Case: Akadasi Padhan Vs. State Of Orissa

The petitioner Akadasi Pradhan owns about 130 acres of land in village Bettagada, Sub-division Rairakhel in the District of Sambalpur, and in about 80 acres of the said land lie grows Kendu leaves. Kendu leaves are used in the manufacture of Bidis; and so, prior to 1961, the petitioner used to carry on extensive trade in the sale of Kendu leaves by transporting them to various places in and outside the District of Sambalpur. But since the Act was passed in 1961 and it came into force on the 3rd of January, 1962, the State has acquired a monopoly in the trade of Kendu leaves and that has put severe restrictions on the fundamental rights of the petitioner under Articles 19 (1) (f) and (g). That, in substance is the basis of the present petition2. The petition alleges that, in substance, the Act creates a monopoly in favour of certain individuals described as Agents by the relevant provisions of the Act., and in that sense, it is a colourable piece of legislation. Under the relevant provisions of the Act., three notifications have been issued, and the validity of these notifications is also challenged by the petition. The first notification published on the 8th of January, 1962 under section 5 of the Act, gives a schedule of the Districts, the number of units in which the districts are divided and the local area covered by the said units. The District of Sambalpur in which the petitioner resides has been divided into five units and the petitioners lands fall under units 2 and 5. On January 10, 1962, applications were called from persons who desired to be appointed as Agents of the Government of Orissa for purchase of and trade in Kendu leaves, and the notification by which these applications were called for made it clear that the Government reserved to itself the right to, reject any or all applications in respect of any unit without assigning any reason whatsoever. Then followed the notification of the 25th January, 1962, which prescribed the price for the Kendu leaves @ 50 leaves per naya paisa.This notification stated that the said price had been fixed by the State Government in consultation with the Advisory Committee appointed under S.4 of the Act. The last notification to which reference must be made is the notification which was issued on March 10, 1962, making certain corrections in the units of the local areas notified by the notification of the January 8, 196223. That takes us to the terms and conditions of the agreement which has been produced before us. These terms indicate a complete confusion in the mind of the person who drafted them. Some of them are terms which would be relevant in the case of agency, while others would be relevant and material if a contract of Government forest was made in favour of the party signing those conditions; and some others would indicate that the person appointed as an agent is not an agent at all but is a person in whom personal interest is created in carrying on the so called agency work. Clause 4 of the agreement provides for the payment which the agent has to make in respect of the Kendu leaves from private lands as well as from Government lands. It is not easy to appreciate the precise scope of the provisions of the respective sub-clauses of cl. 4 and their validity. But, on the whole, it does appear that after the agent makes the payment prescribed by the relevant clauses to the Government, -he is likely to keep some profit to himself; and that would clearly show that the relationship is not of the type which is permissible under Art. 19 (6) (ii), Under clause 4 (iii), the agent has to pay a sum of Rs. 5/- per bag to the Government as consideration for being permitted by Government to enter into and collect leaves from Government lands and forests. It is remarkable that in the absence of any specific rule, the amount to be paid per bag can be determined differently from place to place and that is a serious anomaly. it is also not clear how this amount of Rs. 5/- per bag has been determined, and in the absence of any explanation it would be difficult to accept the plea of the learned Attorney-General that this amount has been fixed after making calculations about the profits which the agent was likely to secure and the price which the total produce of the forest was, likely to; acquire on an average basis. Under clause 4 (V), it is conceded that the agent would be entitled to make some, profits in some cases. Clause 4 (vi) entitles the agent to claim deductions for the expenses and commission that he may be entitled to in respect of the number of bags of processed leaves; and it requires him to pay to Government the profits accruing from the trading in the leaves collected in four equal instalments in the manner specified. Under clause 4 (ix) the agent has to finance all transactions. involved in purchase, collections, storage, processing, transport and disposal of the Kendu leaves purchased or collected- in the Unit. Then there are certain sub, clauses under this clause which would be appropriate if it was a matter of a contract between the Government and a forest contractor. Clause 4 (ix). (i) requires the agent to keep a register of daily accounts. Under cl. 4(ix) (p) during the subsistence of the agreement, the agent is responsible for the disposal of the Kendu leaves collected or purchased by him and the Government shall not bear any liability whatsoever, except as indicated in sub-clause (vii) of cl. 4 (ix). Clause 6 provides that subject to other terms and conditions, all charges and out goings shall be paid by the agent and he shall not be entitled to any compensation whatsoever for any loss that may be sustained by reasons of fire., tempest, disease, pest, flood, draught or other natural calamity, or by any , Wrongful act committed by any third party or for any loss sustained by him through any operation undertaken in the interest of fire conservancy. This clause clearly shows that the agent becomes personally liable to bear the loss which, under the normal rules of agency, the principal would have to bear.

Court's reasoning:
The amendment made by the Legislature in Art. 19 (6) shows that according to the Legislature, a law relating to the creation of State monopoly should be presumed to be in the interests of the general public. Art. 19 (6) (ii) clearly shows that there is no limit placed on the power of the State in respect of the creation of State monopoly. The width of the power conferred on the State can be easily assessed if we look at the words used in the clauses which cover trade, business, industry or service. It is true that the State may, according to the exigencies of the case and consistently with the requirements of any trade, business, industry or service, exclude the Citizens either wholly or partially. In other words, the theory underlying the amendment in so far as it relates to the concept of State monopoly, does not appear to be based on the pragmatic approach, but on the doctrinaire approach which socialism accepts. That is why we feel no difficulty in rejecting Mr. Pathaks argument that the creation of a State monopoly must be justified by showing that the restrictions imposed by it are reasonable and are in the interests of the general public. In our opinion, the amendment clearly indicates that State monopoly in respect of any trade or business must be presumed to be reasonable and in the interests of general public, so far as Art. 19(1) (g) is concernedIn dealing with the question about the precise denotation of the clause ""a law relating to", it is necessary to bear in mind that this clause occurs in Art. 19(6) which is, in a sense, an exception to the main provision of Art. 19(1)(g). Laws protected by Art. 19 (6) are regarded as valid even Though they impinge upon the fundamental right guaranteed under Art. 19(1)(g). That is the effect of the scheme contained in Art. 19(1) read with clauses (2) to (6) of the said Article. That being so, it would be unreasonable to place upon the relevant clause an unduly wide and liberal construction. "A law relating to" a State monopoly cannot, in the context, include all the provisions contained in the said law whether they have direct relation with the creation of the monopoly or not. In our opinion, the said expression should be construed to mean the law relating to the monopoly in its absolutely essential features. If a law is passed creating a State monopoly, the Court should enquire what are the provisions of the said law which are basically and essentially necessary for creating the State monopoly. It is only those essential and basic provisions which are protected by the latter part of art. 19(6). If there are other provisions made by the Act which are subsi- diary incidental or helpful to the operation of the monopoly, they do not fall under the said part and theirvalidity must be judged under the first part of Art. 19(6). In other words, the effect of the amendment made in Art. 19(6) is to protect the law relating to the creation of monopoly and that means that it is only the provisions of the law which are integrally and essentially connected with the, creation of the monopoly that are protected. The rest of the provisions which may by incidental do not fall under the latter part of Art. 19(6) and would inevitably have to satisfy the test of the first part of Art. (19)(6)If the legislation seeks directly to control the citizens right tinder Art. 19(1) (g), its validity has to be tested in the light of the provisions contained in Art. 19(6), and if such a legislation, as for instance, a law creating a State monopoly, indirectly or incidentally affects a citizens right under any other clause of Art. 19(1) as for instance, Art. 19(1)(f), that will not introduce any infirmity in the Act itself. As was observed by Kania, C. J. I., in A. K. Gopalan v. The State of Madras ([1950] S.C.R. 88, 101.), if there is a legislation directly attempting to control a citizens freedom of speech or expression, or his right to assemble peaceably and without arms etc., the question whether that legislation is saved by the relevant clause of Art. 19 will arise. If however, the legislation is not directly in respect of any of these Subjects, but as a result of the operation of other legislation, for instance, for punitive or preventive detention, his right under any of these sub-clauses is abridged, the question of the application of Art. 19 does not arise. The true approach is only to consider the directness of the legislation and not what will be the result of the detention otherwise valid. On the mode of the detenues lifeIt is obvious that if the validity of the said provisions has to be tested under the first part of Art-. 19 (6) as well as Art. 19 (5), the position would be the same because for all practical purposes, the tests prescribed by the said two clauses are the same. In our opinion, this approach introduces a harmony in respect of the several provisions of Art. 19 and avoids a conflict between them.In this connection, it is necessary to add that in a large majority of cases where State monopoly. is created by statute, no conflict would really arise e.g. where under State monopoly, the State purchases raw material in the open market and manufactures finished goods, there would hardly be an occasion for the infringement of the citizens right under Art. 19 (1) (f).We are not prepared to accept the argument that the fixation of purchase price in the context of the present Act was an essential feature of the monopoly. It may be that the fixing of the said price has been provided for by s. 4 in the interests of growers of Kendu leaves themselves, but that is a matter which would be relevant in considering the reasonableness of the restriction imposed by the section. But take a hypothetical case where in creating a State monopoly for purchasing. a commodity like kendu leaves, the law prescribes a purchase price at an unreasonably low rate, that cannot be said to be an essential part of the State monopoly as such, and its reasonableness will have to be tested under Art.19(1)(g). On the facts of 14 is case and in the light of the commodity in respect of which monopoly is created, it seems difficult to hold that the State monopoly could not have functioned without fixing the purchase price. We are not suggesting that fixing prices would never be an essential part of the creation of State monopoly though, prima facie, it seems doubtful whether fixing purchase price can properly form an integral part, of state monopoly; what we are holding in the present case is that having regard to the scheme of the state monopoly envisaged by the Act, s. 4 cannot be said to be such an essential part of the said monopoly as to fall within the expression "law relating to" under Art. 19(6). Therefore, we are satisfied that the validity of s. 4 must be tested in the light of the first part of Art. 19(6) as far as the petitioners rights under Art. 19(1)(g) are concerned, and under Art. 19(5) so far as his rights under Art. 19(1)(f) are concerned.Thus considered, there can be no difficulty in upholding the validity of section 4. As we have just indicated, if the legislature had allowed the State monopoly to operate without fixing the prices, it would have meant hardship to the growers and undue advantage to the State. If the ordinary law of demand and supply was allowed to govern, the Prices in all probability the said prices would have work adversely to the interests of the growers and to the benefit of the State in the case of perishable commodities like Kendu leaves. That is why the legislature has deliberately provided for the fixation of prices and prescribed the machinery in that behalf. It is true that the prices fixed are not the minimum prices; but the fixing of minimum prices would have served no useful purpose when a State monopoly was being created and soprices which can be regarded as fair are intendedto be fixed by s.4. A representative advisory Committee has to be appointed and it is in consultation with the advice of the said Committee that prices have to be (SCR at page 714) fixed. In fact, the present prices have, been fixed according to the recommendations it made by the said Committee. Thus, it is clear that the object of fixing the prices was to help the growers to realise a fair price. It is nobodys case that the prices are unduly low or compare unfavourably with the prices. prevailing in the locality in the previous years. Therefore, we feel no hesitation in holding that restrictions in regard to the fixing of price prescribed by s. 4 are reasonable and in the interests of the general public both under Art. 19(5) and Art. 19)(6). The result is that the challenge to the validity of section 4 failsThe argument is that though the State is empowered to create State monopoly by law, the trade in respect of which the monopoly is sought to be created must be carried on by the State or by a corporation owned or controlled by the State.There can be no doubt that though the power to create monopoly is conferred on the legislatures in very wide terms and it can be created in respect of any trade, business, in- dustry or service, there is a limitation imposed at the same time and that limitation is implicit in the concept of State monopoly itself. If a State monopoly is created, the State must carry on the trade, or the State may carry it on by a corporation owned or controlled by it. Thus far, there is no difficultyWe are not inclined to accept either the narrow construction pressed by Mr. Pathak, or the broad construction suggested by the learned Attorney- General. It seems to us that when the State carries on any trade, business or industry, it must inevitably carry it on either departmentally or through its officers appointed in that behalf. In the very nature of things., the State as such, cannot function without the help of its servants or employees and that inevitably introduces the concept of agency in a narrow and limited sense If the State cannot act without the aid and assistance of its employees or servants, it would be difficult to exclude the concept of agency altogether. just as the State can appoint a public officer to carry on the trade or its business, so can it appoint an agent to carry on the trade on its behalf Normally and ordinarily, the trade should be carried on departmentally or with the assistance of public servants appointed in that behalf. But there may be some trades or businesses in which it would be inexpedient to undertake the work of trade or business departmentally or with the assistance of State servants. In such cases, it would be open to the State to employ the services of agents provided the agents work on behalf of the State and not for themselves. Take the case of Kendu leaves with which we are concerned in the present proceedings. These leaves are not cultivated but grow in forests and they are plucked during 3 to 4 months every year, so that the trade of purchasing and selling them is confined generally to the said period. In such a case, it may not be expedient for the State always to appoint Government servants to operate the State monopoly, and agency would be more convenient, appropriate and expedient.Thus considered, it is only persons who can be called agents in the strict and narrow sense to whom the working of the State monopoly can be legitimately left by the State. If the agent acquires a personal interest in the working of the monopoly, ceases to be accountable to the principal at every stage, is not able to bind the principal by his acts, or if there are any other terms of the agency which indicate that the trade or business is not carried on solely on behalf of the State but at least partially on behalf of the individual concerned, that would fall outside Art. 19(6) (ii). Therefore, in our opinion, if a law is passed creating a State monopoly and the- working of the monopoly is left either to the State or to the officers of the State appointed in that behalf, or to the department of the State, or to persons appointed as agents to carry on the work of the monopoly strictly on behalf of the State, that would satisfy the requirements of Art. 19(6) (ii). In other words, the limitations imposed by the requirement that the trade must be carried on by the State or by a corpo- ration owned or controlled by the State cannot be widened and must be strictly construed and agency can be permitted only in respect of trades or businesses where it appears to be inevitable and where it works within the well recognised limits of agency. Whether or not the operation of State monopoly has been entrusted to an agent of this type, will have to be tried as a question of fact in each case. The relationship of agency must be proved in Substance, and in deciding the question, the :nature of tile agreement, the circumstances under which the agreement was made and the terms of the agreement will have to be carefully examined. It is not the form, but the substance that will decide the issue. Thus considered, we do not think that s. 3 is open to any challengeSection 3 allows either the Government or an officer of the Government authorised in that behalf or ail agent in respect of the unit in which the leaves have grown, to purchase or transport Kudu leaves. We are satisfied that the two categories of persons specified in clauses (b) and (c) are intended to work as agents of the Government and all their actions and their dealings in pursuance of the provisions of the Act would be actions and dealings on behalf of the Government and for the benefit of the Government. Mr. Pathaks contention that the persons specified in clauses (b) and (c) are intended by the Act to work on their own account seems to us to be inconsistent with the object of the section and the plain meaning of the words used in the relevant clauses. We wish to make it clear that we uphold the validity of section 3. because we are satisfied that clauses (b) and (c) of the said section have been added merely for clarification and are not intended to and do not include any forms of agency which would have been outside the provision of s. 3 if the said two clauses had not been enacted. If section 3 is valid, then s. 8 which authorises the appointment of agents must also be held to be valid.In the petition, the validity of sections 5, 6 and 9 was challenged on the ground that they contravene Art.14. But as we have already mentioned, no contention has been urged before us in support of the plea that Art.14 has been contravened by any section of the Act. The petition further avers that the Act was a colourable piece of legislation, but that argument really proceeded on the basis whether the agreement entered into by the State Government with the agents to which we shall presently refer correctly represents the effect of ss. 3 and 8 of the Act. So far as the Act is concerned, the two sections which were seriously challenged were sections 3 and 4 and as we have already held, the provisions in these two sections are not shown to be invalid; and so, the argument that the Act is colourable, has no substance. The notifications which were impugned have also been issued under the relevant provisions of the Act and their validity also cannot be effectively challenged once we reach the conclusion that the Act is good and valid21. We have already observed that the petitioner has not specifically and clearly alleged that the price actually fixed under s. 4 is grossly unfair and as such, contravenes his rights under Art. 19(1)(f). No evidence has been adduced before us to show that the price is even unreasonable. On the other hand, the counter affidavit filed by respondent No. 2 would seem to show that the price has been fixed in accordance with the recommendations made by the Advisory Committee and it does not compare un- favourably with the prices prevailing in the past in this locality in respect of Kendu leaves. Therefore, the main grounds on which the petitioner came to this Courtto challenge the validity of the Act failThis agreement consists of ten clauses and it has apparently been drawn in accordance with Rule 7(5) of the Rules framed under the Act. It appears that on January 9, 1962, the Rules framed by the State Government by virtue of the power conferred on it by s. 18 of the Act were published. Rule 7 deals with appointment of Agent. Rule 7(2) prescribes the form in which an application for appointment as agent has to be made. Rule 7(5) provides that on appointment as agent the person appointed shall execute an agreement insuch form as Government may direct within ten daysof the date of receipt of the order of appointment failing which the appointment shall be liable to cancellation and the amount deposited as earnest money shall be liable to forfeiture.It is significant that though the Form for an application which has to be made by a person applying for agency is prescribed, no form has been prescribed for the agreement which the State Government enters into with the agent. The agreement is apparently entered into on an ad hoc basis and that clearly is unreasonable. In our opinion, , if the State Government intends that for carrying on the State monopoly authorised by the Act agents must be appointed, it must take care to appoint agents on such terms and conditions as would justify the conclusion that the relationship between them and the State Government is that of agents and principal; and if such a result is intended to be achieved, it is necessary that the principal terms and conditions of the agency agreement must be prescribed by the rules. Then it would be open to the citizens to examine the said terms and conditions and challenge their validity if they contravene any provisions of the Constitution, or are inconsistent with the provisions of the Act itself. Therefore, we are satisfied that the petitioner is entitled to contend that Rule 7(5) is bad in that it leaves it to the sweet will and pleasure of the officer concerned. to fix any terms and conditions on an ad hoc basis; that is beyond the competence of the State Government and such terms and conditions must be prescribed by the rules made under section 18 of the ActWe have not thought it necessary to refer to all the clauses in detail because we -are satisfied that even if the agreement is broadly considered, it leaves no room for doubt that the person appointed under the agreement to work the monopoly of the State is not an agent in the strict and narrow sense of the term contemplated by Art. 19 (6) (ii). The agent appointed under this agreement seems to carry on the trade substantially on his own account, subject, of course, to the payment of the amount specified in the contract. If he makes any profit after complying with the said terms, the profit is his; if he incurs an loss owing to circumstances specified in clause 6, tie loss is his. In terms, he is not made accountable to the State Government; and in terms, the State Government is not responsible for his actions. In such a case, it is, impossible to hold that the agreement in question is consistent with the terms of s. 3 of the Act. No doubt, the learned Attorney -General contended that in commercial transactions, the agreement in question may be treated as an agreement of agency, and in support of this argument lie referred us to the decision in Ex parte Bright In re Smith, ((1879) 10 L. R. Ch. D. 566. ) and Weiner v. Harris. ((1910) 1 K. 285, ) It is true that an agent is entitled to commission in commercial transactions, and so, the fact that a person cams commission in transactions carried on by him on behalf of another would not destroy his character as that other persons agent. Cases of Delcredere agents are not unknown to commercial law. But we must not forget that we are dealing with agency which is permissible under Art. 19 (6) (ii), and as we have already observed, agency which can be legitimately allowed under Art. 19(6) (ii) is agency in the strict and narrow sense of the term; it includes only agents who can be said to carry on the monopoly at every stage on behalf of the State for its benefit and not for their own benefit at all. All that such agents would be entitled to would be remuneration for their work as agents. That being so, the extended meaning of the word "agent" in a commercial sense on which the learned, Attorney-General relies is wholly inapplicable in, the context of Art. 19 (6) (ii). Therefore, we must hold that the agreement which has been Produced before us is invalid inasmuch as it is wholly inconsistent with the requirements of s. 3 (1) (C).The result is, the. petitioner succeeds only Partially inasmuch as we have held that Rule 7 (5) is bad and the agreement is invalid, and that means that the State Government cannot implement the provisions of :the Act with the assistance of agents appointed under the said invalid agreement. We accordingly direct that a direction or order to that effect should be issued against the State Government. The main contentions raised by the petitioner against the validity of the Act and its relevant provisions on which specific reliefs were claimed, however, fail.