S. Muralidhar, J.
CM No 8082/2005 (restoration) in WP(C) 2585/1986
Heard. For the reasons stated in the application, the application is allowed. Writ Petition (C) No. 2585 of 1986 is restored to file.
Application stands disposed of.
WP(C) 2585/1986 & WP(C) 2586/1986
1. Two sugar mill companies have filed these writ petitions challenging the constitutional validity of an Order dated 28.3.1985 issued by the Respondent No.1 Union of India, in the Ministry of Food and Civil Supplies (Department of Food) under Section 3(3C) of the Essential Commodities Act, 1955 (EC Act) by which the Sugar (Price Determination for 1984-85 Production) Second Amendment Order, 1985 ('the impugned Order') was made and brought into effect from 1.4.1985.
2. The petitioner in Writ Petition (C) No. 2585 of 1986, Gangeshwar Ltd. manufactures sugar at two factories in Uttar Pradesh - one at Deoband in District Saharanpur and the other at Ramkola in District Deoria. The petitioner in the other Writ Petition (C) No. 2586 of 1986, Mahalakshmi Sugar Mills Co. Ltd. has a sugar factory at Iqbalpur in District Saharanpur, Uttar Pradesh.
3. The main controversy in these proceedings is to the fixation of the price of levy sugar by the impugned Order by the Central Government for the sugar year 1984-1985 under S. 3(3C) of the EC Act. The grievance of the petitioners is that while fixing the price of levy sugar by the impugned Order, the Central Government has not accounted for (i) the liability of sugar manufacturers arising under Clause 5 A of the Sugar Cane (Control) Order 1966 ('Control Order') and (ii) the State Advised Price (SAP) which is the price fixed by the State of U.P. in terms of the U.P Sugarcane (Regulation of Supply and Purchase) Act, 1953 ('U.P. Sugarcane Act 1953') at which the sugar producers, including the petitioners, are required to compulsorily buy cane sugar from the sugarcane growers.
Levy Sugar and Free Sugar under the EC Act
4. Sugar is an essential commodity within the meaning of the EC Act. Under Section 3(1) EC Act, the Central Government can provide for regulating or prohibiting the production, supply and distribution of sugar if it is of the opinion that it is necessary or expedient so to do for maintaining or increasing supplies or securing equitable distribution at fair price of sugar. Under Section 3(2)(f) of the EC Act, the Central Government can require, by an order, 'any person to sell the whole or specified part of the quantity of the essential commodity held in stock or produced or received by him to the Central Government or State Government or an officer/agent nominated by them in this behalf.' This compulsory quota of sugar to be supplied to the Central or State Government is otherwise known as 'levy sugar' and the remaining stock is known as 'free sugar' i.e. free from the compulsion to supply to the Central Government or the State Government under the EC Act. The ratio of levy sugar: free sugar has varied from 60:40 in the past to 65:35 (during the relevant crushing year 1984-85) and has kept fluctuating.
5. Section 3(3C) EC Act specifies the various factors which the Central Government will have to consider while fixing the price that will be payable by it to the sugar producer for the quota of 'levy sugar' in a particular sugar year. Section 3(3C) reads as under:
Section 3(3C): Where any producer is required by an order made with reference to Clause (f) of Sub-section (2) to sell any kind of sugar (whether to the Central Government or a State Government or to an officer or agent of such Government or to any person or class of persons) and either no notification in respect of such sugar has been issued under Sub-section (3A) or any such notification, having been issued, has ceased to remain in force by efflux of time, then, notwithstanding anything contained in Sub-section (3), there shall be paid to that producer an amount thereforee which shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to:
(a)the minimum price, if any, fixed for sugarcane by the Central Government under this Section'
(b)the manufacturing cost of sugar;
(c)the duty or tax, if any, paid or payable thereon; and
(d)the securing of a reasonable return on the capital employed in the business of manufacturing sugar,
and different prices may be determined from time to time for different areas or for different factories or for different kind of sugar.
In other words, Section 3(3C) EC Act requires the following factors to be accounted for by the Central Government while fixing the price of levy sugar:
(a) The minimum price, if any, fixed for the sugarcane by the Central Government as payable by the sugar producer to the cane grower;
(b) The manufacturing cost of sugar;
(c) The duty or tax, if any, paid or payable thereon; and
(d) The securing of a reasonable return on the capital employed in the business of manufacturing sugar.
6. In the exercise of the powers conferred under Section 3 EC Act, the Government of India notified the Sugar Cane (Control) Order, 1966 ('Control Order'). Clauses 3 and 5 A of the said Control Order read as under:
Clause 3: Minimum price of sugarcane payable by producer of sugar:
(1) The Central Government may, after consultation with such authorities, bodies or associations, as it may deem fit, by notification in the official Gazette, from time to time fix the minimum price of sugar to be paid by producers of sugar or their agent for the sugar cane purchased by them, having regard to:
a) the cost of production of sugarcane;
b) the return to the grower from alternative crops and the general trend of price of agricultural commodities;
c) the availability of sugar to the consumer at a fair price;
d) the price at which sugar produced from sugarcane is sold by producers of sugar; and
e) the recovery of sugar from sugarcane.
Provided the Central Government or, with the approval of the Central Government, the State Government, may in such circumstances and subject to such conditions as it may specify allow a suitable rebate in the price as fixed.
Clause 5A Additional price for sugar cane purchased on or after 1st October 1974:
(1) Where a producer for sugar or his agent purchases sugar cane, from a sugarcane grower during each sugar year, he shall, in addition to the minimum sugarcane price fixed under Clause 3, pay to the sugarcane grower an additional price, if found due, in accordance with the provisions of the second Schedule annexed to this Order.
(2) The Central Government or the State Government, as the case may be, may authorize any person or authority, as it thinks fit, for the purchase of sugar under Sub-clause (1) and the person or authority, as the case may be who determine the additional price, shall intimate the same in writing to the producer of sugar and the sugarcane grower connected with the supply of sugarcane to such producer of sugar.
(3) (a) Any producer of sugar or sugarcane grower, who is aggrieved by the decision of the person or authority referred to in Sub-clause (2), may, within thirty days from the date of communication of such decision under that Sub-clause, appeal to the Central Government or the State Government, as the case may be.
(b) The Central Government or the State Government as the case may be, may, after giving an opportunity to the appellant to represent his case and after making such further enquiry as may be necessary, pass such order as it thinks fit.
(c) The decision of the person or authority referred in Sub-clause (2) where no appeal is filed, and of the Central Government or State Government as the case may be, where an appeal is filed, shall be final.
(4) The additional price determined under Sub-clause (2) or Sub-clause (3) as the case may be, shall be paid by the producer of sugar to the sugarcane grower, at such time and in such manner as the Central Government or the State Government, as the case may be, from time to time, direct.
(5) No additional price determined under Sub-clause (2) or Sub-clause (3), as the case may be, shall become payable by a producer of sugar who pays a price higher than the minimum sugarcane price fixed under Clause 3 to the sugarcane grower.
Provided that the price so paid shall in no case be less than the total price comprising the minimum sugarcane price fixed under Clause 3 and the additional price fixed determined under Sub-clause (2) or Sub-clause (3), as the case may be.
(6) Where any extra price is paid by the producer of sugar to the sugarcane grower for the supply of sugarcane in addition to the minimum sugarcane price fixed under Clause 3, the extra price so paid shall be adjusted against the additional sugarcane price determined under Sub-clause (2) or Sub-clause (3), as the case may be, and the balance, if any, shall be paid to the sugarcane grower.
(7) ** Subject to the provisions of Sub-clause (4), the additional price shall become payable to a sugarcane grower, if he, in performance of his agreement with a producer of sugar, supplies no less than 85% of the sugarcane so agreed:
* Provided that the Central Government or the State Government as the case may be, may if it is satisfied that the appellant had sufficient cause for not preferring the appeal within a further period of thirty days, admit if presented within a further period of fifteen days.
** Provided that the additional price shall become payable to a sugar grower even when he supplies less than 85% of the sugarcane so agreed, if for the same supply he has not been subjected to any penalty by or under any Central or State Act or any rules or orders made there under for his failure to supply 85% of sugarcane so agreed.
(8) When the additional price determined under Sub-clause (3) or Sub-clause (2), as the case may be, is paid to a sugarcane grower's cooperative society or the local sugarcane grower's association of whatever name it may be called, it shall disperse the said additional price to such of its member who had supplied not less than 85% of the agreed sugarcane in performance of his agreement with it, within one month of the receipt of such additional price by it from the producer of sugar.
(9) The additional price payable but not actually paid in view of Sub-clause (7) shall be added to the amount found payable for the following sugar year arrived at as per provisions of the Second Schedule.
7. The minimum prices fixed by the Central Government under Clause 3 of the Control Order, for payment by the sugar producers to the sugarcane growers, is also referred to as the Statutory Minimum Price (SMP). This SMP is taken into account by the Central Government under Section 3(3C) EC Act while determining the price of levy sugar purchased by it from the sugar producer. Clause 5-A which was introduced in the Control Order with effect from 1.10.1974 provides that apart from the SMP payable by the sugar producers to the sugarcane growers, an additional cane price also be paid to the sugar cane growers. This clause gives effect to the 'Bhargava Share' (as recommended by the Sugar Industry Inquiry Commission otherwise known as the Bhargava Commission). This contemplates a sharing, on a 50:50 basis between the sugar producer and cane grower, of the excess sale proceeds realized from the sale of the free sugar. The Second Schedule to the Control Order sets out the formula by which the additional price payable will be determined. The idea behind inserting Clause 5 A was to enable the sugar producer to retain 50% of the excess sale proceeds of the free sugar while paying the balance 50% to the cane grower. Prior to this, while fixing the price of levy sugar, the entire realization of excess sale proceeds from the sale of free sugar was being taken into account (this is otherwise known as 'mopping up'). With the introduction of Clause 5 A the mopping up was expected to be restricted to 50% of the realization of the excess sale proceeds.
8. The sugar producers in the State of Uttar Pradesh are also required to pay the sugarcane growers the State Advised Price (SAP) fixed by the State of U.P. under the U.P. Sugarcane Act 1953 for the sugarcane purchased by them. According to the petitioners this SAP is higher than the combination of the SMP and the additional price under Clause 5A of the Control Order. Many sugar mills, like the petitioners herein, have had to borrow loans to discharge this additional liability. However, the SAP is not enumerated as one of the factors required to be considered by the Central government while fixing the price of levy sugar under Section 3(3C) of the EC Act.
Pleadings
9.1 The petitioner in Writ Petition (C) 2585 of 1986 (Gangeshwar Limited) has pointed out that in its case, the SMP fixed by the Central Government for the sugar season 1984-1985 was Rs.15.96 per quintal for West Uttar Pradesh and Rs.15.37 per quintal for East Uttar Pradesh. The SAP which the petitioner was compelled to pay the sugarcane growers by the State of Uttar Pradesh was Rs.22/- per quintal for its Deoband unit and Rs.21/- per quintal for its Ramkola unit. Thus, the difference was Rs.6.04 per quintal for Western Zone and Rs.5.63 per quintal for Eastern Zone. The petitioner borrowed loans from the State of U.P. to make the payment of the SAP.
9.2. The prayer in WP 2585 of 1986 is that this Court should declare that the impugned Order is contrary to Section 3(3C) EC Act and be struck down as such and that a mandamus should issue to the central government to fix the price of levy sugar in accordance with that provision. Alternatively, it is prayed that the Court should issue a direction that the difference between the SAP fixed by the State of U.P and the sum of the SMP and additional price (under Clause 5 A of the Control Order) is the liability of the State of U.P. and the said sum should be paid by the State of U.P to the bankers of the petitioner to extinguish the petitioner's working capital loans and the balance if any utilised to extinguish the loans taken by the petitioner from the State of U.P.
9.3. It may be mentioned here that during the pendency of this petition, the Cane Commissioner, U.P sent letters dated 23.4.1991 to the petitioner seeking to recover the loan amounts. On an application filed by the petitioner, this Court by an interim order dated 18.7.1991 stayed the recovery. Later on 28.7.2000 a certificate for recovery of Rs.78,62,366 and interest was issued to the petitioner's Ramkola unit and on July 31, 2000 a certificate for the recovery of Rs. 68,78,833 and interest was issued to its Deoband unit. Both these recovery certificates were stayed by an interim order dated 3.8.2000 passed by this Court.
10. Mahalakshmi Sugar Mills' petition [W.P. (C) No. 2586 of 1986] is on the same lines as the one filed by Gangeshwar Limited. In this petition it is pointed out that this petitioner never ever paid the SAP fixed by the State of U.P. and that loans had to be borrowed from the State of U.P. or through banks to make the payment of SAP to the cane growers. Thus it is an admitted position that the petitioner owes in excess of Rs. 1.07 crores to the State of U.P. for which recovery proceedings are pending and have been stayed by this Court by Orders dated 18.7.1991, 3.3.1998 and 31.7.2000 subject to the condition that the petitioner shall not alienate any part of its fixed assets till further orders.
11.1 The respondent Union of India initially filed a counter affidavit in Writ Petition (C) 2585 of 1986 way back on 4.3.1987. Subsequently a separate counter affidavit dated 16.10.2001 was filed on behalf of the Union of India in the connected Writ Petition (C) 2586 of 1986. The stand of the respondents in the subsequent counter affidavit is that in Shri Malaprabha Co-op. Sugar Factory Limited v. Union of India : AIR1994SC1311 (Malaprabha I) the Hon'ble Supreme Court dealt with the levy sugar price notification for the six sugar seasons 1974-75 to 1979-80. It was held that the price of levy sugar would have to account for the additional price payable in terms of Clause 5 A of the Control Order. The re-fixation by the central government of the price of levy sugar for these sugar seasons pursuant to Malaprabha I was again challenged by way of contempt petitions. These were disposed of by an order dated 28.1.1997 in Shri Malaprabha Co-op. Sugar Factory Limited v. Union of India : [1997]1SCR641 (Malaprabha II) and the earlier directions in Malaprabha I were reiterated. Thereafter the contempt petition for non-implementation of Malaprabha II was filed and this was dismissed on 16.11.2000 by the Hon'ble Supreme Court after having been satisfied with the directions given in Malaprabha II have been complied with.
11.2 As regards the levy sugar prices for the sugar season 1982-83, it is pointed out that the Hon'ble Supreme Court upheld the same by an order dated 20.2.1996 in T.C. No. 9 of 1990 (Modi Industries Limited v. Union of India (1999) 9 SCC 246. In doing so, the Supreme Court accepted the affidavit of the central government which stated that the price of levy sugar for the 1982-1983 season had been fixed without accounting for the additional price under Clause 5 A of the Control Order and that thereforee the case was not governed by Malaprabha I. It is further pointed out that the order in Modi Industries has been followed in other cases involving a challenge to the price of levy sugar for the sugar season 1982-1983. The price of levy sugar for the sugar season 1985-1986 was fixed on the same basis and has been upheld by the Hon'ble Supreme Court in The Godavari Sugar Mills Limited v. Union of India JT 2001 (10) SC 527.
12. In para 5 of the counter affidavit dated 16.10.2001 (filed in WP(C) 2586 of 1986), it has been stated: 'the price of the levy sugar is not determined arbitrarily but in accordance with the principles prescribed in the law.' Further in para 16 it is stated:
16.That as stated in para 5, levy sugar prices for 1984-85 sugar season have been determined strictly under provisions of Section 3(3C) of the Essential Commodities Act, 1955. In fixation of levy sugar price for 1984-85 sugar season, Government has taken into account only SMP of sugarcane as in Section 3(3C)(a) of the Essential Commodities Act, 1955 and the additional cane price payable under Clause 5-A of the Sugarcane (Control) Order, 1966 has not been taken into account as also there has been no mopping up of excess realization. As such, the fixation of levy sugar price for 1984-85 sugar season is in accordance with the provisions of the Essential Commodities Act, 1955.
Thus the respondents have made a specific averment that 'there has been no mopping up of excess realization' and further that 'the additional cane price payable under Clause 5-A of the Control Order has not been taken into account.' This is similar to the stand taken by the Union of India before the Hon'ble Supreme Court in Modi Industries Limited for the season 1982-83, which affidavit was accepted and acted upon by the Hon'ble Supreme Court.
13. Further, in the counter affidavit, a reference has been made to the judgment dated 7.10.1986 of the Bombay High Court dismissing a batch of writ petitions challenging the levy sugar price for 1984-85 (The Pravara Sahakari Sakhar Karkhana Limited v. Union of India). A reference has also made to another judgment dated 4.7.2000 of the Aurangabad Bench of the Hon'ble Bombay High Court in Writ Petition No. 140 of 1989 (Madhukar Sahakari Sakhar Karkhana Limited v. Union of India) where again challenge to the 1984-85 sugar price was rejected.
14. The rejoinder by the petitioner in WP(C) 2586 of 1986 (Mahalakshmi Sugar Mills) is instructive. It is stated that since the present writ petition pertains to the price of levy sugar for the sugar season 1984-85, it is not covered by the aforesaid judgments in Modi Industries Limited and Godavari Sugar Mills Limited which relate to the years 1982-83 and 1985-86 respectively. As regards the judgment dated 4.7.2000 of the Aurangabad Bench of the Bombay High Court, it is stated that 'a plain reading of the said judgment reveals that the same pertains to the claim of differential price computed on the basis of subsequent notification dated 28.3.1985, whereas the petitioner's mill was paid as per notification dated 31.1.1985.' A reference has been made to the judgment of the Hon'ble Supreme Court in U.P. Co-operative Cane Unions Federations v. West U.P. Sugar Mills Association : AIR2004SC3697 . It is contended the Hon'ble Supreme Court in the said judgment held that 'while fixing the price of levy sugar, State Advisory Price as fixed by the State Government may be considered along with other factors enumerated in Section 3(3C) of the Act.' It is then submitted as under:
That as per respondent while fixing the levy sugar price at Rs.363.47 per quintal, the cost of cane has been taken @ Rs.15.84 whereas the State Advisory Price is Rs.22.00, which was actually paid by the petitioner company. If the SAP is considered, the levy price is liable to be recomputed and the petitioner is entitled to differential claim.
15. Significantly, in its rejoinder the petitioner (Mahalakshmi Sugar Mills) has not denied the assertion made in the counter affidavit in para 5 and 16 extracted above. In the para-wise rejoinder, it is stated: 'the contents of para 1 to 6 of the counter affidavit need no rejoinder.' Likewise, in reply to paras 16 and 17 it is simply stated: 'the contents of para 16 to 17 of the counter affidavit need no response.' It is further generally stated in para B of the rejoinder that 'the respondents have tried to justify the correctness of the price fixed in the said notification by simply referring to the affidavit(s) filed by the respondents in various matters confirming that the price has been determined strictly in accordance with the Section 3(3C) of the Essential Commodities Act, 1955.'
16. It may be noticed that the learned Senior counsel for the petitioner Mahalakshmi Sugar Mills made a submission which is recorded in the order dated 18.12.2001 as under:
Mr.S.N. Kumar, Senior Advocate appearing for the petitioners fairly conceded that so far as fixation of levy price of the sugar by the central government is concerned that is a covered matter, thereforee, he is not pressing that relief. So far as the question of the order passed y the State of U.P. is concerned, he seeks time to address the arguments. On his request, adjourned to 19th February, 2002.
17. This was further confirmed by the petitioner in an application (C.M. 9727/2003) seeking restoration of the writ petition where it was stated in para 2 that 'during the pendency of the above petition, similar question with regard to fixation of levy sugar price by the central government came up for consideration before the Hon'ble Supreme Court of India in another matter and the Hon'ble Supreme Court was pleased to uphold the order of the Central government regarding the fixation of levy sugar price.' In para 3 of this application it was explained that this was the reason for the Senior Counsel for the petitioner making the statement recorded in the order dated 18.12.2001 of this Court.
18. thereforee, as far as Mahalakshmi Sugar Mills is concerned, the main relief sought for in the petition concerning the impugned Order of the Central government is no longer pressed. The only issue is with regard to the SAP fixed by the State of U.P. and whether the State of U.P should be directed to undertake the liability of the difference between the SAP and the combination of the SMP and additional price.
Submissions of Counsel
19. We have heard the submissions of Mr. Sanjeev Anand, learned Counsel appearing for the petitioner in WP(C) 2585/1986 (Gangeshwar Limited) and Mr. S.N. Kumar, learned senior counsel appearing for the petitioner in WP(C) 2586/1986(Mahalakshmi Sugar Mills). We have also heard the submissions of Mr. Suresh Kait, learned Counsel for the Union of India and Ms. Faizani Hussain learned Counsel for the State of U.P.
20. The first submission of Mr.Sanjeev Anand is that the impugned Order fixing the price of levy sugar for the sugar season 1984-1985 does not take into account the liability of the manufacturers (sugar producers) for paying the additional price to the sugarcane growers in terms of Clause 5A of the Control Order. It is contended that the issue is fully covered in favor of the petitioners by the orders in Malaprabha I and Malaprabha II. The second contention is that on the lines of Malaprabha I the central government should be directed to also account for the SAP fixed by the State of U.P. while fixing the price of levy sugar under S. 3(3C) EC Act. In support of this, reliance is placed on the recent judgment of the Constitution Bench of the Hon'ble Supreme Court in U.P. Co-operative Cane Unions Federations. Although the learned Senior Counsel for Mahalakshmi Sugars, Mr. S.N.Kumar had conceded before this Court at the hearing on 18.12.2001 that he was no longer challenging the impugned Order but only the validity of the SAP fixed by the State of U.P., we proceed to nevertheless deal with the former issue as it has been extensively argued by the counsel for petitioner in WP 2585 of 1986 (Gangeshwar Ltd.).
21. On the other hand, the learned Counsel for the respondents submits that the decision in Malaprabha I would not apply. He submits that the price of levy sugar for the sugar season 1984-85 would be covered by the judgment of the Hon'ble Supreme Court in Modi Industries in which the Court has accepted the stand of the respondent that there has been no mopping up of the excess realization of sugar. It is further contended that S. 3(3C) EC Act does not envisage accounting for the SAP fixed by the state governments and further that the judgment in U.P. Co-operative Cane Unions Federations does not help the case of the petitioners in this regard.
22. The petitioner in WP (C) 2585/1986 (Gangeshwar Limited) has filed written submissions reiterating that the question of the validity of the impugned Order stands fully covered in its favor by Malaprabha I and Malaprabha II and that the petitioner is confining its submissions 'only to the directions given by the Hon'ble Supreme Court with respect to Clause 5-A and the Constitution Bench judgment of the Hon'ble Supreme Court in U.P. Co-operative Cane Unions Federations.'
Issues arising for consideration
23. The issues arising for consideration in these writ petitions are:
(a) Whether, in view of the judgments of the Hon'ble Supreme Court in Malaprabha I and Malaprabha II, the impugned Order of the central government fixing the price of levy sugar for 1984-1985 is liable to be struck down inasmuch as it admittedly in does not account for the additional price payable by the sugar manufacturer under Clause 5 A of the Control Order?
(b) Is the central government, while fixing the price of levy sugar under S. 3(3C) EC Act, liable to account for the SAP fixed by the State of U.P. and mandatorily required to be paid by the sugar manufacturer to the sugarcane grower?
(c) Is the State of U.P. liable to bear the liability arising out of the difference between the SAP and the combination of the SMP and the additional price?
Re: Issue (a)
24. Although with effect from 1.10.1974, as per Clause 5A of the Control Order, an additional price was payable to the sugarcane growers by the sugar manufacturers, the Central Government while fixing the price for the years 1974-1975 to 1979-1980 did not account for this while fixing the price of levy sugar under Section 3(3C) EC Act. The Central Government took the stand that Section 3(3C) EC Act contemplated only accounting for the SMP fixed by it in terms of Clause 3 of the Control Order and not the additional price payable under Clause 5 A. This issue came up for determination before the Hon'ble Supreme Court in Malaprabha I.
25. After referring to the judgment of the Constitution Bench of the Hon'ble Supreme Court in Shri Sitaram Sugar Co. Limited v. Union of India : [1990]1SCR909 (which was silent on the impact of Clause 5-A of the Control Order on the price of levy sugar), the Court in Malaprabha I noted that the additional price payable by the sugar producer to the cane grower under Clause 5 A of the Control Order would have to be reckoned on the price to be fixed for the levy sugar in terms of S. 3(3C) of the EC Act. This was relatable to the `A' factor (the minimum price payable as determined by the central government) and 'B' factor (cost of production of sugar) which have been identified as such in S. 3(3C) EC Act. However, it was clarified in para 104 that: 'it is true that Clause 5-A deals with additional price payable to the sugarcane grower. However, if the recommendations made by the Bhargava Commission and the method of computation are taken into consideration it will be clear that the producer of sugar will be entitled to retain an amount equivalent to the amount paid to the cane grower under Clause 5-A. That amount cannot be taken into consideration for determination of the price of levy sugar.'
26. The three-judge bench of the Hon'ble Supreme Court in Malaprabha I negatived the stand of the central government that the additional price payable under Clause 5 A of the Control Order had no bearing on the price to be fixed for the levy sugar under S. 3(3C) EC Act. It held (SCC, p. 679):
108. We are unable to agree with the submissions advanced on behalf of the Government that Clause 5-A deals only with the amount payable to the cane grower and that it cannot have any relevance for determination of levy sugar. If the determination of minimum price of sugar and fixation of the price of levy sugar under quantity of sugar to be supplied by the producer are inter connected, then they must be read as a whole and not separately as though each is distinct. While fixing the price of levy sugar regard is had only to the minimum cane price as spoken to under Section 3(3C)(a). This minimum cane price is referable to Clause (3) of Sugarcane (Control) Order. The additional price payable to the cane grower under Clause 5-A will arise after the expiry of the sugar year. Sugar price will have to be met only from the extra realisation made by the producer by the sale of sugar in free market which will naturally be more than the levy price.
27. Significantly in para 94 of the judgment the Hon'ble Supreme Court noted the contention of the counsel for the sugar producers that: 'In the notifications issued for the sugar years 1974-75 to 1979-80 the Government had admitted mopping up 100 per cent excess realization on sale of free sugar. This clearly overlooks the fact that the sugar producer had become statutorily entitled to 50 per cent of such excess realization from October 1, 1974.' This was accepted by the Court in para 107 of the judgment. Ultimately in para 109 a direction was issued to the central government to amend the notifications for the said sugar years 'taking into account the liability of the manufacturers under Clause 5 A of the Sugarcane (Control) Order and refix the price of levy sugar having regard to the factors mentioned in S. 3(3C) EC Act.' Thereafter the Union of India filed a review petition which came to be dismissed.
28. Meanwhile the challenge to the central government notification fixing the price of levy sugar for 1982-1983 came up for consideration before a three judge bench of the Hon'ble Supreme Court in Modi Industries Limited. The notification was upheld by an Order dated 20.2.1996, which reads as under:
1. In compliance with our order dated 30-1-1996, an additional affidavit on behalf of the Union of India has been filed by Shri Deepak Khandekar, Deputy Secretary to the Government of India. In the additional affidavit, it has been expressly stated that while determining the minimum cane price of levy sugar regard has been had only to the minimum cane price as spoken to in Section 3(3C)(a) of the Essential Commodities Act, 1955 and the additional cane price payable under Clause 5-A of the Sugar (Control) Order, 1966, has not been taken into account, and that also there has been no mopping up of excess realisation on levy-free sale sugar while fixing the price of levy sugar for the season 1982-83.
2. In view of the above further statement made in the additional affidavit filed on behalf of the Union of India, we are satisfied that this matter is not covered by the decision of this Court in Shri Malaprabha Coop. Sugar Factory Ltd. v. Union of India. Accordingly, the transferred case is dismissed. No costs.
29. Thus the Hon'ble Supreme Court in Modi Industries accepted the stand of the Central Government that where 'there has been no mopping up of excess realisation on levy-free sale sugar while fixing the price of levy sugar' the judgment in Malaprabha I would not apply. What is also significant is that the central government categorically stated on affidavit that while fixing the price of levy sugar for the 1982-1983 season the additional cane price in terms of Clause 5 A of the Control Order 'has not been taken into account' and this was accepted by the Hon'ble Supreme Court while upholding the validity of the notification for that year.
30. Meanwhile, in respect of the sugar seasons 1974-1975 to 1979-1980, the central government purported to re-fix the price following Malaprabha I. However, the sugar producers filed contempt petitions in the Hon'ble Supreme Court contending that the re-fixed price still did not account for the additional price paid to the sugarcane growers in terms of Clause 5-A of the Control Order. By its Order dated 28.1.1997, the Hon'ble Supreme Court in Malaprabha II explained the purport of Malaprabha I as under (SCC paras 7,8,and 11):
7. This Court rejected the contention that Section 3(3C) and Clause 5-A are totally independent and held that 'if the determination of minimum price of sugar and fixation of the price of levy sugar under quantity of sugar to be supplied by the producer are interconnected, then they must be read as a whole and not separately as though each is distinct'. With respect to mopping up of extra realisation on sale of free sugar for the purpose of determining price of levy sugar this Court held that according to the new pricing policy containing in Clause 5-A the producer became entitled to 50% of such excess realisation from 1-10-1974 and, thereforee, it was not open to the Government to mop up his share also while fixing the price of levy sugar. We need not refer to this aspect of mopping up further because that is really not relevant for deciding these applications. We may only state that under Factor 'D' of Section 3(3C) extra realisation on sale of levy-free sugar is a relevant consideration and, thereforee, the Government can take it into account to enable it to fix levy price at a lower level. As explained by this Court in that judgment the effect of mopping up is to depress or reduce the levy sugar price
8. This Court construed Clause 5A as introducing a new pricing policy which conferred a benefit on the producer by providing that he shall be entitled to retain 50% of the extra realization from sale of levy free sugar. At the same time, it created a new liability for him by providing that he shall share the extra realization from sale of levy free sugar with the cane grower on 50:50 basis. In view of this new liability this Court held that the Government was bound to take that also into account while fixing the price of levy sugar, without specifying as to whether that liability became a component of Factor 'A' or Factor 'B' or both those Factors of Section 3(3C).
31. The Court then dealt with the submission of the central government that 'it is also not feasible to include the additional cane price payable under Clause 5-A in the minimum cane price payable under Section 3(3C) as the two exercises are required to be done at two different stages and the additional cane price is payable only in case of surplus.' This was answered by observing:
11. All these contentions except the last one were raised by the respondents earlier while the above batch of matters, the review applications and the applications for clarification were heard by this Court. All those contentions have been rejected, and thereforee, it is really not open to the respondents to raise them again. It appears to us that the respondents, like an ordinary litigant, are trying to find excuses for not complying with the judgment of this Court merely because it is not palatable to them. The direction given by this Court in Paragraph 109 of the judgment is quite clear and does not lend itself to two interpretations or any confusion as contended by the respondents. In unambiguous terms this Court has directed the Government of India to take into account the liability of the manufacturer under Clause 5A of the 1966 Order as regards cane price and re-fix the price of levy sugar. Obviously the price of levy sugar has to be fixed having regard to the Factors mentioned in Section 3(3C) of the Act and, thereforee, this Court while giving the aforesaid direction also directed them to re-fix the price of levy sugar having regard to those Factors also. The doubt or confusion, if any, appears to us to be the result of unwillingness of the Government to give up its views and accept and implement the decision of this Court.
32. In Malaprabha II, the Hon'ble Supreme Court also clarified that the observation in para 104 of Malaprabha I was made in the context of 'mopping up of the extra realization' which was an 'entirely different aspect'. It was further observed as under:
The observation which is made in paragraph 109 and the direction given therein is with respect to the aspect of sugar producer's liability to pay additional sugarcane price. Clause 5A being inter-connected with Section 3(3C), this new liability would certainly yet projected into Factors 'A' and 'B' of Section 3(3C). As earlier pointed out mopping up of extra realization is an element of Factor 'D' of Section 3(3C). Thus the contentions raised on behalf of the respondents even otherwise also do not deserve to be accepted.
33. The attention of the Bench in Malaprabha II was drawn to the order dated 20.2.1996 of the three-judge Bench in Modi Industries. In para 13 of its judgment the Bench in Malaprabha II observed that that Modi Industries was in respect of levy sugar price for the year 1982-83 and, 'therefore, it cannot have any bearing on the fixation of price of levy sugar for the years 1975-76 to 1979-80.' It also noticed that the Modi Industries Bench had distinguished Malaprabha I. This would imply that even the Malaprabha II bench was of the view that the ratio of Malaprabha I would be applicable only to the sugar years 1974-1975 to 1979-1980. It appears that all of its observations were only in the context of these years and not the subsequent ones.
34. Following Modi Industries Limited in Bharat Sugar Mills Limited and Anr. v. Union of India (1999) 9 SCC 246, which was decided on 19.8.1998, the Hon'ble Supreme Court again dismissed a set of transferred cases which pertained to the price of levy sugar for the year 1982-83. Likewise in Union of India v. Triveni Engineering Works Limited and Ors. : (1999)9SCC244 , which was gain the case of fixation of price of levy sugar for the year 1982-83, the Hon'ble Supreme Court passed an order dated 2.2.1999 following the earlier orders in Modi Industries Limited and Bharat Sugar Mills Limited.
35. In The Godavari Sugar Mills Limited v. Union of India JT 2001 (10) SC 527 the Hon'ble Supreme Court was concerned with the price of levy sugar for the year 1985-86. The appellant, had first challenged the price fixed for the crushing year 1985-86 before the Katakana High Court and after that challenge failed, approached the Hon'ble Supreme Court. While the appeal was pending, in view of the decision in Malaprabha-I, the appellant sought to amend the pleadings and pray for fixation of the price by taking into consideration the additional price paid by the appellant to the sugarcane growers. However, the Hon'ble Supreme Court did not permit the amendment in view of the long pendency of the matter and the consequent administrative burden that may be imposed on the State if such amendments were permitted. The appeal of the sugar producers was dismissed and the price of levy sugar for the crushing year 1985-86 was upheld.
36. The position emerging from the above discussion may be summarized:
(i)The judgment of the three-judge Bench of the Hon'ble Supreme Court in Malaprabha I upheld the contention of the sugar producers that the price of levy sugar fixed by the central government under S. 3(3C) EC Act for the years 1974-1975 to 1979-1980 would have to account for the additional price payable in terms of Clause 5A of the Control Order. The Court rejected the contention that Section 3(3C) and Clause 5-A are totally independent and held that 'if the determination of minimum price of sugar and fixation of the price of levy sugar under quantity of sugar to be supplied by the producer are interconnected, then they must be read as a whole and not separately as though each is distinct'.
(ii)The Court acknowledged that according to the new pricing policy containing in Clause 5-A the producer became entitled to 50% of such excess realisation from 1-10-1974 and, thereforee, it was not open to the Government to mop up his share also while fixing the price of levy sugar
(iii)The Malaprabha II Bench while reiterating the judgment in Malaprabha I further clarified that under Factor 'D' of S. 3(3C), extra realisation on sale of levy-free sugar is a relevant consideration and, thereforee, the Government can take it into account to fix levy price at a lower level; the effect of mopping up was to depress or reduce the levy sugar price.
(iv)In Modi Industries a co-ordinate Bench of three judges of the Hon'ble Supreme Court declined to follow Malaprabha I when the central government informed the Court on affidavit that in fixing the price of levy sugar for the sugar season 1982-83, the additional price under Clause 5 A had not been taken into account and further that there had been no mopping up.
(v)In the central government's understanding, the excess realisation (relevant for Factor D) which was unfavorable to the sugar producer (since it could be taken into account for depressing the levy price) cancelled out the favorable factor, viz., the additional price payable by the sugar producer to the cane grower under Clause 5 A which had to be necessarily accounted for in fixing the levy price. thereforee, where neither the additional price had been accounted for nor there had been any mopping up of excess realization, the ratio of Malaprabha I would not apply. Clearly, Modi Industries accepted this stand and upheld the fixation of the price of levy sugar for 1982-83. Further Benches of the Hon'ble Supreme Court in Bharat Sugar Mills Limited and Triveni Engg. Works also followed this approach.
(vi)When the attention of the Bench in Malaprabha II was drawn to Modi Industries, it merely said that the latter decision applied to a different sugar year, thus impliedly limiting the ratio of Malaprabha I to the sugar years 1974-75 to 1979-80.
37. Reverting to the present cases, the question is whether the ratio of Malaprabha I would apply or should these cases be decided on the lines of Modi Industries? The factual position requires to be recapitulated. As already noted the central government in para 16 of its counter affidavit has claimed that the impugned Order does not account for the additional price and further that there was no mopping up of excess realization of the proceeds of the free sugar. In other words, this stand is identical to the stand of the government in the Modi Industries case. The rejoinder filed by the petitioner Mahalakshmi Sugar Mills to this counter affidavit does not deny this factual position at all. As already noted in para 15 above, in the para-wise rejoinder, it is simply stated: 'the contents of para 16 to 17 of the counter affidavit need no response.' Thus, in fact, the petitioner has no answer as to why Modi Industries should not followed since the factual position here is more or less similar to the position there.
38. thereforee, we are unable to agree with the submissions on behalf of the learned Counsel for the petitioners that the central government was obliged to follow Malaprabha-I as explained and reiterated in Malaprabha-II while fixing the price of levy sugar for the sugar year 1984-85 and that the impugned Order should be struck down on that ground. Issue (a) is accordingly answered in the negative and against the petitioners.
Re: Issue (b)
39. The next issue arising for consideration is whether the central government should, while fixing the price of levy sugar under S. 3(3C) EC Act, also account for the SAP fixed by the State of U.P. under the U.P. Sugarcane Act, 1953. A plain reading of S. 3(3C) shows that the SAP is not one of the enumerated factors and is certainly not within the purview of Factor A since that envisages the minimum price fixed by the central government whereas SAP plainly is not. We also do not see how it can be brought under Factor B either. The contention of the petitioners that the SAP should be treated in like manner as the additional price also cannot hold any longer in view of what we have held in answer to Issue (a) above.
40. Since the petitioners have relied upon the recent judgment of the Constitution Bench of the Hon'ble Supreme Court in U.P. Co-operative Cane Unions Federations, we propose to examine that decision in some detail. The challenge in those cases was to the power of the State Government to fix the SAP in terms of the U.P. Sugarcane Act, 1953. The Allahabad High Court had quashed the order of the State of Uttar Pradesh fixing the SAP and the State had filed an appeal before the Hon'ble Supreme Court which was heard along with other appeals from the different States like Bihar and Andhra Pradesh. By a majority of 3:2, the Hon'ble Supreme Court reversed the judgment of the Allahabad High Court and upheld the power of the State Government to fix the SAP. This decision cannot really help the petitioners in the instant case because the issue involved there was not really whether the SAP should be included in the price of levy sugar to be fixed by the central government under Section 3(3C) EC Act. However, the following observations made in the judgment of the majority in this context appear not to support the case of the petitioners (SCC, para 44, p.473):
44. The second reasoning given by the High Court is that even if the State Government had the power to fix the minimum cane price under Section 16 of the 1953 Act, this power came to an end in view of Article 254(1) of the Constitution on the enactment of the EC Act and the promulgation of the Sugarcane (Control) Order, 1955 (later replaced by the 1966 Order), which now gives exclusive power to the Central Government to fix the minimum price. As discussed earlier, we are not in agreement with the aforesaid reasoning as the question of repugnancy does not arise. The High Court has also held that the Central Government, while fixing the price of sugar under Section 3(3C) of the EC Act, takes into consideration the minimum price of sugarcane fixed under the 1966 Order and if the sugar mills are compelled to pay a higher price than that fixed by the Central Government, it will disturb the price of the levy sugar and such an eventuality could not have been contemplated by the legislature. Over a period of time, the quota of levy sugar has gone down from 40 per cent to 10 per cent of the total production of sugar and the sugar mills are now free to sell 90 per cent of their production in open market. Under Section 3(3C) of the EC Act, the Central Government has to determine the price of the levy sugar having regard to several factors enumerated in the Sub-section and the minimum price fixed under the 1966 Order is only one of the factors. The manufacturing cost of sugar and securing of reasonable return on the capital employed in the business of manufacturing sugar are also relevant factors under Clauses (b) and (d) of Section 3(3C) of the EC Act and, thereforee, the fixation of higher price for sugarcane by the State Government by itself cannot have any major or substantial impact on the fixation of the price of the levy sugar by the Central Government.
41. Though the highlighted portion in the above passage may not have directly arisen for consideration, the Hon'ble Supreme Court's observations that 'the fixation of higher price for sugarcane by the State Government by itself cannot have any major or substantial impact on the fixation of the price of the levy sugar by the Central Government' is binding on us and in that view of the matter it has to be held that the central government is not bound to account for the SAP while fixing the price of levy sugar. For the above reasons, we answer issue (b) in the negative and against the petitioners.
Re: Issue (c)
42. As already noted, the Constitution Bench of the Hon'ble Supreme Court has in U.P. Co-operative Cane Unions Federations upheld the fixation of the SAP by the State of U.P. While doing so, the majority negatived the contention of sugar producers in that case (as noted in para 45 SCC) that 'the fixation of higher price by the State Government would seriously affect the economy of the sugar factories inasmuch as the price of the sugarcane is a very major factor and contributes to the extent of 70% of the price of sugar.' It also did not accept the plea of the sugar producers, which is similar to the plea advanced here, that 'any increase in the price of sugarcane by the State Government is bound to result in a serious financial crises for the sugar factories which are already passing through a bad phase and are suffering huge losses.' Since this judgment is squarely in the context of the SAP fixed by the State of U.P., it covers issue (c) against the petitioners.
43. We are, thereforee, unable to agree with the submissions of the learned Counsel for the petitioners that the difference between the SAP fixed by the State of U.P and the sum of the SMP and additional price (under Clause 5 A of the Control Order) is the liability of the State of U.P. and that the said sum should be paid by the State of U.P to the bankers of the petitioner to extinguish the petitioner's working capital loans and the balance if any utilised to extinguish the loans taken by the petitioner from the State of U.P. The fixation of the SAP having been held to be valid, the liability is clearly that of the sugar producer. Issue (c) is also answered in the negative and against the petitioners.
44. In that view of the matter, we find no merit in either of the writ petitions and they are, accordingly, dismissed. The interim orders stand vacated and all applications are disposed of accordingly.