Holding

The Maharashtra Zoning Order and its price‑fixation scheme are valid, do not constitute a compulsory sale, and the High Court’s directions are set aside.

Summary

The Supreme Court examined appeals by several cooperative sugar factories and the State of Maharashtra against a Bombay High Court order that directed non‑member sugarcane growers to be paid the prevailing market price and to be allowed to sell to any factory. The Court held that the Maharashtra Sugar Factories (Reservation of Areas and Regulation of Crushing and Sugarcane Supply) Order, 1984 (as amended 1987) – which reserves specific zones for each factory and fixes a price for each zone – is within the scope of the Central Sugarcane (Control) Order, 1966 and is not arbitrary or violative of Articles 14 and 19 of the Constitution. It further ruled that the order does not constitute a "compulsory sale" under Section 3(2)(f) of the Essential Commodities Act, 1957, and therefore Section 3(3)(c) does not apply. The High Court’s directions directing market‑price payment and a hearing mechanism for non‑members were set aside. The Court directed the State to amend Clause 5 of the Zoning Order to protect growers and to constitute an expert committee to review the price structure, while confirming the validity of the price‑fixation scheme for all growers.

Issues considered

The validity of the 1984 Maharashtra Zoning Order and its price‑fixation provisions under the Sugarcane (Control) Order, 1966.
Whether the Zoning Order amounts to a compulsory sale within the meaning of Section 3(2)(f) of the Essential Commodities Act, 1957.
Whether the High Court’s directions to pay non‑member growers market price and to provide a hearing mechanism are legally sustainable.
Whether the price‑fixation mechanism violates Articles 14 and 19 of the Constitution.

Legislation cited

Subjects

sugarcane zoningprice fixationessential commodities actcooperative societiescompulsory saleconstitutional challengeArticle 14Article 19controlled economynon‑member growers

Judgment

MAHARASHTRA RAJYA SAHKARI SAKKAR KARKHANA A
SANGH LTD. ETC. ETC.
-./ v.
STATE OF MAHARASHTRA AND ORS. ETC. ETC.

APRIL 18, 1995
B
(R.M. SAHAI, B.P. JEEVAN REDDY AND S.C. SEN, JJ.]

Sugarcane Act, 1934/Maharashtra Cooperative Societies Act, 1960 :
. , S.3(1) ss.22,23-Sugar-cane (Control) Order, 1966:

Maharashtra Sugar Factories (Reservation of Area and Regulation of
c
Crushing and Sugarcane Supply) Order 1984 (as amended in 1987)-Sugar·
cane-Zoning or reservation of area for supply of sugar-cane to factories a11d
fvcation of price for each zone is not violative of the Acts or 1966 Order--
Uniform pricing for cane growers (whether non-members or members of
co-operative societies) attached to sugar factory in reserved area is D
vali<f;-Directions given to improve price structure and to protect interest of
cane-growers.

Essential Commodities Act, 1957 : ss.3(2) (f), 3(3)(c)-f'rovisio11S
under Maharashtra Sugar Factories (Reservation of Areas and Regulatio11 of E
Crushing and Sugar-cane Supply) Order, 1984, directing a sugar-cane to
producer in a reserved area to supply sugar-cane to factory concerned does
not amount to compulsory sale.

The Government of Maharashtra, in order to ensure supply of cane
to sugar factories and mlnlmuoi price to cane-growers, Issued F
Maharashtra Sugar Factories (Reservation of Areas and Regulation of
Crushing and Sugarcane Supply) Order, 1984. Clause 3 of the Order
provided that having regard to the crushing capacity of sugar factories
and the yield of sugarcane In the reserved areas and the need for produc· .
on of sugar, the area specified In the Schedule to the Order .would be G
served for the sugar factory with a view to enabling It to purchase the
quired quantity of sugarcane. Sub-clause (2) of Clause 3 prohibited any
ugar factory from purchasing cane or accepting supplies of cane from
ane growers except from the area reserved for that factory. Sub-clause
lA) added to clause 3 and sub-clause (6A) added to Clause 6, by
aharashtra Sugar Factories (Reservation of Areas and Regulation of H
377
378 SUPREME COURT REPORTS (1995] 3 S.C.R.

A Crushing and Sugarcane Supply) (Second Amendment) Order, 1987 em-
powered the licensing authority to allow a sugar factory to manufacture
sugar from the sugarcane to be purchased by it from non-members within
lhe area reserved for it.

Writ petitions were filed before the High Court challenging the 1984
B Order as being beyond the scope of the Central Sugar-cane (Control)
Order 1966 and violative of Articles 14 and 16 of the Constitution. For the
cane growers it, was contended that the order in preventing them from
selling their sugar-cane at the best price available imposed an un- \
reasonable restriction inasmuch as in the process of reservation they were
C deprived of the highest price in the area. The High Court upheld the
reservation policy. On behalf of the Government, it was stated before the
Court that the Government would follow a fair procedure in order to
ventilate grievances of the non-members. The note showing the procedure
to be followed, produced before the High Court, was found reasonable but
D the Bench opined that it required to be given statutory shape by amending
the 1984 Order.

Later, In a different case, the High Court held that since the neces·
sary amendments were not carried out by the Government as pointed out
In the earlier decision, the sugarcane gl'Olftn had a right. to supply
E sugarcane to the factory of their choice for better price. On a contrary view
being taken by another Bench, the matter was referred to a larger Bench.

The Full Bench of the High Court opined that the issue of depriva-
tion of sugarcane growers of best price available to them was not debated
F in the earlier decisions and held that since there was no power In the State
Order to llx the maximum price payable to the cane growers, the cane
growers, who were not members of any cooperative society, were not bound
by the price fixed by the State Government. The High Court also held that
the supply by the cane growers belDK in the nature of compulsory sale, the
cane growers were entitled to supply the sugarcane at the market rate. The
G High Court for 1993·94 r1Xed the market price at Rs. 740 atonne as against
340 to Rs. 400 rlXed by the Government, and directed that (I) the non-mem-
ber cane-growers would be paid market price prevailing In the locality; (II)
the market rates would be as agreed between the sugarcane growers and
the respective factories; and (iii) no unauthorised deductions on any
H account should be made by factory from the price to be paid to the
MAHARASHTRA SAKKAR KAR KHAN Av. STATE 379

sugarcane growers. Aggrieved, the Sahkari Sakkar Karkhana, Private A
Sugar factories and the State Government filed the appeals.

It was contended for the appellants that the decision of the High
Court would result in collapse of zoning system and gradual erosion of
cooperative movement; that payment of market price would result in
closing down of smaller units as price structure was correlated with yield B
and not with the market and that the High Court was not justified in
interfering with matters of economic policy and the directions given by the
High Court were violative of the scheme of the Act.

Disposing of the appeals, this Court
c
HELD : 1.1 Zoning or reservation of areas for supply of sugarcane
to factories and fixation of price for each zone under the Maharashtra
Sugar Factories (Reservation of Areas and Regulation of Crushing and
Sugar-cane Supply) Order, 1984 as amended by 1987 Order is not ar-
. bitrary or violative of Sugar-cane (Control) Order, 1966. The directions of D
the Full Bench of the High Court, given in paragraph 25 of its judgment
shall stand set aside. (391-D, 425-A)

Satara Sahkari Sakkar Karkhana Ltd. & Anr. v. State of Maharashtra
and Ors., AIR (1989) Bombay, overruled.
E
The Rahuri Sahkari Sakkar Karkhana Ltd. & Anr. v. Slate of
Maharashtra & Ors., AIR (1987) Bombay 248, approved.

1.2. Price Oxation in a controlled economy may not be bad so long
as it Is in accordance With the policy formulated by the Government and
-. _) the decision by the Committee of experts is not found to be arbitrary. The F
price fixation machinery is to be determined by the State Government or
under the Central Sugarcane (Control) Order, 1966 in the manner
provided therein. So long as the price fixation does not suffer from any
infirmity or it is held to be prejudicial to cane grower so as to benefit the
State or the financial institution it cannot be held to be bad. (411-B, Cl G
1.3. In the State of Maharashtra, the exercise of pricing is under-
taken by the Committee in accordance with the guidelines provided after
~) taking into consideration various factors so that the price of sugar does not
escalate and caite ·growers are not deprived of good return to dissuade them
from going for alternative crop. The price determined by the Committee is H
.r

380 SUPREME COURT REPORTS [1995] 3 S.C.R.

A notified every year but no objection was ever received. Price flXlition for the
cooperative societies under bye-law 64 either by the Director of Factories or
by the State Government was not challenged to be ultra-vires, either before
the High Court or this Court. No cane growers can thus legitimat!ly claim
that the price ftxed for the cane was not fair or just or was not productive.
B It cannot , therefore, legitimately be urged that it was violative of the
Control Order or Zoning Order or it was arbitrary. [407·B, C, 405-A]

1.4. Price fixation cannot be assailed only because cane growers of
one area are getting better price than the other. The dllTerence In price
arising due to application of principle uniformly Is neither bad nor
C arbitrary. It may be that since the price is linked with yield It may cause
hardship to one set of growers as they might be deprived of better price
as compared to his neighbour due to deficient functioning of the factory
but in a welfare State and controlled economy Individual hardship cannot
override the larger social Interest. [408·CJ

D 1.5. So long as the determination of price is fair and just and. based on
relevant mdterlal It cannot be held to be not applicable to one cla11 of
growers, namely, non-members In the zone because they are not members or
the cooperative societies. Otherwise It would be defeating the enllre purpose
of enforcing controls. If the exercise of power Is not bad fot members of.the
E society It cannot be held to be bad for non-members, unless It Is found to be
arbl!rary. So Car as cultivation of cane and payment of price are concerned
the two are similarly situated. (405-G, H, 406·A)

1.6. Further, the production of sugar being of primary concern the
Government ensured that the growers were not denied the minimum. The
F Additional Cane price or final State Advised Price are paid n a matter of
Incentive.And what is incentive for one year becomes the mlnimum·prlce for
next year. The concept of market price, better price or higher price thus ·hlll
no place in the scheme. There is no reason why such fixation should not be
held to be binding on non-members as in the scheme of price fixation no
G distinction is made between members and non-members. (406-B, CJ

1.7. Reason for Government intervention to fix the price was to
increase sugar production. While doing so the Government ensured stable
and assured income to the growers. The role or price control is not merely
to reduce distortions which would otherwise have been prevalent resulting
H in exploitation or cane growers particularly when there was surplus
MAHARASHTRA SAKKAR KARKHANA v. STATE :18 t

production of cane but to promote his financial and social condition. The A
fruits of controlled economy for the weaker and poorer cannot be doubted.
In agricultural sector the price control as an instrument of policy has
boosted the economy. To denounce it, therefore, may not be in the interest
of the cane growers. The Full Bench of the High Court too did not find
any flaw in price fixation, nor it held it to be unremunerative. In absence
of any material it cannot be assumed that the Directors of Sugar Factories B
who are none else than cane growers themselves would opt for a lesser
price for their cane because the sugar factories of which they are members
-:--· i/ were under an obligation to pay their dehts. (408-B, F, G, 409-B]

2.1. There is no machinery in the State to determine the State Advised
Price for non-members as 95% of the sugar factories being in cooperative
c
sector, the fixation of price under the bye-laws was always considered to be
legal. And rightly, so. Therefore, determination of price by an authority
under the bye-laws is valid for cane growers attached to a sugar factory in
reserved area. Absence of any machinery in the State Orders for hearing
non-members could n 0t destroy effectiveness of pricing. [405-D, E, 408-B] D
2.2. The non-members have not organised themselves so as to entitle
their representative to be invited. Hearing of every individual grower even
otherwise is physically impossible. Presence of representative of cane
growers' cooperative society before the Committee fixing the price makes
it broad based. Such representative would bargain for better price for cane E
growers irrespective of whether such a cane grower is a member of the
cooperative society or not. No representative would agree for lower price
for members of the society. Therefore, absence of individuals or non-mem-
bers of cooperative society before the Committee fixing the price cannot
reDect adversely on the price fixation. Besides, the price fixation should be F
observed in broad perspective. If every individual has to be heard the
entire system may fall for sheer non-practicability. (407-D, E, G]

2.3. Practically, there is no difference between members and non-
members of cooperative societies in relation to cane price; In the licence
for crushing cane issued under clause 4(5) of the State Order it is provided G
in Form B clause (xvii) that the factories shall be bound to pay same cane
-... )
price to non- members as members. A non-member is also entitled to share
the profits which are worked out at the end of the season. A member is no
doubt entitled to some facilities such as running of other business or
availing the education facility etc. run the cooperative societies but that H
382 SUPREME COURT REPORTS [1995] 3 S.C.R.

A has nothing to do with cane price or its supply. As a matter of fact the sale
of by-products etc. is shown as receipt while calculating additional price
or final State Advised price. [406-F, E, G]

2.4. The Court's responsibility is to construe the provision which
may advance the cooperative movement in the State. The amendments in
B Sections 22 and 23 of the Maharashtra Cooperative Societies Act have
facilitated the membership. Notwithstanding the right of a cane grower to
become a member or cooperative society, the provisions cannot be con-
strued so as to result in nullifying the whole system of control devised to
improve production of the sugar in the country. For sake of more profit
I
' -
_, .

,C to few individuals the society cannot be made to suffer. Ours is mixed
economy. Competition and control have been blended to reduce economic
imbalance. If the individual growers, who do not constitute more than 20%
otherwise get the same profit as a member of cooperative society then there
appears no justification to construe the provision to give them a bit more
profit when it is fraught with danger of small units closing down and the
D entire zoning system coming to a crash. [420-C to El

3.1. Zoning or reservation and fixation of price for each zone are
inter-linked. Even under the 1966 Order the fvcation of minimum price is
factory-wise. Thus each factory has been considered to be one zone. Reser-
E vation or zoning and fixation of price for each zone is valid. (417-E]

Shri Malaprabha Coop. Sugar Factory Ltd. v. Union of India & Anr.
[1994) 1 SCC 648 and Anakapa//e Coop. Agrl. and Industrial Society Ltd.
Etc. Etc. 1·. Union of India and Ors., (1973] 3 SCC 435, relied on.

F 3.2. Zoning is beneficial to the cane growers and it bas been resorted
not only to ensure regular cane supply to sugar factories but also to protect
the cane growers who may otherwise have been seriously affected. It is a
well established feature in the country. Once a zone is reserved for a
factory the cane grower bas au obligation to supply cane to the factory and
G the factory has a corresponding obligation to lift the cane from the field,
crush it, produce sugar and pay to the grower not 9nly the minimum price
but also share the profit with him. [412-B, CJ

4.1. Clause 3 of the 1984 Order either on the Language or in its effect
expressly does not purport to be an order under Section 3(2)(!) of the
H Essential Commodities Act. It is not an order of the nature as was issued
' MAHARASHTRASAKKARKARKHANAv. STATE . 383
by the Central Government ror sale or levy sugar. It does not direct a cane A
grower to sell its cane to the Government or to any person specified in the
Order. In abse!lce or any provision the Order cannot be held to be an order
directing the producers to sell the cane so as to make it a compulsory sale
under clause (f) or sub-section (2) or s.3 or 1957 Act. [416-C, DJ

4.2. Section 3(2)(1) contemplates a specific order. It applies in those B
cases where any essential commodity is directed to be sold or parted with in
pursuance or an order or the Government. It bas DO application to supply in
a reserved area. Further, under clause 5 or Zoning Order, the cane under
orders or the Director can be supplied to other factories. The provision
completely demolishes the argume.nt or compulsory sale. [416-H, 417-A] C

4.3 Section 3(3)(c) or the 1957 Act contemplates an order or a
compulsory sale and not a compulsion arising out of enforcement of
restrictions under the provisions or controlling, distribution and supply.
A cane grower in a reserved area gets the price ror supply or bis cane to a
1 specified factory. This price is payable both to members and non-members. D
The orders only restrict that the supply could not be made to any factory
outside the area. The reservation may result in confining the choice but it
cannot be construed as an order or sale. (418-G, H, 419-A]

Union of India & Anr. v. Cynamide India Ltd. & Anr., (1987] 2 SCC E
720, rererred to.

4.4. Economics or pricing in a controlled economy is entirely dir-
rerent rrom a rree market. The equilibrium in the latter is reached by
interaction or supply and demand. Its graph keeps on moving up and down
governed by the principle of scarcity. But the controlled economy does not F
operate on demand and supply. The production, distribution and the
supply are regulated and controlled by the Government in public interest.
Such orders are issued in social interest for the common benefit and fair
price ror the needy and poor. Legality or such order cannot be tested on
cost structure or rree economy or maximum profit theory. (417-F] G

M/s. New India Sugar Works Etc. Etc. v. State of Uttar Pradesh & Ors.
Etc. Etc., (1981] 2 SCC 293, relied on.

Andhra Sugars Ltd. and Anr. Etc. v. State of Andhra Pradesh and Ors.,
(1968] 1 SCR 705 and Vishnu Agencies (Pvt.) Ltd. Etc. v. Commercial Tax H
jl
384 SUPREME COURT REPORTS (1995] 3 S.C.R.

A Officer & Ors. Etc., (1078] 2 SCR 433, referred to.
'-
,,.
S. Deductions made under bye-law 65, being for the general welfare
of the society, and as such it cannot be said that they are either bad or
they sulTer from any infirmity. The deposits deducted from non-members •
are refundable and they carry same interest as is paid to members. A
B non-member who is sharing in profits of the sugar production cannot be
beard to say that be has no obligations towards the society because he is
not a member of any cooperative society. [420-A, BJ

6. Even though the supply made by the non-members could not be
"A',
considered to be compulsory sale within meaning of Section 3(2)(1) and,
c therefore, the provisions of Section 3(3)(c) are not attracted, yet the
methodology adopted by the State for fixing price requires to be
rationalised as various discrepancies have surfaced for which there is no
satisfactory explanation. The Full Bench of the High Court felt thal there

D
was something grievously wrong with pricing system in the State. The
o...r.f_!~e price structure of cane is founded on two basic factprs, one, the
,.
recovery percentage and other the incentive for sharing profit arrived at
~-
by working out receipt minus expenditure. And that is neither co11tt&irJ' !n
law nor unfair. But the wide disparity in the price paid by two factories is
certainly glaring and is apt to create misgiving. (420-F, 421-H, 422-A]
E 7. In the Zoning Order clause S empowers sugar factory to accept cane
from other zone as well but no similar right has been given to cultivators.
The State Government may suitably amend the Zoning Order so as to
provide that in a case where any of the three circumstances mentioned in
Clause S(d) are present it would be open to the cane growers to apply to the
"-- ,
F specified officer for permission to supply his cane outside the zone. In such
an event, it may be open to the officer to designate the factory to which the
grower should sell his cane ensuring that the grower gets a price which is
not less than a price obtained in his zone. (422-B, 423-F]

8.1. Although the price fixation has not been found to suffer from
G any infirmity and the order issued by the Government determining price
for each factory is upheld, the State Government would be well advised to
get the matter examined by an Expert Committee comprising of
,..
economists and financial experts well versed in price fixation, particularly
in agricultural sector. This exercise has become imperative after the
H enforcement of Zoning Order. The price equation since 1984 has under-
MAHARASHTRASAKKAR KARKHANA v. STATE 385

gone tremendous upsurge. The escalation is manifold. Benefit of higher A
) price of sugar must percolate to growers as well. Therefore, the Committee
"-
may examine : [424·G, 423·H, 424-A

(a) If the fixation of State Advised Price uniformly for the entire
State as it is being done in other States, or at least separately
for different zones, as the normal recovery in the zones varies, B
would be more fea•ible; [424-B]

/
J (b) If the additional price worked out in the manner indicated in
Schedule II of Control Order of 1966 is more advantageous
and beneficial to the growers. If it be so it may opt for the
same as it would avoid tedious exercise by the Ministerial
c
Committee and have the benefit of uniformity; [424-C]

(c) Whether Rs. 600 which has been paid by the factories to the
non-growers under interim order passed by this Court would
not be a reasonable minimum price for 1995-96 and may D
furnish the basis for fixation of price for future years; [424-D]
'~
(d) If the shortcomings point.d out by the Full Bench in other
regard can be rectified and rationalised; and [424-F]

(e) Whether bye-law 65 should be appiietl :o ;,c~-members or not; E
[424-G]
(0 It may also suggest ways and means for improving yield by
the sugar factories and reducing overhead expenses and
eliminating, possible, paper loss; [424-E]
~
F
8.2. It is further directed that :

(i) The State Government may take appropriate steps to amend
Clause 5 of the Zoning Order so as to protect the cane
growers; [425-A]
G
(ii) The amount paid by the factories consequent upon the interim
orders granted by this Court shall not be liable to recovery
"" from the cane growers. But the bank guarantee furnished by the
appellants or sugar factories shall stand discharged. [425-D]

It is made clear that the direction not to recover Rs.600 from H
t

386 SUPREME COURT REPORTS [1995) 3 S.C.R.

A non-growers would not entitle any member of the cooperative society or
the cooperative society itself to claim that it was liable to be paid Rs. 600
for its cane during the years in dispute. [425-E]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 522 ol
1989 Etc. Etc.
B
From the Judgment and Order dated 23.9.88 of the Bombay High
Court in W.P. No. 263 of 1988.

F.S. Nariman, K.K. Venugopal, G. Ramaswamy, S.K. Dholakia, AM.
Singhvi, Rajiv Dhavan, Subhash Sharma, Ranjit Kumar, S.B. Patil, Ms. Bina
C Tamta, Ms. Anu Mohia, S.R. Hegde, G.B. Sathe, S.M Jadhav, AS.
Bhasme, D.M. Popat, P.H. Parekh Arvind Kumar Sharma, Bhavesh V.
Pajwani, Ms. Lucy, H.A. Raichura, AM. Khanwa, K.R. Chaudhary, AM.
Khanwilkar, Pradip Patil, M.D. Adkar, Ejaj Maqbal, B.K. Misra, Ms.
Rashmi Kathpalia, S.D. Mudaliar, Uday U. Lalit, N.A Siddiqui, S.V.
D Tambwekar, S.V Despande, Ms. V.D. Khanna, G.B. Sathe, S. Kushreshtha,
Manoj Swarup and Kailash Vasudeva for the Appearing parties.

The Judgment of the Court was delivered by

R.M. SAHAI, J. These are two sets of appeals filed by various
E Sahakari Sakkar Karkhanas, that is, Co-operative Societies of Sugarcane
growers, Private Undertakings, Joint Stock companies producing sugar in
the State of Maharashtra and the State itself one, directed against direction
by a Full Bench of the Bombay High Court in Satara Sahakari Sakkar
Karkhana Ltd. & Anr. v. State of Maharashtra & Ors., AIR (1989) Bombay
F 53 that the cane growers who were not members of any Co-operative
society but who were required to supply their cane under reservation order
or control Orders to sugar factories with which they were attached were
entitled to market price instead of price fixed by the Government, and
other directed against fixation of market price for 1993-94 by the High
Court at Rs. 740 as against Rs. 340 to Rs. 400 fixed by the Government.
G
The direction issued by the Full Bench are as under :

"We are therefore, of the view, that unless provisions for the
following are made in it, the State Order will not be valid -

H (i) The sugarcane growers who are not members of the factory
MAHARASHTRASAKKAR KARKHANA v. STATE [R.M. SAHA!, J.) 387

or factories to which they are required to supply their sugarcane A
"' ) shall be paid for the sugarcane supplied by them the price calcu-
lated at the market rate prevailing in the locality at the date of the
sale;

(ii) The market rate may be as agreed between the parties,
namely, the sugarcane grower and the factory or factories con- B
cerned. If there is any dispute over it, the same should be resolved
by.an independent authority which may be created under the Order
such as the one under clause 12 of the present Order. The authority
concerned should decide the dispute expeditiously after hearing
the parties and by a speaking order; C

(iii) No unauthorised deductions on any account should be
made by the factory from the price to be paid to the sugarcane
grower withcut his consent. The State Order should provide for a
machinery similar to the above to hear and grant to the sugarcane
grower, expeditious relief if he has any complaint in that behalf." D
The reasons for these directions were two fold, one the non-members were
not bound by the price fixed under bye-laws framed under the Cooperative
Sugar Act and other that there was no machinery in the Zoning Order
issued by the State Government to hear tho non-members before the price E
was fixed. Before examining whether these reasons are well founded in law
leading to the impugned directions it is necessary to narrate in brief the
necessity which impelled the Central Government to grant protection to
sugar industry and consequently to control, supply and distribution of the
_, sugarcane without sacrificing the interest of cane grower.
F
Sugar is an item of daily use in every household, rich or poor. Use
of white sugar has increased with rolling of years, growth of population,
rise in income etc. Today it is somewhere 134 lakh tonnes. Even in 1931
the requirement was more than 9 lakh metric tonnes. But the production
was nearly 1.8.lakh metric tonnes only. And there was an import of more
than 8 lakh metric tonnes. The Government, therefore, decided to grant G
protection to the sugar industry. The Bhargava Commission appointed by
the Central Government in 1970 in Chapter I of part I of its report has
traced the growth and development of the sugar industry and observed that
till 1930-31 there were only 29 sugar factories producting 1.22 lakh tonnes
of sugar in the country. That was, however, not adequate to meet the H
388 SUPREME COURT REPORTS [1995] 3 S. C.R.

A internal requirement and nearly 8 lakh tonnes of sugar was imported in the
year. In 1932 protection was granted the sugar industry. Following this ,.
there was a phenomenal expansion of the industry and the number of sugar
'
factories increased to 111 in 1933-34 and to 137 in 1936-37. The sugar
import which was about 8 lakh tonnes in 1930-31 was almost stopped from
1936-37. Thereafter there was little development of the industry upto
B 1951-52. The development and regulation of the sugar industry came under
the control of Government of India for the first time from May 1952 when
the Industries (Development and Regulation) Act, 1951 came into force.
All the 138 sugar factories which were working before 1952 were registered
under the provisions of Industries (Development and Regulation) Act,
c 1951. New sugar factories were established thereafter under licences
granted by the Central Government. Another important feature of post
1951 development noticed by the Commission was setting up of sugar
factories largely in the cooperative sector due to Government policy of
giving preference to cooperative societies in the matter of licensing. In
respect of State of Maharashtra the Commission observed that sugar
D
industry in Maharashtra was progressing very fast and the sugar production
in Maharashtra was expected to reach 16.37 la!:h metric tonnes and the ,__,
State was to become the largest producer of sugar in the country. Today
the State accounts for nearly 30% of the sugar output. The national output
of sugar for 1991-92, 1992-93 and 1993-94 was 134, 106 and 96 lakh metric
E tonnes respectively. The output of Maharashtra was 42, 36 and 27 lakh
tonnes for the corresponding years.

While granting protection to the sugar factory the Government did

F
not ignore the interest of sugarcane growers. It is the basic rather the only
raw material for sugar. It is grown by cultivators who were usually exploited ·~ -
or at least were in danger of being exploited. Therefore, the Government
agreed for fixing price of cane. At a conference called by the Government
of India in 1933 representatives of canegrowers asked for a minimum price.
The Government accepted the demand and in 1934 passed the Sugarcane
Act, 1934 which conferred powers on the then provincial governments to
G flX minimum price for the cane. Since 1950 it is being done under Control
Orders issued from time to time. The last Order known as Sugarcane
r
(Control) Order was issued by the Central Government in 1966. The main
features of the Order are two-fold · one, that it broadened the base for
price fixation by providing that the minimum price of cane shall be flXed
H having regard to the cost of production of sugarcane, the return to the
MAHARAsHTRASAKKARKARKHANAv. STATE(R.M.SAIW,J.] 389,

grower from alternative crops, the availability of sugar to consumer at fair A
price, the price at which sugar produced from sugarcane is sold by
)
producer of sugar and the recovery of sugar from sugarcane. The other is
that it regulates distribution and movement of sugarcane by empowering
the Government to notify in the Gazette and reserve any area where
sugarcane is grown for a factory having regard to the crushing capacity of
the factory, the availability of sugarcane in the reserved area and the need
B
for production of sugar with a view to enable the factory to purchase the
quantity of sugarcane required by it. The Order thus attempts to assure
,,,
.. ) supply of cane to sugar factories and ensure minimum price to
canegrowers.
c
The Bhargava Commission in Chapters I and II of Part II dealing
with price fixation and stabilisation of supply of cane after examining pros
and cons of the various competing interests was of the opinion that the
need for steady and adequate supply of cane to the sugar indu•try from
year to year could not be over- emphasised. It felt that an assured and D
adequate supply of cane was essential for the working of the sugar industry
on an efficient and economic level. The Commission observed that sharp
increase and decrease in cane supply from year to year were the bane of
the Indian sugar industry. Therefore, it felt that it was imperative that some
kind of stability in the matter of supply of raw material to the industries
E
should be brought about. It, therefore, recommended that provisions
should be made for agreement between cane growers and factories. The
Commission suggested t1'e• where Cane Growers' Societies Union
operated it would be desirable to have tripartite agreements involving
factories, the societies and the growers. It suggested that minimum price
__i
be fixed for sugarcane related to a basic recovery of 8.5% with a premium F
for every 0.1 % increase in recovery on proportionate basis. It also recom-
mended that the sales realisation from sugar after expenses should be
shared with the cane growers who execute agreement for supply of cane
and fulfil their contract. Both the.se recommendations were accepted. The
latter has been incorporated as paragraph 5A in the Sugarcane (Control) G
Order, 1966 ('1966 Order' for short). The minimum price for cane is fixed
for growers throughout the country and recommendations of Bhargava
"' I Commission are being following both in fixing minimum price of cane, and
payment of additional price accordance with formula framed by it ap-
pended as Schedule II to 1966 Order. H
390 SUPREME COURT REPORTS [1995] 3 S.C.R.

A In the State of Maharashtra it was the experience of the Government
that there were cyclic ups and downs in sugarcane production in the State
which adversely affected some of the sugar factories, particularly those
which were identified as sick and financially weak. The Government found
that in times of shortoge of sugarcane crop, in the absence of statutory
B provisions earmarking areas for drawal of cane it became difficult for
certain factories to get adequate quantity of cane thereby affecting their
obligations towards the cane growers for payment of cane price, employees
and worked for paym•.nt of their salaries and wages etc. In such situations
the State ·Government was required to assist the factories with huge ,.
' .
amounts for enabling them to discharge their obligation by diverting funds
C with considerable stress and strain on the State Exchequer. The Govern-
ment found that at time some of the factories starved of sugarcane whereas
others exceeded their crushing capacity. In order to find out some solution
to these problems the State Government appointed a Committee as an
Experts Committee under Government Resolution dated 28th April, 1980
D in exerciser of the powers delegated to it by Notification issued by the
Central Government in 1966. The said Committee was requested to take
review of the work in the past in regard to the formation of zones for Sugar
factories; to identify the limitations due to which the object of formation
of zones could not be achieved; and to suggest remedial measures in
E various matters. The Committee submitted its Report in October 1983.
After considering the Report the State Government on 12th September
1984 issued the Maharashtra Sugar Factories (Reservation of Areas and
Regulation of Crushing and Sugarcane Supply) Order, 1984. In the
Preamble to the Order it is mentioned that the Notification was issued to
F implement the rewmmendations of the Experts Committee appointed by
it and also to ensure economic viability of large number of sugar factories.
The order mentions that since the Government of India had granted letters
of intent for establishment of new sugar factories and has stipulated therein
that the conversion of the letters of intent into industrial licences shall, inter
alia, depend on the State Government notifying the zones for drawal of
G sugarcane by new sugar factories. The Order defines 'cane grower' either
as 'owner' or as a 'tenant including a body corporate such as a company
registered under the Companies Act, 1955 (1 of 1956), a society registered
under the Maharashtra Co-operative Societies Act, 1960 (Mah. XXIV of
1961), any body corporate, set up under any law for the time being in
H force, including an organisation owned or controlled by the Government
MAHARASHTRA SAKKAR KARKHANA v. STATE [RM. SAHA!, J.] 391

of any State or Government of India'. It defines the 'reserved area' to mean, A
the area reserved for a factory as specified in the schedule pertaining to
)
the factory. Clause (3) of the Order provides that having regard to the
crushing capacity of sugar factories and the yield of sugarcane in the
reserved areas, and the need for production of sugar, the area as specified
in the schedule, shall be reserved for the sugar factory with a view to
B
enabling it to purchase quantity of sugarcane required by it. Sub-clause (2)
of Clause 3 prohibits any sugar factory to purchase cane or accept supplies
of cane from cane growers except from the area reserved for that factory.
"-- i The only exception to it is contained in clauses 4 and 5 of the Order. Clause
/
4 deals with grant of licence and Clause 5 regulates supply of sugarcane
empowering a permit officer to allow a sugar factory to purchase cane c
areas other than the reserved for it under Clause 3 provided he is satisfied
that the circumstances mentioned in the clause existed. The order was
amended in 1987, 1988 and 1989. Sub-clause (lA) was added after sub-
clause (1) in Clause 3 of the Order issued in 1984 by the Maharashtra
Sugar Factories (Reservation of Areas and Regulation of Crushing and
D
Sugarcane Supply) (Second Amendment) Order, 1987 and it is provided
that the area specified in each of the schedules and reserved for the factory
mentioned in that schedule in accordance with sub-clause (1) of the clause
shall be reviewed by the State Government after every three years and in
Clause 4, sub-clause (6A) was added after sub-clause (6) which empowered
the licensing authority to allow a sugar factory to manufacture sugar from E
the sugarcane to be purchased by it from non-members which is grown in
the area reserved for it which is overlapping or common with other
factories if such factory has entered into contracts for purchase of cane
from such growers and if the sugarcane does not exceed the requirements
of the factory based on its licensed crushing capacity during any crushing
F
-I season.

Trouble appears to have started after the Notification was issued by
the State Government in 1984. Writ petitions were filed by cooperative
societies and sugarcane growers challenging the Order as being beyond the
scope of the Act and the 1966 Order. It was claimed that the Order was G
violative of the rights guaranteed under Articles 14 and 19 of the Constitu-
tion. The challenge on behalf of the growers was that the Order in prevent-
..,
ing the cane growers from selling their sugarcane at the best price available
imposed an unreasonable restriction. It was claimed that in process of
reservation they have been deprived of the highest price in the area, H
392 SUPREME COFRT REPORTS [1995] 3 S.C.R.

A therefore, it was liable to be struck down as arbitrary. The prohibition in
the Order on enrolment of the members was also challenged. A Division
Bench of the Bombay High Court in Ihe Rahuri Sahakari Sakkhar
Karkhanu Ltd. & A11r. v. Stolt ·,f Mahaiashtra & Ors., AIR (lQ87) B0mbay
248 held that the Order was not violative of the provisions of the Constitu-
tion or the Central Government Order of 1966 and the Essential Com-
B modities Act (hereinafter referred to as 'the Act'). Nor did the Bench find
any merit in the claim that the reservation policy was violative of any
constil utional guarantee as the Order ha,ing been issued in view of the
scarcity of non-availability of sugarcane and for securing the equitable ' /
distribution the Order was squarely covered in the Directive Poli.cy un- '
C folded by clause (b) of Article 39 of the Constitution. The Bench did not
find any merit in the claim that the distribution of sugarcane on the
licensing capacity of the sugar factories was violative of any statutory
provision or the Constitution as the licence for crushing the sugarcane was
granted by the Central Government under the provisions of Industries
D {Development and Regulation) Act, 1951. The Bench repelled the chal-
lenge that the order was arbitrary or violative of Article 14 of the Constitu-
tion. Nor it agreed with claim of non-members of the cooperative societies
that the prohibition in the Order from becoming members or obligation to
supply cane to the factory in the reserved area was unreasonable or
arbitrary. The Bench observed :
E
"With the sole intention of avoiding cut-throat competition be-
tween the different sugar factories ru; well as the sugarcane
growers, the impugned order has been issued. In this context, it
cannot be forgotten that the Co-operative Societies Act has been
F enacted keeping in view the Directive Principles and the State
Policy as enshrined in the Constitution. The co- operative move-
ment in the ultimate analysis is socio-economic and moral move-
ment. It is a parl of the scheme of decentralisation of wealth and
power. Co-operative capitalism is neither co-operation nor
socialism. On the other hand, co-operation is a substitute for
G self-interest of an individual or groups of individuals for the benefit
of the whole society. Wealth has no meaning if it is concentrated
in few hands. In the absence of decentralisation or equitable
distribution of wealth or property, it becomes improperly. There-
fore, equitable distribution is the essence of equality. If for achiev-
H ing this object the impugned order has been issued under the
MAHARASHTRASAKKARKARKHANAv. STATE[R.M.SAHAI,J.] 393

powers conferred by the Essential Commodities Act and the A
Sugarcane (Control) Order, 1966, then it cannot be said that this
equitable distribution results in inequity or arbitrariness. In our
)
view, the criteria adopted and the guidelines laid down are
reasonable. They have a nexus with the object sought to be
achieved. Without reserving areas qua each factory and regulating
B
the supply of sugarcane to the members or non-members, the object
of distribution of the essential C'!mmodity viz. the sugarcane, would
not gave been achieved. Therefore, we find it difficult to accept the
challenge raised by the petitiOners which is based on Art. 14 of the
..... , Constitution of India."
c
(Emphasis supplied)

Grievance was also made by the non-members of absence of imy hearing
by the Permit Officer. It was stated on behalf of the State that it was
intended to follow a fair procedure. Note 1 to 7 incorporating the proce- D
dure was produced before the Bench. It was found to be reasonable but
the Bench was of the view that it required to be given statutory shape by
amending 1984 Order. Since the necessary amendments were not made
~ another Bench at Aurangabad held that since the State Government did
not carry out the ·amendments in clause 5(1)(d) of the 1984 Order as
pointed out by the Bench in the earlier decision the sugarcane growers had E
a right to supply sugarcane grown by them to the factory of their choice as
they were likely to receive better value in the form of price for the
sugarcane grown by them. A contrary view appears to have taken by
another Bench. 1 he controversy was referred to a larger Bench which in
Paragraph 9 of the Judgment has noticed the views taken by different F
benches. It then observed that in none of the earlier decisions given by the
Division Benches they were called upon to test the validity of the Order
on the ground of deprivation of sugarcane grower of the best price avail-
able to them. The Bench observed that its validity was challenged only on
the ground of the alleged illegality of the restrictions on the freedom to sell
and purchase the sugarcane except to and- by the factories in whose favour G
the Reservation Order was issued. The Bench held that the Order issued
by the Central Government in 1966 did not provide for fixation of the
:'"'-. ) maximum price of sugarcane to be supplied by the sugarcane grower to the
sugar factories. The Full Bench observed that the Aurangabad Bench had
issued the directions permitting the growers to sell their sugarcane at the H
394 SUPREME COURT REPORTS [1995] 3 S.C.R.
A best price to differ~nt' factories only because there was no machinery to
hear the sugarcane growers before fixing the price and redress their
grievance. The Bench found that this direction had not been complied. It
thereafter considered the question of fixation of price by dMding the
sugarcane growers in two categories • one, who are members of any
B co-operative society and the others who are non-members. It held that
those growers who were members of the Society had to enter into an
agreement under the bye-laws framed which were the same in all co·
operative societies they could not make any grievance against fixation of
price. It found that even otherwise before the Government which fixed the
price they were represented by their elected Board of Directors who
C protected their interests. In respect of non-members it was held that since
they were not heard nor they were represented by any one before the
Committee they were placed in a double jeopardy and in absence of any
machinery to hear them before the price was fixed they were put to grave
injustice. The Bench further held that since there was no power in the State
Order to fix the maximum price payable to the cane growers, therefore,
D those growers who were non-members of any sugarcane co-operative
society or they were suppliers to non· debtor factories they were not bound
by the price fixed by the State Government. The price fixation was binding
only on the members of the debtor factory. Having reached the conclusion
that the price fixation was not binding on the non-members, therefore,
E "they have a choice either not to supply the sugar to any of the factories
or to sell it to the highest bodies", the Bench held that, "the latter freedom
of the members is however rendered nugatory by the provisions of clause
3 of the State Order", the effect of which was that the non-members would
be placed in a situation where either they had the option not to supply the
F sugarcane to the factory owners or to resign themselves to their fate by
allowing their crop to go waste. To get over this difficulty, what the Bench
described as Hobson's choice it resorted to Section {3){2)(1) of the Act
read with Section 3{3){c) and held that the supply by the growers being in
nature of a compulsory sale, they were entitled to supply the sugarcane at
the market rate.
G
How far this conclusion of the Full Bench is legally sustainable and
whether the reasons in support of it are properly founded is the crux of
the matter that requires consideration. Varied submissions on wide
' )
spectrum were advanced touching upon not only the provision of the Act,
H the Central and the State Orders but also the Cooperative Societies Act,
\
MAHARASH1RA SAKKAR KARKHANA v. STATE [R.M. SAHA!, J.] 395

the limited scope of interference by the courts in policy decision and the A
principles of price foration in controlled economy. If Sri F.S. Nariman, the
learned senior counsel appearing for the Sahkari Karkhanas apprehended
_J
the effect of decision to be collapse of zoning system and gradual erosion
of cooperative movement in the State, then Sri G. Ramaswamy, the learned
senior counsel appearing for the State could not see any justification for
the court to interfere in matters of economic policy and the direction of B
the Full Bench according to him was violative of the scheme of the Act.
Sri Dholakia, yet another senior counsel appearing for the State did not
find any rationale to distinguish between controlled price and the market
-,~) price as once the price of any commodity was statutorily fixed under the
orders issued by the Government then that alone become the market price.
Sri Venugopal the learned senior counsel appearing for private undertak-
c
ing urged that the Act visualised water tight compartmentalisation of the
Order issued under it to balance the interests of consumers and when the
Government did not fix any maximum price but provided for payment of
minimum price only there was no scope to import the concept of higher
price or market price. According to him the rationale for price fixation did D
not suffer from any infirmity nor it caused any prejudice to the cane
growers. Sri R. Nariman the learned senior counsel appearing for joint
I stock companies urged that payment of market price would.result in closing
'./
down of smaller units as price structure was co-related with yield and not
the market. Elaborating their submissions, the learned counsel submitted E
that the Government of Maharashtra bas been encouraging the cooperative
movement in the State over the last several decades. As a result of its effort,
more than hundred sugar factories have come to be established in the l
cooperative sector. These cooperatives societies span the entire spectrum
of the State's agricultural sector. All the sugarcane-growing areas are
covered by one or the other cooperative society has established its own F
sugar factory. This development has not only enhanced the sugar produc-
tion but has changed the very face of the rural Maharashtra. It bas brought
prosperity and awareness to villagers besides providing several amenities.
The cooperative societies supply seeds, fertilizers, agricultural implements
and many other goods at comparatively cheaper rates to their members.
G
Many of them run schools and other educational institutions providing
education to the children of the sugarcane growers. The interest of the
State and the interest of the public demands that this cooperative move-

- )
ment is kept alive and is not allowed to be weakened or stultified. On the
contrary, every effort should be made to encourage and promote it since
the fate of these factories is indivisibly connected with the well-being and H
r

396 SUPREME COURT REPORTS [1995] 3 S.C.R.

A survival of millions of farmers who are their members. After the amend-
ment of the Maharashtra Cooperative Societies Act (reference is to the
1985 Amendment which came into force on and from May 12, 1985) any
and every person who seeks to become a member of the society will be
enrolled as such. What is called the concept of 'universal membership' has
been introduced by the said amendment. Every grower is welcome to join
B the cooperative society of his area. Nobody who applies will be refused,
but if somebody wants to st.ay out he cannot complain at the same time
that he is being paid the same price as the members of the society. It is
open to him either not to raise sugarcane or to raise and sell the same to
the cooperative factory concerned at the same price as the members. He \ ,._
C cannot claim a preferential status. He too can become a member of the
society if he likes and avail of all the benefits provided by the society but
nobody can help him if he chooses to stay out voluntarily. While the
members are under an obligation to raise sugarcane in the specified area
year afte1 year, the non-members are under no such obligation; th~y are
free to raise such crops as they choose. The argument further was that the
D economy of each sugar factory was different for various reasons it was also
not possible to ensure in uniform price by all the factories. And if every
sugar factory is compelled to pay price at Rs. 700 a tonne, as some factories
are paying, most of them would go out of market which would cause in
calculable damage to the rural economy of the State. If these societies are
E to be kept alive, it is necessary that a separate price is fixed for each factory
having regard to its own economy and other relevant factors. Neither the
members can complain of it nor the non-members. So far as the questions
of law are concerned, the learned counsel submitted that neither the
Central Government nor the State Government made any order under
Section 3(2)(!) of the Act; hence there was no obligation upon them to
F ensure the price as contemplated by Section 3(3)(c). It was urged that even
if it was assumed for the sake of argument that an order under section
3(2}(!) must be deemed to have been made by necessary implication, even
then Section 3(3}(c) must be held to have been satisfied for the reason that
the expression 'locality' in clause (c) means, in the context the reserved
G area (zone) in which the grower is situated. The price paid by the sugar
factory to its members in the zone must be deemed to be and is the market
price - there is no other price in the said locality - and since that is paid
to the non-members as well, Section 3(3}(c) is satisfied.

Dr. Rajiv Dhawan, the learned senior counsel appearing for the
H non-members, however, found compulsion flowing from the zoning order
..
MAHARA~HTRASAKKARKARKHANAv. STATE[R.M.SAJW,J.] 397

both in supply and price which was arbitrary and the basis for it being the A
efficiency of factory it was wholly extraneous to price fixation for cane
growers. Dr. Abhishek Singhvi, the learned senior counsel, did not find any
justification for apprehending collapse of zoning or cooperative movement.
Dr. Rajiv Dhawan submitted that non-members were not bound by the
bye-laws of'the society. Those bye-laws are between the society and its B
members. Because the society is indebted to the State, it is obliged to agree
to the price advised by the State Government, the creditor. But so far as
the non-members are concerned, there was no reason why they should be
bound by the price fixed by the creditor for its debtor. The provisions of
the Maharashtra Reservation of Areas Order in effect and in truth create C
a situation contemplated by Section 3(2)(1). Looking from the point of view
of the non-member growers, the situation is no different from the one
obtaining had a formal order been made under Section 3(2)(1) requiring
the growers to soil their stock to the factory of the zone. The Government
cannot simply create such compulsion and leave the growers to the mercy D
of the factory. In such a situation, the factory would be free to exploit and
take advantage of their helplessness. A mere condition in their licence that
they shall pay the same price to non-member growers as is paid to mem·
ber-growers is not sufficient to secure their legal rights. While the factory
can wait, the grower cannot, for the reason that if not harvested and used
at the appropriate time, the cane dries up, becoines less yielding and then E
dies. The Government is bound to ensure, in such a situation, price for
sugarcane as contemplated by Section 3(3)(c). The Reservation Order
cannot be used to promote or perpetuate the cooperative movement in the
State nor can it be used as a lever to compel growers to become members
of the cooperative societies. There is no such compulsion ' under the F
Cooperative Societies Act and such a compulsion cannot be brought about
by the Reservation of Areas Order. The non•members cannot be punished
by compelling them to sell their cane to uneconomic and inefficient fac·
tories at the price such factories can afford, i.e., at a price far lower than
the true value and market price of the cane. The members may be so G
compelled because they may have a stake in the survival of those societies
... )
but the non-members have no such ties to the factory. Article 19(1)(c) of
the Constitution of India entitles a citizen of this country not to join a
society or an association if he does not wish to. He cannot be compelled
by law to join a society or an association. No person can be compelled to H
I

398 SUPREME COURT REPORTS (1995] 3 S.C.R.
A walk into these societies, which are in truth " debtor colonies". Inasmuch
as the State has failed to provide or to ensure the market price as con-
templated by Section 3{3){c) of the Act, the Full Bench was right in
declaring that the non-members are entitled to sell their sugarcane to
whomsoever they like and at whatever price they can obtain. Even with
B respect to non-members who have entered into agreements with the fac-
tories, Dr. Dhawan urged, the situation created by the Government is such
that the non-members are also being forced to enter into such agreements.
He explains the position thus : even if a non-member does not obtain a
loan, he will be paid the very same price for sugarcane as a member of the
C society. If so, why should a non-member forego the facility of loan which
a
is normally advanced at lower rate of interest. By foregoing the loan
facility, he would be losing at both ends. The vice lies, says Dr. Dhawan,
the very system that has been generated by the statutory orders made by
the State. Therefore, he says, the non-members cannot be deprived of their
liberty to sell their product freely just because they have entered into loan
D agreements. It is another matter that they may be liable for damage for
breach of contract with the sugar factories but that is a matter between the
factory and that person. So far as the Government is concerned, it cannnt
take note of that agreement and compel such person to sell his cane at the
SAP since that would mean enforcing a private contract between the
E parties otherwise than through court oflaw. Dr. Dhawan says that in other
States (other than Maharashtra and Gujarat) the Governments have not
only issued statutory orders creating zoning for each of the sugar factories
but have also notified the price at which the sugarcane is to be sold by the
growers to the factories and this price is common to the entire State though
F it may vary corresponding to the sugar content in the case.

Since entire thrust on the price structure operating unfavourably to
non-members of cooperative society proceeded on assumption that price
fixation by the Government for cooperative sociel}' was influenced with
creditor and debtor relationship between the two it is necessar}' to under-
G stand the mechanism of pricing for cane prevalent in the State and whether
it works harshly and unreasonably against non-members. The entire
process of price fJXation can be divided in three stages. The first is the
fixation of what is known as the minimum ex-factory by the Central
Government under 1966 Order for entire sugar factories in the country
H linking it with basic recovery of 8.5% with a proportionate increase for
MAHARASHTRASAKKAR KARKHANA v. STATE [R.M. SAHAI, J.] 399

)
every 0.1 % extra recovery. Therefore, normally the minimum price of cane A
paid by two factories cannot be same. For instance, the normal recovery in
the State of Maharashtra is stated to be 11.05%. In the year 1987-88 the
minimum price fixed was Rs. 19.50 per quintal. The highest and lowest
price paid for the sugarcane in the Ahmednagar District during 1987-88
was Rs 366 and Rs. 240 by Sangamner Sahkari Sakkar Karkhana and B
Jagdamba Sahkari Sakkar Karkhana respectively. The recovery of Sangam-
ner SSK Ltd. was 11.64% whereas the recovery of Jagdamba SSK Ltd. was
.... -..,....__I
, / 10.36%. It was explained that difference of 1.28% between recovery of
sugar by the two factories resulted in difference of sugar production per
tonne to extent of 12.8 kg. and the realisation too was Rs. 64 per tonne
more. This difference got reflected in the price fixation. C

The next is the State Advised Price. Every State has its own method
to determine it. The power is assumed under Acts of the State Legislature
or orders issued by the Hovernments. For instance, in the State of Haryana
a Sugarcane Central Board is constituted under Section 3 of the Punjab D
Sugarcane (Regulation of Purchase and Supply) Act 1953 headed by the
Chief Minister and other high officials of the Agricultural and Cooperative
Department, the Director of Sugar Mills etc. to advise the Government and
the Cane Commissioner on various matters including the price of cane to
be paid to growers. Similarly in U.P. and Andhra Pradesh it is done under
order issued under the U.P. Sugarcane (Regulation or Supply and Pur- E
chase) Act 1953 and the Andhra Pradesh Sugarcane (Regulation of Supply
and Purchase) Act 1961. In Maharashtra 95% of sugar factories are in the
cooperative sector. They are governed by the Cooperative Societies Act
and the bye-laws framed thereunder. Bye-laws 63, 64, 64A, 65A and 65B
deal with fixation of price of cane. Bye-law 64 empowers the State Govern-
ment to fJX the price of cane so long the amount invested by it in setting F
up of sugar factory is not repaid. The exercise is undertaken by a Commit-
tee constituted by the Government known as 'Ministerial Cabinet
Committee'. H comprises of the Chief Minister and other concerned Min-
ister. It takes into account the ex-gate minimum price declared by the
Central Government, the estimated sugar production and its availability for G
production by the sugar factories, the estimated average of sugar factory,
,., } the estimated conversion charges and the present day levy and free sale
price while flXing the price. In the written submission filed by the appellants
it is stated that in the year 1993 while the statutory minimum price fixed
by the Government of India was Rs. 354 per metric tonne the State Advised
Price for the State of Maharashtra was Rs. 360 to 400 per metric tonne. It H
r

400 SUPREME COURT REPORTS [1995] 3 S.C.R.

A is explained that although such price in other States, for instance Andhra
Pradesh, Madhya Pradesh and Uttar Pradesh was Rs. 400 Rs. 530-560 and
Rs. 580-600 per metric tonne respectively but these prices were ex-gate
whereas in the State of Maharashtra it was ex-field. That is a cane grower
apart from the price determined by the State Government is paid harvest-
ing and transportation charges etc. And when all this is totalled then the
B price paid to the cane grower in the State is the highest in the country. The
advance cane price or the price for harvesting and transportation is paid
to the cane growers irrespective of whether they are members of any
cooperative society or not. The advance according to the appellants was
paid by sugar factories under agreement entered with growers whereas
C according to respondents it was paid by the Banks and the non-members
did not enter into any agreement. Since the parties were at variance on an
issue of fact they were granted time on 24th February 1995 to file further
affidavits clarifying their stand. From the affidavits filed it now transpires
that the loans are normally advanced by the village societies or rural banks
to the farmers on the certificate issued by the sugar factories showing cane
D plantation, acreage, date of plantation, etc. Although the factum of agree-
ment between the cultivator and the sugar factory is not clearly admitted
in the reply filed on behalf of the respondent but apart from those cul-
tivators who do not need any loan for growing the crop whose percentage
appears to be negligible, it appears by and large rather the uniform practice
is that a tripartite arrangement is arrived between the cultivator, the
E loaning society and the sugar factory. The loan is advanced on basis of the
certificate issued by the sugar factory and it is the sugar factory which
ultimately repays the amount due to the loaning society out of the price of
cane to be paid to the cultivator. Such agreements were recommended by
the Bhargava Commission as well. Even otherwise no bank or society would
F advance any loan unless it is assured of its repayment. It is, therefore,
reasonable to assume that the advance is paid to the cultivators by the rural
banks or societies on the certificate issued by the sugar factories.

The third is the price paid at the end of the season. The Bhargava
Commission had recommended payment of additional price at the end nf
G season on fifty-fifty profit sharing basis between growers and factor;,,, 'o
be worked out in accordance with Schedule II to the 1966 Order. Even
though in the affidavit filed earlier by the officials of the Department in
the Special leave petition it was stated that additional price was paid but
a doubt had arisen as in Ex. 6 filed along with the additional affidavit of
H Dy. Secy to the Government of Maharashtra in C.A. No. 523/89 explaining
MAHARASHTRASAKKAR KARKHANAv. STATE [R.M. SAHA!, J.] 401

the mechanism of fJXation of cane price it appeared that in the State of A
)
Maharashtra either the State Advised Price is paid or additional cane price
is paid, whichever is more. Therefore the appellant was directed to explain
whether the additional price was paid in addition to State Advised Price
but the affidavit filed in pursuance of the Order dated 24th February 1995
remains vague. It appears the pre.ctice in the State is to pay the advance B
as stated earlier at the beginning of the season and then the cost of
transportation and harvesting in the middle of the season and the price
'/ worked out finally at the end of the season, by the Ministerial Cabinet
Committee headed by the Chief Miqister, Cabinet Ministers of the con-
cerned Department etc. on statements submitted by each factory and
recommendations made by the Committee after discussing the matter with C
members of State Federation of Cooperative Sugar Factories and repre-
sentatives of the State Co-operative Bank. In the State of Maharashtra,
therefore, it appears instead of additional price it is the State Advised Price
which is paid.
D
It would be appropriate to notice here how the State Advised Price
and the additional price is worked out and if it in any manner prejudice
the cane growers specially the non-members. In the additional affidavit
filed by Dy. Secretary of Govt. of India in Civil Appeal No. 523 of 1989 the
mechanism of price flXation is explained as under :
E
Machanism of fixation of eane price
Receipts- Financial Results-
l. Sale of Sugar Levy and Free sale at
Add - Value of the closing stocks Assumed prices.
as on 30/9 of the year. F
Deduct- Value of the opening
stocks of the year
2. Add or deduct prifit or loss for
Ancillary Units.
3. Add - other receipts from G
(a) Sales of molasses Press mud Bagasse.
/ (b) Miscellaneous re.ceipts.
(c) Rebates
(1) + (2) + (3) - (R)
Expenditure
H
402 SUPREME COURT REPORTS [1995] 3 S.C.R.

A I. Cane cost
(a) Govt. of India minimum price linked
with actual recovery deducting the average '
harvesting/transport charges.
II. Expenditure relating to cane -
B Commission to Harvesting and Transport
contract - Khodaki etc.
III. Harvesting & Transport charges.
IV. Cane Purchase Tax.
V. Conversion charges.
c (a) Store consumption
(b)Electrical Charges
(c)Outside repairs
(d) Salaries/wages
(e) Overheads
VI. Interest Payable.
D (1) Capital loans and deposits (NRD/RD)
(2)Working Capital
VII. Bonus - Minimum 8.33%
VIII. Education Fund under section 68
Maharashtra Cooperative Societies Act.
E Audit Fees.
Other Provision.
DSI/Sakhar Singh

Grand Total of I to VIII 'E'
F R - E =S Surplus
Grand Total of I to VIII
Deduct : Current Depreciation Investment
Allowance Development Rebate part of D
accumulated losses
G S - D + 'NS' net Surplus.
Per M.T. 'NS' = Additional cane pric~.
\
Govt. of India's Minimum statufory CP + Addi. C.P. = 'X'
Govt. of Maharashtra - Minimum Advised CP -
X or Y whichever is more.
H
MAHARASHTRA SAKKAR KARKHANA v. STATE [R.M. SAHA!, J.] 403

) The manner of working out additional cane price is provided in A
Schedule II of the Control Order, 1966 in following manner :

"The amount to be paid on account of additional price (per
quintal of Sugarcane) under Cl. 5-A by a producer of sugar shall
be computed in accordance with the following formula, namely.
B
R-L+2A+B
X=
~.,, 2C

Explanation. - In this formula -

1."X" is the additional price in rupees per quintal of sugarcane c
payable by the producer of sugar to the sugarcane grower.

2. "R" is the amount in rupees of sugar produced during the sugar
year excluding the excise duty paid or payable to the factory by
. the purchaser.
D
3. "L" is the value in rupees of sugar produced during the sugar
year, as calculated on the basis of the unit cost per quintal ex-fac-
tory, exclusive of excise duty determined with reference to the
minimum sugarcane price fixed under Cl. 3, the final working
results of the year and the Cost Schedule and return recommended
E
by such Authority as the Central Government may specify from
time to time.

4. "A" is the amount found payable for the previous year but not
. __) actually paid [vide sub-clause (9)].
F
5. 11 B11 is the excess or shortfall in realisations from actual sales of
the unsold stocks of sugar produced during the sugar year, as on
30th day of September [vide item ?(ii) below] which is carried
forward and adjusted in the sale realisations of the following year.

6. "C" is the quantity in quintals of sugarcane purchased by the G
producer of sugar during the sugar year.
-. )
7. The amount "A" referred to in Explanation 2 shall be computed
as under, namely :

(i) the actual amount realised during the sugar year; and H
404 SUPREME COURT REPORTS (1995) 3 S.C.R.

A (ii) the estimated value of the unsold stocks of sugar held at
the end of 30th September, calculated in regard to free sugar
stocks at the average rate of sales name during the fortnight
11th to 30th September and in regard to levy sugar stocks at
the notified levy prices as on the 30th September.]

B
Explanation, - In this Schedule "Sugar" means any form of sugar
containing more than ninety per cent. sucrose].'
\
A comparison of the two would indicate that there is not much
difference in the two. In the latter too the cost incurred in producing sugar
C has to be deducted from the receipts. In any case since the grower is paid
either the State Advised Price or Additional Cane Price whichever is
higher no prejudice can be said to be ca11sed to non-members. In the
affidavit filed on 10th March 1995 it is stated at the final price detqmined
for the earlier year is the advance price for the next year. For instance if
D amount 'A' was fixed as final State Advised Price at the end of 1993-94 for
a factory then that becomes the advance price for 1994-95'. It has been
explained that the final State Advised Price is fixed on basis of detailed
statement submitted by the Sugar Commissioner giving a detailed opera-
tional financial picture of the working of the sugar factories such as
sugarcane crushing, sugar recovery, sugar bags produced, quantity sold as
E levy and free, income from other items, cost relating to harvesting and
. transport of cane, sugar factory wages, power, fuel chemical and other
expenses, depreciation provision etc. etc. According to the affidavit broadly
these principles related to, (a) valuation of clo~ing stock of free sale sugar
and molasGes; (b) fixation of Khodki charges (i.e. labour charges paid for
F collecting pieces remaining in the field after harvesting); (c) provision of
depreciation and investment allowance/development rebate; (d) sugarcane
price to be paid to the members/non-members outside the area of opera-
tion; (e) limit of cash component to be paid to the farmers in the cane
payment where cane price is on the high side; (t) interest rate on non-
refundable/refundable deposits to be paid to members/non-members; and
G (g) deductions to be made compulsorily from the sugarcane price payment
to the farmers. In effect the price for next year which is paid at the
commencement of season comprises of not only the price based on
recovery of 8.5.% but also the profit arrived at after sale of sugar.

H Few facts are necessary to be stated)n respect of price fixed under
MAHARASHTRASAKKARKARKHANAv. STATE(R.M.SAHAl,J.] 405

the bye-law of the society. One price fixation for the cooperative societies A
under bye-law 64 either by the Director of factories or by the State
I Government was not challenged to be ultra vires, either before the High
J
Court or this Court. It cannot, therefore, legitimately be urged that it was
violative of the Control or the Zoning Order or it was arbitrary. In fact as
explained earlier it is the State Advised Price. If the claim of non-members B
is taken to its logical conclusion it would act unreasonably for them. Let it
be tested. Suppose the price fixed for two factories 'A' and 'B' is Rs.400
·and Rs. 500 respectively, 'X' being a non-member in area 'A' the pnce for
factory 'A' is not binding on him. If it be so the price fixed for 'B' is
.,.__ ' certainly not binding on him. And the factory 'B' is not bound to offer him
·' Rs. 500. It may or may not. That may lead to uncertainty and even C
exploitation. And then the price of Rs. 500 fixed for 'B' is as much State
Advised Price as Rs. 400 for 'A'. Much argument was advanced on how
the market price in a locality should be understood. It appears unnecessary
to deal with it as any other construction would be destructive of zoning and
concept of pricing in controlled economy. Second, there is no machinery
in the State to determine the State Advised Price for non-members as 95% D
of the sugar factories being in cooperative sector the fixation of price under
the bye-law always considered to be legal. And rightly so. Therefore, any
determination of price by an authority under the bye-laws is valid for cane
growers attached to a sugar factory in reserved area. Third entire concept
of minimum and maximum price for cane appears to be out of place. As E
pointed out by the Commission minimum price is fixed on quality formula.
Further, average recovery of the normal crushing period was preferred
according to Commission as against average recovery of the optimum
period. All this results in payment of adequately reasonable price which
comprises of not only cost of cultivation but profit as well. It does not stop
there. The payment of additiOnal price or final State Advised Price on F
profits obtained by a factory as indicated earlier is also paid. The price
thus being paid on recovery of cane and profits made from sale of sugar
is not minimum but optimum price which is paid to a cane grower. The
fourth and the most important is that the advance paid to the cultivators
at the commencement of the season on final price determined for earlier
year appears to be reasonable and fair. The mere fact that such determina- G
tion is made in exercise of power under bye-law 63 does not render it bad
for non-members. No objection could be taken to payment of transport and
harvesting charges. That too is explained to be linked with distance etc: So
long to the determined of price is fair and just and based on relevant
material it cannot be held to be not applicable to one class of growers, H
r
406 SUPREME COURT REPORTS [1995] 3 S.C.R.

A namely, non-members in the zone because they are not members of the
cooperative societies. If the exercise of power is not bad for members of
the society it cannot be held to be bad for non-members, unless it is found
to be arbitrary. So far cultivation of cane and payment of price is concerned
the two are similarly situated. Further the production of sugar being of
primary concern the Government ensured that the growers were not
B denied the minimum. The Additional Cane Price or final State Advised
Price are paid as a matter of incentive. And what is incentive for one year
becomes the minimum price for next year. The concept of market price,
better price or hi6her price thus has no place in the scheme. Then: is no
reason why fixation should not be held to be binding on non-members as
C in the scheme of price fixation no distinction is made between members '
and non-members.

The difference between members and non-members of cooperative
societies in relation to cane price may also be noticed. A cooperative
society usually invests 7.5% in setting up of a factory or Sahkari Karkhana
D . whereas the balance is borne by the State and the financial institutions. Its
members under bye-laws are under obligation to clear every dues of the
society otherwise any amount due from them to the society is first c:harge
on the sugarcane cultivated by them and is recoverable from the price of
cane. Every member of the society under bye-law 18A is required to
E undertaken cultivation of minimum of half acre. The non- members on the
other hand have to such obligation. They are not required to cultivate or
grow any minimum cane. But they derive all those benefits and advantages
as are available to the members of the society. In the licence for crushing
cane issued under clause 4(5) of the State Order it is provided in the Form
B clause (xvii) that the factories shall be bound to pay same cane price to
F non-members as members. A non-member is also entitled to share the
profits which are worked out at the end of the season. There is thus
practically no difference between a member and non- member so far supply
of cane or its price is concerned. A member is no doubt entitled to some
facilities such as running of other business or availing the education facility
G etc. run by the cooperative societies hut that has nothing to do with cane
price of its supply. As a matter of fact the sale of by-products etc. is shown
as receipt while calculating additional price or final State Advised price.

With this background it may now be examined whether provision in
H ',State Zoning Order suffers from any drawback for not providing any
\.,

MAHARASHTRA SAKKAR KARKHANA v. STATE [R.M. SAHA!, J.] 407

machinery to hear the individual non-members and also whether the fixa- A
tion of price by the Director of Sugar Factories or the State Government
) under bye-law 64 framed under Cooperative Societies Act can be said to
be binding on members only thus entitling non-members to sell their cane
at market price. The exercise of pricing is undertaken by a Committee in
accordance with guidelines provided after taking into consideration various B
factors so that the price of sugar does not escalate and cane growers are
not deprived of good return to dissuade them from going for alternative
crop. In the affidavit filed by the Under Secretary of the State it is
explained that the price determined by the Committee is notified every year
but no abjection was ever received. No cane grower can thus legitimately C
claim that the price fixed for the cane was not productive. The affidavit
also pointed out that the non-members have not organised themselves so
as to entitle their representative to be invited. Hearing of every individual
grower even othe~e is physically impossible. Presence of representative
of cane growers' cooperative society before the Committee fixing the price D
makes it broad based. Such representative would bargain for better price
for cane growers irrespective of whether such a cane grower is a member
of the cooperative society or not. No representative would agree for lower
price for members of the society. Therefore, absence of individuals or
non-me111bers of cooperative society before the Committee fixing the price
cannot reflect adversely on the price fixation. No material has been placed E
to demonstrate how the fixation of price by the State Committee with
assistance of Director of Sugar Factories has prejudiced the non-members.
In the affidavit filed on behalf of the State it is pointed out that the price
of cane fixecl to be paid by the Sahkari Sakkar Karkhana is even paid by
other factories. Reason being that the price fixation having been done by F '
!'-.'
the Committee it is taken to be fair and just. Same reasoning applies to
non-members. Truly speaking the price fixation ~hould be observed in
broad perspective. If every individual has to be heard the entire system may
fall for sheer ·non-practicality. In Maharashtra there are 137 sugar factories.
With each factory nearly five to six thousand cane growers are attached. G
Twenty per cent of them are non-members. If the Committee starts hearing
every individual non-member then it shall prove to be an unending pur-
poseless exercise. One may have right to challenge the price fixation on
ground that the Committee or the authority did not act in accordance with
the guidelines for fixation price in accordance with the order but that right H
t
408 SUPREME COURT REPORTS (1995] 3 S.C.R.

A can be exercised appropriately only after publication of the price. In these
appeals since no one object, the individual members cannot claim that the
price fixed was not fair or just.

Therefore, absence of any machinery in the State Order for hearing
non-members could not destroy effectiveness of pricing. Even otherwise
B
the price fixation in a controlled economy may not be bad so long it is in
accordance with the policy formulated by the Government and the decision
by the Committee of Experts is not found to be arbitrary. It cannot be
assailed only because cane growers of one area are getting better than the
other. The difference in price arising due to application of principle
c uniformly is neither bad nor arbitrary. It may be that since the price is
linked with yield it may cause hardship to one set of growers as they might
be deprived of better price as compared to his neighbour due to deficient
functioning of the factory but in a welfare State and controlled economy
individual hardship cannot override the larger social interest.
D
Reason for government intervention to fix the price has been ex-
plained earlier. It was to increase sugar production. It continues even
today. While doing so the Government ensured stable and assured income
to the growers. That is why the pricing was devised even before 1950. When

E
the first Five Year Plan was drafted in 1951 the control was justified, for
smooth functioning of an unregulated econoL1y. When the second Five
Year Plan was made it was recognised that controls were administratively
""'1
cumbersome but it was found necessary for a developing economy. Neces-
sity of control for sugar and fixing of price for cane is as necessary today
as it was in 1934 or 1951 or 1956. The role of price control is not merely
F to reduce distortions which would otherwise have been prevalent: resulting
in exploitation of cane growers particularly when there was surplus produc- \_,
tion of cane but to promote his financial and social condition. The fruits
of controlled economy for the weaker and poorer cannot be doubted. In
agricultural sector the price control as an instrument of policy has booster
the economy. To denounce it, therefore, may not be in interest of the cane
G growers. Once when there was glut of cane in 1990-91 it was the State
which came to rescue and paid Rs. 10,000 per hectare even to non-mem-
bers. The Full Bench too did not find any flaw in price fixation, nor it held
it to be unremunerative yet it imported the concept of free and competitive
market price for those cane growers who were not members of any society '
H mainly because they were not bound by the bye laws. The submission of
MAHARASH1RA SAKKAR KARKHANA v. STATE [R.M. SAHA!, J.] 409

compulsive cooperative system founded on bye-laws not have much sub- A
stance. No material was placed before the High Court or this Court to
_,, substantiate that the Government resorted to under pricing of cane to
enable the sugar factories to discharge their financial obligation. In absence
of any material it cannot be assumed that the Director of Sugar Factories
who are none else than cane growers themselves would opt for a lesser
B
price for their cane because the sugar factories of which they are members
were under an obligation to pay their debts.

... Coming to the other rationale of the Full Bench that the price of
"~
cane having been fixed under the bye-laws for the cooperative societies it
was binding on the members and not others it may be appropriate to c
reproduce the gist of relevant bye-laws noticed by the Full Bench.

"Bye-laws Nos. 63, 64, 64A, 65A and 65B deal with the fixation of
_, price of sugarcane and deduction of certain amounts from the
' prices paid to the members.
D
" Bye Jaw 63 states that the Board of Directors of the factory will

~ .. \ ~
give advances to the members against the price of the sugarcane
supplied by them, by prior permission of the Director of Sugar and
the Deputy Registrar of the Co-operative Societies and in accord-
ance with their directions and after making deductions for certain
E
purposes.
'
____,__
Bye-Jaw 64 states that the price of the sugarcane supplied by
'
-~
the members, shall be as fixed by the Board of Directors every
year. The Board of Directors will fix the price according to the
constitution, the object and the bye-laws of the society and after F
... taking into consideration the financial transactions and conditions
of year. The bye-law then makes an exception to this general rule
and states that so long as the share capital invested by the Govern-
ment is not refunded completely and/or the loan taken from the
Industrial Finance Corporation or from any Central Financial ·
G
Institution supplying funds for fixed capital assets is not fully
repaid, the price to be paid to the members shall be that as fJJ<ed
by the State Government. For the purposes of our discussion, we
__,.-.
will refer to this period briefly as the debt-period.

Bye-law 64A states that whatever it becomes necessary for the H

:;
410 SUPREME COURT REPORTS [1995] 3 S.C.R.

A factory to purchase sugarcane from non-members outside its juris-
diction, the factory shall take permission of the State Government
for such purchase. However, during the debt-period the price to
be paid to the non-members shall be that as will be fixed by the
State Government before the beginning of the crushing season.

B Bye-laws 65A mentions the deductions to be made from the
price payable to the members for raising non-refundable deposit
from them, the rate of such deductions and the rate of and the
manner of its disbursal and the interest to be paid on such deposit.

c Bye-law 65B gives power to the Board of Directors to collect
deposits by making deductions from the price to be paid to all
sugarcane suppliers and states that such deposits shall be used only
for the expansion of the factory and other capital expenditure. The
bye-law also lays down the rate of interest to be paid on such
deposits."
D
By-law 64 empowers the Board of Directors to fix the price of sugarcane
to be supplied by members of cooperative society to the factory. It further
provides that the price so fixed shall be according to the Constitution the
object and the bye-law of the society and after taking into consideration
E the financial transaction and conditions of the year. In this bye-law there
is a further .exception empowering the State Government to fix the price
so long the share capital invested by the Government is not refunded
completely or the loan taken from the financial institution is not repaid.
The Board of Directors which are referred in the bye-laws are none else
F than the agriculturist or the cane growers themselves. It is difficult to
visualise that they would opt or fix a price of the sugarcane which would ...
be unremunerative. As explained earlier the price fixed by the Cabinet
Committee in exercise of power under the bye-law is the State Advised
Price. It applies uniformly to all cane growers irrespective of whether they
ar..: members or non-members and whether they are in reserved area or
G outside it. To confine it to the members as they having entered into
agreement and being members of the cooperative societies are bound by
it is ignoring the entire price mechanism. Nowhere in the country the State
Advised Price is fixed for one class of growers only. In absence of any ,
material to show that the fixation by the Government was one sided or with
H a view to exploit the cane growers the submission that it did not apply to
\
MAHARASHTRASAKKAR KARKHANA v. STATE [R.M.SAHAI,LJ-411.

non-members cannot be accepted. The order does not make any distinction A
between members and non-members. Nor does it visualise separate
mechanism for price fixation for the two. The price is fixed, may be, by the
Board of Directors or by the State Government under bye-law but the
prices are for the reserved area. The Central Government did not fix any
maximum price obviously because the conditions in the agricultural sector B
differed from State to State. Therefore, it having fixed a minimum price
expects the State to offer remunerative price to its cultivators. In a control-
led economy the price fJXation machinery is to be determined by the State
Government or under the 1966 Order in the manner provided therein.
Since in Maharashtra 95% of the sugar factories are in the cooperative
sector the price is fJXed by the Government as it has substantial financial C
stock. But so long the price fixation does not suffer from any infirmity or
it is held to be prejudicial to cane grower so as to benefit the State or the
financial institution cannot be held to be bad. Therefore, once the price
fJXation has been undertaken and performed by such an authority it cannot
be held to be inapplicable to one particular class of cane growers as the D
fJXation having been done by the State Government under the bye-laws it
was not binding on those cane growers who were not members of any
society. That would be defeating the entire purpose of enforcing controls.

Reverting to the various issues which arise for consideration it may
be stated that zoning or reservation and fixation of price for each zone are E
inter-linked. Therefore, it may be seen whether zoning suffers from any
infirmity. It has already been explained that even under the 1966 Order the
fJXation of minimum price is factory-wise. Thus each factory has been
considered to one zone. Reservation or zoning and fixation of price for
each zone has been upheld by this Court in Shri Malaprabha Coop. Sugar F
Factory Ltd. v. Union of India & Anr., [1994] 1 SCC 648 and Anakapalle
Co-op. Agr/. and Industrial Society Ltd., Etc. Etc. v. Union of India and
others, [1973] 3 SCC 435. That was not challenged as well. Yet it was urged
that such zoning could not be used to enforce a cooperative pricing system
contrary to the statutes and rules. The approach does not appear to be
correct as it assumes that price fixation is undertaken for cooperative G
societies as they are indebted to State Government. Manner of price
fixation has been indicated earlier. The exercise is taken by the Committee
in accordance with guidelines in the 1966 Order. In absence of any cha!-
. lenge to it on ground of it being arbitrary or being in violation of the
principles of pricing the assumption that pricing in zone is like a private H
412 SUPREME COURT REPORTS [1995)3 S.C.R.
A arrangement between the State as a creditor and cooperative society as a
debtor cannot be countenanced. The mere. fact that the bye-laws empower
the State Government to fix the price for cooperative society does not
render it bad. If the price fixed by the Government is good for members
of cooperative society who are as much cane growers as non-members then
there is no reason to hold that such price was bad or it operated un-
B reasonably for non-members. Zoning has been resorted to in the State to
regulate the supply of cane to various factories on equitable basis. It is a
well established feature in the country. Once a zone is reserved for a
factory the cane grower has an obligation to supply cane to the factory and _.II
the factory has a corresponding obligation to lift the cane from the field,
C crush it, produce sugar and pay to the grower not only minimum price but
also share the profit with him.

In the affidavit filed by the Dy. Secretary of the State it ha~ been
exphined that while forming the zones for the sugar factories besides
D capacity and requirement of sugarcane to the sugar factory the physiologi-
cal nature of sugarcane is also taken into consideration. It is stated that
crop of sugarcane is a perishable commodity and it has to be crushed at
the earliest after its harvesting for which the optimum distance of 40 kms.
has been laid down by the Union of India, therefore zones of the factories
are normally between 35 to 40 kms. radius around the factory;The affidavit
E points out that in the process of zoning many Talukas in the State pockets
where there are no sugar factories have been left out because those areas
do not fall within the radius of 35 to 40 kms. However, from such pockets
where the sugarcane is produced such sugarcane is allotted to the neigh-
bouring needy factories in accordance with the Maharashtra Sugar Zoning
p Orde1 and the cultivators supplying sugarcane from such free areas, even _.
though they are non-members they, get the same benefits as are available
4
'11111

to the members of the said factory to whom the sugarcane is allotted. It is
also stated that in any areas where there is no sugarcane production or it
is very meagre like the parts of Thane District, they have been kept free
because such sugarcane involves huge transport costs and it is not possible
G to transport the sugarcane in adequate quantity to any of such factories.
The affidavit further points out that in those areas where there is adequate
sugarcane supply or they have good potential for growing sugarcane but , ·l
there is no sugar factory they have been kept free so that the rights of
sugarcane growers in such areas to organise and establish sugar factories
H can be protected. Till such time the sugarcane grown in such areas is
MAHARASHTRASAKKAR KARKHANA v. STATE [R.M. SARAI, J.] 413 ·

allotted to the neighbouring needy zone and the price paid is the same as A
.).•
is paid to the meUJ:~ers of the cooperative societies of the sugar factories .
In one of the applieations filed by one of the karkhanas, I.A. No. 11 of 1993
in CA. No. 523 it is stated that before the crushing season starts the
karkhana enters into an agreement both with the members and non-
members and gives them all necessary input for growing sugarcane such as
seeds, fertiliser, technical know-how, guarantee, finance for crop loan and B
also undertakes an activity of harvesting and transporting of sugarcane. The
application points out that the claim of the non-members was not justified
~--~ as when there was a glut then it were the karkhanas like the applicant who
had at heavy expenditure ensured that the cane of the non-members was
diverted to other karkhanas and they even bore the cost of transportation. c
But in absence of Zoning Order when there was a glut then the sugar
factories exploited the cane growers by offering them lower price. It has
been pointed out that nearly 80% to 95% sugar factories are in the
cooperative sector but some of them have better cane growing areas
coupled with better and efficient functioning of the factory. They are in a
D
position to offer better price as compared to other factories which are
A economically weak and are in difficulty. What is clear from these affidavits
is that zoning is beneficial to the cane growers and it has been resorted not
'Ollly,:to ensure .that the regular cane supply is available to sugar factories
but also tO protect the cane growers who may otherwise have been seriously
affected. E

Having discussed; the pricing of sugarcane, the near similarity be-
tween members and non-members of a cooperative society qua supply of
cane and payment of price, the non-feasibility of hearing every individual
grower by the Committee before fixation of the price of cane and ap- F
'· plicability of uniform rate of cane in the reserved area both for members
and non-members it may now be examined whether supply of cane by the
cane growers under the Zoning Order issued by the State of Maharashtra
is a compulsory sale within meaning of clause (!) of sub-section (2) of
Section 3 of the Act so as to attract Section 3(3)(c) of the Act. Both these
sub-sections are part of Section 3 of the Act which is the main Section and G
is directed towards achieving the objective of the Acil to provide, in the
>. interest of general public, for the control of the production, supply and
distribution of, and trade and commerce in certain commodities. Sub-sec-
tion (1) of Section 3 spells out the general power of the Government to
control production, supply and distribution of essential commodities if it is H
414 SUPREME COURT REPORTS [1995) 3 S.C.R.

A of opinion that it is necessary or expedient so to do for maintaining or
increasing supplies of any essential commodity or for securing their equi-
table distribution and its availability at fair price. Sub-section (2) illustrates
this power, further, by empowering the Government to provide for, issuing
licences or permits for production or manufacture of any essential com-
B modity or for its storage, transport etc. and for controlling price at which
an essential commodity may be bought or sold. Its clause (f) empowers the
Government to direct any producers to sell the goods produced by it either
to itself or to State Government or to any person or class of persons
specified in the Order. What price is to be paid to the producer for such
sale is provided by Section 3(3) of the Act. Relevant part of it is
C reproduced below :

"S.3. Powers to control production, supply, distribution, etc., of
essential commodities -

(1) ....................
D
(2) """""""""" ,...,
(3) where any person sells any essential commodity in compliance
with an order made with reference to clause (!) of sub-section (2),
there shall be paid to him the price therefor as hereinafter
E provided -

(a) where the price can, consistently with the controlled price, if
any, foced under this section, be agreed upon, the agreed
price;
F (h) where on such agreement can be reached, the price calculated ·~
with reference to the controlled price, if any ;

(c) where neither clause (a) nor clause (b) applies, the price
calculated at the market rate prevailing in the locality at the
G date of sale. '1

A very perusal of it indicates that its field of operation extends to where
any person is required to sell any essential commodity in compliance with
an order made with reference to clause (!) of sub-section (2) of Section 3.

H Two conditions, therefore, must exist - one, it should be a sale of an
MAHARASHTRASAKKAR KARKHANA v. STATE (R.M. SAHAI, J.] 415

essential commodity and second that such sale must be in compliance with A
an order with reference to sub-section (2) (f) of Section 3, the relevant part
of it reads as under :

"S.3. Powers to control production, supply distribution, etc., of
essential commodities -
B
(1) ................... .

(2) Without prejudice to the generality of the powers conferred by
sub-section ( 1), an order made thereunder may provide -

(a) ................... . c
(b) ................... .

(c) ................... .

(d) ................... .
D
(e) ................... .

(f) for requiring any person holding in stock, or engaged in the
production, or in the business of buying or selling, of any essential
commodity - E

(a) to sell the whole or a specified part of the quantity held in
stock or produced or received by him, or

(b) in the case of any such commodity which is likely to be
produced or received by him, to sell the whole or a specified part F
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 and in such circumstances as may be specified in the G
order.

This sub-Section came up for interpretation by this Court in Union of India
& Anr. v. Cynamide India Ltd. & Anr., (1987) 2 SCC 720. It was held :

"an order under Section 3(2)(1) is a specific order directed to a H
416 SUPREME COURT REPORTS (1995] 3 S.C.R.

A particular individual for the purpose of enabliqg the Central
Government to purchase a certain quantity of the e<timmodity from
the person holding it. It is an order for a compulsory sale."

It was reiterated in Shri Malaprabha (supra) and it was observed :

B It is a specific order directed to a particular individual in order to
enable the Central Government to purchase a certain quantity of
commodity from the person holding it. It is an order of compulsory
sale. 11

Can clause (3) of the State Order issued in 1984 either on the
C language or its effect be construed to be an Order of com11ulsory sale? It
expressly does not purport to be an order under Section 3(2[)(!) of the Act.
It is not an order of the nature as was issued by the Central Government
for sale of levy sugar. It does not direct a cane grower to sell its cane to
the Government or to any person specified in the Order. In absence of any
D provision the Order cannot be held to be order directing tlje producers to
sell the cane so as to make it a compulsory sale undet clause (!) of
sub-section (2) of Section 3.

Language of the Order apart even otherwise the purpose and objec-
tive for which the Order was issued does not remotely or even impliedly
E warrant any inference that the supply of cane by the growers was sale. Mere
restriction on supplying cane to anyone else than the specified sugar factory
cannot be construed as an order for sale. It is true that th¢ effect of such
an order as has been issued by the State of Maharashtra i~ that a grower
who is in the reserved area is precluded from supplying his cane to any
other factory than the one specified but that is a restriction to subserve the ,,,
F main objective of ensuring that the sugar factory is not starved and the
production does not suffer. That does not make a Zoning Order one of
compulsory sale. Any order under sub-section (1) resulting in restricting
the supply of essential commodity in a particular area or directing it to be
sold or purchased on a particular price is not an order under Section
G 3(2)(!) of the Act. If compulsion arising out of restrictiolt is held to be
compulsory sale then it would render the entire scheme of Section 3(2)
nugatory. What is contemplated by Section 3(2)(!) is a specific order. It
applies in those cases where any essential commodity is dir~cted to be sold
"' paned with in pursuance of an order of the Government. It has no
application to supply in a reserved area. Further under clause (5) of Zoning
H Order the cane under orders of the Director can be supplied to other
MAHARASHTRASAKKARKARKHANAv. STATE[R.M.SAHAl,J.] 417

factories. The provision completely demolishes the argument of compul- A
sory sale.

What was vehemently urged by Dr. Dhawan, was that the invidious
pricing system resorted to by the sugar factories which are indebted to
State Government resulted in forcibly drawing such cane growers who were B
not members of any cooperative society, therefore, it was contrary to the
statutory equitable pricing system consequent to the compulsory sale under
the Act. It was urged that the fixation of price was irrational and unfalt as
it had no bearing or relation to the yield of the crop or to the predicament
of the farmer. The learned counsel vehemently submitted that any pricing
resorted to either by the cooperative societies or by the State Government C
solely and exclusively in relation to the management of cooperative fac-
tories was an extraneous and irrelevant consideration. The learned counsel
urged that since price fixation was not delegated under the 196.6 Order any
action by the State Government or cooperative societies to resort to price
fixation which was unfair and unjust to the non-members was contrary to
the Act. The submission proceeded on assumption that the fixation of price D
was in respect of a commodity which was directed to be compulsorily sold
under the orders issued by the Government. As explained earlier the
assumption does not appear to be well founded. The entire edifice of the
submission was built on the compulsive nature of transaction involved in
supply of cane and payment of price. But what was lost sight of was that
Section 3(3)(c) could be attracted only if the order issued by the Govern- E
ment could be held1to be one under Section 3(2)(!). The submission ignores
that economics of pricing in a controlled economy is entirely different from
a free market. The equilibrium in the latter is reached by interaction of
I. supply and demand. Its graph keeps on moving up and down governed by
the principle of scarcity. But the controlled economy does not operate on p
demand and supply. The production, distribution and the ~u~ply are regu-
lated and controlled by the Government in public interest. Such orders are
issued in social interest for the common benefit and fair price for the needy
and poor. Legality of such orders cannot be tested on cost structure of free
economy or maximum profit theory. The concept of cost ~tructure and the
profit in a controlled economy is entirely different. In Mis New India Sugar G
Works etc. etc. v. State of Uttar Prade»h & Ors. etc. etc., (1981) 2 SCC 293
this Court although in a different context observed as under :

"The policy of price control has for its dominant object equitable
distribution and availability of the commodity at fair price so as to H
418 SUPREME COURT REPORTS [1995] 3 S.C.R.

A benefit the consumers. It is manifest that individual interests,
however, precious they may be must yield to the larger interest of ' .
the community, namely in the instant case, the large body of the
consumers of sugar. In fact, even if the petitioners have to bear
some loss there can be no question of the restrictions imposed on
the petitioners being unreasonable."
B
The another facet of the same submission by Dr. Dhawan was that
due to operation of the State Order directing a cane grower to supply its
cane to a factory in whose reserved area it falls, the real nature of supply
was a compulsory sale as visualised in Section 3(2)(1). It was attempted to
C be supported by clauses (6)(a), (6)(b), (6)(c) of the 1966 Order and clauses
(3) and (1) of the State Order. It was urged that even though compulsory
supply has to be made by operation of different provisions of the two
orders yet it was in nature of contract of sale under compulsion. Reliance
was placed on Andhra Sugars Ltd. & Anr. Etc. v. State of Andhra Pradesh
D & Ors., [1968] 1 SCR 705 and Vishnu Agencies (Pvt.) Ltd. Etc. v. Commer-
cial Tax Officer & Ors. Etc., [1978] 2 SCR 433. The learned counsel
submitted that since the Order was specific both in letter and intent and it
was clear from the schedules that all growers could supply cane only to an
identifiable sugar factory the necessary inference that arose was that it was
a compulsory sale and, therefore, the respondents were entitled for a
E market price under Section 3(3)(c). Help was also taken from Shri
Malaprabha (supra) and it was urged that where there were general orders
which identified the seller and the buyer and both were aware of the nature
of transaction that the sale had to be made to identifiable designated
person the sale was nothing but a compulsory sale. It was urged that a
p provision with inbuilt specific identification could not be used as a device
to disguise the real nature of transaction. None of the submissions appear
to be well founded. As observed in Shri Ma/aprabha (supra) and
Anakapal/e (supra) the provisions of Section 3(3)(c) could apply only
where there was a specific order of sale. In absence of any such order the
inference that the learned counsel for respondent has attempted to draw
G cannot be said to be justified. What is contemplated under Section 3(3)(c)
is an order of a compulsory sale and not a compulsion arising out of
enforcement of restrictions under the provisions of controlling distribution
and supply. A cane grower in a reserved area gets the price for supply of
this cane to a specified factory. This price is payable both to members and
H non-members. The orders only restrict that the supply could not be made
MAHARASHTRA SAKKAR KARKHANA v. STATE [R.M. SAHA!, J.] 419

to .;,y factory outside the area. The restriction may result in confining the A
choice but it cannot be construed as an order of sale. The situations in
which an order can be considered to be an order for compulsory sale may
be one where the Government by a particular order or a general order as
in the case of levy sugar directs the producer to part with his goods.
Number of commodities have been declared to be essential commodity B
under Section 3 of the Act. Its supply and distribution may be regulated
either by restricting the area or fixing the price. If in respect of any such
commodity the Government passes an order directing a producer to sell
any essential commodity to Government or to any class of persons specified
in the order then it shall be a compulsory sale. None of the decisions on
which reliance was placed has any relevance.' The observation in Andhra C
Sugars, (supra) that where cane ·growers entered into agreement with
factory owners who were bound to purchase the cane by operation of
statutory provisions may amount to compulsion of law and not coerce and
the agreements so entered are enforceable as contracts of sale as defined
in Section 4 of the Indian Sale of Goods Act, did not mean that the D
compulsive element of supplying cane resulted in compulsory sale. The
Court was bringing out the distinction between coerce and compulsion
under law. But every compulsion does not bring about a compulsory sale.
Similarly the other decision in Vishnu Agencies (supra) was concerned with
determining whether supply made under statutory order was sale for
purposes of levy of sales tax. E

The dual pricing system, one, for llll'mbers and other for non-
members or the option to non-members to sell to the factory of their choice
may be negative of the zoning concept and may effect the cooperative
movement in the State. Dr. Singhvi may be right that even before Zoning
Order was issued the cooperative movement was there and the benefits F
that a member of the society derives may not result in affecting the system
largely but any policy which has the tendency of shaking the system rudely
must be avoided.

Consequently the first two directions issued by the Full Bench on G
price fixation cannot be upheld. As regards third direction it has been
explained in the affidavit filed in pursuance to order dated 24th February
1995 which substantially remains uncontroverted that the deductions under
bye-law 65 are made for the Chief Minister's Relief Fund, Small Saving
Scheme, Cane Development Fund. Vasantdada Sugar Research Institute,
Arca Development Fund etc .. The details as t<) how the deductions are H
j-

420 SUPREME COURT REP OR TS [1995] 3 S.C.R.

A made have also been mentioned. It is true that they are made in exercise
of power under bye-law 65 which does not apply to non-members. But
these deductions being for the general welfare of the society it cannot be
said that they are either bad or they suffer from any infirmity. The deposits
deducted unlike members are refundable apd they carry same interest as
is paid to members. A non-member who is sharing in profits of the sugar
B production cannot be heard to say that he had no obligations towards the
society because he is not a member of any cooperative society.

With the conclusion thus arrived the other issues are rendered
academic. Suffice it to say that the Court's responsibility is to construe the
C provision which may advance the cooperative movement in the State. The
amendments in Sections 22 and 23 have facilitated the membership. Not-
withstanding the right of a cane grower to become a member of cooperative
society the provisions cannot be construed so as to result in nullifying the
whole system of control devised to improve production of the sugar the m
country. For sake of more profit to few individuals the society cannot be
D made to suffer. Ours is a mixed economy. Competition and ~ntrol have
been blended to reduce economic imbalance. If the individual growers who
do not constitute more than 20% otherwise get the same profit as a
member of cooperative society then there appears no justification to con-
strue the provision to give them a bit more profit when it is fraught with
E danger of small units closing down and the entire zoning system coming to
a crash.

Even though as discussed earlier the sµpply made by the non-
members could not be considered to be compulsory sale within meaning
F of section 3(2)(f) and, therefore, the provisions of Section 3(3)(c) are not
attracted, yet the methodology adopted by the State for fixing price re-
quires to be rationalised as various discrepancies have surfaced for which
there is no satisfactory explanation. The Full Bench felt that there was
something grievously wrong with pricing system in the State, therefore, it
found a legal basis for striking it down at least for non-members. What is
G baffling is that even though factory after factory, rather, nearly the entire
lot is shown to be suffering loss yet new units are coming up every day in
the cooperative sector. May be because as claimed by the State it is vitally
concerned in production of sugar and is, therefore, investing substantial
funds, nearly 95% in setting up of the units. May be as suggested by the
H respondents that the public funds thus tr~sferred for social welfare is
>
MAHARASHTRA SAKKAR KARKHANA v. STATE [R.M. SAHA!, J.] 421

being syphoned off by vested interests. May be as argued that the loss is A
more paper work than truth as in fact it has resulted in giving rise to what
J. has come to be known as powerful political sugar lobby in the State of
Maharashtra. But these are matters more political than legal, the remedy
for which may not be in courts. Even otherwise it is not possible to identify
the evil, both, for paucity of material and discipline, of restraint, of keeping
away rather than entering in such hazardous zone. All the same from the
B
chart filed along with the affidavit in C.A. No. 523 of 1989 it appears the
factories having better recovery have been permitted to pay lower price as
~-i.-, compared to the' factories the recovery of which is lower. For instance at
item Nos. 14 and 15 the two karkhanas, Ashok and Dayaneshwar, are show
to have recovery of 10.21% and 10.53% respectively. Yet the price paid in c
1985-86 was Rs. 270 per tonne by Ashok whereas it was Rs. 250 by
Dayaneshwar. Similarly serial nos. 21 and 22 the factories, Sanjiwani and
Sangarnaner with same recovery, that is, 11.31% have been made to pay
Rs. 364, Rs. 330 and Rs. 240 for years 1985-86, 1986-87 and 1987-88 and
Rs. 391, Rs. 348 and Rs. 366 respectively. Then again at serial no. 37 and
38 Shrirarn and Ajinkyatara the recovery percentage was 10.84 and 11.75
D
respectively and the price paid was Rs. 311.50 Rs. 300 and Rs. 285 and Rs.
305.50, Rs. 330 and Rs. 415 respectively. It has not been explained how this
difference has arisen. Such wide disparities are bound to create distrust.
In price mechanism chart the expenditure which is deducted from the
receipts includes overheads which are substantial. Over and above the E
interest, loan, bonus etc. is also deducted.

In the written arguments filed on behalf of respondents it is explained
that there is consioerable disparity in the market price of sugarcane in
Maharashtra in recent years and the variation in 1990-91 ranged between
>, F
Rs. 545 to Rs. 274 in 1991-92 between Rs. 511 and Rs. 226.80 whereas in
1992-93 it was between Rs. 731 and Rs. 310. According to respondents this
price vuriation has nothing to do with the product, namely, the recovery
from the sugarcane but is based on extraneous consideration as seen by its
principal creator, namely, the State Government.
G

-•.
...
The respondents may not be justified in advancing this submission as
the entire price structure of cane is founded on two basic factors, one, the
recovery percentage and other the incentive for sharing profit arrived at by
working out receipt minus expenditure. And that is neither. contrary to law
nor unfair. But the wide disparity in the price paid by two factories is H
422 SUPREME COURT REPORTS [1995] 3 S.C.R.

A certainly glaring and is apt to create misgiving. How to remedy it? In a
welfare society the consumer of essential goods is as important as the
manufacturer and producer of it. The entire objective of the Essential
Commodities Act is to promote social welfare. It is being achieved by
controlling price of sugar with equal emphasis on cultivation of cane and
B its price. Any legislation must be viewed with this perspective. In the
Zoning Order clause (5) empowers sugar factory to accept cane from other
zone as well but no similar right has been given to cultivators. For better
appreciation the entire clause is set out :

5. Regulation of Supply of Sugarcane. -
c
{1) A permit officer may allow a sugar factory to purchase cane
or to accept supplies of cane from cane growers from areas other
than the area reserved for it under clause 3 if he is satisfied that
any of the following circumstances exist namely :

D (a) In the event of production of cane in the area reserved for
the factory being not adequate for enabling it to reach op-
timum level of crushing;

{b) In the event of surplus production of cane in the areas
reserved for other factories which those factories are not able
E
to crush during the crushing season.

(c) In the event of stoppage of nearby sugar factory due to
mechanical break down, labour unrest, lock-out or any other
reason.
F
(d) In the event of cane grower or cane growers from the area
reserved for a particular factory declining to supply cane to the
said factory on account of any of the following reasons, if found
justified by the Permit Officer :
G (i) Non-payment of late payment of cane price by the sugar
factory; or

(ii) Non-fulfilment of any .of the obligations by the sugar factory
arising out of agreement between the cane grower or cane
.H growers and the sugar factory; or
• MAHARASHTRASAKKAR KARKHANA v. STATE [R.M. SAHA!, J.] 423

(iii) Discrimination by the sugar factory in harvesting of cane A
and thereby causing loss to the cane grower or the cane
growers;

Provided that before passing any order under this sub-clause,
for any of the above reasons, the Permit Officer shall give the B
parties concerned a reasonable opportunity of being heard m
person or through the authorised representative."

Clause (5) prescribes the situations in which one sugar factory will
be permitted by the prescribed authority to purchase sugarcane from the
zone of another sugar factory. It does not provide for the cane grower C
seeking a permit for sale of his cane to another sugar factory (than the
factory within whose zone he may be situated} even if any or all the
conditions prescribed in the clause are satisfied. Take· a case where a sugar
factory indulges in all the three irregularities mentioned in sub-clause (d}
of Clause (5), viz., it does not pay the price of cane at the proper time, it D
does not adhere to the agreement it has entered into with the grower and
it also discriminates in harvesting the cane thereby causing loss to the cane
growers - even then the cane grower cannot apply for permit to. sell his
cane to whomsoever he likes. All that probably he cane do is to complain.
But he will get some relief only when there is another factory (which, of
course, has its own zone) which is prepared to purchase cane from this E
zone and applies for permit to the permit officer to purchase cane from
this zone. If it does not so apply, the grower within the first zone is helpless.
That is not being fair and just to the growers. It is, therefore, necossary
that the State Government may suitably amend the Zoning Order so as to
provide that in a case where any of the three circumstances mentioned in F
Clause 5( d) are present it would·be open to the cane growers to apply to
the specified officer for permission to supply his cane outside the zone. In
such an event, it may be open to the officer to designate the factory to
which the grower should sell his cane ensuring that the grower gets a price
which is not less than the price obtained in his zone.
G
· The State Government would be further well advised to get the
matter threshed out, before the next crushing season commences, by an
Expert Committee comprising of economists and financial experts well
versed in price fJXation, particularly in agricultural sector. This exercise has
become imperative after the enforcement of Zoning Order. In fact when H
•
424 SUPREME COURT REPORTS [1995) 3 S.C.R.

A Zoning Order was introduced the State at that time should have got these
aspects examined. However, the price equation since 1984 has undergone
tremendous upsurge. The escalation is manifold. Benefit of higher price of
sugar must percolate to growers as well. Therefore, the Committee may
examine,

B (a) If the fixation of State Advised Price unifarmly for the entire
State as it is being done in other States, or at least separately for
different zones, as the normal recovery in the zones varies, would
be more feasible;

(b) If the additional price worked out in the manner indicated in
c Scheduled II of Control Order of 1966 is more advantageous and
beneficial to the growers. If it be so it may opt for the same as
it would avoid tedious exercise by the Ministerial Committee and
h ave the benefit of uniformity;

D (c) The Committee may further examine whether Rs. 600 which has
been paid by the factories to the non-growers under interim order
passed by this Court would not be a reasonable minimum price
for 1995-96 and may furnish the basis for fixation of price for
future ye.ar;
E
(d) It may also suggest ways and means for improving yield by
the sugar factories and reducirg overhead expenses <tlld
eliminating, possible, paper Joss;

(e) It would further be in interest or the Government to ask the
F Committee to examine if the shortcomings pointed out by the
Full Bench in other regard can be rectified and rationalised;
and

(!) The Committee may examine whether hye-law 65 should be
applied to non-members or not.
G
Although the price f1Xation has not been found to suffer from any
infirmity yet due to passage of time, nearly eight or nine years, since this
price fixation was challenged and with rise of price all around it appears
expedient to dispose of these appeals with following directions to ensure
H smooth functioning both for the past and future :
•
MAHARASHTRASAKKARKARKHANAv. STATE[R.M.SAHAI,J.] 425

(i) The directions of the Full Bench in paragraph 25 of the A
Judgment shall stand set aside.

(ii) The State Government may take appropriate steps to amend
Clause (5) of the Zoning Order so as to protect the cane growers.

(iii) The Government may appoint a Committee of Experts to study B
and examine the price structure in the light of what has been stated
earlier.

(iv) Even though the order issued by the State Government deter-·
mining price for each factory is upheld but since in consequence
of the order passed by the High Court an interim order was granted C
by this Court and the factories were directed to pay Rs. 600 to the
cane growers and they were directed to furnish bank guarantee for
Rs. 145 it is directed that the amount paid by the factories shall
not be liable to recovery from ·the cane growers. But the bank
guarantee furnished by the appellants or sugar factories shall stand D
discharged.

- (v) It is made clear ibat the direction not to recover Rs. 600 from
non-groweis would not entitle any member of the cooperative
society or the cooperative society itself to claim. that it was liable
to be paid Rs. 600 for its cane during the years in dispute. E
For the reasons stated in the order these appeals are disposed of
with above directions. Parties shall bear their own costs.

R.P. Appeals disposed.