appeal Nos
1450 51 of 1993
From the Judgment and Order dated 16792of the Delhi High Court in Civil Writ Petition No 1780 of 1992 and Civil Misc
No 3485 of 1992
KTS Tulsi Addl
Solicitor General and SN Terdol for the Appellants
Kapil Sibal Vikas Singh LR Singh Yunus Malik and Gopal Singh for the Respondents
The Judgment of the Court was delivered by RM SAHAI J
Was there any valid justification for the appellants the Union of India to withhold the payment of subsidy to the respondents the small scale manufacturers of fertiliser is the main question that arises for consideration in this appeal directed against the judgment and order of the Delhi High Court Two other questions that arise in this connection are if the High Court committed any error in exercise of its extraordinary jurisdiction to interfere at the stage of show cause and if a report prepared by the Project Development India Limited in brief PDIL  behind the back of the respondents could be relied for rejecting the specification of standard fertilizer produced by the respondents
Before adverting to these issues we consider it necessary to mention that the payment of subsidy to manufacturers of fertilisers was introduced in 1982 under a scheme framed by the Government of India in pursuance of which every manufacturer was required to give a written undertaking to the President of India
In 1985 Government of India issued a Fertilizer Control Order under the Essential Commodities Act
Sub clause h of Clause 2 of the order defines fertilizer  to mean any substance used or intended to be used as a fertiliser of the soil andor crop and specified in Part A of Schedule I and includes a mixture of fertiliser mixtures of micro nutrient fertilisers and special mixture of fertilisers 
Sub clause q of the same clause explains prescribed standard of fertilizer  as under Prescribed standard means i in relation to fertiliser included in Column 1 of Part A of 763 Schedule 1 the standard set out in the corresponding entry in Column 2 subject to the limits of permissible variation as specified in Part B of that Schedule and iiin relation to a mixture of fertilisers the standard set out in respect of that mixture under sub clause 1 of Clause 13 by the Central Government subject to the limits of permissible variation as specified in Part B of Schedule 1 iiiin relation to a mixture of NPK fertilisers mixture of micronutrient fertilisers and combination thereof the standard set out in respect of that mixture under sub clause 2 of Clause 13 by the State Government subject to limits of permissible variation as specified in Part B of Schedule 1 And standard specified of single super phosphate SSP sulphur manufactured by the respondents is described in Schedule I of the Order as under Single Super Phosphate Granulated i Moisture per cent by weight maximum ii free phosphoric acid as P 2 0 5 per cent by weight maximum iii Water soluble phosphates as P 205 per cent by weight  maximum iv Particle size Notless than 90 per cent of the material shall pass through 4 nun IS sieve and shall be retained on 1 mm IS sieve
Not more than 5 per cent shall pass through 1 mm IS sieve
 The Control Order further deals in detail with price control distributionrestriction on manufacturers and sale etc of fertiliser
Chapter VII deals with enforcement authorities
Paragraph 27 empowers the State Government and the Central Government to appoint inspectors of fertilisers
Paragraph 28 empowers the inspectors to secure compliance of the Order by requiring the wholesaler or retail dealer to give any information in his possession with respect to manufacture draw samples of any fertiliser enter upon and search any premises etc
How the sample has to be analysed has been provided by Schedule 11 of the Order
The basic raw material for manufacture of fertiliser is rock phosphate
There 764 are various mines spread all over the country from where these rocks are obtained
They are canalised through State mineral corporations
One of such mines is located in Hirapur in the State of Madhya Pradesh
The Government of the State requested the PDIL to undertake laboratory test of these rocks and submit a report for determining disability allowance payable to SSP producers
The conclusion o f the report is extracted below  The world reserve of good quality rock phosphate is gradually depleting making the use of non standard and low grade phosphate in the manufacture of phosphatic fertiliser as essential
In India compared to other countries the availability of usable quality rock phosphate is rather limited though available in abundance
This study was made at the request of Madhya pradesh Government with a view to effectively utilise to the extent possible the lower grade indigenous rock phosphate from HIRAPUR MINES for SSP production
Experiments in PDIL laboratory has shown that this rock phosphate cannot be processed in the conventional route to produce SSP as such and it is imperative to make blends with any standard rock phosphate
The report establishes that the rock phosphate available in our country whether it is in Madhya Pradesh or Jaipur appears to be incapable of producing SSP unless it is blended with imported rock
Proportion of the two depends on the strength of rock obtained from different mines
The PDIL conducted the test for those rocks whose strength varied from 05 and 0 5 and opined that blending of rock with 24 should be in proportion of 20 and 80
The extract from the report runs as under  The chemical analysis has shown 2485 P 2 0 5 and 3003 Silica plus insoluble besides other impurities like high R 2 0 3 compared to 324 P 2 0 5 456 Silica plus insoluble and 075 R2 03 in standard Jordon variety
Many proportions of blends were tried in laboratory to find out the optimum blend which would produce SSP of specification laid down by FCO and finally it was concluded that a blend of 20 Hirapur rock matrix and 80 Senegal will be a suitable proportion
This was confirmed even in pilot plant trials where for a comparison purpose two blends were tested eg 3070 and 2080 for Hirapur Senegal rock phosphates
There 765 was found from analytical results that 2080 proportion was most suited
Accordingly study was concentrated towards this 2080 HirapurSenegal blend
 We now turn to the various issues that arise in this case
Relying on these reports the subsidy Payable to the manufacturers was withheld and they were required by a letter dated 20th April 1990 to explain as to how they were able to achieve the standard specification
The letter reads as under It is generally observed from the quarterly cost date being submitted by your company that you are either using only low grade rock phosphate for manufacture the P2 05 content of which is less than 30 or in large proportion thereof
Please therefore intimate how you are manufacturing SSP of standard specification ie of 16 P2 05 content SSP as required under the specification laid down on the F C 0
 Both the assumptions in the letter were without any foundation
We shall examine it in detail later
It was at this stage that the manufacturers approached the High Court
They claimed that the fertiliser manufactured by them having been checked and verified by the inspectors appointed under the Control Order the opposite parties were not justified either in withholding the subsidy or issuing any notice
In the counter affidavit filed in the High Court the reason for issuing notice was explained as under That in reply to Paras 15 and 16 of the Petition it is submitted that upto 141992 imported Rock Phosphate was being procured by the SSP units including the petitioners through the Minerals  Metals reading Corporation MMTC which was a canalising agency
Rock Phosphate is also available through the State owned indigenous sources such as Rajasthan State Mineral Development Corporation RSMDC Rajasthan State Mines  Minerals Limited RSMML Uttar Pradesh State Minerals Development Corporation UPSMDC Madhya Pradesh State Mining Corporation MPSMC and Hindustan Zinc Limited HZL and SSP is manufactured by using rocks of standard grade
The quality of indigenous rock phosphate from the above mentioned State owned sources varies considerably from low grade rock of 14 to 16 P2 05 content to high degree rock of 3 1  P2 05 content
For producing 766 SSP of 16 WS P2 05 the rock phosphate used should contain a minimum of 3 1 P2 05 and the conversion efficiency of the rock should be more than 9 1 
SSP of 16 WS P2 05 can be produced by using low grade rocks only after suitably blending it with standardhigh grade rock phosphate to have a feed conforming to the above mentioned minimum specifications of 31 P2 05
That in reply to Para 17 of the Petition it is submitted that indigenous rock phosphate is being procured by the SSP Units from Madhya Pradesh State Mining Corporation Uttar Pradesh Sate Minerals Development Corporation Rajasthan State Mining Development Corporation and Rajasthan Mines and Minerals limited
Since detailed technical examination of th e various grades of indigenous rock phosphate available from sources other than RSMML was not available the SSP Units were informed that pending detailed technical examination the prices of such indigenous rock phosphate would be reimbursed at par with RSMML price for rock phosphate having 3 1  P2 05 on a provisional basis only
A copy of the circular letter issued by the Office of the FICC dated 29th September 1986 to all manufacturers of SSP is at Annexure 1
Subsequently Projects and Development India Ltd PDIL Sindri which is a Consultancy and R  D organisation for fertilisers in the public sector which had conducted an evaluation of MPSMC Rock Phosphate of Hirapur and Jhabua Mines submitted its report which indicated that taking into account the P2 05 content and the impurities present in both Jhabua and Hirapur Rock it is unsuitable to make SSP of 16 WS P2 05 content unless it is blended with minimum of 7O which grade imported Senegal rock with 30 low grade Jhabua rock and minimum of 80 high grade Senegal rock with 20 low grade Hirapur rock After considering this a Division Bench of the High Court allowed the writ petition and issued a direction to the appellant to pay the subsidy which was payable to respondents after determining it in accordance with the terms of the scheme under which it was payable within the period specified in the order
The direction was issued as the Bench found that the basis for denying the subsidy was the report submitted by PDIL prepared behind the back of the manufacturers without issuing any notice to them or inviting their participation
After excluding the report the bench held that since the payment of subsidy was dependent on basis of laboratory reports furnished by the manufacturers and these reports had been furnished by 767 them and they had not been questioned at any time by the appropriate authorities it was not open to opposite parties either to withhold the subsidy or to initiate the proceedings by issuing show cause notices
To assail the finding on merits the learned Additional Solicitor General launched a two pronged attack
He urged that subsidy under the scheme of 1982 was payable only if the fertiliser conformed to specification of 16 water soluble phosphoric penta oxide
The learned counsel submitted that under the scheme the Department of Fertilisers was entitled to conduct survey and check the quality and the manufacturers were required to give an undertaking that they were to supply prescribed information along with the monthly claim for subsidy
According to learned counsel claim for subsidy
According to learned counsel under the said scheme a circular was issued on September 29 1986 to all the manufacturers of SSP wherein it was clarified that the indigenous rock phosphate being obtained by the manufacturers from sources other than Udaipur was pending a detailed technical examination
He urged that the circular further stated that the prices were to be worked out on the basis of rock phosphate having plus 3 1 P2 05
Therefore pending completion of detailed technical examination the subsidy worked out was provisional
Anti when the technical examination conducted by the PDIL indicated that on the admitted figures famished by the manufacturers in their quarterly invoices the standard specification could not have been achieved the notice were issued therefore the High Court was in error in quashing it
According to him it was open to the department to get it ascertained from an authentic source if the manufacturers of fertiliser were using proper material and achieving the specified standard
He urged that the PDIL being independent and reputed body it was not required to issued any show cause notice
We do not consider it necessary to express any opinion if the PDIL report could have been discarded for want of show cause notice or for being ex party as there are certain features about the report which obviate the necessity of considering its validity on this ground
From the counter affidavit filed by Managing Director of Ms Brij Fertilizers Pvt Ltd it appears that the manufacturers of SSP have been using rock phosphate which is of hard quality but in order to encourage use of indigenous rock phosphate and to avoid loss of foreign exchange the Government of Madhya Pradesh directed the PDIL laboratory to undertake laboratory test to find out the grade of phosphate from Hirapur mines to enable the manufacturers to claim disability allowance
The report therefore was not concerned with finding out whether any of the manufacturers who were engaged in producing fertilizer were doing so in accordance with standard provided in the Control Order
In the circumstances it may be that it was not necessary to issue any notice to the manufacturers
768 Yet the question is could it furnish material for rejecting the claim of respondents and withholding their subsidy The learned Additional Solicitor General urged that the non release of subsidy was not based solely on report of PDIL but on basis of input cost data supplied by the manufacturers which indicated that on basis of analysis of raw material input provided by the respondents the manufacturers could not have produced SSP of 16 water soluble P2 05
This assumption appears to be unfounded for more than one reason
Under the Control Order there is a detailed procedure provided for carrying out test to find out if the fertiliser produced was of specified standard
It is not disputed that no such test as provided was ever carried by any authority
Rather the report submitted by the inspectors appointed under the Control Order indicates that the fertiliser manufactured by the respondents was standard
We are not willing to accept the submission of the Additional Solicitor General that these reports were incorrect and have been obtained through the connivance of the official machinery
There is no material on record to indicate that the Government at any point of time doubted the correctness of there ports or initiated an proceedings against any inspector or any officer for it is not possible to draw an inference against the authenticity of the reports which have been given by the authority empowered under the order
It is not the claim of department that at any point of time prior to submission of the PDIL report any step was taken or the government ever required the inspectors to find out if the manufacture carried on by respondents was in accordance with law and rules
To discard the certificate issued by the inspector in the circumstances would be arbitrary without any valid reason
With this we may now examine the PDIL report itself
As has been seen earlier the purpose of getting the rock tested was to pay disability allowance
The purpose being entirely different it could not be utilised for a different purpose
How risky it is to embark on such exercise shall be clear when the result of report obtained by the PDIL is applied to the dates of respondents relied by appellant to justify their action of issuing show cause notice
From paragraph two of the conclusions of the PDIL extracted earlier it is clear that the study was made at the request of Madhya Pradesh Government with a view to effectively utilise to the extent possible the lower grade indigenous phosphate from Hirapur mines for SSP production
The report concludes that experiments in PDIL laboratory has shown that this rock phosphate cannot be processed in the conventional route to produce SSP as such it is imperative to make blends with any standard rock phosphate
The objection of the department is not that the rock phosphate should not be blended with imported one but that on the proportion shown along with the strength of indigenous rock used the standard as provided could not have been 769 achieved
From the analysis of rock phosphate purchased by the manufacturers as per their invoices and attempt was made to demonstrate that if the figures mentioned therein were taken as correct and they are compared with the calculation given by the PDIL it would be clear that the standard specification could not have been achieved
It is necessary to mention at this stage that the rock phosphate found in Hirapur mines was of three grades
That is clear from the letter of Assistant General Manager Mines to the Joint Director Fertiliser Coordination Committee
Relevant part of the letter reads We were selling Hirapur Phosphorite for so many Fertiliser SSP manufactures since starting of the mining and were never found any complaint regarding its suitability to manufacture SSP Fertiliser
We have learnt form Fertiliser Manufacturing Units that our Phosphorite is suitable for SSP Fertiliser manufacturing but in case of F0203 contents increases in Phosphorite the Wear and Tear of the plant increases
We had also been directed by Joint Director FA FICC vide their letter dated 31889 to sale our Phosphorite in category A  to SSP Units
This further certifies the suitability of our Phosphorite for SSP manufacturing of requisite grade
The material supplied to these units are of 32 category A  and not 25 as given in PDIL report hence the question of blending with other Rock Phosphate does not require to Manufacture the requisite grade SSP
The MPSMC was selling Hirapur Phosphorite in different percentages P2 05 grades and not in mix condition
Out grades and other specifications indicated as below Before 53 1991 From 63 1991 11st A 1st A P2 05  30 Sio2 P2 05  29 3 1   1518 Sio2  15 1 8 F0203 below 45 Fo203 below 24 A 12 212 Size A 122 12 size B ROM B ROM 2
1st B 1st B P205 28 30 PrO5  27 29 Sio2  18 770 Sio222 Fo203 F 203 above 45 above 45 A 12 size A 12 size B R0 M BROM C By Product Dust 3
II Grade P205  22 25 Sio2 and Fo2O3 No grantee
ROM Further no rock phosphate has been or could be purchased by any manufacturer except through corporation of the State
This fact is admitted in the counter affidavit of the appellant extracted earlier
It is also clear from the letter of Assistant General Manager that Brij Fertilisers did not use any rock except Grade A 
It is claimed by the respondents that on a technical assessment conducted by Bhabha Research Institute for Lalitpur rocks that the water soluble in rock phosphate with P2 05 with 29 to 32 is more than 16
Even if this report is ignored the letter of Assistant Mines Inspector establishes that water soluble phosphate in Hirapur mines of grade A  was 16
Each respondent has filed details of rock phosphate consumed by its unit from various corporations
The average grade mentioned is 3 1 
Not one has used grade II
Even Avadh Fertiliser has not used rock phosphate below 27
From the chart appended in respect of Hirapur mines the blending in proportion of 50 indigenous and 50 indicates that even with rock of 3066 the water soluble actually was 1757
These figures could not be disputed in the reply filed on behalf of Union of India
From the PDIL report it is clear that it had undertaken test of rock with 2485 P2 05 and 3003 Silica and suggested that most suited blend with such rock was 20 indigenous and 80 imported
It could not furnish any guideline or material to reject the rock phosphate used by the respondents which varies between 27 P2 05 to 3 1  P2 05
In absence of any reliable data or any material the inference drawn by the appellants in the notice was baseless
The counter affidavit filed in the High Court by the appellant did not explain the basis for concluding that for producing SSP of 16 or P2 05 the rock phosphate should contain a minimum of 3 1  P2 05
It is contrary to the letter of Assistant General Manager Mines
In any case PDIL could not furnish any basis for it
In absence of any valid justification the entire exercise undertaken by the appellant was vitiated being tainted with arbitrariness
Failing in his effort to assail the order on merits the learned Additional Solicitor General vehemently urged that the department was not precluded form issuing show cause notice and requiring the manufacturers to appear and explain their claim
It was urged that the High Court was not justified in quashing the show 771 cause notice and issuing the directions for paying the subsidy without giving an opportunity to the department to verify if the respondents had in fact complied with Control Order
True the High Court should normally not interfere at the stage of show cause notice
But where from the facts it is apparent that there was no material available with the department to doubt the statement on behalf of the respondents and their own officers at every point of time had issued the certificate the correctness of  which could not be disputed or doubted except by raising unfounded suspicion or drawing on imagination it would be failing to exercise jurisdiction if the Court does not discharge its constitutional obligation of protecting the manufacturers who as is apparent from the counter affidavit filed in this Court and the various letters issued from different authorities are in perilous condition as they are not able to meet their liabilities to pay to financial institutions and various other authorities and are facing proceedings on various accounts and have virtually closed their unit
We are pained to say that the authorities did not realise either the purpose of granting subsidy or the harassment to which the manufacturers have been exposed
Entire litigation appears to he a sad plight for those who have set up small scale units in the hope that they will stand on their own on the subsidy given by the government as admittedly the price of manufacturing fertilizers is much more than the price fixed by the government for which it assured to pay subsidy
show cause notice issued by the appellants and issuing the directions to pay the subsidy
The appeals fail and are dismissed with costs which is assessed at Rs 10000 one set
U R Appeal dismissed


Summary:
The dispute was about whether the exercise of option by Assistant Station Masters directly recruited was a matter of choice or was compulsory
The order of this court of 30 April 1990 inter alia protected the interests of the applicants by holding that the 204206 employees who had opted before 1983 must be entitled to the benefit which would have been available to them on their options
The order was not implemented
It was argued for the condemner that the order of this court would disturb seniority and may result in extending it to many others
Disposing of the contempt petition this court HELD  1
The order dt
30490 left no ambiguity that these employees shall be treated separately and would he granted the benefit that would have been available to them
758 D 2
The Court in contempt applications is concerned with the implementation of an order passed by it and not whether such order is correct or not
3Neither the submission regarding seniority nor that it may extend to others was raised earlier and if raised they should be deemed to have been rejected
Even earlier it had been made dear that no one promoted shall be disturbed
758 F 757 4Within 2 months alternative 11 to be applied to 204206 employees for their placement and promotion
Future promotions may be governed by the present alternative
Promotions and all benefits shall be given retrospectively
758 H Cost to the applicants of Rs 5000