H.S.S.K.
Niyami & Ors Vs. Union of India & Anr [1990] INSC 244
(21 August 1990)
Ramaswamy,
K. Ramaswamy, K. Kasliwal, N.M. (J)
CITATION:
1990 AIR 2128 1990 SCR (3) 862 1990 SCC (4) 516 JT 1990 (3) 579 1990 SCALE
(2)286
ACT:
Essential
Commodities Act, 1955/Sugar (Control) Order, 1963: Section 3(3C)/Clause 6 and
Notification No. GSR No. 463 dated 24.3.1966--Constitutional validity of
Section 3(3C)--Price fixation-Zoning--Whether legislative policy--Whether
individual notice of representation/hearing necessary before placing a party in
a particular zone--Absence of such opportunity--Whether violative of principles
of natural justice.
Constitution
of India, 1950: Article 31C--Validity of
Section 3(3C) of Essential Commodities Act, 1950.
HEAD NOTE:
The
Sugar Inquiry Committee appointed by the Government of India recommended five
zones for the fixation of ex- factory prices of sugar, including Zone No. 1
consisting of factories in Maharashtra,
North Mysore etc. Accepting the recommendation, the Government of India issued
notification in GSR No. 463 dated March 24, 1966 and the factories were specified in
Schedules 2 & 3 annexed thereto. The appel- lants' factories located in North Mysore, were included in Zone No. 1.
The
appellants filed writ petitions in the High Court assailing the constitutional
validity of Section 3(3C) of the Essential Commodities Act, 1955 and the
Notification dated March
24, 1966, and praying
for a direction to the respondents to include the appellants' factories in Zone
No.
2
consisting of South Mysore, South Andhra Pradesh and Orissa and to fix the
price at Rs. 161 per quintal for the sugar manufactured by the appellants'
factories. The writ petitions were dismissed by the High Court.
In the
appeals before this Court, on behalf of the appellants it was contended that
the appellants' factories were part of the entire State as was notified
preceding the notification, that factors like price of sugarcane, taxes,
duties, sugar recovery percentage, labour charges, cost of production or fair
return to the produce were same or simi- lar in the entire State but due to the
notification, which included the appellants in Zone No. 1, they were put to
huge losses, and that the appel- 863 lants were entitled to a notice and
hearing before placing them in Zone No. 1 and clubbing with other factories in
the State of Maharashtra, etc. was uneconomical and kept the appellants under
loss and therefore, it was violative of principles of natural justice.
Dismissing
the appeals, this Court,
HELD:
1. The Essential Commodities Act, 1955 having received the protective umbrella
of Article 31C of the Constitution, read with 9th Schedule, Item No. 126,
Section 3(3C) of the Act cannot be held to be ultra vires of the fundamental
rights enshrined under Article 19(1)(g) and right to property under Article
19(1)(f) as was available in the year 1968. Moreover, it is covered by a recent
decision of this Court in M/s. Shri Sitaram Sugar Company v. Union of India
& Ors., [1990] 3 SCC 223. Therefore, the point is no longer resintegra.
Section 3(3C) is constitutionally valid and unassailable. [865G-H; 866A]
2.1
The fixation of the price and zoning are integral scheme of the notification;
without placing the factories in the appropriate zone based on agro-climatic
and other eco- nomic considerations the proper price fixation cannot be made.
So, both the factors are part of the policy decision by the government in
exercise of the statutory powers. This decision is based on the recommendation
made by the Sugar Commission consisting of experts in the field of agro-eco- nomics
who after exhaustive study and consideration of the relevant material placed
before it made the recommendation.
Thereby
it assumes the character of legislative policy. It does not concern itself with
an individual case. Once it is concluded that the zoning system is an integral
part of the price fixation of the sugar produced by the factories in a
particular zone, it is legislative in character and no individual sugar factory
is entitled to a notice and hearing before placing the particular. factory or
factories in a particular zone. Moreover, the Sugar Commission heard the
persons desired to be heard and considered the representa- tion and material
produced. At the stage of notification, the question of further representation
or hearing does not arise nor a feasible exercise. It is for the Government to
accept or reject or modify the recommendation made by the Commission. [871A-C;
872D-E] M/s. Shri Sitaram Sugar Company v. Union
of India & Ors., [1990] 3 SCC 223; Saraswati Industrial Syndicate Ltd. etc.
v. Union of India, [1975] 1 SCR 956; Prag Ice & Oil Mills & Anr. etc.
v. Union of India, [1978] 3 SCR 293; Laxmi Khandsari etc. etc. v. State of U. P. & Ors., [1981] 3 SCR 92 and Union of India & Anr. v. Cynamide India 864 Ltd. &
Anr., [1987] 2 SCC 720 at 734 & 735, relied on.
Anakapalle
Coop. Agrl. & Industrial Society Ltd. etc. etc. v. Union of India &
Ors., [1973] 2 SCR 882, referred to.
Joseph
Beauharnais v. People of the State Illinois, 96 L.Ed. 919 at 930, referred to.
Thus,
zoning is a legislative act and policy. The appel- lants are not entitled to
individual representation and notice before placing them in a particular zone.
[872E]
2.2 As
regards right to hearing for fixation of prices, fixation of price for Sugar is
a legislative policy and principles of natural justice would not apply. [867E]
M Is. Shri Sitaram Sugar Company v. Union of India & Ors., [ 1990] 3 SCC
223, relied on.
2.3
Some loss may be caused to individual factory but the price fixation cannot be
made unit-wise and it is not practicable to make unit as a base to fix the
price or to place in a particular zone. [872H] Anakapalle Coop. Agrl. &
Industrial Society Ltd. etc. etc. v. Union of India & Ors., [1973] 2 SCR
882, relied on.
2.4 In
an individual case of administrative action if no counter affidavit is filed,
an adverse inference can be drawn and relief moulded as per given situation but
this Court cannot interfere with the legislative policy of zoning particular
factories merely because the State has omitted to file counter affidavit
denying the allegations of cost structures and the consequential loss that the
appellants are being put to. [872G-F]
CIVIL
APPELLATE JURSIDICTION: Civil Appeal Nos. 154 & 155 of 1974.
From
the Judgment and Order dated 19.4.1973 of the Mysore High Court in W.P. Nos.
356 and 1215 of 1968.
S.S. Javeli
and B.R. Agarwala for the Appellants.
N.S. Hegde,
Anand Haksar and Mrs. Sushma Suri for the Respondents.
865
The Judgment of the Court was delivered by K. RAMASWAMY, J. These two appeals,
on certificate under Article 136 of the Constitution, are by two sugar
factories situated in Northern part of Mysore now Karnataka State. The appellants filed writ petitions under Article 226 of
the Constitution in the High Court of Mysore at Bangalore as- sailing the
constitutional validity of Section 3(3C) of the Essential Commodities Act, 1955
(In short 'the Act') and the Notification dated March 24, 1966. It was prayed
inter alia that a writ or order in the nature of Mandamus be issued directing
the respondents to include the petitioners' facto- ry in Zone No. 2 and to fix
the price at Rs.161 per quintal for the sugar manufactured by the petitioners'
factory.
The
Writ Petitions were dismissed by the High Court and the appellants in these
circumstances have approached this Court challenging the Judgment of the High
Court. The mate- rial contentions raised by the appellants in the affidavit and
adumbrated in the grounds of appeal in this Court are that the appellants' factories
are part of the entire State of Mysore (now Karnataka) as was notified
preceding the impugned notification. The factors like price of sugarcane,
taxes, duties, sugar recovery percentage, labour charges, cost of production or
fair return to the produce are same or similar in the entire State but due to
the impugned notifi- cation by including in Zone No. 1 the appellants are put
to huge losses.
The
country was divided into five zones. Zone No. 1 consists of all the factories
in Maharashtra, Gujarat, North Mysore, North Andhra Pradesh, Zone No. 2
consists of all the factories in Orissa, rest of Andhra Pradesh, South Mysore
(rest of Mysore), Madras, Pondicherry and Kerala. On account thereof the
appellants are stated to be subjected to heavy losses. The details have been
mentioned in the affidavit and the grounds of appeal but for the purpose of
disposal of the point involved in the appeals, it is not necessary to adum- brate
all the material particulars in that regard. The contention that Section 3(3C)
of the Act is ultra vires of their fundamental rights enshrined under Article
19(1)(g) and right to property under Article 19(1)(f) as was avail- able in the
year 1968 (but since deleted under Constitution 44th Amendment Act) is no
longer available. The Act received the protective umbrella of Article 31C of
the Constitution read with 9th Schedule as it has been included therein as item
No. 126. It is, thereby, immuned from attack on that score. Moreover it is
covered by a recent constitution bench judgment of this Court in M/s. Shri Sitaram
Sugar 866 Company v. Union of India & Ors., [1990] 3 SCC 223 = [1990] 1
Scale 475. Therefore, the point is no longer res integra.
Section
3(3C) is constitutionally valid and unassailable.
The
next contention raised in the High Court as well as reiterated before us is
that the appellants are entitled to a notice and hearing before placing them in
Zone No. 1.
Clubbing
with other factories in the State of Maharashtra etc. is uneconomical and kept
the appellants under constant loss. Therefore, it is violative of the
principles of natu- ral justice. To appreciate the contention it is necessary
to look into the notification issued. The Government of India, in exercise of
the power under section 3 of the Commission of Inquiry Act, 1952 appointed
"Sugar Inquiry Commission" by notification No. S.O. 2670 dated August
3, 1964 which con- sists of Dr. S.R. Sen, the Advisor and Addl. Secretary to
Government of India, Planning Commission as Chairman and four other economic
experts as members of the Commission to inquire into (a) the determination of
the prices and the system of distribution of sugar and (b) the policy regarding
licensing of new sugar factories or the expansion of exist- ing sugar
factories. They made a detailed inquiry, after examining the persons connected
with industries including many an owner of the sugar factories or
representatives of the Associations of the sugar factories and cooperative
Sugar Factories' Associations etc. In paragraph 4 they discussed the proliferation
of zones as against the four zones recommended by the previous Tariff
Commission. The representatives of the State Government and the sugar indus-
try submitted their detailed memoranda on the various prob- lems including
zoning and cost schedules. The Commission made indepth enquiry and in paragraph
4.3, it was stated that as against the four zones recommended by the Tariff
Commission, Government has gradually increased the number to twenty-two. The
Commission has stated each zone should be large enough to ensure that the
principle of price fixation does not degenerate into a 'cost plus' basis as the
latter discourages efficiency and perpetuates inefficiency. In paragraph 4.4,
it was stated that the Sugarcane Breeding Institute, Coimbatore has divided the whole country into
five regions on the basis of agro-climatic and other consid- erations details
of which were given in Chapter IV: Region (1) consists of Gujarat, Maharashtra, North
Mysore, North Andhra
Pradesh and South Madhya Pradesh. In paragraph 4.6, it was stated that apart
from considerations relating to agro-climatic factors and comparative economic
advantage, it is worthwhile to consider the variations in duration of crushing
and sugar recovery also. On this basis some revi- sion in the zones, as
suggested by the Coimbatore Institute appears to be necessary.
867 In
paragraph 4.7, it was stated that "on the basis of the above
considerations, the Commission recommended five zones for the purpose of
fixation of ex-factory price of sugar." Zone No. 1 as stated earlier,
which is relevant for the purpose of these appeals, consists of Factories in Maha-
rashtra, North Mysore etc. Accepting the recommendation, the Government of
India in exercise of the powers conferred upon them by sub-rule (2) of rule 125
of the Defence of India Rules, 1962 and clause 6 of the Sugar (Control) Order,
1963 issued under section 3(3C) of the Act and in supersession of the
notification of the Government of India, Notification No. GSR 1145 dated August 6, 1965 issued the impugned noti- fication
in GSR No. 463 dated March
24, 1966 and the
facto- ries were specified in Schedules 2 & 3 annexed. The notifi- cation
has been issued and was published in the Gazette of India for the purpose of
fixing prices in column 2 of Sched- ule I annexed hereto as the maximum
ex-factory price. Thus, that the appellants' factories came to be included in
Zone No. 1 as recommended by the expert, Economic Commission appointed by the
Government of India. The notification as stated earlier is a statutory
notification issued in exer- cise of the powers referred to herein before.
The
question, therefore, is whether the appellants are entitled to individual
notices of representation and hearing before placing them in Zone No. 1 and
fixation of the prices. As regards right to hearing for fixation of the prices
is concerned as stated earlier, it is concluded in.
M/s. Shri
Sitaram Sugar Company's case. As regards the zoning of the factories is
concerned it is also based on the reports submitted by the Commissions,
consisting of the economic experts and the Sugarcane Breeding Institute, Coimbatore that too after considering the
representations made by the State Governments and also the sugar industry.
In
paragraph 4 of M/s. Sitaram Sugar Company's case our learned brother Thommen,
J. speaking for the court has noted that Mr Shanti Bhushan, learned counsel
appearing on behalf of some of the sugar factories conceded that the zoning is
valid but assailed price fixation contending that' as a result of the zoning,
the cost structure was arbitrary and the classification offends Article 14.
That was resisted by Shri K.K. Venugopal, learned counsel appearing for Indian
Sugar Mills' Association and also counsel for cooperative sugar factories and
they supported the principles of zoning.
In the
written submissions made by Shri Venugopal it is noted by the Bench that as was
seen during the course of heating only two or three persons have come forward chal-
lenging zoning. There are 389 Sugar Factories in the country and the present
intervener has 166 members. Their Associa- tions being National Federation of
Cooperative Sugar Facto- ries Ltd., 868 has also intervened in these petitions
and have adopted the arguments of I.S.M.A. Hence almost the entire industry has
supported zoning and only a handful of people who also factually are not
high-cost units have opposed zoning.
In Anakapalle
Coop. Agrl. & Industrial Society Ltd. etc, etc. v, Union of India &
Ors., [1973] 2 SCR 882, the facts are that the Tariff Commission recommended
the entire coun- try to be divided into 15 zones and the levy sugar price was
fixed on the basis. The zoning system was attacked in that case. While
repelling the contention, Grover, J. speaking for the Constitution Bench held
that:
"It
is somewhat difficult to accept the argument of those who are opposed to the
zonal system that the loss alleged to have resulted to some of the sugar
producers can be at- tributed to the prices having been fixed zone-wise. For
instance, in the Punjab zone the crushing capacity of all the factories is
practically the same i.e. 1,000 tons per day. The prices which were fixed by
the Government were on the basis of 67 days duration with a recovery of 8.75%.
In the case of Malwa Sugar Mills the actual duration was 95 days, the recovery
being 8.78%. Ordinarily and in the normal course profits should have been made
by the said unit and it should not have incurred losses. The reasons for
incurring losses can be many including mismanagement, lack of effi- ciency and
following a wrong investment policy which have nothing to do with the zonal
system." and again at page 894 it is laid thus:
"The
extreme position taken up on behalf of some of the petitioners that the prices
should have been fixed unit-wise and on the basis of actual costs incurred by
each unit could hardly be tenable. Apart from the impracticability of fixing
the prices for each unit in the whole country the entire object and purpose of
controlling prices would be defeated by the adoption of such a system. It must
be remembered that during the earlier period of price control the price was
fixed on an All India basis. That still is the objective and if such an
objective can be achieved it cannot be doubted that it will be highly conducive
to proper benefit being concerned on the consumers. According to the Commission
the objective to be achieved should be to have only two 869 regions in the
while country, namely, sub-tropical and tropical. Not a single expert body
appointed by the Govern- ment of India from time to time countenanced the suggestion that price control should
be unit-wise. It appears that even before the Tariff Commission such a point of
view was under- standably not pressed on behalf of the sugar industry. The low
cost units demanded the formation of the larger zones.
The
high cost units asked for the formation of smaller zones. No material has been
placed before us to show that there was any serious demand for prices being
fixed unit- wise" It was further held that even in the arguments it was
almost common ground with the exception of one or two dis- sentient voices that
zoning is unavoidable in our country in the matter of fixing of the price of
sugar. Thus, this Court rejected that zoning is to be done on unit-wise and
that fixation of the price for each unit in the whole country is impracticable,
unworkable and would defeat the very purpose of fixing sugar price.
In Shri
Sitaram Sugar Company's case in paragraph 59, this Court held that it is a
matter of policy and planning for the Central Government to decide whether it
would be on adoption of a system of partial control, in the best econom- ic
interest of the sugar industry and the general public that sugar factories are
grouped together with reference to geographical-cum-agro-economic-factors for
the purpose of determining the price of levy sugar. Sufficient power has been
delegated to the Central Government to formulate and implement its policy
decision by means of statutory instru- ments and executive orders. Whether the
policy should be altered to divide the sugar industry' into groups of units
with similar cost characteristics with particular reference to recovery,
duration, size and age of the units and capital costs per tonne of output,
without regard to their location is again a matter for the Central Government
to decide. What is best for the sugar industry and in what manner policy should
be formulated and implemented, bearing in mind the fundamental object of the
statute, namely, supply and equi- table distribution of essential commodities
at fair prices in the best interest of the general public, is a matter for
decision exclusively within the province of the Central Government. Such
matters do not ordinarily attract the power of judicial review.
In
paragraph 61 it was further stated that the division of industry 870 on zonal
basis for the purpose of price determination has been accepted without question
by almost all the producers with the exception of a few like the petitioners.
The indi- vidual disadvantage for the loss, this supply on account of present
zoning system by its very nature is incapable of determination by judicial
review.
In Saraswati
Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1 SCR 956, this Court
held that price fixation is more in the nature of a legislative measure even
though it may be based upon objective criteria found in a report or other
material. It could not, therefore, give rise to a complaint that rules of
natural justice have not been fol- lowed in fixing the price. In Prag Ice &
Oil Mills & Anr. etc. v. Union of India, [1978] 3 SCR 293, Chandrachud, J.
(as he
then was) speaking for the Court held that price fixation is really legislative
in character in the type of control order before the court and it satisfies the
test of legislation and legislative measure does not concern itself with the
facts of an individual case. It is meant to lay down a general rule applicable
to all persons or objects or transactions of a particular kind or class.
(emphasis
supplied) In Laxmi Khandsari etc. etc. v. State of U.P. & Ors., [1981] 3
SCR 92. the facts are that in exercise of power under Clause 8 of Sugarcane
(Control) Order, 1966, a notifi- cation was issued prohibiting crushing during
particulars hours of the day. It was contended to be violative of the principles
of natural justice. It was held that it is legis- lative in character and the
rules of natural justice would stand completely excluded and no question of
hearing arises.
In
Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2 SCC 720
at 734 & 735, Chinnappa Reddy, J. speaking for the Court held that
legislative action, plenary or subordinate, is not subject to rules of natural
justice. In the case of Parliamentary legislation, the proposition is self
evident. In the case of subordinate legislation, it itself provide for a notice
and for a hearing, no one can insist upon it and it will not be permissible to
read natu- ral justice into such legislative activity. In Shri Sitaram Sugar
Company's case it was reiterated that fixation of price for sugar is a
legislative policy and the principles of natural justice would not apply.
From
this perspective of the statutory study and in the light of the law laid down
by this Court, the question emerges whether the appellants are entitled to an
individual notice and hearing before placing them in Zone No. 1 in the impugned
notification. The fixation of 871 the price and zoning are integral scheme of
the notifica- tion, without placing the factories in the appropriate zone based
on agro-climatic and other economic considerations the proper price fixation
cannot be made. So both the fact or are part of the policy decision by the
Government in exer- cise of the statutory powers. This decision is based on the
recommendation made by the Sugar Commission consisting of experts in the field
of agro-economics who after exhaustive study and consideration of the relevant
material placed before it made the recommendation. Thereby it assumes the
character of legislative policy. It does not concern itself with an individual
case. Once it is concluded that the zoning system being an integral part of the
price fixation of the sugar produced by the factories in a particular zone, it
is legislative in character and no individual sugar factory is entitled to a
notice and hearing before placing the particular factory or factories in a
particular zone. It was open to place its view like others' before the Commis- sion.
It is undoubted that in the subsequent years when the writ petition was filed
in the High Court on behalf of the government, a concession was made that the
appellants would be reimbursed of the losses they incurred but that is no
precedent for deciding that the appellants should be placed in a particular
zone or that they should be heard before placing them in Zone No. 1. It is true
as contended by Shri Aggarwal that in paragraph 52 and 53 in Shri Sitaram Sugar
Company's case, this Court held that any act of the reposi- tory of power,
whether legislative or administrative or quasi-judicial, is open to challenge
if it is in conflict with the Constitution or the governing Act or the general
principles of law of the land or it is arbitrary or unrea- sonable that no fair
minded authority could ever had made it. Even then this Court has pointed out
that the impugned orders are undoubtedly based on an exhaustive study by
experts and that the impugned orders though open to criti- cism would not be
subject to judicial review. It is also true that in Anakapalle Coop. Agrl. and
Industrial Society's case, this Court has pointed out that all the factories in
a State would be placed in one zone and placing them in dif- ferent regions
would be uneconomical. In Shri Sitaram Sugar Company's case, the Constitution
Bench also held that the above decision requires no reconsideration. But the observa-
tions therein have been made based upon the recommendation made by the Tariff
Commission and accepted by the government to keep each State in a particular
zone but when the subse- quent Sugar Commission went into the question since by
then there is appreciable increase of large number of sugar factories in
several regions, though not on the Statewise basis in a particular zone. As
stated earlier the recommen- dations are based on indepth study. The
notification as such was not questioned in the writ petition. Therefore, the
observation of this 872 Court in that paragraph cannot be construed to put a
fetter on the power of the government to reconsider the policy due to change in
circumstances of groupings of the sugar facto- ries in a State in one zone or
other region. It is apposite here to quote the rule laid in Joseph Beauharnais
v. People of the State Illinois, 96 L.Ed. 919 at 930, applicable to the facts
of the present case, thus:
"This
being so, it would be out of bounds for the judiciary to deny the legislature a
choice of policy, provided it is not unrelated to the problem and not forbidden
by some explicit limitation on the State's power. That the legisla- tive remedy
might not in practice mitigate the evil, or might itself raise new problems,
would only manifest once more the paradox of reform. It is the price to be paid
for the trial-and-error inherent in legislative efforts to deal with obstinate
social issues." Moreover the Sugar Commission heard the persons desired to
be heard and considered the representation and material produced. At the stage
of notification the question of further representation or hearing does not arise
not a feasible exercise. It is for the government whether to accept or reject
or modify the recommendation made by the Commission. We, accordingly, hold that
zoning is a legisla- tive act and policy. We have no hesitation to conclude
that the contention of the appellants that they are entitled to individual
representation and notice and heating before placing them in Zone No. 1 is
devoid of force and is reject- ed. It is also equally true that the government
did not file any counter affidavit even till date, refuting the allega- tions
made in the grounds of appeal regarding the alleged costs structure and the
consequential loss that the appel- lants are being put to. But in view of the
finding that it is a legislative policy but not an executive action, we cannot
draw an adverse inference against the State for not denying those allegations
and to conclude that the appel- lants' factories are to be placed in a
particular zone. In other words this Court cannot interfere with the
legislative policy of zoning particular factories in a particular re- gion,
namely, in Zone No. 1 of the appellants' factories by merely the State having
omitted to file the counter affida- vit refuting the allegations of the alleged
loss. In an individual case of administrative action, if no counter affidavit
has been filed an adverse inference may be drawn and relief may be moulded as
per given situation. Likely that some loss may be caused to individual factory
but as pointed out by this Court in Anakapalle Coop. Agrl. and Industrial
Society's case that the price fixation cannot be made unit-wise and it is not practic-
873 able to make unit as a base t6 fix the price or to place in a particular
zone. The very relief in the writ petition to fix the price at Rs. 161 per
quintal cannot be ordered as was already negatived by this Court. Considering
from the above perspective we have no hesitation to reject the con- tention of
the appellants and dismiss the appeals but with- out costs.
N.P.V.
Appeals dismissed.
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