http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8

PETITIONER:

M/S. BEJGAM VEERANNA VENKATA NARASIMLOO ETC.

Vs.

RESPONDENT:

STATE OF ANDHRA PRADESH & ORS.

DATE OF JUDGMENT: 25/11/1997

BENCH:

S.P. BHARUCHA, SUHAS C. SEN

ACT:

HEADNOTE:

JUDGMENT:

THE 25TH DAY OF NOVEMBER, 1997

Present:

Hon'ble Mr. Justice S.P. Bharucha

Hon'ble Mr. Justice Suhas C.Sen

A.Subba Rao, B.Parthasarthy, Advs. for the appellants

G.I.Gopalkrishna, Y.P.Rao, K Ramkumar and T.V.S.N.Chari,

Advs. for the Respondents.

J U D G M E N T

The following Judgment of the Court was delivered:

(WITH C.A.NO 8296 of 1997 arising out of S.L.P.No. 568 of

1982)

SEN, J.

Section 3 of the Essential Commodities Act, 1955

confers upon the Central Government power, inter alia, to

regulate production, supply and distribution of essential

commodities for securing their equitable distribution and

availability at fair prices. The power given to the Central

Government by sub-section (1) of Section 3 is in very broad

terms. Sub-section (2) specifically provides that an order

can be made by the Central Government, inter alia, "for

controlling the price at which any essential commodity may

be bought or sold". Clause (f) of sub-section (2) of

Section 3 has also empowered the Central Government to

require any person holding in stock, or engaged in the

production, or in business of buying or selling, of any

essential commodity, to sell the whole or a specified part

of the quantity held in stock or produced or received by him

to officer or agent of such Government or to a Corporation

owned or controlled by such Government as may be specified

in the order. Sub-section (3A) of Section 3 provides that

where any person sells any essential commodity in compliance

with an order made with reference to clause (f) of sub-

section (2), there shall be paid to the seller as the price

therefore-

(a) Where the price can consistently with the controlled

price of the food stuffs, if any fixed under this section,

be agreed upon, the agreed price:

(b) where no such agreement can be reached, the price

calculated with reference to the controlled price, if any;

(c) where neither clause (a) nor clause (b)- applies, the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8

price calculated with reference to the average market rate

prevailing in the locality during the period of three months

immediately preceding the date of the notification.

Sub-section (3b) of Section 3

provides:-

"Where any person is required, by

an order made with reference to

clause (f) of sub-section (2) to

sell to the Central Government or

to a Stat Government or to an

office or agent of such Government

or to a corporation owned or

controlled by such Government, any

grade or variety of foodgrains,

edible oilseeds or edible oils in

relation to which no notification

has been issued under sub-section

(3A), or such notification having

been issued, has ceased to be in

force, there shall be paid to the

person concerned, notwithstanding

anything to the contrary contained

in sub-section (3), an amount equal

to procurement price of such

foodgrains, edible oil seeds or

edible oils, as the case may be

specified by the State Government,

with the previous approval of the

Central Government having regard

to-

(a) the controlled price, if any,

fixed under this section or by or

under any other law for the time

being in force for such grade or

variety of foodgrains, edible oil

seeds or edible oils;

(b) the general crop prospects;

(c) the need for making such grade

or variety of foodgrains, edible

oilseeds or edible oils available

at reasonable prices to the

consumers, particularly the

vulnerable section of consumers;

and

(d) the recommendations, if any, of

the Agricultural Prices Commissions

with regard to the price of the

concerned grade or variety of

foodgrains, edible oil seeds or

edible oils."

There is no dispute that 'rice' is an 'essential

commodity' under the Essential Commodities Act. Andhra

Pradesh Rice (Procurement Ex-Mill Prices) Order, 1974 and

Andhra Pradesh Rice (Procurement Ex-Mill Prices) Order, 1975

were promulgated requiring persons carrying on business in

foodgrains, paddy, rice, rice milling, etc. to supply rice

to Food Corporation of India (FCI) at procurement prices

fixed by Orders issued by the Andhra Pradesh Government from

time to time. The rice millers were entitled to be paid

what is called the "notified price". which has been defined

to mean the price fixed under the Andhra Pradesh Rice

(Procurement Ex-Mill Prices) Order, 1975.

The appellants, who are rice millers, supplied the FCI

rice milled from Khariff and Rabi crops for the crop year

1975-76 and also 1976-77 under the aforesaid Orders. The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8

FCI paid them price fixed by Andhra Pradesh Rice

(Procurement Ex-mill Prices) Order, 1975.

The present dispute arises out of an Order issued by

the Government of Andhra Pradesh on 8th October, 1975, which

is as under:

"NOTIFICATION"

In exercise of the power conferred

by Clause (c) of Sub-section (2) of

Section 3 of the Essential

Commodities Act, 1995 (General Act

10 of 1995) read with the order of

the Government of India, Ministry

of Agriculture (Department of

Food), New Delhi, G.S.R. 316 (E)

dated the 20th June, 1972 and all

other powers hereunto enabling and

with the prior concurrence of the

Government of India, the Governor

of Andhra Pradesh hereby rescinds

with immediate effect, the Andhra

Pradesh Rice (Procurement Ex-Mill

Prices) Order, 1974 issue in G.O.

MS. No. 1001, Food and Agriculture

(CS.V) Department, dated the 6th

November, 1974 and published at

pages 1-13 of the rules Supplement

to Part II Extra-ordinary of the

Andhra Pradesh Gazette, No. 38

dated the 7th November, 1974.

Provided that such recession shall

not affect:

(a) the previous operation of the

said Order of any thing duly done

or supported thereunder; or

(b) any right, privilege,

obligation or liability acquired,

accrued or incurred under the said

Order; or

(c) any penalty, forfeiture or

punishment incurred in respect of

any offences committed against the

said Order;

(d) any investigation, legal

proceeding or remedy in respect of

any such right, privilege,

obligation, liability, penalty,

forfeiture or punishment as

aforesaid, and any such

investigation, legal proceeding or

remedy may be instituted, continued

or enforced and any such penalty,

forfeiture or any such penalty,

forfeiture or punishment may be

imposed as if the said Order has

not been rescinded.

xxx xxx xxx

11. In exercise of the powers

conferred by Clause (c) of Sub-

section (2) of Section 3 of

Essential Commodities Act, 1995

(Central Act 10 of 1995) read with

the Order of the Government of

India, Ministry of Agriculture

(Department of Food), New Delhi

G.S.R. No. 316 (E), dated 20th

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8

June, 1972 and of all other powers

hereunto enabling and with the

prior concurrence of the Government

of India, the Governor of Andhra

Pradesh hereby makes the following

order, namely-

1. Short title, extent, application

and commencement

(1) This Order may be called the

Andhra Pradesh Rice (Procurement

Ex-Mill Prices) Order, 1975.

(2) It extends to the whole of the

State of Andhra Pradesh.

(3) It shall apply only to the rice

milled or hand-pounded from paddy

of Khariff 1975-76 or subsequent

crop.

(4) It shall be deemed to have come

into force on the 1st October,

1975."

There is no dispute that even after 7.9.76, FCI

continued to procure rice and pay the appellants the price

fixed by the 1975 Levy Order. The case of the appellants is

that there is no reason not to pay at the old rates till

promulgation of a new Order in accordance with law fixing

new rates. The case of the State is that the price notified

in the 1975 Order will have no application to the supplies

of rice made on or after 7.9.76. It has been emphasised

that in clause (3) of the Order, it has been specifically

made clear that the Order shall be operative "only to the

rice milled or hand-pounded from paddy of Khariff 1975-76 or

subsequent crop". This can only mean that the order will

not be operative beyond the crop year 1975-76.

As against this, the contention on behalf of the

appellants is that the Order came into force on 1st October,

1975. It was made operative not only for the Khariff crop

of 1975-76 but also for the "subsequent crop". "Subsequent

crop" need not be confined only to the crop raised in 1975-

76. The procurement price provided in the Order must

continue till a new Order is promulgated laying down the

levy price. Otherwise, there will be a vacuum. The rice

millers will have to supply rice compulsorily to FCI without

knowing what is the procurement price. The intention behind

the Order clearly was to continue the procurement price

fixed by the Order to all subsequent crops until a fresh

Order was issued.

Assuming that the contention of the State Government is

correct what will be the price payable for the crop year

1976-77 commencing on and from 7.9.1976?. A fresh order of

procurement was published in the official Gazette only on

24.2.1997. Under the provisions of Section 3 of the

Essential Commodities Act, any person who sells any

essential commodity in compliance of an order passed with

reference to clause (f) of Sub-section 2 of Section 3 will

have to be paid - (a) an agreed price which is consistent

with the controlled price, if any, fixed under Section 3 or

(b) in the absence of any agreement, the price, if any, or

when neither (a) or (b) applies, the price, if any, or when

neither (a) or (b) applies, the price calculated with

reference to the average prevalent market price of the

locality during the period of three months immediately

preceding the day of the notification.

In this case, on and from 7.9.76, the rice millers sold

and the FCI bought rice at the procurement price fixed for

the crop year 1975-76. This was because of an Order issued

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8

on 2.11.1976 by which the procurement price of rice in force

for the year 1975-76 was made payable for the crop year

1976-77. The relevant portion of the Order is as under:

"MEMO NO. 2611/SCI(2)/76-2, DATED

2.11.1976

Sub: Civil Supplies-prices and

procurement policy for Khariff

cereals for 1976-77 season-

Regarding.

Ref: 1. From the Government of

India, Ministry of Agriculture and

Irrigation (Department of Food) New

Delhi, Telex Message No.167 (28)

76-PY.I, dated 30.9.1976.

2. From the Government of India,

Ministry of Agriculture and

Irrigation (Department of Food) New

Delhi Lr. No. 167/28/76 PY.I dated

30.9.1976.

The Government of India in their

reference cited, copies of which

are communicated herewith to all

District Collectors, Chief

Rationing Officer, Hyderabad,

Director, Vigilance Cell (CS) and

Board of Revenue (CS), have

declared the procurement policy for

Khariff cereals 1976-77. They are

informed that the producers levy

slabs prescribed for the crop year

1976-77 in the Schedule to the

Andhra Pradesh, Paddy Procurement

(Levy) Order, 1972 as amended last

in G.O.Ms. No.844, F&A (CS.I) dated

24.9.1975 shall continue to apply

for the crop year 1976-77 also.

2. The procurement price of paddy

and specification for the crop year

1976-77 shall be the same as were

fixed for the crop year 1975-76 and

notified in G.O.Ms.No. 1002 Food &

Agrl. (CS.V) dated 6.11.1974 in the

schedules under the Andhra Pradesh

Paddy (Procurement Prices) Order,

1974. The Procurement Prices of

rice for crop year 1976-77 shall be

the same as notified in the

Schedules to the A.P.Rice

(Procurement Ex-Mill Prices) Order,

1975.

With regard to the Mill Levy, it

has been decided to 50% levy

uniformly for millers and dealers

and necessary amendment to the

relevant Schedule to the Andhra

Pradesh Rice (Procurement Levy) and

Restriction on Sale Order, 1967

will be issued shortly in

consultation with the Government of

India, Pending issue of the

amendment, the District Collectors

are instructed to take action to

collect levy from millers and

dealers not exceeding the

percentage mentioned above for the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8

crop year 1976-77."

Even after expiry of the crop year 1975-76, in terms of

the aforesaid order, the appellant millers supplied rice to

the FCI and were paid at the rate prescribed in the

Order/Memorandum dated 24.9.1975. Not only the procurement

price but also the quantum of levy of rice was determined by

this Order/Memorandum.

On 24.2.1977, the Food and Agriculture Department of

Andhra Pradesh Government, issued a Gazette Notification to

the following effect:-

"In exercise of the power conferred

by Clause (c) of sub-section (2) of

Section 3 of the Essential

Commodities Act, 1955 (Central Act

10 of 1995) read with the order of

the Government of India, Ministry

of Agriculture (Department of

Food), New Delhi in G.S.R.No.

316(e) dated the 20th June, 1972

and with the prior concurrence of

the Government of India, the

Governor of Andhra Pradesh hereby

makes the following amendments to

the Andhra Pradesh Rice

(Procurement Ex-Mill Prices) Order,

1975 issued in G.O. Ms. No. 901,

Food and Agrl. at page 8 of the

Rules supplement of Part I Extra-

ordinary of the Andhra Pradesh

Gazette No.53 dated the 9th October

1975 as subsequently amended.

2. The amendment hereby made shall

be deemed to have come into force

on 7th September, 1976.

AMENDMENTS

i) In Schedule I to the said order

in Col. (2) for the figures 149.00,

136.00, 125.00 and 121.00 against

varieties or rice super fine and

coarse the figure 146.00, 133.00

and 118.00 shall respectively be

substituted."

As a result of this notification, procurement price for

various varieties of rice fixed in the 1975 Order was

brought down purportedly with retrospective effect from

7.9.1976. This created an anomalous situation because in

the period between 7.9.1976 and 24.2.1977 rice was actually

procured according to the slab laid down in the Andhra

Pradesh Paddy Procurement (Levy) Order, 1972 as amended by

the order dated 24.9.75 for which price was paid according

to the rates laid down in that order on the basis of the

Memorandum issued on 2.11.76.

The Andhra Pradesh Government claimed that payment for

the levy of rice on and from 7.9.76 had been made at an

excessive rate. The proper rate would be the rate as fixed

in the order dated 24.2.77. Therefore, the excess payment

made by the assessee will have to be recovered from the rice

millers. It has been argued on behalf of Andhra Pradesh

Government that the Memorandum dated 2.11.76 was of no legal

effect because it was not notified in the Official Gazette.

Therefore, anything done on the basis of the Memorandum was

of no legal effect. If price was paid in terms of that

Memorandum it was by mistake of law and the Government had a

right to recover the excess amount paid. it was further

argued that Levy Order of 1975 had spend its force at the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8

end of the crop year 1975-76. Therefore, procurement price

on the basis of that order could not in any event be paid in

the crop year 1976-77.

We are of the view that the contentions made on behalf

of the Andhra Pradesh Government are untenable in law. It

has not been explained how and in what circumstances the

order/memorandum dated 2.11.76 extending the life of the

1975-76 procurement order came to be issued. the issuance

of the memorandum is not denied. It is also not denied that

rice was procured in terms of this order. Rice millers had

to deliver the rice according to the quantum or slab fixed

by the 1975-76 order on the strength of the Memorandum dated

2.11.76. FCI also acted upon this Memorandum and paid the

millers at the rates laid down in the order dated 24.9.75.

It is not open to the Andhra Pradesh Government now to say

that this Memorandum is of no legal effect because it was

not notified in the Official Gazette and was not addressed

to any of the rice millers but was merely an inter-

departmental communication. the Memorandum categorically

stated "pending issue of the amendment, the District

Collectors are instructed to take action to collect levy

from millers and dealers not exceeding the percentage

mentioned above for the crop year 1976-77". District

Collectors acted on the basis of this Memorandum. The

millers were compelled to sell rice to FCI. in the

background of all these facts, it is not open to the State

Government to contend that the Memorandum was not notified

and therefore, no right or obligation flowed from that

Memorandum. If the Memorandum was required to be notified,

the Government cannot take advantage of its failure to

notify it. Having acted on the basis of the Unnotified

Memorandum and having collected rice compulsorily from the

millers on the strength of this Memorandum and also having

paid the millers at the rate fixed by the Memorandum, the

Government cannot be heard to say that the Memorandum is of

no legal effect and the payment was made under mistake of

law.

In our view, it will be inequitable to permit the

Government to take the plea of irregularity of its own Order

after procuring rice on the basis of that order.

There is also another aspect of this case. Sub-section

(3A) of Section 3 provides that where any person sells any

essential commodity in compliance with an order made with

reference to clause (f) of sub-section (2), "there shall be

paid to the seller......the price therefor......". The

language of the Section is mandatory. The price for the

rice procured will have to be paid. In the absence of any

agreed price or controlled price, the price calculated with

reference to the average market rate prevailing in the

locality during the last three months will have to be paid

to the seller. Even if the contention of the State

Government is upheld and the Memorandum is held to be void

and of no legal effect, the State Government has a statutory

duty to pay for the rice procured by it at the market rate

calculated in the manner laid down by the statute.

The next question is whether the State Government can

fix the procurement price of the rice purchased by it

retrospectively. The High Court's view was that the State

Government cannot do it. But the High Court has tried to

salvage the case for the State Government by holding that

the notification dated 24.2.1977 was not really

retrospective even though clause (2) of the notification

states that "the amendment hereby made shall be deemed to

have come into force on 7th September, 1976". The High

Court stated the question before it and its answer in the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8

following words:

"Thus, the whole question in this

case boils provisions of the E.C.

Act, In this case, it must be

admitted that there is no provision

in the E.C.Act authorising the

making subordinate legislation with

retrospective effect. It follows,

therefore, that Ex.B-4 would be

invalid if it is truly a

retrospective subordinate piece of

legislation. This raises the

question whether Ex.B-4 dated

24.2.77 fixing prices with effect

from 7.9.76 can be truly called a

retrospective law. We are of the

clear opinion that it is not."

The High Court was of the view that merely because a

subordinate legislation was given effect to from an anterior

date, it cannot be treated as a piece of retrospective

subordinate legislation. It was held that a subordinate

legislation can be said to be retrospective only when it

took away or impaired any vested right acquired under

existing laws or created new obligations or imposed a new

duty or attached a new disability in respect to transactions

or considerations already past. Reliance was placed upon

Craies on Statute Law, 6th Edition p.386. it was held that

by notification dated 24.2.1977, the Government did not

reduce in any way the price legally payable to the

appellants because there was no such price in existence nor

did it alter in any way the legal rights of the appellants

with regard to their sales for the second year.

We are unable to follow how the High court could come

to the conclusion that the vested right of the appellants

had not been disturbed in any way by the subordinate

legislation. Rice has been sold under a procurement order

and a right to be paid in terms of that order had accrued to

the seller as soon as sale of rice was effected. As a

matter of fact, the FCI did pay the appellants the price for

the rice purchased. If a portion of the price paid by the

FCI is taken away, the appellants will be prejudicially

affected. They not only had acquired a vested right to be

paid but actually received payment for the rice sold. If

the rice was delivered without any valid procurement order,

the sellers were entitled to be paid at the market rate in

terms of section 70 of the Contract Act. The retrospective

subordinate legislation has tried to take away a portion of

the money the appellants had lawfully obtained.

We are of the view that the decision of the High Court

is clearly erroneous. The recoveries which are now sought

to be made from the appellants are clearly unlawful and

unjust. The appeals are allowed. The judgment under appeal

is set aside. There will be no order as to costs.

C.A.No. of 1997

(Arising out of S.L.P. (C) No.568/1982)

Leave granted.

In view of our above decision in C.A.Nos. 3196-3200 of

1981, this appeal is also allowed with no order as to costs.