Facts of the Case

The State authorities filed a writ appeal challenging the order dated 14 December 2021 passed in W.P. No. 104417/2021. The writ petitioner, Shri K. Nagaraja, proprietor of a fertilizer and pesticide business, had separately initiated contempt proceedings alleging deliberate non-compliance with the writ Court’s direction to return the confiscated fertilizer stock.

The writ Court had quashed the Deputy Commissioner’s order dated 27 October 2021 passed under the Essential Commodities Act, 1955, whereby the seized fertilizer stock had been ordered to be confiscated. The writ Court had also directed the Fertilizer Inspector and Agricultural Officer to return the confiscated fertilizer and permitted the petitioner to correct an inadvertent error in Form A1 filed under Clause 8(2) of the Fertilizer (Control) Order, 1985.

The petitioner had submitted a Memorandum of Intimation in Form A1 for carrying on business as a retail dealer in fertilizers. Under Clause 8(3) of the Fertilizer (Control) Order, 1985, acknowledgment of such Memorandum of Intimation operates as a deemed authorisation letter. The petitioner had initially obtained such authorisation in 2009, followed by renewals. For the latest renewal, acknowledgment in Form A2 was issued for the period from 20 March 2021 to 19 March 2026.

In the Memorandum of Intimation, the petitioner had furnished the same address as the sale address and storage address. However, for GST registration purposes, multiple places of business had been declared. In an earlier renewal application filed in 2018, the petitioner had indicated the godown as being opposite Corporation Bank, Moka.

On 11 August 2021, the authorities inspected premises situated opposite the bank premises, by then referred to as Union Bank of India following the merger of Corporation Bank. The authorities alleged that the petitioner had changed the godown premises without obtaining amendment of the relevant registration particulars.

A show-cause notice was issued alleging that the godown had been changed without amendment of the certificate. Thereafter, the petitioner applied for correction of Form A1 to reflect the godown address as the shop opposite Union Bank of India, Moka, Bellary. The authorities accepted the request for amendment.

Despite this, another show-cause notice dated 23 August 2021 was issued under Section 6A of the Essential Commodities Act, 1955 for confiscation of the seized fertilizer. Subsequently, the Deputy Commissioner passed the order dated 27 October 2021 directing confiscation of the fertilizer seized during the inspection.

The writ Court quashed the confiscation order and directed return of the fertilizer stock. The State authorities challenged that decision before the Division Bench.

Issues Involved

The principal issues before the High Court were:

  1. Whether the terms and conditions contained in the Memorandum of Intimation in Form A1 filed under Clause 8(2) of the Fertilizer (Control) Order, 1985 are mandatory.
  2. Whether contravention of such terms and conditions justifies immediate initiation of confiscation proceedings under Section 6A of the Essential Commodities Act, 1955.
  3. Whether, in cases involving contravention of the terms and conditions of the Memorandum of Intimation, proceedings should first or simultaneously be initiated under Clause 31 of the Fertilizer (Control) Order, 1985.
  4. Whether the Fertilizer Inspector was empowered to search and seize fertilizer stored in alleged contravention of the conditions governing the dealer’s authorisation.
  5. Whether failure to correctly or completely mention the godown address justified the drastic remedy of confiscation.
  6. Whether the writ Court was justified in directing release of the confiscated fertilizer stock.

Petitioner’s Arguments

The petitioner contended that even assuming there was a contravention of the terms and conditions of the Fertilizer (Control) Order, 1985 or the Memorandum of Intimation, the appropriate statutory course was to initiate proceedings under Clause 31 of the Control Order.

It was argued that Clause 31 permits the competent Notified Authority, after providing an opportunity of hearing, to suspend or cancel the authorisation or debar the dealer from carrying on fertilizer business where the terms and conditions of the Memorandum of Intimation or provisions of the Control Order are contravened.

The petitioner further submitted that the proviso to Clause 31(1) enables the dealer to be allowed a period of thirty days to dispose of the balance fertilizer stock while passing an order of debarment or cancellation. Confiscation would arise only where the stock remained undisposed of after expiry of the permitted thirty-day period.

Accordingly, it was contended that direct recourse to Section 6A of the Essential Commodities Act, 1955, without first following the procedural framework contemplated under Clause 31, amounted to an extreme and drastic exercise of power.

The petitioner also argued that proceedings under Clause 31 would have ensured an opportunity of hearing and would have preserved the statutory appellate remedy under Clause 32A of the Fertilizer (Control) Order, 1985.

It was further emphasized that the premises inspected by the authorities were in the immediate vicinity of the bank referred to in the earlier renewal application. Corporation Bank had subsequently merged with Union Bank of India. Therefore, the discrepancy was essentially connected with the description of the godown address rather than any clandestine or fundamentally different storage location.

Respondent’s Arguments

The State authorities contended that the terms and conditions forming part of the Memorandum of Intimation under Clause 8 of the Fertilizer (Control) Order, 1985 are mandatory and that violation of those conditions constitutes contravention of the Control Order.

The State argued that the Control Order had been issued by the Central Government in exercise of statutory powers under Section 3 of the Essential Commodities Act, 1955 and therefore carried statutory force. Compliance with its requirements was mandatory.

Reliance was placed on Clauses 7 and 8 of the Control Order. It was submitted that no person could sell, offer for sale or carry on the business of selling fertilizer as a wholesale or retail dealer except in accordance with Clause 8.

The State further relied upon Clauses 10, 11, 26, 27, 28 and 31 of the Control Order to contend that the statutory scheme conferred inspection and seizure powers upon Fertilizer Inspectors and provided consequences for contravention of the terms and conditions governing authorisation.

According to the State, the petitioner had failed to disclose the inspected premises as the relevant sale or godown address in the latest renewal documentation. Therefore, there was a violation of the Memorandum of Intimation and consequently of the Control Order.

On that basis, the State sought restoration of the Deputy Commissioner’s confiscation order and challenged the writ Court’s conclusion that the conditions in the Memorandum of Intimation were not mandatory impositions.

Court Order / Findings

The Division Bench held that the terms and conditions forming part of the Memorandum of Intimation in Form A1 are mandatory.

The Court disagreed with the writ Court to the extent that the writ Court had treated such terms and conditions as not amounting to mandatory impositions. The Division Bench observed that Clause 7 categorically prohibits a retail dealer from selling, offering for sale or carrying on the business of selling fertilizer except under and in accordance with Clause 8.

The Court held that the statutory scheme of the Fertilizer (Control) Order, 1985 regulates fertilizer business through authorisation requirements, search and seizure powers, suspension or cancellation of authorisation, debarment and appellate remedies. In this statutory framework, the conditions contained in the Memorandum of Intimation are mandatory.

The Court referred to the Supreme Court decision in May George vs Special Tahsildar & Ors., (2010) 13 SCC 98, concerning the principles for determining whether a statutory provision is mandatory or directory. The Court also noted that this proposition had been reiterated by the Constitution Bench in Indore Development Authority vs Manoharlal and Others, (2020) 8 SCC 129.

On the relationship between the parent statute and subordinate legislation, the Court referred to Nedurimilli Janardhan Reddy vs Progressive Democratic Students’ Union, (1994) 4 SCC 506, emphasizing that subordinate rules or regulations supplement the Act and do not supplant it.

The Court examined Clause 28 of the Fertilizer (Control) Order, 1985 and held that a Fertilizer Officer possesses powers of search and seizure where there is reason to believe that fertilizer is being manufactured, sold, offered for sale, stored, exhibited for sale or distributed contrary to the Control Order.

Under Clause 28(3), where fertilizer is seized, the seizure must forthwith be reported to the Collector, whereupon Sections 6A, 6B, 6C, 6D and 6E of the Essential Commodities Act, 1955 apply concerning custody, disposal and confiscation of the seized fertilizer.

The Court therefore held that confiscation under the Essential Commodities Act is legally a possible course of action. However, the exercise of such jurisdiction must be tempered by the remedies and procedures available under the Fertilizer (Control) Order, 1985.

The Court held that where the alleged misconduct involves:

  • wilful suppression of material facts or misrepresentation of relevant particulars; or
  • contravention of the terms and conditions of the Memorandum of Intimation or a violation of similar nature under the Control Order,

the concerned Notified Authority must, simultaneously with filing the report contemplated under Clause 28(3), initiate proceedings under Clause 31 for suspension, cancellation or debarment.

The Court further clarified that where the contravention is beyond those circumstances or is otherwise graver, proceedings under Section 6A of the Essential Commodities Act, 1955 may be initiated, with closure of the proceedings initiated under Clause 31 of the Control Order.

On the specific facts, the Court found that one of the conditions of the Memorandum of Intimation required the dealer to report changes in the premises of the sale depot and attached godowns. Clause 34 also provides a mechanism for amendment of entries in the authorisation letter.

The petitioner had not applied for amendment before the inspection but had done so subsequently, and the amendment was accepted. The earlier renewal application had described the godown as being near Corporation Bank, while the inspected premises were in the immediate vicinity of the same bank branch, later referred to as Union Bank following the merger.

The Court held that the failure to mention the complete address or to file the amendment application before inspection necessarily fell within Clause 31(1)(b) of the Fertilizer (Control) Order, 1985.

Accordingly, initiation of proceedings under Section 6A of the Essential Commodities Act, 1955 for such a violation was held to be a drastic and unjustified measure in the facts of the case.

The Court also took note of mitigating circumstances, including the position concerning appointment of Notified Authorities under Clause 26A. It observed that if proceedings had been taken under Clause 31, the petitioner could have been permitted to dispose of the fertilizer stock within the period contemplated by the provision.

Consequently, the Division Bench held that the writ Court was justified in directing return of the confiscated fertilizer.

The writ appeal was allowed in part and the writ Court’s order was modified in terms of the Division Bench’s findings. The appellants were directed to release the confiscated 1,086 bags of fertilizer to the respondent within one week from the date of receipt of a representation from the petitioner.

The petitioner was granted liberty to submit a representation for release of the confiscated fertilizer bags within fifteen days from receipt of the certified copy of the order.

The connected contempt proceedings were dropped, subject to liberty as recorded in the judgment.

Important Clarification

The judgment draws a significant distinction between:

  1. the legality of search and seizure under Clause 28 of the Fertilizer (Control) Order, 1985;
  2. the availability of confiscation proceedings under Sections 6A to 6E of the Essential Commodities Act, 1955; and
  3. the disciplinary and regulatory procedure under Clause 31 of the Fertilizer (Control) Order, 1985.

The High Court did not hold that the terms and conditions of Form A1 are optional. On the contrary, the Division Bench expressly held them to be mandatory.

The Court also did not hold that confiscation proceedings under Section 6A can never be initiated. It recognised confiscation as a legally permissible course where fertilizer has been validly seized and the statutory circumstances justify such action.

However, the Court clarified that where the alleged violation consists of wilful suppression, misrepresentation or contravention of the terms and conditions of the Memorandum of Intimation of the nature contemplated under Clause 31, the statutory framework under the Control Order must be appropriately integrated with action under the Essential Commodities Act.

For violations falling within Clause 31(1)(a) or Clause 31(1)(b), the concerned Notified Authority must simultaneously with the report under Clause 28(3) initiate proceedings for suspension, cancellation or debarment. Where the contravention is beyond those circumstances or is otherwise graver, Section 6A proceedings may be pursued in the manner clarified by the Court.

Therefore, a minor or address-related regulatory breach, particularly where mitigating facts exist and the discrepancy has subsequently been corrected and accepted, should not automatically result in immediate confiscation as the first and only response.

Sections and Clauses Involved

Essential Commodities Act, 1955

  • Section 3 — Power to control production, supply, distribution, etc., of essential commodities
  • Section 6A — Confiscation of essential commodity
  • Section 6B — Issue of show-cause notice before confiscation
  • Section 6C — Appeal against confiscation order
  • Section 6D — Award of confiscation not to interfere with other punishments
  • Section 6E — Bar of jurisdiction in certain cases

Fertilizer (Control) Order, 1985

  • Clause 7 — Registration of industrial dealers and authorisation of other dealers
  • Clause 8 — Application for intimation or registration
  • Clause 8(2) — Memorandum of Intimation in Form A1
  • Clause 8(3) — Acknowledgment in Form A2 and deemed authorisation
  • Clauses 10 and 11 — Validity and renewal of authorisation
  • Clause 26A — Appointment of Notified Authorities
  • Clause 28 — Powers of Fertilizer Inspector, including search and seizure
  • Clause 28(3) — Reporting seizure to Collector and applicability of Sections 6A to 6E of the Essential Commodities Act
  • Clause 31 — Suspension, cancellation or debarment
  • Clause 31(1)(a) — Wilful suppression or misrepresentation
  • Clause 31(1)(b) — Contravention of the Control Order or terms and conditions of the Memorandum of Intimation
  • Clauses 32 and 32A — Appellate remedies
  • Clause 34 — Amendment of entries in authorisation
  • Clause 36 — Prescribed fee requirements

Other Provisions

  • Section 4 of the Karnataka High Court Act — Provision invoked for filing the writ appeal
  • Sections 11 and 12 of the Contempt of Courts Act, 1971 — Provisions invoked in the connected contempt petition
  • Article 215 of the Constitution of India — High Court’s contempt jurisdiction

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783677897_2111compressed.pdf

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