Gopalan Nambiyar, A.C.J:— The petitioner is a wholesale dealer in sugar. Sugar is distributed to the dealers by the Government which controls and fixes the selling price of the commodity. The distribution and control of sugar is regulated by the provisions of the Kerala Sugar Dealers' Licensing Order 1967. Clause (2)(c) of the same defines ‘free sale sugar’ as sugar supplied by the State Government to the dealers directly by sugar factories from the quota allotted to them for free sale by the Central Government. Clause 2 (d) defines ‘levy sugar’ as sugar supplied by the State from the sugar made available to them by the Central Government. Clause 3. sub-cl. (1) enacts that no person is to carry on business as dealer in levy sugar or free sale sugar except under and in accordance with the terms and conditions of a licence issued by the Licensing Authority. The petitioner was accordingly granted licence as a wholesale dealer for the sale of sugar. He executed an agreement dated 2nd April, 1965, to the Governor of Kerala Clause 13 of the agreement stipulated that the wholesale dealers were bound to obey the directions regarding the proper sale and distribution of sugar issued from time to time by the specified authorities. Ext. P-1 is a copy of the circular dated 15-2-1967 issued by the Board of Revenue and Civil Supplies, embodying certain directions. Para. 4 of the same recalls the quota of sugar allotted to the Kerala State, Para. 5 notes that the sugar is issued to the consumer taking into account the transport charges of the wholesale dealer, the margin of profit due to the wholesaler, administrative surcharge due to Government and the margin due to the retailer. Para. 6 recalls the decision to fix the uniform price throughout the State for sugar; and in connection with the same, instructions to be issued are given in para. 7. Dealing with the wholesale stage of distribution of sugar, the same paragraph states that the wholesale dealer was not entitled to anything more than the actual transport charges and the margin of Rs. 2.68 per quintal. Sub-para (6) of para. 7 relates to price equalisation charge which reads as follows:
“6. Price equalisation charge: The difference between the wholesale issue price on the one hand, and the sum total of the ex-factory price of sugar, transport charge, margin to the dealer, administrative surcharge, and allowance for sales-tax on gunny, on the other hand, will be collected from the wholesale dealer towards price equalisation charge, and credited to Government. Such price equalisation charges will become payable to Government in the case of sugar moved from factories in Madras, Mysore and Pondicherry.”
2. Sub-para. 7 noticed that it was necessary to subsidise the sale of sugar to maintain the price level. For this purpose it was provided that the cost of sugar at the wholesale stage will be worked out providing for transport charges, wholesaler's margin, administrative surcharge and provision for sales-tax. From the total of these amounts, the price at which the wholesale dealer is to issue to the retailer will be deducted and the balance treated as subsidy payable to the dealer. In order to compensate the wholesale dealer for the loss incidental to underselling he was to be allotted a proportionately larger quantity of sugar from Madras State, so that the price equalisation charge on the Madras sugar will offset the loss incidental to the underselling of Kerala sugar.
3. In pursuance of their powers to fix the price of sugar under the terms of the agreement, the Government have been fixing the prices. Exts. P1, P2 and P3 filed by the petitioners, are copies of the orders or proceedings of the Government, thus fixing the prices. To take Ext. P1 by way of example, that fixes the total retail selling price at Rs. 180. This is made up of:
Rs.
E29
“Ex-factory price
160-53
Transport Charges
4.67
Margin to wholesaler
2.68
Administrative surcharge
1.00
Price equalisation charge
8-12
Wholesale selling price
177.00
Margin to retailer
3.00
Retail selling price
180.00”
4. Ext. P2 follows on the same model, with the difference that the wholesale selling price is 182.00 and the retail selling price Rs. 185.00 In Ext. P3, the wholesale selling price and the retail selling price are the same as in Ext. P2.
5. The petitioner was served with Ext. P5 notice stating that a total sum of Rs. 11,172.42 was outstanding against him towards the arrears of price equalisation charges on the sugar for the period from February, 1967 to May, 1971 and was directed to remit the entire amount. He has flied this writ petition to quash Ext. P5 and for consequential reliefs.
6. The petitioner's counsel contended that once the petitioner had been granted sugar on payment of the price fixed by the Government for distribution or sale to thy retailers, the property in the sugar passed to him, and it was not open to the Government to call back the equalisation charges or for that matter any profit whim the wholesaler might have made for himself in the course of his bargain with the retailer. The gain, it was said, would be entirely the wholesaler's; the Government is not entitled to claim the gain from the dealer; nor is the dealer entitled to recoup the loss from the Government. So ran the argument.
7. In support of the above contention reliance was placed on the decision of one of us, (Chandrasekhara Menon J.) in Chandrasekhara Prabhu v. State of Kerala, ILR (1976) 1 Ker 637: (AIR 1976 Ker 99). On learned brother was there dealing with the provisions of the Kerosene Control Order, 1968 and the legality of the direction made by the Government to pay the “differential cost” realised by the dealer, as a result of the price fixation effected by the Government. The learned Judge held the direction to be illegal. We have scanned the judgment carefully. The learned Judge referred to the decision in Venkata Subbarao v. State of A.P (AIR 1965 SC 1773). There, a suit was brought for recovery of money by the Government from the procuring agents appointed by the Government for procurement of rice at the time of rice scarcity and under the system of procurement and levy, introduced by the Madras Government under the Essential Supplies (Temporary Powers) Act, 1946 The dealers also entered into agreements with the Government agreeing to procure rice from specific areas at prices fixed by the Government from time to time and to deliver the same at the specified prices to the Government or to its nominees or other licensed purchasers. Despite the description given to them as procuring agents and the undertaking or the agreements executed by them it was ruled by the Supreme Court that they were not agents so as to entitle the Government to claim profit made by them. Under the Scheme the procurement price was, in each of the cases before the Supreme Court, lower than the selling price and under the contract, the procuring agents were entitled to the difference between the two prices, the difference being referred to as ‘remuneration’. In 1947 and 1948, the Madras Government issued three successive orders fixing the prices: and in each of these orders there was an increase in the selling price. The procuring agents had with them a stock of rice obtained on prior occasions at cheaper price which they had to sell at the increased price and which fetched them a profit. This was due to the Government's action in increasing the procurement prices and it was held that they were not entitled to claim the profit. In Chandrasekhara Prabhu's case, ILR (1976) 1 Ker 637 : (AIR 1976 Ker 99) one of us (our learned brother Chandrasekhara Menon J.) applied the principle of the Supreme Court decision. The petitioners therein had entered into agreements with the Government under the provisions of Cl. 5(5) of the Kerosene Control Order 1968, and condition 7 of the licence issued under the order Clause 3 of the Control Order required a licence for a wholesale dealer to deal in sugar. Clause 7 of the Order made it obligatory on the wholesale dealer to comply with all directions issued from time to time by the Commissioner, the District Collector etc. The learned Judge held that these restrictions in the Order will not make wholesale dealers the agents of Government as such; nor could the kerosene purchased by them for which they paid the price be considered as property of the Government. Under the contracts, the gain was entirely that of the dealers and the loss could not be recouped from the Government. This was recognised and given effect to in the decision Observed the learned Judge (at P. 101 of AIR):
“Any excess profit that the dealers might make legally on account of the refixation of prices, they are entitled to retain. There is no statutory provision, which would entitle the Government to claim what they term the ‘differential cost’.”
8. Our learned brother, Poti J., while referring this writ petition to a Division Bench had referred to the judgments in O.P No. 384 of 1973 (Ker) and to the common judgment in O.P Nos. 1965 and 1966 of 1974 (Ker), as cases where the Court had taken the view that the Government is not entitled to collect differential cost in the case of kerosene. Reference was also made to the decision of a Division Bench in O.P Nos. 1987 and 1988 of 1972 (Ker), where the Division Bench took the view that the relationship between the Government and the dealers in question was that of principal and agent and it was open to the Government to stipulate its terms in regard to the vending of the commodity distributed to the ‘dealers’. The case was concerned with the claim for refund by the wholesale distributors of foodgrains under the Kerala Rationing Order 1966, of amounts claimed and recovered from them by the Government. We have gone through the said judgment. There is no reference to the decision of the Supreme Court in Venkata Subbarao v. State of Andhra Pradesh (AIR 1965 SC 1773). The Division Bench observed:
“As the principal with whom the petitioners had entered into an agreement in the nature of an agency, it was perfectly open to the Government to stipulate on what terms and conditions alone the Government would supply the stocks of rice or wheat to the petitioners. If the petitioners did not wish to continue as agents on those terms and conditions, it was perfectly open to them to give up their agency.”
9. There was no independent discussion or consideration of the legal relationship between the Government and the petitioners in the case before the Division Bench. We cannot with respect, accept the case as an authority on the precise legal relationship between the Government and the procuring agents. When this case was referred by a Division Bench, one of us (myself) speaking for the Bench, noticed the judgments of the Supreme Court in Venkata Subbarao v. State of Andhra Pradesh (AIR 1965 SC 1773), where the legal relationship between the petitioners and the Government was held to be not one of Principal and Agent and the decision of our learned brother Chandrasekhara Menon J. in Chandrasekhara Prabhu's case (ILR (1976) 1 Ker 637) : (AIR 1976 Ker 99). We also noticed that in the judgment in O.P No. 4990 of 1972 (Ker), the question was left open by the Division Bench, of which one of us (myself) was a member. In that O.P we followed (as we were bound to) the Division Bench ruling in O.P Nos. 1987 and 1988 of 1972 (Ker) and held that it was competent for the Government to levy a price equalisation charge and to take into account transport charges in fixing the price of the commodity to be sold. We did not express any opinion whether the Government could call back from the dealer the price equalisation charge, as that question did not pointedly arise for consideration, we left it to be decided when a demand is made for payment of the amount. Attention was called to the judgment of a Division Bench (Bhaskaran and Chandrasekhara Menon JJ.) in A.S No. 539 of 1972 (Ker). The appeal was out of a suit for recovery of the price equalisation charges realised from the wholesale sugar dealer by the Government. The learned Judge noticed the Supreme Court decision in Venkata Subbarao v. State of Andhra Pradesh (AIR 1965 SC 1773), but held that the same had no application as the dealers were licensed under the Sugar Dealers Licensing Order and the terms of the Order and the conditions of the licence specifically required them to comply with the direction of the Licensing Authority or any Officer authorised in that behalf. Reference was made to a circular issued by the Board of Revenue which fixed the maximum transport charges to which a wholesale dealer would be entitled and the margin of profit and administrative surcharge and stated that the difference between the wholesale issue price on the one hand, and the total of expected price of sugar transport charge, margin to the dealer, administrative surcharge and allowance for sales-tax on gunny on the other, will be collected from the dealer towards price equalisation charge and credited to the Government. In view of this, the learned Judges sustained the dismissal of the dealer's suit. We think the decision has proceeded on the correct principle and we record our complete agreement with the principle and conclusion of the said decision.
10. We may next refer to the decision of a Division Bench in Palghat Co-operative Marketing Society v. State of Kerala, (ILR (1977) 1 Ker 326). There the learned Judges dealt with the challenge made by the Co-operative Societies in the Taluka of Alathur, Chittur, Ottapalam and Palghat, engaged in the hulling of paddy and in the sale of rice, through whom rice was distributed to wholesale distributors. Orders were issued from time to time appointing the Societies as Agents for procurement of paddy and purchase of stocks under the Paddy and Rice Declaration and Requisitioning of Stocks Order, 1966. The paddy and rice procured, and the rice obtained by milling the paddy, were to be delivered in accordance with the directions of the District Collector to wholesalers and retailers for the price fixed by the Government. For the services rendered by the Societies, they were allowed a margin of Rs. 5 per quintal of rice, inclusive of transport charges, hulling charges and cost of gunny bags, incurred by the Societies. As the Division Bench pointed out, it so happened that while the societies actually received the cost of 150 kilograms of paddy they released only 147.6 kilograms or 143 kilograms of paddy in terms of rice. They thus received an excess amount by way of profit, in addition to the margin allowed to them under the terms of appointment. The order was clear that they were to be paid consolidated margin of Rs. 4 and Rs. 5 per quintal of paddy and rice respectively, besides a margin of 2 per cent. towards the interest on investments and administrative charges. So the Government took the stand that the excess amount was undue profit realised by the Societies which they were entitled to call back. This claim was resisted by the societies. When coercive steps under the Revenue Recovery Act were threatened there had been the writ petitions which came up before the Division Bench were filed challenging the demand made by the Government. The learned Judges of the Division Bench referred to the judgment of Chandrasekhara Menon J. in O.P No. 3205 of 1974 (Ker) which followed the judgment in Venkitasubbarao v. State of Andhra Pradesh (AIR 1965 SC 1773) and held that no agency as understood under general law had been created and that the societies were agents for working out the scheme of procurement but not in respect of the purchase and sale of paddy by them and that the money utilised for the purchase belonged to the society and not to the Government and was not liable to be accounted for in respect of any excess over the margin of profit obtained by the Societies. The writ petitions came on before a Division Bench as it was felt that a contrary interpretation had been given to Cl. 3 of the Rice and Paddy (Procurement by Levy) Order, 1966 by a Division Bench of this Court in O.P No. 915 of 1976 (Ker). The Division Bench considered the jural relationship between the parties after referring to provisions of the Rice and Paddy (Procurement of Levy) Order. The societies had executed an agreement under which they agreed to purchase paddy or rice at the rates prescribed by the Government from time to time and to sell the same directly in accordance with the directions issued by the Government or the District Collector or other Officers authorised in that behalf. After noticing the judgment of the Supreme Court in Venkitasubba Rao v. State of Andhra Pradesh (AIR 1965 SC 1773), the Division Bench stated:
“Sri K.R Kurup, on behalf of the State would contend that the above case is distinguishable on the facts on which it was decided. According to the learned counsel, the scheme of purchase and sale which was the subject-matter of the above decision varied in material particulars from the scheme under which the petitioner societies were appointed as procuring agents by the Government. With respect, we see considerable force in the above submission.”
11. The learned Judges then analysed and discussed the facts of the Supreme Court case which justified the finding that there was no relationship of principal and agent and pointed out that in the case before them the facts were different and that the jural relationship between the State and the procuring agents had to be gathered from the order of appointment and from the agreement executed from time to time. On these, the Division Bench was of the view that the relationship was of the principal and agent. As rightly pointed out by counsel for the State, the same was the principle of the Supreme Court decision in Venkitasubbarao's case (AIR 1965 SC 1773). This will be clear from paragraph 2 of the judgment which concludes with the following sentence:
“The procurement price was in each case lower than the selling price and the procuring agents were under the contract entitled to the difference between the two prices”.
(Underlining ours)
12. We have dealt with all the cases that were referred to before us in the course of the arguments by counsel or in the course of the referring judgments either by the learned single Judge or by the Division Bench. We find no conflict in principle between these cases. In the Palghat Co-operative Marketing Society's case (ILR (1977) 1 Ker 326 at pp. 344-345) the Division Bench expressed dissent from the views of our learned brother (Chandrasekhara Menon J.) in O.P No. 3205 of 1974 (Ker) and connected cases that the liability to account for rice does not mean that the price which was obtained for the same is due to the Government. This was in regard to the construction of the terms of the agreement, which does not call for notice by us in the present case.
13. What then is the position disclosed on the facts of this case? Agreements were executed by the wholesale dealers in 1965, Cl. 13 of which stated that the dealers were bound to obey the directions regarding the proper sale and distribution of sugar issued by the specified authorities. In pursuance of this clause, Ext. R-1 circular was issued in 1967. In terms of the circular, Exts. P1 to P3 price fixation orders were issued by the Government. These clearly show that the retail selling price was arrived at after taking into account certain specified components, of which price equalisation charge was one. In respect of this component, sub-paragraph (6) of paragraph 7 of Ext. R1 (extracted earlier) entitled the Government to realise the amount from the wholesalers. The case falls directly within the principle of the decision of Bhaskaran and Chandrasekhara Menon JJ. in A.S No. 539 of 1972 (Ker) with which we have recorded our complete agreement.
14. In para 9 of the counter-affidavit it was pointed out that out of the total amount of Rs. 25,144.52 collected by the petitioner by way of price equalisation charge for the relevant period, he had remitted an amount of Rs. 13,972.10. The claim in Ext. P5 is for the balance due. Almost all the wholesale dealers like the petitioner, had, as stated in the counter-affidavit, remitted both the administrative surcharge as well as the price equalisation charge to the Government. In view of these facts there is no merit in the petitioner's contention that the Government are not entitled to claim the price equalisation charge Sub-para. (6) of para. 7 of Ext. R1 shows that in order to compensate the dealers for any loss incidental to under-selling, they were allotted a proportionately larger quantity of Sugar from the Madras (Tamil Nadu) State, so that the price equalisation charge on this extra allotment will offset the loss incurred by the underselling of the Kerala sugar. The said paragraph also makes it clear that the price equalisation charge is to be treated as subsidy payable to the dealer. The provision furnishes an additional ground to condemn the petitioner's claim as unjust and inequitable.
15. We are not impressed with the petitioner's contention that the property in the sugar having passed to the petitioner on payment of the price fixed by the Government, any subsequent sale or dealing with the sugar was entirely a matter for the petitioner and not the concern of the Government. This is to ignore Cl. 13 of the agreement which in its turn attracts Ext. R1 direction, both of which we have noticed earlier. The Government therefore had the right to issue directions and the petitioner had bound himself to comply with the same.
16. A plea was raised that the recovery of the price equalisation charge realised by the petitioner offends his fundamental right under Article 19 of the Constitution of India. On that plea and in view of Article 228-A of the Constitution it was argued that this petition can be considered and decided only by a Full Bench of five Judges.
17. We are not disposed to entertain this argument, as, in view of Cl. 13 of the agreement executed by the petitioner to the Governor, the question is essentially one of enforcing the terms of the agreement. In such circumstances, we are unable to see any ground to entertain a position under Article 226, disclaiming the agreement or holding it unenforceable for whatever reason. Such a case was not pleaded. Indeed the agreement was not even referred to.
18. We dismiss this writ petition, but without any order as to costs.
Supplementary Note By—
19. Chandrasekhara Menon, J.:— As the present case directly falls within the principle of the decision of the Division Bench of the Court (of which I was a member) in A.S No. 539 of 1972 (Ker), I have no hesitation in expressing my complete agreement with the decision to dismiss this writ petition. However, I am adding this note because I have my own doubts about the correctness of the decision of the Division Bench of this Court in the case reported in ILR (1977) 1 Ker 326 I do not think I need say anything about the same here.
20. Petition dismissed.