Karnataka High Court: Appeal on Bt cotton price control

As readers may already be aware, Monsanto owns a patent for a synthesised genetic sequence of select genes of Bacillus thuringiensis which when inserted into cotton seeds renders the seeds immune to bollworms and consequentially assists in increasing cotton yield. Monsanto injects seeds with its Bt technology and Indian seed companies enter into licensing agreements by which they pay a trait value (license fee) to Monsanto for using its technology. Monsanto has been accused of overcharging which has lead to the government passing the controversial Seeds Price (Control) Order 2015 and consequential litigation.

Section 3 of the Essential Commodities Act, 1955 empowers the central government to control the production, supply, distribution, etc., of essential commodities. Exercising its powers under this provision, the central government passed the – Cotton Seeds Price (Control) Order 2015 in December 2015 which gave the government the power to fix the maximum sale price of cotton seeds and also gave it the power to fix license fees payable to technology providers such as Monsanto (“Order”). Later, in March 2016,  the government using its powers under the Order reduced the sale price of cotton seeds and also reduced the license fees paid by seed companies to companies like Monsanto. Prashant Reddy explains the various events that lead to this price control order in his post here. Rahul Bajaj has covered the price control order here and other recent developments here and here.

The Association of Biotechnology Led Enterprises and Namdhari Seeds Pvt. Ltd. filed a writ petition against this order before the Karnataka High Court. In their petition they argued that the government has no power to regulate the sub-components of an essential commodity and treat Bt. Cotton seeds as cotton seeds. Further it was argued that the order fixing license fees/trait value was ultra vires Section 3 (1) of the Act and that such regulation undermines the integrity and sanctity of concluded contracts between the first appellant and seed companies. The respondents on the other hand, challenged the maintainability of the petition and also argued that maximum sale price is nothing but an aggregation of the trait value and the seed value.

While, the Single Judge granted an interim order holding that the fixation of license fees would not be given effect to by the government, after hearing the parties this order was vacated. The petitioners then appealed to a Division Bench.

The Division Bench held that the Order was made in relation to Bt. Cotton seeds which is an essential commodity. Further, it was held that the Order was passed to make Bt. cotton seeds available at a fair price for which the license fees were also to be regulated. For reaching this conclusion, the court held that Section 3 of the Act confers wide powers to the central government and that this provision should be liberally interpreted.  Certain decisions were cited such as Jai Bharat v. State of Haryana (ILR 1980(2)) where it was held that regulation of cold storage charges is essential in ensuring that the ultimate price of the essential commodity is fair. So charges paid for storing food stuff in cold storage have to be added to the ultimate price of the essential commodity. Therefore, even in the instance case, the court held that the trait value forms an integral part of the cotton seeds and is a key component of the price of the cotton seeds. Thus, it was necessary for the central government to fix the license fees and prima facie there was no illegality in the Order.

The Ministry of Agriculture also released a set of guidelines requiring patentees such as Monsanto to provide access, on  fair, reasonable and non-discriminatory (FRAND) terms,  to seed companies. Prashant examined these guidelines here. These guidelines have, however, been withdrawn and have been converted into draft guidelines for public comments. As reported here, farmers have demanded for a rollback of the draft guidelines as farmers across the country have said that seed prices form a very small part of their input costs and that such guidelines are regressive.

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