M/s. Bhavani Commission and General Merchant and vs State of Andhra Pradesh and others

M. N. Rao, J.—Whether the G.O. Ms. No. 190 Agriculture and Co-operation (Mar-keting-I) Department dated 6th April, 1994 issued by the State Government in exercise of its regulatory power u/s 32 of the Andhra Pradesh Agricultural (Produce & Livestock) Markets Act, 1966 (for short "the Act") was in breach of the equality clause enshrined in Article 14 of the Constitution of India, is the central question for our conside- ration in this batch of writ petitions filed by licenced Commission Agents carrying on business in various market areas in the State of Andhra Pradesh by virtue of the licences granted u/s 7(1) of the Act by the concerned Market Committees?

By the impugned G.O., all the Agricultural Market Committees in the State have been directed to follow the following procedure for issue of licences to commission agents for their functioning as such :

"1) A sum of Rs.20,000/- (Rupees Twenty thousand only) is prescribed as security deposit for the commission agents with turnover of Rs. 10.00 lakhs (Rupees ten lakhs only) and above Rs. 5,000/- (Rupees Five thousand only) in respect of commission agents with turnover of less than Rs. 10.00 lakhs (Rupees Ten lakhs only).

The security deposit in respect of commission agents dealing in vegetables is fixed uniformly at the rate of Rs. 1,000/ - ("Rupees one thousand only).

Commission Agents applying for fresh licences shall declare their likely turnover per annum and deposit the amount accordingly. If in the course of the year the turnover exceeds the limit furnished by them, they shall deposit additional amount immediately after receipt of the notice from the Market committee, failing which their licences shall be liable to be cancelled.

The security deposit in respect of old licences will be collected in two instalments. The amount of deposit shall be determined, based on the turnover of the preceding year. In the event of change in the quantum of turnover the licensee shall deposit the additional amount demanded by the Agricultural Market Committee and no licence shall be renewed unless the additional amount is deposited.

5) The Director of Marketing is requested to take necessary action in the matter accordingly."

A Commission Agent is defined by Rule 2 (viii) of the Andhra Pradesh (Agricultural Produce & Live Stock) Markets Rules, 1969 (for short "the Rules") as one "who on behalf of another person and in consideration of a commission makes or offers to make a purchase or sale of any agricultural produce, livestock or products of live-stock or does or offers to do anything necessary for completing or carrying out such purchase or sale and includes ''adatya''. Unless he is granted a licence by the Market Committee in a notified area u/s 7(1) of the Act, a commission agent cannot carry on the business. Government is empowered u/s 3 to notify an area for purposes of regulating the purchase and sale of agricultural produce, livestock or products of livestock. A market committee, by virtue of Section 4, shall be constituted by Government for every notified a''rea and every market committee is a body corporate clothed with a distinct legal personality. Section 12 empowers every Market Committee to levy fees at a rate not exceeding 2% on any notified agricultural produce, livestock or products of livestock purchased or sold in the notified market area. What are the duties of commission agents are specified in Rules 64 to 68. The regulatory power of Government as incorporated in Section 12 of the Act is in the following terms:

"32. Power of the Government to regulate or prohibit commission agents :-- Where, in the opinion of the Government, it is considered necessary so to do, they may, by notification, regulate or prohibit the commission agents operating in the market : Provided that nothing in this section shall prevent the market committee from issuing licences to commission agents operating in the market until the issue of notification under this section."

Instead of leaving matters for interpretative process by courts as to whether the regulatory power comprehends the power to prohibit, Section 32 makes the position explicit by conferring power on Government to regulate or prohibit commission agents operating in the markets. It is made clear in the proviso that the regulatory power of Government shall not prevent the market committees from issuing licences to commission agents until the Government issues notification exercising its regulatory power. Exercise of regulatory power by Government shall not operate as a condition precedent for market committees to issue licences to commission agents operating in the markets.

Before adverting to the contentions urged to the writ petitions, we feel it appropriate to state synoptically the events leading to the issuance of the impugned G.O. In the year 1989, the State Government issued G.O.Ms. No. 289 dated 2nd May, 1989 u/s 32 of the Act directing that "in agricultural market yards where commission agents are permitted, no new licences need be given in future for functioning as commission agents unless it is a case of transfer of business by way of inheritance etc." This G.O., was challenged by a number of commission agents by filing writ petitions in this Court contending that the same was violative of the guaranteed fundamental right under Article 19(1)(g) of the Constitution. Opposing the writ petitions, the State Government had taken two main pleas in the counter-affidavits viz., that the impugned order was aimed at improving the lot of the growers of agricultural produce by eliminating commission agents who are middle men and also to eradicate the malpractices resorted to by some of the middlemen in the notified market areas, A Division Bench of this Court, relying upon the rulings of the Supreme Court in M.C.V.S. Arunachala Nadar etc. Vs. The State of Madras and Others, , Karan Singh and Another Vs. State of M.P. and Others, and Sreenivasa General Traders and Others Vs. State of Andhra Pradesh and Others, , upheld the legality of G.O.Ms. No. 289 dated 2-5-1989 in Ade Babu Rao Vs. State of Andhra Pradesh and another, , Easwara Prasad, J., who spoke for the Division Bench, observed (At p. 290, para 19 of AIR):

"In dealing with this question, we should advert to the fact that the provisions of Section 32 of the Act authorise the State not only to regulate but as well to prohibit the commission agents from operating in the market area. Even assuming that the petitioners are not the persons responsible for the misconduct alleged in the counter-affidavit, we do not find justification to hold that the policy to eliminate middlemen in gradual stages, shall be annulled in these proceedings."

The Special Leave Petitions filed against the above decision were withdrawn by the Commission Agents when the State Government agreed to re-examine the issue of licences.

Although it was the objective of the State Government to eliminate Commission agents, it was felt that dispensing with the system abruptly would create a vaccum and as there was no machinery to fill the vaccum immediately, the State Government issued G.O. Ms. No. 1178 Food and Agriculture Department dated 11-9-1992 permitting the commission agents to function in market yards imposing certain restrictions -- inter alia prescribing security deposit of Rupees 50,000/- and licence fee of Rs. 1,000/-. Challenging the validity of G.O, Ms. No. 1178 dated 11-9-1992, several commission agents filed writ petitions in this Court and representations were made by the Merchants'' Associations and Chambers of Commerce requesting the Government to withdraw that G.O., and also threatening to go on strike if their demand was not conceded. Stating these facts, the counter-affidavit avers in paragraph 8:

"In fact, the Joint Action Committee of Commission Agents Association in a meeting held on 27-3-1993 with the Director of Marketing have agreed to fix the security deposit at Rs. 20,000/ - instead of Rs. 50,000/-for commission agents except those dealing in vegetables and at Rs. 10,000/- to those dealing in vegetable trade."

Thereafter, the State Government issued the impugned G.O., requiring deposit of Rupees 20,000/- in respect of commission agents whose annual turn-over is rupees ten lakhs and Rs. 5,000/- as deposit in the case of others whose annual turnover is less than Rs. ten lakhs but prescribing a uniform deposit of Rs. 1,000/- in the case of all commission agents dealing in vegetables. Because of the modifications brought about by the impugned G.O., all the writ petitions in which the legality of G.O. Ms. 1178 dated 11-9-1992 was at issue have become infructuous.

The arguments founded upon Article 14 of the Constitution of India and urged by Sri Gangaiah Naidu for some of the petitioners run along these lines: There was no material in existence before the Government warranting exercise of regulatory power u/s 32 of the Act culminating in the impugned G.O. There is no nexus between the fixation of different amounts of deposits and the object sought to be achieved. In classifying commission agents into those dealing in vegetables and those dealing in other commodities, a discriminatory attitude was displayed by the Government. Before prescribing the amounts to be deposited as a condition to carry on the business of commission agents, the objections of the petitioners have not been heard. The procedure prescribed in sub-sections (4) and (5) of Section 33 --making rules after previous publication for a period not less than one month and laying of the rules on the floor of the House respectively -- must be followed by the Government while exercising its regulatory power u/s 32. Issue of licences and their renewal being matters covered by sub-section (1) of Section 7, Rule 48 of the Rules and the bye-laws of the market committees, without amending them suitably, no regulatory power touching upon the subject of licences can be exercised by the State Government u/s 32. M/s. Jaya Kumar and Niranjan Reddy, while supplementing the arguments of Sri Gangaiah Naidu, have urged that as power to issue licences is covered already by the Rules, no residuary power was left with the Governemnt to issue any notification u/s 32 in respect of licences to commission agents.

In opposition to these submissions, the learned Government pleader for Argiculturc as well as M/s. Rammohan Raj and Setturama Reddy, Standing Counsel for the Market Committees, have urged that in view of the earlier Bench Judgment of this Court in Ade Babu Rao Vs. State of Andhra Pradesh and another, upholding the legality of G.O.Ms. No. 289 by which the market committees were directed not to issue licences to commission agents, all the contentions advanced for the petitioners in the present batch of writ petitions deserve to be rejected. After the Supreme Court upheld the constitutionality of the Agicultural Market Committees Acts enacted by several Slates, it is not open to any commission agent to contend that any regulatory measure by way of prescribing deposit as a condition to carry on business as a commission agent is either arbitrary or illegal. The present measure was the result of negotiations carried on by the Merchants'' Associations with the State Government and, therefore, it is not open to any commission agent to plead that abruptly onerous conditions were imposed. In fact, the associations which re-presented the commission agents in the talks with the Government have agreed for the condition of deposit of Rs. 20,000/-.

The events leading to the filing of the presenl batch of writ petitions, as noticed supra, clearly belie the plea of the petitioners that no material was in existence warranting formation of opinion by the Government to issue the impugned G.O. The plight of the growers in securing reasonable prices for their produce, the financial difficulties they experience and the extent of influence commission agents wield over the growers are riot only matters of common knowledge but also topics for empirical studies by several commissions -- the Royal Commission, the Central Banking Enquiry Committee, the All India Rural Credit and Survey Committee appointed by the Government of Madras and the Fourteenth Report of the Law Commission of Andhra Pradesh -- which have been adverted to by the Division Bench in Ade Babu Rao Vs. State of Andhra Pradesh and another, . The file placed before us by the learned Government pleader shows that the State Government have taken into consideration the situation obtaining in various notified market areas in the State and in order to protect the interests of the growers and being conscious of the fact that dispensing with the institution of commission agency would create a sudden vaccum and as there is no effective alternative at present, came out with the impugned order that too after consulting the representatives of the trade comprising merchants associations and associations of commission agents. Senior Officials at the higher level -- of the rank of Joint Directors of Agriculture -- also studied the matter in detail and after considering their views, the present impugned order was issued. It is only at the request of the Joint Action Committee which represented the interests of the Commission Agents the impugned G.O., came to be issued. In insisting upon the requirement of deposits, the Government had taken note of the fact, as disclosed from the file, that past experience has shown that the commission agents used to obtain two or three licences in the names of different persons with the same partners and slaked claims for allotment of valuable land or shops in the market yards. There were also complaints of concealment of transactions. All these factors induced the Government to impose restrictive measures in order to curb unhealthy practices of suppression of transactions, minimising the risk of default in payment of sale proceeds and ensuring security of payment to the farmers. The counter-affidavit clearly points out the need for imposing restrictions on commission agents :

"In view of the need to eliminate the commission agents gradually from the market yards to achieve the objective of Markets Act and in view of general complaints from the farmers that the commission agents are not paying the sale proceeds on the same day, there is every need to impose some restrictions on commission agents. The security deposit was fixed so as to utilise the amount for payment to the farmer in case the commission agent failed to make payment of the sale proceeds to minimise hardships to the farmers."

We, therefore, find little merit in the assertion that the impugned G.O., was afflicted with the infirmity of absence of objective material warranting formation of opinion in regard to the requirement of deposit as a necessary condition to permit the commission agents to carry on business.

The impugned G.O., classifies commission agents inlo two categories: (i) commission agents dealing in vegetables; (ii) commission agents dealing in other commodities. A uniform rate of Rs. l,000/- is fixed as security deposit for commission agents dealing in vegetables. In respect of others, depending upon their turnover, different rates of security deposit are prescribed - Rs. 20,000/ - for those whose annual turnover is in excess of Rs. 10 lakhs and Rs. 5,000/-for those with less than Rs. 10 lakhs annual turnover. We do not find any merit in the contention that there is no nexus between the fixation of different rates of deposit and the object sought to be achieved. Depending upon the volume of business transacted by the commission agents as disclosed by their annual turnover, the rates are fixed. Commission agents dealing in vegetables are treated as a separate class since the trunover in vegetable trade is''far less than the turnover in respect of other commodities. The condition as regards the deposit was imposed with the objective of ensuring the interests of the farmers. If for any reason, the commission agents fail to make payments to the producers, their interests can be safeguarded by ensuring payments to them from the deposit amounts. The two conditions necessary for saving an impugned action from successful challenge founded on Article 14 viz., the classification must be founded on an intelligible differentia distinguishing persons or things grouped together from those left out of the group and that the differentia must have raitional relation to the object sought to be achieved [See: Budhan Choudhry and Others Vs. The State of Bihar, are fully present in the instant case. If the impugned order had not classified commission agents on the basis of the volume of trade, it might have been open to successful challenge on the ground of violation of Article 14 of the Consiitution. That the Government could have thought of a more rational mesure for ensuring the interests of the farmers can never be a ground, in our view, to test the legality of the present action. It is not open to this Court to examine whether in what respects better results could be achieved by the executive in the working of a legislative enactment and that is purely within the domain of the executive discretion. If the impugned action does not transgress the permissible legal limits, this Court will not interfere. [See: U. S. v. Locke (1985) 85 L. Ed. 2d. 64 : 471 U.S. 84.

We now come to the question whether the procedure prescribed in sub-sections (4) and (5) of Section 33 must also be followed while exercising the regulatory power u/s 32 of the Act? We do not think so. One of the meanings of the word "regulate" as given in the English Readers Dictionary is ''control by means of a system or by rules''. In the Chambers Dictionary, one of the meanings of the expression "regulate" is ''to adjust by rule''. The Webster Dictionary gives one of the meanings of the word "regulate" as ''govern or direct according to rule''. The word ''rule'' appearing in the dictionary meaning of the word ''regulate'' only implies restriction. It is not synonymous with the technical expression ''rule'' occurring in Section 33 of theAct. The power of Government "to make rules" for carrying out the purposes of the Act is explicitly incorporated in Section 33. Subsection (2) says that without prejudice to the generality of the power conferred by subsection (1) viz., "to make rules for carrying out the purposes of this Act", such rules may provide for the specific situations mentioned in clause (i) to (xxvii). Clause (viii) mentions the forms in which and the conditions under which the Market Committees can grant licences or renew the same u/s 7. Clause (x) concerns with the conditions under which the Market Committee can issue licences to commission agents. The nature of regulatory power u/s 32 is quite distinct and different from the power to make rules u/s 33. The regulatory power u/s 32 is a comprehensive one; it transcends the ambit of rule making power u/s 33. While it is not possible for the Government to prohibit an agent from operating in the market yard by making a rule u/s 33, the same can be achieved by exercising the power to prohibit u/s 32. It is also important to notice that non-compliance with the rules entails penal consequences under sub-section (3) of S. 33 but the same does not appear to be the case with regard to any contravention of any regulatory mesures taken u/s 32. That the regulatory power is supplemental to the power to make rules is also evident from the proviso to Section 32, which says that "noting in this section shall prevent the market committee from issuing licences to commission agents operating in the market until the issue of notification under this section." The requirement of deposit in the impugned G.O., is in addition to the conditions prescribed and the fees payable as per the licences issued by the market committees. The contention that Section 7(1) and Rule 48 dealing with the power of the market committees to issue licences and renewal of licences must be amended suitably before enforcing the impugned G.O., is untenable.

A century ago, the Privy Council in Municipal Corporation of the City of Toronto v. Virgo 1896 AC 88 had considered the question whether under a power to pass bye-laws . for "regulating and governing" hawkers etc., a Municipal Council may prohibit the hawkers from plying their trade ? Lord Davey, speaking for the Judicial Committee, opined:

"No doubt the regulation and governance of a trade may involve the imposition of restrictions on its exercise both as to time and to a certain extent as to place where such restrictions are in the opinion of the public authority necessary to prevent a nuisance or for the maintenance of order. But their Lordships think there is marked distinction to be drawn between the prohibition or prevention of a trade and the regulation or governance of it, and indeed a power to regulate and govern seems to imply the continued existence of that which is to be regulated or governed".

The aforesaid view of the Privy Council was followed by the Court of Appeal in Birmingham and Midland Motor Omninus Co. Ltd., v. Worcestershire County Council (1967) 1 WLR 409. While interpreting Section 65( 1) of the Highways Act, 1959 which empowered the Highway authority to regulate the movement of traffic in a certain manner, it was held that the power to regulate traffic did not encompass the power to prohibit. Lord Denning M. R., ruled:

"..... When a highway authority simply sends the traffic round a round about or a short diversion, they can fairly be said to be ''regulating the movement of traffic''. But if it forces the traffic to go one-and-three-quarter miles out of its way, it ceases to be ''regulating'' the traffic. It is equivalent to prohibiting it."

In K. Ramanathan Vs. State of Tamil Nadu and Another, , Section 3(2)(d) of the Essential Commodities Act, by which power is conferred on the Central Government to make orders ''for regulating by licences, permits or otherwise, the storage, transport, distribution, disposal, acquisition, use or consumption of any essential commodity'', fell for consideration. While stating that "the power to regulate implies the power to check and may imply the power to prohibit under certain circumstances, as where the best or only efficacious regulation consists of suppression. It would therefore appear that the word ''regulation'' cannot have any inflexible meaning as to exclude ''prohibition'', the Court quoted with approval the opinion of the Privy Council in Slattery v. Naylor (1888) 13 AC 446:

"A rule or bye-law cannot be held as ultra vires merely because it prohibits where empowered to regulate, as regulation often involved prohibition."

When the legal position is thus fairly clear that the power to regulate encompasses the power to prohibit, it is impossible to countenance the contention advanced for the petitioners that the impugned order made u/s 32 of the Act has the indirect effect of driving away the small commission agents from their business in an arbitrary manner in violation of the fundamental rights guaranteed under Articles 14 and 19(1)(g) of the Constitution. The impugned order has not prohibited the commission agents from carrying on their trade although such power is conferred on the Government. By classifying commission agents other than those dealing in vegetables into two categories -- those whose annual turnover is more than rupees ten lakhs and those with less than rupees ten lakhs and prescribing different rates of security deposits, the impugned order has taken care to protect the interests of the small commission agents. Had it been the intention of the Government to prohibit the commission agency it would have straightway done so in exercise of its power to prohibit u/s 32.

When the institution of commission agency was abolished pursuant to a specific power conferred u/s 32-A of the Madhya Pradesh Krishi Upaj Mandi Adhi-niyam, the Supreme Court while sustaining the action in Karan Singh and Another Vs. State of M.P. and Others, , ruled citing the precedents , in M.C.V.S. Arunachala Nadar etc. Vs. The State of Madras and Others, that the abolition of the system of commission agency was not violative of Article 19(1)(g) and that the same being in the interests of general public, was protected by Article 19(6) of the Constitution.

Violation of principles of natural justice is one of the contentions urged for the petitioners. It is contended that the impugned order is afflicted with a serious legal infirmity in that it was not preceded by a notice to the petitioners. We see no merit in this contention. As already stated supra, the impugned order was the result of series of negotiations carried on by the authorities with the trade interests, commission agents and merchants associations. What would have been the position had there been no such prior consultations is a question outside the realm of the present writ petitions and, therefore, although to some extent this aspect was urged, we decline to express any opinion.

For these reasons, rejecting all the contentions advanced for the petitioners, we sustain the legality of the impugned G.O. All the writ petitions are accordingly dismissed. No costs.

After the judgment is pronounced, Sri Gangaiah Naidu, Counsel for the petitioners, has made an oral application for leave to appeal to the Supreme Court. We have decided the questions raised in this batch of writ petitions on the basis of binding prece- dents and well settled principles of law and so we are of the view that no substantial questions of law of general importance arise nor the questions involved, in our opinion, need be decided by the Supreme Court. The request for leave is, therefore, rejected.

Petitions dismissed.