1997 Supreme(SC) 921

1997(7) supreme 267
SUPREME COURT OF INDIA
(From Madhya Pradesh High Court)
G.N. Ray and G.T. Nanavati, JJ.
M.P. Oil Extraction & Anr. etc. -Appellants
versus
State of Madhya Pradesh & Ors. -Respondents
Civil Appeal Nos. 4312, 4314 of 1997
(Arising out of S.L.P. (C) Nos. 19729 of 1995 & 20137/1995)
With
Civil Appeal No. 4313 of 1997
(Arising out of S.L.P. (C) No. 19796 of 1995)
Decided on 9-7-1997
Counsel for the Parties :
For the Appellants : G.L. Sanghi, and N.S. Kale, Sr. Advocates, K.J. John, Advocate.
For the Respondents : Dr. A.M. Singhvi, Sr. Advocate, C. Mukhopadhayaya, Manish Kumar, A.N. Ray, Rakesh K. Sharma, Advocates.
For the State of M.P. : Dr. Singhvi, Sr. Advocate, S.K. Agnihotri, S. Bishwajit, Advocates.
For Impleading Party : Ashok K. Gupta, Advocate.

IMPORTANT POINT
The policy decision is in the domain of the executive authority of the State and the Court should not question the efficacy or otherwise of such policy so long the same does not offend any provision of the statute or the Constitution of India as the power of judicial review of the executive and legislative action must be kept within the bounds of constitutional scheme.

Headnote:Judicial Review-Power of Judicial review of executive and legislative action-Scope-Industrial policy-Executive authority of State-Court should not question efficacy or otherwise of such policy so long as the same does not offend any provision of statute or Constitution of India-In matters of economic rights and policy decision, scope of judicial review is limited and circumscribed.

       Held :: The executive authority of the State must be held to be within its competence to frame policy for the administration of the State. Unless the policy framed in absolutely capricious and, not being informed by any reason whatsoever, can be clearly held to be arbitrary and founded on mere ipsidixit of the executive functionaries thereby offending Article 14 of the Constitution or such policy offends other constitutional provisions or comes in conflict with any statutory provision, the court cannot and should not outstep its limit and tinker with the policy decision of the executive functionary of the State. This Court, in no uncertain term, has sounded a note of caution by indicating that policy decision is in the domain of the executive authority of the State and the Court should not embark on the unchartered ocean of public policy and should not question the efficacy or otherwise of such policy so long the same does not offend and provision of the statute or the Constitution of India. The supremacy of each of three organs of the State i.e. legislature, executive and judiciary in their respective filed of operation needs to be emphasised. The power of judicial review of the executive and legislative action must be kept within the bounds of constitutional scheme so that there may not be any occasion to entertain misgivings about the role of judiciary in outstepping its limit by unwarranted judicial activism being very often talked of in these days. The democratic set up to which the polity is so deeply committed can not function properly unless each of the three organs appreciate the need for mutual respect and supremacy in their respective field. (Para 27)

       Further held : 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. (Para 32)

       (ii) Public Law-Industrial Policy of 1979 as revised-Agreements made by State Government of Madhya Pradesh with respondents for supply of sal seeds on payment of determined royalty- Legality and validity challenged - Agreement made in favour of appellants was struck down by High Court-Special treatment given to respondents units-Not per se illegal and arbitrary-Objective criteria-Respondents units were commissioned on invitation of State to undertake oil extraction-Renewal clause executed in favour of respondents-Not unjust or improper-Doctrine of legitimate expectation -Distribution of largesse by negotiation-Permissible rate of royalty fixed on accepted principles of pricing formula-Allotment of sal seeds at determined royalty cannot be assailed.

       Held : In the instant case, the State Government of M.P. framed industrial policy in 1979 and thereafter revised the same from time to time according to felt need. There is no material no 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. and also by this Court in the earlier proceedings and the 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 Mills and Sal 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 other existing old industrial units in the State, similarly circumstanced. (Para 28)

       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, stand on a separate footing. 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 Government and old existing units are based on 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 flexibility and it also permits different treatment to unequals. It may also be noted here that Bastar Oil Mills is situated at Jagdalpur which is admittedly a backward and tribal area. The special treatment given to Bastar Oil Mill by assuring supply of 20,000 M.T. of sal seeds under the impugned agreement cannot be held to be per se illegal and arbitrary. Classification on the basis of geographical situation has a rational basis and has been recognised by this Court (Para 29)

       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. 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 appropriate case, constitutes a substantive and enforceable right. (Para 30)

       Further held : 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 principal of pricing formula as will be indicated hereafter. Hence, distribution or allotment of sal seed 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. (Para 31)

       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. 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. (Para 32)

       Consequently held : 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 of such need and also not aversed to old industrial units which also use sal seeds for their plants. We reasonably expect that the government will be alive to the need to 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. (Para 33)