Sahyadri Coop Credit Society Ltd. Vs. State of Maharashtra & Ors, on 28th March 2016, Supreme Court of India – Judgement

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REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1840 OF 2013

Sahyadri Co-operative Credit
Society Ltd                                                           . … Appellant

Versus

The State of Maharashtra and others            …Respondents

WITH

CIVIL APPEAL NO. 1841 OF 2013

J U D G M E N T

Prafulla C. Pant. J.,

These appeals are directed against judgment and order dated
10.02.2012, passed by the High Court of Judicature at Bombay in Writ
Petition Nos. 8452 of 2011 and 8453 of 2011, whereby the High Court
dismissed the writ petitions filed by the writ petitioner-societies
(present appellants), observing that the alternative remedy of filing suit
was available to them under Section 218 of Maharashtra Land Revenue Code,
1966 (for short “the MLR Code”).

Brief facts of the case are that the appellants are Multi State Co-
operative Societies registered under Multi States Co-operative Societies
Act, 2002 and operate in the geographical territories of Maharashtra and
Karnataka. The appellant-societies are engaged in the business of
accepting deposits from its members, and lending money to them. Respondent
no. 6 M/s. Tasgaonkar Sugar Mills Ltd. is lessee of business of respondent
no. 5 Daulat Shetkari Sahakari Sakhar Karkhana Ltd. under the deed dated
15.10.2010, and, as such, respondent no. 6 has taken over the business of
respondent no. 5. They approached the appellants for financial assistance.
Appellant Sahyadri Co-operative Credit Society Ltd. sanctioned loan of
Rs.7,00,00,000/- repayable within a period of six months to respondent no.
5, and appellant Navhind Co-operative Credit Society Ltd. sanctioned loan
of Rs.12,20,00,000/- on similar terms to it. Both the sums are credited
into the account of Kolhapur District Central Co-operative Bank Ltd.,
erstwhile creditor of respondent no. 5. Said Bank had consented to
respondent No. 5 for creation of charge in favour of the appellants in the
form of pledge. As such, sugar stock of 35,000 quintals stored in godown
no. 6 of respondent nos. 5 and 6 was agreed to be pledged in favour of
appellant Sahyadri Co-operative Credit Society Ltd., and sugar stock of
80,985 quintals stored in godown Nos. 7-I and 7-II was agreed to be pledged
in favour of appellant Navhind Co-operative Credit Society Ltd. In respect
of said transactions of pledge, separate letters dated 31.03.2011 regarding
consent of respondent no. 6 were issued in favour of the appellants. The
appellants and respondent nos. 5 and 6 entered into an agreement on
25.05.2011 and the same was duly registered. It is pleaded that respondent
no. 8 Daulat Sakhar Kamgar Sangh (workers union) also gave consent for
creation of pledge.

Admittedly, respondent nos. 5 and 6 ran into losses and failed to pay the
outstanding dues of the cane growers. Consequently, respondent no. 2,
Commissioner of Sugar/ Special Registrar, Co-operative Societies, State of
Maharashtra, Pune, passed an order under Sugarcane (Control) Order, 1966
directing release of Rs.36,22,66,591 with interest accrued to be paid to
the members who had supplied their sugarcane post May 15, 2010. Respondent
no. 3 Collector, Kolhapur, was nominated as authorized officer for
disbursement of said amount. In pursuance of said order, respondent no. 3
directed respondent no. 4 Tehsildar, Chandgad, District Kolhapur,
Maharashtra, to recover the amount of Rs.36,22,66,591/- as arrears of land
revenue under clause 3(9) of the Sugarcane (Control) Order, 1966, from
respondent no. 5. Accordingly, respondent no. 4 visited site of respondent
no. 5 and attached the stock of godown no. 6 and godown nos. 7-I and 7-II
under clause 3(9) of the Sugarcane (Control) Order, and directed respondent
no. 5 not to dispose of the stock of sugar lying in the above godowns.
Respondent nos. 5 and 6 objected to the attachment of sugar stock pledged
to them. The appellants also raised their objections to the attachment.
However, on 18.6.2011 a public notice was issued in the newspapers,
including Daily Sakal, wherein it was informed that godown no. 6 and godown
nos. 7-I and 7-II along with other stock would be put to auction on
22.6.2011 at 3.30 p.m. in pursuance of the order dated 28.5.2011.
Aggrieved by this, appellant Navhind Co-operative Credit Society Ltd., and
appellant Sahyadri Co-operative Credit Society Ltd. filed Writ Petition
Nos. 4539 and 4533 of 2011 respectively before the High Court of Judicature
at Bombay pleading that they have right of precedence in the repayment of
loan amount. The High Court, vide its order dated 22.6.2011 (on the day of
public auction), directed that auction, as notified, should be conducted
after fixing the set price. The High Court further directed that the
amount receivable against the stock of sugar pledged to the appellants
shall be deposited with the Registrar (Judicial) of the High Court
whereafter the Registrar (Judicial) was to keep the amount in a
nationalized bank in fixed deposit. On 11.7.2011, Sub Divisional Officer
filed an affidavit stating that the entire stock of sugarcane was sold for
a sum of Rs.52,95,36,483/-, out of which the amount realized against the
pledged sugar was Rs.27,94,27,910/-. A sum of Rs.21,65,00,000/- was
deposited in the High Court, and regarding rest, it was stated before the
High Court that the same would be deposited after receiving the same from
the auction-purchaser. The High Court finally disposed of both the writ
petitions (Nos. 4533 and 4539 of 2011) holding that the appellants would
have first right over the amount of pledged sugar, and respondent no. 3 was
directed to make distribution of the amount collected in accordance with
rules keeping in mind the rights of precedence of the parties.
Consequently, the appellants approached respondent no. 3, but said
authority rejected the claim of the appellants and held that the payment of
Provident Fund amounting to Rs.4,66,40,511/- on account of dues to the
Assistant Provident Fund Commissioner would be the first priority, and a
sum of Rs.36,22,66,591/- plus interest shall be paid to the cane growers
who supplied sugarcane to respondent no. 5 (Daulat Shetkari Sahakari Sakhar
Karkhana Ltd.). It is further directed by respondent no. 3 that the
balance amount, after auction of sugar stock, be paid to the workers of
factory of respondent no. 5.

Aggrieved by aforesaid order of the Collector, Kolhapur (respondent no. 3),
the appellants, namely, Sahyadri Co-operative Credit Society Ltd. and
Navhind Co-operative Credit Society Ltd. filed Writ Petition Nos. 8452 of
2011 and 8453 of 2011 respectively before the High Court. Notices were
issued and the respondents objected to the maintainability of the two writ
petitions. Vide interim order dated 17.11.2011, the High Court passed
common order in both the writ petitions declining interim stay prayed by
the writ petitioners and observed that a sum of Rs.27,94,27,910/- deposited
in the High Court shall continue to remain invested in fixed deposit and
the objection relating to the maintainability shall be heard at the time of
arguments on admission. In said order the High Court took note of the fact
that the total amount realized after auction of 2,17,984 bags/ quintals of
sugar manufactured by respondent no. 5 (including the disputed pledged
sugar in favour of the appellants), is Rs.52,95,36,483/-. It is further
observed by the High Court in the interim order dated 17.11.2011 that a sum
of Rs.27,94,27,910/- was deposited in the High Court, and out of balance
amount of Rs.25,01,08,573/- with the Collector, Kolhapur, an amount of
Rs.20,00,00,000/- has been distributed amongst workers. And rest of the
sum left with the Collector, as allowed by the High Court on 23.12.2011,
was disbursed towards Provident Fund of workers. Finally, the High Court,
vide impugned order dated 10.2.2012, dismissed the writ petitions on the
ground that the appellant-creditors have alternative remedy available to
them to file suit under Section 218 of the MLR Code.

Section 218 of the MLR Code reads as under: –

“218. Claims to attached property how to be disposed. – (1) If any claim
is set up by a third person to the property attached or proceeded against
under the provisions of this Code, the Collector may on a formal inquiry
held after reasonable notice, admit or reject it.

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(2) The person against whom an order is made under sub-section (1) may,
within one year from the date of the order, institute a suit to establish
the right which he claims to the property attached or proceeded against,
but subject to the result of such suit, if any, the order shall be
conclusive.”
On behalf of the appellants it is argued that the claim of the appellants
is independent of the MLR Code, and the Collector, Kolhapur, passed the
order in exercise of power under the provisions of Sugarcane (Control)
Order, 1966, as such the bar contained in clause 218(2) of the MLR Code is
not applicable to them. In this connection, it is pointed out that the
High Court, while disposing of the writ petitions filed in earlier round,
had directed the Collector to disburse the sum keeping in mind the right of
precedence.

It is further argued that the appellants, being secured creditors, had a
right of precedence in repayment of dues outstanding against respondent no.
5, and sugar pledged in their favour was not liable to be attached by the
respondent authorities. It is reiterated that there was already an order
passed by the High Court on 12.8.2011 in Writ Petition Nos. 4533 of 2011
and 4539 of 2011 holding the right of precedence of the appellants in
respect of the pledged sugar. Attention of this Court is drawn to the
principle of law laid down by this Court in Central Bank of India v.
Siriguppa Sugars & Chemicals Ltd. and others[1], and it is submitted that
the High Court has lost sight of right of precedence of pawnee, recognized
in said case.

On the other hand, learned counsel for the contesting respondents argued
that the transactions of alleged pledge in favour of the appellants are
sham, and created only to defeat the payment due to the workers and the
cane growers. In this connection, our attention is drawn to Annexure P-1,
i.e. copy of Working Capital Loan Agreement. It is pointed out that in
respect of loan disbursed on 31.3.2011 the agreement was registered later
on 26.5.2011, and the document shows pledge of sugar was only promised.

In reply to the above argument, the appellants drew our attention again to
the order dated 22.6.2011, passed in Writ Petition No. 4533 of 2011
(Annexure P-5 to Civil Appeal No. 1841 of 2013) and order dated 12.8.2011
passed in Writ Petition No. 4539 of 2011 (Annexure P-5 to Civil Appeal No.
1840 of 2013), wherein the High Court has observed that stock of sugar in
question was pledged in favour of the appellants, and it is submitted that
the orders in that round of litigation have attained finality, as such, the
same cannot be questioned now.

We have considered the above submissions and also perused the record of the
case. It is not disputed that in the earlier round of litigation
appellants Navhind Co-operative Credit Society Ltd. and Sahyadri Co-
operative Credit Society Ltd. filed Writ Petition Nos. 4533 of 2011 and
4539 of 2011 respectively which were disposed of by the High Court on
12.8.2011. It is also not disputed that in said writ petitions the factum
relating to pledge made in favour of appellant Sahyadri Co-operative Credit
Society Ltd of godown no. 6, and the pledge of godown nos. 7-I and 7-II in
favour of appellant Navhind Co-operative Credit Society Ltd. by respondent
no. 5 was considered, and the High Court accepted that the stock of sugar
in question was pledged in favour of the appellants. However, the High
Court observed that the order dated 28.5.2011, passed by the Commissioner
of Sugar & Special Registrar, Co-operative Societies, Maharashtra, was not
challenged, as such, no adjudication was made in respect of entitlement of
the appellants as against the claims of workers’ union or the sugarcane
farmers. The High Court disposed of the writ petitions directing the
Collector to consider the entitlement and priority of the appellants,
sugarcane farmers and the workers. It appears that the order dated
12.8.2011 was passed by the High Court in the earlier round of litigation
not only after hearing the respondents of said case but also the
intervenors, who are contesting respondents in the present round of
litigation, as such, in our opinion, it is not open for the contesting
respondents now to challenge the genuineness of the pledge made in favour
of the appellants, as the order in the earlier round has attained finality.
Apart from this, we have examined the papers on record pertaining to the
transactions of pledge by which respondent Nos. 5 and 6 pledged the sugar
stock in question in favour of the appellants and we find no reason to
doubt the transactions. Copy of letter No. CMA-856/2010-11 dated
21.2.2011, on the record, discloses that Kolhapur District Central
Cooperative Bank Ltd. communicated “No Objection” to respondent no. 5,
Daulat Shetkari Sahakari Sakhar Karkhana Ltd., by enclosing No Objection
Certificate in favour of respondent no. 6 Tasgaonkar Sugar Mills Ltd. for
raising working capital loan from other financial institutions. Copy of
resolution dated 6.3.2011, passed by Special General Body of Sahyadri Multi-
State Co-operative Credit Society Ltd. (Annexure A-6 to additional
affidavit filed on behalf of the appellant in Civil Appeal No. 1840 of
2013) shows that a decision was taken to raise loan of Rs.12,00,00,000/-
against pledge of sugar. Consequential resolution dated 8.3.2011 (Annexure
A-8) appears to have been passed by appellant Sahyadri Multi-State Co-
operative Credit Society Ltd. in the meeting of the Board of Management
Committee. Through letter dated 23.3.2011 (Annexure A-10) respondent no. 5
Daulat Shetkari Sahakari Sakhar Karkhana Ltd. informed the appellants
giving consent for raising working capital against pledge of goods. Copy
of letter No. Accts/Fin/1732/2010-11 dated 25.3.2011 (Annexure A-11 to
additional affidavit filed in Civil Appeal No. 1840 of 2013) shows that
respondent no. 5 Daulat Shetkari Sahakari Sakhar Karkhana Ltd. requested
Kolhapur District Central Co-operative Bank Ltd. for issuance of NOC in
favour of the appellant-societies specifying the godown numbers and the
quantity of sugar in stock. Record further reveals that through letter No.
CMA-868/2010-11 dated 29.3.2011 (Annexure A-14 to additional affidavit
filed in Civil Appeal No. 1840 of 2013) Kolhapur District Central Co-
operative Bank Ltd. gave consent for pledge of sugar stock of godown Nos. 6
and 7 in favour of the appellants. All the above documents remove the
clouds of doubt as to the transactions of pledge in question in favour of
the appellants.

In Central Bank of India v. Siriguppa Sugars & Chemicals Ltd. (supra), in
similar facts, this Court has held as under: –

“17. Thus, going by the principles governing the matter propounded by this
Court, there cannot be any doubt that the rights of the appellant Bank over
the pawned sugar had precedence over the claims of the Cane Commissioner
and that of the workmen. The High Court was, therefore, in error in
passing an interim order to pay parts of the proceeds to the Cane
Commissioner and to the Labour Commissioner for disbursal to the cane
growers and to the employees. There is no dispute that the sugar was
pledged with the appellant Bank for securing a loan of the first respondent
and the loan had not been repaid. The goods were forcibly taken possession
of at the instance of the revenue recovery authority from the custody of
the pawnee, the appellant Bank. In view of the fact that the goods were
validly pawned to the appellant Bank, the rights of the appellant Bank as
pawnee cannot be affected by the orders of the Cane Commissioner or the
demands made by him or the demands made on behalf of the workmen. Both the
Cane Commissioner and the workmen in the absence of a liquidation, stand
only as unsecured creditors and their rights cannot prevail over the rights
of the pawnee of the goods.

18. We are also of the view that pending the writ appeals, the High Court
ought not to have passed such an interim order of consequence especially in
the light of the legal principles settled by this Court. The order of the
High Court, therefore, cannot be sustained and calls for interference.”
In view of law laid down, as above, by this Court in Central Bank of India
v. Siriguppa Sugars & Chemicals Ltd. (supra), and further considering the
facts and circumstances of the case, we are of the opinion that the High
Court has erred in law in dismissing the writ petitions filed by the
appellants.

For the reasons, as discussed above, both the appeals deserve to be
allowed. Accordingly, the appeals are allowed. The impugned judgment and
order dated 10.2.2012, passed in Writ Petition Nos. 8452 of 2011 and 8453
of 2011 is set aside. We direct the authorities concerned to disburse the
amount in the light of the observations made above regarding entitlement of
the appellants with precedence over the dues payable to workers and
sugarcane farmers, under Sugarcane (Control) Order, 1966. However, we
clarify that the amount already distributed shall not be recovered from the
workers and the sugarcane farmers. There shall be no order as to costs.

……………………………..J. [Ranjan Gogoi]
……………………………..J. [Prafulla C. Pant]
New Delhi;
March 28 , 2016.

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[1] (2007) 8 SCC 353

 

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Sahyadri Coop Credit Society Ltd. Vs. State of Maharashtra & Ors, on 28th March, 2016, Supreme Court of India: Case Brief – Read Judgement

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