A division bench comprising chief justice MM Punchhi and justice Sujata V Manohar said though central government issued molasses control order in 1961, the same was not brought into operation in these two states.

"Therefore the power of the state government to legislate in relation to the trade and commerce in or supply and distribution of molasses in that state was not taken away," the court ruled.

Under the act enacted by the state government, the controller may regulate sale or supply of molasses by a sugar factory and also fix prices for different grades of molasses.

While the molasses control order of 1961 continued, the UP legislature enacted UP Sheera Niyantran Adhiniyam (Molasses Control Act).

The appellants contended that though thecentral act was not extended to the state of UP, the latter always notified the maximum price of molasses in consonance with the maximum price prescribed by the central government.

On June 10, 1993, central government rescinded the molasses control order but the UP government continued with its Molasses Control Act, which gave rise to the litigation.

Rejecting the plea of the appellant, the court said, "as the molasses control order passed by the central government was never extended to the state of Uttar Pradesh or Bihar, the question of repugnancy between the molasses control order, 1961, and the UP Sheera Niyantran Adhiniyam, 1964, does not arise."

"In fact, the present litigation has commenced after the molasses control order, 1961, of the central government has been rescinded and the only legislation which holds the field is the UP Sheera Adhiniyam of 1964 which is the legitimate exercise of the power of the legislature," the court said.

Looking into the history of molasses control, the courtsaid it has been there in Uttar Pradesh since 1947 and was not challenged till date.

The state government has tried the policy of partial decontrol by the August 13, 1993, notification by keeping control only over 30 per cent of the molasses and the sugar industry owners were left free to sell 70 per cent in the open market subject to certain regulatory provisions, it said.

"The percentage of permissible sales in the control zone and in the free market have had to be changed depending upon the economic impact of such decontrol," the court said.

The government submitted that molasses is an important raw material for the distilleries which produce industrial alcohol - a raw material for chemical industries in the state.

A policy of control over molasses is framed bearing in mind the economic requirements of the state and therefore, this policy should not be now challenged, it added.

The government pointed out that industrial development of Uttar Pradesh is largely based on this control overallocation and pricing of molasses, and a sizeable revenue of the government is dependant on the control.

The court observed that in order to keep a proper balance over distribution of molasses to the industries which had come up over a period of time, when decontrol as announced by the central government, it was not possible for the state of Uttar Pradesh to announce a total decontrol.

The court said the state government has followed a fair economic policy in fixing, from time to time, the percentage of free and controlled molasses while bearing in mind the overall market position.

The court recalled that it has been held that in examining the reasonableness of an economic measure, the state should have more latitude in formulating economic policy as well as appropriate legislation in comparison to legislating relating to fundamental rights.