K.L. Mathew and anr. Vs. Union of India (Uoi) and anr. - Court Judgment

Excerpt:
commercial - import - articles 14, 19 (1) and 226 of constitution of india - order refusing allotment of imported raw cashewnuts to petitioners challenged - denial of allotment of imported raw cashewnuts illegal and arbitrary - abuse of exercise of statutory function imposed on respondent under import and export control act and import order - violative of articles 14 and 19 (1) (g) - order refusing allotment liable to be set aside - petition allowed. - - in releasing the imported item the claims of all these actual users will have to be looked into and their demands reasonably or proportionately satisfied with the available stock of the imported item. with the resources in their hands the allottees may very well manage to procure indigenous raw nuts at the risk of the other.....order no. 3/70 new delhi, the 31st august, 1970. in pursuance of the imports (control) order, 1955, the central government hereby makes the following amendment in the open general licence no. lxxxviii published with the government of india, ministry of foreign trade imports (control) order no. 1/70 dated the 31st march, 1970, namely. the following entry may be deemed to have been deleted from the schedule to o. g. l. no. lxxxviii with immediate effect:-- s. no. part of the descriptioni. t. c. schedule of the goods20 iv cashewnutssd/-(r. j. rebello) chief controller of imports & exports' 10. simultaneously, a company called the cashew corporation of india ltd. was formed as a subsidiary to the state trading corporation of india, another private company set up by the government of india.....

Judgment:
ORDER

NO. 3/70

New Delhi, the 31st August, 1970.

In pursuance of the Imports (Control) Order, 1955, the Central Government hereby makes the following amendment in the Open General Licence No. LXXXVIII published with the Government of India, Ministry of Foreign Trade Imports (Control) Order No. 1/70 dated the 31st March, 1970, namely.

The following entry may be deemed to have been deleted from the Schedule to O. G. L. No. LXXXVIII with immediate effect:--

S. No. Part of the Description

I. T. C. Schedule of the goods

20 IV Cashewnuts

Sd/-

(R. J. Rebello) Chief Controller of Imports & Exports'

10. Simultaneously, a company called the Cashew Corporation of India Ltd. was formed as a subsidiary to the State Trading Corporation of India, another private company set up by the Government of India under the Companies Act, 1956. The shares of this subsidiary company are all held by the State Trading Corporation of India Ltd. On forming this company the Government of India, Ministry of Foreign Trade, issued another order dated 31st of August, 1970 by which the import of cashewnuts was canalised throueh the Cashew Corporation of India Ltd. The public notice to this effect published in the Gazette of India is in the following terms:--

'GOVERNMENT OF INDIAMINISTRY OF FOREIGN TRADEIMPORT TRADE CONTROL PUBLIC NOTICE NO. 131-ITC (PN)/70,

New Delhi, the 31st August, 1970. Subject:-- Import of cashewnuts (S. No. 20/IV)

Consequent on the removal of Cashewnuts (S. No. 20/IV) from the O. G. L. No. LXXXVIII vide Ministry of Foreign Trade Import Trade Control Order No. 3/70 dated the 31st August, 1970 it has been decided to canalise with immediate effect the import of Cashewnuts (S. No. 20/IV) through the Cashew Corporation of India Ltd.

Sd/-

(R. J. Rebello) Chief Controller of Imports & Exports'

On taking this decision the import trade control policy in respect of this item was stated in the book Import Trade Control Policy commonly called the 'Red Book' In Section 3 of that Book under the heading 'List of items the import of which is canalised through the State Trading Agencies' cashewnut is included and it is stated against that entry that the Cashew Corporation of India Ltd. will be the canalising agency and the system of licensing will be 'to be released to actual users by the canalising agency'. Clause 53 of the Policy Statement further provides that the canalising agency should apply for bulk allocation of foreign exchange and for imports in order to enable it to organise efficient procurement of imported materials for distribution to actual users. The policy, as I said earlier has been formulated with an emphasis on the need for increased production and exports expansion of opportunity for employment, development of small scale industries, with due regard to the fulfilment of the Government's socio-economic objectives. Along with this policy statement the Government of India, Ministry of Foreign Trade, have also published the Import Trade Control Hand Book which contains the rules and procedure that have to be followed in importing raw materials. Rule 97 prescribes the procedure for allotment of imported materials to actual users by the canalising agency. Sub-rule (5) of Rule 97 provides that the actual users must approach the canalising asencv concernedfor allotment and they have to conform toprocedures if any prescribed by suchagency.

11. From these provisions we have to gather the relationship of the 2nd Respondent company with the Central Government and the functions which they have to carry out in accordance with the policy statement. It will be seen that thp State Trading Corporation Ltd. controls the 2nd Respondent and the former is controlled by the Central Government. Under the Import and Export Control Act and Import Control Order the Government have undertaken to discharge certain duties in the matter of import of cashewnuts and its distribution on withdrawing the Open General Licensing System of import of this commodity. This function which it has to statutorily perform is delegated to the and Respondent as per the order referred to above and also the policy statement mentioned above. So, the 2nd Respondent is in effect discharging or carrying out a governmental function in the matter of import and export of raw cashew-nuts, or in other words, it can rightly be called an agency of the Government. What the Government has to do is done by it through the agency of the 2nd Respondent. So that, in the discharge of this duty of allotment of imported raw cashew-nuts Respondents 1 and 2 have to conform to the Import and Export Control Act, Import Control Order and the Policy Statement. That being so, if there is a violation of the provisions in the discharge of this duty either by the 1st Respondent or its agent the 2nd Respondent, the aft-grieved Person can approach this Court under Article 226 and seek for appropriate directions or orders.

12. The contention that the 2nd Respondent is a company registered under the Companies Act and therefore is not a public authority amenable to the writ jurisdiction is unsustainable in the light of what has been stated above regarding the relationship of the company with the 1st Respondent and the duties which the 1st Respondent has to carry out under the statutory provisions. Though the Cashew Corporation of India Ltd. or for that matter the State Trading Corporation of India Ltd. is a private limited company it does not in any wav affect this question. The administration of the affairs of the Corporation is a concern of the Government of India. The legal and beneficial ownership of the Corporation vests in the Government of India. The character of such companies is described by Martin Wolff (Private International Law, (1945) at page 56) as follows:

'It occurs frequently that a State creates e. g.. for a commercial purpose, a separate legal entity, in law distinct from the State but in fact, if the veil of personality is pierced, identical with it, Examples are ............notably many companies under State control the State possessing all or practically all the shares in that company (See Quotation in AIR 1963 SC 1811 at p. 1835).

This Corporation is performing in the matter of import and allotment a Governmental function under the statute and therefore it is nothing else than an agent of the Govt. Justice Shah in his separate judgment in State Trading Corporation of India v. Commercial Tax Officer (AIR 1963 SC 1811 at p. 1849) at paragraph 115 has thus said:-- 'Where, however, the Corporation is performing in substance governmental, and not commercial functions, an inference that it is an agent of the Government may readily be made.'

13. In the light of what I have said above it is not necessary to go into the question of the applicability of the doctrine of lifting the veil of incorporation to this case. Gajendragadkar, C. J. has in the decision reported in Tata Engineering and Locomotive Co. Ltd. v. State of Bihar (AIR 1965 SC 40) noticed that in course of time the doctrine that the corporation or the company was a legal or a separate entity of its own may be subjected to certain exceptions as a result of the impact of complexity of economic factors and to meet the requirements of different economic problems. The Government cannot set up a separate legal entity, delegate governmental functions to it and then through that separate entity try to escape out of the obligations imposed on it by the statute. The creation of a separate entity may facilitate the carrying out of many of the present day functions of the Government. But one cannot forget that when the rights of individuals are in any way affected or otherwise interfered with in this process the true nature and the character of the function carried out by the legal entity will come UP for scrutiny and if what has been done is really a violation of the statutory obligations, that violation cannot be looked at differently as an action of a non-governmental authority and taken out of judicial review. The question involved in this case is one such governmental action carried out by the Govt. through the 2nd Respondent and a writ will lie under Article 226 of the Constitution. The wording of that Article itself supports my conclusion.

14. The main contention urged on behalf of the petitioners is that the Policy adopted in the allotment of imported raw cashewnuts is highly arbitrary and against the provisions of the Import Control Order and the statement of policy laid down in the Import Control Policy. The Import Control Order. Clause 6 provides for refusal of the issue of a licence to a person to import raw materials if the State decides to canalise the import and distribution of such imported raw material through a specialised agency. On import the imported item has to be distributed to the actual users following certain definite non-discriminatory principles. An actual user may be denied allotment only if he comes under Clause 8 of the Order. The Import Policy Statement provides that the imported cashewnuts will be released to actual users by the canalising agency. It does not allow a picking and choosing of the actual users for distribution. There may be existing actual users or there may be persons who may bona fide reauire the imported raw material for actual use. In releasing the imported item the claims of all these actual users will have to be looked into and their demands reasonably or proportionately satisfied with the available stock of the imported item. A self-imposed restriction by which the distributing agency refuses to consider the claims of bona fide actual users will really be an illegal exercise of the discretion. The factories now owned by the petitioners were existing factories on 1-9-1970. The fact that before 1st September, 1970 these petitioners were not depending on imported nuts will not in any wav make them non-actual users of raw cashewnuts. The rule that imported cashewnuts will be distributed only to those who were importing raw cashewnuts for two years immediately before 1st September, 1970 will be indirectly creating a monopoly in some persons which the Import Trade Policy Statement does not contemplate and statute and orders relevant to this do not envisage. This self-imposed rule is really arbitrary and is not warranted by the Import Control Order or the Policy Statement laid down by the Government in the matter of import of raw cashewnuts. Therefore. Respondents 1 and 2 were not justified in restricting the allotment of imported raw cashewnuts to only those persons who were importing raw cashewnuts for two years immediately preceding 1st September, 1970.

15. This decision to allot imported raw cashewnuts to only those who were importing them before 1st September, 1970 has another adverse effect on those who do not come under that category. The cashew industry depends largely on imported raw nuts. The above set of persons who are eligible for this allotment are required to procure certain quantity of indigenous raw cashewnuts, process and export them and such quantity must be more or less equal to 20 per cent of the allotted imported nuts. This means these allottees are getting a monopoly in the matter of allotment of imported nuts and they are required to compete with other processins units depending onlv on indigenous raw cashewnuts. With the resources in their hands the allottees may very well manage to procure indigenous raw nuts at the risk of the other processing units depending solelv on them. That means the other processing units are denied imported raw cashewnuts and at the same time they are asked to face a keen competition in the purchase of indigenous raw nuts. That means they are faced with a very severe strain to carry on the cashew business by the Policy of allotment adopted by Respondents 1 and 2. Very soon this industry will become the monopoly of the existing allottees. This will be the result of the arbitrary fixation of a rule that imported raw nuts will be allotted only to those who were importing them for two years immediately preceding 1st September, 1970.

16. That Respondents 1 and 2 themselves are not following the rule is clear from what has been done by them after 1st Sept., 1970, Kerala Government have set up a Corporation called the 'Kerala State Cashew Development Corporation Ltd.' and this company has taken over some of the factories previously owned or managed by private individuals. Many factories were closed down on account of the vicissitudes in the trade and labour situation after 1964 and 1965. This company owned by the Kerala Government requires imported raw cashewnut for processing in the factories managed by it. This company came into being onlv after 1970 and if the self-imposed rule laid down by the 2nd Respondent is followed the company is not entitled to allotment of raw cashewnuts. But it is conceded that this company has been allotted imported raw cashewnuts. Whatever may be the reasons which they have put forward in the counter-affidavit to justify this allotment, it is not consistent with their stand that those who were not depending on imported raw cashewnuts before 1st September, 1970 are not eligible for allotment of imported cashewnuts. This action of the 2nd Respondent is ureed by the petitioners to show that this self-imposed rule is really arbitrary and never intended to be followed uniformly to all those who applied for allotment of imported cashewnuts. There is much force in this contention. Again, the 2nd Respondent has admitted in the counter-affidavit and the petitioners rely on them, that they have begun to make use of some quantity of imported raw cashewnuts for processing in units hired by them or employed by them. As Per the order appointing them as the canalising agency they are to import and distribute. They cannot make use of this facility to make use of these imported cashewnuts for their own use. If they are deemed to be actual users they can also be only reckoned as actual users after 1st September. 1970. So that, in their own case the self-imposed rule is not followed. This is an additional circumstance to show that the rule is arbitrary and is not being followed whenever the 2nd Respondent chooses to think otherwise. In such circumstances, the complaint of the petitioners that this arbitrary rule denying them any allotment of imported raw cashewnuts amounts to a denial of eauality or equal protection by the State and also amounts to an abuse of the exercise of the statutory function imposed on tile 1st Respondent under the Import and Export Control Act and Import Control Order, 1955, is correct.

16. In the result. I allow these original petitions to the extent stated below.

(a) In O. P. No. 3455 of 1972 the orders refusing allotment evidenced by Exts. P1, P6 and P8 are set aside.

(b) In O. P. No. 3457 of 1972 the orders refusing allotment evidenced by Exts. P3. P4, P8 and P9 are set aside.

(c) Respondents 1 and 2 are directed to consider afresh the request made by the petitioners for allotment of imported raw cashewnuts without insisting on their showing import performance before 1-9-1970 and make allotments of imported raw cashewnuts to them subiect to and in accordance with the current policy statement (Red Book) of the Government of India and in the light of the observations made above.

(d) There will be no order as to costs.