The Kerala Small Financiers Association and Others vs The State of Kerala and Others

A.R. Lakshmanan, J.—W.As. 737, 742, 754, 758, 763, 767, 1042 and 1043 of 1997 were filed by the Kerala Small Financiers'' Association and other private financiers, who have taken the licence under the Kerala Money Lenders Act, 1958 (for short ''the Act'') for the purpose of carrying on the business of money lending. All the Writ Petitions, out of which the above appeals arise, were filed for a declaration that the amendments to Sections 4(2)(i) and 4(2B) of the Act by the Kerala Finance Bill, 1996 and the Kerala Finance Act, 1995 respectively are unconstitutional and void. By the amendment effected to Section 4(2)(i) of the Act, the licence fee was enhanced from Rs. 2,000 to Rs. 10,000. The learned Single Judge, by judgment dated 9th April 1997 in O.P. 16126 of 1996 and connected cases, has allowed the Original Petitions setting aside the enhancement of licence fee from Rs. 2,000 to Rs. 10,000. Since in the Finance Bill, 1997 licence fee was proposed to be reduced to Rs. 5,000, the learned Judge was pleased to hold that for the year 1996 alone there cannot be a licence fee of Rs. 10,000. Hence, the learned Judge has ordered that licence fee for the year 1996-97 may be collected at Rs. 5,000 and if any excess amount is collected, that may be adjusted against the licence fee for future years. The above judgment of the learned Judge is challenged in the above appeals.

The Government of Kerala also filed a Writ Appeal (W.A. 1825 of 1997) questioning the correctness of the order of the learned Judge ordering that licence fee for 1996-97 may be collected at the rate of Rs. 5,000. By consent of all the parties, the main writ appeals themselves were taken up for final hearing.

All the Writ Appeals were admitted by then Chief Justice and Sankarasubban, J. considering the question of law that is raised in the appeals. The Bench, as an interim measure, directed all the licensees, who have not paid the licence fee of Rs. 5,000 as indicated in the judgment, shall pay the licence fee of Rs. 5,000 by 30th June 1997 positively.

The Kerala Money Lenders Act, 1958 was enacted by the Kerala Legislature in the year 1958 with the object of providing for the regulation and control of the, business of money lenders in the State. u/s 3 of the Act, the money lenders were to obtain licences for carrying on the business of money lending. Licence fee is prescribed in Section 4(2)(i) of the Act. It was Rs. 100 in 1958, i.e., at the time of enactment of the Act. Subsequently, in 1983, after a lapse of 25 years, the licence fee was enhanced to Rs. 1,000. Again, after a lapse of 10 years in 1993, it was enhanced to Rs. 2,000. In 1996, Government have introduced the new Finance Bill by which Section 4(2)(i) of the Act was amended and the licence fee was enhanced from Rs. 2,000 to Rs. 10,000. According to the Appellants, most of the members of the Association are finding it difficult to remit Rs. 2,000 towards licence fee. Hence, they filed the Original Petitions contending that the enhancement of licence fee from Rs. 2,000 to Rs. 10,000 is highly arbitrary and unreasonable. The members of the Association are mainly depending on the income derived from the money lending business for their livelihood and after deducting all expenses the net profit received from the business is very low. As per Section 4(2A) of the Act, a licensee who lends less than Rs. 1 lakh in an year has to furnish a security deposit of Rs. 5,000 and for those who lend more than Rs. 1 lakh, but less than Rs. 5 lakh, have to deposit Rs. 10,000 as security deposit. Hence, the members of the Association are finding it difficult to continue the business after remitting such a huge amount towards licence fee and also the specified amounts as security deposit. According to them, in the State of Karnataka, the licence fee fixed for lending business is Rs. 50 only per annum and for renewal of licence every year, they have to remit only Rs. 25. For every branch of their business, they have to remit only Rs. 25. Similarly, in the State of Tamil Nadu, the yearly licence fee fixed for money lending business is only Rs. 100 whereas as per the amendment now brought in by the Government of Kerala, the members of the Association have to remit a sum of Rs. 10,000 per annum towards licence fee and for every branch, an additional payment of Rs. 10,000 has also to be made. This is in addition to the security deposit to be made u/s 4(2A) of the Act.

It is contended by Mr. T.R.G. Wariyar, Senior Advocate, who advanced principal argument on behalf of all the Appellants, that the licence fee collected are not earmarked for utilisation of any service to the members of the Association. In every district, only the Inspecting Assistant Commissioner of Agricultural Income Tax and Sales Tax and the Sales Tax Inspector working under him are handling the files relating to money lenders and they devote only a part of their time to handle these files apart from their other duties. Hence, it is contended that the enhancement of licence fee to Rs. 10,000 without rendering any service to the members of the Association is highly arbitrary and unreasonable. It amounts to imposition of levy without the authority of law and is void. There is also no proposal to spend major portion of the fee collected for any special services to be rendered to the money lenders or even to the borrowers.

Our attention was invited to Section 4(2B) of the Act which was amended by the Finance Act of 1995. The section reads as follows:

(2B) For the purposes of Sub-section (2A), the amount lent by a licensee for the year for which the security is to be paid shall be deemed to be

(a) the maximum aggregate loan amount outstanding on any day during the previous year; or

(b) the amount invested by the licensee including all deposits received by him during the previous year, if the maximum aggregate loan amount outstanding is not ascertainable from his accounts;

Provided that in the case of a new licensee or a person who was a licensee only for a portion of the preceding year, the amount of security shall be determined in the basis of a declaration in the prescribed form as to the amount which he is likely to lend during the year, filed before the licensing authority in the prescribed manner.

It is submitted that the above provisions made through the amendment are arbitrary and unreasonable. The original provision which provided for security being furnished on the aggregate amount lent by him during the previous year, as interpreted by this Court and the Supreme Court, can alone be the logical safeguard for demanding security. There is no rationale in demanding security for the maximum amount lent.

Mr. Wariyar submitted that the Appellants are small financiers/pawn brokers who carry on the business of taking gold ornaments in pawn for a loan. As per Chapter III C Rule 455 of Banking Laws (Amendment) Act, an individual pawn broker cannot collect deposit from more than 25 persons. In view of the above prohibition, the Appellants/pawn brokers cannot increase their capital and thereby earn more profit by increasing the turnover. Government have brought in several amendments in the Act to safeguard the interest of the public and to regulate money lending business. It is seen from the amendments brought into Sections 4(2)(i), 4(2A), 7, 4(2)(ii), 11(a), 17 and 18 of the Act that so many regulatory measures were taken since 1983 in order to safeguard the interest of the public and to regulate the business of money lending. Hence, the money lending being carried on by the Appellants under the Act is not injurious or dangerous to the public. Appellants submit these provisions are beyond the competence of the State Legislature and are violative of Articles 14 and 19(1)(g) of the Constitution of India and are void. It is contended that Section 4(2)(i) of the Act prior to its amendment in 1995 provided for the grant of licence on a condition of payment of Rs. 2,000 as licence fee. By the amendment, the licence fee has been increased from Rs. 2,000 to Rs. 10,000 which would result the business of money lending impossible. There is no quid pro quo justifying the licence fee now imposed. No services are rendered by the State to the money lender. Imposition of a high rate of licence fee on a uniform scale without any regard to the nature and volume of the business of various money lenders is discriminatory and offends Article 14 of the Constitution of India. The provisions in Sections 4(2)(i) and 4(2B) of the Act place unreasonable restrictions on the right of the Appellants to carry on business.

Mr. Wariyar further submitted that the amendments axe beyond the competence of the State Legislature. If the levy is to be understood as a provision which imposes a tax, then it would be clearly outside the, legislative competence and the constitutional restrictions on the State Government. Viewed as a tax, the levy could only be justified as a tax on the practice of a profession, trade or calling. Such levy can be made only subject to Article 274(2) which mandates that the total amount payable in respect of any one person to the State or to any one Municipality, District Board or other local authority in the State by way of taxes on professions, traders, fallings and employments shall not exceed Rs. 2,500 per annum. Even the proposals placed by the Minister before the Legislature merely states that ''by increasing the licence fee from Rs. 2,000 to Rs. 10,000 the Government expects a revenue of Rs. 5 crores''. It is, therefore, clear that the levy would fall under Article 276(2) since the proposal is merely to impose a levy for the general purposes of the State. In determining whether the levy is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specific area or classes.

A counter-affidavit was filed on behalf of the State through its Under Secretary, Taxes Department. Smt. Molly Jacob, Senior Government Pleader submitted that licence fee is fixed not only for the purpose of regulating the business but also for the purpose of restricting or discouraging the trade in public interest. A higher licence fee is fixed in public interest to keep out of business those who are undesirable and to keep within reasonable limits the number of those engaged in the business of money lending. As such, the licence fee of Rs. 10,000 has been fixed as a regulatory measure and is justified for the proper functioning of the private financial enterprises. The impugned amendment of Section 4(2B) was made taking into account of the decision rendered by this Court and the Supreme Court. The security deposit is demanded as a condition for the grant of renewal of the licence for enabling the money lender to do the business. Security thus is insisted as an assurance for the fulfilment of the obligation of the money lender and as a protection against the economic vicissitudes inherent in this business. The enhancement of the licence fee has been made as a regulatory measure and the same is within the competence of the State Legislature. A fee is a compulsory payment by a person and it is charged for the special services rendered to the payer. The amount of licence need not be in terms of the volume of service. The levy is not a tax, but only a fee. The levy is within the jurisdiction of the Legislature.

Mr. P.V. Mohanan, Counsel for the Appellants in W.A. 758 of 1997, at the time of his arguments, invited our attention to some of the rulings of this Court wherein the enhancement of licence fee of Rs. 1,000 and other amendments of the Act were challenged before this Court on the ground that fixation of uniform licence fee of Rs. 1,000 u/s 4(2) of the Act is arbitrary and that the insistence of security on a graduated scale u/s 4(2) is unreasonable and the forfeiture of security as additional penalty u/s 16A is arbitrary. A Division Bench of this Court in Monarch Invest v. State of Kerala 1989 (1) KLT 51 declared that Section 16A of the Act is ultra vires and unconstitutional. This judgment has been upheld by the Supreme Court in State of Kerala v. M. Investments 1992 (1) KLT 583. He also invited our attention to Indian Mica Micanite Industries Vs. The State of Bihar and Others, , All India Judges'' Association Vs. Union of India and others, and Secretary, Govt. of Madras v. P.R. Sriramulu AIR 1996 S.C. 676. He has also drew our attention to the seven principles formulated by the Supreme Court in Kewal Krishan Puri and Others Vs. State of Punjab and Another, , which was also relied on by Mr. Wariyar, for satisfying the test for a valid levy. In the light of the aforesaid judicial pronouncements, Mr. Mohanan submitted that the enhancement of licence fee to Rs. 10,000 is unreasonable and arbitrary.

Counsel appearing on behalf of other Appellants have adopted the same arguments of Mr. Wariyar.

Mr. Wariyar relied on the following judgments:

Indian Mica Micanite Industries Vs. The State of Bihar and Others, ); Kewal Krishan Puri and Others Vs. State of Punjab and Another, ; State of Kerala v. M. Investments 1992 (1) KLT 583 ; Monarch Invest. v. State of Kerala 1989 (1) KLT 51; All India Judges'' Association Vs. Union of India and others, ; Krishi Upaj Mandi Samiti and Others Vs. Orient Paper and Industries Ltd., ; Secretary, Government of Madras v. P.R. Sriramulu ( AIR 1996 S.C. 676 ); Bhagwan Dass Sood Vs. State of Himachal Pradesh and others, .

In Indian Mica Micanite Industries Vs. The State of Bihar and Others, the Supreme Court held that to uphold a levy as a tee it must be shown that it has a reasonable co-relationship of a general character (though not with arithmetical exactitude), with the service rendered by the Government, and that the corelationship between the services rendered and the fee levied is essentially a question of fact. The above principles was followed by another Constitution Bench of the Supreme Court in the decision in Kewal Krishan Puri and Others Vs. State of Punjab and Another, . In the said case the validity of certain provisions of the Punjab Agricultural Produce Markets Act and the rules framed thereunder by the State as also the validity of the fixation of market rates from time to time by the various market committees in the State under the directions of the Punjab Agricultural Produce Marketing Board and the Hariyana Agricultural Produce Marketing Board fell for determination by the Supreme Court. The Supreme Court in paragraph 23 of the judgment, held as follows:

From a conspectus of the various authorities of this Court we deduce the following principles for satisfying the tests for a valid levy of market fees on the agricultural produce bought or sold by licensees in a notified market area:

(1) That the amount of fee realised must be earmarked for rendering services to the licensees in the notified market area and a good and substantial portion of it must be shown to be expended for this purpose.

(2) That the services rendered to the licensees must be in relation to the transaction of purchase or sale of the agricultural produce.

(3) That while rendering services in the market area for the purpose of facilitating the transactions of purchase and sale with a view to achieve the object of the marketing legislation it is not necessary to confer the whole of the benefit on the licensees, but some special benefits must be conferred on them which have a direct, close and reasonable correlation between the licensees and the transactions.

(4) That while conferring some special benefits on the licensees, it is permissible to render such service in the market which may be in the general interest of all concerned with transactions taking place in the market.

(5) That spending the amount of market fees for the purpose of augmenting the agricultural produce, its facility of transport in villages and to provide other facilities meant mainly or exclusively for the benefit of the agriculturists is not permissible on the ground that such services in the long run go to increase the volume of transactions in the market ultimately benefitting the traders also. Such an indirect and remote benefit to the traders is in no sense a special benefit to them.

(6) That the element of quid pro quo may not be possible, or even necessary, to be established with arithmetical exactitude but even broadly and reasonably it must be established by the authorities who charge the fees that the amount is being spent for rendering services to those on whom falls the burden of the fee.

(7) At least a good and substantial portion of the amount collected on account of fees may be in the neighbourhood of two-thirds or three-fourths must be shown with reasonable certainty as being spent for rendering services of the kind mentioned above.

The decision reported in Indian Mica Micanite Industries Vs. The State of Bihar and Others, was followed by the Supreme Court in the decisions reported in Krishi Upaj Mandi Samiti and Others Vs. Orient Paper and Industries Ltd., and Bhagwan Dass Sood Vs. State of Himachal Pradesh and others, In the decision reported in Krishi Upaj Mandi Samiti and Others Vs. Orient Paper and Industries Ltd., the Court held that the power of any legislature to levy a fee is conditioned by the fact that it must be by and large quid pro quo for the services rendered. However, correlationship between the levy and the services rendered/expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be reasonable relationship between the levy of the fee and the services rendered. The Supreme Court also distinguished fee from tax and also restated the principles with regard to the test of quid pro quo in paragraph 21 of the judgment. In the decision in AIR 1996 S.C. 676 the Supreme Court held thus:

If the essential character of the levy is that some social service is intended as quid pro quo to the class of citizens which is intended to be benefitted by the service and a broad and general correlation between the amount so collected and the expenses incurred in providing the services is found to exist. Then such levy would partake the character of a fee, irrespective of the fact that such social services for which the amount by levy of fee is collected incidentally and indirectly benefit the general public also. In order to establish the correlation between the amount recovered by way of fee, and the expenses incurred in providing the service they should not be examined so minutely or be weighed in golden scale to discern any difference between the two. It is not necessary to ascertain the same with any mathematical exactitude for finding the correlation but the test would be satisfied if a broad and general correlation is found to exist and once such a broad correlation between the totality of the expenses on the services rendered as a whole, on the one hand and the totality of the amount so raised by way of the fee. On the other, if established, it would be no part of the legitimate exercise in the examination of the constitutionality of the concept of the impost to embark upon its effect in the individual cases. If the aforesaid relation is found to exist in the levy of the fee, the levy cannot be said to be wanting in its essential character of a fee on the ground that the measure of its distribution on the persons of incidence is disproportionate to the actual services made available to them.

In Bhagwan Dass Sood Vs. State of Himachal Pradesh and others, the Supreme Court held as follows:

It is not necessary that the imposition of levy of market fee is to be effected only on establishment of principal and sub-market yards by completing the infrastructures required for such establishment of market and sub-market yards. Such construction being time consuming and expenditure oriented, it will be sufficient to justify valid imposition of levy if it is demonstrable that after notifying market area, effective steps not in contemplation but in reality have been taken to identify market and sub-market yards and schemes for establishment of such market or sub-market yards have in fact been put to action and the market fees levied and realised are being ploughed back for the advancement of the purpose for which market fees have been levied and realised. In deciding the question of rendering of a real and not illusory service in discharging the obligation emanating from quid pro quo, to levy of market fee, no straight jacket formulae can be evolved. Fact situation in the matter of establishment of principal and sub-market yards and the practical feasibility of construction of infrastructures, roads, pathways, etc., for establishment of such market yards within a time frame and in the light of financial constraints is bound to vary depending on various factors including imponderables. It is, therefore, essentially necessary to take a pragmatic approach to the problems associated with establishing market and sub-market yards with necessary infrastructures, etc., and accompanying facilities and amenities to be made available to traders and producers coming to such yards, in order to decide whether concrete steps have been translated into action with reasonable sincerety in implementing the scheme envisaged under the Marketing Act and the Rules framed thereunder.

Money lenders including pawn brokers of Kerala filed writ petitions in this Court contending that the fixation of a uniform fee of Rs. 1,000 u/s 4(2) of the Money Lenders Act was arbitrary; that the insistence of security on a graduated scale u/s 4(2A) of the Act was unreasonable and arbitrary, violating Articles 19(1)(g) and 14 of the Constitution of India; and that forfeiture of security as an additional penalty u/s 16A of the Act with no guidelines for the exercise of that power was arbitrary. The learned Single Judge rejected the plea and dismissed the writ petition. A Division Bench of this Court (Malimath, C.J. and Bhaskaran Nambiar, J.) in Monarch Investments v. State of Kerala 1989 (1) KLT 51 after adverting to the object and the scheme of the Act and to the relevant statutory provisions and amendments, rejected the case of the Appellants that the implementation of Section 4(2A) and 4(2B) of the Act will seriously affect their business. The Bench held that these provisions cannot be characterised as unreasonable restrictions on the right to carry on the business of money lending. The Bench also held that the licence fee need not be geared to the volume of business carried on by the money lender and a fixed licence fee for all money lenders, whether he advances loans or receives deposits or he is only a pawn broker, is well within the permissible limits of classification. In so far as Section 16(a) empowering forfeiture of security is concerned, it was held by the Bench that the said provision was unreasonable restriction vitally affecting the large number of persons dealing with the money lenders, unnecessary for the regulation of the business of money lending and had no rational basis for the object sought to be achieved under the Act. The Bench has observed that the forefeiture of security u/s 16A is arbitrary and unreasonable. The Bench, therefore, held that Section 16A is arbitrary and violative of Article 14 of the Constitution of India and unreasonable, offending Article 19(1)(g) of the Constitution. In the result, the Bench declared that Section 16A of the Act is ultravires and unconstitutional and rejected the challenge against Sub-sections (2)(ii), (2A) and (2B) of Section 4 of the Act. This was taken up in appeal before the Supreme. Court by the State and the Supreme Court in the judgment reported in State of Kerala v. Monarch Investments 1992 (1) KLT 583 confirmed the judgment of this Court and rejected the appeal filed by the State observing the paragraph 6 of the judgment as follows:

For the purpose of regulation of money lending business, and to ensure compliance with the conditions of the licence, the licence fee is collected; the penalty is imposed; the prosecution is ordered and the licence is cancelled etc. Even security is demanded and additional security is called for. All these measures seem to be regulatory in nature. The demand of security and additional security may also be justified in the social interest and to ensure financial stability of the money lender who is accountable to the public in money-lending transactions. But there seems to be little legitimacy of the power conferred by Section 16A to forfeit the security deposit made u/s 4(2A). It has no relation with the need for protection of the public interest or for effectuating the objects sought to be achieved by the Act. Nor it is necessary for the due observance of the conditions of the licence. There are adeqate provisions in the Act to ensure compliance with the conditions of the licence. The grounds for ferfeiting the security deposit are not different from the grounds available for cancellation of licence. Section 16A, in our opinion, is wholly unreasonable and arbitrary.

It is seen from the above judgment that the State can, for the purpose of regulating money lending business and to ensure compliance with the conditions of the licence, demand security or additional security, which may be justified in the social interest and to ensure financial stability of the money lender who is accountable to the public in money lending transactions.

Before appreciating the contentions of the learned Special Government Pleader, it is useful to advert to certain statutory provisions in the Money Lenders Act, which is intended to regulate the business of money lending, restrict the interest to be charged by the money leaders and to safeguard the interests of the borrowers. The object of the Act is to provide for the regulations and control of the business of money lenders in the State of Kerala. The Act was amended by the Kerala Money Lenders (Amendment) Act of 1963 and 1974, Kerala Finance Act 1983, Kerala Money Lenders (Amendment) Act of 1986 and 1987 and the Kerala Finance Act of 1993 and 1995. The amendment made to this Act by the Kerala Finance Act were challenged in a number of writ petitions before this Court and this Court while dismissing the writ petition held that the regulations introduced by the amendments Were only measures necessary to safeguard both depositors and borrowers from the free dealing of money lenders. In this context we have already referred to the decision reported in 1989 (1) KLT 51 which was confirmed by the Supreme Court in the decision reported in State of Kerala and others Vs. Monarch Investments and others, . In this State the business of money lending can be conducted only on the strength of licence granted under the Act. Therefore, the Supreme Court has said that a higher degree of regulation is justified for the smooth functioning of the private financing enterprises. As per Section 5 of the Act, change of place of business cannot be made by the money lenders without previous notice to the licensing authority and without having the address of the new place of business duly endorsed on his licence. Section 10 deals with appointment of Inspectors and their powers, and provides that the Government may, by notification in the Gazette, appoint one or more persons passessing such qualifications as may be prescribed to be Inspectors for the purposes of the Act and specify in such notification the local limits of their jurisdiction. u/s 10A an Inspector, Licensing Authority and Appellate Authority are given power to order product ion of accounts and the powers of entry, inspection and search of the place of business of moneylenders. Section 10B deals with the power to summon witnesses and to cause production of documents, and Section 10C deals with Assistance of Police. u/s 11, money lenders advancing smaller amounts of securing higher interests than that specified in the accounts, etc., are punishable. Section 11A gives the power to demand additional security and Section 14 deals with cancellation of licence by the licensing authority at any time during the term of the licence, if the licensee carries on the business in contravention of any of the provisions of the Act or the rules made thereunder or of the conditions of the licence or if the licensee is convicted for an offence under Sections 9, 11 or 13 of the Act or if the licensee maintains false accounts, etc. Section 14(2) provides that before cancellation of the licence u/s 14(1) the licensing authority shall give the licensee a notice in writing stating the grounds on which it is proposed to take action and requiring the licensee to show cause. Section 16A deals with forfeiture of security. Section 17 provides for penalty for carrying on business without licence or in violation of the conditions of licence. Section 18 deals with penalties. Sections 18A and 18B deals with certain Acts of pawn brokers. Section 18C gives power to the authorities and officers for imposition of penalties. Section 20A deals with the power of revision by the Government and Section 21 enables the Government to make rules.

The decision reported in Vam Organic Chemicals Ltd. and Another Vs. State of U.P. and Others, was cited by the Government Pleader for the proposition that in the case of regulatory fees, like the licence fees, existence of quid pro quo is not necessary although the fee imposed must not be, in the circumstances of the case, excessive. In that case the Court held that keeping in view the quantum and nature of the work involved in supervising the process of denaturation and the consequence expenses incurred by the State, the fee of 7 paise per litre was reasonable and proper. The High Court''s view was affirmed by the Supreme Court.

The learned Special Government Pleader further cited the decision reported in Municipal Corporation of Delhi and Others Vs. Mohd. Yasin, wherein the enhancement of fee for slaughtering animals in slaughterhouses was upheld by the apex Court. In the above case, the Supreme Court held that the increase from 50 paise to Rs. 2 and from Re. 1 to Rs. 8 in the case of small animals and large animals respectively was wholly justified in the circumstances of the case. The Supreme Court allowed the appeal by the Delhi Municipality and set aside the judgment of the High Court. Relying on the above decision the Special Government Pleader submitted that merely because the sum actually to be realised by way of enhanced fee would exceed the direct expenditure to be incurred for that purpose the enhancement of the fee cannot be held to be illegal and that the expenditure need not be incurred directly or even primarily in connection with the advantages conferred under it. It was contended that there need not be any direct relation between the fee and the services rendered but a mere casual relation may be enough. She again relied on the decision in Sreenivasa General Traders and Others Vs. State of Andhra Pradesh and Others, . In that case the Supreme Court was considering the constitutional validity of the increase in the rate of market fee levied by the market committees in the State of Andhra Pradesh u/s 12(1) of the Andhra Pradesh Agricultural Produce and Livestock Markets Act, 1966 from 50 paise to Re. 1 on every hundred rupees of the aggregate amount for which the notified agricultural produce/livestock are purchased or sold in the respective notified market area. The Supreme Court, in paragraph 38 of its judgment, rejected the contention that since there was no correlation between the increase in the rare of market fee and the services rendered, the increase in the rate of market fee was illegal.

The next decision relied on by the learned City Corporation of Calicut Vs. Thachambalath Sadasivan and Others, . Levy of licence fee for the use of premises or the land for soaking coconut husks was under challenge in the said case. The Supreme Court held that the levy of licence fee was valid as fee and that if one who is liable to pay receives general benefit from the authority levying the fee, the element of service required for collecting the fee is satisfied and that it is not necessary that the person liable to pay must receive some special benefit or advantage in the payment of fee. The Supreme Court held that as soaking coconut husks emit foul odour and contaminates environment and the Corporation, by rendering scavanging services, carrying on operations for cleanliness of city, to make habitation tolerable, renders general service of which amongst others users of premises for soaking coconut husk are beneficiaries, levy of licence fee by Corporation on use of premises and land for soaking coconut husk was justified. In that view of the matter, the Supreme Court felt that it was Unnecessary to consider the alternative submission that the levy as a tax was legal.

G.K. Krishnan and Others Vs. State of Tamil Nadu and Others, deals with the case of regulations like rules of traffic which facilitate freedom of trade and commerce whereas restrictions impede that freedom. The Supreme Court said that the collection of toll or tax for use of roads, bridges or aerodromes etc., do not operate as barriers or hindrance to trade. For a tax to become a prohibited tax, it has to be a direct tax, the effect of which is to hinder the movement part of the trade. If the tax is compensatory or regulatory, it cannot operate as a restriction on the freedom of trade or commerce. In the above case, the question came up for consideration then was whether the tax is a compensatory tax or not. Mathew, J. speaking for the Bench, considering the circumstances of the case, held that there is a presumption that the classification is reasonable, especially in the light of the fact that the classification is based on local conditions of which the Government was fully cognizant. Since the Petitioners and Appellants in that case have not discharged the burden of proving that the classification is unreasonable, the Supreme Court held that the levy of an enhanced rate of vehicle tax on contract carriages was not hit by Article 14 and dismissed the writ petitions and appeals.

In State of Tripura and others Vs. Sudhir Ranjan Nath, , Rule 3 of the Transit Rules of Tripura imposing restrictions by the State Government regulating transit of timber and other forest produce was under challenge. The Supreme Court held that it is not violative of Article 301 nor is it required to comply with the proviso to Clause (b) of Article 304 of the Constitution as it is saved by Article 302. Under the Transit Rules, Rules 3(3) and 3(4) provide for the movement of various produce. Application fee of Rs. 1,000 under Sub-rule (3) and licence fee of Rs. 2,000 under Sub-rule (4) were levied. Under Rule 3(1) any person importing, exporting or moving into from or within, or who has imported, exported or moved into from of within the State of Tripura any forest produce obliges him to present the same to the appropriate officer for examination and check and also to pay the amount, if any, due thereon and obtain a transit pass in from C as per the rules. The High Court has declared that the levy of application fee of Rs. 1,000 and licence fee of Rs. 2,000 amounts to levy of tax and is bad. The High Court has also held that Sub-rule (5) which levies export duty on export of timber from the State is beyond the rule-making power conferred upon the State Government by Section 41. The correctness of the above ruling was challenged before the Supreme Court by the State of Tripura. The Supreme Court held that the levy of licence fee and application fee is in the nature of regulatory fees for which no quid pro quo is necessary. Hence Rules 3(3) and 3(4) were held to be valid.

Corporation of Calcutta and Another Vs. Liberty Cinema, was cited by learned Senior Government Pleader to say that the expression ''quid pro quo'' should be read not in the narrow and restricted sense, but in a some what wider sense as including cases where the function of the licence is to impose control upon an activity, the cost incurred for effectuating that control and thus on the basis that the industry or activity is placed under regulation and control not merely in public interest but in the interest and for the benefit of the licensees as a whole as well. In this case, the Supreme Court held that the levy of licence fee from Rs. 400 to Rs. 6,000 per year in 1958 is not invalid.

In State of Tamil Nadu Vs. Hind Stone and Others, , the Supreme Court held that the word ''regulation has not got that rigidity of meaning as never to take in ''prohibition'' and in modern statutes concerned as they are with economic and social activities, ''regulation'' must of necessity, receive so wide an interpretation that in certain situations, it must exclude competition to the public sector from the private sector; and more so, in a welfare State. Much depends on the context in which the expression is used in the statute and the object sought to be achieved by the contemplated legislation.

The Senior Government Pleader, on the basis of the above judgments, submitted that as far as the enhancement of licence fee in this case is concerned, Article 276(2) of the Constitution has no application as the licence fee realised is only as a regulatory measure and it enables the licensee to carry out the business of money lending. Therefore, it cannot be equated to a tax and the question of quid pro quo also does not arise in this case.

It is thus seen from the above judgments that the Supreme Court has taken the view that in the case of regulatory measures, existence of quid pro quo is not necessary. However, in our opinion, the Court must see that it should not be excessive. In this State, the licence fee was Rs. 100 in 1958, i.e., at the time of enactment of the Act. Subsequently in 1983, after a lapse of 25 years, the licence fee was enhanced to Rs. 1,000. Again, in 1993, after a lapse of 10 years, the licence fee was enhanced to Rs. 2,000. The aforesaid enhancements of licence fee were made after a considerable lapse of long time on every occasion. In 1996, the Government amended Section 4(2)(i) of the Act and enhanced the licence fee from Rs. 2,000 to Rs. 10,000. This was done within three years from the last enhancement. Subsequently, the licence fee was reduced to Rs. 5,000 by amending section (4)(2)(i) of the Act in 1997 and on that basis the learned Single Judge held that Rs. 5,000 is reasonable and fixed the licence fee at Rs. 5,000. In our opinion, the licence fee even at Rs. 5,000 is excessive. In the State of Karnataka, the licence fee fixed for money lending business is Rs. 50 per annum and for renewal of licence every year, money lenders have to remit only Rs. 25. For every branch of their business they have to remit only Rs. 25. Similarly, in the State of Tamil Nadu, the yearly licence fee fixed for money lending business is only Rs. 100. It is to be noted that the licence fee collected are not earmarked for utilisation of any services to the members of the association. It is brought to our notice and not disputed by the State that in every district, only the Inspecting Assistant Commissioner of Agricultural Income Tax and Sales Tax and the Sales Tax Inspector working under him are handling the files relating to money lenders and they are devoting only a part of their time to handle those files. Thus, it is seen that the services rendered by the Department officials to the members of the Association are very very limited and minimal. In our opinion, without rendering any service to the members of the Association, the enhancement of licence fee from Rs. 2,000 to 5,000 is arbitrary and unresonable. As already noticed, the proposals placed by the Honourable Minister before the State Legislature merely state that by increasing the licence fee to Rs. 10,000, the Government expects a revenue of five crores of rupees. It is thus clear that the levy would fall under Article 276(2) of the Constitution since the proposal is merely to impose a levy for the general purposes of the State.

The correlationship between the amount raised through the fee and expenses involved in providing the services, as observed by the Supreme Court, need not be examined with a view to ascertaining any accurate, arithmetical equivalence or precision in the correlation; but it would be sufficient that there is a broad and general correlation. In this case, the Appellants are not receiving any corresponding benefit or degree of benefit commensurate with or proportionate to the payment that a person individually makes. A fee loses its character as such if it is intended to and does go to enrich the general revenues of the State to be applied for general purposes of Government. The object to be served by raising the fee should not include objects which are, otherwise, within the ambit of general governmental obligations and activities. An amount of fee levied is supposed to be on the expenses incurred by the Government in rendering the services. Ordinarily, the fees are uniform and no account is taken of the varying liabilities of different recipients to pay. It is thus clear that for any levy to be upheld as a fee, it must be shown that the levy has a reasonable correlation between the services rendered by the Government and is also be reasonable and not excessive. As already noticed, the sudden enhancement of the fee from Rs. 2,000 to Rs. 10,000 in the year 1996 is not warranted and the State Government has not proved that the fees collected are earmarked for the utilisation of any service rendered to the members of the Association. Such a levy cannot be upheld as a reasonable and just levy.

In the light of the aforesaid judicial pronouncements, the enhancement of licence fee from Rs. 2,000 to Rs. 5,000 is unreasonable and arbitrary and, therefore, the levy is illegal. In our opinion, fixation of a fee at Rs. 3,000 per annum would be sufficient and would meet the ends of justice. Any excess amount collected during the pendency of the Writ Petitions or Writ Appeals Will be given credit to the Writ Petitioners by the State.

We, therefore, modify the judgment of the learned Single Judge and allow the Writ Appeals filed by the writ Petitioners to the extent indicated above. The Writ Appeal filed by the Government (W.A. 1825 of 1997) is dismissed. No costs.