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CASE NO.: Appeal (civil)  1981-1982 of 1998

PETITIONER: U.P. State Sugar Corporation

RESPONDENT: Burwal Sugar Mills Co. Ltd. & Others

DATE OF JUDGMENT: 24/02/2004

BENCH: ASHOK BHAN & S.H. KAPADIA.

JUDGMENT: J U D G M E N T

BHAN,J.

1.      U.P. State Sugar Corporation Limited, appellant herein, is a company  registered under the provisions of the Companies Act, 1956,  It is owned and  controlled by the State Government.  In the year 1971, U.P. Sugar  Undertakings (Acquisition) Ordinance, 1971 (U.P. Ordinance 13 of 1971)  was issued which was replaced by U.P. Sugar Undertaking (Acquisition)  Act, 1971 (for short ’the Act’).  The objects of the Act as given in the  Statement of Objects and Reasons are as follows:

"The owners of certain sugar mills of the State or their  lessees had created serious problems for the cane- growers and labour which created an adverse impact on  the general economy of the areas, where those mills were  situate. The only solution of these problems was for the  State Government to take immediate steps to acquire  with a view to renovating  those and rehabilitating mills  or carry out improvement therein.

2.      Accordingly, a legislation was  prepared to acquire  such mills, which provided for acquisition of properties  and assets pertaining to those mills and for payment of  compensation for the same and for the replacement of the  dues of cane-growers, labourers and of the Government  out of the amount or compensation and for other  connected and incidental matters.

3.      To prepare the mills for crushing before the next  crushing season, the usual annual repairs (which are  carried out during off season) had to be carried out well  in time and since the time available was short, immediate  action was called for.  As both the Houses of the State  Legislature were not in session, the Governor  promulgated the Uttar Pradesh Sugar Undertakings  (Acquisition) Ordinance, 1971 on July 3, 1971.

4.      The State Government have since decide that the  dues of canegrowers and labourers shouldf be given  higher priority than the State Government’s taxes and  other unsecured dues.

5.      This Bill is being introduced to replace the  aforesaid Ordinance with the above modifications."

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2.      Act provided for acquisition of properties and assets pertaining to the  mills which had failed to clear their outstanding dues to the  canegrowers,  labourers and the government and for payment of compensation for the  same.  The Preamble of the Act reads:

"An Act to provide, in the interest of the general public,  for the acquisition and transfer of certain sugar  undertakings and for matters connected therewith or  incidental thereto."

 3.      Section 3 of the Act provided that on the appointed  day, every sugar  undertaking shall deemed to be acquired and transferred to the Corporation- appellant.

4.      Burwal Sugar Mills Co. Ltd., respondent No.1 herein, is a company  registered under the Companies Act.  It runs a sugar factory at Barabanki.   On the coming into force of the Act the respondent No. 1’s undertaking  stood transferred and vested in the Corporation-appellant as provided under  Section 3 of the Act.

5.      Several persons whose sugar undertakings had been acquired by the  said Act challenged the constitutional validity of the same by filing writ  petitions in the High Court.  Respondent No.1 also filed writ petition  challenging the constitutional validity of the Act.  The High Court passed an  interim order on 3rd July, 1971 directing the parties to maintain status quo as  it existed on 3rd July, 1971.  Since at the time of acquisition, the sugar mill  was in possession of the Receiver, the possession was restored to the  Receiver.  The writ petitions including the one filed by respondent No.1  were rejected.  The Constitutional validity of the Act was upheld.   Aggrieved against the order of the High Court, appeals were filed in this  Court which were rejected and the order of the High Court was upheld. The  judgment is reported in Ishwari Khetan Sugar Mills (P) Ltd. and Others  vs. State of U.P. & Others [1980 (4) SCC 136].  After the dismissal of the  writ petitions, possession of the scheduled property was taken over by the  appellant.

6.      Respondent No.1 filed writ petition No. 2292 of 1983 objecting  to the  taking over of the properties other than those provided under Section 2(h) of  the Act.  According to the respondent No.1 the factory was being run by a  Receiver appointed by the State Government as on the date of the vesting of  the mill in the corporation.  It was averred in the writ petition that the  Receiver had handed over possession of the following properties illegally to  the appellant.

1.      Registered office at House No. 54/14 Canal Range  at Kanpur. 2.      Ambassador Car 3.      Plot of Siddhaur 4.      Grove Land 5.      Land appurtenant to the factory 6.      Sale proceeds of Siddhaur Khan Sari Plant 7.      Amount of loan realised from Sri Kishandas,  Bhagirath Lal Arora 8.      Share and securities Bonds.

7.      Appellant filed its counter affidavit wherein it was mentioned that  except the following properties which have vested in the corporation, the  possession of no other property was transferred to it.

1.      House No.54/14 Canal Range at Kanpur from  where sugar sale of the sugar manufactured in  Burhwal Sugar Factory used to the stored

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immediately before the appointed day. 2.      One Ambassador Car No. 7142 (and not 481 307). 3.      Land appurtenant to the factory which was used  immediately before the appointed day for the  purposes of parking of cane carts and trollies,  purpose directly connected with the process of the  sugar factory.  The same land was also used as  approach land for the cane carts, trollies and trucks  upto the mill gate.

8.      State Government took a decision to dispose of eight units of the  appellant-corporation to the private sector which included the factory of  respondent No.1 as well. Respondent No.1 thereafter filed writ petition No.  1954 of 1994 challenging the notice inviting tenders for the sale.  It was  contended in this petition that being the ex-owner of the property it had a  preferential right to purchase the unit on the price fixed by the corporation.   

9.      Both the writ petitions were taken up for hearing together and  disposed of by a common order.  Writ Petition No. 2292 of 1983 was  allowed in part.    Out of the three properties the possession of which was  admittedly taken over by the appellant, the High Court held that the House  No. 54/14 Canal Range, Kanpur could not vest in the Corporation as it  housed the registered office of the Company.  Its possession could also be  not transferred to the Corporation. Even if some sugar was stored in that  building as alleged by the appellant it would not in any manner affect the  dispute on merits.  So far as other two properties, namely, the car and the  land appurtenant to the factory  which was being used immediately before  the acquired date for the purposes of parking of  cane carts and trolleys etc.  it was held that the same were being used for the purposes of factory and,  therefore, the appellant could retain possession of those properties.  In so far  as other items were concerned the case of the appellant was that those items  had neither vested in the appellant nor their possession had been taken.  The  High Court concluded that those items naturally would be in possession of  the Receiver appointed by the State and accordingly directed the Receiver to  give back the possession of those properties to respondent No.1

10.     Aggrieved against the judgment of the High Court the appellant has  filed the present appeals.  The only controversy raised in these appeals is  regarding House No. 54/14 Canal Range, Kanpur.

11.     According to the appellant the house apart from the registered office  of the company was also being used as a godown to store the manufactured  sugar for sale which was very much for the purpose of the factory and  therefore its possession was rightly taken over and the same stood vested in  the appellant.  It was also argued that the house in question was being used  as the residence of the Director and a guest house of the factory.  As against  this, learned counsel appearing for respondent No.1 supported the findings  recorded by the High Court to the effect that the building was the registered  office of the company and the same was not being used as a godown and   indeed it could not have been used as such because the same was situated at  Kanpur which is at a distance of 116 Kms. from Barabanki where the sugar  was being manufactured.  It was denied that the premises in dispute were  being used either as the residence of the Director or as a guest house of the  factory.

12.     For the purpose of resolving the controversy as indicated, a reference  to the definition of the word "Schedule Undertaking" as defined in the Act  may be made.  It is defined in clause (h) of Section 2 of the Act, the same  reads:

"(h) "Schedule Undertaking" means an  undertaking engaged in the manufacture or  production of sugar by means of vacuum pans and  with the aid of mechanical power in factory  specified in the schedule and comprises \026

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(i)     all plant, machinery and other equipment  (including milling plant, boiling house  equipment, other sugar machinery, cane  unloading equipment and power plant),  weight bridges, cranes, chimneys turbines  and boilers (including the foundations,  superstructure and roofing thereof)  pertaining to that factory; (ii)    any engineering workshop, including  machinery and equipment thereof; (iii)   any chemical laboratory including any  apparatus and equipment thereof; (iv)    any motor or other vehicle or locomotive or  railway sidings pertaining to that factory;  (v)     any dispensary or hospital or community or  welfare centre exclusively for the benefit of  workmen and other persons employed in  that factory; (vi)    all lands (other than lands held or occupied  for purposes of cultivation and grove lands)  and buildings held or occupied for purposes  of that factory (including buildings  pertaining to any of the properties and assets  herein-before specified and guest houses and  residences of Directors, managerial  personnel, staff and workmen or of any  other person as lessee or licensee, and any  store houses, molasses, tanks, roads, bridges,  drains, culverts, tube wells, water storage or  distribution system and other civil  engineering works) including any leasehold  interest therein;  (vii)   all limestone quarries pertaining to that  factory, including any mining lease relating  thereto; (viii)  all electrical installations including any plant  or equipment for the generation or  transmission of energy, telephone  equipment, furniture and fixtures pertaining  to that factory or to any property or asset  herein before specified; (ix)    all tools, spare parts and stores pertaining to  that factory; (x)     all fire arms for the use of watch and ward  staff employed in that factory; (xi)    all maps, plans, sections, drawings and  designs pertaining to that factory; (xii)   all sugarcane, sugar in the process of  manufacture for production and stocks of  sugar and molasses and all bagasse and  pressmud; (xiii)  all books of account, registers and other  documents pertaining to the factory or to  any property or asset hereinbefore specified,  but does not include cash-in-hand, cash at  Bank, advances towards any income or other  tax, investments and books, debts or rights,  liabilities and obligations respecting any  other contract."    

13.     A perusal of the above provision shows that generally all machines,  tools, plants and other equipment which were being used for manufacturing  sugar were acquired including the workshops, chemical laboratories,

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vehicles, dispensaries, hospitals, community or welfare centre exclusively  used for the benefit of the workmen and other persons employed in the  factory.  Limestone queries, electrical installations, tools, spare parts and  stores pertaining to that factory were also acquired.  Under sub-clause (vi)  all lands and buildings held or occupied for the purposes of that factory,  guest houses and residences of directors, managerial personnel, staff and  workmen or of any other person were also taken over.              

14.     The intention of the Legislature is clear that the land and buildings  which were connected with or were in use for the purposes of the factory  would be covered by clause (vi) of section 2 (h).  Admittedly, the registered  office of the respondent company was located at House No. 54/14 Canal  Range, Kanpur.  There is no material on the record to show the premises in  question were being used or occupied for the storage of sugar.  Similarly,  there is no material on record to show that the house in question was being  used as a guest house or for the residence of a Director of the factory.   Respondent No.1 is a registered company and is running a sugar factory at  Barabanki with its registered office in House No. 54/14 Canal Range,  Kanpur.  Under the Act it is the factory along with its properties which were  connected with or were in use for the purposes of the factory which were  acquired and not the properties and assets of the company running that  factory.  The Act specifically differentiates between a company owning a  sugar undertaking and the sugar undertaking itself.  The Company is much  wider entity as against the undertaking which is only one of the assets of the  company.  The Legislature deliberately did not touch the company and  acquired only the undertaking as per the objects of the Legislature.  The  registered office of the company is located in House No. 54/14 Canal Range,  Kanpur which is owned and possessed by the company and is not a part of  the ’Schedule Undertaking’ and, therefore, the same could not vest in the  State.  Handing over of its possession by the Receiver to the appellant was  illegal and contrary to the provisions of the Act.

15.     Under the U.P. Sugarcane (Purchase Tax) Act 1961 the tax is levied  and is payable on the manufactured sugar by a sugar factory  before the  sugar can be taken out from the factory campus except when it is kept in a  godown situated outside the factory campus and is approved as such by the  assessing authority.  Section 3A of this Act reads:

"Payment of tax before removal of sugar factory:-  (1) No owner of a factory shall remove, or cause  to be removed any sugar produced in the factory  on or after the first day of October, 1971,  hereinafter referred to as the said date, either for  consumption, or for sale or for manufacture of any  other commodity in or outside the factory, until he  had paid towards the tax levied under Section 3 a  sum specified under sub-section (2) sub section (3)   or sub section (4) as the case may be  

Provided that such sugar may be deposited without  payment of any such sum in a godown or other  place of storage approved by the assessing  authority and where it is so deposited it shall not  be removed therefrom until the sum as aforesaid  has been paid\005"

 16.     The building in question at Kanpur or any part of it was never  approved or used as a godown of the factory under the above said  provisions.  The plea taken by the respondent that the premises in question  was being used as a godown to store the sugar is therefore not sustainable.   As pointed out earlier, there is no material on record to show that the  premises in dispute were being used as a residence of a Director or a guest  house. The plea raised by the appellant to this effect is also rejected.  

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17.     The relief as prayed for in Writ Petition No. 1954 of 1994 was not  granted to respondent No.1.  Respondent No.1 has not come up in appeal to  challenge the findings which have been recorded against it.  The same have  attained finality.   

18.     For the reasons stated above, we do not find any merit in these appeals  and the same are dismissed with no order as to costs.