Andhra HC (Pre-Telangana)
A.P. Transco vs Sri Gowri Sankar Cable Industries And ... on 22 November, 2001
Equivalent citations: 2002(3)ALT134
Author: S.B. Sinha
Bench: S.B. Sinha
JUDGMENT S.B. Sinha, C.J.
QUESTION:
1. The question, which arises for consideration in this application, is as to whether the Parliament has the legislative competence to enact the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (hereinafter referred to as "1993 Act") in terms of Entry 97 to List I of the VII Schedule to the Constitution of India.
FACTS:
2. The fact of the matter may, however, be noticed from W.P.No. 10179 of 2001. The Andhra Pradesh TRANSCO (hereinafter referred to as "the writ petitioner") has in these applications prayed to declare the 1993 Act as unconstitutional and invalid.
3. By reason of the provisions of the Electricity Reform Act, 1998, the State Electricity Board was bifurcated into A.P. Power General (sic. Generation) Corporation Limited (for short GENCO) and A.P. Transmission Corporation Limited (for short TRANSCO). GENCO was to look after the task of generation of electricity, whereas Transco was obligated to see the transmission of electricity to consumers within the State of Andhra Pradesh. A.P. Transfer Scheme Rules were framed under G.O.Ms.No. 9 dated 29-1-1999 contemplating setting up of distribution undertakings for different areas and transfer of assets and agreements from TRANSCO to the undertakings was provided for therein. By virtue of the said transfer, TRANSCO ceased in law to be liable for any default relating to several purchase orders entered into between the petitioner and the State Electricity Board.
4. The first respondent entered into several contracts with the State Electricity Board for supply of A.C.S.R. conductor. Levy of penalty was provided for in the contract for delayed supply of goods but there was no provision in the contract for any payment of interest for delayed payment.
5. Basing on the claim preferred by the first respondent before the second respondent, a notice was issued to the writ petitioner for submission of its defence. The writ petitioner contended that the 1993 Act is unconstitutional and, thus, issuance of notice was illegal in so far as the Parliament has no legislative competence to enact the same.
SUBMISSIONS:
6. The learned Advocate General appearing in support of the writ petitions submits that having regard to the fact that the legislative field is covered by Entries 24, 26 and 27 of List II of the VII Schedule to the Constitution; the Parliament is denuded of its power to make any law in this regard. The learned Advocate General would contend that each entry has to be liberally construed and in a case of this nature the doctrine of pith and substance should be applied.
7. The Advocate General would further urge that as no declaration was made in relation to the small scale or ancillary industries as is mandatorily required before exercise to make any law is undertaken by the Parliament under Entry 52 of List I and Entry 33 of List III of the VII Schedule of the Constitution, the legislative field must be held be exclusively occupied by the State. In any event, the provisions of Sections 4, 5 and 6 are wholly arbitrary and discriminatory and thus violative of Article 14 as thereby persons similarly situated are sought to be treated differently. Reliance in this connection has been placed on Ishwari Khetan Sugar Mills v. State of U.P. .
8. Mr. C.V. Ramulu, the learned Standing Counsel for the Central Government, on the other hand, would submit that the matter relating to payment of interest is not covered by any entry made either in List I, II or III and thus the Parliament has the exclusive jurisdiction in relation thereto in terms of Entry 97 of List I. Strong reliance in this connection has been placed in Naga People's Movement of Human Rights v. Union of India AIR 1998 SC 431.
9. The learned counsel would urge that in a situation of this nature and particularly having regard to the fact that several statutes have been enacted by the Parliament as regards grant of interest, the Parliament cannot be said to be denuded of its power in enacting the said Act. It was submitted that in this case the question of repugnancy between the State and Central Act also does not arise.
10. Mr. Vedula Venkataramana, the learned Counsel appearing on behalf of the unofficial respondents urged that small scale industries and ancillary industries are also industries within the meaning of the provisions of Industries (Development and Regulation) Act, 1951 (for short "1951 Act") and the declaration made therein would subserve the purpose both in respect of Entry 24 of List II and Entries 26 and 27 thereof vis-a-vis Entry 52 of List I and Entry 33 of List III.
FINDINGS:
11. Section 2 of the said 1951 Act reads thus:
Declaration as to expediency of control by the Union:-- It is hereby declared that it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule.
12. The word 'control' has been defined in Black's Law Dictionary in the following terms:
"Control-power or authority to manage, direct, superintend, restrict, regulate, govern, administer oversee."
13. In Bank of New South Wales v. Common Wealth 76 C.L.R. 1, Dixon, J., observed that the word 'control' in 'an unfortunate word of such wide and ambiguous import that it has been taken to mean something weaker than 'restraint', something equivalent to 'regulation'.
14. Part XI of the Constitution of India provides for the relations between the Union and the States. Federalism is one of the pillars of the Indian Constitution. The federal distribution of powers are unique features of the Constitution. Having regard to Articles 243, 248, 250, 256, 257, 356 and Entry 97 in List I of the VII Schedule of the Constitution, it is not possible to say that India is not a subscriber to federalism although it has unique federal character it is quasi-federal or hybrid federal State. Constitutional Courts have interpreted that India has a federal polity. Each State has independent constitutional existence assigned with important political role.
15. Having regard to the aforementioned principles the Centre-State relations as regards the distribution of legislative power must be viewed. Articles 245 to 255 of the Constitution of India deal with the distribution of legislative powers. The VII Schedule appended to the Constitution contains three lists. List I called the Union List, consisting of subject matters in respect of which the Parliament alone can make laws for the whole of the country. List II called the State List contains subject matters in respect whereof the State Legislature has exclusive power to make laws subject to exceptions contained therein. In terms of the Concurrent List both the Parliament and the State Legislatures are competent to make laws in respect of the subject matters enumerated therein. Notwithstanding the fact that great care with which the various entries in the three lists have been framed on some rare occasions it may be found that one or the other field is not covered by the entries. The makers of our Constitution have in such a case taken care by conferring power to legislate on such residuary subjects upon the Union Parliament including taxation by reason of Article 248 of the Constitution.
16. While adjudicating the legislative competence of the State to enact a law it will be proper to enquire as to whether the law relates to the matters enumerated in List II or is referable to any specific constitutional provisions or the subject is referable to concurrent list. If it is so covered, Entry 97 of List I or Article 248 may not be taken recourse to. (See: Second G.T. Officer, Mangalore v. D.H. Hazareth AIR 1970 SC 999.
17. In Union of India v. H.S. Dhillon it has been held:
If there had been no List I, many items in List II would perhaps have been given much wider interpretation than can be given under the present scheme. Be that as it may, we have the three Lists and a residuary power and therefore it seems to us that in this context if a Central Act is challenged, as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List II. If it is not, no further question arises.
18. However, recourse to the residuary power must be taken as a last resort only when all the entries in the three lists are absolutely exhausted, that is to say, if the subject matter is beyond comprehension of the entries contained in the aforementioned three lists. It is also trite that when two interpretations are possible resort to the residuary power may not be taken recourse to.
19. An observation made by the Apex Court in S.R. Choudhuri v. State of Punjab is apposite:
Constitutional provisions are required to be understood and interpreted with an object-oriented approach. A Constitution must be not be construed in a narrow and pedantic sense. The words used may be general in terms but, their full import and true meaning, has to be appreciated considering the true context in which the same are used and the purpose which they seek to achieve.
20. Similarly in Attorney General For India v. Amratlal Prajivandas the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA) made by Parliament was challenged inter alia as lacking legislative competence. The Constitution Bench of nine Judges relying on H.S. Dhillon's case (5 supra) observed as under:
Be that as it may, it is not necessary to pursue this line of reasoning since were are in total agreement with the approach evolved in Union of India v. H.S. Dhillon - a decision by a Constitution Bench of seven Judges. The test evolved in the said decision is this in short: Where the legislative competence of Parliament to enact a particular statute is questioned, one must look at the several Entries in List II to find out (applying the well-known principles in this behalf) whether the said statute is relatable to any of those entries. If the statute does not relate to any of the Entries in List II, no further inquiry is necessary. It must be held that Parliament is competent to enact that statute whether by virtue of the Entries in List I and List III or by virtue of Article 248 read with Entry 97 of List I.
21. Reference may also be made to a Full Bench judgment of this Court reported in Venkata Rao v. State ILR 2001 (1) A.P. 139 at 167.
22. In D.H. Hazareth (4 supra) it has been held:
It will, therefore, be seen that the sovereignty of Parliament and the Legislatures is a sovereignty of enumerated entries, but within the ambit of any entry, the exercise of power is as plenary as any Legislature can possess, subject, of course, to the limitations arising from the Fundamental Rights. The entries themselves do not follow any logical classification or dichotomy. As was said in State of Rajasthan v. S. Chawla, the entries in the lists must be regarded as enumeratio simplex of broad categories. Since they are likely to overlap occasionally, it is usual to examine the pith and substance of legislation with a view to determining to which entry they can be substantially related, a slight connection with another entry in another list notwithstanding. Therefore, to find out whether a piece of legislation falls within any entry, its true nature and character must be in respect to that particular entry. The entries must of course receive a large and liberal interpretation because the few words of the entry are intended to confer vast and plenary powers. If, however, no entry in any of the three lists covers it, then it must be regarded as a matter not enumerated in any of the three lists. Then it belongs exclusively to Parliament under Entry 97 of the Union List as a topic of legislation.
23. We may at this juncture notice a recent decision of the apex Court in Naga People's Movement of Human Rights v. Union of India (2 supra).
While examining the legislative competence of Parliament to make a law what is required to be seen is whether the subject-matter falls in the State List which Parliament cannot enter. If the law does not fall in the State List, Parliament would have legislative competence to pass the law by virtue of the residuary powers under Article 248 read with Entry 97 of the Union List and it would not be necessary to go into the question whether it falls under any entry in the Union List or the Concurrent List. [See Union of India v. H.S. Dhillon, ; S.P. Mittal v. Union of India, and Kartar Singh v. State of Punjab, (1994) 3 SCC 569 at pp. 629-630]]. What is, therefore, required to be examined is whether the subject-matter of the Central Act falls in any of the Entries in the State List.
24. Doctrine of pith and substance, however, is taken recourse to when examining the constitutionality of an Act with respect to completing legislative competence of the Parliament and the State Legislature qua the subject matter. Incidental entrenchment however is permissible.
25. In D.C. & G.M. Co. Ltd. v. Union of India , it has been held:
When a law is impugned on the ground that it is ultra vires to powers of the Legislature which enacted it, what has to be ascertained is the true character of the legislation. To do that one must have regard to the enactment as a whole, to its objects and to the scope and effect of its provisions. To resolve the controversy if it becomes necessary to ascertain to which entry in the three Lists, the legislation is referable, the Court has evolved the doctrine of pith and substance. If in pith and substance, the legislation falls within one entry or the other but some portion of the subject-matter of the legislation incidentally trenches upon and might enter a field under another List, then it must be held to be valid in its entirety, even though it might incidentally trench on matters which are beyond its competence.
26. In Ishwari Khetan Sugar Mills (P) Ltd. v. State of U.P. , whereupon the learned Advocate General relied upon, it was held:
When validity of a legislation is challenged on the ground of want of legislative competence and it becomes necessary to ascertain to which entry in the three lists the legislation is referable to, the Court has evolved the theory of pith and substance. If in pith and substance a legislation falls within one Entry or the other but some portion of the subject-matter of the legislation incidentally trenches upon and might enter a field under another List, the Act as a whole would be valid notwithstanding such incidental trenching.
27. There cannot be any dispute with regard to the aforementioned proposition. In Synthetic and Chemicals Ltd. v. State of U.P. , it has been held:
A constitution is the mechanism under which laws are to be made and not merely an Act which declares what the law is to be. It is also well settled that a Constitution must not be construed in any narrow or pedantic sense and that construction which is most beneficial to the widest possible amplitude of its power, must be adopted. An exclusionary clause in any of the entries should be strictly and, therefore, narrowly construed. No entry should, however, be so read as not to rob it of entire content. A broad and liberal spirit should, therefore, inspire those whose duty it is to interpret the Constitution, and the Courts are not free to stretch or to pervert the language of an enactment in the interest of any legal or constitutional theory. Constitutional adjudication is not strengthened by such an attempt but it must seek to declare the law but it must not try to give meaning on the theory of what the law should be, but it must so look upon a Constitution that it is a living and organic thing and must adapt itself to the changing situations and pattern in which it has to be interpreted. It has also to be borne in mind that where division of powers and jurisdiction in a federal Constitution is the scheme, it is desirable to read the Constitution in harmonious way. It is also necessary that in deciding whether any particular enactment is within the purview of one Legislature or the other, it is the pith and substance of the legislation in question that has to be looked into. It is well settled that the various Entries in the three Lists of the Indian Constitution are not powers but fields of legislation. The power to legislate is given by Article 246 and other Articles of the Constitution. The three Lists of the Seventh Schedule to the Constitution are legislative heads or fields of legislation. These demarcate the area over which the appropriate Legislatures ran operate. It is well settled that widest amplitude should be given to the language of the entries in three Lists but some of these entries in different lists or in the same list may override and sometimes may appear to be in direct conflict with each other, then and then only comes the duty of the Court to find the true intent and purpose and to examine the particular legislation in question. Each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. In interpreting an Entry it would not be reasonable to import any limitation by comparing or contrasting that entry with any other in the same list. It has to be interpreted as the Constitution must be interpreted as an organic document in the light of the experience gathered. In the constitutional scheme of division of powers under the legislative lists, there are separate entries pertaining to taxation and other laws.
28. Ascertainment of pith and substance is synonymous to ascertainment of true nature and character of the legislative competence necessitated for the purpose of determining whether it is a legislation with respect to one of the matters of the list Human expression and fallibility of legal draftsmanship cannot be lost sight of.
29. In Siel Ltd. v. Union of India , it has been held:
If we apply the same principle of harmonious construction to Entries 24, 26 and 27 of List II, the term "industry" in Entry 24 would not take within its ambit trade and commerce or production, supply and distribution of goods which are the express province of Entries 26 and 27 of List II. Similarly, Entry 52 in List I which deals with industry also would not cover trade and commerce in or production, supply and distribution of the products of those industries which fall under Entry 52 of List 1. For the industries falling in Entry 52 of List I, these subjects are carved out and expressly put in Entry 33 of List III.
30. In India Cement Ltd. v. State of Tamil Nadu , It has been held:
It is well settled now that the various entries in the three lists are not powers but fields of legislation. The power to legislate is given by Article 246 and other articles of the Constitution. See the observations of this Court in Calcutta Gas Co. v. State of West Bengal. The entries in the three lists of the Seventh Schedule to the Constitution, are legislative heads or fields of legislation. These demarcate the area over which appropriate Legislature can operate. It is well settled that widest amplitude should be given to the language of these entries, but some of these entries in different lists or in the same list may overlap and sometimes may also appear to be in direct conflict with each other. Then, it is the duty of the Court to find out its true intent and purpose and to examine a particular legislation in its pith and substance to determine whether it fits in one or the other of the lists. See the observations of this Court in H.R. Banthia v. Union of India and Union of India v. H.S. Dhillon (AIR 1992 SC 1061). The lists are designed to define and delimit the respective areas of respective competence of the Union and the States. These neither impose any implied restriction on the legislative power conferred by Article 246 of the Constitution, nor prescribe any duty to exercise that legislative power in any particular manner. Hence, the language of the entries should be given widest scope, to find out which of the meaning is fairly capable because these set up machinery of the Government. Each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. In interpreting an entry it would not be reasonable to import any limitation by comparing or contrasting that entry with any other one in the same list.
31. In Bharat Coking Coal v. State of Bihar (1990) 4 SCC 557, it has been held:
If the State Legislature has power to enact laws on a matter enumerated in the State List or in the Concurrent List the State has executive power to deal with those matters subject to other provisions of the Constitution. If a subject matter falls within the legislative competence of State Legislature, the exercise of executive power by the State Government is not confined, as even in the absence of a law being made, the State Government is competent to deal with the subject matter in exercise of its executive power. See Rai Sahib Ram Jawaya Kapur v. State of Punjab. In the absence of any law, the State Government or its officers in exercise of executive authority cannot infringe citizens rights merely because the State legislature has power to make laws with regard to subject, in respect of which the executive power is exercised. See State of Madhya Pradesh v. Thakur Bharat Singh. No doubt under Entry 23 of List II, the State Legislature has power to make law but that power is subject to Entry 54 of List I with respect to the regulation and development of mines and minerals. As discussed earlier the State Legislature is denuded of power to make laws on the subject in view of Entry 54 of List I and the Parliamentary declaration made under Section 2 of the Act. Since State Legislatures power to make law with respect to the matter enumerated in Entry 23 of List II has been taken away by the Parliamentary declaration, the State Government ceased to have any executive power in the matter relating to regulation of mines and mineral development. Moreover, the proviso to Article 162 itself contains limitation on the exercise of the executive power of the State. It lays down that in any matter with respect to which the Legislature of a State and Parliament have power to make laws, the executive power of State shall be subject to limitation of the executive power expressly conferred by the Constitution or by any law made by Parliament upon the Union or authority thereof. The limitation as contained in the proviso to Article 162 was necessary to avoid conflict in the exercise of executive power of State and the Union Government in respect of matters enumerated in List III of the Seventh Schedule. If Parliament and the State Legislature both have power to make law in a matter, the executive power of the State shall be subject to the law made by the Parliament or restricted by the executive power of the Union expressly conferred on it by the constitution or any law made by Parliament. Parliament has made the law as contemplated by Entry 54 of List I and the law so made confers exclusive power on the Central Government to frame rules regulating the disposal of waste or industrial effluent of a mine, the State Legislature has, therefore no power either to make law under Entry 23 of List II or to exercise executive power to regulate the disposal of slurry, a waste effluent discharge of a coal mine.
32. Further in Amritlal Shah v. Union Government of India , it has been held:
The mines for the mineral bauxite lie in the territory of the State of Gujarat and the State Government was therefore its owner. There is nothing in the Act or the Rules to detract from this basic fact. Even though the field of legislation had been covered by the declaration of the Parliament in Section 2 of the Act, that could not justify the inference that the State Government thereby lost its right to the minerals which vested in it as a property within its territory. Hence, no person has a right to exploit the mines than in accordance with the provisions of the Act and Rules. The authority to order reservation flows from the fact that the State is the owner of the mines and the minerals within its territory, which vest in it.
33. In B. Viswanathiah and Co. v. State of Karnataka the Apex Court has noticed:
It is clear from the above observations that it is not all aspects of the industry (that) fall within the scope of Entry 52 of List 1. It is only one aspect of the industry, that is, the process of manufacture or production that falls under Entry 52 of List 1. It does not include raw materials used in the industry or the distribution of the products' of the industry. This view was reaffirmed by the Supreme Court in Harakchand Ratanchand Banthia v. Union of India and in the Kannan Devon Hills Produce Company Ltd. v. State of Kerala and Ganga Sugar Corporation Ltd. v. State of U.P. The question that arose in those cases was the scope and effect of Entry 52 of List I in relation to Entries 24 and 27 of List II and Entry 33 of List III. The effect of these decisions is that though expressions in legislative entries refer to broad topics and fields of legislation and require a liberal construction, and though the particular expression 'industries' in Entry 52 of List I in its wide sense may comprise many aspects, however, having regard to the scope of other entries in the other lists, the ambit of Entry 52 of List I should be limited and confined only to the 'process of manufacture or production of an industry.' The impugned legislations do not fall into this category and we, therefore, reject the contention urged for the petitioners.
.........The present legislation, as a result of the amendments, controls the supply and distribution of the goods produced by the industry. As rightly pointed out by the High Court this is the third aspect of the industry which falls outside the purview of the control postulated under Entry 52. In other words, though the production and manufacture of raw silk cannot be legislated upon by the State legislature in view of the provisions of the central Act and the declaration in Section 2 hereof, that declaration and Entry 52 do not in any way limit the powers of the State legislature to legislate in respect of the goods produced by the silk industry."
34. However, in the instant case, the State has not enacted a law as regards goods produced by the suppliers. Legislative competence of the Parliament may, therefore, have to be considered having regard to Entry 33(a) of List III of the VII Schedule of the Constitution of India.
35. The decisions of the apex Court as noticed hereinbefore are clear and unambiguous. They lay down the law in no uncertain terms as regards interpretation of different entries in the three schedules. Keeping in view the principles of law relating to interpretation of the legislative competence of the Parliament vis-a-vis the State we must start examining as to whether the State has the exclusive legislative power.
36. For the said purpose, it is necessary to notice the provisions of the Interest on Delayed payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 impugned herein. The said Act was enacted to provide for and regulate the payment of interest on delayed payments to small scale and ancillary industrial undertakings and for matters connected therewith or incidental thereto. The statement of objects and reasons for the said Act is in the following terms:
A policy statement on small scale industries was made by the Government in Parliament. It was stated at that time that suitable legislation would be brought to ensure prompt payment of money by buyers to the small industrial units.
Inadequate working capital in a small scale or an ancillary industrial undertaking causes serious and endemic problems affecting the health of such undertaking. Industries in this sector have also been demanding that adequate measures be taken in this regard. The Small Scale Industries Board, which is an apex advisory body on policies relating to small scale industrial units with representatives from all the States, Governmental bodies and the industrial sector, also expressed this view. It was, therefore, felt that prompt payments of money by buyers should be statutorily ensured and mandatory provisions for payment of interest on the outstanding money, in case of default, should be made. The buyers, if required under law to pay interest, would refrain from withholding payments to small scale and ancillary industrial undertakings.
37. Definitions of various words reference whereto is required to be made are found in Sections 2(e), 2(a), 2(c) and 2(f) of the 1993 Act respectively which read thus:
"small scale industrial undertaking" has the meaning assigned to it by Clause (j) of Section 3 of the Industries (Development and Regulation) Act, 1951 (65 of 1951);
"ancillary industrial undertaking" has the meaning assigned to it by Clause (aa) of Section 3 of the Industries (Development and Regulation) Act, 1951 (65 of 1951);
"buyer" means whoever buys any goods or receives any services from a supplier for consideration;
"supplier" means an ancillary industrial undertaking or a small scale industrial undertaking holding a permanent registration certificate issued by the Directorate of Industries of a State or Union territory and includes,--
(i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956).
38. Section 3 of the Act fastens a liability on the buyer to make payment on or before the date agreed upon between him and the supplier in writing or in absence thereof before the appointed day as defined in Section 2(b) thereof. Section 4 provides for the date from which and the rate at which interest would become payable.
39. The 1993 Act had undergone amendment by Act 23 of 1998. Section 5 provides for payment of compound interest. Section 6 as originally stood is as follows:
Recovery of amount due:-- The amount due from a buyer, together with the amount of interest calculated in accordance with the provisions of Sections 4 and 5, shall be recoverable by the supplier from the buyer by way of a suit or other proceeding under any law for the time being in force.
40. However, by reason of Act 23 of 1998 the same is renumbered as Sub-section (1) of Section 6 and as such-Section (2) thereof was added which is in the following terms:
Notwithstanding anything contained in Sub-section (1), any party to a dispute may make a reference to the Industry Facilitation Council for acting as an arbitrator or conciliator in respect of the matters referred to in that subsection and dispute as if the arbitration or conciliation were pursuant to an arbitration agreement referred to in Sub-section (1) of Section 7 of that Act.
41. Section 7 of the Act provides for an appeal. Section 7-A provides for establishment of industry. Section 7-C provides that all notifications issued in every rule made by the State Government under the Act shall be laid before the State Legislature. Section 10 provides for a non-obstante clause stating:
Overriding effect:-- The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
42. We may, however, note that the said Act was not initially applicable to the central or state public sector undertakings. By reason of Act 23 of 1998 National Small Industries Corporation and State Small Industries Development Corporation became the beneficiary under the said Act. Section 4 of the Act prior to amendment stood as:
Date from which and rate at which interest is payable:-- Where any buyer fails to make payment of the amount to the supplier, as required under Section 3, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay interest to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at such rate which is five per cent, points above the floor rate for comparable lending.
43. Section 4 of the Act after amendment read as under:
Where any buyer fails to make payment of the amount to the supplier, as required under Section 3, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the suppliers or in any law for the time being in force, be liable to pay interest to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at one and half time of Prime Lending Rate charged by the State Bank of India.
Explanation:-- For the purposes of this section, "Prime Lending Rate" means the Prime Lending Rate of the State bank of India which is available to the best borrowers of the bank.
44. Provision was made in the Act for payment of interest by the buyers to the small industrial units, on account of nonpayment of their dues by the suppliers led to the aforementioned enactment is evident from the policy statement of Small Scale Industries made by the Government. By reason of the said Act, benefits are conferred upon the small scale and ancillary units. Ancillary units are those units upon which the large scale industries, medium scale industries survive. Small Scale Industries to a large extent also cater to the need of a large scale industry.
45. The Act seeks to regulate interest on delayed payment. Payment of interest ordinarily is a matter of contract. We may notice that provisions for payment of interest has also been made by the Parliament under the several statutes, as for examine (sic. example), Code of Civil Procedure, Interest Act 1978, Usurious Loans Act, Sale of Goods Act, Debt Relief Laws etc. Whenever Courts and tribunals are constituted in terms of Entry 11-A of the List III of Seventh Schedule of the Constitution powers are conferred upon such courts and tribunals to grant interest, the rate of which may be fixed by Parliament under such laws, keeping in view the aforementioned aspects.
46. Provisions for payment of interest have also been made in the Land Acquisition Act, 1894, which again is a central statute. It is interesting to note that a constitution bench of the Apex Court in Sunder v. Union of India 2001 (4) ICC 1 (SC) has held that interest can be paid also on solatium.
47. Entry 24 of List II refers to industries subject to the provisions of Entries 7 and 52 of List I. Parliament has, thus, the legislative competence to make laws relating to 'contracts' in terms of Entry 7 of List I. Yet again, Entry 26 relates to trade and commerce within the State subject to the provisions of Entry 33 of list III. Production, supply and distribution of goods is subject matter of legislation in terms of Entry 27 of list II. But the said entry is again subject to the provisions or Entry 33 of List III. The word "subject to" must be read as antonym to a non-obstante provision.
48. Those entries too, therefore, cannot be acted upon' where a law is operative in the field by reason of a parliamentary Act. The parliamentary Act operating in the field is admittedly Industries (Development and Regulation) Act. Although it does not define industry but it defines Industrial Undertaking. However, what is an industry may be noticed from a decision of the apex Court in Arakchand Ratanchand Banthia v. Union of India .
49. Section 2 of the said Act as noticed hereinbefore contains the requisite declaration. At this juncture, we may notice the following interpretation clauses. It is also relevant to notice the definitions of Sections 3(a), 3(d), 3(i), 3(j) of 1951 Act respectively reads:
"Advisory Council" means the Central Advisory Council established under Section 5;
"industrial undertaking" means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including Government;
"scheduled industry" means any of the industries specified in the First Schedule.
"small scale industrial undertaking" means an undertaking which, in accordance with the requirements specified under Sub-section (1) of Section 11-B, is entitled to be regarded as a small scale industrial undertaking for the purposes of this Act.
50. Meaning of the word 'industry' is, therefore, a broad based one.
51. By reason of the provisions of the 1951 Act the development and regulation of a number of important industries was brought under the Central control, the activities whereof affect the country as a whole and the development whereof is governed by the economic factors of all India import. Section 11-B of the Act was inserted by amendment Act 4 of 1984. It is important to notice the Statement of Objects and Reasons for amendment Act 4 of 1984 which is in the following terms:
One of the important policy measures adopted by the Government to improve the competitive strength of industrial undertakings in the small sector, is to reserve selected items for exclusive production by such undertakings. Under this policy, 872 items are presently so reserved. The Government has been making such reservations since 19th February, 1970 through the exercise of power under Section 29-B of the Industries (Development and Regulation) Act, 1951 which provides that the Central Government, having regard to the smallness of the number of workers employed or the amount invested in the Industrial Undertaking or to the desirability of encouraging small undertakings generally or to the state of development of any scheduled industry, may exempt any undertaking from the operation of all or any or the provisions of the Act.
2. As there is no specific mention in Section 29-B of the Act about reservation of items for exclusive production by small scale undertakings, doubts having been raised about the competence of the Government to take such action. With a view to placing the matter beyond doubt, the President has promulgated the Industries (Development and Regulation) Amendment Ordinance, 1984 (1 of 1984) making specific provision in the Industries (Development and Regulation) Act, 1951, empowering the Government to-
(a) specify the requirements to be complied by an industrial undertaking to enable it to be regarded as an ancillary or a small scale industrial undertaking;
(b) make reservation of any article or class of articles for exclusive production by an ancillary or small scale industrial undertaking;
(c) fix the productive capacity of large and medium scale units, already producing such reserved items on the date of reservation; and
(d) provide for all other matters incidental thereto.
The Bill seeks to replace the said Ordinance.
3. No financial commitment or expenditure from the Consolidated Fund of India is likely to be involved if the proposed Bill is enacted.
4. The notifications whereby small scale or ancillary industrial undertakings were defined and the notifications whereby articles were reserved for production by small scale or ancillary industrial undertaking which are proposed to be validated by the Bill, are being laid on the Table of each House of Parliament.
52. Reading the definition of 'industrial undertaking' and 'small scale industrial undertaking', there cannot be any doubt that small scale industrial undertaking would also come within the purview of the said Act in relation to matters enumerated in the First Schedule appended thereto.
53. The private respondents in all these cases are manufacturers of ACR conductors, 80% of their products are supplied to the petitioner herein. They were thus largely dependant upon the petitioner. They supplied ACR conductors to the petitioners from the year 1992 onwards.
54. Item (6) of Clause (5) of Schedule I to 1951 Act reads thus:
'electrical cables and wires'.
55. It is, therefore, clear that the industries belonging to the unofficial respondents' are scheduled industries within the meaning of the said Act in relation whereto a declaration was made in terms of Entry 52 of List I of the Constitution. Once such a declaration is made the same shall also be a declaration for the purpose of Entry 33 List III of the Constitution. Entry 33 of List III is amalgam of the subject matters of legislation covering Entries 26 and 27 of List II. The Parliament, therefore, will have the requisite legislative competence to enact the said Act once a declaration has been made. The requisite declaration can be made by any law and it is not necessary that declaration be made from time to time.
56. Thus again the legislative field covered by Entries 26 and 27 of List II being subject to Entry 33 of List III, as a declaration exists at least in relation to the schedule industries, the Parliament will have the requisite legislative competence.
57. For the purpose of this case we would proceed on the basis that Entry 97 of List I of the VII Schedule may not have any application and in any event any decision on the same may be academic. See M.S. Grewal v. Deep Chand Sood JT 2001 (9) SC 159 and JT. Registrar of Co-operative Societies v. T.A. Kuttappan .
58. With a view to achieve the said purpose, we may also read down the provisions of the Act. Wordings of an Act must be interpreted having regard to the golden rule of literal construction. If the matter is covered by the declaration made in terms of Section 2 of 1951 Act, there cannot be any doubt whatsoever that on the submission of the learned Advocate-General himself, the Parliament will have the legislative competence in relation to the subject matters of dispute. We must further bear in mind that Entry 52 is more broad based than Entry 54 of List I.
59. In Orissa Cement Limited v. State of Orissa (1991) Supp. (1) SCC 430, It has been held:
Before dealing with the contentions of the Counsel for the State in this behalf, a reference may be made to a difference in wording between Entry 52 and Entry 54 of List 1. The language of Entry 52 read with Entry 24 would suggest that, once it is declared by Parliament by law that the control of a particular industry by the Union is expedient in the public interest, the State legislatures completely lose all competence to legislate with respect to such an industry in any respect whatever, Indian Tobacco Co. Ltd. v. State of Karnataka. But, even here, there are judicial decisions holding that such declaration does not divest the State Legislature of the competence to make laws the pith and substance of which fall within the Entries in List II (see for e.g. Kannan Devon Hills Produce Co. Ltd. v. State of Kerala and Ishwari Khetan Sugar Mills (P.) Ltd. v. State of U.P. to which reference will also be made later) merely on the ground that it has some effect on such industry. Compared to that of Entry 52, the language of Entry 54 is very guarded. It deprives the States of legislative competence only to the extent to which the law of Parliament considers the control of Union to be expedient in the-matter of regulation of mines and mineral development.
60. The apex court despite the same held that the State having regard to Entry 54 of List I had no legislative competence to impose cess on royalty.
61. The learned Advocate General himself relied upon the decision of Division Bench of Calcutta High Court in Khetsidas v. Pratapmull AIR 1946 Cal. 197 wherein it was observed that fixation of price is involved in regulating the distribution of goods within the meaning of Item 29 of List II in Schedule VII of the Government of India Act, 1935. Yet again in Manohar Lal v. State , it has been held:
Lastly, it was argued that the scheme of the Act makes it plain that it is for ameliorating the conditions of labour employed is shops. It cannot therefore apply to shops in which no labour is employed, particularly when the family of the 'employer' is expressly excluded from the purview of the Act. For this reason also, it cannot fall under item 27 in list 3. We are of opinion that such a narrow interpretation cannot be placed upon the entry. The Legislature may have felt it necessary, in order to reduce the possibilities of evasion to a minimum, to encroach upon the liberties of those who would not otherwise have been affected. That we think it had power to do. Further, to require a shopkeeper, who employs one or two men, to close and permit his rival, who employs perhaps a dozen members of his family, to remain open, clearly places the former at a grave commercial disadvantage. To permit such a distinction might well engender discontent and in the end react upon the relations between employer and employed. All these are matters of policy into which we cannot enter but which serve to justify a wide and liberal interpretation of words and phrases in these entries.
62. If ratio of those decisions is applied for the purpose of construction of Entries 26 and 27 of List II, the same construction must also be applied in relation to Entry 33(a) of List III of the Constitution.
63. In Central Bank of India v. Ravindra and Ors. , the Apex Court upheld interest with periodical rests on the ground that such practice was judicially upheld over a long time. The Court discussed several aspects of interest and its classes and the meaning of the principal sum and held that the creditor can charge interest on the amount borrowed by the debtor.
64. An Act has to be read as a whole as has been stated in A.S. Krishna v. State of Madras , Delhi Cloth and General Mills Co. Ltd v. Union of India . It is also trite that the same construction shall apply both for interpreting all entries made in List I and II. In Farrell v. Alexander (1926) All ER 721 it was held:
Where the Draftsman vises the same word or phrase in similar contexts, he must be presumed to intend it in each place to bear the same meaning.
65. Furthermore, from legislative practice as would be evident from Code of Civil Procedure, Contract Act, Arbitration and Conciliation Act, Usurious Loans Act, Interest Act all provide for interest which are parliamentary Acts. It is, therefore, difficult to hold that the said Act is ultra vires the Constitution in so far as the same deals with scheduled industries under I.D.P.Act.
66. However, we may notice that the learned Advocate General had submitted that no order has been notified in terms of Section 11-B of the 1951 Act. No such plea has been raised in the writ petition. There are assertions and counter-assertions. We are, therefore, of the opinion that such a contention cannot be gone into in these proceedings. In any event, such a contention can only be raised before the appropriate forum.
67. Furthermore, in terms of Sub-section (4) of Section 11-B, an industrial undertaking which fell within the definition of an ancillary or small scale industrial undertaking before the commencement of Amendment Act, 1984 continues to be regarded as an ancillary or small scale industrial undertaking until its definition is altered or superseded by any notified order made under Sub-section (1). Sub-section (4) of Section 11-B of the said Act contains a non-obstante clause.
68. The effect of non-obstante clause is well-known. We therefore, prima facie, do not see any reason as to how the ancillary or small scale industrial undertaking can be taken out of the purview of the 1951 Act. Having regard to the discussions made hereinbefore, there is no escape from the conclusion that the Parliament has the requisite legislative competence to enact the impugned statute.
Whether the 1993 Act is ultra vires Article 14?
69. The Act, according to the learned Advocate General is invalid being hit by Article 14 on the grounds: (1) all creditors have not been given the same benefits; (2) others who are similarly situate have also not been brought within the purview of the Act; (3) calculation of prime interest rate is unworkable.
70. Article 14 of the Constitution although proclaims equality before law and equal protection of law it does not forbid reasonable classification. Equality clause cannot be enforced in abstract. All laws cannot have universal application. Varying needs of different classes of people require different treatment. A benefit granted to a particular class of industries having regard to the capital they may invest if treated to be forming a separate class or category no exception thereto can be taken.
71. By reason of the provisions of 1951 Act, the Parliament exercises legislative control. While exercising such power, it is for the Legislature only to decide as to what benefits should be granted to a particular class of industries. The small scale and ancillary industries having regard to the policy decision of the Central Government as stated in the Parliament stand on a separate footing. If certain protections had been granted for the purpose of realization of the dues, the same can neither be said to be unreasonable nor discriminatory. Small scale and ancillary industries form a class by themselves
72. It is, therefore, not for the buyer to raise the ground of constitutionality on the ground that other creditors must also be given the same benefits. The said prayer if granted would amount to legislation. It is well settled that legislature is competent to exercise its discretion and make classification. See Anukul Chandra Pradhan v. Union of India .
73. We, therefore, do not find any reason to sustain contentions 1 and 2 advanced by the learned Advocate General.
74. So far as contention No. 3 is concerned, such a practice at least in banking business is prevalent for a long time and interest is payable only by way of compensation paid by the borrower to the creditor for deprivation of use of his money. What would be the rate of interest is a matter of legislative wisdom. The interest anterior to the institution of suit is not a matter or]f procedure. Interest pendente lite in terms of Section 34 of the Code of Civil Procedure may not be the stipulated interest. Interest is required to be paid only when the buyer does not make payment. Ensuring payment for the goods supplied, it is accepted, is the object of the Act. The Apex Court observed that it is always referable to substantive law. If there is a stipulation for rate of interest, the same can be granted. As noticed in the decision Central Bank (24 supra), sometimes accounting may have to be taken where compounding interest has been made inasmuch as the interest accrued on the principal sum with periodical rests would become the part of the principal sum only. The bank rate of interest in the trading world is known and widely published. For a big industrialist like the petitioner, it will not be difficult for it to find out the rate of interest which is paid by the Bank to its best borrower. The rate of interest in terms of the impugned Act may be a bit higher than the banking rate. In any event, once the rate of interest is known, having regard to the provisions of the Act, it can always be worked out. Mere hardship as is well known cannot be a ground to strike down an otherwise valid Act. The said provisions, therefore, are not ultra vires Article 14 of the Constitution of India.
Validity of the provisions of Section 6 of 1993 Act:
75. Section 6 as it originally stood provided that the amount due from a buyer together with interest shall be recoverable by the supplier from the buyer by way of a suit or other proceeding under any law for the time being in force. By reason of Act 23 of 1998, while original Section 6 was numbered as Sub-section (1) and Sub-section (2) was added in terms whereof a statutory Tribunal known as Industry Facilitation Council (hereinafter referred to as the Council) was constituted to act as an arbitrator. By reason of the provisions of Section 6(2) thereof, an additional forum has been created. Creation of Courts and tribunals by the State Legislature comes within the purview of Entry 11-A of List III of VII Schedule to the Constitution of India. The Tribunal is merely in the nature of arbitral tribunal. The State has constituted such tribunal. Creditor may only exercise its right of option. If a suit is filed in the civil court, the procedure provided under the Code of Civil Procedure shall have to be followed, whereas in the event the supplier or creditor takes recourse to Section 6(2) of 1993 Act, the provisions of the Arbitration and Conciliation Act, 1996 have to be followed. The interests of the parties are protected by making a provision to prefer an appeal against the order of the Tribunal. In a given case, even the power of judicial review can be exercised by the High Court under Article 226 of the Constitution of India. The ambit and scope of two remedies is essentially the same viz., to recover the amount. Thus, the doctrine of election would apply as the two remedies are essentially not different in its ambit and scope. (See: A.P. State Financial Corporation v. Gar Re-Rolling Mills ).
76. The right to recover an amount from (sic. by) the supplier is common law right. Right to claim interest in terms of a statute is a substantive right. Such a right can be enforced both in a Civil Court as also a Tribunal constituted under a special Act. In a case of this nature, the jurisdiction of the Court and the Tribunal are co-extensive. By reason of the said Act, apart from interest, no right under the said Act to recover the money has been created. Retaining of jurisdiction of the Civil Court and at the same time providing an additional forum, which is in the nature of an arbitration Tribunal, in our opinion, cannot be said to be bad in law. See Premier Automobiles v. Kamlekar Shantaram Wadke .
77. Creation of alternative forum per se, in our opinion, cannot be held bad in law. Section 6(2) of the Act, therefore, in our opinion, is not invalid in law.
W.P.No. 10634 of 2001:
78. In this Writ Petition the constitution of a Tribunal has been questioned, inter alia, on the ground that the same does not consist of a person having knowledge of law.
79. While constituting a tribunal, in our opinion, it is not necessary that a person having knowledge in law must be appointed. In any event, the petitioner in the aforementioned case submitted itself to the jurisdiction of the tribunal. The petitioner sat on the fence; he took chance before the Tribunal. Only when the decision of the Tribunal went against it, he had filed the writ petition. In Munindra Kumar v. Rajivgovil it was held:
The next question which arises for consideration is as to what direction would be just and proper in the circumstances of this case. We do not agree with the High court to quash the entire selection made by the Board for the posts of Assistant Engineers (Civil). It may be noted that Rajeev Govil, Vivek Aggarwal and Gyanendra Srivastava who remained unsuccessful had Filed the writ petitions after taking chance and fully knowing the percentage of marks kept for interview and group discussion. It is no doubt correct that they cannot be estopped from challenging the rule which is arbitrary and violative of Article 14 of the Constitution, but in modulating the relief, their conduct and the equities of those who have been selected are the relevant considerations. The appellants have joined the post on 28-12-1989 and after completing the training are discharging their duties at different places. It has been submitted on their behalf that some of them had left their earlier jobs and have also become overage. Thus we do not consider it proper in the interest of justice to set aside the selections of the appellants. We have seen the mark-sheet of 295 candidates of the general category who had actually attended the interview and group discussion. So far as the respondents in general category are concerned, they have secured the marks in the following manner:
80. The objection as regards constitution of the Court had never been taken: Even a preliminary issue in this regard had not been raised. Only when the disputes have been determined, this writ petition has been filed. In terms of the Arbitration and Conciliation Act, 1996, it is not necessary that a lis must be determined by a person having a legal knowledge. The arbitrator need not have an experience in law.
81. In K.P. Verma v. State of Bihar 1988 PLJR 1053, a Division Bench of the Patna High Court has noticed the constitution of different types of tribunals, which is as follows:
In M.P. Jain and S.N. Jain's Principles of Administrative Law at page 184, it has been stated as under:
"Adjudicatory functions may be entrusted to a single person or multi-membered body. At times, no formal qualification may be prescribed for the person or persons appointed to adjudicate; sometimes legal knowledge or training may be prescribed. Even knowledge in some other technical field may be laid down, e.g., a Bench of the Income Tax Appellate Tribunal has one legal and one accountant member. In some case, the adjudicatory body may be authorised to associate with itself an expert possessing special knowledge on a matter relevant to the enquiry to assist him.
The appointment and dismissal of the members of the adjudicatory bodies is in the hands of the executive, except in the case of a few "tribunals" where some restrictions have been imposed. For instance, the members of the Income Tax Appellate Tribunal are appointed through a Selection Committee consisting of a Judge of the Supreme Court, President of the Tribunal and Law Secretary of the Government of India. In a few cases in actual practice members of the "tribunals" are appointed in consultation with the High Court."
82. Similarly, in O. Hood Phillips' Constitutional and Administrative Law, Sixth Edition, at page 585, the matter relating to appointment of members of tribunals has been stated thus:
"The Chairman of some Tribunals are appointed by the Lord Chancellor, and the Chairman of certain other tribunals are selected by the appropriate Minister from a panel of persons appointed by the Lord Chancellor.
The Council on Tribunals may make to the appropriate Minister general recommendations to the appointment of members of the tribunals specified in Schedule 1 (i.e., those under the supervision of the Council), and also of the relevant panels, and the Minister "shall have regard" to such recommendations.
A Minister may not, with certain exceptions, terminate the appointment of a member of a tribunal specified in Schedule, or of a relevant panel, without the consent of the Lord Chancellor."
83. In Administrative Law by P.P. Craig, 1983 Edition, at page 159, it has been stated as follows:
"A number of tribunals will have lay members as well as Chairman who is usually legally qualified. What type of people serve in such positions? Research which has been completed tends to confirm what one might well have expected. The average age is relatively high, a reflection of the fact that it is often only such people who can afford the time to undertake the task. The social background tends to be middle class, with an under representation of less privileged or ethnic groups. How far this actually influences decisions which are reached is difficult to measure. The platitude that we are all affected or conditioned by our social back ground is nonetheless an important one. Moreover in some areas appearances count for as much as reality whatever the true nature of the letter is. Thus feelings that middle class lay members may not always appreciate the difficulties of less privileged groups has been voiced particularly strongly in the context of supplementary benefit appeal tribunals..........
For the moment it is sufficient to draw attention to the fact that although tribunals are in theory as independent as the courts they are, in this particular matter, considerably less so in practice. For example, while Presidents and Chairman have increasingly been given an administrative or supervisory, as well as judicial role, they have no power to recruit staff, but must accept whomsoever a department, or its Regional Officer, may nominate; while the staffs themselves are in an ambivalent position, being seconded or loaned from the departments to which they belong and in which their future promotion and career may generally be assumed to lie; there being, as matters stand, no career prospect in the service tribunals alone. These arrangements place departments and staff alike in a potentially invidious position.
The suggestion that clerks should be appointed by the Lord Chancellor's Department rather than by the subject matter department was rejected by the Franks Committee. While recognising the advantages of independence that this would entail was felt to be impossible because there would be no real career structure that could be held out to such officers. Whether this is indeed a convincing rationale 25 years on is debateable. Wraith and Hutehesson have argued that the expansion in the number of tribunals, combined with the changing nature of the Lord Chancellor's Department, has altered the position, and advocate the creation of a separate tribunal service, a view worthy of further consideration."
84. For the reasons aforementioned, we are of the opinion that there is no merit in these writ petitions, which are accordingly dismissed.