The Kondli Vikas Cooperative ... vs Delhi Milk Scheme And Anr.
1999 Latest Caselaw 192 Del

JUDGMENT

C.M. Nayar, J.

1. The petitioners 1 and 2 are Cooperative Societies comprising of individuals who are engaged in the business of cattle rearing and milk selling. They are registered under the provisions of Delhi Cooperative Societies Act. Petitioners 3 and 4 are engaged in the business and are members of petitioners 1 and 2 Societies.

2. The petitioners contend that the respondents are State within the meaning of Article 12 of the Constitution of India and are amenable to writ jurisdiction of this Court. Respondent No. l purchases milk from Cooperative Societies, individuals and State Dairy Federations and supplies the same to the residents of Union Territory of Delhi after processing the same. The respondents, it is stated, have fixed a standard of milk to be purchased by them as one containing 6.5% of milk fat and 9.0% of solid non fat. The rate is fixed keeping this standard in mind. In case there is any deficiency in the milk supplied from this standard settled rate has got to be proportionately reduced. The respondents, it is argued, are bound to make payment to different suppliers for the quality of milk supplying at the same rate and cannot discriminate and offer different rates to different suppliers for the same quality of milk supplied to them. The other relevant facts as incorporated in the writ petition are referred to in paragraphs 5,6 and 7 which may be reproduced as follows:

"That respondent No. l D.M.S. has been purchasing milk from Cooperative Sector for the last 10 to 15 years. This Cooperative Sector has two wings :-

1. State Dairy Federation

2. Cooperative Dairy Societies of Delhi. State Dairy Federations duly registered with respective State Govt. Cooperative Deptt. The Federation of U.P., Haryana, Punjab, Rajasthan and Madhya Pradesh have been supplying milk to respondent No. l D.M.S.

Similarly a number of Cooperative Dairy Societies registered with Registrar of Cooperative Societies, Delhi have been supplying milk to respondent No. l D.M.S. The agreement for the calender year 1991 are identical like the one executed with petitioner No. l. True copy whereof is filed as Annexure I hereto. The purchase rate of D.M.S. were the same for State Dairy Federations of U.P., Haryana, Punjab, Rajasthan and M.P. as offered to Cooperative Dairy Societies to Delhi.

6. That after the expiry of this agreement i.e. 31.12.1991 new agreements for the year 1992 were not signed with the Cooperative Dairy Societies of Delhi whereas with State Dairy Federations agreements were signed. Only ad hoc arrangements were made for the year 1992 with the understanding that a joint team comprising of officials of Registrar Coop. Societies and respondent No. l D.M.S. would conduct the survey about the milk production and handling capacity of each Dairy Society registered with Registrar Coop. Societies and on receipt of the report in due course the rate and quantity would be decided and agreements with individual Societies would be signed accordingly.

Though the enquiry was completed by the middle of 1992 but for the reasons best known to respondent No. 1 D.M.S. agreements were not signed for that year or even for 1993. In addition to this D.M.S. even went to the extent of reducing the quantity of milk to be accepted from Cooperative Societies by 1/5 of its assessed quantity.

Aggrieved from this whimsical attitude of respondent No. 1 Cooperative Societies had to move the courts of law for accepting the milk from the Coop. Societies to the extent for which the Societies have been assessed to produce the and handle milk by survey team appointed in mid 1992. Courts were kind enough to pass the orders directing D.M.S. authorities to accept milk from the Societies to the extent as assessed by Survey team. D.M.S. authorities did not obey the Court orders and contempt of court proceedings had to be initiated against respondent No. l Court passed on 3.11.93 directions for acceptance of milk from petitioner No. l Society. These orders were challenged before this Hon'ble Court by D.M.S. but this Hon'ble Court also declined the appeal of D.M.S. on 9.11.1993 and as a result respondent No. l started accepting milk.

7. That during the year respondent No. l D.M.S. did not sign the agreement with State Dairy (sic) as well as the Coop. Societies. Only ad hoc arrangements continued for acceptance of milk from cooperative sector with the understanding that rates, quantity and other terms would be formulated and settled in time. State Dairy Federations as well as Coop. Societies started supplying milk. During the, onset of summer period all the societies and State federations deserted supplying milk to D.M.S. Due to the reasons that D.M.S. was paying less rate arbitrarily. State Dairy Federations increased their supplies of milk to Mother Dairy because of higher rates offered by it. However, petitioner societies continued to supply milk to D.M.S. regularly in compliance with Court order and with the hope that Societies would be paid at the rate which would ultimately be paid to any of State Dairy Federations or milk supplies from any State."

3. The main grievance of the petitioners is with regard to the supply of milk received by respondent No. l from Dhulia Milk Plant in the State of Maharashtra allegedly for a higher price than what is being disbursed to the petitioners. Paragraphs 9 and 10 of the writ petition incorporating the facts in this regard may be referred to as below:

"9. That recently w.e.f. 23.9.1994 respondent No. l has started accepting milk from Dhulia milk plan in the State of Maharashtra. They are being paid at the rate of Rs. 6.75 Ps per litre for the fat content of 4% and 8.5% solid non fat in the milk supplied by them. True copy of the Schedule showing this rate is being filed as Annexure II hereto. The rate when calculated on the prescribed standard of 6.5% fat works out to be Rs. 8.75 Ps per litre. Apart from this, transportation charges are also added to the amount paid for this milk and the same is paid by respondent No. l; while no transportation expenses are paid to the petitioners and they have to supply milk in their own tankers the Patel Nagar Plant of respondent No. 1 Petitioners are being paid at the rate of Rs. 6.62 Ps per litre at 6.5% Fat

and 9% SNF. The payment thus made by respondent No. 1 for the milk purchased from Maharashtra works out to be fifty per cent more than what is paid to petitioners. While petitioner Societies are not paid any transport cost the Maharashtra milk plant is being paid the same at the rate of Rs. 1.52 per litre of milk. The milk from Dhulia Milk Plant is thus paid for @ Rs. 8.75 + Rs. 1.52 = 10.27 per litre at 6.5% fat and 9.0 SNF.

10. That the hostile discrimination practised by respondents does not end here, it is practiced in so many ways such as

(i) The penalty for short supply of milk from petitioner society is recovered at the rate of Rs. 2.00 per litre whereas it is Rs. 0.50 Per litre in case of Dhulia milk plant.

(ii) Whenever any assignment of milk offered to respondent No. l is rejected by D.M.S. the penalty is charged from petitioner societies at the rate of Rs. 1000/- per consignment whereas no penalty is charged from Dhulia milk plan of Maharashtra.

(iii) Whenever milk falls short of the minimum stipulated standard only the pro-rata deduction from the rate is made in case of Dhulia milk plant whereas substitution cost is being charged from the cooperative Societies. Respondent No. l on its own whims takes a figure calling it the rate of milk fat (ghee) prevailing in the market and deduct therefrom the rate settled with petitioners to arrive at the substitution cost. There is no such clause in the agreement of 1991 or ad hoc arrangement continuing as at present. Even while the pro rata payments are made substitution cost is deducted from our societies which results into in double deductions being made from Societies arbitrarily. Respondents are liable to refund the substitution cost recovered from petitioners."

4. The petitioners, inter alia, therefore, seek relief against the respondents (a)to issue appropriate writ, order and/or directions to the respondents commanding them to (i) pay the petitioners for the milk supplied by them at the same rate as paid to Dhule Milk Scheme or other Federations being paid at the highest rate; (ii) not to recover any penalty from the petitioners in the form of substitution cost or in any other manner for any short fall in the fat content of the milk supplied by them; or short supply or while rejecting the supply offered by them; (iii) refund the amounts such as substitution costs and other penalties unauthorisedly and illegally recovered from petitioners.

5. The difference in price as granted to the petitioners and State Dairy Cooperative Federations is explained in the counter affidavit filed by the respondents. Paragraphs 4 and 5 of the same read as follows:

"4.The contention that while accepting milk from different persons/Institutions, the respondent cannot give different rates is not admitted that all the suppliers should be subjected to the same terms and conditions is also not admitted. As already stated D.M.S. procures milk from different distinct categories viz. State Dairy Cooperative Federations, Milk Produce Cooperative Societies registered in Delhi and Private Contractors. Having regard to the fact that they belong to distinct categories, it is neither possible nor advisable, to give all the suppliers the same prices nor the same terms and conditions for supply of milk to D.M.S. to elucidate, while the State Cooperative Dairy Federations obtain their supplies from various sources and virtually go to the doors of the farmers to collect milk, the cooperative societies, as per their bye-laws are to supply milk produced by the milch cattle of their members. Thus while the Federations will have large overheads the Cooperative Societies will have practically no overheads. In addition, the Federations are saddled with the task of ensuring the development of Dairy Industry and Farms in the respective States, the Coop. Societies do not have any such responsibility. Thus the State Dairy Cooperative Federation by the nature of their responsibilities, have to have larger overheads etc. vis-a-vis the Milk Producers Cooperative Societies and as such the latter cannot ask for the same price paid to the State Dairy Cooperative Federations."

5. Further, as already submitted State Dairy Coop. Federations and local milk Producers Coop. Societies were being paid the same prices which were negotiated and finalised jointly by the Mother Dairy and D.M.S. with the State Coop. Dairy Federations. Later, however, sometime in 1992, when D.M.S. started making surveys about the genuineness of the Coop. Societies and their adherence to their Bye-laws etc., some Coop. Societies including the petitioners volunteered to supply milk at rates lower than those settled with State Dairy Coop. Federations."

5. In paragraph 6 it has been clearly stated that the Cooperative Societies including petitioner No. 2 agreed to a price decided in consultation with them and, therefore, they are now stopped from agitating the different rates paid to different agencies for supplying the same type of milk as discriminative and violative of Article 14 of the Constitution of India. Further, it is argued on behalf of the respondents that the fixation of price at which the respondents had procured milk from the petitioners is a purely contractual matter and is not amenable to writ jurisdiction of this Court under Article 226 of the Constitution of India.

6. The statement of comparative price has been annexed with the writ petition and may be reproduced as follows:

"Statement showing purchased f.o.r. price of DMS mixed milk during the year 1992 to 1995 of the State Dairy Federations and Cooperative Dairy Societies.

Name of source

Flush

1992 Transitory

Lean

1993 Transitory

Lean

State Dairy Federations

8.06

8.67

9.27

7.56

8.17

8.77

Cooperative Dairy Societies

7.10

8.10

8.75

6.75

7.96

8.35

Name of source

Flush

Transitory

Lean

Flus

Transitory

Lean

State Dairy Federations

11.24

11.24

.X.

11.79

11.79

11.79

Cooperative Dairy Societies

6.62

7.82

8.22

6.62

6.62

6.62

Note:- Flush period- January/February, November/December of every year Transitory period - March/April, September/October of each year. Lean period - May, June, July and August every year.

X. 1994 - During lean period, there was no supply of milk from State Dairy Federation."

7. The learned counsel for the petitioners is prima facie, claiming the difference in price as paid to the petitioners and other State Dairy Federations relating to the year 1994 and no past refund is claimed such as for the years 1992 and 1993 as the difference was nominal. The subsequent years 1996, 1997 and 1998 did not have any substantial difference in prices as paid to the petitioners in comparison to the other Federations and, therefore, the learned counsel for the petitioners did not impugn the same in respect of those years. It is conceded that there is marginal difference of 15 to 25 paise in respect of these years.

8. It is vehemently argued on behalf of the petitioners that the law is well settled that the State cannot adopt an arbitrary and discriminatory attitude and is bound to pay to the petitioners for the milk supplied to them at the same rate as paid to other State Dairy Federations and a further direction is sought against the respondents not to recover any penalty from the petitioners in the form of substitution costs or in any other manner for the short-fall in the said fat content of the milk supplied by the petitioners. Reliance is placed on the judgments reported as Mahabir Auto Stores and Ors. v. Indian Oil Corporation and Ors. and Doki China Gurubalu and Sons and Co. v. State of Orissa and Ors. .

9. In Mahabir Auto Stores and Ors. (supra) the well recognised principles as enshrined in Article 14 of the Constitution of India have been reiterated. Paragraphs 12 and 13 may be referred to as below:

"12. It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in M/s. Radha . It appears to us, at the outset, that in the facts and circumstances of the case, the respondent-company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or

not entering in contracts with individual parties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. See M/s. Radha Krishna Agarwal v. State of Bihar at p.462 (at SCC) : (at p.1499-1500 of AIR)(supra), but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. In a situation of this nature certain activities of the respondent company which constituted State under Article 12 of the Constitution may be in certain circumstanc6s subject to Article 14 of the Constitution in entering or not entering into contracts and must be reasonable and taken only upon lawful and relevant consideration, it depends upon facts and circumstances of a particular transaction whether hearing is necessary and reasons have to be stated. In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution , and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a Government action even in the matter of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. In this connection reference may be made to E.P. Royappa v. State of Tamil Nadu, ; Maneka Gandhi v. Union of India, , Ajay Hasiav. Khalid Mujib Sehravardi, ; R.D. Shetty v. International Airport Authority of India, and also Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay , . It appears to us that rule of reason and rule against arbitrariness and discrimination,rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of the decision of entering or not entering into a contract,are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non-discrimination in the type of the transactions and nature of the dealing as in the present case.

13. The existence of the power of judicial review however depends upon the nature (of) and the right involved in the facts and circumstances of the particular case. It is well settled that there can be "malice in law". Existence of such "malice in law" is part of the critical apparatus of a particular action in administrative law. Indeed "malice in law' is a part of the dimension of the rule of relevance and reason as well as the rule of fair play in action."

10. Similarly reliance is placed on the judgment of the Orissa High Court in M/s. Doki China gurubalu and Sons and Co. (supra) by making reference to paragraph 9 which reads as follows:

"In our view,the present case comes even within the ratio of. Radhakrishna's case. The Supreme Court did not categorically hold that an application under Article 226 for enforcement of fundamental rights under Article 14 was not maintainable in any circumstances, where the right flowed from a contract. Had it so held, it would have gone into the question that the petitioner in that case had not laid the foundation by appropriate pleadings to make out a case of violation of fundamental rights under Article 14. Hence, in our view, it cannot be said as an absolute rule of law, that in no circumstances, a writ application for issue of mandamus can lie if the right involved flows from a contract. That would be circumscribing the extra ordinary jurisdiction of this Court which was intended by the Founding Fathers to function as the sentinel always in the alert. Where without any authority of law, by an executive fiat, rights are trampled arbitrarily, this Court cannot and should not shut its door to the aggrieved party where valuable civil rights are taken away without any authority of law or by violation of principles of natural justice, this Court cannot fold its hands and look on as an helpless onlooker asking the party to approach the civil Court. Where there are disputed questions of fact, evidence is to be led by the parties and it would be necessary to scan and assess the same, it is a different matter. The ultimate remedy of suit should be followed. Whether extraordinary jurisdiction should be exercised in a matter is in the discretion of this Court. Where a person has been deprived of his valuable civil rights by executive fiat without any justification in law, it would be futile to contend that this Court should refuse to exercise jurisdiction under Article 226."

11. On the other hand the learned counsel for the respondents has cited the judgments reported as C.K. Achutan v. The State of Kerala and Ors. and Tata Cellular v. Union of India . Paragraph 9 of the first judgment is referred to as under:

"9. The main contention of the petitioner before us was thus under Article 16(1) of the Constitution, and he claimed equal opportunity of employment under the State. To begin with, a contract for the supply of goods is not a contract of employment in the sense in which that word has been used in the Article. The petitioner was not to be employed as a servant to fetch milk on behalf of the institution, but was a contractor for supplying the articles on payment of price. He claimed to have been given a contract for supply of milk and did not claim to be an employee of the

State, Article 16(1) of the Constitution, both in its terms and in the collocation of the words, indicates that it is confined to "employment" by the State, and has reference to employment in service rather than as contractors. Of course, there may be cases in which the contract may include within itself an element of service. In the present case, however, such a consideration does not arise, and it is, therefore, not necessary for us to examine whether those cases are covered by the said Article. But it is clear that every person whose offer to perform a contract of supply is refused or whose contract for such supply is breached cannot be said to have been denied equal opportunity of employment, and it is to this matter that this case is confined."

12. Paragraph 77 as reported in the judgment Tata Cellular (supra) has been cited to reiterate the well laid down principles as follows:

"77. The duty of the court is to confine itself to the question of legality. Its concern should be:

1. Whether a decision-making authority exceeded its powers?

2. Committed an error of law,

3. committed a breach of the rules of natural justice,

4. reached a decision which no reasonable tribunal would have reached or,

5. abused its powers.

13. Therefore, it is not for the court to determine whether a particular policy or particular decision taken in the fulfillment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under:

(i) Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.

(ii) Irrationality, namely, Wednesbury unreasonableness,

(iii) Procedural impropriety.

The above are only the broad grounds but it does not rule out addition of further grounds in course of time. As a matter of fact, in R. v.Secretary of State for the Home Department, ex Brind, Lord Diplock refers specifically to one development, namely, the possible recognition of the principle of proportionality. In all these cases the test to be adopted is that the court should, "consider whether something has gone wrong of a nature and degree which requires its intervention."

14. In the present case respondent No. 1 had discontinued the supply of milk from the petitioners and the petitioners approached the Civil Court to agitate their rights. The Trial Judge rejected the prayer. However, the Appellate Court granted the relief by recording the following findings in paragraphs 6 and 7 of the judgment:

"6. It was also admitted during the arguments by the respondent's counsel that the rate which is being paid to the State Federations and to the

contractors is about 50 paise per kg. higher than that which is paid to the Local Cooperative Societies. The respondent is not taking supply of 4000 kgs. per day from the Cooperative Societies. That means the respondent was incurring loss of about Rs. 2000/- per day and about Rs. 60,000/- per month or in other words a loss of about Rs. 7,30,000/- per annum (365 days) which is not a small loss. The decision of the State has to be an objective : decision. If a discretion which is exercised against the public interest deliberately it shows no doubt a mala fide decision. It is obligatory upon the respondent to act in public interest and if the decision of the respondent is against the public interest, the court has got power of judicial review against such a decision. There is a duty on the respondent authority not to act so as to frustrate the policy decision taken by the respondent. The respondent had taken this policy decision in larger public interest so that those small Cooperative Societies who had no facility of pasteurization of the milk and np facility of storing the milk should supply the milk to the extent of their Capacity daily to the respondent. The respondent by violating this policy decision which was taken in the larger public interest has acted mala finely and unreasonably. The court can issue directions in such case where the motivation behind the action is dishonest and corrupt. There seems to be no justification with the respondent for not procuring the milk from the Local Cooperative Societies. The respondent is not a private contractor but it is a public body which has to act in larger public interest, and in accordance with the policy laid down for its functioning.

7. The plaintiff has, therefore, a prima facie case. Plaintiff shall also suffer irreparable loss and injury because the plaintiff, who is a Small Cooperative Society does not have the facility of pasteurization and storage of milk and has to depend upon the respondent for selling its milk. It is not the case of the respondent that these societies are not properly registered Cooperative Societies. I, therefore, consider that the application of the appellant under Order 39 Rules 1 and 2 CPC should have been allowed. The appeal is accepted. The application under order 39 Rules 1 and 2 CPC of the appellant is allowed. The respondent is directed to take milk supply from the appellant which the respondent was taking in the year 1992 during flush season."

15. The suit continues to remain pending and the interim directions as granted against respondent No. 1 are still operating. The petitioners have, therefore, taken recourse to an alternative remedy and the proceedings are going on and in this background it will not be appropriate to pass any further, directions as the nature of the dispute between the parties is of contractual nature and it will require investigation of facts and a remedy under Article 226 of the Constitution of India cannot be made available to the petitioners particularly when it is conceded that there is no substantial difference in the price as paid to the petitioners and other State Dairy Federations in the years 1996, 1997 and 1998.

16. The law is well settled that the State cannot adopt a discriminatory and an arbitrary attitude even in exercise of contractual powers but this will also depend on facts and circumstances of each case. It is needless to say that respondent No. 1 will bear in mind that it is the duty of the State to prevent arbitrariness or favouritism. Paragraph 70 of the judgment reported in Tata Cellular (supra) may be reproduced as follows:

"70. It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down."

17. The other grievance of the petitioners is that the respondents have not yet entered into any agreement with regard to the supply of milk with the petitioners and are only proceeding to adopt a very vindictive and careless attitude in dealing with the demands of the petitioners. The petitioners shall be at liberty to approach the respondents in this regard for redressal of their grievance and the respondents shall consider the matter when such an application is made.

18. In view of the above, the present petition is dismissed with the observations as made above. There will be no order as to costs.