Holding

Both the Cane Development Council and the Cane‑growers' Cooperative Society are entitled to levy commission under Section 21, as the levy is a fee justified by the quid pro quo of services rendered to the factory.

Summary

Bhopal Sugar Industries Ltd., a sugar‑cane crushing factory, purchased cane from both reserved and non‑reserved areas, directly from growers and through a cane‑growers' cooperative society. Under Section 21 of the Madhya Pradesh Sugar Cane (Regulation of Supply & Purchase) Act, 1958, it was required to pay a commission on all purchases, the commission being payable to the Cane Development Council for direct purchases and to both the Council and the cooperative for purchases through the society. The Council demanded commission on cane bought from non‑reserved areas and the cooperative demanded commission on purchases made through it; the company challenged both demands by a writ petition, which the High Court dismissed. On appeal, the Supreme Court examined (a) whether the Council could levy commission on purchases from outside the factory’s reserved area and (b) whether the cooperative could levy commission where no direct service to the factory was alleged. The Court held that the levy is a fee supported by quid pro quo, that the Council’s functions are not confined to the reserved area and may extend to a larger zone, and that the cooperative renders services that benefit the factory, thus both commissions are lawful. Consequently, the appeal was dismissed.

Issues considered

Whether the Cane Development Council can charge commission under Section 21 of the Madhya Pradesh Sugar Cane (Regulation of Supply & Purchase) Act, 1958 on purchases of sugarcane made by the appellant from outside the "reserved area".
Whether the Cane‑growers' Cooperative Union can charge commission under Section 21(1)(a) of the Act for purchases made through it when no quid pro quo service is alleged.

Legislation cited

Madhya Pradesh Sugar Cane (Regulation of Supply & Purchase) Act, 1958s. 15, s. 19, s. 21, s. 30, s. 5, s. 6

Subjects

commissionfeequid pro quoreserved areanon‑reserved areacane development councilcooperative societySection 21Madhya PradeshSupreme Court

Judgment

543 A
BHOPAL SUGAR iNDUSTRIES LTD.
v.
STATE OF M.P. & OTHERS B
•
March 23, 1982
•. J
(V.D. TULZAPURKAR AND AMARENDRA NATH SBN, JJ.]
•
Madhya Pradesh Sugar Cane (Regulation of Supply & Purchase) Act,
1958-S. 21-Levy of commission on purchase of cane from outside 'reserved area'
c
or through Cane-growers' Cooperative Society-Whether legal?

Section 21 (I) of the Madhya Pradesh Sugar Cane (Regulation of Supply &
Purchase) Act, 1958, imposes an obligation upon an occupier of a factory to pay
commission at prescribed rates on all its purchases of sugarcane. While in respect
oC purchases made through fl. Cane-growers' Cooperative Society the commission D
is payable to that Society and the Cane Development Council under s. 21 (I) (a),
in respect of purchases made directly from the cane growers the commission is
payable to the Cane Development Council under s. 21 (I) (b).

The appellant, a company which crushes sugar cane in its factory, purchas-
ed cane directly from the cuJtivators of 'reserved area' as well as of 'non-reserved
area'. Resp"ndent No. 2, the Cane J)evelopment Council, demanded commission E
in respect of purchases made from both 'i"eserved 1 as well as 'non-reserved' areas.
The appellant also purchased cane from Or through respondent No. 3, a Cane-
growers' Cooperative Society and in respect of those purchases, the demand for
commission was made by that Society.

• The demands for payment of commission were challenged by the appellant
F
• by a petition under Art. 226 which was dismissed by the High Court .

In appeal to this Court it was contended on behalf of the appellant that
since the Cane Development Council had been established for the 'reserved area'
of the appellant's factory so declared under s. 15 of the Act and its statutory
functions and duties were confined to that area under s. 6 of the Act, its demand
for commission on purchases made from 'non-reserved area' was illegal, there G
being no quid pro quo in the shape of rendering services in respect of purchases
made from' non-reserved area'. As regards the demand of the Cane-growers'
Cooperative Society for commission in respect of purchases made through it, the
contention was that in everything being done by it, the Society was rendCring
services to its own members and since no services resulting in any special benefit
to the appellant were being rendered by it in terms of the decision of this Court H
in Kewal Krishan Puri'1 case, (1979] 3 SCR 1217, there was no quid pro quo and
therefore no commission was legally recoverabl. .y the Society.
S44 sOP!tili.le coUilt llllPoRts [1982) 3 s.t.lt
A Dismissing the appeal,

HELD : I. The levy under s. 21 of the Act though called 'commission'
is really in the nature of a fee and its imposition is supportable only on the basis
of quid pro quo in the shape of rendition of services to a factory in the matter of
cane purchased by it. [548 C-D]

8 Jaora Sugar Milla (P) Ltd. v. State of Madhya Pradesh and Ors. [1966] 1
SCR 523, referred to.

2. · The imposition of commission by the Cane Development Council on
purchases of cane from 'non-reserved area' was proper and justified as there was
quid pro quo in the form of rendering services in the m:tter of bettef cane pro-
duction, distribution and supply thereof. The area of operation or the 'zone' of
c the CounciJ could include areas outside the 'reserved area' of the factory as a ,,,,. ..--~-
Council could be established for a larger or smaller area "than the reserved area
of a factory" under s. 5 of the Act, and its functions and duties under els. (a) to
(g) of s. 6(1) included functions like considering and approving development
progi'ammes for the zone. devising ways·and means for execution of development
plan in a!J its essentials such as cane varieties, cane seed, sowing programme,
fertilizers and manures, taking steps for preven.tion of diseases and pests and
D rendering all help in soil extension work, etc. Some of thCse functions mentioned
in els. (b), (d) and (el of s. 6(1) are of general character and not confined to even
the zone of the Council. Further, s. 21 of the Act does not contain any qualify-
ing words limiting the imposition of ~ommission to purchases of cane made by a
factory from. 1reserved area' onJy; the imposition is on every maund of cane pur-
chased by a factory irrespective of the area from where such purchases might
have been made. [549 A-Fl
E
3. The contention that in respect of purchases of cane made through the
CaoeMgro~ers' Cooperative Society there was no element of quid pro quo cannot
be accepted having regard to the scheme of the Act and the activities undertaken
by the Society in the discharge of its normal functions. The scheme of the Act,
particularly in ss. 15.16 and 19, contemplated situations where the.appellant's
factory might have had to purchase cane from within reserved or assigned areas, •
F. only through the Society. The Society had been .established to develop scientific
methods of sugar cane growing and it bad called upon Its members to introduce •
modern means of implements for cultivating sugarcane w-bk.b unqueslionably
made for assured bulk supply of uniformly good quality cane throllgh its mem-
bers tO the appellant's factory. It could not, therefore, be said that no services
conferring special benefit on the' appeUant's factory in the matter of purchases of
cane were being rendered by the Society to the appellant's factory.
G [S5l A-H; 552 A]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 504 (N)
of 1971.

H Appeal from the Judgment and Order dated the 24th Apri
1970 of the Madhya Pradesh High Court in Misc. Petition No. 246 ·
of 1967. •
llltOPAL SUGAll INDUSTRIES v. M. P. STATB.(Tu/zapurkar, J.) ·S4S

R.P. Bhatt, Ashok Mehta, J.B. Dadachanjl and ·D.N. Misra
A
.--"
for the appellant.

Gopal Subramanium and S.A. Shroff' for the respondents.

The Judgment of the Court was delivered by 8
)
TULZAPURKAR, J. Two questions were raised for our deter-
mination in this appeal by a certificate :

(a) Whether the Sugarcane Development Council, Sehore
(respondent No. 2) can charge commission under
section 21 (I) of the Madhya Pradesh Sugar Cane
c
(Regulation of Supply & Purchase) Act, 1958 on
- ·---+-
purchases of sugarcane made by the appellant-
company from outside the "reserved area" ? and

(b) Whether the Sugar Cane-Growers Development Co- D
operative Union Ltd., Sehore (respondent No. 3:
the concerned Cane Growers Co-operative Society)
can·charge commission under section 21 (I) (a) of
the Act in respect of the purchases of sugarcane made
by the appellant through the Union when there is no.
quid pro quo by way of rendering any services by E
Union to the appellant-company ?

The short fac(s giving rise to the above questions may be
stated : The appellant-company crushes sugarcane in its factory at
Sebore in Madhya Pradesh. For its business 'it purchases sugarcane
from "reserved area" as well as from outside both directly from the F
cane-growers as well as through respondent No. 3, a Cane.growers
~·· Co-operative Society, Sehore. Section 21 of the Act imposes an
obligation upon the !IPPellant-company to pay commission on all
its purchases of cane at prescribed rates and .it bas to pay such
commission in respect of purchases made through the Society to the
Society and the Development Council and in . respect of purchases G·
made directly from the cane-growers to the Development Council.
According to the appellant-company judicial decisions rendered by
Madhya Pradesh High Court as well as this Court have settled the
position that the commission chargeable under s. 21 of the Act is in H
the nature of a fee the imposition of which is supported on the basis
of quid pro quo in the shape of services rendered by the Development .
546 SuPRBMi! COIJRt Rl!POl!.TS (1~82) 3 s.c.a.

Council to a factory (vide : Jaora Sugar Mills (P) Ltd. v. State of
Madhya Pradesh and Others.(') It appears that during" the seasons
1960-61 to 1964-65 the appellant-company purchased cane
directly from the cultivators of "reserved area" as well as from the
cultivators of "non-reserved area" and respondent No. 2 (Develop-
ment Council, Sehore) maife a demand of commission from the
8
appellant-company in respect of such purchases both from "reserved
area" as well as from "non-reserved area." Similarly, during the
crushing seasons 1963-64 to 1966-67 the appellant-company made
purchases of cane from or through respondent No. 3 (Co-operative
Society) in respect whereof a demand of commission was made by
c respondent No; 3 from the appellant·company. By a writ petition
(being Misc. Petition No. 246 of 1967) filed in the Madhya Pradesh
High Court at Jabalpur the apppellant-company challenged
the validity of the demand made by respondent No. 2 inso-
far as it related to purchases made from non-reserved area on
the ground that it (Council) was established for the reserved area
0 of the appellant-company's factory and its functions were confined
to that area and as such no commission (fee) could be recovered
by it in respect of purchases made by appellant-company from non-
reserved area; similarly, the demand made by respondent No. 3
(Co-operative Society) was challenged on the ground that no services
of any kind whatsoever were rendered by it to the appellant-
E company, and the charge would be invalid in the absence of any
quid·pro quo. The High Court negatived both the contentions and
dismissed the petition. It is this decision of the High Court that
is challenged before us in the appeal and counsel for the appellant- ·
company raised the two questions mentioned at the commencement
of the judgment.
F
Section 21, which deals with commission on purchase of cane,
runs thus:

" (I) There shall be paid by the occupier a commission for
G every one maund of cane purchased by the factory-·

(a) where the purchase is made through a Cane-
growers' Co-operative Society, the commission
shall be payable to the Cane• growers' Cooperative
H
(!) [1966) I S.C.R. 523.
"
BHOPAL SUGAR INDUSTRIES v. M. l'. STATE (tulzapurkar, J.) 541

Society and the Council in such proportion as the A
State Government may declare ; and

(b) where the purchase is made directly from the
cane-grower, the commission shall be payable to
the Council.
B
(2) The Commission payable under clauses (a) and (b) of
sub-section (I) shall be at such rates as may be pres-
cribed provided, however, that the rate fixed under
clause (b) shall not exceed the rate at which the com-
mission may be payable to the Council under
clause (a)." c
Section 30 confers power on the State Government to make rules
for the purpose of carrying into effect the provisions of the Act and
under cl. (j) of sub-s. (2) such Rules may provider for "the rate at
which and the manner in which commission shall be paid to the
D
Ca~e-growers' Co-operative Society on the supply of cane by them."
Under the aforesaid provisions certain rules called the Madhya
Pradesh Sugar Cane (Regulation of Supply and Purchase) Rules,
1959 have been framed by the State Government. Rules 45 and 46
occurring in Chapter X of the Rules are material and they are as ·
follows: E

"45. The occupier of factory shall pay a comm1ss1on for
the cane purchased at the following rates namely :-

(i) Where . the purchase is made. through a Cane-
growers' Co-operative Society, at the rate of 5 F
Naya Paise per maund out of which 2 Naya Paise
shall be payable to the Society and 3 Naya paise
to the Council;

(ii) Where the purchase is made. directly from the
cane-growers, at the rate of 3 Naya Paise per
G
maund, payable to the Council.

46. In determining the proportion to which pay :-ients out
of commission shall be made to the Council and the
Cane-growers' Co-operative Society of an area the
e
State Government may take into consideration the
•

..
S4S SUl>R.li.Mll totJltT REl>oRts [l982J 3 s.c.lt.
A financial resources and the working requirements of.
the Council and the Cane-growers' Co-operative
Society."

It is thus clear from the aforesaid statutory prov1s1ons that
every factory is uncler ,an obligation to pay commission on all its .
B purchases of cane at the prescribed rates and it has to· pay such
commission at the rate of 2 Naya Paise per maund to the Society and
3 Naya Paise to the C~uncil in respect of purchases made through
a Cane-growers' Co-operative Society and at the rate of 3 Naya
Paise per maund to the Council where the purchases are made
directly from the cultivators or cane-growers. It cannot be and was
c not disputed by Counsel on behalf of the respondents that the levy
under s. 21 of the Act though called "commission" is really in the
nature of a fee, the imposition of which is supportable only on the-
basis of quid pro quo in the shape of rendition of services to the fac-
tory in the matter ofo cane purchased ·by it and Counsel accepted
this position as emerging from this Court's decision in Jaora Sugar
D Mills'. case (supra). ·

Now, turning to the first question raised before us Counsel for
the appellant.company contended that respondent No. 2 Council has
been established for the "reserved area" of the appellant's factory
E so declared under s. 15 of the Act, that respondent No. 2 Council
is required to discharge its statutory functions and duties under s. 6
of the Act confined to the "reserved area" meant for the· appellant's
factory and as such the demand for commission (fee) in respect .
of purchases of cane made by the appellant-factory from non-
reserved areas (which it is entitled to make alongwith its purchases
F
from the "reserved area") would be illegal and without any autho·
rity of !awe because in respect of such purchases there is no quid pro
quo in the shape of renderi!lg of services by respondent No. 2 to the
appell~nt-factory. It is not possible to accept this contention for
more than one reasort. In the first place there arc no qualifying
G words to be found in s. 21 of the Act which limit the imposition of
commission (fee) to purchases of cane made by a factory from
reserved area only; the imposition is on every maund of cane pur-
chased by factory irrespective of the area from where such purchases
may have been inade. Secondly, and this is important, if the rele-
H vant provisions of ss. 5 and 6 of the Act are carefully examined it
will appear that the functions and duties of the Development
Council are not confined to the "reserved area" of a factory as
BHOPAL SUOAR INDUSTRIES v. M. P. STATE (Tulzapurkar, J.) 549

A
urged" by the Counsel for the appellant-company. Under s. 5
"there shall be established, by notification, for the reserved area
of a factory a Cane Development Council which shall be a body
corporate .. . provided that where the Cane Commissioner
so directs, the Council may he established for a larger or smaller
area "than the reserved area of a factory" and sub-s. (2) provides
that "the area for which a council is established shall be called a
Zone". In other words, the Zone (area of operation) of a Council
could be larger than the "reserved area" of a factory i.e. would, in·
elude areas outside the reserved area of the factory. Further, the func- ·
tions and duties of the Council are indicated seriatim in els. (a) to (g)
of sub-s. (1) of s. 6 and these include functions like considering and
approving development programmes for the Zone, devising ways and
c
means for execution of development plan in all its essentials such as
cane varieties, cane-seed, sowing rrogramme, fertilizers and manures,
taking steps for the prevention of diseases and pests and render-
ing all help in soil extension work, etc. etc. and it will be noticed that
some of these functions under cl. (b), (d) and (e) are of general cha- D
. racier and not confined even to the Zone of the Council. In other
words, the funcJions and duties of the Council which are in the
nature of-rendering services in the matter of better cane produciion,
distribution and supply thereof to the factory are not confined to the
"reserved area" so declared for a factory under sec. IS of the Act.
If that be so it is difficult to accept the contention that in the matter E
of cane purchases made by the appellant's factory from non-reserved
areas no services are rendered by. the respondent No. 2 Council to
the appellant's factory. The quid pro quo being there the imposition
of a fee on such purchases from non-reserved areas would be

. proper and justified .

As regards the demand and recovery of commission (fee) by res-
pondent No. 3 under s. 2l(l)(a) in respect of purchases of sugarcane
made by the appellant's factory through it, the contention of Coun.sel
for the appellant-company has been that respondent No. 3 is the
concerned Cane-growers' Co-operative Society in the area, · one G
of the ·objects of which is to sell cane grown by its ·members to the
appellant's factory, that the said Society does not render any services
to the appellant's factory under the Act or otherwise and hence is
not ,entitled to recover any fee from the appellant-company. It is
pointed out that respondent No. 3 is meant for helping its members H
,and in f~pt renders various types of services to its cultivator-men:rber$
'
550 SUPBEME COURT REPORTS [1982) 3 s.c.R.

A so that they are not exploited. In fact in the matter of supplies of
cane made through the respondent No. 3 it is the Society which deals
with its members who receive their price from the Society. Counsel
pointed out that even in the ·return filed by respondent No. 3
to the writ petition, respondent No. 3 enumerated four
types of services which it claimed was rendering to .the appel-
B lant's factory, namely, (a) it made. arrangements for Jumpsum
·cane supply on Jumpsum demand from the factory; apart from
convenience this resulted in economy to the factory as it had to
maintain Jess staff; (b) it undertook equitable distribution of quota
and the factory had not to undertake this function; (c) it undertook
the maintenance of the records of illdividual growers for cane --- ......
supplies and the factory had not to undertake this function and (d)
it made payment to the suppliers though the factory is required to
make payments for supplies effected immediately and, in actual
practice mostly the factory made payments late at its convenience
but the Society made payments to the suppliers regularly according
D to the programme drawn by it; the appellant's factory thus benefited .
by the existence of this Society. But according to Counsel for the
appellant-company none of these items referred to above really
amounts to rendering any service to the appellant's factory by way
of conferring on it some special benefit having a direct, close or rea-
sonable correlation to its transactions of purchase of cane and, if at
E all, all these items referred to in the Return are really
for the benefit of cultivator-members of the Society and in this
behalf, Counsel relied upon a decision of this Court in Kewal Krishan
Puri' s('J case where in the context of enhanced market fee levied
under Punjab Agricultural Produce Market Act, 1961 this Court
has observed th~t the quid pro quo by way of rendering services must
F result in the conferal of some special benefits to the persons charged
which have a direct, close and reasonable correlation between such
persons and their transactions and that any indirect or remote.'
benefit to them would in no sense be such benefit. Counsel for
the appellant-company, therefore, urged that since in everything that
is being done by it respondent No. 3 is rendering services to its own
G members and no services resulting in any special benefit to the
appellant's factory are rendered, no charge by way of any fee would
be legally recoverable by respondent No. 3 from the appellant's
factory.

H (2) (1979] 3 S.C.R. 1217.
<, /
BHOPAL SUGAR INDUSTRIES v. M~P. STATE (Tu/zapurkar, J.) 551

A
, . In our view having regard to the scheme of the Act and the
activities which respondent No. 3 has been undertaking . in
the discharge of its normal functions it will be difficult to
ac~ept the contention urged by Counsel for the appellant's
factory that no services of any kind whatsoever resulting in conferal
• of special benefits on the appellant's factory in regard to its transac- B
tions of purchases of cane are rendered by respondent No. 3 to the
appellant's factory. The scheme of the Act is that under
sections 15 and 16 a declaration of reserved and assigned areas for
purchase and supply of sugarcane is made by thlj, Cane Commissioner
-J-..-- for every· factory after consulting in the manner prescribed the
occupier of the factory and the Cane-growers' Co-operl\live Society, c
if any, in that area and upon declaration of such areas an obligation
is cast upon the occupier of the factory, in the case of "reserved
area", to purchase 311 cane grown in such area which is offered for
sale and in respect of "assigned area" to purchase such quantity
of cane grown therein and offered for sale for t~e factory as may be
determined by the Cane Commissioner. Further, under s. 19 the D
State Governm·ent can by order regulate the distribution, sale and
purchase of cane wit~in any "reserved and assigned area" as also
from areas other than· "reserved and asssigned areas" and under
cl. (b) of sub-sec. (2) such order made by the State Government may
provide for the manner in which cane grown in the "reserved area"
or the "assigned area" shall be purchased by the factory and .the E •
cane grown by a cane-grower shall not be purchased except through
a Cane-growers' Co-operative So~iety. In other words the scheme
of Act contemplates situations where the appellant's factory may
have to purchase cane from within reserved or assigned areas only
through the respondent No. 3 Society. Moreover in its Return the
respondent No. 3 has averred that unc\fr its bye-laws the Society is F
established to develop scientific methods of sugar cane growing and
calls on its me.mbers to introduce· modern means of implements for
cultivating sugarcane which unquestionably makes for assured bulk
supplv of uniformly good quality cane through its members to the
appellant's factory. In other words this funclion undertaken by
respondent No. 3 is of a nature or kind similar to that undertaken
G
by the council and therefore it cannot be said that no services con-
ferring special benefit on the appellant's factory in the matter
of its purchases of cane are rendered by respondent No. 3 to
the appellant's factory. H~ving regard to the aforesaid position it H
is not possible to accept the contention that in respect of purchases
of cane made through the respondent No. 3 Society · there is nQ
552 SUPREME COURT REPOP..'l'S (1982) 3 S.C.R.

A element of quid pro quo in the shape of rendering services by res-
pondent No. 3 to the appellant's factory.
.-
In the result both the questions are answered against the
appellant-company and the appeal is dismissed with costs.

B H.L.C. Appeal dismissed. •

•

. ,

....