State of Rajasthan vs Nath Mal and Mitha Mal

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 136 of 1952

Decision Date: 12 March 1954

Coram: Ghulam Hasan, Mehar Chand Mahajan, B.K. Mukherjea, Vivian Bose

The Supreme Court of India decided the case titled State of Rajasthan versus Nath Mal and Mitha Mal, and delivered its judgment on 12 March 1954. The judgment was authored by Justice Ghulam Hasan and the bench was composed of Justices Ghulam Hasan, Mehar Chand Mahajan, B.K. Mukherjea and Vivian Bose. In the proceeding the State of Rajasthan appeared as the petitioner and the two grain dealers, Nath Mal and Mitha Mal, were the respondents. The report of the decision appears in the 1954 volume of the All India Reports at page 307 and in the 1954 Supreme Court Reporter at page 982, with later citators recorded in various law reports. The matter concerned the constitutional validity of clause 25 of the Rajasthan Foodgrains Control Order of 1949, specifically whether the provision was ultra vires the Constitution of India. The constitutional provisions examined were article 19(1)(f), which guarantees the freedom to carry on any trade, business or profession, and article 31(2), which deals with the requirement of just compensation for acquisition of property. The Court’s headnote summarised that the first part of clause 25, which authorised the freezing of food-grain stocks, was held not to be void under article 19(1)(f). The Court reasoned that the freezing was reasonably related to the purpose of securing equitable distribution, fair prices and regulation of transport, distribution, disposal and acquisition of an essential commodity. The Court further held that the last part of clause 25, which permitted the authority to requisition or dispose of such stocks at rates fixed for government procurement, was void. It was void because it imposed an unreasonable restriction on the respondents’ right to conduct trade under article 19(1)(f). The Court also declared the provision void under article 31(2) because it failed to fix a compensation amount or specify the principles for determining compensation, leaving the discretion entirely to the executive authority. The appeal, filed as Civil Appeal No. 136 of 1952, was brought under articles 132(1) and 133(1)(c) of the Constitution. It challenged the judgment and order dated 19 October 1951 of the High Court of Judicature for Rajasthan at Jodhpur in D.B. Miscellaneous Writ Petition No. 3 of 1951. The State of Rajasthan was represented by the Advocate-General, while the respondents were defended by counsel, and the Union of India intervened through the Attorney-General of India and his junior. Justice Ghulam Hasan delivered the judgment, beginning with a discussion of the factual background that the respondents were grain merchants operating out of Raniwala in Jodhpur Division, Rajasthan. They were holding licences for dealing in food grains.

In Jodhpur Division of Rajasthan State the respondents were licensed grain merchants who regularly dealt in foodgrains and maintained substantial stocks of bajra in the ordinary course of their business. On 7 October 1950 the Deputy Commissioner of Civil Supplies, acting through the Sub-Divisional Officer, ordered that the respondents’ bajra stocks be frozen. The market price of bajra at that time was undisputedly about rupees 18 per maund. Nevertheless the State requisitioned the frozen stocks at a price of rupees 9 per maund and subsequently sold the grains at the rate of rupees 13-5-4 per maund. The respondents contended that they had originally purchased the bajra at the prevailing market price of between rupees 17 and rupees 18 per maund. Accordingly, on 23 January 1951 they filed a petition before the High Court of Rajasthan under article 226 of the Constitution, seeking a writ that would declare clause 25 of the Rajasthan Foodgrains Control Order, 1949, void on the grounds that it violated articles 14, 19(1)(g) and 31(2) of the Constitution. The High Court held that clause 25 imposed an unreasonable restriction on the respondents’ fundamental right to carry on business under article 19(1)(g) and that the restriction could not be justified under clause (6) of article 19. The Court further found that the clause infringed article 31(2) because the law had not fixed a fair amount of compensation for the acquisition of the foodgrains. Since the grains had already been disposed of, the High Court determined that a compensation of rupees 17 per maund was appropriate and directed the State of Rajasthan to pay that amount to the respondents. The State appealed the decision, obtaining a certificate from the High Court to support the appeal. Clause 25, which is the subject of the appeal, reads as follows: “Notwithstanding anything contained in this Order, the Commissioner, the Director, the Deputy Commissioner, the Nazim, the Assistant Commissioner, the Sub-Divisional Officer, the Senior Officer of a jurisdictional Thikana, the enforcement officer or such other officer as may be authorized by the Commissioner in this behalf, may freeze any stocks of foodgrains held by any person, whether in his own behalf or not, and such person shall not dispose of any foodgrains out of the stock so freezed except with the permission of the said authority. Such stocks shall also be liable to be requisitioned or disposed of under orders of the said authority at the rate fixed for purposes of Government procurement.”

The respondents’ submission also emphasized that bajra is classified as an essential commodity under the Essential Supplies Act, No. XXIV of 1946. The Court therefore needed to consider the extent to which clause 25 might be invalid as a violation of Part III of the Constitution. The clause authorises the Commissioner, together with a range of other officials enumerated therein, and any additional officers whom the Commissioner may empower, to freeze any stock of foodgrains that any person holds. It is acknowledged that the Commissioner possesses a broad power to delegate his authority to other officers at his discretion. The issue before the Court is to determine whether the scope and operation of this delegated power, in the context of the Essential Supplies Act and the statutory policy governing the control of production, supply and distribution of essential commodities, render clause 25 unconstitutional.

In this case, the Court observed that the provision allowing the Commissioner to appoint another officer at his discretion was expressed in rather broad terms, but the Court did not consider that this breadth alone was sufficient to render the clause invalid. The Court noted that, although the power had not been exercised in the present matter, it was not arbitrary nor was it without a reasonable basis. The Court recognized that the clause did not explicitly state the circumstances or grounds on which stocks might be frozen; however, it should be read together with section 3 of the Essential Supplies Act, which sets out the policy for controlling the production, supply and distribution of essential commodities. Section 3, insofar as it was material, provided that the Central Government could, when it deemed necessary or expedient for maintaining or increasing supplies of any essential commodity, or for securing their equitable distribution and availability at fair prices, issue an order to regulate or prohibit the production, supply and distribution thereof. Sub-section 2 of the same section further authorized an order to provide for, among other matters, the regulation by licences, permits or other means of the storage, transport, distribution, disposal, acquisition, use or consumption of any essential commodity, and for prohibiting the withholding from sale of any essential commodity ordinarily kept for sale.

The Court therefore concluded that the freezing of food-grain stocks was reasonably related to the object of the Act, namely, to ensure equitable distribution and availability at fair prices and to regulate the transport, distribution, disposal and acquisition of essential commodities such as food grains. Consequently, the Court disagreed with the High Court’s conclusion that the first part of clause 25 was void under article 19(1)(g). The Court, however, considered the latter part of clause 25 – which stated that such stocks “shall also be liable to be requisitioned or disposed of under orders of the said authority at the rate fixed for purposes of Government procurement” – to be on a different footing. The wording of that provision, the Court held, left it entirely to the Government to requisition the stocks at any rate it fixed and to dispose of them at any rate it chose, thereby vesting an unrestrained authority to requisition food-grain stocks at an arbitrary price.

In contrast, the Court referred to clauses 23 and 24 of the Control Order. Clause 23 authorised the Commissioner, the Director, the Deputy Commissioner or the Senior Officer of a jurisdictional Thikana, with the approval of the Director, to fix ceiling prices at which food grains in the applicable area should be sold and to vary those prices from time to time. Clause 24 allowed the same officials, including the Nazim, the Assistant Commissioner, the Sub-Divisional Officer or the Senior Officer of the jurisdictional Thikana, to direct any person possessing food grains, whether on his own behalf or not, to sell such grains, or a part thereof, to any other person at any specified place and at the price fixed under clause 23. The Court observed that while these clauses imposed a ceiling price on market sales and permitted direction of sale, they did not limit the Government’s power to acquire the stocks. Thus, the Government could requisition the frozen stocks at a price lower than the ceiling price, causing a loss to the owners, while simultaneously selling the same stocks at a higher price and making a profit. The Court noted that this situation would understandably prejudice the dealer whose stocks had been frozen.

In this case, the Court observed that clause 23 authorises the authorities to direct any person who possesses foodgrains, whether on his own behalf or otherwise, to sell those foodgrains or any part thereof to any other person at a designated place and at the price fixed under clause 23. From the language of the clauses, the Court noted that although the authorities may determine a ceiling price at which dealers must sell foodgrains in the market and may order any holder of foodgrains to sell them at that ceiling price, there is no parallel restriction placed on the Government’s power to acquire the stocks. Consequently, the Government could requisition the stocks at a price lower than the ceiling price, thereby causing a loss to the persons whose stocks are frozen, while simultaneously being free to sell the same stocks at a higher price and realise a profit. The Court explained that a dealer whose stocks are frozen would suffer a considerable loss and would be unable to continue his trade or business at prevailing market rates. Moreover, no dealer would be willing to purchase foodgrains at market rates if he knew that his own stocks could be frozen at any moment and then requisitioned at the government procurement rate. The Court described the present situation as a typical illustration of how the business of a grain dealer can be paralysed. It was admitted that the Government procurement rate was Rs 9 per maund whereas the market rate was Rs 17 or Rs 18 per maund, resulting in the stock holder incurring a loss of nearly fifty per cent while the Government earned a profit of about Rs 4-5-4 per maund on the requisitioned stock. Accordingly, the Court held that the latter part of clause 25 imposes an unreasonable restriction on the conduct of trade or business and therefore infringes the respondent’s right under article 19(1)(g) of the Constitution; the clause is void to that extent. The Court further observed that the same conclusion follows when the clause is examined in the light of article 31(2). By vesting in the authority the power to acquire stocks at any price, the clause fails to specify the amount of compensation or the principles for determining compensation, leaving the discretion entirely to the executive authority. The High Court had correctly held that the clause violated article 31(2). For these reasons, the Court declared the latter portion of clause 25 void and dismissed the appeal with costs. The appeal was dismissed. The agent for the appellant and for the intervener was identified as R H Dhebar.