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Books referred de Smith's Judicial Review of Administrative Action, 4th edn.; Professor H.W.R. Wade in Administrative Law, 5th edn.
1. These appeals by special leave directed against a judgment of a Division Bench of the Madras High Court dated July 7, 1983 upholding the judgment and order of a learned Single Judge dated June 13, 1983 relate to the grant of a licence for the manufacturing and supplying of bottled arrack to the wholesale and retail licensees for the Chingleput district under Rule 7 of the Tamil Nadu Arrack (Manufacture) Rules, 1981 ('Rules', for short) framed under the Tamil Nadu Prohibition Act, 1937 ('Act' for short). These appeals raise separate and distinct questions and must therefore receive separate consideration.
2. Put very shortly, the essential facts are these. On May 28, 1982 one O. H. Kumar carrying on business under the name and style of Messrs Three Star Bottling Company surrendered his license for the manufacture and supply of bottled arrack for the Chingleput district for the financial year 1982-83. The Commissioner of Prohibition and Excise, Madras called for applications from intending persons for the grant of the licence. In response to the notice issued by the Commissioner under Rule 3(2) of the Rules, there were two applications filed under Rule 5 in Form 1, namely, by J. Balaji. managing partner of Messrs Majestic Bottling Company on June 9, 1982 and by V. Ramabadran, managing partner of Messrs Chingleput Bottlers on June 14, 1982.The Commissioner issued a questionnaire* and directed the Collector, Chingleput to have an inquiry held as regards the suitability of the applicants for the grant of a licence. Pursuant thereto, the Collector had an inquiry held by the Assistant Commissioner (Excise) which lasted for four days i.e. from June 21 to June 24, 1982. After the preliminary inquiry and field inspection made by the Assistant Commissioner (Excise), the Collector forwarded his report dated July 2, 1982 to the Commissioner who fixed July 5, 1982 for oral hearing of the parties.
3. On July 5, 1982, the Commissioner separately heard both J. Balaji and V. Ramabadran. At the hearing, the Commissioner recorded the statements of both J. Balaji and v. Ramabadran in support of their respective claims. On July 31,1982 the Commissioner passed an order rejecting both the applications. As regards Messrs Majestic Bottling Company, the Commissioner held that their application was in order but that they did not satisfy the requirements of Rule 5(a) and (e) of the Rules. As to their suitability under Rule 5(a), he found that though the partnership had been formed prior to the date of the application i.e. on June 9, 1982 the firm actually got registered subsequent thereto on June 23,1982 and therefore there was no valid partnership in existence on June 14, 1982 i.e. on the date of the filing of the application. As regards Rule 5(e), he held that there was no water facility in the lands owned by the partnership firm.
4. As regards Messrs Chingleput Bottlers, the Commissioner held that the application made by them was not in order because it was not accompanied by a solvency certificate and that there was no potable water available at the proposed site. He further held that there was only one and a half feet water in the well at the site and it was of poor quality. He also came to the conclusion that the application had not been made bona fide on behalf of the partnership firm but as benami for others. The Commissioner accordingly held that Messrs Chingleput Bottlers did not fulfil the requirements of Rule 5(a), (c) and (e) of the Rules.
5. The finding of the Commissioner that Messrs Chingleput Bottlers were mere benamidars of O.H. Kumar, the previous licensee, was based on the report of the Collector and the other material gathered by him during the course of the inquiry.
6. Both Messrs Majestic Bottling Company and Messrs Chingleput Bottlers filed separate petitions under Article 226 of the Constitution before the High Court questioning the validity of the order passed by the Commissioner. By his judgment dated June 13, 1983 a learned Single Judge held that the Commissioner was not justified in rejecting the application of Messrs Majestic Bottling Company on a wrongful assumption that they did not satisfy the requirement of Rule 5(a) and (e) of the Rules. He held that the order was vitiated by an error apparent on the face of the record inasmuch as J. Balaji, managing partner of Messrs Majestic Bottling Company had produced record with regard to the availability of water.
7. The learned Single Judge however set aside the finding of the Commissioner that the application made by Messrs Chingleput Bottlers was not in order because it was not accompanied by a solvency certificate holding that non-production of a solvency certificate would not entail a dismissal of the application on that ground alone, as also the finding with regard to non-availability of water at the proposed site since the blending unit of Messrs Three Star Bottling Company was already functioning there. The learned Single Judge rejected the contention of Messrs. Chingleput Bottlers that the Commissioner had acted in breach of the rules of natural justice by his failure to furnish the report of the Collector observing that nothing precluded them from seeking perusal of the records; nor did they make a demand for it.
8. By his judgment, the learned Single Judge by the issue of a writ of certiorari quashed the impugned order of the Commissioner insofar as he rejected the application made by Messrs Majestic Bottling Company on the ground that there was an error apparent on the face of the record but instead of remitting the matter back to the Commissioner to re-consider the question of grant of such privilege, issued a writ of mandamus ordaining the Commissioner to grant the licence to Messrs Majestic Bottling Company. He further upheld the order of the Commissioner rejecting the application of Messrs Chingleput Bottlers for the grant of privilege on the ground that they were mere benamidars of the previous licensee. Aggrieved by the judgment of the learned Single Judge, both the State Government and Messrs Chingleput Bottlers preferred appeals under Clause 15 of the Letters Patent. Upholding the judgment of the learned Single Judge the learned Judge of the Division Bench held that learned Single Judge was justified not only in quashing the same but in issuing a writ of mandamus directing the Commissioner to grant the licence in favour of Messrs Majestic Bottling Company without the prior approval the State Government under Rule 7 of the Rules.
9. Before proceeding further, we would like to mention that the State Government did not file a separate counter. There was a counter-affidavit filed by R. Lakshmanan, Joint Commissioner (IV), Department of Prohibition & Excise, Madras on behalf of both the State Government as well as the Commissioner of Prohibition & Excise seeking to support the impugned order passed by the Commissioner. In addition to the grounds mentioned by the Commissioner for the refusal of the applications for grant of privilege, there was an additional ground taken in paragraph 11 and it was alleged that J. Balaji, managing partner of Messrs Majestic Bottling Company and his other partner Smt. Shanthi, who incidentally is also his mother were the two erstwhile directors of Messrs Dhanalakshmi Chemical Industries Private Limited, Ranipet upto November 26, 1980 and there was prima facie evidence that the company had misused the large quantity of rectified spirit by diverting alcohol from industries to arrack production and therefore they were persons not likely to abide by the provisions of the Act and the Rules farmed thereunder within the meaning of Rule 5(b), and this would have been a relevant point to be taken into consideration by the State Government in the matter of grant or refusal of prior approval under Rule 7(1). It was alleged that these two 'persons were directors during the afore said period of misuse.
10. At the conclusion of the hearing of the appeals before the High Court, the State Government filed a supplementary affidavit of S, Ranganathan, Deputy Secretary to the State Government of Tamil Nadu, Department of Prohibition & Excise furnishing further and better particulars of the alleged misuse of rectified spirit by Messrs Dhanalakshmi Chemical Industries Private Limited which had put the State Government to a loss of revenue to the tune of Rs. 2 crores. It was averred that investigation into the case was almost complete and a prosecution was about to be launched against the Company and its directors, including J. Balaji and Smt. Shanthi, the two partners of Messrs Majestic Bottling Company. Inasmuch as no such objection was taken before the learned Single Judge, the learned Judges felt that it was not necessary for them to deal with the facts brought out in the two counter-affidavits. It appears that the learned Advocate-General also did not press the ground at the hearing of the appeals. The learned Judges held that the validity of the impugned order passed by the Commissioner must be adjudged by the reasons stated by him and cannot be supplemented by fresh reasons by the State Government in the shape of affidavit or otherwise.
11. There are really two questions that fall for determination. The first is as to the jurisdiction of the High Court to issue a writ of mandamus. It is said that the grant of licence under Rule 7 is subject to the prior approval of the State Government and is in the discretion of the State Government. The High Court is not the granting authority and therefore had no power to issue a writ of mandamus directing the Commissioner to grant a licence to Messrs Majestic Bottling Company. The second question is whether the Commissioner acted in breach of the rules natural justice in not furnishing to Messrs Chingleput Bottlers a copy of the report submitted by the Collector and other material gathered by him during the course of the inquiry tending to show that they were benamidars of one O.H. Kumar, the previous licensee. It is said that Messrs Majestic Bottling Company had at the separate hearing before the Commissioner submitted a brief styled as a representation containing several documents in opposition to the application made by Messrs Chingleput Bottlers on the ground that their application was benami without furnishing a copy of the same to them and this must have influenced the mind of the Commissioner.Even if the Commissioner was not acting in a judicial or quasi judicial capacity, he was required to act fairly. The rules of natural justice therefore required that Messrs Chingleput Bottlers should not be deprived of this business without knowing the case they had to meet. Both the questions that arise will have to be dealt with separately.
12. The first issue, as already indicated, raises a question of prime importance and of some difficulty. It would therefore be convenient, in the first instance, to deal with the appeal preferred by the State Government. It is urged that the High Court had no jurisdiction to issue a writ of mandamus ordaining the Commissioner to grant a licence to Messrs Chingleput Bottlers under Rule 7 of the Rules without the prior approval of the State Government. It is said that although a writ of mandamus may be a necessary adjunct to a writ of certiorari, the proper course for the High Court to have adopted was, if it was satisfied that the impugned order of the Commissioner was liable to be quashed insofar as he rejected the application made by Messrs Majestic Bottling Company on the ground that there was an error apparent on the face of the record, to have issued a writ of mandamus Commissioner to redetermine the question as to the grant of such privilege. Reliance is placed on de Smith's Judicial Review of Administrative Action, 4th edn. at pp. 341 and 544. The contention must, in our opinion prevail.
13. In order that a writ of mandamus may issue to compel the Commissioner to grant the licence, it must be shown that under the Act and the Rules framed thereunder there was a legal duty imposed on the Commissioner to issue a licence under Rule 7 of the Rules without the prior approval of the State Government and that Messrs Majestic Bottling Company had a corresponding legal right for its enforcement. No mandamus will lie where the duty sought to be enforced is of a discretionary nature nor will a mandamus issue to compel the performance by such public body or authority of an act contrary to law. The Commissioner of Prohibition & Excise was under no legal duty to grant a licence to Messrs Majestic Bottling Company till he received the prior approval of the State Government under Rule 7. Even assuming that the Commissioner recommended the grant of a licence to them under Rule 7, the State Government were under no compulsion to grant such prior approval. The grant or refusal of such licence was entirely in the discretion of the State Government. The High Court had no jurisdiction to issue a writ of Mandamus to the Commissioner to grant a licence to Messrs Majestic Bottling Company contrary to the provisions of Rule 7 of the Rules.
14. The learned Judges observed that in normal circumstances they would have upheld the objection of the learned Advocate-General as to the jurisdiction of the High Court to issue a writ of mandamus, but in view of the fact that the State Government had chosen not to file a separate return taking a specific plea that in the event of a writ of certiorari being granted, the Court should not issue a writ of mandamus for the grant of licence since the grant or refusal of licence was subject to the prior approval of the State Government under Rule 7, of the Rules. The learned Judges accordingly held that the learned Single Judge was justified in issuing a writ in the nature of mandamus directing the Commissioner to issue a licence in favour of Messrs Majestic Bottling Company in view of the fact that there were only two applicants in the field and the application of Messrs Chingleput Bottlers having been rejected, the State Government had no other option but to make the grant in favour of Messrs Majestic Bottling Company. Further, the learned Judges observed that to sustain the objection would be tantamount to allowing the State Government to sit in appeal over the judgment of the High Court. In substance, the learned Judges were of the view that failure of the State Government to take a specific plea as to jurisdiction precluded them from raising a question as to the jurisdiction of the High Court to issue a writ of mandamus. We are afraid, we cannot accept this line of reasoning.
It is now open to a court when granting certiorari to remit the matter to the authority with a direction to reconsider and to decide in accordance with the findings of the court. Apart from this, the role of the courts is limited to ensuring that direction has been exercised according to law. If, therefore, a party aggrieved by the exercise of discretionary power seeks an order of mandamus to compel the authority to determine the matter on the basis legally relevant considerations, the proper form of the mandamus will be one to hear and determine according to law ; though by holding inadmissible the considerations on which the original decision was based the court may indirectly indicate the particular manner in which the discretion ought to be exercised. In practice the frontier between control of legality and control of the actual exercise of discretion remains indeterminate, for the courts are sometimes observed to cross the boundaries that they have set to their own jurisdiction.
** ** ** ** ** The duty to observe these basic principles of legality in exercising a discretion is unlike the 'duty' to apply the law correctly to findings of fact, prima facie enforceable by mandamus. Hence where an authority has misconceived or misapplied its discretionary powers by exercising them for an improper purpose, or capriciously, or on the basis of irrelevant considerations or without regard to relevant considerations, it will be deemed to have failed to exercise its discretion or jurisdiction at all or to have failed to hear and determine according to law, and mandamus may issue to compel it to act in accordance with the law.
Mandamus is often used as an adjunct to certiorari. If a tribunal or authority acts in a matter where it has no power to act at all, certiorari will quash the decision and prohibition will prevent further unlawful proceedings. If there is power to act, but the power is abused (as by breach of natural justice or error on the face of the record), certiorari will quash and mandamus may issue simultaneously to require a proper rehearing. An example is Board of Education Rice  AC 179 cited elsewhere ; the Board's decision was ultra vires since they had addressed their minds to the wrong question ; consequently it was quashed by certiorari and the Board were commanded by mandamus to determine the matter according to law, i.e. within the limits indicated by the House of Lords.
17. In our judgment, the High Court exceeded its jurisdiction in issuing a writ of mandamus directing the Commissioner to grant a licence to Messrs Majestic Bottling Company without the prior approval of the State Government as enjoined by Rule 7 of the Rules. The High Court was unduly technical in applying the rules of pleadings. Absence of a specific plea in nature of demurrer would not invest the High Court with jurisdiction to issue a writ of mandamus ordaining the Commissioner to grant a licence to Messrs Majestic Bottling Company under Rule 7 of the Rules without the prior approval of the State Government which was a condition prerequisite for the grant of such privilege. It is regrettable that the High Court should have short-circuited the whole procedure upon a wrongful assumption of its own powers. The view taken by the High Court is manifestly erroneous. Otherwise, the statutory requirement of such prior approval of the State Government under Rule 7 would be rendered wholly otiose.
18. We should not be understood as laying down an inflexible rule that the High Courts cannot, under any circumstances, regulate or control the manner of grant of a liquor licence by the issue of a writ of mandamus. It would all depend upon the facts and circumstances as to whether the High Court should issue a writ of mandamus or not. The grant of a liquor licence is a matter of privilege. In the very nature of things, the grant of refusal of licence is in the discretion of the State Government. Normally, where the statute vests a discretionary power upon an administrative authority, the Court would not interfere with the exercise of such discretion unless it is made with oblique motives or extraneous purposes or upon extraneous considerations. The present case does not fall within the rule laid down in K.N. Guruswamy v. The State of Mysore and Ors. : 1SCR305 and P. Bhooma Reddy v. State of Mysore and Ors. : 3SCR14 The decisions in Guruswamy's and Bhooma Reddy's cases are both in consonance with the well settled principle that the High Court can always issue a writ of mandamus under Article 226 of the Constitution against a public authority to compel the performance of a public duty where such authority acts in violation of the law.
The Executive have to reach their decisions by taking into account relevant considerations. They should not refuse to consider relevant matter nor should they take into account wholly irrelevant or extraneous consideration. They should not misdirect themselves on a point of law. Only such a decision will be lawful. The Courts have power to see that the Executive acts lawfully. It is no answer to the exercise of that power to say that the Executive acted bonafide nor that they have bestowed painstaking consideration. They cannot avoid scrutiny by courts by failing to give reasons. If they give reasons and they are not good reasons, the court can direct them to reconsider the matter in the light of relevant matters though the propriety, adequacy or satisfactory character of these reasons may not be open to judicial scrutiny. Even if the Executive considers it inexpedient to exercise their powers they should state their reasons and there must be material to show that they have considered all the relevant facts.
20. This was not a case where it could be said that there was nothing for the State Government to consider as to whether should accord or refuse prior approval to the grant of a licence to Messrs Majestic Bottling Company under Rule 7 of the Rules. The Commissioner by the impugned order rejected the applications for grant of a licence made by both Messrs Chingleput Bottlers and Messrs Majestic Bottling Company and therefore the stage was not reached. The stage for the State Government to reconsider the matter of grant of privilege under Rule 7 would only arise when the commissioner makes a recommendation for the grant of a licence to Messrs Majestic Bottling Company. At that stage, the State Government would have to consider whether they should accord prior approval for the grant of such privilege to Messrs Majestic Bottling Company having regard to the matters specified in Rule 5 of the Rules and the conditions set out in Rule 6(c), in view of the further facts brought out in the supplementary counter affidavit of Deputy Secretary to the State Government, Department of Prohibition and Excise in support of the objection raised in para 11 of the counter-affidavit. One of the relevant factors that the State Government must, as they should, take into consideration is the suitability of Messrs Majestic Bottling Company for the grant of licence as required under Rule 5(a) and the other is whether J. Balaji, the managing partner and Smt. Shanthi the other partner, were persons who would abide by the provisions of the Act and the Rules made thereunder as enjoined by Rule 5(b). The facts lay a serious charge that Balaji, managing partner of Messrs Majestic Bottling Company and his other partner Smt. Shanthi were directors of Messrs Dhanalakshmi Chemical Industries Private Limited, Ranipet upto November 26, 1980 and that there was prima facie evidence showing that the company had misused the rectified spirit issued to it causing a loss of revenue to the State Government to the tune of Rupees two crores or thereabout. It would be permissible for the State Government to take these facts as justification for refusal to grant prior approval under Rule 7 of the Rules.
21. In coming to the conclusion they did, the learned Judges have drawn sustenance from the decision of this Court in Gujarat State Financial Corporation v. Messrs Lotus Hotels Private Limited : AIR1983SC848 and of the High Court in the State of Tamil Nadu and Anr. v. C. Vadiap-pan : (1982)2MLJ30 in support of the view that the High Court had jurisdiction to issue a writ of mandamus directing the State of Tamil Nadu and the Commissioner of Prohibition & Excise to grant the privilege for the manufacture and supply of bottled arrack to Messrs Majestic Bottling Company for the Chingleput district under Rule 7 of the Rules. The decision in Gujarat State Financial Corporation's case (supra) is clearly distinguishable and is not an authority for any such proposition. No such question arose in that case at all. There, the Court was dealing with a contract entered into by the Gujarat State Financial Corporation with Messrs Lotus Hotels Private Limited for the purpose of setting up a 4-star hotel. The Company approached the Corporation for a loan of rupees 30 lakhs and the Corporation sanctioned a loan of Rs. 29.93 lakhs on certain terms and conditions which the Company accepted. The Corporation however finally resolved not to disburse the loan to the Company whereupon the Company moved Gujarat High Court by a petition under Act. 226 for the issue of a writ of mandamus to direct the Corporation to disburse the loan. A learned Single Judge of the High Court issued the writ as prayed for and it was confirmed by a Division Bench. On appeal by the Corporation, this writ Court held that the High Court was justified in issuing the writ of mandamus. The decision in Gujarat State Financial Corporation's case, (supra) turned on the doctrine of promissory estoppel and it does not justify the conclusion reached by the learned Judges in the present case for the issue of a writ of mandamus. It is needless to stress that if the requirement of law was that the advance of loan to be sanctioned by the Gujarat State Financial Corporation was to be subject to the prior approval of the Reserve Bank of India, the decision of the Court would have been otherwise.
22. It is difficult to subscribe to the doctrine evolved by the High Court in Vadiappan's case, (supra) that the Commissioner is the 'sole arbiter' under Rule 7 of the Rules. It relied upon the earlier decision of the High Court in K. Ramaswamy v. Government of Tamil Nadu and Ors. Writ Appeal No. 368 of 1981 laying down that the proviso to Rule 6 of the Tamil Nadu Arrack (Supply by Wholesale) Rules, 1981 had to be understood strictly in a negative sense. According to the High Court, at best it confers on the Government a power to veto. By itself, the High Court observed, 'it does not make the Government a final arbiter between the competing claims. The High Court further observed in Ramaswamy's case, supra, that 'the weighing of the pros and cons and the consideration of the merits and demerits of the rival claimants remained, from first to last with the Commissioner as his sole responsibility, and that the requirement of the Government's proper approval under the proviso to Rule 6 of the Tamil Nadu Arrack (Supply by Wholesale) Rules 1981 was no doubt a necessary part of the validity of every licence, but 'the enabling power cannot be employed as a machinery for a review in every case but only as a check upon a possible abuse of its power by the Commissioner'. That approach of the High Court seems to run counter to the scheme of the Act and the Rules framed thereunder. The grant of a liquor licence under Rule 7 is a matter of privilege of the State Government. The Commissioner merely exercises the delegated powers of the State Government. The ultimate responsibility for the grant of such privilege is with the State Government under Rule 7 of the Rules.
23. Nor can we subscribe to the contention that the Commissioner had to act under the directions and control of the State Government under Sub-section (2) of Section 25A of the act while exercising his powers delegated under Sub-section (1) of Section 17C read with Section 25A (1) in the matter or grant of a liquor licence under Rule 7 of the Rules. It would not justify the High Court to issue a writ of mandamus to the Commissioner to grant a licence to Messrs Majestic Bottling Company under Rule 7 of the Rules without the prior approval of the State Government. Obviously, the State Government and the Commissioner cannot act de hors the scheme of the Act and the Rules framed thereunder. Further, the contention that the State Government had already made up their mind against the grant of such privilege to Messrs Majestic Bottling Company and that there was no occasion for the High Court to send back the case to the Commissioner as it would have amounted to the State Government being asked to sit in appeal over the judgment of the High Court, cannot be accepted. We regret to say, the High Court has tried to circumvent the whole procedure by issuing a writ of mandamus directing the Commissioner to grant a licence under Rule 7 without the prior approval of the State Government. As already stated, the grant of a licence under Rule 7 of the Rules is a privilege. There are no charges of mala fides on the part of the State Government. There is no suggestion that the State Government had already made up their mind. This is also not a case where the rules of necessity require recourse to a writ of mandamus to command the issue of a licence without conforming to the procedure prescribed under Rule 7.
24. In the premises, it was not a proper exercise of jurisdiction for the High Court to have issued a writ of mandamus under Article 226 of the Constitution ordaining the Commissioner to grant a licence to Messrs Majestic Bottling Company under Rule 7 of the Rules without the prior approval of the State Government. In our opinion, the proper course for the High Court to adopt was to issue a writ of mandamus directing the Commissioner to redetermine the question after following the procedure of Rule 7 and in case he came to a decision to grant the licence in favour of Messrs Majestic Bottling Company, to refer the matter to the State Government for its prior approval. Otherwise Rule 7 of the Rules would be rendered, completely otiose.
25. Turning to the appeal preferred by M/s. Chingleput Bottlers, learned Counsel for them has mainly advanced a three-fold Submission : (1) The Commissioner had acted in flagrant violation of the rules of natural justice in not furnishing to Messrs Chingleput Bottlers a copy of the report of the Collector and other extraneous material comprising of a representation received from Messrs Majestic Bottling Company along with various other documents. Nor had he disclosed to them the substance of the report of the Collector or other information gathered by him irrespective of the source. (2) The impugned order passed by the Commissioner was vitiated by errors apparent on the face of the record. There was no factual basis for the assumption that the three persons from whom Messrs Chingleput Bottlers had taken the lease of the land on which the blending unit is located, viz, K.J. George, M/s. Visvambaran and E.K. Chandrasekaran, were real partners of Messrs Three Star Bottling Company. There was also no warrant for the suspicion cast by the Collector in his report that Messrs Chingleput Bottlers were mere benamidars of one O.H. Kumar, proprietor of Messrs Three Star Bottling Company, the existing licensee, on the ground that they had entered into an agreement to purchase the blending unit from him. The function of the Commissioner in making the grant of privilege under Rule 7 of the Rules of being a quasijudicial nature, the Commissioner could not act on unwarranted conjectures and mere surmises. (3) The Commissioner had not acted fairly inasmuch as he adopted a double standard. For a secret inquiry was conducted against Messrs Chingleput Bottlers for adjudging their suitability for the grant of privilege while no such inquiry was made against Messrs Majestic Bottling Company. The Commissioner had thus treated Messrs Chingleput Bottlers and Messrs Majestic Bottling Company on an unequal footing and thus the procedure adopted was violative of Article 14. The observation made by the Commissioner that the deposit of Rs. 10,01,001 made by Messrs Chingleput Bottlers with the Indian Overseas Bank had not come from bonafide sources and that obviously there was some secret understanding between O.H. Kumar and Messrs Chingleput Bottlers was not based on any material at all. The Commissioner knew that O.H. Kumar, the previous licensee, was not in a position to advance rupees 10 lakhs and odd to Messrs Chingleput Bottlers. Again, no such inquiry was made as to the financial capacity of Messrs Majestic Bottling Company. Further, the Commissioner had wrongly assumed that Messrs Chingleput Bottlers and given their address as 'Ramabadran, c/o Messrs Three Star Bottling Company, lyanchery' when no such address was ever furnished and therefore the impugned order is vitiated by an error apparent on the face of the record.
26. In support of the contention that the Commissioner acted in violation of the rules of natural justice, the learned Counsel contends that Messrs Chingleput Bottlers had a right to be heard. It is urged that there was clear breach of the principle of audi alteram partem inasmuch as neither a copy of the report of the Collector was furnished to Messrs Chingleput Bottlers nor a copy of the representation submitted by Messrs Majestic Bottling Company against the grant of licence to them. The argument is that a hearing where a party does not know the case he has to meet is no hearing at all, while the learned Counsel concedes that the right to know the case to be met does not necessarily involve any right to know the sources of adverse inference or to confront informants, for in many cases it will be quite proper for the authority to employ confidential sources, the rules of natural justice require that the information itself should be disclosed so that there is a fair opportunity of meeting the case.
27. In the file relating to Messrs Majestic Bottling Company there is a representation filed by J. Balaji, managing partner of Messrs Majestic Bottling Company, consisting of 131 pages and was apparently handed over by J. Balaji at the time of hearing before the Commissioner on July 5, 1982. The representation dated July 5, 1982 is in the form of a petition in continuation of the application for grant made on June 9, 1982. Regarding Messrs Chingleput Bottlers, certain objections are raised to the grant of licence. The objections are formulated in a document marked Annexure 'A'. It is alleged that the existing licensee O.H. Kumar is running the show under the name and style of Messrs Three Star Bottling Company which is under the control of three persons, namely, K.J. George, M.S. Visvambaran and E.K. Chandrasekaran. It recites that now finding that O.H. Kumar could not get the present licence, they have set up Ramabadran who has himself shown his address as care of Messrs Three Star Bottling Company. This itself clearly shows that the applicant Ramabadran is a benamidar of Messrs Three Star Bottling Company. In support of the assertion that Ramabadran is a benamidar of O.H. Kumar, there is a copy of the judgment of the High Court of Madras in Writ Petition No. 1239 of 1961 filed along with other papers. In the file relating to Messrs Chingleput Bottlers there is a two-page note which formulates certain objections to the grant of privilege to Messrs Chingleput Bottlers. It was obviously handed over by J. Balaji, managing partner of Messrs Majestic Bottling Company to the Assistant Commissioner (Excise) during his inspection of the blending unit or before the Collector before the submission of his report.
28. We do not think that the Commissioner was under an obligation to furnish Messrs Chingleput Bottlers with a copy of the report submitted by the Collector or of the representation made by Messrs Majestic Bottling Company. This equally applies to the two-page note appearing in the file of Messrs Chingleput Bottlers. It was quite proper for the Commissioner to make secret and discreet inquiries from confidential sources. There was no duty cast on him to disclose to Messrs Chingleput Bottlers the sources of adverse information or to give them an opportunity to confront the informants. Rules of fairplay only enjoin that Messrs Chingleput Bottlers should know the case against them. This apparently they did from the questionnaire issued by the Commissioner and the questions put by the Commissioner on July 5, 1982 on the basis of the information gathered by him. The Commissioner has relied upon the report of the Collector and the conclusions reached by the Collector are based on the statement of Ramabadran recorded by the Assistant Commissioner (Excise). Further, at the hearing on July 5, 1982, the Commissioner recorded the statement of Ramabadran, managing partner of Messrs Chingleput Bottlers. There was no occasion for the Commissioner to have recorded the statement of Ramabadran over again unless this was to give him an opportunity to explain the substance of the report of the Collector or other information gathered by him irrespective of the source.
29. The learned Judges repelled the contention of Messrs Chingleput Bottlers that the Commissioner acted in breach of the rules of natural justice by his failure to furnish them with a copy of the report of Collector on the ground that there is no fundamental right in a citizen to carry on any trade in liquor. According to them, the Commissioner under the Rules performs an administrative function and having regard, to the requirements of Rule 5 of the Rules, and in view of the fact that Messrs Chingleput Bottlers had neither a legal right nor a legal expectation that they would he granted the privilege all that was required was that the Commissioner should act fairly in dealing with the application and not in a capricious or arbitrary manner. On the material on record, the learned Judges held that they were satisfied that the Commissioner acted fairly and reasonably and not arbitrarily or capriciously in coming to the conclusion that Messrs Chingleput Bottlers had not made the application on their own behalf, but benami for others and in rejecting their application for the privilege for setting up a blending unit for arrack. Incidentally, they pointed out that Messrs Chingleput Bottlers did not specifically make a grievance of the fact in the writ petition that principles of natural justice had not been complied with. It is a fundamental rule of law that no decision must be taken which will affect the rights of any person without first giving him an opportunity of putting forward his case.
30. There has ever since the judgment of Lord Reid in Ridge v. Baldwin, supra, been considerable fluctuation of judicial opinion in England as to the degree of strictness with which the rules of natural justice should be extended, and there is growing awareness of the problems created by the extended application of principles of natural justice, or the duty to act fairly, which tends to sacrifice the administrative efficiency and despatch, or frustrates the object of the law in question. Since this Court had held that Lord Reid's judgment in Ridge v. Baldwin would be of assistance in deciding questions relating to natural justice, there is always 'the duty to act judicially' whenever the rules of natural justice are applicable. There is therefore the insistence upon the requirement of a 'fair hearing'.
31. In the light of the settled principles, we have to see whether the Commissioner acted in breach of the rules of natural justice or fairplay in passing the impugned order.
32. There is authority for the proposition that an authority or body need not observe the rules of natural justice where its decision, although final, relates not to a 'right' but to a privilege or licencc'. In a number of recent decisions, the Courts have, while extending the protection of natural justice in the former category of claims, denied such protection to the latter category. All that is emphasized in such cases is that the applications must be considered fairly. In R.V. Gaming Board for Great Britain ex parte Bneaim & Khaida  2 All E.R. 528 the Court of Appeal held that in refusing a certificate for reasons concerning the character and suitability of the applicants, the Board must act fairly and obey the broad principles of natural justice. In fact, it was held that they had done so since they had given the applicants full opportunity to know and contest the case against them, even though they had not revealed the sources of their information or given their reasons. It follows that the right to know the case to be met does not necessarily involve any right to know the source of adverse information or to confront the informants, for in some cases it would be quite proper for the authority to employ confidential sources.
That the Judge or whoever has to adjudicate must not hear evidence or receive representation from one side behind the back of the other.
It is an error to regard Crockford.'s as having any right of which they are being deprived. They have not had in the past, and they have not now, any right to play these games of chance-roulette, chemindefer, baccarat and the like for their own profit. What they are really seeking is a privilegealmost, I might say, a franchise-to carry on gaming for profit, a thing never hitherto allowed in this country, It is for them to show that they are fit to be trusted with it.
If a man seeks a privilege to which he has no particular claim-such as an appointment to some post or other-then he can be turned away without a word.
36. The Master of Rolls went on to say that nonetheless statutory and in some cases domestic bodies must act fairly and this may involve a hearing, although it is not clear from the judgment whether the duty applies where an initial application is being considered or only where an existing privilege is being terminated.
First, there are what may be called the forfeiture cases. In these, there is a decision which takes away some existing right or position, as where a member of an organization is expelled or a licence is revoked. Second, at the other extreme there are what may be called the application cases. There are cases where the decision merely refuses to grant the applicant the right or position that he seeks, such as membership of the organization, or a licence to do certain acts. Third, there is an intermediate category, which may be called the expectation cases, which differ from the application cases only in that the applicant has some legitimate expectation from what has already happened that his application will be granted. This head includes cases where an existing licence holder applies for a renewal of his licence, or a person already elected or appointed to some position seeks confirmation from some confirming authority.
38. The learned Vice-Chancellor went on to say that there was a substantial distinction between forfeiture cases and application cases. In forfeiture cases, there is a threat to take something away for some reason. In such cases, the right to an unbiased tribunal, the right to notice of the charges and the right to be heard in answer to the charges which were the three features of natural justice are plainly apt. In application cases, on the other hand, nothing is being taken away, and in all normal circumstances there are no charges, and so no requirement of an opportunity of being heard in answer to the charges. Indeed, there is the far wider and less defined questions of the general suitability of the applicant for membership or a licence. The distinction is well recognized, for in general it is clear that the Courts will require natural justice to be observed for expulsion from a social club, but not on an application for admission to it. The intermediate category i.e. of the expectation cases, may at least in some respects be regarded as being more akin to forfeiture cases than application cases ; for although in form there is no forfeiture but merely an attempt at acquisition that fails, the legitimate expectation of a renewal of the licence or conformation of the membership is one which raises the question of what it is that has happened' to make the applicant unsuitable for the membership or licence for which he was previously thought suitable.
The concepts of natural justice and the duty to be fair must not be allowed 'to discredit themselves while making unreasonable requirements and imposing undue burdens.
40. In such cases, the right to hearing has been denied on the ground that the claim or interest or legitimate expectation is a more 'privilege or 'licence'. This is in consonance with the decision of a Constitution Bench of this Court in Kishan Chand Arora v. Commissioner of Police, Calcutta : 3SCR135 following the judgment of the Privy Council in Nakkuda Ali v. M.F.De S. Jayaratne's LR  AC 66 case.
41. It is beyond the scope of the present judgment to enter into a discussion on the apparent conflict between the decision of the Privy Council in Nakkuda Ali's case and the observations of Lord Reid in Baldwin's case. It would appear that the long line of cases beginning with Baldwin's case and ending with D'arcy Ryan's case are cases dealing with interference with property rights, deprivation of membership of professional or other non-statutory bodies, dismissal from office, imposition of penalties and deprivation of advantages etc. Both the Privy Council as well as this Court have required strict adherence to the rules of natural justice where a public authority or body has to deal with rights. But the principle that there was a duty to observe the audi alteram partem rule may not apply to cases which relate not to rights or legal expectations but to mere privilege or licence.
42. It is now well-settled that, while considering the question of breach of the principles of natural justice, the Court should not proceed as if there are inflexible rules of natural justice of universal application. Each case depends on its own circumstances. Rules of natural justice vary with the varying constitutions of statutory bodies and the rules prescribed by the legislature under which they have to act.
43. There is nothing in the language of Rule 7 of the Rules to suggest that in refusing to grant the privilege, the Commissioner is obliged to act 'judicially'. The order refusing a licence under Rule 7 is purely an administrative or executive order and is not open to appeal or revision. There is no lis between the Commissioner and the person who is refused such privilege. The power of refusal of licence unlike the power to grant is not subject to any pre-condition.
44. It must follow that the grant of a liquor licence under Rule 7 of the Rules does not involve any right or expectation but it is a matter of privilege. The Commissioner was therefore under no obligation either to disclose the sources of information or the gist of the information that he had. All that was required was that he should act fairly, and deal with the applications without any bias, and not in an arbitrary or capricious manner.
45. There is no suggestion of any mala fides on the part of the Commissioner or the State Government. The Commissioner heard both the parties after he had an inquiry made through the Collector to adjudge their suitability for the grant of the licence. The Commissioner had issued a (sic)questionnaire and had the material collected by the Collector. The Commissioner was entitled to act on the report of the Collector and also on other material gathered by him during the course of the inquiry. There is no requirement under the Act for a confronted hearing like the hearing contemplated between rival claimants for the grant of a stage carriage permit under the Motor Vehicles Act, 1939 into their respective merits and demerits. The Commissioner separately heard both the parties and had their statements recorded with respect to all the relevant aspects. It cannot be said that the Commissioner in dealing with the applications did not act fairly in not furnishing a copy of the report of the Collector or in taking a representation from Messrs Majestic Bottling Company.
46. The High Court could not have in proceedings under Article 226 of the Constitution interfered with the impugned order of the Commissions merely because on a reappraisal of the evidence it might have come to a contrary conclusion. There was no error of jurisdiction on the part of the Commissioner nor was the impugned order vitiated by any error apparent on the face of the record. The finding reached by the Commissioner that the application made by Messrs Chingleput Bottlers was not made bona fide on their own account but as benami for others is a finding based on appreciation of evidence. The Commissioner was entitled to rely upon the facts found by the Collector. It may be pointed out that the Collector's report is entirely based on the statement of V. Ramabadran, managing partner of Messrs Chingleput Bottlers. The High Court was therefore justified in dismissing the appeal preferred by Messrs Chingleput Bottlers.
47. In the result, the appeal preferred by the State Government must succeed and is allowed. The judgment and order passed by the High Court for the issue of a writ of mandamus directing the Commissioner of Prohibition & Excise, Madras is set aside and the case is remanded to the Commissioner for a decision afresh according to law. For the reasons stated, the appeal filed by Messrs Chingleput Bottlers must fail and is dismissed.
48. There shall be no order as to costs.

matches: V. V. v. v. v. v. v. v. v. v. v. v. V.


MEDICAL COMMITTEE FOR HUMAN RIGHTS.
The Court of Appeals, overruling the contentions of the Securities and Exchange Commission (SEC), held that it had jurisdiction to review the SEC's 'extremely dubious' determination not to oppose the Dow Chemical Co.'s refusal of respondent shareholder's request to include its proposal for a corporate charter amendment in Dow's proxy statement. Thereafter Dow acquiesced in the request, and at its annual meeting less than 3% of the voting stockholders supported the respondent's proposal, as a result of which the company under an SEC rule may exclude the proposal from its proxy material for a three-year period. Held: Since it is extremely doubtful that at the end of that period respondent will resubmit the proposal and Dow will refuse it, the case is now moot. P. 405—407.
139 U.S.App.D.C. 226, 432 F.2d 659, vacated and remanded.
Sol. Gen. Erwin N. Griswold for petitioner.
Roberts B. Owen, Washington, D.C., for respondent.
The Committee requested that Dow's decision be reviewed by the staff of the SEC. On February 18, 1969, the Chief Counsel for the Division of Corporation Finance wrote both Dow and the Committee to inform them that 'this Division will not recommend any action to the Commission if this proposal is omitted from the management's proxy material.' App. 21. The SEC Commissioners granted a request by the Committee that they review the Division's decision and affirmed it. App. 43. The Committee then sought and obtained review of the Commission's decision in the United States Court of Appeals for the District of Columbia Circuit.
On July 8, 1970, the Court of Appeals held that the decision of the SEC was reviewable under § 25(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78y(a); that while review of Dow's decision was clearly available in district court, review of the SEC's decision could also be obtained in a court of appeals; that the validity of the Commission's determination was extremely dubious, especially in light of its failure to state reasons supporting its conclusion; and that the case should be remanded to the Commission for reconsideration and a statement of reasons. 139 U.S.App.D.C. 226, 432 F.2d 659. The Commission petitioned for review here, and we granted certiorari on March 22, 1971. 401 U.S. 973, 91 S.Ct. 1191, 28 L.Ed.2d 322.
Events have taken place, subsequent to the decision by the court below, and some subsequent to our decision to grant certiorari, that require that we dismiss this case on the ground that it has now become moot. In January 1971, the Medical Committee again submitted its napalm resolution for inclusion in Dow's 1971 proxy statement. This time Dow acquiesced in the Committee's request and included the proposal. At the annual stockholder's meeting in May 1971, Dow's shareholders voted on the Committee's proposal. Less than 3% of all voting shareholders supported it, and pursuant to Rule 14a 8(c)(4)(i), 17 CFR § 240.14a—8(c)(4)(i), Dow may exclude the same or substantially the same proposal from its proxy materials for the next three years. We find that this series of events has mooted the controversy.
Respondent argues that it will continue to urge the adoption of the proposal and its inclusion in proxy statements, and that it is likely that Dow will reject inclusion in the future as it has in the past. It is true that in permitting the proposal to be included in the 1971 proxy statement Dow stated that it adhered to its opinion that the proposal might properly be omitted and that its inclusion was without prejudice to future exclusion. However, this does not create the controversy that is necessary for us to retain jurisdiction to decide the merits. Whether or not the Committee will actually resubmit its proposal or a similar one in 1974 is purely a matter of conjecture at this point, as is whether or not Dow will accept it. If Dow were likely to repeat its allegedly illegal conduct, the case would not be moot. See Walling v. Helmerich & Payne, 323 U.S. 37, 43, 65 S.Ct. 11, 14, 89 L.Ed. 29 (1944); United States v. W. T. Grant Co., 345 U.S. 629, 632 633, 73 S.Ct. 894, 897—898, 97 L.Ed. 1303 (1953). However, in light of the meager support the proposal attracted, we can only speculate that Dow will continue to include the proposal when it again becomes eligible for inclusion, rather than to repeat this litigation. Thus, we find that 'the allegedly wrongful behavior could not reasonably be expected to recur.' United States v. Concentrated Phosphate Export Assn., 393 U.S. 199, 203, 89 S.Ct. 361, 364, 21 L.Ed.2d 344 (1968). The case is therefore moot.
'(I)t is well settled that federal courts may act only in the context of a justiciable case or controversy.' Benton v. Maryland, 395 U.S. 784, 788, 89 S.Ct. 2056, 2059, 23 L.Ed.2d 707 (1969). 'Our lack of jurisdiction to review moot cases derives from the requirement of Article III of the Constitution under which the exercise of judicial power depends upon the existence of a case or controversy.' Liner v. Jafco, Inc., 375 U.S. 301, 306 n. 3, 84 S.Ct. 391, 394, 11 L.Ed.2d 347 (1964); cf. Doremus v. Board of Education, 342 U.S. 429, 434, 72 S.Ct. 394, 397, 96 L.Ed. 475 (1952).
But it is said that because of the poor showing made by the proposal when finally submitted, Dow could refuse to resubmit it for three years under SEC proxy rules not at issue in this case. Ante, at 406. The Court suggests that it is 'purely a matter of conjecture' that the proposal will again be submitted at the expiration of this period, and that Dow will attempt again to reject it. The Court seems to think that Dow's best strategy, given the proposal's poor showing, is to let it go to a vote, rather than undertake protracted litigation. Ibid.
This assumption, however, is not only baseless, it is irrelevant. In Grant, supra, an antitrust violation was charged because of an interlocking directorate. In response to the suits, the interlocking directors resigned, and defendant companies represented to the court their intention not to revive the interlock. We disposed of this argument in summary fashion. 'Such a profession does not suffice to make a case moot.' Id., at 633, 73 S.Ct., at 897. Here, Dow has not even made the minimal representation we rejected in Grant, nor is it likely to do so.
This is not a controversy that could not arise again for decades, Golden v. Zwickler, 394 U.S. 103, 89 S.Ct. 956, 22 L.Ed.2d 113, or a controversy whose decision could have no possible future effect on the parties, Atherton Mills v. Johnston, 259 U.S. 13, 42 S.Ct. 422, 66 L.Ed. 814. Dow has for the past four years fought tooth and nail its obligation to include this shareholder proposal. While '(a) case might become moot if subsequent events made it absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur,' Concentrated Phosphate Export Assn., supra, 393 U.S., at 203, 89 S.Ct., at 364, that is hardly the situation here.
While this litigation is not formally between Dow and the Medical Committee, but between the SEC and the Medical Committee, it does involve a whole panoply of substantive2 and procedural3 rights in connection with a corporation's obligation to include shareholder proposals in proxy materials. The modern super-corporations, of which Dow is one, wield immense, virtually unchecked, power. Some say4 that they are 'private governments,' whose decisions affect the lives of us all.5 The philosophy of our times, I think, requires that such enterprises be held to a higher standard than that of the 'morals of the market-place' which exalts a single-minded, myopic determination to maximize profits as the traditional be-all and end-all of corporate concern. The 'public interest in having the legality of the practices settled, militates against a mootness conclusion.' Grant, supra, 345 U.S., at 632, 73 S.Ct., at 897.
There is no reason to assume Dow's antipathy to the inclusion of this shareholder proposal will be any less in 1974 than it is today. Perhaps Dow will adopt the advice given to it by the Court. But it is just as likely to decide its superior financial position makes continued litigation the preferable alternative, which may now be conducted under proxy rules more favorable to corporate management6 than are the present rules.
This case now joins a growing list of monuments to the present Court's abdication of its constitutional responsibility to decide cases properly within its jurisdiction. See, e.g., Picard v. Connor, 404 U.S. 270, at 278, 92 S.Ct. 509, at 513, 30 L.Ed.2d 438 (Douglas, J., dissenting); North Carolina v. Rice, 404 U.S. 244, at 248, 92 S.Ct. 402, at 405, 30 L.Ed.2d 413 (Douglas, J., dissenting statement); McClanahan v. Morauer & Hartzell, Inc., 404 U.S. 16, at 17, 92 S.Ct. 170, at 171, 30 L.Ed.2d 136 (Douglas, J., dissenting). Once again, I dissent.
See also Walling v. Helmerich & Payne, 323 U.S. 37, 65 S.Ct. 11, 89 L.Ed. 29, where we held that a case involving the legality of 'split-day contracts' under the Fair Labor Standards Act was not rendered moot by the defendant company's abandonment of the contracts during the litigation. 'Despite respondent's voluntary cessation of the challenged conduct, a controversy between the parties over the legality of the split-day plan still remains. . . . Respondent has consistently urged the validity of the split-day plan and would presumably be free to resume the use of this illegal plan were not some effective restraint made.' Id., at 43, 65 S.Ct., at 14.
'The same reasoning (as that of the Walling Court) applies to the dispute between respondent and Dow over whether the latter is required to distribute to its shareholders the Committee's proposal. Dow continues to insist that it is not required to distribute the proposal, and even if it does so this year (1971) and the proposal is defeated, Dow may reject it in future years.' First Reply Brief for Petitioner 5.
See generally Note, 84 Harv.L.Rev. 700 (1971).
See generally Note, 84 Harv.L.Rev. 835 (1971).
See, e.g., Miller, Toward the 'Techno-Corporate' State?—An Essay in American Constitutionalism, 14 Vill.L.Rev. 1 (1968); J. Galbraith, The New Industrial State (1967); A. Berle, Economic Power and the Free Society (1957).
'The recession of 1956 was in part due to the fact that the three principal automobile manufacturers, General Motors, Ford, and Chrysler, sold 8 million cars in the previous year. The National City Bank Economic Review estimated the 'normal' market for cars at the time at 6 million. The following year the motorcar companies sold only 4 million cars, and, naturally, purchased far less from their suppliers of raw materials, glass, et cetera. The effect on employment was severe.' The Three Faces of Power 31 n. 2 (1967).
'(ii) consists of a recommendation, request or mandate that action be taken with respect to any matter, including a general economic, political, racial, religious, social or similar cause, that is not significantly related to the business of the issuer or is not within the control of the issuer.' Proposed amendment to Rule 14a—8(c)(2), Securities Exchange Act Release No. 9432, Dec. 22, 1971.
There is substantial sentiment, however, for a more liberal approach to shareholder proxy proposals than is evidenced by the current, much less the proposed, rules. Senator Muskie, for example, introduced a bill in the last Congress, entitled the 'Corporate Participation Act,' which would have, inter alia, barred exclusion of a shareholder proposal 'on the ground that such proposal may involve economic, political, racial, religious, or similar issues, unless the matter or action proposed is not within the control of the issuer.' S. 4003, § 2, 91st Cong., 2d Sess. For the view that a corporation should be required to include any shareholder proposal which is a 'proper subject' for shareholder action under applicable state law, see Chisum, Napalm, Proxy Proposals and the SEC, 12 Ariz.L.Rev. 463 (1970). See also Note, 84 Harv.L.Rev. 700 (1971).


§795.5 Timing for determining status of persons.
§795.6 Multiple individuals or other entities.
§795.7 Entities or joint operations not considered as a person.
§795.10 Club, society, fraternal or religious organization.
§795.14 Changes in farming operations.
§795.15 Determining whether agreement is a share lease or a cash lease.
§795.20 Joint and several liability.
§795.23 Paperwork Reduction Act assigned number.
Authority: Sec. 1001 of the Food Security Act of 1985, as amended, 99 Stat, 1444, as amended, 7 U.S.C 1308; Pub. L. 99-500 and Pub. L. 99-591.
Source: 43 FR 9784, Mar. 10, 1978, unless otherwise noted.
(a) The provisions of this part are applicable to payments when so provided by the individual program regulations under which the payments are made. The amount of the limitation shall be as specified in the individual program regulations.
(b) The limitation shall be applied to the payments for a commodity for a crop year.
(c) The limitation shall not be applicable to payments made to States, political subdivisions, or agencies thereof for participation in the programs on lands owned by such States, political subdivisions, or agencies thereof so long as such lands are farmed primarily in the direct furtherance of a public function. However, the limitation is applicable to persons who rent or lease land owned by States, political subdivisions, or agencies thereof.
(d) The limitation shall not be applicable to payments made to Indian tribal ventures participating in the programs where a responsible official of the Bureau of Indian Affairs or the Indian Tribal Council certifies that no more than the program payment limitation shall accrue directly or indirectly to any individual Indian and the State committee reviews and approves the exemption.
(e) Except as provided in part 1497 of this title, this part shall not be applicabie to contracts entered into on or after August 1, 1988 in accordance with part 704 of this chapter.
(a) The terms defined in part 719 of this chapter, governing reconstitutions of farms, shall be applicable to this part and all documents issued in accordance with this part, except as otherwise provided in this section.
(iii) Be responsible for payment of the cost of farming related to such interest from a fund or account separate from that of any other individual or entity.
(2) The term “person” shall not include any cooperative association of producers that markets commodities for producers with respect to the commodities so marketed for producers.
(c) The term “family member” shall mean the individual, the great-grandparent, grand-parent, child, grandchild, and great-grandchild of such individual and the spouses of all such individuals.
(d) The term “separate unit” shall mean an individual who, prior to December 31, 1985: (1) Had been engaged in a separate farming operation and (2) in accordance with the provisions of this part, had been determined to be a separate person or could have so determined under the circumstances existing at such time.
(b) Such family members were organized as separate units prior to December 31, 1985.
Except as otherwise set forth in this part, the status of individuals or entities as of March 1, or such other date as may be determined and announced by the Administrator shall be the basis on which determinations are made in accordance with this part for the year for which the determination is made.
The rules in §§795.5 through 795.16 shall be used to determine whether certain multiple individuals or legal entities are to be treated as one person or as separate persons for the purpose of applying the limitation. In cases in which more than one rule would appear to be applicable, the rule which is most restrictive on the number of persons shall apply.
A partnership, joint venture, tenants-in-common, or joint tenants shall not be considered as a person but, notwithstanding the provisions of §795.3, each individual or other legal entity who shares in the proceeds derived from farming by such joint operations shall be considered a separate person, except as otherwise provided in this part, and shall be listed as a producer for payment purposes on program documents. The payment shares listed on the program documents for each individual or other legal entity shall be the same as each individual or other legal entity shares in the proceeds derived from farming by such joint operation. Notwithstanding the foregoing, each individual or other legal entity who shares in the proceeds derived from farming by such joint operation shall not be considered as a separate person unless the individual or other legal entity is actively engaged in the farming operations of the partnership or other joint operation. An individual or other legal entity shall be considered as actively engaged in the farming operation only if its contribution to the joint operation is commensurate with its share in the proceeds derived from farming by such joint operation. Members of the partnership or joint venture must furnish satisfactory evidence that their contributions of land, labor, management, equipment, or capital to the joint operation are commensurate with their claimed shares of the proceeds. A capital contribution may be a direct out-of-pocket input of a specified sum or an amount borrowed by the individual. If the contribution consists substantially of capital, such capital must have been contributed directly to the joint operation by the individual or other legal entity and not acquired as a result of (a) a loan made to the joint operation, (b) a loan which was made to such individual or other legal entity by the joint operation or any of its members or related entities, or (c) a loan made to such individual or other legal entity which was guaranteed by the joint operation or any of its members or related entities.
(a) A corporation (including a limited partnership) shall be considered as one person, and an individual stockholder of the corporation may be considered as a separate person to the extent that such stockholder is engaged in the production of the crop as a separate producer and otherwise meets the requirements of §795.3, except that a corporation in which more than 50 percent of the stock is owned by an individual (including the stock owned by the individual's spouse, minor children, and trusts for the benefit of such minor children), or by a legal entity, shall not be considered as a separate person from such individual or legal entity.
(b) Where the same two or more individuals or other legal entities own more than 50 percent of the stock in each of two or more corporations, all such corporations shall be considered as one person.
(c) The percentage share of the value of the stock owned by an individual or other legal entity shall be determined as of March 1 of the crop year, except that where a stockholder voluntarily acquires stock after March 1 and before the harvest of the crop, the amount of any stock so acquired shall be included in determining the percentage share of the value of the stock owned by the stockholder. Where there is only one class of stock, a stockholder's percentage share of the value of the outstanding stock shall be equal to the percentage of the outstanding stock owned by the stockholder. If the corporation has more than one class of stock the percentage share of the value of the stock owned by a stockholder shall be determined by the Deputy Administrator on the basis of market quotations, and if market quotations are lacking or too scarce to be recognized the percentage share of the value of the stock shall be determined by the Deputy Administrator on the basis of all relevant factors affecting the fair market value, including the rights and privileges of the various stock issues.
(a) An estate or irrevocable trust shall be considered as one person except that, where two or more estates or irrevocable trusts have common beneficiaries or heirs (including spouses and minor children) with more than a 50-percent interest, all such estates or irrevocable trusts shall be considered as one person.
(b) An individual heir of an estate or beneficiary of a trust may be considered as a separate person to the extent that such heir or beneficiary is engaged in the production of crops as a separate producer and otherwise meets the requirements of §795.3, except that an estate or irrevocable trust which has a sole heir or beneficiary shall not be considered as a separate person from such heir or beneficiary.
(c) Where an irrevocable trust or an estate is a producer on a farm and one or more of the beneficiaries or heirs of such trust or estate are minor children, the minor children's pro rata share of the program payments to the trust or estate shall be attributed to the parent of the minor children except as otherwise provided in §795.12.
(d) A revocable trust shall not be considered as a separate person from the grantor.
Each individual club, society, fraternal or religious organization may be considered as a separate person to the extent that each such club, society, fraternal or religious organization is engaged in the production of crops as a separate producer and otherwise meets the requirements of §795.3.
With respect to the 1988 crop year, a husband and wife shall be considered to be one person except that such individuals who, prior to their marriage, were separately engaged in unrelated farming operations will be determined to be separate persons with respect to such farming operations so long as the operations remain separate and distinct from any farming operation conducted by the other spouse if such individuals have executed a Contract to Participate in the 1988 Price Support and Production Adjustment Programs by April 15, 1988. Such individuals must file a form FSA-561 with the county committee for each such farming operation by July 8, 1988, if they desire to be considered as separate persons under this section.
(3) Has a farming operation resulting from his being the beneficiary of an irrevocable trust and ownership of the property is vested in the trust or the minor.
(b) A person shall be considered a minor until he reaches 18 years of age. Court proceedings conferring majority on a person under 18 years of age will not change such person's status as a minor for purposes of applying the regulations.
Where the county committee is unable to determine whether certain individuals or legal entities involved in the production of a commodity are to be treated as one person or separate persons, all the facts regarding the arrangement under which the commodity is produced shall be submitted to the State committee for decision. Where the State committee is unable to determine whether such individuals or legal entities are to be treated as one person or separate persons, all the facts regarding the arrangement under which the farming operation is conducted shall be submitted to the Deputy Administrator for decision.
(a) Subject to the provisions of this part, a person may exercise his or her right heretofore existing under law, to divide, sell, transfer, rent, or lease his or her property if such division, sale, transfer, rental arrangement, or lease is legally binding as between the parties thereto. However, any document representing a division, sale, transfer, rental arrangement, or lease which is fictitious or not legally binding as between the parties thereto shall be considered to be for the purpose of evading the payment limitation and shall be disregarded for the purpose of applying the payment limitation. Any change in farming operations that would otherwise serve to increase the number of persons for application of the payment limitation must be bona fide and substantive.
(b) A substantive change includes, for example, a substantial increase or decrease in the size of the farm by purchase, sale, or lease; a substantial increase or decrease in the size of allotment by purchase, sale, or lease; a change from a cash lease to a share lease or vice versa; and dissolution of an entity such as a corporation or partnership.
Example 1. A corporation is owned equally by four shareholders. The corporation owns land, buildings, and equipment and in the prior year carried out substantial farming operations. Three of the shareholders propose forming a partnership which they would own equally. The partnership would cash lease land and equipment from the corporation with the objective of having the three partners considered as separate persons for purposes of applying the payment limitation under the provisions of §795.7 of the regulations.
The formation of such a partnership and the leasing of land from a corporation in which they hold a major interest would not constitute a substantive and bona fide change in operations. Therefore, the corporation and the partners would be limited to a single payment limitation.
Example 2. Three individuals each have individual farming operations which, if continued unchanged, would permit them to have a total of three payment limitations.
The three individuals propose forming a corporation which they would own equally. The corporation would then cash lease a portion of the farmland owned and previously operated by the individuals with the objective of having the corporation considered as a separate person for purposes of applying the payment limitation under the provisions of §795.8 of the regulations. The formation of such a corporation and the leasing of land from the stockholders would not constitute a substantive and bona fide change in operations. Therefore, the corporation and the three individuals would be limited to three payment limitations.
(a) Cash lease. If a rental agreement contains provisions for a guaranteed minimum rental with respect to the amount of rent to be paid to the landlord by a tenant, such agreement shall be considered to be a cash rental agreement. In addition, the rental agreement must be customary and reasonable for the area.
(b) Share lease. If a rental agreement contains provisions that require the payment of rent on the basis of the amount of the crop produced or the proceeds derived from the crop, such agreement shall be considered to be a share rental agreement. In addition, the rental agreement must be customary and reasonable for the area.
(1) The compensation for the custom farming is paid at a unit of work rate customary in the area and is in no way dependent upon the amount of the crop produced, and (2) the person performing the custom farming (and any other entity in which such person has more than a 20-percent interest) has no interest, directly or indirectly, (i) in the crop on the farm by taking any risk in the production of the crop, sharing in the proceeds of the crop, granting or guaranteeing the financing of the crop, (ii) in the allotment on the farm, or (iii) in the farm as landowner, landlord, mortgage holder, trustee, lienholder, guarantor, agent, manager, tenant, sharecropper, or any other similar capacity.
(1) The compensation for the custom farming service is paid at a unit of work rate customary in the area and is in no way dependent upon the amount of the crop produced, and (2) the person having such interest in the legal entity performing the custom farming has no interest, directly or indirectly, (i) in the crop on the farm by taking any risk in the production of the crop, sharing in the proceeds of the corp, granting or guaranteeing the financing of the crop, (ii) in the allotment on the farm, or (iii) in the farm as landowner, landlord, mortgage holder, trustee, lienholder, guarantor, agent, manager, tenant, sharecropper, or in any other similar capacity.
All or any part of the payments otherwise due a person under the upland cotton, wheat, feed grain and rice programs on all farms in which the person has an interest may be withheld or required to be refunded if the person adopts or participates in adopting any scheme or device designed to evade or which has the effect of evading the rules of this part. Such acts shall include, but are not limited to, concealing from the county committee any information having a bearing on the application of the rules of this part or submitting false information to the county committee (for example, a set-aside agreement which is entered into that differs from information furnished to the county committee concerning the manner in which program payments are actually shared, concerning the actual facts of a sale, or concerning the transfer of property) or creating fictitious entities for the purpose of concealing the interest of a person in a farming operation.
Where two or more individuals or legal entities, who are treated as one person hereunder, receive payments which in the aggregate exceed the limitation, such individuals or legal entities shall be liable, jointly and severally, for any liability arising therefrom. The provisions of this part requiring the refund of payments shall be applicable in addition to any liability under criminal and civil fraud statutes.
Any person may obtain reconsideration and review of determinations made under this part in accordance with the appeal regulations, part 780 of this chapter, as amended.
In interpretations previously issued pursuant to the payment limitation regulations and published at 36 FR 16569, 37 FR 3049, 39 FR 15021 and 41 FR 17527 shall be applicable in construing the provisions of this part.
The information collection requirements contained in these regulations (7 CFR part 795) have been approved by the Office of Management and Budget under the provisions of 44 U.S.C. Chapter 35 and have been assigned OMB control number 0560-0096.
If a producer relied on a county committee and/or State committee “person” determination for a crop year and higher reviewing authority makes a more restrictive determination, the Deputy Administrator may grant relief only for such crop year if the producer was not afforded an opportunity to exercise other alternatives with respect to the producer's farming operation and the program provisions and the county committee has determined that the producers acted in good faith based upon the original “person” determination.