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Thursday, March 31, 2016

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. (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.”=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. 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.- 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.

                        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.

(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.

-----------------------
[1]    (2007) 8 SCC 353



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