Regulating Industrial Alcohol | Day 5: Union must exercise complete control over industries to protect national interests

Union control over industries is a must

Mehta gave the court several examples for why the Union needs complete control over the alcohol industry. During the COVID 19 pandemic, he reminded the Bench, several orders were issued to ensure availability of ethanol at the notified price for the manufacturing of sanitizers. In moments of crises, the Union’s hands could not be tied, in anticipation of state governments taking action. 

He then referred to the National Biofuel Policy, 2018 where the Union government encouraged industries to set up or expand distilleries (molasses based, grain-based and dual-feed based) throughout the country. “If that project succeeds, the dependence on other fuel would be substantially reduced,” he said. To execute nation-wide plans such as this, the government requires control over industries. 

“There are situations and circumstances which we may not be able to contemplate now, but which may be required to be exercised for the purpose of regulation. That’s the purpose.”

Union government exercises regulatory forbearance over industries

Section 18G of the Industries (Development and Regulation) Act, 1951 (Industries Act) stipulates that the Union government may take control of supply, distribution, price, and other aspects of certain articles “by notified order.” Appellants in the case had previously argued that till date no such legislation had been made, and hence, the Union had not “occupied the field” of industrial regulation under Entry 33 of the Concurrent List. 

Continuing his arguments from the previous hearing, Mehta argued that the existence of the Industries Act, coupled with the powers of the Union under Entry 52 was evidence of the Union having occupied the field. In this instance, the Union had governed through forbearance. This means that they had not explicitly notified nor implemented their control over it. It was a “deliberate, conscious, intentional policy choice of non-interference.”  However, this did not mean that the Union had relinquished their power to do so. 

In his written submissions, the Solicitor General had written that:

“Regulatory forbearance should not be understood as equivalent to deregulate or lack of regulation. It also does not imply “no regulation” or “NIL regulation”. It merely means a conscious choice made by the regulator to allow the market forces to play in absence of any regulation and achieve the object of development and regulation of scheduled industries, till the change of circumstances at which time the regulator has the power to step in.”

A “notified order” under Section 18G would be required only when the Union Government “chooses to take a positive decision,” Mehta said. He argued that if the Court were to decide that a notified order was mandatory to exercise control, the purpose of regulatory forbearance, a “better way of regulating through market forces,” would be defeated. 

Advocate Sansriti Pathak argued that if Parliament is of the view that a sector needs “only a light touch regulation, or no regulatory intervention at all, or if the Parliament feels that an intervention will be counterproductive, the Parliament will abstain from providing any regulation and will allow the market forces to play.”

Tika Ramji no longer good law 

In Ch. Tika Ramji & Others v State of Uttar Pradesh (1956) the Supreme Court had held that sugarcane cannot be regulated by the Union as it was a raw material and hence, not a part of manufacturing under Entry 52 of the Union List. Tika Ramji had also held that “industry” could be understood to have three components:

1. raw materials which are an integral part of the industrial process, 
2. the process of manufacture or production
3. the distribution of the products of the industry. 

Raw materials would be under Entry 27 of the State List. The process of manufacture or production fell under Entry 24 of the State List but would come under Entry 52 of the Union List if it were declared as a scheduled industry. Distribution of products would fall under Entry 27 of the State List, unless they are scheduled industries, in which case, the Union could exercise control under Entry 33 of the Concurrent List. 

Mehta argued that this categorisation was incorrect, as industries comprised all aspects. If the categorisation given in Tika Ramji is accepted, then all enabling acts that empower the Union government to regulate any industry will be left redundant, he said. 

Chief Justice D.Y. Chandrachud asked “Is it necessary for us to go wielding the axe and overruling an older judgement? Are you in a situation where you have to overturn Tika Ramji or your arguments won’t hold water?” Hands folded in thought, the Chief wondered if Tika Ramji had an “egregious error.” Entry 27 of State List is a clear indicator that Products don’t fall under “industry”. He pointed out that this was a nine-judge Bench with “untrammelled power.” They could do away with Tika Ramji, but were concerned that this was an old judgement that had “stood the test of time.” “We don’t know what the large-scale impact would be.”

Mehta pointed out that the reference order which sent this case to a nine-judge Bench indicated that the case under consideration in Synthetics & Chemicals Ltd. v State of Uttar Pradesh (1990) had not considered Tika Ramji. 

Advocate Omar Ahmed argued on the meaning of “intoxicating liquor,” stating that the word necessarily had to concern potable beverages. He relied on Bihar Distillery v Union of India (1997) where the Court said that “the very word ‘intoxicating’ signifies ‘for human consumption.’” He also argued that there was a “cogent reason” why ‘intoxicating liquor’ should be given a different meaning in Entry 8 of the State List from Article 47, which concerns public health. He also argued that the decision in State of Bombay v F.N. Balsara (1951) to consider intoxicating liquor as “all liquids containing alcohol” was incorrect, as the Bench did not adequately justify why they discarded the plain meaning of the phrase. 

Tika Ramji on repugnancy of laws is not within scope of the judgement

Tika Ramji had also held that state and Union law cannot be considered to be inconsistent with each other unless there is an express notified order by the Union occupying a field of regulation. In law, when a Union government’s legislation occupies the field of regulation, any state law made in this scope is repugnant or inconsistent. 

Mehta argued that this was not the ratio, the binding part of the judgement. The Court had incorrectly already made a decision. “There was no occasion for the Bench in Tika Ramji to further dwell on a question which had become purely academic,” Meha wrote in his submissions.

He referred to State of Orissa v M.A. Tulloch (1964) where the Court held that this view laid down by Tika Ramji “is without force.” In Hingir-Rampur Coal v State of Orissa (1960) where the Court considered the scope of the Mines and Minerals (Development and Regulation) Act, 1951, the Court had held that “in order that the declaration should be effective it is not necessary that rules should be made or enforced.” Further, it had noted that “all that this required is a declaration by Parliament” in such regard. In this case, the Industries Act would apply. The Court in Hingir-Rampur had held that when such a law exists, the “test must be whether the legislative declaration covers the field or not.”

Advocate Tahira Karanjawala argued that the Court’s decision in Tika Ramji which found a notified order crucial to occupy a field of regulation was obiter dicta as the question “did not arise in the facts of that case.”

Union Government completely occupies the field

Mehta argued that for the doctrine of occupied field to kick in, it is sufficient that Parliament has exercised its legislative power to enact the laws under Union List read with or without the Concurrent List. That is, a law made by Parliament under Entry 52 of the Union List and Entry 33 of the Concurrent List, the Industries Act, is itself proof of an occupied field. Hence, any law made by the State Government will be repugnant. 

He pointed to provisions of the Industries Act to buttress his point. Section 26 gives the Union power to “directions to any State Government [for the execution of] any of the provisions of this Act or of any order or direction made thereunder.” Section 31 which states that “The provisions of this Act shall be in addition to and not save as otherwise expressly provided in this Act, in derogation of any other Central Act, for the time being in force.” Mehta stressed: “the State Act is barred.”

He then relied on the history of the Industries Act to argue that the Union has always had control over the alcohol industry. He referred to the Indian Power Alcohol Act, 1948, the Central Government Constituted Alcohol Committee, 1956 and the Ethyl Alcohol (Price Control) Order, 1966. 

Hearing will resume on 18 April 2024 with rejoinder arguments.