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A.M. Ahamed and Co., Madras and ors. Vs. Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectConstitution
CourtChennai High Court
Decided On
Case NumberW.P. Nos. 3661 and 3834 of 1981 and W.A. Nos. 289, 290 and 296 to 299 of 1981
Judge
Reported inAIR1982Mad247
ActsConstitution of India - Articles 12, 14, 19, 19(1) and 19(6)
AppellantA.M. Ahamed and Co., Madras and ors.
RespondentUnion of India and ors.
Appellant AdvocateV.P. Raman, Adv. for ;C.T. Subbiah, Adv. and ;Jayanthi Natarajan, Adv. and ;P.R. Mridul, Adv. for ;K.C. Kadirvelu, Adv.
Respondent AdvocateK. Swamidurai, Addl. Central Govt. Standing Counsel, ;Adv. General for R. Muthukumaraswamy and ;V. Ramajagadeesan, Advs., ;Chitale, Adv. ;for S. Balathandapani, Adv.
Cases ReferredE. P. Royappa v. State of Tamil Nadu
Excerpt:
constitution - export - articles 12, 14, 19, 19 (1) and 19 (6) of constitution of india - petition sought for direction to forbear respondent from proceeding with decision to export solely through respondents completely excluding petitioner exporter - canalizing agent had been making efforts to handle exports to make it more profitable to farmers and earn maximum foreign exchange for country - importer who carried out business for long time stated that respondent had high business standards, capacity and fair trade practices - respondents settled terms and conditions of contract as typical business transaction - transaction was in public interest and not violative of article 14 - petition dismissed. - - this was on the ground that the third respondent firm are well established.....v. ramaswami, j.1. w. p. no. 3834 of 1981 has been filed by 17 petitioners who are exporters of onions, praying for writ of mandamus or other appropriate writ or direction forbearing the second respondent national agricultural cooperative federation of india ltd., who are hereafter referred to for short as nafed, 'from proceeding with its decision to export 50,000 tonnes of onions to malaysia and singapore solely through itself and the third respondent completely excluding the petitioner.'2. the first respondent to this petition is the union of india. the second respondent is nafed and the 3rd respondent is another exporter of onions. kin guan choong sendirian berhad, a company incorporated under the malaysian laws and having its registered office at penang, malaysia has impleaded itself.....
Judgment:

V. Ramaswami, J.

1. W. P. No. 3834 of 1981 has been filed by 17 petitioners who are exporters of onions, praying for writ of Mandamus or other appropriate writ or direction forbearing the second respondent National Agricultural Cooperative Federation of India Ltd., who are hereafter referred to for short as NAFED, 'from proceeding with its decision to export 50,000 tonnes of onions to Malaysia and Singapore solely through itself and the third respondent completely excluding the petitioner.'

2. The first respondent to this petition is the Union of India. The second respondent is NAFED and the 3rd respondent is another exporter of onions. Kin Guan Choong Sendirian Berhad, a company incorporated under the Malaysian laws and having its registered office at Penang, Malaysia has impleaded itself as a party respondent on the ground that they are Importers in respect of the quantity of onions which is the subject matter in this writ petition.

3. The export of onions Prior to 1974 was governed by what is known as Open General Licence but subject to quality control and Letters of credit being opened in firm contracts. On 16-11-1974, the Government of India decided to canalize the export of onions to Singapore and Malaysia and accordingly published a notification in the Gazette Public Notice No. 40-ET (PN)/74 dated 16-11-1974, which reads as follows-

'It has been decided to canalise with immediate effect export of onions to Singapore and Malaysia through National Agricultural Co-operative Marketing Federation Ltd., Saba Buildings. East of Kailash, New Delhi.'

The constitutional validity of this notification was questioned by one of the exporters of onions in W. P. No. 4273 of 1974 on the ground that the proposed canalisation of export of onions through NAFED violated the petitioners' fundamental rights under Art. 19(1)(g) of the Constitution in that it absolutely prohibited them from carrying on their export business and conferred a monopoly on NAFED. It was also contended that the notification could not be considered to be a law within the meaning of Art. 19(6) read with Art. 13(1) of the Constitution and that the monopoly created under the executive instructions cannot also be considered to be in favour of a Corporation owned or controlled by the State within the meaning of Art. 19(6) as NAFED is merely a Co-operative Society which cannot be brought within that provision. This court was not inclined to agree in that case that NAFED is either a Government owned or a Government controlled Corporation within the meaning of Art. 19(6)(ii) and, therefore, went into the question whether the impugned notification canalising the export through NAFED was a reasonable restriction within the meaning of the first part of Art. 19(6). After referring to the decided cases on the subject, it was held that canalising of exports through special or specialised agencies or channels is a reasonable restriction within the meaning of Art. 19(6), that the dominant purpose in such cases is not to acquire the export business or the goodwill of the other dealers and that in selecting NAFED which is a Co-operative Society for the purpose of such canalisation, the Union of India was only followed its policy to encourage public and co-operative sectors. In that view, this court h,-Id that the canalisation order is a reasonable restriction imposed in public interest and. therefore, does not violate Art. 19(1)(9) of the Constitution. This judgment was delivered on 24-3-1975. It only needs to be mentioned at this stage that subsequently by notification dated 10-12-1975, the Government of . India had notified that export of onions 'to all permissible destinations' shall be canalised through NAFED. It appears that subsequently there was a meeting of the onion exporters of Madras and Nagapattinarn with NAFED on the 16th April, 1975 in which they settled the procedure in connection with the export of onions to Singapore and Malaysia under the canalisation scheme of exports from the ports of Madras and Nagapattinam. As per this scheme of procedure settled, except in respect of exports directly dealt with by NAFED, in respect of all other canalised exports, the existing exporters and new corners who have registered themselves as associated shippers with NAFED were permitted to associate themselves in the export of onions to foreign countries and such association was in the form of getting orders from foreign buyers subject to the minimum export price fixed by the Price Fixation Committee of NAFED. But the foreign buyer shall open a letter of credit in the name of NAFED and the shipment also shall be made by NAFED and NAFED is the licensed exporter for all purposes. In respect of these orders which were obtained by NAFED through the associate shippers, the associate shippers were permitted to purchase onions locally and supply the same to NAFED for shipment. Obviously for this reason, NAFED was making over the payments received from the foreign buyer after deducting a fixed percentage which is sometimes referred to here as service charges. But what is relevant to be noted in this procedure has no statutory or legal basis so as to bind any party and that in view of the canalisation order, no person has a right to carry on the trade of exporting onion to foreign countries and the person to whom the licence is granted under the Export Control Order 1968 to NTAFED and not the associate shippers and that, therefore, the exporter is NAFED. As a canalising agency and as the licencee, NAFED could export onions either by themselves or in association with others.

4. The export year for onions is from 1st April to 31st March. The Union of India, the first respondent herein, fixes the quota of onions to be exported for each year and also makes a countrywise allocation of such quota. For the years 1978-79, 1979-80 & 1980-81 a total quantity of 31993, 19181, and 31939 tons respectively were exported to Malaysia and Singapore through Madras and Nagapattinarn ports. Of this, the quantities exported with the petitioners as Associate shippers were 11649, 6068 and 14007 tons respectively for each of those years. The quantity exported with the third respondent alone as associate shipper was 1'2682 tons, 6473 tons and 8803 tons respectively and that exported by NAFED on its own were 5712, 5245 and 7431 tons respectively. The remaining quantity was exported through the assistance of 21 other firms. A statement showing the particulars and quantities in respect of each of the associate shippers that were associated is given in annexure-1 and annexure-2 to the counter affidavit filed in W. P. 3934 of 1981. We may note, however, that except the third respondent, all other dealers seem to have associated themselves only in the export of small quantities compared to the total export. It is also seen that in each of the years, no quota was fixed to anybody and almost of 'first come first served' basis, they were permitted to associate themselves with NA.FED in the export of onions.

5. It appears that the third respondent informed NAFED sometime in March, 1981', that they would be in a position to boost the export in the southern region of the world and secure a guaranteed export order for 50,000 metric tons of onions to the destinations of Malaysia and Singapore at prices to be fixed in consultation with the Ministry of Commerce. By letter dated 16-3-1981 NAFED agreed to accept the third respondent's guarantee to secure an order for a quantity of 50,000 metric tons subject to certain terms mentioned therein which are not relevant to be noted. In pursuance of this, the third respondent introduced the fourth respondent Malaysian buyer. By letter dated 14th May, 1981, the fourth respondent company offered to import 50,000 metric tons of onions from India through NAFED from 1st April, 1981 to 31st March. 1982. However, in this letter, they had also requested that NAFED may favourably consider associating the third respondent also for onions to be exported by them. This was on the ground that the third respondent firm are well established business houses and only they are capable of exporting such large quantities of onion in fun shipments and the other merchants are not big enough to deal in such large quantities. On 16th May 1981, NAFED informed the third respondent that they are agreeable to allow the third respondent to be their associate exporter to the extent of 65 per cent out of the contract for 50,000 metric tonnes which they have executed with the fourth respondent foreign buyer; the remaining 35 per cent onions to be exported by NAFED itself. On the same day NAFED entered into an agreement with the foreign buyer under which NAFED agreed to export 50,000 metric tons. The foreign buyer agreed to buy the said quantity subject to the terms mentioned therein.

6. In the meantime the Union of India decided to release a quota of 2 lakh tons of onions for export during 1931-82 and intimated NAFED about the same and the countrywise allocation of the said 2 lakh tons with a request that it may be given effect to and that if quotas are not fulfilled for any country in time, the matter should be reported to the Ministry for transferring the quota to other countries where exports are possible. The quota allocated for export to Malaysia and Singapore was 55,000 tons. The said fixation is stated to have been done on the basis of the previous year's performance. After the contract dated 16-5-1981, was entered into between NAFED and the foreign buyer for export of 50,000 tons. the Union of India reduced the quota in respect of Malaysia and Singapore to 50,000 metric tons. It is at this stage the above writ petition had been filed.

7. Mr. V. P. Raman, learned counsel for the petitioners, questioned the validity of the proposed action of the second respondent to export the entire quantity to one foreign buyer solely through itself and the third respondent on the ground that the proposed action totally prevented the petitioners from carrying on their export business and it could not by any means be considered to be regulatory and if the canalisation notification is considered to have conferred a monopoly of export on NAFED it is violative of Art. 19(1)(g) and not saved by Article 19(6). The learned counsel for the Petitioners further contended that though NAFED is a 'State' within Art. 12, it is not a 'State' or 'Corporation', owned or controlled by the State within the meaning of Art. 19(6)(ii) and that the word 'State' occurring in Art. 19(6)(ii) in the context of that provision has a limited connotation. In this connection, he pointed out that in the earlier judgment of this court, the notification canalising the export was upheld on the ground that there was no total ban of export trade, but the notification merely regulated and routed the export through NAFED which is a canalising agency for whom alone the licensing authority has decided to grant export licence. He also contended that the proposed action of NAFED is arbitrary, discriminatory and violative of Art. 14, in that NAFED has allotted 65 per cent of the quota to the third respondent instead of distributing the export of 50,000 tons pro rata among all the shippers based upon their performance for the last three years.

8. The learned Advocate General appearing for NAFED and Dr. Chitale appearing for the third respondent, on the other hand contended that within Part III, the concept of 'State' does not change and that if NAFED is State for the purpose of Art. 14, it is also State for the purpose of Art. 19(6)(ii). If the monopoly of 'NAFED1 in the matter of export of onions is to be upheld under Art. 19(6)(ii), there will be no fundamental right left with the petitioners to carry on export trade which could be brought in under Art. 19(Y)(g) and that would automatically exclude the operation of Art. 14 as well. This contention was raised by the learned counsel for the respondent without prejudice to their contention that in the earlier judgment of Ramanujam J. in W. P. No. 4273 of 1974 NAFED has been held to be not a 'State' and, therefore, this writ petition claiming violation of the petitioners fundamental rights under Art. 19(1)(g) and Art. 14 could not be maintained against NAFED. They also refuted the argument of the learned counsel for the petitioners that the action of NAFED in associating with the third respondent was arbitrary or discriminatory. Mr. Mridul learned counsel for the third party appellant supported the argument of the learned Advocate General and Dr. Chitale.

9. We shall first clear the question as to whether NAFED is a 'State' or not is concluded by the decision in the said writ petition. We find from the judgment that one of the arguments of the learned counsel for NAFED in that case was that it shall not be deemed to be a Government controlled organisation, so as to come within the ambit of Art. 19(6) and the learned Judge observed -

'I am not inclined to agree with his contention that the third respondent is either a Government owner or a Government controlled corporation as contemplated by the said Article.....Therefore, any impugned canalisation order in favour of the third respondent Society will not have the protection under the second

limb of Article 19(g).'

It is, therefore, clear that the notification was sustained only on the ground of reasonableness and not under Article 19(6)(ii). However we must state that the question whether NAFED is 'State' within the meaning of Article 12 and whether the word 'State, in Article 19(6)(ii) has any restricted connotation, was not argued and was also not considered.

10. It has, therefore, become necessary for us to consider whether NAFED is 'State within the meaning of Article 12, and whether in the context of Article 19(6), the word 'State' in Article 19(6)(ii) has to be understood differently. 'State' is defined for the purpose of Part III in Article 12, as including all local or 'other authorities' within the territory of India or under the control of the Government of India.

11. The question, therefore, is whether 'NAFED' which is a Society registered under the New Delhi Co-operative Societies Act in relation to its activity as a canalising agency, can be said to be an 'authority' as contemplated in the definition of 'State' in Art. 12. In one of the latest judgments of the Supreme Court in Ajay Hasia v. Khalid Mujib, : (1981)ILLJ103SC the Supreme Court had considered the test to be applied in deciding the question of 'authority' within Art. 12., While considering the earlier judgments, the Supreme Court summarised the relevant tests gathered from the decision in International Airport Authority's case : (1979)IILLJ217SC as follows (at p. 496)-

'1.One thing is clear that if the entire share capital of the corporation is held by Government it would go a long way towards indicating that the corporation is an instrumentality or agency of the Government.

2. Where the financial assistance of the State is so much as to meet almost entire expenditure of the Corporation it would afford some indication of the corporation being impregnated with governmental character.

3. It may also be a relevant factor whether the Corporation enjoys monopoly status which is the State conferred or State protected.

4. Existence of 'deep and pervasive State control may afford an indication that the Corporation is a State agency or instrumentality'.

5. If the functions of the corporation (are) of public importance and closely related to governmental functions, it would be a relevant factor in classifying the corporation as an instrumentality or agency of Government.

6. Specifically, if a department of Government, is transferred to a corporation, it would be a strong factor supportive of this inference of the corporation being an instrumentality or agency of Government.'

The Supreme Court then pointed out (at P, 496) -............ that it is immaterial for this purpose whether the corporation is created by a statute or under a statute. The test is whether it is an instrumentality or agency of the Government and not as to how it is created. The inquiry has to be not as to how the juristic person is born but why it has been brought into

existence. The corporation may be a statutory corporation created by a statute or it may be Government company or a company formed under the Companies Act, 1956, or it may be a society registered under the Societies Registration Act 1860 or any other similar statute. Whatever be its genetical origin, it would be

an 'authority' within the meaning of Article 12, if it is an instrumentality or agency of the Government and that would have to be decided on a proper assessment of the facts in the light of the relevant factors. The concept of instrumentality or agency of the Government is not limited to a corporation created by a statute but is equally applicable to a company or society and in a given case it would have to be decided, on a con

-sideration of the relevant factors, whether the company or society is an instrumentality or agency of the Government so as to come within the meaning of the expression 'authority' in Art. 12.'

The Supreme Court further observed that where constitutional fundamentals vital to the maintenance to human rights are at stake, functional realism and not facial cosmetics must be the diagnostic tool, for constitutional law must seek the substance and not the form. This decision is, therefore, clear authority for the position that where a Society or a Corporation is an instrumentality or agency of the Government, it must be held to be an authority, within the meaning of Article 12, and hence, subject to the same basic obligations to obey the fundamental right as a Government.

12. It is, therefore, necessary in the light of the above principles that we must proceed to examine whether NAFED in relation to its activity as canalising agency is an 'authority' within the definition of 'State' in Art. 12 or in other words, is it an instrumentality or an agency of the Government. The objects of NAFED as set out in its bye-laws are-

' ........ to organise, promote and develop marketing, processing and storage of agricultural, horticultural and forest products, distribution of agricultural machinery implements and other inputs, undertake inter-State, intra-State, import and export trade, wholesale or retail as the case may be and to act and assist for technical advice in agricultural production for the promotion and the working of its members and co-operative marketing, processing and supply societies in India ...........'

13. Clause 3 of the bye-laws further sets out the activities which it could undertake in furtherance of the above objectives. One of the activities mentioned in this regard is to act as the agency for canalisation of export and import and inter-State trade of agricultural and other commodities or articles under any scheme formulated by the Government of India or other Government agencies. The membership of NAFED shall consist of the following categories as seen from bye-law 4 (a):

(i) State-level general purpose co-operative marketing federations excluding Union Territories;

(ii) Apex-level co-operative marketing organisations for Union Territories;

(iii) State and Regional (inter-State) level co-operative institutions like special commodity federations, tribal co-operative federations and tribal co-operative development corporations, engaged or designed to engage primarily in the marketing, processing or distribution of agricultural, minor forest and allied products, agricultural requisites and consumer goods;

(iv) Co-operative marketing processing societies other than those covered under items (i), (ii) and (iii) above, engaged in the marketing and/or processing of agricultural, minor forest and allied produce and/or agricultural inputs and having a minimum sales turnover of Rs. 20 lakhs or above in these activities during the co-operative year preceding the date of application for membership. Provided however, that the minimum sales turnover in respect of such co-operative ~n co-operatively backward States, as defined by the Government of India, shall be Rs. 10 lakhs only;

(v) Government of India;

(vi) National Co-operative Development Corporation;

(vii) other Government organisations) undertakings; and

(viii) National Co-operative Consumers Federation and any other national level co-operative organisation.;.'

14. The authorised share capital of NAFED is Rs. 5 crores consisting of 1000 shares of Rs. 25,000 each to be subscribed by the members categorised under categories (i), (iii), (v), (vi), (vii) and (viii), mentioned above and 10000 shares of Rs. 2500 each to be subscribed by the members - categorised in categories (ii) and (iv) above. The Society is to be managed by a Board of Directors. The composition and the election of the Board of Directors are also provided under the byelaws. Of the Board of Directors, three are nominees of the Government of India and the other Governmental organisations have also their nominees and representatives in the Board.

15. We have to notice at this stage certain provisions relating to canalisation of exports. The power to issue export control order and provide for canalisation of export through special or specialised agencies was held to be intra vires the Central Government in Daya v. J.C.C. of Imports and Exports, : [1963]2SCR73 .

16. With reference to the purpose of the scheme of canalisation, the Supreme Court in Daruka and Co. v. Union of India, : [1974]1SCR570 . observed-

' ........ 16. Policies of imports or exports are fashioned not only with reference to internal or international trade, but also on a monetary policy , the development of agriculture and industries and even on the political policies of the country but rival theories and views may be held on such policies. If the Government decides an economic policy that import of export should be by a selected channel or through selected agencies the court would proceed on the assumption that the decision is in the interest of the general public unless the contrary is shown.

17. This court in Glass Chatons case, : [1962]1SCR862 (supra) said that the scheme of canalisation is not acquisition of right to carry on trade. The canalisation scheme means that only the recognised agency can carry on trade. The effect of refusal of licence to other traders is that they cannot carry on trade on those goods. The Corporation carries on trade itself but not because of any acquisition by the Corporation of the right to carry on trade of the unsuccessful applicant for licence- Therefore, there is no violation of Art. 31 or Art. 19(1)(f) of the Constitution by the canalisation export through the State Trading Corporation.

18. In Daya's case, : [1963]2SCR73 (supra) it was said that the State Trading Corporation might be a special agency or channel for the purpose of enabling the country to maintain and develop the trade in the commodity both from the qualitative and quantitative points of view. The canalisation of export through the Corporation would ensure a uniform good quality of goods and also increase the volume of export.

19. Therefore, the dominant purpose of the scheme is canalisation of export and not to acquire the business or goodwill of traders in favour of the Corporation. The restriction on traders is reasonable. There is no acquisition of property of traders. The Corporation is an agency through which export is canalised to the total exclusion of citizens.

20.The contention that the impugned Notice showed preference for the Corporation in infringement of Art. 14 is unsound. The Corporation is a State owned body. The Corporation is appointed to undertake this export scheme, No preference is shown to the Corporation, where canalisation is decided no licence is granted in favour of any one. Therefore, there is neither any competition nor any choice in the matter of grant of licence. It is a total exclusion of citizens in order to enable all the country's exports to be made by one licencee.

17. It is clear from -this decision that the effect of canalisation is that nobody else other than the canalising agency can carry on the export trade in that article on and from the date of canalisation and there is a total exclusion of citizens in order to enable all the country's exports to be made by one licencee. Such canalisation has also been held in these decisions as not offending Art, 19(1)(g) of the Constitution or Art. 14. It is in these circumstances this court also held in W.P. No. 4273 of 1-974, that the public notice No. 40 dated Nov. 11, 1974 under which export of onions to Singapore and Malaysia had been canalised through NAFED was valid and not violative of Article 19(1)(g).

18. But the further question to be decided is whether by reason of such appointment as canalising agency. NAFED can be conquered to be an instrumentality of the State in respect of such activity as canalising agent, so that it can be considered to be a 'State'. under Art. 12.

19. The learned counsel for the respondents submitted that NAFED is an agent monopolist and not a Corporation owned or controlled by the State or an authority within the meaning of Article 12. We cannot agree. Though, NAFED may be considered to be an agent, it has to act in the interest of the State as such canalising agency. In fact, the following observations of the Supreme Court in Ajay Hasia v. Khalid Mujib, : (1981)ILLJ103SC are very relevant in deciding this issue (at pp. 492, 93, 94):-

'While considering this question it is necessary to bear in mind that an authority failing within the expression 'other authorities' is, by reason of its inclusion within the definition of 'State' in Art. 12, subject to the same constitutional lim1tations as the Government and is equally bound by the basic obligation to obey the constitutional mandate of the Fundamental Rights enshrined in Part III of the Constitution. We must, therefore, give such an interpretation to the expression 'other authorities' as will not stultify the operation and reach of the fundamental rights by enabling the Government to its obligation in relation to the fundamental rights by setting up an authority to act as its instrumentality or agency for carrying out its functions. Where constitutional fundamentals vital to the maintenance to human rights are at stake, functional realism and not facial cosmetics must be the diagnostic tool, for constitutional law must seek the substance and not the form. Now it is obvious that the Government may act through the instrumentality or agency of natural persons or it may employ the instrumentality or agency of juridical persons to carry out its functions. In the early days when the Government had limited functions, it could operate effectively through natural persons constituting its civil service and they were found adequate to discharge governmental functions which were of traditional vintage. But as the tasks of the Government multiplied with the advent of the welfare State, it began to be increasingly felt that the framework of civil service was not sufficient to handle the new tasks which were often specialised and highly technical in character and which called for flexibility of approach and quick decision making. The inadequacy of the civil service to deal with those new problems came to be realised and it became necessary to forge a new instrumentality or administrative device for handling these new problems. It was in these circumstances and with a view to supplying this administrative need that the Corporation came into being as the third arm of the Government and over the years it has been increasingly utilised by the Government for setting up and running public enterprises and carrying out other public functions. Today with increasing assumption by the Government of commercial ventures and economic projects, the Corporation has become an effective legal contrivance in the hands of the Government for carrying out its activities, for it is found that this legal facility of corporate instrument provides considerable flexibility and elasticity and facilitates proper and efficient management with professional skills and on business principles and it is blissfully free from departmental rigidity slow motion procedure and hierarchy of officers. The Government in many of its commercial ventures and Public enterprises is resorting to more and more frequently to this resourceful legal contrivance of a corporation because it has many practical advantages and at the same time does not involve the slightest diminution in its ownership and control of the undertaking. In such cases 'the true owner is the State, the real operator is the State and the effective controllorate is the State and accountability for its actions to the community and the Parliament is of the State.' It is undoubtedly true that the corporation is a distinct juristic entity with a corporate structure of its own and it carries on its functions on business principles with a certain amount of autonomy which is necessary as well as useful from the point of view of effective business management but behind the formal ownership which is cast in the corporate mould, the reality is very much the deeply pervasive presence of the Government. It is really the Government which acts through the instrumentality or agency of the corporation and not the juristic veil of corporate personality worn for the purpose of convenience of management, and administration cannot be allowed to obliterate the true nature of the reality behind which is the Government. Now it is obvious that if a corporation is an instrumentality or agency of the Government, it must be subject to the same limitations in the field of constitutional law as the Government itself though in the eye of the law it would be a distinct and independent legal entity.

If the Government acting through its officers is subject to certain constitutional limitations, it must follow a fortiori that the Government acting through the instrumentality or agency of a corporation should equally be subject to the same limitations, If such a corporation were to be free from the basic obligation to obey the fundamental rights it would lead to considerable erosion of the efficiency of the fundamental rights, for in that event the Government would be enabled to override the fundamental rights by adopting the stratagem of carrying out its functions through the instrumentality or agency of a corporation, while retaining control over it. The fundamental rights would then be reduced to little more than an idle dream or a promise of unreality. It must be remembered that the fundamental rights are constitutional guarantees given to the people of India and are not merely paper hopes or fleeting promises and so long as they find a place in the Constitution, they should not be allowed to be emasculated in their application by a narrow and constricted judicial interpretation. The courts should be anxious to enlarge the scope and width of the fundamental rights by bringing within their sweep every authority which is an instrumentality or agency of the Government or through the corporate personality of which the Government is acting, so as to subject the Government in all its myriad activities, whether through natural persons or through corporate entities, to the basic obligation of the fundamental rights. The Constitutional philosophy of a democratic socialist republic requires the Government to undertake a multitude of socio-economic operations and the Government, having regard to the practical advantages of functioning through the legal device of a corporation embarks, on myriad commercial and economic activities, by resorting to the instrumentality or agency of a corporation, but this contrivance of carrying m such activities through a corporation cannot exonerate the Government from implicit obedience to fundamental rights. To use the corporate methodology is not to-liberate the Government from its basic obligation to respect 'the fundamental rights and not to override them. The mantle of a corporation may be adopted in order to free the Government from the inevitable constraints of red- tapism and slow motion but by doing so, the Government cannot be allowed to Play truant with the basic human rights. Otherwise it would be the easiest thing for the Government to assign to a plurality of corporations almost every State business such as Post and Telegraph, TV and Radio, Rail road and Telephones- in short every economic activity and thereby cheat the people of India out of the fundamental rights guaranteed to them. That would be a mockery of the Constitution and nothing short of treachery and breach of faith with the people of India, because, though apparently the corporation will be carrying out these functions, it will in truth and reality be the Government which will be controlling the corporation and carrying out these functions through the instrumentality or agency of the corporation. We cannot by a process of judicial construction allow the fundamental rights to be rendered futile and meaningless and thereby wipe out Chapter III from the Constitution. That would be contrary to the constitutional faith of the post-Menaka Gandhi era. It is the fundamental rights which along with the Directive Principles constitute the life force of the Constitution and they must be quickened into effective action by meaningful and purposive interpretation. If a corporation is found to be a mere agency or surrogate of the Government, 'in fact owned by the Government, in truth controlled by the Government and in effect an incarnation of the Government', the court must not allow the enforcement of fundamental rights to be frustrated by taking the view that it is not the Government and therefore not subject to the constitutional limitations. We are clearly of the view that where a corporation is an instrumentality or agency of the Government, it must be held to be an 'authority' within the meaning of Art. 12 and hence subject to the same basic obligation to obey the fundamental rights as the Government.'

20. In the scheme of canalisation, it is really the Government which acts through the canalising agency and the juristic personality owned by the agency is only for the purpose of convenience and cannot be allowed to obliterate the true nature of the reality, -behind which is the Government. It is because of this true nature of the scheme of canallsation that the Supreme Court had upheld the monopoly right conferred on such agency. There could, therefore, be no doubt that NAFED in respect of its activity as a canalising agent is an authority within the meaning of Art. 12 of the Constitution

21. That takes us to the question as to whether in the context of Art. 19(6)(ii), any limited meaning is to be given to the word 'State' occurring in that provision and whether conferment of such monopoly right can be tested with reference to the reasonableness of the exclusion of other traders. The learned counsel for the petitioners contended that if the word 'State' occurring in Art. 19(6)(ii) includes other authorities, the words 'Corporation owned or controlled by the State' are superfluous.

22. Art. 19(6) before it was amended by the Constitution First Amendment read as follows-

'Nothing in sub-cl. (2) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevents the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub-clause, and, in particular, nothing in the said sub-clause shall affect the operation of any existing law in so far as it prescribes or empowers any authority to prescribe, or prevent the State from making any law prescribing or empowering any authority to prescribe, the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business.'

22-A. After its amendment, the provision reads:-

'Nothing in sub-cl. (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevents the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub-clause, and, in particular, nothing in the said clause shall affect the operation of any existing law in so fax as is relates to, or prevents the State from making any law relating to (i) the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or (ii) the carrying on by the State or the Corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise.'

23. The Supreme Court in one of its earlier judgments in Saghir Ahmad V. State of U. P., : [1955]1SCR707 , held that after the amendment of Art. 19(6)(ii), the monopoly could not be impugned as violating Art. 19(1)(g) and observed (at p. 739):-

' ........ The amendment does not make the establishment of such monopoly a reasonable restriction within the meaning of the first clause of Art. 19(6). The result of the amendment is that the State would not have to justify such action as reasonable. at all in a court of law and no objection is to be taken to it on the ground that it is an infringement of the right guaranteed under Art. 19(f)(g).'

24. In the decision in R. C. Cooper v. Union of India, : [1970]3SCR530 , the Supreme Court in reviewing the earlier cases under Art. 19(6) held (at pp. 599, 600):-

'........ In dealing with the validity of a law creating a State monopoly in Akadasi Padhan v State of Orissa, : AIR1963SC1047 this Court unanimously held, that the validity of a

law creating a State monopoly which 'indirectly impinges on any other right' can not be challenged on the ground that it imposes restrictions which are not reasonable restrictions in the interests of the general public. But if the law contains other incidental provisions which do not constitute an essential and integral part of the monopoly created by it, the validity of those provisions is liable to be tested under the first part of Art. 19(6). If they directly impair any other fundamental right guaranteed by Art, 19(1),the validity of those provisions will be tested by reference to the corresponding clauses of Art. 19, the court also observed

that the essential attributes of the law creating a monopoly will vary with the nature of the trade or business in which the monopoly is created. They will depend upon the nature of the commodity,the nature of trade in which it is involved and other circumstances. At, page 707 of SCR: (at page 1054 of AIR) Gajendra gadkar J. speaking for the court, observed-

'A law relating to' a State monopoly cannot in the context, include all the provisions contained in the said law whether they have direct relation with the creation of the monopoly or not. In our opinion, the said expression should be construed to mean the law relating to the monopoly in its absolutely essential features. If a law is passed creating a State monopoly, the Court should enquire what are the provisions of the said law which are basically and essentially necessary for creating the State monopoly. It is only

those essential and basic provisions which are protected by the latter part of Art. 19(6), If there are other provisions made by the Act which are subsidiary, incidental or helpful to the operation of the monopoly they do not fall under the first part of Art. 19(6),'

He also observed at page 705 (of SCR) at page 1065 of AIR:-

' ........ the amendment (First Amendment) clearly indicates that State monopoly in respect of any trade or business must be presumed to be. reasonable and in the interests of general public, so far as Art. 19(1)(g) is concerned. This was reiterated in Rasbihari Panda v. State of Orissa, C.A. Nos. 1472-1474 of 1968, dt.

16-1-69, reported in : [1969]3SCR374 : Vrajlal Manilal and Co. v. State of MadhPra.; C. A. No. 2262 of 1966, D/- 25-4-69 -.reported in : [1970]1SCR400 and Municipal Committee, Amritsar v. State of Punjab, W. P. 295 and other petitions of 1968, dated 30-1-1969, reported in : [1969]3SCR447 . These cases dealt with the

validity of laws creating monopolies in the State. Cl. (6) is however not restricted to laws creating State monopolies, and the rule enunciated in Akadasi Padhan's case, 1963 2 SCR 691: AIR 1963 SC

'1047, applies to all laws relating to the carrying on by the State of any trade, business, industry or service by Art. 298 the State is authorised to carry on trade which is competitive, or excludes the citizens from that trade completely or partially. The 'basic and essential' provisions of law which are 'integrally and essentially connected' with the carrying on of trade by the State will not be exposed to the challenge that they impair

the guarantee under Art. 19(1)(g) whether the citizens are excluded completely or partially from carrying on that trade, or the trade is competitive. Imposition of restrictions which are incidental or subsidiary to the carrying on of trade by the State whether to the exclusion of the citizens or not, must, however, satisfy the

test of the main limb.'

25. In our case, conferring monopoly on NAFED in respect of export of onions is the basic and essential provision and therefore, the entire notification is immune from attack as violating Art. 19(1)(g) of the Constitution and the citizens are completely excluded from carrying, on that trade.

26. We are also unable to agree with the learned counsel that the concept of 'State' in Arts. 14 and 19(6)(ii) are any way different. Though the amendment came into force as early as in 1951, the courts were taking a restricted view of the word 'authority' in Art. 12. It would be pedantic to cite all the cases dealing with the definition of 'State' in Art. 12. But suffice it to state that it was only subsequent to 1976 we find that there was a shift in the stand and by judicial interpretation, instrumentalities, agencies or corporations owned or controlled by the State were held as included in the word 'authority' in Art. 12. The words 'Corporations owned or controlled by the State' in Art. 19(6)(ii), therefore, might have been included by way of abundant caution in view of the indefiniteness of the meaning of 'authority' given by judicial interpretation. However, we are of the view that neither on its own terms nor on the interpretation placed on 'State' in Article 12 does Art. 19(6)(ii) -shrink. The word 'State' in Art. 19(6)(ii) is conceptually linked with Art. 12 and if at all the words 'Corporation owned or controlled by the State' were intended to enlarge the scope of the word 'State' and not limit its conception. In fact, the very reasoning of the Supreme Court in : (1981)ILLJ103SC on the need for safeguarding the fundamental rights against any adoption by the Government. by the stratagem of its carrying out its function through the instrumentality or agency of a corporation would itself call for an interpretation which does not restrict the meaning of the word 'State'.

27. The learned counsel for the petitioners then contended that NAFED as an instrumentality or agency of the State can neither act arbitrarily nor abdicate or put itself in such a situation as to become powerless to protect the rights of others or prevent itself from treating others equally.

28. The Supreme Court in Ramana v. I. A. Authority of India, : (1979)IILLJ217SC observed:-

'It is now well settled as a result of the decisions of this court in E. P. Roy appa v. State of Tamil Nadu, : (1974)ILLJ172SC and Maneka Gandhi v. Union of India, : [1978]2SCR621 that Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment.

It requires that State action must not be arbitrary but must be based on some rational and relevant principle which is non-discriminatory; it must not be guided by any extraneous or irrelevant consideration, because that would be denial of equality. The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Art. 14, and it must characterise every State action, whether it be under authority of law or in exercise of executive power without making of law. The State cannot, therefore, act arbitrarily in entering into relationship, contractual or otherwise, with a third party, but its action must conform to some standard or norm which is rational and nondiscriminatory.'

29. The Supreme Court had also held in the same decision that where a Corporation is an instrumentality or agency of Government, it would, in the exercise of its power or discretion, be subject to the same constitutional or public law limitation as Government and the rule inhibiting arbitrary action by Government is equally applicable to Corporations as well.

30. In the latest decision reported in Kasturi Lal v. State of J. and K., : [1980]3SCR1338 , the Supreme Court summarised the position thus (at PP. 2001 & 2002):-

'It is now well settled as a result of the decision of this court in Rarnana D. Shetty v. International Airport Authority of India, : (1979)IILLJ217SC (supra), that the Government is not free, like an ordinary individual, in selecting the recipients for its largess and it cannot choose to deal with any person it pleases in its absolute and unfettered discretion. The law is now well established that the Government need not deal with any one, but if it does so, it must do so fairly without discrimination, and without unfair procedure. Where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or granting other forms of largess, the Government cannot act arbitrarily at its sweetwill and like a private individual, deal with any person it pleases. but its action must be in conformity with some standard or norm which is not arbitrary, irrational and irrelevant. The Governmental action must not be arbitrary or capricious, but must be based on some principle which meets the test of reason and relevance. This rule was enunciated by the court as a rule of administrative law and it was also validated by the court as an emanation flowing directly from the doctrine of equality embodied ~R Art. 14. The Court referred to the activist magnitude of Art. 14 as evolved in E. P. Royappa v. State of Tamil Nadu, : (1974)ILLJ172SC (supra) and Maneka Gandhi's case, : [1978]2SCR621 (supra), and observed that it must follow 'as a necessary corollary from the principle of equality enshrined in Art. 14 that though the State is entitled to refuse to enter into relationship with any one, yet if it does so, it cannot arbitrarily choose any person it likes for entering into such relationship and discriminate between persons similarly circumstanced but it must act in conformity with some standard or principle which meets the test of reasonableness and non-discrimination and any departure from such standard or principle would be invalid unless it can be supported or justified on some rational and non-discriminatory ground'. This decision) has, re-affirmed the principle of reasonableness and non-arbitrariness in governmental action which lies at the care of our entire constitutional scheme and structure.'

31. But it is pertinent to note in this connection that in this case the Government did not choose the procedure of public auction in granting tapping contracts, but it granted the same by way of negotiations and after an examination of the facts held that granting a contract by way of negotiation was not arbitrary or irrational.

32. Bearing these principles in mind, we have to approach the question whether NAFED has acted arbitrarily in choosing the 3rd respondent as their associate to the extent of 65 per cent out of the total export of 50000 metric tons for which they have ' entered into a contract with the 4th respondent.

33. The material allegations in the affidavit filed in support of the writ petition in regard to this part of the case are as follows:- 50000 metric tons represents the maximum total quantity of onions saleable in Malaysia and Singapore or in other words the total export of onions possible to Malaysia and Singapore. The agreement is an attempt to favour a particular resourceful importer in Penang and his agent exporter in Bombay and Nagapattinam. This agreement is totally opposed to normal trade practice. The usual practice of the first respondent has been to allot equitably shipping space available to all shippers, Comparing with the previous years' performance of export by the petitioners, there was absolutely no reason for NAFED to deviate from the established practice. The petitioners cannot comprehend on what principle of trade or equity NAFED proposes to allot the 65 per cent of the export quota to the 3rd respondent alone and itself export the remaining 35 per cent thus totally shutting out all other exporters including the petitioners, There was no reason or necessity to allot the entire export quota to the 3rd respondent nor is it possible to the decision to sell the entire a single importer. Irrelevant and extraneous considerations have NAFED in choosing the 3rd respondent alone for such association.

34. These allegations were denied by the second respondent in their counter affidavit. They have contended that ever since NAFED had been appointed as canalising agent, it had been making all efforts to handle exports in a manner which was more profitable to the farmers and also earn the maximum foreign exchange for the country in the best possible manner. After the canalisation, NAFED alone was granted export licence and it could alone export which they were doing either by themselves or associating other shippers with them. However, none of the associated shippers has any right to claim participation in the matter of export. Most of the associate shippers who are the petitioners had been shipping very small quantities of onions; but there were other associate shippers including the 3rd respondent who had been shipping large quantities. It has been felt that efforts should be made to send larger or bulk cargoes in well ventilated ships so as to preserve the onions in good condition to foreign buyers to earn better foreign exchange besides enabling better price to be given to the growers of onions. In this direction, NAFED was working and was successful in getting a bulk buyer who was willing to purchase 50,000 metric tons during 1981-82. The 3rd respondent had been one of the as-associate shippers who had made largest shipment of onions to Malaysia and Singapore. Having regard to the aforesaid f act, the foreign buyers expressed a desire that he would like the 3rd respondent to be the associate shipper who in the minds of the foreign buyers could perform the shipment in bulk quantities and in separate chartered ships. It is in this background that the' 3rd respondent was sought to be associated to perform the contract with the foreign buyer to a major extent. Execution of small orders resulted in delays and much administrative expenditure besides leading to the farmers not being able to get adequate and reasonable price. It is in those circumstances, NAFED had decided to agree to the desire of the foreign buyer to associate the 3rd respondent to the extent of 65 per cent of its exports.

35. The foreign buyer who has impleaded itself as a party in the writ petition has filed a counter affidavit. They have shown statistics in which they claim that they are the largest importer of Indian onions in Malaysia and they are the largest business house carrying on business for over 30 years. They have further stated that during the previous years, they had bought onions from various sources including the 3rd respondent and in course of time, they confined their dealings mainly to the 3rd respondent on account of high business standards, capacity and fair trade practices adopted by the 3rd respondent T e foreign buyers also stated that they found that while the other exporters did not possess the required capacity for storing and lacked other facilities, the 3rd respondent had such facilities and capacity in abundance which was a material factor to be taken into consideration in entering into business with a foreign supplier. The 3rd respondent also had high reputation of supplying good quality onions. It is in these circumstances, the foreign buyer stipulated simultaneously when entering into a contract with NAFED that the 3rd respondent should be associated with the second respondent to a large extent in the export of 50,000 metric tons.

36. Most of the facts mentioned in the counter-affidavit of the 2nd respondent and the foreign buyer could not be disputed. We have mentioned the allegations in the counter-affidavit of NAFED and the foreign buyer alone at this stage as they are the contracting parties and as a typical business transaction they have settled the terms and conditions of their contract. To discourage fragmentation of quotas and encourage bulk contracts, movements and shipments certainly are shrewd business principles and in the commercial interest of the country. Even as a canalising agency, NAFED is expected to act as any other person carrying on business in exports. NAFED is entitled to negotiate and enter into contracts just like any other commercial Agency especially with its present position as a monopolist to get the best bargain from a foreign country and also to act in the best interest of the country. There is no denial of the fact that the 3rd respondent is an established firm of exporters of onions with all the facilities for bulk supply and a business credibility throughout the past. If the contract is a commercially prudent one, the fact that it might create some sort of internal benefit for the 3rd respondent is of no consequence. We have also to keep in mind that the 3rd respondent played a prominent part in procuring a bulk order from a foreign buyer and the foreign buyer had great confidence in the integrity and capacity of the 3rd respondent and, therefore, had required NAFED to associate 3rd respondent to a major extent in the export. We have also looked into the annexures in the counter affidavit filed by the 2nd respondent. We are satisfied that in the circumstances we cannot dub NAFED as unreasonable in excluding small exporters with -whom the foreign buyer was not willing to be associated. The principle that NAFED can not act arbitrarily does not mean, in our opinion, that it must not act on its own interest. We are satisfied that entering into a bulk contract for 50,000 metric tons with a single foreign importer whose credibility is not questioned is all commercially prudent contract and is in the interest of the country. We must also keep in mind that in determining or adjudicating the reasonableness of an export order, normal principles which we apply in domestic contracts could not be applied. The affidavits disclose that this contract will be in keeping' with the interest and further promoting the Indian market in Malaysia where the competition of the other countries in this trade is stated to be severe. The foreign importer is an important factor in Malaysia and the statistics disclosed in their

affidavit show that they will be able to influence the Malaysian market and they will be in a better position to serve the Indian interest in Malaysia more than any body else. This is an important point to be taken in international export market, We may also note that the petitioner had not approached NAFED with the credentials of other importers and as to their ability to serve the Indian interest in Malaysia before the contract was entered into. In giving preference to the 4th respondent foreign buyer, NAFED has in our opinion, not acted in any way unreasonably or against the interest of the country. Individual interest should

subserve public interest and equity is also in favour of the validity of the foreign contract. Having regard to the business realities and other circumstances prevalent in Malaysia and Singapore, we are satisfied that the transaction is in the public interest and not arbitrary or violative of Art. 14.

37. For the foregoing reasons, W. P. 3834 of 1981 is liable to be dismissed and it is accordingly dismissed. The rule nisi is discharged. But there will be no order as to costs.

38. All the writ appeals arise out of interim orders made and in view of the final disposal of the writ petitions, all the interim orders are vacated and there will be an order accordingly in the writ appeals. There will be no orders as to costs in the writ appeals.

39. For the reasons stated in W. P. No. 3834 of 1981, W. P. No. 3661 of 1981 which has been filed by another dealer in onions is also dismissed, and there will be no order as to costs.

40. The learned counsel for the petitioners in W. P. No. 3834 of 1981' made an oral application for leave to appeal to the Supreme Court under Art. 134A of the Constitution of India. The learned counsel for the NAFED opposed this request on the ground that we have merely applied the principles of the decision of the Supreme Court and that therefore it could not raise any general question of public importance which need to be decided by the Supreme Court on which ground alone we can grant leave. It may be mentioned that on the legal question whether the State for the purpose of Art. 19(6) of the Constitution is the same as defined in Art. 12 was raised by the learned counsel for the petitioners only for the purpose of invoking Art. 14 and not to be deprived of that right. On this part of the submission of the learned counsel for the petitioners, we have accepted the contention of the learned counsel that the NAFED is a State even for purpose of Art. 14 of the Constitution. The decisions of the Supreme Court on the principle applicable in deciding whether the action of the Governmental agency is arbitrary are well settled and we have applied those decisions to the facts of the present case. In the circumstances, we consider that this is not a fit case in respect of which we can grant leave under Art. 134A read with Article 133 of the Constitution.

41. Order accordingly.


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