Case: Duncan Industries Ltd.  Vs. Union Of India

M/s. Duncan Industries Ltd. (hereinafter "the First Appellant") is engaged in the business of manufacturing and selling urea (a fertilizer). In 1993, the First Appellant acquired the urea plant of M/s. Indian Explosives Ltd. (a unit of ICI India Ltd.). The Second Appellant is a shareholder in the First Appellant-Company (hereinafter, collectively "the appellants")4. In 1957 the Government notified fertilizers (including urea) as an "essential commodity", under the Essential Commodities Act, 1955 (hereinafter the EC Act"). The Fertilizer (Control) Order, 1957 (hereinafter "the Fertilizer (Control) Order") was made in exercise of the powers conferred by Section 3 of the EC Act. The Fertilizer (Control) Order has been revised from time to time. Through the Fertilizer (Control) Order, the Government was able to fix the maximum retail price of fertilizers, which was to be complied with by dealers, manufacturers etc. However, since this controlled-price mechanism resulted in losses for manufacturers, it was suggests that the Government provide subsidies to make good the losses. Accordingly, the Government constituted a Committee under the Chairmanship of Mr. S.S. Marathe (hereinafter "the Marathe Committee") to introduce a rational system for the pricing of fertilizers in the country. The Marathe Committee was to suggest a mechanism that would ensure a reasonable return on investment to manufacturers of fertilizer, facilitate the healthy development and growth of the fertiliser industry, and also ensure that the prices of fertilizer were kept within reasonable limits. To this effect, the Marathe Committee made a detailed report suggesting an intricate system of fertilizer subsidies known as the "Retention Price Scheme" (hereinafter also mentioned as "the Scheme". This report was considered in detail by the Government, which decided to introduce the Retention Price Scheme for units in the nitrogenous fertilizer industry (with effect from 1.11.1977)5. A brief outline of the Retention Price Scheme is necessary. The Retention Price Scheme was devised with a view to determine the appropriate subsidy for fertilizer manufacturers. The subsidy is calculated as the difference between the "Retention Price" and the maximum retail price fixed for fertilizers (under the Fertilizer (Control) Order). A detailed formula prescribed under the Scheme determines the Retention Price for fertilizers6. The Retention Price was to be worked out by calculating the cost of manufacture of urea per ton. The cost of manufacturing urea comprises three types of costs: (1) Capital-related costs (ii) Conversion costs (for Fixed costs) and (iii) Variable costs for Inputs costs). Capital-related costs incurred by a manufacturer were to total amount of capital invested, including loan and equity. Conversion costs included salaries, overheads, chemicals and consumables, repair and selling expenses, catalysts etc. Variable costs included the costs of the feedstock (the feedstock may vary from unit to unit), utilities costs, packaging etc. Also, this formula of Retention Price provided a post-tax return of 12% on the net worth. The working of the Scheme provided for a fair ex-factory Retention Price per ton of urea based upon a capacity utilization of 80% to arrive at the Variable Cost. In this manner, the Marathe Committee had worked out the Retention Price for each of the twenty-one urea-manufacturing units. In summary, the combination of Conversion costs, Variable costs and Capital-related charges (including the 12% post-tax return) was styled as the Retention Price7. The Retention Price Scheme envisaged a Fertilizer Price Fund Account for the payment of subsidies. In respect of those units where the Retention Prices were lower than the maximum retail price, the units were required to credit the difference to the Fertilizer Price Fund Account. Conversely, units whose Retention Prices were higher than the maximum retail price would receive the difference from the Fertilizer Price Fund Account, as a subsidy8. The Scheme was to be administered by an inter-ministerial committee, which also had representatives of the fertilizer industry. This committee was called the Fertilizer Inter-Coordination Committee (hereinafter "the FIC Committee"). The FIC Committee was to have an Executive Director and adequate staff to maintain accounts, make and recover payments, undertake costing, and collect and analyze production data, cost and other inputs, in order to work out the Retention Price periodically and make appropriate adjustments

Reasoning:
Dr. Dhavan next contended that the retrospective application of the new policy parameters by the FIC Committee is `arbitrary, `unreasonable and against the Doctrine of Legitimate Expectation. Learned counsel contends that since the Government controls the retail price of fertilizer, it would be `unfair, `unreasonable and violative of Article 14 for them to revise the scheme of subsidies, so that there would be losses caused to fertilizer manufacturers. In our view, this contention has no merit for both the facts and the applicable legal principles indicate that there is nothing arbitrary or unreasonable in what the FIC Committee has doneAt the outset, the material placed on record clearly demonstrates that the representatives of the First Appellant were party to the deliberations before the FIC Committee, who explained the material particulars regarding the manner of working out the Retention Price for the Seventh and Eighth pricing periods. The minutes of the said discussions, read with the correspondence between the parties pertaining to the Retention Price fixation for the Seventh and Eighth pricing periods, leave no doubt that the First Appellant was party to what was being done. Further, at no point, during the discussions or in the subsequent correspondence, did the First Appellant question the validity or correctness of the manner of fixation of the Retention Price (except on some minor issue like bank interest charges). Dr. Dhavan cited a number of authorities to support his argument. However, these cases pertain to situations where tax exemptions, which were already granted and pursuant to which transactions had been held, were retrospectively withdrawn. Other authorities also pertained to setting up of industries in backward areas on promises of rebate/concessions. In our view, none of these authorities is of any assistance for resolving the issue before us, which is purely a consensual working arrangement between the Government and fertilizer manufacturers. The argument of `legitimate expectation, in our view, cannot have application to the present case. As we have said, the Scheme was a voluntary one, and having agreed to abide by the decision of the Government, there is no question of the appellants `legitimate expectations being belied. Turning to the Article 14 argument, we emphatically reiterate the now-accepted position that Article 14 does not require this Court to examine the intricacies of an economic scheme or pricing policy for its merits or its correctness, for that is in the domain of the executive or the legislative branches of the Government. [See, e.g. BALCO Employees Union (Regd.) vs. Union of India, (2002) 2 SCC 333  at pp. 362-363 (paragraphs 46, 47), 381-382 (paragraphs 92, 93); Bhavesh D. Parish vs. Union of India, (2000) 5 SCC 471  at pp. 484-485 paragraph 23); Peerless General Finance and Investment Co. Ltd. vs. Reserve Bank of India, (1992) 2 SCC 343  at p. 397 (paragraphs 69 and 70); State of M.P. vs. Nandlal Jaiswal, (1986) 4 SCC 566  at pp.605-606 (paragraph 34); Premji Bhai Parmar vs. Delhi Development Authority, (1980) 2 SCC 129  at pp. 137-139 (paragraph 9)]. Indeed, even if the Scheme, as revised, is "unwise" or even "unjust", there is no recourse before us for, as Justice Homles elegantly put it:"We fully understand... the very powerful argument that can be made against the wisdom of the legislation, but on that point we have nothing to say, as it is not our concern."Noble State Bank vs. IIaskell, 219 US 575 at p. 580 (1910)We are broadly in concurrence with the reasoning of the High Court that in matters of administrative discretion it is not open to the courts to interfere in minute details except on grounds of mala fides or extreme arbitrariness. Interference should be only within very narrow limits, such as, where there is a clear violation of a statute or a constitutional provision, or extreme arbitrariness in the Wednesbury Associated Provincial Picture Houses Ltd. vs. Wednesbury Corporation, [1948] 1 KB 223. sense. Neither the High Court nor we have found any of these vitiating factors in the administration of the Retention Price Scheme and the consequent payments/recoveries of the subsidy amounts. Thus, in our view, the action of the FIC Committee to adversely modify the subsidies framework, cannot be questioned on its merits