Holding

Sections 3 and 4 of the Jammu & Kashmir Extraction of Resin Act, 1986 are ultra vires the Constitution as they extinguish property rights without compensation, rendering the Act invalid.

Summary

Three private limited companies and their shareholders were granted government orders in the 1970s to extract and process resin from forests in Jammu & Kashmir. The Jammu & Kashmir Extraction of Resin Act, 1986 later barred all private extraction, mandated disposal of resin to a state company, and fixed prices, thereby extinguishing the companies' rights without compensation. The petitioners contended that the granted rights constituted "property" protected by Articles 19(1)(f) and 31(2) of the Constitution and that the Act violated these provisions. The Court held that the rights indeed amounted to property and that the Act’s sections 3 and 4, which effected total deprivation without compensation, were ultra vires. Consequently, the Act was struck down and the petitioners' claims were allowed.

Issues considered

The nature of the rights granted under the government orders: whether they constitute "property" under Articles 19(1)(f) and 31(2).
Whether the Jammu & Kashmir Extraction of Resin Act, 1986, particularly sections 3, 4 and 5, is constitutionally valid.
Whether compensation is required under Article 31(2) for the extinguishment of the petitioners' rights.
Whether Article 31(2A) shields the Act from the compensation requirement.

Legislation cited

Jammu & Kashmir Extraction of Resin Act, 1986s. 3, s. 4, s. 5

Subjects

Constitutional lawRight to propertyCompensationExtraction of resinMonopolyArticle 19Article 31Jammu & KashmirStatutory invalidity

Judgment

VIJ RESINS PVT. LTD. & ANR. ETC. ·
A
v.
STATE OF JAMMU & KASHMIR & ORS.

MAY 12, 1989

[R.S. PATHAK, CJ AND RANGANATH MISRA, J.] B

Articles 19(J)(f), 31(2) and 31(2A)-Constitutional validity of
- I
Jammu & Kashmir Extraction of Resin Act, 1986: Jammu & Kashmir
•··~ Extraction of Resin Act, 1986-Sections 3, 4 and 5-Whether constitu-
tionally valid-Resin-Ban on extraction by Private persons-Right to
'y appropriate usufruct of trees-Held right to property-Compensation C
payable before property could be taken.

These three Writ Petitions have been tiled ·by three different
Private Limited Companies and their share-holders challenging the
vires of the Jammu & Kashmir Extraction of Resin Act (7 of 1986). The
circumstances that led to the tiling of these Writ Petitions may be stated D
thus: .

The State of Jammu & Kashmir with a view to industrialise the
)._ under-developed State formulated schemes and invited outsiders to set
up indnstries in the State and as a stimulus the Government offered
land and other facilities. The Petitioner-Companies, in response to the E
said invitation went to the State of Jammu & Kashmir and negotiated
the arrangements, as a result of which each Company had obtained a
. right to collect resin gum to process the same for industrial purposes.

r\ The Petitioner Company in Writ Petition No. 751 of 1986 had
obtained under Government order dated 27.4.79 allotment of 10 to 12 F
lacs of blazes annually for extraction of resin from the forests in Poonch
and Rambam Di.visions for a 11eriod of I0 years. Government order
granting rights had been made in favour of the Petitioner Company in
W.P. No. 794of1986. The Petitioner-Company in W.P. No. 798of1986
was a processor only and had undertaken to work as a tapper. The
orders passed in favour of these Companies referred to above were G
challenged before this Court as being violative of Arts. 14 and 19 of the
Constitution on the ground that that grant of forest rights to the
Petitioners were arbitrary, ma/a fide and not in public interest. It was
contended that State largesse had been created in favour of the Petition-
ers at the cost of State Exchequer and the grant created monopoly. This
Court dismissed the Writ Petitions holding that there was no substance H
257
258 SUPREME COURT REPORTS [1989] 3 S.C.R.

A in any of the contentions advanced by the Petitioners.

Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir &
Anr,, [1980] 3 SCR 1336.

B The order made in favour of the Petitioner in W .P. No. 794 of
1986 and incorporated in the agreement dated 6.ll.1978 was also chal-
lenged but this Court rejected the Petition.

Brij Bhushan & Ors. v. State of Jammu & Kashmir & Ors., '',.__ ..
[198612 sec 354.

C While the Petitioners were carrying on with the business con-
tracted for, Governor's Act of 1986 came into force. The provisions ofthe
said Act particularly ss. 3, 4 and 5 have been impugned in these
Petitions.

D It is contended on behalf of the Petitioners that Government
orders and contracts under which they have got the right to exploit or
utilize the particular forest product amounts to "property" and they
are entitled to protection thereof against expropriation and in case no
compensation was provided, the provisions of the Act are hit for contra-
vening the fundamental right guaranteed by Art. 19(1)(g) which confers
E upon them the right to carry on any occupation, trade or business. On
the other hand the case put forward by the State is that the benefits and
privileges conferred on the three Petitioners either under contract or
under Government orders did not constitute property and by the provi-
.
sions of the Act no transfer of such property has taken place.

F Allowing the Writ Petition, this Court,

HELD: The statutory scheme of Jammu & Kashmir Extraction
of Resin Act, 1986 is to extinguish private rights both in respect
of Government owned trees as also trees in private ownership and
to vest those rights in the State Government or the Government .
G Company. [27JA-B]

The Executive grant or the contract created interest in the
Petitioners and there is no room to doubt that by such process in favour
of the Petitioners property right had been created. The interests which
are in dispute before this Court do constitute property entitled to pro-
H tection under Art. 19(l)(f) and are covered by Art. 31(2). [267G; 268A-BI
VIJ RESIN v. STATE OF J & K 259

Ramana bayaram Shetty v. The .International Airport Authority A
of India & Ors., [1979) 3 SCR 1014 and Kasturi Lal Lakshmi Reddy v.
State of Jammu & Kashmir & Anr., [1979) 3 SCR 1014.

The ownership vested in the private persons, by operation of s. 3 of
the Act, the right to appropriate the usufruct of the trees is taken away
from the private owner and is vested in the State. Sub-Art. (2A) of Art. B
31, therefore,-does not apply. Consequently, sub-Art. (2) applies and
compensation, therefore, was payable before the property could be
taken over by the State. Provisions of ss. 3 and 4 of the Act are ultra
vires of the Constitution and since these provisions contain the soul of
the Act, without them the Act cannot operate, the entire Act has to
suffer. [271C-D; 272B-CJ
c
Subodh Gopal Bose's case [1954] SCR 587; Dwarkadas Shrinivas
of Bombay v. The Sholapur Spinning & Weaving Co. Ltd. & Ors.,
[1954] SCR 674; R.C. Cooper v. Union of India, [1970) 3 SCR 530;
Madan Mohan Pathak v. Union of India & Ors., [1978) 3 SCR 334 atid
Tara Prasad Singh v. Union of India & Ors., [1980) 3 SCR 1042, D
referred to.

CIVIL ORIGINAL JURISDICTION: Writ Petition Nos. 751,
J.- 794 and 798 of 1986.

(Under Article 32 of the Constitution of India.) E

Dr. Y.S. Chitale, Soli J. Sorabjee, A.B. Diwan, B.V. besaL. Ms.
Madavi Gupta, Bharat Sangal, Harish N. Salve, T.V.S.N. Chari, Ms.
\ Sunita Modigunda, Ms. Vrinda Grover and S.K. Bhattacharya for the
:$ Petitioners.
G. Ramaswamy, Additional Solicitor General Anil Dev Singh, F
P.S. Shroff, S.S. Shroff, R. Karanjawala, Mrs. M. Karanjawala, Ejaz
Maqbool, Mrs. Shobha Dikshit, E.C. Aggarwal, B.V. Desai, Ms.
Madhavi Gupta, C.S. Vaidyanathan and S.V. Deshpande for the
Respondents.
The Judgment of the Court was delivered by G

RANGANATH MISRA, J. These are three petitions under Art.
32 of the Constitution by three different groups of petitioners. In each
of these writ petitions petitioner No. 1 is a private limited company
and the second petitioner is a shareholder thereof. The petitioner-
company in each of these cases obtained the right to collec~ oleo resin H
260 SUPREME COURT REPORTS [1989] 3 S.C.R.
y
gum or to process the same for industrial purposes from the State of
A Jam mu & Kashmir and each of them seeks to challenge the vires of the
provisions of the Jammu & Kashmir Extraction of Resin Act (7 of
1986) (hereinafter referred to as the 'Act').

Though there are some variations of facts relevant to each of the
B writ petitions, the allegations are more or less similar in regard to the
relevant contentions-both factual and legal. When rule was issued
the respondent-State came with almost the same plea, traversing com-
mon grounds and revealing a common stand in its returns to the Court. I
These three writ petitions were heard at a time and are now being
\
.,_._.
disposed of by a common judgment.
c Resin is the secretion extracted by tapping or otherwise from
chir, chi! and kail trees ~ildly growing in the forests of Jammu &
Kashmir. It is an exudate and when subjected to chemical treatment
and distillation with the aid of steam yields 70% resin, 15% turpentine
and the remaining 15% of waste material. The down-stream products
D which are manufactured from this raw material are varnish, camphor,
paints and turpene chemicals.

The petitioner-company in writ petition No. 751/86 obtained
under Government order dated 27.4.1979 allotment of 10 to 12 lacs of
blazes annually for extraction of resin from the inaccessible forests in
E Poonch, Reasi and Ramban Divisions of the State for a period of 10
years on terms and conditions set out in the said Government order.
Government order had also been made granting rights in favour of the
petitioner-company in writ petition No. 794/86. The petitioner-
company in writ petition No. 798/86 was a processor only and had not
undertaken to work as a tapper. Applications under Art. 32 ·Of the
F Constitution were filed in this Court at that point of time on the
ground that the Government orders and/or contracts were hit by Arts.
14 and 19 of the Constitution and the grant of forest rights in favour of
the present petitioners was arbitrary, ma/a fide and not in public in-
terest. It was further contended that State largesse had been conferred
on the petitioners at the cost of the State exchequer. The petitioners
G therein also pleaded that a monopoly had been created in favour of the
private grantees and was not protected under Art. 19(1)(g) of the
Constitution. According to Kasturilal, the petitioner before this Court
then, the benefits should have been thrown open and opportunity
should have been provided to all interested persons to compete for the
obtaining of the contract. A three-Judge Bench consisting one of us
H (the 1eamed Chief Justice) dealt with the matter at length and ulti-
VIJ RESINS v. STATE OF J&K [MISRA, J.] 261
....,.
mately dismissed the petition holding that there was no substance in
A
any of the contentions advanced on behalf of Kasturilal. (Kasturi Lal
Lakshmi Reddy v. State of lammu & Kashmir & Anr., I 1980] 3
'· SCR 1336). The order made in favour of the petitioner-company in
writ petition No. 794/86 and incorporated in the agreement dated
6. 11.1978 had also been challenged in a separate writ petition before
i this Court and the reasoned order for rejection of the writ petition is
found in Brij Bhushan & Ors. v. State of Jammu & Kashmir & Ors.,
B

[198612 sec 354.
;
·---'\. While the petitioner-company in writ petition No. 751/86 had
agreed to work as tapper and processor on the stipulation that 25% of
the annual collection of gum subject to minimum of 1500 metric tonnes
')' would be made over to the Government company (J & K Industries
c
Limited) and out of the rest not exceeding the hmit of 3500 metric
tonnes would be used by them, the petitioner-company in writ petition
No. 794/86 who had been operating from before as tappers only
entered into a formal agreement with the State claiming to process and
manufacture down-stream goods. The writ petitioner-company in writ D
petition No. 798/86 had agreed to work as processor only.

In the seventies, the State of Jammu & Kashmir decided to
.,J- industrialise the hitherto under-developed State and with that end in
view came forward with scheme and threw open invitation to outsiders
to set up industries at convenient places within the State. As stimulus E
Government offered land and other facilities. The petitioners in these
three writ petitions and another who has since withdrawn the writ
petition, went into the State of Jammu & Kashmir in response and
negotiated the arrangements we have already adverted to.
) While the petitioners were carrying on their business activities, F
Governor's Act 7 of 1986, the provisions whereof are impugned in
these petitions by which all their existing rights came to terminate,
came into force with effect from 23.4.1986. The Act sought to create a
monopoly with reference to resin in favour of J & K Industries
Limited, which is a tespondent to these petitions.
G
The Act has seven sections in all. Section 1 gives the short title;
:-i ! extent and the date of commencement while s. 2 defines four terms,
namely, 'prescribed', 'resin', 'resin depot' and 'resin products'. Sec-
tion 3 bans extraction and other dealings of resin by private persons
while >. 4 makes provision for disposal of resin. Section 5 provides the
manner of fixation of price. Section 6 provides for penalty for offences H
262 SUPREME COURT REPORTS [1989) 3 S.C.R.
y
and s. 7 clothes the State Government with power to make rules for
A
carrying out the purposes of the Act. Challenge in the writ petitions
has been to the provisions contained in ss. 3, 4 and 5 of the Act. We
propose to excerpt these provisions for convenience:

B
"3. Ban on extraction by private persons y
Notwithstanding anything to the contrary contained in any
law, rule; order, instrument, agreement or contract or in
any judgment, decree or order of any Court or Authority, I -
no person, other than the Government shall as from the 't- :
commencement of this Act,-
c (a) extract resin by tapping or otherwise from Chir/
"(

Chi! or Kail trees in the State whether such trees belong to
the State or not;

(b) transport resin from one place to other in the
D State except under and in accordance with the permit
granted under this Act;

(c) acquire, possess, store, dispose of or otherwise
deal with any resin extracted and manufactured in the -~
State.
E
4. Disposal of resin .
(1) All resin extracted under section 3 shall be stored
at resin depots and thereafter shall be sold by the Govern-
men! to the Jammu & Kashmir Industries Limited for -~
F processing.

(2) After processing it by the Jammu & Kashmir In-
dustries Limited, the resin products, if any surplus, shall be
sold by it to the small scale units and medium scale units in
the State in such manner as may be provided for, and at
G such price as may be fixed by the Jammu & Kashmir In-
dustries Limited in consultation with the Government. 'r
5. Fixation ofprice-

(1) The Government shall, having due regard to the
H following facts, fix the price at which resin shall be sold by
it during a year, namely
VIJ RESINS v. STATE OF J&K [MISRA, J.] 263

(a) the sale price of resin, if any, fixed underthis Act
A
during the preceding three years;

(b) the cost of transport;

(c) the cost of extraction ofresin;
B
(d) the cost of packing of resin including the cost of
container in which resin is delivered;
__,,','
_ (e) the prevalent sale price at which resin is being
sold in other resin producing States;

(f) any other factor which the Government considers
c
relevant.

(2) 'The price so fixed shall be published in the Offi-
cial Gazette and shall not be altered during the year to
which it relates." D

In exercise of the rule-making power, the State Government has
brought into force a set of rules known as the Jammu & Kashmir
Extraction of Resin Rules, 1986 with effect from 27 .9 ..1986.

It is not in dispute that by the provisions of this Act all the E
existing contracts between parties and the State and existing grants in
respect of collection, transport, storage and otherwise dealing with
resin have come to forthwith terminate and a monopoly situation has

j'
been created qua these operations in resin in favour of the Govern-
ment company. The Act does not provide for any compensation and
j
the petitioners maintain that the existing rights in their favour F
amounted to 'property' and could not have been expropriated in con-
travention of the guarantee in Part III of the Constitution. It is the
stand of the State that the benefits and privileges conferred on the
three petitioners either under contract or under Government orders
did not constitute property and by the provisions of the Act no transfer
of such property has taken place. G

It is relevant to point out at this stage that sub-clause (f) was
deleted from Art. 19(1) of the Constitution by the Forty-fourth
Amendment with effect from 20th of June, 1979 and acquisition, hold-
i ing and/or disposal of property ceased to be a fundamental right. The
same constitutional amendment deleted Art. 31 but so far as tbe State H
264 SUPREME COURT REPORTS [1989) 3 S.C.R.
y
of Jammu & Kashmir is concerned the Forty-fourth Amendment did
A
not bring about any change and right to property, therefore, continues
to be fundamental and law enunciated by this Court treating property

,,r
to be one of the fundamental rights still applies to Jammu & Kashmir.
That is why, sumptuous reference has been made by counsel for the

B
petitioners to a catena of precedents touching upon right to property
as a fundamental one. r-

>---
The petitioners maintained that the Government orders and con-
tracts under which they have got the right to exploit or utilise the I

particular forest product does amount to 'property' and the petitioners
were entitled to protection thereof against expropriation and in case
no compensation was provided the relevant provisions of the Act
c became exposed to challenge. They have similarly contended that the
impugned provisions of s. 3 are hit for contravening the fundamental
right guaranteed by Art. 19{l)(g) which confers upon them the right to
carry on any occupation, trade or business.

D The Government orders made in 1979 did confer the right to
exploit the forest and appropriate a part of the collection of the gums
for purposes of business. The concept of 'property' known to jurispru-
dence has expanded through several pronouncements of this Court. In.
Ramana Dayaram Shetty v. The International Airport Authority of -~
India & Ors., [ 1979) 3 SCR1014, to which one of us (the learned Chief
E Justice) was party held:

"Today the Government in a welfare State is the regulator
and dispenser of special services and provider of a large
number of benefits, including jobs, contracts, licences,
quotas, mineral rights etc. The Government pours forth
F wealth, money, benefits, services, contracts, quotas and
licences. The valuables dispensed by Government take
many forms, but they all share one characteristic. They are
steadily taking the place of traditional forms of wealth.
These valuables which derive from relationships to
Government are of many kinds. They comprise social
G, security benefits, cash grants for political sufferers and the
whole scheme of State and the local welfare. Then again,
thousands of people are employed in the State and the
Central Governments and local authorities.Licences are re-
quired before one can engage in many kinds of business or
work. The power of givntg licences means power to with-
H hold them and this gives control to the Government or to
266 SUPREME COURT REPORTS [1989] 3 S.C.R.

tracts, licences, quotas, minerals rights etc."
A
In Subodh Go pal Bose's case [1954] SCR 587, this Court had
pointed out:

"The word 'property' in the context of Article 31 (the same
B should be the meaning under Article 19(1)(f) which is Y
designed to protect private property in all its forms, must
be understood both in a corporeal sense as having refer-
ence to all those specific things that are susceptible of \. _.•
private appropriation and enjoyment as well as in its juridi- ).....
cal or legal sense of a bundle of rights which the owner can
exercise under the municipal law with respect to the user
c and enjoyment of those things to the exclusion of all ""(.
others."

Again, in Dwarkadas Shrinivas of Bombay v. The Sholapur Spinning
& Weaving Co. Ltd. & Ors., [1954] SCR 674, this Court held:
D
"A contract or agreement which a person may have with
the company and which may be cancelled by the Directors
in exercise of powers under ordinance will undoubtedly be
property within the meaning of the two articles."

E In R. C. Cooper v. Union of India, [1970) 3 SCR 530 an eleven-Judge
Bench at page 567 of the Reports, stated:

"By Entry 42 in the Concurrent List power was conferred
upon the Parliament and the State Legislatures to legislate
with respect to 'Principles on which compensation for pro- }
F perty acquired or requisitioned for the purpose of the
Union or for any other public purpose is to be determined,
and the form in which such compensation is to be given'.
Power to legislate for acquisition of property is exercisable
only under Entry 42 of List III, and not as an incident of the
power to legislate in respect of a specific head of legislation
in any of the three lists. Under that Entry property can be
G
compulsorily acquired. r
In its normal connotation property means the 'highest right
a man can to anything, being that right which one has to
lands or tenements, goods or chattles which does not de-
H pend on another's courtesy; it includes ownership, estates
VIJ RESINS v. STATE OF J&K [MISRA, J.J 267

and interests in corporeal things, and also rights such as A
trade-marks, copyrights, patents and even rights in per-
sonam capable of transfer or transmission, such as debts;
and signifies a beneficial right to or a thing considered as
having a money value, especially with reference to transfer
or succession, and to their capacity of being injured."
B
In' Madan Mohan Pathak v. Union of India & Ors,, [1978] 3 SCR
334 this Court was examining the validity of the Life Insurance Corpo-
ration (Modification of Settlement) Act of 1976. The settlement had
, created a right to bonus in favour of the Class lJI and Class IV emp-
loyees of the Corporation and the Act adversely interfered with that
settlement. The question for consideration of the seven-Judge Bench
'y /
was whether bonus payable under the settlement was 'property' within
c
the meaning of Art. 31(2} and whether stopping payment of bonus
amounted to compulsory acquisition of property without payment of
compensation. The Court ultimately held that bonus was property and
the legislation was bad. At p. 358 of the Reports, this Court said:
D
"It is clear from the scheme of fundamental rights embo-
died in Part III of the Constitution that the guarantee of the
right to property is contained in Article 19(1)(f) and clauses
). (1) and (2) of Article 31. It stands to reason that 'property'
cannot have one meaning in Article 19(1)(f), another in
Article 31 clause (1) and still another in Article 31, clause E
(2), 'Property' must have the same connotation in all the
three Articles and since these are constitutional provisions
intended to secure a fundamental right, they must receive
the widest interpretation and must be held to refer to pro-
perty of every kind."
.F
At p. 360 of the Reports, the Court again stated that every form of
property, tangible or intangible, including debts and choses in action
constituted property, In this group of cases before us the executive
grant or the contract created interest in the petitioners and there is no
room to doubt that by such process in favour of the petitioners pro-
perty right had been created. ' G

Learned Additional Solicitor General appearing for the State
had contended that the contractual interest or the interest in terms of
the Government order did not constitute property and relied upon
certain precedents of this Court. The Coal Nationalisation case on
which reliance was mainly placed is clearly distinguishable on facts. H
268 SUPREME COURT REPORTS [1989] 3 S.C.R.
y
We do not think it necessary to refer to other authorities as the ones
A
referred to above are binding precedents and unequivocally indicate
that the intefests which are in dispute before us do constitute property
entitled to protection under Art. 19(1)(f) and are covered by Art.
31(2) of the Constitution.

B Reliance has been placed by learned Additional Solicitor
General on the restrictive provision contained in sub-Art. (5) whereby
reasonable restrictions in public interest could be imposed on the exer-
cise of right to property. There are situations, the learned counsel has
argued, where the restrictions could go to the point of almost wiping·
out the right. He relied upon some precedents in support of this pro-
position. Section 3 is a total annihilation of existing rights and nothing
C of the interest created either under the executive orders or contract is
allowed to survive. We do not think there i; room within the legal
frame to sustain such a situation under sub-Art. (5).

Sub-Art. (6), like sub-Art. (5), protects restrictive law in public
D interest. What we have said in regard to sub-Art. (5) perhaps equally
applies to sub-Art. (6).

Article 31(2) provided:

"No property shall be compulsorily acquired or requisi-
E tioned save for a public purpose and save by authority of a
law which provides for acquis.ition or requisitioning of the
property for an amount which may be fixed by such law or
which may be determined in accordance with such princi-
ples and given in such manner as may be specified in such
law; and no such law shall be called in question in any court l
F on the ground that the amount so fixed or determined is not
adequate or that the whole or any part of such amount is to
be given otherwise than in cash:"

It has already been stated that the Act does not provide for any
compensation. Section 3 has an overriding application. It provides that
c; it shall not only apply to the classified trees belonging to the State but
it shall also apply to such trees belonging to private persons and rights t-·
of such private owners to carry on the various operations described in
s. 3 are completely taken away without provision of any compensation.
It cannot be contended in view of what we have stated above that the
right of beneficial enjoyment of the trees by carrying out the processes
H named in s. 3 do not constitute 'property'. Unless the position is
VIJ RESINS v. STATE OF J&K [MISRA, J.] 269

covered by clause (2A) of Art. 31, in view of our conclusion that the
A
interest created under the contract, Government order or the right of
beneficial enjoyment vested in the private owner of the trees amount
to 'property', the Act would be hit by Art. 31(2). Sub-Art. (2A)
provides:

"Where a law does not provide for the transfer of the own- B
ership or right to possession of any property to the State or
to a corporation owned or controlled by the State, it shall
not be deemed to provide for the compulsory acquisition or
requisitioning of property, notwithstanding that it deprives
any person of his property."

Learned Additional Solicitor General's contention has been that c
under the provisions of s. 3 of the Act the rights that vested in the
petitioners stand wiped out or extinguished but those rights have not
been vested in either the State or the Government company. This
contention overlooks the resultant outcome of the provisions of the
Act. Section 3 which takes away private rights and authorises Govern- D
ment alone to extract, transport it and acquire, possess or dispose of.or
otherwise deal with the resin extracted and manufactured within the
State and s. 4 authorises Government to sell the same to the Govern-
ment company for processing. What is taken away under s. 3 from the
hands of private parties is undoubtedly given by the same provision to

- Government. In Madan Mohan Pathak's case (supra), this Court had
pointed out:

"The verbal veil constructed by employing the device of
extinguishment of debt cannot be permitted to conceal or
hide the real nature of the transaction. It is necessary to
E

remember that we are dealing here with a case where a F
constitutionally guaranteed right is sought to be enforced
and the protection of such right should not be allowed to be
defeated or rendered illusory by legislative strategems. The
courts should be ready to rip open such strategems and
devices and find out whether in effect and substance the
legislation trenches upon any fundamental rights. The G
encroachments on fundamental rights are often subtle and
sophisticated and they are disguised in language which
apparently seems to steer clear of the constitutional
inhibitions."

It is not necessary to multiply precedents, As we have already pointed . H
270 SUPREME COURT REPORTS [1989] 3 S.C.R.
y
A out, s. 3 of the Act extinguishes private rights and confers the right to
deal with the subject matter of such rights on the State.

An attempt was made to distinguish the rule in Pathak's case by
relying upon the decision in Tara Prasad Singh v. Union of India &
Ors., [1980] 3 SCR 1042. That seven-Judge Bench was dealing with the
B Coal Mines Nationalisation (Amendment) Act of 1976. The Court· y~
referred to the two previous decisions in Ajit Singh v. State of Punjab,
I1967] 2 SCR 143 and Madan Mohan Pathak v. Union of India,
(supra), and observed:
L
"These decisions have no application to the instant caoe
because the interest of the lessees and sub-lessees which
c was brought to termination by section 3(3)(b) of the 'i
Nationalisation Amendment Act does not come to be
vested in the State. The Act provides that excepting acer-
tain class of leases and sub-leases, all other leases and sub-
leases shall stand terminated in so far as they relate to the
D winning or mining of coal. There is no provision in the Act
by which the interest so terminated is vested in the State;
Nor does such vesting flow as a necessary consequence of
any of the provisions of the Act. Sub-section (4) of section
4 of the Act provides that where a mining lease stands ~.
terminated under sub-section (3), it shall be lawful for the
E Central Government or a Government Company or a
corporation owned or controlled by the Central Govern-
ment to obtain a prospecting licence or a mining lease in
respect of the whole or part of the land covered by the
mining lease which stands so terminated. The plain intend-
ment of the Act, which, may it be reiterated, is neither a
,._'
F pretence nor a facade, is that once the outstanding leases
and sub-leases are terminated, the Central Government
and the other authorities will be free to apply for a mining
lease. Any lease-hold interest which the Central Govern-
ment, for example, may thus obtain does not directly or
immediately flow from the termination brought about by
G section 3(3)(b). Another event has to intervene between
the termination of existing leases and the creation of new
interests. The Central Government, etc. have to take a
r
positive step for obtaining a prospecting licence or a mining
lease. Without it, the Act would be ineffective to create of
its own force any right or interest in favour of the Central
H Government, a Government Company or a Corporation
VIJ RESINS v. STATE OF J&K [MISRA, J.] 271

owned, managed or controlled by the Central
Government."
A

The statutor~ scheme of the Act which we are considering is to
extinguish private rlg!its both in respect of Government owned trees as
also trees in private ownership and to vest those rights in the State
Government or the Government company. The facts in this group of B
cases, therefore, clearly indicate that there is a direct relationship
between nullification of the private rights and vesting of those in the
State or the Government company. In other words, where the contract
was given by the Government in respect of the trees belonging to the
State, the nullification of the contract would result in the automatic
transfer by reversion of the property in the contract to the Govern-
ment. Similarly, where the ownership vested in the private persons by c
operation of s. 3 of the Act, the right to appropriate the usufruct of the
trees is taken away from the private owner and is vested in the State.
The rule in Pathak's case, therefore, is applicable. Sub-Art. (2A) of
Art. 31, therefore, does not apply to the facts of the present case.
Consequently, sub~Art. (2) applies and compensation, therefore, was D
payable before the property could be taken over by the State.

Petitioners in writ petition No. 794/86 had claimed that pursuant
to the arrangement entered into between them and the State following
the invitation by the State they had invested Rs.1.68 crores in shape of
plant and machinery and 63 lacs of rupees by way of land and build- E
ings. The petitioner in the other two cases stated that investments had
been made by them as well. The petitioners were invited to set up
industries by assuring th em supply of the raw material. They changed
their position on the basis of representations made by the State and
a
when the factories were ready and they were in position to utilise the
raw material, the impugned Act came into force to obliterate their F
rights and enabled the State to get out of the commitments. We are
inclined to agree with the submissions made on behalf of the petition-
ers that the circumstances gave rise to a fact situation of estoppel. It is
true that there is no estoppel against the legislature and the vires of the
Act cannot be tested by invoking the plea but so far as the State
Government is concerned the rule of estoppel does apply and the G
precedents of this Court are clear. It is unnecessary to go into that
aspect of the matter as in our considered opinion the impugned Act
suffers from the vice of taking away rights to property without provid-
ing for compensation at all and is hit by Art. 31(2) of the Constitution.

Connected proceedings had been taken for interim arrangement H
272 SUPREME COURT REPORTS [ 1989] 3 S.C.R.
'y
A regarding provision of raw material to the petitioners and certain other
parties. We do not propose to deal with those aspects in this judgment
but liberty is given to parties to apply for such directions as they
consider appropriate and such applications, when filed, will be dealt
with separately.
B
In the result, each of the writ petitions succeeds. We declare the
provisions of ss. 3 and 4 of the Act to be ultra vires the Constitution
and since these provisions contain the soul of the Act and without l
them, the Act cannot operate, the entire Act has to suffer. The !
petitioners shall have their costs to these proceedings. Hearing fee of ~
Rs.3,000 is awarded in each of the petitions.
c
Y.L. Petition allowed. ."1