SIDDALINGESHWARA ADIKE STORES Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) In these Writ Petitions, presented by the petitioners, who are traders as also commission agents licenced under the provisions of the Karnataka Agricultural Produce Marketing (Regulation) Act, 1966, (the Act for short), the following question of law arises for consideration : Whether Sections 78 and 79-A of the Act introduced into the Act by the Karnataka Agricultural Produce Marketing (Regulation) (Amendment) Ordinance, 1986 (Ordinance for short), which provides for the collection of commission, payable to commission agents from the buyers, are unconstitutional? In order to appreciate the question arising for consideration, it is necessary to make a brief survey of the relevant provisions of the Act, as it stood prior to the ordinance as also the substantial changes brought about by the Ordinance. The Act was enacted to provide for the better regulation of buying and selling of agricultural produce and the establishment and administration of markets for agricultural produce in the State. By Act 43 of 1976, the words 'buying and selling' in the preamble were substituted by the word 'marketing'. The significance of this change has been explained by this Court in the case of Vasavi Traders v. State of Karnataka, ILR (Karnataka) 198 = 1982(2) KLJ 357 to which we shall refer later. Section (8) of the Act defined the words 'commission agent'. It read : "commission agent" means a person who on behalf of his principal and in consideration of a commission or percentage upon the amount involved in each transaction keeps in his custody the goods of his principal and sells the same and holds himself liable to deliver it to the buyer and to make payment of its price to his principal ;" Section 2(21) defines the words 'market functionary'. The expression includes Traders and Commission Agents. The petitioners in the first 11 petitions are traders and the petitioner in the last petition, is a commission agent. Section 75 of the Act made provision regarding payment of price, which read : "Payment of price :- Subject to such deductions, if any, as are authorised to be deducted according to this Act or the rules or the bye-laws or under any other law for the time being in force, by way of- i) fees, ii) market charges, iii) taxes, and iv) the advances, if any, on the goods made and evidenced by authentic vouchers with interest, if any, due thereon, the price of the goods sold in the yard and outside the market or the sub-market in the market area. Shall be paid to the seller by the buyer in cash, immediately after the sale except in a case where a commission agent agrees in writing, in the form prescribed by the bye-laws, to give delivery to the buyer on credit of a term which shall in no case exceed the maximum period of credit prescribed by the bye-laws." Section 78 before its amendment read as follows : "Commission agents' commission and responsibility--(1) No commission agent shall be entitled to charge commission to any person other than his principal, and such commission shall not exceed the rate prescribed in the bye-laws, which shall not be more than 2 per cent of the price for which the agricultural produce of the principal is sold, for the services rendered to his principal including the facilities provided by the commission agent for the storage of the goods of the principal." Section 79 prohibited collection of any remuneration or fees for the services rendered except as prescribed under the rules or bye-laws made under the Act. Sub-section 2 of Section 79 further provided that no commission agent shall receive any fee or commission from any person other than his principal and other than those permissible under the Act. Sub-section 2 of Section 85 provided that no trader shall buy or take delivery of any goods from any commission agent on credit basis, except Co the extent provided under the said proviso on furnishing Bank guarantee prescribed for different classes of traders. Sub-section 2 of Section 86 provided that no licensed commission agent shall remain indebted to his principals in respect of the sums payable to them as a result of the sale of their goods entrusted to such commision agent for sale, to such an extent as the security or guarantee deposited or furnished falls short of such percentage as shall be provided in the bye-laws which shall not be less than one per cent of the aggregate amount of the indebtedness arising out of such sales. The substance of these provisions to the extent it is relevant for these cases was 'commission agents' were regarded as agents of sellers and they could collect commission, at the rate prescribed only from their principals i.e., sellers and from no other.

(2.) The changes effected by the Ordinance are as follows: The definition of the word 'commission agent' has been replaced by Section 2(iii) of the Ordinance. It reads : "For Clause (8), the following clause shall be substituted, namely : "(8) "Commission agent" means a person who in the ordinary course of business makes or offers to make a purchase or sale of agricultural produce on behalf of the owner or seller or purchaser of such agricultural produce for commission;" There is a significant departure regarding the definition of the 'commission agent'. According to the original definition, the commission agent was an agent of only the seller, but, according to the amended definition a commission agent could be the agent either for the seller or for the buyer. The substituted Section 78 and the newly inserted Section 79-A read : "78. Commission agents, commission and responsibility : (1) A Commission agent shall recover his commission only from the buyer at such rates not exceeding two per cent of the price for which the agricultural produce is sold as may be specified in in the bye-laws : Provided that in case of agricultural produce like fruits, vegetables and flowers, a commission agent may charge commission at such rates not exceeding four per cent of the price for which such agricultural produce is sold as may be specified in the bye-laws: (2) A Commission Agent shall : (a) arrange for the storage of the goods of the seller ; (b) keep the goods of the seller in safe custody add adequately insure against fire ; and (c) pay the seller in cash the price of the goods as soon as such goods are sold." "79A. Market charges by whom payable : All market charges payable after the sale of the agricultural produce shall be recovered from the buyer."

(3.) According to the substituted Section 78, in respect of very transaction that takes place in the market yard, in which, a commission agent is involved, the commission payable to the commission agent concerned according to the rates prescribed under the Act and the bye-laws has to be paid by the buyer Instead of the seller as it was in the original Section 78 Section 79-A provides that the market charges payable after sale shall be recovered from the buyer for the reason that commission payable in respect of a transaction is also one of the market charges as defined under Section 2(19-A) which reads : "market charges means all charges is connection with the handling of agricultural produce such as the commission of commission agent, brokerage, remuneration for weighment, loading, unloading, cleaning and dressing of agricultural produce; " Various types of charges payable for services rendered are incorporated In the definition and according to Section 79-A, such of the market charges which are payable after the sale have got to be collected by a commission agent from the buyer, and one such charge is the commission. The petitioners who are traders and commission agents have urged the following contentions : (1) The new Section 78 is violative of Article 14 for the reason that it is an arbitrary exercise of legislative power, in that, there was no basis at all for compelling the buyer to pay commission to the commission agents though commission agents render service exclusively to the seller. (2) Under the law of contract, a commission payable in respect of an agent has to be paid by the principal, to whom the agent renders service and therefore, the ordinance is inconsistent with the provisions of the Contract Act enacted by the Parliament, and therefore, the ordinance is invalid as it has not received the instruction from the President as required under the proviso to Article 213(1) of the Constitution and therefore, Section 78 should be declared invalid. (3) In support of the first contention, learned Counsel for the petitioners Sri K. Srinivasan, Sri Indrakumar and Sri B. M. Krishna Bhat submitted as follows : In the nature of things and having regard to the various provisions of the Act set out earlier, a commission agent is a person whose services are engaged by a seller for the purpose of storing his agricultural produce and who is required to render all assistance to him in the marketing of agricultural produce. Except regarding the change brought about for the collection of commission from the buyer, the other provisions of the Act, which prescribed the duties and responsibilities of a commission agent remain unaltered. Therefore, the Section which provides for the collection of commission from a buyer for the services rendered to the seller was arbitrary.