Full Judgment Text
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PETITIONER:
THE LORD KRISHNA SUGAR MILLS LTD.,AND ANOTHER
Vs.
RESPONDENT:
THE UNION OF INDIA AND ANOTHER(and connected petition)
DATE OF JUDGMENT:
06/05/1959
BENCH:
HIDAYATULLAH, M.
BENCH:
HIDAYATULLAH, M.
SUBBARAO, K.
SINHA, BHUVNESHWAR P.
IMAM, SYED JAFFER
KAPUR, J.L.
SARKAR, A.K.
CITATION:
1959 AIR 1124 1960 SCR (1) 226
CITATOR INFO :
R 1965 SC1503 (7)
F 1978 SC 771 (15)
E&D 1985 SC1737 (16)
ACT:
Constitution-Fundamental Rights-Restrictions on-Reason-
ableness, relevant considerations for judging-Enactment
obliging sugar manufacturers to supply sugar for export at
loss-Notification under another enactment increasing price
of sugar for internal sale for recouping loss-Whether can be
taken into consideration--Discrimination-Sugar Export
Promotion Act, 1958 (30 of 1958), ss. 5, 6, 7, 8, and 9-
Constitution of India, Arts. 14 and 19 Essential Commodities
Act, 1955 (10 of 1955), s. 3--Sugar (Control) Order, 1955,
cl. 5.
HEADNOTE:
The petitioners challenged the constitutionality of the
Sugar Export Promotion Act, 958, which was enacted for the
purpose of exporting sugar with a view to earning foreign
exchange. The impugned Act imposed the following
restrictions on the owners of
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factories producing sugar by the vacuum pan process: (i) it
obliged them to deliver to the export agency specified by
the Central Government the quota of sugar allocated to them;
(ii) it made them suffer a loss on this delivery of sugar;
and (iii) it exposed them to a penalty in case the delivery
was short of the quota. By a notification issued under the
Sugar (Control) Order, 1955, which was made under the
Essential Commodities Act, 1955, the Central Government
increased the price of sugar for internal sales by 50 nP.
per maund to enable the owners to recoup the loss suffered
by them by the delivery of the sugar for export. The
petitioners contended that it was not permissible to take
the notification issued under another statute into
consideration and that the impugned Act offended Arts. 14
and 19(1)(f) and (g) of the Constitution.
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Held, per Sinha, Imam, Kapur, Subba Rao and Hidayatullah,
jj., Sarkar, J. dissenting) that the impugned Act was
constitutionally valid.
Per Sinha, Imam, Kapur and Hidayatullah, jj. The
restrictions placed by the Act upon the fundamental rights
of the petitioners under Arts. 19(1)(f) and (g) were not
unreasonable as arrangements were made to save them from
loss by increasing the price of sugar for internal sales,
thus passing on the loss to the consumers in India. The
reasonableness of the restriction and not of the law was to
be determined, and if the restriction was under one law but
countervailing advantages were created by another law passed
as part of the same legislative plan, the Court must take
that other law into account. The reasonableness of the
restriction was to be judged at the time it was challenged
and in the context Of the circumstances then existing. The
notification of the Central Government increasing the price
of sugar to enable the recoupment of the loss occasioned by
the export could be taken into consideration in judging the
reasonableness of the restrictions.
State of Madras v. V. G. Row [1952] S.C.R. 597; Virendra v.
The State of Punjab, [1958] S.C.R. 308 ; Arunachalam Nadar
v. State of Madras, 1959 S.C.J. 297 ; Attorney-General for
Alberta v. Attorney-General for Canada, (1939) A. C. 117 ;
Ladore v. Bennet, (1939) A.C. 468 and Pillai v. Mudanayake,
(1953) A. C. 514, relied on.
The foreign export served the national interest by
stabilising the sugar market and stabilised national economy
by earning foreign exchange. The loss, if any, was spread
over many factories and was so small as not to amount to an
unreasonable restriction.
The Act did not offend Art. 14 Of the Constitution in
selecting sugar produced by the vacuum pan process for
export and in leaving out sugar produced by other methods
and other commodities from the mischief of the Act. The
Government was the best judge as to which commodities were
most likely to earn
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foreign exchange and the selection made was justifiable as a
reasonable classification which was related to the object of
the Act of earning foreign exchanger
Per Subba Rao, J. In testing the reasonableness of the
restrictions imposed by the impugned Act it was not
permissible to take into consideration the notification
under the Sugar (Control) Order, 1955, increasing the price
of Sugar for internal sales by 50 nP. per maund. The test
of reasonableness of one Act could be made to depend upon
the impact of another Act on it only when the earlier Act
was made part of later Act or when both Acts were parts of
the same legislative scheme or plan. To go beyond this
would be to destroy the stability of legislation and to
introduce an uncertain element. To go further and to depend
upon a notification of a transitory nature issued under an
unconnected Act would be to place the statute in a fluid
state. The impugned Act and the Essential Commodities Act
were enacted for different purposes.
State of Madras v. V. G. Row [1952] S.C.R. 597; Attorney-
Geneyal for Alberta v. Attorney-Geneyal for Canada (1939) A.
C. 117 ; Ladore v. Bennet (1939) A. C. 468 and Pillai v.
Mudanayake, (1953) A. C. 514, distinguished.
The restrictions imposed by the impugned Act were not
unreasonable as the Act served the national interest by
earning foreign exchange for the State and building up
foreign markets for the future prosperity of the sugar
industry.
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Per Sarkar, J. The impugned Act which made the petitioners
suffer a loss on the sale of a part of their produce imposed
unreasonable restrictions on their fundamental right to
carry on their business and was invalid. Though in deciding
the reasonableness of the restrictions imposed by the
impugned Act all the prevailing conditions and circumstances
had to be considered, the notification increasing the home
price of sugar could not be taken into consideration. The
impugned Act neither made it obligatory on, nor empowered
the Government to take any steps to recoup the loss caused
to the petitioners. The increase in the price depended
solely on the arbitrary discretion or generosity or sense of
fair play of the Government. It would be intolerable in any
legal system that a statute should be legal when the
Government chose to do a thing and illegal when it undid it
and so on from time to time at the choice of the Government.
Besides, there was nothing in the Essential Commodities Act
or the Sugar (Control) Order which authorised the Government
to increase the price for the sake of recouping to the
manufacturers the loss caused to them by the impugned Act,
and the validity of the notification increasing the home
price of sugar was doubtful.
State of Madras v. V. G. Row [1952] S.C. R. 597,
distinguished.
The impugned Act caused loss to the petitioners which was
not negligible and thus imposed unreasonable restrictions on
6
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their right to carry on their business. The restrictions
could not be justified on the ground that they resulted in
stablising the sugar industry as the industry (lid not
require any stabilisation. The export was not to be made
out of the excess of production over internal consumption
and in fact production in India had always been less than
internal consumption.
JUDGMENT:
ORIGINAl, JUTRISDICTION : Petitions Nos. 9 and 14,of 1959.
Petitions under Article 32 of the Constitution of India for
the enforcement of Fundamental Rights.
A.V. Viswanatha Sastri, and G. C. Mathur, for the
petitioners in Petition No. 9 of 1959.
M. C. Setalvad, Attorney-General of India, B. Sen and R. H.
Dhebar, for respondent No. 1 in both the petitions.
M.C. Setalvad, Attorney-General of India, B. Sen and B.
P. Maheshwari, for respondent No. 2 in Petition No. 9 of
1959.
N.C. Chatterjee and G. C. Mathur for the petitioners in
Petition No. 14 of 1959.
B.Sen and B. P. Maheshwari, for respondent No. 2 in
Petition No. 14 of 1959.
1959. May 6. The judgment of B. P. Sinha, Jafar Imam, T. L.
Kapur and M. Hidayatullah, JJ., was delivered by M.
Hidayatullah, J. A. K. Sarkar, J., and K. Subba Rao, J.,
delivered separate judgments.
HIDAYATULLAH J.-Writ Petition No. 9 of 1959 has been filed
by the Lord Krishna Sugar Mills, Ltd., Saharanpur and Shri
Sushil Kumar, a Director of the said Mills. It was heard
along with Writ Petition No. 14 of 1959, which has been
filed by Shiva Prasad Banarsidas Sugar Mills, Bijnor,
through Seth Munnalal and also by him in his own name.
These Mills are hereinafter referred to as the L. K. S.
Mills and S. P. B. Mills, respectively. The petitions raise
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the same contentions, but in Writ Petition No. 14 of 1959,
there is one more circumstance, which will be mentioned
later. The petitions are directed against the Union of
India and the Indian Sugar Mills Association (Export Agency
Division) Calcutta. The petitioners challenge inter alia
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the constitutionality of the Sugar Export Promotion Act,
1958 (30 of 1958), which shall hereafter be referred to as
the Act. They question also the legality of certain orders
passed by the second respondent purporting to be under the
Act.
Before describing how this matter came before the Court, it
is convenient to give the scheme of the Act and to set out
some of its provisions. On June 27, 1958, the President
promulgated the Sugar Export Promotion Ordinance, 1958,
which was repealed by and reenacted as the Act on September
16, 1958. The Ordinance was in the same terms as the Act,
and it is not necessary to refer to the Ordinance
separately. more so because by s. 14 of the Act which
repealed the Ordinance, anything done or any action taken
under the Ordinance is deemed to have been done or taken
under the Act, and the Act itself is deemed to have
commenced on the 27th (lay of June, 1958.
Both the Ordinance and the Act were passed to provide for
the export of sugar in the public interest and for the levy
and collection in certain circumstances of an additional
duty of excise on sugar produced in India. To achieve this
objective, the Act authorises the Central Government (as did
the Ordinance previously) to specify an export agency to
’perform the functions mentioned in the Act, and the Central
Government by a notification issued the same day, specified
the Indian Sugar Mills Association (Export Agency Division)
Calcutta, as the export agency.
The Act next provides that the Central Government may by
notification in the Official Gazette, fix the quantity of
sugar to be exported during any period taking into
consideration :
(a) the quantity of sugar available in the country;
(b) the quantity of sugar required for consumption in the
country; and
(c)the necessity of exporting sugar with a view to earningforeign
exchange in the public interest,
but, so as not to exceed 20 per cent. of the quantity to be
produced in India in the season ending with the month of
October falling within that year. The Central
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Government fixed 50,000 tons as the quantity to be exported
up to ]December 31, 1958, later extended to January 31,
1959. This notification was also issued on June 27, 1958.
Section 5 of the Act enables the Central Government to
apportion, by order in writing, the quantity to be exported
among " owners " of factories, the word " factory " being
confined to a factory where sugar is produced by the vacuum
pan process. The term " owner " is defined to include
transferees, and agents and managers under Industries
(Development and Regulation) Act, 1951. The apportionment
of the quantity of sugar to be exported is to be in
proportion to the quantity of sugar produced or likely to be
produced by the owners during the season referred to
earlier. On the communication of the order to an owner, the
quantity so apportioned is deemed to be the export quota for
the factory of that owner.
Section 6 then provides that on demand by the export agency,
every owner shall deliver to it from time to time, sugar
produced in his factory in such quantities (not exceeding in
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the aggregate his export quota fixed for the factory or
group of factories, as the case may be), of such grade, in
such manner,’ within such time and at such place, as may be
specified by the export agency in this behalf. If the sugar
is delivered by an owner in accordance with the provisions
of this section, he retains no rights in such sugar except
his rights to receive payment therefor under s. 9 of the
Act.
Section 7 provides for levy of additional excise duty on
sugar dispatched from the factory for consumption in India,
if the owner of a factory does not fulfil the demands under
s. 6. It provides:
" (1) Where sugar delivered by any owner falls short of the
export quota fixed for it by any quantity (hereinafter
referred to as the said quantity), there shall be levied and
collected on so much of the sugar dispatched from the
factory for consumption in India as is equal to the said
quantity, a duty of excise at the rate of seventeen rupees
per maund.
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(2)The duty of excise referred to in sub-section (1) shall
be in addition to the duty of excise chargeable on sugar
under any other law for the time being in force, and shall
be paid by the owner to such authority as may be specified
in the notice demanding the payment of duty and within such
period not exceeding ninety days as may be specified in such
notice.
(3)If any such owner does not pay the whole or any part of
the duty payable by him within the period referred to in
sub-section (2), he shall be liable to pay in respect of
every period of thirty days or part thereof during which the
default continues a penalty which may extend to ten per
cent. of the duty outstanding from time to time, the penalty
being adjudged in the same manner as the penalty to which a
person is liable under the rules made under the Central
Excises and Salt Act, 1944 (1 of 1944), is adjudged."
By sub-s. (4) of this section, the provisions of the Central
Excises and Salt Act, 1944 and the rules made thereunder are
made applicable as far as may be, including those relating
to refunds and exemptions from duty in relation to the duty
mentioned in this section or any other sum due as a penalty.
Section 8 then deals with the export by the export agency of
sugar delivered to it. The section also authorises the sale
of such sugar within India under certain circumstances. The
section may be reproduced in full here, as its terms will
form the subject of consideration in the sequel.
8(1) " The export agency shall take all practical measures
to export sugar delivered to it under this Act:
Provided that, if the export agency is of opinion that
having regard to the quality of the sugar delivered to it by
any owner, or to the expenses involved in transporting the
sugar from one place to another, or to the delay likely to
be involved in exporting it, or to the conditions prevailing
in the markets for sugar, whether in or out of India, or to
any other relevant circumstance, it is expedient so to do,
the export agency may sell the whole or any part of the
sugar in India
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and may, if it thinks fit, purchase such quantity of sugar
as it may consider necessary for export at the appropriate
time.
(2)For the purposes of sub-section (1), the export agency
may itself sell sugar or permit the owner to sell the whole
or any part of the export quota in his custody at a price
approved by it on condition that the sale-proceeds are
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payable to it."
Section 9 deals with payments to owners who have delivered
sugar for export. It provides as follows:
(1),The export agency shall, at such time as it thinks
fit, make to the owners who have delivered sugar to it under
this Act, payments determined in accordance with the
provisions hereinafter in this section contained.
(2)From the total sale-proceeds in respect of the quantity
fixed for export under section 4 for any year, there shall
be deducted the total expenditure incurred by the export
agency in respect of the sugar, whether by way of
administrative expenses or otherwise, and the balance shall
be apportioned among the owners in proportion to the
quantity of sugar delivered by them respectively (hiring
that year.
(3)In making any distribution under this section, the
export agency shall make such adjustments as may be
necessary having regard to the grade of sugar delivered by
any owner, the adjustments being made on the basis of sugar
of ISS-E-29 grade and with reference to the price
differential schedule for different grades of sugar which
the Central Government may, by notification in the Official
Gazette, publish in this behalf.
(4)Notwithstanding anything contained in this section and
subject to the rules which may be made in this behalf, the
export agency may make on account payments to owners against
documents of delivery of sugar furnished by them, and such
payments shall be adjusted at the time of final payment."
In the remaining five sections, the Act provides for
ancillary matters, the last (s. 14) incorporating the repeal
of the Ordinance and savings. Section 10
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reserves to the Central Government the power to give
directions to the export agency, and s. 11 allows the
Central Government to delegate, subject to conditions if
any, its functions under the Act to an officer or authority
specified by notification. It may be pointed out that the
Chief Director, Directorate of Sugar and Vanaspati, Ministry
of Food and Agriculture, was specified as such in a
notification issued on June 27, 1958. Section 12 provides
for protection of authorities, and s. 13 confers on the
Central Government the power to, make rules and includes a
power to make a breach of any rule an offence punishable
with fine extending to five thousand rupees. All such rules
must be laid before Parliament, and may be modified by
Parliament. No rules, however, have been made.
We next proceed to the facts of these two cases. By an
order No. 6(53)/58-SC, dated June 27, 1958, the Chief
Director, Directorate of Sugar and Vanaspati, fixed 461-05
and 412-04 tons of sugar as the quantities apportioned to
the L. K. S. Mills and the S. P. B. Mills respectively. On
July 17, 1958 the export agency wrote to the two owners
informing them of the quotas and their equivalents in bags,
intimating also that the supply would be required in Grade
C-29, and/or Grade D-29 and/or Grade E-29. Inquiry was made
as to the grades and quantities in stock with them. It was
also stated in these letters that a further communication
would be sent in due course giving detailed despatch/
delivery/disposal instructions for the export quota. They
were also informed that the’ Central Board of Revenue had
issued detailed instructions to the Collectors of Central
Excise, and that it had been agreed that the order of the
Chief Director (Sugar) served on the owners with copy to the
Central Excise Officer of the factory concerned would also
be the release order from the Sugar Directorate.
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Different replies were sent by the two petitioners. The L.
K. S. Mills replied that they had only sugar of D-28 grade,
while the S. P. B. Mills replied that they had E-29. On
August 24, 1958, the export agency wrote to them that the
export quota was diverted for internal sale. They were told
that they were permitted to
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sell the " quota sugar " for internal consumption at the
price of Rs. 36, per maund for Grade D-29, fixed by the
Government. The export agency asked the two Mills to let it
know by telegram the grade in which the export quota was
available, so that documents could be sent to enable them to
deliver sugar to their respective buyers. The export agency
described the documents as follows:
"(1) A delivery order authorising the Central Excise Officer
of your factory to deliver the quantity sold.
(2)This delivery order will be sent through the Punjab
National Bank Ltd., attached to a demand draft drawn on you
for the amount of the sale proceeds payable to us. Please
pay this on presentation.
(3)The sale proceeds payable to us will be calculated as
in the following examples:-
Rs.
Sale price at Rs. 36 per maund
D-29 ...
Less Excise Duty to be paid by you ...
-------
Less ’ on account’ payment of Rs. 10 per maund .....
Amount for which draft will be drawn on you ...
After receiving the delivery order you will pay the Excise
duty and deliver the sugar to the buyer.
" Grade differentials will be allowed as per the Government
Notification GSR. 661 d/30th July fixing ex-factory prices.
The sale transaction will be as between you and your buyer
and the Export Agency cannot take any responsibility.
We now await to hear by telegram the grade available.
Please also say in your telegram to which branch of the
Punjab National Bank we should send the documents."
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The facts from here progress differently with these two
petitioners, and they are stated separately. The L.K.S.
Mills informed the export agency their inability to sell
sugar at the controlled rate fixed by the Government by its
notification of July 30, 1958, as the market was very weak,
and there were no purchasers of sugar at the controlled rate
even out of the releases made by the Government for free
sales. The export agency reminded the L.K.S. Mills that the
industry had agreed to finance the Export Agency Division by
letting it have the sale-proceeds of sugar diverted for
internal sale less Rs. 10 per maund as an " on account "
payment. The export agency offered to show a concession to
the L.K.S. Mills, and asked them to sell sugar in
instalments of 1,500, 1,500 and 1,565 bags with a week’s
interval between each. It asked the L.K.S. Mills to co-
operate and let the export agency send documents for 1,500
bags at Rs. 35-69 nP. per maund ex-factory. It appears that
a mistake was made in putting down 1,000 bags, but the
meaning was perfectly plain. The L.K.S. Mills, however,
insisted that they were unable to sell sugar at the
controlled rate, and that as they were in financial
difficulties, it was not possible to honour the documents as
suggested by the export agency.
The L. K. S. Mills proving obdurate, the export agency wrote
on November 5, 1958, that it proposed to send documents for
the full quota of 4,565 bags at Rs. 35-69 per maund. The
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L.K.S. Mills were requested to retire the documents
immediately, as funds were needed urgently for purchase of
additional quantities for export to replace the quota
diverted for internal sale. It enquired the name of the
bankers to whom the documents might be sent by the agency.
The L.K.S. Mills, it appears, did not agree to any of the
courses suggested, and the export agency wrote on November
27,1958, that the L.K.S. Mills were requested to remit a sum
of Rs. 1,88,216-63 nP. being the amount calculated at the
rate of Rs. 35-69 nP. per maund in respect of the total
sugar quota, less excise duty to be paid by the L.K.S. Mills
and less "on account" payment of Rs. 10 per maund as
indicated in the earlier letters,
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It also stated that unless the remittance was received by
December 5, 1958, the permission to sell the quota sugar for
internal consumption would be Withdrawn. Subsequent to this
too, the export agency wrote to the L. K. S. Mills saying
that a demand draft for Rs. 61,845-57 nP. was being sent, to
which was attached the delivery order addressed to the
Central Excise Officer of the factory for releasing the
first installment of 1,500 bags. The L.K.S. Mills were
asked to pay the excise duty and to clear the bags from bond
and to intimate to the agency that they had done so.
Similar documents were prepared for the other instalments
and forwarded through the Bank. The L.K.S. Mills, however,
did not agree to this, and the export agency thereafter on
December 18, 1958, sent a telegram that unless the drafts
were retired immediately, the quota sugar should be kept
ready for dispatch so that delivery might be taken by the
export agency. The export agency also informed the L.K.S.
Mills that otherwise the name of the Mills would be
communicated to the Chief Director, Sugar, as a defaulter.
The export agency also sent an order for delivery of the
quota sugar, and required the L.K.S. Mills to despatch it by
goods train, freight to pay, consigned to the export agency.
It also intimated that the Mills should draw on the export
agency for the amount of excise duty paid by the Mills plus
"on account" payment at Rs. 10 per maund. Much was made of
the error in describing the quota as of D-29, but in view of
what had already been understood, it cannot be suggested
that the L.K.S. Mills were in any way misled.
The L.K.S. Mills informed the export agency that their bank
position did not allow them to honour the drafts, nor
despatch the desired quantity of sugar at the rates
mentioned by the agency. They also stated that they were
not able to despatch more than 500 bags, as wagons over the
Eastern Railway were limited. The export agency, however,
did not agree. Finally, the export agency demanded
remittance of the sum of Rs. 1,88,216-63 nP. by the 25th
January, and gave the alternative to the L. K. S. Mills to
despatch the sugar by that date according to the
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despatch instructions communicated earlier. The L.K.S.
Mills wired saying that the Banks were demanding interest
and that the agency should instruct the Banks to forego
interest. The export agency on January 29, 1959, wired as
follows:
"Your tel. twentyninth without prejudice and to avoid
serious complications we instructing bank waive interest.
Regarding interest Committee will consider whose decision
will be communicated in due course." The petition (No. 9 of
1959) was, however, filed on January 27, 1959, that is to
say, two days earlier.
The facts relating to the S.P.B. Mills are as follows: After
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the letter of August 24, 1958 was sent, nothing appears to
have been heard by the export agency. On November 27, 1958,
the export agency asked the S. P. B. Mills to remit to it by
December 15, 1959, Rs. 1,69,524. 77 nP. being the amount
calculated in the same way as for the L.K.S. Mills. On
December 14, 1958, in continuation of this letter a despatch
order for the entire quota was sent in the same terms as in
the other case. In reply, the S.P.B. Mills pointed out that
they were working the Mills as short-term lessees, having
obtained the lease from the High Court of Allahabad on
payment of Rs. 6,10,000 as lease money and Rs. 1,00,000 as
security on August 6, 1956. They also pointed out that they
were required to purchase additional machinery, stores etc.,
for a sum of Rs. 5 lakhs, and that a sum of Rs. 3,43,500 was
spent in connection with the repairs to the factory and
wages for the period during which the factory was re-
started. They further pointed out that they had suffered a
loss of Rs. 2,40,000 in the last season and another loss of
Rs. 50,000 on account of the strike of cane-growers in
March, 1958; that all their sugar stock was pledged with the
Punjab National Bank, Bijnor, against an advance of 75 per
cent. of the price; and that there were arrears of cess
amounting to about Rs. 5,50,000 and that the lease money
amounting to Rs. 6,10,000 for the next season was also due.
They therefore, ’expressed their inability to send any
sugar. They also stated that if they redeemed the pledged
sugar even after paying the " on account " money to the
Bank,
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the Bank would be receiving Rs. 15-2-0 per maund less than
the controlled price of sugar. They further stated that it
was not possible for them to sell sugar at the controlled
price fixed by the Directorate and ended by saying that they
were not in a position to ,despatch sugar, pointing out at
the same time that the Act was unconstitutional and not
binding on them.
The export agency, however, was not agreeable, and it asked
the S.P.B. Mills either to deliver the export quota or pay
the net sale-proceeds for the same, pointing out that the
Mills ran the risk of liability for the additional excise
duty of Rs. 17 per maund.
While matters stood at this stage and the S. P. B. Mills had
neither paid the amount demanded nor agreed to despatch the
sugar, a petition was filed in this Court and a temporary
stay was obtained.
The questions that have been raised in these petitions are
many, but they can be grouped under two heads, viz., the
vires of the legislation and the propriety of the action
taken under it. The argument about the vires challenges the
Act as a whole and also clause by clause. In regard to the
vires of the Act, the petitioners draw attention to the
statement of objects and reasons, incorporated in one of the
affidavits in the case. According to them, the declared
object of the Act is to earn foreign exchange. They contend
that if foreign exchange is so urgently needed, there should
have been uniform legislation compelling other sugar
manufacturers, who do not manufacture by the vacuum pan
process, also to export sugar. This argument is based on
alleged discrimination and on Art. 14 of the Constitution.
The petitioners further contend that manufacturers of
commodities other than sugar are not compelled to export in
a like manner, and thus there is further discrimination.
In our opinion, this argument is without substance. The
power of Parliament to make laws in relation to foreign
exchange is manifest. Entry No. 36 of the Union List
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specifically confers jurisdiction on Parliament to legislate
in relation to foreign exchange. That Entry, if interpreted
widely, would embrace within
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itself not only laws relating to the control of foreign
exchange but also to its acquisition to better the economic
stability of the country. The need for foreign exchange to
finance the various development schemes was very properly,
not disputed. It is thus plain that the object of the Act
is in the public interest., If we are to exist as a
progressive nation, it is very necessary that we carve out a
place for ourselves in the International market. The
beginning has to be made, and many a time, it is at a great
loss. That the, Central Government has selected the sugar
industry for an export programme does not mean that it
cannot make a classification of the commodities, bearing in
mind which commodity will have an easy market abroad for the
purpose of earning foreign exchange. During the Suez
crisis, sugar was exported in large quantities from this
country, and earned 12-4 chores as foreign exchange. There
is nothing on the record to show that export of other
commodities was not also undertaken, though it was pointed
out in arguments that manganese ore was also exported in a
similar manner to earn foreign exchange. It is quite
obvious that the Central Government cannot order the export
of all and sundry manufactured commodities from the country,
without being assured of a market in foreign countries.
Necessarily, the Government can only embark upon. an export
policy in relation to these products, for which there is an
easy and readily available market abroad. For this reason
also, sugar produced by the vacuum pan process may have been
selected, because such sugar is perhaps in demand abroad and
not sugar produced by any other process. It must be
realised that goods manufactured in our country have to
stand heavy competition from goods produced abroad, and even
this export can only be made at great sacrifice, and is made
only to earn foreign exchange, which would not, otherwise,
be available.
In this view of the matter, it cannot be said that there is
discrimination in so far as sugar manufacturers by the
vacuum pan process are concerned. Government is the best
judge as to which commodities are
54
most likely to earn foreign exchange, and the selection thus
made is justifiable as a reasonable classification which is
related to the object of the Act, namely, the earning of
foreign exchange.
The next contention is under Arts. 19(1) (f) and (g) and
also 31 of the Constitution. The petitioners contend that
the whole export programme in respect of sugar amounts to an
infringement of their fundamental Fights under Arts. 19(1)
(f) and (g), and amounts also to a compulsory acquisition of
their property without payment of compensation. The peti-
tioners analyse the scheme of the Act, and state that it
amounts to taking sugar from owners for sale abroad at such
price as it may fetch, the owners being paid when such money
is received, after deducting the expenses of the export
agency and the cost of export. They state that the owners
stand to lose, because, admittedly, sugar is going to be
exported at a loss, and the loss is to fall on the owners of
factories. They further state that if the necessity for
foreign exchange was felt, the’ loss entailed in the earning
of foreign exchange should be borne by Government or be
distributed among all industries, or at least among all the
sugar producers in the country. It is urged that the Act is
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an unreasonable restriction upon the fundamental rights to
hold, acquire, and dispose of property and to carry on
occupation, trade or business.
In reply, the learned Attorney-General on behalf of the
Union as well as the Directorate of Sugar refers to the
negotiations which took place between the Government and the
sugar industry and the arrangements which were made to save
owners of factories from the loss which is inevitable as a
result of this export programme. We were taken through the
various Control Orders which were passed by Government under
the Essential Commodities Act about this time, fixing the
price of sugar for internal consumption. In particular,
reference is made to the Sugar (Control) Order, 1955,
Notification No. G. S. R. 661/ ESS. Com/Sugar dated July
30, 1958. It is pointed out that by that Notification the
price of sugar was increased by 50 nP. per maund on all
internal sales
55
to enable the factories giving their export quota to recoup
themselves for the loss, which might be entailed. It was
anticipated that the loss would be recouped if there was an
increase of 50 nP. per maund in the price of sugar for
internal consumption and the export quota was fixed at 2-1/2
per cent. of the total production of a factory for 1957-58.
The loss, it was expected, would be more than set off by the
excess price which the producers would be able to get for
every 20 maunds sold for internal consumption. It is also
pointed out that Government at that time did not wish to
take over the work of export on itself and specified as the
export agency, the Indian Sugar Mills Association, a body
composed of 95 per cent. of the sugar mills in the country.
The learned Attorney General also points out that more than
95 per cent. of the mills have stood by this arrangement,
and did either supply their quota of sugar or sold it in the
internal market and made available the money for purchase of
sugar for export. only a few mills in the country resorted
to these devices to get out of the commitment which the
industry as a whole had entered into. The learned Attorney-
General also contends that the petitioners had obtained
favourable prices for sale of sugar in the country but were
not willing to honour their other commitments which, after
the agreement of the sugar industry, were given legislative
form.
Learned counsel for the petitioners contends that the vires
of the Act should be considered without reference to other
circumstances such as the agreements, price adjustments and
price control, as they have no bearing upon the
resonableness of the legislation. In State of Madras v. V.
G. Row (1), this Court laid down that in judging the
resonableness of a restriction upon fundamental rights, the
surrounding circumstances can be looked into. Patanjali
Sastri, C.J., observed as follows:
" It is important in this context to bear in mind that the
test, of reasonableness, wherever prescribed, should be
applied to each individual statute impugned,
(1)[1952] S.C.R. 597, 607.
56
and no abstract standard, or general pattern of reason-
ableness can be laid down as applicable to all cases. The
nature of the right alleged to have been infringed, the
underlying purpose of the restrictions imposed, the extent
and urgency of the evil sought to be remedied thereby; the
disproportion of the imposition, the prevailing conditions
at the time, should all enter into the judicial verdict. In
evaluating such elusive factors and forming their own
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conception of what is reasonable, in all the circumstances
of a given case, it is inevitable that the social philosophy
and the scale of values of the judges participating in the
decision should play an important part, and the limit to
their interference with legislative judgment in such cases
can only be dictated by their sense of responsibility and
self-restraint and the sobering reflection that the
Constitution is meant not only for people of their way of
thinking but for all, and that the majority of the elected
representatives of ’the people have, in authorising the
imposition of the restrictions, considered them to be
reasonable."
In Virendra v. The State of Punjab (1), S. R. Das, C.J.,
again reaffirmed this approach. See also Arunachala Nadar
v. State of Madras (2).
It is, however, contended that though one can look at the
surrounding circumstances, it is not open to the Court to
examine other laws on the subject, unless those laws be
incorporated by reference. In our opinion, this is a
fallacious argument. The Court in judging the
reasonableness of a law, will necessarily see, not only the
surrounding circumstances but all contemporaneous
legislation passed as part of a single scheme. The
reasonableness of the restriction and not of the law has to
be found out, and if restriction is under one law but
countervailing advantages are created by another law passed
as part of the same legislative plan, the Court should not
refuse to take that other law into account.
The existence of such other law is not difficult to
establish. The Courts can take judicial notice of it. As
was laid down by the Privy Council in Attorney-General
(1) [1958] S.C.R. 308, 318.
(2) 1959 S.C.J. 297, 299-301.
57
for Alberta v. Attorney-General for Canada(1), the Courts in
determining the effect of legislation, do take into account,
it any public general knowledge of which the Court would
take judicial notice, and may in a proper case require to be
informed by evidence as to what the effect of the
legislation will be. Clearly, the Acts passed by the
Provincial Legislature may be considered, for it is often
impossible to determine the effect of the Act under
examination without taking into account any other Act
operating, or intended to operate, or recently operating in
the Province."
No doubt, this was laid down in a case falling within ss. 91
and 92 of the British North America Act, but the general
proposition is equally applicable where the effect of the
legislation on those governed by it has to be measured. In
the same connection, their Lordships looked into the
historical background of legislation to find out the
materials which were considered before the legislation was
promoted in the legislature. See also Ladore v. Bennett
(2). This Court also in Arunachala Nadar v. State of
Madras(3), examined the ’ historical background’ and
discovered the object of the Act, " from the circumstances
under which it was passed."
That other contemporaneous legislation passed as part of a
legislative plan can be examined was clearly laid down by
the Privy Council in Pillai v. Mudanayake (4). In that
case, the question was whether the Ceylon Citizenship Act
(18 of 1948) and the Ceylon (Parliamentary Elections)
Amendment Act (48 of 1949) were valid, or were ultra vires
the Ceylon Parliament, being void under s. 29(2) of the
Ceylon (Constitution and Independence) Order in Council,
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1946 (as amended). Under the first two Acts, the Indian
Tamils were denied as a community, the right of franchise
unless they came within the terms of the first Act. They
were thus subjected to disabilities and restrictions which
were prohibited by
(1) (1939) A.C. 117, 130.
(2) (1939) A.C. 468, 477.
8
(3) 1950 S.C.J. 297. 299-301-
(4) (1953) A.C. 514.
58
s. 29(2) of the Order-in-Council. During the course of
arguments, their Lordships’ attention was drawn to a later
Act, intituled the Indian and Pakistani Residents
(Citizenship) Act (3 of 1949), under which the Indian Tamils
and others were entitled to get themselves registered as the
citizens of Ceylon on proof of sufficient connection with
Ceylon. It was argued by Mr. Pritt, Q.C., before the Privy
Council that the later Act could not be read to justify the
earlier Act, because if the impugned Citizenship Act were
bad when it was passed, it could not be brought back to
light’ by the enactment of the subsequent Act. Their
Lordships did not accept this argument and read the later
Act with the previous. They observed:
"It was argued that sections 4 and 5 of the Citizenship Act
made it impossible that the descendants, however remote, of
a person who was unable to attain citizenship himself could
ever be able to attain citizenship in Ceylon no matter how
long they resided there, but their Lordships’ attention was
subsequently drawn to the Indian and Pakistani Residents
(Citizenship) Act, No. 3 of 1949, by which an Indian Tamil
could by an application obtain citizenship by registration
and thus protect his descendants, provided he had a certain
residental qualification. It was suggested on behalf of the
appellant that this Act might itself be ultra vires as
conferring a privilege upon Indian Tamils within s. 29(2)(c)
of the Constitution Order-in Council, and that therefore it
was inadmissible to rebut the inference that the legislature
had intended by, the Citizenship and Franchise Acts to make
Indian Tamils liable to disabilities within the meaning of
s. 29(2)(b), but their Lordships cannot accept this
argument. If there was a legislative plan the plan must be
looked at as a whole, and when so looked at it is evident,
in their Lordships’ opinion, that the legislature did not
intend to prevent Indian Tamils from attaining citizenship
provided that they were sufficiently connected with the
island. "
It is not necessary to speculate as to the remedies of the
sugar dealers if the Sugar Control Order, or the
notification were varied or abrogated in future. The
59
reasonableness of the restriction is to be judged today and
in the context of the circumstances now existing.
It cannot but be accepted that the Government made adequate
arrangements to recoup the sugar industry for the loss which
it might suffer in giving, the export quota. For that
purpose, though the export quota was fixed at 2-1/2 per
cent. of the total quantity produced by a factory, the loss
which was expected to be Rs. 10 per maund was spread over
the remaining sugar to be sold in the country and was
recouped at 50 nP. per maund. We are unable to accept the
plea that the petitioners were not able to sell sugar at the
controlled price, because the price -Was fixed too high.
Learned counsel for the petitioners contend that by fixing a
ceiling there is no guarantee that the commodity will be
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sold at the ceiling price and not at a lower rate. It is a
well-known proposition that when commodities are controlled
by fixation of price, the commodities sell only at the
controlled price and not less. Economists have complained
that the worst fault of price control is that the price does
not fall below the controlled rate. There is nothing in the
record of the case to show that the Mills were not able to
sell their sugar at the controlled price.
We are satisfied that the object of the Act does not
infringe the fundamental rights of the petitioners. To
prevent any loss to the petitioners, countervailing
additional prices were allowed on sales of sugar for
internal consumption. The petitioners did not stand to lose
ultimately. The quota was fixed at 2-1/2 per cent. of their
total production, and it is inconceivable that they are
unable to sell sugar in the open home market. This
suggestion of the petitioners that they are unable to sell
sugar at the controlled price has not been substantiated by
the production of a single document to show what they held
in stock and what they had sold. The balance sheet produced
by the S. P. B. Mills shows that they were able to sell more
than a lakh of bags in eight months, as against the quantity
of 4,079 bags for export.
It is obvious that the plea that the Mills are unable to
sell sugar at the controlled price is a mere sham.
60
Indeed, an examination of the correspondence in the first
case clearly demonstrates that the Mills were devising one
excuse or another to avoid the liability to supply the quota
of sugar. First, they raised the contention that they did
not have the requisite grade. Then they raised the
contention that they could not sell sugar. Thereafter they
asked for supply in installments, and when instalments were
fixed, they put forth the excuse of there being no wagons
available. They next urged that the Bank was charging
interest, and that interest should be waived before the
documents would be retired. When interest was waived, they
filed the petition in this Court. In these circumstances,
in our opinion, there can be no ground for holding that
there has been an infringement of the fundamental rights of
the petitioners. The restriction was not unreasonable,
because arrangement was made to save the owners of the
factories from loss, and the loss entailed by the export of
sugar was to be borne by the consumers in India and not by
the producers.
There is one more circumstance which may be considered. The
foreign export served the national interest by stabilising
the sugar market so that the production of sugarcane may be
maintained at a reasonable level. It also stabilised
national economy by earning foreign exchange. The loss, if
any, was comparatively small and was spread over many
factories. Apart from the very real possibility of its
being recouped by sales in the country, the loss itself was
so small as not to amount to an unreasonable restriction.
The petitioners next challenge the Act in its parts to show
that there is infringement of fundamental rights or, in the
alternative, compulsory acquisition of their property
without compensation. In this connection, ss. 5 to 9 are
challenged. Section 5 only permits the Central Government
to fix the quota leviable from different factories. If the
object and purpose of the Act is valid and also is in the
public interest, there being no disadvantage to the owners
ultimately, s. 5 which fixes the quota for export from sugar
produced by a factory cannot be challenged separately.
61
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Section 6 Makes it incumbent on the owner to supply that
sugar on demand and further provides that after delivery of
sugar, the owner retains no right except to receive payment
therefor under s. 9. This section is criticised on the
ground that delivery of goods and payment of the price
should be concurrent conditions,’ that is to say, that the
buyer should be ready and willing to pay the price in
exchange for possession of the goods. If the Government was
buying sugar, the provisions of s. 32 of the Indian Sale of
Goods Act, which is apparently relied upon here, might have
been invoked. The object and purpose of the Act is to
export sugar and to divide the receipts less expenses, among
the owners who supply sugar for export. The argument
overlooks the scheme that export is made by a Central Agency
for the industry as a whole, and the prices obtained abroad
are payable, and they are less than those at which sugar of
various grades sells within the country. The section does
not suffer from any infirmity, if the object and purpose of
the Act is, as has been found above, valid and
constitutional. It must not be forgotten that during-the
time payment was due, the owners were getting an additional
50 nP. on every maund sold by them in the country. Deferred
payment is not deprivation of property, nor an encroachment
upon fundamental rights. The affidavits show that the
entire quota of 50,000 tons has been exported, that it has
earned Rs. 2-4 crores in foreign exchange, and that the
exporters have been paid except for a small balance.
Section 7 is the penalty section. We heard considerable
argument as to whether the section would apply to a case
where no delivery was at all made, in view of the words:
" where sugar delivered by any owner falls short of the
export quota."
No action has yet been taken against the Mills under the
section; nor has -any penalty been imposed. The question
whether the section is ultra vires the legislature need not
be considered here.
Section 8 deals with export of sugar or its sale by the
owner or the export agency. It is stated that the
62
section deals with sugar delivered to the export agency, and
here there was no sugar delivered. The first subsection
deals with export, and the export agency can only export
sugar delivered to it. The second subsection authorises the
export agency to sell the sugar for reasons given in the
first sub-section. It also authorises the export agency to
permit the owner to sell sugar in his custody. In the
present cases, there was a demand for delivery of the sugar
of the quota, and that has not been met. Whether the
petitioners have exposed themselves to any penalty can only
be considered when penalty is actually imposed on them.
The condition that the sale-proceeds are payable to the
export agency is perfectly valid, regard being had to the
scheme of the export and the advantage allowed on all sales
in India. The owners having obtained that advantage cannot
claim to keep the proceeds of such sales, by which the
export policy is to be run. Out of the 50,000 tons, about
half was sold in India, and with the sale-proceeds other
sugar was bought and exported, and this would not be
possible if the export agency were required to make a spot
cash payment.
Section 9 provides how payments to owners are to be made.
Since the export was by a non-profit-making agency composed
of the sugar industry, it is obvious that the payments could
not be made forthwith. As explained already, the owners
received payment after the sale prices were received from
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abroad. Necessary deductions of expenses have to be made,
and the proceeds are then distributed. No doubt, such
payment is likely to be somewhat delayed but looking to the
small quantity involved (i.e. not more than 20 per cent.
under the Act and in actuality, only 2-1/2 per cent.) it was
not likely to make it very hard for the owners, who were in
the meantime breaking this loss at the rate of 50 nP. for
every maund of sugar sold in India. In our opinion, none of
the sections considered here, even viewed separately, is
ultra vires.
The petitioners did not challenge the action taken by the
export agency as being contrary to the Act. No ,argument
can be considered in view of the want of a plea to this
effect in the two petitions. In the petition
63
by the S. P. B. Mills, the petitioner did not invite any
decision on the correctness of the demand for the additional
excise duty, because no such duty has, in fact, been
demanded. The main contention of the Mills was that all
sugar was pledged with banks. The pleadings on this part of
the case are far from clear or sufficient. The only
reference is to a letter, which is insufficient. However,
in view of the fact that learned counsel reserved this point
to be raised for exemption from payment of additional duty,
we say nothing about it.
The result is that both the petitions fail, and are
dismissed with costs.
SARKAR J.-I think these two applications should succeed.
They raise the question whether the Sugar Export Promotion
Act, 1958 is invalid as imposing an unreasonable restriction
on the petitioners’ right to carry on their trade.
Some of the petitioners are owners of factories
manufacturing sugar by a process called the vacuum pan
process and they carry on business as manufacturers of and
dealers in sugar. For the purposes of this judgment these
persons may be taken to be the petitioners. The principal
respondent in these applications is the Government of India.
The other respondent is the Indian Sugar Mills Association,
an association of manufacturers of sugar by the vacuum pan
process.
On June 27, 1958, the Government had promulgated an
Ordinance. The impugned Act was passed on September 16,
1958 repealing the Ordinance and reenacting its provisions
and also providing that anything done under the Ordinance
would be deemed to have been done under the Act as if it had
come into force when the Ordinance had been promulgated.
As appears from its preamble, the Act was intended to
provide for the export of sugar in public interest and it
set up a machinery for that purpose. I will summarise here
the main provisions of the Act. Section 3 empowers the
Central Government to specify a company or other body
corporate as the export agency to perform the functions of
that agency under the Act.
64
The respondent Indian Sugar Mills Association wag specified
as the export agency under this section. Section 4
authorises the Central Government to fix the quantity of
sugar that may be exported, during any period, but the
quantity so fixed for a year is not to exceed twenty per
cent. of the quantity of sugar produced in India upto the
month of October in that year. Section 4 also provides that
" in fixing such quantity the Central Government shall have
regard to -(a) the quantity of sugar available in India, (b)
the quantity of sugar which, in its opinion, would be
reasonably required for consumption in India, (c) the
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necessity for exporting sugar with a view to earning foreign
exchange in the public interest." Section 5 requires the
Central Government to apportion the quantity fixed under s.
4 among the owners of factories producing sugar by the
vacuum pan process in proportion to the quantity produced or
likely to be produced by them respectively, during the
season. The quantity so apportioned to each factory is
called its export quota. Section 6 provides that every
owner of a factory shall, on demand by the export agency
deliver to it sugar upto its export quota and on delivery "
the owner shall retain no rights in respect of such sugar
except his right to receive payment therefor under section
9." Section 7 makes provision for an additional excise duty
being levied in certain circumstances on the quantity of
sugar by which the sugar delivered by the owner of a factory
falls short of its export quota. Section 8 states that the
export agency shall export the sugar delivered to it,
provided that in certain circumstances specified, the export
agency may sell that sugar in India and may if it thinks fit
purchase other sugar for export and for this purpose permit
the owner to sell the whole or part of its export quota at a
price approved, on condition that the sale proceeds are paid
to it. The provisions of s. 9 are important and will be set
out later. It is not necessary to refer to the other
provisions of the Act.
Soon after the Ordinance had been promulgated the Government
started taking action under it. By a notification dated
June 27, 1958, 50,000 tons of sugar
65
was fixed under s. 4 as the total quantity for export for
the period ending October 31, 1958. Export quotas were duly
fixed for all factories including those of the petitioners.
The petitioners were thereafter asked by the export agency
to sell the sugar and pay the saleproceeds to it. This they
failed to do. It is said by the respondents that the
petitioners were also asked to deliver the sugar and this
also they failed to do. The petitioners set up various
reasons justifying their failure to sell or deliver the
requisite quantities of sugar. It is unnecessary to refer
to these reasons for if the Act is invalid, as the
petitioners contend the orders could not be made and no
question would arise as to whether the petitioners had valid
reasons for not carrying them out. It appears that the
export agency felt that the petitioners were neither going
to sell the sugar and pay the sale proceeds nor to deliver
the sugar and it thereupon pointed out to the petitioners
that they were by their conduct exposing themselves to the
risk of having to pay the additional excise duty under s. 7.
It was then that the present applications for appropriate
writs restraining the respondents from taking steps under
the Act were launched by the petitioners on the ground inter
alia that the Act was invalid as it unreasonably restricted
the petitioners’ right to carry on their trade. I now
proceed to examine the validity of this contention.
From the provisions of the Act earlier set out, it is quite
clear that it requires the owner of a sugar factory to part
with a portion of the produce of his factory in exchange for
an amount to be fixed under the provisions of s. 9. The Act
therefore restricts his freedom of trade; it takes away his
right to trade with the whole of his merchandise in any
manner he likes. The question is, is such restriction
reasonable ?
It is necessary now to set out the terms of s. 9 of the Act
which fixes the amount which a manufacturer of sugar in
entitled to receive in respect of the sugar delivered by
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him. Only sub-ss. (1) and (2) of this section need be set
out and they are as follows:
Section 9.-(1) The export agency shall, at such time as it
thinks fit, make to the owners who have
9
66
delivered sugar to it under this Act, payments determined in
accordance with the provisions hereinafter in this section
contained.
(2)From the total sale-proceeds in respect of the quantity
fixed for export under section 4 for any year, there shall
be deducted the total expenditure incurred by the export
agency in respect of the sugar whether by way of
administrative expenses or otherwise, and the balance shall
be apportioned among the owners in proportion to the
quantity of sugar delivered by then respectively during that
year.
The substance of the matter then is that an owner of a sugar
factory gets in exchange for the sugar delivered by him
under the Act, a proportionate share of the sale-proceeds
less the expenses. He has no hand in deciding at what price
the goods would be sold by the export agency. If they are
sold for a very low price, he has no right to complain.
Neither has he any power to control the expenses. The
exchange value that a sugar manufacturer is entitled to get
under the Act for sugar delivered by him, therefore, depends
entirely on the export agency. Again, under subsec. (1) of
s. 9, the export agency need pay the manufacturer only at
such times as it thinks fit. It may be difficult to say
that all these terms are reasonable.
However that may be, there is another aspect of the question
which in my view decides it. It is quite plain that as
things are, sugar can be sold abroad only at a loss. That
clearly appears from the materials on the record and is not
indeed disputed. I think it enough to refer to the Objects
and Reasons of the Act and to a statement in the affidavit
of Shri K. P. Jain, Chief Director, Directorate of Sugar,
affirmed on February 13, 1959 and filed on behalf of the
Government, to show that the Act contemplated that the
export of sugar made under it would result in a loss. In
the Objects & Reasons of the Act it is stated,
"With a view to earning foreign exchange it is necessary to
promote export of sugar. The export of sugar however,
involves a loss, even if excise duty and cane cess are
remitted."
67
In paragraph 22 of Shri Jain’s said affidavit it is stated,
"I further say that ... the entire scheme envisaged in the
Act depends on the pooling of the losses on export by all
sugar factories in India, in proportion to their export
quota."
We then get to this that on the respondents’ own case the
exports under the Act can be made only at a loss. The
result therefore is that the Act compels the petitioners to
part with a portion of their merchandise at a loss. Can the
restrictions so put on the petitioners’ trade by the Act
then be said to be reasonable? I conceive it is impossible
to do so. It is said that the Act was passed with a view to
earn foreign exchange by export of sugar. Indeed so it
appears from the Objects & Reasons of the Act earlier set
out and the provisions of s. 4 earlier quoted. I will agree
that earning of foreign exchange is essential for the
country. But I do not see that justifies the enactment of a
legislation which imposes a loss on a sugar manufacturer.
It is not as if foreign exchange could not be earned without
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inflicting loss on the manufacturers of sugar. That indeed
is not the respondents’ case. The loss might have been
avoided if for example, the exports were made by the grant
of a subsidy, a course in fact adopted by the Government in
the year 1951-52. It has not been said that there was any
difficulty in granting the subsidy for the exports under the
Act. A reasonable restriction on a citizen’s right to carry
on his trade which alone is permitted by Art. 19(6) of the
Constitution, must be, as Mahajan, J., said in Chintaman Rao
v. The State of Madhya Pradesh(1), a restriction "which
reason dictates", which " unless it strikes a proper balance
between the freedom guaranteed in article 19(1) (g) and the
social control permitted by clause (6) of article 19, must
be held to be wanting in that quality." Here I do not find
the balance struck nor the infliction of the loss a course
which reason dictates. The loss which the restrictions
imposed by the Act on the petitioners’ trade caused to them,
was by no means such as could only have been avoided by
incurring a greater loss.
(1)[1950] S.C. R. 759, 763.
68
I also think it clear that an object however laudable,
cannot by itself and without more, make a restriction put on
a citizen’s right to carry on a trade for attaining that
object, reasonable. A restriction on a person’s right to
carry on his trade does not become reasonable, simply
because it had been imposed on him to achieve an object of
great necessity and undoubted merit. The reasonableness has
to be judged in all the circumstances of the case and the
object to be attained is only one of such circumstances.
This, in my view, is too clear to require elaboration.
It is not necessary for me to pursue the matter further for
it is not the respondents’ contention that the restrictions
are reasonable notwithstanding that they cause loss. On the
other hand, the contention of the respondents is for reasons
to be presently stated that the Act really caused no loss
and that being so the restrictions imposed by it cannot be
said to be unreasonable. I proceed now to consider the
respondents’ reason for saying that the Act imposes no loss
on the sugar manufacturers including the petitioners.
It is first said that though the exports result in a loss
now, it may in future bring in profits. That hope is
clearly only a pious hope. And what is more, it is not a
hope which has even been expressed in the affidavits filed
on behalf of the respondents. On the contrary, these
affidavits make it perfectly plain that in the foreseeable
future there is no hope of export of sugar being made at a
profit. Indeed, it is said in these affidavits that the
scheme of the Act is based on the pooling of the losses
caused by the exports made under it. It is hardly necessary
to point out that if the exports could be expected to
produce a profit in the near future, the coercive machinery
of the Act for making the exports would be unnecessary.
There is no basis whatever for saying that in some years the
export may result in a profit. Indeed on the respondents
own affidavits it is not open to them to say that they hope
that it may be possible in future to make a profit on export
of sugar.
Then it -is said that the export quota fixed for 1957-58 is
only 2-1/2 per cent. of the production of each
69
factory. The point sought to be made is that, therefore,
the amount of the loss would be very small. Now 2-1/2 per
cent. of the production of the factory of the petitioners in
Writ Petition No. 9 of 1959 is 12,533 maunds. It is stated
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by the respondents in the supplementary affidavit of Shri
Jain affirmed on March II,’ 1959, that on the export the
loss will be in the region of Rs. 10 per maund. On this
basis the loss to the petitioners in that petition would be
Rs. 1,25,530. The loss to the petitioners in Writ Petition
No. 14 of 1959 would be slightly less. I for myself would
hesitate to say that losses in such amounts are negligible.
The export quota for 1958-59 has been fixed at 5 per cent.
of the production. Naturally, the loss would be much
larger. The Government have the right under the Act to
increase the quota upto 20 per cent. The loss if the quota
is increased to the utmost would be formidable. In the
cases of factories with larger production the losses would
be much larger than the petitioners’ losses. And of, course
the reasonableness of the restrictions imposed by the Act
has to be tested generally and without reference to any
particular sugar manufacturer. I am also unable to agree to
the proposition that the reasonableness of a restriction
depends on the quantum of the loss it produces. Even a
small loss may conceivably make a restriction causing it,
unreasonable. The quantum of the loss cannot by itself
decide the reasonableness of the restriction. Does reason
dictate that a small loss shall be inflicted ? Nothing that
has been said in this case leads me to hold that.
It is then said that the loss caused by the Act was recouped
by an order made by the Government increasing the home price
of the sugar and therefore in fact the manufacturers
suffered no loss. The process of recoupment was thus stated
in paragraph 14 of the said main affidavit of Shri Jain:
" The incidence of loss on the first quota of 50,000 tons
fixed by the Government was assessed and when the Central
Government fixed the price of sugar for internal consumption
under the provisions of the Essential Commodities Act and
the Sugar (Control)
70
Order, 1955, they gave adjustment in price by adding 50
nP. per maund in the ex-factory prices of sugar for
internal sales."
It is said that the increase so made in the home price of
sugar would completely wipe out the loss incurred on the
export under the Act of 2-1/2 per cent. of the produce of a
factory. I will accept this as a correct estimate. I will
also ignore the petitioners’ contention that they had not
been able to sell the sugar in the home market at the
increased price.
The argument then is that though the impugned Act produces a
loss, that loss can be ignored because the Government has
taken steps under another Act to recoup the loss so
occasioned. It is said that in the circumstances that
prevail, namely, the increase in the home price, the
restrictions imposed by the impugned Act cannot be said to
be unreasonable, for on the whole they occasion no loss.
This is indeed the principal contention of the respondents
to establish that the restrictions are not unreasonable.
Now a reference to the Essential Commodities Act under which
the home price was increased has to be made. It was passed
in the year 1955. It was not intended to earn foreign
exchange; indeed it had nothing to do with foreign exchange
or with helping the sugar industry. Section 3 of this Act
provides:
"Section 3. (1) If the Central Government is of opinion
that it is necessary or expedient so to do for maintaining
or increasing supplies of any essential commodity or for
securing their equitable distribution and availability at
fair prices, it may, by order, provide for regulating or
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prohibiting the production, supply and distribution thereof
and trade and commerce therein.
(2)Without prejudice to the generality of the powers
conferred by sub-section (1), an order made thereunder may
provide
(c) for controlling the price at which any essential
commodity may be bought or sold."
Sugar is an essential commodity-within the meaning of that
term in the Act. Under the powers conferred
71
by the section quoted above, on August 27, 1955, the
Government passed an order called the Sugar (Control) Order,
1955. Clause 5 of that order provides that,
(1)The Central Government may from time to time, by
notification in the Official Gazette, fix the price or the
maximum price at which any sugar may be
sold...’ ..... Such price or maximum price
shall be fixed ... with due regard to the price or minimum
price fixed for sugar cane, manufacturing cost, taxes,
reasonable margin of profit for producer and/or trade, and
any incidental charges.
(2)Where the price or the maximum price has been so fixed
no person shall sell or purchase............ any sugar at a
price in excess of that fixed under subclause (1)."
It was under this Order that the Government issued a
Notification on July 30, 1958, enhancing the home price of
sugar by 50 nP. per maund which it is said wipes out the
loss caused by the impugned Act.
I will assume that the Notification increasing the price was
issued with the object of recouping the loss caused by the
impugned Act as stated in the affidavit of Shri Jain, though
the Notification itself does not say so. The question then
is, is the increase in the home price of sugar made by the
Government by a Notification issued under the powers given
to it by another Act which has the effect of wiping out the
loss inflicted by the impugned Act, a circumstance which
makes the restrictions imposed by the latter Act reasonable
?
It is said that this is so ; that in judging the reason-
ableness of the restriction imposed by one Act, it is
permissible to consider an order made by the executive
Government under another Act. We were referred to the
observations of Patanjali Sastri, C. J., in State of Madras
v. V. G. Rao (1). The learned Chief Justice there stated at
p. 607:
"The nature of the right alleged to have been infringed, the
underlying purpose of the restrictions imposed, the extent
and urgency of the evil sought to be remedied thereby, the
disproportion of the
(1)[1952] S.C.R. 597.
72
imposition, the prevailing conditions at the time, should
all enter into the judicial verdict."
I respectfully agree with all that the learned Chief Justice
said, but I am unable to see that this advances the present
contention of the respondents. What is really relied upon
is that portion of the learned Chief Justice’s observation
where he said that the prevailing conditions at the time
should be taken in into account. Support is sought also
from another observation of the learned Chief Justice at the
same page which I have not quoted, to the effect that
reasonableness has to be decided in all the circumstances of
a given, case. It is said that the prevailing conditions
and the circumstances of the case would include the order
increasing the home price of sugar made under the Essential
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Commodities Act. I am entirely unable to agree that such a
thing was in the contemplation of the learned Chief Justice.
The case before him was completely different. He was not
considering the reasonableness of one Act by reference to an
order made by the Government under another. The learned
Chief Justice was considering whether a certain Act had
placed unreasonable restrictions on the fundamental right to
form associations. The Act had given the Government the
right to declare an association an unlawful association on
certain specified grounds. In holding the restrictions
imposed by the Act unreasonable, the learned Chief Justice
observed at p. 608, " The formula of subjective satisfaction
of the Government or of its officers, with an Advisory Board
thrown in to review the materials on which the Government
seeks to override a basic freedom guaranteed to the citizen,
may be viewed as reasonable only in very exceptional circum-
stances and within the narrowest limits and cannot receive
judicial approval as a general pattern of reasonable
restrictions on fundamental rights." I do not at all see
that the respondents can derive any support for their
present contention from anything that Patanjali Sastri,
C.J., said.
I entirely agree that in deciding the reasonableness of the
restrictions imposed by a statute, all the prevailing
conditions and all the circumstances of the case
73
have to be considered. But I am wholly unable to see that
the conditions or circumstances, which seem to me to mean
the same thing, can include that which depends solely on the
arbitrary discretion or generosity or the sense of fair play
of another. That, in my view, is not permissible. That is
not a reasonable test. It is not reasonable to say that the
validity of a statute would depend on something which the
executive Government may do or undo at any time. The
statute imposing the restrictions does not give any right
that the Government would do something to make the
restrictions reasonable. How can such a restriction be
reasonable ? How can an Act which is prima facie
unreasonable-and it is on that basis that the present
argument arises-be held to be reasonable because of
something to which it gives no right and the existence of
which depends entirely on the choice of the executive
Government ? Is it to be said that the restrictions imposed
by a statute are reasonable because the Government has, when
the question cropped up, done something which makes the
restrictions reasonable though it was not bound to do that
and though it is free to undo that which it has, done ? To
say that would be to say that the Act is valid because the
Government has for the time being chosen to make it so.
This seems to me to be against all known principles of law.
Furthermore, if the respondents contention was right a
statute would then be legal when the Government chooses to
do a thing and illegal when it undoes it and so on from time
to time at the choice of the Government. That would be
intolerable in any legal system. It was said that this is
unavoidable and may happen in many cases. The following
illustration was given. Suppose in famine conditions a
statute was passed controlling free sale of foodstuff.
Assume that the prevailing conditions made the restrictions
put on free sale reasonable. Later, normal conditions
returned which made the control of sales of foodstuff
unnecessary and therefore unreasonable. The Act would
thereupon become invalid. But further suppose that after
sometime the famine conditions returned. The
10
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74
validity of the Act would then be restored. Hence, it is
said that there would be nothing unusual in the Act being
valid and invalid from time to time. But it seems to me
that this is no analogy. The famine conditions imagined do
not depend on the choice of the Government. So, assuming
that the appearance and disappearance of famine conditions
from time to time made the Act once valid and again invalid-
as to which I do not feel called upon to say anything now
that does not justify the adoption of a rule which would
make the validity of an Act depend on the choice of the
Government. If fluctuating validity is the result in one
case, it does not follow that the same consequence would
occur in’ another and a totally different case.
Again the validity of the Notification enhancing the home
price seems to me to admit of grave doubt. I find nothing
in the Essential Commodities Act nor naturally in the Sugar
(Control) Order, 1955, which would authorise the Government
to increase the price simply for the sake of recouping to
the manufacturers the loss caused to them by the impugned
Act. I have earlier set out the relevant provisions of the
Essential Commodities Act. The power to fix the price of
sugar given thereby can be exercised, " for maintaining or
increasing the supplies of any essential commodity or for
securing their equitable distribution and availability at
fair prices". That power cannot therefore be exercised for
recouping loss caused to a manufacturer by another Act, the
object of which is to earn foreign exchange. If it is said
that the Notification was issued for the purposes mentioned
in the Essential Commodities Act, it becomes at once
apparent, that the price fixed under it has no relation to
the impugned Act and may have to be altered irrespective of
the latter Act. I find it impossible to say that a
Notification fixing the price of sugar on different condi-
tions can be taken into account in deciding the
reasonableness of the impugned Act which is entirely
unconnected with these considerations.
For all these reasons I am unable to agree that the
Notification increasing the home price can be taken
75
into consideration in deciding the reasonableness of the
restrictions imposed by the impugned Act. It follows that
these restrictions do cause loss to the sugar manufacturers
and there is nothing to show that the restrictions are even
so reasonable.
Then it is said that the Indian Sugar Mills Association of
which the petitioners are said to be members, wanted that
arrangements for export of sugar abroad be made and it was
for that reason that the impugned Act was passed. It was
suggested that the Association agreed to the Act being
passed. It is therefore contended that the restrictions
imposed by the Act must be presumed to be reasonable and the
petitioners cannot be heard to say that they are not. Now
the request by or the agreement of the Association is of
course not the request by or the agreement of the
petitioners. The Association has no authority to bind the
petitioners by any request or agreement. The fact that the
petitioners were members of the Association if that were so,
does not give the Association the authority. There is no
evidence that the petitioners had assented to the
Association making the request or the agreement. For all
that is known the petitioners may have been against the
Association making any request to the Government to take
steps for export or agreeing to the passing of the Act.
Therefore, it seems to me that the petitioners’ rights are
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not affected by anything which the Association might have
done.
I think it right also to say that there is no material on
the record whatever to lead to the conclusion that the
Association had agreed to the Act being passed in the form
in which it stands. And of course it is only the Act with
which we are concerned. It is true that the Association had
suggested that the Government should take steps for export
of sugar. That would appear from the minutes of various
meetings annexed to the affidavits used on behalf of the
Government. But there is nothing in these minutes nor
anywhere else in the records which would indicate that the
Association wanted that sugar should be exported though that
might put the manufacturers to a loss. The position appears
to have been this. In the year 1951-52 the
76
sugar manufacturers were placed in a difficult position
because of competition from khandsari and gur manufacturers,
who could buy sugar cane for their manufactures at a low
price in the open market, while, the sugar manufacturers
were compelled to buy cane at prices fixed by the Government
which were high. So some of them, as appears from Annexure
"A" to Shri Jain’s said affidavit, made the following
suggestions to the Government in March 1952 to give them
relief :
" (a) The price of cane be reduced to Re. 1 per maund.
(b)The sugar manufactured from the lower priced cane be
’frozen’ and kept as a national Reserve for Export or for
such other purposes as the Government may consider
desirable.
(c)To reduce the accumulation of stocks in the factories
and to make room for further storage, and to liquidate the
stocks into cash, serious efforts be made either from
Government to Government or through trade channels to export
out at least 2 lakh tons. Alternatively, the State
Governments be asked to take deliveryof the quantities
from the factories and store them in their own godowns.
(d) If there is any ’Profit’ in the export of such
quantities the same may be utilised either for giving a
’bonus’ to the cane growers or in lowering the price of
sugar for home consumption."
It is clear from the suggestions thus made by the
manufacturers that they wanted the burden on them to be
relieved and export at Government’s cost. In that year the
Government in fact permitted an export of 10,000 tons and
gave a subsidy of Rs. 2 per maund to cover the loss on the
export. Later in the same year the Government reduced the
price at which the sugar manufacturers could purchase the
cane.
In the years 1952-53 to 1955-56 India imported large
quantities of sugar and did not export sugar at all. it also
appears that during these years the consumption of sugar in
India was much more than the production. Hence, obviously
the need for the import. So clearly in these years the
sugar manufacturers did not need to
77
export their sugar. The respondents do not say that during
these years the sugar manufacturers had asked for
arrangements for export being made. 1956-57 was the year of
the Suez crisis. In this year a substantial quantity was
exported and large profits could be made because price of
sugar in some of the markets abroad had gone up due to the
crisis caused by the Suez situation. The proposition then
is that between 1952-53 and 1956-57 the industry was doing
very well and had no need to ask for Government’s
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intercession to enable it to export.
There is no evidence that in 1957-58 there was any over-
production. The figures for this year in tons are
production-19,75,000, consumption-20,14,000 and export-
50,000, the figure for export being that fixed under the
Act. It appears however that various representatives of the
Government and the sugar manufacturers met and decided upon
the idea of exporting sugar for earning foreign exchange in
Government’s interest and getting a foothold in the world
market in the interests of the manufacturers. It was
realised that the export would result in a loss but the
manufacturers agreed to export provided they were allowed to
make up the loss from the internal market. For this purpose
the suggestion made as appears from annexure "D" to the
affidavit of Shri Jain, was as follows:
" The internal market will be left free as at present.
However to provide an element of stability to the market
releases for internal sale shall be regulated by Government
of India in active consultation with the industry."
So what the trade had agreed to was that they would be
prepared to export sugar provided they were left free to
recoup from the internal sales the loss caused by the
export. This is very different from agreeing to the Act
which made no provision for recouping the loss from the
internal sales. The sugar manufacturers did not approve of
the Act, being con. tent to depend on the Government’s sense
of fair play to relieve the hardship caused by it.
78
There remains one other contention to deal with. It is said
that the restrictions are reasonable since they result in
stabilising the sugar industry. Apart from saying that the
Act would stabilise the sugar industry, the affidavits used
on behalf of the respondents do not show how that would be
done or that there was any need for it. From what I have
earlier stated it does not appear to me that the industry
needed any stabilisation. The figures given earlier show
that production has always been less than internal
consumption, excepting for the year 1951-52. But it appears
from one of the annexures to the affidavit of Shri Jain that
even then the difficulty was only temporary. It is there
stated :
" Again in 1952-53 it was decided to export upto 2 lakh
tons. But only about 10,000 tons could be exported as in
the meantime there was an appreciable rise in the sugar
prices and the surplus stock was consumed in the home
market."
The estimated figures for the year 1958-59 in tons appear to
be as follows: production-- 19,00,000 consumption-21,00,000,
export-1,00,000. It would thus appear that the sugar
industry in India has always been stable and did not require
any export to make it stable.
What I think however puts the matter beyond doubt is s. 4 of
the Act. Under that section, in fixing the total quantity
of sugar to be exported in any season regard is to be had
only to the quantity available in India, the quantity
required for consumption in India and the necessity of
earning foreign exchange. So in deciding the quantity to be
exported no question of stabilising the industry or prices
arises. Again, it is not out of the excess of the
production over the internal consumption alone that the
exports are to be made. In fact there has never really been
any excess of production over consumption requirements.
Indeed it is plain that if sufficient sugar were left to
meet the home consumption, then the increased price would
not help the industry to recoup the loss. If supplies were
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,adequate to meet the demand -the price cannot be forced up.
80
price fixed for sugar-cane, manufacturing cost, taxes,
reasonable margin of profit for producer and/or trade, and
any incidental charges. In exercise of powers conferred on
the Central Government under s. 3 of the said Act and el. 5
of the said order, the Central Government issued a
notification dated July 30, 1958, fixing the ex-factory
price for Indian sugar Standard (ISS) D-29 grade. A few
days before the said order was issued i.e., on June 27,
1958, the Central Government promulgated an Ordinance called
the Sugar Export Promotion Ordinance, and it was
subsequently converted into an Act (30 of 1958), which
received the assent of the President on September 16, 1958.
It is said that the Central Government in fixing the price
for sugar produced during the season 1957-58, in vacuum pan
sugar factories situate in the areas specified in the order
had taken into account the possible loss the exporters might
incur by reason of the application of the provisions of the
impugned Act. Shri K. P. Jain, Chief Director in the
Directorate of Sugar & Vanaspati, Ministry of Food and
Agriculture (Department of Food), in his affidavit says that
the ex-factory ice of sugar per maund fixed by the said
order was prie
made up of the following items:
Average cost of production
including margin of profit. Rs. 22-91
Excise duty. Rs. 10-70
Cane cess. Rs.1-89
Loss on exports. Rs. 0-50
------------
Total Rs.36-00
-------------
It is explained therein that the factories are expected to
realise actually on their internal. sales Rs. 22-91 as their
cost of production including margin of profit and Rs. 0-50
to cover losses of export which work out to approximately
Rs. 10, per maund of sugar exported. For every one maund of
sugar exported, the factories have for sale in the internal
market 20 maunds of sugar, and on this, on account of the
price fixed, they would realise 0-50 nP. per maund i.e., on
20 maunds Rs. 10, which covers the export loss. The effect
of the
79
I therefore come to the conclusion that the Act which makes
the petitioners suffer a loss on the sale of a part of their
produce imposes a restriction on their right to carry on
their business which cannot in the circumstances of this
case be said to be reasonable and is therefore invalid.
I may also mention that the learned coursel for the
petitioners had taken certain other objections to the
validity of the Act but in the view that I have earlier
indicated I do not consider it necessary to discuss the
other objections.
I would allow the petitions with costs.
SUBBARAO J. - I have had the advantage of perusing the
judgment prepared by my learned brother, Hidayatullah, J. I
agree with his conclusion but would prefer to give my own
reasons. The only justification for me to write a separate
judgment is my inability to persuade myself to agree with
one of the reasons given by Hidayatullah, J., for his
conclusion. That reason involves a principle of far-
reaching importance, namely, whether, in ascertaining the
reasonableness of restrictions imposed by a statute on a
fundamental right, it is permissible to rely upon a
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notification issued by Government in exercise of power
conferred on it by another Act unconnected with the impugned
one.
Before I embark upon the merits of the case it would be
convenient at the outset to clear the ground by expressing
my view on the said question. The facts of the case have
been fully stated by my learned brother in his judgment, and
I need not restate them except to notice a few relevant and
material facts. The Essential Commodities Act, 1955 (Act 10
of 1955), was enacted for the purpose mentioned in the
preamble to that Act. In exercise of the powers conferred
by s. 3 of the said Act, the Central Government issued an
order dated August 27, 1955, called the Sugar (Control)
Order, 1955. Under r. 5 of the said order, the Central
Government is empowered, inter alia, to fix the price or the
maximum price at which any sugar may be sold or delivered,
having regard to the price or minimum
81
said order is that the possible loss to the sugar exporters
is off-set by the fact that they can recoup their loss in
their internal trade.
The learned Attorney-General sought to justify the
restrictions imposed by the impugned Act on the ground,
among others, that the Court should rely upon the said order
in determining whether the restrictions imposed by the
impugned Act are reasonable within the meaning of Art. 19 of
the Constitution. in support of this contention, he relied
upon the decision of this Court in State of Madras v. V. G.
Row (1). That decision was concerned with the question
whether s. 15(2)(b) of the Indian Criminal Law Amendment
Act, 1908 (14 of 1908), as amended by the Indian Criminal
Law Amendment (Madras) Act, 1950, was unconstitutional and
void. It was contended in that case that the said provision
fell within the limits of constitutionally permissible
legislative abridgement of the fundamental right conferred
on the citizens under Art. 19(1)(c) of the Constitution.
The said limits are defined in cl. 4 of the said article
whereunder:
"Nothing in sub-clause (c) of the said clause shall affect
the operation of any existing law in so far as it imposes,
or prevent the States from making any law imposing,.in the
interests of public order or morality, reasonable
restrictions on the exercise of the right conferred by the
said sub-clause."
In discussing the said question, Patanjali Sastri, C.J.,
observed at p. 607:
" It is important in this context to bear in mind that the
test of reasonableness, wherever prescribed, should be
applied to each individual statute impugned, and no abstract
standard, or general pattern of reasonableness can be laid
down as applicable to all cases. The nature of the right
alleged to have been infringed, the underlying purpose of
the restrictions imposed, the extent and urgency of the evil
sought to be remedied thereby, the disproportion of the
imposition, the prevailing conditions at the time, should
all enter into the judicial verdict. In evaluating such
elusive factors
(1) [1952]S.C.R. 597.
and forming their own conception of what is reasonable, in
all the circumstances of a given case, it is inevitable that
the social philosophy and the scale of values of the judges
participating in the decision should play an important part,
and the limit to their interference with legislative
judgment in such cases can only be dictated by their sense
of responsibility and self-restraint and the sobering
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reflection that the Constitution is meant not only for
people of their way of thinking but for all, and that the
majority of the elected representatives of the people have,
in authorising the imposition of the restrictions,
considered them to be reasonable."
If I may say so with respect, this passage summarizes the
law on the subject fully and precisely. What is reasonable
in a particular set-up may be unreasonable in a society with
a different background. The learned Counsel relying upon
the words "prevailing conditions" and the subsequent words
"in all the circumstances of a given case" contained in the
above observation of Patanjali Sastri, C. J., contended that
the said words were comprehensive enough to take in
notifications issued by the Government, and, therefore, the
said order of the Central Government fixing the rate would
be one of the elements to be taken into consideration in
testing the reasonableness of the impugned Act. I find it
difficult to accept this argument. The learned Attorney-
General has not been able to place before us any decision
which went to the length of holding that such notifications
could enter the judicial verdict. It is true that the
prevailing conditions at the. time the Act was made should
be taken into consideration, for the effectiveness of a
restriction imposed for a particular purpose depends upon
the said conditions. In a society addicted to opium, the
legislature has to make a law imposing severe restrictions
on the right to consume the same. In a society where a
particular vice is rampant, any restriction imposed to
eradicate that vice has to be moulded in accordance with the
needs of the time. During times of stress and strain, such
as war or pestilence, greater restrictions may be imposed on
a fundamental right to do business in
83
public interest. But the same restriction may be
unreasonable in normal times. Even in normal times, the
urgency of a social or economic reform, having regard to the
sub-normal standards of human existence, may demand more
stringent restrictions on fundamental rights than during
times of prosperity. The learned Chief Justice, therefore,
in his graphic description of the test of reasonableness, in
my view, was not stating any thing more than the obvious,
for the standard of reasonableness is inextricably
conditioned by the state of society and the urgency for
eradicating the evil sought to be remedied. But I am clear
in my mind that the validity of an Act shall not be made to
depend upon another Act unconnected with the impugned Act or
power conferred thereunder, which might, if properly
exercised, off-set the evil tendency or the vice of the
impugned Act. If the validity of an Act is made to depend
upon such a foundation, a super-structure will have been
built on shifting sands. To do that is to destroy the
stability of legislation and to introduce an uncertain
element therein. If two or more Acts were parts of the same
scheme or plan, to implement the same or common objective,
or if the impugned Act, though it was not originally
conceived at the time when the, earlier Act was passed, was
only an extension or a further step by legislature for
implementing the object of the earlier Act or if the
legislature by express reference incorporated in the
impugned Act the provisions of the earlier Act, it would be
permissible to rely upon the said provisions of the earlier
Act, not because they formed part of the prevailing
conditions but because either the earlier Act formed part of
the impugned Act by reference or both of them formed part of
the same legislative plan. The illustrations are not
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exhaustive, but they all fall under one or other of the
following two categories : (i) an earlier Act is made part
of a new Act; and (ii) both Acts are parts of a legislative
scheme or plan where both of them were conceived at the
inception but passed in stages, or conceived at different
times on the basis of experience gained but passed in
furtherance of the same scheme. In such cases, the test of
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reasonableness in regard to one Act may be made to depend
upon the impact of the other on it. But to go beyond this
is to destroy the stability of legislation and to introduce
an uncertain element. To go further and to depend upon a
notification of a transitory nature issued under an
unconnected Act is to place the statute in a fluid state.
In such a situation its validity would depend upon a
statutory order of temporary duration; it would change
colour with the changing attitudes of an authority empowered
to issue the order. It would also mean that a Court will
have to embark upon a roving search of all Acts and
notifications which may, by design or accident, alleviate or
mollify the evil consequences of an impugned Act. Such a
result cannot be contemplated. The learned Attorney-General
has not placed before us any decision in support of his
broad proposition; but I find in the judgment of my learned
brother, Hidayatullah, J., a few decisions which, it is
said, go to the full length of supporting the argument of
the learned Attorney-General. I have carefully perused the
said decisions and I do not find anything said or implied
therein to support the said contention. The decision in
Attorney-General for Alberta v. Attorney General for Canada
(1) was concerned with a conflict between the jurisdictions
of the Dominion and Provincial Legislatures under ss. 91 and
92 of the British North America Act, 1867, The Legislative
Assembly of the Province of Alberta passed an Act respecting
the taxation of banks and imposed thereunder on every
corporation or joint stock company other than the Bank of
Canada, incorporated for the purpose of doing banking or
savings bank business in the Province, an annual tax, in
addition to any tax payable under any other Act. Defaulters
of payment of tax were to be visited with penalties, and the
payment of either tax or penalty could be enforced by
distress and sale of goods and chattels, or by action for
civil debt. It was contended before the Privy Council that
the proposed taxation was not in its true sense taxation in
order to the raising
(1) (1939) A.C. 117.
85
of a revenue for Provincial purposes so as to be within the
exclusive legislative competence of the Provincial
Legislature, but was merely part of a legislative plan to
prevent the operation within the Province of those banking
institutions which had been called into existence and given
the necessary powers there to conduct their business by the
only proper authority, the Parliament of the Dominion, under
s. 91 of the British North America Act, and the Bill was
therefore. ultra vires the Provincial Legislature. The
Privy Council accepted the contention. For the purpose of
ascertaining the true plan underlying the bill, the Judicial
committee compared the relative legislative lists, took
judicial notice of other Acts and the object and purpose of
the Act in question. Having regard to the said
consideration, it came to the conclusion that it was a
colorable legislation aimed at to prevent the operation
within the province of the aforesaid banking institutions.
When a statute is attacked on the ground that it is a
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colourable legislation, i.e., it assumed a form apparently
falling within the legislative competence of the legislature
but in effect and substance intended to reach institutions
beyond its legislative competence, it is obvious that all
the surrounding circumstances, including other acts
operating in the Province, have to be scrutinized to unravel
the fraud on power. This decision, in my view, cannot be
invoked to serve the present purpose. Nor does the decision
of the Judicial Committee in Ladore v. Bennett (1) carry the
matter further. The question in that case was whether the
Provincial legislation in question did not encroach upon the
exclusive legislative power of the Dominion Parliament in
relation to bankruptcy and insolvency, interest or private
rights outside the Province. For ascertaining the pith and
substance of the impugned statutes, the Judicial Committee
relied upon the report of the Royal Commission appointed to
enquire into municipal and other affairs of the four
municipalities in question. At p. 477, it is observed:
" Their Lordships do not cite this report as evidence of the
facts there found, but as indicating the
(1) (1939) A.C. 468.
86
materials which the Government of the Province had before
them before promoting in the Legislature the statute now
impugned."
This case does not, in my view, throw any light on question
raised in the present case. The decision of the Privy
Council in Pillai v. Mudanayake(1) is also not of much
relevance to the present case. The constitutional validity
of the citizenship Act, 1948, of Ceylon, was questioned in
that case. It was contended therein that the main object of
that Act was to prevent the Indian Tamils from obtaining
citizenship of Ceylon and that the Act,"-as part of a plan
to effect indirectly something which the legislature had no
power to achieve directly. The Judicial Committee pointed
out, at p. 528 :
" It must be shown affirmatively by the party challenging a
statute which is upon its face intra vires that it was
enacted as part of plan to effect indirectly something which
the legislature had no power to achieve directly."
The Judicial Committee relied upon the Indian and Pakistani
Residents (Citizenship) Act, No. 3 of 1949, by which an
Indian Tamil would by an application obtain citizenship by
registration and thus protect his descendants, provided he
had a certain residential qualification. When objection was
taken against the Court relying upon the said Act, their
Lordships disallowed the objection with the following
remarks, at p. 529:
" If there was a legislative plan the plan must be looked at
as a whole, and when so looked at it is evident, in their
Lordships, opinion, that the legislature did not intend to
prevent Indian Tamils from attaining citizenship provided
that they were sufficiently connected with the island."
In this case also the reliance on a subsequent Act was only
to unravel the plan attributed to the Legislature of Ceylon
to deprive the Indian Tamils of citizenship by passing the
impugned Act. The said three decisions, therefore, are not,
and cannot be, authorities for the proposition now
contended. To unravel a plan
(1) (1953) A.C. 514.
87
of fraud on powers, it would be necessary to scrutinize all
the documents, whether legislative or otherwise, which help
to ascertain the truth. It may also be necessary to look
into another Act to ascertain the pith and substance of an
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impugned Act. But the same principle cannot be invoked for
ascertaining the reasonableness of legislative restrictions
on fundamental rights.
Now coming to the facts of the present case, it is not
suggested that the, Essential Commodities Act, 1955, and the
impugned Act form part of one scheme of legislation. Indeed
the Essential Commodities Act was enacted to provide in the
interest of the general. public for control of production,
supply and distribution of, and trade and commerce in,
certain commodities. The provisions of the Act disclose
that the object of the Act was to maintain or to increase
supplies of essential commodities and to secure their
equitable distribution and availability at fair prices. It
was not one of its objects to stimulate foreign trade or to
earn foreign exchange. It is said that the notification
issued by the Central Government under s. 3 of that Act and
r. 5 of the Order made thereunder was to off-set the loss
expected to be incurred under the Ordinance, and therefore,
the Act which supplanted the Ordinance, must be deemed to
have been passed on the basis of that notification. To put
it in other words, though the impugned Act does not confer
any power or impose a duty on the Government to off-set the
loss by fixing the rates of sugar, having regard to the
expected loss, the mere fact that it could fix the rates
under some other Act would make the Act good though
otherwise bad. If this argument be accepted as correct,
even if the notification was not issued, the existence of
such a power under some other Act would be enough to
validate the impugned Act, for, though the notification was
not issued, it may be issued at a later stage. This
argument, if accepted, would leave the impugned statute in a
fluid state, its validity or otherwise depending upon the
changing attitude of the authority concerned. I cannot,
therefore, accept this contention.
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Let me now consider the reasonableness of the restrictions
imposed by the Act, excluding the notification issued by the
Government. It is enacted to provide for the export of
sugar in public interest, and for the levy and collection,
in certain circumstances, of an additional duty of excise on
sugar produced in India. Section 4 enables the Central
Government, by notification in the Official Gazette to fix
from time to time the quantity of sugar which may be
exported during any period, and, in fixing such quantity,
the Central Government should have regard to the quantity of
sugar available in India, the quantity of sugar which, in
its opinion, would be reasonably required for consumption in
India, and the necessity for exporting sugar with a view to
earning foreign exchange in the public interest, In exercise
of that power, the Central Government should not fix the
quantity of sugar for export as to exceed in any year in the
aggregate twenty per cent. of the quantity of sugar produced
in India in the season ending with the month of October
falling within that year. Under s. 5, the Central
Government is empowered to apportion the quantity of sugar
fixed from time to time for purposes of export under s. 4
among the owners in proportion to the quantity of sugar
produced, or likely to be produced, by them respectively
during the season referred to above. Section 6 enjoins on
the owners of sugar factories to deliver to the export
agency, appointed under the Act, the sugar produced in their
factories in such quantities, of such grade, in such manner,
within such time and at such place, as may be specified by
the export agency in that behalf. When such delivery is
made, the owner ceases to have any more right over the sugar
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except to receive payment therefor. Section 8 empowers the
export agency, after taking delivery, to export the sugar or
permit the owner to sell the whole or any part of the export
quota in his custody at a price approved by it, on condition
that the sale-proceeds are payable to it.’ Section 9 directs
the export agency to make payments to the owners, who had
delivered sugar to it, in the manner prescribed by the
section. Out of the total
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sale-proceeds, the total expenditure incurred by the export
agency in respect of the sugar exported should be deducted
and the balance should be apportioned among the owners in
proportion to the quantity of sugar delivered by them for
export during the year. It also enables the export agency
to make payments to owners on account against documents of
delivery of sugar furnished by them, and to adjust such
payments at the time of final payment. Section 10 confers
power on the Central Government to give directions to the
export agency in discharge of its functions under the Act.
Section 7 deals with a situation when the sugar is not
delivered, and it reads:
" S. 7(1): Where sugar delivered by any owner falls short of
the export quota fixed for it by any quantity (hereinafter
referred to as the said quantity), there shall be levied and
collected on so much of the sugar despatched from the
factory for consumption in India as is equal to the said
quantity, a duty of excise at the rate of seventeen rupees
per maund."
Sub-s 2,3 and 4 provide for a machinery for imposing the
penal duty and collecting the same from the defaulting
owners of sugar. The scheme of the Act, therefore, is a
self-contained one. The object is to provide for the export
of sugar in the interest of public and that object is sought
to be achieved by fixing the quota of sugar for export and
distributing the same among the owners of factories, subject
to the condition that in no case it should exceed twenty per
cent. of the quantity of sugar produced in India in a
particular season. The quantity is also fixed without
detriment to the requirements for internal consumption. The
apportionment of the quota among the various factories is
objectively and impartially made. The quota delivered, or
in case the owner is allowed to sell the sugar himself, the
sugar purchased from the sale-proceeds, is exported, and the
nett sale-proceeds are distributed among the owners in
proportion to the quantity of sugar delivered by them. for
export. The Act enables the Government to make payments on
account. The Government also retains an over-all
90
control presumably to see that no injustice is done to the
parties concerned. The short question is whether the said
restrictions on the freedom of the petitioners to acquire,
hold and dispose of property, and carry on trade or
business, are reasonable within the meaning of clauses (5)
and (6) of Art. 19 of the Constitution. The restrictions
must have a reasonable relation to the object which the
legislature seeks to achieve and must not go in excess of
that object. What is the object of the legislature ? The
object of the legislature is to provide for the export of
sugar in public interest. It cannot be, and indeed it is
not, denied that at the time the Act was passed there was a
sincere and serious national effort to industrialize our
country with the avowed object of raising the economic
standards of our people. One of the necessary conditions for
industrializing our country is to start heavy industries,
and that cannot be done unless the country earns foreign
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exchange to enable it to import plants for starting the
same. It is also self-evident that it would be in the
interests of sugar industry to build up a foreign market for
that commodity. The object of the Act was, therefore,
demonstrably to serve the national interest and the scheme
evolved certainly had relation to the object sought to be
achieved, for all the provisions of the Act were conceived
in a genuine attempt to induce foreign export in sugar by
co-operative effort. If so, the only objection to the
restrictions imposed can be on the basis that the freedom
was abridged or curtailed unduly or arbitrarily. But for
the Act, the petitioners could have sold their sugar in the
open market without exceeding the rates fixed under the
Essential Commodities Act, 1955. The correspondence filed
in the ease, marked as annexures A, B and C, clearly
demonstrates that both the industry as well as the State
were equally interested to stimulate foreign trade and build
up a foreign market. Under the scheme embodied in the Act,
three restrictions are imposed on the owners of factories:
(i) They must contribute to the stock for export, not
exceeding twenty per cent. of the quantity produced in their
-factories; (ii) they are paid only their proportionate
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share of the nett sale-proceeds realised in the foreign
market; and (iii) a penal cess is imposed on those who make
default in supplying the goods. When once it is conceded
that the Act serves the national interest, I find it not
possible to hold that the restrictions are unreasonable or
excessive. The three restrictions are really the props of
the scheme. If there was no statutory compulsion on the
owners of factories to supply a reasonable fraction of the
sugar produced in their factories, the export agency would
not get the requisite quantity of sugar for export. If
there was no provision imposing a penal cess on defaulters,
there would be no sanction to compel them to deliver their
quota of sugar. Though the final payment was deferred till
the nett sale-proceeds were realised, they would be paid the
price for the sugar supplied, at the rates fetched in the
foreign market. It is common case that at present the
export trade in sugar ends in loss; but it cannot be
predicated that it will be a chronic feature and there will
not come a time when the export trade in sugar will earn
profits. It may be that a better scheme might have been
evolved by the legislature or it might be more beneficial
from the standpoint of owners of factories if the State
purchased the exportable quantity for ready cash and
exported the same on its own account. But it is not for
this Court to evaluate the comparative merits of different
schemes so long it is satisfied that the scheme actually
evolved stands the test of reasonabless. The correspondence
between the State and the industry shows that the industry
as a whole co-operated with the State. in evolving the
scheme, which culminated in the passing of the Act. The
State as well as the industry are equally interested to
stimulate foreign trade and build tip foreign market. To
capture foreign market or to have a substantive share
therein is not an easy task, as it depends upon many
imponderables, namely, the availability of sugar, its
demand, its comparative merits with the sugar produced in
other markets, transport facilities, mutual agreement
requirements, international affiliations etc. Initial loss
must have to be borne to get a foothold and the clear
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objective will have to be pursued purposefully and tena-
ciously. To achieve the said objective, with the consent of
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the industry and on the basis of past experience, the Act
was passed by the Parliament. The beneficial results
flowing from the Act are significant. The State earns
foreign exchange, and a foreign market is gradually built up
for the future prosperity of the sugar industry.
In the affidavit filed on behalf of the respondents an
attempt was made to support the Act on the ground that it
was intended to serve a dual purpose of stablising the
internal -market and earn foreign. exchange for the country.
An attempt was also made to link the one with the other, but
the learned Attorney-General did not pursue that line in his
argument, and I have, therefore, considered the question
only from the standpoint of the compelling need of the State
to earn foreign exchange, and the long range aim of the
industry to build up a foreign market. I therefore, hold
that the restrictions imposed by the statute on the
fundamental rights of the petitioners are not arbitrary, and
are reasonable within the meaning of Art. 19 of the
Constitution.
I agree with my learned brother, Hidayatullah, J., on the
other questions raised in this case. In the result, the
petitions are dismissed with costs.
ORDER.
In view of the opinion of the majority these petitions are
dismissed with costs.
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