TaxTMI 
TaxTMI 
2007 (9) TMI 608
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....l, also quashing an order issuing licence for Power Crusher dated February 17, 2004 issued in favour of respondent No. 4; as also quashing an order dated January 22, 2004 issued by Secretary (Ganna Cheeni), Government of Uttranchal. A Writ of Mandamus was also sought by the appellant directing respondent Nos. 1 to 3 to estimate the requirement of sugarcane of the appellant on the basis of 6250 Tonnes Crushing Capacity (TCC). A further prayer was made to quash and set aside the order dated September 25, 2004 passed by the Government of Uttranchal dismissing the appeal filed by the appellant herein. FACTUAL MATRIX 4. To appreciate the controversy raised in the present appeal, few relevant facts may be noted. The appellant is a Company registered under the Companies Act, 1956. It owns a sugar factory at Kashipur in the State of Uttranchal. It was set up in the year 1936. The Company is engaged in the manufacture, sale and supply of sugar. It is the case of the appellant that M/s Indian Glycols Limited ( IGL for short) submitted an application in the year 2003 for grant of licence for Power Driven Crusher for the manufacture of rab from sugarcane. The application was, howev....
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....ourt that such policy was arbitrary, unreasonable or violative of statutory provisions. The Court also held that under the U.P. Sugarcane (Purchase Tax) Act, 1961, grant of licence was the rule and rejection an exception. As the relevant conditions of law had been observed and the application was made by respondent No. 4 for grant of licence, by allowing the application and granting licence, no illegality was committed by respondent-Authorities and such order could not be set aside. On the basis of the above findings, the High Court dismissed the writ petition filed by the appellant. The said order passed by the High Court is challenged by the appellant by filing the present appeal. 6. On March 24, 2006, notice was issued by this Court. The matter was thereafter adjourned from time to time. Affidavits and further affidavits were filed. On December 4, 2006, the matter was ordered to be placed for hearing. On May 3, 2007, we have heard the learned counsel for the parties. CONTENTIONS OF PARTIES 7. The learned counsel for the appellant contended that the change in licencing policy effected by the Authorities was arbitrary, unreasonable and contrary to law. It was submitted th....
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....not made available and the appellant had to close down certain units due to non-availability of sugarcane. Unfortunately, however, the said consideration was totally overlooked by the authorities and even the High Court did not consider that aspect in its proper perspective. On all these grounds, it was submitted that the appeal deserves to be allowed and all actions taken by the State Authorities are liable to be set aside by ordering cancellation of licence granted in favour of respondent No. 4 IGL. 8. The learned counsel for the respondents supported the order passed by the Authorities respondent Nos. 1 to 3 and the decision of the High Court. So far as the State Authorities are concerned, it was submitted that policy decisions were taken by the State from time to time as regards sugarcane policy. Earlier, as per the policy in existence, respondent Nos. 4 could not be granted licence since the object mentioned in the application was manufacture of rab and for manufacture of alcohol, and as per the policy, no licence could be granted for the said purpose. The application was, therefore, rejected. Thereafter the policy was changed and in accordance with the ch....
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....ely affected public interest. If by taking into consideration all the facts and circumstances in their entirety, the relevant provisions of law and change of policy, a licence is granted by the authorities in favour of respondent No. 4 without disturbing supply of sugarcane to the appellant, it cannot be said that the action taken by respondent-Authorities was illegal, unlawful or otherwise objectionable. The High Court was, therefore, fully justified in dismissing the petition and the said order requires no interference by this Court in exercise of discretionary and equitable jurisdiction under Article 136 of the Constitution. STATUTORY SCHEME GOVERNING SUGAR AND SUGARCANE 10. Before we deal with contentions raised by the parties before us, it would be appropriate if we peruse relevant statutory provisions relating to sugar and sugarcane. Sugarcane is an essential commodity as defined in Section 2(b) of the Essential Commodities Act, 1955. In the leading decision Ch. Tika Ramji & Ors. etc. v. State of Uttar Pradesh & Ors., (1956) 1 SCR 393 : AIR 1956 SC 676, this Court held that the Essential Commodities Act included within the definition of essential commo....
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....minimum price of sugarcane payable by producers of khandsari sugar. Clause 6 empowers the Central Government to regulate distribution and movement of sugarcane. The said clause is relevant and reads thus: 6. Power to regulate distribution and movement of sugarcane. (1) The Central Government may, by order notified in the official Gazette. (a) reserve any area where sugarcane is grown (hereinafter in this clause referred to as reserved area ) for a factory having regard to the crushing capacity of the factory, the availability of sugarcane in the reserved area and the need for production of sugar, with a view to enabling the factory to purchase the quantity of sugarcane required by it; (b) determine the quantity of sugarcane which a factory will require for crushing during any year; (c) fix, with respect to any specified sugarcane grower or sugarcane growers generally in a reserved area, the quantity or percentage of sugarcane grown by such grower or growers, as the case may be, which each such grower by himself, or, if he is a member of a co-operative society of sugarcane growers operating in the reserved area, through such society, shall supply to the facto....
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....ccounts, books, registers or other documents, belonging to or under the control of a producer of sugar or his agent, or an owner of a crusher, a power crusher or a khandsari unit or an agent of such an owner, are maintained or kept for safe custody. Clause 11 enables Central Government to delegate its powers to be exercised by any officer or authority of the Central Government or by State Government or any officer or authority of a State Government. The Central Government vide a notification dated July 16, 1966, delegated the powers under clauses 6, 7, 8 and 9 to the State Government. In exercise of the said power, the State of Uttar Pradesh issued U.P. Khandsari Sugar Manufacturer s Licensing Order, 1967. The Preamble of the order states that the power to regulate the manufacture of khandsari sugar by open pan process including bels exercisable by Central Government has been delegated to the State Government under Sugarcane (Control) Order, 1966. It was also stated that the State Government was of the opinion that it was necessary and expedient for regulating manufacture of khandsari sugar by open pan process including bels, that in exercise of the delegated powers it was pleased ....
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....dient so to do in the public interest. The Licensing Authority is also enjoined to take into consideration the directions of the State Government issued from time to time. The provision also keeps in view principles of natural justice and expressly states that no application for grant of licence can be rejected without giving the applicant reasonable opportunity of being heard. Sub-clause (5) of Clause 3 confers a right of appeal on the aggrieved applicant and makes the decision of the State Government on such appeal final. 15. A reference may also be made to a substantive Act, namely, the U.P. Sugarcane (Regulation of Supply and Purchase) Act, 1953. As stated in the Preamble, the Act has been enacted with a view to regulate the supply and purchase of sugarcane required for use in sugar factories and gur, rab or khandsari manufacturing units . Section 2 of the said Act, inter alia, defines assigned area , cane , crushing season , factory , gur, rab or khandsari sugar manufacturing unit , reserved area , etc. Whereas Chapter II of the Act relates to Administrative Machinery , Chapter III deals with Supply and Purchase of Cane ....
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....or purchase of any cane in any reserved or assigned area; and (b) purchase of cane in any area other than a reserved or assigned area. (2) Without prejudice to the generality of the foregoing powers such order may provide for (a) the quantity of cane to be supplied by each Cane-grower or Cane-growers Co-operative Society in such area to the factory for which the area has so been reserved or assigned; (b) the manner in which cane grown in the reserved area or the assigned area, shall be purchased by the factory for which the area has been so reserved or assigned and the circumstance in which the cane grown by a cane-grower shall not be purchased except through a Cane-growers Co- operative Society; (c) the form and the terms and conditions of the agreement to be executed by the occupier or manager of the factory for which an area is reserved or assigned for the purchase of cane offered for sale; (d) the circumstances under which permission may be granted (i) for the purchase of cane grown in reserved or assigned area by a Gur, Rab or Khandsari Manufacturing Unit or any person or factory other than the factory for which area has been res....
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.... and the conditions of the licence; (b) the default, if any, made by the applicant in payment of the dues under this Act; and (c) the total continuous period for which the applicant held a licence under this Act prior to the date of application; Provided further that no application for renewal of a licence shall be rejected unless the applicant has been given a reasonable opportunity of being heard; Provided also that where an application for grant or renewal of a licence is not disposed by the commencement of the assessment year or (i) in the case of an application for grant of a licence, within three months; and (ii) in the case of an application for renewal of a licence, within two months, of the date on which the application is made, whichever is later, the licence shall be deemed to have been granted or renewed, as the case may be. 19. Section 5 provides for renewal of licence. Section 6 lays down conditions for suspension or cancellation of a licence. Sections 7 to 14 deal with the powers of Authorities under the Act. CONSIDERATION OF MERITS 20. The High Court considered the scheme of substantive laws occupying the field and also subordinate l....
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....ration of reserved area and assigned area under Section 15, the estimate published under section 12 shall be the basis for consideration by the Sugarcane Commissioner for the purpose of quantifying the requirement of sugarcane for every factory. 21. The High Court also noted that there may be occasions when one sugar factory is not able to crush the entire sugarcane available in assigned or reserved area and at the same time another sugar factory is having the shortage of sugarcane in its reserved area during the crushing season. In such situations, the Sugarcane Commissioner can very well assign any specified area out of the reserved area of the latter factory to the former factory. The Court observed that reserved area of a sugar factory is not of permanent nature and no sugar factory can claim that the area reserved for a particular year would remain with it for all the time. The reserved area is allocated to a particular sugar factory for a crushing season which can be changed or modified by the Sugarcane Commissioner in the next crushing season. If exigencies of situation require, the Sugarcane Commissioner can change the area even during the same crushing seaso....
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.... that the unit of respondent No.4 shall purchase additional balance cane other than bonded cane from the reserved area of the sugar mills of the State. It further stated that there shall be no permission to purchase bonded cane . Cane producers were also protected by imposing a condition on the respondent No. 4 that the cane price to be paid by the Unit shall not be less than Minimum Statutory Price fixed by the Government of India . Probably, taking into account the aforesaid situation and interest of all concerned, the crushing capacity of respondent No.4 s Unit was made limited to 1250 CTT. The authorities also considered the overall industrial growth and in condition No.5 it was stated that prior to 2004-05 crushing season, the Unit shall take action to produce additional cane and do development as per undertaking given in the application . 26. In our opinion, the respondents are also right in submitting that sub-section (3) of Section 4 of 1961 Act as also sub-clause (4) of Clause 3 of the Licensing Order, 1967 require the Licensing Authority not to reject application for grant or renewal of licence unless the conditions laid down therein are satisfied. Th....
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....of the considerations which must be kept in mind by the Authorities while exercising powers under various provisions of law would be as to whether exercise of such power would also protect interest of sugarcane growers. In the case on hand, that is precisely done by the respondent-authorities and we see no infirmity therein. PUBLIC INTEREST 30. The learned counsel for the appellant, however, submitted that an application for grant of licence can also be rejected if the Sugar Commissioner is of the opinion that it is necessary or expedient so to do in public interest with a view (i) to regulating the manufacture of gur or rab by units; or (ii) to avoiding uneconomic concentration of units in any area; or (iii) to ensuring, in reserved areas, adequate supplies of sugarcane to a factory. 31. But as observed by the High Court, by Office Order, dated November 15, 2003, the policy was changed and the State Government was empowered to relax limitation in clause (a) of para 1 which prohibited granting of licence to new units in the reserved area or pocket village of sugar mill. It expressly states that in case any Sugar Mill decides not to run in a particular year or in the ....
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.... adversely affected by grant of licence in favour of respondent No. 4. The said condition, as noted earlier, allows the Unit to purchase other than bonded cane . If it is so, no prejudice can be said to have been caused to the appellant. STATUTORY FINALITY 35. It may also be stated that the order passed by the Sugar Commissioner is subject to appeal before the State Government and the State Government has also confirmed the said order in exercise of appellate jurisdiction on September 25, 2004. The Appellate Authority, again considered the entire controversy and held that the action taken by Sugarcane Commissioner was not illegal or improper and did not call for any interference. The Appellate Authority also did not accede to the prayer of respondent No.4 to increase the capacity from 1250 to 1500 CTT. 36. As already adverted to earlier, the order passed by the State Government in appeal is final . Thus, statutory finality is attached to the order passed by the State Government. It cannot be gainsaid that such statutory finality does not oust the jurisdiction of a High Court under Article 226/227 of the Constitution nor of this Court under Article 3....
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.... the case of Khandasari Units is hardly 5 to 6%. There can be no question that viewed from the viewpoint of production of sugar, it is advantageous to divert as much sugarcane as possible to sugarcane factories instead of Khandasari Units Even so Khandasari Units flourish, as is generally known because of the byproduct of molasses. As experience showed that Khandasari units are better able to tap the growers of sugarcane, it became necessary for the Government to reserve areas for sugar mills. Otherwise, sugar mills would have to remain idle for long periods unable to withstand the competition of khandasari units in reaching sugarcane growers. It was for that purpose, that is, with a view to prevent sugar factories from remaining idle by making available to them sufficient quantities of sugarcane that the idea of reserving areas for sugar factories was conceived. In the years when there is no dearth of sugarcane and it is available in plenty, there is no problem and khandasari units will be free to purchase as much as sugarcane as they want in reserved areas also if the units are located there. But problems arise when on account of bad seasonal conditions there is a fall in the pro....
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....n that case, this Court has indicated that the Government ought to take into consideration interest of sugarcane growers also. In the present case, the Sugarcane Commissioner has precisely performed that function when he observed that the sugarcane growers had one more option available for realizing proper return. Apart from the fact that it cannot be said to be an irrelevant consideration, the Authorities are enjoined to keep in view this aspect as one of the considerations and we see no infirmity therein. 40. It is also pertinent to note that when licence was granted to respondent No. 4 by the Sugarcane Commissioner for one Power Crusher of a capacity of 1250 TCD, the appellant as also respondent No. 4 challenged that order. The grievance of the appellant was that no such licence could have been granted by the Sugarcane Commissioner in favour of respondent No. 4. The complaint made by respondent No. 4, on the other hand, was that the Licensing Authority ought to have granted licence for 1500 TCD as applied. 41. The State Government disposed of both the matters by upholding the order passed by the Sugarcane Commissioner observing that the action taken by the Licensing Author....
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....on the Central Government or any officer authorized by it to permit the use of gur inter alia for the use in chemical industry or for any other industrial use. 46. The High Court considered the contention and observed that the application submitted by respondent No. 4 was limited to manufacture of rab and no use was indicated at all. From the counter-affidavit filed in the High Court, no such indication was exhibited. But in any case, if there was violation of provision of law relating to use of rab for a purpose other than permitted by law, the remedy was not to challenge licence but to question the use of rab. An appropriate direction in such an eventuality can always be issued by the Authority. POLICY MATTERS AND JUDICIAL REVIEW 47. The learned counsel for the appellant contended that though as per policy of the Government for the year 2002-03, licence could not have been granted and in fact it was not granted to respondent No. 4, the policy was changed by the Government to favour respondent No. 4 and licence was granted under the altered policy which was illegal and unlawful and malicious. Regarding mala fide exercise of power, we will consider at an appropriate stage,....
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....Court observed that the High Court has thoroughly misunderstood the nature of the jurisdiction that was exercised by it. So long as there is no violation of any fundamental rights and if the principles of natural justice are not offended, it was not for the High Court to lay down the policy that should be adopted by the educational authorities in the matter of granting permission for starting schools. The question of policy is essentially for the State and such policy will depend upon an overall assessment and summary of the requirements of residents of a particular locality and other categories of persons for whom it is essential to provide facilities for education. If the overall assessment is arrived at after a proper classification on a reasonable basis, it is not for the courts to interfere with the policy leading up to such assessment. (emphasis supplied) 53. In R.K. Garg v. Union of India, (1981) 4 SCC 675 : AIR 1981 SC 2138 : (1982) 1 SCR 947, constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Act, 1981 was challenged being arbitrary and having no reasonable nexus with the object sought to be achieved. Holding the Act intra vires ....
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.... liquor. However, the State was bound to act in accordance with law and not according to its sweet will or in an arbitrary manner and it could not escape the riguor of Article 14. Therefore, the contention that Article 14 would have no application in a case where the licence to manufacture or sell liquor was to be granted by the State Government was negatived by this Court. 56. The Court, however, observed: But, while considering the applicability of Article 14 in such a case, we must bear in mind that, having regard to the nature of the trade or business, the Court would be slow to interfere with the policy laid down by the State Government for grant of licences for manufacture and sale of liquor. The Court would, in view of the inherently pernicious nature of the commodity allow a large measure of latitude to the State Government in determining its policy of regulating, manufacture and trade in liquor. Moreover, the grant of licences for manufacture and sale of liquor would essentially be a matter of economic policy where the court would hesitate to intervene and strike down what the State Government has done, unless it appears to be plainly arbitrary, irrational or m....
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....decisions unless such policy could be faulted on the grounds of mala fide, unreasonableness, arbitrariness, unfairness, etc. But the mere fact that it would hurt business interests of a party would not justify invalidating the policy. In tax and economic regulation cases, there are good reasons for judicial restraint, if not judicial deference, to judgment of the executive. The Courts are not expected to express their opinion as to whether at a particular point of time or in a particular situation any such policy should have been adopted or not. It is best left to the discretion of the State. (emphasis supplied) [See also SIEL Ltd. v. Union of India & Ors., (1998) 7 SCC 26 : AIR 1998 SC 3076]. 60. In BALCO Employees Union v. Union of India, (2002) 2 SCC 333 : AIR 2002 SC 350 : JT 2001 (10 SC 466, a decision of the Government of India of transferring its majority shares in favour of M/s Bharat Aluminium Company Ltd. was challenged by the employees as illegal, unlawful and ultra vires Articles 14 and 16 of the Constitution. Negativing the contention and upholding the decision of the Government, after referring to several cases on the point, this Court stated: Proces....
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....with very large powers. But the High Court does not interfere with the exercise of those powers, The High Court only interferes when it finds that those powers are not exercised in accordance with the mandate of the Legislature. Therefore, far from interfering with the good governance of the State, the Court helps the good governance by constantly reminding Government and its officers that they should act within the four corners of the statute and not contravene any of the conditions laid down as a limitation upon, their undoubtedly wide powers. Therefore, even from a practical point of view, even from the point of view of the good governance of the State, we think that the High Court should not be reluctant to issue its prerogative writ whenever it finds that the sovereign Legislature has not been obeyed and powers have been assumed which the Legislature never conferred upon the executive . (emphasis supplied) MALA FIDE EXERCISE OF POWER 66. The appellant also contended that the impugned action of granting licence to respondent No. 4 by respondent Nos. 1 to 3 is mala fide. It was submitted that in spite of acute shortage of sugarcane in the State of Uttranchal, the policy....
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....e plea that the earlier policy was better and suited to the prevailing situation. 69. Allegations of mala fide are serious in nature and they essentially raise a question of fact. It is, therefore, necessary for the person making such allegations to supply full particulars in the petition. If sufficient averments and requisite materials are not on record, the court would not make fishing or roving inquiry. Mere assertion, vague averment or bald statement is not enough to hold the action to be mala fide. It must be demonstrated by facts. Moreover, the burden of proving mala fide is on the person levelling such allegations and the burden is very heavy [vide E.P. Royappa v. State of Tamil Nadu, (1974) 4 SCC 4 : (1974) 2 SCR 348]. The charge of mala fide is more easily made than made out. As stated by Krishna Iyer, J. in Gulam Mustafa v. State of Maharashtra, (1976) 1 SCC 800 : AIR 1977 SC 448], it is the last refuge of a losing litigant [see also Ajit Kumar v. Indian Oil Corporation, (2005) 7 SCC 764]. In the case on hand, except alleging that the policy was altered by the Government, to extend the benefit to respondent No. 4, no material whatsoever has been....