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CASE NO.: Appeal (civil)  460 of 1997

PETITIONER: U.P. Co-operative Cane Unions   Federations

RESPONDENT: West U.P. Sugar Mills Association & Ors. etc.  

DATE OF JUDGMENT: 05/05/2004

BENCH: CJI, K.G. Balakrishnan & G.P. Mathur.

JUDGMENT: JUDGMENT

(With CA Nos.461/1997, 4685/1997, 1727/1999, 4602/1999, 6065/2001,  CA No.________/2004 @ SLP(C) No. 16851/2001, SLP(C) Nos.1363/2002,  948/2003, CA Nos.8117-8122/2001, T.C. (c) No.21-22/2003 IA No.3 in CA  460 of 1997  

G.P. MATHUR,J.

1.      The controversy raised in these appeals by special leave and Transfer  Petitions basically relates to the competence of the State Government to fix  the State Advised Price for purchase of sugarcane by an occupier of a sugar  factory over and above the minimum price fixed by the Central Government.   The validity of the procedure adopted for ensuring the payment of the  aforesaid  price  to a sugarcane grower is also under challenge.   

2.      The power of the State Government to fix higher sugarcane price was  recognised in Maharashtra Rajya Sahkari Sakkar Karkhana Sangh Ltd. v.  State of Maharashtra & Ors. 1995 (Supp) 3 SCC 475  and  in State of M.P.  v. Jaora Sugar Mills Ltd. & Ors.  (1997) 9 SCC 207 it was held that the State  Government  has an obligation to ensure payment of proper price to  the  sugarcane growers by occupiers of the factory.  However some observations   made in State of Tamilnadu & Ors. v. Kothari Sugar & Chemicals Ltd. &  Ors. (1996) 7 SCC 751 apparently indicate that State Government has no  power to fix the price.  In view of this seeming conflict, the cases were  initially referred  for decision by a larger Bench of three Judges and then to a  Bench of five Judges.  

3.      We will first deal with Civil Appeal Nos.460 of 1997, 461 of 1997,    1727 of 1999 and 4602 of 1999 which arise  from State of  U.P. and are  directed against  the judgment and orders of  two benches of  Allahabad  High Court wherein conflicting views have been taken. The Central  Government by the order dated 11.3.1996 fixed the statutory premium price  of sugarcane payable by the sugar factories for 1996-97 sugar season at  Rs.45.90 per quintal linked to a basic recovery of 8.5 per cent sugar subject  to a premium of Rs. 0.57 for every 0.1 percentage  point increase in the  recovery above that level.  According to Sugar Mills Association the average  minimum statutory price for the whole of U.P. came to about Rs.50.33 per  quintal and the additional price under Clause 5-A of Sugarcane (Control)  Order 1966 came  to about Rs.7 per quintal and thus they were liable to pay  Rs.57.33 per quintal.  The State Government by the order dated 15.11.1996  fixed the State Advised Price at Rs.72 per quintal for ordinary quality and  Rs.75 per quintal for fast ripening quality of sugarcane to be delivered at the  gate of the factory.  In case the sugarcane was delivered at the purchase  centre the sugar mills were entitled to deduct about Rs.3 per quintal towards  transportation cost.  Writ Petition No.36889 of 1996 was filed by West U.P.  Sugar Mills Association, Central U.P. Sugar Mills Association, East U.P.

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Sugar Mills Association and 32 sugar mills for quashing the order dated  15.11.1996 of U.P. Government whereby State Advised Cane Price was   fixed and for restraining the respondent authorities (State of U.P. and Cane  Commissioner U.P.) from taking any coercive  steps to enforce the payment  of the said State Advised Price.  A declaration was also sought that the writ   petitioners are liable to pay only the minimum price fixed by the Central  Government under Clause 3 of Sugarcane (Control) Order 1966 plus the  additional cane price determined under Clause 5-A of the said Order.  A  Division Bench of the High Court allowed the writ petition  by the judgment  and order dated 11.12.1996.  The order of the State Government dated  15.11.1996 was quashed and the respondent authorities  were restrained  from enforcing the State Advised Price.  It was, however, directed that   where  an agreement in Form B or Form C of the Appendix to the U.P.  Sugarcane Supply and Purchase Order, 1954  had been reached between  occupiers of the factory and the cane growers or cane growers’ cooperative  society then the occupiers of the factory will have to pay the price in  accordance  with such agreement.            

4.      The Cane Commissioner U.P. issued a recovery certificate on  13.2.1997 for recovery of State Advised Sugarcane price from Agota Sugar  and Chemicals Ltd. and on the basis of the aforesaid recovery certificate   Tehsildar Bulandshahr sent a citation dated 21.2.1997 for recovery of the  amount.  Agota Sugar and Chemicals Ltd. then filed Writ Petition No. 775  (M/B) of 1997 before the Lucknow Bench of Allahabad High Court for  quashing of the aforesaid recovery certificate and the citation. It was also   prayed that a writ of mandamus be issued  commanding the Cane  Commissioner and authorities of the State Government not to adopt any   coercive method to recover any amount from it on the basis of the recovery  certificate dated 13.2.1997 and the citation dated 21.2.1997. Writ Petition  No. 2086 (M/B) 1997 was filed by Shri V.M. Singh, a  sugarcane grower,  claiming  to represent the interest of all the sugarcane growers in the State,  praying that the authorities be directed to enforce the payment of State  Advised Price for the sugarcane purchased by the sugar mills.   The writ  petitions were disposed of by a common judgment and order dated 1.2.1999.   Writ Petition No. 775 (M/B) of 1997  filed by Agota Sugar and Chemicals  Limited was dismissed but Writ Petition 2086 (M/B) of 1997 was allowed  and a writ of mandamus was issued commanding the Cane Commissioner  and State of U.P. to enforce the payment of State Advised Price for the  sugarcane purchased by the sugar mills in the State.  The State Government  was further directed to initiate recovery proceedings against the defaulting  sugar mills for non-payment of the dues and in case sugar mills failed to pay  the State Advised Price and the interest to the cane growers within six  weeks, the Government was directed to recover the amount in accordance  with law and thereafter pay the same to the cane growers or cane growers’  co-operative societies.

5.      Civil Appeal No. 460 of 1997 has been preferred by U.P. Co- operative Cane Unions Federation and Civil Appeal No.461 of 1997 has  been filed by State of U.P. and another against the judgment and order dated  11.12.1996 of Allahabad High Court by which Writ Petition No. 36889 of  1996 was allowed.  Civil Appeal No.1727 of 1999 and Civil Appeal  No.4602 of 1999 have been preferred against common judgment and order  dated 1.2.1999 of  Lucknow Bench of Allahabad High Court, whereby Writ  Petition No.775 (M/B) of 1997 preferred by Agota Sugar and Chemicals was  dismissed and Writ Petition No.2086 (M/B) of 1997 preferred by V.M.  Singh was allowed.  Civil Appeal No.460 of 1997 is being treated as the  leading case.  6.       Shri Rakesh Dwivedi, learned senior counsel for the appellant U.P.  Co-operative Cane Unions Federation has submitted that the Central  Government fixes only the minimum price under Clause  3(1) of Sugarcane  (Control) Order, 1966 (hereinafter referred to as 1966 Order) and such  fixation of minimum price does not exhaust the field of determination of  price of sugarcane.  In the matter of fixation of price the concept of  minimum price, fair price and maximum price are well known and,  therefore, even after fixation of minimum price by the Central Government

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it is always open for the State Government to fix a higher price for the  sugarcane.  Learned counsel has submitted that the State Government can  not only fix a higher price but can also advise  sugarcane growers and sugar  factories to agree at a higher price.   The State Government can fix the  higher price in exercise of its regulatory power under UP Sugarcane  (Regulation of Supply and Purchase) Act, 1953 (hereinafter referred to as  1953 Act).  The Sugarcane grower or the sugarcane growers’ co-operative  society and the occupiers of sugar factories have to compulsorily enter into  an agreement in accordance with UP Sugarcane (Supply and Purchase)  Order, 1954 (hereinafter referred to as 1954 Order)  and the State  Government can issue  directions for recording  of State Advised Price in the  agreements which have to be executed for supply of sugarcane.  Shri  Dwivedi  has also urged that parchas are issued to the sugarcane growers  and in exercise of the power conferred by  1953 Act, the  State Government  can direct that the State Advised Price  be recorded in the parchas which are  issued to sugarcane growers. Learned counsel has also submitted  that the  Central Government does not take into consideration the various bye- products like molasses, bagasse and press mud which are produced during  the course of production of sugar and the sugar mills make considerable  amount of money from the sale of aforesaid bye-products especially since  molasses has been decontrolled after 1991.  The State Government, having  regard to the local conditions and also the amount earned by the sugar  factories from the aforesaid bye-products, fixes the price of the sugarcane  which is more realistic.  Learned counsel has further submitted that there is  no repugnancy between the minimum price fixed by the Central Government  and the State Advised Price fixed by the State Government and the view to  the  contrary  taken by the High Court is clearly erroneous in law.

7.      Shri P. Chidambaram, learned senior counsel appearing for  the State  of U.P. has submitted that there are many facets of price like minimum  price, minimum support price, fair price and maximum price.  Section 3 of   Essential Commodities Act, (hereinafter referred to as EC Act) empowers  the Central Government to make orders for maintaining or increasing  supplies of any essential commodity or for securing their equitable  distribution and availability at fair prices or for regulating or prohibiting the  production, supply and distribution thereof and trade and commerce therein.   The Central Government has made Sugarcane (Control) Order, 1966  (hereinafter referred to ’1966 Order’)  in exercise of the said power and  Clause 3 of the Order provides for fixation of minimum price of sugarcane  payable by the producer of sugar to the grower of sugarcane.  The price is  fixed having regard to,  inter alia, (a) the cost of production of sugarcane; (b)  the return to the grower from alternative crops and the general trend of  prices of agricultural commodities; and  (c) availability of sugar to the  consumer  at a fair price.  Learned counsel has submitted that the main  purpose of the 1966 Order,  was to ensure that sugarcane supplies are  maintained  and sugar is available at  fair price and, therefore,  the order  must be construed in the context of the policy of the Central Government to  appropriate a part of the production of sugar mills as "levy sugar" and sell  levy sugar at controlled price through the public distribution system (ration  shops).  The statutory minimum price as fixed by the Central Government is  basically linked to fixation of the price of levy sugar and is not linked with  the actual price of the sugarcane. Hence deliberately the Central Government  kept the minimum price of sugarcane at a low level.  The additional price  payable under clause 5-A of the 1966 Order is factory specific and has co- relation only with the profits of the sugar factory and, therefore it is only a  matter of chance for a sugarcane grower to get some additional amount. If at  all the factory makes profit, the amount paid to a sugarcane grower will be  pitiably low or illusory.  Learned counsel has also submitted that sugarcane  occupies land for a longer period than any other crop and it needs larger  investment in the inputs.  The farmers can raise only one crop of sugarcane  in a year.  Price is the main incentive in any economy and the best incentive  to the sugarcane grower is remunerative price for his produce.  The  minimum price fixed by the Central Government under Clause 3 of  1966  Order is not a remunerative price, as the definition shows that it is only a  minimum price.  It does not take into account higher costs and higher risks

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involved in raising sugarcane.  If there is a higher investment and higher  risk, the sugarcane grower is entitled to higher return but the said fact is not  taken into consideration while fixing the minimum price by the Central  Government.  Learned counsel has submitted that power to fix remunerative  price must reside in some authority and therefore such a power must vest  with the State Government as the field for the same remains open and  unoccupied.  Shri Chidambaram has further submitted that 1953 Act has  been enacted to regulate the distribution, sale and purchase of cane.  Section  16 of this Act empowers the State Government  to  regulate the distribution,  sale or purchase of cane in any reserved or assigned area.  The power  conferred  under the Act on the State Government is of wide amplitude  and  takes within its fold  the power to determine a remunerative price to the cane  grower.  The Act not only confers power but also casts a duty upon the State  Government to ensure that the sugarcane grower gets a remunerative price  and he is incentivised to grow sugarcane because the economy of the State to  a significant extent  is dependent upon growing sugarcane and supplying the  same to the sugar factories.  Learned counsel has also urged that the State  Government in exercise of its power under the 1953 Act can bring about an  agreement between the sugarcane grower or sugarcane growers’ co- operative  society and occupiers of a factory satisfying certain terms and  conditions and the price of the sugarcane  will be one of the terms thereof.   Under the agreements the sugarcane grower is reserved or assigned to a  specified sugar mill and is bound to supply not less than 85 per cent of the  agreed quantity of sugarcane.   He is bound to cut the sugarcane on receipt  of a cutting order and in case of non-supply he is liable to pay penalty.  If  these terms imposed by the  Government are valid, then by the same logic  the term regarding price is also valid and binding  and sugar mills cannot  approbate and reprobate the  agreement.  Learned counsel has made an  alternative submission that even if it is assumed that 1953 Act does not  confer such a power then Article 162 read with Entry 33 List III of Seventh  Schedule of the Constitution confers power upon the State Government to  fix price by an executive order.  In support of this submission reliance has  been placed upon certain decisions of this Court  rendered in Rai Saheb,  Ram Jawaya Kapoor v. State of Punjab (1955) 2 SCR 225  Bishambhar  Dayal Chandra Mohan & Ors. v. State of U.P. (1982) 1 SCC 39 and State of  Andhra Pradesh v. Lavu Narendranath (1971) 1 SCC 607.  Lastly  learned  counsel has submitted that certain items like molasses, begasse and press  mud which are bye-products of sugar industries and which contribute to the  earning of the sugar mills have not been taken into consideration by the  Central Government and, therefore,  the price fixed by the State Government  which takes into consideration all the relevant factors and the local  conditions represents the true price which should be upheld.           

8.         Shri Shanti Bhushan, learned senior counsel appearing for the  respondents (sugar factories), has submitted that the main question  to be  examined is whether the State Government has any statutory power to fix  the State Advised Price for sugarcane and to compel the sugar factories to  pay the said price.  Learned counsel has submitted that in exercise of power  conferred by Section 3 of E.C. Act the Central Government has made the  1966 Order,  and the Central Government fixes the price of the sugarcane  under Clause 3 (1) of the said Order.  There is no specific  provision under  the 1966 Order, which may empower the State Government to fix the price  of sugarcane over and above what has been fixed by the Central  Government.  Similarly there is no specific provision in  1953 Act and the  Rules made thereunder   which may empower the State Government to fix  the price of the sugarcane.  Learned counsel has further submitted that there  is  clear repugnancy between the price fixed by the Central Government and  the price fixed by the State Government and, therefore,  it is the price which  has been fixed by the Central Government which has to prevail. It has also  been contended that under Section 3 (3-C) of E.C. Act, the Central  Government has to determine the price of levy sugar which a sugar factory is  compelled to sell to the Central Government or the State Government under  an order made with reference to Section 3(2)(f) E..C. Act and while  determining price of such levy sugar  it is only the minimum price of  sugarcane fixed by the Central Government which can be taken into

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consideration.   The fixation of higher price of sugarcane by the State  Government  would completely dislocate the mechanism  provided under the   E.C. Act for determination of the price of the levy sugar.  Learned counsel  has further submitted that the respondents (Sugar Mills Association) had  sent several letters requesting the State Government not to announce any  State Advised Price and within three days of the announcement of the State  Advised Price  the writ petition was filed.  It has thus been urged that in fact  there was no agreement between the sugarcane growers or the sugarcane  growers’ co-operative society and the occupiers of the sugar factories for  payment of State Advised Price.  It has also been contended that even if the  price fixed by the State Governments is mentioned in the agreements or in  the parchas, the respondents (sugar factories) cannot be compelled to pay  the said price as they had never given their consent for recording the State  Advised Price in the agreements or in the parchas.  In order to constitute a  valid agreement, it is submitted, the consent of the parties must be  voluntarily and must not have been obtained under any duress or compulsion  and since the sugar mills had never voluntarily agreed to pay the State  Advised Price, the agreements wherein such a price is recorded is not  binding upon them.   9.      Shri Sudhir Chandra, learned senior counsel, appearing for the appellant  Agota Sugar and Chemicals Ltd. in CA No. 4602 of 1999 has adopted the  argument of Shri Shanti Bhushan. In addition he has submitted that there  cannot be any oral agreement regarding the price of the sugarcane between a  sugarcane grower or a sugarcane growers’ co-operative society and the  occupier of the sugar factory  as Forms B and C given in Appendix to U.P.  Sugarcane Supply and Purchase Order, 1954 clearly contemplate an  agreement in writing.  He has further submitted that in the agreements which  had been executed between the sugar factory and the sugarcane growers co- operative society the State Advised Price had not been recorded and the  High Court had misread the same.  

10.     Before adverting to the contentions raised at the Bar it is necessary to   keep in mind that sugarcane is the main raw material for manufacture of  sugar as it is the sugarcane juice which is ultimately converted into crystals  which becomes a marketable commodity.  Sugarcane, unlike coal or ore of   minerals is not available under the surface of the earth which may be  extracted and  stored and may be used as and when required.  It is a product  of agriculture which has to be grown in fields like any other agricultural crop  and requires inputs and hard labour for its production and it dries within a  short time of its harvesting and becomes virtually useless.  The sugar  factories do not have an  unlimited capacity to crush sugarcane but have a  fixed capacity and, therefore, they require fresh sugarcane in a limited  quantity everyday during the entire crushing season. Sugar factories in the  State of U.P. generally commence crushing in the month of November and  continue upto the end of April or sometimes middle of May i.e. for about six  months. In order to ensure  proper and continuous supply of sugarcane  to  sugar factory throughout the crushing season, the harvesting of crop has to  be done in limited quantity (according to crushing capacity and requirement  of the sugar factory) everyday  and not in one stretch.  In view of this  peculiar requirement of sugar factory the position of  sugarcane growers  becomes entirely different from those who grow other crops like wheat or  paddy which can be harvested in one go and can be sold later on at the  convenience of the farmer at the opportune time.     In order to achieve the  proper balance viz. to ensure a continuous supply of  adequate quantity of  sugarcane to the sugar factory and proper remuneration to the cane grower  for the cane supplied by him, various enactments have been made which we   will presently refer to.

11.       The Central Legislature initially enacted Sugarcane Act, 1934 and  the Statement of Objects and Reasons, amongst others, said that the initiative  in the matter of fixing prices for cane must be left to Provincial  Governments so as to suit local conditions.  Section 3 of this Act empowered  the Provincial Government, by notification in the official gazette, to declare  any area as controlled area, to fix a minimum price or minimum prices for

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the purchase in any controlled area of sugarcane intended for use in any  factory and to prohibit in any controlled area the purchase of sugarcane  intended for use in any factory otherwise than from the grower of the  sugarcane or from a person licensed to act as a purchasing agent.  The  purchase of sugarcane intended for use in factory in any controlled area at a  price less than the minimum price notified  was made an offence under  Section 5. Section 7 of the Act conferred wide powers on the Provincial  Government to make rules for the purpose of carrying into effect the objects  of the Act.  The U.P. Legislature thereafter enacted the U.P. Sugar Factories  Control Act, 1938 (U.P. Act No.1 of 1938) which repealed the Sugarcane  Act, 1934 in its application in the province of U.P.  Section 2 (a) of E.C. Act   defines essential commodities and in view of Section 2(b)  of the said Act  "food crops" includes crops of sugarcane.  The Central Government  exercising powers under Section 3 of the E.C. Act made the Sugarcane  Control Order, 1955.  Clause 3(a) of this Order laid down that the Central  Government may, after consultation with such authorities, bodies or  associations as it may deem fit, by notification in the Official Gazette, fix in  respect of an area the price or the minimum price to be paid by producers of  sugar for sugarcane purchased by him.  This order was repealed by the  Sugarcane (Control) Order, 1966 (for short ’1966 Order’)  and  Clause 2(g)  and (i) and sub-clauses (1),(2),(3) of Clause 3 thereof are being  reproduced  below: 2(g)    "price" means the price or the minimum price fixed by                                           the Central Government, from time to time, for sugarcane  delivered \026

(i)     to a sugar factory at the gate of the factory or at a  sugarcane purchasing center; or  

(ii)    to a khansari unit;

(i)     "producer of sugar" means a person carrying on the                    business of manufacturing sugar by vacuum pan process

3.      Minimum price of sugarcane payable by producer of  sugar \026(1) The Central Government may, after consultation  with the authorities, bodies or associations as it may deem fit,  by notification in the official Gazette, from time to time, fix the  minimum price of sugarcane to be paid by producers of sugar or  their agents for the sugarcane purchased by them, having regard  to -

(a)     the cost of production of sugarcane;

(b)     the return to the grower from alternative crops and  the general trend of prices of agricultural  commodities;

(c)     the availability of sugar to the consumers at a fair  price;

(d)     the price at which sugar produced from sugarcane  is sold by producers of sugar; and  

(e)     the recovery of sugar from sugarcane:

       Provided that the Central Government or, with the  approval of the Central Government, the State Government,  may, in such circumstances and subject to such conditions as  specified in Clause 3-A, allow a suitable rebate in the price so  fixed.

Explanation \026 (1)    Different prices may be fixed for different  areas or different qualities or varieties of sugarcane.

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(2)     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).

(3)     Where a producer of sugar purchases any sugarcane from  a grower of sugarcane or from a sugarcane grower’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  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  factory  or at the cane collection center or transfer or deposit the  necessary amount in the Bank account of the seller or the co- operative society, as the case may be.

12.     The 1966 Order has been amended several times by the Central  Government.  Sub-clause 3 of Clause 3 was substituted on 18.5.1968,   Clause 3-A relating to rebate that can be deducted from the price paid for the  sugarcane was inserted on 24.9.1976 and Clause 5-A was inserted on  25.9.1974.  The definition of ’price’ given in Clause 2(g) shows that it can  either be the price or the minimum price fixed by the Central Government.   Clause 3(3) deals with payment of 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.   Clause 3-A which deals with rebate that can be deducted from the  price paid for sugarcane also refers to  either the minimum price of  sugarcane fixed under Clause 3 or the price agreed to between the producer  and the sugarcane grower or the sugarcane growers’ co-operative society. So  far as the power of the Central Government is concerned,  under Clause 3(1)  it can  fix only the "minimum price" of sugarcane to be paid by producers of  sugar for the sugarcane purchased by them.  This is the lowest permissible  rate.  The effect of Clause 3(2) is that a producer of sugar can under no  circumstances purchase sugarcane at a price lower than the minimum price  fixed under Clause 3(1) and there is a similar prohibition on the cane grower  and he cannot sell or agree to sell sugarcane to a producer of a sugar below  the said price.  But the 1966 Order, in view of definition of  "price" given in  Clause 2(g) and also the language used in Clauses 3 and 3-A, clearly  contemplates that there can be a price other than the "minimum price" of  sugarcane fixed under Clause 3(1), namely, the "price agreed to between the  producer and the sugarcane grower or the sugarcane growers’ co-operative  society".  Clause 5-A lays down that where a producer of sugar purchases  sugarcane from a grower of sugarcane during each sugar year, he shall in  addition to the minimum sugarcane price fixed under Clause 3 pay to the  sugarcane grower an additional price, if found due in accordance with the  provisions of the Second Schedule   This additional price is to be calculated  in accordance with the formula given in Second Schedule and is dependent  upon the value of the sugar produced and the profits made and in effect it is  a sharing of profits.  Sub-clause (5) of Clause 5-A lays down that no  additional price determined under sub-clause (2)  shall become payable by a  producer of sugar who pays a price higher than the "minimum sugarcane  price" fixed under Clause 3 to the sugarcane grower, if the same is not less  than the total of the price fixed under Clause 3(1) and additional price  determined under Clause 5-A (2). This provision again contemplates  payment of price higher than the minimum price fixed under Clause 3 (1).  A  whole reading of the 1966 Order would, therefore, show that the Central  Government shall fix the minimum price of sugarcane but there can be a  price higher than the minimum price which may be in the nature of agreed  price between the producer of sugar and the sugarcane grower or the  sugarcane growers’ co-operative society.  So the field for a price higher than  the minimum price is clearly left open in the 1966 Order made by the

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Central Government.

13.     The U.P. legislature enacted the U.P.  Sugarcane (Regulation of  Supply and Purchase) Act, 1953 (for short ’the 1953 Act’) which was  published in Gazette on 9.10.1953.  Sections 2(a), 2(n), 15 and 16 of this   Act read as under:- Section 2(a) "assigned area" means an area assigned to a  factory under Section 15;

Section 2(n) "Reserved area" shall mean the area reserved for a  factory under an Order for reservation of Sugarcane areas made  under Rule 125-B of the Defence of India Rules, 1962, and  when no such order is in force, the area specified in an order  made under Section 15.

"15.    Declaration of reserved area and assigned area \026 (1)  Without prejudice to any order made under Clause (d) of sub- section (2) of Section 16, the Cane Commissioner may, after  consulting the Factory and Cane-growers Co-operative Society  in the manner to be prescribed \026

(a)     reserve any area (hereinafter called the reserved area),  and

(b)     assign any area (hereinafter called an assigned area),

for the purposes of the supply of cane to a factory in accordance  with the provisions of Section 16 during one or more crushing  seasons as may be specified and may likewise at any time  cancel such order or alter the boundaries of an area so reserved  or assigned.

(2)     Where any area has been declared as reserved area for a  factory, the occupier of such factory shall, if so directed by the  Cane Commissioner, purchase all the cane grown in that area,  which is offered for sale to the factory.   

(3)     Where any area has been declared as assigned area for a  factory, the occupier of such factory shall purchase such  quantity of cane grown in that area and offered for sale to the  factory, as may be determined by the Cane Commissioner.

(4)   An appeal shall lie to the State Government against the  order of the Cane Commissioner passed under sub-section (1).

16.     Regulation of purchase and supply of cane in the  reserved and assigned areas \026 (1) The State Government may,  for maintaining supplies, by order, regulate -

(a)     the distribution, sale or purchase of any cane in any  reserved or assigned area;  and

(b)     purchase of cane in any area other than a reserved or  assigned area.

(2)  Without prejudice to the generality of the foregoing powers  such order may provide for -

(a)     the quantity of cane to be supplied by each Cane-grower  or Cane-growers’ Cooperative Society in such area to the  factory for which the area has so been reserved or  assigned;

(b)     the manner in which cane grown in the reserved area or  the assigned area, shall be purchased by the factory for

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which the area has been so reserved or assigned and the  circumstance in which the cane grown by a cane-grower  shall not be purchased except through a Cane-growers’  Co-operative Society;

(c)     the form and the terms and conditions of the agreement  to be executed by the occupier or manager of the factory  for which an area is reserved or assigned for the purchase  of cane offered for sale ;

(d)     the circumstances under which permission may be  granted \026

(i)     for the purchase of cane grown in reserved or  assigned area by a Gur, Rab or Khandsari  Manufacturing Units or any person or factory other  than the factory for which area has been reserved  or assigned; and

(ii)    for the sale of cane grown in a reserved or assigned  area to a Gur, Rab or Khandsari Manufacturing  Unit or any person or factory other than the factory  for which the area is reserved or assigned ;

(e)     such incidental and consequential matters as may appear  to be necessary or desirable for this purposes."

14.     In exercise of the power conferred by Section 28 of the 1953 Act, the  State Government has made U.P. (Regulation of Supply and Purchase)  Rules, 1954 (for short ’the Rules’).   Rule 21 lays down that the occupier of  a factory shall by August 31, each year, apply to the Cane Commissioner in  Form I, Appendix III, for the reservation or assignment of an area for supply  of cane to the factory during the ensuing crushing season. There is a specific  column viz. Item No.6 in Form I Appendix III wherein  details  of purchases,  if any, made at more than the minimum cane price during the last crushing  season have to be given.  Here the occupier has to fill in the quantity of  sugarcane which was purchased at a price more than the minimum price and  also the amount of increase  over and above the minimum price. Thus  payment of higher price and quantum of sugarcane so purchased is a factor  which is taken into consideration while reserving or assigning an area in  favour of a sugar factory.  Rule 38-A enjoins that at every purchasing centre  at least one  weighment clerk shall be appointed and deputed by the occupier  of a factory who is required to weigh the sugarcane and calculate the cane  price correctly.  Similarly under sub-rule (4) of this Rule the cane growers  co-operative society is required to appoint one society clerk at every  purchasing centre who has to carefully watch  and check the wieghment of  cane and also examine the parcha in which weight and price of cane are   recorded.  Rule  94(b) requires occupier of a factory to put up at each  purchasing centre a notice in Devnagri script, showing the minimum price of  cane fixed by Government and also the rates at which cane is being  purchased at the centre.  Rule 96 (1)(i) (j) lays down that no occupier of a  factory shall purchase cane without preparing or causing to be prepared at  the purchasing centre a parcha in quadruplicate showing correctly the rate at  which the sugarcane is purchased and the price that has to be paid for the  sugarcane at that rate.  Rule 100 requires an occupier of a factory to maintain  in respect of each sugarcane grower (except in respect of cane purchased  through a cane growers’ co-operative society) a detailed  account containing  several items including the net weight of cane purchased and the rate per  quintal paid for sugarcane.     

15.      In exercise of power conferred by Section 16 of the Act, the State  Government has made UP Sugarcane (Regulation of Supply and Purchase)  Order, 1954 (hereinafter referred to as  1954 Order).  Clause 3-A of this  Order provides for purchase of cane in reserved area and Clause 4 provides

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for purchase of cane in an assigned area.  Clause 3(2) lays down that a cane  grower or a cane growers’ co-operative society may within 14 days of the  issue of an order reserving an area for a factory, offer to supply cane grown  in the reserved area to the occupier of the factory in Form A of the  Appendix.  Clause 3(3) and Clause 4 (1) lay down that the occupier of the  factory for which an area has been reserved or assigned shall within fourteen  days of the receipt of the order enter into an agreement in Form B or Form C  of the Appendix, with the cane grower or the cane growers’ co-operative  society, as the case may be, in respect of the cane offered.  Clause 5 (1) lays  down that cane grown in the reserved or assigned area shall not, except with  the permission of the Cane Commissioner, be purchased by any person  without the previous issue of requisition slips and identification cards to the  growers by the occupier of the factory.  Sub-clauses (2) and (3) of Clause 5  mandate that the  requisition slips and identification cards to the members of  cane growers’ co-operative society shall not be issued except by such society  and records of the same have to be maintained by the occupier of the factory  and also by the cane growers’ co-operative society.  Clause 5(4) lays down  that purchase of cane shall be spread over the entire crushing season in an  equitable manner and Clause 5(7) lays down that no person shall transfer or  abet the transfer of requisition slips for the cane of a grower to another  person.

16.    The  proforma of the agreement regarding sale and purchase of cane  which is to be executed between a cane grower and the occupier of a factory   is given in Form B and that  between cane growers’ co-operative society and  the occupier of a factory is given in Form C and they mention the terms  thereof. Para 1 of Form B contains the agreement of the sugarcane grower   to sell his sugarcane crop (giving details of area and approximate yield) to  the occupier of the factory at the minimum price notified by the Government  and on such dates as may be specified in requisition slips issued by the said  occupier.  Para 2 provides that the cane shall be taken by the factory in  installments equitably spread over the whole working period of factory.   Para 3 provides that in the event of  willful failure to supply at least 85 per  cent of the agreed quantity of sugarcane, the cane grower shall be liable to  pay the factory compensation at the rate not exceeding thirty-three naya  paise per quintal on such deficit.  Para 4 provides that in case the cane  grower willfully fails to supply sugarcane to the factory on three consecutive  occasions according to the requisition made by the factory, he shall cease to  have a claim to sell cane to the factory.  Para 6 is important and it provides   that in the event of a break down at the factory or of other circumstances due  to natural causes, calamities, accident beyond human control arising to show  that the factory will not be able to purchase the cane  it has agreed to  purchase, the cane grower, after giving a week’s notice to the occupier  of  the factory and with the previous permission of the Cane Commissioner  shall have the option of making other arrangements for the disposal of the  cane and in such case no compensation shall be payable by either party to  the other.  

17.     Form C is the proforma of the agreement which has to be executed   between the  cane growers’ co-operative society and the occupier of a  factory regarding sale and purchase of sugarcane. Para 1 of this proforma  contains the agreement of  the society  to sell sugarcane (giving details of the  area and the quality) to the factory at the minimum price notified by the  Government and the supply has to be made in such quantities and on such  dates as may be specified in the requisition slips issued by the occupier. It  also contains a proviso that the price payable by the factory to the society  shall not in any case be lower than that paid generally by the factory to other  growers of the villages in which co-operative society operates.  The  remaining paragraphs of the agreement are almost similar to that of  proforma in Form B regarding supply of cane being taken by the factory in  installments equitable spread over the whole working period of the factory,  compensation to be paid by society to the factory in the event of deficit and  the right of the society to make other arrangements for the disposal of the  cane with the previous permission of the Cane Commissioner in the event of  break down or happening of other circumstances where under factory is

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unable to purchase the sugarcane.

18.    A sugar factory normally runs in shifts for the whole day during the  crushing season and it needs a continuous supply of freshly harvested  sugarcane according to its daily crushing capacity which should be spread  over the entire crushing season of about six months. The  U.P. Sugarcane  (Regulation of  Supply and Purchase) Act, 1953,  U.P. Sugarcane  (Regulation of Supply and Purchase) Rules, 1954 and the U.P. Sugarcane  Supply and Purchase Order, 1954, have been made to achieve that object.   Any shortfall in supply of sugarcane to sugar factory will seriously affect its  production resulting in huge losses. Therefore, the first and foremost  requirement for the profitable running of the sugar factory is that it should  get adequate quantity of sugarcane everyday throughout  the crushing season  and for ensuring this, a system of reserving or assigning an area in favour of  sugar factory has been evolved under Section 15 of the Act.  The reservation  of an area ensures the supply of the entire sugarcane grown therein  to the  factory in whose favour it has been reserved.  Similarly the assignment of an  area ensures the supply of  such quantity of sugarcane  to the factory in  whose  favour it has been assigned as may be determined by the Cane  Commissioner.  Another advantage to the sugar factory is that sugarcane  from its reserved or assigned area cannot be sold to any other factory in the  vicinity even if it offers a higher price to a grower.  This arrangement does  not allow the market forces to operate and thereby completely avoids  competition amongst the sugar factories which could lead to escalation in  prices.  It is common knowledge that every sugar factory is keen to have the  maximum area reserved  or assigned for it so that it may get adequate raw  material.  Sugarcane requires a particular type of soil and climatic condition  and cannot be grown everywhere.  The sugar factories are established in the  sugar producing belt in close proximity with each other  and very often there  are competing claims for reservation or assignment of an area in their  favour.  It is for this  reason that an appeal is provided under Section 15(4)  of the Act against an order made under Section 15(1) of the Act by the Cane  Commissioner   reserving or assigning an area in favour of sugar factory.   Once an area is reserved in favour of a factory the cane grower in the said  area  or the cane growers’ co-operative society operating therein gets tied to  that factory and has to compulsorily  enter into an  agreement in prescribed  proforma (Form B or Form C) given in the Appendix to 1954 Order.     In  view of Clause 5 of the said Order cane grown in the reserved or assigned  area cannot be purchased by anyone without the previous issue of requisition  slips and identification cards to the growers by the occupier of the factory  and in the case of members of the cane growers co-operative society by such  society.  Since the requisition slips are non-transferable and  they are issued  by the sugar factory according to its requirement of sugarcane, it thereby  completely controls the purchase of sugarcane from a reserved or assigned  area.  The terms of the agreement in Form B and Form C are also quite  stringent as in the event of failure to  supply  at least eighty-five per cent of  the agreed quantity of sugarcane the cane grower or the cane growers’ co- operative society has to pay  compensation.  Even in the event of a break  down in the factory or its inability to purchase due to calamities or  circumstances beyond human control, the cane grower or the cane growers’  co-operative society is not at liberty to make any other arrangement for  disposal of cane except after giving a week’s notice to the factory and  obtaining prior permission of the Cane Commissioner.  Here too no  compensation is payable by the factory to the cane grower or the cane  growers’  co-operative society for the loss which may be suffered on this  account.   

19.     The provisions referred to above have been made for the benefit  of  the sugar factory so that it is assured of and gets a continuous supply of  freshly harvested sugarcane in quantity according to its crushing capacity  and for the whole duration of the crushing season.  No doubt the cane  grower also gets some advantage in the sense that purchase of his yield is  assured but at the same time many limitations and restrictions are imposed  upon him.  In view of the aforesaid statutory provisions, the position of a  cane grower becomes entirely different from that of  a farmer producing any

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other kind of  agricultural crop where there are absolutely no restrictions  upon him.  He is at absolute liberty to harvest his crop at his convenience   without being dictated by a third party, to sell it to  anyone whomsoever he  likes and whenever he wants.   It is in this  scenario, which is not the  creation of the cane grower but of   the statutory provisions operating in the  field, that we have to examine the question whether the State has any  authority or power to fix the price of the sugarcane supplied to a producer of  sugar (sugar factory).   

20.   The preamble of U.P. Sugarcane (Regulation of Supply and Purchase)  Act, 1953 is \026 an Act to regulate the supply and purchase of sugarcane  for  use in sugar factories, gur, rab or khandsari sugar manufacturing units.  The  various provisions of the Act show in unmistakable terms that it regulates  the supply and purchase of sugarcane required for use in sugar factories.   ’Regulate’ means to control or to adjust by rule or to subject to governing  principles. It is a word of broad impact having wide meaning  comprehending all facets not only specifically enumerated in the Act, but  also embraces  within its fold the powers incidental to the regulation  envisaged in good faith  and its meaning has to be ascertained in the context  in which it has been used and the purpose of the statute.          

21.     In State of Tamilnadu v. M/s. Hindu Stone & Ors. 1981 (2) SCC 205  it was held that regulation must receive so wide an amplitude so as to impute  prohibition within its fold.  It will be useful to reproduce the relevant part of  para 10 of the Report wherein this principle was succinctly stated by  Chinappa Reddy, J. in following words:-

"\005\005\005 We do not think that ’regulation’ has that rigidity of  meaning as never to take in ’prohibition’.   Much depends on  the context in which the expression is used in the statute and the  object sought to be achieved by the contemplated regulation.   It  was observed by Mathew, J. in G.K. Krishnan v. State of Tamil  Nadu, 1975 (1) SCC 375 : "The word ’regulation’ has no fixed  connotation.   Its meaning differs according to the nature of the  thing to which it is applied".   In modern statutes concerned as  they are with economic and social activities, ’regulation’ must,  of necessity, receive so wide an interpretation that in certain  situations, it must exclude competition to the public sector from  the private sector.  More so in a welfare State.  It was pointed  out by the Privy Council in Commonwealth of Australia v.  Bank of New South Wales, (1949) 2 All ER 755 (PC) \026 and we  agree with what was sated therein \026 that the problem whether  an enactment was regulatory or something more or whether a  restriction was direct or only remote or only incidental  involved, not so much legal as political, social or economic  consideration and that it could not be laid down that in no  circumstances could the exclusion of competition so as to create  a monopoly, either in a State or Commonwealth agency, be  justified.  Each case, it was said, must be judged on its own  facts and in its own setting of time and circumstances and it  might be that in regard to some economic activities and at some  stage of social development, prohibition with a view to State  monopoly was the only practical and reasonable manner of  regulation.   The statute with which we are concerned, the  Mines and Minerals (Development and Regulation) Act, is  aimed, as we have already said more than once, at the  conservation and the prudent and discriminating exploitation of  minerals.  Surely, in the case of a scarce mineral, to permit  exploitation by the State or its agency and to prohibit  exploitation by private agencies is the most effective method of  conservation and prudent exploitation.  If you want to conserve  for the future, you must prohibit in the present.  We have no  doubt that the prohibiting of leases in certain cases is part of the  regulation contemplated by Section 15 of the Act."

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         Again in K. Ramanathan v. State of Tamilnadu & Anr. 1985 (2) SCC  116 it was held that the word ’regulation’ cannot have any rigid or inflexible  meaning so as to exclude prohibition. It is a word of broad import, having a  broad meaning and is very comprehensive in scope.  It was further held that  the power to regulate carries with it full power over the thing subject to  regulation and in absence of restrictive words, the power must be regarded  as plenary over the entire subject.  It implies the power to rule, direct and  control, and involves the adoption of a rule or guiding principle to be  followed or the making of a rule with respect to the subject to be regulated.    It has different shades of meaning and must take its colour from the context  in which it is used having regard to the purpose and object of the legislation.  

22.     In VSR & Oil Mills Vs. State of A.P. AIR 1964 SC 1781 agreements  for a period of ten years had been executed for supply of electricity and the  same did not contain any provision authorising the Government to increase  the rates during their operation.  However the State Government issued  orders enhancing the agreed rates exercising power under Section 3(1) of  Madras Essential Articles Control & Requisitioning (Temporary Powers)  Act, 1949 which reads as under: "\005\005\005The State Government so far as it appears to  them to be necessary or expedient for maintaining,  increasing or securing supplies of essential articles or for  arranging for their equitable distribution and availability  at fair prices may, by notified order, provide for  regulating or prohibiting  the supply, distribution and  transport of essential articles and trade and commerce  therein."

          The enhancement in rates was challenged on the ground that any  increase in agreed tariff was out of the purview of Section 3(1).  Chief  Justice Gajendragadkar, speaking for the Constitution Bench, held as under: "The word regulate is wide enough to confer power on  the State to regulate either by increasing the rate or  decreasing the rate, the test being what is it that is  necessary or expedient to be done to maintain, increase,  or secure supply of the essential articles in question and  to arrange for its equitable distribution and its availability  at fair prices.  The concept of fair prices to which Section  3 (1) expressly refers does not mean that the price once  fixed must either remain stationary, or must be reduced  in order to attract the power to regulate.  The power to  regulate can be exercised for ensuring the payment of a  fair price, and the fixation of a fair price would inevitably  depend upon a consideration of all relevant and economic  factors which contribute to the determination of such a  fair price.  If the fair price indicated on a dispassionate  consideration of all relevant factors turns out to be higher  than the price fixed and prevailing, then the power to  regulate the price must necessarily include the power to  increase so as to make it fair.  Hence the challenge to the  validity of orders increasing the agreed tariff rate on the  ground that they are outside the purview of Section 3(1)  cannot be sustained."      

           In Jiyajeerao Cotton Mills Ltd. & Anr. v. Madhya Pradesh Electricity  Board & Anr. 1989 (Suppl) 2 SCC 52 the validity of the orders providing for  higher charges/tariff for electricity consumed beyond legally fixed limit was  upheld in view of Section 22(b) of the Electricity Act which permits the  State Government to issue an appropriate order  for regulating  the supply,  distribution and consumption of electricity.  It was held that the Court while  interpreting the expression "regulate"  must necessarily keep in view the  object to be achieved and the mischief sought to be remedied.  The necessity  for issuing the orders arose out of the scarcity of electricity available to the  Board for supplying to its customers and, therefore, in this background the  demand for higher charges/tariff was held to be a part of a regulatory

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measure.   In Quarry Owners’ Association v. State of Bihar 2000(8) SCC  655 the question which required consideration was whether the State  Government had the power to fix the rate of royalties in Mines and Minerals  (Regulation and Development) Act, 1957.  The Court after taking note of the  fact that the words "regulation of mines and mineral development" are  incorporated both in the Preamble and the Statement of Objects and Reasons  of the Act held that the word "regulation" may have different meaning in  different context but considering it in relation to the economic and social   activities including the development and excavation of mine, the fixation of  the rate of royalties would also be included within its meaning. In Deepak  Theatre, Dhuri v. State of Punjab & Ors. (1992) Supp. 1 SCC 684 while  interpreting the Cinemas Regulations Act, 1952  and having regard to the  preamble  thereto \026 an Act to make provision for regulating exhibition of  cinematographs -  it was held that classification of seats and fixation of rates  of admission according to paying capacity of a cinegoer is also an integral  power of regulation and, therefore,  fixation of rates of admission became a  legitimate ancillary or incidental power in furtherance of the regulation  under the Act.

23.     The  1953 Act,  the  Rules and 1954 Order substantially deal with sale  and  purchase  of sugarcane.   Section 16 (1) provides that the State  Government may, for maintaining supplies, by order, regulate sale or  purchase of cane in any reserved or assigned area or purchase of cane in area  other than a reserved or assigned area.   Section 16(2)(b) of the Act lays  down that the order may provide for the manner in which cane grown in a  reserved or assigned area shall be purchased by the factory and the  circumstances in which cane grown by canegrowers shall not be purchased  except through a canegrowers’ cooperative society.   Section 17 enjoins  speedy payment of the price of cane purchased by occupier of a factory,  payment of interest where default occurs for a  period exceeding 15 days  from the date of delivery and recovery of amount by the Collector as arrears  of land revenue on a certificate issued by the Cane Commissioner.  Rule 38- A requires  weighment clerk to calculate the cane price correctly after  weighment of cane and the clerk appointed by the society to examine that  the weight and price are correctly recorded in the parchas.  Rule 96  mandates  that cane shall not be purchased at the purchasing centre without  preparing a parcha in quadruplicate mentioning amongst others the rate at  which the cane is purchased and the price that has to be paid for the same    and Rule 100 casts a duty upon the occupier of the factory to maintain  separately for each canegrower a complete account of several items  including the rate per quintal paid for cane.

24.     Sugarcane supplied to sugar factory are "goods" within the meaning  of  Section 2(7) of Sale of Goods Act.   Sub-section (1) of Section 4 of Sale  of Goods Act provides that a contract of sale of goods is a contract whereby  the seller transfers or agrees to transfer the property in goods to the buyer for  a price.   Sub-section (3) of the same Section provides that where under a  contract of sale the property in the goods is transferred from the seller to the  buyer, the contract is called a sale, but where the transfer of property in the  goods is to take place at a future time or subject to some conditions  thereafter to be specified, the contract is called an agreement to sell.    Section 5 provides that a contract of sale is made by an offer to buy or sell  goods for a price and the acceptance of such offer.   These provisions show  that price is an essential element of sale of goods.          25.     In Popatlal Shah v. State of Madras 1953 SCR 677 it was held by a  Constitution Bench that the expression "sale of goods" is a composite  expression consisting of various ingredients or elements.  There are the  elements of a bargain or contract of sale, the payment or promise of payment  of price, the delivery of goods and the actual passing of title and each one of  them is essential to a transaction of sale though the sale is not completed or  concluded unless the purchaser becomes the owner of property.  In State of  Madras v. Gannon Dunkerley 1958 SCR 379 (at page 397) it was observed  that according to the law both of England and of India, in order to constitute  a sale it is necessary that there should be an agreement between the parties

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for the purpose of transferring title to the goods which, of course,  presupposes capacity to contract, that it must be supported by money  consideration and that as a result of the transaction property must actually  pass in the goods.   Unless all these elements are present, there can be no  sale. The law is, therefore, well settled that in a matter relating to sale of  movable property or goods, price is an essential element of the transaction.    

26  The Preamble of the 1953 Act says "An Act to regulate the supply and  purchase of sugarcane required for use in sugar factories \005..."  The   provisions of the Act  referred to above also show that the legislature has  made very elaborate provisions regarding  supply of sugarcane by  canegrowers, its purchase by the sugar factories and payment of price  thereof.   In fact, very detailed and exhaustive provisions have been made in  the Rules and the 1954 Order to ensure that at the time of delivery of  sugarcane by the canegrowers, its weight and price is correctly recorded and  the price is paid to them  within 14 days, failing which sugar factory is liable  to pay interest.   In such circumstances, the irresistible conclusion which can  be drawn is that the regulatory power possessed by the State Government  shall also include the power to fix the price of the sugarcane.  If it is held  that the State  under its power of regulation cannot fix the price, then the  statutory provision contained in the 1953 Act, the Rules and 1954 Order will  become completely one sided, operating entirely for the benefit of sugar  factories giving them many advantages with no corresponding obligations  and leaving the canegrorwer in a lurch with host of restrictions upon him.    This can never be the intention of the Legislature.   It will not be fair to read  the Act and the Rules in such a restrictive manner, whereby the provisions  made for the benefit of the canegrowers become wholly illusory.

27.     It has been urged by learned counsel for respondents that the  expression "at the minimum price notified by Government" used in the  proforma of the agreement which is to be executed between a canegrower  and the occupier of the factory as  given in Form B and that which is to be  executed between a canegrowers’ cooperative society and the occupier of  the factory as  given in Form C in the appendix to 1954 Order  indicates that  it is only the minimum price fixed by the Central Government which can be  the  consideration or price for the sale of sugarcane to the sugar factory.     Strong reliance in support of this submission has  been placed upon certain  observations made by this Court in Ch. Tika Ramji & Ors. v. State of Uttar  Pradesh & Ors., 1956 SCR 393.  The proforma of agreement viz. Forms B  and C are contained in the appendix to U.P. Sugarcane Supply and Purchase  Order, 1954.   This Order has been made by U.P. Government in exercise of  the power conferred by Section 16 of the 1953 Act, which provides that the  State Government may for maintaining supplies by Order regulate the  distribution, sale or purchase of cane in any reserved or assigned area, etc.     The Order having been made by the State Government in exercise of  a   power conferred by an Act made by U.P. legislature, the only logical  inference which can be  drawn is that the word "Government" refers to State  Government.   There is no indication in the proforma of the agreement or in  the 1954 Order that the word "Government" would refer to Central  Government.   If the State Government is prescribing a proforma of an  agreement which is  to be executed by a canegrower  or a canegrowers’  cooperative society and the occupier of the factory regarding sale and  purchase of sugarcane wherein the word "Government" is used, it can only  mean the State Government and not the Central Government unless there is  clear indication to the contrary.

28.     The observations made in Tika Ramji (supra), strong reliance on  which is placed by learned counsel for the respondents, have to be  understood in the context in which they were made.   It may be noted that  the writ petitions in the said case were filed in this Court in the year 1954  and the judgment was delivered on 24.4.1956.   At the relevant time, it was  the Sugarcane (Control) Order, 1955 which was in operation.   Clause 3 of  this Order empowered the Central Government to fix the price or the  minimum price to be paid by a producer of sugar for sugarcane purchased by  him.   The 1955 Order has been repealed by Sugarcane (Control) Order,

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1966 and Clause 3 of this Order provides that the Central Government may  fix the minimum price  of sugarcane to be paid by producers of sugar.    There is a difference between "the price" which is a fixed amount and "the  minimum price" which only indicates the lowest permissible rate.   The 1966  Order which itself was made by the Central Government more than a decade  after the judgment was rendered in Tika Ramji was amended in 1978 and  Clauses 3(3) and 3-A thereof contemplate an "agreed price" which in view  of the mandate of Clause 3(2) is bound to be higher than the "minimum  price" fixed under Clause 3(1).  Naturally it is this "agreed price" which is to  be mentioned in the agreements for sale and purchase of sugarcane in Forms  B and C otherwise the very purpose of entering into agreements would be  defeated. The State Government had not fixed any price for the sugarcane  under its regulatory power by the time Tika Ramji (supra) was decided by  this Court in April, 1956 and only the Central Government had taken a step  for fixing the price.   It was in these circumstances that it was observed that  the "price fixed by the Government" would mean "the Central Government".    The observations relied upon by the learned counsel for the respondents  were made while considering the question whether there was any  repugnancy between the provisions of the Sugarcane Control Order 1955  and the 1953 Act, the Rules and 1954 Order and they should be understood  in that context.   The relevant portion of the judgment on page 434 is being  reproduced below : "The price of cane fixed by Government here only meant the  price fixed by the appropriate Government which would be the  Central Government, under clause 3 of the Sugarcane Control  Order, 1955, because in fact the U.P. State Government never  fixed the price of sugarcane to be purchased by the factories.    Even the provisions in behalf of the agreements contained in  clauses 3 and 4 of the U.P. Sugarcane Regulation of Supply and  Purchase Order, 1954, provided that the price was to be the  minimum price to be notified by the Government subject to  such deductions, if any, as may be notified by the Government  from time to time meaning thereby the Central Government, the  State Government not having made any provision in that behalf  at any time whatever.   The provisions thus made by the  Sugarcane Control Order, 1955, did not find their place either  in the impugned Act or the Rules made thereunder or the U.P.  Sugarcane Regulation of Supply and Purchase Order, 1954; and  the provision contained in Section 17 of the impugned Act in  regard to the payment of sugarcane price and recovery thereof  as if it was an arrear of land revenue did not find its place in the  Sugarcane Control Order, 1955."

       Having regard to the factual situation then existing that U.P.  Government had not fixed the price of the sugarcane, it was held that the  price of the cane fixed by the Government could only mean "Central  Government".   It has not been laid down as a principle of law that the words  "minimum price notified by Government" must necessarily mean the  minimum price fixed by the Central Government or that under no  circumstances it can mean the price fixed by the State Government.  

29.      Learned counsel for the respondent has also submitted that in order to  constitute a valid agreement, the consent of the parties thereto should be a  voluntary consent and not a consent obtained under any kind of compulsion  or duress.   It has been submitted that after the State Government makes an  announcement of a State Advised Price, the occupiers of the sugar factories  are compelled to enter into agreements with the canegrowers and  canegrowers’ cooperative societies in Forms B and C, wherein the State  Advised Price is mentioned.   The same price is also mentioned in the  parchas issued to the canegrowers.   It has been urged that the sugar  factories cannot be compelled to pay such State Advised Price even though  it may have been  mentioned in the Forms or in the parchas.   It is not  possible to accept the contention raised.  As discussed earlier, the State  Government in exercise of its regulatory power can fix the price of the

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sugarcane.   The mere fact that this price is not to the liking of the sugar  factory does not mean that it cannot form the basis for supply of sugarcane  by the canegrowers or canegrowers’ cooperative society to the sugar factory.    It is well settled that even a compulsory sale does not lose the character of a  sale.   This question has been examined in considerable detail by a  Constitution Bench in Indian Steel & Wire Products Ltd. v. State of Madras,  1968 (1) SCR 479.  The appellant in this case  supplied certain steel products  to various persons at the instance of the Steel Controller, who exercised  powers under the Iron and Steel (Control of Production & Distribution)  Order, 1941, which was issued under the Defence of India Act, 1939.   The  appellant challenged the assessment of sales tax made on its turnover under  Madras General Sales Tax Act.   The contention of the appellant was  that it  was the Controller who determined the persons to whom the goods were to  be supplied, the price at which they were to be supplied, the manner in  which they were to be transported and the mode in which payment of price  was to be made.   In short it was said that every facet of the transaction was  prescribed by the Controller and, therefore, they could not be considered as   sales.  Sub-clause (1) of Clause 11-B of the Control Order provided that the  Controller may, by notification in the Gazette, fix the maximum price at  which any iron or steel may be sold and Sub-clause (3) of the same clause  provided that no producer or stockholder shall sell or offer for sale (and no  person shall acquire) any iron or steel at a price exceeding the maximum  price fixed under Sub-clause (1) or (2).  After review of number of  authorities, the Court held as under : "For the reasons already stated, we are unable to accept the  contention that the transactions with which we are concerned in  these cases are not sales.   Out of the four elements mentioned  earlier, three were admittedly established, namely, the parties  were competent to contract, the property in the goods was  transferred from the seller to the buyer, and price in money was  paid.   The only controversy was whether there was mutual  assent.   Our finding is that there was mutual assent in several  respects.   Hence, we agree with the High Court that the  transactions before us are sales."

30.     In Andhra Sugar Mills Ltd. v. State of Andhra Pradesh, 1968 (1) SCR  705, the question of compulsion by law to enter into an agreement was  considered by a Constitution Bench.  Under the Andhra Pradesh (Regulation  of Supply and Purchase) Act, 1961, the occupier of a sugar factory had to  buy sugarcane from canegrowers in conformity with the directions from the  Cane Commissioner.   Under Section 21 of the aforesaid Act, the State  Government had power by  notification to tax purchasers of sugarcane for  use, consumption or sale in a sugar factory and the tax was leviable subject  to a maximum rate per metric ton.  The petitioner sugar factories filed writ  petitions under Article 32 of the Constitution challenging the validity of  Section 21 mainly on the ground that as the petitioners were compelled by  law to buy cane from canegrowers, their purchases were not made under  agreements and were not taxable under Entry 54 List II having regard to  Gannon Dunkerley’s case.   The contention was repelled after a thorough  analysis of the legal position and the following observations on page 711 of  the Report show that the challenge raised by the respondents here has no  substance :         "Under Section 4(1) of the Indian Sale of Goods Act,  1930, a contract of sale of goods is a contract whereby the seller  transfers or agrees to transfer the property in goods to the buyer  for a price.   By Section 3 of this Act, the provisions of the  Indian Contract Act, 1872 apply to contracts of sale of goods  save in so far as they are inconsistent with the express  provisions of the later Act.   Section 2 of the Indian Contract  Act provides that when one person signifies to another his  willingness to do or to abstain from doing anything with a view  to obtaining the assent of the other to such act or abstinence, he  is said to make a proposal.   When the person to whom the  proposal is made signifies his assent thereto, the proposal is  said to be accepted.   A proposal when accepted becomes a

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promise.  Every promise and every set of promises forming the  consideration for each other is an agreement.  There is mutual  assent to the proposal when the proposal is accepted and in the  result an agreement is formed.   Under Section 10, all  agreements are contracts if they are made by the free consent of  parties competent to contract for a lawful consideration and  with a lawful object and are not by the Act expressly declared  to be void.  Section 13 defines consent.   Two or more persons  are said to consent when they agree upon the same thing in the  same sense.   Section 14 defines free consent.   Consent is said  to be free when it is not caused by coercion, undue influence,  fraud, misrepresentation or mistake as defined in Sections 15 to  22.   Now, under Act No.45 of 1961 and the Rules framed  under it, the cane grower in the factory zone is free to make or  not to make an offer of sale of cane to the occupier of the  factory.   But if he makes an offer, the occupier of the factory is  bound to accept it.   The resulting agreement is recorded in  writing and is signed by the parties.   The consent of the  occupier of the factory to the agreement is not caused by  coercion, undue influence, fraud, misrepresentation or mistake.    His consent is free as defined in Section 14 of the Indian  Contract Act though he is obliged by law to enter into the  agreement.   The compulsion of law is not coercion as defined  in Section 15 of the Act.   In spite of the compulsion the  agreement is neither void nor voidable.   In the eye of the law,  the agreement is freely made.  The parties are competent to  contract.   The agreement is made for a lawful consideration  and with a lawful object and is not void under any provisions of  law.   The agreements are enforceable by law and are contracts  of sale of sugarcane as defined in Section 4 of the Indian Sale  of Goods Act.   The purchases of sugarcane under the  agreement can be taxed by the State legislature under Entry 54  List II."

Again at page 712, the Court made the following observation :

       "\005\005\005 It is now realised that in the public interest,  persons exercising certain callings or having monopoly or near  monopoly powers should sometimes be charged with the duty  to serve the public and, if necessary, to enter into contracts.    Thus, Section 66 of the Indian Railways Act, 1890 compels the  railway administration to supply the public with tickets for  travelling on the railway upon payment of the usual fare.    Section 22 of the Indian Electricity Act, 1910 compels a  licensee to supply electrical energy to every person in the area  of supply on the usual terms and conditions.   Cheshire and  Fifoot in their Law of Contract, 6th Edn. p. 23 observe that for  reasons of social security the State may compel persons to  make contracts.   One of the objects of Act No.45 of 1961 is to  regulate the purchase of sugarcane by the factory owners from  the canegrowers.   The canegrowers scattered in the villages  had no real bargaining power.   The factory owners or their  combines enjoyed a near monopoly of buying and could dictate  their own terms.  In this unequal contest between the  canegrowers and the factory owners, the law stepped in and  compelled the factory to enter into contracts of purchase of cane  offered by the canegrowers on prescribed terms and  conditions."

31.     A similar question was examined by a Bench of Seven Judges in Salar  Jung Sugar Mills Ltd. v. State of Mysore & Ors., 1971 (1) SCC 23.   The  contention was that there was no mutual assent by and between the sugar  mills and the growers of the sugarcane and, therefore, there was no purchase  or sale of sugarcane and consequently no tax under Mysore Sales Tax Act  could be levied.  It was held that Statutory Orders regulating the supply and

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distribution of goods by and between the parties under Control Orders in a  State do not absolutely impinge on the freedom to enter into contract.    Legislative measures or statutory provisions fixing the price, delivery,  supply, restricting areas for transactions are all within the realm of planning  economic needs, ensuring production and distribution of essential  commodities and basic necessities of community.   The individual freedom  is to be reconciled with adequate performance by the Government of its  functions in a highly organized society.   In para 44 of the Reports it was  held as under :         "The parties choose the term of delivery.   They have  choice of obtaining a supply exceeding 95% of the yield.   They  can stipulate for a price higher than the minimum.   They can  have terms for payment in advance as well as in cash.   A  grower may not cultivate and may not have any yield.   A  factory may be closed or wound up, and may not buy any  sugarcane.   A factory can reject goods on inspection.   A  combination of all these features indicate that the parties  entered into agreements with mutual assent and with volition  for transfer of goods in consideration of price.   The  transactions amount to sales within the meaning of the Mysore  Sales Tax Act."

32.     In Sukhnandan Saran Dinesh Kumar v. Union of India & Ors., 1982  (2) SCC 150, after considering the provisions of 1966 Order and 1953 Act  made by U.P. Legislature the Court clearly ruled that in order to protect the  sugarcane growers who are not in a position to negotiate, the Government  can prescribe terms in a contract which they have to enter into with the  occupiers of sugar factories.   After elaborate discussion of the relevant  provisions, the Court expressed its view in following words in para 22 of the  Reports:  "\005\005\005The proposition is now beyond the pale of controversy  that the State can impose a restriction in the interest of general  public on the right of a party to contract where in the opinion of  the Government the contracting parties are unable to negotiate  on the footing of equality.  Constitutional validity of statutes  prescribing minimum wages has been founded on this  proposition.  The principle can be effectively extended to the  powerful sugar industry and the cane growers because the cane  growers admittedly are at a comparative disadvantage to the  producers of sugar and khandsari sugar who were described in  the course of arguments as sugar barons.  It does not require an  elaborate discussion to reach an affirmative conclusion that  sugarcane growers who are farmers cannot negotiate on the  footing of the equality with the producers of sugar and  khandsari sugar.  The State action for the protection of the  weaker sections is not only justified but absolutely necessary  unless the restriction imposed is excessive\005\005"  

33.       As discussed earlier, the reservation or assignment of area is made  for the benefit of a sugar factory.   The agreements executed by the  canegrowers or canegrowers’ cooperative society in favour of occupier of a  factory are also for the benefit of the sugar factory as by such agreements it  gets an assurance of a continuous supply of freshly harvested sugarcane on  the days indicated in the requisition slips issued by it so that there may not  be any problem in getting optimum quantity of raw material throughout the  crushing season.   In absence of the agreements the sugar factory will also be  a loser as it may face great problem in getting the supply of sugarcane  according to its requirement.   The occupiers of the factory are themselves  keen for execution of the agreements but their only objection is to the  mention of State Advised Price.   The agreement is one composite  transaction and it is not open to them to contend that the terms thereof which  are to their advantage should be enforced but the term relating to price  notified by the State Government should not be enforced as their consent in  that regard was not a voluntary act.    In our opinion, having regard to the  advantages derived by the sugar factories, they are fully bound by the

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agreement wherein the State Advised Price may be mentioned and it is not  open to them to assail the clause relating to price of the sugarcane on the  ground that their consent was not voluntary or was obtained under some  kind of duress.    

34.     Learned senior counsel for the respondents has strenuously urged that  the Central Government having made the 1966 Order which contains a  specific provision for fixation of price of sugarcane, under Clause 3(1)  thereof, the regulatory power under the 1953 Act cannot embrace within its  fold the same power of fixation of price as this will be clearly repugnant to a  law made by the Parliament and would be void in view of Article 254(1) of  the Constitution.   In Ch. Tika Ramji (supra) it has been held that the E.C.  Act under which the Central Government made the 1966 Order and the 1953  Act made by U.P. Legislature have been enacted with reference to Entry 33  of List III of the Seventh Schedule.   The constitutional validity of the 1953  Act was upheld by the Constitution Bench in the said decision.   On page  437 of the Reports the Court quoted with approval the following passage  from the judgment of Sulaiman J. in Shyamakant Lal Vs. Rambhajan Singh  1939 FCR 188 (at 212) for the principle of construction in regard to  repugnancy : "When the question is whether a Provincial legislation is  repugnant to an existing Indian law, the onus of showing its  repugnancy and the extent to which it is repugnant should be on  the party attacking its validity.  There ought to be a  presumption in favour of its validity, and every effort should be  made to reconcile them and construe both so as to avoid their  being repugnant to each other; and care should be taken to see  whether the two do not really operate in different fields without  encroachment.   Further, repugnancy must exist in fact, and not  depend merely on a possibility\005\005\005."

And then went to hold :

"In the instant case, there is no question of any inconsistency in  the actual terms of the Acts enacted by Parliament and the  impugned Act.  The only questions that arise are whether  Parliament and the State Legislature sought to exercise their  powers over the same subject-matter or whether the laws  enacted by Parliament were intended to be a complete  exhaustive code or, in other words, expressly or impliedly  evinced an intention to cover the whole field."

35.     In M. Karunanidhi v. Union of India, AIR 1979 SC 898, the principles  to be applied for determining repugnancy between a law made by Parliament  and law made by State legislature were considered by a Constitution Bench.   In pursuance of an FIR lodged against Shri M. Karunanidhi the CBI after  investigation had submitted chargesheet against him under Section 161, 468  and 471 IPC and Section 5(2) read with Section 5(1)(d) of the Prevention of  Corruption Act.   The Madras Legislature had passed an Act known as Tamil  Nadu Public Men (Criminal Misconduct) Act, 1973 which had received the  assent of the President.   It was contended that by virtue of Article 254(2) of  the Constitution, the provisions of Indian Penal Code, Prevention of  Corruption Act and Criminal Law Amendment Act stood repealed.   After  review of all the earlier authorities Court laid down the following tests : "1.     That in order to decide the question of repugnancy it  must be shown that the two enactments contain inconsistent and  irreconcilable provisions, so that they cannot stand together or  operate in the same field.   

2.      That there can be no repeal by implication unless the  inconsistency appears on the face of the two statutes.

3.      That where the two statutes occupy a particular field, but  there is room or possibility of both the statutes operating in the  same field without coming into collision with each other, no

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repugnancy results.

4.      That where there is no inconsistency but a statute  occupying the same field seeks to create distinct and separate  offences, no question of repugnancy arises and both the statutes  continue to operate in the same field."

       The same question was examined in considerable detail in M/s  Hoechst Pharmaceuticals Ltd. v. State of Bihar, AIR 1983 SC 1019 and it  was held that one of the occasion where inconsistency or repugnancy arose  was when on the same subject matter one would be repugnant to the other  and, therefore, in order to raise a question of repugnancy, two conditions  must be fulfilled.   The State law and the Union law must operate on the  same field and one must be repugnant or inconsistent with the other and  these are cumulative conditions.   In National Engineering Industries Ltd. v.  Sri Kishan Bhageria & Ors., AIR 1988 SC 329, Sabyasachi Mukharji, J.  opined that the best test of repugnancy is that if one prevails, the other  cannot prevail.    

36.     In S. Satyapal Reddy & Ors. v. Govt. of A.P. & Ors., 1994 (4) SCC  391, the question was examined in the context of prescription of a higher  qualification by the State Government.  The service rule made by the Central  Government prescribed a diploma in Mechanical Engineering as the  minimum qualification for appointment on the post of Assistant Motor  Vehicles Inspector while the rule made by the State Government required a  degree in Mechanical Engineering or certain other alternative qualifications.    The challenge made by the diploma holders was negatived and it was held  that prescribing a higher qualification did not give rise to any inconsistency  or repugnancy as both the rules could operate harmoniously and effect could  be given to both of them.   Similarly, in Dr. Preeti Srivastava v. State of  M.P. & Ors, 1999 (7) SCC 120, it was held that laying down higher  eligibility qualification  by the State Government for admission to Post  Graduate Medical Courses did not lead to any kind of repugnancy.   

37.     Under Sub-section (1) of Clause 3 of the 1966 Order, the Central  Government can only fix a minimum price of sugarcane.   This clause  should be read along with Sub-clause (2) which creates an embargo or  prohibition that no person shall sell or agree to sell sugarcane to a producer  of sugar and no such producer shall purchase or agree to purchase sugarcane  at a price lower than that fixed under Sub-clause (1).   The inconsistency or  repugnancy will arise if the State Government fixed a price which is lower  than that fixed by the Central Government.  But, if the price fixed by the  State Government is higher than that fixed by the Central Government, there  will be no occasion for any inconsistency or repugnancy as it is possible for  both the orders to operate simultaneously and to comply with both of them.   A higher price fixed by the State Government would automatically comply  with the provisions of Sub-clause (2) of Clause 3 of 1966 Order.   Therefore,  any price fixed by the State Government which is higher than that fixed by  the Central Government cannot lead to any kind of repugnancy.

38.     The decisions of this Court touching the controversy in hand may now  be examined.   In Maharashtra Rajya Sahkari Sakkar Karkhana Sangh Ltd.  & Ors. v. State of Maharashtra & Ors. 1995 Supp. (3) SCC 475 (paras 11,  12, 21), R.M. Sahai, J. speaking for a Three Judge Bench held that the entire  process of price fixation can be divided into three stages.   The first is the  fixation of what is known as the minimum ex-factory price by the Central  Government under 1966 Order for all the  sugar factories in the country  linking it with basic recovery of 8.5 per cent with a proportionate increase  for every 0.1 per cent extra recovery.   The second is the State Advised Price  and every State has its own method to determine it.   The power is assumed  under the Acts of the State Legislature or Orders issued by the Government  and in State of U.P. it is done by Orders issued under the U.P. Sugarcane   (Regulation of  Supply and Purchase) Act, 1953.   The third is the price paid  at the end of the season.   The Bhargava Commission had recommended the  payment of additional price at the end of the season on 50-50 profit sharing

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basis between growers and factories to be worked out in accordance with  Second Schedule to the 1966 Order.   In paragraph 21, it was observed as  under : "\005\005\005The price is fixed, may be, by the Board of Directors or  by the State Government under bye-laws but the prices are for  the reserved area.   The Central Government did not fix any  maximum price obviously because the conditions in the  agricultural sector differed from State to State.   Therefore, it  having fixed a minimum price expects the State to offer  remunerative price to its cultivators.  In a controlled economy  the price fixation machinery is to be determined by the State  Government or under the 1966 Order in the manner provided  therein.   Since in Maharashtra 95% of the sugar factories are in  the cooperative sector the price is fixed by the Government as it  has substantial financial stake.  But so long the price fixation  does not suffer from any infirmity or it is held to be prejudicial  to the cane-growers so as to benefit the State or the financial  institution it cannot be held to be bad\005\005\005\005\005"

       The next is State of M.P. v. Jaora Sugar Mills Ltd. & Ors., 1997 (9)  SCC 207, which has been decided by a Bench of two judges.   The dispute  arose on account of fixation of price under the M.P. Sugar (Regulation of  Supply and Purchase) Act, 1958.   The contention on behalf of the sugar  factories was that Clauses 3 and 5-A of the 1966 Order determine the  liability to pay the price and additional price and the Central Government  having determined the price of the sugarcane under the aforesaid Order,  there is no power with the State Government de hors the Order to fix any  agreed price.   The concept of  agreed  price  came into force on 19.9.1976  by virtue of Clause 3-A of the said Order and until then there was no power  to fix an agreed price.   It was also urged that the State Government has,  therefore, no power under the Act to fix any price as the field was occupied  by the 1966 Order.   The contention was, however, not accepted and after  noticing the provisions of Clauses 3(2) and 3(3), it was held as under in para  8 of the Reports : "8.     This would clearly indicate that despite the fixation of  minimum price under clause 3(1), 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 fixed by the Central Government under  clause 3(1).   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 clause 3(2) which speaks of the  contract between the parties for payment of higher price of  sugarcane fixed under sub-clause (1) of clause 3 pursuant to the  agreement or pursuant to the minimum price fixed by the  Central Government under clause 3(1) of the Order."

It was observed in paras 9 and 10 that there was no prohibition for  the  canegrowers and occupiers of the sugar factories in entering into oral  agreement through the service of the Cane Commissioner, a statutory  authority, who could  effect such an agreement. The agreement would not be  tainted with compulsion but in novation of the minimum price fixed under  the 1966 Order.    After noticing the provisions of the M.P. Act, which are  some what similar to U.P. Act, it was held as under in para 13 of the  Reports:      "13.       It would thus be clear that the Cane  Commissioner having power to compel the cane-growers  to supply cane to the factory or khandsari unit, he has  incidental power and is 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

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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."

       SKG Sugar Ltd. v. State of Bihar 1997 (9) SCC 362 is a decision by  the Bench of three judges and deals with the effect of 1966 Control Order  and the Bihar Sugarcane (Regulation of Supply and Purchase)  Act, 1981.    It was clearly ruled  that the provisions of 1966 Order do not show that there  is any prohibition on the factory or the association of factories entering into  an agreement to pay higher price than the minimum price prescribed under  the Order and the object of the Order is to ensure that the canegrowers  should not be compelled to sell their sugarcane at a price lower than the  minimum price fixed by the Central Government under Clause 3.  In this  case an agreement had been arrived at between Sugar Factories Owners  Association and sugarcane growers, wherein a higher price was agreed to be  paid but this was sought to be resiled by the appellant on the ground that it  was a Company, which was an independent entity in the eye of law and was,  therefore, not bound by any such agreement.   After noticing the provisions  of the Act and the earlier decision rendered in State of M.P. v. Jaora Sugar  Mills Ltd. (supra) it was held as under in para 6 of the reports :         "It is not in dispute that under Section 31 of the Supply  Act, the State Government has power to fix the reserved area, in  other words, zone was carved out for the appellant for the  supply of sugarcane to the factory.   All the farmers who are  cultivating sugarcane within that zone are bound by the State  action to supply sugarcane to the factories within that reserved  area.   Consequently, the factory also is bound by the actions of  the State Government.   Obviously, pursuant to the obligation  had by the State under the Supply Act, the meeting was  convened by the State Government where at the Factory  Owners’ Association and farmers participated and agreed to fix  the price at Rs.20.50 per quintal of sugarcane.   As a  consequence, both the cane growers as well as the owners of the  factory are bound by the decision.   This having been agreed  upon, the price fixed by the State Government in excess of the  minimum price fixed by the Central Government under clause 3  of the Order would be the price fixed for supply of sugarcane  and the Government would be entitled to enforce the  liability\005.."

       It was also observed in the same paragraph that the State Government  acted in their statutory capacity to fix the higher price of the sugarcane.   

39.     These cases clearly lay down that under the 1966 Order the Central  Government only fixes the minimum price and it is always open to the State  Government to fix a higher price.  Under the enactments made by the State  Legislatures areas are  reserved for the sugar factories and the canegrowers  therein are compelled to supply sugarcane to  them and therefore the State  Government has incidental power to fix the price of sugarcane which will  also be statutory price.   They further lay down that the Cane Commissioner  can direct the canegrowers and the sugar factories to enter into agreements  for purchase of sugarcane at a price fixed by the State Government and such  agreements cannot be branded as having been obtained by force or  compulsion.              

40.     Learned senior counsel for the respondents has placed strong reliance  on certain observations made in State of Tamil Nadu v. Kothari Sugars and  Chemicals Ltd., 1996 (7) SCC 751, which is a decision by a Bench of two  judges.   In our opinion, this decision can be of no assistance to the  respondents as the point for consideration here was entirely different, which  will be evident from paras 1 and 3 of the judgment which read as under : "Para 1.        The question for decision is :Whether for the  purchase of sugarcane from the canegrowers, a purchaser is  liable to pay purchase tax under the State Sales Tax Act on the

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amount paid by the purchaser to the canegrower over and above  the price fixed under clauses 3 and 5-A of the Sugarcane  (Control) Order, 1966 ?

Para 3. The occasion for payment by the purchaser of the  amount in excess of the aggregate of the minimum cane price  and the additional cane price so fixed, arises on account of an  order of the State Government dated 15.11.1980 purporting to  fix a higher revised minimum cane price and directing the sugar  factories in Tamil Nadu to pay that price to the canegrowers.    Pursuant to the direction, each sugar factory was directed to  make that payment and in compliance thereof this sugar factory  paid the excess amount as an ’advance’ described as under :

"\005\005 being advance payment towards cane supply  during 1980-81 season, against probable additional  cane price under Section 5-A of the Sugarcane  (Control) Order, 1966."

41.     It is important to note that in Tamil Nadu there is no statutory  provision for regulating the supply and purchase of sugarcane for use in  sugar factories or khandsari sugar manufacturing units. Therefore, the order  of the State Government dated 15.11.1980 fixing higher revised minimum  cane price had not been issued in exercise of any statutory power.  In para 6  of the Reports, the Court observed that unless there be an agreement  between the grower and the purchaser for purchase of the sugarcane at  higher price, the obligation of the purchaser is to pay the grower only the  aggregate of the amounts fixed under clauses 3 and 5-A.   It was further  observed that  without any contractual or statutory basis fixing the sale price  of sugarcane at an amount higher than the minimum cane price fixed under  Clause 3 and the additional cane price fixed under Clause 5-A, any sum paid  by the purchaser to the grower as advance prior to fixation of the additional  cane price under Clause 5-A cannot form part of the price of sugarcane.  It  was pointed out in  para 7  that the State advice to the purchasers to pay  certain amount in addition to the minimum price fixed under Clause 3 in  anticipation of fixation of the additional cane price under Clause 5-A, does  not have any statutory basis. The amount of advance was paid in anticipation  of fixation of additional cane price under Clause 5-A, which means that in  case the fixation under Clause 5-A was at a higher amount than the amount  paid as advance, then the purchaser would have to pay the deficit amount.    Similarly, when the amount of advance was in excess, the purchaser would  be entitled to refund of the excess amount, irrespective of the fact that  whether the refund was actually made or not. Any amount paid by way of  advance towards a probable additional price to be worked out in accordance  with the formula given in the 1966 Order could not be treated as price of  sugarcane for the purpose of levy of sales tax.  In fact in para 9 of the reports  it was observed that for treating the entire amount paid by the purchaser as  the price of the sugarcane supplied, it must be found proved as a fact that the  higher price including the excess amount was paid as the price of sugarcane  under an agreement between the grower and the purchaser irrespective of a  lower amount being fixed as an aggregate of the price fixed under Clauses 3  and 5-A of the 1966 Order.   It was further held that unless a clear finding to  that effect is recorded, the amount paid by the purchaser in excess of the  aggregate of the minimum price fixed under Clause 3 and the additional  price fixed under Clause 5-A, as part of the amount paid in advance prior to  the fixation of the additional price under Clause 5-A, cannot be treated  automatically as a part of the total price of the sugarcane.    

42.     The question in issue here did not come up for consideration before  the Bench and some general observations made in the course of the  reasoning given in a matter dealing with liability to pay tax on some amount  which was paid by sugar factory as "advance" towards the probable  additional cane price under Clause 5-A cannot be  construed as an  expression of opinion on the merits of the matter.   It is well settled that a  decision is an authority for what it actually decides and not what logically

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flows from it. Every observation of Court are not to be interpreted or used  like provisions of Statute as if they were part of an Act. It is, therefore, not  possible to hold that the Court laid down any principle of law that it is not  open to the State to fix higher price or that there could be no agreement  between the canegrowers and the occupier of the factory for payment of  higher price.  

43      One of the main reasons given by the High Court for allowing the writ  petition and quashing the order of fixation of State Advised Price is that  power to fix sugarcane price had been given to the State Government under  the Sugarcane Act, 1934 and hence it would be redundancy to say that the  same power to fix cane price also flows from Section 16 of the 1953 Act.  The High Court has  also held that when the 1953 Act was enacted there was  already a law, viz., the Sugarcane Act, 1934, which enabled the State  Government to fix the minimum cane price and hence, it could not have  been the intention of the U.P. Legislature while enacting 1953 Act that  Section 16 thereof would include the power to fix the minimum cane price  as such a power was already there with the State Government under Section  3(2) of the Sugarcane Act, 1934.   The High Court, therefore, concluded that  Section 16 of the 1953 Act only gave power to the State Government to  regulate the supply and purchase of sugarcane in the narrower sense and not  in the wider sense so as to include the power to fix the minimum price.    This reasoning of the High Court proceeds on the footing that the Sugarcane  Act, 1934 was in existence and was in operation when the 1953 Act was  enacted by U.P. Legislature.   It appears that the correct legal position was  not brought to the notice of the learned judges.   The Sugarcane Act, 1934  was repealed by U.P. Sugar Factories Control Act, 1938 (UP Act No.1 of  1938).   Section 26 of U.P. Sugarcane (Regulation of Supply & Purchase)  Act, 1953 repealed the U.P. Sugar Factories Control Act, 1938.   With the  enforcement of the Government of India Act, 1935, there was  distribution  of legislative powers between the Dominion Legislature and the Provincial  Legislature and the entire subject matter of Sugarcane Act, 1934 fell within  the Provincial Legislative list.    It was in these circumstances that the U.P.  Legislature enacted the U.P. Sugar Factories Control Act, 1938 which  repealed the Sugarcane Act, 1934 in its application in the State of U.P.   This  position has been noticed in Ch. Tika Ramji & Ors. v. State of Uttar Pradesh  & Ors., 1956 SCR 393 at page 400, 401 and 417.   Therefore, the aforesaid  reasoning given by the High Court has no legal basis.  

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

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45.     Shri Shanti Bhushan, learned senior counsel, has strenuously urged  that the fixation of higher price by the State Government will seriously  affect the economy of the  sugar factories inasmuch as the price of the  sugarcane is a very major factor and contributes to the extent of 70 per cent   of the price of sugar.  Learned counsel has submitted that any increase in the  price of sugarcane by the State Government is bound to result in a serious  financial crisis for the sugar factories which are already passing through  a   bad phase and are suffering huge losses.   He has also placed before the  Court some facts and data to show that the sugar mills being run by U.P.  State Sugar Corporation and those under the cooperative sector, which pay  the State Advised Price for sugarcane, are running on huge losses.   Reports  have also been placed to show that the State Government has given heavy  amounts by way of subsidy to these sugar factories in order to sustain the  loss.   The contention is that the payment of State Advised Price by the sugar  factories will result in a virtual closure of the sugar industry.   Shri Rakesh  Dwivedi, learned senior counsel for appellant, has seriously disputed the  aforesaid submission and  has urged that the respondent sugar factories have  not produced their balance sheets to show that they are in fact running on  losses.  He has submitted that virtually all the factories being run by the U.P.  State Sugar Corporation were established in Nineteen Thirties, have very old  machinery and technology and are over-staffed and the main reason for the  losses suffered by them is their poor performance on account of the frequent  breakdowns, the machinery being old and employment of excessive  manpower and not the price of sugarcane.    The U.P. State Sugar  Corporation, it is urged,  could not invest money in order to improve the  technology or install new machinery due to financial crunch.  Shri Dwivedi  has also placed before the Court data relating to some of the factories being  run under cooperative sector which have made profits.   

46.     Learned counsel for both the sides have also placed reliance on the  Report of the Sugar Industry Inquiry Commission, 1974,  also known as  ’Bhargava Commission’, which was given on 27.2.1974.  Shri Chidambaram  has referred to  paragraphs 1.20, 1.23 and 1.24 of the Report, wherein it is  said that there is need not only to intensify cane development work to  increase the sugarcane yield, but also to bring more area under sugarcane.     Sugarcane occupies land for a longer period than any other crop, its period  of growth extending from 10 months to 18 months and during this period,  two or more other crops can be grown, which give the farmer a quicker  return for his investment.   Sugarcane also needs larger investment in the  inputs.   It, therefore, recommended that the statutory minimum cane price  be so fixed that the return from the sugarcane has an edge over the return  from other alternative crops, in which technological breakthrough had  already been achieved, and should be varied from year to year in future in  proportion to the changes in return from other competitive crops and that it  wholly covered the cost of cultivation in all major cane growing regions.    Shri Chidamabaram has also urged that para 2.22 of Chapter II of the Report  shows that the Central Government, while fixing the minimum price of  sugarcane, does not take into consideration extra realization from molasses.   Molasses, which is a bye product of sugar industry, is the  main raw material  for production of rectified spirit, potable and industrial alcohol and ethnol.   Learned counsel has submitted that on account of decontrol of molasses and  its heavy demand, the sugar mills earn considerable amount of money from  the sale of this bye product.   Besides molasses, bagasse and press mud are  also produced in the manufacture of sugar which are again not taken into  consideration .   Bagasse is used in co-generation and also for manufacture  of paper and press mud is used in manufacture of  manure.    According to  learned counsel, since  these three items from which sugar factories earn  considerable  amount of money are not taken into consideration by the  Central Government, the minimum price fixed under the 1966 Order is not  realistic.  The State Government is aware of the local conditions like cost of  the inputs and labour etc. and as it also  takes into consideration the  aforesaid factors (molasses, bagasse and press mud) the price of the  sugarcane fixed by it reflects the correct price.

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47.     Shri Shanti Bhushan has also placed before the Court a copy of the  order passed by the Central Government under Clause 3 of the 1966 Order  on 9.1.2003 fixing the minimum price of sugarcane for the sugar year 2002- 2003, which shows that prices have been fixed for different factories  keeping in view the minimum price of sugarcane at Rs.69.50 per quintal  linked to a basic recovery of 8.5 per cent sugar subject to a premium of  Rs.0.82 for every 0.1 per cent point increase in the recovery above that level.   The chart shows that in the State of  U.P. generally the price fixed for  sugarcane for most of the sugar mills being run by the U.P. State Sugar  Corporation or in cooperative sector  (Sahkari) is much lower than the price  fixed for the sugar mills being run by private sector. The price of sugarcane   fixed for some of the sugar mills, which will illustrate the situation, is given  below :

S.No.     Name of Sugar Factory         Minimum Sugarcane Price                                                         (Rupees per quintal)

1.      U.P. State Sugar Corporation Ltd.                       71.96         Panninagar, Distt. Bulandshahr.   

2.      U.P. State Sugar Corporation Ltd.                       73.60         Rohana Kalan, Distt. Muzaffarnagar.  

3.      Daurala Sugar Works,                                    89.18         Daurala, Distt. Meerut.

4.      The Upper India Sugar Mills                             84.26         Khatauli, Distt. Muzaffarnagar.

5.      The Upper Doab Sugar Mills Ltd.                 86.72         Shamli, Distt. Muzaffarnagar.

6.      Siel Ltd.                                                       87.54         Titawi, Distt. Muzaffarnagar.

7.      Bisalpur Kisan Sahakari Chini Mills Ltd.                71.14         Bisalpur, Distt. Pilibhit.

8.      L.H. Sugar Factories Ltd.                                       78.52         Pilibhit, Distt. Pilibhit.

9.      Ghaghara Sugar Ltd.                                     86.72         Ajbapur, Distt. Lakhimpur Kheri.

48.      Bulandshahr, Meerut and Muzaffarnagar are adjoining districts in  Western U.P.  but the prices of sugarcane range from Rs.71.96 to Rs.89.18.    The Sugar mills at  serial nos. 2 and 6 are situate within the same district of  Muzaffarnagar, but the difference in prices is almost Rs.14.00.   Similarly,  sugar mills at serial nos.7 and 8 are situate within the same district of Pilibhit  and serial no.9 is in adjoining district of Lakhimpur   but the differenc in  prices is quite substantial.   It is not likely that there would be  any  substantial difference in the quality of cane grown within the same district or  in the same area.  The prices fixed by the Central Government clearly  indicate that a sugarcane grower who falls within the reserved area of a  sugar mill run by U.P. State Sugar Corporation or by cooperative sector gets  much less while as one who falls within the reserved area of sugar mill run  by private sector gets much higher. This is possibly due to the reason that the  sugar mills of U.P. State Sugar Corporation are very old having obsolete  technology due to which recovery is poor.  There is no justifiable reason  why a sugarcane grower should suffer only on account of the fact that he  happens to fall within the reserved area of a mill run by the U.P. State Sugar   Corporation or in the cooperative sector.   The State Government fixes  uniform prices and not factory wise. Such a fixation of price is, therefore,

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more just and equitable from the point of view of a sugarcane grower.    

49.     It is, however, difficult to form any definite opinion on the factual  aspect of the matter only on the basis of the statistical data placed before us  by the learned counsel for the parties as a correct or true assessment of the  situation cannot be had from the same.   Moreover, we are more concerned  with the legal aspect of the matter.    

50.     In view of the discussions made above, Civil Appeals No.460 of 1997  and 461 of 1997 are allowed and the judgment and order dated 11.12.1996  of the High Court is set aside.   Civil Appeals No.1727 of 1999 and 4602 of  1999 are dismissed and the judgment and order dated 1.2.1999 of the High  Court is affirmed.

Civil Appeal No. 4685 of 1997:  The State of Bihar Vs. Bihar Sugar  Mills Association

       State of Bihar has preferred this appeal by special leave against the  judgment and order dated 4..2.1997 of the Patna High Court by which the  writ petition preferred by Bihar Sugar Mills Association was allowed and the  order dated 29.11.1996 passed by the Sugarcane Commissioner, Bihar,  fixing the price of sugarcane for crushing season 1996-97 was quashed.  For  doing so, the High Court basically relied upon the provisions of Sugarcane  (Control) Order, 1966 issued by the Central Government and also the  judgment and order dated 11.12.1996 of Allahabad High Court in CMWP  no. 36889 of 1996 (West U.P. Sugar Mills Association v. State of U.P.). The  High Court did not examine the provisions of Bihar Sugarcane  (Regulation  of Supply and Purchase) Act, 1981 in order to ascertain whether under the  said Act the State Government has any power to fix the price of sugarcane.   We have set aside the judgment of the Allahabad High Court dated  11.12.1996.   We are, therefore, of the opinion that the matter requires fresh  consideration in the light of our decision in CA No. 460 of 1997 (U.P. Co- operative Cane Unions Federation v. West U.P. Sugar Mills Association).   The appeal is accordingly allowed and the judgment and order dated  4.2.1997 of the  High Court is set aside and the writ petition is remitted back  to the High Court for fresh consideration in accordance with law.  

Civil Appeal No.6065 of 2001 : State of Punjab & Ors. v. Saraya  Industries Ltd. & Ors. and  SLP (C) No. 1363 of 2002 :  State of  Haryana & Ors. v. The Saraswati Industrial Syndicate Ltd. & Anr.

         State of Punjab and State of Haryana have preferred these appeal and  special leave petition against the common judgment and order dated  23.12.1998 of Punjab & Haryana High Court by which a bunch of writ  petitions preferred by the respondent Sugar Mills were allowed and the  direction given by the State Government to the writ petitioners to pay the  State Advised Price for the sugarcane purchased by them during the year  1996-97 was declared illegal and it was held that the writ petitioners cannot  be compelled to pay any price over and above the statutory minimum price  fixed by the Central Government for the sugarcane purchased by them.   For  doing so, the High Court basically relied upon the provisions of Sugarcane  (Control) Order, 1966 issued by the Central Government and also the  judgment and order dated 11.12.1996 of Allahabad High Court in CMWP  no. 36889 of 1996 (West U.P. Sugar Mills Association v. State of U.P.). The  High Court did not examine the provisions of Punjab Sugarcane  (Regulation  of Supply and Purchase) Act, 1953 in order to ascertain whether under the  said Act the State Government has any power to fix the price of sugarcane.   We have also set aside the judgment of the Allahabad High Court dated  11.12.1996. We are, therefore, of the opinion that the matter requires fresh  consideration in the light of our decision in CA No. 460 of 1997 (U.P. Co- operative Cane Unions Federation v. West U.P. Sugar Mills Association).   The appeal and the special leave petition are accordingly allowed and the  judgment and order of High Court is set aside and the writ petitions are

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remitted back to the High Court for fresh consideration in accordance with  law.  

CA Nos. 8117-22 of 2001 and SLP(C) No. 16851 of 2001 : Government  of Andhra Pradesh & Anr. v. KCP Sugar & Industries Corpn. Ltd. &  Ors.

       Leave granted in SLP(C) No.16851 of 2001.  These appeals by special  leave have been preferred by Government of Andhra Pradesh against the  judgment and order dated 8.5.2001 of the High Court of Andhra Pradesh   by  which the writ petition preferred by respondent KCP  Sugar Mills was  allowed and order passed by the State Government on 4.12.1998 fixing the  price of sugarcane was set aside. For doing so, the High Court basically  relied upon the provisions of Sugarcane (Control) Order, 1966. The High  Court did not examine the provisions of the Andhra Pradesh Sugarcane   (Regulation of Supply and Purchase) Act, 1961 in order to ascertain whether  under the said Act the State Government has any power to fix the price of  sugarcane. We are, therefore, of the opinion that the matter requires fresh  consideration in the light of our decision in CA No. 460 of 1997 (U.P. Co- operative Cane Unions Federation v. West U.P. Sugar Mills Association).  The appeals are accordingly allowed and the judgment and order dated  8.5.2001 of the  High Court is set aside and the writ petition is remitted back  to the High Court for fresh consideration in accordance with law.  

Transfer Case Nos. 21 and 22 of 2003 : The South Indian Sugar Mills  Association, Tamil Nadu V. Government of Tamil Nadu & Ors.

       The South Indian Sugar Mills Association, Tamil Nadu filed writ  petition praying that a writ of mandamus or any other appropriate writ,   order or direction may be issued forbearing the Government of Tamil Nadu  and the Commissioner of Sugar and Cane Commissioner, Chennai, from  fixing and announcing or notifying any price for sugarcane except the  additional price under Clause 5A of the Sugar (Control) Order, 1966, to be  paid by the sugar mills in Tamil Nadu to the sugarcane growers for the sugar  season 1999-2000.  The writ petitions were transferred to this Court and  were heard along with CA No. 460 of 1997.   

The State of Tamil Nadu has not made any statutory enactment for  regulation of supply and purchase of sugarcane. In the counter-affidavit    filed on behalf of the respondents it is admitted that the State Government is  not fixing State Advised Price for sugarcane in exercise of any statutory  power.  In fact in para 9 of the counter-affidavit it is stated that the State  Government will not make any unilateral announcement of State Advised  Price as apprehended by the petitioner.  It is further stated that the  Government will follow the past practice of consultation with the sugar mill  owners and cane growers and only after ascertaining  their respective views  and making them to come to an agreement on fixation of price, the State  Advised Price, as an agreed price, will be recommended by the State  Government.  In view of the fact that there is no statutory enactment  regarding regulation of supply and purchase of sugarcane, it is obvious that  the State Government has no power to fix the price of the sugarcane.   However, it is always open for the sugar mills to enter into agreements with  the sugarcane growers to purchase sugarcane at a price higher than the  statutory minimum price fixed by the Central Government.  The Transfer  Petitions are accordingly disposed of  in the aforesaid terms.  

SLP (C) No. 948 of 2003 :M/s. Naraingarh Sugar Mills Ltd. v. State of  Haryana & Ors.

       This Special Leave Petition has been preferred against the judgment  and order dated 20.12.2002 of a Division Bench of the Punjab & Haryana  High Court by which  interim orders passed in favour of petitioner were

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vacated.  The main ground which weighed with the High Court for vacating  the stay order was that the writ petitioner had not even paid the statutory  minimum price of sugarcane to the farmers and a sum of Rs.5 crores was  due from it. In the facts and circumstances of the case, we do not find any  ground to interfere with the order passed by the High Court.  The Special  Leave Petition is accordingly dismissed.

IA No.3 of 2002 in CA No. 460 of 1997 : New Horizon Sugar Mills Ltd.  Ariyur, Kandamangalam P.O., Pondicherry

       This application has been moved in CA No.460 of 1997 (U.P. Co- operative Cane Union Federation v. West U.P. Sugar Mills Association &  Ors.). Since the main relief claimed in the application is against Government  of Pondicherry which is not party to the civil appeal, it is not possible to  grant the prayers made in the application.  The application is accordingly  dismissed.