STATE OF MADHYA PRADESHversusJAORA SUGAR MILLS LTD. AND ORS. ETC.

                  STATE OF MADHYA PRADESH                                   A
                                    v.
           JAORA SUGAR MILLS LTD. AND ORS. ETC.

                           OCTOBR 10, 1996

           [K. RAMASWAMY AND G.B. PATTANAIK, JJ.)                           B

     Essential Commodities Act, 1955/Sugarcane Control Order, 1966/M.P.
Sugarcane (Regulation of Supply and Purchase) Act, 1958:

       S.3/Rules 3 and 3A/Ss. 20,21-Sugarcane price-Recovery of-Interest C
on delayed payment-Agreement between cane growers and f act01ies to pay
price of sugarcane in excess of minimum price fixed by Government-Amount
remained unpaid for more than 20 years---Government taking steps to recover
the amount as mTears of land revenue-Action of Government challenged in
writ petition be/ore High Court-High Court holding that the liability could D
not be en/orced by way of arrears of land revenue and no interest would be
charged-Held.~The Act regulates the recovery as arrears of land revenue--
The demands issued against the respondent-sugannills are in accordance with
the provisions of the Act and they are liable to pay the same-The view of
the High Court is clearly illegal-There was no statutory prohibition at the
relevant time to agree to pay higher price than was [1.Xed under the Orde~The
                                                                              E
parties would always be at liberty to agree for payment of higher price than
the minimum price f1.Xed by the Central Government and the contract will.be
novation of the minimum price fl.Xed by the Central Government under Rule
3( I) of the Orde~Therefore, the respondents are liable to pay interest on
delayed payment under the Act read with the Orde1~As regards the sick mills F
taken ·over by the Government, the Government is directed to disburse the
amount.

     Tw1gabhadra Sugar Works Ltd. v. State of Karnataka & Ors., (1994) 73
STC 561, approved.                                              ·           G

      State of Tamil Nadu v. Kothari Sugar & Chemicals Ltd., [1996) 7 SCC
751, referred to.

     171irn Arooran Sugar Ltd. v. Dy. Commercial Tax Officer, (1988) 71
STC 444, (Madras), disapproved.                                             H
                                  411
    412                  SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.
A         CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1811-14
    of 1980.

         From the Judgment and Order dated 4.9.78 of the Madhya Pradesh
    High Court in Misc. P. No. 140 of 1977.

B         U.N. Bachawat, B.S. Banthia and S.K. Agnihotri for the Appellant.

          S.K. Jain, A.P. Dhamija and K.K. Gogna for the Respondents.

          The following Order of the Court was delivered :

c        These appeals by special leave are filed against the judgment and
    order dated September 1, 1978 and September 4, 1978 passed by the
    Madhya Pradesh High Court, Indore Bench in Misc. Petition Nos. 140, 139,
    43 and 44 of 1977.

D        These appeals arise from the Sugarcane Control Order, 1966 (for
  short, the "Order") and the M.P. Sugarcane (Regulation of Supply and
  Purchase) Act, 1959 {for short, the "Act"). It is rather unfortunate that the
  sugarcane growers who spent their sweat and blood in raising the sugar-
  cane in the years 1974-75, 1975-76 had to wait for 20 years to receive the
  price of the sugarcane supplied by them to the respondents' factories .• The
E respondent in C.A. No. 1813/80 is a Hindu Undivided Family represented
  by its Karta and respondents in other appeals are factories. The Central°
  Government had fixed the price of the sugarcane under Rule 3(1) of the
  Rules issued under Section 3(3)(c) of the Essential Commodities Act, 1955
  at Rs. 8.60 per quintal. Various meetings of the sugarcane growers and the
p sugarcane factories and their associations, were convened by the Govern-
  ment of Madhya Pradesh and ultimately the agreement got crystallised at
  the meeting held on March 21, 1976 to fix the final price of the sugarcane
  at Rs. 12 per quintal for the sugarcane supplied at the factory and Rs. 11.50
  per quintal for the sugarcane supplied at other supply centres. Though the
  sugarcane was supplied by the cane.-growers, since theirs amounts could
G not be paid, the appellant-Government resorted to Section 21 of the Act
  to enforce the liability by recovering the same as arrears of land revenue.
  The respondents came to challenge the demands by filing the aforesaid writ
  petitions. The Division Bench of the High Court in the aforesaid judgments
  in three appeals has held that since no separate agreement was entered
H into between the respondents and the sugarcane growers, the liability could
                      STATE v. JAORASUGAR MILLS LTD.                     413

    not be enforced by way of arrears of land revenue. In CA No. 1811/80 A
    involving the question of interest on account ()f delayed payment, it was
    held that since the amount was not paid as per the price fixed under the
    Order, no liability of interest would be charged thereon. Therefore, the
    demand for payment of interest on delayed payment is without authority
    of law. Thus appeals by special leave.
                                                                                B
           Shri U.N. Bachawat learned senior counsel appearing for the State,
    contended that as per the record produced and the averments made in the
    counter-affidavit filed in the High Court in the writ petitions that there was
    a specific oral agreement between the sugarcane growers and the factories
    represented by the Association and many of their representatives who were C
    personally present except Kaluram's joint family firm and all of them have
    agreed to final price of sugarcane. Even with regard to Kaluram's firm,
    since the meeting was adjourned once, to enable him to give his consent
    as he was not present, the Secretary of the Association contacted him over

-   telephone and he agreed to abide by the agreement. In furtherance thereof, D
    on March 21, 1976 the gentleman agreement has been entered into for the
    final price of the sugarcane to be supplied by the sugarcane growers. As a
    consequence, there was an agreement between the owners of the sugar
    factories and the sugarcane growers. Since the sugarcane growers were not
    paid the price, in furtherance thereof, the factories are liable to pay the
    sugarcane price and also the interest on the delayed payment in one E
    appeal. The view taken by the High Court is not valid in law.

          Shri S.K. Jain, learned counsel for the respondents, contended that
    Rules 3 and 5-A of the Order determine the liability to pay the price and
    the additional price. The Central Government having determined the price F
    of the sugarcane under the Order, there is no power with the State
    Government, de hors the Order, to fix any agreed price. The concept of
    agreed price came into force on September 19, 1976 by virtue of Rule 3-A
    of the Order. Until then, there was no power to fix the agreed price. The
    State Government has, therefore, no power under the Act to fix any price G
    since the field was occupied by the Order. Kaluram was not present and
    he had not agreed to the fixation of the increased price of the sugarcane.
    At best, it would be only a compulsion. Unless there is an individual written
    agreement between the factory and each sugarcane grower, there is no
    contract to pay over the same. Such of the amounts, de hors the Order,
    cannot be recovered as arrears of land revenue since such liability visits H
    414                   SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.

A with penal consequences of prosecution under Section 7 of the Essential
    Commodities Act. He also contends that the retrospective effect cannot be
    given to the price of the sugarcane supplied earlier and that, therefore, the
    Order of the High Court is clearly legal. He also contends that unless the
    price is fixed under the Order, no liability to pay interest arises thereon on
B   the delayed payment of the value of the sugarcane, as was originally
    determined by the Central Government under the Order. Under those
    circumstances, the view taken by the High Court is correct in law. In
    support thereof, he places reliance on the judgments of this Court in State
    of Tamil Nadu v. Kothari Sugar & Chemicals Ltd., [1996] 7 SCC 751 and
    Thim Arooran Sugar Ltd. v. Dy. Commercial Tax Officer, (1988) 71 STC
C   444, (Madras).

           The first question that arises for consideration is : whether there is
    an agreement for the final price of sugarcane for the relevant period and
    if so, whether it is in consonance with the Order? Related question is :
D   whether such fixation is retrospective in operation and whether the
    Government can recover such amount under the Act? As regards the
    fixation of the price, the field undoubtedly is occupied by the Order. Rule
    2(g) of the Order defines 'price' to mean the price or the minimum price
    fixed by the Central Government from time to time for sugarcane delivered
    to a sugar factory at the gate of the factory or at a sugarcane purchasing
E   center or to a khandsari unit. Clause 2(i) defines 'producer of sugar' to
    mean a person carrying on the business of manufacturing sugar by vacuum
    pan process and clause 2G) defines 'reserved area' to mean any area where
    sugarcane is grown and reserved for a factory under sub-clause (l)(a) of
    clause 6. Under clause 2(k) 'year' means the year commencing on the first
F   day of July and ending with the thirtieth day of June in the year next
    following.

          Rule 3(3) determines "where a producer of sugar purchases any
    sugarcane from a grower of sugarcane or from a sugarcane growers'
G   co-operative society, the producer shall, unless there in an agreement in
    writing to the contrary between the parties, pay within fourteen days from the
    date of delivery of the sugarcane to the seller or tender to him the price of
    the cane sold at the rate agreed to between the producer and the sugarcane
    grower or sugarcane growers' co-operative society or that fixed under
    sub-clause (1), as the case may be, either at the gate of the factory or at
H   the cane collection centre or transfer or deposit the necessary amount in
                   STATE v. JAORASUGAR MILLS LTD.                        415

the Bank Account of the seller or the co-operative society, as the case may A
be."

       Clause (3A) to Rule 3 was introduced by way of an amendment made
in GSR 62(E), dated 2.2.1978. For payment of the price within 15 days with
interest on the delayed payment at the rate of 15% per annum for the            B
period of such delay beyond 14 days has been introduced. Earlier, it was
covered by the Act. Clause (1) of Rule 3 fixes the minimum price of sugar
payable by the purchaser of the sugarcane as fixed by the Central Govern-
ment in the manner indicated therein. Clause (2) of Rule 3 is relevant for
the purpose of this case which shows that "no person shall sell or agree to
sell sugarcane to a producer of sugar or his agent, and no such producer        C
or agent shall purchase or agree to purchase sugarcane, at a price lower
than that fixed under sub-clause (1)". Section 23(3) of the Act, also couched
in similar language, enables to novate by contract the minimum price fixed
by the Central Government in respect of cess payable to Government.

                                                                                D
       This would clearly indicate that despite the fixation of minimum price
under clause (1) of Rule 3, by agreement between the sugarcane grower
and the purchaser of the sugarcane, they would be at liberty to agree to
sell or purchase the sugarcane at a higher price than that was fixed by the
Central Government under clause (1) of Rule 3. Only for postponement of
payment beyond 14 days, there should be an agreement in writing between E
the parties obviously with the concu"ence of the Central Government or
authorised authority in that behalf. Thus, there is no statutory prohibition
in that behalf to pay higher price. That would be further clear by Rule 3(2)
which speaks of the contract between the parties for payment of higher
price of sugarcane fixed under clause (1) of Rule 3 pursuant to the
agreement or pursuant to the minimum price fixed by the Central Govern-
ment under Rule 3(1) of the Order.

      Rule 3A speaks of rebate that can be deducted from the price paid
for sugarcane. In other words, this concept of agreed price paid was            G
brought on statute with effect from September 24, 1976 by amendment
made through GSR. 815 (E). Prior to the statutory concept of the agreed
price, Rule 3(2) did not preclude the parties; in other words, it enabled
the parties to agree for a higher price than what was fixed for the sugarcane
supplied by sugarcane supplier under Rule 3(1) of the Order. In addition,
Rule 5A also gives power to fix and pay additional price for sugarcane          H
    416                   SUPREME COURT REPORTS [1996] SUPP. 7 S.C.R.

A purchased on or after 1st October, 1974. Thus, it could be seen that prior
    to coming into force of Rule 3A, the .minimum price fix~d by the Central
    Government under Rule 3(1) and additional price fixed under Rule 5A, it
    was within the domain of the contract between the sugarcane growers and
    the factories who could agree to pay price higher than the minimum price
B   fixed under the Order. What sub-rule (2) of Rule 3 prohibits is the
    purchase or sale or agreement in that behalf, for bargain to pay price lesser
    than the minimum price fixed by the Central Government. In other words,
    the sugarcane growers should not be compelled to sell the sugarcane at a
    price lesser than what was prescribed by the Order. Thus, we hold that
    there was no statutory prohibition at the relevant time to agree to pay
C   higher price than was fixed under the order.

         The question then is : whether such a higher price has been agreed
  to be paid to the sugarcane growers, when contract has come into existence
  between the respondents and the cane growers with the aegis of the
D appellant? As a fact, except Kaluram, all representatives of other factories
  were present at the time of the agreement dated March 21, 1976. As far
  as Kaluram is concerned, on the first occasion he was present, but on the
  second occasion when the meeting was adjourned, he was not present. It
  has been averred in the counter-affidavit that the Secretary of the Sugar-
  cane Factories Owners' Association had contacted him when he was in the
E hospital and thereafter, the agreement was entered into. Though, sub-
  sequently, an attempt was made by the Secretary to wriggle out from it, the
  Government have stated that and the sugarcane growers have also agreed
  for the same, we are of the considered view that he was a consenting party
  and there was consensus ad idem to pay higher price of sugarcane than the
F minimum price fixed by the Central Government and they acted upon it.
  There was no prohibition for oral agreement between growers and owners
  through the service of the Cane Commissioner, a statutory authority to
  effect such agreement. It is not in dispute that thereafter the sugarcane
  growers supplied the sugarcane to the respondent factories and that they
  utilized the sugarcane for producing the sugar. Other factories had paid
G the agreement price.

         The contention of Shri S.K. Jain that the agreement was retrospective
  is not correct. It is seen that the "sugarcane crushing year" has been defined
  under the Order itself and during the season the price fixed by the Central
H Government was treated by the State Government to be the tentative price,
                       STATE v. JAORASUGARMILLS LTD.                      . 417

    subject to agreements between the parties and the final price was agreed . A
    as contracted by the parties. Thus, we hold that the payment of price @
    Rs.12 per quintal at the factory and Rs. 11.50 per quintal at the purchasing
    centre was agreed price for supply of sugarcane by the sugarcane growers
    and received by ~he factories at the respective places.

            The question then is : whether it is a compulsive price and whether B
      the State Government had entered into such a contract? It is seen and it
      cannot be disputed that the Cane Commissioner is the statutory authority
      under the Act and the Order to regulate fixation of the zone for the supply
      of sugarcane to the respective factories and for regulation of supply of
    · sugarcane to. the factories covered under the Act. Section 12 of the Act C
      speaks of estimation of the requirements under Sections 15 to 17 of the
      Act of quantity of sugarcane required to be supplied to the occupier of the
    · factory. Section 13 speaks of registration of sugarcane growers and the
      sugarcane growers Co-operative Societies within the area of the occupier
      of the factory. Section 15 deals with declaration of the reserved area for D
      the factory under sub-section (2) of Section 19. Section 16 deals with
      declar~tion of assigned area to the factory. Section 19 deals ~th regtilation
      of purchase and supply of cane in the reserved. area and assigned area
      respectively. The payment o_f the price is regulated under Section 20 which
      reads as under :
                                                                                  E
             "20. Payment of cane price. - {1) The occupier shall make suitable
             provision to the satisfaction of Collector for the payment of the
             price of cane.

             (Z) Upon the delivery of cane the occupier shall be liable to pay
             immediately the price of the cane so ·supplied, together with all    F
             other sums connected therewith and where the supplies have been
1            made through a purchasing agent, the purchasing agent also shall
             be similarly liable in addition to the occupier.

             (3) Where the person liable under sub-section {2) is in default in G
             making the payment of the price for a period exceeding fourteen
           ' days from the date. of delivery he shall also pay interest at a rate
             of 7-1/2 per cent per annum from the said date of delivery up to
             the date of payment but the Cane Commissioner may, .in any case
             direct, with the approval of the State Government that no interest
             shall be paid or be paid at such reduced rate as he may fix.         H
    418                   SUPREME COURT REPORTS (1996) SUPP. 7 S.C.R.

A           (4) The Cane Commissioner shall forward to the Collector a
            certificate under his signature specifying the amount of arrears on
            account of the price of cane plus interest, if any, due from the
            occupier and the Collector on receipt of such · certificate, shall
            proceed to recover from such occupier the amount specified there-
            in as if it were an arrear of land revenue together with further
B           interest up to the date of recovery."

          It would thus be clear that the Cane Commissioner having power to
    compel the cane growers to supply cane to the factory Khandsari unit, he
    has incidental power and duty bound to ensure payment of the price of the
C   sugarcane supplied by the sugarcane grower. The price fixed or agreed is
    a statutory price and bears the stamp of statutory first charge on the sugar
    and assets of the factory over any other contracted liabilities to recover the
    price of the sugarcane supplied to the factory or Khandsari unit.

D         Section 23 deals with levy of cess on the sugarcane and sub-section
    (3) contemplates that "notwithstanding the terms of any contract or agree-
    ment for sale of cane whether entered into before or after the imposition
    of the cess under this Section, the buyer of the cane shall be liable to pay
    the amount of the cess in addition to and as part of the contracted price
    of such cane." The person who commits default in making payment of the
E   cess shall be liable to the recovery thereof with interest enumerated in
    sub-section (4) of Section 23 and recovery has been envisaged thereunder
    read with sub-section (5) of Section 23. But the material fact is that
    sub-section (3) also gives an indication analogous to Rule 3(2) of the Order
    that in addition to the price fixed, the higher price should always .be
F   permissible to be entered by a contract or agreement between the parties.

        Section 26 imposes levy of penalty for non-payment or contravention
  of the provisions of the Act or the Rules. Section 27 provides the procedure
  for institution of the proceedings. Thus, the statutory authority has obliga-
G tion to ensure proper price of sugarcane supplied by the sugarcane
  growers. Thus, the Govemment has to ensure the meeting of the growers
  and occupiers of factories and their Association. Thereat the final price of
  sugarcane was fixed; the parties orally agreed thereto and to proceedings
  culminate into a concluded gentlemen contract. It is in novation of the
  minimum price fixed by the Central Government. The agreement is to
H tainted with compulsion, as contended but in novation of the minimum
                   STATEv. JAORASUGARMILLSLID.                           419

price fixed under the order.                                                    A
      Thus, it would be seen that the Act regulates the recovery as arrears
of land revenue. Accordingly, demand has been made for payment of the
amount in a sum of Rs. 6,34,166 in CA No. 1813/80, Rs. 13,40,700 in CA
No. 1814/80 and Rs. 2,71,000 in CA No. 1812/80. Thus, the demands issued
against the respondents are in accordance with the provisions of the Act · B
and they are liable to pay the same.

       The question then is : whether the respondent is also liable to pay
interest for the delayed payment?· It is seen that under the Order and· the
Act there is power to impose interest not exceeding 15%. In this case, 14%      C
and odd was the interest levied on delayed payment. It is seen that in view
of the agreement, as upheld earlier, in addition to the minimum price,
therefore, the liability has arisen under the Order for payment of the value
of the sugarcane supplied by the growers. On account of the default in
payment thereof, in terms of clause (3) of Rule 3, since it was not paid, by
operation of Section 20 of the Act; they are entitled to recover the same       D
as arrears of land revenue. Therefore, the view of the High Court is clearly
illegal.

       Though Shri S.K. Jain is right in contending that unless there is an
agreement between the parties, the liability cannot be fastened under the       E
Order or the Act; but in view of the finding that there was an agreement
between the parties, as held earlier, the ratio in the judgment in Kothari 's
case (supra) relied on by the counsel is of not much assistance in the facts
of this case. On the other hand, it supports the view we have expressed
above. Therein, this Court upheld that if there is an agreement between
the parties, then by operation of the Order the liability would be fastened     F
on the sugar factory. In those cases; ther.e was a finding that there was no
proof of agreement _entered into between the factory and the cane-growers.
Therefore, sales tax would not be recovered on the price fixed in excess
for minimum cane price fixed by the Central Government under the Order.

       In Thiru Arooran Sugars Ltd.'s case (supra) relied on by Shri Jain,      G
the learned Judges had considered Rule 3(1) of the Order and the finding
that there is no power to fix any price in excess of the minimum price fixed
under the Order, which argument was rejected. It is clearly illegal. Rule
3(2) was not brought to the notice of this Court, when the decision was
upheld, but on the facts it makes no difference since the view in Kothari's     H
     420                  SUPREMECOURTREPORTS (1996]SUPP. 7S.C:.R.
·A case (supra) is not inconsistent with the view we have expressed. On the
  other hand, the view expressed therein also is consistent with the view we
  have taken. In fact, in Tungabhadra Sugar Works Ltd. v. State of Kamataka
  & Ors., (1994) 73' STC 561 approved by this Court, the Division Bench of
  the Karnataka High Court squarely considered this question and had held
B at page 577 in paragraph 20 that "Even though the contract may fix a price,
  nothing prevents the parties from subsequently modifying or increasing the
  price, resulting in novation. The aforesaid terms in the contract can be
  relied on, only if the petitioner had paid a sale price as determined by the
  Central Government under the control order. Where the petitioner has
  paid a higher price than what is payable in terms of Rule 3 and 5A(l), it        -
C will be a case of novation of contract and the increased price will replace
  the original contract term relating to price." We approve of the view and
  accordingly we have no hesitation to hold that the parties would always be
  at liberty to agree for payment of higher price than the minimum price
  fixed by the Central Government and the contract will be novation of the
D minimum price fixed by the Central Government under Rule 3(1) of the
  Order. Therefore, the respondent is liable to pay interest on del:iyed
  payment under the Act read with the order.

        We are informed that these two mills have become sick mills and
  have been taken over by the Government. If the amount has not been paid
E already, the Government is directed to disburse the amount within a period
  of 3 months from the date of the receipt of this order and recover the
  amount from the assets of the respondents etc. If there is any shortf;ill in
  the amount, the assets recovered from the sick mills, if any, may be fast,ened
  as a liability on the sick mills and be adjusted in accordance with the
  take-over proceedings.
 F
            The appeals are accordingly allowed. But for the fact that the mills
     .have been taken over, we would have imposed exemplary costs in this case;
      hence we impose no costs.

     .R.P.                                                    Appeals allQwed.




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