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Home > SC > Criminal Law > Essential Commodities Act > MAHARASHTRA RAJYA SAHKARI SAKKAR KARKHANA SANGH LTD. Vs. STATE OF MAHARASHTRA & ORS. ETC. ETC.



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MAHARASHTRA RAJYA SAHKARI SAKKAR KARKHANA SANGH LTD. Vs. STATE OF MAHARASHTRA & ORS. ETC. ETC.

Posted on 23 June 2009 by jyoti

Title

MAHARASHTRA RAJYA SAHKARI SAKKAR KARKHANA SANGH LTD. Vs. STATE OF MAHARASHTRA & ORS. ETC. ETC.



Coram

SAHAI, R.M. (J)



Act

Essential Commodities Act



Subject

Sugarcane Act, 1934/Maharashtra Cooperative Societies Act, 1960 : S.3(l)
ss.22,23-Sugar-cane (Control) Order, 1966 :

Maharashtra Sugar Factories (Reservation of Area and Regulation of Crushing
and Sugarcane Supply) Order 1984 (as amended in 1987)-Sugar-cane-Zoning or
reservation of area for supply of sugar-cane to factories and fixation of
price for each zone is not violative of the Acts or 1966 Order- Uniform
pricing for cane growers (whether non-members or members of co-operative
societies) attached to sugar factory in reserved area is valid-Directions
given to improve price structure and to protect interest of cane-growers.

Essential Commodities Act, 1957 : ss.3(2) (f), 3(3) (c)-Provisions under
Maharashtra Sugar Factories (Reservation of Areas and Regulation of
Crushing and Sugar-cane Supply) Order, 1984, directing a sugar-cane to
producer in a reserved area to supply sugar-cane to factory concerned does
not amount to compulsory sale.

The Government of Maharashtra, in order to ensure supply of cane to sugar
factories and minimum price to cane-growers, issued Maharashtra Sugar
Factories (Reservation of Areas and Regulation of Crushing and Sugarcane
Supply) Order, 1984. Clause 3 of the Order provided that having regard to
the crushing capacity of sugar factories and the yield of sugarcane in the
reserved areas and the need for production of sugar, the area specified in
the Schedule to the Order would be reserved for the sugar factory with a
view to enabling it to purchase the required quantity of sugarcane. Sub-
clause (2) of Clause 3 prohibited any sugar factory from purchasing cane or
accepting supplies of cane from cane growers except from the area reserved
for that factory. Sub-clause (1A) added to clause 3 and sub-clause (6A)
added to Clause 6, by Maharashtra Sugar Factories (Reservation of Areas and
Regulation of Crushing and Sugarcane Supply) (Second Amendment) Order, 1987
empowered the licensing authority to allow a sugar factory to manufacture
sugar from the sugarcane to be purchased by it from non-members within the
area reserved for it.

Writ petitions were filed before the High Court challenging the 1984 Order
as being beyond the scope of the Central Sugar-cane (Control) Order 1966
and violative of Articles 14 and 16 of the Constitution. For the cane
growers it, was contended that the order in preventing them from selling
their sugar-cane at the best price available imposed an un-reasonable
restriction inasmuch as in the process of reservation they were deprived of
the highest price in the area. The High Court upheld the reservation
policy. On behalf of the Government, it was stated before the Court that
the Government would follow a fair procedure in order to ventilate
grievances of the non-members. The note showing the procedure to be
followed, produced before the High Court, was found reasonable but the
Bench opined that it required to be given statutory shape by amending the
1984 Order.

Later, in a different case, the High Court held that since the necessary
amendments were not carried out by the Government as pointed out in the
earlier decision, the sugarcane growers had a right to supply sugarcane to
the factory of their choice for better price. On a contrary view being
taken by another Bench, the matter was referred, to a larger Bench.

The Full Bench bf the High Court opined that the issue of deprivation of
sugarcane growers of best price available to them was not debated in the
earlier decisions and held that since there was no power in the State Order
to fix the maximum price payable to the cane growers, the cane growers, who
were not members of any cooperative society, were not bound by the price
fixed by the State Government. The High Court also held that the supply by
the cane growers being in the nature of compulsory sale, the cane growers
were entitled to supply the sugarcane at the market rate. The High Court
for 1993-94 fixed the market price at Rs. 740 atonne as against 340 to Rs.
400 fixed by the Government, and directed that (i) the non-member cane-
growers would be paid market price prevailing in the locality; (ii) the
market rates would be as agreed between the sugarcane growers and the
respective factories; and (iii) no unauthorised deductions on any account
should be made by factory from the price to be paid to the sugarcane
growers. Aggrieved, the Sahkari Sakkar Karkhana, Private Sugar factories
and the State Government filed the appeals.

It was contended for the appellants that the decision of the High Court
would result in collapse of zoning system and gradual erosion of
cooperative movement; that payment of market price would result in closing
down of smaller units as price structure was correlated with yield and not
with the market and that the High Court was not justified in interfering
with matters of economic policy and the directions given by the High Court
were violative of the scheme of the Act.



Citation

, 1995( 3 )SCR 377, 1995( 3 )Suppl.SCC 475, 1995( 2 )SCALE772 , 1995( 3 )JT 581



Head Notes

Disposing of the appeals, this Court

HELD : 1.1 Zoning or reservation of areas for supply of sugarcane to
factories and fixation of price for each zone under the Maharashtra Sugar
Factories (Reservation of Areas and Regulation of Crushing and Sugar-cane
Supply) Order, 1984 as amended by 1987 Order is not arbitrary or violative
of Sugar-cane (Control) Order, 1966. The directions of the Full Bench of
the High Court, given in paragraph 25 of its judgment shall stand set
aside. [391-D, 425-A]

Satara Sahkari Sakkar Karkhana Ltd. & Anr. v. Stale of Maharashtra and
Ors., AIR (1989) Bombay, overruled.

The Rahuri Sahkari Sakkar Karkhana Ltd. & Anr. v. State of Maharashtra &
Ors., AIR (1987) Bombay 248, approved.

1.2. Price fixation in a controlled economy may not be bad so long as it is
in accordance with the policy formulated by the Government and the decision
by the Committee of experts is not found to be arbitrary. The price
fixation machinery is to be determined by the State Government or under the
Central Sugarcane (Control) Order, 1966 in the manner provided therein. So
long as the price fixation does not suffer from any infirmity or it is held
to be prejudicial to cane grower so as to benefit the State or the
financial institution it cannot be held to be bad. [411-B, C]

13. In the State of Maharashtra, the exercise of pricing is undertaken by
the Committee in accordance with the guidelines provided after taking into
consideration various factors so that the price of sugar does not escalate
and cane growers are not deprived of good return to dissuade them from
going for alternative crop. The price determined by the Committee is
notified every year but no objection was ever received. Price fixation for
the cooperative societies under bye-law 64 either by the Director of
Factories or by the State Government was not challenged to be ultra-vires,
either before the High Court or this Court. No cane growers can thus
legitimately claim that the price fixed for the cane was not fair or just
or was not productive. It cannot, therefore, legitimately be urged that it
was violative of the Control Order or Zoning Order or it was arbitrary.
[407-B, C, 405-A]

1.4. Price fixation cannot be assailed only because cane growers of one
area are getting better price than the other. The difference in price
arising due to application of principle uniformly is neither bad nor
arbitrary. It may be that since the price is linked with yield it may cause
hardship to one set of growers as they might be deprived of better price as
compared to his neighbour due to deficient functioning of the factory but
in a welfare State and controlled economy individual hardship cannot
override the larger social interest. [408-C]

1.5. So long as the determination of price is fair and just and based on
relevant material it cannot be held to be not applicable to one class of
growers, namely, non-members in the zone because they are not members of
the cooperative societies. Otherwise it would be defeating the entire
purpose of enforcing controls. If the exercise of power is not bad for
members of the society it cannot be held to be bad for non-members, unless
it is found to be arbitrary. So far as cultivation of cane and payment of
price are concerned the two are similarly situated. [405-G, H, 406-A]

1.6. Further, the production of sugar being of primary concern the
Government ensured that the growers were not denied the minimum. The
Additional Cane price or final State Advised Price are paid as a matter of
incentive. And what is incentive for one year becomes the minimum price for
next year. The concept of market price, better price or higher price thus
has no place in the scheme. There is no reason why such fixation should not
be held to be binding on non-members as in the scheme of price fixation no
distinction is made between members and non-members. [406-B, C]

1.7. Reason for Government intervention to fix the price was to increase
sugar production. While doing so the Government ensured stable and assured
income to the growers. The role of price control is not merely to reduce
distortions which would otherwise have been prevalent resulting in
exploitation of cane growers particularly when there was surplus production
of cane but to promote his financial and social condition. The fruits of
controlled economy for the weaker and poorer cannot be doubted. In
agricultural sector the price control as an instrument of policy has
boosted the economy. To denounce it, therefore, may not be in the interest
of the cane growers. The Full Bench of the High Court too did not find any
flaw in price fixation, nor it held it to be unremunerative. In absence of
any material it cannot be assumed that the Directors of Sugar Factories who
are none else than cane growers themselves would opt for a lesser price for
their cane because the sugar factories of which they are members were under
an obligation to pay their debts. [408-B, F, G, 409-B]

2.1. There is no machinery in the State to determine the State Advised
Price for non-members as 95% of the sugar factories being in cooperative
sector, the fixation of price under the bye-laws was always considered to
be legal. And rightly, so. Therefore, determination of price by an
authority under the bye-laws is valid for cane growers attached to a sugar
factory in reserved area. Absence of any machinery in the State Orders for
hearing non-members could not destroy effectiveness of pricing. [405-D, E,
408-B]

22. The non-members have not organised themselves so as to entitle their
representative to be invited. Hearing of every individual grower even
otherwise is physically impossible. Presence of representative of cane
growers' cooperative society before the Committee fixing the price makes it
broad based. Such representative would bargain for better price for cane
growers irrespective of whether such a cane grower is a member of the
cooperative society or not. No representative would agree for lower price
for members of the society. Therefore, absence of individuals or non-
members of cooperative society before the Committee fixing the price cannot
reflect adversely on the price fixation. Besides, the price fixation should
be observed in broad perspective. If every individual has to be heard the
entire system may fall for sheer non-practicability. [407-D, E, G]

23. Practically, there is no difference between members and non-members of
cooperative societies in relation to cane price: In the licence for
crushing cane issued under clause 4(5) of the State Order it is provided in
Form B clause (xvii) that the factories shall be bound to pay same cane
price to non- members as members. A non-member is also entitled to share
the profits which are worked out at the end of the season. A member is no
doubt entitled to some facilities such as running of other business or
availing the education facility etc. run the cooperative societies but that
has nothing to do with cane price or its supply. As a matter of fact the
sale of by-products etc. is shown as receipt while calculating additional
price or final State Advised price. [406-F, E, G]

2.4. The Court's responsibility is to construe the provision which may
advance the cooperative movement in the State. The amendments in Sections
22 and 23 of the Maharashtra Cooperative Societies Act have facilitated the
membership. Notwithstanding the right of a cane grower to become a member
of cooperative society, the provisions cannot be construed so as to result
in nullifying the whole system of control devised to improve production of
the sugar in the country. For sake of more profit to few individuals the
society cannot be made to suffer. Ours is mixed economy. Competition and
control have been blended to reduce economic imbalance. If the individual
growers, who do not constitute more than 20% otherwise get the same profit
as a member of cooperative society then there appears no justification to
construe the provision to give them a bit more profit when it is fraught
with danger of small units closing down and the entire zoning system coming
to a crash. [420-C to E]

3.1. Zoning or reservation and fixation of price for each zone are inter-
linked. Even under the 1966 Order the fixation of minimum price is factory-
wise. Thus each factory has been considered to be one zone. Reservation or
zoning and fixation of price for each zone is valid. [417-E]

Shri Malaprabha Coop. Sugar Factory Ltd. v. Union of India & Anr. [1994] 1
SCC 648 and Anakapalle Coop. Agrl. and Industrial Society Ltd. Etc. Etc. v.
Union of India and Ors., [1973] 3 SCC 435, relied on.

3.2. Zoning is beneficial to the cane growers and it has been resorted not
only to ensure regular cane supply to sugar factories but also to protect
the cane growers who may otherwise have been seriously affected. It is a
well established feature in the country. Once a zone is reserved for a
factory the cane grower has an obligation to supply cane to the factory and
the factory has a corresponding obligation to lift the cane from the field,
crush it, produce sugar and pay to the grower not only the minimum price
but also share the profit with him. [412-B, C]

4.1. Clause 3 of the 1984 Order either on the Language or in its effect
expressly does not purport to be an order under Section 3(2)(f) of the
Essential Commodities Act. It is not an order of the nature as was issued
by the Central Government for sale of levy sugar. It does not direct a cane
grower to sell its cane to the Government or to any person specified in the
Order. In absence of any provision the Order cannot be held to be an order
directing the producers to sell the cane so as to make it a compulsory sale
under clause (f) of sub-section (2) of s.3 of 1957 Act. [416-C, D]

4.2. Section 3(2)(f) contemplates a specific order. It applies in those
cases where any essential commodity is directed to be sold or parted with
in pursuance of an order of the Government. It has no application to supply
in a reserved area. Further, under clause 5 of Zoning Order, the cane under
orders of the Director can be supplied to other factories. The provision
completely demolishes the argument of compulsory sale. [416-H, 417-A]

43 Section 3(3)(c) of the 1957 Act contemplates an order of a compulsory
sale and not a compulsion arising out of enforcement of restrictions under
the provisions of controlling, distribution and supply. A cane grower in a
reserved area gets the price for supply of his cane to a specified factory.
This price is payable both to members and non-members. The orders only
restrict that the supply could not be made to any factory outside the area.
The reservation may result in confining the choice but it cannot be
construed as an order of sale. [418-G, H, 419-A]

Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2 SCC 720,
referred to.

4.4. Economics of pricing in a controlled economy is entirely different
from a free market. The equilibrium in the latter is reached by interaction
of supply and demand. Its graph keeps on moving up and down governed by the
principle of scarcity. But the controlled economy does not operate on
demand and supply. The production, distribution and the supply are
regulated and controlled by the Government in public interest. Such orders
are issued in social interest for the common benefit and fair price for the
needy and poor. Legality of such order cannot be tested on cost structure
of free economy or maximum profit theory. [417-F]

M/s. New India Sugar Works Etc. Etc. v. State of Uttar Pradesh & Ors. Etc.
Etc., [1981] 2 SCC 293, relied on.

Andhra Sugars Ltd. and Anr. Etc. v. State of Andhra Pradesh and Ors.,
[1968] 1 SCR 705 and Vishnu Agencies (Pvt.) Ltd. Etc. v. Commercial Tax
Officer & Ors. Etc., [1078] 2 SCR 433, referred to.

5. Deductions made under bye-law 65, being for the general welfare of the
society, and as such it cannot be said that they are either bad or they
suffer from any infirmity. The deposits deducted from non-members are
refundable and they carry same interest as is paid to members. A non-member
who is sharing in profits of the sugar production cannot be heard to say
that he has no obligations towards the society because he is not a member
of any cooperative society. [420-A, B]

6. Even though the supply made by the non-members could not be considered
to be compulsory sale within meaning of Section 3(2) (f) and, therefore,
the provisions of Section 3(3)(c) are not attracted, yet the methodology
adopted by the State for fixing price requires to be rationalised as
various discrepancies have surfaced for which there is no satisfactory
explanation. The Full Bench of the High Court felt that there was something
grievously wrong with pricing system in the State. The entire price
structure of cane is founded on two basic factors, one, the recovery
percentage and other the incentive for sharing profit arrived at by working
out receipt minus expenditure. And that is neither contrary to law nor
unfair. But the wide disparity in the price paid by two factories is
certainly glaring and is apt to create misgiving. [420-F, 421-H, 422-A]

7. In the Zoning Order clause 5 empowers sugar factory to accept cane from
other zone as well but no similar right has been given to cultivators.
The State Government may suitably amend the Zoning Order so as to provide
that in a case where any of the three circumstances mentioned in Clause
5(d) are present it would be open to the cane growers to apply to the
specified officer for permission to supply his cane outside the zone. In
such an event, it may be open to the officer to designate the factory to
which the grower should sell his cane ensuring that the grower gets a price
which is not less than a price obtained in his zone. [422-B, 423-F]

8.1. Although the price fixation has not been found to suffer from any
infirmity and the order issued by the Government determining price for each
factory is upheld, the State Government would be well advised to get the
matter examined by an Expert Committee comprising of economists and
financial experts well versed in price fixation, particularly in
agricultural sector. This exercise has become imperative after the
enforcement of Zoning Order. The price equation since 1984 has undergone
tremendous upsurge. The escalation is manifold. Benefit of higher price of
sugar must percolate to growers as well. Therefore, the Committee may
examine : [424-G, 423-H, 424-A

(a) If the fixation of State Advised Price uniformly for the entire
State as it is being done in other States, or at least separately for
different zones, as the normal recovery in the zones varies, would be more
feasible; [424-B]

(b) If the additional price worked out in the manner indicated in
Schedule II of Control Order of 1966 is more advantageous and beneficial to
the growers. If it be so it may opt for the same as it would avoid tedious
exercise by the Ministerial Committee and have the benefit of uniformity;
[424-C]

(c) Whether Rs. 600 which has been paid by the factories to the non-
growers under interim order passed by this Court would not be a reasonable
minimum price for 1995-96 and may furnish the basis for fixation of price
for future years; [424-D]

(d) If the shortcomings pointed out by the Full Bench in other regard
can be rectified and rationalised; and [424-F]

(e) Whether bye-law 65 should be applied to non-members or not;

[424-G]

(0 It may also suggest ways and means for improving yield by the sugar
factories and reducing overhead expenses and eliminating, possible, paper
loss; [424-E]

8.2. It is further directed that:

(i) The State Government may take appropriate steps to amend Clause 5 of
the Zoning Order so as to protect the cane growers; [425-A]

(ii) The amount paid by the factories consequent upon the interim orders
granted by this Court shall not be liable to recovery from the cane
growers. But the bank guarantee furnished by the appellants or sugar
factories shall stand discharged. [425-D]

It is made clear that the direction not to recover Rs.600 from non-growers
would not entitle any member of the cooperative society or the cooperative
society itself to claim that it was liable to be paid Rs. 600 for its cane
during the years in dispute. [425-E]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 522 of 1989 Etc. Etc.





Judgment Made On

18/04/1995

JUDGMENT:
R.M. SAHAI, J.
1. These are two sets of appeals filed by various Sahakari
Sakkar Karkhanas, that is, Co-operative Societies of
Sugarcane Growers, Private Undertakings, Joint Stock
Companies producing sugar in the State of Maharashtra and
the State itself one, directed against direction by a Full
Bench of the Bombay High Court in Satara Sahakari Sakhar
Karkhana Ltd. & Anr. v. Stale of Maharashtra & Ors., AIR
1989 Bombay 53 that the cane growers who were not members of
any Co-operative Society but who were required to supply
their cane under reservation order or Control Orders to
sugar factories with which they were attached were entitled
to market price instead of price fixed by the Government,
and other directed against fixation of market price for
1993-94 by the High Court at Rs. 740/- as against Rs.340/-
to Rs.400/- fixed by the Government.
2. The directions issued by the Full Bench are as under:
"We are therefore of the view, that unless
provisions for the following arc made in it,
the State Order will not be valid
(i) The sugarcane &rowers who are not
members of the factory or factories to which
they are required to supply their sugarcane
shall be paid for the sugarcane supplied by
them the price calculated at the market rate
prevailing in the locality at the date of the
sale;
(ii) The market rate may be as agreed between
the parties, namely, the sugarcane grower and
the factory or factories concerned. If there
is any dispute over it, the same should be
resolved by an independent authority which may
be created under the Order such as the one
under clause'12 of the present Order. The au-
thority concerned should decide the dispute
expeditiously after hearing the parties and by
a speaking order,
(iii) No unauthorised deductions on any
account should be made by the factory from the
price to be paid to the sugarcane grower
without his consent. The State Order should
provide for a machinery similar to the above
to hear and grant to the sugarcane grower,
expeditious relief if he has any complaint in
that behalf."
585
The reasons for these directions were twofold, one, the non
members were not bound by the price fixed under bye- laws
framed under the Cooperative Sugar Act and other that there
was no machinery in the Zoning Order issued by the State
Government to hear the non-members before the price was
fixed. Before examining whether these reasons are well
founded in law leading to the impugned directions it is
necessary to narrate in brief the necessity which impelled
the Central Government to grant protection to sugar industry
and consequently to control, supply and distribution of the
sugarcane without sacrificing the interest of canegrower.
3. Sugar is an item of daily use in every household, rich
or poor. Use of white sugar has increased with rolling of
years, growth of population, rise in income etc. Today it
is somewhere 134 lakh tonnes. Even in 1931 the requirement
was more than 9 lakh metric tonnes. But the production was
nearly 1.8 lakh metric tonnes only. And there was an import
of more than 8 lakh metric tonnes. The Government,
therefore, decided to grant protection to the sugar
industry. The Bhargava Commission appointed by the Central
Government in 1970 in Chapter 1 of Part I of its report has
traced the growth and development of the sugar industry and
observed that till 1930-31 there were only 29 sugar
factories producing 1.22 lakh tonnes of sugar in the
country. That was, however, not adequate to meet the
internal requirement and nearly 8 lakh tonnes of sugar was
imported in that year. In 1932 protection was granted to
the sugar industry. Following this there was a phenomenal
expansion of the industry and the number of sugar factories
increased to 111 in 19-3334 and to 137 in 1936-37. The
sugar import which was about 8 lakh tonnes in 1930-31 was
almost stopped from 19-3637. Thereafter there was little
development of the industry upto 1951-52. The development
and regulation of the sugar industry came under the control
of Government of India for the first time from May 1952 when
the Industries (Development and Regulation) Act, 1951 came
into force. All the 138 sugar factories which were working
before 1952 were registered under the provisions of
Industries (Development and Regulation) Act, 1951. New sugar
factories were established thereafter under licences granted
by the Central Government. Another important feature of
post-1951 development noticed by the Commission was setting
up of sugar factories largely in the cooperative sector due
to Government policy of giving preference to cooperative
societies in the matter of licensing. In respect of State
of Maharashtra the Commission observed that sugar industry
in Maharashtra was progressing very fast and the sugar
production in Maharashtra was expected to reach 16.37 lakh
metric tonnes and the State was to become the largest
producer of sugar in the country. Today the State accounts
for nearly 30% of the sugar output. The national output of
sugar for 1991-92, 19-9293 and 1993-94 was 134 106 and 96
lakh metric tonnes respectively. The output of Maharashtra
was 42, 36 and 27 lakh tonnes for the corresponding years.
4.While granting protection to the sugar factory the
Government did not ignore the interest of sugarcane growers.
It is the basic rather the only raw material for sugar. It
is grown by cultivators who were usually exploited or at
least were in danger of being exploited. Therefore, the
Government agreed for fixing price of cane.
586
At a conference called by the Government of India in 1933
representatives of cane growers asked for a minimum price
The Government accepted the demand an in 1934 passed the
Sugarcane Act, 193 which conferred powers on the then
provincial governments to fix minimum price for the cane.
Since 1950 it is being don under Control Orders issued from
time the time. The last Order known as Sugarcane (Control)
Order was 'Issued by the Central Government in 1966. the
main feature of the Order arc two-fold one, that it
broadened the base for price fixation by providing that the
minimum price of can shall be fixed having regard to the
cost of production of sugarcane, the return to the grower
from alternative crops, the availability of sugar to
consumer at fair price, the price at which sugar produced
from sugarcane is sold by producer of sugar and the recovery
of sugar from sugarcane. The other is that it regulates
distribution and movement of sugarcane by empowering the
Government to notify in the Gazette and reserve any area
where sugarcane is grown for a factory having regard to the
crushing capacity of the factory, the availability of
sugarcane in the reserved area and the need for production
of sugar with a view to enable the factory to purchase the
quantity of sugarcane required by it. The Order thus
attempts to assure supply of cane to sugar factories and
ensure minimum price to cane growers.
5.The Bhargava Commission in Chapters 1 and 11 of Part 11
dealing with price fixation and stabilisation of supply of
cane after examining pros and cons of the various competing
interests was of the opinion that the need for steady and
adequate supply of cane to the sugar industry from year to
year could not be over- emphasised. It felt that an assured
and of adequate supply of cane was essential for the
working of the sugar industry on an efficient and economic
level. The Commission observed that sharp increase and
decrease in cane supply from year to year were the bane of
the Indian sugar industry. Therefore, it felt that it was
imperative that some kind of stability in the matter of
supply of raw material to the industries should be brought
about. It, therefore, recommended that provisions should be
made for agreement between cane growers and factories. The
Commission suggested that where Cane Growers' Societies
Union operated it would be desirable to have tripartite
agreements involving factories, the societies and the
growers. It suggested that minimum price be fixed for
sugarcane related to a basic recovery of 8.5% with a premium
for every 0. 1% increase in recovery on proportionate basis.
It also recommended that the sales realisation from sugar
after expenses should be shared with the cane growers who
execute agreement for supply of cane and fulfil their
contract. Both these recommendations were accepted. The
latter has been incorporated as paragraph 5A in the
Sugarcane (Control) Order, 1966 order for short). The
minimum price for cane is fixed for growers throughout the
country and recommendations of Bhargava Commission are being
followed both in fixing minimum price of cane, and payment
of additional price in accordance with formula framed by it
appended as Schedule 11 to 1966 Order.
6. In the State of Maharashtra it was the experience of
the Government that there were cyclic ups and downs in
sugarcane production in the State which adversely affected
some of the sugar factories, par-
587
ticularly those which were identified as sick and
financially weak. The Government found that in times of
shortage of sugarcane crop, in the absence of statutory
provisions earmarking areas for drawal of cane it became
difficult for certain factories to get adequate quantity of
cane thereby affecting their obligations towards the cane
growers for payment of cane price, employees and workers for
payment of their salaries and wages etc. In such situations
the State Government was required to assist the factories
with huge amounts for enabling them to discharge their
obligations by diverting funds with considerable stress and
strain on the State Exchequer. The Government found that at
times some of the factories starved of sugarcane whereas
others exceeded their crushing capacity. In order to find
out some solution to these problems the State Government
appointed a Committee as an Experts Committee under
Government Resolution dated 28th April, 1980 in exercise of
the powers delegated to it by Notification issued by the
Central Government in 1966. The said Committee was
requested to take review of the work done in the past in
regard to the formation of zones for Sugar factories; to
identify the limitations due to which the object of
formation of zones could not be achieved; and to suggest
remedial measures in various matters. The Committee
submitted its Report in October 1983. After considering the
Report the State Government on 12th September 1984 issued
the Maharashtra Sugar Factories (Reservation of Areas and
Regulation of Crushing and Sugarcane Supply) Order, 1984.
In the Preamble to the Order it is mentioned that the
Notification was issued to implement the recommendations of
the Experts Committee appointed by it and also to ensure
economic viability of large number of sugar factories. The
order mentions that since the Government of India had
granted letters of intent for establishment of new sugar
factories and has stipulated therein that the conversion of
the letters of intent into industrial licences shall, inter
alia, depend on the State Government notifying the zones for
drawal of sugarcane by new sugar factories. The Order
defines 'cane grower' either as 'owner' or as a 'tenant
including a body corporate such as a company registered
under the Companies Act, 1955 (1 of 1956), a society
registered under the Maharashtra Cooperative Societies Act,
1960 (Mah.XXIV of 1961), any body corporate, set up under
any law for the time being in force, including an
Organisation owned or controlled by the Government of any
State or Government of India'. It defines the 'reserved
area' to mean, the area reserved for a factory as specified
in the schedule pertaining to that factory. Clause (3) of
the Order provides that having regard to the crushing
capacity of sugar factories and the yield of sugarcane in
the reserved areas, and the need for production of sugar,
the area as specified in the schedule, shall be reserved for
the sugar factory with a view to enabling it to purchase
quantity of sugarcane required by it. Sub-clause (2) of
Clause 3 prohibits any sugar factory to purchase cane or
accept supplies of cane from cane growers except from the
area reserved for that factory. The only exception to It is
contained in Clauses 4 and 5 of the Order. Clause 4 deals
with grant of licence and Clause 5 regulates supply of
sugarcane empowering a permit officer to allow a sugar
factory to purchase cane from areas other than the reserved
for it under Clause 3 provided he is satisfied that the
circumstances mentioned in the clause existed. The order
was amended in 1987,
588
1988 and 1989. Sub-clause (1A) was added after sub-clause
(1) in Clause 3 of the Order issued in 1984 by the
Maharashtra Sugar Factories (Reservation of Areas and
Regulation of Crushing and Sugarcane Supply) (Second
Amendment) Order, 1987 and it is-provided that the area
specified in each of the schedules and reserved for the
factory mentioned in that schedule in accordance with sub-
clause (1) of the clause shall be reviewed by the State
Government after every three years and in Clause 4, sub-
clause (6A) was added after sub-clause (6) which empowered
the licensing authority to allow a sugar factory to
manufacture sugar from the sugarcane to be purchased by it
from non- members which is grown in the area reserved for it
which is overlapping or common with other factories if such
factory has entered into contracts for purchase of cane from
such growers and if the sugarcane does not exceed the
requirements of the factory based on its licensed crushing
capacity during any crushing season.
7. Trouble appears to have started after the Notification
was issued by the State Government in 1984. Writ petitions
were filed by cooperative societies and sugarcane growers
challenging the Order as being beyond the scope of the Act
and the 1966 Order. It was claimed that the Order was
violative of the rights guaranteed under Articles 14 and 19
of the Constitution. The challenge on behalf of the growers
that the Order in preventing the cane growers from selling
their sugarcane at the best price available imposed an
unreasonable restriction. It was claimed that in process of
reservation they have been derived of the highest price in
the area, therefore, it was liable to be struck down
arbitrary. The prohibition in the Order on enrolment of the
members was also challenged. A Division Bench of the Bombay
High Court in The Bahuri Sahakari Sakkar Karkhana Ltd. &
Anr. v. State of Maharashtra & Ors., AIR 1987 Bombay 248
held that the Order was not violative of the provisions of
the Constitution or the Central Government Order of 1966 and
the Essential Commodities Act (hereinafter referred to as
'the Act'). Nor did the Bench find any merit in the claim
that the reservation policy was violative of any
constitutional guarantee as the Orders having been issued in
view of the scarcity or non-availability of sugarcane and
for securing the equitable distribution the Order was
squarely covered in the Directive Policy unfolded by clause
(b) of Article 39 of the Constitution. The Bench did not
find any merit in the claim that the distribution of
sugarcane on the licensing capacity of the sugar factories
was violative of any statutory provision or the Constitution
as the licence for,crushing the sugarcane was granted by the
Central Government merit under the provisions of Industries
(Development and Regulation) Act, 1951. The Bench repelled
the challenge that the order was arbitrary or violative of
Article 14 of the Constitution. Nor it agreed with claim of
nonmembers of the cooperative societies that the prohibition
in the Order from becoming members or obligation to supply
cane to the factory in the reserved area was unreasonable or
arbitrary. The Bench observed
"With the sole intention of avoiding cutthroat
competition between the different sugar
factories as well as the sugarcane growers,
the impugned order has been issued. In this
context, it cannot be forgotten that the Co-
operative Societies Act has been enacted
keeping in view the Directive Principles and
the State Policy as
589
enshrined in the Constitution. The co-
operative movement in the ultimate analysis is
socio-economic and moral movement. It is a
part of the scheme of decentralisation of
wealth and power. Cooperative capitalism is
neither co- operation nor socialism. On the
other hand, co-operation is a substitute for
self-interest of an individual or groups of
individuals for the benefit of the whole
society. Wealth has no meaning if it is
concentrated in few hands. In the absence of
decentralisation or equitable distribution of
wealth or property, it becomes impropriety.
Therefore equitable distribution is the
essence of equality. If for achieving this
object the impugned order has been issued
under the powers conferred by the Essential
Commodities Act and the Sugarcane (Control)
Order, 1966, then it cannot be said that this
equitable distribution results in inequity or
arbitrariness. In our view, the criteria
adopted and the guidelines laid down are
reasonable. They have a nexus with the object
sought to be achieved. Without reserving
areas qua each factory and regulating the
supply of sugarcane to the members or non-
members, the object of distribution of the
essential commodity viz. the sugarcane, would
not have been achieved. Therefore, we find it
difficult to accept the challenge raised by
the petitioners which is based on Art. 14 of
the Constitution of India. "
[Emphasis supplied]
Grievance was also made by the non-members of absence of any
hearing by the Permit Officer. It was stated on behalf of
the State that it was intended to follow a fair procedure.
Note 1 to 7 incorporating the procedure was produced before
the Bench. It was found to be reasonable but the Bench was
of the view that it required to be given statutory shape by
amending 1984 Order. Since the necessary amendments were
not made another Bench a Aurangabad held that since the
State Government did not carry out the amendment in clause
5(1)(d) of the 1984 Order as pointed out by the Bench in the
earlier decision the sugarcane growers had a right to supply
sugarcane grown by them to the factory of their choice as
they were likely to receive better value in the from of
price for the sugarcane grown by them. A contrary view
appears to have been taken by another Bench. The
controversy was referred to a larger Bench which in para-
graph 9 of the Judgment has noticed the views taken by
different benches. It then observed that in none of the
earlier decisions given by the Division Benches they were
called upon to test the validity of the Order on the ground
of deprivation of sugarcane grower of the best price
available to them. The Bench observed that its validity was
challenged only on the ground of the alleged illegality of
the restrictions on the freedom to sell and purchase the
sugarcane except to and by the factories in whose favour the
Reservation Order was issued. The Bench held that the Order
issued by the Central Government in 1966 did not provide for
fixation of the maximum price of sugarcane to be supplied by
the sugarcane grower to the sugar factories. The Full Bench
observed that the Aurangabad Bench had issued the directions
permitting the growers to sell their sugarcane at the best
price to different factories only because there was no
machinery to hear the sugarcane growers before fixing the
price and redress their grievance. The Bench found that
this direction had not been complied. It thereafter con-
sidered the question of fixation of price by dividing the
sugarcane growers in two categories one, who are members of
any co-operative society and the others who are nonmembers.
It held that since those
590
growers who were members of the Society had to enter into an
agreement under the bye-laws framed which were the same in
all co-operative societies they could not make any grievance
against fixation of price. It found that even otherwise
before the Government which fixed the price they were
represented by their elected Board of Directors who
protected their interests. In respect of nonmembers it was
held that since they were not heard nor they were
represented by any one before the Committee they were placed
in a double jeopardy and in absence of any machinery to hear
them before the price was fixed they were put to grave
injustice. The Bench further held that since there was no
power in the State Order to fix the maximum price payable to
the cane growers, therefore, those growers who were non-
members of any sugarcane co-operative society or they were
suppliers to non-debtor factories they were not bound by the
prices fixed by the State Government. The price fixation
was binding only on the members of the debtor factory.
Having reached the conclusion that the price fixation was
not binding on the non-members, therefore, "they have a
choice either not to supply the sugar to any of the
factories or to sell it to the highest bodies", the Bench
held that, "the latter freedom of the members is however
rendered nugatory by the provisions of clause 3 of the State
Order", the effect of which was that the non-members would
be placed in a situation where either they had the option
not to supply the sugarcane to the factory owners or to
resign themselves to their fate by allowing their crop to go
waste. To get over this difficulty, what the Bench
described as Hobson's choice it resorted to Section
(3)(2)(f) of the Act read with Section 3(3)(c) and held that
the supply by the growers being in nature of a compulsory
sale, they were entitled to supply the sugarcane at the mar-
ket rate.
8. How far this conclusion of the Full Bench is legally
sustainable and whether the reasons in support of it are
properly founded is the crux of the matter that requires
consideration. Varied submissions on wide spectrum were
advanced touching upon not only the provision of the Act,
the Central and the State Orders but also the Cooperative
Societies Act, the limited' scope of interference by the
courts in policy decision and the principles of price fixa-
tion in controlled economy. If Sri F.S. Nariman, the
learned senior counsel appearing for the Sahkari Karkhanas
apprehended the effect of decision to be collapse of zoning
system and gradual erosion of cooperative movement in the
State, then Sri G. Ramaswamy, the teamed senior counsel
appearing for the State could not see any justification for
the court to interfere in matters of economic policy and the
direction of the Full Bench according to him was violative
of the scheme of the Act. Sri Dholakia, yet another senior
counsel appearing for the State did not find any rationale
to distinguish between controlled price and the market price
as once the price, of any commodity was statutorily fixed
under the orders issued by the Government then that alone
became the market price. Sri Venugopal the learned senior
counsel appearing for private undertakings urged that the
Act visualised water tight compartmentalisation of the Order
issued under it to balance the interests of consumers and
when the Government did not fix any maximum price but
provided for payment of minimum price only there was no
scope to import the concept of higher price or market price.
According to him
591
the rationale for price fixation did no suffer from any
infirmity nor it caused an prejudice to the cane growers.
Sri R. Nariman the learned senior counsel appearing for
joint stock companies urged that payment of market price
would result in closing down of smaller units as price
structure was co-related with yield and not the market.
Elaborating their submissions, the learned counsel submitted
that the Government of Maharashtra has been encouraging the
cooperative movement in the State over the last several
decades. As a result of its effort more than hundred sugar
factories have come to be established in the cooperative
sector. These cooperatives societies span the entire
spectrum of the State's agricultural sector. All the sugar-
cane-growing areas arc covered by one or the other
cooperative society which has established its own sugar
factory. This development has not only enhanced the sugar
production but has changed the very face of the rural
Maharashtra. It has brought prosperity and awareness to vil-
lagers besides providing several amenities. The cooperative
societies supply seeds, fertilizers, agricultural implements
and many other goods at comparatively cheaper rates to their
members. Many of them run schools and other educational
institutions providing education to the children of the
sugarcane growers. The interest of the State and the
interest of the public demands that this cooperative
movement is kept alive and is not allowed to be weakened or
stultified. On the contrary, every effort should be made to
encourage and promote it since the fate of these factories
is indivisibly connected with the well-being and survival of
millions of farmers who are their members. After the
amendment of the Maharashtra Cooperative Societies Act
(reference is to the 1985 Amendment which came into force on
and from May 12, 1985) any and every person who seeks to
become a member of the society will be enrolled as such.
What is called the concept of 'universal membership' has
been introduced by the said amendment. Every grower is
welcome to join the cooperative society of his area. Nobody
who applies will be refused, but if somebody wants to stay
out he cannot complain at the same time that he is being
paid the same price as the members of the society. It is
open to him either not to raise sugarcane or to raise and
sell the same to the cooperative factory concerned at the
same price as the members. He cannot claim a preferential
status. He too can become a member of the society if he
likes and avail of all the benefits provided by the society
but nobody can help him if he chooses to stay out
voluntarily. While the members are under an obligation to
raise sugarcane in the specified area year after year, the
nonmembers are under no such obligation; they are, free to
raise such crops as they choose. The argument further was
that the economy of each sugar factory was different for
various reasons it was also not possible to ensure an
uniform price by all the factories. And if every sugar
factory is compelled to pay price at Rs. 700/- a tonne, as
some factories are paying, most of them would go out of
market which would cause incalculable damage to the rural
economy of the State. If these societies are to be kept
alive, it is necessary that a separate price is fixed for
each factory having regard to its own economy and other
relevant factors. Neither the members can complain of it
nor the non- members. So far as the questions of law are
concerned, the learned counsel submitted that neither the
Central Government nor the State Government made any order
un-
592
der Section 3(2)(f) of the Act; hence, the was no obligation
upon them to ensure the price as contemplated by Section
3(3)(c). It was urged that even if it assumed for the sake
of argument that a order under Section 3(2)(f) must be
deemed to have been made by necessary implication, even then
Section 3(3)(c) must be held to have been satisfied for the
reason that the expression 'locality' in clause (c) means,
in the context, the reserved area (zone) in which the grower
is situated. The price paid by the sugar factory to its
members in that zone must be deemed to be and is the market
price there is no other price in the said locality and
since that is paid to the non-members as well, Section
3(3)(c) is satisfied.
9.Dr. Rajiv Dhawan, the learned senior counsel appearing for
the non-members, however, found compulsion flowing from the
zoning order both in supply and price which was arbitrary
and the basis for it being the efficiency of factory it was
wholly extraneous to price fixation for cane growers. Dr.
Abhishek Singhvi, the learned senior counsel, did not find
any justification for apprehending collapse of zoning or
cooperative movement. Dr. Rajiv Dhawan submitted that non-
members were not bound by the bye-laws of the society.
Those bye-laws are between the society and its members.
Because the society is indebted to the State, it is obliged
to agree to the price advised by the State Government, the
creditor. But so far as the non-members are concerned,
there was no reason why they should be bound by the price
fixed by the creditor for its debtor. The provisions of the
Maharashtra Reservation of Areas Order in effect and in
truth create a situation contemplated by Section 3(2)(f).
Looking from the point of view of the non-member growers,
the situation is no different from the one obtaining had a
formal order been made under Section 3(2)(f) requiring the
growers to sell their stock to the factory of that zone.
The Government cannot simply create such compulsion and
leave the growers to the mercy of the factory. In such a
situation, the factory would be free to exploit and take
advantage of their helplessness. A mere condition in their
licence that they shall pay the same price to nonmember
growers as is paid to member growers is not sufficient to
secure their legal rights. While the factory can wait, the
grower cannot, for the reason that if not harvested and used
at the appropriate time, the cane dries up, becomes less
yielding and then dies. The Government is bound to ensure,
in such a situation, price for sugarcane as contemplated by
Section 3(3)(c). The Reservation Order cannot be used to
promote or perpetuate the cooperative movement in the State
nor can it be used as a lever to compel growers to become
members of the cooperative societies. There is no such
compulsion under the Cooperative Societies Act and such a
compulsion cannot be brought about by the Reservation of
Areas Order. The nonmembers cannot be punished by compel-
ling them to sell their cane to uneconomic and inefficient
factories at the price such factories can afford, i.e., at a
price far lower than the true value and market price of the
cane. The members may be so compelled because they may have
a stake in the survival of those societies but the non-mem-
bers have no such ties to the factory. Article 19(1)(c) of
the Constitution of India entitles a citizen of this country
not to join a society or an association if he does not wish
to. He cannot be compelled by law to join a society or an
association. No
593
person can be compelled to walk into these societies, which
are in truth "debtor colonies". Inasmuch as the State has
failed to provide or to ensure the market price as
contemplated by Section 3(3)(c) of the Act, the Full Bench
was right in declaring that the non-members are entitled to
sell their sugarcane to whomsoever they like and at whatever
price they can obtain. Even with respect to non-members who
have entered into agreements with the factories, Dr. Dhawan
urged, the situation created by the Government is such that
the non-members are also being forced to enter into such
agreements. He explains the position thus: even if a non-
member does not obtain a loan, he will be paid the very same
price for sugarcane as a member of the society. If so, why
should a non-member forego the facility of loan which is
normally advanced at a lower rate of interest. By foregoing
the loan facility, he would be losing at both ends. The
vice lies, says Dr. Dhawan, in the very system that has been
generated by the statutory orders made by the State.
Therefore, he says, the nonmembers cannot be deprived of
their liberty to sell their product freely just because they
have entered into loan agreements. It is another matter
that they may be liable for damages for breach of contract
with the sugar factories but that is a matter between the
factory and that person. So far as the Government is con-
cerned, it cannot take note of that agreement and compel
such person to sell his cane at the SAP since that would
mean enforcing a private contract between the parties
otherwise than through court of law. Dr. Dhawan says that
in other States (other than Maharashtra and Gujarat) the
Governments have not only issued statutory orders creating
zones for each of the sugar factories but have also notified
the price at which the sugarcane is to be sold by the
growers to the factories and this price is common to the
entire State though it may vary corresponding to the sugar
content in the case.
10. Since entire thrust on the price structure operating
unfavourably to nonmembers of cooperative society proceeded
on assumption that price fixation by the Government for
cooperative society was influenced with creditor and debtor
relationship between the two it is necessary to understand
the mechanism of pricing for cane prevalent in the State and
whether it works harshly and unreasonably against non-
members. The entire process of price fixation can be
divided in three stages. The first is the fixation of what
is known as the minimum ex-factory price by the Central
Government under 1966 Order for entire sugar factories in
the country linking it with basic recovery of 8.5% with a
proportionate increase for every 0. 1% extra recovery.
Therefore, normally the minimum price of cane paid by two
factories cannot be same. For instance, the normal recovery
in the State of Maharashtra is stated to bell.05%. In the
year 1987-88 the minimum price fixed was Rs. 19.50 per quin-
tal. The highest and lowest price paid for the sugarcane in
the Ahmednagar District during 1987-88 was Rs.366/- and
Rs.240/ by Sangamner Sahkari Sakkar Karkhana and Jagdamba
Sahkari Sakkar Karkhana respectively. The recovery of
Sangamner SSK Ltd. was 11.64% whereas the recovery of
Jagdamba SSK Ltd. was 10.36%. It was explained that
difference of 1.28% between recovery of sugar by the two
factories resulted in difference of sugar production per
tonne to extent of 12.8 kg. and the realisation too was
Rs.64/- per tonne more. This difference got reflected
594
594
in the price fixation.
11. The next is the State Advised Price. Every State has
its own method to determine it. The power is assumed under
Acts of the State Legislature or orders issued by the
Governments. For instance, in the State of Haryana a
Sugarcane Central Board is constituted under -Section 3 of
the Punjab Sugarcane (Regulation of Purchase and Supply) Act
1953 headed by the Chief Minister and other high officials
of the Agricultural and Cooperative Department, the Director
of Sugar Mills etc. to advise the Government and the Cane
Commissioner on various matters including the price of cane
to be paid to growers. Similarly in U.P. and Andhra Pradesh
it is done under orders issued under the U.P. Sugarcane
(Regulation of Supply and Purchase) Act 1953 and the Andhra
Pradesh Sugarcane (Regulation of Supply and Purchase) Act
1961. In Maharashtra 95% of sugar factories are in the
cooperative sector. They are governed by the Cooperative
Societies Act and the bye-laws framed thereunder. Bye-laws
63, 64, 64A, 65A and 65B deal with fixation of price of
cane. Bye-Law 64 empowers the State Government to fix the
price of cane so long the amount invested by it in setting
up of sugar factory is not repaid. The exercise is un-
dertaken by a Committee constituted by the Government known
as 'Ministerial Cabinet Committee'. It comprises of the
Chief Minister and other concerned Minister. It takes into
account the ex-gate minimum price declared by the Central
Government, the estimated sugar production and its
availability for production by the sugar factories, the
estimated average of sugar factory, the estimated conversion
charges and the present day levy and free sale sugar price
while fixing the price. In the written submission filed by
the appellants it is stated that in the year 1993 while the
statutory minimum price fixed by the Government of India was
Rs.345/- per metric tonne the State Advised Price for the
State of Maharashtra was Rs.360/- to Rs.400/per metric
tonne. It is explained that although such price in other
States, for instance Andhra Pradesh, Madhya Pradesh and
Uttar Pradesh was Rs.400/-, Rs.530560/- and Rs.580-600/- per
metric tonne respectively but these prices were ex-gate
whereas in the State of Maharashtra it was ex-field. That
is a cane grower apart from the price determined by the
State Government is paid harvesting and transportation
charges etc. And when all this is totalled then the price
paid to the cane grower in the State is the highest in the
country. The advance cane price or the price for harvesting
and transportation is paid to the cane growers irrespective
of whether they are members of any cooperative society or
not. The advance according to the appellants was paid by
sugar factories under agreement entered with growers whereas
according to respondents it was paid by the Banks and the
nonmembers did not enter into any agreement. Since the
parties were at variance on an issue of fact they were
granted time on 24th February 1995 to file further affida-
vits clarifying their stand. From the affidavits filed it
now transpires that the loans are normally advanced by the
village societies or rural banks to the farmers on the
certificate issued by the sugar factories showing cane
plantation, acreage, date of plantation, etc. Although the
factum of agreement between the cultivator and the sugar
factory is riot clearly admitted in the reply filed on
behalf of the respondent but apart from those cultivators
who do not need any loan for growing the crop whose
595
percentage appears to be negligible, it appears by and large
rather the uniform practice is that a tripartite arrangement
is arrived between the cultivator, the loaning society and
the sugar factory. The loan is advanced on basis of the
certificate issued by the sugar factory and it is the sugar
factory which ultimately repays the amount due to the
loaning society out of the price of cane to be paid to the
cultivator, Such agreements were recommended by the Bhargava
Commission as well. Even otherwise no bank or society would
advance any loan unless it is assured of its repayment. It
is, therefore, reasonable to assume that the advance is paid
to the cultivators by the rural banks or societies on the
certificate issued by the sugar factories.
12. The third is the price paid at the end of the season.
The Bhargava Commission had recommended payment of
additional price at the end of season on fifty-fifty profit
sharing basis between growers and factories to be worked out
in accordance with Schedule II to the 1966 Order. Even
though in the affidavit filed earlier by the officials of
the Department in the special leave petition it was stated
that additional price was paid but a doubt had arisen as in
Ex.6 filed along with the additional affidavit of Dy. Secy.
to the Government of Maharashtra in C.A. No.523/89
explaining the mechanism of fixation of cane price it
appeared that in the State of Maharashtra either the State
Advised Price is paid or additional cane price is paid,
whichever is more. Therefore, the appellant was directed to
explain whether the additional price was paid in addition to
State Advised Price but the affidavit filed in pursuance of
the Order dated 24th February 1995 remains vague. It
appears the practice in the State is to pay the advance as
stated earlier at the beginning of the season and then the
cost of transportation and harvesting in the middle of the
season and the price worked out finally at the end of the
season, by the Ministerial Cabinet Committee headed by the
Chief Minister, Cabinet Ministers of the concerned
Department etc. on statements submitted by each factory and
recommendations made by the Committee after discussing the
matter with members of State Federation of Cooperative Sugar
Factories and representatives of the State Co-operative
Bank. In the State of Maharashtra, therefore, it appears
instead of additional price it is the State Advised Price
which is paid.
13. It would be appropriate to notice here how ,he State
Advised Price and the additional price is worked out and if
it in any manner prejudice the cane growers specially the
non-members. In the additional affidavit filed by Dy.
Secretary of Govt. of India in Civil Appeal No.523 of 1989
the mechanism of price fixation is explained as under :
------------------------------------------------------------
Mechanism of fixation
of cane price
Receipts - Financial Results -
------------------------------------------------------------
1. Sale of Sugar
596
Add - Value of the } Levy and Free sale
closing stocks } at assumed prices.
as on 30/9 of }
the year. }
Deduct - value of the opening }
stocks of the year }
2.Add or deduct profit or
loss from Ancillary Units.
3.Add - other receipts from
a) Sales of molasses Press mud Bagasse.
b) Miscellaneous
receipts.
c) Rebates
--------
(1) + (2) + (3) (R)
-------
Expenditure
I. Cane cost
(a) Govt. of India minimum price
linked with actual recovery
deducting the average harvesting/
transport charges.
II. Expenditure relating to cane -
Commission to Harvesting
and Transport contract
Khodaki etc.
III. Harvesting & Transport charges.
IV. Cane Purchase Tax.
V. Conversion charges.
a) Store consumption
b) Electrical charges
c) Outside repairs
597
d) Salaries/wages
e) Overheads
VI. Interest Payable.
1) Capital loans and deposits (NRD/RD)
2) Working Capital
VII. Bonus - Minimum 8.33%
VIII.Education Fund under section 68 Maharashtra
Cooperative Societies Act.
Audit Fees.
Other Provision.
DSI/Sakhar Sangh
-----------
Grand Total of 'E'
I to VIII
R - E = S Surplus
Deduct : Current Depreciation Investment |
Allowance Development Rebate and | D
part of accumulated losses |
S - D + 'NS' Net Surplus.
Per M.T. 'NS' = Additional cane price.
Govt. of India's Minimum statutory CP + Addi. C. P. = 'X'
Govt. of - Minimum
Maharashtra Advised CP - `Y'
X or Y whichever is more.
-----------------------------------------------------------
14. The manner of working out additional cane price is
provided in Schedule 11 of the Control Order, 1966 in
following manner:
598
"The amount to be paid on account of
additional price (per quintal of Sugarcane)
under Cl.5-A by a producer of sugar shall be
computed in accordance with the following
formula, namely:
R-L+2A+B
x = --------
2C
Explanation. - In this formula -
1. "X" is the additional price in rupees
per quintal of sugarcane payable by the
producer of sugar to the sugarcane grower.
2. "R" is the amount in rupees of sugar
produced during the sugar year excluding the
excise duty paid or payable to the factory by
the purchaser.
3. "L" is the value in rupees of sugar
produced during the sugar year, as calculated
on the basis of the unit cost per quintal ex-
factory, exclusive of excise duty determined
with reference to the minimum sugarcane price
fixed under Cl.3, the final working results of
the year and the Cost Schedule and return
recommended by such Authority as the Central
Government may specify from time to time.
4. "A" is the amount found payable for the
previous year but not actually paid [vide sub-
clause (9)].
5. "B" is the excess or shortfall in
realisations from actual sales of the unsold
stocks of sugar produced during the sugar
year, as on 30th day of September [vide item
7(ii) below] which is carried forward and
adjusted in the sale realisations of the
following year.
6. "C" is the quantity in quintals of sug-
arcane purchased by the producer of sugar
during the sugar year.
7. The amount "A" referred to in Expla-
nation 2 shall be computed as under, namely
(i)the actual amount realised during the sugar
year; and
(ii)the estimated value of the unsold stocks
of sugar held at the end of 30th September,
calculated in regard to free sugar stocks at
the average rate of sales name during the
fortnight 11th to 30th September and in regard
to levy sugar stocks at the notified levy
prices as on the 30th September.]
Explanation. - In this Schedule "Sugar" means
any form of sugar containing more than ninety
per cent. sucrose]."
-------------------------------------------------------------
15.A comparison of the two would indicate that there is not
much difference the two. In the latter too the cost
incurred in producing sugar has to be deducted fro the
receipts. In any case since the grow is paid either the
State Advised Price Additional Cane Price whichever is high
no prejudice can be said to be caused nonmembers. In the
affidavit filed on 10 March 1995 it is stated that the final
price determined for the earlier year is the advance price
for the next year. For instance, if amount 'A' was fixed as
final State Advised Price at the end of 1993-94 for a
factory then that becomes the advance pn. for 1994-95. It
has been explained the the final State Advised Price is
fixed basis of detailed statement submitted the Sugar
Commissioner giving a detailed operational financial picture
of the working of the sugar factories such as sugar cane
crushing, sugar recovery, sugar bags
599
produced, quantity sold as levy and free, income from other
items, cost relating to harvesting and transport of cane,
sugar factory wages, power, fuel, chemical and other
expenses, depreciation provision etc. etc. According to the
affidavit broadly these principles related to, (a) valuation
of closing stock of free sale sugar and molasses; (b)
fixation of Khodki charges (i.e. labour charges paid for
collecting cane pieces remaining in the field after
harvesting); (c) provision of depreciation and investment
allowance/development rebate; (d) sugarcane price to be paid
to the members/nonmembers outside the area of operation;
(e) limit of cash component to be paid to the farmers in
the cane payment where cane price is on the high side; (f)
interest rate on non-refundable/refundable deposits to be
paid to members/non-members; and (g) deductions to be made
compulsorily from the sugarcane price payment to the
farmers. In effect the price for next year which is paid at
the commencement of season comprises of not only the price
based on recovery of 8.5% but also the profit arrived at
after sale of sugar.
16. Few facts are necessary to be stated in respect of
price fixed under the bye-law of the society. One price
fixation for the cooperative societies under bye-law 64
either by the Director of Factories or by the State
Government was not challenged to be ultra vires, either
before the High Court or this Court. It cannot, therefore,
legitimately be urged that it was violative of the Control
Order or the Zoning Order or it was arbitrary. In fact as
explained earlier it is the State Advised Price. If the
claim of non-members is taken to its logical conclusion it
would act unreasonably for them. Let it be tested. Suppose
the price fixed for two factories 'A' and 'B' is Rs.400/-
and Rs.500/- respectively, 'X' being a non-member in area
'A' the price for factory 'A' is not binding on him. If it
be so the price fixed for 'B' is certainly not binding on
him. And the factory 'B' is not bound to offer him Rs.
500/-. It may or may not. That may lead to uncertainty and
even exploitation. And then the price of Rs.500/- fixed for
'B' is as much State Advised Price as Rs.400/- for 'A'.
Much argument was advanced on how the market price in a
locality should be understood. It appears unnecessary to
deal with it as any other construction would be destructive
of zoning and the concept of pricing in controlled economy.
Second, there is no machinery in the State to determine the
State Advised Price for non-members as 95% of the sugar
factories being in cooperative sector the fixation of price
under the bye-laws was always considered to be legal. And
rightly so. Therefore, any determination of price by an
authority under the bye-laws is valid for cane growers
attached to a sugar factory in reserved area. Third, entire
concept of minimum and maximum price for cane appears to be
out of place. As pointed out by the Commission minimum
price is fixed on quality formula. Further, average
recovery of the normal crushing period was preferred
according to Commission as against average recovery of the
optimum period. All this results in payment of adequately
reasonable price which comprises of not only cost of
cultivation but profit as well. It does not stop there.
The payment of additional price or final State Advised Price
on profits obtained by a factory as indicated earlier is
also paid. The price thus being paid on recovery of cane
and profits made from sale of sugar is not minimum but
optimum price which is paid to a cane grower. The fourth
and the most
600
important is that the advance paid to the cultivators at the
commencement of the season on final price determined for
earlier years appears to be reasonable and fair. The mere
fact that such determination is made in exercise of power
under bye-law 63 does not render it bad for non-members. No
objection could be taken to payment of transport and
harvesting charges. That too is explained to be linked with
distance etc. So long the determination of price is fair
and just and based on relevant material it cannot be held to
be not applicable to one class of growers, namely, non-
members in the zone because they are not members of the
cooperative societies. If the exercise of power is not bad
for members of the society it cannot be held to be bad for
non-members, unless it is found to be arbitrary. So far
cultivation of cane and payment of price is concerned the
two are similarly situated. Further the production of sugar
being of primary concern the Government ensured that the
growers were not denied the minimum. The Additional Cane
Price or final State Advised Price are paid as a mater of
incentive. And what is incentive for one year becomes the
minimum price for next year. The concept of market price,
better price or higher price thus has no place in the
scheme. There is no reason why such fixation should not be
held to be binding on nonmembers as in the scheme of price
fixation no distinction is made between members and non-
members.
17. The difference between members and non-members of
cooperative societies in relation to cane price may also be
noticed. A cooperative society usually invests 7.5% in
setting up of a factory or Sahkari Karkhana whereas the
balance is borne by the State and the financial
institutions. Its members under bye-laws are under
obligation to clear every dues of the society otherwise any
amount due from them to the society is first charge on the
sugarcane cultivated by them and is recoverable from the
price of cane. Every member of the society under bye-law
18A is required to undertake cultivation of minimum of half
acre. The nonmembers on the other hand have no such
obligation. They are not required to cultivate or grow any
minimum cane. But they derive all those benefits and
advantages as are available to the members of the society.
In the licence for crushing cane issued under clause 4(5) of
the State Order it is provided in the Form B clause (xvii)
that the factories shall be bound to pay same cane price to
non-members as members. A nonmember is also entitled to
share the profits which are worked out at the end of the
season. There is thus practically no difference between a
member and non-member so far supply of cane or its price is
concerned. A member is no doubt entitled to some facilities
such as running of other business or availing the education
facility etc. run by the cooperative societies but that has
nothing to do with cane price or its supply. As a matter of
fact the sale of by-products etc. is shown as receipt while
calculating additional price or final State Advised price.
18. With this background it may now be examined whether
provision in the State Zoning Order suffers from any
drawback for not providing any machinery to hear the
individual non-members and also whether the fixation of
price by the Director of Sugar Factories or the State
Government under bye-law 64 framed under Cooperative
Societies Act can be said to be binding on members only thus
entitling
601
nonmembers to sell their cane at market price. The exercise
of pricing is undertaken by a Committee in accordance with
guidelines provided after taking into consideration various
factors so that the price of sugar does not escalate and
cane growers are not deprived of good return to dissuade
them from going for alternative crop. In the affidavit
filed by the Under Secretary of the State it is explained
that the price determined by the Committee is notified every
year but no objection was ever received. No cane grower can
thus legitimately claim that the price fixed for the cane
was not productive. The affidavit also pointed out that the
non-members have not organised themselves so as to entitle
their representative to be invited. Hearing of every
individual grower even otherwise is physically impossible.
Presence of representative of cane growers' cooperative
society before the Committee fixing the price makes it broad
based. Such representative would bargain for better price
for cane growers irrespective of whether such a cane grower
is a member of the cooperative society or not. No repre-
sentative would agree for lower price for members of the
society. Therefore, absence of individuals or non-members
of cooperative society before the Committee fixing the price
cannot reflect adversely on the price fixation. No material
has been placed to demonstrate how the fixation of price by
the State Committee with assistance of Director of Sugar
Factories has prejudiced the non- members. In the affidavit
filed on behalf of the State it is pointed out that the
price of cane fixed to be paid by the Sahkari Sakkar
Karkhana is even paid by other factories. Reason being that
the price fixation having been done by the Committee it is
taken to be fair and just. Same reasoning applies to non-
members. Truly speaking the price fixation should be
observed in broad perspective. If every individual has to
be heard the entire system may fall for sheer non-practi-
cality. In Maharashtra there are 137 sugar factories. With
each factory nearly five to six thousand cane growers are
attached. Twenty per cent of them are non-members. If the
Committee starts hearing every individual non-member then it
shall prove to be an unending purposeless exercise. One may
have right to challenge the price fixation on ground that
the Committee or the authority did not act in accordance
with the guidelines for fixation of price in accordance with
the order but that right can be exercised appropriately only
after publication of the price. In these appeals since no
one objected, the individual members cannot claim that the
price fixed was not fair or just.
19. Therefore, absence of any machinery in the State Order
for hearing nonmembers could not destroy effectiveness of
pricing. Even otherwise the price fixation in a controlled
economy may not be bad so long it is in accordance with the
policy formulated by the Government and the decision by the
Committee of Experts is not found to be arbitrary. It
cannot be assailed only because cane growers of one area are
getting better price than the other. The difference in
price arising due to application of principle uniformly is
neither bad nor arbitrary. It may be that since the price
is linked with yield it may cause hardship to one set of
growers as they might be deprived of better price as
compared to his neighbour due to deficient functioning of
the factory but in a welfare State and controlled economy
individual hardship cannot override the larger social
interest.
602
20.Reason for government intervention to fix the price has
been explained earlier. It was to increase sugar
production. It continues even today. While doing so the
Government ensured stable and assured income to the growers.
That is why the pricing was devised even before 1950. When
the First Five Year Plan was drafted in 1951 the control was
justified, for smooth functioning of an unregulated economy.
When the second Five Year Plan was made it was recognised
that controls were administratively cumbersome but it was
found necessary for a developing economy. Necessity of
control for sugar and fixing of price for cane is as neces-
sary today as it was in 1934 or 1951 or 1956. The role of
price control is not merely to reduce distortions which
would otherwise have been prevalent resulting in
exploitation of cane growers particularly when there was
surplus production of cane but to promote his financial and
social condition. The fruits of controlled economy for the
weaker and poorer cannot be doubted. In agricultural sector
the price control as an instrument of policy has boosted the
economy. To denounce it, therefore, may not be in interest
of the cane growers. Once when there was glut of cane in
1990- 91 it was the State which came to rescue and paid Rs.
10,000/- per hectare even to non-members. The Full Bench
too did not find any flaw in price fixation, nor it held it
to be unremunErative yet it imported the concept of free and
competitive market price for those cane growers who were not
members of any society mainly because they were not bound by
the bye laws. The submission of compulsive cooperative
system founded on bye laws does not have much substance. No
material was placed before the High Court or this Court to
substantiate
that the Government resorted to under pricing of cane to
enable the sugar factories to discharge their financial
obligation. In absence of any material it cannot be assumed
that the Director of Sugar Factories who are none else than
cane growers themselves would opt for a lesser price for
their cane because the sugar factories of which they are
members were under an obligation to pay their debts.
21. Coming to the other rationale of the Full Bench that
the price of cane having been fixed under the bye- laws for
the cooperative societies it was binding on the members and
not others it may be appropriate to reproduce the gist of
relevant bye-laws noticed by the Full Bench
"Bye-laws Nos.63, 64, 64A, 65A and 65B deal
with the fixation of price of sugarcane and
deduction of certain amounts from the prices
paid to the members.
Bye-law 63 states that the Board of Directors
of the factory will give advances to the
members against the price of the sugarcane
supplied by them, by prior permission of the
Director of Sugar and the Deputy Registrar of
the Co- operative Societies and in accordance
with their directions and after making
deductions for certain purposes.
Bye-law 64 states that the price of the
sugarcane supplied by the members, shall be as
fixed by the Board of Directors every year.
The Board of Directors will fix the price
according to the constitution, the object and
the bye- laws of the society and after taking
into consideration the financial transactions
and conditions of the year. The bye-law then
makes an exception to this general rule and
states that so long as the share capital
invested by the Government is not refunded
com-
603
pletely and/or the loan taken from the In-
dustrial Finance Corporation or from any
Central Financial Institution supplying funds
for fixed capital assets is not fully repaid,
the price to be paid to the members shall be
that as fixed by the State Government. For
the purposes of our discussion, we will refe
r
to this period briefly as the debt-period.
Bye-law 64A states that whenever it becomes
necessary for the factory to purchase
sugarcane from non-members outside its
jurisdiction, the factory shall take
permission of the State Government for such
purchase. However, during the debt period the
price to be paid to the nonmembers shall be
that as will be fixed by the State Government
before the beginning of the crushing season.
Bye-law 65A mentions the deductions to be made
from the price payable to the members for
raising non-refundable deposit from them, the
rate of such deductions and the rate of and
the manner of its disbursal and the interest
to be paid on such deposit.
Bye-law 65B gives power to the Board of
Directors to collect deposits by making
deductions from the price to be paid to all
sugarcane suppliers and states that such
deposits shall be used only for the expansion
of the factory and other capital expenditure.
The bye-law also lays down the rate of
interest to be paid on such deposits."
Bye-law 64 empowers the Board of Directors to fix the price
of sugarcane to be supplied by members of cooperative soci-
ety to the factory. It further provides that the price so
fixed shall be according to the Constitution the object and
the bye-law of the society and after taking into consider-
ation the financial transaction and conditions of the year.
In this bye-law there is a further exception empowering the
State Government to fix the price so long the share capital
invested by the Government is not refunded completely or the
loan taken from the financial institution is not repaid.
The Board of Directors which are referred in the bye-laws
are none else than the agriculturist or the cane, growers
themselves. It is difficult to visualise that they would
opt or fix a price for the sugarcane which would be
unremunerative. As explained earlier the price fixed by the
Cabinet Committee in exercise of power under the bye-law is
the State Advised Price. It applies uniformly to all cane
growers irrespective of whether they are members or non-
members and whether they are in reserved area or outside it.
To confine it to the members as they having entered into
agreement and being members of the cooperative societies are
bound by it is ignoring the entire price mechanism. Nowhere
in the country the State Advised Price is fixed for one
class of growers only. In absence of any material to show
that the fixation by the Government was one sided or with a
view to exploit the cane growers the submission that it did
not apply to non-members cannot be accepted. The order does
not make any distinction between members and non-members.
Nor does it visualise separate mechanism for price fixation
for the two. The price is fixed, may be, by the Board of
Directors or by the State Government under bye-laws but the
prices are for the reserved area. The Central Government
did not fix any maximum price obviously because the
conditions in the agricultural sector differed from State to
State. Therefore, it having fixed a minimum price expects
the State to offer remunerative price to its cultivators.
In a controlled economy the price fixation machinery is to
be determined by
604
the State Government or under the 1966 Order in the manner
provided therein. Since in Maharashtra 95% of the sugar
factories are in the cooperative sector the price is fixed
by the Government as it has substantial financial stock.
But so long the price fixation does not suffer from any
infirmity or it is held to be prejudicial to cane grower so
as to benefit the State or the financial institution it
cannot be held to be bad. Therefore once the price fixation
has been undertaken and performed by such an authority it
cannot be held to be inapplicable to one particular class of
cane growers as the fixation having been done by the State
Government under the bye-laws it was not binding on those
cane growers who were not members of any society. That
would be defeating the entire purpose of enforcing controls.
22. Reverting to the various issues which arise for
consideration it may be stated that zoning or reservation
and fixation of price for each zone are inter-linked.
Therefore, it may be seen whether zoning suffers from any
infirmity. It has already been explained that even under
the 1966 Order the fixation of minimum price Is factory-
wise. Thus each factory has been considered to be one zone.
Reservation or zoning and fixation of price for each zone
has been upheld by this Court in Shri Malaprabha Coop.
Sugar Factory Lid v. Union of India & Anr. (1994) 1 SCC 648
and Anakapalle Co-op. Agrl. and Industrial Society Lid.,
etc.etc. v. Union of India and others (1973) 3 SCC 43 5.
That was not challenged as well. Yet it was urged that such
zoning could not be used to enforce a cooperative pricing
system contrary to the statutes and rules. The approach
does not appear to be correct as it assumes that price
fixation is undertaken for cooperative societies as they are
indebted to State Government, Manner of price fixation has
been indicated earlier. The exercise is taken by the
Committee in accordance with guidelines in the 1966 Order.
In absence of any challenge to it on ground of it being
arbitrary or being in violation of the principles of pricing
the assumption that pricing in zone is like a private
arrangement between the State as a creditor and cooperative
society as a debtor cannot be countenanced. The mere fact
that the bye-laws empower the State Government to fix the
price for cooperative society does not render it bad. If
the price fixed by the Government is good for members of
cooperative society who are as much cane growers as
nonmembers then there is no reason to hold that such price
was bad or it operated unreasonably for non- members.
Zoning has been resorted to in the State to regulate the
supply of cane to various factories on equitable basis. It
is a well established feature in the country. Once a zone
is reserved for a factory the cane grower has an obligation
to supply cane to the factory and the factory has a
corresponding obligation to lift the cane from the field,
crush it produce sugar and pay to the grower not only the
minimum price but also share the profit with him.
23. In the affidavit filed by the Dy. Secretary of the
State it has been explained that while forming the zones for
the sugar factories besides capacity and requirement of
sugarcane to the sugar factory the physiological nature of
sugarcane is also taken into consideration. It is stated
that crop of sugarcane is a perishable commodity and it has
to be crushed at the earliest after its harvesting for which
the optimum distance of 40 kms has been laid down by the
Union
605
of India, therefore, zones of the factories are normally
between 35 to 40 kms radius around the factory. The
affidavit points out that in the process of zoning many
Talukas in the State pockets where there are no sugar
factories have been left out because those areas do not fall
within the radius of 35 to 40 kms. However, from such
pockets where the sugarcane is produced such sugarcane is
allotted to the neighbouring needy factories in accordance
with the Maharashtra Sugar Zoning Order and the cultivators
supplying sugarcane from such free areas, even though they
are non-members they, get the same benefits as are available
to the members of the said factory to whom the sugarcane is
allotted. It is also stated that in any areas where there
is no sugarcane production or it is very meager like the
parts of Thane District, they have been kept free because
such sugarcane involves huge transport costs and it is not
possible to transport the sugarcane in adequate quantity to
any of such factories. The affidavit further points out
that in those areas where there is adequate sugarcane supply
or they have good potential for growing sugarcane but there
is no sugar factory they have been kept free so that the
rights of sugarcane growers in such areas to organise and
establish sugar factories can be protected. Till such time
the sugarcane grown in such areas is allotted to the
neighbouring needy zone and the price paid is the same as is
paid to the members of the cooperative societies of the
sugar factories. In one of the applications filed by one of
the karkhanas, I.A. No. 11 of 1993 in C.A. No. 523 it is
stated that before the crushing season starts the karkhana
enters into an agreement both with the members and non-
members and gives them all necessary input for growing
sugarcane such as seeds, fertilisers, technical know- how,
guarantee, finance for crop loan and also undertakes an ac-
tivity of harvesting and transporting of sugarcane. The
application points out that the claim of the non-members was
not justified as when there was a glut then it were the
karkhanas like the applicant who had at heavy expenditure
ensured that the cane of the non-members was diverted to
other karkhanas and they even bore the cost of
transportation. But in absence of Zoning Order when there
was a glut then the sugar factories exploited the cane
growers by offering them lower price. It has been pointed
out that nearly 80% to 95% sugar factories are in the
cooperative sector but some of them have better cane growing
areas coupled with better and efficient functioning of the
factory. They are in a position to offer better price as
compared to other factories which are economically weak and
are in difficulty. What is clear from these affidavits is
that zoning is beneficial to the cane growers and it has
been resorted not only to ensure that the regular cane
supply is available to sugar factories but also to protect
the cane growers who may otherwise have been seriously af-
fected.
24. Having discussed the pricing of sugarcane, the near
similarity between members and nonmembers of a cooperative
society qua supply of cane and payment of price, the non-
feasibility of hearing every individual grower by the Com-
mittee before fixation of the price of cane and
applicability of uniform rate of cane in the reserved area
both for members and non-members it may now be examined
whether supply of cane by the cane growers under the Zoning
Order issued by the State of Maharashtra is a compulsory
sale within meaning of clause (f) of sub-sec-
606
tion (2) of Section 3 of the Act so as to attract Section
3(3)(c) of the Act. Both these sub-sections arc part of
Section 3 of the Act which is the main Section and is
directed towards achieving the objective of the Act to
provide, in the interest of general public, for the control
of the production, supply and distribution of, and trade and
commerce in certain commodities. Sub-section (1) of Section
3 spells out the general power of the Government to control
production, supply and distribution of essential commodities
if it is of opinion that it is necessary or expedient so to
do for maintaining or increasing supplies of any essential
commodity or for securing their equitable distribution and
its availability at fair price. Sub-section (2) illustrates
this power, further, by empowering the Government to provide
for, issuing licences or permits for production or
manufacture of any essential commodity or for its storage,
transport etc. and for controlling price at which an
essential commodity may be bought or sold. Its clause (f)
empowers the Government to direct any producer to sell the
goods produced by it either to itself or to State Government
or to any person or class of persons specified in the Order.
What price is lo be paid to the producer for such sale is
provided by Section 3(3) of the Act. Relevant part of it is
reproduced below:
"S.3. Powers to control production, supply,
distribution, etc., of essential commodities
(1)..........
(2)..........
(3) Where any person sells any essential
commodity in compliance with an order made
with reference to clause (f) of subsection
(2), there shall be paid to him the price
therefor as hereinafter provided
(a) where the price can, consistently with
the controlled price, if any, fixed under this
section, be agreed upon, the agreed price;
(b) where on such agreement can be reached,
the price calculated with reference to the
controlled price, if any;
(c) where neither clause (a) nor clause
(b)applies, the price calculated at the market
rate prevailing in the locality at the date of
sale."
A very perusal of it indicates that its field of operation
extends to where any person is required to sell any
essential commodity in compliance with an order made with
reference to clause (f) of sub-section (2) of Section 3.
25. Two conditions, therefore, must exist one, it should
be a sale of an essential commodity and second that such
sale must be in compliance with an order with reference to
sub-section (2)(f) of Section 3, the relevant part of it
reads as under:-
"S.3. Powers to control production, supply,
distribution, etc., of essential commodities
(1)........
(2) Without prejudice to the generality of
the powers conferred by sub-section (1), an
order made thereunder may provide
(a)
(b)
(C)
(d)
(e)
(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,
607
(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 or a specified part of such
commodity when produced or received by him,
to the Central Government or a State Gov-
ernment or to an officer or agent of such
Government or to a Corporation owned or
controlled by such Government or to such other
person or class of persons and in such
circumstances as may be specified in the
order."
This sub-Section came up for interpretation by this Court in
Union of India & Anr. v. Cynamide India Ltd. & Anr. (1 987)
2 SCC 720. It was held:
" an order under Section 3(2)(f) is a specific
order directed to a particular individual for
the purpose of enabling the Central Government
to purchase a certain quantity of the
commodity from the person holding it. It is
an order for a compulsory sale. "
It was reiterated in Shri Malaprabha (supra) and it was
observed:
"It is a specific order directed to a par-
ticular individual in order to enable the
Central Government to purchase a certain
quantity of commodity from the person holding
it. It is an order of compulsory sale. "
26. Can clause (3) of the State Order issued in 1984 either
on the language or its effect be construed to be an Order of
compulsory sale? It expressly does not purport to be. an
order under Section 3(2)(f) of the Act. It is not an order
of the nature as was issued by the Central Government for
sale of levy sugar. It does not direct cane grower to sell
its cane to the Government or to any person specified in the
Order. In absence of any provision the order cannot be held
to be order directing the producers to sell the cane so as
to make it a compulsory sale under clause (f) of sub-section
(2) of Section 3.
27.Language of the Order apart even otherwise the purpose
and objective for which the Order was issued does not re-
motely or even impliedly warrant any inference that the
supply of cane by the growers was sale. Mere restriction on
supplying cane to anyone else than the specified sugar
factory cannot be construed as an order for sale. It is
true that the effect of such an order as has been issued by
the State of Maharashtra is that a grower who is in the
reserved area is precluded from supplying his cane to any
other factory than the one specified but that is a
restriction to subserve the main objective of ensuring that
the sugar factory is not starved and the production does not
suffer. That does not make the Zoning Order one of com-
pulsory sale. Any order under sub-section (1) resulting in
restricting the supply of essential commodity in a
particular area or directing it to be sold or purchased on a
particular price is not an order under Section 3(2)(f) of
the Act. If compulsion arising out of restriction is held
to be compulsory sale then it would render the entire scheme
of Section 3(2) nugatory. What is contemplated by Section
3(2)(f) is a specific order. It applies in those cases
where any essential commodity is directed to be sold or
parted with in pursuance of an order of the Government. It
has no application to supply in a reserved area. Further
under clause (5) of Zoning Order the cane
608
under orders of the Director can be supplied to other
factories. The provision completely demolishes the argument
of compulsory sale.
28.What was vehemently urged by Dr. Dhawan, was that the
invidious pricing system resorted to by the sugar factories
which were indebted to State Government resulted in forcibly
drawing such cane growers who were not members of any coop-
erative society, therefore, it was contrary to the statutory
equitable pricing system consequent to the compulsory sale
under the Act. It was urged that the fixation of price was
irrational and unfair as it had no bearing or relation to
the yield of the crop or to the predicament of the farmer.
The learned counsel vehemently submitted that any pricing
resorted to either by the cooperative societies or by the
State Government solely and exclusively in relation to the
management of cooperative factories was an extraneous and
irrelevant consideration. The learned counsel urged that
since price fixation was not delegated under the 1966 Order
any action by the State Government or cooperative societies
to resort to price fixation which was unfair and unjust to
the nonmembers was contrary to the Act. The submission
proceeded on assumption that the fixation of price was in
respect of a commodity which was directed to be compulsorily
sold under the orders issued by the Government. As ex-
plained earlier the assumption does not appear to be well
founded. The entire edifice of the submission was built on
the compulsive nature of transaction involved in supply of
cane and payment of price But what was lost sight of was
that Section 3(3)(c) could be attracted only if the order
issued by the Government could be held to be one under
Section 3(2)(f). The submission ignores that economics of
pricing in a controlled economy is entirely different than a
free market. The equilibrium in the latter is reached by
interaction of supply and demand. Its graph keeps on moving
up and down governed by the principle of scarcity. But the
controlled economy does not operate on demand and supply.
The production, distribution and the supply are regulated
and controlled by the Government in public interest. Such
orders are issued in social interest for the common benefit
and fair price for the needy and poor. Legality of such
orders cannot be tested on cost structure of free economy or
maximum profit theory. The concept of cost structure and
the profit in a controlled economy is entirely different.
In M/s. New India Sugar Works etc. etc. v. State of Uttar
Pradesh & Ors. etc. etc. (1981) 2 SCC 293 this Court
although in a different context observed as under:
"The policy of price control has for its
dominant object equitable distribution and
availability of the commodity at fair price so
as to benefit the consumers. It is manifest
that individual interests, however' precious
they may be must yield to the larger interest
of the community, namely, in the instant case,
the large body of the consumers of sugar. In
fact, even if the petitioners have to bear
some loss there can be no question of the
restrictions imposed on the petitioners being
unreasonable.
29.The another facet of the same submissions by Dr. Dhawan
was that due to operation of the State Order directing a
cane grower to supply its cane to a factory in whose
reserved area it falls, the real nature of supply was a
compulsory sale as visualised in Section 3(2)(f). It was
attempted to be supported by clauses (6)(a), (6)(b), (6)(c)
of the 1966 Order and clauses
609
(3)and (1) of the State Order. It was urged that even
though compulsory supply has to be made by operation of
different provisions of the two orders yet it was in nature
of contract of sale under compulsion. Reliance was placed
on Andhra Sugars Ltd. & Anr. Etc. v. State of Andhra
Pradesh & Ors. (1 968) 1 SCR 705 and Vishnu Agencies (Pvt.)
Ltd. Etc. v. Commercial Tax Officer & Ors. Etc. (1978) 2
SCR 433. The learned counsel submitted that since the Order
was specific both in letter and intent and it was clear from
the schedules that all growers could supply cane only to an
identifiable sugar factory the necessary inference that
arose was that it was a compulsory sale and, therefore, the
respondents were entitled for a market price under Section
3(3)(c). Help was also taken from Shri Malaprabha (supra)
and it was urged that where there were general orders which
identified the seller and the buyer and both were aware of
the nature of transaction that the sale had to be made to
identifiable designated person the sale was nothing but a
compulsory sale. It was urged that a provision with in
built specific identification could not be used as a device
to disguise the real nature of transaction. None of the
submissions appear to be well founded. As observed in Shri
Malaprabha (supra) and Anakapalle (supra) the provisions of
Section 3(3)(c) could apply only where there was a specific
order of sale. In absence of any such order the inference
that the learned counsel for respondent has attempted to
draw cannot be said to be justified. What is contemplated
under Section 3(3)(c) is an order of a compulsory sale and
not a compulsion arising out of enforcement of restrictions
under the provisions of controlling distribution and supply.
A cane grower in a reserved area gets the price for supply
of his cane to a specified factory. This price is payable
both to members and nonmembers. The orders only restrict
that the supply could not be made to any factory outside the
area. The restriction may result in confining the choice
but it cannot be construed as an order of sale. The situ-
ations in which an order can be considered to be an order
for compulsory sale may be one where the Government by a
particular order or a general order as in the case of levy
sugar directs the producer to part with his goods. Number
of commodities have been declared to be essential commodity
under Section 3 of the Act. Its supply and distribution may
be regulated either by restricting the area or fixing the
price. If in respect of any such commodity the Government
passes an order directing a producer to sell any essential
commodity to Government or to any class of persons specified
in the order then it shall be a compulsory sale. None of
the decisions on which reliance was placed has any
relevance. The observation in Andhra Sugars (supra) that
where cane growers entered into agreement with factory
owners who were bound to purchase the cane by operation of
statutory provisions may amount to compulsion of law and not
coerce and the agreements so entered are enforceable as
contracts of sale as defined in Section 4 of the Indian Sale
of Goods Act, did not mean that the compulsive element of
supplying cane resulted in compulsory sale. The Court was
bringing out the distinction between coerce and compulsion
under law. But every compulsion does not bring about a
compulsory sale. Similarly the other decision in Vishnu
Agencies (supra) was concerned with determining whether
supply made under statutory order was sale for purposes of
levy of sales tax.
610
30.The dual pricing system, one, for members and other for
nonmembers or the option to non-members to sell to the
factory of their choice may be negative of the zoning
concept and may effect the cooperative movement in the
State. Dr. Singhvi may be right that even before Zoning
Order was issued the cooperative movement was there and the
benefits that a member of the society derives may not result
in affecting the system largely but any policy which has the
tendency of shaking the system rudely must be avoided.
31.Consequently the first two directions issued by the Full
Bench on price fixation cannot be upheld. As regards third
direction it has been explained in the affidavit filed in
pursuance to order dated 24th February 1995 which
substantially remains uncontroverted that the deductions
under bye-law 65 are made for the Chief Minister's Relief
Fund, Small Saving Schemes, Cane Development Fund,
Vasantdada Sugar Research Institute, Area Development Fund
etc.. The details as to how the deductions are made have
also been mentioned. It is true that they are made in
exercise of power under bye- law 65 which does not apply to
non-members. But these deductions being for the general
welfare of the society it cannot be said that they are
either bad or they suffer from any infirmity. The deposits
deducted unlike members arc refundable and they carry same
interest as is paid to members. A non-member who is sharing
in profits of the sugar production cannot be heard to say
that he has no obligations towards the society because he is
not a member of any co-operative society.
32.With the conclusion thus arrived the other issues are
rendered academic. Suffice it to say that the Court's
responsibility is to construe the provision which may
advance the co-operative movement in the State. The
amendments in Sections 22 and 23 have facilitated the
membership Notwithstanding the right of a cane grower to
become a member of cooperative society the provisions cannot
be construed so as to result in nullifying the whole system
of control devised to improve production of the sugar in the
country. For sake of more profit to few individuals the
society cannot be made to suffer. Ours is a mixed economy.
Competition and control have been blended to reduce economic
imbalance. If the individual growers who do not constitute
more than 20% otherwise get the same profit as a member of
cooperative society then there appears no justification to
construe the provision to give them a bit more profit when
it is fraught with danger of small units closing down and
the entire zoning system coming to a crash.
33. Even though as discussed earlier the supply made by
the non-members could not be considered to be compulsory
sale within meaning of Section 3(2)(f) and therefore, the
provisions of Section 3(3)(c) are not attracted, yet the
methodology adopted by the State for fixing price requires
to be rationalised as various discrepancies have surfaced
for which there is no satisfactory explanation. The Full
Bench felt that there was something grievously wrong with
pi-icing system in the State, therefore, it found a legal
basis for striking it down at least for non-members. What
is baffling is that even though factory after factory,
rather, nearly the entire lot is shown to be suffering loss
yet new units are coming up every day in the cooperative
sector. May be because as
611
claimed by the State it is vitally concerned in production
of sugar and is, therefore, investing substantial funds,
nearly 95% in setting up of the units. May be as suggested
by the respondents that the public funds thus transferred
for social welfare is being siphoned off by vested
interests. May be as argued that the loss is more paper
work than truth as in fact it has resulted in giving rise to
what has come to be known as powerful political sugar lobby
in the State of Maharashtra. But these are matters more
political than legal, the remedy for which may not be in
courts. Even otherwise it is not possible to identify the
evil, both, for paucity of material and discipline, of re-
straint, of keeping away rather than delving in such
hazardous zone. All the same from the chart filed along
with the affidavit in C.A. No.523 of 1989 it appears the
factories having better recovery have been permitted to pay
lower price as compared to the factories the recovery of
which is lower. For instance at item Nos.14 and 15 the two
karkhanas, Ashok and Dayaneshwar, arc shown to have recovery
of 10.21% and 10.53% respectively. Yet the price paid in
1985-86 was Rs.270/ - per tonne by Ashok whereas it was
Rs.250/- by Dayaneshwar. Similarly serial nos.21 and 22 the
factories, Sanjiwani and Sangamrer with same recovery, that
is, 11. 3 1 % have been made to pay Rs. 3 64/ -, Rs.330/-
and Rs.240/- for years 1985-86, 1986-87 and 1987-88 and
Rs.391/-, Rs.348/- and Rs.366/- respectively. Then again at
serial no.37 and 38 Shriram and Ajinkyatara the recovery
percentage was 10. 84 and 11. 75 respectively and the price
paid was Rs.311.50, Rs.300/- and Rs.285/ - and Rs.305.50,
Rs.330/- and Rs.415/respectively. It has not been explained
how this difference has arisen. Such wide disparities are
bound to create distrust. In price mechanism chart the
expenditure which is deducted from the receipts includes
overheads which are substantial. Over and above the
interest, loan, bonus etc. is also deducted.
34. In the written arguments filed on behalf of respondents
it is explained that there is considerable disparity in the
market price of sugarcane in Maharashtra in recent years and
the variation in 1990-91 ranged between Rs.545/- to Rs.275/-
in 1991-92 between Rs.511/- and Rs.286.80 whereas in 1992-93
it was between Rs. 731/ -and Rs.310/-. According to
respondents this price variation has nothing to do with the
product, namely, the recovery from the sugarcane but is
based on extraneous consideration as seen by its principal
creator, namely, the State Government.
35. The respondents may not be justified in advancing this
submission as the entire price structure of cane is founded
on two basic factors, one, the recovery percentage and other
the incentive for sharing profit arrived at by working out
receipt minus expenditures And that is neither contrary to
law nor unfair. But the wide disparity in the price paid by
two factories is certainly glaring and is apt to create
misgiving. How to remedy it? In a welfare society the
consumer of essential goods is as important as the
manufacturer and producer of it. The entire objective of
the Essential Commodities Act is to promote social welfare.
It is being achieved by controlling price of sugar with
equal emphasis on cultivation of cane and its price. Any
legislation must be viewed with this perspective. In the
Zoning Order clause (5) empowers sugar factory to accept
cane from other zone as well but no similar right has been
given to cultivators.
612
For better appreciation the entire clause is set out :
"5. Regulation of supply of Sugarcane.-
(1) A permit officer may allow a sugar
factory to purchase cane or to accept supplies
of cane from cane growers from areas other
than the area reserved for it under clause 3
if he is satisfied that any 'of the following
circumstances exist namely
(a)In the event of production of cane in the
area reserved for the factory being not
adequate for enabling it to reach optimum
level of crushing;
(b)In the, event 'of surplus production of
cane in the areas reserved for other factories
which those factories are not able to crush
during the crushing season.
(c)In the event of stoppage of nearby sugar
factory due to mechanical break down, labour
unrest, lock-out or any other reason.
(d)In the event of cane grower or cane growers
from the area reserved for a particular
factory declining to supply cane to the said
factory on account of any of the following
reasons, if found justified by the Permit
Officer
(i)Non-payment or late payment of cane price
by the sugar factory; or
(ii)Non-fulfilment of any of the obligations
by the sugar factory arising out of agreement
between the cane grower or cane growers and
the sugar factory; or
(iii)Discrimination by the sugar factory in
harvesting of cane and thereby causing loss to
the cane grower or the cane growers;
Provided that before passing any order under
this sub-clause, for any of the above reasons,
the Permit Officer shall give the parties
concerned a reasonable opportunity of being
heard in person or through the authorised
representative."
36.Clause (5) prescribes the situations in which one sugar
factory will be permitted by the prescribed authority to
purchase sugarcane from the zone of another sugar factory.
It does not provide for the cane grower seeking a permit for
sale of his cane to another sugar factory (than the factory
within whose zone he may be situated) even if any or all the
conditions prescribed in the clause are satisfied. Take a
case where a sugar factory indulges in all the three
irregularities mentioned in subclause (d) of Clause (5),
viz., it does not pay the price of cane at the proper time,
it does not adhere to the agreement it has entered into with
the grower and it also discriminates in harvesting the cane
thereby causing loss to the cane growers even then the cane
grower cannot apply for permit to sell his cane to
whomsoever he likes. All that probably he can do is to
complain. But he will get some relief only when there is
another factory (which, of course, has its own zone) which
is prepared to purchase cane from this zone and applies for
permit to the permit officer to purchase cane from this
zone. If it does not so apply, the grower within the first
zone is helpless. That is not being fair and just to the
growers. It is, therefore, necessary that the State
Government may suitably amend the Zoning Order so as to
provide that in a case where any of the three circumstances
mentioned in Clause 5(d) are present it would be open to the
613
cane growers to apply to the specified officer for
permission to supply his cane outside the zone. In such an
event, it may be open to the officer to designate the
factory to which the grower should sell his cane ensuring
that the grower gets a price which is not less than the
price obtained in his zone.
37.The State Government would be further well advised to get
the matter thrashed out, before the next crushing season
commences, by an Expert Committee comprising of economists
and financial experts well versed in price fixation,
particularly in agricultural sector. This exercise has
become imperative after the enforcement of Zoning Order. In
fact when Zoning Order was introduced the State at that time
should have got these aspects examined. However, the price
equation since 1984 has undergone tremendous upsurge. The
escalation is manifold. Benefit of higher price of sugar
must percolate to growers as well. Therefore, the Committee
may examine,
(a) if the fixation of State Advised Price
uniformly for the entire State as it is being
done in other States, or at least separately
for different zones, as the normal recovery in
the zones varies, would be more feasible;
(b) if the additional price worked out in
the manner indicated in Schedule 11 of Control
Order of 1966 is more advantageous and
beneficial to the growers. If it be so it may
opt for the same as it would avoid tedious
exercise by the Ministerial Committee and have
the benefit of uniformity;
(c) The Committee may further examine whether
Rs. 600/- which has been paid by the factories
to the non-growers under interim order passed
by this Court would not be a reasonable
minimum price for 1995-96 and may furnish the
basis for fixation of price for future years;
(d) It may also suggest ways and means for
improving yield by the sugar factories and
reducing overhead expenses and eliminating,
possible, paper loss;
(e) It would further be in interest of the
Government to ask the Committee to examine if
the shortcomings pointed out by the Full Bench
in other regard can be rectified and
rationalised; and
(f) The Committee may examine whether bye-
law 65 should be applied to nonmembers or not.
38. Although the price fixation has not been found to
suffer from any infirmity yet due to passage of time, nearly
eight or nine years, since this price fixation was
challenged and with rise of price all around it appears
expedient to dispose of these appeals with following
directions to ensure smooth functioning both for the past
and future :
(i)The directions of the Full Bench in
paragraph 25 of the Judgment shall stand set
aside.
(ii)The State Government may take appropriate
steps to amend Clause (5) of the Zoning Order
so as to protect the cane growers.
614
(ii) The Government may appoint a Committee
of Experts to study and examine the price
structure in the light of what has been stated
earlier.
(iv)Even though the order issued by the State
Government determining price for each factory
is upheld but since in consequence of the
order passed by the High Court an interim
order was granted by this Court and the
factories were directed to pay Rs.600/- to the
cane growers and they were directed to furnish
bank guarantee for Rs.145/- it is directed
that the amount paid by the factories shall
not be liable to recovery from the cane
growers. But the bank guarantee furnished by
the appellants or sugar factories shall stand
discharged.
(v) It is made clear that the direction not
to recover Rs. 600/- from non-growers would
not entitle any member of the cooperative
society or the cooperative society itself to
claim that it was entitled to be paid Rs.600/-
for its cane during the years in dispute.
39. For the reasons stated in the order these appeals are
disposed of with above directions. Parties shall bear their
own costs.
615





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