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Supreme Court of India
F.C.I vs M/S V. K Traders And Ors., Etc.Etc. on 6 March, 2020Author: Hon’Ble The Justice
Bench: Hon’Ble The Justice, B.R. Gavai, Surya Kant
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2070 OF 2020
[Arising out of Special Leave Petition(C)No. 3127 OF 2014]
Food Corporation of India and Another ….. Appellants(s)
VERSUS
M/s. V.K. Traders and Others …..Respondents(s)
WITH
CIVIL APPEAL NO. 2075 OF 2020
[Arising out of Special Leave Petition(C)No. 3273 OF 2014]
WITH
CIVIL APPEAL NO. 2071 OF 2020
[Arising out of Special Leave Petition(C)No. 2522 OF 2014]
WITH
CIVIL APPEAL NO. 2072 OF 2020
[Arising out of Special Leave Petition(C)No. 3349 OF 2014]
WITH
CIVIL APPEAL NO. 2076 OF 2020
[Arising out of Special Leave Petition(C)No. 3405 OF 2014]
WITH
CIVIL APPEAL NO. 2073 OF 2020
[Arising out of Special Leave Petition(C)No. 3134 OF 2014]
AND
CIVIL APPEAL NO. 2074 OF 2020
Signature Not Verified
[Arising out of Special Leave Petition(C)No. 3125 OF 2014]
Digitally signed by
CHARANJEET KAUR
Date: 2020.03.06
17:05:48 IST
Reason:
JUDGMENT
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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 letterspatent 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.
FACTS:
4. It was common practice in Punjab for different government
agencies to allocate paddy for custom milling to hundreds of rice mills,
which in turn would supply the rice, post milling as per approved
specifications, to the appellantFCI. Such allocation would take place
through terms of a bipartite agreement and the same took place for
the Kharif Marketing Season of 200405 (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
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period of three years for ‘Beyond Rejection Limit’ (BRL) rice and five
years for ‘Beyond Prevention of Food Adulteration’ (BPFA) rice. Such
ban was effectuated by the FCI vide a Circular dated 10.10.2012,
relevant extracts of which read as follows:
“1. The millers who have supplied rice which was beyond 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 condition
though the same was found beyond PFA and were given benefit of
doubt by the CBI, the proposal for limiting the 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 the loss suffered by the
Corporation along with penal interest. In cases where, FCI has
already effected recovery from the concerned State Government &
its Agencies, the State Government & its Agencies should recover
the said amount from the defaulter miller under intimation to FCI.
5. As there is no specific clause in the Custom Milling
Agreement/Levy Order for debarring those rice millers who are
found supplying substandard rice in CMR/Levy, FCI Headquarters
will examine the issue and make specific provisions in this regard in
the CMR Agreement as well 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 decided on
merit of each case by a Committee of Officers consisting 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
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Millers or otherwise of each case, on merits.”
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 considered.
Illustratively, M/s Sharma Rice Mills, situated at Katcha Firozpur
Road, Mukhtsar, was informed vide registered show cause notice
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
Sharma Rice Mills to replace the substandard 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 201112. Allegedly with a view to
wriggle out of the banperiod, the mill owners leasedout their rice
mills to other similar partnership/proprietorship firms. Notably, all
such lease deeds were unregistered. A reference to one such lease
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, machinery and plant were leased out for an annual
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consideration of Rs 2 lakhs. Most of the lessees were only newly
constituted entities.
8. These new lessees consequently applied to the appellantFCI for
allocation of paddy and asserted that none of them had committed 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 the
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 proprietorowner, Director of
an owningcompany or the lessee. He held that the new lesseefirms
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 substandard milling of paddy. Furthermore, it was
observed that the “proprietor of petitionerfirm 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
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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 respondents,
wherein duration of the lease was between 2 to 5 years or even for an
indefinite period, he highlighted that such period exceeded the cutoff
of 1 year for compulsory registration. He urged that these lease deeds
were nothing but sham transactions and had been executed 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 FCI.
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
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 substandard rice was attached only to a rice miller who was
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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 be 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. These
Leasedeeds thus cannot be accepted as evidence of valid transfer of
possessory rights. The plea taken by the appellantFCI, that such
documentation was made only to escape the liability fastened 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 nontransfer 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 millindefault only onword
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
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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
respondentlessees are dismissed, however, with liberty to pay dues
with penalty/interest of the original ricemillers and thereafter on
production of ‘No Dues Certificate’ seek allocation of paddy for custom
milling in accordance with the policy of FCI. No orders as to costs.
……………………………..J.
(S.A. BOBDE)
CJI
……..……………………..J.
(B.R. GAVAI)
…………………………… J.
(SURYA KANT)
NEW DELHI
DATED : 06.03.2020
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