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CASE NO.: Appeal (civil)  2258 of 2008

PETITIONER: Mahalakshmi Sugar Mills Co. Ltd.& Anr

RESPONDENT: Union of India & Ors

DATE OF JUDGMENT: 31/03/2008

BENCH: S.B. Sinha & V.S. Sirpurkar

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO.  2258 OF 2008 (Arising out of SLP (C) No.481 of 2007) With Civil Appeal Nos. 2260 AND 2261-2272 of 2008 (Arising out of SLP (C) NOs.14130 and 14967-14978 of 2007)

S.B. Sinha, J.

1.      Leave granted. 2.      What are the factors which are required to be taken into consideration  by the Central Government for determining the price of levy sugar in  exercise of its power under Section 3(3C) of the Essential Commodities Act,  1955 (the Act) is the question involved herein. 3.      Before us, there are various owners of sugar mills who purchased  sugarcane from the farmers.   4.      Section 3(2)(f) of the Act empowers the Central Government to fix  compulsory quota of sugar produced by a sugar producer in the manner  prescribed by the Central Government including the price thereof at which  the same is to be sold.  It is known as "levy sugar".  The rest of the sugar,  however, can be sold by the producers in free market.  It is known as "free  sugar".   5.      The factors which are relevant to be taken into consideration by  Central Government is contained in Section 3(3C) of the Act which  includes: (a)     The minimum price, if any fixed for Sugarcane by the Central  Government. (b)     The manufacturing cost of sugar. (c)     The duty or tax, if any, paid or payable thereon; and (d)     Securing a reasonable return on the Capital employed in the business  of manufacturing,         and different price may be determined from time to time for different  areas or for different factories or for different kind of sugar. 6.      In these appeals, we are concerned with the determination of price of  sugar for the sugar years 1983-84 and 1984-85. 7.      The Central Government, in exercise of its power conferred upon it  under Section 3 of the Act, made an order known as the Sugarcane Control  Order.  Clause 5A of the said order reads, thus : "Clause 5A. Additional price for sugarcane  purchased on or after 1st October 1974: (1)     Where a producer for sugar or his agent  purchases sugarcane, from a sugarcane  grower during each sugar year, he shall, in  addition to the minimum sugarcane price  fixed under Clause 3, pay to the sugarcane  grower an additional price, if found due, in  accordance with the provisions of the second

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Schedule annexed to this Order. XXX             XXX             XXX  (4)    The additional price determined under sub- clause (2) or sub-clause (3) as the case may  be, shall be paid by the producer of sugar to  the sugarcane grower, at such time and in  such manner as the Central Government or  the State Government, as the case may be,  from time to time, direct. (5)     No additional price determined under sub- clause (2) or sub-clause (3), as the case may  be, shall become payable by a producer of  sugar who pays a price higher than the  minimum sugarcane price fixed under clause  (3) to the sugarcane grower.         Provided that the price so paid shall in no  case be less than the total price comprising  the minimum sugarcane price fixed under  clause (3) and the additional price fixed  determined under sub-clause (2) or sub- clause (3), as the case may be. (6)     Where any extra price is paid by the  producer of sugar to the sugarcane grower  for the supply sugarcane in addition to the  minimum sugarcane price fixed under clause  (3), the extra price so paid shall be adjusted  against the additional sugarcane price  determined under sub-clause (2) or sub- clause (3), as the case may be, and the  balance, if any, shall be paid to the  sugarcane grower. (7)**   Subject to the provisions of sub-clause (4),  the additional price shall become payable to  a sugarcane grower, if he, in performance of  his agreement with a producer of sugar,  supplies not less than 85% o the sugarcane  so agreed:         (* Provided that the Central Government or  the State Government as the case may be,  may if it is satisfied that the appellant had  sufficient cause for not preferring the appeal  within a further period of thirty days, admit  if presented within a further period of fifteen  days.         (**Provided that the additional price shall  become payable to a sugar grower even  when he supplies less than 85% of the  sugarcane so agreed, if for the same supply  he has not been subjected to any penalty by  or under any Central or State Act or any  rules or orders made thereunder for his  failure to supply 85% of sugarcane so  agreed."

8.      Some of the States in India, however, even prior to coming into force  of the said Parliamentary Act, had enacted Legislative Acts, inter alia,  providing for to regulation and control of production of sugar.   9.      We may notice that in the State of Uttar Pradesh, the Government of  Uttar Pradesh enacted Sugar Control Act, 1938.  The Legislature of the State  of Uttar Pradesh, furthermore, enacted UP Sugarcane (Regulation of Supply  and Purchase) Act, 1953. 10.     We may divide the mode and manner in which the prices for levy  sugar were to be fixed by the Central Government in three different periods.   11.     Prior to 1.10.1974, the Central Government, for arriving at the price

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of levy sugar, used to mop up the entire excess realization of amount  received by the owners of the sugar mills out of sale of free sugar as no  restriction thereupon was imposed. 12.     Levy sugar price also used to be premised on Statutory Minimum  Price (SMP), a factor specified in clause (a) of Section 3(3C) of the Act  which is to be determined in terms of clause (3) of the Sugarcane Control  Order, 1966 and not on the actual cane prices paid by the sugar factories to  the cane growers.   13.     The Central Government, however, appointed a Committee  commonly known as Bhargava Commission.  It gave its recommendations,  inter alia, opining that mopping up of the extra sale realization should be  confined to 50%.   14.     The Central Government, relying on or on the basis of the  recommendations of the said Commission, introduced clause 5A in the said  Order as a result whereof additional price came to be paid to the growers of  sugarcane (1) over and above the SMP by the sugar producers; (2)  equivalent amount from free market sales realization came to be retained by  the sugar producer. 15.     In terms of the said amendment carried out in Sugarcane Control  Order in the year 1974, while determining the levy sugar price, 50% of the  mopping up was permitted provided the liability of sugar producers towards  cane growers to the extent of 50% of excess realization was also taken to be  a factor as a part of cost of production.  To put it differently, in the earlier  scenario whereas entire extra sales realization was applied to reduce the  price of levy sugar, upon amendment of the said Order, only 50% of the  entire sales realization was considered to be permissible to reduce the price  of levy sugar provided the liability of excess realization was also considered  as a part of cost of production. 16.     Post October 1974, therefore, apart from the levy sugar being based  on the SMP only, the same was based on the actual cane price payable by  the sugar producer.  However, according to the sugar mill owners, the  Central Government continued with the exercise of determination of the  price of levy sugar on the basis of 100% mopping up and had not been  considering the said changed scenario.   17.     We may also notice that the State of Uttar Pradesh in purported of its  power conferred upon it under Section 16 of the 1953 Act enforced a price  to be paid by the owners of the sugar mill to the producers known as State  Advisory Price (ASP).  Indisputably, the SMP as also the ASP for sugarcane  varied from year to year.  18.     Questioning the mode of calculation resorted to by the Central  Government in determining the price of levy sugar, particularly, the effect of  clause 5A of the Sugarcane Control Order, as also the price levied by the  State known as ASP, Mahalakshmi Sugar Mills and Hari Nagar Sugar Mills  filed writ applications before the Delhi High Court in the year 1985. 19.     Indisputably, similar writ applications for different sugar mills were  filed by different owners of the sugar mills. 20.     One of the contentions raised in the said writ applications was that  100% mopping up was illegal and the liability of the sugar producers  towards the cane growers was to be considered before arriving at the price of  levy sugar.   21.     One of the matters which came up before this Court is Shri  Malaprabha Cooperative Sugar Factor v. Union of India (Malaprabha-I)  since reported in [(1994) 1 SCC 648] wherein this Court, inter alia, held : "102. In paragraph 2.15 the details of the scheme  were given as follows:  "SUGARCANE SUPPLIES STABILISATION  SCHEME  2.15 The details of the scheme are as follows:  (1) A statutory minimum price for sugar-cane  related to a basic recovery of 8.6 per cent with a  premium for every 0.1 per cent increase in  recovery on proportionality basis will be fixed by  the Government of India.    (2) The minimum price payable by individual

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factories will be fixed on the basis of the recovery  of the factory for the normal crushing period of the  previous season.  

(3) The statutory minimum price as fixed above  shall be paid to all the cane growers subject to  clauses (18) and (19) of this scheme.    (4) The factories shall share their extra sales  realisation from sugar with the cane growers who  execute agreements for supply of cane and fulfil  contracts.    (5) The extra sales realisations shall be calculated  according to the following formula:  

S=R-L

Where S stands for the amount shareable; R stands  for the sales realisations ex-factory excluding  excise duty paid or payable to the factory by the  purpose; and L stands for sugar price as calculated  on the basis of the statutory minimum cane price  and according to the Tariff Commission schedules  in force at the time. (In periods of control and  partial control, L stands for the final levy price of  sugar fixed by Government.)  (6) The sales realisations will be in respect of the  sugar produced during the season.    (7) The sales realisations will comprise\027  (i)     the actual amount realised up to and  inclusive of September 30; and  (ii)    the estimated value of the unsold stocks held  at the end of September 30.  In case (ii) the value of the stocks will be  calculated at the average rate of the sales made  during the last fortnight of September.    (8) The excess or shortfall in realisation from the  actual sale of the unsold stock of the season after  September 30 shall be carried forward to and  adjusted in the extra sales realisations of the  following season.  (9) The extra realisation shall be divided equally  between the factory and the cane growers. ..."   104. It is true that Clause 5-A deals with  additional price payable to the sugar-cane  grower. However, if the recommendations  made by the Bhargava Commission and the  method of computation are taken into  consideration, it will be clear that the  producer of sugar will be entitled to retain  an amount equivalent to the amount paid to  the cane grower under Clause 5-A. That  amount cannot be taken into consideration  for determination of the price of levy sugar.  This will be evident from paragraphs 2.17,  2.20, 2.21 and 2.39 of Chapter II of  Bhargava Commission Report."  

It was furthermore observed :

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"108. We are unable to agree with the submissions  advanced on behalf of the Government that Clause  5-A deals only with the amount payable to the  cane grower and that it cannot have any relevance  for determination of levy sugar. If the  determination of minimum price of sugar and  fixation of the price of levy sugar under quantity of  sugar to be supplied by the producer are inter  connected, then they must be read as a whole and  not separately as though each is distinct. While  fixing the price of levy sugar regard is had only to  the minimum cane price as spoken to under  Section 3(3-C)( a ). This minimum cane price is  referable to clause (3) of Sugar-cane (Control)  Order. The additional price payable to the cane  grower under Clause 5-A will arise after the expiry  of the sugar year. Sugar price will have to be met  only from the extra realisation made by the  producer by the sale of sugar in free market which  will naturally be more than the levy price.    109. In view of the above discussion, the  impugned notifications except the one dated  November 28, 1974 cannot be upheld. The reason  why we leave out the notification dated November  28, 1974 is that the same came to be issued before  the new pricing policy was introduced. We hereby  direct the Union of India to amend the notifications  taking into account the liability of the  manufacturers under Clause 5-A of the Sugar-cane  (Control) Order as regards cane price and refix the  price of levy sugar having regard to the factors  mentioned in Section 3(3-C) of the Act. The  Government will have time to issue the amended  notifications as directed above till December 31,  1993."   22.     Indisputably, a review application filed thereagainst was dismissed by  this Court by an order dated 23.2.1994.  The Central Government filed an  application praying for clarification as also for extension of time so as to  enable it to re-determine the price of levy sugar which by an order dated  22.2.1995 was dismissed but the time for re-fixation of the price was  extended as prayed for.  It appears that during the pendency of the said writ  petitions, in the said appeals before this Court in Malaprabha-I, a transfer  application came to be filed by Modi Industries Ltd.  The sugar year  involved therein was 1982-83.  In that case, the Central Government stated  that additional cane price payable under clause 5A of the Sugarcane Control  Order, 1966 had not been taken into consideration and furthermore no  mopping up of excess realization on levy free sale sugar having been  resorted to while fixing the levy price for the year 1982-83 by a judgment  and order dated 30.1.1996 opined that Malaprabha-I was not applicable. The  said decision is since reported in Modi Industries Ltd. & Anr. v. Union of  India & Ors. [1999) 9 SCC 245].  This Court therein opined : "In compliance with our order dated 30.1.1996, an  additional affidavit on behalf of the Union of India  has been filed by Shri Deepak Khandekar, Deputy  Secretary to the Government of India.  In the  additional affidavit, it has been expressly stated  that while determining the minimum cane price of  levy sugar in regard has been had only to the  minimum cane price as spoken to in Section 3(3- C)(a) of the Essential Commodities Act, 1955 and  the additional cane price payable under clause 5-A  of the Sugar (Control) Order, 1966, has not been

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taken into account, and that also there has been no  mopping up of excess realization on levy-free sale  sugar while fixing the price of levy sugar for the  season 1982-83. In view of the above further statement made in the  additional affidavit filed on behalf of the Union of  India, we are satisfied that this matter is not  covered by the decision of this Court in Shri  Malaprabha Coop. Sugar Factory Ltd. v. Union of  India [(1994) 1 SCC 648]."

23.     We may notice that similar orders were passed by this Court on  19.8.1998 in the case of Bharat Sugar Mills Ltd. & Anr. v. Union of India &  Ors. and Union of India & Ors. v. Triveni Engg. Works Ltd. & Ors. by a  judgment and order dated 2.2.1999 which are since reported in (1999) 7  SCC 246 and (1999) 7 SCC 244 respectively.  In Bharat Sugar Mills (supra)  as also in Triveni (supra), this Court followed the decision in Modi on the  premise that the sugar year involved therein was also 1982-83. 24.     It is, however, of some significance to notice that in the case of Bharat  Sugar Mills, the Central Government in its counter affidavit filed on  16.4.1998, in response to the Court’s order in regard to the sugar year 1983- 84 and 1984-85 to re-fix the price, stated : "It is submitted that in regard to the Levy Sugar  (Price Determination 1982-83 Production) Order,  the Supreme Court has already upheld the  notification issued under Essential Commodities  Act in M/s Modi Industries Ltd. v. Union of India  & Anr. [TC (C) No.9 of 1990 (Annexure-I)]. In the case of Malaprabha Co-operative Sugar  Factory Ltd. v. Union of India the Supreme Court  had in their order dated 22.9.1993 [(1994) 1 SCC  648] and order dated 28.1.1997 directed the  refixation of ex-factory price of levy sugar for the  season 1974-75 to 1979-80.  The Supreme Court  had in its order dated 28.1.1997 held that their  order dated 20.2.1996 in TC (C) No.9 of 1990 was  applicable only in respect of sugar year 1982-83  and it cannot have any bearing for the years 1975- 76 to 1979-80.         Based on the judgment delivered by the  Supreme Court Order dated 28.1.1997 in the case  of M/s Malaprabha Co-operative Sugar Factor Ltd.  & Ors. v. Union of India & Ors., the Government  is considering the question of revision of levy  sugar prices for the years 1974-75 to 1979-80 and  other subsequent years with the exception of the  sugar year 1982-83 in accordance with the  directions contained in the aforesaid judgment."

25.     Relying on or on the basis of the said assertion made by the Central  Government, this Court, by an order dated 21.4.1998, directed : "T.C. (Civil) Nos. 18-20, 23-28, 30, 32-36 and 38- 39/9 are disposed of in the light of the judgments  of this Court in Malaprabha Coo-operative Sugar  Factory Ltd. Vs. Union of India & Anr. (1994 (1)  SCC 648) read with 1997 (1) SCC 216.  The  respondents 2 and 3 in their counter dated 16.4.98  have also stated that for these years they are  revising sugar prices in the light of the above two  judgments.  It is, therefore, ordered accordingly.   The prices will be fixed within 12 weeks from  today.  In respect of the year 1982-83 the  respondents shall file an additional affidavit setting  out the basis on which the prices have been fixed

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for the zones with which we are concerned in the  Transferred Cases.  The affidavit will be filed  within six weeks.  Rejoinder may be filed within  two weeks thereafter.  Rest of the TCs. are  adjourned till after the summer vacation."

26.     The Central, Government, therefore, in no uncertain terms took the  stand that they would follow Malaprabha-I in the involving relevant sugar  years except for the year 1982-83.   27.     The question of implementation of Malaprabha-1 vis-‘-vis Modi again  came up for consideration before this Court, as some interlocutory  applications were filed in Shri Malaprabha Co-op. Sugar Factory Ltd. v.  Union of India & Anr. (Malaprabha-II) [(1997) 10 SCC 216].  This Court  noticed the wrong attitude on the part of the Central Government to find  excuses for not complying with the judgment of this Court as the same was  not palatable to them.  It therein moreover noticed several notifications  issued by the Central Government from time to time.  Upon consideration of  several contentions raised by the Central Government in Malaprabha-I, this  Court pointed out how the Union of India had been making attempt(s) to  misconstrue and misinterpret the earlier judgments.  It, upon noticing the  contentions of the Central Government that Section 3(3C) of the Act and  clause 5A were totally independent, in Malaprabha-I, held : "If the determination of minimum price of sugar  and fixation of the price of levy sugar under  quantity of sugar to be supplied by the producer  are interconnected, then they must be read as a  whole and not separately as though each is  distinct".

28.     The factors which were to be taken into consideration, therefore, were  necessary to depress and reduce the levy sugar price.  It was also noticed that  clause 5-A was introduced as a new pricing policy creating a new liability  upon the owners of the sugar mills observing : "In view of this new liability this Court held that  the Government was bound to take that also into  account while fixing the price of levy sugar,  without specifying as to whether the liability  became component of Factor A’ or Factor ’B’ or  both those factors of Section 3(3-C)."

29.     Dealing with a new contention which was raised by the Union of India  visa-vis the decision in Modi, it was observed that the direction given in  paragraph 109 of Malaprabha-I was quite clear and did not lend itself to two  interpretations and there was no confusion in relation thereto as thereby this  Court had directed the Central Government to take into account the liability  of the manufacturer under clause 5A of the 1996 order as regards cane price  for re-fixation of the price of levy sugar.  It was commented : "The doubt or confusion, if any, appears to us to be  the result of unwillingness of the Government to  give up its views and accept and implement the  decision of this Court."

30.     It was furthermore clarified that the issue as to whether the entire or  only 50% of the free sugar price could be mopped up in view of the new  price policy contained in clause 5A for depressing the levy of the price,  stating : "Since by the new pricing policy a benefit was  sought to be conferred on the producer of sugar by  making him entitled to retain 50% of the extra  realization, this Court held that the said amount  cannot be taken into consideration for  determination of the price of levy sugar.  That was  entirely a different aspect.  The observation which

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is made in para 109 and the direction given therein  is with respect to the aspect of sugar producer’s  liability to pay additional sugarcane price.  Clause  5-A being interconnected with Section 3(3-C), this  new liability would certainly get projected into  Factors ’A’ and ’B’ of Section 3(3-C).  As earlier  pointed out mopping up of extra realization is an  element of Factor ’D’ of Section 3(3-C).  Thus, the  contentions raised on behalf of the respondents  even otherwise also do not deserve to be  accepted."

31.     Distinguishing Modi (supra), the law was stated in the following  terms : "Even if the Government has omitted to take into  consideration one unfavourable element, namely,  mopping up of excess realization it cannot justify  its omission to take into consideration another  relevant element which is favourable to the  producer of sugar."

32.     It was, therefore, emphasized that whereas an unfavourable element,  namely, mopping up of excess realization is to be taken into consideration,  the favourable element, namely, liability created towards cane growers for  the purpose of determination of the price could not have been ignored. 33.     Two different Benches of the Delhi High Court, however, reacted  differently to the aforementioned decisions of this Court by reason of the  judgments which are impugned before us in the case of Hari Nagar Sugar  Mills disposed of on 16.3.2005 and in the case of Mahalakshmi Sugar  Company disposed of on 9.11.2006.   34.     Before noticing the respective contentions of the learned counsel  appearing for the parties herein, we may notice two other decisions of this  Court.   35.     In The Godavari Sugar Mills Ltd. v. Union of India & Anr. [JT 2001  (10) SC 527] wherein the relevant sugar year was 1985-86, a question arose  as to whether after a long lapse of time, the petitioner therein should be  permitted to raise new contentions through a writ petition.  This Court  refused to exercise its discretionary jurisdiction in permitting the petitioner  therein to do so holding that the same will have great financial impact on the  Central Government.  The Bench chose to follow Modi (supra).   36.     A contempt petition was also filed by Malaprabha-I for non- implementation of the decisions of this Court wherein a Bench of this Court  opined that no contempt has been committed by the Central Government.   The said decision is reported in Malaprabha Coop. Sugar Factory Ltd. v.  Union of India & Anr. (Malaprabha-3) [(2002) 9 SCC 716].  It was held : "This Court in the aforesaid two decisions has said  that the retention of 50 per cent is a factor which  can be taken into consideration in determining  element (d) in Section 3(3C) of the Essential  Commodities Act.  The working statement given  before us shows that this has been done, not to the  extent as desired by the petitioners, but the result  of this is that the levy price fixed at Rs.163.780 in  respect of West U.P. has gone up to Rs.172.430.   In our opinion, the said fixation is in accordance  with law and the directions given by this Court  have been complied with.  Neither a case for  contempt has been made out nor is there any  justification, in our opinion, for giving any  direction to the Government to refix the levy price  under Section 3(3-C) of the Essential Commodities  Act."

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37.     To complete the narration of facts, we may also notice that validity of  the orders passed by the State of U.P. in purported exercise of its power  under Section 16 of the 1953 Act was questioned before a Division Bench of  the Allahabad High Court in West UP Sugar Mills Association & Ors. v.  State of U.P. & Ors. [1997 (1) UPLBEC 541].  A Division Bench of the said  Court noticed that the purported policy of the State of Uttar Pradesh which  had been prevailing from 1973 was ultra vires, the legislative field being  covered under the Essential Commodities Act.  The UP Cooperative Cane  Union Federations came up before this Court questioning the correctness of  the said judgment.  The matter was referred to a Constitution Bench.  The  majority reversed the decision of the Allahabad High Court holding that the  State in exercise of its power of regulation and control of sugar industries  could fix a higher price for the sugarcane, stating : "These cases clearly lay down that under the 1966  Order, the Central Government only fixes the  minimum price and it is always open to the State  Government to fix a higher price.  Under the  enactments made by the State Legislatures, areas  are reserved for the sugar factories and the cane- growers therein are compelled to supply sugarcane  to them and therefore, the State Government has  incidental power to fix the price of sugarcane  which will also be the statutory price.  They further  lay down that the Cane Commissioner can direct  the cane-growers and the sugar factories to enter  into agreements for purchase of sugarcane at a  price fixed by the State Government and such  agreements cannot be branded as having been  obtained by force or compulsion."

       It was furthermore held : "The second reasoning given by the High Court is  that even if the State Government had the power to  fix the minimum cane price under Section 16 of  the 1953 Act, this power came to an end in view of  Article 254(1) of the Constitution on the enactment  of the EC Act and the promulgation of the  Sugarcane (Control) Order, 1955 (later replaced by  the 1966 Order), which now gives exclusive power  to the Central Government to fix the minimum  price.  As discussed earlier, we are not in  agreement with the aforesaid reasoning as the  question of repugnancy does not arise.  The High  Court has also held that the Central Government,  while fixing the price of sugar under Section 3(3- C) of the EC Act, takes into consideration the  minimum price of sugarcane fixed under the 1966  Order and if the sugar mills are compelled to pay a  higher price than that fixed by the Central  Government, it will disturb the price of the levy  sugar and such an eventuality could not have been  contemplated by the legislature.  Over a period of  time, the quota of levy sugar has gone down from  40 per cent to 10 per cent of the total production of  sugar and the sugar mills are now free to sell 90  per cent of their production in open market.  Under  Section 3(3-C) of the EC Act, the Central  Government has to determine the price of the levy  sugar having regard to several factors enumerated  in the sub-section and the minimum price fixed  under the 1966 Order is only one of the factors.   The manufacturing cost of sugar and securing of  reasonable return on the capital employed in the  business of manufacturing sugar are also relevant  factors under clause (b) and (d) of Section 3(3-C)

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of the EC Act and, therefore, the fixation of higher  price for sugarcane by the State Government by  itself cannot have any major or substantial impact  on the fixation of the price of the levy sugar by the  Central Government."

38.     We have noticed hereinbefore the divergent views taken by two  Division Benches of the Delhi High Court.   39.     In the case of Mahalakshmi Sugar, the Delhi High Court framed three  issues : "(a)    Whether, in view of the judgments of  the Hon’ble Supreme Court in  Malaprabha-I and Malaprabha-II the  impugned order of the Central  Government fixing the price of levy  sugar for 1984-1985 is liable to be  struck down inasmuch as it admittedly  does not account for the additional  price payable by the sugar  manufacturer under Clause 5A of the  Control Order? (b)     Is the Central Government, while  fixing the price of levy sugar under  Section 3(3C) EC Act, liable to  account for the SAP fixed by the State  of UP and mandatorily required to be  paid by the sugar manufacturer to the  sugarcane grower? (c)     Is the State of UP liable to bear the  liability arising out of the difference  between the SAP and the combination  of the SMP and the additional price?"

40.     In regard to the first issue, it was held that the decision in Modi  (supra) covers the field in regard to the application of the factor of payment  of additional price to the cane growers.  In regard to the factor of State  Advice Price (SAP), the High Court upon noticing paragraph 44 of the  judgment in Cane Growers Federation (supra) held that the same was not a  relevant factor for the purpose of determination of the price of levy sugar.  In  regard to the issue (c), it was held that the State of Uttar Pradesh is not liable  to pay the difference of price to the writ petitioners. 41.     Mr. Nageshwar Rao, learned senior counsel appearing on behalf of the  appellant in CA @ SLP (C) No.481/07 (Mahalakshmi) urged : 1.      Determination of price of levy sugar being a statutory legislative  function, the Central Government could not have ignored any of the  factors laid down therefor. 2.      As in Malaprabha-I, levy of additional price in terms of Clause 5A of  the order was held to be a relevant factor within the meaning of clause  (b) of Section 3(3C) of the Act, the Central Government could not  have ignored the same only on a specious plea that the mopping up of  the excess amount realized by the sugar mill owners have come down  from 100% to 50%. 3.      In view of the clear and unambiguous directions of this Court in  Malaprabha-I, as clarified in Malaprabha-II, the Central Government  was obligated to take into consideration the fact that the liabilities of  the owner towards the cane grower in terms of Clause 5A of the Order  as also the State Advice Price would follow in purview of clauses (b)  and (d) of Section 3(3C) of the Act.  4.      A Constitution Bench of this Court having opined that imposition of  SAP being statutory in nature and as the same enhanced the liability  of the sugar mill owners to be a relevant factor for determination of  the price of levy sugar both under clauses (b) and (d) thereof, the High  Court committed a serious error in passing the impugned judgment.   5.      The High Court misread and misinterpreted the observations of this

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Court in paragraph 44 of the UP Cane Growers’ case wherein it had  categorically been held that SAP for the purpose of determination of  the price of levy sugar would come within the purview of clause (b) of  Section 3(3C) of the Act.   6.      Price of sugarcane for being 70% component of the price of sugar, the  total liability of the owner in relation thereto was mandatorily required  to be considered by the Central Government.   7.      In view of the stand taken by the Central Government itself in the case  of Bharat Sugar Mills for the sugar years 1983-84 and 1984-85 which  was not confined to the case of the petitioners therein, the Central  Government could not have taken a different stand in the instant  cases. 42.     Mr. Mohan Parasaran, learned Additional Solicitor General appearing  on behalf of the Union of India, on the other hand, urged : 1.      In view of the decisions of this Court in Malaprabha-I, the Central  Government sought to rectify the mistake by introducing Clause 5A in  the Sugar Control Order in terms whereof the additional price required  to be paid to the cane growers was to be adjusted with the 50%  mopping up from the excess amount realized by the owners of the  sugar mills.   2.      This Court in Malaprabha-3 having found the action on the part of the  Central Government to be in terms of the decision of this Court in  Malaprabha-I, no case has been made out for interference with the  impugned judgment. 3.      There being no difference in determination of the price for levy sugar  for the years 1982-83 and 1985-86 vis-‘-vis sugar year 1983-84 and  1984-85, this Court should affirm the decision of the Delhi High  Court dismissing the writ petition of the owners, particularly, when a  similar view has been taken in Bharat Sugar Mills (supra) and Triveni  (supra). 4.      In any event, even on equitable considerations, this Court should not  interfere with the decision of the High Court after such a long time.   5.      Power of judicial review in the case of the price fixation being  limited, this Court should not interfere in the matter particularly  having regard to the fact that fixation of price is a legislative function. 43.     The Parliament enacted the Essential Commodities Act, 1955 to  provide in the interest of general public, the control of production, supply  and distribution of, and trade and commerce, in certain commodities.   Section 3(3C) of the Act reads as under :  "3.(3C) Where any producer is required by an  order made with reference to clause (f) of sub  section (2) to sell any kind of sugar (whether to the  Central Government or a State Government or to  an officer or agent of such Government or to any  other person or class of persons) and either no  notification in respect of such sugar has been  issued under sub-section (3A) or any such  notification, having been issued, has ceased to  remain in force by efflux of time, then,  notwithstanding anything contained in sub-section  (3), there shall be paid to that producer an amount  therefor which shall be calculated with reference to  such price of sugar as the Central Government  may, by order, determine, having regard to- (a) the minimum price, if any, fixed for sugarcane  by Central Government under this section ; (b) the manufacturing cost of sugar; (c) the duty or tax, if any, paid or payable thereon;  and (d) the securing of a reasonable return on the  capital employed in the business of manufacturing  sugar and different prices may be determined from  time to time for different areas or for different  factories or for different kinds of sugar. Explanation.-For the purposes of this sub-section,

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"producer" means a person carrying on the  business of manufacturing sugar."

44.     A direction by the Central Government to the owners of the sugar  mills that a part of their products would be sold at a price determined by it  was within its realm.  Such a quota could be fixed by the Central Govrnment  in exercise of its power under Section 3(2)(f) of the Act. 45.     Indisputably, determination of price in terms of the provisions of the  Act is a legislative function.  The Superior Courts ordinarily would not  interfere therewith.  But when such a function is carried out in contravention  of the statutory requirements, the courts are not powerless.  In a case of this  nature, it becomes the duty of the Court to interpret its earlier judgments and  refer the one which is applicable. 46.     Determination of a price is required to be carried out keeping in view  certain factors specified therein.  The term "having regard to" plays an  important role in the matter of construction of the relevant provisions of the  Act.  If a price is determined without applying the principles underlying the  factors enunciated in Section 3(3C) of the Act, the superior courts can issue  requisite direction. 47.     When the validity a notification issued by the Central Government in  exercise of its power under a statute is questioned, even if the provision is  directory in nature, substantial compliance thereof must be shown to have  been made.  The statutory authority must apply its mind.   48.     The directions issued in the decisions of this Court must be  demonstrated to have been complied with. {See Shri Sita Ram Sugar  Company Ltd. v. Union of India [(1990) 3 SCC 223]}. [See also  Commissioner of Income-Tax, West Bengal, Calcutta v. Gungadhar  Banerjee & Co. (P) Ltd. [(1965) 3 SCR 439, Page 444, Placitum E to Page  445, Placitum C]; The Panipat Co-operative Sugar Mills v. The Union of  India [(1973) 1 SCC 129, Para 30]; The State of Karnataka & Anr. v. Shri  Ranganatha Reddy & Anr. [(1977) 4 SCC 471], Paras 22 to 24; State of U.P.  & Ors. v. Renusagar Power Co. & Ors. [(1988) 4 SCC 59, Paras 80-84]; Shri  Sitaram Sugar Company Ltd. & Anr. v. Union of India & Ors. [(1990) 3  SCC 223, Paras 28-30]; Kuldip Chand & Anr. v. Advocate-General to  Government of HP & Ors. [(1990) 4 SCC 356, Para 15]; Delhi Farming &  Construction (P) Ltd. v. Commissioner of Income Tax, Delhi [(2003) 5 SCC  36, Para 26]. 49.     Section 3(3C) of the Act specifies four factors.  The Statutory  Protected Price, as specified by the Order, would be a factor which would be  covered by clause (a).  The Central Government, however, cannot ignore the  other factors. 50.     How the statutory direction to pay additional price to the cane  growers, as envisaged under clause 5A of the Order or the State Advisory  Price as mandated by the States in exercise of their regulatory power ,would  be applied in determining the price of levy sugar was the subject matter of  various decisions of this Court. 51.     In Malaprabha-I, this Court noticed the statutory change effected by  reason of insertion of Clause 5A in the Order w.e.f. 1.10.1974.  The question  raised before this Court was that in price fixation, the Central Government  had not taken into consideration the relevant criteria laid down under Section  3(3C) of the Act while issuing notifications in regard to the fixation of price  of levy sugar.  Noticing the decision of this Court in Indian Express  Newspapers (Bombay) Private Ltd. and Ors. v. Union of India and Ors.  [(1985) 1 SCC 641], it was held that subordinate legislation can be  questioned on any ground on which the primary legislation could be  questioned.  The premise of judicial review may be glanced from the  following observations made by this Court in Bombay Dyeing &  Manufacturing Co. Ltd. v. Bombay Environmental Action Group [(2006) 3  SCC 434] : "80. A policy decision, as is well known, should  not be lightly interfered with but it is difficult to  accept the submissions made on behalf of the  learned counsel appearing on behalf of the  Appellants that the courts cannot exercise their

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power of judicial review at all. By reason of any  legislation whether enacted by the legislature or by  way of subordinate legislation, the State gives  effect to its legislative policy. Such legislation,  however, must not be ultra vires the Constitution.  A subordinate legislation apart from being intra  vires the Constitution, should not also be ultra  vires the parent Act under which it has been made.  A subordinate legislation, it is trite, must be  reasonable and in consonance with the legislative  policy as also give effect to the purport and object  of the Act and in good faith."

52.     Judicial review of subordinate legislation has also been dilated upon  by the Court recently in Vasu Dev Singh v. Union of India [2006 (11)  SCALE 108, Paras 12 to 23].  {See also Life Insurance Corporation of India  & Ors. v. Retired L.I.C. Officers Association & Ors. [2008 (2) SCALE  484]}. 53.     From these decisions, it may be deduced that validity of subordinate  legislation may be questioned on the ground that : a)      it is ultra vires the Constitution; b)      it is ultra vires the parent Act; c)      it is contrary to the statutory provisions other than those contained  in the parent Act; d)      law-making power has been exercised in bad faith; e)       It is not reasonable; and f)      it goes against legislative policy, and does not fulfill the object and  purpose of the enabling Act.  54.     In Malaprabha-I, Statutory Minimum Price statutorily required to be  paid by the sugar producers to the sugarcane grower was held to be an  element so far as factor (b) of Section 3(3C) of the Act is concerned.  This  Court took notice of the recommendations of Bhargava Commission.  This  Court, despite its limited power of judicial review, held that the Central  Government cannot ignore any of the factors specified in Section 3(3C) of  the Act for the purpose of fixation of price for levy sugar.  What was  relevant was the actual cane price paid and excess realization from free  market sales therefor. 55.     In Sitaram Sugar (supra) payment of price of sugarcane to the growers  has been found to constitute 70% of the total price.  Therefore, it  indisputably had a great role to play for determining the price of levy sugar.   Only with a view to determine the price, it was also necessary to take into  consideration the manufacturing cost and reasonable return on the capital  employed.  The Essential Commodities Act does not contemplate that  manufacturers of sugar must continue their activities although the units were  running at a loss.  Purported object for which Clause 5A was introduced was  to see that the sugar industry became entitled to excess realization of free  sugar which would give them a reasonable margin for meeting their  requirements including modernization and expansion of the Plant. 56.     Sub-clause (iv) of Clause 5A of the Order mandates that the additional  price determination under sub-clause (ii) shall be paid by the producer of  sugar to the sugarcane grower.  It is, therefore, mandatory in character and  added to the price of the sugarcane. It was clearly held that 50% of the  mopping up amount could not be taken into consideration for determination  of the price of levy sugar.  Admittedly, mopping up of 100% was held to be  illegal.   57.     It was in the aforementioned premise, this Court followed the decision  of Justice E.S. Venkataramiah in Writ Petition No.432 filed in the High  Court of Karnataka (quoted in Malaprabha-I (1994) 1 SCC 648), wherein it  was observed that if the additional price under Clause 5A is allowed to be  done, the producer of sugar would be compelled to carry on production of  sugar without having an idea of the price that is likely to be determined by  the Central Government under Section 3(3C).  A producer must draw an  object, having regard to his assets and liabilities, income and expenditure,  whether he would be able to have a reasonable amount of profit or not.  It  was in that situation, the Central Government was directed to refix the price

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of levy sugar.  The jurisdiction of this Court to interfere in the matter had  clearly been spelt out. 58.     Modi, Bharat Mills and Triveni dealt with sugar year 1982-83 only.  It  proceeded on the basis that in that year, the mopping up having not been  done and levy in terms of Clause 5A had not been applied, the factors laid  down under Section 3(3C) stood complied with.  It is for the aforementioned  limited extent, Malaprabha-I was distinguished.  No reason has been  assigned in support of its decision.  Rival contentions had not been noticed.   The effect of payment of additional price as also SAP effect in determining  the price did not fall for consideration therein.  Godavari (supra), as noticed  hereinbefore, was decided on the same line, particularly, having regard to  the fact that the prayers made by the appellant therein are sought to be  amended which was not allowed.   59.     It is in the aforementioned situation, Malaprabha-II assumes  significance.  It not only explained the ratio laid down in Malaprabha-I but  also took into consideration Modi Industries (supra) as also fresh arguments  advanced on behalf of the Central Government.  All contentions of the  Central Government were specifically rejected.   60.     The decision in Malaprabha-II that while taking into consideration the  unfavourable factor, the Central Government cannot refuse to consider the  factor which is favourable to the mill owner assumes significance.  We say  so for two reasons \026 (1) it is possible that while confining mopping up to the  extent of 50%, the fact of additional price paid in terms of Clause 5A of the  Order would be neutralized or adjusted but the same would not mean that the  exercise shall not be carried into effect; and (2) the effect of payment of an  extra amount in terms of State Advisory Price cannot be refused to be taken  into consideration.   61.     We are not unmindful of the fact that the learned counsel for the  appellant in Mahalakshmi before the High Court confined its case only to  SAP but then in Hari Nagar Sugar Mills, the Delhi High Court accepted the  contentions which have been raised before us.   62.     When the legislative policy is reflected in a statutory provision, the  Court, while being called upon to determine as to whether the same has been  complied with or not, must apply the rule of purposive construction.  It is  idle, in a case of this nature, to contend that as the element of additional  price paid under Clause 5A of the Order and SAP had not been specifically  provided for in Section 3(3C), they should be kept out of consideration for  the purpose of determination of the price of levy sugar.  If the actual price  payable to the cane growers is absolutely relevant for determining the price  of levy sugar, we have no doubt in our mind that consideration of the said  elements would come either under clause (b) or clause (d) of Section 3(3C)  of the Act.  It was so held in Malaprabha-I.  It is interesting to note that the  Constitution Bench of this Court in UP Coop. Cane Unions Federations  rejected a contention raised by the parties that in the event the State is held  to have the legislative competence to impose the same, it will have an  adverse effect on the price of levy sugar required to be determined under  Section 3(3C) of the Act as noticed supra. 63.     Clauses (b) and (d) of Section 3(3C) were, therefore, clearly held to be  attracted by the Constitution Bench also. 64.     The importance of applying the Rule of purposive construction has  recently been noticed by this Court in New India Assurance Co. Ltd. v.  Nusli Neville Wadia [2007 (14) SCALE 556] in the following liness : "48. Section 5 of the Act, on a plain reading,  would place the entire onus upon a noticee. It, in  no uncertain terms, states that once a notice under  Section 4 is issued by the Estate Officer on  formation of his opinion as envisaged therein Page  0183 it is for the noticee not only to show cause in  respect thereof but also adduce evidence and make  oral submissions in support of his case. Literal  meaning in a situation of this nature would lead to  a conclusion that the landlord is not required to  adduce any evidence at all nor it is required even  to make any oral submissions. Such a literal  construction would lead to an anomalous situation

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because the landlord may not be heard at all. It  may not even be permitted to adduce any evidence  in rebuttal to the one adduced by the noticee nor it  would be permitted to advance any argument. Is  this contemplated in law? The answer must be  rendered in the negative. When a landlord files an  application, it in a given situation must be able to  lead evidence either at the first instance or after the  evidence is led by the noticee to establish its case  and/ or in rebuttal to the evidence led by the  noticee.  49. The literal interpretation of the statute, if  resorted to, would also lead to the situation that it  would not be necessary for the landlords in any  situation to plead in regard to its need for the  public premises. It could just terminate the tenancy  without specifying any cause for eviction.  50. Except in the first category of cases, as has  been noticed by us hereinbefore, Sections 4 and 5  of the Act, in our opinion, may have to be  construed differently in view of the decisions  rendered by this Court. If the landlord being a  State within the meaning of Article 12 of the  Constitution of India is required to prove fairness  and reasonableness on its part in initiating a  proceeding, it is for it to show how its prayer  meets the constitutional requirements of Article 14  of the Constitution of India. For proper  interpretation not only the basic principles of  natural justice have to be borne in mind, but also  principles of constitutionalism involved therein.  With a view to read the provisions of the Act in a  proper and effective manner, we are of the opinion  that literal interpretation, if given, may give rise to  an anomaly or absurdity which must be avoided.  So as to enable a superior court to interpret a  statute in a reasonable manner, the court must  place itself in the chair of a reasonable legislator/  author. So done, the rules of purposive  construction have to be resorted to which would  require the construction of the Act in such a  manner so as to see that the object of the Act  fulfilled; which in turn would lead the beneficiary  under the statutory scheme to fulfill its  constitutional obligations as held by the court inter  alia in Ashoka Marketing Ltd. (supra).  51. Barak in his exhaustive work on ’Purposive  Construction’ explains various meanings attributed  to the term ’purpose’. It would be in the fitness of  discussion to refer to Purposive Construction in  Barak’s words: ’Hart and Sachs also appear to treat ’purpose’  as a subjective concept. I say ’appear’  because, although Hart and Sachs claim that  the interpreter should imagine himself or  herself in the legislator’s shoes, they  introduce two elements of objectivity: First,  the interpreter should assume that the  legislature is composed of reasonable people  seeking to achieve reasonable goals in a  reasonable manner; and second, the  interpreter should accept the non-rebuttable  presumption that members Page 0184 of the  legislative body sought to fulfill their  constitutional duties in good faith. This

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formulation allows the interpreter to inquire  not into the subjective intent of the author,  but rather the intent the author would have  had, had he or she acted reasonably.’

(Aharon Barak, Purposive Interpretation in Law  (2007) at pg. 87)  52. In Bharat Petroleum Corporation Ltd. v.  Maddula Ratnavalli and Ors. [(2007) 6 SCC 81],  this Court held: ’The Parliament moreover is presumed to  have enacted a reasonable statute (see  Breyer, Stephen (2005): Active Liberty:  Interpreting Our Democratic Constitution,  Knopf (Chapter on Statutory Interpretation -  pg. 99 for Reasonable Legislator  Presumption).’ 53. The provisions of the Act and the Rules in this  case, are, thus required to be construed in the light  of the action of the State as envisaged under  Article 14 of the Constitution of India. With a view  to give effect thereto, the doctrine of purposive  construction may have to be taken recourse to.  [See Oriental Insurance Co. Ltd. v. Brij Mohan  and Ors. [2007 (7) SCALE 753] .

65.     We are of the opinion that the same principle should be applied  herein. 66.     That is how the Central Government itself understood the decision of  this Court in Malaprabha-I.  It explicitly said so in the counter affidavit filed  in Bharat Sugar Mills.  Indisputably, for the purpose of determination of the  price of levy sugar, it called for the relevant materials from each of the  owner of the sugar mill.  It is, therefore, too late in the day for the Central  Government to contend contra.   67.     Rules of executive construction in a situation of this nature may also  be applied where a representation is made by the maker of legislation at the  time of introduction of the Bill or construction thereupon is put by the  executive upon its coming into force, the same carries a great weight.  68.     In this regard, we may refer to the decision of the House of Lords in  the matter of R.V. National Asylum Support Service [(2002) 1 W.L.R.2956]  and its interpretation of the decision in Pepper v. Hart [(1993) A.C. 593]. on  the question of ’executive estoppel’. In the former decision, Lord Steyn  stated:- "If exceptionally there is found in the Explanatory  Notes a clear assurance by the executive to  Parliament about the meaning of a clause, or the  circumstances in which a power will or will not be  used, that assurance may in principle be admitted  against the executive in proceedings in which the  executive places a contrary contention before a  court."

69.     A similar interpretation was rendered by Lord Hope of Craighead in  Wilson v. First County Trust Ltd., [2004] 1 A.C. 816, wherein it was stated:-  "As I understand it [Pepper v. Hart], it recognized  a limited exception to the general rule that resort to  ’Hansard’ was inadmissible. Its purpose is to  prevent the Executive seeking to place a meaning  on words used in legislation which is different  from that which ministers attributed to whose  words when promoting the legislation in  Parliament\005"  

70.     See for a detailed analysis of the rule of executive estoppel in a  writing of Francis Bennion entitled "Executive Estoppel: Pepper v. Hart

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revisited", published in Public Law, Spring 2007 issue, pg. 1. 71.     Reliance placed by the learned Additional Solicitor General on  Malaprabha-III is not apposite.  This Court therein found the action of the  Central Government to be not an act of contempt presumably because the  directions were held to have been substantially complied with.  We are not  exercising any contempt jurisdiction.  Contempt is a matter between the  Court and the contemnor.  We are herein called upon to determine as to  which view of Delhi High Court in Hari Nagar or Mahalakshmi is correct.   We cannot refuse to lay down the law having been called upon to do so.  We  must lay down a law for the future.  We, therefore, while directing the  Central Government to refix the price of levy sugar, would keep this  direction confined only to the parties before us including the interveners.   The reason therefor is that the other mill owners were not aggrieved thereby.   The parties before us are fighting their grievance for more than 22 years.   They should not be allowed to go empty handed. 72.     We are, therefore, of the opinion that Mahalakshmi has wrongly been  decided whereas Hari Nagar has correctly been decided.   73.     Appeals arising out of SLP (C) Nos.481/2007 and 14130/2007 filed  by Mahalakshmi Sugar Mills Co. Ltd. and Govind Nagar Sugar Ltd.  respectively are consequently allowed and Appeals arising out SLP (C)  Nos.14967-14978 of 2007 filed by Union of India & Ors. are dismissed.  No  costs.