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The Bullion And Agri... v. Forward Markets Comm...

Allahabad High Court
Mar 1, 1979
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Factual and Procedural Background

The Bullion and Agricultural Produce Exchange Private Limited (petitioner No. 1) obtained a certificate of registration on 15 December 1962 under Section 14-A of the Forward Contracts (Regulation) Act, 1952. That certificate entitled petitioner No. 1 to carry on forward trading in Arhar Ki Chooni and contained Condition No. 2(ii) which required the association not to conduct forward trading in any commodity other than those specified in the certificate except with the prior approval of the Forward Markets Commission (the Commission).

Forward trading in Arhar Ki Chooni was later banned by notification under the Act. Petitioner No. 1 applied to the Commission for permission to carry on forward trading in linseed oilcake pursuant to Condition No. 2(ii) of its registration certificate. The Commission refused that permission by an order dated 14 July 1977. The petitioners filed the present writ petition seeking quashing of the Commission's order on the grounds, principally, that they were not given an opportunity of being heard as contemplated by Section 14-B of the Act and that the refusal order did not give reasons and was therefore vitiated as a quasi-judicial order. The Commission's response was that the proviso to Section 14-B (requiring an opportunity of hearing) applied only to applications for grant of a certificate under Section 14-A and not to an application for permission under Condition No. 2(ii) of an already-granted certificate.

Legal Issues Presented

  1. Whether an application made to the Forward Markets Commission for permission to conduct forward trading in a commodity under Condition No. 2(ii) of an existing certificate of registration is governed by the proviso to Section 14-B of the Act (i.e., whether the applicant must be given an opportunity of being heard before refusal).
  2. Whether the Commission, when refusing permission for forward trading under Condition No. 2(ii), is required to record and communicate reasons for the refusal as part of the requirements of a judicial or quasi-judicial order.
  3. Whether Section 21 of the General Clauses Act, 1897 is applicable to confer any additional procedural requirements (or a power of review) on the Commission in the context of such an application.

Arguments of the Parties

Petitioners' Arguments

  • The petitioners contended that they were not given an opportunity of being heard before the Commission refused permission, contrary to what Section 14-B of the Act contemplates for refusals affecting registration-related matters.
  • They also argued that the impugned refusal order does not give reasons for refusal and, being a quasi-judicial order, this omission vitiates the order.
  • Petitioners relied on the proposition that natural justice requires disclosure of reasons and an opportunity to meet the case against them; they referred to Section 21 of the General Clauses Act as relevant in support of their contention (as argued before the Court).

Respondent's Arguments (Forward Markets Commission)

  • The respondent argued that the proviso to Section 14-B of the Act (requiring opportunity of being heard) is only applicable to refusals of applications for grant of a certificate of registration under Section 14-A; in this case a certificate had already been granted and the application was for permission under Condition No. 2(ii), not for a fresh certificate, hence the proviso did not apply.
  • Implicitly, the respondent treated the application for permission as distinct from an application for registration and relied upon that distinction to justify the procedure followed in refusing the permission.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
A.I.B.E. Association v. National Industrial Tribunal, AIR 1962 SC 171 Explains the rights of an association under Article 19 of the Constitution and the scope of legislative restriction on those rights. The Court used this authority to frame the basic constitutional context: associations have certain Article 19 guarantees but their business activities can be regulated by law, thus justifying statutory restrictions under Section 14-A of the Act.
Union of India v. Bullion and Agricultural Produce Exchange Ltd., (1972 All LJ 847; AIR 1973 All 205) Holds that proceedings of the Forward Markets Commission are judicial and that it is deemed to be a civil court; also that the Commission can specify commodities in a certificate of registration. The Court relied on this decision to characterize the Commission's proceedings as judicial/quasi-judicial and to conclude that applications made to the Commission (including for permission under Condition No. 2(ii)) partake of a judicial character and hence demand the safeguards of natural justice.
Ghaurul Hasan v. State of Rajasthan, AIR 1967 SC 107 Interprets Section 21 of the General Clauses Act and holds that the orders mentioned in Section 21 are not of the kind contemplated under the corresponding provision of the Citizenship Act (Section 5) — i.e., Section 21 does not have the effect of creating a particular type of order in that context. The Court cited this decision in considering the applicability of Section 21 of the General Clauses Act and to support the view that Section 21 may not apply to confer a power of review or alter the judicial nature of orders of the Commission.
Union of India v. Rajdhani Grains and Jaggery Exchange Ltd., (1975) 1 SCC 676 : AIR 1975 SC 1218 Affirms that the Commission is competent to specify the commodities in which persons asking for registration will deal; upholds validity of conditions like Condition No. 2(ii). The Court relied on this Supreme Court authority (and its approval in subsequent cases) to confirm that Condition No. 2(ii) of the registration certificate was valid and that permission to deal in additional commodities effectively stands on the same footing as registration for that commodity.
Mahabir Beopar Mandal Ltd. v. Forward Markets Commission, (1977) 1 SCC 729 : AIR 1977 SC 1562 Further affirmation of the Commission's competence and the validity of commodity specification in registration certificates. The Court cited this case as an approval/upholding of the principle that the Commission may impose conditions restricting commodities and that Condition No. 2(ii) is valid.
Mahabir Prasad v. State of U.P., (1970) 1 SCC 764 : AIR 1970 SC 1302 Requires recording of reasons by a quasi-judicial authority; the recorded reasons must reveal the ultimate mental process and show that the decision is according to law and just. The Court applied this precedent to conclude that the impugned order's mere conclusion was insufficient; reasons supporting the decision had to be recorded so the decision would not appear arbitrary or capricious.
State of U.P. v. Managing Committee, (1973 All LJ 282) : AIR 1973 All 458 Holds that absence of reasons prevents a court from satisfactorily exercising supervisory jurisdiction under Articles 226 and 227. The Court used this authority to underline that lack of reasons impedes effective judicial review and supervision under constitutional writ jurisdiction.
Ajantha Industries v. Central Board of Direct Taxes, (1976) 1 SCC 1001 : AIR 1976 SC 437 States that reasons must be recorded so that an aggrieved party can approach the High Court under Article 226 or this Court under Article 136 to challenge orders as arbitrary, mala fide or based on irrelevant considerations. The Court cited this case to reinforce the remedial significance of recording reasons — it enables meaningful exercise of writ jurisdiction by the courts.
Union of India v. M.L. Kapoor, (1973) 2 SCC 836 : AIR 1974 SC 87 Defines what constitutes reasons: they are the links between the materials and conclusions and should reveal a rational nexus between facts considered and conclusions reached. The Court relied on this formulation to explain what constitutes adequate reasons and to hold that the impugned order lacked the necessary rational nexus between materials and conclusion.
Siemens Engineering and Manufacturing Co. v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785 Affirms that administrative/quasi-judicial authorities must accord fair hearing and give clear, explicit reasons; recording reasons is a basic principle of natural justice. The Court applied this principle to require that the Commission must give sufficiently clear and explicit reasons and adequate opportunity to the applicant; mere conclusions would not suffice.

Court's Reasoning and Analysis

The Court proceeded by first identifying the statutory framework: Section 14-A bars an association from carrying on forward trading except under and in accordance with the conditions of a certificate of registration, and Condition No. 2(ii) of the petitioner's certificate required Commission approval to trade in commodities not specified in the certificate.

The Court then treated the nature of the Commission's jurisdiction as central. Relying on earlier decisions (notably Union of India v. Bullion and Agricultural Produce Exchange Ltd.), the Court accepted that the Commission's proceedings are judicial/quasi-judicial and that it is deemed to be a civil court. Because of this judicial character, applications to the Commission for permission under Condition No. 2(ii) also "partake of the same judicial nature."

The Court considered the parties' competing submissions about the applicability of the proviso to Section 14-B and about Section 21 of the General Clauses Act. It observed that Section 21 of the General Clauses Act does not obviously confer a power of review on judicial/quasi-judicial authorities and that judicial/quasi-judicial authorities can review only where power is specifically provided; thus Section 21 was unlikely to apply to confer review powers in this context.

Even if the strict letter of the proviso to Section 14-B did not apply to an application for permission under Condition No. 2(ii), the Court held that the principle behind the proviso — i.e., providing an opportunity to be heard — would apply because the bar created by Section 14-A effectively makes permission for an additional commodity equivalent in consequence to grant of registration for that commodity. The Court also held that, given the civil/judicial character of the proceedings, a refusal must record reasons.

Turning to the facts, the Court examined the show-cause notice dated 19 April 1977 and the impugned order dated 14 July 1977. The show-cause notice stated a ground for refusal in the following terms (summarized in the opinion): that the Commission considered "there is no need, presently at any rate, for conducting forward trading in Linseed oilcake under the auspices of an Association, particularly when party to party contracts have not been prohibited."

The Court analyzed these grounds and found them insufficient. It observed that Section 14-A does not prohibit party-to-party contracts, therefore the fact that party-to-party contracts were not prohibited could not rationally support refusal. More fundamentally, the Court found the statement that "there is no need... at present" to be a bald assertion which did not disclose the factual or policy basis on which the Commission had tentatively formed that view. The show-cause notice did not provide the petitioner with sufficient particulars to enable a meaningful reply; accordingly no real opportunity of being heard had been afforded.

The Court further held that the impugned order itself merely recorded the Commission's conclusion that "presently there is no need" and did not state the reasons leading to that conclusion. Relying on authorities (e.g., Mahabir Prasad, M.L. Kapoor, Siemens), the Court emphasized that a quasi-judicial body must record reasons which disclose the mental process linking materials to conclusions; mere conclusions are inadequate and frustrate judicial review.

On this basis — insufficient disclosure in the show-cause notice, and absence of reasons in the refusal order — the Court concluded the impugned order did not conform to the requirements of natural justice and the standards expected of a quasi-judicial decision-making body.

Holding and Implications

Core Ruling: The writ petition was allowed and the impugned order dated 14 July 1977 of the Forward Markets Commission refusing permission to petitioner No. 1 to conduct forward trading in linseed oilcake was quashed.

The Court directed the Forward Markets Commission to dispose of the petitioners' application afresh in accordance with law and keeping in mind the observations made in the opinion (including the need to disclose the grounds for any tentative refusal and to afford a real opportunity to be heard, and to record reasons in any final refusal). The Court ordered no costs.

Implications: The direct effect of the decision is that the Commission must reconsider the application on proper procedural grounds and with reasons; the opinion reinforces the principle that proceedings of the Commission are judicial/quasi-judicial and that natural justice requires disclosure of grounds and recording of reasons for refusal. The opinion does not purport to announce a novel legal principle beyond applying established authorities requiring reasons and fair hearing in quasi-judicial processes.

Show all summary ...

1. The Bullion and Agricultural Produce Exchange Private Limited, petitioner No. 1, obtained a certificate of registration on 15th Dec. 1962 under Section 14-A of the Forward Contracts (Regulation) Act, 1952 (hereinafter referred to as “the Act”) from the Forward Markets Commission (hereinafter referred to as “the Commission”) established under Section 3 of the said Act. This certificate entitled petitioner No. 1 to carry on business in Arhar Ki Chooni. Condition No. 2(ii) of the Certificate, a copy whereof has been filed as annexure-‘I’ to the writ petition, was to the following effect:

“(ii) that the said association shall not conduct forward trading in any commodity other than those specified hereunder except with the previous approval of the Forward Markets Commission.”

2. It appears that forward trading in Arhar Ki Chooni was banned by a notification issued under the Act and thereafter petitioner No. 1 made an application to the Commission for permission to carry on forward trading business in linseed oilcake. This application had been apparently made in pursuance of Condition No. 2(ii) of the certificate of registration issued to petitioner No. 1 as stated above. The Commission by its order dated 14th July, 1977, a copy whereof has been filed as annexure-‘4’ to the writ petition, refused permission to petitioner No. 1 to organize forward trading in linseed Oilcake. It is this order which is sought to be quashed in the present writ petition. It was urged by counsel for the petitioners that opportunity of being heard in the matter before refusing to grant the permission as contemplated by Section 14-B of the Act was not given to the petitioners nor does the order of refusal give reasons for such refusal and the said order being a quasi-judicial one is accordingly vitiated. For the respondent, on the other hand, it was urged that opportunity of being heard in the matter as contemplated by Section 14-B of the Act was to be given only before refusing to grant certificate of registration under S. 14-A. In the instant case, since a Certificate of registration had already been granted earlier and the application which was dismissed by the impugned order not being an application for grant of a certificate but for permission to conduct forward trading in another commodity namely, Linseed Oilcake in pursuance of Condition No. 2(ii) of the certificate of registration the proviso to Section 14-B of the Act was not applicable. In order to deal with the respective submissions made by counsel for the parties, it would be necessary to keep in mind the nature of the jurisdiction exercised by the Commission under Section 14-A of the Act which deals with certificate of registration to be obtained by all associations. The said Section, inter alia, contemplates that no association concerned with the regulation and control of business relating to Forward Contracts, shall after the commencement of the Forward Contracts (Regulation) Amendment Act, 1960 carry on such business except under and in accordance with the conditions of a certificate of registration granted under this Act by the Commission. The following observations in regard to the rights of an Association in the matter of carrying on business made by the Supreme Court in A.I.B.E Association v. National Industrial Tribunal (AIR 1962 SC 171) will be relevant (at p. 180):—

“The resulting position may be illustrated thus: If an association were formed for the purpose of carrying on business, the right to form it would be guaranteed by sub-cl. (c) of Cl. (1) of Article 19 subject to any law restricting that right conforming to Cl. (4) of Article 19. As regards its business activities, however, and the achievement of the objects for which it was brought into existence its rights would be those guaranteed by sub-cl. (g) of Cl. (1) of Article 19 subject to any relevant law on the matter conforming to Cl. (6) of Article 19; while the property which the association acquires or possesses would be protected by sub-cl. (f) of Cl. (1) of Article 19 subject to legislation within the limits laid down by Cl. (5) of the Article 19”.

3. The right of petitioner No. 1 consequently to conduct forward trading in Linseed Oilcake was subject to the restriction placed by Section 14-A of the Act. In regard to the nature of jurisdiction exercised by the Commission a Division Bench of this Court in Union of India v. Bullion and Agricultural Produce Exchange Ltd. (1972 All LJ 847) : (AIR 1973 All 205) held (at p. 210 of AIR):

“The Commission is a high powered body of experts. All its proceedings are judicial. It is deemed to be a civil court. It is obvious that it is plainly ordained to pass order on objective considerations in the light of various other provisions of the Act”.

4. In regard to the submission made by counsel for the respondent that the requirement of the proviso to Section 14-B of the Act of giving an opportunity of being heard in the matter was not applicable to the facts of the instant case, inasmuch as the application which had been dismissed by the impugned order was not an application for certificate of registration, it was urged by counsel for the petitioners that the said requirement would still be applicable in view of Section 21 of the General Clauses Act, 1897. In our opinion, Section 21 of the General Clauses Act may not apply inasmuch as that Section does not obviously confer a power of review on an authority exercising judicial or quasi-judicial power. Judicial or quasi-judicial authorities can review their order only if such power is specifically provided for. These authorities in certain contingencies have inherent power also to review their decision. It is on this principle that Section 21 of the General Clauses Act may not apply to the facts of the instant case in view of the decision of this Court in Union of India v. Bullion and Agricultural produce Exchange Ltd. (supra) where it was held as already pointed out above that the proceedings of the Forward Markets Commission are judicial and it is deemed to be a civil court.

5. The question as to whether Section 21 of the General Clauses Act applied in respect of a registration certificate granted under the Citizenship Act came up for consideration before the Supreme Court in Ghaurul Hasan v. State of Rajasthan (AIR 1967 SC 107) and it was held that the orders mentioned in Section 21 of the General Clauses Act are not orders of the kind contemplated under Section 5 of the Citizenship Act.

6. Notwithstanding the fact that Section 21 of the General Clauses Act may not apply, we however are of opinion that keeping in view that the bar created by Section 14-A of the Act disentitles an Association to conduct forward trading in any commodity other than the commodity in respect of which certificate of registration may have been granted and that the proceedings before the Commission are judicial in nature the application made for permission to conduct forward trading in Linseed Oilcake by petitioner No. 1 in pursuance of Cl. (2)(ii) of the certificate of registration would necessarily partake of the same judicial nature.

7. At this place we may point out that the view taken by this Court in Union of India v. Bullion and Agricultural Exchange Ltd. (AIR 1973 All 205) (supra) that the Commission while granting certificate of registration is competent to specify the commodities in which the persons asking for registration will deal in and that condition No. 2(ii) aforesaid was valid was approved by the Supreme Court in Union of India v. Rajdhani Grains and Jaggery Exchange Ltd. ((1975) 1 SCC 676 : AIR 1975 SC 1218) and upheld in Mahabir Beopar Mandal Ltd. v. Forward Markets Commission ((1977) 1 SCC 729 : AIR 1977 SC 1562).

8. In view of what has been pointed out above it is apparent that granting of permission to petitioner No. 1 for conducting forward trading in Linseed Oilcake in pursuance of condition No. 2(ii) virtually stands on the same footing as granting a certificate of registration in respect of the said commodity inasmuch as without such permission being granted the petitioner No. 1 would in view of the bar created by Section 14-A of the Act not be entitled to carry on the said activity. Consequently even if the requirement of the proviso to S. 14-B of giving an opportunity of being heard in the matter may not strictly apply to the disposal of an application for permission the principle behind the said proviso would, in our opinion be applicable. Likewise the proceedings being of a civil nature compliance of the requirements of giving reasons for refusal of the permission would also be necessary. As such if the Commission on an application for permission as aforesaid being made to it is tentatively of the opinion that the permission is to be refused it has to inform the applicant the grounds on which it is tentatively of the opinion that the permission is to be refused. For it goes without saying that when a tentative decision is taken to refuse permission it must be based on some grounds particularly when these matters are to be decided as seen above on objective considerations. If reply to a show cause notice issued in such a manner is submitted by the applicant and the same is not acceptable to the Commission it should record reasons as to why they are not acceptable. Even if no reply is submitted the order refusing permission should still indicate reasons for the findings on the basis of which permission has been refused.

9. Now we revert to the facts of the instant case. Annexure-“3” to the writ petition which is a copy of the show cause notice dated 19th April, 1977 served by the Commission on petitioner No. 1 indicates that the said notice was given under Section 14-B of the Act. The ground on which permission was sought to be refused was stated to be:

“And whereas, on an examination of this issue, the Commission considers that there is no need, presently at any rate, for conducting forward trading in Linseed oilcake under the auspices of an Association, particularly when party to party contracts have not been prohibited”.

10. It would be seen that Section 14-A bars an Association only to enter into such contracts as are contemplated by the said Section and it does not prohibit party to party contracts. When the Section itself does not prohibit party to party contracts this circumstance apparently could not constitute a reason for refusing permission. The only other ground on which the permission was sought to be refused was that “there is no need, presently at any rate, for conducting forward trading in linseed oilcake under the auspices of an Association.” The same has been shown to be the reason for refusing permission in the impugned order dated 14th July, 1977. The whole question, therefore, is whether it fulfils the requirement of being heard in the matter as well as of recording reasons for refusal of the permission. It is true as pointed out by the Supreme Court in Union of India v. Rajdhani Grains and Jaggery Exchange Ltd. ((1975) 1 SCC 676 : AIR 1975 SC 1218) (supra) that the conditions in the market dealing with forward contract do not remain static. They change. It is also true that in view of Section 4(b) of the Act the Commission is to keep forward markets under observation and to take such action in relation to that as it may consider necessary in exercise of the power assigned to it by or under this Act. The question which, however, remains to be considered is whether a bald assertion that there is no need, presently at any rate, for conducting forward trading in linseed oilcake under the auspices of an Association is sufficient compliance of the requirement of law or not. In so far as giving an opportunity is concerned we are of opinion that the question has to be answered in the context of each case keeping in view the principle of natural justice. Consequently the show cause notice in the instant case should have conveyed so much information as was necessary to enable the petitioner No. 1 to meet the facts on the basis of which permission was sought to be refused by the Commission. As such merely saying that the Commission considered that there was no need, presently at any rate, for conducting forward trading in linseed oilcake under the auspices of an Association was not enough. How from this bald assertion the petitioner No. 1 could know as to what was the basis for this tentative opinion of the Commission and what reply could the petitioner No. 1 give in respect of this assertion? The ground on the basis of which this tentative opinion had been formed by the Commission should have been disclosed to the petitioner No. 1 and it is only then that it could furnish material in reply if it was possible to do so. In the absence of such ground being indicated in the notice it cannot be said that any real opportunity was given to petitioner No. 1 to show cause why the permission prayed for may not be refused.

11. Since the same infirmity occurs in the impugned order dated 14th July, 1977 the said order cannot be construed to contain reasons as are necessary for a judicial or quasi-judicial order. What has been stated in the impugned order, namely, that the Commission “has come to the conclusion that presently there is no need for organising forward trading in linseed oilcake under the auspices of an association at Agra” is really the conclusion or finding of the Commission. Indeed the impugned order specifically states so. It cannot be doubted that there is apparently a distinction between a finding or conclusion and the reasons for the said finding or conclusion. In Mahabir Prasad v. State of U.P ((1970) 1 SCC 764 : AIR 1970 SC 1302) it was held (at p. 1304):

“It must appear not merely that the authority entrusted with quasi-judicial authority has reached a conclusion on the problem before him; it must appear that he has reached a conclusion which is according to law and just, and for ensuring that end he must record the ultimate mental process leading from the dispute to its solution. Satisfactory decision of a disputed claim may be reached only if it be supported by the most cogent reasons that appeal to the authority. Recording of reasons in support of a decision on a disputed claim by a quasi-judicial authority ensures that the decision is reached according to law and is not the result of caprice, whim or fancy or reached on grounds of policy or expediency. A party to the dispute is ordinarily entitled to know the grounds on which the authority has rejected his claim. If the order is subject to appeal, the necessity to record reasons is greater, for without recorded reasons the appellate authority has no material on which it may determine whether the facts were properly ascertained, the relevant law was correctly applied and the decision was just.”

12. Even if no appeal lies against the order recording of reason would still be necessary if such order is amenable to the writ jurisdiction of this Court. In State of U.P v. Managing Committee (1973 All LJ 282) : (AIR 1973 All 458) a Division Bench of this Court held that for want of reason this Court is also disabled from satisfactorily exercising its supervisory power under Articles 226 and 227 of the Constitution. In Ajantha Industries v. Central Board of Direct Taxes ((1976) 1 SCC 1001 : AIR 1976 SC 437) dealing with a case of income-tax, it was held (at p. 440):

“The reason for recording of reasons in the order and making these reasons known to the assessee is to enable an opportunity to the assessee to approach the High Court under its writ jurisdiction under Article 226 of the Constitution, or even this Court under Article 136 of the Constitution in an appropriate case for challenging the order inter alia, either on the ground that it is mala fide or arbitrary or that it is based on irrelevant and extraneous considerations.”

13. While considering the question as to what are the requirements of reasons, it was held by the Supreme Court in Union of India v. M.L Kapoor ((1973) 2 SCC 836 : AIR 1974 SC 87) (at p. 98):

“Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject-matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable.”

14. In Siemens Engineering and Manufacturing Company v. Union of India ((1976) 2 SCC 981 : AIR 1976 SC 1785), it was held (at page 1789):

“If courts of law are to be replaced by administrative authorities and tribunals, as indeed, in some kinds of cases, with the proliferation of administrative law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and tribunals exercising quasi-judicial function will be able to justify their existence and carry credibility with the people by inspiring confidence in the adjudicatory process.

15. The rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law.”

16. In view of the law laid down in the aforesaid cases it is apparent that the impugned order does not conform with the requirement of giving reasons. It just contains the conclusion of the Commission with no reason supporting the said conclusion.

17. In the result the writ petition succeeds and is allowed and the impugned order dated 14th July, 1977 is quashed and the respondent Forward Markets Commission is directed to dispose of the application made by the petitioners on which the impugned order was passed afresh in accordance with law keeping in mind the observations made above. There will be no order as to costs.

18. Petition allowed.