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Shervani Sugar Syndicate (Private) Ltd., Allahabad Vs. the Union of India (Uoi) and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtAllahabad High Court
Decided On
Case NumberCivil Misc. Writ No. 5924 of 1970
Judge
Reported inAIR1972All71
ActsSugarcane (Control) Order, 1966
AppellantShervani Sugar Syndicate (Private) Ltd., Allahabad
RespondentThe Union of India (Uoi) and anr.
Appellant AdvocateM.A. Ansari, Adv.
Respondent AdvocateStanding Counsel
Excerpt:
.....during the previous year, return to the grower from the alternative crop grown in the previous year, price of sugar sold by producer during the previous year, the recovery of sugar from the sugarcane supplied during the previous year might at best be an approximate or a rough and ready basis but obviously not precise one for determining the cost of production of sugarcane in the current year, the return to the grower from alternative crop grown in the current year and the price at which sugar would be sold in the current year and the sugar that may be recovered from sugarcane supplied during the current year. i am clearly opposed to quash the notification totally as any such order would create chaos and neither the sugar factories nor the sugarcane growers would know where they stand..........payable by them were set out in the schedule to the notification. under the schedule the neoli sugar factory, owned by the petitioner. messrs. shervani sugar syndicate(private) limited, was required to pay rs. 7-57 per quintal as the minimum price of sugarcane supplied to that factory. the principles on which the prices in the schedule were fixed for the various factories by the central government were set out in a circular letter of the same date issued to all the sugar factories in india (hereinafter referred to as 'the circular letter'). the circular letter stated:--'the minimum prices have been fixed on the basis of a basic minimum price of rs. 7-37 per quintal linked to a recovery of 9-4 per cent, or below, with a premium of 6-6 paise instead of 5.36 paise per quintal, as in the.....
Judgment:
ORDER

B.N. Lokur, J.

1. By a notification dated the 12th November, 1970, (hereinafter referred to as 'the Notification') the Central Government, in exercise of the powers conferred by Clause (3) of the Sugarcane (Control) Order, 1966, made under the Essential Commodities Act, 1955, fixed the minimum price payable by the owners of the vacuum pan process sugar factories all over India for the sugarcane supplied to them during the year 1970-71. The various sugar factories to which the notification applied and minimum sugarcane price payable by them were set out in the Schedule to the notification. Under the Schedule the Neoli Sugar Factory, owned by the petitioner. Messrs. Shervani Sugar Syndicate(Private) Limited, was required to pay Rs. 7-57 per quintal as the minimum price of sugarcane supplied to that factory. The principles on which the prices in the Schedule were fixed for the various factories by the Central Government were set out in a Circular letter of the same date issued to all the sugar factories in India (hereinafter referred to as 'the Circular Letter'). The Circular letter stated:--

'The minimum prices have been fixed on the basis of a basic minimum price of Rs. 7-37 per quintal linked to a recovery of 9-4 per cent, or below, with a premium of 6-6 paise instead of 5.36 paise per quintal, as in the preceding year, for every 0.1 per cent, increase in recovery above 9.4 per cent.'

By this writ petition, the petitioner impugns the legality of the Notification fixing the minimum price in so far as it relates to the petitioner's sugar factory on the ground that the minimum price fixed by the Notification read with the Circular Letter is in contravention of Clause 3 of the Sugarcane (Control) Order, 1966, which authorises the Central Government to fix the price of sugarcane.

2. Clause 3 (1) of the Sugarcane (Control) Order, 1966, which is relevant for the purpose of this writ petition, reads:--

'(3) (i) The Central Government may, after consultation with such authorities, bodies or associations as it may deem fit, by notification in the Official Gazette, from time to time, fix the minimum price of sugarcane to be paid by producers of sugar of their agents for the sugarcane purchased by them, having regard to-

(a) the cost of production of sugar-cane;

(b) the return to the grower from alternative crops and the general trend of prices of agricultural commodities;

(c) the availability of sugar to the consumer at a fair price;

(d) the price at which sugar produced from sugarcane is sold by producers of sugar; and

(e) the recovery of sugar from sugarcane.

Provided that the Central Government or, with the approval of the Central Government the State Government may, in such circumstances and subject to such conditions as it may specify allow a suitable rebate in the price so fixed.

Explanation-- Different prices may be fixed for different areas or different qualities or varieties of sugarcane.'

3. The complaint of the petitioner is that in fixing the minimum price by the Notification for the sugarcane supplied to the petitioner's factory, the Central Government has not, as is said to be evident from the Circular Letter, taken into consideration the price at which the sugar produced from sugar-cane is sold by the producer of such sugar and has exaggerated the recovery of sugar from the sugarcane supplied to the petitioner's factory.

4. To appreciate the questions arising for determination in this writ petition in the light of the arguments advanced at the Bar, it is necessary to narrate a few facts.

5. The price to be paid for sugar-cane supplied to sugar factories vis-a-vis the price of sugar sold by the sugar factories has been engaging the attention of the Central Government for several years and a number of experiments have been made to balance the interests of sugarcane growers and the owners of sugar factories. The difficulties in tackling the problem are many and varied but mainly arise from the fluctuations in the price of sugar. On the increase of the price of sugar, the sugarcane growers naturally expect a higher price for the sugarcane supplied to the sugar factories, while with the fall in the price of sugar the sugar factories become reluctant to pay a high price for the sugarcane. The variations in the price of sugar and the price of sugarcane also affected the production of sugar as well as the production of sugarcane. The attempt has been throughout to fix the price of sugarcane in a manner that would bear a relation to the price of sugar realised by the sugar industry. In 1934-1935, the Government of Uttar Pradesh, acting under the Sugarcane Act, 1934, fixed the sugarcane price on a sliding scale and reviewed the price fortnightly on the basis of the prevailing sugar prices. Later, the sliding scale system was discontinued but was again reintroduced.

In 1940-41 a floor price of sugar was fixed with a provision for deferred payment to the sugarcane growers in the event of the sugar factories selling sugar at a price higher than expected. This system of deferred payment had to be abandoned when the price of sugar came to be controlled but was resumed during the period of de-control of sugar price. Towards the end of 1952, the sugar was de-controlled except for 25 per cent of the production which was treated as reserve quantity. With the rise in price of sugar discontent among the sugarcane growers developed and a formula for linking the price of sugarcane with the price of sugar was evolved involving deferred payment to the sugarcane growers, and applied on voluntary basis from 1953-54. The working of this formuladid not satisfy either the sugarcane growers or the sugar manufacturers, the former contending that they were not given an adequate share in the increased price of sugar and the latter contending that the cost of machinery etc. was not taken into consideration in working out the cost of manufacturing sugar. The outcome was the evolution of a new formula qua 'the Price-Linking-Formula' recommended by a Committee appointed for the purpose, which provided for extra payment to the sugarcane growers over and above the minimum price, such extra payment to be determined on the basis of net realisation from the sugar produced from a maund of sugarcane.

The Tariff Commission, however, disfavoured the Price-Linking-Formula on the ground that it did not promote good relations between the sugarcane growers and sugar manufacturers and recommended in 1961 that the price of sugarcane should depend upon the quality of sugarcane. Accordingly in 1962-63 the scheme of linking the sugarcane price with the recovery of sugar therefrom came to be introduced. Under this scheme the price of sugarcane to be supplied during the year was determined from the average recovery of sugar during the entire crushing season of the previous year. It was, however, later felt that the average recovery from the entire crushing season would not be a proper criteria and it was decided that the average recovery should be calculated for a prescribed part of the crushing season. The procedure which came to be adopted in fixing the sugarcane price was, in the words of the counter-affidavit filed on behalf of the Union of India, thus:--

'(i) The recovery of the factory of the preceding year is taken into account.

(ii) The recovery for the above purpose is taken for the period of optimum recovery or the average recovery of the whole year, whichever is more.

(iii) In the figure of recovery, if there is a digit in the second decimal place it is rounded off by increasing the first decimal place by one in all cases.'

With reference to (ii) above, it may be mentioned that the normal season of a sugar factory is November to April and the average recovery is being calculated on the recovery from December to March. With the adoption of these guidelines which are followed since 1966-67, Clause 3 (1) of the Sugarcane (Control) Order was amended to read as already reproduced above.

6. Reference may be made also to the method of supply of sugarcane to the sugar factories. This method is regulated by the U. P. Sugarcane (Regulation of Supply and Purchase) Act, 1953, (U. P. Act XXIV of 1953). Under Section 12 of that Act, the Cane Commissioner appointed under the Act requires a sugar factory to furnish an estimate of the quantity of cane which would be required by the factory during the crushing season. The Cane Commissioner, on receiving the estimate, reserves or assigns, under Section 15, an area of sugarcane in consultation with the factory and the Cane Growers' Co-operative Society and the factory is expected to purchase all the cane grown and offered in this area. As the normal crushing season is from the beginning of November to the end of April, the cane from this area has necessarily to be supplied to the factory in instalments according to the crushing requirements. If so required by the abundance of growth of sugarcane, the crushing season is extended upto June and even upto July.

7. Turning now to the actual questions which arise in this petition, it may be recalled that the grievance of the petitioner is that in fixing the minimum price of sugarcane supplied to the petitioner's factory pursuant to Clause 3 (1) of the Sugarcane (Control) Order, 1966, the provision in Sub-clause (d) thereof that the price at which sugar produced is sold is to be considered, is ignored and the provision in Sub-clause (e) thereof that the recovery of sugar from sugarcane has to be taken into account is improperly applied. The Circular Letter postulates a basic minimum price of Rs. 7-37 per quintal linked to a recovery of 9.4 per cent or below and provides for an increase in this basic price at the rate of 6.6 paise for every 0.1 per cent increase in the recovery above 9.4 per cent. It cannot be doubted that the increase of the basic price is solely relatable to the recovery of sugar from sugarcane. It would be legitimate to assume that in fixing the basic price, the considerations prescribed in items (a), (b), (c) and (d) of Clause 3 (1) of the Sugarcane (Control) Order have been taken into account and item (e) in that clause has also been considered to the extent of recovery of sugar at 9.4 per cent. Shri M. A. Ansari, appearing for the petitioner, however, contended that this basic price which has been admittedly constant since 1967-68 ought to have been reduced for the year 1970-71 as the price of sugar sold by the petitioner's factory has shown a downward trend.

In this connection, it has to be mentioned that since 1967-68, 60 per cent of the sugar produced by the petitioner's factory as also the sugar produced by other factories is being requisitioned by the Government for distribution through controlled channels at a fixed price determined from time to time (popularlyknown as 'levy sugar'). The balance of 40 per cent of sugar (popularly referred as 'free sugar') is left to be sold by the factory at any price in the open market Annexure 'D' to the petition, which gives the statement of rates of sugar from 1967-68 to 1969-70, discloses that the price of free sugar has suffered a great fall year after year; the learned Solicitor-General of India who appeared for the Union of India conceded that there has also been a fall, though only marginal, in the price of levy sugar. It is, however, urged that the prices have been by and large steady in the free market since October 1969--a claim which is repudiated by the petitioner in the rejoinder-affidavit. The counter-affidavit on behalf of the Union of India does not explain why, notwithstanding the decline in the price of sugar, the basic price of sugarcane has not been correspondingly changed; the basic price for 1970-71 could be maintained at the level of the basic price of 1967-68, notwithstanding the fall in the price of free sugar, if the fall in the price of free sugar is adequately set off against items (a) and (b) of Clause 3 (1) of the Sugarcane (Control) Order, but such a plea has not been taken by the Union of India. The irresistible conclusion would be that the price of sugar which is one of the considerations to be taken into account in fixing the minimum price of sugarcane has been disregarded in fixing the basic price of sugarcane for 1970-71.

8. As regards the violation of item (e) in Clause 3 (1) of the Sugar-cane (Control) Order alleged on behalf of the petitioner, it may be observed that the minimum price of Rs. 7.57 per quintal of sugarcane purchased by the petitioner's factory implies that the recovery of sugar from such sugarcane is 9.7 per cent, the excess of 20 paise over the basic price accounting for 0.3 per cent increase in the recovery over 9.4 per cent. The procedure adopted for fixing the minimum price of sugarcane in each factory is set out in paragraph 2 (x) of the counter-affidavit of the Union of India as reproduced in paragraph 5 above. In fixing the minimum price the recovery of the factory for the period of optimum recovery during the preceding year or the average recovery of whole preceding year, whichever is more, is taken into account. According to paragraph 3 (a) of the counter-affidavit of the Union of India, the actual recovery of the petitioner's factory during the optimum period of 1968-70 season was 9.64 and hence the minimum price of sugarcane fixed at 7.57 per quintal is said to be justified by the above procedure. Shri Ansari however, challenged the legality of determining the recovery for the optimum period of crushing season and contended that the average recovery of the entire season ought to be considered for the purpose of item. (e) of Clause 3 (1) of the Sugarcane (Control) Order; he also urged that the said item (e) does not permit consideration of the recovery of the previous year as has been done by the Central Government and the recovery contemplated by the item is recovery for the year during which the sugarcane for which the price is fixed is supplied.

As already stated, the normal sugar-cane crushing season is from November to April and is, according to exigencies, extended upto June or July. The average recovery is linked to the recovery from December to March which is regarded as the optimum period. The reason for taking into account the recovery for the optimum period of the season is explained in the counter-affidavit of the Union of India as follows:--

'Otherwise the factories would tend to prolong the season and thereby lower the average recovery with a view to escaping payment of premium during the succeeding year.' (para 2 (t) )

and further:--

''Factories take sometime to get into an optimum condition of operation to extract sugar at their best out of the cane and that a longer period (of the season) for this purpose although conferring some advantages of economics on the factories would be adverse to the growers.' (para. 2 (v) )

and then again:--

'This shortening of the period benefits the growers since the cane matures only after the cold weather has properly set in and starts drying up in spring. Such a shortening of the period has also the effect of making the growers and the factories apprehend that a smaller period may be fixed for the future and to that extent influence both the crushing operations of the factory and the harvesting of cane so as to restrict these two periods when the maximum recovery of sugar can be expected. Further the factories attain maximum efficiency after some days of the commencement of the crushing operations and efficiency during the closing period is also not at the maximum' (para. 2 (y))'

Whatever the administrative justification for taking the average recovery during a limited period of the season, there is no gainsaying that such a procedure is not legally defensible. Item (e) of Clause 3 (1) of the Sugarcane (Control) Order does not speak of recovery for any restricted period; to satisfy the requirements of that item strictly the sugar recovered from sugarcane sup-plied has to be taken into consideration. It is no doubt not possible to ascertain the recovery of sugar from every quintal of sugarcane supplied individually and hence it can be regarded as sufficient compliance with item, (e) if the average recovery of sugar from the entire quantity of sugarcane supplied is taken into account. It would not, however, be in consonance with that item if recovery from sugarcane supplied during a part of the season is taken as an index of recovery of sugar from the sugarcane supplied throughout the season. The effect of such a procedure would be that the recovery of sugar from the sugarcane supplied outside the optimum period, even though in fact less than the sugar recovered during the optimum period, would be assumed to be the same as recovery during the optimum period and the price of sugarcane supplied outside the optimum period would be the same as the price of sugarcane supplied during the optimum period even though the recovery of sugar is less from such supplies. The proper procedure would, in my opinion, be to take the average recovery for the entire crushing season be it from November to April or from November to June or July,

The learned Solicitor General of India pointed out that on an extension of the crushing season for 1969-70 beyond April, a number of concessions were given to the factories concerned in the shape of rebate from excise duty rebate drawn back on the purchase tax and rebate on the purchase price of sugarcane as mentioned in paragraphs 3 (b) and (c) of the counter-affidavit and therefore the period beyond April should not in any event be taken into consideration in determining the average recovery. However, the concessions given for 1969-70 are not an obligatory precedent for 1970-71 or for future years and the learned Solicitor-General of India was not in a position to give an undertaking that similar concessions would be repeated if the crushing season continued after April during the current or future years. That being so, there is no adequate reason to exclude the period beyond April in determining the average recovery if the crushing season extends beyond April. I reiterate that item (d) of Clause 3 (1) of the Sugar-cane (Control) Order does not restrict the recovery for any period of supply of sugarcane but implies recovery of sugarcane supplied during the entire season.

I am also of the view that neither Item (e) nor items (a), (b) and (d) of Clause 3 (1) of the Sugarcane (Control) Order permits data of the previousyear to be taken into consideration for fixing the price of sugarcane for the current year; the cost of production of the sugarcane supplied during the previous year, return to the grower from the alternative crop grown in the previous year, price of sugar sold by producer during the previous year, the recovery of sugar from the sugarcane supplied during the previous year might at best be an approximate or a rough and ready basis but obviously not precise one for determining the cost of production of sugarcane in the current year, the return to the grower from alternative crop grown in the current year and the price at which sugar would be sold in the current year and the sugar that may be recovered from sugarcane supplied during the current year. The clause unmistakably refers to events of the year during which the sugarcane is supplied. It is true that the sugar price has to be fixed at the beginning of the crushing season and it would be asking for the moon to ascertain at that stage the data which would only be available in future. That, however, is no justification for departing from the express provision of law. There might be other ways of complying with the letter of law, for example, the method of deferred payment which was once adopted.

That brings me to the appropriate orders to be passed in this petition in the light of the above issues. I am clearly opposed to quash the notification totally as any such order would create chaos and neither the sugar factories nor the sugarcane growers would know where they stand as regards the price of the sugarcane supplied. On an application for stay of the operation of the impugned notification the, following order had been passed:

'Issue notice.

Meanwhile the petitioner company may comply with the impugned notification dated 12th November, 1970 on the basis that the minimum sugarcane price fixed thereby was Rs. 7.37 per quintal provided the petitioner deposits money at the rate of Rs. 0.20 per quintal sugarcane purchased by it with effect from tomorrow. The deposit along with the account shall be made monthly and by the 15th of each month beginning with 15th of January. 1971. The deposit along with the account may be made with the District Magistrate. Etah.'

The petitioner's factory has, it is common ground, closed the crushing season on the 4th May. 1971. The Central Government should not then takemuch time to refix the price of the sugarcane purchased by the petitioner's sugar factory during the 1970-71 crushing season, having regard to the observations made above. In the circumstances, ends of justice would be met by directing the Central Government to refix the price of sugarcane supplied to the petitioner's factory during the 1970-71 crushing season in the light of the above observations and if, on the basis of the re-fixed price, the petitioner is entitled to a refund of any portion of the amount, deposited by the petitioner in accordance with the above order on the stay application, the District Magistrate, Etah, shall, on a certificate of the Cane Commissioner refund the amount to the petitioner and he shall pay the balance, if any, to the sellers of the sugarcane according to the refix-ed price of the quantity supplied by them. No order as to costs.


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