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Case Laws on Legislative Relations Relating to Industry

I.T.C. Ltd. v. Agricultural Produce Market Committee

Citation: AIR 2002 SC 852
Facts of the case:
This case presented a conflict between the operation of two Acts, namely, Tobacco Board Act, 1975 enacted by the Parliament, and the Bihar Agricultural Produce Markets Act, 1960, enacted by the State Legislature. Parliament took the tobacco industry under its control under Entry 52, List I and has enacted the Tobacco Board Act, 1975. The Bihar Agricultural Produce Markets Act, 1960 (referred to hereafter as the Markets Act) was enacted by the State of Bihar and is ostensibly referable to Entry 28 of List II which gives the State legislature the exclusive power to legislate on Markets and Fairs read with Entry 66 of List II according to which the State Legislature may also levy fees in respect of any matter in List II except Court fees. Both these Acts sought to levy fee on the sale and purchase of tobacco and were in conflict with respect to the same.

Issues before the Court:
The main issues presented before the Apex Court in this case were with regard to the legislative powers of the Union and the State, which can be summed up as follows:
  • Whether the Market Committees have the authority to levy market fee under the Markets Act on the sale of tobacco?
  • Whether the provisions in the Markets Act granting Market Committees such right are repugnant to the provisions of the Tobacco Act and are therefore, unconstitutional?

Arguments Advanced by the Appellants:
  • The Tobacco Board Act, 1975, is claimed by the appellants to be relatable solely to Entry 52 of List I which enables Parliament to legislate on industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest. According to the appellants, the Markets Act seeks to regulate, inter-alia, the sale of various kinds of agricultural produce including tobacco. They contend that the provisions of the Markets Act could not be applied to tobacco because the Tobacco Act was enacted by Parliament under Entry 52 of List I to control and regulate everything relating to the tobacco industry from the growth of tobacco to its processing, storing, sale, manufacture, export and import.
     
  • It was argued by the appellants that once a declaration is made in terms of Entry 52 of the Union List, the industry in respect of which the declaration is made and the entire process relating thereto becomes part of the legislative head itself and within the exclusive domain of the Parliament, and the State legislature becomes incompetent to enact any provision with regard to that industry.
     
  • The next submission was that the word industry in Entry 52 of List I will have to be given a wide meaning. According to the appellants, this Court in Harakchand Ratanchand Banthia and Ors. v. Union of India[1] not only accepted the wide definition of industries but also specifically held that the word industry in Entry 52 would also comprise production, supply and distribution of goods referred to in Entry 27 of List II. It was, therefore, contended that the provisions of the Tobacco Act were clearly within the exclusive competence of Parliament and within the field covered in Entry 52 of List I. It was also contended that Parliament could also legislate with regard to the raw materials supplied to a declared industry in keeping with the principle of pith and substance.
     
  • The next submission was that even if the State Government retained the competence to legislate on tobacco, it could not enact any statutory provisions which would be repugnant to the Central Act. The provisions of the Tobacco Act and the Markets Act were referred to in some detail to contend that they could not possibly co-exist and therefore the Central Act would have to prevail. It was submitted that in the circumstances the provisions of the Markets Act with respect to tobacco were repugnant to the provisions of the Tobacco Act and that by virtue of the provisions of Article 254(1) of the Constitution, the law made by Parliament was to prevail and the law made by the Legislatures of the State to the extent of the repugnancy with the Central Act, is void.

Arguments Advanced by the Respondents:
  • The respondents contended that the Tobacco Act did not and could not occupy the entire legislative field relating to tobacco. According to them, despite the declaration in Section 2 of the Tobacco Act under Entry 52 of List I, the word industry in the context of the Tobacco Act could not include anything more than processing and manufacturing of tobacco. Reliance was placed primarily on the decision of the Constitution Bench in Tika Ramji and Ors. v. State of U.P. and Ors.[2]
     
  • It was further submitted on behalf of the respondents that the question of repugnancy between the Markets Act and the Tobacco Act would not arise since Parliament was not competent to enact provisions in respect of a legislative field specifically provided for in List II. It was submitted that the legislative field under Entry 52 of List I was derived from Entry 24 of List II and Entry 24 did not cover the legislative fields otherwise specially provided for in List II. It was stated that Entry 28 could not be rendered redundant by the Central Governments legislation on commodities sold at markets and fairs by issuing a declaration under Entry 52 of List I.
     
  • It has also been argued by the respondents that the State Act is also referable to Entry 14 of List II which describes the permissible subject matter of legislation by States as:
    14: Agriculture, including agricultural education and research, protection against pest and prevention of plant diseases.

    Except for Entries 26 and 27 of List II, each of the other entries comes within the exclusive legislative domain of the States. It was submitted that even if the Markets Act were enacted under Entries 26 and 27 of List II nevertheless this would not make the Market Act invalid as far as tobacco was concerned. It was further submitted that although Entries 26 and 27 in the State List were subject to the provisions of Entry 33 of the Concurrent List, there was no provision in Entry 33 of the concurrent List which covered tobacco. It was submitted that the issue of repugnancy did not arise because Article 254(1) only relates to repugnancy in actual legislations in respect of entries in the Concurrent List.
     
  • According to the respondents, assuming that Parliament was competent to legislate in respect of tobacco, there was in fact no repugnancy between the Markets Act and the Tobacco Act as the Tobacco Act did not cover post auction sales. In any event, there could be no conflict between the Markets Act and the Central Act in Bihar Particularly having regard to the fact that Section 13, 13A and 14A of the Tobacco Act had not been made operative in Bihar. Reliance has been placed upon the absence of a non-obstante clause in the Tobacco Act and the presence of Section 31 in that Act which, according to the respondents, makes it clear that the Tobacco Act was to be read as being in addition to and not in derogation of any other law.

Ratio Decidendi and Judgment of the Case:

  • The first question that the Court examined in the instant case was with regard to the interpretation of the meaning of the word, industry. The Court relied on the verdict given in Tika Ramji’s case[3]to interpret the meaning of the word industry.

    Industry in the wide sense of the term would be capable of comprising three different aspects: (1) raw materials which are an integral part of the industrial process, (2) the process of manufacture or production, and (3) and distribution of the products of the industry. The raw materials would be goods which would be comprised in Entry 26 of List II. The process of manufacture or production would be comprised in Entry 24 of List II except where the industry was a controlled industry when it would fall within Entry 52 of List I and the products of the industry would also be comprised in Entry 27 of List II except where they were the products of the controlled industries when they would fall within Entry 33 of List III.

    This verdict had been recently reaffirmed and applied in Belsund Sugar Company v. State of Biharand it was further not in contradiction with the case cited by the appellants.
     
  • The objective of the Bihar Markets Act was then examined and the legislative competence of the State Legislature was looked into. The Court observed that the setting up of markets areas, markets yards and regulating use of the facilities within such area or yards by levy of market fee is a matter of local interest and would be covered by Entry 28 of List II and thus within the legislative competence of the State. The Markets Act does not seek to regulate either the manufacture or production of tobacco, and thus it does not impinge upon the Tobacco Act. It follows that Parliament is incompetent to legislate for the setting up or regulation of markets and fairs within the meaning of the phrase in entry 28 of List II, even in respect of tobacco.
     
  • he scope and objective of the Tobacco Act was examined and an effort was made by the Court to reconcile the two conflicting laws, by interpreting them by the rule of harmonious construction. The use of the word markets and marketing in the tobacco Act, including Section 8 does not mean a market in the sense the word has been used in the Markets Act. It is obvious from phrases such as the Virginia tobacco market, development of new markets outside India etc. that the word has been used in the sense of sale as controlled by supply and demand; especially a demand for a commodity or service - in this case tobacco. The Tobacco Act is not concerned so much with the where but with the how, the tobacco is disposed of. Even when the Tobacco Act speaks of setting up of auction platforms it does not indeed. Since State are exclusively competent to decide on the location of markets, the authorities under the Tobacco Act would have to comply with the municipal laws and set up the auction platforms only within the permissible areas. If the facilities afforded under the Market Act are utilized, the facilities will have to be paid for and the authorities appointed to levy and collect fees for the purpose under the Markets Act would be competent to do so. If further facilities are offered at the Auction Platforms under the Tobacco Act, fees may be levies under Section 14-A of that Act. The right to levy fees under the two acts therefore may not necessarily conflict, the levy not being in the alternative but additional. Assuming this is not possible and there is any conflict, the provisions of the Markets Act and not the Tobacco Act would prevail.
     
  • Thus, the decision in ITC Ltd. v. State of Karnataka was overruled and the competence of the States to levy market fee on tobacco was upheld.

The Calcutta Gas Company Ltd. v. State of West Bengal and Ors.

Citation: AIR 1962 SC 1044
Facts of the Case:
The Oriental Gas Company was originally constituted by a deed of settlement dated April 25, 1853, by the name of the Oriental Gas Company, and it was subsequently registered in England under the provisions of the English Joint Stock Companies Act, 1862. By Act V of 1857 passed by the Legislative Council of India, it was empowered to lay pipes in Calcutta and its suburbs and to excavate the streets for the said purpose. By Acts of the Legislative Council of India passed from time to time special powers were conferred on the said Company.

In 1946 Messrs. Soorajmull Nagarmull, a firm carrying on business in India, purchased 98 per cent of the shares of the said Oriental Gas Company Limited. The said firm floated a limited liability Company named the Calcutta Gas Co. (Proprietary) Limited and it was registered in India with the registered office at Calcutta. On July 24, 1948, under an agreement entered into between the Oriental Gas Company, and the Calcutta Gas Company the latter was appointed the manager of the former Company in India for a period of 20 years from July 5, 1948.

The Oriental Gas Company is the owner of the industrial undertaking, inter alia, for the production, manufacture, supply, distribution and sale of fuel gas Calcutta. The Calcutta Gas Company, by virtue of the aforesaid arrangement, was in charge of its general management for a period of 20 years for remuneration.

The West Bengal Legislature passed the impugned Act and it received the assent of the President on October 1, 1960. On October 3, 1960, the West Bengal Government issued three notifications - the first declaring that the said Act would come into force on October 3, 1960, the second containing the rules framed under the Act. And the third specifying October 7, 1960, as the date with effect from which the State Government would take over for a period of five years the management and control of the undertaking of the Oriental Gas Company for the purposes of, and in accordance with, the provisions of the said Act.

The appellant, i.e., the Calcutta Gas Company, filed a petition under Art. 226 of the Constitution in the High Court for West Bengal at Calcutta for appropriate writs for restraining the State Government from giving effect to the said Act and for quashing the said notifications.

The learned Judge rejected all the contentions of the appellant and dismissed the petition by his order dated November 15, 1960. Hence the appeal.

Issues before the Court:
The main issues presented before the Apex Court in this case were with regard to the legislative powers of the Union and the State, which can be summed up as follows:
  1. Whether the appellant has locus standi to file the petition under Art. 226 of the Constitution?
  2. Whether the Oriental Gas Company Act, 1960, (referred to as the impugned act) is constitutionally valid?

Arguments Advanced by the Appellants:
  • The finding of the High Court that the appellant has no locus standi to file the petition cannot be sustained, as under the impugned Act the appellants legal rights under the agreement entered into by it with the Oriental Gas Company on July 24, 1948 were seriously affected.
     
  • Under Art. 246 of the Constitution Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I. Parliament in exercise of the said power passed the Industries (Development and Regulation) Act, 1951, by virtue of entry 52 of said List; the two entries in List II, namely, entries 24, and 25, cannot sustain the Act, as entry 24 is subject to the provisions of entry 52 of List I; and entry 25 must be confined to matters other than those covered by entry 24, and, therefore, the West Bengal Legislature is not Competent to make a law regulating the gas industry.
     
  • Assuming that the State Legislature has power to pass the Act by virtue of entry 25 of List II, under Art. 254(1) of the Constitution the law made by Parliament, namely, the Industries (Development and Regulation) Act, 1951, shall prevail, and the law made by the State Legislature, namely, the impugned Act be void to the extent of repugnancy.
     
  • The view of the High Court that the validity of the Act could be sustained under entry 42 of List III is wrong, as under the impugned Act the State only takes over the management of the Company and manages it for and on behalf of the Company, whereas the concept of requisition under the said entry requires that the State shall take legal possession of property of the person from whom it is requisitioned, on its own behalf or on behalf of a petitioner other than the owner thereof.

Arguments Advanced by the Respondents:
The respondents sought to sustain the validity of the impugned Act not only under entry 25 of List II but also under entries 33 and 42 of List III of the Seventh Schedule to the Constitution. They further contend that the appellant was constituted as agent under the said agreement and that, as its rights were preserved by S. 4 of the impugned Act, it has no locus standi to file the petition under Art. 226.

Ratio Decidendi and Judgement of the Case:
  • The first question is whether in the present case the petitioner has a legal right, and whether it has been infringed by the contesting respondents. Under section 4, with effect from the appointed day and for a period of five years thereafter, the management of the Company shall stand transferred to the State Government, and the Company, its agents and servants shall cease to exercise management or control of the same. Under clause (c) of the section, the contracts of agency or managing agency are not touched, but all the other contracts cease to have effect against the Company and are enforceable by or against the State. It is not necessary in this case to decide whether under the said agreement the appellant was constituted as agent or managing agent or a servant of the Oriental Gas Company. Whatever may be its character, by reason of s. 4 of the impugned Act, it was deprived of certain legal rights it possessed under the agreement.

    Under the agreement, the appellant had the right to manage the Oriental Gas Company for a period of 20 years and to receive remuneration for the same. But under s. 4 of the impugned Act, it was deprived of that right for a period of five years. There was certainly a legal right accruing to the appellant under the agreement and that was abridged, if not destroyed, by the impugned Act. It is, therefore, impossible to say that the legal right of the appellant was not infringed by the provisions of the impugned Act. In the circumstances, as the appellants personal right to manage the Company and to receive remuneration therefore had been infringed by the provisions of the statute, it had locus standi to file the petition under Art. 226 of the Constitution.
     
  • The conflict between the Industries (Development and Regulations) Act, 1951 i.e. the Central Act and the impugned Act was then examined. It would be seen that the impugned Act intends to serve the same purpose as the Central Act, though its operation is confined to the Oriental Gas Company. Both the Acts are conceived to increase the production, quality and supply pertaining to an industry, and for that purpose to enable the appropriate Government, if necessary, to take over the management for regulating the industry concerned to achieve the said purposes. The impugned Act occupies a part of the field already covered by the Central Act. The question is whether the State Legislature has constitutional competency to encroach upon the said field. It may, therefore, be taken as a well settled rule of construction that every attempt should be made to harmonize the apparently conflicting entries not only of different Lists but also of the same List and to reject that construction which will rob one of the entries of its entire content and make it nugatory.
     
  • Entry 24 in List II in its widest amplitude takes in all industries, including that of gas and gas-works. So too, entry 25 of the said List comprehends gas industry. There is, therefore, an apparent conflict between the two entries and they overlap each other. In such a contingency the doctrine of harmonious construction must be invoked. Gas and gas works fall under entry 25 exclusively. If industrial, trade, production and supply aspects are taken out of entry 25; the substratum of the said entry would disappear. Subject to such emergency or extra-ordinary powers, the entire industry of gas and gas-works is within exclusive legislative competence of a State. In this view, gas and gas works are within the exclusive field allotted to the States. The Legislature of a State has the exclusive power to make law in respect of gas industry by virtue of entry 25 of List II, and that entry 24 does not comprehend gas industry.
     
  • It was held that the impugned Act was within the legislative competence of the West Bengal Legislature and was, therefore, validly made. It follows that the Central Act, in so far as it purported to deal with the gas industry, is beyond the legislative competence of Parliament. Upholding the validity of the West Bengal Act, the appeal was dismissed.

Tika Ramji v. The State of Uttar Pradesh

Citation: AIR 1956 SC 676
Facts of the Case:
The petitions in this case were filed impugn the validity of the U. P. Sugarcane (Regulation of Supply and Purchase) Act, 1953 hereinafter called the impugned Act and the notifications dated 27th September, 1954 and 9th November, 1955 issued by the U. P. Government thereunder. The petitioners are sugarcane growers in the several villages of the Districts of Meerut, Kheri, Gorakhpur and Deoria in the State of U. P. numbering 4,724 in the aggregate. The notification dated 27th September, 1954, issued in exercise of the powers conferred by sub-section 1(a) read with sub-section 2(b) of section 16 of the impugned Act ordered that where not less than 3/4 of the cane growers of the area of operation of a Cane Growers Co-operative Society are members of the Society, the occupier of the factory for which the area is assigned shall not purchase or enter into agreement to purchase cane grown by a cane grower except through such Cane Growers Co-operative Society.

The notification dated 9th November, 1955 was issued in exercise of the powers conferred by section 15 of the impugned Act and reserved or assigned to the sugar factories mentioned in column 2 of the Schedule annexed thereto the cane purchasing centers (with the authorities attached to them) specified against them in column 3 for the purpose of supply of sugarcane during the crushing season 1955-56 subject to the conditions and explanations given therein. The former relates to the agency of supply of sugarcane to the factories and the latter relates to the creation of zones for particular factories. The impugned Act is challenged as ultra vires the powers of the State Legislature, the subject-matter of the Act being within the exclusive field of Parliament and also as being repugnant to Industries (Development and Regulation) Act, 1951 passed by Parliament.

Issues before the Court:
The issue before the Court in this case mainly related to whether Parliament and the State Legislature sought to exercise their powers over the same subject-matter or whether the laws enacted by Parliament were intended to be a complete exhaustive code or, in other words, expressly or impliedly evinced an intention to cover the whole field.

Arguments Advanced by the Petitioners:
  • That the State of U. P. Had no power to enact the impugned Act as the Act is with respect to the subject of industries the control of which by the Union is declared by Parliament by law to be expedient in the public interest within the meaning of Entry 52 of List I and is, therefore, within the exclusive province of Parliament. The impugned Act is, therefore, ultra vires the powers of the State Legislature and is a colourable exercise of legislative power by the State;
     
  • The impugned Act is repugnant to Act LXV of 1951 and Act X of 1955 and in the event of the Court holding that the impugned Act was within the legislative competence of the State Legislature, it is void by reason of such repugnancy;
     
  • The impugned Act infringes the fundamental right guaranteed by article 14 in as much as very wide powers are given to the Cane Commissioner which can be used in a discriminatory manner;
     
  • The impugned Act and the notification dated 27th September, 1954, violate the fundamental right guaranteed under article 19(1)(c) in that the Co-operative Societies are not voluntary organisations but a cane grower is compelled to become a member of the Society before he can sell his sugarcane to a factory;
     
  • The impugned Act is void in that it confers very wide powers on executive officials and is piece of delegated legislation.
     
  • It was contended that, even though the impugned Act purported to legislate in regard to sugarcane required for use in sugar factories, it was, in pith and substance, and in its true nature and effect legislation in regard to sugar industry which had been declared by Act LXV of 1951 to be an industry the control of which by the Union was expedient in the public interest and was, therefore, within the exclusive province of Parliament under Entry 52 of List 1.
     
  • The word industry, it was contended, was a word of very wide import and included not only the process of manufacture of production but also all things which were necessarily incidental to it, viz., the raw materials for the industry as also the products of that industry and would, therefore, include within its connotation the production, supply and distribution of raw materials for that industry which meant sugarcane in relation to sugar industry. It was also contended that in so far as the impugned Act purported to legislate in regard to sugarcane which was a necessary ingredient in the production of sugar it was a colourable exercise of legislative power by the State, ostensibly operating in its own field within Entry 27 of List II but really trespassing upon the field of Entry 52 of List I.

Arguments Advanced by the Respondents:
· It was contended that the subject matter was that of the Concurrent List and both the Central Legislature as well as the State Legislatures had legislative competence to legislate in regard to these fields which were for the purpose of legislative competence translated into Concurrent fields and that therefore, the U. P. State Legislature was competent to enact the impugned Act which would be valid within its own sphere except for repugnancy with any of the provisions of the Central Legislature covering the same field.

Ratio Decidendi and Judgment of the Case:

  • The Court interpreted the word industry in the following manner:
    Industry in the wide sense of the term would be capable of comprising three different aspects: (1) raw materials which are an integral part of the industrial process, (2) the process of manufacture or production, and (3) the distribution of the products of the industry. The raw materials would be goods which would be comprised in Entry 27 of List II. The process of manufacture or production would be comprised in Entry 24 of List II except where the industry was a controlled industry when it would fall within Entry 52 of List I and the products of the industry would also be comprised in Entry 27 of List II except where they were the products of the controlled industries when they would fall within Entry 33 of List III.
     
  • The Court then examined the question of repugnancy between the two set of laws and observed that in the instant case, there is no question of any inconsistency in the actual terms of the Acts enacted by Parliament and the impugned Act. The only questions that arise are whether Parliament and the State Legislature sought to exercise their powers over the same subject-matter or whether the laws enacted by Parliament were intended to be a complete exhaustive code or, in other words, expressly or impliedly evinced an intention to cover the whole field. The field of sugarcane was not covered by Central Act and the legislative powers of the Provincial Legislatures in regard to sugarcane were not affected by it in any manner whatever. If the two fields were different and the Central legislation did not intend at all the cover that field, the field was clear for the operation of State legislation and there was no repugnancy at all between Central Act and the impugned Act. There being no repugnancy at all, therefore, no question arises of the operation of article 254(2) of the Constitution and no provision of the impugned Act and the Rules made thereunder is invalidated by any provision.
     
  • The result, therefore, is that the impugned Act and the notifications dated 27th September, 1954 and 9th November, 1955 issued thereunder were intra vires the State Legislature and are binding on the petitioners. The Petitions must, therefore, stand dismissed.

Ishwari Khetan Sugar Mills v. State of UP

Citation: AIR 1980 SC 1955
Facts of the case:
The instant case relates to the sugar mills in Uttar Pradesh. As a sequel to the serious problems created by the owners of certain sugar mills in the State of Uttar Pradesh for cane growers and labour employed in sugar mills, having an adverse impact on the general economy of the areas where these sugar mills were situated and with a view to ameliorating the situation posing a threat to the economy, the Governor of Uttar Pradesh promulgated an Ordinance on July 3, 1972, styled as U.P. Sugar Undertaking (Acquisition) Ordinance, 1971 (13 of 1971) (Ordinance for short), with a view to transferring and vesting sugar undertakings set out in the Schedule to the Ordinance in the U.P. State Sugar Corporation Ltd. (Corporation for short), a Government Company within the meaning of Section 651 of the Companies Act, 1956. Subsequently, by U.P. Sugar Undertakings (Acquisition) Act, 1971, (U.P. Act 23 of 1971) (Act for short), the Ordinance was repealed and was replaced.

Schedule to the Act enumerates 12 sugar undertakings (referred to as scheduled undertakings) and by the operation of Section 3, these scheduled undertakings stood transferred to and vested in the Corporation from the appointed day, i.e. July 3, 1971, the date on which the Ordinance was issued. On the promulgation of the Ordinance 11 writ petitions were filed in the Allahabad High Court under Article 226 of the Constitution challenging the constitutional validity of the Ordinance and when the Act replaced the Ordinance effective from August 27, 1971, the writ petitions were amended incorporating the challenge to the Act also. A Division Bench of the High Court by a common judgment dated May 3, 1979, repelled the contentions on behalf of the petitioners and upheld the constitutional validity, of the Act. Hence these appeals by the original petitioners, the owners of the scheduled undertakings.

Issues before the Court:
The main issues before the Court in the instant matter was with regard to the following:
  • Whether the State Government was competent to enact the impugned Act?
  • Whether the pith and substance of the legislation falls within the legislative fields dealt with in List I or List II?

Arguments Advanced by the Appellants:
  • The main thrust of the attack was that the U.P. Legislature lacked legislative competence to enact the impugned Act. In exercise of legislative power flowing from Entry 52 List I the Parliament made the requisite declaration in Section 2 of the Industries (Development and Regulation) Act, 1951 (IDR Act for short), and in view of placitum 25 of the first schedule to the IDR Act sugar being a declared industry, that industry goes out of Entry 24 List II, and hence U.P. State legislature was denuded of all legislative power to legislate in respect of sugar industry and as the impugned legislation is in respect of industrial undertaking in sugar industry, the impugned legislation is void on account of legislative incompetence.
     
  • The contention is that as there are no words of limitation to be found in Section 2 in respect of the control assumed by the declaration by the Union, the necessary concomitant of such declaration is that the State legislature is totally denuded of any power to deal with such declared industry. To buttress this argument reference was made to the declaration made by the Union pursuant to entry 54, List I, as set out in Section 2 of the Mines & Minerals Act which reads as under:
    It is hereby declared that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent hereinafter provided.

Arguments Advanced by the Respondents:
  • The learned Attorney General countered it by saying that the power to acquire property derived from entry 42 in List III is an independent power and the impugned Act being in pith and substance an, Act to acquire scheduled undertakings, meaning thereby the properties of the scheduled undertakings, the power of the State legislature to legislate in this behalf is referable to entry 42 and remains intact irrespective of the fact that sugar is a declared industry, control of which is taken over by the Union Government pursuant to the declaration made Under Section 2 of the IDR Act.

Ratio Decidendi and Judgment of the Case:
  • The first question was examined with regard to the pith and substance of the legislation. It was held that the impugned legislation is one for acquisition of scheduled undertakings and that field of acquisition is not occupied by the IDR Act which deals with control of management, regulation and development of a declared industry and there is no repugnancy between the impugned legislation and the IDR Act. Both can co-exist because the power acquired by the Union under the IDR Act can as well effectively be exercised after the acquisition of the scheduled undertakings as it could be exercised before the acquisition. Therefore, the contention that the State legislature lacked legislative competence to enact the impugned legislation must be negatived.
     
  • Section 20 of the IDR Act precludes any State Government or local authority from taking over the control or management of any industrial undertaking under any law for the time being in force which authorises any such Government or local authority so to do. The impugned legislation was not enacted for taking over management or control of any industrial undertaking by the State Government. In pith and substance it was enacted to acquire the scheduled undertakings. If an attempt was made to take over management or control of any industrial undertaking in a declared industry indisputably the bar of Section 20 would inhibit exercise of such executive power. However, if pursuant to a valid legislation for acquisition of scheduled undertaking the management stands transferred to the acquiring body it cannot be said that this would be in violation of Section 20. Section 20 forbids executive action of taking over management or control of any industrial undertaking under any law in force which authorises State Government or a local authority so to do. The inhibition of Section 20 is on exercise of executive power but if as a sequel to an acquisition of an industrial undertaking the management or control of the industrial undertaking stands transferred to the acquiring authority Section 20 is not attracted at all.
     
  •  For the controversy in the present cases concerning the legislative competence of the State Legislature to enact the U.P. Sugar Undertakings (Acquisition) Act, 1971 can be adequately disposed of on the ground that the legislation falls within Entry 42 of List III and cannot be related to Entry 52 of List I or Entry 24 of List II. When the impugned enactment truly falls within Entry 42 of List III-acquisition and requisitioning of property-there is a reluctance to enter upon an examination of the mutually competing claims of Entry 52 of List I and Entry 24 of List II-entries which deal with industries, an entirely different subject matter.
     
  • The validity of the UP Act was upheld and the appeals were found without merit and hence, dismissed.

Khoday Distilleries Limited v. State of Karnataka and Ors

Citation: 1995 SCC (1) 574
Facts of the Case:
In this case, the constitutionality of several legislations were challenged including:
  1. Karnataka Excise (Distillery and Warehouse) (Amendment) Rules, 1989,
  2. Karnataka Excise (Manufacture of Wine from Grapes) (Amendment) Rules, 1989
  3. Karnataka Excise (Brewery) (Amendment) Rules, 1989,
  4. Karnataka Excise (Sale of Indian and Foreign Liquors) (Amendment) Rules, 1989 and Karnataka Excise (Bottling of Liquor) (Amendment) Rules, 1989
  5. Kerala Foreign Liquor Rules, 1974
  6. Andhra Pradesh Foreign Liquor and Indian Liquor Rules, 1970
All these legislations were related to the trade of intoxicating liquor and were thus being collectively disposed of by the Court.

Issues before the Court:
There were primarily two issues before the Court in the instant matter:
  • Whether the appellants/petitioners have a fundamental right to carry on trade in liquor?
  • Whether the State can prevent the petitioners from carrying on with the business of liquor as apart from trade, during the unexpired period of the licences?
Arguments Advanced by the Appellants:
  • In support of the contention that the appellants/petitioners have a fundamental right to trade in liquor, it is argued firstly, that Entry 51 of List 11 specifically accepts the fact that the manufacture of alcohol can be for human consumption. The said entry, among others, provides as follows: Duty of Excise on intoxicating liquor for human consumption. Entry 8 of List II specifically provides for production, manufacture, purchase and sale of intoxicating liquor. The implication of this entry is that till prohibition is introduced by applying Article 47, there is no prohibition on consumption of liquor, and hence there is no prohibition for manufacture and sale of liquor.
     
  • It is submitted that there are other substances like tobacco which are more harmful to health than alcohol and they are being sold freely. A majority of the States did not introduce prohibition and some States which purported to do it, failed and reverted to the earlier pre-prohibition condition. On the other hand, the revenue from the auction of excise, vend fees, liquor and other levies forms a major source of the revenue of the State. Hence the trade in liquor cannot be looked upon as an obnoxious trade.
     
  • Thirdly, the Union Government itself has recognized under its Industrial Policy Resolution as early as in 1956 that the production of potable alcohol as an industry has to be recognized though regulated and the licenses have to be freely granted for the manufacture of potable liquor. During the last several years, a large number of distillery, brewery and winery licenses have been granted all over the country. For all these reasons, it is submitted that there is no warrant for excluding liquor from the ambit of the words any occupation, trade or business under Article 19(1)(g) of the Constitution.

Ratio Decidendi and Judgment of the Case:

The Court referred to the two entries, entry 8 of List II and entry 51 of List I, which reads as under:

Entry 8:

Intoxicating liquors, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors.

Entry 51 reads as follows:

51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:
  1. alcoholic liquors for human consumption;
  2. opium, Indian hemp and other narcotic drugs and narcotics;
but not including medicinal and toilet preparations containing alcohol or any substance included in sub- paragraph (b) of this entry.

Thus a State has legislative competence to make laws in respect of the above subjects.
  • Item 26 of Schedule I of the IDR Act reads as Fermentation Industries (1) Alcohol, (2) Other products of Fermentation and Distillery. Read with Section 2 of the IDR Act, the said entry would mean that the alcohol industry dealing in potable or non-potable alcohol is a controlled industry within the meaning of the said Act. We are not in this reference concerned with the question as to whether there is any conflict between the relevant Acts of the respective State Legislatures and the Rules, Regulations, Notifications and Orders issued under the said Acts and the provisions of the IDR Act. It cannot further be denied that the pith and substance of the IDR Act is to provide the Central Government with the means of implementing their industrial policy which was announced in their resolution of 6-4-1948 and approved by the Central Legislature.
     
  • The IDR Act confers on the Central Government power to make rules for the registration of existing undertakings and for regulating the production and development of the industries mentioned in the Schedule and also for consultation with the Provincial (now State) Governments in these matters. The Act does not in any way denude the power of the State Governments to make laws regulating and prohibiting the production, manufacture, possession, transport, purchase and sale of intoxicating liquors meant for human consumption (but not for medicinal or toilet preparations) and levying excise on them under Entries 8 and 51 of List 11. If there is any incidental encroachment by the relevant State Acts on the area occupied by the IDR Act, that will not invalidate the State Acts.
     
  • There is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants its manufacture, storage, export, import, sale and possession. In all their manifestations, these rights are vested in the State and indeed without such vesting there can be no effective regulation of various forms of activities in relation to intoxicants.
     
  • The petitions were found to be without merit and hence dismissed.

Analysis of the Legislative Relations with respect to Industry

The inter relation between entries 52 of List I, 24 and 27 of List II and 33 of List III has to examined with respect to various aspects of industry. The subject matter of industry which has been enumerated in entry 24 of List II has been made expressly subject to entries 7 and 52 of List I. With regard to entry 52, the parliament enacted the Industries (Development and Regulations) Act, under which many industries have been taken under the control of the Centre.

As such, a number of conflicts naturally arise between the various Acts enacted by the State Legislatures to regulate the working of the industries and the IDR Act. The most important question which becomes necessary to be addressed in order to resolve such conflicts is with regard to the interpretation of the word industry used in various entries. This interpretation was made in the case of Tika Ramji v. State of UP and ors., which has been reaffirmed time and again.

Industry was divided into three stages and it was held that the raw materials would be goods which would be comprised in Entry 27 of List II. The process of manufacture or production would be comprised in Entry 24 of List II except where the industry was a controlled industry when it would fall within Entry 52 of List I and the products of the industry would also be comprised in Entry 27 of List II except where they were the products of the controlled industries when they would fall within Entry 33 of List III.

Whenever a conflict arises between the State and Parliament enacted legislations, the rule of harmonious interpretation of the entries is invoked. The rule enunciates the principle that the Court should make an attempt to reasonably and practically construe the entries so as to reconcile the conflict and avoid overlapping. Wherever necessary, the ambit of the broader entry is to be restricted in favor of the narrower entry so that it is not eaten up by the former. An entry in a list cannot be so construed as to make it cancel or obliterate another entry. This principle has been applied in several cases of industry in order to reconcile the conflict between the State and the Central laws.

End-Notes:
  1. (1970) 1 SCR 479
  2. (1956) 1 SCR 393.
  3. Tika Ramji v. State of UP and ors., (1956) 1 SCR 393.

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