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IN THE HIGH COURT OF MADHYA PRADESH
D.M. Dharmadhikari, J.
M/s Bastar Oil Mills and Industries Ltd. & Anr.
Vs.
State of M.P. and Ors.
W.P. No. 2949 of 1997 (J)
Decided On: 17.11.1998
CONTRACT - SUPPLY OF SAL SEED - REVISION OF PRICE - AGREEMENT BETWEEN STATE AND COMPANY - VALIDITY - INTERPRETATION OF CLAUSES - PUBLIC POLICY - MP. VAN UPAJ KE KARARON KA PUNRIKSHAN ADHINIYAM, 1987 - ARTICLE 14 OF THE CONSTITUTION.
Fact of the Case:
The petitioner, a company engaged in the manufacture of Sal oil, entered into an agreement with the State of Madhya Pradesh for the supply of Sal seed at a fixed rate for a period of 12 years. The agreement provided for a revision of the royalty rate every two years by 5% and for the determination of other expenses, such as collection charges, every year. The State Government, however, revised the price of Sal seed unilaterally, claiming that the terms of the agreement were unfair and discriminatory and that the revised price was based on the market price determined through open tenders. The petitioner challenged the revision of price, contending that it was in breach of the agreement and violative of Article 14 of the Constitution.
Finding of the Court:
The Court held that the agreement between the State and the petitioner was valid and enforceable and that the State was bound by its terms. The Court rejected the State's contention that the terms of the agreement were unfair and discriminatory, noting that the Supreme Court had upheld the agreement and that the State had not invoked its powers under the MP. Van Upaj Ke Kararon Ka Punrikshan Adhiniyam, 1987 to terminate or modify the agreement. The Court also held that the State's revision of the price of Sal seed was in breach of the agreement and violative of Article 14 of the Constitution, as it discriminated against the petitioner and other industrial units in tribal areas that had entered into similar agreements with the State.
Issues: 1. Whether the agreement between the State and the petitioner was valid and enforceable? 2. Whether the State was bound by the terms of the agreement? 3. Whether the State's revision of the price of Sal seed was in breach of the agreement? 4. Whether the State's revision of the price of Sal seed was violative of Article 14 of the Constitution?
Ratio Decidendi: 1. The Court held that the agreement between the State and the petitioner was valid and enforceable because: - It was entered into in accordance with Article 299 of the Constitution. - It was upheld by the Supreme Court. - The State had not invoked its powers under the MP. Van Upaj Ke Kararon Ka Punrikshan Adhiniyam, 1987 to terminate or modify the agreement. 2. The Court held that the State was bound by the terms of the agreement because: - It was a solemn contract entered into by the parties. - The State had not shown any compelling, lawful, or just reasons to wriggle out of the terms of the agreement. 3. The Court held that the State's revision of the price of Sal seed was in breach of the agreement because: - It was not made in accordance with the method of price revision specified in the agreement. - It was made unilaterally by the State without the consent of the petitioner. 4. The Court held that the State's revision of the price of Sal seed was violative of Article 14 of the Constitution because: - It discriminated against the petitioner and other industrial units in tribal areas that had entered into similar agreements with the State. - It was not based on any reasonable or rational criteria.
Final Decision: The Court allowed the petition and quashed the State's revision of the price of Sal seed. The Court directed the State to revise its demand in accordance with the terms of the agreement.
D.M. Dharmadhikari, J.
1. The petitioner no. 1 is a company engaged in the business of manufacture of Sal oil and has, as claimed by it, set up its factory in Bastar tribal area of Madhya Pradesh on the invitation and concessions declared by the State of MP. with aim to provide employment to tribals as labours for collection of Sal seeds.
2. The State of Madhya Pradesh through Governor of the State has entered into a formal agreement with the petitioner-company dated 6th of September, 1991 valid for a period of 12 years to assure supply of Sal seed to the industry of the petitioner on terms and conditions and rates mentioned in the terms of the agreement.
3. The other industries dealing in Sal seeds and having similar oil extraction plants with no agreement with the State Government for assuring supply of sal seed on agreed rates, questioned the policy of the State Government of granting concessions to industries like the petitioner located in tribal areas of the State. The writ petitions filed in this Court went up in appeal to the Supreme Court of India and the agreement dated 6th September, 1991 (under consideration in this petition) was upheld by the Supreme Court in Civil Appeals Nos. 4312 and 4313 of 1997 (M.P. Oil Extraction Ltd. and another v. State of M.P. and K.N. Oil Industries and others v. State of M.P. decided on 9th July 1997. M/S Hanuman Minor Oils Limited which is intervener in this petition claiming right to purchase Sal seed on competitive price with the petitioner (who is now made as respondent no. 5 in this petition under orders of this Court) had also made intervention in appeal in the Supreme Court, but such intervention was rejected by the Supreme Court by order made on 4.2.1997, a copy of which is on record as Annexure-P/4. The Supreme Court did not accept the contentions of other Sal seed oil industries that the contract or promise to supply Sal seed on agreed rates to indutries extablished in tribal areas was unfair and discriminatory. The Supreme Court in repelling the grievance of discrimination, held as under:
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 dicision 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 inpugned 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 as indicated in the decisions referred to hereinbefore.
The Supreme Court also held that distribution of largesse by the State, may be by public auction, or even by negotiations, depending upon the policy evolved by the State Government, is a protective measure to promote and assist certain industrial units. The following observations of the Supreme Court are pertinent:
Although to ensure fair play and transparency in the state action, distribution of largesse by inviting open tenders of by public auction is desirable, it cannot be held that in no case distribution of such largess by negotiation is permissible. In the isstant case, as a policy decision protective measure by entering into agreements with selected industrial units for assured supply of sal seeds at conc
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