Corporation of India and Another v. M/S. V.K. Traders and Others
JUDGMENT
1. Leave granted.
2. These appeals have arisen from an order dated 21.10.2013
passed by a Division Bench of the Punjab and Haryana High Court
whereby a batch of letters-patent appeals filed by the Food Corporation
of India (FCI) challenging a learned Single Judge’s order of 15.03.2012
was dismissed.
3. The primary issue before the High Court was whether or not
the respondents, who had taken over on leasehold basis certain blacklisted
rice mills, were entitled to allocation of paddy for custom milling.
FOOD CORPORATION OF INDIA AND ANOTHER v.
M/S. V.K. TRADERS AND OTHERS
Facts:
4. It was common practice in Punjab for different governmen t
agencies to allocate paddy for custom milling to hundreds of rice mills,
which in turn would supply the rice, post milling as pe r approved
specifications, to the appellant-FCI. Such allocation would t ake place
through terms of a bipartite agreement and the same took place for the
Kharif Marketing Season of 2004-05 (hereinafter, “KMS”) also.
5. A dispute arose as to the quality of the milled rice stock for the
aforementioned KMS, leading to an investigation by the Central Bureau
of Investigation (CBI). Finding the quality to be defective, the CBI initiated
prosecution against numerous rice millers and additionally recommended
blacklisting of a total of 182 millers for a period of three years for ‘Beyond
Rejection Limit’ (BRL) rice and five years for ‘Beyond Pre vention of
Food Adulteration’ (BPFA) rice. Such ban was effectuated by the FCI
vide a Circular dated 10.10.2012, relevant extracts of which rea d as
follows:
“1. The millers who have supplied rice which was be yond
PFA limits, the ban imposed may continue. Final decision on
the matter may be taken by the CBI court.
2. As regards the millers who stocks were found BRL by the
CBI, the proposal for limiting the ban to a period of three
(03) Kharif Marketing Seasons (KMS) w.e.f. the date of
imposition of ban, has been accepted.
3. In the case of millers whose stocks were in mixed condi tion
though the same was found beyond PFA and were given
benefit of doubt by the CBI, the proposal for limiting t he ban
to 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 subject
to condition that the defaulting millers deposit th e loss
suffered by the Corporation along with penal interest. In ca ses
where, FCI has already effected recovery from the concern ed
State Government & its Agencies, the State Government & it s
Agencies should recover the said amount from the defau lter
miller under intimation to FCI.
5. As there is no specific clause in the Custom Mil ling
Agreement/Levy Order for debarring those rice mille rs who
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are found supplying sub-standard rice in CMR/Levy, FCI
Headquarters will examine the issue and make specif ic
provisions in this regard in the CMR Agreement as w ell as
advise State Govt. To make such suitable provisions in the
Levy Order. Action on this to be initiated at Headquarters.
6. The cases of lease or ownership transfer will be d ecided
on merit of each case by a Committee of Officers consis ting
of GM(R) Punjab, a representative from Zonal Office (North)
and Headquarters after obtaining required verification/report
from State Govt. The said committee shall see genuineness of
each such transaction, subject to Court decisions, if any
regulating such decision.
7. In the matter of pending Court Cases, ED (North) /GM,
Punjab may take suitable decision on lifting of the ban
imposed on the Millers or otherwise of each case, on meri ts.”
6. It is relevant to note that before imposing the ban on allocation
of paddy for custom milling and blacklisting the defaulting rice millers,
showcause notices were served and objections duly c onsidered.
Illustratively, M/s Sharma Rice Mills, situated at Katcha Firozpur Road,
Mukhtsar, was informed vide registered show cause n otice dated
04/06.12.2007 that 1814 MT of rice delivered by it, was found as being
BRL and BFPA, besides the 588 MT of stock which was yet untested.
The notice pointed out how the delivered stock was inedible and caused
huge financial losses to the appellant. It called upon M/s Sha rma Rice
Mills to replace the sub-standard rice, as well as compensate the appellant.
However, the rice mills refused to accept liability and failed to make any
payment to the FCI for the losses caused.
7. The blacklisted rice mills, thus, were not allocated any paddy
for purposes of custom milling in 2011-12. Allegedly with a view to
wriggle out of the ban-period, the mill owners leased-out their rice mills
to other similar partnership/proprietorship firms. Notably, all such lease
deeds were unregistered. A reference to one such le ase deed of
21.09.2011 shows that the rice mill of M/s Sharma Rice Mills along with
land measuring 21 kanal 16 marlas on which it was situated was leased
to another firm, M/s BK Traders. The land, building, machiner y and
plant were leased out for an annual consideration of Rs 2 lakhs. Most of
the lessees were only newly constituted entities.
FOOD CORPORATION OF INDIA AND ANOTHER v.
M/S. V.K. TRADERS AND OTHERS
8. These new lessees consequently applied to the appellant-FCI
for allocation of paddy and asserted that none of them had commi tted
any default or been blacklisted, and that the disqualification attached to
their lessors could not traverse onto their lawful entitlements. The FCI,
on the other hand, declined to entertain such requests on the premise
that the new lessees had simply stepped into the shoes of t he earlier
blacklisted lessors as the lease deeds were nothing but sham transactions
to circumvent the ban imposed by the Circular dated 10.10.2012.
9. The learned Single Judge of the High Court opined that a
defaulting mill ought to be understood as the legal entity which controlled
the mill, which could be the proprietor-owner, Director of a n owning-
company or the lessee. He held that the new lessee-firms were entities
separate from the earlier defaulting owners and could hence not be held
to have defaulted in payment of dues or made responsible for sub-
standard milling of paddy. Furthermore, it was obse rved that the
“proprietor of petitioner-firm has not been shown to have any
connivance with the erstwhile defaulter ”. The writ petitions filed by
some of the new entities were, thus, allowed and the ban imposed by the
FCI on allocation of paddy to these new entities, was set aside. The
Division Bench of the High Court has vide the judgment under appeal
upheld the aforestated view of the learned Single Judge.
Contentions of Parties:
10. Shri Gaurab Banerjee, learned senior counsel for FCI
contended that the lease deeds relied upon by the new entities were
unregistered documents, which had no sanctity in the eyes of law. Making
a pointed reference to the lease deeds produced by the responde nts,
wherein duration of the lease was between 2 to 5 years or even for an
indefinite period, he highlighted that such period exceeded the cut-off of
1 year for compulsory registration. He urged that these lea se deeds
were nothing but sham transactions and had been execut ed by the
defaulting rice millers deliberately to escape their liability for FCI’s losses.
Such details have been furnished by the counsel through a chart which
shows how lakhs of rupees were recoverable by the F CI. It was
accordingly argued that what was impermissible in law for the defaulting
rice millers could not be permitted through indirect means in the name of
emasculated new lessees.
11. Per contra, learned counsel for the respondents maintained
that the legality of the lease arrangement had not been disputed by either
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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 binding
contract. He submitted that the liability for default of dues or supply of
sub-standard rice was attached only to a rice miller who w as found
responsible after due enquiry and notice. The lease holders had merely
taken over land, building and machinery without any obligation to
discharge previous liabilities of the lessors. Hence, it was unreasonable
for the FCI to coerce the lessees to make payments.
Analysis:
12. We are of the considered opinion, that no reliance can b e
placed upon the lease deeds allegedly executed between the defaulting
rice miller(s) and the respondent(s), as they do not satisfy the statutory
requirements of Section 17(1)(d) of the Registration Act, 1908. Thes e
Lease-deeds thus cannot be accepted as evidence of valid tra nsfer of
possessory rights. The plea taken by the appellant-F CI, that such
documentation was made only to escape the liability fa stened on the
defaulting rice millers, carries some weight, though it is a pure question
of fact. The High Court nevertheless ought to have refrained from opining
on the sufficiency of such lease deeds for recognition of a new legal
entity, and consequential non-transfer of liability to the lessees.
13. Even in a case where a proprietorship/partnership firm has
been in existence for long and took over a mill-in-default only on-word
basis, no right to seek allocation of paddy can be claimed by it unless the
liabilities arising out of the previous bilateral agreement are satisfied.
We are, thus, of the view that the High Court erred gravely in setting
aside the orders through which the FCI declined to allocate paddy to the
new lessees of the defaulting rice mills.
Conclusion:
14. For the reasons aforestated, these appeals are allowed. The
orders passed by the learned Single Judge as well as the Division Bench
of the High Court are set aside. The writ petitions filed by the respondent-
lessees are dismissed, however, with liberty to pay dues wit h penalty/
interest of the original rice-millers and thereafter on production of ‘No
Dues Certificate’ seek allocation of paddy for cust om milling in
accordance with the policy of FCI. No orders as to costs.
Devika Gujral Appeals allowed.
FOOD CORPORATION OF INDIA AND ANOTHER v.
M/S. V.K. TRADERS AND OTHERS