Supreme Court of India
CORPORATION OF INDIA AND ANOTHER versus M/S. V.K. TRADERS AND OTHERS on 6 March 2020
110
SUPREME COURT REPORTS
[2020] 4 S.C.R.
AFOOD CORPORATION OF INDIA AND ANOTHER
v.
M/S. V.K. TRADERS AND OTHERS
(Civil Appeal No. 2070 of 2020)
BMARCH 06, 2020
[S. A. BOBDE, CJI, B. R. GAVAI AND SURYA KANT, JJ.]
Rice Mills: Ban on allocation of paddy to rice mills for custommilling – In this case, quality of rice supplied post milling by therice mills was found to be defective – Ban imposed on these riceCmills for allocating paddy for custom milling for three years for‘Beyond Rejection Limit’ rice and for five years for ‘BeyondPrevention of Food Adulteration’ rice – Demand notice issued tothem for compensating the appellant-FCI for the losses caused to itfor supply of sub-standard rice – However, rice mills refused toDaccept liability and failed to make any payment to FCI – As a resultblacklisted rice mills were not allocated any paddy for custom milling– Allegedly with a view to wriggle out of the ban period, the millowners leased out their rice mills to other similar partnership/proprietorship firms – Such lease deeds were unregistered – Thesenew lessees consequently applied to the appellant-FCI for allocationEof paddy and asserted that none of them had committed any defaultor been blacklisted and that the disqualification attached to theirlessors would not traverse onto their lawful entitlements – WhetherRespondents who took over on leasehold basis certain blacklistedrice mills were entitled to allocation of paddy for custom milling –FHeld: The lease deeds allegedly executed between the defaultingrice millers and the respondents were not reliable as they did notsatisfy the statutory requirements of s.17(1)(d) of the RegistrationAct, 1908 – These Lease-deeds thus were not acceptable as evidenceof valid transfer of possessory rights – Even in a case where aproprietorship/partnership firm has been in existence for long andGtook over a mill-in-default only on-word basis, no right to seekallocation of paddy can be claimed by it unless the liabilities arisingout of the previous bilateral agreement were satisfied – Thus, HighCourt erred gravely in setting aside the orders through which theFCI declined to allocate paddy to the new lessees of the defaultingHrice mills – Registration Act, 1908 – s.17(1)(d).
Allowing the appeals, the Court
HELD: 1. No reliance can be placed upon the lease deedsallegedly executed between the defaulting rice miller(s) andthe17(1)(d) respondent(s), as they do not satisfy the statutoryrequirements of Section 17(1)(d) of the Registration Act, 1908.These Lease-deeds thus cannot be accepted as evidence of validtransfer of possessory rights. The plea taken by the appellant-FCI, that such documentation was made only to escape theliability fastened on the defaulting rice millers, carries someweight, though it is a pure question of fact. Even in a case wherea proprietorship/partnership firm has been in existence for longand took over a mill-in-default only on-word basis, no right toseek allocation of paddy can be claimed by it unless the liabilitiesarising out of the previous bilateral agreement are satisfied.[Paras 12, 13][115-C-E]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2070of 2020.
From the Judgment and Order dated 21.10.2013 of the High Courtof Punjab and Haryana at Chandigarh in Letters Patent Appeal No. 989of 2012(O&M).
With
C.A. No. 2075, 2071, 2072, 2076, 2073 and 2074/2020.
Gaurab Banerjee, Sr. Adv., Ajit Pudussery, Vijanan K. and AjeetSingh Verma, Advs. for the Appellants.
Subhasish Bhowmick, N. S. Dalal, Sushil Kumar, R. C. Kaushikand Ms. Ranjeeta Rohatgi, Advs. for the Respondents.
The following Judgment of the Court was delivered:
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JUDGMENT
1. Leave granted.
2. These appeals have arisen from an order dated 21.10.2013passed by a Division Bench of the Punjab and Haryana High Courtwhereby a batch of letters-patent appeals filed by the Food Corporationof India (FCI) challenging a learned Single Judge’s order of 15.03.2012was dismissed.
3. The primary issue before the High Court was whether or notthe respondents, who had taken over on leasehold basis certain blacklistedrice mills, were entitled to allocation of paddy for custom milling.
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AFacts:
4. It was common practice in Punjab for different governmentagencies to allocate paddy for custom milling to hundreds of rice mills,which in turn would supply the rice, post milling as per approvedspecifications, to the appellant-FCI. Such allocation would take placeBthrough terms of a bipartite agreement and the same took place for theKharif Marketing Season of 2004-05 (hereinafter, “KMS”) also.
5. A dispute arose as to the quality of the milled rice stock for theaforementioned KMS, leading to an investigation by the Central Bureauof Investigation (CBI). Finding the quality to be defective, the CBI initiatedprosecution against numerous rice millers and additionally recommendedCblacklisting of a total of 182 millers for a period of three years for ‘BeyondRejection Limit’ (BRL) rice and five years for ‘Beyond Prevention ofFood Adulteration’ (BPFA) rice. Such ban was effectuated by the FCIvide a Circular dated 10.10.2012, relevant extracts of which read asfollows:D
“1. The millers who have supplied rice which was beyondPFA limits, the ban imposed may continue. Final decision onthe matter may be taken by the CBI court.
2. As regards the millers who stocks were found BRL by theCBI, the proposal for limiting the ban to a period of threeE(03) Kharif Marketing Seasons (KMS) w.e.f. the date ofimposition of ban, has been accepted.
3. In the case of millers whose stocks were in mixed conditionthough the same was found beyond PFA and were givenbenefit of doubt by the CBI, the proposal for limiting the banFto a period of Five (05) Kharif Marketing Seasons (KMS)w.e.f. the date of imposition of ban, has been accepted.
4. The proposals at St. No. 2 and 3 above, would be subjectto condition that the defaulting millers deposit the losssuffered by the Corporation along with penal interest. In casesGwhere, FCI has already effected recovery from the concernedState Government & its Agencies, the State Government & itsAgencies should recover the said amount from the defaultermiller under intimation to FCI.
5. As there is no specific clause in the Custom MillingAgreement/Levy Order for debarring those rice millers who H
are found supplying sub-standard rice in CMR/Levy, FCIHeadquarters will examine the issue and make specificprovisions in this regard in the CMR Agreement as well asadvise State Govt. To make such suitable provisions in theLevy Order. Action on this to be initiated at Headquarters.
6. The cases of lease or ownership transfer will be decidedon merit of each case by a Committee of Officers consistingof GM(R) Punjab, a representative from Zonal Office (North)and Headquarters after obtaining required verification/reportfrom State Govt. The said committee shall see genuineness ofeach such transaction, subject to Court decisions, if anyregulating such decision.
7. In the matter of pending Court Cases, ED (North)/GM,Punjab may take suitable decision on lifting of the banimposed on the Millers or otherwise of each case, on merits.”
6. It is relevant to note that before imposing the ban on allocationof paddy for custom milling and blacklisting the defaulting rice millers,showcause notices were served and objections duly considered.Illustratively, M/s Sharma Rice Mills, situated at Katcha Firozpur Road,Mukhtsar, was informed vide registered show cause notice dated04/06.12.2007 that 1814 MT of rice delivered by it, was found as beingBRL and BFPA, besides the 588 MT of stock which was yet untested.The notice pointed out how the delivered stock was inedible and causedhuge financial losses to the appellant. It called upon M/s Sharma RiceMills to replace the sub-standard rice, as well as compensate the appellant.However, the rice mills refused to accept liability and failed to make anypayment to the FCI for the losses caused.
7. The blacklisted rice mills, thus, were not allocated any paddyfor purposes of custom milling in 2011-12. Allegedly with a view towriggle out of the ban-period, the mill owners leased-out their rice millsto other similar partnership/proprietorship firms. Notably, all such leasedeeds were unregistered. A reference to one such lease deed of21.09.2011 shows that the rice mill of M/s Sharma Rice Mills along withland measuring 21 kanal 16 marlas on which it was situated was leasedto another firm, M/s BK Traders. The land, building, machinery andplant were leased out for an annual consideration of Rs 2 lakhs. Most ofthe lessees were only newly constituted entities.
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A8. These new lessees consequently applied to the appellant-FCIfor allocation of paddy and asserted that none of them had committedany default or been blacklisted, and that the disqualification attached totheir lessors could not traverse onto their lawful entitlements. The FCI,on the other hand, declined to entertain such requests on the premisethat the new lessees had simply stepped into the shoes of the earlierBblacklisted lessors as the lease deeds were nothing but sham transactionsto circumvent the ban imposed by the Circular dated 10.10.2012.
9. The learned Single Judge of the High Court opined that adefaulting mill ought to be understood as the legal entity which controlledthe mill, which could be the proprietor-owner, Director of an owning-Ccompany or the lessee. He held that the new lessee-firms were entitiesseparate from the earlier defaulting owners and could hence not be heldto have defaulted in payment of dues or made responsible for sub-standard milling of paddy. Furthermore, it was observed that the“proprietor of petitioner-firm has not been shown to have anyDconnivance with the erstwhile defaulter”. The writ petitions filed bysome of the new entities were, thus, allowed and the ban imposed by theFCI on allocation of paddy to these new entities, was set aside. TheDivision Bench of the High Court has vide the judgment under appealupheld the aforestated view of the learned Single Judge.
EContentions of Parties:
10. Shri Gaurab Banerjee, learned senior counsel for FCIcontended that the lease deeds relied upon by the new entities wereunregistered documents, which had no sanctity in the eyes of law. Makinga pointed reference to the lease deeds produced by the respondents,Fwherein duration of the lease was between 2 to 5 years or even for anindefinite period, he highlighted that such period exceeded the cut-off of1 year for compulsory registration. He urged that these lease deedswere nothing but sham transactions and had been executed by thedefaulting rice millers deliberately to escape their liability for FCI’s losses.Such details have been furnished by the counsel through a chart whichGshows how lakhs of rupees were recoverable by the FCI. It wasaccordingly argued that what was impermissible in law for the defaultingrice millers could not be permitted through indirect means in the name ofemasculated new lessees.
11. Per contra, learned counsel for the respondents maintainedHthat the legality of the lease arrangement had not been disputed by either parties to the agreement (the lessee and the lessor), and no third party(including the FCI) had any locus standi to call in question such bindingcontract. He submitted that the liability for default of dues or supply ofsub-standard rice was attached only to a rice miller who was foundresponsible after due enquiry and notice. The lease holders had merelytaken over land, building and machinery without any obligation todischarge previous liabilities of the lessors. Hence, it was unreasonablefor the FCI to coerce the lessees to make payments.
Analysis:
12. We are of the considered opinion, that no reliance can beplaced upon the lease deeds allegedly executed between the defaultingrice miller(s) and the respondent(s), as they do not satisfy the statutoryrequirements of Section 17(1)(d) of the Registration Act, 1908. TheseLease-deeds thus cannot be accepted as evidence of valid transfer ofpossessory rights. The plea taken by the appellant-FCI, that suchdocumentation was made only to escape the liability fastened on thedefaulting rice millers, carries some weight, though it is a pure questionof fact. The High Court nevertheless ought to have refrained from opiningon the sufficiency of such lease deeds for recognition of a new legalentity, and consequential non-transfer of liability to the lessees.
13. Even in a case where a proprietorship/partnership firm hasbeen in existence for long and took over a mill-in-default only on-wordbasis, no right to seek allocation of paddy can be claimed by it unless theliabilities arising out of the previous bilateral agreement are satisfied.We are, thus, of the view that the High Court erred gravely in settingaside the orders through which the FCI declined to allocate paddy to thenew lessees of the defaulting rice mills.
Conclusion:
14. For the reasons aforestated, these appeals are allowed. Theorders passed by the learned Single Judge as well as the Division Benchof the High Court are set aside. The writ petitions filed by the respondent-lessees are dismissed, however, with liberty to pay dues with penalty/interest of the original rice-millers and thereafter on production of ‘NoDues Certificate’ seek allocation of paddy for custom milling inaccordance with the policy of FCI. No orders as to costs.
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