Holding

Molasses released to the occupier under Rule 22(2) may be sold at market price, the classification is reasonable, and the agreement’s price and administrative charges are enforceable.

Summary

The United Commercial Syndicate, acting as purchasing agent for Lingo Sulphite Corporation, entered into an agreement with the Uttar Pradesh State Sugar Corporation to buy 28,300 quintals of molasses at the statutory price of Rs 9 per quintal, with a fallback clause allowing payment of Rs 25.10 per quintal if the statutory price became invalid. After paying Rs 2 lakhs, the Sugar Corporation demanded the higher price, claiming the molasses was not covered by a Section 8 order. The Syndicate sought a writ directing that the corporation could not charge above the statutory price. The Supreme Court held that molasses released to the occupier of a sugar factory under Rule 22(2) of the 1974 regulations is not subject to the controlled price and may be sold at market rates; the classification between Rule 22(1) and 22(2) is reasonable and does not violate Article 14; parties cannot contract out of law, but the statute permits such sales, and the agreement’s administrative charges are valid. Consequently, the appeal and writ petition were dismissed.

Issues considered

Whether molasses released in favour of the occupier of a sugar factory under Rule 22(2) must be sold at the statutory price prescribed under Section 10 of the Uttar Pradesh Sheera Niyantran Act.
Whether the classification of molasses under Rule 22(1) and Rule 22(2) is a reasonable classification under Article 14 of the Constitution.
Whether parties can contract out of the statutory price provision of the Act.
Whether administrative charges can be levied on molasses released to the occupier as per the agreement.

Legislation cited

Constitution of Indias. Article 14, s. Article 32
Uttar Pradesh Sheera Niyantran Adhiniyam, 1964 (U.P. Act No. 24 of 1964)s. 10, s. 3, s. 4, s. 5, s. 6, s. 7A, s. 8
Uttar Pradesh Sheera Niyantran Niyamavali, 1974s. Rule 12, s. Rule 13, s. Rule 22(1), s. Rule 22(2), s. Rule 23, s. Rule 24

Subjects

molassesprice controlstatutory priceRule 22Article 14contract out of lawadministrative chargesUttar Pradesh Sheera Niyantran Act

Judgment

A LINGO SULPHJTfj CORPORATiON OF
INDIA LTD. & ORS.

v.
U.P. STATE SUGAR CORPORATION LTD.,
UNIT, BIJNOR & ORS.
B
January 27, 1982

(S. MURTAZA FAZAL ALI AND R.B. MISRA, JJ.j

Uttar Pradesh Sheera Niyantran Adhiniyam, 1964 (U.P. Act No. 24 of 1964), ·

c sections 8 and 9 read. with rule 22(1) and 22(2) of the Uttar Pradesh Sheera
Niyantran Niyamavali, 1974-Scope of-Classification made wilh regard io molasses
co•ered under rule 22( I) and 22(2} is reasonable and does not offend Article 14 of
-
tM Constitution-Esto_pptl by conduct-Here, thert is no question of contracting
out of/aw.

Molasses, the basic raw.material for the manufacture of lingo-suJphite,
basic refractories, steel plants, cement factories. carbon black plants and many
D other important industries and also used for distillation, bas become a valuable
commodity on account of its multi·use. The preservation, distribution and.
prices of the molasses were, .therefore, controlled by the Uttar Pradesh Sheera
Niyantran Adhiniyam, 1964 (U.P. Act 24 of 1964) and also the rules made
thereunder called Vttar Pradesh Sheera Niyantran NiyamavaJi, 1974. Section
8 of tho Act authorised the Controller to direct the occupier of any sugar factory
to sell and supply in the prescribed manner sucb quantity of molasses to such
E persons as may be specified in the order and the occupier shall notwithstanding
any contract comply with the order. Section 10 provided that the occupier of
a sugar factory shall sell molasses in respect of which an order under section 8
has been made at a price not exceeding that prescribed in the schedule attached
to section IO. '

United Commercial Syndicate, Allahabad is .the purchasing agent of M/s.
F Lingo Sulphite Corporation and M/s. Audubon Trading and Export Corporation
of Allahabad and Calcutta, entered into an agreement with the U.P. State Sugar
Corporation Ltd. whereunder the latter agreed to sell 28,300 quintals of molasses
··.·-{"
of 1977-78 production at the statutory price of Rs .. 9 per quintal and dlities
etc. provided the former agreed to pay the total amount of Rs. 3 lacs being the
total cost of molasses as estimated at the said statutory price. It was further
stipulated that in case the said _price was not valid in Jaw, The United.
G Commercial Syndicate will have to pay the price at the rate of Rs. 25-10 per
quintal inclusive of administrative charges and other taxes and duties etc. as
agreed to by the Syndicate. A sum of Rs. 2 lacs had been paid in pursuance
of the agreement and the balance of Rs. 1 lac was to be paid at the earliest.
The Sugar Corporation however sought to calcutate the price of the molasses
in question at the rate of Rs. 25-10 per quintal on the ground that the molasses
H agreed upon was not covered by an order under section 8. Syndicate filed two
petitions in the High Court of Allahabad for a writ of mandamus or any other 'y
...

i.INOO SULPHAtll OORPN. V. U.P.S.S. CoRPN. 61
appropriate writ or direction declaring that Corporation was not entitled;o A
charge the price for the molasses in excess of the price fixed by the Act, .namely,
Rs. 9 per ·quintal. The High Court by its order dated 21st October, 1979
dismissed the petitions in limine. Hence the appeal by special leave _by the
Syndicate and the writ petition by the principal M/s. Lingo Sulphite Corporation.

Dismissing the appeal and the writ petition, the Court,
3
HELD : I. Sections 3 to 8 and 10 of the Adhiniyam and Niyamavall
i
~ : 12, 13, 22, 23 and 24 make it clear that the occupier of a sugar factory can sell
molasses to a person specified in the order of the Controller at the cont!olled
/ '
_.
,,.
_
l
price. The occupier of every sugar fa,ctory has to give an estimate of the mola~
to be produced in the sugar factory as also the estimate- of requirement of
molasses for distillation and industrial purposes. If there is any surplus after
meeting the requirements of the persons in whose favour there is an order of the c
Controller, the same will bo released in favour of tho occupier. [71 H, 72 A-BJ

2. Section 10 makes it clear that the occupier of a sugar factory is obliged
to sell molasses at the price not exceeding that prescribed in the schedule only in
respect-of which an order under'section 8 has been made. But sub-clause (2) of
rule 22 authorises the Controller to release any stock of molasses in favour of an ~
occupier of a sugar factory only when the same is not required for distilleries or
for other purposes of industrial development. If a certain quantity of molasses
has been released in favour of the occupier, because the same was not required
for distilleries or for other purposes of industrial development, it M; open to the
occupier to sell that quantity of molasses in free· market to any person at a price
prevalent in the market. Section 10 of the Act requires an occupier of a suga.r
factory to sell molasses at a price not exceeding that prescribed in the schedule
only in respect of which an order under section 8 has beCn made. No limitation B
or fetter bas been put on the occupier of a sugar factory to sell molasses which
was released in his favour. It was, therefore, open to the occupier to sell the
molasses released in his favour at the free market price. [73 B·El

3. The classification made with regard to molasses covered under rule 22(1)
or rule 22(2) is a reasonable classification. [73 BJ
F
4. The Syndicate entered into an agreement with the Corporation and
agreed to pay the price of the molasses at the rate of Rs. 25-10 per quintal.
Having entered into such an aggreement with its eyes wide open it cannot now
turn turtle and contdnd that it was liable to pay only at the rate of Rs. 9 per
quintal, the statutory price. [73 F-G]

S. It is true that the parties cannOt be allowed to contract themselves out G
of l~w. It is not the law that no molasses released in favour of the occupier of
the sugar factory could be sold at a price higher than the controlled one. The
controll'1d price was applicable only to the molasses for which an order bad been
passed by the Controller in favour of a specified person either for the purpose of
distillation or for other industrial purposes. But so far as the molassh released
in favour of the occupier/of a sugar factory is concerned, there is no requirement H
of the law that the occupier should sell it only at the controlled price.
[73 G·H, 74 A·BJ
68 SUl'RSMB couRt RbP<lkTS (1~8~] 3 s.c.l.

A • 6. Tho terms of the agreement between the parties entitles the Corporation
for administrative charges. [74 B-C]

ORIGINAL JURISDICTION : Writ Petition No. 391 of 1981.

(Under Article 32 of the Constitution of India)
B WITH
Civil Appeal No. 651 of 1980

(Appeal by special leave from the judgment and order dated
the 31st October, 1979 of the Allahabad High Court in Civil Misc.
Writ No. 8091 of 1979)

R. K. Garg, Pramod Swarup and D. R. Gupta for the Petitioner
-
in Writ Petition.

0. P. Rana and P.K. Pillai for Respondent Nos. 1 & 2 in WP.
D. G. N. Dikshil and Miss A. Subhashini for Respondent No. 5
in W.P.

Mubarak Mazdoor Appellant in person in C.A.

G. N. Dikshil, B. P. Maheshwari and Miss Asha Jain for the
E Respondent in Civil Appeal.

The Judgment of the Court was delivered by

MISRA, J. Writ petition No. 391 of 1980 under Article 32 of
the Constitution and Civil Appeal No. 651 of 1980 by special leave
F raise common question of law and, therefore, we propose to dispose
them of by a common judgment.

The circumstances leading to the writ petition and the appeal
lie in a narrow compass. The appellant, United Commercial Syndi-
cate, is the purchasing agent of M/s. Lingo Sulphite Corporation,
G the petitioner in writ petition No. 391 of 1980 and M/s. Audubon
Trading and Export Corporation of Allahabad and Calcutta, who
are the manufacturers of lingo-sulphite in India.

Molasses is the basic raw material for the manufacture of
lingo-sulphite which is an essential raw material for all basic refrac-
tories, steel plants, cement factories, carbon-black plants and many
LINOO SULPHATE CORPN. v. U.P.s. s. CORPN. (Misra, 1.) 69

other important industries. Molasses is also used for distillation. A
Over the years molasses has become a -valuable commodity on
account of its multi-use. The preservation, distribution and prices
of the molasses were, therefore, controlled by a legislation, the
Uttar Pradesh Sheera Niyantran Adhiniyam, 1964 (U.P. Act No. 24
of 1964), hereinafter referred to as the Act.
B
United Commercial Syndicate used to purchase molasses for
their principals from the open niarket. Later on it decided to make
direct purchase from the U.P. State Sugar Corporation Ltd., Unit
Bijnor (A State Government Undertaking). It entered into an
agreement with respondent No. 1, the U.P. State Sugar Corporation
Ltd., whereunder respondent No. 1 agreed to sell 28,300 quintals of c
molasses of 1977-78 prodnction at the statutory price of Rs. 9/- per
quintal and duties etc. provided the appellant agreed to pay the
total amount of Rs. 3 lakhs, being the total cost of molasses as
"
estimated at the above statutory price. It was further stipulated
that in case the above price was not valid in law, the appellant will
have to pay the price at the rate of Rs. 25.10 per quintal inclusive
D
of administrative charges and other taxes and duties etc., as agreed
to by the appellant. There were other terms of the agreement but
it is not necessary for the purposes of disposal of these cases to
refer to them. A sum of Rs. 2 lakks ha<! been paid in pursuance
of the agreement and the balance of Rs. 1 lakh was to be paid at ,J!l
the earliest. The respondent No. 1, however, sought to calculate
the price of the molasses in question at the rate of Rs. 25.1 O per
quintal. The appellant felt aggrieved and it took the stand that
the respondent No. 1 could not charge more than the statutory
price in spite of the fact that the appellant had offered the price of
Rs. 25.10 per quintal to respondent No. I. The appellant filed two 'F
petitions in the High Court for a writ of mandamus or any other
appropriate writ or direction declaring .that respondent No. I was
not entitled to charge the price for the molasses in excess of the
price fixed by the Act. The High Court by its order dated 31st of
October, 1979 dismissed the petitions in limine. The appellant has
come up in appeal by special leave to challenge the order of the
High Court. M/s. Lingo Sulphite Corporation of India Ltd. has
also tiled a petition under Article 32 of the Constitution for the
same relief on the same grounds as in the aforesaid appeal.

In order to appreciate the points involved in the case it would H
be appropriate to refer to th~ material provisions of the Act and
the rules framed thereunder,
70 SUPREME COURT REPORTS [1982] 3 s.c.ll.

A Section 3 of the Act authorises the State Government to
constitute an Advisory Committee to advise on matters relating to
the control of storage, preservation, gradation, price, supply and
disposal of molasses. Seclion 4 provides for the appointment of
a person as Controller of Molasses for the purpose of exercising the
powers and performing the duties of the Controller of Molasses.
B Section 5 enjoins every occupier of a sugar factory to take precautions
for preservation of molasses. Section 6 prohibits the occupier of a
sugar factory to adulterate or allow to be adulterated any molasses
produced or held in stock by him.}Section 7A(I) enjoins any person,
who requires molasses for his distillery or for any purpose of indus-
trial development to apply in the prescribed manner to the Controller
c specifying the purpose for which it is required. Sub-section (2) of
section 7A authorises the Controller to make enquires in the matter
as he may think fit and to pass an order under section 8 with due
regard to the factors enumerated in sub-section (3) of section 7A.
Section 8(1) authorises the Controller to direct the occupier
D of any sugar factory to sell and supply in the prescribed manner
such quantity of molasses to such persons as may be specified in the
order and the occupier shall, notwithstanding any contract, comply
with the order. Sub-section (2) (a) of section 8 enjoins that the
occupier shall supply, molasses only to a person who requires it for
his dlstillery or for any purpose of industrial development and sub-
E clause (aa) of sub-section (2) directs the person specified in the
order of the Controller to utilise the molasses supplied to him
in pursuance of an order of the Controller for the purpose specified
in the application made by him under sub-section (I) of section ?A
and to observe all the restrictions and conditions as may be pres-
- cribed. Section 10 provides that the occupier of a sugat factory
F shall sell molasses in respect of which an order under section 8 has ---....

been made at a price not exceeding that prescribed in the schedule
attached to section 10.

Rule 12 of the U.P. Sheera Niyantran Niyamavali, 1974
enjoins the occupier of every sugar factory to submit to the Con-
G !roller by August 31 each molasses year a statement in form M.F. 9
specifying an approximate estimate of the quantity of molasses to be
produced in a sugar factory during the molasses year following,
along with such other information as is required under that form.
Rule 13(1) provides that every distillery in U.P. shall by August 31
H each year submit to the Controller a statement in form M.F. 8
specifying.its estimated requirement of molasses for the purposes
pf distillation during the molasses year following along with such
LINGO SULPHATE CORPN. v. U.P.s.s. CORPN. (Misra, J.) 71

other information as may be required under that form. Likewise, A
rule 13(2) requires the Director of Industries to furnish the Con-
troller by August 31 each year the estimated requirement of molasses
for industrial purposes within the State relating to the molasses
, year following :
,
Rule 23 provides : B
"(!) All stock of molasses produced in a sugar fac-
, tory shall be deemed to have been reserved for supply to
distilleries or other persons requiring it for purposes of
industrial development. and no stock of molasses produced
in a sugar factory shall be sold or otherwise disposed of c
by the occupier of any sugar factory except in accordance
with an order in writing from the Controller.

· (2) The Controller shall release any stock of molasses
in favour of occupier of a sugar factory only when the
same is not required for distilleries or for other purposes D
of industrial development."

Rule 23(1} provides :

"(I) The State Government may levy administrative
charges exclusive of the price payable to a sugar factory E
on the molasses released for sale by the Controller towards
meeting the cost of establishment for supervision of control
over molasses ·at such rate or rates as may be notified from
time to time."

~-. Rule 24(1) provides : F

"(t) Save in pursuance of an order of the Controller,
no person shall purchase any molasses . from any sugar
factory, or transport or possess any molasses purchased
from such sugar factory, unless the said molasses has been
released by order of the Controller as not required for
G
distilleries or other purposes of industrial development and
a declaration to that effect in form M.F. 13 has been
obtained from the occupier of the sugar factory concerned."
H
A perusal of the relevant provisions of the Act and rules
aforesaid makes it clear that the occul'ier of a su,ar fa<;torr caq
72 SUPREME COURT REPORTS [1982} 3 s.c.R.

A sell molasses to a person specified in the order of the Controller at
the controlled price. The occupier of every sugar factory has to
give an estimate of the molasses to be produced in the sugar factory
as also the estimate of requirement of molasses for distillation
and industrial purposes. If there is any surplus after meeting the
requirements of the persons in whose favour there is an order of
B the Controller, the same will be released in favour of the occupier.

The question for consideration in the instant case is whether
the molasses released in favour of the occupier by the Controller is
also to be sold at the controlled rate or it can be sold at the market
price as a free commodity.
c Sbri Garg, senior counsel· contends that from ·the schome of
the Act and the rules it is evident that the entire production of j
molasses is to be controlled by the Controller appointed under the
Act, at every stage. He is to take into account the estimated supply
and the estimated demand of the commodity. Thereafter, he is to
D allot the commodity to a particular person for a particular purpose
at the controlled statutory price fixed by the schedule to the Act.
The Act and the rules further provide . that nobody will store, sell,
transport or use the said commodity without the order of the Con-
troller and the price and distribution of molasses both are controlled
by the Act and the contravention of the provisions of the Ac:t have
E been made·penal and the High Court has gone wrong in assuming
that certain quantity of molasses which are covered by rule 22(2)
are irnmune from the restrictions and fetters o( the Act and the
said rules, which is erroneous and indefensible in law inasmuch as
· such a construction as has been put by the High Court will defeat
the very purpose and object of the said Act and the rules. As a
second limb to this argument it was contended that the classification
made between molasses covered by rule 22(1) on the one hand and
rule 22(2) on the other is wholly irrational and the very purpose of
the Act is defeated. According to the learned counsel, it makes no
difference whether the molasses are covered by rule 22(1) or 22(2)
inasmuch as the object of the present legislation is to ensure that
G the sale and the distribution of molasses is controlled in an equit-
able manner and, therefore, to hold that section 8 is applicable
to rule 22(1) and not to · rule 22(2) is arbitrary and violative of
Article 14.

H Shri Rana appearing for respondent No. I on the otber ha.nd
bas contended that on a correct interpretation of the relevant pro-
LINGO SULPHATE CORl'N. v. U.P.s.s. CORPN, (Misra, J.) 73

visions of the Act and the rules the interpretation put by the High A
Court is fully warranted.

Section 10 of the Act which has been referred to above enjoins
the occupier of a sugar factory to sell molasses in respect of which
an order under section 8 has been made at a price not exceeding
that prescribed in the schedule. A plain reading of the section B
makes it clear that the occupier of a sugar factory is obliged to s.ell
molasses at the price not exceeding that prescribed in the schedule
only in respect of which an order under section 8 has been made.
But sub-clause (2) of rule 22 authorises the Controller to release
any stock of molasses in favour of an occupier of a sugar factory
only when the same is not required for distilleries or for other
purposes of industrial development. If a certain quantity of molasses
has been released in favour of the occupier, because the same was
not required for distilleries or for other purposes of industrial
oevelopment, it is op'en to the occupier to sell that quantity of
molasses in free market to any person at a price prevalent in the
market. Section 10 of the Act requires an occupier of a sugar
D
factory to sell molasses at a price not exceeding that prescribed in
the schedule only in respect of which an order under section 8 has
been made. No limitation or fetter has been· put on the occupier
of a sugar factory to sell molasses which was released in his favour.
It was, therefore, open to him to sell the molasses released in his
favour at the free market price.
E

The contention that the classification made with regard to
molasses covered under rule 22(1) or rule 22(2) is an unreasonable
classification cannot be accepted. There· have been other enact-
ments in which similar provision bas been made, for example, the F
levy sugar was to be sold only at the controlled rate but free sugar
was to be sold by the factories at a free market price and that bas
been always accepted as a valid classification. The appellant entered
into an agreement with respondent No. I and agreed to pay the
price of the molasses at the rate of Rs. 25.10 per quiotal. Having
entered into such an agreement with its eyes wide open it cannot G
now turn turtle and contend that it was liable to pay only at the
rate of Rs. 9/- per quintal, the statutory price. It is true that the
parties cannot be allowed to contract themselves out of law. If the
law was that no molasses released in favour of the occupier of the
sugar factory could be sold at a price higher than the controlled H
one, than the contention of the appellant would be correct. On an
analysis of the relevant provisions of t!!e Act we are quite clear tba,t
74 SUPREME COURT REPORTS [1982) 3 S.C.R

A the controlled price was applicable only to the molasses for which
an order had been passed by the Controlfor in favour of a specified
person either for the purpose of distillation or for other industrial
purposes. But so far as the molasses released in favour of-the
occupier of a sugar factory is concerned, there is no requirement
of the law that the occupier should sell it only at the controlled
B price.

It was further contended that the respondent was not entitled )-
to administrative charges. This contention loses sight of the terms
of the agreement between the parties which includes administrative
,__ _
charges also.
c For the foregoing discussion we find no force either in the
appeal or in the writ petition under Article 32. They are accor·
dingly dismissed. There shall, however, be no order as tq costs.

S.R. Appeal and Petition dismissed.
D