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TMI Blog1969 (1) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... Orissa Kendu Leaves (Control and Distribution) Order, 1949, providing for the issue 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 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 Article 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 Co. AIR1952Ori260 . 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. 3. The Order of 1949 was replaced by another Order issued in 1960, but without any substantial changes in its principal provisions. Thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Clause (b) (c) of Section 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 Rule 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 . 6. Thereafter the Government of Orissa made some changes in the machinery for implementation of the monopoly and entered into agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 10. 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 to support their party interests in preference to public benefit envisaged by the State monopoly, and that the so-called State monopoly trade in Kendu leaves was a colourable device to make it appear Constitutional and permissible under Article 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 accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 12. 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 Section 10 authorised 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 Section 10 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State from making any law relating to, - (i). . . (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 MANU/SC/0089/1962 : [1963] Supp. 2 S.C.R. 691 this Court held that by the amendments in Article 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 Clause (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 Clause (1) of Article 19 it must be tested under the appropriate provision governing it. The Court accordingly held that Sections 3 and 4 of the Act were valid but declined in substance to give effect to the monopoly bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sell or otherwise dispose of Kendu leaves purchased under the monopoly acquired Under Section 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 Article 19(6)(ii). 16. 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. 17. Validity of the schemes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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. 19. Validity of the taw 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 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 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was in the interests of the State to invite tenders in the open market from all persons whether they had or had 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. 22. During the pendency of these proceedings the entire year for which the contracts were given has expired. The persons to whom the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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