# P. N. BHAGWATJ v. R. KRISHNA IYElt, JI.]

- **Citation:** [1974] 1 S.C.R. 570
- **Court:** Supreme Court of India
- **Decided:** 1973-08-31
- **Case number:** Writ PetitiDn No. 94 of 1972
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/p-n-bhagwatj-v-r-krishna-iyelt-ji-6007
- **Pages:** 13

## Headnote

S70
DARUKA & CO.
f.
UNION OF INDIA & ORS.
August 31, 1973
[A. N. RAY, C.J., D. G. PALUA:ll, Y. V. CifANDuCHUD,
P. N. BHAGWATJ, V. R. KRISHNA IYElt, JI.]
B
Import and Exports Act 1941-S. 3 read with the Export Conlrol Ord<r
1968-Export of Mica under the Scheme of Canalisation through the Ml11ttal1
and Metals Trading Corporation of India Ltd. is violatfre ol Art. 14, 19(1 )(g)
aitd 265 of the Constitution of India.
S. 3 of the Imports and Exporl8 Act 1947, empowers !11• Governmeat lo
issne orders making provisions for prohibiting restricting or otherwise controlC
ling ·the imi)ons and goods of special description and the Export Control Order
1968, and provides that no person shall export goods of the descriptions •peciti.ed in Schedule-I of the said order, except ilnder licence
granled
by
the
Central Government etc.
Mica scrap and 1'1ica waste ate included in _·item
No. 22(a) of Part B of Schedule-I of the 1968 order.
The export of these
items i:s alld~ on merits, ·or sribject to ceilings .or other conditions to be Speci·
fled, from . time to. time.
The Con_troller of Imports and Exports issued the 'impugned
notice and
under it, the export of Mica was decided to be under the scheme of canalisatioo
through the Minerals and Metals Trading Corporation of India. The impugned
notice further stated that this canalisation of export scheme would be effective
from 24 January, 1972.
With regard to .cases falling under. pre-canalisation
commitment category, the Port Licensing :\uthorities might allow export if tke
shipping documents produced by th~ eXporters were accompanied by documeRtl
showing that the contracts were entered into with the foreign
buyers before
January 1972 i:>r telegraphic offer or acceptance were dated January 1972 and
irrevocable Letter of Credit at site was opened in a Bank of India, or in the
foreign country before the 24 January, 1972.
The impugned notice further staled that the expo.rters who wished to avail
themscJvcq of the prc--canalisation commitment category were to furnish particulars, such. as name of buyers, quantity, delivery period etc., at the otlic.e of
the Controller of Impcrts and Exports.
The CorporatioP. further. issued a Press Note prescribing the procedure to
be adopted by the exporters taking recourse to the canalisation scheme. Further,
Che Corporation would realise from the local suppliers as Service Charges not
exceeding I per cent of the F.A.S. value. The foreign buyers would have to
open unrestricted Letters of Credit in favour of the Corporation.
The Press Note further stated that where Letters of Credit had 1ieen opened
on or after 24th January 1972 in the name of private agencies, foreign buyera
would be requested so that tlie Letters of Credit were duly amended in the
name of the Corporation and contracts linaliBed directly by shippers were .alao
to be amended in favour. of the Corporation for the balance quantity.
The
payment due to the suppliers would be paid by cheque after realising the procoedi of sale from the foreign buyers, after retaining the marginal 1 per -cent
of the fl. A. S. valuo as Service. Charges of the Corporation.
Afterwards, en representation from severa1
exporters,
the
Government
issued an Export clarification Circular that in respect of cases where Letter of
CreJit was opened before 31 March 1972, but the period of shipment had
expired, exports might be allowed in the name of private parties, provided the
shipment is made not beyond 30 lune 1972.
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DARIJKA Ii CO. V, UNION (Ray, C.J.)
571
A
The petitioner challenged the canalisation of exports scheme, inttr a/la, 01>
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the followiq lfOund& :-
( f) ·ft wu not a canof11a~on scheme. It was in fact a scheme 1<1 lrU&fcr
the busineas of the petitioner and goOO'Will in favour of the Corpora·
lion which Is outside the purview of the Act.
(2) The ocheme was an lllll"easonable restriction and it
violated Art.
19(1)(9) of tho Constitution of India.
(3) the ·sCJieme \liolatecl Art. 14 of the Constituti

## Text

_Characters 0–39,997 of 41,872. This is a partial read: ask again with offset=39997 for what follows._

S70
DARUKA & CO.
f.
UNION OF INDIA & ORS.
August 31, 1973
[A. N. RAY, C.J., D. G. PALUA:ll, Y. V. CifANDuCHUD,
P. N. BHAGWATJ, V. R. KRISHNA IYElt, JI.]
B
Import and Exports Act 1941-S. 3 read with the Export Conlrol Ord<r
1968-Export of Mica under the Scheme of Canalisation through the Ml11ttal1
and Metals Trading Corporation of India Ltd. is violatfre ol Art. 14, 19(1 )(g)
aitd 265 of the Constitution of India.
S. 3 of the Imports and Exporl8 Act 1947, empowers !11• Governmeat lo
issne orders making provisions for prohibiting restricting or otherwise controlC
ling ·the imi)ons and goods of special description and the Export Control Order
1968, and provides that no person shall export goods of the descriptions •peciti.ed in Schedule-I of the said order, except ilnder licence
granled
by
the
Central Government etc.
Mica scrap and 1'1ica waste ate included in _·item
No. 22(a) of Part B of Schedule-I of the 1968 order.
The export of these
items i:s alld~ on merits, ·or sribject to ceilings .or other conditions to be Speci·
fled, from . time to. time.
The Con_troller of Imports and Exports issued the 'impugned
notice and
under it, the export of Mica was decided to be under the scheme of canalisatioo
through the Minerals and Metals Trading Corporation of India. The impugned
notice further stated that this canalisation of export scheme would be effective
from 24 January, 1972.
With regard to .cases falling under. pre-canalisation
commitment category, the Port Licensing :\uthorities might allow export if tke
shipping documents produced by th~ eXporters were accompanied by documeRtl
showing that the contracts were entered into with the foreign
buyers before
January 1972 i:>r telegraphic offer or acceptance were dated January 1972 and
irrevocable Letter of Credit at site was opened in a Bank of India, or in the
foreign country before the 24 January, 1972.
The impugned notice further staled that the expo.rters who wished to avail
themscJvcq of the prc--canalisation commitment category were to furnish particulars, such. as name of buyers, quantity, delivery period etc., at the otlic.e of
the Controller of Impcrts and Exports.
The CorporatioP. further. issued a Press Note prescribing the procedure to
be adopted by the exporters taking recourse to the canalisation scheme. Further,
Che Corporation would realise from the local suppliers as Service Charges not
exceeding I per cent of the F.A.S. value. The foreign buyers would have to
open unrestricted Letters of Credit in favour of the Corporation.
The Press Note further stated that where Letters of Credit had 1ieen opened
on or after 24th January 1972 in the name of private agencies, foreign buyera
would be requested so that tlie Letters of Credit were duly amended in the
name of the Corporation and contracts linaliBed directly by shippers were .alao
to be amended in favour. of the Corporation for the balance quantity.
The
payment due to the suppliers would be paid by cheque after realising the procoedi of sale from the foreign buyers, after retaining the marginal 1 per -cent
of the fl. A. S. valuo as Service. Charges of the Corporation.
Afterwards, en representation from severa1
exporters,
the
Government
issued an Export clarification Circular that in respect of cases where Letter of
CreJit was opened before 31 March 1972, but the period of shipment had
expired, exports might be allowed in the name of private parties, provided the
shipment is made not beyond 30 lune 1972.
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DARIJKA Ii CO. V, UNION (Ray, C.J.)
571
A
The petitioner challenged the canalisation of exports scheme, inttr a/la, 01>
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the followiq lfOund& :-
( f) ·ft wu not a canof11a~on scheme. It was in fact a scheme 1<1 lrU&fcr
the busineas of the petitioner and goOO'Will in favour of the Corpora·
lion which Is outside the purview of the Act.
(2) The ocheme was an lllll"easonable restriction and it
violated Art.
19(1)(9) of tho Constitution of India.
(3) the ·sCJieme \liolatecl Art. 14 of the Constitution because there was
dlscrilnination between the exporters of Mica Powder and Mica
Scrap aild Mica Waste.
(4) Fixing 24 January 1972 as the date for coming into force of
thtt
scheme was arbitrary. Letters of Credit had not reasonable relation
to the objects of the Scheme. Therefore, fixing of the date of 24
January 1972 violates Art. 19. The extension _of the date from 24
January 1972 to 31st !\larch 1972, is ma/a fid• and is to offc-r
benefits to some and deity tho 1ame to the petilioner.
(5) The levy of a charsc of l per cent on F.A.S. value wi~hont conferring any corresponding benefit is an unreasonable restriction Ind
is in substance, a tax, and is, therefore, in contravention of Art.
26S of the Constitution.
DismiSlina the Petition,
HELD Ii) The policies oJ imports or exports are fashioned not only with
reference to internal or inteihational trade, but also on domestic policies. If
the Government decides an economic policy that imports and exports should
be by sel.0!~ channels or through the agency of selected cbannels, the court
WOUid procee"d on the assumption that the decision is in the interest of the aene·
ral !Rlblic, unless the contrary is shown.
[576GJ
(ii) The acbeme of cariall!ation is not acquisition of right to carry on trade.
The cannlisation acheme means that only the recognised agency can carry on
~-
'i'he effect of refusal of liceneo to other traders is that they cannot carry
on Jtbe trade ·in thOSe goods.
The r;0rporation carries on trade itself but act
became of any acquisition by the CorPQration of the right to carry on trade of
the nnsuccessfol applicant for licence. Therefore, there is no violation of' Art.
31 or Art. 19(1) (f) of the Comtitution.
The dominant purpose of the scheme is canalisation of export and not to
acquire the bu.<iness or goodwill of tho traders in favour of the CorPQration. -~•
die Cimalioatioa of EIPorl throuah the CorPQration would ensure uniform IOOd
flDl).ity of goods and an increase· in the volume of export, the restriction on
traden Is reaaonable. There is no acquisition of property of traders. The Cor·
Poration is an agency through which· export is canalised to the .otal exclusion
of dtizena.
D•l'OIOll of ll.himii Goh/I v.
Joint Chief Contruller of Imports and
Exports [1962] 2 S.C.R. 73 and G/aas Chatmis Importers alld Users Ano·
cUitlon ·v. Uni"" of Illdia (1962] 1 S.C.R. 862. referred to. [S76H-S77DJ
(ll) kinerals and Metals Ttadlng CorPQration is a State-owned body. The
Corporation Is appointed to undertake the sCheme for export of Mica.
No
p-eference is sbC1wn to the Corporation. Where canalisation is decided, no
UC.nee ls sranted in favour of any one. Therefore, there is neither any com·
Jitid<je, nor any cboice in the matter of grant of licence. It is a total excluiilen of citiz.ens in order to enable all the country's exports IQ be made by one
licemee. Therefore, Art. 14. ls not infringed. [S77EJ
(iv) Further, Art. 1911 )(g) is also not violated. If the traders wish to
export quantities represented' by their contracts, they arc at liberty to avail
themselves of the concea1ion of exporla through the CorPQration. It Is only if
they will volunteer liot to accept the concessional offer that there would be
self induced 1088 of foreign exchange eamill8S .. Furlher, the other advaotajlOS
where the Corporation will enter into a principal to principal contract with the
572
SUPREME COURT REPORTS
[ 1974] 1 S.C.R.
foreign. buyers are that the ·traders \.Viii
b~ getting facilities of enteriiig
into
contract with the Corporation whi~h cnte-rs into a back-to~back contract with
1he suppl~ers. The Service Charges of 1 per cent of the F.A.S. value cannot
be described as a loss because the Corpofntion is really servicing the coritracts.
t578DJ
(v) The Service <;barge collec.te<l by the Corporation is not in the nature
of a iax and therefore, provisions of Art. 265 are not attracted.
Fu11hcr, tht:
levy of service charges is not under the 1947 Ac.t. The corpor~tion ts a Hcensee
·under 1947 Act and the 1968 Order. The Corporation acts in accordance with
the terms arid conditions of the licence.
The government and the licensing
authority under the Act, are not collecting any fee or charges from the traders.
It is the Corwration which is collecting the Service Charges from the traders
who avail the services of the Corporation. The Corporation is in the nature of
a cominercial. undertaking to \vhich a licence has been gran.ted for the export
of ~rtain commodities. The service Charges are nothing blt't qufd pro quo fer
the oervicf# rendered by the Corporation.
[578FJ
(vi) Further, fixing 24 January 1972 as the date for comin& into force of
the,Canalization Scheme was also not arbitrary. If no date is fixed for Drioging
into effect the canalization scheme with reference to opening of letter of credit
it will give rise to ingenious devices of creating specious contracts.
Con~racts
n1ay h~ brought into existence by an~edatiog fiUCh.._ contracts.
Therefore,
the
oPe.ning of Letters of Credit has rational relationship with the
object of the
canalisation scheme, and t]lere is no violation of Art. 14. [579D]
(vii) Ordinarily, the import or export of goods under international contracts
of sale frequently ·reqq.ires in modern times the protection of a &QVemmentaJ
alitho"ritY in the form of import or export licence. Where this ia the case, the
parties usually provide in the contract which of them is to apply for the uece5sary licence 3.nd what is to happen, it an application is refused. If the co_ntract
is altogether silent, a term is usually impli~d. mak.i.ng this the duty of ono party
or _the: other. Normally, this duty is upon the seller particularly in the case_ of
F.O.e. and F.A.S. contracts.
Nothing has been shown that the contracts in
the present ·case ''"ere not subject to the usual terms of con'Tact in iuch cases
rhpt ,the export ·.vas subject to the licence laws of our _country for the export of
goods. 'fherefore, the question that the petitioner would be sued by the foreign
buyer ·Would not arise.
[5790]
(}!iii) The impugned notice is not violative of Att. 14 of the Constitution on
the &round that there is dicsrimination between the ex.porters of Mica powder
and exporters of Mica scrap._ The exclusion of mica powder from the canalizitioI\ Scheme is to develop tnica powder industry in our country because this
industry is developing a11d is practically nascent is growth. There is an intelligible differentia: between mica wwder on the one hand and mica scrap and w:aste
on thC other in excluding mica powder from the canalisation scheme. [S80G]
(ix) The relaxation of. the date for opening Letters of Credit from
24
January 1972 to 31 March 1972 is not intended to be11efit infinentlal people.
This relaxation w3.11J made because several exporters made representations that
they did not understand the import restrictions and went on opening Letters of
'Credit.
The relaxation was to minimise the hardships which the traders Were
·1jkely to suffer on account of the coming into force of the impugned Trade
Notice.
The ·relaxation was to prevent dislocation of trade on a large scale.
l"here was no 1nala fide on behalf of the Gover~ent in relaxing the date for
opening the .Letters of Credit from .'24 January 1972 to 31 March 1972. [5828]
ORIGINAL JURISDICTION: Writ PetitiDn No. 94 of 1972.
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Under Article 32 · of the Constitution for
the enforcement of
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fundamental rights.
R.. K. Garg, S. C. Aggarwa/a, for the petitioner.
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DARUKA & CO. v. UNION (Ray, C.J.)
57~
S. T. Desai, B. D. Sharma, M. N. Shroff, for respondents Nos.
l
and 2.
B. Sen, O. C. Mathur, J. B. Dadacha11ji & Ravinder Narain, for
respondent No. 3.
The Judgment of the' Court was. delivered by
RAY, CJ. This petition under Article 32 of the
Constitution
challenges the Trade Notice dated 29 January, 1972 referred to as
the impugned nonce.
The. import and export of goods is regulated by the Imports and
Exports Act, 194 7 referred to as the 194 7 Act.
Section 3 of the
194 7 Act empowers the Government to issue orders
making pro·
visions for prohibiting, restricting or otherwise controlling the import
and export of goods of special description. In exercise of the powers
conferred under section 3 of the 194 7 Act the Central Government
from time to time issued orders
regulating export of goods. The
Export Control Order 1968 referred to as the 1968 Order came into
existence under these powers. Qause 3 ( 1) of the 1968 Order provides that no person shall export goods of the description
specified
in Schedule 1 of the 1968 Order except under and in accordance with
the licence granted by the Central Government or by an officer specified, in Shedule 11 of the 1968 Order· Mica scrap and mica waste
are included as item No. 22(a) of Part B of Schedule 1 of the 1968
Order. Part B of Schedule 1 of the 1968 Order enumerates the
items the export of which is allowed on merits or .imbject to ceilings
or other conditions to be specified form time to time.
The impugned Notice is issued by the Controller of Imports &
Exports under the aforesaid statutory
provisions.
Under
Trade
Notice dated 13 March, 1968 reproducing Export Control Order No.
1/68-EIC dated 8 March, 1968 export of mica including mica "splittings, blocks, scrap waste which are included in the list of items in
Part B of Shedule 1 of the Export Control Order was allowed on
merits.
Under the impugned notice the export of mica is decided to be
under the scheme to canalise the export of all grades and variety of
mica, excepting manufactured and fabricated mica, micanite, recon-
&tituted mica, mica powder and mica paper through the Minerals and
Metals_ Trading Corporation of India Ltd, (hereinafter referred to as
the Corporation), The impugned Notice
further states that
this
canalisation of export scheme will be effective from 24 January 1972.
With regard to cases falling under pre-canalisation commitment category the port licensing authorities may allow export if the shipping
documents produced by the exporters are accompanied by documents
showing that the contract was entered into with the foreign buyers
before 24 January, 1972 or telegraphic offer and acceptance is dated
prior to -24 January, 1972 and irrevocable letter of credit at sight is
opened in a Bank in India or in foreign country before 24 January,
1972,
11-382SupCil74
574
SUPREME COURT REPORTS
[ 1974] 1 s.c.R.
The impugned Notice further states that exporters who wish to
avail wemse1ves of the pre-cana1isation
commitment category are
to furrush particulars on or before 15 February, 1972 at the office
of the Controller of Imports & Exports. The particulars are first, full
statement showing quantity, grade of the mica
(blocks,
splittings,
conden!f()f films mica scrap and factory cuttings), delivery period,
name of the b~yers, contract number and date with particulars of
letter of credit number and date and second, quantities already shipped
under these contracts and balance quantities to be ship~.
Pursuant to the decision notified under the impugned Notice the
Corporation issued immediately thereafter a Press Notice on export
of mica prescribing the procedure to be adopted by the exporters
taking recourse to the Canalisation ·Scheme.
The Press Note states that after consiaeration of the prevailin&
trade practices and with a view to causing least dislocation in the
existing arrangements between the buyers abroad and the local sellers
it has been decided to consid.er requests from the trade on furnishina
full particulars of foreign buyers and other relevant details to nego·
tiate sales of mica on behalf of the Corporation.
The Corjxiration
will enter into a sale contract with the foreign buyers on a principal
. to principal basis. The Corporation will simultaneously enter into a
'back to back' contract for procurement of mica with the authorised
~upplier. Foreign b11yers will open letter of credit in favour of the
Corporation. The Corporation will realise from the local suppliers as
!\&Vice charges not exceeding 1 % of the ; FAS value. The price
at which sales will be concluded will not be less than the FAS prices
fixed under the Government of India 'Mica Export Policy' Notification dated 27 June 1966 as amended from time to time or voluntarily
adopted on the reommendation of the Mica Export Promotion
Council. The foreign buyers will open confirmed, irrevocable, assignable, divisible without recourse to drawer and
un-restricted, letters
of credit in favour of the Corporation.
The Press Note further states that where letters of credit have
been opened on or after 24 January, 1972 in the name of private
shippers, foreign buyers have to be requested through cable, so that
the letters of credit are duly amended in the name of the Corporation
and contracts finalised directly by shippers are also to be amended
in favour of the Corpcration for the balance quantity. The payment
due to the supplier will be paid by cheque after realising the proceeds
of sales from the foreign buyers after retainiμg the marginal mie. per
cent of. the FAS value as service charges of the Corporation.
Subsequent to the Press Note the petitioner wrote to the respondent and gave details of contracts accepted by the petitioner frOlll
over-seas buyers prior to the· canalisation of exoort soheme
which
came into effect on 24 January, 1972. The petitioner stated that in
some cases shipment had been made and there was a balance to be
shipPed subsequent to 24 January, 1972.
The
petitioner
gave
details of nine such contracts.
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DARUKA & CO. V. UNION (Ray, C.J.)
575
After the publication of the impugned Notice several exporters
represented that they did oot understand the import of restnctions
and went on operung letters of credit w1tn respect to contracts entered
into between tne exporters and the foreign buyers. 1 he Government
with a view to lessen the hardships on the traders issued an Export
Clarification Circu1ar N\). 3 of 1972 dated 17 April 1972 that in
respect of cases where letter of credit was opened before 31 March,
1912 but the period of shipment had expired,
exports might
be
allowed in the name of private parties provided the shipment is made
not beyond 30 June, 1972.
The petitioner challenged . the canalisation of export scheme on
the fouowing grounds.
First, it is not a canalisation scheme. It is
in fact a scheme to transfer the business of the petitioner and goodwill in favour of the Corporation which is outside the purview of the
Act. Second, the scheme is an unreasonable restriction in so far as
it resUlts in loss of foreign exchange, loss of profit and enables con·
tracting foreign buyers to avoid the contract and sue the petitioner
for breach of the contract.
Therefore, the scheme violates Article
19(1) (g) of the Constitution·
Third, after the proclamation of
emergency it has to be found whether the canalisation scheme could
have been made under the 194 7 Act.
Fourth, the scheme violates
Article 14 of the Constitution. There is discrimination between the
exporters of mica powder and mica scrap and. mica waste.
The
exclusion of mica powder from the ambit of the scheme will lead to
mica scrap and mica wasn: being converted into mica powder and
enable individual . exporters to export the sal!le.
Fifth,
fixing
24
January, 1972 as the date for coming into force of the scheme with'
referenec to the opening of letters of credit before that date is arbitrary. Letters of credit have no reasonable relation to the object~ of
the scheme.
Therefore, the fixing of the date 24 January,
1972
violates Article 19. The extension of the date from
24 January,
1972 to 31 March 1972 is mala fide and is to confer benefit on some
and deny the same to the petitioner. Sixth, the levy of a charge of
one per cent on FAS value without conferring any corresponding
benefit is an unreasonable restriction and is in substance a tax and
is therefore in contravention of Article 265 of the Constitution.
The scheme of canalisation of export t~rough the Corporation is
pursuance to section 3(1 )(a) of the 1947 Act and clause 6(1) of the
1968 Order. The 194 7 Act confers power to restrict, control or
prohibit or otherwise control imports and exports. Gause 6 (1)
of
the 1968 order is as follows :-
"The licensing authority may . refuse to grant a licence
if the lif!ensing authority decides to canalize exports through
special or specialised agencies or channels".
This Court in Davason of Bhimji Gohil v. Joint Chief Controller
of Tmports & Exvorts (1963) 2 S.C.R. 73 considered the State
policy rearding export of ore. The Government regulated exporr of
ore through three classes of exporters.
First, there were establi,hed
shipoers who would be granted export quota on the average ol the
'
576
SUPREME COURT REPORTS
[ JQ74 l 1 s.c.R.
quantities exported during the years 1953,
1954 and 1955. The
set0nd class consisted of mica-owners based on an annual average
of the quantity of ore on which royalty was paid during the calender
years 1953, 1954 and 1955. The State Trading Corporation .was .the
third class which would be given a quota on an ad hoc basis. The
:itate Trading {:orpoiatton was allowed an adequate quota to. ~n
able . them. to maximise fhe exports of manganese ore. The question
there was whether the withholding of the right to engage in export
trade from new comer mine-owners not having export in certain
basic years constituted an unreasonable restriction on their right to
carry on business in violation of Article 19(l)(g) of the Constitution.
The canalising of exports through special or specialised
agencies was upheld on the ruling of this Court in Glass Chawns
linpOYters & Users' Associalion v. Union of India (1962) 1 S.C.R.
862.
.
ID Glass Chatons case (supra) the relevant Exports Control
Order was of the year 1958. That Control Order was made under
section 3 of the 1947 Act.
Clause 6 sub-clause {h) of the 1958
export Control Order conferred power on the Central Governrnent
to refuse to grant a licence if the licensing authority decided to canalise, export through special or specialised agencies or channels. The
language of clause 6(h) of the 1958 Order is in identical language
with clause 6(1) of the 1968 Order. The Constitutional validity of
clause 6(h) of the 1958 Order was challenged there.
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Licences for the import of glass chatons were issued only in
favour of the State Trading Corporation.
The
applicants used to
irr1port considerable quantities of glass chatons up to 1957. Those
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merchants challenged the grant of licence in favour of the State Trading Corproation in preference over the applicants and also as a monopoly in favour of the Corporation. The order of the Central Government in terms of clause 6{h) of the Import Control Order 1955
allowing canalisation of export through the Corporation was
also
impeached to be in contravention of Article 19{1){f) and (g) and
F
Article 31 of the Constitution. This Court in Glass Chatons case
(supra) held that if the scheme of canalisation of imports is in the
interest of the general public the refusal of lieence to outsiders would
also be in the interest of the general public.
The canalisation of
import was held to be per se not an unreasonable restriction in the
interest of the general public.
Policies of imports or exports are fashioned not only with referG
ence to internal or international trade but also on monetary policy,
the development of agriculture and industries and even on the political policies of the country but rival theories and views may be held
~n such policies. If the Governrnent decides an economic policy that
1moort or export should be by a selected channel or through selected
agencies the court would proceed on the assumption thar the decision
is in the interest of the general public unless the contrary is shown.
H
This Court in glass Chatons case (supra) said that the scheme
of canalisation is not acquisition of right to carry on trade. The
,
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DARUKA & co. v. UNION (Ray, C./.)
577
canalisation scheme means that only the recognised agency can carry
on trade. The effect of refusal ot licence to odler traaers is that they
cannot carry on trade in those goods.
The Corporation carries Qll
traae itself but not because of any acquisition by the Corporation of
the right to carry on trade of the unsuccessful applicant for licence.
Theretore, there is nq violation of Article 31 or Article 19(l)(f) of
the Constitution by th~ canalisation of export through the State
Trading Corporaion.
In Devaron of Bhimji Gohil case(1) (supra) it was said that the
State Trading Corporation might 1!le a special agency or channel fol'
the purpose of enabling the counu;I tq maintain and develop the
trade in the commodity . both from the ~ualitative and quantitative
pou1ts of view. The canalisation cl export through the Corporation
would ensure a uniform good qnality of goods and al.so increase the
volume of export.
Therefore the dominant purpose of . the scheme is canalisation of
export and not to acquire the business or goodwill of traders in
favour of the Co!J>?ration. The restriction on traders is reasonable.
There is no acquisition of property of traders.
The Corporation is
an agency through which export is canalised to the total exclusiOn
of citizens.
The contention that the impugned Notice showed preference for
the Corporation in infringement of Article 14 is unsound. The Corporation is a State OWRCd body. The Corporalion ii appomtoll ID
undertake this export scheme.
No preference is sbown. to tlae C.·
poration. Where canalisation is decided no licence ia sranted in
favour of any one. Therefore, there is neither any ci>mpetition nor
any choice in the matter of grant of licence. It is a total uelulion
of citizens in order to enable all the country's exports to be made by
one licencee.
The impugned Notice is challenged
on
the
ground that
24
January, 1972 is an arbitrary fixation of date.
The Press Note is
impeached on the ground that the procedure for export through the
Corporation where no irrevocable letters of credit were opened before
24 January, 19.72 is in reality not a canalisation scheme but is
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device to transfer the business and goodwill of the traders in favour .
of the Corporation. The fallacy of the contention is in assuming :
that traders have a right to carry on the trade of exporting mica waste ·
and mica scrap after coming into force of the canalisation scheme on
24 January, 1972· The Press Note made it clear that the State did
not want to disturb the market but intended to save the trade and
to prevent a Joss to the sellers. The State did not want to dislocate
the commitments made by the traders to foreign buyers. Thia is
precisely why the Press Note stilted that the Corporation was prepar
ed to enter into contract with foreign buyers and to export irO<'ds to
them provided they opened letters of credit.
After the canalisation
scheme had come into effect the contracts between the traders and
the foreign buyers came to an end by operation of the statutory restrictions. Therefore the State ~e concession to the traders in aider
to eliminate hardship. The traders were· given the ch9ice to export
578
SUPREME COURT REPORTS
[ 1974 J 1 s.c.R.
provided they fulfilled certain conditions. These were that they could
export through the Corporation and they were to pay service charges.
It 1s significant that if the Press Note had not laid down the proc.uure
conrerrmg tne pnvuege or export.ing goods even atter 24 January,
l!l /.l. m performance of contracts wluch were not supported by
irrevocable letters of creo1t bemg opened pnor to 24 January, 1972
the traders wowd have ~uttered Joss. The traders could not perform
the contracts with the foreign buyers after 24 January, 1972 where
letters of credit had not been opened. Therefore, it JS apparent that
the~e was no transfer of business or SQ<Xlwill in favour of the l.orpe>-
rat1on.
The contention with regard to contracts entered into before 24
January, 1972 but where letters of credit have not been
opened
before that date is that the traders are exposed to loss of business and
loss of profits and there!>y unreasonable restrictions have been put,
on the traders' right to carry on business in violation ot Article 19
( l )(g). This contention is nnacceptable. If the traders wish
to
export quantities represented by such contracts they are at liberty to
avail of the concession of exports through the Corporation.
It is
only if they will volunteer not to accept the concessional offer that
there would be self induced loss of foreign exchange 'earning. Further
the other advantages where the Corporation will enter into on a
principal to principal contract with foreign buyers are that the traders
are getting the facilities of entering into contract with the Co'."]l)ration which enters into a back to back contract with the authorised
suppliers· The service charges of i % of the FAS value cannot be
described as a loss because the Corporation is really servicing the
contracts.
.
The service charge collected by the Corporation is not in the
nature of a tax. 1he provisions of Article 265 are
not therefore
attracted. Counsel for the petitioner conntended that the levy of
service charges was not authorised by the 1947 Act which permitted
only levy of fee in respect of applications for issue or renewal
of
licence. The Corporation is a licencee under the 194 7 Act and the
1968 Order.
The Corporation acts in acccrdance with the terms
and conditions of the licence
It was said on behalf of the petitioner
that section 4(a) of the 1947 Act and clause 4 of the 1968 Order
excluded levy of any other fees under the Act. The Government and
the licensing authority under the Act are not collecting any fee or
charges from the traders.
Tt is the Corporation which ·is collecting
service charges from the traders who avail the services of the Coroe>-
ration. The Corooration is in the nature of commercial undertaking
to which a licence has been granted for the export of certain commodities. The service char2es are nothi11g but quid pro quo for the
services rendered by the Corporatio'I.
Counsel for the. Ol'titioner challen2ed the impu2ned
Notice
as
violative of Article 14 on the eround that the canalisation scheme
nmd• a disHnction !>-tween s•1bsistinq c'lntracts with foreign hu\-en
for which irrevocable letters of credit were ooened before 241 January,
1972 and subsisting contracts with ~reign buyers for which letters of
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DARUKA & CO. V. UNION (Ray, CJ.)
579
Qfedit were not opened before 24 January, 1972. It is, ·th~,
llaid that the opening of irrevocab.e Jetter of credit before 24 January,
19 rJ. .bad no reasonab.e re1at10nship to the object of tile sche.ue. Jt
cannot be denied that a date has to be fixed for bringing into effect .
the canausatJ.on scheme. Contracts may be for short or Jong
terms.
Usually long term contracts are worked out
through
instalment
delivery at interVaJs.
It will depend on the terms of the contract
whether each is an instalment contract severable from other instal·
mcnts or whether it is one contract to be performed in instalments:
On the construction of such a contract depends whethel'. the breach
of contrl!Ct is a repudiation of the whole contract or whether it is
a severable breach giving rise to a claim for compensation but not a
right to treat the whole contract as repudiated.
lit the present case, the affidavit evidence is that the obligation
to export goods arises when the foreign buyers open letters of ~redit
for the specified quantity of goods. If no date is fixed for bringing
into effect the canalisation scheme with reference to opening of letter
of credit it will give rise to ingenious devices of creating specious
contracts.
Contracts- may be brought into existence by antedating
such contracts. The entire purpose of the canalisation scheme with
a view to increasing the export trade of the country, assisting small
mine-owners, exporters and
processors,
checking smugghng
in
foreign exchange, under-invoicing, illegal acquisition of foreign currency and eliminating the chances of contravention of various provi·
sions of the Foreign Exchange Regulations Act and Exports (ControO
Order will be stultified. The utility of a State agency in the smooth
running of export trade in such commodity as mica blocks, condensor
filn1s, splittings, scrap or waste forms a very signj/icant part of exports
of our country. Therefore the opening of letters of credit has
rational relationship with the obiect of the canalisation scheme and
there is no violation of Article 14.
As a corollary to the fixa(JOn of 24 January, 1972 as the <!ate
counsel for the petitioner contended that the scheme would enable
foreign buyers to sue for breach of contract. This contention is also
unsound. Ordinarily, the import or export of goods u"der interm1tional
Contracts of sale frequently requires, in modern times, the permission
of a governmental authority in the form of import or export licence.
'Nhere this is the case, the parties will usually provide in the contract
which of them is to apply for the necessary licences and what is to
happen if the application is refused. If the oontract is altogeth·r si'ent
about licences or is expressed to be subject to licences without proYidinl( who is to obtain them, a term is usually implied making this
the duty of one party or the other. Normally, this duty will be cast
upon the seller particularly in the case of F.O.B. and F.A.S. contracts. There may be cases where the circumstances may be s•tt:h as
to make the buver resDODsible for obtaining any necessary
export
licence. The tendency is to cast the duty up0n the pa·'1y best q••a 1ified
bv knowledge of the necessary facts or otherwise to obtain the licence.
Once it is determined from the words of the contract or by impli·
cation who is to apply for the licences, there is a separate question
580
SUPREME COUB.T JlEPOllTS
[ 1974] 1 S.C.B..
again depending on the circumstaDcel of the particular. case, whether
the duty is an ilbllolute one or more usually, whetbca" it is only to use
all reasonable diligence to ~
the necessary licences. Performance
of the contract in the latter case is only excused if the dvty has been
performed but no licence has been obtained. If an absolute prohibition of export supervenes upon a contract which is subject to ih:ence
!he duty cannot be absolute. N~
has been shown tha~ contrac_ts
in, the present case were not subject to the usual terms of contract m
such cases that the
export was subject to the licence laws of our
country for the export of goods.
It was said on behal)'. of the petitioner that the iμipugned Notice
violated Article 14 of the Constitution on the ground that there was
discrimination between exporters of mica powder on the one band
and exporters of mica scrap on the other. It was emphasised that the
export of mica powder is not within the ambit of the canalisation
scheme. The impugned Notice canalises export of all grades
and
varieties of mica eiwepGing jnanufaCured and fabricated mica (including die cut condenser films, spacers, bridges,
washeres etc.)
micanite, raconstituted mica, mica powder and mica paper. The mica·
export policy published at pages 77-78 of the Export Trade Control
Hand Book of Policy and Procedure 1970 published by the Government of India, Ministry of Foreign Trade deals with__shipment of any
variety other than fabricated mica, inter alia, on the basis of an appli·
cation in that behalf and compliance with other terms laid down in
that policy and in particular opening irrevocable letter of credit by
a foreign buyer in a Bank in India for 100% , of the invoice value
of the goods. Shipment of fabricated mica under that policy continued to remain free from the above stipulation regarding opening
of 100% irrevocable letter of credit. Fabricated mica in that policy
is said to include micanite, built up mica, mica tapes, mica cloth,
mica silk, mica paper, mica folium and all varieties of mica cut or
purched to specific shapes and sizes, and mica powder. It is said on
behalf of the petitioner that as a result of the exclusion of mica powder
from the scope of the canalisation scheme, there are possibilities of
mica waste and mica scrap being converted into mica .powder and
exported by individual exporters and there may be a ldss in foreign
exbange. The affidavit evidence on behalf of the State is that the
exclusion of mica powder from the cana]isation scheme is to develop
mica powder industry in our country, because this industry is developing and is practically nascent in gr0wth. Therefore, there is intelligible
differentia between mica powder Ol\ the one hand and mica scrap and
waste on the other, in excluding mica powder from the canalisation.
scheme.
The State issued another Trade Notice on 20 April. 1972. This
April 1972 Notice is also impeached. Under the April Notice which
can be described as the second impugned Notice it is stated that the
canalisation scheme provided in the impugned Not;ce of 29 January,
1972 is modified to the extent that shipments will be allowed up to ·
30 June, 1972 against subsistin~ contracts for all grades and varieties
of mica which had been execoted prior to 24 January. 1972 and in
respect of which letters of credit have not been opened prior to 24
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DARUKA & co. v. UNION (Ray, CJ.)
58-1
January, 1972 .. The petition_ers contend that the relaxation of the date_·
for <>pening letters of credit from 24 January 1972 to 31 March, 1972
was mtended to. bendit infiui:ntial people. It was said that such influential people went on opening letters of credit up to 31
March,
1972, because: of their previous knowl~ge that there. ~as going to be
a relaxation m the date. The contenuon of the petitioners was that
this relaxation was maJa fide to help influential people. The affidavit
evidence on behalf of the State is that this relaxation was made be
cause several e~rs made representations that they did not under·
stand the import of restrictions and went on opening letters of credit.
On behalf of the State it was said that the relaxation was to minimi~
the hardships which the traders were likely io suffer on account of
the coming into force of the impugned Trade Notice.
The three representations received by the Ministry are from the
Bihar Mica Exporters' Association oated 25 January, 1972, the Mica
Chamber of Commerce, Gudur, Andhra Pradesh dated 9 February.
1972 and the Bihar Mica Exporters' Association dated 16 March.
1972. Broadly stated, the representations of the traders were that the
absence of any detailed information or direction as to the procedure·
to be followed under the new system, presented three difficulties tn
the traders. First, there was serious set back in usual flow of mica
exports. Second, there was financial loss to the mica exporters. Third,
there was financial crisis in the mica industry. The difficulties pointed
out were that export oonsignments worth about Rs. 70 lakhs in the
names of different exporters supported by valid contracts and letters
of credit were under processing through Joint Chief Controller of
Imports & Exports and Customs at Calcutta Port for shipment within
31 January, 1972. The Orders and Credit were not assignable, and
were covered under Buyers' Import Licence which stipulated specifu:
dates for shipment and consequently the letters of credit could not
be extended or amende9 if so desired under the new system. Under
similar conditions export ,consignments worth about Rs. 130 lakhs
were lying ready for shipment in the month of February, 1972. IJoods
worth about Rs. 150 lakhs were under manufacturing process against
orders and letters of credit for shipment in March, 1972. Goods worth
about . Rs. 150 lakhs were awaiting processing line against shipment
commitment for the months of April to June, 1972. There were other
c~rt contracts f?' shipment after the month of June, 1972.