Guest Post: The Unconstitutionality of Prohibiting Differential Pricing

(This is a guest post by Swapnil Tripathi, fourth-year law student at the National Law University, Jodhpur.)

(Editor’s Note: The arguments that follow receive support from the (very) recent judgment of the Supreme Court in Del, delivered on 12 December 2017 (after this post had been accepted for publication.]

The Ministry of Consumer Affairs, on June 29, 2017, approved the amendment to the Legal Metrology (Packaged Commodities) Rules, 2011. The amendment which shall come into force from January 1, 2018 has brought significant changes to the erstwhile rules and is hailed by many as a step in the direction towards consumer friendly laws. However, despite the noble intention and purpose behind the amendment, it suffers from glaring constitutional infirmities. Let us unravel some of those.

Before, we proceed to analyze the amendment, let us first take a broad overview of the Legal Metrology Act, 2009 (“Act”). The Act replaced the erstwhile Standards of Weights and Measures Act, 1976, and is currently the governing law on standards of weights and measures for commodities sold in India. The central government, exercising the power under section 52 of the Act, passed the Legal Metrology Rules, 2011 which laid down exhaustive provisions, regarding the minimum standards of packaging, weights to be maintained.

Recently, the central government amended the said rules and added Rule 2A to Rule 18(2) which states:

“Unless otherwise specifically provided under any other law, no manufacturer or packer or importer shall declare different maximum retail prices on an identical pre-packaged commodity by adopting restrictive trade practices or unfair trade practices as defined under clause (c) of sub-section (1) of section 2 of the Consumer Protection Act, 1986 (68 of 1986).”

The essence of the amendment is that no manufacturer can have different prices for identical commodities at different places. For instance, if you buy a bottle of water from a nearby retailer, it shall cost you Rs. 20. But the same bottle, when bought from a movie theatre costs Rs.50. Before the amendment, this charging of different prices was allowed, but the same stands prohibited after the amendment. Therefore, the manufacturer is obligated to charge Rs.20 or Rs.50 for both the bottles, as long as the price remains constant at every place selling it.

Many laud the amendment as an attempt to end the monopoly of the theatres, who hike the prices of products, to earn more. However, the amendment presents certain constitutional infirmities as well. It falls foul of the principles of the Constitution on two counts. First, the amended rules expand the scope of the Act. Second, it flouts previous rulings of the Supreme Court.

The amendment travels beyond the scope of the Act:

The Indian polity follows the principle of separation of powers, wherein law making is the essential function of the legislature. However, at certain instances, the legislature confers this power to a delegate. This is called delegated legislation. Rules and regulations are the most common forms of delegated legislation. Delegation is not absolute and is subject to certain parameters wherein the validity of such a delegation is tested. The Court, in a catena of cases, has held that delegated legislation cannot go beyond the scope of the parent Act. In other words, if the delegated legislation expands the scope of the act, it is ultra vires and liable to be struck down.

Noteworthy here is the judgment of J.K. Industries v. Union of India, [(2007) 13 SCC 673], which clearly lays down the law on the subject matter. It states that a delegated legislation is ultra vires when it does not conform to the statute under which it is made or it fails to consider vital facts which are required to be considered by the statute or the Constitution. It further holds that the delegated legislation should be within the limits of the Act and should supplement and not supplant it. In other words, the nature of the delegated legislation is to fill up the details and perform ancillary and subordinate legislative functions (¶133). And whenever, the Court assesses the vires of a delegated legislation it has to examine the nature, object and the scheme of the legislation as a whole, and consider the area over which powers are delegated (¶129).

 

Furthermore. it is well-established that the object of a legislation can be gleaned from its preamble, as it lays down the intended aim, object and purpose of the Act [Hiral P. Harsora v. Kusum Narottamdas Harsora, (2016) 10 SCC 165 at ¶12]. Therefore, it is pertinent to peruse the preamble of the Metrology Act.

The preamble reads,

“An Act to establish and enforce standards of weights and measures, regulate trade and commerce in weights, measures and other goods which are sold or distributed by weight, measure or number and for matters connected therewith or incidental thereto.”

 Furthermore, the term ‘legal metrology’ is defined under the Act as,

“’Legal Metrology’ means that part of metrology which treats units of weighment and measurement, methods of weighment and measurement and weighing and measuring instruments, in relation to the mandatory technical and legal requirements which have the object of ensuring public guarantee from the point of view of security and accuracy of the weighments and measurements

A perusal of the preamble and the definition clearly establishes that the Act was intended to primarily deal with standards of weights and measures and goods sold/distributed by weight and measures. Additionally, it aimed at ensuring public guarantee towards security and accuracy of weighments and measurement. A reading of the above does not bring out any intention of the legislature to regulate pricing of the products, which is not even remotely connected with weight and measurement. The amendment, by introducing uniform pricing, tries to widen the scope of the act, which a delegated legislation cannot do.

Furthermore, an indication towards pricing not being within the ambit of the act can be seen from the judgments of the Apex Court, namely Pallavi Refractories & Ors. v. Singareni Collieries Co. Ltd. & Ors., [(2005) 2 SCC 227] (“Pallavi Refractories”). The case of Pallavi Refractories is the leading judgment on fixation of price and dual pricing. In that case, the Respondent (a state owned company) had implemented a government notification providing for differential pricing for same products produced by linked sector and unlinked sector. This move of the Respondent and the notification was challenged by the Appellants on grounds of bring discriminatory and violative of Article 14 of the Constitution. The counter of the Respondent was that because coal, as a commodity, is not controlled/essential, therefore it is within its discretion to fix appropriate prices for it, based on certain considerations (¶ 7 and 12). The Court upheld the notification and the action of the Respondent stating,

‘Clause 10 of the price notification did not violate the equality clause of Article 14 of the Constitution. By evolving dual price policy and charging lesser price from the core sector industries the respondent has not treated equals as unequals or that the classification was not rational.” (¶ 20)

Further, what is noteworthy about the judgment is that the Standards of Weights and Measures Act, 1976 (the previous statute in place of LM Act) or any other act dealing with pricing is not, at any point, mentioned or relied on. So much so, that the Court while discussing the legality of dual pricing and its approval from courts observed, “there is no such law that a particular commodity cannot have a dual fixation of price.” (¶19).

This demonstrates that even the judiciary has recognized that there is no law in India that regulates pricing (Pallavi Refractories has been relied on subsequently in Panjaba Rao v. State of Maharashtra, 2015 SCC Online 8283 and Union of India v. Government of Tamil Nadu, 2013 SCC Online Mad 1444]. It is evident that the Rules, by completely prohibiting dual pricing, attempt to overrule and circumvent the categorical observations of various Supreme Court precedents which have given a green signal to dual pricing. While this might be valid if the same was an act of the legislature, but an executive action lacking due legislative sanction, cannot do the same.

(If an argument is raised, that the amendment is introduced in response to Pallavi Refractories, as an attempt to fill the lacunae of no law on dual fixation, it would be erroneous. As discussed before, a delegated legislation cannot broaden the scope of the Act. Since, prima facie, pricing is not within the scope of the Act, a delegated legislation cannot govern it.)

The amendment is against the previous rulings of the Courts:

A school of thought believes that the Ministry’s inspiration behind introducing the amendment is the NCDRC’s judgment of Big Cinemas and Anr. v. Manoj Kumar, [2016 SCC Online NCDRC 123] which was the first to observe:

“There cannot be two MRPs, except in accordance with law. The whole gamut of the facts and circumstances, detailed above, clearly leans in favor of the Metrology Department (par.20).”

However, the judgment of the NCDRC renders an opinion which is inconsistent with the previous ruling of the Apex Court (which bind the NCDRC). Noteworthy here are the cases of Pallavi Refractories & Ors. v. Singareni Collieries Co. Ltd. & Ors., [(2005) 2 SCC 227], Maruti Suzuki v. Rajiv Kumar Loomba, [(2009) 15 SCC 195], State of Gujarat v. Rajesh Kumar Chimanlal, [(1996) 5 SCC 477] etc., all of which hold that there is no law prohibiting a particular commodity to have dual price and the same is a matter of policy. The amendment clearly flouts these rulings of Court.

The way ahead:

The author is aware that the Court, only in sparing circumstances intervenes into economic legislations/strikes them down. However, the amendment rules are not a usual instance of economic legislation as they follow unconstitutional means to achieve the end. If the legislature had passed an amendment, wherein such a provision prohibiting dual pricing was introduced in the Act itself, the question the author attempts to answer in the post would not have arisen itself.

Advertisements

1 Comment

Filed under Delegated Legislation

One response to “Guest Post: The Unconstitutionality of Prohibiting Differential Pricing

  1. Sudhanshu

    You seem to have missed the words “regulate trade and commerce” in the Preamble which clear;y brings pricing within the scope of the Act. As regards the decisions of the courts, they held that there was no law prohibiting different pricing for same products. Now that the law has been passed.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s