10 October 1996
Supreme Court


Case number: Appeal (civil) 1811 of 1996






DATE OF JUDGMENT:       10/10/1996




JUDGMENT:                          O R D E R      These appeals  by special  leave are  filed against the judgment and  order dated September 1, 1978 and September 4, 1978 passed  by the  Madbya Pradesh High Court, Indore Bench in Misc. Petition Nos.140, 139, 43 and 44 of 1977.      These appeals  arise from  the Sugarcane Control Order, 1966  [for  short,  the  "Order"]  and  the  M.P.  Sugarcane [Regulation of  Supply and  Purchase] Act,  1959 [for short, the "Act"].  It is  rather unfortunate  that  the  sugarcane growers who  spent their  sweat and  blood  in  raising  the sugarcane in  the Years  1974-75, 1975-76 had to wait for 20 years to receive the price of the sugarcane supplied by them to the respondents’ factories. The respondent in C.A.1813/80 is a  Hindu   Undivided Family  represented by its Karta and respondents in  other appeals  are  factories.  The  Central Government had fixed the price of the sugarcane under Rule 3 [1] of  the Rules  issued under  Section 3  [3] (c)  of  the Essential Commodities  Act, 1957  at  Rs.8.60  per  quintal. Various meetings  of the sugarcane growers and the sugarcane factories and  their  associations,  were  convened  by  the Government of  Madhya Pradesh  and ultimately  the agreement got crystallised  at the  meeting held  on March 21, 1976 to fix the  final price of the sugarcane at Rs.12/- per quintal for the  sugarcane supplied  at the factory and Rs.11.50 per quintal for  the sugarcane supplied at other supply centres. Though the sugarcane was supplied by the cane-growers, since theirs amounts  could not  be paid, the appellant-Government resorted to  Section 21  of the Act to enforce the liability by recovering  the same  as arrears  of  land  revenue.  The respondents came  to challenge  the demands  by  filing  the aforesaid writ  petitions. The  Division Bench  of the  High Court in  the aforesaid  judgments in three appeals has held that since no separate agreement was entered into between the respondents  and the  sugarcane growers,  the  liability could not  be enforced by way of arrears of land revenue. In CA No.1811/80  involving the question of interest on account of delayed  payments it  was held  that since the amount was not paid  as  per  the  price  fixed  under  the  Order,  no liability of  interest would  be charged  thereon. Therefore the demand  for payment  of interest  on delayed  payment is



without authority  of law.  Thus these  appeals  by  special leave.      Shri U.N.  Bachawat, learned  senior counsel  appearing for the State, contended that as per the record produced and the averments  made in  the counter-affidavit  filed in  the High Court  in the  writ petitions that there was a specific oral  agreement   between  the  sugarcane  growers  and  the factories represented  by the  Association and many of their representatives personally  present except  Kaluram’s  joint family firm  and all  of them  have greed  to final price of sugarcane. Even  with regard  to Kaluram’s  firm, since  the meeting was  adjourned once,  to enable him to be consented, as  he   was  present,  the  Secretary  of  the  Association contacted him  over telephone  and he agreed to abide by the agreement. In  furtherance thereof,  on March  21, 1976  the gentleman agreement  has been  entered into  for  the  final price of  the sugarcane  to be  supplied  by  the  sugarcane growers. As  a consequence,  there was  an agreement between the owners  of the sugar factories and the sugarcane growers Since the  sugarcane growers  were not  paid the  price,  in furtherance thereof,  the factories  are liable  to pay  the sugarcane price and also the interest on the delayed payment in one appeal. The view taken by the High Court is not valid in law.      Shri S.K.  Jain, learned  counsel for  the respondents, contended that  Rules 3  and 5-A  of the Order determine the liability to  pay the  price and  the additional  price. The Central  Government  having  determined  the  price  of  the sugarcane under  the Order,  there is  no power to the State Government, de  hors the Order, to fix any agreed price. The concept of  agreed price  came into  force on  September 19, 1976 by  virtue of the Order. Until then, there was no power to  fix   the  agreed   price.  The  State  Government  has, therefore, no power under the Act to fix any price since the field was occupied by the Order. Kaluram was not present and he had  not agreed to the fixation of the increased price of the sugarcane.  At best,  it would  be  only  a  compulsion, Unless there  is an individual written agreement between the factory and  each sugarcane  grower, there is no contract to pay over  the same.  Such of the amounts, de hors the Order, cannot be  recovered as  arrears of  land revenue since such liability visits  with  penal  consequences  of  prosecution under Section  7 of  the Essential  Commodities Act. He also contends that  the retrospective  effect cannot  be given to the price  of  the  sugarcane  supplied  earlier  and  that, therefore, the  Order of the High Court is clearly legal. He also contends  that unless  the price  is  fixed  under  the Order, no  liability to  pay interest  arises thereon on the delayed payment  of the  value  of  the  sugarcane,  as  was originally determined  by the  Central Government, under the Order. Under those circumstances, the view taken by the High Court is  correct in  law. In  support  thereof,  he  places reliance on  the judgments  of this  Court in State Of Tamil Nadu v.  Kothari Sugar  &   Chemicals Ltd. [1996) 7 SCC 751] and Thiru  Arooran Sugar  Ltd. v. Dy. Commercial Tax Officer [(1988)> 71 STC 444 (Madras)].      The first  question that  arises for  consideration is: whether there  is  an  agreement  for  the  final  price  of sugarcane for the relevant period and if so whether it is in consonance with the Order? Related question is: whether such fixation is  retrospective  in  operation  and  whether  the Government can recover such amount under the Act? As regards the fixation of the price, the field undoubtedly is occupied by the  Order. Rule  2 [g]  of the  Order defines ’price’ to



mean the  price or  the minimum  price fixed  by the Central Government from  time to  time for  sugarcane delivered to a sugar factory  at the  gate of the factory or at a sugarcane purchasing center  or to  a khandsari  unit.  Clause  2  [i] defines ’producer of sugar’ to mean a person carrying on the business of  manufacturing sugar  by vacuum  pan process and clause 2[j]  defines ’reserved  area’ to mean any area where sugercane is  grown and  reserved for  a factory  under sub- clause [1]  (a) of clause 6. Under clause 2 [k] ’year’ means the year commencing on the first day of July and ending with the thirtieth day of June in the year next following.      Rule 3  [3]  determines  "where  a  producer  of  sugar purchases any sugarcane from a grower of sugarcane or from a sugarcane  growers’s   co-operative  society,  the  producer shall, unless  there is  an  agreement  in  writing  to  the contrary between  the parties, pay within fourteen days from the date  of delivery  of the  sugarcane to  the  seller  or tender to  him the price of the cane sold at the rate agreed to  between   the  producer  and  the  sugarcane  grower  or sugarcane growers‘  co-operative society or that fixed under sub-clause (1), as the case may be either at the gate of the factory or  at the  cane collection  centre or  transfer  or deposit the  necessary amount  in the  Bank Account  of  the seller or the co-operative society, as the case may be."      Clause (3A)  to Rule  3 was  introduced by  way  of  an amendment made  in GSR 62(E), dated 2.2.1978. For payment of the price  within 15  days  with  interest  on  the  delayed payment at  the rate of 15% per annum for the period of such delay beyond  14 days  has been introduced. Earlier , it was covered by  the Act.  Clause (1) of Rule 3 fixes the minimum price of  sugar payable by the purchaser of the sugarcane as fixed by  the Central  Government in  the  manner  indicated therein. Clause (2) of Rule 3 is relevant for the purpose of this case which shows that "no person shall sell or agree to sell sugarcane  to a  producer of  sugar or his agent and no such producer  or agent  shall purchase or agree to purchase sugarcane, at a price lower than that fixed under sub-clause (1)." Section  23(3) of  the Acts  also couched  in  similar language, enables  to novate  by contract  the minimum price fixed by  the Central  Government in respect of cess payable to Government.      This would  clearly indicate  that despite the fixation of minimum  price under  clause (1)  of Rule 3, by agreement between the  sugarcane  grower  and  the  purchaser  of  the sugarcane, they  would be  at liberty  to agree  to sell  or purchase the sugarcane at a higher price than that was fixed by the  Central Government  under clause (1) of Rule 3. Only for postponement  of payment  beyond 14 days there should be an agreement  in writing  between the parties obviously with the concurrence  of the  Central  Government  or  authorised authority  in  that  behalf.  Thus  there  is  no  statutory prohibition in  that behalf  to pay higher price. That would be further  clear by  Rule 3(2) which speaks of the contract between the parties for payment of higher price of sugarcane fixed under  clause (1)  of Rule 3 pursuant to the agreement or pursuant  to the  minimum  price  fixed  by  the  Central Government under Rule 3(1) of the Order.      Rule 3A  speaks of rebate that can be deducted from the price paid  for sugarcane.  In other  words this  concept of agreed price  paid was  brought on  statute with effect from September 24,  1976 by  amendment made  through GSR.815 (E). Prior to  the statutory  concept of  the agreed  price, Rule 3(2) did  not preclude  the  parties;  in  other  words,  it enabled the  parties to  agree for  a higher price than what was fixed  for the  sugarcane supplied by sugarcane supplier



under Rule  3(1) of  the Order.  In addition,  Rule 5A  also gives Power  to fix  and pay  additional price for sugarcane purchased on  or after  1st October, 1974. Thus, it could be seen that prior to coming into force of Rule 3A, the minimum price fixed  by the  Central Government  under Rule 3(1) and additional price  fixed   under Rule  5A, it  was within the domain of the contract between the sugarcane growers and the factories who  could agree  to pay  price  higher  than  the minimum price  fixed under  the Order.  What sub-rule (2) of Rule 3  prohibits is  the purchase  or sale  or agreement in that behalf,  for bargain  to  pay  price  lesser  than  the minimum price  fixed by  the Central  Government.  In  other words, the sugarcane growers should not be compelled to sell the sugarcane  at a  price lesser than was prescribed by the Order. Thus, we hold that there was no statutory prohibition at the  relevant time  to agree to pay higher price than was fixed under the order.      The question  then is:  whether such a higher price has been agreed  to be  paid  to  the  sugarcane  growers,  when contract has come into existence between the respondents and the canegrowers  with the agis of the appellants? As a fact, except Kaluram,  all representatives of other factories were present at  the time  of the agreement dated March 21, 1976. As far as Kaluram is concerned, on the first occasion he was present, but  on the  second occasion  when the meeting  was adjourned, he  was not  present. It  has been averred in the counter-affidavit  that   the  Secretary  of  the  Sugarcane Factories Owners’  Association had contacted him when he was in the  hospital and  thereafter, the  agreement was entered into. Though,  subsequently, an  attempt  was  made  by  the Secretary to Wriggle out from it, the Government have stated that and  the sugarcane  growers have  also agreed  for  the same, we are of the considered view that he was a consenting party and there was consensus ad idem to pay higher price of sugarcane than  the  minimum  price  fixed  by  the  Central Government and  they acted upon it, There was no prohibition for oral  agreement between  growers and  owners through the service of  the Cane  Commissioner, a statutory authority to effect such  agreement. It is not in dispute that thereafter the  sugarcane   growners  supplied  the  sugarcane  to  the respondent factories  and that  they utilized  the sugarcane for producing  the  sugar.  Other  factories  had  paid  the agreement price.      The contention of Shri S.K. Jain that the agreement was retrospective is  not correct. It is seen that the sugarcane crushing year  has been  defined under  the Order itself and during the  season the Price fixed by the Central Government was treated  by the  State Government  to be  the  tentative price, subject  to agreements  between the  parties and  the final price  was agreed  as contracted by the parties. Thus, we hold  that the  payment of price @ Rs.12/- per quintal at the factory  and Rs.11.50  per  qunital  at  the  purchasing centre was  agreed price  for supply  of  sugarcane  by  the sugarcane growers  and received  by  the  factories  at  the respective places.      The question  then is: whether it is a compulsive price end whether  the State  Government had  entered into  such a contract? It is seem and it cannot be disputed that the Cane Commissioner is  the statutory  authority under  the Act and the Order to regulate fixation of the zone for the supply of sugarcane to  the respective factories and for regulation of supply of  sugarcane to the factories covered under the Act. Section  12   of  the   Act  speaks  of  estimation  of  the requirements under  Sections 15 to 17 of the Act of quantity of sugarcane  required to be supplied to the occupier of the



factory. Section  13 speaks  of  registration  of  sugarcane growers and  the sugarcane  growers  Co-operative  Societies within the  area of  the occupier of the factory. Section 15 deals with  declaration of the reserved area for the factory under sub-section  (2) of  Section 19. Section 16 deals with declaration of  assigned area  to the  factory.  Section  19 deals with  regulation of purchase and supply of cane in the reserved area and assigned area respectively. The payment of the price  is regulated  under Section  20  which  reads  as under:      "20. Payment  of cane  price. - (1)      The occupier  shall  make  suitable      provision to  the  satisfaction  of      the collector  for   the payment of      the price of cane.      (2) Upon  the delivery  of cane the      occupier shall  be  liable  to  pay      immediately the  price of  the cane      so  supplied,   together  with  all      other sums  connected therewith and      where the  supplies have  been made      through  a  purchasing  agent,  the      purchasing  agent   also  shall  be      similarly liable in addition to the      occupier.      (3) Where  the person  liable under      subsection (2)  is  in  default  in      making the payment of the price for      a period  exceeding  fourteen  days      from the  date of delivery he shall      also pay  interest at  a rate of 7-      1/2 per  cent per  annum  from  the      said date  of delivery  up  to  the      date  of   payment  but   the   Can      Commissioner  may,   in  any   case      direct with  the  approval  of  the      State Government  that no  interest      shall be  paid or  be paid  at such      reduced rate as he may fix.      (4)  The  Cane  Commissioner  shall      forward   to    the   Collector   a      certificate  under   his  signature      specifying the amount of arrears on      account of  the price  of cane plus      interest,  if  any,  due  from  the      occupier  and   the  Collector   on      receipt of  such certificate  shall      proceed  to   recover   from   such      occupier   the   amount   specified      therein as  if it were an arrear of      land revenue  together with further      interest  up   to   the   date   of      recovery."      It would  thus be  clear  that  the  Cane  Commissioner having power  to compel  the cane  growers to supply cane to the factory Khandsari unit, he has incidental power and duty bound to  ensure payment  of  the  price  of  the  sugarcane supplied by  the sugarcane grower. The price fixed or agreed is a  statutory price and bears the stamp of statutory first charge on the sugar and assets of the factory over any other contracted liabilities to recover the price of the sugarcane supplied to the factory or Khandsari unit.      Section 23 deals with levy of cess on the sugarcane and sub section (3) contemplates that "notwithstanding the terms of any  contract or  agreement  for  sale  of  cane  whether



entered into  before or  after the  imposition of  the  cess under this Section, the buyer of the cane shall be liable to pay the amount of the cess in addition to and as part of the contracted price  of such  cane."  The  person  who  commits default in making payment of the cess shall be liable to the recovery thereof  with interest enumerated in subsection (4) of Section  23 and  recovery has  been envisages  thereunder read with  sub-section (5)  of Section  23. But the material fact is  that  sub-section  (3)  also  gives  an  indication analogous to  Rule 3(2) of the Order that in addition to the price fixed,  the higher  price should always be permissible to be  entered  by  a  contract  or  agreement  between  the parties.      Section 26  imposes levy  of penalty for non-payment or contravention of  the provisions  of the  Act or  the Rules. Section 27  provides the  procedure for  institution of  the proceedings. Thus, the statutory authority has obligation to ensure proper  price of  sugarcane supplied by the sugarcane growers. Thus,  the Government  has to ensure the meeting of the  growers   and  occupiers   of   factories   and   their Association. Thereat the final price of sugarcane was fixed; the  parties  orally  agreed  thereto  and  the  proceedings culminate into  a concluded  gentlemen contract.  It  is  in notation  of   the  minimum   price  fixed  by  the  Central Government. The  agreement is to tainted with compulsion, as contended but  in novation  of the minimum price fixed under the order.      Thus, it  would be  seen that  the Act  regulates   the recovery as arrears of land revenue. Accordingly, demand has been  made   for  payment   of  the   amount  in  a  sum  of Rs.6,34,166/- in  CA  No.1813/80,  Rs.13,40.700/  in  CA  No 1814/80  and  Rs.2,71,000/-  in  CA  No.1812/80.  Thus,  the demands issued  against the  respondents are  in  accordance with the  provisions of  the Act  and they are liable to pay the same.      The question  then is:  whether the  respondent is also liable to  pay interest  for the delayed payment? It is seen that under  the Order  and the  Act there is power to impose interest not  exceeding 15%.  In this  case, 14% and odd was the interest  levied on  delayed payment. It is seen that in view of the agreement, as upheld earlier, in addition to the minimum price, therefore, the liability has arisen under the Order for  payment of the value of the sugarcane supplied by the growers.  On account  of the default in payment thereof, in terms  of clause (3) of Rule 3, since it was not paid, by operation of  Section 20  of the  Act, they  are entitled to recover the  same as arrears of land revenue. Therefore, the view of the High Court is clearly illegal.      Though Shri  S.K. Jain  is  right  in  contending  that unless there  is  an  agreement  between  the  parties,  the liability cannot be fastened under the Order or the Act; but in view  of the  finding that there was an agreement between the parties,  as held  earlier, the ratio in the judgment in Kothari‘s case  (supra) relied  on by  the counsel is of not much assistance  in the  facts of  this case.  On the  other hand, it  supports the view we have expressed above. Therein this Court  upheld that if there is an agreement between the parties, than  by operation of the Order the liability would be fastened  on the sugar factory. In those cases, there was a finding  that there was no proof of agreement entered into between the  factory and  the cane-growers. Therefore, sales tax would  not be recovered on the price fixed in excess for minimum cane price fixed by the Central Government under the Order.      In Thiru Arooran Sugars Ltd‘s case (supra) relied on by



Shri Jain,  the learned  Judges had  considered Rule 3(1) of the Order  and the finding that there is no power to fix any price in  excess or  the minimum price fixed under the Order was rejected.  It is  clearly illegal.  Rule  3(2)  was  not brought to  the notice  of this Court, when the decision was upheld, but  on the  facts it  makes no difference since the view in  Kothari’s case (supra) is not inconsistent with the view  we  have  expressed.  On  the  other  hand,  the  view expressed therein  also is  consistent with the view we have taken. In fact, in Tungabhadra Sugar Works Ltd. vs. State of Karnataka & Ors. [(1994) 73 STC 561] approved by this Court, the Division  Bench of  the Karnataka  High  Court  squarely considered this  question  and  had  held  at  page  577  in paragraph 20  that "Even though the contract may fix a price nothing prevents  the parties from subsequently modifying or increasing the  price, resulting  in novation. The aforesaid term  in  the  contract  can  be  relied  on,  only  if  the petitioner had  paid a  scale price  as  determined  by  the Central  Government  under  the  control  order.  Where  the petitioner has  paid a  higher price than what is payable in terms of  Rule 3 and 5A(1), it will be a case of novation of contract and  the increased  Price will replace the original contract term relating to price." We approve of the view and accordingly we  have no  hesitation to hold that the parties would always  be at  liberty to  agree for payment of higher price than the minimum price fixed by the Central Government and the contract will be novation of the minimum price fixed by the  Central Government  under Rule  3(1) of  the Order . Therefore, the  respondent is  liable  to  pay  interest  on delayed payment under the Act read with the order.      We are  informed that  these two mills have become sick mills and  have been  taken over  by the  Government. If the amount has not been paid already, the Government is directed to disburse  the amount within a period of 3 months from the date of  the receipt of the respondents etc. If there is any shortfall in  the amount, the assets of the respondents etc. If  there  is  any  shortfall  in  the  amount,  the  assets recovered from  the sick mills, if any, may be fastened as a liability on  the sick  mills and  be adjusted in accordance with the take-over proceedings.      The appeal  s are accordingly allowed. But for the fact that the  mills have  been taken over, we would have imposed exemplary costs in this case; hence we impose no costs.