Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
PETITIONER:
BHOPAL SUGAR INDUSTRIES LTD.
Vs.
RESPONDENT:
STATE OF M.P. & OTHERS
DATE OF JUDGMENT23/03/1982
BENCH:
TULZAPURKAR, V.D.
BENCH:
TULZAPURKAR, V.D.
SEN, AMARENDRA NATH (J)
CITATION:
1982 AIR 1012 1982 SCR (3) 543
1982 SCC (2) 168 1982 SCALE (1)283
ACT:
Madhya Pradesh Sugar Cane (Regulation of Supply &
Purchase) Act, 1958-S. 21-Levy of commission on purchase of
cane from outside ’reserved area’ or through Cane-growers’
Cooperative Society-Whether legal ?
HEADNOTE:
Section 21 (1) of the Madhya Pradesh Sugar Cane
(Regulation of Supply & Purchase) Act, 1958, imposes an
obligation upon an occupier of a factory to pay commission
at prescribed rates on all its purchases of sugarcane. While
in respect of purchases made through a Cane-growers’
Cooperative Society the commission is payable to that
Society and the Cane Development Council under s. 21 (1)
(a), in respect of purchases made directly from the cane
growers the commission is payable to the Cane Development
Council under s. 21 (1) (b).
The appellant, a company which crushes sugar cane in
its factory, purchased cane directly from the cultivators of
’reserved area’ as well as of ’non-reserved area’.
Respondent No. 2, the Cane Development Council, demanded
commission in respect of purchases made from both ’reserved’
as well as ’non-reserved’ areas. The appellant also
purchased cane from or through respondent No. 3, a Cane-
growers’ Cooperative Society and in respect of those
purchases, the demand for commission was made by that
Society.
The demands for payment of commission were challenged
by the appellant by a petition under Art. 226 which was
dismissed by the High Court.
In appeal to this Court it was contended on behalf of
the appellant that since the Cane Development Council had
been established for the ’reserved area’ of the appellant’s
factory so declared under s. 15 of the Act and its statutory
functions and duties were confined to that area under s. 6
of the Act, its demand for commission on purchases made from
’non-reserved area’ was illegal, there being no quid pro quo
in the shape of rendering services in respect of purchases
made from ’non-reserved area’. As Regards the demand of the
Cane-growers’ Cooperative Society for commission in respect
of purchases made through it, the contention was that in
everything being done by it, the Society was rendering
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
services to its own members and since no services resulting
in any special benefit to the appellant were being rendered
by it in terms of the decision of this Court in Kewal
Krishan Puri’s case, [1979] 3 SCR 1217, there was no quid
pro quo and therefore no commission was legally recoverable
by tho Society.
544
Dismissing the appeal,
^
HELD: 1. The levy under s. 21 of the Act though called
’commission’ is really in the nature of a fee and its
imposition is supportable only on the basis of quid pro quo
in the shape of rendition of services to a factory in the
matter of cane purchased by it. [548 C-D]
Jaora Sugar Mills (P) Ltd. v. State of Madhya Pradesh
and Ors. [1966] 1 SCR 523, referred to.
2. The imposition of commission by the Cane Development
Council on purchases of cane from ’non-reserved area’ was
proper and justified as there was quid pro quo in the form
of rendering services in the matter of better cane
production, distribution and supply thereof. The area of
operation or the ’zone’ of the Council could include areas
outside the ’reserved area’ of the factory as a Council
could be established for a larger or smaller area "than the
reserved area of a factory" under s. S of the Act, and its
functions and duties under cls. (a) to (g) of s. 6(1)
included functions like considering and approving
development programmes for the zone, devising ways and means
for execution of development plan in all its essentials such
as cane varieties, cane seed, sowing programme, fertilizers
and manures, taking steps for prevention of diseases and
pests and rendering all help in soil extension work, etc.
Some of these functions mentioned in cls. (b), (d) and (e)
of s. 6(1) are of general character and not confined to even
the zone of the Council. Further, s. 21 of the Act does not
contain any qualifying words limiting the imposition of
commission to purchases of cane made by a factory from
’reserved area’ only; the imposition is on every maund of
cane purchased by a factory irrespective of the area from
where such purchases might have been made. [549 A-P]
3. The contention that in respect of purchases of cane
made through the Cane-growers’ Cooperative Society there was
no element of quid pro quo cannot be accepted having regard
to the scheme of the Act and the activities undertaken by
the Society in the discharge of its normal functions. The
scheme of the Act, particularly in ss. 15, 16 and 19,
contemplated situations where the appellant’s factory might
have had to purchase cane from within reserved or assigned
areas, only through the Society. The Society had been
established to develop scientific methods of sugar cane
growing and it had called upon its members to introduce
modern means of implements for cultivating sugarcane which
unquestionably made for assured bulk supply of uniformly
good quality cane through its members to the appellant’s
factory. It could not, therefore, be said that no services
conferring special benefit on the appellant’s factory in the
matter of purchases of cane were being rendered by the
Society to the appellant’s factory.
[551 A-H; 552 A]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 504 (N)
of 1971.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
Appeal from the Judgment and order dated the 24th April
1970 of the Madhya Pradesh High Court in Misc. Petition No.
246 of 1967.
545
R.P. Bhatt, Ashok Mehta, J.B. Dadachanji and D.N. Misra
for the appellant.
Gopal Subramanium and S. A. Shroff for the respondents.
The Judgment of the Court was delivered by B
TULZAPURKAR, J. Two questions were raised for our
determination in this appeal by a certificate:
(a) Whether the Sugarcane Development Council, Sehore
(respondent No. 2) can charge commission under
section 21 (1) of the Madhya Pradesh Sugar Cane
(Regulation of Supply & Purchase) Act, 1958 on
purchases of sugarcane made by the appellant
company from outside the "reserved area" ? and
(b) Whether the Sugar Cane-Growers Development Co-
operative Union Ltd., Sehore (respondent No. 3:
the concerned Cane Growers Co-operative Society)
can charge commission under section 21 (l) (a) of
the Act in respect of the purchases of sugarcane
made by the appellant through the Union when there
is no quid pro quo by way of rendering any
services by Union to the appellant-company ?
The short facts giving rise to the above questions may
be stated: The appellant-company crushes sugarcane in its
factory at Sehore in Madhya Pradesh. For its business it
purchases sugarcane from "reserved area" as well as from
outside both directly from the cane-growers as well as
through respondent No. 3, a Cane-growers Co-operative
Society, Sehore. Section 21 of the Act imposes an obligation
upon the appellant-company to pay commission on all its
purchases of cane at prescribed rates and it has to pay such
commission in respect of purchases made through the Society
to the Society and the Development Council and in respect of
purchases made directly from the cane-growers to the
Development Council. According to the appellant-company
judicial decisions rendered by Madhya Pradesh High Court as
well as this Court have settled the position that the
commission chargeable under s. 21 of the Act is in the
nature of a fee the imposition of which is supported on the
basis of quid pro quo in the shape of services rendered by
the Development
546
Council to a factory (vide: Jaora Sugar Mills (P) Ltd. v.
State of Madhya Pradesh and others. It appears that during
the seasons 1960-61 to 1964-65 the appellant-company
purchased cane directly from the cultivators of "reserved
area" as well as from the cultivators of "non-reserved area"
and respondent No. 2 (Development Council, Sehore) made a
demand of commission from the appellant-company in respect
of such purchases both from "reserved area" as well as from
"non-reserved area." Similarly, during the crushing seasons
1963-64 to 1966-67 the appellant-company made purchases of
cane from or through respondent No. 3 (Co-operative Society)
in respect whereof a demand of commission was made by
respondent No. 3 from the appellant company. By a writ
petition (being Misc. Petition No. 246 of 1967) filed in the
Madhya Pradesh High Court at Jabalpur the appellant-company
challenged the validity of the demand made by respondent No.
2 insofar as it related to purchases made from non-reserved
area on the ground that it (Council) was established for the
reserved area of the appellant-company’s factory and its
functions were confined to that area and as such no
commission (fee) could be recovered by it in respect of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
purchases made by appellant-company from non reserved area;
similarly, the demand made by respondent No. 3 (Co-operative
Society) was challenged on the ground that no services of
any kind whatsoever were rendered by it to the appellant
company, and the charge would be invalid in the absence of
any quid pro quo. The High Court negatived both the
contentions and dismissed the petition. It is this decision
of the High Court that is challenged before us in the appeal
and counsel for the appellant company raised the two
questions mentioned at the commencement of the judgment.
Section 21, which deals with commission on. purchase of
cane, runs thus:
"(1) There shall be paid by the occupier a commission
for every one maund of cane purchased by the
factory-
(a) where the purchase is made through a Cane-
growers’ Co-operative Society, the commission
shall be payable to the Cane-growers’
Cooperative
547
Society and the Council in such proportion as
the State Government may declare; and
(b) where the purchase is made directly from the
cane-grower, the commission shall be payable
to the Council.
(2) The Commission payable under clauses (a) and (b)
of sub-section (1) shall be at such rates as may
be prescribed provided, however, that the rate
fixed under clause (b) shall not exceed the rate
at which the com mission may be payable to the
Council under clause (a)."
Section 30 confers power on the State Government to make
rules for the purpose of carrying into effect the provisions
of the Act and under cl. (j) of sub-s. (2) such Rules may
provide for "the rate at which and the manner in which
commission shall be paid to the Cane-growers’ Co-operative
Society on the supply of cane by them." Under the aforesaid
provisions certain rules called the Madhya Pradesh Sugar
Cane (Regulation of Supply and Purchase) Rules, 1959 have
been framed by the State Government. Rules 45 and 46
occurring in Chapter X of the Rules are material and they
are as follows:
"45. The occupier of factory shall pay a commission for
the cane purchased at the following rates namely:-
(i) Where the purchase is made through a Cane-
growers’ Co-operative Society, at the rate of
5 Naya Paise per maund out of which 2 Naya
Paise shall be payable to the Society and 3
Naya Paise to the Council;
(ii) Where the purchase is made directly from the
cane-growers, at the rate of 3 Naya Paise per
maund, payable to the Council.
46. In determining the proportion to which payments
out of commission shall be made to the Council and
the Cane-growers’ Co-operative Society of an are
the State Government may take into consideration
the
548
financial resources and the working requirements
of the Council and the Cane-growers’ Co-operative
Society."
It is thus clear from the aforesaid statutory
provisions that every factory is under an obligation to pay
commission on all its purchases of cane at the prescribed
rates and it has to pay such commission at the rate of 2
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
Naya Paise per maund to the Society and 3 Naya Paise to the
Council in respect of purchases made through a Cane-growers’
Co-operative Society and at the rate of 3 Naya Paise per
maund to the Council where the purchases are made directly
from the cultivators or cane-growers. It cannot be and was
not disputed by Counsel on behalf of the respondents that
the levy under s. 21 of the Act though called "commission"
is really in the nature of a fee, the imposition of which is
supportable only on the basis of quid pro quo in the shape
of rendition of services to the factory in the matter of
cane purchased by it and Counsel accepted this position as
emerging from this Court’s decision in Jaora Sugar Mills’
case (supra).
Now, turning to the first question raised before us
Counsel for the appellant-company contended that respondent
No. 2 Council has been established for the "reserved area"
of the appellant’s factory so declared under s. 15 of the
Act, that respondent No. 2 Council is required to discharge
its statutory functions and duties under s. 6 of the Act
confined to the "reserved area" meant for the appellant’s
factory and as such the demand for commission (fee) in
respect of purchases of cane made by the appellant-factory
from non-reserved areas (which it is entitled to make along
with its purchases from the "reserved area") would be
illegal and without any authority of law because in respect
of such purchases there is no quid pro quo in the shape of
rendering of services by respondent No. 2 to the appellant-
factory. It is not possible to accept this contention for
more than one reason. In the first place there are no
qualifying words to be found in s. 21 of the Act which limit
the imposition of commission (fee) to purchases of cane made
by a factory from reserved area only; the imposition is on
every maund of cane purchased by factory irrespective of the
area from where such purchases may have been made. Secondly,
and this is important, if the relevant provisions of ss. 5
and 6 of the Act are carefully examined it will appear that
the functions and duties of the Development Council are not
confined to the "reserved area" of a factory as
549
urged by the Counsel for the appellant-company. Under s. 5
"there shall be established, by notification, for the
reserved area of a factory a Cane Development Council which
shall be a body cooperate provided that where the Cane
Commissioner so directs, the Council may be established for
a larger or smaller area "than the reserved area of a
factory" and sub-s. (2) provides that "the area for which a
council is established shall be called a Zone". In other
words, the Zone area of operation) of a Council could be
larger than the "reserved area" of a factory i.e. would,
include area outside the reserved area of the factory.
Further, the functions and duties of the Council are
indicated seriatim in cls. (a) to (g) of sub-s. (1) of s. 6
and these include functions like considering and approving
development programmes for the Zone, devising ways and means
for execution of development plan in all its essentials such
as cane varieties, cane-seed, sowing programme, fertilizers
and manures, taking steps for the prevention of diseases and
pests and rendering all help in soil extension work, etc.
etc. and it will be noticed that some of these functions
under cl. (b), (d) and (e) are of general character and not
confined even to the Zone of the Council. In other words,
the functions and duties of the Council which are in the
nature of rendering services in the matter of better cane
production, distribution and supply thereof to the factory
are not confined to the "reserved area" so declared for a
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
factory under sec. 15 of the Act. If that be so it is
difficult to accept the contention that in the matter of
cane purchases made by the appellant’s factory from non-
reserved areas no services are rendered by the respondent
No. 2 Council to the appellant’s factory. The quid pro quo
being there the imposition of a fee on such purchases from
non-reserved areas would be proper and justified.
As regards the demand and recovery of commission (fee)
by respondent No. 3 under s. 21(1)(a) in respect of
purchases of sugarcane made by the appellant’s factory
through it, the contention of Counsel for the appellant-
company has been that respondent No. 3 is the concerned
Cane-growers’ Co-operative Society in the area, one of the
objects of which is to sell cane grown by its members to the
appellant’s factory, that the said Society does not render
any services to the appellant’s factory under the Act or
otherwise and hence is not entitled to recover any fee from
the appellant-company. It is pointed out that respondent No.
3 is meant for helping its members and in fact renders
various types of services to its cultivator-members
550
so that they are not exploited. In fact in the matter of
supplies of cane made through the respondent No. 3 it is the
Society which deals with its members who receive their price
from the Society. Counsel pointed out that even in the
return filed by respondent No. 3 to the writ petition,
respondent No. 3 enumerated four types of services which it
claimed was rendering to the appellant’s factory, namely,
(a) it made arrangements for lump-sum cane supply on lump-
sum demand from the factory; apart from convenience this
resulted in economy to the factory as it had to maintain
less staff; (b) it undertook equitable distribution of quota
and the factory had not to undertake this function; (c) it
undertook the maintenance of the records of individual
growers for cane supplies and the factory had not to
undertake this function and (d) it made payment to the
suppliers though the factory is required to make payments
for supplies effected immediately and in actual practice
mostly the factory made payments late at its convenience but
the Society made payments to the suppliers regularly
according to the programme drawn by it; the appellant’s
factory thus benefited by the existence of this Society. But
according to Counsel for the appellant company none of these
items referred to above really amounts to rendering any
service to the appellant’s factory by way of conferring on
it some special benefit having a direct, close or reasonable
correlation to its transactions of purchase of cane and, if
at all, all these items referred to in the Return are really
for the benefit of cultivator-members of the Society and in
this behalf, Counsel relied upon a decision of this Court in
Kewal Krishan Puri’s case where in the context of enhanced
market fee levied under Punjab Agricultural Produce Market
Act, 1961 this Court has observed that the quid pro quo by
way of rendering services must result in the conferral of
some special benefits to the persons charged which have a
direct, close and reasonable correlation between such
persons and their transactions and that any indirect or
remote benefit to them would in no sense be such benefit.
Counsel for the appellant-company, therefore, urged that
since in everything that is being done by it respondent No.
3 is rendering services to its own members and no services
resulting in any special benefit to the appellant’s factory
are rendered, no charge by way of any fee would be legally
recoverable by respondent No. 3 from the appellant’s
factory.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
551
In our view having regard to the scheme of the Act and
the activities which respondent No. 3 has been undertaking
in the discharge of its normal functions it will be
difficult to accept the contention urged by Counsel for the
appellant’s factory that no services of any kind whatsoever
resulting in conferral of special benefits on the
appellant’s factory in regard to its transactions of
purchases of cane are rendered by respondent No. 3 to the
appellant’s factory. The scheme of the Act is that under
sections 15 and 16 a declaration of reserved and assigned
areas for purchase and supply of sugarcane is made by the
Cane Commissioner for every factory after consulting in the
manner prescribed the occupier of the factory and the Cane-
growers’ Co-operative Society, if any, in that area and upon
declaration of such areas an obligation is cast upon the
occupier of the factory, in the case of "reserved area", to
purchase all cane grown in such area which is offered for
sale and in respect of "assigned area" to purchase such
quantity of cane grown therein and offered for sale for the
factory as may be determined by the Cane Commissioner.
Further, under s. 19 the State Government can by order
regulate the distribution, sale and purchase of cane within
any "reserved and assigned area" as also from areas other
than "reserved and assigned areas" and under cl. (b) of sub-
sec. (2) such order made by the State Government may provide
for the manner in which cane grown in the "reserved area" or
the "assigned area" shall be purchased by the factory and
the cane grown by a cane-grower shall not be purchased
except through a Cane-growers’ Co-operative Society. In
other words the scheme of Act contemplates situations where
the appellant’s factory may have to purchase cane from
within reserved or assigned areas only through the
respondent No. 3 Society. Moreover in its Return the
respondent No. 3 has averred that under its bye-laws the
Society is established to develop scientific methods of
sugar cane growing and calls on its members to introduce
modern means of implements for cultivating sugarcane which
unquestionably makes for assured bulk supply of uniformly
good quality cane through its members to the appellant’s
factory. In other words this function undertaken by
respondent No. 3 is of a nature or kind similar to that
undertaken by the council and therefore it cannot be said
that no services conferring special benefit on the
appellant’s factory in the matter of its purchases of cane
are rendered by respondent No; 3 to the appellant’s factory.
Having regard to the aforesaid position it is not possible
to accept the contention that in respect of purchases of
cane made through the respondent No. 3 Society there is no
552
element of quid pro quo in the shape of rendering services
by respondent No. 3 to the appellant’s factory.
In the result both the questions are answered against
the appellant-company and the appeal is dismissed with
costs.
H.L.C. Appeal dismissed.
553