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The Saraswati Industrial Syndicate Ltd. Vs. Union of India - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtDelhi High Court
Decided On
Case NumberCivil Writ Petn. 381 of 1971
Judge
Reported inAIR1972Delhi159
ActsEssential Commodities Act, 1955 - Sections 3(2) and 3(3); Constitution of India - Article 19(1)
AppellantThe Saraswati Industrial Syndicate Ltd.
RespondentUnion of India
Appellant Advocate Veda Vyasa, Sr. Adv.,; J.M. Muki and ; Bishamberlal, Ad
Respondent Advocate Shyamla Pappu Sr. Adv., ; B.N. Kirpal, ; M.S. Ganesh an
Cases ReferredLord Krishna Sugar Mills Ltd v. The Union of India
Excerpt:
in the present case, it was alleged that unreasonable restriction was imposed on the fundamental right of the citizen - it was ruled that burden to prove the said allegation laid upon the petitioner - further, the presumption about the validity of law, unless proved otherwise would be in favor of such statute - section 13: [altamas kabir & cyriac joseph,jj] custody of child - welfare of child vis--vis comity of courts - the minor girl child of 3 1/2 years was brought to india by her mother. the minor girl was a citizen of u.k. being born in u.k. her parents had set up their matrimonial home in u.k. and had acquired status of permanent residents of u.k. the child with her mother was supposed to return to u.k. but the mother cancelled her tickets and remained behind in india. the husband.....v.s. deshpande, j.1. the petitioners in these three connected writ petitions (civil writs 381, 405 and 406 of 1971) are producers and sellers of sugar having the fundamental rights guranteed by clauses (f) and (g) of article 19(1) of the constitution to hold and dispose of their sugar to their best advantage as businessmen. the state can, however, impose reasonable restrictions in the interest of the general public on the exercise of these rights. sugar is a necessary article of consumption and is an essential commodity. parliament has, thereforee empowered the central government under sub-section (1) of section 3 of the essential commodities act, 1955 (hereinafter called the act) to promulgate orders to provide for regulating or prohibiting the production, supply and distribution thereof.....
Judgment:

V.S. Deshpande, J.

1. The petitioners in these three connected writ petitions (Civil Writs 381, 405 and 406 of 1971) are producers and sellers of sugar having the fundamental rights guranteed by clauses (f) and (g) of Article 19(1) of the Constitution to hold and dispose of their sugar to their best advantage as businessmen. The State can, however, impose reasonable restrictions in the interest of the general public on the exercise of these rights. Sugar is a necessary article of consumption and is an essential commodity. Parliament has, thereforee empowered the Central Government under sub-section (1) of Section 3 of the Essential Commodities Act, 1955 (hereinafter called the Act) to promulgate Orders to provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce' in essential commodities including sugar 'if the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices'. These are aptly called powers of 'control' in the title of Section 3 and know as such. After its amendment in 1967 the Act provides for two methods of price control :-

(1) Total control of price at which an essential commodity may be sold. The relevant part of sub-section (2) of Section 3 of the Act provides as follows :-

'Without prejudice to the generality of the powers conferred by sub-section (1), an order made there under may provide -

(c) for controlling the price at which any essential commodity may be bought or sold.'

(2) Partial control of price which can be restricted only to a part of the stock or production of the essential commodity. Under clause (f) of sub-section (2) of Section 3, an order made there under may provide -

'for requiring any person holding in stock any essential commodity to sell the whole or a specified part of the stock to the Central Government or a State Government or to an officer or agent of such Government or to such other person or class or persons and in such circumstances as may be specified in the order'. Then follows the most important provision of sub-section (3C) of Section 3, the relevant part of which has to be carefully read as below :-

'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 an officer or agent of such Government or to any other person or class of persons) .............. then, notwithstanding any thing contained in sub-section (3), there shall be paid to that producer an amount thereforee 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 sugarcane 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 of different kinds of sugar.'

2. Prior to 1967, there was a total control of the price of sugar enforced by the first method referred to above. From the season 1967-68 till 25th May, 1971, however, the Government followed the policy of partial control enforced by the second method referred to above. Accordingly, only a part of the sugar production of a season was ordered to be sold at the prices for various grades fixed by the Government. This part of the sugar production is called the levy sugar and the prices at which it has to be sold are called the levy prices of sugar. The other part of the sugar production, that is the remainder after the levy sugar could be sold by the sugar producers at any prices they could obtain to their best advantage in the market for its various grades. This may be called the free sugar sold at the market prices.

3. In fixing the price for the levy sugar under sub-section (3C) of Section 3, the Government was required to have regard to the four factors mentioned therein. Two of them namely, the minimum price fixed for sugarcane and the duty or tax paid or payable on sugar, were know to the Government. But the other two factors namely, the manufacturing cost of sugar and a reasonable return on the capital employed in the business of manufacturing sugar, had to be ascertained as facts. The Tariff Commission was, thereforee, requested by the Government to determine them. The Commission obtained information from the Government and the sugar industry and heard representatives of the industry including some of the petitioners and made their report on 'Cost Structure of the Sugar Industry and the Fair Price for Sugar 1969. The Commission divided the country into various zones to determine the cost of production of sugar in each zone. The petitioners are the three sugar factors in the Haryana zone with which alone we are concerned in these writ petitions. The Commission recommended that a return of Rs. 10.59 per quintal of sugar should be obtainable by the industry over and above its cost of production. The Government accepted the recommendations of the Commission and issued Orders fixing the price of levy sugar on the basis of the cost of production as found by the Commission in the Haryana zone allowing a return of Rs. 10.5 per quintal of sugar thereon. The cost of production of sugar is made up mainly of the price payable for the sugarcane and the manufacturing cost of sugar. These manufacturing costs were called conversion charges by commission inasmuch as they are the expenses incurred in converting the sugarcane juice into sugar in a sugar factory. The conversion charges consisted of the following items, namely :-

(a) Cane development expenses at cane centres,

(b) Salaries and wages,

(c) Power, fuel and stores,

(d) Repairs and maintenance,

(e) Other overheads,

(f) depreciation, and

(g) Packing.

In determining the cost schedules, the differentials relating to various grades of sugar were adjusted and a common schedule for D-29 grade of sugar was evolved by the Commission. The different types of sugar graded according to the size of the grain are called A, and E while the various colours of the different types of sugar are numbered as, 30,29,28 and 27. In calculating the conversion charges, the Commission adopted as their basis an average of these charges for the previous five years. The Commission also projected that the conversion charges found by them should be valid for the next three years, namely, 1969-70, 1970-71 and 1971-72 including expected increases in some of them.

4. The petitioners, however, contended in paragraph 26 of the writ petition that after the matter was considered by the Commission, there has been an increase in the wage bill, depreciation, working capital, deterioration in quality, insurance and godown expenses, consumable and other stores, price of gunny bags and railway and road freight for the transport of cane with the effect that the cost of production for D-29 grade of sugar plus return pet quintal for the season 1970-71 comes to Rs. 151.15 per quintal while the price fixed by the Government was only Rs. 124.63, the loss suffered by the petitioners per quintal of sugar being Rupees 26.25. The Government however continued the levy prices of sugar which had been fixed for the season 1969-70 also for the season 1970-71, namely, the following ex-factory prices (rupees per quintal) grade-wise for I.S.S. Grades (exclusive of Excise Duty) for the Haryana zone :-

----------------------------------------------------------------------------------------------------------------------------- A-30 A-29 AREA B-30 D-30 E-30 B-29 D-29 E-29 C-30 C-29 ----------------------------------------------------------------------------------------------------------------------------- Haryana 126.63 125.48 124.03 125.63 124.63 124.13 ------------------------------------------------------------------------------------------------------------------------------

These prices were fixed by the Sugar (Price Determination) Order, 1971 issued on 8.1.1971. The petitioners Challenge the fixation of these prices as unconstitutional violating their fundamental rights guaranteed by clauses (f) and (g) of Article 19(1) of the Constitution. According to the petitioners, some of the elements of conversion charges had gone up in the season 1969-70 itself. There was a further increase in the season 1970-71. The complaint by the petitioners was two-fold:-

(1) In fixing the prices for the levy sugar at the beginning of the season 1970-71 on 8.1.1971 the Government had to go necessarily by their estimate of what would be the duration of the season, the percentage of recovery of sugar from sugarcane and the conversion charges for the season 1970-71. The Government did not take into account the information in their possession up to 8.1.1971 indicating that there has been a rise in conversion charges and were also influenced by the irrelevant consideration of the necessity of holding the price-line. The order dated 8.1.1971 is, thereforee, liable to be quashed.

(2) In this particular case, the control of sugar was lilted on 25.5.1971. The sugar season 1970-71 also came to an end during the pendency of these writ petitions. We have thereforee the actual figures of the duration of the season, percentage of recovery of sugar from sugarcane and also conversion charges some of which have increased over and above what were taken into account by the Tariff Commission in their Report. According to the petitioners, on the basis of these actuals the prices for levy sugar fixed by the Government were too low and resulted in the denial to the petitioners of the fair return of Rs. 10.50 per quintal of sugar produced by them. The Order dated 8.1.1971 is, thereforee liable to be quashed on the ground that it was an unreasonable restriction on the fundamental rights guaranteed to the petitioners by clauses (f) and (g) of Article 19(1) of the Constitution.

5. The reply of the Government was also two-fold :-

(1) The decision to fix the levy sugar prices for 1970-71 could be based on the data received by the Government from the sugar factories up to the end of November 1970 inasmuch as deliberations on the data leading to the decision took time till the price was fixed on 8.1.1971. Some of the information received after the end of November 1970 could not, thereforee, be taken into consideration. Moreover, the levy prices of sugar for the season 1969-70 which were bases on estimates at the beginning of that season were found to be a little too favorable to the sugar industry. On the basis of actuals the levy price for D-29 grade of sugar should have been only Rs. 124.12. The price which was fixed at Rs. 124.63 was, thereforee, higher than it should have been by 0.51 Paise per quintal of sugar. This cushion could, thereforee, absorb some increase in conversion charges during the season 1970-71. Further, the estimate of crop for 1970-71 season was reported to be good. The Government was also entitled to take into account the public interest in holding the price-line. For all these reasons, there-fore, the Government was entitled to take the view that the cost of production of sugar would continue to be the same in the season 1970-71 as it was the season 1969-70. The Government, thereforee, fixed for the season 1970-71 the same prices for the different grades of levy sugar as had been previously fixed in the season 1969-70.

(2) It is, however found that increases in the cost of production in the season 1970-71 took place in the payment of wages due to implementation of the Second Central Wage Board Award, additional depreciation charges due to the changes in the income-tax Act and additional packing charges due to increase in the price of gunny bags. The cost of production plus a return of Rs. 10.50 per quintal of D-29 grade of levy sugar for the season 1970-71 works out to be Rs. 126.93 on the basis of these actuals while the price fixed by the Government was Rs. 124.63. This loss of Rs. 2.30 per quintal of sugar incurred by the petitioners in the sale of levy sugar was, however, more than compensated by realisations made by petitioners by the sale of free sugar. The higher prices obtained by the petitioners by selling the free sugar have to be taken into account in determining whether the price of the levy sugar fixed by the Government had due regard to 'the securing of a reasonable return on the capital employed in the business of manufacturing sugar' within the meaning of clause (d) of sub-section (3C) of Section 3 of the Act.

6. According to the petitioners the prices realised by them on the sale of free sugar cannot be taken into account in considering whether the price of levy sugar fixed by the Government allowed. If they are taken into account, then the petitioners contended that additional costs were incurred by them in manufacturing A.B and C grades of sugar sold as free sugar by them. These additional costs should be offset against the higher prices of free sugar obtained by them.

7. Ordinarily, the price for the sale of levy sugar has to be fixed by the Government at the very beginning of the season. Such a price is based on estimates of the future duration of the season, the likely percentage of the recovery of sugar from the sugarcane and the likelihood of the conversion charges remaining the same as before such future prices on such estimates of the future prices on such estimates of the future course of events, the Government ignore the relevant factual informations or takes into account any irrelevant considerations, such prices which are to operate for a future period can be challenged successfully as was done recently by the car manufacturers in India before the Supreme Court in Premier Automobiles Ltd. v. Union of India, Writ Petrn. Nos. 327,330,331,486 and 487 of 1969 decided on 24.11.1971 (SC). The petitioners can then contend that they should not be required to wait till the end of the season so that it may be found out on the basis of the actual figures whether in fact the prices fixed for the levy sugar resulted in the petitioners getting a return lower than Rs. 10.50 per quintal of sugar. In these writ petitions, however, the partial control on sugar was lifted on 25th May, 1971 and the season 1970-71 also came to an end during the pendency of these writ petitions. We had, thereforee, the benefit of hindsight and are in a position to know the actual figures of the duration of the season, the percentage of recovery the proved increases in them. On this basis, it is not possible to find out whether actually the return obtained by the petitioners was below Ts. 10.50 per quintal of sugar. We are also in a position to consider whether the realisations made by the sale of free sugar should be taken into account in determining whether a fair return has been obtained by the petitioners in the season 1970-71. It would be pointless thereforee, to enquire whether the estimates made by the Government at the beginning of the season 1970-71 were vitiated by ignoring relevant factors or by taking into account irrelevant factors. For, being in possession of the actual figures after the end of the season, we have to decided whether during the season 1970-71, the petitioners have in fact obtained a fair return or not. The question of quashing the price of levy sugar fixed by the Government for the season 1970-71 on the ground that the initial estimates of the Government were not correct does not, thereforee arise. The following questions, thereforee, arise for determination by us:-

(1) What was the extent of the increase in the conversion charges in the season 1970-71?

(2) Is the reasonable return on the capital employed in the business of manufacturing sugar to be secured to the petitioners on the amount of levy sugar sold by them separately or on the total amount or sugar by them including the free sugar and

(3) were the prices for the various grades of sugar fixed by the Government by the impugned order dated 8.1.1971 liable to be quashed as being unreasonable ?

Question No. 1:-

8. Who is to discharge the burden or proof to show that conversion charges have increased in the season 1970-71 beyond what was calculated by the Tariff Commission in 1969 on the basis of the past average On the one hand, Article 19(1)(f) and (g) guarantees that all citizens shall have the right to hold and dispose of their property and to carry on any occupation, trade or business. On the other hand, clauses (5) and (6) of Article 19 declare that nothing in sub-clauses (f) and (g) of Article 19(1) shall affect the operation of any existing law imposing reasonable restrictions in the interest of the general public on the said rights. Are we to regard the declaration of the fundamental rights as the rule and the statement as to the reasonable restrictions on them as an exception? Or is the whole of Article 19 to be read together as conferring on citizens not absolute rights but limited ones? The concept of absolute rights of liberties has never been valid. At any rate, in the middle of the 20th century when the Constituent Assembly was drafting the Constitution, there was no indication that absolute right as such were to be conferred by Part Iii of the Constitution. Just as liberties always mean only civil liberties and the freedom of an individual is always subject to the similar freedoms of other individuals and of the society of which all of them are constituents similarly the fundamental rights conferred by Part Iii of the Constitution are from their very inception subject to reasonable restrictions in the interest of the general public. The rights conferred are thus inclusive of the built-in restrictions on them. In determining the scope of a fundamental right thereforee, it would be necessary to take into account the built-in restrictions on it. It would not be correct to assume that a fundamental right is unlimited unless and until any restriction imposed on it is shown to be reasonable. We do not thereforee, under stand Part Iii of the Constitution as enabling a petitioner to come to the Court and put the burden of proof on the State to show that the restriction on his fundamental right is reasonable and in the interest of the general public. On the other hand. There is a presumption of constitutionality attaching to laws made by the Legislature and subordinate legislation made by the Executive. Similarly there is a presumption that official acts have been regularly performed in construing a jaw imposing restriction on a fundamental right, the intention of the Legislature is often ascertainable by reference to the directive principles of State policy. Article 37 expressly lays down that the directive principles are :-

(1) 'fundamental in the governance of the country', namely, in the administration by the Executive, and

(2) that, 'it shall be the duty of the State to apply these principles in making laws' that is to say the Legislature as well as the Executive have to make laws to implement these principles.

Article 38 asks the State to promote the welfare of the people by securing and protecting a social order in which justice, social, economic and political, shall inform the institutions of national life.

9. The objects of the Essential Commodities Act, 1955, according to its preamble, is to provide, in the interests of the general public, for the control of the production, supply and distribution of, and trade and commerce in, the essential commodities. The promotion of the welfare of the people by securing and protecting a social order ensuring economic justice as directed by Article 38 of the Constitution would include the control of the distribution of sugar to ensure its availability at fair prices to the general public. The presumption of the constitutionality of action taken by the Government under the Act is, thereforee, strengthened by reference to Articles 37 and 38 of the Constitution.

10. The U.S. Supreme Court, when faced with the problem of determining a fair and reasonable return to public utility corporations on their capital, had to plunge into the complexion and the fair return on it. The Court tried to steer clear of this difficulty as far as possible by granting the rate schedules fixed by the State a prima facie validity. Thus in the Minnesota Rate Cases (1913) 230 Us 352 the Court announced that it would not interfere with the presumptive evidence of a fair rate as prescribed by the State unless the evidence was clear as to the unreasonableness or confiscatory character of a particular rate.

11. Shri Veda Vyasa, learned counsel for the petitioners, argued that the burden of proof to show that the conversion charges have not increased as alleged by the petitioners and that the price fixed by the Government for the levy sugar for the season 1970-71 is in accordance with the criteria laid down in sub-section (3-C) of Section 3 of the Act should be placed on the Government. He referred to the decisions of the Privy Council and the Supreme Court in Thomas Fattorini Ltd. v. Inland Revenue Commrs., 1942 Ac 643 and Commr. of Income-tax. West Bengal v. Gungadhar Banerjee and Co., : [1965]57ITR176(SC) for the proposition that when a statute is in the nature of a penal provision, the burden would lie on the Government to prove that the conditions laid down there under were satisfied before action was taken by the Government. In our view, there is a fundamental distinction between a penal statute and a statute imposing reasonable restrictions in the interests of the general public on a fundamental right. The object of a penal statute is punishment either by way of a penalty or conviction for a criminal offence. The penal statute takes away something or some right or liberty which belongs to the individual on whom the punishment is inflicted. The object of the imposition of restrictions on a fundamental right is to secure the interests of the society and the State as against the excesses which may be committed by an individual in exercising a fundamental right. It does not take away from the individual any thing or any right or liberty for any thing or any right or liberty for any wrong done by him. The restriction which appears to be imposed on a fundamental right is, according to the scheme of Part Iii of the Constitution, really a built-in part of the limited fundamental rights which are conferred by Part III. The limitation is inherent in the right. The right possessed by the individual was limited from its very inception. No part of it is taken away from him by a reasonable restriction. It is only when a restriction becomes unreasonable that the fundamental right can be said to have been infringed upon. The analogy of a penal statute would not, thereforee, be ordinarily applicable to a statute imposing restrictions on a fundamental right. An exceptional statute may however be unreasonable on the face of it. To such a statute, this analogy may perhaps be applicable. But it is nobody's contention that there is anything on the face of the impugned Order which show it to be unreasonable. The burden of proof to show that the Order became unreasonable because of the increase in the conversion charges, thereforee, continued to be on the petitioners and could not be placed on the Government.

12. Let us , thereforee, examine whether the petitioners have discharged the burden of proof resting on them to show that the increase in the conversion charges in the season 1970-71 was such as to make the price of levy sugar fixed by the Government unreasonable. While the figures of increase given by the petitioners in para 26 of the writ petition which was filed on 5th April 1971 were based on estimates of the future events, the petitioners later in paragraph 11 of their further affidavit dated 20th September 1971 have worked out the cost of production according to them in the light of the actual working results for the whole 1970-71 season. On this calculation, the price for the levy sugar for 1970-71 should have been Rs. 133.98 according to the petitioners. The allegation in paragraph 26 of the writ petition that levy price for 1970-71 season should have been Rs. 151.15 was thus clearly an exaggeration. It is on the basis of this exaggerated estimate that the petitioners obtained from this Court an ex parte order on the date of the admission of the petition allowing them to sell levy sugar at the price of Rs. 151.15 per quintal. On the above admission made by the petitioners themselves on 20th September 1971, the levy price of sugar should have been only Rs. 133.98. On examination. it will be found however, that the petitioners have failed to prove that even this much increase had taken place in the cost of production and that the reasonable levy price of sugar could be demanded by the petitioners at the figure of Rs. 133.98.

13. The biggest item of additional cost claimed by the petitioners is Rupees 2.84 per quintal of sugar on account of interest. The Tariff Commission did not include payment of interest on capital in the cost of production proper but in the fair return which could be obtained by the producers of sugar. The petitioners have not been forthright and truthful in making this claim. In paragraph 14 of the writ petition, the petitioners stated that there was over production of sugar in 1969-70 season and, thereforee, the average stock actually held by the factories in Haryana worked out to much more entailing an additional expense on account of interest. The petitioners feared that the average stock of sugar in the season 1970-71 was likely to be evenmore than it was in 1969-70. This is why the petitioners made as high a claim as Rs.5.04 in paragraph 26 of the writ petition on account of additional interest o working capital per quintal of sugar. This was on the basis of estimate and was absurdly exaggerated. The estimate of the petitioners was based on a duration of 178 days and recovery of 7.78 percent for 1970-71 season. But the actual duration worked out to be 162 days only while the recovery was as high as 8.69 per cent. Under the heading 'Brief History' in paragraph (m) in their affidavit dated 20th May 1971, the petitioners have given what were, according to them, the actual results of the working of 1969-70 season in Haryana. Item No. 14 is 'Incidence of interest on longer carry over stocks'. It is only Rs. 0.87. The petitioners have given away their whole case on the question of interest by this admission. For, as pointed out by the Government in paragraph 8 of their further affidavit dated 25th October 1971. the production of sugar in 1970-71 season was nearly 5 lakh tonnes less than that in 1969-70 season. Further, the off-take of sugar in 1970-71 season was nearly 9 lakh tonnes more than that in 1969-70 season. The result was that the carryover stock of sugar at the end of 1970-71 season was only 14.40 lakh tonne as against 21 lakh tonnes at the end of 1969-70 season i.e. about 6.6 lakh tonnes less. This pattern was also true of Haryana where the production in 1970-71 season was 0.85 lakh tonnes against 0.97 lakh tonnes in 1969-70 season and the dispatches were 1.00 lakh tonnes as against 0.71 lakh tonnes in 1969-70 season with the result that the closing stocks on 30th September in 1970-71 season were 0.32 lakh tonnes only as against 0.47 lakh tonnes on the same date in 1969-70 season. If, on the petitioners own admission, the claim to additional interest due to larger stocks on hand came to only Rs. 0.87 in 1969-70 on the basis of actual results it would follow that the claim would dwindle to nil for 1970-71 season in which the stocks on hand were substantially less. In regard to this claim and also to some of the others made by the petitioners, no definite averments have been made in the affidavits filed by the petitioners. For instance, the petitioners have at one place made a vague allegation that the rate of interest in the 1970-71 season charged by the banks was higher than it uses to be in the past. This kind of averment is totally unhelpful. The petitioners should have stated what was the rate of interest charged by the banks which was included in the data on which the calculations of the Tariff Commission were based. The petitioners should then have stated that such and such increase in that rate of interest took place sub-sequently. No such averment has been made.

14. Annexure P-1 to the petitioners affidavit dated 20th May 1971 is an extract from a counter-affidavit filed for the Government by one Shri A.N. Chaddha. Under Secretary in the Ministry of Food. Agriculture, Community Development and Co-operation, in a writ petition by some sugar producer in Uttar Pradesh (not Haryana) in the High Court of Allhabad. It is stated therein that :-

'The interest charges on account of storage of sugar for six months are already included in the schedules of cost prepared by the Tariff Commission. The question of reimbursement of extra interest charges to the industry in respect of longer storage of sugar stocks is under consideration by the Government. Further variation in costs will be taken into account while revising the price on the basis of actual working results'.

This statement has to be understood subject to the following reservations. Firstly, it was made with respect to the production and stock of sugar in the year 1969-70 when admittedly it was much more than the production and stock in the year 1970-71. Secondly, the statement that interest charges on account of storage of sugar for six months were included in the schedules of cost prepared by the Report of the Tariff Commission. Thirdly, the petitioners have not averred anywhere that the average period for which stocks remain on their hands is six months. Nor have they stated that either in 1969-70 or 1970-71 stocks had to be kept by the petitioners for more than six months.

15. Since the sole ground of attack on the constitutionality of the price of levy sugar fixed by the Government for 1970-71 season is a question of fact, namely, the alleged factual increase in the cost of production, it was the duty of the petitioners to plead the necessary facts and to prove them. There are two distinct methods for the proof of such facts. Firstly, they may be proved by statistical data, legislative practice, scientific discussions by persons of eminence in their profession, departmental reports and other facts of which proof by affidavits would be regarded as sufficient by the Court in a wait petition. In Muller v. State of Oregon (1908) 208 Us 412 the question before the U.S. Supreme Court was whether a statue prohibiting employment of women in mechanical establishments, factories and laundries for more than ten hours a day was a reasonably exercise of the police power of the state. Louis D. Brandeis counsel for the State submitted to the Court of brief which disposed of the constitutional precedents in two pages but devoted over hundred pages on statistics upon hours of labour, factory legislation and the health and morals of women. The 'Brandeis Brief' as it has come to be called thereafter was a spectacular success and set the precedent for subsequent decisions on the constitutionality of a law after ascertaining the relevant facts. In O' Gorman and Young v. Hartford Fire Insurance (1931) 282 Us 251 the validity of the regulation of insurance commission payable to agent was in question. Mr.Justice Brandeis (who was in the meanwhile elevated to the Bench) delivered the opinion of the court upholding the statue with the following observations:-

'As underlying questions of fact may condition the constitutionality of legislation of this character, the presumption of constitutionality must prevail in the absence of some factual foundation of record for overthrowing the statue'.

16. The need for the necessary pleading and proof of facts in a writ petition has also been repeatedly emphasised by our Supreme Court. In Dwarka Prasad Laxmi Narain v. State of Uttar Pradesh : [1954]1SCR803 the formula for declaration of prices of soft coke is reproduced. It also consists of the items making up the cost of production. The last item is 'Profit' at 10 per cent on the cost of production. At page 814 reference is made to the argument of the petitioners that the said formula was unreasonable. This contention was rejected with the observation that-

'On the materials that have been actually placed before us, we are not in a position to say that the formula is unreasonable ............. The statements that have been made by the petitioners in this connection are not supported by any affidavit of any person who is familiar with the local conditions in the other places and on the materials that we have got here we are unable to say that the rates fixed by the licensing authority of Kanpur are really discriminatory'.

At page 816, their Lordships observed that the omission of item No.5 of the formula from the total of the cost of production on which profits were to be allowed to the seller of coal was unintelligible. 'But even then, the result of this omission would only be to lower the margin of profit a little below 10 percent, and nothing more'. This reduction in the profits by itself was not regarded as making the formula of price determination unconstitutional. In Diwan Sugar and General Mills (P) Ltd., v. Union of India. : AIR1959SC626 it was contended that the impugned notification fixed the price of sugar arbitrarily. At page 133 it was observed:-

'The petitioners have certainly filed with their affidavit a schedule giving the cost of production. According to them, their cost of production is above the price fixed by the impugned notification. This schedule has not been admitted by the Government. We see no reason to accept the ipse dixit of the petitioners as to their cost of production'- 'The petitioners ................ came out with the story of distress sales by the mills in the early part of the crushing season. We are not impressed by this story'.

These remarks would be equally applicable to the failure of the petitioners to plead and prove the facts constituting, according to them, a rise in the cost of production.

17. The second method of proving facts is by actually adducing oral and documentary evidence. This is more suited to a civil suit than to a writ petition. In Union of India v. Bhana Mal Gulzarimal : [1960]2SCR627 it was observed:

'It is alleged on their behalf that they had purchased the commodity from the controlled stockholders at the rate of Rs.363 per ton and in consequence compelling them to sell the commodity at the reduced price means a loss of Rs.15 per ton. This part of the respondents' case has not been tried by the High Court and since it was a matter in dispute between the parties it could not be tried in writ proceedings'.

In Union of India v. T.R.Varma : (1958)IILLJ259SC the Supreme Court laid down the following rule when disputed question of fact arise in a writ petition:-

'That is a question on which there is a serious dispute, which cannot be satisfactorily decided without taking evidence. It is not the practice of Courts to decide questions of that character in a writ petition, and it would have been a proper exercise of discretion in the present case if the learned Judges had referred the respondent to a suit'.

This rule was followed by the Supreme Court again in Jasbir Singh Bedi v. Union of India. Civil Appeal No.1272 of 1966 decided on 12-1-1968 (SC). In Borden's Farm Products Co. v. Baldwin (1934) 293 Us 194 it was observed by Stone, J, (Cardozo, J., concurring):-

'We are in accord with the view that it is inexpedient to determine grave constitutional questions upon a demurer to a complaint, or upon an equivalent motion. If there is a reasonable likelihood that the production of evidence will make the answer to the questions clearer.'

The petitioners before us have not indicated either in the pleadings or in the argument that they wanted to adduce oral or documentary evidence to prove their contentions regarding the disputed question of fact as to the increase in the cost of production of sugar in the season 1970-71 over what was calculated by the Tariff Commission. We are, thereforee, unable to refer them to the remedy of a suit. There is no alternative, thereforee, unable to refer them to the remedy of a suit. There is no alternative, thereforee, for us except to give our finding on the pleadings on affidavits before us.

18. The petitioners alleged under the heading 'Working Capital' in their affidavit dated 30th July 1971 that:-

'From the average working capital worked out according to the above formula, 50 per cent, of the cost excluding depreciation and return, representing the amount allowed by the Tariff Commission in the Schedule, was deducted because the Tariff Commission formula provides for holding of stocks for a period of six months, as disclosed in para 33 of the counter-affidavit of Shri A.N.Chadha ............. Thus the average working capital in excess of 50 per cent of the cost excluding depreciation and return taken into account by the Tariff Commission would be the additional working capital'.

Firstly, we do not find anywhere in the Tariff Commission Report that the average working capital in excess of 50 per cent, of the cost excluding depreciation and return was not taken into account by the Tariff Commission. There is no foundation, thereforee, for the argument that interest on working capital in excess of 50 per cent, of the cost would be additional interest which would have to be allowed, if such expense was incurred by the petitioners over and above the cost of production calculated by the Tariff Commission. Secondly, we are not shown how the holding of stocks for a period of six months is connected with the average working capital being the 50 per cent, of the cost. Further the petitioners alleged that more working capital than was allowed by the Tariff Commission was actually used by the petitioners. But this remains merely an allegation. The allegation is not creditable in the absence of any proof of it on the record. We thereforee, find that the petitioners' claim that the cost of production in 1970-71 season was higher than the one calculated by the Tariff Commission due to payment of additional interest charges by the petitioners is not proved.

19. The petitioners then said that after the Tariff Commission Report came the Second Central Wage Board Award for the Sugar Industry, 1970. Certain increments to employees had to be granted to implement the award. The petitioners' claimed an increase of Rs.1.16 per quintal of sugar in the cost of production on this account. The Government admitted an increase of 1.05 on this account in Annexure I to their counter-affidavit dated 14th September 1971. In paragraph 15 (d) (ii) of their affidavit dated 8th November 1971 the petitioners have stated that according to the Tariff Commission recommendation produced by the Government at the time of the inspection of records, the incidence of the Wage Board ward woks out to Rupees 1.16 for 1970-71 on the basis of actual working results. We, thereforee, hold that this increase in the cost of production per quintal of sugar has been proved by the petitioners.

20. Additional depreciation charges due to change in Income-tax rules claimed by the petitioners are Rs.0.56 per quintal of D-29 grade sugar. This was admitted by the government. This increase is also, thereforee, held to be proved.

21. Out of the petitioners' claim for additional packing charges the Government admitted Rs.1.20 per quintal of D-29 grade sugar. The petitioners, however, point out in their affidavit of 30th July 1971 under the heading 'Gunny bags' that in making this admission, the Excise Duty and the Central Sales Tax on the price of the gunny bags was not taken into account by the Government. We, thereforee, allow the increase in the cost of production due to the enhanced packing charges as claimed by the petitioners, namely, Rs.1.50 per quintal of D-29 grade sugar.

22. The petitioners claim Rs.0.63 as increase in the cost of production due to allegedly enhanced Railway and Road transport charges. The petitioners have not, however, explained how they have arrived at this figure of increase on this account. Nor have they stated the rates of the road and rail transport prior to 1970-71 season and the extent of increase in them. They have not shown the extent of the increase and the extent of the effect it has had on the cost of production. In the absence of a full and define pleading on this item and consequent lack of proof of the same, we are unable to hold that the petitioners have proved the alleged increase on this account.

23. The petitioners also claimed an increase in consumable and other stores of Rs.0.19 per quintal of sugar. There is neither any pleading nor any proof of the same. On the contrary, we find that in paragraph 9, 8, 2 in Chapter 9 of the Tariff Commission's Report, the Commission has already taken the cost of the stores and repairs at 3 per cent, per annum more than the cost which they could have taken on the basis of the past average. As ample increase on this point for three future years has already been made by the Tariff Commission, the petitioners have no valid claim on this account.

24. The petitioners claimed Rupees 0.19 for the alleged deterioration of sugar in quality due to storage. In so far as the deterioration occurs due to normal storage, this was a normal feature of the sugar production and storage every year. It cannot be said that there was any particular reason why the deterioration in the season 1970-71 was larger than in the past years. On the contrary, the stock on hand in 1970-71 season was smaller than in the season 1969-70. The petitioners can have, thereforee, no claim on this account for the year 1970-71. Here again, there is no proper pleading and much less any proof of this claim. It is, thereforee, disallowed.

25. The petitioners claimed additional depreciation of Rs.0.23. there is no pleading, nor proof of this and we have no basis, thereforee, to hold that any depreciation over and above what was admitted by the Government can be allowed to the petitioners.

26. The petitioners have thus been above to prove only the following increases in the cost of production, namely, Rs.1.16 in the wages bill, Rs.0.56 in the additional depreciation and Rs.1.50 as the additional packing charges totalling Rs.3.22. adding them to the price for levy sugar fixed for 1970-71, namely, Rs.124.63, the total comes to Rs.127.85.

27. If the reasonableness of the levy price is to be judged separately by taking into account the return obtained by the petitioners on the sale of levy sugar only, then the return of Rs.10.50 deemed to be reasonable by the Tariff Commission would be reduced by Rupees 3.22 per quintal and would be regarded as unreasonable to that extent. It is, thereforee, necessary to consider the next question whether the return on the levy sugar can be considered in insolation or the return of the whole of the sugar sold by the petitioners including the free sugar must be taken into account.

Question No.2:-

28. The decision of this question primarily depends on the construction of sub-section (3-C) of S. 3 of the Act. It has to be read with clause (f) of sub-section (2) of S. 3. Under clause (f) the Government may require the sugar producers to sell either the whole or a specified part of the stock to the Government or to a designated person or persons. The criteria for the fixation of the price of levy sugar contained in sub-section (3-C) are thus equally applicable whether the whole or only a part of the stock is required to be sold by the sugar producers as levy sugar. In view of this back-ground of clause (f) of sub-section (2) of S. 3, it is not possible to read sub-section (3-C) as restricted only to a part of the sugar production. It must be so read as to apply equally to the whole of the sugar production even if in actual practice only a part of the sugar production may be subject to the control.

29. Secondly, the expression 'manufacturing cost of sugar' used in sub-section (3-C) (b) is a general one. There is nothing to show that the manufacturing cost of sugar meant only the cost of producing the levy sugar as distinguished from the cost of producing the free sugar. In fact , the cost of production can be found out only for the sugar production as a whole. It cannot be found out for a part of the sugar production. Sugar continues to be produced whether Government controls the whole or a part of it or not. It is a matter of accident as to how much part of the sugar produced is subjected to the levy price by the Government. In fact, no separate figures of cost of production for levy sugar and for free sugar can be maintained or have been maintained by the petitioners.

30. The Tariff Commission Report clearly shows that the average cost of production has been worked out by the Commission for the total sugar, production of the Haryana factories including the various grades of sugar produced by them. At page 76, paragraph 9.3.2 the Commission observes:-

'The actual costs worked out for the various costed units represent the average costs of sugar produced covering all grades'.

At page 79 paragraph 9.7 the Commission observed:-

'In preparing the cost schedules the differential relating to other grades of sugar was adjusted and a common schedule for 'D-29 grade' evolved'.

At page 82 paragraph 9.8.7 the Commission observed:-

'Grade differentials,- Our cost schedules indicate only the fair ex-works costs for D-29 grade sugar and other grades have differentials over this as per Government notifications. Such differentials for superior and inferior varieties have been related to the pattern of production of each region and adjusted to the overall costs to arrive at the cost of D-29 grade'.

31. Thirdly, clause (d) of sub-section (3-C) speaks of a reasonable return on the capital employed in the business of manufacturing sugar. This language is also general and shows that the return is to be on the capital as a whole in the business as a whole. It cannot be read as applying only to a return of a part of the capital or only in a part of the business.

32. Fourthly, let us assume for the sake of argument that two meanings of sub-section (3-C) are possible, namely:-

(1) that the price there under has to be fixed having regard only to the expenses incurred on the minimum price of sugarcane, cost of production of sugar, duty or tax payable and a reasonable return on the capital used only in respect of that part of the sugar production which is subject to levy; and

(2) on the whole of the sugar production.

Even then it is clear that the latter meaning is preferable to the former. For, the former meaning will lead to absurdity. It will mean that if the levy price given the producer of sugar a return of less than Rs.10.50 per quintal of levy sugar only, then it would be per se unreasonable even if the reduction in the return on the levy sugar is more than counter balanced by the fact that the return on the free sugar is more than proportionately higher. The policy of partial control was introduced by the Government as incentive to the producers of sugar and sugarcane. It has resulted in the increase in the area under the cane and the production of sugar. The first meaning given to sub-sec, (3-C) will require the Government to abandon the policy of partial control in favor of total control. For, the first meaning attributed to the law would force the Government to take a total control so that the reasonableness of the controller price of sugar would be adjudged on the whole production of the sugar and not only on a part of it.

33. Lastly, the Supreme Court decision in Lord Krishna Sugar Mills Ltd v. The Union of India, : [1960]1SCR39 shows that even if under sub-section (3-C) a reasonable return must be secured to the producers of sugar separately on the levy sugar irrespective of the profits he may make on the free sugar, the gains made on the free sugar have to be taken into account by the Court in considering whether the return obtained by the sugar producers on the levy sugar should be considered unreasonable. In that case, a part of the sugar production had to be compulsorily exported by the sugar producers under the Sugar Export Promotion Act, 1958 at a loss. But the rest of the sugar production was allowed to be sold at a price fixed by an Order issued under the Essential Commodities Act, 1955, which would compensate the loss incurred in the export. Even though the two statutes were separate, their Lordships considered the scheme of the statutes as a whole and arrived at the conclusion that the compulsory export at a loss was not unreasonable inasmuch as the price fixed under another statute compensated for the loss. It the Supreme Court could take into account a totally different statute in upholding the validity of the compulsory export, a fortiori, we have to take into account the gains made on the free sugar by the sugar producers inasmuch as the scheme of partial control comprises both the levy sugar as well as the free sugar under the same Act, namely, the Essential Commodities Act, 1955.

34. It was argued for the petitioners that the gains made by them on the sale of free sugar should not be taken into account merely because free sugar happened to be sold at a price higher than the price fixed for the sale of levy sugar. It was argued that free sugar can be sold at a price lower than the price fixed for the sale of levy sugar. In that event, the losses incurred by the producers on the sale of free sugar would have to be taken into account in deciding the reasonableness of the price of levy sugar. This argument is fanciful. As observed by the Supreme Court at page 59 of the report of Lord Krishna Sugar Mills decision, : [1960]1SCR39 . 'It is a well-known proposition that when commodities are controlled by fixation of price, the commodities sell only at the controlled price and not less. Economists have complained that the worst fault of price control is that the price does not fall below the controller rate'. On the same reasoning it is clear that the free sugar price is not likely to be less than the levy sugar price at any time. If the free sugar price falls below the levy sugar price then the very necessity for the fixation of a controlled price for the levy sugar would disappear and the Government could immediately lift even the partial control on sugar. The object of the control is to keep the price down and not to raise it.

35. We are of the view, thereforee, that the reasonable return on the capital assured to the producers of sugar by subjection (3-C) of S. 3 of the Act means the return on the whole of his sugar production. The consideration cannot be confined to the return on the levy sugar alone.

Question No.3:-

36. Let us, thereforee, consider what was the actual return secured by the petitioners in the season 1970-71 on the whole of their production. The figures of the sales of the free sugar and the levy sugar in the season 1970-71 as mentioned by the Government in their affidavit of 25-10-1971 on the basis of the returns given to their Inspectors by the petitioners and the figures given by the petitioners in their affidavits of 8-11-1971 and 16-12-1971 are given in the table forming the appendix to this judgment. It is seen there from that 52 per cent, of the production was sold by the petitioners as free sale and 48 per cent of the production was sold by them as levy sale. The weighted average realisation from the sale of all grades of sugar by way of free sale was Rs.139.70 per quintal and by way of levy sale was Rs.126.50 per quintal. It is to be noted that the levy sugar also consisted of various grades of sugar and this is why the average price per quintal realised from the sale of levy sugar by the petitioners is higher than the price fixed for D-29 grade of levy sugar. An average of these prices according to the quantities sold comes to Rs.133-34 per quintal up to 24-5-1971 as shown in the appendix. To assure the petitioners of a return of Rs.10.50 on the levy sugar, the price of the levy sugar should have been Rs.127.85. It is now seen that after taking into account the free sugar, even the average price realised was Rs.133.34. The return obtained by the petitioners on the levy sugar is thus higher by more than Rs.5/- per quintal than the return of Rs.10.50 per quintal recommended by the Tariff Commission. The same rate of return was obtained on an average on the free sugar also. The petitioners have thus no cause to complain.

37. The petitioners contended that their cost of production for higher grades of sugar was more than the cost of production taken into account by the Tariff Commission. This contention seems to be contrary to facts. The extracts from the Tariff Commission Report at pages 76, 79 and 82 of the Report cited above show that the differentials in the cost schedules due to production of various grades of sugar have been taken into account by the Commission in arriving at an overall average cost of a standard grade, namely, D-29. The petitioners have made it appear that the levy price of sugar obtained by them was the price fixed for D-29 grade sugar. Actually most of the sugar produced by the petitioners did not belong to D-29 grade at all. Consequently, the petitioners have obtained prices for levy sugar fixed for those different grades which were higher than the price fixed for D-29 grade. The cost of production found by the Tariff Commission has taken into account the grade differentials. The calculation of the return obtained by the petitioners in the appendix to the judgment needs no modification, thereforee, on his account.

38. The statement made by the petitioners in paragraph 12 of the affidavit dated 20-9-1971 that the price of Rs.133.98 per quintal claimed by them on levy sugar on the basis of their calculation of the cost of production was more by Rs.4.60 than the price actually realised by the Haryana factories on the total sales of levy and free sugar out of 1970-71 production up to the date of de-control is contrary to the facts as shown by the figures given in the appendix to this judgment. There is absolutely no material on record to substantiate this statement. The figures given in Annexure P-8 to the said affidavit showing the difference in the cost of production of other grades of sugar over and above the cost of production of D-29 grade sugar are also completely unsubstantiated. There is no proof about the correctness of those figures.

39. One more factor to be taken into account in determining if the petitioners obtained a fair return of their capital in the season 1970-71 is that the petitioners obtained an order from this Court enabling them to sell even levy sugar at the high price of Rupees 151-15 per quintal of sugar from 5-4-1971 to 24-5-1971. According to our findings, the price of levy sugar should have been fixed at Rs.127.85 only. The petitioners have, thereforee, obtained an unduly high price by the order of this Court. In passing this order, we relied on the representations made by petitioners in their writ petition and the application for stay. These representations are now seem to be highly exaggerated and far from the truth. This also, in our view, disables the petitioners from seeking the exercise of the discretion of this Court to quash the levy prices fixed by the Order dated 8-1-1971.

40. For the above reasons, the writ petitions (C.Ws.381, 405 and 406 of 1971) are dismissed with costs. The stay order dated 5-4-1971 stands automatically vacated and the consequences stated therein follow.

41. Petitions dimissed.


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