Case: M.P. Oil Extraction  Vs. State Of M.P.

to the selected industries by assuring supply of sal seeds by the State Government. The case of M/s. Sal Udyog was also considered by such high-powered committee and the committee recommended in favour of M/s. Sal Udyog. Thereafter, the State Government renewed the agreement with the usual renewal clause. Such action of the State Government cannot be held to be illegal or arbitrary 44. The renewal clause in the impugned agreements executed in favour of the respondents does not also appear to be unjust or improper. Whether protection by way of supply of sal seeds under the terms of agreement requires to be continued for a further period, is a matter for decision by the State Government and unless such decision is patently arbitrary, interference by the Court is not called for. In the facts of the case, the decision of the State Government to extend the protection for further period cannot be held to be per se irrational, arbitrary or capricious warranting judicial review of such policy decision. Therefore, the High Court has rightly rejected the appellants contention about the invalidity of the renewal clause. The appellants failed in earlier attempts to challenge the validity of the agreement including the renewal clause. The subsequent challenge of the renewal clause, therefore, should not be entertained unless it can be clearly demonstrated that the fact situation has undergone such changes that the discretion in the matter of renewal of agreement should not be exercised by the State. It has been rightly contended by Dr. Singhvi that the respondents legitimately expect that the renewal clause should be given effect to in usual manner and according to past practice unless there is any special reason not to adhere to such practice. The doctrine of "legitimate expectation" has been judicially recognised by this Court in a number of decisions. The doctrine of "legitimate expectation" operates in the domain of public law and in an appropriate case, constitutes a substantive and enforceable right 45. Although to ensure fair play and transparency in State action, distribution of largesse by inviting open tenders or by public auction is desirable, it cannot be held that in no case distribution of such largesse by negotiation is permissible. In the instant case, as a policy decision protective measure by entering into agreements with selected industrial units for assured supply of sal seeds at concessional rate has been taken by the Government. The rate of royalty has also been fixed on some accepted principle of pricing formula as will be indicated hereafter. Hence, distribution or allotment of sal seeds 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 46. So far as the contention that royalty for the sal seed to be supplied to the respondents has been fixed unreasonably in order to ensure naked favouritism to the said respondents is concerned, the appellants have failed to demonstrate such naked favouritism. The fixation of rate of royalty on the basis of weighted average formula has a rational basis and is also a known method and modality for determining market price. It also appears to us that the price per MT of sal seeds 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 Rs. 750, Rs. 1030 and Rs. 1030 per MT respectively for 1983-85, 1985-87 and 1987-89 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 Rs. 300 per MT in place of Rs. 750, Rs. 300 per MT in place of Rs. 1030 and Rs. 294 per MT in place of Rs. 1030 for the said three blocks. In the aforesaid facts, it cannot be held that the fixation of royalty in the impugned agreements is without any basis and wholly arbitrary and designed only to ensure favouritism, as alleged. If there is an objective and rational foundation for the fixation of royalty, the 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 47. The anxiety of the appellants to also get allotments of reasonable quantity of sal seeds from the State Government can be appreciated but the policy decision of the State Government and consequential State action in entering into agreements with the respondents cannot be struck down on the vice of irrationality and arbitrariness. It has been submitted by the learned counsel for the State that the State Government is not oblivious to 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

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]42. In the instant case, the State Government of M.P. framed Industrial Policy in 1979andthereafter revised the same from time to time according to the felt need. There is no material on record from which it can be reasonably found that the same was not informed by any reason whatsoever. That apart, such policy has been taken into consideration by the High Court of M.P.andalso by this Court in the earlier proceedingsandthe Industrial Policy has not been found to be arbitrary or capricious. On the contrary, the agreement made in favour of the appellants was struck down by the High Court by indicating that unlike other class of industrial units like the respondents Bastar Oil MillsandSal Udyog (Pvt.) Ltd. which were entitled to special treatment under the Industrial Policy, the appellants were not entitled to any special treatment which was not given to the other existing old industrial units in the State, similarly circumstanced43. It has been held by the High Court that the industrial units which were commissioned on the invitation of the State to undertake oil extraction operation on the assurance of supply of sal seeds by the State,d on a separatefooting. Such decision of the High Court though challenged before this Court, has not been upset. The distinctive features between the industrial units set up at the instance of the State Governmentandthe old existing units are based on an objective criteria. Therefore, the said two classes of industries are not similarly circumstanced. Article 14 prohibits discrimination amongst the equals but it should be appreciated that Article 14 has inbuilt flexibilityandit also permits different treatment to unequals. It may also be noted here that Bastar Oil Mills is situated at Jagdalpur which is admittedly a backwardandtribal area. The special treatment given to Bastar Oil Mills by assuring supply of 20, 000 MT of sal seeds under the impugned agreement cannot be held to be per se illegalandarbitrary. Classification on the basis of geographical situation has a rational basisandhas been recognised by this Court as indicated in the decisions referred to hereinbefore. It may also be noted that the agreement of M/s. Sal Udyog was terminated by the State Government for which reference to arbitration was made in terms of the agreement between the parties. Initially, the dispute was referred to the arbitration of a retired Judge of this Court but since the same could not be completed within the, the arbitration was later on referred to a District Judge. During the pendency of arbitration proceedings, the industrial policy of the State Government was reviewed by ad committee formed by the State Government. Such committee considered the question of continuance of protective measures to the selected industries by assuring supply of sal seeds by the State Government. The case of M/s. Sal Udyog was also considered by suchd committeeandthe committee recommended in favour of M/s. Sal Udyog. Thereafter, the State Government renewed the agreement with the usual renewal clause. Such action of the State Government cannot be held to be illegal or arbitrary44. The renewal clause in the impugned agreements executed in favour of the respondents does not also appear to be unjust or improper. Whether protection by way of supply of sal seeds under the terms of agreement requires to be continued for a further period, is a matter for decision by the State Governmentandunless such decision is patently arbitrary, interference by the Court is not called for. In the facts of the case, the decision of the State Government to extend the protection for further period cannot be held to be per se irrational, arbitrary or capricious warranting judicial review of such policy decision. Therefore, the High Court has rightly rejected the appellants contention about the invalidity of the renewal clause. The appellants failed in earlier attempts to challenge the validity of the agreement including the renewal clause. The subsequent challenge of the renewal clause, therefore, should not be entertained unless it can be clearly demonstrated that the fact situation has undergone such changes that the discretion in the matter of renewal of agreement should not be exercised by the State. It has been rightly contended by Dr. Singhvi that the respondents legitimately expect that the renewal clause should be given effect to in usual mannerandaccording to past practice unless there is any special reason not to adhere to such practice. The doctrine of "legitimate expectation" has been judicially recognised by this Court in a number of decisions. The doctrine of "legitimate expectation" operates in the domain of public lawandin an appropriate case, constitutes a substantiveandenforceable right45. Although to ensure fair playandtransparency in State action, distribution of largesse by inviting open tenders or by public auction is desirable, it cannot be held that in no case distribution of such largesse by negotiation is permissible. In the instant case, as a policy decision protective measure by entering into agreements with selected industrial units for assured supply of sal seeds at concessional rate has been taken by the Government. The rate of royalty has also been fixed on some accepted principle of pricing formula as will be indicated hereafter. Hence, distribution or allotment of sal seeds at the determined royalty to the respondentsandother 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 validandobjective considerations46. So far as the contention that royalty for the sal seed to be supplied to the respondents has been fixed unreasonably in order to ensure naked favouritism to the said respondents is concerned, the appellants have failed to demonstrate such naked favouritism. The fixation of rate of royalty on the basis of weighted average formula has a rational basisandis also a known methodandmodality for determining market price. It also appears to us that the price per MT of sal seeds 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 Rs. 750, Rs. 1030andRs. 1030 per MT respectively for9 blocks had been challengedandsuch revisions were struck down by the High Court of M.P.andthe High Court directed redetermination of the rates of royalty as per the established weighted average formula. Arbitration was held for determining the appropriate royaltyandthe royalty thereafter was refixed at Rs. 300 per MT in place of Rs. 750, Rs. 300 per MT in place of Rs. 1030andRs. 294 per MT in place of Rs. 1030 for the said three blocks. In the aforesaid facts, it cannot be held that the fixation of royalty in the impugned agreements is without any basisandwholly arbitraryanddesigned only to ensure favouritism, as alleged. If there is an objectiveandrational 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 rightsandpolicy decision, the scope of judicial review is limitedandcircumscribed. 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 revenue47. The anxiety of the appellants to also get allotments of reasonable quantity of sal seeds from the State Government can be appreciated but the policy decision of the State Governmentandconsequential State action in entering into agreements with the respondents cannot be struck down on the vice of irrationalityandarbitrariness. It has been submitted by the learned counsel for the State that the State Government is not oblivious to such needandalso 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.andin 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