LIMITED & ANR. ETC. v. UNION OF INDIA & ORS.

The Judgment of the Court was delivered by c THOMMEN, J. The petitioners are· owners of sugar mills ,.i._ operating in the State of Uttar Pradesh in areas classified for the purpose of determining the price of levy sugar as West and East Zones. They challenge the validify of notifications dated 28th I) November, 1974 and 11th July, 1975 (Annexures 8 & 9) issued by the Central Government in exercise of its power under sub-section (3-C) of section 3 of the Essential Commodities Act, 1955 (Act No. 10 of 1955), as amended to date (hereinafter referred to as the 'Act').1 The >-- petitioners do not, and cannot, challenge the validity of the sub- section by reason of Article 3 lB of the Constitution of India. By the E impugned orders, the Central Government fixed the prices of levy sugar for 1974-75 production. For the purpose of determining the 1

prices, the country is divided into 16 zones, and the prices. fixe,d for i ~ various grades of sugar in terms of section 3 (3-C) of thelAct vary1from zone to zone. Prices are determined with reference to the geographi- cal-cum-agro-economic considerations and the average cost profiles of --<. F factories located in their respective zones. Each State for this purpose constitutes a separate zone, while U.P. is divided into 3 zones and Bihar into 2 zones. The petitioners contend that these orders are ultra vires the Act and violative of their fundamental rights as the prices of levy sugar have been determined arbitrarily with reference to the aver- age cost profiles of factories grouped together in zones without regard O to their individual capacity and cost characteristics. Such prices do not ... reflect the actual manufacturing cost of sugar incurred by producers '1 like the petitioners or secure to them reasonable returns on the capital employed by them. Geographical zoning, for the purpose of price fixation, they point out, is an irrational· and discriminatory system of (1) Published in· the Gazette of India Extraordinary dated 28.11.1974 and H 11.7.1975.

SITARAM SUGAR CO. LTD. v. U.0.1. ITHOMMEN, J.[ 919

averaging wide cost disparities amongst producers of widely varying capacity. Cost of manufacture of sugar depends on a number of factors, such as recoveries from the sugarcanes, duration of the crush- ing season, crushing capacity of the plant, the sugarcane price.paid and the capital employed in the manufacture of sugar. These factors vary from factory to factory. Fixation of the levy sugar prices on zonal basis without regard to these divergent factors and the comparative cost profiles gives the owners of bigger factories an undue advantage over producers like the petitioners whose factories are comparatively of lower crushing capacity and whose manufacturing cost is consequently higher. .Clubbing of the petitioners' factories with dissimilar factories in the same zones for the purpose of price fixation is discriminatory, arbitrary and unreasonable. The petitioners point out that the system of geographical zoning for the purpose of price determination has been c severely criticised by the Bureau of Industrial Costs & Prices (The "BICP") who have strongly recommended the division of the sugar industry into groups of units having similar cost characteristics with particular reference to recovery, duration, size and age of the unit and capital cost per tonne of output, and irrespective of their location. D

The respondents, on the other hand, contend that the classifica- tion of sugar industry into 15 zones (now 16) was upheld by a Constitu- tion Bench of this Court in Anakapalle Co-operative Agricultural & Industrial Society Ltd. etc. etc. v. Union of India & Ors., [1973] 2 SCR

882. The contention that the zonal system was disc.riminatory and E violative of constitutional principles was pointedly urged, but categori- cally rejected by this Court. The method adopted by the Government in fixing the price of levy sugar is fully supported by the recommenda- tions of various expert bodies. The Tariff Commission in its 1973 Report recommended division of the country into 16 zones for this purpose. The price of sugar is fixed with reference to the Cost F Schedule recommended by that body. These recommendations are based on various factors such as cost and output of individual labour, cane price (accounting for about 70 per cent of the cost of sugar pro- duction), quality of sugarcane, taxes on sugarcane; cost of other mate- rial, transport ·charges, cost of storing the sugar produced, cane development charges and other overhead expenses, selling expenses G etc. These factors are almost identical for the entire zone.

The cost of manufacturing sugar, the respondents contend, depends not only on recovery from the sugarcane, duration of crushing season, crushing capacity of the plant, the sugarcane price paid and the capital employed, as stated by the petitioners, but also to a consider- H

920 SUPREME COURT REPORTS I1990] 1 S.C.R.

A able extent on the condition of the plant and machinery, quality of management, investment policy, relations with cane growers and labour, financial reputation etc. They say:

"It is evident from the Tariff Commission Report of 1959, as also the Official Dire:tory of the Bombay Stock B Exchange, that the petitioner Company has been consis- tently diverting huge amounts for investments running into several lakhs elsewhere instead of ploughing back the same into the petitioner's sugar industry in question. Thus, the petitioner Company has been neglecting the sugar factory and for such neglect of their own they cannot blame the Zonal System." c Mr. Shanti Bhushan, appearing for the petitioners, does not object to the factories being grouped together on the basis of factors common to them with a view to fixing the prices applicable to them as a class of producers. He does not advocate fixation of price separately D for each unit. He says that the sugar factories must be grouped together, not on the basis of their geographical location, but similarity in cost characteristics. He relies upon the 1976 Report of the BICP. The present system of fixing prices according to the regions, where the factories are located, he says, is based on "averaging wide cost dis- parities" as a result of which manufacturers like the petitioners incur- E ring a high cost of production and others incurring a low cost of pro- duction are treated alike. Such a system works to the disadvantage of the former and to the advantage of the latter. This, Mr. Shanti Bhushan contends, is an unreasonable and invalid classification and violative of constitutional principles. While this line of argument is supported by Mr. Raja Ram Agarwal, Mr. S.P. Gupta appearing for F the intervener in Civil Writ Petition No. 464 of 1977 advocates aboli- tion of zonal classification or grouping of any kind and supports fixa- tion of price for each individual factory with reference to its cost and regardless of any other consideration. Such unit-wise determination alone, according to him, satisfies the requirements of Section 3(3-C). Any system of zoning or grouping for determination of price, he con- G tends, will fail to meet the norms of that sub-section. Mr. M.M. Abdul ... Khader, on the other hand, submits that while averaging and costing "II with reference to a representative cross-section may ordinarily be an / appropriate method for determining the fair price, such a method is inappropriate for a small zone like Kerala where there are only three manufacturing units. In respect of such a zone, he says, unit-wise fixation of price is the only just and proper method.

SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.J 921

Mr. K.K. Venugopal, counsel for Indian Sugar Mills' Associa- A tion (ISMA), on the other hand, supports the zoning system. He says that, except for a few producers like the petitioners, all the rest oi them in the country have accepted the principle of zoning. In his written submissions, Mr. Venugopal states as follows:

"As was seen during the course of hearing only 2 or 3 B persons have come forward challenging zoning. There are 389 sugar factories in the country and the present inter- vener has 166 members. Besides there are 220 members with the cooperative sector. Their Association being Na- tional Federation of Cooperative Sugar Factories Ltd., has also intervened in these petitions and have adopted the arguments of ISMA. Hence almost the entire industry has c supported zoning and only a handful of people who also factually are not high-cost units have opposed zoning."

Mr. Venugopal submits that the present case is squarely covered by the decisions of this Court in Anakapalle Cooperative Agricultural & D Industrial Society Ltd. etc. etc. v. Union of India & Ors., [1973] 2 SCR 882 and The Panipat Cooperative Sugar Mills v. The Union of India, [1973] 2 SCR 860. He says that the petitioners have not made out a case for reconsideration of these two decisions. He refers to T. Govin- daraja Mudaliar etc. etc. v. The State of Tamil Nadu & Ors., [1973] 3 SCR 222 at 228 to 230 and submits that this Court would not re- E examine an earlier decision merely because certain aspects of the ques- tion had not been noticed in that decision. Mr. Venugopal, however, advocates neutralisation of the high cost incurred by the old units having lower crushing capacity by giving them an incremental levy price as recommended by the High Level Committee in 1980. F Before we examine the provisions of section 3(3-C) in the con- text of the general scheme of the Act, we shall briefly refer to the observations of this Court in Anakapalle, [1973] 2 SCR 882 and Panipat, [1973] 2 SCR 860.

Grover, J. speaking for the Bench inAnakapalle (supra) states: G

"The system of fixing the prices, according to certain regions or zones, is not a new one. The Tariff Commission in 1959 favoured the formation of four zones. In the report of the Sugar Enquiry Commission 1965 it was pointed out that the Government had actually fixed the prices for 22 H

922 SUPREME COURT REPORTS [1990] 1 S.C.R.

zones which meant that from four zones the number had been increased to twenty two or more. The Commission was of the view that there should be five zones only in addition to Assam. The Tariff Commission, 1969 however recommended the constitution of fifteen zones largely on State-wise basis with an exception only in case of Uttar B Pradesh and Bihar. Uttar Pradesh was divided into three ~ones and Bihar into two. The Tariff Commission had been specifically requested to inquire into the working of the zonal system, the main point for inquiry being the zones into which the sugar producers should be grouped having regard to the basis of classification to be recommended by the Commission. The view of the Commission was that on .. c the whole the number of price zones should be fifteen which would reduce, though not eliminate, the inter-se anomalies in the cost structure without resorting to the extreme of the fixation of price for each unit or a single or at the most two, one for the sub-tropical and other for the D tropical one. The Tariff Commission hoped that in the course of time conditions would be created making the operation of the second alternative feasible."

Rejecting the contention that it was the zonal system that caused the losses allegedly incurred by some of the sugar producers, Grover, E J. says that ordinarily these units ought to have made profits. The reasons for incurring losses can be many, such as inefficiency, failure to pursue the right policy, poor management and planning etc., but these reasons have no relation to the zonal system. That system by and large has led to efficiency and provides an incentive to cut down the cost. Healthy competition among the units in the same zone should in F the normal· course result in reduction of cost and greater efficiency in the operation of the units. It is proper management and planning that would lead to the success of any commercial venture. The contention of the producers that they have been incurring losses on account of the zonal system is opposed to the evidence produced by them. The Court has rejected the extreme contention that prices should be fixed unit- G wise, i.e., on the basis of actu.al cost incurred by each unit. Referring to this contention, this Court observes:

"Apart from the impracticability of fixing the prices for each unit in the whole country, the entire object and purpose of controlling prices would be defeated by the H adoption of such a system."

SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.] 923

Grover, J. states that, during the earlier period of price.contr9l,_ A it was on an all India basis that 'the price was fixed. That is still the objective. If such an objective is achieved, it would undoubtedly be coducive to conferring proper benefit on the consumers. The objective of the Tariff Commission is to have only two regions for the whole country, viz., sub-tropical and tropical. B The Court has rejected as baseless the criticism against the principle of weighted average adopted in the fixation of price in each zone. Such a principle is well recognised and acted upoti by various Sugar Enquiry Commissions. A proper cost study is intended to do justice to the weak and strong alike. There is abundant justification for continuing and sustaining the zonal system. The varying climatic con- ditions of each State have been taken into account. For the same c reason, Bihar is divided into 2 zones and U.P. into 3 zones, while, in the case of many other States, each State is treated as a single zone. This system of zoning is thus adopted with special reference to climatic and agro-economic conditions. Rejecting the contention that the zonal system has resulted in discriminatory treatment, this Court states: D

"We are unable to hoid that while classifying zones on geographical-cum-agro-economic consideration, any discri- mination was made or that the price fixation according to each zone taking into account all the relevant factors would give rise to such discrimination as would attract Article 14 E of the Constitution." ~.

Even if there is no price control, the uneconomic urtits would be at a --,.., great disadvantage. The Court states:

"Even if there is no price control each unit will have to F compete in the market and those units which are unecono- mic and whose cost is unduly high will have to compete with others which are more efficient and the cost of which is much lower. It may be that uneconomic units may suffer losses but what they cannot achieve in the open market they cannot insist on where price has to be fixed by the G

l government. The Sugar Enquiry Commission in its 1965 report expressed the view that "cost-plus" basis of price fixation perpetuates ineffiCiency in the industry and is, therefore, against the long-term interest of the country."

Considering the general principle involved in price fixation, the Court H states:

924 SUPREME COURT REPORTS [1990] I S.C.R.

"It is not therefore possible to say that the principles which the Tariff Commission followed in fixing the prices for dif- ferent zones are either not recognised as valid principles for fixing prices or that simply because in case of some fac- tories the actual cost was higher than the one fixed for the zone in which that factory was situate the fixation of price became illegal and was not in accordance with the provi- ·sions of sub-section (3-C). It has not been denied that the majority of sugar producers have made profits on the whole and have not suffered losses. It is only some of them which

- assert that their actual cost is far in excess of the price fixed. That can hardly be a ground for striking down the price fixed for the entire zone provided it has been done in c accordance with the accepted principles ..... ".

The Court concludes:

"When prices have to be fixed not for each unit but for a D particular region or zone the method employed by the Commission was the only practical one and even if., some units because of circumstances peculiar to them suffered a loss the price could not be so fixed as to cover their loss. That cannot possibly be the intention of the Parliament while enacting sub-section (3-C) of section 3 of the Act. If H that were so the price fixation on zonal or regional basis would have to be completely eliminated. In other words, the entire system of price control which is contemplated will break down because fixation of price for each unit apart from being impractical would have no meaning what- soever and would not be conducive to the interest of the consumer."

This Court has thus in Anakapalle (supra) rejected the argument that the alleged loss incurred by certain sugar producers is attributable to fixation of price on a zonal basis; or the zonal system has led to inefficiency or lack of incentive, or it has resulted in unequal or unfair treatment. On the other hand, the zonal system has encouraged a healthy competition amongst the units in the same zone. Unit-wise fixation is impracticable. The Tariff Commission is the best judge in selecting units for cost study to determine the average cost. The fair price has to be determined with reference to the conditions of a rep- resentative cross section of the industry. For all these reasons, there is t- ' H ample justification in continuing and sustaining the zonal system for

SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.] 925

the purpose of price fixation. Price has to be fixed for each zone and necessarily it varies from zone to zone. There is no discrimination in A 'y the classification of zones on a geographical-cum-agro-economic con- sideration and any such classification is perfectly consistent with the principle of equality.

In Panipat, [1973] 2 SCR 860, Shela!, J. speaking for the same B Constitution Bench that has decided Anakapalle, [1973] 2 SCR 882, referes to the norms adopted in sub-section (3-C), viz., (a) determina- tion by the Government of the "price of sugar", and (b) payment of "an amount" to the manufacturer, and states that the concept of fair price which is what is referred to in sub-section (3-C) as "price of sugar" does not by any account mean the actual cost of production of every individual manufacturer. Such price has to be arrived at by a c process of costing with reference to a representative cross section of the manufacturing units. He states:

"The basis of a fair price would have to be built on a reasonably efficient and economic representative cross- o section on whose workings cost-schedules would have been worked out and the price to be determined by Government under sub-section (3-C) would have to be built."

So stating, Shelat, J. rejects the contention that such price has to be determined unit-wise. Any such fixation of price, he points out, would E i be contrary to the concept of partial control postulated by the sub- section and would perpetuate inefficiency and mismanagement. But, of course, any such price, he hastens to add, has to be fixed reasonably and on relevant considerations. Referring to the policy of partial con- trol, Shelat, J. states: F " ..... the Central Government was confronted with two main problems (a) deterioration in the sugar industry, and (b) the conflicting interests of the manufacturer, the con- sumer and the cane grower. The floor price of cane fixed by Government was intended to protect the farmer from exploitation, but that was found not to be an incentive G enough to induce him to increase his acreage. A device had to be found under which a price higher than the minimum could be paid by the manufacturer of sugar. The consumer, on the other hand, had also to be protected against the spiralling of sugar price and his needs, growing as they were, had to be satisfied at some reasonable price." H

926 SUPREME COURT REPORTS (1990] 1 S.C.R.

Shela!, J. emphasises the need to modernise the factories which alone would yield a reasonable return. This is what he states:

'Both these and a larger production of sugar would not be possible unless there was a reasonable return which would ensure expansion, which again would not be possible unless new machinery for such expansion was brought in and factories, particularly in U.P. and Bihar, were modernised and renovated. A fair price for sugar, therefore, had to be such as would harmonise and satisfy at least to a reasonable extent these conflicting interests." ·

Significantly, the BICP's recommendation to group individual c units having homogenity in cost, irrespective of their location, was not accepted by the Central Government, particularly because the Tariff Commission itself had considered the question and reached the con- clusion that geographical-cum-agro-economic considerations deman- ded the grouping of factories with reference to State zones, or sub- D zones as in the case of U.P. and Bihar. To group them on the basis of their location in various regions of the country for the purpose of price fixation is a rational method reflecting economic realities. This is particularly so as conditions generally vary from State to State as regards the availability and quality of sugarcane, labour conditions and other factors, whereas within the same region like facilities are gener- E ally available to all factories. If the cost structure varies from factory to factory, such variation is not necessarily caused by the non-availabi- lity, or the poor quality of raw material, or the labour conditions, but probably for reasons unconnected with them, such as the age of the ·1 plant, availability of finance, management ability, etc. There is great force in the submission of the respondents that to group together F factories having a high cost profile and to determine a price specially applicable to them is, as recognised by this Court in Panipat (supra) and Anakapalle (supra), to put a premium on incompetence, if not mismanagement.

The history of control over sugar has been set out at length in G Panipat (supra) and we do not wish to burden this judgment with a narration of the circumstances which have led to the introduction of partial control under which 60% of the output of sugar is acquired and the balance left for free sale. It is in implementation of this policy that sub-section (3-C) of section 3 was inserted' Before we examine the

2. For an illuminating discussion of this aspect, See A.M. Khusro, Price Policy, Lancer International ( 1987), p. 62-63:

SITARAM SUGAR CO. LTD. v. U.0.1. ffHOMMEN, J.] 927

provisions of that sub-section under which the impugned notification A y have been issued, we shall refer to the statutory scheme.

The Act was, as stated in the preamble, enacted by Parliament "to provide, in the interest of the general public, for the control of the production, supply and distribution of, and trade and commerce in, certain commodities". The entire Act is devoted to the cause of the B general public with a view to achieving equitable distribution of essen- tial commodities at fair prices.

S.ection '3 of the Act confers wide power upon the Central Government to control production, supply, distribution, etc., of essen- tial commodities. It reads: c "3. Powers to control production, supply, distribution, etc., of essential commodities-(1) If the Central Govern- ment is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing thelf equitable distribution and availability at fair prices or for securing any essential com- modity for the defence of India or the efficient conduct of military operations, it may, by order, provide for regulat- ing or prohibiting the production, supply and distribution thereof and trade and commerce therein." E Sub-section (2) of section 3 says that, without prejudice to the generality of the powers conferred by sub-section (1), an order made "After many years of adverse experience a new strategy of.dual pricing was introduced in sugar. The mills were asked to deliver to the public dis- tribution system about 60 per cent of their output say at Rs.2 per Kg. and were allowed to sell the balance of 40 per cent in the free market at say Rs.6 F per kg. The mills were delighted to do so as they got very much enhanced receipts from their free-market sales. With larger receipts they offered in the following season a higher price to the farmer (the sugarcane grower) who, in tum, grew and offered more cane. In other words, the law of supply which had been heJd captive, as it were, was freed from bondage. With a higher price offer from the mills, the cane growers brought more land under sugarcane, diverted Jand from other crops to cane, used more inputs, pro- G duced and delivered to the mills more cane and in fact diverted cane

- deliveries from the open-pan system to the mill system. Having thus obtained much more cane, the milJs produced much more sugar and sold 30-40 per cent of it in the free market. Within a year or two, the free-market price of sugar felJ from Rs.6 to Rs.3 or even Rs.2.50. At this rate consumers began to buy more in the free market, miHions of ration cards remained unused and the demands on the public distribution declined substantiaHy. H Prolonged shortages of sugar got converted into a relative abundance."

928 SUPREME COURT REPORTS [ 1990] I S.C.R.

A under that sub-section may provide for the matters specified in sub- section (2). One of them is what is contained in clause (f) of sub- section (2) which empowers the Central Government to require any person dealing in any essential commodity to sell the whole or a specified part of such commodity to the Central Government or the State Government or to a nominee of such Government. It reads: B "(2) Without prejudice to the generality of the powers conferred by sub-section (1), an order made thereunder may provide-

(a) .......................................... . c (f) for requiring any person holding in stock, or engaged in the production, or in the business of buy- .A ing or selling of any essential commodity,- D (a) to sell the whole or a specified part of the quantity held in stock or produced or received by him, or

(b) in the case of any such commodity which is likely to be produced or received by him, to sell the whole or a specified part of such commodity when produced or received by him,

to the Central Government or a State Government or to an officer or agent of such Government or to a Corporation owned or controlled by such Government or to such other f person or class of persons and in such circumstances as may be specified in the order."

The power contained in sub-section ( 1) or sub-section (2) is exercisable by an order. An 'order' is defined under section 2 to include a direction issued thereunder. Any order made under section 3 by the (; Central Government or by an officer or authority of the Central Government is required by sub-section (6) of section 3 to be laid before both Houses of Parliament, as soon as may be, after it is made. Any order made under section 3 which is of a general nature or affect- 'ing a class of persons has to be notified in the official gazette. [Sub- H section ( 5) of section 3]. -

SITARAM SUGAR CO. LTD. v. U.0.I. [THOMMEN, J.] 929

Sub-section (3) of section 3 provides that where any person has sold any essential commodity (sugar being such a commodity) in comp- liance with an order made with reference to clause (f) of sub-section (2), he shall be paid the price of the goods purchased from him as provided under clauses (a), (b) and (c) of sub-section (3). This sub- section operates only where an order has been made under sub-section (1) with reference to clause (f) of sub-section (2). While clause (a) of the sub-section postulates an agreed price, consistently with the con- trolled price, if any, clause (b) speaks of a price calculated with refer- ence to the comrolled pnce, if any, when no agreement is reached.

- ' Where nei.ther clause (a) nor clause (b) applies, either because there is no agreement or because there is no controlled price, the seller has to be paid, as per clause (c), a price calculated at the market rate prevail- ing in the locality at the date of the sale. c

Sub-section (3-A) empowers the Central Government to regu- ·late in accordance with the provisions of the sub-section the price of any foodstuff sold in a locality in compliance with an order made with reference to clause (f) of sub-section (2). This power is exercisable by a D direction which has to be duly notified in the official Gazette. The power to issue the direction is notwithstanding anything contained in sub-section (3). Before issuing the notification, the Central Govern- ment has to form an opinion that the price of any foodstuff (including sugar) has to be regulated for the purpose of cotrolling the rise in its

- prices or preventing its hoarding in any locality. Any such notification will remain in force for any specified period not exceeding 3 months. The price payable in such cases is either the agreed price consistently E

with the controlled price, if any, or where no such agreement is possi- ble, the price calculated with reference to the controlled price, if any, or where neither of these two methods is applicable, the price.calculated with reference to the average market rate prevailing in the locality F during the period of 3 months immediately prior to the date of the notification. The average market rate will be determined by an officer authorised by the Central Government and the rate so determined by him. is not liable to be questioned in any court.

Sub-section (3-C) which is the crucial provision, was inserted in G

1967. It reads:

"(3-C). Where any producer is required by an order made with reference to clause (f) of sub-section (2) to sell any kind of sugar (whether to the Central Government or a State Government or to an officer or agent of such Govern- H

930 SUPREME COURT REPORTS [1990) I S.C.R.

A ment or to any other person or class of persons) and either no notification in respect of such sugar has been issued under sub-section (3-A) or any such notification, having been issued, has ceased to remain in force by efflux of time, then, notwithstanding, anything contamed in sub-section (3), there shall be paid to that producer an amount therefor B which shall be calculated with reference to such price of sugar as the Central Government may, by order, deter- mine, having regard to-

(a) the minimum price, if any, fixed for sugarcane by the Central Government under this section; c (b) the manufacturing cost of sugar;

(c) the duty or tax, if any, paid or payable thereon; and D ( d) the securing of a reasonable return on the capital employed in the business of manufacturing sugar,

and different prices may be determined from time to time for different areas or for different factories or for different kinds of sugar. E Explanation-For the purposes of this sub-section, "pro- ducer" means a person carrying on the business of manufacturing sugar." (emphasis supplied) F Sub-Sectioin (3-C) is attracted whenever any producer is required to sell sugar by an order made with reference to sub-section (2)(f) and no notification has been issued under sub-section (3-A) or any such notification, having been issued, has ceased to be in force. Whenever sub-section (3-C) is attracted, it operates notwithstanding anything contained in sub-section (3). This means the compensation G payable to the seller in the circumstances attracting sub-section (3-C) is not the price postulated in sub-section (3). Nor is it the price mentioned under sub-section (3A), for that sub-section cannot be in operation when sub-section (3-C) is attracted. What is payable under sub-sectin (3-C) is an "amount" calculated with reference to the "price of sugar" determined in the manner indicated in that sub-section. H

SITARAM SUGAR CO. LID. v. U.0.L [TI!OMMEN, J.] 931

Construing sub-section (3:C), this Court in Panipat [1973] 2 SCR A 860, 870 says:

"Sub-section 3C, with which we are presently concerned was inserted in sec. 3 by sec. 3 of Act 36 of 1967. The sub-section lays down two conditions which must exist before it applies. The first is that there must be an order B made with reference to sub-section 2 cl. (f); and the second is that there is no notification under sub-section 3A or if any such notification has been issued it is no longer in force owing to efflux of time. Next, the words "notwithstanding anything contained in sub-section" suggest that the amount payable to the person required to sell his stock of sugar would be with reference to the price fixed under the sub- c section and not the agreed price or the market price in the absence of any controlled price under sub-sec. 3A. The sub-section then lays down two things; firstly, that where a producer is required by an order with reference to sub-sec. 2(f) to sell any kind of sugar, there shall be paid to that D producer an amount therefor, that is for such stock of sugar as is required to be sold, and secondly, that such amount shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to the four factors set out in els. (a), (b ), (c) and \d). Unlike the preceding three sub-sections under which the E • amount payable is either the agreed price, or the controlled price, or where neither of these prices is applicable at the market or average market price, the amount in respect of sugar required to be sold is to be calculated at the price determined by th Central Government ...... " F What is specially significant is that sub-section (3-C) postulates payment of an amount to the producer who has been required to sell sugar in the circumstances mentioned therein. What is required to be paid to him is not the price of sugar, but only an amount. That amount has to be calculated with reference to the price of sugar. The "price" is determined by the Central Government by means.of an order which, G as required by sub-sections (5) and (6), has to be notified in the official gazette and laid before both Houses of Parliament. The order notify- ing the "price of sugar" is of general application and it is the rate at which the actual "amount" payable to each seller is calculated.

The price of sugar must be determined by the Central Govern- H

932 SUPREME COURT REPORTS [ 19901 1 S.C.R.

A ment having regard to the factors mentioned in clauses (a) to (d) of sub-section (3-C). This is done with reference to the industry as a whole and not with reference to any individual seller. In contradistinc- l tion to the "price of sugar", the "amount" is calculated with reference to the particular seller. The Central Government is authorised to determine different prices for different areas or for different factories or.for different kinds of sugar. Whether factories are required to be grouped together for a rational determination of the prices according to their location or their size, age and capacity or by any other standard is a matter for decision by the Central Government on the basis of relevant material. What is contemplated by the legislature in delegating such wide discretion to the Central Government is that it must apply its mind to the manifold questions relevant to the determi- nation of prices and with due regard to the norms laid down in the sub-section. What is required by sub-section (3-C) is the adoption of a valid classification of factories having a rational nexus to the object sought to be achieved, viz., determination of a fair price of sugar with reference to which the actual amounts payable to the producers, in the circumstances attracting the sub-section, are calculated.

Referring to the legislative background of sub-section (3-C), this Court in Panipat (supra) observes:

"In order to appreciate the meaning of els. (a), (b ), (c) and E (d), it must be remembered that ever since control on sugar was imposed, Government had set up expert committees to work out cost-schedules and fairprices. Starting in the beginning with an All-India cost-schedule worked out on the basis of the total production of sugar, the factories were later grouped together into zones or regions and different ..ii cost-schedules for different zones or regions were construe- -, ted on the basis of which fairprices were worked out at which sugar was distributed and sold. T"e Tariff Commis- sion in 1958 and the Sugar Enquiry Commission in 1965 had worked out the zonal cost-schedules on the basis of averaged recovery and duration, the minimum and not the actual price of cane, the averaged conversion costs and recommended a reasonable return on the capital employed ) by the industry in the business of manufacturing sugar. This experience was before the legislature at the time when sub- sec. 3C was inserted in the Act. The legislature therefore incorporated the same formula in the new sub-section as the basis for working out the price. The purpose behind

SITARAM SUGAR CO. LTD. v. U.0.L [THOMMEN, J:] 933

enacting the new sub-section was three-fold, to provide an incentive to increase production of sugar, encourage expansion of the industry, to devise a means by which the cane producer could get a share in the profits of the industry through prices for his cane higher than the --! minimum price fixed and secure to the consumer distribu- J. tion of at least a reasonable quantity of sugar at a fair . B . "'. price.''

Clauses (a) to (d) of sub-section (3-C) postulate that the price of sugar must be determined having regard to the minimum price, if any, fixed for sugarcane by the Central Government, the manufacturing cost of sugar, the duty or tax applicable in the zone, and the securing of a reasonable return on the capital employed in the business of c manufacturing sugar. Referring to clause (d) of sub-section (3-C), this Court observes in Panipat (supra):

"It is clear from the reports of the Tariff Commission that a reasonable return recommended by that body at a fixed amount of Rs.10.50 per quintal which worked out in 1966- 67 at 12.5% per annum was not in respect of levy sugar only but on the whole, so that even if such a return was not obtainable on levy sugar but was obtainable on the whole, it would meet the requirement of cl. (d). In this conclusion we derive a two-fold support, firstly, from the language used in cl. (d) itself, viz., a reasonable return on the capital employed in the business of manufacturing sugar, which ) -..;' must mean the business as a whole and not the business of ' manufacturing levy sugar only, and secondly, from the fact of the Commission having all along used the same phraseo- logy while recommending Rs.10.50 per quintal as an addi- F tion by way of a reasonable return on the capital employed in the industry. The cost-schedules prepared by these bodies were for determining a fair price in relation to the entire sugar produced by the industry and the return which should be granted to it on the capital employed in the industry and not with respect fo that stock only required to G be sold under sub-sec. 2(f). This is clear from the heading of Ch. 9 of the Tariff Commission's report, 1969, "Cost Structure and Price Fixation"."

The petitioners contend that although the Government has the discretion to fix different prices for different areas or for different H

934 SUPREME COURT REPORTS t 1990] 1 S.C.R.

factories, or for different kinds of sugar, such wide discretion has to be A reasonably exercised. It is, of course, a well accepted principle that any discretion conferred on the executive has to be reasonably exer- cised. Nevertheless, it is a discretion which the Court will not curtail unless the exercise of it is impeachable on well accepted grounds such as 'ultra vires' or 'unreasonableness'. B The petitioners further contend that the Act requires the Government to have regard to clauses (a) to (d) and, therefore, it is mandatory on the part of the Government to act strictly in compliance with the provisions of those clauses in determining the prices. Accord- ing to them, "having regard to" is a mandatory requirement demand- ing strict compliance with the provisions to which reference is made by c the legislature. They say that the ingredients of clauses (a) to (d) must be examined with reference to each producer as a condition precedent to the determination of the price of sugar.

We may in this connection point out that the petitioners have not D furnished any data to show that the prices determined by the Govern- ment would have been different had the ingredients of clauses (a) to ( d) of the sub-section hP !1 examined with reference to each individual 0

producer instead of a representative cross section of manufacturing units. Be that as it may, the expression "having ·regard to" must be understood in the context in which it is used in the statute. See Union of E India v. Kamlabhai Harjiwandas Parekh & Ors., [ 1968) 1 SCR 463 at

471. These words do not mean that the Government cannot, after taking into account the matters mentioned in clauses (a) to (d), con- sider any other matter which may be relevant. The expression is not "having regard only to" but "having regard to". These words are not a fetter; they are not words of limitation, but of general guidance to make an estimate. The Government must, of course, address itself to the questions .to which it must have regard, and, having done so, it is for the Government to determine what it is empowered to determine with reference to what it reasonably consider to be relevant for the purpose. The Judicial Committe in Commissioner of Income Tax v. Williamson Diamonds Ltd., L.R. 1958 A.C. 41, 49 observed with reference to the expression "having regard to": ' "The form of words used no doubt lends itself to the 'r- suggestion that regard should be paid only to the two mat- ters mentioned, but it appears to their Lordships that it is impossible to arrive at a conclusion as to reasonableness by considering the two matters mentioned isolated from other

SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.] 935

relevant factors. Moreover, the statute does not say "having regard only" to losses previously incurred by the company and to the smallness of the profits made. No answer, which can be said to be in any measure adequate, can be given to the question of "unreasonableness" by con- sidering these two matters alone ...... " B See Commissioner of Income-tax, West Bengal, Calcutta v. Gungadhar Banerjee and Co. (P) Ltd., [1965] 3 SCR 439 at 444-45. See also Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [1975] 1 SCR 956 at 959. In State of Kamataka and Anr. etc. v. Shri Ranganatha Reddy & Anr. etc., [1978] 1SCR641at657-58 this Court stated:

"The content and purport of the expressions "having c regard to" and "shall have regard to" have been the sub- ject matter of consideration in various decisions of the Courts in England as also in this country. We may refer only to a few. In Illingworth v. Welmsley, [1900] 2 Q.B. 142 it was held by the Court of Appeal, to quote a few words from the judgment of Romer C.J. at page 144: "All that clause 2 means is that the tribunal assessing the compensa- tion is to bear in mind and have regard to the average weekly wages earned before and after the accident respec- tively. Bearing that in mind, a limit is placed on the amount of compensation that may be awarded ..... " In another decision of the Court of Appeal in Perry v. Wright (etc .. etc.), [1908] 1 K.B. 441 Cozens-Hardy M.R. observed at page 451: "No mandatory words are there used; the phrase is simply "regard may be had". The sentence is not gram- matical, but I think the meaning is this: Where you cannot compute you must esnimate, as best as you can, the rate per week at which the-workman was being remunerated, and to assist you in making an estimate you may have regard to analogous cases." It is worthwhile to quote a few words from the judgment of Fletcher Moulton L.J. at page 458. Under the phrase "Regard may be had to" the facts which the Court may thus take cognizance of are to be "a guide, and not a fetter". This Court speaking through one of us (Beg, J., as he then was), has expressed the same opinion in the case of Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [ 1975] 1 SCR 956. Says the learned Judge at page 959: "The expression "having regard to" only obliges the Government to consider as relevant data material to which it must have regard"."

936 SUPREME COURT REPORTS [1990] 1 S.C.R.

In State of U.P. & Ors. v. Renusagar Power Co., [1988] 4 SCC 59, one of us (Mukharji, J., as he then was) observed:

"The expression "having regard to" only obliges the govern- ment to consider as relevant data material to which it must have regard ..... ". B In O'May and Ors. v. City of London Real Property Co. Ltd., [1982] 1 All E.R. 660 at 665 (H.L.), Lord Hailsham stated:

"A certain amount of discussion took place in argument as to the meaning of 'having regard to' in s. 35. Despite the fact that the phrase has only just been used by the drafts- c man of s. 34 in an almost mandatory sense, I do not in any way suggest that the court is intended or should in any way attempt to bind the parties to the terms of the current tenancy in any permanent form ..... ".

D The words "having regard to" in the sub-section are the legisla- tive instruction for the general guidance of the Government in determining the price of sugar. They are not strictly mandatory, but in essence directory. The reasonableness of the order made by the Government in exercise of its power under sub-section (3-C) will, of course, be tested by asking the question whether or not the matters mentioned in clauses (a) to (d) have been generally considered by the Government in making its estimate of the price, but the Court will not strictly scrutinise the extent to which those matters or any other mat- ters have been taken into account. There is sufficient compliance with the sub-section, if the Government has addressed its mind to the factors mentioned in clauses (a) to (d), amongst other factors which the Government may reasonably consider to be relevant and has come to a conclusion, which any reasonable person, placed in the position of the Government, would have come to. On such determination of the price of sugar, which, as stated in Panipat (supra) is the fair price, the sub-section postulates the calculation of an amount, with reference to such price, for payment to each producer who has complied with an order made with reference to sub-section (2)(f). The "price of sugar", unlike the "amount" is arrived at by a process of costing in respect of a representative cross section of manufacturing units, bearing, of course, in mind the legislative instruction contained in clauses (a) to (d).

H The Attorney General submits that orders determining the

SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.} 937

· prices of sugar in terms of the sub-section are of general application and, therefore, legislative in character. Omission, if any, to consider the A peculiar problems of individual producers is not a ground for judicial review. The petitioners' counsel as well as Mr. Venugopal appearing for the intervener (ISMA), do not agree. They submit that the sub- section contemplates only administrative or quasi-judicial orders of particular application and the impugned orders are not legislative. B They rely upon a certain observation of this Court in Union of India & Anr. v. Cynamide India Ltd. & Anr., [1987] 2 SCC 720. Mr. Venugopal, however, hastens to add that his client does not seek personal hearing before prices are determined. l')'.lr. B.R.L. Iyengar, supporting the contentions of the petitioners, points out that the expression 'determine' used in sub-section (3-C) indicates that the order to which that expression refers is quasi-judicial. c Judicial decisions are made according to law while administrative decisions emanate from administrative policy. Quasi-judicial decisions are also administrative decisions, but they are suqject to some measure of judicial procedure, such as rules of natural justice. To distinguish D clearly legislative and administrative functiol!s is "difficult in theory and impossible in practice" .3 Referring to these two functions, Wade says:

'They are easy enough to distinguish at the extremities of the spectrum: an Act of Parliament is legislative and a E deportation order is administrative. But in between is a wide area where either label could be used according to taste, for example where ministers make orders or regula- tions affecting large numbers of people ..... ". 4

Wade points out that legislative power is the power to prescribe the F law for people in general, while administrative power is the power to prescribe the law for them, or apply the law to them, in particular situations. A scheme for centralising the electricity supply undertak- ings may be called administrative, but it might be just as well legisla- tive. Same is the case with ministerial orders establishing new towns or airports etc. He asks: "And what of 'directions of a general character' G given by a minister to a nationalised industry? Are these various orders legislative or administrative?" Wade says that the correct (3) Comd. 4060 (1932), p. 73; see H.W.R. Wade- Administrative Law, 6th ed., p. 47

(4) Ibid p. 848. H

938 SUPREME COURT REPORTS [ 1990] 1 S.C.R.

answer would be that they are both. He says: " ..... there is .an A infinite series of gradations, with a large area of overlap, between what is plainly legislation and what is plainly administration" .5 Courts, nevertheless, for practical reasons, have distinguished legislative orders from the rest of the orders by reference to the principle that the former is of general application. They are made formally by publica- B tion and for general guidance with reference to which individual deci- sions are taken in particular situations.

According to Griffith and Street, an instruction may be treated as legislative even when they are not issued formally, but by a circular or a letter or the like. What matters is the substance and not the form, or the name. The learned authors say: " ..... where a Minister (or ,... I

c other authority) is gven power in a statute or an instrument to exercise executive, as opposed to legislative, powers-as, for example, to requisition property or to issue a licence-and delegates those powers generally, then any instructions which he gives to his delegates may be legislative" .6 Where an authority to whom power \is delegated is D entitled to sub-delegate his power, be it legislative, executive or judi- cial, then such authority may also give instructions to his delegates and these instructions may be regarded as legislative. However, as pointed out by Denning, L.J., (as he then was) a judicial tribunal cannot dele- gate its functions except when it is authorised to do so expressly or by . necessary implication: see Bernard and Ors. v. National Dock Labour E Board and Ors., [1953] 2 Q.B. 18 at 40. Kenneth Culp Davis says: "What distinguishes legislation from adjudication is that the former affects the rights of individuals in the abstract and must be applied in a further proceeding before the legal position of any particular individual will be definitely toucbed by it; while adjudication operates concretely upon individuals in their indi- F vidual capacity''. 7 Justice Holmes' definition, which is what is called the "time test" and which Davis describes as one which has produced many unsatisfactory practical results, reads:

"A judicial inquiry investigates, declare;, and enforces liabilities as they stand on present or past facts and under G laws supposed already to exist. That is its purpose and end. Legislation, on the other hand, looks to the future and (5) Ibid.

(6) Principles of Administrative Law, 5th ed., p. 65

H (7) Administrative Law Text, 3rd ed., p. 123·24.

SITARAM SUGAR CO. LID. v. U.O.l. !THOMMEN, J.] 939

changes existing conditions by making a new rule, to be applied thereaft0r to all or some part of those subject to its A power. The establishment of a rate is the making of a rule for the future, and therefore is an act legislative, not judi- cial ..... ".

Prentis v. Atlantic Cost Line Co., 211US210, 226. B

'The element of general application is often cited as a distinct feature of legislative activity. In the words of Chief Justice Burger, "rule-making is normally directed toward the formulation of require- ments having a general application to all members of a broadly identi- fiable class'; .8 Bernard Schwarts says: "an adjudication, on the other hand, applies to specific individuais or situations. Rule-making affects c the rights of individuals in the abstract and must be applied in a further proceeding before the legal position of any particular individual will be definitely affected; adjudication operates concretely upon individuals m their individual capacity"' According to Schwartz, the "time test"' and the "applicability test" are workable in most cases although in certain situations distinctions are indeed difficult to draw.

A statutory insirument (such as a rule, order or regulation) ema- nates from the exercise of delegated legislative power which is the part of the administrative process resembling enactment of law by the legis- lature. A quasi judicial order emanates from adjudication which is the part of the administrative process resembling a judicial decision by a court of law. This analogy is imperfect and perhaps unhelpful in clas- sifying borderline or mixed cases which are better left unclassified. 10

If a particular function is termed legislative rather than judicial, ·)'·· practical results may follow as far as the parties are concerned. When F the function is treated as legislative, a party affected by the order has no right to notice and hearing, unless, of course, the statute so requires. It being of general application engulfing a wide sweep of powers, applicable to all persons and situations of a broadly identifi- able class, the legislative order may not be vulnerable to challenge merely by reason of its omission to take into account individual G peculiarities and differences amongst those falling within the class.

(8) Quoted by Bernard Schwartz in 'Administrative Law' ( 1976), p. 144.

(9) Ibid

( 10) See Davis, Administrative Law Text, p. 123 H

940 SUPREME COURT REPORTS [ 1990] 1 S,C.R.

A In Union of India & Anr. v. Cynamide India Ltd. & Anr., [ 1987] 2 SCC 720 at 734-35, Chinnappa Reddy, J. referring to the earlier 'f· decisions of this Court states:

" ..... legislative action, plenary or subordinate, is not subject to ,rules of natural jus_tice. In the case of Parlia- B mentary legislation, the proposition is self-evident. In the case of subordinate legislation, it may happen that Parlia- ment may itself provide for a notice and for a headng .......... But where the legislature has not chosen to provide for any notice or headng, no one can insist upon it i

: and it will ncit be permissible to read natural justice into I ')Im c such legislative activity .......... It is true that, with the proliferation of delegated legislation, there is a tendency for the line between legislation and administration to vanish into an illusion. Administrative, quasi-judicial deci- sions tend to merge in legislative activity and, conversely, legislative activity tends to fade into and present an apea- D rance of an administrative or quasi-judicial activity".

Stating that rule-making is of general application to all members of a broadly identifiable class while adjudication is applicable to specific individuals or situations, the learned Judge observes: >--- E "A pdce fixation measure does not concern itself with the interests of an individual manufacturer or producer. It is generally in relation to a particular commodity or class of commodities or transactions. It is a direction of a general character, not directed against a particular situation. It is intended to operate in the future. It is conceived in the interests of the general consumer public. The dght of the citizen to obtain essential articles at fajr pdces and the duty of the State to so provide them are transformed into the power of the State to fix pdces and the obligations of the producer to charge no more than the pdce fixed. Viewed from whatever angle, the angle of general application, the prospectiveness of its effect, the public interest served, and the rights and obligations flowing therefrom, there can be no question that price fixation is ordinarily a legislative activity".

The learned Judge emphasises: H

SITARAM SUGAR CO. LTD. v. U.0.1. ITHOMMEN, J.] 941

"Price fixation may occasionally assume an administrative or quasi-judicial character when it relates to acquisition or requisition of goods or property from individuals and it becomes necessary to fix the price separately in relatiqn to such individuals. Such situations may arise when the owner of property or goods is compelled to sell his property or goods to the government or its nominee and the price to be paid is directed by the legislature to be determined accord- ing to the statutory guidelines laid down by it. In such situations the determination of price may acquire a quasi- judicial character".

These observations have been cited with approval by one of us (Sabyasachi Mukharji, J., as he then was) in Renusagar (supra). c

In Saraswati Industrial Syndicate Ltd. etc. v. Union of India, [ 1975] 1 SCR 956 at 961, this Court states:

"Price fixation is more in the nature of a legislative mea- D sure even though it may be based upon objective criteria found in a report or other material. It could not, therefore, give rise to a complaint that a rule of natural justice has not been followed in fixing the price".

In Prag Ice & Oil Mills & Anr. etc. v. Union of India, [1978] 3 SCR 293 E at 317, Chandrachud, J., as he then was, speaks forthe majority:

"We think that unless, by the terms of a particular statute, or order, price fixation is made a quasi-judicial function for specified purposes or cases, it is really legislative in charac- ter in the type of control order which is now before us F because it satisfies the tests of legislation. A legislative measure does not concern itself with the facts of an indi- vidual case. It is meant to lay down a general rule applic- able to all persons or objects or transactions of a particular kind or class". G See also the observation of Megarry, J., as he then was, in Bates v. Lord Hai/sham of St. Marylebone & Ors., [1972] 3 All ER 1019 at 1024.

The impugned orders, duly published in the official gazettes notifying the prices determined for sugar of various grades and pro- H

942 SUPREME COURT REPORTS [1990) 1 S.C.R.

duced in vanous zones, and applicable to all producers of such sugar, A can, in our view, be legitimately characterised as legislative. These orders are required by ·sub-section (6) to be laid before both Houses of Parliament. The notified prices are applicable without exception to all persons falling within well defined groups. The prices are determined in accordance with the norms postulated in the sub-section. It is with 8 reference to such predetermined prices of sugar that the "amount" payable to each producer, who has sold sugar in compliance with an order made with reference to clause (f) of sub-section (2), is cal- culated. The calculation of such amount is, in contradistinction to the determinatio)l of "price of sugar", a non-legislative act.

Thus, while individual consideration is relevant to the calcula- c tion of the "amount", it is not so for the determination of the "orice of sugar" which is the rate at which the amount is calculated. That orice. as stated in Panipat (supra) is to be arrived at by a process of costing with reference to a reasonably efficient and economic representative cross section of manufacturing units. D In this connection, we must point out that at first blush a certain obsezyation of Chinnappa Reddy, J. in Cynamide, [1987) 2 SCC 720 at 741, on which much reliance is placed by the petitioners' counsel, ~-. appears to be inconsistent with what we have now stated. The learned Ju'dge says:

"The Order made under Section 3(2)(c), which is not in respect of a single transaction, nor directea IO a particular individual is clearly a legislative act, while an Order made under Section 3(3-C) which is in respect of a particular transaction of compulsory sale from a specific individual is a non-legislative act".

It would appear that what the learned Judge had in mind was an order by which the "amount" was calculated in terms of sub-section (3-C) in respect of each individual producer and not an order determining the "price of sugar". While the former is non-legislative, the latter, by the o very test adopted by the learned Judge, is legislative in character. We, therefore, understand the observation of the learned Judge on this point as applicable only to the individual order fixing the "amount" in terms of the sub-section and not to orders determining the "price of sugar" which are what the impugned orders are. Any other construc- tion of the sub-section would conflict with what was adopted by the H Constitution Bench in Panipat (supra) and would, therefore, be unsustainable.

SITARAM SUGAR CO. LTD. v. U.0.1. (THOMMEN, J.] 943

The individual orders, calculating the "amount~" payable to the individual producers, being administrative. orders founded on the A machanics of price fixation, they must be left to the better instructed judgment of the executive, and in regard to them the principle of audi alteram partem is not applicable. All that is required is reasonableness and fair play which are in essence emanations from the doctrine of natural justice as explained by this Court in A.K. Kraipak & Ors. etc. B v. Union of India & Ors., [1970] 1SCR457. See also the observation of Mukharji, J., as he then was, in Renusagar, [1988] 4 SCC 103, 105.

Price fixation is in the nature of a legislative action even when it is basep on objective criteria founded on relevant material. No rule or natural justice is applicable to any such c)rder. It is nevertheless impera- tive that the action of the authority should· bJ' inspired by reason. c Saraswati Industrial Syndicate Ltd., [1975] 1 SCR 956. 961, 962. The Government cannot fix any arbitrary price. It cannot fix prices on extraneous considerations: Renusagar, (supra).

Any arbitrary action, whether in the nature of a legislative or administrative or quasi-judicial exercise of power, is liable to attract the prohibition of Article 14 of the Constitution. As stated in E.P. Royappa v. State of Tamil Nadu & Anr., [1974] 2 SCR 348, "equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch." Unguided and unrestricted power is affected by the vice of discrimination: Mrs. Maneka Gandhi v. Union of India & Anr., [ 1978] 1 sec 248 at 293-294. The principle of equality enshrined in Article 14 must guide every state action, whether it be legislative, executive, or quasi-judicial: Ramana Dayaram ·shetty v. The Interna- tional Airport Authority of India & Ors., [1979] 3 SCR 1014 at 1042; Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors .. [1981] 1 SCC. F 722 and D.S. Nakara & Ors. v. Union of India, [1983] 1SCC305.

Power delegated by statute is limited by its terms and subor- dinate to its objects. The delegate must act in good faith, reasonably, intra vires the power granted, and on relevant consideration of mate- rial facts. All his decisions, whether characterised as legislative or G administrative or quasi-judicial, must be in harmony with the Con- --.._ stitution and other laws of the land. They must be "reasonably related to the purposes of the enabling legislation". See Leila Molirning v. Family Publications Service, 411 US 356, 36 L Ed. 2d 318. If they are manifestly unjust or oppressive or outrageous or directed to an unau- thorised end or do not tend in some degree to the accomplishment of H

944 SUPREME COURT REPORTS (1990] 1 S.C.R.

the objects of delegation, courts might well say, "Parliament never A intended to give authority to make such rules; they are unreasonable and ultra vires". per Lord Russel of Killowen, C.J. in Kruse v. John- son, (1988] 2 Q.B. 91, 99.

The doctrine of judicial review implies that the repository of a power acts within the bounds of the power delegated and h-e does not abuse his power. He must act reasonably and in good faith. It is not only sufficient that an instrument is intra vires the parent Act, but it must also be consistent with the constitutional principles: Maneka Gandhiv. Union of India, [1978] 1SCC248,314-315.

Where a question of law is at issue, the Court may determine the c rightness of the impugned decision on its own independent judgment. If the decision of the authority does ,not agree with that which the Court considers to be the right one, the finding of law by the authority is liable to be upset. Where it is a finding of fact, the Court examines only the reasonableness of the finding. When that finding is found to D be rational and reasonably based on evidence, in the sense that all relevant material has been taken into account and no irrelevant mate- rial has influenced the decision, and the decision is one which any reasonably minded person acting on such evidence, would have come to, then judicial review is exhausted even though the finding may not necessarily be what the Court would have come to as a trier of fact. E Whether an order is characterised as legislative or administrative or quasi-judicial, or, whether it is a determination or law or fact, the fudgment of the expert body, entrust.ed with power, is generally treated as final and the judicial function is exhausted when it is found to have "warrant in the record" and a rational basis in law: See Rochester Tel. Corp. v. United States, [1939] 307 U.S. 125, 83 L. Ed.

F 1147. See also Associated Provincial Picture Houses Ltd. v. Wednes- bury Corporation, [1948] 1K.B.223.

As stated by Lord Hailsham of St. Marylebone L.C., (H.L.) in Chief Constable of the North Wales Police v. Evans, [ 1982] 1 WLR 1155 at 1160-61:

"The function of the court is to see that lawful authority is not abused by unfair treatment and not to attempt itself the task entrusted to that authority by the law .......... The purpose of judicial review is to ensure that the individual receives fair treatment, and not to ensure that the autho- rity, after according fair treatment, reaches on a matter

SITARAM SUGAR CO. LTD. v. U.0.I. [TIIOMMEN, J.] 945

which it is authorised by law to decide for itself a conclu- A sion which is correct in the eyes of the court'i.

In the same case Lord Brightman says:

"Judicial review, as the words imply, is not an appeal from a decision, but a review of the manner in which the decision B was made".

A repository of power acts ultra vires either when he acts in excess of his power in the narrow ~ense or when he abuses his power by acting in bad faith or for an inadmissible purpose or on irrelevant grounds or without regard to relevant considerations or with gross unreasonableness. See Associated Provincial Picture Hoiises Ltd. v. c Wednesbury Corporation, [1948] 1 K.B. 223. In the words of Lord Macnaghten in Westminster Corporation v. London and North Western Railway, [1905] AC 426, 430: .

" ..... It is well settled that a public body invested with D statutory ;powers such as those conferred upon the ,Corpora- tion must take care not to exceed or abuse its powers. It must keep within the limits of the authority committed to it. It must act in good faith. And it must act reasonably. The last proposition is involved in the second, if not in the first ..... ". ' E

In The Barium Chemicals Ltd. & Anr. v. The Company Law Board & Ors:, [ 1966] Supp. SCR 311, this Court states:

" ..... Even ·if (the statutory order) is passed in good faith and with the best of intention to further the purpose of the legislation which confers the powers, since the Authority has to act in accordance with and within the limits of that legislation, its order can also be challenged if it is beyond those limits or is passed on grounds extraneous to the legis- lation or if there are no grounds_ at all for passing it or if the grounds are such that no one can reasonably arrive at the opinion or satisfaction requisite under the legislation. In any one of these situations it can well be said that the authority did not honestly forrn its opinion or that in forming it, it did not iapply its mind to the relevant facts"- .

. In Renusagar, [1988] 4 SCC 59, 104, Mukharji, J., as he then was, states:

946 SUPREME COURT REPORTS . [1990] 1 S.C.R.

"The exercise of power whether legislative or administra- A tive will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary. Similarly, if the power has been exercised on a non-consideration or non-application of mind to relevant factors the exercise of power will be regarded as manifestly lil erroneous. If a power (whether legislative or administra- tive) ·IS exercised on the oasis of facts which do not exist .and wh!Ch are patently erroneous, such exercise of power will stand vitiated". ~-

The true position, therefore, is that any act of the repository of power, whether legislative or administrative or quasi-judicial, is open c to challenge ·if it is in conflict with the Constitution or the governing Act or the general principles of the law of the land or it is so arbitrary or unreasonable that no fair minded authority could ever have made .... it."

0 The impugned orders are undoubtedly based on an exhaustive study by experts. They are fully supported by the recommendations of the Tariff Commission in 1969 and 1973. It is true that these recom- mendations in some respects were the subject matter of criticism by a subsequently appointed expert body, viz., the BICP. Apart from the fact that the BICP's criticism has not been accepted by the Govern- E ment, that criticism is not relevant in so far as the impugned orders are concerned because the latter are in regard to an earlier period. These ~ orders are fully supported by the relevant material on record. The conclusions reached by the Central Government in exercise of its ..--- statutory power are expert conclusions which are not shown to be either discriminatory or unreasonable or arbitrary or ultra vire~. The -"( F (11) ,,See the observation of Lord Russel in Krnse v. Johnson, 11898] 2 Q.B. -91 and that of Lord Greene, M.R. in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, [1948] 1 K.B. 223; See also Mixnam Properties Ltd. v. Chertsey U.D.C., [1%51AC735; Commis· sioners of Customs and Excise v. Cure and_Deeley Ltd. [1962] 1 Q.B. 340; McEldowney v. Forde, [1971] AC 632 (H.L.); Carltona Ltd. v. Commissioners of Works, [1943) 2 All ER 560, 564; Point of Ayr. Collieries Ltd. v. Lloyd George, [1943] 2 All ER 546; Scott v. Glasgow Corporation, [1899] AC 470, 492; Robert Baird L.D. v. City of "----- Glasgow, [1936] AC 32, 42; Manhattan General Equipment Co. v. Commissioner, [1935[ 297 US 129, 134; Yates (Arthur) & Co. Pty. Ltd. v. Vegetable Seeds Commjttee, [1945-46] 72 CLR 37; Bailey v. Conole, --- ' ·- [1931] 34 WALR 18; Boyd Builders Ltd. v. City of Ottawa, [1964] 45 DLR (2d) 211; Re Burns and Township of Haldimand, [1966] 52 DLR !II (2d) 1014 and Lynch v. Tilden Produce Co. 265 US 315, 320-322.

SITARAM SUGAR CO; LTD. v. U.0.1. [THOMMEN, J.} 947

material brought to our notice by the petitioners does not support the arguments at the bar that the Central Government has not applied its mind to the relevant questions to which they are expected to have regard in terms of the statute. That the sugar factories for the purpose of determining the price of sugar in terms of sub-section (3-C) should be grouped on the basis of their geographical location is a policy deci- sion based on exhaustive expert conclusions. B

Factories are classified with due regard to geographical-cum- agro-economic considerations. Fair prices for different grades of sugar are determined for each zone with reference to a reasonably efficient and economic representative cross-section of the manufacturing units. Such classification, as held in Panipat (supra) and Anakapalle (supra) cannot, in the absence of evidence to the contrary, be characterised as c . arbitrary or unreasonable or not founded on an intelligible differentia having a rational nexus with the object sought to be achieved by sub- section (3-C). The person assailing such classification "carries the heavy burden of making a convidng showing that it is invalid because it is unjust and unreasonable in its consequences" Federal Power .Com- D mission v. Hope Gas Co., 320 US 591, 602 (1944). If the petitioners nevertheless incur losses, such losses need not necessarily have arisen .--( by reason of geographical zoning, but for reasons totally unconnected with it, such as the condition of the plant and machinery, quality of management, investment·policy, labour relations, etc. These are mat- ters on which the petitioners have not furnished data, and, in any E event judicial review is hardly appropriate for their consideration.

In this connection we would recall the observations of Chin- nappa Reddy, J. in Union of India and Anr. v. Cynamide India Ltd. and Anr., (1987] 2 SCC 720 at p. 736: F "We do not agree with the basic premises that price fixa- tion primarily affects manufacturers and producers. Those who are most vitally affected are the consumer public. It is for their protection that price fixation is resorted to and any increase in price affects them as seriously as any decrease does a manufacturer, if not more." G

In M/s. Gupta Sugar Works v. State of U.P. and Ors., [1987] 1Supp. SCC 476 at p. 481 one of us (Jagannatha Shetty, J.) stated:

"In this view of the matter, the primary consideration in the fixation of Price would be the interest of consumers H

'148 SUPREME COURT REPORTS [ 1990] 1 S.C.R.

rather than that of the producers." A The Court has neither the means nor the knowledge to re- evaluate the factual basis of the impugned orders. The Court, in exer- cise of judicial review, is not concerned with the correctness of the findings of fact on the basis of which the orders are made so long as a those findings are reasonably supported by evidence. In the words of Justice Frankfurter of the U.S. Supreme Court in Railroad Commis- sion ofTexas v. Rowan & Nichols Oil Company, 311 US 570-577, 85 L. ed. 358, 362:

"Nothing in the Constitution warrants a rejection of these expert conclusions. Nor, on the basis of intrinsic skills and c equipment, are the federal courts qualified to set their· independent judgment on such matters against that of the chosen state authorities ..... When we consider the limit- ing conditions of litigation-the adaptability of the judicial process only to issues definitely circumscribed and suscepti- I) ble of being judged by the techniques and criteria within the special competence of lawyers-it is clear that the Due Process Clause does not require the feel of the expert to be supplanted by an independent view of judges on the conf- licting testimony and prophecies and impressions of expert witnesses''. E This observation is of even greater significance in the absence of a Due Process Clause.

Judicial review is not concerned with matters of economic policy. The Court does not substitute its judgment for that of the legislature or p its agents as to matters within the province of either. The Court does -<( not supplant the "feel of the expert" by its own views. When the legislature acts within the sphere of its authority and delegates power to an agent, it may empower the agent to make findings of fact which are conclusive provided such findings satisfy the test of reasonable- ness. In all such cases, judicial inquiry is confined to the question 0 whether the findings of fact are reasonably based on evidence and whether such findings are consistent with the laws of the land. As stated by Jagannatha Shetty, J. in Mis. Gupta Sugar Works, (supra):

"the court does not act like a chartered accountant nor acts · like an income tax officer. The court is not concerned with any individual case or any particular problem. The court

SITARAM SUGAR CO. LTD. v. U.0.1. [THOMMEN, J.[ 949

only examines whether the price determined was with due regard to considerations provided by the statute. And whether extraneous matters have been excluded from determination."

Price fixation is not within the province of the courts. Judicial function in respect of such matters is exhausted when there is found to be a rational basis for the conclusions reached by the concerned authority. As stated by Justice Cardozo in Mississippi Valley Barge Line Company v. United States of America, 292 US 282-290, 78 Led 1260, 1265: