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PETITIONER: SHREE MEENAKSHI MILLS LTD.

       Vs.

RESPONDENT: UNION OF INDIA

DATE OF JUDGMENT26/11/1973

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) PALEKAR, D.G. CHANDRACHUD, Y.V. BHAGWATI, P.N. KRISHNAIYER, V.R.

CITATION:  1974 AIR  366            1974 SCR  (2) 393  1974 SCC  (1) 468  CITATOR INFO :  RF         1975 SC 460  (13,14)  RF         1976 SC1207  (86,89,91,178,445,513,541)  R          1978 SC1296  (33,34,38,62)  RF         1981 SC 873  (35)  R          1981 SC 998  (4)  F          1983 SC1019  (33,34)  F          1987 SC1802  (9)  RF         1987 SC2351  (6)  R          1988 SC1737  (85)  RF         1990 SC 334  (103)  RF         1990 SC1851  (25)  RF         1992 SC1033  (33)

ACT: Cotton  Textiles  (Control)  Order,  1948-Clauses  22,   30- Notification--  Fixation  of  fair  price  of  Cotton  yarn- Validity-Clauses 22. 30 if ultra vires the powers  conferred by  s. 3 of the Essential Supplies (Temporary  Powers)  Act, 1946-Cotton yarn if "Cotton and Woollen textiles"-Order,  if continued under Essential Commodities Act, 1955-Fixation  of Fair  price  if arbitrary and unreasonable  Constitution  of India, 1950-Articles 19(1) (f) and (g) and 301. Essential  Commodities  Act, 1955-Section 3  sub-secs.  (3), 3(A).   3(A),  and  3(C)-Scope   Price   fixation-Principles regarding. Constitution  of India, 1950-Articles 32,  358-If  executive action taken during  emergency  has  no  authority as  a  valid  law  its constitutionality can be challenged. Words  and  Phrases-Cotton  yarn,  if  "Cotton  and  Woollen textiles".

HEADNOTE: Owing  to the very low cotton crop there  was  unprecedented and  phenomenal  rise  in  cotton prices  and  there  was  a perceptible drop in yarn production.  Early in 1973 the yarn prices  showed  an upward trend in the fine and  super  fine counts.  The power-loom and hand-loom sectors which produced 47.1  percent of the total cloth production in the  country’

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depended  for  the supply of raw material  yarn  on  textile mills.   Two  thirds of-the total yarn  produced  came  from composite mills.  The composite mills competed with handloom and  power-loom  sectors in the production of  cloth.   Even though the question of control and fixation of fair price of cotton textiles had received the attention of the Government in  the past pursuant to the recommendations of  the  Tariff Commission  and  the  Tariff  Board,  no  control  over  the production  and  sale of yam was imposed until  March,  1973 when  the Government decided to bring yarn under control  in all respects, viz., prices, production and distribution and- issued   the   two  impugned   notifications.    The   first notification  was issued by the Textile  Commissioner  under clause 22 of the Cotton Textile (Control) Order, 1948.   The notification  determined  the ex-factory price of  count  of yarn  of 59s and below and count of yarn 60s and above.   In the case of count of yarn of 59s and below the price was  to be the highest ex-mill price or the highest contracted price for  delivery  effected in December, 1972.  In the  case  of producers  of  yarn  situated in States of  Tamil  Nadu  and Pondicherry  where  the  electricity cut  exceeded  70%  the relevant  price as applicable was to be increased by  6  per cent.   In  the  case of counts of yarn 60s  and  above  the determined  price was the regulated yarn price  adopted  for individual producers of yam from the 1st day of August 1972, increased by 6 per cent where there was no electricity power cut,  and further increased according to the  percentage  of electricity  cut.   The  term ’regulated  price’  under  the notification  meant  the  price  calculated  by  taking  the difference between the highest contract price as on June  1, 1972  or  the nearest date in case no sale was  effected  on June  1, 1972 and the highest price for the  relevant  count and  form of packing during January, 1972 and  allowing  one half  of  the  difference to be reduced from  June  1,  1972 price.  By a notification dated March 31, 1973, the  Textile Commissioner  authorised  the Deputy Commissioners  and  the District Collectors to specify the maximum price of yarn  to be sold by dealers.  The maximum price was to be fixed after taking  into  consideration  (a) invoice  prior  of  yarn(b) incidental  charges (c) such reasonable marginal profit  not exceeding  2  percent  of the invoice price  as  the  Deputy Commissioner or the District Collector may determine in each case,  and (d) any other relevant factor.  The  notification was  not applicable to yam sold to hosiery industry  and  to yarn on beams delivered under specified circumstances.   The second impugned notification was made by the Textile Commis- sioner in exercise of powers conferred under cl. 30(1)(b) of the 1948 order.- 399 The notification directed that no producer of yarn for civil consumption shall sell or deliver any such yarn produced  by him  except  to such person or persons and subject  to  such conditions as the Textile Commissioner might specify.   The_ same  notification contained another direction under  powers conferred  by  cl. 30(1) (a) of the 1948  order  that  every producer of yarn for civil consumption shall sell or deliver such  yarn only to five channels of  distribution  mentioned therein on the basis of the directions that might be  issued from  time to time by the Textile Commissioner.  Those  five channels were (a) the nominees of the State Government;  (b) the Handloom Export Promotion Council Madras; (c) the Cotton Textile Export Promotion Council, Bombay; (d) the Federation of  Hosiery Manufacturers Association of India, Bombay;  and any  other  person  as  may  be  nominated  by  the  Textile Commissioner  in  this behalf.  The  order  of  distribution

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through   channels  was  made  inapplicable  by   successive notifications  to  yarn counts of 40s  and  below.   However control was imposed in such cases by another notification at the  point  of  sale  by a dealer of  yarn  to  consumer  by providing that every dealer shall sell or deliver yarn  only to  persons therein in such quantities as may be  determined by the Deputy Commissioner or the District Collector. In a petition under article 32 of the Constitution of  India the   petitioners  questioned  the  validity  of   the   two notifications on the following grounds : (1) the 1948  Order in so far as it purported to make provisions ill respect  of control  and  distribution  of cotton yarn  by  fixation  of prices, more particularly by clauses 22 and 30 thereof,  was ultra  vires the powers conferred on the Central  Government by  s. 3 of the Essential Supplies (Temporary  Powers)  Act, 1946,  inasmuch as cotton yarn was not covered by  the  item "Cotton  and  Woollen  textiles" and could  not  be  brought within  any other item; (ii) in any event the provisions  of the 1948 Order relating to cotton yarn could not be said  to have  been  continued  in force either under s.  16  of  the Essential Commodities Ordinance, 1955, or under s. 16(2)  of the  Essential Commodities Act, 1955, as cotton yarn is  not covered  the  item "cotton and woollen  textiles"  under  s. 2(a)(iv.)  of  the  1955 Act and no  notification  had  been issued  declaring cotton yarn as an essential  commodity  in exercise  of the powers conferred under S. 2(a) (xi) of  the 1955 Act; (iii) on a true construction of S. 3 of the Essen- tial  Supplies  (Temporary Powers) Act, 1946  the  power  to issue orders in respect of essential commodities having been conferred  to ensure their availability at fair  price  such orders  cannot  validly  confer  arbitrary  powers  on   the executive  to fix prices of essential commodities  unrelated to the cost of production and reasonable margin of,  profit; in  particular,  yarn  price control had  not  followed  the pattern of price control for cloth by providing for periodic changes  in the control price to allow for  fluctuations  in cost  elements;  sub sections (3), 3(A), (3B), and  (3C)  of section  3 of Essential Commodities Act, 1955 constituted  a single  scheme and that what is implicit in sub section  (3) is made explicit in sub section (3C); (iv) if provisions  of the  Cotton Textiles Contra Order conferred arbitrary  power on the Textile Commissioner to fix prices for yarn unrelated to  the  cost of production and reasonable  profits  to  the producer  then  the  provision becomes  void  by  reason  of infringement    of   fundamental   rights   guarenteed    by Art.(1)(f)and  (g)  and  31 as well as Article  301  of  the Constitution;  (v)  if  the 1948  Order  did  not  authorise fixation  of  price of cotton yarn arbitrarily  and  without reference to relevant factors such as cost of production and reasonable return, the impugned notifications which fixed  a price  for yarn, below the cost of production of  the  mills are  ultra  vires the Cotton Textiles  Control  Order  1948, inasmuch  as the prices fixed under the  notifications  were not  based  on  relevant  considerations  such  is  cost  of production, reasonable return, but were wholly arbitrary and based on irrelevant considerations; and (vi) the  provisions of    the    second    impugned    notification    regarding channelisation. of, yarn distribution was arbitrary and also created  monopoly in favour of specified  persons  violating articles 19(1)(f) and (g) and 301 of the Constitution. A  preliminary objection was raised on behalf of  the  State that  the  petitions  were not  competent  because  of the Proclamation of Emergency.  Dismissing the petitions, 400 HELD  The petitions are competent.  If it can be shown  that

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the  executive  action  taken during the  emergency  has  no authority  as  a  valid law  its  constitutionality  can  be challenged.   The Cotton Textiles (Control) Order  1948  was continued  by Essential Commodities Act 1955.  The  impugned orders  are made under pre-emergency Cotton Textile  Control Order.   The validity of the impugned orders  is  challenged under  articles 19(1)(f) and (g) of the Constitution on  the ground  that  it is a pre-emergency  executive  order  which could have been challenged  under Article 1 9 (1 ) (f ) and (g) before the proclamation of emergency.  From the point of view  the  petitions are competent though the  challenge  is insupportable. [428E-F] Bennett Coleman & Co. case [1972] 2 S.C.R. 788, referred to. (i)Cotton  yarn is included in cotton textiles.   Yarn  is the  material  or  component with which  cotton  textile  is manufactured  or  woven.   The setting in  which  the  words ’Cotton  textile’ are used has a legislative  and  executive understanding  of  the words consistently over a  period  of time.  The legislative practice shows that cotton textile is a  generic term which includes cotton fabric and yarn.   One of  the methods of construction of statutes is to  ascertain the setting and circumstances; in which the words are  used. [407H; 408D] K.R. Subbaier v. The Regional Provident Fund Commissioner Madras, AIR 1963 Madras 112, Kanpur Textiles Finishing Mills v. Regional Provident Fund Commissioner, AIR 1955 Punjab 130 and  The  Deputy Commissioner of Commercial  Taxes,  Madurai Division, Madurai v. Madurai Printing Tape Factory, 28 Sales Tax Cases 431, referred to. (ii)The   1948   Order  continued   under   the   Essential Commodities  Act,  1955.  Since cotton yarn is  included  in cotton   textiles  it  was  not  necessary  to   issue   any notification declaring cotton yarn as an essential commodity under s. 2(a) (xi) of the 1955 Act.  The notification  dated March 13, 1973, required an explanation to say that yarn for the  purpose  of  notification shall mean  all  cotton  yarn except  sewing  thread and industrial yam  like  tyre  cord. This  explanation was necessary to include all  cotton  Yarn because  the  decentralised sector was  facing  severe  yarn shortage. [412C] The  Lotus  Industrials,  Kallai, Malabar v.  The  State  of Madras Development Department, Madras, A.I.R. 1952 Mad,  715 and  State  of Bihar v. Hira Lal Kajriwal, [1960]  1  S.C.R. 726, referred to. (iii)(iv) (v).  Control over price and distribution  of yam is in the interest of the general public.  Handloom  and powerloom  industries  require  protection  and,  therefore, controlover the price and distribution of yarn is in  the interest of the general public.[416D] Just as the industrycannot complain of rise and fall of prices due to economic factors in an openmarket,    they cannot  s imilarly  complain  of increase  or  reduction  of prices  as  a result of notification under s.  3(1)  of  the Essential Supplies  Act, 1955, because, that  increase  or reduction is also based on economic factors.  If fair  price is  to be fixed leaving a reasonable margin of profit  there is  never any question of infringement of fundamental  right to  carry on business.  The question of fair price  to  the consumer  with reference to the dominant object and  purpose of  the  legislation  claiming  equitable  distribution  and availability  at fair price is completely lost sight  of  if profit and the producer’s return are kept in the  forefront. The maintenance or increase of supplies of the commodity  or the  equitable distribution and availability at fair  prices are the fundamental purposes of the Act. , If the prices  of

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yarn  or  cloth  are fixed in such a way as  to  enable  the manufacturer. or producer recover his cost of production and secure   a  reasonable  margin  of  profit,  no  aspect   of infringement of fundamental right can be said to arise.   In determining  the reasonableness of restrictions  imposed  by law  in the field of industry, trade or commerce,  the  mere fact  that  some  of those who are  engaged  in  these  are, alleging  loss  after  the imposition of the  law  will  not render  the law unreasonable.  By its very nature,  industry or trade or commerce goes through periods of prosperity  and adversity on account of economic and, sometimes, social  and political factors. [419H; 42OA-C] 401 When  controls have to be introduced to ensure  availability of  consumer  goods at a fair price it is  an  impracticable proposition  to  require the government to  go  through  the exercise  like  that of a commission to fix the  prices  A,. commission cannot always make a correct estimate of a  price which is fair to all- because. there are intricacies in  the trade  of all profit making enterprises which  a  commission may not be able to probe. [420C] When available stocks go underground and the Government  has to step into control distribution and availability in public interest,   fixing   of  price  can   be   only   empirical. "Reasonable restriction connotes that the limitation imposed on  a  person  in  enjoyment of  the  right  should  not  be arbitrary or of an excessive nature beyond what is  required in  the  interest of the public.  In the  present  case  the legislative measures have left the question of resolving the economic   problems   of  increasing   supplies,   equitable distribution  and availability of essential  commodities  at fair  prices to the judgment of the  statutory  authorities. [420E-F] The  power to fix controlled price is in Section 3  (2)  (c) read with s. 3 (1) and not in s. 3(3) of the 1955 Act.   The controlled price fixed under s. 3(1) read with s. 3 (2)  (c) is  different from price under sub-section (3A) 1  (3B)  and (3C). [421-G] The control of prices may have effect either on  maintaining or  increasing  supply of commodity  or  securing  equitable distribution   and   availability  at  fair   prices.    The controlled  price  has  to retain this  equilibrium  in  the supply and demand of the commodity.  The cost of  production and  a reasonable return to. the producer of  the  commodity are  to  be taken into account.  The producer must  have  an incentive to produce.  The fair price must be fair not  only from  the  point of view of the consumer but also  from  the point  of  view of the producer.  In fixing  the  prices,  a price  line  has to be held in order to give  preference  or predominant consideration to the interest of the consumer or the  general public over that of the producer in respect  of essential commodities.  The aspect of ensuring  availability of  the essential commodities to the consumer equitably  and at  fair  price is the most  important  consideration.   The produce should not be driven out of his producing  business. He may have to bear loss in the same way as he does when  he suffers  losses on account of economic forces  operating  on the  business.  There is no justification that the  producer should  be given the benefit of price increase  attributable to  boarding  or cornering or artificial short  supply.   In such a case, if an "escalation" in price is. contemplated at intervals the object of controlled price may be  stultified. Any restriction in excess of what would be necessary in  the interest  of general public or to remedy the evil has to  be very carefully considered that the producer does. not perish

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and the consumer is not crippled. [422F-H; 423A-B] In  the  present case the controlled  price  fixed  reflects costs  of  production  and,, reasonable  return.   The  mere suggestion  that  no  provision is made  for  adjustment  on account of changes in the cost of production does not amount to  infringement of fundamental right to carry  on  business and  to hold and dispose of property.  There is no  material to  show that increase in yam prices was on account of  cost of production.  The fixing of controlled price is much  more than  a fair price to the producer on the date it is  fixed. The  prices of new cotton crop, that is for September.  1973 to August, 1974 are not known at the time of the fixation of price.   Even when they are known the petitioners will  have to show with reference to the different types of mixes  used in  producing yarn, the impact of cotton prices on the  cost of  production  of that category of yam.  Further,  even  if there is increase in the cotton prices, the petitioners  can absorb it because the controlled price fixed is more fair to the  producer.   If he-, sustains alleged  losses  for  some time,  it  will  be a reasonable  restriction,  because  the object  of  the price control is to hold the price  line  or revert the prices to normal levels and make available cotton yarn  to the handloom and powerloom weavers at a fair  price which  will enable them to withstand competition  from  mill made cloth.  It is not shown that the controlled price is so grossly  inadequate that it not only results in huge  losses but  also in a threat to the supply position of  yarn.   The controlled  price  is in the interest of the  country  as  a whole  for  just  distribution of  basic  necessities.   The controlled  price  is, therefore, neither arbitrary  nor  an unreasonable restriction. [424C-F] 402 Diwan Sugar & General Mills v. Union of India [1959] Supp. 2 S.C.R.  123,  ,Sri  Krishna Rice  Mills  v.  Joint  Director (Food), Vijayawada (Civil-Appeal Nos. 1026-1031 etc. of 1963 dated  27 January, 1965) Hari Shankar Bagla v. The State  of Madhya  Pradesh  [1955]  1 S.C.R. 380,  Union  of  India  v. Bhanamal Gulzarimal [1960] 2 S.C.R. 627, State of  Rajasthan v. Nathmal’& Mithamal [1954] S.C.R. 982, Dwarka Prasad Laxmi Narain v. State of U.P. [1954] S.C.R. 830, Chintaman Rao  v. State  of Madhya Pradesh [1950] S.C.R. 759 and Secretary  of Agriculture  v.  Central Reig Refining Company (94  Law  Ed. 381-338 U.S. 604-620). referred to. Panipat  Co-operative Sugar Mills v. Union of India  (A.I.R. 1973  S.C.  536) and Ankapalle Co-operative  Agricultural  & Industrial Society Ltd. v. Union of India (A.I.R. 1973  S.C. 734), held inapplicable. Premier Automobiles Ltd. v. Union of India, [1972] 2  S.C.R. 526, distinguished. (vi  )  By the channelisation of yarn distribution  what  is sought  to  be  achieved is  price  control  as  well   as distribution  control to meet the problems of  avail.ability of  goods  at reasonable prices.  The  contention  that  the distribution channels are monopolies in favour of specified persons  is  unsound.   The  channels  of  distribution  are agencies  of the State and associations of users  of  cotton yarn.  The requirement not to sell yarn at a price above the maximum  price operates on all distributing  channels.   The distribution  control is intended to ensure availability  of yarn  at  reasonable  or fair price.  It  is  not  that  all dealers  in  yarn  have been denied the right  to  carry  on trade.   It is denied only to those whose carrying on  trade in   yarn  would  not,  in  the  opinion  of   the   Textile Commissioner,   ensure  availability  of  yarn   to   actual consumers  at  the fair price.  Elimination of  persons  who

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have hoarded or cornered or are unscrupulous in distribution is  intended  in  public interest.   This  is  a  reasonable restriction in the interest of general  public    and     is contemplated in Article 19(6) of the Constitution. [426C-G] Rashbihari  Panda v. State of Orissa. [1969] 3  S.C.R.  374. Bhatnagars & Co. V. Union  of  India.  [1957]  S.C.R.   701. Mannalal  Jain v. State of Assam, [1962] 3 S.C.R. 936.   M/s Daruka  &  Co. v. Union of India, W.P. No. 94 of  1972 and Glass Chaton case. [1962] 1 S.C.R. 862, referred to.

JUDGMENT: ORIGINAL  JURISDICTION : Writ Petitions Nos. 734 &  1132  of 1973. Under  Art.  32  of  the  Constitution  of  India  for   the enforcement of the fundamental rights. M.K.  Ramamurthy and J. Ramamurthy, for  the  petitioner, (in W.P. No. 734/73). F.S.  Nariman, Additional Solicitor General of India  and S. P. Nayar, for the respondents (ill W.P, No. 734/73), M.   C. Setalvad and J. Ramamurthy, for ’intervener No. 1. M.   C. Chagla, E. C. Agarwala, K. C. Agarwala and A. T.  M. Sampath, for intervener No. 2. J.   Ramamurthy, for intervener No. 3. A.   Subba Rao, for intervener No. 4. P.   C. Bhartari, S. Swarup, J. B.  Dadachanji and Ravinder Narain, for  intervener No. 5. Shyamala  Pappu, C. R..Somasekharan, Urmila Sirur and T.  V. S. Narasimhachari, for intervener No. 6. O.   P. Khaitan and P. N. Tiwari, for intervener No. 7. 403 J.C.  Bhatt, S. O. Colabawalla, S. Swarup, J. J.  Bhatt, J.  B. chanji and Ravinder Narain, for intervener No.  8  to 11. J.   P. Goyal and R. A. Gupta, for intervener No. 12. A.   B.  Sinha, B. P. Maheshwari and Suresh Sethi,  for  the petitioner-(in W.P. No. 1132/73). F.S.  Nariman,  G.  L. Sanghi and S. P.  Nayar,  for  the respondents, (in W.P. No. 1132/73). The Judgment of the Court was delivered by RAY,  C.J.--The  petitioners  challenged  Notifications  No. CER/3/73 dated 13 March, 1973 and CER/16/73 dated 13  March, 1973  described  as  the  first  and  the  second   impugned notifications. There  was  unprecedented  and  phenomenal  rise  in  cotton prices. in the closing months of 1970 and in January,  1971. There  was a very low cotton crop in 1970-71 season.   There was a perceptible drop, in yarn production.  Yam is produced in  hanks  for  handlooms and cones,  beams  and  pirns  for powerlooms  and cones for hosiery industry.  There was  rise in  prices.  This strengthened the hands of the  weavers  in theiragitation.   The Yarn Pool Scheme was  devised  in February, 1971.     This was a voluntary effort on the  part of the cotton,mills industryto afford some relief to small weavers  in the handloom and powerloom sector.   The  scheme covered  cotton  yam in counts of 20s, 30s and 40s  both  in hanks and hosiery cones and in counts of 20s, 24s, 30s,  34s and  40s  in  weaving cones.  Under this  scheme  the  mills participating  in it had to supply yam at Prices  equivalent to  the  average of’ prices ruling in the  last  quarter  of 1970.   As  a  compensation, the  participating  mills  were allotted  foreign cotton at a concessional rate  of  premium and  were permitted to sell such cotton in the market.   The yarn  thus  made  available was allocated  to  the  various

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States  by  the Textile Commissioner.  The quantity  of  yam covered  by  the Pool Scheme depended upon  the  quantum  of foreign cotton made available for the purpose. In  the second quarter of 1972 prices of  superfine  counts, namely, 60s and above began to rise.  The causes were first, shortfall in production caused by prolonged labour strike in Coimbatore and other textile centres in Tamil Nadu;  second, an  increase  in the spindle cost of foreign  cotton;  third revival of export demand for cotton yarn, and, fourth, large scale unauthorised despatch to foreign countries.  In  order to arrest this trend, the industry reached an  understanding with  the Textile Commissioner in July, 1972,.   Under  this agreement the mills were to supply 50 per cent of the yam of 60s  and  above  meant  for sale in  the  market  at  agreed prices.,  The agreed Prices were the average of the  highest contract  price  in January, 1972 and the  highest  contract price  on 1 June, 1972 or near about the date.   This  price was  known as the "regulated price".  The’ arrangement  came into force from 1 August, 1972. This scheme suffered a setback in the last quarter of  1972. This  was because of severe power cuts in Tamil Nadu,  Uttar Pradesh,  Gujarat, Maharashtra, Punjab, Haryana, Mysore  and Andhra Pradesh- 40 4 The downward trend in production which had begun to manifest in the last quarter of 1972 gathered further momentum in the first  quarter of 1973.  As compared with the third  quarter of 1972 when the production was the highest the fall in yarn and  cotton production in the first quarter of 1973  was  15 per  cent and 12 per cent respectively.  The decline  was  6 per cent in yarn and 7 per cent in cloth production compared with  the  same  period  of 1972.  There  was  of  course  a prolonged   labour  strike  in  February,  March,  1972   in Coimbatore  and for a short period elsewhere in Tamil  Nadu. There was a marked fall in production in that State.  It may be  stated here that Tamil Nadu has 23 per cent  of  India’s total  spindleage and 4.4 per cent- of loomage.  The  bumper crop in 1971-72 season had impact on yarn and cloth  produc- tion in the second quarter of 1972. Early  in 1973 the upward trend of yarn prices rose in  fine and  superfine  counts.   The  Southern  India   Millowners’ Association  offered to the Government the entire free  yarn production  of all counts of its ,member mills at prices  to be mutually agreed to between the industry and the.  Textile Commissioner.   The Southern Association wanted  the  Indian Cotton Mills Federation to take the initiative for  arriving at  an  understanding with the Government  at  an  all-India level.’  The  mills  in North India were of  the  view  that prices  of  coarse  and  medium  ,counts  had  not  gone  up appreciably as compared with the pool prices and were either steady  or  even  lower  in some cases  than  those  at  the comme ncement  of  1972  and therefore  there  was  no  case whatever for subjecting them to control.  The Indian  Cotton Mills  Federation strove hard for an understanding with  the Government for some form of voluntary control on production, distribution  and prices which would be beneficial  for  all the  interests  concerned  and ensure  price  stability  and smooth  and orderly movement of yam to the lakhs of  weavers in the decentralised sector. The Government decided to bring all yam under control in all respects,  viz., prices, production and  distribution.   The stocks  of yarn with mills which had stood at  94,400  bales (of  180 kgs. each) in September, 1972 dropped by  December, 1972  to 0,000 bales and still further to 42,200  bales  by the end of February, 1973, the lowest on record for the last

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ten years.  By the end of March, 1973 they had gone up to as much  as  108,600 bales, and by the end of April  to  bales. The  Government  wanted to rectify  the  imbalance  1,78,000 between  production and deliveries of yarn in hanks,  cones, pirns, and beams. it was felt that the situation appeared to be  man made.  In 1972 India exported 21.9 million  kgs.  of yarn  out of the total production of 975 million  kgs.   The export  of handloom goods needed special attention. in  this context the suggestions were, first, deliveries of yarn in hanks, and, second requirements of hosiery sector should  be met;  third,  the recent rise in price was  unjustified  and they   should   revert   to-normal   levels;   fourth,   the responsibility  for  distrbution should be  ,assume  by  the concerned  Governments; fifth, yarn export should  continue; a,  sixth, the handloom sector should be specially fed  with the requisite raw materials. 405 The Government felt that the producers of cotton yarn  would be  prohibited from selling yarn except in small  quantities in  the form of beams meant for power-looms to the trade  or to  anyone  else  except  to the  nominees  of  the  Textile Commissioner.  Second, the manufacturers of yarn shall  sell only  to nominees of the Textile Commissioner.   Third,  the manufacturers  for civil consumption shall have to pack  not less than 60 per cent of such yarn in the form of hanks  for handlooms and not less than 30 per cent in the form of cones for  powerloom.   Fourth,  mills  producing  and   supplying hosiery  yarns  shall  have to continue to  do  so  under  a statutory  order.   Fifth, prices shall be  notified  up  to counts  40s  and  below in one. group  adopting  the  market prices of December, 1972 as mentioned in the first  impugned notification  and  in  regard to counts 60s  and  above  the regulated  yarn. prices as mentioned in the second  impugned notification. The  first  impugned notification is issued by  the  Textile Commissioner   under  clause  22  of  the  Cotton   Textiles (Control)  Order, 1948 hereinafter referred to as  the  1948 Order.  The notification determines the ex-factory price  of count  of yarn of 59s and below and count of yam of 60s  and above.   In  the case of count of yam of 59s and  below  the price is the highest ex-miff price or the highest contracted price  for  deliveries effected in December, 1972.   In  the case  of  producers of yam situated in the States  of  Tamil Nadu  and Pondicherry where the electricity cut  exceeds  70 per cent, the relevant price as applicable may be  increased by 6 per cent. In the case of counts of yam of 60s and above the determined price  is  the regulated yarn price adopted  for  individual producers  of  yarn from, the first day,  of  August,  1972, increased by 6 per cent where there is no electricity  power cut, increased by 8 per cent where there is electricity  cut not  exceeding 20 per cent, increased by 12 per  cent  where the  electricity power cut exceeds 20 per cent but does  not exceed 50 per cent and increased by 18 per cent in the  case of  producers  of  yam  in the  States  of  Tamil  Nadu  and Pondicherry  where the electricity power cut exceeds 70  per cent. The term "regulated price" under the notification shall mean the  price calculated by taking the difference  between  the highest  contract  price as on 1 June, 1972 or  the  nearest date  in case no sale was effected on 1 June, 1972  and  the highest  price  for the relevant count and form  of  packing during January, 1972 and allowing one-half of the difference to be reduced from 1 June, 1972 price. The  first impugned notification was not applicable to  yarn

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sold  to  hosiery industry and to yarn  on  beams  delivered under  specified  circumstances,  There is  no  fixation  of maximum  retail price at the point of sale to the  consumer. By   a  notification  dated  31  March,  1973  the   Textile Commissioner  authorised  the Deputy Commissioners  and  the District  Collectors to specify the maximum price of yam  to be sold by dealers.  The maximum price is to be fixed  after taking  into  consideration (a) invoice price of  yarn,  (b) incidental charges, (c) such reasonable 406 Margin  of profit not exceeding two per cent of the  invoice price  as the Deputy Commissioner or the District  Collector may  determine  in each case, and (d)  any.  other  relevant factor. The  second  impugned notification is made  by  the  Textile Commissioner  in exercise of powers conferred  under  clause 30(1) (b) of the 1948 Order.  The notification directed that no  producer  of yarn for civil consumption  shall  sell  or deliver any such yarn produced by him except to such persons or  persons  and subject to such conditions as  the  Textile Commissioner might specify.  The same notification contained another direction under powers conferred by clause 30(1) (a) of  the  1948 Order that every producer of  yarn  for  civil consumption  shall  sell  or deliver such  yarn  only  to  5 channels  of distribution mentioned therein on the basis  of the directions that might be issued from time to time by the Textile  Commissioner.   Those  5 channels  are  :  (a)  the nominees  of the State Government; (b) the  Handloom  Export Promotion  Council,  Madras; (c) the Cotton  Textile  Export Promotion   Council,  Bombay;  (d)  Federation  of   Hosiery Manufacturers’  Association  of India, Bombay, and  (d)  any other   person   as  may  be  nominated  by   the,   Textile Commissioner in this behalf. The   order  of  distribution  through  channels   was   not applicable  under  notification dated 21 June, 1973  to  yam counts  of 17s and below, later under notification dated  18 July,  1973  to  counts  of 35s and  below  and  finally  by notification  dated  4  August, 1973 to counts  of  40s  and below.   The control is at the point of sale by a dealer  of yarn  to  consumer by another notification dated  31  March, 1973.   Ibis notification provided that every  dealer  shall sell or deliver yarn only to persons specified there in such quantities  as may be determined by the Deputy  Commissioner or the District Collector.  The persons specified are first, the nominees of the State Government, and, second, any other person  as  may be nominated by  the  Textile  Commissioner. This  control  at  the dealers’ level  is  in  operation  in respect of yarn of counts of 40s and below. The  first  contention of the petitioners is that  the  1948 Order in so far as it purports to make provisions in respect of  control and distribution of cotton yarn by  fixation  of prices  etc. more particularly by clauses 22 and 30  thereof is   ultra  vires  the  powers  conferred  on  the   Central Government by Section 3 of the Essential Supplies (Temporary Powers)  Act, 1946 hereinafter referred to as the 1946  Act, inasmuch  as cotton yam is not covered by the  item  "Cotton and woollen textiles" and cannot be brought within any other item. The first question turns on the consideration whether cotton yarn  is  covered  in cotton textile.   The  Cotton  Textile Order,  1948  is  the  relevant  statute.   The  petitioners contend  that  cotton yam is not cotton  textile  for  these reasons.  The dictionary meaning of "cotton textile" is that textile  is  a woven fabric and any kind of  cloth.   Cotton textile  is  a finished product.  Cotton textile is  an  end

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product.   Cotton textile therefore, cannot be yam.  In  the report of Price of Cotton, Yarn and, Cloth published in  the year  1962  cloth  and  yam  are  treated  separately,  and, therefore, yam is not within cotton textile. 407 Counsel for the petitioners relied on the decisions in K. R. Subbaier v. The Regional Provident Fund Commissioner, Madras reported  in AIR 1963 Madras 112, Kanpur  Textile  Finishing Mills  v. Regional Provident Fund Commissioner reported.  in AIR   1955  Punjab  130  and  The  Deputy  Commissioner   of Commercial  Taxes,  Madurai  Division,  Madurai  v.  Madurai Printing Tape Factory reported in 28 Sales Tax Cases 431  in support  of the proposition that the word ’cotton  textiles’ should  be so construed as not to include cotton  yarn.   In Subbaier case (supra) the expression ’textiles’ was  defined to  include  the products, of  carding,  spinning,  weaving, finishing  and dyeing yarns and fabrics, printing,  knitting and  embroidering.   The  question arose  as  to  whether  a factory manufacturing tapes, wicks, braided-cords and sewing thread  reels was an industry engaged in the manufacture  of textiles.  Tapes and lamp wicks were held to be the products of  weaving, if not knitting.  The word ’textile’  according to  the  Oxford dictionary means ’ of weaving’.   In  Kanpur Textile  Mills case (supra) the expression ’textiles’  which had the same definition as in Subbaier case (supra) was held to include anything from yarn to woven material.  In Madurai Printing Tape Factory case (supra) the question was  whether tape  was  textile.   It was held  that  the  ingredient  of textile is necessarily weaving and tapes made as a result of weaving would be within the meaning of the entry ’textiles’. These  decisions show that textiles ordinarily means,  cloth and yarn. In  Cotton  Textiles Order, 1948 the word ’yarn’  means  any type  of  yarn  manufactured either wholly  from  cotton  or partly  from  cotton  and partly from  any  other  material. Clause  20  of  the  Order  confers  power  on  the  Textile Commissioner  to issue directions to manufacturer  regarding the  classes or specifications of cloth or yarn which  manu- facturer shall or-shall not manufacture.  Clause 22  confers power  on  the Textile Commissioner to specify  the  maximum prices at which any class or specification of cloth or  yarn may  be  sold.  Clause 30(2) confer-; power on  the  Textile Commissioner  with a view to securing a proper  distribution of cloth or yarn to issue directions to any manufacturer  or dealer  to sell or deliver specified quantities of cloth  or yarn  to specified persons.  The Cotton Textiles Order  also shows that cloth and yarn are both embraced within the  word ’textiles’ in the various clauses of the Order. The  dictionary meanings of cotton textile are any  material that  is woven, a material, as a fibre or yarn, used  in  or suitable for weaving, woven or capable of being woven.   The meaning  of "textile" as a noun is a fabric which is or  may be  woven.  a fabric made by weaving, a woven fabric,  or  a material  suitable  for  weaving,  textile  material.    The dictionary  meanings  show that cotton yarn is  included  in cotton textile. The  setting in which the words ".Cotton textile"  are  used has  a legislative and executive understanding of the  words consistently  over  a  period  of  time.   There  are   also decisions  of  Courts  which  accepted  yarn  to  be  within textile.   The Cotton Cloth and Yam Control Order, 1943  was made  in  exercise  of powers conferred by Rule  81  of  the Defence  of India Rules.  Cloth and yarn in that Order  mean and 4--L522SUP CI/74

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408 include  respectively  cloth  and  yam  manufactured  either wholly  or  partly from cotton.  The Cotton  Cloth  and  Yam Control  Order,  1945  repealed the  Cotton  Cloth  and  Yam Control Order, 1943.  The meaning of cloth and yarn was  the same as in the Control Order of 1943. There  is cognate legislation which treated yarn  as  cotton textile.   The  Tariff Act, 1934 in section 1  1  speaks  of textile  materials  and textile goods and yarn  is  included there.  Trade Marks Act, 1940 in section 62. read with Trade Marks  Rules 96 and 97 treats cotton yarn as textile  goods. The Cotton Textiles Cess Act, 1948 provided for levy of cess on  cloth and or yarn.  The expressions ’cloth’  and  ’yarn’ are defined to mean cloth and yarn of which prices fixed  by any order made under section 3 or continued by section 17 of the Essential Supplies (Temporary Powers) Act,, 1946 were in force immediately before the commencement of that Act.   The Cotton  Textile  Companies (Management of  Undertakings  and Liquidation or Reconstruction) Act 29 of 1967 defines cotton textile  to  mean  yam  or fabrics  made  either  wholly  or partially of cotton., The  legislative  practice shows that cotton textiles  is  a generic term which includes cotton fabric and yarn.  One  of the methods of construction of statutes is to ascertain  the setting and circumstances in which the words are used.   The entire product is cotton textile.  " Yarn is the material or component  with  which  cotton textile  is  manufactured  or woven. The  second contention on behalf of the petitioners is  that in  any event the provisions of the 1948 Order  relating  to cotton  yarn cannot be said to have been continued in  force either  under  section  16  of  the  Essential   Commodities Ordinance  1955  or  under section 16(2)  of  the  Essential Commodities  Act, 1955 hereinafter referred to as  the  1955 Act  as cotton yarn is not covered by the item  "Cotton  and woollen textiles" under section 2(a)(iv) of the 1955 Act and no notification had been issued declaring cotton yarn as  an essential  commodity in exercise of powers  conferred  under section 2(a)(xi) of the 1955 Act.  It is also said that as a matter  of  fact  such notification was issued  only  on  31 March, 1973. As  the Defence: of India Act would come to an’ end on  3  0 September,  1946  the  Government of  India  Act,  1935  was amended  by  the British Parliament by  the  Indian  Central Government and Legislature Act, 1946.  Section 2 of 1946 Act provided   "notwithstanding   anything  contained   in   the Government  of India Act, 1935 the Indian Legislature  shall have  power to make laws with respect to trade and  commerce (whether or not within a province) in and production, supply and  distribution  of  cotton  and  woollen  textile,  paper products,  petroleum and petroleum products, spare parts  of mechanically  propelled  vehicles, coal,  iron,  steel.  and mica".-’  The  Centre  could not  legislate  on  production, supply  and  distribution of goods and  trade  and  commerce therein after the emergency came to an end.  Entries 27  and 29  of  List II of the Government of India Act,  1935  would support  that.   The proclamation of emergency  was  revoked from 1 April 1946 and laws 409 made,  by  the  Dominion Legislature in  the  field  of  the Provincial  Legislative  List were to cease to  have  effect after 30 September, 1946. The Essential Supplies (Temporary Powers) Act, 1946 received assent of the Governor General on 19 November, 1946 and came into  force.   Various orders issued under the  Defence  of,

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India  Rules including Cotton and Yarn Control  Order  1945, Cotton Textiles Control of Movement Order 1946, Cotton Cloth and  Yam Forward Con.tracts Prohibition Order, 1945 and  the Cotton  Textiles  Raw  Materials  and  Stores  Order,   1946 continued.  The notification fixing maximum price of  cotton yarn  and  cloth  under the Cotton Cloth  and  Yarn  Control Order,  1945 also continued until 28 January , 1948.  On  19 February,  1948 the Cotton Textile Control Order was  issued under section 3 of the Essential Supplies (Temporary Powers) Act,  1946.  The Cotton Cloth and Yarn Control  Order,  1945 was  repealed.  There was no power to control price of  yarn and  cloth.  There was only power to control quantities  and specification of cloth and yam.  The Cotton Textile  Control Order 1948 was issued in the month of August, 1948 repealing the earlier Order.  In the new Cotton Textile Control  Order of  1948  provision was made for controlling  the  price  of cloth  and  yam.   From 1948 to 1953 there  was  control  of distribution  and  price  of  cloth  and  yarn  by   various notifications  issued under Cotton Textiles  Control  Order, 1948. The  Yam Distribution Scheme was framed under clause  30  of the Cotton Textile Control Order, 1948.  This was held to be valid by the Madras High Court in the decision in The  Lotus Industrials,   Kallai,  Malabar  v.  The  State  of   Madras Development Department, Madras reported in A.I.R. 1952  Mad. 715.  In 1948 Cotton Textiles Control of Movements Order was promulgated  under  section  3  of  the  Essential  Supplies (Temporary Powers) Act.  This order controlled the  movement of cloth and yarn in India.  The Cotton Textiles Control  of Movement  Order,  1948 was held to have continued  in  force after  the expiry of Essential Supplies  (Temporary  Powers) Act, 1946 by reason of the saving clause (section 16) of the Essential Commodities Act, 1955. (See State of Bihar v. Hira Lal Kajriwal [1960] 1 S.C.R. 726. In 1949 the Cotton Textiles (Export Control) Order, 1949 was made  to  provide for control of export of cloth  and  yarn. The  notifications  under this Order were  issued  regarding yarn.   In  1949 the Essential Supplies  (Temporary  Powers) Ordinance 14 of 1949 was issued. amending Essential Supplies (Temporary  Powers)  Act, 1946.  To the  list  of  essential commodities  were  added raw cotton, cotton seed,  coke  and other  derivatives  of coal.  Essential  Supplies  Temporary Powers (Amendment) Act, 1949 replaced Ordinance 14 of 1949. The  Industries  (Development and Regulation) Act,  1952  in section   2  provided  expedient  to  take   under   control industries set out in the Schedule.  Item 23 in the Schedule related  to  textiles  made  wholly or  in  part  of  cotton including cotton yarn, hosiery and rope. 410 The  Essential Supplies (Temporary Powers) Act 1946 came  to an end by operation of Article 369 of the Constitution on 26 January,  1955.   On  the  same  day  Essential  Commodities Ordinance 1955 was promulgated under Entry 33, of List  III. The Essential Commodities Act 1 of 1955 came into force on 1 April,  1955.  The objects and reasons of the 1955 Act  were that  under Article 369 of the Constitution  Parliament  had power  for a period of five years from the  commencement  of the Constitution to make laws with respect to trade and com- merce in and production, supply and distribution of  certain essential  commodities.  The life of the Essential  Supplies (Temporary Powers) Act 1946 was limited to 26 January, 1955. The essential commodities to which the 1955 Act applied fell into  two  broad categories.  The first consisted  of  coal, textiles, iron, steel and paper, etc. which are products  of industries  under  Union  control.  The  second  related  to

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foodstuffs,  cattle  fodder etc. which are not  products  of such industries. On 19 October, 1962 a notification was issued under  section 2(xi)  of  the  Essential Commodities  Act,  1955  declaring commodities  specified  therein  used  in  the  process   of manufacturing  yarn and machinery for  manufacturing  cloth. Textile  Machinery Production and Distribution  Order,  1962 was issued under section 3 of the Essential Commodities Act, 1955  for  controlling  use and  distribution  and  sale  of textile machinery including machines used in manufacture  of yarn. These legislative measures show that in regard to the  scope of  these  controls  in  some  cases  it  is  possible  with reference to the circumstances relating to nature and use of the  commodity in question to institute control  right  from the  point of origin to the point of  ultimate  consumption. In  regard to other commodities control has to stop at  some intermediate  point.  The methods of control also vary  from commodity  to  commodity.  In regard to the  very  important matter  of  the  method of pricing, one  method  is  adopted regarding  cloth and another method is adopted in regard  to steel  and a third in regard to other commodities.   Empiric process has been resorted to in this organisation of  system of control. The  1948  Order  was  made under  section  3  of  the  1946 Essential  Supplies Temporary Powers Act referred to as  the 1946 Act.  Section 16(2) of the 1955 Act which repealed  the 1946  Act  continued the 1948 Order.  The 1946  Act  was  to provide  for  the  continuance during a  limited  period  of powers  to. control production, supply and distribution  and trade and commerce in certain commodities.  Cotton  textiles formed one of the essential commodities specified in section 2  (a) (ii) of the 1946 Act.  The 1955 Act was also  enacted to  provide  for  the  control  of  production,  supply  and distribution and trade and commerce in certain  commodities. Cotton   textiles  is  one  of  the  essential   commodities specified in section 2(a)(iv) of the 1955 Act. Section  3(1) and (2) of the 1946 Act empowered the  Central Government   for  maintaining  or  increasing  supplies   of essential  commodities  or  for  securing  their   equitable distribution  and availability at fair price to regulate  or prohibit production. supply and distribution 411 thereof and trade, and commerce.  Such orders could  provide for Control of prices of essential commodities, and  require any person holding stock to sell Whole or specified part  at such  prices and to such persons as specified in the  Order. The Central Government under the 1946 Act could regulate the distribution and supply of essential commodity.  The Central Government  could  delegate  its power  to  any  officer  or authority mentioned therein. The   1955  Act  contains  similar  power  of  the   Central Government  to regulate or prohibit production,  supply  and distribution and trade and commerce in essential commodities for   maintaining  or  increasing  supplies   of   essential commodities or for securing their equitable distribution and availability  at fair prices or for securing  any  essential commodity  for  the Defence of India or  for  the  efficient conduct of military operations.  The 1955 Act also  contains similar  power  to  control the prices  at  which  essential commodities  may be bought or sold or to require any  person holding  stock of essential commodity to sell the  whole  or specified  part  to  the Central  Government  or  the  State Government or other persons mentioned therein.  The 1955 Act empowers the Central Government to provide for regulating or

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prohibiting production, supply and distribution of essential commodities. Section 3(3) of the 1955 Act provides that where any  person sells  essential commodity in compliance with an order  made with reference to clause (f) of sub-section (2) there  shall be  paid to him (a) price agreed, if it is  consistent  with the   controlled  price,  (b)  the  price  calculated   with reference  to the controlled price if no agreement could  be reached,  (c)  the  price  calculated  at  the  market  rate prevailing  in the locality at the date of sale, if  neither clause (a) nor clause (b) applies. Clause 22 of the 1948 Cotton Textiles Control Order provides that  the  Textile  Commissioner  may  specify  the  maximum prices, ex-factory, wholesale and retail, at which any class or  specification  of  cloth or yarn may  be  sold;  or  the principles  on  which and the manner in which  such  maximum prices may be determined by a manufacturer, and the markings to  be  made  by a manufacturer or dealer on  any  class  or specification  of cloth or yarn manufactured or sold by  him and  the time and manner of making such markings.  The  1948 Order  was  amended by Cotton Textiles  (Control)  Amendment Order, 1972.  As a result of the amendment clause 30 of  the 1948 Order was substituted by clause 30 in 1972 Order.   The amended clause 30(a) is that the ’textile Commissioner  may, with a view to securing proper distribution of cloth or yarn and  with a view to securing compliance with the  provisions of  this Order, direct any manufacturer or dealer, class  of manufacturers  or dealers (a) to sell or  deliver  specified quantities of cloth or yarn to specified persons, (b) not to sell  or  deliver  cloth or yarn  or  specified  description except  to specified persons and subject to such  conditions as the Textile Commissioner may specify The amended  clause, further  provided  that the manufacturers or  dealers  shall comply with the directions and the Textile Commissioner in 412 making  orders  shall  have regard to  the  requirements  of categories  of  persons  mentioned in  sub-clause  (a),  the availability  of cloth or yam of different descriptions  and the requirement of any local area. Clause  36  of  the  1948 Order  provided  that  any  person aggrieved by an order of the Textile Commissioner may prefer an  appeal to the Central Government within thirty  days  of the date of communication of such Order and the decision  of the Central Government thereon shall be final. The  1948  Order continued under the  Essential  Commodities Act, 1955.  Cotton yarn is included in cotton textiles.   It was,  therefore.,  not necessary to issue  any  notification declaring  cotton  yarn  as  an  essential  commodity  under section  2(a) (xi) of the 1955 Act.  The notification  dated 13  March, 1973 required an explanation to say that yam  for the  purpose of the notification shall mean all  cotton  yam except  sewing  thread and industrial yarn like  tyre  cord. This  explanation was necessary to include all  cotton  yarn because  the  decentralised sector was  facing  severe  yarn shortages. The third contention on behalf of the petitioners is that on a   true  construction  of  Section  3  of   the   Essential Commodities  Act, 1955 the power to issue orders in  respect of  essential  commodities having been conferred  to  ensure their availability at fair prices such orders cannot validly confer  arbitrary powers on the executive to fix  prices  of essential  commodities unrelated to the cost  of  production and reasonable margin of profit.  It is said that clause  22 of  the  Cotton  Textiles  Control  Order,  1948  which   is continued  by the Essential Commodities Act, 1955 cannot  be

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construed as authorising the Textile Commissioner to fix  an arbitrary price for essential commodities. The  fourth  contention  is that if the  provisions  of  the Cotton Textiles Control Order confer arbitrary power on  the Textile Commissioner to fix prices for yarn unrelated to the cost  of production and reasonable profits to  the  producer then the provisions become void by reason of infringement of fundamental  rights guaranteed by Articles 19(1)(f) and  (g) and 31 as well as Article 301 of the Constitution. The  fifth  contention is that if the said  Order  does  not authorise  fixation of price of cotton yam  arbitrarily  and without  reference  to  relevant factors  such  as  cost  of production and reasonable return, the impugned  notification which  fix a price for yam below the cost of  production  of the  mills  are ultra vires the  Cotton  Textiles  (Control) Order,  1948  inasmuch as the prices fixed  under  the  said notifications are not based on relevant considerations  such as  cost  of production, reasonable return, but  are  wholly arbitrary and based on irrelevant considerations. These  three contentions turn on the question as to  whether controlled price fixed under the impugned notifications  has been  fixed arbitrarily and it constitutes  an  unreasonable restriction  on the fundamentals rights of  the  petitioners and  Article  301.   The question of fair  price  of  cotton textile in the sphere of trade engaged the attention of  the Government 413 in  1960.  The Government appointed a Tariff  Commission  to consider several aspects.  The recommendations of the Tariff Commission  on  cotton  textiles  and  prices  were   these. Control  must be comprehensive.  Control should embrace  the entire range from producer of cloth and yarn to the ultimate consumers.   Any_system of control which fixes  fair  prices only  for the industry cannot really protect  the  consumers because  of  dealers  and  middlemen  and  high  prices   of substitute  products from the decentralised  sector.   Where control  is  imposed in conditions of  scarcity,  the  price should  encourage  growth of output.  This  is  to  maintain equilibrium of demand and supply’ Price must be fair to  the producer  to cover his costs.  Price must be  attractive  to sustain  growth  of  output and  capital  resources,  return element, profit motive. The  recommendation  concerning price control is  that  cost factors which are beyond the control of the producer as well as   factors  within  the  control  of  the  producer   like efficiency,  productivity, appropriation of profits are  all to  be considered and on an overall estimate a return of  12 per cent of capital is reasonable for the industry. Raw cotton counts, for about 50 per cent of the value of the finished product.  Price of raw cotton should be  attractive to  the  grower.  in  order to raise  his  output  and  good quality.   The costs of conversion of cotton  into  finished product  are  neither  stable  over a  period  of  time  nor uniformly steady in mills.  Mills have different  equipments and   efficiencies.   Therefore,  it  is  not  possible   to establish  an invariable set of prices for the  products  of the industry for a long period. Adjustment  of  future  prices may  be  necessary  to  cover changes in variable items of cost of production.  Raw cotton figures prominently as one such item.  It is said that there should  be  quarterly  revision of prices on  the  basis  of changes in the prices of raw cotton.  Conversion charges  of raw cotton like labour, freights, fuel, power and stores are also  to  be considered.  Labour costs depend  on  statutory alterations  as  well  as wage Board  Awards  or  negotiated

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settlements.  The impact of prices of stores is  indefinite. In  the structure of processing costs an allowance has  been included  for  contingencies in order to meet  the  cost  of stores,  power, fuel and to prevent inflation only on  those items. Price  of  particular  counts  of  yarn  will  have  to   be determined  on  the  basis  of  fair  average  of  cost   of production  with  due  regard  to the  cotton  mix  in  each producing  establishment.  Mixes vary from mill to  mill  as also from time to time.  The range of variation of mixes can be  brought to a degree of certain technical limits  and  on the  basis  of  that average cost of  raw  material  can  be determined. Another  recommendation of the Tariff Commission  emphasised distribution  chain.  A margin of 18 per cent which  include freight  charge-, on ex-mill prices of cloth which had  been applied  under  the system of voluntary  control  needed  no revision.   As regard sales of yarn handloom weavers  needed protection.  It was, therefore, suggested that a maximum  of 11  per cent on ex-mill prices of yarn for sale plus  actual freight to the main consuming centers would be adequate. 414 The  recommendations of the Tariff Commission were  studied. The Government introduced control over price and  production namely,  control  over  manufacture  and  sale  of   certain varieties  of  mill made cloth of mass  consumption  in  the month  of October, 1964.  The prices were worked  out  after taking  into  account  the costs  of  production  under  the particular  heads  of  cotton,  tabour  and  other  material charges  etc.  Prices were stamped on the piece of cloth  as the  ex-mill price.  The retail price of cloth,  the  excise duty  the category and description of the; ,cloth,  the  tax mark,  of  the mill and the words " controlled  cloth"  were also  stamped on the cloth.  The fixation of price of  cloth took   into  account  the  recommendations  of  the   Tariff Commission on the prices of cotton yarn. The  Report of the Commodity Control Committee,  1953  dealt with  three main types of price control.  The first  is  the ceiling  or maximum price.  The second is fixed price.   The third   is   ceiling   and  floor   price.    The   impugned notifications  in the present case adopted the first,  viz,, fixing ceiling or maximum price.  With regard to ceiling  or maximum  price  it has to be balanced between  a  reasonable margin  over and above cost of producer on the one hand  and on  the  other the interest and protection of  the  consumer because  a  liberal ceiling will  ordinarily  not  encourage sales  at below the maximum price though there is no bar  to sales  below the maximum price.  In some instances  what  is known  as  the ’cost plus’ formula has been  adopted.   This formula  means  cost  either  of  the  importer  or  of  the manufacturer  as the basis and the addition of a  reasonable margin of profit to cover the wholesaler and the  retailers. The  periodic  revision of prices is also noticed  with  the warning that frequent change in price may cause difficulties to producers who are in possession of large stocks.  In  the case of imported goods the control is the margin of  profit. , In the case of manufactured goods control of prices of raw materials  is required in order to have a control  of  price for  the finished article.  If the price of raw material  is controlled but not of the commodity which can be produced in place  of  that  raw  material  there  would  be  danger  of production being diverted to channels over which there is no control.  In the last analysis it is said that effectiveness of measures of control lies in the reasonableness of  prices fixed.   The prices must be fair not only from the point  of

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view  of  the  consumer but also of  the  producer  and  the distributor.  These are the recommendations of the Commodity Control Committee. The  recommendations of the Tariff Board on the cotton  yarn and cloth prices in 1948 and of the Tariff Commission on the Cotton  Yarn and Cloth Prices in 1962 covered  all  economic aspects of the industry which have an impact on the  ex-mill prices  of  cloth and yarn.  The Government acted  upon  the Tariff  Board  formula of price fixation of cloth  and  yarn from  1949  to 1952.  Under that formula  fair  prices  were arrived  at by taking into account the main elements of  the costs  of  production and those prices  were  revised  every quarter.   The Voluntary Scheme of price control  introduced in  1964  adopted  the  basis of price  of  cloth  and  yarn prevalent in August 1959 and certain percentage of  increase on  account of raw materials, stores and Wage Board  Awards. The  Tariff  Commission view was that the prices  should  be fair to the 415. producer to cover costs, upkeep of his production  apparatus and a, return of 12 per cent.  The control over  manufacture and  sale  of mill made cloth-of mass consumption  from  the year  1964 adopted the formula of cost of production  taking into account costs, labour, material charges and adjustments from time to time in fluctuations of the cost elements. No control over the production and sale of yarn was  imposed until  13 March, 1973 when the impugned  notifications  were issued.  Until then the yarn pool scheme in respect of  yarn of  counts  upto 40s continued from 1 February, 1971  to  31 March,  1973.   The  other  was  the  voluntary  price   and Distribution  Scheme  in respect of yarn of counts  60s  and above introduced on 1 August, 1972.  The voluntary price and distribution scheme, applied to 50 per cent of the free  yam and  the  producers were free to sell the rest in  the  open market.    Because  of  cornering,  hoarding,   speculation, unauthorised  despatch to foreign countries, prices of  yarn were  rising  though  the production in  1972  rose  to  468 million  kgs.  For yarn upto counts 40s and below there  was no  price  rise  upto  December, 1972  over  the  period  of preceding  10  months.   For counts of 60s  and  above,  the regulated  price with effect from 1 August, 1972 with 6  per cent increase took into consideration power cut; changes  in the  price of cotton since August, 1972, increase in  labour costs  and 40 per cent import duty on imported cotton.   The real  challenge on the part of the petitioners is that  yarn price control has not followed the pattern of price  control for  cloth by providing for periodic changes in the  control price to allow for fluctuations in cost elements. The  petitioners contend that the price fixed  is  arbitrary for  the  following reasons.  Fluctuation in  the  price  of cotton  is  not taken into  consideration.   Raw  materials, wages and profits are not considered.  Nothing has been done with  regard to those who have suffered electricity  cut  in other States Costs of production and reasonable profit  have not  been  taken  into consideration.  The  price  fixed  is December,  1972 rate.  December, 1972 rate is not  the  rate for  March,  1973.   Therefore,  there  is  basic  variation between  December And March in cotton.  Irrespective of  the fact  whether  it is yarn manufactured  before  December  or after December it shall be sold at that price.  No reason is disclosed  for  fixing the price.  No norms for  fixing  the prices are given.  There is total non application of mind to arrive at the price by an alternative method.  Those who are producing counts 40s and below are to get price irrespective of  any aspect of electricity.  It is, therefore, said  that

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the alternative method is that which is fixed by the  Tariff Commission.   The industry must have reasonable  return  and fair price will take in cost of production.  There should be guidelines in fixing prices.  The price fixation which  does not fix a price above the cost of production is unreasonable restriction  because  it poses before the producer  the  two alternatives between closure and sale below the price.   The only   guideline  is  the  recommendation  of   the   Tariff Commission.  It is a reasonable return of 12 per cent.   The price  fixed under the impugned orders is for a  long  time. It  is  for all times to come.  There is no  computation  of cost.  The protection is for handloom weavers 416 and powerloom weavers.  If cloth was to be obtained at  fair price,  the  price  of  cloth  should  be  controlled.   The industry  was  facing steep rise in the cost  of  production from, 1965 and profits appeared for the first time in  1972- 73.  All these factors are, according to the petitioners not taken into consideration in fixing the price. In  1972  there were 670 textile mills.  Out of  these,  291 were  composite  mills which also consumed yam  produced  by them.  Out of 18010 spindles 12260 are located in  composite mills.  Out of 972 million kgs. of yarn produced 448 million kgs. is free yarn. 416 million kgs. out of 448 million  kgs. is  for  civil consumption.  By civil consumption  is  meant handloom  and powerloom weavers and hosiery.  There  are  72 lakhs  of handloom weavers. 4 lakhs are  powerloom  weavers. 50,000 persons Are employed in hosiery industry.  The  total cloth  produced in the country is 8200 million metres.   The share of handloom and powerloom is 3777 million metres.  The mills  produce  4245  million  metres.   The  powerloom  and handloom  sectors produce 47.1 per cent of the  total  cloth production  of the country.  Handloom and  powerloom  sector depends  for  the  supply of raw material  yarn  on  textile mills.   Two-thirds  of the total yarn  produced  come  from composite mills.  The composite mills compete with  handloom and powerloom sectors in the production of cloth.   Handloom and  powerloom industry requires protection.   Control  over price  and  distribution  of  yarn  is,  therefore,  in  the interest of the general public. There  is  a provision of appeal to the  Central  Government against  the  order of the Textile  Commissioner.   That  is clause 36 of the Order’ This relief by representation to the relevant authorities is always available to the petitioners. In  Diwan  Sugar & General Mills v. Union  of  India  [1959] Supp.  2  S.C.R.  123, this Court  considered  Sugar  Export Promotion  Ordinance,  1958.  Prices of sugar went up  by  a rupee per maund during May-June, 1958 in expectation of  the Ordinance.   Though  the industry assured sale of  sugar  at prices  prevalent  before the Export Policy  was  announced, there  was  no fall in prices.   Notifications  were  issued under the Sugar Control Order fixing controlled price below- the  level  of  prices at the end of May  and  in  the  week preceding 17 June, 1958.  This Court repelled the contention that the prices were below the cost of production’ The sugar crushing season begins about the end of October and finishes about the end of May.  The fixation of prices in July,  1958 was on the basis of the 1957-58 season and the market prices were available at the time of the notification. In an unreported decision in Sri Krishna Rice Mills v. Joint Director  (Food),  Vijayawada (Civil Appeal  Nos.  1026-1031 etc.  of 1963 dated 27 January, 1965) this Court  held  that section  3  of the Essential  Commodities  Act  sufficiently specifies the principles on the basis of which price  should be  fixed.  The Central Government fixed the  maximum  price

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for  sale of rice of certain quantities.  The  rice  millers contended  that  notification  fixing  fair  price  violated Articles   14,  19  (1)  (f),  (g)  and  3  1  (2)  of   the Constitution,  and,  therefore, they were  entitled  to  the rates prevailing in the market.  The contentions on 417 Article  19 (1) (f) and (g) were repelled on the rulings  of this  Court  in Hari Shankar Bagla v. The  State  of  Madhya Pradesh  reported in [1955] 1 S.C.R. 380 and Union of  India v. Bhanamal Gulzarimal reported in [1960] 2 S.C.R. 627. In  Sri  Krishna  Rice.  Mills, case (supra)  the  rice  was procured  after  30 December, 1957 at the  rate  of  maximum price  fixed  by  the Government by  notification  dated  30 December,  1957.  The appellants there contended  that  they had paid higher prices than fixed by the notification.  This Court held that unless it could be, shown that the reduction of price was not fair, it could not be said that the  procu- rement after 30 December, 1957 based on the prices fixed  in the notification of that date was in any manner against  the provisions of the Act or was hit by Article 19(1) (f).   The Court  found  that the prices fixed were fair,  because  the reason for the reduction of prices of 30 December, 1957  was that  new crop came into the market from November, 1957  and the  market prices of rice fell.  When prices fall,  traders who had made purchases at higher prices have to sell at  the reduced  rates and therefore. they cannot  complain  against rise  and fall of prices due to economic factors in an  open market.   Just as the industry cannot complain of  rise  and fall  of  prices due to economic factors in an  open  market they  cannot similarly complain of increase or reduction  of prices  as a result of notification under section 3 (1)  of’ the  Essential Supplies Act, 1955 because that  increase  or reduction is. also based on economic factors. In  State of Rajasthan v. Nathmal & Mithamal  [1954]  S.C.R. 982,  the  authorities were allowed to freeze any  stock  of foodgrains and no person could dispose of any foodgrains out of  the stock so "freezed" (sic) without the  permission  of the  authority.  The order was held to be relatable  to  the object  of the Act, namely, securing equitable  distribution and  availability at fair prices.  The ceiling price of  the commodity  was Rs. 17-18.  The Government procurement  price was  Rs.  9  per  maund.  The Court  held  that  it  was  an unreasonable restriction because the Government was free  to sell at a higher price and make a profit.  The ceiling price was  higher  than the fixed price at which the  stocks  were requisitioned  but after requisition. the  Government  would sell   at  the  higher  price.   Therefore,  that  was   art unreasonable restriction. In Union of India v. Bhanamal Gulzarimal (Supra) clause  115 of   the   Iron  and  Steel  (Control  of   Production   and Distribution)  Order,  1941  which conferred  power  on  the Controller  to  fix  maximum price from  time  to  time  was challenged  on  the  ground  that  clause  11B  should  have referred  to  the  prices of some specified  year  as  basic prices and should have directed the Controller to  prescribe maximum prices by reference to the basic prices.  This Court did not accept that contention.  The special features of the object  which  the Control Order is said to achieve  are  an important consideration.  Maximum prices in respect of  iron and steel would depend on a rational evaluation from time to time  of  all factors.  This Court will not  substitute  its determination for that of the discretion of the authority in fixing  the  fair  prices.  The Controller with  a  view  to fixing maximum price of iron 418

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and steel made a flat reduction of Rs. 30/- per ton from the earlier  maximum  price.  The price for sale  by  registered producers of untested articles was Rs. 333/- per ton whereas the price for sale by controlled stock holders was Rs. 363/- per  ton and the price at which the respondents  could  sell was  Rs. 378/- per ton; and as a result of the deduction  of Rs. 30/- the respondents were required to. sell at Rs. 348/- per ton.  It was alleged that the respondents had  purchased commodity  at  the  rate  of Rs.  363/-  per  ton  from  the controlled stockholders and they were compelled to sell at a reduced  price.  This Court held that losses in  respect  of particular  transactions would not be decisive  because  the general effect of the notification is on all the classes  of dealers  as  a  whole.   "If it is shown  that  in  a  large majority  of  cases, if not all, the  impugned  notification would adversely affect the fundamental right of the  dealers guaranteed   under  Articles  19(1)(f)  and  (g)  that   may constitute  a  serious  infirmity in  the  validity  of  the notification". In Narendra Kumar v. Union of India [1960] 2 S.C.R. 375 this Court  emphasised that the test of reasonableness meant  the nature of evil that was sought to be remedied, the ratio  of the  harm caused to the individual citizen by  the  proposed remedy  and  the beneficial effect  reasonably  expected  to result  to  the general public.  Clause 3 (1)  of  the  Non- ferrous  Metal  Control Order, 1958 which provided  that  no person shall sell or offer to sell any non-ferrous metal  at a price which exceeds the amount represented by an  addition of 31 per cent of its landed cost and which provided that no person  shall purchase or offer to purchase from any  person nonferrous  metal  at  a price higher than at  which  it  is permissible  for  that other person to sell the  same  under sub-clause  (1)  was challenged.  This Court  held  that  an addition of 31/2 per cent of the landed cost was intended to enable  the  importers to earn a margin of profit  and  that this would be the minimum price at which the importers would sell.   Any dealer would have to pay at the rate  of  landed cost  plus 31 per cent in getting the supply of copper  from the importers but such a dealer was prevented from  charging from his customer anything more than the landed cost plus  3 1/2  per  cent  thereof.  As a result  of  this  any  actual consumer  of the commodity would have to get it direct  from the  importer  and the channel of distribution  through  the dealer  would  disappear.   This Court held  that  the  evil sought to be remedied was rise in price and some fixation of price,  being  essential to keep  prices  within  reasonable limits was reasonable restriction. The balance between freedom to carry on business and special control  under  reasonable  restrictions  is  required.   In Dwarka  Prasad Laxmi Narain v. State of U.P.  [1954]  S.C.R. 830 the exclusion of incidental charges from the cost  items for  allowing  10 per cent profit in fixing  the  controlled prices of coal was attacked to be unfair and discriminatory. This  Court  held  that the omission would  only  lower  the margin  of  profit.   The  fixation of  price  was  in,  the interest  of public.  In considering the provisions of  U.P. Coal  Control  Order, 1953 this Court said that  "a  law  or order  which confers arbitrary and uncontrolled  power  upon the executive in the mater of regulating trade’ or  business in  normally available commodities cannot be held to be  un- reasonable". 419 The  two  decisions  on which  the  petitioners  relied  are Panipat Cooperative Sugar Mills v.. Union of India , (A.I.R. 1973  S.C. 536) and Anakapalle Co-operative  Agricultural  &

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Industrial Society Ltd. v. Union of India (A.I.R. 1973  S.C. 734)  which  are on the application of sub-section  (3C)  of section 3 of the 1955 Act.  That subsection relates to sugar and  there  are  special features for fixing  of  price.  In Panipat Sugar Mills case (supra) it is said that fair  price of  sugar  is to be determined ensuring to  the  industry  a reasonable return on the capital employed in the business of manufacturing  sugar  but  the  Government  cannot  fix  any arbitrary  price or fix it on extraneous  considerations  or fix such price that it does not secure a reasonable,  return on  the  capital employed in the  industry.   Panipat  Sugar Mills  case  (supra)  is governed  by  sub-section  (3C)  of section  3 of the 1955 Act and has, therefore, no  relevance to the present case. The  case  of  Premier Automobiles Ltd. v.  Union  of  India [1972]  2  S.C.R. 526 is on section 18G  of  the  Industries (Development  and Regulation) Act, 1951.  The provisions  of section 18G are that the Central Government for securing the equitable  distribution, availability at fair prices of  any article relatable to any scheduled industry may provide  for regulating the supply and distribution thereof and trade and commerce  therein.  In sub-section (2) of section 18G it  is stated  that  without  prejudice to the  generality  of  the powers  conferred by sub-section (1) a notified  order  made thereunder  may provide for controlling the price  at  which any such article is bought or sold.  In Premier  Automobiles case (supra) this Court said that the concept of fair  price fixed under section 18G takes in all the elements to make it fair for the consumer leaving a reasonable margin of  profit to the manufacturer without which no one will engage in  any manufacturing  activity".  These observations were  made  on the  basis  of  the  agreement of  the  parties  there  that irrespective  of technicaL or legal points the Court  should base  its  judgment on examination of correct  and  rational principle and should direct deviation from the report of the Commission  of Inquiry appointed by it with the  concurrence of  the parties only when it is shown that there has been  a departure from the established principles or the conclusions of  the  Commission are shown to be  demonstrably  wrong  or erroneous. The Premier.  Automobiles (supra) decision does not consider that the concept of fair prices varies with circumstances in which and the purposes for which the price control is sought to  be  imposed.   This  decision  because  of  the  special agreement there does not consider that the fixation of  fair price  with  a  view  to  holding  the  price  line  may  be stultified by allowing periodic increase in price. If fair price is to be fixed leaving a reasonable margin  of profit,  there  is  never any question  of  infringement  of fundamental   right  to  carry  on  business   by   imposing reasonable restrictions.  The question of fair price to  the consumer  with reference to the dominant object and  purpose of  the,  legislation claiming  equitable  distribution  and availability  at fair price is completely lost sight  of  if profit and the producer’s return are kept in the  forefront. The maintenance or increase of supplies of the commodity  or the equitable distribution and availability at fair 420 prices  are  the fundamental purposes of the  Act.   If  the prices  of yarn or cloth are fixed in such a way  to  enable the,  manufacturer  or  producer  to  recover  his  cost  of production  and  secure a reasonable margin  of  profit,  no aspect  of infringement of fundamental right can be said  to arise. In  determining the reasonableness of a restriction  imposed

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by law in the field of industry, trade. or commerce, it  has to  be remembered that the mere fact that some of those  who are engaged in these are alleging loss after the  imposition of  law will not render the law unreasonable.  By  its  very nature,  industry or trade or commence goes through  periods of  prosperity  and  adversity on account  of  economic  and sometimes social and political factors.  In a largely  free. economy  when  controls  have to  be  introduced  to  ensure availability of consumer goods like foodstuff, cloth and the like  at a fair price it is an impracticable proposition  to require the Government to go through the exercise like  that of a Commission to fix the prices.  The Tariff Board and the Tariff  Commission did not deal with the question of  fixing prices  with  a view only to holding price line and  in  the circumstances  that justify giving preeminent preference  to the interest of the consumer or general public over that  of the producers of the commodity and the dealers.  Even  these Commissions cannot always make a correct estimate of a price which  is fair to all because there are intricacies  of  the trade  of all profit making enterprises which  a  Commission may  not be able to probe.  As an illustration,  the  Tariff Commission  Report  points out that many textile  mills  use cotton mixes with a view to reducing cost and the result  of such mixes is difficult to discern. When available stocks go underground and the Government  has to  step  in  to control distribution  and  availability  in public  interest  fixing of price can,  therefore,  be  only empirical.   Market prices at a time when the goods did  not go  underground and were freely available, the general  rise in prices, the capacity of the consumer specially in case of consumer goods like foodstuff, cloth etc. the amount of loss which the industry is able to absorb after having made  huge profits  in  prosperous  years, all  these  enter  into  the calculation  of  a  fair price in an  emergency  created  by artificial shortages.  In this context, the observations  of this  Court  in  Chintaman Rao v. State  of  Madhya  Pradesh (1950]   S.C.R.   759  are  that  the   phrase   "reasonable restriction"  connotes  that  the limitation  imposed  on  a person in enjoyment of the right should not be arbitrary  or of  an  excessive.  nature beyond what is  required  in  the interest of the public. in Secretary of Agriculture v. Central Reig Refining Company (94  Law  Ed. 381-335 U.S. 664-620) the Sugar  Act  of  1948 which allotted to specified domestic sugar-producing  areas, some within and some without the continental United  States, an  annual quota of sugar, specifying the maximum number  of tons  which might be marketed on the mainland from  each  of those areas was challenged.  The challenge was based on  the Due Process clause of the Fifth Amendment because of alleged discriminatory  character and the oppressive effects of  the refined  sugar  quota  established  by  the  Act.   The  Act established  limits  on the tonnage of refined  sugar  which might be marketed annually on 421 the mainland from the offshore areas as part of their  total sugar quotas.  The Act did not subject mainland refiners  to quota limitations upon the marketing of refined sugar.   The Secretary was authorised to allot the refined sugar quota of a  particular  area among those marketing the sugar  on  the mainland  from an offshore area to provide a fair  distribu- tion  of  the quota by considering  three  factors,  namely, first  processing  of sugar to which  proportionate  shares, determined pursuant to the provisions of the Act  pertained; second,  past marketing; and, third, ability to  market  the amount allotted.

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It was held there that the Congress instructed the Secretary to make allotments in such manner and in such amounts as  to provide  a fair, efficient and equitable distribution.   The Secretary   was  given  discretion  commensurate  with   the legislative  goal.   Allocation  of  quotas  to   individual marketers  was  deemed an essential part of  the  regulatory scheme.  The complexity of problem affecting raw and refined sugar in widely separated and economically disparate  areas, accentuated  by  the  instability  of  the   differentiating factors  must  have  persuaded  Congress  of  the  need  for continuous detailed administrative supervision.  The  Court, therefore,  held that the Secretary’s judgment would not  be replaced to that of the Court by holding on the record  that the  Secretary acted arbitrarily in reaching the  conviction that  the years 1935-41 furnished a fairer measure  of  past marketings than the war years.  It was also said "Suffice it to say that since Congress fixed the quotas on a  historical basis it is not for this Court to reweigh the relevant  fac- tors and, perchance substitute its notion of expediency  and fairness  for that of Congress.  This is so even though  the quota  thus  fixed may demonstrably  be  disadvantageous  to certain areas or persons.  This Court is not a tribunal  for relief  from  the crudities and  inequities  of  complicated experimental economic legislation".  In the present case the legislative measures have left the question of resolving the economic   problems   of  increasing   supplies,   equitable distribution  and availability of essential  commodities  at fair prices to the judgment of the statutory authorities. The  main plank of the petitioners’ contention that  a  fair price  means a determination with regard to the cost of  raw material, manufacturing cost and a reasonable return on  the capital  employed  in  the  business  was  founded  on   the construction  that sub-sections (3), (3A), (3B) and (3C)  of section  3 of Essential Commodities Act, 1955  constitute  a single  scheme  and what is implicit in sub-section  (3)  is made explicit in sub-section (3C). The  power to fix controlled price is in section 3  (2)  (c) read  with  section 3 (1) and not in section 3 (3)  of  _the 1955 Act.  In sub-section (2) (c) of section 3, it is stated that  the  order may Provide for controlling  the  price  at which  any essential commodity may be bought or  sold.   The dominant  words in section 3 (1) are that if the  Government is  of opinion that it is necessary or expedient to  provide for  maintaining  or increasing supplies  of  any  essential commodity  or for securing their equitable distribution  and availability  at fair prices, the Government may, by  order, provide as mentioned therein. 422 Sub-section (3) provides that where an order under  section, 3  (2) (f) of the Act is made requiring any  person  holding any stock to sell to the Government or to any officer or  to any class of person, the price under sub-section (3) can  be fixed  (a) by an agreement consistent with controlled  price or (b) if there is no agreement with reference to controlled price  or  (c)  the market price where neither  of  the  two courses is possible. Sub-sections (3A), (3B) and (3C) deal with specific cases of foodstuff,  foodgrains;  edible oilseeds,  edible  oil;  and sugar  respectively.   Sub-section (3A) of section 3  is  an exception to sub-section (3).  Subsection (3A) applies  when there  is  a  notification in  the  Official  Gazette   that notwithstanding  anything contained in sub-section (3),  the price  ’shall  be  regulated in the  case  of  foodstuff  in accordance With the provisions of sub-section (3A).  In sub- section  (3B)  it is stated that where either  there  is  no

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notification under sub-section (3A) or any such notification has  ceased  to  remain  in force by  efflux  of  time,  the contingencies mentioned therein will happen.  Again, in sub- section  (3C) the matters contemplated are similar  to  sub- section (3B). The differences between sub-sections (3) and (3A) on the one hand and sub-sections (3B) and (3C) on the other are  these. Subsections (3) and (3A) speak of fixing price by  agreement consistent  with  or with reference to controlled  price  or failing  both market rate prevailing in the locality  during three  months preceding the date of the notification.   Sub- section  (3B) speaks either of controlled price or where  no such  price  is  fixed the price  prevailing  or  likely  to prevail during the post harvest period in the area to  which the  order  applies.  In sub-section(3C)  which  relates  to sugar  price is to be calculated with reference  to  minimum price  of  sugarcane, manufacturing cost of sugar,  duty  or tax,  and  a reasonable return and different prices  may  be provided  for  different areas or  factories  ’or  different kinds of sugar. Therefore,  controlled price fixed under section  3(1)  read with  section 3 (2) (c) is different from price  under  sub- sections (3A), (3B) and (3C). The control of prices may have effect either on  maintaining or  in.. creasing supply of commodity or securing  equitable distribution   and   availability  at  fair   prices.    The controlled  price  has  to retain this  equilibrium  in  the supply and demand of the commodity.  The cost of production, a reasonable return to the producer of the commodity are  to be  taken into account. The producer must have an  incentive to  produce.  The fair price must be fair not only from  the point  of  view of the consumer but also from the  point  of view  of the producer.  In fixing the prices, a  price  line lids  to be held in order to give preference or  predominant consideration to the interest of the consumer or the general public  over that of the producers in respect  of  essential commodities.   The  aspect of ensuring availability  of  the essential commodities to the consumer equitably and at  fair price is the most important consideration. The  producer  should  not be driven out  of  his  producing business.  He may have to bear in the same way he does  when he suffers losses on account of economic forces operating in the business.  If an 423 essential commodity is in short supply or there is hoarding, cornering  or  there  is unsual demand,  there  is  abnormal increase in price. it price increases, it becomes  injurious to  the  consumer.   There  is  no  justification  that  the producer  should  be  given the benefit  of  price  increase attributable  to hoarding or cornering or  artificial  short supply.   In  such a case, if an "escalation"  in  price  is contemplated  at intervals, the object of  controlled  price may  be stultified.  The controlled price will  enable  both the  consumer  and the producer to tide  over  difficulties. Therefore,  any  restriction  in excess  of  what  would  be necessary in the interest of general public or to remedy the evil  has  to  be  very carefully  considered  so  that  the producer does not perish and the consumer is not crippled. The  petitioners contended that the control over  prices  of yarn  in  relation  to ex-mill prices would  not  serve  the purpose  of control because there is no control over  retail prices.   The notification. dated 31st March,  1973  confers power on the, Deputy Commissioner and the District Collector to specify maximum prices at which yarn may be, sold by  the dealer in their respective jurisdiction.  In specifying  the

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maximum  price, the factors to be taken  into  consideration are (a)   invoiced  price  of yarn, (b)  incidental  charges including transport and  local  taxes, (c)  such  reasonable margin of profit not exceeding two per cent of the  invoiced price as may be determined in each case, and (d)  any  other relevant factor. In the case of counts of 59s and below, the controlled price fixed  is the highest ex-mill price or the highest  contract price  as  the  case  may  be  for  deliveries  effected  in December, 1972 with 6 per cent increase in the case of  yarn producers   situated  in  the  States  of  Tamil  Nadu   and Pondicherry.  In counts of yarns of 40s and below, there was no  increase of price for 10 months ending  December,  1972. It means free market price.  It reflects costs of production and-reasonable return. ]’he normal conditions of supply  and demand are indicated. The  prices  fixed  for  counts of  59s  and  below  include appreciation  in prices in 1970-71 when cotton crop was  low and  the price in 1971-72 which in spite of bumper crop  and fall  in  price of cotton did not decrease but  were  higher than  the  pool prices of the distribution  scheme.   Cotton prices  represent 70 per cent of the cost of  production  of the yarn.  In December, 1972 the price of cotton fell by  24 points   from  209  to  185  whereas  the  prices  of   yarn appreciated  by  29  points  from  174  to  203.   Thus  the controlled price fixed for yarn is much more than fair price to  the cotton yarn producer.  In December, 1972  prices  of yarn  were  favourable  to  the  yarn  producer.   This   is established  in Writ Petition of Bihar Cotton Mills.  It  is stated  there  that  in 1972  favourable  market  conditions enabled the cotton mills to improve its profit and wipe  out 2/3rd of the accumulated losses amounting approximately  Rs. 9,30,000/-. In  the case of counts of 60s and above, the regulated  yarn prices  adopted  for individual producers of  yarn  are  the difference  between  the  highest  contract  price  for  the relevant count on 1 June, 1972 or the nearest (late in  case no  sale  was  effected  on 1 June,  1972  and  the  highest contract  price for the relevant count during January,  1972 and 15--L522SupCI/74 424 allowing  one-half  of the, difference to  be  reduced  from June, 1972 price.  On this price, a 6 per cent increase  has been allowed in addition where there is no electricity power cut.   The  6 per cent increase appears to be  for  allowing changes in the prices of cotton since August, 1972, increase in labour costs and the impact of 40 per cent import duty on imported cotton.  January, 1972 is selected as base  because it  was  since  January, 1972 that the  prices  of  yarn  of superfine counts of 60s and above went up.  Price went up at that  time on account of strike in Coimbatore  mills  during February-March,  1972,  unauthorised  despatch  to   foreign countries,   power  cut  in  Maharashtra  and  Tamil   Nadu. Therefore,  January  1972 was the time  when  normal  market forces  were in operation.  The benefit of one-half  of  the price increases which took place between January-June,  1972 on  account of factors which do not enter  into  determining the   cost   of  production  have  also  been   taken   into consideration. The mere suggestion that no provision is made for adjustment on  account  of changes in the cost of production  does  not amount  to  infringement of fundamental right  to  carry  on business and to hold and dispose of property.  ’ There is no material to show that increase in yarn prices was on account

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of  cost of production.  The fixing of controlled  price  is much  more than a fair price to the producer on the date  it is  fixed.   The  prices  of  new  cotton  crop,  i.e.,  for September, 1973 to August, 1974 are not known at the time of the  fixation  of the price.  Even when they are  known  the petitioners  will  have  to  show  with  reference  to   the different types of mixes used in producing yarn, the  impact of cotton prices on the cost of production of that  category of  yarn.  Further, even if there is increase in the  cotton prices, the petitioners can absorb it because the controlled price  fixed is more fair to the producer.  If  he  sustains alleged  losses  or  some  time, it  will  be  a  reasonable restriction  because the object of the price control  is  to hold  the price line or revert the prices to  normal  levels and make available cotton yarn to the handloom and powerloom weavers at a fair price which will enable them to  withstand competition from mill-made cloth.  It is not shown here that the  controlled price is so grossly inadequate that  it  not only  results  in huge losses but also is a  threat  to  the supply  position  of yarn.  The controlled price is  in  the interest of the country as a whole for just distribution  of basic   necessities.   The  controlled  price   is   neither arbitrary nor an unreasonable restriction. The  sixth  contention  turned  on  what  is  described   as channelisation  of yarn distribution.  The  impugned  orders are made in exercise of powers conferred by clause 30(1) (a) of  the Cotton Textiles Order, 1948.  The producers of  yarn are prohibited from selling or delivering  yarn   to     any person other than the five channels mentioned in the  order. The  five  channels  are  : (a) the nominees  of  the  State Governments, (b)    the  Handloom Export Promotion  Council, Madras,  (c) The Cotton Textiles Export  Promotion  Council, Bombay, (d) Federation of Hosiery Manufacturers Association, and (e) any other person as may be nominated by the  Textile Commissioner. By  an order dated 21 June, 1973 counts 17s and  below  were excepted from the operation of the order.  By another  order dated 4 August, 425 1973 counts 40s and below were excepted from the order.  The position  of  yarn supply is under constant  review  of  the Government.  The Press Statement of 21 June, 1973 shows that the  control  over distribution of yarn upto counts  17s  is relaxed  because  the quantities are adequate  to  meet  the demand.  Similarly, by subsequent notification, control over distribution of yarn upto counts 40s has been relaxed. The  impugned orders as they stand require the producers  to sell  to  these  five channels on the  basis  of  directions issued  by  the  Textile  Commissioner.   The  dealers   are required  to  sell or deliver yarn to (a)  nominees  of  the State  Government,  and  (b)  any other  person  as  may  be nominated by the Textile Commissioner in such quantities  as may  be  determined by the Deputy Commissioner  or  District Collector. The  prices  for  such  sale are  on  consideration  of  (a) invoiced  price  of yarn, (b) incidental  charges  including transport  and  local taxes, (c) such reasonable  margin  of profit not exceeding two per cent of the invoiced prices  as the  Deputy  Commissioner  or  the  District  Collector  may determine in each case and any other relevant factor.  There is  thus  price control as well as distribution  control  to meet  the  problems of availability of goods  at  reasonable prices. The  seventh contention of the petitioners as well  as  the- interveners  was  that  the impugned  orders  requiring  the

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producer  to  deliver  yarn only to  the  five  channels  of distribution mentioned therein created monopoly in favour of specified  persons, and, therefore, there was  violation  of Articles  19(1)(f) and (g) and 301 of the Constitution.   It was   also  said  that  there  was  no  obligation  on   the distribution channels to buy from the mills. Counsel  on behalf of the traders who  intervened  submitted that  there  was no justification for  canalisation  of  the goods  because  it was not in public interest and it  was  a total  ban on traders. It was also said that there would  be neither  equitable  distribution nor availability  of  goods because  the order did not provide that it would  reach  the weavers and the order also did not provide that the agencies were  to  sell  at specified rates.  The  fifth  channel  of distribution, viz.. "any other person as may be nominated by the  Textile Commissioner" was attacked on the  ground  that there was no classification and it conferred arbitrary power of choice. The  Cotton  Textiles Control Order 1948  confers  power  by clause 30 to impose control over distribution of yarn.   The order  states  that such power is required to  be  exercised with  a  view to securing proper distribution  of  cloth  or yarn.   The  Textile Commissioner with a  view  to  securing compliance with the directions issued by him shall have  re- gard  to (a) requirements of ’various categories of  persons specified in clause 30; (b) availability of cloth or yarn of different  descriptions; and (c) requirements of  any  local area. Handloom weavers are the bulk consumers of yarn of counts of 40s  and  below.  There is no control over  distribution  of this  yarn.   Therefore ’ it is said that  traders  in  this class  of yarn are free to charge any price whereas  control is imposed on the producers.  The Government excepted counts 40s and below from the operation of the order when 426 availability was ensured.  Further, traders in this category of  counts 40s and below cannot sell at any price they  like because the maximum retail price has to be prescribed by the Deputy  Commissioners  or  the District  Collectors  and  no trader  can  sell at a price higher than  that  price.   The price specified by the Deputy Commissioners or the  District Collectors takes into consideration the reasonable margin of profit  not  exceeding  2 per cent of  the  invoiced  price. Maximum   retail   price  is  specified  for   all   counts. Therefore, profiteering in the sale of yarn of all counts is eliminated. The distribution channels are contended to be monopolies  in favour of specified persons.  The traders say that they  are substituted by the distribution channels as middleman.   The nominees  of  the State Government  under  the  distribution channel  could  be  any dealer chosen and  favoured  by  the Deputy  Commissioner or the District Collector.  It is  said that  freedom of trade is violated.  These  contentions  are unsound for these reasons.  The channels of distribution are agencies  of the State for distribution  purposes.   Further the  Handloom  Export Promotion Council, Madras  the  Cotton Textiles Export Promotion Council, Bombay and the Federation of  Hosiery  Manufacturers Association are  associations  of users of cotton yarn.  They can demand service charges.   If middlemen  be totally excluded the control scheme  does  not become unreasonable just because a part of the ban in regard to  counts of 40s and below is relaxed. 87 per cent  of  the total yarn marketed is in counts 40s and below.  Traders are permitted  to  carry  on trade in  them  though  prices  are specified for such counts.  The balance 13 per cent of  yarn

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is in counts of 40s and above.  The requirement not to  sell yam  at  a  price above the maximum price  operates  on  all distributing channels.  Even if an ordinary dealer is chosen by the Government within the fifth category of  distribution channel, viz., "any other person as may be nominated by  the Textile  Commissioner"  such  person could  also  be  actual consumer  of yarn.  The notification No. CER/20/73 dated  31 March,  1973  states  that the nominees can  be  any  dealer carrying  on  business of selling  yarn.   The  distribution control  is  intended  to  ensure  availability  of  yam  at reasonable or fair price.  Profiteering, hoarding, cornering are  the evils to be eliminated. it is not that all  dealers in yarn have been denied the right to carry on trade.  It is only those whose carrying on trade in yarn would not in  the opinion  of the Textile Commissioner ensure availability  of yarn to actual consumers at the fair price.  Black marketing as  the expression goes is to be weeded out in this  manner. The  selection of traders is made on the basis  of  ensuring availability  of  yarn  at a  fair  price.   Elimination  of persons who have hoarded or cornered or are unscrupulous  in distribution  is  intended in public interest.   This  is  a reasonable restriction in the interest of the general public and is contemplated in Article 19(6) of the Constitution. In  Rashbihari Pande v. State of Orissa [1969] 3 S.C.R.  374 the Government invited offers for advance purchases of Kendu Leaves  but restricted the invitation to  those  individuals who  had carried out contracts in the previous year  without default  and  to the satisfaction of  the  Government.   The scheme  was  held  by this Court to  be  discriminatory  and unreasonable  restriction upon the rights of  persons  other than the 427 existing  contractors and the scheme of selected  purchasers was  not  protected by Article 19 (6) (ii). In  the  present case,  the traders cannot make any profit they like  because of specified prices. In Bhatnagars & Co. v. Union of India [1957] S.C.R. 701  the importers  resorted to malpractices leading  to  speculation and  fluctuation  in  prices.   The  Government,  therefore, canalised distribution of the goods by inviting tenders  for the  grant of import licences.  This Court held that it  was open to the Government in national interest to intervene and regulate the distribution in a suitable manner. The power to regulate sale through licensed vendors to  whom quotas  are allotted and who are permitted to sell  yarn  at fixed  prices  has been upheld in M/s  Dwarka  Prasad  Laxmi Narain  case (supra).  But a note of possible  mischief  was indicated  in instances where no rule or principle to  guide them  was  stated  or where no check or  control  by  higher authority  was  intended.  The Textile Commissioner  in  the present case is guided by the provisions of clause 30 of the Order  as well as by section 3 of the Essential  Commodities Act.   The  rules  or  principles  for  guidance  are  first equitable  distribution,  and, second availability  at  fair price.   Prices  are fixed with limited profit  to  traders. Further,  an  aggrieved  person can appeal  to  the  Central Government. In  Mannalal Jain v. State of Assam [1962] 3 S.C.R. 936  the Assam   Foodgrains  (Licensing  and  Control)  Order,   1961 conferred  power  on  the authority to have  regard  to  Co- operative  Societies in the grant of licences.   This  Court held  that such preference did not create a  monopoly.   The Co-operative  Societies  in villages were held to  be  in  a better  position for maintaining or increasing supplies  and for securing equitable distribution and availability at fair

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prices in accordance with village economy.  The question  is whether   prohibition  of  others  doing  the  business   is reasonable under Article 19(6). Canalisation  orders  have  been upheld  by  this  Court  as reasonable  within Article 19(6) of the  Constitution.   The recent  unreported decision in M/s Daruka & Co. v. Union  of India  Writ  Petition No. 94 of 1972 dated 31  August,  1973 referred  to  the  earlier decisions in  Glass  Chaton  case [1962]  1 S.C.R. 862, Devasan of Bhimji Gobil case [1963]  2 S.C.R.  73 and upheld the distributing channels  of  imports and exports of different commodities and goods. The  petitioners  contend  that  though  the  order  obliges producers  of  yarn  to sell to persons named  there  is  no obligation on those persons to buy, and, therefore, it is an unreasonable  restriction.  The petitioners  supported  this contention by instances where those persons or bodies failed to  lift  the  stock of yarn.  It is  said  that  producers, therefore,  suffered  losses.  There were  cases  where  the allottees  did not lift the goods when the voluntary  scheme was in operation.  The allotment order on record shows  that the allotment of yarn is made subject to the conditions that the allotted yarn would be lifted within 15 days of  receipt of intimation from the mill after making necessary payments. If any portion of the yarn is not paid for and lifted within the  stipulated time, the State Government may intimate  the same   to   the  Cotton  Corporation  of   India   and   the mills\concerned.  The Cotton Corporation will effect 428 payment   and  take  charge  of  the  yarn.    The   Textile Commissioner  on receipt of such intimation will  issue  the reallotment  orders and in respect of such  reallotted  yarn the  allottee State Government will make necessary  payments to  the  Cotton  Corporation of India.   The  conditions  of allotment  ensure  lifting of yarn by the  nominees  of  the State  Government within a reasonable time.  In the past  at the initial stages of the voluntary control scheme the State Government nominees were not adequately financially equipped and that is why there were cases of non-lifting of yarn.  It cannot happen now.  The Distribution Control Scheme does not impose  an unreasonable restriction on the producer’s  right to carry on his business. it  was said on behalf of the State that the petitions  were not  maintainable because of the proclamation of  emergency. During  the proclamation of emergency Article 358 does  riot apply to executive action taken during the emergency if  the same  is  a continuance of a prior executive  action  or  an emanation  of the previous law which is otherwise  violative of  Article  19  or  is  otherwise  unconstitutional.    The petitioners  challenged  the action or previous  law  to  be violative  of  fundamental rights.  This  Court  in  Bennett Coleman  &  Co. case [1972] 2 S.C.R. 788  said  "During  the proclamation  of emergency Article 19 is suspended.  But  it would  not  authorise the taking  of  detrimental  executive action during the emergency affecting the fundamental rights in  Article  19  without any  legislative  authority  or  in purported  exercise of power conferred by any  pre-emergency law  which was invalid when enacted".  Therefore, if it  can be  shown  that  the  executive  action  taken  during   the emergency   has   no   authority  as   a   valid   law   its constitutionality  can be challenged.  The  Cotton  Textiles Order 1948 was continued by Essential Commodities Act, 1955. The,  impugned  orders are made under  pre-emergency  Cotton Textiles Control Order.  The validity of the impugned orders is  challenged  under  Article  19(1) (f)  and  (g)  of  the Constitution  on  the  ground that  it  is  a  pre-emergency

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executive  order  which  could have  been  challenged  under Article  19(1)  (f)  and (g)  before  the,  proclamation  of emergency.   From  that  point of  view  the  petitions  are competent  though  the  challenge is  insupportable  on  all grounds. For these reasons, the petitions are dismissed., The parties will pay and bear their own costs. K.B.N.                    Petitions dismissed. 429