Case: Shree Meenakshi Mills Ltd Vs. Union Of India

2. There was unprecedented and phenomenal rise in cotton prices in the closing months of 1970 and in January, 1971. There was a very low cotton crop in 1970-71 season . There was a perceptible drop in yarn production. Yarn is produced in hanks for handloom and cones, beams and prins for powerlooms and cones for hosiery industry. There was rise in prices. This strengthened the hands of the weavers in their agitation. The Yarn Pool Scheme was devised in February, 1971. This was a voluntary effort on the part of the cotton mill industry to afford some relief to small weavers in the handloom and powerloom sector. The scheme covered cotton yarn in counts of 20s, 30s and 40s both in hanks and hosiery cones and in counts of 20s, 24s, 30s, 34s and 40s in weaving cones. Under this scheme the mills participating in it had to supply yarn at prices equivalent to the average of prices ruling in the last quarter of 1970. As a compensation the participating mills were allotted foreign cotton at a concessional rate of premium and were permitted to sell such cotton in the market. The yarn thus made available was allocated to the various States by the Textile Commissioner. The quantity of yarn covered by the Pool Scheme depended upon the quantum of foreign cotton made available for the purpose.3. In the second quarter of 1972 prices of superfine counts, namely, 60s and above began to rise. The causes were first, shortfall in production caused by prolonged labour strike in Coimbatore and other textile centres in Tamil Nadu; second, an increase in the spindle cost of foreign cotton; third revival of export demand for cotton yarn, and fourth, large scale unauthorised despatch to foreign countries. In order to arrest this trend the industry reached an understanding with the Textile Commissioner in July, 1972. Under this agreement the mills were to supply 50 per cent of the yarn of 60s and above meant for sale in the market at agreed prices. The agreed prices were the average of the highest contract price in January, 1972 and the highest contract price on 1 June, 1972 or near about the date. This price was known as the "regulated price". The arrangement came into force from 1 August, 1972.4. This scheme suffered a setback in the last quarter of 1972. This was because of severe power cuts in Tamil Nadu, Uttar Pradesh, Gujrat, Maharashtra, Punjab, Haryana, Mysore and Andhra Pradesh. The downward trend in production which had begun to manifest in the last quarter had begun to manifest in the last quarter of 1972 gathered further momentum in the first quarter of 1973. As compared with the third quarter of 1972 when the production was the highest the fall in yarn and cotton production in the first quarter of 1973 was 15 per cent and 12 per cent respectively. The decline was 6 per cent in yarn and 7 per cent in cloth production compared with the same period of 1972. There was of course a prolonged labour strike in February, March 1972, in Coimbatore and for a short period elsewhere in Tamil Nadu. There was a marked fall in production in that State. It may be stated here that Tamil Nadu has 23 per cent of Indias total spindleage and 4.4 per cent of loornage. The bumper crop in 1971-72 season had, impact on yarn and cloth production in the second quarter of 1972.5. Early in 1973 the upward trend of yarn prices rose in fine and superfine counts. The Southern India Millowners Association offered to the Government the entire free yarn production of all counts of its member mills at prices to be mutually agreed to between the industry and the Textile Commissioner. The Southern Association wanted the Indian Cotton Mills Federation to take the initiative for arriving at an understanding with the Government at an all-India level. The mills in North India were of the view that prices of coarse and medium counts had not gone up appreciably as compared with the pool prices and were either steady or even lower in some cases than those at the commencement of 1972 and therefore there was no case whatever for subjecting them to control. The Indian Cotton Mills Federation strove hard for an understanding with the Government for some form of voluntary control on production, distribution and prices which would be beneficial for all the interests concerned and ensure price stability, and smooth and orderly movement of yarn to the lakhs of weavers in the decentralised sector.6. The Government decided to bring all yarn under control in all respects, viz, prices, production and distribution. The stocks of yarn with mills which had stood at 94,400 bales (of 180 kgs. each) in September, 1972 dropped by December, 1972 to 79,000 bales and still further to 42,200 bales by the end of February, 1973 the lowest on record for the last ten years. By the end of March, 1973 they had gone up to as much as 1,08,600 bales, and by the end of April to 1,78,000 bales. The Government wanted to rectify the imbalance between production and deliveries of yarn in hanks, cones, pirns, and beams. It was felt that the situation appeared to be man made. In 1972 India exported 21.9 million kgs. of yarn out of the total production of 975 million kgs. The export of handloom goods needed special attention. In this context the suggestions were, first, deliveries of yarn in hanks, and second, requirements of hosiery sector should be met; third, the recent rise in price was unjustified and they should revert to normal levels; fourth the responsibility for distribution should be assumed by the concerned Governments; fifth yarn export should continue; and sixth; the handloom sector should be specially fed with the requisite raw materials.7. The Government felt that the producers of cotton yarn would be prohibited from selling yarn except in small quantities in the form of beams meant for power-looms to the trade or to anyone else except to the nominees of the Textile Commissioner. Second, the manufacturers of yarn shall sell only to nominees of the Textile Commissioner. Third, the manufacturers for civil consumption shall have to pack not less than 60 per cent of such yarn in the form of hanks for handlooms and not less than 30 per cent in the form of cones for power-looms. Fourth, mills producing and supplying hosiery yarns shall have to continue to do so under a statutory order. Fifth, prices shall be notified up to counts 40s and below in one group adopting the market prices of December, 1972 as mentioned in the first impugned notification and in regard yarn prices as mentioned in the second impugned notification.8. The first impugned notification is issued by the Textile Commissioner under clause 22 of the Cotton Textiles (Control) Order 1948 hereinafter referred to as the 1948 Order. The notification determines the ex-factory price of count of yarn of 59s and below and count of yarn of 60s and above. In the case of count of yarn of 59s and below the price is the highest ex-mill price or the highest contracted price for deliveries effect in December, 1972. In the case of producers of yarn situated in the States of Tamil Nadu and Pondicherry where the electricity cut exceeds 70 per cent, the relevant price as applicable may be increased by 6 per cent.9. In the case of counts of yarn of 60s and above the determined price is the regulated yarn price adopted for individual producers of yarn from the first day of August, 1972, increased by 6 per cent where there is no electricity cut not exceeding 20 per cent, increased by 12 per cent where the electricity power cut exceeds 20 per cent but does not exceed 50 per cent and increased by 18 per cent in the case of producers of yarn in the States of Tamil Nadu and Pondicherry where the electricity power cut exceeds 70 per cent.10. The term "regulated price" under the notification shall mean the price calculated by taking the difference between the highest contract price as on 1 June, 1972 or the nearest date in case no sale was effected on 1 June, 1972 and the highest price for the relevant count and form of packing during January, 1972 and allowing one-half of the difference to the reduced from 1 June, 1972 price.11. The first impugned notification was not applicable to yarn sold to hosiery industry and to yarn on beams delivered under specified circumstances. There is no fixation of maximum retail price at the point of sale to the consumer. By a notification dated 31 March, 1973 the Textile Commissioner authorised the Deputy Commissioners of yarn to be sold by dealers. The maximum price is to be fixed after taking into consideration (a) invoice price of yarn, (b) incidental charges, (c) such reasonable margin of profit not exceeding two per cent of the invoice price as the Deputy Commissioner or the District Collector may determine in each case, and (d) any other relevant factor.12. The second impugned notification is made by the Textile Commissioner in exercise of powers conferred under clause 30 (1) (b) of the 1948 order. The notification directed that no producer of yarn for civil consumption shall sell or deliver any such yarn produced by him except to such person or persons and subject to such conditions as the Textile Commissioner might specify. The same notification contained another direction under powers conferred by cl. 30 (1) (a) of the 1948 Order that every producer of yarn for civil consumption shall sell or deliver such yarn only to 5 channels of distribution mentioned therein on the basis of the directions that might be issued from time to time by the Textile Commissioner. These 5 channels are: (a) the nominees of the State Government: (b) the Handloom Export Promotion Council, Madras: (c) the Cotton Textile Export Promotion Council, Bombay; (d) Federation of Hosiery Manufacturers Association of India, Bombay, and (e) any other person as may be nominated by the Textile Commissioner in this behalf.13. The order of distribution through channels was not applicable under notification dated 21 June, 1973 to yarn counts of 17s and below, later under notification dated 18 July, 1973 to counts of 35s and below and finally by notification dated 4 August, 1973 to counts of 40s and below. The control is at the point of sale by a dealer of yarn to consumer by another notification dated 31 March, 1973. This notification provided that every dealer shall sell or deliver yarn only to persons specified there in such quantities as may be determined by the Deputy Commissioner or the District Collector. The persons specified are first, the nominees of the State Government, and, second, any other person as may be nominated by the Textile Commissioner. This control at the dealers level is in operation in respect of yarn of counts of 40s and below.

Court's reasoning:
18. The dictionary meanings of cotton textile are any material that is woven, a material, as a fibre or yarn, used in or suitable for weaving, woven or capable of being woven. The meaning of textile as a noun is a fabric which is or may be woven fabric, made by weaving, a woven fabric, or a material suitable for weaving, textile material. The dictionary meanings show that cotton yarn is concluded in cotton textile.19. The setting in which the words "cotton textile" are used has a legislative and executive understanding of the words consistently over a period of time. There are also decisions of Courts which accepted yarn to be within textile. The Cotton Cloth and Yarn Control Order, 1943, was made in exercise of powers conferred by Rule Cloth and yarn in that Order mean and include respectively cloth and yarn manufactured either wholly or partly from cotton. The Cotton cloth and Yarn Control Order, 1945 repealed the Cotton Cloth and Yarn Control Order, 1943. The meaning of cloth and yarn was the same as in the Control Order of 1943.The legislative practice shows that cotton textiles is a generic term which includes cotton fabric and yarn. One of the methods of construction of statutes is to ascertain the setting and circumstances in which the words are used. The entire product is cotton textile Yarn is the material or component with which cotton textile is manufactured or woven.These legislative measures show that in regard to the scope of these controls in some cases it is possible with reference to the circumstances relating to nature and use of the commodity in question to institute control right from the point of origin to the point of ultimate consumption. In regard to other commodities control has to stop at some intermediate point. The methods of control also vary from commodity to commodity. In regard to the very important matter of the method of pricing, one method is adopted regarding cloth and another method is adopted in regard to steel and a third in regard to other commodities. Empiric process has been resorted to in this organisation of system ofPanipat Sugar Mills case, AIR 1973 SC 537   (supra) it is said that fair price of sugar is to be determined ensuring to the industry a reasonable return on the capital employed in the business of manufacturing sugar but the Government cannot fix any arbitrary price or fix it on extraneous considerations or fix such price that it does not secure a reasonable return on the capital employed in the industry. Panipat Sugar Mills case, AIR 1973 SC 537   (supra) is governed by sub-section (3C) of Section 3 of the 1955 Act, and has, therefore, no relevance to the present case.If fair price is to be fixed leaving a reasonable margin of profit, there is never any question of infringement of fundamental right to carry on business by imposing reasonable restrictions. The question of fair price to the consumer with reference to the dominant object and purpose of the legislation claiming equitable distribution and availability at fair price is completely lost sight of it profit and the producers return are kept in the fore-front. The maintenance or increase of supplies of the commodity or the equitable distribution and availability at fair prices are the fundamental purposes of the Act. If the prices of yarn or cloth are fixed in such a way as to enable the manufacturer or producer to recover his cost of production and secure a reasonable margin of profit, no aspect of infringement of fundamental right can be said to arise.In determining the reasonableness of a restriction imposed by law in the field of industry, trade or commerce, it has to be remembered that the mere fact that some of those who are engaged in these are alleging loss after the imposition of law will not render the law unreasonable. By its very nature, industry or trade or commerce goes through periods of prosperity and adversity on account of economic and some times social and political factors. In a largely free economy when control have to be introduced to ensure foodstuff, cloth and the like at a fair price it is an impracticable proposition to require the Government to go through the exercise like that of a Commission to fix the prices. The Tariff Board and the Tariff Commission did not deal with the question of fixing prices with a view only to holding price line and in the circumstances that justify giving pre-eminent preference to the interest of the consumer or general public over that of the producers of the commodity and the dealers. Even these Commissions cannot always make a correct estimate of a price which is fair to all because there are intricacies of the trade of all profit making enterprises which a Commission may not be able to probe. As an illustration, the Tariff Commission Report points out that many textile mills use cotton mixes with a view to reducing cost and the result of such mixes is difficult tothe present case the legislative measures have left the question of resolving the economic problems of increasing supplies, equitable distribution and availability of essential commodities at fair prices to the judgement of the statutory authorities.The differences between sub-sections (3) and (3A) on the one hand and sub-sections (3B) and (3C) on the other are these Sub-sections (3) and (3A) speak of fixing price by agreement consistent with or with reference to controlled price or failing both market rate prevailing in the locality during these months preceding the date of the notification Sub-section (3B) speaks either of controlled price or where no such price is fixed the price prevailing or likely to prevail during the post harvest period in the area to which the order applies. In sub-section (3C) which relates to sugar price is to be calculated with reference to minimum price of sugarcane, manufacturing cost of sugar, duty or tax, and a reasonable return and different prices may be provided for different areas or factories or different kinds of sugar.e controlled price fixed under Section 3 (1) read with Section 3 (2) (c) is different from price under sub-section (3A), (3B) and (3C).The control of prices may have effect either on maintaining or increasing supply of commodity or securing equitable distribution and availability at fair prices. The controlled price has to retain this equilibrium in the supply and demand of the commodity. The cost of production, a reasonable return to the producer of the commodity are to be taken into account. The producer must have an incentive to produce. The fair price must be fair not only from the point of view of the consumer but also from the point of view of the producer. In fixing the prices, a price line has to be held in order to give preference or predominant consideration to the interest of the consumer or the general public over that of the producers in respect of essential commodities. The aspect of ensuring availability of the essential commodities to the consumer equitably and at fair price is the most important consideration.The producer should not be driven out of his producing business. He may have to bear loss in the same way as he does when he suffers losses on account of economic forces operating in the business. If an essential commodity is in short supply or there is hoarding, cornering or there is unusual demand, there is abnormal increase in price. If price increases, it becomes injurious to the consumer. There is no justification that the producer should be given the benefit of price increase attributable to hoarding or concerning or artificial short supply. In such a case if an escalation in price is contemplated at intervals, the object of controlled price will enable both the consumer and the producer to tide over difficulties. Therefore, any restriction in excess of what would be necessary in the interest of general public or to remedy the evil has to be very carefully considered so that the producer does not perish, and the consumer is not crippled.The mere suggestion that no provision is made for adjustment on account of changes in the cost of production does not amount to infringement of fundamental right to carry on business and to hold and dispose of property. There is no material to show that increase in yarn prices was on account of cost of production The fixing of controlled price is much more than a fair price to the producer on the date it is fixed. The prices of new cotton crop, i.e., for September, 1973 to August, 1974 are not known at the time of the fixation of the price. Even when they are known the petitioners will have to show with reference to the different types of mixed used in producing yarn, the impact of cotton prices on the cost of production of that category of yarn. Further, even if there is increase in the cotton prices, the petitioners can absorb it because the controlled price fixed is more fair to the producer. If he sustains alleged losses for some time, it will be a reasonable restriction because the object of the price control is to hold the price line or revert the prices to normal levels and make available cotton yarn to the handloom and powerloom weavers at a fair price which will enable them to withstand competition from mill made cloth. It is not shown here that the controlled price is, so grossly inadequate that it not only results in huge losses but also is threat to the supply position of yarn. The controlled price is in the interest of the country as a whole for just distribution of basic necessities The distribution price is neither arbitrary nor an unreasonable restriction.The prices for such sale are on consideration of (a) invoiced price of yarn (b) incidental charges including transport and local taxes, (c) such reasonable margin of profit not exceeding two per cent of the invoiced price as the Deputy Commissioner or the District Collector may determine in each case and any other relevant factor. There is thus price control as well as distribution control to meet the problems of availability of goods at reasonable prices.The distribution channels are contended to be monopolies in favour of specified persons. The traders say that they are substituted by the distribution channels as middlemen. The nominees of the State Government under the distribution channel could be any dealer chosen and favoured by the Deputy Commissioner or the District Collector. It is said that freedom of trade is violated. These contentions are unsound for these reasons.The channels of distribution are agencies of the State for distribution purposes. Further the Handloom Export Promotion Council, Madras, the Cotton Textiles Export Promotion Council, Bombay and the Federation of Hosiery Manufacturers Association are associations of users of cotton yarn. They can demand service charges. If middlemen be totally excluded the control scheme does not become unreasonable just because a part of the ban in regard to counts of 40s and below is relaxed.87 per cent of the total yarn marketed is in counts 40s and below. Traders are permitted to carry on trade in them though prices are specified for such counts. The balance 13 per cent of yarn is in counts of 40s and above. The requirement not to sell yarn at a price above the maximum price operates on all distributing channels. Even if an ordinary dealer is chosen by the Government within the fifth category of distribution channel, viz., "any other person as may be nominated by the Textile Commissioner" such person could also be actual consumer of yarn.The notification No. CER/20/73 dated 31 March, 1973 states that the nominees can be any dealer carrying on business of selling yarn. The distribution control is intended to ensure availability of yarn at reasonable or fair price. Profiteering, hoarding, cornering are the evils to be eliminated. It is not that all dealers in yarn have been denied the right to carry on trade. It is only those whose carrying on trade in yarn would not in the opinion of the Textile Commissioner ensure availability of yarn to actual consumers at the fair price. Black marketing as the expression goes is to be weeded out in this manner. The selection of traders is made on the basis of ensuring availability of yarn at a fair price. Elimination of persons who have hoarded or cornered or are unscrupulous in distribution is intended in public interest. This is a reasonable restriction in the interest of the general public and is contemplated in Article 19 (6) of the Constitution.The power to regulate sale through licensed vendors to whom quotas are allotted and who are permitted to sell yarn at fixed prices has been upheld in M/s. Dwarka Prasad Laxmi Narain case, 1954 SCR 803 = (AIR 1954 SC 224  ) (supra). But a note of possible mischief was indicated in instances where no rule or principle to guide them was stated or where no check or control by higher authority was intended.The Textile Commissioner in the present case is guided by the provisions of clause 30 of the Order as well as by Section 3 of the Essential Commodities Act. The rules or principles for guidance are first equitable distribution, and, second availability at fair price. Prices are fixed with limited profit to traders. Furthr, an aggrieved person can appeal to the Centralallotment order on record shows that the allotment of yarn is made subject to the conditions that the allotted yarn would be lifted within 15 days of receipt of intimation from the mill after making necessary payments. If any portion of the yarn is not paid for and lifted within the stipulated time, the State Government may intimate the same to the Cotton Corporation of India and the mills concerned. The Cotton Corporation will effect payment and take charge of the yarn. The Textile Commissioner on receipt of such intimation will issue the reallotment orders and in respect of such re-allotted yarn the allottee State Government will make necessary payments to the Cotton Corporation of India. The conditions of allotment ensure lifting of yarn by the nominees of the State Government within a reasonable time. In the past at the initial stages of the voluntary control scheme the State Government nominees were not adequately financially equipped and that is why there were cases of non-lifting of yarn. It cannot happen now. The Distribution Control Scheme does not impose an unreasonable restriction on the producers right to carry on hisif it can be shown that the executive action taken during the emergency has no authority as a valid law its constitutionality can be challenged. The Cotton Textiles Order 1948 was continued by Essential Commodities Act, 1955.The impugned orders are made under pre-emergency Cotton Textiles Control Order. The validity of the impugned orders is challenged under Article 19 (1) (f) and (g) of the Constitution on the ground that it is a pre-emergency executive order which could have been challenged under Article 19 (1) (f) and (g) before the proclamation of emergency. From the point of view the petitions are competent though the challenge is insupportable on all grounds.