CENTRAL DAIRY FARMversusGLINDIA LTD. AND ORS.

A                          CENTRAL DAIRY FARM
                                        v.
                          GLINDIA LTD. AND ORS.

                              OCTOBER 14, 2003
B
         [SHIVARAJ V. PATIL AND D.M. DHARMADHIKARI, JJ.]

         Uttar Pradesh Milk Act, 1976-Section l J-Price fixation for supply
  of cream and paneer-Earlier judgment of High Court finally decided
C dispute between same parties-Thereafter, respondent supplied cream to
   appellant on a mutually agreed rate, as per earlier judgment-Later
  Notification reduced price of cream, nullifying the effect of the earlier
  judgment-Respondent filed writ petition in High Court-Notification
   quashed holding that mutually agreed rate as per the earlier judgment
   would prevail-On appeal Held; power of price fixation could not be
D invoked nullifying mutually agreed terms and conditions-The power is
   merely enabling one and State Governm~nt not obliged to fix prices in all
  circumstances-Earlier judgment settled controversy between parties and
   directions therein were binding-Notification rightly quashed as iifrustrated
   mutual agreement between parties arrived as per the earlier judgment-
E Companies Act, 1950-Section 434.

          State of Uttar Pradesh owns the appellant firm. The respondent
    started supplying surplus cream to the appellant on a mutually agreed
    rate, after the High Court finally settled the dispute betwe4m the parties
F   by way of a judgment in an earlier writ petition filed by th4~ respondent.
    On 12.1.1989 a Notification was issued under .Section 15 of the Uttar
    Pradesh Milk Act, 1976 fixing the price for supply of cream and paneer
    at a rate lesser than the mutually agreed rate between the parties.

         Another writ petition was filed by the respondent challenging the
G notifications as a coercive measure to nullify the effect of the earlier
    judgment of the High Court. The notification was quashed by the High
    Court holding that the mutually agreed rate would prevail in view of
    its earlier judgment. The judgment entitled the respondents to recover
    about Rs. 42 lakhs from the appellant for which a notice for winding
H   up for non-payment of dues was already issued under S1ection 434 of
                                        710
                CENTRAL DAIRY FARM v. GLINDIA LTD.                711

the Companies Act. Hence this appeal.                                   A
     The appellant contended that the statutory power under Section
15 of the Milk Act had been recognised in the earlier judgment; ancj
that court should interfere in the ~omain of the executive authorities;
which fix prices considering several relevant factors.                  B
     Dismissing the appeal, the Court

      HELD : 1. The prices of cream and paneer to be supplied by the
respondent to the appellant Dairy Farm were fixed under terms mutually
settled through negotiations between the parties. The power of price C
fixation under Section 15 of the Act could not have been invoked by the
State Government to nullify the terms and conditions of the agreement
on fixation of price reached between the parties. [719-A-B]

      2. The Statement of Objects and Reasons of the Act indicate the D
legislation was found necessary 'to develop milk industry in a systematic
and organised manner' in view of the limited yield of milk in the State. ·
It was found necessary in public interest to regulate and control
production, supply and distribution of milk and milk products. To
fulfil the objects of the Act the State Government has been empowered E
under Section 15 of the Act to regulate and fix by notification prices
for sale and supply of milk and milk products. The power of the State
Government to fix prices of piilk and milk products by issuance of
notification under Sec. 15 of the Act is merely an enabling one and it
is not obligatory for State Government in all circumstances to fix the
prices. In the instant case, the prices of cream and paneer were fixed F
through mutual negotiations between authorised representatives of the
two companies and with the assistance of the authorities of the State.
Such binding terms of agreement reached between the two companies
could not be frustrated by statutory intervention of the State by
issuance of notification for fixation of prices under Section 15 of the G
Act. [719-F-H, 720-A]

     3. In the earlier judgment of the High Court the power of the State
Government to fix prices of milk and milk products under Section 15
of the Act was recognised and it was held that the Additional Milk H
    712                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A Commissioner as the licensing authority had no power to interfere in
    the matter of fixation of price of milk and milk products. The operative
    part of the earlier judgment, which attained finality, settled the
    controversy between the parties and the prices of supplies by the
    respondent were to be regulated by the directions made by the High
B   Court. The written directions issued therein were binding and could
    not have been nullified by invoking power of the State of issuing price
    fixation notification under Section 15 of the Act. There is comP.lete
    justification in coming to the conclusion that the issuance of notication
    under Section 15 of the Act was an exercise done for oblique purpose
C   and to somehow get over the earlier judgment. [720-C-D, E)

         CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4767 of
    1997.

          From the Judgment and Order dated 10.2.92 of the Allahabad High
D Court in C.M.W.P. No. 6387 of 1989 .
                                    . WITH

          C.A. Nos. 4770, 4771-73 of 1997
E
          S. Muralidhar for the Appellant.

         Rajiv Shakdhar, U.A. Ram, Arvind Kumar for Mis. Gagrat & Co. for
    the Respondent.

F         S.W.A. Qadri, Kamlendra Mishra and S.K. Dwivedi for the State of
    U2.                                           .

          The Judgment of the Court was delivered by

G         DHARMADHIKARI, J. These appeals are directed against a common
    judgment dated l 0.2.1992 of the division bench of the High Court of
    Allahabad whereby Notification No. 4345/XII-DU-VI-13/88 dated 12th ..
    January, 1989 issued by the Government of Uttar Pradesh in exercise of •,\,
    powers under Section 15 of the Uttar Pradesh Milk Act 1976 (hereinafter ·
H   referred to as 'Milk Act' for shqrt) fixing price for supply of cream and
     CENTRAL DAIRY FARM v. GLINDIA LTD. [DHARMADHIKARI, J.]             713

paneer, is held to be not enforceable against respondent No. l M/s Glindia A
Ltd., (fonnerly known as Glaxo Laboratories India Ltd.).

     The high Court further held that the price of cream and paneer
payable to respondent No. 1 for supply by it to the appellant Dairy has to
be in accordance with the terms and conditions mutually agreed between B
the parties at the agreed rate of Rs. 40.40 per kg. fat to be calculated in
accordance with 'Two Axis Formula' evolved in a joint meeting of the
representatives of the appellant as purchaser and respondent No. 1 as the
supplier of the cream.

      By the impugned notification, contrary to the terms and conditions C
agreed between the purchaser and the supplier, rates were fixed below the
agreed rate and regardless of the agreed formula for calculation of the
prices depending on the fat content in the cream and paneer.

      For the purpose of these appeals facts in brief leading to initiation of D
an earlier litigation and institution of the present litigation between the
parties are required to be stated :

      Central Dairy Farm as an industrial unit was purchased by the State
of Uttar Pradesh in the year 1948. The dairy was run initially by the E
Department of Animal Husbandry. In the year 1975, it wad made a unit
ofUttar Pradesh Pashudhan Udyog Nigam Ltd. which is a State Undertaking
registered under the Companies Act. The respondent Glinidia had set up
plant for manufacture of infants milk food and obtained a licence under
the Indll;strial Development and Regulation Act. The respondent Glindia F
had agreed to supply surplus cream available with it to Central Dairy Farm
for manufacture of butter and ghee by the latter.

       The supply of cream by respondent Glindia to Central Dairy Farm
continued on the matually agreed price between them. In the year 1987
certain difficulties arose about pricing of the cream and they were resolved G
 in a meeting on 7 .9.1987 between the authorised executives of the appellant
Central Dairy Farm, the respondent Glindia and officers of the concerned
department of the State. Under the terms mutually settled through
negotiations held on 7. 9 .1987, the price of cream at the agreed rate was
to be determined on the basis of 'Two Axis Formula' which was being H
       714                 SUPREME COURT REPORTS [2003) SUPP. 4 S.C.R.

· A, followed by co-operative societies. The formula is 59% allocated to fat and
       41% to SNF with 60 paise per litre for milk to be paid as 'over-head
       charges'. The two axis formula was revised on 8.2.1988 from 59% to 58%
       fat and 41%to42% SNF. When Glindia was asked to adjust payment made
       on the basis of earlier fixed formula of 59% and 41 %, it refused to do so
   B   and in fact started converting its cream into ghee for selling it to outside
       parties.

             The above alleged action of Glindia led to passing of an order on
       5.8.1988 by Additional Milk Commissioner of UP by which directions
   C   were issued to Glindia to supply cream to the appellant Dairy as per the
       then prevailling two axis formula of 52% fat and 48% for SNF allocation
       on which the price was worked out at Rs. 40.40 per kg. The licensing
       authority also issued directions to the Deputy Dairy Development Officer
       not to issue any permit to Glindia for transporting its cream beyond the
   D   reserved area. The aforementioned order dated 5.8.1988 passed by the
       Additional Milk Commissioner was challenged by Glindia in writ petition
       in the High Court of Allahabad. By judgment dated 14.10.1988 the High
       Court allowed the writ petition of Glindia holding the action of Additional
       Milk Commissioner as wholly illegal and beyond his powers under the
       Milk Act. After quashing the order dated 5.8.1988 of the Addi. Milk
   E   Commissioner, the division bench of the High Court of Allahabad issued
       following directions :

                     (i)   "Supply of cream by petitioner to 'CDF shall be resumed
                           within three days in accordance with sub-clause (3) of
   F                       Clause Illof Agreement dated 7th September, 1987.

                     (ii) Price of the cream to be paid to petitioner shall be
                          determined by agreement and in absence of any
                          agreement by the price determined to be payable to
   G                      cooperative societies to producers with overhead charges
                          etc.

                     (iii) It shall remain open to CDF and petitioner to agree for
                           supply of cream over and above that was agreed in
   H                       September 1987.
     CENTRAL DAIRY FARM v. GLINDIA LTD. [DHARMADHIKARI, J.]             715
              (iv) In respect of surplus cream left after meeting requirement A
                   of CDF in the manner indicted above the petitioner
                   may apply under section 11 (3) for manufacture of ghee
                   etc.

              (v) Surplus cream left over and above the requirement of B
                  CDF can be said by petitioner in open market or be
                  exported for which the necessary export permit shall
                  not be refused.

              (vi) Milk collection shall be made by petitioner as determined C
                   by authorities but its average shall be worked out oil
                   annual basis.

              (vii) Since the petitioner has succeeded on legal issues the
                    opposite parties are not entitled to any damages.
                                                                                D
              (viii) Dispute about arrears or overpayment shall be resolved
                     by a committee to be appointed within two weeks
                     comprising officers of two organisations and high
                     officials of Animal Husbandry and Milk Act."
                                                                                E
     On the question of the authority of the licensing authority to fix price
of milk and milk products the division bench made a reference to the
provisions of Section 15 of the milk Act and observed thus :

         "Although the licence for item other than milk food can be refused F
         but the licencing authority can grant or renew it subject to such
         restriction as can be considered to be reasonable and in public
         interest. But fixation of price or determining quantity of export
         are not in domain of licencing authority. These powers under the
         Act and rules vest in State Govenment. Section 15 is clear and
         specific. It empowers State Government in public interest to G
         regulate or fix price in respect of sale or supply of milk or
         manufacture, sale or supply of milk product and the transport of
         those it~ms inside and outside State. Clause (iii) of rule 7 laying
         down functions of Milk Commissioner under the Act further
         dispels any doubt as it empowers him to make recommendation H
     716                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A             only to geveminent in regard to prohibition or regulation of sale
              and transport of milk products u/s. 15. Section 15 which deals with
              licencing of transporters could not be invoked for restricting or
              permitting export. Even the learned Advocate General had to
              candidly admit that there was no escape from the conclusion that
              price fixation and restricting export of an item of milk product
B
              could be done by State Government. Cream or Ghee are milk
              products under Milk Act and in absence of any provision in IDR
              Act or any notified order u/s. 18G of Act 6? of 1951 the State
              and not the authorities under Milk Act could control its supply and
              distribution, fix its price and permit or restrict export. Int he
c             circumstances, the order dated 5th August, 1988 passed by
              Additional Milk Commissioner being in violation of statutory
              provision and the well established dictum that it is essential for
              lawful exercise of power that it should be exercised by the
              authority or person upon whom it; conferred by the Statute, cannot
-D            be maintained."

           It is reported at the Bar that the special leave petition filed against
     the-judgment of the Allahabad High Court in Writ Petition No. 16526 of
     1988 decided on 14.10.1988 has been rejected and the said judgment
E    therefore has attained finality. After the judgment of the division bench of
     the High Court dated 14.10.1988 Glindia continued to supply cream and
     paneer to the Dairy on ad hoc price of Rs. 45 per kg. which was later on
     reduced to Rs. 43 per kg. The departmental authorities and the authorised
     officers of the Dairy Farm then held mutual negotiations and supply was
F    resumed with effect from 6.1.1989 at agreed price of Rs. 40.40 per kg.

          It is thereafter that the notification impugned by Glindia in these cases
     came to be issued by the State of Up under Section 15 of the Milk Act
     whereby prices, contrary to the agreed rate, were fixed at Rs. 34.50 per
     kg. fat of cream and Rs. 30 per kg. paneer for the months of January,
G    February, November and December. By the same notification price at Rs.
     38 per kg. fat of cream and Rs. 35 per kg. for paneer was fixed for the
     months from March to October.

           The issuance of Notification dated 12.1.1989 by the State fixing
H'. prices for supply of cream and paneer below the mutually agreed prices,
     CENTRAL DAIRY FARM v. GLINDIA LTD. [DHARMADHIKARI, J.]           717
the consequent coercive action of the authorities of State in rejecting A
application of Glindia for licence for manufacture of ghee, cancellation of
its licenses and other adverse actions compelled Glindia to challenge the
notification and action of the authorities of the State in writ petition No.
6387of1989 with other connected petitions which have given rise to these
appeals.                                                                     B
      By the impugned common judgment dated l 0.2.1992, the High Court
allowed the writ petitions filed by Glindia Ltd. The High Court quashed
the Notification dated 12.1.1989 issued under Section 15 of the Milk Act
by the State Government fixing price of cream and paneer. It held that the
aforesaid notification was clearly in contravention of the judgment of the C
high Court in earlier writ petition rendered on 14.10.1988. It also held that
the impugned notification cannot be enforced against Glindia as the price
payable is determinable on1y at the mutually agreed rate based on the
agreed two axis formual with reference to fat contents in cream and paneer.
The other adverse action taken by the state in rejecting licence to the ·.D
Glinedia to manufacture ghee was quashed. The order of the Hcensing
 authority suspending the licence of milk was also quashed and as a
 consequence all recovery proceedings initiated against Glindia were set
 aside.
                                                                            E
     The Central Dairy Farm and State of Uttar Pradesh by separate
appeals have approached this Court and have <:hallenged the common
judgment of the division bench of the High Court dated 10.2.1992.

      As a result of its success in the writ petition, according to Glindia, F
they were entitled to a total sum of above Rs. 42 lacs and odd from the
appellant dairy farm. They have issued a notice under Section 434 of the
Companies Act for winding up of the appellant company for: non payment
of its dues. This Court on 17 .8.1992 stayed further proceedings for
recovery of dues of Glindia subject to the appellant Central Dairy Fann
paying Rupees ten lacs to Glindia. The order made by this Court on G
17 .8.1992 reads thus :

         "Adjourned for four weeks. The matters are directed to be listed
         at the bottom of foe list on a non-miscellaneous day. In the
         meanwhile, Shri Salve says that the respondent has issued a notice H
     718                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A             under Section 434 of the Company Act for winding up in the event
              the payment of Rs. 42 lakhs is not made. We stay further
              proceedings of collection subject to the petitioner paying a sum
              of Rs. I 0 lakhs to the respondent. The payment shall be made
              within three weeks as 'on account' payment and refunded with
              such interest as may be fixed by this Court in the event of the
              petitioner succeeding in the matter."

          During the pendency of these appeals hearing was adjourned repteadly
   ·as parties expected an amicable settlement with regard to the dues between
    them, An attempt was also made to seek adjudication through an arbitrator
c   but ultimately the parties reported that no mutual settlement could be
    arrivedlat: It has also been informed that in accordance with the terms
    of the order of this Court dated 10.2. I 992 a sum of Rupees ten lacs
    against total payable dues of Rupees forty two lacs and odd has been
    paid;by the appellant Dairy Farm but as its financial condition continues
\D to be poor it has closed its operations and it is unable to clear the remaining
    dues.

          Learned counsel ·Mr. S. Muralidhar appearing for the appellant
    Central Dairy farm assailed the judgment of the high Court mainly on two
E grounds. Firstly, it is urged that in the earlier judgment of the High Court
    dated 14.10.1988 in Writ Petition No. 16526 of 1988, the order of the
  . Additional Milk Commissioner as licensing authority was quashed but the
    statutory power of the state Government to fix price of milk and milk
    products by notifiction under Section I 5 of the Milk Act was recognised
F.  and no fetters were placed on. the exercise o~ such po~ers by the State..
    The Second ground urged 1s that the pnce fixat10n by the State
    in accordance with Section I 5 of the Milk Act is a power with which the
    Court should not interfere because it is essentially within the domain of
    executive authorities and requires consideration of several relevant factors
    pertaining to the maintenance of supply of milk. It is submitted that the
G · Government in· its counter-affidavit" in the High Court has explained in
    detail the justification for fixing, by notification, the price of cream and
    paneer.

           We have heard learned counsel appearing for the contesting respondent
rH Mis Glindia Ltd. We have also perused the relevant part of the judgment
      CENTRAL DAIRY FARM v. GLINDIA LTD. [DHARMADHIKARI, J.J           719

of the High Court under appeal and looked into the relevant provisions of A
the Milk Act. In the present case as the prices of cream and paneer to be
supplied by respondent Glindia to the appellant Dairy Fann were fixed
under tenns mutually settled through negotiations between the parties,
the power of price fixation·under Section 15 of the Act could not have
been invoked by the State Government to nullify the tenns and conditions B
of the agreement on fixation of price reached between the two companies
(the appellant and respondent No. 1). Section 15 of the Milk act reads as
under:

         "15. Prohibition or regulation of sale and transport and export of C
         milk and milk products. - and export of milk and milk products.
         - The State Government may, in the public interest and subject
         to the provisions of this Act and the rules made thereunder, by
         notification regulate or fix prices in respect of -

               (a) the sale or supply of milk, or the manufacture, sale D
                   or supply of any milk product in a particular area;
                   and

               (b) the transport of milk or any milk product from one
                   area in the State to another area in the State to another E
                   area in the State or its export to any place outside the
                   state."

         As the Statement of Objects and Reasons of the Act indicate the
   legislation was found necessary 'to develop milk industry in a systematic F
   and organised manner' in view of the limited yield of milk in the State.
   It was found necessary in public interest to regulate and control production,
   supply and distribution of milk and milk products. To fulfil the objects of
. ·the Act the State Government has been empowered under Section 15 of
   the Act to regulate and fix by notification prices for selling and supply of
   milk and milk products. The power of State Government to fix prices of G
   milk and milk products by issuance of notification under Sec. 15 of the
   Milk Act is merely an enabling one and it is not obligatory for State
   Government in all circumstances to fix the prices. In the instant case, the
   prices of cream and paneer were fixed through mutual negotiations
   between authorised representatives of the two companies and with the H
    720                SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A assistance of the authorities of the state. Such binding tenns of agreement
    reached between the two companies could not be frustrated by statutory
    intervention of the State by issuance of notification for fixation of prices
    under Section 15 of the Act. As has been pointed out by the State the
    notification was intended to apply only to respondent Glindia Ltd. as the
B   supplies of cream and paneer were being made to the .appellant Central
    Fairy Fann by the Glindia Ltd. alone.

        In the earlier judgment of the High Court (W.P. 14526/1988 decided
  on 14.10.1988), the power of the State Government to fix prices of milk
  and milk products under Sectiop 15 of the Act was recognised and it was
C held that the Additional Milk Commissioner as the licensing authority had
  no power to interfere in the matter of fixation of price of milk and milk
  products. The operative part of the judgment in the earlier writ petition
  however settled the controversy between the parties that the prices of
  supplies by the respondent company were to be regulated by the directions
D made by the High Court in the said writ petition. The earlier judgment in
  the wirt petition between the same parties (supra) has attained finality. The
  written directions issued in the earlier judgment (supra) have been quoted
  by us above. Those binding directions of the Court could not have been
  nullified by invoking power of the State of issuing price fixation notification
E under Section 15 of the Milk Act. The issuance of the impugned notification
  has rightly been held by the High Court to be an attempt to nullify the
  directions made by the High Court in its earlier judgment. Direction No.
  2 in the operative part required detennination of price of cream/paneer by
  agreement and in the absence of any aggeement on the basis of.price
F payable by cooperative societies to purchasers with overhead charges. The
  dispute about over payment was directed to be resolved by committee to
  be appointed by the two companies comprising officers of two organisations
  and the high officials desgnated under the Milk Act. The statutory power
  under Section 15 of Milk Act of issuing notification for price fixation could
  not have been invoked by the State to bye pass or commit breach of the
G directions made by the High Court in the earlier writ petition. The High
  Court was fully justified in coming to the conclusion that the issuance of
  notification under Section 15 of the Act was an exercise done for oblique
  purpose and to somehow get over the judgment of the High Court in the
  earlier writ petition. The notification was ineffectual to frustrate the
H agreements and settlements reached on price fixation through mutual
                                                                                    t
       CENTRAL DAIRY FARM v. GLINDIA LTD. [DHARMADHIKARI, J.)        721

negotiations between the authorised representatives of the two companies A
and the authorised officers of the State.

      Consequently, we find no merit in these appeals and they are
accordingly dismissed. Keeping in view the dwindling condition of the
appellant Central Dairy Farm, we make no order as to costs in these appeals B
against it. The respondent Glindia shall however be entitled to get all costs
incurred in these appeals from the State of UP being the appellant in one
of the appeals before us and mainly responsible for this second round of
litigation.

A.Q.                                                  Appeals dismissed.   C