Sanchayita Lahkar

The High Court at Calcutta, Single Bench of Justice Subhendu Samanta, delivered a judgment holding that the placement of a sugar factory in Schedule V of the Price Determination Orders was incorrect and unlawful. The Court concluded that the inclusion of the petitioner’s unit under the category of efficient factories lacked justification under the established government criteria. In its final directive, the Court quashed the relevant Price Determination Orders that had classified the unit as efficient and consequently denied it the applicable higher levy sugar price. The Court allowed the writ petitions filed by the petitioner and granted relief, stating that the petitioner is entitled to the price fixed for factories listed in Schedule VI during the relevant period.

Petitioner No. 1, a company engaged in the business of sugar manufacturing, had its factory established in 1932-1933. It is registered under the Industries (Development and Regulation) Act, 1951. Petitioner No. 2 is a shareholder in Petitioner No. 1. The crushing capacity of the petitioner's factory was expanded in 1961 from 800 tons to 1200 tons per day, and licenses for the expansion were granted by the Ministry of Commerce and Industry under the Industrial Undertaking Rules, 1952.

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In 1977, the petitioner sought approval for further expansion of its licensed capacity. However, this application was not considered and was rejected. Subsequently, under Section 3(c) of the Essential Commodities Act, 1955, the Government of India issued yearly Price Determination Orders for levy sugar. These Orders fixed the prices payable to sugar mills, with distinct rates for units classified under Schedule V (efficient units) and Schedule VI (less efficient units).

A High-Level Committee (HLC) appointed by the Government of India evaluated the sugar industry’s cost structures and, in its 1980 report, observed that units with a daily crushing capacity of less than 1250 tons had higher production costs. The HLC proposed a differential pricing of Rs. 26 per quintal for such units. Accordingly, less efficient units were placed in Schedule VI and deemed eligible for the higher price.

Despite the petitioner’s daily crushing capacity being 1200 tons, its factory was included in Schedule V—meant for efficient units—leading to reduced price entitlement. The petitioner made several representations to the Central Government challenging this classification. After a thorough examination, the Government of India amended the Price Determination Order on December 15, 1980, transferring the petitioner’s factory from Schedule V to Schedule VI.

The petitioner began receiving the higher levy price designated for Schedule VI factories. However, on June 13, 1981, the Government of India issued the Sugar (Price Determination for 1980–81 Production) Second Amendment Order, 1981, reverting the factory’s classification back to Schedule V.

In response, the petitioner filed four writ petitions challenging the annual Price Determination Orders that categorized their factory under Schedule V despite falling within the criteria of Schedule VI. The primary grievance of the petitioner was that their unit, having a crushing capacity below 1250 tons and set up prior to October 1, 1955, satisfied the criteria for less efficient units and therefore should have remained in Schedule VI.

The petitioner argued that two core criteria were laid down by the HLC and approved by the government for such classification: the age of the plant and its licensed crushing capacity. Relying on a precedent set by the Delhi High Court in Godabari Sugar Mills Limited vs. Union of India and Anr., Civil Writ Petition No. 181 of 1981, decided on May 28, 1981, the petitioner contended that classification should depend solely on the licensed capacity, regardless of actual performance.

The petitioner further relied on a judgment by the Calcutta High Court in Rega Sugar Company Limited and Anr. vs. Union of India and Anr., dated March 21, 2002, which followed the Godabari principle. Additionally, a prior writ petition filed by the same petitioner before the Delhi High Court, decided on February 26, 2004, had reached a similar conclusion.

The Union of India maintained that the factory was rightly placed under Schedule V. It referenced letters from April 13, 1973, and October 21, 1974, in which the petitioner had indicated an actual and intended crushing capacity of 1500 to 1750 tons per day. Based on this information, the government asserted that the factory met the threshold for efficient units.

As per government criteria, Schedule V included vacuum pan sugar factories erected on or after October 1, 1955, or older factories that either had a licensed daily cane crushing capacity of 1250 tons or more, had expanded their capacity to that level, or had achieved that output in each of the preceding five years. Schedule VI was reserved for factories established before October 1, 1955, with licensed capacities below 1250 tons, and which had not reached that level through expansion or output.

The government’s position was that the petitioner's prior representations reflected an intention and ability to increase capacity and were thus sufficient for Schedule V classification.

"The justification of placing the petitioners factory in schedule V category of factories (efficient unit factories) is under challenge before this court." The Court acknowledged that similar issues had been adjudicated by multiple High Courts and the Supreme Court.

"It has been decided by the division bench that the criteria applied by the Union of India for placing petitioners factory in schedule V in place of schedule VI was not correct." Referring to Godabari Sugar Mills Limited, the Court noted that the crushing capacity must be determined based on licensed capacity.

"If the respondents Union of India wanted to place the petitioners factory in schedule V, they should give notice to the petitioner and also indicate the reason."

In evaluating the representations made by the petitioner in 1973 and 1974, the Court recorded: "Both the representations had not considered by Union of India and were turned down; now to justify their act and action, Union of India cannot place reliance upon them."

The Court rejected the government’s use of unaccepted past representations as justification, stating: "Union of India cannot use those representations for the purpose of placing the petitioners factory in schedule V."

In a definitive statement, the Court declared: "In my view the act and action of Union of India for placing the petitioners factory in schedule V is erroneous." It held that the Godabari judgment remained binding and applicable to the present case.

"The principle that crushing capacity of a factory should be considered as its licensed capacity is taken to be correct in its specific perspective." The judgment concluded that the petitioner was wrongly categorized and the price orders must be reconsidered.

The Court held that "the placement of petitioners in schedule V is turned down." It quashed the respective Price Determination Orders that had placed the factory under Schedule V.

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The Court stated: "Petitioners are entitled to the price of levy sugar supplied by it after coming into force of the said Price Determination Order for that particular period." Thus, the petitioner is to be paid according to the rates applicable to Schedule VI factories.

Clarifying the legality of the classification, the Court added: "The placement of petitioner in schedule V appears to be illegal in terms of decision of Godabari Mills Ltd."

The Court further directed: "In case of respondent/Union of India went to place the petitioner in schedule V, they can do so, after giving notice to the petitioner and after giving reasonable opportunity of hearing to the petitioner to that effect."

The writ petitions and all related applications were disposed of.

Advocates Representing the Parties:

For the Petitioners: Mr. Mainak Bose, Adv., Mr. Sachin Shukla, Adv., Mr. Rishab Karnani, Adv., Mr. Vivek Jhunjhunwala, Adv.

For the Respondents: Mr. D.N. Ray, Adv., Mr. Rajesh Kumar Shah, Adv.

Case Title: Vishnu Sugar Mills & Ors. vs. Union of India & Ors.

Case Number: WPA 4083 of 1983 with WPA 3510 of 1981, WPA 13574 of 1981, WPA 4661 of 1984

Bench: Justice Subhendu Samanta

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