# SHRI MALAPRABHA CO-OP. SUGAR FACTORY LTD v. UNION OF INDIA AND ANR

- **Citation:** [1993] Supp. 2 S.C.R. 415
- **Court:** Supreme Court of India
- **Decided:** 1993-09-22
- **Bench:** Mn. Venkatachaliah, Cj. Dr. T.K. Thommen, S. Mohan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shri-malaprabha-co-op-sugar-factory-ltd-v-union-of-india-and-anr-12189
- **Pages:** 46

## Headnote

Constitution of India, 19SO: Anicle J9(l)(f), 19(l)(g) and 31-Levy
sugar-Fixation of price-Held, Government cannot fzx an arbitrary price nor
B
can a price be fzxed on extraneous consideration--lf the price fzxed does not C
secure a reasonable return on capital employed, it is liable to be challenged
both on the ground of its being inconsistent with Section 3(3-C) of the Essential Commodities Act, 19S5, as also violative of Anicles 19(1) (f), 19) (1) (g)
and 31 of the Constitution.
The Essential Commodities Act, 19SS/1he sugarcane (Control) Order, D
1966: Section 3(2) (f), 3(3-C)!Clause SA-Levy Sugar Supply (Control)
Order, 1972-Levy sugar-Determination of price-Principles regarding-Held, in fzxing levy sugar price nonns laid down in Section 3(3-C) and
other relevant factors were taken into consideration:
Clause SA-Additional price payable to sugarcane grower-Computatiqn of-Held, manufacturer of sugar will be entitled to retain an amount
equivalent to that paid to cane grower-Government could not proceed to
detennination of levy price by mopping up JOO per cent of excess realisation
of free sale sugar-Manufacturer of sugar had become entitled to 50 per cent
of such realisation from 1.10.1972:-Directions given to amend Notifications
accordingly.
Administrative Law:
E
F
Judicial review-Levy sugar-Fixation of price-Held, price fixation is G
a legislative function--lt is permissible to coun to examine whether regard has
been had to factors mentioned in Section 3(3-C) of the Essential Commodities Act, 19S5.
The Union of India, in exercise of its powers under Section 3 of the
Essential Commodities Act; 1955 promulgated Levy Sugar Supply (Con- H
415
416
SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A trol) Order, 1972 providing for compulsory supply or sale of sugar from
a manufacturer or a recognised dealer of a specified quantity to a person
or organisation to such State Governments as it may direct from time to
time. Accordingly, the Central Government issued five notifications, dated
29.11.1975, 9.2.1976, 3.8.1976, 22.12.1977 and 1.3.1978 requiring the
B
c
D
producers to supply sugar at the price determined in the Notifications.
The manufacturers of sugar challenged the Notifications in writ
petitions before various High Courts on the ground that in price fixation
the Central Government did not take into consideration the relevant
criteria laid down under Section 3 (3· C) of the Act.
The High Court rendered their decision which led to the filing of the
appeals on certificate, and special leave petitions before this Court by both
the manufacturers and the Union of India-insofar as they were aggrieved
by the decisions of the respective High Courts. A number of writ petitions
•
and transfer petitions were also filed before this Court.
· It was contended on behalf of the sugar manufacturers that price
fixation for the levy sugar was done on notional basis without regard to
:he actualities as envisaged by Section 3(3C) of the Act, that Clause (d) of
Section 3 (3C) of the Act, which ensures a reasonable return on the capital
E employed in the business of manufacturing sugar, cannot be involved to
limit or restrict the return or to mop off the profits, which the sugar
producer may get by sale of free sugar by fixing a low price for levy sugar,
and that the Notifications issued for the years 1974-75 to 1979-80 wherein
the Government had admitted mopping up 100 per cent excess realisation
on sale of free sugar were in conflict with Sugarcane (Control) Order
F
particularly Oause SA, since the Government after incorporation of the
said clause could not, in law, determine the levy price by mopping up 100
per cent excess realisation on sale of free sugar as the sugar manufacturer
was entitled to 50 per cent of such excess realisation from 1.10.1974.
G
Disposing of the case, this court
HELD : 1. The principles in respect of price fixation of levy sugar
are:
(i) The amount payable for levy sugar shall be calculated with refer·
H ence to price of

## Text

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SHRI MALAPRABHA CO-OP. SUGAR FACTORY LTD.
A
v.
UNION OF INDIA AND ANR.
SEPTEMBER 22, 1993
[MN. VENKATACHALIAH, CJ. DR. T.K. THOMMEN
AND S. MOHAN, JJ.)
Constitution of India, 19SO: Anicle J9(l)(f), 19(l)(g) and 31-Levy
sugar-Fixation of price-Held, Government cannot fzx an arbitrary price nor
B
can a price be fzxed on extraneous consideration--lf the price fzxed does not C
secure a reasonable return on capital employed, it is liable to be challenged
both on the ground of its being inconsistent with Section 3(3-C) of the Essential Commodities Act, 19S5, as also violative of Anicles 19(1) (f), 19) (1) (g)
and 31 of the Constitution.
The Essential Commodities Act, 19SS/1he sugarcane (Control) Order, D
1966: Section 3(2) (f), 3(3-C)!Clause SA-Levy Sugar Supply (Control)
Order, 1972-Levy sugar-Determination of price-Principles regarding-Held, in fzxing levy sugar price nonns laid down in Section 3(3-C) and
other relevant factors were taken into consideration:
Clause SA-Additional price payable to sugarcane grower-Computatiqn of-Held, manufacturer of sugar will be entitled to retain an amount
equivalent to that paid to cane grower-Government could not proceed to
detennination of levy price by mopping up JOO per cent of excess realisation
of free sale sugar-Manufacturer of sugar had become entitled to 50 per cent
of such realisation from 1.10.1972:-Directions given to amend Notifications
accordingly.
Administrative Law:
E
F
Judicial review-Levy sugar-Fixation of price-Held, price fixation is G
a legislative function--lt is permissible to coun to examine whether regard has
been had to factors mentioned in Section 3(3-C) of the Essential Commodities Act, 19S5.
The Union of India, in exercise of its powers under Section 3 of the
Essential Commodities Act; 1955 promulgated Levy Sugar Supply (Con- H
415
416
SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A trol) Order, 1972 providing for compulsory supply or sale of sugar from
a manufacturer or a recognised dealer of a specified quantity to a person
or organisation to such State Governments as it may direct from time to
time. Accordingly, the Central Government issued five notifications, dated
29.11.1975, 9.2.1976, 3.8.1976, 22.12.1977 and 1.3.1978 requiring the
B
c
D
producers to supply sugar at the price determined in the Notifications.
The manufacturers of sugar challenged the Notifications in writ
petitions before various High Courts on the ground that in price fixation
the Central Government did not take into consideration the relevant
criteria laid down under Section 3 (3· C) of the Act.
The High Court rendered their decision which led to the filing of the
appeals on certificate, and special leave petitions before this Court by both
the manufacturers and the Union of India-insofar as they were aggrieved
by the decisions of the respective High Courts. A number of writ petitions
•
and transfer petitions were also filed before this Court.
· It was contended on behalf of the sugar manufacturers that price
fixation for the levy sugar was done on notional basis without regard to
:he actualities as envisaged by Section 3(3C) of the Act, that Clause (d) of
Section 3 (3C) of the Act, which ensures a reasonable return on the capital
E employed in the business of manufacturing sugar, cannot be involved to
limit or restrict the return or to mop off the profits, which the sugar
producer may get by sale of free sugar by fixing a low price for levy sugar,
and that the Notifications issued for the years 1974-75 to 1979-80 wherein
the Government had admitted mopping up 100 per cent excess realisation
on sale of free sugar were in conflict with Sugarcane (Control) Order
F
particularly Oause SA, since the Government after incorporation of the
said clause could not, in law, determine the levy price by mopping up 100
per cent excess realisation on sale of free sugar as the sugar manufacturer
was entitled to 50 per cent of such excess realisation from 1.10.1974.
G
Disposing of the case, this court
HELD : 1. The principles in respect of price fixation of levy sugar
are:
(i) The amount payable for levy sugar shall be calculated with refer·
H ence to price of sugar as the Central Government may determine having
SUGAR FACTORY LTD. v. V.0.1.
417
regard to four factors set out in Section 3(3C) of the Essential Commodities A
Act, 1955, namely, (a) minimum price of sugarcane, (b) manufacturing
cost, (c) taxes and duties, and (d) reasonable return on the capital
employed. [437-D]
(ii) A fair price has to be determined. For this purpose consideration
in fixing the rate of return. [438-G]
B
(iii) The Government cannot fix an arbitrary price nor can a price be
fixed on extraneous considerations. If such a price does not secure a
reasonable return on the capital employed, such a fixation is liable to be
challenged both on the ground of its being inconsistent with the guidelines
built in Section 3(3C) and also as violative of Articles 19(1)(1), 19(1)(g) and C
31 of the Constitution. [ 439-B]
(iv) Sufficient compliance with Section 3(3-C) would be deemed if the
Government had applied its mind with due regard to the norms mentioned
in clauses (a) to (d) of Section 3(3C). [439-F]
(v) Price fixation is a legislative function, even though it may be
based on an objective criterion. It is nevertheless imperative that the action
D
of the authority should be inspired by reason. The Court can examine
whether regard has been had to the four factors mentioned in Section
3(3C) of the Act, and any other relevant factor. The individual orders E
calculating the amounts payable to individual products are in the nature
of administrative orders founded on the mechanics of price fixation.
[440-C]
(vi) The price f1Xation on zonal basis taking into account the average
zonal cost it valid. [ 440-F]
p
Panipat Sugar Mills v. Union of India, [1973] 2 SCR 860; Anakapalle
Cooperative Society v. Union of India, [1973] 2 S.c.R: 882 and Shree Sitaram
Sugar Company Ltd. v. Union of India, [1990] 1 S.C.R. 909, followed.
Mis. Diwan Sugar & General Mills (P) Ltd. & Ors. v. Union of India, G
[1959] Supp. 2 S.C.R. 123; Mixnan's Properl.ies Ltd. v. Charl.sey U.D.C.,
[1963] 2 All. E.R. 787 andindian Express Newspapers (Bomaby) Private Ltd.
v. Union of India, [1985] 2 S.C.R. 287, referred to.
2.1. It cannot be said that in fixing the levy sugar price, notional
figures had been adopted.
H
418
SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A
2.2. The fixation of the levy sugar price involves an elaborate exercise
B
c
such as forecasting the cane availability sugar production, duration,
recovery etc; and this Court cannot redetermine the price by redoing that
exercise. [ 442-FJ
2.3. So far as price Determination Order dated 28.11.74 is concerned,
pending finalisation of the exercise involved therein, the prices notified for
1973-74 were repeated as an interim measure. It had to be so done because
the Government had to release 1974-75 sugar season production. Otherwise sugar could not have been released and it would have resulted in
disruption of sugar through public distribution system. In January 1975
the Government increased the free sale quota from 30 to 35 per cent which
could have given some relief to the industry by way of higher realisation,
and a decision was taken not to review the prices immediately. [ 442-G-H]
2.4. By July 1975, the final working results of the season were
D available for almost all the zones. The free sale price being high compared
to levy sugar prices, the Government while determining the prices having
regard to Section 3(3C) took into consideration (i) the statutory minimum
price (SMP) of cane fixed under Section 3(1) of the Sugarcane (Control)
Order, 1966. Besides, the difference of actual cane price that would be paid
E
F
G
by sugar producers over and above the statutory minimum cane price was
also taken into account. The Government even took a higher figure than
what they were required to do and determined and notified the levy price,
thus compensating the sugar factories for higher cane price; (ii) the
conversion cost of sugar for all the zones adopting as the basis the
Schedules in this regard recommended by the Tariff Commission Report,
1973, was duly adjusted for further escalations; (iii) the duties and taxes
thereon were taken into account, and (iv) the Government adjusted the
difference between the cost of production including reasonable return of
the entire sugar and the total realisation form the sale of levy sugar and
fixed levy sugar prices, thereby ensuring a reasonable return to the
producer on the entire production. The levy sugar price was notified in
respect of different zones in the country. [ 443-A-F]
2.5. The re-notification of the prices for 1975-76 season w.e.f.
29.11.1975 at the same level as those in previous season cannot be faulted
on the ground of arbitrary exercise of power by the Government for the
H reasons; (a) the issuance of the notification was intended to be an interim·
SUGAR FACTORY LTD. v. U.O.I.
419
measure and was a conscious decision to meet the exigencies of situation. A
But for the timely fixation of the prices, the country would have faced a
serious disruption of the public distribution system in 1·espect of the
supplies of an essential commodity, viz., sugar; (b) an across-the board
upward or downward revision of the prices pending a detailed examination
of the cost estimates relating to price determination was hardly likely to B
have achieved the real purpose of determination of levy price; (c) the levy
sugar price notified on 29. 11.1975 was intended to be an interim measure
to be followed soon by the determination of the price after a more detailed
examination of available information and data. [ 444-E·H]
2.6. After an intensive examination of the data on the crucial deter· C
minants of the ex-factory price of levy sugar, the Government notified the
levy sugar prices for 1975-76 season w.e.f. 9.2.1976. The Government
adopted the same methodology of taking into consideration the factors as
were made applicable to 1974-75 season, [445-A-B]
2.7. For 1976-77 sugar season the Government had to repeat 1975· D
76 prices, because of the impracticability of implementation 66 Bhargava
Inquiry Commission's main recommendations which made a complete
departure t'fom the earlier methodology followed by the Tariff Commission
for decades. [445-D-E]
2.8. For 1977-78 sugar season,· at the beginning of the season the E
Government repeated the prices for 1976-77 season on 22.12.1977 as an
interim measure only. Since the price fixation was to take quite sometime
and the old. price had been continuing for long time, the Government
estimated all-India average ex- factory price at Rs.18.03 more than the
average all-India Levy Sugar prices as on 22.1.1977. This increase was F
uniformly added to prices of all the zones earlier notified on 22.12.1977.
Later a decision was taken to de-control the sugar and levy sugar price
was no longer needed. [445-H, 446-A·C]
2.9. As regards 1978-79 seasons, the Government re-introduced the
policy of partial control w.e.f. 17 .12.1979 but by then bulk of production of G
1978-79 had been sold at the beast price available in the market and only
65 per cent of the small quantity that remained unsold was declared a 'levy
sugar'. The sugar factories had paid only the minimum can price notified
during the season. The levy sugar prices were determined as per the
provisions of Section 3(3C) of the Act. The final levy sugar prices were H
420
SUPREME COURT REPORTS (1993] SUPP. 2S.C.R.
A determined after adjusting the excess of free sale realisation once the cost
of production assessed, so as to ensure that the industry got a reasonable
return on the entire production of sugar. [446-D-F)
2.10. If in a particular zone, the Government worked out the levy
price assuming recovery, duration and a certain degree of efficiency but
B the actual working results were lower than the assumption because factories in the said zone were no efficient, the Government cannot be expected to reward in-efficiency for higher price. [446-H, 447-A)
3.1. The Government could not, in law, proceed to a determination
C of the levy price by mopping up 100 per cent of excess realisation free sale
sugar as the manufacturer of sugar had become statutorily entitled to SO
per cent of such excess realisation from 1.10.1974. [4S8··F]
3.2. Clause SA of the Sugarcane Control Order, 1966 deals with
D additional price payable to the sugarcane grower. However, if the recommendations made by the Bhargava Commission and the method of com·
putation are taken into consideration it will be clear that the manufacturer
of sugar will be entitled to retain an amount equivalent to the amount paid
to the cane grower under Clause SA. That amount cannot be taken into
consideration for determination of the price of levy sugar. The change
E methodology adopted from 11.7.197S was directly contrary to the recommendations of Bhargava Commission. [4S8-E)
3.3. It cannot be said that Clause SA deals only with the amount
payable to the cane grower and that it cannot have any relevance for
p
determination of levy sugar. Determination of minimum price of sugar
cane and fixation of the price of levy sugar under quantity of sugar to be
supplied by the producer are inter-connected; they must be read as a
whole, and not separately as though each is distinct. [ 458-H, 459-A)
3.4. While fixing the price of levy sugar regard is had only to the
G minimum can price as spoken to under Section 3(3C) (a). This minimum
cane price is referable to Clause (3) of the Sugarcane (Control) Order.
The additional price payable to the cane grower under Clause SA will arise
after the expiry of the sugar year. Such price will have to be met only from
the extra realisation made by the producer by the sale of sugar in free
H market which will naturally be more than the levy price. [459-A-B]
SUGAR FACTORY LTD. v. U.O.I.
421
Tariff Commission Report, 1973, Bhargava Commission Inqui1y A
Report, 1974 and The Interim Report of the Bureau of Industrial Costs and
Prices, (June, 1976) referred to.
4. The impugned notifications, except the one dated 28.11.1974, which
came to be issued before the new pricing policy was introduced, cannot be
upheld. The Union of India should amend by 31.12.1993 the notifications
taking into account the liability of the manufactures under Clause SA of
the Sugarcane (Control) Order as regards cane price and refix the price
of levy sugar having regard to the factors mentioned in Section 3(3C) of
the Act. [ 459-C]
5. Though normally the notifications would have been quashed, but
mere quashing of the same would have led to nebulous situation during
the interregnum. Beside, the interest of the appellants will have to be
measured against the needs of good administration which include, the need
for speedy finality in decision making, the public interest, the purpose of
B
c
administrative process and the need to consider substance not form.
D
[ 459-E, H & 460-A]
"Judicial Remedies in Public Law" by Clive Lewis, p.294, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 122-23
~~~~
E
From the Judgment and Order dated 3-10-80 of the Karnataka High
Court in W.A. No. 427 and 440 of 1980.
Altaf Ahmad, ASG (NP), V.C. Mahajan, AK. Sen, F.S. Nariman,
Vinod A Bobde, Shanti Bhushan, S.S. Javali, B.R.L. Iyenger, Kapil Sibal,
D.K. Agarwal, P.V. Kapoor, B.K. Mehta (NP), P.N. Sachthey, V.V. Vaze,
F
B. Sen, K.N. Bhatt, C.S. Vaidyanathan, Sr. Advs. T.C. Sharma, C.V. Sobba
Rao, A Subhashini, Ashok K. Srivastava, Mrs. Anjali Vera, S. Ganesh,
Mrs. AK. Verma, S. Sukumaran, Jayant Bhushan, Ranjit Kumar, Yahsh
Mohan, P.R. Ramasesh, Ms. Seita Vaidyalingam, S.R. Bhat, Mrs. Lalit G
Mohini Bhat, Navin R. Nath, Ms. Kiran Juneja, K.P. Gupta, B.L. Khanna,
Ms. Geetanjali, Mohan, Anil K. Sharma, Meet Malhotra, Navin Prakash,
K.K. Jain, Pramod Dayal, H.J. Jhaveri, C.K. Mahajan, Ashok Grover, Anip
Sachthey, H. Manish, Subodh Markendya Ms. Chitra Markendya, P.K.
Chaudhary, Suman J. Khaitan, Praveen Kumar, Virender Kumar, Virender
Kaushal, S.K. Mehta, Dhruv Mehta, Aman Vachhai, K.R. Nagaraja R.F. H
422
SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A
Nariman, P.H. Parekh, U. Sagar, D.M. Popat, Subhash Sharma, Shivi
Sharma, Raja Ram Agarwal, H.K. Puri, Rajiv Dutta, Indecver Goodwill,
S.K. Dhingra, C.S. Srinivasa Rao, G. Narasimhulu, Aruneshwar Gupta,
A.K. Goel, P. Keshva Pillai, Ganapati Iyer Gopalkrishnan, M. Qamaruddin,
Mrs. M. Oamaruddin, Pardip Misra, R. Bano, S.K. S:.ibharwal, Y. PrabB
c
D
E
F
hakar Rao, K.S. Gurumurthy, Kailash Vasdev, B.M. Bagaria, Arvind
Minocha, VJ. Francis, S.P. Singh Manoj Swarup, Girish Chandra, K.K.
Mohan S.K. Gambhir, G. Prakash, S.S. Khanduja, Mrs. Rani Chhabra,
Balmokand Goyal, Ms. Rekha Pandey, Mrs. Shuweshta Bagga, R.K.
Maheshwari, R.C. Pathak and R.S. Suri for the appearing parties.
The Judgment of the Court was delivered by
MOHAN, J. All these cases can be dealt with under a common
judgment since what is under attack is the fixation of price of levy sugar
under orders issued under Section 3 (3C) of the Essential Commodities
Act, 1955 (hereinafter referred to as the Act).
To highlight the points in issue we will refer to the facts of the case
relating to the State of Karnataka.
CA. Nos. 122-123 of 1981 and CA. Nos. 1253-57 of 1977: In these
appeals two sugar orders are 1975-76 and 1977-78.
In exercise of the powers conferred under Section 3 of the Act, the
Central Government on 15th June, 1972 promulgated the Levy Sugar
Supply (Control) order of 1972 (hereinafter referred to as the Levy Order).
That provides for compulsory supply or sale of sugar from a producer or
a recognised dealer of a specified quantity to a person or organisation or
to such State Government as it may direct from time to time. Under the
said Levy Order, the Central Government issues release orders to the
producers or manufacturers against which the manufacturers supply sugar.
The Central Government is required to pay the price. Such a price is
determined in accordance with Section 3(3C) of the Act. Altogether 5
orders were issued. For the year 1975-76 the following three orders were
G issued:
1. GSR 571(E)/Ess.Com/Sugar dated 29.11.75
2. GSR 67(E)/Ess. Com/Sugar dated 9.2.76
H
3. GSR 67(E)/Ess. Com/Sugar dated 3.8.76
SUGAR FACTORY LTD. v. U.0.1. [MOHAN,J.)
423
For the year 1977-78 the following two orders were issued:
A
1. GSR 76(E)/Ess. Com/Sugar dated 22.12.1977
2. GSR 154(E)/Ess. Com/Sugar dated 1.3.78
The attack against all these notifications by the manufacturers of the B
sugar in the writ petitions before the Karnataka High Court was that in
price fixation the Central Government had not taken into consideration
the relevant criteria laid down under Section 3(3C) of the Act.
The Central Government opposed the stand and urged that the
relevant considerations were borne in mind.
C
The learned Single Judge struck down all the determinations on the
ground of non-application of mind. Aggrieved by this, the matter was taken
up in appeal. For the year 1975-76 the Division Bench was of the view that
the orders dated 29 .11.75 and 11.7 .75 could not be upheld in so far as the D
order dated 9.2.76 varied the price by 99 paise more, that evidenced
application of mind and hence could not be struck down. Concerning
1977-78 the order dated 29.11.75 had to be struck down because it was
based on an obsolete data of more than 16 months. During that period,
there has been great escalation which ought to have been taken note of.
With reference to the notification dated. 1.3. 78 the Division Bench was of E
the view that the Government had taken into account free sale realisation
of the previous year at the rate of 319 per quintal. During that period, free
sale prices had gone down to distress levels. Therefore, the price fixation
was not in order. Accordingly, the matter was remitted to the Government
to consider afresh and fix proper prices on relevant criteria.
On certificate, both the Government and the manufacturers have
come in appeals. Various writ petitions questioning the correctness of these
notification have also been transferred to this Court.
F
Similarly, in other High Courts the price fixation was questioned. The G
High Courts have rendered their decisions. In so far as the sugar producers
are concerned they have come up in appeals. Equally, the Central Government, to the extent it is aggrieved, has preferred appeals.
The arguments of Mr. F.S. Nariman, learned counsel, appearing for
.some of the sugar producers are as under :
H
A
B
424
SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.
Section 3(3C) of the Act was specifically enacted to provide for the.
manner of fixation of price of sugar in cases where sugar was produced for
distribution by Government. According tot he learned counsel the price
fixation must be done on the principles laid down by the Tariff Commission
and Sugar enquiry Commission mainly on the following bases:
1. Fair price of cane fflCed by Government
2. Cess of tax payable thereon
3. manufacturing cost, and
C
4. a reasonable return on capital employed.
In support of this submission reliance is placed on The Panipat
Co-operative Sugar Mills v. Union of India, (1973] 2 SCR 860.
This interpretation is in line with the earlier ruling of M/s. Diwan
D Sugar & General Mills (Private) Ltd. and others v. Union of India, (1959]
Supp. 2 SCR 123. No doubt, that case dealt with clause 5 of the Sugar
Control Order of 1955. The words used thereunder were "with due regard
to". The factors mentioned in clause 5 of the said Sugar Control Order are
substantially the same as under Section 3( 3C) of the Act. The latter ruling
E construed the word "having regard to" as factors mentioned in Section
3(3C) as essential in price determination.
The further submission of the learned counsel is when Section 3(3C)
of the Act says "determination" it cannot be a purported determination. It
signifies an effective expression of opinion which ends a controversy or
F
dispute by some authority to whom it is submitted under a valid law for
disposal. Thus, it is submitted that the observations in Shri Sitaram Sugar
Company Limited v. Union of India, (1990] 1 SCR 909 are not a fetter, they
are not words of limitation but of general guidance to make an estimate
requires fresh consideration.
G
It is further urged that in the instant cases, it cannot be said there
is a valid determination because the levy price for one year cannot be the
levy price for the subsequent years as indeed the minimum cane price for
one year is not the same for the subsequent years. Similarly, the notification
of uniform increase of Rs. 18.03 for each zone for 1977-78 is not correct
H as it is without reference to the parameters which are know and calculated
SUGAR FACTORY LTD. v. U.0.1. [MOHAN, J.]
42S
for each zone. What had been done was merely to take a weighted all-India A
average. This is contrary to the Government's stand of zonal determination.
Though this Court had taken the view that the determination under Section
3(3C) is a legislative function, yet a review of subordinate legislation is
permissible on the following grounds:
1. It is unreasonable.
2. It is uncertain or repugnant to the general law or some other
statute. Support for this is sought from the case Mixnan's Properties Ltd. v.
Chartsey U.D.C., [1963) 2 All. E.R. 787.
This Court, it is urged, has also taken the view in Indian Express
Newspapers (Bombay) Private Ltd. v. Union of India, [198S) 2 SCR 287 that
a subordinate legislation can be questioned on any ground on which the
plenary legislation could be questioned. According to the ruling, it could
be questioned on the ground that it is unreasonable, unreasonable not in
B
c
the sense of not being reasonable but in the sense it is manifestly arbitrary. D
Viewed in this light, while fixing the price under Section 3(3C) regard must
be had to clause SA. That provides for an additional minimum price which
is statutory required to be paid by the manufacturer of sugar to the
sugarcane grower. Therefore, the grower's share (additional price payable
to growers out of the excess realisation) has necessarily to be included as
an element under factor A of Section 3(3C). Thus, the minimum price
under Section 3(3C) and the additional minimum price under clause SA
are essential components of manufacturing cost of sugar under factor B.
Then again, mopping up of the entire excess realisation by the sale of free
sugar is incorrect in view of clause SA. That would resulting in total denial
of any return result in not even recovering the actual cost of production.
Prior to 1.10.74 mopping up might have been permissible. But after
1.10.74, the mopping up for arriving at a price under Section 3(3C). is
contrary to law i.e. the law enacted in clause SA which contemplates excess
E
F
free market sales realisation for the benefit of growers to the extent of SO G
per cent. The entire theory of "mopping up" of 100 per cent of extra sale
realisation will be contrary to law, namely, clause SA. This will also be
against the recommendations of Bhargava Commission.
Mr. B.R.L. Iyengar, learned counsel appearing for the sugar
manufacturers of the State of Karnataka states that till the departure in the H
426
SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.
A
Notification dated 11.7.1975, the itemisation and the factors of the format
for arriving at the levy price were those repeatedly laid down by the Tariff
Commission. The incidence of additional cane price over and above the
statutorily notified minimum price and the estimated average realisation on
the sale of levy free sugar was at Rs. 317.65 for internal consumption and
B
for exports. The result of inclusion of these items which were not of the
standard formula till then adopted by the Tariff Commission, whether so
intended or not, bring about as far as the Southern and other Zones are
concerned, the reduction of the price from Rs. 171. 52 to Rs. 139.72. It is
this drastic reduction which is complained of in these cases.
C
As can been seen from Bhargava Commission, the -object was to
reward efficient factories which pay a fair price to the cane growers but
not to give such a benefit to an inefficient sugar factory. In the case of
Panipat Sugar Mills (supra) which has not been correctly understood, the
Court was only ascertaining that the factories in Haryana got a reasonable
D return on the capital employed and for that purpose, took into account
excess realisation from the sale of levy free sugar.
E
Mr. C.S. Vaidyanathan, learned counsel appearing for the sugar mills
of Tamil Nadu submits that Section 3(2) (f) of the Act deals with a situation
of acquisition of immovable property on payment of compensation. This is
in contrast to Section 3(2) (c) of the Act wherein a power is conferred on
the Government to control the prices of essential commodities.
When Section 3(3C) came up to be introduced containing guidelines
for determination of the price of sugar compulsorily acquired under SecF
tion 3(2)(f) of the Act the Parliament could not have laid down as a
guideline that the Government should take into account as a factor in such
price determination, the additional realisation of non-levy sugar so as to
depress the price of levy sugar even less than the actual cost. While
determining the price of levy sugar the Central Government is bound to
G take into account the four factors mentioned in clauses (a) to ( d) of Section
3(3C) of the Act: The Government is bound to fully compensate the
manufacturers of sugar at least under clauses (a) to ( c) as they represent
the basis cost. Even assuming the Government can ignore the return on
the capital in other construction under Section 3(3C) would be violative
of Articles 14, 19(1)(f), 19(1)(g) and 31(2) of the Constitution of India. The
H only question that arose for consideration in Sita Ram Sugar Mills case"
SUGAR FACTORY LTD. v. U.0.1. [MOHAN,J.]
427
(supra) related to zone-wise price fixation. The price determination in A
accordance with factors (a) to ( d) of Section 3 (3C) did not call for
consideration in that case. It is also not correct that judicial review of price
determination is altogether excluded in view of Sita Ram's case (supra).
B
The Central Government acts on the advice of expert bodies like
Tariff Commission and Bureau of Industrial Costs and Prices while determining the prices. The specific case of the Government is, that the recommendations of these bodies have been accepted. If that be so, the additional
realisation should not enter into competition of the price under Section
3(3C) of the Act. The additional realisation will have to be shared by the
sugarcane grower and the sugar producer. Whatever might have been the C
position of Section 3{3C) as construed by this Court inPanipat case (supra)
the same has been delibertely departed from by the .government by introducing clause SA. As a result, the additional realisation on free sale sugar
cannot be taken into account as a neutralising . factor under clause ( d)
partially or fully. The contention that clause SA has no relevance for D
determination of price under S\:ction 3{3C) is untenable.
Mr. Raja Ram Agarwal, learned counsel appearing for the sugar
factories of East Uttar Pradesh, in addition to filing the necessary data in
detail showing the break-up levy prices, urges that according to the Bhargava Commission Enquiry Report which acceptance is borne out by introE
duction of clause SA, the balance of SO per cent from excess realisation
was left with the industry for certain specific purposes and not for depressing the levy sugar price. Therefore, if the free sale realisation is excluded
the loss would be even more. The fixation of levy price for East Zone of
Uttar Pradesh is totally arbitrary and requires to be re-considered.
Mr. S.S. Khanduja learned counsel adopts the arguments of Mr. Raja
Ram Agarwal and prays for re-determination.
F
Mr. Shanti Bhushan, learned counsel for the sugar factories of West
Uttar Pradesh submits that in the decision of Sita Ram's case (supra) it G
has been laid down that the price fixation under Section 3(3C) is a
legislative power. The very same decision states that it could be challenged
on the following ground:
(i) If the fixation of levy price is arbitrary.
H
428
A
B
c
SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
(ii) If it is fixed on extraneous grounds.
(iii) If it is not done in good faith.
(vi) If ultra vires of the power granted and not on consideration
of relevant material facts.
(v) If it is manifestly unjust oppressive or outrageous or directed
to an unauthorised end.
(vi) If it does not tend in some degree to accomplish the objects
of delegation.
(vii) If it is made on irrelevant grounds.
(viii) Without regard to relevant considerations.
With reference to these grounds he submits that no data has been
D disclosed by the Government to this Court. For four hears, 1975-76, 197677, 1977-78 and 1978-79 the Government had fixed levy sugar prices
without regard to any of the factors mentioned in clauses (a) to (d) of
Section 3(3C). In every sugar year the recovery in a zone varies from year
to year to a very great extent. Therefore, the minimum cane price notified
E in clause (a) must be by applying the actual recovery figure. However, for
these four years instead of calculating the minimum cane price on the basis
of actual recovery for the zone in the previous year what has been taken
into consideration is an identical recovery, namely, 9 .65 per cent. Therefore, clause (a) is violated.
F
Then again, the cost of conversion mentioned under clause (b)
G
depends on the duration of the sugar season and the recovery from
sugarcane. These factors are bound to vary. For all these four years, the
-Government has assumed an indetical duration of 139 days in West U.P.
Zone. Hence, there is disregard of clause (b).
If price determination is to be done with reference to clauses (a),
(b ), ( c) and ( d) these factors are always different in different years. It is
not possible for the levy sugar price to be the same for any zone for two
successive years. For the year 1975-76 the notification dated 3.8.76 fixed
the price at Rs. 163.79. By notification dated 19.11.76 for the year 1976-77
H the levy sugar price was fixed at Rs. 163.79. Again, notification dated
SUGAR FACTORY LTD. v. U.O.I. [MOHAN, J.]
429
22.12.77 fixed the levy sugar price at Rs. 163.79 for 1977- 78. These A
notifications per se are not in conformity with the factors mentioned in
clauses (a) to (d) of Section 3(3C). Then again, where the Government is
required to revise the price with reference to each zone a uniform increase
of Rs. 18.03 per quintal over the price fixed under the Notification dated
22nd November, 1979 for all the zones, is not contemplated at all.
B
The realisation from free sale sugar to depress the levy sugar price
is illegal. That is against the report of the Tariff Commission and also
disregards clause SA which is based on Bhargava Commission Report
accepted by the Government. The respondent has recommended that the
excess realisation from sale -should be shared by the factories on SO:SO basis C
with the cane growers and necessary steps were being taken from the
ensuing sugar season. The loss sustained by sugar factory on its export
quota is not taken into consideration. This is also bad in law.
Even assuming that the extra realisation from free sugar could be
used for decreasing the amount of return which may be provided under D
clause ( d) the sugar factories would at least be entitled to a price determination in accordance with the factors mentioned under clause (a), (b)
and ( c) of Section 3(3C). That is not so in the present case. For the years
1978-79 and 1979-80 the sugar factories paid to the sugar growers only the
statutory minimum cane price. It was that statutory minimum cane price E
that has been taken into consideration. At the
same time, the extra
realisation from free sugar went into calculation. This resulted in depressing the levy price and mopping up of the extra free sugar realisation for
calculating the levy price. This is opposed to clause SA.
Taking into consideration the extra realisation by the sale of free F
sugar it is not in accordance with the view expressed by the Court in
Panipat Sugar Mills's case (supra).
If the price fixation does not result in a reasonable return not even
providing for the cost of cane and the cost of conversion, the price fixation G
is liable to be struck down where the Government is obliged to fix the price
on the L factor. It has to be so fixed in respect of the entire levy sugar
production. Therefore, even for a provisional price fixed during the beginning of the season, at the end of the season it has to be revised.
Mr. B. Sen, learned counsel after referring to (a) Panipat Sugar Mills H
430
SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A
v.
UOI, [1973] 2 SCR 860, (b) Anakapalle Cooperative Society v. UOI,
[1973) 2 SCR 882 and ( c) Shree Sitaram Sugar Company Ltd. v. UOI, [1990)
1 SCR 909 points out that the price fixation is vitiated as it has been based
on considerations which are not germane. Firstly, price fixation has been
done on the basis of estimates in relation to factors contained in clauses( a)
B to ( d) of Section 3(3C). Thereafter some additions and deductions have
been made from the figure arrived at on the basis of estimates. The
addition is on the actual cane price payable while the deduction is based
on the estimate realisation from sale of free sugar. The realisation from
sale of free sugar is not germane except for purpose of clause ( d). The
factors mentioned in clauses (a), (b) and (c) are those based on weighted
C
average cost involved in relation to each item.
D
The fixation of price based on estimates on the beginning of the
season and not updating has caused the industry to suffer loss. For example, for the year 1979-80 the levy price fixed at the beginning of the
season was Rs. 250.45 Nhile L Factor worked out to Rs. 294.07.
Mr. H.J. Javeri, learned counsel appearing for the cooperative
society situated in Saurashtra region submits that Panipat and Anakapalle
rulings (supra) upheld price determination by Government of India since
such determination was based on the recommendations of the Tariff ComE
mission fixing the prices for different zones by adopting the method of
working out the weighted averages. Such a method of price fixation would
not now be relevant particularly when a better method of pricing of sugar
by an expert body such as Bureau of Industrial Costs and Pricing is
available.
F
Though in Sita Ram case (supra) the Court refused to reopen the
earlier decisions it was on the ground that no material was brought to the
notice of the Court to establish that the Central Government had not
applied its mind to the price fixation. However, that decision does lay down
that the price fixation could be challenged on the ground of unreasonableG ness or arbitrariness.' In so far as the entire State of Gujarat was placed in
a zone along with Maharashtra and Goa without regard to the relevant
conditions of yield recovery and availability of sugarcane as they materially
differ, the price fixation must be held to be arbitrary. Even in Gujarat there
are two Zones. The units in Saurashtra are to be placed in low recovery
H zones while those in South Gujarat are to be grouped in high recovery
SUGARFACTORYLTD. v. U.O.I.[MOHAN,J.]
431
zones. Further, the capital cost of establishment of these units also A
materially differ. The High Court of Gujarat failed to appreciate this
important aspect of the matter. In actualities, the cane growers were paid
a higher price than the statutory minimum price. This is because the
appellant-society had to pay harvesting and transport charges. This important factor ought to have been taken note of by the Government.
Mr. P.V. Kapur, learned counsel appearing for the sugar mills of
Haryana would urge that in respect of the year 1977-78 the Central
Government issued an order dated 22nd December, 1977. By that order it
B
had mechanically and without application of mind repeated the price fixed
earlier for the season 1976-77 in utter disregard of cost escalation. The C
higher sugar price and purchase tax on cane which was increased by the
State Government from Rs. 13 to Rs. 13.50 and from Rs. 1.25 to Rs. 1.50
per quintal respectively and higher labour cost and other relevant factors
like expected recovery and duration which had to be taken into account.
Mr. Altaf Ahmed, learned Additional Solicitor General on behalf of
the Union of India after drawing the attention to' the various provisions of
the Essential Commodities Act, 1955 submits that sub-section (3C) of
Section 3 is a link in a statutory chain consisting of sub-section 2(f),
sub-section ( 1) of Section 3 and the preamble of the Act. The object of the
D
Act is to aim at equitable distribution of sugar at fair prices. Clause SA of E
the Sugarcane Control Order would form a part of that scheme by virtue
of clause ( d) of sub-section (3C). The effect of the argument that Section
3(3C) is not consumer-oriented but producer-oriented designed with the
object of protecting the producer's profit and does not permit price control
would amount to tearing it out of statutory context.
F
'Reasonable return' may be term of art. It is for this reason the return
recommended by the Tariff Commission is totally protected against the
impact of clause SA. The High Court of Madras has confused the underlying purpose of sub-section (3C) with the concept of providing compensation for compulsory acquisition of property underlying Article 31(2) of G
the Constitution. Essential commodities Act is not made under Entry 42
of List III of Seventh Schedule but under Entry 33 of List III. In any event
Article 31 stands deleted by virtue of Constitution ( 44 Amendment) Act,
1978.