DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY

LAW AND AGRICULTURE

FINAL DRAFT

CONCEPT OF DELEGATED LEGISLATION IN ESSENTIAL

COMMODITIES ACT, 1955

UNDER THE SUPERVISION SUBMITTED BY

Mr. Malay Pandey Akanksha Singh (150101010)
Asst. Professor (Law) Jayati Gupta (150101057)
B.A. LLB. (Hons.)

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 TABLE OF CONTENTS

INTRODUCTION ..................................................................................................................... 3
IMPORTANCE OF THIS ACT ................................................................................................ 4
LIST OF COMMODITIES AT PRESENT ............................................................................... 4
DELEGATION OF POWERS ................................................................................................... 5
SOME DRAWBACKS .............................................................................................................. 7
PENAL PROVISIONS .............................................................................................................. 7
REMOVING AGRICULTURE ................................................................................................. 8
CONCLUSION .......................................................................................................................... 9

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 INTRODUCTION

The Essential Commodities Act (ECA) was enacted by the Central Government in 1955 to
control and regulate trade and prices of commodities declared essential under the Act. The Act
empowers the Central and state governments concurrently to control production, supply and
distribution of certain commodities in view of rising prices. The measures that can be taken
under the provision of the Act include, among others, licensing, distribution and imposing stock
limits. The governments also have the power to fix price limits, and selling the particular
commodities above the limit will attract penalties. Black marketing of essential commodities
was a major problem in the past and this has now been controlled to a large extent. The Drug
Price Control Order (DPCO) and such other orders have been issued under the powers of the
ECA. The list of essential commodities is reviewed from time to time with reference to their
production and supply and in the light of economic liberalization in consultation with the
concerned Ministries/Departments administering these commodities. Currently, the restrictions
like licensing requirement, stock limits and movement restrictions have been removed from
almost all agricultural commodities. Wheat, pulses and edible oils, edible oilseeds and rice are
the exceptions, where States have been permitted to impose some temporary restrictions in
order to contain price increase of these commodities.

Here’s how it works. If the Centre finds that a certain commodity is in short supply and its
price is spiking, it can notify stock-holding limits on it for a specified period. The States act on
this notification to specify limits and take steps to ensure that these are adhered to. Anybody
trading or dealing in a commodity, be it wholesalers, retailers or even importers are prevented
from stockpiling it beyond a certain quantity. A State can, however, choose not to impose any
restrictions. But once it does, traders have to immediately sell into the market any stocks held
beyond the mandated quantity. This improves supplies and brings down prices. As not all
shopkeepers and traders comply, State agencies conduct raids to get everyone to toe the line
and the errant are punished. The excess stocks are auctioned or sold through fair price shops.

THE AIM OF THE ACT

The aim of this Act is to

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1. To check black marketing

2. To prevent and punish the offenders of law

3. To check the inflationary trends in prices and commodities, and

4. To ensure equitable distribution of essential commodities.

THE OBJECTIVES OF THE ACT

The objectives of the act are to provide for the control of

(i) Production
(ii) Supply
(iii) Distribution of trade commerce in certain commodities, in the interest of general
public.

IMPORTANCE OF THIS ACT

The ECA gives consumers protection against irrational spikes in prices of essential
commodities. The Government has invoked the Act umpteen times to ensure adequate
supplies.. It cracks down on hoarders and black-marketeers of such commodities.

But there is another side to the story. Given that almost all crops are seasonal, ensuring round-
the-clock supply requires adequate build-up of stocks during the season. So, it may not always
be possible to differentiate between genuine stock build-up and speculative hoarding. Also,
there can be genuine shortages triggered by weather-related disruptions in which case prices
will move up. So, if prices are always monitored, farmers may have no incentive to farmer.

With too-frequent stock limits, traders also may have no reason to invest in better storage
infrastructure. Also, food processing industries need to maintain large stocks to run their
operations smoothly. Stock limits curtail their operations. In such a situation, large scale private
investments are unlikely to flow into food processing and cold storage facilities.

LIST OF COMMODITIES AT PRESENT

 Petroleum and its products, including petrol, diesel, kerosene, Naphtha, solvents etc
 Food stuff, including edible oil and seeds, vanaspati, pulses, sugarcane and its products
like, khandsari and sugar, rice paddy

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  Jute and textiles
 Drugs- prices of essential drugs are still controlled by the DPCO
 Fertilisers- the Fertiliser Control Order prescribes restrictions on transfer and stock of
fertilizers apart from prices

DELEGATION OF POWERS
The principle of law discussed above also applies to the delegation of powers under Section 5
of the Act. The Central Government may, by notified order, direct that the power to make
orders or issue notification under Sec. 3 shall, in relation to such matters and subject to such
conditions, if any, as maybe specified in the direction, be exercisable also by, - (a) such officer
or authority subordinate to the Central Government, or (b) such State Government or such
officer or authority subordinate to State Government; as may be specified in the direction.] As
is evident from the body of the provision, “sec. 5 permits the delegation of powers conferred
on it by the Central Government to make order or issues j relating to such matters the way the
powers are to be exercised by such Officer or authority subordinate to the Central Government
or State Government or such Officers or authority subordinate to the State Government as
specified in the direction.

Thus, the Central Government, while dealing policy matters can make rules by modification,
or by legislation. Delegation is just to facilitate the implementation of the Act, implementation
of the law and it also coordinates the functions of the Central Government and the State
Government and enables the Central and the State Governments to coordinate and concentrate.

The delegation of power conceived in Section 5 is not confined to any particular commodity,
it is wide in scope and the delegation of power may cover any essential commodity as defined
in Section 2 (a). The generality of the powers of delegation under this section was also declared
that, “delegation also prevents the burden on the main legislative body. It also defines the
sphere of the exercise of power and any delegating powers, an infrastructure is established, and
it impresses the administrative machinery in implementing law policies on the Central and the
State Government and abides by the Act and its notification/s passed. Delegation is general as
defined in Section 5. It manages to confer power to Officer or authority subordinate to the
Central Government or to such State Government or such Officer or authority subordinate to
the State Government.

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The section empowers the Central Government to direct by notified order i that the power to
make orders under Section 3 shall, in relation to such matters and subject to such conditions, if
any, as may be specified in the direction, be exercisable also by such officer or authority
subordinate to the Central Government or such State Government or officer or authority
subordinate to a State Government as may be specified in the direction. The words in this
section are clearly empowering and the use of the words 'if any' clearly shows that there is a
discretionary power vested in the Government whether to specify conditions or not. However,
in State v Haider Ai1, in which the scope of the corresponding Section A of the Essential
Supplies (Temporary Powers) Act 1946 was considered, it was held that: “where there is need
for conditions they must be specified in the direction because the essence of delegation is to
make the delegatees conform to the requirements of the Act and to the policy laid down,
therein”

“Sometimes re-delegation of power is challenged on the ground of maxim delegates non potent
delegate, which means that the delegated authority cannot be further re-delegated. Once the
power is conferred by legislature then that person cannot re-delegate powers to another
person”2

As the Supreme Court has declared that, “Delegation can be made either in favour of a State
or power may be conferred to specify person. But, there cad, be no equal or co-ordinate
delegation of power, simultaneously in favour of the State Government and a’iso any particular
officer or authority of the State Government"3

The essence of Section 5 of the Act is the power of the Central Government to delegate powers
to the State Government or Officer or authority subordinate to the State Government or Officer
or any authority subordinate to the Central Government. The power conferred through
delegation must be exercised judiciously and with rationale.

There is no limit for the legislature for laying down law the extent to which the powers of
delegation can be passed and the manner in which it is to be exercised. Enactment may be made
to implement the policy and the intention of the law

1
State ofM.P. v. HyderAli AIR 1957 MP 179
2
T. C. Dalai v. State ofBombay AIR 1959 Bom 511
3
H. Bagla v. State ofM.P. (1955) 1 SCR 380

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 SOME DRAWBACKS
The Act is not in tune with present times. It made sense at a time when the transport
infrastructure across the country was poor and markets not integrated. So a production shock
in one part of the country could lead to hoarding and black marketing. That's not the case any
more. Shortages in one part of the country can be countered if there is ample supply somewhere
else.

A lacuna exists in the Essential Commodities Act so far as the laying provision is concerned.
S. 3(6) applies only to the orders made by the Central Government, or by any of its officers or
authorities. Only such orders need be laid before Parliament. Now, it is well known that many
orders under S. 3(1) are made by the State Governments and their officers, under powers
delegated to them by the Central Government under S. 5(b). There is no corresponding
provision in the Act requiring that the State orders be laid before the State Legislatures. This
lacuna should be plugged by a suitable amendment of the Act so that the State orders may not
go completely unscrutinised by the Legislature concerned. Recently, Punjab High Court has
held that when orders are made by the State Government under S. 5, the State is acting as a
delegate of the Central Government; it means that the delegate should be subject to the same
restrictions as the principal and so S. 3(6) would apply to the orders made by State
Government.4 This view, therefore, means that State orders made under S. 5 should be placed
before Parliament. But this of course is an impracticable proposition. The better thing would
be to develop a mechanism by which State orders come before the concerned State Legislature.

PENAL PROVISIONS

At present, section 7(1) a (1) specifies offences which include violations with respect
tomaintaining records, books, filing returns and so on. Such offences are punishable with a
jail term of between three months and a year.

Section 7(1) a (2) applies for major offences and embraces a large part of violations where
punishment can extend up to seven years in jail.

Civil Court is prohibited from granting any injunction or passing any order for any relief
against the Central Government under this Act. Further Sections make provisions for

4
Krishna Khanna v. State of Punjab, A.I.R. 1962 Punj. 32

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presumptions as to order made under Section 3, burden of proving authority, permit, etc.
Section 15 says that anything which is done in good faith should not be suited or prosecuted
under the Act.

REMOVING AGRICULTURE
This will lead to shifting towards organized trading by removing stock restrictions. With this,
a smaller number of traders with sufficient capital will be able to have an upper-hand in the
market. This will help in reduction of costs and prices bring economies of scale and increase
returns for farmers. With rules and stock limits frequently changing, traders are not incentivized
to invest in a better storage infrastructure. Also, stock limits cut functioning of food processing
industries. These need to maintain underlying commodities in large quantities in order to
operate smoothly.

“the Aayog is of the view that removing stock restrictions from agriculture commodities will
lead to organised trading, improve scale and logistics benefit and bring about more capital into
trade with handful of big traders competing with each other,” the official said on condition of
anonymity as the idea is still being worked out with ministry of consumer affairs.

The other argument in favour of the Aayog’s proposal is that with frequent changes in rules
and stock limits, traders have no reason to invest in better storage infrastructure. Also, stock
limits curtail the functioning of food processing industries which need to maintain large stocks
of underlying commodity to run their operations smoothly. “In such a situation, large scale
private investments are unlikely to flow into food processing and cold storage facilities which
are essential for ensuring framers get better remuneration for their crops,” the official
explained.

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 CONCLUSION
Many see this legislation as a justified tool to protect consumers from profiteering by
unscrupulous traders or intermediaries. However, unlike modern competition law, where the
government must prove that a person has cornered the market and is abusing a dominant
position, the ECA requires no analysis from the government before a Control Order is issued.

In effect, it becomes a tool to expropriate traders who may have stored products
during harvest to sell during the lean months.

If the government can prevent any person from storing any food item, force any person to
sell it at a government-set price to a government official, does it make sense to build large
warehouses to store food?

Such warehouses will naturally become the prime target of raids by officers. Note
that violators of certain provisions of the ECA may be imprisoned for up to seven years.

Infrastructure like warehouses and silos are expensive, and revenues from them are usually
low. It takes decades to recoup the initial investment in a warehouse.

In 2002, the government formally announced that sugar would be de-controlled and repealed
many Control Orders under the ECA. But by 2015, the Control Orders were back and stock
holding limits placed on traders. Any person who built sugar holding facilities (warehouses or
silos) based on the 2002 decision of the government would be losing money now.

In 2015, the government of West Bengal placed stock holding limits on onions. In 2013, it
was on potatoes. The fear that the government will do this again in the future is not misplaced.