Shri Sitaram
Sugar Company Limited & Anr Vs. Union
of India & Ors [1990] INSC 85 (13 March 1990)
Thommen,
T.K. (J) Thommen, T.K. (J) Mukharji, Sabyasachi (Cj) Shetty, K.J. (J) Ahmadi,
A.M. (J) Saikia, K.N. (J)
CITATION:
1990 AIR 1277 1990 SCR (1) 909 1990 SCC (3) 223 JT 1990 (1) 462 1990 SCALE
(1)475
CITATOR
INFO : RF 1991 SC 363 (12) R 1991 SC 724 (13) RF 1991 SC1902 (16) RF 1992
SC1033 (38)
ACT:
Essential
Commodities Act, 1955: S. 3(3-C)--Government of India Notifications dated
November 28, 1974 and July 11, 1975--Fixing prices of levy sugar on zonal
basis--Validity of--Whether legislative in character--Whether amenable to
judicial review--Determination of price--Requirement of 'having regard to'
Clauses (a) to (d)--Whether mandatory--Power delegated to fix different prices
for different areas, different factories or different kinds of sugar--Nature
and scope of-Whether matter of economic poli- cy--Whether falls within purview
of court.
Judicial
review of State action--Legislative, executive or quasijudicial--Nature and
scope of.
Administrative
law--Delegation of legislative power Judicial review--Scope of--Courts not to
interfere with matters of economic policy.
Administrative
Law--Administrative action--Principles of natural justice--Observance of--Even
if rule of audi alteram partem not attracted reasonableness and fair play in
action must be observed.
Constitution
of India, Article 14: Principle of equality
must govern every State action.
HEAD NOTE:
Clause
(f) of sub-s. (2) of the Essential Commodities Act, 1955 empowers the Central
Government to require any person dealing in any essential commodity to sell the
whole or specified part of such commodity to it or the State Government or to a
nominee of such Government. Sub-section (3) provides for payment to such a
seller (a) the price agreed upon consistently with the controlled price, if
any, fixed under the section; (b) the price calculated with reference to the
controlled price, if any; and (c) where none of these applies, a price
calculated at 910 the market rate prevailing in the locality at the date of the
sale. Subsection (3-A) deals with orders made with a view to controlling the
rise in prices or preventing the hoarding of any foodstuff in any locality and
determination of price for payment to the seller, notwithstanding anything
contained in sub-s.(3). Sub-section (3-C) lays down that where any producer is
required by an order made with refer- ence to cl. (f) of sub-s. (2) to sell any
kind of sugar and either no notification in respect of such sugar has been
issued under sub-s. (3-A) or any such notification having been issued has
ceased to remain in force by efflux of time, then notwithstanding anything
contained in sub-s. (3), there shall be paid to that producer an amount
therefore 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 Central Government under this
section; (b) the manufac- turing cost of sugar; (c) the duty or tax, if any,
paid or payable thereon; and (d) the securing of a reasonable return on the
capital employed in the business of manufacturing sugar, and different prices
may be determined from time to time for different areas or for different
factories or for different kinds of sugar.
The
Central Government by notifications dated 28th November, 1974 and 11th July, 1975 issued in exercise of the power under sub-s. (3-C) of s. 3
of the Act fixed the prices of levy sugar for 1974-75 production.
The
petitioners, owners of sugar mills operating in the State of Uttar Pradesh in
areas classified for the purpose of determining the price of levy sugar as West
and East zones, challenged the validity of the said orders on the grounds that
they were ultra vires the Act and violative of their fundamental rights as the
prices of levy sugar had been determined arbitrarily with reference to the
average cost profiles of factories grouped together in zones without regard to
their individual capacity and cost characteris- tics; that although the
Government has the discretion to fix different prices for different areas or
for different facto- ries, or for different kinds of sugar, such wide
discretion has to be reasonably exercised, that the words 'having regard to'
occurring in sub-s. (3-C) is a mandatory require- ment demanding strict
compliance with clauses (a) to (d);
that
the ingredients of the said clauses should, therefore, have been examined with
reference to each producer as a condition precedent to the determination of the
price of sugar; that the Central Government had not applied its mind to the
relevant questions to which they were expected to have regard to in terms of thesub-section;
and that the expression 'determine' used in sub-section (3-C) indicates 911
that the order to which that expression referred to is quasi-judicial amenable
to judicial review. For the inter- veners it was contended that the cost
incurred by units having lower crushing capacity should be neutralised by
giving them an incremental levy price.
For
the respondents it was contended that the division of the country into zones
and the method adopted by the Government in fixing price of levy sugar was
fully supported by the recommendations of various expert bodies and the Tariff Commission
and was upheld in Anakapalle Co-op. Agri- cultural & Industrial Society
Ltd. Etc. v. Union of India & Ors., [1973] 2 SCR 882 and the Panipat Co-op.
Sugar Mills".
The
Union of India, [1973] 2 SCR 860; that the cost of manufacturing sugar depends
not only on recovery from the sugarcane, duration of crushing season, crushing
capacity of the plant, the sugarcane price paid and the capital em- ployed, but
also to a considerable extent on the conditions of the plant and machinery,
quality of management, invest- ment policy, relations with cane growers and labour,
finan- cial reputation etc.; that to group together factories having a high
cost profile and to determine a price special- ly applicable to them is to put
a premium on incompetence, if not mismanagement; and that the orders
determining the price of sugar in terms of sub-section (3-C) were of general
application and, therefore, legislative in character and the omission, if any,
to consider the peculiar problems of individual producers was not a ground of
judicial review.
Dismissing
the writ petitions, the Court
HELD:
1. The notifications dated 28th November, 1974 and 11th July,
1975 issued under
sub-s. (3-C) of s. 3 of the Essential Commodities Act, 1955 are intra rites the
Act.
There
is no merit in the challenge. [950F, 918F-G]
2.1
Sub-section (3-C) is attracted whenever any producer is required to sell sugar
by an order made with reference to sub-s. (2)(f) and no notification has been
issued under sub-s. (3-A) or any such notification, having been issued, has
ceased to be in force. It operates notwithstanding anything contained in sub-s.
(3). This means the compensa- tion payable to the seller in the circumstances
attracting sub-s. (3-C) is not the price postulated in sub-s. (3). Nor is it the
price mentioned under sub-s. (3-A), for that sub- section cannot be in
operation when sub-s. (3-C) is attract- ed. What is payable under sub-s. (3-C)
is an amount calcu- lated with reference to the price of sugar. [930F-H] 912 The
Panipat Cooperative Sugar Mills v. The Union
of India, [1973] 2 SCR 860, referred to.
2.2
The price of sugar is determined by the Central Government having regard to the
factors mentioned in cls. (a) to (d) of sub-s. (3-C). This is done with
reference to the industry as a whole by a process of costing in respect of a
representative cross-section of manufacturing units and not with reference to
any individual seller. The order notifying the price is required by sub-ss. (5)
and (6), to be notified in official gazette and laid before both Houses of
Parliament. [931H, 932A, 936G, 931G]
3. The
words 'having regard to' in sub-s. (3-C) are the legislative instruction for
the general guidance of the Government in determining the price of sugar. They
are not strictly mandatory, but in essence directory. They do not mean that the
Government cannot, after taking into account the matters mentioned in cls. (a) to
(d), consider any other matter which may be relevant. The expression is not
"having regard only to" but "having regard to". These words
are not a fetter, they are not words of limitation. [936D, 934E] Union of India
v. Kamlabhai Harjiwandas Parekh & Ors., [1968] 1 SCR 463; Commissioner of
Income Tax v. Williamson Diamonds Ltd., L.R. 1958 A.C. 41; Commissioner of
Income Tax, West Bengal, Calcutta v. Gungadhar Banerjee & Co. (P) Ltd.,
[1965] 3 SCR 439; Saraswati Industrial Syndicate Ltd. etc'. v. Union of India, [1975]
1 SCR 956; State of Karnata- ka & Anr. etc. v. Shri Ranganatha
Reddy & Anr. etc., [1978] 1 SCR 641; State of U. P. & Ors. v. Renusagar Power Co., [1988] 4 SCC
59 and O'May & Ors. v. City of London Real Property Co. Ltd., [1982] 1 All
E.R. 660, referred to.
4.1 In
considering the reasonableness of the order made by the Government' in exercise
of its power under sub-s. (3-C) the Court will not strictly scrutinise the
extent to which matters mentioned in cls. (a) to (d), or any other matters have
been taken into account by the Government in making its estimate of the price.
There is sufficient com- pliance with the sub-section if the Government has
addressed its mind to the factors which it may reasonably consider to be
relevant, and has come to a conclusion, which any reason- able person placed in
the position of the Government, would have come to. [936E-F]
4.2 In
the instant case, the material brought to the notice of the Court does not
support the arguments at the bar that the Central Government had not applied
its mind to the relevant questions to which 913 they were expected to have
regard in terms of the statute.
Nor
any data has been furnished to show that the prices determined by the
Government would have been different had the ingredients of cls. (a) to (d) of
the sub-section been examined with reference to each individual producer
instead of a representative cross section of manufacturing units. [947A, 934D]
5.1
Judicial decisions are made according to law while administrative decisions
emanate from administrative policy.
Quasi-judicial
decisions are also administrative decisions emanating from adjudication but
they are subject to some measure of judicial procedure, such as rules of
natural justice. Legislative orders can be distinguished from rest of orders by
reference to the principle that the former are of general application. They are
made formally by publica- tion and for general guidance with reference to which
indi- vidual decisions are taken in particular situations, [937C, 939E, 938A-B]
H.W.R. Wade.' Administrative Law, 6th ed., 47, referred to.
5.2 An
instruction may be treated as legislative even when it is not issued formally
but by circular or a letter or the like. What matters is the substance and not
the form, or the name. Where an authority to whom power is delegated is
entitled to sub-delegate his power, be it legislative, executive or judicial,
then such authority may also give instructions to his delegates and these
instructions may be regarded as legislative. However, a judicial tribunal
cannot delegate its functions except when it is authorised to do so expressly
or by necessary implication. [938B-C, D-E] Griffith and Street.' Principles of Administrative Law, 5th ed., p. 65 and
Bernard & Ors. v. National Dock Labour Board & Ors., [1953] 2 Q.B. 18
at 40, referred to.
5.3
What distinguishes legislation from adjudication is that the former affects the
rights of individuals in the abstract and must be applied in a further
proceeding before the legal position of any particular individual will be
definitely touched by it; while adjudication operates con- cretely upon
individuals in their individual capacity. [938F] Davis.' Administrative Law Text, 3rd ed., p. 123, referred to.
5.4 A
statutory instrument such as a rule, order or regulation emanates from the
exercise of delegated legisla- tive power which is a 914 part of the
administrative process resembling enactment of law by the legislature. It
affects the rights of individuals in the abstract. [939D-E, C] Bernard
Schwartz.' Administrative Law [1976] p. 144 and Davis: Administrative Law Text,
p. 123, referred to.
5.5
When the function is treated as legislative, a party affected by the order has
no right to notice and bearing unless, of course, the statute so requires. It
is neverthe- less imperative that the action of the authority should be
inspired by reason. It being of general application engulf- ing a wide sweep of
powers, applicable to all persons and situations of a broadly identifiable
class, the legislative order may not be vulnerable to challenge merely by
reasons of its omission to take into account individual peculiari- ties and
differences amongst those failing within the class.
[939F,
943C, 939F-G] Union of India & Anr. v. Cynamide India Ltd. & Ant.,
[1987] 2 SCC 720 and Saraswati Industrial Syndicate Ltd., v. Union of India,
[1975] 1 SCR 956, referred to.
5.6
The orders in the instant case, duly published in the official gazettes
notifying the prices determined for sugar of various grades and produced in
various zones, and applicable without exception to all producers failing within
well defined groups can be legitimately characterised as legislative. No rule
of natural justice is applicable to any such order. [941H, 942A, 943B-C] Union
of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2 SCC 720; State
of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC 59; 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 and Bates v. Lord Hailsham of St.
Marylebone & Ors., [1972] 3 All ER 1019, referred to.
6. It
is with reference to predetermined prices of sugar that subsection (3-C)
postulates the calculation of the amount payable to each producer who has sold
sugar in compliance with an order made with reference to cl. (f) of sub-s. (2).
The calculation of such amount is in contradis- tinction to the determination
of price of sugar, a non- legislative act. The individual orders to that effect
being administrative orders rounded on the mechanics of price fixation, they
must be left to the better instructed judg- ment of the executive, and in
regard to them the principle of audi alteram partem is not applicable- All that
is 915 required is reasonableness and fair play which are in es- sence
emanations from the doctrine of natural justice.
[942B,
936F-G, 943A-B] The Panipat Cooperative Sugar Mills v. The Union of India, [1973]
2 SCR 860; A.K. Kraipak & Ors. etc. v. Union
of India & Ors., [1970] 1 SCR 457 and State of U.P. & Ors. v. Renusagar
Power Co., [1988] 4 SCC 59, referred to.
Union of India & Anr. v. Cynamide
India Ltd. & Anr., [1987] 2 SCC 720, distinguished.
7.1
Any Act of the repository of power, whether legisla- tive or administrative or
quasi-judicial, is open to chal- lenge if it is in conflict with the
Constitution or the governing Act or the general principles of the law of the
land or it is so arbitrary or unreasonable that no fair minded authority could
ever have made it. [946C] E.P. Royappa v. State of TamilNadu & Anr., [1974]
2 SCR 348; State of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC 59; Saraswati
Industrial Syndicate Ltd. v. Union of India, [1975] 1 SCR 956; Mrs. Maneka
Gandhi v. Union of India & Anr., [1978] 1 SCC 248; Ramana Dayaram Shetry v.
The International Airport Authority of India & Ors., [1979] 3 SCR 1014;
Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors., [1981] 1 SCC 722;
D.S. Nakara & Ors. v. Union of India, [1983] 1 SCC 305; The Barium
Chemicals Ltd. & Ant. v. The Company Law Board & Ors., [1966] Supp. SCR
311; Leila Mourning v. Family Publications Service, 411 US 356, 36 L. Ed. 2d
318; Kruse v. Johnson, [1988] 2 Q.B. 91; Associated Provincial Picture Houses
Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223; Westminster Corporation v.
London and North Western Railway, [1905] AC 426; Mixnam Properties Ltd. v. Chertsey
U.D.C., [1965] AC 735; Commissioners of Customs
ney v.
Forde, [1971] AC 632 (H.L.); Carltona Ltd. v. Commis- sioners of Works, [1943]
2 All ER 560; Point of Ayr. Col- lieries Ltd. v. Lloyd George, [1943] 2 All
E.R. 546; Scott v. Glasgow Corporation, [1899] AC 470; Robert Baird L.D.v. City
of Glasgow, [1936] AC 32; Manhattan General Equipment Co. v. Commissioner,
[1935] 297 US 129; Yates (Arthur) & Co. Pty
Ltd. v. Vegetable Seeds Committee, [1945-46] 72 CLR 37; Bailey v. Conole,
[1931] 34 WALR 18; Boyd Builders Ltd. v. City of Ottawa, [1964] 45 DLR 2d 211; Re Burns & Township of Haldimand,
[1966] 52 DLR 2d 1014 and Lynch v. Tilden Produce Co., 265 US 315, referred to.
916
7.2
Where a question of law is at issue, the Court may determine the rightness of
the decision of the authority on its own independent judgment. If the decision
does not agree with that which the Court considers to be the right one, the
finding of law by the authority is liable to be upset. Where it is a finding of
fact, the Court examines only the reason- ableness of the findings. When the
finding is found to be rational and reasonably based on evidence then judicial
review is exhausted even though the finding may not neces- sarily be what the
Court would have come to as a trier of fact. [944C-E]
7.3
Whether an order is characterised as legislative or administrative or
quasi-judicial, or, whether it is a deter- mination of law or fact, the
judgment of the expert body, entrusted with power, is generally treated as
final and the judicial function is exhausted when it is found to have warrant
in the record and a rational basis in law. [944E-F] Rochester Tel. Corp. v.
United States, [1939] 307 U.S. 125, 83 L. Ed. 147; Associated Provincial
Picture Houses Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223 and Chief
Constable of the North Wales Police v. Evans, [1982] 1 WLR 1155 at 1160,
referred to.
7.4
The orders, in the instant case, are undoubtedly based on an exhaustive study
by experts. They are fully supported by the recommendations of the Tariff
Commission in 1969 and 1973 and are not shown to be either discriminatory or
unreasonable or arbitrary or ultra vires. [946D-E]
8.1
Judicial review is not concerned with matters of economic policy. Nor is price
fixation within the province of the Courts. The Court does not substitute its
judgment for that of the legislature or its agents as to matters within the
province of either. The Court does not supplant the "feel of the
experts" by its own views. When the legis- lature acts within the sphere
of its authority and delegates power to an agent, it may empower the agent to
make findings of fact which are conclusive provided such findings satisfy the
test of reasonableness and are consistent with the laws of the land. [948F,
949B, 948F-G] M/s. Gupta Sugar Works v. State of U.P. & Ors., [1987] Supp.
SCC 476; Railroad Commission of Texas v. Rowan & Nichols Oil Company, 311
US 570-577, 85 L. ed. 358 and Mississippi Valley Barge Line Company v. United
States of America, 2.92 US 282-290, 78 L.ed 1260, referred to.
917
8.2 In
the instant case, sufficient power has been delegated to the Central Government
by sub-s. (3-C) to formulate and implement its policy decisions by means of
statutory instruments and executive orders. Classification of sugar factories
with due regard to geographical-cum-agro economic considerations for the
purpose of determining the price of sugar in terms of the said sub-section is a
policy decision based on exhaustive expert conclusions. Such clas- sification,
cannot, in the absence of evidence to the con- trary, be characterised as arbitrary
or unreasonable or not rounded on an intelligible differentia having a rational
nexus with the object sought to be achieved by sub-section (3-C). [949E,
947B-D] The Panipat Cooperative Sugar Mills v. The Union of India, [1973]
2 SCR 860 and T. Govindaraja Mudaliar etc. v. The State of TamilNadu & Ors.,
[1973] 3 SCR 222, applied.
Federal
Power Commission v. Hope Gas Co., 320 US 591;
Union of India & Anr. v. Cynamide
India Ltd. &Anr., [1987] 2 SCC 720 and M/s. Gupta Sugar Works v. State of
U.P. & Ors., [1987] Supp. SCC 476, referred to.
8.3 If
the petitioners nevertheless incur losses, such losses need not necessarily
have arisen by reason of geo- graphical zoning, but for reasons totally
unconnected with it, such as the condition of the plant and machinery, quali- ty
of management, investment policy, labour relations, etc.
These
are matters on which they have not furnished data. The decisions in Anakapalle,
[1973] 2 SCR 882 and Panipat, [1973] 2 SCR 860 do not require reconsideration.
[947D-E, 950E-F]
8.4
Whether the policy should be altered to divide the sugar industry into groups
of units with similar cost char- acteristics with particular reference to
recovery from sugarcane, duration of the crushing season, size and age of units
and capital cost per tonne of output, without regard to their location, is a
matter for the Central Government to decide. What is best for the sugar
industry and in what manner the policy should be formulated and implemented,
bearing in mind the fundamental object of the statute, is again a matter for
decision exclusively within the province of the Central Government. Such
matters do not ordinarily attract the power of judicial review. [949E-G]
Secretary of Agriculture, etc. v. Central Roig Refining Company etc., 338 US 615-617, 94 L. ed. 391-392, referred to.
918
& ORIGINAL JURISDICTION: Writ Petition Nos. 464 & 617 of 1977.
(Under
Article 32 of the Constitution of India. ) K. Parasaran, Attorney General, Shanti Bhushan, Ashwani Kumar, K.G. Bhagat,
L.N. Sinha, Raja Ram Aggarwal, S.P. Gupta, H.K. Puri, V. Parthasarthy, T.C.
Sharma, P.P. Singh, Ms. A. Subhashini, Mrs. Sushma Suri, G. Gopalakrishnan,
O.P. Rana, A.V. Rangam and Shartha Raju for the appearing par- ties.
F.S. Nariman,
K.K. Venugopal, A.K. Verma, D.N. Mishra and S. Kachawa for the intervener in
W.P. No. 464/77.
The
Judgment of the Court was delivered by THOMMEN, J. The petitioners are owners
of sugar mills operating in the State of Uttar Pradesh in areas classified for the purpose of determining the
price of levy sugar as West and East Zones. They challenge the validity of notifi-
cations dated 28th November, 1974 and 11th July, 1975 (Annexures 8 & 9)
issued by the Central Government in exer- cise of its power under sub-section
(3-C) of section 3 of the Essential Commodities Act, 1955 (Act No. 10 of 1955),
as amended to date (hereinafter referred to as the 'Act'). The petitioners do
not, and cannot, challenge the validity of the subsection by reason of Article
3 lB of the Constitution of India. By the impugned orders, the Central
Government fixed the prices of levy sugar for 1974-75 production. For the
purpose of determining the prices, the country is divid- ed into 16 zones, and
the prices fixed for various grades of sugar in terms of section 3 (3-C) of the
Act vary from ' zone to zone. Prices are determined with reference to the
geographical-cum-agro-economic considerations and the aver- age cost profiles
of factories located in their respective zones. Each State for this purpose
constitutes a separate zone, while U.P. is divided into 3 zones and Bihar into 2 zones. The petitioners contend that these
orders are ultra vires the Act and violative of their fundamental fights as the
prices of levy sugar have been determined arbitrarily with reference to the
average cost profiles of factories grouped together in zones without regard to
their individual capacity and cost characteristics. Such prices do not re- flect
the actual manufacturing cost of sugar incurred by producers like the
petitioners or secure to them reasonable returns on the capital employed by
them. Geographical zon- ing, for the purpose of price fixation, they point out,
is an irrational' and discriminatory system of (1) Published in the Gazette of
India Extraordinary dated 28.11.1974 and 11.7.1975.
919
averaging wide cost disparities amongst producers of widely varying capacity.
Cost of manufacture of sugar depends on a number of factors, such as recoveries
from the sugarcanes, duration of the crushing season, crushing capacity of the
plant, the sugarcane price paid and the capital employed in the manufacture of
sugar. These factors vary from factory to factory. Fixation of the levy sugar
prices on zonal basis without regard to these divergent factors and the compara-
tive cost profiles gives the owners of bigger factories an undue advantage over
producers like the petitioners whose factories are comparatively of lower
crushing capacity and whose manufacturing cost is consequently higher. Clubbing
of the petitioners' factories with dissimilar factories in the same zones for
the purpose of price fixation is discrimina- tory, arbitrary and unreasonable.
The petitioners point out that the system of geographical zoning for the
purpose of price determination has been severely criticised by the Bureau of
Industrial Costs & Prices (The "BICP") who have strongly
recommended the division of the sugar industry into groups of units having
similar cost characteristics with particular reference to recovery, duration,
size and age of the unit and capital cost per tonne of output, and irrespec- tive
of their location.
The
respondents, on the other hand, contend that the classification of sugar
industry into 15 zones (now 16) was upheld by a Constitution Bench of this
Court in Anakapalle Co-operative Agricultural & Industrial Society Ltd.
etc. etc. v. Union of India & Ors., [1973] 2 SCR
882. The conten- tion that the zonal system was discriminatory and violative of
constitutional principles was pointedly urged, but cate- gorically rejected by
this 'Court. The method adopted by the Government in fixing the price of levy
sugar is fully sup- ported by the recommendations of various expert bodies. The
Tariff Commission in its 1973 Report recommended division of the country into
16 zones for this purpose. The price of sugar is fixed with reference to the
Cost Schedule recom- mended by that body. These recommendations are based on
various factors such as cost and output of individual la- bour, cane price
(accounting for about 70 per cent of the cost of sugar production), quality of
sugarcane, taxes on sugarcane, cost of other material, transport charges, cost
of storing the sugar produced, cane development charges and other overhead
expenses, selling expenses etc. These factors are almost identical for the
entire zone.
The
cost of manufacturing sugar, the respondents con- tend, depends not only on
recovery from the sugarcane, duration of crushing season, crushing capacity of
the plant, the sugarcane price paid and the capital employed, as stated by the
petitioners, but also to a consider- 920 able extent on the condition of the
plant and machinery, quality of management, investment policy, relations with
cane growers and labour, financial reputation etc. They say:
"It
is evident from the Tariff Commission Report of 1959, as also the Official
Directory of the Bombay Stock Exchange, that the petitioner Company has been
consistently diverting huge amounts for investments running into several lakhs
elsewhere instead of ploughing back the same into the peti- tioner's sugar
industry in question. Thus, the petitioner Company has been neglecting the
sugar factory and for such neglect of their own they cannot blame the Zonal
System." Mr. Shanti Bhushan, appearing for the petitioners, does not
object to the factories being grouped together on the basis of factors common
to them with a view to fixing the prices applicable to them as a class of
producers. He does not advocate fixation of price separately for each unit. He
says that the sugar factories must be grouped together, not on the basis of
their geographical location, but similarity in cost characteristics. He relies
upon the 1976 Report of the BICP. The present system of fixing prices according
to the regions, where the factories are located, he says, is based on
"averaging wide cost disparities" as a result of which manufacturers
like the petitioners incurring a high cost of production and others incurring a
low cost of pro- duction are treated alike. Such a system works to the disad-
vantage of the former and to the advantage of the latter.
This,
Mr. Shanti Bhushan contends, is an unreasonable and invalid classification and violative
of constitutional principles. While this line of argument is supported by Mr.
Raja Ram Agarwal, Mr. S.P. Gupta appearing for the interven- er in Civil Writ Petition
No. 464 of 1977 advocates aboli- tion of zonal classification or grouping of
any kind and supports fixation of price for each individual factory with
reference to its cost and regardless of any other considera- tion. Such
unit-wise determination alone, according to him, satisfies the requirements of
Section 3(3-C). Any system of zoning or grouping for determination of price, he
contends, will fail to meet the norms of that sub-section. Mr. M .M. Abdul Khader,
on the other hand, submits that while averag- ing and costing with reference to
a representative cross- section may ordinarily be an appropriate method for
deter- mining the fair price, such a method is inappropriate for a small zone
like Kerala where there are only three manufac- turing units. In respect of
such a zone, he says, unit-wise fixation of price is the only just and proper
method.
921
Mr. K.K. Venugopal, counsel for Indian Sugar Mills' Association (ISMA), on the
other hand, supports the zoning system. He says that, except for a few producers
like the petitioners, all the rest of them in the country have ac- cepted the
principle of zoning. In his written submissions, Mr. Venugopal states as
follows:
"As
was seen during the course of hearing only 2 or 3 per- sons have come forward
challenging zoning. There are 389 sugar factories in the country and the
present intervener has 166 members. Besides there are 220 members with the
cooperative sector. Their Association being National Federa- tion of
Cooperative Sugar Factories Ltd., has also inter- vened in these petitions and
have adopted the arguments of ISMA. 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." Mr. Venugopal submits that the present
case is squarely covered by the decisions of this Court in Anakapalle Cooper- ative
Agricultural & Industrial Society Ltd. etc. etc. v. Union of India &
Ors., [1973] 2 SCR 882 and The Panipat Cooperative Sugar Mills v. The Union of India, [1973]
2 SCR 860. He says that the petitioners have not made out a case for
reconsideration of these two decisions. He refers to T. Govindaraja Mudaliar
etc. etc. v. The State of Tamil Nadu & Ors., [1973] 3 SCR 222 at 228 to 230
and submits that this Court would not reexamine an earlier decision merely
because certain aspects of the question had not been noticed in that decision.
Mr. Venugopal, however, advocates neutralisation of the high cost incurred by
the old units having lower crushing capacity by giving them an incremental levy
price as recommended by the High Level Committee in 1980.
Before
we examine the provisions of section 3(3-C) in the context of the general
scheme of the Act, we shall briefly refer to the observations of this Court in Anaka-
palle, [1973] 2 SCR 882 and Panipat, [1973] 2 SCR 860.
Grover,
J. speaking for the Bench in Anakapalle (supra) states':
"The
system of fixing the prices, according to certain regions or zones, is not a
new one. The Tariff Commission in 1959 favoured the formation of four zones. In
the report of the Sugar Enquiry Commission 1965 it was pointed out that the
Government had actually fixed the prices for 22 922 zones which meant that from
four zones the number had been increased to twenty two or more. The Commission
was of the view that there should be five zones only in addition to Assam. The Tariff Commission, 1969
however recommended the constitution of fifteen zones largely on State-wise
basis with an exception only in case of Uttar Pradesh and Bihar.
Uttar
Pradesh was divided into three zones and Bihar
into two. The Tariff Commission had been specifically requested to inquire into
the working of the zonal system, the main point for inquiry being the zones
into which the sugar producers should be grouped having regard to the basis of
classification to be recommended by the Commission. The view of the Commission
was that on the whole the number of price zones should be fifteen which would
reduce, though not eliminate, the inter-se anomalies in the cost structure
without resorting to the extreme of the fixation of price for each unit or a
single or at the most two, one for the sub-tropical and other for the tropical
one. The Tariff Commission hoped that in the course of time conditions would be
created making the operation of the second alternative feasible."
Rejecting the contention that it was the zonal system that caused the losses
allegedly incurred by some of the sugar producers, Grover, J. says that
ordinarily these units ought to have made profits. The reasons for incurring
losses can be many, such as inefficiency, failure to pursue the right policy,
poor management and planning etc., but these reasons have no relation to the
zonal system. That system by and large has led to efficiency and provides an
incentive to cut down the cost. Healthy competition among the units in the same
zone should in the normal. course result in reduc- tion of cost and greater
efficiency in the operation of the units. It is proper management and planning
that would lead to the success of any commercial venture. The contention of the
producers that they have been incurring losses on ac- count of the zonal system
is opposed to the evidence pro- duced by them. The Court has rejected the
extreme contention that prices should be fixed unitwise, i.e., on the basis of
actual cost incurred by each unit. Referring to this conten- tion, this Court
observes:
"Apart
from the impracticability of fixing the prices for each unit in the whole
country, the entire object and pur- pose of controlling prices would be
defeated by the adoption of such a system." 923 Grover, J. states that,
during the earlier period of price control, it was on an all India basis that the price was fixed.
That is still the objective. If such an objective is achieved, it would
undoubtedly be conducive to conferring proper benefit on the consumers. The
objective of the Tariff Commission is to have only two regions for the whole coun-
try, viz., sub-tropical and tropical.
The
Court has rejected as baseless the criticism against the principle of weighted
average adopted in the fixation of price in each zone. Such a principle is well
recognised and acted upon by various Sugar Enquiry Commissions. A proper cost
study is intended to do justice to the weak and strong alike. There is abundant
justification for continuing and sustaining the zonal system. The varying
climatic conditions of each State have been taken into account. For the same
reason, Bihar is divided into 2 zones and U.P.
into 3 zones, while, in the case of many other States, each State is treated as
a single zone. This system of zoning is thus adopted with special reference to
climatic and agro-economic conditions. Rejecting the contention that the zonal
system has resulted in discriminatory treatment, this Court states:
"We
are unable to hold that while classifying zones on
geographical-cum-agro-economic consideration, any discrimi- nation was made or
that the price fixation according to each zone taking into account all the
relevant factors would give rise to such discrimination as would attract
Article 14 of the Constitution." Even if there is no price control, the
uneconomic units would be at a great disadvantage. The Court states:
"Even
if there is no price control each unit will have to compete in the market and
those units which are uneconomic and whose cost is unduly high will have to
compete with others which are more efficient and the cost of which is much
lower. It may be that uneconomic units may suffer losses but what they cannot
achieve in the open market they cannot insist on where price has to be fixed by
the govern- ment. The Sugar Enquiry Commission in its 1965 report ex- pressed
the view that "cost-plus" basis of price fixation perpetuates
inefficiency in the industry and is, therefore, against the long-term interest
of the country." Considering the general principle involved in price fixa-
tion, the Court states:
924
"It is not therefore possible to say that the principles which the Tariff
Commission followed in fixing the prices for different zones are either not recognised
as valid principles for fixing prices or that simply because in case of some
factories the actual cost was higher than the one fixed for the zone in which
that factory was situate the fixation of price became illegal and was not in
accordance with the provisions of sub-section (3-C). It has not been denied
that the majority of sugar producers have made prof- its on the whole and have
not suffered losses. It is only some of them which assert that their actual
cost is far in excess of the price fixed. That can hardly be a ground for
striking down the price fixed for the entire zone provided it has been done in
accordance with the accepted principles ..... ".
The
Court concludes:
"When
prices have to be fixed not for each unit but for a particular region or zone
the method employed by the Commis- sion was the only practical one and even if
some units because of circumstances peculiar to them suffered a loss the price
could not be so fixed as to cover their loss. That cannot possibly be the
intention of the Parliament while enacting sub-section (3-C) of section 3 of
the Act. If that were so the price fixation on zonal or regional basis would
have to be completely eliminated. In other words, the entire system of price
control which is contemplated wilt break down because fixation of price for
each unit apart from being impractical would have no meaning whatsoever and
would not be conducive to the interest of the consumer. ' ' This Court has thus
in Anakapalle (supra) rejected the argument that the alleged loss incurred by
certain sugar producers is attributable to fixation of price on a zonal basis;
or the zonal system has led to inefficiency or lack of incentive, or it has
resulted in unequal or unfair treat- ment. On the other hand, the zonal system
has encouraged a healthy competition amongst the units in the same zone.
Unit-wise
fixation is impracticable. The Tariff Commission is the best judge in selecting
units for cost study to determine the average cost. The fair price has to be deter-
mined with reference to the conditions of a representative cross section of the
industry. For all these reasons, there is ample justification in continuing and
sustaining the zonal system for 925 the purpose of price fixation. Price has to
be fixed for each zone and necessarily it varies from zone to zone. There is no
discrimination in the classification of zones on a
geographical-cum-agro-economic consideration and any such classification is
perfectly consistent with the principle of equality.
In Panipat,
[1973] 2 SCR 860, Shelat, J. speaking for the same Constitution Bench that has
decided Anakapalle, [1973] 2 SCR 882, referes to the norms adopted in sub-sec- tion
(3-C), viz., (a) determination by the Government of the "price of
sugar", and (b) payment of "an amount" to the manufacturer, and
states that the concept of fair price which is what is referred to in
sub-section (3-C) as "price of sugar" does not by any account mean
the actual cost of production of every individual manufacturer. Such price has
to be arrived at by a process of costing with reference to a representative
cross section of the manufacturing units. He states:
"The
basis of a fair price would have to be built on a reasonably efficient and
economic representative crosssec- tion on whose workings cost-schedules would
have been worked out and the price to be determined by Government under sub-
section (3-C) would have to be built." So stating, Shelat, J. rejects the
contention that such price has to be determined unit-wise. Any such fixation of
price, he points out, would be contrary to the concept of partial control
postulated by the subsection and would perpetuate inefficiency and
mismanagement. But, of course, any such price, he hastens to add, has to be
fixed reasona- bly and on relevant considerations. Referring to the policy of
partial control, Shelat, J. states:
"
..... the Central Government was confronted with two main problems (a)
deterioration in the sugar industry, and (b) the conflicting interests of the
manufacturer, the consumer and the cane grower. The floor price of cane fixed
by Government was intended to protect the farmer from ex- ploitation, but that
was found not to be an incentive enough to induce him to increase his acreage.
A device had to be found under which a price higher than the minimum could be
paid by the manufacturer of sugar. The consumer, on the other hand, had also to
be protected against the spiralling of sugar price and his needs, growing as
they were, had to be satisfied at some reasonable price." 926 Shelat, J. emphasises
the need to modernise the factories which alone would yield a reasonable
return. This is what he states:
'Both
these and a larger production of sugar would not be possible unless there was a
reasonable return which would ensure expansion, which again would not be
possible unless new machinery for such expansion was brought in and facto- ries,
particularly in U.P. and Bihar, were modernised and renovated. A fair price for
sugar, therefore, had to be such as would harmonise and satisfy at least to a
reasonable extent these conflicting interests." Significantly, the BICP's
recommendation to group indi- vidual units having homogenity in cost,
irrespective of their location, was not accepted by the Central Government,
particularly because the Tariff Commission itself had con- sidered the question
and reached the conclusion that geo- graphical-cum-agro-economic considerations
demanded the grouping of factories with reference to State zones, or subzones
as in the case of U.P. and Bihar. To group them on the basis of their location
in various regions of the coun- try for the purpose of price fixation is a
rational method reflecting economic realities. This is particularly so as
conditions generally vary from State to State as regards the availability and
quality of sugarcane, labour conditions and other factors, whereas within the
same region like facili- ties are generally available to all factories. If the
cost structure varies from factory to factory, such variation is not
necessarily caused by the non-availability, or the poor quality of raw
material, or the labour conditions, but probably for reasons unconnected with
them, such as the age of the plant, availability of finance, management
ability, etc. There is great force in the submission of the respond- ents that
to group together factories having a high cost profile and to determine a price
specially applicable to them is, as recognised by this Court in Panipat (supra)
and Anakapalle (supra), to put a premium on incompetence, if not mismanagement.
The history
of control over sugar has been set out at length in Panipat (supra) and we do
not wish to burden this judgment with a narration of the circumstances which
have led to the introduction of partial control under which 60% of the output
of sugar is acquired and the balance left for free sale. It is in
implementation of this policy that sub- section (3-C) of section 3 was
inserted2 Before we examine the
2. For
an illuminating discussion of this aspect, See A.M. Khusro, Price Policy,
Lancer International (1987), p. 62-63:
927
provisions of that sub-section under which the impugned notification have been
issued, we shall refer to the statu- tory scheme.
The
Act was, as stated in the preamble, enacted by Parliament "to provide, in
the interest of the general public, for the control of the production, supply
and dis- tribution of, and trade and commerce in, certain commodi- ties".
The entire Act is devoted to the cause of the general public with a view to
achieving equitable distribution of essential commodities at fair prices.
Section
3 of the Act confers wide power upon the Central Government to control
production, supply, distribution, etc., of essential commodities. It reads:
"3.
Powers to control production, supply, distribution, etc., of essential commodities--(1)
If the Central Govern- ment 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 or for
securing any essential commodity for the defence of India or the efficient
conduct of military operations, it may, by order, provide for regu- lating or
prohibiting the production, supply and distribu- tion thereof and trade and
commerce therein." Sub-section (2) of section 3 says that, without preju-
dice to the generality of the powers conferred by sub-sec- tion (1), an order
made "After many years of adverse experience a new strategy of dual
pricing was introduced in sugar. The mills were asked to deliver to the public
distribution system about 60 per cent of their output say at Rs.2 per Kg. and
were allowed to sell the balance of 40 per cent in the free market at say Rs.6
per kg. The mills were delighted to do so as they got very much enhanced
receipts from their flee- market sales. With larger receipts they offered in
the following season a higher price to the farmer (the sugarcane grower) who,
in turn, grew and offered more cane. In other words, the law of supply which
had been held captive, as it were, was freed from bondage. With a higher price
offer from the mills, the cane growers brought more land under sugar- cane,
diverted land from other crops to cane, used more inputs, produced and
delivered to the mills more cane and in fact diverted cane deliveries from the
open-pan system to the mill system. Having thus obtained much more cane, the
mills produced much more sugar and sold 30-40 per cent of it in the free
market. Within a year or two, the free-market price of sugar fell from Rs.6 to
Rs.3 or even Rs.2.50. At this rate consumers began to buy more in the free
market, millions of ration cards remained unused and the demands on the public
distribution declined substantially. Prolonged shortages of sugar got converted
into a relative abundance." 928 under that sub-section may provide for the
matters specified in subsection (2). One of them is what is contained in clause
(f) of sub-. section (2) which empowers the Central Government to require any
person dealing in any essential commodity to sell the whole or a specified part
of such commodity to the Central Government or the State Government or to a
nominee of such Government. It reads:
"(2)
Without prejudice to the generality of the powers conferred by sub-section (1),
an order made thereunder may provide- (a).................................................
....................................................
(f)
for requiring any person holding in stock, or engaged in the production, or in
the business of buying or selling of any essential commodity ,-- (a) to sell
the whole or a specified part of the quantity held in stock or produced or
received by him, or (b) in the case of any such commodity which is likely to be
produced or received by him, to sell the whole or a speci- fied part of such
commodity when produced or received by him, to the Central Government or a
State Government or to an officer or agent of such Government or to a
Corporation owned or controlled by such Government or to such other person or
class of persons and in such circumstances as may be specified in the
order." The power contained in sub-section (1) or sub-section (2) is
exercisable by an order. An 'order' is defined under section 2 to include a
direction issued thereunder. Any order made under section 3 by the Central
Government or by an officer or authority of the Central Government is re- quired
by sub-section (6) of section 3 to be laid before both Houses of Parliament, as
soon as may be, after it is made. Any order made under section 3 which is of a
general nature or affecting a class of persons has to be notified in the
official gazette. [Subsection (5) of section 3].
929
Sub-section (3) of section 3 provides that where any person has sold any
essential commodity (sugar being such a commodity) in compliance with an order
made with reference to clause (f) of sub-section (2), he shall be paid the
price of the goods purchased from him as provided under clauses (a), (b) and
(c) of sub-section (3). This subsection oper- ates only where an order has been
made under sub-section (1) with reference to clause (f) of sub-section (2).
While clause (a) of the sub-section postulates an agreed price, consistently
with the controlled price, if any, clause (b) speaks of a price calculated with
reference to the con- trolled price, if any, when no agreement is reached.
Where neither clause (a) nor clause (b) applies, either because there is no
agreement or because there is no controlled price, the seller has to be paid,
as per clause (c), a price calculated at the market rate prevailing in the locality
at the date of the sale.
Sub-section
(3-A) empowers the Central Government to regulate in accordance with the
provisions of the sub-sec- tion the price of any foodstuff sold in a locality
in com- pliance with an order made with reference to clause (f) of sub-section
(2). This power is exercisable by a direction which has to be duly notified in
the official Gazette. The power to issue the direction is notwithstanding
anything contained in sub-section (3). Before issuing the notifica- tion, the
Central Government has to form an opinion that the price of any foodstuff
(including sugar) has to be regulated for the purpose of cotrolling the rise in
its prices or preventing its hoarding in any locality. Any such notifica- tion
will remain in force for any specified period not exceeding 3 months. The price
payable in such cases is either the agreed price consistently with the
controlled price, if any, or where no such agreement is possible, the price
calculated with reference to the controlled price, if any, or where neither of
these two methods is applicable, the price calculated with reference to the
average market rate prevailing in the locality during the period of 3 months
immediately prior to the date of the notification.
The
average market rate will be determined by an officer authorised by the Central
Government and the rate so deter- mined by him is not liable to be questioned
in any court.
Sub-section
(3-C) which is the crucial provision, was inserted in 1967. It reads:
"(3-C).
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 Govern- 930 ment or to any
other person or class of persons) and either no notification in respect of such
sugar has been issued under sub-section (3-A) or any such notification, having
been issued, has ceased to remain in force by efflux ot time, then,
notwithstanding, anything contained in sub- section (3), there shall be paid to
that producer an amount therefore 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 for different kinds of sugar.
Explanation--For
the purposes of this sub-section, "produc- er" means a person
carrying on the business of manufacturing sugar." (emphasis supplied) Sub-Section
(3-C) is attracted whenever any producer is required to sell sugar by an order
made with reference to sub-section (2)(f) and no notification has been issued
under sub-section (3-A) or any such notification, having been issued, has
ceased to be in force. Whenever sub-section (3- C) is attracted, it operates
notwithstanding anything con- tained in sub-section (3). This means the
compensation payable to the seller in the circumstances attracting sub- section
(3-C) is not the price postulated in sub-section (3). Nor is it the price
mentioned under sub-section (3A), for that sub-section cannot be in operation
when sub-section (3-C) is attracted. What is payable under sub-sectin (3-C) is
an "amount" calculated with reference to the "price of
sugar" determined in the manner indicated in that sub-sec- tion.
931
Construing sub-section (3-C), this Court in Panipat [1973] 2 SCR 860,870 says:
"Sub-section
3C, with which we are presently concerned was inserted in sec. 3 by sec. 3 of
Act 36 of 1967. The sub- section lays down two conditions which must exist
before it applies. The first is that there must be an order made with reference
to sub-section 2 cl. (f), and the second is that there is no notification under
sub-section 3A or if any such notification has been issued it is no longer in
force owing to efflux of time. Next, the words "notwithstanding anything
contained in sub-section" suggest that the amount payable to the person
required to sell his stock of sugar would be with reference to the price fixed under
the subsection and not the agreed price or the market price in the absence of
any controlled price under sub-sec. 3A. The sub-section then lays down two
things; firstly, that where a producer is required by an order with reference
to sub-sec. 2(f) to sell any kind of sugar, there shall be paid to that
producer' an amount therefore, that is for such stock of sugar as is required
to be sold, and secondly, that such amount shall be calculated with reference
to such price of sugar as the Central Government may, by order, determine,
having regard to the four factors set out in cls. (a), (b), (c) and (d).
Unlike
the preceding three sub-sections under which the amount payable is either the
agreed price, or the controlled price, or where neither of these prices is
applicable at the market or average market price, the amount in respect of
sugar required to be sold is to be calculated at the price determined by th
Central Government ...... " What is specially significant is that
sub-section (3-C) postulates payment of an amount to the producer who has been
required to sell sugar in the circumstances mentioned there- in. What is
required to be paid to him is not the price of sugar, but only an amount. That
amount has to be calculated with reference to the price of sugar. The
"price" is deter- mined by the Central Government by means of an
order which, as required by sub-sections (5) and (6), has to be notified in the
official gazette and laid before both Houses of Parliament. The order notifying
the "price of sugar" is of general application and it is the rate at
which the actual "amount" payable to each seller is calculated.
The
price of sugar must be determined by the Central Govern- 932 ment having regard to the factors mentioned in clauses
(a) to (d) of sub-section (3~C). This is done with reference to the industry as
a whole and not with reference to any indi- vidual seller. In contradistinction
to the "price of sugar", the "amount" is calculated with
reference to the particular seller. The Central Government is authorised to
determine different prices for different areas or for different facto- ries or
for different kinds of sugar. Whether factories are required to be grouped
together for a rational determination of the prices according to their location
or their size, age and capacity or by any other standard is a matter for deci- sion
by the Central Government on the basis of relevant material. What is
contemplated by the legislature in dele- gating such wide discretion to the
Central Government is that it must apply its mind to the manifold questions rele-
vant to the determination of prices and with due regard to the norms laid down
in the sub-section. What is required by sub-section (3-C) is the adoption of a
valid classification of factories having a rational nexus to the object sought
to be achieved, viz., determination of a fair price of sugar with reference to
which the actual amounts payable to the producers, in the circumstances
attracting the sub-section, are calculated.
Referring
to the legislative background of sub-section (3-C), this Court in Panipat
(supra) observes:
"In
order to appreciate the meaning of cls. (a), (b), (c) and (d), it must be
remembered that ever since control on sugar was imposed, Government had set up
expert committees to work out cost-schedules and fairprices. Starting in the
beginning with an All-India cost-schedule worked out on the basis of the total
production of sugar, the factories were later grouped together into zones or
regions and different cost-schedules for different zones or regions were con- structed
on the basis of which fair prices were worked out at which sugar was
distributed and sold. The Tariff Commis- sion in 1958 and the Sugar Enquiry
Commission in 1965 had worked out the zonal cost-schedules on the basis of
averaged recovery and duration, the minimum and not the actual price of cane,
the averaged conversion costs and recommended a reasonable return on the
capital employed by the industry in the business of manufacturing sugar. This
experience was before the legislature at the time when subsec. 3C was inserted
in the Act. The legislature therefore incorporated the same formula in the new
sub-section as the basis for working out the price. The purpose behind 933
enacting the new sub-section was three-fold, to provide an incentive to
increase production of sugar, encourage expan- sion of the industry, to devise
a means by which the cane producer could get a share in the profits of the
industry through prices for his cane higher than the minimum price fixed and secure
to the consumer distribution of at least a reasonable quantity of sugar at a
fair price. ' ' Clauses (a) to (d) of sub-section (3-C) postulate that the
price of sugar must be determined having regard to the minimum price, if any,
fixed for sugarcane by the Central Government, the manufacturing cost of sugar,
the duty or tax applicable in the zone, and the securing of a reasonable return
on the capital employed in the business of manufac- turing sugar. Referring to
clause (d) of sub-section (3-C), this Court observes in Panipat (supra):
"It
is clear from the reports of the Tariff Commission that a reasonable return
recommended by that body at a fixed amount of Rs. 10.50 per quintal which
worked out in 196667 at 12.5% per annum was not in respect of levy sugar only
but on the whole, so that even if such a return was not obtain- able on levy
sugar but was obtainable on the whole, it would meet the requirement of cl.
(d). In this conclusion we derive a two-fold support, firstly, from the
language used in cl. (d) itself, viz., a reasonable return on the capital
employed in the business of manufacturing sugar, which must mean the business
as a whole and not the business of manu- facturing levy sugar only, and
secondly, from the fact of the Commission having all along used the same
phraseology while recommending Rs. 10.50 per quintal as an addition by way of a
reasonable return on the capital employed in the industry. The cost-schedules
prepared by these bodies were for determining a fair price in relation to the
entire sugar produced by the industry and the return which should be granted to
it on the capital employed in the industry and not with respect to that stock
only required to be sold under sub-sec. 2(f). This is clear from the heading of
Ch. 9 of the Tariff Commission's report, 1969, "Cost Structure and Price
Fixation"." The petitioners contend that although the Government has
the discretion to fix different prices for different areas or for different 934
factories, or for different kinds of sugar, such wide dis- cretion has to be
reasonably exercised. It is, of course, a well accepted principle that any
discretion conferred on the executive has to be reasonably exercised.
Nevertheless, it is a discretion which the Court will not curtail unless the
exercise of it is impeachable on well accepted grounds such as 'ultra vires' or
'unreasonableness'.
The
petitioners further contend that the Act requires the Government to have regard
to clauses (a) to (d) and, therefore, it is mandatory on the part of the Government
to act strictly in compliance with the provisions of those clauses in
determining the prices. According to them, "having regard to" is a
mandatory requirement demanding strict compliance with the provisions to which
reference is made by the legislature. They say that the ingredients of clauses
(a) to (d) must be examined with reference to each producer as a condition
precedent to the determination of the price of sugar.
We may
in this connection point out that the petitioners have not furnished any data
to show that the prices deter- mined by the Government would have been
different had the ingredients of clauses (a) to (d) of the sub-section been
examined with reference to each individual producer instead of a representative
cross section of manufacturing units. Be that as it may, the expression
"having regard to" must be understood in the context in which it is
used in the stat- ute. See Union of India v. Kamlabhai Harjiwandas Parekh
& Ors., [1968] 1 SCR 463 at 471. These words do not mean that the Government
cannot, after taking into account the matters mentioned in clauses (a) to (d),
consider any other matter which may be relevant. The expression is not
"having regard only to" but "having regard to". These words
are not a fetter; they are not words of limitation, but of general guidance to
make an estimate. The Government must, of course, address itself to the
questions to which it must have regard, and, having done so, it is for the
Government to determine what it is empowered to determine with refer- ence to
what it reasonably consider to be relevant for the purpose. The Judicial
Committee in Commissioner of Income Tax v. Williamson Diamonds Ltd., L.R. 1958
A.C. 41, 49 observed with reference to the expression "having regard
to":
"The
form of words used no doubt lends itself to the sugges- tion that regard should
be paid only to the two matters mentioned, but it appears to their Lordships
that it is impossible to arrive at a conclusion as to reasonableness by
considering the two matters mentioned isolated from other 935 relevant factors.
Moreover, the statute does not say "having regard only" to losses
previously incurred by the company and to the smallness of the profits made. No
answer, which can be said to be in any measure adequate, can be given to the
question of "unreasonableness" by considering these two matters alone
...... " See Commissioner of Income-tax, West Bengal, Calcutta v. Gungadhar Banerjee and Co. (P)
Ltd., [1965] 3 SCR 439 at 444-45. See also Saraswati Industrial Syndicate Ltd.
etc. v. Union of India, [1975] 1 SCR 956 at 959. In State of Karna- taka and Anr. etc.
v. Shri Ranganatha Reddy & Anr. etc., [1978] 1 SCR 641 at 657-58 this Court
stated:
"The
content and purport of the expressions "having regard to" and
"shall have regard to" have been the subject matter of consideration
in various decisions of the Courts in England as also in this country. We may refer only to a few.
In
Illingworth v. Welmsley, [1900] 2 Q.B. 142 it was held by the Court of Appeal,
to quote a few words from the judgment of Romer C.J. at page 144: "All
that clause 2 means is that the tribunal assessing the compensation is to bear
in mind and have regard to the average weekly wages earned before and after the
accident respectively. Beating that in mind, a limit is placed on the amount of
compensation that may be awarded ..... "In another decision of the Court
of Appeal in Perry v. Wright (etc. etc.), [1908] 1 K.B. 441 Cozens- Hardy M.R.
observed at page 451: "No mandatory words are there used; the phrase is simply
"regard may be had". The sentence is not grammatical, but I think the
meaning is this: Where you cannot compute you must estimate, as best as you
can, the rate per week at which the workman was being remunerated, and to
assist you in making an estimate you may have regard to analogous cases."
It is worthwhile to quote a few words from the judgment of Fletcher Moulton
L.J. at page 458. Under the phrase "Regard may be had to" the facts
which the Court may thus take cognizance of are to be "a guide, and not a
fetter". This Court speaking through one of us (Beg, J., as he then was),
has expressed the same opinion in the case of Saraswati Industrial Syndicate
Ltd. etc. v. Union of India, [1975] 1 SCR 956. Says the learned Judge at page 959:
"The expression "having regard to" only obliges the Government
to consider as relevant data material to which it must have regard"."
936 In State of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC 59, one of
us (Mukharji, J., as he then was) observed:
"The
expression "having regard to" only obliges the govern- ment to
consider as relevant data material to which it must have regard ..... ".
In O'May
and Ors. v. City of London Real Property Co. Ltd., [1982] 1 All E.R. 660 at 665
(H.L.), Lord Hailsham stated:
"A
certain amount of discussion took place in argument as to the meaning of
'having regard to' in s. 35. Despite the fact that the phrase has only just
been used by the draftsman of s. 34 in an almost mandatory sense, I do not in
any way suggest that the court is intended or should in any way attempt to bind
the parties to the terms of the current tenancy in any permanent form .....
".
The
words "having regard to" in the sub-section are the legislative
instruction for the general guidance of the Government in determining the price
of sugar. They are not strictly mandatory, but in essence directory. The reasona-
bleness of the order made by the Government in exercise of its power under
sub-section (3-C) will, of course, be tested by asking the question whether or
not the matters mentioned in clauses (a) to (d) have been generally considered
by the Government in making its estimate of the price, but the Court will not
strictly scrutinise the extent to which those matters or any other matters have
been taken into account.
There
is sufficient compliance with the sub-section, if the Government has addressed
its mind to the factors mentioned in clauses (a) to (d), amongst other factors
which the Government may reasonably consider to be relevant and has come to a
conclusion, which any reasonable person, placed in the position of the
Government, would have come to. On such determination of the price of sugar,
which, as stated in Panipat (supra) is the fair price, the sub-section postu- lates
the calculation of an amount, with reference to such price, for payment to each
producer who has complied with an order made with reference to sub-section
(2)(f). The "price of sugar", unlike the "amount" is
arrived at by a process of costing in respect of a representative cross section
of manufacturing units, beating, of course, in mind the legis- lative
instruction contained in clauses (a) to (d).
The
Attorney General submits that orders determining the 937 prices of sugar in
terms of the sub-section are of general application and, therefore, legislative
in character. Omis- sion, if any, to consider the peculiar problems of individu-
al producers is not a ground for judicial review. The peti- tioners' counsel as
well as Mr. Venugopal appearing for the intervener (ISMA), do not agree. They
submit that the sub- section contemplates only administrative or quasi-judicial
orders of particular application and the impugned orders are not legislative.
They rely upon a certain observation of this Court in Union of India & Anr.
v. Cynamide India Ltd. & Anr., [1987] 2 SCC 720. Mr. Venugopal, however,
hastens to add that his client does not seek personal heating before prices are
determined. Mr. B.R.L. Iyengar, supporting the contentions of the petitioners,
points out that the expres- sion 'determine' used in sub-section (3-C)
indicates that the order to which that expression refers is quasi-judicial.
Judicial
decisions are made according to law while administrative decisions emanate from
administrative policy.
Quasi-judicial
decisions are also administrative decisions, but they are subject to some
measure of judicial procedure, such as rules of natural justice. To distinguish
clearly legislative and administrative functions is "difficult in theory
and impossible in practice".3 Referring to these two functions, Wade says:
'They
are easy enough to distinguish at the extremities of the .spectrum: an Act of
Parliament is legislative and a deportation order is administrative. But in
between is a wide area where either label could be used according to taste, for
example where ministers make orders or regula- tions affecting large numbers of
people ..... ,, .4 Wade points out that legislative power is the power to
prescribe the law for people in general, while administra- tive power is the
power to prescribe the law for them, or apply the law to them, in particular
situations. A scheme for centralising the electricity supply undertakings may
be called administrative, but it might be just as well legisla- tive. Same is
the case with ministerial orders establishing new towns or airports etc. He
asks: "And what of 'directions of a general character' given by a minister
to a nationa- lised industry? Are these various orders legislative or
administrative?" Wade says that the correct (3) Comd. 4060 (1932), p. 73;
see H.W.R. Wade-Adminis- trative Law, 6th ed., p. 47 (4) Ibid p. 848.
938 answer
would be that they are both. He says:" ..... there is an infinite series
of gradations, with a large area of overlap, between what is plainly
legislation and what is plainly administration".5 Courts, nevertheless,
for practi- cal reasons, have distinguished legislative orders from the rest of
the orders by reference to the principle that the former is of general
application. They are made formally by publication and for general guidance
with reference to which individual decisions are taken in particular
situations.
According
to Griffith and Street, an instruction may be
treated as legislative even when they are not issued formal- ly),, but by a
circular or a letter or the like. What mat- ters is the substance and not the
form, or the name. The learned authors say: ". .... where a Minister (or
other authority) is given power in a statute or an instrument to exercise
executive, as opposed to legislative, powers--as, for example, to requisition
property or to issue a licence--and delegates those powers generally, then any
instructions which he gives to his delegates may be legisla- tive".6 Where
an authority to whom power is delegated is entitled to sub-delegate his power,
be it legislative, executive or judicial, then such authority may also give
instructions to his delegates and these instructions may be regarded as
legislative. However, as pointed out by Denning, L.J., (as he then was) a
judicial tribunal cannot delegate its functions except when it is authorised to
do so express- ly or by necessary implication' see Bernard and Ors. v. National
Dock Labour Board and Ors., [1953] 2 Q.B. 18 at 40.
Kenneth
Culp Davis says: "What distinguishes legislation from adjudication is that
the former affects the rights of individuals in the abstract and must be
applied in a further proceeding before the legal position of any particular
individual will be definitely touched by it; while adjudica- tion operates
concretely upon individuals in their individu- al capacity".7 Justice
Holmes' definition, which is what is called the "time test" and which
Davis describes as one which has produced many unsatisfactory practical
results, reads:
"A
judicial inquiry investigates, declares, and enforces liabilities as they stand
on present or past facts and under laws supposed already to exist. That is its
purpose and end.
Legislation,
on the other hand, looks to the future and (5) Ibid. (6) Principles of
Administrative Law, 5th ed., p. 65 (7) Administrative Law Text, 3rd ed., p.
123-24.
939
changes existing conditions by making a new rule, to be applied thereafter to
all or some part of those subject to its power. The establishment of a rate is
the making of a rule for the future, and therefore is an act legislative, not judicial
......
Prentis
v. Atlantic Cost Line Co., 211 US 210,226.
The
element of general application is often cited as a distinct feature of
legislative activity. In the words of Chief Justice Burger, "rule-making
is normally directed toward the formulation of requirements having a general
application to all members of a broadly identifiable class"? Bernard Schwarts
says: "an adjudication, on the other hand, applies to specific individuals
or situations. Rule-making affects the fights of individuals in the abstract
and must be applied in a further proceeding before the legal position of any
particular individual will be definitely affected;
adjudication
operates concretely upon individuals in their individual capacity''9 According
to Schwartz, the "time test" and the "applicability test"
are workable in most cases although in certain situations distinctions are
indeed difficult to draw.
A
statutory instrument (such as a rule, order or regula- tion) emanates from the
exercise of delegated legislative power which is the part of the administrative
process resem- bling enactment of law by the legislature. A quasi judicial
order emanates from adjudication which is the part of the administrative
process resembling a judicial decision by a court of law. This analogy is
imperfect and perhaps unhelp- ful in classifying borderline or mixed cases
which are better left unclassified .10 If a particular function is termed
legislative rather than judicial, practical results may follow as far as the
parties are concerned. When the function is treated as legislative, a party
affected by the order has no fight to notice and heating, unless, of course,
the statute so re- quires. It being of general application engulfing a wide
sweep of powers, applicable to all persons and situations of a broadly
identifiable class, the legislative order may not be vulnerable to challenge
merely by reason of its omission to take into account individual peculiarities
and differ- ences amongst those falling within the class.
(8)
Quoted by Bernard Schwartz in 'Administrative Law' (1976), p. 144.
(9)
Ibid (10) See Davis, Administrative Law Text, p. 123
940 In Union of India & Anr. v. Cynamide
India Ltd. & Anr., [1987] 2 SCC 720 at 734-35, Chinnappa Reddy, J.
referring to the earlier decisions of this Court states:
"
..... legislative action, plenary or subordinate, is not subject to .rules of
natural justice. In the case of Parlia- mentary legislation, the proposition is
self-evident. In the case of subordinate legislation, it may happen that Parlia-
ment may itself provide for a notice and for a hearing .......... But where the
legislature has not chosen to provide for any notice or hearing, no one can
insist upon it and it will not be permissible to read natural justice into such
legislative activity .......... It is true that, with the proliferation of
delegated legislation, there is a tendency for the line between legislation and
administration to vanish into an illusion. Administrative, quasi-judicial
decisions tend to merge in legislative activity and, con- versely, legislative
activity tends to fade into and present an appearance of an administrative or
quasi-judicial activi- ty".
Stating
that rule-making is of general application to all members of a broadly
identifiable class while adjudication is applicable to specific individuals or
situations, the learned Judge observes:
"A
price fixation measure does not concern itself with the interests of an
individual manufacturer or producer. It is generally in relation to a
particular commodity or class of commodities or transactions. It is a direction
of a general character, not directed against a particular situation. It is
intended to operate in the future. It is conceived in the interests of the
general consumer public. The right of the citizen to obtain essential articles
at fair prices and the duty of the State to so provide them are transformed
into the power of the State to fix prices and the obligations of the producer
to charge no more than the price fixed. Viewed from whatever angle, the angle
of general application, the prospectiveness of its effect, the public interest
served, and the rights and obligations flowing therefrom, there can be no
question that price fixation is ordinarily a legisla- tive activity".
The
learned Judge emphasises:
941
"Price fixation may occasionally assume an administrative or
quasi-judicial character when it relates to acquisition or requisition of goods
or property from individuals and it becomes necessary to fix the price
separately in relation to such individuals. Such situations may arise when the
owner of property or goods is compelled to sell his property or goods to the
government or its nominee and the price to be paid is directed by the
legislature to be determined accord- ing to the statutory guidelines laid down
by it. In such situations the determination of price may acquire a quasiju- dicial
character".
These
observations have been cited with approval by one of uS (Sabyasachi Mukharji,
J., as he then was) in Renusagar (supra).
In Saraswati
Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1 SCR 956 at 961, this
Court states:
"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, there- fore, give rise to a complaint that a rule of natural jus- tice has
not been followed in fixing the price".
In Prag
Ice & Oil Mills & Anr. etc. v. Union of India, [1978] 3 SCR 293 at 317,
Chandrachud, J., as he then was, speaks for the majority:
"We
think that unless, by the terms of a particular statute, or order. price
fixation is made a quasi-judicial function for specified purposes or cases, it
is really legislative in character in the type of control order which is now
before us because it satisfies the tests of legislation. A legisla- tive
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".
See also
the observation of Megarry, J., as he then was, in Bates v. Lord Hailsham of
St. Marylebone & Ors., [1972] 3 All ER 1019 at 1024.
The
impugned orders, duly published in the official gazettes notifying the prices
determined for sugar of var- ious grades and pro- 942 duced in various zones,
and applicable to all producers of such sugar, can, in our view, be
legitimately characterised as legislative. These orders are required by
Sub-section (6) to be laid before both Houses of Parliament. The notified prices
are applicable without exception to all persons falling within well defined
groups. The prices are deter- mined in accordance with the norms postulated in
the sub- section. It is with reference to such predetermined prices of sugar
that the "amount" payable to each producer, who has sold sugar in
compliance with an order made with reference to clause (f) of sub-section (2),
is calculated. The calcu- lation of such amount is, in contradistinction to the
deter- mination of "price of sugar", a non-legislative act.
Thus,
while individual consideration is relevant to the calculation of the
"amount", it is not so for the determina- tion of the "price of
sugar" which is the rate at which the amount is calculated. That price, as
stated in Panipat (supra) is to be arrived at by a process of costing with
reference to a reasonably efficient and economic representa- tive cross section
of manufacturing units.
In
this connection, we must point out that at first blush a certain observation of
Chinnappa Reddy, J. in Cyna- mide, [1987] 2 SCC 720 at 741, on which much
reliance is placed by the petitioners' counsel, appears to be inconsist- ent
with what we have now stated. The learned Judge says:
"The
Order made under Section 3(2)(c), which is not in respect of a single
transaction, nor directed to a particu- lar individual is clearly a legislative
act, while an Order made under Section 3(3-C) which is in respect of a particu-
lar transaction of compulsory sale from a specific individu- al is a
non-legislative act".
It would
appear that what the learned Judge had in mind was an order by which the
"amount" was calculated in terms of sub-section (3-C) in respect of
each individual producer and not an order determining the "price of
sugar". While the former is non-legislative, the latter, by the very test
adopted by the learned Judge, is legislative in character.
We,
therefore, understand the observation of the learned Judge on this point as
applicable only to the individual order fixing the "amount" in terms
of the sub-section and not to orders determining the "price of sugar"
which are what the impugned orders are. Any other construction of the
sub-section would conflict with what was adopted by the Constitution Bench in Panipat
(supra) and would, therefore, be unsustainable.
943
The individual orders, calculating the "amounts" payable to the
individual producers, being administrative, orders rounded on the machanics of
price fixation, they must be left to the better instructed judgment of the
executive, and in regard to them the principle of audi alteram partem is not
applicable. All that is required is reasonableness and fair play which are in
essence emanations from the doctrine of natural justice as explained by this
Court in A.K. Krai- pak & Ors. etc. v. Union
of India & Ors., [1970] 1 SCR 457.
See
also the observation of Mukharji, J., as he then was, in Renusagar, [1988] 4
SCC 103, 105.
Price
fixation is in the nature of a legislative action even when it is based on
objective criteria rounded on relevant material. No rule at natural justice is
applicable to any such order. It is nevertheless imperative that the action of
the authority should be inspired by reason. Saras- wati Industrial Syndicate
Ltd., [1975] 1 SCR 956, 961, 962.
The
Government cannot fix any arbitrary price. It cannot fix prices on extraneous
considerations: Renusagar, (supra).
Any
arbitrary action, whether in the nature of a legis- lative or administrative or
quasi-judicial exercise of power, is liable to attract the prohibition of
Article 14 of the Constitution. As stated in E.P. Royappa v. State of Tamil Nadu
& Anr., [1974] 2 SCR 348, "equality and arbi- trariness are sworn
enemies; one belongs to the rule of law in a republic while the other, to the
whim and caprice of an absolute monarch." Unguided and unrestricted power
is af- fected by the vice of discrimination: Mrs. Maneka Gandhi v.
Union of India & Anr., [1978] 1 SCC
248 at 293-294. The principle of equality enshrined in Article 14 must guide
every state action, whether it be legislative, executive, or quasi-judicial: Ramana
Dayaram 'Shetty v. The International Airport Authority of India & Ors., [1979] 3 SCR 1014 at 1042;
Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors.. [1981] 1 SCC 722
and D.S. Nakara & Ors. v. Union of India, [1983] 1 SCC 305.
Power
delegated by statute is limited by its terms and subordinate to its objects.
The delegate must act in good faith, reasonably, intra vires the power granted,
and on relevant consideration of material facts. All his decisions, whether characterised
as legislative or administrative or quasi-judicial, must be in harmony with the
Constitution and other laws of the land. They must be "reasonably related
to the purposes of the enabling legislation". See Leila Mourn- ing v.
Family Publications Service, 411 US 356, 36 L Ed. 2d 318. If they are
manifestly unjust or oppressive or outra- geous or directed to an unauthorised
end or do not tend in some degree to the accomplishment of 944 the objects of
delegation, courts might well say, "Parlia- ment never intended to give
authority to make such rules; they are unreasonable and ultra vires". per
Lord Russel of Killowen, C.J. in Kruse v. Johnson, [1988] 2 Q.B. 91, 99.
The
doctrine of judicial review implies that the reposi- tory of power acts within
the bounds of the power delegated and he does not abuse his power. He must act
reasonably and in good faith. It is not only sufficient that an instrument is
intra vires the parent Act, but it must also be consist- ent with the
constitutional principles: Maneka Gandhi v. Union of India, [1978] 1 SCC 248,
314-315.
Where
a question of law is at issue, the Court may determine the rightness of the
impugned decision on its own independent judgment. If the decision of the
authority does not agree with that which the Court considers to be the right
one, the finding of law by the authority is liable to be upset. Where it is a
finding of fact, the Court examines only the reasonableness of the finding.
When that finding is found to be rational and reasonably based on evidence, in
the sense that all relevant material has been taken into account and no
irrelevant material has influenced the deci- sion, and the decision is one
which any reasonably minded person acting on such evidence, would have come to,
then judicial review is exhausted even though the finding may not necessarily
be what the Court would have come to as a trier of fact. Whether an order is characterised
as legislative or administrative or quasi-judicial, or, whether it is a deter- mination
or law or fact, the judgment of the expert body, entrusted with power, is
generally treated as final and the judicial function is exhausted when it is
found to have "wanant in the record" and a rational basis in law: See
Rochester Tel. Corp. v. United States, [1939] 307 U.S. 125, 83 L. Ed. 1147. See
also Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation,
[1948] 1 K.B. 223.
As
stated by Lord Hailsham of St. Marylebone L.C., (H.L.) in Chief Constable of
the North Wales Police v. Evans, [1982] 1 WLR 1155 at 1160-61:
"The
function of the court is to see that lawful authority is not abused by unfair
treatment and not tO attempt itself the task entrusted to that authority by the
law ..........
The
purpose of judicial review is to ensure that the indi- vidual receives fair
treatment, and not to ensure that the authority, after according fair
treatment, reaches on a matter 945 which it is authorised by law to decide for
itself a conclu- sion which is correct in the eyes of the court".
In the
same case Lord Brightman says:
"Judicial
review, as the words imply, is not an appeal from a decision, but a review of
the manner in which the decision was made".
A
repository of power acts ultra vires either when he acts in excess of his power
in the narrow sense or when he abuses his power by acting in bad faith or for
an inadmissi- ble purpose or on irrelevant grounds or without regard to
relevant considerations or with gross unreasonableness. See Associated
Provincial Picture Houses Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223. In
the words of Lord Mac- naghten in Westminster Corporation v. London and North Western ' Railway, [1905]
AC 426, 430:
"
..... It is well settled that a public body invested with statutory powers such
as those conferred upon the Corporation must take care not to exceed or abuse
its pow- ers. It must keep within the limits of the authority commit- ted to
it. It must act in good faith. And it must act rea- sonably. The last
proposition is involved in the second, if not in the first.....".
In The
Barium Chemicals Ltd. & Anr. v. The Company Law Board & Ors., [1966]
Supp. SCR 311, this Court states:
"
..... Even if (the statutory order) is passed in good faith and with the best
of intention to further the purpose of the legislation which confers the powers,
since the Authority has to act in accordance with and within the limits of that
legislation, its order can also be challenged if it is beyond those limits or
is passed on grounds extra- neous to the legislation or if there are no grounds
at all for passing it or if the grounds are such that no one can reasonably
arrive at the opinion or satisfaction requisite under the legislation. In any
one of these situations it can well be said that the authority did not honestly
form its opinion or that in forming it, it did not apply its mind to the
relevant facts"..
In Renusagar,
[1988] 4 SCC 59, 104, Mukharji, J., as he then was, states:
946
"The exercise of power whether legislative or administrative will be set
aside if there is manifest error in the exercise of such power or the exercise
of the power is manifestly arbitrary. Similarly, if the power has been
exercised on a non-consideration or non-application of mind to relevant factors
the exercise of power will be regarded as manifestly erroneous. If a power
(whether legislative or administra- tive) is exercised on the oasis of facts
which do not exist and which are patently erroneous, such exercise of power
will stand vitiated".
The
true position, therefore, is that any act of the repository 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 the law of the land or it is so arbitrary or unreasonable that no
fair minded authority could ever have made it The impugned orders are
undoubtedly based on an exhaus- tive study by experts. They are fully supported
by the recommendations of the Tariff Commission in 1969 and 1973.
It is
true that these recommendations in some respects were the subject matter of
criticism by a subsequently appointed expert body, viz., the BICP. Apart from
the fact that the BICP's criticism has not been accepted by the Government,
that criticism is not relevant in so far as the impugned orders are concerned
because the latter are in regard to an earlier period. These orders are fully
supported by the relevant material on record. The conclusions reached by the
Central Government in exercise of its statutory power are expert conclusions
which are not shown to be either discrim- inatory or unreasonable or arbitrary
or ultra vires. The (11) See the observation of Lord Russel in Kruse v.
Johnson, [1898] 2 Q.B. 91 and that of Lord Greene, M.R. in Associated
Provincial Picture Houses Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223;
See also Mixnam Properties Ltd. v. Chertsey U.D.C., [1965] AC 735;
Commissioners of Customs and Excise v. Cure and DeeIcy Ltd. [1962] 1 Q.B.
340; McEldowney
v. Forde, [1971] AC 632 (H.L.); Carltona Ltd. v. Commissioners of Works, [1943]
2 All ER 560, 564;
Point
of Ayr. Collieries Ltd. v. Lloyd George, [1943] 2 All ER 546; Scott v. Glasgow
Corporation, [1899] AC 470, 492;
Robert Baird
L.D.v. City of Glasgow, [1936] AC 32, 42;
Manhattan General Equipment Co. v. Commissioner, [1935] 297 US 129, 134; Yates
(Arthur) & Co. Pty. Ltd. v. Vegetable Seeds Committee, [1945-46] 72 CLR 37;
Bailey v. Conole, [1931] 34 WALR 18; Boyd Builders Ltd. v. City of Ottawa,
[1964] 45 DLR (2d) 211; Re Burns and Township of Haldimand, [1966] 52 DLR (2d)
10 14 and Lynch v. Tilden Produce Co. 265 US 3 15,320-322.
947
material brought to our notice by the petitioners does not support the
arguments at the bar that the Central Government has not applied its mind to
the relevant questions to which they are expected to have regard in terms of
the statute.
That
the sugar factories for the purpose of determining the price of sugar in terms
of sub-section (3-C) should be grouped on the basis of their geographical
location is a policy decision based on exhaustive expert conclusions.
Factories
are classified with due regard to geographi- cal-cumagro-economic
considerations. Fair prices for differ- ent grades of sugar are determined for
each zone with refer- ence to a reasonably efficient and economic
representative cross-section of the manufacturing units. Such classifica- tion,
as held in Panipat (supra) and Anakapalle (supra) cannot, in the absence of
evidence to the contrary, be characterised as arbitrary or unreasonable or not
rounded on an intelligible differentia having a rational nexus with the object
sought to be achieved by subsection (3-C). The person assailing such
classification "carries the heavy burden of making a convincing showing
that it is invalid because it is unjust and unreasonable in its consequences"
Federal Power Commission v. Hope Gas Co., 320 US 591, 602 (1944). If the
petitioners nevertheless incur losses, such losses need not necessarily have
arisen by reason of geographical zoning, but for reasons totally unconnected
with it, such as the condition of the plant and machinery, quality of
management, investment policy, labour relations, etc. These are matters on
which the petitioners have not furnished data, and, in any event judicial
review is hardly appropriate for their consideration.
In
this connection we would recall the observations of Chinnappa Reddy, J. in
Union of India and Anr. v. Cynamide India Ltd. andAnr., [1987] 2 SCC 720 at p.
736:
"We
do not agree with the basic premises that price fixation primarily affects
manufacturers and producers. Those who are most vitally affected are the
consumer public. It is for their protection that price fixation is resorted to
and any increase in price affects them as seriously as any decrease does a
manufacturer, if not more." In M/s. Gupta Sugar Works v. State of U.P. and Ors., [1987] Supp. SCC 476 at p. 48 1 one of us
(Jagannatha Shetty, J .) stated:
"In
this view of the matter, the primary consideration in the fixation of price
would be the interest of consumers 948 rather than that of the producers."
The Court has neither the means nor the knowledge to reevaluate the factual
basis of the impugned orders. The Court, in exercise of judicial review, is not
concerned with the correctness of the findings of fact on the basis of which
the orders are made so long as those findings are reasonably supported by
evidence. In the words of Justice Frankfurter of the U.S. Supreme Court in
Railroad Commission of Texas v. Rowan & Nichols Oil Company, 311 US
570-577, 85 L. ed. 358,362:
"Nothing
in the Constitution warrants a rejection of these expert conclusions. Nor, on
the basis of intrinsic skills and equipment, are the federal courts qualified
to set their independent judgment on such matters against that of the chosen
state authorities ..... When we consider the limit- ing conditions of
litigation--the adaptability of the judi- cial process only to issues
definitely circumscribed and susceptible of being judged by the techniques and
criteria within the special competence of lawyers--it is clear that the Due
Process Clause does not require the feel of the expert to be supplanted by an
independent view of judges on the conflicting testimony and prophecies and
impressions of expert witnesses".
This
observation is of even greater significance in the absence of a Due Process
Clause.
Judicial
review is not concerned with matters of econom- ic policy. The Court does not
substitute its judgment for that of the legislature or its agents as to matters
within the province of either. The Court does not supplant the "feel of
the expert" by its own views. When the legislature acts within the sphere
of its authority and delegates power to an agent, it may empower the agent to
make findings of fact which are conclusive provided such findings satisfy the
test of reasonable~ ness. In all such cases, judicial in- quiry is confined to
the question whether the findings of fact are reasonably based on evidence and
whether such findings are consistent with the laws of the land. As rated by Jagannatha
Shetty, J. in M/s. Gupta Sugar Works, (supra):
"the
court does not act like a chartered accountant nor acts like an income tax
officer. The court is not concerned with any individual case or any particular
problem. The court 949 only examines whether the price determined was with due
regard to considerations provided by the statute. And wheth- er extraneous
matters have been excluded from determination." Price fixation is not
within the province of the courts.
Judicial
function in respect of such matters is exhausted when there is found to be a rational
basis for the conclu- sions reached by the concerned authority. As stated by
Justice Cardozo in Mississippi Valley Barge Line Company v. United States of
America, 292 US 282-290, 78 Led 1260, 1265:
"The
structure of a rate schedule calls in peculiar measure for the use of that
enlightened judgment which the Commis- sion by training and experience is
qualified to form .....
It is
not the province of a court to absorb this function to itself ..... The
judicial function is exhausted when there is found to be a rational basis for
the conclusions approved by the administrative body".
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 economic
interest of the sugar industry and the general public that the sugar factories
are grouped together with reference to geographi- cal-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 instruments and execu- tive 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 cost per tonne of output, without regard
to their location, as recom- mended by the BICP, is again a matter for the Central Gov- ernment to decide. What is best for
the sugar industry and in what manner the policy should be formulated and imple-
mented, bearing in mind the fundamental object of the stat- ute, viz., supply
and equitable distribution of essential commodity 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.
We
would, in this connection, recall the words of Jus- tice Frankfurter in
Secretary of Agriculture, etc. v. Cen- tral Roig Refining Com- 950 pany, etc.,
338 US 615-617, 94 Led 391-392:
"Congress
was ..... confronted with the formula- tion of policy peculiarly with its wide
swath of discretion.
It
would be a singular intrusion of the judiciary into the legislative process to
extrapolate restrictions upon the formulation of such an economic policy from
those deeply rooted notions of justice which the Due Process Clause expresses
..... ".
"Suffice
it to say that since Congress fixed the quotas on a historical basis it is not
for this Court to reweigh the relevant factors and, perchance, substitute its
notion of expediency and fairness for that of Congress. This is so even though
the quotas thus fixed may demonstrably be disadvantageous to certain areas or
persons. This Court is not a tribunal for relief from the crudities and
inequities of complicated experimental economic legislation".
It is
important to remember that the division of the industry on a zonal basis for
the purpose of price determi- nation has been accepted without question by
almost all the producers with the exception of a few like the petitioners.
Even
if it is true that the petitioners as individuals are at a disadvantage and
have suffered losses on account of the present system--an assertion which has
not been established and which by its very nature is incapable of determination
by judicial review--that is not sufficient ground for inter- ference with the
impugned orders. We are not satisfied that the decisions of this Court in Anakapalle,
[1973] 2 SCR 882 and Panipat, [1973] 2 SCR 860 require reconsideration in any
respect. We see no merit in the challenge against the im- pugned orders. The
civil writ petitions are, in the circum- stances, dismissed. However, we do not
make any order as to costs.
P.S.S.
Petitions dismissed.
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