IMPORTANT POINT
The High Court rightly rejected the appellants challenge to the fixation of rates of royalty on bamboo and hardwood to the paper industry in Andhra Pradesh.

Headnote:(i) Scope of judicial interference in the matter of price fixation-Determination of rates of royalty on forest products supplied to paper mills by State.
       Held : 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 inter alia, 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 alone. (Para 15)
       (ii) Constitution of India-Article 14-A.P.G.O.Ms. No. 538 dated 4.11.1981 relating to fixation of rates of royalty on bamboo and hardwood to Paper Industry in A.P.-Challenged in writ petition as arbitrary-Dismissed by High Court-Appeals against-Whether rates of royalty are adverse to the public interest and totally arbitrary? (No)-Whether government is charging increase in every year under the garb of revising the rates after every five years? (No)-Result-Appeals dismissed.
       Held : 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. Relevant 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. We 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. Thereafter 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 commenced the guiding principle as follows :
       "The 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. It 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 needed 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 by 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. (Paras 17 to 19)
       Held further : We 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. (Paras 20 to 21)
       Held finally : 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 order as to costs. (Para 20)

JUDGMENT

Bhan, J.-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. For 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.

2. Relevant facts for determining the points raised in these appeals are :

Till the year 1975 there were only two Paper Mills in the State of Andhra Pradesh, namely, (1) Sirpur Paper Mills, and (2) Andhra Pradesh, Paper Mills Ltd. to which the Government was supplying hard and soft wood for manufacture of paper at concessional rates. These 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 1.10.1975. 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. The 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 ad hoc 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.

3. 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. This judgment became final between the parties.

4. To 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 minim

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2002 Supreme(SC) 1060

IMPORTANT POINTThe High Court rightly rejected the appellants challenge to the fixation of rates of royalty on bamboo and hardwood to the paper industry in Andhra Pradesh.

Cases Referred (1)

IMPORTANT POINT
The High Court rightly rejected the appellants challenge to the fixation of rates of royalty on bamboo and hardwood to the paper industry in Andhra Pradesh.