Parle Biscuits P.Ltd. vs Uoi & Ors.
2008 Latest Caselaw 1591 Del

*        IN THE HIGH COURT OF DELHI AT NEW DELHI

+                     LPA 393/2007 & CM 7890/2007

         PARLE BISCUITS P.LTD.                 ..... Appellant
                         Through: Mr. Valmiki Mehta, Sr. Adv. with
                          Mr. Asheesh Jain, Advocate

                             versus

         UOI & ORS.                                 ..... Respondents
                             Through: Mr. P.P. Malhotra, ASG with
                             Mr. Pushkar Sood, Mr. Varun Kathuria,
                             Advocates
          CORAM:
          HON'BLE THE CHIEF JUSTICE
          HON'BLE DR. JUSTICE S.MURALIDHAR

     1. Whether reporters of the local papers be allowed to see the judgment ? n
     2. To be referred to the Reporter or not ? y
     3. Whether the judgment should be reported in the Digest ? Y
     4.

                              ORDER

% 09.09.2008

1. The present appeal arises from the judgment and order of the

learned single Judge dismissing the writ petition filed by the appellant.

The appellant is a leading biscuit manufacturer having manufacturing

plants in different States. The appellant has set up a sugar factory at

village Parsendi, UP. According to the appellant, it is not a

manufacturer of sugar and the sugar factory was set up by the

appellant only with a view to use the entire production captively as an

input in its biscuit manufacturing units which is the main business of

the appellant. The appellant sent a representation to the Chief

Director (Sugar), Directorate of Sugar, Ministry of Food, Government of

India on 27th January, 2006 seeking two concessions, namely, that the

appellant should be exempted from the operation of the Regulated

Release Mechanism of the Government and that the appellant should

not be subjected to statutory levy obligation of 10% in respect of the

sugar manufactured by it. The first concession was sought on the

ground that since the entire production was required for captive

consumption for the purposes of manufacturing biscuits, the

exemption ought to be granted and the appellant be allowed to use the

sugar so produced by it. The second concession with regard to levy

sugar was being claimed on the ground that the appellant did not fall

within the ambit of the provisions of Section 3(2)(f) of the Essential

Commodities Act, 1955 (hereinafter referred to as the Act) as the

appellant was not producing sugar for the purposes of selling, but for

captive consumption. It was additionally contended that the appellant

was also covered under the Incentive Scheme, 1997 under which sugar

mills were exempted from the levy obligation for a period of 5 to 8

years depending upon the location of the sugar mills. As the said

representation was not decided, the appellant approached this Court

by filing writ petition No. 5584/2006, wherein the statement of the

learned counsel for the respondent was recorded that the

representation of the appellant shall be disposed of by a speaking

order within four weeks. The appellant's representation was thereafter

considered and rejected by the Chief Director (Sugar) vide order dated

17th August, 2006. Being aggrieved, the appellant filed the writ

petition being WP(C) No. 14903/2006 which came to be dismissed by

the learned single Judge by the order under appeal.

2. On the part of the appellant, the following two contentions were

raised before us:

(a) The appellant cannot be subjected to the Regulated Release

Mechanism in respect of the Non-Levy / Free Sale Sugar

being operated by the Central Government under Section 3

(3E) of the Act since the entire quantity of sugar produced in

sugar unit of the appellant is for self-consumption, being

captively consumed as a raw material in the manufacturing

of its main product, i.e. biscuits, and therefore the appellant

cannot be termed as a "person carrying on the business of

manufacturing sugar" and thus cannot be treated to be a

"producer" of sugar within the meaning of the term as given

in Explanation to sub-section (3E) of Section 3 of the Act as

well as the Sugar Control Order, 1966.

(b) The appellant is entitled to the benefit of the Sugar Incentive

Scheme, 1997 in respect of the Levy Sugar requirement

under Section 3(1) read with Section 3(2)(f) of the Act and

as per para 8.3 of the said Scheme, the Appellant is

entitled to 100% free sale quota in respect of sugar produced

by its factory at Parsendi for a period of 8 years.

3. Before we deal with the contentions advanced at the bar, we

may briefly refer the scheme of the Essential Commodities Act, 1955.

As can be seen from the preamble of the Act, the object and intent of

the Act is to secure equitable distribution and availability at fair prices

of essential commodities in the interest of general public. Section 2(e)

of the Act shows that sugar is an essential commodity. Section 3(1) of

the Act confers powers on the Central Government to control

production, supply, distribution etc. of essential commodities and reads

as follows:

"3 (1) If the Central Government is of the opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices, or for securing any essential commodity for the defence of India or the efficient conduct of military operations, it may, by order, provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein."

4. Sub-section (2) of Section 3 then says that without prejudice to

the powers conferred by sub-section (1), an order made thereunder

may provide for any matters enumerated in clause (a) to (j) of the said

sub-section. By virtue of clause (f) of Section 3(2) an order passed

under Section 3(2)(1) may provide for requiring any person holding in

stock or engaged in production or in the business of buying or selling

of any essentially commodity, to sell the whole or a specified part of

the quantity held in stock or produced or received by him and in the

case of any such commodity which is likely to be produced or received

by him, to sell the whole or specified part of such commodity when

produced or received by him, to the Central Government or a State

Government or to an officer or agent of such Government or to a

Corporation owned or controlled by such Government or to such other

person or class of persons as may be specified in the order.

5. Sub-section 3(E) was inserted by the amending Act 37 of 2003

with effect from 14th June, 1999 and reads as follows:

"(3E) The Central Government may, from time to time, by general or special order, direct any producer or importer or exporter or recognised dealer or any class of producers or recognised dealers, to take action regarding production, maintenance of stocks, storage, sale, grading, packing, marking, weighment, disposal, delivery and distribution of any kind of sugar in the manner specified in the direction.

Explanation: - For the purposes of sub-section (3D) and this sub-section-

(a) 'producer" means a person carrying on the business of manufacturing sugar;

(b) "recognised dealer" means a person carrying on the business of purchasing, selling or distributing sugar;

(c) "sugar" includes plantation white sugar, raw sugar and refined sugar, whether indigenously produced or imported."

6. In the light of the above statutory scheme we proceed to

examine the contentions raised on behalf of the appellant.

7. Re Contention (a)

The contention of Mr. Valmiki Mehta, learned senior counsel

appearing for the appellant, is that the appellant is not a producer of

sugar within the meaning of the term as given in Explanation (a) to

Section 3(3E) of the Act inasmuch as the sugar manufactured by the

appellant is used only for captive consumption. He therefore

submitted that the appellant is not carrying a business of

manufacturing sugar and thus cannot be termed as a producer of

sugar within the meaning of the said term. According to him, a person

can be said to be in the business of manufacturing sugar if the said

person is also engaged in the activity of selling and buying of sugar

and since the sugar produced by the appellant is meant only for

captive consumption, the appellant cannot be said to be covered by

the definition of 'producer' as given in the Explanation to Section 3(3E)

of the Act. He submitted that the sugar factory of the appellant ought

to be considered as a part/unit of appellant's biscuit factory. He also

submitted that since the sugar produced by the appellant is being

consumed for the production of the biscuit, it has no impact on the

market conditions and therefore the definition of 'producer' cannot be

said to have intended to cover the case of the appellant. He also

submitted that sub-section 3(3E) is a distinct provision and therefore it

must be interpreted independent of the general provisions contained in

Section 3(1). In support of his submissions he relied upon the

decisions of the Supreme Court in State of Punjab v. Guno Majra

Cooperative Agriculture Service Society Ltd. (2000) 9 SCC 210,

State of UP v. Gulshan Sugar and Chemical Limited (1995) 4 SCC

529 and Belsund Sugar Co. Limited v. State of Bihar and Ors.

(1999) 9 SCC 620.

8. In reply, Mr.P.P. Malhotra, learned Additional Solicitor General

appearing on behalf of the respondent Union of India, contended that

the Act confers ample power on the Central Government to issue

orders regulating or prohibiting the production, supply and distribution

thereof and trade and commerce in any essential commodity for the

objectives of maintaining or increasing supplies of such commodities or

for securing its equitable distribution and availability at fair prices or

for the purposes of defence of India or efficient conduct of military

operations. He submitted that, from time to time, in exercise of this

power, the Central Government has been issuing sugar control orders.

He submitted that the Government has power to issue orders /

directions in respect of essential commodities, including sugar to

ensure that the market operates in a manner which is in the best

public interest. It is for this reason that the Central Government has

been given the power to regulate the market in various ways, including

the requirement of producers to maintain stocks, the requirement to

requisition supplies for the purposes of the PDS, the requirement to

release certain quantities for free-sale in the open market etc. He

submitted that the release orders are issued under Section 3(3E) of the

Act and an All India record of all the factories/manufacturing units is

maintained by the Central Government. He submitted that the Central

Government had the power to control the amount of sugar that was to

be made available through the two channels, i.e. under the PDS

through Fair Price Shops (FPS) at a regulated price or in the open

market through the regulation of the Regulated Release Mechanism.

He submitted that the Central Government could compel producers to

sell and dispose off stocks of sugar to regulate the prices of the same

in the open market. So, the argument that the appellant does not

intend to sell the sugar produced by it in the open market is of no

consequence. According to him, the appellant can be compelled to

release the stocks of sugar held by it in the open market if the

exigencies of the situation require so, as to maintain prices of sugar at

a desired level.

9. The short question that falls for our consideration is whether the

appellant is right in contending that it is not a producer of sugar within

the meaning of sub-section (3E) of Section 3 of the Act. The provisions

of sub-section 3(3E) confer power on the Central Government to issue,

from time to time, general or special order directing any producer or

importer or exporter or recognized dealer or any class of producers or

recognized dealers, to take action regarding production, maintenance

of stocks, storage, sale, grading, packing, marking etc. Explanation to

sub-section(3E) defines a producer "to mean a person carrying on the

business of manufacturing sugar". There is no dispute that the

appellant carries on the activity of manufacturing sugar in its factory at

Parsendi. The argument of Mr.Mehta, however, is that since this sugar

is used only for its factory consumption it cannot be said to be in the

business of manufacture of sugar. According to him the main activity

of the appellant is manufacturing biscuits and not manufacturing

sugar. We find ourselves unable to agree with Mr.Mehta. We shall also

presently show that the various decisions relied upon by him are not

applicable to the facts of the present case. In our opinion, the appellant

is clearly covered by the provisions of Explanation (a) to Section 3 (3E)

because the appellant is carrying on the business of manufacturing

sugar. The expression 'business' connotes a commercial enterprise

carried on for profit; a particular occupation or employment habitually

engaged in for livelihood or gain (See Black's Law Dictionary, 8th Edn.,

Pg.211). Both the units of the appellant, i.e. its unit for manufacturing

sugar as well as biscuits unit, are part of its business activity. In the

circumstances, therefore, it is impossible to accept the plea of the

learned counsel that the appellant is not carrying on the business of

manufacturing sugar. This being the case, the appellant cannot

escape its obligation under the Monthly Release Order issued in

exercise of power granted to the Central Government by virtue of

Section 3(3E) of the Act.

10. The argument of Mr.Mehta that because of the appellant

produces sugar only for its captive consumption, it does not affect the

market at all is also not well founded. In this context, the learned

single Judge has pointed out as follows:

"In a competitive market, it is the supply and demand factors alone which determine the market price. In India, a hybrid system is followed insofar as sugar is concerned. 10% of the sugar that is produced is reserved for distribution through Fair Price Shops under the PDS. The said sugar, which is known as levy sugar is sold at regulated prices. The balance part of the sugar market in India is unregulated in one sense though regulated in another. It is unregulated insofar as the price is concerned. However, it is regulated because the Central Government regulates the quantity of sugar that is released in the open market. While levy sugar regulation is price-driven, non-levy sugar regulation is supply-driven. In this context, if the petitioner's case is examined, it will be seen that by the petitioner producing sugar for its captive consumption, the petitioner would reduce the demand for sugar for its captive consumption, it would have had to purchase the same from the market. A reduction in demand would necessarily mean a lowering of the price of sugar. The object, as indicated in the Statement of Objects and Reasons of the 2003 Amendment is to maintain prices. In a free market system, prices can be depressed either by increasing the supply or by lowering the demand."

11. It is therefore clearly seen that the power to issue direction under

Section 3(3E) is not hedged by the fact that the person engaged in the

business of manufacturing sugar is using it only for its captive

consumption.

12. Mr.Mehta relied upon the decision of the Supreme Court in State

of Punjab v. Guno Majra Cooperative Agriculture Service Society Ltd.

(supra). That was a case where the question was whether an

agriculture service society was a "dealer" within the meaning of clause

2(f) of the Fertilizer (Control) Order, 1985. In the Control Order, the

term 'dealer' was defined to mean a person carrying on the business of

selling fertilizers, whether wholesale or retail (or industrial use), and

includes a manufacturer and a pool-handling agency carrying on such

business and the agents of such person, manufacturer or pool-handling

agency. The Court noted that the respondent society was a service

society and it has got its own bye-laws. The members of the society

were agriculturists, who required manure, fertilizers and implements

for cultivation. The object for which the society was formed was to

render service to its members for carrying out agricultural activities.

One of the objects of the society was to make arrangement for supply

of agricultural requirements for its members as well as to supply

manure, fertilizers, improved seeds, insecticides and other production

requisites with a view to promote increased agricultural production.

Another object of the society was to give loans and also to give

manure, fertilizers and improved seeds to its members on credit on "no

profit no loss" basis. Under the bye-laws, it was not permissible for the

society to sell fertilizers in open market or to anybody else other than

its members. On these facts, the Court came to the conclusion that

there is no commercial or business activity involved when the society

distributes and supplies fertilizers to its members and therefore the

society cannot be said to be engaged in the business of selling of

fertilizers and therefore was not a dealer within the meaning of clause

2(f) of the Fertilizer (Control) Order, 1985. In so far as the case in hand

is concerned, the appellant is admittedly involved in the business of

manufacturing sugar for the commercial gain.

13. The next judgment relied upon by Mr. Mehta is State of UP v.

Gulshan Sugar & Chemicals Ltd. (supra) In that case, the respondent

consumed coal for running its factory and sometimes, quality of coal

supplied was not of the kind required by the respondent and the same

was therefore rejected. Further, a huge quantity of coal dust was

collected during the storage, loading and unloading of coal and coal

dust was also produced when coal was broken into pieces of required

sizes. The rejected coal and the coal dust being of no use to

respondent, it disposed of the same without obtaining any licence

under the Control Order. The question before the Court was whether

the respondent was a dealer within the meaning of Uttar Pradesh Coal

Control Order, 1977. The High Court held that a casual solitary

transaction would not make a person dealer and that since there was

nothing on record to show that there was continuity in transactions of

sale of coal dust or rejected coal by the respondent, the Supreme

Court agreed with the finding of the High Court that the respondent

was not in the business of sale or storage for sale of coal.

14. The last judgment cited by Mr. Valmiki Mehta is in the case of

Belsund Sugar Co. Ltd. v. State of Bihar & Ors. (supra). In that case,

the submission on behalf of the State Government was that the various

Control Orders regulating sugar have been issued with the objective of

maintaining and ensuring availability of the same. The object of Sugar

(Control) Orders was thus different from the various objects of the

Market Act. The various provisions of the Market Act for regulating

sale, purchase and storage of free sugar would, therefore, be available

and there is no repugnancy between the provisions of the Sugar

(Control) Orders and the Market Act. While rejecting this submission,

the Supreme Court observed in para 86 of the decision that it is the

ultimate sale of the manufactured article, namely, sugar by way of levy

sugar or in free market that is sought to be controlled by the Control

Orders which cannot effectively operate save and except in harmony

with the provisions enacted for the control of raw material, namely,

sugarcane as envisaged by the Sugarcane Orders as well as the

Sugarcane Act and, therefore, they together provided a complete

machinery for controlling the production, sale and purchase not only of

the raw material, i.e. sugarcane, but also the finished product, i.e.

sugar and consequently, the entire regulatory machinery and the

infrastructural facilities to be made available by the Market

Committees for regulating the sale and purchase of such an

"agricultural produce" would get totally excluded. We see no

relevance of the observations made in paragraph 86 of the above cited

judgment to the issue which is involved in the instant case. In our

opinion, the conclusion of the learned Single Judge that the appellant

was involved in the business of manufacturing of sugar and hence was

squarely covered by Section 3(3E), is correct and therefore we reject

the first contention of the appellant.

15. Re: Contention (b)

As regards contention (b), the applicability of the Incentive

Scheme of 1997, it will be necessary to refer to para 3 of the said

Scheme which reads as under:

"3. APPLICABILITY OF THE SCHEME

(i)The Incentive Scheme shall be applicable to the sugar factories to whom letters of intent/industrial licences have been issued to the new units and expansion units including those sanctioned after March, 1994.

(ii) The sugar factories which have been issued letters of intent/industrial licences during the period 07.09.1990 to 31.3.1994 will have an option to avail of incentive under 1993 Incentive Scheme or the incentive now being proposed in this Scheme, subject to the condition that

the same are implemented by 31.12.1999."

16. On going through the relevant clauses of the Scheme, it is clear

that the Scheme of 1997 is a specific scheme and is not for general

application. The scheme is applicable only to the sugar factories to

whom the letters of intent/industrial licences have been issued for the

new units and expansion units including those sanctioned after March,

1994. It is not disputed before us that no letter of intent / industrial

licence has been issued to the appellant factory as the appellant

factory has come into existence after the de-licencing of the sugar

industry. The appellant's unit was established after 31.12.1999 and

the Incentive Scheme of 1997 has no application in respect of the

factory of the appellant. Therefore on this clear finding of fact, the

second submission of Mr. Mehta is also liable to be rejected.

17. In the result, we dismiss the appeal with costs assessed at

Rs.20,000/-.

CHIEF JUSTICE

S.MURALIDHAR, J SEPTEMBER 09, 2008 pk