Supreme Court of India
SHRI MALAPRABHA CO-OP. SUGAR FACTORY LTD.versusUNION OF INDIA AND ANR.
- Citation
- 1993 INSC 304
- Decided
- 22 September 1993
- Disposal
- Disposed off
- Bench
- M N VENKATACHALIAH
Holding
Price fixation for levy sugar must honor the four statutory factors of Section 3(3C) and, after the introduction of Clause SA, cannot deduct the entire excess free‑sale realisation, rendering the post‑1974 notifications ultra vires.
Summary
The Supreme Court examined the validity of a series of notifications fixing the price of levy sugar under the Essential Commodities Act, 1955. Sugar manufacturers contended that the Government had not taken into account the four factors prescribed in Section 3(3C) – minimum cane price, manufacturing cost, taxes and a reasonable return – and that the method of "mopping up" 100% of excess free‑sale realisation violated Clause SA of the Sugarcane (Control) Order. The Court held that price fixation is a legislative function but must be guided by reason and the statutory factors, and that after the introduction of Clause SA the Government could not deduct the entire excess realisation from levy‑sugar prices. It found that the notifications issued after 28 Nov 1974 failed to comply with these requirements, whereas the 28 Nov 1974 notification, issued before the new policy, was left untouched. The Court directed the Union of India to amend the impugned notifications (except the 1974 one) to reflect the liability under Clause SA and to recompute levy‑sugar prices in accordance with Section 3(3C). All pending appeals, writs and related proceedings were ordered to stand disposed.
Issues considered
- The adequacy of the Government's consideration of the four factors under Section 3(3C) of the Essential Commodities Act in fixing levy‑sugar prices.
- Whether the post‑1974 methodology of "mopping up" 100% of excess free‑sale realisation is consistent with Clause SA of the Sugarcane (Control) Order, 1966.
- The nature of price‑fixation power under Section 3(3C) – legislative versus judicial – and the scope of judicial review.
- The legality of continuing the 1974 notification issued before the introduction of Clause SA.
Legislation cited
- Constitution of Indias. Art.19(1)(f), s. Art.19(1)(g), s. Art.31
- Essential Commodities Act, 1955s. 3(2)(f), s. 3(3C)
- Levy Sugar Supply (Control) Order, 1972
- Sugarcane (Control) Order, 1966s. Clause SA
Subjects
price fixationlevy sugarEssential Commodities Actadministrative lawreasonable returnClause SASugarcane Control Orderjudicial reviewlegislative functionarbitrarinesspublic interest
Judgment
SHRI MALAPRABHA CO-OP. SUGAR FACTORY LTD. A
v.
UNION OF INDIA AND ANR.
SEPTEMBER 22, 1993
[MN. VENKATACHALIAH, CJ. DR. T.K. THOMMEN B
AND S. MOHAN, JJ.)
Constitution of India, 19SO: Anicle J9(l)(f), 19(l)(g) and 31-Levy
sugar-Fixation of price-Held, Government cannot fzx an arbitrary price nor
can a price be fzxed on extraneous consideration--lf the price fzxed does not C
secure a reasonable return on capital employed, it is liable to be challenged
both on the ground of its being inconsistent with Section 3(3-C) of the Essen-
tial Commodities Act, 19S5, as also violative of Anicles 19(1) (f), 19) (1) (g)
and 31 of the Constitution.
The Essential Commodities Act, 19SS/1he sugarcane (Control) Order, D
1966: Section 3(2) (f), 3(3-C)!Clause SA-Levy Sugar Supply (Control)
Order, 1972-Levy sugar-Determination of price-Principles regard-
ing-Held, in fzxing levy sugar price nonns laid down in Section 3(3-C) and
other relevant factors were taken into consideration:
E
Clause SA-Additional price payable to sugarcane grower-Computa-
tiqn of-Held, manufacturer of sugar will be entitled to retain an amount
equivalent to that paid to cane grower-Government could not proceed to
detennination of levy price by mopping up JOO per cent of excess realisation
of free sale sugar-Manufacturer of sugar had become entitled to 50 per cent
of such realisation from 1.10.1972:-Directions given to amend Notifications F
accordingly.
Administrative Law:
Judicial review-Levy sugar-Fixation of price-Held, price fixation is G
a legislative function--lt is permissible to coun to examine whether regard has
been had to factors mentioned in Section 3(3-C) of the Essential Com-
modities Act, 19S5.
The Union of India, in exercise of its powers under Section 3 of the
Essential Commodities Act; 1955 promulgated Levy Sugar Supply (Con- H
415
416 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A trol) Order, 1972 providing for compulsory supply or sale of sugar from
a manufacturer or a recognised dealer of a specified quantity to a person
or organisation to such State Governments as it may direct from time to
time. Accordingly, the Central Government issued five notifications, dated
29.11.1975, 9.2.1976, 3.8.1976, 22.12.1977 and 1.3.1978 requiring the
producers to supply sugar at the price determined in the Notifications.
B
The manufacturers of sugar challenged the Notifications in writ
petitions before various High Courts on the ground that in price fixation
the Central Government did not take into consideration the relevant
criteria laid down under Section 3 (3· C) of the Act.
c
The High Court rendered their decision which led to the filing of the
appeals on certificate, and special leave petitions before this Court by both
the manufacturers and the Union of India-insofar as they were aggrieved
by the decisions of the respective High Courts. A number of writ petitions
•
and transfer petitions were also filed before this Court.
D
· It was contended on behalf of the sugar manufacturers that price
fixation for the levy sugar was done on notional basis without regard to
:he actualities as envisaged by Section 3(3C) of the Act, that Clause (d) of
Section 3 (3C) of the Act, which ensures a reasonable return on the capital
E employed in the business of manufacturing sugar, cannot be involved to
limit or restrict the return or to mop off the profits, which the sugar
producer may get by sale of free sugar by fixing a low price for levy sugar,
and that the Notifications issued for the years 1974-75 to 1979-80 wherein
the Government had admitted mopping up 100 per cent excess realisation
on sale of free sugar were in conflict with Sugarcane (Control) Order
F particularly Oause SA, since the Government after incorporation of the
said clause could not, in law, determine the levy price by mopping up 100
per cent excess realisation on sale of free sugar as the sugar manufacturer
was entitled to 50 per cent of such excess realisation from 1.10.1974.
G Disposing of the case, this court
HELD : 1. The principles in respect of price fixation of levy sugar
are:
(i) The amount payable for levy sugar shall be calculated with refer·
H ence to price of sugar as the Central Government may determine having
SUGAR FACTORY LTD. v. V.0.1. 417
regard to four factors set out in Section 3(3C) of the Essential Commodities A
Act, 1955, namely, (a) minimum price of sugarcane, (b) manufacturing
cost, (c) taxes and duties, and (d) reasonable return on the capital
employed. [437-D]
(ii) A fair price has to be determined. For this purpose consideration
in fixing the rate of return. [438-G] B
(iii) The Government cannot fix an arbitrary price nor can a price be
fixed on extraneous considerations. If such a price does not secure a
reasonable return on the capital employed, such a fixation is liable to be
challenged both on the ground of its being inconsistent with the guidelines
built in Section 3(3C) and also as violative of Articles 19(1)(1), 19(1)(g) and C
31 of the Constitution. [439-B]
(iv) Sufficient compliance with Section 3(3-C) would be deemed if the
Government had applied its mind with due regard to the norms mentioned
in clauses (a) to (d) of Section 3(3C). [439-F]
D
(v) Price fixation is a legislative function, even though it may be
based on an objective criterion. It is nevertheless imperative that the action
of the authority should be inspired by reason. The Court can examine
whether regard has been had to the four factors mentioned in Section
3(3C) of the Act, and any other relevant factor. The individual orders E
calculating the amounts payable to individual products are in the nature
of administrative orders founded on the mechanics of price fixation.
[440-C]
(vi) The price f1Xation on zonal basis taking into account the average
zonal cost it valid. [440-F] p
Panipat Sugar Mills v. Union of India, [1973] 2 SCR 860; Anakapalle
Cooperative Society v. Union of India, [1973] 2 S.c.R: 882 and Shree Sitaram
Sugar Company Ltd. v. Union of India, [1990] 1 S.C.R. 909, followed.
Mis. Diwan Sugar & General Mills (P) Ltd. & Ors. v. Union of India, G
[1959] Supp. 2 S.C.R. 123; Mixnan's Properl.ies Ltd. v. Charl.sey U.D.C.,
[1963] 2 All. E.R. 787 andindian Express Newspapers (Bomaby) Private Ltd.
v. Union of India, [1985] 2 S.C.R. 287, referred to.
2.1. It cannot be said that in fixing the levy sugar price, notional
figures had been adopted. H
418 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A 2.2. The fixation of the levy sugar price involves an elaborate exercise
such as forecasting the cane availability sugar production, duration,
recovery etc; and this Court cannot redetermine the price by redoing that
exercise. [442-FJ
2.3. So far as price Determination Order dated 28.11.74 is concerned,
B
pending finalisation of the exercise involved therein, the prices notified for
1973-74 were repeated as an interim measure. It had to be so done because
the Government had to release 1974-75 sugar season production. Other-
wise sugar could not have been released and it would have resulted in
disruption of sugar through public distribution system. In January 1975
c the Government increased the free sale quota from 30 to 35 per cent which
could have given some relief to the industry by way of higher realisation,
and a decision was taken not to review the prices immediately. [442-G-H]
2.4. By July 1975, the final working results of the season were
D available for almost all the zones. The free sale price being high compared
to levy sugar prices, the Government while determining the prices having
regard to Section 3(3C) took into consideration (i) the statutory minimum
price (SMP) of cane fixed under Section 3(1) of the Sugarcane (Control)
Order, 1966. Besides, the difference of actual cane price that would be paid
by sugar producers over and above the statutory minimum cane price was
E also taken into account. The Government even took a higher figure than
what they were required to do and determined and notified the levy price,
thus compensating the sugar factories for higher cane price; (ii) the
conversion cost of sugar for all the zones adopting as the basis the
Schedules in this regard recommended by the Tariff Commission Report,
F 1973, was duly adjusted for further escalations; (iii) the duties and taxes
thereon were taken into account, and (iv) the Government adjusted the
difference between the cost of production including reasonable return of
the entire sugar and the total realisation form the sale of levy sugar and
fixed levy sugar prices, thereby ensuring a reasonable return to the
producer on the entire production. The levy sugar price was notified in
G respect of different zones in the country. [443-A-F]
2.5. The re-notification of the prices for 1975-76 season w.e.f.
29.11.1975 at the same level as those in previous season cannot be faulted
on the ground of arbitrary exercise of power by the Government for the
H reasons; (a) the issuance of the notification was intended to be an interim·
SUGAR FACTORY LTD. v. U.O.I. 419
measure and was a conscious decision to meet the exigencies of situation. A
But for the timely fixation of the prices, the country would have faced a
serious disruption of the public distribution system in 1·espect of the
supplies of an essential commodity, viz., sugar; (b) an across-the board
upward or downward revision of the prices pending a detailed examination
of the cost estimates relating to price determination was hardly likely to B
have achieved the real purpose of determination of levy price; (c) the levy
sugar price notified on 29. 11.1975 was intended to be an interim measure
to be followed soon by the determination of the price after a more detailed
examination of available information and data. [444-E·H]
2.6. After an intensive examination of the data on the crucial deter· C
minants of the ex-factory price of levy sugar, the Government notified the
levy sugar prices for 1975-76 season w.e.f. 9.2.1976. The Government
adopted the same methodology of taking into consideration the factors as
were made applicable to 1974-75 season, [445-A-B]
2.7. For 1976-77 sugar season the Government had to repeat 1975· D
76 prices, because of the impracticability of implementation 66 Bhargava
Inquiry Commission's main recommendations which made a complete
departure t'fom the earlier methodology followed by the Tariff Commission
for decades. [445-D-E]
2.8. For 1977-78 sugar season,· at the beginning of the season the E
Government repeated the prices for 1976-77 season on 22.12.1977 as an
interim measure only. Since the price fixation was to take quite sometime
and the old. price had been continuing for long time, the Government
estimated all-India average ex- factory price at Rs.18.03 more than the
average all-India Levy Sugar prices as on 22.1.1977. This increase was F
uniformly added to prices of all the zones earlier notified on 22.12.1977.
Later a decision was taken to de-control the sugar and levy sugar price
was no longer needed. [445-H, 446-A·C]
2.9. As regards 1978-79 seasons, the Government re-introduced the
policy of partial control w.e.f. 17 .12.1979 but by then bulk of production of G
1978-79 had been sold at the beast price available in the market and only
65 per cent of the small quantity that remained unsold was declared a 'levy
sugar'. The sugar factories had paid only the minimum can price notified
during the season. The levy sugar prices were determined as per the
provisions of Section 3(3C) of the Act. The final levy sugar prices were H
420 SUPREME COURT REPORTS (1993] SUPP. 2S.C.R.
A determined after adjusting the excess of free sale realisation once the cost
of production assessed, so as to ensure that the industry got a reasonable
return on the entire production of sugar. [446-D-F)
2.10. If in a particular zone, the Government worked out the levy
price assuming recovery, duration and a certain degree of efficiency but
B the actual working results were lower than the assumption because fac-
tories in the said zone were no efficient, the Government cannot be ex-
pected to reward in-efficiency for higher price. [446-H, 447-A)
3.1. The Government could not, in law, proceed to a determination
C of the levy price by mopping up 100 per cent of excess realisation free sale
sugar as the manufacturer of sugar had become statutorily entitled to SO
per cent of such excess realisation from 1.10.1974. [4S8··F]
3.2. Clause SA of the Sugarcane Control Order, 1966 deals with
D additional price payable to the sugarcane grower. However, if the recom-
mendations made by the Bhargava Commission and the method of com·
putation are taken into consideration it will be clear that the manufacturer
of sugar will be entitled to retain an amount equivalent to the amount paid
to the cane grower under Clause SA. That amount cannot be taken into
consideration for determination of the price of levy sugar. The change
E methodology adopted from 11.7.197S was directly contrary to the recom-
mendations of Bhargava Commission. [4S8-E)
3.3. It cannot be said that Clause SA deals only with the amount
payable to the cane grower and that it cannot have any relevance for
p determination of levy sugar. Determination of minimum price of sugar
cane and fixation of the price of levy sugar under quantity of sugar to be
supplied by the producer are inter-connected; they must be read as a
whole, and not separately as though each is distinct. [458-H, 459-A)
3.4. While fixing the price of levy sugar regard is had only to the
G minimum can price as spoken to under Section 3(3C) (a). This minimum
cane price is referable to Clause (3) of the Sugarcane (Control) Order.
The additional price payable to the cane grower under Clause SA will arise
after the expiry of the sugar year. Such price will have to be met only from
the extra realisation made by the producer by the sale of sugar in free
H market which will naturally be more than the levy price. [459-A-B]
SUGAR FACTORY LTD. v. U.O.I. 421
Tariff Commission Report, 1973, Bhargava Commission Inqui1y A
Report, 1974 and The Interim Report of the Bureau of Industrial Costs and
Prices, (June, 1976) referred to.
4. The impugned notifications, except the one dated 28.11.1974, which
came to be issued before the new pricing policy was introduced, cannot be
upheld. The Union of India should amend by 31.12.1993 the notifications B
taking into account the liability of the manufactures under Clause SA of
the Sugarcane (Control) Order as regards cane price and refix the price
of levy sugar having regard to the factors mentioned in Section 3(3C) of
the Act. [459-C]
5. Though normally the notifications would have been quashed, but
c
mere quashing of the same would have led to nebulous situation during
the interregnum. Beside, the interest of the appellants will have to be
measured against the needs of good administration which include, the need
for speedy finality in decision making, the public interest, the purpose of
administrative process and the need to consider substance not form. D
[459-E, H & 460-A]
"Judicial Remedies in Public Law" by Clive Lewis, p.294, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 122-23
~~~~ E
From the Judgment and Order dated 3-10-80 of the Karnataka High
Court in W.A. No. 427 and 440 of 1980.
Altaf Ahmad, ASG (NP), V.C. Mahajan, AK. Sen, F.S. Nariman,
Vinod A Bobde, Shanti Bhushan, S.S. Javali, B.R.L. Iyenger, Kapil Sibal, F
D.K. Agarwal, P.V. Kapoor, B.K. Mehta (NP), P.N. Sachthey, V.V. Vaze,
B. Sen, K.N. Bhatt, C.S. Vaidyanathan, Sr. Advs. T.C. Sharma, C.V. Sobba
Rao, A Subhashini, Ashok K. Srivastava, Mrs. Anjali Vera, S. Ganesh,
Mrs. AK. Verma, S. Sukumaran, Jayant Bhushan, Ranjit Kumar, Yahsh
Mohan, P.R. Ramasesh, Ms. Seita Vaidyalingam, S.R. Bhat, Mrs. Lalit G
Mohini Bhat, Navin R. Nath, Ms. Kiran Juneja, K.P. Gupta, B.L. Khanna,
Ms. Geetanjali, Mohan, Anil K. Sharma, Meet Malhotra, Navin Prakash,
K.K. Jain, Pramod Dayal, H.J. Jhaveri, C.K. Mahajan, Ashok Grover, Anip
Sachthey, H. Manish, Subodh Markendya Ms. Chitra Markendya, P.K.
Chaudhary, Suman J. Khaitan, Praveen Kumar, Virender Kumar, Virender
Kaushal, S.K. Mehta, Dhruv Mehta, Aman Vachhai, K.R. Nagaraja R.F. H
422 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A Nariman, P.H. Parekh, U. Sagar, D.M. Popat, Subhash Sharma, Shivi
Sharma, Raja Ram Agarwal, H.K. Puri, Rajiv Dutta, Indecver Goodwill,
S.K. Dhingra, C.S. Srinivasa Rao, G. Narasimhulu, Aruneshwar Gupta,
A.K. Goel, P. Keshva Pillai, Ganapati Iyer Gopalkrishnan, M. Qamaruddin,
Mrs. M. Oamaruddin, Pardip Misra, R. Bano, S.K. S:.ibharwal, Y. Prab-
hakar Rao, K.S. Gurumurthy, Kailash Vasdev, B.M. Bagaria, Arvind
B Minocha, VJ. Francis, S.P. Singh Manoj Swarup, Girish Chandra, K.K.
Mohan S.K. Gambhir, G. Prakash, S.S. Khanduja, Mrs. Rani Chhabra,
Balmokand Goyal, Ms. Rekha Pandey, Mrs. Shuweshta Bagga, R.K.
Maheshwari, R.C. Pathak and R.S. Suri for the appearing parties.
The Judgment of the Court was delivered by
c
MOHAN, J. All these cases can be dealt with under a common
judgment since what is under attack is the fixation of price of levy sugar
under orders issued under Section 3 (3C) of the Essential Commodities
Act, 1955 (hereinafter referred to as the Act).
D To highlight the points in issue we will refer to the facts of the case
relating to the State of Karnataka.
CA. Nos. 122-123 of 1981 and CA. Nos. 1253-57 of 1977: In these
appeals two sugar orders are 1975-76 and 1977-78.
E In exercise of the powers conferred under Section 3 of the Act, the
Central Government on 15th June, 1972 promulgated the Levy Sugar
Supply (Control) order of 1972 (hereinafter referred to as the Levy Order).
That provides for compulsory supply or sale of sugar from a producer or
a recognised dealer of a specified quantity to a person or organisation or
F to such State Government as it may direct from time to time. Under the
said Levy Order, the Central Government issues release orders to the
producers or manufacturers against which the manufacturers supply sugar.
The Central Government is required to pay the price. Such a price is
determined in accordance with Section 3(3C) of the Act. Altogether 5
orders were issued. For the year 1975-76 the following three orders were
G issued:
1. GSR 571(E)/Ess.Com/Sugar dated 29.11.75
2. GSR 67(E)/Ess. Com/Sugar dated 9.2.76
H 3. GSR 67(E)/Ess. Com/Sugar dated 3.8.76
SUGAR FACTORY LTD. v. U.0.1. [MOHAN,J.) 423
For the year 1977-78 the following two orders were issued: A
1. GSR 76(E)/Ess. Com/Sugar dated 22.12.1977
2. GSR 154(E)/Ess. Com/Sugar dated 1.3.78
The attack against all these notifications by the manufacturers of the B
sugar in the writ petitions before the Karnataka High Court was that in
price fixation the Central Government had not taken into consideration
the relevant criteria laid down under Section 3(3C) of the Act.
The Central Government opposed the stand and urged that the
relevant considerations were borne in mind. C
The learned Single Judge struck down all the determinations on the
ground of non-application of mind. Aggrieved by this, the matter was taken
up in appeal. For the year 1975-76 the Division Bench was of the view that
the orders dated 29 .11.75 and 11.7 .75 could not be upheld in so far as the D
order dated 9.2.76 varied the price by 99 paise more, that evidenced
application of mind and hence could not be struck down. Concerning
1977-78 the order dated 29.11.75 had to be struck down because it was
based on an obsolete data of more than 16 months. During that period,
there has been great escalation which ought to have been taken note of.
With reference to the notification dated. 1.3. 78 the Division Bench was of E
the view that the Government had taken into account free sale realisation
of the previous year at the rate of 319 per quintal. During that period, free
sale prices had gone down to distress levels. Therefore, the price fixation
was not in order. Accordingly, the matter was remitted to the Government
to consider afresh and fix proper prices on relevant criteria.
F
On certificate, both the Government and the manufacturers have
come in appeals. Various writ petitions questioning the correctness of these
notification have also been transferred to this Court.
Similarly, in other High Courts the price fixation was questioned. The G
High Courts have rendered their decisions. In so far as the sugar producers
are concerned they have come up in appeals. Equally, the Central Govern-
ment, to the extent it is aggrieved, has preferred appeals.
The arguments of Mr. F.S. Nariman, learned counsel, appearing for
.some of the sugar producers are as under : H
424 SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.
A Section 3(3C) of the Act was specifically enacted to provide for the.
manner of fixation of price of sugar in cases where sugar was produced for
distribution by Government. According tot he learned counsel the price
fixation must be done on the principles laid down by the Tariff Commission
and Sugar enquiry Commission mainly on the following bases:
B 1. Fair price of cane fflCed by Government
2. Cess of tax payable thereon
3. manufacturing cost, and
C 4. a reasonable return on capital employed.
In support of this submission reliance is placed on The Panipat
Co-operative Sugar Mills v. Union of India, (1973] 2 SCR 860.
This interpretation is in line with the earlier ruling of M/s. Diwan
D Sugar & General Mills (Private) Ltd. and others v. Union of India, (1959]
Supp. 2 SCR 123. No doubt, that case dealt with clause 5 of the Sugar
Control Order of 1955. The words used thereunder were "with due regard
to". The factors mentioned in clause 5 of the said Sugar Control Order are
substantially the same as under Section 3(3C) of the Act. The latter ruling
E construed the word "having regard to" as factors mentioned in Section
3(3C) as essential in price determination.
The further submission of the learned counsel is when Section 3(3C)
of the Act says "determination" it cannot be a purported determination. It
signifies an effective expression of opinion which ends a controversy or
F dispute by some authority to whom it is submitted under a valid law for
disposal. Thus, it is submitted that the observations in Shri Sitaram Sugar
Company Limited v. Union of India, (1990] 1 SCR 909 are not a fetter, they
are not words of limitation but of general guidance to make an estimate
requires fresh consideration.
G It is further urged that in the instant cases, it cannot be said there
is a valid determination because the levy price for one year cannot be the
levy price for the subsequent years as indeed the minimum cane price for
one year is not the same for the subsequent years. Similarly, the notification
of uniform increase of Rs. 18.03 for each zone for 1977-78 is not correct
H as it is without reference to the parameters which are know and calculated
SUGAR FACTORY LTD. v. U.0.1. [MOHAN, J.] 42S
for each zone. What had been done was merely to take a weighted all-India A
average. This is contrary to the Government's stand of zonal determination.
Though this Court had taken the view that the determination under Section
3(3C) is a legislative function, yet a review of subordinate legislation is
permissible on the following grounds:
1. It is unreasonable. B
2. It is uncertain or repugnant to the general law or some other
statute. Support for this is sought from the case Mixnan's Properties Ltd. v.
Chartsey U.D.C., [1963) 2 All. E.R. 787.
This Court, it is urged, has also taken the view in Indian Express
c
Newspapers (Bombay) Private Ltd. v. Union of India, [198S) 2 SCR 287 that
a subordinate legislation can be questioned on any ground on which the
plenary legislation could be questioned. According to the ruling, it could
be questioned on the ground that it is unreasonable, unreasonable not in
the sense of not being reasonable but in the sense it is manifestly arbitrary. D
Viewed in this light, while fixing the price under Section 3(3C) regard must
be had to clause SA. That provides for an additional minimum price which
is statutory required to be paid by the manufacturer of sugar to the
sugarcane grower. Therefore, the grower's share (additional price payable
to growers out of the excess realisation) has necessarily to be included as
E
an element under factor A of Section 3(3C). Thus, the minimum price
under Section 3(3C) and the additional minimum price under clause SA
are essential components of manufacturing cost of sugar under factor B.
Then again, mopping up of the entire excess realisation by the sale of free
sugar is incorrect in view of clause SA. That would resulting in total denial
of any return result in not even recovering the actual cost of production. F
Prior to 1.10.74 mopping up might have been permissible. But after
1.10.74, the mopping up for arriving at a price under Section 3(3C). is
contrary to law i.e. the law enacted in clause SA which contemplates excess
free market sales realisation for the benefit of growers to the extent of SO G
per cent. The entire theory of "mopping up" of 100 per cent of extra sale
realisation will be contrary to law, namely, clause SA. This will also be
against the recommendations of Bhargava Commission.
Mr. B.R.L. Iyengar, learned counsel appearing for the sugar
manufacturers of the State of Karnataka states that till the departure in the H
426 SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.
A Notification dated 11.7.1975, the itemisation and the factors of the format
for arriving at the levy price were those repeatedly laid down by the Tariff
Commission. The incidence of additional cane price over and above the
statutorily notified minimum price and the estimated average realisation on
the sale of levy free sugar was at Rs. 317.65 for internal consumption and
for exports. The result of inclusion of these items which were not of the
B standard formula till then adopted by the Tariff Commission, whether so
intended or not, bring about as far as the Southern and other Zones are
concerned, the reduction of the price from Rs. 171. 52 to Rs. 139.72. It is
this drastic reduction which is complained of in these cases.
C As can been seen from Bhargava Commission, the -object was to
reward efficient factories which pay a fair price to the cane growers but
not to give such a benefit to an inefficient sugar factory. In the case of
Panipat Sugar Mills (supra) which has not been correctly understood, the
Court was only ascertaining that the factories in Haryana got a reasonable
D return on the capital employed and for that purpose, took into account
excess realisation from the sale of levy free sugar.
Mr. C.S. Vaidyanathan, learned counsel appearing for the sugar mills
of Tamil Nadu submits that Section 3(2) (f) of the Act deals with a situation
of acquisition of immovable property on payment of compensation. This is
E in contrast to Section 3(2) (c) of the Act wherein a power is conferred on
the Government to control the prices of essential commodities.
When Section 3(3C) came up to be introduced containing guidelines
for determination of the price of sugar compulsorily acquired under Sec-
F tion 3(2)(f) of the Act the Parliament could not have laid down as a
guideline that the Government should take into account as a factor in such
price determination, the additional realisation of non-levy sugar so as to
depress the price of levy sugar even less than the actual cost. While
determining the price of levy sugar the Central Government is bound to
G take into account the four factors mentioned in clauses (a) to (d) of Section
3(3C) of the Act: The Government is bound to fully compensate the
manufacturers of sugar at least under clauses (a) to ( c) as they represent
the basis cost. Even assuming the Government can ignore the return on
the capital in other construction under Section 3(3C) would be violative
of Articles 14, 19(1)(f), 19(1)(g) and 31(2) of the Constitution of India. The
H only question that arose for consideration in Sita Ram Sugar Mills case"
SUGAR FACTORY LTD. v. U.0.1. [MOHAN,J.] 427
(supra) related to zone-wise price fixation. The price determination in A
accordance with factors (a) to (d) of Section 3 (3C) did not call for
consideration in that case. It is also not correct that judicial review of price
determination is altogether excluded in view of Sita Ram's case (supra).
The Central Government acts on the advice of expert bodies like
Tariff Commission and Bureau of Industrial Costs and Prices while deter- B
mining the prices. The specific case of the Government is, that the recom-
mendations of these bodies have been accepted. If that be so, the additional
realisation should not enter into competition of the price under Section
3(3C) of the Act. The additional realisation will have to be shared by the
sugarcane grower and the sugar producer. Whatever might have been the C
position of Section 3{3C) as construed by this Court inPanipat case (supra)
the same has been delibertely departed from by the .government by intro-
ducing clause SA. As a result, the additional realisation on free sale sugar
cannot be taken into account as a neutralising .factor under clause (d)
partially or fully. The contention that clause SA has no relevance for D
determination of price under S\:ction 3{3C) is untenable.
Mr. Raja Ram Agarwal, learned counsel appearing for the sugar
factories of East Uttar Pradesh, in addition to filing the necessary data in
detail showing the break-up levy prices, urges that according to the Bhar-
gava Commission Enquiry Report which acceptance is borne out by intro- E
duction of clause SA, the balance of SO per cent from excess realisation
was left with the industry for certain specific purposes and not for depress-
ing the levy sugar price. Therefore, if the free sale realisation is excluded
the loss would be even more. The fixation of levy price for East Zone of
Uttar Pradesh is totally arbitrary and requires to be re-considered.
F
Mr. S.S. Khanduja learned counsel adopts the arguments of Mr. Raja
Ram Agarwal and prays for re-determination.
Mr. Shanti Bhushan, learned counsel for the sugar factories of West
Uttar Pradesh submits that in the decision of Sita Ram's case (supra) it G
has been laid down that the price fixation under Section 3(3C) is a
legislative power. The very same decision states that it could be challenged
on the following ground:
(i) If the fixation of levy price is arbitrary. H
428 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A (ii) If it is fixed on extraneous grounds.
(iii) If it is not done in good faith.
(vi) If ultra vires of the power granted and not on consideration
of relevant material facts.
B
(v) If it is manifestly unjust oppressive or outrageous or directed
to an unauthorised end.
(vi) If it does not tend in some degree to accomplish the objects
of delegation.
c
(vii) If it is made on irrelevant grounds.
(viii) Without regard to relevant considerations.
With reference to these grounds he submits that no data has been
D disclosed by the Government to this Court. For four hears, 1975-76, 1976-
77, 1977-78 and 1978-79 the Government had fixed levy sugar prices
without regard to any of the factors mentioned in clauses (a) to (d) of
Section 3(3C). In every sugar year the recovery in a zone varies from year
to year to a very great extent. Therefore, the minimum cane price notified
E in clause (a) must be by applying the actual recovery figure. However, for
these four years instead of calculating the minimum cane price on the basis
of actual recovery for the zone in the previous year what has been taken
into consideration is an identical recovery, namely, 9.65 per cent. There-
fore, clause (a) is violated.
F Then again, the cost of conversion mentioned under clause (b)
depends on the duration of the sugar season and the recovery from
sugarcane. These factors are bound to vary. For all these four years, the
-Government has assumed an indetical duration of 139 days in West U.P.
Zone. Hence, there is disregard of clause (b).
G If price determination is to be done with reference to clauses (a),
(b), (c) and (d) these factors are always different in different years. It is
not possible for the levy sugar price to be the same for any zone for two
successive years. For the year 1975-76 the notification dated 3.8.76 fixed
the price at Rs. 163.79. By notification dated 19.11.76 for the year 1976-77
H the levy sugar price was fixed at Rs. 163.79. Again, notification dated
SUGAR FACTORY LTD. v. U.O.I. [MOHAN, J.] 429
22.12.77 fixed the levy sugar price at Rs. 163.79 for 1977- 78. These A
notifications per se are not in conformity with the factors mentioned in
clauses (a) to (d) of Section 3(3C). Then again, where the Government is
required to revise the price with reference to each zone a uniform increase
of Rs. 18.03 per quintal over the price fixed under the Notification dated
22nd November, 1979 for all the zones, is not contemplated at all.
B
The realisation from free sale sugar to depress the levy sugar price
is illegal. That is against the report of the Tariff Commission and also
disregards clause SA which is based on Bhargava Commission Report
accepted by the Government. The respondent has recommended that the
excess realisation from sale -should be shared by the factories on SO:SO basis C
with the cane growers and necessary steps were being taken from the
ensuing sugar season. The loss sustained by sugar factory on its export
quota is not taken into consideration. This is also bad in law.
Even assuming that the extra realisation from free sugar could be
used for decreasing the amount of return which may be provided under D
clause ( d) the sugar factories would at least be entitled to a price deter-
mination in accordance with the factors mentioned under clause (a), (b)
and (c) of Section 3(3C). That is not so in the present case. For the years
1978-79 and 1979-80 the sugar factories paid to the sugar growers only the
statutory minimum cane price. It was that statutory minimum cane price E
that has been taken into consideration. At the same time, the extra
realisation from free sugar went into calculation. This resulted in depress-
ing the levy price and mopping up of the extra free sugar realisation for
calculating the levy price. This is opposed to clause SA.
Taking into consideration the extra realisation by the sale of free F
sugar it is not in accordance with the view expressed by the Court in
Panipat Sugar Mills's case (supra).
If the price fixation does not result in a reasonable return not even
providing for the cost of cane and the cost of conversion, the price fixation G
is liable to be struck down where the Government is obliged to fix the price
on the L factor. It has to be so fixed in respect of the entire levy sugar
production. Therefore, even for a provisional price fixed during the begin-
ning of the season, at the end of the season it has to be revised.
Mr. B. Sen, learned counsel after referring to (a) Panipat Sugar Mills H
430 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A v. UOI, [1973] 2 SCR 860, (b) Anakapalle Cooperative Society v. UOI,
[1973) 2 SCR 882 and (c) Shree Sitaram Sugar Company Ltd. v. UOI, [1990)
1 SCR 909 points out that the price fixation is vitiated as it has been based
on considerations which are not germane. Firstly, price fixation has been
done on the basis of estimates in relation to factors contained in clauses( a)
to (d) of Section 3(3C). Thereafter some additions and deductions have
B been made from the figure arrived at on the basis of estimates. The
addition is on the actual cane price payable while the deduction is based
on the estimate realisation from sale of free sugar. The realisation from
sale of free sugar is not germane except for purpose of clause (d). The
factors mentioned in clauses (a), (b) and (c) are those based on weighted
C average cost involved in relation to each item.
The fixation of price based on estimates on the beginning of the
season and not updating has caused the industry to suffer loss. For ex-
ample, for the year 1979-80 the levy price fixed at the beginning of the
season was Rs. 250.45 Nhile L Factor worked out to Rs. 294.07.
D
Mr. H.J. Javeri, learned counsel appearing for the cooperative
society situated in Saurashtra region submits that Panipat and Anakapalle
rulings (supra) upheld price determination by Government of India since
such determination was based on the recommendations of the Tariff Com-
E mission fixing the prices for different zones by adopting the method of
working out the weighted averages. Such a method of price fixation would
not now be relevant particularly when a better method of pricing of sugar
by an expert body such as Bureau of Industrial Costs and Pricing is
available.
F
Though in Sita Ram case (supra) the Court refused to reopen the
earlier decisions it was on the ground that no material was brought to the
notice of the Court to establish that the Central Government had not
applied its mind to the price fixation. However, that decision does lay down
that the price fixation could be challenged on the ground of unreasonable-
G ness or arbitrariness.' In so far as the entire State of Gujarat was placed in
a zone along with Maharashtra and Goa without regard to the relevant
conditions of yield recovery and availability of sugarcane as they materially
differ, the price fixation must be held to be arbitrary. Even in Gujarat there
are two Zones. The units in Saurashtra are to be placed in low recovery
H zones while those in South Gujarat are to be grouped in high recovery
SUGARFACTORYLTD. v. U.O.I.[MOHAN,J.] 431
zones. Further, the capital cost of establishment of these units also A
materially differ. The High Court of Gujarat failed to appreciate this
important aspect of the matter. In actualities, the cane growers were paid
a higher price than the statutory minimum price. This is because the
appellant-society had to pay harvesting and transport charges. This impor-
tant factor ought to have been taken note of by the Government.
B
Mr. P.V. Kapur, learned counsel appearing for the sugar mills of
Haryana would urge that in respect of the year 1977-78 the Central
Government issued an order dated 22nd December, 1977. By that order it
had mechanically and without application of mind repeated the price fixed
earlier for the season 1976-77 in utter disregard of cost escalation. The C
higher sugar price and purchase tax on cane which was increased by the
State Government from Rs. 13 to Rs. 13.50 and from Rs. 1.25 to Rs. 1.50
per quintal respectively and higher labour cost and other relevant factors
like expected recovery and duration which had to be taken into account.
D
Mr. Altaf Ahmed, learned Additional Solicitor General on behalf of
the Union of India after drawing the attention to' the various provisions of
the Essential Commodities Act, 1955 submits that sub-section (3C) of
Section 3 is a link in a statutory chain consisting of sub-section 2(f),
sub-section (1) of Section 3 and the preamble of the Act. The object of the
Act is to aim at equitable distribution of sugar at fair prices. Clause SA of E
the Sugarcane Control Order would form a part of that scheme by virtue
of clause (d) of sub-section (3C). The effect of the argument that Section
3(3C) is not consumer-oriented but producer-oriented designed with the
object of protecting the producer's profit and does not permit price control
would amount to tearing it out of statutory context. F
'Reasonable return' may be term of art. It is for this reason the return
recommended by the Tariff Commission is totally protected against the
impact of clause SA. The High Court of Madras has confused the under-
lying purpose of sub-section (3C) with the concept of providing compen-
sation for compulsory acquisition of property underlying Article 31(2) of G
the Constitution. Essential commodities Act is not made under Entry 42
of List III of Seventh Schedule but under Entry 33 of List III. In any event
Article 31 stands deleted by virtue of Constitution (44 Amendment) Act,
1978. Therefore, to hold that sub-section (3C) is only for partial control of
sugar is incorrect. This finding overlooks that sub-section (3C) refers to H
432 SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.
A sub-section 2(f) under which an order can be made both for partial or
complete controt
The finding that Section 3(3C) did not enable the Government to
effect price control of sugar but will merely enable it to fix levy price of
sugar is incorrect. The Judgment of the Karnataka High Court rendered
B by a learned Single Judge holding that clause SA supersedes Section 3(3C)
is apposite to the ruling of this Court in Panipat case (supra). He would
commend for our acceptar.ce the view taken by the Allahabad High Court.
In opposing the stand of Mr. Nariman, learned counsel, it is urged
C that clause SA of Sugarcane Control Order provides of payment of addi-
tional can price. Such payment would arise only in case of surplus from
sales of both levy and free sugar after adjustment of the unit cost of
production. This surplus may or may not arise. Therefore, it is, by no
means, a mandatory payment like minimum bonus. The L Factor refers to
the sale value of the entire production and not merely the sale of free sugar.
D
It is not correct to state that bonus creditor interest on borrowed
capital and debentures were no taken into account in the determination of
levy sugar price for 1974-7S and 197S-76. In fact, the cost schedules
recommended by the Tariff Commission in its Report of 1973 did mention
E these factors which are accepted by the Government with suitable adjust-
ment.
It is not a fact that a reasonable return was not provided by the
Government. The price of levy sugar fixed for a Zone is intended to ensure
to the manufacturers a reasonable return on their overall production and
F investment provided the units are run economically and effectively. It is not
contemplated that .the price should protect the imprudent extravagant or
mismanaged factories. In other words, the Government does not act as an
insurer.
G In cases arising in East U.P. the conclusion drawn by the appellants
is that all-India average is taken into account. In the affidavit of the
Government the impact of raising free sale percentage from 13 to 3S on
sugar industry, as a whole, has been indicated. This does not relate to East
Uttar Pradesh alone.
H The levy is fixed with reference to a Zone, as a whole. Therefore, the
SUGAR FACTORY LTD. v. U.O.l. [MOHAN,J.] 433
impact of such a fixation on individual factory is irrelevant. In Sita Ram A
case (supra) this Court has upheld fixation of levy sugar prices on zonal
basis.
The sugar factory pays price for the cane more than the minimum
price. This is higher than the minimum and additional cane price provided
under clause SA. If, therefore, no further payments are liable to be made B
by the manufacturers of sugar the entire surplus would be available to the
sugar mills besides the minimum return which is included in L Factor.
As regard cases arising from ~aharashtra it is incorrect to state the
factors mentioned in clauses (a) to (d) of Section 3(3C) were not borne in C
mind. In view of the decision of this Court in Sita Ram (supra) not only
those factors but other factors, which have a bearing, were also taken into
consideration. When the appellants talk of reasonable return it should be
noted that reasonable return refers to the entire production of sugar. That
would be sufficient compliance with law as laid down in Panipat case
(supra). Under clause SA of the Sugarcane Control Order sugar producer D
is required to pay to the sugarcane growers in addition to the minimum
sugarcane price fixed under clause 3(a), an additional price if found due
in accordance with Second Schedule to that order. this surplus is calcu-
lated in terms of Bhargava Commission formula. The obligation to pay the
cane growers arises only if the statutory minimum can price plus the E
surplus exceeds the actual can price already paid to the grower. Therefore,
only to the extent of excess the payment is required to be made.
ii
For sugar year 1978-79 the minimum notified prices of sugarcane
have been considerably increased. Therefore, the appellants cannot have
any valid complaint. The general trend of argument that the actual cane F
prices were not taken in Maharashtra for fixation of price for 1978-79 and
1979-80 is untenable. The Government has nor discriminated against
Maharashtra. Minimum cane prices had been adopted in all zones for price
determination in these two years. Free sale prices were adopted where
estimates based on data given by the sugar factories may not correspond G
with the actuals. Claim of actuals of industry has not been backed by proper
calculations. The figures were found to be not supported by documents.
Opposing the stand of Tamil Nadu Sugar mills owners it is submitted
that the additional sugarcane price under clause S( a) has necessarily to be
included as an element under Section 3(3C) is based on an inc~;rect H
434 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A notion. What is termed as an additional cane price under clause SA is
actually the sugarcane grower's share of surplus. It cannot be deemed as a
sort of a dividend. It can hardly be considered as an item of cost of
production. Since the payment of additional sugarcane price would arise
only in case profits are available for shareing between the factories and
sugarcane growers and since the exact quantum of additional cane price
B would become know only after the end of the sugar season. It cannot be
taken into account as an element of cost of production at the time of
determination of levy sugar price. The additional sugarcane price is not
susceptible of quantification at the beginning of the sugar year.
C The objectives of these two provisions, namely, clause SA of the
Sugarcane Control Order and Section 3(3C) are different. Even if there is
a conflict between the two, clause SA is subordinate legislation. That
cannot supersede Section 3(3C). The factors mentioned in clause (a) to (d)
of Section 3(3C) are not mandatory in nature since the language used is
D "having regard to". Only when the factories obliged to pay additional price
this formula under clause S-A could be worked out. Since the sugar
factories were expected to pay only the minimum notified price the same
was considered in working out the return. Additional cane price never
reckoned for consideration as it was payable only in the case of surplus for
sharing between the sugar mills and the sugar cane growers.
E
Here, actual cane price were considered for determining the fare
cost of production. The sugar factories were entitled to surplus. In such a
case, the grower has been paid not only the statutory minimum price but
also additional cane price. Provisions of clause S-A come into operation
only after levy price. is fixed which is part of Factor R. Therefore, reckoning
F
of extra free sales realisation in levy price determination cannot be said to
be contrary to clause S(a). The same is the position with reference to
Karnataka also. Thus it is prayed that the appeals filed by the Union of
India may be allowed and those of the manufacturer may be dismissed.
G In reply to these contentions Mr. P.H. Parekh, learned counsel would
urge that the Government should have fixed the prices with reference to
the actuals of the previous year which had not been done. If that had been
done the levy prices would have been higher even under the methodology
under challenges. The assumed free market prices taken for calculation
H when actuals were available would make the whole exercise ex f acie ar;
SUGAR FACTORY LTD. v. U.0.1. [MOHAN, J.) 435
bitrary. The importance of this glaring and patent error would be apparent A
from the fact that roughly every rupee of free sale realisation which is
assumed as higher would lead to a reduced levy price to the extent of 50
paise per quintal.
The Union of India has not substantiated why there is mechanical B
repetition of the levy prices fixed for earlier season.
Ever with regard to clause 5(a) the contention of the Government of
India cannot be accepted. In the Second Schedule of Sugarcane Control
Order which contains factor 2 in the denominator representing the fraction
1/2 (50 per cent) of the excess realisation on sale of sugar. Even according C
to the Government of India the growers are entitled not only to the
statutory minimum price but also additional price. The growers must have
50 per cent of the profit.
The Tariff Commission has specifically stated that some of the items D
of manufacturing costs were left out ?f the conversion cost schedule since
they could be adequately met from the additional realisation from sale of
free sugar. That being so, this factor ought to have been taken into
consideration. Then again, Bhargava Commission has recommended 50 per
cent to the industry for meeting its commitment for bonus, gratuity and
interest on borrowed capital and the requirements for rehabilitation, E
modernisation and expansion. These have not been considered at all.
In order to appreciate these points we will first refer to the relevant
provisions of the Essential Commodities Act.
F
The object and the intendment of the Essential Commodities Act is
to secure equitable distribution and availability of fair prices of essential
commodities. In order to fulfil that object Section 3 authorises the Central
Government to pass orders which may provide for regulating or prohibiting
the production, supply and distribution of an essential commodity and G
trade and commerce therein.
Section 3 sub-section (2) clause (t) provides:
"for requiring any person holding in stock, or engaged in the
production, or in the business of buying or selling, of any essential H
436 SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.
A commodity,-
(a) to sell the whole or a specified part of the quantity held in
stock or produced or received by him, or
(b) in the case of any such commodity which is likely to be
B produced or received by him, to sell the whole or a specified part
of such commodity when produced or received by him,
to the Central Government or a State Government or to an officer
of agent of such Government or to a Corporation owned or
controlled by such Government or to such other person or class
c of persons and in such circumstances as may be specified in the
order." (Explanations omitted)
The order under Section 3(2) (f) is quasi-judicial in character. It is
a specific order directed to a particular individual in order to enable the
D Central Government to purchase a certain quantity of commodity from the
person holding it. It is an order of compulsory sale. When a compulsory
sale is required to be made the question would naturally, arise what is the
price to be paid for that commodity?
Section 3(3C) provides for the ascertainment of such a price. This
E has been so held in Union of India v. Cynamide India Ltd., [1987) 2 SCC
720.
This is how with reference to sugar - it has been declared as an
essential commodity - the price fixation under Section 3(3C) comes into
p play. The said section provides:
In calculating the amount to be paid for the commodity required to
be sold, regard is to be had to the following :
(a) the minimum price, if any, fixed for sugarcane by the Central
G Government under this section:
(b) the manufacturing cost of sugar;
( c) the duty or tax, if any paid or payable thereon; and
H (d) the securing of a reasonable return on the capital employed in
SUGAR FACTORY LTD. v. U.O.I. [MOHAN,J.] 437
the business of manufacturing sugar. A
It is further prescribed that different prices may be determined, from
time to time, for different years for different factories or for different kinds
of sugar.
With reference to price fixation following principles emerge from B
three important decisions:
(1) Panipat Sugar Mills v. Union of India, [1973] 2 SCR 860.
(2) Anakapalle Cooperative Society v. Union of India, [1973] 2
SCR 882 C
(3) Shree Sitaram Sugar Company Ltd. v. Union of India, (1991]
1 SCR 909.
The Principles are:
D
(a) The amount payable for levy sugar shall be calculated with
reference to price of sugar as the Central Government may determine
having regard to four factors set out in clauses (a), (b), (c) and (d) of
Section 3(3C).
E
In Panipat case (supra) at page 870 it was observed thus:
"Sub-sec. 3C, with which we are presently concerned, was
inserted in sec. 3 by sec. 3 of act 36 of 1967. The sub-section lays
down two conditions which must exist before it applies. The first
is that there must be an order made with reference to sub sec. 2 F
cl. (f), and the second is that there is no notification under sub-sec.
3A or if any such notification has been issued it is no longer in
force owing to efflux of time. Next, the words "notwithstanding
anything contained in sub- section" suggest that the amount payable
to the person required to sell his stock of sugar would be with G
reference to the price fixed under the sub-section and not the
agreed price or the market price in the absence of any controlled
price under sub-section 3A. The sub-section then lays down two
things; firstly, that where a producer is required by an order with
reference to sub- sec. 2(f) to sell any kind of sugar, there shall be
paid to that producer an amount therefore, that is for such stock H
438 SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.
A of sugar as is required to be sold, and secondly, that such amount
shall be calculated with reference to such price of sugar as the
Central Government may, by order, determine, having regard to
the four factors set out in els. (a), (b), (c) and (d). Unlike the
preceding three sub-l.ections under which the amount payable is
either the agreed price, or the controlled price, or where neither
B of these prices is applicable at the market or average market price,
the amount in respect of sugar required to be sold is to be
calculated at the price deter1nined by the Central Government.
The last words of the sub-section empower the Central Govern-
ment to determine price either from time to time of for different
c areas, which means that it may determine zonal of regional prices,
or for different factories, i.e., unit-wise, or for different kinds of
grades of sugar."
At page 871 it was further observed thus:
D "The words "such price of sugar", relate to the price which the
Central Government has to determine having regard to els. (a),
(b), (c) and (d)."
The same is reiterated in Sita Ram's case (supra) at pages 931- 32:
E "The price of sugar must be determined by the Central Govern-
ment having regard to the factors mentioned in clauses (a) to ( d)
of sub-section (3-C). This is done with reference to the industry
as a whole and not with reference to any individual seller. In
contradistinction to the "price of Sugar", the "amount" is calculated
F with reference to the particular seller. The Central Government is •
authorised to determine different prices for different areas or for
different factories or for different kinds of sugar."
(b) A fair price has to be determined. For this purpose, the realisa-
tion from sale of free sugar can be taken into consideration in fixing the
G rate of return.
In the case of Panipat (supra) at page 872 it was observed thus:
"The fair price, therefore, has to be determined on the minimum
price of cane fixed by Government, the manufacturing cost on the
H basis of zonal cost-scheduleds, the tax or duty applicable in the
SUGARFACTORYLTD. v. U.O.I.[MOHAN,J.] 439
zones and must be so structured as to leave in the ultimate result A
to the industry a reasonable return on the capital employed by it
in the business of manufacturing sugar."
(c) The Government cannot fix an arbitrary price nor can a price be
fixed on extraneous considerations. If such a price does not secure a
reasonable return on the capital employed, such a fixation is liable to be B
challenged both on the ground of its being inconsistent with the guidelines
built in this sub-section and also as violative of Articles 19(1)(f), 19(1)(g)
and 31 of the Constitution.
In the case of Panipat (sugar) it was held thus: c
"We are, therefore, satisfied both on the language of the sub-sec-
tion, the background in legislature sought to remedy through its
working that the true construction is that a fair price has to be
determined in respect of the entire produce, ensuring to the
industry a reasonable return on the capital employed in the busi- D
ness of manufacturing sugar."
In Sita Ram cases (supra) at page 943 it was observed thus:
"Price fixation is in the nature of a legislative action even when
it is based on objective criteria founded on relevant material. No E
rule of natural justice is applicable to any such order. It is never-
theless inperative that the action of the authority should be inspired
by reason. Saraswati Industrial Syndicate Ltd., (1975) 1 SCR 956,
961, 962. The Government cannot fix any arbitrary price. It cannot
fix prices on extraneous considerations: ........ " p
(d) It could be held that there is sufficient compliance with Section
3(3C) if the Government had applied its mind to the factors mentioned in
clauses (a) to (d) of the said sub-section. What is essentia~ is, the Govern-
ment must apply its mind which is relevant to the determination or prices
with due regard to the norms laid down in the said sub-section. G
In Sita Ram case (supra) at page 936 it was further held thus:
"....The reasonableness of the order made by the Government
in exercise of its power under sub-section (3-C) will, of course, be
tested by asking the question whether or not the matters mentioned H
440 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A in clauses (a) to (d) have been generally considered by the Govern-
ment in making its estimate of the price, but the Court will not
strictly scrutinise the extent to which those matters or any other
matters have been taken into account. There is sufficient com-
pliance with the sub-section, if the Government has addressed its
mind to the factors mentioned in clauses (a) to (d), amongst other
B factors which the Government may reasonably consider to be
relevant and has come a conclusion, which any reasonable person,
placed in the position of the Government, would have come to ....... "
(e) Price fixation is in the nature of a legislative action, even though
C it may be based on an objective criteria, It is nevertheless imperative that
the action of the authority should be inspired by reason. The individual
order s calculating the amounts payable to individual producers are in the
nature of administrative orders founded on the mechanics of price fixation.
In Sita Ram's case (supra) at page 943 it was held:
D
"The individual orders, calculation the "amounts" payable to the
individual producers, being administrative orders founded on the
mechanics of price fixation, they must be left to the better in-
structed judgment of the executive, and in regard to them the
principle of audi alteram partem is not applicable. All that is
E
required is reasonableness and fair play which are in essence
emanations form the doctrine of natural justice as explained by
this Court in A.K Kraipak & Ors. etc. v. Union of India & Ors.,
[1970] 1 SCR 457...... .
F (f) The price fixation on zonal basis taking into account the average
zonal cost is valid.
In Anakapalle Coop. Society (supra) it was held thus:
"Once it is recognised that prices could be fixed according to
G the zones the cost schedules that have been worked out by the
commission have necessarily to be different for each zone. The
various items which go into cost differ from zone to zone. It is not
possible to take out only a few items and find discrimination,
disregarding all the other items or components of costs on the basis
H of which price determination has to be made. We are unable to
SUGARFACTORYLTD. v. U.O.L[MOHAN,J.] 441
hold that while classifying zones or geographical-cum-agro- A
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 Art. 14 of the Constitution."
To the similar effect are the observations in Sita Ram case (supra) B
at pages 924 and 925 :
"......... there is ample justification in continuing and sustaining
the zonal system for the purpose of price fixation. Price has to be
fixed for each zone and necessarily it varies from zone to zone.
There is no discrimination in the classification of zones on a
c
geographical-cum-agro-economic consideration and any such clas-
sification is perfectly consistent with the principle of equality."
This Court in Sita Ram's case (supra) observed thus:
D
"Any arbitrary action, whether in the nature of a legislative,
administrative of quasi-judicial exercise of power, is liable to at-
tract the prohibition of Article 14 of the Constitution."
lt is in the light of these principles we propose to examine the
correctness of price fixation by the various orders which are impugned in E
these cases.
The main thrust of the argument on behalf of the appellants is that
price fixation has proceeded on notional basis without regard to the
actualities. More than above this, clause ( d) of sub-section 3(c) ensures a F
reasonable return on the capital employed in the business of manufacturing
sugar. Therefore, clause (d) cannot be invoked to lil\J.it or restrict the return
or to mop off the profits which the sugar producer may get by sale of free
sugar by fJJcing a low price for the levy sugar. If really, the price fixation is
for the sale of sugar in section 3(2)(f) the fair price must be fixed. Further, G
the impugned orders are in conflict with Sugarcane Control Order, par-
ticularly clause SA.
In opposition to this, the Government would urge that there is a valid
determination of the price and not a mere purported determination. The
Government did have regard to clauses (a) to (d) of Section 3(3C) and H
442 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A fixed the price for levy sugar taking into account the actual cane price paid
and the excess realisation from free market sales which are relevant
criteria.
It cannot be gainsaid that for fixing the price under Section 3(3C)
the Government must have regard to the four factors mentioned under
B Section 3(3C) of the Act. Those factors are :
(1) Minimum price of Sugarcane;
(2) manufacturing costs;
c (3) taxes and duties; and
(4) reasonable return on the capital employed.
In Sita Ram's case (supra) this Court has categorically laid down th.at
D the price fixation is a legislative function. If that be so, what is permissible
for the Court to examine whether regard has been had to these four factors
and any other relevant factor. For the 1974-75 season the price determina-
tion was fixed under the following orders:
1. Price Determination Order No. GSR 670 (E)/Ess. Com/Sugar
E dated 28.11.74.
2. Price Determination Order No. GSR 403 (E)/Ess/Sugar dated
11.7.75.
F The fixation of levy sugar price involves an elaborate exercise such a
forecasting the cane availability sugar production, duration, recovery etc.
pending finalisation of all this, the price notified for 1973-74 were repeated
in the first of these two Notification (dated 28.11.74, as an interim measure.
It had to be so done because the Government has to release 1974-75 sugar
season production. Without such a price fixation sugar could not have been
G released. This would have resulted in disruption of sugar through public
distribution system.
In January, 1975 the Government increased the free sale quota from
30 to 35 per cent. However, a decision was taken not to review the price
H immediately as the increase in free sale quota could have given some relief
SUGAR FACTORY LTD. v. U.0.l. [MOHAN, J.) 443
to the industry by way of higher realisati6n. By July, 1975 the final working A
results of the season were available for almost all the zones. The free sale
prices were high compared to levy sugar prices. Therefore, the Govern-
ment was required to determine prices in a suitable manner. The Govern-
ment having regard to Section 3(3C) had taken into consideration in
following aspect: B
(i) Consideration of minimum price of cane as fixed by Government:
In fixing that minimum price the Government took into account
the statutory minimum price (SMP) fixed under Section 3{1) of
the Sugarcane {Control) Order, 1966 dated 16th July, 1996. In C
addition to this factor, the difference of actual cane pric.e that
would be paid by sugar producers over and above the statutory
minimum cane price was also taken into account. So much so, the
Government took a higher figrire than what they were required to
do. Thus, compensating the sugar factories for the higher cane D
price the levy price w.as determined and notified.
(ii) Manufacturing cost of sugar:
The conversion cost of sugar for all the zones adopting as the
basis the Schedules in this regard recommended by Tariff Com- E
mission in their 1973 Report, was duly adjusted for further escala-
tions.
(iii) Duties and taxes thereon:
The Government adjusted the defference between the cost of F
production including reasonable return of the entiie sugar and the
total realisation from the sale of levy-sugar, and fixed levy sugar
price, thereby ensuring a reasonable return to the producer on the
entire production.
Various Annexures show the break-up of levy sugar price G
notified in respect of the zones of Uttar Pradesh, North Bihar,
Maharashtra, Goa, Karnataka, Andhra Pradesh and Tamil Nadu.
Since these aspects have been borne in mind we are unable to hold
that the notional figures had been adopted. H
444 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A For 1975·76 season there are three notifications:
1. Levy Sugar Price notified vide the Government of India Gazette
Notification No. GSR-571/(E)/Ess .. Com/Sugar dated 29.11.75.
2. Levy Sugar Price notified vide the Government of India Gazette
B Notification No. GSR-67/E/Ess.Com/Sugar dated 9.2.76.
3. Levy Sugar Price notified vide the Government of India Gazette
Notification No. GSR· 748/(E)/Ess./Com/Sugar dated 3.8.76.
Pending the finalisation of the levy sugar prices for 1975-76 sugar
C season, for which a detailed exercise involving estimates of the availability
of cane, sugar production, duration of the crushing season,recovery, per·
centage etc. had to be undertaken by the Government, the prices ap·
plicable for 1974-75 season w.e.f. 12.7.75 were renotified for 1975-76 sugar
season, as an interim measure. This was done in view of the overriding need
D to release sugar stocks out of 1975-76 production for meeting requirements
of the public distribution system.
The renotification of the prices for 1975·76 season w.e.f. 29.11.75 at
the same level as those in previous season w.e.f. 29.11.1975 cannot be
E faulted on grounds of arbitrary exercise of power by the Government for
the following reasons :
(a) The issuance of the price notification dated 29.11.75 was intended
to be an interim measure and was a conscious decision to meet the
exigencies of the situation. But, for the timely fixation of the prices, the
F country would have faced a serious disruption of the public distribution
system in respect of the supplies of an essential commodity viz., sugar.
(b) An across-the board upward of downward revision of the prices
pending a detailed examination of the cost estimates relating to price
G determination, was hardly likely to have achieved the real purpose of
determination of the levy price.
(c) The levy sugar price notified on 29.11.75 was intended to be an
interim measure to be followed soon by the determination of the price after
a more detailed examination of available information and data. The
H Government had accordingly decided to set for themselves an urgent time
SUGAR FACTORY LTD. v. U.0.I. (MOHAN, J.] 445
frame for completion of the price determination exercise. A
After an intensive examination of the data on the crucial deter-
minants of the ex-factory price of levy sugar, the Government notified the
levy sugar prices for 1975-76 season on 9.2.76.
Thereafter the Government adopted the same methodology of taking B
into consideration the factors as were made applicable to 1974-75 season.
Levy Sugar Price for 1976-77 Sugar Season:
The report of the Bhargava Inquiry Commission was submitted to
the Government on 8.11.76. In its Report the Commission made several
c
recommendations which made a complete departure from the earlier
methodology followed by the Tariff Commission for decades. The recom-
mendations included grouping of sugar producing units on similarities of
performance characteristic instead of on a geographical basis. In view of
Bhargava Inquiry Commission's emphasis on treatment of all its recom- D
mendations in the report including the abovementioned recommendations
as one single package, it was not found possible to accept and give effect
to any one single recommendation. Because of the impracticability of
implementations of Bhargava Inquiry Commission's main recommenda-
tions, the Government had no other alternative but to repeat 1975-76 prices E
for 1976-77 sugar season.
1977-78 Season:
For the abovesaid season there are two orders:
F
(1) Price Determination Order No. GSR767(E)/Ess.Com/Sugar
dated 22.12.77.
(2) Price Determination Order No. GSR355(E)/Ess.Com/Sugar
dated 1.3.78.
G
At the beginning of season the Government repeated the prices for
1976-77 season on 22.12.77, which was an interim only. Many factors such
as estimates of quantity of sugarcane crushable by sugar factories, an-
ticipated recovery and duration, estimates of sugar production had to be
called for from the factories for assessing likely working conditions that H
446 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A would prevail in 1977-78 season to enable determination of the levy sugar
prices. This was likely to take quite some time. Since the old price had
been continuing for long time, with the available records the Government·
estimated all-India average ex-factory price and this was found to be Rs.
18.03 more than the average all-India levy sugar prices, as was announced
on 22.1.77. Thus increase was uniformly added to prices of all the zones
B
earlier notified on 22.12.77 and the new prices that were thus arrived at,
were notified on 1.3.78. Final levy sugar price was to be determined after
crushing was over. But, then, decision was taken to decontrol the sugar,
which became effective from 16.8.78 and levy sugar price was no longer
needed.
c
1978-79 Season:
Price Determination Order No. GSR 699/(E)/Ess.Comm./Sugar
17.12.79.
D All controls on production, distribution, movement and prices of
sugar were removed on 16.8.78 and the Government re-introduced the
policy of partial control w.e.f. 17.12.79. Bulk of the production of 1978-79
season was sold when there was no control on sugar i.e. the sugar mills
were free to sell the sugar at the best price available in the market. With
E the introduction of partial control, only 65 per cent of the small quantities
that remained unsold on 17.12.79 were declared as 'Levy Sugar'. The
Government had information that the sugar factories had paid only the
minimum cane price notified during the 1978-79 season. The levy sugar
prices were determined as per the provision of Section 3(3C) of the Act
F viz. taking into account the factors (a) to (D) mentioned therein. The final
levy sugar prices were determined after adjusting the excess of free sale
realisation over the cost of production assessed, so as to ensure that the
industry got a reasonable return on the entire production of sugar.
In the case of Eastern Uttar Pradesh the following requires to be
G mentioned:
The Government worked out the levy, price assuming recovery and
duration but the actual working results were lower than the assumptions
made by the Government. This was because the Government assumed a
H certain degree of efficiency. In East U.P. Zone, it appears that the factories
SUGARFACTORYLTD. v. U.O.I.[MOHAN,J.] 447
have not been efficient. Certainly, the Government cannot be expected to A
reward inefficiency for .a higher price. This zone is a higher cost zone. The
machinery in the factories are old with poor working. The Government
wanted to provide a reasonable return of Rs. 12.80, the said zone could
not earn. On the contrary, it could earn a return on only Rs. 7.70. There-
fore, to contend that the Government had fixed the price without regard B
to the reasonable return, is not correct.
In the State of Maharashtra initially an ex-field advance is fixed
uniformly for all cooperative sugar factories. At the end of the season, the
actual working results are assessed and the entire profits, are passed on to
the cane growers as additional cane prices. Thus, the farmers get profits C
in the form of additional cane price and this fluctuates widely from factory
to factory. In view of this it can be categorically stated that actual cane
prices are not available in Maharashtra, particularly for cooperative as it
is of a profit sharing nature (excess over the initial ex-field advance).
D
Therefore, it is not correct on the part of the appellants to contend .
that notional prices were taken into consideration without regard to the
actualities. Even otherwise, as stated above, if regard has been had to this
factor that would be sufficient in law. We may add that this court cannot
determine the price by redoing that exercise.
E
With this, we move to the next contention. Mr. Nariman, learned
counsel urges that whatever might have been the position when Panipat
case decided, namely, before 1.10.74, after that date regard niust be had
to clause SA of the Sugarcane Control Order, 1966 After incorporation of
the said clause the governmeitt could not, in law, proceed to determine the F
levy price by mopping off 100 per cent of the excess realisation on sale of
free sugar. In the Notifications issued for the sugar years 1974-75 to 1979-80
the Government has admitted mopping up 100 per cent excess realisation
on sale of free sugar. This clearly overlooks the fact that the producer had
become statutorily entitled to 50 per cent of such excess realisation from G
1.10.74.
The changed methodology adopted from 11.7.75 was directly con-
trary to the recommendation of the sugar Industry Inquiry Commission,
namely Bhargava Commission. The ruling in Panipat case (supra) will not
militate against this contention because that was prior to 1.10.74. Again, H
448 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A Sita Ram's case (supra) cannot affect this submission since there is no
mention or reference to the impact of clause 5A.
The recommendations of the Bhargava Commission regarding shar-
ing of excess realisation from sale of free sugar between factories and the
growers on 50:50 basis was adopted by the Government, as stated in
B Parliament on 26.8.74. This was also given effect to, is clear from the
addition of clause 5A of Sugarcane Control Order on 25.9.74. Under the
aforesaid clause, excess realisation from sale of free sugar were to be
shared on 50:SO basis between the producers and the growers. Further,
Bhargava Commission, in its Report has specifically stated that it will be
c unreasonable to deny the industry a share in its excess realisation. Having
regard to Schedule II under clause SA the L Factor is the unit cost based
on minimum cane price and which expressly includes the element of return.
Even assuming that the change in methodology after ll.7.7S was
permissible and could be justified, it had be such as would take into
D account the change in law by reason of the introduction clause SA in the
Sugarcane (Control) Order 1966 issued under the Essential Commodities
Act, 19SS and the statutory provision that the industry was entitled to retain
SO per cent of the excess realisation on sale of free sugar, 'which give them
a reasonable margin for meeting their requirements' viz. industry's com-
E mitments under bonus, gratuity, interest on borrowed capital and deben-
tures, dividend on preference share, income tax and requirements for
rehabilitation, modernisation an expansion. Taking this into account, even
if the changed methodology was permissible, only SO per cent of the excess
realisation on sale of free sugar can be mopped up.
F The Government, in opposition to this, would state as under:
"Clause SA of the Sugarcane (Control) Order, 1966 provides
for payment additional cane price only in case of surplus, arising,
if any, from sales of both levy and free sugar after adjustment of
the unit cost of production ('L' factor in the formula specified in
G the Second Schedule of the order). The surplus may or may not
arise in the cases of all sugar factories or during all season. It is
by no means a mandatory payment like minimum bonus. It is also
wrong to suppose that only surplus from realisations of free sale
sugar are to be taken into account under Clause SA. The 'A' factor
H figuring in the formula refers to the sales value of the entire
SUGAR FACTORY LTD. v. U.0.1.[MOHAN,J.] 449
production and not merely that of the free sale quantities of A
production.
The recomf\lendations of the Bhargava Commission was made
specifically with' a vtew to ensure that a part of the surplus is passed
on to the cane growers. The sugar factories would in any case
retain the entire surplus for a statutory provision like clause 5 A. B
The determination of surplus is done after taking into account
the sales value of entire sugar production and not confined to free
sale production as per the formula in the Second Schedule to the
Sugar (Control) Order.
c
It is correct to say that bonus, gratuity, interest on borrowed
capital and debentures were not taken into account in the deter-
mination of levy sugar price for 1974-75. The cost schedules recom-
mended by the Tariff Commission Report, 1973 included, among
other bonus, gratuity, interest on borrowed capital and debentures D
and dividend on preference shares and depreciation. The deter-
mination of the levy sugar prices by the Government was based on
the cost schedules recommended by the Tariff Commission with
suitable adjustment of the abovementioned element." ·
In order to appreciate these contentions it is necessary to refer to E
the following Reports:
1. Tariff Commission Report, 1973
2. Bhargava Commission Inquiry Report, 1974
F
3. The interim Report of the Bureau of Industrial Costs and Prices
(June,1976)
The relevant portions are extracted hereunder:
G
Tariff Commission's Report, 1973:
"Para 3-4-10: If the industry were fully controlled, it would
obviously be difficult for it to bear any part of the export loss as
its profit margin would be pegged at a certain level. In the case of
sugar, however, since there is at present a partial decontrol and H
450 SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A the industry is allowed to sell a part of its production the present
figure for free sale is 30 per cent it should be possible for the
industry to recoup at least a part of its export losses from the
proceeds of free market sales."
"Cost Schedules for the future: The cost statement given in the
B previous paragraph is based on the average duration and recovery
of each zone for the five years ending 1971-72.
Given below is the cost schedule showing the cost under (i)
constants, (ii) variables, (iii) semi-variables and (iv) fixed charges.
c This is presented with the object of enabling Government to
determine the quantum of Coversion charges including return for
each future year for any (a) duration and (b) recovery.
Para 9.26.2: We have not assessed the profits made by the
industry from its free market sales. When the price paid for cane
D is some thing different from the minimum price which has gone
into the price structure of sugar there is considerable merit in the
principle of flexibility envisaged in the system of partial de-control.
We, however, want to stress the fact that the return of Rs. 12.60
per quintal provided by us refers to sugar as a whole and not to
only levy sugar as such or to levy sugar."
·E
In dealing with extra realisation from free market sales Bhargava
Commission tibserved as follows:
"2.14 The primary objective of the scheme is to provide incentives
F to cane growers to enter into agreements with factories for supply
of cane and to fulfil their contracts. The scheme envisages various
incentives including provision of credit facilities and supply of
inputs by factories and cane growers' societies. However, the most
important incentive is payment of an additional price to those cane
growers who enter into agreement for supply of cane and fulfil
G them. It is proposed to find money for payment of the additional
price out of extra sales realisations of sugar factories. In years of
de-control or partial control ordinarily factories obtain prices for
their sugar over and above the prices for their sugar over and above
the prices to which they are entitled according to the Tariff
.H Commission Schedules. The Scheme envisages sharing these· extra
SUGARFACTORYLTD. v. U.O.l.(MOHAN,J.] 451
sales realisations between factory and cane growers." A
In paragraph 2.15 the details of the scheme were given as follows:
"SUGARCANE SUPPLIES STABILISATION SCHEME.
2.15 The details of the scheme are as follows: B
· (1) A statutory minimum price for sugarcane related to a basic
recovery of 8.6 per cent with a premium for every 0.1 per cent
increase in recovery on proportionality basis will be fixed by the
Government of India.
c
(2) The minimum price payable by individual factories will be
fixed on the basis of the recovery of the factorv for the normal
crushing period of the previous season.
(3) The statutory minimum price as fixed above shall be paid
to all the cane growers subject to clauses (18) and (19) of this D
scheme.
(4) The factories shall share their extra sales realisation from
sugar with the cane growers who execute agreements for supply of
cane and fulfil contracts.
E
(5) The extra sales realisations shall be calculated according to
the following formula:
S=R-L
Where S stands for the amount shareable; R stands for the sales F
realisations ex-factory excluding excise duty paid or payable to the
factory by the purpose; and L stands for sugar price as calculated
on the basis of the statutory minimum cane price and according
to the Tariff Commission schedules in force at the time (In periods
of control and partial control, L. stands for the final levy price of G
sugar fixed by Government).
(6) The sales realisations will be in respect of the sugar
produced during the season.
(7) The sales realisations will comprise: H
452 SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.
A (i) the actual amount realised upto and inclusive of September,
30: and
(ii) The estimated value of the unsold stocks held at the end
of September 30.
B In case (ii) the value of the stocks will be calculated at the
average rate of the sales made during the last fortnight of Septem-
ber.
(8) The excess or shortfall in realisation from the actual sale
c of the unsold stock of the season after September 30 shall be
carried forward to and adjusted in the extra sales realisation of
the following season.
(9) The extra realisation shall be divided equally between the
factory and the canegrowers ....... "
D
On the basis of the above recommendation clause 5A of the Sugar
(Control) Order was promulgated. The relevant part of Clau~e 5A read as
follows:
"SA. Additional Price for Sugarcane purchased on order after
E
1st October, 1974:
(1) Where a producer of sugar or his agent purchases sugar-
cane, from a sugarcane grower during each sugar year, he shall, in
addition to the minimum sugarcane price fixed under clause 3, pay
F to the sugarcane grower an additional price, if found due in
accordance with the provisions of the Second Schedule annexed
to this Order.
(2) The Central Government or the State Government, as the
case may be, may authorise any person or authority, as it thinks
G fit, or the purpose of determining the additional price payable by
a producer of sugar under Sub-clause (1) and the person or
authority, as the case may be, who determines the additional price,
shall intimate the same in writing to the producer of sugar and the
sugarcane grower connected with the supply of sugarcane to such
H producer of sugar.
SUGARFACTORYLTD. v. U.0.1.[MOHAN,J.] 453
(3) (a) Any producer of sugar or sugarcane grower, who is A
aggrieved by any decision of the person or authority, referred to
in sub-clause (2), may, within thirty days from the date of com-
munication of such decision under that sub-clause "appeal to the
Central Government or the State Government, as the case may be:
Provided that the Central Government or the State Govern- B
ment, as the case may be, may if it is satisfied that the appellant
had sufficient cause for not preferring the appeal within the
aforesaid period of thirty days, admit the appeal, if presented
within a further period of fifteen days.
(b) The Central Government or the State Government, as the
c
case may be, ·may after giving an opportunity to the appellant to
represent his case and after making such further enquiry as may
be necessary, pass such order as it thinks fit.
(c) The decision of the person or authority referred to m D
sub-clause (2) where no appeal is filed, and of the Central Govern-
ment or State Government, as the case may be, where an appeal
is filed, shall be final.
(4) The additional price determined under sub-clause (2) shall
be paid by the producer of sugar to the sugarcane grower, at such E
time and in such manner as the Central Government or the State
Government, as the case may be, from time to time, direct.
(5) No additional price determined under sub-clause (2) shall
become payable by a producer of sugar who pays a price higher
than the minimum sugarcane price fixed under clause 3 to the
F
sugarcane grower:
Provided that the price so paid shall in no case be less than the
total price comprising the minimum sugarcane price fixed under
clause 3 and the additional price determined under sub-clause (2). G
Second Schedule:
The amount to be paid on account of additional price (per
quintal or sugarcane) under clause SA by a producer of sugar shall
be computed in "in accordance with the following formula, namely; H
454 SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.
A X = R-I+2A+B
RC
Explanation in this formula:
1. 'X' is the additional price in rupees per quintal of sugarcane
B payable by the producer of sugar to the sugarcane grower.
2. 'R' in the amount in rupees of sugar produced during the
sugar year excluding excise duty paid or payable.
3. 'L' is the amount in rupees of sugar required to be sold as
c levy calculated on the basis of the levy price notified by Govern-
ment as in force on 30th day of September of each sugar year for
sugar produced during that year, excluding excise duty paid or
payable.
D 4. 'A' 'is the amount found payable for the previous year but
not actually paid (vide sub-clause (9) ).
5. 'B' is the excess or shortfall in realisation from actual sales
of the unsold stocks of sugar produced during the sugar year, as
on 30th day of September (vide item 7 (ii) below) which is carried
E forward and adjusted in the sale realisations of the following year.
6. 'C' is the quantity in quintals of sugarcane purchased by the
producer of sugar during the sugar year.
7. The amounts 'R' and 'L' referred to in items 2 and 3 shall
F be computed as under :-
(i) the actual amount realised during the sugar year; and
(ii) the estimate value of the unsold stocks of sugar held at the
end of 30th September calculated in regard to free sugar stock at
G
the average rate of sales made during the fortnight 16th to 30th
September and at the notified levy prices "Prices as applicable to
levy stocks as on 30th September.
Explanation: In this Schedule 'Sugar' means any form of sugar
H containing more than ninety per cent sucrose."
SUGARFACTORYLTD. v. U.0.1.[MOHAN,J.] 4SS
It is true that clause SA deals with additional price payable to the A
sugarcane grower. However, if the recommendations made by the Bhar-
gava Commission and tbe method of computation are taken into considera-
tion it will be clear the producer of sugar will be entitled to retain an
amount equivalent to the amount paid to the cane grower under clause
SA. That amount cannot be taken into consideration for determination of B
the price of levy sugar. This will be evident from paragraphs 2.17, 2.20, 2.21
and 2.39 of Chapter II of Bhargava Commission Report. They are extracted
below:
"2.17. Statutory minimum prices for individual factories are
fixed by the Government of India in accordance with the quality C
formula. We have incorporated the formula in the scheme to
ensure that the incentive to cane growers for producing cane of
better quality is retained. In discussing this formula earlier (in Part
II), we have made certain recommendations which, in our opinion,
will improve the effectiveness and usefulness of the formula. The D
Scheme provides for a basic recovery of 8.S per cent and the
payment of premium on proportionality basis. It also provides for
the fixation of the minimum prices payable by individual factories
on the basis of the average of the recovery of the previous normal
crushing period of the factory. The reasons for using the average
recovery of the normal crushing period in preference to the E
average recovery of the optimum period for this purpose have
already been stated.
2.20. The provision of Clause (6) about the sale realisations
being in respect of the sugar produced during the season is F
intended to ensure, as far as possible, that cane growers who
supplied the cane from which the sugar was produced should
benefit from the prices obtained for the sugar. The manner in
which the sales realisations should be calculated, presented a
problem. It is necessary that the additional price which may be
payable to cane growers out of extra realisation should be an- G
nounced in October so that it may influence sowings of cane and
execution of agreements for supply of cane. Keeping this in view,
it is necessary to calculate early in October the value of the sugar
produced during the season. About 70 per cent of sugar produced
in a season in ordinarily sold out by the end of September. For H
456 SUfREME COURT REPORTS [1993] SUPP. 2 S.C.R.
A such stocks, the figures of actual realisations would be available l::y
the end of September.
2.21 As regards the unsold stocks, the value thereof could be
estimated in more than one way on the basis of the market prices
prevailing at the end of September, on the basis of the average of
B the sales of sugar upto the end of September, on the basis of the
av~rage of the sales made during the last fortnight of September,
etc. The scheme provides for an evaluation of the unsold stock on
the last basis mentioned. The problem, however, remained of
accounting for the difference between the ef'.imated price and the
c actual subsequent realisations from the stocks which remain unsold
on 30th September. This difficulty has been overcome by the
provisions for the difference being carried forward to the next year
for adjustment in the sugar sales realisations.
2.39. After considering all these facts we have decided that the
D extra realisations on the sale of sugar be divided between the
growers and the industry in the ratio of 50:50. A provision of this
effect has been made in clause (9) of the Scheme. It should be
mentioned that after deducting the tax obligations to be borne by
the industry, the actual accruals will be in the proportion of 70 to
E the cane growers and 30 to the industry. This share of cane growers
approximates the share of the cost of cane in the ~ost of sugar."
For the regular production of sugar there must be regular supply of
sugarcane.
F On this aspect of the matter, Justice E.S. Venkataramiah (as he then
was) observed in Writ Petition No. 432 etc. filed in the High Court of
Karnakata as follows:
"It is well-known that the availability of sugarcane for manufac-
turing sugar depends on several factors such as the probable price
G which the sugarcane can fetch when it is ready for harvest, the
price of other foodstuffs which can be grown on the land which
has to be utilised for growing sugarcane, the period occupied in
raising the sugarcane crop and the uncertain climatic conditions.
In order to maintain regular supply of sugar it is necessary to have
H regular supply of sugarcane. The supply of sugarcane depends
SUGAR FACTORY LTD. v. U.0.1.[MOHAN,J.] 457
upon the total average brought under sugarcane cultivation. The A
agriculturist should hfve the necessary incentive to grow sugarcane
instead of some other crop and that is provided by the Sugarcane
(Control) Order which authorises the Central Government to fix
the minimum price which the producer of sugar should pay to the
cane grower on a future date. This necessarily involves the deter-
B
mination of the minimum price payable under clause 3 of the
Sugarcane (Control) Order at the commencement of the planting
season. After the minimum price of sugarcane is so fixed, at the
commencement of the sugar year (as defined in Clause SA of the
Sugarcane (Control) Order). It is necessary for the Central
Government to fix the price payable for levy sugar and also c
determine the quantity of sugar which a producer should supply
to the Central Government or its nominee to enable the producer
to arrange his programme of production well in advance and also
to pay extra price to the sugarcane grower over and above the
price fixed under Clause 3 of the Sugarcane (Control) Order to D
attract supply of sufficient quantity of sugarcane to his factory,
which of course he would be able to adjust against the additional
price payable under Clause SA after the close of the sugar year.
After the sugar year is over, the authority which is empowered to
determine the additional price would determine it in accordance
with the formula found in the Second Schedule and payment of E
additional price would be made to the cane grower accordingly.
At this stage the amount which the producer can retain out of the
extra realisation made by him would also be known.
It is significant that the Bhargava Commission recommended F
that the factory owner should share the extra realisation with the
cane grower. The expression "to share" means 'to particulate in'.
It, therefore, follows that a sum equivalent to the amount paid by
way of additional price would go to the benefit of the producer. If
that is the true legal position, the method adopted by the Central G
Government in determining the price of levy sugar under the 197S
order would have to be treated as faulty. No part of the extra
realisation can be taken into consideration while determining t_he
price of levy sugar. It is no doubt true that in Panipat's case the
Supreme Court having regard to t.he law as it stood then observed
that it would be open to the C~ntral Government to take into H
I
458 SUPREME COURT REPORTS [ 1993) SUPP. 2 S.C.R.
A consideration the extra realisation of a producer by the sale of levy
sugar Jlso while determining the price that has to be determined
under clause 3(3C). I am of the view that the above view of the
Supreme Court stands superseded by clauses SA of the Sugarcane
(Control) Order which was introduced subsequently. It is the duty
of the Court to give effect to clause 5A of the Sugarcane (Control)
B Order without being influenced by any observations made by the
Supreme Court earlier when a similar clause was not in force. The
case put forward on behalf of the Central Government that even
after the promulgation of clause 5A it would be open to the Central
Government to take into consideration the extra realisation for the
c purpose of determining the price of levy sugar under clause 3(3C),
would be impracticable, because the determination of price under
clause 3(3C) cannot be postponed to a date subsequent to the close
of the sugar year. If that is allowed to be done, the producer of
sugar would be compelled to carry on production of sugar without
having an idea of the price that is likely to be determined by the
D
Central Government under clause 3(3C)."
We are in agreement with the above observations since the approach
to price determination is in the proper perspective. It may also be added
that the ruling in Sita Ram case (supra) is silent as to be impact of clause
E SA of the Sugarcane (Control) Order since what came up for decision in
that case was the correctness of the zonal fixation of prices. Therefore, we
uphold the contention of Mr. Nariman that the changed methodology
adopted from 11.7.75 was directly contrary to the recommendations of
Bhargava Commission which have come to be accepted by the Govern-
F ment. Accordingly, we hold that the government could not, in law, proceed
to a determination of the levy price by mopping up 100 per cent of the
excess realisation of free sale sugar. This overlooks the fact that the
producer had become statutorily entitled to 50 per cent of such excess
realisation from 1.10.74.
G
We are unable to agree with the submissions advanced on behalf of
the Government that clause 5A deals only with the amount payable to the
cane grower and that it cannot have any relevance for determination of levy
sugar. If the determination of minimum price of sugar and fixation of the
H price of levy sugar under quantity of sugar to be supplied by the producer
SUGAR FACTORY LTD. v. U.O.I. [MOHAN, J.) 4S9
are inter-connected, then must be read, as a whole and not separately as A
though each is distinct. While fixing the price of levy sugar regard is had
only to the minimum cane price as spoken to under Section 3(3C). This
minimum cane price is referable to clause (3) or Sugarcane (Control)
Order. The additional price payable to the cane grower under clause SA
will arise after the expiry of the sugar year. Such price will have to be met B
only from the extra realisation made by the producer by the sale of sugar
in free market which will naturally be more than the levy price.
In view of the above discussion, the impugned notifications except
the one dated 28.11.74 cannot be upheld. The reason why we leave out the
notification dated 28.11.74 is that the same came to be issued before the C
new pricing policy was introduced. We hereby direct The Union of India
to amend the notifications taking into account the liability of the manufac-
turers under clause SA of the Sugarcane (Control) Order as regards cane
price and refix the price of levy sugar having regard to the factors men-
tioned in Section 3(3C) of the Act. The Government will have time to issue D
the amended notifications as directed above till 31st of December, 1993.
Though normally we would have quashed the notifications mere
quashing of the notifications would lead to nebulous situation during the
interregnum till the refixation of price we are obliged to give the above E
direction. In this connection we may usefully quote the following passage
occurring at page 294 of Judicial Remedies in Public Law by Clive Lewis:
"The courts now recognise that the impact on the administra-
tion is relevant in the exercise of their remedial jurisdiction. Quash-
ing decisions may impose heavy administrative burdens on the F
administration, divert resources towards re-opening decision, and
lead to increased and unbudgeted expenditure. Earlier cases took
the robust line that the law had to be observed, and the decision
invalidated Whatever the administrative inconvenience caused.
The courts nowadays recognise that such an approach is not always
appropriate and may not be in the wider public interest. The effect G
on the administrative process is relevant to the courts' remedial
discretion and may prove decisive."
We may also add that the interests of the appellants will have to be
measured agaliist the needs of good administration which include: the need H
460 SUPREME COURT REPORTS (1993) SUPP. 2 S.C.R.
A for speedy finality in decision making, the public interest, the purpose of
administrative process and the need to consider substance not form.
Pursuant to out interim orders bank guarantees have been furnished
by the appellants. 50 per cent of the same could be encashed by the
respondents. The other 50 per cent shall remain and the liabilities could
B be adjusted after the determination of price as directed above.
Accordingly, all the civil appeals, special leave petitions, writ peti-
tions, transfer petitions, transferred cases, interlocutory applications and
CMPs will stand ordered.
R.P. Matters disposed of.
...
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