Case: M/s. Raghubar Dayal Jai Prakash &amp; Others Vs. Union of India &amp; Others

dealing with the constitutional objection which was sought to be supported by contrasting these provisions with analogous Indian legislation wherein the price payable was fixed by the Act itself, to which we shall advert a little later, it might be useful to narrate the circumstances in which the price at which the closing out was to be settled was fixed by the Central Government in the impugned notification. The circumstances are thus described in the counter-affidavit filed on behalf of the State to these petitions : On July 17, 1958, the Government of India issued a notification under S. 17. of the Act banning forward contracts of minor foodgrains and a similar notification followed on the next day banning forward contracts in Khandsari sugar. We closure of these markets increased the speculative activity in the forward market in gur. The price situation in respect of gur became critical in the last week of December 1958 when bull operators acting in concert started to rig up the prices. Contracts were entered into at these excessive prices in the belief that even if Government intervened and took drastic steps of closing out the contracts by a notification under S. 15, the benefits of the high prices on the outstanding contracts would, in accordance with past practice, be available to the bull operators. On a review of the situation existing as aforesaid, the Government found that at Hapur which was a representative market, the rate for gur futures prices rose from Rs. 11.98 per maund on January 17, 1958, to Rs. 16.27 per maund on February 11, 1959, and the Government considered that these forward prices were exerting a very unhealthy influence on the spot-prices of the commodity. It was in these circumstances that in the impugned notification the price at which the forward contract should be closed out was fixed at the average of the closing rates prevailing in the forward markets during the period of three months immediate]y preceding the date of the notification.29. The question now for consideration is whether on the scheme of the Act read in conjunction with the policy underlying it and the purposes for which it is enacted there could found a guidance as to the principles on which the price of settling out could be fixed by the Government? In this connection we might usefully refer to the provisions of the Essential Commodities Act, 1955, under which Government is vested with power to determine the prices at which essential commodities may be bought or sold. Under S. 3(2) of the Essential Commodities Act, 1955, the Central Government is empowered by order made under the Act to provide for controlling the price at which any essential commodity may be bought and sold. The control under that enactment, as the one now under consideration, is to be exercised for ensuring that the price fixed shall be reasonable having regard to the cost of production and the general level of prices prevailing of other like commodities which are the subject of legitimate and proper trade. In the very nature of things it is not possible for the Legislature to determine beforehand the price at which a commodity may be sold or at which contracts in relation thereto might be entered into. The price must be dependent upon factors varying from time to time and cannot, therefore, be always a proper subject of legislative determination. Any fixation of prices either by naming a figure or by reference to the market price ruling on a particular date, must be productive of hardship both by reason of being mechanical an therefore out of tune with the varying factors which might obtain from time to time, as also of being liable to manipulation by unscrupulous traders as in the situation described by the Government in regard to gur futures in the passage just now extracted.30. Nor is it any defect in the Act that it dues not in so many terms lay down the principles for the fixation of the price. In view of what we have stated earlier, the only guidance which the Parliament could have given was to direct that the price fixed be reasonable taking into account the relevant factors we have enumerated earlier, and this we consider is implicit in the provision in S. 16 of the Act as much as in S. 3 of the Essential Commodities Act.31. No doubt, learned Counsel pointed out the provisions contained in the West Bengal Raw Jute Act (Act XXV of 1948), the Jute Goods Act V of 1950 and the Bombay Forward Markets Contracts Act (Act LXIV of 1945) in which in respect of closing out of contracts which were illegalised on the coming into force of the enactment, the price at which the contracts could be settled was fixed as the spot-price of the closing day. In normal circumstances that might have been a fair rule to adopt, but from these precedents no rule of law can be derived that a fixation of a price on any other basis is either improper, unjust or unconstitutional. It is patent that if prices are artificially rigged up and inflated as a result of excessive speculation and unhealthy trade practices, the spot-price prevailing on the closing day would not represent the reasonable price at which contract should be closed out. And this was precisely the case of the respondent State as the reasons which compelled it to depart from the principle of fixation on the basis of the spot-price on the closing day. We see, therefore, no sufficient ground for holding that the power conferred on the Central Government to fix the price at which contracts could be closed out is either legislatively incompetent or constitutionally invalid. What we stated earlier should suffice to show that the actual price at which the contracts were required to be settled out fixed in the impugned notification conformed to the requirement of reasonableness in Art. 19(6) and that underlying the relevant provisions of the statute.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]It was, therefore, necessary that the instrument chosen should be subject to control so as effectively to further the policy of the scheme of regulation and that is the ratio underlying the provisions in S. 6 of the Act and those which follow it in Ch. III. In this connection it is necessary to add that the restrictions which are impugned as unconstitutional are imposed only on "recognised" associations. Parliament could well have chosen to effect the regulation directly through an official agency instead of through the medium of a voluntary association. In such all event, neither the traders nor their associations could complain of any violation of the law. The mere fact therefore that Parliament chose to utilise the machinery of voluntary trades associations for the purpose of enforcing regulatory control could not invalidate the provision of laws which are designed to ensure effective control over the mechanism of forward trading.We have no hesitation in rejecting the argument that the provisions in Ch. III of the impugned Act, and in particular those which we have set out above, infringe, in any manner, the freedom guaranteed by sub-cl. (c) of cl. (i) of Art,is manifest that the provisions of the Act cannot be defeated and the exercise of the regulatory power of Government nullified by traders in a commodity not forming an association which could be recognised under Ch. III. Similarly the power conferred on Government by S. 15(1) of the Act, cannot be made dependent on such voluntary associations satisfying the requirements for recognition, such at if the associations refuse to do so the power does not emerge. No doubt, when there are associations whose bye-laws and regulations conform to the requirements of the law the recognition of such associations either before or simultaneously with the issue of a notification under S. 15 would enable the forward trading to be conducted without a break. But this is not the same thing as the submission that on a proper construction of S. 15 the recognition of an association for the purpose of forward trading in a commodity is an essential pre-requisite before a notification under S. 15 could beis plain enough that enquiries which had to precede the recognition of associations under Ch. III do take some time, and in fact in the present case the recognitions were accorded in June 1959, and if emergent action was required to control a situation which threatened to worsen rapidly, we do not consider that the action of the Government in stepping in even before the recognition of associations could in the circumstances be characterised as unreasonable. After all, it is a question of balancing individual rights and the profits which could be reaped by individuals under an existing state of the law against the public benefit arising from the exercising of control, and if Government considered that the latter would be best served by immediate action under a valid provision of the law, and the circumstances reasonably warranted that opinion, we hold, that in the absence of any proof of mala fide, and there is none here, the action of the Government cannot be held to violate the constitutional limits set by cl. (6) of Art,suitability of a commodity for forward trading depends on factors which are far from static and similarly the need for bringing forward trading within the regulatory provisions of the Act depends on factors which are subject to variation over periods of time. Besides, the nature of the commodity, the size of its production, the scale of the demand for it in relation to the supply and the demand itself being not quantitatively fixed but changing so as to require a continuous assessment through the medium of futures market are all elements that necessitate regulation, and these are variable. We have not attempted to be exhaustive in naming the several factors but these are some of the characteristics which call for and make possible, effective regulation. It would, therefore, follow that the commodities which would satisfy these tests or requirements can only be ascertained from time to time after enquiry and investigation. They cannot obviously be specified in a statute. It is because of these considerations and the need for expert opinion and guidance on the matter that the Act has, by its Ch. II, provided for the constitution of a Forward Markets Commission on whom has been laid the duty of advising Government on the situation as it exists from time to time and make recommendations in that regard. In our opinion, the selection of the commodity for the regulation of forward trading in it or of prohibition of such trading can only be left to the Government and the purposes for which the power is to be used and the machinery created for the investigation furnish sufficient guidance as to preclude any challenge on the ground of a violation of Art. 14. What we have just now said as regards the selection of the commodity would suffice to answer the argument regarding the selection of the time at which the notification under S. 15(1) might take place.It cannot be therefore predicated off-hand and as a matter of law that every restriction which operates with retrospective effect and affects rights obtained under the pre-existing law, is unconstitutional as obnoxious to the freedom guaranteed by sub-cls. (f) or (g) of cl. (1) of Art. 19. It might, in particular cases, even be necessary to completely efface a subsisting contract but in the present case that is not what was done but only to vary its terms so that it would be settled out at, the prices determined by the otherhold that S. 15 is constitutionally valid. It is only necessary to add that it is manifest that the restriction on trading is in the interest of the general public since the public have a vital interest in the availability of an essential commodity like gur at reasonable and relatively stable prices and the only question for determination for the application of cls. (5) or (6) of Art. 19 would the reasonableness of the measures contemplated by the law. Taking into account the machinery created in Ch. II of the Act in the way of an expert body to furnish Government with advice on such a complex problem and the functions of the committee, we are clearly of the view that the restrictions imposed by S. 15 of the Act are reasonable and pass the tests for a valid law under cls. (5) and (6) of Art.this connection we might usefully refer to the provisions ofthe Essential Commodities Act, 1955, under which Government is vested with power to determine the prices at which essential commodities may be bought or sold. Under S. 3(2) ofthe Essential Commodities Act, 1955, the Central Government is empowered by order made under the Act to provide for controlling the price at which any essential commodity may be bought and sold. The control under that enactment, as the one now under consideration, is to be exercised for ensuring that the price fixed shall be reasonable having regard to the cost of production and the general level of prices prevailing of other like commodities which are the subject of legitimate and proper trade. In the very nature of things it is not possible for the Legislature to determine beforehand the price at which a commodity may be sold or at which contracts in relation thereto might be entered into. The price must be dependent upon factors varying from time to time and cannot, therefore, be always a proper subject of legislative determination. Any fixation of prices either by naming a figure or by reference to the market price ruling on a particular date, must be productive of hardship both by reason of being mechanical an therefore out of tune with the varying factors which might obtain from time to time, as also of being liable to manipulation by unscrupulous traders as in the situation described by the Government in regard to gur futures in the passage just now extracted.30. Nor is it any defect in the Act that it dues not in so many terms lay down the principles for the fixation of the price. In view of what we have stated earlier, the only guidance which the Parliament could have given was to direct that the price fixed be reasonable taking into account the relevant factors we have enumerated earlier, and this we consider is implicit in the provision in S. 16 of the Act as much as in S. 3 of the Essential Commoditiesnormal circumstances that might have been a fair rule to adopt, but from these precedents no rule of law can be derived that a fixation of a price on any other basis is either improper, unjust or unconstitutional. It is patent that if prices are artificially rigged up and inflated as a result of excessive speculation and unhealthy trade practices, the spot-price prevailing on the closing day would not represent the reasonable price at which contract should be closed out. And this was precisely the case of the respondent State as the reasons which compelled it to depart from the principle of fixation on the basis of the spot-price on the closing day. We see, therefore, no sufficient ground for holding that the power conferred on the Central Government to fix the price at which contracts could be closed out is either legislatively incompetent or constitutionally invalid. What we stated earlier should suffice to show that the actual price at which the contracts were required to be settled out fixed in the impugned notification conformed to the requirement of reasonableness in Art. 19(6) and that underlying the relevant provisions of the statute.