MAHARASHTRA RAJYA SAHKARI SAKKAR KARKHANA SANGH LTD. ETC. ETC. v. STATE OF MAHARASHTRA AND ORS. ETC. ETC.

A particular individual for the purpose of enabliqg the Central Government to purchase a certain quantity of the e<timmodity from the person holding it. It is an order for a compulsory sale."

It was reiterated in Shri Malaprabha (supra) and it was observed :

B It is a specific order directed to a particular individual in order to enable the Central Government to purchase a certain quantity of commodity from the person holding it. It is an order of compulsory sale. 11

Can clause (3) of the State Order issued in 1984 either on the language or its effect be construed to be an Order of com11ulsory sale? It expressly does not purport to be an order under Section 3(2[)(!) of the Act. It is not an order of the nature as was issued by the Central Government for sale of levy sugar. It does not direct a cane grower to sell its cane to the Government or to any person specified in the Order. In absence of any provision the Order cannot be held to be order directing tlje producers to sell the cane so as to make it a compulsory sale undet clause (!) of sub-section (2) of Section 3.

Language of the Order apart even otherwise the purpose and objec- tive for which the Order was issued does not remotely or even impliedly warrant any inference that the supply of cane by the growers was sale. Mere restriction on supplying cane to anyone else than the specified sugar factory cannot be construed as an order for sale. It is true that th¢ effect of such an order as has been issued by the State of Maharashtra i~ that a grower who is in the reserved area is precluded from supplying his cane to any other factory than the one specified but that is a restriction to subserve the ,,, F main objective of ensuring that the sugar factory is not starved and the production does not suffer. That does not make a Zoning Order one of compulsory sale. Any order under sub-section (1) resulting in restricting the supply of essential commodity in a particular area or directing it to be sold or purchased on a particular price is not an order under Section G 3(2)(!) of the Act. If compulsion arising out of restrictiolt is held to be compulsory sale then it would render the entire scheme of Section 3(2) nugatory. What is contemplated by Section 3(2)(!) is a specific order. It applies in those cases where any essential commodity is dir~cted to be sold "' paned with in pursuance of an order of the Government. It has no application to supply in a reserved area. Further under clause (5) of Zoning H Order the cane under orders of the Director can be supplied to other

MAHARASHTRASAKKARKARKHANAv. STATE[R.M.SAHAl,J.] 417

factories. The provision completely demolishes the argument of compul- A sory sale.

What was vehemently urged by Dr. Dhawan, was that the invidious pricing system resorted to by the sugar factories which are indebted to State Government resulted in forcibly drawing such cane growers who were B not members of any cooperative society, therefore, it was contrary to the statutory equitable pricing system consequent to the compulsory sale under the Act. It was urged that the fixation of price was irrational and unfalt as it had no bearing or relation to the yield of the crop or to the predicament of the farmer. The learned counsel vehemently submitted that any pricing resorted to either by the cooperative societies or by the State Government C solely and exclusively in relation to the management of cooperative fac- tories was an extraneous and irrelevant consideration. The learned counsel urged that since price fixation was not delegated under the 196.6 Order any action by the State Government or cooperative societies to resort to price fixation which was unfair and unjust to the non-members was contrary to the Act. The submission proceeded on assumption that the fixation of price D was in respect of a commodity which was directed to be compulsorily sold under the orders issued by the Government. As explained earlier the assumption does not appear to be well founded. The entire edifice of the submission was built on the compulsive nature of transaction involved in supply of cane and payment of price. But what was lost sight of was that Section 3(3)(c) could be attracted only if the order issued by the Govern- E ment could be held1to be one under Section 3(2)(!). The submission ignores that economics of pricing in a controlled economy is entirely different from a free market. The equilibrium in the latter is reached by interaction of I. supply and demand. Its graph keeps on moving up and down governed by the principle of scarcity. But the controlled economy does not operate on p demand and supply. The production, distribution and the ~u~ply are regu- lated and controlled by the Government in public interest. Such orders are issued in social interest for the common benefit and fair price for the needy and poor. Legality of such orders cannot be tested on cost structure of free economy or maximum profit theory. The concept of cost ~tructure and the profit in a controlled economy is entirely different. In Mis New India Sugar G Works etc. etc. v. State of Uttar Prade»h & Ors. etc. etc., (1981) 2 SCC 293 this Court although in a different context observed as under :

"The policy of price control has for its dominant object equitable distribution and availability of the commodity at fair price so as to H

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to .;,y factory outside the area. The restriction may result in confining the choice but it cannot be construed as an order of sale. The situations in which an order can be considered to be an order for compulsory sale may be one where the Government by a particular order or a general order as in the case of levy sugar directs the producer to part with his goods. Number of commodities have been declared to be essential commodity under Section 3 of the Act. Its supply and distribution may be regulated either by restricting the area or fixing the price. If in respect of any such commodity the Government passes an order directing a producer to sell any essential commodity to Government or to any class of persons specified in the order then it shall be a compulsory sale. None of the decisions on which reliance was placed has any relevance.' The observation in Andhra C Sugars, (supra) that where cane ·growers entered into agreement with factory owners who were bound to purchase the cane by operation of statutory provisions may amount to compulsion of law and not coerce and the agreements so entered are enforceable as contracts of sale as defined in Section 4 of the Indian Sale of Goods Act, did not mean that the D compulsive element of supplying cane resulted in compulsory sale. The Court was bringing out the distinction between coerce and compulsion under law. But every compulsion does not bring about a compulsory sale. Similarly the other decision in Vishnu Agencies (supra) was concerned with determining whether supply made under statutory order was sale for purposes of levy of sales tax. E

The dual pricing system, one, for llll'mbers and other for non- members or the option to non-members to sell to the factory of their choice may be negative of the zoning concept and may effect the cooperative movement in the State. Dr. Singhvi may be right that even before Zoning Order was issued the cooperative movement was there and the benefits that a member of the society derives may not result in affecting the system largely but any policy which has the tendency of shaking the system rudely must be avoided.

Consequently the first two directions issued by the Full Bench on price fixation cannot be upheld. As regards third direction it has been explained in the affidavit filed in pursuance to order dated 24th February 1995 which substantially remains uncontroverted that the deductions under bye-law 65 are made for the Chief Minister's Relief Fund, Small Saving Scheme, Cane Development Fund. Vasantdada Sugar Research Institute, Arca Development Fund etc .. The details as t<) how the deductions are H

420 SUPREME COURT REP OR TS [1995] 3 S.C.R.

A made have also been mentioned. It is true that they are made in exercise of power under bye-law 65 which does not apply to non-members. But these deductions being for the general welfare of the society it cannot be said that they are either bad or they suffer from any infirmity. The deposits deducted unlike members are refundable apd they carry same interest as is paid to members. A non-member who is sharing in profits of the sugar production cannot be heard to say that he had no obligations towards the society because he is not a member of any cooperative society.

With the conclusion thus arrived the other issues are rendered academic. Suffice it to say that the Court's responsibility is to construe the provision which may advance the cooperative movement in the State. The amendments in Sections 22 and 23 have facilitated the membership. Not- withstanding the right of a cane grower to become a member of cooperative society the provisions cannot be construed so as to result in nullifying the whole system of control devised to improve production of the sugar the m country. For sake of more profit to few individuals the society cannot be made to suffer. Ours is a mixed economy. Competition and ~ntrol have been blended to reduce economic imbalance. If the individual growers who do not constitute more than 20% otherwise get the same profit as a member of cooperative society then there appears no justification to con- strue the provision to give them a bit more profit when it is fraught with danger of small units closing down and the entire zoning system coming to a crash.

Even though as discussed earlier the sµpply made by the non- members could not be considered to be compulsory sale within meaning of section 3(2)(f) and, therefore, the provisions of Section 3(3)(c) are not attracted, yet the methodology adopted by the State for fixing price re- quires to be rationalised as various discrepancies have surfaced for which there is no satisfactory explanation. The Full Bench felt that there was something grievously wrong with pricing system in the State, therefore, it found a legal basis for striking it down at least for non-members. What is baffling is that even though factory after factory, rather, nearly the entire lot is shown to be suffering loss yet new units are coming up every day in the cooperative sector. May be because as claimed by the State it is vitally concerned in production of sugar and is, therefore, investing substantial funds, nearly 95% in setting up of the units. May be as suggested by the respondents that the public funds thus tr~sferred for social welfare is

p. 421 Copy page pinpoint

being syphoned off by vested interests. May be as argued that the loss is more paper work than truth as in fact it has resulted in giving rise to what J. has come to be known as powerful political sugar lobby in the State of Maharashtra. But these are matters more political than legal, the remedy for which may not be in courts. Even otherwise it is not possible to identify the evil, both, for paucity of material and discipline, of restraint, of keeping away rather than entering in such hazardous zone. All the same from the chart filed along with the affidavit in C.A. No. 523 of 1989 it appears the factories having better recovery have been permitted to pay lower price as ~-i.-, compared to the' factories the recovery of which is lower. For instance at item Nos. 14 and 15 the two karkhanas, Ashok and Dayaneshwar, are show to have recovery of 10.21% and 10.53% respectively. Yet the price paid in c 1985-86 was Rs. 270 per tonne by Ashok whereas it was Rs. 250 by Dayaneshwar. Similarly serial nos. 21 and 22 the factories, Sanjiwani and Sangarnaner with same recovery, that is, 11.31% have been made to pay Rs. 364, Rs. 330 and Rs. 240 for years 1985-86, 1986-87 and 1987-88 and Rs. 391, Rs. 348 and Rs. 366 respectively. Then again at serial no. 37 and 38 Shrirarn and Ajinkyatara the recovery percentage was 10.84 and 11.75 D respectively and the price paid was Rs. 311.50 Rs. 300 and Rs. 285 and Rs. 305.50, Rs. 330 and Rs. 415 respectively. It has not been explained how this difference has arisen. Such wide disparities are bound to create distrust. In price mechanism chart the expenditure which is deducted from the receipts includes overheads which are substantial. Over and above the E interest, loan, bonus etc. is also deducted.

In the written arguments filed on behalf of respondents it is explained that there is consioerable disparity in the market price of sugarcane in Maharashtra in recent years and the variation in 1990-91 ranged between >, F Rs. 545 to Rs. 274 in 1991-92 between Rs. 511 and Rs. 226.80 whereas in 1992-93 it was between Rs. 731 and Rs. 310. According to respondents this price vuriation has nothing to do with the product, namely, the recovery from the sugarcane but is based on extraneous consideration as seen by its principal creator, namely, the State Government. G

-•. ... The respondents may not be justified in advancing this submission as the entire price structure of cane is founded on two basic factors, one, the recovery percentage and other the incentive for sharing profit arrived at by working out receipt minus expenditure. And that is neither. contrary to law nor unfair. But the wide disparity in the price paid by two factories is H

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A certainly glaring and is apt to create misgiving. How to remedy it? In a welfare society the consumer of essential goods is as important as the manufacturer and producer of it. The entire objective of the Essential Commodities Act is to promote social welfare. It is being achieved by controlling price of sugar with equal emphasis on cultivation of cane and B its price. Any legislation must be viewed with this perspective. In the Zoning Order clause (5) empowers sugar factory to accept cane from other zone as well but no similar right has been given to cultivators. For better appreciation the entire clause is set out :

5. Regulation of Supply of Sugarcane. - c {1) A permit officer may allow a sugar factory to purchase cane or to accept supplies of cane from cane growers from areas other than the area reserved for it under clause 3 if he is satisfied that any of the following circumstances exist namely :

D (a) In the event of production of cane in the area reserved for the factory being not adequate for enabling it to reach op- timum level of crushing;

{b) In the event of surplus production of cane in the areas reserved for other factories which those factories are not able E to crush during the crushing season.

(c) In the event of stoppage of nearby sugar factory due to mechanical break down, labour unrest, lock-out or any other reason. F (d) In the event of cane grower or cane growers from the area reserved for a particular factory declining to supply cane to the said factory on account of any of the following reasons, if found justified by the Permit Officer : G (i) Non-payment of late payment of cane price by the sugar factory; or

(ii) Non-fulfilment of any .of the obligations by the sugar factory arising out of agreement between the cane grower or cane .H growers and the sugar factory; or

• MAHARASHTRASAKKAR KARKHANA v. STATE [R.M. SAHA!, J.] 423

(iii) Discrimination by the sugar factory in harvesting of cane and thereby causing loss to the cane grower or the cane growers;

Provided that before passing any order under this sub-clause, for any of the above reasons, the Permit Officer shall give the parties concerned a reasonable opportunity of being heard m person or through the authorised representative."

Clause (5) prescribes the situations in which one sugar factory will be permitted by the prescribed authority to purchase sugarcane from the zone of another sugar factory. It does not provide for the cane grower seeking a permit for sale of his cane to another sugar factory (than the factory within whose zone he may be situated} even if any or all the conditions prescribed in the clause are satisfied. Take· a case where a sugar factory indulges in all the three irregularities mentioned in sub-clause (d} of Clause (5), viz., it does not pay the price of cane at the proper time, it does not adhere to the agreement it has entered into with the grower and it also discriminates in harvesting the cane thereby causing loss to the cane growers - even then the cane grower cannot apply for permit to. sell his cane to whomsoever he likes. All that probably he cane do is to complain. But he will get some relief only when there is another factory (which, of course, has its own zone) which is prepared to purchase cane from this zone and applies for permit to the permit officer to purchase cane from this zone. If it does not so apply, the grower within the first zone is helpless. That is not being fair and just to the growers. It is, therefore, necossary that the State Government may suitably amend the Zoning Order so as to provide that in a case where any of the three circumstances mentioned in F Clause 5( d) are present it would·be open to the cane growers to apply to the specified officer for permission to supply his cane outside the zone. In such an event, it may be open to the officer to designate the factory to which the grower should sell his cane ensuring that the grower gets a price which is not less than the price obtained in his zone. G · The State Government would be further well advised to get the matter threshed out, before the next crushing season commences, by an Expert Committee comprising of economists and financial experts well versed in price fJXation, particularly in agricultural sector. This exercise has become imperative after the enforcement of Zoning Order. In fact when H •

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A Zoning Order was introduced the State at that time should have got these aspects examined. However, the price equation since 1984 has undergone tremendous upsurge. The escalation is manifold. Benefit of higher price of sugar must percolate to growers as well. Therefore, the Committee may examine,

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

(b) If the additional price worked out in the manner indicated in c Scheduled II of Control Order of 1966 is more advantageous and beneficial to the growers. If it be so it may opt for the same as it would avoid tedious exercise by the Ministerial Committee and h ave the benefit of uniformity;

D (c) The Committee may further examine whether Rs. 600 which has been paid by the factories to the non-growers under interim order passed by this Court would not be a reasonable minimum price for 1995-96 and may furnish the basis for fixation of price for future ye.ar; E (d) It may also suggest ways and means for improving yield by the sugar factories and reducirg overhead expenses <tlld eliminating, possible, paper Joss;

(e) It would further be in interest or the Government to ask the F Committee to examine if the shortcomings pointed out by the Full Bench in other regard can be rectified and rationalised; and

(!) The Committee may examine whether hye-law 65 should be applied to non-members or not. G Although the price f1Xation has not been found to suffer from any infirmity yet due to passage of time, nearly eight or nine years, since this price fixation was challenged and with rise of price all around it appears expedient to dispose of these appeals with following directions to ensure H smooth functioning both for the past and future : •

MAHARASHTRASAKKARKARKHANAv. STATE[R.M.SAHAI,J.] 425

(i) The directions of the Full Bench in paragraph 25 of the A Judgment shall stand set aside.

(ii) The State Government may take appropriate steps to amend Clause (5) of the Zoning Order so as to protect the cane growers.

(iii) The Government may appoint a Committee of Experts to study and examine the price structure in the light of what has been stated earlier.

(iv) Even though the order issued by the State Government deter-· mining price for each factory is upheld but since in consequence of the order passed by the High Court an interim order was granted by this Court and the factories were directed to pay Rs. 600 to the cane growers and they were directed to furnish bank guarantee for Rs. 145 it is directed that the amount paid by the factories shall not be liable to recovery from ·the cane growers. But the bank guarantee furnished by the appellants or sugar factories shall stand discharged.

- (v) It is made clear ibat the direction not to recover Rs. 600 from non-groweis would not entitle any member of the cooperative society or the cooperative society itself to claim. that it was liable to be paid Rs. 600 for its cane during the years in dispute. E For the reasons stated in the order these appeals are disposed of with above directions. Parties shall bear their own costs.

R.P. Appeals disposed.