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Chakarpur Sugar Works and ors. Vs. the Union of India (Uoi) and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAllahabad High Court
Decided On
Case NumberCivil Misc. Writ No. 1303 of 1975 connected with Civil Misc. Writ Petn. Nos. 1302, 1304, 1305, 1679
Judge
Reported inAIR1975All379
ActsDefence of India Rules, 1971 - Rule 114, 114(2) and 114(3); Constitution of India - Article 14; Essential Commodities Act, 1955 - Sections 3 and 3(3C)
AppellantChakarpur Sugar Works and ors.
RespondentThe Union of India (Uoi) and ors.
Appellant AdvocateS.C. Khare, ;Shanti Bhushan, ;H.S. Nigam, ;A.D. Prabhakar and ;A. Kumar, Advs.
Respondent AdvocateStanding Counsel
DispositionPetitions dismissed
Excerpt:
civil - fixation of price - rule 114 of defence of india rules, 1971 - government's direction to petitioner to sell one third of the khandsari sugar manufactured by them on a specific rate to the government - rule 114 empowers government to fix the price less than market price - government needs to see that the producer is able to earn the fair price for the entire goods produced by him - the price fixed by government are valid and the petition has been dismissed. - - the purpose of rule 114, thus, clearly is to bring down the market price. such a policy meant determination of a fair price on the basis of which a producer would be paid for part of his stock required to be sold to government .if this be the true meaning of clause (b), it must mean securing a reasonable return.....orderhari swarup, j.1. these six connected writ petitions have been filed to challenge a notification issued by the state government under rule 114 of the defence of india rules, 1971, directing the khandsari units to sell to the state government at the price specified in the order one third of the khandsari sugar manufactured by the khandsari units in the first process. the price specified is rs. 200/- per quintal to be delivered under the conditions prescribed in the order at the purchasing centres. the petitioners have licenses for working khandsari units and are manufacturers of khandsari sugar. they have challenged the order of the state government under rule 114 of the defence of india rules on various grounds. as all the petitions raise similar questions of facts and law, they are.....
Judgment:
ORDER

Hari Swarup, J.

1. These six connected writ petitions have been filed to challenge a notification issued by the State Government under Rule 114 of the Defence of India Rules, 1971, directing the Khandsari units to sell to the State Government at the price specified in the order one third of the Khandsari Sugar manufactured by the Khandsari units in the first process. The price specified is Rs. 200/- per quintal to be delivered under the conditions prescribed in the order at the purchasing centres. The petitioners have licenses for working Khandsari units and are manufacturers of Khandsari sugar. They have challenged the order of the State Government under Rule 114 of the Defence of India Rules on various grounds. As all the petitions raise similar questions of facts and law, they are heard together and are being decided by a common judgment.

2. Learned counsel for the petitioners clarified in the very beginning that what actually affects them is the fixation of levy price at a figure below the cost price. The contention that the levy price is below the cost price has not been challenged by the respondents. On the other hand, in the counter-affidavit it has been stated that the cost price is Rs. 245/- per quintal while the levy price is Rs. 200/-. The contention of the respondents is that the State Government has power to make a levy at a figure below the cost price provided the total money to be received by the Khandsari industry from the sale of total produce brings to the producers a fair return. According to the State Government the levy price has been fixed in such a manner that the petitioners will on the whole make a profit in the industry and will suffer no loss.

3. The first contention raised by the learned counsel for the petitioners is that Rule 114 does not give any power to the State Government to direct a producer or stockist to sell the goods at any price below the market price. It has been urged that Rule 114 does not confer any power at all on the State Government to fix the levy price. The contention is that the power under Rule 114 (2)/(3) is only to direct the sale of a commodity at the market price and in no case at below the fair price or reasonable price as contemplated by Section 9 of the Sale of Goods Act. According to the petitioners such sale price can never be below the cost price.

4. The basic question, therefore, that arises in the case is whether Rule 114 permits the State Government to make a levy by paying an amount below the cost price. Rule 114 (2) provides:

'If the Central Government or the State Government is of opinion that it is necessary or expedient so to do for securing the defence of India and civil defence, the efficient conduct of military operations or the maintenance or increase of supplies and services essential to the life of the community or for securing the equitable distribution and availability of any article or thing at fair prices, it may, by order, provide for regulating or prohibiting the production, manufacture, supply and distribution, use and consumption of articles or things and trade and commerce therein or for preventing any corrupt practice or abuse of authority in respect of any such matter.'

Sub-rule (3) of Rule 114 provides:

'Without prejudice to the generality of the powers conferred by Sub-rule (2), an order made thereunder may provide for--

(d) Requiring any person holding in stock any article or thing to sell the whole or a specified part of the stock to the Government or to an officer or agent of the Government or to such other person or class or classes of persons and in such circumstances as may be specified in the order and if the order relates to foodgrains, edible oil seeds or edible oils at such price as may be specified in the order having regard to--(i) the maximum price, if any, fixed by order under Clause (h) or by or under any other law for the time being in force, for the grade or variety of food-grains, edible oil seeds or edible oils to which the order under this clause applies; and

(ii) where no maximum price as referred to in Sub-clause (i) is fixed, the price for that grade or variety of foodgrains, edible oil seeds or edible oils prevailing or likely to prevail during the post-harvest period in the area to which the order applies.'

Sub-rule (2), has, in the present case, been brought into service by the State Government on the assertion in the notification that it had become in the opinion of the State Government necessary and expedient to pass the order for securing the equitable distribution of khandsari sugar and to make it available at fair price.

5. Rule 114 expressly permits the passing of an order when the commodities or articles become non-available at fair prices. The power under Rule 114 (c) is meant to secure the equitable distribution and availability of any article or thing at fair prices. Sub-rule (3) (d) permits the levy. The purpose of Rule 114, thus, clearly is to bring down the market price. The market price in a laissez faire economy is the resultant of various forces, most prominent of which are the forces of supply and demand. The supply may become less than demand for various reasons. It may be purposely curtailed to raise the price, or may come into existence without any effort on the part of the producer; but once the prices go high for any reason whatsover, the Central Government and the State Government get the power to bring down the prices. This is a definite inroad on the laissez faire economy of open market for the protection of the consumer. Laissez faire economy, and the concepts of sale concomitant thereto, cease to operate once the disposal of commodity and fixation of its price come under governmental control. The present law, that is, Rule 114 substitutes the capitalist economy of free market by the economy on controlled distribution of the entire available stock at a fair price. The express purpose, of Rule 114 is to make a break from the economic concept of laissez faire and to introduce into the national economy the socialist concept of distribution of the entire available produce at fair prices. This is clear from Sub-rule (2) of Rule 114 which provides for equitable distribution of articles or things; it treats the total quantity of a particular article or thing as goods available to the people for consumption, and provides for the distribution of the total commodity for the consumption of the people at a fair price.

6. 'Fair price' has been interpreted by courts, in various judgments to mean not the market price but a price which brings to the producer the cost of production and a reasonable return for entrepreneurship. Fair price in Sub-rule (2) may have two aspects. Looking at it from the point of view of the body of persons in possession of the property or the producers thereof it will mean a price which brings to that body a fair return for the total produce. Looking at it from the point of view of the consumer it would mean payment of total fair price, but that may not mean 'cost plus' price for each particular item or article. The total produce has to get a fair price with reasonable return, the total amount to be paid by the body of consumers will necessarily be the same but it will not necessarily mean that each item of article will be paid at the same rate. The aggregate can be obtained by payment of the sale price either at the average rate of fair price or on the basis of slab rates for different quantities. If it has to be paid at different rates and some is permitted to be sold at a rate higher than the 'fair price' rate, then some will necessarily have to be sold at below the 'fair price' rates, i. e. below the cost price. Thus if for instance, 30 per cent, of the stock is sold at less than the fair price and the remaining 70 per cent, is sold at higher than the fair price the aggregate amount paid by the consumers may make the fair price and the producer will get a fair price for his produce. In such a case the producer cannot make a complaint. Whether it is wise or not to permit any part of the total commodity to be sold at the unequitable market price, which may be appropriately called 'unfair price', is for the State Government to decide. But once the policy of partial contract is adopted for making the goods available at fair prices, it would be for the government to determine the part and the price at which that part of the commodity should be supplied by the producer. There is no law which prohibits the supply of essential commodities to the people at below the cost price. The only rider is that the producer should get fair price for his total produce. The amount to be paid by consumers has to be determined primarily by their consumption budget, the general level of prices of all the essential commodities, and the needs of the consuming public. The legality of making essential goods available to the people at less than its cost price, that is, below the 'fair price' has been recognised by the Supreme Court in various cases. In the case of The Lord Krishna Sugar Mills Ltd. v. Union of India, (AIR 1959 SC 1124), certain percentage of sugar produce was directed to be sold in export market at a price below the cost price. For meeting this loss higher price of control sugar was fixed. The Supreme Court held that:

'The restriction did not amount to an unreasonable restriction because the loss sustained by the purchaser on a part of the pro-duce was compensated by the price obtained from the sale of the remaining quantity.'

This case accepts the principle that a producer can be made to sell a part of the produce at less than the cost price, provided the loss can be compensated otherwise.

7. The power to make a levy on sugar under Rule 114 of the Defence of India Rules is similar to the power under Section 3 of the Essential Commodities Act. Sub-section (3-C) of Section 3 of the Essential Commodities Act provides for fixation of price for the levy sugar; Khandsari sugar is also sugar. Under Sub-section (3-C) of Section 3 the price of sugar fixed need not be a 'fair price' in the sense that it brings some profit to the producer on the levy sugar. Principles of determining the price of levy sugar are contained in the section itself, and calculated in that manner the produce is not always likely to bring profit, but may have to be supplied at less than cost price. The provision came up for consideration before the Supreme Court in the cases: Panipat Cooperative Sugar Mills v. Union of India, (AIR 1973 SC 537); Anakapalle Co-operative Agricultural and Industrial Society Ltd. v. Union of India, (AIR 1973 SC 734) and Saraswati Industrial Syndicate Ltd. v. Union of India, 1974 (2) SCC 630 = (AIR 1975 SC 460). In the case of Panipat Co-operative Sugar Mills it was observed that:

'The basis of a fair price would have to be built on a reasonably efficient and economic representative cross-section on whose workings cost schedules would have been worked out and the price to be determined by Government under Sub-section (3C) would have to be built. A claim that such a price has to be determined unitwise and a reasonable return has to be ensured to each unit or that such a price with such a return would be in respect of that part of its stock required to be sold under Sub-section (2) (f) would appear to be inconsistent with the concept of partial control, the background in which it was evolved and the objects which it attempted to secure. Such a policy meant determination of a fair price on the basis of which a producer would be paid for part of his stock required to be sold to Government ..................... If this be the true meaning of Clause (b), it must mean securing a reasonable return to the industry and not to each unit, irrespective of whether it is economic or reasonably efficient or not, or only in respect of its stock required to be compulsorily sold to Government ............... We are, therefore, satisfied both on the language of the sub-section, the background in which it was enacted and the mischief the legislature sought to remedy through its working that the true construction is that a fair price has to be determined in respect of the entire produce, ensuring to the industry a reasonable return on the capital employed in the business of manufacturing sugar.'

In the case of Anakapalle Co-operative Agricultural and Industrial Society Ltd. v. Union of India the Panipat case was followed and it was reiterated that the fair price had to be determined in respect of the entire produce ensuring to the industry a reasonable return on the capital employed in the business of manufacturing sugar. It was further pointed out that 'cost-plus' cannot always be the proper basis for price fixation. The principle laid down in these two cases was re-affirmed in the case of Saraswati Industrial Syndicate Ltd. v. Union of India, 1974 (2) SCC 630 = (AIR 1975 SC 460). The ratio of the decisions of the Supreme Court, accordingly, is that the law permits the government to fix price at below cost for a part of the commodity produced by an industry provided the total earnings of the industry bring to the producer a fair price for the entire goods produced.

8. Learned counsel for the petitioner relied upon two unreported decisions of this Court in support of their contention that fixation of price by the State Government should not be below the fair price. The first is the decision in Civil Misc. Writ No. 4169 of 1974 (All) ( Saraswati Prakash v. Board of High School and Intermediate Education, U. P., Allahabad) connected with Civil Misc., Writ Petns. Nos. 4161 of 1974 to 4174 of 1974 and Civil Misc. Writ Petns. Nos. 4214, 4215, 4216, 4218 to 4230 of 1974 and Civil Misc. Writ Petns. Nos. 4254 and 4255 of 1974 and Civil Misc. Writ Petns. Nos. 4322, 4217 and 4323 of 1974 (All). That was a case in which the State Government had fixed price of the text books to be sold by the publishers to students of High School and Intermediate Classes. It was held by this Court that the price had been fixed by the State Government at rates which existed before the cost of production had gone up and the price had been fixed without application of the State Government's mind to the relevant circumstances and factors which had to be taken into consideration for fixation of price. It was held in that case that price fixation must be at a figure which brings a profit to the publishers. This case is distinguishable from the present case on various grounds. It was a case in which the price had been fixed of the entire produce. There was no question of partial control in that case. Nothing was there to counter-balance the low price, that is, there was no cushioning available. In the present case the fixation of price has been only in respect of a part of the commodity and the remaining part has been left to be sold at rates much higher than the fair-price rates. The return to be obtained by the producer on these sales can thus act as cushion for the loss to be suffered on the levy sugar. Another distinction between that case and the present case is that the sale of entire commodity was to be made at a particular time and there was no question of any variation in the market price. The goods were not to be controlled by the interaction of the forces of supply and demand but had to be sold in every case at a fixed price. Yet another distinction between the present case and that case is that there the finding was about the non-application of mind by the State Government to relevant facts concerning fixation of controlled price. The other case is in Civil Misc. Writ No. 7322 of 1974 (All), (M/s. Sita Ram Jwala Prasad v. State of U. P.) connected with Civil Misc., Writ No. 7788 of 1974 -(reported in AIR 1975 All 272). This case also is of price fixation of the entire commodity and not about part of the commodity. It deals with the case of control of price under Section 3(3-B) of the Essential Commodities Act, it was held that the fixation of price of the goods directed to be sold to the State Government by reason of Sub-section (3-B) of Section 3 could not amount to 'control price' as contemplated by Section 3(2)(c). The present is not a case where control price has been fixed or that control price as contemplated by Rule 114 (3) (h) of the Defence of India Rules has been made payable.

9. The question, therefore, that has to be determined is whether by fixation of levy price at Rs. 200/- per quintal the industry will be put to such a loss that the cushion which will be provided to it through higher sale price in open market will not be sufficient to compensate the loss? In other words the question is whether the industry by reason of the levy on sugar at Rs. 200/- per quintal will be put to a loss or that it will not get fair price in return to its entire produce taken as a unit? The determination of this question will depend upon the cost of production and the expected return from the goods. As regards the cost of production there is variance in the statements of parties. According to different petitioners the cost of production will range from Rs. 360/- per quintal to Rs. 368/- per quintal to which some amount will have to be added for being sold at the purchasing centre under conditions laid down in the impugned order. According to the counter-affidavit the cost of production is Rs. 246/- per quintal. It is not possible in these proceedings, on the material available, to arrive at any exact figure about the cost of production; moreover the cost of production will have to be taken on the basis of the entire units functioning in the State and not on the basis of the petitioners' units only.

10. As regards the total return from sales adequate material has not been placed by the petitioners for reaching at any conclusion. Of course, it has necessarily to be based on some guess work because it will depend upon the future market rates. According to the respondents the sale price will shoot higher because some sugar out of the total sugar available to the people will be withdrawn for export, thus reducing the supply in the market. Learned Standing Counsel has produced a graph regarding the price lines prevailing in the years beginning from October, 1971 to December 1974 prepared on the basis of figures given in the journal 'Co-operative Sugar' Vol. VI, January, 1975, published for the National Federation of Co-operative Sugar Factory Ltd. New Delhi. It is based on the market rates prevailing in the Mandis of Delhi, Hapur and Muzaffarnagar. The market curves appearing in this graph show a steep rise in prices from December 1971 to July and August 1972; there was some fall thereafter upto April 1973 and again there was a gradual rise for about a year; in September and November the prices shot up very high. There was a fall again in December but that too was higher than the price prevailing in August/September, 1972. The highest peaks in this graph are during the months July to October in 1972, November, 1973 and September to November in 1974. Maybe, it is so because these are the periods in which there are festivities. The market rates of sales that appear from this graph show progressive price rise. In October, 1974, it had touched 468 and in November 450. The State Government could have, therefore, reasonably inferred that the prices may go higher even in late 1975, that is, the year in which this season's product will most likely be sold. It has been urged by the learned Standing Counsel that only a small percentage has been required to be sold at Rs. 200/- per quintal and there is every likelihood of the loss to be suffered on these sales being amply compensated by the sales of free sugar. The argument appears to be tenable.

11. However, the scope of enquiry available to this Court in these proceedings is not to determine whether actually a loss will be suffered by the industry or it will get profits on its total production, but only to determine whether the State Government has applied its mind to the relevant circumstances. In the case of Saraswati Industrial Syndicate Ltd., AIR 1975 SC 460 (supra) it was pointed out that:

'Price fixation is more in the nature of a legislative measure even though it may be based upon objective criteria found in a report or other material. It could not, therefore, give rise to a complaint that a rule of natural justice has not been followed in fixing the price. Nevertheless, criterion adopted must be reasonable. Reasonableness, for purposes of judging whether there was an 'excess of power' or an 'arbitrary' exercise of it, is really the demonstration of a reasonable nexus between the matters which are taken into account in exercising a power and the purposes of exercise of that power.'

In the present case it has come in the counter-affidavit that a Study Group had been appointed by the State Government for determining the cost of production and the price which should be paid for the levy sugar and that it had taken into consideration various factors including the working figures of public sector khandsari units functioning under the name of U. P. Poorvanchal Vikas Nigam Limited. The Study Group according to the respondents had taken into consideration the cost of production and the likely sale prices. It cannot, therefore, be held that the State Government did not apply its mind to the relevant factors, or that in fixing the price it had taken into consideration factors which had no nexus to the matter.

12. In the case of M. A. Rasheed v. State of Kerala, (AIR 1974 SC 2249) it was held that:

'Where reasonable conduct is expected the criterion of reasonableness is not subjective, but objective. The onus of establishing unreasonableness, however, rests upon the person challenging the validity of the acts.' In the present case the petitioners have failed to establish that the State Government had not taken into consideration relevant materials for arriving at the conclusion that levy was necessary and was to be taken at Rupees 200/- per quintal. I have come to this conclusion because no data or material has been provided for coming to the conclusion that the market conditions are such that the prices will go down or that the prices will be such that the petitioners will not be able to get a complete cushion for the loss they may suffer due to the low levy price. The total returns will depend not only on the rates at which the commodity will be sold but also on the quantity which is sold at a particular rate. If larger quantities of sugar will be sold at higher rates they will necessarily bring higher returns. There is also no evidence in this case to establish that more sugar is sold normally when the prices are low in the market or that when the prices go up sales go down.

13. As already seen from the graph prepared by the Standing Counsel the trend appears to be otherwise, that is, sale prices do not go down but go up at times when larger quantities of sugar are expected to be purchased. The contention, therefore, that the price had been arbitrarily fixed, or that it has been fixed at a figure which is unreasonable, in the light of what has been said above, cannot be accepted.

14. The contention that no price can be fixed under Rule 114, and that it can be fixed if at all only in accordance with the illustrations given in Clause 3 (d) of Rule 114 of the Defence of India Rules can also not be accepted. The very fact that Clause (d) specifically provides for fixation of price in respect of certain goods makes it clear that the law provides for fixation of price of articles which are to be directed to be sold to the Government under Clause 3 (d). The criteria given for fixing the price of food-grains, edible oil seeds or edible oils cannot, from the very nature of things, form the basis for determining the price of sugar. Sugar is a manufactured commodity while foodgrains and edible oil seeds or even edible oils are only agricultural products. The basis on which the price of sugar is to be determined is generally given in Section 3(3-C) of the Essential Commodities Act. It is not similar to that in Clause (d). The only limitation, therefore, on the power of the State Government in fixing the price of levy sugar under the Defence of India Rules is that the total amount that may ultimately become available to the industry by the sale of entire product should not go below the 'fair price' by reason of the below-cost levy price. In the present case no attempt has been made by the petitioners to establish, and in any case they have failed on the material produced, to establish that the total return of the industry will be less than the fair price in case the levy sugar will have to be supplied at the specified rate.

15. The contention that the fixation of price could not have been made without consultation of the petitioners or other members of the industry, is also without merit, because what the law requires the State Government to do is only to take into consideration the relevant material. Once this has been done the non-consultation of the petitioners or other members carrying on the production will not vitiate the price fixed by the State Government. As already seen the State Government had appointed a Study Group for advising it on the question of fixation of price, and it has not been shown that relevant factors had not been considered by the State Government while fixing the price. The notification cannot be invalid on this ground also.

16. The argument again about Article 31 of the Constitution cannot be available to the petitioners as they have not succeeded in proving that the industry will suffer any loss on its total product because of the low price fixed for the levy sugar.

17. An argument was also raised on the ground of Article 14 of the Constitution to the effect that the notification is invalid because it discriminated between the khandsari units which produced khandsari by sulphitation process and those which produced it by non-sulphitation process. It has, however, been mentioned in the counter-affidavit that the sugar produced by sulphitation process is superior to that produced by non-sulphitation process and the crystals resulting from the two processes are different. In the case of Lord Krishna Sugar Mills (supra), an argument was made on the basis of Article 14 of the Constitution and it was urged that the order by being limited to sugar manufactured by vacuum pan process was bad because it did not direct the levy sugar manufactured by non-vacuum pan process. The argument was repelled by the Supreme Court. As the quality of sugar produced through sulphitation process is not similar to that produced by non-sulphitation process. Article 14 will not be applicable.

18. An argument was also sought to be raised on the ground that there was discrimination because action had been taken under the Defence of India Rules and not under Section 3(3-C) of the Essential Commodities Act. The argument has no merit because for an action under Section 3(3-C) of the Essential Commodities Act the price of sugar had to be determined by the Central Government and unless the price of khandsari Sugar had been determined by the Central Government, the State Government could not take effective action. Further, as the emergency is still in force the Defence of India Rules cannot be deemed not to create a particular situation for action being taken under it.

19. I also find no merit in the contention that the order is bad because similar orders had not been passed by other States where khandsari units work, viz., Madhya Pradesh and Rajasthan. As the action is taken by the State Government to meet the conditions prevailing here, no discrimination can be said to arise because some other states have not taken similar steps.

20. The last contention on behalf of the petitioners is that the circumstances did not exist justifying the taking of action under Rule 114 of the Defence of India Rules and that the exercise of power by the State Government is only colourable exercise of power. The notification issued by the State Government mentions 'that the State Government is of opinion that it is necessary and expedient so to do for securing equitable distribution of Khandsari sugar and its availability at fair prices.' There is a presumption as held in the case of Swadeshi Cotton Mills Co. Ltd. v. State-Industrial Tribunal, U. P., (AIR 1961 SC 1381) that the recital on the face of the order indicates the existence of the condition. In the present case there is nothing to show that the conditions did not exist. Rule 114 (2) can be taken resort to as soon as the State Government is of opinion that it is necessary or expedient so to do for securing the equitable distribution and availability of any article or thing at fair prices. In the present case the opinion of the State Government cannot be said to be based on no material. As already seen the market trends about the price of Khandsari sugar have been recording a progressive rise and the peak was near the end of 1974. The object of Rule 114 is to check the rise of prices in open market and to make essential goods available at fair prices. The market prices are so high that even on the basis of assertions made by the petitioners they cannot be deemed to be 'fair prices.' The exercise of power by the State Government, therefore, cannot be held either to be beyond the scope of the power conferred on it by the rule or colourable.

21. Coming to the workability of the order it was contended that the price fixed by the State Government in the notification is vague, inasmuch as it does not say that the price will be paid immediately on supply of goods, leaves the lifting of goods at the will of the State Government and makes delivery of goods at inconvenient delivery points. Learned Standing Counsel has drawn my attention to certain administrative orders already issued and has stated at the bar that further orders can also be issued to ameliorate any hardship that the industry might face in the implementation of the order. In any case the suffering of the petitioners due to the implementation of the order can be questioned only when the petitioners make a demand for the redress of the grievance and do not get the relief. That, however, cannot be a ground for quashing the notification particularly in view of what has been stated at the bar by the learned Standing Counsel.

22. In the result the writ petitions fail and are dismissed with costs.


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