IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN THURSDAY, THE 1ST SEPTEMBER 2011 / 10TH BHADRA 1933 WP(C).No. 13468 of 2011(G) --------------------------------------- PETITIONER: ------------------- KERALA CO-OPERATIVE MILK MARKETING FEDERATION LTD, MILMA BHAVAN, PATTOM PALACE, THIRUVANANTHAPURAM - 695 004, REPRESENTED BY ITS CHAIRMAN. BY ADV. SRI.K.ANAND. RESPONDENTS: ------------------------ 1. STATE OF KERALA, REPRESENTED BY SECRETARY TO GOVERNMENT, AGRICULTURE (DIARY) DEPARTMENT, THIRUVANANTHAPURAM-695 001. 2. REGISTRAR OF DIARY CO-OPERATIVES, DIRECTORATE OF DAIRY DEVELOPMENT, PATTOM, THIRUVANANTHAPURAM - 695 004. *ADDITIONAL R.3. IMPLEADED: 3. MARTIN PAIVA, AGED 60 YEARS, RESIDING AT PALLIPARAMBIL HOUSE, HOUSE NO.48/358 B, VARAMMEL LANE, KALOOR, ELAMAKKARA.P.O., ERNAKULAM DISTRICT, COCHIN, PIN-682 026. *ADDITIONAL R.3. IS IMPLEADED AS PER ORDER DATED 01/09/2011 IN I.A. NO. 8563/2011. R1 & R2 BY ADVOCATE GENERAL SRI. K.P. DANDAPANI, SR. GOVT. PLEADER SRI. MANILAL. ADDL. R3 BY ADV. SRI. BASIL.A.G, THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 25/07/2011, ALONG WITH W.P.(C).NO.13483/2011 & 16764/2011, THE COURT ON 01/09/2011, DELIVERED THE FOLLOWING: W.P.(C). NO.13468/2011-G: APPENDIX PETITIONERS' EXHIBITS: EXT.P.1: COPY OF THE GOVERNMENT ORDER DTD. 27/04/1979. EXT.P.2: COPY OF THE BYE-LAW OF THE PETITIONER. EXT.P.3: COPY OF THE REPORT SUBMITTED BY THE HEADED DR. N.R. UNNITHAN. EXT.P.4: COPY OF THE EXTRACT OF THE BOARD MEETING HELD ON 26/04/2011. EXT.P.5: COPY OF THE ORDER DTD. 09/05/2011 ISSUED BY THE R.2. EXT.P.6: COPY OF THE GOVERNMENT LETTERS DTD. 09/05/2011. EXT.P.7: COPY OF THE REPORT SUBMITTED BY MOHANTHY COMMITTEE. EXT.P.8: COPY OF THE PAPER REPORT DTD. 17/04/2011 PUBLISHED IN TIMES OF INDIA. EXT.P.9: COPY OF THE NOTICE ISSUED BY VARIOUS CO-OPERATIVE SOCIETIES. EXT.P.10: COPY OF THE STATEMENT SHOWING SELLING PRICE OF MILK OF VARIOUS PRIVATE DAIRIES IN ERNAKULAM DISTRICT. EXT.P.11: COPY OF THE PAYMENT DETAILS OF PAYMENT MADE TO THE FARMERS. EXT.P.12: COPY OF THE PAPER REPORT PUBLISHED IN MALAYALA MANORAMA DAILY. EXT.P.13: COPY OF THE PAPER REPORT PUBLISHED IN MATHRUBHOOMI DAILY. EXT.P.14: COPY OF THE TABLE CONTAINING PRICE OF MILK IN VARIOUS STATES OF INDIA. EXT.P.15: COPY OF THE COVERING LETTER DTD. 12/02/2011. EXT.P.16: COPY OF THE LETTER DTD. 26/05/2011. EXT.P.17: COPY OF THE LETTER DTD. 15/07/2011. EXT.P.18: COPY OF THE GOVERNMENT LETTER DTD. 31/12/2007. RESPONDENTS' EXHIBITS: NIL. //TRUE COPY// P.S. TO JUDGE. Prv. P.N.RAVINDRAN, J. ----------------------------------------- W.P.(C).Nos.13468, 13483 and 16764 of 2011 ----------------------------------------- Dated this the 1st day of September, 2011 JUDGMENT The competence of the State Government and the Registrar of Dairy Co-operatives to interfere with the decision taken by the Kerala Co-operative Milk Marketing Federation Limited, to increase the selling price of milk by Rs.5/- per litre, with effect from 11.5.2011, is the issue raised in these writ petitions. They were therefore heard together and are being disposed of by this common judgment. W.P.(C)No.13468 of 2011 is treated as the main case and unless otherwise mentioned, the documents referred to are those produced therein. 2. The “Kerala Co-operative Milk Marketing Federation Limited”, otherwise known as “Milma”, is the petitioner in W.P(C) No.13468 of 2011. It was registered as a co-operative society under the Kerala Co-operative Societies Act, 1969 (hereinafter referred to as the Act for short) on 21.2.1980. It is the apex society of the three Regional Co-operative Milk Producers' Unions in the State of Kerala, which in turn have as their members, W.P(C).No.13468 of 2011 and connected cases -:2:- Primary Dairy Co-operative Societies. The three Regional Co- operative Milk Producers' Unions in the State of Kerala are (1) The Thiruvananthapuram Regional Co-operative Milk Producers' Union Ltd., (2) The Ernakulam Regional Co-operative Milk Producers' Union Ltd., and (3) The Malabar Regional Co-operative Milk Producers' Union Ltd. About 2800 Primary Dairy Co-operative Societies, which have approximately 8,00,000 dairy farmers as their members are affiliated to the three Regional Co-operative Milk Producers' Unions. Petitioners 1 and 2 in W.P.(C) No.13483 of 2011 are two of such Primary Dairy Co-operative Societies registered under the Act and the other petitioners therein are dairy farmers who are members of the said societies. The petitioner in W.P.(C) No.16764 of 2011 is a dairy farmer and a member of yet another Primary Dairy Co-operative Society. 3. The administration, management and control of the Kerala Co-operative Milk Marketing Federation Limited (hereinafter referred to as the Federation for short) is vested in its Board of Directors constituted as per its bye-laws. The fundamental objects of the Federation are to carry out activities for promoting the production, procurement, processing and marketing of milk W.P(C).No.13468 of 2011 and connected cases -:3:- and milk products for the economic development of the farming community; development and expansion of such other allied activities as may be conducive for the promotion of the dairy industry; improvement and protection of milch animals and the economic betterment of those engaged in milk production. The Federation was formed pursuant to a tripartite agreement entered into between the Government of Kerala, the National Dairy Development Board and the Indian Dairy Corporation on 27.4.1979, in implementation of a programme for dairy development known as Operation Flood II and it was registered on 21.2.1980. The Board of Directors of the Federation consists of the following members:- 1. Chairman of the affiliated Unions enrolled as ordinary members; 2. Registrar of Dairy Co-operatives. 3. The Secretary to Government, Animal Husbandry and Dairy, Government of Kerala. 4. Representative from the Finance Department, Government of Kerala. 5. Two elected Directors to be nominated by each affiliated Union. However there shall be no Director nominated by from the District which is represented by the Chairman of the W.P(C).No.13468 of 2011 and connected cases -:4:- Union where the Union has only a Nominated Board the nominee of the Regional Milk Unions shall be Presidents of the Anand Pattern Societies on the Board of the Unions. 6. One Nominee of National Dairy Development Board. 7. The Managing Director of the Federation. 4. In the year 2009, the Federation noticed that there was a drastic reduction in the procurement of milk by the affiliated Regional Co-operative Milk Producer's Unions in the State due to dairy farmers giving up dairy farming mainly for the reason that it is uneconomic. The Board of Directors of the Federation that met on 16.11.2009 therefore decided to have a detailed study conducted on the cost of production of milk in the State of Kerala and constituted a committee headed by Dr.N.R.Unnithan, former Managing Director of the Kerala Live Stock Development Board for the purpose. The objectives of the study were:- “1. To study the current cost of production of milk across various production systems (large herd vs. small herd) in the state and compare with the cost of production in October 2008. In doing so, the study should consider and take into account all cost factors and the possible regional and seasonal variations. W.P(C).No.13468 of 2011 and connected cases -:5:- 2. The study should assess the current price of feed ingredients used for the manufacture of compounded cattle feed by Milma and other public undertakings in the state and compare with the price situation prior to the last revision of price of cattle feed and milk (Oct.2008). 3. To study the revised (recent revision) price spread (procurement vs. selling price) of milk having 3.5% fat & 8.5% SNF (cow milk) in various states in the country and compare with the pre-revised rate. 4. To suggest the minimum procurement price for cow's milk (3.5% Fat 8.5% SNF) to be paid to farmers. 5. To estimate the variation on cost of production of milk during the lean and flush seasons in Kerala. 6. To estimate the price realization and cost of production of milk against food price/general cost escalation during the period of Oct. 2008 and till the completion of the study. 7. To suggest a system to fix minimum procurement price of milk to be paid to the farmers in future.” The said committee submitted its report to the Managing Director of the Federation along with Ext.P15 letter dated 12.2.2011. A W.P(C).No.13468 of 2011 and connected cases -:6:- copy thereof is produced as Ext.P3 in W.P.(C)No.13468 of 2011. The Board of Directors of the Federation that met on 14.2.2011 approved the said report and forwarded it to the Government along with letter No.14/MMG dated 16.2.2011 with a request to take an appropriate decision on the findings in the report. The Government sent a letter dated 12.4.2011 in reply, stating that the Government have not appointed any committee other the committee headed by Sri.P.K.Mohanti, Additional Chief Secretary, Animal Husbandry and Dairy Development Department, of which Sri.R.Heli was a member and therefore, the study report submitted by the Federation cannot be considered as an official one. The Programming Committee of the Federation that met on 25.4.2011 considered the report submitted by the committee headed by Dr.N.R.Unnithan in detail and recommended increase in the procurement and selling price of milk. The said recommendation, along with the report of the committee headed by Dr.N.R.Unnithan, was placed before the Board of Directors of the Federation that met on 26.4.2011. The Board of Directors, after considering the various aspects at length, resolved to increase the selling price of milk by Rs.5/- per litre with effect W.P(C).No.13468 of 2011 and connected cases -:7:- from 11.5.2011 and to apportion and appropriate the increased price in the manner stated therein. The Director of Dairy Development who is the Registrar of Dairy Co-operatives dissented to it on the ground that the selling price of milk cannot be increased without the approval of the Government. The resolution adopted by the Board of Directors of the Federation on 26.4.2011 with the dissent of the Registrar of Dairy Co-operatives is extracted below:- “ Resl.No.1990 . “Resolved to increase the selling price of milk by Rs.5.00 per litre w.e.f. 11.05.2011 and to divide the increased price as below. Increase to farmers : Rs.4.20 per litre Increase in margin to society : Rs.0.20 per litre Increase in commission to Agents : Rs.0.20 per litre Increase in margin to Union : Rs.0.20 per litre Fund for escalation in Petroleum Products and other cost : Rs.0.20 per litre Total : Rs.5.00 per litre” “Also resolved that the revision in both procurement and selling price will be implemented w.e.f. 11.5.2011 AM onwards.” “Also resolved to seek the concurrence of the Election Commission for implementing the resolution”. 5. The Managing Director of the Federation forwarded a W.P(C).No.13468 of 2011 and connected cases -:8:- copy of the said resolution along with letter No.14/MMG/1872 dated 2.5.2011 to the Government. The said letter reads as follows:- “No.14/MMG/1872 Dated 2nd May, 2011 Principal Secretary, Agriculture (Dairy) Dept., Govt. of Kerala, Trivandrum. Sir, Sub: Decision of the 242nd Meeting of Board of Directors held on 26.04.2011 on revision in the price of milk. Ref: 1.KCMMF Letter No.14/MMG dated 16.02.2011 2.Govt. letter No.5801/D2/2011/AD dtd. 12.04.2011, Agriculture (Dairy) Dept. Kind attention is invited to the letter cited (1) above wherein a copy of the Report on Cost of Production of Milk, which was approved by the Board of Directors of KCMMF Ltd. along with an abstract of the Minutes of the 240th meeting of the Board of Directors held on 14.02.2011 at Trivandrum was forwarded to the Govt. of Kerala requesting the Government to take appropriate decision on the findings of the study report. In response to the letter Govt. vide letter cited (2) above informed that the Govt. did not appoint any other committee than Heli committee and Mohanti committee for the purpose and so the study report cannot be considered as an official one. W.P(C).No.13468 of 2011 and connected cases -:9:- A meeting of the Board of Directors of KCMMF Ltd. was held on 26.04.2011. After detailed deliberations, the Board passed the following resolution. Resl.No.:1990: “Resolved to increase the selling price of milk by Rs.5.00 per litre w.e.f. 11.05.2011 and to divide the increased price as below. Increase to farmers : Rs.4.20 per litre Increase in margin to society : Rs.0.20 per litre Increase in commission to Agents : Rs.0.20 per litre Increase in margin to Union : Rs.0.20 per litre Increase for escalation in petroleum Products and other cost : Rs.0.20 per litre Total : Rs.5.00 per litre” “Also resolved that the revision in both procurement and selling price will be implemented w.e.f. 11.5.2011 AM onwards.” “Also resolved to seek the concurrence of the Election Commission for implementing the resolution”. A copy of the Resl.No.1990 passed by the 242nd meeting of the Board of Directors of KCMMF Ltd. in its meeting held on 26.04.11 is enclosed. In view of the Model Code of Conduct, a communication has been sent to the Election Commission to seek its concurrence. This is submitted to the Govt. for the kind information. Yours faithfully, Sd/- Managing Director” W.P(C).No.13468 of 2011 and connected cases -:10:- 6. Upon receipt of the said letter, the Government sent a letter dated 9.5.2011 to the Managing Director of the Federation with copy to the Director of Dairy Development, stating that the Government regrets its inability to consider the proposal for increasing the selling price of milk and another letter dated 9.5.2011 stating that the proposal to hike the selling price of milk by Rs.5/- per litre as per resolution No.1990 adopted in the 242nd meeting of the Board of Directors of the Federation is declined in exercise of power conferred in the Government under section 101 of the Kerala Co-operative Societies Act. The said letters are produced as Ext.P6 in W.P.(C)No.13468 of 2011. The Director of Dairy Development in turn sent Ext.P5 notice dated 9.5.2011 to the Managing Director of the Federation directing him to cancel the decision taken by the Federation to increase the selling price of milk. Exts.P5 and P6 are under challenge in these writ petitions. It is contended that the Director of Dairy Development or the Government do not have the jurisdiction or authority to interfere with the decision taken by the Federation to increase the selling price of milk, that the decision to increase the selling price of milk by Rs.5/- per litre was arrived at after considering various W.P(C).No.13468 of 2011 and connected cases -:11:- aspects including the report submitted by the committee headed by Dr.N.R.Unnithan, that the Government themselves had conducted a study which led to Ext.P7 report being submitted by the committee headed by Sri.P.K.Mohanti, Additional Chief Secretary, Animal Husbandry and Dairy Development Department, that even going by the said report, the cost of production of milk in June 2010 was Rs.20.06 per litre, that presently dairy farmers are being paid only Rs.18.40 per litre, which is much lower than the cost of production, as the procurement price, that the cost of production has gone up after Ext.P7 report was submitted in June 2010 and that the Government did not take note of the fact that dairy farmers do not even get back the actual cost of production of milk. It is also contended that the Federation is empowered to determine the procurement and selling price of milk, that the approval of the Government or the Registrar of Dairy Co- operatives is not required to fix the procurement price or the selling price of milk, that the High Range Dairy Co-operative Society, Chengulam, a Primary Dairy Co-operative Society registered under the Act, is selling milk at Rs.30/- per litre, that other similar societies are also selling milk at higher prices and W.P(C).No.13468 of 2011 and connected cases -:12:- that the Registrar of Dairy Co-operatives or the Government have not interfered with the decision taken by the said societies to increase the selling price of milk. The petitioners in the connected writ petitions have raised identical contentions. 7. The State of Kerala has filed a counter affidavit resisting the writ petitions. It is contended that the fixation or increase in the selling price of milk is a matter of great public importance and requires a decision of the Government, that the power to fix the selling price of the milk is not covered by Ext.P1 agreement between the State of Kerala, the National Dairy Development Board and the Indian Dairy Corporation and therefore, without the permission of the Government, the selling price of milk cannot be increased. It is also contended that even on the terms of the bye- laws of the Federation, the Board of Directors can only recommend an increase in the selling price of milk, that the price of milk can be increased only with the concurrence/approval of the Government and that the Registrar of Dairy Co-operatives is empowered under the provisions of the Act and the Kerala Co- operative Societies Rules, 1969 (hereinafter referred to as the Rules for short) to interfere with the decision taken by the W.P(C).No.13468 of 2011 and connected cases -:13:- Federation to increase the selling price of milk. 8. I heard Sri.K.Anand, learned counsel appearing for the Federation, Sri.P.Viswanathan and Sri.M.Sasindran, learned counsel appearing for the petitioners in the connected writ petitions, Sri.C.S.Manilal, learned Senior Government Pleader appearing for the State of Kerala and Sri.Basil A.G., learned counsel appearing for the additional third respondent in W.P..(C) No.13468 of 2011. The learned counsel appearing for the petitioners contended that under the provisions of Ext.P1 agreement and the bye-laws of the Federation, the power to fix the procurement price/selling price of milk is vested in the Federation and that the prior approval or concurrence of the Government is not required for increasing the procurement price/selling price of milk. The learned counsel for the petitioners contended that the Federation has the full freedom to act in accordance with sound economic and financial practices to fix the price for its products and the price to be paid for the milk collected from the members of Primary Dairy Co-operative Societies, that the Government had agreed not to take any action to restrict such power of the co-operative institutions, that the bye-laws of W.P(C).No.13468 of 2011 and connected cases -:14:- the Federation empower the Board of Directors to fix the procurement price/selling price of milk and that the provisions of the Act or the Rules cannot, therefore, be invoked to interfere with the decision taken by the Federation to increase the procurement price/selling price of milk. Per contra, Sri.C.S.Manilal, learned Senior Government Pleader appearing for the State of Kerala and Sri.Basil.A.G, learned counsel appearing for the intervenor, contended that in exercise of the power conferred under sections 9, 66(5) and 66-A of the Act and rule 176 of the Rules, the Government and the Registrar of Dairy Co-operatives can control the working of the Federation which is a co-operative society, for the economic and social betterment of its members and the public and therefore the directions issued by the Government and the Registrar of Dairy Co-operatives are perfectly in order. Alternatively, the learned Government Pleader contended that even if such power cannot be traced to the Act and the Rules, as the Government have the legislative competence to enact a law relating to Price Control under Entry 34 of List III of the VII Schedule to the Constitution of India, it can issue executive instructions under Article 162 of the Constitution of W.P(C).No.13468 of 2011 and connected cases -:15:- India regulating the selling price of milk. Lastly the learned Government Pleader contended that the validity of Ext.P1 agreement has expired and in any event, the power to fix the selling price of milk is not covered by the said agreement and that the State, which has furnished a guarantee to the Indian Dairy Corporation for the sum of Rs.18 Crores advanced by it to the Federation pursuant to the agreement dated 12.8.1981, is entitled to step in and interfere with the functioning of the Federation. 9. I have considered the submissions made at the Bar by the learned counsel appearing on either side. The short question that arises for consideration in these writ petitions is whether the Federation requires the prior approval of the Government to increase the procurement price/selling price of milk. As stated earlier, the Federation was formed in implementation of a programme for dairy development, known as Operation Flood II pursuant to Ext.P1 Government order by which the terms of the agreement that was later entered into between the State Government, the National Dairy Development Board and the Indian Dairy Corporation were approved. In that agreement it is inter alia stipulated that the State undertakes “not to take any W.P(C).No.13468 of 2011 and connected cases -:16:- action to restrict the power of the co-operative institutions to act in accordance with sound economic and financial practices, to fix the price for their products, the price paid for milk collected from their members and the charges to be paid by their members for services rendered to them by the co-operative institutions in respect of their selling price policies”. The State Government had thus agreed that it will not take any action to restrict the power of the co-operative institutions to act in accordance with sound economic and financial practices to fix the price for their products and the price paid for milk collected from their members. 10. Paragraph 27 of Ext.P2, the bye-laws of the Federation, empowers the Board of Directors to take all such proceedings and do all such acts and things, as may be necessary or proper, for the due management of the Federation and for carrying out the objects for which the Federation is established and for securing and furthering its interest, subject to the provisions of the Act, or such Act as shall take its place and to any rules which can be passed by the State Government in pursuance of the said Act. The Board is also empowered to decide the pricing structure for W.P(C).No.13468 of 2011 and connected cases -:17:- the dairy and allied products supplied by the members and the rate of commission to be paid to the Primary Dairy Co-operative Societies/Regional Co-operative Milk Producers' Unions on procurement of milk and other commodities. As per bye-law 33, the Programming Committee of the Federation has the authority to recommend the price of raw materials and/or finished products and to recommend the terms and conditions for procurement, chilling, processing, and marketing of dairy and allied products. The Federation had, taking note of the drastic reduction in the procurement of milk by the Regional Co-operative Milk Producers' Unions due to dairy farmers giving up dairy farming, caused a study to be conducted by a committee headed by Dr.N.R.Unnithan. The said committee has in Ext.P3 report stated as follows:- “1. The Kerala Co-operative Milk Marketing Federation (Milma) commissioned a study on “Cost of Production of Milk in Kerala” with specified objectives. The study was carried out by a multidisciplinary team of professionals from the domains of Livestock Production, Economics and Cost Accounting. The primary data on cost of production of milk W.P(C).No.13468 of 2011 and connected cases -:18:- has been gathered from 1536 households in nine districts of the state through a well designed and executed household survey (HHS) in two stages covering the rainy (Flush) and the summer (Lean) periods of milk production in the state. The study team traveled extensively throughout the study area, i.e., districts of Kannur, Palakkad, Wayanad, Ernakulam, Idukki, Kottayam, Alappuzha, Kollam and Trivandrum - meeting farmers, development functionaries, milk co-operative officials and a host of other people from Dairy Development and allied fields and gathered information through personalized interviews, in depth discussions, meetings, direct observations and pre-designed questionnaire. This report is based on the findings and outcome of the study - results of household survey and the information gathered directly by the study team. The costs factored in are feeding, labour, breeding and health care, cost of dry animal maintenance, interest on investment (cost of cows) and the depreciation of cows. 2. The average gross cost of production of milk across the two seasons, rainy (flush) and summer (lean), in the state is Rs.26.75. The corresponding net cost of production is Rs.26.27. Among the W.P(C).No.13468 of 2011 and connected cases -:19:- three Milk Unions, MRCMPU recorded the highest gross (Rs.28.49) and net (Rs.27.75) costs of production per litre of milk, ERCMPU recorded the lowest gross and net costs of production, Rs.25.01 and Rs.24.48 respectively. The TRCMPU falls in