M/S. RAYALSEEMA PAPER MILLS LTD. AND ANR. versus GOVERNMENT OF A.P. AND ORS.

Citation: [2002] SUPP. 3 S.C.R. 323 · Decided: 25-10-2002 · Supreme Court of India · Bench: V.N. KHARE · Disposal: Dismissed

Judgment (excerpt)

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MIS. RAYALSEEMA PAPER MILLS LTD. AND ANR. 
A 
v. 
GOVERNMENT OF A.P. AND ORS. 
OCTOBER 25, 2002 
[V.N. KHARE, ASHOK BHAN AND S.B. SINHA, JJ.) 
B 
Administrative law: 
Judicial Scrutiny-Scope of-Determination of rates of royalty for supply 
of forest produce to paper mills by Government-When not governed by any C 
statute or a statutory order--Government fixing royalty rates on supply of 
wood to paper manufacturers in the State, later on revising the same-Challenge 
rejected -On appeal held the scope of judicial scrutiny would be far less 
where the price fixation is not governed by the statute or a statutory order-
It is open to the Government to fix such price as it thinks appropriate having D 
regard to public interest-Since Government considered the report of the 
committee and adopted a method or determined the price, the fixation of rates 
of royalty reasonable, fair and realistic. 
Respondent-Government entered into an agreement with paper mills 
for supply of certain specified quantity of wood each year for a period of E 
20 years. Government supplied hard and soft wood to paper 
manufacturers at concessional rate which were fixed every five years. In 
1975, Government fixed royalty rates for supply of wood at Rs. 30 per 
tonne for barked hard wood and Rs. 60 per tonne for barked soft wood 
for the period 1975-1980. Then in 1980 it appointed a Committee for 
fixation of revised royalty rates. On the basis of the recommendations of F 
the committee and several other factors, it fixed royalty at a sliding rate 
with annual increases limited to the prevailing rate of interest instead of 
fixing a uniform flat rate for the entire five-year period. The rates of 
royalty for bamboo went up from Rs. 60 to Rs. 210 per metric tonne and 
rates continued to rise with each passing year. Appellants challenged the G 
fixation of rates of royalty. The same was rejected. Hence the present 
appeals. 
Appellants contended that respondent-Government could not 
increase the rate from Rs. 60 to Rs. 210 per metric tonne; that even if 
323 
H 
324 
SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R. 
A conceding that 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 the replacement cost should not be the criteria 
B for fixing the rates of royalty; and that Government could not fix sliding 
rates. 
Dismissing the appeals, the Court 
HELD I.I. Where the matter is governed by a statute or a statutory 
C order, the scope of judicial enquiry is limited. 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, courts would examine whether the considerations 
for fixing the price mentioned in the statute or the statutory order have 
D been kept in mind while fixing the price and whether these factors have 
guided the determination. Courts would not go beyond that point. 
(331-E; 333-A-B) 
E 
Union of India and Anr. v. Cynamide India Limited and Anr., (1987) 2 
sec 720, referred to. 
1.2. In the instant case, 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 for supply of forest 
produce to paper mills. No doubt, any arbitrary action taken by State 
would be subject to scrutiny by courts because arbitrariness is the very 
F 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 
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; nor did it stipulate with 
G the mill owners the basis upon which it would determine the rates of 
royalty. '1t is open to the Government to fix such price as it thinks 
appropriate having regard to public interest, which may include interest 
of revenue, environmental, ecology, the need of mills and the requirements 
of other consumers. (333-C-E) 
H 
2. The Committee made recommendations indicating a

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