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Siddaramaiah Government: Running with the hares and hunting with the hounds

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Siddaramaiah Government: Running with the hares and hunting with the hounds

1. The legal battles between the owners of sugar factories and the sugarcane growers are not a thing of today. While hundreds of cases have already been decided, many more are pending adjudication before various courts. Recently, our law firm had the good fortune of canvassing the interests of farmers in one such bitterly fought case before the High Court of Karnataka regarding the State advisory price fixed by the State government which was over and above the Fair and Remunerative price fixed by the Central Government for the purchase of sugarcane. The arguments concluded about a fortnight ago and the judgment is awaited.

However, what is of interest to us in this context is the curious and inexplicable U-turn in the State government’s stand. The State Government, which was fighting alongside farmers in the court, rushed through an amendment to the Karnataka Sugarcane (Regulation of Purchase and Supply) Act, 2013 in the legislative assembly, even as the judgment was awaited. It is a paradox that this amendment granted all that the sugar factories had prayed for in the court and which the State Government had resolutely opposed as being anti-farmer. Thus, by virtue of the amendment, the awaited judgment of the High Court has now been reduced to mere academic interest.

But before we dwell further on this, it is necessary to set forth a few relevant facts.

2.   Sugarcane, unlike other agricultural crops like tomatoes or onions, is a highly regulated produce. The growers of tomatoes or such other agricultural commodities are free to sell their products in the open market at the price they deem fit. However, growers of sugarcane can sell their produce to only such sugar factories and at such rates as the Government prescribes. This makes the position of the sugarcane farmers unique, in relation to growers of other agricultural products. This is because sugar is an essential commodity controlled under the Essential Commodities Act, 1955. The Central Government under the Sugarcane Control Order, 1966 regulates the supply and sale of sugarcane. Under this Order, the Central Government fixes the minimum purchase price of sugarcane which the sugar factories must pay to the sugarcane farmers. This price is fixed for each sugar year. The Central Government takes into account, among other factors, the recovery of sugar and the value of the by-products produced by a sugar factory like molasses, bagasse, press-mud etc. Nevertheless, many state governments also fix a minimum purchase price that is over and above the minimum price fixed by the Central Government, as and when they find the price fixed by the Central Government is inadequate. This exercise of dual fixation of price by the Union as well as the State Governments has always been a major cause of litigation.

3.   Even in the aforementioned matter pending before the Karnataka High Court, the cause of action was similar. The Central Government fixed the Fair and Remunerative price for 2013-14 at Rs. 2,100 per metric ton under the Sugarcane Control Order, 1966. The State Government had passed the Karnataka Sugarcane (Regulation of Purchase and Supply) Act, 2013 with the object of facilitating supply of sugarcane to sugar factories in Karnataka. As envisaged in the Act, a Sugarcane Control Board was constituted which comprised, among other members, representatives of both farmers and sugar factories nominated by the State Government. This Board was tasked with fixing the minimum purchase price for sugarcane in the state. This board, after holding many a round of consultations, announced the state’s minimum price payable to the cane growers by the factories at Rs. 2400/- per metric ton for the year 2013-14. The factories in northern Karnataka had to pay the said price at ex-field rates, while the ones in southern Karnataka had to pay at ex-gate rates. Meaning, the factories in northern Karnataka had to ensure harvesting and transportation of the sugarcane from the fields at their own cost, while the farmers had to bear the costs for harvesting and transportation in southern Karnataka.

While the sugarcane growers expressed satisfaction with the price announced by the State Government, sugar factories were unwilling to pay the higher price. They claimed that they were already running under loss and it would be unviable to run factories if they paid the higher rate. Hence, they approached the High Court for relief.

4.   The major contentions raised by the sugar factories were as follows:

(i)           The state government does not have the legislative competence to fix a price that is over and above the minimum price fixed by the central government. If the State Government will fix a price that is higher than the Central Government, then it would result in repugnancy with the Central law, and therefore the State law, to that extent, will be unconstitutional. Therefore, the only price that can be paid at the beginning of the sugar season is the price that is fixed by the Central Government.

(ii)          Under the Karnataka Sugarcane Regulation Act, 2013 the State Government can only fix an additional price on the basis of the actual revenue realized by the factory at the end of the season, which has to be paid at the end of the sugar season. Therefore, payment has to be made in two stages i.e., payment of FRP at the beginning of the sugar season and the additional price fixed by the State Government to be paid at the end of the season.

(iii)        The difference between northern and southern Karnataka in terms of ex-gate and ex-field payment is discriminatory and arbitrary. Hence, it must be struck down.

(iv)        The price payable by a sugar factory must depend on the rate of recovery of the concerned factory. There cannot be a blanket price which has to be paid by all factories, irrespective of their sugar recovery rate.

5.   The State Government, through the Advocate General, strongly defended its stand: the cane growers in the state are in a pitiable position as they have not received just prices for their produce from many years. As a result, many cane farmers are unfortunately committing suicides. If the cane growers do not get their due, they will find it unviable to cultivate sugarcane. Also, many states like Tamil Nadu and Haryana have announced prices that are much higher than the price fixed by Karnataka, even though the sugar recovery in those states are much lesser compared to ours. Additionally, the state government addressed the specific contentions raised by the sugar factories in the following manner:

(i)           The state government has legislative competence to fix a price over and above the price fixed by the Central Government, as the subject related to sugar falls under the concurrent list of the Constitution. The state law will be constitutionally protected as long as it is not repugnant with the central law. If the state had fixed a price lower than the price fixed by the Central government, it would then have resulted in repugnancy. However, in the instant case, no repugnancy will arise between the two laws because by fulfilling the state law, which is directing a higher price to be paid, the Central law will also be naturally followed. Therefore, both laws can simultaneously and harmoniously coexist. Moreover, the Supreme Court has upheld the legislative competency of the State Governments to fix a price higher than the minimum price fixed by the Central Government in the UP Cooperative Cane Union Vs West UP Sugar Mills Association [(2004) 5 SCC 430] case. Therefore, the legal position on this point is crystallized.

(ii)          If the argument of the sugar factories that payment must be made in two stages, i.e., payment of FRP at the beginning of the sugar season and the additional price fixed by the State Government to be paid at the end of the season is accepted, it will further aggravate the problems faced by the farmers as the farmers will have to wait for more than a year to enjoy the fruits of their labour. Also, the revenues and expenditures of the sugar factories are not subjected to any Government supervision, and if the farmers are left at the mercy of the sugar mills, it will push farmers into deeper distress. 58 sugar factories in the State cannot be allowed to control the lives of 12 lakh farmers. Therefore, payment under the state law is a onetime payment to be made at the beginning of the sugar season.

(iii)        The difference in the prices between northern and southern Karnataka is because of the variation in the sugar recovery in the two regions. While the average recovery in the south is 9.41%, the recovery in the northern parts is 10.55%. In addition to this, the traditional practice has been that sugar factories in the north have taken care of the harvesting and transportation of cane from the fields, while in the south the farmers themselves harvest and transport cane from the fields to the factory gate. The state law has considered these two factors and has provided for different prices.

(iv)        Lastly, the contention that the price payable by a sugar factory must depend on the rate of recovery of the concerned factory will lead to greater hardship for farmers. The sugar content in cane drastically reduces if the sugarcane is not crushed within a reasonable time after harvesting. Instances of sugar factories delaying the crushing of cane are commonplace. Farmers cannot be made to suffer if a factory has not increased its crushing capacity and upgraded its machinery to extract higher sugar recovery. Therefore, the state law has imposed uniform pricing for all factories to ensure the interests of the farmers.

6.   After hearing these arguments on an everyday basis, the High Court reserved the case for judgment. Meanwhile, the legislative assembly session was ongoing. Perhaps realizing that their chances of success before the High Court were bleak, the sugar industry prevailed upon the State Government to rush through convenient amendments to the State Act in the assembly session. The amendments practically granted all the prayers of the sugar factories: (i) two stage payment for sugarcane, i.e. the central government’s FRP at the beginning of the season and the state government fixed additional price at the end of the season. The Central legislation already provides for sharing of additional revenue. With the amendment, there is nothing new that the state act is now providing for. (ii) A uniform ex-gate payment across the state. This now results in the farmers having to bear the harvesting and transportation costs. It is interesting to notice that while there are 45 sugar factories in north Karnataka, south Karnataka has only 12 sugar factories. This move of extending the practice of ex-gate payment, which is prevalent only in south Karnataka, to factories in north Karnataka will greatly benefit the large number of sugar factories in that region while at the same time, pushing the farmers of that region to greater distress.

(iii) Payment based on the sugar recovery of the concerned sugar factory. This, as observed earlier, will adversely affect the farmers as they will suffer for the sugar factory’s delay in crushing their cane.

7.   All these amendments, in the opinion of the farmers, are only beneficial to the factories and will adversely affect the farmers. They find it hard to believe that the government allowed itself to be maneuvered in this way. The effect of these amendments would not have been this bitter, if the state government had not opposed the very same demands of the sugar factories as being anti-farmer in the court. Sugarcane farmers are unable to comprehend the metamorphosis of the government — from being their friend in the court to being bedfellows with the sugar factories in the Assembly. This, they say is nothing short of a grave betrayal by the government. The least constitutional and administrative propriety that was expected from the government was for it to refrain from amending the legislation until the court pronounced its judgment. 

8.   Also, speaking from a legal point of view, this act of powerful lobbies getting legislations amended to prevent unpalatable court judgments is improper and reprehensible. If this practice is allowed to pass without attracting public criticism, it will only get institutionalized. This will only contribute to jeopardizing the rule of law. The day the common man believes that laws can be tailor-made to suit the interests of the high and mighty, he will lose all respect and faith in the constitutional and democratic institutions in the country. It will only undermine democratic institutions and further strengthen the forces that are working to wreck the constitutional foundation of the society.

9.   In conclusion, it is observed that most problems in the sugar sector are a result of the deep and all pervasive intrusion of the Central and State Governments. It is imperative that the sugar sector is decontrolled and deregulated as soon as possible to enable it to grow to its fullest potential. This has also been the opinion of the Dr. Rangarajan Committee constituted for recommending measures to improve the sugar sector in India. However, it is not desirous to do away with the practice of the Government fixing the sugarcane prices for the simple reason that a disproportionately large number of farmers are dependent on a very small number of sugar factories to purchase their produce. It was this fact that made the Supreme Court take judicial notice of the necessity of the government to fix cane purchase prices.

In the present case, it appears that the Siddaramaiah government has abdicated its constitutional duty by passing amendments which are in the nature of adversely affecting the farmers interests, without holding any consultations whatsoever with them. It is urged that the State government must exercise its discretion wisely and revise the amendments made.

Tejasvi Surya

An alumnus of IndiaFacts, Tejasvi Surya is an Advocate practicing at the High Court of Karnataka, at Bangalore. He is also the co-founder of Centre for Entrepreneurial Excellence, an organization running projects in the spheres of education, employment and entrepreneurship. Tejasvi is currently the State Secretary for Bharatiya Janata Yuva Morcha, Karnataka.