Case: Vij Resins Pvt. Ltd. &amp; Anr. Etc Vs. State Of Jammu &amp; Kashmir &amp; Ors

The petitioner-company in each of these cases obtained the right to collect oleo resin gum or to process the same for industrial purposes from the State of Jammu and Kashmir and each of them seeks to challenge the vires of the provisions of the Jammu and Kashmir Extraction of Resins Act (7 of 1986) (hereinafter referred to as theThough there are some variations of facts relevant to each the writ petitions, the allegations are more or less similar in regard to the relevant contentions - both factual and legal. When rule was issued the respondent-State came with almost the same plea, traversing common grounds and revealing a common stand in its returns to the court. These three writ petitions were heard at a time and are now being disposed of by a commonResin is the secretion extracted by tapping or otherwise from chir, chil and kail trees wildly growing in the forests of Jammu and Kashmir. It is an exudate and when subjected to chemical treatment and distillation with the aid of steam yields 70 per cent. resin, 15 per cent. turpentine and the remaining 15 per cent. of waste material. The downstream products which are manufactured from this raw material are varnish, camphor, paints and turpeneThe petitioner-company in Writ Petition No. 751 of 1986 obtained under Government Order dated April 27, 1979 allotment of 10 to 12 lakhs of blazes annually for extraction of resin from the inaccessible forests in Poonch, Reasi and Ramban Divisions of the State for a period of 10 years on terms and conditions set out in the said government order. Government order had also been made granting rights in favour of the petitioner-company in Writ Petition No. 794 of 1986. The petitioner-company in Writ Petition No. 798 of 1986 was a processor only and had not undertaken to work as a tapper. Applications under Article 32 of the Constitution were filed in this Court at that point of time on the ground that the government orders and/or contracts were hit by Articles 14 and 19 of the Constitution and the grant of forest rights in favour of the present petitioners was arbitrary, mala fide and not in public interest. It was further contended that State largesse had been conferred on the petitioners at the cost of the State exchequer. The petitioners therein also pleaded that a monopoly had been created in favour of the private grantees and was not protected under Article 19(1)(g) of the Constitution. According to Kasturilal, the petitioner before this Court then, the benefits should have been thrown open and opportunity should have been provided to all interested persons to compete for the obtaining of the contract. A three Judge Bench consisting of one of us (the learned Chief Justice) dealt with the matter at length and ultimately dismissed the petition holding that there was no substance in any of the contentions advanced on behalf of Kasturilal. (Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir ((1980) 4 SCC 1 : (1980) 3 SCR 1338 ).) The order made in favour of the petitioner-company in Writ Petition No. 794 of 1986 and incorporated in the agreement dated November 6, 1978 had also been challenged in a separate writ petition before this Court and the reasoned order for rejection of the writ petition is found in Brij Bhushan v. State of Jammu and Kashmir ((1986) 2 SCCWhile the petitioner-company in Writ Petition No. 751 of 1986 had agreed to work as tapper and processor on the stipulation that 25 per cent. of the annual collection of gum subject to minimum of 1500 metric tonnes would be made over to the government company (J&K Industries Limited) and out of the rest not exceeding the limit of 3500 metric tonnes would be used them, the petitioner-company in writ Petition No. 794 of 1986 who had been operating from before as tappers only entered into a formal agreement with the State claiming to process and manufacture downstream goods. The writ petitioner-company in Writ Petition No. 798 of 1986 had agreed to work as processorIn the seventies, the State of Jammu and Kashmir decided to industrial the hitherto underdeveloped State and with that end in view came forward with schemes and threw open invitation to outsiders to set up industries at convenient places within the State. As stimulus government offered land and other facilities. The petitioners in these three writ petitions and another who has since withdrawn the writ petition, went into the State of Jammu and Kashmir in response and negotiated the arrangements we have already adverted to.7. While the petitioners were carrying on their business activities, Governors Act 7 of 1986, the provisions whereof are impugned in these petitions by which all their existing rights came to terminate, came into force with effect from April 23, 1986. The Act sought to create a monopoly with reference to resin in favour of J&K Industries Limited, which is a respondent to theseThe Act has even sections in all. Section 1 gives the short title, extent and the date of commencement while Section 2 defines four terms, namely, prescribed, resin, resin depot and resin products. Section 3 hours extraction and other dealings of resin by private persons while Section 4 makes provision for disposal of resin. Section 5 provides the manner of fixation of price. Section 6 provides for penalty for officers and Section 7 clothes the State Government with power to make rules for carrying out the purposes of the Act. Challenge in the writ petitions has been to the provisions contained in Sections 3, 4 and 5 of the Act. We propose to excerpt these provisions forBan on extraction by private persons. - Notwithstanding anything to the contrary contained in any law, rule, order, instrument, agreement or contract or in any judgment, decree or order of any court or authority, no person, other than the government shall as from the commencement of this Act, -(a) extract resin by tapping or otherwise from Chir/Chil or Kail trees in the State whether such trees belong to the State or not;(b) transport resin from one place to other in the State except under and in accordance with the permit granted under this Act;(c) acquire, possess, store, dispose of or otherwise deal with any resin extracted an manufactured in the State4. Disposal of resin. - (1) All resin extracted under Section 3 shall be stored at resin depots and thereafter shall be sold by the government to the Jammu and Kashmir Industries Limited for processing(2) After processing it by the Jammu and Kashmir Industries Limited, the resin products, if any surplus, shall sold by it to the small scale units and medium scale units in the State in such manner as may be provided for, and at such price as may be fixed by the Jammu and Kashmir Industries Limited in consultation with the government5. Fixation of price. - (1) The government shall, having due regard to the following facts, fix the price at which resin shall be sold by it during a year, namely(a) the sale price of resin, if any, fixed under this Act during the proceeding three years;(b) the cost of transport;(c) the cost of extraction of resin;(d) the cost of packing of resin including the cost of container in which resin is delivered;(e) the prevalent sale price at which resin is being sold in other resin producing States;(f) any other factor which the government considers relevant(2) The price so fixed shall be published in the official Gazette and shall not be altered during the year to which itIn exercise of the rule-making power, the State Government has brought into force a set of rules known as the Jammu and Kashmir Extraction of Resin Rules, 1986 with effect from September 27, 1986

Court's reasoning:
12. The petitioners maintained that the government orders and contracts under which they have got the right to exploit or utilise the particular forest products does amount to property and the petitioners were entitled to protection thereof against expropriation and in case no compensation was provided the relevant provisions of the Act became exposed to challenge. They have similarly contended that the impugned provisions of Section 3 are hit for contravening the fundamental right guaranteed by Article 19(1)(g) which confers upon them the right to carry on any occupation, trade orThe government orders made in 1979 did confer the right to exploit the forest and appropriate a part of the collection of the gums for purpose of business. The concept of property known to jurisprudence has expanded through several pronouncements of this Court. In Ramana Dayaram Shetty v. International Airport Authority of India ((1979) 3 SCC 489 : (1979) 3 SCR 1014 ) to which one of us (the learned Chief Justice) was party held : (SCC pp. 504-05, parathe government in a welfare State, is the regulator and dispenser of special services and provider of a large number of benefits, including jobs, contracts, licences, quotas, mineral rights etc. The government pours forth wealth money, benefits, services, contracts, quotes and licences. The valuables dispensed by government take many forms, but they all share on characteristic. They are steadily taking the place of traditional forms of wealth. These valuables which derive from relationships to government are of many kinds. They comprise social security by benefits, cash grants for political suffers and the whole scheme of State and local welfare. Then again, thousands of people are employed in the State and the Central Governments and local authorities. Licences are required before one can engage in many kinds of business or work. The power of giving licences means power to withhold them and this gives control to the government or to the agents of government on the lives of many people... It is virtually impossible to lose money on them and many enterprises are set up primarily to do business with government. Government owns and controls hundreds of acres of public land valuable for mining and other purposes. These resources are available for utilisation by private corporations and individuals by way of lease or licence. All these mean growth in the government largesse and with the increasing magnitude and range of governmental functions as we move closer to a welfare State, more and more of our wealth consists of these new forms. Some of these forms of wealth may be in the nature of legal rights but the large majority of them are in the nature of privileges. But on that account, can it be said that they do not enjoy any legal protection ? Can they be regarded as gratuity furnished by the State so that the State may withhold grant or revoke it at its pleasure ?..... The law has not been slow to recognise the importance of this new kind of wealth and the 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, have been recognised as rights while others have been given legal protection not only by forging procedural safeguards but also by confirming/structuring and checking government discretion in the matter of grant of such largesse... It is insisted, as pointed out by Prof. Reich in an especially stimulating article on "The New Property" in 73 Yale Law Journal 733, "that government action be based on standards that are not arbitrary orIn Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir ((1980) 4 SCC 1 : (1980) 3 SCR 1338 ), the interest created in favour of the petitioners in the forest assets of the State (which has now been fatally hit by Section 3) was considered to be property. At page 1354 of the Reports this Court stated : (SCC p. 11, parawas pointed out by this Court in Ramana Dayaram Shetty v. International Airport of India ((1979 3 SCC 489 : (1979) 3 1014) that with the growth of welfare State, new forms of property in the shape of government largesse are developing, since the government is increasingly assuming the role of regulator and dispenser of social services and provider of a large number of benefits including jobs, contracts, licences, quotes, minerals rightsIn Subodh Gopal Bose case (State of W. B. v. Subodh Gopal Bose, 1954 SCR 587 : AIR 1954 SC 92 ), this Court had pointed out : (SCR p.word property in the context of Article 31 [the same should be the meaning under Article 19(1)(f)] which is designed to protect private property in all its forms, must be understood both in corporeal sense as having reference to all those specific things that are susceptible of private appropriation and enjoyment as well as in its judicial or legal sense of a bundle of rights which the owner can exercise under the municipal law with respect to the user and enjoyment of those things to the exclusion of all othersAgain, in Dwarkadas Shrinivas of Bombay v. Sholapur Spinning and Weaving Co. Ltd. (1954 SCR 674 : AIR 1954 SC 119 : (1954) 24 Com 103), this Court held : (SCR p.contract or agreement which a person may have with the company and which may be cancelled by the directors in exercise of powers under the Ordinance will undoubtedly be "property" within the meaning of the twoIn R. C. Cooper v. Union of India ((1970) 1 SCC 248 : (1970) 3 SCR 530 ) an eleven Judge Bench at page 567 of the Reports, stated : (SCC pp. 281-82, paraentry 42 in the Concurrent List power was conferred upon the Parliament and the State legislatures to legislate with respect to "Principles on the compensation for property acquired or requisitioned for the purpose of the Union or for any other public purpose if to be determined, and the in which such compensation is to be given". Power to legislate for acquisition of property is exercisable only under entry 42 of List III, and not as incident of the power to legislate in respect of a specific head of legislation in any of the three lists...... Under that entry "property" can be compulsorily acquired. In its normal connotation "property" means by "highest right a man can have to anything, being that right which one has to lands or tenements, goods or chattels which does not depend on anothers courtesy : it includes ownership, estates and interest in corporeal things, and also rights such as trademarks, copyrights, patents and even rights in persona capable to transfer or transmission, such as debts; and signifies a beneficial right to or a thing considered as having a money value, especially with reference to transfer or succession, and to their capacity of beingIn Madan Mohan Pathak v. Union of India ((1978) 2 SCC 50 : 1978 SCC (L&S) 103 : (1978) 3 SCR 334 ) this Court was examining the validity of the Life Insurance Corporation (Modification of Settlement) Act of 1976. The settlement had created a right to bonus in favour of the Class III and Class IV employees of the Corporation and the Act adversely interfered with that settlement. The question for consideration of the seven Judge Bench was whether bonus payable under the settlement was property within the meaning of Article 31(2) and whether stopping payment of bonus amounted to compulsory acquisition of property without payment of compensation. The court ultimately held that bonus was property and the legislation was bad. At p. 358 of the Reports, this Court said : (SCC p. 70, para 13)It is clear from the scheme of fundamental rights embodied in Part III of the Constitution that the guarantee of the right to property is contained in Article 19(1)(f) and clauses (1) and (2) of Article 31. It stands to reason that property cannot have one meaning in Article 19(1)(f), another in Article 31, clause (1) and still another in Article 31, clause (2). Property must have the same connotation in all the three articles and since these are constitutional provisions to secure a fundamental right, they must receive the widest interpretation and must be held to refer to property of everyp. 360 of the Reports (SCC p. 72), the court again state that every, form of property, tangible or intangible, including debts and closes in action constituted property. In this group of cases before us the executive grant or the contract created interest in the petitioners and there is no room to doubt that by such process in favour of the petitioners property right had beenIt has already been stated that the Act does not provided for any compensation. Section 3 has an overriding application. It provides that is shall not only apply to the classified trees belonging to the State but it shall also apply to such trees belonging to private persons and rights of such private owners to carry on the various operations described in Section 3 are completely taken away without provision of any compensation. It cannot be contended in view of what we have stated above that the right of beneficial enjoyment of the trees by carrying out the processes named in Section 3 do not constitute property. Unless the position is covered by clause (2-A) of Article 31, in view of our conclusion that the interest created under the contract, government order or the right of beneficial enjoyment vested in the private owner of the trees amount to property, the Act would be hit by Article 31(2). Sub-article (2-A)a law does not provide for the transfer of the ownership or right to possession of any property to the State or to a corporation owned or controlled by the State, it shall not be deemed to provide for the compulsory acquisition or requisitioning of property, notwithstanding that it deprives any person of hisAn attempt was made to distinguish the rule in Pathak case (1978) 2 SCC 50 : 1978 SCc (L&S) 103 : (1978) 3 SCR 334 ) by relying upon the decision in Tara Prasad Singh v. Union of India (Tara Prasad Singh v. Union of India, (1980) 4 SCC 179 : (1980) 3 SCR 1042 ). That seven Judge Bench was dealing with the Coal Mines Nationalisation (Amendment) Act of 1976. The court referred to the two previous decisions in Ajit Singh v. State of Punjab ((1967) 2 SCr 143 : AIR 1967 SC 856 ) and Madan Mohan Pathak v. Union of India ((1978) 2 SCC 50 : 1978 SCC (L&S) 103 : (1978) 3 SCR 334 ), and observed : (SCC pp. 209-10, paradecisions have no application to the instant case because the interest of the lessees and sub-lessees which was brought to termination by Section 3(3)(b) of the Nationalisation Amendment Act does not come to be vested in the State. The Act provides that excepting a certain class of leases and sub-leases, all other and sub-leases and sub-leases shall stand terminated insofar as they relate to the wining or mining of coal. There is no provision in the Act by which the interest so terminated is vested in the State; Nor does such vesting flow as a necessary consequence of any of the provisions of the Act. Sub-section (4) of Section 4 of the Act provides that where a mining lease stands terminated under sub-section (3), it shall be lawful for the Central Government or a government company or a corporation owned or controlled by the Central Government to obtain a prospecting licence or a mining lease in respect of the whole or part of the land covered by the mining lease which stands so terminated. The plain intendment of the Act, which, may it be reiterated, is neither a pretence nor a facade, is that once the outstanding leases and sub-lease are terminated, the Central Government and the other authorities will be free to apply for a mining lease. Any leasehold interest which the Central Government, for example, may thus obtain does not directly or immediately flow from the termination brought about by Section 3(3)(b). Another event has to intervene between the termination of existing leases and the creation of new interest. The Central Government, etc. have to take a positive step for obtaining a prospecting licence or a mining lease. Without it, the Act would be ineffective to create of its own force any right or interest in favour of the Central Government, a government company or a corporation owned, managed or controlled by the CentralThe statutory scheme of the Act which we are considering is to extinguish private rights both in respect of government owned trees as also trees in private ownership and to vest those rights in the State Government or the government company. The facts in this group of cases, therefore, clearly indicate that there is a direct relationship between nullification of the private rights and vesting of those in the State or the government company. In other words, where the contract was given by the government in respect of the trees belonging to the State, the nullification of the contract would result in the automatic transfer by reversion of the property in the contract to the government. Similarly, where the ownership vested in the private persons by operation of Section 3 of the Act, the right to appropriate the usufruct of the trees is taken away from the private owner and is vested in the State. The rule in Pathak case (1978) 2 SCC 50 : 1978 SCC (L&S) 103 : (1978) 3 SCR 334 ), therefore, is applicable. Sub-article (2-A) of Article 31, therefore, does not apply to the facts of the present case. Consequently, sub-article (2) applies and compensation, therefore, was payable before the property could be taken over by thePetitioners in Writ Petition No. 794 of 1986 had claimed that pursuant to the arrangement entered into between them and the State following the invitation by the State they had invested Rs. 1.68 crores in shape of plant and machinery and 63 lakhs of rupees by way of land and buildings. The petitioner in the other two cases stated that investments had been made by them as well. The petitioners were invited to set up industries by assuring them supply of the raw material. They changed their position on the basis of representations made by the State and when the factories were ready and they were in a position to utilise the raw material, the impugned Act came into force to obliterate their rights and enabled the State to get out of the commitments. We are inclined to agree with the submissions made on behalf of the petitioners that the circumstances gave rise to a fact situation of estoppel. It is true that there is no estoppel against the legislature and the vires of the Act cannot be tested by invoking the plea but so far as the State Government is concerned the rule of estoppel does apply and the precedents of this Court are clear. It is unnecessary to go into that aspect of the matter as in our considered opinion the impugned Act suffers from the vice of taking away rights to property without providing for compensation at all and is hit by Article 31(2) of theConnected proceedings had been taken for interim arrangement regarding provision of raw material to the petitioners and certain other parties. We do not propose to deal with those aspects in this judgment but liberty is given to parties to apply for such directions as they consider appropriate and such applications, when filed, will be dealt with separately