# SANGH LTD. ETC. ETC v. STATE OF MAHARASHTRA AND ORS. ETC. ETC

- **Citation:** [1995] 3 S.C.R. 377
- **Court:** Supreme Court of India
- **Decided:** 1995-04-18
- **Bench:** R.M. Sahai, B.P. Jeevan Reddy, S.C. Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sangh-ltd-etc-etc-v-state-of-maharashtra-and-ors-etc-etc-13142
- **Pages:** 49

## Headnote

Sugarcane Act, 1934/Maharashtra Cooperative Societies Act, 1960 :
S.3(1) ss.22,23-Sugar-cane (Control) Order, 1966:
c
Maharashtra Sugar Factories (Reservation of Area and Regulation of
Crushing and Sugarcane Supply) Order 1984 (as amended in 1987)-Sugar·
cane-Zoning or reservation of area for supply of sugar-cane to factories a11d
fvcation of price for each zone is not violative of the Acts or 1966 Order--
Uniform pricing for cane growers (whether non-members or members of
co-operative societies) attached to sugar factory in reserved area is D
vali<f;-Directions given to improve price structure and to protect interest of
cane-growers.
Essential Commodities Act, 1957 : ss.3(2) (f), 3(3)(c)-f'rovisio11S
under Maharashtra Sugar Factories (Reservation of Areas and Regulatio11 of E
Crushing and Sugar-cane Supply) Order, 1984, directing a sugar-cane to
producer in a reserved area to supply sugar-cane to factory concerned does
not amount to compulsory sale.
The Government of Maharashtra, in order to ensure supply of cane
to sugar factories and mlnlmuoi price to cane-growers, Issued F
Maharashtra Sugar Factories (Reservation of Areas and Regulation of
Crushing and Sugarcane Supply) Order, 1984. Clause 3 of the Order
provided that having regard to the crushing capacity of sugar factories
and the yield of sugarcane In the reserved areas and the need for produc· .
on of sugar, the area specified In the Schedule to the Order .would be G
served for the sugar factory with a view to enabling It to purchase the
quired quantity of sugarcane. Sub-clause (2) of Clause 3 prohibited any
ugar factory from purchasing cane or accepting supplies of cane from
ane growers except from the area reserved for that factory. Sub-clause
lA) added to clause 3 and sub-clause (6A) added to Clause 6, by
aharashtra Sugar Factories (Reservation of Areas and Regulation of H
377
378
SUPREME COURT REPORTS
(1995] 3 S.C.R.
A
Crushing and Sugarcane Supply) (Second Amendment) Order, 1987 empowered the licensing authority to allow a sugar factory to manufacture
sugar from the sugarcane to be purchased by it from non-members within
lhe area reserved for it.
Writ petitions were filed before the High Court challenging the 1984
B Order as being beyond the scope of the Central Sugar-cane (Control)
Order 1966 and violative of Articles 14 and 16 of the Constitution. For the
cane growers it, was contended that the order in preventing them from
selling their sugar-cane at the best price available imposed an unreasonable restriction inasmuch as in the process of reservation they were
C deprived of the highest price in the area. The High Court upheld the
reservation policy. On behalf of the Government, it was stated before the
Court that the Government would follow a fair procedure in order to
ventilate grievances of the non-members. The note showing the procedure
to be followed, produced before the High Court, was found reasonable but
D the Bench opined that it required to be given statutory shape by amending
the 1984 Order.
Later, In a different case, the High Court held that since the neces·
sary amendments were not carried out by the Government as pointed out
In the earlier decision, the sugarcane gl'Olftn had a right. to supply
E sugarcane to the factory of their choice for better price. On a contrary view
being taken by another Bench, the matter was referred to a larger Bench.
The Full Bench of the High Court opined that the issue of deprivation of sugarcane growers of best price available to them was not debated
F in the earlier decisions and held that since there was no power In the State
Order to llx the maximum price payable to the cane growers, the cane
growers, who were not members of any cooperative society, were not bound
by the price fixed by the State Government. The High Court also held that
the supply by the cane growers belDK in the nature of compulsory sale, the
cane growers were entitled to supply the sugarcane at the market rate. The
G High Court for 1993·94 r1X

## Text

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-./
. ,
MAHARASHTRA RAJYA SAHKARI SAKKAR KARKHANA
A
SANGH LTD. ETC. ETC.
v.
STATE OF MAHARASHTRA AND ORS. ETC. ETC.
APRIL 18, 1995
B
(R.M. SAHAI, B.P. JEEVAN REDDY AND S.C. SEN, JJ.]
Sugarcane Act, 1934/Maharashtra Cooperative Societies Act, 1960 :
S.3(1) ss.22,23-Sugar-cane (Control) Order, 1966:
c
Maharashtra Sugar Factories (Reservation of Area and Regulation of
Crushing and Sugarcane Supply) Order 1984 (as amended in 1987)-Sugar·
cane-Zoning or reservation of area for supply of sugar-cane to factories a11d
fvcation of price for each zone is not violative of the Acts or 1966 Order--
Uniform pricing for cane growers (whether non-members or members of
co-operative societies) attached to sugar factory in reserved area is D
vali<f;-Directions given to improve price structure and to protect interest of
cane-growers.
Essential Commodities Act, 1957 : ss.3(2) (f), 3(3)(c)-f'rovisio11S
under Maharashtra Sugar Factories (Reservation of Areas and Regulatio11 of E
Crushing and Sugar-cane Supply) Order, 1984, directing a sugar-cane to
producer in a reserved area to supply sugar-cane to factory concerned does
not amount to compulsory sale.
The Government of Maharashtra, in order to ensure supply of cane
to sugar factories and mlnlmuoi price to cane-growers, Issued F
Maharashtra Sugar Factories (Reservation of Areas and Regulation of
Crushing and Sugarcane Supply) Order, 1984. Clause 3 of the Order
provided that having regard to the crushing capacity of sugar factories
and the yield of sugarcane In the reserved areas and the need for produc· .
on of sugar, the area specified In the Schedule to the Order .would be G
served for the sugar factory with a view to enabling It to purchase the
quired quantity of sugarcane. Sub-clause (2) of Clause 3 prohibited any
ugar factory from purchasing cane or accepting supplies of cane from
ane growers except from the area reserved for that factory. Sub-clause
lA) added to clause 3 and sub-clause (6A) added to Clause 6, by
aharashtra Sugar Factories (Reservation of Areas and Regulation of H
377
378
SUPREME COURT REPORTS
(1995] 3 S.C.R.
A
Crushing and Sugarcane Supply) (Second Amendment) Order, 1987 empowered the licensing authority to allow a sugar factory to manufacture
sugar from the sugarcane to be purchased by it from non-members within
lhe area reserved for it.
Writ petitions were filed before the High Court challenging the 1984
B Order as being beyond the scope of the Central Sugar-cane (Control)
Order 1966 and violative of Articles 14 and 16 of the Constitution. For the
cane growers it, was contended that the order in preventing them from
selling their sugar-cane at the best price available imposed an unreasonable restriction inasmuch as in the process of reservation they were
C deprived of the highest price in the area. The High Court upheld the
reservation policy. On behalf of the Government, it was stated before the
Court that the Government would follow a fair procedure in order to
ventilate grievances of the non-members. The note showing the procedure
to be followed, produced before the High Court, was found reasonable but
D the Bench opined that it required to be given statutory shape by amending
the 1984 Order.
Later, In a different case, the High Court held that since the neces·
sary amendments were not carried out by the Government as pointed out
In the earlier decision, the sugarcane gl'Olftn had a right. to supply
E sugarcane to the factory of their choice for better price. On a contrary view
being taken by another Bench, the matter was referred to a larger Bench.
The Full Bench of the High Court opined that the issue of deprivation of sugarcane growers of best price available to them was not debated
F in the earlier decisions and held that since there was no power In the State
Order to llx the maximum price payable to the cane growers, the cane
growers, who were not members of any cooperative society, were not bound
by the price fixed by the State Government. The High Court also held that
the supply by the cane growers belDK in the nature of compulsory sale, the
cane growers were entitled to supply the sugarcane at the market rate. The
G High Court for 1993·94 r1Xed the market price at Rs. 740 atonne as against
340 to Rs. 400 rlXed by the Government, and directed that (I) the non-member cane-growers would be paid market price prevailing In the locality; (II)
the market rates would be as agreed between the sugarcane growers and
the respective factories; and (iii) no unauthorised deductions on any
H account should be made by factory from the price to be paid to the
\
MAHARASHTRA SAKKAR KAR KHAN Av. STA TE
379
sugarcane growers. Aggrieved, the Sahkari Sakkar Karkhana, Private A
Sugar factories and the State Government filed the appeals.
It was contended for the appellants that the decision of the High
Court would result in collapse of zoning system and gradual erosion of
cooperative movement; that payment of market price would result in
closing down of smaller units as price structure was correlated with yield B
and not with the market and that the High Court was not justified in
interfering with matters of economic policy and the directions given by the
High Court were violative of the scheme of the Act.
Disposing of the appeals, this Court
HELD : 1.1 Zoning or reservation of areas for supply of sugarcane
to factories and fixation of price for each zone under the Maharashtra
Sugar Factories (Reservation of Areas and Regulation of Crushing and
Sugar-cane Supply) Order, 1984 as amended by 1987 Order is not arc
. bitrary or violative of Sugar-cane (Control) Order, 1966. The directions of D
the Full Bench of the High Court, given in paragraph 25 of its judgment
shall stand set aside. (391-D, 425-A)
Satara Sahkari Sakkar Karkhana Ltd. & Anr. v. State of Maharashtra
and Ors., AIR (1989) Bombay, overruled.
The Rahuri Sahkari Sakkar Karkhana Ltd. & Anr. v. Slate of
Maharashtra & Ors., AIR (1987) Bombay 248, approved.
1.2. Price Oxation in a controlled economy may not be bad so long
as it Is in accordance With the policy formulated by the Government and
E
-. _)
the decision by the Committee of experts is not found to be arbitrary. The F
price fixation machinery is to be determined by the State Government or
under the Central Sugarcane (Control) Order, 1966 in the manner
provided therein. So long as the price fixation does not suffer from any
infirmity or it is held to be prejudicial to cane grower so as to benefit the
State or the financial institution it cannot be held to be bad. (411-B, Cl
G
~)
1.3. In the State of Maharashtra, the exercise of pricing is undertaken by the Committee in accordance with the guidelines provided after
taking into consideration various factors so that the price of sugar does not
escalate and caite ·growers are not deprived of good return to dissuade them
from going for alternative crop. The price determined by the Committee is H
380
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A notified every year but no objection was ever received. Price flXlition for the
cooperative societies under bye-law 64 either by the Director of Factories or
by the State Government was not challenged to be ultra-vires, either before
the High Court or this Court. No cane growers can thus legitimat!ly claim
that the price ftxed for the cane was not fair or just or was not productive.
B It cannot , therefore, legitimately be urged that it was violative of the
Control Order or Zoning Order or it was arbitrary. [407·B, C, 405-A]
1.4. Price fixation cannot be assailed only because cane growers of
one area are getting better price than the other. The dllTerence In price
arising due to application of principle uniformly Is neither bad nor
C arbitrary. It may be that since the price is linked with yield It may cause
hardship to one set of growers as they might be deprived of better price
as compared to his neighbour due to deficient functioning of the factory
but in a welfare State and controlled economy Individual hardship cannot
override the larger social Interest. [ 408·CJ
D
1.5. So long as the determination of price is fair and just and. based on
relevant mdterlal It cannot be held to be not applicable to one cla11 of
growers, namely, non-members In the zone because they are not members or
the cooperative societies. Otherwise It would be defeating the enllre purpose
of enforcing controls. If the exercise of power Is not bad fot members of.the
E society It cannot be held to be bad for non-members, unless It Is found to be
arbl!rary. So Car as cultivation of cane and payment of price are concerned
the two are similarly situated. (405-G, H, 406·A)
1.6. Further, the production of sugar being of primary concern the
Government ensured that the growers were not denied the minimum. The
F Additional Cane price or final State Advised Price are paid n a matter of
Incentive.And what is incentive for one year becomes the mlnimum·prlce for
next year. The concept of market price, better price or higher price thus ·hlll
no place in the scheme. There is no reason why such fixation should not be
held to be binding on non-members as in the scheme of price fixation no
G distinction is made between members and non-members. (406-B, CJ
1.7. Reason for Government intervention to fix the price was to
increase sugar production. While doing so the Government ensured stable
and assured income to the growers. The role or price control is not merely
to reduce distortions which would otherwise have been prevalent resulting
H in exploitation or cane growers particularly when there was surplus
.r
:--· i
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/
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)
MAHARASHTRA SAKKAR KARKHANA v. STATE
:18 t
production of cane but to promote his financial and social condition. The A
fruits of controlled economy for the weaker and poorer cannot be doubted.
In agricultural sector the price control as an instrument of policy has
boosted the economy. To denounce it, therefore, may not be in the interest
of the cane growers. The Full Bench of the High Court too did not find
any flaw in price fixation, nor it held it to be unremunerative. In absence
of any material it cannot be assumed that the Directors of Sugar Factories
who are none else than cane growers themselves would opt for a lesser
price for their cane because the sugar factories of which they are members
were under an obligation to pay their dehts. (408-B, F, G, 409-B]
2.1. There is no machinery in the State to determine the State Advised
Price for non-members as 95% of the sugar factories being in cooperative
sector, the fixation of price under the bye-laws was always considered to be
legal. And rightly, so. Therefore, determination of price by an authority
under the bye-laws is valid for cane growers attached to a sugar factory in
reserved area. Absence of any machinery in the State Orders for hearing
non-members could n0t destroy effectiveness of pricing. [ 405-D, E, 408-B]
2.2. The non-members have not organised themselves so as to entitle
their representative to be invited. Hearing of every individual grower even
otherwise is physically impossible. Presence of representative of cane
growers' cooperative society before the Committee fixing the price makes
it broad based. Such representative would bargain for better price for cane
growers irrespective of whether such a cane grower is a member of the
cooperative society or not. No representative would agree for lower price
B
c
D
E
for members of the society. Therefore, absence of individuals or non-members of cooperative society before the Committee fixing the price cannot
reDect adversely on the price fixation. Besides, the price fixation should be
F
observed in broad perspective. If every individual has to be heard the
entire system may fall for sheer non-practicability. (407-D, E, G]
2.3. Practically, there is no difference between members and nonmembers of cooperative societies in relation to cane price; In the licence
for crushing cane issued under clause 4(5) of the State Order it is provided G
in Form B clause (xvii) that the factories shall be bound to pay same cane
price to non- members as members. A non-member is also entitled to share
the profits which are worked out at the end of the season. A member is no
doubt entitled to some facilities such as running of other business or
availing the education facility etc. run the cooperative societies but that H
382
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A has nothing to do with cane price or its supply. As a matter of fact the sale
of by-products etc. is shown as receipt while calculating additional price
or final State Advised price. [406-F, E, G]
2.4. The Court's responsibility is to construe the provision which
may advance the cooperative movement in the State. The amendments in
B Sections 22 and 23 of the Maharashtra Cooperative Societies Act have
facilitated the membership. Notwithstanding the right of a cane grower to
become a member or cooperative society, the provisions cannot be construed so as to result in nullifying the whole system of control devised to
improve production of the sugar in the country. For sake of more profit
,C to few individuals the society cannot be made to suffer. Ours is mixed
economy. Competition and control have been blended to reduce economic
imbalance. If the individual growers, who do not constitute more than 20%
otherwise get the same profit as a member of cooperative society then there
appears no justification to construe the provision to give them a bit more
profit when it is fraught with danger of small units closing down and the
D entire zoning system coming to a crash. [ 420-C to El
3.1. Zoning or reservation and fixation of price for each zone are
inter-linked. Even under the 1966 Order the fvcation of minimum price is
factory-wise. Thus each factory has been considered to be one zone. ReserE vation or zoning and fixation of price for each zone is valid. (417-E]
F
Shri Malaprabha Coop. Sugar Factory Ltd. v. Union of India & Anr.
[1994) 1 SCC 648 and Anakapa//e Coop. Agrl. and Industrial Society Ltd.
Etc. Etc. 1·. Union of India and Ors., (1973] 3 SCC 435, relied on.
3.2. Zoning is beneficial to the cane growers and it bas been resorted
not only to ensure regular cane supply to sugar factories but also to protect
the cane growers who may otherwise have been seriously affected. It is a
well established feature in the country. Once a zone is reserved for a
factory the cane grower bas au obligation to supply cane to the factory and
G the factory has a corresponding obligation to lift the cane from the field,
crush it, produce sugar and pay to the grower not 9nly the minimum price
but also share the profit with him. [ 412-B, CJ
4.1. Clause 3 of the 1984 Order either on the Language or in its effect
expressly does not purport to be an order under Section 3(2)(!) of the
H
Essential Commodities Act. It is not an order of the nature as was issued
I
_, .
' -
'
1
MAHARASHTRASAKKARKARKHANAv. STATE .
383
by the Central Government ror sale or levy sugar. It does not direct a cane A
grower to sell its cane to the Government or to any person specified in the
Order. In abse!lce or any provision the Order cannot be held to be an order
directing the producers to sell the cane so as to make it a compulsory sale
under clause (f) or sub-section (2) or s.3 or 1957 Act. [416-C, DJ
4.2. Section 3(2)(1) contemplates a specific order. It applies in those B
cases where any essential commodity is directed to be sold or parted with in
pursuance or an order or the Government. It bas DO application to supply in
a reserved area. Further, under clause 5 or Zoning Order, the cane under
orders or the Director can be supplied to other factories. The provision
completely demolishes the argume.nt or compulsory sale. [416-H, 417-A]
C
4.3 Section 3(3)(c) or the 1957 Act contemplates an order or a
compulsory sale and not a compulsion arising out of enforcement of
restrictions under the provisions or controlling, distribution and supply.
A cane grower in a reserved area gets the price ror supply or bis cane to a
specified factory. This price is payable both to members and non-members. D
The orders only restrict that the supply could not be made to any factory
outside the area. The reservation may result in confining the choice but it
cannot be construed as an order or sale. (418-G, H, 419-A]
Union of India & Anr. v. Cynamide India Ltd. & Anr., (1987] 2 SCC E
720, rererred to.
4.4. Economics or pricing in a controlled economy is entirely dirrerent rrom a rree market. The equilibrium in the latter is reached by
interaction or supply and demand. Its graph keeps on moving up and down
governed by the principle of scarcity. But the controlled economy does not F
operate on demand and supply. The production, distribution and the
supply are regulated and controlled by the Government in public interest.
Such orders are issued in social interest for the common benefit and fair
price ror the needy and poor. Legality or such order cannot be tested on
cost structure or rree economy or maximum profit theory. (417-F]
G
M/s. New India Sugar Works Etc. Etc. v. State of Uttar Pradesh & Ors.
Etc. Etc., (1981] 2 SCC 293, relied on.
Andhra Sugars Ltd. and Anr. Etc. v. State of Andhra Pradesh and Ors.,
(1968] 1 SCR 705 and Vishnu Agencies (Pvt.) Ltd. Etc. v. Commercial Tax H
384
SUPREME COURT REPORTS
(1995] 3 S.C.R.
jl
A Officer & Ors. Etc., (1078] 2 SCR 433, referred to.
'-
S. Deductions made under bye-law 65, being for the general welfare
,,.
of the society, and as such it cannot be said that they are either bad or
they sulTer from any infirmity. The deposits deducted from non-members
•
are refundable and they carry same interest as is paid to members. A
B non-member who is sharing in profits of the sugar production cannot be
beard to say that be has no obligations towards the society because he is
not a member of any cooperative society. [ 420-A, BJ
"A',
6. Even though the supply made by the non-members could not be
c considered to be compulsory sale within meaning of Section 3(2)(1) and,
therefore, the provisions of Section 3(3)(c) are not attracted, yet the
methodology adopted by the State for fixing price requires to be
rationalised as various discrepancies have surfaced for which there is no
satisfactory explanation. The Full Bench of the High Court felt thal there
was something grievously wrong with pricing system in the State. The
D
o...r.f_!~e price structure of cane is founded on two basic factprs, one, the
,.
recovery percentage and other the incentive for sharing profit arrived at
by working out receipt minus expenditure. And that is neither co11tt&irJ' !n
~-
law nor unfair. But the wide disparity in the price paid by two factories is
certainly glaring and is apt to create misgiving. (420-F, 421-H, 422-A]
E
7. In the Zoning Order clause S empowers sugar factory to accept cane
from other zone as well but no similar right has been given to cultivators.
The State Government may suitably amend the Zoning Order so as to
provide that in a case where any of the three circumstances mentioned in
Clause S(d) are present it would be open to the cane growers to apply to the
"-- ,
F
specified officer for permission to supply his cane outside the zone. In such
an event, it may be open to the officer to designate the factory to which the
grower should sell his cane ensuring that the grower gets a price which is
not less than a price obtained in his zone. (422-B, 423-F]
G
8.1. Although the price fixation has not been found to suffer from
any infirmity and the order issued by the Government determining price
for each factory is upheld, the State Government would be well advised to
get the matter examined by an Expert Committee comprising of
,..
economists and financial experts well versed in price fixation, particularly
in agricultural sector. This exercise has become imperative after the
H enforcement of Zoning Order. The price equation since 1984 has under-
MAHARASHTRASAKKAR KARKHANA v. STATE
385
gone tremendous upsurge. The escalation is manifold. Benefit of higher A
"-
)
price of sugar must percolate to growers as well. Therefore, the Committee
may examine : [424·G, 423·H, 424-A
(a)
If the fixation of State Advised Price uniformly for the entire
State as it is being done in other States, or at least separately
for different zones, as the normal recovery in the zones varies, B
would be more fea•ible; [424-B]
J
(b)
If the additional price worked out in the manner indicated in
/
Schedule II of Control Order of 1966 is more advantageous
and beneficial to the growers. If it be so it may opt for the c
same as it would avoid tedious exercise by the Ministerial
Committee and have the benefit of uniformity; [ 424-C]
(c)
Whether Rs. 600 which has been paid by the factories to the
non-growers under interim order passed by this Court would
not be a reasonable minimum price for 1995-96 and may D
furnish the basis for fixation of price for future years; [424-D]
'~
(d)
If the shortcomings point.d out by the Full Bench in other
regard can be rectified and rationalised; and [ 424-F]
(e)
Whether bye-law 65 should be appiietl :o ;,c~-members or not; E
[424-G]
(0
It may also suggest ways and means for improving yield by
the sugar factories and reducing overhead expenses and
eliminating, possible, paper loss; [424-E]
~
F
8.2. It is further directed that :
(i)
The State Government may take appropriate steps to amend
Clause 5 of the Zoning Order so as to protect the cane
growers; [425-A]
(ii)
The amount paid by the factories consequent upon the interim G
orders granted by this Court shall not be liable to recovery
""
from the cane growers. But the bank guarantee furnished by the
appellants or sugar factories shall stand discharged. [425-D]
It is made clear that the direction not to recover Rs.600 from H
386
SUPREME COURT REPORTS
[1995) 3 S.C.R.
A non-growers would not entitle any member of the cooperative society or
the cooperative society itself to claim that it was liable to be paid Rs. 600
for its cane during the years in dispute. [425-E]
B
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 522 ol
1989 Etc. Etc.
From the Judgment and Order dated 23.9.88 of the Bombay High
Court in W.P. No. 263 of 1988.
F.S. Nariman, K.K. Venugopal, G. Ramaswamy, S.K. Dholakia, AM.
Singhvi, Rajiv Dhavan, Subhash Sharma, Ranjit Kumar, S.B. Patil, Ms. Bina
C Tamta, Ms. Anu Mohia, S.R. Hegde, G.B. Sathe, S.M Jadhav, AS.
Bhasme, D.M. Popat, P.H. Parekh Arvind Kumar Sharma, Bhavesh V.
Pajwani, Ms. Lucy, H.A. Raichura, AM. Khanwa, K.R. Chaudhary, AM.
Khanwilkar, Pradip Patil, M.D. Adkar, Ejaj Maqbal, B.K. Misra, Ms.
Rashmi Kathpalia, S.D. Mudaliar, Uday U. Lalit, N.A Siddiqui, S.V.
D Tambwekar, S.V Despande, Ms. V.D. Khanna, G.B. Sathe, S. Kushreshtha,
Manoj Swarup and Kailash Vasudeva for the Appearing parties.
The Judgment of the Court was delivered by
R.M. SAHAI, J. These are two sets of appeals filed by various
E Sahakari Sakkar Karkhanas, that is, Co-operative Societies of Sugarcane
growers, Private Undertakings, Joint Stock companies producing sugar in
the State of Maharashtra and the State itself one, directed against direction
by a Full Bench of the Bombay High Court in Satara Sahakari Sakkar
Karkhana Ltd. & Anr. v. State of Maharashtra & Ors., AIR (1989) Bombay
F 53 that the cane growers who were not members of any Co-operative
society but who were required to supply their cane under reservation order
or control Orders to sugar factories with which they were attached were
entitled to market price instead of price fixed by the Government, and
other directed against fixation of market price for 1993-94 by the High
Court at Rs. 740 as against Rs. 340 to Rs. 400 fixed by the Government.
G
H
The direction issued by the Full Bench are as under :
"We are therefore, of the view, that unless provisions for the
following are made in it, the State Order will not be valid -
(i) The sugarcane growers who are not members of the factory
t
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)
_,
MAHARASHTRASAKKAR KARKHANA v. STATE [R.M. SAHA!, J.) 387
or factories to which they are required to supply their sugarcane A
shall be paid for the sugarcane supplied by them the price calculated at the market rate prevailing in the locality at the date of the
sale;
(ii) The market rate may be as agreed between the parties,
namely, the sugarcane grower and the factory or factories conB
cerned. If there is any dispute over it, the same should be resolved
by.an independent authority which may be created under the Order
such as the one under clause 12 of the present Order. The authority
concerned should decide the dispute expeditiously after hearing
the parties and by a speaking order;
C
(iii) No unauthorised deductions on any account should be
made by the factory from the price to be paid to the sugarcane
grower withcut his consent. The State Order should provide for a
machinery similar to the above to hear and grant to the sugarcane
grower, expeditious relief if he has any complaint in that behalf." D
The reasons for these directions were two fold, one the non-members were
not bound by the price fixed under bye-laws framed under the Cooperative
Sugar Act and other that there was no machinery in the Zoning Order
issued by the State Government to hear tho non-members before the price E
was fixed. Before examining whether these reasons are well founded in law
leading to the impugned directions it is necessary to narrate in brief the
necessity which impelled the Central Government to grant protection to
sugar industry and consequently to control, supply and distribution of the
sugarcane without sacrificing the interest of cane grower.
F
Sugar is an item of daily use in every household, rich or poor. Use
of white sugar has increased with rolling of years, growth of population,
rise in income etc. Today it is somewhere 134 lakh tonnes. Even in 1931
the requirement was more than 9 lakh metric tonnes. But the production
was nearly 1.8.lakh metric tonnes only. And there was an import of more
than 8 lakh metric tonnes. The Government, therefore, decided to grant G
protection to the sugar industry. The Bhargava Commission appointed by
the Central Government in 1970 in Chapter I of part I of its report has
traced the growth and development of the sugar industry and observed that
till 1930-31 there were only 29 sugar factories producting 1.22 lakh tonnes
of sugar in the country. That was, however, not adequate to meet the H
388
SUPREME COURT REPORTS
[ 1995] 3 S. C.R.
A internal requirement and nearly 8 lakh tonnes of sugar was imported in the
year. In 1932 protection was granted the sugar industry. Following this
' ,.
there was a phenomenal expansion of the industry and the number of sugar
factories increased to 111 in 1933-34 and to 137 in 1936-37. The sugar
import which was about 8 lakh tonnes in 1930-31 was almost stopped from
B
1936-37. Thereafter there was little development of the industry upto
1951-52. The development and regulation of the sugar industry came under
the control of Government of India for the first time from May 1952 when
the Industries (Development and Regulation) Act, 1951 came into force.
All the 138 sugar factories which were working before 1952 were registered
under the provisions of Industries (Development and Regulation) Act,
c 1951. New sugar factories were established thereafter under licences
granted by the Central Government. Another important feature of post
1951 development noticed by the Commission was setting up of sugar
factories largely in the cooperative sector due to Government policy of
giving preference to cooperative societies in the matter of licensing. In
D respect of State of Maharashtra the Commission observed that sugar
industry in Maharashtra was progressing very fast and the sugar production
in Maharashtra was expected to reach 16.37 la!:h metric tonnes and the
,__,
State was to become the largest producer of sugar in the country. Today
the State accounts for nearly 30% of the sugar output. The national output
of sugar for 1991-92, 1992-93 and 1993-94 was 134, 106 and 96 lakh metric
E tonnes respectively. The output of Maharashtra was 42, 36 and 27 lakh
tonnes for the corresponding years.
While granting protection to the sugar factory the Government did
not ignore the interest of sugarcane growers. It is the basic rather the only
-
F raw material for sugar. It is grown by cultivators who were usually exploited
·~
or at least were in danger of being exploited. Therefore, the Government
agreed for fixing price of cane. At a conference called by the Government
of India in 1933 representatives of canegrowers asked for a minimum price.
The Government accepted the demand and in 1934 passed the Sugarcane
G
Act, 1934 which conferred powers on the then provincial governments to
flX minimum price for the cane. Since 1950 it is being done under Control
Orders issued from time to time. The last Order known as Sugarcane
(Control) Order was issued by the Central Government in 1966. The main
r
features of the Order are two-fold · one, that it broadened the base for
price fixation by providing that the minimum price of cane shall be flXed
H having regard to the cost of production of sugarcane, the return to the
MAHARAsHTRASAKKARKARKHANAv. STATE(R.M.SAIW,J.] 389,
grower from alternative crops, the availability of sugar to consumer at fair A
)
price, the price at which sugar produced from sugarcane is sold by
producer of sugar and the recovery of sugar from sugarcane. The other is
that it regulates distribution and movement of sugarcane by empowering
the Government to notify in the Gazette and reserve any area where
sugarcane is grown for a factory having regard to the crushing capacity of B
the factory, the availability of sugarcane in the reserved area and the need
for production of sugar with a view to enable the factory to purchase the
quantity of sugarcane required by it. The Order thus attempts to assure
. )
. ,,,
supply of cane to sugar factories and ensure minimum price to
canegrowers.
c
The Bhargava Commission in Chapters I and II of Part II dealing
with price fixation and stabilisation of supply of cane after examining pros
and cons of the various competing interests was of the opinion that the
need for steady and adequate supply of cane to the sugar indu•try from
year to year could not be over- emphasised. It felt that an assured and D
adequate supply of cane was essential for the working of the sugar industry
on an efficient and economic level. The Commission observed that sharp
increase and decrease in cane supply from year to year were the bane of
the Indian sugar industry. Therefore, it felt that it was imperative that some
kind of stability in the matter of supply of raw material to the industries E
should be brought about. It, therefore, recommended that provisions
should be made for agreement between cane growers and factories. The
Commission suggested t1'e• where Cane Growers' Societies Union
operated it would be desirable to have tripartite agreements involving
factories, the societies and the growers. It suggested that minimum price F
__ i
be fixed for sugarcane related to a basic recovery of 8.5% with a premium
for every 0.1 % increase in recovery on proportionate basis. It also recommended that the sales realisation from sugar after expenses should be
shared with the cane growers who execute agreement for supply of cane
and fulfil their contract. Both the.se recommendations were accepted. The
latter has been incorporated as paragraph 5A in the Sugarcane (Control) G
Order, 1966 ('1966 Order' for short). The minimum price for cane is fixed
for growers throughout the country and recommendations of Bhargava
"' I
Commission are being following both in fixing minimum price of cane, and
payment of additional price accordance with formula framed by it appended as Schedule II to 1966 Order.
H
390
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A
In the State of Maharashtra it was the experience of the Government
that there were cyclic ups and downs in sugarcane production in the State
which adversely affected some of the sugar factories, particularly those
which were identified as sick and financially weak. The Government found
that in times of shortoge of sugarcane crop, in the absence of statutory
B
provisions earmarking areas for drawal of cane it became difficult for
certain factories to get adequate quantity of cane thereby affecting their
obligations towards the cane growers for payment of cane price, employees
and worked for paym•.nt of their salaries and wages etc. In such situations
the State ·Government was required to assist the factories with huge
amounts for enabling them to discharge their obligation by diverting funds
C
with considerable stress and strain on the State Exchequer. The Government found that at time some of the factories starved of sugarcane whereas
others exceeded their crushing capacity. In order to find out some solution
to these problems the State Government appointed a Committee as an
Experts Committee under Government Resolution dated 28th April, 1980
D in exerciser of the powers delegated to it by Notification issued by the
Central Government in 1966. The said Committee was requested to take
review of the work in the past in regard to the formation of zones for Sugar
factories; to identify the limitations due to which the object of formation
of zones could not be achieved; and to suggest remedial measures in
E various matters. The Committee submitted its Report in October 1983.
After considering the Report the State Government on 12th September
1984 issued the Maharashtra Sugar Factories (Reservation of Areas and
Regulation of Crushing and Sugarcane Supply) Order, 1984. In the
Preamble to the Order it is mentioned that the Notification was issued to
F implement the rewmmendations of the Experts Committee appointed by
it and also to ensure economic viability of large number of sugar factories.
The order mentions that since the Government of India had granted letters
of intent for establishment of new sugar factories and has stipulated therein
that the conversion of the letters of intent into industrial licences shall, inter
alia, depend on the State Government notifying the zones for drawal of
G sugarcane by new sugar factories. The Order defines 'cane grower' either
as 'owner' or as a 'tenant including a body corporate such as a company
registered under the Companies Act, 1955 (1 of 1956), a society registered
under the Maharashtra Co-operative Societies Act, 1960 (Mah. XXIV of
1961), any body corporate, set up under any law for the time being in
H force, including an organisation owned or controlled by the Government
' . ,.
MAHARASHTRA SAKKAR KARKHANA v. STATE [RM. SAHA!, J.] 391
of any State or Government of India'. It defines the 'reserved area' to mean, A
the area reserved for a factory as specified in the schedule pertaining to
)
the factory. Clause (3) of the Order provides that having regard to the
crushing capacity of sugar factories and the yield of sugarcane in the
reserved areas, and the need for production of sugar, the area as specified
in the schedule, shall be reserved for the sugar factory with a view to B
enabling it to purchase quantity of sugarcane required by it. Sub-clause (2)
of Clause 3 prohibits any sugar factory to purchase cane or accept supplies
of cane from cane growers except from the area reserved for that factory.
"-- i
The only exception to it is contained in clauses 4 and 5 of the Order. Clause
/
4 deals with grant of licence and Clause 5 regulates supply of sugarcane
empowering a permit officer to allow a sugar factory to purchase cane c
areas other than the reserved for it under Clause 3 provided he is satisfied
that the circumstances mentioned in the clause existed. The order was
amended in 1987, 1988 and 1989. Sub-clause (lA) was added after subclause (1) in Clause 3 of the Order issued in 1984 by the Maharashtra
Sugar Factories (Reservation of Areas and Regulation of Crushing and D
Sugarcane Supply) (Second Amendment) Order, 1987 and it is provided
that the area specified in each of the schedules and reserved for the factory
mentioned in that schedule in accordance with sub-clause (1) of the clause
shall be reviewed by the State Government after every three years and in
Clause 4, sub-clause (6A) was added after sub-clause (6) which empowered
the licensing authority to allow a sugar factory to manufacture sugar from E
the sugarcane to be purchased by it from non-members which is grown in
the area reserved for it which is overlapping or common with other
factories if such factory has entered into contracts for purchase of cane
from such growers and if the sugarcane does not exceed the requirements
I
of the factory based on its licensed crushing capacity during any crushing F
-
season.
Trouble appears to have started after the Notification was issued by
the State Government in 1984. Writ petitions were filed by cooperative
societies and sugarcane growers challenging the Order as being beyond the G
scope of the Act and the 1966 Order. It was claimed that the Order was
violative of the rights guaranteed under Articles 14 and 19 of the Constitution. The challenge on behalf of the growers was that the Order in prevent-
..,
ing the cane growers from selling their sugarcane at the best price available
imposed an unreasonable restriction. It was claimed that in process of
reservation they have been deprived of the highest price in the area, H
392
SUPREME COFRT REPORTS
[1995] 3 S.C.R.
A therefore, it was liable to be struck down as arbitrary. The prohibition in
the Order on enrolment of the members was also challenged. A Division
Bench of the Bombay High Court in Ihe Rahuri Sahakari Sakkhar
Karkhanu Ltd. & A11r. v. Stolt ·,f Mahaiashtra & Ors., AIR (lQ87) B0mbay
248 held that the Order was not violative of the provisions of the Constitution or the Central Government Order of 1966 and the Essential ComB modities Act (hereinafter referred to as 'the Act'). Nor did the Bench find
any merit in the claim that the reservation policy was violative of any
constil utional guarantee as the Order ha,ing been issued in view of the
scarcity of non-availability of sugarcane and for securing the equitable
distribution the Order was squarely covered in the Directive Poli.cy unC folded by clause (b) of Article 39 of the Constitution. The Bench did not
find any merit in the claim that the distribution of sugarcane on the
licensing capacity of the sugar factories was violative of any statutory
provision or the Constitution as the licence for crushing the sugarcane was
granted by the Central Government under the provisions of Industries
D {Development and Regulation) Act, 1951. The Bench repelled the challenge that the order was arbitrary or violative of Article 14 of the Constitution. Nor it agreed with claim of non-members of the cooperative societies
that the prohibition in the Order from becoming members or obligation to
supply cane to the factory in the reserved area was unreasonable or
arbitrary. The Bench observed :
E
F
G
H
"With the sole intention of avoiding cut-throat competition between the different sugar factories ru; well as the sugarcane
growers, the impugned order has been issued. In this context, it
cannot be forgotten that the Co-operative Societies Act has been
enacted keeping in view the Directive Principles and the State
Policy as enshrined in the Constitution. The co- operative movement in the ultimate analysis is socio-economic and moral movement. It is a parl of the scheme of decentralisation of wealth and
power. Co-operative capitalism is neither co-operation nor
socialism. On the other hand, co-operation is a substitute for
self-interest of an individual or groups of individuals for the benefit
of the whole society. Wealth has no meaning if it is concentrated
in few hands. In the absence of decentralisation or equitable
distribution of wealth or property, it becomes improperly. Therefore, equitable distribution is the essence of equality.