Rashbihari Panda Vs. State of Orissa
[1969] INSC 10 (16 January 1969)
16/01/1969 SHAH, J.C.
SHAH, J.C.
HIDAYATULLAH, M. (CJ) RAMASWAMI, V. MITTER,
G.K.
GROVER, A.N.
CITATION: 1969 AIR 1081 1969 SCR (3) 374 1969
SCC (1) 414
CITATOR INFO :
RF 1970 SC 564 (70) E 1971 SC 733 (5,6) RF
1971 SC1461 (435) D 1974 SC 366 (92) D 1974 SC 651 (16) R 1979 SC1628 (22,23)
RF 1980 SC1789 (36) R 1981 SC 679 (16,37,38,42,43,49) R 1984 SC 657 (16) R 1984
SC1527 (23) RF 1987 SC1086 (28) RF 1987 SC1109 (30,34)
ACT:
Orissa Kendu Leaves (Control of Trade) Act
(28 of 1961) s. 10-Scheme of Government for sale and disposal of leaves
purchased by it Contracts with, and invitation to offer, restricted to
licencees of previous year-If violative. of Arts. 14 and 19(1) (g) of Constitution-Art.
19(6) (ii)Monopoly of Government-Tests for validity-Bona fides of Government
and error of judgment by Government-If a defence to discrimination.
HEADNOTE:
Kendu tree is a wild growth and its leaf is
used mainly in the manufacture of bidis. To regulate trade in Kendu leaves and
prevent exploitation of growers and pluckers the respondent-State adopted
diverse measures. In 1961, the Orissa Kendu Leavs (Control of Trade) Act, 1961,
was enacted. By s. 3 of the Act no person other than the Government, an
authorised officer of the Government, or an agent appointed by the Government
shall purchase or transport Kendu leaves; and unders. 4 the Government is,
authorised to fix the price at which the leaves shall be purchased from the
growers by the officer or agent of the Government. Section 10 provides that the
Kendu leaves purchased shall be sold or disposed of in such manner as the
Government may direct, and under s. II, at least one half of the net profits
derived by the Government is to be paid to Samitis and Gram Panchayats. A
grower of Kendu leaves challenged ss. 3 and 4 and r. 7(5) made under the Act as
infringing his fundamental rights under Arts. 14 and 19(1)(f) and (g). This
Court, in Akadasi Padhan v. State of Orissa, [1963] Supp. 2 S.C.R. 691, held
that ss. 3 and 4 did not infringe Art. 19(6) (ii), but that the State was incompetent
to implement the provisions of the Act and give effect to its monopoly,
because, the agents appointed were not really agents of the Government but were
authorised to carry on trade in the leaves purchased not on behalf of the
Government but on their own account, and that it thus gave rise to a monopoly
in favour of the agents which was not protected by Art. 19(6) (ii) since the
law cannot be used by the State for the private benefit of agents. Thereafter,
the State made some changes in the implementation of its monopoly. In 1966, it
invited tenders from persons desirous of purchasing Kendu leaves purchased by
the officers and agents of the Government. During the years 1966 and 1967, the
prices of Kendu leaves ruled very high and when sales were effected by public
auction, prices considerably in excess of those at which tenders were accepted
were realised. Early in 1968, the State evolved another scheme under which, the
State offered to renew the licences of those traders who in the State's view
had worked satisfactorily in the previous year and had paid the amounts due
from them regularly' The scheme was objected to, and realising that, the scheme
arbitrarily excluded many persons interested in the trade, and hence was
objectionable, the Government decided to invite offers for advance purchases of
Kendu leaves but restricted the invitation to those individuals who had carried
out the contracts in the previous year without default and to the satisfaction
of the Government, that is, the existing contractors were given the exclusive
right to make offers to 375 purchase Kendu leaves. This new method of offering
to enter into agreements for advance purchases of Kendu leaves by private
offers in preference to open competition, was challenged by writ petitions in
the High Court as violative of the petitioner's fundamental rights under Arts.
14 and 19(1)(g).
The High Court held that under s. 10 of the
Act the Government could dispose of the leaves in such manner as it thought
fit, that the only question for the Court was whether in adopting the new
scheme of offering to enter into advance purchase contracts by private
negotiation the Government had acted bona fide, and that the petitioners failed
to show that in exercising its discretion the Government acted arbitrarily or
without bona fides.
In appeal to this Court,
HELD : The validity of a law by which the
State assumed the monopoly to trade in a given commodity `as to be judged by
the test whether the entire benefit arising therefrom is to enure to the State,
and the monopoly is not used as a cloak for conferring private benefit upon a
limited class of persons. The monopoly of purchasing Kendu leaves under S. 3
may be held to be valid if, it be administered only for the benefit of the
State. Similarly,, the right to sell or dispose of Kendu leaves by the State
under s. 10, in such manner as the Government may direct, would be valid if it
be exercised in public interest and not to serve the private interests of any
person or class of persons. The profit resulting from the sale must be for the
public benefit and not for private gain. Section 11 also emphasises the concept
that the machinery of sale or disposal of the leaves must also be geared to
serve the public interest. if the scheme of disposal creates a class of middle
men who could purchase from the Government at concessional rates and earn large
profits disproportionate to the nature of the,service rendered or duty performed
by them, it cannot claim the protection of Art. 19(6) (ii) as it is not open to
the Government to create a monopoly in favour of third parties from its own
monopoly. [383 385A-D] In the present case, the right to make offers being open
to a limited class of persons it effectively shut out all other persons
carrying on trade in Kendu leaves as well as new entrants into the trade. Both
the schemes, evolved by the Government, namely the one of offering to enter
into contracts with certain named licencees, and the other of inviting tenders
from licencees who had in the previous year carried out their contracts
satisfactorily gave rise to a monopoly in the trade in the leaves to certain
traders and singled out other traders for discriminating treatment.
Therefore, they were violative of the
fundamental right of the petitioners under Arts. 14 and 19(1)(g) and as the
'schemes were not 'integrally and essentially' connected with the creation of
the monopoly they were not protected by Art. 19(6) (ii). [384 E-H; 385 B-D] (a)
If the only anxiety of the Government was to ensure due performance by those
who submitted tenders, Government could devise adequate safe guards. But the
classification based on the circumstance that certain existing contractors had
carried out their obligation in the previous year ,regularly and to the
satisfaction of the Government is not based on any real and substantial
distinction bearing a just and reasonable relation to the objects sought to be
achieved namely, the effective execution of the monopoly in public interest,
the prevention of exploitation of pluckers and growers of Kendu leaves, or the
securing of the full benefit from the trade, to the State. [384G-H; 386B-D] 376
(b) The scheme could not be supported on the ground that it imposed
reasonable-restrictions, within the meaning of Art.
19(6), on the fundamental rights of traders
to carry on business in Kendu leaves. [38SC-D] (c) The plea that the action of
the Government was bona fide cannot be an effective answer, because, the
Government had not considered, the prevailing prices of Kendu leaves about the
time when offers were made, the estimated crop, the conditions in the market,
offers of higher prices and the likelihood of offerors of higher prices
carrying out their obligations and whether it was in the, interests of the
State to invite tenders in the open market from all persons irrespective of
their having taken contracts in the previous year. [385H; 386A-B] (d) It could
not also be said that the Government merely committed an error of judgment in
adopting the impugned scheme. It is not a case of the Government erring in the
exercise of its discretion, but the action of the Government was itself not
valid. [386 B-D]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1472 to 1474 of 1968.
Appeals by special leave from the judgment
and order dated May 8, 1968 of the Orissa High Court in O.J.C. Nos. 49, 52 and
132 of 1968.
J. B. Dadachanji, for the appellant (in CAs.
Nos. 1472 and 1473 of 1968).
A. S. R. Chari, Govind Das and J. B.
Dadachanji, for the appellant (in C.A. No. 1474 of 1968).
C. K. Daphtary, Santosh Chatterjee and R. N.
Sachthey, for the respondent (in all the appeals).
The Judgment of the Court was delivered by
Shah, J. These appeals arise out of orders passed in petitions moved before the
High Court of Orissa challenging the scheme adopted by the Government of Orissa
for sale of Kendu leaves in which the State has assumed a monopoly of trading,
by the Orissa Kendu Leaves (Control of Trade) Act 28 of 1961.
Kendu tree is a wild growth. Its leaf is used
mainly in the manufacture of bidis. To regulate the trade in Kendu leaves the
State of Orissa has adopted diverse executive, and legislative measures. In
exercise of the powers conferred by S. 3(1) of the Orissa Essential Articles
Control and Requisitioning (Temporary Powers) Act, 1947 the Government of
Orissa issued the Orissa kendi. Leaves (Control and Distribution) Order, 1949,
providing for the is-sue of licences to person trading in Kendu leaves. The District
Magistrates were authorised to fix the minimum rates for purchase of Kendu
leaves and the Order provided that the licensees shall purchase Kendu leaves
from the pluckers or 37 7 owners of private trees and forests at rates not
below the minimum prescribed. A trader in Kendu leaves challenged the validity
of the Act and the Order before the High Court of Orissa on the plea that the
State Legislature was incompetent to enact the Act and that in any event the
Act and the Order infringed the guarantee of fundamental freedom to carry on
business under Art. 19(1)(g) of the Constitution. A Division Bench of the
Orissa High Court upheld the validity of the Act : Jagdish Patel v. Patel
Tobacco Company(1). The Court observed that the main purpose of the Order was to
prevent indiscriminate and unrestricted competition in the trade in Kendu
leaves and to protect the growers and pluckers from exploitation.
The Order of 1949 was replaced by another
Order issued in 1960, but without any substantial changes in its principal
provisions. Thereafter the State Legislature enacted the Orissa Kendu Leaves
(Control of Trade) Act 28 of 1961. By s. 3 of the Act no person other than (a)
the Government; (b) an officer of Government authorised in that behalf; (c) an
agent in respect of the unit in which the leaves have grown shall purchase or
transport Kendu leaves. By s. 4 it was enacted that the Government shall, after
consultation with the Advisory Committee, fix the price at which Kendu leaves
shall be purchase( any officer or agent from growers, of Kendu leaves during
any year. By s. 8 the Government was authorised to 'appoint agents for
different units to purchase Kendu leaves. Section 10, provided that: .
"Kendu leaves purchased by Government or
by their officers or agents under this Act shall be sold or otherwise disposed
of in such manner as Government may direct." Out of the net profits
derived by the Government, from the trade in Kendu leaves under the Act, by s.
1 1, an amount not less than one half was to be paid to Samitis and Grama
Panchayats. Sections 14, 15 and 16 dealt with penalties, attempts and abetment
of offences and procedure of courts.
Section 18' conferred upon the Government
power to make rules for carrying out the purposes of the Act.
Agents were appointed by the Government of
Orissa to purchase Kendu leaves. The agents were, authorised under the
agreements to purchase the Kendu leaves and also to trade in the Kendu leaves
purchased.
A grower of Kendu leaves moved a petition in
this Court contending that the principal provisions of the Act infringed his
(1) A.I . 1952 Ori 260.
378 fundamental rights under Arts. 19(1)(f)
& (g) and Art. 14.
He challenged ss. 3 and 4 and rule 7(5) as
infringing the fundamental right under Art. 19(1)(f) and (g) of the Constitution,
and ss. 5, 6 and 9 as contravening the equality clause of the Constitution.
This Court held in Akadasi Padhan v. The State of Orissa(1) that the Orissa
Kendu (Control of Trade) Act, 1961, was a valid piece of legislation, and
creation of a State monopoly in Kendu leaves was protected by Art. 19(6) as
amended by the Constitution (First Amendment) Act, 1951. In the opinion of the
Court, fixation of prices prescribed by S. 4 was reasonable and in the
'interest of the general public both under Art. 19(5) and Art. 19(6) and S. 4
of the Act was on that account valid. The Court further held that section 3
which allowed the Government or an officer of the Government authorised in that
behalf or an agent in. respect of the unit in which the leaves were grown, to
purchase or transport Kendu leaves for and on behalf of the Government was not
open to attack. But in the view of the Court the categories of persons
mentioned in cls. (b) & (c) of S. 3 i.e. officers of the Government and
agents were intended to work for the Government and all their actions and
dealings in pursuance of the provisions of the Act had to be actions and
dealings on behalf of and for the benefit of the Government, and since under
the agreement obtained from the agent under r. 7 (5) to work the monopoly of
the State, the appointees were not made agents in the strict sense of the term,
and were appointed to carry on trade on their own account, the agreements were
invalid. The Court accordingly held that the State Government was incompetent
to implement the provisions of the Act through the Agents appointed under those
agreements.
Thereafter the Government of Orissa made some
changes in the machinery for implementation of the monopoly and entered into
agreements, of sale of Kendu leaves after inviting tenders from traders. Even
against this scheme objections were raised. It was claimed by persons
interested in the Production and trade in Kendu leaves that the Government of
Orissa merely resorted to a device of introducing purchasers who were mere
associates or nominees of the "so called agents," and that the
position remained practically the same as in the days before the judgment of
this Court.
On February 2, 1966, the Government of Orissa
invited tenders from persons desirous of purchasing Kendu leaves purchased or
collected by Government or by their officers or Agents under the provisions of
the Orissa Kendu Leaves (Control of (1) [1963] Supp. 2 S.C.R. 691.
37 9 Trade) Act, 1961, in the units as
constituted under s. 5 of the Act. In the last paragraph of the tender notice
it was stated "If the person appointed as Purchaser during the currency of
his agreement in respect of any Unit duly observes and performs all the terms
and conditions to the satisfaction of the Government and if the Government are
satisfied that the Purchaser has been prompt in taking delivery of leaves and
making payments, the Government may grant to the Purchaser a renewal of 'his
appointment for one year on such terms and conditions as may be mutually agreed
upon." During the years 1966 and 1967 the prices of Kendu leaves ruled
very high and when sales were effected on behalf of the Government of Orissa in
certain cases by public auctions, prices considerably in excess of those at
which tenders were accepted were realized. Early in 1968 letters were addressed
to certain traders intimating that it had been decided by the-Government of
Orissa to renew "leases of Kendu leaf Units" held by them, for the
year 1968 if they accepted the terms set out therein. Under this scheme the
Government 'Offered to those licensees who in their view had worked
satisfactorily in the previous year and had paid the amounts due from them
regularly to continue their licences with the added provision that the agents
with whom they had been working in 1967, will also work during 1968. The link
between the agent and the purchaser which had been the subject matter of
agitation in previous years. it was claimed, was extended by the scheme.
On January 24, 1968, a petition was moved by
Rashbihari Panda in the High Court of Orissa under Art. 226 of the Constitution
challenging the action, of the Government. The Government, it appears, had
second thoughts and the offers to renew the previous licenses were withdrawn
and the licensees were informed that the Government had decided to invite
offers for advance-purchases from persons who had purchased Kendu leaves from
individual units during the year 1967 and had not committed default in payment
of the dues.
Other writ petitions were filed challenging
the legality of the new method adopted by the State Government of offering to
enter into agreements for advance purchases of Kendu leaves by private offers
in preference to open competition.
It was urged on behalf of the petitioners
that in seeking to enter into agreements for advance purchase contracts, for
Kendu leaves by private negotiation the State Government sought I to support
their party interests in preference to public 'benefit envisaged by the State
monopoly, and that the so-called State 380 monopoly trade in Kendu leaves
"was a colourable device to make, 'it appear constitutional and
permissible under Art.
19(6) (ii) of the Constitution", whereas
in truth it was intended to benefit only the supporters of the party in power,
and the scheme on that account "was a fraud on the Constitution". The
new scheme, it was said, was devised for the purpose of increasing the party
funds to the detriment of public revenue, and on that account the act of the
State Government was "mala fide and unconstitutional". The
petitioners claimed that the Government of Orissa had classified the units into
five sections raising the royalty or share of profit from the purchaser from
Rs. 44 to a maximum amount of Rs. 64 whereas the offer of one of the
petitioners who offered Rs. 1 00 per bag in addition to the rates offered by
the Government by a telegram early in January 1968 and followed by a
confirmatory letter, was not accepted. It was further said that an offer made
by a manufacturer of bidis to purchase the entire crop for a total amount of
rupees three crores was also not accepted.
On behalf of the State it was submitted that
till 1967 no rate was fixed for dried and processed leaves in the hands of the
growers but when the new Ministry assumed office in 1967 the minimum price was
fixed at Rs. 35 per bag of processed leaves in the hands of the growers, which
was later raised to Rs. 45 per bag, and the remuneration payable to pluckers
was also raised under orders issued by the Government, and as a result thereof
it was anticipated that the pluckers and growers would earn Rs. 47 lakhs in
addition to the amount they had earned in 1967; that the scheme of making an
offer to established licensees was evolved with a view to "close the
channels of corruption and the policy had eliminated all sorts of negotiations
or personal approach in the matter of sale of Kendu leaves by the
Government", and after careful consideration, the Government determined
the fair price that may be realized by selling Kendu leaves, that the dealers
who were given contracts for two years by the previous Ministries had been
offered options to purchase the leaves at rates higher than 'those obtaining
during the last few years and that under the new policy the profits earned rose
from Rs. 1, 00,75,000 in 1962-63 to Rs. 1,91,00,000 in 1968-69. It was also
submitted that under s. 10 of the Kendu Leaves (Control of Trade) Act, the
Government was authorised to dispose of the Kendu leaves in such manner as the
Government may direct and thereby the authority vested in the Government to use
their discretion "was not amenable to the writ jurisdiction of the High
Court", and that from the data furnished it was clear that the Government
had acted in the best interests of the State and the "figures showed their
bona fides in the matter".
381 The High Court Was of the view that the
State having assumed monopoly of trading 'in Kendu leaves was alone entitled to
purchase the Kendu leaves from the primary producers, and was by s. 10
authorise to dispose of the leaves "in such manner as the Government 'may
direct'. Section 10, in the view of the High Court Placed no restriction on the
manner in which the Government may sell Kendu leaves, and the only question
which the Court had to consider was whether in adopting the new scheme of
offering to enter into advance purchase contracts by private negotiations for
selling Kendu leaves in 1968 the, Government had acted bona fide. The High
Court observed:
". . . . . we hold that the Government's
exercise of the power or discretion under s. 1 0 cannot be said to be arbitrary
as it is open to the Government to direct the sale or disposal of Kendu leaves
in any manner they may direct-either by advance purchase contracts by private
negotiations or by public auction or by tender; it is not a case where the
State Government has exercised this power or discretion without jurisdiction.
The Court is not concerned with the propriety of the Government's action in
adopting the particular manner of sale or disposal as it purported to direct.
Evidently, the Government acted, as any prudent businessman would do, for the
purpose of getting the maximum revenue-net profits-from the trade in Kendu
leaves.
Government's direction, in exercise of the
power of discretion conferred on them under s. 10, as to whether a
particular-manner of sale or disposal will be suitable in a particular year,
will depend entirely on their subjective satisfaction, upon consideration of a
number of factors which may vary from year to year.
Such direction by the State Government as to
the particular manner of sale or disposal in a particular year, as dependent on
the subjective satisfaction of the Government as aforesaid, is not justiciable.
There is also nothing on record to show lack of bona fides on the part of the
State Government in adopting the manner it did private negotiations-in the
matter of sale of Kendu leaves in 1968; nor have we been shown any material to
hold that its action was capricious or arbitrary or in excess of its
jurisdiction." Article 19 (1) (f ) guarantees the citizens the right to
acquire, hold and dispose of property, and Art. 19(1) (g) guarantees the right
to practice any profession, or to carry on any occupation, trade or business.
The right under cl. (f) is subject to reasonable restrictions which the State
may impose on the exercise of the right in the interests of the general public
or for the protection P C.1.169-6 382 of the interests of any scheduled tribe.
Clause (6) of Art. 19 which was amended, by the, Constitution (First Amendment)
Act, 1951, sets out the restrictions which may be ,up 1 on the right to practice
a profession or to carry on any occupation, trade or business. It states
"Nothing in sub-clause (g) of the said clause shall affect the operation
of any existing law in so far as it ,imposes, or prevent the State from making
any law imposing, in the interests of the general public, reasonable
restrictions on the exercise of the right conferred by the said sub-clause,
and, in particular, nothing in the said sub-clause shall affect the operation
of any existing law in so far as it relates to, or prevent the State from
making any law relating to, (ii) the carrying on by the State, or by a
corporation owned or controlled by the State, of any trade, business, industry
or service, whether to the exclusion, complete or partial, of citizens or
otherwise." In Akadsi Padhan's case(1) this Court held that by the
amendments in Art. 19(6) it was intended that the State monopoly in respect of
any trade or business must be presumed to be reasonable and in the interests of
the general public; that the expression "law relating to" occurring
in cl. (ii) means "essential and basic provisions" enacted to give
effect to the monopoly i.e. provisions "integrally and essentially connected
with the creation ,of the monopoly "; that the provisions which are
incidental or subsidiary to the creation or operation of the monopoly must
satisfy. the test of the main clause, and that if the law infringes any other
fundamental right in cl. (1) of Art. 19 it must be tested under the appropriate
provision governing it. 'Me Court accordingly held that ss. 3 and 4 of the Act
were valid but declined in substance to give effect to the monopoly because the
agents appointed were not agents of the Government merely for purchasing Kendu
leaves but were 'authorised to carry on trade in leaves purchased on their own
account. The operation of the State monopoly was in the view of the Court to
give rise to a monopoly in favour of the agents which had not the protection of
Art. 19 (6) (ii).
The Court observed that the appointee must be
"an agent of the Government strictly so-called" acting-for and on
behalf of the Government and not on his own behalf., the 'Court while upholding
the grant of monopoly by S. 3 of the Act to the Government to carry on the
business of purchasing Kendu leaves was of the view that the law cannot be used
by the State for theprivate benefit of agents; it must only be administered (1)
[1963] Supp. 2 S.C.R. 691.
383 for the benefit of the general public,
and any, arrangement in which under the guise of a monopoly the State permitted
a Set of persons to make profit for themselves by carrying on business in Kendu
leaves on their own behalf was invalid.
It is urged by the appellants that the
machinery devised by the Government for sale of Kendu leaves in which they had
acquired a monopoly to trade was violative of the fundamental, rights
guaranteed under Arts. 14 and 19 (1) (g) of the Constitution. It is said that
the purchasers are merely nominees of the agents. 'It is also claimed that
after this Court struck down a scheme under,which the agents were to carry on
business in Kendu leaves on their own account and to make profit for
themselves, the Government with a view to help their party-men set up a body of
persons who were to be purchasers to whom the monopoly sales were to be made at
concessional rates and that the benefit which would have otherwise been earned
by the State accrued to those purchasers.
Section 10 of the Act is a counter-part of s.
3 and authorises the Government to sell or Otherwise dispose of Kendu leaves in
such manner as the Government may direct.
If the monopoly of purchasing Kendu leaves by
s. 3 is valid, insofar as it: is intended to be administered only for the
benefit of the State, the sale or disposal of Kendu leaves by the Government
must also be in the public interest and not to serve the private interests of
any person or class of persons. It is true that it is for the Government,
having regard to all the circumstances, to act as a prudent business-man would,
and to sell or otherwise dispose of Kendu leaves purchased under the monopoly
acquired under S.
3. but the profit resulting from the sale
must be for the public benefit and not for private gain' Section 11 which
provides that out of the net profits derived by the Government from the trade
in Kendu leaves an amount not less than one half is to be paid to the Samitis
and Grama Panchayats emphasises the concept that the machinery of sale or
disposal of Kendu leaves must also be geared to serve the public interest. If
the scheme of disposal creates a class of middle-men who would purchase from
the Government Kendu leaves at concessional rates and would earn large profits
disproportionate to the nature of the service rendered or duty performed by
them, it cannot claim the protection of Art. 19(6) (ii).
Section 10 leaves the method of sale or
disposal of Kendu leaves to the Government as they think fit. The action of the
Government if conceived and executed in the interest of the general public is
not open to judicial scrutiny. But it is not given to the Government thereby to
create a monopoly in favour of third parties from their own monopoly.
384 Validity of the schemes adopted by the
Government of Orissa for sale of Kendu leaves must be adjudged in the light of
Art. 19(1)(g) and Art. 14. Instead of inviting tenders the Government offered
to certain old contractors the option to purchase Kendu leaves for the years
1968 on terms mentioned therein. The reason suggested by the, Government that
these offers were made because the purchasers had carried out their obligations
in the previous year to the satisfaction of the Government is not of any
significance. From the affidavit filed by the State Government it appears that
the price fetched at public auctions before and after January 1968 were much
higher than the prices at which Kendu leaves were offered to the old
contractors. The Government realised that the scheme of offering to enter into
contracts with the old licensees and to renew their terms was open to grave
objection, since it sought, arbitrarily to exclude many persons interested in
the trade. The Government then decided to invite offers for advance purchases
of Kendu leaves but restricted the invitation to those individuals who had carried
out the contracts in the previous year without default and to the satisfaction
of the Government.
By the new scheme instead of the Government
making an offer, the existing contractors were given the exclusive right to
make offers to purchase Kendu leaves. But insofaras the right to make tender-,
for the purchase of Kendu leaves was restricted to those persons who had
obtained contracts in the previous year. the scheme was open to the game
objection. The right to make offers being open to a limited class of persons it
effectively shut out all other persons carrying on trade in Kendu leaves and
also new entrants into that business. It was ex facie discriminatory, and
imposed unreasonable restrictions upon the right of persons other than existing
contractors to carry on business. In our view, both the schemes evolved by the
Government were violative of the fundamental right of the petitioners under
Art. 19(1)(g) and Art. 14 because the schemes gave rise to a monopoly in the
trade in Kendu leaves to certain traders, and singled out other traders for
discriminatory treatment.
The classification based on the circumstance
that existing contractors had carried out their obligations in the previous
year regularly and to the satisfaction of the Government is not based on any
real and substantial distinction bearing a just and reasonable relation to the
object sought to be achieved i.e., effective execution of the monopoly in the
public interest. Exclusion of all persons interested in the trade, who were not
in the previous year licensees is ex facie arbitrary : it had no direct
relation to the object of preventing exploitation of pluckers and growers of
Kendu leaves, nor had it any just or reasonable relation to the securing of the
full benefit from the trade, to the State.
385, Validity of the law by which the State
assumed the monopoly to trade in a given commodity has to be judged by the,
test whether the entire benefit arising there from is to enure to the State,
and the monopoly is not used as a cloak for conferring private benefit upon a
limited class of persons.
The scheme adopted by the Government first of
offering to enter into contracts with certain named licensees, and later
inviting tenders from licensees who had in the previous year carried out their
contracts satisfactorily is liable to be adjudged void on the ground that it
unreasonably excludes traders in Kendu leaves from carrying on their business.
The scheme of selling Kendu leaves to
selected purchasers or of accepting tenders only from a specified class of
purchasers was not "integrally and essentially" connected with the
creation of the monopoly and was not on ,,the view taken by this Court in
Akadasi Padhan's case(1) protected by Art. 19(6)(ii): it had therefore to
satisfy the requirement of reasonableness under the first part of Art. 19(6).
No attempt was made to support the scheme on the ground that it imposed
reasonable restrictions on the fundamental rights of the traders to carry on
business in Kendu leaves. The High Court also did not consider whether the
restrictions imposed upon per.sons excluded from the benefit of trading
satisfied the test of reasonableness under the first part of Art.
19(6). The High Court examined the problem
from the angle whether the action of the State Government was vitiated on
account of any oblique motive, and whether it was such as a prudent person
carrying on business may adopt.
No explanation has been attempted on behalf
of the State as to why an offer made by a well-known manufacturer of bid is
interested in the trade to purchase the entire crop of Kendu leaves for the
year 1968 for rupees three crores was turned down. If the interests of the
State alone were to be taken into consideration, the State stood to gain more
than rupees one crore by accepting that offer. We are not suggesting that
merely because that offer was made, the Government was bound to accept it. The
Government had to consider, as a prudent businessman, whether, having regard to
the circumstances, it should accept the offer, especially in the light of the
financial position of the offer or, the security which he was willing to give
and the effect which the acceptance of the offer may have on the other traders
and the general public interest.
The learned Judges of the High Court have observed
that in their view the exercise of the discretion was not shown to be
arbitrary, nor was the action shown to be lacking in bona fides. But that
conclusion is open to criticism at the government is not shown to have
considered the prevailing prices of Kendu (1)[1963] Sup 2 S.C.R. 691 386 leaves
about the time when offers were made, the estimated crop of Kendu leaves, the
conditions in the market and the likelihood of offerors at higher prices
carrying out their obligations, and whether it was in the interests of the
State to invite tenders in the open market from all persons whether they had or
hid not taken contracts in the previous year. If the Government was anxious to
ensure due performance by those who submitted tenders for purchase of Kendu leaves,
it was open to the Government to devise adequate safeguards in that behalf. In
our judgment, the plea that the action of the Government was bona fide cannot
be an effective answer to a claim made by a citizen that his fundamental rights
were infringed by the action of the Government, nor can the claim of the
petitioners be defeated on the plea that the Government in adopting the
impugned scheme committed an error of judgment. The plea would have assisted
the Government if the action was in law valid and the objection was that the
Government erred in the exercise of its discretion. It is unnecessary in the
circumstances to consider whether the Government acted in the interest of their
party-men and to increase party funds in devising the schemes for-sale of Kendu
leaves in 1968.
During the pendency of these proceedings the
entire year for which (the contracts were given has expired. The persons to
whom the contracts were given are not before us, and we cannot declared the
contracts which had been entered into by the Government for the sale of Kendu
leaves for the year 1968 unlawful in these proceedings. Counsel for the
appellants agree that it would be sufficient if it be directed that the tenders
for, purchase of Kendu leaves be invited by the Government in the next season
from all persons interested in the trade. We trust that in accepting tenders,
the State Government will act in the interest of, the general public and not of
any class of traders so that in the next season the State may get the entire benefit
of the monopoly in the trade in Kendu leaves and no disproportionate share
thereof may be diverted to any private agency. Subject to these observations we
make no further order in the petitions out of which these appeals arise.
There will be no order as to costs in all
these appeals throughout.
V.P.S. Scheme declared invalid.
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