ANALYSIS OF ESSENTIAL COMMODITIES ACT AND THE ORDINANCE OF 2020
Essential commodity
There is no specific definition of essential commodities in The EC Act. Section 2(A) of the act states that an “essential commodity” means a commodity specified in the “Schedule” of this Act.
The Act gives powers to the central government to add or remove a commodity in the “Schedule.” The Centre, if it is satisfied that it is necessary to do so in public interest, can notify an item as essential, in consultation with state governments.
At present, the “Schedule” contains 8 commodities —
· Drugs;
· Fertilisers, Whether Inorganic, Organic Or Mixed;
· Foodstuffs, Including Edible Oils;
· Hank Yarn Made Wholly From Cotton;
· Petroleum And Petroleum Products;
· Raw Jute And Jute Textiles;
· Seeds Of Food-Crops And Seeds Of Fruits And Vegetables,
· Seeds Of Cattle Fodder,Jute Seed, Cotton Seed;
· Face Masks; And Hand Sanitizers
By declaring a commodity as essential, the government can control the production, supply, and distribution of that commodity, and impose a stock limit.
The law was so restrictive that it fell afoul of India’s new Constitution, and two constitutional amendments had to be passed to ensure that the government could continue with the powers:
In addition to curtailing the freedom to carry out trade and commerce (Article 19), Parliament had to take upon itself the power to regulate essential commodities by inserting a new entry in the Concurrent List (Entry 33, List III, Schedule VII).
Federalism and ECA
Though agriculture is a state subject (Entry 14), the concurrent list empowers the Centre to legislate on production and trade and supply of foodstuffs (Entry 33).
The Sarkaria Commission report on Centre-state relations pointed out that the Centre used Entry 33 to disproportionately empower itself in the sphere of agriculture. It recommended that centre should consult state before legislation on the concurrent list, establishing a permanent Inter-State Council as an independent national forum for consultation
The power of the Centre in agriculture management has certainly increased through this ordinance. States like Tamil Nadu and West Bengal have repeatedly called for transfer of Entry 33 from the Concurrent to the State list.
Constitutional validity and Ninth Schedule
The constitutional validity of price fixation under the act was in question before the Supreme Court in the Prag Ice and Oil Mills case, 1978. It was observed that the dominant purpose of price fixation was to ensure the availability of essential commodities to consumers at a fair price.
A reasonable rate of profit was not the sine qua non of the validity of action taken in furtherance of the powers conferred by Section 3 (1) and Section 3 (2)(c) of the act. It was also held that availability of an essential commodity to the common man, at a fair price, must rank higher than any other consideration.
The Essential Commodities Act is enlisted under the Ninth Schedule of the Constitution. This does not, however, mean it is outside the scope of judicial review.
The Ninth Schedule came under scrutiny after the landmark IR Coelho, 2007 judgement.
The Supreme Court said the laws inserted in it after April 24, 1973 — the day the Kesavananda Bharti verdict was pronounced — are also open to judicial review if they are violative of the basic structure of the Constitution.
Farmers may approach the Supreme Court if they feel laws such as the Essential Commodities Act violate their fundamental rights under Articles 14, 19, 21 or 32
Objectives
· Maintaining an uninterrupted supply of essential commodities in the country.
· The government (Ministry of Consumer Affairs, Food & Public Distribution) tries to keep the price of essential commodities stable.
· Preventing unnecessary storage of essential commodities
· Stop black marketing of essential commodities
Need for Ordinance
The EC Act was legislated at a time when the country was facing a scarcity of foodstuffs due to persistent abysmal levels of foodgrain production. The country was dependent on imports and assistance (such as wheat import form US to feed the population. In this scenario, to stop the hoarding and black marketing of foodstuffs, The Essential Commodities Act was enacted in 1955.
A note prepared by the Ministry of Consumer Affairs, Food and Public Distribution shows that production of wheat has increased by 10 times (from less than 10 million tonnes in 1955-56 to more than 100 million tonnes in 2018-19); during the same period, the production of rice has increased more than four times from around 25 million tonnes to 110 million tonnes. The production of pulses has increased by 2.5 times, from 10 million tonnes to 25 million tonnes. In fact, India has now become an exporter of several agricultural products. With these developments, the EC Act has become anachronistic.
What is seemingly ignored, however, is the population of India increased to 1.3 billion in 2020 from 360 million in 1951.
This year’s Economic Survey devoted one full chapter to the distortions in India’s agricultural economy. In particular, it noted that “blanket stock limits on commodities under the Essential Commodities Act (ECA) neither brings down prices nor reduces price volatility”.
The survey said 76,000 raids were conducted in 2019 under the Essential Commodities Act to prevent violation of stock limits.
A considerable administrative effort was utilised for the enforcement of the act, according to the survey. It was also pointed out that the conviction rate was an abysmal 3.8 percent.
This should, however, not be the reason for diluting the act. Instead, an effective framework must be put in place to ensure speedy trial and disposal of violation cases.
One cannot ignore the pulses scam that involved the manipulation of prices in 2015. An investigation by the Income-Tax Department found several big MNCs played a major role in spiking prices of pulses.
Another problem is that India is still dependent on the monsoon for producing sufficient food grains. A majority of farm holding in India is small and marginal. Our policies, thus, must ensure sustainable farm growth taking into consideration factors like climate change, land holdings, consumer capacity, and farmers’ interests.
One cannot ignore the pulses scam that involved the manipulation of prices in 2015. An investigation by the Income-Tax Department found several big MNCs played a major role in spiking prices of pulses.
Another problem is that India is still dependent on the monsoon for producing sufficient food grains. A majority of farm holding in India is small and marginal. Our policies, thus, must ensure sustainable farm growth taking into consideration factors like climate change, land holdings, consumer capacity, and farmers’ interests.
Objectives of the ordinance 2020
The Act empowers the central government to designate certain commodities (such as food items, fertilizers, and petroleum products) as essential commodities.
The Ordinance provides that the central government may regulate the supply of certain food items including cereals, pulses, potato, onions, edible oilseeds, and oils, only under extraordinary circumstances like (i) war, famine, extraordinary price rise and natural calamity of grave nature.
The Act empowers the central government to regulate the stock of an essential commodity that a person can hold.
Invoking the ECA was problematic. Food processing industries especially need to keep stocks for a few months at a time so that fluctuating prices don't throw their economics out of gear. But under the act, they can become liable at least for harassment. These are corporate entities with large, earmarked storage facilities which can be easily identified. So it was easy for inspectors to go after them.
The Ordinance requires that the imposition of any stock limit on certain specified items must be based on price rise.
A stock limit may be imposed only if there is:
(i) 100% increase in the retail price of horticultural produce;
(ii) 50% increase in the retail price of non-perishable agricultural food items.
The increase will be calculated over the price prevailing immediately preceding twelve months, or the average retail price of the last five years, whichever is lower.
The Ordinance provides that any stock limit will not apply to a processor or value chain participant of agricultural produce if stock held by such person is less than the Overall ceiling of installed capacity of processing, or demand for export in case of an exporter.
The provisions of the Ordinance regarding the regulation of food items and the imposition of stock limits will not apply to any government order relating to the Public Distribution System or the Targeted Public Distribution System. Under these systems, food grains are already distributed by the government to the eligible persons at subsidized prices.
This amendment comes against the backdrop of the government reaching out to financially weaker sections including farmers amid growing criticism that the lockdown, while necessary to control the spread of COVID-19, was unplanned. This has forced a large number of migrant workers to head back to their villages from the cities.
“While India has become surplus in most agri-commodities, farmers have been unable to get better prices due to lack of investment in cold storage, warehouses, processing and export as the entrepreneurial spirit gets dampened due to hanging sword of ECA
This will remove fears of private investors of excessive regulatory interference in their business operations " the government said in a statement.
The increase will be calculated over the price prevailing immediately preceding twelve months, or the average retail price of the last five years, whichever is lower.
The Ordinance provides that any stock limit will not apply to a processor or value chain participant of agricultural produce if stock held by such person is less than the Overall ceiling of installed capacity of processing, or demand for export in case of an exporter.
The provisions of the Ordinance regarding the regulation of food items and the imposition of stock limits will not apply to any government order relating to the Public Distribution System or the Targeted Public Distribution System. Under these systems, food grains are already distributed by the government to the eligible persons at subsidized prices.
This amendment comes against the backdrop of the government reaching out to financially weaker sections including farmers amid growing criticism that the lockdown, while necessary to control the spread of COVID-19, was unplanned. This has forced a large number of migrant workers to head back to their villages from the cities.
“While India has become surplus in most agri-commodities, farmers have been unable to get better prices due to lack of investment in cold storage, warehouses, processing and export as the entrepreneurial spirit gets dampened due to hanging sword of ECA
This will remove fears of private investors of excessive regulatory interference in their business operations " the government said in a statement.
The Ordinance seeks to increase competition in the agriculture sector and enhance farmers’ income and also aims to liberalize the regulatory system while protecting the interests of consumers.
Loopholes
- In case of exporters exempted from stock limit, will it be confirmed export orders in hand or only the export orders for which letters of credit have been opened?
- One of the major deficiencies in our management of food stocks is that the government just does not know the stocks which are held by the private sector. In the case of central pool stocks of wheat and rice, not only the stock position is in the public domain but even the location of such stocks is known to the government through a computerized stock management system of FCI. No such system exists for privately-held stocks
Case Laws
- Satpal Gupta v. State of Haryana
- State of Bombay v. Virkumar Gulab Chand Shah AIR 1952 SC335
- S.Samuel, M.D., Harrisons v. Union of India 2004 SSC 256
LANDMARK JUDGEMENTS
Thus mere doing of a wrong and prohibited act is not enough in itself to fix criminal liability unless it is coupled with a guilty mind. In case of traditional offenses, generally speaking, liability is not absolute and is rather related to the intention of the wrongdoer.
However, with respect to socio-economic offenses, the tendency of the legislature is to curtail the requirement of mens rea for criminal liability. The harm done by these offences are greater than that of traditional crimes. Therefore, the policy of the legislature in such cases is not to be lenient in the matter of their prevention, control and punishment and the wrongdoer is not allowed to escape unpunished.
Penal liability in such cases is treated as strict e.g. without reference to mens rea. However, the element of a guilty mind is ever-present in socio-economic offenses but it is very difficult to prove it legally.
With reference to socio-economic offenses, the attitude of the supreme court in relation to mens rea was that it is an essential ingredient of an offense. Nathu Lal V. state of State of Maharashtra and Mangaldas V. State of Maharashtra courts proceed with an initial presumption in favor of the need for mens rea but are prepared to dispense with it.
- Nathu Lal v. State of Madhya Pradesh (AIR 1966 SC 43)
This case established the importance of the concept of mens rea under the essential commodities Act,1996.
In this case, the applicant was the dealer of foodgrains at Dhar in Madhya Pradesh. He was prosecuted for having in stock 885 maunds and 21/4 seers of wheat without a license for the purpose of sale thereby committed an offense under Section 7 of essential commodities Act,1995. The appellant pleaded that he did not intentionally contravene the provision of the Act, he said that he stored the goods after applying for the license and he was fully convinced by the government authorities that it would be issued to him.
It was held that the mere fact that the nature of the statute is to promote welfare Activity and eradicate the social evil itself does not exclude mens rea from its ambit.
The elements of mens rea excluded from any statute only if it defeats the object to such a statute.
Thus when we read the object of the Essential Commodities Act which is “to control trade in certain commodities for the interest of the general public” we cannot say that this would be defeated if the mens rea is read like an ingredient of offenses committed under it.
Therefore in an offense under Section 7 would be committed only if a person intentionally contravenes the provision of Section 3 of the Act.
However, in this case, the appellant successfully proved that he had no guilty intention at the time of having stored the seized essential commodities however despite having contravening of the order issued under Section 3 he was not prosecuted for this offense.
In this case, the respondents who were lorry driver, cleaners and coolie were prosecuted for the offense committed under Section 3 and Section 7 of the essential commodities Act. They were carrying bags of fertilizers in trucks from Indore to Maharashtra. The lorry driver possessed invoice and other records but they did not include a permit issued under the Fertilizers (movement control) Order, 1973.
However, the accused did not deny the fact that they transport bags of fertilizers in their respective lorries and intercepts the lorries at Sendhwa sales tax barrier but said that they had no knowledge about the contents of the document so seized.
It was held that the mere fact that the nature of the statute is to promote welfare Activity and eradicate the social evil itself does not exclude mens rea from its ambit.
The elements of mens rea excluded from any statute only if it defeats the object to such a statute.
Thus when we read the object of the Essential Commodities Act which is “to control trade in certain commodities for the interest of the general public” we cannot say that this would be defeated if the mens rea is read like an ingredient of offenses committed under it.
Therefore in an offense under Section 7 would be committed only if a person intentionally contravenes the provision of Section 3 of the Act.
However, in this case, the appellant successfully proved that he had no guilty intention at the time of having stored the seized essential commodities however despite having contravening of the order issued under Section 3 he was not prosecuted for this offense.
- State of Madhya Pradesh v. Narayan Singh & Ors (1989 AIR 1789)
In this case, the respondents who were lorry driver, cleaners and coolie were prosecuted for the offense committed under Section 3 and Section 7 of the essential commodities Act. They were carrying bags of fertilizers in trucks from Indore to Maharashtra. The lorry driver possessed invoice and other records but they did not include a permit issued under the Fertilizers (movement control) Order, 1973.
However, the accused did not deny the fact that they transport bags of fertilizers in their respective lorries and intercepts the lorries at Sendhwa sales tax barrier but said that they had no knowledge about the contents of the document so seized.
The Supreme Court, held that the main reason to amend Section 7 in 1967 was to impose strict liability on the offender in contravention of the control order through adding the crucial words like “whether knowingly, intentionally, or otherwise”. Therefore now this Section is comprehensively worded so to take within the fold of not only the offenses of contraventions done knowingly or intentionally but even unintentionally.
The mere fact that the respondent exports bags of fertilizers without permit itself does not consider as a valid reason for convicting them in this case, the prosecution also failed to prove that there is any culpable mental state or innocuous purpose involved in the parts of the respondents. Therefore the Supreme Court did not award any punishment to the respondent for the commitment of the aforesaid offense.
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