# 1 :138 KASTORI LAL LAKSHMI REDDY v. • STATE OF JAMMU AND KASHMIR & ANOTHER

- **Citation:** [1980] 3 S.C.R. 1338
- **Court:** Supreme Court of India
- **Decided:** 1980-05-09
- **Bench:** Bhagwati, V. D. Tulzapurkar, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1-138-kastori-lal-lakshmi-reddy-v-state-of-jammu-and-kashmir-another-8002
- **Pages:** 32

## Headnote

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 J ammu & 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 preparD
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
<:I.
royalty per blaze, the entire resin extracted and collected by the contractor
. E
'WDuld belong to him and .he would be free to .sell or process it as he likes; the
"I
tmro type of contract ,... on the basis of royalty with load and under this
contract which was also given by auction. the royalty was payable per blaze and
out of resin extracted and collected by the companies, a certain
pa.rt would
have to be surrendered to tho Sta.le, while the balance wonld remain with !he •
contractor.
Esery year, the State auctioned the blazes in the different forests within .its
territory and about 40 per cent of the forests were given on royalty basis, some{
wlth load and some without load, while the balance of about 60 per cent were.
given on wage coiitrac:t ·basis.
Most of the contractors bidding at the auction'
were having their factories outside Jarnmu & Kashmir ·either in U.P. or
in
Punjab. The State in furtherance of its policy to bring about rapid industria, ·
· lisation decided that from the year 1979-80 onwards the resin extracted from its
£oreots should not be allowed to be exported outside the territories of the State
and should be utilised only by industries set up -within the State. The State, in
fact, entered into contracts with three manufacturers, namely, P.rabhat Turpentine & Synthetics Pvt. Ltd., Dujedwala Resin and Turpentine Co. Ltd.
and
'l'ine Chemieals Ltd. Under these oontracts the three manufacturera agreed to
set up factories in the State for the manufacture of resin twpentine end other
derh·atives and the State agreed to make available to them respectively
an
·e=red supply of 4000, 3 500 and 8000 metric tonnes of resin per year. The
·H State had also commitments to supply reSin: to its· own··concerns namely, J&K.
Industries Ltd. which was running a factory for manufacture of resin and turpentine a1 also to various small scale units which are set up in the State. Since
KAStURI LAL LAKSHMI Rl!Dl>Y V. STAT!! OF .r. & K·
1339
1!1e total requirement of theee 24,000 metric tonnes a.lways fell abort it wu
A
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

## Text

_Characters 0–39,919 of 98,185. This is a partial read: ask again with offset=39919 for what follows._

.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 J ammu & 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 preparD
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
<:I.
royalty per blaze, the entire resin extracted and collected by the contractor
. E
'WDuld belong to him and .he would be free to .sell or process it as he likes; the
"I
tmro type of contract ,... on the basis of royalty with load and under this
contract which was also given by auction. the royalty was payable per blaze and
out of resin extracted and collected by the companies, a certain
pa.rt would
have to be surrendered to tho Sta.le, while the balance wonld remain with !he •
contractor.
Esery year, the State auctioned the blazes in the different forests within .its
territory and about 40 per cent of the forests were given on royalty basis, some{
wlth load and some without load, while the balance of about 60 per cent were.
given on wage coiitrac:t ·basis.
Most of the contractors bidding at the auction'
were having their factories outside Jarnmu & Kashmir ·either in U.P. or
in
Punjab. The State in furtherance of its policy to bring about rapid industria, ·
· lisation decided that from the year 1979-80 onwards the resin extracted from its
£oreots should not be allowed to be exported outside the territories of the State
and should be utilised only by industries set up -within the State. The State, in
fact, entered into contracts with three manufacturers, namely, P.rabhat Turpentine & Synthetics Pvt. Ltd., Dujedwala Resin and Turpentine Co. Ltd.
and
'l'ine Chemieals Ltd. Under these oontracts the three manufacturera agreed to
set up factories in the State for the manufacture of resin twpentine end other
derh·atives and the State agreed to make available to them respectively
an
·e=red supply of 4000, 3 500 and 8000 metric tonnes of resin per year. The
·H State had also commitments to supply reSin: to its· own··concerns namely, J&K.
Industries Ltd. which was running a factory for manufacture of resin and turpentine a1 also to various small scale units which are set up in the State. Since
KAStURI LAL LAKSHMI Rl!Dl>Y V. STAT!! OF .r. & K·
1339
1!1e total requirement of theee 24,000 metric tonnes a.lways fell abort it wu
A
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
B
c
D
E
F
G
H
A
B
c
D
E
F
G
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;..
(h J 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 ..
H
[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
<COOOmic considerations of self·gain in any actiqn taken by him, it is always
<>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·
.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
1~roperty or grants any other largess, it would be liable to be tested for
its
'
'\'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.
8
c
(2) In forming his own conception of what is reasonable, in all the circumD
-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
F
"' 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
G
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" <"o.,stitu..
H
tional goals, they set forth the standards or no'111s of reasonableness which must
:auide and animate governmental action. Any action taken by the Government
A
B
c
D
E
F
H
1342
SUPRl!ME COURT itllfOUS
[1980] 3 S.C.R.
with a. view to giving effect to any one or more of the Directive Principles
would ordinarily, subject to any constitutional or legal inhibitions
or other
overriding considerations, qualify for being regarded as reasortable, while
an,
action \Vhich is inconsistent with or runs counter to a Directive Principle would
incur the reproach of being unreasonble.
[1356 D-FJ
( 4) The concept of public interest must as far as possible receive
its orienla.1ion from the Directive Principles. What according to the founding fathers
constitutes the plainest requirement of public interest io; set out in the Directive
Principles and they embody par excellence the constitutional concept of publicinterest. If, therefore any governmental action is calculated to implement OI'"
give effect to a Directive Principle, it would ordinarily, subject to any other
overnding considerations, be informed with public interest. [1356 .A..-H, 1357 Aj
( 5)- Where any governmental action fails to satisfy the test of reasonableness and public interest and is found to be wanting in the qualities of re3.so~~-' i"
bleness or lacking in the element of public interest, it would be liable to ~
stn1ck do,vn as invali;. It must follow as a necessary corollary from this propo--
sit.ion that the Government cannot act in a manner which \\-'Ould benefit a private
party at the cost of the State; such an action would be both unrea<onable and
contrary to public interest.
The Government, therefore, cannot, for example,
give a contract or selJ or Iea~e-out its property for a co'1sideration less than the·
highest that can be obtained for it, unless of course there are other consider·
ations which render it reasonable and in public interest to do so. Such consi·
derations may be that some Directive Principle is sought to be advanced
or
implemented or that the contract or the property is given not with a view, te
earning revenue but for the purpose of· carrying out a welfare scheme for the
benefit of a particular group or section of people deserving it or that the person
who has offered a higher consideration is not otherwise fit to be
~iven the
contract at the property. These considerations are referred to only illustratively·
---...,,_
fo- there may be an infinite vari~ty of considerations which may have. to be
taken into account by the Government in formulating its policies and it is 0tr
a total eva'ufltion of various considerations
which
have
weighed with the
Government in taking a particulars action, that the
Court would have
t<>'
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 bedic: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
...
•
< •
.J..
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 · A ·
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
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
B
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
C
.,, 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
D
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;
E
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
of a definite supply of at least 1500 metric tonnes of resin for itself without a'ly
fiJ'IAnciat involvement or risk and with thi!t additional quantity of resin available
to it, it would be able to set up another factory:· creating mi)re employment
opportunities.
[1361 E-G]
(ili) The Stat~ would be able to secure extraction of resin from the. ina.:-
c~iblC areas on the best poSsihle term instead of allowing them to remaia
F
G
tQICxploited or given over at Tidiculously h>w royalty.
[1161 E-HJ
H ··
(;.) No huge· benefit wa• eonferred on the "'con<! rospondenr. at tlle cost
or Ille State. The 11u·1111 of the cmrract made It cre.r· t!iat the ""'°"" respon-
1U4
SUPREME COURT REPORTS
[1980] 3 S.C.tt.
A
denll would have to extraot at least 5000 metric tonnes of resin from the blazea
allotted to them in order to be entitled to retain 3500 metric tonnes.
[Do~ A·llJ
B
c
(v) Under the impugned order the State would get 1500 metric tonnes of
resin at the rate of ,Rs. 114 /-per quintal while the second respondent would
have to pay at the rate of Rs. 474/- per quintal for the balance of 3500 metric
tonnes retained by them.
Obviously, a large benefit
would
accrue to tho
State under the impugned Order.
If the State were to get the b!az s in these
inaccessible areas tapped through w·age contract, the min:mum cost would be
Rs. 175/- per quintal, without taking into account the additional e·xpenditure
on account of interest, but under the impugned Order the State would get t 500
metric tonnes of resin at a greatly reduced tale of Rs.
114/-
per
quintal
without any risk or hazard. The State would also receive for 3500 m:tric
tonnes of resin retained by the second respondent 'price or royalty at the rate
of Rs. 474/- per quintal which would be much higher than the rate of Rs. 260/·
per quintal at which the State was allotting resin to medium scale inJu·trial
units and the rate of Rs. 320/-per qu!ntal at which it was allotting resin of
small scale units within the State.
[1362 G-H, 1363 A-BJ
B.
The impugned order neither created any monopoly in favour of the
second respondent nor imposed unreasonable restriction on tht: right
of the
D
petitioner to carry on tapping business under Article 19(l)(g). [1364 DJ
G
H
(i) The impugned Order did not hand over the tapping
of
the
entire
forest area in the State exclusively to the 2nd reSpondent so as to deny the
opportunity of tapping
Goy
forest areas to the petitioner. What was done
under the impugned order was merely to allot 11,85,414 blazes rn
the
inac~
cessible areas of Rasi, Ramban and Poonch divisions to the 2nd respondent
so that the respondent could have an assured supply of 3500 metric tcnnes
of resin for the purpose of feeding the factory to be set up by them in the
State and a large number of blaz"s amounting to about 60 lacks in other forest
areas of the State were left available for tapping by the petitioners and other
forest contractors.
[1364 D-01
(ii) The petitioner and other- forest contractors could bid for wage contract
in respect of the other blazes which were more
than
five times in number
than the blazes allotted to
the
second respondent. The pet1t1oners in writ
petition 481 of 1979, in fact, obtained a wage contract for extraction of resin
from an easily accessible forest in Rajouri Division for the aggi egate sμm
of I,
Rs. 2,80,250/· in the year 1979-80 and though it is true that the petitionera in
writ petition No. 482f.79 did not obtain any wage contract for tapping 1n this
year, it was not becauSe blazes were not available -for tapping, but becalise the
petitioner did not get ;heir registration renewed.
l1364 F-HJ
C. Neither the impugned order in favour, of the second respondents could be
said to be arbitrary and unr;sonable. U365 Al
(i) The State was not unjustified in excluding 11,85,414 blazes situated in
tbC inacc~sible areas of Rasi, Ramban and Poonch divisions from the auc.
tiOns, since the past experience showed that e_ven on the basis of royalty without load. it was difficult to attract bidders and the
maximum
that could be
obtaine~, and that too only in one solitary year. was Rs. 2-55 per blaze without
load, which was an absurdly low return and it was, therefore,
felt
quite
.,
• •
KASTURI LAL LAKSHMI REDDY V. STATE OP J, It K·
1345
jUstifiably,
that it would be futile to include thcoc blazes in the auctions for
tapping on wage contract basea. The State also could not award' a contract
1imphci1er for tapping on the basis of royalty with or without load because as a
matter of policy, witb a· view to encouraging industrialisation, the State did not
want resin to go outside its territories but wanted it to be used only for the put·
po~e of feeding industries set up within the State and even if a condition could
legitimately be imposed on the contractor that he shou.d sell the resin extract·
eel and retained by him only to industries within
the
State,
it would be
difficult to ensure observance of such condition end moreover the object of the
State to make resin available to the local industries at a reasonable price might
be f. ustrated, because the contractor taking advantage of scarcity tn supp:y of
resin might, and in all probability Would, try to extract a much higher price
from the industries needing resin. It was thus found to be an impracticable
proposition to tap these blazes either on \\Uge contract basis or on the basis
of 1 oyalty with or without load.
11365 A-Fl
(ii) The impugned Order W88 unquestionable and without doubt in the
interest of the State· and even with a microscopic examination ~er~ in nothing
in it which could possibly incur the reproach of being condemned as arbitrary
<ir irrational. 11366 B-Cl
A
B .
c
(iii) It is true the.t no advertisements
were
issued by the State inviting
tenders for award of tapping contract in respect of these
blazes or
stating
D
that tapping contract would b~ given to any party who is prep;:i.red to put up
.a factory for manufacture of resin, turpentine oil and other derivatives within
the State, but it was not a tapping contract simpliciter which \Vas being given
by the State. The tapping contract was being given by way of allocation ot raw
material for feeding the factory to be set up by the 2nd respOndent.
l1366 A-CJ
The predominent purpose of the transaction was to ensure setting up of
E
.a. factory by the 2nd respondent as part of the process of industrialh:e.tion of
the State and since the 2nd respondent wanted assurance of a definite supply
of resin as a conditi~n of putting up the factory, the State awarded the tapping
conrtact to the 2nd respondent for that purpose. If the State were giving tap·
ping contract simpliciter there can be no doubt that the State would have to
aucti<.1n or invite tenders for securing the highest price, subject. of course,
to
HOY other relevant oveniding considerations of publiJ: weal or interest,
F
but in a case like this where the State is allocating resources such as
\vater, power, raw material etc., for the purpose of encouraging: setting up
of industries within the State, the State is nqt bound to advertise and tell the
people that it wants a particular iiidustry
to
be set uo wthin the State and
invite those interested to· come un w~th proposals for the purpose. The State
may choose to do so if it thinks fit and in a given Situation, it may even tum
out to be advantageous for the Sttl1e to do so, but if any private party comes
G
before the State and offers _to set up an industry, the State would not be com~
olittine brea"h of anv conc;fitutional or legal ob
1 i~tion if it negotiates which
liJch party and agrees to prov•de resources and other facilities for the purpose
of setting up the industry. The State is not obliged to tell such party'. "P 1P.llSe
~it-I will first adv"rticie, see wh .. th"r any other offers are forthcoming and then
aftf"f c0nc;idering all off,,.rs. dec:de whether I should let you set up the inducitry'',
It _would b"' moc;t unr,,aJistic to •nsist on such a procedure, particularly H
hi an area like Jammu and Kashmir which on account of historical. rolitical
alid other reasons, is not yet fodustrially developed and. where entrepreneurs
mve to be Offered attractive terms in Order to ptrsuade them ·lo set Up an
1346
SUPRllMB COURT REPORTS
£1980] 3 S.C.R.
A
industry.
The Stale must be free in such a case to negotiate with a prival!>·
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, tbeCourt will not interfere merely on the ground thut no advertisement was giveD:
or publicity made or tender> invited.
11366 C-H, 1367 A-DJ
c
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.
D
E. C. Agarwal for Respondent No. 2.
E
F
G
ff
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 J ammu 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·
for extraction of resin from the inaccessible chir forests in Poonch,.
R easi 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 J ammu and Kashmir. There is a commo· ·
dity called Oleo-resin, which we shall hereafter refer shortly as resin,·
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)'
f
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.
c
E
F
(3) The third type of contract given by the S•ate was on the
G
basis of royalty with load and under th's contract, which
was al<o given by aucti
0 n, the royalty was payable per blaze
and out of the resin extracted and collected by the contractor, a certain part would have to be surrendered to the
State while the balance would remain with the contractor.
l:very year the State auct'oned the blazes in the different fore<ts within
u ter1itory and about 40 per cent of the forests were given on royalty
B
1348
SUPREME COURT REPORTS
[1980] 3 S.C.lt.
A basis, some with load and some without lead, while the balance of about
60 per cent were given on wage contract ba,is.
8
c
D
E
F
G
The resin, wh.ch was thus obtained by the State by giving out blazes
on contract whether on royalty-cum-load or on wage basis, was auctioned by the State !rem time to time ard manu.acturers hav ng factories
for manufactures of resin, turpentine and other derivatives purchased it
at the auctions. It is common ground that most of these purchasers
were manufacturers having their factories in Hoshiarpur district
of
Punjab and at the material time, they depended for their requirement of
raw-material solely on the resin available at the auct.on held by the
State since supply of resin had ceased to be available from Uttar Pradesh
and Himachal Pradesh on account of the policy adopted by the Governments in these territories.
The State, however, in furtherance of its
policy to bring about rapid indus ria'irnti n, dee ded that from the year
1979-80 onwards, the resin extracted from its forests should not be
allowed to be exported outside the territories of the S ate and should be
utilised only by industries set up w thin the Sta e. The s·ate ·n fact entered into contracts with three manufacturers, namely, Prabhat Turpentine and Synthetics Pvt. Ltd., Dujodwala Resin and Turpentine Pvt. Ltd.
and Pine Chemicals Ltd. under wh'ch these three manufacturers agreed
to pvt-up factories in the State for mannfacture of resin, turpent ne and
other derivat,ves and the State agreed to make available to them respectively an assured supply of 4,000, 3500 and 8000 metric tonnes of resin
per year. The validity of thece contracts was challenged before us in
_writ petitions Nos. 37-38 of 1979, but these writ peti ions were d smissed
by us by an Order made on 21-12-79. The Sate had a'so ccmmitments
to supply resin to its own concern, namely, J & K Indus tr.es L d., which
was running a factory for manufacture of resin and turpentine as also to
various small scale units wh ch were set-up in the State. It appears that
the total requirements of the State for the purpose of meeting these
commitments was in the pdghbourhood of 24,000 metric tonnes of resin.
Now ir. view of the fact that quite a large n11mber of forests were being
given out by the State for tapping on royalty contract basis, sometimes
w·th load and som'times ern without I ad, the aggrega e quant ty of
resin whicli was being collected by the state was very much short of
the total requirement of 24,000 metr:c tonnes and it was. therefore, felt
to be abrnlutely necessary for the State to increase its procurement of
resin so as to be able to meet its commitments. With this end in view
a meeting of the Chief Conservator of forests and other forest officials
was held on 9th December, 1978 for the purpose of discu's·ng ways and
means for achieving a higher target of production of resin. Jt Wai
decided at this meeting that the increa~ect target of production could be
achieved only through replacement of royalty contracts by wage con-
·•
•
f
.)(ASTUlll LAL LAKSHMI IU!DDY v. STATE OP J."' K· (Bhagwati, J.) 1349
trncts wherever possible and hence in future blaze should be auctioned A
for tapping only on wage con\f'dct basis.
Now there were certa.n fores's in Reasi and Ramban Divisions of
the State which were difficult of acce8s on acccunt of their & tance from
the roads and so were some forests in the Poonch Division near the line
of actual control. So far as the forests in the Rea i Division were con- ' a
cerned, there were 6,08,115 blazes which were attempted to be given
for tapp:ng in the year 1976-77 on rcyalty contract bas,s w'thcut load
but out of them only 1,28,856 blazes were tzken by one Prem Kumar
Sood and that too on a royalty of only Rs. 2.55 per blaze, as against
royalty of about Rs. 6/- per blaze obtained by the State in other inaccessible areas by giving contract on royal y basis with I' ad cf 3 Kg.
C
per blaze. Moreover, these 1,28,856 blazes· were situate in the lower
reaches of inaccessible forests and no contractors could be found for
taking tapping contracts. even on the basis of royalty without load, for
blazes in the h:gher regions of the inaccessible areas.