The Essential Commodities Act, 1955

What are ‘essential commodities’?

Essential commodities are, fertilisers – inorganic, organic or mixed; foodstuffs including edible oilseeds and oils; hank yarn made wholly from cotton; petroleum and petroleum products; raw jute and jute textiles; seeds of food crops, cattle fodder, fruits and vegetables; cotton and jute seeds; drugs, surgical and N95 masks, and hand sanitisers.

The central government may add or remove an essential commodity from the list through a notification in The Gazette of India, if it is satisfied that it is necessary to do so in public interest. The government may do so in consultation with the state governments. The notification shall specify the period for which the commodity will be deemed as an essential commodity, and the period shall not exceed six months. The central government may extend that period beyond six months in public interest.

What does the Act say about the production, supply and distribution of essential commodities?

The central government may – under Section 3(1) of the Act – issue orders to regulate or prohibit the production, supply and distribution of, or trade and commerce in, essential commodities. The government may do so if it is of the opinion that it is ‘necessary or expedient’ for maintaining or increasing supplies of any essential commodity, ensuring its ‘equitable distribution’ and ‘availability at fair prices’, or securing such commodities for the defence of India.

Section 3 (1A) – which the Essential Commodities (Amendment) Act, 2020, inserted into the 1955 Act – states that the supply of ‘foodstuffs’ – including cereals, pulses, potatoes, onions, edible oilseeds and oils – may only be regulated under ‘extraordinary circumstances’ such as war, famine, ‘extraordinary’ price rise and ‘natural calamity of grave nature’. The central government may do this through a notification in The Gazette of India.

Any action on imposing stock limits on agricultural produce shall be based on price rise. An order for regulating the stock limit of such produce may be issued under this Act only if there is a 100 per cent increase in the retail price of horticultural produce, or a 50 per cent rise in the retail price of ‘non-perishable agricultural foodstuffs’. The increase should be over the price prevailing in the preceding 12 months, or the average retail price of the last five years – whichever is lower.

Such orders for regulating stock limit shall not apply to a ‘processor’ or ‘value chain participant’ of any agricultural produce “…if the stock limit of such person does not exceed the overall ceiling of installed capacity of processing, or the demand for export in case of an exporter.” A ‘value chain participant’ for agricultural products, includes those involved in production, processing, packaging, storage, transport and distribution – each stage where ‘value is added’ to the product.

Nothing in Section 3(1A) shall apply to any order relating to the Public Distribution System made by the government under any law in force.

Any order made under Section 3 (on governments directing persons to sell their stock of essential commodities) shall have effect even if it is inconsistent with the provisions of any other laws or legal instrument in force at the time.

What shall an order to control the production, supply and distribution of essential commodities contain?

The order may provide for regulating the production or manufacture of any essential commodity  through licences, permits or otherwise; for bringing any waste or arable land – whether connected to a building or not – under cultivation for growing food crops; for controlling the price at which any essential commodity may be bought or sold; for regulating the storage, transport, distribution, disposal, acquisition, use or consumption of any essential commodity through licences, permits or otherwise; for prohibiting any essential commodity  ordinarily kept for sale, from being withheld; and for regulating or prohibiting any class of commercial or financial transactions relating to foodstuffs which – in the opinion of the authority making the order – are, or are likely to be, detrimental to public interest.

The order may require any person holding a stock of any essential commodity, or engaged in its production or trade, to sell the whole or a specified part of the stock to the central or state government, agents of the government, government-owned or controlled corporations, or any other person or class of persons. The order may also provide for the collection of information or statistics, with a view to regulate the production, supply or distribution of, or trade and commerce in, any essential commodity.

How can the government direct persons to sell their stock of essential commodities under this Act?

Where any person sells an essential commodity in compliance with an order made under clause (f) of Section 3(2) – which requires persons to sell the whole or a part of their stock to entities mentioned in the order – they shall be paid the ‘agreed’ price, if it is consistent with the ‘controlled’ price. Where the price has not been agreed upon, it shall be calculated with reference to the ‘controlled’ price, if there is any. Otherwise, they shall be paid the price calculated at the market rate prevailing in the locality on the date of sale.

If the central government considers it necessary to do so for controlling price rises or preventing the hoarding of foodstuffs in any locality, it may issue a notification to regulate the price at which the foodstuff shall be sold there. The notification – which shall be published in The Gazette of India – shall remain in force for three months at most. Any person who sells foodstuffs of the kind mentioned in the order, shall be paid the agreed price, if there is any; “…where no such agreement can be reached, the price calculated with reference to the controlled price, if any;” otherwise, “…the price [shall be] calculated with reference to average market rate prevailing in the locality during the period of three months immediately preceding the date of the notification.”

Where the government requires persons to sell – to entities specified by it – the whole or a part of their stock of any grade or variety of foodgrains, edible oilseeds or edible oils, but not under a notification issued under Section 3(3A) – for controlling price rises or preventing the hoarding of foodstuffs in any locality – they shall be paid an amount equal to the procurement price of such commodities as may be specified by the state government, with the approval of the central government. The amount paid shall be decided with regard to the ‘controlled’ price, if any; “general crop prospects;” the need to make the commodities available to consumers – particularly to vulnerable sections – at reasonable prices; and the recommendations, if any, of the Agricultural Prices Commission.

Where the government requires producers to sell – to specified entities – the whole or a part of their stock of any kind of sugar, the central government shall determine the amount to be paid to the producer. The government may decide the amount with regard to the commodity’s ‘fair and remunerative’ price – if any, as determined by the central government – taking into account the price of sugarcane; the manufacturing cost of sugar; any duty or tax payable for such manufacturing; and a ‘reasonable’ return on the capital employed in the business of manufacturing sugar.

The central government may direct that no producer, importer or exporter shall sell, or otherwise dispose of or deliver, any kind of sugar, or remove any kind of sugar from the ‘bonded go downs’ of the factory where it is produced, except under, and in accordance with, the direction issued by the government.

The central government may periodically pass an order directing any producer, importer, exporter or recognised dealer to ‘take action’ for the production, maintenance of stocks, storage, sale, grading, packing, marking, weighment, disposal, delivery and distribution, of any kind of sugar in the manner specified by the government.

What does the Act say about confiscating stocks of essential commodities?

Where any essential commodity is seized as per an order made under Section 3 (on governments directing persons to sell their stock of essential commodities), a report of the activity shall be made to the Collector of the district. The Collector may – if they think it is expedient – direct that the seized commodity be produced before them for inspection. If they are satisfied that the order has been  contravened, they may order the confiscation of the seized commodity; of any package, covering or receptacle in which the commodity is found; and of any animal, vehicle, vessel or other conveyance used for carrying the commodity.

If the Collector is of the opinion that the essential commodity is ‘subject to speedy and natural decay’, or that it is expedient in public interest to do so, they may order that the commodity be sold at a ‘controlled’ price fixed for the essential commodity under this Act or any other law. Where no such price is fixed, the Collector may order the same to be sold by public auction.

In the case of foodgrains, the Collector may order that the commodity be sold through fair price shops at the price fixed by the central or state government for its ‘equitable distribution and availability at fair prices’. If any essential commodity is sold under this Section (Section 6A), the sale proceeds shall go to the owner of the commodity, or the person from whom it was seized. This will only be done if no order for confiscation is ultimately passed by the Collector, or according to an order ‘passed on appeal’ against any such confiscation.

Focus and Factoids by Oorna Raut.