THOMMEN, J.


The petitioners are owners of sugar mills operating in the State of Uttar Pradesh in areas classified for the purpose of determining the price of levy sugar as West and East zones. They challenge the validity of notifications dated November 28, 1974 and July 11, 1975 (Annexures 8 and 9) issued by the Central Government in exercise of its power under sub-section (3-C) of Section 3 of the Essential Commodities Act, 1955 (Act 10 of 1955), as amended to date, (hereinafter referred to as the 'Act') Published in the Gazette of India, Extraordinary, dated November 28, 1974 and July 11, 1975)). The petitioners do not, and cannot, challenge the validity of the sub-section by reason of Article 31-B of the Constitution of India. By the impugned orders, the Central Government fixed the prices of levy sugar for 1974-75 production. For the purpose of determining the prices, the country is divided into 16 zones, and the prices fixed for various grades of sugar in terms of Section 3(3-C) of the Act vary from zone to zone. Prices are determined with reference to the geographical-cum-agro-economic considerations and the average cost profiles of factories located in their respective zones. Each State for this purpose constitutes a separate zone, while U.P. is divided into 3 zones and Bihar into 2 zones. The petitioners contend that these orders are ultra vires the Act and violative of their fundamental rights as the prices of levy sugar have been determined arbitrarily with reference to the average cost profiles of factories grouped together in zones without regard to their individual capacity and cost characteristics. Such prices do not reflect the actual manufacturing cost of sugar incurred by producers like the petitioners or secure to them reasonable returns on the capital employed by them. Geographical zoning, for the purpose of price fixation, they point out, is an irrational and discriminatory system of averaging wide cost disparities amongst producers of widely varying capacity. Cost of manufacture of sugar depends on a number of factors, such as recoveries from the sugarcanes, duration of the crushing season, crushing capacity of the plant, the sugarcane price paid and the capital employed in the manufacture of sugar. These factors vary from factory to factory. Fixation of the levy sugar prices on zonal basis without regard to these divergent factors and the comparative cost profiles gives the owners of bigger factories an undue advantage over producers like the petitioners whose factories are comparatively of lower crushing capacity and whose manufacturing cost is consequently higher. Clubbing of the petitioners' factories with dissimilar factories in the same zone for the purpose of price fixation is discriminatory, arbitrary and unreasonable. The petitioners point out that the system of geographical zoning for the purpose of price determination has been severely criticised by the Bureau of Industrial Costs & Prices (the "BICP") who have strongly recommended the division of the sugar industry into groups of units groups of units having similar cost characteristics with particular reference to recovery, duration, size and age of the unit and capital cost per tonne of output, and irrespective of their location


2. The respondents, on the other hand, contend that the classification of sugar industry into 15 zones (now 16) was upheld by a Constitution Bench of this Court in Anakapalli Agricultural & Industrial Society Ltd. v. Union of India ( 1973 (3) SCC 435 The contention that the zonal system was discriminatory and violative of constitutional principles was pointedly urged, but categorically rejected by this Court. The method adopted by the government in fixing the price of levy sugar is fully supported by the recommendations of various expert bodies. The Tariff Commission in its 1973 Report recommended division of the country into 16 zones for this purpose. The price of sugar is fixed with reference to the Cost Schedule recommended by that body. These recommendations are based on various factors such as cost and output of individual labour, cane price (accounting for about 70 per cent of the cost of sugar production), quality of sugarcane, taxes on sugarcane, cost of other material, transport charges, cost of storing the sugar produced, cane development charges and other overhead expenses, selling expenses etc. These factors are almost identical for the entire zone


3. The cost of manufacturing sugar, the respondents contend, depends not only on recovery from the sugarcane, duration of crushing season, crushing capacity of the plant, the sugarcane price paid and the capital employed, as stated by the Petitioners, but also a considerable extent on the condition of the plant and machinery, quality of management, investment policy, relations with cane growers and labour, financial reputation etc. They say



"It is evident from the Tariff Commission Report of 1959, as also the Official Directory of the Bombay Stock Exchange, that the petitioner Company has been consistently diverting huge amounts for investments running into several lakhs elsewhere instead of ploughing back the same into petitioner's sugar industry in question. Thus, the petitioner Company has been neglecting the sugar factory and for such neglect of their own they cannot blame the zonal system." *


4. Mr. Shanti Bhushan, appearing for the petitioners, does not object to the factories being grouped together on the basis of factors common to them with a view to fixing the prices applicable to them as a class of producers. He does not advocate fixation of price separately for each unit. He says that the sugar factories must be grouped together, not on the basis of their geographical location, but similarity in cost characteristics. He relies upon the 1976 Report of the BIPC. The Present system of fixing prices to fixing prices according to the regions where the factories are located, he says, is based on "averaging wide cost disparities" as a result of which manufactures like the petitioners incurring a high cost of production and others incurring a low cost of production are treated alike. Such a system works to the disadvantage of the former and to the advantage of the latter. This, Mr. Shanti Bhushan Contends, is an unreasonable and invalid classification and violative of constitutional principles. While this line of argument is supported by Mr. Raja Ram Aggarawal, Mr. S. P. Gupta appearing for the intervenor in Civil Writ Petition No. 464 of 1977 advocates abolition of zonal classification or grouping of any kind and supports and regardless of any other consideration. Such unitwise determination alone, according to him, satisfies the requirements of Section 3(3-C). Any system of zoning or grouping for determination of Price, he contends, will fail to meet the norms of that sub-section Mr. M. M. Abdul Khader, on the other, hand, submits, that while averaging and costing with reference to a representative cross-section may ordinarily be an appropriate method for determining the fair price, such a method is inappropriate for a small zone like Kerala where there are only three manufacturing units. In respect of such a zone, he says unitwise fixation of price is the only just and proper method


5. Mr. K. K. Venugopal, counsel for Indian Sugar Mills' Association (ISMA), on the hand supports the zoning system. He says that, except for a few producers like the petitioners, all the rest of them in the country have accepted the principle of zoning. In his written submissions. Mr. Venugopal states as follows



"As was seen during the course of hearing only 2 to 3 persons have come forward challenging zoning. There are 389 sugar factories in the country and the present intervened has 166 members. Besides there 220 members with the cooperative sector. Their association being National Federation of Cooperative Sugar factories Ltd., has also intervened in these petitions and have adopted the arguments of ISMA. Hence almost the entire industry has supported zoning and only a handful of people who also factually are not high-cost units have opposed zoning." *


Mr. Venugopal submits that the present case is squarely covered by the decisions of this Court in Anakapalle Cooperative Agricultural & Industrial Society Ltd. v. Union of India ( 1973 (3) SCC 435He says that the petitioners have not made out a case for reconsideration of these two decisions. He refers to T Govindaraja Mudaliar v. State of Tamil Nadu ( 1973 (1) SCC 336 and submits that this Court would not re-examine an earlier decision merely because certain aspects of the question had not been noticed in that decision. Mr. Venugopal, however, advocates neutralisation of the high cost incurred by the old units having lower crushing capacity by giving them an incremental levy prices as recommended by the High Level Committee in 1980


6. Before we examine the provisions of Section 3(3-C) in the context of the general scheme of the Act, we shall briefly refer to the observations of this Court in Anakapalle and Panipat India ( 1973 (1) SCC 129 7. Grover, J. speaking for the bench in Anakapalle ( 1973 (3) SCC 435 states : (SCC pp. 444-45, para 15)



"The system of fixing the prices, according to certain regions or zones, is not a new one. The Tariff Commission in 1959 favoured the formation of four zones. In the report of the Sugar Enquiry Commission, 1965 it was pointed out that the government had actually fixed the prices for 22 zones which meant that from four zones the number had been increased to twenty-two or more. The Commission was of the view that there should be five zones only in addition to Assam. The Tariff Commission 1969, however recommended the constitution of fifteen zones largely on Statewise basis with an exception only in case of Uttar Pradesh and Bihar. Uttar Pradesh was divided into three zones and Bihar into two. The Tariff Commission had been specifically requested to inquire into the working of the zonal system, the main point for inquiry being the zones into which the sugar products should be grouped having regard to the basis of the classification to be recommend by the Commission. The view of the Commission was that on the whole the number of price zones should be fifteen which would reduce, though not eliminate, the inter se anomalies in the cost structure without resorting to the extreme of the fixation of price for each unit or a single or at the most two, one far the sub-tropical and other for the tropical one. The Tariff Commission hoped that in the Course of time conditions would be created making the operation of the second alternative feasible." *


8. Rejecting the contention that it was the zonal system that caused the losses allegedly incurred by some of the sugar producers, Grover, J. says that ordinarily these units ought to have made profits. The reasons for incurring losses can be many, such as inefficiency, failure to pursue the right policy, poor management and planning, etc. but these reasons have relation to the zonal system. That system by and large has led to efficiency and provides an incentive to cut down the cost. Healthy competition among the units in the same zone should in the normal course result in reduction of cost and greater efficiency in the operation of the units. It is proper management and planning that would lead to the success of any commercial venture. The contention of the producers that they have been incurring losses on account of the zonal system is opposed to the evidence produced by them. The court has rejected the extreme contention that prices should be fixed unitwise, i.e. on the basis of actual cost incurred by each unit. Referring to this contention, this Court observes : (SCC p. 446, para 17)

"A part from the impracticability of fixing the prices for each unit in the whole country the entire object and purpose of controlling prices would be defeated by the adoption of such a system." *


9. Grover, J. states that, during the earlier period of price control, it was on an all India basis that the price was fixed. That is still the objective. If such an objective is achieved, it would undoubtedly be conducive to conferring proper benefit on the consumers. The objective of the Tariff Commission is to have only two regions for the whole, county, viz., sub-tropical


10. The court has rejected as baseless the criticism against the principle of weighted average adopted in the fixation of price in each zone. Such a principle is well recognised and acted upon by various Sugar Enquiry Commissions. A proper cost study is intended to do justice to the weak and strong alike. There is abundant justification for continuing and sustaining the zonal system. The varying climatic conditions of each State have been taken into account. For the same reason, Bihar is divided into 2 zones and U.P. into 3 zones, while in the case of many other States each State is treated as a single zone. This system of zoning is thus adopted with special reference to climatic and agro-economic conditions. Rejecting the contention that the zonal system has resulted in discriminatory treatment, this Court states : (SCC p. 450, para 27)



"We are unable to hold that while classifying zones on geographical-cum-agro-economic consideration, any discrimination was made or that the price fixation according to each zone taking into account all the relevant factors would give rise to such discrimination as would attract Article 14 of the Constitution." *


Even if there is no price control, the uneconomic units would be at a great disadvantage. The Court states : (SCC p. 450, Para 28)"Even if there is no price control each unit will have to compete in the market and those units which are uneconomic and whose cost is unduly high will have to compete with others which are more efficient and the cost of which is much lower. It may be that uneconomic units may suffer losses but what they cannot achieve in the open market they cannot insist on where price has to be fixed by the government. The Sugar Enquiry Commission in its 1965 report expressed the view that "cost-plus" basis of price fixation perpetuates inefficiency in the industry and is, therefore, against the long-term interest of the country."


Considering the general principle involved in price fixation, the court states : (SCC p. 451, para 31)



"It is not therefore possible to say that the principles which the Tariff Commission followed in fixing the prices for different zones are either not recognised as valid principles for fixing prices or that simply because in case of some factories that actual cost was higher than the one fixed for the zone in which that factory was situate the fixation of price became illegal and was not in accordance with the provisions of sub-section (3-C). It has not been denied that the majority of sugar producers have made profits on the whole and have not suffered losses. It is only some of them which assert that their actual cost is far in excess of the price fixed. That can hardly be a ground for striking down the price fixed for the entire zone provided it has been done in accordance with the accepted principles." *


The court concludes : (SCC p. 453, para 34)



"When prices have to be fixed not for each unit but for a particular region or zone the method employed by the Commission was the only practical one and even if some units because of circumstances peculiar to them suffered a loss the price could not be so fixed as to cover their loss. That cannot possibly be the intention of Parliament while enacting sub-section (3-C) of Section 3 of the Act. If that were so the price fixation on zonal or regional basis would have to be completely eliminated. In other words the entire system of price control which is contemplated will break down because fixation of price each unit part from being impractical would have no meaning whatsoever and would not be conducive to the interest of the consumer." *


11. This court has thus in Anakapalle ( 1973 (3) SCC 435 rejected the argument that the alleged loss incurred by certain sugar producers is attributable to fixation of price on a zonal basis; or the zonal system has led to inefficiency or lack of incentive, or it has resulted in unequal or unfair treatment. On the other hand, the zonal system has encouraged a healthy competition amongst the units in the same zone. Unitwise fixation is impracticable. The Tariff Commission is the best judge is selecting units for cost study to determine the average cost. The fair price has to be determined with reference to the conditions of a representative cross-section of the industry. For all these reasons there is ample justification in continuing and sustaining the zonal system for the purpose of price fixation. Price has to be fixed for each zone and necessarily it varies from zone to zone. There is no discrimination in the classification of zones on a geographical-cum-agro-economic consideration and such classification is perfectly consistent with the principle of equality


12. In Panipat ( 1973 (1) SCC 129 Shelat, J. speaking for the same Constitution Bench that has decided Anakapalle ( 1973 (3) SCC 435 refers to the norms adopted in sub-section (3-C), viz., (a) determination by the government of the "price of sugar", and (b) payment of "an amount" to the manufacturer, and states that the concept of fair price which is what is referred to in sub-section (3-C) as "price of sugar" does not by any account mean the actual cost of production of every individual manufacturer. Such price has to be arrived at by a process of costing with reference to a representative cross-section of the manufacturing units. He states : (SCC p. 143, para 30)

"The basis of fair price would have to be built on a reasonably efficient and economic representative cross-section on whose working cost-schedules would have been worked out and the price to be determined by government under sub-section (3-C) would have to be unit." *


So Stating, Shelat, J. rejects the contention that such price has to be determined unitwise. Any such fixation of price, he points out, would be contrary to the concept of partial control postulated by the sub-section and would perpetuate inefficiency and mismanagement. But of course, any such price, he hastens to add, has to be fixed reasonably and on relevant considerations. Referring to the partial control, Shelat, J. States : (SCC p. 142, para 28)



"....... the Central Government was confronted with two main problems : (a) deterioration in the sugar industry, and (b) the conflicting interests of the manufacturer, the consumer and the cane grower ....... The floor price of cane fixed by government was intended to protect the framer from exploitation, but that was found not to be an incentive enough to induce him to increase his acreage. A device had to be found under which a price higher than the minimum could be paid by the manufacturer of sugar. The consumer, on the other hand, also to be protected against the spiralling or sugar price and his needs, growing as they had to be satisfied at some reasonable price." *


Shelat, J. emphasises the need to modernise the factories which alone would yield a reasonable return. This is what he states : (SCC p. 142, para 28)



"Both these and a larger production of sugar would not be possible unless there was a reasonable return which would ensure expansion, which again would not be possible unless new machinery for such expansion was brought in and factories, particularly in U.P. and Bihar, were modernised and renovated. A fair price for sugar, therefore, had to be such as would harmonise and satisfy at least to a reasonable extent these conflicting interests" *


13. Significantly, the BICP's recommendation to group individual units having homogeneity in cost, irrespective of their location, was not accepted by the Central Government, particularly because the Tariff Commission itself had considered the question and reached the conclusions that geographical-cum-agro-economic considerations demanded the grouping of factories with reference to States zones, or sub-zones as in the case of U.P. and Bihar. To group them on the basis of their location in various regions of the country for the purpose of price fixation is a rational method reflecting economic realities. This is particularly so as conditions generally vary from State as regards the availability and quality of sugarcane, labour conditions and others factories, whereas within the same region like facilities are generally available to all factories. If the cost structure varies from factory to factory, such variation is not necessarily caused by the non-availability, or the poor quality of raw material or the labour conditions, but probably for reasons unconnected with them, such as the age of the plant, availability of fiance, management ability, etc. There is great force in the submission of the respondents that to group together factories having a high cost profile and to determine a price specially applicable to them is, as recognised by this Court in Panipat to put a premium on incompetence, if not mismanagement


14. The history of control over sugar has been set out at length in Panipat ( 1973 (1) SCC 129 and we do not wish to burden this judgment with a narration of the circumstances which have led to the judgment with a a narration of the circumstance which have led to the introduction of partial control under which 60 per cent of the output of sugar is acquired and the balance left for the free sale. It is in implementation of this policy that sub-section (3-C) Section 3 was inserted (For an illuminating discussion of this aspect, see. A. M. Khusro Price Policy, Lancer International (1987), pp. 62-63

"After many years of adverse experience a new strategy of dual pricing was introduced in sugar. The mills were asked to deliver to the public distribution system about 60 per cent of their output say at Rs. 2 per kg. and were allowed to sell the balance of 40 per cent in the free market at say Rs 6 per kg. The mills were delighted to do so as they got very much in the free market sales. With larger receipts they offered in the following season a higher price to the farmer (the sugarcane grower) who, in turn grew and offered more cane. In other words, the law of supply which had been held captive, as it were, was freed from bondage. With a higher price offer from the mills, the cane growers brought more land under sugarcane, diverted land from other crops to cane use more inputs, produced and delivered to the mills more cane and in fact diverted cane deliveries from the open-pan system to the mills system. Having thus obtained much more cane, the mills produced much more sugar and sold 30-40 per cent of it in the free market. Within a year or two, the free market price of sugar fell from Rs 6 to Rs 3 or even Rs 2.50. At this rate consumers began to buy more in the free market, millions of ration cards remained unused and the demands on the public distribution declined substantially. Prolonged shortages of sugar got converted into a relative abundance." *


) Before we examine the provisions of that sub-section under which the impugned notifications have been issued, we shall refer to the statutory scheme


15. The Act was, as stated in the preamble, enacted by Parliament "to provide in the interest of the general public, for the control of the productions, supply and distribution of, and trade and commerce in, certain commodities. The entire Act is devoted to the cause of the general public with a view to achieving equitable of essential commodities at fair prices


16. Section 3 of the Act confers wide power upon the Central Government to control production, supply distribution etc. essential commodities. It reads



"3. Powers to control production, supply distribution etc. of essential commodities - (1) If the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices or for securing any essential commodity for the defence of India or the efficient conduct of military operations, it may, by order, provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein." *


17. Sub-section (2) of section 3 says that, without prejudice to the generality of the powers conferred by sub-section (1), an order made under that sub-section may provide for the matters specified in subs-section (2). One of them is what is contained in clause (f) of sub-section (2) which empowers the Central Government to require any person dealing in any commodity to sell the whole or a specified part of such commodity to the Central Government or the State Government or to a nominee of such government. It reads


"3. (2) Without prejudice to the generality of the powers conferred by sub-section (1) an order made there under may provide -


(f) for requiring any person holding in stock, or engaged in the production, or in the business of buying or selling of any essential commodity, -


(a) to sell the whole or a specified part of the quantity held in stock or produced or received by him, or


(b) in the case of any such commodity which is likely to be produced or received by him, to sell the whole or a specified part of such commodity when produced or received by himto the Central Government or a State Government or to an officer or agent of such government or to a corporation owned or controlled by such government or to such other person or class of persons and in such circumstances as may be specified in the order."


18. The power contained in sub-section (1) or sub-section (2) is exercisable by an order. An 'order is defined under Section 2 to include a direction issued thereunder. Any order made under Section 3 by the Central Government or by an officer or authority of the Central Government is required by sub-section (6) of Section 3 to be laid before both Houses of Parliament, as soon as may be after it is made. Any order made under Section 3 Which is of a general nature or affecting a class of persons has to be notified in the official gazette. [sub-section (5) of section 3]


19. Sub-section (3) of Section 3 provides that where any person has sold any essential commodity (sugar being such a commodity) in compliance with an order made with reference to clause (f) of sub-section (2), he shall be paid the price of the goods purchased from him as provided under clauses (a), (b) and (c) of sub-section (3). This sub-section operates only where an order has been made under sub-section (1) with reference to clause (f) of sub-section (2) While clause (a) of the sub-section postulates an agreed price, consistently with reference to the controlled price, if any when in agreement is reached. Where neither clause (a) nor clause (b) applies, either because there is no agreement or because there is no controlled price, the seller has to be paid, as per clause (c), a price calculated at the market rate prevailing in the locality at the date of the sale


20. Sub-section (3-A) empowers the Central Government to regulate in accordance with the provisions of the sub-section the price of any foodstuff sold in a locality in compliance with an order made with reference to clause. (f) of sub-section (2). This power is exercisable by a direction which has to be duly notified in the official gazette. The power to issue the direction is notwithstanding anything contained in sub-section (3) Before issuing the notification, the Central Government has to form an opinion that the price if any foodstuff (including sugar) has to be regulated for the purpose of controlling the rise in its prices or preventing its prices or preventing it holding in any locality. Any such notification will remain in force for any specified period not exceeding 3 months. The price payable in such cases is either the agreed price consistently with the controlled price, if any, or where no such agreement is possible, the price calculated with reference to the controlled price, if any, or where neither of these two methods is applicable, the price calculated with reference to the average market rate prevailing in the locality during the period of 3 months immediately prior to the date of the notification. The average market rate will be determined by an officer authorised by the Central Government and the rate so determined by him is not liable to be questioned in any court


21. Sub-section (3-C) which is the crucial provision was inserted in 1967. It reads


"3 (3-C) Where any producer is required by an order made with reference to clause (f) of sub-section (2) to sell any kind of sugar (whether to the Central Government or a State Government or to an officer or agent of such government or to any other person or class of persons) and either no notification in respect of such sugar has been issued under sub-section (3-A) or any such notification, having been issued, has ceased to remain in force by efflux of time, then, notwithstanding anything contained in sub-section (3), there shall be paid to that producer an amount therefor which shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to -


(a) the minimum price, if any, fixed for sugarcane by the Central Government under this section;


(b) the manufacturing cost of sugar;


(c) the duty or tax, if any, paid or payable thereon; and


(d) the securing of a reasonable return on the capital employed in the business of manufacturing sugar


and different prices may be determined from time to time for different areas or for different factories or for different kinds of sugar


Explanation. - For the purposes of this sub-section, "producer" means a person carrying on the business of manufacturing sugar."


22. Sub-section (3-C) is attracted whenever any producer is required to sell sugar by an order made with reference to sub-section (2)(f) and no notification has been issued under sub-section (3-A) or any such notification, having been issued, has ceased to be in force. Whenever sub-section (3-C) is attracted, it operates notwithstanding anything contained in sub-section (3). This means the compensation payable to the seller in the circumstances attracting sub-section (3-C) is not the price postulated in sub-section (3). Nor is it the price mentioned under sub-section (3-A), for that sub-section cannot be in operation when sub-section (3-C) is attracted. What is payable under sub-section (3-C) is an "amount" calculated with reference to the "price of sugar" determined in the manner indicated in that sub-section


23. Construing sub-section (3-C), this Court in Panipat ( 1973 (1) SCC 129 says : (SCC p. 139, para 22 : SCR p. 870)


"Sub-section (3-C), with which we are presently concerned, was inserted in Section 3 by Section 3 of Act 36 of 1967. The sub-section lays down two conditions which must exist before it applies. The first is that there must be an order made with reference to sub-section (2), clause (f), and the second is that there is no notification under sub-section (3-A) or if any such notification has been issued it is no longer in force owing to efflux of time. Next, the words "notwithstanding anything contained in sub-section (3)

" suggest that the amount payable to the person required to sell his stock of sugar would be with reference to the price fixed under the sub-section and not the agreed price or the market price in the absence of any controlled price under sub-section (3-A). The sub-section then lays down two things; firstly, that where a producer is required by an order with reference to sub-section (2)(f) to sell any kind of sugar, there shall be paid to that producer an amount therefor, that is for such stock of sugar as is required to be sold, and secondly, that such amount shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to the four factors set out in clauses (a), (b), (c) and (d). Unlike the preceding three sub-sections under which the amount payable is either the agreed price, or the controlled price, or where neither of these prices is applicable at the market or average market price, the amount in respect of sugar required to be sold is to be calculated at the price determined by the Central Government." *


24. What is specially significant is that sub-section (3-C) postulates payment of an amount to the producer who has been required to sell sugar in the circumstances mentioned therein. What is required to be paid to him is not the price of sugar, but only an amount. That amount has to be calculated with reference to the price of sugar. The "price" is determined by the Central Government by means of an order which, as required by sub-sections (5) and (6), has to be notified in the official gazette and laid before both Houses of Parliament. The order notifying the "price of sugar" is of general application and it is the rate at which the actual "amount" payable to each seller is calculated


25. The price of sugar must be determined by the Central Government having regard to the factors mentioned in clauses (a) to (d) of sub-section (3-C). This is done with reference to the industry as a whole and not with reference to any individual seller. In contradistinction to the "price of sugar", the "amount" is calculated with reference to the particular seller. The Central Government is authorised to determine different prices for different areas or for different factories or for different kinds of sugar. Whether factories are required to be grouped together for a rational determination of the prices according to their location or their size, age and capacity or by any other standard is a matter for decision size, age and capacity or by any other standard is a matter for decision by the Central Government on the basis of relevant material. What is contemplated by the legislature in delegating such wide discretion to the Central Government is that it must apply its mind to the manifold questions relevant to the determination of prices and with due regard to the norms laid down in the sub-section. What is required by sub-section (3-C) is the adoption of a valid classification of factories having a rational nexus to the object sought to be achieved, viz., determination of a fair price of sugar with reference to which the actual amounts payable to the producers, in the circumstances attracting the sub-section, are calculated


26. Referring to the legislative background of sub-section (3-C), this Court in Panipat ( 1973 (1) SCC 129observes : (SCC p. 140, para 24)



"In order to appreciate the meaning of clauses (a), (b), (c) and (d), it must be remembered that ever since control on sugar was imposed, government had set up expert committees to work out cost-schedules and fair prices Starting in the beginning with an all-India cost-schedule worked out on the basis of the total production of sugar, the factories were later grouped together into zones or regions and different cost-schedules for different Zones or regions were constructed on the basis of which fair prices were worked out at which sugar was distributed and sold. The Tariff Commission in 1958 and the Sugar Enquiry Commission in 1965 had worked out the zonal cost-schedules on the basis of averaged recovery and duration, the minimum and not the actual price of cane, the averaged conversion costs and recommended a reasonable return on the capital employed by the industry in the business of manufacturing sugar. This experience was before the legislature at the time when sub-section (3-C) was inserted in the Act. The legislature therefore incorporated the same formula in the new sub-section as the basis for working out the price. The purpose behind enacting the new sub-section was threefold, to provide an incentive to increase production of sugar, encourage expansion of the industry, to devise a means by which the cane producer could get a share in the profits of the industry through prices for his cane higher than the minimum price fixed and secure to the consumer distribution of at least a reasonable quantity of sugar at a fair price." *


Clauses (a) to (d) of sub-section (3-C) postulate that the price of sugar must be determined having regard to the minimum price, if any, fixed for sugarcane by the Central Government, the manufacturing cost of sugar, the duty or tax applicable in the zone, and the securing of a reasonable return on the capital employed in the business of manufacturing sugar. Referring to clause (d) of sub-section (3-C) this Court observes in Panipat ( 1973 (1) SCC 129 observes : (SCC p. 140, para 24)



"In order to appreciate the meaning of clauses (a), (b), (c) and (d), it must be remembered that ever since control on sugar was imposed, government had set up expert committees to work out cost-schedule worked out on the basis of the total production of sugar, the factories were later grouped together into zones or regions and different cost-schedules for different zones or regions were constructed on the basis of which fair prices were worked out at which sugar was distributed and sold. The Tariff Commission in 1958 and the Sugar Enquiry Commission in 1965 had worked out the zonal cost-schedules on the basis of averaged recovery and duration, the minimum and not the actual price of cane, the averaged conversion costs and recommended a reasonable return on the capital employed by the industry in the business of manufacturing sugar. This experience was before the legislature at the time when sub-section (3-C) was inserted in the Act. The legislature therefore incorporated the same formula in the new sub-section as the basis for working out the price. The purpose behind enacting the new sub-section was threefold, to provide an incentive to increase production of sugar, encourage expansion of the industry, to devise a means by which the cane producer could get a share in the profits of the industry through prices for his cane higher than the minimum price fixed and secure to the consumer distribution of at least a reasonable quantity of sugar at a fair price." *


Clauses (a) to (d) of sub-section (3-C) postulate that the price of sugar must be determined having regard to the minimum price, if any, fixed for sugarcane by the Central Government, the manufacturing cost of sugar, the duty or tax applicable in the zone, and the securing of a reasonable return on the capital employed in the business of manufacturing sugar. Referring to clause (d) of sub-section (3-C), this Court observes in Panipat ( 1973 (1) SCC 129 "It is clear from the reports of the Tariff Commission that a reasonable return recommended by that body at a fixed amount of Rs 10.50 per quintal which worked out in 1966-67 at 12.5 per cent per annum was not in respect of levy sugar only but on the whole, so that even if such a return was not obtainable on levy sugar but was obtainable on the whole, it would meet the requirement of clause (d). In this conclusion we derive a twofold support, firstly from the language used in clause (d) itself, viz., a reasonable return on the capital employed in the business of manufacturing levy sugar only, and secondly, from the fact of the Commission having all along used the same phraseology while recommending Rs. 10.50 per quintal as an addition by way of a reasonable return on the capital employed in the industry. The cost-schedules prepared by these bodies were for determining a fair price in relation to the entire sugar produced by the industry and the return which should be granted to it on the capital employed in the industry and not with respect to that stock only required to be sold under sub-section (2)(f). This is clear from the heading of Chapter 9 of the Tariff Commission's Report, 1969, "Cost Structure and Price Fixation"."


27. The petitioners contend that although the government has the discretion to fix different areas or for different factories, or for different kinds of sugar, such wide discretion has to be reasonably exercised. It is, of course, a well accepted principle that any discretion conferred on the executive has to be reasonably exercised. Nevertheless, it is discretion which the court will not curtail unless the exercise of it is impeachable on well accepted grounds such as 'ultra vires' or 'unreasonableness'


28. The petitioners further contend that the Act requires the government to have regard to clauses (a) to (d) and, therefore, it is mandatory on the part of the government to act strictly in compliance with the provisions of those clauses in determining the prices. According to them, "having regard to" is a mandatory requirement demanding strict compliance with the provisions to which reference is made by the legislature. They say that the ingredients of clauses (a) to (d) must be examined with reference to each producer as a condition precedent to the determination of the price of sugar


29. We may in this connection point out that the petitioners have not furnished any data to show that the prices determined by the government would have been different had the ingredients of clauses (a) to (d) of the sub-section been examined with reference to each individual producer instead of a representative cross-section of manufacturing units. Be that as it may, the expression "having regard to" must be understood in the context in which it is used in the statute. See Union of India v. Kamlabhai Harjiwandas Parekh ( 1968 (1) SCR 463 These words do not mean that the government cannot, after taking into account the matters mentioned in clauses (a) to (d), consider any other matter which may be relevant. The expression is not "having regard only to" but "having regard to". These words are not a fetter; they are not words of limitation, but of general guidance to make an estimate. The government must, of course, address itself to the questions to which it must have regard, and, having done so, it is for the government to determine what it is empowered to determine with reference to what it reasonably considers to be relevant for the purpose. The Judicial Committee in CIT v. Williamson Diamonds Ltd. (LR 1958 AC 41 49 : 1957 (3) WLR 663) observed with reference to the expression "having regard to" : (AC p. 49)"The form of words used no doubt lends itself to the suggestion that regard should be paid only to the two matters mentioned, but it appears to their Lordships that it is impossible to arrive at a conclusion as to reasonableness by considering the two matters mentioned isolated from other relevant factors. Moreover, the statute does not say "having regard only" to losses previously incurred by the company and to the smallness of the profits made. No answer, which can be said to be in any measure adequate, can be given to the question of "unreasonableness" by considering these two matters alone."


See CIT v. Gungadhar Banerjee and Co. (P) Ltd. ( 1965 (3) SCR 439657-58) this Court stated : (SCC p. 488, para 23 : SCR pp. 657-58)


"The content and purport of the expressions "having regard to" and "shall have regard to" have been the subject matter of consideration in various decisions of he courts in England as also in this country. We may refer only to a few. In Illingworth v. Walmsley ((1900) 2 QB 142 : 16 TLR 281) it was held by the Court of Appeal, to quote a few words from the judgment of Romer C.J. at page 144



"All that clause 2 means is that the tribunal assessing the compensation is to bear in mind and have regard to the average weekly wages earned before and after the accident respectively. Bearing that in mind, a limit is placed on the amount of compensation that may be awarded ...." *


In another decision of the Court of Appeal in Perry v. Wright ( 1908 (1) KB 441 : 77 LJ KB 236) Cozens-Hardy, M.R. observed at page 451"No mandatory words are there used; the phrase is simply "regard may be had

". The sentence is not grammatical, but I think the meaning is this : Where you cannot compute you must estimate, as best as you can, the rate per week at which the workman was being remunerated, and to assist you in making an estimate you may have regard to analogous cases." *


It is worthwhile to quote a few words from the judgment of Fletcher Moulton, L.J. at page 458. Under the phrase 'Regard may be had to' the facts which the courts may thus take cognizance of are to be 'a guide, and not a fetter'. This Court speaking through one of us (Beg, J., as he then was), has expressed the same opinion in the case of Saraswati Industrial Syndicate Ltd. v. Union of India ( 1965 (3) SCR 439Says the learned Judge at page 959 : (SCC p. 633, para 3) 'The expression "having regard to" only obliges the government to consider as relevant data material to which it must have regard'."


In State of U. P. v. Renusagar Power Co. one of us (Mukharji, J., as he then was) observed


"The expression "having regard to" only obliges the government to consider as relevant data material to which it must have regard ..."


In O'May v. City of London Real property Co. Ltd. ( 1982 (1) ALLER 660 (HL), Lord Hailsham stated



"A certain amount of discussion took place in argument as to the meaning of 'having regard to' in Section 35. Despite the fact that the phrase has only just been used by the draftsman of Section 34 in an almost mandatory sense, I do not in any way suggest that the court is intended or should in any way attempt to bind the parties to the terms of the current tenancy in any permanent form ......" *


30. The words "having regard to" in the sub-section are the legislative instruction for the general guidance of the government in determining the price of sugar. They are not strictly mandatory, but in essence directory. The reasonableness of the order made by the government in exercise of its power under sub-section (3-C) will, of course, be tested by asking the question whether or not the matters mentioned in clauses (a) to (d) have been generally considered by the government in making its estimate of the price, but the court will not strictly scrutinise the extent to which those matters or any other matters have been taken into account. There is sufficient compliance with the sub-section, if the government has addressed its mind to the factors mentioned in clauses (a) to (d), amongst other factors which the government may reasonably consider to be relevant, and has come to a conclusion, which any reasonable person, placed in the position of the government, would have come to. On such determination of the price of sugar, which, as stated in Panipat ( 1973 (1) SCC 129 is the fair price, the sub-section postulates the calculation of an amount, with reference to such price, for payment to each producer who has complied with an order made with reference to sub-section (2)(f). The "price of sugar", unlike the "amount", is arrived at by a process of costing in respect of a representative cross-section of manufacturing units, bearing, of course, in mind the legislative instruction contained in clauses (a) to (d)


31. The Attorney General submits that orders determining the prices of sugar in terms of the sub-section are of general application and, therefore, legislative in character. Omission, if any, to consider the peculiar problems of individual producers is not a ground for judicial review. The petitioners; counsel as well as Mr. Venugopal appearing for the intervener (ISMA), do not agree. They submit that the sub-section contemplates only administrative or quasi-judicial order of particular application and impugned orders are not legislative. They rely upon a certain observation of this Court in Union of India v. Cynamide India Ltd. ( 1987 (2) SCC 720 Mr. Venugopal, however, hastens to add that his client does not seek personal hearing before prices are determined. Mr. B. R. L. Iyengar, supporting the contentions of the petitioners, points out that the expression 'determine' used in sub-section (3-C) indicates that the order to which the expression refers is quasi-judicial


32. Judicial decisions are made according to law while administrative decisions emanate from administrative policy. Quasi-judicial decision are also administrative decisions, but they are subject to some measure of judicial procedure, such as rules of natural justice. To distinguish clearly legislative and administrative functions is "difficult in theory and impossible in practice". (Comd. 4060 (1932), p. 73; see H. W. R. Wade, Administrative Law, 6th edn., p. 47) Referring to these two functions, Wade says



"They are easy enough to distinguish at the extremities of the spectrum : an Act of Parliament is legislative and a deportation order is administrative. But in between is a wide area where either label could be used according to taste, for example where ministers make orders or regulations affecting large numbers of people ......" *


(Ibid., p. 848)


Wade points out that legislative power is the power to prescribe the law for people in general, while administrative power is the power to prescribe the law for them, or apply the law to them, in particular situations. A scheme for centralising the electricity supply undertakings may be called administrative, but it might be just as well legislative. Same is the case with ministerial orders establishing new towns or airports etc. He asks : "And what of 'directions of a general character' given by a minister to a nationalised industry ? Are these various orders legislative or administrative ?" Wade says that the correct answer would be that they are both. He says : ".... there is an infinite series of gradations, with a large area of overlap, between what is plainly legislation and what is plainly administration" (Ibid). Courts, nevertheless, for practical reasons, have distinguished legislative orders from the rest of the orders by reference to the principle that the former is of general application. They are made formally by publication and for general guidance with reference to which individual decisions are taken in particular situations


33. According to Griffith and Street, an instruction may be treated as legislative even when they are not issued formally, but by a circular or a letter to the like. What matters is the substance and not the form, or the name. The learned authors say : "... where a Minister (or other authority) is given power in a statute or an instrument to exercise executive, as opposed to legislative, powers-as, for example, to requisition property or to issue a licence - and delegates those powers generally, then any instructions which he gives to his delegates may be legislative" (Principles of Administrative Law, 5th edn., p. 65). Where an authority to whom power is delegated is entitled to sub-delegate his power, be it legislative, executive or judicial, then such authority may also give instructions to his deleg

ates and these instructions may be also give instructions to his delegates and these instructions may be regarded as legislative. However, as pointed out by Denning, L.J., (as he then was) a judicial tribunal cannot delegate its functions except when it is authorised to be so expressly or by necessary implication : see Barnard v. National Dock Labour Board ((1953) 2 QB 18, 40) 34. Kenneth Culp Davis says : "What distinguishes legislation from adjudication is that the former affects the rights of individuals in the abstract and must be applied in a further proceeding before the legal position of any particular individual will be definitely touched by it; while adjudication operates concretely upon individuals in their individual capacity" (Administrative Law Text, 3rd edn., pp. 123-24. Justice Holmes' definition, which is what is called the "time test" and which Davis describes as one which has produced many unsatisfactory practical results, reads : (Prentis v. Atlantic Coast Line Co., 211 US 210, 226 : 53 L ed 150, 158-59) "A judicial inquiry investigates, declares, and enforces liabilities as they stand on present or past facts and under laws supposed already to exist. That is its purpose and end. Legislation, on the other hand, looks to the future and changes existing conditions by making a new rule, to be applied thereafter to all or some part of those subject to its power. The establishment of a rate is the making of a rule for the future, and therefore is an act legislative, not judicial ..." * 35. The element of general application is often cited as a distinct feature of legislative activity. In the words of Chief Justice Burger, "rule making is normally directed toward the formulation of requirements having a general application to all members of a broadly identifiable class". (Quoted by Bernard Schwartz in Administrative Law, p. 144 (1976) Bernard Schwartz says : "An adjudication, on the other hand, applies to specific individuals or situations. Rule making affects the rights of individuals in the abstract and must be applied in a further proceeding before the legal position of any particular individual will be definitely affected; adjudication operates concretely upon individuals in their individual capacity" (Ibid). According to Schwartz, the "time test" and the "applicability test" are workable in most cases, although in certain situations distinctions are indeed difficult to draw 36. A statutory instrument (such as a rule, order or regulation) emanates from the exercise of delegated legislative power which is the part of the administrative process resembling enactment of law by the legislature. A quasi-judicial order emanates from adjudication which is the part of the administrative process resembling a judicial decision by a court of law. This analogy is imperfect and perhaps unhelpful in classifying borderline or mixed cases which are better left unclassified. (See Davis, Administrative Law Text, p. 123) 37. If a particular function is termed legislative rather than judicial, practical results may follow as far as the parties are concerned. When the function is treated as legislative, a party affected by the order has no right to notice and hearing, unless, of course, the statute so requires. It being of general application engulfing a wide sweep of powers, applicable to all persons and situations of a broadly identifiable class, the legislative order may not be vulnerable to challenge merely by reason of its omission to take into account individual peculiarities and differences amongst those falling within the class 38. In Union of India v. Cynamide India Ltd. ( 1987 (2) SCC 720 Chinnappa Reddy, J. referring to the earlier decisions of this Court states : (SCC pp. 734-35, paras 5 and 7) "... legislative action, plenary or subordinate, is not subject to rules of natural justice. In the case of Parliamentary legislation, the proposition is self-evident. In the case of subordinate legislation, it may happen that Parliament may itself provide for a notice and for a hearing ... But, where the legislature has not chosen to provide for any notice or hearing, no one can insist upon it and it will not be permissible to read natural justice into such legislative activity "... It is true that, with the proliferation of delegated legislation, there is a tendency for the line between legislation and administration to vanish into an illusion. Administrative quasi-judicial decisions tend to merge in legislative activity and, conversely, legislative activity tends to fade into and present an appearance of an administrative or quasi-judicial activity" * Stating that rule making is of general application to all members of a broadly identifiable class while adjudication is applicable to specific individuals or situations, the learned Judge observes : (SCC p. 736, para 7)"A price fixation measure does not concern itself with the interests of an individual manufacturer or producer. It is generally in relation to a particular commodity or class of commodities or transactions. It is a direction of a general character, not directed against a particular situation. It is intended to operate in the future. It is conceived in the interests of the general consumer public. The right of the citizen to obtain essential articles at fair prices and the duty of the State to so provide them are transformed into the power of the State to fix prices and the obligations of the producer to charge no more than the price fixed. Viewed from whatever angle, the angle of general application, the prospectiveness of its effect, the public interest served, and the rights and obligations flowing therefrom.