P. V. Sivarajan vs The Union Of India And Another

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

Court: Supreme Court of India

Case Number: Petition No. 121 of 1958

Decision Date: 11 December 1958

Coram: P.B. Gajendragadkar, S.K. Das, K.N. Wanchoo, M. Hidayatullah

The Court noted that the petition was brought by P V Sivarajan, who had been denied registration as an exporter and licensee for coir products, and that he challenged the validity of rules numbered 18, 19, 20(1)(a), 21 and 22(a) issued by the Central Government under section 26(1) of the Coir Industry Act, 1953 (Act 45 of 1953). The petition was filed on 11 December 1958 before a Bench comprising Justice P B Gajendragadkar, Justice S K Das, Justice K N Wanchoo and Justice M Hidayatullah. The Act was intended to regulate and control the coir industry in the public interest, and the petitioner contended that the impugned rules, which applied a quantitative test for registration of established exporters rather than a qualitative one, were inconsistent with the statutory scheme, exceeded the authority conferred on the Government, and consequently created a monopoly in the export trade of coir commodities. He further argued that the rules discriminated against small dealers, destroyed their business, and infringed articles 19 and 14 of the Constitution of India. The Court examined the provisions of the Coir Industry Act and the specific rules and observed that the Act contained no express restriction against the use of a quantitative test for registration. Accordingly, the rules were not inconsistent with the Act and were within the powers granted to the Central Government by section 26. The Court explained that when legislation seeks to control an industry for the public good, the rule‑making authority is entitled to determine the appropriate regulations, even if such regulations cause hardship to those who fail to comply. Once the necessity of regulation in the public interest is accepted, article 19(1)(g) cannot be invoked to invalidate the rules, and the rules are also not violative of article 14 because the classification of traders under rules 18 and 19 was based on an intelligible differentia that bore a rational relationship to the object of the Act. The exemption provided to co‑operative societies under the rules demonstrated that the legislature intended to encourage small traders rather than to create a monopoly. Consequently, the Court held that the petitioner’s contentions were without merit and dismissed the challenge to the rules.

In this case the Court observed that the legislature had intended to encourage small traders and therefore it was inaccurate to contend that the rules would create a monopoly in the trade. The petition, filed as original jurisdiction under petition number 121 of 1958, invoked Article 32 of the Constitution for the enforcement of fundamental rights. Counsel for the petitioner were G B Pai and Sardar Bahadur, while the respondents were represented by M C Setalvad, the Attorney‑General for India, and B Sen and T M Sen. The judgment was delivered on 11 December 1958 by Justice Gajendragadkar. The petitioner had been engaged for twenty years in the export of coir products to foreign markets. On 4 July 1958 he submitted an application to the second respondent, the Chairman of the Coir Board at Ernakulam, seeking registration as an established exporter. The application was accompanied by an income‑tax clearance certificate and attested copies of bills of lading. The second respondent rejected the application, stating that it was defective because the required certificate concerning the petitioner’s financial status had not been produced and there was no evidence that the petitioner had exported the minimum quantity of five hundred Cwts required by the regulations. He was instructed to satisfy these requirements within seven days, failing which the application would be dismissed without further notice. The petitioner was unable to comply with the directions, rendering it impossible for him to obtain the registration and licence he sought. Consequently, he instituted the present petition under Article 32, requesting that a writ of mandamus be issued directing the second respondent to grant him the registration and licence, and that the respondent be restrained from acting upon or implementing the rules made under the Coir Industry Act 1953 by issuing a writ of certiorari, prohibition, or any other appropriate order to protect his rights. The petitioner also sought a declaration, if deemed necessary, that the rules were ultra vires the powers of the Central Government and invalid for contravening the fundamental rights guaranteed by Articles 14 and 19. The Union of India was impleaded as the first respondent. Before addressing the substantive points raised, the Court found it necessary to briefly outline the provisions of the Coir Industry Act 1953, hereinafter referred to as the Act, and the rules framed thereunder in 1958. The Act had been enacted by Parliament because it was considered expedient in the public interest for the Union to assume control over the coir industry, as provided in section 2. Section 4 of the Act deals with the establishment and constitution of the Coir Board, and section 10 enumerates the board’s functions and duties. Under clause 10(1) the Board is charged with the duty to promote, by such measures as it deems appropriate, the development of the coir industry under the supervision of the Central Government.

In this case the Court explained that the Act required the development of the coir industry to be placed under the control of the Central Government. Sub‑section (2) of the relevant provision listed the specific measures that the Board could employ to achieve this development, without limiting the general scope of sub‑section (1). Among the measures enumerated, sub‑section (2)(b) authorized the Board, under Central Government supervision, to regulate the production of husks, coir yarn and coir products by registering coir spindles and looms used for manufacturing, by registering manufacturers of coir products, by licensing exporters of coir yarn and coir products, and by taking any other appropriate steps that might be prescribed. Sub‑section (2)(g) directed the promotion of cooperative organisations among producers of husks, coir fibre and coir yarn, as well as among manufacturers of coir products. Sub‑section (2)(l) dealt with the licensing of retting places and warehouses and with the regulation of the stocking and sale of coir fibre, coir yarn and coir products for both the domestic market and for export. Section 26(1) gave the Central Government the authority to make rules for giving effect to the purposes of the Act, subject to the condition that such rules be published beforehand. Section 26(2) enumerated the matters on which the Government could make rules, expressly stating that this enumeration was without prejudice to the broad power conferred by sub‑section (1). Sub‑section (2)(k) referred, inter alia, to the registration of manufacturers of coir products, the conditions attached to such registration, and the grant or issue of licences under the Act. Sub‑section (2)(l) addressed the form of applications for registration and licences, as well as any fee that might be payable in respect of those applications. Exercising the powers under Section 26, the Central Government framed rules in 1958, which are relevant to the present petition. For the purposes of the petition, the Court highlighted Rules 17 to 22. Rule 17 concerned the registration and licensing of exporters, providing that no person could export coir fibre, coir yarn or coir products after the rule came into force unless the person was registered as an exporter and had obtained an export licence pursuant to the rule; the proviso to this rule dealt with certain exemptions that were not before the Court. Rule 18 stipulated that any person who, in any of the three years immediately preceding the commencement of the rules, had exported at least twenty‑five tons of coir yarn or coir products other than coir rope, or had exported any quantity of coir fibre or coir rope, could be registered as an exporter of the relevant commodity. Rule 19 provided for the registration of persons not covered by Rule 18, specifying that such persons could be registered as exporters of coir yarn if, during the twelve‑month period immediately preceding the application date, they had rehanked a minimum quantity of twenty‑five tons of coir yarn. The Court noted these provisions as the operative basis for the challenges raised in the petition.

It was observed that an applicant could satisfy the requirement for registration by either baling the coir yarn in a factory that was owned or otherwise possessed by the applicant and that factory was required to be registered under the Indian Factories Act, 1948, or, alternatively, by demonstrating that the applicant had achieved a total purchase turnover of one hundred tons of coir yarn. The rule further provided a proviso whereby the Chairman, by way of a notification, could exempt from the operation of that rule any co‑operative society whose members were owners of industrial establishments, as well as any Central Co‑operative Marketing Society. Rules 20 and 22 were said to prescribe respectively the procedure for making an application for registration as an exporter and for obtaining a licence, while Rule 21 dealt with the cancellation of registration. The petitioners did not contest the validity of any provision of the Coir Development Act itself; rather, they sought to challenge the constitutional validity of Rules 18, 19, 20(1)(a), 21 and 22(a). The Court noted that coir and coir products are of considerable importance to the national economy, generating foreign‑exchange earnings amounting to roughly ten crore rupees annually. It was recognised that the export trade in these commodities had been beset by several malpractices, including non‑fulfilment of contracts, supply of inferior quality goods and cut‑throat competition, which had adversely affected the volume of trade. Consequently, Parliament had deemed it necessary for the Union to assume control of the coir industry in order to regulate its export trade, leading to the establishment of the Coir Board and the introduction of a system of registration and licensing of exporters. The petitioner accepted this overall policy objective and did not raise any grievance against the Act’s substantive provisions. However, the petitioner argued that the specific rules that imposed a quantitative test for the registration of established exporters were ultra vires, contending that the introduction of that test was inconsistent with the Act. In support of this claim, counsel for the petitioner relied on the report of the Ad‑Hoc Committee for external marketing, appointed by the Coir Board on 20 August 1954, asserting that the Committee’s report did not recommend a quantitative test but suggested a qualitative test would be more suitable, and that the quantitative test therefore had been improperly prescribed. The Court, however, was not persuaded by these arguments. It held that the Act contains no provision that excludes or prohibits the use of a quantitative test in rules governing the registration of exporters or the issuance of export licences. Moreover, the Act deliberately leaves to the rule‑making authority the discretion to frame such rules as it deems appropriate for regulating the trade, making it untenable to argue that the authority was bound to adopt a qualitative rather than a quantitative test.

Besides, the Court observed that the committee report on which the petitioner’s counsel relied did not unequivocally show a preference for a qualitative test. In fact, Appendix XI of that report appeared to indicate that the committee was not opposed to using a quantitative test. The Court further noted that even if the committee had explicitly recommended a qualitative test instead of a quantitative one, it would be unreasonable to assume that the Coir Board was obliged to follow that recommendation, nor that the Central Government lacked authority to formulate rules contrary to the committee’s view. The Court explained that the validity of the impugned rules could be challenged only if it were demonstrated that the rules were inconsistent with the provisions of the Act or that they exceeded the powers granted to the rule‑making authority by section 26 of the Act. In the Court’s opinion, no such infirmity had been established with respect to the challenged rules.

The petitioner further contended that the rules would effectively create a monopoly in the export trade of coir products, thereby destroying the business of small dealers like himself. It was also argued that the application of a quantitative test discriminated between large‑scale and small‑scale traders, invoking Articles 19 and 14 of the Constitution, and alleging that the rules violated the petitioner’s fundamental rights under those articles. The Court found no substance in this contention. Assuming that regulation of the coir industry serves the public interest, the Court held that it would be difficult to accept the proposition that regulation must be based exclusively on a qualitative test. The Court recognized that practical difficulties might arise in introducing and enforcing a qualitative test, and noted that it is not unprecedented for authorities to grant export or import licences on the basis of a quantitative test, especially for essential commodities. It was therefore left to the rule‑making authority to decide which test best serves the public interest and which method is most effective for controlling the industry for the nation’s benefit.

The Court further observed that even a qualitative test could, in some cases, eliminate the trade of individuals who fail to satisfy the test, but such an outcome does not automatically constitute a violation of fundamental rights under Article 19. Regulation and control of any trade, even when reasonable within the meaning of Article 19, sub‑article (6), may cause hardship to certain traders who are unable to meet validly‑introduced regulatory requirements. Nonetheless, once it is accepted that the regulation and control of the coir trade are justified in the public interest, a person who does not meet the rules cannot invoke his fundamental right under Article 19(1)(g) to challenge the validity of the regulation. Consequently, the Court concluded that the challenge to the rules on the ground of Article 19 must fail, and the challenge on the ground of Article 14 must also fail because the classification made by rules 18 and 19 is rational, grounded on an intelligible differentia, and related to the object sought to be achieved by the Act.

In this case, the Court observed that because the control of the trade is justified in the public interest, a person who fails to satisfy the prescribed rules or regulations cannot invoke his fundamental right under article 19(1)(g) to challenge the validity of the regulation or rule in question. In the Court’s opinion, therefore, any challenge to the validity of the rules on the ground that they infringe article 19 must fail. The Court also held that a challenge to the validity of the same rules on the ground of article 14 must likewise fail, because the classification of traders created by rules 18 and 19 is clearly rational and is based on an intelligible differentia that distinguishes persons who fall within one class from those who fall within the other class. It is further evident that the differentia has a rational relation to the object that the Act seeks to achieve.

The Court pointed out that the export trade in coir commodities had revealed a large number of malpractices which had not only reduced the volume of trade but also damaged the reputation of Indian traders. One of the principal reasons for this undesirable situation was that exporters sometimes accepted orders far beyond their capacity, which inevitably led to the non‑fulfilment of contracts or to the supply of inferior commodities. To remedy this condition, the Court explained, the trade needed to be regulated, and consequently the prospective exporter was required to satisfy the test of a prescribed minimum capacity and to establish the prescribed minimum status before his application for registration could be granted.

The Court further noted that the rules appear to provide for exemption from the operation of some of the relevant tests for cooperative societies. This shows that the Legislature intended to encourage small traders to form cooperative societies and to carry on export trade on behalf of such societies, and therefore the argument that the impugned rules would create a monopoly in the trade could not be accepted. It is thus clear that the chief object of the rules is to eliminate the anomalies and malpractices that were prevalent in the export trade of coir commodities and to place that trade on a firm and enduring basis in the interest of the national economy.

Having considered these points, the Court was satisfied that the challenge to the impugned rules on the ground of infringement of article 14 of the Constitution must also fail. Consequently, the Court held that the petition contained no substantive basis, dismissed the petition, and ordered that the petition be dismissed with costs.