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TMI Blog2006 (2) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of manufacturing and selling urea (a fertilizer). In 1993, the First Appellant acquired the urea plant of M/s Indian Explosives Ltd. (a unit of ICI India Ltd.). The Second Appellant is a shareholder in the First Appellant-Company (hereinafter, collectively the appellants ). In 1957, the Government notified fertilizers (including urea) as an essential commodity , under the Essential Commodities Act, 1955 (hereinafter the EC Act ). The Fertilizer (Control) Order, 1957 (hereinafter the Fertilizer (Control) Order ) was made in exercise of the powers conferred by Section 3 of the EC Act. The Fertilizer (Control) Order has been revised from time to time. Through the Fertilizer (Control) Order, the Government was able to fix the maximum retail price of fertilizers, which was to be complied with by dealers, manufacturers etc. However, since this controlled-price mechanism resulted in losses for manufacturers, it was suggested that the Government provide subsidies to make good the losses. Accordingly, the Government constituted a Committee under the Chairmanship of Mr. S.S. Marathe (hereinafter the Marathe Committee ) to introduce a rational system for the pricing of fertilizers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidies. In respect of those units where the Retention Prices were lower than the maximum retail price, the units were required to credit the difference to the Fertilizer Price Fund Account. Conversely, units whose Retention Prices were higher than the maximum retail price would receive the difference from the Fertilizer Price Fund Account, as a subsidy. The Scheme was to be administered by an inter-ministerial committee, which also had representatives of the fertilizer industry. This committee was called the Fertilizer Inter-Coordination Committee (hereinafter the FIC Committee ). The FIC Committee was to have an Executive Director and adequate staff to maintain accounts, make and recover payments, undertake costing, and collect and analyze production data, cost and other inputs, in order to work out the Retention Price periodically and make appropriate adjustments. The Operation of the Retention Price Scheme The Government s decision to introduce the Retention Price Scheme was formally notified on 1.11.1977 in the Official Gazette. However, even prior thereto, a letter (dated 24.10.1977) was written by the Government to the Managing Director of M/s Indian Explosives Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transportation of raw materials/ inputs, etc.; 5. And whereas Government have been fixing from time to time a specified amount for tonne (hereinafter referred to as net realisation) in respect of each product of each manufacturer based on the prevailing statutory maximum retail selling price, the rate of distribution margin, etc.; 6. And whereas it is a feature of the scheme that units whose retention price as fixed under the scheme is lower than the net realization, shall pay the difference to the Fertiliser Industry Coordination Committee (hereinafter referred to as the Committee ), which has been set up by the Government to administer the retention price scheme, and that units whose retention price as fixed under the scheme is higher than the net realisation, will receive the difference as subsidy from the said Committee; 7. We, IEL Ltd., do hereby undertake that, in the event of the retention price fixed for our unit(s)/product(s) being lower than the net realisatin (sic), we shall credit every month to the Committee in accordance with such instructions and procedures as the Government/Committee may prescribe from time to time, an amount calculated at a rate per tonn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinued to operate. However, once the Retention Price for the Sixth pricing period was notified, it was brought into effect from 1.4.1991. The Retention Price fixed, which was to be operative only up to 31.3.1994, was actually continued beyond that date. It was initially extended up to 31.3.1997, and finally to 30.6.1997 (hereinafter the Six-A pricing period ). The details of the policy parameters relating to the Sixth pricing period (1.4.1991 to 31.3.1994) and the Six-A pricing period (1.4.1994 to 30.6.1997) were notified on 24.7.1997/ 5.8.1997. During the extended period of the Sixth pricing period that is from 1.4.1994 to 30.6.1997 (i.e. the Six-A period), the Retention Price and the subsidy amount were worked out on the basis of the Sixth pricing period and payments made and recoveries effected. All of these transactions were consistent with a continuing practice, namely, that the Retention Price would be approved after the expiry of the pricing period, but recoveries and payments would be done, and accounts settled from the commencement of the pricing period. During the continuance of the Seventh (1.7.1997 to 31.3.2000) and the Eighth (1.4.2000 to 31.3.2003) pricing period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Seventh and Eighth pricing periods, as these were not related to urea activity. On 8.8.2002, the First Appellant addressed a letter to the FIC Committee, giving particulars as to the repairs and maintenance charges incurred for the years 1997-98 to 2000-01. It also raised the issue with regard to disallowance of the bank charges for Base Years 1997-98 and 1999-2000. Apart from this, no other issue was raised in the said letter. The Litigation A Civil Miscellaneous Writ Petition No. 43934/2001 was moved by the appellants in the High Court of Judicature at Allahabad to challenge the interim revision of Retention Price made on 5.11.2001 and the consequent demand raised upon the First Appellant on 13.11.2001 for recovery of ₹ 184.01 crores under the Scheme. Although, the appellants had filed the Writ Petition sometime in 2001, it was actually moved in 2002, by which time the Government had recovered ₹ 127.21 crores by way of adjustments, leaving a balance of ₹ 56.80 crores. A Civil Miscellaneous Application No. 40383/2002 was taken out by the appellants for interim relief, which was disposed of by an agreed order. A perusal of the agreed order made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is arbitrary , unreasonable and violative of Article 14 of the Constitution, especially since the Government fixes the maximum retail price of fertilizer. The learned Additional Solicitor General, by reference to the voluminous record, contended that the High Court was fully justified in its conclusion, and that there was no substance in the Writ Petition. The Nature of the Retention Price Scheme The first contention of Dr. Dhavan is that the Retention Price Scheme is a statutory scheme, and he accordingly contends that a delegated legislation could not be retrospectively validated. This argument needs consideration only if the Retention Price Scheme can be said to have statutory flavour. In our view, the High Court s finding that the Retention Price Scheme is nothing but an administrative order, is correct. Evidently, there is nothing in the EC Act that deals with Retention Prices. Indeed, Clause 3 of the Fertiliser (Control) Order merely provides that it is open to the Government to fix the maximum retail price of fertilizers. Therefore, fertilizer manufacturers cannot sell fertilizer at a price exceeding the maximum price fixed under the said clause. On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to him, the pricing norms (the formula for calculating Retention Prices) could not be retrospectively changed. We cannot, however, accept this distinction. At the outset, the First Appellant had voluntarily entered into the undertaking dated 10.12.1977, where it promised inter alia: \005to abide by the decision of the Committee, which is final and binding on all matters relating to the determination of retention price, net realization, equated freight, etc. (emphasis supplied) Firstly, neither the above-mentioned undertaking, nor the evidence on record, appears to indicate that there exists any distinction on the lines suggested by Dr. Dhavan. Secondly, in our view, \005all matters relating to the determination of retention price\005 unambiguously includes the power to determine the norms and policy that would be used for computing the Retention Price. Also, as we have already mentioned, from its inception, the Retention Price Scheme has always had an element of retrospectivity builtin. Therefore, the undertaking entered into by the manufacturers clearly allows the Government to retrospectively revise the pricing norms/policy for the Retention Price Scheme. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the decision of the FIC Committee, on all matters relating to determination of the Retention Price as being final and binding upon them. In the light of this, the argument of estoppel is actually the boot on the other foot. Moreover, even if we were to assume for a moment that certain returns have been assured, and that this assurance is binding on the Government, we are not satisfied that this assurance has actually been breached. We agree with the High Court that there are too many imponderables and too many disputed questions of fact for an effective decision in a writ proceeding on this issue. In our view, therefore, this contention of the learned counsel for the appellants must also fail. Reasonableness and Legitimate Expectation Dr. Dhavan next contended that the retrospective application of the new policy parameters by the FIC Committee is arbitrary , unreasonable and against the Doctrine of Legitimate Expectation. Learned counsel contends that since the Government controls the retail price of fertilizer, it would be unfair , unreasonable and violative of Article 14 for them to revise the scheme of subsidies, so that there would be losses caused to fer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made against the wisdom of the legislation, but on that point we have nothing to say, as it is not our concern. We are broadly in concurrence with the reasoning of the High Court that in matters of administrative discretion it is not open to the courts to interfere in minute details, except on grounds of mala fides or extreme arbitrariness. Interference should be only within very narrow limits, such as, where there is a clear violation of a statute or a constitutional provision, or extreme arbitrariness in the Wednesbury sense. Neither the High Court nor we have found any of these vitiating factors in the administration of the Retention Price Scheme and the consequent payments/ recoveries of the subsidy amounts. Thus, in our view, the action of the FIC Committee to adversely modify the subsidies framework, cannot be questioned on its merits. The Case of M/s Nagarjuna Fertilizers The learned Additional Solicitor General brought to our notice that, out of all the concerned fertilizer manufacturing units, only two units have challenged the Retention Price Scheme for the relevant periods. One of these is the First Appellant and the other was M/s Nagarjuna Fertilisers and Chemic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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