Price fixation is legislative in character

because it satisfies the tests of

legislation: how far is it justiciable?
Legislative Nature of Price Fixation...........................................................................................1
Governmental Intervention.........................................................................................................2
Regulatory Authorities................................................................................................................2
Justiciability of Price Fixation....................................................................................................2
Judicial Review............................................................................................................................3
Case Laws....................................................................................................................................3
Chintaman Rao v. State of Madhya Pradesh (1950)...............................................................4
AK Gopalan v. State of Madras (1950)....................................................................................4
Delhi Science Forum v. Union of India (1996).........................................................................5
Dwarka Prasad Laxmi Narain v. State of Uttar Pradesh (1954)..............................................6
Conclusion...............................................................................................................................7

Price fixation is a process by which the government or a regulatory authority sets the maximum
or minimum prices for certain goods or services. It is a form of market intervention that aims to
achieve social or economic objectives, such as protecting consumers, ensuring fair competition,
or preventing inflation. Price fixation is legislative in character because it satisfies the tests of
legislation: it is general, impersonal, and prospective in nature. However, how far is it justifiable?
This blog post will explore the legal aspects of price fixation and its judicial review.

Legislative Nature of Price Fixation

Definition and Purpose

Price fixation can be defined as the act of determining or prescribing the prices of goods or
services by a public authority. It can be done by issuing orders, rules, regulations, notifications,
or directives that specify the maximum or minimum prices that can be charged by sellers or paid
by buyers. The purpose of price fixation is to regulate the market and achieve certain social or
economic goals, such as:

● Protecting consumers from exploitation or profiteering by sellers

● Ensuring fair competition and preventing monopolies or cartels
● Preventing inflation or deflation and maintaining price stability
● Promoting public welfare and social justice
● Supporting national security and strategic interests
Governmental Intervention

Price fixation is a form of governmental intervention in the market mechanism. It is based on the
assumption that the market forces of demand and supply may not always result in optimal
outcomes for the society. Therefore, the government may intervene to correct market failures or
distortions, such as:

Externalities: when the market activities create costs or benefits for third parties that are not
reflected in the prices
Public goods: when the market fails to provide goods or services that are non-excludable and
non-rivalrous, such as national defense or public health
Information asymmetry: when the market participants have unequal access to information that
affects their decisions, such as product quality or safety
Market power: when the market is dominated by a few sellers or buyers who can influence the
prices and quantities
Equity: when the market outcomes are unfair or unjust for certain groups or individuals

Regulatory Authorities

Price fixation can be done by various levels and branches of government, depending on the
nature and scope of the goods or services involved. For example:

● The central government may fix the prices of essential commodities, such as food
grains, petroleum products, drugs, etc., under the Essential Commodities Act, 1955.
● The state governments may fix the prices of agricultural produce, such as sugarcane,
cotton, etc., under the Agricultural Produce Marketing Committee Act, 1966.
● The local governments may fix the prices of public utilities, such as water supply,
electricity, etc., under the Municipal Corporation Act, 1956.
● The executive branch may fix the prices of goods or services through administrative
orders or notifications issued by various ministries or departments.
● The legislative branch may fix the prices of goods or services through statutes or acts
passed by Parliament or state legislatures.
● The judicial branch may fix the prices of goods or services through judgments or orders
passed by courts or tribunals.

Justiciability of Price Fixation

Legal Framework

Justiciability refers to the extent to which a matter can be decided by a court of law. It involves
two aspects: locus standi (the right to bring a case before a court) and judicial review (the power
of a court to examine the validity of a law or an action). The legal framework for the justiciability
of price fixation in India is based on:
The Constitution of India: It provides for the separation of powers among the executive,
legislative, and judicial branches. It also guarantees fundamental rights to citizens and imposes
reasonable restrictions on them in the public interest. It empowers the Supreme Court and high
courts to issue writs for the enforcement of rights and redressal of grievances.
The Statutory Laws: They provide for specific provisions for price fixation and its judicial
review. They also establish regulatory authorities and tribunals for adjudication of disputes
related to price fixation.
The Common Law: It provides for general principles and doctrines for the interpretation and
application of laws. It also recognizes various grounds for challenging price fixation, such as
arbitrariness, unreasonableness, irrationality, illegality, etc.

Judicial Review

Judicial review is the power of a court to examine the validity of a law or an action made by a
public authority. It is based on the principle of rule of law and checks and balances. It ensures
that the public authorities act within their jurisdiction and in accordance with the Constitution and
laws. Judicial review of price fixation can be done by:

The Supreme Court: It is the apex court of India and has original jurisdiction over matters
involving violation of fundamental rights or interpretation of the Constitution. It can issue writs of
certiorari, mandamus, prohibition, quo warranto, and habeas corpus for quashing, directing,
restraining, questioning, or releasing price fixation orders or actions.

The High Courts: They are the highest courts of states and have original jurisdiction over
matters involving a violation of fundamental rights or interpretation of the Constitution within
their territorial limits. They can also issue writs for judicial review of price fixation orders or
actions.

The Tribunals: They are quasi-judicial bodies established by statutes for adjudication of
disputes related to specific subjects or sectors. They have exclusive jurisdiction over matters
involving price fixation within their domain. They can also review the price fixation orders or
actions made by the regulatory authorities under their supervision.

Case Laws

The judicial review of price fixation in India has evolved through various case laws over the
years. Some of the landmark cases are:

Chintaman Rao v. State of Madhya Pradesh (1950)

Facts:
 ● Applications submitted by both the owner and an employee of a bidi manufacturing
company located in District Sagar, Madhya Pradesh.
● The applications sought enforcement of the fundamental right guaranteed under Article
19(1)(g) of the Constitution of India.
● Claimed that the state law allowing prohibition of bidi manufacturing in certain villages,
including their place of residence, is inconsistent with Part III of the Constitution and
therefore void.
● The Central Provinces and Berar Regulation of Manufacture of Bidis (Agricultural
Purposes) Act, 44 of 1948, was the relevant law in force at the commencement of the
Constitution.
● Sections 3 and 4 of the Act grant the Deputy Commissioner the authority to fix
agricultural seasons and prohibit bidi manufacturing in specified villages.

Issue: Whether the law authorizing the prohibition of bidi manufacturing in certain villages is
inconsistent with the provisions of Part III of the Constitution and is consequently void.

Decision:

● The provisions of the statute cannot be considered reasonable restrictions on the

applicants' right.
● Thus, the statute does not conform to the provisions of Part III of the Constitution.
● The impugned statute fails the test of reasonableness and is therefore void.
● The orders issued by the Deputy Commissioner on June 13, 1950, and September 26,
1950, are deemed void, inoperative, and ineffective.
● The respondents are instructed not to enforce Section 4 of the Act against the petitioners
in any manner whatsoever.

AK Gopalan v. State of Madras (1950)

Facts

● The Company engages in bidi manufacturing, with outsiders providing tobacco and bidi
leaves for preparation in their homes.
● The Judge-Magistrate of Sagar found the appellants guilty of contravening certain
sections of the Act.
● The appellants were convicted under Section 92 of the Act and fined Rs 50 and Rs 25
respectively.
● The Revision Petition filed in the High Court of Judicature at Nagpur was dismissed.

Issue: Whether the individuals found in the factory are considered workers under the Factories
Act?
Ruling: The appellants are not guilty of contravening the provisions of the Act because the
individuals found in the factory are not workers under the Factories Act.

Reasoning:

● The definition of "worker" in the Act includes all persons working in the factory,
regardless of employment status.
● Section 92 imposes penalties on the occupier and manager for contraventions of the
Act's provisions.
● For the appellants to have contravened the Act, the individuals found in the factory must
be workers as defined in the Act.
● A distinction exists between a contractor and a workman, as well as between a contract
for service and a contract of service.
● A key factor in determining a worker is whether they are under the control and
supervision of the employer regarding work details.
● Unless a person is employed in such a manner, they cannot be considered a workman
under the Act.
● The test established by the Court under the Industrial Disputes Act of 1947 can be
applied to determine if a person is a "worker" under the Act.
● The individuals in question are not under the control of the factory management and can
manufacture bidis wherever they choose.
● The management cannot regulate how they perform their work; their only obligation is to
deliver bidis to the factory.
● Therefore, the coolies employed by the Sattedars are not workers as defined by the Act.
● The uncontested evidence suggests that they function as independent contractors,
responsible for delivering bidis to the factory either personally or by dispatching their
own workers.
● The decision is limited to the facts of this case.

Statutes Involved

Factories Act, Section 53, Section 57, Section 58, Section 59, Section 61, Section 62, Section
63, Section 66(l)(b), Section 92. The appeal is allowed, and the appellants' convictions under
Section 92 of the Act and the imposed sentences are set aside.

Delhi Science Forum v. Union of India (1996)

Facts:

● Multiple writ petitions challenge the power of the Central Government to grant licenses to
non-government companies for establishing and maintaining Telecommunications
Systems in the country.
 ● The Finance Minister announced the government's intention to encourage private sector
involvement in the telecom sector to supplement the efforts of the Department of
Telecommunications.
● The issue of private sector involvement in telecommunications is interconnected with
defense and national security concerns.
● Some counsel argue against the validity and appropriateness of the new Telecom policy,
claiming it poses a risk to national security and does not serve the economic interests of
the nation.

Issue: Whether the Central Government has the authority to grant licenses to non-government
companies for establishing and maintaining Telecommunications Systems in the country, and
whether the procedure followed by the Central Government for granting such licenses is valid.
Rule of Law: Section 4 of the Indian Telegraph Act, 1885.

Analysis:

● The main argument challenges the legality of implementing the policy, claiming that the
Central Government, which has exclusive privilege under Section 4 of the Indian
Telegraph Act, cannot transfer this privilege to non-government companies through
tender-based payments, as it amounts to selling the privilege.
● The Act defines "telegraph" to include telephones and telecommunications services.
● Section 4(1) grants the exclusive privilege of establishing, maintaining, and working
telegraphs to the Central Government, but the proviso allows the Central Government to
grant licenses, on certain conditions and payments, to any person for establishing,
maintaining, and working telegraphs in India.
● Authorities, including the Central Government, have a fiduciary duty to exercise restraint
and avoid misplaced philanthropy or ideology.
● Courts cannot scrutinize and examine all decisions made by authorities vested with such
powers, but the changing societal scenarios have led to a departure from the rule of
judicial self-restraint.
● Parliament has adopted a national policy promoting liberalization and the entry of foreign
investors.

The writ petitions and transferred cases are dismissed, subject to the provided directions. No
costs are awarded.

Dwarka Prasad Laxmi Narain v. State of Uttar Pradesh (1954)

Facts:

● The petitioners, a firm of coal traders in Kanpur, had prices fixed by District Officers that
allowed them a certain profit margin.
● On February 14, 1953, a directive was issued by the District Supply Officer that
significantly reduced the selling prices of coke, coal, etc.
 ● The reduced prices made it impossible for the coal traders to continue their business.
● On October 13, 1953, the petitioners' license was cancelled, which they challenge as
being vague and motivated by the intention to force them out of the coal business.

Issue: Whether the Control Order and the cancellation of the petitioners' license are valid and
reasonable restrictions on the freedom of trade guaranteed under Article 19(1)(g) of the
Constitution.

Ruling: Clause 4(3) of the Control Order and the cancellation of the petitioners' license are
deemed invalid. A writ in the nature of mandamus is issued against the respondents to prevent
them from enforcing the cancellation order.

Reasoning:

● Legislation that grants arbitrary and uncontrolled power to the executive in regulating
trade or business in commonly available commodities is unreasonable.
● The provision stated in Clause 4(3) of the Uttar Pradesh Coal Control Order has been
deemed invalid, as it imposes an unjustifiable limitation on the freedom of trade and
business as guaranteed by Article 19(1)(g) of the Constitution. This restriction does not
qualify for the protection granted under clause (6) of the aforementioned article.
● The licensing authority is given absolute power to grant, refuse, renew, suspend, revoke,
cancel, or modify any license under the Order, with the only requirement being the
recording of reasons.
● Clause 4(3) of the Uttar Pradesh Coal Control Order must conform to the constitutional
requirements outlined above.
● Clauses (7) and (8) of the Control Order do not impose unreasonable restrictions on the
petitioners' freedom of trade, thus the declaration of July 16, 1953, is not considered
invalid.
● The formula allows for a 10% profit margin on cost items, except for incidental charges.
● The Control Order fixes the profit at 10% on landed costs, with the exception of Item 5,
and as this is not the maximum, it must be allowed in all cases.
● Under clause 8(1), 'B' licensees are required to sell their coal stocks according to the
prices set in Schedule III.

Clause 4(3) of the Control Order and the cancellation of the petitioners' license are deemed
invalid. A writ in the nature of mandamus is issued against the respondents to prevent them
from enforcing the cancellation order.

Conclusion

Price fixation is legislative in character because it satisfies the tests of legislation: it is general,
impersonal, and prospective in nature. However, it is also justifiable to the extent that it affects
the rights and interests of the parties involved. The courts have the power to review the validity
and legality of price fixation orders or actions made by public authorities. The courts have also
laid down various principles and guidelines for ensuring that price fixation is reasonable,
rational, and constitutional.