Holding

The notifications fixing levy‑sugar prices on a zonal basis are intra‑vires, legislative in character, and the phrase “having regard to” is directory, so the orders are not ultra vires and are not liable to be set aside.

Summary

The petitioners, owners of sugar mills in Uttar Pradesh, challenged the Central Government's notifications fixing levy‑sugar prices on a zonal basis under Section 3(3‑C) of the Essential Commodities Act, 1955, alleging that the price‑fixation was arbitrary, discriminatory and violative of Article 14. The Court examined whether the power under s.3(3‑C) was legislative in nature, whether the phrase “having regard to” imposed a mandatory requirement, and whether the government’s discretion was exercised reasonably. It held that the price‑fixation orders are legislative, of general application, and that the words “having regard to” are directory, not mandatory, requiring only that the government consider the factors listed in clauses (a) to (d). The Court found that the government had acted on expert recommendations, applied a representative cross‑section costing method, and there was no evidence of arbitrariness or violation of equality. Consequently, the writ petitions were dismissed.

Issues considered

The validity of the notifications fixing levy‑sugar prices under s.3(3‑C) of the Essential Commodities Act, 1955.
Whether the power conferred by s.3(3‑C) is legislative, administrative or quasi‑judicial and thus amenable to judicial review.
Whether the phrase “having regard to” in s.3(3‑C) imposes a mandatory requirement that must be strictly complied with.
Whether the Central Government exercised its discretion unreasonably or in violation of Article 14.

Legislation cited

Essential Commodities Act, 1955s. 3(2)(f), s. 3(3), s. 3(3‑A), s. 3(3‑C), s. 3(5), s. 3(6)

Subjects

Essential Commodities Actprice fixationdelegated legislative powerjudicial reviewArticle 14economic policylegislative vs administrativehaving regard tosugar industryzonal classification

Judgment

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

MARCH 13, 1990
B
[SABYASACHI !viUKHARJI, CJ., K. JAGANNATHA
SHETTY, T. KOCHU THOMMEN, A.M. AHMADI AND
K.N. SAIKIA, JJ.]

Essential Commodities Act, 1955: S. 3(3-C)-Government of
India Notifications dated November 28, 1974 and July 11, 1975-Fixing C
prices of levy sugar on zonal basis-Validity of-Whether legislative in
character-Whether amenable to judicial review-Determination of
price-Requirement of 'having regard to' Clauses (a) to (d)-Whether
mandatory-Power delegated to fix different prices for different areas,
different factories or different kindsof sugar-Nature and scope of-
Whether matter of economic policy-Whether falls within purview of D
court.

Judicial review of State action-Legislative, executive or quasi-
judicial-Nature and scope of.
-·(
Administrative law-Delegation of legislative power-Judicial E
review-Scope of-Courts 'riot to interfere with matters of economic
policy.

I Administrative Law-Administrative action-Principles of
'1 natural justice-Observance of-Even if rule of audi alteram partem
not attracted reasonableness and fair play in action must be observed. F

Constitution of India, Article 14: Principle of equality must
govern every State action.

Clause (f) of sub-s. (2) of the Essential Commodities Act, 1955
empowers the Central Government to require any person dealing in any G
essential commodity to sell the whole or specified part of such com-
modity to it or the State Government or to a nominee of such Govern-
ment. Sub-section (3) provides for payment to such a seller (a) tlie price
agreed upon consistently with the controlled price, if any, fixed under
the section; (b) the price calculated with reference to the controlled
price, if any; and (c) where none of these applies, a price calculated at H

909
910 SUPREME COURT REPORTS [1990] 1 S.C.R.

A the market rate prevailing in the locality at the date of the sale. Sub-
section (3-A) deals with orders made with a view to controlling the rise
in prices or preventing the hoarding of any foodstuff in any locality and
determination of price for payment to the seller, notwithstanding any-
thing contained in sub-s.(J}. Sub-section (3-C) lays down that
where any producer is required by an order made with reference to
B cl. (I) of sub-s. (2) to sell any kind of sugar and either no notification in
respect of such sugar has been issued under sub-s. (3-A) or any such
notification having been issued has ceased to remain in force by efflux of
time, then notwithstanding anything contained in sub-s. (3), there shall
be paid to that producer an amount therefor which shall be calculated
wifo reference to such price of sugar as the Central Government may,
by order, determine having regard to (a) the minimum price, if any,
C fixed for sugarcane by Central Government under this section; (b) the
manufaeturing cost of sugar; (c) the duty or tax, if any, paid or payable
thereon; and (d) the securing of a reasonable return on the capital
employed in the business of manufacturing sugar, and different prices
may be determined from time to time for different areas or for different
D factories or for different kinds of sugar.

The Central Government by notifications dated 28th November,
1974 and 11th July, 1975 issued in exercise of the power under sub-s.
(3-C) of s. 3 of the Act fixed the prices of levy sugar for 1974-75
production.
E
The petitioners, owners of sugar mills operating in the State of
Uttar Pradesh in areas classified for the purpose of determining the
price of levy sugar as West and East zones, challenged the validity of the
said orders on the grounds that they were ultra vires the Act and viola- 't
live of their fundamental rights as the prices of levy sugar had been
F determined arbitrarily with reference to the average cost profiles of -(
factories grouped together in zones without regard to their individual
capacity and cost characteristics; that although the Government has the
discretion to fix different prices for different areas or for different
factories, or for different kinds of sugar, such wide discretion bas to be
rta.sonably exer.cised, that the words 'having regard to' occurring in
G sub-s. (3-C) is a mandatory requirement demanding strict compliance
with clauses (a) to (d); that the ingredients of the said clauses should,
therefore, have been examined with reference to each producer as a
condition precedent to the determination of the price of sugar; that the
Central Government had not applied its mind to the relevant questions
to which they were expected to have regard to in terms of the sub-section;
H and that the expression 'determine' used in sub-section (.l-C) indicates
SITARAM SUGAR CO. LTD. v. U.0.1. 911

that the order to which that expression referred to is quasi-judicial A
y amenable to judicial review. For the interveners it was contended that
the cost incurred by units having lower crushing capacity should be
neutralised by giving them an incremental levy price.

For the respondents it was contended that the division of the B
country into zones and the method adopted by the Government in fixing.
price of levy sugar was fully supported by the recommendations of
various expert bodies and the Tariff Commission and was upheld in
Anakapalle Co-op. Agricultural & Industrial Society Ltd. Etc. v. Union
of India & Ors., [1973] 2 SCR 882 and the Panipat Co-op. Sugar Mills
;, The Union of India, [1973] 2 SCR 860; that the cost of manufacturing
sugar depends not anly on recovery from the sugarcane, duration of
c
crushing season, crushing capacity of the plant, the sugarcane price
paid and the capital employed, but also to a considerable extent on the
conditions of the plant and machinery, quality of management, invest-
ment policy, relations with cane growers and labour, financial reputa-
tion etc.; that to group together factories having a high cost profile and D
to determine a price specially applicable to them is to put a premium on
incompetence, if not mismanagement; and that the orders determining
the price of sugar in terms of sub-section (3-C) were of general applica-
'tion and, therefore, legislative in charactef and the omission, if any, to
consider the peculiar problems of individual producers was not a
ground of judicial review. E

Dismissing the writ petitions, the Court

HELD: I. The notifications dated 28th November, 1974 and 11th
July, 1975 issued under sub-s. (3-C) of s.
3 of the Essential Com-
modities Act, 1955 are intra vires the Act. There is no merit in the F
challenge. [950F, 918F-G]

2.1 Sub-section (3-C) is attracted whenever any producer is
required to sell sugar by an order made with reference to sub-s. (2)(1)
and no notification has been issued under sub-s. (3-A) or any such
notification, having been issued, has ceased to be in force. It operates G
notwithstanding anything contained in sub-s. (3). This means the com-
pensation payable to the seller in the circumstances attracting sub-s.
(~-C) is not the. price postulated in sub-s. (3). Nor is it the price
mentioned under sub-s. (3-A), for that sub-section cannot be in opera- .
tion when sub-s. (3-C) is attracted. What is payable under sub-s. (3-C)
is an amount calculated with reference to the pdce of sugar. [930F-H] H
912 SUPREME COURT REPORTS [1990) 1 S.C.R.

The Panipat Cooperative Sugar Mills v. The Union of India,
A
[1973) 2 SCR 860, referred to.

2.2 The price of sugar is determined by the Central Government
having regard to the factors mentioned in els. (a) to (d) of sub-s. (3,C).
This is done with reference to the industry as a whole by a process of
B costing in respect of a representative cross-section of manufactnring
units and not with reference to any individual seller. The order notify.
ing the price is required by sub-ss. (5) and (6), to be notified in official
gll7£tte and laid before both Houses of Parliament. [931H, 932A, 936G, 931G]

3. The words 'having regard to' in sub-s. (3-C) are the legislative
instruction for the general guidance of the Government in determining
c the price of sugar. They are not strictly mandatory, but in essence
directory. They do not mean that the Government cannot, after taking
into account the matters mentioned in els. (a) to (d), consider any other
matter which may be relevant. The expression is not "having regard
only to" but "having regard to". These words are not a fetter, they are
D not words oflimitation. [936D, 934E]

Union of India v. Kamlabhai Harjiwandas Parekh & Ors., [1968)
l SCR 463; Commissioner of Income Tax v. Williamson Diamonds
Ltd., L.R. 1958 A.C. 41; Commissioner of Income Tax, West Bengal,
Calcutta v. Gungadhar Banerjee & Co. (P) Ltd., [1965] 3 SCR 439;
E Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1
SCR 956; State of Karnataka & Anr. etc. v. Shri Ranganatha Reddy &
Anr. etc., [1978] l SCR 641; State of UP. & Ors. v. Renusagar Power
Co., [1988] 4 SCC 59 and O'May & Ors. v. City of London Real
Property Co. Ltd., [1982] l All E.R. 660, referred to.

F 4.1 In considering the reasonableness of the order made by the
Governmenfin exercise of its power under sub-s. (3-C) the Court will
not strictly scrutinise the extent to which matters mentioned in els. (a)
to (d), or any other matters have been taken into account by the
Government in making its estimate of the price. There is sufficient
compliance with the sub-section if the Government has addressed its
G mind to the factors which it may reasonably consider to be relevant,
and has come to a conclusion, which any reasonable person, placed in
the position of the Government, would have come to. [936E-F]

4.2 In the instant case, the material brought to the notice of the
Court does not support the arguments at the bar that the Central
H Government had not applied its mind to the relevant questions to which
SITARAM SUGAR CO. LTD. v. U.0.l. 913

they were expected to have regard in terms of the statute. Nor any data
A
has been furnished to show that the prices determined by the Govern-
ment would have been different had the iitgredients of els. (a) to (d) of
the sub-section been examined with reference to each individual
producer instead of a representative cross section of manufacturing
nnits. [947 A, 934D J
B
5.1 Judicial decisions are made according to law while adminis-
trative decisions emanate from administrative policy. Quasi-judicial
decisions are also administrative decisions emanating from adjudication
but they are subject to some measure of judicial procedure, such as
rules of natnral justice. Legislative orders can be distinguished from rest
of orders by reference to the principle that the former are of general
application. They are made formally by publication and for general c
guidarice with reference to which individual decisions are taken in
particnlar situations. [937C, 939E, 938A-B J

H. W.R. Wade: Administrative Law, 6th ed., 47, referred to.
D
5.2 An instruction may be treated as legislative even when it is
not issued formally but by circular or a letter or the like. What matters
i . is the substance and not the form, or the name. Where an authority to
,,.~
whom power is delegated is entitled to sub-delegate his power, be it
legislative, executive or judicial, then such authority may also give

•
instructions to his delegates and these instructions may be regarded as E
legislative. However, a judicial tribunal cannot delegate its functions
except when it is authorised to do so expressly or by necessary
implication. [938B-C, D-E]

Griffith and Street: Principles of Administrative Law, 5th ed.,
p. 65 and Bernard & Ors. v. National Dock Labour Board & Ors., F
[1953] 2 Q.B. 18 at 40, referred to. ~

5. 3 What distinguishes legislation from adjudication is that the
former affects the rights of individuals in the abstract and must be
applied in a further proceeding before the legal position of any parti-
cular individual will be definitely touched by it; while adjudication G
operates concretely upon individuals in their individual capacity. [938F]

Davis: Administrative Law Text, 3rd ed., p. 123, referred to.

5.4 A statutory instrument such as a rule, order or regulation
emanates from the exercise of delegated legislative power which is a H
914 SUPREME COURT REPORTS (1990] 1 S.C.R.

part of the administrative process resembling enactment of law by the
A
legislature. It affects the rights of individuals in the abstract. l939D-E, eJ

Bernard Schwartz: Administrative Law [1976] p. 144 and Davis:
Administrative Law Text, p. 123, referred to.

B 5 .5 When the function is treated as legislative, a party affected by
the order has no right to notice and hearing unless, of course, the
statute so requires. It is nevertheless imperative that the action of the
authority should be inspired by reason. It being of general application
engulfing a wide sweep of powers, applicable to all persons and situa-
tions of a broadly identifiable class, the legislative order may not be
vulnerable to challenge merely by reasons of its omission to take into
c account individual peculiarities aud differences amongst those falling
within the class. [939F, 943e, 939F-G]

Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2
Sec 720 and Saraswati Industrial Syndicate Ltd., v. Union of India,
D (1975] 1SCR956, referred to.

5.6 The orders in the instant case, duly published in the official
gazettes notifying the prices determined for sugar of various grades and ;>--
produced in various zones, and applicable without exception to all
producers falling within well defined groups can be legitimately
E characterised as legislative. No rule of natural justice is applicable to
any such order. 194 IH, 942A, 9438-C J

Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2
SCC 720; State of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC
59; Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1
F SCR 956; Prag Ice & Oil Mills & Anr. etc. v. Union of India, [1978] 3
SCR 293 and Bates v: Lord Hai/sham of St. Marylebone & Ors., [1972]
3 All ER 1019, referred to.

6. It is with reference to predetermined prices of sug~r that sub-
section (3-C) postulates the calculation of the amount payable to each
G producer who has sold sugar in compliance with an order made with
reference to cl. (f) of sub-s. (2). The calculation of such amount is in
contradistinction to the determination of price of sugar, a non-legis-
lative act. The individual orders to that effect being administrative
orders founded on the mechanics of price fixation, they must be left to
the better instructed judgment of the executive, and in regard to them
H the principle of audi a/teram partem is not applicable. All that is
SITARAM SUGAR CO. LTD. v. U.0.1. 915

required is reasonableness a.ud fair play which are in essence emana- A
tions from ihe doctrine ofnaturaljnstice. [942B, 936F-G, 943A-BJ

The Panipat Cooperative Sugar Mills v. The Union of India,
[1973] 2 SCR 860; A.K. Kraipak &.. Qrs. etc. v. Union of India & Ors.,
[1970] 1 SCR 457 and State of U.P. & Ors. v. Renusagar Power Co.,
[1988] 4 sec 59, referred to.
B

Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2
sec 720, distinguished.
7 .1 Any Act of the repository of power, whether legislative or
administrative or quasi-judicial, is open to challenge if it is in conflict c
with the Constitution or the governing Act or the general principles of
the law of the land or it is so arbitrary or unreasonable that no fair
minded authority could ever have made it. [946C]

E.P. Royappa v. State of Tamil Nadu &Anr., [1974] 2 SCR 348; State
of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC 59; Saraswati D
Industrial Syndicate Ltd. v. Union of India, [1975] 1 SCR 956; Mrs.
Maneka Gandhi v. Union of India & Anr., [1978] 1 SCC 248; Ramana
Dayaram Shetty v. The International Airport Authority of India & Ors.,
[1979] 3 SCR 1014; Ajay Rasia & Ors. v. Khalid Mujib Sehravardi & Ors.,
[1981] 1 SCC 722; D.S. Nakara & Ors. v. Union of India, [1983] I SCC

'
305; The Barium Chemicals Ltd. & Anr. v. The Company Law Board & E
Ors., [1966] Supp. SCR 311; Leila Mourning v. Family Publications
) Service, 411 US 356, 36 L. Ed. 2d 318; Kruse v. Johnson, [1988] 2 Q.B.
~1 91; Associated Provincial Picture Houses Ltd. v. Wednesbury Corpora-
tion, [1948] 1 K.B. 223; Westminster Corporation v. London and
North Western Railway, [1905] AC 426; Mixnam Properties Ltd. v.
Chertsey U.D.C., [1965] AC 735; Commissioners of Customs & Excise F
v. Cure & Deeley Ltd., [1962] 1 Q.B. 340; McEldowney v. Forde,
[1971] AC 632 (H.L.); Carltona Ltd. v. Commissioners of Works, [1943]
2 All ER 560; Point of Ayr. Collieries Ltd. v. Lloyd George, [1943] 2
All E.R. 546; Scott v. Glasgow Corporation, [1899] AC 470; Robert
Baird L.D. v. City of Glasgow, [1936] AC 32; Manhattan General
Equipment Co. v. Commissioner, [J935] 297 US 129; Yates (Arthur) & G
Co. Pty Ltd. v. Vegetable Seeds Committee, [1945-46] 72 CLR 37;
Bailey v. Conole, [1931] 34 WALR 18; Boyd Builders Ltd. v. City of
Ottawa, [1964] 45 DLR 2d 211; Re Burns & Township of Haldimand,
[1966] 52 DLR 2d 1014 and Lynch v. Tilden Produce Co., 265 US 315,
referred to.
H
916 SUPREME COURT REPORTS [ 1990) 1 S.C.R.

A 7 .2 Where a question of law is at issue, the Court may determine
the rightness of the decision of the authority on its own independent
judgment. If the decision does not agree with that which the Court
considers to be the right one, the finding of law by the authority is liable
to be upset. Where it is a finding of fact, the Court examines only the
reasonableness of the findings. When the finding is found to be rational
B and reasonably based _on evidence then judicial review is exhausted even
though the finding may not necessarily be what the Court would have
come to as a trier of fact. [944C-EJ

7.3 Whether· an order is characterised as legislative or adminis-
trative or quasi-judicial, or, whether it is a determination of law or fact,
C the judgment of the expert body, entrusted with power, is generally
treated as final and the judicial function is exhausted when it is found to
have warrant in the record and a rational basis in law. [944E-F]

Rochester Tel. Corp. v. United States, [1939) 307 U.S. 125, 83 L.
Ed. 147; Associated Provincial Picture Houses Ltd. v. Wednesbury
D Corporation, [1948] l K.B. 223 and Chief Constable of the North
Wales Police v. Evans, [1982] l WLR 1155 at 1160, referred to.

7 .4 The orders, in the instant case, are udoubtedly based on an
exhaustive study by experts. They are fully supported by the recom-
mendations of the Tariff Commission in 1969 and 1973 and are not
E shown to be either discriminatory or unreasonable or arbitrary or ultra
vires. [946D-E]
I
•
8.1 Judicial review is not concerned with matters of economic '~
policy. Nor is price fixation within the province of the Courts. The
Court does not substitute its judgment for that of the legislature or its
F agents as to matters within the province of either. The Court does not
supplant the "feel of the experts" by its own views. When the legisla-
ture acts within the sphere of its authority and delegates power to an
agent, it may empower the agent to make findings of fact which are
conclusive provided such findings satisfy the test of reasonableness and
are consistent with the laws of the land. 1948F, 9498, 948F-GJ
G
M/s. Gupta Sugar Works v. State of U.P. & Ors., [1987] Supp. \,...-
SCC 476; Railroad Commission of Texas v. Rowan & Nichols Oil /
Company, 311 US 570-577, 85 L. ed. 358 and Mississippi Valley Barge
Line Company v. United States of America, 292 US 282-290, 78 L.ed
1260, referred to.
H
SITARAM SUGAR CO. LTD. v. U.0.1. 917

8.2 In the instant case, sufficient power has been delegated to the A
Central Government by sub-s. (3-C) to formulate and implement its
policy · decisions by means of statutory instruments and executive
orders. Classification of sugar factories with due regard to geographi-
cal-cum-agro economic considerations for the purpose of determining
the price of sugar in terms of the said sub-section is a policy decision
based on exhaustive expert conclusions. Such classification, cannot, in B
the absence of evidence to the contrary, be characterised as arbitrary or
unreasonable or not founded on an intelligible differentia having a
rational nexus with the ob_ject sought to be achieved by sub-section
(3-C). [949E, 947B-D]

The Panipat Cooperative Sugar Mills v. The Union of India, c
[1973] 2 SCR 860 and T. Govindaraja Mudaliar etc. v. The State of
Tamil Nadu & Ors., [1973] 3 SCR 222, applied.

Federal Power Commission v. Hope Gas Co., 320 US 591; Union
of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2 SCC 720 and
M/s. Gupta Sugar Works v. State of U.P. & Ors., (1987] Supp. SCC D
476, referred to.

8.3 If the petitioners nevertheless incur losses, such losses need
not necessarily have arisen by reason of geographical zoning, but for
reasons totally unconnected with it, such as the condition of the plant
and machinery, quality of management, investment policy, labour rela- E
lions, etc. These are matters on which they have not furnished data.
The decisions in Anakapalle, (1973] 2 SCR 882 and Panipat, [1973] 2
SCR 860 do not require reconsideration. [947D-E, 950E-F]

8.4 Whether the policy should be altered to divide the sugar
industry into groups of units with similar cost characteristics with F
particular reference to recovery from sugarcane, duration of the crush-
ing season, size and age of units and capital cost per tonne of output,
without regard to their location, is a matter for the Central Govern-
ment to decide. What is best for the sugar industry and in what manner
the policy should be formulated and implemented, bearing in mind the
fundamental object of the statute, is ·again a matter for decision exclu- G
sively within the province of the Central Government. Such matters do
not ordinarily attract the power of judicial review. [949E-G I

Secretary of Agriculture, etc. v. Central Roig Refining Company
etc., 338 US 615-617, 94 L. ed. 391-392, referred to.
H
918 SUPREME COURT REPORTS [1990] 1 S.C.R.

A ORIGINAL JURISDICTION: Writ Petition Nos. 464 & 617 of '"(
1977.
(Under Article 32 of the Constitution of India.)
K. Parasaran, Attorney General, Shanti Bhushan, Ashwani
Kumar, K.G. Bhagat, L.N. Sinha, Raja Ram Aggarwal, S.P. Gupta,
B H.K. Puri, V. Parthasarthy, T.C. Sharma, P.P. Singh, Ms. A. Sub-
hashini, Mrs. Sushma Suri, G. Gopalakrishnan, O.P. Rana, A.V.
Rangam and Shartha Raju for the appearing parties.
F.S. Nariman, K.K. Venugopal, A.K. Verma, D.N. Mishra and
S. Kachawa for the Intervener in W.P. No. 464/77.
The Judgment of the Court was delivered by
c
THOMMEN, J. The petitioners are· owners of sugar mills ,.i._
operating in the State of Uttar Pradesh in areas classified for the
purpose of determining the price of levy sugar as West and East
Zones. They challenge the validify of notifications dated 28th
I) November, 1974 and 11th July, 1975 (Annexures 8 & 9) issued by the
Central Government in exercise of its power under sub-section (3-C)
of section 3 of the Essential Commodities Act, 1955 (Act No. 10 of
1955), as amended to date (hereinafter referred to as the 'Act').1 The >--
petitioners do not, and cannot, challenge the validity of the sub-
section by reason of Article 3 lB of the Constitution of India. By the
E impugned orders, the Central Government fixed the prices of levy
sugar for 1974-75 production. For the purpose of determining the 1
prices, the country is divided into 16 zones, and the prices. fixe,d for i ~
various grades of sugar in terms of section 3 (3-C) of thelAct vary1from
zone to zone. Prices are determined with reference to the geographi-
cal-cum-agro-economic considerations and the average cost profiles of --<.
F factories located in their respective zones. Each State for this purpose
constitutes a separate zone, while U.P. is divided into 3 zones and
Bihar into 2 zones. The petitioners contend that these orders are ultra
vires the Act and violative of their fundamental rights as the prices of
levy sugar have been determined arbitrarily with reference to the aver-
age cost profiles of factories grouped together in zones without regard
O to their individual capacity and cost characteristics. Such prices do not ...
reflect the actual manufacturing cost of sugar incurred by producers '1
like the petitioners or secure to them reasonable returns on the capital
employed by them. Geographical zoning, for the purpose of price
fixation, they point out, is an irrational· and discriminatory system of
(1) Published in· the Gazette of India Extraordinary dated 28.11.1974 and
H 11.7.1975.
SITARAM SUGAR CO. LTD. v. U.0.1. ITHOMMEN, J.[ 919

averaging wide cost disparities amongst producers of widely varying
A
capacity. Cost of manufacture of sugar depends on a number of
factors, such as recoveries from the sugarcanes, duration of the crush-
ing season, crushing capacity of the plant, the sugarcane price.paid and
the capital employed in the manufacture of sugar. These factors vary
from factory to factory. Fixation of the levy sugar prices on zonal basis
without regard to these divergent factors and the comparative cost B
profiles gives the owners of bigger factories an undue advantage over
producers like the petitioners whose factories are comparatively of
lower crushing capacity and whose manufacturing cost is consequently
higher. .Clubbing of the petitioners' factories with dissimilar factories
in the same zones for the purpose of price fixation is discriminatory,
arbitrary and unreasonable. The petitioners point out that the system
of geographical zoning for the purpose of price determination has been
c
severely criticised by the Bureau of Industrial Costs & Prices (The
"BICP") who have strongly recommended the division of the sugar
industry into groups of units having similar cost characteristics with
particular reference to recovery, duration, size and age of the unit and
capital cost per tonne of output, and irrespective of their location. D

The respondents, on the other hand, contend that the classifica-
tion of sugar industry into 15 zones (now 16) was upheld by a Constitu-
tion Bench of this Court in Anakapalle Co-operative Agricultural &
Industrial Society Ltd. etc. etc. v. Union of India & Ors., [1973] 2 SCR
882. The contention that the zonal system was disc.riminatory and E
violative of constitutional principles was pointedly urged, but categori-
cally rejected by this Court. The method adopted by the Government
in fixing the price of levy sugar is fully supported by the recommenda-
tions of various expert bodies. The Tariff Commission in its 1973
Report recommended division of the country into 16 zones for this
purpose. The price of sugar is fixed with reference to the Cost F
Schedule recommended by that body. These recommendations are
based on various factors such as cost and output of individual labour,
cane price (accounting for about 70 per cent of the cost of sugar pro-
duction), quality of sugarcane, taxes on sugarcane; cost of other mate-
rial, transport ·charges, cost of storing the sugar produced, cane
development charges and other overhead expenses, selling expenses G
etc. These factors are almost identical for the entire zone.

The cost of manufacturing sugar, the respondents contend,
depends not only on recovery from the sugarcane, duration of crushing
season, crushing capacity of the plant, the sugarcane price paid and the
capital employed, as stated by the petitioners, but also to a consider- H
920 SUPREME COURT REPORTS I1990] 1 S.C.R.

A able extent on the condition of the plant and machinery, quality of
management, investment policy, relations with cane growers and
labour, financial reputation etc. They say:

"It is evident from the Tariff Commission Report of 1959,
as also the Official Dire:tory of the Bombay Stock
B Exchange, that the petitioner Company has been consis-
tently diverting huge amounts for investments running into
several lakhs elsewhere instead of ploughing back the same
into the petitioner's sugar industry in question. Thus, the
petitioner Company has been neglecting the sugar factory
and for such neglect of their own they cannot blame the
Zonal System."
c
Mr. Shanti Bhushan, appearing for the petitioners, does not
object to the factories being grouped together on the basis of factors
common to them with a view to fixing the prices applicable to them as
a class of producers. He does not advocate fixation of price separately
D for each unit. He says that the sugar factories must be grouped
together, not on the basis of their geographical location, but similarity
in cost characteristics. He relies upon the 1976 Report of the BICP.
The present system of fixing prices according to the regions, where the
factories are located, he says, is based on "averaging wide cost dis-
parities" as a result of which manufacturers like the petitioners incur-
E ring a high cost of production and others incurring a low cost of pro-
duction are treated alike. Such a system works to the disadvantage of
the former and to the advantage of the latter. This, Mr. Shanti
Bhushan contends, is an unreasonable and invalid classification and
violative of constitutional principles. While this line of argument is
supported by Mr. Raja Ram Agarwal, Mr. S.P. Gupta appearing for
F the intervener in Civil Writ Petition No. 464 of 1977 advocates aboli-
tion of zonal classification or grouping of any kind and supports fixa-
tion of price for each individual factory with reference to its cost and
regardless of any other consideration. Such unit-wise determination
alone, according to him, satisfies the requirements of Section 3(3-C).
Any system of zoning or grouping for determination of price, he con-
G tends, will fail to meet the norms of that sub-section. Mr. M.M. Abdul ...
Khader, on the other hand, submits that while averaging and costing "II
with reference to a representative cross-section may ordinarily be an /
appropriate method for determining the fair price, such a method is
inappropriate for a small zone like Kerala where there are only three
manufacturing units. In respect of such a zone, he says, unit-wise
H fixation of price is the only just and proper method.
SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.J 921

Mr. K.K. Venugopal, counsel for Indian Sugar Mills' Associa-
A
tion (ISMA), on the other hand, supports the zoning system. He says
that, except for a few producers like the petitioners, all the rest oi
them in the country have accepted the principle of zoning. In his
written submissions, Mr. Venugopal states as follows:

"As was seen during the course of hearing only 2 or 3 B
persons have come forward challenging zoning. There are
389 sugar factories in the country and the present inter-
vener has 166 members. Besides there are 220 members
with the cooperative sector. Their Association being Na-
tional Federation of Cooperative Sugar Factories Ltd., has
also intervened in these petitions and have adopted the
arguments of ISMA. Hence almost the entire industry has c
supported zoning and only a handful of people who also
factually are not high-cost units have opposed zoning."

Mr. Venugopal submits that the present case is squarely covered by
the decisions of this Court in Anakapalle Cooperative Agricultural & D
Industrial Society Ltd. etc. etc. v. Union of India & Ors., [1973] 2 SCR
882 and The Panipat Cooperative Sugar Mills v. The Union of India,
[1973] 2 SCR 860. He says that the petitioners have not made out a
case for reconsideration of these two decisions. He refers to T. Govin-
daraja Mudaliar etc. etc. v. The State of Tamil Nadu & Ors., [1973] 3
SCR 222 at 228 to 230 and submits that this Court would not re- E
examine an earlier decision merely because certain aspects of the ques-
tion had not been noticed in that decision. Mr. Venugopal, however,
advocates neutralisation of the high cost incurred by the old units
having lower crushing capacity by giving them an incremental levy
price as recommended by the High Level Committee in 1980.
F
Before we examine the provisions of section 3(3-C) in the con-
text of the general scheme of the Act, we shall briefly refer to the
observations of this Court in Anakapalle, [1973] 2 SCR 882 and
Panipat, [1973] 2 SCR 860.

Grover, J. speaking for the Bench inAnakapalle (supra) states: G

"The system of fixing the prices, according to certain
regions or zones, is not a new one. The Tariff Commission
in 1959 favoured the formation of four zones. In the report
of the Sugar Enquiry Commission 1965 it was pointed out
that the Government had actually fixed the prices for 22 H
922 SUPREME COURT REPORTS [1990] 1 S.C.R.

zones which meant that from four zones the number had
A
been increased to twenty two or more. The Commission
was of the view that there should be five zones only in
addition to Assam. The Tariff Commission, 1969 however
recommended the constitution of fifteen zones largely on
State-wise basis with an exception only in case of Uttar
B Pradesh and Bihar. Uttar Pradesh was divided into three
~ones and Bihar into two. The Tariff Commission had been
specifically requested to inquire into the working of the
zonal system, the main point for inquiry being the zones
into which the sugar producers should be grouped having
regard to the basis of classification to be recommended by
the Commission. The view of the Commission was that on
..
c the whole the number of price zones should be fifteen
which would reduce, though not eliminate, the inter-se
anomalies in the cost structure without resorting to the
extreme of the fixation of price for each unit or a single or
at the most two, one for the sub-tropical and other for the
D tropical one. The Tariff Commission hoped that in the
course of time conditions would be created making the
operation of the second alternative feasible."

Rejecting the contention that it was the zonal system that caused
the losses allegedly incurred by some of the sugar producers, Grover,
E J. says that ordinarily these units ought to have made profits. The
reasons for incurring losses can be many, such as inefficiency, failure
to pursue the right policy, poor management and planning etc., but
these reasons have no relation to the zonal system. That system by and
large has led to efficiency and provides an incentive to cut down the
cost. Healthy competition among the units in the same zone should in
F the normal· course result in reduction of cost and greater efficiency in
the operation of the units. It is proper management and planning that
would lead to the success of any commercial venture. The contention
of the producers that they have been incurring losses on account of the
zonal system is opposed to the evidence produced by them. The Court
has rejected the extreme contention that prices should be fixed unit-
G wise, i.e., on the basis of actu.al cost incurred by each unit. Referring
to this contention, this Court observes:

"Apart from the impracticability of fixing the prices for
each unit in the whole country, the entire object and
purpose of controlling prices would be defeated by the
H adoption of such a system."
SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.] 923

Grover, J. states that, during the earlier period of price.contr9l,_ A
it was on an all India basis that 'the price was fixed. That is still the
objective. If such an objective is achieved, it would undoubtedly be
coducive to conferring proper benefit on the consumers. The objective
of the Tariff Commission is to have only two regions for the whole
country, viz., sub-tropical and tropical.
B
The Court has rejected as baseless the criticism against the
principle of weighted average adopted in the fixation of price in each
zone. Such a principle is well recognised and acted upoti by various
Sugar Enquiry Commissions. A proper cost study is intended to do
justice to the weak and strong alike. There is abundant justification for
continuing and sustaining the zonal system. The varying climatic con-
ditions of each State have been taken into account. For the same c
reason, Bihar is divided into 2 zones and U.P. into 3 zones, while, in
the case of many other States, each State is treated as a single zone.
This system of zoning is thus adopted with special reference to climatic
and agro-economic conditions. Rejecting the contention that the zonal
system has resulted in discriminatory treatment, this Court states: D

"We are unable to hoid that while classifying zones on
geographical-cum-agro-economic consideration, any discri-
mination was made or that the price fixation according to
each zone taking into account all the relevant factors would
give rise to such discrimination as would attract Article 14 E
of the Constitution."
~.

Even if there is no price control, the uneconomic urtits would be at a
--,.., great disadvantage. The Court states:

"Even if there is no price control each unit will have to F
compete in the market and those units which are unecono-
mic and whose cost is unduly high will have to compete
with others which are more efficient and the cost of which
is much lower. It may be that uneconomic units may suffer
losses but what they cannot achieve in the open market
they cannot insist on where price has to be fixed by the G

l government. The Sugar Enquiry Commission in its 1965
report expressed the view that "cost-plus" basis of price
fixation perpetuates ineffiCiency in the industry and is,
therefore, against the long-term interest of the country."

Considering the general principle involved in price fixation, the Court H
states:
924 SUPREME COURT REPORTS [1990] I S.C.R.

"It is not therefore possible to say that the principles which
A
the Tariff Commission followed in fixing the prices for dif-
ferent zones are either not recognised as valid principles for
fixing prices or that simply because in case of some fac-
tories the actual cost was higher than the one fixed for the
zone in which that factory was situate the fixation of price
B became illegal and was not in accordance with the provi-
·sions of sub-section (3-C). It has not been denied that the
majority of sugar producers have made profits on the whole
and have not suffered losses. It is only some of them which

-
assert that their actual cost is far in excess of the price
fixed. That can hardly be a ground for striking down the
price fixed for the entire zone provided it has been done in
c accordance with the accepted principles ..... ".

The Court concludes:

"When prices have to be fixed not for each unit but for a
D particular region or zone the method employed by the
Commission was the only practical one and even if., some
units because of circumstances peculiar to them suffered a
loss the price could not be so fixed as to cover their loss.
That cannot possibly be the intention of the Parliament
while enacting sub-section (3-C) of section 3 of the Act. If
H that were so the price fixation on zonal or regional basis
would have to be completely eliminated. In other words,
the entire system of price control which is contemplated
will break down because fixation of price for each unit
apart from being impractical would have no meaning what-
soever and would not be conducive to the interest of the
F consumer."

This Court has thus in Anakapalle (supra) rejected the argument
that the alleged loss incurred by certain sugar producers is attributable
to fixation of price on a zonal basis; or the zonal system has led to
inefficiency or lack of incentive, or it has resulted in unequal or unfair
G treatment. On the other hand, the zonal system has encouraged a
healthy competition amongst the units in the same zone. Unit-wise
fixation is impracticable. The Tariff Commission is the best judge in
selecting units for cost study to determine the average cost. The fair
price has to be determined with reference to the conditions of a rep-
resentative cross section of the industry. For all these reasons, there is
t-
'
H ample justification in continuing and sustaining the zonal system for
SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.] 925

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 A
'y
the classification of zones on a geographical-cum-agro-economic con-
sideration and any such classification is perfectly consistent with the
principle of equality.

In Panipat, [1973] 2 SCR 860, Shela!, J. speaking for the same B
Constitution Bench that has decided Anakapalle, [1973] 2 SCR 882,
referes to the norms adopted in sub-section (3-C), viz., (a) determina-
tion by the Government of the "price of sugar", and (b) payment of
"an amount" to the manufacturer, and states that the concept of fair
price which is what is referred to in sub-section (3-C) as "price of
sugar" does not by any account mean the actual cost of production of
every individual manufacturer. Such price has to be arrived at by a c
process of costing with reference to a representative cross section of
the manufacturing units. He states:

"The basis of a fair price would have to be built on a
reasonably efficient and economic representative cross- o
section on whose workings cost-schedules would have been
worked out and the price to be determined by Government
under sub-section (3-C) would have to be built."

So stating, Shelat, J. rejects the contention that such price has to be
determined unit-wise. Any such fixation of price, he points out, would E
i be contrary to the concept of partial control postulated by the sub-
section and would perpetuate inefficiency and mismanagement. But,
of course, any such price, he hastens to add, has to be fixed reasonably
and on relevant considerations. Referring to the policy of partial con-
trol, Shelat, J. states:
F
" ..... the Central Government was confronted with two
main problems (a) deterioration in the sugar industry, and
(b) the conflicting interests of the manufacturer, the con-
sumer and the cane grower. The floor price of cane fixed by
Government was intended to protect the farmer from
exploitation, but that was found not to be an incentive G
enough to induce him to increase his acreage. A device had
to be found under which a price higher than the minimum
could be paid by the manufacturer of sugar. The consumer,
on the other hand, had also to be protected against the
spiralling of sugar price and his needs, growing as they
were, had to be satisfied at some reasonable price." H
926 SUPREME COURT REPORTS (1990] 1 S.C.R.

Shela!, J. emphasises the need to modernise the factories which alone
A
would yield a reasonable return. This is what he states:

'Both these and a larger production of sugar would not be
possible unless there was a reasonable return which would
ensure expansion, which again would not be possible unless
B new machinery for such expansion was brought in and
factories, particularly in U.P. and Bihar, were modernised
and renovated. A fair price for sugar, therefore, had to be
such as would harmonise and satisfy at least to a reasonable
extent these conflicting interests." ·

Significantly, the BICP's recommendation to group individual
c units having homogenity in cost, irrespective of their location, was not
accepted by the Central Government, particularly because the Tariff
Commission itself had considered the question and reached the con-
clusion that geographical-cum-agro-economic considerations deman-
ded the grouping of factories with reference to State zones, or sub-
D zones as in the case of U.P. and Bihar. To group them on the basis of
their location in various regions of the country for the purpose of price
fixation is a rational method reflecting economic realities. This is
particularly so as conditions generally vary from State to State as
regards the availability and quality of sugarcane, labour conditions and
other factors, whereas within the same region like facilities are gener-
E ally available to all factories. If the cost structure varies from factory to
factory, such variation is not necessarily caused by the non-availabi-
lity, or the poor quality of raw material, or the labour conditions, but
probably for reasons unconnected with them, such as the age of the ·1
plant, availability of finance, management ability, etc. There is great
force in the submission of the respondents that to group together
F factories having a high cost profile and to determine a price specially
applicable to them is, as recognised by this Court in Panipat (supra)
and Anakapalle (supra), to put a premium on incompetence, if not
mismanagement.

The history of control over sugar has been set out at length in
G Panipat (supra) and we do not wish to burden this judgment with a
narration of the circumstances which have led to the introduction of
partial control under which 60% of the output of sugar is acquired and
the balance left for free sale. It is in implementation of this policy that
sub-section (3-C) of section 3 was inserted' Before we examine the
2. For an illuminating discussion of this aspect, See A.M. Khusro, Price
Policy, Lancer International ( 1987), p. 62-63:
SITARAM SUGAR CO. LTD. v. U.0.1. ffHOMMEN, J.] 927

provisions of that sub-section under which the impugned notification
A
y have been issued, we shall refer to the statutory scheme.

The Act was, as stated in the preamble, enacted by Parliament
"to provide, in the interest of the general public, for the control of the
production, supply and distribution of, and trade and commerce in,
certain commodities". The entire Act is devoted to the cause of the B
general public with a view to achieving equitable distribution of essen-
tial commodities at fair prices.

S.ection '3 of the Act confers wide power upon the Central
Government to control production, supply, distribution, etc., of essen-
tial commodities. It reads:
c
"3. Powers to control production, supply, distribution,
etc., of essential commodities-(1) If the Central Govern-
ment is of opinion that it is necessary or expedient so to do
for maintaining or increasing supplies of any essential
commodity or for securing thelf equitable distribution and D
availability at fair prices or for securing any essential com-
modity for the defence of India or the efficient conduct of
military operations, it may, by order, provide for regulat-
ing or prohibiting the production, supply and distribution
thereof and trade and commerce therein."
E
Sub-section (2) of section 3 says that, without prejudice to the
generality of the powers conferred by sub-section (1), an order made
"After many years of adverse experience a new strategy of.dual pricing
was introduced in sugar. The mills were asked to deliver to the public dis-
tribution system about 60 per cent of their output say at Rs.2 per Kg. and
were allowed to sell the balance of 40 per cent in the free market at say Rs.6 F
per kg. The mills were delighted to do so as they got very much enhanced
receipts from their free-market sales. With larger receipts they offered in the
following season a higher price to the farmer (the sugarcane grower) who, in
tum, grew and offered more cane. In other words, the law of supply which
had been heJd captive, as it were, was freed from bondage. With a higher
price offer from the mills, the cane growers brought more land under
sugarcane, diverted Jand from other crops to cane, used more inputs, pro- G
duced and delivered to the mills more cane and in fact diverted cane

- deliveries from the open-pan system to the mill system. Having thus
obtained much more cane, the milJs produced much more sugar and sold
30-40 per cent of it in the free market. Within a year or two, the free-market
price of sugar felJ from Rs.6 to Rs.3 or even Rs.2.50. At this rate consumers
began to buy more in the free market, miHions of ration cards remained
unused and the demands on the public distribution declined substantiaHy. H
Prolonged shortages of sugar got converted into a relative abundance."
928 SUPREME COURT REPORTS [ 1990] I S.C.R.

A under that sub-section may provide for the matters specified in sub-
section (2). One of them is what is contained in clause (f) of sub-
section (2) which empowers the Central Government to require any
person dealing in any essential commodity to sell the whole or a
specified part of such commodity to the Central Government or the
State Government or to a nominee of such Government. It reads:
B
"(2) Without prejudice to the generality of the powers
conferred by sub-section (1), an order made thereunder
may provide-

(a) .......................................... .
c
(f) for requiring any person holding in stock, or
engaged in the production, or in the business of buy-
.A
ing or selling of any essential commodity,-
D
(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 produced or received by him, to sell the whole
E 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 or agent of such Government or to a Corporation
owned or controlled by such Government or to such other
f person or class of persons and in such circumstances as may
be specified in the order."

The power contained in sub-section ( 1) or sub-section (2) is
exercisable by an order. An 'order' is defined under section 2 to include
a direction issued thereunder. Any order made under section 3 by the
(; Central Government or by an officer or authority of the Central
Government is required by sub-section (6) of section 3 to be laid
before both Houses of Parliament, as soon as may be, after it is made.
Any order made under section 3 which is of a general nature or affect-
'ing a class of persons has to be notified in the official gazette. [Sub-
H section ( 5) of section 3].
-
SITARAM SUGAR CO. LTD. v. U.0.I. [THOMMEN, J.] 929

Sub-section (3) of section 3 provides that where any person has
A
sold any essential commodity (sugar being such a commodity) in comp-
liance with an order made with reference to clause (f) of sub-section
(2), he shall be paid the price of the goods purchased from him as
provided under clauses (a), (b) and (c) of sub-section (3). This sub-
section operates only where an order has been made under sub-section
(1) with reference to clause (f) of sub-section (2). While clause (a) of B
the sub-section postulates an agreed price, consistently with the con-
trolled price, if any, clause (b) speaks of a price calculated with refer-
ence to the comrolled pnce, if any, when no agreement is reached.

-
'
Where nei.ther clause (a) nor clause (b) applies, either because there is
no agreement or because there is no controlled price, the seller has to
be paid, as per clause (c), a price calculated at the market rate prevail-
ing in the locality at the date of the sale. c

Sub-section (3-A) empowers the Central Government to regu-
·late in accordance with the provisions of the sub-section the price of
any foodstuff sold in a locality in compliance with an order made with
reference to clause (f) of sub-section (2). This power is exercisable by a D
direction which has to be duly notified in the official Gazette. The
power to issue the direction is notwithstanding anything contained in
sub-section (3). Before issuing the notification, the Central Govern-
ment has to form an opinion that the price of any foodstuff (including
sugar) has to be regulated for the purpose of cotrolling the rise in its

- prices or preventing its hoarding in any locality. Any such notification
will remain in force for any specified period not exceeding 3 months.
The price payable in such cases is either the agreed price consistently
E

with the controlled price, if any, or where no such agreement is possi-
ble, the price calculated with reference to the controlled price, if any,
or where neither of these two methods is applicable, the price.calculated
with reference to the average market rate prevailing in the locality F
during the period of 3 months immediately prior to the date of the
notification. The average market rate will be determined by an officer
authorised by the Central Government and the rate so determined by
him. is not liable to be questioned in any court.

Sub-section (3-C) which is the crucial provision, was inserted in G
1967. It reads:

"(3-C). Where any producer is required by an order made
with reference to clause (f) of sub-section (2) to sell any
kind of sugar (whether to the Central Government or a
State Government or to an officer or agent of such Govern- H
930 SUPREME COURT REPORTS [1990) I S.C.R.

A ment or to any other person or class of persons) and either
no notification in respect of such sugar has been issued
under sub-section (3-A) or any such notification, having
been issued, has ceased to remain in force by efflux of time,
then, notwithstanding, anything contamed in sub-section
(3), there shall be paid to that producer an amount therefor
B
which shall be calculated with reference to such price of
sugar as the Central Government may, by order, deter-
mine, having regard to-

(a) the minimum price, if any, fixed for sugarcane by
the Central Government under this section;
c
(b) the manufacturing cost of sugar;

(c) the duty or tax, if any, paid or payable thereon;
and
D ( d) the securing of a reasonable return on the capital
employed in the business of manufacturing sugar,

and different prices may be determined from time to time
for different areas or for different factories or for different
kinds of sugar.
E
Explanation-For the purposes of this sub-section, "pro-
ducer" means a person carrying on the business of
manufacturing sugar."
(emphasis supplied)
F Sub-Sectioin (3-C) is attracted whenever any producer is
required to sell sugar by an order made with reference to sub-section
(2)(f) and no notification has been issued under sub-section (3-A) or
any such notification, having been issued, has ceased to be in force.
Whenever sub-section (3-C) is attracted, it operates notwithstanding
anything contained in sub-section (3). This means the compensation
G payable to the seller in the circumstances attracting sub-section (3-C)
is not the price postulated in sub-section (3). Nor is it the price
mentioned under sub-section (3A), for that sub-section cannot be in
operation when sub-section (3-C) is attracted. What is payable under
sub-sectin (3-C) is an "amount" calculated with reference to the "price
of sugar" determined in the manner indicated in that sub-section.
H
SITARAM SUGAR CO. LID. v. U.0.L [TI!OMMEN, J.] 931

Construing sub-section (3:C), this Court in Panipat [1973] 2 SCR
A
860, 870 says:

"Sub-section 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 B
made with reference to sub-section 2 cl. (f); and the second
is that there is no notification under sub-section 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 reference to the price fixed under the sub- c
section and not the agreed price or the market price in the
absence of any controlled price under sub-sec. 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 D
producer an amount therefor, that is for such stock 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-sections under which the E
• amount payable is either the agreed price, or the controlled
price, or where neither 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
determined by th Central Government ...... "
F
What is specially significant is that sub-section (3-C) postulates
payment of an amount to the producer who has been required to sell
sugar in the circumstances mentioned therein. What is required to be
paid to him is not the price of sugar, but only an amount. That amount
has to be calculated with reference to the price of sugar. The "price" is
determined by the Central Government by means.of an order which, G
as required by sub-sections (5) and (6), has to be notified in the official
gazette and laid before both Houses of Parliament. The order notify-
ing the "price of sugar" is of general application and it is the rate at
which the actual "amount" payable to each seller is calculated.

The price of sugar must be determined by the Central Govern- H
932 SUPREME COURT REPORTS [ 19901 1 S.C.R.

A 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 contradistinc-
l
tion to the "price of sugar", the "amount" is calculated with reference
to the particular seller. The Central Government is authorised to
determine different prices for different areas or for different factories
B or.for different kinds of sugar. Whether factories are required to be
grouped together for a rational determination of the prices according
to their location or their size, age and capacity or by any other
standard is a matter for decision by the Central Government on the
basis of relevant material. What is contemplated by the legislature in
delegating such wide discretion to the Central Government is that it
C must apply its mind to the manifold questions relevant to the determi-
nation of prices and with due regard to the norms laid down in the
sub-section. What is required by sub-section (3-C) is the adoption of a
valid classification of factories having a rational nexus to the object
sought to be achieved, viz., determination of a fair price of sugar with
reference to which the actual amounts payable to the producers, in the
D circumstances attracting the sub-section, are calculated.

Referring to the legislative background of sub-section (3-C), this
Court in Panipat (supra) observes:

"In order to appreciate the meaning of els. (a), (b ), (c) and
E (d), it must be remembered that ever since control on sugar
was imposed, Government had set up expert committees to
work out cost-schedules and fairprices. Starting in the
beginning with an All-India cost-schedule worked out on
the basis of the total production of sugar, the factories were
later grouped together into zones or regions and different ..ii
F cost-schedules for different zones or regions were construe- -,
ted on the basis of which fairprices were worked out at
which sugar was distributed and sold. T"e Tariff Commis-
sion in 1958 and the Sugar Enquiry Commission in 1965
had worked out the zonal cost-schedules on the basis of
averaged recovery and duration, the minimum and not the
G actual price of cane, the averaged conversion costs and
recommended a reasonable return on the capital employed )
by the industry in the business of manufacturing sugar. This
experience was before the legislature at the time when sub-
sec. 3C was inserted in the Act. The legislature therefore
incorporated the same formula in the new sub-section as
H the basis for working out the price. The purpose behind
SITARAM SUGAR CO. LTD. v. U.0.L [THOMMEN, J:] 933

enacting the new sub-section was three-fold, to provide an
A
incentive to increase production of sugar, encourage
expansion of the industry, to devise a means by which the
cane producer could get a share in the profits of the
industry through prices for his cane higher than the
--! minimum price fixed and secure to the consumer distribu-
J. tion of at least a reasonable quantity of sugar at a fair . B
. "'. price.''

Clauses (a) to (d) of sub-section (3-C) postulate that the price of sugar
must be determined having regard to the minimum price, if any, fixed
for sugarcane by the Central Government, the manufacturing cost of
sugar, the duty or tax applicable in the zone, and the securing of a
reasonable return on the capital employed in the business of c
manufacturing sugar. Referring to clause (d) of sub-section (3-C), this
Court observes in Panipat (supra):

"It is clear from the reports of the Tariff Commission that a
reasonable return recommended by that body at a fixed D
amount of Rs.10.50 per quintal which worked out in 1966-
67 at 12.5% per annum was not in respect of levy sugar only
but on the whole, so that even if such a return was not
obtainable on levy sugar but was obtainable on the whole,
it would meet the requirement of cl. (d). In this conclusion
we derive a two-fold support, firstly, from the language used E
in cl. (d) itself, viz., a reasonable return on the capital
employed in the business of manufacturing sugar, which
)
-..;' must mean the business as a whole and not the business of
' manufacturing levy sugar only, and secondly, from the fact
of the Commission having all along used the same phraseo-
logy while recommending Rs.10.50 per quintal as an addi- F
tion by way of a reasonable return on the capital employed
in the industry. The cost-schedules prepared by these
bodies were for determining a fair price in relation to the
entire sugar produced by the industry and the return which
should be granted to it on the capital employed in the
industry and not with respect fo that stock only required to G
be sold under sub-sec. 2(f). This is clear from the heading
of Ch. 9 of the Tariff Commission's report, 1969, "Cost
Structure and Price Fixation"."

The petitioners contend that although the Government has the
discretion to fix different prices for different areas or for different H
934 SUPREME COURT REPORTS t 1990] 1 S.C.R.

factories, or for different kinds of sugar, such wide discretion has to be
A reasonably exercised. It is, of course, a well accepted principle that
any discretion conferred on the executive has to be reasonably exer-
cised. Nevertheless, it is a discretion which the Court will not curtail
unless the exercise of it is impeachable on well accepted grounds such
as 'ultra vires' or 'unreasonableness'.
B
The petitioners further contend that the Act requires the
Government to have regard to clauses (a) to (d) and, therefore, it is
mandatory on the part of the Government to act strictly in compliance
with the provisions of those clauses in determining the prices. Accord-
ing to them, "having regard to" is a mandatory requirement demand-
ing strict compliance with the provisions to which reference is made by
c the legislature. They say that the ingredients of clauses (a) to (d) must
be examined with reference to each producer as a condition precedent
to the determination of the price of sugar.

We may in this connection point out that the petitioners have not
D furnished any data to show that the prices determined by the Govern-
ment would have been different had the ingredients of clauses (a) to
( d) of the sub-section hP !1 examined with reference to each individual
0

producer instead of a representative cross section of manufacturing
units. Be that as it may, the expression "having ·regard to" must be
understood in the context in which it is used in the statute. See Union of
E India v. Kamlabhai Harjiwandas Parekh & Ors., [ 1968) 1 SCR 463 at
471. These words do not mean that the Government cannot, after
taking into account the matters mentioned in clauses (a) to (d), con-
sider any other matter which may be relevant. The expression is not
"having regard only to" but "having regard to". These words are not a
fetter; they are not words of limitation, but of general guidance to
F make an estimate. The Government must, of course, address itself to
the questions .to which it must have regard, and, having done so, it is
for the Government to determine what it is empowered to determine
with reference to what it reasonably consider to be relevant for the
purpose. The Judicial Committe in Commissioner of Income Tax v.
Williamson Diamonds Ltd., L.R. 1958 A.C. 41, 49 observed with
G reference to the expression "having regard to":
'
"The form of words used no doubt lends itself to the 'r-
suggestion that regard should be paid only to the two mat-
ters mentioned, but it appears to their Lordships that it is
impossible to arrive at a conclusion as to reasonableness by
H considering the two matters mentioned isolated from other
SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.] 935

relevant factors. Moreover, the statute does not say
"having regard only" to losses previously incurred by the A
company and to the smallness of the profits made. No
answer, which can be said to be in any measure adequate,
can be given to the question of "unreasonableness" by con-
sidering these two matters alone ...... "
B
See Commissioner of Income-tax, West Bengal, Calcutta v. Gungadhar
Banerjee and Co. (P) Ltd., [1965] 3 SCR 439 at 444-45. See also
Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1 SCR
956 at 959. In State of Kamataka and Anr. etc. v. Shri Ranganatha
Reddy & Anr. etc., [1978] 1SCR641at657-58 this Court stated:

"The content and purport of the expressions "having c
regard to" and "shall have regard to" have been the sub-
ject matter of consideration in various decisions of the
Courts in England as also in this country. We may refer
only to a few. In Illingworth v. Welmsley, [1900] 2 Q.B. 142
it was held by the Court of Appeal, to quote a few words D
from the judgment of Romer C.J. at page 144: "All that
clause 2 means is that the tribunal assessing the compensa-
tion is to bear in mind and have regard to the average
weekly wages earned before and after the accident respec-
tively. Bearing that in mind, a limit is placed on the amount
of compensation that may be awarded ..... " In another E
decision of the Court of Appeal in Perry v. Wright (etc ..
etc.), [1908] 1 K.B. 441 Cozens-Hardy M.R. observed at
page 451: "No mandatory words are there used; the phrase
is simply "regard may be had". The sentence is not gram-
matical, but I think the meaning is this: Where you cannot
compute you must esnimate, as best as you can, the rate per F
week at which the-workman was being remunerated, and to
assist you in making an estimate you may have regard to
analogous cases." It is worthwhile to quote a few words
from the judgment of Fletcher Moulton L.J. at page 458.
Under the phrase "Regard may be had to" the facts which
the Court may thus take cognizance of are to be "a guide, G
and not a fetter". This Court speaking through one of us
(Beg, J., as he then was), has expressed the same opinion in
the case of Saraswati Industrial Syndicate Ltd. etc. v. Union
of India, [ 1975] 1 SCR 956. Says the learned Judge at page
959: "The expression "having regard to" only obliges the
Government to consider as relevant data material to which H
it must have regard"."
936 SUPREME COURT REPORTS [1990] 1 S.C.R.

In State of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC 59, one
A
of us (Mukharji, J., as he then was) observed:

"The expression "having regard to" only obliges the govern-
ment to consider as relevant data material to which it must
have regard ..... ".
B
In O'May and Ors. v. City of London Real Property Co. Ltd., [1982] 1
All E.R. 660 at 665 (H.L.), Lord Hailsham stated:

"A certain amount of discussion took place in argument as
to the meaning of 'having regard to' in s. 35. Despite the
fact that the phrase has only just been used by the drafts-
c man of s. 34 in an almost mandatory sense, I do not in any
way suggest that the court is intended or should in any way
attempt to bind the parties to the terms of the current
tenancy in any permanent form ..... ".

D The words "having regard to" in the sub-section are the legisla-
tive instruction for the general guidance of the Government in
determining the price of sugar. They are not strictly mandatory, but in
essence directory. 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
E mentioned in clauses (a) to (d) have been generally considered by the
Government in making its estimate of the price, but the Court will not
strictly scrutinise the extent to which those matters or any other mat-
ters have been taken into account. There is sufficient compliance with
the sub-section, if the Government has addressed its mind to the
factors mentioned in clauses (a) to (d), amongst other factors which
F the Government may reasonably consider to be relevant and has come
to a conclusion, which any reasonable person, placed in the position of
the Government, would have come to. On such determination of the
price of sugar, which, as stated in Panipat (supra) is the fair price, the
sub-section postulates the calculation of an amount, with reference to
such price, for payment to each producer who has complied with an
G order made with reference to sub-section (2)(f). The "price of sugar",
unlike the "amount" is arrived at by a process of costing in respect of a
representative cross section of manufacturing units, bearing, of
course, in mind the legislative instruction contained in clauses (a) to
(d).

H The Attorney General submits that orders determining the
SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.} 937

· prices of sugar in terms of the sub-section are of general application
and, therefore, legislative in character. Omission, if any, to consider the A
peculiar problems of individual producers is not a ground for judicial
review. The petitioners' counsel as well as Mr. Venugopal appearing
for the intervener (ISMA), do not agree. They submit that the sub-
section contemplates only administrative or quasi-judicial orders of
particular application and the impugned orders are not legislative. B
They rely upon a certain observation of this Court in Union of India &
Anr. v. Cynamide India Ltd. & Anr., [1987] 2 SCC 720. Mr.
Venugopal, however, hastens to add that his client does not seek
personal hearing before prices are determined. l')'.lr. B.R.L. Iyengar,
supporting the contentions of the petitioners, points out that the
expression 'determine' used in sub-section (3-C) indicates that the
order to which that expression refers is quasi-judicial. c
Judicial decisions are made according to law while administrative
decisions emanate from administrative policy. Quasi-judicial decisions
are also administrative decisions, but they are suqject to some measure
of judicial procedure, such as rules of natural justice. To distinguish D
clearly legislative and administrative functiol!s is "difficult in theory
and impossible in practice" .3 Referring to these two functions, Wade
says:

'They are easy enough to distinguish at the extremities of
the spectrum: an Act of Parliament is legislative and a E
deportation order is administrative. But in between is a
wide area where either label could be used according to
taste, for example where ministers make orders or regula-
tions affecting large numbers of people ..... ". 4

Wade points out that legislative power is the power to prescribe the F
law for people in general, while administrative power is the power to
prescribe the law for them, or apply the law to them, in particular
situations. A scheme for centralising the electricity supply undertak-
ings may be called administrative, but it might be just as well legisla-
tive. Same is the case with ministerial orders establishing new towns or
airports etc. He asks: "And what of 'directions of a general character' G
given by a minister to a nationalised industry? Are these various
orders legislative or administrative?" Wade says that the correct
(3) Comd. 4060 (1932), p. 73; see H.W.R. Wade-
Administrative Law, 6th ed., p. 47

(4) Ibid p. 848. H
938 SUPREME COURT REPORTS [ 1990] 1 S.C.R.

answer would be that they are both. He says: " ..... there is .an
A infinite series of gradations, with a large area of overlap, between what
is plainly legislation and what is plainly administration" .5 Courts,
nevertheless, for practical reasons, have distinguished legislative
orders from the rest of the orders by reference to the principle that the
former is of general application. They are made formally by publica-
B tion and for general guidance with reference to which individual deci-
sions are taken in particular situations.

According to Griffith and Street, an instruction may be treated
as legislative even when they are not issued formally, but by a circular
or a letter or the like. What matters is the substance and not the form,
or the name. The learned authors say: " ..... where a Minister (or
,...
I

c other authority) is gven power in a statute or an instrument to exercise
executive, as opposed to legislative, powers-as, for example, to
requisition property or to issue a licence-and delegates those powers
generally, then any instructions which he gives to his delegates may be
legislative" .6 Where an authority to whom power \is delegated is
D entitled to sub-delegate his power, be it legislative, executive or judi-
cial, then such authority may also give instructions to his delegates and
these instructions may be regarded as legislative. However, as pointed
out by Denning, L.J., (as he then was) a judicial tribunal cannot dele-
gate its functions except when it is authorised to do so expressly or by .
necessary implication: see Bernard and Ors. v. National Dock Labour
E Board and Ors., [1953] 2 Q.B. 18 at 40.
Kenneth Culp Davis says: "What distinguishes legislation from
adjudication is that the former affects the rights of individuals in the
abstract and must be applied in a further proceeding before the legal
position of any particular individual will be definitely toucbed by it;
while adjudication operates concretely upon individuals in their indi-
F vidual capacity''. 7 Justice Holmes' definition, which is what is called
the "time test" and which Davis describes as one which has produced
many unsatisfactory practical results, reads:

"A judicial inquiry investigates, declare;, and enforces
liabilities as they stand on present or past facts and under
G laws supposed already to exist. That is its purpose and end.
Legislation, on the other hand, looks to the future and
(5) Ibid.

(6) Principles of Administrative Law, 5th ed., p. 65

H (7) Administrative Law Text, 3rd ed., p. 123·24.
SITARAM SUGAR CO. LID. v. U.O.l. !THOMMEN, J.] 939

changes existing conditions by making a new rule, to be
applied thereaft0r to all or some part of those subject to its A
power. The establishment of a rate is the making of a rule
for the future, and therefore is an act legislative, not judi-
cial ..... ".

Prentis v. Atlantic Cost Line Co., 211US210, 226. B

'The element of general application is often cited as a distinct
feature of legislative activity. In the words of Chief Justice Burger,
"rule-making is normally directed toward the formulation of require-
ments having a general application to all members of a broadly identi-
fiable class'; .8 Bernard Schwarts says: "an adjudication, on the other
hand, applies to specific individuais or situations. Rule-making affects c
the rights of individuals in the abstract and must be applied in a further
proceeding before the legal position of any particular individual will be
definitely affected; adjudication operates concretely upon individuals
m their individual capacity"' According to Schwartz, the "time test"'
and the "applicability test" are workable in most cases although in D
certain situations distinctions are indeed difficult to draw.

A statutory insirument (such as a rule, order or regulation) ema-
nates from the exercise of delegated legislative power which is the part
of the administrative process resembling enactment of law by the legis-
lature. A quasi judicial order emanates from adjudication which is the E
part of the administrative process resembling a judicial decision by a
court of law. This analogy is imperfect and perhaps unhelpful in clas-
sifying borderline or mixed cases which are better left unclassified. 10

If a particular function is termed legislative rather than judicial,
·)'··
practical results may follow as far as the parties are concerned. When F
the function is treated as legislative, a party affected by the order has
no right to notice and hearing, unless, of course, the statute so
requires. It being of general application engulfing a wide sweep of
powers, applicable to all persons and situations of a broadly identifi-
able class, the legislative order may not be vulnerable to challenge
merely by reason of its omission to take into account individual G
peculiarities and differences amongst those falling within the class.

(8) Quoted by Bernard Schwartz in 'Administrative Law' ( 1976), p. 144.

(9) Ibid

( 10) See Davis, Administrative Law Text, p. 123 H
940 SUPREME COURT REPORTS [ 1990] 1 S,C.R.

A In Union of India & Anr. v. Cynamide India Ltd. & Anr., [ 1987]
2 SCC 720 at 734-35, Chinnappa Reddy, J. referring to the earlier 'f·
decisions of this Court states:

" ..... legislative action, plenary or subordinate, is not
subject to ,rules of natural jus_tice. In the case of Parlia-
B
mentary legislation, the proposition is self-evident. In the
case of subordinate legislation, it may happen that Parlia-
ment may itself provide for a notice and for a headng
.......... But where the legislature has not chosen to
provide for any notice or headng, no one can insist upon it i

: and it will ncit be permissible to read natural justice into I
')Im
c such legislative activity .......... It is true that, with the
proliferation of delegated legislation, there is a tendency
for the line between legislation and administration to
vanish into an illusion. Administrative, quasi-judicial deci-
sions tend to merge in legislative activity and, conversely,
legislative activity tends to fade into and present an apea-
D rance of an administrative or quasi-judicial activity".

Stating that rule-making is of general application to all members of a
broadly identifiable class while adjudication is applicable to specific
individuals or situations, the learned Judge observes: >---
E "A pdce fixation measure does not concern itself with the
interests of an individual manufacturer or producer. It is
generally in relation to a particular commodity or class of
commodities or transactions. It is a direction of a general
character, not directed against a particular situation. It is
intended to operate in the future. It is conceived in the
F interests of the general consumer public. The dght of the
citizen to obtain essential articles at fajr pdces and the duty
of the State to so provide them are transformed into the
power of the State to fix pdces and the obligations of the
producer to charge no more than the pdce fixed. Viewed
from whatever angle, the angle of general application, the
G prospectiveness of its effect, the public interest served, and
the rights and obligations flowing therefrom, there can be no
question that price fixation is ordinarily a legislative
activity".

The learned Judge emphasises:
H
SITARAM SUGAR CO. LTD. v. U.0.1. ITHOMMEN, J.] 941

"Price fixation may occasionally assume an administrative
or quasi-judicial character when it relates to acquisition or A
requisition of goods or property from individuals and it
becomes necessary to fix the price separately in relatiqn to
such individuals. Such situations may arise when the owner
of property or goods is compelled to sell his property or
goods to the government or its nominee and the price to be B
paid is directed by the legislature to be determined accord-
ing to the statutory guidelines laid down by it. In such
situations the determination of price may acquire a quasi-
judicial character".

These observations have been cited with approval by one of us
(Sabyasachi Mukharji, J., as he then was) in Renusagar (supra). c

In Saraswati Industrial Syndicate Ltd. etc. v. Union of India,
[ 1975] 1 SCR 956 at 961, this Court states:

"Price fixation is more in the nature of a legislative mea- D
sure even though it may be based upon objective criteria
found in a report or other material. It could not, therefore,
give rise to a complaint that a rule of natural justice has not
been followed in fixing the price".

In Prag Ice & Oil Mills & Anr. etc. v. Union of India, [1978] 3 SCR 293 E
at 317, Chandrachud, J., as he then was, speaks forthe majority:

"We think that unless, by the terms of a particular statute,
or order, price fixation is made a quasi-judicial function for
specified purposes or cases, it is really legislative in charac-
ter in the type of control order which is now before us F
because it satisfies the tests of legislation. A legislative
measure does not concern itself with the facts of an indi-
vidual case. It is meant to lay down a general rule applic-
able to all persons or objects or transactions of a particular
kind or class".
G
See also the observation of Megarry, J., as he then was, in Bates v.
Lord Hai/sham of St. Marylebone & Ors., [1972] 3 All ER 1019 at
1024.

The impugned orders, duly published in the official gazettes
notifying the prices determined for sugar of various grades and pro- H
942 SUPREME COURT REPORTS [1990) 1 S.C.R.

duced in vanous zones, and applicable to all producers of such sugar,
A
can, in our view, be legitimately characterised as legislative. These
orders are required by ·sub-section (6) to be laid before both Houses of
Parliament. The notified prices are applicable without exception to all
persons falling within well defined groups. The prices are determined
in accordance with the norms postulated in the sub-section. It is with
8 reference to such predetermined prices of sugar that the "amount"
payable to each producer, who has sold sugar in compliance with an
order made with reference to clause (f) of sub-section (2), is cal-
culated. The calculation of such amount is, in contradistinction to the
determinatio)l of "price of sugar", a non-legislative act.

Thus, while individual consideration is relevant to the calcula-
c tion of the "amount", it is not so for the determination of the "orice of
sugar" which is the rate at which the amount is calculated. That orice.
as stated in Panipat (supra) is to be arrived at by a process of costing
with reference to a reasonably efficient and economic representative
cross section of manufacturing units.
D
In this connection, we must point out that at first blush a certain
obsezyation of Chinnappa Reddy, J. in Cynamide, [1987) 2 SCC 720 at
741, on which much reliance is placed by the petitioners' counsel, ~-.
appears to be inconsistent with what we have now stated. The learned
Ju'dge says:

"The Order made under Section 3(2)(c), which is not in
respect of a single transaction, nor directea IO a particular
individual is clearly a legislative act, while an Order made
under Section 3(3-C) which is in respect of a particular
transaction of compulsory sale from a specific individual is
a non-legislative act".

It would appear that what the learned Judge had in mind was an order
by which the "amount" was calculated in terms of sub-section (3-C) in
respect of each individual producer and not an order determining the
"price of sugar". While the former is non-legislative, the latter, by the
o very test adopted by the learned Judge, is legislative in character. We,
therefore, understand the observation of the learned Judge on this
point as applicable only to the individual order fixing the "amount" in
terms of the sub-section and not to orders determining the "price of
sugar" which are what the impugned orders are. Any other construc-
tion of the sub-section would conflict with what was adopted by the
H Constitution Bench in Panipat (supra) and would, therefore, be
unsustainable.
SITARAM SUGAR CO. LTD. v. U.0.1. (THOMMEN, J.] 943

The individual orders, calculating the "amount~" payable to the
individual producers, being administrative. orders founded on the A
machanics of price fixation, they must be left to the better instructed
judgment of the executive, and in regard to them the principle of audi
alteram partem is not applicable. All that is required is reasonableness
and fair play which are in essence emanations from the doctrine of
natural justice as explained by this Court in A.K. Kraipak & Ors. etc. B
v. Union of India & Ors., [1970] 1SCR457. See also the observation
of Mukharji, J., as he then was, in Renusagar, [1988] 4 SCC 103, 105.

Price fixation is in the nature of a legislative action even when it
is basep on objective criteria founded on relevant material. No rule or
natural justice is applicable to any such c)rder. It is nevertheless impera-
tive that the action of the authority should· bJ' inspired by reason. c
Saraswati Industrial Syndicate Ltd., [1975] 1 SCR 956. 961, 962. The
Government cannot fix any arbitrary price. It cannot fix prices on
extraneous considerations: Renusagar, (supra).

Any arbitrary action, whether in the nature of a legislative or D
administrative or quasi-judicial exercise of power, is liable to attract
the prohibition of Article 14 of the Constitution. As stated in E.P.
Royappa v. State of Tamil Nadu & Anr., [1974] 2 SCR 348, "equality
and arbitrariness are sworn enemies; one belongs to the rule of law in a
republic while the other, to the whim and caprice of an absolute
monarch." Unguided and unrestricted power is affected by the vice E
of discrimination: Mrs. Maneka Gandhi v. Union of India & Anr.,
[ 1978] 1 sec 248 at 293-294. The principle of equality enshrined in
Article 14 must guide every state action, whether it be legislative,
executive, or quasi-judicial: Ramana Dayaram ·shetty v. The Interna-
tional Airport Authority of India & Ors., [1979] 3 SCR 1014 at 1042;
Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors .. [1981] 1 SCC. F
722 and D.S. Nakara & Ors. v. Union of India, [1983] 1SCC305.

Power delegated by statute is limited by its terms and subor-
dinate to its objects. The delegate must act in good faith, reasonably,
intra vires the power granted, and on relevant consideration of mate-
rial facts. All his decisions, whether characterised as legislative or G
administrative or quasi-judicial, must be in harmony with the Con-
--.._ stitution and other laws of the land. They must be "reasonably related
to the purposes of the enabling legislation". See Leila Molirning v.
Family Publications Service, 411 US 356, 36 L Ed. 2d 318. If they are
manifestly unjust or oppressive or outrageous or directed to an unau-
thorised end or do not tend in some degree to the accomplishment of H
944 SUPREME COURT REPORTS (1990] 1 S.C.R.

the objects of delegation, courts might well say, "Parliament never
A intended to give authority to make such rules; they are unreasonable
and ultra vires". per Lord Russel of Killowen, C.J. in Kruse v. John-
son, (1988] 2 Q.B. 91, 99.

The doctrine of judicial review implies that the repository of
a power acts within the bounds of the power delegated and h-e does not
abuse his power. He must act reasonably and in good faith. It is not
only sufficient that an instrument is intra vires the parent Act, but it
must also be consistent with the constitutional principles: Maneka
Gandhiv. Union of India, [1978] 1SCC248,314-315.

Where a question of law is at issue, the Court may determine the
c rightness of the impugned decision on its own independent judgment.
If the decision of the authority does ,not agree with that which the
Court considers to be the right one, the finding of law by the authority
is liable to be upset. Where it is a finding of fact, the Court examines
only the reasonableness of the finding. When that finding is found to
D be rational and reasonably based on evidence, in the sense that all
relevant material has been taken into account and no irrelevant mate-
rial has influenced the decision, and the decision is one which any
reasonably minded person acting on such evidence, would have come
to, then judicial review is exhausted even though the finding may not
necessarily be what the Court would have come to as a trier of fact.
E Whether an order is characterised as legislative or administrative or
quasi-judicial, or, whether it is a determination or law or fact, the
fudgment of the expert body, entrust.ed with power, is generally
treated as final and the judicial function is exhausted when it is found
to have "warrant in the record" and a rational basis in law: See
Rochester Tel. Corp. v. United States, [1939] 307 U.S. 125, 83 L. Ed.
F 1147. See also Associated Provincial Picture Houses Ltd. v. Wednes-
bury Corporation, [1948] 1K.B.223.

As stated by Lord Hailsham of St. Marylebone L.C., (H.L.) in
Chief Constable of the North Wales Police v. Evans, [ 1982] 1 WLR
1155 at 1160-61:

"The function of the court is to see that lawful authority is
not abused by unfair treatment and not to attempt itself the
task entrusted to that authority by the law .......... The
purpose of judicial review is to ensure that the individual
receives fair treatment, and not to ensure that the autho-
rity, after according fair treatment, reaches on a matter
SITARAM SUGAR CO. LTD. v. U.0.I. [TIIOMMEN, J.] 945

which it is authorised by law to decide for itself a conclu-
A
sion which is correct in the eyes of the court'i.

In the same case Lord Brightman says:

"Judicial review, as the words imply, is not an appeal from
a decision, but a review of the manner in which the decision B
was made".

A repository of power acts ultra vires either when he acts in
excess of his power in the narrow ~ense or when he abuses his power by
acting in bad faith or for an inadmissible purpose or on irrelevant
grounds or without regard to relevant considerations or with gross
unreasonableness. See Associated Provincial Picture Hoiises Ltd. v. c
Wednesbury Corporation, [1948] 1 K.B. 223. In the words of Lord
Macnaghten in Westminster Corporation v. London and North Western
Railway, [1905] AC 426, 430: .

" ..... It is well settled that a public body invested with D
statutory ;powers such as those conferred upon the ,Corpora-
tion must take care not to exceed or abuse its powers. It
must keep within the limits of the authority committed to
it. It must act in good faith. And it must act reasonably.
The last proposition is involved in the second, if not in the
first ..... ". ' E

In The Barium Chemicals Ltd. & Anr. v. The Company Law Board &
Ors:, [ 1966] Supp. SCR 311, this Court states:

" ..... Even ·if (the statutory order) is passed in good faith
and with the best of intention to further the purpose of the F
legislation which confers the powers, since the Authority
has to act in accordance with and within the limits of that
legislation, its order can also be challenged if it is beyond
those limits or is passed on grounds extraneous to the legis-
lation or if there are no grounds_ at all for passing it or if the
grounds are such that no one can reasonably arrive at the G
opinion or satisfaction requisite under the legislation. In any
one of these situations it can well be said that the authority
did not honestly forrn its opinion or that in forming it, it did
not iapply its mind to the relevant facts"- .

. In Renusagar, [1988] 4 SCC 59, 104, Mukharji, J., as he then was, H
states:
946 SUPREME COURT REPORTS . [1990] 1 S.C.R.

"The exercise of power whether legislative or administra-
A tive will be set aside if there is manifest error in the exercise
of such power or the exercise of the power is manifestly
arbitrary. Similarly, if the power has been exercised on a
non-consideration or non-application of mind to relevant
factors the exercise of power will be regarded as manifestly
lil erroneous. If a power (whether legislative or administra-
tive) ·IS exercised on the oasis of facts which do not exist .and
wh!Ch are patently erroneous, such exercise of power will
stand vitiated".
~-

The true position, therefore, is that any act of the repository of
power, whether legislative or administrative or quasi-judicial, is open
c to challenge ·if it is in conflict with the Constitution or the governing
Act or the general principles of the law of the land or it is so arbitrary
or unreasonable that no fair minded authority could ever have made ....
it."

0 The impugned orders are undoubtedly based on an exhaustive
study by experts. They are fully supported by the recommendations of
the Tariff Commission in 1969 and 1973. It is true that these recom-
mendations in some respects were the subject matter of criticism by a
subsequently appointed expert body, viz., the BICP. Apart from the
fact that the BICP's criticism has not been accepted by the Govern-
E ment, that criticism is not relevant in so far as the impugned orders are
concerned because the latter are in regard to an earlier period. These ~
orders are fully supported by the relevant material on record. The
conclusions reached by the Central Government in exercise of its ..---
statutory power are expert conclusions which are not shown to be
either discriminatory or unreasonable or arbitrary or ultra vire~. The -"(
F (11) ,,See the observation of Lord Russel in Krnse v. Johnson, 11898] 2 Q.B.
-91 and that of Lord Greene, M.R. in Associated Provincial Picture
Houses Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223; See also
Mixnam Properties Ltd. v. Chertsey U.D.C., [1%51AC735; Commis·
sioners of Customs and Excise v. Cure and_Deeley Ltd. [1962] 1 Q.B.
340; McEldowney v. Forde, [1971] AC 632 (H.L.); Carltona Ltd. v.
Commissioners of Works, [1943) 2 All ER 560, 564; Point of Ayr.
Collieries Ltd. v. Lloyd George, [1943] 2 All ER 546; Scott v. Glasgow
Corporation, [1899] AC 470, 492; Robert Baird L.D. v. City of
"-----
Glasgow, [1936] AC 32, 42; Manhattan General Equipment Co. v.
Commissioner, [1935[ 297 US 129, 134; Yates (Arthur) & Co. Pty. Ltd.
v. Vegetable Seeds Commjttee, [1945-46] 72 CLR 37; Bailey v. Conole,
---
' ·-
[1931] 34 WALR 18; Boyd Builders Ltd. v. City of Ottawa, [1964] 45
DLR (2d) 211; Re Burns and Township of Haldimand, [1966] 52 DLR
!II (2d) 1014 and Lynch v. Tilden Produce Co. 265 US 315, 320-322.
SITARAM SUGAR CO; LTD. v. U.0.1. [THOMMEN, J.} 947

material brought to our notice by the petitioners does not support the
arguments at the bar that the Central Government has not applied its A
mind to the relevant questions to which they are expected to have
regard in terms of the statute. That the sugar factories for the purpose
of determining the price of sugar in terms of sub-section (3-C) should
be grouped on the basis of their geographical location is a policy deci-
sion based on exhaustive expert conclusions. B

Factories are classified with due regard to geographical-cum-
agro-economic considerations. Fair prices for different grades of sugar
are determined for each zone with reference to a reasonably efficient
and economic representative cross-section of the manufacturing units.
Such classification, as held in Panipat (supra) and Anakapalle (supra)
cannot, in the absence of evidence to the contrary, be characterised as c
. arbitrary or unreasonable or not founded on an intelligible differentia
having a rational nexus with the object sought to be achieved by sub-
section (3-C). The person assailing such classification "carries the
heavy burden of making a convidng showing that it is invalid because
it is unjust and unreasonable in its consequences" Federal Power .Com- D
mission v. Hope Gas Co., 320 US 591, 602 (1944). If the petitioners
nevertheless incur losses, such losses need not necessarily have arisen
.--(
by reason of geographical zoning, but for reasons totally unconnected
with it, such as the condition of the plant and machinery, quality of
management, investment·policy, labour relations, etc. These are mat-
ters on which the petitioners have not furnished data, and, in any E
event judicial review is hardly appropriate for their consideration.

In this connection we would recall the observations of Chin-
nappa Reddy, J. in Union of India and Anr. v. Cynamide India Ltd.
and Anr., (1987] 2 SCC 720 at p. 736:
F
"We do not agree with the basic premises that price fixa-
tion primarily affects manufacturers and producers. Those
who are most vitally affected are the consumer public. It is
for their protection that price fixation is resorted to and any
increase in price affects them as seriously as any decrease
does a manufacturer, if not more." G

In M/s. Gupta Sugar Works v. State of U.P. and Ors., [1987] 1Supp.
SCC 476 at p. 481 one of us (Jagannatha Shetty, J.) stated:

"In this view of the matter, the primary consideration in
the fixation of Price would be the interest of consumers H
'148 SUPREME COURT REPORTS [ 1990] 1 S.C.R.

rather than that of the producers."
A
The Court has neither the means nor the knowledge to re-
evaluate the factual basis of the impugned orders. The Court, in exer-
cise of judicial review, is not concerned with the correctness of the
findings of fact on the basis of which the orders are made so long as
a those findings are reasonably supported by evidence. In the words of
Justice Frankfurter of the U.S. Supreme Court in Railroad Commis-
sion ofTexas v. Rowan & Nichols Oil Company, 311 US 570-577, 85 L.
ed. 358, 362:

"Nothing in the Constitution warrants a rejection of these
expert conclusions. Nor, on the basis of intrinsic skills and
c equipment, are the federal courts qualified to set their·
independent judgment on such matters against that of the
chosen state authorities ..... When we consider the limit-
ing conditions of litigation-the adaptability of the judicial
process only to issues definitely circumscribed and suscepti-
I) ble of being judged by the techniques and criteria within
the special competence of lawyers-it is clear that the Due
Process Clause does not require the feel of the expert to be
supplanted by an independent view of judges on the conf-
licting testimony and prophecies and impressions of expert
witnesses''.
E
This observation is of even greater significance in the absence of a Due
Process Clause.

Judicial review is not concerned with matters of economic policy.
The Court does not substitute its judgment for that of the legislature or
p its agents as to matters within the province of either. The Court does -<(
not supplant the "feel of the expert" by its own views. When the
legislature acts within the sphere of its authority and delegates power
to an agent, it may empower the agent to make findings of fact which
are conclusive provided such findings satisfy the test of reasonable-
ness. In all such cases, judicial inquiry is confined to the question
0 whether the findings of fact are reasonably based on evidence and
whether such findings are consistent with the laws of the land. As
stated by Jagannatha Shetty, J. in Mis. Gupta Sugar Works, (supra):

"the court does not act like a chartered accountant nor acts
· like an income tax officer. The court is not concerned with
H any individual case or any particular problem. The court
SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.[ 949

only examines whether the price determined was with due
A
regard to considerations provided by the statute. And
whether extraneous matters have been excluded from
determination."

Price fixation is not within the province of the courts. Judicial
function in respect of such matters is exhausted when there is found to B
be a rational basis for the conclusions reached by the concerned
authority. As stated by Justice Cardozo in Mississippi Valley Barge
Line Company v. United States of America, 292 US 282-290, 78 Led
1260, 1265:

"The structure·of a rate schedule calls in peculiar measure
for the use of that enlightened judgment which the Com- c
mission by training and experience is qualified to form
..... It is not the province of a court to absorb this func-
tion to itself ..... The judicial function is exhausted when
there is found to be a rational basis tor the conclusions
approved by the administrative body". D

It is a matter of policy and planning for the Central Government
to decide whether it would be on adoption of a system of partiill con-
trol, in the best economic interest of the sugar industry and the general
public that the sugar factories are grouped together with reference to
geographical·cum-agro-economic factors for the purpose of determin- E
ing the price of levy sugar. Sufficient power has been. delegated to the
Central Government to formulate and implement its policy decision by
means of statutory instruments and ·executive orders. Whether the
policy should be altered to divide the sugar industry into groups of
units with similar cost characteristics with particular reference to
recovery, duration, size and age of the units and capital cost per tonne F
of output, without regard to their location, as recommended by the
BICP, is again a matter for the Central Government to decide. What is
best for the sugar industry and in what manner the policy should be
formulated and implemented, bearing in mind the fundamental object
of the statute, viz., supply and equitable distribution of essential com-
modity at fair prices in the best interest of the general public, is a G
matter for decision exclusively within the province of the Central
Government. Such matters do not ordinarily attract the power of judi-
cial review.

We would, in this connection, recall the words of Justice Frank-
furter in Secretar)'__of Agriculture, etc. v. Central Roig Refining Com- H
950 SUPREME COURT REPORTS [1990] 1 S.C.R.

A pany, etc., 338US615-617,94 Led391-392:

"Congress was ..... confronted with the formulation
of policy peculiarly with its wide swath of discretion. It
would be a singular intrusion of the judiciary into the
legislative process to extrapolate restrictions upon the
B formulation of such an economic policy from those deeply
rooted notions of justice which the Due Process Clause
expresses ..... ".

"Suffice it to say that since Congress fixed the quotas
on a historical basis it is not for this Court to reweigh the
relevant factors and, perchance, substitute its notion of
c expediency and fairness for that of Congress. This is so
even though the quotas thus fixed may demonstrably be
disadvantageous to certain areas or persons. This Court is
not a tribunal for relief from the crudities and inequities of
complicated experimental economic legislation".
D
It is important to remember that the division of the industry on a
zonal basis for the purpose of price determination has been accepted
without question by almost all the producers with the exception of a
few like the petitioners. Even if it is true that the petitioners as indi-
viduals are at a disadvantage and have suffered losses on account of
1£ the present system-an assertion which has not been established and
which by its very nature is incapable of determination by judicial
review-that is not sufficient ground for interference with the

'
impugned orders. We are not satisfied that the decisions of this Court
in Anakapalle, [1973] 2 SCR 882 and Panipat, [1973] 2 SCR 860
require reconsideration in any respect. We see no merit in the
F challenge against the impugned orders. The civil writ petitions are, in
the circumstances, dismissed. However, we do not make any order as
to costs.

P.S.S. Petitions dismissed.