Paper Mills Ltd. & Another Vs. Government of A.P. & Others  Insc
444 (25 October 2002)
Khare, Ashok Bhan & S.B. Sinha Bhan, J.
APPEAL NOS.7521-22 OF 1995, CIVIL APPEAL NOS.7523-24 OF 1995 AND CIVIL APPEAL
NOS.7525-7526 OF 1995
These sets of appeal arise from a common judgment of the Division Bench of the
High Court of Judicature at Andhra Pradesh whereby the said High Court has
rejected the appellants' challenge to the fixation of rates of royalty on
bamboo and hardwood to the paper industry in Andhra Pradesh.
the sake of convenience, we would refer to the facts and contentions in Civil
Appeal Nos.7519-20 of 1995 arising from Writ Appeal No. 591 of 1984 and Writ
Petition No.3927 of 1987 filed by Sree Rayalaseema paper Mills Ltd. It was
stated by the counsel for both the parties before us, as was done before the
High Court, that these appeals can be taken as representative of the facts and
contentions in all the appeals.
Relevant facts for determining the points raised in these appeals are:
the year 1975 there were only two Paper Mills in the State of Andhra Pradesh, namely,
Paper Mills, and
Andhra Pradesh Paper Mills Ltd. to which the Government was supplying hard and
soft wood for manufacture of paper at concessional rates.
rates were being fixed every five years. By a memorandum dated 2nd September,
1975 the Government of Andhra Pradesh in Forest and Rural Development
Department, fixed royalty rates at Rs.30/- per Tonne for barked hardwood and
Rs.60/- per Tonne for barked softwood for a period of 5 years commencing from
1-10-975. The Chief Conservator of Forests was requested to get the agreement
drafted and furnish to the Government for approval after enquiring into the
needs of the mills and after locating the areas in consultation with the mills
for the supply of hard and soft wood.
duration of agreement was to be for 20 years. Pending the finalisation of the
agreement, the Chief Conservator of Forests was requested to allow the mills to
have the wood on payment of royalty, as indicated above, on adhoc basis after
obtaining an undertaking from the mills that they would abide by the conditions
prescribed by the Government for the supplies to be effected.
Another factor which needs to be mentioned although not relevant for the
purpose of these appeals is that on a representation made by Rayalaseema Paper
Mills Limited and Bhadrachalam paper Boards Limited which were set up in a
backward area, Government of Andhra Pradesh by G.O.Ms. No.665 dated 15th July, 1976, a further concession in the rate
of royalty on bamboo and hard wood by 50% was extended to these two mills for a
period of 5 years from the date of their going into production. On a further
request made by them the period of concession was extended from 5 to 10 years subject to the condition that Government
reserved its right to review the position after first 5 years. This concession
commenced from 1.10.1978. Concessional period of first five years expired on 30th September, 1983. The Government of Andhra Pradesh
reviewed the matter and issued orders contained in G.O.Ms. No.65 dated 9.2.1984
withdrawing the said concession altogether w.e.f. 1.10.1983. G.O.Ms. No.65
dated 9.2.1984 was challenged by filing writ petitions which were dismissed by
the single Judge of the High Court. Further appeal filed before the Division
Bench was also dismissed. However, it was held that the said G.O.Ms. being
administrative in character, could not be given retrospective effect.
judgment became final between the parties.
continue with the facts from the previous paragraph the rates of royalty fixed
by the Government Memorandum dated 2.9.1975 @ Rs.60/- per Tonne for barked soft
including Bamboo and Rs.30/- per Tonne for barked hard wood were valid for the
period 1-10-1975 to 30th September, 1980. The Government desired to fix revised
royalty rates for the next five years. It appears that the Chief Conservator of
Forests submitted proposals in February and June, 1980 suggesting a rate of
Rs.425/- per Metric Tonne for bamboo and Rs.75/- per Metric Tonne for mixed
hardwood for supply to Paper Mills. He based his figures on the minimum cost of
production as per policy accepted by the Central Board of Forests. The
Government, however, appointed a Committee of officials to consider the factors
relating to fixation of royalty rates on the forest produce to be supplied to
wood based industries on a sustained basis, and to make recommendations to the
Government. The Committee consisted of
to Government, Forests & Rural Development Department(Chairman)
Joint Secretary, Industries and Commerce Department(Member),
Deputy Secretary, Finance & Planning(Member),
Managing Director, A.P.Forest Development Corporation(Member), and 5. Chief
Conservator of Forests(member/Secretary).
Committee called upon the wood-based industries for such information, as they
liked, for consideration of the committee. After looking into the material
supplied by the Mills and other material gathered by it, and after examining
the several alternative methods for determining the price of forest produce,
the committee was of the opinion that the cost of regeneration be taken to be
the price at which the forest produce shall be supplied to these industries. On
this basis, it opined that for the five year period commencing from 1.10.1980,
the rate of royalty for bamboo may be fixed at Rs.284/- per Metric Tonne and
for hardwood at Rs.135/- per Metric Tonne. The Committee further recommended
that instead of fixing a uniform flat rate for the entire 5 year period, it
would be desirable to fix royalty at a sliding rate with annual increases
limited to the prevailing rates of interest. The Government accepted the
recommendations of the Committee and accordingly issued G.O.Ms. No.538 dated
4.11.1981. It directed that the "rates for royalty on the forest raw
materials, namely, the bamboo and the hardwood which are to be supplied to the
wood based industries shall, with effect from the base year 1980-81 be as follows:
(Bamboo per M.T. Hardwood per M.T. w.e.f. 1.10.1980) (w.e.f. 1.4.1980) 1 2 3
1980-81 210 100 1981-82 233 111 1982-83 258 123 1983-84 287 137 1984-85 318
paragraph 6 of the said G.O., the Government stated:- "6. The Committee
has also envisaged that the arrangements should be worked out to ensure that
adequate funds are provided for raising pulpwood plantations and for improving
the management of forests for sustained supply to the industries.
the Government have to decide to create the 'Industrial Plantation Fund' from
out of the additional royalty revenues revised annually to meet the said
per this G.O., the rates of royalty for bamboo suddenly went up from Rs.60/- to
Rs.210/- per Metric Tonne and the rates continued to rise with each passing
year. However, so far as Rayalaseema Paper Mills and Bhadrachalam Paper Boards
Limited were concerned, they were entitled to 50% concession for a period of
five years commencing from 1.10.1978. It was liable to pay only half of the
said royalty rate. The five year concession period expired on 30th September, 1983. It was not extended further as
indicated earlier in para No.3 of this judgment.
validity of G.O.Ms No.538 dated 4.11.1981 was challenged by filing writ
petitions on two grounds:
an executive order the Government cannot enhance the rates of royalty for
purposes of developmental activities of the State.
an enhancement amounts to levy of tax, and no tax can be levied except under a
increase in the rates of royalty contrary to agreement is unreasonable.
behalf of the State preliminary objection was raised with respect to the
maintainability of the writ petitions. It was submitted that the revision in
the rates of royalty had been made in accordance with the conditions of the
agreement entered into between the parties and that, in such a case, Article 14
of the Constitution has no application.
single Judge upheld the preliminary objection and held that where there was a
concluded contract, Article 14 could not be invoked, even though one of the
contracting parties was the Government. On this ground alone all the writ
petitions except the writ petition No.1641 of 1982 filed by A.P.Rayans Limited
were ordered to be dismissed. So far as the writ petition No.1641 of 1982 is
concerned, the learned Judge found that the facts of that case were different
inasmuch as the original period of five years in its case had not expired and
the Government could not increase the rates before the expiry of five years
stipulated in the Government G.O. It was left open to the Government to revise
the rates or apply the rates contemplated in G.O.Ms. No.538 dated 4.11.1981 to A.P.Rayons
Limited as well after the expiry of five years from the date the agreement was
Single Judge had disposed of the writ petitions by a common judgment.
Appellants being aggrieved filed writ appeals. In writ appeals the appellants
did not question the correctness of the judgment of the Single Judge, in so far
as it held that the enhancement of royalties did not amount to levy of tax.
Counsel, however, disputed the correctness of the other findings including the
finding regarding the maintainability of the writ petitions. The Division Bench
upheld the objections raised by the appellants regarding the maintainability of
the writ petitions and held that the writ petitions were maintainable and
proceeded to examine the matters on merits. During the pendency of the writ
appeals, the Government further revised the rates for the next quinquennium
started from 1985-86 to 1989-90 by issuing G.O.Ms. No.378 dated 12th September, 1985. Appellants filed writ petitions
which were admitted and ordered to be disposed of with the writ appeals
challenging the order of the Single Judge for the earlier quinquennium from
1980 to 1985 upholding the G.O.Ms. No.538 dated 4.11.1981.
merits the Division Bench examined the dispute between the parties in great
detail. After examining the report submitted by the Committee and the order
passed thereon by the Government rejected the contentions of the counsel
appearing for the appellants to the effect that what was sold to the appellants
natural growth(bamboo), replacement cost should not be the criteria for fixing the
rates of royalty. It was held that not only can the replacement cost be the
criteria, but the State could also fix the price keeping in mind several other
factors, like, public revenue, ecology and environment, availability of forest
produce, the need of other consumers and even to compel the mills to turn to
alternative raw materials. That the State could not be called upon in the
absence of any law laying down the criteria for fixing the rates of royalty, to
account for the manner in which, or the basis upon which the State has to
determine the royalty as explained in the reasoning of the said judgment.
Shanti Bhushan, learned senior counsel appearing for the appellants did not
dispute the propositions that price fixation is neither the function nor the
forte of the court, it is neither concerned with the policy nor the rates. But
the Court cannot deny to itself to jurisdiction to enquire into the question,
in appropriate proceedings, whether relevant consideration have gone in and
irrelevant considerations kept out of the determination of the price. Referring
to the facts of the present case, it was contended that the Government, in a
arbitrary and in unrealistic manner, unmindful of the question of survival of
the paper industries, could not increase the rates 5 times from Rs. 60/- to Rs.
210/-. Public interest demands that the paper industries should be kept alive.
In such a situation, fixation of an 'impossible' price, which the mills cannot
bear, would be an unreasonable and arbitrary act on the part of the Government
requiring the stepping in of the courts. Such an act would be adverse to the
public interest and totally arbitrary. It was further contended that even if
conceding that the government could revise the rates after every five years, it
could not stagger the rates of royalty over the period, thus, giving an
increase for every subsequent year within the same quinquennium which amounted
to increase of rates of royalty for every year instead of being after every
five years. That because of the arbitrary increase in price some of the mills
have become sick and unviable. Counsel appearing in the other appeals
supplemented these two basic submissions of Shri Shanti Bhushan.
now proceed to examine these contentions.
Before we enter the discussion, it is made clear that the determination of
rates of royalty for supply of forest produce to paper mills is not governed by
any statute or a statutory order. The Government while entering into the
agreement with the paper mills had undertaken to supply a certain specified
quantity of wood each year for a period of 20 years. The government had not
assured the mills that it will supply bamboo and other forest produce required
by them at a particular rate. Nor was there an agreement between them with
respect to the manner in which the rates of royalty would be determined. There
was no assurance that the mills would be consulted or associated while fixing
the rates of royalty. Even where the matter is governed by a statute or a
statutory order, the scope of judicial enquiry is limited. This Court in Union
of India & Another vs. Cynamide India Limited & Another [(1987) 2 SCC
720] examined the scope of judicial interference in the matters of price
fixation and observed:
start with the observation, 'Price fixation is neither the function nor the
forte of the Court'.
concern ourselves neither with the policy nor with the rates. But we do not
totally deny ourselves the jurisdiction to enquire into the question, in
appropriate proceedings, whether relevant considerations have gone in and
irrelevant considerations kept out of the determination of the price. For
example, if the legislature has decreed the pricing policy and prescribed the
factors which should guide the determination of the price, we will, if
necessary, enquire into the question whether the policy and the factors are
present to the mind of the authorities specifying the price.
our examination will stop there. We will go no further. We will not deluge
ourselves with more facts and figures. The assembling of the raw materials and
the mechanics of price fixation are the concern of the executive and we leave
it to them. And, we will not re-evaluate the considerations even if the prices
are demonstrably injurious to some manufacturers or producers. The court will,
of course, examine if there is any hostile discrimination. That is a different
'cup of tea' altogether.
second observation we wish to make is, legislative action, plenary or
subordinate, is not subject to rules of natural justice. In the case of
parliamentary legislation, the proposition is self- evident. In the case of
subordinate legislation, it may happen that Parliament may itself provide for a
notice and for a hearing-there are several instances of the legislature requiring
the subordinate legislating authority to give public notice and a public
hearing before say, for example, levying a municipal rate in which case the
substantial non-observance of the statutorily prescribed mode of observing
natural justice may have the effect of invalidating the subordinate
legislation. The right here given to rate payers or others is in the nature of
a concession which is not to detract from the character of the activity as
legislative and not quasi-judicial. But, where the legislature has not chosen
to provide for any notice or hearing, no one can insist upon it and it will not
be permissible to read natural justice into such legislative activity.
the legislature directs the subordinate legislating body to make 'such enquiry
as it thinks fit' before making the subordinate legislation. In such a
situation, while such enquiry by the subordinate legislating body as it deems
fit is a condition precedent to the subordinate legislation, the nature and the
extent of the enquiry is in the discretion of the subordinate legislating body
and the subordinate legislation is not open to question on the ground that the
enquiry was not as full as it might have been. The provision for 'such enquiry
as it thinks fit' is generally an enabling provision, intended to facilitate
the subordinate legislating body to obtain relevant information from all and
whatever source and not intended to vest any right in anyone other than the
subordinate legislating body. It is the sort of enquiry which the legislature
itself may cause to be made before legislating, an enquiry which will not
confer any right on anyone."
This Court was examining the scope of judicial scrutiny in the matters of price
fixation where it was governed by statutory provisions. The scope of judicial
scrutiny would be far less where the price fixation is not governed by the
statute or a statutory order. Where the legislature has prescribed the factors
which should be taken into consideration and which should guide the
determination of price, the courts would examine whether the considerations for
fixing the price mentioned in the statute or the statutory order have been kept
in mind while fixing the price and whether these factors have guided the
determination. The courts would not go beyond that point. In the present
appeals, there is no law, or any statutory provision laying down the criteria
or the principles which must be followed, or which must guide the determination
of rates of royalty. No doubt, any arbitrary action taken by the State would be
subject to the scrutiny by the courts because arbitrariness is the very
antithesis of rule of law. But this does not mean that this Court would act as
an appellate authority over the determination of rates of royalty by the
government. Government is the owner of the products. While it had agreed to
supply a particular quantity every year for specified period, it had never
agreed to supply at a particular rate; not did it stipulate with the mill
owners the basis upon which it would determine the rates of royalty. It is open
to the government to fix such price as it thinks appropriate having regard to
public interest, which interalia, may include interest of revenue,
environmental, ecology, the need of mills and the requirements of other consumers.
The price is not to be fixed keeping in mind the requirements of the mills
could have ended our enquiry at this point but since the appeals were argued at
great length and the point was examined by the High Court as well, we proceed
to examine the correctness of the contentions raised by Shri Shanti Bhushan in
this regard. G.O.Ms.No.538 dated 4.11.1981 recites the following facts:
a review at the end of the quinquennium 1975-80 in respect of the rates of
royalty on bamboo and wood, the Chief Conservator of Forests submitted
proposals in February and June, 1980 suggesting Rs.425/- per MT for bamboo and
Rs.75 per MT for mixed hard wood to be supplied from natural forest, based on
the minimum cost of production as per the policy accepted by the Central Board
consider the factors relating to the fixation of royalty rates on the forest
produce to be supplied to the wood based industries on a sustained basis and to
make recommendations to the Government, a Committee was constituted consisting
Secretary to Government, Forests & Rural Develop- Ment Department Chairman
2 Joint Secretary, Industries & Commerce Department Member 3 Deputy
Secretary, Finance & Planning Department Member 4 Managing Director, A.P. Forest
5 Chief Conservator of Forests Member/ Secretary The Committee requested each
of the wood based industrialists to present their views. After hearing their
views, the Committee also called for such additional information as they would like
to place before the Committee. The information made available to the Committee
by the Industrialists was also considered by the Committee. Besides, the
Committee took note of the following relevant factors relating to the supply of
forest raw material for wood-based industries, namely:-
Forests are no longer naturally renewable resources but have been rendered
wasted assets due to over-exploitation without corresponding regeneration,
resulting in serious environmental and ecological imbalance.
The forest resources in Andhra Pradesh are heavily depleted over the years
resulting in heavy shortages of raw materials for the wood-based industries.
If the raw material is regenerated within the State itself over a period of
time, it will not only ensure sustained supplies but it will also aid such
industries getting part of their supplies now from distant States to save the
heavy transportation cost.
To reduce the pressure on reserve forests increasing to almost alarming
proportions, replacement or regeneration coupled with improved management,
should be at least as fast as the pace of exploitation.
The depletion of wood resources due to over exploitation is so acute that an
analysis of the potential for pulp and paper industries development upto the
year 2000 Ad. prepared by the pulp and paper Industries Development Programme
of the United Nations, Rome, in February 1980, does not
indicate any additional capacities in Andhra Pradesh, in view of the fact that
the existing wood resources are already over-strained.
If raw material supply to the wood-based industry is to be ensured on a
sustained basis, the depleting trend has to be recovered by putting back into
Nature, what is taken out of it.
The cost of other inputs in paper manufacture, such as chemicals, dyes, coal,
furnace, oil, etc. over the years, has been on the increase due to market
prices, while the royalty rates on forest produce were pegged to law level
neglecting the need for adequate finances to take up plantations for sustained
The need for raising new plantations and improved management of the forest call
for heavy investment and the rates of royalty have to necessarily be adequate
to meet the cost and improve finances to ensure sustained supply of raw
material to wood- based industries.
The experience in implementing bankable plantation schemes refinanced by
Agricultural Refinance & Development Corporation has to be kept in view in
fixing the rates of royalty since such schemes are financed on long term basis
by A.R.D.C. on well established principles."
Reading of G.O.Ms. shows that the government has accepted the report of the
Committee implicitly. It would, therefore, be instructive to examine the report
of the Committee, which is a part of the record.
portions of the report of the Committee has been verbatim taken and reproduced
in the G.O. which has been reproduced in the previous paragraph.
have gone through the report of the Committee in fixation of the rates of
royalty. The committee took into consideration the status of the paper industry
in the country and in the State of Andhra Pradesh.
the Committee proceeded to examine the various alternative methods for fixing
the rates of royalty. It was noted that the Committee did not come across any
norms evolved so far anywhere in the country for determining the rates of
royalty when captive forest resources are offered by the State to the industry.
They referred to a study by the Central Board of Forestry(1973) in which the
Central Board of Forestry commended the guiding principle as follows:
incentive of the produce be kept alive and a proper price be paid for the raw
material which will enable the Forestry sector to carry out the needed
maintenance and improvement of natural forests as well as grow plantations
which are economically viable from the point of Forestry Sector."
After examining the various methods including the past rates, rates prevalent
in the neighbouring States, administrative cost/expenses on silvicultural
needs, market price, cost of production of paper, replacement cost for manmade
forest material, market price as royalty etc., it adopted the method of
replacement cost to be the guiding principle for fixing the rates of royalty.
The relevant factors which prevailed with the committee for adopting the
regeneration/replacement cost method were detailed in the report which have
been referred to and reproduced by us in this judgment.
would be noted that the committee came to the conclusion that forests are no
longer naturally renewable resource but have been rendered wasted assets due to
over-exploitation without corresponding regeneration, resulting in serious
environmental and ecological imbalance. To reduce the pressure on reserved forests,
increasing to almost alarming proportions, replacement or regeneration coupled
with improved management, should be at least as fast as the pace of
exploitation. The forest resources in the State of Andhra Pradesh depleted over the years resulting
in heavy shortages of raw materials for the wood-based industries. In order to
ensure the supply of raw material, on sustained basis, the depleting trend
could be arrested by putting back into nature, what was taken out of it. After
taking into consideration the cost of inputs neede d for raising the new
plantations, the cost of other inputs in paper manufacture, the need for
raising new plantations and improved management of the forest call for heavy
investment and to generate enough resources to meet the cost and improve
finances to ensure sustained supply of raw material to wood-based industries
and the experience in implementing bankable plantation schemes refinanced by
Agricultural Refinance & Development Corporation the Committee made
recommendations indicating an over all rate of Rs.284/- per Metric Tonne for
bamboo and Rs.135/- per Metric Tonne for hard wood as the rates of royalty for
the next five years beginning from 1980. The rates of royalty of Rs.284/- per
Metric Tonne for bamboo and Rs.135/- per Metric Tonne for hard wood were
arrived at by an involved process which is indicated in the report, which to us
seems to be fair and reasonable. The Government did not arrive at the rates of
royalty in an arbitrary manner. It had appointed a Committee of experts which
went into the question of fixation of rates of royalty in great detail and
after examining the different methods adopted/ accepted the 'regeneration' or
'replacement' cost of the wood as the reasonable criteria for fixing the rates
of royalty. The Government thereafter considered the report and accepted the
same. It cannot be said that the method adopted or the price determined was
either arbitrary or unreasonable. To us, it seems to be reasonable, fair,
realistic and keeping in mind the requirement of the wood for the future
generations as well.
cannot agree with the contention urged by some of the counsel appearing for the
appellants that since what is sold to the appellants is natural growth
(bamboo), the replacement cost should not be the criteria for fixing the rates
of royalty. Not only can be the replacement cost be the criteria, but the State
can fix the price keeping in mind several other factors, like public revenue,
ecology and environment, availability of forest produce in future, the need of
other consumers and some other such relevant considerations.
Though the Committee had arrived at flat rates of royalty of Rs.284/- and Rs.
135/- per Metric Tonne for bamboo and hard wood respectively for the entire quinquennium
period of 1980-85, the Committee suggested that instead of fixing the uniform
flat rate for the entire quinquennium it is desirable to fix royalty at a
sliding rate with annual increases limited to the prevailing interest rates
starting from Rs. 210/-per metric tonne for bamboo and Rs. 100/- per metric tonne
for hardwood for the base year 1980-81. The Government could have fixed a
higher royalty rates applicable for the entire period but thought it is better
to fix a lower rates in the beginning and gradually increasing it in the final
year as by that time selling price of paper will also increase as was noted by
the general trend. We do not agree with the contention raised by Shri Shanti Bhushan
that the Government could not fix the sliding rates especially in view of the
fact that the rates of royalty for the 1980-85 was fixed for Rs. 284/- per
metric tonne for bamboo and Rs. 135/- per metric tonne for hardwood which was
reduced to Rs. 210/-per metric tonne for bamboo and Rs. 100/- per metric tonne
for hardwood for the base year 1980-81 with gradually increasing at the bank
rates for the coming years. Since the rates of royalty was reduced for the base
year from the suggested price it shows the fairness on the part of the State
Government in dealing with the appellants. This was done for the benefit of the
appellants and perhaps at their instance.
For the reasons stated above, we do not find any infirmity in the impugned judgment,
accordingly, the appeals are dismissed. The interim order granted by the High
Court, which was later on permitted to be continued by this Court, stands
vacated. The State Government is put at liberty to encash the Bank Guarantee
and recover the amount due to it from the appellants in accordance with law. No
orders as to costs.