The Essential Commodities (Amendment and Validation) Act, 2009

The Act under its first Section provides the short title of the Act as ‘The Essential Commodities (Amendment and Validation) Act, 2009’ which was brought into effect on 21st October, 2009 with the object to amend the provisions of original (Parent) Act dealing with control on production, supply and distribution and also for trade and commerce of Essential Commodities namely, The Essential Commodities Act, 1955 (Act No. 10 of 1955). Prior to the Amendment Act, the Essential Commodities (Amendment and Validation) Ordinance, 2009 was brought soon after the Sugar Season 2009-2010 commenced on 1st October, 2009.

The Section 2 of this Amendment Act amends the Section 3 of the Act of 1955 which was originally empowering the Central Government to control production, supply and distribution, etc. of essential commodities. Similarly, Central Government also exercise certain powers in respect of list of matters provided under the same section.

The Essential Commodities Act, 1955 covers Sugar and sugarcane under the scope of essential commodities. In that parent Act of 1955 the price of levy sugar is determined by Central Government under its provision of Section 3(3C) having regard to (a) the minimum price, if any, fixed for sugarcane by the Central Government; (b) the manufacturing cost of sugar; (c) the duty or tax, if any, paid or payable thereon; and (d) the securing of a reasonable return on the capital employed in the business of manufacturing of sugar. There was seen ambiguities in determination of price of levy sugar as per conflicting decisions as to factors to be taken into consideration in determining the price of levy sugar. Due to this the amendment was made in the Parent Law. Moreover, re-fixation of prices of levy sugar for the years since 1980-81 would have led to controversy and confusion regarding the benefit of such re-fixation to various sugar mills with potential for huge unbudgeted financial burden on the Central Exchequer, the action of Central Government taken since 1st October, 1974 under the orders issued for determination of price of levy sugar under sub-section (3C) of section 3 of the Essential Commodities Act, 1955 had became essential. As such, the amendment Act after considering it necessary to replace the concept ‘Minimum Price’ of sugarcane with ‘Fair and Remunerative Price’ (FRP) of sugarcane by giving a reasonable margin to the farmers of sugarcane on account of ‘risk’ and ‘profit’ and as such the earlier clause (a) of Sub section (3C) of the Parent Act was replaced with new one. Ensuring fair and remunerative price to the farmers producing sugarcane fixed by Central Government was dreamt by this Amendment Act of 2009.

Similarly, the Amendment Act sought to add new Explanation to Section 3 of the Parent Act, wherein the Central Government, while procuring levy sugar, would not pay any price in access to what computed based on minimum price for sugarcane set by the Central Government.

Similarly, Hon’ble Judiciary in India pronounced number of judgments including the Judgment of Hon’ble Supreme Court of India in Mahalakshmi Sugar Mills Company Ltd. and Another vs. Union of India and Others (2008), where it has considered the scope and ambit of sub-section (3C) of section 3 of the original Act of 1955 ordered for re-fixation of prices of levy sugar for the sugar years 1983-84 and 1984-85. This judgement served as lime stone to this Amendment to the Act.

Recently, the new bill i.e. The Essential Commodities (Amendment) Bill, 2010 is introduced on 9th August, 2010 seeking to amend the Parent Act of 1955 in order to clarify the price payable for levy sugar produced for public distribution system.

Most of the provisions in the Parent Act have become irrelevant in the context of having achieved self-sufficiency in production. They hamper the market from performing its productive and commercial role. A large number of permits and licences are required to be obtained from the authorities under the Act and periodically returns have to be filed and inspections carried out, which add to transaction costs. All these controls and restrictions are disincentive to production and distribution of essential commodities by organised companies that can exploit scale of economies.

by Faim Khalilkhan Pathan