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ESSENTIAL COMMODITIESACT, 1955

CONSUMER LAW PROJECT

SUBMITTED TO: Ms. Manprit Kaur

Faculty for Consumer Law

NALSAR University of Law

SUBMITTED BY: Kirti Mahapatra

Roll No. 2005-35

Vth Year, Xth Semester

NALSAR UNIVERSITY OF LAW, HYDERABAD



TABLE OF CONTENTS

ESSENTIAL COMMODITIES ACT, 1955 .................................. 1

TABLE OF CONTENTS ......................................................... II

LIST OF ABBREVIATIONS ................................................... IV

INDEX OF AUTHORITIES ..................................................... V

TABLE OF STATUTES..........................................................V

LIST OF CASES...................................................................V

1.INTRODUCTION .............................................................. 1

1.1 RESEARCH PLAN..........................................................11.2 RESEARCH METHODOLOGY...........................................2

2.HISTORY OF COMMODITY CONTROL ................................. 3

IN INDIA ........................................................................... 3

2.1.COMMODITY CONTROL DURING 1939-45....................................32.1.1 PROVISIONS OF THE DEFENCE OF INDIA ACT...........................42.2 COMMODITY CONTROL DURING INDEPENDENCE ............52.2.1. ESSENTIAL SUPPLIES (TEMPORARY POWERS) ACT, 1946........52.3 COMMODITY CONTROL IN PRESENT TIMES.....................6

3.ESSENTIAL COMMODITIES ACT, 1955 ............................... 9

3.1 APPOINTMENT OF AUTHORISED CONTROLLER..............143.2 DELEGATION OF POWERS...........................................15WHO CAN MAKE ORDERS.................................................153.3.PUBLICATION OF ORDERS...........................................163.4.MISCELLANEOUS PROVISIONS....................................18

4.ADMINISTRATION OF .................................................... 22

ESSENTIAL COMMODITIES ACT ......................................... 22

4.1.PRICE MONITORING CELL ...........................................23ACTION TAKEN TO CHECK RISE IN PRICE OF ESSENTIALCOMMODITIES.................................................................23

5.THE PREVENTION OF BLACKMARKETING ANDMAINTENENCE OF SUPPLIES OF ESSENTIAL COMMODITIESACT, 1980 ....................................................................... 27

6.MAJOR AMENDMENTS TO THE ESSENTIAL COMMODITIESACT ................................................................................ 30

6.1 2005 AMENDMENT TO PROMOTE OPERATION OF MARKET FORCES.......306.2.SUGAR INDUSTRY......................................................326.2.1. 2009 AMENDMENT TO THE ESSENTIAL COMMODITIES ACT. .35



CONCLUSION AND SUGGESTIONS ..................................... 37

BIBLIOGRAPHY .................................................................. V



LIST OF ABBREVIATIONS

AIR All India Reporter

Anr AnotherAP Andhra Pradesh

Cal Calcutta

GoI Government of India

Govt Government

Ltd. Limited

Mad Madras

MSP Minimum Support Price

Ori Orissa

Ors Others

PC Privy Council

PDS Public Distribution System

Raj Rajasthan

S. Section

SC Supreme Court

SCC Supreme Court Cases

SCJ Supreme Court Journal

SCR Supreme Court Reported

UoI Union of India

UP Uttar Pradesh



INDEX OF AUTHORITIES

TABLE OF STATUTESDefence of India Act, 1939

Essential Commodities (Amendment and Validation)

Ordinance, 2009

Essential Commodities (Amendment) Bill, 2005

Essential Commodities Act, 1955

Essential Supplies (Temporary Powers) Act of 1946

Government of India Act, 1935

India (Central Government and Legislature) Act, 1946,

Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act, 1980

Sugarcane (Control) Order, 1966

LIST OF CASESAmbalal M. Shah v. Hathi Singh Mfg. Co., 1962 S.C.J. 718

Bharat Sugar Mills Ltd. and Another vs. UoI [T.C.(Civil)

Nos.15-17/1993]

Bihar v. Hiralal Kejriwal, A.I.R. 1960 S.C. 47.

Dayanand v. Bihar, A.I.R. 1951 Pat. 47

In Ram Rich Pal v. W. Bengal, A.I.R. 1958 Cal. 257

In re Pesala Subramanyam A.I.R. 1950 Mad. 308.

K. P. Khetan v Union of India, A.I.R. 1957 S.C. 676

Kcdar Nath v. State, A.I.R. 1962 Cal. 410.

Maheswar Ram v State, A.I.R 1901 Orissa 44

Modi Industries Ltd. and Anr. vs. Union of India and Ors [T.C.

(Civil) No.9/1990] on the 20th February, 1996

Narendra Kumar v. India, A.I.R, 196O S.C.430.

Nathmal v. Commissioner, Civil Supplies, Rajasthan, A.I.R.

1952 Raj.74.

Saraswati Industrial Syndicate Case, LPA No. 1053/2007

Malaprabha Co-operative Sugar Factory Ltd. vs. UoI and Anr



1994 (1) SCC 648

Srikrishna Rice Mills v. Dy. Dir., A.I.R, 1960 A.P. 431.

Tikaramji v. State of U.P., 1956 S.C.R.393,

Udairaj Baikal Lai v. Rajasthan, A.I.R. 1052 S.C 79

UoI and Ors vs. Triveni Engineering Works Ltd. and Ors

1999(9) SCC 244



1.INTRODUCTION The Indian State has always followed the principle of a welfare

state. These principles find place in the Constitution of India,

which is the supreme law of the land. A.39 of the Constitution

enjoins the state to direct its policy towards securing the

ownership and control of material resources, such that the

commodities are so distributed as best to serve the common

good, and that the operation of the economic system does not

result in concentration of wealth.

In adherence to this Directive Principle of State Policy, the

Parliament and the State Legislatures have enacted a number

of laws to control the economic system. One of these very

important legislations is the Essential Commodities Act which

confers upon the government broad powers to control the

economic system and under which a system of control and

regulation of production, supply, trade and commerce of

number of commodities is in force.

However, the Essential Commodities Regulations have their

origin in situations of dearth of certain commodities. But inthe present day context when the Indian economy is a self-

sufficient one and the Govt constantly strives to bring in

foreign investment and generate revenue from trade and

commerce of commodities, the importance and need of the

EC Act has been questioned time and again. The researcher in

the present project seeks to understand the need for keeping

the EC Act intact for the stability of the Indian Economydespite its rapid leaps of development.

1.1 RESEARCH PLAN The researcher in the present project seeks to analyze the EC

Act. An attempt has been made, first, to understand the

evolution of the laws relating to control of essential

commodities. The researcher then has looked into EC Act and



its effect and administration. The researcher then looks into

the various other legislations, which help in better

implementation of the EC Act. The final part of the project

deals with the major amendments that have been made to

the EC Act according to change in economic conditions and

demands of the various market players.

1.2 RESEARCH METHODOLOGY The research methodology is purely doctrinal in nature. The

research has relied upon secondary sources found in the

NALSAR Law Library.



2.HISTORY OF COMMODITY CONTROLIN INDIA

The pedigree of the commodity control regimes dates back to

the days of the II WW, 1939-45. During the emergency,

controls were resorted to on an extensive scale in order to

fight inflation, scarcity and high prices of essential

commodities. There is, therefore, a kind of historic continuity

through the legal provisions in the area of commodity control

since their inception in 1939. In the present chapter of the

project the researcher shall deal with the commodity control

laws that existed in the 1940s in India, i.e., the Defence of

India Act and Defence of India Rules. This evaluation is

undertaken, to show how the Essential Commodities Act is

greatly influenced by the Defence of India Act.

2.1.COMMODITY CONTROL DURING 1939-45In the constitutional framework envisaged under the GoI Act,

1935, the legislative powers pertaining to commodity control

were distributed between the Centre and the Provinces1. As

the II WW necessitated a centralized control for the essential

commodities. In 1939, the GoI made certain rules to control

the production, supply and distribution of certain commodities

under the Defence of India Act. But this Act ceased to be

effective after 30th September 1946. It was, however,

considered necessary that control in respect of certain

commodities essential for human beings should continue in

the interests of the general public. Therefore. The Essential

Supplies (Temporary Powers) Ordinance of 1946 was

promulgated by, which certain provisions of the Defence of

India Act were continued. This ordinance was subsequently

1 S.100 of the GoI Act, 1935.



replaced by the Essential Supplies (Temporary Powers) Act,

1946, which then expired on 26th January 1955. Since it was

considered necessary in public interest that the centre should

control the production, supply, and distribution of certain

essential commodities, the need of a permanent measure on

the subject was felt. For the above purpose certain

amendments were to be made to the Constitution. The IIIrd

Amendment to the Constitution made the required changes in

Entry 33 of List III in the VIIth Schedule to enable the

Parliament to enact the required legislation. Thus, the

Essential Commodities Act, 1955 came into force. The Act

intended to provide for the control of production, supply and

distribution of, and trade and commerce in, certain

commodities essential for human beings, in the interest of the

general public.

2.1.1 PROVISIONS OF THE DEFENCE OF INDIA ACTS. 2(1) empowered the Central Govt, to make such rules as

appear to be necessary or expedient for securing the defence

of British India, the public safety, the maintenance of public

order or the efficient prosecution of war, or for maintaining

supplies and services essential to the life of the community.

Without prejudice to any of the provisions of the Act, the ruled

made by the Govt could provide for or empower an authority

to make orders providing for all or any matters set out in S.2

(2)2.

The Central Govt was empowered to direct that any power or

duty conferred or imposed by it u/s.2 (1) would, in

circumstances and conditions specified in the order, be

discharged or exercised by any authority or officer

2 S.2(2) was merely illustrative and restrictive of the rule making powerconferred by S. 2(1). Emperor v. Sibnath, AIR 1945 PC 156.



subordinate to it or the Provincial Govt3. Any rule made under

this Act was considered to be in effect even though it was to

be inconsistent with any other enactment in force in the

country at the given point of time.

2.2 COMMODITY CONTROL DURINGINDEPENDENCE

The Defence of India system of controls was based on the

concept of emergency. With the cessation of hostilities in

1945, the proclamation of emergency in the country was

revoked in April, 1946, thus putting an end to the Defence of

India Act4. The economic condition of the country did not,

however, permit dispensation with commodity-control as war-

time inflation, scarcity and high prices of commodities still

ruled in the country. It thus became inevitable to amend the

scheme of distribution of powers in the GoI Act. Thus, the

Central Legislature, by virtue of the India (Central

Government and Legislature) Act, 1946, became empowered

to legislate on issues of trade and commerce and supply,

production and distribution of certain essential commodities5.

2.2.1. ESSENTIAL SUPPLIES (TEMPORARY POWERS)ACT, 1946

The imbibing of these powers in the hands of the Central Govt

led to the enactment of the Essential Supplies (Temporary

Powers) Act, 19466 to meet the prevailing economic

emergency of inflation, high prices and acute shortage of

essential commodities. The Government was empowered to

3 S.2(4).4 According to S. 102(4) of the GoI Act, 1935, a law made by the FederalLegislature, which it would not have been competent to make but for theissue of the proclamation of the emergency had to come to an end sixmonths after the proclamation ceased to operate.5 These commodities included: cotton and woolen textiles, paper (includingnewsprint), foodstuff, petroleum, coal, iron, steel, mica, etc.6 Act XXIV of 1946



provide for regulating or prohibiting the production, supply

and distribution of, and trade and commerce in, an essential

commodity, so far as it appeared to be necessary or

expedient for maintaining or increasing supplies of the

commodity or securing its equitable distribution and

availability at fair prices7.

The Act also empowered the Govt to appoint any person as an

authorized controller to exercise the functions of control, as

specified in the Order, with respect to an undertaking

engaged in the production and supply of a commodity

specified in the order8.

This Act was different than the Defence of India Act to the

extent that the latter did not contain restrictions wrt

commodities, which could be regulated thereunder, while the

former applied to commodities mentioned in the Act, beyond

which the Govt was not allowed to exercise its powers.

Further, under the Defence of India Act concurrent powers

were given to the Centre and the Provinces to make orders,

but under the Essential Supplies Act, all the power wasconferred solely upon the Centre, which could then delegate

these powers to the Provinces9.

2.3 COMMODITY CONTROL IN PRESENT TIMES There can be no place for any confusion, when one states that

the commodity control in India has undergone a drastic

change. Though, the Essential Commodities Act was enacted

in 1955 trying to keep up the need for Govt control in the

commodities supply market, the Indian economy has

undergone drastic changes, resulting in a need for change in

7 Indian Law Institute Study No. 9, “Administrative Process Under theEssential Commodities Act, 1955, 1964, p.27.8 S. 3 (4) of Essential Supplies Act.9 Infra note 7, at.31.



the commodity control regime time and again.

The most important change in circumstances is that of India

now being a essential commodities surplus state, which

participates in intra and inter country trade and commerce.

This is precisely the reason why time and again various

interests groups have sought for the repeal of the Essential

Commodities Act, for it continues to place a great degree of

power in the hands of the Central Govt.

Subsequent amendments to the Essential Commodities Act,

and the Orders made thereunder stand privy to the fact that

the Indian Govt is in favor of moving beyond a control and

command regime to give a certain amount of free reign to the

producers.

However, there is no ignoring the fact that certain sections of

the society will continue to suffer from lack of access to

essential commodities. And, keeping in mind the fact that

India continues to play the role of a welfare state, the Govt,

despite protests from various sectors intends to keep the

Essential Commodities Act in place. This decision becomesmore relevant when analyzed from the context of the prices of

essential commodities.

During the year 2008-09, the prices of essential commodities

were closely monitored and various measures were taken to

augment supplies and stabilize prices of certain essential

commodities. Rise in domestic prices was owing to the

combined effect of factors such as, growing demand on

account of increase in population and income, hardening of

international prices, changes in consumption pattern,

diversion of food grains for fuel, adverse weather and climate

change, increase in crude oil prices and increase in freight

rates. Reasons for inflation in some food articles mainly rice

and pulses (except gram dal) are listed below: (i) Prices of rice



ruled high as there was a hike in the Minimum Support Price

(MSP). Increase in international prices also contributed to rise

in domestic prices of rice.

Production of pulses is estimated to be lower at 14.25 million

tonnes during 2008-09 as against 14.76 million tonnes during

2007-08 as per Second advance estimates released by

Department of Agriculture & Cooperation on 12.02.2009.

Domestic prices of pulses have risen mainly on account of the

supply-demand mismatch. The gap between demand and

supply is met through imports, which also slackened owing to

increase in international prices of pulses.



3.ESSENTIAL COMMODITIES ACT, 1955

The Essential Commodities Act was passed by Parliament on

1st April, 195510. It provides, in the interest of the general

public, for the control of the production, supply and

distribution of, and trade and commerce in, the following

essential commodities11:

(i) Cattle fodder (including oilcakes and other concentrates);

(ii) Coal (including coke and other derivatives);

(iii) Component parts and accessories of automobiles;

(iv) Cotton and woolen textiles;

(v) Foodstuffs (including edible oilseeds and oils);

(vi) Iron and steel (including manufactured products of iron

and steel);

(vii) Paper (including newsprint, paperboard and strawboard);

(viii) Petroleum and its products;

(ix) Raw cotton (whether ginned or unginned) and cotton seed

and

(x) Raw jute. These commodities, it will be seen, fall into three categories:

(1) Food for human beings and cattle12;

(2) Raw materials for industries;13

(3) Products of industries controlled by Parliament14.

10 The Essential Supplies Act, 194G, expired on January 26, 1055, and theEssential Commodities Act was passed on April 1, 1S55. In between, therewas an interregnum. The Parliament's powers to control commodities,pending a constitutional amendment, were limited to regulation of the

products of controlled industries, inter-state trade and commerce in allcommodities. Thus, an ordinance was promulgated on January 26, 1955 bythe Central Government to cover these matters. Certain States also tooklegal action open to them to continue controls in respect of suchcommodities as could not be included in the Central Ordinance. TheEssential Commodities Act replaced this ordinance, and much of the Slatelegislation in this area.11 S. 2 (a)12 Entries (i) & (v)13 Entries (ix) & (x).14 Entries (ii), (iii), (iv), (vi), (vii), (viii)



The list of essential commodities is not, however, exhaustive,

as the Central Government is empowered15 to declare, by

notified order, as an "essential commodity' for the purpose of

the Act, any commodity with respect to which Parliament has

power to make laws by virtue of entry 33, List III16.

It deals mainly with the following subjects:

1. By the provisions set out in Section 3- Control of

production, supply and distribution of essential

commodities.

2. Under Section 4 there is conferment of power and

imposition of duties on State Governments.

3. Under Section 5 the Central Government is provided

with the power to delegate its powers to the State

Government or its officers.

4. Section 6 provides for the removal of difficulties arising

by reason of inconsistency of any order made under S.3

of the Act.

5. Securing obedience to the provision of orders made and

directions issued under the Act by making thecontravention and attempt to contravene such

provisions, orders and directions, punishable as offence

u/s.7

6. Section 11 contains the provisions regarding cognizance

of offences under the Act. Special provision relating to

fines is provided in Sec.12.

7. Section 12-A provides for summary trials, which was

15 S. 2(a) (xi).16 In this entry is to be found the following clause: "The products of anyindustry where the control of such industry by the Union is declared byParliament by law to be expedient in the public interest and importedgoods of the same kind as such products," Under this power, the followingcommodities have been declared to be essential commodities : jutetextiles (S.R'O. 325, dated February 15, I9G6); drugs (S.R.O. 828/April195G); non-ferrous metals (S.R.O. 2175-A); press mud (sugarcane),Notification No. G.S.E./ Ess. Comm., dated 15.4.1959.



inserted by the Essential Commodities Amendment Act

of 1964.

8. Provision in respect of judicial presumption as regards

any order purporting to have been made and signed by

an authority in exercise of any power conferred by or

under this Act is made u/s.13.

According to S. 3(1), the Central Government may, by order,

provide for regulating or prohibiting the production, supply

and distribution of an essential commodity, and trade and

commerce therein if it is of the opinion that it is necessary or

expedient so to do for maintaining or increasing supplies of

the commodity or for securing their equitable distribution, and

availability at fair prices17. Without restricting the generality of

the above, provision may specifically be made for the

following18:

• for regulating by licenses, permits or otherwise, the

production or manufacture, storage, transport,

distribution, disposal, acquisition, use or consumption,

of an essential commodity;

• for bringing under cultivation any water or arable land

for growing, and for otherwise maintaining or increasing

the cultivation of foodcrops;

• for controlling the price at which any essential

commodity may be bought or sold19;

17 The Supreme Court has held that an order made under S. 3, thoughwithin its compass; may still be challenged on the ground of violating afundamental right, Narendra Kumar v. India, A.I.R, 196O S.C.430.18 S. 3(2), The Calcutta High Court has held in Motion Lai v. State, A.I.R1961 Cal, 240, that if a person contravenes an order made under S. 3 of the Act, he exposes himself to the risk of punishment prescribed by theAct. Proof of mens rea or guilty mind is not necessary. The languageemployed in the statute and the object of the Act appear to indicate lhatan absolute prohibition was intended to be conveyed by any order passedunder S. 3.19 This provision has been interpreted by the Supreme Court in the DivanSugar Mill's case very broadly as authorizing the fixation of price at anystage whether of production, wholesale or retail sale. There is no



• for prohibiting the withholding from sale of any essential

commodity ordinarily kept for sale;

• for requiring any person holding in stock any essential

commodity to sell the whole or a specified part thereof

to the Central or State Government or to its officer or

agent or to such other person and in such

circumstances as are specified in the order;20

• for regulating or prohibiting any class of commercial or

financial transactions relating to foodstuffs or cotton

textiles which, in the opinion of the authority making the

order, are or are likely to be detrimental' to the public

interest;

• for collecting any information or statistics for regulating

or prohibiting any of the aforesaid matters;

• for requiring the production and maintenance of books,

accounts and business records and furnishing of

information specified in the order, by those engaged in

production etc., of an essential commodity;

• for the grant or issue of licenses, permits, or other

documents, the charging of fees therefore, requiring

deposit of securities for due performance of conditions

of license and forfeiture of such deposit for breach of

conditions;

• for any incidental and supplementary matters including

compulsion on the government to fix prices at the consumer's level; supra,

p. 55.20 Before 1957, the words "government" or "officers" or "agent" did notoccur in this clause. In Ram Rich Pal v. W. Bengal, A.I.R. 1958 Cal. 257, theCalcutta High Court held that the word "person" in the clause did notinclude government and, therefore, the government had no power to ordera stockholder to sell to it or its officers. Thus, while the government underthis clause could direct a stockholder to sell its stocks to a private person itcould not direct him to sell to itself. The clause was, therefore, amendedon September 17, 1967, so that the government may have the "very healthy power of enabling the government to virtually requisition stocks of food and other essential commodities by directing compulsory sales to

persons nominated by the government."



search of premises etc., seizure by an authorized person

of articles in respect of which he has reason to believe

that a contravention of order might take place21.

S. 3(3) prescribes the following bases for granting

compensation to a person selling any essential commodity

under Cl. (e) above:

• he is to be paid the agreed price, if it can be agreed

upon, consistently with the controlled price, if any:

• in case no such agreement can be reached, price is to

be calculated with reference to the controlled price, if

any;

• in other cases, the price is to be the market rate

prevailing in the locality on the date of sale.

S. 3(3) (A)22, a rather drastic provision, relating to foodstuffs.,

21 In anticipation of the lapse of the Essential Supplies Act, 1046, on Jan.26, 1955, (supra), S. 1S(G) was added to the Industries (Regulation &Development) Act providing for control of the product of centrally-controlled industries mentioned in the schedule to the Act.

This provision empowers the Central Government to regulate supplyand distribution of, and trade and commerce in, any 'article reSatable1 to

a scheduled industry, which means finished products of the industry,finished products of a cognate character produced in the course of manufacturing process of the industry and also imported articles of thesame nature and description as the articles manufactured (Tikaramji v.State of U.P., 1956 S.C.R.393,at p.432). The provision is parallel to S. 3 of the Essential Commodities Act and was added in 1953 in anticipation of the lapse of the Essential Supplies Act, 1946 in 1955, as the CentralGovernment wanted to continue price control as an integral partof its economic policy and also to protect new industries being floatedfrom losing money. The Centre took the power also to avoid each Stateseeking to interfere with the industries. A number of orders have beenpromulgated under this provision 10 control products of centrallycontrolled industries. The Cement Control Order, 1953, requires every

producer to sell the entire quantity of cement produced by him to theState Trading Corporation at a fixed price. The S.T.C. sells the cement at aprice fixed. The sale price for wholesalers and retailers is fixed by theState Governments. The Motor Cars (Distribution & Sale) Control Order,1959, and the Scooters (Distribution and Sale) Control Order, I960, seek tosecure equitable distribution of motorcars and scooters at fair prices.Other orders are: the Ethyl Alcohol (Price Control) Order, 1961; theImported Tourist Cars Control Order, 1961; the Molasses Control Order,1961. These orders have not been considered in this study, which isconfined to the Essential Commodities Act, 1955.22 Similar provision is to be found in the Industries (Development& Regulation) Act, added in 1937.



says that on government issuing a notification under it23 the

price payable for the foodstuffs under Cl. (e) is to be regulated

as follows: (a) the agreed price, if it can be agreed upon

consistently with the controlled price of the foodstuff; or (b) if

no such agreement can be reached, the price calculated with

reference to the controlled price; or (c) where none of the first

two options applies, the price calculated with reference to the

average market rate prevailing in the locality during the

period of three months immediately preceding the date of the

notification; the "average market rate" being determined by

an officer authorized by the Central Government with

reference to the prevailing market rates for which published

figures are available in respect of that locality or a

neighboring locality. The average market rate so determined

is to be final and is not to be called in question in any court24.

3.1 APPOINTMENT OF AUTHORISEDCONTROLLER

Under S.3 (4) of the Essential Commodities Act, the

government is empowered to appoint an authorized controller

for an undertaking engaged in the production and supply of

an essential commodity. The government can do so if it is of

opinion that it is necessary for maintaining or increasing the

production and supply of the commodity. The controller

exercises such functions of control as may be specified in the

order. He exercises his function in accordance with

23 It can remain in force upto a maximum period of three months.24 The drastic provision was necessitated, as the Minister of Food andAgriculture explained, because of excessive hoarding in foodgrains goingon in the country pushing up prices. In the absence of this provision, thegovernment was required by S. 3(3) to pay prices at the market rate,which helped the hoarders. By the new provision, the government wantedto deprive the hoarder of the undue benefit, which he wanted to derivefrom his anti-social activities. Parliamentary Debates, 1957, Vol. II, Cols.3248-9. The provision applies to sales, not generally, but only those madeunder Cl. (e) above. See, Srikrishna Rice Mills v. Dy. Dir., A.I.R, 1960 A.P.431.



government instructions. The undertaking is to be carried on

in accordance with the controller's directions. Any person

having any functions of management in relation to the

undertaking has to comply with his directions25.

3.2 DELEGATION OF POWERSAccording to S. 4, an order made under S. 3 could confer

powers and impose duties upon:

(1)the Central Government,

(2)the State Government,

(3)authorities of the Central Government, and

(4)authorities of the State Government.Such an order could contain directions to any State

Government or to its officers or authorities as to the exercise

of such powers or discharge of any such duties.

WHO CAN MAKE ORDERS The power to make orders under S. 3 has been vested

primarily in the Central Government. This power may be

exercised by the Central Government itself, or under S. 5(1)

may be delegated by it, by a notified order, to any of its

officers or authorities. Under S. 5(b), the Central Government

25 A more drastic and broader provision is contained in S. 18-A of theIndustries (Development and Regulation) Act, 1951. The government firstconducts an inquiry into the affairs of the undertaking (S.15). It may issuedirections to it (under S. 16) thereafter. If these directions are notcomplied with, or if after the investigation the government is of opinionthat the undertaking is being managed in a manner highly detrimental to

the scheduled industry concerned or in public interest, its management orcontrol can be taken over by the government. Thus inquiry is a pre-condition for making an order under S. 18-A.but there is no such procedureprescribed under S. 3 (4) of the Essential Commodities Act. Theseprovision, have been commented upon by the Supreme Court in K. P.Khetan v Union of India, A.I.R. 1957 S.C. 676 and Ambalal M. Shah v. HathiSingh Mfg. Co., 1962 S.C.J. 718 in, which the question of mala fides of thegovernment was raised and rejected. This aspect has not been consideredfurther in this report. While under S. 3(4) of the. Essential CommoditiesAct. the controller may be assigned some functions of control over theundertaking, under S. 1S-A of the Industries Ace, the whole managementof the undertaking can be taken over.



can also delegate the power to make orders under S. 3 to

State Government or any officer or authority subordinate

thereto. The delegation of power to make orders can be in

relation to such matters and subject to such conditions as

may be specified by the Central Govt in the order itself. An

order u/s. 2 (a) (xi), adding an item to the list of essential

commodities, can be made only by the Central Govt and the

power cannot be delegated.

Also, the notification under S.3 (3A) is to be made by the

Central Govt and this power cannot be delegated. The reason

being that u/s.5, what can be delegated by the Central Govt is

the power to make order, while the power of the Central Govt

u/s.3(3A) is to make a notification.

3.3.PUBLICATION OF ORDERS The Central Govt can exercise its power under the EC Act

either by an ‘order’ or a ‘notified order’ or a ‘notification’ in

the gazette. In the former category come the following:

1. providing for regulating or prohibiting production,supply and distribution of an essential commodity and

trade and commerce therein under Cl. (1) and (2) of S.3;

2. Appointment of authorized controller u/s.3(4).

The Central Govt can do the following things by a ‘notified

order’. U/s.5 it can:

1. sub-delegate the power to make order u/s.3 on an

officer or authority subordinate to the Central Govt.

2. sub-delegate the same power on the State Govt or an

officer or authority subordinate to the State Govt.

After the power is conferred by a notified order, it is to be

exercised u/s.3 by an order. U/s. 2 (a) (xi), it can, by such

notified order, ass an item to the list of essential commodities.

Then u/s.3 (3A) the Central Govt may issue a notification in



official gazette regulating the price of foodgrains as provided

in the subsection for the purpose of selling it in compliance

with an order u/s. 3(2) (f), i.e., an order requiring any person

holding in stock foodgrains to sell the whole or a specified part

of it to specified persons under specified circumstances.

An order maybe of general application, of general nature, one,

which affects a class of persons, or, may be directed to a

specified individual. According to S. 3(5), an order of a general

nature is to be notified in the official gazette. An order on an

individual need not be so notified; it is to be served on the

individual concerned by delivering or tendering it to him or if

it cannot be so delivered, by affixing it on the outer door or

some other conspicuous part of the premises in which that

individual lives.

A "notified order" means an order notified in the official

gazette26. The term "official gazette" is not defined in the Act,

but under the General Clauses Act, it means the Gazette of

India or of a State as the case may be. The tenor of the

various provisions noted above is that, except an order madeunder S. 3 and directed to a specified individual, every other

order must be notified in the Gazette of India, if it is being

made by the Central Government, or the Gazette of a State, if

it is being made by the State Government. An order not

fulfilling the conditions of publication cannot be enforced. In re

Pesala Subramanyam27, the Collector of the District fixed the

controlled rate of salt and notified it in the District Gazette. It

was held that the order could not be enforced without its

being published in the State Gazette as its notification in the

District Gazette only was not sufficient.

26 S. 2(c).27 A.I.R. 1950 Mad. 308.



3.4.MISCELLANEOUS PROVISIONSS. 7 prescribes the penalties for contravention of any order

made under S. 3. For contravention of an order'—(a) under

Ch. (g) or (h)28, the punishment is to be imprisonment up to

one year and also fine; (b) under any other clause, the

punishment is to be imprisonment upto three years and fine,

though the court has an option to impose only fine, for

reasons to be recorded, if it is of opinion that it will meet the

ends of justice. In addition, whole or part of any property in

respect of which the order has been contravened is to be

forfeited to the government. For reasons to be recorded, the

court may not pass an order of forfeiture if it is of opinion thatit is not necessary so to do. For failure to comply with a

direction of the "authorized controller", punishment

prescribed is imprisonment upto three years, or fine, or both.

According to S. 8, an attempt or abetment to contravene an

order is to be deemed as contravention of the order.

According to S. 9, making of a false statement or furnishing

false information knowingly is to be punishable withimprisonment upto three years, or with fine, or with both29. S.

28 Supra, p. 71.29 Under the Preventive Detention Act, an order of preventive detentioncan be made to prevent a person from acting in any manner prejudicial tothe maintenance of supplies and services essential to the community. Thisprovision does not define the commodities whose supply is essential to thecommunity. The Punjab High Court has held in Jagannath v. Punjab, A.I.R.1952 Punjab 124 at p. 128., that what is regarded by the executive as anessential commodity is subject to review by the courts. In Jagannath v.

Bihar, A.I.R 1952 Pat. 185, action under the provision was permitted forevasion of control orders. In this case, the order of preventive detentionwas served on a licensee of cloth under the Bihar Cotton Cloth and Yarn(Control) Order for having infringed its condition. Also see, Dayanand v.Bihar, A.I.R. 1951 Pat. 47. The Preventive Detention Act places a verydrastic power in the hands of the executive and the scope of judicialreview under it is extremely limited. In the Jagannath case, the executivehad several alternative remedies: (1) to prosecute the licensee under theEssential Supplies Act; (-) Cancellation of (he licence; and (3) thepreventive detention; and the executive resorted to the latter because itwas very convenient for it. It is, of course, for the government to decidewhich alternative to adopt.



10 provides for punishment in case an offence is committed

by a company. In such a case, the company and every person

in charge of, and responsible for, the company for the conduct

of its business at the time the order is contravened, are liable

to be punished. A person is not to be liable to any punishment

if he proves that the contravention took place without his

knowledge or that he exercised ail due diligence to prevent

the contravention. Further, if it is proved that the offence is

committed by a company with the consent or connivance of,

or is attributable to any negligence of any director, manager,

secretary or any other officer of the company, then he also is

to be deemed guilty of the offence and so liable to be

punished30.

No court is to take cognizance of any offence under this Act

except on a report in writing of the facts constituting such

offence made by a public servant31. Where an order purports

to have been made and signed by an authority in exercise of

any power conferred under the Act, a court is to presume that

such order has been made by that authority within themeaning of the Indian Evidence Act. According to S. 14, the

burden of proving that he has a licence, permit etc. is on the

person who is being prosecuted for contravening an order

30 In the Select Committee, the provision was criticized on severalgrounds, viz., it was an unusual departure from the modern concept of criminal law that a criminal action would always be a personal liability andthis would put a discount on the desire of a capable man handling animportant industry, that punishment of neglect by three years was a

serious matter and in criminal law neglect was not usually punished unlessit was of culpable or of serious nature, as there is no mms rea, which isusually regarded as an essential element in crimes. It was also feared thatthe provision might fail to work as it was vague. The administration andbusiness of a company is carried on through a large number of persons,and it would thus be difficult to catch hold of the real offender. See, Statev. Dhanraj Mills, A.I.R. 1960 Bom. 453. Merely appointing a manager toattend to day-to-day administration and working of the mills does notabsolve the directors from responsibility. They have to prove that thecontravention took place without their knowledge or that they exerciseddue diligence to prevent the contravention.31 Kcdar Nath v. State, A.I.R. 1962 Cal. 410.



prohibiting him from doing any act or possessing a thing

without such permit32 etc.

The usual immunity from judicial action for anything done or

intended to be done in good faith is contained in S. 15(1).

Also, government is protected from being sued for any

damage caused or likely to be caused by anything done or

intended to be done in good faith under any order. An

interesting case to be noted with reference to this provision is

Nathmal v. Commissioner, Civil Supplies, Rajasthan33. Grain

was requisitioned under a State order, which the HC later held

to be bad as the procurement price was unreasonable. The

procuring authority had sold grain in the meantime. Due to S.

15(2)j it was not possible for the petitioner to recover money

from the government in a civil suit, which was barred by this

provision. The High Court thus gave remedy under Article 226

of the Constitution as no other remedy was available and thus

damages were given against the State34. S. 16(2) saves the

orders made under the Essential Supplies Act, which were in

force immediately before the commencement of the Act35

. Itwill be seen from the above that a thread of historical

continuity runs through the provisions of the Essential

Commodities Act as compared with the Essential Supplies Act.

The former, though more elaborate than the latter in some

respects, is yet based on it. Ss. 3(2), 3(4), 3(5), 4, 5, 6, 8,9,

11, 12, 14, 15, 13 of the Essential Commodities Act are

32 Maheswar Ram v Stale, A.I.R, 1901 Orissa 44. The burden cast on thepetitioner is heavy to prove that a commodity possessed by him requiringa licence for possession was lawfully possessed by him.33 A.I.R. 1952 Raj.74.34 Udairaj Baikal Lai v. Rajasthan, A.I.R. 1052 S.C, 79. In this case, asimilar relief was given by the court in a similar situation as the suit wasbarred under S. 15.35 Bihar v. Hiralal Kejriwal, A.I.R. 1960 S.C. 47. The Supreme Court heldthat the Cotton Textiles (Control of Movement) Order, 1948, continued inforce under S. 16 (2) inspitc of the repeal of the Essential Supplies Act,1046, under which the order was made.



parallel respectively to Ss. 3(2), 3(4), 3(1A), 3(3), 4, 6, 8, 10,

11, 13, 15, 16 and 14(2) of the Essential Supplies Act as

amended upto 1950. There are, however, a few differences

between the two enactments, viz. (1) The Commodities Act

applies to raw jute, item 2(a) (x).(2) List of essential

commodities in the Commodities Act is not exhaustive for it

can be expanded under S. 2(a)(xi) by the Central Government.

(3) S. 3(3) and 3(3A) of the Commodities Act provide a

formula for fixing the price to be paid to a person who is

required to sell essential commodities in his stock under an

order. It appears that this provision was added in view of

Article 31 of the Constitution under which the basis of

compensation is to be fixed for acquisition of private property

for a public purpose. (4) S. 3(6) provides for laying of an order

made under the Act as soon as it is made. This provision is in

line with the new trend of strengthening legislative control

over delegated legislation after the advent of the new

Constitution.

On the other hand, the Essential Commodities Act does notcontain any of the following provisions found in the Essential

Supplies Act: (1) summary trial of offences; (2) orders

promulgated under the Act being made non-justiciable; (3)

provision for expediting trial of cases; (4) empowering the

Centre to give directions to a State Government to carry into

execution in the State an order promulgated under the Act. As

regards (2), such a provision could not obviously bar the

courts from scrutinizing an order under the new Constitution

and so was dropped. As regards (4), no such provision was

necessary as such power is given by the Constitution itself to

the Centre. Punishments under the new Act are milder than

the old Act36.

36 Under the Essential Supplies Act, 7 years' imprisonment was prescribed



4.ADMINISTRATION OFESSENTIAL COMMODITIES ACT

Legislature promulgated the Essential Commodities Act, 1955 to

ensure easy availability of essential commodities to consumers and to

protect them from exploitation by traders. It provides for regulation

and control of production, distribution and pricing of commodities,

which are declared as essential under the Act. Presently, there are 44

classes of commodities, which are declared essential under the Act.

The Act has been amended from time to time to make its provision

more effective. In order to create greater impact on the defaulting

traders, the provisions of the Essential Commodities Act, 1955 have

been made more stringent making the offences non-bailable and

providing for summary trial of such offences by Special Courts through

the Essential Commodities (Special, Provisions) Act, 1981, the validity

of which has been extended upto August, 1997 on the basis of

unanimous recommendations of all the State/UT Governments. The

Central Government regularly monitors the action taken by StateGovernments/`UT Administrations to implement the provisions of the

Essential Commodities Act, 1955. The action taken by States/UTs

under the Act during the year 1995 (as reported upto 31.12.1995) is an

indicated below:-

(i) No. of raids made -- 80927

(ii) No-. of persons arrested -- 9528

(iii) No. of persons prosecuted -- 3387

(iv) No. of persons convicted -- 2714

for holding of foodstuffs. This provision was criticised by die Commodity ControlCommittee. Further, the Essential Supplies Act classified punishment with referenceto commodities, viz., foods tuffs, cotton, etc. The Essential Commodities Act classifiesthe punishments with reference to the nature of the order infringed.



(v) Value of goods confiscated -- 1472.65

(Rs. in Lakhs)

4.1.PRICE MONITORING CELL The Department of Consumer Affairs is entrusted with the task of

monitoring prices and availability of essential commodities in the

country. The Price Monitoring Cell (PMC) of the Department of

Consumer Affairs continued to monitor regularly the wholesale and

retail prices of 17 essential commodities, viz., rice, wheat, atta, gram

dal, tur/arhar dal, moong dal, urad dal, masoor dal, tea, milk, sugar,

vanaspati, mustard oil, groundnut oil, potato, onion and salt. Meetings

of the Committee of Secretaries (CoS), High Powered Price MonitoringBoard (HPPMB) and of the Cabinet Committee on Prices (CCP) of

essential commodities were held regularly to review the prices of

essential commodities. Analytical notes on latest price situation and

availability of essential commodities were prepared based on the WPI

numbers, wholesale/retail prices, production, procurement and

exports/imports of select essential commodities for consideration of

the meetings of other high level meetings. Notes on the measurestaken by the Government for ensuring adequate supplies and

containing the rise in prices of essential commodities were also

prepared and given to Press Information Bureau (PIB) on a weekly

basis for giving publicity.

ACTION TAKEN TO CHECK RISE IN PRICE OF ESSENTIALCOMMODITIES

In the context of unprecedented rise in prices of some essentialcommodities, there had been wide spread concern from various

corners for taking immediate steps to mitigate the rising trend of

prices of essential commodities. Representations from the Chief

Ministers of Punjab and Delhi and also from the Govt. of Andhra



Pradesh, Rajasthan and Maharashtra were received for restoration of

powers under the Essential Commodities Act, 1955 for undertaking

dehoarding operations in view of the assumption that there is

speculative holding back of stocks particularly of wheat and pulses in

anticipation of further rise in prices. Central Govt. has already taken a

number of steps to control the price rise in essential commodities. The

Govt further reviewed the situation and it was decided with the

approval of the Cabinet to keep in abeyance some provisions in the

central order dated 15.02.2002 for a period of six months with respect

to wheat and pulses (whole and split), so as to tackle the crisis on

availability and prices of these commodities37.

Accordingly, the Central Govt. issued a Central Order No. 1373(E)

dated 29.08.2006 by virtue of which the words or expressions made

in respect of purchase, movement, sale, supply, distribution or storage

for sale in the “Removal of (Licensing requirements, Stock limits and

Movement Restrictions) on Specified Foodstuffs Order, 2002” notified

on 15.02.200238 have been kept in abeyance for commodities namely

wheat and pulses for a period of six months from the date of issue of

the order or further order, which ever is earlier. This order howeverwould not affect the transport, distribution or disposal of wheat and

pulses (whole or split) to places outside the State, nor shall it be

applicable to import of these commodities. The Order of 29.08.2006

was initially in force for a period of 6 months, which was extended

thrice for a period of 6 months each by Central Notification dated

27.02.2007,31.8.2007, 28.02.200839. The same was again extended

upto 30.04.2009 vide Central Notification dated 27.08.2008. To enable

the State Governments/UT Administrations to continue to take

37 “Chief Ministers' conference reviews prices of essential commodities; core groupset up on agriculture & food matters”,http://www.orissadiary.com/ShowBussinessNews.asp?id=16645, accessed on 5th April2010.38 fcamin.nic.in/annual%20report/ar_2007-08/ch_4.pdf 39 Ibid.

http://www.orissadiary.com/ShowBussinessNews.asp?id=16645

http://www.orissadiary.com/ShowBussinessNews.asp?id=16645



effective action for undertaking de-hoarding operations under the

Essential Commodities Act,1955, the price situation was further

reviewed by the Government and it was decided with the approval of

the Cabinet to further impose similar restrictions by keeping in

abeyance some provisions of the Central Order dated 15.02.2002 for a

period of one year with respect to edible oils edible oilseeds and rice,

so as to tackle the rising trend of prices as well as availability of these

commodities to the common people. However, it was also decided

that there shall not be any restriction on the inter-state movement of

these items, and that imports of these items would also be kept out of

the purview of any controls by the State Governments40.

An Order dated 7th April 2008 was published in Gazette of India to this

effect. Further it was decided by the Cabinet in its meeting on

21.08.2008 that similar restriction may be imposed by keeping in

abeyance some provisions of the Central Order dated 15.02.2002 for a

period upto 30.04.2009 with respect to Paddy, so as to tackle the rising

trend of prices as well as availability of these commodities to the

common people. An Order dated 27.08.2008 was published in Gazette

of India to this effect. The price situation was again reviewed by theGovernment and it has been decided with the approval of the Cabinet

to further relax restrictions and to keep in abeyance some provisions of

the Central Order dated 15.02.2002 for period of four months from the

date of publication of Order with respect to Sugar so as to tackle the

availability and prices of this commodity. Accordingly, an Order

No.S.O.649 (E) dated 09.03.2009 has been published in Gazette of

India to this effect41.

The Cabinet has further taken following decision in its meeting held on

30.03.200942 (i)- Removal of Wheat from the list of commodities on

40 Id.41 dcmsme.gov.in/publications/circulars/649E.pdf 42 www.pib.nic.in/release/release.asp?relid=49252&kwd=



which orders relating to fixation of stock holding limits have been

imposed by keeping in abeyance provisions of Central Order dated

15.02.2002, (ii)- Extension of validity of Central Notification dated

29.08.2006 in respect of Pulses and Paddy beyond 30.04.2009 (upto

30.09.2009) and (iii) in respect of Edible Oils, Edible Oilseeds and Rice

beyond 06.04.2009 (upto 30.09.2009). These Notifications have been

notified in the Gazette of India vide S.O.880(E) dated 30.03.2009,

S.O.905 (E) dated 02.04.2009 and S.O.906 (E) dated 02.04.200943.

These Orders have permitted State/UT Governments to fix stock limits

in respect of sugar, pulses, paddy, edible oils, edible oilseeds and rice.

So far as implementation of these orders is concerned it is mentioned

that only 18 State Governments/UTs have either issued stock limits for

all the five items or wheat and pulses only or have issued only

licensing requirements/ stock declaration (of these 18, 13 States/UTs

have actually issued stock limit Orders/ in the process of issuing. 5

States/UTs have issued licensing requirements/stock declarations). In

pursuance to the above Orders all State Governments/UTs were

requested to implement this order by issuing either a fresh control

order or reviving the old control order for fixing stock limits for variouscategories of dealers such as millers/producers, wholesalers and

retailers in respect of wheat and pulses. States/UTs have also been

empowered to take effective action exercising the powers vested with /

delegated to them under the Essential Commodities Act, 1955 to bring

out hoarded stock of these items in the open market to ensure their

availability to the common people at reasonable prices44.

43 fcamin.nic.in/annual%20report/annualreport_eng_2008-09.pdf 44 Ibid.



5.THE PREVENTION OF BLACKMARKETING ANDMAINTENENCE OF SUPPLIES OF ESSENTIAL

COMMODITIES ACT, 1980

The Prevention of Black marketing and Maintenance of Supplies of the

Essential Commodities Ordinance, 1979 was promulgated on the 5th

October, 1979 to deal effectively with malpractices like black

marketing, boarding, profiteering, and to arrest the unjustified rise in

prices of essential commodities by providing for the preventive

detention of person likely to indulge in such practices. Although the

Essential Commodities Act, 1955 made comprehensive provisions for

the regulation of production, supply, distribution, prices and trade and

commerce in commodities declared essential under the Act and

although the penal provisions in the Act were made more stringent in

accordance with the recommendations of the Law Commission in their

Forty –Seventh Report, it was found not adequate to deal with the

situation45.

The Ordinance recognized preventive detention as a necessary eviland accordingly sought to provide for various safeguards to avoid

scope for possible abuse of powers thereunder. The ground on which a

person could be detained under the Ordinance was defined

specifically46. It provided that an order directing the detention of a

person could be made thereunder only with a view to preventing such

person from acting in any prejudicial manner prejudicial to the

maintenance of supplies of commodities essential to the community

and it also defined the expression "acting in any manner prejudicial to

the maintenance of supplies of commodities essential to the

45 47th Law Commission Report, lawcommissionofindia.nic.in/1-50/Report48.pdf 46http://www.lawyersclubindia.com/section/SHORT-TITLE-EXTENT-AND-COMMENCEMENT/27518



community"47.

The Ordinance made provisions to ensure that the composition of the

Advisory Boards thereunder was in accordance with the amendments

proposed to Article 22 of the Constitution by section 3 of the

Constitution (Forty -Fourth Amendment) Act, 197848. It also made the

necessary provisions for ensuring, in accordance with the said

amendments, that a person is not detained for a period longer than

two months without the approval of an Advisory Board. Unlike the

earlier laws as to preventive detention, the Ordinance limited the

maximum period of detention to six months.

Section 9 of the Prevention of Black marketing and Maintenance of

Supplies of Essential Commodities Act, 1980, provides for the

construction of Advisory Boards by the Central Government and each

State Government. Under sub-sections (2) and (3) of this section/the

constitution of every Advisory Board has to be in accordance with the

recommendations of the Chief Justice of the appropriate High Court.

'The Chairman of an Advisory Board has to be a Judge of an

appropriate High Court and the other members shall be serving or

retired Judges of any High Court49

.Under section 7 of the Prevention of Black marketing and Maintenance

of Supplies of Essential Commodities Act, 1980, action against a

47 THE PREVENTION OF BLACK MARKETING AND MAINTENANCE OF SUPPLIES OFESSENTIAL COMMODITIES ACT, 1980,http://www.karmayog.org/govtactsschemes/govtactsschemes_2369.htm48 THE CONSTITUTION (FORTY-SEVENTH AMENDMENT),http://india.gov.in/govt/documents/amendment/amend47.htm49 S.9. Constitution of Advisory Boards:

(1) The Central Government and each State Government shall, whenever necessary,constitute one or more Advisory Boards for the purpose of this Act.(2) Every such Board shall consist of three persons who are, or have been, or arequalified to be appointed as Judge of a High Court, and such persons shall beappointed by the appropriate Government.(3) The appropriate Government shall appoint one of the members of the AdvisoryBoard who is, or has been, a Judge of a High Court, to be its chairman, and it the caseof a Union territory the appointment to the Advisory Board of any person who is a

Judge of the High Court of a State shall be with the previous approval of the StateGovernment concerned.



person who has absconded or is concealing himself with a view to

avoiding the execution of a detention order can be initiated only by the

appropriate Government. This leads to delay in cases where the order

of detention is made by a District Magistrate or a Commissioner of

Police, referred to in section 3(2) of the Act. Under the corresponding

provisions in the National Security Act, 1980(vide section 7thereof),

power is conferred on the officers empowered to

Order detention to take action against absconding persons In that

context and keeping in view the need for expeditious action against

absconding persons, it is proposed to amend section 7 of the

Prevention of Blackmarketing and Maintenance of Supplies of Essential

Commodities Act, 1980, so as to enable officers referred to in section

3(2)of that Act also to exercise the powers in relation to absconding

persons.

The Prevention of Black-marketing and Maintenance of Supplies of

Essential Commodities Act, 1980 is being implemented by the State

Governments/UT Administrations for the prevention of unethical trade

practices like hoarding and black-marketing etc. The Act empowers the

Central and State Governments to detain persons whose activities arefound to be prejudicial to the maintenance of supplies of commodities

essential to the community. Detentions are made by the States/UTs in

selective cases to prevent hoarding and black-marketing of the

essential commodities. The State Governments made detention orders

in 162 cases during the period from 01.01.2008 to 31.12.2008. The

Central Government and the State Governments also have the power

to modify or revoke the detention orders. The representations made by

or on behalf of the persons ordered for detention are considered and

decided by the Central Government. 57 such representations were

considered and decided by the Central Government during the period

from 01.01.2008 to 31.12.2008.



6.MAJOR AMENDMENTS TO THE ESSENTIALCOMMODITIES ACT

The Essential Commodities Act, 1955 provides for the control of the

production, supply and distribution of essential commodities. Powers to

issue Control Orders under this Act have been delegated by the Central

Government to the State Governments. Exercising powers delegated

under the Act, the State Government/UT Administrations have issued

several Control Orders to regulate various aspects of trading in various

essential commodities.

In the context of liberalization of the economy and the changed

situation, particularly with regard to the relatively more comfortable

food situation, it has been felt that restrictions such as licensing of

dealers, limits on stock and control on movement are no longer

required and only hamper the growth of the agricultural sector and

promotion of food processing industries.

6.1 2005 AMENDMENT TO PROMOTE OPERATION OF

MARKET FORCES The need to relax various controls on agricultural products including

controls on inter-State Movement of such products was discussed in

the Conference of Chief Ministers held on May 21, 2001 and thereafter

in the Standing Committee of some Union Ministers and Chief Ministers

which was set up pursuant to the recommendations made in the

Conference of Chief Ministers. The Standing Committee has suggested

that the Essential Commodities Act, 1955 may continue as umbrella

legislation for the Centre and the States to use when needed, but a

progressive dismantling of controls and restrictions was also required.

In pursuance of the said decision, various controls under the said Act

pertaining to licensing, stock limits and movement restrictions have

already been dispensed with in respect of agricultural products vide



notifications dated February 15, 2002 and June 16, 200350.

The list of Essential Commodities has been reviewed from time to time

with reference to the production and supply of these commodities and

in the light of economic liberalization. It is now universally accepted

that all unnecessary and redundant restrictions, which distort and

impede operation to market forces should be removed. Such

restrictions neither benefit the producer nor the consumer. In case of

agricultural commodities, such restrictions/regulations have been

adversely affecting the interest of the farmers without any benefit

flowing to the consumers. Moreover, the goal of a common Indian

market, particularly for agricultural commodities, and promotion of

agro-exports and agro processing industries will be difficult to achieve

unless and until trade and commerce is freed from such unnecessary

and discretionary restrictions51.

Accordingly, Cabinet approved the proposal of Department of

Consumer Affairs for introduction of the Essential Commodities

(Amendment) Bill, 2005 in the Parliament seeking its approval to

delete all the items listed in clause (a) of Section 2 of the said Act and

simultaneously to retain only those commodities52

recommended forcontinuance by the concerned Ministries as essential commodities

which would be specified in the Schedule to the Act.

It is also proposed to give powers to the central government to add,

remove or modify any essential commodity in that schedule. This

power will be exercised by the central government in the public

interest when there is a scarcity or non-availability of the commodity in

a situation like war, natural calamities, disruption or threat of

50 “Amendment To Essential Commodities Act To Promote Operation Of MarketForces”, 28 December, 2005, http://www.indlaw.com/guest/DisplayNews.aspx?980D6A25-8AED-4685-A739-10F634DB2A5C51 Ibid.52 Namely, (i) drugs; (ii) foodstuffs including edible oilseeds and oils; (iii) fertilizer,whether inorganic, organic or mixed, (iv) petroleum and petroleum products; (v) hankyarn made wholly from cotton; (vi) raw jute and jute textile; and (vii) seeds of foodcrops and seeds of fruits and vegetables, seeds of cattle fodder, and jute seeds



disruption or supply of such essential commodity which can not be

tackled through normal trade channels requiring Government's

intervention under the said Act53.

The central government will also specify the reasons in the notified

orders while adding/removing any commodity to/from the said

Schedule and lay every notified order made under the said provision

before both Houses of Parliament.

6.2.SUGAR INDUSTRY Government has been following a policy of partial control and dual

pricing for sugar. Under this policy, a certain percentage of sugar

produced by sugar factories is requisitioned by the Government ascompulsory levy at a price fixed by Government in every sugar season.

That levy sugar is distributed under the Public Distribution System

(PDS). The non-levy, free sale sugar is allowed to be sold as per the

quantity released by the Government under the free sale sugar release

mechanism.

Sugar and sugarcane are essential commodities under the Essential

Commodities Act, 1955. Under the system of partial control on sugar, apart of the sugar produced by sugar mills is requisitioned as levy sugar

and the balance is allowed to be sold as non-levy (free sale) sugar in

the open market. While the market forces determine price of non-levy

sugar, the price of levy sugar is determined by the Central Government

under the provisions of sub-section (3C) of section 3 of the Essential

Commodities Act, 1955, having regard to certain factors54.

53 “Amendment To Essential Commodities Act To Promote Operation Of MarketForces”, 28 December, 2005, http://www.indlaw.com/guest/DisplayNews.aspx?980D6A25-8AED-4685-A739-10F634DB2A5C54 a) The minimum price, if any, fixed for sugarcane by the Central Government;(b) The manufacturing cost of sugar;(c) The duty or tax, if any, paid or payable thereon; and(d) The securing of a reasonable return on the capital employed in the business of manufacturing of sugar.



A new clause 5A was inserted in the Sugarcane (Control) Order, 1966,

with effect from the 1st October, 1974, providing for additional cane

price to the cane growers as fifty per cent. share of the excess

realization from sale of sugar after the working results of the sugar

factory become known.

The methodology regarding determination of price of levy sugar by the

Central Government has been under continuous litigation in various

courts. The Hon'ble Supreme Court in its two judgments55 on levy sugar

prices delivered on the 22nd September, 1993 directed the Central

Government to amend the notifications taking into account the liability

of the manufacturers under clause 5A of the Sugarcane (Control)

Order, 1966 as regards cane price and re-fix the price of levy sugar for

the years 1974-75 to 1979-80 having regard to the factors mentioned

in S.3(3C) of the Essential Commodities Act, 1955.

The Hon'ble Supreme Court also in its Order dated the 28th January,

1997 clarified that the liability of additional price of sugarcane under

clause 5A of the Sugarcane (Control) Order, 1966 would get reflected

in factors (a) or (b) or both of S.3(3C). The Hon'ble Supreme Court

further held that mopping up of extra realization is an element of factor (d) of sub-section (3C) of section 3 of the Essential Commodities

Act, 1955.

The SC, in Modi Industries Ltd. and Anr. vs. Union of India and Ors.56

upheld the determination of price of levy sugar in respect of the sugar

season 1982-1983 by taking note of the statement made by the

Central Government in its additional affidavit that while determining

the price of levy sugar regard had been taken only to the minimum

cane price as spoken to in section 3(3C)(a) of the Essential

Commodities Act, 1955 and the additional cane price payable under

clause 5A of the Sugarcane (Control) Order, 1966 had not been taken

55 C.A. Nos. 122-123 of 1981 (Malaprabha-I) and on the 28th January, 1997 also inC.A. Nos. 122-123 of 1981 (Malaprabha-II)56 [T.C. (Civil) No.9/1990] on the 20th February, 1996



into account and that also there had been no mopping up of excess

realisation on free sale sugar while fixing the price of levy sugar for

the season 1982-83.

The Hon'ble Supreme Court was satisfied that this matter is not

covered by the decision of the Supreme Court in Shri Malaprabha Co-

operative Sugar Factory Ltd. vs. Union of India and Another 57.

Subsequently, in the case of Bharat Sugar Mills Ltd. and Another vs.

UoI and Others58 the Hon'ble Supreme Court held that the price of levy

sugar fixed for the sugar season 1982-83 was not covered by the

decision of the Supreme Court in Shri Malaprabha Co-operative Sugar

Factory Ltd. vs. UoI and that the decision in the Modi Industries case59

is directly applicable to the set of transferred cases which also deal

with the sugar price fixed for the season 1982-83. In UoI and Ors vs.

Triveni Engineering Works Ltd. and Others60 SCagain held that the

price of levy sugar for the year 1982-83 has already been upheld in its

earlier three decisions. The Central Government has consistently

followed the methodology upheld by these judgments of the Supreme

Court for determination of prices of levy sugar from the year 1980-81

onwards. The Government has taken the steps for decontrol of the sugar

industry. Accordingly, the compulsory levy obligation of the sugar

factories was reduced from 40% to 30% w.e.f. January 1, 2000. With

effect from February 1, 2001, the compulsory levy obligation has been

further reduced to 15%. The levy obligation now stands at 10% of the

production w.e.f. March 1, 2002. In order to safeguard the interests of

sugarcane growers, the producers of sugar and the general public, to

stabilize the open market price of sugar and to obviate intervention in

the ‘regulated release’ mechanism, the Essential Commodities Act,

57 1994 (1) SCC 64858 [T.C.(Civil) Nos.15-17/1993]59 T.C. (Civil) No. 9 of 1990]60 [(1999(9) SCC 244]



1955 was amended in June, 2003. “The Essential Commodities

(Amendment) Act, 2003,” incorporates the provisions of Clause 4 & 5

of the Sugar (Control) Order, 1966 in the Essential Commodities Act,

1955 through insertion of Clause 3D & 3E. As per this amended Act,

no producer, importer or exporter of sugar shall sell or otherwise

dispose of or deliver any kind of sugar except under and in accordance

with the direction issued by the Government61.

6.2.1. 2009 AMENDMENT TO THE ESSENTIALCOMMODITIES ACT

The SC in Mahalakshmi Sugar Mills Company Ltd. and Anr vs. UoI and

Ors62 has considered the scope and ambit of sub-section (3C) of section

3 of the Essential Commodities Act, 1955 and construed that both the

additional price paid to the cane growers in terms of clause 5A of the

Sugarcane (Control) Order, 1966 made under the said Act and the

State Advised Price (SAP) or actual price of sugarcane paid should be

factored in the computation of price of levy sugar63.

The SC also ordered for refixation of prices of levy sugar for the sugar

years 1983-84 and 1984-85. Following the issues settled in the

Mahalakshmi Sugar Mills Company Ltd. Case, the Hon'ble SC in a later

Order upheld the judgment of the Delhi HC in the case of Saraswati

Industrial Syndicate64 directing the Central Government to re-fix the

prices of levy sugar for the sugar years 1980-81 to 2000 - 2001(except

for the year 1982-83). Thus, due to the ambiguities in the existing law

pertaining to determination of price of levy sugar, there have been

conflicting decisions as to the factors to be taken into consideration in

determining the price of levy sugar. It, therefore, became absolutely61http://fcamin.nic.in/dfpd/EventDetails.asp?EventId=105&Section=Annual+Report&ParentID=0&child_continue=1&child_check=062 [2008 (6) Scale 275]63 Policy Watch, “Essential Commodities (Amendment and Validation) Act, 2009”,http://www.indlaw.com/display.aspx?480164 LPA No. 1053/2007



necessary to amend the Essential Commodities Act, 1955 to remove

the defects and ambiguities in the law pertaining to determination of

price of levy sugar thereby clarifying the expressions of cost

components of levy sugar mentioned in S. 3(3C) EC Act, 1955. Further,

since the refixation of prices of levy sugar for the years since 1980-81

would have led to controversy and confusion regarding the benefit of

such refixation to various sugar mills with potential for huge

unbudgeted financial burden on the Central Exchequer, it also became

necessary to validate the actions of the Central Government taken

since the 1st October, 197465 under the orders issued for determination

of price of levy sugar under sub-section (3C) of section 3 of the

Essential Commodities Act, 1955. Having regard to the above, it is

considered necessary to replace the concept of 'Minimum Price' of

sugarcane with 'Fair and Remunerative Price' (FRP) of sugarcane by

giving a reasonable margin to the farmers of sugarcane on account of

'risk' and 'profit' and, therefore, section 3 of the Essential Commodities

Act, 1955 had to be amended to provide in clause (a) of sub-section

(3C) thereof, the fair and remunerative price . Fixation of Fair and

Remunerative Price not only meant giving higher price to the farmersfor their sugarcane than the statutory minimum price fixed previously,

but also ensured that a fair and remunerative price for sugarcane is

fixed by the Central Government. The sugar season 2009-2010 had

already commenced on the 1st October, 2009 and, therefore, to

achieve the above purposes immediately, the Essential Commodities

(Amendment and Validation) Ordinance, 2009 (Ord. 9 of 2009) was

promulgated by the President on the 21st October, 2009.

65 That is the date of insertion of clause 5A in the Sugarcane (Control) Order, 1966.



CONCLUSION AND SUGGESTIONSIncreased production and rising productivity makes the proper

management of the food economy more critical then ever before. Our

policy has to be transformed to deal with surpluses rather than only

shortages. The researcher proposes, therefore, to give an enlarged role

to the State Governments in both procurement and distribution of

foodgrains for PDS in their respective States. Instead of providing

subsidized foodgrains, financial assistance will be provided to the State

Governments to enable them to procure and distribute foodgrains to

BPL families at subsidized rates. FCI will continue to procure foodgrains

for maintaining food security reserves and for such State Governments

who will assign it this task on their behalf.

The agricultural sector continues to be constrained by the existence of

a number of inhibiting controls and regulations. In the changed present

situation undue restrictions on movement and stocking of foodgrains

and agricultural produce is acting as a disincentive to farmers.

Government, therefore, proposes to review the operation of the EC Act,

1955, and remove many of the restrictions that have been imposed on

the free inter- State movement of foodgrains and agricultural produce

and also on the storage and stocking of such commodities. It will also

review the list of commodities declared as essential under the said Act

and bring down their number to the minimum required. The researcher

believes that in the present scenario where sky high inflation is

effecting an unprecedented price rise in the economy and also where

despite surplus production of food grains the failure of the PDS has

resulted in the non-availability of the food grains to the public, therepeal of the Essential Commodities Act is not a solution.

Effectively the Govt has to seek a tight-rope balance between allowing

for liberal policies of trade and commerce and the right to food of the

masses. Thus, amendments as well as effective implementation of the

present Essential Commodities Act is called for rather than its repeal.



The recent Chief Ministers’ meet to discuss the issue of price rise in

India has resulted in the decision that a Core Group has to be set up

which provides recommendations on the following: increasing

agricultural production reduction the gap between farmgate prices and

retail prices, better implementation of and amendment to E.C. Act, etc.

Thus, it is important that the EC At remains in place for ensuring

equitable justice for all sections of the society.



BIBLIOGRAPHY

BOOKS REFFERED:M.P. Jain, Indian Law Institute Study No. 9, “Administrative Process

Under the Essential Commodities Act, 1955, 1964, United India Press,New Delhi.

ARTICLES:Kritika Narula, “ONE COUNTRY ONE MARKET: A MYTH”, Working PaperNo 221, 2009, Centre for Civil Society

Rajendra Bahadur Shrestha, “SUPPLY MANAGEMENT OF ESSENTIALCOMMODITIES”, Policy Paper 6, ECONOMIC POLICY NETWORK

H. C. L. Merillat, “Administrative Process under the [Indian] EssentialCommodities Act by M. P. Jain”, American Journal of Comparative Law,

Vol. 13, No. 4 (Autumn, 1964), pp. 648-650, American Society of Comparative Law, http://www.jstor.org/stable/838442

WEBSITES:Amendment To Essential Commodities Act To Promote Operation Of Market Forces, 28 December, 2005,http://www.indlaw.com/guest/DisplayNews.aspx?980D6A25-8AED-4685-A739-10F634DB2A5C

Chief Ministers' conference reviews prices of essential commodities;core group set up on agriculture & food

matters,http://www.orissadiary.com/ShowBussinessNews.asp?id=16645, accessed on 5th April 2010.

47th Law Commission Report, lawcommissionofindia.nic.in/1-50/Report48.pdf

dcmsme.gov.in/publications/circulars/649E.pdf

fcamin.nic.in/annual%20report/annualreport_eng_2008-09.pdf

http://fcamin.nic.in/dfpd/EventDetails.asp?EventId=105&Section=Annual+Report&ParentID=0&child_continue=1&child_check=0

http://www.lawyersclubindia.com/section/SHORT-TITLE-EXTENT-AND-COMMENCEMENT/27518

Policy Watch, “Essential Commodities (Amendment and Validation)Act, 2009”, http://www.indlaw.com/display.aspx?4801

Constitution 47th Amendment,http://india.gov.in/govt/documents/amendment/amend47.htm



Prevention of Black Marketing and Supply of Essential Commodities Act1980,http://www.karmayog.org/govtactsschemes/govtactsschemes_2369.htm

www.pib.nic.in/release/release.asp?relid=49252&kwd=

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