http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 30  

PETITIONER: MAHARASHTRA   RAJYA  SAHKARI  SAKKAR  KARKHANA  SANGH   LTD.

       Vs.

RESPONDENT: STATE OF MAHARASHTRA  & ORS. ETC. ETC.

DATE OF JUDGMENT18/04/1995

BENCH: SAHAI, R.M. (J) BENCH: SAHAI, R.M. (J) JEEVAN REDDY, B.P. (J) SEN, S.C. (J)

CITATION:  1995 SCC  Supl.  (3) 475 JT 1995 (3)   581  1995 SCALE  (2)772

ACT:

HEADNOTE:

JUDGMENT: R.M. SAHAI, J. 1.   These are two sets of appeals filed by various Sahakari Sakkar   Karkhanas,  that  is,  Co-operative  Societies   of Sugarcane   Growers,  Private  Undertakings,   Joint   Stock Companies  producing sugar in the State of  Maharashtra  and the  State itself one, directed against direction by a  Full Bench  of  the Bombay High Court in Satara  Sahakari  Sakhar Karkhana  Ltd.  & Anr. v. Stale of Maharashtra &  Ors.,  AIR 1989 Bombay 53 that the cane growers who were not members of any  Co-operative  Society but who were required  to  supply their  cane  under reservation order or  Control  Orders  to sugar factories with which they were attached were  entitled to  market price instead of price fixed by  the  Government, and  other  directed against fixation of  market  price  for 1993-94  by the High Court at Rs. 740/- as against  Rs.340/- to Rs.400/- fixed by the Government. 2.   The directions issued by the Full Bench are as under:               "We  are  therefore of the view,  that  unless               provisions  for the following arc made in  it,               the State Order will not be valid               (i)   The   sugarcane  &rowers  who  are   not               members  of the factory or factories to  which               they  are required to supply  their  sugarcane               shall  be paid for the sugarcane  supplied  by               them  the price calculated at the market  rate               prevailing in the locality at the date of  the               sale;               (ii)  The market rate may be as agreed between               the parties, namely, the sugarcane grower  and               the factory or factories concerned.  If  there               is  any  dispute over it, the same  should  be               resolved by an independent authority which may               be  created  under the Order such as  the  one               under clause’12 of the present Order.  The au-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 30  

             thority  concerned should decide  the  dispute               expeditiously after hearing the parties and by               a speaking order,               (iii) No   unauthorised  deductions   on   any               account should be made by the factory from the               price  to  be  paid to  the  sugarcane  grower               without  his consent.  The State Order  should               provide  for a machinery similar to the  above               to  hear  and grant to the  sugarcane  grower,               expeditious relief if he has any complaint  in               that behalf."               585 The reasons for these directions were twofold, one, the  non members  were not bound by the price fixed under  bye-  laws framed under the Cooperative Sugar Act and other that  there was  no  machinery in the Zoning Order issued by  the  State Government  to  hear the non-members before  the  price  was fixed.   Before  examining whether these  reasons  are  well founded  in  law leading to the impugned  directions  it  is necessary  to narrate in brief the necessity which  impelled the Central Government to grant protection to sugar industry and consequently to control, supply and distribution of  the sugarcane without sacrificing the interest of canegrower. 3.   Sugar is an item of daily use in every household,  rich or  poor.  Use of white sugar has increased with rolling  of years,  growth of population, rise in income etc.  Today  it is somewhere 134 lakh tonnes.  Even in 1931 the  requirement was more than 9 lakh metric tonnes.  But the production  was nearly 1.8 lakh metric tonnes only.  And there was an import of  more  than  8  lakh  metric  tonnes.   The   Government, therefore,   decided  to  grant  protection  to  the   sugar industry.  The Bhargava Commission appointed by the  Central Government in 1970 in Chapter 1 of Part I of its report  has traced the growth and development of the sugar industry  and observed  that  till  1930-31  there  were  only  29   sugar factories  producing  1.22  lakh  tonnes  of  sugar  in  the country.   That  was,  however, not  adequate  to  meet  the internal  requirement and nearly 8 lakh tonnes of sugar  was imported  in that year.  In 1932 protection was  granted  to the  sugar industry.  Following this there was a  phenomenal expansion of the industry and the number of sugar  factories increased  to  111 in 19-3334 and to 137  in  1936-37.   The sugar  import which was about 8 lakh tonnes in  1930-31  was almost  stopped  from 19-3637. Thereafter there  was  little development  of the industry upto 1951-52.  The  development and regulation of the sugar industry came under the  control of Government of India for the first time from May 1952 when the  Industries (Development and Regulation) Act, 1951  came into force.  All the 138 sugar factories which were  working before   1952  were  registered  under  the  provisions   of Industries (Development and Regulation) Act, 1951. New sugar factories were established thereafter under licences granted by  the  Central Government.  Another important  feature  of post-1951 development noticed by the Commission was  setting up of sugar factories largely in the cooperative sector  due to  Government  policy of giving preference  to  cooperative societies  in the matter of licensing.  In respect of  State of  Maharashtra the Commission observed that sugar  industry in  Maharashtra  was  progressing very fast  and  the  sugar production  in Maharashtra was expected to reach 16.37  lakh metric  tonnes  and  the State was  to  become  the  largest producer of sugar in the country.  Today the State  accounts for nearly 30% of the sugar output.  The national output  of sugar  for 1991-92, 19-9293 and 1993-94 was 134 106  and  96 lakh metric tonnes respectively.  The output of  Maharashtra

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 30  

was 42, 36 and 27 lakh tonnes for the corresponding years. 4.While  granting  protection  to  the  sugar  factory   the Government did not ignore the interest of sugarcane growers. It is the basic rather the only raw material for sugar.   It is  grown  by cultivators who were usually exploited  or  at least  were  in danger of being exploited.   Therefore,  the Government agreed for fixing price of cane. 586 At  a conference called by the Government of India  in  1933 representatives  of cane growers asked for a  minimum  price The  Government  accepted the demand an in 1934  passed  the Sugarcane  Act,  193  which conferred  powers  on  the  then provincial  governments to fix minimum price for  the  cane. Since 1950 it is being don under Control Orders issued  from time the time.  The last Order known as Sugarcane  (Control) Order  was  ’Issued by the Central Government in  1966.  the main  feature  of  the  Order arc  two-fold   one,  that  it broadened the base for price fixation by providing that  the minimum  price  of can shall be fixed having regard  to  the cost  of production of sugarcane, the return to  the  grower from  alternative  crops,  the  availability  of  sugar   to consumer  at fair price, the price at which  sugar  produced from sugarcane is sold by producer of sugar and the recovery of  sugar  from sugarcane.  The other is that  it  regulates distribution  and  movement of sugarcane by  empowering  the Government  to  notify in the Gazette and reserve  any  area where sugarcane is grown for a factory having regard to  the crushing  capacity  of  the  factory,  the  availability  of sugarcane  in the reserved area and the need for  production of  sugar with a view to enable the factory to purchase  the quantity  of  sugarcane  required by  it.   The  Order  thus attempts  to  assure supply of cane to sugar  factories  and ensure minimum price to cane growers. 5.The  Bhargava Commission in Chapters 1 and 11 of  Part  11 dealing  with price fixation and stabilisation of supply  of cane after examining pros and cons of the various  competing interests  was of the opinion that the need for  steady  and adequate  supply of cane to the sugar industry from year  to year could not be over- emphasised.  It felt that an assured and of    adequate  supply  of cane was  essential  for  the working  of the sugar industry on an efficient and  economic level.   The  Commission observed that  sharp  increase  and decrease  in cane supply from year to year were the bane  of the  Indian sugar industry.  Therefore, it felt that it  was imperative  that  some kind of stability in  the  matter  of supply  of raw material to the industries should be  brought about.  It, therefore, recommended that provisions should be made for agreement between cane growers and factories.   The Commission  suggested  that where  Cane  Growers’  Societies Union  operated  it would be desirable  to  have  tripartite agreements  involving  factories,  the  societies  and   the growers.   It  suggested  that minimum price  be  fixed  for sugarcane related to a basic recovery of 8.5% with a premium for every 0. 1% increase in recovery on proportionate basis. It  also recommended that the sales realisation  from  sugar after  expenses should be shared with the cane  growers  who execute  agreement  for  supply of  cane  and  fulfil  their contract.   Both these recommendations were  accepted.   The latter  has  been  incorporated  as  paragraph  5A  in   the Sugarcane  (Control)  Order, 1966 order   for  short).   The minimum  price for cane is fixed for growers throughout  the country and recommendations of Bhargava Commission are being followed  both in fixing minimum price of cane, and  payment of additional price in accordance with formula framed by  it appended as Schedule 11 to 1966 Order.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 30  

6.   In  the State of Maharashtra it was the  experience  of the  Government  that  there were cyclic ups  and  downs  in sugarcane  production in the State which adversely  affected some of the sugar factories, par- 587 ticularly   those   which  were  identified  as   sick   and financially  weak.   The Government found that in  times  of shortage  of  sugarcane crop, in the  absence  of  statutory provisions  earmarking  areas for drawal of cane  it  became difficult for certain factories to get adequate quantity  of cane  thereby affecting their obligations towards  the  cane growers for payment of cane price, employees and workers for payment of their salaries and wages etc.  In such situations the  State Government was required to assist  the  factories with  huge  amounts  for enabling them  to  discharge  their obligations by diverting funds with considerable stress  and strain on the State Exchequer.  The Government found that at times  some  of the factories starved of  sugarcane  whereas others  exceeded their crushing capacity.  In order to  find out  some  solution to these problems the  State  Government appointed   a  Committee  as  an  Experts  Committee   under Government Resolution dated 28th April, 1980 in exercise  of the  powers  delegated to it by Notification issued  by  the Central   Government  in  1966.   The  said  Committee   was requested  to  take review of the work done in the  past  in regard  to  the formation of zones for Sugar  factories;  to identify  the  limitations  due  to  which  the  object   of formation  of  zones could not be achieved; and  to  suggest remedial   measures  in  various  matters.   The   Committee submitted its Report in October 1983.  After considering the Report  the State Government on 12th September  1984  issued the  Maharashtra Sugar Factories (Reservation of  Areas  and Regulation  of Crushing and Sugarcane Supply)  Order,  1984. In  the  Preamble  to the Order it  is  mentioned  that  the Notification was issued to implement the recommendations  of the  Experts  Committee appointed by it and also  to  ensure economic viability of large number of sugar factories.   The order  mentions  that  since the  Government  of  India  had granted  letters  of intent for establishment of  new  sugar factories and has stipulated therein that the conversion  of the letters of intent into industrial licences shall,  inter alia, depend on the State Government notifying the zones for drawal  of  sugarcane  by new sugar  factories.   The  Order defines  ’cane  grower’ either as ’owner’ or  as  a  ’tenant including  a  body corporate such as  a  company  registered under  the  Companies  Act,  1955 (1  of  1956),  a  society registered under the Maharashtra Cooperative Societies  Act, 1960  (Mah.XXIV of 1961), any body corporate, set  up  under any   law  for  the  time  being  in  force,  including   an Organisation  owned or controlled by the Government  of  any State  or  Government of India’.  It defines  the  ’reserved area’ to mean, the area reserved for a factory as  specified in  the schedule pertaining to that factory.  Clause (3)  of the  Order  provides  that having  regard  to  the  crushing capacity  of sugar factories and the yield of  sugarcane  in the  reserved areas, and the need for production  of  sugar, the area as specified in the schedule, shall be reserved for the  sugar  factory with a view to enabling it  to  purchase quantity  of  sugarcane required by it.  Sub-clause  (2)  of Clause  3  prohibits any sugar factory to purchase  cane  or accept  supplies of cane from cane growers except  from  the area reserved for that factory.  The only exception to It is contained  in Clauses 4 and 5 of the Order.  Clause 4  deals with  grant  of  licence and Clause 5  regulates  supply  of sugarcane  empowering  a  permit officer to  allow  a  sugar

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 30  

factory to purchase cane from areas other than the  reserved for  it  under Clause 3 provided he is  satisfied  that  the circumstances  mentioned in the clause existed.   The  order was amended in 1987, 588 1988  and 1989.  Sub-clause (1A) was added after  sub-clause (1)  in  Clause  3  of  the Order  issued  in  1984  by  the Maharashtra  Sugar  Factories  (Reservation  of  Areas   and Regulation   of  Crushing  and  Sugarcane  Supply)   (Second Amendment)  Order,  1987 and it is-provided  that  the  area specified  in  each of the schedules and  reserved  for  the factory  mentioned in that schedule in accordance with  sub- clause  (1)  of the clause shall be reviewed  by  the  State Government  after  every three years and in Clause  4,  sub- clause  (6A) was added after sub-clause (6) which  empowered the  licensing  authority  to  allow  a  sugar  factory   to manufacture  sugar from the sugarcane to be purchased by  it from non- members which is grown in the area reserved for it which is overlapping or common with other factories if  such factory has entered into contracts for purchase of cane from such  growers  and  if the sugarcane  does  not  exceed  the requirements  of the factory based on its licensed  crushing capacity during any crushing season. 7.   Trouble appears to have started after the  Notification was issued by the State Government in 1984.  Writ  petitions were  filed by cooperative societies and  sugarcane  growers challenging  the Order as being beyond the scope of the  Act and  the  1966  Order.  It was claimed that  the  Order  was violative of the rights guaranteed under Articles 14 and  19 of the Constitution.  The challenge on behalf of the growers that  the Order in preventing the cane growers from  selling their  sugarcane  at  the best price  available  imposed  an unreasonable restriction.  It was claimed that in process of reservation  they have been derived of the highest price  in the  area,  therefore,  it  was liable  to  be  struck  down arbitrary.  The prohibition in the Order on enrolment of the members was also challenged.  A Division Bench of the Bombay High  Court  in The Bahuri Sahakari Sakkar Karkhana  Ltd.  & Anr.  v.  State of Maharashtra & Ors., AIR 1987  Bombay  248 held  that the Order was not violative of the provisions  of the Constitution or the Central Government Order of 1966 and the  Essential Commodities Act (hereinafter referred  to  as ’the  Act’).  Nor did the Bench find any merit in the  claim that   the   reservation  policy  was   violative   of   any constitutional guarantee as the Orders having been issued in view  of the scarcity or non-availability of  sugarcane  and for  securing  the  equitable  distribution  the  Order  was squarely covered in the Directive Policy unfolded by  clause (b)  of Article 39 of the Constitution.  The Bench  did  not find  any  merit  in  the claim  that  the  distribution  of sugarcane  on the licensing capacity of the sugar  factories was violative of any statutory provision or the Constitution as the licence for,crushing the sugarcane was granted by the Central Government merit under the provisions of  Industries (Development and Regulation) Act, 1951.  The Bench  repelled the  challenge that the order was arbitrary or violative  of Article 14 of the Constitution.  Nor it agreed with claim of nonmembers of the cooperative societies that the prohibition in  the Order from becoming members or obligation to  supply cane to the factory in the reserved area was unreasonable or arbitrary.  The Bench observed               "With the sole intention of avoiding cutthroat               competition   between  the   different   sugar               factories  as well as the  sugarcane  growers,               the  impugned order has been issued.  In  this

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 30  

             context,  it cannot be forgotten that the  Co-               operative  Societies  Act  has  been   enacted               keeping  in view the Directive Principles  and               the State Policy as               589               enshrined   in  the  Constitution.   The   co-               operative movement in the ultimate analysis is               socio-economic  and moral movement.  It  is  a               part  of  the scheme  of  decentralisation  of               wealth  and power.  Cooperative capitalism  is               neither  co- operation nor socialism.  On  the               other  hand, co-operation is a substitute  for               self-interest  of an individual or  groups  of               individuals  for  the  benefit  of  the  whole               society.   Wealth  has  no meaning  if  it  is               concentrated in few hands.  In the absence  of               decentralisation or equitable distribution  of               wealth  or property, it  becomes  impropriety.               Therefore   equitable  distribution   is   the               essence  of equality.  If for  achieving  this               object  the  impugned order  has  been  issued               under  the powers conferred by  the  Essential               Commodities  Act and the  Sugarcane  (Control)               Order, 1966, then it cannot be said that  this               equitable distribution results in inequity  or               arbitrariness.   In  our  view,  the  criteria               adopted  and  the  guidelines  laid  down  are               reasonable.  They have a nexus with the object               sought  to  be  achieved.   Without  reserving               areas  qua  each factory  and  regulating  the               supply  of  sugarcane to the members  or  non-               members,  the  object of distribution  of  the               essential commodity viz. the sugarcane,  would               not have been achieved.  Therefore, we find it               difficult  to accept the challenge  raised  by               the  petitioners which is based on Art. 14  of               the Constitution of India.  "                            [Emphasis supplied] Grievance was also made by the non-members of absence of any hearing  by the Permit Officer.  It was stated on behalf  of the  State that it was intended to follow a fair  procedure. Note 1 to 7 incorporating the procedure was produced  before the Bench.  It was found to be reasonable but the Bench  was of the view that it required to be given statutory shape  by amending  1984 Order.  Since the necessary  amendments  were not  made  another Bench a Aurangabad held  that  since  the State  Government did not carry out the amendment in  clause 5(1)(d) of the 1984 Order as pointed out by the Bench in the earlier decision the sugarcane growers had a right to supply sugarcane  grown by them to the factory of their  choice  as they  were  likely to receive better value in  the  from  of price  for  the sugarcane grown by them.   A  contrary  view appears   to  have  been  taken  by  another   Bench.    The controversy  was referred to a larger Bench which  in  para- graph  9  of  the Judgment has noticed the  views  taken  by different  benches.   It then observed that in none  of  the earlier  decisions given by the Division Benches  they  were called upon to test the validity of the Order on the  ground of  deprivation  of  sugarcane  grower  of  the  best  price available to them.  The Bench observed that its validity was challenged  only on the ground of the alleged illegality  of the  restrictions  on the freedom to sell and  purchase  the sugarcane except to and by the factories in whose favour the Reservation Order was issued.  The Bench held that the Order issued by the Central Government in 1966 did not provide for

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 30  

fixation of the maximum price of sugarcane to be supplied by the sugarcane grower to the sugar factories.  The Full Bench observed that the Aurangabad Bench had issued the directions permitting  the growers to sell their sugarcane at the  best price  to  different  factories only because  there  was  no machinery  to hear the sugarcane growers before  fixing  the price  and  redress their grievance.  The Bench  found  that this  direction had not been complied.  It  thereafter  con- sidered  the question of fixation of price by  dividing  the sugarcane growers in two categories  one, who are members of any co-operative society and the others who are  nonmembers. It held that since those 590 growers who were members of the Society had to enter into an agreement  under the bye-laws framed which were the same  in all co-operative societies they could not make any grievance against  fixation  of price.  It found that  even  otherwise before  the  Government  which fixed  the  price  they  were represented   by  their  elected  Board  of  Directors   who protected their interests.  In respect of nonmembers it  was held   that  since  they  were  not  heard  nor  they   were represented by any one before the Committee they were placed in a double jeopardy and in absence of any machinery to hear them  before  the  price was fixed they were  put  to  grave injustice.   The Bench further held that since there was  no power in the State Order to fix the maximum price payable to the  cane  growers, therefore, those growers who  were  non- members  of any sugarcane co-operative society or they  were suppliers to non-debtor factories they were not bound by the prices  fixed by the State Government.  The  price  fixation was  binding  only  on the members of  the  debtor  factory. Having  reached the conclusion that the price  fixation  was not  binding  on the non-members, therefore,  "they  have  a choice  either  not  to  supply the  sugar  to  any  of  the factories  or to sell it to the highest bodies",  the  Bench held  that,  "the latter freedom of the members  is  however rendered nugatory by the provisions of clause 3 of the State Order",  the effect of which was that the non-members  would be  placed in a situation where either they had  the  option not  to  supply the sugarcane to the factory  owners  or  to resign themselves to their fate by allowing their crop to go waste.   To  get  over  this  difficulty,  what  the   Bench described   as  Hobson’s  choice  it  resorted  to   Section (3)(2)(f) of the Act read with Section 3(3)(c) and held that the  supply by the growers being in nature of  a  compulsory sale, they were entitled to supply the sugarcane at the mar- ket rate. 8.   How  far this conclusion of the Full Bench  is  legally sustainable  and  whether the reasons in support of  it  are properly  founded  is the crux of the matter  that  requires consideration.   Varied  submissions on wide  spectrum  were advanced touching   upon not only the provision of the  Act, the  Central and the State Orders but also  the  Cooperative Societies  Act,  the limited’ scope of interference  by  the courts in policy decision and the principles of price  fixa- tion  in  controlled  economy.  If  Sri  F.S.  Nariman,  the learned  senior counsel appearing for the Sahkari  Karkhanas apprehended the effect of decision to be collapse of  zoning system  and gradual erosion of cooperative movement  in  the State,  then  Sri G. Ramaswamy, the  teamed  senior  counsel appearing for the State could not see any justification  for the court to interfere in matters of economic policy and the direction  of the Full Bench according to him was  violative of the scheme of the Act.  Sri Dholakia, yet another  senior counsel  appearing for the State did not find any  rationale

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 30  

to distinguish between controlled price and the market price as  once the price, of any commodity was  statutorily  fixed under  the orders issued by the Government then  that  alone became  the market price.  Sri Venugopal the learned  senior counsel  appearing for private undertakings urged  that  the Act visualised water tight compartmentalisation of the Order issued  under it to balance the interests of  consumers  and when  the  Government  did not fix  any  maximum  price  but provided  for  payment of minimum price only  there  was  no scope to import the concept of higher price or market price. According to him 591 the  rationale  for price fixation did no  suffer  from  any infirmity  nor it caused an prejudice to the  cane  growers. Sri  R.  Nariman the learned senior  counsel  appearing  for joint  stock  companies urged that payment of  market  price would  result  in  closing down of smaller  units  as  price structure  was  co-related with yield and  not  the  market. Elaborating their submissions, the learned counsel submitted that the Government of Maharashtra has been encouraging  the cooperative  movement  in the State over  the  last  several decades.  As a result of its effort more than hundred  sugar factories  have  come to be established in  the  cooperative sector.   These  cooperatives  societies  span  the   entire spectrum of the State’s agricultural sector.  All the sugar- cane-growing   areas  arc  covered  by  one  or  the   other cooperative  society  which has established  its  own  sugar factory.   This development has not only enhanced the  sugar production  but  has  changed the very  face  of  the  rural Maharashtra. It has brought prosperity and awareness to vil- lagers besides providing several amenities.  The cooperative societies supply seeds, fertilizers, agricultural implements and many other goods at comparatively cheaper rates to their members.   Many  of them run schools and  other  educational institutions  providing  education to the  children  of  the sugarcane  growers.   The  interest of  the  State  and  the interest  of  the  public  demands  that  this   cooperative movement is kept alive and is not allowed to be weakened  or stultified.  On the contrary, every effort should be made to encourage  and promote it since the fate of these  factories is indivisibly connected with the well-being and survival of millions  of  farmers  who are  their  members.   After  the amendment  of  the  Maharashtra  Cooperative  Societies  Act (reference is to the 1985 Amendment which came into force on and  from  May 12, 1985) any and every person who  seeks  to become  a  member of the society will be enrolled  as  such. What  is  called the concept of ’universal  membership’  has been  introduced  by the said amendment.   Every  grower  is welcome to join the cooperative society of his area.  Nobody who  applies will be refused, but if somebody wants to  stay out  he  cannot complain at the same time that he  is  being paid  the same price as the members of the society.   It  is open  to him either not to raise sugarcane or to  raise  and sell  the same to the cooperative factory concerned  at  the same  price as the members.  He cannot claim a  preferential status.   He  too can become a member of the society  if  he likes and avail of all the benefits provided by the  society but  nobody  can  help  him  if  he  chooses  to  stay   out voluntarily.   While the members are under an obligation  to raise  sugarcane in the specified area year after year,  the nonmembers  are under no such obligation; they are, free  to raise  such crops as they choose.  The argument further  was that  the  economy of each sugar factory was  different  for various  reasons  it  was also not  possible  to  ensure  an uniform  price  by all the factories.  And  if  every  sugar

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 30  

factory  is compelled to pay price at Rs. 700/- a tonne,  as some  factories  are paying, most of them would  go  out  of market  which would cause incalculable damage to  the  rural economy  of  the State.  If these societies are to  be  kept alive,  it is necessary that a separate price is  fixed  for each  factory  having regard to its own  economy  and  other relevant  factors.  Neither the members can complain  of  it nor  the non- members.  So far as the questions of  law  are concerned,  the learned counsel submitted that  neither  the Central  Government nor the State Government made any  order un- 592 der Section 3(2)(f) of the Act; hence, the was no obligation upon  them  to ensure the price as contemplated  by  Section 3(3)(c).  It was urged that even if it assumed for the  sake of  argument  that  a order under Section  3(2)(f)  must  be deemed to have been made by necessary implication, even then Section 3(3)(c) must be held to have been satisfied for  the reason  that the expression ’locality’ in clause (c)  means, in the context, the reserved area (zone) in which the grower is  situated.   The price paid by the sugar factory  to  its members in that zone must be deemed to be and is the  market price   there  is no other price in the said  locality   and since  that  is  paid to the non-members  as  well,  Section 3(3)(c) is satisfied. 9.Dr. Rajiv Dhawan, the learned senior counsel appearing for the non-members, however, found compulsion flowing from  the zoning  order both in supply and price which  was  arbitrary and the basis for it being the efficiency of factory it  was wholly  extraneous to price fixation for cane growers.   Dr. Abhishek  Singhvi, the learned senior counsel, did not  find any  justification  for apprehending collapse of  zoning  or cooperative movement.  Dr. Rajiv Dhawan submitted that  non- members  were  not  bound by the bye-laws  of  the  society. Those  bye-laws  are between the society  and  its  members. Because the society is indebted to the State, it is  obliged to  agree to the price advised by the State Government,  the creditor.   But  so far as the  non-members  are  concerned, there  was no reason why they should be bound by  the  price fixed by the creditor for its debtor.  The provisions of the Maharashtra  Reservation  of Areas Order in  effect  and  in truth  create a situation contemplated by  Section  3(2)(f). Looking  from the point of view of the  non-member  growers, the  situation is no different from the one obtaining had  a formal  order been made under Section 3(2)(f) requiring  the growers  to  sell their stock to the factory of  that  zone. The  Government  cannot simply create  such  compulsion  and leave  the growers to the mercy of the factory.  In  such  a situation,  the  factory would be free to exploit  and  take advantage of their helplessness.  A mere condition in  their licence  that  they shall pay the same  price  to  nonmember growers  as is paid to member growers is not  sufficient  to secure their legal rights.  While the factory can wait,  the grower cannot, for the reason that if not harvested and used at  the  appropriate time, the cane dries up,  becomes  less yielding and then dies.  The Government is bound to  ensure, in such a situation, price for sugarcane as contemplated  by Section  3(3)(c).  The Reservation Order cannot be  used  to promote or perpetuate the cooperative movement in the  State nor  can it be used as a lever to compel growers  to  become members  of  the cooperative societies.  There  is  no  such compulsion  under the Cooperative Societies Act and  such  a compulsion  cannot  be brought about by the  Reservation  of Areas  Order.  The nonmembers cannot be punished by  compel- ling  them to sell their cane to uneconomic and  inefficient

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 30  

factories at the price such factories can afford, i.e., at a price far lower than the true value and market price of  the cane.  The members may be so compelled because they may have a stake in the survival of those societies but the  non-mem- bers have no such ties to the factory.  Article 19(1)(c)  of the Constitution of India entitles a citizen of this country not to join a society or an association if he does not  wish to.   He cannot be compelled by law to join a society or  an association.  No 593 person can be compelled to walk into these societies,  which are  in truth "debtor colonies".  Inasmuch as the State  has failed  to  provide  or  to  ensure  the  market  price   as contemplated  by Section 3(3)(c) of the Act, the Full  Bench was right in declaring that the non-members are entitled  to sell their sugarcane to whomsoever they like and at whatever price they can obtain.  Even with respect to non-members who have entered into agreements with the factories, Dr.  Dhawan urged, the situation created by the Government is such  that the  non-members  are also being forced to enter  into  such agreements.   He explains the position thus: even if a  non- member does not obtain a loan, he will be paid the very same price for sugarcane as a member of the society.  If so,  why should  a  non-member forego the facility of loan  which  is normally advanced at a lower rate of interest.  By foregoing the  loan  facility, he would be losing at both  ends.   The vice lies, says Dr. Dhawan, in the very system that has been generated  by  the  statutory  orders  made  by  the  State. Therefore,  he  says, the nonmembers cannot be  deprived  of their liberty to sell their product freely just because they have  entered  into loan agreements.  It is  another  matter that  they may be liable for damages for breach of  contract with  the sugar factories but that is a matter  between  the factory  and that person.  So far as the Government is  con- cerned,  it  cannot take note of that agreement  and  compel such  person  to sell his cane at the SAP since  that  would mean  enforcing  a  private  contract  between  the  parties otherwise  than through court of law.  Dr. Dhawan says  that in  other  States (other than Maharashtra and  Gujarat)  the Governments  have not only issued statutory orders  creating zones for each of the sugar factories but have also notified the  price  at  which the sugarcane is to  be  sold  by  the growers  to  the factories and this price is common  to  the entire  State though it may vary corresponding to the  sugar content in the case. 10.  Since  entire thrust on the price  structure  operating unfavourably to nonmembers of cooperative society  proceeded on  assumption  that price fixation by  the  Government  for cooperative society was influenced with creditor and  debtor relationship  between the two it is necessary to  understand the mechanism of pricing for cane prevalent in the State and whether  it  works  harshly and  unreasonably  against  non- members.   The  entire  process of  price  fixation  can  be divided in three stages.  The first is the fixation of  what is  known  as the minimum ex-factory price  by  the  Central Government  under 1966 Order for entire sugar  factories  in the  country linking it with basic recovery of 8.5%  with  a proportionate  increase  for  every 0.  1%  extra  recovery. Therefore,  normally the minimum price of cane paid  by  two factories cannot be same.  For instance, the normal recovery in  the State of Maharashtra is stated to bell.05%.  In  the year 1987-88 the minimum price fixed was Rs. 19.50 per quin- tal.  The highest and lowest price paid for the sugarcane in the  Ahmednagar  District during 1987-88  was  Rs.366/-  and Rs.240/   by Sangamner Sahkari Sakkar Karkhana and  Jagdamba

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 30  

Sahkari  Sakkar  Karkhana  respectively.   The  recovery  of Sangamner  SSK  Ltd.  was 11.64%  whereas  the  recovery  of Jagdamba  SSK  Ltd.  was  10.36%.  It  was  explained   that difference  of  1.28% between recovery of sugar by  the  two factories  resulted  in difference of sugar  production  per tonne  to  extent of 12.8 kg. and the  realisation  too  was Rs.64/- per tonne more.  This difference got reflected 594  594 in the price fixation. 11.  The next is the State Advised Price.  Every  State  has its own method to determine it.  The power is assumed  under Acts  of  the  State Legislature or  orders  issued  by  the Governments.   For  instance,  in the  State  of  Haryana  a Sugarcane  Central Board is constituted under -Section 3  of the Punjab Sugarcane (Regulation of Purchase and Supply) Act 1953  headed by the Chief Minister and other high  officials of the Agricultural and Cooperative Department, the Director of  Sugar Mills etc. to advise the Government and  the  Cane Commissioner on various matters including the price of  cane to be paid to growers.  Similarly in U.P. and Andhra Pradesh it  is  done under orders issued under  the  U.P.  Sugarcane (Regulation of Supply and Purchase) Act 1953 and the  Andhra Pradesh  Sugarcane (Regulation of Supply and  Purchase)  Act 1961.   In  Maharashtra 95% of sugar factories  are  in  the cooperative  sector.  They are governed by  the  Cooperative Societies Act and the bye-laws framed thereunder.   Bye-laws 63,  64,  64A, 65A and 65B deal with fixation  of  price  of cane.   Bye-Law 64 empowers the State Government to fix  the price  of cane so long the amount invested by it in  setting up  of  sugar factory is not repaid.  The  exercise  is  un- dertaken by a Committee constituted by the Government  known as  ’Ministerial  Cabinet Committee’.  It comprises  of  the Chief Minister and other concerned Minister.  It takes  into account  the ex-gate minimum price declared by  the  Central Government,   the   estimated  sugar  production   and   its availability  for  production by the  sugar  factories,  the estimated average of sugar factory, the estimated conversion charges  and the present day levy and free sale sugar  price while fixing the price.  In the written submission filed  by the appellants it is stated that in the year 1993 while  the statutory minimum price fixed by the Government of India was Rs.345/-  per metric tonne the State Advised Price  for  the State  of  Maharashtra  was Rs.360/-  to  Rs.400/per  metric tonne.   It is explained that although such price  in  other States,  for  instance Andhra Pradesh,  Madhya  Pradesh  and Uttar Pradesh was Rs.400/-, Rs.530560/- and Rs.580-600/- per metric  tonne  respectively but these  prices  were  ex-gate whereas  in the State of Maharashtra it was ex-field.   That is  a  cane grower apart from the price  determined  by  the State  Government  is  paid  harvesting  and  transportation charges  etc.  And when all this is totalled then the  price paid  to the cane grower in the State is the highest in  the country.  The advance cane price or the price for harvesting and transportation is paid to the cane growers  irrespective of  whether they are members of any cooperative  society  or not.   The advance according to the appellants was  paid  by sugar factories under agreement entered with growers whereas according  to respondents it was paid by the Banks  and  the nonmembers  did  not enter into any  agreement.   Since  the parties  were  at  variance on an issue of  fact  they  were granted  time on 24th February 1995 to file further  affida- vits  clarifying their stand.  From the affidavits filed  it now  transpires that the loans are normally advanced by  the village  societies  or  rural banks to the  farmers  on  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 30  

certificate  issued  by  the sugar  factories  showing  cane plantation, acreage, date of plantation, etc.  Although  the factum  of  agreement between the cultivator and  the  sugar factory  is  riot  clearly admitted in the  reply  filed  on behalf  of the respondent but apart from  those  cultivators who do not need any loan for growing the crop whose 595 percentage appears to be negligible, it appears by and large rather the uniform practice is that a tripartite arrangement is  arrived between the cultivator, the loaning society  and the  sugar  factory.  The loan is advanced on basis  of  the certificate issued by the sugar factory and it is the  sugar factory  which  ultimately  repays the  amount  due  to  the loaning  society out of the price of cane to be paid to  the cultivator, Such agreements were recommended by the Bhargava Commission as well.  Even otherwise no bank or society would advance any loan unless it is assured of its repayment.   It is, therefore, reasonable to assume that the advance is paid to  the cultivators by the rural banks or societies  on  the certificate issued by the sugar factories. 12.  The  third is the price paid at the end of the  season. The   Bhargava   Commission  had  recommended   payment   of additional price at the end of season on fifty-fifty  profit sharing basis between growers and factories to be worked out in  accordance  with Schedule II to the  1966  Order.   Even though  in the affidavit filed earlier by the  officials  of the  Department in the special leave petition it was  stated that additional price was paid but a doubt had arisen as  in Ex.6 filed along with the additional affidavit of Dy.  Secy. to   the  Government  of  Maharashtra  in   C.A.   No.523/89 explaining  the  mechanism  of fixation  of  cane  price  it appeared  that in the State of Maharashtra either the  State Advised  Price  is paid or additional cane  price  is  paid, whichever is more.  Therefore, the appellant was directed to explain whether the additional price was paid in addition to State Advised Price but the affidavit filed in pursuance  of the  Order  dated  24th February  1995  remains  vague.   It appears  the practice in the State is to pay the advance  as stated  earlier at the beginning of the season and then  the cost  of transportation and harvesting in the middle of  the season  and the price worked out finally at the end  of  the season,  by the Ministerial Cabinet Committee headed by  the Chief   Minister,   Cabinet  Ministers  of   the   concerned Department etc. on statements submitted by each factory  and recommendations  made by the Committee after discussing  the matter with members of State Federation of Cooperative Sugar Factories  and  representatives of  the  State  Co-operative Bank.   In the State of Maharashtra, therefore,  it  appears instead  of additional price it is the State  Advised  Price which is paid. 13.  It  would be appropriate to notice here how  ,he  State Advised Price and the additional price is worked out and  if it  in any manner prejudice the cane growers  specially  the non-members.   In  the  additional affidavit  filed  by  Dy. Secretary  of Govt. of India in Civil Appeal No.523 of  1989 the mechanism of price fixation is explained as under : ------------------------------------------------------------ Mechanism of fixation of cane price              Receipts -              Financial Results - ------------------------------------------------------------  1.  Sale of Sugar  596 Add -     Value of the              }   Levy and Free sale           closing stocks            }   at assumed prices.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 30  

         as on 30/9 of             }           the year.                 } Deduct -  value of the opening      }           stocks of the year        } 2.Add or deduct profit or   loss from Ancillary Units. 3.Add - other receipts from   a) Sales of molasses Press mud Bagasse.   b) Miscellaneous      receipts.   c) Rebates                                              --------      (1) + (2) + (3)                           (R)                                              ------- Expenditure I. Cane cost (a)  Govt. of India minimum price      linked with actual recovery      deducting the average harvesting/      transport charges. II.  Expenditure relating to cane -      Commission to Harvesting      and Transport contract      Khodaki etc. III. Harvesting & Transport charges. IV.  Cane Purchase Tax. V.   Conversion charges.       a)  Store consumption       b)  Electrical charges       c)  Outside repairs  597       d)  Salaries/wages       e) Overheads VI.  Interest Payable.        1) Capital loans and deposits (NRD/RD)        2) Working Capital VII.  Bonus - Minimum 8.33% VIII.Education Fund under section 68 Maharashtra      Cooperative Societies Act. Audit Fees. Other Provision. DSI/Sakhar Sangh                                        ----------- Grand Total of                             ’E’ I to VIII                          R - E = S Surplus Deduct : Current Depreciation Investment  |          Allowance Development Rebate and |    D          part of accumulated losses       |                          S - D + ’NS’ Net Surplus.   Per M.T. ’NS’ = Additional cane price.   Govt. of India’s Minimum statutory CP + Addi.  C. P. = ’X’   Govt. of         - Minimum   Maharashtra        Advised CP -                    ‘Y’   X or Y whichever is more. ----------------------------------------------------------- 14.      The manner of working out additional cane price  is provided  in  Schedule  11 of the  Control  Order,  1966  in following manner: 598               "The   amount  to  be  paid  on   account   of               additional  price (per quintal  of  Sugarcane)               under  Cl.5-A by a producer of sugar shall  be               computed  in  accordance  with  the  following               formula, namely:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 30  

                           R-L+2A+B               x =           --------                                2C               Explanation. - In this formula -               1.    "X"  is the additional price  in  rupees               per  quintal  of  sugarcane  payable  by   the               producer of sugar to the sugarcane grower.               2.    "R"  is  the amount in rupees  of  sugar               produced  during the sugar year excluding  the               excise duty paid or payable to the factory  by               the purchaser.               3.    "L"  is  the value in  rupees  of  sugar               produced during the sugar year, as  calculated               on the basis of the unit cost per quintal  ex-               factory,  exclusive of excise duty  determined               with reference to the minimum sugarcane  price               fixed under Cl.3, the final working results of               the  year  and the Cost  Schedule  and  return               recommended  by such Authority as the  Central               Government may specify from time to time.               4.    "A" is the amount found payable for  the               previous year but not actually paid [vide sub-               clause (9)].               5.    "B"  is  the  excess  or  shortfall   in               realisations  from actual sales of the  unsold               stocks  of  sugar produced  during  the  sugar               year,  as on 30th day of September [vide  item               7(ii)  below]  which is  carried  forward  and               adjusted  in   the sale  realisations  of  the               following year.               6.    "C" is the quantity in quintals of  sug-               arcane  purchased  by the  producer  of  sugar               during the sugar year.               7.    The  amount  "A" referred to  in  Expla-               nation 2 shall be computed as under, namely               (i)the actual amount realised during the sugar               year; and               (ii)the  estimated value of the unsold  stocks               of  sugar held at the end of  30th  September,               calculated  in regard to free sugar stocks  at               the  average  rate of sales  name  during  the               fortnight 11th to 30th September and in regard               to  levy  sugar stocks at  the  notified  levy               prices as on the 30th September.]               Explanation. - In this Schedule "Sugar"  means               any form of sugar containing more than  ninety               per cent. sucrose]." ------------------------------------------------------------- 15.A comparison of the two would indicate that there is  not much  difference  the  two.   In the  latter  too  the  cost incurred  in  producing  sugar has to be  deducted  fro  the receipts.   In  any case since the grow is paid  either  the State Advised Price Additional Cane Price whichever is  high no  prejudice can be said to be caused nonmembers.   In  the affidavit filed on 10 March 1995 it is stated that the final price  determined for the earlier year is the advance  price for the next year.  For instance, if amount ’A’ was fixed as final  State  Advised  Price at the end  of  1993-94  for  a factory  then that becomes the advance pn. for 1994-95.   It has  been  explained the the final State  Advised  Price  is fixed  basis  of detailed statement  submitted     the  Sugar Commissioner giving a detailed operational financial picture of  the  working of the sugar factories such as  sugar  cane crushing, sugar recovery, sugar bags 599

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 30  

produced, quantity sold as levy and free, income from  other items,  cost relating to harvesting and transport  of  cane, sugar  factory  wages,  power,  fuel,  chemical  and   other expenses, depreciation provision etc. etc.  According to the affidavit broadly these principles related to, (a) valuation of  closing  stock  of free sale  sugar  and  molasses;  (b) fixation  of  Khodki charges (i.e. labour charges  paid  for collecting   cane  pieces  remaining  in  the  field   after harvesting);  (c) provision of depreciation  and  investment allowance/development rebate; (d) sugarcane price to be paid to  the  members/nonmembers outside the area  of  operation; (e)  limit of cash component to be paid to the    farmers in the cane payment where cane   price is on the high side; (f) interest  rate on non-refundable/refundable deposits  to  be paid  to members/non-members; and (g) deductions to be  made compulsorily  from  the  sugarcane  price  payment  to   the farmers.  In effect the price for next year which is paid at the  commencement of season comprises of not only the  price based  on  recovery of 8.5% but also the profit  arrived  at after sale of sugar. 16.  Few  facts  are necessary to be stated  in  respect  of price  fixed  under the bye-law of the society.   One  price fixation  for  the cooperative societies  under  bye-law  64 either  by  the  Director  of  Factories  or  by  the  State Government  was  not challenged to be  ultra  vires,  either before the High Court or this Court.  It cannot,  therefore, legitimately  be urged that it was violative of the  Control Order  or the Zoning Order or it was arbitrary.  In fact  as explained  earlier  it is the State Advised Price.   If  the claim  of non-members is taken to its logical conclusion  it would act unreasonably for them.  Let it be tested.  Suppose the  price fixed for two factories ’A’ and ’B’  is  Rs.400/- and  Rs.500/- respectively, ’X’ being a non-member  in  area ’A’ the price for factory ’A’ is not binding on him.  If  it be  so the price fixed for ’B’ is certainly not  binding  on him.   And  the factory ’B’ is not bound to  offer  him  Rs. 500/-.  It may or may not.  That may lead to uncertainty and even exploitation.  And then the price of Rs.500/- fixed for ’B’  is  as much State Advised Price as  Rs.400/-  for  ’A’. Much  argument  was advanced on how the market  price  in  a locality  should be understood.  It appears  unnecessary  to deal with it as any other construction would be  destructive of zoning and the concept of pricing in controlled  economy. Second, there is no machinery in the State to determine  the State  Advised  Price for non-members as 95%  of  the  sugar factories being in cooperative sector the fixation of  price under  the bye-laws was always considered to be legal.   And rightly  so.  Therefore, any determination of  price  by  an authority  under  the  bye-laws is valid  for  cane  growers attached to a sugar factory in reserved area.  Third, entire concept of minimum and maximum price for cane appears to  be out  of  place.  As pointed out by  the  Commission  minimum price  is  fixed  on  quality  formula.   Further,   average recovery  of  the  normal  crushing  period  was   preferred according  to Commission as against average recovery of  the optimum  period.  All this results in payment of  adequately reasonable  price  which  comprises  of  not  only  cost  of cultivation  but  profit as well.  It does not  stop  there. The payment of additional price or final State Advised Price on  profits  obtained by a factory as indicated  earlier  is also  paid.  The price thus being paid on recovery  of  cane and  profits  made  from sale of sugar is  not  minimum  but optimum  price which is paid to a cane grower.   The  fourth and the most 600

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 30  

important is that the advance paid to the cultivators at the commencement  of  the season on final price  determined  for earlier  years appears to be reasonable and fair.  The  mere fact  that such determination is made in exercise  of  power under bye-law 63 does not render it bad for non-members.  No objection  could  be  taken  to  payment  of  transport  and harvesting charges.  That too is explained to be linked with distance  etc.  So long the determination of price  is  fair and just and based on relevant material it cannot be held to be  not  applicable to one class of  growers,  namely,  non- members  in  the zone because they are not  members  of  the cooperative societies.  If the exercise of power is not  bad for  members of the society it cannot be held to be bad  for non-members,  unless  it is found to be arbitrary.   So  far cultivation  of cane and payment of price is  concerned  the two are similarly situated.  Further the production of sugar being  of  primary concern the Government ensured  that  the growers  were not denied the minimum.  The  Additional  Cane Price  or final State Advised Price are paid as  a mater  of incentive.   And what is incentive for one year becomes  the minimum  price for next year.  The concept of market  price, better  price  or  higher price thus has  no  place  in  the scheme.  There is no reason why such fixation should not  be held  to be binding on nonmembers as in the scheme of  price fixation  no  distinction is made between members  and  non- members. 17.  The  difference  between  members  and  non-members  of cooperative societies in relation to cane price may also  be noticed.   A  cooperative society usually  invests  7.5%  in setting  up  of a factory or Sahkari  Karkhana  whereas  the balance   is   borne  by  the  State   and   the   financial institutions.    Its  members  under  bye-laws   are   under obligation to clear every dues of the society otherwise  any amount  due from them to the society is first charge on  the sugarcane  cultivated  by them and is recoverable  from  the price  of cane.  Every member of the society  under  bye-law 18A is required to undertake cultivation of minimum of  half acre.   The  nonmembers  on  the other  hand  have  no  such obligation.  They are not required to cultivate or grow  any minimum  cane.   But  they derive  all  those  benefits  and advantages  as are available to the members of the  society. In the licence for crushing cane issued under clause 4(5) of the  State Order it is provided in the Form B clause  (xvii) that the factories shall be bound to pay same cane price  to non-members  as  members.  A nonmember is also  entitled  to share  the  profits which are worked out at the end  of  the season.   There is thus practically no difference between  a member and non-member so far supply of cane or its price  is concerned.  A member is no doubt entitled to some facilities such as running of other business or availing the  education facility etc. run by the cooperative societies but that  has nothing to do with cane price or its supply.  As a matter of fact the sale of by-products etc. is shown as receipt  while calculating additional price or final State Advised price. 18.  With  this  background it may now be  examined  whether provision  in  the  State  Zoning  Order  suffers  from  any drawback  for  not  providing  any  machinery  to  hear  the individual  non-members  and also whether  the  fixation  of price  by  the  Director of Sugar  Factories  or  the  State Government   under  bye-law  64  framed  under   Cooperative Societies Act can be said to be binding on members only thus entitling 601 nonmembers to sell their cane at market price.  The exercise of pricing is undertaken by a Committee in accordance with

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 30  

guidelines provided after taking into consideration  various factors  so  that the price of sugar does not  escalate  and cane  growers  are not deprived of good return  to  dissuade them  from  going for alternative crop.   In  the  affidavit filed  by the Under Secretary of the State it  is  explained that the price determined by the Committee is notified every year but no objection was ever received.  No cane grower can thus  legitimately claim that the price fixed for  the  cane was not productive.  The affidavit also pointed out that the non-members  have not organised themselves so as to  entitle their  representative  to  be  invited.   Hearing  of  every individual  grower even otherwise is physically  impossible. Presence  of  representative of  cane  growers’  cooperative society before the Committee fixing the price makes it broad based.   Such representative would bargain for better  price for cane growers irrespective of whether such a cane  grower is  a member of the cooperative society or not.   No  repre- sentative  would  agree for lower price for members  of  the society.   Therefore, absence of individuals or  non-members of cooperative society before the Committee fixing the price cannot reflect adversely on the price fixation.  No material has been placed to demonstrate how the fixation of price  by the  State  Committee with assistance of Director  of  Sugar Factories has prejudiced the non- members.  In the affidavit filed  on  behalf of the State it is pointed  out  that  the price  of  cane  fixed  to be paid  by  the  Sahkari  Sakkar Karkhana is even paid by other factories.  Reason being that the  price fixation having been done by the Committee it  is taken  to be fair and just.  Same reasoning applies to  non- members.   Truly  speaking  the  price  fixation  should  be observed  in broad perspective.  If every individual has  to be  heard the entire system may fall for  sheer  non-practi- cality.  In Maharashtra there are 137 sugar factories.  With each  factory nearly five to six thousand cane  growers  are attached.  Twenty per cent of them are non-members.  If  the Committee starts hearing every individual non-member then it shall prove to be an unending purposeless exercise.  One may have  right to challenge the price fixation on  ground  that the  Committee  or the authority did not act  in  accordance with the guidelines for fixation of price in accordance with the order but that right can be exercised appropriately only after  publication of the price.  In these appeals since  no one  objected, the individual members cannot claim that  the price fixed was not fair or just. 19.  Therefore, absence of any machinery in the State  Order for  hearing nonmembers could not destroy  effectiveness  of pricing.  Even otherwise the price fixation in a  controlled economy may not be bad so long it is in accordance with  the policy formulated by the Government and the decision by  the Committee  of  Experts  is not found to  be  arbitrary.   It cannot be assailed only because cane growers of one area are getting  better  price than the other.   The  difference  in price  arising due to application of principle uniformly  is neither  bad nor arbitrary.  It may be that since the  price is  linked  with yield it may cause hardship to one  set  of growers  as  they  might  be deprived  of  better  price  as compared  to his neighbour due to deficient  functioning  of the  factory but in a welfare State and  controlled  economy individual  hardship  cannot  override  the  larger   social interest. 602 20.Reason  for government intervention to fix the price  has been   explained   earlier.   It  was  to   increase   sugar production.   It continues even today.  While doing  so  the Government ensured stable and assured income to the growers.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 30  

That is why the pricing was devised even before 1950.   When the First Five Year Plan was drafted in 1951 the control was justified, for smooth functioning of an unregulated economy. When  the second Five Year Plan was made it  was  recognised that  controls were administratively cumbersome but  it  was found  necessary  for a developing  economy.   Necessity  of control for sugar and fixing of price for cane is as  neces- sary  today as it was in 1934 or 1951 or 1956.  The role  of price  control  is not merely to  reduce  distortions  which would   otherwise   have   been   prevalent   resulting   in exploitation  of  cane growers particularly when  there  was surplus production of cane but to promote his financial  and social condition.  The fruits of controlled economy for  the weaker and poorer cannot be doubted.  In agricultural sector the price control as an instrument of policy has boosted the economy.  To denounce it, therefore, may not be in  interest of  the cane growers.  Once when there was glut of  cane  in 1990- 91 it was the State which came to rescue and paid  Rs. 10,000/-  per hectare even to non-members.  The  Full  Bench too did not find any flaw in price fixation, nor it held  it to be unremunErative yet it imported the concept of free and competitive market price for those cane growers who were not members of any society mainly because they were not bound by the  bye  laws.  The submission  of  compulsive  cooperative system founded on bye laws does not have much substance.  No material  was placed before the High Court or this Court  to substantiate that  the  Government resorted to under pricing of  cane  to enable  the  sugar factories to  discharge  their  financial obligation.  In absence of any material it cannot be assumed that the Director of Sugar Factories who are none else  than cane  growers  themselves would opt for a lesser  price  for their  cane  because the sugar factories of which  they  are members were under an obligation to pay their debts. 21.  Coming  to the other rationale of the Full  Bench  that the price of cane having been fixed under the bye- laws  for the cooperative societies it was binding on the members  and not  others it may be appropriate to reproduce the  gist  of relevant bye-laws noticed by the Full Bench               "Bye-laws  Nos.63, 64, 64A, 65A and  65B  deal               with  the fixation of price of  sugarcane  and               deduction  of certain amounts from the  prices               paid to the members.               Bye-law 63 states that the Board of  Directors               of  the  factory  will give  advances  to  the               members  against  the price of  the  sugarcane               supplied  by them, by prior permission of  the               Director of Sugar and the Deputy Registrar  of               the Co- operative Societies and in  accordance               with   their  directions  and   after   making               deductions for certain purposes.               Bye-law  64  states  that  the  price  of  the               sugarcane supplied by the members, shall be as               fixed  by the Board of Directors  every  year.               The  Board  of Directors will  fix  the  price               according to the constitution, the object  and               the bye- laws of the society and after  taking               into consideration the financial  transactions               and conditions of the year.  The bye-law  then               makes  an exception to this general  rule  and               states  that  so  long as  the  share  capital               invested  by  the Government is  not  refunded               com-               603                pletely  and/or the loan taken from  the  In-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 30  

             dustrial  Finance  Corporation  or  from   any               Central Financial Institution supplying  funds               for fixed capital assets is not fully  repaid,               the  price to be paid to the members shall  be               that  as fixed by the State  Government.   For                             the  purposes of our discussion, we will  refe r               to this period briefly as the debt-period.               Bye-law  64A states that whenever  it  becomes               necessary   for   the  factory   to   purchase               sugarcane   from   non-members   outside   its               jurisdiction,    the   factory   shall    take               permission  of the State Government  for  such               purchase.  However, during the debt period the               price  to be paid to the nonmembers  shall  be               that as will be fixed by the State  Government               before the beginning of the crushing season.               Bye-law 65A mentions the deductions to be made               from  the  price payable to  the  members  for               raising non-refundable deposit from them,  the               rate  of such deductions and the rate  of  and               the  manner of its disbursal and the  interest               to be paid on such deposit.               Bye-law  65B  gives  power  to  the  Board  of               Directors   to  collect  deposits  by   making               deductions  from the price to be paid  to  all               sugarcane  suppliers  and  states  that   such               deposits shall be used only for the  expansion               of the factory and other capital  expenditure.               The  bye-law  also  lays  down  the  rate   of               interest to be paid on such deposits." Bye-law 64 empowers the Board of Directors to fix the  price of sugarcane to be supplied by members of cooperative  soci- ety  to the factory.  It further provides that the price  so fixed shall be according to the Constitution the object  and the  bye-law of the society and after taking into  consider- ation the financial transaction and conditions of the  year. In this bye-law there is a further exception empowering  the State Government to fix the price so long the share  capital invested by the Government is not refunded completely or the loan  taken  from the financial institution is  not  repaid. The  Board of Directors which are referred in  the  bye-laws are  none else than the agriculturist or the  cane,  growers themselves.   It is difficult to visualise that  they  would opt  or  fix  a  price for  the  sugarcane  which  would  be unremunerative.  As explained earlier the price fixed by the Cabinet Committee in exercise of power under the bye-law  is the  State Advised Price.  It applies uniformly to all  cane growers  irrespective  of whether they are members  or  non- members and whether they are in reserved area or outside it. To  confine  it to the members as they having  entered  into agreement and being members of the cooperative societies are bound by it is ignoring the entire price mechanism.  Nowhere in  the  country the State Advised Price is  fixed  for  one class  of growers only.  In absence of any material to  show that the fixation by the Government was one sided or with  a view to exploit the cane growers the submission that it  did not apply to non-members cannot be accepted.  The order does not  make any distinction between members  and  non-members. Nor does it visualise separate mechanism for price  fixation for  the two.  The price is fixed, may be, by the  Board  of Directors or by the State Government under bye-laws but  the prices  are for the reserved area.  The  Central  Government did  not  fix  any  maximum  price  obviously  because   the conditions in the agricultural sector differed from State to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 30  

State.   Therefore, it having fixed a minimum price  expects the  State to offer remunerative price to  its  cultivators. In  a controlled economy the price fixation machinery is  to be determined by 604 the  State Government or under the 1966 Order in the  manner provided  therein.   Since in Maharashtra 95% of  the  sugar factories  are in the cooperative sector the price is  fixed by  the  Government as it has substantial  financial  stock. But  so  long the price fixation does not  suffer  from  any infirmity or it is held to be prejudicial to cane grower  so as  to  benefit the State or the  financial  institution  it cannot be held to be bad.  Therefore once the price fixation has  been undertaken and performed by such an  authority  it cannot be held to be inapplicable to one particular class of cane  growers as the fixation having been done by the  State Government  under the bye-laws it was not binding  on  those cane  growers  who were not members of  any  society.   That would be defeating the entire purpose of enforcing controls. 22.  Reverting to the various issues which   arise       for consideration  it may be stated that zoning  or  reservation and  fixation  of  price for  each  zone  are  inter-linked. Therefore,  it may be seen whether zoning suffers  from  any infirmity.   It has already been explained that  even  under the  1966  Order the fixation of minimum price  Is  factory- wise.  Thus each factory has been considered to be one zone. Reservation  or zoning and fixation of price for  each  zone has  been  upheld  by this Court in  Shri  Malaprabha  Coop. Sugar Factory Lid v. Union of India & Anr. (1994) 1 SCC  648 and  Anakapalle Co-op.  Agrl. and Industrial  Society  Lid., etc.etc.  v.  Union of India and others (1973) 3 SCC  43  5. That was not challenged as well.  Yet it was urged that such zoning  could not be used to enforce a  cooperative  pricing system  contrary  to the statutes and rules.   The  approach does  not  appear  to be correct as it  assumes  that  price fixation is undertaken for cooperative societies as they are indebted  to State Government, Manner of price fixation  has been  indicated  earlier.   The exercise  is  taken  by  the Committee  in accordance with guidelines in the 1966  Order. In  absence  of any challenge to it on ground  of  it  being arbitrary or being in violation of the principles of pricing the  assumption  that  pricing in zone  is  like  a  private arrangement between the State as a creditor and  cooperative society  as a debtor cannot be countenanced.  The mere  fact that  the bye-laws empower the State Government to  fix  the price  for cooperative society does not render it  bad.   If the  price  fixed by the Government is good for  members  of cooperative  society  who  are  as  much  cane  growers   as nonmembers  then there is no reason to hold that such  price was  bad  or  it operated  unreasonably  for  non-  members. Zoning  has  been resorted to in the State to  regulate  the supply of cane to various factories on equitable basis.   It is  a well established feature in the country.  Once a  zone is reserved for a factory the cane grower has an  obligation to  supply  cane  to  the factory  and  the  factory  has  a corresponding  obligation to lift the cane from  the  field, crush  it produce sugar and pay to the grower not  only  the minimum price but also share the profit with him. 23.  In  the  affidavit filed by the Dy.  Secretary  of  the State it has been explained that while forming the zones for the  sugar  factories besides capacity  and  requirement  of sugarcane  to the sugar factory the physiological nature  of sugarcane  is also taken into consideration.  It  is  stated that crop of sugarcane is a perishable commodity and it  has to be crushed at the earliest after its harvesting for which

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 30  

the  optimum  distance of 40 kms has been laid down  by  the Union 605 of  India,  therefore, zones of the factories  are  normally between  35  to  40  kms radius  around  the  factory.   The affidavit  points  out that in the process  of  zoning  many Talukas  in  the  State pockets where  there  are  no  sugar factories have been left out because those areas do not fall within  the  radius  of 35 to 40 kms.   However,  from  such pockets  where the sugarcane is produced such  sugarcane  is allotted  to the neighbouring needy factories in  accordance with the Maharashtra Sugar Zoning Order and the  cultivators supplying  sugarcane from such free areas, even though  they are non-members they, get the same benefits as are available to the members of the said factory to whom the sugarcane  is allotted.   It is also stated that in any areas where  there is  no  sugarcane production or it is very meager  like  the parts  of Thane District, they have been kept  free  because such  sugarcane involves huge transport costs and it is  not possible to transport the sugarcane in adequate quantity  to any  of  such factories.  The affidavit further  points  out that in those areas where there is adequate sugarcane supply or they have good potential for growing sugarcane but  there is  no  sugar factory they have been kept free so  that  the rights  of sugarcane growers in such areas to  organise  and establish sugar factories can be protected.  Till such  time the  sugarcane  grown  in  such areas  is  allotted  to  the neighbouring needy zone and the price paid is the same as is paid  to  the members of the cooperative  societies  of  the sugar factories.  In one of the applications filed by one of the  karkhanas,  I.A. No. 11 of 1993 in C.A. No. 523  it  is stated  that before the crushing season starts the  karkhana enters  into  an agreement both with the  members  and  non- members  and  gives  them all necessary  input  for  growing sugarcane  such as seeds, fertilisers, technical know-  how, guarantee, finance for crop loan and also undertakes an  ac- tivity  of  harvesting and transporting of  sugarcane.   The application points out that the claim of the non-members was not  justified  as when there was a glut then  it  were  the karkhanas  like the applicant who had at  heavy  expenditure ensured  that  the cane of the non-members was  diverted  to other   karkhanas   and   they  even  bore   the   cost   of transportation.   But in absence of Zoning Order when  there was  a  glut  then the sugar factories  exploited  the  cane growers  by offering them lower price.  It has been  pointed out  that  nearly  80% to 95% sugar  factories  are  in  the cooperative sector but some of them have better cane growing areas  coupled with better and efficient functioning of  the factory.   They are in a position to offer better  price  as compared to other factories which are economically weak  and are  in difficulty.  What is clear from these affidavits  is that  zoning  is beneficial to the cane growers and  it  has been  resorted  not  only to ensure that  the  regular  cane supply  is available to sugar factories but also to  protect the  cane growers who may otherwise have been seriously  af- fected. 24.  Having  discussed  the pricing of sugarcane,  the  near similarity  between members and nonmembers of a  cooperative society  qua supply of cane and payment of price,  the  non- feasibility  of hearing every individual grower by the  Com- mittee   before   fixation  of  the  price   of   cane   and applicability  of uniform rate of cane in the reserved  area both  for  members and non-members it may  now  be  examined whether supply of cane by the cane growers under the  Zoning Order  issued  by the State of Maharashtra is  a  compulsory

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 30  

sale within meaning of clause (f) of sub-sec- 606 tion  (2) of Section 3 of the Act so as to  attract  Section 3(3)(c)  of  the Act.  Both these sub-sections arc  part  of Section  3  of  the Act which is the  main  Section  and  is directed  towards  achieving  the objective of  the  Act  to provide, in the interest of general public, for the  control of the production, supply and distribution of, and trade and commerce in certain commodities.  Sub-section (1) of Section 3 spells out the general power of the Government to  control production, supply and distribution of essential commodities if it is of opinion that it is necessary or expedient so  to do  for maintaining or increasing supplies of any  essential commodity  or for securing their equitable distribution  and its availability at fair price.  Sub-section (2) illustrates this power, further, by empowering the Government to provide for,   issuing  licences  or  permits  for   production   or manufacture  of any essential commodity or for its  storage, transport  etc.  and  for  controlling  price  at  which  an essential  commodity may be bought or sold.  Its clause  (f) empowers  the Government to direct any producer to sell  the goods produced by it either to itself or to State Government or to any person or class of persons specified in the Order. What  price is lo be paid to the producer for such  sale  is provided by Section 3(3) of the Act.  Relevant part of it is reproduced below:               "S.3.  Powers to control  production,  supply,               distribution, etc., of essential commodities               (1)..........               (2)..........               (3)   Where  any  person sells  any  essential               commodity  in  compliance with an  order  made               with  reference  to clause (f)  of  subsection               (2),  there  shall be paid to  him  the  price               therefor as hereinafter provided               (a)   where  the price can, consistently  with               the controlled price, if any, fixed under this               section, be agreed upon, the agreed price;               (b)   where on 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 price calculated at the market               rate prevailing in the locality at the date of               sale." A  very perusal of it indicates that its field of  operation extends  to  where  any  person  is  required  to  sell  any essential  commodity in compliance with an order  made  with reference to clause (f) of sub-section (2) of Section 3. 25.  Two  conditions, therefore, must exist  one, it  should be  a  sale of an essential commodity and second  that  such sale  must be in compliance with an order with reference  to sub-section  (2)(f)  of Section 3, the relevant part  of  it reads as under:-               "S.3.  Powers to control  production,  supply,               distribution, etc., of essential commodities               (1)........               (2)   Without  prejudice to the generality  of               the  powers conferred by sub-section  (1),  an               order made thereunder may provide               (a)               (b)               (C)               (d)               (e)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 30  

             (f)  for  requiring any    person  holding  in               stock, or engaged in the production, or in the               business   of  buying  or  selling,   of   any               essential commodity,               607               (a)   to sell the whole or a specified part of               the  quantity  held in stock  or  produced  or               received by him, or               (b)   in the case of any such commodity  which               is  likely to be produced or received by  him,               to sell the whole or a specified part of  such               commodity when produced or received by him,               to  the  Central Government or  a  State  Gov-               ernment  or  to an officer or  agent  of  such               Government  or  to  a  Corporation  owned   or               controlled by such Government or to such other               person  or  class  of  persons  and  in   such               circumstances  as  may  be  specified  in  the               order." This sub-Section came up for interpretation by this Court in Union of India & Anr. v. Cynamide India Ltd. & Anr. (1  987) 2 SCC 720.  It was held:               " an order under Section 3(2)(f) is a specific               order directed to a particular individual  for               the purpose of enabling the Central Government               to   purchase  a  certain  quantity   of   the               commodity  from the person holding it.  It  is               an order for a compulsory sale.  " It  was  reiterated in Shri Malaprabha (supra)  and  it  was observed:               "It  is  a specific order directed to  a  par-               ticular  individual  in order  to  enable  the               Central  Government  to  purchase  a   certain               quantity of commodity from the person  holding               it.  It is an order of compulsory sale.  " 26.  Can clause (3) of the State Order issued in 1984 either on the language or its effect be construed to be an Order of compulsory  sale?  It expressly does not purport to  be.  an order under Section 3(2)(f) of the Act.  It is not an  order of  the nature as was issued by the Central  Government  for sale of levy sugar.  It does not direct cane grower to  sell its cane to the Government or to any person specified in the Order.  In absence of any provision the order cannot be held to  be order directing the producers to sell the cane so  as to make it a compulsory sale under clause (f) of sub-section (2) of Section 3. 27.Language  of the Order apart even otherwise  the  purpose and  objective for which the Order was issued does  not  re- motely  or  even impliedly warrant any  inference  that  the supply of cane by the growers was sale.  Mere restriction on supplying  cane  to  anyone else than  the  specified  sugar factory  cannot  be construed as an order for sale.   It  is true that the effect of such an order as has been issued  by the  State  of Maharashtra is that a grower who  is  in  the reserved  area is precluded from supplying his cane  to  any other  factory  than  the  one  specified  but  that  is   a restriction to subserve the main objective of ensuring  that the sugar factory is not starved and the production does not suffer.   That  does not make the Zoning Order one  of  com- pulsory sale.  Any order under sub-section (1) resulting  in restricting   the  supply  of  essential  commodity   in   a particular area or directing it to be sold or purchased on a particular  price is not an order under Section  3(2)(f)  of the  Act.  If compulsion arising out of restriction is  held to be compulsory sale then it would render the entire scheme

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 30  

of  Section 3(2) nugatory.  What is contemplated by  Section 3(2)(f)  is  a specific order.  It applies  in  those  cases where  any  essential commodity is directed to  be  sold  or parted with in pursuance of an order of the Government.   It has  no application to supply in a reserved  area.   Further under clause (5) of Zoning Order the cane 608 under  orders  of  the Director can  be  supplied  to  other factories.  The provision completely demolishes the argument of compulsory sale. 28.What  was  vehemently urged by Dr. Dhawan, was  that  the invidious pricing system resorted to by the sugar  factories which were indebted to State Government resulted in forcibly drawing such cane growers who were not members of any  coop- erative society, therefore, it was contrary to the statutory equitable  pricing system consequent to the compulsory  sale under the Act.  It was urged that the fixation of price  was irrational  and unfair as it had no bearing or  relation  to the  yield of the crop or to the predicament of the  farmer. The  learned counsel vehemently submitted that  any  pricing resorted  to either by the cooperative societies or  by  the State  Government solely and exclusively in relation to  the management  of cooperative factories was an  extraneous  and irrelevant  consideration.  The learned counsel  urged  that since price fixation was not delegated under the 1966  Order any action by the State Government or cooperative  societies to  resort to price fixation which was unfair and unjust  to the  nonmembers  was contrary to the  Act.   The  submission proceeded  on assumption that the fixation of price  was  in respect of a commodity which was directed to be compulsorily sold  under  the orders issued by the  Government.   As  ex- plained  earlier the assumption does not appear to  be  well founded.  The entire edifice of the submission was built  on the  compulsive nature of transaction involved in supply  of cane  and  payment of price But what was lost sight  of  was that  Section 3(3)(c) could be attracted only if  the  order issued  by  the  Government could be held to  be  one  under Section  3(2)(f).  The submission ignores that economics  of pricing in a controlled economy is entirely different than a free  market.  The equilibrium in the latter is  reached  by interaction of supply and demand.  Its graph keeps on moving up and down governed by the principle of scarcity.  But  the controlled  economy does not operate on demand  and  supply. The  production, distribution and the supply  are  regulated and  controlled by the Government in public interest.   Such orders are issued in social interest for the common  benefit and  fair  price for the needy and poor.  Legality  of  such orders cannot be tested on cost structure of free economy or maximum  profit theory.  The concept of cost  structure  and the  profit in a controlled economy is  entirely  different. In  M/s.  New India Sugar Works etc. etc. v. State of  Uttar Pradesh  &  Ors.  etc.  etc. (1981) 2  SCC  293  this  Court although in a different context observed as under:               "The  policy  of  price control  has  for  its               dominant  object  equitable  distribution  and               availability of the commodity at fair price so               as  to benefit the consumers.  It is  manifest               that  individual interests, however’  precious               they may be must yield to the larger  interest               of the community, namely, in the instant case,               the large body of the consumers of sugar.   In               fact,  even  if the petitioners have  to  bear               some  loss  there can be no  question  of  the               restrictions imposed on the petitioners  being               unreasonable.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 30  

29.The  another facet of the same submissions by Dr.  Dhawan was  that  due to operation of the State Order  directing  a cane  grower  to  supply  its cane to  a  factory  in  whose reserved  area  it falls, the real nature of  supply  was  a compulsory  sale as visualised in Section 3(2)(f).   It  was attempted to be supported by clauses (6)(a), (6)(b),  (6)(c) of the 1966 Order and clauses 609 (3)and  (1)  of  the State Order.  It was  urged  that  even though  compulsory  supply has to be made  by  operation  of different provisions of the two orders yet it was in  nature of  contract of sale under compulsion.  Reliance was  placed on  Andhra  Sugars  Ltd. & Anr.  Etc.  v.  State  of  Andhra Pradesh & Ors. (1 968) 1 SCR 705 and Vishnu Agencies  (Pvt.) Ltd.   Etc. v. Commercial Tax Officer & Ors.  Etc. (1978)  2 SCR 433.  The learned counsel submitted that since the Order was specific both in letter and intent and it was clear from the schedules that all growers could supply cane only to  an identifiable  sugar  factory the  necessary  inference  that arose was that it was a compulsory sale and, therefore,  the respondents  were entitled for a market price under  Section 3(3)(c).   Help was also taken from Shri Malaprabha  (supra) and it was urged that where there were general orders  which identified  the seller and the buyer and both were aware  of the  nature of transaction that the sale had to be  made  to identifiable  designated person the sale was nothing  but  a compulsory  sale.   It was urged that a  provision  with  in built specific identification could not be used as a  device to  disguise  the real nature of transaction.  None  of  the submissions appear to be well founded.  As observed in  Shri Malaprabha (supra) and Anakapalle (supra) the provisions  of Section 3(3)(c) could apply only where there was a  specific order  of sale.  In absence of any such order the  inference that  the  learned counsel for respondent has  attempted  to draw  cannot be said to be justified.  What is  contemplated under  Section 3(3)(c) is an order of a compulsory sale  and not a compulsion arising out of enforcement of  restrictions under the provisions of controlling distribution and supply. A  cane grower in a reserved area gets the price for  supply of  his cane to a specified factory.  This price is  payable both  to members and nonmembers.  The orders  only  restrict that the supply could not be made to any factory outside the area.   The restriction may result in confining  the  choice but  it cannot be construed as an order of sale.  The  situ- ations  in which an order can be considered to be  an  order for  compulsory  sale may be one where the Government  by  a particular  order or a general order as in the case of  levy sugar  directs the producer to part with his goods.   Number of commodities have been declared to be essential  commodity under Section 3 of the Act.  Its supply and distribution may be  regulated either by restricting the area or  fixing  the price.   If in respect of any such commodity the  Government passes  an order directing a producer to sell any  essential commodity to Government or to any class of persons specified in  the order then it shall be a compulsory sale.   None  of the   decisions  on  which  reliance  was  placed  has   any relevance.   The observation in Andhra Sugars  (supra)  that where  cane  growers  entered into  agreement  with  factory owners  who were bound to purchase the cane by operation  of statutory provisions may amount to compulsion of law and not coerce  and  the agreements so entered  are  enforceable  as contracts of sale as defined in Section 4 of the Indian Sale of  Goods Act, did not mean that the compulsive  element  of supplying  cane resulted in compulsory sale.  The Court  was bringing  out the distinction between coerce and  compulsion

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 30  

under  law.   But every compulsion does not  bring  about  a compulsory  sale.   Similarly the other decision  in  Vishnu Agencies  (supra)  was concerned  with  determining  whether supply  made under statutory order was sale for purposes  of levy of sales tax. 610 30.The  dual pricing system, one, for members and other  for nonmembers  or  the  option to non-members to  sell  to  the factory  of  their  choice may be  negative  of  the  zoning concept  and  may  effect the cooperative  movement  in  the State.   Dr.  Singhvi may be right that even  before  Zoning Order was issued the cooperative movement was there and  the benefits that a member of the society derives may not result in affecting the system largely but any policy which has the tendency of shaking the system rudely must be avoided. 31.Consequently the first two directions issued by the  Full Bench on price fixation cannot be upheld.  As regards  third direction  it has been explained in the affidavit  filed  in pursuance   to   order  dated  24th  February   1995   which substantially  remains  uncontroverted that  the  deductions under  bye-law 65 are made for the Chief  Minister’s  Relief Fund,   Small   Saving  Schemes,  Cane   Development   Fund, Vasantdada  Sugar Research Institute, Area Development  Fund etc..  The  details as to how the deductions are  made  have also  been  mentioned.   It is true that they  are  made  in exercise of power under bye- law 65 which does not apply  to non-members.   But  these deductions being for  the  general welfare  of  the  society it cannot be said  that  they  are either bad or they suffer from any infirmity.  The  deposits deducted  unlike members arc refundable and they carry  same interest as is paid to members.  A non-member who is sharing in  profits of the sugar production cannot be heard  to  say that he has no obligations towards the society because he is not a member of any co-operative society. 32.With  the  conclusion thus arrived the other  issues  are rendered  academic.   Suffice  it to say  that  the  Court’s responsibility  is  to  construe  the  provision  which  may advance  the  co-operative  movement  in  the  State.    The amendments  in  Sections  22 and  23  have  facilitated  the membership  Notwithstanding  the right of a cane  grower  to become a member of cooperative society the provisions cannot be construed so as to result in nullifying the whole  system of control devised to improve production of the sugar in the country.   For  sake of more profit to few  individuals  the society cannot be made to suffer.  Ours is a mixed  economy. Competition and control have been blended to reduce economic imbalance.  If the individual growers who do not  constitute more  than 20% otherwise get the same profit as a member  of cooperative  society then there appears no justification  to construe  the provision to give them a bit more profit  when it  is fraught with danger of small units closing  down  and the entire zoning system coming to a crash. 33.  Even though as discussed earlier the supply  made    by the non-members could not be  considered  to  be  compulsory sale within    meaning of Section 3(2)(f) and therefore, the provisions  of  Section 3(3)(c) are not attracted,  yet  the methodology  adopted by the State for fixing price  requires to  be rationalised as various discrepancies  have  surfaced for  which there is no satisfactory explanation.   The  Full Bench  felt that there was something grievously  wrong  with pi-icing  system in the State, therefore, it found  a  legal basis  for striking it down at least for non-members.   What is  baffling  is  that even though  factory  after  factory, rather, nearly the entire lot is shown to be suffering  loss yet  new  units are coming up every day in  the  cooperative

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 30  

sector.  May be because as 611 claimed  by the State it is vitally concerned in  production of  sugar  and is, therefore, investing  substantial  funds, nearly 95% in setting up of the units.  May be as  suggested by  the respondents that the public funds  thus  transferred for   social  welfare  is  being  siphoned  off  by   vested interests.   May  be as argued that the loss is  more  paper work than truth as in fact it has resulted in giving rise to what has come to be known as powerful political sugar  lobby in  the  State of Maharashtra.  But these are  matters  more political  than  legal, the remedy for which may not  be  in courts.   Even otherwise it is not possible to identify  the evil,  both, for paucity of material and discipline, of  re- straint,  of  keeping  away  rather  than  delving  in  such hazardous  zone.   All the same from the chart  filed  along with  the  affidavit in C.A. No.523 of 1989 it  appears  the factories having better recovery have been permitted to  pay lower  price  as compared to the factories the  recovery  of which is lower.  For instance at item Nos.14 and 15 the  two karkhanas, Ashok and Dayaneshwar, arc shown to have recovery of  10.21% and 10.53% respectively.  Yet the price  paid  in 1985-86  was  Rs.270/ - per tonne by Ashok  whereas  it  was Rs.250/- by Dayaneshwar.  Similarly serial nos.21 and 22 the factories, Sanjiwani and Sangamrer with same recovery,  that is,  11. 3 1 % have been made to pay Rs. 3 64/  -,  Rs.330/- and  Rs.240/-  for years 1985-86, 1986-87  and  1987-88  and Rs.391/-, Rs.348/- and Rs.366/- respectively.  Then again at serial  no.37  and 38 Shriram and Ajinkyatara  the  recovery percentage was 10. 84 and 11. 75 respectively and the  price paid  was Rs.311.50, Rs.300/- and Rs.285/ -  and  Rs.305.50, Rs.330/- and Rs.415/respectively.  It has not been explained how  this difference has arisen.  Such wide disparities  are bound  to  create distrust.  In price  mechanism  chart  the expenditure  which  is deducted from the  receipts  includes overheads  which  are  substantial.   Over  and  above   the interest, loan, bonus etc. is also deducted. 34.  In the written arguments filed on behalf of respondents it is explained that there is considerable disparity in  the market price of sugarcane in Maharashtra in recent years and the variation in 1990-91 ranged between Rs.545/- to Rs.275/- in 1991-92 between Rs.511/- and Rs.286.80 whereas in 1992-93 it  was  between  Rs.  731/  -and  Rs.310/-.  According   to respondents this price variation has nothing to do with  the product,  namely,  the recovery from the  sugarcane  but  is based  on extraneous consideration as seen by its  principal creator, namely, the State Government. 35.  The respondents may not be justified in advancing  this submission as the entire price structure of cane is  founded on two basic factors, one, the recovery percentage and other the  incentive for sharing profit arrived at by working  out receipt  minus expenditures And that is neither contrary  to law nor unfair.  But the wide disparity in the price paid by two  factories  is certainly glaring and is  apt  to  create misgiving.   How  to remedy it?  In a  welfare  society  the consumer   of  essential  goods  is  as  important  as   the manufacturer  and producer of it.  The entire  objective  of the Essential Commodities Act is to promote social  welfare. It  is  being achieved by controlling price  of  sugar  with equal  emphasis on cultivation of cane and its  price.   Any legislation  must be viewed with this perspective.   In  the Zoning  Order  clause (5) empowers sugar factory  to  accept cane  from other zone as well but no similar right has  been given to cultivators. 612

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 30  

For better appreciation the entire clause is set out :               "5.  Regulation of supply of Sugarcane.-               (1)   A  permit  officer  may  allow  a  sugar               factory to purchase cane or to accept supplies               of  cane  from cane growers from  areas  other               than  the area reserved for it under clause  3               if he is satisfied that any ’of the  following               circumstances exist namely               (a)In  the event of production of cane in  the               area  reserved  for  the  factory  being   not               adequate  for  enabling it  to  reach  optimum               level of crushing;               (b)In  the,  event ’of surplus  production  of               cane in the areas reserved for other factories               which  those factories are not able  to  crush               during the crushing season.               (c)In  the event of stoppage of  nearby  sugar               factory  due to mechanical break down,  labour               unrest, lock-out or any other reason.               (d)In the event of cane grower or cane growers               from  the  area  reserved  for  a   particular               factory  declining to supply cane to the  said               factory  on  account of any of  the  following               reasons,  if  found justified  by  the  Permit               Officer               (i)Non-payment  or late payment of cane  price               by the sugar factory; or               (ii)Non-fulfilment  of any of the  obligations               by the sugar factory arising out of  agreement               between  the cane grower or cane  growers  and               the sugar factory; or               (iii)Discrimination  by the sugar  factory  in               harvesting of cane and thereby causing loss to               the cane grower or the cane growers;               Provided  that before passing any order  under               this sub-clause, for any of the above reasons,               the  Permit  Officer shall  give  the  parties               concerned  a reasonable opportunity  of  being               heard  in  person or  through  the  authorised               representative." 36.Clause  (5) prescribes the situations in which one  sugar factory  will  be permitted by the prescribed  authority  to purchase  sugarcane from the zone of another sugar  factory. It does not provide for the cane grower seeking a permit for sale of his cane to another sugar factory (than the  factory within whose zone he may be situated) even if any or all the conditions  prescribed in the clause are satisfied.  Take  a case  where  a  sugar  factory indulges  in  all  the  three irregularities  mentioned  in subclause (d) of  Clause  (5), viz., it does not pay the price of cane at the proper  time, it does not adhere to the agreement it has entered into with the grower and it also discriminates in harvesting the  cane thereby causing loss to the cane growers even then the  cane grower  cannot  apply  for  permit  to  sell  his  cane   to whomsoever  he  likes.  All that probably he can  do  is  to complain.   But he will get some relief only when  there  is another  factory (which, of course, has its own zone)  which is prepared to purchase cane from this zone and applies  for permit  to  the permit officer to purchase  cane  from  this zone.  If it does not so apply, the grower within the  first zone  is helpless.  That is not being fair and just  to  the growers.   It  is,  therefore,  necessary  that  the   State Government  may  suitably amend the Zoning Order  so  as  to provide that in a case where any of the three  circumstances mentioned in Clause 5(d) are present it would be open to the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 29 of 30  

613 cane   growers  to  apply  to  the  specified  officer   for permission to supply his cane outside the zone.  In such  an event,  it  may  be open to the  officer  to  designate  the factory  to which the grower should sell his  cane  ensuring that  the  grower gets a price which is not  less  than  the price obtained in his zone. 37.The State Government would be further well advised to get the  matter  thrashed out, before the next  crushing  season commences,  by an Expert Committee comprising of  economists and  financial  experts  well  versed  in  price   fixation, particularly  in  agricultural sector.   This  exercise  has become imperative after the enforcement of Zoning Order.  In fact when Zoning Order was introduced the State at that time should have got these aspects examined.  However, the  price equation  since 1984 has undergone tremendous upsurge.   The escalation  is manifold.  Benefit of higher price  of  sugar must percolate to growers as well.  Therefore, the Committee may examine,               (a)   if  the fixation of State Advised  Price               uniformly for the entire State as it is  being               done  in other States, or at least  separately               for different zones, as the normal recovery in               the zones varies, would be more feasible;               (b)   if  the additional price worked  out  in               the manner indicated in Schedule 11 of Control               Order   of  1966  is  more  advantageous   and               beneficial to the growers.  If it be so it may               opt  for  the same as it would  avoid  tedious               exercise by the Ministerial Committee and have               the benefit of uniformity;               (c) The Committee may further examine  whether               Rs. 600/- which has been paid by the factories               to the non-growers under interim order  passed               by  this  Court  would  not  be  a  reasonable               minimum price for 1995-96 and may furnish  the               basis for fixation of price for future years;               (d)   It  may also suggest ways and means  for               improving  yield  by the sugar  factories  and               reducing  overhead expenses  and  eliminating,               possible, paper loss;               (e)   It  would further be in interest of  the               Government to ask the Committee to examine  if               the shortcomings pointed out by the Full Bench               in   other   regard  can  be   rectified   and               rationalised; and               (f)   The  Committee may examine whether  bye-               law 65 should be applied to nonmembers or not. 38.  Although  the  price  fixation has not  been  found  to suffer from any infirmity yet due to passage of time, nearly eight   or  nine  years,  since  this  price  fixation   was challenged  and  with rise of price all  around  it  appears expedient  to  dispose  of  these  appeals  with   following directions  to ensure smooth functioning both for  the  past and future :               (i)The   directions  of  the  Full  Bench   in               paragraph  25 of the Judgment shall stand  set               aside.               (ii)The State Government may take  appropriate               steps to amend Clause (5) of the Zoning  Order               so as to protect the cane growers.               614                (ii)  The Government may appoint a  Committee               of  Experts  to study and  examine  the  price               structure in the light of what has been stated

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 30  

             earlier.               (iv)Even though the order issued by the  State               Government determining price for each  factory               is  upheld  but since in  consequence  of  the               order  passed  by the High  Court  an  interim               order  was  granted  by  this  Court  and  the               factories were directed to pay Rs.600/- to the               cane growers and they were directed to furnish               bank  guarantee  for Rs.145/- it  is  directed               that  the amount paid by the  factories  shall               not  be  liable  to  recovery  from  the  cane               growers.  But the bank guarantee furnished  by               the appellants or sugar factories shall  stand               discharged.               (v)   It is made clear that the direction  not               to  recover Rs. 600/- from  non-growers  would               not  entitle  any member  of  the  cooperative               society  or the cooperative society itself  to               claim that it was entitled to be paid Rs.600/-               for its cane during the years in dispute. 39.  For the reasons stated in the order these  appeals  are disposed of with above directions.  Parties shall bear their own costs. 615