COVID-19 – Analysis of Price Fixation Orders under Essential Commodities Act

As the country went into the lockdown, the authorities had a task of keeping supply chains of commodities like masks and sanitizers, active and running - the products essential in the country’s fight against the pandemic Covid-19. Further, the new-found demand for sanitizers and masks also initially led to an increase in their prices. Whereas, the availability of masks and sanitizers of right quality and right prices is essential in combating pandemic Covid19. To address the situation, the Central Government has issued a set of orders in the last one month under Essential Commodities Act, 1955 (“ECAct/Act”) declaring masks and sanitizers as essential commodities and fixing the prices. We may note that since the enactment of the EC Act, price fixation orders on food grains, cotton, jute, oils & oil seeds, fertilizers, sugarcane and drugs were issued and the modalities for fixation of fair prices thereunder have also come up for consideration of the Courts.

We may also note the legislature has given theEC Act a special place by placing it under Ninth Schedule of Constitution of India. Article 31B of Constitution of India states that the Acts and Regulations specified in the Ninth Schedule shall not be deemed to be void, or ever to have become void, claiming such Act, Regulation or provision is inconsistent with, or takes away or abridges any of the rights conferred by any provisions of Part-III (Fundamental Rights) of Constitution of India.

Declaration of Commodities as Essential Commodities:

The main objective of the EC Act is to specifically control production, supply and distribution of certain essential commodities. The EC Act was primarily enacted to control the prices of agriculture and food products and is often criticized as draconian and against the interest of manufacturers as it enables the government to fix prices and restricts the price fixation based on market indicators from time to time.

An essential commodity is a commodity specified under the Schedule of the Act. Under Section 2A of the Act, the Central Government in public interest and for reasons to be specified in the notification published in the Official Gazette is empowered to amend the Schedule so as to add a commodity falling under Entry 33 in List III (Concurrent List) in the Seventh Schedule to the Constitution of India,to the said Schedule or remove any commodity from the said Schedule, in consultation with the State Governments.

Entry 33 in List III (Concurrent List) in the Seventh Schedule to the Constitution deals with following:

Trade and commerce in, and the production, supply and distribution of:

• a) the products of any industry where the control of such industry by the Union is declared by Parliament by law to be expedient in the public interest, and imported goods of the same kind as such products;
• foodstuffs, including edible oilseeds and oils;
• cattle fodder, including oilcakes and other concentrates;
• raw cotton, whether ginned or unginned, and cotton seed; and
• raw jute

It is under these provisions, the Central Government has issued an order dated 13thMarch 2020 to regulate the production, quality, distribution, logistics of masks (2ply & 3ply surgical masks, N95 masks) & hand sanitizers (for COVID 19 management) till 30 June 2020 (“Order”). It is to be noted that the raw materials used in manufacturing of such essential commodities are also treated as essential commodities.

Fixation of Prices:

Section 3 of the Act empowers the Central Government the power of issuing orders which may provide for regulation or prohibition in the manner of production, supply and distribution of any essential commodity. It may be noted that an order made under section 3 shall have effect notwithstanding anything inconsistent with any enactment other than the Act or any instrument having effect by virtue of any enactment other than this Act.

After the issuance of the aforesaid Order, the Central Government has fixed the following prices by issuance of follow up orders:

Constitutional Validity of Price Fixation under EC Act:

On a question of validity of Mustard Oil (Price Control) Order, 1977 issued under the Act, a seven-member bench of Supreme Court in Prag Ice & Oil Mills &Anr. Etcv. Union of India held as follows:

“The dominant purpose of these provisions is to ensure the availability of essential commodities to the consumers at a fair price. And though patent injustice to the producer is not to be encouraged, a reasonable return on investment or a reasonable rate of profit is not the sine qua non of the validity of action taken in furtherance of the powers conferred by s. 3 (1) and s. 3 (2) (c) of the Essential Commodities Act. The interest of the consumer has to be kept at the forefront and the prime consideration that an essential commodity ought to be made available to the common man at a fair price must rank in priority over every other consideration.”

(Emphasis Supplied)

On the matter of immunity under Article 31B, the Hon’ble Court has held that that a price control order is a mere creature of the parent Act and is incidental or ancillary to it and cannot justify the protection of the Ninth Schedule being extended to it claiming the parent Act is incorporated in that Schedule. However, the Court while holding there is no substance inthepetitioners grievance that the Price Control Order offends against Articles 14, 19(1)(f) and19(1)(g)has held as follows:

“the mechanics of price fixation has necessarily to be left to the judgment of the executive and unless it is patent that there is hostile discrimination against a class of operators, the processual basis of price fixation has to be accepted in the generality of cases as valid.”

(Emphasis Supplied)

In Shree Meenakshi Mills Ltd v. Union of India , a five member bench of Supreme Court while dealing with the validity of Cotton Textiles (Control) Order, 1948 issued under the Act has held as follows:

“The question of fair price to the consumer with reference to the dominant object and purpose of the legislation claiming equitable distribution and availability at fair price is completely lost sight of if profit and the producer's return are kept in the forefront. The maintenance or increase of supplies of the commodity or the equitable distribution and availability at fair prices are the fundamental purposes of the Act. If the prices of yarn or cloth are fixed in such a way to enable the manufacturer or producer to recover his cost of production and secure a reasonable margin of profit, no aspect of infringement of fundamental right can be said to arise.

In determining the reasonableness of a restriction imposed by law in the field of industry, trade. for commerce, it has to be remembered that the mere fact that some of those who are engaged in these are alleging loss after the imposition of law will not render the law unreasonable.”

(Emphasis Supplied)

In the case of Sitaram Sugar Co. Ltd. v. Union of India , the Constitution Bench of the Supreme Court deliberated as to who has the power to fix prices of essential commodities. The Court held that the question of fixation of a fair and reasonable price for goods placed on the market has come up for consideration of Parliament and Courts in different contexts. Price fixationis generally a legislative function. But Parliament generally provides for interference only at a stage where in pursuance of social and economic objectives or to discharge duties under the Directive Principles of State Policy, control has to be exercised over the distribution and consumption of the material resources of the community. The Court concluded that while Parliament has enacted the EC Act, it has left it to the discretion of the Executive to take concrete steps for fixing the prices of essential commodities as and when necessity arises, by promulgating control orders in exercise of the powers vested in the EC Act.

Conclusion:

The manufacture and sale of sanitizers and surgical masks are regulated by Drugs Controller General of India (DGCI) by powers granted under Drugs and Cosmetics Act, 1945. The sector squarely falls under point (a) of Entry 33 of List III of Schedule VII of Constitution of India andtherefore, the Central Government is empowered to declare sanitizers and surgical masks as essential commodities under the EC Act. The Hon’ble Apex Court in catena of judgements has held that the scope of judicial interference in price fixation orders issued under the EC Act by the governments, is minimal.In the present case, it is necessary to note that the commodity of masks and sanitizers and the prices thereunder are fixed for a limited period of 3 months period i.e., up to 30thJune, 2020. Therefore, even if the prices fixed by the government are challenged before courts, the judicial interference in such cases is expected to be very minimal and infact NIL given the law laid down by the Apex Court in the judgements referred herein and the background upon which the present price fixation orders have been issued by the Central Government.

[The author is an Associate in Corporate law practice in Lakshmikumaran & Sridharan, Hyderabad]