Meenakshi Mills v. Union of India

398 SHREE MEENAKSHI MILLS LTD. _v._ UNION OF INDIA _November_ 26, 1973 [A. N. RAY, C.J., D. G. PALEKAR, Y. V. CHANDRACHUD, P. N. BHAGWATI AND V. R. KRISHNA IYER, JJ.] A B # • _Cotton_ _Textiles_ _(Control)_ _Order,_ _1948-Clauses_ 22, _30-Notlfication-_ _Fixation of_ _fair_ _price_ _of_ _Cotton yarn-Validity-Clauses_ 22. 30 _If ultra_ _vlrts_ _the_ _1_ _powers_ _conferred_ _by._ _s.,_ 3 _of the_ _Essential_ _Supp!les_ _(Temporary_ _Powers)_ _Act,_ _1946-Cotton yarn_ _if_ _'Colton and Woollen tex11les''-Order,_ _If_ _co11linued_ _under_ _Essential_ _Cofn111odilies_ _Act,_ _1955-Fixarion of_ _Fair_ _price_ _if_ _arbitrary_ _and_ _un-_ _reasonable-Co11stitutio11_ _of_ _/11dia,_ ' J _950-Artfrles_ 19(1) (/) _and_ _(g)_ _and_ 301. _EJ·sential Con11nodiries Act,_ _1955-Section_ 3 _sub-secs._ (3) 3(A) 3(~) _and_ C _3(C)-Scope-Price_ _fixation-Principles regarding._ ' - ·' _Constitution_ _of_ _/11dia,_ _1950-Articles_ 32, _358-lf_ _executive_ _action_ _taken_ _du ..._ _fllf?_ _nnergency has_ _110_ _aurhorily_ _as_ _a_ _valid_ _law_ _its consthutionality_ _can_ _be_ _challenged._ _Words and Phrases-Cotton_ _yarn,_ _if_ _''Cotton and Woollen textiles"._ Owing to the very low cotton crop there was unprecedented and phenorileD.al rise in cotton prices and there was a perceptible drop in yarn production. r:arty D in 1973 the yarn prices showed an upward trend in the fine and super fine counts. The power-loom and band-loom sectors which produced 47.1 pen.:ent of the total cloth production in the country, depended for the supply oi raw· material yarn on textile mills. Two thirds of the total yarn produced came from c-omposite mills. The composite mills competed with handloon1 and power-loom sectors in the production of cloth. Even thou~h the question of control and fixation of fair price of cotton textiles had received the attention ot the Government in the past pursuant to the recommendations of the TaritI Com· E mission and the Tariff Board, no control over the production and sale Of yarn was imposed until March, 1973 when the Government decided to bring yarn the under control two impugned notifications. in all respects, _viz._ _1_ The first notification prices, production and distribution and-issued was issued by the Textile Commissioner under clause 22 of the Cotton Textile (Control) OnJer, 1948. The notification determined the ex-factory price of count of yarn of 59s and below and count of yarn 60s and above. In the case of count of yarn of _59<;_ and below the price was to be the highest ex-mill price or the highest contracted price for delivery effected in :December, 1972. In the case of producers of F yam situated in States of Tamil Nadu and Pondicherry where the electricity cut exceeded 70% the relevant price as applicable was to be increased by 6 per cent. Jn the case of counts of yarn 60s and above the determined price was the regulated yarn price adopted for individual producers of yarn from the 1st day of August 1972~ increased by 6 per cent where there was no electricity power cut, and further increased according to the percentage of electricity cut. The term 'regulated price' under the notification meant the price calculated by taking the difference between the highest contract price as on June 1, 1972 or the G nearest date in case no sale was effected on June 1, 1972 and the highest price for the relevant count and form of packing during January, 1972 and allowing one half of the difference to be reduced from June 1, 1972 price. By a notification dated March 31, 1973, the Textile Commissioner authorised the Deputy Commissioners and the District Collectors to specify the maximum price of yarn to be sold by dealers. The m1Ximum price was to be fixed after taking into consideration (a) invoice pri,.,.~ of yarn (b) incidental charges (c) such reasonable marginal profit not exceeding 2 per cent of the invoice price as the Deputy Commissioner or the District Collector may determine in each case, and H (d) any other relevant factor. The notification was not applicable to yarn sold to hosierv industry and to yarn on beams delivered under specified circumstances. The second impugned notification was made by the Textile Commissioner 1n exercise of powers conferred under cl. 30(1)(b) of the 1948 order. .A ### c £ H MEENAKSHI MILLS _v._ UNION _(Ray,_ C./.) 399 The notification directed that no producer of yarn for civil consumption shall sell or deliver any such yarn produced by him except to such ~rson or persons and subject to such conditions as the Textile Commissioner tn1ght specify. The same noutication contained another direction under powers conferred by cl. 30( 1) (a) of the 1948 order that Cvtry producer of yarn for civil consumption shall sell or deliver such yarn only to five channels of distribution mentioned therein on the basis of the directions that might be issued from time to time by the Textile Commissioner. Thate five channels were (a) 1he nominees of the State Government; (b) the Handloom Export Promotion Council Madras; (c) the Cotton Textile Export Promotion Council, Bombay; (d) the Federation of Hoslery Manufacturers Association of lndiaas may be nominated by the Textile Comm111ioner 1 Bombay; In this behalf. The order andt (e) any other person of distribution tbroua:h channels was made inapplicable by successive notifications to yarn counts of 40s and below. However control was imposed In 1uch cases by another notiHcation at the }'9int of sale by a dealer of yarn to consumer by providing that eve'ry dealer shall sell or deliver yarn only to persons therein in such quantities as inay be determined by the Deputy Con1missioner or_ the Dis· trict Collector. 1n a petitlon under article 32 of the Constitution of lndia the petitioners questioned the validity of the two notifications on the following grounds : (I) the 1948 Order in so far as it purported to mak-e provisions ip respect of con· crol and distribution of cotton yarn by fixation of prices, more particularly by clauses 22 and 30 thereof, was _ultra vires_ the powers conferred on the Central Government by s. 3 of the Essential Supplies (Temporary _Powers) Act. 1946. inasmuch as cotton yarn wao; not covered by the item ""Cotton and Woollen textiles" and could not be brought within any other item; (ii) in any event the provisions of the 1948 Order relating to cotton yarn could net be said to have been continued· in force either under s. 16 .of the Essential Commodities Ordiimflce, 19SS 1 or under s. 16(2) of the Essential Commodities Act, _19SS,_ ns cotton yarn is not covered by the item "cotton and woollen textiles" under s. 2(a) (iv) of the _1955_ Act and no notification bad been issued declaring cotton yarn .as- an essential commodity in exercise of the powers conferred under s. 2(a)(xi) of the 19SS Act; (iii) on a true construction of s. 3 of the Essen· tial Supplies (Temporary Powers) Act, 1946 the power to issue orders in~re•· pect of essential commodities bavtng been conferred to ensure their availability at fair price such orders cannot validly confer arbitrary powers on the. -executive to fix prices of essential commodities unrelated to. the cost of production and reasonable margin of profit; in particular, yarn price control bad not followed the pattern of price control for cloth by Providing for periodic changes in the control price to allow for fluctuations in cost elements; sub sections (3). 3(A), (3B), and (3C) of .section 3 of Essential Commodities Act, _1955_ constituted a sin~le scheme and that what is implicit in sub section (3) is made explicit in sub section (3C); (iv)' if provisions of the Cotton Textlles Control Order conferred arbitrary power on the Textile Commissioner to fix prices for yarn unrelated to the cost of production and reasonable profits to the producer then the provisions become void by reason of infringement of fundamental rights guaranteed by Articles 19(1)(!) and (g) and 31 as well as Article 301 of .the Constitution; (v). if the 1948 Order did not authorise fixation of price of cotton yarn arbitrarily and without reference to relevant factors such as cost of production and reasonable return, the impug"ned notifications which fixed a price for yarn below the cost of production of the mills are _ultra vires_ the Cotton Textiles Control Order 1948, inasmuch as the prices fixed-. under the notifications were not based on relevant considerations such as cost of production, reasona· ble return, but were wholly arbitrary and based on irrelevant considerations; and (vi) the provisions of the second itnpugned notification regarding; channelisa· tion of vam distribution was arbitrarv and also created monooolv in favour· of soecified persons violating articles 19(1)(1) and (g) and· 301 of the Constitution. A preliminary objection· was raised oh behalf of the State that the petitions were not competent because of the Proclamation of Emergency. Disn1is'ii'lg the petition'-._ 460 SUPREME COURT REPORTS [ 1974] 2 S.C.R. HELD : The petitions are competent. If it can be shown that the executive A action taken during the emergency has no authority M a valid law its constitutionality can be challenged. The Cotton Textiles (Control) Order 1948 was continued by Essential Commodities Act, 1955. The impugned orders are made under pre-emergency Cotton Textile Control Order. The validity of the impugned orders is challenged under articles 19(1) (f) and (g) of the Constitution on the ground_that it is a pre-emergency executive order which could have been challenged under Article 19(1)(f) and (g) before the proclamation of emergency. From the point of view the petitions are competent though the challenge is insupportable. [428E-Fl 8 _Bennett Coleman_ & _Co._ case f 19721 2 S.C.R. 788, referred to. (l) Cotton yarn is included in cotton textiles. Yarn is the material or component with which cotton textile is manufactured or woven. The setting in which the words 'Cotton textile' are used has a legislative and executive understru1ding of the words consistently over a period of time. The legislative practice shows that cotton textile is a generic term which includes cotton fabric and yarn. One of the methods of construction of statutes is to ascertain the set.tinu. and circull).stance1; in which the words are used. [407Hi 4080] _K._ _R._ _Subbaier_ _v._ _The Regional Provident Fund Commissioner Madras,_ AIR 1963 Madras 112, _Kanpur Textiles Finishing Mills_ v. _Regional Provident Fund_ _Commi,uiouer,_ AIR 1955 Punjab 130 ·and _The Deputy Commissioner_ _of_ _Com-_ _nzercial Taxes, Madurai Division, Madurai_ v. _Madurai_ _Prl,nting_ _Tape Factory,_ 28 Sale:s Tax Cases 431. referred to. (ii) The 1948 Order continued under the Essential Commodities Act, _1955._ Since cotton yarn is included in cotton textiles it was not necessary to issue any notificaticln declaring cotton yarn as an essential commodity under s. 2(a) (xi) of the 1955 Act. The notification dated March 13, 1973, required an explanation to say that yarn for the purpose.~of notification shall mean all cotton yarn except sewing_ thread and industrial yarn like tyre cord. This explanation was necessmy to include all cotton yarn because the decentralised sector was facing ·severe y<irn shortage. [412C] _T!tc_ _Lotus Industrials, Kallai, Malabar_ _v._ _The State of_ _Madras_ _Development_ _Deparnnenr,_ _Madras,_ A.LR. 1952 Mad. 71S and _State_ _of_ _Bihar_ v. _Hira Lal_ _K•i,iwal,_ (1960] 1 S.C.R. 726, referred to. ## _c_ D E (iii) (iv) (v). Control over price and distribution of yarn is in the interest of the general public. Handloom and powerloom industries require protection and, therefore, control over the price and distribution of yarn is in the interest f of the general P.Ublic. f416Dl Just as the industry cannot complain of rise and fall of prices due to economic factors. in an open market, they cannot similarly complain of increase or reduction of prices as a result of notification under s. 3 ( 1) of the Essential Supplies Act, _1955,_ because, that increase or reduction is also based on economic factors. If fair price is to be fixed leaving a reasonable margin of profit there is never any questioin of infringement of fundamental right to carry on business. The question of fair price to the consumer with reference to the dominant object and purpose of the legislation claiming equitable distribution and availability at fair price is completely lost sight of if profit and the producer's return are kept in the forefront. The maintenance or increase of supplies of the commodity or the equitable distribution and availability at fair prices are the fundan1co· tal purposes of th~ Act. If the prices of yarn or cloth are fixed in such a way as to enable th~ manufacltirer or producer to recover his cost of production and secure a reasonable margin of profit, no aspect of infringement of fundamental right can be said to arise. In determining the reasonableness of restrictions imposed by law in the field of industry, trade or commerce, the mere fact that some of those who are engaged in these are alleging loss after the impcsitioo of the Jaw will not render the law unreasonable. By its very nature, industry or trade or commerce goes th.rough periods of prosperity and adversitv on account of economic and, sometimes, social and political factors. [419H; 420A-CJ G H ### ' A B ### c D E F G. H MEBNAKSHI MILLS v. UNION _(Ray,_ C./,) 401 When controls have to be introduced to ensure &vailabilit~ of coiiaumer goods at a fair price. it is an impracticable propositi~n. to require the .aovern·· ment to ao throuab the exercise like that of a. comml8S1on _tp_ fix ~e ~rices; A com1nlssion cannot always make a correct estimate Of a price 'Yh1ch 1s fair. to aU, because. there are intricacies in the trade of all profit making enterprises which a commission may not be able to probe. [420C] When available stocks,ao underaround and the Government has .to step in to control distribution and availab~ity i;t public interest, fix.in~ «?f ~nee. can be only empirical. "Reasonable restriction' connotes that the lumtatlon llllpo~ed on o. person in enjoyment of the right should not be arbitrary or of an excessive nature beyond what is required in the interest of the public. In the present case the leaislative measures have left the question of resolvina the economic prob· lems cf increasing supplies, equitable distribution and availability of csse.n.tial cornmoditic5' at fair prices to the judament · of the statutory authorities. [420E·FI The power to fix controlled price is in Section 3(2)(c) read withs. 3(1) and not in s. 3(3) of the 1955 Act. The controlled price fixed under s. 3(1) read \vith s. 3(2)(c) is different from price under sub-section (lA), (lB) and (lC). . [42l·Gt The control of prices may have effect either on ·maintaining or' increasing supply of commodity or sec.uring equitable distribution and availability at fair prices. Th:: controlled price has to retain this equilibrium in the supply and demand of the commodity. The cost of production and a reasonable return to the producer of the commodity arc to be taken into account. The producer must have an incentive to produce. The fair price must be fair not only from the point of . view of the consumer but also from the point of view of the pro· ducer. In fixing the prices, a price line has to be held in order to give prefe· rence or predominant consideration to the interest of the consumer or the general public over that of the producer in respect of essential commo.dities. The .aspect of ensuring availability of the essential commodities to the consumer equitably and at fair price is the most important consideraHon. The prooui:'! .. should not be driven out of bis producing' business. He may have to. bear loss in the same way as he does when he suffers losses on account of economic forces operating on the business. There is no justification that the producer should be given the benefit of pri'ce increase attributable to hoarding or corner· ing or artificial short supply. In such a case, if an ''escalation" in price is contemtilated at intervals, the object of controlled price may be stultified. Any restriction in excess of what would be necessary in the interest of general public or to remedy the evil has to be very carefully considered that the producer does nor perish and the consumer is not crippled. [422F·H; ·123A·B] Jn the present CJlSe the controlled price fixed reflects costs of production and·1 reasonable return. The inere suggestion that no provision is made for adjust. ment on account of changes in the cost of production does not amount to infrin· gement of fundamental right to carry on business and to .hold and dispose of property. There is no material to show that increase in yam prices was on account of cost of production. The fixing of controlled price is much more than a fair price to the producer on the date it is fixed. The prices of n!w cotton crop, that is for September, 1973 to August. 1974 are not known at the time of the fixation of price. Even when they are known the petitioners will have to show with reference to the different types of mixes used in producinp yarn,, the impact of cotton prices on the cost of production of that categorv of yarn. Further, even if there is increase in the cotton prices, the· petitioners· can abso~b it because the controllecj price fixed is more fair to the producer. If he· sustains alleged losses fpr some time, it will be a reasonaDle restriction because· the obiect of the price control is to bold the price line or revert the 'prk:cs to. normal levels and make availabte· cotton yarn to the handloom and powerloo1n w~avers at a fair price which will enable them to withstand competition from mill made cloth. It is not shown that the controlled price is so grossly inade qua.!~ that it not only results in huge losses but also in a threat to the supplv pes1t1on of .Yarn .. ~e ~ontrolled price is ~~ the interest of th' countrv . as Q whole f<?r JUSt d~stnbutton of basic necessities. Th~ controllerl price i>. then~·· fore, neither arbitrary p.or an unreasonable restriction, [424C·F] 402 SUPREME COURT REPORTS ( 1974 j 2 S.C.R. _Diwan Sugar_ .l _Gential Mills_ v. _C,!nion_ _of India_ [1959] Supp. 2 S.C.R. 123, A _.Sri, Kriih1Ja_ _Rice Mills_ v. _Joint Director (Food).t Vijayawada_ (Civil Appeal Nos. 1026·1031 etc. of 1963 dated 27 January, _1Y65,) Hari Shankar Bag/a_ v. _The State_ _of Madhya Pradesh_ _£1955]_ I S.C.R. 380, _Union_ _of_ _India_ v. _Bhanamal_ _Gulz.arimal_ [1960] 2 S.C.R~ 6_'1.7, _State_ _of_ _Rajasthan_ v. _Nathmal·&._ _Mitliamiil_ (1954] S.C.R. 982. _Dwarka Prasad_ _Laxmi_ _Narain_ v. _State_ _of_ _U.P._ [1954] S.C.R. 830, _qinraman_ _Rao_ v. _State_ _of_ _Madhya Pradesh_ [1950] S.C.R. 759 and _Secre-_ _tary_ _of Agriculture_ v. _Central Reig Refining Company_ (94 Law Ed. 381-338 U.S. 604-620). referred _to._ B _Panipat Co-operative Sugar Mills_ v. _Union_ _of_ _India_ (A.I.R. 1973 S.C. 536) and _Ankaoalfe_ Co~opuatlve _ARricultural_ & _Industrial_ _Society Ltd._ v. _Unk>n_ _of_ India (AJ.R. 1973 S.C. 734), held inapplicable. _Premier Automobiles Ltd._ v. _Union,o,_ _India,_ [19721 2 S.C.R. 526, ·distinguished. (vi) By the channelisation of yarn distribution what is sought to be achieveJ is price control as well as distribution control to meet the problems of avail-. ability of goods at reasonable prices. The contention that the distribution channels are monopolies in favour of specified persons is unsound. The channels of distribution are·agencies of the State and associations of users of cotton yarn. The requirement not to sen yam at a price above the maximum price operates on all distributing channels. The distribution control is intended to ensure availability of yarn at reasonable or fair price. It is not that all dealers in yarn have been tlenied. the right to carry on trade. It is denied only to those whose carrying on trade in yarn would not, in the opinion of the Textile Cemmissioner, ensure availability of yarn to ·actual consumers at the fair price. Elimination of persons who b.ave boarded or cornered' or are unscrupulous in distribution is httcnded in public' interest. This is a reasonable restriction in the interest of general public and is contemplated in Article 19(6) of the Constitution. [426C-0] _/lashblhari Panda_ v. _State_ _of_ _Orissa._ [19691 3 S.C.R. 374. _Bliatnagars_ & _Ce,_ _v._ _Union_ _nf_ _Indla,_ [19571 S.C.R. 701. _Manna/a/_ _Jain_ v. _Slate_ _of_ _Assa111,_ [1962) 3 S.C.R. 936. _Mis Daruko_ & _Co._ v. _Union_ _of India,_ W.P. No. _94_ of 1972 .and _Gla.fs Cl1alon_ case, f19621 1 S.C.R. 862, referred to. ORIGINAL JURISDICTION: Writ Petitions Nos. 734 & 1132 of 1973. Under Art. 32 of the Constitution of India for the enforcement of the fundamentol rights. ### c D E - _M._ _K._ _Rama11;urthy_ and _J._ _Ramamurthy,_ for the petitioner, (in W.P. No. 734/73). F _F. S. Narima11,_ Additionai Solicitor General of India and _S. P. Nayar,_ for the respondents (in W.P. No. 734/73). _M._ C. _Seta/vad_ and _J._ _Ramamurthy,_ for intervener No. 1. _M._ C. _Cha1;/u,_ _E.·_ C. _A11arwa/a,_ _K._ C. _Agarwa/a_ and _A._ _T._ _M._ _SampaJh,_ for intervener No. 2. G _J._ _Ramamurthy,_ for intervener No. 3. _A._ _Subba_ _Rao,_ for intervener No. 4. _P._ C. _Bhartari,_ S. _Swarup,_ _J._ _B._ _Dadachanji_ and _Ravinder_ _Narain,_ ior intervener No. _5._ _Shyamala_ _Pappu,_ C. _R._ _Somasekharan,_ _Urmila_ _Sir.ur_ and _T._ _V._ _S._ _Nara.<imhachari,_ for intervener No. 6. _0._ _P._ _Khairan_ and _P._ _N._ _Tiwari,_ for intervener No. 7. H MEENAKSH! MILLS _v,_ UNION _(Ray,_ CJ.) 403 A _J._ _C._ _Bhatt, S._ _0. Colabawalla,_ _S._ _Swarup,_ _J. J._ _Bhatt, I._ _B. D.__ _chanj;_ and _Ravinder Narain,_ for intervener No.· 8 to 11. _J._ _P._ _Goyal_ and _R. A. Gupta,_ for intervener No. 12. _A._ _B._ _Sinha, B._ _P._ _Maheshwari_ and _Suresh Sethi,_ for the petitioner (in W.P. No. 1132/73). _F._ S. _Nariman, G. L. Sanghi_ and S. _P._ _Nayar,_ for the respon· dents, (in W.~. No. 1132/73). The Judgment of the Court was delivered by RAY, CJ.-The petitioners challenged Notifications No. CER/3/73· dated 13 March, 1973 and CER/16/73 dated 13 March, 1973 described as the first and the second impugned notifications. There was unprecedented and phenomenal rise in cotton prices in the closing months of 1970 and in January, 1971. There was a very low cotton crop in 1970-71 season .. There was a perceptible drop· in yarn production. Yarn is produced in hanks for handloom8 and cones, beams and pirns for powerlooms and cones for hosiery industry. There was rise in prices. This strengthened the hands of the weavers in their agitation. The Yarn Pool Scheme was devised in February,. 1971. This was a voluntary effort on the part of the cotton m'll industry to afford some relief to small weavers in the handloom and powerloom sector. The scheme covered cotton yarn in counts of 20s, **B** ### c **D** **E** **F** G **H** 30s and 40s both in hanks and hosiery cones and in counts of 20s, 24s, 30s, 34s and 40s in weaving cones. Under this scheme the mills participating in it had to supply yarn at.prices equivalent to the average of prices ruling_ in the last quarter of 1970. :As a compensation, the par ticipating mills were allotted foreign cotton at a concessional rate of premium and were ~itted to sell such Cotton in the market. The yarn thus made available was allocated to the various States by the Textile Commissioner. The quantity of yarn covered by the Pool Scheme depended upon the quantum of foreign cotton made available for the purpose. In the second quarter of 1972 prices of superfine counts, namely, 60s and above began to rise. The causes were first; shartfall in production caused by prolonged labour strike in Coimbatore and other textile centres in Tamil Nadu; second, an increase in the spindle cost of foreign cotton; third revival of export demand for cotton yarn, and, f()Urth, large scale unauthorised despatch to foreign countries. In order to arrest this trend, the industry reached an understanding with the Textile Commissioner in July, 1972. Under this agreement the mills were to supply _SO_ per cent of the yarn of 60s and above meant for sale in the market at agreed prices. The agreed prices were the average of the highest contract price in January, 1972 and the highest contract price on 1 June, 1972 or near about the date. This price was known as the '!regulated price". The 'arrangement came into force from 1 August, 1972. This scheme suffered a setback in the last quarter of 1972. This· waa because of severe {>OWet cuts in. **Tamil** Nadu, Uttar Pradesh, Gujara~, Maharashtra, Punjab, Haryana, Mysore and Andhra Pradesh .. I - _404_ SUPREME COURT REPORTS [ 1974 J 2 s.c.R. The dowl)ward trend in production which had begun to manifest in the A last quarter of 1972 gathered further momentum in the first quarter of 1.973. As co~pared with th~ third quarter of 1972 when the production was the highest the fall m yarn and cotton production in the first quarter of 1973 was 15 per cent and 12 per cent respectively. The decline ~as _6_ per cent i!l yarn and 7 per cent in cloth production compared with the same period of 1972. There was of course·a prolonged B labour strike in February, March, 1972 in Coimbatore and for a short period elsewhere in Tamil Nadu. There was a marked fall in production in that State. It may be stated here that Tamil Nadu has 23 per cent of India's total spindleage and 4.4 per cent of loomage. The ~umP.er crop in 1971-72 season had impact on yarn and cloth produc· t1on m . the second quarter of 1972. ### c Early in 1973 the upward trend of yarn prices rose in fine and ·superfine counts. The Southern India Millowners' Association offered to the Government the entire free yarn production of all counts of its .member mills at prices to be mutually agreed to between the ind us try and the Textile Commissioner. The Southern Association wanted the Jndian Cotton Mills Federation to take the initiative for arriving at an •understanding with the Government at an all-India level. The mills D in North India were of the view that prices of coarse and medium ·Counts had not gone up appreciably as compared with the pool prices and were either steady or even lower in some cases than those at the commencement of 1972 and therefore there was no case whatever for subjecting them to control. The Indian Cotton Mills Federation -strove hard for an understanding with the Government for some form ·Of voluntary control on production, distribution and prices which would E .be beneficial for all the interests concerned and ensure price stability, ·and smooth and orderly movement of yarn to the lakhs of weavers in the decentralised sector. The Government decided to bring all yarn under control in all res·pec\S, _viz.,_ prices, production and distribution. The stocks <?f yarn with mills which had stood at 94,400 bales (of 180 kgs. each) m September, 1972 dropped by December, 1972 to 70,000 bales and still ·further to 42,200 bales by the end of February, 1973, the lowest on record for the last ten years. By the end of March, 1973 they had gone up to as much as 108,600 bales, and by the end of April to I 7 8 000 bales. The Government wanted to rectify the imbalance ~tween .production and deliveries of yarn in hanks, cones, pirns, and beams. It was felt that the situation appeared to be man made. In 1972 India exported 21.9 million legs. of yarn out of the total production of 975 million kgs. The export of handloom goods needed special attention. In this context the suggestions were, first, deliveries of yarn in hanks, and, second, requirements of hosiery sector should be met; third, the recent rise in price was unjustified and they should revert to normal levels; fourth, the responsibility for distribution should be assumed by the concerned Governments; ·fifth,_ yarn export should continue; and, sixth, the handloom sector should be specially fed with the requisite raw mat~rials. F G H A B #### c D E _I_ MEENAKSHI MILLS _V._ UNION _(Ray,_ C./,) 405 The Government felt that the producers of cotton yarn would be . prohibited from selling yarn except in small qu~ntities m the form <if beams meant for power-looms to the trade or to anyone else except to the nominees of the Textile Commissioner. Second, the manufacturers of yarn shall sell only to nominees of the Textile Commissioner. Third, the manufacturers for civil consumption shall have to pack not less than 60 per cent of such yarn in the form of hanks for handlooms and not tess than 30 per cent in the form of cones for powerloom. Fourth, mills producing and 3upplying hosiery yarns shall have to continue to do so unller a statutory order. Fifth, prices shall be notified up to counts 40s and below in. one group adopting the market prices of December, 1972 as mention~. in the first impugned notification and in regard to counts 60s and above the regulated yam prices as mentioned in the second impugned notification. F G H The first impugned notification is issued by the Textile Commissioner under clause 2Z of the Cotton Textiles (Control) Order, 1948 hereinafter referred to as the 1948 Order. The notification determines the ex-factory price of, count of yarn of 59s and below and count of yarn of 60s and above. In the case of count of yarn of 59s and below t_he price is the highest ex-mill price or the high_est contracted price for deliveries effected in December, 1972. In the case of pro ducers of yarn situated in the States of Tamil Nadu and Pondicherry where the electricity cut exceeds 70 per cent the relevant price as applicable may be increased by 6 per cent. ' Jn the case of counts of yarn of 60s and above the determined price is the regulated yarn price adopted for individual producers of yarn from the tlrst day. of August, 1972, increased by 6 per cent where there is no electricity power cut, increased by 8 per cent where there is electricity cu~ !'ot exceeding 20 per cent, increased by 12 per cent where the electr1c1ty power cut exceeds 20 per cent but does not exceed .50 per cent and increased by 18 per cent in the case of producers of yarn in the States of Tamil Nadu and Pondicherry where the electricity power cut exceeds 70 per cent. The term "regulated price" under the notification shall mean the price calculated by taking the difference between the highest contract price as on 1 June, 1972 or the nearest date in case no sale was effected on 1 June, 1972 and the highest price for the relevant count and form of packing during January, 1972 and allowing one-half of the difference to be reduced from 1 June, 1972 price . . The. first impugned notification was l'.ot applicable to yarn sold to hosiery industry and to yarn on beams delivered under specified circum· stances. There is no fixation of maximum retail .price at the point of sale to the consumer. By a notification dated 31 March, 1973 the Textile Commissioner authorised the Deputy Commissioners and the District ·Collectors to specify the maximum price of yarn to be sold by dealers. The maximum price is to be fixed after taking into consideration (a) in\>oice price of yarn, (b) incidental charges, ( c) such reasonable 406 SUPREME COURT REPORTS ( 1974 j 2 S.C.R. margin of profit not exceeding two per cent of the invoice price as the Deputy Commissioner or the District Collector may determine in each case, and (d) any other relevaqt factor. The second impugned notification is made by the Textile Commissioner in exercise of powers conferred under clause 30(1)(b) of the 1948 Order. The notification directed that no producer of yarn for civil consumption shall sell or deliver any such yarn produced by him except to such persons or persons and subject to such conditions as the Textile Commissioner might specify. The same. notification contained another direction under powers conferred by clause 30(1) (a) of the 1948 Order that every producer of yarn for civil consumption shall sell or deliver such yarn only to 5 channels of distribution mentioned therein '"on the basis of the directions that might be issued from time to time by the Textile Commissioner. Those 5 channels are : (a) the nominees of the State Government; (b) the Handloom Export Prqmotion Council, Madras; ( c) the Cotton TeX!iJe Export Promoti'?n Council, Bombay; ( d) Federation of Hosiery Manufacttrrers' As.sociation of India, Bombay, and ( d) any other person as may be nommated by the Textile Commissioner in this behalf. The order of distr:Jution thfough chann$ls was not applicable under notification dated 21 June, 1973 to yarn counts of 17s and below, _later under notification dated 18 July, 1.973 to counts of 35s and below and finally by notification date,! 4 August, 1973 to counts of 40s and below. The control is at the point of sale by .a' dealer of yarn to consumer by another notification dated 31 ~efi, 1973. This notification provided that every dealer shall sell or.deliver yam only to persons specified there in such quantities as may be determined by the Deputy Commissioner or the District Collector. The persons specified are first, the nominees of the State Government, and, second, any other person as may be nominated by the Textile Commissioner. This control at the dealers' level is in operation in respect of yarn of counts of 40s and below. The first contention of the petitioners is that the 1948 Order in so far as it purports to make provisions in respect of control and distribution of cotton yam by fixation of prices etc. more particularly by clauses 22 and 30 thereof is _ultra vires_ the powers conferred on the Central Government by Section 3 of the Essential Supplies (Temporary Powers) Act, 1946 hereinafter referred to as the 1946 Act, inasmuch as cotton yam is not covered by the item "Cotton and woollen textiles" and cannot be brought within any other item. A B ### c D E F _G_ H The first question turns on the consideration whether cotton yarn is covered in cotton textile. The Cotton Textile Order, 1948 is the relevant statute. The petitioners contend that cotton yarn is not cotton textile for these reasons. The dictionary meaning of "cotton textile" is that textile is a woven fabric and any kind of cloth. Cotton textile is a finished product. Cotton textile is an end product. Cotton textile therefore, cannot be yarn. In the report of Price of Cotton Yarn and Cloth published in the year 1962 cloth and yam are treated 'separately,' arni, therefore, yam is not within cotton textile. MEENAKSll!°MILLS -y, UNION _(Ray,_ C.J.) 407 **A** Coun.<el for the petitionel'S relied on the decisions in _K._ _R. Subbaier_ v. _The· Regional_ _Provident_ _Fund_ _Commissioner,_ _Madras_ reported in AIR )963 Madras 112, _Kanpur_ _Te1Ctile_ _Finishing_ _Mills_ v. _RegiOnal_ _Provident_ _Fund_ _Commissioner_ reported in AIR 1955. Punjab 130 and _The Dcp.uty Commissioner of Commercial Taxes, Madurai Division,_ _Madurai_ v. _Madurai_ _Printing_ _Tape_ _Factory_ reported in 28 Sales Tax Cases .431 in supp6rt of the proposition that the word· 'cotton textiles' **B** should be so construi!d as not to include cotton yarn. In _Subbaier_ case (~upra) the eir.pression 'textiles' was defined to include th·e products of carding, spinning, weaving, finishing and dyeing ·yarns and fabrics, printinP,, knitting and e01broidering. The questio.n arose as to whether a factory Ii!anufacturing tapes, wicks, braided cords and sewing thread reels was an industry engaged in the manufacture of textiles. Tapes and lamp wicks were held to be the products of weaving, if not C knitting. The word 'textile' according to the Oxford dictionary means 'of weaving'. In _Kanpur_ _Textile_ _Mills_ case (supra) the expression 'textiles' which had the same definition as in _Subbaier_ case (supra) wa~ held to include anything from yarn to woven material. . In _Madurai_ _Printing_ _Tape._ _Factory_ case (supra) the question ·Was whether tape was textile. It was held that the ingredient of textile is necessarily weaving and tapes made as a result of weaving would be within the Q meaning of the entry 'textiles'. These decisions show that textiles ordinarily mcarrs cloth and yarn. In Cutton Textiles Order, 1948 the word.'yarn' means any type of yarn manufactured either wholly from cotton or partly from cotton and partly from any other materil\l. Clause 20 of the Order confers power on the Textile Commissioner to issue directions to manufacturer E regarding the classes or specifications of cloth or yarn which manu- \ facturer shall or shall not manufacture. Clause 22 confers power on the Tpxtile Commissioner to specify the maximum prices at which any clas; or specification of cloth or yarn may be sold. Clause 30(2) **cdnfer;** **poy,·et** **on the Textile· Commissioner with a view to securing** a proper <listribution of cloth or yarn to issue directions to any manufacturer or dealer to sell or deliver specified quantities of cloth or yarn F to specified persons. The Cotton Textiles Order also shows that cloth and yarn are both embraced within the word 'textiles' in the various clauses of the Order. The dictionary meanings of cotton textile are any material that is **woven, a** **inateria1,** **as** **a** **fibre** **or** **yarn,** **used** **in** **or** **suitable** **for** weaving~ woven or capable of being woven. The meaning of "textile" G as a noun is a fabric which is or may be woven. a fabric made by weaving, a woven fabric, or a material. suitable for weaving, textile nMterial. The dictionary meanings show that cotton yarn jg included in cotton textile. The setting in which the wotds "cotton textile" ar~used has a legislative ~nd executive understanding of the words consistently over **H** a oeriod of time. There are also decisions of Courts which accepted· yarn to be within textile. The Cotton Cloth and Yarn Control Order, 1943 was made in exercise of powers conferred bv Ruic 81 of the · . Defence of India Rules. Cloth and yarn 'in that Order mean and 14-LS22Sup CT/74 ' 408 SUPREME COURT REPORTS [ 1974 J 2 S.C.R. include respectively cloth and yarn manufactured either wholly or partly from cotton. The Cotton Cloth and Yarn Control Order, 1945 repealed the Cotton Cloth and Yarn Control Order, 1943. The meaning of cloth and yarn was the same as in the Control Order of 1943. There is cognate l•gislation which treated yarn as cotton textile. The Tariff Act, 1934. in section 11 speaks of textile materials and textile goods and yarn is included there. Trade Marks Act, 1940 in section 62 read with Trade Marks Rules 96 and. 97 treats cotton yarn as textile goods. The Cotton Textiles Cess Act, 1948 provided for **levy of cess on cloth** **and** **or** **yarn.** **The expressions 'cloth'** **and** **'yarn·** are defined to mean cloth and yarn of which prices. fixed by any order made µoder section 3 or continued..by section 17 of the Essen~al Supplies (Temporary Powers) Act, 1946 were in force immediately before the commence!llent of that Act. The Cotton Textile Compmie; (Management of Undertakings and Liquidation or Reconstruction) Act 29 of 1967 defines cotton textile to mean yarn or fabrics made either wholly or partially of cotton. The legislati\'e practice shows that cotton textiles is a generic term which includes cotto~ fabric and yarn. One of the methods of construction of statutes is to ascertain the setting and circumstances in which the words are used. The entire product is cotton textile ... Yam is the material or component with which cotton textile is manufactured **or woven.** The second contention on behalf of the petitioners is that in any event the provisions of the 1948 Order relating to cotton yarn cannot be said io have been continued in force either under section 16 of the Essential Commodities Ordinance 1955 or under section 16(2) of the Essential Commodities Act, 1955 hereinafter referred to as the 1955 Act as cotton yarn is not covered by the item "Cotton and woollen textiles" under section 2(a) (iv) of the 1955 Act and no notification had been issued declaring cotton yarn as an essential commodity in exercise of powers conferred under section 2(a)(xi) of the 1955 Act. It is also said that as a matter of fact such notification was issued only on 31 March, 1973. As the Defence of India Act would come to an end on 30 September, 1946 the Government of India Act, 1935 was amended by the British Parliament by the Indian Central Government and Legislature Act, 1946. Section 2 of 1946 Act provided "notwithstanding anything contained in the Government of India Act, 1935 the Indian Legislature **shall have po\ver** **to** **make laws with respect to** **trade** **and** **commerce** (whether or not within a province) in and production, supply and distribution of cotton and woollen textile, paper products, petroleum and petroleum products, spare parts of mechanically propelled vehicles, coal, iron, steel. and mica". The Centre could not legislate on production, supply and distribution of goods and trade and commerce therein after the emergency came to an end. Entries 27 and 29 of List If of the Government of India Act, 1935 would support that. The proclamation of em~rgency was revoked from 1 April, 1946 and laws **B** ### c **D** F **G** **H** A MEENAKSHI MILLS _v._ UNION _(Ray,_ C./.) 409 made by the Dominion Legislature in the field of the Provincial Legis· · Jativ~ List were to cease to have effect after 30 !!eptember, 1946, The Essential Supplies (Temporary Powers) Act, 1946 received assent of the Governor General on 19 November, 1946 and came into force. Various orders issued under the Defence of India Rules including Cotton and Yarn Control Order 1945, Cotton Textiles Control of Movemenl Order 1946, Cotton Cloth and Yarn Forward Contracts Prohibition Order, ·1945 and the Cotton Textiles Raw Materials and Stores Order, 1946 continued. The notification fixing maximum price of cotton yarn anJ cloth under the .Cotton Cloth and Yarn Control Order, 1945 also continued until 28 January, 1948. On 19 February, - 1948 the Cotton Textile Control Order was issued under section 3 of C the Essential Supplies (Temparary Powers) Act, 1946. The cotton Cloth and Yarn Control Order, 1945 was repealed. There was no power to control price of yam and cloth. There was only power to control quantities and specification of cloth and yam. The Cotton Textile Control Order 1948 was issued in the month of August, 1948 repealing the earlier Order. ·Jn the new Cotton Textile Control Order of 1948 provision was made for controlling the price of cloth and D yarn. From 1948 to 195.3 there was control of distribution and price of cloth and yarn by various notifications issued under Cotton Textiles Control Order, 1948. F G H The Yarn Distribution Scheme was framed under clause 30 of the Cotton Textile Control Order, 1948. This was held to be valid by the Madras High Court in the decision in _The_ _Lotus Industrials,_ _Kallai,_ _Malabar_ v. _The_ _State_ _of_ _Madras_ _Development_ _Department,_ _Madras_ reported in A.l.R. 1952 Mad. 715. In 1948 Cotton Textiles Control of Movements Order was promulgated under section 3 of the Essential Supplies (Temporary Powers) Act. This order controlled the movement of cloth and ·yam in India. . The Cotton Textiles Control of Movement Order, 1948 was held to have continued in force after the expiry of Essential Supplies (Temporary Powers) Act, 1946 by reason of the saving clause (section 16) of the Essential Commodities Act, 1955. (See _State_ _of_ _Bihar_ v. _Hira_ _Lal_ _Kajriwal_ [1960] 1 S.C.R. 726. In 1949 the Cotton. Textiles (Export Control) Order, 1949 was made to provide for control of export of cloth and yarn. The notifications under this Order were issued regarding yarn. In 1949 the Essential Supplies (Temporary Powers) Ordinance 14 of 1949 was issue~ amending Essential Supplies (Temporary Powers) Act, 1946. To the list of essential commodi.ties were added. raw cotton, cotton seed, ·coke and other derivatives of coal. Essential Supplies Temporary Powers (Amendment) Act, 1949 replaced Ordinance 14 of 1949. The Industries (Development and Regulation) Act, 1952 in section 2 provided expedient to take under control .indu5tries set out in the Schedule. Item 23 in the Schedule related to textiles made wholly or in part of cotton including cotton yarn, hosiery and rope. 410 SUPREME COURT REPORTS [ 1974] 2 S.C.R. The E&sential Supplies (Temporary Powers) Act 1946 came to a.1 end by operation of Article 369 of the Constitution on 26 January, 1955. On the same day Essential Commodities Ordinance 1955 was promulgated under Entry 33, of List III. The Essential Commodities Act I of 1955 came into force on 1 April, 1955. The objects and reasons of the 1955 Act were that under Article 369 of the Constitution Parliament had power for a __ period of five years from the commencement of the Constitution to make laws with respect to trade and commerce in and production, supply and distribution of certain essential commodities. The life of the Essential Supplies (Temporary Powers) Act 1946 was limited to 26 January, 1955. The essential commodities to which the 1955 Act applied fell into **two** **broad** **categories.** **The** **first** **consisted of coal, textiles,** **iron,** **steel** and paper, etc. which are products of industries under Union control. The second related to foodstuffs, cattle fodder etc. which are not products of such industries. On 19 October, 1962 a notification was issued under section 2(xi) of the Essential Commodities Act, 1955 declaring commodities specified therein used in the process of manufacturing yarn and machinery for manufacturing cloth. T~xtile Machinery Production and Distribution Order, 1962 was issued under section 3 of the Essential Commodities Att, 1955 for controlling use and distribution and sale of textile machinery including machines used in manufacture of yarn. These legislative measures show that in regard to the scope of these controls in some cases it is possible with reference to the circumstances relating to nature and use of the commodity in question to institute control right from the point of origin to the point of ultimate consumption. In regard to other commodities control has to stop at some i1<termediate point. The methods of control also vary from commodity to commodity. In regard to the very important matter of the method of pricing, one method is adopted regarding cloth and another method is adopted in regard to steel . and a third in regard to other commodities. Empiric process has been resorted to in tbis organisation of system of control. The 1948 Order was made under section 3 of tb.e _1946._ E€sential Supplies Temporary Pow.ers Aet referred to as the 1946 Act. Section 16(2) of the 19.55 Act which repealed the 1946 Act continued. the 1948 Order. The 1946 Act was to provide for the continuance during a limited period of powers to control production. supply and distribution **and** **tradi.::** **and commerce** **in** **certain commodities.** **Cotton** **tetxiles** formed one of the essential commodities specified in section 2(a)(ii) of the 1946 Act. The 1955 Act was also enacted to provide for the control of production, supply .and distribution and trade and commerce in certain commodities. Cotton textiles is one of the essential commodities spedficd in section 2 (a) (iv) of the 19 5 5 Act. Section 3(1) and (2) of the. 1946 Act empowered the Central Government for maintainin~ or increasing supplies of essential commodities or for securing their equitable distribution and availability at fair price to regulate or prohibit ~roduetion. supply and distribution A ### c D F G II _B_ MEENAKSHI MILLS _V._ UNION _(Ray, CJ.)_ 411 thereof and trade and commerce. Such orders could provide tor control of prices of essential commodities, and require any person holding stock to sell whole or specified part at such prices and to such persons as specified in the Order. The Central Government under the 1946 Act cou.ld regulate the distribution and supply of essential commodity. The Central Government could delegate its· power to any officer or authority mentioned therein. The 1955 Act contains similar power of the Ceniral Government to regulate or prohibit production, supply and distribution and trade and commerce· in essential oommodities for maintaining or increasing supplies of essential commodities. or for securing their equitable distri bution and availability at fair prices or for securing any' essential com### e . modity for the Defence of India or for the efficient conduct of military operations. The _1955_ Act also contains similar power to control the prices .at which essential connnodities may be bought or sold or to require any person holding stock of essential commOdity to sell the whole or specified part to the Central Government or the State Government or other persons mentioned therein. The _1955_ Act empowers the Central Government to provide for regulating or prohibiting producD tion, supply anci distribution of essential commodities. E F G H Secti.on 3(3) of the 1955 Act provides that where any person sells essential commodity in compliance with an order made with reference to clause (f) of sub-section (2) there shall be paid to him (a) price •greed, if it is consis'tent with the controlled price, (b) the price calculated with reference to the· controlled price if no agreement could be reached, ( c) the price calculated at the market rate prevailing in the locality at the date of sale, if neither clause (a} nor clause (b) applies. · Clause 22 of the 1948 Cotton Textiles Control Order provides that the Textile Commissioner may specify the maximum prices, ex-factory, wholesale and retail, at which any class or specification of cloth or yarn may be sold; or the principles on which and the manner in. which such maximum,prices may be determined by a manufacturer, and the markings to be made by a manufacturer or .dealer on any class or specification of cloth or yarn manufactured or sold by him and the time and manner of making such markings. The 1948 Order wa3 amended by Cotton Textiles (Control) Amendment Order, 1972. As a result of the amendment clause 30 of the 1948 Order was sub~ stituted by clause 30 ill' 1972 Order. The amended clause 30(a) is that the T~xtile Commissioner may, with a view to securing proper distribution of cloth or yarn and with a view to securing compliance with the provisions of this Order, direct any manufacturer or dealer, class of manufacturers or dealers (a) to sell or deliver specified quan tities of cloth or yarn to specified persons, (b) not to sell or deliver ck·'. or yarn or specified description µcept to specified persons and sub1ect to such conditions as the Textile Commissioner mav snPdfv. The amended ·c1ause further provided that the manufacturers or dealers shall comply with the directions and the Textile Commissioner in 412 SUPREME COURT REPORTS [ 1974] 2 S.C.H. making orders shall have regard to the requirements of categories of persons mentioned in sub-clause (a), the availability. of cloth ·or yam of different descriptions and the requirement of any local area. Clause 36 of the 1948 Order provided that any person aggrieved by an order of the Textile Commissioner may prefer an appeal to the Central Government within thirty days of the date of communic'!,tion of such Order and the decisj\)II of the Central Government thereon shall be final. The 1948 Order continued under the Essential Commodities Act, 1955. Cotton yarn is included in cotton textiles. It was, therefore, not necessary to issue any notification declaring cotton yam as an essential commodity under section 2(a) (xi) of the 1955 Act. The notification dated 13 March, 197~ required an explanation to say that. yarn 'for the purpose of the notification shall mean all cotton yarn except sewing thread and industrial yarn like tyre cord. This explanation was necessary to include all cotton yarn because the decentrahsed sector was facing severe yarn shortages. The third contention on behalf of the petitioners is that on a true construction of Section 3 of the Essential ·Commodities Act, 1955 the power to issue orders io respect of essential commodities having been conferred to ensure their availability at fair prices such orders cannot validly confer arbitrary powers on the execntive to fix prices of essential commodities unrelated to the cost of production and reasonable margin of profit. It is said 4iat clause 22 of the Cotton Textiles Control Order, 1948 which is continued by the . Essential Commodities Act, 1955 cannot be construed as authorisiog the Textile Commissioner to fix an arbitrary price for essential coinmodities. The fourth contention is that if the provisions of the Cotton Textiles Control Order confer arbitrary power on the Textile Commissioner to :!ix prices for yarn unrelated to the cost of production and reasonable profits to the producer then the provisions become void by reason of infringement of fundamental rights guaranteed by Articles 19(1) (f) and (g) and 31 as well as Article 301 of the Constitution. The fifth contention is that if the said Order does not authorise fixation of price of cotton yarn arbitrarily and without reference to relevant factors such as cost of production and reasonable return, the impugned notification which fix a price for yarn below the cost of production of the mills are _ultra vires_ the Cotton Textiles (Control) Order, 1948 inasmuch as the prices fixed under the said notifications **are** **not based on relevant** **con·siderations** **such** **as** **cost of production,** reasonable return, but are wholly arbitrary and based on irrelevant **considerations.** These three contentions turn on the question as to whether controlled pric~ fixed under the impugned notifications has been fixed arbitrarily and it constitutes an unreasonable restriction on the fundament•l rights of the petitioners and Article 301. The question of fair price of cOlton textile in the sphere of trade engaged the attention of the Government ### **c** **D** E F G **H** MllENAKSHI MILLS _V._ UNION _(Ray, C.J,)_ 413 A in 1960. The. Government appointed a Tariff Commission to consider several aspects. The recommendations of the Tariff Commission on cotton textile8 and prices were these. Control must be comprehen· sive. Control should embrace the entire range from producer of cloth and yam to the ultimate consumers. Any system of control which fixes fair prices only for the industry cannot really protect the consumers because of dealers and middlemen and high prices of substitute products n from the decentralised sector. Where control is imposed in conditions of scarcity, the price .should encourage growth of .output. This is to maintain equilibriunt of demand and supply. Price. must be fair to the producer to cover his costs. Price mu.st be attractive to sustain growth of output and capital resources, return element, profit motive. ### c which The rec0mmendation concerning price control ate beyond the control of the producer as well is that cost factors as factors within the control of the .producer like efficiency, productivity, appropriation - of profits are all to be considered and on an overall estimate a return of 12 per cent of capital is reasonable for the industry. Raw cotton counts for about 50 per cent of the value of the finished product. Price of raw cotton should be attractive to the grower in 0 order to raise his output and good quality. The costs of conversion of cotton into finished product are neither stable over a period of time nor uniformly steady in mills. Mills have different equipments and efficiencies. Therefore, it is not possible to establish an invariable set of prices for the prpducts of the industry for a long period. Adjustment of future prices may" be necessary to cover changes in E variable· items of cost of production. Raw cotton figures prominently as one such item. It is said that there should be quarterly revision of prices on the basis of changes in the prices of raw cotton. Conversion chuges of raw cotton like labour, freights, fuel, power and stores are also to be considered. Labour costs depend on statutory alterations as well as wage Board Awards or negotiated settlements. .The impact F of prices of stores is indefinite. In the structure of processing cost5 an allowance has been included for contingencies in order· to meet the ·cost of stores, power, fuel and to prevent inftation only on those items. Price of particular counts of yarn will have to be determined on the basis of fair average of cost of production with due regard to the cotton mix in each producing establishment. Mixes vary from mill to G mill as also from time to time. The range of variation of mixes can be brought to a de$fee of certain technical limits and on the basis of that average cost of raw material can be determined. II Anothet recommendation of the Tariff Commission emphasised distribution chain. A margin of I !t per cent which include freight . charges on ex-mill prices of cloth which had been applied under the system of vqluntary control needed no revision. As regard sales of yam handloom weavers needed .protection. It was, therefore, suggested #### that a maximu_m of It per cent on ex-mill .prices of yarn for sale plus actual freight to the main consuming centres would be. adequate. .JI 4 SUPREME COURT REPORTS [ 1974] 2 S.C.R. The recommendations of the Tariff Commission were studied. The Government introduced control over price and production namely, control over manufacture and sale of certain varieties of mill made cloth of mass consumption in the month of Dl:tober, 1964. The prices were worked out after taking into account the costs of production under the particular head-; of cotton, labour and other material charges etc. Prices were >tamped on the piece of cloth as the ex-mill price. The retail price of cloth, the excise duty, the category and description of the cloth,. the tax mark, of ihe 1nill and the words "controlled cloth" were also stamped on the cloth. The fixation of price of cloth took into account th< recommendations of the Tariff Commission on the pri:es **of cotton yarn.** Tho Report oi the Commodity Control Committee, !953 dealt with three main types of price control. The first is the ceiling or maximum price. The second is fixed price. The third is ceiling and floor price. The impugned notifications in the present case adopted the first, _•·iz.,_ **fixing** **ceiling** **or** **maximum** **price.** **With** **regard** **to** **ceiling or** **maximu1n,** price it has to be balanced between a reasonable margin over and above cost of producer on the one hand and on the other the interest and protection of the consumer because. a liberal ceiling will ordinarily not encourage sales at below the maximum price though there is no bar to sales below the maximum price. In some instances what is known as the 'cost plus' formula has been adopted. This formula means cost either of the importer or of the manufacturer as the basis and the addition of a reasonable margin of profit to cover the wholesaler and the retailers. The periodic revision of prices is also noticed with the warning that frequent change in price may cause difficulties to producers who arc in possession of large stocks. In the case of imported goods the control is the margin of profit. In the. case of manufactured goods control of prices of raw materials is required in order to have a control of prico for the finished article. If the price of raw material is con· trolkd but not of the commodity which can be produced in place of that raw material there would be danger of production being diverted to channels over which there is no control. In the last analysis it is said that effectiveness of measures of control lies in the reasonableness of prices fixed. The prices must be fair not only from the point of view of the consumer but also of the producer and the distributor. These are the recommendations of the Commodity · Control. Com. **mittee.** The recommendations of the Tariff Board on the cotton yam and cloth prices in 1948 and of the Tariff Commission on the Cotton Yam and Cloth Prices in J 962 covered all economic aspects of the industry which have an impact on the ex-mill prices of cloth and yarn. The Government acted upon the Tariff Board formula of price fixation of cloth and yarn from 1949 to 1952. Under that formula fair prices wero arrived at by taking into account the main elements of the costs of prccluction and those prices were revised every quarter. The Voluntary Scheme of price control introduced in 1964 adopted tire basis of price of cloth and yarn prevalent in August 1959 and certain .percent•~~ of increase on account of raw materials, stores and Waee Board Awards. The Tariff Commission view was that the prices should be fair to the **A** **B** ### c **D** **E** **F** G **H** MEENAKSHI MILLS _V._ UNION. ~Ray, _C.J.)_ 415 producer to cover costs, upkeep of his production apparatus and a return of 12 per cent. The control over manufacture and . sale of mill made cloth of mass consumption from the year 1954 adopted t~e formula of cost of production taking into account costs, labour, mateual charges and adjustments from time to time in fluctuations of the cost elements. , No control over the production and sale of yarn was imposed until 13 March, 1973 when the impugned notifications were issued. Until then the yarn pool scheme in respect of yarn of cocmts upto 40s continued from 1 Febru?ry, 1971 to 31 March, 1973. The other was the voluntary price and Distribution Scheme in respect of yarn of counts 60; and above introduced on 1 August, 1972. The voluntary price and distribution scheme applied to 50 per cent of the free yam and the producers were free to sell the rest in the open market. Because of cornering, hoarding, speculation, unauthorised despatch to foreign · countries, prices of yarn were rising though the production in 1972rose to 468 million kg;, For yarn upto counts 40s and below there was no price rise upto December, 1972 over the period of preoeding 10 months. For counts of 60s and above, the regulated price with effect from 1 August, 1972 with 6 per cent increase took into consideration power cut; changes in the price of cotton since August, 1972, increase in labour costs and 40 per cent import duty on imported cotton. The real challenge on the part of the petitioners is that yarn price control has not followed the plttern of price control for cloth by providing for periodic changes in the control price to allow for fluctuations in cost clements. The petitioners contend that the price fixed is arbitrary for the following reasons. Fluctuation in the price of cotton is not taken into consideration. Raw materials, wages and profits are not considered. Nothing has been done with regard to those who have suffered electricity cut in other States Costs of production and reasonable profit have not been taken into consideration. The price fixed is December, 1972 rate. December, 1972 rate is not the rate for March, 1973. Therefore, **there** **is** **basic variation between December** **and** **March** **in cotton.** Irrespective of the fact whether it is yarn manufactured before December or ·after December it shall be sold at that price. No reason is disclosed for fixing the price. No norms for fixing the prices are given. There is total 11on application of mind to arrive at the price by an alternative method. Those who are producing counts 40s and below are to get price irrespective of any aspect of'electricity. It is, therefore, said that <he r.Jternative method is that which is fixed by the Tariff Commission. The industry must have weasonable return and fair price will take in cost of productiqn. There should be guidelines in fixing prices. The price fixation which does not fix a price above the cost of production i; unreasonable restriction because it poses before the producer the two alternatives between closure and sale below the price. The only guideline is the recommendation of the Tariff Commission. It is a reasonable return of 12 per cent. The price fixed under the impugned orders is ior a long time. It is for all times to come. There is no computation of cost. The protection is for handloom weavers •. _. .!,_ A B ### c D E F G **H** 416 I SUPREME COURT REPORTS ( 1974] 2 S.C.R. and powerloom weavers. If cloth was to be obtained at fair price, the price of cloth should be contro\Jed. The industry was facing steep rise in the cost of production from 1965 and profits appeared for the first time in 1972-73. All these factors are, according to the petitioners not takeu into consideration in fixing the price. Ju 1972 there were 670 textile mills. Out of these 291 were composite mills which also consumed yarn produced by them. Out of 18010 spindles 12260 are located in composite mills. Out of 972 million kgs. of yarJI produced 448.million kgs. is free yarn. 416 million kgs. out of 448 million kgs. is for civil consumption. By civil con- · sumption is meant handl.oom and powerloom weavers and hosiery. There are 72 lakhs of handloom weavers. 4 lakhs are powerloom weavers. 50,000 persons are employed :in hosiery industry. The total cloth produced in the country is 8200 million metres. The share of handloom and powerloom is 3777 million metres. The mills pro duce 4245 million metres. The powerloom and handloom secrors produce 47.1 per cent of the total cloth production of the country. Handloom and powerloom sector depends for the supply of raw material yarn on textile mills. Two-thirds of the total yarn produced come from composite mills. The composite mills compete with handloom and powerloom sectors in the production of cloth. Handloom and powerloom industry requires protection. Control over price and distribution of yarn is, therefore, in the interest of the general public. There is a provision of appeal to the Central Government against the order of the Textile Commissioner. That is clause 36 of the Order. This relief by representation to the relevant authorities is always available to the petitioners. In _Diwan_ _Su11ar_ & _General_ _Mills_ v. _Union_ _of_ _India_ (19591 Supp. 2 S.C.R. 123, this Court considered Sugar Export Promotion Ordinance, 1958. Prices of sugar went up by a rupee per maund during May-June, 1958 in expectation of the Ordinance. Though the industrY. assured sale of sugar at prices prevalent before the Export Policy was announced, there was no fall in prices. N otificat'.ons .were issued under the Sugar Control Order fixing controlled price below the level of prices at the end of May and in the week preceding 17 June, 1958. This Court repelled the contention that the prices were below the cost of production. The sugar crushing season beQlns about the end of October and finishes about the end of May. The fixation of prices in July, 1958 was on the basis of the 1957-58 season and the market prices were available at the time of the notification, In a11 unreported decision in _Sri Krishna Rice Mills_ v. _Joint_ _Director_ _(Food),_ _Viiayawada_ (Civil Appeal Nos. 1026-1031 etc. of 1963 dated 27 January, 1965) this Court held that section 3 of the Essential Commodities Act sufficiently specifies the principles on the basis of which price should be fixed. The Central Government fixed the maximum price for sale of rice of certain quantities. The rice· millers conteaded that notification fixin~ fair price violated Articles 14, 19( 1) (f), (g) and 31 (2) of the Constitution, and, therefore, they were entitled tel the rates prevailing in the market. The contentions on A n ### c D E F G II MEENAKSHI MILLS _v._ UNION _(Ray,_ C.J.) 41 7 A Article 19(1)(f) and (g) were repelled on_Jhe rulings of this Court in _Hari_ _Shan/car_ _Bag/a_ v. _The_ _State of Madhya_ _Pradesh_ reported in (1955] 1 S.C.R. 380 and _Union_ _of_ _India_ v. _Bhanamal_ _Gulzarimal_ reported in [1960] 2 S.C.R. 627. B ### c D E F ·c H Io _Sri_ _Krishnp,_ _Rict._ _Ml/ls._ case (.lupra) the rice was procured after 30 December, 1957 at the rate of maximum price fixed by the Government by notification dated 30 December, 1957. The· appellants there contended that they had paid higher prices than ~xed by the notification. This Court held that unless it could be shown that the reduction of price was not fair, it could not be said that the. procurement after 30 December, 1957 based on the prices fixed in the notifi cation of that date was in ally manner against the provisions of the Act or was hit by Article 19(1)(!). The Court found that the prices fixed were fair, . because the reason for the reduction of prices of 3() December, 1957 was that new crop came into the market from November, 1957 and the market prices of rice fell. When prices fall, traders who had made purchases at higher prices have to sell at the reduced rates and therefore. they cannot complain against rise and fall of prices d.ue to economic factors iri an open market. Just" as the industry cannot complain of rise and fall of prices due to . economic factors in an open market they cannot similarly complain of increaseor reduction of prices as a result of notification. under section 3 (1) of the Essential Supplies Act, 1955 because that increase or reduction isc also based on economic factors. In _State_ _of_ _Ra/asthan_ v. _Nathmal_ & _Mithamal_ [1954] S.C.R .. 982, the authorities were allowed to. freeze any stock of foodgrains and no person could dispose of any foodgrains out of the stock so "freezed" (sic) without the permission of the authority. The order· was held to be relatable to the object of the Act ... namely, securing equitable distribution and availability at fair prices. The ceiling price of·the commodity was Rs. 17-18. The Government procurement price was Rs. 9 per maund. The Court held that it was an unreasonable restriction because the Government was free to sell at a higher· price and make a profit. The ceiling price was higher than the fixed· price at which the stocks were requisitioned but alter requisition~ the Government would sell at the higher price. Therefore, that was an· unreasonable restriction. In _Union_ _of India_ v. _Bhanamal_ _Gulzarimal_ (Supra) clause 115 of the Iron and Steel (Control of Production and Distribution) Order, 1941 which conferred power· on the Controller to fix maximum price from time to time was challenged on the 2round that clause l lB should have referred to the prices of some sp~cified year as basic prices and should have directed the Controller to prescribe maximum prices by reference to the basic prices. This Court did not accept that contention. The special features of the object which the Control Order is said to achieve are an important consideration. Maximum prices in respect of iron .and steel would depend on a rational evaluation from time to time of all factors. This Court will not substitute its determination for that of the discretion of the authority in fixin~ the fair· prices. The Controller with a view to fixing maximum price of iron 418 SUPREME . COURT REPORTS [ 1974] 2 s.c.R. - .and steel made a flat reduction of Rs. 30/- per ton from the earlier **A** .maximum price. The price for sale by registered producers of untest·ed articles was Rs. 333/- per ton whereas the price for sale by controlled stock holders was Rs. 363/- per ton and the. price- at which the respondents could sell was Rs. 378/- per ton; and as a result of the deduction of Rs. 30/- the respondents were required to sell at Rs. 348/:per ton. It was alleged that the respondents had purchased commodity B at the rate of.Rs. 363/- per ton from the controlled stockholders and· they were compelled to sell at a reduced price. This Court held that losses in respect of particular transactions would not be decisive be· cause the general effect of the notification is on all the classes of dcelers as a whole. "If ·it is shown that in a large majority of cases, if not all, the impugned notification wo:ild adversely affect the fundamental right of the dealers guaranteed under Articles 19 (1 ).(f) and (g) that may constitute a serious infirmity in the validity of the notifica- C **tion".** In _Narendra_ _Kumar_ v. _Union_ _of_ _India_ (1960) 2 S.C.R. 375 this Court emphasised that the test of reasonableness meant the nature ·of evil that was sought to be remedied, the ratio of the harm caused to the individual citizen by the proposed remedy and the beneficial effect reasonably expected to result to the general public. Clause 3(i) of **D** the Non-ferrous Metal Control Order, 1958 which provided that no person shall sell or offer to sell any non-ferrous metal at a price which exceeds the amount represented by an addition of 3t per cent of its landed cost and which provided that no person shall purchase or offer to purchase from any person non-ferrous metal at a price higher than "1t which it is permissible for that other person to sell the same under sub-clause (i) was challenged. This Court held that an addition of E 3! per cent of the landed cost was intended to enable the importers to earn a margin of profit and that this would be the minimum price at which the importers would sell. Any dealer would have to pay at the ·rate of landed cost plus 3t per cent in getting the supply of copper from the importers but such a dealer was prevented from charging from his .customer anything more than the landed cost plus 3t per cent thereof. As a result of this any actual consumer of the commodity would have F 10 get it direct from the Importer and the channel of distribution through the dealer would disappear. This Court held thatthe evil sought to be remedied was rise in price and some fixation of price, being essential to keep prices within reasonable limits was reasonable restriction. The balance between freedom to carry on business and special con**trol** **under** **reasonable restrictions** **is** **required.** **In** _**Dwarka**_ _**Prasad**_ **G** _Laxmi_ _Narain_ v. _State_ _af_ _U.P._ [1954] S.C.R. 830 the exclusion of incidental charges from the cost items for allowing 10 per cent profit in fixing the controlled prices of coal was attacked to be unfair and discriminatorv. This Court held that the omission would only lower lhe margin oi oropt. The fixation of pcice was in th•' interest of oub· lie. In considering the provisions of U.P. Coal Control Order, 1953 this Court said that "a law or order which confers arbitrary and un· **H** controlled power upon the executive . in the mater of ree:ulating trade or business in norinally available commodities cannot be held to be un· **·reasonable".** ##### _/A_ B ### c D MEENAKSH! MILLS _V,_ UNION _(Ray,_ _C.J.)_ ~ 19 The two decisions on which the petitioners relied are _Panipat_ _Co-_ _operative_ _Sugar_ _Mills_ v. _Union_ _of_ _India_ . (A.LR. 1973 S.C. °536) and _Anakapalle_ _Co-operative_ _Agricultural_ & _Industrial_ _Society_ _Ltd._ v. _Union_ _of_ _India_ (A.LR. 1973 S.C. 734) which are on the application of· sub-section (3C) of section 3 of the 1955 Act. That subsection relates to sugar and there are specia[ features for fixing of price. In _Panipat_ _Sugar_ _Mills_ _case_ (supra) it is said that fair price of' sugar is to be determined ensuring to the industry a reasonable return on the capital employed in the business of manlifacturing sugar but the Government cannot fix any arbitrary price or fix it on extraneous considerations or fix such price that it does not secure a reasonable return on the capital employed in the industry. _Panipat_ _Sugar_ _Mills_ case (supra) is governed by sub-section (3C) of section 3 of the 1955 Act and has, therefore, no relevance to the present case, E F G The case of. _Premier_ _Automobiles Ltd._ v. _Union_ _of India_ [1972] 2 S.C.R. 526 is on section l 8G of the Industries (Devel.opment and Regulation) Act, 1951. The provisions of section 18G are that the Central Government for securing the equitable distribution, availability at fair prices of any article relatable to any scheduled industry may provide for regulating the supply and distribution thereof and trade and commerce therein. In sub-section (2) of section 18G it is stated that without prejudice to the generality of the powers conferred by sub-section ( 1) a notified order niade thereunder may provide for controlling the price at .which any such article is bought or sold. In _Premier_ _Automobiles_ case (supra) this Court said that the concept of fair price fixed under section 180 takes in all the elements to make it fair for the consumer leaving a reasonable margin of profit to the manufacturer without which no one will engage in any manufacturing activity". These observations were made on the basis of the agreement of the parties there that irrespective of technical or·· .•. legal points the Court .should base its judgment on examination of correct and rational principle and should direct deviation from the rep~rt of the Commission of Inquiry appointed by it with the concurrence of the parties only when it is shown that there has been a departure from the established principles· or the conclusions of the Commission ·are shown to be demonstrably wrong or erroneous. H . The _Premier_ _Automobiles_ (supra) decision does. not consider that the concept of fair prices varies with circumstances in which and the purposes for which the price control is sought to be imposed .. This decision because of the special agree)llent t)lere. does not consider that the fixation of fair price with a view to holding the price line may be - stultified _by_ allowing periodic increase in price. If fair price is to be fixed leaving a reasonable margin of profit, there is never any question of infringement of fundamental right to carry on business by imposing reasonable restrictions. The question of fair price to the consumer with reference .to the. dominant object and purpose of the legislation claiming equitable distribution and availability .at fair price is completely lost sight of if profit and the producer's .return are. kept in the fore-front. The maintenance or increase of supplies of the commodity or·the equitable distribution and availability at falr 420 SUPREME COURT REPORTS [ 1974] 2 s.c.R. prices are the fundamental purposes of the Act. If the prices of yarn A or cloth are fixed in such a way to enable the manufacturer or producer to recover his cost of production and secure a reasonable margin of profit, no Mpect of infringement of fundamental right can be said to **arise .** .Jn determining the reasonabh}ness of a restriction imposed by law in the field of industry, trade or commerce, it has to be remember- B ed that the mere fact that some of those who are engaged in these are alleging loss after the imposition of law will not render the law unreasonable. By its very nature, industry or trade or commerce goes through periods of prosperity and adversity on account of economic and sometimes social and political factors. In a largely free economy when controls have to be introduced to ensure availability of consumer goods like foodstuff, cloth and the like at a fair price it is an impracti- C cable proposition to require the Government to go through the exercise like that of a Commission to fix the prices. The Tariff Board and the Tariff Commission did not deal with the question <•f fixing prices with a view only to holding price line and in the circumstances that justify giving pre·eminent preference to the interest of the consumer or general public over that of the producers of the commodity and the dealers. Even these Commissions cannot always make a correct estimate of a D price which is fair to all .. because there are intricacies of the trad~ of all profit making enterprises which a Commission may not be able to probe. As an illustration, the Tariff Commission Report points oui that many textile mills use cotton mixes with a view to reducing cost and the result of such mixes is difficult to discern. When available stocks go underground and the Government has to E step in to control distribution and availability in public interest fixing of price can, therefore, be only emperical. Market prices at a time when the goods did not go underground and were freely available, the general rise in prices, the capacity of the consumer specially in case of consumer goods like foodstuff, cloth etc. 'the amount of loss which the industry is able to absorb after having .made huge profits in prosperous years, all these enter into the calculation· .,f a fair price in an emergency _y_ created by artificial shortages. In this context, the observatio.ns of this Court in _Chintaman_ _Rao_ v. _State_ _of_ _Madhya_ _Pradesh_ [1950] S.C.R. 759 are that the phrase "reasonable restriction" connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature beyond what is required in the interest of the public. In _Secretary_ _of Agriculture_ v. _Central_ _Reig Refining Company_ (94 Law Ed. 381-335 U.S. 664-620) tl!e Sugar Act of 1948 which allotted to specified domestic sugar-producing areas, some Within and some without the continental United States, an annual quota of sugar, specifying the maximum number of tons which· might be marketed on the mainland from each of those areas was challenged. The challenge was based on the Due Process clause of the Fifth Amendment because of alleged discrimnatory character and the oppressive effects .of the refined sugar quota established by the Act. The Act established limits on the tonnage of refined sugar which might be marketed annually on G H A ##### n ### c [l E F G H MEENAKSHI MILLS _V._ UNION _(Ray,_ _CJ.)_ 421 the mainland from the offshore areas as pan of their total sugar quotas. The Act did not subject mainland refiners to quota limitations upoo the marketing of refined sugar. The Secretary was authorised to aUot the refined sugar quota of a particular area among those marketing the sugar on the mainland from an offshore area to provide a fair distribution of the quota by considering three factors, namely, first processing of sugar to which proponionate shares, determined pursuant to the provisions of. the Act penamed; second, past marketmg; and, third, ability to market the amount allotted. It was held there that the Congress instructed the Secretary to ll!ake allotments in such manner and in such amounts as to provide a fair, efficient and equitable distribution. The Secretary was given discretion commensurate with the legislative goal. Allocation of quotas to individual. marketers was deemed an essential part of the regulatory scheme. The complexity of problem affecting raw and refined sugar in widely separated and economically disparate areas, accentuated by .the instability of the differentiating factors must have persuaded Congress of the need for continuous detailed administrative supervision. The Court, therefore, held that the Secretary's judgment would not be replaced to that of the Court by holding on the record that the Secretary acted arbitrarily.in reaching the conviction that the years 1935-41 furnished a fairer measure of past marketings than the war years. It was also said "Suffice it to say that since Congress fixed the quotas on a historical basis it is not for this Court to reweigh the relevant factors and, perchance substitute its notion of expediency and fairness for that of Congress. This is so even though the quota thus fixed . may demonstrably be . disadvantageous to cenain areas or peisons. This Court is not a tribunal for relief from the crudities and inequities of complicated experimental economic legislation". Jn the present case the legislative measures have left the question of resolving the economic problems of increasing ~upplies, equitable distribution and availability of essential commodities at fair prices to the judgment of the statutory authorities. The main plank of the petitioners' contention that a fair price means .a determination with regard to the cost of raw material, manufacturing cost and a reasonable return on the capital. employed in the business was founded on the construction that sub-sections (3), (3A), (3B) and (3C) of section 3 of Essential Commodities Act, 1955 constitute a single scheme and what is implicit in sub-section (3) is made explicit in sub-section (3C). The power to fix controlled price is in section 3(2) (c) read with section 3(1) and not in section 3(3) of.the 1955 Act. In sub-section (2) (c) of section 3, it is stated that the order may provide for controlling the price at which ;any essential commodity may be bought or sold. The dominant words in section 3(1) are that if' the Government is of opinion that it is necessary or exl'edient to provide for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices, .the Government may, by order, provide as 10entioned therein. **422** SUPREME COURT REPORTS [ 1974] 2 s.c.R. Sub-section (3) provides that where an order under section 3 (2) (f) of the Act is made requiring any person holding any stock to sell to the Government or to any ofhcer or to any class of person, the price under sub-section (3) can be fixed (a) by an agreement consistent with controlled price or (b) if there is no agreement with refer.ence to controlled price or ( c) the market price where neither of the **t\VO** **courses** **is** **possible.** Sub-sections (3A), (3B) and (3C) deal with specific cases of foodstuff, foodgrains; edible oilseeds, edible oil; and sugar respectively. Sub-section (3A) of section 3 is an exception to sub-section (3). Subsection (3A) applies when there is a notification in the Official Gazette that notwithstanding anything contained in sub-section (3), the price shall be regulated in th.e case of foodstuff in accordance with the provisions of sub-section (3A). In sub-section (3B) it is stated that where either there is no notification under sub-section (3A) or any such notification has ceased to remain in force by efllux of time, the **contingencies** **n1entioned** **therein** **will** **happen.** **Again,** **in** **sub-section** (3C) the matters contemplated a1e similar to sub-section (3B). The differences between sub-sectiuns (3) and (3A) un the one hand and sub-sectionf (3B) and (3C) on the other are these. Subsections (3) and (3A) speak of fixing price by agreement consistent with or with reference to controllect price or failing both market rate prevailing in the locality during three months preceding the date of the notification. Sub-section ( 3B) speaks either of controlled price or where no such price is fixed the price prevailing ur likely to prevail during the post harvest period in the area to which the order applies. In sub-section(3C) which relates to sugar price is to be calculated **with** **reference** **to** **n1inimum** **price** **of** **sugarcane,** **manufacturing** **cost** **of** **sugar,** **duty** **or** **tax,** **and** **a reasonable** **return** **and** **different** **prices** **may** b~ provided for different areas or factories or different kinds of sugar. Therefore, controlled price fixed under section 3 (I) read with section 3(2) (c) is different from price under sub-sections (3A), (3B) and (3C). **The control of** **prices** **may have** **effect** **either on** **n1aintaining** **or** **in·** creasing supply of commodity or securing equitable distribution and availability at fair prices. The controlled price has to retain this equilibrium in the supply and demand of the commodity. The cost of pro**duction,** **a** **reasonable** **return** **to** **the** **producer** **of** **the** **commodity** **arc** **to** **be** **taken** **into** **account.** **'fhe** **producer** **n1ust** **have** **an_** **incentive** **to** **pro-** duce. The fair price must be fair not only from the point of view uf the consumer but also from the point of view of the producer. In fixing the prices, a price line has to be held in order to give preference **or** **predominant** **consideration** **to the** **interest** **of the** **consumer** **or the** general public over that of the producers in respect of essential commodities. The aspect of ensuring availability of the essential commo**dities** **to** **the** **consumer** **equitably** **and** **at** **fair** **price** **is** **the** **n1ost** **important** **consideration.** The producer should not be driven out of his producing business, He may have to bear loss in the same way as he does when he suffers **losses** **on** **account** **of** **economic** **forces** **operating** **in** **the** **business.** **If** **an** A B D E F G II A B ### c !) E F G H MBENAKSHI MILLS V,·UNION _(J<ay,_ _C.J.i_ essential COllllllO<lily 1s Ill short supply or there is i,oarding, cornering or there is unsual demand, there is abnormal increase in price. 11 **pricC** **increases,** **it** **becomes** **injurious** **to** **the** **consu1ncr.** **"!'here** **is** **no** iustification that the producer should be given the benefit of price in· crease attributable to hoarding or cornering or artificial sh.ort supply. **ln such a case,** **if_ an** **··escalation" in price** **is** **contemplated at intervals,** the object of controlled price may be stultified. The controlled price will enable both the consumer anu the producer to tide over difficulties Therefore, any restriction in excess of what would be necessary in the interest or general publtc or to remedy the evil has to be very carefully considered so that t.he producer docs not perish and the consumer is nol mpplcd. The petitioners contended that .the control over prices of yarn in relation to ex-m<ll prices would not serve the purpose of control because there is no control over retail prices. Tne notification dated 31st March, 197 _3_ confers power on the Deputy Commissioner and the District Collector to specily maximum prices at which yam may be solJ ·by the dealer in their respective jurisdiction. In specifying the maximum price, the factors to be taken into consideration are : (a) invoiced price of yarn, ( b) incidejllal charges including \)'ansport and local taxes, (c) such reasonable margin of profit not exceeding two per cent of the invoiced price as may be determined in each case, and (d) any other relevant factor. In the case of counts of 59s and below, the controlled price fixed is the highest ex-mill price or the highest contract price as the case **1nay** **be** **for** **deliveries etlccted** **in** **Deccn1bcr, 1972 with 6** **per** **cent** **in-** crease in the case of yarn producers situated in the States of Tamil Nadu and Pondicherry. In counts of yarns of 40s and below, there was no increase of price for. 10 months ending December, 1972. It means **free** **inarkct** **price.** **It** **reflects** **costs** **of production** **and** **reasonable** **return.** The normal conditions or supply and demand arc indicated. The prices fixed for counts of 59s and bdow include appreefation in prices in 1970-71 when cotton crop was low and the price in l 971 · 72 which in spite of bumper crop and fall in price of cotton did not decrease but were higher than the pool prices of the distribution scheme. Cotton prices represent 70 per cent o! the cost of production of the. yarn. ln December, 1972 the price of cotton fell by 24 points from 209 to ! 85 whereas the prices of yarn appreciated by 29 points from 174 to 203. Thus the controlled price fixed for yarn is much more than fair price to the cotton yarn producer. In December, 1972 prices of yarr. were favourable to the yarn producer. This is established in Writ Pc.titian of Bihar Cotton Mills. Jt is staled there that in 1972 favourable market conditions enabled the cotton mills to improve its profit and wipe out 2/3rd of the accumulated losses amounting approximately Rs. _9,30,0001-._ In the case of counts of 60s and above, the regulated yarn prices adopted for individual producers of yarn arc 'the difference between the highest contrqct price for the relevant count on 1 June, 1.972 or the nearest date in case no sale was effected on 1 June, 1972 and !ht' **highest.** contra~l **pl'icc** **for** th~ r~lcvant **count** **<luring** **January,** **1972** **and** 15-L522SupCl/74 424 SUPREME COURT REPORTS [ 1974 J 2 s.c.a. allowing one-half of the difference to be reduced from J1111e, 1972 price. On this price, a 6 per ccnt increase has been allowid in addi tion where there is no electricity power cut. l he b per cent increase appears to be for allowing changes m the price• of cotton since August, 1972, increase in labour costs and the impact of 40 per cent import duty on imported cotton. January, 1972 is selected as base because it was since January, 1972 that the prices of yarn of supetiine counts of 60s and above went up. Price went up at that time on account of strike ID Co1mba1ore mills during February-March, 1972, unauthorised despatch to foreign co1111tries, power cut in Maharashtra and Tamil Nac!u. Therefore, January 1972 was the time when nor11llll market forces were in operation. The b'nefit of one-half of the price increases which look place between January-J1111c, 1972 on account of factors which do not enter into determining the cost of production have also been taken into consideration. The inere suggestion that no provision is made tor adjuscmeut ·on account of changes in the cost of production does not amount to infrin gement of fundamental nght to carry on business and to hold and Jisposc of ·property. There is no material to show that mcrease in yarn prices was on acco1111t co cost of production. The fixing of controlled price is much more than a fair pnce to the producer on the date it 1s lixed. The prices of new c_otton crop, _i.e.,_ for September, 1973 to August, 1974 are not known at the time of the fixation of the price. Even when they are known the petitioners will have to show with reference to the different types of mixes used in producing yarn, the impact of cotton prices un the cosc of production of that category 01 yarn. Furlher, even if there is increase in the cotton prices, the petitioners can absorb it because the controlled pnce lixed is more fair co the producer. If he sustains alleged losses fur some time, it will be a reasonable restriction because the object of the price control is to hold the price line or revert the prices to l)OrmaJ levels and make available CO!· ton yarn to the handloom and powerloom weavers at a {air price which will enable them to withstand competition from mill-made cloth. It is not shown here that the controlled price is so grossly inadequace that it not only results iii ·huge .losses but also is a threat to the supply position of yarn. TQe controlled price is in the interest of the co1111try as a whole for just distribution of basic necessities. The controlled price is neither arbitrary nor an unreasonable restriction. The sixth contention turned on wllat is described as channelisation of yarn distribution. The impugned orders are made in exercise of powers conferred by clause.30(1) (a) of the Cotton Textiles Order, 1948. The producers of yarn are prohibited from selling or delivering yarn to any person other than the five channels mentioneil in the order. The five channels are : (a) the nominees of the State Governments, (b) the Handloom Export Promotio!l Council, Madras, (cl The Cotton Textiles Export Promotion Council, Bombay, (d) Federation of Hosiery Manufacturers Association, and ( e) any other person as may be nominated by the Textile Commissioner. By an order dated 21 June, 1973 counts 17s ~nd below were excepted from the operation of the order. By another order dated 4 August, A B ### c D E F G H / A B _E_ F G H MEENAKSHI MILLS _v._ UNION _(Ray, C.J.)_ 4 25 1973 counts 40s and below were excepted from the order. The position of yarn supply is under constant review of the Government. The Press Statement of 21 June, 1973 shows that the control over distribution of yarn upto counts 17s is relaxed because the quantities are adequate to meet the demand. Similarly, by subsequent notification, control over distribution of yarn upto counts 40s has been relaxed. The impugned orders as they stand require the producers to sell to these five channels on the basis of directions issued by the Textile Commissioner. The dealers are reqwred to sell or deliver yarn to (a) nominees of the State Government, and (b) any other person as may be nominated by the Textile Commissioner in such quantities as may be determined by the Deputy Commissioner or District Collector. The prices for such sale are on consideration of (a) invoiced price of yarn, (b) incidental charies including transport and local taxes, (c) such reasonable margin of profit not exceeding two per cent of the invoiced prices as the Deputy Commissioner or the District Collector may determme in each case and any other relevant factor. There is thus price control as well as distribution control to meet the problems of availability of goods at reasonable prices. The seventh contention of the petitioners as well as the· interveners was that the impugned orders requiring the producer to deliver yarn only to the five channels of distribution mentioned therein created monopoly in favour of specified persons, and, therefore, there was violation of Articles 190).(f) ·and (g) and 301 of the Constitution. It was also said that there was no obligation on the distribution channels to buy from the mills. Counsel on behalf of the traders who intervened submitted that there was no justification for canalisation of the goods because it was not in public interest and it was a total ban on traders.. It was also said that there would be neither equitable. distribution nor availability of .goods because the order did not provide that it would reach the weaven and the order also did not provide that the agencies were to sell at specified rates. The fifth channel of distribution, viz .• "any other person as may. be nominated by the Textile Commis.sioner" was attacked on tile ground that there was no classification and it conferred arbitrary power of choice. The Cotton Textiles Control Order 1948 confers power by clause 30 to impose control over distribution of yarn. The order states !hat such power is required to be exercised with a view to securing proper distributio11 of cloth or yarn. The Textile Commissioner with a view to securing compliance with the directions issued by him shall have regard to (a) requirements of various categories of persons specified in clause 30; '(b) availability of cloth or yarn of different descriptions; and, (c) requirements·of any local area . . Handloom weavers are the bulk consumers of yarn of counts of 40s and below. There is no contrpl over distrib11tion of this yarn. Therefore, it is said that traders in this class of yarn are free to . charge any price whereas control is ·imposed on the producers. The Goverbment excepted counts 40s and below from the operation of the order when 426 SUPREME COURT REPORTS [ 1974] 2 S.C.R. availability was ensured. Further, traders in this category of counts 40s and below cannot sell at any· price they like because the maximum retail price has to be prescribed by the Deputy Commissioners or the District Collectors and no trader can sell at a price higher than that price. The price specified by the Deputy Commissioners or the District Collectors takes into consideration the reasonable margin of profit not exceeding 2 per cent of the invoiced price. Maximum retail price is specified for all counts. Therefore, profiteering in the sale of yarn of all counts is eliminated. The distribution channels are contended to be monopolies in favour of specified persons. The traders say that they are substitute.d by the distribution channels as middleman. The nominees of the State Government under the distribution channel could be any dealer chosen and favoured by the Deputy Commissioner or the District Collector. It is said that freedom of trade is violated. These contentions are unsound for these reasons. The channels of distribution are agencies of the **State for distribution purposes.** **Further the Handloom Export Promo-** tion Council, Madras the Cotton Textiles Export Promotion Council, Bombay and the Federation of Hosiery Manufacturers Association are associations of users of cotton yarn. They can demand service charges. If middlemen be totally excluded the control scheme does not become unreasonable just because a part of the ban in regard to counts of 40s and below is relaxed. 87 per cent of the total yarn marketed is in counts 40s and below. Traders are permitted to carry on trade in them though prices are specified for such counts. The balance 13 per cent of yarn is in counts of 40s and above. The requirement not to sell yarn at a price above the maximum price operates on all distributing channels. Even if an ordinary dealer is chosen !Jy the Government within the fifth **category of distribution channel, viz.,** **"any other** **person as** **may be nomi-** nated by tl)e Textile Commissioner" such person could also be actual consumer of yarn. The notification No. CER/20/73 dated 31 March. 1973 states that· the nominees can .be any dealer carrying on business of selling yarn. The distribution control is intended t<> ensure availability of yarn at reasonable or fair price. Profiteering, hoarding, cornering are the evils to be elimi.nated. It is not that all dealers in yarn have been denied the right to carry on trade. It is only those whose carrying on trade in yarn would not in the opinion of the Textile Commissioner ensure availability of yarn to actual consumers at the fair price. Black marketing as the expression goes is to be weeded out in this manner. The selection of traders is made on the basis of ensuring availability of yarn at a fair price. Elimination of persons who have hoarded or cornered or are unscrupulous in distribution is intended in public interest. This is a reasonable restriction in the interest of the general public and is contemplated in Article 19(6) of the Constitution. In _Rashbihari Pande_ v. _State_ _of Orissa_ [1969] 3 S.C.R. 374 the Government invited offers for advance purchases of Kendu Leaves but restricted the invitation to those individuals who had carried out contracts in the previous year without default and to the satisfaction of the Government. The scheme was held by this Court to be discriminatory and unreasonable restriction upon the rights of persons other than the B ### c I). E F _G_ H MEENAKSHI MILLS _v._ UNION _(Ray, C.!.)_ 427 existing contractors and the scheme of selected purchasers was not protected by Article 19(6) (ii). In the present case, the traders cannot make any profit they like because of specified prices. In _Bhatnagars_ & _Co._ v. _Union of India_ [1957) S.C.R. 701 t11e importers resorted to malpractices leading to speculation and fiuctuation in prices. The Government, therefore, canalISed distribution of the goods by inviting tenders for the grant of import licences. This Court held that i.t was open to the Government in national interest to intervene and regulate the distribution in a suita~le miuum. The .power to regulate sale through licensed vendors to whom quotas are allotted and who are permited- to sell yarn at fixed prices has been upheld.in _M/s_ _Dwarka Prasad Laxmi Narain_ case (supra). But a _ note of possible mischief was indicated in instances wh.ere no rule or principle to. guide them was stated or where. no check or control by higher authority was intended. The Textile Commissioner in the present case is guided by the provisions of clause 30 of the Order as well as by section 3 of the Essential Commodities Act. The rules or principles for guidance are first equitable distribution, and, second availability at fair price. Prices are fixed with lbqited profit to traders. Further, an aggrieved person can appeal to the Central Government. In _Mannala/Jain_ v. _State.of Assam_ [1962) 3 S.C.R. 936 the Assam Foodgrains (Licensing and Control) Order, 1961 conferred power on the authority to have regard to Co-operative Societies in the grant of licences. This Court held that such preference did not create a monopoly. The Co-operative Societies in villages were held to be in a better Jiosition for maintaining or fucreasing supplies and for securing equitable distribution and availability at fair prices in accordance with village economy. The question is whether prohibition of others doing the business is reasonable under Article 19(6). Canalisation orders have been upheld by this Court as reasonable within Article 19(6) of the Constitution. The recent unreported decision in _M/s Daruka_ & _Co._ v. _Union of India_ Writ Petition No. 94 of 1972 dated 31 August, 1973 referred to the earlier decisions in _Glass Chaton_ case [1962) I S.C.R. 862, _Devasan of Bhimji_ _Gobil_ case [1963) 2 S.C.R. 73 and upheld the distributing channels of imports and exports of different commodities and goods. The petitioners contend that though the order obliges producers of yarn to sell to persons named there is no obligation on those persons to buy, and,. therefore, it is at\ unreasonable restriction. The petitioners supported this contention by instances where those persons or bodies failed to lift the stock of yarn. It is said that producers, therefore, suffered losses. There were cases where the allottees did not lift the goods when the voluntary scheme was in operation. The allotJllent order on record shows that the allotment of yarn is made subject to the conditions that the allotted yarn would be lifted within 15 days of receipt of intimation from the mill after making necessary payments. Jf any portion of the yarn is not paid for and lifted within the stipulated time, the State Government may intimate the same to the Cotton Corporation of India and the mills concerned. The .Cotton Corporation will effect ;.;"\ A B c. D E F G H ##### 428 SUPREME COURT REPORTS [ 1974 I 2 5.C.R. payment and take charge of the yarn. The Textile Commissioner on receipt of such intimation will issue the reallotment orders and in respect of such re-allotted yarn the allottee State Government will make necessary payments to the Cotton Corporation of India. The conditions of allotment ensure lifting of yarn by the nominees of the State Government within a reasonable time. In the past at the initial stages of the voluntary control scheme the State Government nominees were not adequately financially equipped and that is why there were cases Qf non-lifting of yarn. It cannot.happen now. The Distribution Control Scheme does not impose an unreasonable restriction on. the producer's right to carry on his business. It was said on behalf of the State that the petitions were not maintainable because of the proclamation of emergency. Doring the proclamation of emergency Article 358 does··not apply to executive action taken during the emergency if the same is a continuance of a prior ex.;. cutive action or an emanation of the previous law which is otherwise violative of Article 19 or is otherwise unconstitutional. The petitioners challenged the action or previous law to be violative of fundamental rights. This Court in _Bennett Coleman_ & _Co._ case [1972) 2 S.C.R. 788 said "During the proclamation of emergency Article 19 is suspended. But ·it would not authorise the taking of detrimental executive action during the emergency affecting the fundamental rights in Article 19 without any legislative authority or in purported exercise of power conferred by any pre-emergency law which was invalid when enacte<\". Therefore, if it can be shown that the executive action taken during the emergency has no authority as a valid law its constitutionality can be challenged. The Cotton Textiles Order 1948 was continued by Essential Commodities Act, 1955. The impugned orders are made under pre-emergency Cotton Textiles Control Order. The validity of the impugned orders is challenged under Article 19(1) (f) and (g) of the Constitution on the ground that it is a pre-emergency executive order which could have been challen&ed under Article 19(1) (f) and (g) before the proclamation of emergency. From that point of view the petitions are competent though the challenge is insupportable on all groUBds. For these reasons, the petitions are dismissed. The parties will pay and bear their own costs. K.B.N. _Petitions dismissed._ L522SCii74-2500-22-4-75-G!PF. A ### c E