Lotus Industrials v. State Of Madras

C.M.P No. 5524 of 1951.

This is an application for the issue of an order in the nature of a prohibition directing the Government of Madras to forbear from enforcing any system of rationiong of yarn with regard to some only of the consumers and to issue an order in the nature of a Writ of Mandamus directing the Government of Madras to distribute the yarn allotted to the Madras State equally between all the consumers in proportion to the looms employed by them. The affidavit in support of this application is filed by one M. Velayuda Menon representing the two petitioners, namely, (1) The Lotus Industrials, Kallai, Malabar, of which he is the sole proprietor, and (2) The Calicut Handloom Owners Association of which he is the Honorary Secretary.

Distribution of yarn in this State is made under the Cotton Textiles Control Order, 1948, by officers specially appointed for the purpose. Cl. 30 of that Order directly relates to the distribution of yarn. It runs as follows:

“The Textile Commissioner may, with a view to securing a proper distribution of cloth or yarn or with a view to scouring compliance with this order, direct any manufacturer or dealer, or any class of manufacturers or dealers—

(a) to sell to such person or persons such quantities of cloth or yarn as the Textile Commissioner may specify;

(b) not sell or deliver cloth or yarn of a specified description except to such person or persons and subject to such conditions as the Textile Commissioner may specify; and may issue such instructions as he thinks fit regarding the manner in which the direction is to be carried out.”

This clause as well as other clauses relating to the acquisition and installation of power looms came up for discussion before this Court in C.M.P Nos. 6181 and 6182 of 1951.* In the letter of these petitions I remarked that there was nothing in the affidavit filed on behalf of the State to give any information as to the principles on which the distribution of yarn is being made. While realising that during periods of acute shortgage of essential goods and commodities it is not only desirable but also imperative that the State should take steps to regulate their purchase and sale with a view to an equitable distribution among all the consumers and also that provisions relating to Controls cannot go into the minutest detail of actual distribution, I said as follows:

“Clause 30 lays down the ultimate end in view, namely, a proper distribution of cloth and yarn. If in accordance with and in pursuance of this policy, the Textile commissioner had arrived at a scheme of distribution on a certain and ascertainable basis which is free from any charge of discrimination and he had placed that scheme before this Court and convinced us that the petitioner before us has been allotted the proper quota in accordance with the scheme, then we would have been loth to interfere. Unfortunately, however, and presumally in spite of the efforts of the learned Advocate General, we have not been informed of any such general scheme. There is no doubt a reference to an All India Yarn Distribution Scheme in the counter-affidavit filed on behalf of the State, but no particulars of the scheme have been put before us………It appears to me that if in the exercise of the powers granted under Cl. 30, the Textile Commissioner has evolved a proper scheme of distribution which does not offend either against Art. 15 or Art 19(1)(f) and (g) read with Art. 1(5) and (6), then there is no room for complaint by any person on the ground that his rights have been unlawfully affected to his prejudice.”

I am glad to find that in this case a long and elaborate affidavit has been filed on behalf of the State by the Director of Controlled Commodities setting out in detail the provisions of the All India Yarn Distribution Scheme. The material features of this scheme are as follows:—Under the scheme the Government of India takes over the entire yarn produced in the Indian Union. After permitting various composite mills to retain for the produce and consumption of their weaving sections the yarn produced by their spinning sections, out of the balance of yarn the Central Government retains a portion for Government purposes and a portion for export to foreign countries and leaves the balance for internal distribution in the country. Such balance of yarn called “free yarn” is pooled together and distributed to the various states for supplying the consumers in their respective areas. The quotas of yarn for the respective states are fixed by the Textile Commissioner at Bombay. Thereafter the Director of Controlled Commodities at Madras is in charge of the distribution within the State. This distribution is in accordance with the principles laid down in Government Orders issued from time to time. The handloom factories, power loom factories and hosiery factories which were getting supplies of yarn direct from the mills during the previous control period were treated preferentially and they were allowed to continue to get their supplies direct from the mills. The quantity to be supplied to each consumer is fixed by the Provincial Textile Commissioner. Accordingly consumers of yarn within the State are divided into two main categories for the purpose of distribution, namely, (1) those who were purchasing yarn direct from the mills at ex-mill rates during the last control period and (2) other consumers purchasing yarn from wholesale or retail dealers. The persons in the first category are called “consumer quota holders.” These are given the same quantify of yarn as they were purchasing on an average during the basic period of 1940-1942 at ex-mill rates for their own consumption and use. There are about 91 such “consumer quota holders” in the State, including power looms, hosiery factories, handloom factories and master weavers. Old and established dyers in Madras, Madura and Ramnad Districts are given certain bales, but these bales come back to the weavers in the shape of yarn through normal channels of distribution. Miscellaneous consumers requiring small counts like 1 to 2 are given about 120 bales of yarn and the Fisheries Department is allotted about 100 bales. Out of the balance 36 per cent is allotted to the Madras Handloom Weavers' Provincial Co-operative Society for distribution to handloom weavers who have joined co-operative societies for the reason that a little more than one-third of the hand looms as originally estimated in 1945 are held by the members of that Society. The balance of 64 per cent, is allotted to the Collectors of the various districts for distribution to the weavers other than those who are members of the Society and other consumers in the districts. During the second half of the year 1950 supplies of yarn became very scarce and it was found that black-marketing was going on as some of the consumers were bogus. In order to ensure a fair distribution of the available yarn to genuine weavers and other consumers at controlled rates, it was found necessary to revise the distribution scheme. Identity cards were issued to genuine consumers. But the consumer quota holders were permitted to obtain their usual supplies direct from the mills at ex-mill rates.

It is frankly admitted in the affidavit filed by the Director of Controlled Commodities that the consumer quota holders are no doubt in a better position, but they were placed in a special class as they were enjoying the privileges during the prior control period. It was submitted that the distribution of yarn was always undertaken on the most fair and equitable basis possible and the classification was a fair and reasonable classification necessitated by the circumstances. It was also explained why the period of 1940-1942 was fixed as the basic period. This was because control was introduced in 1945 and the years 1943 and 1344 were years during which conditions were extremely unsettled and it was not possible to get accurate statistics for the period.

The real complaint of the petitioners is against the preferential treatment of the “consumer quota holders” both as regards the quantities of yarn and the favourable price at which they will be able to purchase yarn direct from the mills.

Mr. Narsaraju, learned Advocate for the petitioners raised two main grounds of objection to the classification of the consumers into “consumer quota holders” and others. The first ground was that any classification for purposes of distribution can be made only by the legislature and not by the executive or administrative authorities entrusted with the task of distribution. The second ground was that the classification must rest on a distinction which had a logical connection with the object and purpose. The first ground does not need much consideration. There is nothing in the Constitution which precludes a classification even by bodies other than the legislature. The real question is whether the classification amounts to an illegal discrimination. Having regard to the vide definition of “law” in Art. 13(3) as including any rule, regulation and notification having the force of law, it is obvious that any method of distribution which the State adopts in pursuance of a control order should not contravene the provisions of Art. 14 which guarantees equal protection of the laws to all persons. The reports of the United States Supreme Court decisions contain several examples of classification by executive and administrative bodies and authorities which are subject to judicial review equally with classification made by the legislature.

In support of the second ground of objection learned Counsel relied on the observations in Chiranjit Lal Chowdhury v. The Union of India and others(1). The principles laid down in that case have been summarised by his Lordship Fazl Ali J. in the Prohition case: State of Bombay v. Balsara(2). The propositions so laid down so far as they are material to this application are as follows:

“(5) Every classification is in some degree likely to produce some inequality and mere production of inequality is not enough.

“(6) If a law deals equally with members of a well-defined class it is not obnoxious and it is not open to the charge of denial of equal protection on the ground that it has no application to other persons.

“(7) While reasonable classification is permissible, such classification must be based upon some real and substantial distinction bearing a reasonable and just relation to the object sought to be attained and the classification cannot be made arbitrarily and without any substantial basis.”

Bearing these principles in mind, we have to see if there is anything in the classification adopted in the All India Yarn Distribution Scheme which contravenes these principles. It is true that one way of distribution among several consumers is by adopting the pro rata basis. But that basis need not always be the most equitable basis. This basis has been to a certain extent adopted so far as the new entrants are concerned. But consumers of long standing who had, during the normal years and during the first control period, managed to obtain standing contracts directly with the mills and who had been more or less continuously in the trade were apparently considered to deserve preferential treatment. I do not think that such a view is unfair or discriminatory. Nor can I say that this basis has no reasonable and just relation to the object sought to be attained, namely, a proper distribution of yarn.

I need only refer to one decision of the Supreme Court of United States which throws considerable light on the point under discussion, a decision to which we also referred in the prior applications, C.M.P Nos. 6182 and 6181 of 1951 namely, Secretary of Agriculture v. Central Roig Refining Company. Under the Sugar Act of 1948 the Secretary of Agriculture was authorised to allot the refined sugar quota of a particular area among those marketing the sugar on the mainland from an offshore area. He was specifically directed to provide a fair distribution of the quota by taking into consideration three factors which included (1) past marketings and (2) ability to market the amount allotted. An order of the Secretary allotting certain sugar quota among the various refineries of the Island of Puerto Rico was based upon findings that the proper measure as to “past marketing” and “ability to market” was a period preceding the abnormal War years. The Constitutionality of the Act was challenged. The Supreme Court held that the Act did not offend the due process clause because of the alleged discriminatory character and the Secretary did not exceed the authority given him by the Act. The following observations made by Frankfurter, J. who delivered the opinion of the Court are most instructive:

“It was evidently deemed fair that in a controlled market each producer should be permittied to retain more or less the share of the market which he had acruired in the past. Accordingly, past marketings were to be taken into consideration in the Secretary's allotments……………The problem which confronted Congress was not the setting of quotas abstractly considered but so to fix their amount as to achieve approximate justice in the share allotted to each area and the persons within it. To recognise the problem is to acknowledge its perplexities……………To fix quotas on a strict historical basis is hard on late-comers into the industry or on those in it who desire to expand. On the other hand, to the extent that newcomers are allowed to enter or old-timers to expand there must either be an increase in supply or a reduction in the quotas of others. …………..

“Suffice it to say that since Congress fixed the quotas on a historical basis it is not for this Court to re weigh the relevant factors and, perchance, substitute its notion of expediency and fairness for that of Congress. This is so even though the quotas thus fixed may demonstrably be disadvantageous to certain areas or persons. This Court is not a tribunal for relief from the crudities and inequities of complicated experimental economic legislation.”

I am of opinion that in the circumstances set out in the counter affidavit filed on behalf of the State by the Director of Controlled Commodities, the preferential treatment accorded to “consumer quota holders” cannot be held to be discriminatory and in contravention of the principle underlying Art. 14 of the Constitution. I am inclined also to take into consideration the fact that the total number of bales allotted to these “consumer quota holders” which includes consumers of different classes is only 1,850 out of the aggregate allotment to the Madras State of about 16,000 to 18,000 bales.

This application is therefore dismissed with costs.

Advocate's fee Rs. 150.

Leave to appeal to the Supreme Court granted under Art. 132(1) of the Constitution as this involves a substantial question of law concerning the interpretation of the Constitution.

Writ Petition No. 635 of 1951.

This application is really covered by our decision in C.M.P No. 5524 of 1951. The petitioners in this case are: (1) The Coimbatore District Master Weaver Licensees' Association, Erode, by its President, O.A Ramaswami, and (2) O.A Ramaswami as proprietor of Sri Murugan Textiles, Chennimalai. A master weaver is a person having a number of weavers possessing handlooms in his employment and working under his supervision. The master weavers were not originally included among the “consumer quota holders”, but subsequently they were also so included. There is no necessity, therefore, to examine their case separately. Their position is now exactly similar to that of the other “consumer quota holderes”.

Mr. Narsaraju, the petitioners' Counsel, complained that some of the master weavers, though they were getting supplies direct from the mills during the basic period of 1940-1942, were excluded from the list of “consumer quota holders” because they had not been doing business in the first control period. I see nothing unreasonable in this policy of the Government. Persons who had discontinued their business for a time and during the critical period have been, I think, quite rightly, not given the same right and privilege as those who were carrying on business continuously. Such persons ought to be really included among the newcomers.

For the reasons set out in our judgment in C.M.P No. 5524 of 1951 this application must also be dismissed with costs.

Advocate's fee Rs. 150.

V.C.S