CORPORATION OF INDIA AND ANOTHER v. M/S. V.K. TRADERS AND OTHERS

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FOOD CORPORATION OF INDIA AND ANOTHER

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M/S. V.K. TRADERS AND OTHERS

(Civil Appeal No. 2070 of 2020)

MARCH 06, 2020

[S. A. BOBDE, CJI, B. R. GA V AI AND SURYA KANT, JJ.] Rice Mills: Ban on allocation of paddy to rice mills for custom milling – In this case, quality of rice supplied po st milling by the rice mills was found to be defective – Ban imposed o n these rice mills for allocating paddy for custom milling for t hree years for ‘Beyond Rejection Limit’ rice and for five years fo r ‘Beyond Prevention of Food Adulteration’ rice – Demand notic e issued to them for compensating the appellant-FCI for the losses caused to it for supply of sub-standard rice – However, rice mil ls refused to accept liability and failed to make any payment to FCI – As a result blacklisted rice mills were not allocated any paddy for custom mi lling – Allegedly with a view to wriggle out of the ban perio d, the mill owners leased out their rice mills to other similar partnership/ proprietorship firms – Such lease deeds were unregister ed – These new lessees consequently applied to the appellant-FCI for allocation of paddy and asserted that none of them had committed any default or been blacklisted and that the disqualification att ached to their lessors would not traverse onto their lawful entitlements – Whether Respondents who took over on leasehold basis certain blacklisted rice mills were entitled to allocation of paddy for custo m milling – Held: The lease deeds allegedly executed between th e defaulting rice millers and the respondents were not reliable as they did not satisfy the statutory requirements of s.17(1)(d) of the Registration Act, 1908 – These Lease-deeds thus were not acceptable as ev idence of valid transfer of possessory rights – Even in a case where a proprietorship/partnership firm has been in existenc e 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 liabiliti es arising out of the previous bilateral agreement were satisfi ed – Thus, High Court erred gravely in setting aside the orders thro ugh which the FCI declined to allocate paddy to the new lessees of the de faulting rice mills – Registration Act, 1908 – s.17(1)(d).

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Allowing the appeals, the Court

HELD: 1. No reliance can be placed upon the lease deeds allegedly executed between the defaulting rice mill er(s) and the17(1)(d) respondent(s), as they do not satisfy t he statutory requirements of Section 17(1)(d) of the Registration Act, 1908.

These Lease-deeds thus cannot be accepted as evidence of valid transfer of possessory rights. The plea taken by the appellant- FCI, that such documentation was made only to escap e the liability fastened on the defaulting rice millers, carries some weight, though it is a pure question of fact. Even in a cas e where a proprietorship/partnership firm has been in existenc e 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 t he liabilities arising out of the previous bilateral agreement are satisfied.

[Paras 12, 13][115-C-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2070 of 2020.

From the Judgment and Order dated 21.10.2013 of the High Court of Punjab and Haryana at Chandigarh in Letters Patent Appeal No. 989 of 2012(O&M).

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C.A. No. 2075, 2071, 2072, 2076, 2073 and 2074/2020.

Gaurab Banerjee, Sr. Adv., Ajit Pudussery, Vijanan K. and Ajeet Singh Verma, Advs. for the Appellants.

Subhasish Bhowmick, N. S. Dalal, Sushil Kumar, R. C. Kaushik and Ms. Ranjeeta Rohatgi, Advs. for the Respondents.

The following Judgment of the Court was delivered:

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.

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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 PF A 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 A B C D E F G H 113 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 unte sted.

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.

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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 en tities 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 A B C D E F G H 115 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