PETITIONER: STATE OF MADHYA PRADESH Vs. RESPONDENT: JAORA SUGAR MILLS LTD. & ORS. ETC. DATE OF JUDGMENT: 10/10/1996 BENCH: K. RAMASWAMY, G.B. PATTANAIK ACT: HEADNOTE: JUDGMENT:
O R D E R
These appeals by special leave are filed against the
judgment and order dated September 1, 1978 and September 4,
1978 passed by the Madbya Pradesh High Court, Indore Bench
in Misc. Petition Nos.140, 139, 43 and 44 of 1977.
These appeals arise from the Sugarcane Control Order,
1966 [for short, the “Order”] and the M.P. Sugarcane
[Regulation of Supply and Purchase] Act, 1959 [for short,
the “Act”]. It is rather unfortunate that the sugarcane
growers who spent their sweat and blood in raising the
sugarcane in the Years 1974-75, 1975-76 had to wait for 20
years to receive the price of the sugarcane supplied by them
to the respondents’ factories. The respondent in C.A.1813/80
is a Hindu Undivided Family represented by its Karta and
respondents in other appeals are factories. The Central
Government had fixed the price of the sugarcane under Rule 3
[1] of the Rules issued under Section 3 [3] (c) of the
Essential Commodities Act, 1957 at Rs.8.60 per quintal.
Various meetings of the sugarcane growers and the sugarcane
factories and their associations, were convened by the
Government of Madhya Pradesh and ultimately the agreement
got crystallised at the meeting held on March 21, 1976 to
fix the final price of the sugarcane at Rs.12/- per quintal
for the sugarcane supplied at the factory and Rs.11.50 per
quintal for the sugarcane supplied at other supply centres.
Though the sugarcane was supplied by the cane-growers, since
theirs amounts could not be paid, the appellant-Government
resorted to Section 21 of the Act to enforce the liability
by recovering the same as arrears of land revenue. The
respondents came to challenge the demands by filing the
aforesaid writ petitions. The Division Bench of the High
Court in the aforesaid judgments in three appeals has held
that since no separate agreement was entered into between
the respondents and the sugarcane growers, the liability
could not be enforced by way of arrears of land revenue. In
CA No.1811/80 involving the question of interest on account
of delayed payments it was held that since the amount was
not paid as per the price fixed under the Order, no
liability of interest would be charged thereon. Therefore
the demand for payment of interest on delayed payment is
without authority of law. Thus these appeals by special
leave.
Shri U.N. Bachawat, learned senior counsel appearing
for the State, contended that as per the record produced and
the averments made in the counter-affidavit filed in the
High Court in the writ petitions that there was a specific
oral agreement between the sugarcane growers and the
factories represented by the Association and many of their
representatives personally present except Kaluram’s joint
family firm and all of them have greed to final price of
sugarcane. Even with regard to Kaluram’s firm, since the
meeting was adjourned once, to enable him to be consented,
as he was present, the Secretary of the Association
contacted him over telephone and he agreed to abide by the
agreement. In furtherance thereof, on March 21, 1976 the
gentleman agreement has been entered into for the final
price of the sugarcane to be supplied by the sugarcane
growers. As a consequence, there was an agreement between
the owners of the sugar factories and the sugarcane growers
Since the sugarcane growers were not paid the price, in
furtherance thereof, the factories are liable to pay the
sugarcane price and also the interest on the delayed payment
in one appeal. The view taken by the High Court is not valid
in law.
Shri S.K. Jain, learned counsel for the respondents,
contended that Rules 3 and 5-A of the Order determine the
liability to pay the price and the additional price. The
Central Government having determined the price of the
sugarcane under the Order, there is no power to the State
Government, de hors the Order, to fix any agreed price. The
concept of agreed price came into force on September 19,
1976 by virtue of the Order. Until then, there was no power
to fix the agreed price. The State Government has,
therefore, no power under the Act to fix any price since the
field was occupied by the Order. Kaluram was not present and
he had not agreed to the fixation of the increased price of
the sugarcane. At best, it would be only a compulsion,
Unless there is an individual written agreement between the
factory and each sugarcane grower, there is no contract to
pay over the same. Such of the amounts, de hors the Order,
cannot be recovered as arrears of land revenue since such
liability visits with penal consequences of prosecution
under Section 7 of the Essential Commodities Act. He also
contends that the retrospective effect cannot be given to
the price of the sugarcane supplied earlier and that,
therefore, the Order of the High Court is clearly legal. He
also contends that unless the price is fixed under the
Order, no liability to pay interest arises thereon on the
delayed payment of the value of the sugarcane, as was
originally determined by the Central Government, under the
Order. Under those circumstances, the view taken by the High
Court is correct in law. In support thereof, he places
reliance on the judgments of this Court in State Of Tamil
Nadu v. Kothari Sugar & Chemicals Ltd. [1996) 7 SCC 751]
and Thiru Arooran Sugar Ltd. v. Dy. Commercial Tax Officer
[(1988)> 71
STC 444 (Madras)].
The first question that arises for consideration is:
whether there is an agreement for the final price of
sugarcane for the relevant period and if so whether it is in
consonance with the Order? Related question is: whether such
fixation is retrospective in operation and whether the
Government can recover such amount under the Act? As regards
the fixation of the price, the field undoubtedly is occupied
by the Order. Rule 2 [g] of the Order defines ‘price’ to
mean the price or the minimum price fixed by the Central
Government from time to time for sugarcane delivered to a
sugar factory at the gate of the factory or at a sugarcane
purchasing center or to a khandsari unit. Clause 2 [i]
defines ‘producer of sugar’ to mean a person carrying on the
business of manufacturing sugar by vacuum pan process and
clause 2[j] defines ‘reserved area’ to mean any area where
sugercane is grown and reserved for a factory under sub-
clause [1] (a) of clause 6. Under clause 2 [k] ‘year’ means
the year commencing on the first day of July and ending
with the thirtieth day of June in the year next following.
Rule 3 [3] determines “where a producer of sugar
purchases any sugarcane from a grower of sugarcane or from a
sugarcane growers’s co-operative society, the producer
shall, unless there is an agreement in writing to the
contrary between the parties, pay within fourteen days from
the date of delivery of the sugarcane to the seller or
tender to him the price of the cane sold at the rate agreed
to between the producer and the sugarcane grower or
sugarcane growers` co-operative society or that fixed under
sub-clause (1), as the case may be either at the gate of the
factory or at the cane collection centre or transfer or
deposit the necessary amount in the Bank Account of the
seller or the co-operative society, as the case may be.”
Clause (3A) to Rule 3 was introduced by way of an
amendment made in GSR 62(E), dated 2.2.1978. For payment of
the price within 15 days with interest on the delayed
payment at the rate of 15% per annum for the period of such
delay beyond 14 days has been introduced. Earlier , it was
covered by the Act. Clause (1) of Rule 3 fixes the minimum
price of sugar payable by the purchaser of the sugarcane as
fixed by the Central Government in the manner indicated
therein. Clause (2) of Rule 3 is relevant for the purpose of
this case which shows that “no person shall sell or agree to
sell sugarcane to a producer of sugar or his agent and no
such producer or agent shall purchase or agree to purchase
sugarcane, at a price lower than that fixed under sub-clause
(1).” Section 23(3) of the Acts also couched in similar
language, enables to novate by contract the minimum price
fixed by the Central Government in respect of cess payable
to Government.
This would clearly indicate that despite the fixation
of minimum price under clause (1) of Rule 3, by agreement
between the sugarcane grower and the purchaser of the
sugarcane, they would be at liberty to agree to sell or
purchase the sugarcane at a higher price than that was fixed
by the Central Government under clause (1) of Rule 3. Only
for postponement of payment beyond 14 days there should be
an agreement in writing between the parties obviously with
the concurrence of the Central Government or authorised
authority in that behalf. Thus there is no statutory
prohibition in that behalf to pay higher price. That would
be further clear by Rule 3(2) which speaks of the contract
between the parties for payment of higher price of sugarcane
fixed under clause (1) of Rule 3 pursuant to the agreement
or pursuant to the minimum price fixed by the Central
Government under Rule 3(1) of the Order.
Rule 3A speaks of rebate that can be deducted from the
price paid for sugarcane. In other words this concept of
agreed price paid was brought on statute with effect from
September 24, 1976 by amendment made through GSR.815 (E).
Prior to the statutory concept of the agreed price, Rule
3(2) did not preclude the parties; in other words, it
enabled the parties to agree for a higher price than what
was fixed for the sugarcane supplied by sugarcane supplier
under Rule 3(1) of the Order. In addition, Rule 5A also
gives Power to fix and pay additional price for sugarcane
purchased on or after 1st October, 1974. Thus, it could be
seen that prior to coming into force of Rule 3A, the minimum
price fixed by the Central Government under Rule 3(1) and
additional price fixed under Rule 5A, it was within the
domain of the contract between the sugarcane growers and the
factories who could agree to pay price higher than the
minimum price fixed under the Order. What sub-rule (2) of
Rule 3 prohibits is the purchase or sale or agreement in
that behalf, for bargain to pay price lesser than the
minimum price fixed by the Central Government. In other
words, the sugarcane growers should not be compelled to sell
the sugarcane at a price lesser than was prescribed by the
Order. Thus, we hold that there was no statutory prohibition
at the relevant time to agree to pay higher price than was
fixed under the order.
The question then is: whether such a higher price has
been agreed to be paid to the sugarcane growers, when
contract has come into existence between the respondents and
the canegrowers with the agis of the appellants? As a fact,
except Kaluram, all representatives of other factories were
present at the time of the agreement dated March 21, 1976.
As far as Kaluram is concerned, on the first occasion he was
present, but on the second occasion when the meeting was
adjourned, he was not present. It has been averred in the
counter-affidavit that the Secretary of the Sugarcane
Factories Owners’ Association had contacted him when he was
in the hospital and thereafter, the agreement was entered
into. Though, subsequently, an attempt was made by the
Secretary to Wriggle out from it, the Government have stated
that and the sugarcane growers have also agreed for the
same, we are of the considered view that he was a consenting
party and there was consensus ad idem to pay higher price of
sugarcane than the minimum price fixed by the Central
Government and they acted upon it, There was no prohibition
for oral agreement between growers and owners through the
service of the Cane Commissioner, a statutory authority to
effect such agreement. It is not in dispute that thereafter
the sugarcane growners supplied the sugarcane to the
respondent factories and that they utilized the sugarcane
for producing the sugar. Other factories had paid the
agreement price.
The contention of Shri S.K. Jain that the agreement was
retrospective is not correct. It is seen that the sugarcane
crushing year has been defined under the Order itself and
during the season the Price fixed by the Central Government
was treated by the State Government to be the tentative
price, subject to agreements between the parties and the
final price was agreed as contracted by the parties. Thus,
we hold that the payment of price @ Rs.12/- per quintal at
the factory and Rs.11.50 per qunital at the purchasing
centre was agreed price for supply of sugarcane by the
sugarcane growers and received by the factories at the
respective places.
The question then is: whether it is a compulsive price
end whether the State Government had entered into such a
contract? It is seem and it cannot be disputed that the Cane
Commissioner is the statutory authority under the Act and
the Order to regulate fixation of the zone for the supply of
sugarcane to the respective factories and for regulation of
supply of sugarcane to the factories covered under the Act.
Section 12 of the Act speaks of estimation of the
requirements under Sections 15 to 17 of the Act of quantity
of sugarcane required to be supplied to the occupier of the
factory. Section 13 speaks of registration of sugarcane
growers and the sugarcane growers Co-operative Societies
within the area of the occupier of the factory. Section 15
deals with declaration of the reserved area for the factory
under sub-section (2) of Section 19. Section 16 deals with
declaration of assigned area to the factory. Section 19
deals with regulation of purchase and supply of cane in the
reserved area and assigned area respectively. The payment of
the price is regulated under Section 20 which reads as
under:
“20. Payment of cane price. – (1)
The occupier shall make suitable
provision to the satisfaction of
the collector for the payment of
the price of cane.
(2) Upon the delivery of cane the
occupier shall be liable to pay
immediately the price of the cane
so supplied, together with all
other sums connected therewith and
where the supplies have been made
through a purchasing agent, the
purchasing agent also shall be
similarly liable in addition to the
occupier.
(3) Where the person liable under
subsection (2) is in default in
making the payment of the price for
a period exceeding fourteen days
from the date of delivery he shall
also pay interest at a rate of 7-
1/2 per cent per annum from the
said date of delivery up to the
date of payment but the Can
Commissioner may, in any case
direct with the approval of the
State Government that no interest
shall be paid or be paid at such
reduced rate as he may fix.
(4) The Cane Commissioner shall
forward to the Collector a
certificate under his signature
specifying the amount of arrears on
account of the price of cane plus
interest, if any, due from the
occupier and the Collector on
receipt of such certificate shall
proceed to recover from such
occupier the amount specified
therein as if it were an arrear of
land revenue together with further
interest up to the date of
recovery.”
It would thus be clear that the Cane Commissioner
having power to compel the cane growers to supply cane to
the factory Khandsari unit, he has incidental power and duty
bound to ensure payment of the price of the sugarcane
supplied by the sugarcane grower. The price fixed or agreed
is a statutory price and bears the stamp of statutory first
charge on the sugar and assets of the factory over any other
contracted liabilities to recover the price of the sugarcane
supplied to the factory or Khandsari unit.
Section 23 deals with levy of cess on the sugarcane and
sub section (3) contemplates that “notwithstanding the terms
of any contract or agreement for sale of cane whether
entered into before or after the imposition of the cess
under this Section, the buyer of the cane shall be liable to
pay the amount of the cess in addition to and as part of the
contracted price of such cane.” The person who commits
default in making payment of the cess shall be liable to the
recovery thereof with interest enumerated in subsection (4)
of Section 23 and recovery has been envisages thereunder
read with sub-section (5) of Section 23. But the material
fact is that sub-section (3) also gives an indication
analogous to Rule 3(2) of the Order that in addition to the
price fixed, the higher price should always be permissible
to be entered by a contract or agreement between the
parties.
Section 26 imposes levy of penalty for non-payment or
contravention of the provisions of the Act or the Rules.
Section 27 provides the procedure for institution of the
proceedings. Thus, the statutory authority has obligation to
ensure proper price of sugarcane supplied by the sugarcane
growers. Thus, the Government has to ensure the meeting of
the growers and occupiers of factories and their
Association. Thereat the final price of sugarcane was fixed;
the parties orally agreed thereto and the proceedings
culminate into a concluded gentlemen contract. It is in
notation of the minimum price fixed by the Central
Government. The agreement is to tainted with compulsion, as
contended but in novation of the minimum price fixed under
the order.
Thus, it would be seen that the Act regulates the
recovery as arrears of land revenue. Accordingly, demand has
been made for payment of the amount in a sum of
Rs.6,34,166/- in CA No.1813/80, Rs.13,40.700/ in CA No
1814/80 and Rs.2,71,000/- in CA No.1812/80. Thus, the
demands issued against the respondents are in accordance
with the provisions of the Act and they are liable to pay
the same.
The question then is: whether the respondent is also
liable to pay interest for the delayed payment? It is seen
that under the Order and the Act there is power to impose
interest not exceeding 15%. In this case, 14% and odd was
the interest levied on delayed payment. It is seen that in
view of the agreement, as upheld earlier, in addition to the
minimum price, therefore, the liability has arisen under the
Order for payment of the value of the sugarcane supplied by
the growers. On account of the default in payment thereof,
in terms of clause (3) of Rule 3, since it was not paid, by
operation of Section 20 of the Act, they are entitled to
recover the same as arrears of land revenue. Therefore, the
view of the High Court is clearly illegal.
Though Shri S.K. Jain is right in contending that
unless there is an agreement between the parties, the
liability cannot be fastened under the Order or the Act; but
in view of the finding that there was an agreement between
the parties, as held earlier, the ratio in the judgment in
Kothari`s case (supra) relied on by the counsel is of not
much assistance in the facts of this case. On the other
hand, it supports the view we have expressed above. Therein
this Court upheld that if there is an agreement between the
parties, than by operation of the Order the liability would
be fastened on the sugar factory. In those cases, there was
a finding that there was no proof of agreement entered into
between the factory and the cane-growers. Therefore, sales
tax would not be recovered on the price fixed in excess for
minimum cane price fixed by the Central Government under the
Order.
In Thiru Arooran Sugars Ltd`s case (supra) relied on by
Shri Jain, the learned Judges had considered Rule 3(1) of
the Order and the finding that there is no power to fix any
price in excess or the minimum price fixed under the Order
was rejected. It is clearly illegal. Rule 3(2) was not
brought to the notice of this Court, when the decision was
upheld, but on the facts it makes no difference since the
view in Kothari’s case (supra) is not inconsistent with the
view we have expressed. On the other hand, the view
expressed therein also is consistent with the view we have
taken. In fact, in Tungabhadra Sugar Works Ltd. vs. State of
Karnataka & Ors. [(1994) 73 STC 561] approved by this Court,
the Division Bench of the Karnataka High Court squarely
considered this question and had held at page 577 in
paragraph 20 that “Even though the contract may fix a price
nothing prevents the parties from subsequently modifying or
increasing the price, resulting in novation. The aforesaid
term in the contract can be relied on, only if the
petitioner had paid a scale price as determined by the
Central Government under the control order. Where the
petitioner has paid a higher price than what is payable in
terms of Rule 3 and 5A(1), it will be a case of novation of
contract and the increased Price will replace the original
contract term relating to price.” We approve of the view and
accordingly we have no hesitation to hold that the parties
would always be at liberty to agree for payment of higher
price than the minimum price fixed by the Central Government
and the contract will be novation of the minimum price fixed
by the Central Government under Rule 3(1) of the Order .
Therefore, the respondent is liable to pay interest on
delayed payment under the Act read with the order.
We are informed that these two mills have become sick
mills and have been taken over by the Government. If the
amount has not been paid already, the Government is directed
to disburse the amount within a period of 3 months from the
date of the receipt of the respondents etc. If there is any
shortfall in the amount, the assets of the respondents etc.
If there is any shortfall in the amount, the assets
recovered from the sick mills, if any, may be fastened as a
liability on the sick mills and be adjusted in accordance
with the take-over proceedings.
The appeal s are accordingly allowed. But for the fact
that the mills have been taken over, we would have imposed
exemplary costs in this case; hence we impose no costs.