P.S. Srinivasan and Others vs The Deccan Sugar and Abkari Company Limited and Others

Raghavan, J.—The Petitioner in the Writ Petitions are sugarcane growers and registered suppliers of sugar cane to the first Respondent in

each of the Writ petitions, who are sugar producers, producing sugar by Vacuum pan process. The second Respondent in each of the writ

petitions is the Union of India, Ministry of Food and Agriculture, represented by its Secretary. These writ petitions are for quashing the orders of

the second Respondent partially exempting the first Respondent from payment of the additional price of sugarcane to the Petitioners for the

seasons 1st November 1958 to 31st October 1959 and 1st November 1959 to 31st October 1960 and to direct the first Respondent to pay the

full additional pi ice determined for these seasons as being due to the Petitioners.

In the connected suit the Plaintiffs, who are sugarcane growers, have filed the suit in a representative capacity against (i) the first Defendant, a

sugar factory, (The Deccan Sugar and Abkari Co. Ltd., Pugalur), and (ii) the Union of India represented by the Secretary, Ministry of Food and

Agriculture, Now Delhi, seeking a declaration (i) that they are entitled to the additional price at the rate of Rs. 4.87 and 8.51 per long ton fixed by

the Price Fixing Authority as per the order, dated 16th December 1964 for the years 1958-59 and 1959-60 in respect of sugarcane supplied by

them to the first Defendant with interest and (ii) that the order of the second Respondent exempting them from payment of the additional price to

the Petitioners is illegal and unjust and for other reliefs.

As common questions arise for determination in the above batch of cases, we shall take up the allegations in writ petition Nos. 3350 and 3351

of 1967 by way of sample. The Petitioner is a sugarcane grower and a registered supplier of sugarcane to the first Respondent a sugar producer.

His lands are situate in an area reserved for supplying sugarcane to the first Respondent''s factory at Pugalur. The first Respondent used to

purchase its requirements of sugarcane from the growers of the area reserved for this factory.

In order to appreciate the contentions raised in the writ petition it is necessary to trace the history of the Legislative control exercised by the

Government for the past 3 decades over sugarcane and the sugar industry. The sugar industry is an agro-industry based on sugarcane which is a

perishable raw material. In 1931, the Indian Tariff Board while recommending the grant of protection to the sugar industry recognized the

importance of the agricultural aspect of sugarcane. In 1932, the Sugar Industry (Protection) Act was passed. The sugar factories in India were

making enormous profits. But the cane growers, who supplied the raw material to this industry, were poorly paid and they were not in a position to

bargain and get a fair price and a reasonable return for the sugarcane produced by them, as sugarcane unlike other commercial crops is a

perishable raw material. For the purpose of ensuring a fair deal to the cane-growers, the Government of India enacted the Sugarcane Act in 1934

authorizing the Provincia Governments to declare any area to be a controlled area within which they could fix a minimum price. Thereafter the

Provincial Governments began fixing a minimum price for sugarcane supplied to sugar factories under the said Act. In July 1943 a sugar conference

was convened at Simla to discuss the question of payment by sugar mills of fair price to sugarcane growers. In this State, the Madras Sugar

Factories Control Act, 1949, was enacted to provide for the licensing of sugar factories and regulating the supply and fixation of the prices of

sugarcane supplied to such factories. Under the provisions of the said Act a Sugarcane Commissioner, with powers to declare any area to be a

reserved area for supplying sugarcane to a particular factory, could be appointed and the State Government was also empowered to fix the price

for the sugarcane supplied by the growers to the factories. As stated above, the Government of India fixed the price of sugar and also the minimum

price for sugarcane supplied, from year to year, in consultation with the respective State Governments and ex-factory price of sugar was

determined on the basis of the minimum price of cane fixed from time ^o time. This system, which was introduced in 1942, was continued till about

1947. Sugar was de-controlled in December 1947. In 1950, the Tariff Board in its report observed that the then prevailing procedure for fixing the

minimum price for sugarcane was not satisfactory and recommended that it should be replaced by a more rational procedure and suggested that

the minimum price of sugar should be fixed, taking into account cost of production, fair return to the growers, etc. In 1950-51, the Central

Government imposed control over sugar and, a uniform price of sugar all over the country was attempted to be maintained. During the end of

1952, sugar was de-controlled resulting in the price of sugar rising steeply, while paradoxically the minimum cane price was reduced from 1.75 per

maund to Rs. 131 per maund. From the year 1953-54 to 1958-59 the minimum price of sugarcane for delivery at the factory gates was fixed at

Rs. 1.44 per maund. There was agitation on behalf of the cane growers for raising the cane price. Accordingly in 1953 the South Indian Sugar

Mills Association devised a formula known as Sisma formula in consultation with the cane growers in the State of Madras for passing on to the

cane growers a portion of the benefit of higher sugar price realized by the sugar factories in the State. In increasing the minimum price of sugarcane

the Government of India considered the question of introducing a scheme by which a legitimate share of additional profit made by the sugar

factories could be passed on to the cane growers. There was a Tripartite Conference between the representatives of the Government, sugarcane

growers and sugar industry and in the said conference the principle of linking cane price with sugar price was recognized and it was decided that

the Government should pass necessary legislation to give effect to this principle.

In exercise of the powers conferred by Section 3 of the Essential Commodities Act, 1955 (Act X of 1955) the Central Government made

Sugarcane (Control) Order 1955. Under Clause 3 of the above said order the Central Government was authorised in consultation with such

authorities, bodies or associations as it may deem fit, by notification in the Official Gazette, to fix in respect of any area the price and the minimum

price to be paid by a producer of sugar on his agent to the grower in respect of sugarcane purchased in that area. The existence of different prices

in different areas or different qualities of sugarcane was also recognized. According to Clause 3 the price had to be fixed having regard to the (1)

cost of production of sugarcane, (2) return to the grower from alternative crops and the general trend of prices of agricultural commodities and (3)

availability of sugar to the consume at a fair price. From July 1958, the control over the price of sugar was again imposed on sugar produced by

factories in Northern India. But the Government did not fix the price for factories in South India, which was generally deficit in sugar. As a result,

the factories in South India, which were permitted to sell their sugar in open markets, realized high prices for the sugar produced by them.

The minimum price fixed for the sugarcane was based upon the estimate of recovery of sugarcane supplied and the duration of the season,

whereas the actual were different from the estimates. It is thus seen that a fair price for sugarcane included not only the estimated advance minimum

price but also a portion of the additional realization by the factory from the actual recovery of sugar and the duration of the season. If the sugarcane

growers supplied cane of a longer duration and supplied better cane and thereby improved recovery, they were entitled to a share in the additional

price realized by the sugar factories. This principle of linking the price of sugarcane with the price of sugar has been accepted in the Sisma formula

and also in the tripartite conference held in June and October 1964 referred to above.

The Government also accepted this principle. An expert Committee under the chairmanship of Sri P.A. Gopalakrishnan was deputed to devise a

formula for giving the cane growers a percentage of the extra price realized by the factories from the actual recovery of the sugar and the duration

of the supply. The Committee devised a formula and further recommended that new factories should be exempted from payment of any extra price

for the cane for the first two years of their commencement and the introduction of a scheme of payment for cane on equity basis was necessary in

the national interests.

In furtherance of the recommendations, the Central Government by order, dated 23rd September 1958 directed the substitution of the following

Clause 3 in the place of the existing Clause (3) and addition of a new Clause 3-A in the Sugar (Control) Order, 1955 and the schedule to the

order set out the formula to determine the fair price payable to the grower:

The relevant part of the Control Order is extracted below:

3(1). The Central Government may, after consultation with such authorities, bodies or associations as it may deem fit, by notification in the Official

Gazette, from time to time, fix the minimum price of sugarcane to be paid by producers of sugar or their agents for the sugarcane purchased by

them, having regard to:

(a) the cost of production of sugarcane ;

(b) the return to the grower from alternative crops and the general trend of prices of agricultural commodities;

(c) the availability of sugar to the consumer a fair price;

(d) the price at which sugar produced from sugarcane is sold by producers of sugar ; and

(e) the recovery of sugar from sugarcane.

3-A(l). Deferred payment for sugarcane purchased. Where a producer of sugar or his agent--purchases any sugarcane form a grower of

sugarcane or growers Co-operative Society, the producer shall, in addition to the price fixed under Sub-clause (1) of Clause 3, pay to the grower

or the Society as the case may be, an amount, if found due, in accordance with the provisions of the Schedule:

Provided that where sugar is produced in any new factory, the producer of such sugar shall not be liable to pay any amount under this sub-clause

for any sugarcane purchased by him during such period after its establishment as the Central Government may form time to time, specify in this

regard:

Provided further that the Central Government may by or in writing, exempt a producer,

(a) from payment of the whole of the amount due from him under this sub-clause, where the audited accounts of the factory for the season in which

the sugarcane is purchased, show that no profit has accrued to the produce for that season ; or

(b) from payment of such part of the said amount as the Central Government thinks fit, where the said audited accounts show that the profit which

would accrue to the producer for the season concerned) if the said amount is paid, would be less than the profit taken into account in determining

the value of ""X"" referred to in the Schedule

* * *

SCHEDULE.

The amount to be paid (per maund or Kilogram) of sugarcane under Sub-clause (1) of Clause 3-A by a producer of sugar to the seller of

sugarcane shall be computed in accordance with the following formula, namely.

X/100 � P-T-C-S/M = Y

Explanation.--In this formula.

(1) ''X'' is the percentage cost of sugarcane to the total cost of sugar excluding taxes as deters mined by the Central Government form time to time

on the basis of the recovery and duration of season of the factory for the year.

(2) ''P'' means the sum of (per maund or Kilogram) average ex-factory price of sugar realized by the producer adjusted to ISS Grade D-29

according to the price differentials fixed by the Central Government, and of the money realized by the producer form the sale of molasses and

press mud in relation to such maund or kilogram of sugar.

(3) ""T"" means the amount paid in relation to each maund or Kilogram of sugar on account of excise duty, cane cost, commission paid to co-

operative societies, any sum paid to workmen as bonus or as a result of any award and any other tax levy, or cess imposed on sugar or sugarcane

by the Central or State Government or by any other authority, and any sum spent on approved schemes of sugarcane development ;

(4) ''C'' means the actual cost incurred in relation to each maund or Kilogram of sugar on the transport of sugarcane by a producer of sugar in

excess of the rebate allowed for the purpose by the Government in the minimum price of sugarcane purchased at centers other than factory gate ;

(5) ''S'' means the actual amount of commission paid in relation to each maund or Kilogram of sugar: provided that such amount shall not exceed

seventy five Naya Paise for every sum of hundred rupees of sugar sold provided further that no commission shall be taken into account in respect

of sugar sold directly by a producer of sugar or in pursuance of any order of the Central Government.

(6) ''M'' means the weight in maunds or Kilogram of sugarcane required to produce a maund of Kilogram of sugar and such weight shall be

calculated by dividing the total weight of the sugarcane purchased by the weight of sugar produced there from and (sic) this purpose the weight of

sugarcane purchased shall be the sum of the total weight of sugarcane crushed plus actual driage subject to a ceiling of 1 percent on the weight of

sugarcane purchased at centers other than the factory gate ;

(7) ''Y'' Means the total sum of the minimum price of sugarcane per maund or Kilogram fixed by the Central Government under Clause 3(1) and

the premium, if any for any approved variety of sugarcane or under any scheme approved by the Central Government for payment of price for

sugarcane on the basis of quality:

Provided that the rebate, if any, allowed in the minimum price aforesaid (excluding a rebate allowed on account of transport charges), shall be

deducted from the total sum aforesaid.

Thus from 1958, the fair price for the sugarcane supplied by the growers to factories included not only the advance minimum price, but also an

additional price to be worked out in accordance with the formula prescribed by the Government. Though the inclusion of an additional price based

on the actual recovery of sugar as part of a fair price for the sugarcane supplied to the factory was statutorily recognized, there was a delay in

determining the exact amount of additional price since the Government had not fixed the ''X'' factor in the prescribed formula for determination of

the additional price.

The formula prescribed by the 1958 amendment was sought to be revised and for the purpose of giving retrospective effect to the revised

formula the Parliament passed, the Sugar (Control) Additional Powers Act, 1962 enabling the Central Government to amend the Sugarcane

(Control) Order, 1955 with retrospective effect. Clause 2 of the said order ran as follows:

In the Sugarcane (Control) Order, 1955, (herein after referred to as the principal Order), for Clause 3A, the following clause shall be substituted

and shall be deemed to have been substituted with effect from the 1st day of November, 1958, namely:

3A. Additional price for sugarcane purchased--(1) Where a producer of sugar or his agent purchases any sugarcane from a grower of sugarcane

or a growers co-operative society during each of the four successive years beginning on the 1st day of November 1958, the producer shall, in

addition to the minimum price of sugarcane fixed under Sub-clause (1) of Clause 3 pay to the grower or the co-operative society as the case may

be an additional price, if found due, in accordance with the provisions of the (Schedule hereto annexed.

(2) Nothing in Sub-clause (1) shall apply to the purchase of sugarcane:

(a) where such sugarcane is used for the production of sugar in a newly set up factory until the expiry of three years commencing from the year in

which the factory is so set up;

(b) where the purchase is made by a producer of sugar, which is a co-operative society, form the members of that co-operative society.

(3) If the Central Government is Satisfied that during any year a factory has made no profit or has made inadequate profit the Government may by

orders in writing exempt either wholly or partly any producer of sugar from payment of the additional price due from him under Sub-clause (1) in

respect of sugarcane purchased for that factory during that year.

(4) The Central Government may appoint any person or authority as it thinks fit for the purpose of determining the additional price due from a

producer of sugar under Sub-clause (1) for each of the successive four year beginning on the 1st day of November, 1958 and when the price is so

determined, the person or authority, as the case may be, shall intimate the same in writing to the producer and to the growers, co-operative

society, or the local cane growers, association, if any, connected with the supply of sugarcane to the factory.

(The underlining in Clause (3) is ours).

In accordance with the provisions of the Sugarcane (Control) Amendment Orders, 1962, the Central Government appointed, the Additional

Price Fixation Authority to determine the additional price payable by the first Respondent for the years 1958-59 and 1959-60. That authority by

its order, dated 16th December 1964 determined the additional price payable at Rs. 4.87 per long ton for the cane supplied during 1958-59

season and at Rs. 8.51 per long ton for the cane supplied during 1959-60 season. The sugar producing factories opposed the above fixation of

additional price.

The first Respondent in Writ Petition No. 3350 of 1967, which is a leading sugar factory in the South, preferred Writ Petition No. 312 of

1965 seeking to quash the order, dated 16th December 1964 determining the additional price payable for the cane supplied during 1958-59 and

1959-60 and obtained a stay order from this Court implementing the fixation. The first Respondent also filled an appeal against the said fixation by

the Price Fixation Authority to the Central Government, as provided by Clause 3-A, Sub-clause (5) of the Sugarcane (Central) Amendment

Order, 1962. The sugarcane growers, who supplied cane to the first Respondent''s factory at Pugalur formed an Association called Pugalur

Factory Sugarcane Grower''s Co-operative Society to protect their interests. In the Writ Petition preferred by the first Respondent, neither the

cane growers nor the above Association were impleaded as parties. The President of the above Association (Sri K.S. Nallayya Goundar) got

himself impleaded as a party in the Writ Petition and filed a detailed counter traversing the contentions of the Writ Petitioner regarding the validity

of the provisions of the order and the liability of the Writ Petitioner to pay the additional price to the cane growers validly, fixed as per order, dated

16th December 1964 preferred to above. In October 1966 when the above writ petition came up for hearing, the Writ Petitioner did not press the

petition and the same was dismissed.

It would appear that during the pendency of the writ petition the Central Government in exercise of power conferred by Section 3 of the

Essential Commodities Act, 1955, made the Sugarcane (Control) Order, 1966 making comprehensive provisions for fixation of minimum price of

sugarcane not only by the producer of sugar by Vacuum Pan Process, but also by the producer of Khandasari Sugar and also for providing for the

additional price for sugarcane purchased during each of the 4 successive years commencing from 1st November 1958. Clause 5(3) of the

Sugarcane (Control) Order, 1966 empowered the Central Government to exempt wholly or partially any producer of sugar from payment of the

additional price if the Central Government is satisfied that during any year a factory has been made no profit or has made inadequate profit. It may

be noted that similar provisions were found in the Sugarcane (Control) Amendment Order, 1962, although the 1958 amendment of the Sugar

(Control) Order, 1955, provided for exemption only where there was no profit accrued to the producer for that season. On 23rd November 1966

the first Respondent herein would appear to have requested the Government of India for full partial exemption from the payment of additional cane

price as determined by the Sugarcane Additional price Fixation Authority both for the years commencing from 1st November 1958 and also the

year commencing from 1st November 1959. It would appear that in order to facilitate consideration of their claim for exemption from payment of

additional price the above Writ Petition (Writ Petition No. 123 of 1965) was withdrawn and it is stated that the president of the association of

sugarcane growers who got himself impleaded as a party to the petition, was not aware of the purpose for which the Writ Petition was withdrawn.

The Government of India, Ministry of Food and Agriculture, CD, and Co-operative Department of Food under order, dated 18th September

1967 granted a partial exemption to the first Respondent from the payment of additional price for both 1958-59 and 1959-60 seasons. By the said

orders the first Respondent''s liability to pay the additional price was reduced from Rs. 4.87 to Rs. 0.31 per long ton for 1958-59 season and from

Rs. 8.51 to Rs. 2.05 per long ton for 1959-60.

The Petitioner who, as already stated, is a sugarcane grower, has filed Writ Petition Nos. 3350 and 3351 of 1967 seeking to quash the above

said orders, dated 18th September 1967 granting partial exemption exempting the first Respondent from payment of additional price for the

seasons 1st November 1958 to 31st October 1959 and for the season from 1st November 1959 to 31st October 1960 and for directing the first

Respondent to pay the full additional price determined for these seasons by the order of the Additional Price Fixation Authority, dated 16th

December 1964 referred to above.

We shall now set out the principal grounds of attack of the Petitioner:

(1) Clause (5) 3 of the Sugarcane (Control) Order, 1956 relating to grant of exemption is arbitrary, unreasonable and in violation of the

fundamental rights guaranteed under Articles 14, 19 and 31 of the Constitution;

(2) Since the minimum price fixed by the Central Government for sugarcane is a provisional price based on an estimated recovery of sugar and

duration of the season and not linked with the actual price of sugar realized by the factories, the cane growerss are entitled to the additional price

calculated on the basis of the net amount realized by the factory from the sale of sugar on the actual recovery of sugar and the duration of the

season, the additional price for sugarcane purchased by the factories being part of the reasonable price for the cane supplied by the growers;

(3) The Sugarcane (Control) Order, 1955, as amended in 1958 and the Sugarcane (Control) Amendment Order, 1962, replacing the same have

recognized the principle of payment of additional price to the cane growers and the additional price so fixed in accordance with the Statute cannot

be reduced by the Central Government thereby exempting any producer of sugar either wholly or partially from payment of the additional price on

the basis of a subjective satisfaction of the Central Government regarding inadequate profit or no profit made by the factory in any year ;

(4) The fact that a sugar producer made no profit or inadequate profit in a year cannot be a relevant ground for exempting him from payment of a

fair price for the raw material supplied to him by the grower, as a making of profit by a particular factory may be due to the inefficiency or

mismanagement of the said factory or other causes especially when the sugarcane grower is compelled to sell his sugarcane to such mismanaged

factory. Further the phrasa inadequate profit is vague and un defined and cannot form the basis of any valid classification with reference to Article

14 of the Constitution ;

(5) The power to grant exemption is a quasi judicial power and as the rights of parties are affected the non issue of notice to or the non hearing of

the cane growers who are the persons vitally affected violated the principles of natural justice ;

(6) Assuming Clause 5(3) is valid, even so the request for exemption not having been made prior to the fixation of the additional price by the

concerned authority, the Central Government has no jurisdiction to invoke Clause (5)3 and grant a partial exemption to the Petitioner;

(7) The price fixation order, dated 16th December 1964 having become final by reason of the dismissal of Writ Petition 123 of 1965, the

exemption claimed cannot be granted and the order of the second Respondent granting a partial exemption is -wholly without jurisdiction; and

(8) Further the impugned orders are liable to be set aside on merits when the report of the Directors of the first Respondent-Company disclosed

that the net profit available for appropriation for the financial year ending with 31st May 1959 was Rs. 11,71,302 and for the year ending with 31st

May 1960 was Rs. 17,13,833 and that the first Respondent-Company has declared a dividend of 25f per cent during the year 1959-60 and 21

per cent during the year 1961 on the equity shares of the Company after providing for taxation, development reserve and general reserve etc, while

the Tariff Commission in its 1959 report allowed a return of 12 per cent on the employed capital in fixing the control price of sugar.

The first Respondent filed a counter affidavit setting out the circumstances under which they filed Writ Petition No. 123 of 19�5 in this

Court, challenging the validity of the order of the Sugarcane (Additional) Price Fixation Authority, dated 16th December 1964 and the

circumstances under which they withdrew the Writ Petition. The Company stated that during the pendency of the Writ Petition and the statutory

appeal before the Central Government, the Indian Sugar Mills Association negotiated on their behalf with the Central Government with a view to

arrive at an amicable settlement of the dispute. While the Company''s contention in this Court in the said Writ Petition was that the levy of

additional price was illegal and invalid, their contention before the Central Government was that the levy actually made on the Company was unjust

and oppressive. In order to facilitate a settlement the Company agreed to withdraw the Writ Petition and at the request of the Company this Court

dismissed the Writ Petition as not pressed, and consequently the dismissal of the Writ Petition cannot preclude them from claiming exemption

under Clause (3)5 of the Order. The Company further dealt with the Petitioner''s objections and stated that the 1958 amendment, providing for

grant of exemption to a factory which made no profit during that season, was modified by the amendment made on 1st November 1962 on the

basis of the re-commendations of the Tariff Commission on the basis of which the old exemption clause contained in the proviso to Clause 3-A(1)

was substituted by Clause A(2) with retrospective effect from 1st November-1958. The company further stated that the amendment omitted the

reference to the audited accounts of the factory and formulated a simplified procedure in place of the original cumbersome procedure and by

reason of the retrospective effect given to the amendment, the exemption clause giving power to the Central Government to exempt either wholly

or partially a factory which has made no profit or has made inadequate profit in any year is valid. The company further stated that on 23rd

November 1966 they applied to the Central Government for the grant of exemption under Clause 5(3) of the Sugarcane (Control) Order, 1966,

from payment of the additional cane price as determined by the price fixation authority for the crushing seasons 1958-59 and 1959-60 and that

after the Central Government scrutinized the financial position of the Company for the two years in question and taking it into account all the

relevant data furnished by the Company in regard to the profits earned during the financial years ended with 31st May 1959 and 31st May 1960

the Central Government was satisfied that the company''s profit was inadequate to bear the full burden of the additional price as determined by the

Price Fixation Authority and accordingly the partial exemption for payment of additional price was granted. The Company further contended that

there is no statutory requirement to issue notice to any local sugarcane growers Association or a grower in connection with either the determination

of the grant of additional cane price or the grant of exemption a under the provisions of the Sugarcane (Control) Order and that the only

requirement is that under Clause 3-A(4) of the Sugarcane (Control) Order, 1958, the additional cane price determined under Clause 3-A(1) shall

be intimated in writing to the producer and the grower''s Co-operative Society or the local cane grower�s Association, if any connected with the

supply of sugarcane to the factory and that consequently no grievance on the ground of want of notice can be put forward by the Petitioner.

The Company further contended that there was no question of violation of the rights conferred under Articles 14, 19 and 31 of the Constitution

and that the Petitioner has no right, much less any fundamental right, to be paid any additional cane price over and above the price which had

already been paid to him for the cane sold by him and that his right to additional price is only under the provisions of the Sugarcane (Control)

Order and consequently subject to all the provisions of the said order including the provision relating to the grant of partial or total exemption. The

farther contention put forward is that the exemption cannot be questioned with reference to Article 19 of the Constitution in view of Article 358

and that the cane grower is not entitled to the additional price, as a matter of right; whereas a fair price by way of minimum price had been

guaranteed to the grower the determination of the additional price by the concerned authority and the power to grant exemption form an integral

part of the scheme and that the additional price has to be determined on the amount realized or the sale of sugar and its bye products. The

Company further contended that far from being a discriminatory provision the exemption clause is an essential provision in order to ensure that the

claim o additional price does not result in injustice to the producer. The Company further contended that the power of exemption is a quasi-

legislative or administrative power and that there is no requirement that the cane grower must be heard in the matter of granting exemption and

further there is no such requirement even in determining the additional price and that in granting partial exemption all the relevant factors have been

taken into consideration and that the Central Government has exercised the power for the purpose for which the power had been conferred. The

further contention of the Company is that the scheme for additional price is designed to cover a four year period and what is left out in one year

would be taken into account in the next succeeding year and consequently no prejudice will be caused to the Petitioner. Further the Central

Government has to be satisfied on the question whether the Company made profit or inadequate profit entitling the Company to claim exemption

and that it is not open to the Petitioner to canvass the correctness or the propriety of the satisfaction of the Central Government and that in a

proceeding under Article 226, it is not open to this Court to embark on an enquiry into the adequacy or inadequancy of the company''s profit or

thee correctness of the order granting exemption. The Company finally took up the stand that the impugned orders granting partial exemption were

accepted by the Government as a bona fide settlement of a disputed claim and that if for any reason the exemption granted to the Company is

struck down, the Company-cannot be directed to make payments in terms of the order of the Additional Price Fixation Authority and that the

orders of the Price Fixation Authority are unconstitutional and invalid, for the reasons set out in paragraph 11 of the counter affidavit.

On behalf of the second Respondent a counter affidavit sworn to by the Under-Secretary to the Government of India, Ministry of Food,

Agriculture, Community Development and Co-operation (Department of Food) was filed. Their contention is briefly as follows:

The conferment of the right to get the additional price for sugarcane supplied has all along been subjected to the power of the Central

Government to grant exempt in appropriate cases. Consequently the provision reserving the power with the Central Government to grant an

exemption is not an after thought and that it is neither unreasonable or arbitrary. On the contrary such a power was and is necessary to hold the

balance evenly between the producer of sugar and the grower of sugarcane The additional price does not depend entirely on recovery of sugar or

duration of season, but also on the amount realized from sale of sugar and to bye-products. In the State of Madras, there was no control on the

sale of sugar during the period in question (1958-60). The partial exemption granted to the first Respondent'' factory became necessary in view of

the circumstances that were prevailing during the years in question on the financial position of the first Respondent''s factory In granting the

exemption the interests of the cane growers have also been taken into consideration. The Central Government considered the application of the

first Respondent factory and of others on their merits and keeping in view the overall economy of the region and the interests of both growers and

the factory it was decided that it would be just and proper to grant exemption partially. The capacity to pay by an industrial establishment is one of

the most relevant considerations, which has to be taken into account in this connection and consequently neither Clause 5(3) empowering the

Central Government to exempt nor the exercise of that power can be said to be either unconstitutional, arbitrary or illegal. It was only after a

careful and impartial examination of the different aspects that the Central Government came to the conclusion that the application of uniform

standard formula will cause hardship to the factory and that the first Respondent factory was entitled to partial exemption for the years in question.

No notice was given to the Petitioner to make any representation in the matter, since there is no provision in the order for that purpose and the

decision was taken after a full consideration and scrutiny of the accounts of the first Respondent. The satisfaction is the subjective satisfaction of the

Central Government. Whether the factory actually made profits or inadequate profits is for the Central Government and it is not open to either the

cane growers or even to the company to question the decisions of the Central Government, fairly and properly rendered in accordance with the

powers vested in them under the statute. The provisions of Clause 5(3) of the said order are not arbitrary or unreasonable and they do not infringe

any provision of the Constitution. The Central Government has to protect both the cane growers and the producers and hold the scale even

between them and in exercise of their powers and taking into account every aspect of the matter the impugned orders have been made by the

Central Government. The Control Order, 1966 has laid down a formula for the fixation of price and has also given guide lines for according

exemption and it is only on the basis of these principles the Central Government has acted and that there is no possibility of any arbitrary exercise

of power. The words inadequate profit are not vague. Inadequacy of profit is a question of fact which has been taken into consideration in setting

right injustice resulting from a rigorous application of the fixation of additional price by the authority. The order granting exemption is a quasi-

judicial order and there is nothing in the Control Order requiring that speaking orders should be passed in granting exemption. The scheme of the

order envisages the application for exemption both before and after the fixation of the additional price. The order fixing the additional price remains

in force even after the repeal of the 1965 order and the power to grant exemption contained in 1962 or 1966 order can be exercised if the party

made an application for exemption. The question of adequacy or inadequacy of profits is a question of fact and cannot be canvassed in the writ

petitions and all other allegations in the writ petition are untenable.

The Petitioner filed a reply affidavit dealing with the stand taken both by the Company and the Government and reiterating his contention in the

affidavit filed in support of the main writ petition. The Petitioner contended that even in the counter affidavit of the second Respondent the

principles or data on which the actual exemption was given has not been stated and that the Control Order, 1966, has not provided any guide line

for according exemption. The further contention put forward is that the Company itself offered to pay an additional amount of Rs. 1.80 per long

ton on 17th August 1960 for the year 1958-59 and Rs. 3.85 per long ton for the year 1959-60 and that it is not clear on what basis the additional

price has now been reduced and fixed at Re. 0.31 and Rs. 205 per long ton for two years in question.

Now the questions that arise for determination are : (1) Whether Clause 5(3) of the Sugarcane (Control) Order, 1966, is arbitrary,

unreasonable end is in violation of the fundamental rights guaranteed under Articles 14, 19 and 31 of the Constitution and (2) Assuming Clause

5(3) is valid, whether the subjective satisfaction of the Central Government has been properly exercised.

Before taking up the first question we shall refer to the steps taken by the Government in fixing a fair price payable by the industry to the cane

growers. In 1934 the Government of India by the Sugarcane Act of 1934 authorised the Provincial Government to declare any area to be a

controlled area, within which they could fix a minimum cane price. The Government of India imposed control both in the matter of price fixation

and distribution of sugar in 1942. The Government of India, therefore, fixed the minimum price for sugarcane from 1942 and the price is fixed

every succeeding year thereafter in consultation with the concerned State Governments. This system continued till 1947 when there was decontrol.

In 1950-51 the Central Government again assumed control and prescribed minimum price for sugarcane. The minimum price fixed for sugarcane is

based only on the estimates of the recovery of sugar from the cane supplied and duration of season, but the actual are different from the estimates.

A fair price for sugarcane should include not only the estimated minimum price fixed in advance, but also a portion of the additional realization by

the factory from the actual recovery of sugar and the duration of the season. If the cane growers supplied cane for a longer duration and supplied

better cane, they would be entitled to be paid more. The minimum price fixed cannot be said to be a fair price for the sugarcane supplied by the

cane grower to the factory. In 1955 the Sugarcane (Control) Order, 1955, was passed conferring power on the Central Government to fix the

price of sugarcane in any area. In Clause 3, Sub-clause (a) the factors that have to be taken into account in fixing the price of sugarcane are set

out. By the amendment dated, 23rd September 1958 to the Sugarcane (Control) Order, 1955, a new Clause 3 was substituted for existing Clause

(3) and new Clause 3-A which provided that a producer of sugar who purchased sugar cane from a grower shall, in addition to the price fixed

under Sub-clause (1) of Clause 3, pay to the grower in addition an amount in accordance with the formula.

Viz., X/100 � (P-T-S-R)/M = Y,

what each letter standing for having been fully explained in the schedule and the Central Government was given power to exempt a producer from

payment of the whole of the amount due from him under Sub-clause 3(a) where the audited accounts of the factory for the season in which the

sugarcane is purchased showed no profit to the producer for that season. In 1962 the Sugarcane (Control) Amendment Order, 1962, was made in

exercise of the powers conferred by Section 3 of the Essential Commodities Act, 1955 read with Section 2 of the Sugarcane Control (Additional

Powers) Act, 1962. Clause 3-A dealt with the additional price for sugarcane purchased and Clause 3-A, Sub-clause (3) gave the Central

Government discretion when it is satisfied that during any year a factory has made no profit or has made in adequate profit, the Government may

by order exempt either wholly or partially, any producer of sugar from payment of the additional price due from him under Sub-clause (1) in

respect of sugarcane purchased for the factory during that year (underlining is ours) Sub-clause (4) of Clause 3-A as amended gave power to the

Central Government to appoint any person or authority for the purpose of determining the additional price due to a producer of sugarcane for each

of the successive 4 years commencing from 1st November 1958. In accordance with the provisions of the Sugarcane (Control) Amendment

Order, 1962, the Central Government appointed the Additional Price Fixation Authority to determine the additional price payable by the first

Respondent for the years 1958-59 and 1959-60. That authority by its order, dated 16th December 1964 determined the additional price payable

at 4-87 per long ton for the cane supplied during 1958-59 season and Rs. 8.51 per long ton for the cane supplied during 1959-60 and these

figures were arrived at after scrutiny of the first Respondent''s accounts and the profits earned by him. So far as the writ petition. Writ Petition Nos.

3350 and 3351 of 1967 is concerned:

For

1958-59--

Rs.

Minimum price 39-20

Total Additional price 12-01

Additional price voluntarily paid 7-14

as advance.

Additional price due 4-87

Total amount yet to be paid by 9,50,100

the first Respondent.

Rs.

Minimum price 44.10

Additional price 15.11

Additional price voluntarily paid 6.60

as advance.

Additional price due 8.51

Total amount yet to be paid by 17,81,200

the first Respondent.

For

1959-60.�

(table missing page no.351)

As a result of the exemption granted to the first Respondent by order, dated 18th September 1967 which is impugned in the present Writ Petitions

the figure of Rs. 9,50,100 found as due to the Petitioner for 1958-59 has been reduced to Rs. 60,478.58 and for the year 1959-60 for the sum of

Rs. 17,81,200 due, the exemption order reduces it to Rs. 3,76,980. We may however, observe that the validity and correctness of the order of

the Additional Price Fixation Authority, dated 16th December 1964 has not been questioned. Although Mr. Nambiar stated that in case this Court

strikes down Clause 5(3) of the order, it will be open to him to dispute the correctness of the order, dated 16th December 1964.

We shall next consider the attack on the validity of Clause 5(3) in the 1962 order which is substantially reproduced in the Sugarcane (Control)

Order, 1966.

We may at the outset observe that as a pattern of Legislation the Government usually reserve a power to exempt a person or factory from the

operation of any or all the provisions of an enactment in order to give relief from a strict enforcement. See for instance (1) Section 13 of the

Madras Buildings (Lease and Rent Control) Act, 1960, (ii) Section 40 of the Madras Beedi Premises Act, 1958, (iii) Section 9 of the Madras

Betting Act, 1935 and (iv) Section 66 of the Madras Chit Funds Act, 1961, etc.

The sugar producing factories are classified under three heads: (i) These factories which make profits; (ii) Those factories which make no profit

and (iii) those factories which make inadequate profit So far as the first category is concerned the sugarcane grower is entitled to receive from the

producer of sugar the additional price for sugarcane supplied by him, in addition to the minimum price for sugarcane which was provisionally fixed

in the beginning of the season. In regard to factories falling in category No. 2 viz., those factories which make no profit, the demand for payment of

additional price for sugarcane supplies will add to their losses. In regard to factories falling under third category, the position will be similar to those

falling under category 2 above. It is to relieve the factories falling under heads 2 and 3 above from incurring further losses that the exemption

provision appears to have been made, so that such factories may not be wiped out of existence The question, therefore, for consideration is

whether the exemption is in accordance with the policy of the Control Order and in furtherance of its objects and proceeds on a classification

made on a proper basis. The object of these various Control Orders appears to be, to increase production of sugar, to regulate its price, to

improve the quality of sugarcane grown and encourage cultivation of sugarcane and also to fix a fair price to the sugarcane grower. The production

of sugar has to be increased and this cannot be achieved if various factories which incur losses or do not make appreciable profits are closed down

being unable to pay the price fixed by the officers. It maybe seen that the factories themselves made every attempt to pay the amount fixed by the

authorities. Out of the additional price fixed by the Price Fixing Authority under the Control Order the factories themselves voluntarily paid as much

as they could and the cases on hand are claims of exemption in respect of the balance which such factories are unable to pay. The factories in the

cases on hand do not claim a total exemption, but only claim partial exemption so that it may be exempted from payment of the difference between

the additional price fixed by the authorities and the voluntary payment made by them to the cane-grower. Taking into account the policy of the

various Control Orders passed from time to time and the object with which the provisions have been made, the question for consideration is

whether Clause 5(3) conferring power on the Central Government to exempt a factory from the operation of its provisions is valid.

We shall next refer to a few of the decisions cited at the Bar. The first decision referred to by Sri V.K.T. Chari, the learned Counsel for the

Petitioner''s the New Globe Theatres Limited v. State of Madras (1954) 2 M.L.J. 110 which arose u/s 13 of the Madras Buildings (Lease and

Rent Control) Act, 1945, exempting certain buildings from the provisions of the said Act. Rajamannar, C.J., examined the question in detail and

concluded at page 120 as follows:

The net result of these three decisions of the Supreme Court appears to me to be this. If the policy and object of the Act can be discovered within

the four corners of that Act, including the preamble, and discretion is vested in the Government to make a selection in furtherance of the policy and

object for the application of the Act, then the provision conferring such power is not void as offending Article 14 of the Constitution. If such power

is improperly exercised in any particular case that is not in furtherance of the policy and object of the Act, but arbitrarily then the Court can strike

down the exercise of such power on every such occasion.

The Learned Chief Justice further held:

In my opinion, the policy and the object of the enactment have been sufficiently indicated so as to enable the Government to exercise the power

conferred by Section 13 of the Act in specific cases not inconsistent with and in furtherance of such policy and object. The discretion given to the

Government is not, therefore, an unguided and arbitrary discretion. It is guided and controlled discretion. Evidently, it is discretion liable to be

abused...But if it be shown in any given case that the discretion has been exercised in disregard of the standard or contrary to the declared policy

and object of the legislation or arbitrarily or mala fide, then such exercise can be challenged and declared void under Article 14.

Panchapakesa Ayyar J., agreed with, the conclusion of the learned Chief Justice. Their Lordship ultimately held that Section 13 cannot be struck

down as inconsistent with the Constitution but that they will have to examine the facts in each case. It may be noted that 3 appeals were disposed

of in the judgment referred to above, one of which related to Gaiety Talkies. Against the final decision after individual scrutiny the correctness of

the judgment of the Division Bench was questioned in P.J. Irani Vs. The State of Madras, . Rajagopala Ayyangar J., who delivered the majority

judgment while upholding the conclusion of the Division Bench that Section 13 of the Act was constitutionally valid also approved their further

conclusion that individual orders of Government passed under that section could be subject to judicial review.

Sri V.K.T. Chari next referred to the judgment of the Supreme Court in Diwan Sugar and General Mills v. Union of India AIR 1950 S.C. 626.

The said decision related to the fixation of the ex-factory price per mound of sugar produced in Punjab Utter Pradesh and North Bihar. Wanchoo

J., who spoke for the Court upheld the validity of the impugned notification and held that factually the prices fixed were not below the cost of

production. Mr. Chari next referred to the decision in A.K. Jain and Others Vs. Union of India (UOI) and Others, , which arose out of complaint

filed, that the producers have failed to pay the price of sugarcane purchased, by them within the prescribed time and that the complaint was sought

to be investigated. Objecting to the investigation, a writ petition was filed,, in the High Court of Patna unsuccessfully and the Supreme Court upheld

the decision of the High Court Mr. M.K. Nambiar appearing for the first Respondent referred to the Hamdard Dawakhana Wakf Delhi and Ors.

v. The Union of India AIR 1965 S.C. 167, relating to the validity of Clause 16(1)(c) of the Fruit Products Order (1955) and the Essential

Commodities Act, 1955. The decision in my opinion, is not helpful in the present context.

As already observed, the policy and object and purposes of the control orders referred to above are clear and provision for exemption is only

to avoid hard ship in case of a strict application of the provisions of the Act. We, therefore, uphold the validity of Clause 5(3) of the Sugarcane

Control Order, 1966 and the similar provision in the earlier Act and the prior control orders.

The next contention of Sri V.K.T. Chari is that the exemption order is not a speaking order and it is not shown what all factors have been

taken into account in granting exemption. The orders granting exemption are in the nature of decretal orders and the files relating to the passing of

the orders have to be scrutinized in orders to find out the basis for the grant of exemption. Such orders cannot be impugned on the ground that they

are not speaking orders.

We shall next take up contention of Sri V.K.T. Chari that the exemption orders have been vitiated by reason of their having been made without

giving prior notice to the Petitioner and consequently rules of natural justice have been violated. In this connection Sri V.K.T. Chari referred to

A.S.C. Society v. Union of India AIR 1970 Mys. 243. The judgment of the Mysore High Court goes to the full length and supports the contention

of the Earned Counsel. The said decision has dealt with the validity of the power under Clause 5(3) of the Sugarcane (Control) Order, which was

attacked on the ground that the guidelines for exercise of powers conferred on the Central Government under Clause 5(3) to grant the exemption

wholly or partially from payment of additional price has not been set out and that the power granted is an uncontrolled and unguided power and is

therefore capable of being exercised arbitrarily. The Division Bench of the Mysore High Court while upholding the validity of Clause 5(3) of the

Act struck down the orders granting exemption on the ground that rules of natural justice had been violated, in as much as the cane growers were

neither given an opportunity prior to making the impugned order. At page 248 Chandrasekhar J., who delivered the judgment on behalf of the

Bench observed as follows:

Even if it be that the account books of the Factory constitute the principal material for ascertainment of the profit made by the factory and the

quantum of such profit, it cannot be said that such ascertainment is a matter purely between the Central Government and that Factory and the

sugarcane growers who have supplied cane to that factor}7 can have no say in the matter. As an exemption, whole or partial, granted under Sub-

clause (3) of Clause 5 affects the statutorily accrued right of the sugarcane growers to get additional price, we think that a decision whether

exemption should be given, assumes a quasi-judicial character and principles of natural justice require that sugarcane growers should be heard and

afforded an opportunity to make their representation before the Central Government decides the question of exemption. Such growers may show

that the account books of the factory are no+ correct or are not reliable, or that some other relevant factors have not been taken into account by

the factory in arriving at the profit or loss or that the method of accounting or the mode of computing profit or loss, adopted by the factory, should

not be accepted.

Assuming for the sake of argument that the satisfaction of the Central Government that a factory has made profit or inadequate profit, does not

assume quasi-judicial character oven then, we think fair play requires that sugarcane growers whose accrued rights are affected by such exemption

should be heard or given an opportunity to make their representation, before the Central Government reaches any decision on such question.

On the other hand, Mr. Nambiar the learned Counsel appearing for the first Respondent and the learned Advocate-General appearing for the

second Respondent contended that the cane growers do not come into the picture at all in ascertaining whether the factory has made no profit or

inadequate profit and that is a matter entirely between the Central Government and the Company. The further contention is that no rules of natural

justice have been violated, as Clause 5(3) does not require the Central Government to hear or afford an opportunity to the sugarcane growers to

make their representation before passing an order granting partial or total exemption and that what is required in Clause 5(3) is that the Central

Government should be satisfied that the factory in question has made no profit or inadequate profit on an examination of the relevant materials. In

this connection our attention was drawn by Parmananda Mahapatra Vs. Commissioner of Hindu Religious Endowments, Orissa and Others, ,

Hamdard Dawakhana (Wakf), Delhi and Another Vs. Union of India (UOI) and Others, , and the learned Jalan Trading Co. (Private Ltd.) Vs.

Mill Mazdoor Union, , we do not consider it necessary to deal with the above decision in any detail. We are not prepared to go to the extent to

which the learned Judges of the Mysore High Court have gone in A.S.C. Society v. Union of India AIR 1970 Mys. 243. We are of opinion that

the order granting exemption is not vitiated by want of notice to the cane-growers prior to the making of the impugned orders. We, however, find

that there is considerable force in the contention of Mr. V.K.T. Chari that the determination by the specified authority as to the additional price

payable to the cane-growers, has vested in them a right to claim the sum so determined by the authority. If the sum so determined is reduced n part

or in whole by the Central Government granting a partial or total exemption, in our view, the person affected is entitled to know how and to what

extent the amount to which he is entitled is reduced. It is in that view, we hold that the grower of sugarcane is a partly affected entitled to maintain

the sum determined by the statutory authority as being validly due to him. We have already held that there is nothing wrong in granting exemption to

a factory which has not made a profit or which made an inadequate profit and that Clause 5(3) is valid. Further, there is no substance in the

contention that the exemption order should be made prior to the fixation of the additional period by the concerned authority. We are further of

opinion that there is no substance in the objection that the dismissal of the first Respondent''s Writ Petition precludes the first Respondent from

Maiming exemption. We do not propose to investigate further into this matter in the course which we have decided to adopt in this case.

Considering the relevant contentions of both parties we have come to the conclusion that the best course under the circumstances is to follow, the

course which the learned Judges in the New Globe Theatres Limited v. State of Madras (1954) 2 M.L.J. 110, followed, that is to say, to call upon

the Central Government (second Respondent) to file a statement as to the factors taken by them into account in granting the impugned partial

exemption in order to satisfy ourselves that the relevant factors and correct details have been taken into account by the Central Government in

granting the exemption. A copy of the statement when filed shall be furnished to the Counsel for the cane growers, who are entitled to known r s to

what factors were taken into account in reducing the additional price validly determined by the constituted authority under the provisions of the

Sugarcane (Control) Order, 1962, to which they are entitled, We grant six weeks time to the Central Government to file a statement showing the

factors taken into account in reducing the amount determined by the specified authority and in granting the partial ex emption.

Mr. M.K. Nambiar, the learned Counsel appearing for the first Respondent drew our attention to the fact that Writ Petition No. 3481 of 1967

is filed against the order of the Central Government rejecting the Petitioner''s appeal preferred against the order granting exemption and that no

appeal having been provided against an order granting exemption, Writ Petition No. 3481 of 1967 will have to be dismissed. We accordingly

dismiss Writ Petition No. 3481 of 1967.

Our attention is further drawn to the prayer in Writ Petitions Nos. 3350 and 3351, 3104, and 3105 of 1967 for directing the Company to pay

full additional price as determined by the specified authority and that the said prayer cannot be granted in a Writ Petition. We accordingly refuse to

grant that part of the prayer in the above Writ Petitions. We accordingly confine the Writ Petitions to a consideration of the validity of the

exemption orders made by the Central Government.

We direct the other Writ Petitions along with the suit to be posted for further consideration after six weeks.