Laxmi Khandsari and ors. vs. State of U.P. and ors.

Laxmi Khandsari and ors. vs. State of U.P. and ors.
In the Supreme Court of India
Civil Appeal No. 2734 of 1980
Citation: (1981) 2 SCC 600
Petitioner
Laxmi Khandsari and ors.
Respondents
State of U.P. & ors.
Date of Judgement
9thMarch, 1981
Bench
Hon’ble Justice S. Murtaza Fazal Ali; Hon’ble Justice A.D. Koshal

Introduction

The Constitution of India has conferred various fundamental rights on Citizens under Part III of the constitution. It also includes the Right to Carry Trade and business and to practice profession has been enshrined in Article 19(1)(g) of the Constitution. It must be remembered that these rights are not absolute and there can be restrictions imposed on the rights by the State. The restrictions imposed must be reasonable and in the larger public interest, must be consistent with the objective of the act, not be arbitrary, etc. In the present case i.e. Laxmi Khandsari and Ors. V. State of UP and Ors.,[i]there were some restrictions imposed on the business of Crushers in some areas of UP. The restrictions were imposed in light to ensure fair and equitable distribution of Sugar which is an essential commodity. The restrictions were challenged by the owners of crushers and hence the Court had to examine the Constitutional Validity of such restrictions whether are reasonable or not.

Background-

Since the legislature is the best judge of the circumstances prevailing in the country and they always make laws for the overall welfare of the society because they are the ultimate guardians of the welfare of the society.[ii] There is a presumption of constitutionality in the favor of the Statues enacted and the burden is on the petitioner to prove that the said law is invalid and unconstitutional.[iii]It is not the first time that the restriction has been placed on the right to carry trade and business. The Court has upheld the restrictions where the objective of the law was to ensure fair and equitable distribution of goods at a fair price for the large public interest. In Madhya Bharat Cotton Association Ltd. v. Union of India & Anr.,[iv] the Court has even upheld the complete prohibition of business activities for the larger public interest.

Statutory Provisions Discussed-

  • Section 3 of the Essential Commodities Act, 1955. (Hereinafter referred to as ‘Act’)
  • Clause 8, 11 of the Sugarcane (Control) Order, 1966 (hereinafter referred to as the ‘Control Order’).
  • Clause 3 of U.P. Khandsari Sugar Manufacturers Licensing Order of 1967 (hereinafter referred to as the ‘Licensing Order’).
  • Article 14, 19(1)(g), 19(6) of Constitution of India.

Facts of the Case-

Factual Matrix-

The Cane Commissioner, U.P. issued a Notification dated 9th October 1980, under clause 8 of Control Order. The notification ordered that no power crushers of a khandsari unit in the reserved area of a mill could operate until 1st December 1980. There were certain exemptions given in the notification. The notification was operative only on those crushers who operated in the reserved area and the crushers outside reserve area were exempted from this notification. Further, the notification imposed a ban for a short period of time i.e. approximately 1.5 months and the Crushers were prohibited from producing Khandsari only and they could still products other products like gur or rab. 

This was done to increase the production of sugar so that the problem of shortage of sugar across the nation could be solved. This step was done with the intention to ensure equitable distribution of an essential commodity i.e. sugar and to make it available to common people at a fair and reasonable price.

Procedural History-

This notification was challenged by the Petitioners who are the owners of crushers as violative of fundamental rights namely Article 14 and 19. There were other grounds also on which the constitutionality of the notification was challenged. The petitioners were able to immediately get stay on the operation of the notification. The notification had already spent its force and now the Court examined the question in the present case just for academic value so that it can be helpful for the government to make such policies in the future.

Issues-

1. Whether the restrictions imposed by the notification were reasonable and whether the impugned notification is intra vires the constitution?

Arguments Advanced:

Arguments by the Petitioners-

1. The notification, as well as the Control Order, are violative of Article 19(1)(g) since the restrictions imposed are unreasonable.

2. Clause 8 of the control order is violative of Article 14 since it suffers from vices of excessive delegation. The notification makes a monopoly in favor of sugars mills at the cost of the petitioners.

3. There is no rational nexus between the prohibition on crushers and the objective of the notification. The crushers were paying more price to the sugarcane growers than the mills and even the government has reduced the support price of sugar.

4. Clause 8 of Control order can only regulate period or hours of working and it cannot contemplate complete prohibition on production.

5. The notification is against the principles of natural justice as the petitioners were not heard before passing this notification.

6. The notification violates Clause 11 of the control order since the prohibition on crushers’ amounts to partial revocation of the license granted to them. Such an order cannot be passed without hearing them.

7. The notification is against the spirit and objective of the Act and it frustrates the equitable distribution.

Arguments by the Respondents

1. An order made under Clause 8 of Control order is legislative and hence there is no question of violation of principles of natural justice.

2. The notification does not violate Article 14 or 19 because it is aimed to tackle the sugar shortage in-country and ensure equitable distribution of sugar at fair prices.

3. Crushers and Sugar mills both are different classes and are not similarly situated because sugar mills extract sugar around 9.5-11.5 % whereas crushers can only recover 4-6 %.

4. The Sugar produced by sugar mills is majorly used by the households and for exports whereas the Khandsari produced by crushers is mainly used by the Halwais and hence Sugar mills form a special class.

5. Clause 8 of Control Order uses word Period or Hour of working hence its scope is wide enough to include a fixed time period for prohibiting the business activity.

6. The petitioners were aware of the situation prevailing and the considerations also which prevailed with the government while passing such notification and hence a violation of principles of natural justice cannot arise.

Judgment

The Judgment of the Court was delivered by Justice Fazal Ali.

He while considering various case laws reiterated settled principles that fundamental rights are not absolute and can be subject to reasonable restrictions provided the restrictions are reasonable. He also agreed that the Right to carry trade and business can be curtailed by law when there is larger public interest involved and the restriction is reasonable in view of various considerations. He then considered the question that what restrictions can be said to be reasonable. He considered numerous cases of the Supreme Court but relied mostly upon the Landmark Case of State of Madras v. VG Row,[v]where the then Chief Justice Patanjali Sastri held that –

“It is important in this context to bear in mind that the test of reasonableness, where ever prescribed, should be applied to each individual statute impugned, and no abstract standard, or general pattern, of reasonableness, can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby the disproportion of the imposition the prevailing conditions at the time, should all enter into the judicial verdict. In evaluating such elusive factors and forming their own conception of what is reasonable, in all the circumstances of a given case, inevitably, the social philosophy and the scale of values of the judges participating in the decision should play an important part, and the limit to their interference with legislative judgment in such cases can only be dictated by their sense of responsibility and self-restraint and the sobering reflection that the Constitution is meant not only for people of their way of thinking but for all and that the majority of the elected representatives of the people have, in authorizing the imposition of the restrictions, considered them to be reasonable.”

Then Justice Fazal Ali considered the arguments and went to decide the arguments one by one.

Regarding the 1st Contention of the Petitioner- Justice Fazal Ali referred to various authorities to determine what constitutes reasonableness. He considered the facts of the case and was of the view that the restrictions imposed are reasonable since the restrictions are imposed for a short period of time, it is regarding essential commodity, the objective is to ensure equitable distribution at fair prices. The productivity of sugar mills is double than of the crushers which are proved by various reports placed before the Court and hence prohibiting the crushers for a certain period of time to tackle the problem of sugar famine as happened in the previous year is reasonable and not violative of Article 19(1)(g).

Regarding the 2nd Contention of the Petitioner- The Control Order has been passed under Section 3 of the Act which has been held as constitutional. The power to issue orders lies with Central Government which is a very high authority and is expected from such authority to act in a reasonable manner.[vi] It cannot be said that the power conferred is unguided or arbitrary because Section 3 lays down clear guidelines.  Clause 8 of Control Order is merely regulatory in nature and it must be read with the spirit and objective of the Act.

The Government is not trying to create a monopoly in favor of mills since most of the mills are either State-owned or owned by Cooperative Societies. The Crushers have low production cost than the mills. To boost the production of Sugar mills which can meet the demand of sugar in households is just and reasonable. Since the recovery of sugar in sugar mills is double than of the crushers.

Regarding 3rd Contention- The nexus between the prohibition and the objective is very clear from various reasons i.e. prohibition is regarding essential commodity for a short time, the objective is to ensure equitable distribution at fair prices. The productivity of sugar mills is double than of the crushers. The sugar produced by Sugar mills has wide usage than the sugar produced by crushers which are mostly used by Halwais. Regarding the prince, since the crushers are exempted from various excise duties there production cost is low and they were able to pay more to sugar cane growers than mill owners.

Regarding Vertical and Horizontal Crushers- Both the crushers produce the same amount of sugar by using a different mechanical process. The notification prohibits horizontal crushers and exempts vertical crushers. Both the crushers require a license to operate. The Court was of the view that such discrimination is uncalled for and hence the word ‘vertical’ should be read as deleted from the notification since this part is severable from the notification.

Regarding 4th Contention- The petitioners argued that under Clause 8 only working hours can be regulated and complete prohibition cannot be done. The Court did not accept this argument since it used the words ‘period or hours’. The court interpreted ‘period’ as a wider word which could include a time period of 1.5 months as in the present case.

Regarding 5th Contention- The Court agreed that it is true that principles of natural justice apply even to administrative decisions.[vii] The Attorney- General argued that the notification is legislative in nature and hence the principle of natural justice does not apply to legislative enactments. The reliance was placed on the Board of Mining examination v. Ramjee.[viii]Even the Court agreed with this point and also said that in the present circumstances it was not possible to afford hearing to the petitioners since there was a shortage of time and if the hearing was given the objective of the Act could have been defeated.

Regarding 6th Contention- The petitioners contended that such prohibition amounts to partial revocation and such revocation cannot be done without hearing the license holders. The Court did not agree with this view and held that temporary suspension cannot amount to revocation. The revocation means license has been canceled for all times. Since such prohibition does not amount to revocation, there arises no question of hearing to petitioners for revocation. 

Regarding 7th Contention-The Court did not agree with this contention of the petitioner. The Court held that the nexus between the objective and the prohibition has already been established. The notification favors large public interest by tackling sugar famine and ensuring equitable distribution of sugar at fair prices. Hence, the argument of the petitioner was rejected and it was held that the notification is within the ambit of spirit and objective of the Act.

Guidelines laid down by Court for such future laws to be made by Government

The Court said that before passing such law a hearing to the representative i.e. one member of the association may be given which will win the confidence of the petitioners and the petitioners may also help in enacting a better policy than before.

The Government may consider fixing quota of sugar cane to be provided to sugar mills and crushers instead of completely stopping the production in crushers. Further, the price paid by both growers may be made the same. The Government should take steps to help the sugar cane growers to recover their money.

Crushers are used for the production of Gur and rab also but since in the present instance the crushers were sealed, the production of gur and rab was also stopped. The government should set up a temporary committee or take any measure to prevent misuse but let the crushers keep producing gur and rab.

Conclusion-

The Court upheld the validity of the notification with minor change i.e. now the notification is now to be read without word ‘vertical’ since it was discriminatory. The Court also laid down guidelines for the government which may be considered in the future before enacting such law. These guidelines are not binding. The Court also considered as what circumstances lead to reasonableness in restrictions. It was one of those cases where the interest of the general public was preferred over the interest of owners of crushers and the restrictions were held to be reasonable in light of the objective sought to be achieved. In the present case, the notification has lost its force because the petitioners obtained stay on it and the court just examined it for academic value. So that it might be useful in the future for the government and the petitioners to bring clarity as to what the law is on this point.

“The views of the authors are personal

Reference

[i] Laxmi Khandsari and Ors. V. State of UP and Ors., (1981) 2 SCC 600.

[ii] Amalgamated Tea Estate Co. Ltd. v. the State of Kerala, (1974) 4 SCC 415.

[iii] Namit Sharma v. Union of India, (2013) 1 SCC 745; Suresh Koushal v. Naz Foundation, (2014) 1 SCC 1.

[iv] Madhya Bharat Cotton Association Ltd. v. Union of India & Anr., AIR 1954 SC 634.

[v] State of Madras v. VG Row, AIR 1952 SC 196.

[vi] VG Shukla v. State of Delhi Administration, 1980 SCC (Cri) 849.

[vii] Maneka Gandhi v. Union of India, (1978) 1 SCC 248.

[viii]Board of Mining examination v. Ramjee, (1977) 2 SCC 256.

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I am Shubham Mittal, pursuing B.B.A. L.LB. (Hons.) at Gujarat National Law University, Gandhinagar. I have an interest in Corporate law and Criminal Laws. I have interned at various places including Supreme Court and Delhi High Court etc. from where I have learnt research skills. I have been actively participating in co-curricular activities like moot courts and publishing research papers etc. Apart from academics, I love to play Volleyball and Cricket.