Gujchem Distillers India Ltd. vs Union of India

Akil Abdul Hamid Kureshi, J.—These proceedings arise in the following background. The petitioner GUJCHEM Distillers is engaged in the manufacturing of Absolute Alcohol and Rectified Spirit (here-in-after referred to as "the Control products"). These items were subject to price control under the Ethyl Alcohol (Price Control) Order, 1971 (here-in-after referred to as "the Price Control Order") as amended from time to time. The Price Control Order is effective from 1.10.1987 providing the maximum price which the manufacturer of the said products could charge from the intermediate consumers. The product had industrial use in chemical and other industries. Under the Price Control Order, the following maximum price was fixed:

"1. Absolute alcohol confirming Rupees two hundred two hundred to ISI Standard No. 321-1952, four only per kilo litre named for equivalent volume at 100 percent v/v strength

Rectified spirit conforming Rupees one thousand eight hundred to ISI standard No. 323-1959 ninety eight only per kilo litre named, for equivalent volume at 94.68 per cent v/v strength."

Such Price Control Order was issued in exercise of powers under section 18-G of the Industries (Development and Regulation) Act, 1951 ("the Act for short).

It is the case of the petitioner that the price prescription contained in the said Price Control Order was wholly unreasonable and unrealistic. The maximum price prescribed was way below the cost price of the manufacturer. The State Government also realised that if such Price Control Order is implemented, large number of industries engaged in manufacturing of such products would be rendered unviable. The consumers of such products would also suffer since the supply of such essential items would stop. Detailed discussions therefore, took place between the association of manufacturers of ethyl alcohol, the purchasers of such product and the State Government. The State Government submitted a detailed report of what would be the affordable viable price of the products. The final recommendations which were implemented under the Price Control Order did not take into account such complex data, instead, according to the petitioner, fixed the maximum price which was way below the cost price for the manufacturer.

Several manufacturers therefore, approached the High Court by filing writ petition challenging such Price Control Order. One of the consumers of the petitioner namely, Wood Polymer Ltd. filed Special Civil Suit No. 64/1983 against the petitioner alleging that the petitioner had breached the said Control Order as amended from time to time and charged for the said product far in excess of the maximum price permitted under the said Order. As per the plaintiff, the petitioner had overcharged the plaintiff by a total of Rs. 28,73,620/- for which the said suit was filed praying for decree of recovery of the said sum with interest. In such proceedings, the defendant the present petitioner took a stand that the Price Control Order itself was invalid. The petitioner desired to challenge the constitutionality of the said Price Control Order and therefore, applied to the trial Court for making a reference to the High Court in this respect. The learned Judge dismissed such application on the ground that the Civil Court can make a reference to the High Court if the defendant is able to show prima facie that the Act is ultra vires. Learned Judge was of the opinion that this was not a fit case in which reference regarding validity of Ethyl Alcohol (Price Control) Order, 1971, was required to be referred to the High Court. Counsel for the petitioner pointed out that when this order dated 10.1.1995 was passed by the learned Judge, several writ petitions challenging the very Price Control Order were pending before the High Court. The petitioner therefore, filed a Civil Revision Petition No. 210/1995 challenging such order of the learned trial Judge. Both these proceedings have therefore, been combined for common consideration. At one stage, by an order dated 24.4.2009, Division Bench disposed of the Special Civil Application in the following terms:

"This Special Civil Application has been preferred seeking quashing and setting aside of Ethyl Alcohol (Price Control) Order, 1971.

Learned Counsel submitted that the above-mentioned control order is no more in force and in 1992 prices have been decontrolled.

That being the fact situation, challenge against Ethyl Alcohol (Price Control) Order 1971 no more survives.

The petitions are disposed of as having become infructuous."

The petitioner thereupon filed a review petition submitting that though the Price Control Order was later on withdrawn, effect of such order, during the time when it remained in operation, would be directly at issue in the pending civil suit. It was therefore, contended that the petition had not become infructuous. Therefore, by an order dated 4.7.2014 review petition was allowed. Order dated 24.4.2009 insofar as it pertained to Special Civil Application No. 1193/1988 was recalled. Special Civil Application No. 1193/1988 was revived that is how these proceedings have been placed before us for final consideration.

We have noticed that the case of the petitioner is that the Price Control Order fixed the maximum ceiling of the said products which according to the petitioner was wholly unrealistic and unviable. It was way below the production cost of the petitioner and other industries engaged in the same product. In the petition it was pointed out that due to such reasons several States did not implement this Price Control regime at all. Even in the State of Gujarat, detailed discussions were held between the association of manufacturers and association of the consumers of such product and the State Government. We notice that a detailed report titled as ''Report on the cost structure of industrial alcohol, in Gujarat" was submitted by the Institute of Rural Management, Anand. This was forwarded to the two rival associations by the State agency on 27.5.1987 for their response. We notice that the conclusion of the report would suggest that the price fixed under the Price Control order as on 1987 was less than the cost of manufacturing. We also notice that from the year 1992, the price regime has been disbanded and these products have been decontrolled. The only issue to be judged in this petition is whether during the interregnum qua the petitioner, the Price Control Order should be implemented.

Though served the respondents have filed no reply. Central Government has therefore, done little to justify the price prescription. Ordinarily, we are aware that the task of prescribing such maximum price lies with the Controlling authority to whom under section 18-G of the Act, charge has been vested. The Control Order itself is a piece of delegated legislation. However, when it is prima facie demonstrated that the price fixed was so unrealistic as to be below the cost price of manufacturer, the Central Government owed at-least a basic duty to point out to the Court what parameters went into in determining such price. The role of the Court may be confined to secondary review and if there was sufficient material on record to justify such conclusion, surely, the court would not substitute its own opinion for that of the competent authority. However, in the present case, there has been no demonstration of any basis on which the competent authority came to the conclusion on the price fixation. It goes without saying that the cost of manufacturing of a product as complex as this would depend on range of factors such as, the availability of raw materials, the location of the units, the cost of electricity consumed, the local taxes and so on. These factors are bound to vary from State to State. If these factors were taken into account by the Central Government, our inquiry would stop at that level. However, in absence of any reply even after more than two decades of filing the petition, we are left completely in dark about the consideration which went into the competent authority prescribing the price ceiling in the control order.

We recall that from the year 1992, the price control mechanism qua these products have been disbanded. When the plaintiff purchased such product from the petitioner over a span of nearly five years of manufacturer of its chemicals, surely, the plaintiff would have structured itself the price of the end product on the basis of the cost of ethyl alcohol consumed in manufacturing the same. In other words, even if there was incremental price charged by the petitioner, the burden thereof would have been passed on to the end consumer.

Under the circumstances, this petition is disposed of by giving a limited relief to the petitioner declaring that qua the petitioner, selling its above-mentioned product to the original plaintiff at a price above the Price Control Order, would not be hit by the said Order for this limited purpose.

The writ petition is allowed to this limited extent. Petition is disposed of. In view of this, revision petition has become infructuous . Disposed of as infructuous.