Dwarka Prasad Laxmi Narain vs The State Of Uttar Pradesh And Two Others
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: supreme-court
Case Number: Petition No. 326 of 1953
Decision Date: 11 January, 1954
Coram: B.K. Mukherjea, B. Jagannadhadas, Mehar Chand Mahajan, Vivian Bose, Ghulam Hasan
In this matter, the petitioners identified as Messrs Dwarka Prasad Laxmi Narain filed a petition against the State of Uttar Pradesh and two additional respondents. The case was heard by the Supreme Court of India on the eleventh day of January, 1954. The judgment was authored by Justice B K Mukherjea, who was also a member of the bench that also included Justices B Jagannadhadas, Mehar Chand Mahajan, Vivian Bose and Ghulam Hasan. The official citation for the decision appears as 1954 AIR 224 and 1954 SCR 803, and the decision has been referenced in numerous subsequent reports, including but not limited to RF 1954 SC 465, RF 1956 SC 479, R 1956 SC 559, F 1956 SC 676, E 1957 SC 397, RF 1957 SC 896, F 1958 SC 538, R 1958 SC 578, E D 1960 SC 475, F 1961 SC 705, R 1961 SC 1602, RF 1964 SC 370, D 1971 SC 474, R 1974 SC 366, D 1974 SC 651, R 1978 SC 771, RF 1978 SC 1457, RF 1981 SC 1829, and RF 1988 SC 1089. The legal question presented before the Court concerned the constitutionality of Clause 4(3) of the Uttar Pradesh Coal Control Order, 1953, in particular whether the provision was ultra vires the Constitution, given the challenge to the guarantees of Articles 19(1)(g) and 19(6) and the equality provision of Article 14 of the Constitution of India. The petition was instituted under Article 32 of the Constitution, with petition number 326 of 1953, and was argued on behalf of the petitioners by counsel S C Isaacs, assisted by S K Kapur, while the respondents were represented by counsel H J Umrigar.
The Court’s headnote observed that any law or order that bestows an arbitrary and unchecked power upon the executive for the regulation of trade or business in commodities that are normally available must be deemed unreasonable. Under Clause 4(3) of the Uttar Pradesh Coal Control Order, 1953, the licensing authority was granted unrestricted authority to grant, refuse, renew, suspend, revoke, cancel or modify any licence issued under the Order, with the sole procedural requirement that the authority record the reasons for its action. Moreover, the Order permitted the State Coal Controller to delegate this extensive power to any person of his choosing, without limitation as to the identity of the delegate. The Court held that such provisions could not be considered reasonable. Consequently, the provision of Clause 4(3) was declared void for imposing an unreasonable restriction on the freedom of trade and business guaranteed by Article 19(1)(g) and for failing to fall within the protective scope of Clause 19(6). The Court referred to the United States case Yick Wo v. Hopkins, 118 U.S. 356 at 373, in support of its reasoning. The judgment, delivered by Justice Mukherjea, therefore set aside the challenged provision as unconstitutional, providing relief to the petitioners for the alleged violation of their fundamental rights under Articles 14, 19(f) and 19(g).
The petitioners submitted an application under article 32 of the Constitution, seeking enforcement of their fundamental rights under article 14 and clauses (f) and (g) of article 19 by way of writs of mandamus. To understand the issues raised, the Court first set out the relevant facts. The petitioners were a firm of traders who, before the cancellation of their licence, operated a retail coal depot in Kanpur. Both the District Magistrate of Kanpur and the District Supply Officer, who appeared as respondents 2 and 3, had for a considerable period issued various directives to the petitioners and to other coal‑depot holders in the town, imposing assorted restrictions on the sale of coal, soft coke and related commodities. Prior to 14 February 1953, the prices fixed by the district officers allowed the dealers a profit margin of twenty per cent on soft coke and fifteen per cent on hard coke and steam coal. These profits were calculated on the landed cost of the goods up to the depot. The landed cost comprised the ex‑colliery price, the commission payable to the middle‑man, the railway freight, and a range of incidental expenses such as labour duty, loading and unloading charges, cartage and stacking costs. After adding all these elements, an allowance was made for shortage of weight—five rods and odd seers per ton for soft coke and three rods and odd seers per ton for hard coke and steam coal—and the net weight thus arrived at formed the basis of the price calculation. On 14 February 1953, the District Supply Officer issued a new directive that reduced the selling prices of coke, coal and related articles to levels much lower than the existing rates. This reduction was effected in three ways: the allowance for shortage of weight was sharply reduced; the sum allowed for all incidental expenses was fixed at a nominal Rs 4‑12‑0; and the profit margin was cut down to ten per cent. On 22 May 1953 a representative petition was filed by seven colliery‑depot holders of Kanpur, including the present petitioners, challenging the validity of the executive order dated 14 February 1953 on the ground that it infringed their fundamental rights under articles 14 and 19 of the Constitution. An application for an interim stay of the order was made and was heard before the learned Vacation Judge on 1 July 1953. On that day the State of Uttar Pradesh gave an undertaking that it would withdraw the order of 14 February 1953.
The State of Uttar Pradesh gave an undertaking that it would withdraw the executive order dated 14 February 1953, because the State considered that the order was a pure executive measure lacking any legislative sanction. Accordingly, the order of 14 February was indeed withdrawn. However, on 10 July 1953 the State issued a notification promulgating a new command titled “The Uttar Pradesh Coal Control Order, 1953”. The State claimed that this new order was made under the authority granted by section 3(2) of the Essential Supplies Act, 1946, read in conjunction with the Government of India’s order issued under section 4 of the same Act. Since the petitioners challenge the constitutionality of this Coal Control Order, the Court found it useful to set out the substantive provisions of the order that form the core of the dispute between the parties.
The Uttar Pradesh Coal Control Order, 1953, begins by defining key terms. It states that “coal” includes coke but expressly excludes cinder and ashes. The “Licensing Authority” is defined as the District Magistrate of the district or any officer authorized by the Magistrate, and this definition also embraces the District Supply Officer. A “licensee” is any person who holds a licence in Form ‘A’ or Form ‘B’ issued under the order. The order further provides that no person may stock, sell, store for sale, utilize coal for brick‑burning, or otherwise dispose of coal within the State unless the person possesses a licence in Form ‘A’ or Form ‘B’ granted pursuant to the order. Sub‑clause (2) clarifies that the restriction in sub‑clause (1) does not apply to stocks held by persons or undertakings that obtain coal on permits issued by the District Magistrate or the State Coal Controller for their own consumption, and it also exempts any person or class of persons specifically exempted by the State Coal Controller. Every application for a licence must be made in the form prescribed in Schedule I annexed to the order. Any licence granted will be in the form of Form ‘A’ or Form ‘B’, and the licence holder must obey any directions issued by the Licensing Authority regarding the purchase, sale, storage or distribution of coal. The Licensing Authority is empowered to grant, refuse, renew, suspend, cancel, revoke, or modify any licence or its terms, provided that the reasons for exercising such powers are recorded.
The Order provided that any power which the Licensing Authority could exercise under it could also be exercised by the State Coal Controller or by any person whom the Controller authorized to act on his behalf. Accordingly, the State Coal Controller was empowered to issue a written order requiring any holder of coal stock to sell either the entire stock or a portion of it to a designated person or class of persons. The terms and prices for such a sale were to be fixed in accordance with the provisions set out in clause eight of the Order.
Clause eight laid down pricing restrictions. First, a licensee holding a Form B licence, or any person acting on behalf of such a licensee, was prohibited from selling, agreeing to sell, or offering for sale any coal at a price higher than the price that the Licensing Authority declared using the formula contained in Schedule III. Secondly, a licensee holding a Form A licence, or any other person who possessed coal stock, or any person acting for or on behalf of such licensees, or any person who transferred or disposed of such stock pursuant to clause six or clause seven, could not charge a price exceeding the landed cost of the coal plus incidental and handling charges and an additional amount not greater than ten per cent of the landed cost. The Order clarified the meaning of the terms used in this limitation. “Landed cost” was defined as the ex‑colliery price of the coal together with the L.D.C.C. and Bihar sales tax, the actual middleman’s commission paid, and the railway freight incurred. “Incidental and handling charges” were defined as the cost of unloading the coal from wagons, transporting it to a stacking site, unloading it at the stacking site, plus any godown rent and any choukidari charges, subject to a maximum of Rs 8‑8‑0 per ton as determined by the Licensing Authority or the State Coal Controller according to local conditions.
Furthermore, the Order directed that the District Magistrate, within one week after the Order came into force, had to prepare and publish in a local newspaper a list of persons engaged in the business of selling coal within his district. Upon publication, every person named in that list would be deemed, for the purposes of the Order, to be a licence holder until three months after the list’s publication, at which time the persons were required to obtain a licence in Form A or Form B as specified. The Order also stipulated a penalty for any person who violated any provision of the Order or the conditions of a licence granted under it. Such a person would be punishable under section 7 of the Essential Supplies (Temporary Powers) Act, 1946, with imprisonment for a term that could extend to three years, or with a fine, or with both, without prejudice to any other punishment that might be applicable. The Order included Schedule III, which set out the formula for declaring the prices of soft coke, hard coke, and steam coal. The schedule listed the following components to be taken into account: (1) the actual ex‑colliery price; (2) the actual L.D.C.C. and Bihar sales tax; (3) the actual middleman’s commission, subject to the maximum prescribed in clause 6 of the Government of India Colliery Order; (4) the actual railway freight; and (5) incidental and handling charges, including a maximum of Rs 8‑8‑0 per ton as determined by the Licensing Authority or the State Coal Controller.
The schedule listed several components that could be included in the determination of price per ton, each to be fixed by the Licensing Authority according to local conditions. The first component covered the cost of unloading coal from wagons. The second component comprised the expense of transporting the coal up to the premises, including any extra or extraordinary stacking that might be required at those locations. The third component addressed the cost of unloading and stacking the coal at a distance from the railway, at the premises or depot, and it permitted the Licensing Authority to allow a higher rate for such operations where appropriate. The fourth component allowed for any godown rent and chaukidari charges, if such charges existed. The fifth component permitted the inclusion of weighing charges, if any were incurred. The sixth component included the actual local taxes such as octroi and other similar levies. The seventh component permitted a deduction for shortage, which could not exceed three and a half maunds per ton in the case of soft coke and two and a half maunds per ton in the case of hard coke and steam coal, as determined by the Licensing Authority. The eighth component provided for a profit margin of ten percent on the total of items one through six, excluding the weighing charges covered in item five.
It was narrated that on the sixteenth day of July 1953 the second respondent issued a declaration fixing the retail rates for soft coke, coal and related products at exactly the same figures that had been set in a directive dated the fourteenth of February 1953. The petitioners claimed that this resulted in such a severe reduction in selling prices that it became impossible for coal traders to continue their business. Pursuant to clause eleven of the Control Order, the petitioners’ names appeared in the list of B licence holders and they submitted an application for a licence in the form prescribed by clause four. Although a licence was prepared, it was allegedly never delivered to the petitioners. On the third day of October 1953, the Area Rationing Officer of Kanpur sent a letter accusing the petitioners of several irregularities in operating a coal depot. The accusations included that the petitioners maintained two additional depots financed in the names of other persons and that they had entered into agreements to sell coal at rates exceeding the fixed prices. The petitioners offered an explanation, which the authority deemed unsatisfactory, and consequently, by an order dated the thirteenth of October 1953, the District Supply Officer of Kanpur cancelled the petitioners’ licence. In the present petition the petitioners challenged the constitutionality of the Uttar Pradesh Coal Control Order dated the tenth of July 1953, the price declaration of the sixteenth of July 1953, and the licence‑cancellation order of the thirteenth of October 1953. The constitutional validity of the Coal Control Order was contested on the ground that its provisions granted an unfettered and unguided discretion to the licensing authority or the State Coal Controller in matters of granting or revoking licences, fixing coal prices and imposing conditions on traders, and that such arbitrary powers could be exercised by the officers themselves or delegated at their option to any person they chose.
It was contended that the provisions of the Uttar Pradesh Coal Control Order placed unreasonable restrictions on the petitioners’ right to carry on their trade and business, and that these restrictions conflicted with the fundamental right guaranteed by article 19(1)(g) of the Constitution, rendering the provisions void. Regarding the order dated 16 July 1953, which fixed the prices of coke, coal and related products, it was urged that the order was exercised under an arbitrary power conferred upon the licensing authority by the Coal Control Order, and that the prices so fixed were clearly discriminatory. The allegation of discrimination was supported by a comparison of the prices fixed under the same Control Order in other locations within Uttar Pradesh, such as Allahabad, Lucknow and Aligarh, where different price levels were observed. The petitioners also challenged the order of 13 October 1953 that cancelled their licence, arguing that the charges levelled against them were vague and indefinite, and that the cancellation was made with the ulterior motive of driving them out of the coal business altogether. Further, it was submitted that the cancellation left the petitioners unable to dispose of the coal stocks already in their possession, while the continued holding of such stock after the licence was cancelled became an offence punishable under the Coal Control Order. The court noted that it was not disputed that coal is an essential commodity under the Essential Supplies (Temporary Powers) Act of 1946. By virtue of the delegation of powers under section 4 of that Act, the Central Government authorised the Provincial Government of Uttar Pradesh to issue notified orders for regulating the supply and distribution of coal in a manner it deemed appropriate, in order to achieve the objectives set out in section 3 of the Act. The only requirement, the court observed, is that such regulatory provisions must not infringe the fundamental rights protected by Part III of the Constitution, and that any restriction on the carrying on of trade or business must be a reasonable restriction pursued in the public interest as prescribed by article 19(6). The court further recognised that ensuring equitable distribution of essential commodities and their availability at fair prices justifies the regulation of sales through licensed vendors who receive specified quotas and are prohibited from selling above the prices fixed by the controlling authorities. Consequently, the authority to grant or withhold licences and to fix prices necessarily resides with certain public officers or bodies, who must be accorded a limited degree of discretion. However, the court warned that a problem arises when such discretion is exercised as an arbitrary power without any regulating rule or principle, because an unfettered discretion defeats the requirement of a reasonable restriction.
In this case the Court observed that when a law or order leaves an entire principle to the unchecked discretion of particular individuals, allowing them to act without any supervisory authority, such a scheme bestows arbitrary and uncontrolled power on the executive in the regulation of trade or business in ordinarily available commodities, and therefore must be held unreasonable. The Court recalled its earlier decision in Chintamon v. The State of Madhya Pradesh (1) [1950] S.C.R. 759, where it explained that the expression “reasonable restriction’’ requires that any limitation imposed on a person’s constitutional right must not be arbitrary nor excessive beyond what is necessary for the public interest. Legislation that intrudes on the right in an arbitrary or excessive manner cannot be said to possess the quality of reasonableness, and unless it achieves a proper balance between the freedom guaranteed under article 19 (1) (g) and the social control permitted by clause (6) of article 19, it must be found wanting in reasonableness. Applying these principles, the Court proceeded to examine the provisions of the Control Order whose validity had been challenged by the petitioners.
The provision in clause 3(1) of the Order stating that “no person shall stock, sell, store for sale or otherwise utilise or dispose of coal except under a licence granted under this Order’’ was noted as a standard, unexceptional clause that reflects the primary purpose of the Order. Two exceptions to this general rule were identified. The first exception, contained in sub‑clause (2)(a), attracted no objection and was accepted without question. The second exception, set out in sub‑clause (2)(b), was contested by the counsel appearing for the petitioners. This sub‑clause provides that nothing in clause 3(1) shall apply to any person or class of persons exempted from the provision by the State Coal Controller, to the extent of such exemption. The Court observed that the Control Order does not specify the grounds for exemption, nor does it contain any rules governing that discretion. Consequently, the State Controller is empowered to grant exemptions without any limit, and even if he acts arbitrarily or with improper motives there is no mechanism for review or redress. The Court therefore regarded clause 3(2)(b) of the Cntrol Order as prima facie unreasonable. However, agreeing with counsel’s suggestion, the Court held that this portion of the Order, though defective, is severable from the remainder and, since no action taken under it is the subject of any complaint before the Court, the validity of that specific provision need not be decided. The petitioners’ more serious challenge was directed against clause 4(3) of the Control Order, which concerns the granting of licences, and the Court indicated that this objection would be examined subsequently.
In this case the Court observed that the licensing authority under the Uttar Pradesh Coal Control Order possessed an unrestricted power to grant, refuse to grant, renew, refuse to renew, suspend, revoke, cancel or modify any licence covered by the Order. The Order required the authority merely to record reasons for any action taken, without imposing any substantive standard for those reasons. Moreover, the Order allowed the State Coal Controller to delegate this power to any person of his choosing, and such delegation could be made in favour of any individual without limitation. The Court found that the absence of any rules or directions to guide the discretion of the licensing officer rendered the provision unreasonable. In effect, the Order placed the entire authority to grant, withhold or cancel licences in the unbounded will of a single individual, and it contained no mechanism to assure proper exercise of that power or to prevent injustice that might arise from its improper use. The Court therefore concluded that the provision, as drafted, could not be regarded as reasonable.
The Court also considered the argument advanced by counsel for the petitioners that the requirement for the licensing authority to record reasons served as a safeguard against abuse of power. The Court disagreed, holding that this safeguard was ineffective because the Order did not provide any higher authority to review or revise the recorded reasons. Consequently, the recorded reasons served only the personal satisfaction of the licensing authority and offered no remedial relief to a person who might be aggrieved. Referring to the American decision Yick Wo v. Hopkins (118 U.S. 356 at 373), the Court noted that officials in such positions could act out of enmity, prejudice, partisan zeal, favouritism or other improper motives that are difficult to detect, and that such unchecked power could produce injustice without detailed investigation. In view of these considerations, the Court held that clause 4(3) of the Uttar Pradesh Coal Control Order must be declared void as it imposed an unreasonable restriction on the freedom of trade and business guaranteed under article 19(1)(g) of the Constitution and was not saved by clause 6 of the same article. Because clause 4(3) formed an integral part of the Order, the entire Order could not function properly unless that clause was brought into conformity with constitutional requirements. Accordingly, the Court held that the cancellation of the petitioners’ licence, which had been effected under the void provision, was ineffective and not required to be affirmed.
The Court sought to determine whether the grounds on which the licensing authority claimed to act were vague, indefinite, or capable of serving as proper grounds for cancellation. The petitioners relied upon two further clauses of the Uttar Pradesh Coal Control Order, namely clauses (7) and (8), which they argued should be exempted. Clause (7) authorises the State Coal Controller, by means of a written order, to direct any person possessing a stock of coal to sell the whole or any part of that stock to a designated person or class of persons, on terms and at prices to be fixed in accordance with clause (8). Clause (8)(1) stipulates that no licence holder in Form ‘B’ may sell or agree to sell coal at a price that exceeds the price declared by the licensing authority, the price being determined according to the formula set out in Schedule III. The petitioners’ counsel contended, in substance, that the price‑determination formula contained in Schedule III is per se unreasonable because it depends upon an unfettered and uncontrolled discretion exercised by the licensing authority. It was further submitted that an unfair price determination by the licensing authority would completely destroy the business of coal traders, and that the grievance of the petitioners was precisely that the price declaration made on 16 July 1953 had effected such an unfair determination. The Court examined the formula contained in Schedule III of the Control Order with careful attention and, based on the material placed before it, concluded that it could not hold the formula to be unreasonable. The Court noted that, as already explained, the prices are calculated on the basis of the landed costs of coke and coal up to the depot, to which a profit margin of ten per cent is added. The landed costs comprise seven distinct items, all of which are enumerated in Schedule III. With respect to items 1, 2, 3, 4 and 6, the actual costs are taken into account, and on those items no objection can plausibly be raised. The entire dispute therefore centres on the incidental charges specified in item 5 and on the allowance or shortage that forms item 7. Regarding incidental charges, Schedule III permits a maximum of Rs 8‑8‑0 per ton, the amount to be determined by the licensing authority in accordance with local conditions. The Court recognised that rates inevitably vary according to local conditions and that some degree of discretion must inevitably be left to the local authorities. Nevertheless, the Court emphasized that the discretion conferred upon the licensing authority in fixing these rates is not unlimited; it must be exercised with reference to the conditions prevailing in the locality, conditions with which the local officers are presumed to be familiar. The petitioners’ grievance, as articulated, is that in the price declaration of 16 July 1953 the licensing authority allowed incidental charges only at
In this case the Court observed that the licensing authority had fixed the incidental charge at the rate of Rs 4‑12‑0 per ton, a rate the petitioners claimed to be grossly unfair. The petitioners argued that in cities such as Lucknow, Aligarh, Allahabad and other locations substantially higher rates had been allowed even though the local conditions in those places were almost identical to those in Kanpur. The petitioners therefore alleged that this disparity amounted to discrimination that rendered the declaration of 16 July 1953 void. The Court noted, however, that the petitioners had not produced any affidavit from a person familiar with the local conditions in the other places. On the basis of the material before it, the Court could not determine that the rates fixed by the Kanpur licensing authority were discriminatory. The Court further stated that it was not within its jurisdiction to replace the licensing authority’s determination of prices. Provided the Court was satisfied that the discretion conferred on the public officer was not unlimited and that no unfair discrimination resulted from its exercise, the Court could not declare any order or declaration of that officer to be illegal.
The Court applied the same reasoning to item 7 of Schedule III, which dealt with allowances for shortage of weight. The Control Order specified a maximum for this allowance, leaving the precise determination to the licensing authority’s discretion. The Court found no material before it indicating that this provision was unfair or discriminatory. The formula in Schedule III allowed a profit of ten per cent on the cost items, except for item 5, which related to incidental charges. The Court could not ascertain why item 5 was omitted, and the respondent’s counsel was unable to provide a reason. Nevertheless, the omission would merely reduce the profit margin slightly below ten per cent. The Court observed that, according to the respondents’ affidavits, other traders in the locality were prepared to conduct coal business with that level of profit, which would be in the public interest and could not be deemed unreasonable. The Court rejected the petitioners’ counsel’s contention that the Control Order fixed only a maximum profit of ten per cent and left the licensing authority free to reduce it arbitrarily. Schedule III, the Court clarified, fixed the profit at ten per cent of landed costs, except for item 5, and this figure was not a maximum but a mandatory rate that had to be applied in all cases. Accordingly, under clause 8(1) the “B” licencees were required to sell their coal stocks at the prices stipulated in Schedule III. Although clause 8(2) was not expressed in perfectly clear language, the Court interpreted it as imposing a restriction on licence holders from charging prices above the landed costs and from earning a profit exceeding ten per cent, as determined in accordance with Schedule III.
The Court observed that the Control Order imposed a disability on every holder of coal stocks, prohibiting them from charging a price that exceeded the landed cost and from earning a profit on such price that was higher than ten per cent, as may be determined by the licensing authority. The Court explained that any determination of profit had to follow the provisions laid down in Schedule III, which, as previously noted, specifies a fixed rate rather than a maximum rate and does not permit the licensing authority to reduce the rate at its discretion. After considering these provisions, the Court expressed the view that clauses 7 and 8 of the Control Order did not create unreasonable restrictions on the freedom of trade enjoyed by the petitioners, and consequently the declaration dated 16 July 1953 could not be declared invalid. The Court further held that clause 4(3) of the Control Order, together with the cancellation of the petitioners’ licence, must be declared invalid. Accordingly, the Court ordered that a writ in the nature of mandamus be issued against the opposite parties to prevent them from enforcing the cancellation order. The Court disallowed all other prayers made by the petitioners. No order as to costs was made. The petition was therefore partly allowed. Counsel for the petitioners was Ganpat Rai. Counsel for the respondents was C. P. Lal.