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PETITIONER: M/S. BEJGAM VEERANNA VENKATA NARASIMLOO ETC.

       Vs.

RESPONDENT: STATE OF ANDHRA PRADESH & ORS.

DATE OF JUDGMENT:       25/11/1997

BENCH: S.P. BHARUCHA, SUHAS C. SEN

ACT:

HEADNOTE:

JUDGMENT:                THE 25TH DAY OF NOVEMBER, 1997 Present:               Hon’ble Mr. Justice S.P. Bharucha               Hon’ble Mr. Justice Suhas C.Sen A.Subba Rao, B.Parthasarthy, Advs. for the appellants G.I.Gopalkrishna, Y.P.Rao,  K  Ramkumar  and  T.V.S.N.Chari, Advs. for the Respondents.                       J U D G M E N T The following Judgment of the Court was delivered: (WITH C.A.NO  8296 of  1997 arising  out of S.L.P.No. 568 of 1982) SEN, J.      Section  3  of  the  Essential  Commodities  Act,  1955 confers upon  the Central  Government power,  inter alia, to regulate production,  supply and  distribution of  essential commodities for  securing their  equitable distribution  and availability at fair prices.  The power given to the Central Government by  sub-section (1) of Section 3 is in very broad terms.   Sub-section (2) specifically provides that an order can be  made by  the Central  Government, inter  alia,  "for controlling the  price at  which any essential commodity may be bought  or sold".   Clause  (f)  of  sub-section  (2)  of Section 3  has also  empowered  the  Central  Government  to require any  person holding  in stock,  or  engaged  in  the production, or  in business  of buying  or selling,  of  any essential commodity,  to sell  the whole or a specified part of the quantity held in stock or produced or received by him to officer  or agent  of such Government or to a Corporation owned or  controlled by  such Government as may be specified in the  order. Sub-section  (3A) of  Section 3 provides that where any person sells any essential commodity in compliance with an  order made  with reference  to clause  (f) of  sub- section (2),  there shall be paid to the seller as the price therefore- (a) Where  the price  can consistently  with the  controlled price of  the food  stuffs, if any fixed under this section, be agreed upon, the agreed price: (b) where  no such  agreement  can  be  reached,  the  price calculated with reference to the controlled price, if any; (c) where  neither clause  (a) nor  clause (b)- applies, the

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price calculated  with reference  to the average market rate prevailing in the locality during the period of three months immediately preceding the date of the notification.      Sub-section  (3b)   of  Section   3      provides:-      "Where any  person is  required, by      an order  made  with  reference  to      clause (f)  of sub-section  (2)  to      sell to  the Central  Government or      to  a   Stat Government  or  to  an      office or  agent of such Government      or  to   a  corporation   owned  or      controlled by  such Government, any      grade  or  variety  of  foodgrains,      edible oilseeds  or edible  oils in      relation to  which no  notification      has been  issued under  sub-section      (3A), or  such notification  having      been issued,  has ceased  to be  in      force, there  shall be  paid to the      person  concerned,  notwithstanding      anything to  the contrary contained      in sub-section (3), an amount equal      to  procurement   price   of   such      foodgrains,  edible  oil  seeds  or      edible oils,  as the  case  may  be      specified by  the State Government,      with the  previous approval  of the      Central  Government  having  regard      to-      (a) the  controlled price,  if any,      fixed under  this section  or by or      under any  other law  for the  time      being in  force for  such grade  or      variety of  foodgrains, edible  oil      seeds or edible oils;      (b) the general crop prospects;      (c) the  need for making such grade      or variety  of  foodgrains,  edible      oilseeds or  edible oils  available      at   reasonable   prices   to   the      consumers,     particularly     the      vulnerable  section  of  consumers;      and      (d) the recommendations, if any, of      the Agricultural Prices Commissions      with regard  to the  price  of  the      concerned  grade   or  variety   of      foodgrains,  edible  oil  seeds  or      edible oils."      There is  no  dispute  that  ’rice’  is  an  ’essential commodity’ under  the Essential  Commodities  Act.    Andhra Pradesh Rice  (Procurement Ex-Mill  Prices) Order,  1974 and Andhra Pradesh Rice (Procurement Ex-Mill Prices) Order, 1975 were promulgated  requiring persons  carrying on business in foodgrains, paddy,  rice, rice  milling, etc. to supply rice to Food  Corporation of  India (FCI)  at procurement  prices fixed by Orders issued by the Andhra Pradesh Government from time to  time.   The rice  millers were  entitled to be paid what is called the "notified price".  which has been defined to mean  the price  fixed  under  the  Andhra  Pradesh  Rice (Procurement Ex-Mill Prices) Order, 1975.      The appellants,  who are rice millers, supplied the FCI rice milled  from Khariff  and Rabi  crops for the crop year 1975-76 and  also 1976-77  under the  aforesaid Orders.  The

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FCI  paid   them  price   fixed  by   Andhra  Pradesh   Rice (Procurement Ex-mill Prices) Order, 1975.      The present  dispute arises  out of  an Order issued by the Government of Andhra Pradesh on 8th October, 1975, which is as under:      "NOTIFICATION"      In exercise  of the power conferred      by Clause (c) of Sub-section (2) of      Section   3    of   the   Essential      Commodities Act,  1995 (General Act      10 of  1995) read with the order of      the Government  of India,  Ministry      of   Agriculture   (Department   of      Food), New  Delhi, G.S.R.  316  (E)      dated the  20th June,  1972 and all      other powers  hereunto enabling and      with the  prior concurrence  of the      Government of  India, the  Governor      of Andhra  Pradesh hereby  rescinds      with immediate  effect, the  Andhra      Pradesh Rice  (Procurement  Ex-Mill      Prices) Order,  1974 issue  in G.O.      MS. No.  1001, Food and Agriculture      (CS.V) Department,  dated  the  6th      November,  1974  and  published  at      pages 1-13  of the rules Supplement      to Part  II Extra-ordinary  of  the      Andhra  Pradesh   Gazette,  No.  38      dated the 7th November, 1974.      Provided that  such recession shall      not affect:      (a) the  previous operation  of the      said Order  of any  thing duly done      or supported thereunder; or      (b)    any     right,    privilege,      obligation or  liability  acquired,      accrued or  incurred under the said      Order; or      (c)  any   penalty,  forfeiture  or      punishment incurred  in respect  of      any offences  committed against the      said Order;      (d)   any    investigation,   legal      proceeding or  remedy in respect of      any    such    right,    privilege,      obligation,   liability,   penalty,      forfeiture   or    punishment    as      aforesaid,     and     any     such      investigation, legal  proceeding or      remedy may be instituted, continued      or enforced  and any  such penalty,      forfeiture  or  any  such  penalty,      forfeiture  or  punishment  may  be      imposed as  if the  said Order  has      not been rescinded.      xxx            xxx              xxx      11.  In   exercise  of  the  powers      conferred by  Clause  (c)  of  Sub-      section  (2)   of  Section   3   of      Essential  Commodities   Act,  1995      (Central Act  10 of 1995) read with      the  Order  of  the  Government  of      India,  Ministry   of   Agriculture      (Department  of  Food),  New  Delhi      G.S.R.  No.  316  (E),  dated  20th

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    June, 1972  and of all other powers      hereunto  enabling   and  with  the      prior concurrence of the Government      of India,  the Governor  of  Andhra      Pradesh hereby  makes the following      order, namely-      1. Short title, extent, application      and commencement      (1) This  Order may  be called  the      Andhra  Pradesh  Rice  (Procurement      Ex-Mill Prices) Order, 1975.      (2) It  extends to the whole of the      State of Andhra Pradesh.      (3) It shall apply only to the rice      milled or  hand-pounded from  paddy      of Khariff  1975-76  or  subsequent      crop.      (4) It shall be deemed to have come      into  force  on  the  1st  October,      1975."      There  is  no  dispute  that  even  after  7.9.76,  FCI continued to  procure rice  and pay the appellants the price fixed by the 1975 Levy Order.  The case of the appellants is that there  is no  reason not  to pay  at the old rates till promulgation of  a new  Order in  accordance with law fixing new rates.  The case of the State is that the price notified in the  1975 Order  will have no application to the supplies of rice  made on  or after  7.9.76.   It has been emphasised that in  clause (3)  of the  Order, it has been specifically made clear  that the  Order shall  be operative "only to the rice milled or hand-pounded from paddy of Khariff 1975-76 or subsequent crop".   This  can only  mean that the order will not be operative beyond the crop year 1975-76.      As against  this,  the  contention  on  behalf  of  the appellants is that the Order came into force on 1st October, 1975.   It was  made operative not only for the Khariff crop of 1975-76  but also for the "subsequent crop".  "Subsequent crop" need  not be confined only to the crop raised in 1975- 76.   The procurement  price  provided  in  the  Order  must continue till  a new  Order is  promulgated laying  down the levy price.   Otherwise,  there will  be a vacuum.  The rice millers will have to supply rice compulsorily to FCI without knowing what is the procurement price.  The intention behind the Order  clearly was  to continue  the  procurement  price fixed by  the Order  to all  subsequent crops  until a fresh Order was issued.      Assuming that the contention of the State Government is correct what  will be  the price  payable for  the crop year 1976-77 commencing  on and from 7.9.1976?.  A fresh order of procurement was  published in  the official  Gazette only on 24.2.1997.   Under  the  provisions  of  Section  3  of  the Essential  Commodities   Act,  any   person  who  sells  any essential commodity  in compliance  of an  order passed with reference to  clause (f)  of Sub-section 2 of Section 3 will have to  be paid  - (a)  an agreed price which is consistent with the  controlled price, if any, fixed under Section 3 or (b) in  the absence  of any agreement, the price, if any, or when neither  (a) or (b) applies, the price, if any, or when neither (a)  or  (b)  applies,  the  price  calculated  with reference to  the average  prevalent  market  price  of  the locality during  the  period  of  three  months  immediately preceding the day of the notification.      In this case, on and from 7.9.76, the rice millers sold and the  FCI bought  rice at the procurement price fixed for the crop  year 1975-76.  This was because of an Order issued

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on 2.11.1976 by which the procurement price of rice in force for the  year 1975-76  was made  payable for  the crop  year 1976-77.  The relevant portion of the Order is as under:      "MEMO NO.  2611/SCI(2)/76-2,  DATED      2.11.1976      Sub:  Civil   Supplies-prices   and      procurement  policy   for   Khariff      cereals   for    1976-77    season-      Regarding.      Ref:  1.  From  the  Government  of      India, Ministry  of Agriculture and      Irrigation (Department of Food) New      Delhi, Telex  Message  No.167  (28)      76-PY.I, dated 30.9.1976.      2. From  the Government  of  India,      Ministry   of    Agriculture    and      Irrigation (Department of Food) New      Delhi Lr.  No. 167/28/76 PY.I dated      30.9.1976.      The Government  of India  in  their      reference cited,  copies  of  which      are communicated  herewith  to  all      District     Collectors,      Chief      Rationing    Officer,    Hyderabad,      Director, Vigilance  Cell (CS)  and      Board   of   Revenue   (CS),   have      declared the procurement policy for      Khariff cereals  1976-77.  They are      informed that  the  producers  levy      slabs prescribed  for the crop year      1976-77  in  the  Schedule  to  the      Andhra Pradesh,  Paddy  Procurement      (Levy) Order,  1972 as amended last      in G.O.Ms. No.844, F&A (CS.I) dated      24.9.1975 shall  continue to  apply      for the crop year 1976-77 also.      2. The  procurement price  of paddy      and specification for the crop year      1976-77 shall  be the  same as were      fixed for the crop year 1975-76 and      notified in  G.O.Ms.No. 1002 Food &      Agrl. (CS.V) dated 6.11.1974 in the      schedules under  the Andhra Pradesh      Paddy (Procurement  Prices)  Order,      1974.   The Procurement  Prices  of      rice for crop year 1976-77 shall be      the  same   as  notified   in   the      Schedules    to     the    A.P.Rice      (Procurement Ex-Mill Prices) Order,      1975.      With regard  to the  Mill Levy,  it      has  been   decided  to   50%  levy      uniformly for  millers and  dealers      and  necessary   amendment  to  the      relevant  Schedule  to  the  Andhra      Pradesh Rice (Procurement Levy) and      Restriction  on  Sale  Order,  1967      will   be    issued   shortly    in      consultation with the Government of      India,   Pending   issue   of   the      amendment, the  District Collectors      are instructed  to take  action  to      collect  levy   from  millers   and      dealers    not     exceeding    the      percentage mentioned  above for the

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    crop year 1976-77."      Even after expiry of the crop year 1975-76, in terms of the aforesaid  order, the appellant millers supplied rice to the FCI  and  were  paid  at  the  rate  prescribed  in  the Order/Memorandum dated  24.9.1975.  Not only the procurement price but also the quantum of levy of rice was determined by this Order/Memorandum.      On 24.2.1977,  the Food  and Agriculture  Department of Andhra Pradesh  Government, issued a Gazette Notification to the following effect:-      "In exercise of the power conferred      by Clause (c) of sub-section (2) of      Section   3    of   the   Essential      Commodities Act,  1955 (Central Act      10 of  1995) read with the order of      the Government  of India,  Ministry      of   Agriculture   (Department   of      Food),  New   Delhi  in   G.S.R.No.      316(e) dated  the 20th  June,  1972      and with  the prior  concurrence of      the  Government   of   India,   the      Governor of  Andhra Pradesh  hereby      makes the  following amendments  to      the     Andhra     Pradesh     Rice      (Procurement Ex-Mill Prices) Order,      1975 issued  in G.O.  Ms. No.  901,      Food and  Agrl. at  page 8  of  the      Rules supplement  of Part  I Extra-      ordinary  of   the  Andhra  Pradesh      Gazette No.53 dated the 9th October      1975 as subsequently amended.      2. The  amendment hereby made shall      be deemed  to have  come into force      on 7th September, 1976.      AMENDMENTS      i) In  Schedule I to the said order      in Col. (2) for the figures 149.00,      136.00, 125.00  and 121.00  against      varieties or  rice super  fine  and      coarse the  figure  146.00,  133.00      and 118.00  shall  respectively  be      substituted."      As a result of this notification, procurement price for various varieties  of rice  fixed  in  the  1975  Order  was brought down  purportedly  with  retrospective  effect  from 7.9.1976.   This created  an anomalous  situation because in the period  between 7.9.1976 and 24.2.1977 rice was actually procured according  to the  slab laid  down  in  the  Andhra Pradesh Paddy  Procurement (Levy)  Order, 1972 as amended by the order  dated 24.9.75  for which price was paid according to the  rates laid  down in  that order  on the basis of the Memorandum issued on 2.11.76.      The Andhra  Pradesh Government claimed that payment for the levy  of rice  on and  from 7.9.76  had been  made at an excessive rate.   The proper rate would be the rate as fixed in the  order dated  24.2.77.  Therefore, the excess payment made by the assessee will have to be recovered from the rice millers.   It has  been argued  on behalf  of Andhra Pradesh Government that the Memorandum dated 2.11.76 was of no legal effect because  it was not notified in the Official Gazette. Therefore, anything  done on the basis of the Memorandum was of no  legal effect.   If  price was  paid in  terms of that Memorandum it was by mistake of law and the Government had a right to  recover the  excess amount  paid.   it was further argued that  Levy Order  of 1975  had spend its force at the

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end of  the crop year 1975-76.  Therefore, procurement price on the basis of that order could not in any event be paid in the crop year 1976-77.      We are  of the view that the contentions made on behalf of the  Andhra Pradesh  Government are untenable in law.  It has not  been explained  how and  in what  circumstances the order/memorandum dated  2.11.76 extending  the life  of  the 1975-76 procurement  order came  to be issued.  the issuance of the  memorandum is not denied. It is also not denied that rice was  procured in terms of this order.  Rice millers had to deliver  the rice  according to the quantum or slab fixed by the 1975-76 order on the strength of the Memorandum dated 2.11.76. FCI  also acted  upon this  Memorandum and paid the millers at  the rates  laid down in the order dated 24.9.75. It is  not open  to the Andhra Pradesh Government now to say that this  Memorandum is  of no  legal effect because it was not notified  in the  Official Gazette and was not addressed to any  of  the  rice  millers  but  was  merely  an  inter- departmental communication.   the  Memorandum  categorically stated  "pending   issue  of  the  amendment,  the  District Collectors are  instructed to  take action  to collect  levy from  millers  and  dealers  not  exceeding  the  percentage mentioned above  for  the  crop  year  1976-77".    District Collectors acted  on the  basis of  this  Memorandum.    The millers were  compelled  to  sell  rice  to  FCI.    in  the background of  all these  facts, it is not open to the State Government to  contend that  the Memorandum was not notified and therefore,  no right  or  obligation  flowed  from  that Memorandum.   If the Memorandum was required to be notified, the Government  cannot take  advantage  of  its  failure  to notify it.   Having  acted on  the basis  of the  Unnotified Memorandum and  having collected  rice compulsorily from the millers on  the strength  of this Memorandum and also having paid the  millers at  the rate  fixed by the Memorandum, the Government cannot  be heard to say that the Memorandum is of no legal  effect and  the payment  was made under mistake of law.      In our  view, it  will be  inequitable  to  permit  the Government to take the plea of irregularity of its own Order after procuring rice on the basis of that order. There is  also another  aspect   of this  case.  Sub-section (3A) of  Section 3  provides that where any person sells any essential commodity  in compliance  with an  order made with reference to  clause (f) of sub-section (2), "there shall be paid to  the seller......the  price  therefor......".    The language of  the Section  is mandatory.   The  price for the rice procured  will have  to be paid.  In the absence of any agreed price  or controlled price, the price calculated with reference to  the average  market  rate  prevailing  in  the locality during  the last  three months will have to be paid to the  seller.    Even  if  the  contention  of  the  State Government is  upheld and  the Memorandum is held to be void and of no legal effect, the State Government has a statutory duty to  pay for  the rice procured by it at the market rate calculated in the manner laid down by the statute.      The next  question is  whether the State Government can fix the  procurement price  of  the  rice  purchased  by  it retrospectively.   The High  Court’s view was that the State Government cannot  do it.   But  the High Court has tried to salvage the  case for  the State  Government by holding that the   notification    dated   24.2.1977   was   not   really retrospective even  though clause  (2) of  the  notification states that  "the amendment  hereby made  shall be deemed to have come into  force on  7th September,  1976".   The  High Court stated  the question  before it  and its answer in the

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following words:      "Thus, the  whole question  in this      case boils  provisions of  the E.C.      Act,   In this  case,  it  must  be      admitted that there is no provision      in  the   E.C.Act  authorising  the      making subordinate legislation with      retrospective effect.   It follows,      therefore,  that  Ex.B-4  would  be      invalid   if    it   is   truly   a      retrospective subordinate  piece of      legislation.     This  raises   the      question   whether   Ex.B-4   dated      24.2.77 fixing  prices with  effect      from 7.9.76  can be  truly called a      retrospective law.   We  are of the      clear opinion that it is not."      The High  Court was  of the  view that merely because a subordinate legislation was given effect to from an anterior date, it  cannot be  treated as  a  piece  of  retrospective subordinate legislation.   It  was held  that a  subordinate legislation can  be said  to be  retrospective only  when it took away  or  impaired  any  vested  right  acquired  under existing laws  or created  new obligations  or imposed a new duty or attached a new disability in respect to transactions or considerations  already past.   Reliance  was placed upon Craies on  Statute Law, 6th Edition p.386.  it was held that by notification  dated 24.2.1977,  the  Government  did  not reduce  in   any  way  the  price  legally  payable  to  the appellants because  there was no such price in existence nor did it  alter in  any way the legal rights of the appellants with regard to their sales for the second year.      We are  unable to  follow how the High court could come to the  conclusion that  the vested  right of the appellants had not  been  disturbed  in  any  way  by  the  subordinate legislation.   Rice has  been sold under a procurement order and a right to be paid in terms of that order had accrued to the seller  as soon  as sale  of rice  was effected.   As  a matter of fact, the FCI did pay the appellants the price for the rice  purchased.   If a portion of the price paid by the FCI is  taken away,  the appellants  will  be  prejudicially affected.   They not  only had acquired a vested right to be paid but  actually received  payment for  the rice sold.  If the rice  was delivered without any valid procurement order, the sellers  were entitled  to be paid at the market rate in terms of  section 70 of the Contract Act.  The retrospective subordinate legislation  has tried to take away a portion of the money the appellants had lawfully obtained.      We are  of the view that the decision of the High Court is clearly  erroneous.   The recoveries which are now sought to be  made from  the appellants  are clearly  unlawful  and unjust.  The appeals are allowed.  The judgment under appeal is set aside.  There will be no order as to costs.      C.A.No. of 1997      (Arising out of S.L.P. (C) No.568/1982)      Leave granted.      In view  of our above decision in C.A.Nos. 3196-3200 of 1981, this appeal is also allowed with no order as to costs.