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The Bhopal Sugar Industries Ltd. and anr. Vs. the Union of India (Uoi) and ors. - Court Judgment

LegalCrystal Citation
SubjectCriminal;Constitution
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Petn. No. 92 of 1978
Judge
Reported inAIR1979MP163
ActsEssential Commodities Act, 1955 - Sections 3(3C); Sugarcane (Control) Order, 1966; Constitution of India - Articles 19(1) and 31
AppellantThe Bhopal Sugar Industries Ltd. and anr.
RespondentThe Union of India (Uoi) and ors.
Appellant AdvocateY.S. Dharmadhikari, Adv.
Respondent AdvocateR.P. Sinha, Adv. for Respondents Nos. 1, 2 and 4
DispositionPetition allowed
Cases ReferredMeenakshi Mills v. Union of India
Excerpt:
- - these commissions recommended the fixation of price on zonal system. the tariff commission in 1969 recommended the constitution of 15 zones which suggestion was finally accepted by the government, the recommendations of the tariff commission made in 1969 were valid for a period of three years ending with 1971-72 season. the tariff commission submitted its final report on the cost structure of sugar industry in september 1973. the government accepted the new cost schedules and zones recommended by the commission. as well as extra realisations expected from the sale of non-levy sugar. the bicp in its interim report also recommended that the uniform retail issue price of levy sugar should be retained unchanged at rs. these recommendations made a complete departure from the methodology.....g. p. singh, c.j. 1. petitioner no. 1, namely, the bhopal sugar industries limited, sehore, is a public limited company constituted under the companies act, 1956, petitioner no. 2 is the constituted attorney and factory manager of the petitioner company. the petitioner company has a factory situate at sehore in the state of madhya pradesh for manufacture of sugar by vacuum pan process. by this petition under article 226 of the constitution, the petitioners challenge the validity of the sugar (price determination for 1977-78 production) order, 1977, in relation to the state of madhya pradesh. by an amendment, the petitioners also challenge the validity of the sugar (price determination for 1977-78 production) amendment order, 1978, which was made during the pendency of the petition. these.....
Judgment:

G. P. Singh, C.J.

1. Petitioner No. 1, namely, The Bhopal Sugar Industries Limited, Sehore, is a public limited company constituted under the Companies Act, 1956, petitioner No. 2 is the constituted attorney and factory manager of the petitioner company. The petitioner company has a factory situate at Sehore in the State of Madhya Pradesh for manufacture of sugar by vacuum pan process. By this petition under Article 226 of the Constitution, the petitioners challenge the validity of the Sugar (Price Determination for 1977-78 Production) Order, 1977, in relation to the State of Madhya Pradesh. By an amendment, the petitioners also challenge the validity of the Sugar (Price Determination for 1977-78 Production) Amendment Order, 1978, which was made during the pendency of the petition. These orders remained operative till 16th August 1978 when sugar was completely decontrolled.

2. Section 3(1) of the Essential Commodities Act, 1955 (hereinafter referred to as 'the Act') confers power on the Central Government to make orders providing for regulating or prohibiting the production, supply and distribution of any essential commodity and trade and commerce therein. Sub-section (2) (f) of Section 3 enacts that any order made under Sub-section (1) of Section 3 may provide-

'for requiring any person holding in stock, or engaged in the production, or in the business of buying or selling, of any essential commodity,--

(a) to sell the whole or a specified part of the quantity held in stock or produced or received by him, or

(b) in the case of any such commodity which is likely to be produced or received by him, to sell the whole or a specified part of such commodity when produced or received by him, to the Central Government or a State Government or to an officer or agent of such Government or to a Corporation owned or controlled by such Government or to such other person or class of persons and in such circumstances as may be specified in the order.'

Special provision is made in Sub-section (3-C) of Section 3 for quantification of price payable to a producer in respect of sugar which he is required to sell by an order made under Sub-section (2) (f) of Section 3. Sub-section (3-C) reads as follows :

'Where any producer is required by an order made with reference to Clause (f) of Sub-section (2) to sell any kind of sugar (whether to the Central Government or a State Government or to any officer or agent of such Government or to any other person or class of persons) and either no notification in respect of such sugar has been issued under Sub-section (3-A) or any such notification, having been issued, has ceased to remain in force by efflux of time, then, notwithstanding anything contained in Sub-section (3), there shall be paid to that producer an amount therefor which shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to-

(a) the minimum price, if any, fixed for sugar cane by the Central Government under this section;

(b) the manufacturing cost of sugar,

(c) the duty or tax, if any, paid or payable thereon; and

(d) the securing of a reasonable return on the capital employed in the business of manufacturing sugar, and different prices may be determined from time to time for different areas or for different factories or for different kinds of sugar.'

3. It is not necessary to refer in detail to the history of partial control of sugar which is fully discussed by the Supreme Court in Panipat Co-operative Sugar Mills v. Union of India AIR 1973 SC 537 and Anakapalle Cooperative Agricultural & Industrial Society Ltd. v. Union of India, AIR 1973 SC 734. In exercise of the power conferred by Sub-section (2) (f) of Section 3 of the Act, the Central Government made the Levy Sugar Supply (Control) Order, 1972. By 'Levy Sugar' is meant the sugar requisitioned by the Central Government under Sub-section (2) (f) of Section 3. Clause 2 of the Levy Sugar Supply (Control) Order authorises the Central Government to issue directions by an order to any producer or recognized dealer to supply levy sugar of such type or grade and in such quantities to such persons or organisations in such areas or markets; or to such State Government, as may be specified in the order. The levy sugar requisitioned under Clause 2 of this order is for distribution to the consumers at a fair price. From 1974-75 till the control was finally lifted the Government requisitioned 65 per cent of the sugar produced by a producer as 'levy sugar'. The price payable for this sugar had to be fixed under Sub-section (3-C) of Section 3 of the Act by the Central Government. The remaining 35 per cent of sugar produced by each producer was 'free sugar' which could be sold in market without any control as to its price.

4. The price payable by a producer of sugar in respect of sugarcane which is the basic raw material for manufacture of sugar is controlled under the Sugarcane (Control) Order, 1966. The Government constituted various Commissions for preparing cost schedules to enable it to fix the price of sugar under Sub-section (3-C) of Section 3 of the Act. These commissions recommended the fixation of price on zonal system. The price payable under Sub-section (3-C) is determined on the basis of the minimum price of sugarcane fixed by the Government, the manufacturing cost of sugar on the basis of zonal cost schedules, the tax or duty applicable in the zones and is so structured as to leave in the ultimate result to the industry a reasonable return on the capital employed by it in the business of manufacturing sugar.

5. The facts and circumstances in which the Government fixed the priceof levy sugar of 1977-78 season as stated by the respondents are as follows. The Tariff Commission in 1969 recommended the constitution of 15 zones which suggestion was finally accepted by the Government, The recommendations of the Tariff Commission made in 1969 were valid for a period of three years ending with 1971-72 season. The Tariff Commission was again requested in March 1972 to undertake a fresh enquiry into the cost structure and to submit its report which might be used as a guide for fixation of sugar prices from 1972-73 onwards. The Tariff Commission submitted its final report on the cost structure of sugar industry in September 1973. The Government accepted the new cost schedules and zones recommended by the Commission. The prices of levy sugar for 1973-74 were fixed on 14th December 1973 in accordance with these recommendations. The Tariff Commission's report on the cost structure of the sugar industry and fair price payable to it was valid upto the end of 1974-75 sugar season. The Commission was requested on 28th December 1974 to make a fresh enquiry. Before the Commission could complete the enquiry, it was decided by the Government to wind it up. The Government entrusted the Bureau of Industrial Costs and Prices (hereinafter referred to as 'BICP') on 7th February 1976 with the responsibility to enquire into the cost structure of the sugar industry and recommend fair ex-factory price of levy sugar payable for the production of the sugar season 1975-76 and an appropriate pricing policy for the sugar industry to be followed from 1976-77 onwards, taking into account all the relevant factors. The BICP submitted its interim report in the last week of June 1976 containing recommendations for fixation of ex-factory price of levy sugar for 1975-76 season on the basis of the actual recovery, duration, cane prices paid etc. as well as extra realisations expected from the sale of non-levy sugar. The BICP in its interim report also recommended that the uniform retail issue price of levy sugar should be retained unchanged at Rs. 2-15 per kilogram by reducing the excise duty on levy sugar from 20 per cent to 15 per cent advalorem. The recommendations contained in the interim report of the BICP were accepted by the Government. In accordance with these recommendations, the Government fixed and notified the ex-factory price of levy sugar oh 3rd August 1976 applicable to the sugar production of 1975-76 season. As the final report of the BICP on an appropriate pricing policy to be followed from 1976-77 onwards was not available and the sugar season 1976-77 had already commenced, it was necessary to fix the levy sugar prices for that season and, therefore, the prices determined and notified on 3rd August 1976 for the sugar production of 1975-7-6 season were fixed and notified on 19th November 1976 for the sugar season 1976-77. The BICP sub-milled its final report in November 1976. The two main recommendations in this report were: (1) calculation of levy prices on the basis of the minimum notified price of sugarcane; and (ii) grouping of sugar factories into price zones on the basis of their performance characteristics in place of the current geographical zoning. These recommendations made a complete departure from the methodology which had earlier been recommended by the Tariff Commission and which had been adopted in the past. In October 1977 the Government decided to accept the recommendation regarding the levy sugar prices being based on the minimum notified prices of sugarcane but decided that each factory should be Individually considered for the purpose of fixation of price of levy sugar and the BICP was requested to undertake the cost calculations accordingly. On account of practical difficulties it was, however, not found possible to fix the levy sugar prices unit-wise and it became necessary to reconsider the whole matter. From 16th November 1977 the Government reduced the excise duty on non-levy sugar from 45 per cent to 27 1/2 per cent. This, according to the Government, provided a relief to the sugar industry of the order of about Rupees 47/- per quintal in respect of levy-free sugar. As the Government had not been able to take a final decision about the pricing policy and the sugar season 1977-78 had already commenced, the Government taking into account the impact of reduction in excise duty fixed the levy sugar prices for 1977-78 season at the same level as those for 1976-77. This was done by notifying on 22nd December 1977 the Sugar (Price Determination for 1977-78 Production) Order, 1977. The petitioner is a manufacturer of D-29 grade of sugar. The price payable for this grade of sugar under this Order for Madhya Pradesh is Rupees 180.66 per quintal for delivery into railway wagons and Rs. 180.49 per quintal for delivery into buyer's carts, lorries or other means of transport at the factory gate. The statement showing the calculation as to how this price was fixed is exhibited by the respondents as Ex. R-II. In accoardance with this table, the estimated cost of production including return on actual cane price is mentioned as Rs. 224.93 per quintal. Average realisation of free sale sugar for demestic consmuption and exports is taken at Rs. 307.14 per quintal. By notification, dated 1st March 1978, the Government issued the Sugar (Price Determination for 1977-78 Production) Amendment Order, 1978. This Order applied to the supply of levy sugar after its commencement i.e. from 1st March 1978. The price notified by this Order for D-29 grade of sugar for Madhya Pradesh is Rs. 198.69 per quintal for delivery into railway wagons and Rupees 198.52 per quintal for delivery into buyer's carts, lorries or other means of transport at the factory gate. The return states that in fixing the aforesaid prices the Government took into account the escalations in cost of manufacturing sugar which had occurred since the BICP submitted its interim report in June 1976. The Government worked out an All-India average levy price and allowed an interim increase from 1st March 1978 in price of levy sugar representing the difference between the All India average levy price and the weighted average of zonal prices which had been fixed on 22nd December 1977, A further affidavit filed on 16th January 1979 states that the All-India average levy price for D-29 grade of sugar was worked out at Rs. 186.50 per quintal according to the calculations made on the basis of the Tariff Commission's methodology and costschedules duly taking into account the escalations in cost of manufacturing sugar which had occurred since the BICP had submitted its interim report in June 1976. This affidavit further states that the All-India weighted average of the zonal prices which had been fixed in the beginning of the season on 22nd December 1977 came to Rs. 169.47 per quintal. The difference between the All-India average price and the All-India weighted average of zonal prices was Rs. 18.03 and this difference was added to the zonal prices fixed by the order, dated 22nd December 1977, and allowed as levy price from 1st March 1978. Accordingly, the levy sugar price in Madhya Pradesh for D-29 grade of sugar was raised from Rs. 180.66 per quintal to Rupees 198.69 per quintal.

6. The first contention raised by the learned counsel for the petitioners is that under Clause (d) of Sub-section (3-C) of Section 3 of the Act, the Central Government cannot have regard to the profit which the producer makes by the sale of free sugar and that the securing of a reasonable return on the capital employed in the business of manufacturing sugar which the Government must have regard to in fixing the price of levy sugar must be confined to the return realisable by the producer on the price fixed for levy sugar. The learned counsel in support of this contention relied upon an un-reported judgment of the Madras High Court in Cauvery Sugars and Chemicals Ltd., Madras v. Union of India, W. P. No. 3013 of 1975 and other connected petitions decided on 5-1-1979. The said decision of the Madras High Court does support the contention of the learned counsel for the petitioners. It was held in that case that the profit earned by the producer by the sale of free sugar is not a relevant fact under Clause (d) of Sub-section (3-C) of Section 3 of the Act for fixing the price of levy sugar. In holding so, the Court said that Sub-section (3-C) of Section 3, the object of which is to determine the price of levy sugar, cannot be availed of to mop off the profit earned or to be earned by the sale of free sugar in open market by lowering the price of levy sugar. It was also said that a contrary construction will invalidate Sub-section (3-C) and it will then offend Articles 19(1) (f) and (g) and 31 of the Constitution. With great respect, we are not prepared to accept the view of the Madras High Court taken in the aforesaid case because the construction accepted in the case of Sub-section (3-C) of Section 3 of the Act was expressly negatived by the Supreme Court in the cases of Panipat Co-operative Sugar Mills v. Union of India (supra) and Anakapalle Co-op. Agrl. and Industrial Society Ltd. v. Union of India (supra). In Panipat Cooperative Sugar Mills' case the Supreme Court observed that the purpose behind enacting Sub-section (3-C) was threefold: 'To provide an incentive to increase production of Sugar, encourage expansion of the industry, to devise a means by which the cane producer could get a share in the profits of the industry through prices for his cane higher than the minimum price fixed and secure to the consumer distribution of at least a reasonable quantity of sugar at a fair price.' [p. 543]. It was further observed that a reasonable return on the capital employed in the business of sugar within the meaning of Clause (d) of Sub-section (3-C) of Section 3 refers to the business of manufacturing sugar as a whole and not to the business of manufacturing levy sugar only. The contentions that Clause (d) must be construed to be dealing with levy sugar only and that to bring in the return on free sugar for purposes of deciding whether a return guaranteed under Clause (d) was obtainable or not from the price fixed by the Government for levy sugar would be ushering a factor wholly extraneous to the sub-section were rejected as follows;

'To accept these contentions would in our view mean disregarding (1) the language of the sub-section, and (2) the entire background in which it was enacted and the mischief it was intended to remedy. As explained earlier, the sub-section provides two things: (a) the determination by Government of a fair price during the process of which regard shall be had to the four matters set out therein, and (b) payment to the manufacturer, part of whose stock is levied, an amount 'therefor' calculated with reference to 'suchprice' as the Central Government may determine. Though the payment would of course be for the stock required to be sold to Government, there is nothing in the sub-section to suggest that the price to be determined is to be with respect of that part of the stock of a particular manufacturer which is required to be sold to Government.'

[pp. 544, 545]

Similarly, the same contentions were negatived in the case of Anakapalle Co-op. Agrl. Si Industrial Society in the following words:

'The first question formulated by us which arises in this writ petition can be divided into two parts. The first involves the point whether Sub-section (3-C) of Section 3 of the Act deals with levy sugar only and is confined to it alone, particularly, in the matter of determination of a reasonable return as provided by Clause (d) of that subsection. In the writ petitions the argument on behalf of the sugar producers has been that the whole object of having a scheme of partial control under which 60 to 70 per cent sugar has to be sold in accordance with the orders made by the Government under Section 3(f) of the Act for which levy price is payable and the balance is saleable in the free market, would be defeated. The result of accepting an interpretation that profit on the free sale of sugar can be taken into account while considering whether a reasonable return has been allowed on the capital employed by the sugar producers would, it has been stressed, be contrary to the scheme and purpose of the sub-section in question. This aspect of the matter has been fully dealt with in the above connected case. We have held that 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 other words the contentions of the sugar producers have been repelled.'

[p. 736]

The aforesaid decisions of the Supreme Court were distinguished by the Madras High Court essentially on the reasoning that the validity of Sub-section (3-C) was not challenged in those cases and that if the said constructionis accepted, Sub-section (3-C) would become invalid as violative of Articles 19(1) (f) and (g) and 31 of the Constitution. In our opinion, the distinction so drawn is not really there. The Madras High Court has lost sight of the fact that the Act was included in the Ninth Schedule at Item 126 by the Constitution (Fortieth Amendment) Act, 1976 and the validity of any of its provisions is not open to challenge in view of Article 31B of the Constitution on the ground that it violates any of the fundamental rights in Para III. It is true that the validity of Sub-section (3-C) of Section 3 of the Act was not challenged in the aforesaid cases before the Supreme Court; but in view of the Constitution (Fortieth Amendment) Act, 1976, that distinction ceases to be of any substance. Moreover, in Panipat Co-operative Sugar Mills' case the Supreme Court held that the Government cannot fix any arbitrary price or fix it on extraneous considerations or such that it does not secure a reasonable return on the capital employed in the industry. 'Such a fixation', the Court observed 'would at once evoke a challenge, both on the ground of its being inconsistent with the guidelines built in the sub-section and its being in contravention of Articles 19(1) (f) and (g) and 31 of the Constitution.' [p. 546]. Impliedly, the Supreme Court must be taken to have held that price fixation for levy sugar by taking into account the return to the industry from free sugar would not invalidate the price fixation on the ground that it violated Articles 19(1) (f) and (g) and 31 of the Constitution. In our opinion, and we say this with profound respect to the learned Judges of the Madras High Court, it is not open to us to distinguish the aforesaid direct authorities of the Supreme Court on the question of construction of Clause (d) of Sub-section (3-C) of Section 3 of the Act as has been done by the Madras High Court, and to accept the construction which was expressly negatived by the Supreme Court.

7. The next contention of the learned counsel for the petitioners is that the profit made by the industry or a producer on sales of free sugar should not enter the price fixation of levy sugar, at any rate, after the introduction of Clause 5-A in the Sugarcane(Control) Order, 1966. It was also contended that, in any case, Clause 5-A should enter the price fixation of levy sugar as a factor within Clause (d) of Sub-section (3-C) of Section 3 of the Act. In our opinion, none of these contentions is well founded. Clause 5-A was inserted on 25th September 1974 in the Sugarcane (Control) Order. In so far as relevant, it provides that where a producer of sugar, or his agent purchases sugarcane from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under Clause (3), pay to the sugarcane grower an additional price, if found due in accordance with the provisions of the Second Schedule annexed to the Order. The Second Schedule referred to in Clause 5-A is as follows:

SECOND SCHEDULE

(See Clause 5-A)

The amount to be paid on account of additional price (per quintal of sugar-cane) under Clause 5-A by a producer of sugar shall be computed in accordance with the following formula, namely:-- R- L+2A- BX = ----------2C

Explanation-- In this formula;

(1) 'X' is the Additional price in rupees per quintal of sugarcane payable by the producer of sugar to the sugarcane grower;

(2) 'R' is the amount in rupees of sugar produced during the sugar year excluding the excise duty paid or payable to the factory by the purchaser;

(3) 'L' is the value in rupees of sugar produced during the sugar year, as calculated on the basis of the unit cost per quintal ex-factory, exclusive of excise duty, determined with reference to the minimum sugarcane price fixed under Clause 3, the final working results of the year and the cost scheduled and return recommended by such authority as the Central Government may specify from time to time;

(4) 'A' is the amount found payable for the previous year but not actually paid vide Sub-clause (9);

(5) 'B' is the excess or shortfall in realisations from actual sales of the unsold stocks of sugar produced during the sugar year, as on 30th day of September : vide Item 7 (ii) below whichis carried forward and adjusted in the sale realisations of the following year;

(6) 'C' is the quantity in quintals of sugarcane purchased by the producer of sugar during the sugar year;

(7) The amount 'R' referred to in the Explanation 2 shall be computed as under, namely:--

(i) the actual amount realised during the sugar year; and

(ii) the estimated value of the unsold stocks of sugar held at the end of 30th September, calculated in regard to free sugar stocks at the average rate of sales made during the fortnight 16th to 30th September and in regard to levy sugar stocks at the notified levy as on the 30th September.

Explanation-- In this schedule 'sugar' means any form of sugar containing mdre than ninety per cent sucrose,

The formula set out above and the Explanations given in the formula of 'X', 'R', 'L' and 'C', go to show that the object of Clause 5-A is to enable the sugarcane growers to share one-half of the profit made by a producer over and above the reasonable return recommended by such authority as the Central Government may specify. The purpose behind the provision is that if a producer makes profit in excess of what may be described as a reasonable return, he must share the same with the producers of sugarcane who are otherwise entitled only to the minimum sugarcane price fixed under Clause 3 of the Order. Clause 5-A comes into operation after the final working results of the year as is indicated by the Explanation of 'L' in the Schedule. Clause 5-A has no relevance at the stage of price fixation of levy sugar at the commencement of the year. The meaning of Clause (d) of Sub-section (3-C) of Section 3 of the Act, as explained by the Supreme Court in the cases of Panipat Co-operative Sugar Mills v. Union of India (supra) and Anakapalle Co-op. Agril. and Industrial Society Ltd. v. Union of India (supra) cannot, be taken to have been overridden by the insertion of Clause 5-A in the Sugarcane (Control) Order. Clause (d) of Sub-section (3-C) of Section 3 of the Act is to ensure a reasonable return to the industry, and Clause 5-A of the Sugarcane (Control) Order operates, as explained above, for the benefit of sugarcane growers when profits are made beyond a reasonable return by aproducer of sugar. There is thus no conflict between Clause (d) of Sub-section (3-C) of Section 3 of the Act and Clause 5-A of the Sugarcane (Control) Order. The latter, therefore, cannot affect the meaning of the former or the methodology applied in price fixation under the former,

8. The further contention of the learned counsel for the petitioners is that the price fixation by Notification, dated 22nd December 1977, was on the basis of the figures available for the production year 1975-76 and the price fixation was done without any regard to the cost of production in the year 1977-78 and the prevailing price of sugar in that year. It is argued that because of this defect the price fixation was entirely arbitrary and cannot be said to be in accordance with the principles laid down in Sub-section (3-C) of Section 3 of the Act. We have already set out the facts and circumstances as stated in the return leading to the price fixation of levy sugar for the production year 1977-78 by notification, dated 22nd December 1977. The only comprehensive data which the Government had before it was the cost schedules contained in the interim report of the BICP which was submitted in the last week of June 1976 for fixation of ex-factory price of levy sugar of 1975-76 season on the basis of the actual recovery, duration, cane prices paid etc. as well as extra realisations expected from the sale of non-levy sugar of that season. The final report of the BICP which was submitted in November 1976 recommended grouping of sugar factories into price zones on the basis of their performance characteristics in place of geographical zoning. This recommendation was not accepted by the Government, The Government, on the other hand, decided that each factory should be individually considered for the purpose of fixation of price of levy sugar and the BICP was requested to undertake the cost calculations on that basis, It appears that the BICP could not submit its report on this aspect of the matter before the control on sugar was abolished in August 1978. The prices of levy sugar for the production years 1976-77 and 1977-78 were the same as notified for 1975-76 on the basis of the interim report ofthe BICP submitted in June 1976. Itis thus clear that the petitioners' grievance that the fixation of price of levy sugar for the year 1977-78 by notification, dated 22nd December 1977, was not On the basis of any data collected for that year but on the basis of the data for the year 1975-76 is clearly justified. There is also enough material to hold that the data for the year 1975-76 did not hold good for the year 1977-78. In accordance with the data for the year 1975-76, the estimated cost of production per quintal including return of Rs. 13.27 on actual cane price worked out at Rs. 224.93. The estimatetd cost of production, however, for Madhya Pradesh Zone, presumably without even taking into account the retrun on actual capital employed, was Rs. 240 per quintal as stated by the Minister of State in the Ministry of Agriculture and Irrigation on 31st July 1978, in the Parliament; (see Petitioners' Annexure K). Further, the estimated cost of production for the year 1975-76 did not naturally take into account the increased minimum bonus of 8.33 per cent by Ordinance No. 9 of 1977 which came into force on 3rd September 1977, Again, the data for the year 1975-76 takes into consideration the average realisation of free sale sugar for domestic consumption and exports at Rs. 307.14 per quintal, whereas it is admitted in the return (paragraph 17) that the average realisation per quintal of sugar for the year 1976-77 was only Rs. 219.01 for exports and Rs. 277.97 for internal consumption, i.e., much below the average realisation of free sugar in 1975-76. The petitioners further alleged in paragraph 18 of the petition that the average price of free sugar dropped further to Rs. 230 to Rupees 240 per quintal by February 1978 when release order for free sale of sugar was issued in favour of the petitioner company out of the production of 1977-78. It is a matter of common knowledge that the prices went on falling as a result of which sugar was completely decontrolled in August 1978. The fact that the price of free sugar dropped in the year 1977-78 is not denied in the return. From all these facts it is clear that the data for theyear 1975-76 which was applied for fixing the price of levy sugar for the year 1977-78 and on the basis of which the levy price for the year 1977-78 wasfixed at the same rate as notified for the year 1975-76 had no relation whatsoever to the actual facts which existed in the year 1977-78 and on the basis of which the price of levy sugar for that year ought to have been fixed. Prima facie, therefore, the price fixation for the year 1977-78 by Notification, dated 22nd December 1977, was arbitrary.

9. It is, however, submitted in the return that certain steps mentioned hereinafter were taken by the Government in view of the changed circumstances and keeping in mind the need to ensure a reasonable return to the cane growers and at the same time to enable the industry to function in a viable manner. These steps are:

'(i) The excise duty on free sale sugar has been reduced from 45 % to 27 1/2% w.e.f 16-11-77.

(ii) The weighted average ex-factory price for levy sugar on an All India basis shall be fixed at Rs. 187.50 per quintal. Accordingly, the prices of levy sugar in different zones have (been) worked out and notified vide the Sugar (Price Determination for 1977-78 Production) Amendment Order, 1978, dated 1st March 1978. In respect of Madhya Pradesh Zone the price of D-29 grade sugar has been revised from Rs. 180.66 per quintal to Rs. 198.69 per quintal for delivery of sugar into railway wagons excluding excise duty.

(iii) Excise rebate will be given to encourage the factory to continue the crushing beyond 30th April 1978 to absorb as much of the additional cane production as possible this year.

(iv) Export of 6.5 lakhs tonnes of sugar (which is the quota in effect for 1977-78 in the international sugar agreement) will be permitted.

(v) From December 1977 the releases of both levy and non-levy sugar have been substantially increased.

(vi) The restrictions on inter-State movement of free sale sugar have been withdrawn.'

It is, however, not clear from the return whether the steps so taken were sufficient to ensure to the industry return of the cost of production within Clauses (a), (b) and (c) of Sub-section (3-C) of Section 3 of the Act and a reasonable return on the capital employed in the business of manufacturing sugarwithin Clause (d) of the same sub-section. One of the important steps which the Government alleges that it took in favour of the industry was to raise the price of levy sugar from Rs. 180.66 per quintal to Rs. 198.69 per quintal with effect from 1st March 1978 by issuing the Sugar (Price Determination for 1977-78 Production) Amendment Order, 1978. We have already stated that the cost of production as reported by the Government itself in Parliament for Madhya Pradesh Zone' for the year 1977-78 was Rs. 240 per quintal. We have also stated that the price of free sugar was constantly falling and had dropped to Rs. 230 to Rs. 240 per quintal by the month of February 1978. The price of free sugar for the year 1977-78 was nearly the same as the cost of production. It was, therefore, impossible for any producer in Madhya Pradesh to compensate himself for the low price paid by the Government for levy sugar from the price realised by him on the sale of free sugar. The price fixed on 22nd December 1977 at Rs. 180.66 per quintal and the amended price fixed from 1st March 1978 at Rs. 198.69 per quintal for levy sugar were much below the cost of production. As it was impossible for the producer to compensate himself from the sale of free sugar for low fixation of price of levy sugar, it cannot be said that in fixing the price of levy sugar the Government had any regard for Clauses (a), (b), (c) and (d) of Sub-section (3-C) of Section 3 of the Act,

10. As earlier stated, the respondents filed an additional affidavit on 16th January 1979 to show as to how the levy price of Rs. 198.69 per quintal was fixed from 1st March 1978. In this affidavit it is stated that All India average price of levy sugar was calculated on the estimated All India average realisation of Rs. 289.76 per quintal. It is further stated that open market prices of non-levy sugar at that time were ranging between Rs. 308 to Rupees 355 per quintal and that the fall of price took place when the sugar was decontrolled on 16th August 1978. The averments in the affidavit that the prices of non-levy sugar were ranging between Rs. 308 to Rs. 355 per quintal and that Rs. 289.76 per quintal was a proper estimate of All India average realisation cannot be accepted to becorrect. We have already noticed that the petitioners specifically stated in paragraph 18 of the petition that the average price of free sugar which in 1976-77 was Rs. 275 per quintal further dropped to Rs. 230 to Rs. 240 per quintal in the month of February when the release order for free sale of sugar was issued in favour of the petitioner Company out of the production for 1977-78 season. This averment was not specifically denied in the return. All that was stated therein was that the prices of sugar normally fall during the beginning of the sugar season and rise in the latter part of the season. We have also noticed that the return clearly mentioned that average realisation per quintal of free sugar for 1976-77 was Rs. 219.01 for sugar released for exports and Rs: 277.97 for sugar released for internal consumption. The downward trend of prices alleged in the petition was not at all denied. Further, in The Gwalior Sugar Co. Ltd. v. The Union of India, M. P. No. 78 of 1978 (Madh. Pra.), which was heard along with the present petition and which was filed on 29th April 1978, the fact that the free sugar price had crashed to Rs. 230 to Rs. 240 per quintal in 1978 when the petition was filed, which fact was alleged in paras 26.3 and 26.5 of the petition, was not specifically denied and all that was stated in the return on this point was: 'As regards the price of free sale sugar, these are settled according to the various market conditions and the Government exercised no control over them except by regulating the release of free sale sugar.' [para 23 of the return]. In these circumstances, we are unable to accept the additional affidavit filed in January 1979 that the All India average realisation on 1st March 1978 when the levy price was amended was Rupees 289.76 per quintal or that the price of non-levy sugar at that time ranged between Rs. 308 to Rs. 355 per quintal. At any rate, these figures cannot be accepted for the Madhya Pradesh Zone,

11. Price fixation under Section 3(1) and Section 3(2)(c) of the Act is materially different from price fixation under Section 3(3C) of the Act. In the case of the former, the dominant purpose is to ensure the availability of essential commodities to the consumersat a fair price and a reasonable return on investment or a reasonable rate of profit is not the sine qua non of the validity of price fixation; but in the case of price fixation under Section 3(3C) it is statutorily obligatory to ensure to the industry a reasonable return on the capital employed in the business of manufacturing sugar. This distinction was pointed out by the Supreme Court in Shree Meenakshi Mills v. Union of India, AIR 1974 SC 366 at p. 381 and Prag Ice & Oil Mills v. Union of India, AIR 1978 SC 1296 at p. 1316 (para 64). In the latter case, Chandrachud, C. J., speaking for the majority, observed as follows:

'Counsel for petitioner relied upon the decisions in Panipat Co-operative Sugar Mills v. Union of India, AIR 1973 SC 537 and Anakapalle Co-op. Agrl. and Industrial Society Ltd. v. Union of India, AIR 1973 SC 734 in support of their contention that fixation of a price without ensuring a reasonable return to the producers or dealers is unconstitutional. The infirmity of this argument, as pointed out in Meenakshi Mills v. Union of India, is that these two decisions turn on the language of Section 3(3C) of the Essential Commodities Act under which it is statutorily obligatory to ensure to the Industry a reasonable return on the capital employed in the business of manufacturing sugar. These decisions can, therefore, have no application to cases of price fixation under Section 3(1) read with Section 3(2)(c) of the Act. Cases falling under Sub-sections (3-A), (3-B) and (3-C) of Section 3 of that Act belong to a different category altogether.'

12. From the aforesaid discussion it is clear that in fixing the prices of levy sugar for the year 1977-78 by the notifications issued on 22nd December 1977 and 1st March 1978 the Government did not have regard to the factors mentioned in Clauses (a), (b) (c) and (d) of Sub-section (3-C) of Section 3 of the Act. The data adopted was for the year 1975-76 which had no relevance to the facts and circumstances prevailing in the year 1977-78. The price fixed for levy sugar did not secure a reasonable return to the industry on the capital employed in the business of manufacturing sugar or even return of the cost of production.The price fixation by the said notifications cannot, therefore, be allowed to stand. The Government will, therefore, have to re-fix the price of levy sugar for 1977-78 season up to the date when sugar was decontrolled. We would, however, like to point out that no producer is entitled to have the price of levy sugar fixed at rate higher than the prevailing rate for free sugar. The object of price fixation under Sub-section (3-C) of Section 3 of the Act was not to enable the industry to make profit when it could not do so by the sale, of its product in the free market. The Government is, therefore, not obliged to fix the price of levy sugar in any case above the market rate prevailing at the relevant period for free sugar in the particular zone.

13. The learned counsel for the petitioners also submitted that the price fixation by the Notification, dated 1st March 1978, was only an interim fixation and that the Government was obliged to make a final fixaction in accordance with Sub-section (3-C) of Section 3 of the Act. There is considerable force in this argument. In Annexure R-L-A, filed along with the affidavit dated 26th September 1978, it is stated in paragraph 36 that 'an interim increase in price of levy sugar representing the difference between this price (All-India average price) and the weighted average of price which had been fixed in the beginning of the season was allowed with effect from 1-3-1978.' This would show that increase in price from 1st March 1978 was an interim measure and the Government intended to fix the price finally for levy sugar after collecting the relevant zonal data for the year 1977-78. It appears that as sugar was decontrolled completely in August 1978, the Government did not think it necessary to finalise the price of levy sugar for 1977-78. In our opinion, as the price fixation by Notification, dated 1st March 1978, was only an interim measure, the Government was duty-bound to finally fix the price of levy sugar for 1977-78 for the period sugar was not decontrolled.

14. It was also contended that in taking into account the All-India average price of levy sugar and in using it for fixing the price of levy sugar for Madhya Pradesh by Notification, dated 1st March 1978, the Government contravened the provisions of Sub-section (3-C) of Section 3 of the Act because the said provisions contemplate that the data collected and applied must be zonal. In our opinion, it is not necessary to go into this question any further because we are striking down the price fixation by the impugned notification on other grounds.

15. The petition is allowed. The Notifications dated 22nd December 1977 and 1st March 1978, fixing the price of levy sugar for Madhya Pradesh Zone are quashed. The Union Government is directed to re-fix the price of levy sugar for 1977-78 production for the Madhya Pradesh Zone for the period up to 16th August 1978 when sugar was completely decontrolled. There shall be no order as to costs of this petition. The security deposit be refunded to the petitioner.


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