C.S.P. Singh, J.
1. The petitioner is a forest contractor and owns his industry at Bareilly. In parts of this province Borang trees grow sporadically mixed up with other species of trees. The State Government was not aware of its utility for the manufacture of pencils and slat and for a number of years thesetrees used to be sold along with other species of trees. But, when this fact came to the knowledge of the State Government, it decided to allot available Borang trees to bona fide registered pencil and slat manufacturers, instead of selling the trees by public auction. With the growth of the pencil industry in the State a shortage of Borang wood set in, and as the pencil and slat manufacturers were at issue as to the Dumber of trees to be allotted to them, the Government decided to auction the Borang trees. This decision was taken by a letter issued by the Chief Conservator of Forest on the 28th August, 1972 (Annexure 'A' to the petition). The letter, however, confined the auction only to such pencil manufacturers who had obtained a certificate from the Industries Department The category of persons entitled to participate in the auction was however extended so as to include slat manufacturers also, by another order dated 7th September, 1971. Thereafter, an auction notice on 28th September, 1971 was issued but it expressly stated that only pencil and slat manufacturers would be entitled to bid at the auction. It appears that earlier to this by an order dated 4th September, 1971 (Annexure 'A') to the counter-affidavit, the State Government, Industries Department, had issued instructions that only such pencil and slat manufacturers should be permitted to bid at the auction who had obtained certificates from the Industries Department. The auction was, thereafter, held on the 28th September, 1971 in respect of certain areas and on the 12th October, 1971, in respect of others. The petitioner has challenged this auction and has prayed for quashing the same. A further prayer has been made for directing the respondents Nos. I to 6 not to make any auction of Borang trees on the basis of directions contained in the letter dated 28th August, 1971 and 7th September, 1971 (Annexures 'A' and 'B') to the petition.
2. Counsel for the petitioner has urged that the State Government in confining the auction only to pencil manufacturers and manufacturers of pencil slat has Without any reasonable basis, discriminated against the other bidders, and the act of the State Government in adopting this procedure for the sale of Borang trees imposes an unreasonable restriction on the petitioner's right of carrying on business of forest contract. Counsel for the respondents has on the other hand urged that the trees in question were the exclusive property of the State Government, and it could adopt any method it liked for conducting the sale of the trees, and none of the fundamental rights of the petitioner have as such been infringed.
3. During the course of hearing, counsel for the State made a statement that the trees were comprised in a reserved forest. Reserved forests are constituted under Chapter 2 of the Indian Forest Act In order to constitute a reserved forest, the State Government has to issue notification under Section 4 of the Indian Forest Act Thereafter, a Forest Settlement Officer is appointed for hearing objections which can . be made by every person claiming any right mentioned under Sections 4 and 5 of the Act. Section 7 empowers the Forest Settlement Officer to make an inquiry in the matter. In case claims are made relating to shifting cultivation, the Forest Settlement Officer records statements of parties and makes a report to the State Government setting forth the particulars of the claim and of any local rule or order under which the practice is allowed or regulated. The State Government thereafter, is empowered to pass an order either permitting or prohibiting the practice of shifting cultivation. By Section 11 of the Act, the Forest Settlement Officer is empowered to admit or reject the various claims made either in full or in part. If a claim is admitted, the land is excluded from the boundaries of the forest, or, in the alternative if it is possible to reach an agreement with the claimant for the surrender of his right, then the area is included in the forest In case no agreement is reached and the land is not excluded from the limits of the proposed forest, power is given to acquire the land in accordance with the provisions of the Land Acquisition Act. Thereafter, a record of rights which are admitted is made under Section 14 of the Act. Section 16 of the Act provides for commutation of certain rights, which are of such a nature that exercise of those rights would be inconsistent with the maintenance of the reserved forest This section makes provisions for compensation being paid for such commutation of rights. Thereafter, under Section 20 of (he Act, the State Government is empowered to issue a notification declaring an area to be a reserved forest. Section 23 bars the accrual of any right in a reserved forest except by succession, or under a grant, or contract made by or on behalf of Government, or of some persons in whom such rights were vested when the notifications under Section 20 of the Act were issued. Section 25 empowers the forest officers, after obtaining the sanction of the State Government to stop any public or private way or water course in a reserved forest Section 26 of the Act makes certain acts punishable in respect of a reserved forest The State Government as such exercises certain statutory powers in respect of reserved forests and rights therein can be acquired oniy in accordance with the provisions of Section 23 of the Act. The right which the vendees have acquired in respect of Borang trees is a right conferred by a contract which is one of the modes contemplated by Section 23 of the Act. The question that arises in the present petition is as to whether the procedure adopted by the StateGovernment for conferring rights in respect of the forest produce a forest, which is governed by the provisions of Chapter 2 of the Indian Forest Act, is in accordance with the law. The forests which have been constituted a reserved forest, in accordance with the provisions of Indian Forest Act are undoubtedly the property of the Government, but in a democratic constitution the property held by the State is not held by the State as a monarch for private or personal purposes. It is held for public purposes. It, as such, must be administered in such a way as to ensure the greatest amount of benefit to the public, and the revenues of the State Government. The obligation to hold property for public purpose is inherent in all democratic constitutions. The property held as such, has to be administered in a way, so as not to enrich a particular category of persons to the detriment of other citizens, and also in such a manner as to ensure that the maximum possible benefit accrues to the revenues of the State. This position is well settled in the United States. In the case of Van Brocklin v. Anderson, (1884-85) 29 L Ed 845 = (J17 US 151), on p. 847 the U. S. Supreme Court observed as linden
'The United States does not and cannot hold property, as a monarch may, for private or personal purposes. All the property and revenues of the United States must be held and applied, as all taxes, duties, imposts and excises must be laid and collected, to pay the debts and provide for the common defence and general welfare of the United States.'
This position was reiterated in the case of United States v. Martha Insley, (1887-88) 32 L Ed 968 = (130 US 263). Referring to the nature and the purpose for which property is held by the United States, their Lordships on page 969 observed:
'In the present case, the United States holds the title to the property in question, as it holds all other property, for public purposes and not for private purposes.'
This position is now made clear by a decision of the Supreme Court in the case of Rasbihari Panda v. State of Orissa, AIR. 1969 SC 1081. In that case monopoly in Kendu leaves had been created in favour of the State of Orissa, by the provisions of the Orissa Kendu Leaves (Control of Trade) Act (28 of 1969). The Government of Orissa invited tenders from persons desirous of purchasing Kendu leaves purchased or collected by the Government, or by their officers or agents under the provisions of Orissa Kendu Leaves Act. In the last paragraph of the tender notice, however, it was stated that erstwhile purchasers would be given a renewal in case the Government was satisfied that the purchasers had been prompt of taking delivery of leaves and making payment to the Government, op such terms and conditions as may be initially agreed upon. Referring to this mode of renewal, their Lordships of the Supremo Court on page 1087 observed:
'The classification based on the circumstance that certain existing contractors had carried out their obligations in the previous year regularly and to the satisfaction of the Government is not 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 interests. 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.
Validity of the law 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 selling Kendu leaves to selected purchasers or of accepting tenders only from a specified class of purchasers was not 'integrally and essentially' connected with the creation of the monopoly and was not on the view taken by this Court in Akadasi Padhan's case, (1963) Supp 2 SCR 691 = (AIR 1963 SC 1047), protected by Article 19(6)(ii): it had therefore to satisfy the requirement of reasonableness under the first part of Article 19(6). No attempt was made to support the scheme on the ground that it imposed reasonable restrictions on the fundamental rights of the traders to carry on business in Kendu leaves. The High Court also did not consider whether the restrictions imposed upon persons excluded from the benefit of trading satisfied the test of reasonableness under the first part of Article 19(6). The High Court examined the problem from the angle whether the action of the State Government was vitiated on account of any oblique motive, and whether it was such as a prudent person carrying on business may adopt.' Although this decision was given in a case relating to monopoly rights, there is no difference in principle, when the State Government puts up for sale its property which is governed by a statute, for all property of the State Government must be administered for the greatest public benefit and in order to ensure the maximum return to the revenues of State. It is trite that a system ofthrowing open a sale to all and sundry, would draw a larger section of bidders, and in case there is no collusion inter se between bidders, it would bring a higher bid, than in a case where the sales are confined to a particular section of the public. In the present case in paragraph 25 of the counter-affidavit, it is admitted that only three parties participated in the auction. In case the auction had been kept open for all and sundry, a larger number of persons would have bid at the auction, and normally the auction would have fetched a higher price. A justification for dropping this procedure has been given in the counter-affidavit, which in effect is that Borang trees are required for the manufacture of pencils and the auction was confined only to pencil manufacturers and slat manufacturers so as to protect the interest of the pencil industry. I adjourned the hearing of the petition in order to enable the State Counsel to find out as to whether the agreements that were entered into with the purchasers, contained any restrictive clauses so as to prohibit the sale of the wood of the Borang trees by the pencil or slat manufacturers, to persons other than pencil manufacturers and slat manufacturers, and also as to whether the agreement contained any clause as to the maximum price which these persons could charge when effecting sales. The Standing Counsel has made a statement that there were no restrictive clauses, and the purchasers could sell the wood of the Borang trees to any person they desire, and at such prices that might be mutually agreed between them and the purchasers, and further that there were no restrictive clauses in the agreement to prevent the export of the wood of the Borang trees outside the State of Uttar Pra-desh. In the absence of such restrictive clauses, it cannot be said that the classification made is based upon any intelligible differentia, and neither can it be said that the classification would achieve object of ensuring a steady and constant supply of Borang wood at fair prices to pencil and slat manufacturers, who had not been successful at the bidding. The auction, as such, cannot be upheld. State Counsel has drawn my attention to a recent decision of the Supreme Court in Civil Appeals Nos. 2024-25 of 1971 = (Reported in AIR 1972 SC 1816) (State of Orissa v. Harinarayan Jaiswal) and to certain passages in the judgment of the Supreme Court where it has been held that if the Government is exclusive owner of privileges under the Excise Act, reliance on Article 19(1)(g) or Article 14 becomes irrelevant, and citizens cannot have any fundamental rights to trade or carry on business in the properties or rights belonging to the Government, nor can there be any infringement of Article 14 when the Government tries to get the best available price for its rights. These observations have to be read in the context in which they weremade. In that case an open public auction had been held for the grant of exclusive licenses in respect of intoxicants but the bids were not accepted for the reasons that the bidding was collusive and that the price offered on reauction was inadequate. The action of the Government not accepting bids was challenged, and it was in this context that their Lordships made these observations. Apart from this the Supreme Court, in consonance with its earlier view in Cooverjee Bharucha's case, AIR 1954 SC 220 which was specifically referred to, held that public auctions are held to get the best possible price, raise revenues, and it was only after upholding the reasons given by the State Government for not accepting the bids, that these weighty observations were made. Such is not the case here, for it has been seen that no public auction was held, and the auction was confined only to two categories of persons i.e. pencil manufacturers and slat manufacturers. In such a case the principles laid down by their Lordships of the Supreme Court in AIR 1969 SC 1081 (supra) are applicable. The impugned directions and the auction, as such, cannot be upheld.
4. The writ petition is allowed. The directions for auction of Borang trees contained in (Annexures 'C' and 'D') to the petition and the auction sale of Borang trees held in pursuance thereof on the 28th September and 12th October, 1971 are quashed. The stay order is vacated. The petitioner is entitled to his costs.