wa~ contract basis was, 'tl>erefore, a.

lmost an impossible proposition. The Chief Conservator of Forests amt other Forest Officer> accordingly decided at the meeting held on Decem- ·ber 9, 1978 that those blat. es could not be tapped through wage contract because uapart from the total non-availability of local labour in these areas cost of. production due to long lead up to coupe boundaries and transit deoots would te prohibitive" and all ouch areas should, therefore, be excluded from tanping ~ 1"· through wage contract. These decisions taken at the meeting on 9th December, 1978 were confirmed at ~ subsequent meeting which took place between Forest Minister, the Forest Secretary, the Ch;ef Conservative Forest Officer and ·other . Forest Officen on 26th December, 1978. It was further decided in this meeting that the "denartrnental tanping through wage contract should be confined to accessible Chir forests" only and so far as 11. 85. 414 blazes in the iuacc... ible areas of the R11si, Rambl!

n and Poonch Divbion are concerned · _1he eomensus was that '~hese blauo should be allotted to oome private party 1340 SUPREMB COURT :REPORTS U980] 3 s. c. a. as procurement of resin from them through wage contracts was not feasible being ddficult and costly" and "the financial stat\. w and experience in extractiOJb. of resin from fore. -:. t and its distillation in tne factory should be decisive factors'' in 1egard 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 . Gov· enunent 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 la~ blazes in the inaccessible areas of Rasi,_.

Ralnban 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) thaf\/ the order is arbitrary, 1nala fide and not in public interest, inasmuch as a huge\ beneht has been conferred on the 2nd re1pondents at the cost of the State;.. (hJ the order creates monopoly jn 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 i·n selecting the 2nd respondent for awarding tapping contract, \Vithout 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 a:~d is, therefore, violative of Art.

14 of the Constitution as also of the rule of administrative Law which inhibits arbitrary action by the Slate. Dismissing the petitions, the Court HEW : (I ) 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 rqle 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 i:i. creasing expansion of the magnitude and range of governmental functions, as we move closer to the welfa. re 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 maiy be in the nature of privilege. The law has however not been slow to recognise the importance of thf"s: new kind of wealth and the need to protect individual interest in it and wi that end in view, it has developed new forms of protection.

Some interests · Qovernment large. o;s, formely rega... ded as privileges, have been recognised aS rights, while others have been given legal p.. otection 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 'Nill or on such• terms as it chooses in its absolute discretion. There are two limitatiors impos- "f. • ed 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-BJ; So far as the first limitation is concerned, it flows directly from the thesis. that. unlike a private individua.

l, the State cannot act as it pleases in the mattet KASTURI LAL LAKSHMI UDDY I'. STATE OP J, & K· 1341 cl giving largess. Though ordinarily a private individual would be guided by pen to him under the law to act contrary to his self-interest or to oblige anothe1 in entering into a contract or dealing with his property. But the Gov· ... -ernment is not free to act as it likes in granting largess such as awarding a·con· tract or selling or leasing out its property. Whatever be its activity, lhe Gov· • ernment is still the Government and is, subject to restraints inherent in its posi· tion in a democratic~ society. The constitutional power conferred on the Gov· 8 . ernment cannot be exercised by it arbitrarily or capriciously or in an unprin.. ~ipled 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 '1. rtbe Government awards a contract or leases out or otherwise deals with its ~roperty or grants any other largess, it would be liable to be tested for its 1 ' '\'alidity on the touch-stone of reasonableness and public interest and if it fails to satisfy either test, it would be unconstitutional and itvalid. [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 circum- -stances of a given case. it is inevitable that the social philosophy and the scale -of values of the judge participating in th~ 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 fundameniY tal rights and, as several decisions of this Court show, this concept of reason- . E -ableness finds its positive manifestation and expression in the lofty ideal of -social and economic justice which inspires and anj. mates the Directive Principles. Article 14 strikes at arbitrarihess in State action and since the principlo . of reasonableness and rationality, which is legally as well as philosophically . an essential element of equality or non-,arbitrariness, is proj::cted 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 "' 1he concept of reasonableness runs through the totality of Art. 19 and requires Wliat restrictions on the freedoms of the citizens, in order to be permissible, must lt the teast be reasonable. Similarly Art. 21 in the full plenitude of its activist ~Bgnitude as discovered by Maneka Gandhi's case, insi~ts that no one sha'l be ·deprivf'd 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-DJ State of Madras v. V. G. Rao [1952] SCR 597; Maneka Gandhi v. ClniM -of India f19781 2 SCR 621; E. P. Rqyappa v. State uf Tamil Nadu {1974) '2 SCR 348 referred to. (3) The Directive Principles concr~tise and give shape to the concept of i'eason. ableness envisaged in Artic1" 14, 19 and 21 and other Articles enumerat· ~ the . fundamental rights. By defining the natio'1al aims and thf" ' decide whether the action of the Government is reasonable and in public interest.

[1357 A-El But one basic princiole which must guide the Court in arr1v1ng at its / determination on th:s question is that th~e is always a presumption that Lh! r' Governmenal action is reasonnble and in public interest and it is for the party1 cha11enging its validity to show that it is wanting in reasonableness or is nOt informed With public intef'f'st. This burden is a hPavy one and it has to be- ... dic:charged to the sa1i. ;;faction of the Court by proper and adequate material. The Court cannot lightly assume that the action taken bv the Government is; • unrea. c:onable or without public interest . because, there are a 1arp number of policy considerdtions which must nece. ~sarily weigh with the Governrltent in taking action and therefore the Court would not strike dowt): governmental action as invalid on this ground, unless it is clearly satisfied that the action is unreasonable or not in public iterest. But where.

it- is SO' satisfied, it would be the plainest duty of the Court under the Constitution 10' invalidate the govemmenttt•l action. This is one of the most imnortant fu'nc. -tion of the Court and al•o QDe of the nwst essential for preservation of dw role of law. (1357 E-HJ KASTURI LAL LAKSHMI REDDY v. STATE"OF J. & K· 13. f3 Ii iS imperative in a democracy governed by the rule ol law that govemmel! lltl· · action must be kept with_in the limits Of the law and if there is any transgres-; sion, 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 . J.. that the legisllltive ckeck 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 la·w and in this task, the Court n1ust not flin. ::h or falter.

This ground of invalidity, namely, that the governmental action is unreasonable . or lacking the quality of pub'ic interest, is different from that of mala fides though it may, in a given case, furnish evidence of ma/a (ides. [1358 A-Cl (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 . ,, Govemment is not free like an ordinary individual, in selecting the recipients /".. for its largess and it cannot choose to deal with any person it please! 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 am without unfair procedure. [1358 C-E] Where the Government ia deali. ag with the public, whether by way lilf giving jobs or entering into contract$ or. granting other forms of largess, the Government cannot act arbitrarily at its.

sweet will and, like a private ind. iVi~ chl&l, deal with any person- it pleases-,. but its action must be in conformitywith some standard or norm which is not arbitrary, irrational or irrelevant. The governmental action must not be arbitrary or capricious, but m1:1St be- based on some principle which meets the test of reason and relevance. [135& :S-FJ In the Wtant 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 BJ (i) It was not a tapping contract simpliciter which was intended to be given to the second respondents. The whole object of the · itnpugnW onler was to make ava'lable 3500 metric tonnes of resin to the second respondents for ''\ tile purpose of running the factory to be set up by them. [1361 H, EJ ~- (ii} 'The advantage to the State was that a new factory for manufacture ' ol :resin, turpentine oil and other derivatives would come up within its- tierritmits offerinJ?

more ·job o·ppcnunities to the State and' increasing their pro~nerity and augmenting the State revenues- and in addition the State would be assured w royalty. [1161 E-HJ ·· (;. ) No huge· benefit wa• eonferred on the "'con · entreprenetir with a view to inducing him to set up an industry within tbe,: State and if the State enters into ·a contract with such entrepreneur for pro- ·. viding resources and other facilities for setting up an industry, the contract , cannot be assa1ed as invalid so long as the Stnote has acted bona fide, reason-. ably and in public interest. If the terms and conditions of the contract or the surrounding circumstances show that the State has acted ma/a fide or out of . B, improper or corrupt motive or in order to promote the prh·note interests of some one at the cost of the State, the Court will undoubtedly interfere and strik~ down State action as arbitrary, unreasonable or contrary to public interest.

But so long as the State action is bona fide and reasonable, tbe- Court will not interfere merely on the ground thut no advertisement was giveD: or publicity made or tender> invited. 11366 C-H, 1367 A-DJ ORIGINAL JURISDICTION : wr;t Petitions Nos. 481482 of 1979. (Under Article 32 of the Constitution of India). K. N. Bhatt for the Pet;tioner. Altaf Ahmed for Respondent No. 1. E. C. Agarwal for Respondent No. 2. The Judgment of the Court was delivered by, BnAGWATI, J. -These two writ petitions under Art. 32 of the Con· stitution raise questions of some importance in the field of constitu· tional law, but they are not exact questions which can be divorced from the facts giving rise to them and in order to resolve them satis· factorily, it is necessary to state the facts in some detail. TJ;ough 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 Apri~ 1979, passed by the Government of Jammu and Kashmir, allotting to the 2nd respondents 10 to 12 lacs blazes annuiilly· f 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 valjdity 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 neces~. sary to state br:efly the circumstances in which the Order came to be· passed by the Government of Jammu and Kashmir. There is a commo·· dity called Oleo-resin, which we shall hereafter refer shortly as resin,· ff which is a forest produce extracted from certain spec:es of trees popularly known as chir trees.

The process of extraction is called 'tapping'. ·antl it involves several steps. Chir trees are annually given one or t'il! I)' llASTUIU LAL LAKSHMI lll! DDY v. STATE OF J. & K. (Bhagwati, !. ) 1347· I . wounds which are technically called blazes and cups and lips are fixed at the bottom of each blaze for collection of resin. The actual collection of resin starts from 1st April an~ ends on 31st October every year. The maximum fiow 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 fiow gradually decreases due to the rainy season followed by fall in temperature. The tapping of resin is a·continuous process and the initial blazings have to be followed by freshenings given every week. If the blazes are not freshened regularly, the resin ducts get blocked and the blazes become dry and once a blaze bee: mes dry, the fiow of resin stops completely.

The resin that is collected in the cups is transferred to tin containers every week-end or earlier :r required, and the tin· containers· are then tran,ported to the transit depots fer being carried to the destination. This process of tapping requires employment of skilled labour and involves a considerable amount of exp:nditure. The State of Jarnmu and Kashmir started tapping operations in respect of its chir trees since about 1973 by g'ving contracts to private parties for extraction and collection of resin.

The contracts were of three types : (I) 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 wcrk of extraction and collection of resin at the lowest rates of labour charges and in such contract, the entire res;n extrac·ed 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 cf royalty without load and under th's contract, which was again given by auction stipulating for payment of royalty per bia. le, 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 S•ate was on the basis of royalty with load and under th's contract, which 0 was al y has however not been ~·~ slow to recognise the importance of this new kind of wealth and tile 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, 1\ave been recognised: (1) [1979] 3 S C. R. 1014. \ XASTURI LAL LAKSHMI ltl! DDY v. STATE OF J. & K· (Bhagwati, J. ) 1355 all 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 sucl'. I terms a8 it chooses in its absolute discretion.

There are two limitations imposed by law which structure and control the discretion of the Goemment in this behalf. The fits! is in r~gard to the terms on which largess maY be granted and the other, m regard to the. persons who may be receipients of such largess. So far as the first limitation is conce! ned, it fiows directly from the '}::, thesis that, unlike a private individual, the State cannot act as it pleases in the matter of giving largess. Though onlinarilyi a private individual wotild 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-inte1cst or to oblige another in entering into a contract or dealing with his property. But the Gdvernment is not free to act as it lil:es 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 confened on the Government cannot be exercised by it arbitrarily or capriciously or in and unprincipled manner; it hllS 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 6overriment cannot act arbitrarily and without reason and if it does, its action wouTci be liable to be invalidated. If the Government awards a contract or leas'es out or otherwi! le deals with its property or grants any other largess, it would be liable to be tested for its validity on the ·~ touch-stone of reaSo! lableness and public interest and if it fail~ 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 ts un- . G doubtedly true, as poirited out by Patanjali Shastri, J. in State of Madra. i 'v. V. G, Rau,(') that in forming his own conception of what is reasonable, in all the dreumstaDccB of. a given case, it is inevitable that the social philosophy and the acale 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 indicilted by the Constitution. The concept of reason- (I) [1952] SCR 597. ! t 1356 SUPREMI! : COUltT REPORTS [1980] 3 S. C. R. ableness in fact pervades the on. tire constitutional scheme. The interaction of Arts. 14, 19 and 21 lllfl,YiC(lby this Conrt in Maneka Galtdhi v. Union of India('), clearly dclllOllltratea that the requirement of im.

ronableness runs like a golden thread through the entire fabric of fundamental rights and, as several decisions of this Court show, 1his concept of reasonableness finds ilii positive manifestation and expcession in the lofty ideal of social and economic justice which inspires and animates the Directive Principle&. It has been laid down by ilmplement or give effect to a (1) [1978] 2 SCR. 621. (~) (1974] 2 SCR. 348. KASTURI LAL LAKSHMI REDDY v. SYATI! OF J. & K. (Bhagwati, /,) 1357 Directive Principle, it would. ordinarily, subject to any other ovC{f' riding considerations, be informed with public interest. · Where any governmental action tails to satisfy the test of reason- . ableness and public interest discusaed above and is found to be wanting in the quality of reasonableneSI 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 actilon 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 coune there are other comiderations which render \t fe\\SOnable and in public interest to do so. Such considerations' may be that some DirectiY~ 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 at. particular group or section of people deserving it o~ that the person who has offered a higher consideration is not otherwise fit to be given the contract 0r the property.

We have referred to these considerations only illustratively, for there may be an iinfinite variety of consideratiOllS 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 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 detennination on this question is that there is always a presumptioo tkat the Governmental action is r~ble and in public in~eat and it is for the party challenging its validity to show that it is want- \f ing in reasonableness or is not informed with public interest: This burden is a heavy one and it has to be discharged tci 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 tho Court would not strike down governmental action as invalid on this ground, unleM it is clearly satisfied that the action is unreasonable or not in public interest. But where it is so satisfied, it would be the pla. ines. t duty of the Court under the Constitution to invalidate the governmenta. l action. This is one of the most important functions of the Court anll also one of the most essential for preservatim ol the. rule of law. It is imperative. in a democracy governed by the rule of law that f! l:Y vernmental action must be kept within the limit~ of the law if t~ 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 le¥'! 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 tl1iB task, the court must not flinch or falter. It may be pointed out that this gronnd of invalidity, namely, that the governmental action is unreasonable or lacking in the quality of public interest, is different from that of mala-(ides '#' 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 he granted. It is now well settled as a result of the decision of this Court in Ramona D. Shelly 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 abs<>lute and unfettered discretion. The law iS now well established that the Government need not deal with anyone, but id'. it does so, it must do so faidy 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 ernnot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its actioq must be ill conformity with some standard or norm which is not arbitrary, mational or irrelevant.

The governmental action must not be arbitrary , or capricious, but must be based on some principle which meets the ' r test of reason and relevance· This rule was enunciated by the Court f, as a rule of administrative law and it Was also validated by the Courll' as an emanation flowing directly from the doctrine· of equality embodied in Art. 14. The Court referred to the activist magnitude . G of Art. 14 as evolved in E. P. Royapp(i v. Sttite of Tamil Nadu (supra) and Maneka Gandhi's case (supra) and observed that it must follow • "as a necessary corollary from the p ground. " This decision ~ reaftirmed the principle of reasonableness and non-arbitrarine! ls in . A- governmental action which lies at the core of our entire constitutional scheme and structure. It is in the light of ihese two limitations on the discretiton of th~ Government in the matter of grant of !! rgess that we must proceed to examine the grounds of attack urged on behalf of the petitiop. ers.

Re Ground A: The argument under this head of challenge was that the State h(id . under the impugned Order. granted tapping c01;itmct to the 2nd res- . '°"' pondents on terms which were highly disadvantageous to the State . /'-and involved considerable loss of f(Wenue to the Government exchequer. 1be 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 auc;tion h tapped through wage contract, the minimum cost would be Rs. 175/- JI 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 KASTURI LAL LAKSHMI REDDY v. STATE OF J. & K· (Bhagwati, l. ) 1363 quintal without any risk or hazard.

The State would also receive for 3500 metric tonnes pf 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 allottiog resin to medium scale industrial units and the rate of Rs. 320/- pe~ 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, plausi11! e 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 auetioned 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 conmderations 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 inte,rest.

But, where the State has, as a matter of policy, stopped selling resin to outsiders and deci<jed to allot it only to indus- \ tries set np within the State for the purpose of encouraging industrialisation, there can be no scope for complaint that the State is giving l 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 whoHy inept, because in view of the State policy, there would be no question of any resin being sold in the open market. The objeet 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 reftect the correet 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 price8 :realised at the auctions were therefore scarcity prices. In fact, tire [1980] 3 S. C. R', 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 saie" by auction in the open market to outsiders, an unduly high price of Jo. Rs. 700/· per quintal was offered by the factory owners having their factories outside the State, ~o 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 dur• ing 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 Rg. 474/- per quintal for 3500 metric tonnes 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 chaHenge against the impugned Order must, there• fore, be rejected. RE. GROUND "8" : It is difficult to appreciate how the impugned Order could be assau1ted 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 excl\isively 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 respond. ents could have an assured ~upply 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 68 lacs in other forest areas of the State were left { , available for tapping by the petitioners_ and other forest s;ontractors. No monopoly was created in favour of the·second respondents; the petitioners and other forest contractors could bid for wage contract in • 1 respect of the other blares ~hich 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 extrac~ tion 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 fa 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. KASTURI LAL LAKSHMI REDDY v. STATE OF J. & K. (Bhagwati, J. ) 1365 RE. GROUND "C' The third and last ground of c_hallenge is also difficult to sustain; . ~;-'We fail to see how the action of the State in makin~ the iJllp~ecl Omer in favour of the 2nd responden~ 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 11ituate in the inaccessible areas of Reasi, Ramban and Pooncbi Divisiom from the auctions, since the put" experience showed that even on the basis of royalty without load, it was difficult to attract bidders and the maximum ! tha~ could be .

obtained, and that too ooly in one solitary year, was Rs. 2. 55 per blaze ~ without load, which was an absurdly low return and i~ was, therefore, ~ felt quite justifiably, that it would be futile to include these blaze8 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 itll territories but wanted it to be used only foc the purpo8e 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 ta make resin available to the local industries at a reasonable price might be frustrated, because the eontrattor taking advantage of scarcity in supply of resin, might, and in all probability would, try to extract a much higher price from the industries n~ding 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. p ' l Now the 2nd respondents had 'made an offer far putting up . :t modem plant for manufacture of resin, turpentine oil and other deri· vatives within the State provided they were assured a definite supoly 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 ta the 2nd respondents and a proposal was therefore mooted that 11,85,414 blazes in inai:cessible areas oe 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 uo by them and make the balance quantity available to the State for ;ts own purpose.

The 2nd respondents wece agreeable to this proposal • and they accordingly put forw11Id an alternative propo! ial on these lines for the consideration of the Slate and even~y. the impugned Order crune to be made in favour of the 2nd respondents. We ,,,-, . have already discussed the tenns of the impugned Order and it is cleat A'-• from what we have said that the impugned Order was unquestionable and without doubt, in the interest of the State ancl even with a microscopic examination we fail 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 tappmg contract in respect ot 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 deriva- ·'Ir lives within the State, but it must be remembered that it was not a /'"\,.

_ tapping contract simpliciter which was being given by the State. The tapping contract was being given by way of allocation ,,f 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 si;mpliciter 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 ~ase like thi~ 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 i~ bC)und 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 I situation, it may even tum 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 i 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 indus- \ trially developed and where entrepreneurs have to be offered attractive tenns in order to persuade them to. set up an industry. · The State· KASTURI LAL LAKSHMI REDDY V. STATE OF J, & K. (Bhaglvati, J,) 1367 - - . .. must be free in such a case tlJ negotiate with a private entrepreneur with a view to inducing him to set up an industry w,ithill the State and ~if the State enters into a. ~~ntract wi~ such entre_preneur for providing ..... _ - ~esources and other facilities for setting up an mdustry, 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 surrom1ding circumstances show that the . State j. las B. acted !

'Ulla fide or out of in1proper or corrup~ motive or in order to promote the private interest_s of some one at the cost of the State, the Court will undOllbtedly interfere and strike down State action as arbiirary, unreasonable or contrary to publid 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. 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 of 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 we need not repeat again, that the impugned Order was reaspnable 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 tal<lng the tapIJing 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 iind Kashmir had in. the course of three speeches' delivered by him--<me 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 pronrising "various fonns of assistance and· incentives" for the purpose.

These speeches were widely advertised in the newspapers and it_ was, therefore, kno'wn 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 indusi'ries and it was in pursuance of this invitation that Prabhat Tarpens and Synthetics Private Limited, Dujodwala Resins and Terpens Pvt. Ltd. , Pine Chemicals Limited and the see-0ncl respondent~ made their respective offers for putting up factories within the State. It is, therefore, in any event not correct to say! that the petitioners had no oppor- tunity oi making an offer of setting up a factory and obtaining a tap- ,'\. ' ping contract for the purpose. · . th 1 . . f h . . . ,-J,. It is also necessary to p01nt out that e c aims o t e petJ. ttoners lit writ petition No. 481 of 1978 and some others were considered by tho ;,..

Forest Minister and other forest officials at the meeting held on 25tb 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 una. filmously accepted. This decision cannot be said to be ma/a fide: or prompted by improper or corrupt motive. There is, in fact, no evidence before us to show or even as much a~ to, suggest that any favour . ··'It' was conferred on the 2nd respondents at the cost of the State or tMt ~ 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, !

hey 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 thongh 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 iD. 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 facto- F ries 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, !

IO far as the relative'merits f of the petitioners on one hand and the 2nd respondents on the other were concerned, the 2nd respondents were definitely superior and it ·G ca.. 'lnot be said that the State acted unreasonably or contrary to publio 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 bad not • even got their registration renewed for the year 1979-80 and hence no tapoing contract could possibly he given to them. We must, accordingly, reject the third ground of challenge urged on behalf of the petitions. KASTUIU LAL LAKSHMI REDDY v. STATE OF J. & K· (Bhagwati, /. ) 1369 We are, therefore, of the view that there is no subst:mce in.

any A of dm contentions raised on behalf of the petitioners and it was for this reason that by an Order dated 15-2-1980, we dismissed both tbese writ petitions· with no order as to costs. · S. R. Petitions dismissed• ~tGSCI/80