Sahyadri Co-operative Credit Society Ltd. vs The State of Maharashtra and Others

Prafulla C. Pant, J.—1. These appeals are directed against judgment and order dated 10.02.2012, passed by the High Court Order Judicature at Bombay in Writ Petition Nos. 8452 Order 2011 and 8453 Order 2011, whereby the High Court dismissed the writ petitions filed by the writ Petitioner-societies (present Appellants), observing that the alternative remedy Order filing suit was available to them Under Section 218 Order Maharashtra Land Revenue Code, 1966 (for short "the MLR Code").

Brief facts Order 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 Order Maharashtra and Karnataka. The Appellant-societies are engaged in the business Order accepting deposits from its members, and lending money to them. Respondent No. 6 M/s. Tasgaonkar Sugar Mills Ltd. is lessee Order business Order 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 Order Respondent No. 5. They approached the Appellants for financial assistance. Appellant Sahyadri Co-operative Credit Society Ltd. sanctioned loan Order Rs. 7,00,00,000/- repayable within a period Order six months to Respondent No. 5, and Appellant Navhind Co-operative Credit Society Ltd. sanctioned loan Order Rs. 12,20,00,000/- Order similar terms to it. Both the sums are credited into the account Order Kolhapur District Central Co-operative Bank Ltd., erstwhile creditor Order Respondent No. 5. Said Bank had consented to Respondent No. 5 for creation Order charge in favour Order the Appellants in the form Order pledge. As such, sugar stock Order 35,000 quintals stored in godown No. 6 Order Respondent Nos. 5 and 6 was agreed to be pledged in favour Order Appellant Sahyadri Co-operative Credit Society Ltd., and sugar stock Order 80,985 quintals stored in godown Nos. 7-I and 7-II was agreed to be pledged in favour Order Appellant Navhind Co-operative Credit Society Ltd. In respect Order said transactions Order pledge, separate letters dated 31.03.2011 regarding consent Order Respondent No. 6 were issued in favour Order the Appellants. The Appellants and Respondent Nos. 5 and 6 entered into an agreement Order 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 Order pledge.

Admittedly, Respondent Nos. 5 and 6 ran into losses and failed to pay the outstanding dues Order the cane growers. Consequently, Respondent No. 2, Commissioner Order Sugar/Special Registrar, Co-operative Societies, State Order Maharashtra, Pune, passed an order under Sugarcane (Control) Order, 1966 directing release Order 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 Order said amount. In pursuance Order said order, Respondent No. 3 directed Respondent No. 4 Tehsildar, Chandgad, District Kolhapur, Maharashtra, to recover the amount Order Rs. 36,22,66,591/- as arrears Order land revenue under Clause 3(9) Order the Sugarcane (Control) Order, 1966, from Respondent No. 5. Accordingly, Respondent No. 4 visited site Order Respondent No. 5 and attached the stock Order godown No. 6 and godown Nos. 7-I and 7-II under Clause 3(9) Order the Sugarcane (Control) Order, and directed Respondent No. 5 not to dispose Order the stock Order sugar lying in the above godowns. Respondent Nos. 5 and 6 objected to the attachment Order sugar stock pledged to them. The Appellants also raised their objections to the attachment. However, Order 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 Order 22.6.2011 at 3.30 p.m. in pursuance Order 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 Order 2011 respectively before the High Court Order Judicature at Bombay pleading that they have right Order precedence in the repayment Order loan amount. The High Court, vide its order dated 22.6.2011 (on the day Order 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 Order sugar pledged to the Appellants shall be deposited with the Registrar (Judicial) Order the High Court whereafter the Registrar (Judicial) was to keep the amount in a nationalized bank in fixed deposit. Order 11.7.2011, Sub Divisional Officer filed an affidavit stating that the entire stock Order sugarcane was sold for a sum Order Rs. 52,95,36,483/-, out Order which the amount realized against the pledged sugar was Rs. 27,94,27,910/-. A sum Order 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 Order both the writ petitions ( Nos. 4533 and 4539 Order 2011) holding that the Appellants would have first right over the amount Order pledged sugar, and Respondent No. 3 was directed to make distribution Order the amount collected in accordance with Rules keeping in mind the rights Order precedence Order the parties. Consequently, the Appellants approached Respondent No. 3, but said authority rejected the claim Order the Appellants and held that the payment Order Provident Fund amounting to Rs. 4,66,40,511/- Order account Order dues to the Assistant Provident Fund Commissioner would be the first priority, and a sum Order 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 Order sugar stock, be paid to the workers Order factory Order Respondent No. 5.

Aggrieved by aforesaid order 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 Order 2011 and 8453 Order 2011 respectively before the High Court. Notices were issued and the Respondents objected to the maintainability Order 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 Order 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 Order arguments Order admission. In said order the High Court took note Order the fact that the total amount realized after auction Order 2,17,984 bags/quintals Order sugar manufactured by Respondent No. 5 (including the disputed pledged sugar in favour Order 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 Order Rs. 27,94,27,910/- was deposited in the High Court, and out Order balance amount Order Rs. 25,01,08,573/- with the Collector, Kolhapur, an amount Order Rs. 20,00,00,000/- has been distributed amongst workers. And rest Order the sum left with the Collector, as allowed by the High Court Order 23.12.2011, was disbursed towards Provident Fund Order workers. Finally, the High Court, vide impugned order dated 10.2.2012, dismissed the writ petitions Order the ground that the Appellant-creditors have alternative remedy available to them to file suit Under Section 218 Order the MLR Code.

Section 218 Order the MLR Code reads as under:

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

(2) The person against whom an order is made Under Sub-section (1) may, within one year from the date Order the order, institute a suit to establish the right which he claims to the property attached Order proceeded against, but subject to the result Order such suit, if any, the order shall be conclusive.

Order behalf Order the Appellants it is argued that the claim Order the Appellants is independent Order the MLR Code, and the Collector, Kolhapur, passed the order in exercise Order power under the provisions Order Sugarcane (Control) Order, 1966, as such the bar contained in Clause 218(2) Order the MLR Code is not applicable to them. In this connection, it is pointed out that the High Court, while disposing Order the writ petitions filed in earlier round, had directed the Collector to disburse the sum keeping in mind the right Order precedence.

It is further argued that the Appellants, being secured creditors, had a right Order precedence in repayment Order 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 Order 12.8.2011 in Writ Petition Nos. 4533 Order 2011 and 4539 Order 2011 holding the right Order precedence Order the Appellants in respect Order the pledged sugar. Attention Order this Court is drawn to the principle Order law laid down by this Court in Central Bank Order India v. Siriguppa Sugars and Chemicals Ltd. and Ors. , (2007) 8 SCC 353, and it is submitted that the High Court has lost sight Order right Order precedence Order pawnee, recognized in said case.

Order the other hand, learned Counsel for the contesting Respondents argued that the transactions Order alleged pledge in favour Order 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 Order Working Capital Loan Agreement. It is pointed out that in respect Order loan disbursed Order 31.3.2011 the agreement was registered later Order 26.5.2011, and the document shows pledge Order 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 Order 2011 (Annexure P-5 to Civil Appeal No. 1841 Order 2013) and order dated 12.8.2011 passed in Writ Petition No. 4539 Order 2011 (Annexure P-5 to Civil Appeal No. 1840 Order 2013), wherein the High Court has observed that stock Order sugar in question was pledged in favour Order the Appellants, and it is submitted that the orders in that round Order litigation have attained finality, as such, the same cannot be questioned now.

We have considered the above submissions and also perused the record Order the case. It is not disputed that in the earlier round Order litigation Appellants Navhind Co-operative Credit Society Ltd. and Sahyadri Co-operative Credit Society Ltd. filed Writ Petition Nos. 4533 Order 2011 and 4539 Order 2011 respectively which were disposed Order by the High Court Order 12.8.2011. It is also not disputed that in said writ petitions the factum relating to pledge made in favour Order Appellant Sahyadri Co-operative Credit Society Ltd. Order godown No. 6, and the pledge Order godown Nos. 7-I and 7-II in favour Order Appellant Navhind Co-operative Credit Society Ltd. by Respondent No. 5 was considered, and the High Court accepted that the stock Order sugar in question was pledged in favour Order the Appellants. However, the High Court observed that the order dated 28.5.2011, passed by the Commissioner Order Sugar & Special Registrar, Co-operative Societies, Maharashtra, was not challenged, as such, no adjudication was made in respect Order entitlement Order the Appellants as against the claims Order workers'' union Order the sugarcane farmers. The High Court disposed Order the writ petitions directing the Collector to consider the entitlement and priority Order 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 Order litigation not only after hearing the Respondents Order said case but also the intervenors, who are contesting Respondents in the present round Order litigation, as such, in our opinion, it is not open for the contesting Respondents now to challenge the genuineness Order the pledge made in favour Order the Appellants, as the order in the earlier round has attained finality.

Apart from this, we have examined the papers Order record pertaining to the transactions Order pledge by which Respondent Nos. 5 and 6 pledged the sugar stock in question in favour Order the Appellants and we find no reason to doubt the transactions. Copy Order letter No. CMA-856/2010-11 dated 21.2.2011, Order 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 Order Respondent No. 6 Tasgaonkar Sugar Mills Ltd. for raising working capital loan from other financial institutions. Copy Order resolution dated 6.3.2011, passed by Special General Body Order Sahyadri Multi-State Co-operative Credit Society Ltd. (Annexure A-6 to additional affidavit filed Order behalf Order the Appellant in Civil Appeal No. 1840 Order 2013) shows that a decision was taken to raise loan Order Rs. 12,00,00,000/- against pledge Order 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 Order the Board Order 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 Order goods. Copy Order letter No. Accts/Fin/1732/2010-11 dated 25.3.2011 (Annexure A-11 to additional affidavit filed in Civil Appeal No. 1840 Order 2013) shows that Respondent No. 5 Daulat Shetkari Sahakari Sakhar Karkhana Ltd. requested Kolhapur District Central Co-operative Bank Ltd. for issuance Order NOC in favour Order the Appellant-societies specifying the godown numbers and the quantity Order 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 Order 2013) Kolhapur District Central Co-operative Bank Ltd. gave consent for pledge Order sugar stock Order godown Nos. 6 and 7 in favour Order the Appellants. All the above documents remove the clouds Order doubt as to the transactions Order pledge in question in favour Order the Appellants.

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

Thus, going by the principles governing the matter propounded by this Court, there cannot be any doubt that the rights Order the Appellant Bank over the pawned sugar had precedence over the claims Order the Cane Commissioner and that Order the workmen. The High Court was, therefore, in error in passing an interim order to pay parts Order 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 Order the first Respondent and the loan had not been repaid. The goods were forcibly taken possession Order at the instance Order the revenue recovery authority from the custody Order the pawnee, the Appellant Bank. In view Order the fact that the goods were validly pawned to the Appellant Bank, the rights Order the Appellant Bank as pawnee cannot be affected by the orders Order the Cane Commissioner Order the demands made by him Order the demands made Order behalf Order the workmen. Both the Cane Commissioner and the workmen in the absence Order a liquidation, stand only as unsecured creditors and their rights cannot prevail over the rights Order the pawnee Order the goods.

We are also Order the view that pending the writ appeals, the High Court ought not to have passed such an interim order consequence especially in the light Order the legal principles settled by this Court. The order the High Court, therefore, cannot be sustained and calls for interference.

In view Order law laid down, as above, by this Court in Central Bank Order India v. Siriguppa Sugars and Chemicals Ltd. (supra), and further considering the facts and circumstances Order the case, we are Order 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 Order 2011 and 8453 Order 2011 is set aside. We direct the authorities concerned to disburse the amount in the light Order the observations made above regarding entitlement Order 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.