23 March 1982
Supreme Court


Case number: Appeal Civil 2288 of 1968








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



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.



    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



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



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



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.



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