Dava Son Of Bhimji Gohil vs Joint Chief Controller Of Imports and Exports
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Not extracted
Decision Date: 16 April, 1962
Coram: B.P. Sinha, J.R. Mudholkar, K. Subba Rao, N. Rajgopala Ayyangar
The case titled Dava Son of Bhimji Gohil versus Joint Chief Controller of Imports and Exports was decided by the Supreme Court of India on 16 April 1962. The judgment was written by Justice Ayyangar, and the Bench comprised Justices B.P. Sinha, J.R. Mudholkar, K. Subba Rao and N. Rajgopala. The appeal reached the Supreme Court because the Nagpur Bench of the High Court of Bombay had issued a certificate of fitness under Articles 132(1) and 133(1)(c) of the Constitution. The appeal originated from a petition filed by the appellant under Article 226 of the Constitution in the High Court at Nagpur. In that petition the appellant challenged the constitutional validity of several notifications and directions that had been issued under the Imports and Exports (Control) Act, 1947 and the Export Control Order, 1958 made thereunder. The petitioner also asked the Joint Chief Controller of Imports and Exports, Bombay, who was impleaded as the first respondent, to consider his application for a licence. The licence would allow him to export manganese ore obtained from his mines without being bound by the disputed notifications. The High Court dismissed the petition, but nevertheless granted the appellant a certificate of fitness which enabled him to approach this Court.
A few factual details were necessary to understand the precise grievance of the appellant in the present case. He argued that the government notifications violated the Constitution, particularly the fundamental constitutional freedoms guaranteed under Part III. The appellant was a lessee of manganese mines located in two separate areas of Madhya Pradesh under government concession arrangements. The leases had been granted to him in 1953 for a term of twenty years each, with a provision allowing renewal if he so desired, pursuant to the Mineral Concession Rules, 1949. It was an admitted fact that internal demand for manganese ore within India was very small, so that most of the extracted ore was intended for export. Because the leases were only obtained in 1953, the appellant could not have produced any significant quantity of manganese ore during that year. Consequently, he could not have exported any ore before or during 1953, as his mining operations had not yet yielded extractable material. The Court then needed to trace the evolution of restrictions on manganese ore export from 1953 up to the date relevant to the petition. Before 1953, that is prior to the appellant’s entry into the manganese mining business, the export of manganese ore was freely licensed without any governmental restriction. The government also exercised no control over the allocation of railway wagons required for transporting the ore to the export markets.
In this part of the judgment, the Court described how, when the export of manganese ore began to increase after 1953, the Indian Railways were unable to satisfy the growing requirement for railway wagons. Consequently, the Railways imposed regulations that limited the appellant’s access to such wagons. At the same time, the Government intervened in the movement of wagons by creating a registration system for shippers; this system gave registered shippers priority when wagons were allotted. The Court noted that the control exercised over the allocation and movement of wagons was deliberately aligned with broader measures that were being introduced to regulate the export of the ore itself. The Court then turned to the statutory framework governing export control. Section 3 of the Imports and Exports (Control) Act, 1947—referred to in the judgment simply as “the Act”—provides the Central Government with the authority to issue orders, published in the Official Gazette, that may prohibit, restrict, or otherwise control imports, exports, coastwise carriage, or the shipment of goods of any specified description. Such orders may apply to all cases or to particular classes of cases, and may contain exceptions as the Government sees fit. The section further provides that any goods covered by an order made under sub‑section (1) shall be treated as goods whose import or export is prohibited or restricted under section 19 of the Sea Customs Act, 1878, and that the provisions of that Act shall apply, except that the word “shall” in section 183 of the Sea Customs Act is to be read as “may.” Moreover, notwithstanding anything in the Act, the Central Government may, by Gazette notification, prohibit, restrict, or impose conditions on the clearance of goods—whether for domestic consumption or for shipment abroad—of any class of goods imported into India. Under the powers granted by Section 3, the Central Government issued the Exports Control Order, 1958, commonly referred to as the Control Order. Clause 3 of the Control Order declares that no person may export any goods described in Schedule I unless the export is made under a licence granted by the Central Government or by an officer specified in Schedule II. The Court pointed out that manganese ore and iron ore were among the commodities listed in Schedule I. Clause 6 of the same order enumerates the circumstances in which the Central Government or the Chief Controller of Exports and Imports may refuse to grant a licence or may direct a licensing authority not to grant a licence. In order to address arguments raised before it, the Court found it helpful to reproduce Clause 6 in full, which begins with the heading “Refusal of licence” and states that the Central Government or the Chief Controller of Imports and Exports may refuse to grant a licence or
Clause 6 of the Export Control Order authorised the Central Government or the Chief Controller of Imports and Exports to direct any other licensing authority not to grant a licence in a number of circumstances. The order listed these circumstances as follows: firstly, if the application for a licence failed to conform to any provision of the Order; secondly, if the application contained any statement that was false, fraudulent or misleading; thirdly, if the applicant supported the application with a document that was false, fabricated or had been tampered with; fourthly, if the applicant had at any time tampered with an export licence, had exported goods without a required licence, or had participated in any corrupt or fraudulent practice in commercial dealings; fifthly, if the application for an export licence was defective and did not meet the prescribed rules; sixthly, if the applicant committed a breach of the Export Trade Control Regulations; seventhly, if the applicant was not eligible for a licence under those Regulations; eighthly, if the licensing authority chose to channel exports through special or specialised agencies or channels; ninthly, if the applicant was a partner in a partnership firm or a director of a private limited company that was at that time subject to any action under clause 8; and finally, if the applicant was a partnership firm or a private limited company, or any partner or director thereof, who was for the time being subject to any action under clause 8. These grounds collectively enabled the Government to refuse a licence or to instruct a licensing authority not to grant one where any of the listed conditions were satisfied.
The Court then turned to the historical background of the export restrictions on manganese and iron ore. The first such restriction was introduced in June 1956 when the Ministry of Commerce and Industry issued a public notice dated 26 June 1956, which set out the Government’s policy for the half‑year period from July to December 1956. The notice explained that the Government was convinced that the existing trading mechanism for ore exports was inadequate to cope with developments in the purchasing countries. It further observed that exporters who had entered into contracts with foreign buyers were frequently unable to fulfil those contracts, causing inconvenience to the buyers and eroding their confidence in India’s ability to maintain a reliable supply of ore. To overcome this obstacle and to increase foreign‑exchange earnings from ore exports, the Government declared its intention to re‑orient ore trading on more rational lines. Specifically, it proposed to progressively canalise ore exports through the State Trading Corporation, which would rely on domestic mining interests and use the existing trade mechanism wherever practicable. The notice therefore announced that a regulation would govern the export of these ores for the July‑December 1956 period, and it identified three categories of exporters who would be allotted quotas: (1) established shippers who would receive export quotas based on the average quantities they had exported in the years 1953, 1954 and 1955; (2) mine owners who would be allocated quotas based on their mining output; and (3) the State Trading Corporation, which would be given a quota on an ad‑hoc basis. This policy framework formed the basis of the early export controls that are presently under consideration.
In this case the Court recorded that the export of manganese ore was governed by a system of quotas that was established in three distinct categories. The first category comprised mine‑owners whose entitlement to a quota was calculated on the basis of the annual average quantity of ore on which royalty had been paid during the calendar years 1953, 1954 and 1955. The second category consisted of the State Trading Corporation, which was allotted a quota on an ad hoc basis. The Court also explained that the State Trading Corporation was a corporation owned and controlled by the Union Government and that it had been incorporated under the Indian Companies Act in May 1956. In addition to the quota, the Government assured rail‑transport facilities that were co‑extensive with the amount of ore allotted to each beneficiary. The Court noted that there were later clarifications and minor, non‑substantial variations to the original Press Note, but that these were not material to the issues presently before the Court. The Court further observed that the control exercised through this quota system excluded mine‑owners who had not entered the business before 1953, thereby denying them any export quota. By a public notice dated 4 September 1956, the Ministry of Commerce indicated that the situation of these “newcomers” was being examined and that a further announcement would be made in due course. The same policy and the same basis of allocation were continued for the half‑year period from January to June 1957. For the subsequent period, July 1957 to June 1958, the Government altered its approach by announcing quotas for an entire year instead of six‑month intervals. A Press Note issued on 1 June 1957 provided that exporters and mine‑owners would receive a quota equivalent to sixty per cent of the quantity they had exported in either 1956 or 1958, as selected by them. The quota released under this scheme was also made available for allocation to the State Trading Corporation on an ad hoc basis. The Press Note added that the State Trading Corporation would be allotted a sufficient quota to enable it to maximise manganese ore exports and that the Corporation was being advised to seek the co‑operation of established trading and mining interests to ensure the success of this effort. The Court mentioned that further Press Notes introduced minor, non‑material modifications, but that these were not relevant for the present determination. Regarding the next period, July 1958 to June 1959, the Court pointed out that the Government’s policy decision was communicated through a public notice dated 26 May 1958. In that statement the Government asserted that it had continuously reviewed the operation of the earlier Press Notes and had concluded that the long‑term interests of Indian manganese ore would be better protected if the export policy discouraged the fragmentation of quotas and encouraged bulk contracting, movement and shipment of ore. At the same time, the Government expressed a desire to maintain continuity in the export arrangements as far as practicable. Consequently, the Government decided that
For the period July 1958 to June 1959 the Government stipulated that the export of manganese ore would be regulated in a specific manner. First, the established shippers, the mine‑owners, exporters and the State Trading Corporation were to receive quota allotments equal in quantity to those that had been granted for the financial year 1957‑58. Second, firms and parties whose individual allocations were small were advised to form co‑operative or limited companies in order to obtain a quota.
When the writ petition, which gave rise to this appeal, was filed, the policy statement dated 26 May 1958 remained in force, and the petitioner challenged the constitutional validity of the restriction and control embodied in that policy. The situation at that time may be summarised as follows. From July 1956 onward the export of manganese ore was subject to control or restriction. This restriction was implemented through the allocation of export quotas to three categories of persons: (a) established exporters who had been exporting since 1953, (b) mine‑owners who had also exported the ore they mined, subject to a similar temporal limitation, and (c) the State Trading Corporation, which received an ad hoc export quota to cover any remaining quantity that could be sold abroad.
Any traders or mine‑owners who lacked export performance in the earlier years were excluded from the scheme. Although the Government repeatedly announced in public statements that the situation of these “newcomers” would be considered, no such consideration was ever effected. The appellant belonged to this excluded group and consequently was not eligible for any export quota, rendering him unable to export his ore.
As a result, the ore mined by the appellant could be sold only in the domestic market, which was extremely restricted because the principal consumers—steel‑producing enterprises—possessed their own mines and therefore sourced most of their required ore internally. In the absence of a viable domestic market, the appellant could attempt to sell the ore either to the established shippers or to the State Trading Corporation. The established shippers were seeing their export quotas progressively reduced, which meant their demand for ore declined and they could offer only unremunerative prices, forcing “newcomers” to quote lower prices in order to persuade them to purchase.
The alternative purchaser, the State Trading Corporation, was granted quotas on an ad hoc basis sufficient to enable it to acquire any ore for which a foreign buyer could be found. The appellant alleged, by referring to a circular issued by the Corporation on 20 April 1957, that the terms offered for the purchase of ore were unfair because the Corporation demanded an excessively large commission. It is important to note, however, that the State Trading Corporation was not impleaded as a party in the writ petition before the High Court, nor was any relief sought on the basis of that allegation. The reference to the circular was therefore made merely to illustrate the hardship suffered by the appellant due to his exclusion from the quota system that was based on past export performance.
The State Trading Corporation, being owned and controlled by the Central Government, functions as an agency or instrument of the Government for implementing its commercial policy. If, in the performance of its statutory duties, the Corporation were to act in an improper or unfair manner, it would be subject to judicial control. Nevertheless, because the appellant did not claim any relief on that ground, the Court found it unnecessary to pursue that point or examine its merits.
Consequently, the appellant’s case required assessment in the light of the foregoing facts and the legal framework governing the export of manganese ore during the relevant period.
The appellant argued that the terms offered by the State Trading Corporation for the purchase of ore were unfair because the corporation demanded an excessively large commission. It is important to note, however, that the State Trading Corporation was not named as a party in the writ petition filed in the High Court, and the appellant did not seek any relief on the basis of that allegation. The reference to the corporation’s commission was therefore relied upon only to underline the hardship suffered by the appellant as a result of the exclusion of miners who had no export performance in the years that were fixed as the basic years for the allocation of an export quota to mine‑owners. The State Trading Corporation, being owned and controlled by the Central Government, functions as an agency or instrument of the government for the purpose of carrying out its commercial policy. If, in the discharge of its duties as a public authority, the corporation were to act in an improper or unfair manner, it would be subject to judicial control. Because the appellant did not claim any relief on that ground, the Court found it unnecessary to pursue the point or to examine its merits. The appellant’s case must be assessed on the basis of two features that were admitted and that arose from the Government’s policy statements previously set out. First, mine‑owners who were “newcomers,” meaning they did not have export performance in certain basic years, were excluded from direct participation in the export trade; nevertheless, these persons had no practical internal market for manganese ore to which they could sell their product, since the internal market for the ore was essentially absent and export facilities had been granted only to certain participants. Second, the only categories of persons to whom the “newcomers” could sell their ore were (a) established shippers and (b) the State Trading Corporation, and the nature of this market had already been described. The question placed before the appeal was whether the denial of the right to engage in export trade to this class of mine‑owners amounted to an unreasonable restriction on their constitutional right to carry on a business guaranteed by Article 19(1)(g) of the Constitution. The Court set aside, for the moment, a matter that lay beyond the controversy, namely the constitutional validity of section 3 of the Imports and Exports Control Act, 1947, which serves as the ultimate source of the impugned notifications and executive actions; that validity was conceded. The appellant’s counsel advanced two points. The first point contended that Clause 6(h) of the Exports Control Order, 1958, was beyond the rule‑making power conferred by section 3 of the Imports and Exports Control Act, 1947. The second point argued that even if Clause 6(h) and the “canalising” of exports through special or specialised agencies or channels were valid, the notifications by which such canalisation was effected lay outside the contemplation of the “agency or channel” referred to in Clause 6(h). Before proceeding further, the Court noted that the constitutional validity of Clause 6(h) of the Export Control Order, 1953 was not in dispute before it, as the controversy concerning that clause had already been resolved by the decision of this Court in Glass Chatons Importers and Users Association v. Union of India.
In this case, the Court noted that the earlier decision in Glass Chatons Importers and Users Association v. Union of India had already addressed the question of whether clause 6(h) of the Export Control Order 1958 lay beyond the authority granted by section 3 of the Imports and Export Control Act 1947. The argument supporting the contention that clause 6(h) was ultra vires section 3 was presented in a concise manner. It was asserted that the language, setting and purpose of section 3 permit the imposition of restrictions or controls only with respect to the goods that are the subject‑matter of export. Accordingly, the Central Government, by a notified order made under section 3, may (a) specify the particular goods to which control or restriction shall apply, (b) determine the quantities that may be exported, (c) set the quality standards for the goods leaving the country, and (d) designate the destination to which the goods may be sent. The argument continued that the scope of a section 3 order does not extend to restricting the persons who may engage in export trade, nor does it empower the Government to limit the number of persons eligible to export or to prescribe qualifications that must be satisfied before a person may be permitted to export. Even if a valid order could name the persons eligible to export, the argument insisted that such an order would still lack authority to “canalise” or “channel” export activity in a way that creates a monopoly for any particular individual or group, which is precisely the effect achieved by clause 6(h).
The submission was also framed by referring to the provisions of Article 19(6) of the Constitution. Article 19(1)(g) guarantees every citizen the right to carry on any occupation, trade or business, but clause (6) enumerates the permissible restrictions that the State may impose on that right. The court quoted the wording of clause (6) after the first amendment, stating: “Nothing in sub‑clause (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub‑clause, and, in particular, nothing in the said sub‑clause shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to, – (i) ------------------- (ii) the carrying on by the State, or by corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens of otherwise.” The argument emphasized that the policy statements and directions issued to licensing authorities under the powers conferred by clause 6(h) of the Export Control Order 1958 had effectively produced a monopoly, or near‑monopoly, in favour of the State Trading Corporation. The submitter contended that such a monopoly could be justified only if it fell within the scope of a “reasonable restriction” contemplated by Article 19(6)(ii), and that the existing statutes and the Export Control Order could not be characterised as “a law relating to the carrying on by the State of any trade, business, industry or service,” thereby challenging the constitutional basis for the preferential treatment accorded to the State Trading Corporation.
In this case the Court noted that the State Trading Corporation had been granted a monopolistic position. It was contended that, according to Article 19 (6)(ii), such a monopoly could be created only when the State enacted a law covering the matters enumerated in that provision. The Court observed that neither the Export & Import Control Act of 1947 nor the Export Control Order of 1958 could be described as “a law relating to the carrying on by the State of any trade, business, industry or service.” Consequently, the preferential treatment given to the State Trading Corporation could not be justified or sustained by reference to the amendment made to clause 16 by the Constitution (First Amendment) Act of 1961. The Court accepted that observation. However, the Court emphasized that the issue remained whether the impugned provision could be upheld as a “reasonable restriction” on the rights conferred by sub‑clause (g) of Article 19 (1), in the interest of the general public, as indicated by the opening words of paragraph 1 of clause 6. The Court further pointed out that the constitutional validity of clause 6(h), insofar as it permits the canalising or channelling of export trade, is no longer regarded as untouched; this position has been affirmed in the Glass Chatons case.
The Court then focused on the narrow question of whether the restrictions and control that could be made under section 3 might include a provision for canalising trade in a particular commodity. It held that a restriction or control in the form of channelling or canalising trade does not fall outside the limits that may be imposed on export trading by section 3, and therefore clause 6(h) in its present form lies within the rule‑making authority granted to the Central Government by section 3 of the Act. The argument that restrictions imposed or control exercised on exports through orders made under section 3 could not extend to persons permitted to engage in export trade was rejected. The Court explained that if the quantum of export of a commodity can be limited, the mechanism implementing that limitation must necessarily reach the persons who are engaged in or who wish to engage in exporting that commodity, and this becomes even more evident when the restriction amounts to a total prohibition of the commodity’s export. Hence, when control may legally extend to the persons involved in trade, it logically follows that the restriction may take the form of classifying those persons and prescribing the conditions under which each class may participate. The Court concluded that it is a matter of governmental policy, taking into account the nature of the commodity and the surrounding circumstances, to determine the basis for such classification and the relative priorities of the groups involved.
In this case the Court observed that the circumstances surrounding the export trade in manganese ore required the government to establish a basis for classifying exporters into distinct groups and to assign relative priorities among those groups. Section 6(h) of the Export Control Order, 1958 allows the “canalising” or “channelling” of exports through selected agencies; the Court explained that this provision merely creates a mechanism for classifying exporters, which is one of the possible modes of exercising the control powers granted under section 3 of the Export Trade Control Act. The Court then turned to the specific notifications that had been issued. Those notifications confined the export of manganese ore to three categories of persons: (a) established shippers, (b) mine‑owners, and (c) the State Trading Corporation. The first two categories were each allotted export quotas that were calculated on the basis of their export performance during designated “basic years.” The notifications also provided for a progressive reduction of the quotas allotted to categories (a) and (b) so that a larger share of the export business could be handled by the State Trading Corporation. As a necessary consequence of that reduction, the class of exporters commonly referred to in the trade as “new‑comers” was effectively eliminated from the export market under the authority of clause 6(h). From these facts the Court identified two inter‑related grievances raised by the appellant. The first grievance concerned the quota that had been permitted to the established shippers and mine‑owners based on their performance in the basic year. Counsel for the appellant did not press this issue as a serious complaint, noting that existing traders and a prospective entrant cannot legitimately object to the continued granting of licences or facilities to those already engaged in the trade. The appellant had, however, argued before the High Court that the selection of the basic years in the policy‑statement was arbitrary. The Court found that the government’s choice of a basic year—defined as the three‑year period preceding the announcement of the policy—was a permissible method of fixing a reference period and did not amount to unreasonable or arbitrary action. The second grievance focused on the inclusion of the State Trading Corporation among the entities entitled to export manganese ore and on the ad‑hoc increase of its export quota without any reference to prior performance. Counsel characterised this as creating a monopoly that the law does not sanction. The Court therefore limited its further analysis to the grounds on which the successive notifications, which progressively granted greater export facilities to the State Trading Corporation, were challenged. Subsequently, the Court indicated that it would be convenient to set out the reasons advanced by the respondent for preferring the State Trading Corporation as the principal agency for canalising the export trade in this commodity, emphasizing that the vital necessity of export earnings for sustaining the national economy was not a matter of controversy.
In this case, the Court noted that the central issue for the government was to determine the most effective way to obtain the highest possible earnings from the export of manganese ore. The Court observed that India did not possess a monopoly over the production of this ore, and consequently the price of the commodity in foreign markets depended on global factors that were beyond domestic control. Considering that manganese ore was primarily used by steel manufacturers in the production of steel, the Court recorded that foreign purchasers, many of whom conducted external trade through state agencies in their own countries, required a steady supply of ore that was uniform in quality. The Court further explained that, in the early years when the trade in manganese ore was unrestricted and unregulated, complaints had arisen that the ore delivered did not conform to the samples that had been offered, and that this discrepancy harmed even those exporters who had taken great care to maintain high‑quality supplies. In response to these problems, the Court said, the government intervened in 1956 by imposing export restrictions and by providing assurances to foreign buyers that a regular and reliable supply would be secured through the mechanisms of domestic control. The Court affirmed that these factual premises were not contested by any party. Against this factual backdrop, the Court explained that any restriction placed on persons eligible to engage in a particular trade inevitably meant that those who failed to meet the prescribed criteria would be denied the right to participate in that trade. The Court emphasized that such a result was even more pronounced when the restriction took the form of canalising the trade in a specific commodity, because canalisation inherently involved the exclusion of certain groups. Accordingly, the Court held that, provided section 3 of the relevant Act authorized a rule for canalising export trade in a commodity and that such canalisation was not unconstitutional, a person could not sustain a legal complaint merely on the ground that he had been excluded from the group entitled to trade. The Court distinguished this general principle from the separate question of whether the selection of groups for inclusion was justified, noting that an improper selection could raise a discrimination issue. However, the Court pointed out that the appellant did not allege that the established shippers and mine owners who had been allocated quotas, together with the State Trading Corporation, had been wrongly included among those permitted to export. Moreover, the Court observed that there existed a rational and proper classification between traders who possessed experience in the export of manganese ore and those newcomers who lacked such experience. In other commodities subject to export or import regulation, the Court noted, newcomers with experience in other areas of trade had also been allotted quotas, demonstrating a consistent approach to classification.
In this case the Court explained that the requirement for granting a quota must be assessed according to the particular circumstances of each trade. The Court noted that no suggestion had been made that earlier experience in the export trade would not be a valuable qualification for awarding a quota, even a preferential quota, in the commodity that was now under consideration. Consequently, the Court observed, if the notifications had limited the whole export trade to persons who possessed previous experience, the notifications could not have been attacked on the grounds raised by the learned counsel for the appellant. In such a situation the appellant would have been excluded, but he could not maintain that he had been illegally eliminated, because that exclusion would have been a necessary result of the policy of channeling exports through parties with prior experience in the field. The Court then turned to the appellant’s principal grievance, namely that the State Trading Corporation, which had no prior experience in the export trade, had been chosen as the agency to channel the exports, while the appellant and other persons who actually owned the ore to be exported were passed over. The Court acknowledged that if the sole criterion for differentiation were previous experience, the preference given to the State Trading Corporation over the appellant and others of his class might appear unjustified. However, the Court emphasized that prior experience was not the only test to be applied. The Court recalled the reasons already set out for the government’s decision to select the State Trading Corporation as the agency for carrying out the export trade and held that, on those grounds, the choice was proper. Moreover, the Court observed that the aim of the export trade was to earn foreign exchange to the maximum possible, with long‑range benefits for the country, and that such an objective could reasonably be expected to be achieved with the State Trading Corporation acting as the principal agency. Accordingly, the Court found no substance in the appellant’s contention that the selection of the State Trading Corporation and the ad‑hoc grant of quotas to it were beyond the powers conferred on the licensing authorities by clause 6(h) of the Export Control Order or otherwise vulnerable to attack. The Court also considered another argument raised by the appellant. Clause 6(h) authorises the licensing authorities to channel exports “through special or specialised agencies or channels.” The appellant argued that the State Trading Corporation was neither a special nor a specialised agency or channel, and therefore its selection fell outside the scope of clause 6(h). The Court rejected this argument. It held that whatever meaning might be attached to the term “specialised,” the word “special” could not be interpreted to require that the agency be an expert in that line of trade possessing a type of prior experience that no other entity could claim.
It was observed that a “special” agency need not possess a unique prior experience that is unavailable to others. While the Court did not wish to reduce the term to merely denote a designated agency, it interpreted the word to mean an agency chosen with reference to the purpose for which the channeling or canalising is intended. In other words, an agency would be regarded as “special” if, considering the objective of the canalising process, it is more likely to accomplish that objective than other agencies, or if it can accomplish it to a greater extent. Applying this meaning, the Court held without difficulty that the State Trading Corporation could qualify as a “special” agency or channel for the purpose of enabling the country to preserve and promote the continuity of its trade in a commodity by ensuring that exports are made in adequate quantities and of proper quality. The Court then explained that, under the circumstances, the removal of the class to which the appellant belonged—namely, newcomers who had no prior experience of export trade during the basic year or earlier—was the result of applying a permissible method of control and a type of restriction that the licensing authority was legally competent to impose under clause 6(h). The Court noted that for other commodities, “newcomers” have been granted a quota, but such grants naturally depend on the nature of the trade, the nature of the export market, and other factors that lie within the province of the Government to consider. Having set out this legal position, the Court added that the Government’s view was not that the export trade in manganese ore was such that newcomers could never be permitted to enter the trade. This view is evident from several policy statements, which from time to time conveyed an assurance that the allocation of quotas to “newcomers” was under consideration. In the case of a commodity such as manganese ore, where there is little internal market, denying any group or individual the right to export would effectively prejudice them, forcing them to sell to others who have been given such facilities. Persons like the appellant were being given hope of some relief, and the situation was not merely one of hope deferred that made the heart sick, but of hopes that were dashed, leading the appellant to approach the Court for relief. Although the Court considered that the appellant had no legal right to the relief he sought, his grievance was genuine, and it would be for the Government to consider how best to protect the interests of this class and to make it worthwhile for them to win the ore so as to expand, foster and augment the export trade in this valuable commodity. Finally, reverting to the legal points raised in the appeal, the Court found that, on the premises that section 3 of the Import & Export Control Act, 1947 is a valid piece of legislation and that clause 6(h) of the Export Control Order is within the rule‑making power of the Central Government and is constitutional, there was no legally enforceable right of the appellant that had been violated for which relief could be granted under article 226 of the Constitution.
The Court held that the Import and Export Control Act of 1947 was a valid piece of legislation and that clause six (h) of the Export Control Order fell within the rule‑making authority of the Central Government and was therefore constitutional. Consequently, the Court concluded that the appellant’s legal rights had not been infringed in a manner that would allow him to obtain relief under article 226 of the Constitution. In view of this conclusion, the Court found it unnecessary to examine the appellant’s principal prayer for a writ of mandamus directing the licensing authorities to consider his application for an export licence that was current for the half‑year at the date of the petition, without reference to the terms of the impugned notifications and policy statement. Since that half‑year had long elapsed, the Court saw no basis for granting any relief either by the High Court on the original petition or by this Court on the present appeal. The Court acknowledged that, in theory, a person in the appellant’s position might be entitled to a declaratory order challenging the validity of the restrictions that continued to operate beyond the period to which the licence related. However, because the Court had already determined that the restrictions and controls imposed on the trade were lawful and justified by the Act and the Rules made thereunder, it found no need to address that hypothetical question. As a result, the appeal was dismissed, and the Court ordered that no costs be awarded.
This appeal, taken on a certificate, was filed against the judgment of a division bench of the High Court of Bombay, Nagpur Bench, which had dismissed the appellant’s application under article 226 of the Constitution. The appellant, who leased manganese mines in the State of Madhya Pradesh, was engaged in the business of mining and selling manganese ore. Because there is virtually no internal market for manganese in India, the majority of the ore produced in the country is exported, and the negligible domestic trade was deemed irrelevant for the purposes of this case. Up until the middle of 1956, miners, including the appellant, could freely negotiate with foreign buyers, sell their ore at railway sidings to exporters, and arrange transport to any port after securing the necessary wagon allocations from the railways. Beginning in May 1956, however, the Government of India issued a series of notifications that progressively restricted export quotas available to shippers and mine owners. These measures ultimately halted direct export by mine owners and shippers, directing the entire trade through the State Trading Corporation, which had originally been established by the Government as a private company under the Companies Act, 1956, and later converted into a public company.
The Court noted that the State Trading Corporation had originally been constituted by the Government as a private company under the Indian Companies Act, 1956 and later converted into a public company; the details of that transformation would be examined later in the judgment. On 1 December 1958 the appellant submitted an application to the Joint Chief Controller of Imports and Exports, who was identified as the first respondent, seeking an export quota and a licence authorising the export of manganese ore pursuant to clause (4) of the Exports (Control) Order, 1958 (referred to as “the Order”). The appellant also requested permission for the movement of the ore from the railway sidings to the port of Bombay. The first respondent answered the application on 17 December 1958, refusing the request on the basis that, according to the Government’s existing orders, export of manganese ore from India was permitted only to established shippers and established mine‑owners. Feeling aggrieved by that refusal, the appellant instituted a writ petition under Article 226 of the Constitution in the High Court of Bombay; that petition was subsequently dismissed, giving rise to the present appeal before the Supreme Court. In the proceedings before this Court the Joint Chief Controller of Imports and Exports was listed as the first respondent and the Union of India was named as the second respondent. The appellant’s counsel contended that, under Article 19 (1)(g) of the Constitution, the appellant possessed the fundamental right to carry on his business of producing, selling and exporting manganese ore, either directly or through third‑party exporters. The counsel further argued that the Government’s policy statements, which formed the basis for rejecting the appellant’s application, effectively crippled the trade of miners such as the appellant, who were newcomers to the direct export market. According to the counsel, clause (6) of the Order, which authorised the issuance of those policy statements and empowered the Central Government, through the Chief Controller of Imports and Exports, to channel exports through special or specialised agencies or channels, was ultra vires because section 3 of the Imports and Exports (Control) Act, 1947 (the Act) did not confer upon the Central Government the power to assume or delegate such authority. Even assuming that clause 6(h) of the Order was valid, the counsel maintained, the Order only permitted the channeling of exports through specialised agencies—namely, experts in export trade—and could not be used to mandate that exports be routed exclusively through the State Trading Corporation. The counsel observed that the Corporation was no more experienced than ordinary businessmen in the export field and, in fact, lacked the requisite export expertise possessed by established exporters. Consequently, the ultimate effect of the policy statements, the counsel argued, was to create a monopoly in the manganese export trade that favoured the State Trading Corporation and other qualified exporters, and later solely the Corporation itself, without providing appropriate safeguards for miners such as the appellant, such as the allocation of reasonable export quotas, thereby compelling them either to abandon the business or to submit to the dictates of the monopolistic exporters.
In the circumstances described, the miners were left with no practical alternative except to either cease their commercial activities altogether or to place themselves at the mercy of other parties who possessed the authority to set the terms of trade and who might, at their discretion, decide whether to purchase the ore. The Court observed that the manner in which the policy was executed imposed an unreasonable limitation on the miners’ constitutional right to engage in the mining and sale of manganese ore, thereby constituting a denial of their livelihood. Counsel for the respondents argued that the petition filed under Article 226 of the Constitution should be dismissed because the licence for the year 1959, which was the subject of the petition, had already expired, rendering the relief sought ineffective. The same counsel also sought to uphold the order issued by the first respondent, contending that clause (6) of the order had been validly promulgated and that the scheme for implementing the government’s policy was sanctioned by clause 6(h) of the order. Moreover, the respondents maintained that the restriction imposed upon the petitioner’s fundamental right was a reasonable measure within the scope of the legislation. The first question before the Court concerned whether clause 6(h) of the order exceeded the powers granted by the Act. Section 3 of the Act provides that the Central Government may, by order published in the Official Gazette, make provisions for prohibiting, restricting, or otherwise controlling, in all cases or in specified classes of cases, the import, export, carriage, coastwise shipment, or storage of goods of any described category. Clause 6 of the order states that the Central Government or the Chief Controller of Imports and Exports may refuse to grant a licence or may direct any other licensing authority not to grant a licence, and paragraph (h) adds that such refusal may occur if the licensing authority decides to canalise exports and their distribution through special or specialised agencies or channels. The order was framed pursuant to the powers conferred by sections 3 and 4‑A of the Act. The respondents contended that section 3 does not empower the Central Government to issue an order that confers on itself or on another authority the power to channel exports through special agencies or channels. The Court found no merit in that submission. It held that section 3 grants the Central Government a very wide authority to make provisions for prohibiting, restricting, or otherwise controlling the export of goods, and that directing exports through specialised agencies or channels is a legitimate method of exercising that control. Consequently, the power to canalise exports is encompassed within the broad language of the statute and cannot be said to be ultra vires.
The Court observed that the contention that the provision did not empower the Central Government to regulate internal trade for the purpose of controlling exports imposed an unduly narrow construction on the language of section 3 of the Act. While it was acknowledged that the Government could not intrude upon internal commerce under the pretext of export regulation, the Court held that the authority to prohibit, restrict or control the export of goods necessarily implied the power to undertake measures closely connected with the regulation of export trade. To limit the power only to the point of exportation would defeat the very purpose of the legislation, whose principal aim was to bolster the national economy. The Court explained that achieving this aim required a comprehensive scheme that could select goods suitable for export, identify appropriate foreign markets, and establish a reputation for Indian products through quality standards, timely delivery and fair dealings. The scheme also needed to allocate quotas, set reasonable prices and perform other related functions. Such objectives could not be fulfilled if governmental control ended solely at the export point; rather, regulation might have to begin at earlier stages, even at production, depending on the facts of each case. Consequently, the Court concluded that the power conferred by section 3 could be validly exercised by authorities under clause 6(h) of the Order to channel exports through special or specialized agencies or channels, and that this exercise fell squarely within the scope of the Central Government’s statutory authority.
In addressing the further submission of counsel for the appellant, the Court noted that the terms “special” and “specialized” did not necessarily imply that the agencies created must possess expert qualifications in a particular line of trade. The dictionary meanings—“for a particular purpose” and “set apart for a particular purpose”—simply indicated a purpose‑specific function, not a requirement of expertise. Although the Government might reasonably choose agencies well‑versed in the export of particular commodities to achieve optimal results, the language of clause 6(h) imposed no such qualifications. Accordingly, the Court found it unnecessary to pronounce on whether the State Trading Corporation was a better positioned or more qualified entity than experienced private exporters in the manganese export business. The selection of the appropriate agency remained within the exclusive discretion of the Government.
The Court noted that the authority to choose the agency is vested solely in the Government. It was nevertheless argued that the scheme, as it was gradually disclosed by the Government through a series of policy statements, violated the appellant’s fundamental right to trade under Article 19(1)(g) of the Constitution. To examine this claim, the Court considered the various policy declarations issued by the Central Government to determine how they affected the appellant’s business. The earliest declaration was a Press Note dated 26 June 1956, issued by the Ministry of Commerce and Industry in New Delhi. Prior to the issuance of that Press Note, miners who produced manganese ore were permitted to conclude contracts with foreign buyers and to export their product, subject only to the existing export‑control regulations. The Press Note introduced a new policy direction. The Government gave four reasons for altering its policy: first, the prevailing trading mechanism was deemed inadequate to meet developments that had occurred in certain countries regarding the purchase of ores and their impact on India’s foreign trade; second, the control authorities were pre‑occupied with ensuring an equitable allocation of limited railway wagon space among mining and trading interests, which, the Government said, rendered it virtually impossible to utilise the scarce resources to their fullest advantage or to arrange economical transport and handling of ores at the ports; third, some trading interests had entered into large contracts that they subsequently failed to fulfil; and fourth, the mining industry lacked an adequate scope for development on sound lines. In view of these considerations, the Government propounded a new policy, stating: “Government have therefore come to the conclusion that it would be necessary for them to play a more positive role to overcome the obstacles in the way of augmenting foreign‑exchange earnings from the export of ores. It has accordingly been decided that Government should help in reorientating the trading in ores on more rational lines and with this object in view they propose to canalise the export of ores in a progressively increasing measure through the State Trading Corporation and will, in fulfilling its responsibility, rely mainly on the mining interests in the country and use the existing trading mechanism to the extent practicable. At the same time, limited opportunities are proposed to be provided to mining and trading interests for direct participation in the export trade within the limits of the board policy that may be laid down by the Government of India in this behalf.”
Following this policy statement, the Press Note informed the trading community that, for the half‑year spanning July to December 1956, the export of iron and manganese ores would be regulated through established shippers, mine‑owners and the State Trading Corporation. The Note further explained that export quotas would be allocated on a specific basis, beginning with the provision that established shippers would receive quotas calculated on the average quantities actually exported during the three calendar years 1953, 1954 and 1955.
The policy set out that export quotas would be allocated based on the average quantities actually shipped during the three calendar years 1953, 1954 and 1955. Established shippers were to receive quotas calculated from their annual average export quantities for those years. Mine owners were to receive quotas based on the annual average of ore on which royalty had been paid, excluding ore supplied for domestic consumption, for the same three‑year period. However, any mine owner whose lease had expired on 31 December 1955 and had not been subsequently renewed was barred from receiving a quota. The State Trading Corporation was to be allotted quotas on an ad hoc basis.
The notification also stipulated that these quotas would be valid only for rail transport on the sections previously used by each shipper, and that quota‑holders could not move more ore on any section than they had moved during any of the three years 1953, 1954 or 1955. Subsequent press notes issued from time to time implemented the initial policy by gradually removing all shippers other than the State Trading Corporation. The High Court examined each of those later press notes in detail and provided a concise summary of the steps the Government took to achieve its objective. The Court therefore found it unnecessary to revisit those details again.
The High Court described the sequence of measures as follows. First, the trade in manganese was regulated through a licensing system for export quotas. Press notes dated 14 July 1956, 30 July 1956, 6 August 1956, 4 September 1956 and 1 June 1957 showed that, with a single exception, the quotas granted to both shippers and mine owners were progressively reduced in each succeeding period. Up to the fifth statement dated 4 September 1956, the policy did not contemplate mine owners who had no prior shipments; the Government merely announced that it was considering their situation, but no specific provision was later made for them until the State Trading Corporation assumed control.
During the period covered by the seventh statement, the State Trading Corporation entered the market and competed freely with private interests. Small quota holders were encouraged to form cooperatives or companies and were discouraged from operating independently. From the date of the eighth statement, issued on 12 March 1959, it became evident that the unrestricted private trade that existed earlier was essentially halted, as all orders were required to be “canalised” through the State Trading Corporation. The conditions attached to this canalisation were onerous and difficult for small individual interests to satisfy, and the State Trading Corporation itself imposed additional terms. No restrictions were placed on the activities of the State Trading Corporation, and its quota was effectively unlimited. The policy was enforced with the assistance of licensing authorities appointed under the Imports and Exports (Control) Act.
The order directed the port authorities and, by controlling the allocation of railway wagons, to implement the export policy. The Court observed that the series of notifications summarized earlier demonstrated a gradual implementation of the policy announced in the first statement. Initially, the issuance of quotas and licences was restricted to recognised exporters and the State Trading Corporation. Subsequently, this restriction effectively granted a monopoly to the State Trading Corporation. The Court also noted that, although earlier Press Notes indicated that the Government was considering the situation of mine‑owners who had no prior shipments to their credit, no measures were taken during the prescribed period to accommodate those mine‑owners. Consequently, mine‑owners without previous export records, such as the petitioner, were unable to move manganese ore out of their mines for export because they could sell only to the established shippers and the State Trading Corporation up to 12 March 1959, and after that date only to the State Trading Corporation. The Court further held that, in the Government’s eagerness to increase manganese‑ore export trade, persons who were not already engaged in export activities during the relevant period were completely ignored, resulting in the crippling of their industry and business. The respondents’ counsel argued that the appellant had filed an application for a licence on 11 December 1958 seeking permission to export not only to the State Trading Corporation but also to other established shippers, mine‑owners and exporters, and therefore the appellant should not have encountered difficulty in selling the manganese he produced to any of those parties. The Court acknowledged that this argument would be examined, but first noted that the petition did not make clear whether the export licence sought pertained to a period before the issuance of the eighth statement dated 12 March 1959. The earlier licensing period was to expire on 1 June 1959, whereas the eighth statement, issued on 12 March 1959, covered the period from July 1959 to 1960, during which the State Trading Corporation had effectively obtained a monopoly over manganese export trade. It appeared more likely that the licence and quota requested related to the fiscal year 1959‑60. This inference was supported by the fact that the first respondent disposed of the application by an order dated 17 December 1958. Nonetheless, the Court considered the argument alternative. It held that the proposition of a free market in which the petitioner could sell his manganese ore to recognised exporters was unrealistic and unfair to the petitioner. The Court asked what market existed in which the petitioner could obtain reasonable prices for his ore. It was admitted that the petitioner could not sell in the domestic market because, in practice, no such market existed. Moreover, none of the recognised exporters—whether the established shippers or the State Trading Corporation—was obligated to purchase any quota from the petitioner or from mine‑owners in a similar position.
The Court observed that the recognized exporters were in a position to dictate the terms of sale and could even disregard certain mine‑owners. In effect, an artificial market had been fashioned for mine‑owners such as the appellant, whereby they could sell their manganese ore only to established shippers and only at a price fixed by those shippers. After March 1959 this artificial market was further narrowed so that the sole purchaser became the State Trading Corporation. The appellant complained that these restrictions on sale and export prevented him from selling his manganese ore. In his petition the appellant alleged that the State Trading Corporation, invoking the impugned Notices, was setting its own price and was in reality demanding a commission from every exporter in order to provide the facilities needed to export the petitioner’s ore from the unlimited quota allotted to the corporation. He further asserted that Respondent No. 1 was causing the petitioner heavy losses by forcing him to sell his ore to the corporation at a lower price. The petitioner stated that he presently possessed two hundred tons of manganese ore, valued at approximately Rs 20,000, lying idle at his mines or sidings, a situation that would be evident from the circular dated 20‑4‑1957 issued by the corporation to various mine‑owners. He warned that if he were not permitted to export his ore, he would be forced to stock‑pile about fifty tons each month, valued at Rs 10,000, with no outlet, thereby immobilising the capital already invested as well as incurring running costs, including a wage bill of roughly Rs 4,000 per month. Moreover, the petitioner explained that closure of his mines owing to the inability to sell the ore would obligate him to pay compensation amounting to several thousand rupees to workmen under the Industrial Laws, and that he might also face threats of lease cancellation under the Mineral Concession Rules, 1949, for the stoppage of work in his areas. Consequently, the petitioner submitted that Respondent No. 1 had created an impossible situation by issuing the various Notices referred to above. The Court noted that these facts were not denied. It then asked whether a result that practically destroyed the petitioner’s trade could be characterised as a reasonable restriction on his fundamental right. The Court held that by invoking the notion of canalising exports through specialised agencies or channels, the Government had effectively conferred a monopoly on a public corporation, thereby crippling the business of mine‑owners such as the petitioner. Such an unjust position could not be dismissed merely on the basis that the petitioner could export through the corporation. The Court recognised that a justification might exist only if, after March 1959, the corporation and, before that date, the established exporters were bound by a quota imposed on mine‑owners like the appellant. However, it stressed that a person’s livelihood could not be made to depend on the fluctuating moods of an officer of a State corporation, no matter how well‑intentioned that officer might be.
The Court observed that directing export shipments through a designated agency or set of agencies could be combined with a fair distribution of export quotas among those who mine or trade manganese ore, provided that such a combination does not undermine the purpose of encouraging export trade. It stressed that any system that channels exports through specialised agencies must operate under clear and precise rules. These rules should contain provisions that give both stability and assurance of impartial treatment during normal circumstances as well as during emergencies. For example, the Court suggested that the rules might establish specific quotas for each mine‑owner based on the total expected export volume, taking into account both the quality and the quantity of manganese that each producer can supply. The Court further indicated that it may be necessary to create an expert body under those rules, not only to assist the State in determining the appropriate quotas but also to help set reasonable prices by considering the relevant circumstances. The Court added that many other mechanisms could be devised to achieve these objectives, and that it is the responsibility of the Government and the appointed experts to develop them. However, the Court emphasized that the persons affected by such a scheme must not be left in a state of vague uncertainty; instead, the Government should establish definite principles by issuing rules that also provide for emergencies and changes in circumstances. The Court clarified that its observations were not intended to restrict the Central Government’s freedom to act, but rather to guide it to formulate appropriate rules in light of the points made.
In the next portion of the discussion, the Court turned to another argument raised by counsel for the appellant. The appellant’s counsel contended that, unless the State enacts a law authorising a corporation—owned or controlled by the State—to conduct business to the exclusion, wholly or partially, of citizens, a virtual monopoly created by administrative action under the pretext of channelising trade in a particular commodity would inevitably constitute an unreasonable restriction on a citizen’s right to engage in that business. To support this contention, the appellant relied on Article 19(6) of the Constitution, as amended by the Constitution (First Amendment) Act, 1951. The relevant portion of the amendment was quoted in full: “Nothing in sub‑clause (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub‑clause, and, in particular, nothing in the said sub‑clause, shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to, – (i) … (ii) the carrying on by the State, or by a corporation, owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise.” The Court noted that the amended article does not expressly grant the State a power to create monopolies through administrative actions, but merely states that if a valid law is enacted permitting the State or a State‑controlled corporation to operate a trade or service to the exclusion of citizens, such a law would not infringe the fundamental right guaranteed under Article 19(1)(g). The Court further observed that the amendment does not say that, in the absence of such a law, every State interference with a citizen’s trade would automatically be an unreasonable restriction; instead, such interference must be examined under the standard set out in the first part of Article 19(6) to determine whether it constitutes a reasonable restriction in the public interest.
In this case, the Court explained that the amendment to Article 19(6) of the Constitution does not give the State a general authority to create monopolies through administrative action. The amendment merely provides that, if Parliament enacts a valid statute that expressly authorises the State to engage in a trade, business or industry to the exclusion of citizens, either wholly or partially, then such a statute will not be deemed to violate the fundamental right guaranteed by Article 19(1)(g). The Court emphasised that the amendment does not say, as counsel for the appellant suggested, that any interference by the State with a citizen’s commercial activity, unless founded upon a specific law granting such power, will automatically be regarded as an unreasonable restriction. Rather, the Court affirmed that any State interference not covered by a law falling within the scope of the amended article must be examined under the ordinary test of reasonableness set out in the first part of Article 19(6). Accordingly, such interference would be permissible only if it constitutes a reasonable restriction on the exercise of the petitioner’s fundamental right and is pursued in the interest of the general public.
The Court then turned to the authority cited by the appellant, namely the decision in Saghir Ahmad v. State of U.P. In that earlier case, the Court had considered whether the Uttar Pradesh Road Transport Act, 1951, infringed the fundamental rights of private citizens under Article 19(1)(g) and whether the provision could be protected by the then‑existing clause (6) of Article 19. The matter was examined on the basis of the Constitution as it stood before the First Amendment of 1951. The Court held that the Act did offend the fundamental right. While discussing that judgment, the Court quoted the observation that, had the statute been enacted after the amendment introducing the new clause in Article 19(6), the question of reasonableness would not have arisen and the appellant’s argument would have been untenable. Moreover, the Court noted that a later constitutional amendment could not be invoked to validate legislation that was unconstitutional at the time of its passage. The Court in the present proceeding observed that these remarks merely restate the obvious: if a law falls within the meaning of the amended article, there is no issue of infringement, and such an observation does not aid the appellant’s position.
Finally, the Court concluded that the arguments based on the amendment and the cited precedent did not change the outcome. The Court found that the Press Notes issued by the Government clearly infringed the petitioner’s fundamental right under Article 19(1)(g). However, because the licence for which the petitioner had applied had already expired, the petition had become moot. Consequently, the Court held that the application was infructuous and ordered its dismissal. In the result, the appeal was dismissed, but the Court granted relief without any costs being awarded to either party.