http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 13  

PETITIONER: DARUKA & CO.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT31/08/1973

BENCH: SIKRI, S.M. (CJ) BENCH: SIKRI, S.M. (CJ) PALEKAR, D.G. CHANDRACHUD, Y.V. BHAGWATI, P.N. KRISHNAIYER, V.R.

CITATION:  1973 AIR 2711            1974 SCR  (1) 570  1973 SCC  (2) 617  CITATOR INFO :  R          1974 SC 366  (96)  R          1974 SC2349  (10)  RF         1975 SC1564  (28,63)  R          1979 SC 314  (12)  R          1987 SC1794  (22)

ACT: Import  and  Exports  Act 1947-S. 3  read  with  the  Export Control  Order  1968-Export  of Mica  under  the  Scheme  of Canalisation   through  the  Minerals  and  Metals   Trading Corporation  of India Ltd.If violative of Art. 14,  19(1)(g) and 265 of the Constitution of India.

HEADNOTE: S.   3  of  the Imports and Exports Act 1947,  empowers  the Government to issue orders making provisions for prohibiting restricting  or otherwise controlling the imports and  goods of  special description and the Export Control  Order  1968, and  provides  that  no person shall  export  goods  of  the descriptions  specified  in Schedule-I of  the  said  order, except under ’licence granted by the Central Government etc. Mica scrap and Mica waste are included in item No. 22(a)  of Part B of Schedule-1 of the 1968 order.  The export of these items is allowed on merits, or subject to ceilings or  other conditions to be specified, from time to time. The  Controller of Imports and Exports issued  the  impugned notice  and under it, the export of Mica was decided  to  be under  the scheme of canalisation through the  Minerals  and Metals  Trading Corporation of India.  The  impugned  notice further stated that this canalisation of export scheme would be  effective from 24 January, 1972.  With regard  to  cases failing under pre-canalisation commitment category, the Port Licensing  Authorities  might allow export if  the  shipping documents  produced  by the exporters  were  accompanied  by documents showing that the contracts were entered into  with the foreign buyers before January 1972 or telegraphic  offer or acceptance were dated January 1972 and irrevocable Letter of  Credit at site was opened in a Bank of India, or in  the foreign country before the 24 January, 1972.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 13  

The  impugned notice further stated that the  exporters  who wished   to   avail  themselves  of   the   pre-canalisation commitment  category  were to furnish particulars,  such  as name  of  buyers,  quantity, delivery period  etc.,  at  the office of the Controller of Imports and Exports. The Corporation further issued a Press Note prescribing  the procedure to be adopted by the exporters taking recourse  to the  canalisation  scheme.  Further, the  Corporation  would realise  from  the local suppliers as  Service  Charges  not exceeding  I  per  cent of the F.A.S.  value.   The  foreign buyers would have to open unrestricted Letters of Credit  in favour of the Corporation. The  Press Note further stated that where Letters of  Credit had been opened on or after 24th January 1972 in the name of private agencies, foreign buyers would be requested so  that the  Letters of Credit were duly amended in the name of  the Corporation  and  contracts finalised directly  by  shippers were also to be amended in favour of the Corporation for the balance  quantity.The payment due to the suppliers would  be paid by cheque after realising the proceeds of sale from the foreign  buyers, after retaining the marginal I  percent  of the F.A.S. value as Service Charges of the Corporation. Afterwards,  on representation from several  exporters,  the Government  issued an Export clarification Circular that  in respect of cases where Letter of Credit was opened before 31 March 1972, but the period of shipment had expired,  exports might  be allowed in the name of private parties’.  provided the shipment is made not beyond 30 June 1972. 571 The  petitioner  challenged  the  canalisation  of   exports scheme, inter alia, on the following grounds :-               (1))  It  was not a canalisation  scheme.   It               was in fact a scheme to transfer the  business               of  the petitioner and good-will in favour  of               the  Corporation which is outside the  purview               of the Act.               (2) The scheme was an unreasonable restriction               and   it   violated  Art.  19(1)(g)   of   the               Constitution of India.                (3)  The  scheme  violated  Art.  14  of  the               Constitution because there was  discrimination               between the exporters of Mica Powder and  Mica               Scrap and Mica Waste.               (4)   Fixing  24 January 1972 as the date  for               coming into force of the scheme was arbitrary.               Letters of Credit had not reasonable  relation               to  the  objects of  the  Scheme.   Therefore,               fixing of the date of 24 January 1972 violates               Art.  19.  The extension of the date  from  24               January 1972 to 31st March 1972, is mala  fide               and is to offer benefits to some and deny  the               same to the petitioner.               (5)   The  levy  of a charge of I  percent  on               F.A.S.    value   without    conferring    any               corresponding   benefit  is  an   unreasonable               restriction  and is in substance, a  tax,  and               is,  therefore, in contravention of  Art.  265               of the Constitution. Dismissing the Petition, HELD  (i) The policies of imports or exports  are  fashioned not only with reference to internal or international  trade, but also on domestic policies.  If the Government decides an economic  policy  that  imports and  exports  should  be  by selected   channels  or  through  the  agency  of   selected channels, the court would proceed on the assumption that the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 13  

decision  is in the interest of the general  public,  unless the contrary is shown. [576G] (ii)The  scheme of canalisation is not acquisition of  right to carry on trade.  The canalisation scheme means that  only the  recognised  agency can carry on trade.  The  effect  of refusal  of  licence to other traders is  that  they  cannot carry on the trade in house goods.  The Corporation  carries on  trade itself but not because of any acquisition  by  the Corporation   of  the  right  to  carry  on  trade  of   the unsuccessful applicant for licence.  Therefore, there is  no violation of Art. 31 or Art. 19(i)(f) of the Constitution. The dominant purpose of the scheme is canalisation of export and  not to acquire the business or goodwill of the  traders in favour of the Corporation.  As the canalisation of Export through the Corporation would ensure uniform good quality of goods  and  an  increase  in  the  volume  of  export,   the restriction   on  traders  is  reasonable.   There   is   no acquisition  of property of traders.  The Corporation is  an agency  through  which  export is  canalised  to  the  total exclusion of citizens. Davason of Bhimji Gohli v. Joint Chief Controler of  Imports and  Exports [1962] 2 S.C.R. 73 and Glass Charons  Importers and Users Association v. Union of India [1962] 1 S.C.R. 862. referred to. [576H-577D] (iii)Minerals  and  Metals Trading Corporation is  a  State- owned  body.  The Corporation is appointed to undertake  the scheme  for export of Mica.  No preference is shown  to  the Corporation.   Where canalisation is decided, no licence  is granted  in favour of any one.  Therefore, there is  neither any  competition, nor any choice in the matter of  grant  of licence.   It is a total exclusion of citizens in  order  to enable all the country’s exports to be made by one licensee. Therefore, Art. 14, is not infringed. [577E] (iv)Further,  Art.  19(1)(g) is also not violated.   If  the traders  wish  to  export quantities  represented  by  their contracts,  they are at liberty to avail themselves  of  the concession  of exports through the Corporation.  It is  only if they will volunteer not to accept the concessional  offer that  there would he self induced loss of  foreign  exchange earnings.    Further,   the  other  advantages   where   the Corporation  will  enter  into  a  principal  to   principal contract with the 572 foreign  buyers  are  that  the  traders  will  be   getting facilities  of entering into contract with  the  Corporation which   enters  into  a  back-to-back  contract   with   the suppliers.  The Service Charges of I per cent of the  F.A.S. value cannot be described as a loss because the  Corporation is really servicing the contracts. [1578D] (v)The Service Charge collected by the Corporation is not in the  nature of a tax and therefore, provisions of  Art.  265 are not attracted.  Further, the levy of service charges  is not under the 1947 Act.  The corporation is a licensee under 1947  Act  and  the 1968 Order.   The  Corporation  acts  in accordance  with  the terms and conditions of  the  licence. The  government and the licensing authority under  the  Act, are not collecting any fee or charges from the traders.   It is  the Corporation which is collecting the Service  Charges from the traders who avail the services of the  Corporation. The Corporation is in the nature of a commercial undertaking to  Which  a  licence has been granted  for  the  export  of certain  commodities.  The service Charges are  nothing  but quld  pro quo for the services rendered by the  Corporation. [578F] (vi)Further,  fixing 24 January 1972 as the date for  coming

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 13  

into   force  of  the  Canalization  Scheme  was  also   not arbitrary.  If no date is fixed for bringing into effect the canalization  scheme with reference to opening of letter  of credit  it will give rise to ingenious devices  of  creating specious contracts.  Contracts may be brought into existence by  antedating  such contracts.  Therefore, the  opening  of Letters of Credit has rational relationship with the  object of  the  canalisation scheme, and there is no  violation  of Art. 14. [579D] (vii)Ordinarily,  the  import  or  export  of  goods   under international  contracts  .of sale  frequently  requires  in modern  times the protection of a governmental authority  in the  form  of import or export licence.  Where this  is  the case,  the parties usually provide in the contract which  of them  is to apply for the necessary licence and what  is  to happen,  if an application is refused.  If the  contract  is altogether silent, a term is usually implied making this the duty  of  one party .or the other.  Normally, this  duty  is upon  the  seller  particularly in the case  of  F.O.B.  and F.A.S. contracts.  Nothing has been shown that the contracts in  the present case were not subject to the usual terms  of contract  in such cases that the export was subject  to  the licence  laws  of  our country for  the  export  of  .goods. Therefore, the question that the petitioner would be sued by the foreign buyer would not arise. [579G] (viii)The impugned notice is not violative of Art. 14 of the Constitution  on  the ground that  there  is  discrimination between  the exporters of Mica powder and exporters of  Mica scrap.The  exclusion  of mica power  from  the  canalization scheme  is  to develop mica powder industry in  our  country because  this  ,industry is developing  and  is  practically nascent  is  growth.  There is an  intelligible  differentia between mica powder on the one hand and mica scrap and waste on the other in excluding mica powder from the  canalisation scheme. [580G] (ix)The relaxation of the date for opening Letters of Credit from  24  January 1972 to 31 March 1972 is not  intended  to benefit  influential  people.   This  relaxation  was   made because several exporters made representations that they did not  understand the import restrictions and went on  opening Letters  of  Credit.   The relaxation was  to  minimise  the hardships which the traders were likely to suffer on account of the coming into force of the impugned Trade Notice.   The relaxation  was to prevent dislocation of trade on  a  large scale. here was no mala fide on behalf of the Government  in relaxing the date for opening the Letters of Credit from  24 January 1972 to 31 March 1972. [582B]

JUDGMENT: ORIGINAL JURISDICTION : Writ Petition No. 94 of 1972. Under Article 32 of the Constitution for the enforcement  of fundamental rights. R.   K. Garg, S. C. Aggarwala, for the petitioner. 573 S.   T.  Desai, B. D. Sharma, M. N. Shroff, for  respondents Nos. 1 and 2. B.   Sen, O. C. Mathur, J. B.  Dadachanji & Ravinder Narain, for respondent No. 3. The Judgment of the Court was delivered by RAY, C.J. This petition under Article 32 of the Constitution challenges the Trade Notice dated 29 January, 1972  referred to as the impugned notice. The  import and export of goods is regulated by the  Imports

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 13  

and Exports Act, 1947 referred to as the 1947 Act.   Section 3  of the 1947 Act empowers the Government to  issue  orders making provisions for prohibiting, restricting or  otherwise controlling  the  import  and export  of  goods  of  special description.   In  exercise of the  powers  conferred  under section  3 of the 1947 Act the Central Government from  time to  time  issued  orders regulating export  of  goods.   The Export Control Order 1968 referred to as the 1968 Order came into existence under these powers.  Clause 3(1) of the  1968 Order  provides  that no person shall export  goods  of  the description specified in Schedule 1 of the 1968 Order except under  and  in accordance with the licence  granted  by  the Central Government or by an officer specified, in Shedule  I I of the 1968 Order.  Mica scrap and mica waste are included as item No. 22(a) of Part B of Schedule 1 of the 1968 Order. Part B of Schedule 1 of the 1968 Order enumerates the  items the  export  of  which is allowed on merits  or  subject  to ceilings  ’or other conditions to be specified form time  to time. The impugned Notice is issued by the Controller of Imports & Exports  under  the aforesaid statutory  provisions.   Under Trade Notice dated 13 March, 1968 reproducing Export Control Order  No.  1/68-EIC  dated 8 March,  1968  export  of  mica including  mica  splittings, blocks, scrap waste  which  are included in the list of items in Part B of Shedule I of  the Export Control Order was allowed on merits. Under  the  impugned  notice the  export  of  mica        is decided to be under the scheme to canalise the export of all grades  and  variety  of mica,  excepting  manufactured  and fabricated  mica, micanite, reconstituted mica, mica  powder and  mica  paper  through the Minerals  and  Metals  Trading Corporation  of India Ltd. (hereinafter referred to  as  the Corporation).  The impugned Notice further states that  this canalisation  of  export scheme will be  effective  from  24 January  1972.   With  regard to cases  falling  under  pre- canalisation   commitment   category  the   port   licensing authorities  may  allow  export if  the  shipping  documents produced  by  the  exporters are  accompanied  by  documents showing that the contract was entered into with the  foreign buyers  before  24 January, 1972 or  telegraphic  offer  and acceptance   is  dated  prior  to  24  January,   1972   and irrevocable letter of credit at sight is opened in a Bank in India or in foreign country before 24 January, 1972. 11-382SuPCI/74 574 The, impugned Notice further states that exporters who  wish to  avail  themselves  of  the  pre-canalisation  commitment category  are  to  furnish  particulars  on  or  before   15 February. 1972 at the office of the Controller of Imports  & Exports.  The particulars are first, full statement  showing quantity,  grade of the mica (blocks, splittings,  condensor films,  mica scrap and factory cuttings),  delivery  period, name   of  the  buyers,  contract  number  and   date   with particulars of letter of credit number and date and  second, quantities  already  shipped  tinder  these  contracts   and balance quantities to be, shipped. Pursuant to the decision notified under the impugned  Notice the Corporation issued immediately thereafter a Press Notice on export of mica prescribing the procedure to be adopted by the exporters taking recourse to the Canalisation Scheme. The  Press  Note  states that  after  consideration  of  the prevailing trade practices ’and with a view to causing least dislocation in the existing arrangements between the  buyers abroad and the local sellers it has been decided to consider requests  from the trade on furnishing full  particulars  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 13  

foreign buyers and other relevant details to negotiate sales of mica on behalf of the Corporation.  The Corporation  will enter  into  a sale contract with the foreign  buyers  on  a principal   to  principal  basis.   The   Corporation   will simultaneously  enter  into a ’back to  back’  contract  for procurement  of mica with the authorised supplier.   Foreign buyers  will  open  letter  of  credit  in  favour  of   the Corporation.   The Corporation will realise from  the  local suppliers  as Service charges not exceeding 1 % of  the  FAS value.  The price at which sales will be concluded will  not be  less than the FAS prices fixed under the  Government  of India  ’Mica Export Policy’ Notification dated 27 June  1966 as  amended from time to time or voluntarily adopted on  the recommendation  of the Mica Export Promotion  Council.   The foreign buyers will open confirmed, irrevocable, assignable, divisible  without  recourse  to  drawer  and  unrestricted, letters of credit in favour of the Corporation. The  Press Note further states that where letters of  credit have been opened on or after 24 January, 1972 in the name of private  shippers,  foreign  buyers  have  to  be  requested through  cable,  so  that the letters  of  credit  are  duly amended  in  the  name  of  the  Corporation  and  contracts finalised  directly  by shippers are also to be  amended  in favour  of  the Corporation for the balance  quantity.   The payment  due  to the supplier will be paid by  cheque  after realising  the  proceeds of sales from  the  foreign  buyers after  retaining the marginal one per cent of the FAS  value as service charges of the Corporation. Subsequent  to  the Press Note the petitioner wrote  to  the respondent  and  gave details of contracts accepted  by  the petitioner  from over-seas buyers prior to the  canalisation of export scheme which came into effect on 24 January, 1972. The  petitioner stated that in some cases shipment had  been made and there was a balance to be shipped subsequent to  24 January,  1972.   The petitioner gave details of  nine  such contracts. 575 After  the  publication  of  the  impugned  Notice   several exporters  represented  that  they did  not  understand  the import of restrictions and went on opening letters of credit with respect to contracts entered into between the exporters and  the  foreign  buyers.  The Government with  a  view  to lessen  the  hardships  on  the  traders  issued  an  Export Clarification  Circular  No. 3 of 1972 dated 17  April  1972 that  in respect of cases where fetter of credit was  opened before  31  March,  1972  but the  period  of  shipment  had expired,  exports  might be allowed in the name  of  private parties  provided the shipment is made not beyond  30  June, 1972. The petitioner challenged the canalisation of export  scheme on  the following grounds.  First, it is not a  canalisation scheme.  It is in fact a scheme to transfer the business  of the  petitioner  and goodwill in favour of  the  Corporation which is outside the purview of the Act.  Second, the scheme is  an unreasonable restriction in so far as it  results  in loss  of foreign exchange, loss of profit and  enables  con- tracting  foreign buyers to avoid the contract and  sue  the petitioner  for  breach  of the  contract.   Therefore,  the scheme violates Article 19(1) (g) of the Constitution Third, after  the  proclamation  of emergency it has  to  be  found whether  the canalisation scheme could have been made  under the 1947 Act.  Fourth, the scheme violates Article 14 of the Constitution.  There is discrimination between the exporters of  mica  powder  and  mica. scrap  and  mica  waste,.   The exclusion  of mica powder from the ambit of the scheme  will

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 13  

lead to mica scrap and mica waste being converted into  mica powder  and enable individual exporters to export the  same. Fifth,  fixing 24 January, 1972 as the date for coming  into force of the scheme with reference to the opening of letters of credit before that date is arbitrary.  Letters of  credit have  no reasonable relation to the objects of  the  scheme. Therefore, the fixing of the date 24 January, 1972  violates Article 19.  The extension of the date from 24 January, 1972 to  31 March 1972 is mala fide and is to confer  benefit  on some  and deny the same to the petitioner.  Sixth, the  levy of  a  charge  of’  one  per  cent  on  FAS  value   without conferring-  any  corresponding benefit is  an  unreasonable restriction  and is in substance a tax and is  therefore  in contravention of Article 265 of the Constitution. The scheme of canalisation of export through the Corporation is pursuance to section 3(1) (a) of the 1947 Act and  clause 6(1)  of  the  1968 Order.  The 1947 Act  confers  power  to restrict,  control or prohibit or otherwise control  imports and exports.  Clause 6(1) of the 1968 order is as follows :-               "The licensing authority may refuse to grant a               licence if the licensing authority decides  to               canalize    exports   through    special    or               specialised agencies or channels". This  Court  in  Davason  of Bhimji  Gohil  v.  Joint  Chief Controller   of  Imports  &  Exports  (1963)  2  S.C.R.   73 considered  the State policy regarding export of  ore.   The Government regulated export of ore through three classes  of exporters.   First,  there were  established,  shippers  who would be granted export quota on the average of the 576 quantities  exported during the years 1953, 1954  and  1955. The second class consisted of mica-owners based on an annual average  of  the quantity of ore on which royalty  was  paid during  the calender years 1953, 1954 and 1955.   The  State Trading Corporation was the third class which would be given a  quota on an ad hoc basis.  The state Trading  Corporation was allowed an adequate quota to enable them to maximise the exports  of manganese ore.  The question there  was  whether the withholding of the right to engage in export trade  from new  comer  mine-owners not having export in  certain  basic years constituted an unreasonable restriction on their right to carry on business in violation of Article 19(1)(g) of the Constitution.   The canalising of exports through special  , or  specialised  agencies was upheld on the ruling  of  this Court  in  Glass Chatons Importers & Users’  Association  v. Union of India (1962) 1 S.C.R. 862. In  Glass Chatons case (supra) the relevant Exports  Control Order  was  of the year 1958.  That Control Order  was  made under section 3 of the 1947 Act.  Clause 6 sub-clause (h) of the 1958 Export Control Order conferred power on the Central Government  to  refuse to grant a licence if  the  licensing authority  decided  to canalise export  through  special  or specialised  agencies or channels.  The language  of  clause 6(h) of the 1958 Order is in identical language with  clause 6(1)  of  the 1968 Order.  The  Constitutional  validity  of clause 6(h) of the 1958 Order was challenged there. Licences for the import of glass chatons were issued only in favour  of  the State Trading Corporation.   The  applicants used  to import considerable quantities of glass chatons  up to 1957.  Those merchants challenged the grant of licence in favour  of the State Trading Corporation in preference  over the  applicants  and  also as a monopoly in  favour  of  the Corporation.   The order of the Central Government in  terms of  clause  6(h) of the Import Control Order  1955  allowing canalisation  of  export through the  Corporation  was  also

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 13  

impeached to be in contravention of Article 19(1)(f) and (g) and  Article  31 of the Constitution.  This Court  in  Glass Chatons case (supra) held that if the scheme of canalisation of  imports  is in the interest of the  general  public  the refusal  of  licence  to  outsiders would  also  be  in  the interest of the general public.  The canalisation of  import was held to be per se not an unreasonable restriction in the interest of the general public. Policies  of imports or exports are fashioned not only  with reference  to  internal or international trade but  also  on monetary   policy,  the  development  of   agriculture   and industries and even on the political policies of the country but  rival theories and views may be held on such  policies. If the Government decides an economic policy that import  or export  should be by a selected channel or through  selected agencies the ’court would Proceed on the assumption that the decision is in the interest of the general public unless the contrary is shown.  This  Court  in glass Chatons case (supra)  said  that  the scheme of canalisation is not acquisition of right to  carry on trade.  The 577 canalisation  scheme means that only the  recognised  agency can carry on trade.  The effect of refusal of hence to other traders  is that the cannot carry on trade in  those  goods. The  Corporation carries on trade itself but not because  of any acquisition by the Corporation of the right to carry  on trade   of   the  unsuccessful   applicant   for   licence,. Therefore,  there is no violation of Article 31  or  Article 19(1)(f)  of the Constitution by the canalisation of  export through the State Trading Corporation. In Devason of Bhimji Gohil case(1) (supra) it was said  that the  State Trading Corporation might be a special agency  or channel for the purpose of enabling the country to  maintain and  develop  the  trade  in the  commodity  both  from  the qualitative   and   quantitative   pomts   of   view.    The canalisation of export through the Corporation would  ensure a uniform good quality of goods and also increase the volume of export. Therefore the dominant purpose of the scheme is canalisation of  export  and not to acquire the business or  goodwill  of traders  in  favour of the Corporation. The  restriction  on traders  is reasonable. There is no acquisition of  property of  traders.   The Corporation is an  agency  through  which export is canalised to the total exclusion of citizens. The  contention that the impugned Notice  showed  preference for  the  Corporation  in  infringement  of  Article  14  is unsound.   The  Corporation  is a  State  owned  body.   The Corporation is appointed to undertake   this export  scheme. No   preference   is  shown  to  the,   Corporation.   Where canalisation  is decided no licence is granted in favour  of any  one.  Therefore, there is neither any  competition  nor any choice in the matter of grant of licence.  It is a total exclusion  of citizens in order to enable all the  country’s exports to be made by one licencee. The  impugned  Notice is challenged on the  ground  that  24 January,  1972 is an arbitrary fixation of date.  The  Press Note  is  impeached  on the ground that  the  procedure  for export through the Corporation where no irrevocable  letters of credit were opened before 24 January, 1972 is in  reality not  a canalisation scheme but is a device to  transfer  the business  and  goodwill  of the traders  in  favour  of  the Corporation.   The fallacy of the contention is in  assuming that traders have a right to carry on the trade of exporting mica  waste  and mica scrap after coming into force  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 13  

canalisation  scheme  on 24 January, 1972.  The  Press  Note made  it  clear that the State did not want to  disturb  the market but intended to save the trade and to prevent a  loss to  the  sellers.  The State did not want to  dislocate  the commitments made by the traders to foreign buyers.  This  is precisely why the Press Note stated that the Corporation was prepared  to enter into contract with foreign buyers and  to export goods to them provided they opened letters of credit. After  the  canalisation  scheme had come  into  effect  the contracts between the traders and the foreign buyers came to an   end  by  operation  of  the   statutory   restrictions. Therefore the State Rave concession to the traders in  order to eliminate hardship.  The traders were given the choice to export 578 provided they fulfilled certain conditions.  These were that they  could export through the Corporation and they were  to pay  service charges.  It is significant that if  the  Press Note  had  not  laid  down  the  procedure  conferring   the privilege of exporting goods even after 24 January, 1972  in performance  of  contracts  which  were  not  supported   by irrevocable  letters  of  credit being opened  prior  to  24 January,  1972  the traders would have suffered  loss.   The traders  could  not perform the contracts with  the  foreign buyers  after 24 January, 1972 where fetters of  credit  had not  been opened.  Therefore, it is apparent that there  was no transfer of business or goodwill in favour of the  Corpo- ration. The contention with regard to contract-, entered into before 24  January, 1972 but where letters of credit have not  been opened  before that date is that the traders are exposed  to loss   of   business  and  loss  of  profits   and   thereby unreasonable  restrictions  have been put  on  the  traders’ right  to  carry  on business in  violation  of  Article  19 (1)(g).   This contention is unacceptable.  If  the  traders wish to export quantities represented by such contracts they are at liberty to avail of the concession of exports through the  Corporation.  It is only if they will volunteer not  to accept  the  concessional  offer that there  would  be  self induced loss of foreign exchange earning.  Further the other advantages  where  the  Corporation will  enter  into  on  a principal to principal contract with foreign buyers are that the  traders  are getting the facilities  of  entering  into contract  with the Corporation which enters into a  back  to back  contract  with the authorised suppliers-  The  service charges  of 1/4% of the FAS value cannot be described  as  a loss  because  the  Corporation  is  really  servicing   the contracts. The  service charge collected by the Corporation is  not  in the nature of a tax.  The provisions of Article 265 are  not therefore attracted.  Counsel for the petitioner  countended that  the levy of service charges was not authorised by  the 1947  Act  which permitted only levy of fee  in  respect  of applications   for  issue  or  renewal  of   licence.    The Corporation  is a licencee under the 1947 Act and  the  1968 Order.   The Corporation acts in accordance with  the  terms and conditions of the licence.  It was said on behalf of the petitioner that section 4(a) of the 1947 Act and clause 4 of the  1968  Order excluded levy of any other fees  under  the Act.   The Government and the licensing authority under  the Act are not collecting any fee or charges from the  traders. It  is the Corporation which is collecting  service  charges from the traders who avail the services of the  Corporation. The  Corporation is in the nature of commercial  undertaking to  which  a  licence has been granted  for  the  export  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 13  

certain  commodities.  The service charges are  nothing  but quid pro quo for the services rendered by the Corporation. Counsel for the petitioner challenged the impugned Notice as violative of Article 14 on the ground that the  canalisation scheme made a distinction between subsisting contracts  with foreign buyers for which irrevocable letters of credit  were opened before 24 January, 1972 and subsisting contracts with foreign buyers for which letters of 579 credit  were  not opened before 24 January,  1972.   It  is, therefore,  said that the opening of irrevocable  letter  of credit   before   24  January,  1912   had   no   reasonable relationship to the object of the scheme it cannot be denied that  a  date has to be fixed for bringing into  effect  the canalisation  scheme.   Contracts may be for short  or  long terms.   Usually long term contracts are worked out  through instalment  delivery  at intervals.  It will depend  on  the terms of the contract whether each is an instalment contract severable  from  other  instalments or  whether  it  is  one contract   to   be  performed  in   instalments.    On   the construction  of such a contract depends whether the  breach of  contract  is  a repudiation of  the  whole  contract  or whether it is a severable breach giving rise to a claim  for compensation but not a right to treat the whole contract  as repudiated. In  the  present case, the affidavit evidence  is  that  the obligation  to export goods arises when the  foreign  buyers open letters of credit for the specified quantity of  goods. If   no  date  is  fixed  for  bringing  into   effect   the canalisation  scheme with reference to opening of letter  of credit  it will give rise to ingenious devices  of  creating specious contracts.  Contracts may be brought into existence by  antedating  such contracts.  The entire purpose  of  the canalisation  scheme  with a view to increasing  the  export trade of the country, assisting small mine-owners, exporters and  processors,.  checking smuggling in  foreign  exchange, under-invoicing, illegal acquisition of foreign currency and eliminating  the chances of contravention of various  provi- sions  of the Foreign Exchange Regulations Act  and  Exports (Control) Order will be stultified.  The utility of a  State agency  in  the  smooth  running of  export  trade  in  such commodity as mica blocks, condensor films, splittings, scrap or  waste  forms a very significant part of exports  of  our country.   Therefore  the opening of letters of  credit  has rational  relationship with the object of  the  canalisation scheme and there is no violation of Article 14. As  a corollary to the fixation of 24 January, 1972  as  the date  counsel for the petitioner contended that  the  scheme would  enable foreign buyers to sue for breach of  contract. This contention is also unsound.  Ordinarily, the import  or export  of  goods  under  international  contracts  of  sale frequently  requires,  in modem times, the permission  of  a governmental  authority  in  the form of  import  or  export licence.   Where this is the case, the parties will  usually provide  in the contract which of them is to apply  for  the necessary licences and what is to happen if the  application is  refused.   If the contract is  altogether  silent  about licences  or is expressed to be subject to licences  without providing  who is to obtain them, a term is usually  implied making  this the duty of one party or the other.   Normally, this  duty will be cast upon the seller particularly in  the case  of  F.O.B. and F.A.S. contracts.  There may  be  cases where  the  circumstances may be such as to make  the  buyer responsible for obtaining any necessary export licence.  The tendency  is to cast the duty upon the party best  qualified

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 13  

by  knowledge of the necessary facts or otherwise to  obtain the  licence.  Once it is determined from the words  of  the contract or by implication who is to apply for the licences, there is a separate question 580 again depending on the circumstances of the particular case, whether the duty is an absolute one or more usually, whether it  is  only to use all reasonable diligence to  obtain  the necessary  licences.   Performance of the  contract  in  the latter  case is only excused if the duty has been  performed but no licence has been obtained. if an absolute prohibition of  export  supervenes upon a contract which is  subject  to licence the duty cannot be absolute.  Nothing has been shown that  contracts in the present case were not subject to  the usual  terms of contract in such cases that the  export  was subject to the licence laws of our country for the export of goods. It  was said on behalf of the petitioner that  the  impugned Notice  violated  Article,  14 of the  Constitution  on  the ground  that there was discrimination between  exporters  of mica  powder on the one hand and exporters of mica scrap  on the other.  It was emphasised that the export of mica powder is  not  within the ambit of the canalisation  scheme.   The impugned Notice canalises export of all grades and varieties of   mica   excepting  manufactured  and   fabricated   mica (including  die  cut  condenser  films,  spacers,   bridges, washeres etc.) micanite, raconstituted mica, mica powder and mica paper.  The mica export policy published at pages 77-78 of  the  Export  Trade  Control  Hand  Book  of  Policy  and Procedure  1970  published  by  the  Government  of   India, Ministry of Foreign Trade deals with shipment of any variety other  than fabricated mica, inter alia, on the basis of  an application  in that behalf and compliance with other  terms laid   down  in  that  policy  and  in  particular   opening irrevocable letter of credit by a foreign buyer in a Bank in India for 100%, of the invoice value of the goods.  Shipment of  fabricated  mica under that policy continued  to  remain free  from the above stipulation regarding opening  of  100% irrevocable  letter  of  credit.  Fabricated  mica  in  that policy  is  said to include micanite, built  up  mica,  mica tapes,  mica cloth, mica silk, mica paper, mica  folium  and all varieties of mica cut or purched to specific shapes  and sizes,  and  mica  powder.   It is said  on  behalf  of  the petitioner that as a result of the exclusion of mica  powder from  the  scope  of  the  canalisation  scheme,  there  are possibilities  of mica waste and mica scrap being  converted into  mica powder and exported by individual  exporters  and there  may  be a loss in foreign  exchange.   The  affidavit evidence  on  behalf of the State is that the  exclusion  of mica powder from the canalisation scheme is to develop  mica power  industry  in our country, because  this  industry  is developing and is practically nascent in growth.  Therefore, there is intelligible differentia between mica powder on the one hand and mica scrap and waste on the other, in excluding mica powder, from the canalisation scheme. The  State  issued another Trade Notice on 20  April.  1972. This  April 1972 Notice is also impeached.  Under the  April Notice which can be described as the second impugned  Notice it  is stated that the canalisation scheme Provided  in  the impugned  Notice  of  29 January, 1972 is  modified  to  the extent  that shipments will be allowed up to 30  June,  1972 against subsisting contracts for all grades and varieties of mica  which had been executed prior to 24 January. 1972  and ill respect of which letters of credit have not been  opened prior to 24

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 13  

581 January, 1972.  The petitioners contend that the  relaxation of  the date for opening letters of credit from  24  January 1972  to 31 March, 1972 was intended to benefit  influential people.   It was said that such influential people  went  on opening  letters of credit up to 31 March, 1972, because  of their   previous  knowledge  that  there  was  going  to   a relaxation  in the date.  The contention of the  petitioners was  that this relaxation was mala fide to help  influential people.   The affidavit evidence on behalf of the  State  is that this relaxation was made because several exporters made representations  that they did not understand the import  of restrictions  and  went on opening letters  of  credit.   On behalf  of the State it was said that the relaxation was  to minimise  the  hardships which the traders  were  likely  to suffer  on account of the coming into force of the  impugned Trade Notice. The three representations received by the Ministry are  from the  Bihar  Mica Exporters’ Association  dated  25  January, 1972,  the Mica Chamber of Commerce, Gudur,  Andhra  Pradesh dated  9  February,  1972  and  the  Bihar  Mica  Exporters’ Association  dated  16  March, 1972.   Broadly  stated,  the representations of the traders were that the absence of  any detailed information or direction as to the procedure to  be followed under the new system, presented three  difficulties to the traders.  First, there was serious set back in  usual flow  of mica exports.  Second, there was financial loss  to the  mica exporters.  Third, there was financial  crisis  in the  mica industry.  The difficulties pointed out were  that export consignments worth about Rs. 70 lakhs in the names of different exporters supported by valid contracts and letters of   credit  were  under  processing  through  Joint   Chief Controller of Imports & Exports and Customs at Calcutta Port for shipment within 31 January, 1972.  The Orders and Credit were  not assignable, and were covered under Buyers’  Import Licence  which  stipulated specific dates for  shipment  and consequently the letters of credit could not be extended  or amended  if so desired under the new system.  Under  similar conditions  export  consignments worth about Rs.  130  lakhs were  lying  ready for shipment in the  month  of  February, 1972.    Goods;  worth  about  Rs.  150  lakhs  were   under manufacturing  process against orders and letters of  credit for  shipment  in March, 1972.  Goods worth  about  Rs.  150 lakhs   were  awaiting  processing  line  against   shipment commitment  for  the months of April to June,  1972.   There were other export contracts for shipment after the month  of June,  1972.   Some consignments of  mica  scrap,  cuttings, powder,  flakes and mica splitting$ were despatched by  Rail Wagon  from Giridh Kodarma to Calcutta Port for shipment  by specific steamer.  If for the reason of the changed  pattern of export steamers were not availed or shipment was  delayed the traders would suffer loss for non-shipment of the  goods and   incur  railway  demurrage  and   Port   Commissioners’ demurrage  and storage charges.  The  Association  therefore asked for relief in the matter of export in accordance  with the contractual terms of existing contracts. The Andhra Pradesh Chamber of Commerce added that there were contracts  prior to 24 January, 1972 stating  shipment  date subsequent  to 24 January, 1972 for which letters of  credit were  to  be established in due course.   Certain  contracts were executed in part and 582 for  the  remaining  part  letters  of  credit  were  to  be established in due, course prior to the stipulated time,  of shipment.   There were contracts prior to 24  January,  1972

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 13  

for  which’  letters of credit  originally  established  had expired.   Therefore, the Andhra Chamber of  Commerce  asked for extension of last date for registration of contracts  up to 29 February, 1972. In  this  background it cannot be said that  the  Government authorities  acted  mala fide in extending the date  of  the opening of the letter of credit from 24 January’, 1972 to 31 March,  1972.  The relaxation was to minimise  hardships  to the  traders.  The relaxation was to prevent dislocation  of trade  on a large scale.  The Association gave instances  of traders  who could not succeed in opening letters of  credit for reasons beyond their control. For  these reasons, the contentions of the petitioner  fail. The  petition is dismissed.  In the facts and  circumstances of the case, the parties will pay and bear their own costs. S.C. Petition dismissed. 583