# SHRI SITARAM SUGAR COMPANY LIMITED & ANR. ETC v. UNION OF INDIA & ORS

- **Citation:** [1990] 1 S.C.R. 909
- **Court:** Supreme Court of India
- **Decided:** 1990-03-13
- **Bench:** SABYASACHI !viUKHARJI, K. Jagannatha Shetty, T. Kochu Thommen, A.M. Ahmadi, K.N. Saikia
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shri-sitaram-sugar-company-limited-anr-etc-v-union-of-india-ors-10684
- **Pages:** 42

## Headnote

A
B
Essential Commodities Act, 1955: S. 3(3-C)-Government of
India Notifications dated November 28, 1974 and July 11, 1975-Fixing C
prices of levy sugar on zonal basis-Validity of-Whether legislative in
character-Whether amenable to judicial review-Determination of
price-Requirement of 'having regard to' Clauses (a) to (d)-Whether
mandatory-Power delegated to fix different prices for different areas,
different factories or different kindsof sugar-Nature and scope ofWhether matter of economic policy-Whether falls within purview of D
court.
Judicial review of State action-Legislative, executive or quasijudicial-Nature and scope of.
Administrative law-Delegation of legislative power-Judicial E
review-Scope of-Courts 'riot to interfere with matters of economic
policy.
Administrative
Law-Administrative
action-Principles
of
natural justice-Observance of-Even if rule of audi alteram partem
not attracted reasonableness and fair play in action must be observed.
F
Constitution of India, Article 14: Principle of equality must
govern every State action.
Clause (f) of sub-s. (2) of the Essential Commodities Act, 1955
empowers the Central Government to require any person dealing in any
G
essential commodity to sell the whole or specified part of such commodity to it or the State Government or to a nominee of such Government. Sub-section (3) provides for payment to such a seller (a) tlie price
agreed upon consistently with the controlled price, if any, fixed under
the section; (b) the price calculated with reference to the controlled
price, if any; and (c) where none of these applies, a price calculated at
H
909
910
SUPREME COURT REPORTS
[1990] 1 S.C.R.
A the market rate prevailing in the locality at the date of the sale. Subsection (3-A) deals with orders made with a view to controlling the rise
in prices or preventing the hoarding of any foodstuff in any locality and
determination of price for payment to the seller, notwithstanding anything contained in sub-s.(J}. Sub-section (3-C) lays down that
where any producer is required by an order made with reference to
B cl. (I) of sub-s. (2) to sell any kind of sugar and either no notification in
respect of such sugar has been issued under sub-s. (3-A) or any such
notification having been issued has ceased to remain in force by efflux of
time, then notwithstanding anything contained in sub-s. (3), there shall
be paid to that producer an amount therefor which shall be calculated
wifo reference to such price of sugar as the Central Government may,
by order, determine having regard to (a) the minimum price, if any,
C fixed for sugarcane by Central Government under this section; (b) the
manufaeturing cost of sugar; ( c) the duty or tax, if any, paid or payable
thereon; and (d) the securing of a reasonable return on the capital
employed in the business of manufacturing sugar, and different prices
may be determined from time to time for different areas or for different
D factories or for different kinds of sugar.
E
The Central Government by notifications dated 28th November,
1974 and 11th July, 1975 issued in exercise of the power under sub-s.
(3-C) of s. 3 of the Act fixed the prices of levy sugar for 1974-75
production.
The petitioners, owners of sugar mills operating in the State of
Uttar Pradesh in areas classified for the purpose of determining the
price of levy sugar as West and East zones, challenged the validity of the
said orders on the grounds that they were ultra vires the Act and viola-
't
live of their fundamental rights as the prices of levy sugar had been
F
determined arbitrarily with reference to the average cost profiles of
-(
factories grouped together in zones without regard to their individual
capacity and cost characteristics; that although the Government has the
discretion to fix different prices for different areas or for different
factories, or for different kinds of sugar, such wide discretion bas to be
rta.sonably exer.cised, that the words 'having regard to' occurring in
G s

## Text

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-·(
I
1
SHRI SITARAM SUGAR COMPANY
LIMITED & ANR. ETC.
v.
UNION OF INDIA & ORS.
MARCH 13, 1990
[SABYASACHI !viUKHARJI, CJ., K. JAGANNATHA
SHETTY, T. KOCHU THOMMEN, A.M. AHMADI AND
K.N. SAIKIA, JJ.]
A
B
Essential Commodities Act, 1955: S. 3(3-C)-Government of
India Notifications dated November 28, 1974 and July 11, 1975-Fixing C
prices of levy sugar on zonal basis-Validity of-Whether legislative in
character-Whether amenable to judicial review-Determination of
price-Requirement of 'having regard to' Clauses (a) to (d)-Whether
mandatory-Power delegated to fix different prices for different areas,
different factories or different kindsof sugar-Nature and scope ofWhether matter of economic policy-Whether falls within purview of D
court.
Judicial review of State action-Legislative, executive or quasijudicial-Nature and scope of.
Administrative law-Delegation of legislative power-Judicial E
review-Scope of-Courts 'riot to interfere with matters of economic
policy.
Administrative
Law-Administrative
action-Principles
of
natural justice-Observance of-Even if rule of audi alteram partem
not attracted reasonableness and fair play in action must be observed.
F
Constitution of India, Article 14: Principle of equality must
govern every State action.
Clause (f) of sub-s. (2) of the Essential Commodities Act, 1955
empowers the Central Government to require any person dealing in any
G
essential commodity to sell the whole or specified part of such commodity to it or the State Government or to a nominee of such Government. Sub-section (3) provides for payment to such a seller (a) tlie price
agreed upon consistently with the controlled price, if any, fixed under
the section; (b) the price calculated with reference to the controlled
price, if any; and (c) where none of these applies, a price calculated at
H
909
910
SUPREME COURT REPORTS
[1990] 1 S.C.R.
A the market rate prevailing in the locality at the date of the sale. Subsection (3-A) deals with orders made with a view to controlling the rise
in prices or preventing the hoarding of any foodstuff in any locality and
determination of price for payment to the seller, notwithstanding anything contained in sub-s.(J}. Sub-section (3-C) lays down that
where any producer is required by an order made with reference to
B cl. (I) of sub-s. (2) to sell any kind of sugar and either no notification in
respect of such sugar has been issued under sub-s. (3-A) or any such
notification having been issued has ceased to remain in force by efflux of
time, then notwithstanding anything contained in sub-s. (3), there shall
be paid to that producer an amount therefor which shall be calculated
wifo reference to such price of sugar as the Central Government may,
by order, determine having regard to (a) the minimum price, if any,
C fixed for sugarcane by Central Government under this section; (b) the
manufaeturing cost of sugar; ( c) the duty or tax, if any, paid or payable
thereon; and (d) the securing of a reasonable return on the capital
employed in the business of manufacturing sugar, and different prices
may be determined from time to time for different areas or for different
D factories or for different kinds of sugar.
E
The Central Government by notifications dated 28th November,
1974 and 11th July, 1975 issued in exercise of the power under sub-s.
(3-C) of s. 3 of the Act fixed the prices of levy sugar for 1974-75
production.
The petitioners, owners of sugar mills operating in the State of
Uttar Pradesh in areas classified for the purpose of determining the
price of levy sugar as West and East zones, challenged the validity of the
said orders on the grounds that they were ultra vires the Act and viola-
't
live of their fundamental rights as the prices of levy sugar had been
F
determined arbitrarily with reference to the average cost profiles of
-(
factories grouped together in zones without regard to their individual
capacity and cost characteristics; that although the Government has the
discretion to fix different prices for different areas or for different
factories, or for different kinds of sugar, such wide discretion bas to be
rta.sonably exer.cised, that the words 'having regard to' occurring in
G sub-s. (3-C) is a mandatory requirement demanding strict compliance
with clauses (a) to (d); that the ingredients of the said clauses should,
therefore, have been examined with reference to each producer as a
condition precedent to the determination of the price of sugar; that the
Central Government had not applied its mind to the relevant questions
to which they were expected to have regard to in terms of the sub-section;
H and that the expression 'determine' used in sub-section (.l-C) indicates
y
SITARAM SUGAR CO. LTD. v. U.0.1.
911
that the order to which that expression referred to is quasi-judicial
amenable to judicial review. For the interveners it was contended that
the cost incurred by units having lower crushing capacity should be
neutralised by giving them an incremental levy price.
For the respondents it was contended that the division of the
country into zones and the method adopted by the Government in fixing.
price of levy sugar was fully supported by the recommendations of
various expert bodies and the Tariff Commission and was upheld in
Anakapalle Co-op. Agricultural & Industrial Society Ltd. Etc. v. Union
of India & Ors., [1973] 2 SCR 882 and the Panipat Co-op. Sugar Mills
;, The Union of India, [1973] 2 SCR 860; that the cost of manufacturing
sugar depends not anly on recovery from the sugarcane, duration of
crushing season, crushing capacity of the plant, the sugarcane price
paid and the capital employed, but also to a considerable extent on the
conditions of the plant and machinery, quality of management, investment policy, relations with cane growers and labour, financial reputation etc.; that to group together factories having a high cost profile and
to determine a price specially applicable to them is to put a premium on
incompetence, if not mismanagement; and that the orders determining
the price of sugar in terms of sub-section (3-C) were of general applica-
'tion and, therefore, legislative in charactef and the omission, if any, to
consider the peculiar problems of individual producers was not a
ground of judicial review.
Dismissing the writ petitions, the Court
HELD: I. The notifications dated 28th November, 1974 and 11th
July, 1975 issued under sub-s. (3-C) of s. 3 of the Essential Commodities Act, 1955 are intra vires the Act. There is no merit in the
challenge. [950F, 918F-G]
2.1 Sub-section (3-C) is attracted whenever any producer is
required to sell sugar by an order made with reference to sub-s. (2)(1)
and no notification has been issued under sub-s. (3-A) or any such
notification, having been issued, has ceased to be in force. It operates
notwithstanding anything contained in sub-s. (3). This means the compensation payable to the seller in the circumstances attracting sub-s.
(~-C) is not the. price postulated in sub-s. (3). Nor is it the price
mentioned under sub-s. (3-A), for that sub-section cannot be in opera- .
tion when sub-s. (3-C) is attracted. What is payable under sub-s. (3-C)
is an amount calculated with reference to the pdce of sugar. [930F-H]
A
B
c
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E
F
G
H
A
B
c
912
SUPREME COURT REPORTS
[ 1990) 1 S.C.R.
The Panipat Cooperative Sugar Mills v. The Union of India,
[1973) 2 SCR 860, referred to.
2.2 The price of sugar is determined by the Central Government
having regard to the factors mentioned in els. (a) to (d) of sub-s. (3,C).
This is done with reference to the industry as a whole by a process of
costing in respect of a representative cross-section of manufactnring
units and not with reference to any individual seller. The order notify.
ing the price is required by sub-ss. (5) and (6), to be notified in official
gll7£tte and laid before both Houses of Parliament. [931H, 932A, 936G, 931G]
3. The words 'having regard to' in sub-s. (3-C) are the legislative
instruction for the general guidance of the Government in determining
the price of sugar. They are not strictly mandatory, but in essence
directory. They do not mean that the Government cannot, after taking
into account the matters mentioned in els. (a) to (d), consider any other
matter which may be relevant. The expression is not "having regard
only to" but "having regard to". These words are not a fetter, they are
D not words oflimitation. [936D, 934E]
Union of India v. Kamlabhai Harjiwandas Parekh & Ors., [1968)
l SCR 463; Commissioner of Income Tax v. Williamson Diamonds
Ltd., L.R. 1958 A.C. 41; Commissioner of Income Tax, West Bengal,
Calcutta v. Gungadhar Banerjee & Co. (P) Ltd., [1965] 3 SCR 439;
E
Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1
SCR 956; State of Karnataka & Anr. etc. v. Shri Ranganatha Reddy &
Anr. etc., [1978] l SCR 641; State of UP. & Ors. v. Renusagar Power
Co., [1988] 4 SCC 59 and O'May & Ors. v. City of London Real
Property Co. Ltd., [1982] l All E.R. 660, referred to.
F
4.1 In considering the reasonableness of the order made by the
Governmenfin exercise of its power under sub-s. (3-C) the Court will
not strictly scrutinise the extent to which matters mentioned in els. (a)
to (d), or any other matters have been taken into account by the
Government in making its estimate of the price. There is sufficient
compliance with the sub-section if the Government has addressed its
G
mind to the factors which it may reasonably consider to be relevant,
and has come to a conclusion, which any reasonable person, placed in
the position of the Government, would have come to. [936E-F]
4.2 In the instant case, the material brought to the notice of the
Court does not support the arguments at the bar that the Central
H
Government had not applied its mind to the relevant questions to which
i
.
,,.~
•
SITARAM SUGAR CO. LTD. v. U.0.l.
913
they were expected to have regard in terms of the statute. Nor any data
has been furnished to show that the prices determined by the Government would have been different had the iitgredients of els. (a) to (d) of
the sub-section been examined with reference to each individual
producer instead of a representative cross section of manufacturing
nnits. [947 A, 934D J
5.1 Judicial decisions are made according to law while administrative decisions emanate from administrative policy. Quasi-judicial
decisions are also administrative decisions emanating from adjudication
but they are subject to some measure of judicial procedure, such as
rules of natnral justice. Legislative orders can be distinguished from rest
of orders by reference to the principle that the former are of general
application. They are made formally by publication and for general
guidarice with reference to which individual decisions are taken in
particnlar situations. [937C, 939E, 938A-B J
H. W.R. Wade: Administrative Law, 6th ed., 47, referred to.
5.2 An instruction may be treated as legislative even when it is
not issued formally but by circular or a letter or the like. What matters
is the substance and not the form, or the name. Where an authority to
whom power is delegated is entitled to sub-delegate his power, be it
legislative, executive or judicial, then such authority may also give
A
B
c
D
instructions to his delegates and these instructions may be regarded as
E
legislative. However, a judicial tribunal cannot delegate its functions
except when it is authorised to do so expressly or by necessary
implication. [938B-C, D-E]
Griffith and Street: Principles of Administrative Law, 5th ed.,
p. 65 and Bernard & Ors. v. National Dock Labour Board & Ors.,
F
[1953] 2 Q.B. 18 at 40, referred to.
~
5. 3 What distinguishes legislation from adjudication is that the
former affects the rights of individuals in the abstract and must be
applied in a further proceeding before the legal position of any particular individual will be definitely touched by it; while adjudication
G
operates concretely upon individuals in their individual capacity. [938F]
Davis: Administrative Law Text, 3rd ed., p. 123, referred to.
5.4 A statutory instrument such as a rule, order or regulation
emanates from the exercise of delegated legislative power which is a
H
A
B
c
D
914
SUPREME COURT REPORTS
(1990] 1 S.C.R.
part of the administrative process resembling enactment of law by the
legislature. It affects the rights of individuals in the abstract. l939D-E, eJ
Bernard Schwartz: Administrative Law [1976] p. 144 and Davis:
Administrative Law Text, p. 123, referred to.
5 .5 When the function is treated as legislative, a party affected by
the order has no right to notice and hearing unless, of course, the
statute so requires. It is nevertheless imperative that the action of the
authority should be inspired by reason. It being of general application
engulfing a wide sweep of powers, applicable to all persons and situations of a broadly identifiable class, the legislative order may not be
vulnerable to challenge merely by reasons of its omission to take into
account individual peculiarities aud differences amongst those falling
within the class. [939F, 943e, 939F-G]
Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2
Sec 720 and Saraswati Industrial Syndicate Ltd., v. Union of India,
(1975] 1SCR956, referred to.
5.6 The orders in the instant case, duly published in the official
gazettes notifying the prices determined for sugar of various grades and
;>--
produced in various zones, and applicable without exception to all
producers falling within well defined groups can be legitimately
E characterised as legislative. No rule of natural justice is applicable to
any such order. 194 IH, 942A, 9438-C J
Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2
SCC 720; State of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC
59; Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1
F SCR 956; Prag Ice & Oil Mills & Anr. etc. v. Union of India, [1978] 3
SCR 293 and Bates v: Lord Hai/sham of St. Marylebone & Ors., [1972]
3 All ER 1019, referred to.
6. It is with reference to predetermined prices of sug~r that subsection (3-C) postulates the calculation of the amount payable to each
G producer who has sold sugar in compliance with an order made with
reference to cl. (f) of sub-s. (2). The calculation of such amount is in
contradistinction to the determination of price of sugar, a non-legislative act. The individual orders to that effect being administrative
orders founded on the mechanics of price fixation, they must be left to
the better instructed judgment of the executive, and in regard to them
H the principle of audi a/teram partem is not applicable. All that is
'
)
~1
SITARAM SUGAR CO. LTD. v. U.0.1.
915
required is reasonableness a.ud fair play which are in essence emanations from ihe doctrine ofnaturaljnstice. [942B, 936F-G, 943A-BJ
The Panipat Cooperative Sugar Mills v. The Union of India,
[1973] 2 SCR 860; A.K. Kraipak &.. Qrs. etc. v. Union of India & Ors.,
[1970] 1 SCR 457 and State of U.P. & Ors. v. Renusagar Power Co.,
[1988] 4 sec 59, referred to.
Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2
sec 720, distinguished.
7 .1 Any Act of the repository of power, whether legislative or
administrative or quasi-judicial, is open to challenge if it is in conflict
with the Constitution or the governing Act or the general principles of
the law of the land or it is so arbitrary or unreasonable that no fair
minded authority could ever have made it. [946C]
E.P. Royappa v. State of Tamil Nadu &Anr., [1974] 2 SCR 348; State
of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC 59; Saraswati
Industrial Syndicate Ltd. v. Union of India, [1975] 1 SCR 956; Mrs.
Maneka Gandhi v. Union of India & Anr., [1978] 1 SCC 248; Ramana
Dayaram Shetty v. The International Airport Authority of India & Ors.,
[1979] 3 SCR 1014; Ajay Rasia & Ors. v. Khalid Mujib Sehravardi & Ors.,
[1981] 1 SCC 722; D.S. Nakara & Ors. v. Union of India, [1983] I SCC
305; The Barium Chemicals Ltd. & Anr. v. The Company Law Board &
Ors., [1966] Supp. SCR 311; Leila Mourning v. Family Publications
Service, 411 US 356, 36 L. Ed. 2d 318; Kruse v. Johnson, [1988] 2 Q.B.
91; Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, [ 1948] 1 K.B. 223; Westminster Corporation v. London and
North Western Railway, [1905] AC 426; Mixnam Properties Ltd. v.
Chertsey U.D.C., [1965] AC 735; Commissioners of Customs & Excise
v. Cure & Deeley Ltd., [1962] 1 Q.B. 340; McEldowney v. Forde,
[1971] AC 632 (H.L.); Carltona Ltd. v. Commissioners of Works, [1943]
2 All ER 560; Point of Ayr. Collieries Ltd. v. Lloyd George, [1943] 2
All E.R. 546; Scott v. Glasgow Corporation, [1899] AC 470; Robert
Baird L.D. v. City of Glasgow, [1936] AC 32; Manhattan General
Equipment Co. v. Commissioner, [J935] 297 US 129; Yates (Arthur) &
Co. Pty Ltd. v. Vegetable Seeds Committee, [1945-46] 72 CLR 37;
Bailey v. Conole, [1931] 34 WALR 18; Boyd Builders Ltd. v. City of
Ottawa, [1964] 45 DLR 2d 211; Re Burns & Township of Haldimand,
[1966] 52 DLR 2d 1014 and Lynch v. Tilden Produce Co., 265 US 315,
referred to.
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916
SUPREME COURT REPORTS
[ 1990) 1 S.C.R.
7 .2 Where a question of law is at issue, the Court may determine
the rightness of the decision of the authority on its own independent
judgment. If the decision does not agree with that which the Court
considers to be the right one, the finding of law by the authority is liable
to be upset. Where it is a finding of fact, the Court examines only the
reasonableness of the findings. When the finding is found to be rational
and reasonably based _on evidence then judicial review is exhausted even
though the finding may not necessarily be what the Court would have
come to as a trier of fact. [944C-EJ
7 .3 Whether· an order is characterised as legislative or administrative or quasi-judicial, or, whether it is a determination of law or fact,
C
the judgment of the expert body, entrusted with power, is generally
treated as final and the judicial function is exhausted when it is found to
have warrant in the record and a rational basis in law. [944E-F]
Rochester Tel. Corp. v. United States, [1939) 307 U.S. 125, 83 L.
Ed. 147; Associated Provincial Picture Houses Ltd. v. Wednesbury
D
Corporation, [1948] l K.B. 223 and Chief Constable of the North
Wales Police v. Evans, [1982] l WLR 1155 at 1160, referred to.
7 .4 The orders, in the instant case, are udoubtedly based on an
exhaustive study by experts. They are fully supported by the recommendations of the Tariff Commission in 1969 and 1973 and are not
E
shown to be either discriminatory or unreasonable or arbitrary or ultra
vires. [946D-E]
F
G
8.1 Judicial review is not concerned with matters of economic
policy. Nor is price fixation within the province of the Courts. The
Court does not substitute its judgment for that of the legislature or its
agents as to matters within the province of either. The Court does not
supplant the "feel of the experts" by its own views. When the legislature acts within the sphere of its authority and delegates power to an
agent, it may empower the agent to make findings of fact which are
conclusive provided such findings satisfy the test of reasonableness and
are consistent with the laws of the land. 1948F, 9498, 948F-GJ
•I
'~
M/s. Gupta Sugar Works v. State of U.P. & Ors., [1987] Supp.
\,...
SCC 476; Railroad Commission of Texas v. Rowan & Nichols Oil
/
Company, 311 US 570-577, 85 L. ed. 358 and Mississippi Valley Barge
Line Company v. United States of America, 292 US 282-290, 78 L.ed
H 1260, referred to.
SITARAM SUGAR CO. LTD. v. U.0.1.
917
8.2 In the instant case, sufficient power has been delegated to the
Central Government by sub-s. (3-C) to formulate and implement its
policy · decisions by means of statutory instruments and executive
orders. Classification of sugar factories with due regard to geographical-cum-agro economic considerations for the purpose of determining
the price of sugar in terms of the said sub-section is a policy decision
based on exhaustive expert conclusions. Such classification, cannot, in
the absence of evidence to the contrary, be characterised as arbitrary or
unreasonable or not founded on an intelligible differentia having a
rational nexus with the ob_ject sought to be achieved by sub-section
(3-C). [949E, 947B-D]
The Panipat Cooperative Sugar Mills v. The Union of India,
[1973] 2 SCR 860 and T. Govindaraja Mudaliar etc. v. The State of
Tamil Nadu & Ors., [1973] 3 SCR 222, applied.
Federal Power Commission v. Hope Gas Co., 320 US 591; Union
A
B
c
of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2 SCC 720 and
M/s. Gupta Sugar Works v. State of U.P. & Ors., (1987] Supp. SCC
D
476, referred to.
8.3 If the petitioners nevertheless incur losses, such losses need
not necessarily have arisen by reason of geographical zoning, but for
reasons totally unconnected with it, such as the condition of the plant
and machinery, quality of management, investment policy, labour relaE
lions, etc. These are matters on which they have not furnished data.
The decisions in Anakapalle, (1973] 2 SCR 882 and Panipat, [1973] 2
SCR 860 do not require reconsideration. [947D-E, 950E-F]
8.4 Whether the policy should be altered to divide the sugar
industry into groups of units with similar cost characteristics with F
particular reference to recovery from sugarcane, duration of the crushing season, size and age of units and capital cost per tonne of output,
without regard to their location, is a matter for the Central Government to decide. What is best for the sugar industry and in what manner
the policy should be formulated and implemented, bearing in mind the
fundamental object of the statute, is ·again a matter for decision excluG
sively within the province of the Central Government. Such matters do
not ordinarily attract the power of judicial review. [949E-G I
Secretary of Agriculture, etc. v. Central Roig Refining Company
etc., 338 US 615-617, 94 L. ed. 391-392, referred to.
H
918
SUPREME COURT REPORTS
[1990] 1 S.C.R.
A
ORIGINAL JURISDICTION: Writ Petition Nos. 464 & 617 of
'"(
1977.
(Under Article 32 of the Constitution of India.)
K. Parasaran, Attorney General, Shanti Bhushan, Ashwani
Kumar, K.G. Bhagat, L.N. Sinha, Raja Ram Aggarwal, S.P. Gupta,
B H.K. Puri, V. Parthasarthy, T.C. Sharma, P.P. Singh, Ms. A. Subhashini, Mrs. Sushma Suri, G. Gopalakrishnan, O.P. Rana, A.V.
Rangam and Shartha Raju for the appearing parties.
c
F.S. Nariman, K.K. Venugopal, A.K. Verma, D.N. Mishra and
S. Kachawa for the Intervener in W.P. No. 464/77.
The Judgment of the Court was delivered by
THOMMEN, J. The petitioners are· owners of sugar mills
,.i._
operating in the State of Uttar Pradesh in areas classified for the
purpose of determining the price of levy sugar as West and East
Zones. They challenge the validify of notifications dated 28th
I) November, 1974 and 11th July, 1975 (Annexures 8 & 9) issued by the
Central Government in exercise of its power under sub-section (3-C)
of section 3 of the Essential Commodities Act, 1955 (Act No. 10 of
1955), as amended to date (hereinafter referred to as the 'Act').1 The
>--
petitioners do not, and cannot, challenge the validity of the subsection by reason of Article 3 lB of the Constitution of India. By the
E impugned orders, the Central Government fixed the prices of levy
sugar for 1974-75 production. For the purpose of determining the 1
prices, the country is divided into 16 zones, and the prices. fixe,d for i
~
various grades of sugar in terms of section 3 (3-C) of thelAct vary1from
zone to zone. Prices are determined with reference to the geographical-cum-agro-economic considerations and the average cost profiles of
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F
factories located in their respective zones. Each State for this purpose
constitutes a separate zone, while U.P. is divided into 3 zones and
Bihar into 2 zones. The petitioners contend that these orders are ultra
vires the Act and violative of their fundamental rights as the prices of
levy sugar have been determined arbitrarily with reference to the average cost profiles of factories grouped together in zones without regard
O
to their individual capacity and cost characteristics. Such prices do not
...
H
reflect the actual manufacturing cost of sugar incurred by producers
'1
like the petitioners or secure to them reasonable returns on the capital
employed by them. Geographical zoning, for the purpose of price
fixation, they point out, is an irrational· and discriminatory system of
(1) Published in· the Gazette of India Extraordinary dated 28.11.1974 and
11.7.1975.
SITARAM SUGAR CO. LTD. v. U.0.1. ITHOMMEN, J.[
919
averaging wide cost disparities amongst producers of widely varying
capacity. Cost of manufacture of sugar depends on a number of
factors, such as recoveries from the sugarcanes, duration of the crushing season, crushing capacity of the plant, the sugarcane price.paid and
the capital employed in the manufacture of sugar. These factors vary
from factory to factory. Fixation of the levy sugar prices on zonal basis
without regard to these divergent factors and the comparative cost
profiles gives the owners of bigger factories an undue advantage over
producers like the petitioners whose factories are comparatively of
lower crushing capacity and whose manufacturing cost is consequently
higher. .Clubbing of the petitioners' factories with dissimilar factories
in the same zones for the purpose of price fixation is discriminatory,
arbitrary and unreasonable. The petitioners point out that the system
of geographical zoning for the purpose of price determination has been
severely criticised by the Bureau of Industrial Costs & Prices (The
"BICP") who have strongly recommended the division of the sugar
industry into groups of units having similar cost characteristics with
particular reference to recovery, duration, size and age of the unit and
capital cost per tonne of output, and irrespective of their location.
The respondents, on the other hand, contend that the classification of sugar industry into 15 zones (now 16) was upheld by a Constitution Bench of this Court in Anakapalle Co-operative Agricultural &
Industrial Society Ltd. etc. etc. v. Union of India & Ors., [1973] 2 SCR
882. The contention that the zonal system was disc.riminatory and
violative of constitutional principles was pointedly urged, but categorically rejected by this Court. The method adopted by the Government
in fixing the price of levy sugar is fully supported by the recommendations of various expert bodies. The Tariff Commission in its 1973
Report recommended division of the country into 16 zones for this
purpose. The price of sugar is fixed with reference to the Cost
Schedule recommended by that body. These recommendations are
based on various factors such as cost and output of individual labour,
cane price (accounting for about 70 per cent of the cost of sugar production), quality of sugarcane, taxes on sugarcane; cost of other material, transport ·charges, cost of storing the sugar produced, cane
development charges and other overhead expenses, selling expenses
etc. These factors are almost identical for the entire zone.
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The cost of manufacturing sugar, the respondents contend,
depends not only on recovery from the sugarcane, duration of crushing
season, crushing capacity of the plant, the sugarcane price paid and the
capital employed, as stated by the petitioners, but also to a considerH
920
SUPREME COURT REPORTS
I 1990] 1 S.C.R.
A
able extent on the condition of the plant and machinery, quality of
management, investment policy, relations with cane growers and
labour, financial reputation etc. They say:
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"It is evident from the Tariff Commission Report of 1959,
as also the Official Dire:tory of the Bombay Stock
Exchange, that the petitioner Company has been consistently diverting huge amounts for investments running into
several lakhs elsewhere instead of ploughing back the same
into the petitioner's sugar industry in question. Thus, the
petitioner Company has been neglecting the sugar factory
and for such neglect of their own they cannot blame the
Zonal System."
Mr. Shanti Bhushan, appearing for the petitioners, does not
object to the factories being grouped together on the basis of factors
common to them with a view to fixing the prices applicable to them as
a class of producers. He does not advocate fixation of price separately
D for each unit. He says that the sugar factories must be grouped
together, not on the basis of their geographical location, but similarity
in cost characteristics. He relies upon the 1976 Report of the BICP.
The present system of fixing prices according to the regions, where the
factories are located, he says, is based on "averaging wide cost disparities" as a result of which manufacturers like the petitioners incurE ring a high cost of production and others incurring a low cost of production are treated alike. Such a system works to the disadvantage of
the former and to the advantage of the latter. This, Mr. Shanti
Bhushan contends, is an unreasonable and invalid classification and
violative of constitutional principles. While this line of argument is
supported by Mr. Raja Ram Agarwal, Mr. S.P. Gupta appearing for
F the intervener in Civil Writ Petition No. 464 of 1977 advocates abolition of zonal classification or grouping of any kind and supports fixation of price for each individual factory with reference to its cost and
regardless of any other consideration. Such unit-wise determination
alone, according to him, satisfies the requirements of Section 3(3-C).
Any system of zoning or grouping for determination of price, he conG tends, will fail to meet the norms of that sub-section. Mr. M.M. Abdul
...
Khader, on the other hand, submits that while averaging and costing
"II
with reference to a representative cross-section may ordinarily be an
/
appropriate method for determining the fair price, such a method is
inappropriate for a small zone like Kerala where there are only three
manufacturing units. In respect of such a zone, he says, unit-wise
H fixation of price is the only just and proper method.
SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.J
921
Mr. K.K. Venugopal, counsel for Indian Sugar Mills' Association (ISMA), on the other hand, supports the zoning system. He says
that, except for a few producers like the petitioners, all the rest oi
them in the country have accepted the principle of zoning. In his
written submissions, Mr. Venugopal states as follows:
"As was seen during the course of hearing only 2 or 3
persons have come forward challenging zoning. There are
389 sugar factories in the country and the present intervener has 166 members. Besides there are 220 members
with the cooperative sector. Their Association being National Federation of Cooperative Sugar Factories Ltd., has
also intervened in these petitions and have adopted the
arguments of ISMA. Hence almost the entire industry has
supported zoning and only a handful of people who also
factually are not high-cost units have opposed zoning."
Mr. Venugopal submits that the present case is squarely covered by
the decisions of this Court in Anakapalle Cooperative Agricultural &
Industrial Society Ltd. etc. etc. v. Union of India & Ors., [1973] 2 SCR
882 and The Panipat Cooperative Sugar Mills v. The Union of India,
[1973] 2 SCR 860. He says that the petitioners have not made out a
case for reconsideration of these two decisions. He refers to T. Govindaraja Mudaliar etc. etc. v. The State of Tamil Nadu & Ors., [1973] 3
SCR 222 at 228 to 230 and submits that this Court would not reexamine an earlier decision merely because certain aspects of the question had not been noticed in that decision. Mr. Venugopal, however,
advocates neutralisation of the high cost incurred by the old units
having lower crushing capacity by giving them an incremental levy
price as recommended by the High Level Committee in 1980.
Before we examine the provisions of section 3(3-C) in the context of the general scheme of the Act, we shall briefly refer to the
observations of this Court in Anakapalle, [1973] 2 SCR 882 and
Panipat, [1973] 2 SCR 860.
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Grover, J. speaking for the Bench inAnakapalle (supra) states:
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"The system of fixing the prices, according to certain
regions or zones, is not a new one. The Tariff Commission
in 1959 favoured the formation of four zones. In the report
of the Sugar Enquiry Commission 1965 it was pointed out
that the Government had actually fixed the prices for 22
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922
SUPREME COURT REPORTS
[1990] 1 S.C.R.
zones which meant that from four zones the number had
been increased to twenty two or more. The Commission
was of the view that there should be five zones only in
addition to Assam. The Tariff Commission, 1969 however
recommended the constitution of fifteen zones largely on
State-wise basis with an exception only in case of Uttar
Pradesh and Bihar. Uttar Pradesh was divided into three
~ones and Bihar into two. The Tariff Commission had been
specifically requested to inquire into the working of the
zonal system, the main point for inquiry being the zones
into which the sugar producers should be grouped having
regard to the basis of classification to be recommended by
the Commission. The view of the Commission was that on
the whole the number of price zones should be fifteen
which would reduce, though not eliminate, the inter-se
anomalies in the cost structure without resorting to the
extreme of the fixation of price for each unit or a single or
at the most two, one for the sub-tropical and other for the
tropical one. The Tariff Commission hoped that in the
course of time conditions would be created making the
operation of the second alternative feasible."
Rejecting the contention that it was the zonal system that caused
the losses allegedly incurred by some of the sugar producers, Grover,
E J. says that ordinarily these units ought to have made profits. The
reasons for incurring losses can be many, such as inefficiency, failure
to pursue the right policy, poor management and planning etc., but
these reasons have no relation to the zonal system. That system by and
large has led to efficiency and provides an incentive to cut down the
cost. Healthy competition among the units in the same zone should in
F
the normal· course result in reduction of cost and greater efficiency in
the operation of the units. It is proper management and planning that
would lead to the success of any commercial venture. The contention
of the producers that they have been incurring losses on account of the
zonal system is opposed to the evidence produced by them. The Court
has rejected the extreme contention that prices should be fixed unitG wise, i.e., on the basis of actu.al cost incurred by each unit. Referring
to this contention, this Court observes:
H
"Apart from the impracticability of fixing the prices for
each unit in the whole country, the entire object and
purpose of controlling prices would be defeated by the
adoption of such a system."
..
~.
SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.]
923
Grover, J. states that, during the earlier period of price.contr9l,_ A
it was on an all India basis that 'the price was fixed. That is still the
objective. If such an objective is achieved, it would undoubtedly be
coducive to conferring proper benefit on the consumers. The objective
of the Tariff Commission is to have only two regions for the whole
country, viz., sub-tropical and tropical.
The Court has rejected as baseless the criticism against the
principle of weighted average adopted in the fixation of price in each
zone. Such a principle is well recognised and acted upoti by various
Sugar Enquiry Commissions. A proper cost study is intended to do
justice to the weak and strong alike. There is abundant justification for
continuing and sustaining the zonal system. The varying climatic conditions of each State have been taken into account. For the same
reason, Bihar is divided into 2 zones and U.P. into 3 zones, while, in
the case of many other States, each State is treated as a single zone.
This system of zoning is thus adopted with special reference to climatic
and agro-economic conditions. Rejecting the contention that the zonal
system has resulted in discriminatory treatment, this Court states:
"We are unable to hoid that while classifying zones on
geographical-cum-agro-economic consideration, any discrimination was made or that the price fixation according to
each zone taking into account all the relevant factors would
give rise to such discrimination as would attract Article 14
of the Constitution."
Even if there is no price control, the uneconomic urtits would be at a
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great disadvantage. The Court states:
l
"Even if there is no price control each unit will have to
F
compete in the market and those units which are uneconomic and whose cost is unduly high will have to compete
with others which are more efficient and the cost of which
is much lower. It may be that uneconomic units may suffer
losses but what they cannot achieve in the open market
they cannot insist on where price has to be fixed by the
G
government. The Sugar Enquiry Commission in its 1965
report expressed the view that "cost-plus" basis of price
fixation perpetuates ineffiCiency in the industry and is,
therefore, against the long-term interest of the country."
Considering the general principle involved in price fixation, the Court
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states:
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924
SUPREME COURT REPORTS
[ 1990] I S.C.R.
"It is not therefore possible to say that the principles which
the Tariff Commission followed in fixing the prices for different zones are either not recognised as valid principles for
fixing prices or that simply because in case of some factories the actual cost was higher than the one fixed for the
zone in which that factory was situate the fixation of price
became illegal and was not in accordance with the provi-
· sions of sub-section (3-C). It has not been denied that the
majority of sugar producers have made profits on the whole
and have not suffered losses. It is only some of them which
assert that their actual cost is far in excess of the price
fixed. That can hardly be a ground for striking down the
price fixed for the entire zone provided it has been done in
accordance with the accepted principles ..... ".
The Court concludes:
"When prices have to be fixed not for each unit but for a
particular region or zone the method employed by the
Commission was the only practical one and even if., some
units because of circumstances peculiar to them suffered a
loss the price could not be so fixed as to cover their loss.
That cannot possibly be the intention of the Parliament
while enacting sub-section (3-C) of section 3 of the Act. If
that were so the price fixation on zonal or regional basis
would have to be completely eliminated. In other words,
the entire system of price control which is contemplated
will break down because fixation of price for each unit
apart from being impractical would have no meaning whatsoever and would not be conducive to the interest of the
consumer."
This Court has thus in Anakapalle (supra) rejected the argument
that the alleged loss incurred by certain sugar producers is attributable
to fixation of price on a zonal basis; or the zonal system has led to
inefficiency or lack of incentive, or it has resulted in unequal or unfair
G treatment. On the other hand, the zonal system has encouraged a
healthy competition amongst the units in the same zone. Unit-wise
fixation is impracticable. The Tariff Commission is the best judge in
selecting units for cost study to determine the average cost. The fair
price has to be determined with reference to the conditions of a representative cross section of the industry. For all these reasons, there is
H ample justification in continuing and sustaining the zonal system for
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SITARAM SUGAR CO. LTD. v. U.0.1.