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2004 DIGILAW 563 (BOM)

CEAT Limited & another v. Union of India & others

2004-04-27

A.P.SHAH, A.S.OKA

body2004
JUDGMENT - SHAH A.P., J.: - The 1st petitioner is company engaged in the manufacture of tyres, tubes and flaps and sells its products in the domestic as well as international market. The 2nd petitioner is the Company Secretary and shareholder of the petitioner No. 1 company. By this petition the petitioners seek to challenge the Notification No. 41 (RE-2001) 1997-2002 dated December 19, 2001, and Import Licensing Note No. 1 in Chapter 40 of the ITC(HS) Classifications restricting import of natural rubber only through the ports of Kolkatta and Vishakhapatnam. The petitioners also seek to challenge the Notification No. 896 dated December 12, 2001, directing that the natural rubber imported into India shall be in conformity with such standard as are specified by the Bureau of Indian Standards established under section 3 of the Bureau of Indian Standards Act, 1986. The petitioners contend that the restrictions on import of natural rubber only through Kolkatta and Vishakhapatnam are arbitrary and totally unjustified. Most of the tyre industries which are the highest consumers of natural rubber are located in west and north of the country and even from this point of view the selection of Kolkatta and Vishakhapatnam as entry ports for natural rubber cannot be justified. The petitioners further contend that the procedure prescribed to ensure that imported rubber conforms to the required grade is deliberately made cumbersome so as to discourage imports of natural rubber. The imported rubber is tested only at laboratory at Kottayam and this also adds to the delays and costs of the importer. The petitioners are therefore seeking direction to the Central Government and the Rubber Board to permit import of natural rubber through all major ports in India without any restrictions. 2. The 1st petitioner has its manufacturing plants at Mumbai and Nasik and used to import natural rubber through the port of Nhava Sheva as it was proximately located port in order to reach raw materials to its factories situated in Mumbai and Nasik since the year 1960. On December 19, 2001 the 2nd respondent issued the impugned Notification No. 41 (RE-2001)/1997-2002) in exercise of power under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (for short "FTDR Act") restricting import of natural rubber only through Kolkatta and Vishakhapatnam ports. Licensing note in Chapter 40 of the ITC (HS) Classifications continued the said restriction for 2002-2007. Licensing note in Chapter 40 of the ITC (HS) Classifications continued the said restriction for 2002-2007. By Notification No. 876 dated December 12, 2001 issued in exercise of power under section 11 of the Rubber Act, 1947 (for short "Rubber Act") by the Union of India it was directed that the natural rubber imported into India shall be in conformity with such standards as are specified by the Bureau of Indian Standards established under section 3 of the Bureau of Indian Standards Act, 1986. The press note issued by the Ministry of Commerce and Industry on December 10, 2001, noted that the department is deeply concerned to the plight of the natural rubber growers in the country particularly Kerala which account for more than 90% production in the country and steps are already being taken in the QR-free regime with effect from April 1, 2001, onwards. In addition the Ministry of Commerce and Industry announced a package of fresh measures with regard to the import of natural rubber with a view to safeguard the interests of natural rubber growers in the country including restricting the import only to the designated ports in the country, namely Kolkatta and Vishakhapatnam at which the imported natural rubber can land. The notifications are impugned principally on the ground that they are violative of the petitioners fundamental rights guaranteed by Articles 14 19(1)(g) of the Constitution. 3. Mr. Bharucha appearing for the petitioners strenuously contended that the Notification No. 41/2001 put a fetter on free importability of natural rubber by restricting import of natural rubber only through the ports at Kolkatta and Vishakhapatnam and thus seeking to achieve indirectly what it prohibited from doing directly under the Exim policy. Mr. Bharucha contended that as a consequence of this policy Indian manufacturers of rubber products are being outpriced in international market and thus the very object of exim policy is being defeated. Mr. Bharucha urged that in any event there is no rationale in selection of ports save and except to indirectly restrict the free importability of natural rubber and make it impossible for the manufacturers to import natural rubber for the purpose of export. Mr. Bharucha further contended that from the figures disclosed by the Rubber Board itself it would be seen that there is a shortfall which needs to be supplemented by the import of natural rubber. Mr. Bharucha further contended that from the figures disclosed by the Rubber Board itself it would be seen that there is a shortfall which needs to be supplemented by the import of natural rubber. Further, the price of natural rubber in India is almost the same or less than in international market. Therefore according to Mr. Bharucha the assumption of the Central Government and the Rubber Board that small growers require protection from unfairly priced and low quality of rubber imported to Indian market is not factually correct. The learned Counsel further contended that the Government has necessary remedies to combat ills of dumping cheep rubber of protecting domestic industry. If the Government is of the opinion that increased quantity of import into India of any Article threatens the domestic industries with serious injury it is open to the Government to impose safeguard duty under section 8(b) of the Customs Tariff Act, 1975. The Government can also levy anti-dumping duty or counter veiling duty under the provisions of section 9 and 9(a) of the said Act. Therefore according to Mr. Bharucha the impugned notification amounts to colourable exercise of power by the respondents. Mr. Bharucha further contended that the Exim policy framed by the Central Government is in keeping with Indias obligation under WTO and CATT. He emphasised that domestic courts are under obligation to give due regard to the International Conventions and Norms for construing domestic laws when there is no inconsistency between them. 4. Mr. Devitre appearing for the respondent No. 8 i.e. Association of Tyre Manufactures in India supported the petition. He submitted that free importability of rubber was in line with the new economic arrangement formulated by GATT and WTO. However, in view of the pressure put by the indigenous natural rubber producers lobby the Central Government has issued impugned notifications imposing severe restrictions on the import of natural rubber. According to him this has been done only to harass the members of the respondent No. 8 and the reasons set out by the Central Government and Rubber Board are not at all justifiable, especially in view of the fact that so far as the natural rubber is concerned, the respondent No. 1 can impose anti-dumping or counter veiling duty under the Customs Tariff Act so as to ensure that the natural rubber is not sold in Indian Market at unfair price. Mr. Mr. Devitre submitted that the respondent No. 8 has no objection to respondent No. 1 ensuring that only such natural rubber be allowed to be imported as approved by the Bureau of Indian Standards. However, according to him the manner in which the respondent No. 1 is seeking to execute the policy of ensuring the same is causing great hardship to the members of the respondent No. 8. 5. In reply Mr. Gupte, learned Addl. Solicitor General appearing for the Union of India and Mr. Vahanvati, learned Advocate General appearing for the Rubber Board submitted that the petition is liable to be dismissed as the petitioners seek to challenge the policy decision taken by the Central Government in public interest pursuant to the FTDR Act and Rubber Act. The decision to monitor and test imports of rubber fall in the realm of economic policy. The Supreme Court of India in innumerable cases has clearly held that the Government has prerogative to follow a particular economic policy. Unless the policy is contrary to law, is mala fide or any illegality is committed in the execution of the policy, the courts of law ordinarily do not interfere with such decisions and ordinarily would not go into the wisdom or advisability of economic policies in exercise of writ jurisdiction under Article 226. It was submitted that the Union of India is empowered under FTDR Act to lay down policy relating to imports and exports into India and it has power under the Rubber Act to mandate that imports of rubber be tested to meet minimum quality standards laid down by the Bureau of Indian Standards. It was pointed out that there is no challenge in the present case on the ground of mala fides. Further the policy decision to regulate imports of natural rubber is not in any manner violative of fundamental rights of the petitioners and, is a fair and reasonable regulation issued in public interest. It was submitted that there are nearly 1 million small growers engaged in rubber cultivation in India and are extremely vulnerable to unfairly priced low quality of imports of natural rubber by foreign commodity exporters who may seek to estabilize and take over Indian market. It was submitted that there are nearly 1 million small growers engaged in rubber cultivation in India and are extremely vulnerable to unfairly priced low quality of imports of natural rubber by foreign commodity exporters who may seek to estabilize and take over Indian market. Therefore the Director General of Foreign Trade had identified natural rubber as one of the sensitive commodities vulnerable to global market conditions and restrictions placed upon import in public interest cannot be said to be arbitrary or unreasonable. 6. Before adverting to the submissions made at the Bar we shall refer to the brief background of the Indian rubber industry and the relevant provisions of the Rubber Act and the FTDR Act. India is the third largest producer of natural rubber after Thailand and Indonesia. The total area planted with rubber in India is about 5,70,000 hectares. The total production of natural rubber during 2002-2003 was 6,49,000 tonnes. The gross consumption of natural rubber during 2002-2003 was 6,95,000 tonnes. Rubber is primarily a small holders crop. Nearly 10 lakh growers are engaged in rubber cultivation. The small growers account for more than 97% of the rubber growers, and their share of production as well as area is about 88%. The average size of a small holding is less than 0.50 hectares. About 3.5 lakh workers are directly employed in the rubber plantation and an equal number is indirectly engaged in rubber related industries. The production of rubber is centered in Kerala, Tamilnadu and Karnataka. About 92.5% rubber growers are in these three States. 7. In view of the fact that rubber is an important sector of the Indian economy, the Parliament had enacted the Rubber Act and as can be seen from the preamble the said Act is enacted to provide for the development of the rubber industry under the control of the Union of India. Section 2 of the Rubber Act declares that it is expendient in the public interest that the Union of India should take under its control the rubber industry. Respondent No. 4 Rubber Board has been constituted under the Rubber Act and is vested with statutory duty for taking steps for efficient marketing of Indian rubber, advise the Government on imports and exports, recommend fair prices, permit research and do all such other things as may be necessary for the development of rubber industry. Respondent No. 4 Rubber Board has been constituted under the Rubber Act and is vested with statutory duty for taking steps for efficient marketing of Indian rubber, advise the Government on imports and exports, recommend fair prices, permit research and do all such other things as may be necessary for the development of rubber industry. Section 8 of the Rubber Act vests the Rubber Board with vide powers to carry out the objects and purposes of the Act. Section 8(3) of the Rubber Act specifically imposes on the Rubber Board the duty to advise the Central Government on all matters relating to the development of the rubber industry, including the import and export of rubber. Section 11 of the Rubber Act further empowers the Central Government to make provision for prohibiting, restricting or otherwise controlling the import or export of rubber either generally or in specified classes of cases. Rule 48 of the Rubber Rules, 1955, which is relevant for the purpose of this petition, states that "every processor and every person... shall grade and market his products in conformity with such standards as are specified by the Bureau of Indian Standards from time to time". 8. Section 5 of the FTDR Act confers power on the Central Government to formulate and declare export and import policy and in exercise of powers under section 5 of the said Act, the Central Government has notified export and import policy for the year 2002-2007. The principal objectives of this policy are as under: i) To facilitate sustained growth in exports to attain a share at least 1% of global merchandise trade. ii) To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services. iii) To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitive strength while generating new employment opportunities, and to encourage the attainment of internationally accepted standards of quality" (emphasis supplied). iv) To provide consumers with good quality goods and services at internationally competitive price while at the same time creating a level playing field for the domestic products. 9. iv) To provide consumers with good quality goods and services at internationally competitive price while at the same time creating a level playing field for the domestic products. 9. On behalf of the respondents affidavits have been filed by the Rubber Board as well as the Deputy Director General of Foreign Trade wherein it is inter alia contended that as a result of the efforts of the Union of India and the Rubber Board, about one million growers are engaged in the rubber cultivation in India. In fact India has become one of the most competitive countries in the world for growing natural rubber. However, since the small growers are also extremely vulnerable to unhealthy competition, the Director General of Foreign Trade has identified natural rubber as one of the 300 sensitive commodities vulnerable to global market conditions as a result of imports. The imports of these products are monitored to ensure that there are no adverse effect on the economy. It is pointed out that when the domestic prices are at reasonable levels, there is a tendency among the importers to bring inferior quality of rubber from outside at cheaper prices in order to depress the domestic market resulting in great hardship to the small and marginal growers of rubber which may likely to drive them out of business. In order to monitor imports of natural rubber into the country and to ensure that dumping of substandard quality natural rubber does not take place, the Central Government on the advice of the Rubber Board, decided that the only manner in which the imports of rubber can be monitored is by limiting the ports of entry of natural rubber and by maintaining quality standards with respect to imported rubber also. It is stated that in view of the fact that rubber is a very sensitive industry and the fact that about 90% of the rubber procedures are small growers, it would be disastrous to the domestic industry to not closely monitor imports of natural rubber into the country. Once low quality imports get into the Indian market at low prices, the pricing of such transitions would have a drastic and immediate impact on the future of small rubber growers. Small growers are not in a position to withstand any such adverse impact on their business. Once low quality imports get into the Indian market at low prices, the pricing of such transitions would have a drastic and immediate impact on the future of small rubber growers. Small growers are not in a position to withstand any such adverse impact on their business. Therefore the decision to limit imports of natural rubber to the ports of Vishakhapatnam and Kolkatta cannot be said to be unreasonable or arbitrary as these ports are ports with good facilities situated on the East Coast, which is proximate to the natural rubber exporting countries from South East Asia. It is stated that office of the Director General of Commercial Intelligence is located in Kolkatta, Vishakhapatnam is an appropriate port also because it is close to some of the largest natural rubber consuming centres in the Southern region of the country. As regards the inconvenience or hardship caused on account of the laboratories being located at Kottayam, it is specifically stated that the Central Government is in the process of setting up two more laboratories in the country for the convenience of the importers of rubber and those laboratories will be established within six months. 10. It is now well settled that the wisdom and advisability of economic policies of Government are not amenable to the judicial review. It is not for the Court to consider the relative merits of different economic policies. In (State of Madhya Pradesh v. Nandlal Jaiswal)1, 1986(4) S.C.C. 566 , the Court while dealing with its power in considering validity of the policy decisions relating to economic matters, observed at pp 605-06 as follows :- "34. But, while considering the applicability of Article 14 in such a case, we must bear in mind that, having regards to the nature of the trade or business, the Court would be slow to interfere with the policy laid down by the State Government for grant of licences for manufacture and sale of liquor. The Court would, in view of the inherently pernicious nature of the commodity allow a large measures of latitude to the State Government in determining its policy of regulating, manufacture and trade in liquor. The Court would, in view of the inherently pernicious nature of the commodity allow a large measures of latitude to the State Government in determining its policy of regulating, manufacture and trade in liquor. Moreover, the grant of license for manufacture and sale of liquor would essentially be a matter of economic policy where the Court would hesitate to intervene and strike down what the State of Government has done, unless it appears to be plainly arbitrary, irrational, or mala fide. We had occasion to consider the scope of interference by the Court under Article 14 while dealing with laws relating to economic activities in R.K. Gar v. Union of India. We pointed out in that case that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc., we observed that the legislature should be allowed some play in the joints because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regards to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature...." What we said in that case in regard to legislation relating to economic matters must apply equally in regards to executive action in the field of economic activities, though the executive decision may not be placed on as high a pedestal as legislative judgment insofar as judicial deference is concerned. We must not forget that in complex economic matter every decision is necessarily empiric and it is based on experimentation or what one may call "trial and error method" and, therefore, its validity cannot be tested on any rigid "a priori" considerations or on the application of any strait jacket formula. The Court must while adjudging the constitutional validity of an executive decision relating to economic matters grant a certain measure of freedom or "play in the joints" to the executive". 11. In (G.B. Mahajan v. Jalgaon Municipal Council)2, 1991(3) Bom.CR. The Court must while adjudging the constitutional validity of an executive decision relating to economic matters grant a certain measure of freedom or "play in the joints" to the executive". 11. In (G.B. Mahajan v. Jalgaon Municipal Council)2, 1991(3) Bom.CR. 139 wherein a policy decision of the Government whereby the validity of the contract entered into by the Municipal Council with a private developer for construction of commercial complex was impugned it was observed at page 104 : "The criticism of the project being unconventional does not add to or advance the legal contention any further. The question is not whether it is unconventional by the standard of the extant practices, but whether there was something in the law rendering it impermissible. There is, no doubt, a degree of public accountability in all governmental enterprises. But, the present question is one of the extent and scope of judicial review over such matters. With the expansion of the States presence in the field of trade and commerce and of the range of economic and commercial enterprises of Government and its instrumentalities there is an increasing dimension to governmental concern for stimulating efficiency, keeping costs down, improved management methods, prevention of time and cost overruns in projects, balancing of costs against time scales, quality control, cost benefit ratios etc. In search of these values it might become necessary to adopt appropriate techniques of management of projects with concomitant economic expediencies. These are essentially matters of economic policy which lack adjudicative disposition, unless they violate constitutional or legal limits on power or have demonstrable pejorative environmental implications or amount to clear abuse of power. This again is the judicial recognition of administrators right to trial and error as long as both trial and error are bona fide and within the limits of authority." 12. To the same effect is the law laid down by the Supreme Court in (Pearless General Finance and Investments Co. Ltd. v. Reserve Bank of India)3, 1992(2) S.C.C. 343 , in which the Court observed at page 375 as follows:- "31. The function of the Court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority. It is well settled that public body invested with statutory powers must take care not to exceed or abuse its power. The function of the Court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority. It is well settled that public body invested with statutory powers must take care not to exceed or abuse its power. It must keep within the limits of the authority committed to it. It must act in good faith and it must act reasonably. Courts are not to interfere with economic policy which is the function of experts. It is not the function of the courts to sit in judgment over matters of economic policy and it must necessarily be left to the expert bodies. In such matters even experts can seriously and doubtlessly differ. Courts cannot be expected to decide them without even the aid of experts." 13. In (Balco Employees Union (Regd) v. Union of India)4, 2002(2) S.C.C. 333 , the Constitution Bench held that the courts have consistently refrained from interference with the economic decisions as it has been recognized that economic expediencies lack adjudicative disposition and unless the economic decision, based on economic expediencies is demonstrated to be so violative of the Constitution or legal limits or power or so abhorrent to reason, the Court would decline to interfere. In matters relating to economic decision the Government has, while taking a decision, right to "trial and error" as long as both "trial and error" are bona fide and within the limits of authority. The legal position that emerges from the various decisions referred to above is that the policy or any action of the Government in contractual matters in amenable to judicial review only to the extent that the State must act validly for discerning reasons not whimsically, not by any ulterior purpose. The question whether the impugned policy is arbitrary or not, is to be ultimately answered in the facts and circumstances of a given case. 14. The notifications impugned in the present petition are based on the policy decision of the Government and the said policy decision is taken in public interest in exercise of the FTDR Act and the Rubber Act, to regulate (a) the number of ports through which natural rubber may be imported into India and (b) the quality standards of imports of natural rubber into India. The purpose of these restrictions is to enable the Government to take steps in time to ensure that small growers are not driven out of business and that no damage is caused to the domestic rubber industry from imports of sub-standard natural rubber at cheap or predatory prices. Obviously the decision to monitor and test imports of rubber would fall in the realm of economic policy. In past India had been an importer of natural rubber. However, due to the efforts of the Government and Rubber Board substantial growth has been achieved in the production of natural rubber which has helped in minimizing of import. The contribution of small growers in producing natural rubber and effectively substituting the imported rubber is substantial. However, majority of the producers being small growers, they become vulnerable in the changing international trade practices and there is need to protect small growers of natural rubber who contribute nearly 92% of the production of rubber in this Country. The Central Government therefore on the advise of the Rubber Board has issued notification restracting the ports for import of natural rubber in the country. It would not be permissible for this Court to question the wisdom of the policy makers or to substitute its own views for that of the policy makers. It is also not open for this Court to say that the Government can frame more effective policies. While formulating the policy, the policy makers have to see the general interest of the economy and not the interest of the small minority of manufacturers. The case in hand shows that a conscious policy decision has been taken in order to protect small growers of natural rubber in the country and there is no violation of any statutory provisions. As observed in G.B. Mahajan v. Jalgaon Municipal Corporation the courts are kept out of the lush field of administrative policy except where a policy is inconsistent with the express or implied provision of a statute which creates the power to which the policy relate or where a decision made in purported exercise of power is such that a repository of the power acting reasonably and in good faith could not have made it. All that the Court is required to see whether there is discernable principle emerging from the impugned action and if so does it really satisfy the test of reasonableness. All that the Court is required to see whether there is discernable principle emerging from the impugned action and if so does it really satisfy the test of reasonableness. The policy decision of the Government is not liable to be questioned merely because Government has other remedies to check and prevent dumping of cheap rubber in the country. If the Government has chosen to exercise it powers under the Rubber Act and FTDR Act and it is not for the Court to question the wisdom of the Government. 15. In a recent decision in the case of (Union of India v. International Trading Co. another)5, reported in 2003(5) S.C.C. 437 , the Supreme Court held that reasonableness of restriction is to be determined in an objective manner and from the standpoint of interests of the general public and not from the standpoint of the interests of persons upon whom the restrictions have been imposed or upon abstract consideration. A restriction cannot be said to be unreasonable merely because in a given case, it operates harshly. In determining whether there is any unfairness involved; the nature of the right alleged to have been infringed, the underlying purpose of the restriction imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing condition at the relevant time enter into judicial verdict. See also (Harichand Sarda v. Mizo District Council)6, A.I.R. 1967 S.C. 829; (Krishnan Kakkanth v. Government of Kerala)7, 1997(9) S.C.C. 495 . Applying these principles we are unable to hold that the notifications are arbitrary or unreasonable. 16. In the result, for the foregoing discussion, we find absolutely no merits in the challenge raised by the petitioners to the notification dated December 12, 2001 and the notification dated December 19, 2001. The notifications are legal and valid and based upon the policy framed by the Central Government. Therefore, we dismiss the petition with costs. Petition dismissed. -----