The Lord Krishna Sugar Mills Ltd. and Another 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: Writ Petition Nos. 9 and 14 of 1959

Decision Date: 6 May 1959

Coram: M. Hidayatullah, Bhuvneshwar P. Sinha, Syed Jaffer Imam, J.L. Kapur, A.K. Sarkar, K. Subba Rao

In the matter titled The Lord Krishna Sugar Mills Ltd., and another versus The Union of India and another, the Supreme Court delivered its judgment on the sixth day of May, 1959. The judgment was authored by Justice M. Hidayatullah and the bench comprised Justices Bhuvneshwar P. Sinha, Syed Jaffer Imam, J. L. Kapur, A. K. Sarkar, Subbarao, K. Sinha, and the aforementioned Justice Hidayatullah. The petitioner, identified as The Lord Krishna Sugar Mills Ltd. together with an additional party, challenged the constitutional validity of the Sugar Export Promotion Act of 1958, cited as Act 30 of 1958, specifically invoking Articles 14 and 19 of the Constitution of India. The respondents, being the Union of India and an associated party, defended the statute. The Act was enacted to promote the export of sugar in order to obtain foreign exchange and imposed three principal obligations on owners of forty factories that employed the vacuum-pan process for sugar production. First, each factory was required to deliver to a government-designated export agency a specified quota of sugar. Second, the delivery was to be made at a price that resulted in a loss for the manufacturers. Third, a penalty was provided for any shortfall in meeting the allotted quota. In response to the loss incurred, the Central Government issued a notification under the Sugar (Control) Order, 1955, which itself was promulgated pursuant to the Essential Commodities Act, 1955. This notification increased the price of sugar for domestic sales by fifty paise per maund, with the intention that the manufacturers could recover the export-related loss through higher domestic prices.

The petitioners argued that the notification issued under a separate statute could not be taken into account when assessing the constitutional validity of the Sugar Export Promotion Act, and that the Act infringed the guarantees of equality before the law under Article 14 as well as the freedoms protected by Article 19(1)(f) and 19(1)(g). The majority of the bench, composed of Justices Sinha, Imam, Kapur, and Hidayatullah, held that the Act was constitutionally valid. They reasoned that the restrictions imposed by the Act on the petitioners’ fundamental rights were not unreasonable because the government had created a counterbalancing benefit through the price-increase notification, thereby shifting the economic burden to domestic consumers rather than leaving the manufacturers to bear the loss. The Court emphasized that the reasonableness of a restriction must be examined in the context of the overall legislative scheme, considering any advantageous measures contained in other contemporaneous statutes. Accordingly, the majority concluded that the Act did not violate Article 14, and that the restriction on export-related trade, while affecting the liberty to carry on business, was justified by the larger national interest of stabilising the sugar market and earning foreign exchange. A dissenting opinion was offered by Justice A. K. Sarkar, who differed on the assessment of the restriction’s constitutionality.

The Court observed that when a restriction forms part of a broader legislative plan, it must consider the other law that forms that plan. It held that the reasonableness of any restriction should be assessed at the time the restriction is challenged and in the context of the circumstances that existed then. Accordingly, the Court said that the notification issued by the Central Government, which raised the price of sugar so that losses caused by export could be recovered, could be taken into account when judging the reasonableness of the restrictions. The Court relied on several authorities, namely State of Madras v. V. G. Row [1952] S.C.R. 597; Virendra v. The State of Punjab [1958] S.C.R. 308; Arunachalam Nadar v. State of Madras 1959 S.C.J. 297; Attorney-General for Alberta v. Attorney-General for Canada (1939) A.C. 117; Ladore v. Bennet (1939) A.C. 468; and Pillai v. Mudanayake (1953) A.C. 514. The Court explained that foreign export of sugar served the national interest by stabilising the domestic sugar market and by strengthening the national economy through the earnings of foreign exchange. Any loss that might arise from export, the Court said, would be spread across many factories and would be so small as not to constitute an unreasonable restriction. The Court further held that the Act did not violate Article 14 of the Constitution because it selected sugar produced by the vacuum-pan process for export while excluding sugar produced by other methods and other commodities, a classification that was reasonable and related to the object of the Act, which was to earn foreign exchange, as noted by Justice Subba Rao. However, the Court ruled that in testing the reasonableness of the restrictions imposed by the impugned Act, it was not permissible to consider the notification under the Sugar (Control) Order, 1955, which increased the internal price of sugar by fifty nP per maund. The Court explained that the test of reasonableness of one statute may be linked to the impact of another statute only when the earlier statute was incorporated into the later one or when both statutes formed part of the same legislative scheme or plan. Extending the test beyond that, the Court warned, would jeopardise legislative stability and introduce uncertainty. Relying on a transitory notification issued under an unrelated Act would render the statute fluid. The Court observed that the impugned Act and the Essential Commodities Act were enacted for different purposes and distinguished the earlier authorities cited. Consequently, the Court concluded that the restrictions contained in the impugned Act were not unreasonable because the Act served the national interest by earning foreign exchange for the State and by developing foreign markets for the future prosperity of the sugar industry, as expressed by Justice Sarkar. The Court rejected the contention that the impugned Act, which caused the petitioners to suffer a loss on the sale of part of their produce, imposed unreasonable restrictions on their fundamental right.

In its analysis the Court held that the provision which prevented the petitioners from carrying on their business was void. While assessing whether the restrictions contained in the impugned Act were reasonable, the Court observed that every relevant condition and circumstance existing at the relevant time must be taken into account. However, the Court expressly ruled out the possibility of taking into consideration the notification that raised the home price of sugar, because that notification was not a factor that could be lawfully employed to justify the restriction. The Court further observed that the impugned Act neither imposed any duty on the Government nor conferred upon it any authority to take measures designed to recover the loss that the petitioners alleged they had suffered. Accordingly, the increase in the price of sugar was left to the arbitrary discretion, generosity or sense of fairness of the Government, and such a situation could not be tolerated in any orderly legal system. The Court warned that a statute should not be deemed lawful when the Government decides to act in a certain manner and illegal when it reverses that action at its own whim. In addition, the Court noted that neither the Essential Commodities Act nor the Sugar (Control) Order contained any provision that authorised the Government to raise the price of sugar for the purpose of compensating manufacturers for losses incurred because of the impugned Act. Consequently, the validity of the notification that increased the home price of sugar remained doubtful. The Court distinguished the earlier decision in State of Madras v. V. G. Row [1952] S.C.R. 597, holding that the factual matrix was different. The Court concluded that the impugned Act caused a loss to the petitioners that was not insignificant and, therefore, imposed unreasonable restraints on their constitutional right to carry on their business. The Court rejected the argument that the restrictions were justified on the ground of stabilising the sugar industry, observing that the industry did not require any such stabilisation. Moreover, the Court observed that sugar export was not based on a surplus of production over domestic consumption, and that historically Indian sugar production had always been lower than internal demand.

The judgment was rendered in the original jurisdiction of petitions numbered 9 and 14 of 1959, both filed under Article 32 of the Constitution of India for the enforcement of fundamental rights. Counsel for the petitioners in Petition No. 9 of 1959 included A.V. Viswanatha Sastri and G.C. Mathur, while the respondents were represented by M.C. Setalvad, Attorney-General of India, B. Sen and R.H. Dhebar for respondent No. 1 in both petitions, and by M.C. Setalvad, Attorney-General of India, B. Sen and B.P. Maheshwari for respondent No. 2 in Petition No. 9 of 1959. In Petition No. 14 of 1959, the petitioners were represented by N.C. Chatterjee and G.C. Mathur, and respondent No. 2 was represented by B. Sen and B.P. Maheshwari. The judgment was pronounced on 6 May 1959. The judgment of the Bench comprising B.P. Sinha, Jafar Imam, T.L. Kapur and M. Hidayatullah, JJ., was delivered by M. Hidayatullah, J., with separate judgments also delivered by A.K. Sarkar, J., and K. Subba Rao, J. The petitioners in Writ Petition No. 9 of 1959 were the Lord Krishna Sugar Mills, Ltd., Saharanpur, and Shri Sushil Kumar, a director of that mill. The petition was heard together with Writ Petition No. 14 of 1959, which was filed by Shiva Prasad Banarsidas Sugar Mills, Bijnor, through Seth Munnalal and also in the personal capacity of the same petitioner. For convenience, the two mills were thereafter referred to as L.K.S. Mills and S. B. Mills respectively.

In the two writ petitions, the petitioners identified themselves as the Lord Krishna Sugar Mills Limited and Shiva Prasad Banarsidas Sugar Mills, the latter being referred to as P B Mills. Both petitions raised identical substantive objections, although Writ Petition No 14 of 1959 included an additional circumstance that the Court would address later. The respondents against whom relief was sought were the Union of India and the Indian Sugar Mills Association (Export Agency Division), Calcutta. The petitioners contested, among other points, the constitutional validity of the Sugar Export Promotion Act, 1958 (Act 30 of 1958), and they also challenged the legality of certain orders issued by the second respondent that were purported to be made under the provisions of that Act.

Before the Court examined how the dispute reached it, it found useful to outline the overall scheme of the Act and to set out several of its key provisions. On 27 June 1958, the President promulgated the Sugar Export Promotion Ordinance, 1958. That Ordinance was later repealed and re-enacted as the Sugar Export Promotion Act, 1958 on 16 September 1958. Because the Ordinance and the Act were drafted in identical terms, the Court considered it unnecessary to refer to the Ordinance separately. Section 14 of the Act explicitly provided that anything done or any action taken under the Ordinance was to be deemed as having been done or taken under the Act, and it also deemed the Act to have commenced on 27 June 1958, the date of the Ordinance’s promulgation.

The purpose of both the Ordinance and the subsequently enacted Act was to facilitate the export of sugar in the public interest and, where appropriate, to impose an additional excise duty on sugar produced in India. To realise this purpose, the Act authorized the Central Government, just as the Ordinance had, to designate an export agency responsible for performing the functions specified in the legislation. On the very day the Ordinance was issued, the Central Government issued a notification naming the Indian Sugar Mills Association (Export Agency Division), Calcutta, as the designated export agency.

The Act further authorized the Central Government, by means of a notification published in the Official Gazette, to fix the quantity of sugar to be exported during any period. In doing so, the Government had to consider (a) the total quantity of sugar available within the country, (b) the quantity required for domestic consumption, and (c) the necessity of exporting sugar to earn foreign exchange in the public interest, while ensuring that the export quantity did not exceed twenty percent of the total sugar production for the season terminating in October of that year. Accordingly, the Government fixed an export quota of fifty thousand tons to be exported up to 31 December 1958, a limit that was subsequently extended to 31 January 1959. This notification was also issued on 27 June 1958.

Section 5 of the Act empowered the Central Government to apportion, by written order, the authorised export quantity among the “owners” of factories. The term “factory” was limited to those where sugar was produced by the vacuum-pan process. The definition of “owner” was expansive, encompassing transferees, agents and managers as defined under the Industries (Development and Regulation) Act.

In that year, the legislation required that the amount of sugar assigned for export be proportionate to the quantity of sugar that each owner either produced or was expected to produce during the relevant season. When the government communicated the order to a particular owner, the quantity specified in that order was treated as the export quota applicable to the owner’s factory. Under section 6, whenever the export agency made a demand, each owner was obligated to supply sugar from his factory in the quantities requested, provided that the total supplied did not exceed the owner’s export quota, whether the quota related to a single factory or a group of factories. The agency could also dictate the grade of sugar, the method of delivery, the timing, and the place of delivery. Once an owner complied with the requirements of section 6 by delivering the sugar, he retained no ownership rights over that sugar; his only remaining right was to receive payment for the sugar in accordance with section 9 of the Act.

Section 7 dealt with the consequences when an owner failed to meet the demands imposed by section 6. It introduced an additional excise duty on any sugar that the owner dispatched for domestic consumption if the quantity delivered to the export agency fell short of the assigned export quota. Specifically, sub-section (1) stipulated that for every shortfall, an excise duty of seventeen rupees per maund would be levied on an equivalent amount of sugar that the owner sent for consumption inside India. Sub-section (2) clarified that this duty was to be charged in addition to any other excise duty already applicable under existing laws, and that the owner had to pay it to the authority named in the notice demanding the duty, within a period not exceeding ninety days as specified in that notice. Sub-section (3) provided that if the owner failed to pay the full duty or any portion thereof within the stipulated time, a penalty could be imposed. The penalty could be as high as ten percent of the outstanding duty for each period of thirty days—or any part of such a period—during which the default persisted. The assessment of this penalty was to follow the same procedure as that applied to penalties under the rules made under the Central Excises and Salt Act, 1944.

Furthermore, sub-section (4) of section 7 incorporated by reference the provisions of the Central Excises and Salt Act, 1944, and the rules made thereunder, to the extent necessary. This incorporation covered matters such as the procedure for refunds, exemptions from duty, and any other issues relating to the additional duty or any penalty imposed under this section. The next provision, section 8, would subsequently address the export agency’s powers concerning the handling and possible domestic sale of sugar delivered to it, but those details were set aside for later consideration.

In this case the Court explained that Section 8 of the Act governs the export of sugar that is delivered to an export agency, and it also permits the agency to sell such sugar within India under specified conditions. The provision is reproduced in full because its language forms the basis of the subsequent analysis. Sub-section (1) states that the export agency must take all practical steps to export the sugar it receives under the Act. However, the provision adds a proviso: if the export agency, after considering factors such as the quality of the sugar delivered by any owner, the costs of transporting the sugar from one location to another, the likely delay in exporting it, the market conditions for sugar both inside and outside India, or any other relevant circumstance, deems it expedient to do so, the agency may sell the whole or any part of the sugar in India. The agency may also, if it considers appropriate, purchase any quantity of sugar it deems necessary for export at a later appropriate time. Sub-section (2) further provides that, for the purposes of sub-section (1), the export agency may either sell the sugar itself or allow the owner to sell the whole or any part of the export quota that is in the agency’s custody, provided the price is approved by the agency and the proceeds of the sale are payable to the agency.

Section 9, as the Court noted, deals with the payments that are to be made to owners who have delivered sugar for export. Sub-section (1) obliges the export agency, at such time as it thinks fit, to make payments to those owners in accordance with the rules set out in the remaining parts of the section. Sub-section (2) states that from the total proceeds of the sale of the quantity fixed for export under Section 4 for any given year, the agency must first deduct the total expenditure it incurred in respect of the sugar, whether such expenditure relates to administrative costs or any other category. The balance that remains after such deductions must then be apportioned among the owners in proportion to the quantity of sugar each delivered during that year. Sub-section (3) requires the export agency, when making any distribution, to make adjustments as necessary based on the grade of sugar delivered by each owner. These adjustments are to be made on the basis of sugar of the ISS-E-29 grade and must refer to the price-differential schedule for the various grades of sugar that the Central Government may publish by notification in the Official Gazette. Sub-section (4) clarifies that, notwithstanding anything else in the section and subject to any rules that may be made, the export agency is authorized to make on-account payments to owners against the delivery documents they furnish. Such on-account payments are to be adjusted at the time of the final settlement.

The Court further observed that the remaining five sections of the Act address ancillary matters, with the final provision, Section 14, repealing the Ordinance and containing saving clauses. Section 10 reserves to the Central Government the power to issue directions to the export agency, while Section 11 allows the Central Government, subject to any conditions it may impose, to delegate its functions under the Act to an officer or authority specified by notification. The Court noted that no rules had been made under the powers conferred by Section 13, which would otherwise permit the Central Government to make rules, declare violations of any such rule an offence punishable by a fine up to five thousand rupees, and require those rules to be laid before Parliament for possible modification.

The Court explained that section ten of the Act empowered the Central Government to issue directions to the export agency. Section eleven allowed the Central Government, subject to any conditions, to delegate its functions under the Act to an officer or authority designated by notification. The Court noted that a notification dated 27 June 1958 had specified the Chief Director of the Directorate of Sugar and Vanaspati, Ministry of Food and Agriculture, as the designated officer. Section twelve provided protection to authorities performing their duties under the Act. Section thirteen gave the Central Government the power to make rules, including the power to make a breach of any rule an offence punishable by a fine of up to five thousand rupees. The Court further observed that every rule made under section thirteen had to be laid before Parliament and could be amended by Parliament, but that no such rules had been made to date.

By order number 6 (53)/58-SC dated 27 June 1958, the Chief Director fixed a quota of 461-05 tons of sugar for L K S Mills and 412-04 tons for S P B Mills. On 17 July 1958 the export agency sent letters to both owners informing them of the allotted quotas and their equivalents expressed in bags. The letters specified that the sugar supply had to be in Grade C-29, Grade D-29, or Grade E-29 and asked the owners to report the grades and quantities they held in stock. The correspondence also indicated that a further communication would follow, providing detailed instructions for dispatch, delivery and disposal of the export quota. It further stated that the Central Board of Revenue had issued detailed instructions to the Central Excise Collectors. The order of the Chief Director, copied to the factory’s Central Excise Officer, would also function as the release order from the Sugar Directorate. The two petitioners responded differently to the agency’s request. L K S Mills replied that it possessed only sugar of Grade D-28, whereas S P B Mills replied that it possessed sugar of Grade E-29. On 24 August 1958 the export agency wrote to both mills stating that the export quota had been diverted for internal sale. The agency informed the mills that they were permitted to sell the “quota sugar” for internal consumption at the Government-fixed price of Rs 36 per maund for Grade D-29. The agency requested that the mills notify it by telegram of the grade in which the export quota was available, so that appropriate documents could be issued to enable delivery to their buyers. The agency described the required documents as follows: a delivery order authorising the Central Excise Officer of the factory to deliver the sold quantity. The delivery order would be transmitted through Punjab National Bank Ltd., attached to a demand draft drawn on the mill for the amount of the sale proceeds payable to the agency. The demand draft would be payable on presentation. The agency stated that the sale proceeds payable to it would be calculated according to a schedule it subsequently set out.

The export agency illustrated the method for computing the amount payable by providing sample calculations. It stated that the sale price would be Rs 36 per maund for Grade D-29, from which the excise duty payable by the mill would be deducted, and subsequently an “on account” deduction of Rs 10 per maund would be subtracted. The balance after these deductions would represent the amount on which a demand draft would be drawn from the mill. The agency explained that after receiving the delivery order, the mill was required to pay the excise duty and then deliver the sugar to the buyer. It further noted that any grade differentials would be permitted in accordance with Government Notification GSR 661 dated 30 July, which fixed ex-factory prices. The agency clarified that the sale would be a transaction solely between the mill and its buyer and that the Export Agency could not assume any responsibility for the sale. The agency requested a telegram indicating the grade of sugar that was available and also asked the mill to specify, in the same telegram, the branch of Punjab National Bank at which the agency should forward the necessary documents.

From this point the factual developments diverged for the two petitioners, and the court set out the separate narratives. L.K.S. Mills wrote to the export agency indicating that it could not sell sugar at the rate fixed by the Government’s July 30 1958 notification because market conditions were extremely weak and there were no purchasers willing to buy at the controlled price, even for the quantities released by the Government for free sales. The export agency reminded L.K.S. Mills that the industry had agreed to finance the Export Agency Division by allowing the agency to retain the sale proceeds from sugar diverted for internal consumption, less an “on account” deduction of Rs 10 per maund. In an effort to accommodate the mill, the agency offered a concession and proposed that the mill sell the sugar in three installments of 1,500 bags, 1,500 bags and 1,565 bags, each installment spaced a week apart. The agency asked the mill to cooperate by permitting it to send documents for the first installment of 1,500 bags at an ex-factory price of Rs 35-69 per maund. Although a clerical error appear to have listed 1,000 bags instead of 1,500, the intended meaning was clear.

L.K.S. Mills, however, maintained that it could not sell sugar at the controlled rate because it was facing severe financial difficulties and therefore could not honour the documents prepared by the export agency. The mill’s refusal persisted, and on 5 November 1958 the export agency wrote to the mill stating that it intended to forward documents for the entire quota of 4,565 bags at Rs 35-69 per maund. The agency urged the mill to retire the documents without delay, explaining that immediate funds were needed to purchase additional quantities for export to replace the quota that had been diverted for internal consumption. The agency also inquired about the name of the bankers to whom the documents should be sent. L.K.S. Mills did not accept any of the proposals put forward, and consequently, on 27 November 1958 the export agency wrote again, requesting the mill to remit a sum of Rs 1,88,216-63, calculated at the rate of Rs 35-69 per maund for the total sugar quota, after deducting the excise duty that the mill itself would have to pay.

In the subsequent correspondence, the export agency informed L.K.S. Mills that, in addition to the amount previously calculated, an “on account” payment of ten rupees per maund was required, and it warned that if the remittance was not received by 5 December 1958, the permission to sell the quota sugar for internal consumption would be withdrawn. Thereafter, the agency sent a further letter stating that a demand draft of Rs 61,845-57 nP was being forwarded, and attached to it a delivery order addressed to the factory’s Central Excise Officer for the release of the first instalment of 1,500 bags. The agency instructed the mills to pay the excise duty, to clear the bags from bond, and to inform the agency once these steps were completed. Similar documents were prepared for the remaining instalments and were dispatched through the bank. L.K.S. Mills, however, refused to accept these terms. On 18 December 1958 the agency transmitted a telegram demanding that the drafts be retired immediately; it further directed that the quota sugar be kept ready for dispatch so that the agency could take delivery. The agency also threatened to notify the Chief Director, Sugar, that the mills were defaulters if the demands were not met. An order for delivery of the quota sugar followed, requiring the mills to dispatch the sugar by goods train, to bear the freight costs, and to consign the consignment to the export agency. The agency intimated that the mills could recover from it the amount of excise duty paid plus the “on account” payment of ten rupees per maund. Although the agency had erroneously described the quota as D-29, the court held that this mistake did not mislead the mills, as the parties had already understood the situation. The mills replied that their banking position did not permit them to honour the drafts or to dispatch the quantity of sugar at the rates specified by the agency, and they further explained that they could not dispatch more than five hundred bags because wagons on the Eastern Railway were limited. The export agency rejected these explanations.

Subsequently, the export agency demanded that L.K.S. Mills remit the sum of Rs 1,88,216-63 nP by 25 January, while also offering the alternative that the mills dispatch the sugar by that date in accordance with the earlier dispatch instructions. In response, the mills sent a wire indicating that the banks were demanding interest on the drafts and that the agency should instruct the banks to waive such interest. On 29 January 1959 the agency replied by wire, stating without prejudice that, in order to avoid serious complications, it was instructing the bank to waive interest, and that a Committee would consider the matter of interest and communicate its decision in due course. The petition, identified as No. 9 of 1959, had been filed on 27 January 1959, i.e., two days before the agency’s wire dated 29 January. The narrative then turned to the facts concerning S.P.B. Mills, which began after the letter of 24 August 1958 and continued with further communications from the export agency.

After the letter dated 24 August 1958 was sent, the export agency did not record any response. On 27 November 1958 the export agency issued a demand that S. P. B. Mills remit the sum of Rs 1,69,524. 77 nP by 15 December 1959, the amount being computed in the same manner as that required from L. K. S. Mills. Subsequently, on 14 December 1958 the agency sent, as a continuation of the earlier correspondence, a dispatch order requiring the entire export quota to be shipped on the same terms that had been applied in the preceding case. In its reply the S. P. B. Mills explained that it was operating the mill as a short-term lessee, having obtained a lease from the High Court of Allahabad on 6 August 1956 upon payment of Rs 6,10,000 as lease money and Rs 1,00,000 as security. The mill further indicated that it was obliged to acquire additional machinery, stores and related items at a cost of Rs 5,00,000 and that it had spent Rs 3,43,500 on repairs to the factory and on wages for the period during which the factory was being restarted. The company also disclosed that it had suffered a loss of Rs 2,40,000 in the previous season and an additional loss of Rs 50,000 due to a strike by cane-growers in March 1958. It stated that the whole of its sugar stock was pledged to the Punjab National Bank, Bijnor, against an advance of seventy-five per cent of the price, and that it owed arrears of cess amounting to roughly Rs 5,50,000 together with lease money of Rs 6,10,000 payable for the forthcoming season. Accordingly the mill expressed its inability to dispatch any sugar. It further submitted that even if it were to redeem the pledged sugar after paying the “on account” money to the bank, the bank would receive Rs 15-2-0 per maund less than the controlled price of sugar. The mill also asserted that selling sugar at the price fixed by the Directorate was impossible and concluded by declaring that it was not in a position to dispatch sugar, while simultaneously maintaining that the Act was unconstitutional and therefore not binding upon it. The export agency rejected this position and demanded that S. P. B. Mills either deliver the export quota or pay the net sale proceeds thereof, warning that the mill could be held liable for an additional excise duty of Rs 17 per maund. While these negotiations were pending, and the mill had neither paid the amount claimed nor agreed to ship the sugar, a petition was filed in this Court and a temporary stay of the demand was obtained. The petitions raised numerous questions, which can be grouped into two principal categories: the constitutional validity (vires) of the legislation and the propriety of the action taken under it. The argument concerning vires challenges the Act in its entirety as well as each individual clause. In regard to the vires of the Act,

The petitioners referred to a statement of objects and reasons that was included in one of the affidavits filed in the matter. They asserted that the expressly stated purpose of the Act was to generate foreign exchange. On that basis they argued that, if the nation required foreign exchange with such urgency, the legislation should have uniformly required every sugar manufacturer – including those that did not use the vacuum-pan process – to export their sugar. Their contention was framed as an allegation of discrimination and was anchored on Article 14 of the Constitution. The petitioners further maintained that manufacturers of commodities other than sugar were not subjected to a comparable export obligation, and therefore a second layer of discrimination existed. The Court, however, found this line of argument to be without merit. It observed that Parliament possesses a clear authority to enact legislation concerning foreign exchange, a power conferred by Entry No. 36 of the Union List. When that entry is interpreted broadly, it encompasses not only rules governing the control of foreign exchange but also measures aimed at acquiring foreign exchange to enhance the nation’s economic stability. The Court noted that the necessity of foreign exchange to fund various development programmes was undisputed and that the aim of the Act was therefore squarely within the public interest.

In its view, a progressive nation must secure a place in international markets, even if the initial steps entail significant losses. The selection of the sugar industry for an export programme by the Central Government did not preclude the Government from classifying commodities based on their likely success abroad. The Court cited the large-scale export of sugar during the Suez crisis, which yielded substantial foreign-exchange earnings, and observed that there was no record indicating that other commodities were not also exported – for example, manganese ore had been exported in a similar fashion to raise foreign exchange. The Court explained that the Government could not indiscriminately order the export of every manufactured good without assurance of a foreign market; consequently, the export policy could only target products with an easy and readily available market overseas. Accordingly, sugar produced by the vacuum-pan process may have been chosen because it was in demand abroad, unlike sugar produced by other methods. The Court emphasized that domestically produced goods must compete with foreign products and that exporting such goods often required considerable sacrifice, undertaken solely to obtain foreign exchange that would otherwise be unavailable. On this basis, the Court concluded that the Act did not amount to discrimination against manufacturers using the vacuum-pan process.

In relation to sugar manufacturers employing the vacuum-pan process, the Court noted that the Government is the most competent authority to decide which commodities are likely to generate foreign exchange. Consequently, the selection made by the Government was described as a reasonable classification that aligns with the purpose of the Act, namely, to earn foreign exchange. The petitioners then raised a further contention based on Articles 19(1)(f) and (g) and Article 31 of the Constitution. They argued that the entire export programme concerning sugar infringed upon their fundamental rights under Articles 19(1)(f) and (g) and also amounted to a compulsory acquisition of their property without the payment of compensation. The petitioners examined the provisions of the Act and maintained that the scheme effectively involved taking sugar from the owners for sale abroad at whatever price could be obtained, with the owners receiving payment only after the export agency had received the proceeds and deducted its own expenses and the costs of export. According to the petitioners, this arrangement would cause the owners to suffer a loss because, as they admitted, the sugar was to be exported at a loss, and that loss would fall on the factory owners. They further contended that if the need for foreign exchange justified such a loss, the burden of that loss should either be borne by the Government, distributed among all industries, or at least shared by all sugar producers in the country. The petitioners therefore claimed that the Act imposed an unreasonable restriction on their fundamental rights to hold, acquire, and dispose of property, as well as to carry on an occupation, trade, or business.

In response, the learned Attorney-General, appearing for the Union and the Directorate of Sugar, referred to the negotiations that had taken place between the Government and the sugar industry, and to the arrangements that were made to protect factory owners from the inevitable loss resulting from the export programme. He explained that the Government had issued various Control Orders under the Essential Commodities Act during that period to fix the price of sugar for internal consumption. Particular attention was drawn to the Sugar (Control) Order, 1955, Notification No. G.S.R. 661/ESS. Com/Sugar dated 30 July 1958. By that Notification, the price of sugar for internal sales was increased by fifty paise per maund in order to enable factories supplying their export quota to recover any loss that might be incurred. It was anticipated that a fifty-paise increase per maund in the internal market price, together with an export quota fixed at two and a half percent of a factory’s total production for the fiscal year 1957-58, would be sufficient to offset the loss. The expectation was that the excess price obtained for every twenty maunds sold for internal consumption would more than compensate the producers for the loss incurred on the export portion. The Attorney-General also pointed out that, at that time, the Government did not wish to assume the export function itself, preferring instead to designate the Indian Sugar Mills Association—representing approximately ninety-five percent of the nation’s sugar mills—as the export agency.

In the matter before the Court, the Attorney General explained that the Government had chosen not to undertake the export function itself; instead it designated the Indian Sugar Mills Association as the export agency. The Association was described as a body that represented approximately ninety-five percent of all sugar mills operating in the country. The Attorney General further emphasized that more than ninety-five percent of those mills had complied with the arrangement by either supplying their allotted export quota or by selling the sugar in the domestic market and then providing the necessary funds to purchase sugar for export. Only a small number of mills in the country had resorted to alternative methods in order to escape the commitment that the industry as a whole had collectively undertaken. The Attorney General also asserted that the petitioners had been able to secure favourable domestic prices for their sugar, yet they were allegedly unwilling to honour the additional obligations that had been given legislative effect after the industry’s agreement. Counsel for the petitioners argued that the validity of the statute should be examined without reference to ancillary circumstances such as the industry agreements, price adjustments or price-control measures, contending that those factors did not influence the reasonableness of the legislation. The Court then referred to the decision in State of Madras v. V. G. Row, where it was held that when assessing the reasonableness of a restriction on fundamental rights, the surrounding circumstances may be considered. Chief Justice Patanjali Sastri’s observation was quoted in full: “It is important in this context to bear in mind that the test of reasonableness, wherever prescribed, should be applied to each individual statute impugned, and no abstract standard or general pattern of reasonableness can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, and the prevailing conditions at the time should all enter into the judicial verdict. In evaluating such elusive factors and forming their own conception of what is reasonable, in all the circumstances of a given case, it is inevitable that the social philosophy and the scale of values of the judges participating in the decision should play an important part, and the limit to their interference with legislative judgment in such cases can only be dictated by their sense of responsibility, self-restraint, and the sobering reflection that the Constitution is meant not only for people of their way of thinking but for all, and that the majority of the elected representatives of the people have, in authorising the imposition of the restrictions, considered them to be reasonable.” The Court also noted that Chief Justice S. R. Das, in Virendra v. The State of Punjab, reaffirmed this approach, and it cited Arunachala Nadar v. State of Madras as further authority. However, it was contended that although surrounding circumstances may be examined, the Court is not empowered to consider other statutes on the same subject unless those statutes are incorporated by reference, a position that the Court regarded as untenable.

The Court rejected the contention that it must confine its analysis of a statute’s reasonableness solely to the immediate surrounding circumstances, calling that view plainly erroneous. In assessing whether a restriction is reasonable, the Court must examine not only the factual context but also every contemporaneous statute that forms part of the same legislative scheme. The inquiry therefore concerns the reasonableness of the restriction itself, not merely the wording of the primary law. Consequently, when a restriction is imposed by one enactment but is offset by benefits created under another statute passed as part of the same plan, the Court cannot disregard the latter statute. Identifying the existence of such a complementary law is ordinarily straightforward, and the Court may simply take judicial notice of it. As the Privy Council observed in Attorney-General (1958) SCR 308, 318; Alberta v. Attorney-General for Canada (1959) SCJ 297, 299-301, the courts, in determining the effect of legislation, consider any public general knowledge that is subject to judicial notice and may, where appropriate, require evidence to show the legislation’s impact. Clearly, statutes enacted by a provincial legislature may be taken into account, because it is often impossible to gauge the effect of the statute under review without reference to other statutes presently operating, intended to operate, or recently operative in the province. Although this principle was originally articulated in a case involving sections 91 and 92 of the British North America Act, the same general proposition applies wherever the effect of a law on those it governs must be measured. In the same vein, the judges examined the historical background of legislation to discover the materials considered by the legislature before enacting the law, as seen in Ladore v. Bennett. The Supreme Court likewise, in Arunachala Nadar v. State of Madras, explored the “historical background” and identified the object of the Act from the circumstances of its passage. The principle that other contemporaneous legislation forming part of a legislative plan may be examined was also articulated by the Privy Council in Pillai v. Mudanayake. In that case the issue was whether the Ceylon Citizenship Act (1948) and the Ceylon (Parliamentary Elections) Amendment Act (1949) were valid or ultra vires the Ceylon Parliament under section 29(2) of the Ceylon (Constitution and Independence) Order in Council 1946 (as amended). Under the first two Acts, Indian Tamils were denied community franchise unless they satisfied the terms of the first Act, thereby subjecting them to disabilities and restrictions prohibited by the Order-in-Council. During counsel’s arguments, the judges were drawn to a later enactment, the Indian and Pakistani Residents (Citizenship) Act (1949), which conferred a right on Indian Tamils and others to obtain citizenship, demonstrating that the later law could not be ignored when assessing the reasonableness of the earlier restrictions.

In the earlier discussion, the argument was that individuals could obtain registration as citizens of Ceylon by demonstrating a sufficient connection with the island. Counsel for the appellant before the Privy Council contended that the later Indian and Pakistani Residents (Citizenship) Act could not be used to justify the earlier Citizenship Act, asserting that if the earlier Act was invalid at the time of its passage, a subsequent enactment could not revive it. The Privy Council rejected this contention and chose to read the later statute together with the earlier one. The Lords observed that it had been argued that sections 4 and 5 of the Citizenship Act rendered it impossible for the descendants, however remote, of a person who could not obtain citizenship himself to ever become citizens of Ceylon, regardless of the length of their residence. However, their attention was drawn to the Indian and Pakistani Residents (Citizenship) Act, No 3 of 1949, which allowed an Indian Tamil, upon meeting a specified residential qualification, to apply for citizenship by registration and thereby protect his descendants. It was suggested on behalf of the appellant that this later Act might itself be ultra vires for conferring a privilege on Indian Tamils in violation of section 29(2)(c) of the Constitution Order-in-Council, and that consequently it could not be used to rebut the inference that the legislature had intended, by the Citizenship and Franchise Acts, to impose disabilities on Indian Tamils within the meaning of section 29(2)(b). The Lords could not accept that argument. They held that if a legislative plan existed, it must be examined in its entirety, and, when viewed as a whole, it was clear that the legislature did not intend to prevent Indian Tamils from attaining citizenship provided they were sufficiently connected with the island.

The Court then turned to the matter of the sugar dealers, noting that it was unnecessary to speculate about possible remedies should the Sugar Control Order or its accompanying notification be varied or repealed in the future. The reasonableness of the restriction, the Court said, must be assessed in the present circumstances. It accepted that the Government had made adequate arrangements to compensate the sugar industry for any loss arising from the export quota. For that purpose, although the export quota was fixed at two and a half percent of the total quantity produced by each factory, the anticipated loss of ten rupees per maund was distributed over the remaining sugar to be sold domestically and was recovered at fifty paise per maund. The Court could not accept the petitioners’ plea that they were unable to sell sugar at the controlled price because the price had been fixed too high. Counsel for the petitioners argued that fixing a price ceiling did not guarantee that the commodity would be sold at that ceiling rather than at a lower rate. The Court noted the well-known principle that when commodities are subject to price fixation, they are sold only at the

The Court observed that when a price is fixed by regulation, the commodity is sold at that fixed price and not at a lower rate. Economists have repeatedly pointed out that the principal drawback of such price control is that the market price cannot fall below the prescribed level. The Court found that the record contained no evidence indicating that the sugar mills were unable to sell their product at the controlled price. Accordingly, the Court was satisfied that the purpose of the Act did not violate the petitioners’ fundamental rights. To safeguard the petitioners against any loss, the statute permitted the payment of additional counter-vailing charges on sugar sold for domestic consumption. The Court noted that the petitioners ultimately did not suffer any loss. The export quota had been fixed at two and a half per cent of each mill’s total production, and it was therefore inconceivable that the mills could not find a market for their sugar in the domestic arena. The claim advanced by the petitioners that they were unable to sell sugar at the controlled price remained unsupported, as they had produced no document showing the quantity of stock held or the volume actually sold. The balance sheet submitted by S. P. B. Mills demonstrated that the mill had sold more than one lakh bags of sugar over an eight-month period, whereas the quantity earmarked for export was only 4,079 bags. From this, the Court concluded that the allegation of an inability to sell at the controlled price was a mere sham.

Further, the Court examined the correspondence related to the earlier proceedings and found that the mills had repeatedly offered different excuses to evade their obligation to supply the export quota. Initially, they argued that the sugar did not meet the required grade. Subsequently, they claimed an inability to sell the product. They later requested that the supply be made in installments, and when the instalment schedule was fixed, they complained of a shortage of wagons. The mills then alleged that the Bank was charging interest and that this interest should be waived before the documents could be retired. After the interest was waived, the mills filed the present petition. In view of these facts, the Court held that there was no basis for concluding that the petitioners’ fundamental rights had been infringed. The restriction imposed by the Act was not unreasonable, because the government had arranged measures to protect factory owners from loss, while the loss arising from the export of sugar was to be borne by Indian consumers rather than by the producers. The Court also noted that foreign export of sugar served the national interest by stabilising the domestic sugar market, thereby encouraging reasonable levels of sugarcane production, and by earning foreign exchange. Any loss incurred by the mills was comparatively small, distributed across many factories, and could be recovered through domestic sales. Consequently, the loss was not substantial enough to constitute an unreasonable restriction. The petitioners subsequently challenged various provisions of the Act on the ground that they infringed fundamental rights, a contention the Court was prepared to examine.

In this matter the petitioners also raised, as an alternative, the contention that their property was being compulsorily acquired without any compensation. Accordingly they challenged provisions numbered five through nine of the statute. Section five, as drafted, merely authorises the Central Government to determine the export quota that may be imposed on each sugar factory. The Court observed that when the object and purpose of the Act are genuine, serve the public interest, and impose no ultimate disadvantage on the factory owners, a provision that simply fixes the export quota cannot be struck down in isolation. Section six imposes a duty on the owner to supply the specified quantity of sugar when demanded, and it further provides that after the sugar has been delivered the owner retains no right other than the right to receive payment in accordance with section nine. The petitioners attacked this provision on the ground that delivery of goods and payment of price should be simultaneous conditions, meaning that the buyer must be ready and willing to pay at the time possession of the goods is transferred. The Court noted that if the Government itself were the purchaser, the provisions of section thirty-two of the Indian Sale of Goods Act, which the petitioners relied upon, might have been relevant. However, the purpose of the Act is to facilitate export of sugar and to distribute the export receipts, after deducting expenses, among the owners who provide sugar for export. The argument, the Court said, fails to appreciate that export is carried out by a Central Agency on behalf of the entire industry, and that the foreign prices received are lower than the domestic market prices for various grades of sugar. As long as the purpose of the Act is valid and constitutional, as previously determined, the section does not suffer any defect. The Court also reminded that at the time payment was pending, the owners were receiving an additional fifty nP on every maund of sugar sold domestically. Therefore a deferred payment does not amount to deprivation of property nor does it infringe any fundamental right. Affidavits placed before the Court showed that the full quota of fifty thousand tons had been exported, that the export had generated between two and four crore rupees of foreign exchange, and that the exporters had been paid save for a minor outstanding balance. Section seven, which provides for penalties, was also examined. Substantial argument was heard on whether the penalty provision would apply in a situation where no sugar had been delivered at all, given the wording “where sugar delivered by any owner falls short of the export quota.” No enforcement action or penalty had yet been taken against the mills under this section, and the Court held that it was unnecessary to decide whether the provision is ultra vires the legislature.

Section eight governs the export of sugar or its sale by the owner or by the export agency. The Court pointed out that the provision is premised on sugar having been delivered to the export agency, a condition that was not satisfied in the present case because no sugar was actually delivered. The first subsection of section eight deals with the act of export, and it stipulates that the export agency may export only the sugar that has been delivered to it. The second subsection authorises the export agency to sell the sugar for the reasons set out in the statute. The Court further explained that the condition requiring sale proceeds to be payable to the export agency is consistent with the overall scheme of the export programme and the advantage that is granted on all domestic sales. Owners who have benefited from that advantage cannot retain the proceeds of such sales, as the export policy is designed to operate on the basis of pooled proceeds. Of the fifty thousand tons authorized for export, roughly half was sold within the country, and the proceeds from those domestic sales were used to purchase additional sugar for export; this arrangement would not have been possible if the export agency were required to make an immediate cash payment at the time of export. Section nine sets out the procedure for making payments to the owners. Because the export was carried out by a non-profit-making agency composed of the sugar

In the first sub-section the statute also empowers the export agency to allow the owner to sell sugar that remains in his possession. In the cases presently before the Court there was a demand that the sugar allotted under the export quota be delivered, but that demand was not satisfied. Whether the petitioners have exposed themselves to any penalty can be examined only if a penalty is actually imposed on them. The requirement that the proceeds of any sale be paid to the export agency is valid, because it is consistent with the overall export scheme and with the advantage that the law affords to all sales of sugar made in India. Once the owners have obtained that advantage they cannot retain the proceeds of such sales, because the export policy is designed to operate on those proceeds. Of the total quota of fifty thousand tons, roughly half was sold within India, and the money obtained from those sales was used to purchase other sugar for export. That arrangement would have been impossible if the export agency were required to make an immediate cash payment at the time of sale. Section 9 of the Act prescribes the manner in which payments are to be made to the owners. Because the export was carried out by a non-profit-making agency composed of members of the sugar industry, it was clear that payments could not be made instantaneously. As explained earlier, the owners received their payments only after the foreign sale receipts were received. From those receipts, the necessary deductions for expenses were taken and the remaining balance was then distributed to the owners. Such payments are inevitably delayed, but given the modest proportion of the quota actually involved – not more than twenty per cent. under the Act and, in reality, only about two and a half per cent. – the delay was not expected to cause serious hardship. Moreover, the owners were able to offset the loss by earning fifty rupees per maund for every maund of sugar sold domestically.

The Court was of the view that none of the provisions examined, even when considered individually, is beyond the legislative competence of Parliament. The petitioners did not contest the actions of the export agency on the ground that they were contrary to the Act, and no argument on that basis could be entertained because the petitions lacked any specific plea to that effect. In the petition filed by S. P. B. Mills, the petitioner did not seek a determination on the correctness of any demand for additional excise duty, because, in fact, no such duty had been demanded. The principal contention of that mill was that all of its sugar had been pledged to banks. The pleadings on this issue were vague and insufficient; the only documentary reference was a letter, which the Court found inadequate. Although counsel had indicated that this point might be raised later in order to obtain exemption from the additional duty, the Court chose not to address it at this stage. Consequently, both petitions were dismissed with costs. Justice Sarkar, however, expressed a contrary view, observing that the two applications should succeed because they raised the question of whether the Sugar Export Promotion Act, 1958 imposes an unreasonable restriction on the petitioners’ right to carry on their trade, noting that some of the petitioners are owners of factories that manufacture sugar.

The individuals who manufacture sugar using the vacuum pan process and who also act as dealers in sugar are treated in this judgment as the petitioners. The principal respondent in the applications is the Government of India, and the other respondent is the Indian Sugar Mills Association, which is an association of manufacturers that produce sugar by the vacuum pan process. On 27 June 1958 the Government promulgated an Ordinance, and subsequently, on 16 September 1958, the Act that is now challenged was passed. The Act repealed the Ordinance, reenacted its provisions, and declared that any act done under the Ordinance would be deemed to have been done under the Act as if it had come into force on the date the Ordinance was promulgated. The preamble of the Act makes clear that its purpose was to provide for the export of sugar in the public interest and that it established a machinery to achieve that purpose. The main provisions of the Act can be summarised as follows. Section 3 authorises the Central Government to designate a company or other corporate body as the export agency responsible for performing the functions assigned by the Act; the respondent Indian Sugar Mills Association wag specified as the export agency under this section. Section 4 empowers the Central Government to fix, for any period, the total quantity of sugar that may be exported, subject to the condition that the quantity fixed for a year shall not exceed twenty per cent of the quantity of sugar produced in India up to the month of October of that year. In fixing such quantity, the Central Government must consider (a) the quantity of sugar available in India, (b) the quantity of sugar that, in its opinion, would be reasonably required for consumption in India, and (c) the necessity for exporting sugar in order to earn foreign exchange in the public interest. Section 5 requires the Central Government to apportion the quantity fixed under section 4 among the owners of factories that produce sugar by the vacuum pan process, in proportion to the quantity produced or likely to be produced by each factory during the season; the apportioned amount for each factory is termed its export quota. Section 6 provides that, upon demand by the export agency, every factory owner must deliver to the agency sugar up to the amount of his export quota, and that on delivery the owner retains no rights in respect of such sugar except the right to receive payment for it under section 9. Section 7 makes provision for the levy of an additional excise duty in certain circumstances on the shortfall between the quantity of sugar delivered by a factory owner and that owner’s export quota. Section 8 states that the export agency shall export the sugar delivered to it, but also provides that, in specified circumstances, the export agency may sell that sugar within India, may, if it deems appropriate, purchase other sugar for export, and for this purpose may permit the owner to sell all or part of his export quota at a price approved, on the condition that the sale proceeds are paid to the agency.

The Act authorised the factory owner to sell the whole or any part of its export quota at a price that had been approved, on the condition that the proceeds of such a sale were to be paid to the owner. The provisions contained in section 9 were described as being of particular importance and were to be set out later in the judgment. The Court noted that it was not necessary to refer to the remaining provisions of the Act for the purpose of the present discussion. Shortly after the Ordinance had been promulgated, the Government began to implement its provisions. By way of a notification dated 27 June 1958, a total of fifty thousand tonnes of sugar was fixed under section 4 as the quantity to be exported for the period ending 31 October 1958. Export quotas were consequently fixed for every factory that produced sugar, including the factories owned by the petitioners. Following the fixation of the quotas, the export agency requested that the petitioners sell the sugar that corresponded to their allotted quota and remit the sale-proceeds to the agency. The petitioners did not comply with this request. The respondents further alleged that the export agency had also asked the petitioners to deliver the sugar itself, a request that the petitioners likewise failed to fulfil. The petitioners advanced various explanations to justify their failure to sell or deliver the quantities of sugar that had been required of them. The Court observed that it was unnecessary to examine those explanations, because if the Act were held to be invalid, as the petitioners contended, the orders issued under it could not have been made and therefore no inquiry into the reasons for non-performance would arise. It appeared to the export agency that the petitioners were unlikely to either sell the sugar and pay the proceeds or to deliver the sugar, and consequently the agency warned the petitioners that their conduct exposed them to the risk of being liable to an additional excise duty under section 7. In response to that warning, the petitioners filed applications for writs seeking to restrain the respondents from taking any further steps under the Act, pleading that the Act was invalid because it unreasonably restricted their right to conduct their trade. The Court then turned to examine the validity of that contention. From the provisions of the Act that had been previously set out, it was clear that the legislation required the owner of a sugar factory to part with a portion of the produce of his factory in return for an amount to be determined under the provisions of section 9. By imposing such a requirement, the Act restricted the owner’s freedom of trade and removed his right to deal with his entire merchandise in any manner he chose. The question that arose next was whether such a restriction was reasonable.

To answer that question, the Court found it necessary to set out the terms of section 9 of the Act, which fixed the amount that a sugar manufacturer was entitled to receive in respect of the sugar he delivered. Only sub-sections (1) and (2) of that provision were required for the present analysis, and they read as follows: “Section 9 – (1) The export agency shall, at such time as it thinks fit, make to the owners who have delivered sugar to it under this Act, payments determined in accordance with the provisions hereinafter contained.” The Court indicated that these terms would be examined in detail to determine whether the limitation on the owners’ trade rights was justified by the statutory scheme.

Section 9 of the Act required the export agency to determine the payments to be made to the owners who had delivered sugar under the Act, and to make those payments at such times as it thought appropriate. Sub-section (2) stipulated that from the total sale-proceeds obtained for the quantity of sugar fixed for export under section 4 for any given year, the export agency had to deduct the total expenditure it incurred in connection with that sugar, whether the expenses were administrative or of any other nature. After making such deductions, the balance remaining was to be divided among the owners in proportion to the quantity of sugar each had delivered during that year. In effect, an owner of a sugar factory who delivered sugar under the Act received a proportionate share of the net sale-proceeds, that is, the proceeds after the export agency’s expenses had been subtracted. The owner had no role in determining the price at which the export agency sold the sugar, and therefore could not object if the sugar was sold at a very low price. Likewise, the owner could not control the amount of expenses incurred by the agency. Consequently, the value that a sugar manufacturer was entitled to receive for the sugar delivered under the Act depended entirely on the decisions of the export agency. Moreover, sub-section (1) of section 9 allowed the export agency to make payment to the manufacturer only at such times as it deemed fit.

The Court observed that it might be difficult to declare all these terms reasonable, but identified a further consideration that, in its view, settled the matter. The record showed that, as a matter of fact, sugar could be sold abroad only at a loss. This finding was not contested. The Court referred to the Objects and Reasons of the Act, which stated: “With a view to earning foreign exchange it is necessary to promote export of sugar. The export of sugar however, involves a loss, even if excise duty and cane cess are remitted.” The Court also cited paragraph 22 of an affidavit filed on behalf of the Government by Shri K. P. Jain, Chief Director, Directorate of Sugar, dated 13 February 1959, which declared: “I further say that … the entire scheme envisaged in the Act depends on the pooling of the losses on export by all sugar factories in India, in proportion to their export quota.” Accordingly, the respondents’ own case acknowledged that exports made under the Act could be undertaken only at a loss. The resultant effect was that the Act compelled the petitioners to part with a portion of their produce at a loss. The Court concluded that such a restriction on the petitioners’ trade could not be characterised as reasonable. It noted that the Act was enacted with the aim of earning foreign exchange through sugar exports, as expressed in its Objects and Reasons.

The Court observed that the reasons for the Act and the provisions of section 4 had already been set out. While it accepted that earning foreign exchange was essential for the nation, the Court could not accept that this objective justified legislation which forced a sugar manufacturer to incur a loss. The Court emphasized that foreign exchange could be earned without imposing such a loss on sugar producers, and noted that this was not the position taken by the respondents. The Court pointed out that the loss could have been avoided if the exports had been carried out through a subsidy, a method that the Government had actually employed in the fiscal year 1951-52. Moreover, the respondents had not demonstrated any difficulty in granting a subsidy for exports under the Act.

Turning to the constitutional test for a reasonable restriction on the right to carry on trade secured by Article 19(6), the Court quoted the observation of Mahajan, J. in Chintaman Rao v. The State of Madhya Pradesh that a restriction must be “the one which reason dictates” and must strike “a proper balance between the freedom guaranteed in article 19(1)(g) and the social control permitted by clause (6) of article 19”. The Court found that neither a proper balance nor a reason-directed infliction of loss was present in the present case. The loss imposed on the petitioners by the Act was not of a character that could have been avoided only by suffering a still greater loss, as noted in the cited authority (1) [1950] S.C.R. 759, 763. The Court further held that a laudable object cannot, by itself and without additional justification, render a restriction on a citizen’s right to trade reasonable. A restriction does not become reasonable merely because it is imposed to achieve an objective of great necessity or undeniable merit. The reasonableness of a restriction must be examined in the totality of the circumstances, and the purpose to be achieved constitutes only one of those circumstances. The Court found this principle sufficiently clear to require no further elaboration.

The Court observed that it was unnecessary to pursue the matter further on the ground that the respondents did not claim the restriction to be reasonable despite the loss. Instead, the respondents contended that, for reasons to be set out, the Act did not actually cause any loss, and therefore the restriction could not be deemed unreasonable. The Court accordingly turned to examine the respondents’ argument that the Act imposed no loss on sugar manufacturers, including the petitioners. The respondents first alleged that although the present exports resulted in a loss, future exports might generate a profit. The Court described this expectation as a mere pious hope and noted that such a hope had not been articulated in any of the affidavits filed on behalf of the respondents.

In considering the affidavits filed on behalf of the respondents, the Court observed that those affidavits clearly demonstrate that, in the foreseeable future, there is no expectation that the export of sugar will be profitable. The affidavits expressly state that the scheme of the Act relies on pooling the losses that arise from the exports carried out under it. The Court found it unnecessary to elaborate that, were exports likely to yield a profit in the near term, the coercive mechanisms provided by the Act for enforcing those exports would be superfluous. No basis exists for the proposition that export may become profitable in some future years. Moreover, the respondents’ own affidavits do not permit them to claim a hopeful expectation of future profit from sugar export. The Court then turned to the export quota fixed for the fiscal year 1957-58, which was limited to two and a half per cent of each factory’s production. The implication drawn was that the resulting loss would be minimal. Applying the two and a half per cent figure to the production of the petitioners’ factory in Writ Petition No. 9 of 1959 yields a quantity of 12,533 maunds. In a supplementary affidavit sworn by Shri Jain on 2 March 1959, the respondents asserted that the loss on export would approximate Rs 10 per maund. Consequently, the Court calculated that the petitioners would suffer a loss of about Rs 1,25,530 in that petition, with a slightly lower loss in Writ Petition No. 14 of 1959. The Court expressed hesitation in deeming such losses negligible. For the following year, 1958-59, the export quota was increased to five per cent of production, inevitably generating a substantially larger loss. The Act permits the Government to raise the quota up to twenty per cent, which, if fully exercised, would impose a formidable loss. Factories with greater output would consequently endure losses considerably exceeding those of the petitioners. The Court stressed that the reasonableness of the restrictions imposed by the Act must be assessed in a general sense, without reference to any particular sugar manufacturer. It further rejected the notion that the reasonableness of a restriction can be measured solely by the magnitude of the loss it creates, noting that even a small loss may render a restriction unreasonable. The quantum of loss alone cannot determine reasonableness, and reason does not dictate that a minor loss should be inflicted. Finally, the respondents contended that the loss caused by the Act was offset by a governmental order that raised the domestic price of sugar, thereby eliminating any net loss to manufacturers. The Court noted that this recoupment process was described in paragraph fourteen of the affidavit.

The affidavit submitted by Shri Jain stated that the loss arising from the initial quota of fifty thousand tons, which had been fixed by the Government, had been calculated. When the Central Government subsequently set the price of sugar for domestic consumption under the Essential Commodities Act and the Sugar (Control) Order of 1955, it adjusted that price by adding fifty nP per maund to the ex-factory price for internal sales. According to the affidavit, this increase in the domestic price of sugar would entirely offset the loss incurred on exports under the Act, which amounted to two and a half percent of a factory’s production. The Court accepted this calculation as a correct estimate and chose to disregard the petitioners’ claim that they were unable to sell sugar in the domestic market at the higher price. The argument therefore advanced was that, although the impugned Act generated a loss, that loss could be neglected because the Government had taken remedial steps under a different statute to recover the loss caused. In the factual situation where the domestic price had been raised, the Court observed that the restrictions imposed by the impugned Act could not be labelled unreasonable, since, on the whole, they resulted in no net loss. This position formed the core contentions of the respondents in seeking to demonstrate that the restrictions were reasonable.

The discussion then turned to the Essential Commodities Act of 1955, under which the domestic price increase had been effected. The Act was not enacted for the purpose of earning foreign exchange, nor did it aim to assist the sugar industry directly. Section 3 of the Act provides that, if the Central Government is of the opinion that it is necessary or expedient to maintain or increase supplies of any essential commodity, or to secure its equitable distribution and availability at fair prices, it may, by order, regulate or prohibit the production, supply, distribution, trade, and commerce of that commodity. Moreover, an order made under this provision may also prescribe the price at which any essential commodity may be bought or sold. Sugar falls within the definition of an essential commodity under the Act. Exercising the powers granted by Section 3, the Government issued the Sugar (Control) Order, 1955, on 27 August 1955. Clause 5 of that Order authorises the Central Government, by notification in the Official Gazette, to fix the price or the maximum price at which any sugar may be sold. Such price fixation must take into account the price or minimum price fixed for sugarcane, manufacturing costs, taxes, a reasonable margin of profit for the producer or trader, and any incidental charges. Sub-clause (2) of Clause 5 further declares that, once the price or maximum price has been fixed, no person shall sell or purchase any sugar at a price exceeding that fixed amount.

The provision of the order stated that no person was permitted to sell or purchase any sugar at a price that exceeded the price fixed under sub-clause (1). Under the authority of that order, the Government issued a Notification dated 30 July 1958 which raised the home price of sugar by fifty rupees per maund. It was asserted that this increase was intended to eliminate the loss that the impugned Act had caused. For the purpose of analysis, it was assumed that the Notification was issued with the purpose of recovering the loss caused by the impugned Act, as indicated in the affidavit of Shri Jain, even though the Notification itself did not expressly state that purpose. The central question that arose was whether the increase in the home price of sugar, effected by the Government through a Notification issued under the powers conferred by a different statute, and which had the practical effect of wiping out the loss inflicted by the impugned Act, could be regarded as a circumstance that rendered the restrictions imposed by the latter Act reasonable. It was submitted that such a view was correct and that, when assessing the reasonableness of a restriction imposed by one Act, it was permissible to take into account an order made by the executive Government under another Act. The Court was directed to the observations of Chief Justice Patanjali Sastri in State of Madras v. V. G. Rao, where the learned Chief Justice, at page 607, had observed that the nature of the alleged infringement, the underlying purpose of the restriction, the extent and urgency of the evil sought to be remedied, the disproportionality of the imposition, and the prevailing conditions at the time, should all be considered in the judicial verdict. The present writer agreed with the substance of those observations but found that they did not advance the respondents’ contention. What the respondents relied upon was the portion of the Chief Justice’s observation that stressed the relevance of the prevailing conditions at the time. They also cited another remark on the same page, which was not quoted, indicating that reasonableness must be decided in all the circumstances of a given case. The respondents argued that the prevailing conditions and circumstances of the case should include the order that increased the home price of sugar made under the Essential Commodities Act. The writer could not accept that such an inclusion was contemplated by the learned Chief Justice. The case before the Chief Justice was entirely different; he was not evaluating the reasonableness of one statute by reference to an order made under another statute. Rather, he was examining whether a particular Act placed unreasonable restrictions on the fundamental right to form associations. In that context, the Act gave the Government the power to declare an association unlawful on specified grounds. While holding that the restrictions were unreasonable, the Chief Justice observed at page 608 that the formula of subjective satisfaction of the Government or its officers, with an Advisory Board reviewing the material on which the Government sought to override a basic freedom, could be viewed as reasonable only in very exceptional circumstances and within the narrowest limits, and could not receive general judicial approval as a pattern of reasonable restrictions on fundamental rights.

In the passage quoted, the Court observed that the mere satisfaction of the Government or its officers, even when an Advisory Board is appointed to review the material on which the Government seeks to override a basic freedom guaranteed to a citizen, may be regarded as reasonable only in the most exceptional circumstances and within the narrowest limits, and such a scenario cannot receive judicial approval as a general pattern of reasonable restrictions on fundamental rights. The Court stated that it does not see any basis for the respondents to rely on the earlier observations of Patanjali Sastri, C.J. The Court fully agreed that when the reasonableness of restrictions imposed by a statute is examined, every prevailing condition and every circumstance of the case must be taken into account. However, the Court could not accept that the term “conditions or circumstances,” which it understood to be synonymous, could be extended to include factors that depend solely on the arbitrary discretion, generosity, or sense of fair play of another authority. The Court held that such an extension is impermissible and does not constitute a reasonable test. It further emphasized that it is unreasonable to claim that the validity of a statute may rest on something the executive Government may arbitrarily do or undo at any time. The statute that imposes the restrictions does not confer any right on the Government to act in a way that would render those restrictions reasonable. The Court asked how a restriction could be deemed reasonable if the Act is prima facie unreasonable, yet is held to be reasonable because of a factor to which it gives no right and whose existence is wholly dependent on the executive’s choice. It questioned whether the restrictions could be considered reasonable merely because the Government, when the issue arose, performed an act that made the restrictions reasonable, even though the Government was not bound to do so and remained free to reverse that act. To accept such reasoning would amount to saying that the Act is valid only because the Government has at that moment chosen to make it so, a conclusion the Court found contrary to all known principles of law.

The Court explained that if the respondents’ contention were accepted, a statute would be legal when the Government decides to act in a certain way and illegal when it decides to withdraw that act, fluctuating from time to time at the Government’s discretion. The Court described such a position as intolerable in any legal system. It noted that it had been suggested that this kind of situation is unavoidable and may arise in many cases, and an illustration was offered. The illustration described a scenario in which, during famine conditions, a statute was enacted to control the free sale of foodstuff. Under those prevailing conditions, the restrictions on free sale were reasonable. When normal conditions returned, the controls became unnecessary and therefore unreasonable, causing the Act to become invalid. If, after some time, famine conditions re-emerged, the validity of the Act would be restored. The Court observed that this analogy was presented to support the view that a statute’s validity could fluctuate with changing conditions. However, the Court rejected the analogy because the imagined famine conditions do not depend on the Government’s arbitrary choice. It emphasized that allowing the validity of a law to hinge on the Government’s discretionary actions would create a rule that undermines legal certainty, and that such a rule should not be adopted.

The Court observed that it would not be unusual for a statute to be valid at certain times and invalid at other times, but it rejected the analogy drawn with famine conditions. The Court noted that the imagined famine conditions are not determined by the Government’s choice, and therefore linking the validity of a law to the appearance or disappearance of such conditions does not justify a rule that would make the validity of an Act depend on the Government’s discretion. The Court further held that even if a fluctuating validity occurs in one scenario, it does not follow that the same consequence must arise in a completely different case. Turning to the Notification that enhanced the home price of sugar, the Court found serious doubt about its validity. It observed that neither the Essential Commodities Act nor the Sugar (Control) Order of 1955 contain any provision that authorises the Government to increase the price of sugar merely to compensate manufacturers for losses caused by the impugned Act. The Court recited the relevant provision of the Essential Commodities Act, which allows the power to fix the price of sugar to be exercised only for maintaining or increasing the supplies of any essential commodity or for securing its equitable distribution and availability at fair prices. Consequently, that power cannot be exercised to recoup losses suffered by a manufacturer under another Act whose purpose is to earn foreign exchange. If it is argued that the Notification was issued for the purposes enumerated in the Essential Commodities Act, the Court concluded that the price fixed under the Notification bears no relation to the impugned Act and may have to be altered irrespective of that Act. The Court found it impossible to contend that a Notification fixing the price of sugar on different conditions could be taken into account when assessing the reasonableness of the impugned Act, which is entirely unrelated to those considerations. For all these reasons, the Court was unable to agree that the Notification increasing the home price could be considered in determining the reasonableness of the restrictions imposed by the impugned Act. As a result, the Court concluded that the restrictions do cause loss to sugar manufacturers and there is no evidence to show that the restrictions are reasonable. The Court then addressed the contention that the Indian Sugar Mills Association, of which the petitioners are members, wanted arrangements for export of sugar and that this was the motive for passing the impugned Act. It was suggested that the Association had agreed to the Act being passed and that, therefore, the restrictions should be presumed reasonable and the petitioners could not be heard to challenge their reasonableness. The Court observed that the request or agreement of the Association is not the request or agreement of the petitioners, and therefore cannot bind the petitioners or affect their rights.

In this case the Court observed that any request or agreement purportedly made by the petitioners could not be attributed to the Indian Sugar Mills Association because the Association possessed no authority to bind individual members. The mere fact that the petitioners were members of the Association, even if that were established, did not confer upon the Association the power to obligate them. The record contained no evidence that the petitioners had consented to the Association making any request to the Government or to any agreement concerning the legislation. Consequently, the Court held that it was possible that the petitioners might have opposed any such request for export measures or any assent to the enactment of the Act. Because of this uncertainty, the Court concluded that the rights of the petitioners were not diminished by any action that the Association might have taken. Moreover, the Court found that the material before it did not demonstrate that the Association had approved the passage of the Act in its present form. The scope of the Court’s examination was limited to the Act itself, and not to any external representations. It was acknowledged that the Association had, in its minutes, suggested that the Government should consider steps to export sugar. Those minutes, which were annexed to the affidavits filed on behalf of the Government, indeed reflected a proposal for export. However, the Court noted that neither those minutes nor any other document in the record indicated that the Association intended sugar to be exported in a manner that could cause loss to the manufacturers. In sum, the Court determined that the Association’s suggestion of export did not equate to an endorsement of export at the expense of the manufacturers, and therefore could not be used to infer that the petitioners were bound by any such suggestion.

The Court then turned to the factual background of the sugar industry in the year 1951-52. During that period the manufacturers faced a severe disadvantage because manufacturers of khandsari and gur were able to purchase sugarcane on the open market at low prices, whereas the sugar manufacturers were compelled to buy cane at government-fixed rates that were comparatively high. This disparity placed the sugar manufacturers in a precarious financial position. In response to these difficulties, a number of manufacturers, as documented in Annexure “A” to the affidavit of Shri Jain, addressed the Government in March 1952 with a set of specific relief measures. The first proposal called for the reduction of the cane price to one rupee per maund. The second proposal urged that sugar produced from the cheaper cane be ‘frozen’ and retained as a national reserve for export or for any other purpose that the Government might deem appropriate. The third proposal sought to alleviate the accumulation of stocks in factories by encouraging the Government, either directly or through trade channels, to export at least two lakh tons of sugar, thereby converting stock into cash; alternatively, the proposal suggested that State Governments be asked to take delivery of the quantities and store them in their own godowns. The fourth proposal recommended that any profit realized from such export operations be used either to pay a bonus to cane growers or to reduce the price of sugar for domestic consumption. The Court observed that these suggestions clearly indicated that the manufacturers were seeking relief from the financial burden they faced and were requesting that export be undertaken at the cost of the Government. The Court noted that in the same year the Government authorized an export of ten thousand tons and provided a subsidy of two rupees per maund to offset the loss incurred on the export. The discussion of these measures formed part of the factual matrix considered by the Court in assessing the reasonableness of the restrictions imposed by the Act.

The Government allowed the export of ten thousand tonnes of sugar and granted a subsidy of two rupees per maund so that exporters could recover the loss incurred on those shipments. In the same calendar year the Government further reduced the price that sugar manufacturers were required to pay for raw cane, thereby lowering their input costs. During the fiscal periods 1952-53 through 1955-56 India imported substantial quantities of sugar and made no exports at all, a situation that reflected the fact that domestic consumption of sugar exceeded domestic production in each of those years, creating an obvious need for imports rather than an incentive to export. Consequently, the sugar producers in those years had no necessity to seek any export arrangements from the Government, and the respondents did not allege that the producers had requested such assistance during that interval.

The fiscal year 1956-57 coincided with the Suez crisis, a period during which a comparatively large quantity of sugar was exported and sizeable profits were realised because international market prices rose as a direct result of the crisis. The implication drawn from this sequence of events is that between 1952-53 and 1956-57 the sugar industry was performing satisfactorily and therefore had no compelling reason to petition the Government for special export facilitation. There is no documentary evidence indicating that the 1957-58 season experienced any over-production; the statistical record for that year shows production of nineteen lakh seventy-five thousand tonnes, consumption of twenty-one lakh fourteen thousand tonnes, and exports of only fifty thousand tonnes, the latter figure being the amount prescribed under the Act.

Nevertheless, it appears that certain officials representing the Government and representatives of the sugar manufacturers convened and reached a consensus to export sugar in order to earn foreign exchange for the Government’s benefit and to establish a presence for Indian sugar in overseas markets, an objective also favorable to the manufacturers. The parties recognised that such export would generate a loss for the producers, but the manufacturers consented to proceed on the condition that they could recover the loss through sales in the domestic market. Accordingly, annexure “D” to the affidavit of Shri Jain records the suggestion that the internal market would remain free as at present, while the Government of India, in active consultation with the industry, would regulate releases for domestic sale to provide market stability.

This arrangement meant that the trade was prepared to export sugar only if it retained the freedom to offset the export-related loss by selling the same quantity domestically. That condition differs fundamentally from the provisions of the Act, which contain no mechanism for recouping export losses through the internal market. Consequently, the sugar manufacturers did not assent to the Act; instead they relied on the Government’s equitable sense to mitigate the hardship the Act might cause. A further issue raised concerns the reasonableness of the restrictions, allegedly justified on the ground that they would stabilise the sugar industry. However, the affidavits submitted on behalf of the respondents merely assert that the Act would stabilise the industry without demonstrating how such stabilisation would be achieved or providing any supporting evidence.

From the material previously presented, it was concluded that the sugar industry did not require any stabilisation. The statistical data cited earlier indicated that domestic production had consistently been lower than internal consumption, with the sole exception of the year 1951-52. Even for that year, an annexure to Shri Jain’s affidavit demonstrated that the problem was only temporary. The affidavit recorded that in 1952-53 an intention had been expressed to export up to two lakh tonnes, yet only about ten thousand tonnes were actually exported because, during that period, sugar prices rose appreciably and the surplus was absorbed by the home market. The estimated figures for the fiscal year 1958-59 were given as follows: production of 19,00,000 tonnes, consumption of 21,00,000 tonnes and export of 1,00,000 tonnes. These numbers suggested that the Indian sugar industry had remained stable and had never needed export as a means of achieving stability. The decisive provision, however, lay in section 4 of the Act. That section provides that, in fixing the total quantity of sugar to be exported in any season, the only considerations are the quantity of sugar available in India, the quantity required for domestic consumption, and the necessity of earning foreign exchange. Consequently, the decision on the export quantity does not involve any question of stabilising the industry or its prices. Moreover, the export quota is not determined merely by any excess of production over domestic consumption, because, in reality, there has never been a genuine excess of production over the consumption requirement. It follows that, if sufficient sugar is retained to meet domestic needs, a higher price cannot be used to offset the loss incurred by exporters; when supplies adequately meet demand, the price cannot be artificially raised. The price of sugar is determined by the cost of sugar-cane, manufacturing expenses, taxes, a reasonable margin of profit for producers or traders, and any incidental charges. Exercising the powers conferred on the Central Government by section 3 of the Act and element 5 of the relevant order, the Government issued a notification on 30 July 1958 fixing the ex-factory price for Indian Sugar Standard (ISS) D-29 grade. A few days earlier, on 27 June 1958, the Central Government had promulgated the Sugar Export Promotion Ordinance, which was later enacted as Act 30 of 1958 and received the President’s assent on 16 September 1958. It was asserted that, in fixing the price for sugar produced during the 1957-58 season in vacuum-pan factories located in the areas specified in the order, the Central Government had taken into account the potential loss that exporters might suffer because of the provisions of the impugned Act. Shri K. P. Jain, Chief Director in the Directorate of Sugar & Vanaspati, Ministry of Food and Agriculture (Department of Food), affirmed in his affidavit that the ex-factory price was consequently determined.

The order fixed the ex-factory price of sugar per maund by aggregating several components. The average cost of production, which already included a margin of profit, was set at rupees twenty-two and ninety-one paise. To this amount the excise duty of rupees ten and seventy paise was added, followed by a cane cess of rupees one and eighty-nine paise. An additional sum of rupees zero and fifty paise was allotted for the loss on exports. When these four items were summed, the total amounted to rupees thirty-six and zero paise per maund. The order further explained that a sugar factory was expected to obtain, from its sales in the domestic market, the amount of rupees twenty-two and ninety-one paise as its cost of production together with the profit margin, and an extra rupees zero and fifty paise to compensate for export losses. The export loss, calculated on the basis of the fixed price, worked out to roughly ten rupees for each maund of sugar exported. Because for every maund of sugar sent abroad a factory retained twenty maunds for sale within India, the additional fifty paise per maund earned on the internal sales of those twenty maunds would together yield ten rupees, exactly covering the loss incurred on the exported portion.

Having examined these calculations, the Court concluded that the Act under review caused the petitioners to suffer a loss on the sale of a portion of their production, thereby imposing a restriction on their right to conduct business. In the circumstances of the present case, such a restriction could not be characterized as reasonable, and consequently the Act was held to be invalid. The Court noted that the petitioners’ learned counsel had raised several other objections to the validity of the Act, but, in view of the conclusion already expressed, the Court found it unnecessary to address those additional points. Accordingly, the petitions were allowed and costs were awarded.

Justice Subbarao, after reviewing the judgment prepared by his fellow Justice Hidayatullah, expressed agreement with the ultimate conclusion but sought to set out his own reasoning. He indicated that he was compelled to formulate a separate opinion because he could not accept one of the reasons advanced by Justice Hidayatullah. That particular reason concerned a fundamental principle of wide significance: whether, in determining the reasonableness of a statutory restriction on a fundamental right, it is permissible to rely upon a governmental notification issued under powers conferred by a different, unrelated Act. Before engaging with the merits of the case, Justice Subbarao stated that he would first clarify his position on this legal question. He observed that the essential facts of the case had already been fully detailed in the earlier judgment and therefore did not need to be repeated, except for a few material points. He recounted that the Essential Commodities Act of 1955, enacted for the purpose set out in its preamble, authorised the Central Government, under section three, to issue the Sugar (Control) Order dated twenty-seven August 1955. Under rule five of that order, the Central Government was empowered, among other things, to fix the price—or the maximum price—at which any sugar could be sold or delivered, taking into account the considerations previously described.

The order fixes a price or a minimum price and, according to the record, this provision means that any loss that sugar exporters might suffer is counterbalanced by the possibility of recovering that loss through their internal trade. The Attorney-General attempted to defend the restrictions placed by the impugned Act by arguing, among other points, that the Court should take the said order into account when assessing whether the restrictions are reasonable under Article 19 of the Constitution. To support this argument he cited the decision of this Court in State of Madras v. V. G. Row (1). That earlier case examined whether section 15(2)(b) of the Indian Criminal Law Amendment Act, 1908 (14 of 1908), as amended by the Indian Criminal Law Amendment (Madras) Act, 1950, was unconstitutional and void. The contention in that case was that the provision fell within the constitutionally permissible limits for a legislative restriction of the fundamental right granted to citizens under Article 19(1)(c). The permissible limits are described in clause 4 of that article, which provides: “Nothing in sub-clause (c) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the States from making any law imposing,.in the interests of public order or morality, reasonable restrictions on the exercise of the right conferred by the said sub-clause.” While discussing this issue, Chief Justice Patanjali Sastri observed on page 607 that the test of reasonableness must be applied to each individual statute that is challenged and that no single abstract standard or universal pattern of reasonableness can be imposed on all cases. He explained that the nature of the alleged infringement, the purpose behind the restriction, the urgency and extent of the evil the restriction seeks to remedy, the disproportionality of the measure, and the prevailing conditions at the time must all be considered in the judicial assessment. He further noted that in weighing these often elusive factors, the judges’ own social philosophy and value system inevitably influence their conception of what is reasonable, and that their interference with legislative judgment should be limited by a sense of responsibility, self-restraint, and the recognition that the Constitution serves a diverse populace, not merely the judges’ own viewpoint. He stressed that the elected representatives who authorized the restriction considered it reasonable. In the view of the Court, this passage encapsulates the law on the subject with precision. The principle therefore is that what is regarded as reasonable in one societal context may be unreasonable in another with a different background. The counsel for the petitioner relied on the terms “prevailing conditions” and the subsequent wording “in all the circumstances of a given case” from Chief Justice Patanjali Sastri’s observation.

In the judgment referenced, the counsel for one side argued that the expression “in all the circumstances of a given case” employed by Chief Justice Patanjali Sastri was sufficiently broad to encompass notifications issued by the Government, and therefore the order of the Central Government fixing the rate should be treated as one of the elements to be examined when assessing the reasonableness of the challenged Act. The Court found this line of reasoning difficult to endorse. The Attorney-General was unable to produce any precedent that had held that such governmental notifications could be taken into account in forming a judicial decision. The Court nevertheless accepted that the conditions prevailing at the time the legislation was enacted must be regarded, because the effectiveness of any restriction imposed for a specific purpose is inevitably linked to those conditions. Illustratively, in a society habitually using opium, the legislature would be compelled to enact a law that imposes severe limits on the right to consume the substance; similarly, where a particular vice is widespread, any restriction aimed at eradicating that vice must be shaped to meet the demands of the period. In episodes of national stress such as war or pestilence, the state may lawfully impose greater restraints on a fundamental right to conduct business in the public interest, whereas the identical restriction might be deemed unreasonable during ordinary times. Even in normal circumstances, the urgency of a social or economic reform, taking into account sub-standard conditions of human existence, may necessitate more stringent restrictions on fundamental rights than would be required in times of prosperity. Consequently, the Court viewed the Chief Justice’s vivid description of the test of reasonableness as merely restating an obvious principle: that the standard of reasonableness is inextricably linked to the state of society and the urgency of eliminating the evil that the law seeks to remedy. Nevertheless, the Court was clear that the validity of an Act could not be made to rest upon another Act that was unrelated to the impugned legislation or to a power conferred therein, even if that other Act, when properly exercised, might offset the undesirable tendency of the challenged law. To base the validity of an Act on such an external foundation would amount to constructing a super-structure on shifting sands, thereby undermining legislative stability and introducing an element of uncertainty. Only when two or more Acts constitute parts of the same legislative scheme or plan, or when the challenged Act is an extension or further step of a earlier Act intended to achieve the same objective, or when the legislature has expressly incorporated provisions of the earlier Act into the new one, would it be permissible to rely on those earlier provisions—not because they form part of the prevailing conditions, but because either the earlier Act

In the present analysis the Court explained that an earlier statute may become part of the statute that is being challenged either because the later statute expressly refers to the earlier one, or because both statutes belong to a single legislative plan. The examples given by the Court are not meant to be exhaustive, but they illustrate two principal situations. First, the earlier Act is expressly incorporated into a new Act. Second, both Acts are components of a broader legislative scheme or plan; in some instances the two statutes may have been conceived together at the outset but enacted in successive stages, while in other instances they may have been conceived at different times based on experience gained and later enacted as further steps in pursuing the same overall scheme. In such circumstances the Court held that the test of reasonableness applied to one of the Acts may legitimately be measured by looking at the effect that the other Act has on it. However, the Court warned that extending the analysis beyond this limited connection would undermine the stability of legislation and would introduce an element of uncertainty that is undesirable. Moreover, the Court observed that to rely upon a temporary notification issued under an unrelated Act would place the statute in a fluid condition. In that scenario the validity of the statute would hinge upon a provisional statutory order whose effect could shift whenever the authority that issued it altered its attitude. This would also compel a Court to undertake a continual search of all statutes and notifications that might, either intentionally or inadvertently, mitigate or soften the adverse consequences of the impugned statute, a result that the Court deemed unthinkable. The learned Attorney-General, in support of his broad proposition, did not cite any authority that upheld his position. The Court noted that, although the judgment of the learned brother, Hidayatullah J., referred to a few decisions claimed to lend full support to the Attorney-General’s argument, a careful examination of those decisions revealed no statement or implication that would endorse the proposition. The Court then turned to the decision in Attorney-General for Alberta v. Attorney-General for Canada (1939) A.C. 117, which concerned a conflict between the legislative competencies of the Dominion and the Province under sections 91 and 92 of the British North America Act, 1867. The Alberta Legislative Assembly had enacted a law concerning the taxation of banks, imposing an annual tax on every corporation or joint-stock company—except the Bank of Canada—that was incorporated for the purpose of carrying on banking or savings-bank business in the Province, in addition to any tax payable under other statutes. The Act authorized the imposition of penalties on defaulters, and enforcement could be carried out through distress and sale of goods and chattels or by an action for civil debt. Before the Privy Council it was contended that the purported tax was not, in its true sense, a levy designed to raise revenue for provincial purposes within the exclusive legislative competence of the Province. Rather, it was argued, the tax formed part of a legislative scheme intended to prevent the operation within the Province of the banking institutions that had been created and empowered by the Parliament of the Dominion under section 91 of the British North America Act. The Privy Council accepted this contention, finding that the legislation was colourable, i.e., it assumed a form that appeared within provincial competence but in substance sought to achieve a purpose beyond that competence.

In that earlier case, the Privy Council noted that the banking institutions which were the subject of the dispute had been created and empowered to carry on their business exclusively by the Parliament of the Dominion, that power being derived from section 91 of the British North America Act. Because the Dominion alone possessed the authority to establish such banks, any provincial measure that attempted to impose a tax or otherwise regulate those banks was beyond the competence of the Province and was therefore ultra vires the Provincial Legislature. The Council accepted this contention. To discover the true purpose behind the provincial bill, the Judicial Committee compared the legislative powers enumerated in the respective lists, took judicial notice of other statutes that were in force, and examined the object and purpose of the impugned Act. After weighing all of these considerations, the Committee concluded that the legislation was colourable: although it was drafted in a form that appeared to fall within provincial jurisdiction, its real aim was to prevent the operation within the province of the banks that had been validly created by the Dominion Parliament. The Court explained that whenever a statute is attacked on the ground of colourable legislation—meaning it assumes a form that seemingly lies within the legislature’s competence while, in substance, it seeks to reach matters beyond that competence—it is essential to scrutinise all surrounding circumstances, including other Acts operating in the province, in order to uncover any fraud on power. The Court further held that the decision cited by counsel could not be invoked to support the present argument, and that the earlier Judicial Committee decision in Ladore v. Bennett did not extend the principle to the present facts. In Ladore, the issue was whether provincial legislation infringed the exclusive Dominion power over bankruptcy, insolvency, and private rights outside the province. To determine the pith and substance of the statutes in that case, the Judicial Committee relied upon a Royal Commission report that examined municipal affairs of four municipalities. At page 477 the report was remarked upon, “Their Lordships do not cite this report as evidence of the facts there found, but as indicating the materials which the Government of the Province had before them before promoting in the Legislature the statute now impugned.” The Court concluded that this authority did not shed any light on the question that arose in the present matter.

The Court also observed that the Privy Council decision in Pillai v. Mudanayake was of limited relevance to the issues before it. That case dealt with the constitutional validity of the Citizenship Act, 1948 of Ceylon, which had been challenged on the ground that its principal object was to prevent Indian Tamils from obtaining Ceylonese citizenship and that the Act formed part of a scheme to achieve indirectly something which the legislature could not accomplish directly. The Judicial Committee held that a challenger must positively demonstrate that a statute, which on its face appears to be intra vires, was enacted as part of a plan to effect indirectly a purpose beyond the legislature’s power. At page 528 the Committee stated, “It must be shown affirmatively by the party challenging a statute which is upon its face intra vires that it was enacted as part of a plan to effect indirectly something which the legislature had no power to achieve directly.” In reaching that conclusion, the Committee referred to the Indian and Pakistani Residents (Citizenship) Act, No 3 of 1949, as an example of legislation that was examined to uncover the true legislative intent. The Court therefore ruled that the precedents in Pillai and Ladore could not be applied to support the proposition advanced in the present case, and that a careful examination of all relevant documents was required to determine whether there was any fraud on legislative power.

In that earlier case the Court observed that an Indian Tamil could acquire citizenship by making an application for registration, and that such registration would consequently safeguard the rights of his descendants, provided that the applicant satisfied a prescribed residential qualification. When an objection was raised against the Court on the basis of that particular Act, the judges dismissed the objection and, at page 529, remarked that if a legislative scheme existed, it had to be examined in its entirety. The judges held that, on a full examination, it was clear in their opinion that the legislature had not intended to bar Indian Tamils from obtaining citizenship so long as they were sufficiently connected with the island. The reliance on a later enactment in that matter was intended only to uncover a plan that the Ceylon Legislature allegedly pursued to deprive Indian Tamils of citizenship by passing the impugned Act. Consequently, the three decisions cited could not be treated as authorities for the proposition presently raised. To expose a plan of fraud upon legislative powers, the Court explained, it would be necessary to scrutinise every document, whether legislative or otherwise, that might reveal the truth. The Court further noted that it might be necessary to consult another Act in order to determine the true pith and substance of an impugned statute, but that the same principle could not be applied to assess the reasonableness of legislative restrictions on fundamental rights.

Turning to the facts of the present dispute, it was not suggested that the Essential Commodities Act, 1955 and the impugned Act formed part of a single legislative scheme. The Essential Commodities Act was enacted, the Court observed, to serve the public interest by regulating the production, supply, distribution, trade and commerce of certain essential commodities. The provisions of that Act disclose that its purpose was to maintain or increase the supplies of essential goods, to ensure their equitable distribution, and to make them available at fair prices. The Act did not aim to promote foreign trade or to generate foreign exchange. It was alleged that a notification issued by the Central Government under section 3 of the Essential Commodities Act and rule 5 of the order made thereunder was intended to offset the loss expected to arise under the Ordinance, and therefore the Act that replaced the Ordinance should be regarded as having been enacted on the basis of that notification. In other words, although the impugned Act did not give the Government any power or impose any duty to offset the loss by fixing sugar rates, the mere possibility of fixing rates under a different Act could render the impugned Act valid even if it were otherwise defective. If that argument were accepted, the validity of the impugned Act would not depend on the actual issuance of the notification; the existence of a power under another Act would be sufficient to validate it, because the notification could be issued later. Accepting such reasoning would leave the impugned statute in a fluid condition, its validity fluctuating with the changing attitude of the authority concerned. The Court could not accept this contention.

The Court rejected the submission that the statute existed in a fluid condition whose validity might vary according to the changing attitude of the authority concerned, and therefore refused to accept that contention. It then proceeded to examine the reasonableness of the restrictions imposed by the Act, setting aside the separate notification issued by the Government. The Act was described as being enacted to enable the export of sugar in the public interest and, in certain circumstances, to impose an additional excise duty on sugar produced within India. Section 4 was explained as giving the Central Government the power, by means of a notification in the Official Gazette, to fix from time to time the quantity of sugar that may be exported during any period. While fixing that quantity, the Government was required to consider the total sugar available in the country, the amount that it reasonably considered necessary for domestic consumption, and the need to export sugar to earn foreign exchange in the public interest. The provision further limited the Government from fixing an export quantity that, in any one year, would exceed twenty per cent of the total sugar produced in India in the season ending with October of that year. Under Section 5, the same Government was empowered to apportion the quantity of sugar fixed for export among the various owners in proportion to the quantity of sugar each owner actually produced or was expected to produce during the relevant season. Section 6 imposed an obligation on the owners of sugar factories to deliver to the export agency appointed under the Act the sugar produced in their factories in such quantities, of such grade, in such manner, at such time and at such place as the export agency might specify. The Court noted that once the delivery was made, the owner lost any further right over the sugar except the entitlement to receive payment for it.

Section 8 was described as empowering the export agency, after taking delivery, either to export the sugar itself or to permit the owner to sell the whole or any part of the export quota held in its custody, provided that the price of such sale was approved by the agency and that the proceeds of the sale were payable to the agency. Section 9 directed the export agency to make payments to the owners who had delivered sugar to it in the manner prescribed by that section. The Court explained that from the total sale proceeds, the agency must first deduct its total expenditure incurred in respect of the exported sugar, and then distribute the remaining balance among the owners in proportion to the quantity of sugar each had delivered for export during the year. The provision also allowed the agency to make interim payments to owners against delivery documents and to adjust those payments when the final settlement was made. Finally, Section 10 was noted as conferring on the Central Government the power to issue directions to the export agency in the discharge of its functions under the Act.

The Court observed that Section 7 of the Act addresses the situation where the quantity of sugar delivered by an owner is less than the export quota fixed for that owner. The provision reads: “S. 7(1): Where sugar delivered by any owner falls short of the export quota fixed for it by any quantity (hereinafter referred to as the said quantity), there shall be levied and collected on so much of the sugar despatched from the factory for consumption in India as is equal to the said quantity, a duty of excise at the rate of seventeen rupees per maund.” The Court noted that sub-sections 2, 3 and 4 lay down the machinery for imposing the penal duty and for collecting it from owners who default in supplying the required sugar. It then held that the scheme created by the Act is self-contained. The purpose of the legislation, according to the Court, is to provide for the export of sugar in the public interest. This purpose is pursued by fixing an export quota for sugar and by distributing that quota among the owners of sugar factories, subject to the condition that the quota may not exceed twenty per cent of the total quantity of sugar produced in India during a particular season. The Court added that the quota is fixed so as not to prejudice the requirements of domestic consumption. The apportionment of the export quota among the various factories is carried out objectively and impartially. The Court explained that the quota so delivered, or, where an owner is permitted to sell the sugar himself, the sugar purchased with the sale-proceeds, must be exported, and that the net sale-proceeds are then distributed among the owners in proportion to the quantity of sugar each delivered for export. The Court further pointed out that the Act empowers the Government to make payments on account and that the Government retains overall control, presumably to ensure that no injustice is done to the parties concerned. The short question before the Court, the judgment noted, was whether the restrictions placed on the petitioners’ freedom to acquire, hold and dispose of property, and to carry on trade or business, are reasonable within the meaning of clauses (5) and (6) of Article 19 of the Constitution. The Court reiterated that any restriction must have a reasonable relation to the object sought to be achieved by the legislature and must not exceed that object. In addressing the legislative object, the Court said that the legislature intended to provide for the export of sugar in the public interest. It could not be denied, the Court observed, that at the time the Act was enacted there was a sincere and serious national effort to industrialise the country with the stated aim of raising the economic standards of the people. One of the necessary conditions for industrialisation, the Court explained, is the establishment of heavy industries, which in turn requires foreign exchange earnings to enable the import of plant and equipment. It is also self-evident, the Court held, that it is in the interest of the sugar industry to develop a foreign market for its product. Consequently, the Court concluded that the object of the Act was demonstrably to serve the national interest, and that the scheme devised under the Act bore a clear relation to that objective.

In this case the Court observed that the purpose of the legislation had been attained because every provision of the Act was devised in a sincere effort to encourage the export of sugar by means of cooperative action between the industry and the government. The Court therefore held that the sole possible objection to the restrictions imposed by the statute could be that the liberty of the manufacturers had been curtailed in an undue or arbitrary manner. It was further noted that, but for the operation of the Act, the petitioners would have been able to sell their sugar in the open market so long as they did not exceed the price ceilings fixed under the Essential Commodities Act, 1955. The Court examined the correspondence placed on record, marked as annexures A, B and C, which clearly showed that both the sugar industry and the State were equally interested in stimulating foreign trade and in creating an overseas market for Indian sugar.

Under the scheme embodied in the Act three specific restrictions were imposed on the owners of sugar factories. First, each factory was required to allocate a portion of its production to a stock for export, the amount not exceeding twenty percent of the total quantity produced in that factory. Second, the owners were to receive payment only in proportion to their share of the net sale proceeds that were actually realised in the foreign market. Third, a penal cess was to be levied on any factory that defaulted in supplying the required quantity of sugar. The Court emphasized that, once it was accepted that the Act served a legitimate national interest, it was impossible to hold that these restrictions were unreasonable or excessive. The three restrictions, the Court explained, were in fact the very pillars that supported the export scheme.

The Court reasoned that without a statutory duty compelling factory owners to supply a reasonable fraction of their output, the export agency would be unable to obtain the necessary quantity of sugar for export. Likewise, in the absence of a provision imposing a penal cess on defaulters, there would be no effective sanction to compel factories to meet their export quota. Although the final payment to the factories was deferred until the net proceeds from the overseas sale were realised, the owners would nevertheless receive the price that the sugar fetched in the foreign market. The Court observed that, at present, the export trade in sugar often resulted in a loss, but it could not be presumed that such a loss would be a permanent feature and that the trade would never become profitable in the future.

The Court further noted that it might have been possible for the legislature to devise a better scheme, or that from the perspective of factory owners it might be more advantageous if the State purchased the export-able quantity for cash and exported it on its own account. However, the Court stated that it was not its function to assess the comparative merits of alternative schemes so long as it was satisfied that the scheme actually enacted passed the test of reasonableness. The correspondence between the State and the industry demonstrated that the industry as a whole had cooperated with the State in formulating the scheme that culminated in the passage of the Act. Both the State and the industry were shown to share an equal interest in promoting foreign trade and in building a foreign market. The Court concluded by observing that capturing a foreign market or obtaining a substantive share therein is a difficult task, dependent on many uncertain factors such as the availability of sugar, demand, comparative quality, transport facilities, mutual agreements and international affiliations.

The Court observed that the success of an export scheme depended on several factors, including the availability of sugar, the level of demand for sugar, the comparative advantages of the sugar offered in relation to sugar produced in other markets, the adequacy of transport facilities, the requirements for mutual agreements, and the presence of international affiliations. The Court noted that an initial loss was inevitable in order to obtain a foothold in foreign markets, and that the clear objective of the scheme had to be pursued purposefully and tenaciously. Accordingly, with the consent of the sugar industry and based on past experience, Parliament enacted the statute that created the export arrangement. The Court recognized that the results flowing from the enactment were significant because the State earned foreign exchange and a foreign market was being gradually built for the future prosperity of the sugar industry.

In the affidavit filed on behalf of the respondents, an attempt was made to support the statute by arguing that it was intended to serve the dual purpose of stabilising the domestic market and earning foreign exchange for the country. The affidavit also sought to link the two purposes, but the Attorney-General did not pursue that line of argument. Consequently, the Court considered the question solely from the standpoint of the compelling need of the State to earn foreign exchange and the long-range goal of the industry to develop an overseas market. The Court held that the restrictions imposed by the statute on the petitioners’ fundamental rights were not arbitrary and were reasonable within the meaning of Article 19 of the Constitution. The Court agreed with Justice Hidayatullah on the other questions that had been raised. In the result, the petitions were dismissed with costs, and the order reflected the majority opinion that the petitions be dismissed with costs.