1997 (7) TMI 660 - SC - Indian Laws

State agreements for sal seed supply at concessional royalty rates upheld as valid protective policy measure

M.P. OIL EXTRACTION Versus STATE OF M.P.

SC upheld state government's agreements with industrial units for sal seed supply at concessional royalty rates. Court found the weighted average formula ... Determination of royalty to be paid for the sal seeds to be supplied - legality and validity of agreements made by the State Government of Madhya Pradesh with M/s. Bastar Oil Mills and Industiries Ltd. and M/s. Sal Udyog (Pvt.) Ltd. - Alleged hostile discrimination in the matter of grant of largesse so far as sal distribution of sal seeds - renewal clause - fixation of royalty - HELD THAT:- In the instant case, as a policy decision protective measure by entering into agreements with selected industrial units for assured supply of sal seeds at concessional rate has been taken by the government. The rate of royalty has also been fixed on some accepted principle of pricing formula as will be indicated hereafter. Hence, distribution or allotment of sal seed at the determined royalty to the respondents and other units covered by the agreements cannot be assailed. It is to be appreciated that in this case, distribution by public auction or by open tender may not achieve the purpose of the policy of protective measure by way of supply of sal seeds at concessional rate of royalty to the industrial units covered by the agreements on being selected on valid and objective considerations. The fixation of rate of royalty on the basis of weighted average formula has a rational basis and is also a known method and modality for determining market price. It also appears to us that the price per M.T. of sal seed has different components of which collection charges is the principal factor. It may also be noted here that the revisions of royalty by the State Government at ₹ 750, ₹ 1030 and ₹ 1030 per M.T. respectively for 83-85, 85-87 and 87-89 blocks had been challenged and such revisions were struck down by the High Court of M.P. and the High Court directed redetermination of the rates of royalty as per the established weighted average formula. Arbitration was held for determining the appropriate royalty and the royalty thereafter was refixed at ₹ 300 per M.T. in place of ₹ 750, ₹ 300 per M.T. in place of ₹ 1030 and ₹ 294 per M.T. in place of ₹ 1030 for the said three blocks. In the aforesaid facts, it cannot be held that the fixation of royalty in the impugned agreements is without any basis and wholly arbitrary and designed only to ensure favouritism, as alleged. If there is an objective and rational foundation for the fixation of royalty, the Court will not interfere with the exercise of governmental decision by itself undertaking an exercise to find out as to whether better fixation was possible or not. It needs to be noted that in matters of economic rights and policy decision, the scope of judicial review is limited and circumscribed. It may also be indicated here that within the ambit of protective measure of assured supply of sal seeds, such supply at concessional price is also a relevant consideration. The State Government may not be dictated by the only consideration of more revenue. It has been submitted by the learned counsel for the State that the State Government is not oblivious of such need and also not averse to old industrial units which also use sal seeds for their plants. We reasonably expect that the government will be alive to the need of sal seeds by the industrial units operating in the State of M.P. and in future when the policy will be reviewed by the State Government, it will take into consideration the felt need of proper distribution of sal seeds to different classes of industrial units with appropriate pragmatism. We, therefore, find no reason to interfere with the impugned decision of the High Court. These appeals, therefore, fail and are dismissed. There will be, however, no order as to costs Issues Involved:1. Legality and validity of agreements made by the State Government of Madhya Pradesh with M/s. Bastar Oil Mills and Industries Ltd. and M/s. Sal Udyog (Pvt.) Ltd.2. Alleged hostile discrimination against K.N. Oil Industries and M.P. Oil Extraction Ltd. in the matter of distribution of sal seeds.3. Validity of the renewal clauses in the agreements.4. Fixation of royalty for the sal seeds.Summary:Legality and Validity of Agreements:The appellants challenged the legality and validity of agreements made by the State Government of Madhya Pradesh with M/s. Bastar Oil Mills and Industries Ltd. and M/s. Sal Udyog (Pvt.) Ltd. for the supply of sal seeds, alleging that these agreements were discriminatory and affected their economic viability. The agreements were initially upheld by the Madhya Pradesh High Court and subsequently by the Supreme Court, which found no arbitrariness or capriciousness in the State's industrial policy.Alleged Hostile Discrimination:The appellants contended that they were subjected to hostile discrimination in the distribution of sal seeds, favoring Bastar Oil Mills and Sal Udyog. They argued that the State Government's actions violated Articles 14 and 19 of the Constitution of India. However, the Court held that the classification between new and old units was based on objective criteria and did not constitute discrimination among equals. The special treatment given to units in backward areas like Bastar Oil Mills was justified and not arbitrary.Validity of Renewal Clauses:The appellants challenged the renewal clauses in the agreements, arguing that they led to perpetual favoritism towards certain units. The Court upheld the renewal clauses, stating that the decision to extend protection for further periods was within the State Government's discretion and not arbitrary. The doctrine of 'legitimate expectation' was recognized, allowing the respondents to expect renewal based on past practice.Fixation of Royalty:The appellants argued that the royalty rates fixed for the respondents were unreasonably low, amounting to naked favoritism. The Court found that the fixation of royalty based on the weighted average formula was rational and a known method for determining market price. The revisions of royalty rates had been previously scrutinized and upheld by the High Court. The Court emphasized that in matters of economic policy, the scope of judicial review is limited and circumscribed.Conclusion:The Supreme Court dismissed the appeals, finding no reason to interfere with the High Court's decision. The Court held that the State Government's industrial policy and agreements were neither arbitrary nor discriminatory and that the fixation of royalty was based on rational and objective criteria. The appeals were dismissed with no order as to costs.