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TMI Blog1990 (3) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... be unsustainable. The individual orders, calculating the "amounts" payable to the individual producers, being administrative, orders rounded on the 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. Petitions dismissed. - Writ Petition Nos. 464 & 617 of 1977 - - - Dated:- 13-3-1990 - MUKHARJI, SABYASACHI (CJ), SHETTY, K.J., THOMMEN, T.K., AHMADI, A.M. AND SAIKIA, K.N., JJ. K. Parasaran, Attorney General, Shanti Bhushan, Ashwani Kumar, K.G. Bhagat, L.N. Sinha, Raja Ram Aggarwal, S.P. Gupta, H.K. Puri, V. Parthasarthy, T.C. Sharma, P.P. Singh, Ms. A. Subhashini, Mrs. Sushma Suri, G. Gopalakrishnan, O.P. Rana, A.V. Rangam and Shartha Raju for the appearing parties. JUDGEMENT THOMMEN, J. The petitioners are 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. They challenge the validity of notifications dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me zones for the purpose of price fixation is discriminatory, arbitrary and unreasonable. The petitioners point out that the system of geographical zoning for the purpose of price determination has been severely criticised by the Bureau of Industrial Costs Prices (The BICP ) who have strongly recommended the division of the sugar industry into groups of units having similar cost characteristics with particular reference to recovery, duration, size and age of the unit and capital cost per tonne of output, and irrespective of their location. The respondents, on the other hand, contend that the classification of sugar industry into 15 zones (now 16) was upheld by a Constitution Bench of this Court in Anakapalle Co-operative Agricultural Industrial Society Ltd. etc. etc. v. Union of India Ors., [1973] 2 SCR 882. The contention that the zonal system was discriminatory and violative of constitutional principles was pointedly urged, but categorically rejected by this 'Court. The method adopted by the Government in fixing the price of levy sugar is fully supported by the recommendations of various expert bodies. The Tariff Commission in its 1973 Report recommended division of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the intervener in Civil Writ Petition No. 464 of 1977 advocates abolition of zonal classification or grouping of any kind and supports fixation of price for each individual factory with reference to its cost and regardless of any other consideration. Such unit-wise determination alone, according to him, satisfies the requirements of Section 3(3-C). Any system of zoning or grouping for determination of price, he contends, 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 with reference to a representative crosssection 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 fixation of price is the only just and proper method. Mr. K.K. Venugopal, counsel for Indian Sugar Mills' Association (ISMA), on the other hand, supports the zoning system. He say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition to Assam. The Tariff Commission, 1969 however recommended the constitution of fifteen zones largely on State-wise basis with an exception only in case of Uttar Pradesh and Bihar. Uttar Pradesh was divided into three zones and Bihar into two. The Tariff Commission had been specifically requested to inquire into the working of the zonal system, the main point for inquiry being the zones into which the sugar producers should be grouped having regard to the basis of classification to be recommended by the Commission. The view of the Commission was that on the whole the number of price zones should be fifteen which would reduce, though not eliminate, the inter-se anomalies in the cost structure without resorting to the extreme of the fixation of price for each unit or a single or at the most two, one for the sub-tropical and other for the tropical one. The Tariff Commission hoped that in the course of time conditions would be created making the operation of the second alternative feasible. Rejecting the contention that it was the zonal system that caused the losses allegedly incurred by some of the sugar producers, Grover, J. says that ordinarily these units ought to have mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m-agro-economic consideration, any discrimination was made or that the price fixation according to each zone taking into account all the relevant factors would give rise to such discrimination as would attract Article 14 of the Constitution. Even if there is no price control, the uneconomic units would be at a great disadvantage. The Court states: Even if there is no price control each unit will have to compete in the market and those units which are uneconomic and whose cost is unduly high will have to compete with others which are more efficient and the cost of which is much lower. It may be that uneconomic units may suffer losses but what they cannot achieve in the open market they cannot insist on where price has to be fixed by the 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 states: It is not therefore possible to say that the principles which the Tariff Commission followed in fixing the prices for differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation in the classification of zones on a geographical-cum-agro-economic consideration and any such classification is perfectly consistent with the principle of equality. In Panipat, [1973] 2 SCR 860, Shelat, J. speaking for the same Constitution Bench that has decided Anakapalle, [1973] 2 SCR 882, referes to the norms adopted in sub-section (3-C), viz., (a) determination 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 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 crosssection on whose workings cost-schedules would have been worked out and the price to be determined by Government under subsection (3-C) would have to be built. So stating, Shelat, J. rejects the contention that such price has to be determined unit- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other factors, whereas within the same region like facilities are generally available to all factories. If the cost structure varies from factory to factory, such variation is not necessarily caused by the non-availability, or the poor quality of raw material, or the labour conditions, but probably for reasons unconnected with them, such as the age of the plant, availability of finance, management ability, etc. There is great force in the submission of the respondents that to group together 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 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 subsection (3-C) of section 3 was inserted2 Before we examine the provisions of that sub-section under which the impugned notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo, the free-market price of sugar fell from Rs.6 to Rs.3 or even Rs.2.50. At this rate consumers began to buy more in the free market, millions of ration cards remained unused and the demands on the public distribution declined substantially. Prolonged shortages of sugar got converted into a relative abundance. under that sub-section may provide for the matters specified in subsection (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: (2) Without prejudice to the generality of the powers conferred by sub-section (1), an order made thereunder may provide- (a)................................................. .................................................... (f) for requiring any person holding in stock, or engaged in the production, or in the business of buying or selling of any essential commodity ,-- (a) to sell the whole or a specified part of the quantity held in stock or produced or received by him, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (3). Before issuing the notification, the Central Government 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 with the controlled price, if any, or where no such agreement is possible, 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsection 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 producer' an amount therefore, 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 cls. (a), (b), (c) and (d). Unlike the preceding three sub-sections under which the 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 calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cost-schedules for different zones or regions were constructed on the basis of which fair prices were worked out at which sugar was distributed and sold. The Tariff Commission 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 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 subsec. 3C was inserted in the Act. The legislature therefore incorporated the same formula in the new sub-section as the basis for working out the price. The purpose behind enacting the new sub-section was three-fold, to provide an 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 prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exercise of it is impeachable on well accepted grounds such as 'ultra vires' or 'unreasonableness'. 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. According to them, having regard to is a mandatory requirement demanding strict compliance with the provisions to which reference is made by 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 furnished any data to show that the prices determined by the Government would have been different had the ingredients of clauses (a) to (d) of the sub-section been examined with reference to each individual 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in mind, a limit is placed on the amount of compensation that may be awarded ..... In another decision of the Court of Appeal in Perry v. Wright (etc. etc.), [1908] 1 K.B. 441 CozensHardy M.R. observed at page 451: No mandatory words are there used; the phrase is simply regard may be had . The sentence is not grammatical, but I think the meaning is this: Where you cannot compute you must estimate, as best as you can, the rate per 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, 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 it must have regard . In State of U.P. Ors. v. Renusagar Power C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislative in character. Omission, if any, to consider the 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 subsection contemplates only administrative or quasi-judicial orders of particular application and the impugned orders are not legislative. 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 heating before prices are determined. Mr. 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. Judicial decisions are made according to law while administrative decisions emanate from administrative policy. Quasi-judicial decisions are also administrative decisions, but they are subject to some measure of judicial procedure, such as rules of natural justice. To distinguish clearly legislative and administrative functions is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as legislative. However, as pointed out by Denning, L.J., (as he then was) a judicial tribunal cannot delegate its functions except when it is authorised to do so expressly or by necessary implication' see Bernard and Ors. v. National Dock Labour 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 touched by it; while adjudication operates concretely upon individuals in their individual 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, declares, and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end. Legislation, on the other hand, looks to the future and changes existing conditions by making a new rule, to be applied thereafter to all or some part of those subject to its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, plenary or subordinate, is not subject to .rules of natural justice. In the case of Parliamentary legislation, the proposition is self-evident. In the case of subordinate legislation, it may happen that Parliament may itself provide for a notice and for a hearing .......... But where the legislature has not chosen to provide for any notice or hearing, no one can insist upon it and it will not be permissible to read natural justice into 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 decisions tend to merge in legislative activity and, conversely, legislative activity tends to fade into and present an appearance 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: A price fixation measure does not concern itself with the interests of an individual manufacturer or producer. It is genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measure does not concern itself with the facts of an individual case. It is meant to lay down a general rule applicable to all persons or objects or transactions of a particular kind or class . See also the observation of Megarry, J., as he then was, in Bates v. Lord Hailsham 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 produced in various zones, and applicable to all producers of such sugar, 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 subsection. It is with 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 calculated. The calculation of such amount is, in contradistinction to the determination of price of sugar , a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1988] 4 SCC 103, 105. Price fixation is in the nature of a legislative action even when it is based on objective criteria rounded on relevant material. No rule at natural justice is applicable to any such order. It is nevertheless imperative that the action of the authority should be inspired by reason. Saraswati Industrial Syndicate Ltd., [1975] 1 SCR 956, 961, 962. The Government cannot fix any arbitrary price. It cannot fix prices on extraneous considerations: Renusagar, (supra). Any arbitrary action, whether in the nature of a legislative or 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 of discrimination: Mrs. Maneka Gandhi v. Union of India Anr., [1978] 1 SCC 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haracterised as legislative or administrative or quasi-judicial, or, whether it is a determination or law or fact, 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 wanant in the record and a rational basis in law: See Rochester Tel. Corp. v. United States, [1939] 307 U.S. 125, 83 L. Ed. 1147. See also Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, [1948] 1 K.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 authority, after according fair treatment, reaches on a matter which it is authorised by law to decide for itself a conclusion which is correct in the eyes of the court . In the same case Lord Brightman says: Judicial review, as the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently 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 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 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 recommendations 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 Government, 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 unreasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 matters on which the petitioners have not furnished data, and, in any event judicial review is hardly appropriate for their consideration. In this connection we would recall the observations of Chinnappa Reddy, J. in Union of India and Anr. v. Cynamide India Ltd. andAnr., [1987] 2 SCC 720 at p. 736: We do not agree with the basic premises that price fixation 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. In M/s. Gupta Sugar Works v. State of U.P. and Ors., [1987] Supp. SCC 476 at p. 48 1 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 rather than that of the producers. The Court has neither the means nor the knowledge to reev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the courts. Judicial function in respect of such matters is exhausted when there is found to 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 Commission by training and experience is qualified to form ..... It is not the province of a court to absorb this function to itself ..... The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body . It is a matter of policy and planning for the Central Government to decide whether it would be on adoption of a system of partial control, 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 determining 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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