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

SC upheld state government's agreements with industrial units for sal seed supply at concessional royalty rates. Court found the weighted average formula for royalty fixation had rational basis and was not arbitrary or discriminatory. The protective policy measure of assured supply to selected units at concessional rates was deemed valid. HC's earlier direction for royalty redetermination through arbitration was affirmed. Appeals dismissed with no costs ordered.

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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.

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