Raigarh Jute Mills Ltd vs Eastern Railway And Another

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

Court: supreme-court

Case Number: Civil Appeal No. 231 of 1954

Decision Date: 24 March 1958

Coram: P.B. Gajendragadkar, S.K. Das

In this matter, the Supreme Court of India delivered its judgment on 24 March 1958. The decision was recorded by Justice P.B. Gajendragadkar, who sat on the bench together with Justice S.K. Das. The parties before the Court were Raigarh Jute Mills Limited, who acted as the petitioner, and Eastern Railway together with an additional respondent. The case was cited as 1958 AIR 525 and later reported in 1959 SCR 236. The dispute arose under the Indian Railways Act of 1890, specifically invoking sections 28 and 41, which govern railway rates and freight charges. The petitioner owned jute mills located in Raigarh, a town in the state of Madhya Pradesh, and it relied on railway transport to bring raw jute into the mills and to ship finished products to ports for export. Competing jute mills situated in West Bengal and Madras possessed facilities that allowed them to ship directly to ports without using the railway, thereby enjoying a cost advantage. Because of this situation, the petitioner claimed that it could not lower the price of its products to a competitive level for either export or domestic sale. Accordingly, the petitioner lodged a complaint before the Railway Rates Tribunal, alleging that the railway administration had violated section 28 by granting special, lower rates to certain stations in the same railway zone for shipments destined for Kanpur, rates that were cheaper than those levied for shipments from Raigarh to other stations. The petitioner asserted that the freight charges imposed on its goods were unreasonable and excessive.

The Tribunal examined the allegation and concluded that the petitioner had not demonstrated any competition between the goods of the Kanpur mills and those of Raigarh Jute Mills. Consequently, the Tribunal held that the mere existence of more favourable rates for the Kanpur mills did not invoke the provisions of section 28, unless there was a direct competitive relationship and an undue preference shown by the railway administration toward the petitioner's competitor. The Court relied on several earlier decisions, including Nitshill and Lesmahagow Coal Company v. The Caledonian Railway Company (1874), Denaby Main Colliery Company v. Manchester, Sheffield and Lincolnshire Railway Company (1886), Lancashire Patent Fuel Company Limited v. London and North‑Western Railway Company (1904), and Lever Brothers Limited v. Midland Railway Company (1909). In addition, the Court observed that when assessing the reasonableness of railway freight charges, the principal considerations should be the railway’s actual working costs and other material circumstances. Factors such as the petitioner’s geographical location, which required it to incur additional transport expenses, the cost of producing the jute goods, and prevailing market commodity prices, were held to be irrelevant to the determination of whether the rates were unreasonable or excessive.

In this case, the Court observed that the additional expenses of transport, the cost incurred in producing the jute goods, and the commodity prices prevailing in the market have no relevance to the question before the Tribunal. The matter arose as Civil Appeal No 231 of 1954, filed under special leave against the judgment and order dated 17 August 1953 of the Railway Rates Tribunal at Madras in Complaint Case No 5 of 1952. Counsel for the appellant represented Raigarh Jute Mills Ltd., while counsel for the respondents, including the Additional Solicitor‑General of India, appeared for the railway authorities. The appeal was decided on 24 March 1958, and the judgment was delivered by Justice Gajendragadkar. The appeal challenged the Tribunal’s dismissal of the appellant’s complaint under section 41 of the Indian Railways Act 9 of 1890 (the Act). The appellant, Raigarh Jute Mills Ltd., is a limited company that owns jute mills situated in Raigarh, Madhya Pradesh. To manufacture jute products, the appellant must procure raw jute from numerous railway booking stations outside Madhya Pradesh, and there exists no alternative mode of transport other than rail for both bringing the raw material to the mills and carrying the finished goods to ports for export. In its complaint, the appellant alleged that the railway administration had violated the provisions of section 28 of the Act and that the freight charges imposed on its goods were unreasonable and excessive. The appellant asserted that the Assam Railway (now the North‑Eastern Railway) offered special rates for jute from certain stations in its zone to Kanpur, rates that were cheaper than those charged between Raigarh and stations on the East Indian Railway and the Bengal‑Nagpur Railway (now the Eastern Railway). Both the Eastern Railway and the North‑Eastern Railway are State Railways, and the appellant contended that neither railway was entitled to grant differential treatment. Furthermore, the appellant argued that other jute mills in West Bengal and Madras could ship their goods directly to ports without rail carriage, whereas the appellant was required to pay rail freight for the entire movement of its traffic, both inbound and outbound. Consequently, the appellant claimed that the cost structure prevented its products from attaining competitive prices for export or domestic sale. The appellant attached a table of the two railways’ freight rates to its complaint and emphasized that the unusual increase in rates imposed on it weighed heavily compared with other mills. The appellant maintained that the freight rates should be fixed on the basis prevailing in 1949, asserting that the market conditions had reverted to the level existing in that year.

The complaint asked that, because the rates then in force were unreasonable and excessive, the tribunal should be directed to order the introduction of rates that were fair and reasonable. At the time the complaint was originally filed, the East Indian Railway, whose head office was in Calcutta, and the Bengal‑Nagpur Railway, whose head office was in Kidderpore, were named as respondents. After the two railways were reorganised, the plaintiff amended the pleading so that the Eastern Railway, with its headquarters in Calcutta, replaced both of the original railway respondents. Subsequently, the Union of India was added as respondent number two to the case. Both of the railway respondents denied the allegations set out in the complaint. In their defence they asserted that the tariff rates that applied to the movement of juse were reasonable and not excessive. The respondents further contended that, apart from pointing out special rates that applied to traffic from certain stations on the Assam‑Railway section of the NorthEastern Railway to Kanpur, the plaintiff had failed to produce any concrete evidence, facts or figures that could even establish a prima facie case that the prevailing juse tariff rates were unreasonable. The respondents argued that the fact that the plaintiff’s mill was located far from the port, and therefore incurred additional costs, was irrelevant to the issues raised in the complaint and could not be taken as a basis for granting any special rates. The Union of India raised an additional plea, stating that even after the reorganisation the two railways in question remained separate entities operating in different regions with somewhat divergent local conditions; consequently they did not constitute a single railway administration within the meaning of the Act and section 28 was therefore inapplicable. On the basis of these contentions the tribunal formulated four principal issues for determination. All three members of the tribunal agreed that the freight rates for transporting juse to Kanpur from certain stations in the Katihar section of the North‑Eastern Railway were lower than the rates for transporting the same commodity to Raigarh, a fact that had been expressly conceded before the tribunal. The tribunal then examined whether the disparity in those rates amounted to “undue” preference under section 28 of the Act. The members differed on this point. The President, Mr Lokur, and the member, Mr Roy, held that the two railways together formed one railway administration. They reasoned that it was just and equitable to regard the administration not only as the manager but also, in this context, as the Government. Nevertheless, they were not convinced that the difference in rates justified the plaintiff’s claim of “undue” preference, and therefore they dismissed the grievance that the railway administration had violated section 28. The third member, Mr Subbarao, was inclined to adopt the view that, though the

Mr Subbarao observed that although the ultimate authority over both railways rested with the Government or its representative, namely the Railway Board, the day‑to‑day management of the separate zones was exercised by their respective managers; consequently, the two railways could not be regarded as a single railway administration. On that basis, he rejected the appellant’s claim of “undue” preference, holding that section 28 of the Act was not applicable to the facts of the case. As a result, every member of the Railway Rates Tribunal concluded that the allegation of “undue” preference was untenable. Regarding the appellant’s contention that the increase in freight rates for transporting jute to Raigarh was unreasonable and excessive, the President, Mr Lokur, and Mr Subbarao found that the appellant had failed to prove the plea with any evidence, whereas Mr Roy judged that the rates were indeed unreasonable and excessive. Because the majority of the members—Mr Lokur, Mr Subbarao, and the President—were against the appellant on this issue, the complaint was dismissed. The appellant subsequently approached this Court by way of a special leave appeal against the tribunal’s order dismissing the complaint. Before examining the merits of the appellant’s arguments, the Court briefly set out the relevant provisions of the Act as they stood at the material time. Section 26 excluded the jurisdiction of ordinary courts over acts or omissions of a railway administration as specified in that section. Section 34 prescribed the constitution of the Railway Rates Tribunal, stating that it consisted of a President and two other members appointed by the Central Government. The tribunal was required to determine complaints with the assistance of a panel of assessors as mandated by section 35. Section 46 provided that the tribunal’s decision was to be made by a majority of the members present and that such decision was final. The Court noted, however, that the finality of the tribunal’s decision did not curtail the Court’s jurisdiction under Article 136 of the Constitution. The Court then outlined the substantive provision on which the appellant’s grievance was based. Section 28 declared that a railway administration must not give any undue or unreasonable preference or advantage to any particular person, railway administration, or class of traffic, nor subject any such person or class to any undue or unreasonable prejudice or disadvantage. A breach of section 28 could give rise to a complaint under section 41(1)(a), which provides for complaints against a railway administration on five distinct grounds enumerated in clauses (a) through (e). In the present matter, the appellant’s complaint invoked clauses (a), (b) and (c) of section 41(1), dealing respectively with alleged contravention of section 28, unreasonable station‑to‑station or wagon‑load rates, and unreasonable charges levied by the railway administration.

Section 41(1) listed clauses (a) through (e) and required that any tribunal hearing complaints under the provision must conduct the hearing and give its decision in accordance with the rules of chapter V. In the present matter the Court was concerned with clauses (a), (b) and (c) of paragraph 1 of subsection 1. Clause (a) related to alleged violations of the provisions of section 28; clause (b) dealt with allegations that the railway administration was charging station‑to‑station or wagon‑load rates that were unreasonable; and clause (c) covered cases in which the railway administration was alleged to be levying charges that were unreasonable. Subsection 2(i) of section 41 stipulated that once it was shown that the railway administration charged a lower rate to one trader, a class of traders, or traders in a particular locality for the same or similar goods than it charged to other traders, a class of traders, or traders in another locality, the burden of proving that such lower charge did not amount to “undue” preference rested upon the railway administration. Subsection 2(ii) added that, in determining whether a charge amounted to “undue” preference, the tribunal could, apart from any other considerations, take into account whether the lower charge was necessary in the public interest. The resolution of the questions raised by the appellant therefore depended upon the scope and effect of the provisions contained in sections 28 and 41 of the Act.

Section 28 was founded on the principle that the monopoly power of railway carriage must be exercised in a fair and just manner toward all persons and all descriptions of traffic using the railway. In other words, the normal rule required that equal charges be imposed on persons or goods of the same or similar kind that travelled over the same or similar portions of the railway under comparable circumstances. However, this rule did not mean that every instance of unequal rates automatically attracted the operation of section 28. Not all cases of unequal rates could be characterised as cases of “preference,” because the concept of preference presupposes competition between the party receiving the benefit and the party suffering the disadvantage. A complaint of preference could be made only where competitors in the same trade were involved. Where no such competition existed, no complaint of preference could be entertained even though the charges on similar goods might differ. The Court recognised that competition might be assumed for similar commodities placed on the market in the same area for domestic consumption, but such competition could not be presumed for traffic involving goods intended for export.

The Court explained that a question of preference arises only when goods or persons can be described as pari passu, meaning they stand on equal footing. Consequently, the issue of applying section 28 emerges only where competition between two persons or two classes of goods is either acknowledged or proven. Even when such competition exists, merely showing that a preference exists is insufficient to invoke the provisions of section 28, because not every instance of preference necessarily amounts to “undue” preference. The Court held that a complaint can be entertained under section 41(1)(a) only when the tribunal is satisfied that the railway administration has demonstrated undue preference in favour of a particular class of goods. Accordingly, the position under section 28 is clear: any party alleging that the railway administration has violated section 28 must establish that a preference exists between the complainant’s goods and those of a competitor. If the tribunal finds that such preference is, in fact, undue, the complainant becomes entitled to the relief provided by section 41(1)(a) of the Act.

The Court further observed that when a complaint is examined under section 41, the complainant initially bears the burden of proving preference by showing that rates are unequal and that the competitor’s goods are charged at a lower rate. Once this burden is met, the onus shifts to the railway administration to demonstrate that the lower charge does not constitute undue preference. If the railway administration fails to produce satisfactory evidence justifying the unequal rates, the tribunal may conclude that the disparity amounts to undue preference. Conversely, if the administration furnishes evidence showing a legitimate justification for the rate difference, the tribunal is not obliged to find a violation of section 28 merely because the rates are unequal. In assessing whether the alleged preference is undue, the tribunal may also consider whether the lower charge was necessary in the public interest, a consideration rooted in the provisions of section 41(2)(i) and (ii). The Court indicated that English decisions on similar matters are relevant to this analysis.

In discussing the matter, the Court noted that several earlier decisions had been brought to its attention. It first referred to the case of Lever Brothers, Limited v. Midland Railway Company, reported in (1909) XIII Railway and Canal Traffic Cases at page 301. In that case, the Court had held that the railway was not required to explain the difference in rates on which the complaint was based because the applicants had not shown that Messrs. J. W. & Sons, Limited—the company that had received the lower rate—were competitors of Lever Brothers, Limited. The judgment observed that although the rates charged to the two companies differed, the difference did not by itself amount to an undue preference by the Midland Railway Company in favour of Watsons as competitors of Lever Brothers. The failure to establish competition between the two firms meant that section 27 (1) of the Railway and Canal Traffic Act of 1888 could not be applied, and consequently the complaint was dismissed.

Next, the Court examined the decision in Lancashire Patent Fuel Company Limited v. London and North‑Western Railway Company, reported in (1904) XII Railway and Canal Traffic Cases at pages 77 and 79. That authority held that no competition existed between coal that was transported for shipment and coal that was carried for a trader, and therefore a claim based on undue preference was not competent. Although it was proved that the appellant’s slack was charged at a higher rate than slack carried for ordinary shipment, the Court rejected the complaint on the ground that the slack carried for the appellant never competed with the slack carried for ordinary shipment.

The Court then turned to The Nitshill and Lesmahagow Coal Company v. The Caledonian Railway Company, reported in (1874) 11 Railway and Canal Traffic Cases at pages 39 and 45. In that case, the railway administration was found to have shown undue preference because it was demonstrated that the goods that were charged at different rates were commercially and substantially of the same description and that they were in competition with each other. The central issue was whether the goods were of the same commercial description. The Court accepted the complainant’s case, finding that the two articles were substantially of the same description, could be regarded as competitive, and therefore should not have been subject to different rates. This decision illustrated that when unequal rates are imposed for the carriage of similar or identical goods over similar routes, an inference of undue preference may be drawn unless the railway can justify the difference with valid reasons.

Finally, the Court mentioned the case of Denaby Main Colliery Company v. Manchester, Sheffield, and Lincolnshire Railway Company, reported in (1904) XII Railway and Canal Traffic Cases at page 301, noting the observations made by the Earl of Selborne in that judgment. The reference was offered to further illuminate the principle that mere inequality of rates does not automatically constitute undue preference absent competition and justification.

In the earlier discussion, Lord Selborne, in his speech, observed that he did not think it possible to hold, given the context of the material words, that “the mere fact of inequality in the rate of charge when unequal distances are traversed can constitute a preference inconsistent with them”. It was then pointed out that the provisions of section 2 of the Railway and Canal Traffic Act, 1854 (17 & 18 Vict. c. 31) were substantially similar to the provisions of section 28 in the present Act. Consequently, based on those authorities, the Court explained that a complaint filed under section 41(1)(a) could succeed only if the complainant demonstrated that the railway administration had shown a preference to the complainant’s competitor and that the administration had failed to produce evidence justifying such preference. The Court then indicated that it must now examine the merits of the appellant’s case in light of that legal position. The Court observed that the appellant’s application did not, in any terms, allege any “undue” preference. Counsel for the appellant, Mr Isaacs, conceded that the application had not been well‑worded and added that the pleadings of both parties were far from satisfactory. The Court agreed that the pleadings were indeed unsatisfactory, but stressed that if the appellant wished to sustain a claim under section 41(1)(a), it was essential to set up a specific allegation of “undue” preference. The application did allege that the mills at Kanpur could transport raw jute at a lower rate, yet it made no allegation that the goods of the Kanpur mills and the goods of the appellant (1) (1886) 11 App. Cas. 97,114. were in competition in the market. Conversely, the application referred to an advantage enjoyed by the jute mills in West Bengal and Madras over the appellant. Reading the entire complaint, the Court found that, by necessary implication, the appellant was relying on competition between the goods of the West Bengal and Madras mills and the appellant’s own goods. The appellant also asserted that the rates charged for transporting its goods were unreasonable and excessive; the Court noted that this constituted a separate part of the complaint to be dealt with later. The Court therefore concluded that it would be difficult to accept counsel’s argument that the complaint should be read as containing an allegation of competition between the appellant and the Kanpur mills. Since the complaint made no such allegation, the Court held it would be unfair to criticize the respondents for not denying the existence of such competition. Moreover, the Court pointed out that, apart from this technical difficulty, the appellant failed to refer to any evidence on which a finding of competition between the goods produced by the Kanpur mills and the appellant’s goods could be based. Counsel had reviewed the evidence of Amritlal

The Court observed that the testimonies of the witnesses identified as Bannerjee, Mustafi and Paul did not contain any statement indicating that the goods produced by the Kanpur mills competed with the appellant’s goods. The limited material that was examined on the record suggested instead that the output of the Kanpur mills was primarily dispatched to local markets for domestic consumption and therefore did not enter the same competitive field as the appellant’s products. This appears to explain why the appellant was unable to allege any competition between its own goods and those of the Kanpur mills, and why none of the witnesses addressed such a claim. Consequently, counsel for the appellant was forced to rely on statement R‑18, which had been filed by the respondents, in an attempt to demonstrate that the appellant’s goods travelled to certain centres in India that might also receive the goods of the Kanpur mills. The Court regarded this reliance as a desperate argument that offered no assistance to the appellant. One of the issues raised before the tribunal concerned the volume of traffic, and in connection with that issue the respondents had prepared and filed relevant statements. The Court found it unreasonable to use excerpts from those documents to decide whether the appellant’s goods and the Kanpur mills’ goods competed in Indian markets. Had the appellant sought to introduce evidence on this point, the respondents would have been entitled to rebut it. At this stage, attempting to construct a case of alleged competition by citing isolated statements from a document that was filed for an entirely different purpose was considered untimely. On the basis of the evidence presently before the Court, there was no difficulty in accepting the tribunal’s view that competition between the goods of the Kanpur mills and the appellant’s goods had neither been alleged nor proved in these proceedings. If that view is correct, the mere fact that the Kanpur mills’ goods are transported at more favourable rates does not bring the matter within the scope of section 28 of the Act.

The remaining issue for determination was whether the appellant had demonstrated that the freight rates imposed by the railway administration on the appellant’s goods were inherently unreasonable. The Court noted that the appellant had produced no evidence to support such a claim. While the appellant’s complaint unequivocally alleged an undue increase in freight charges, it did not specify the reasons or the manner in which the actual charges were unreasonable. Moreover, the appellant faced a disadvantage because its manufacturing facilities were located at Raigarh in Madhya Pradesh, a considerable distance from the principal shipping centres. This geographic circumstance, however, could not be taken into account when assessing the reasonableness of the freight rates themselves.

It was observed that the appellant’s mills are located at Raigarh in Madhya Pradesh, which is situated at a considerable distance from the shipping centres, whereas the competing mills in West Bengal and Madras are positioned close to the export terminals. However, the Court held that the mere fact that the appellant must bear additional transport expenses because of its geographic location does not become a factor when the reasonableness of the freight charges is examined. The Court noted that it is an established fact that the railway administration applies a uniform rate of freight charge to all mills, whether the cargo consists of raw jute or jute products. Consequently, there is no disparity of rates among the mills that fall within the same railway zone. The appellant, before the tribunal, had argued that the freight rates imposed by the railway administration ought to be linked to the costs incurred by the appellant in manufacturing the jute goods and also to the prevailing market prices of the commodity. The tribunal rejected this contention, and the Court agreed with that rejection. In the Court’s view, the costs that the appellant incurs, which are partly attributable to its remote geographical position, have no relevance at all for determining whether the railway freight charge is reasonable or unreasonable. Similarly, the Court emphasized that freight rates cannot fluctuate in tandem with the rise and fall of commodity prices. When assessing the question of reasonableness of railway freight, the Court explained that the primary considerations should be the working costs of the railway administration and other material circumstances that affect the railway’s operations. The Court further pointed out that, under section 41(1)(b) or (c), the burden of proving that the freight charge is unreasonable rests on the complainant; if the complainant fails to meet that burden, the allegation of unreasonable rates must inevitably fail. The Court observed that one of the tribunal members, identified as Mr. Roy, appeared inclined to treat the special rates granted to the Kanpur mills in the Katihar area as normal and reasonable rates. Because the rates charged to the appellant were higher than those special rates, Mr. Roy concluded that the appellant’s rates were unreasonable per se. The Court found this reasoning to be wholly erroneous. It clarified that the rates levied on the Kanpur mills are, by admission, special rates. Whether such concessional rates should have been granted to the Kanpur mills is a matter outside the scope of the present enquiry. While there may be legitimate reasons for granting those concessional rates, the Court stressed that special rates applied in one railway zone cannot be used as the sole benchmark for determining the rates that should be imposed by the railway administration in another zone. Accordingly, the Court saw no basis for the appellant to successfully challenge the majority finding of the tribunal that the rates charged against the appellant’s goods are not unreasonable per se. In the result, the Court held that the tribunal was justified in rejecting the appellant’s complaint.

The Court held that the appeal lodged by the appellant was unsuccessful and therefore ordered that it be dismissed, directing that the costs of the proceedings be borne by the appellant. Before concluding the matter, the Court wished to refer to two submissions that had been raised before it by the learned Additional Solicitor‑General on behalf of the respondents. The first submission questioned the correctness of the tribunal’s majority opinion that the two railway systems operating in the two distinct zones under consideration should be treated as a single railway administration within the meaning of section 3, sub‑section (6). The second submission, alternatively, maintained that even if the two railways were deemed to constitute one railway administration and even if the difference in the rates imposed amounted to an “undue” preference being given to the Kanpur mills, the provisions of section 46 of the Act would provide a complete defence to the complaint filed under section 41(1)(a). Having already decided in favour of the respondents on the matters that had been raised before it by the counsel for the appellant, the Court indicated that it would not examine the substantive merits of these additional arguments. Consequently, the appeal was dismissed.