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PETITIONER: UNION OF INDIA

       Vs.

RESPONDENT: LAKSHMI SUGAR & OIL MILLS LTD., HARDOI

DATE OF JUDGMENT21/11/1985

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. THAKKAR, M.P. (J)

CITATION:  1986 AIR  388            1985 SCR  Supl. (3) 758  1986 SCC  (1)  27        1985 SCALE  (2)1088

ACT:      The Sugar  Undertakings  (Taking  over  of  Management) Ordinance 1978  Clause 3(1) & The Sugar Undertakings (Taking over of Management) Act, 1978. Section 3(a) (b) - Scope of.      Sugar Undertaking - Arrears of cane dues - Accumulation of -  Initiation of  action by  Central Government - Whether arrears to  be confined  to current  ’sugar year’ or earlier ’sugar year’.

HEADNOTE:      The Respondent  company manufactures  sugar from  sugar cane. On  November 18, 1978, the Central Government issued a notice  under   sub-para  (1)   of  para   3  of  the  Sugar Undertakings (Taking  over of  Management)  Ordinance,  1978 stating that as on November 15, 1978, the respondent-company was in  arrears  of  cane  dues  in  relation  to  the  cane purchased before  that date  for the  purpose of  its  sugar undertaking to  the extent  of more than ten per cent of the total  price   of  the  cane  purchased  by  it  during  the immediately proceeding "sugar year", the total arrears being Rs. 475.99  lacs, and  called upon the respondent to explain in writing  the circumstances in which the sugar undertaking had failed  to clear  the arrears  of cane  dues and why the undertaking  should   not  be  taken  over  by  the  Central Government under  that Ordinance.  On November  25, 1978 the respondent replied  to the  notice denying  that it  was  in arrears. However,  the Central  Government issued  an  order dated December  1, 1978 reciting that it was satisfied after considering the  report sent  by  the  respondent  that  the arrears of cane dues had not been cleared by the respondent, and directing  that the  management of the sugar undertaking would vest  in the  Central Government for a period of three years commencing on and from December 2, 1978.      The respondent  filed a writ petition in the High Court which was  allowed. It  was  held  that  while  the  Central Government could  take action  in respect of the arrears due in respect of sugar cane purchased during the current "sugar year"  it  could  not  do  so  in  respect  of  the  arrears pertaining to  a preceding  "sugar year", and therefore, the impugned orders  were invalid.  The High  Court quashed  the order and  directed handing  over of  the possession  of the sugar undertaking.

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759      Allowing the  appeal of  the Union  of  India  to  this Court, ^      HELD: 1.  The language of clause (b) of sub-section (a) of section  3 is clear. It speaks of arrears of cane dues in relation to  the cane  purchased  "before  that  date".  The language is  wide enough  to include all the arrears of cane dues accumulated  upto "that  date"  including  the  arrears pertaining to  sugar cane  purchased in  earlier years.  The judgment and  order of  the High  Court is set aside and the writ petition is dismissed. [765 D-E]      2. The  Sugar Undertakings  (Taking over of Management) Ordinance, 1978  was  replaced  by  the  Sugar  Undertakings (Taking over  of Management)  Act, 1978.  An analysis of the provisions of  the Ordinance,  and of the Act which replaced it, indicates  that the principal purpose of the legislation is  to   put  mismanaged   sugar  undertakings  into  proper functioning order  by empowering  the Central  Government to assume the temporary management of the undertakings. [761 E; 763 H - 764 A]      3.  The   legislation  indicates   two  kind  of  cases evidencing  mismanagement.   One  is   the  failure  of  the undertaking to  commence the  manufacture  of  sugar  on  or before the  appointed day  in the  sugar year,  or where the sugar undertaking,  having started  the manufacture of sugar on or  before that  date, has  ceased to  manufacture  sugar before the  expiry of  the average  period of manufacture of sugar. (Clause  (a) of  sub-section (1)  of section  3). The other  is   the  case   where  the   sugar  undertaking  has accumulated arrears of cane dues upto a date in a sugar year to the  extent of  more than ten per cent of the total price of the cane purchased during the immediately preceding sugar year. (Clause  (b) of sub-section (1) of section 3). The two cases merely  provide evidence  from which a presumption can be drawn  that the sugar undertaking is in distress. [764 B- C]      4.  The   action  intended  under  the  legislation  is intended to serve more than the object of recovering arrears of cane  dues. If  the object  of recovering arrears of cane dues alone was the purpose to be achieved, there was already sufficient provision  in existing  statutes such as the U.P. Sugarcane (Regulation  of Supply  and Purchase)  Act,  1953, which by  section 17  thereof provides  for the  recovery of arrears of  cane dues. The impugned Ordinance and Act cannot be considered  at par with the statutes providing merely for the recovery  of arrears  of cane  dues. The  object of  the legislation covers a wider range of purpose. [764 G 765 A]      5. The  permissible  limit  of  arrears  of  cane  dues provided for  in cl.(b)  of sub-section  (a)  of  section  3 merely constitutes  a standard  for determining  whether the arrears of cane dues fall 760 within the  permissible limit  or have  exceeded it. It does nothing more than that. It cannot be extended as a criterion or determining  whether the  arrears of  cane dues should be confined to  the sugar  purchased during  the instant  sugar year or  can include  also the  arrears in relation to sugar purchased during an earlier sugar year. [765 C-D]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION : Civil Appeal No. 162 of 1979.

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    From the  Judgment and  Order dated  19.12.1978 of  the Allahabad High Court in Writ Petition No. 2774 of 1978.      M.S. Gujaral, Dalveer Bhandari and R. N. Poddar for the Appellant.      Anil Kumar  Gupta  and  Brij  Bhushan  Sharma  for  the Respondent.      The Judgment of the Court was delivered by      PATHAK, J.  This appeal  by  special  leave  is  direct against the  judgment and  order of the Allahabad High Court allowing a  writ petition  and quashing an order made by the Central Government under cl.(b) of sub-para (2) of para 3 of the  Sugar   Undertakings  (Taking   over   of   Management) Ordinance, 1978  and a consequential order issued under sub- para (4) of para 4 of the Ordinance.      The respondent  company manufactures  sugar from  sugar cane. On  November 18,  1978 the Central Government issued a notice  under   sub-para  (1)   of  para   3  of  the  Sugar Undertakings (Taking  over of  Management)  Ordinance,  1978 (hereinafter referred  to as  the "Ordinance") stating as on November 15, 1978 the respondent was in arrears of cane dues in relation  to the  cane purchased before that date for the purpose of  its sugar undertaking to the extent of more than ten per  cent of the total price of the cane purchased by it during the  immediately preceding  "sugar year",  the  total arrears  being   475.99  lacs,   and  that  as  the  Central Government was  satisfied that  the effective functioning of the sugar  undertaking was necessary for the purposes of the said Ordinance,  the  Central  Government  called  upon  the respondent to  explain in writing the circumstances in which the sugar  undertaking had  failed to  clear the  arrears of cane dues  and why  the undertaking should not be taken over by the  Central Government under that Ordinance. On November 25, 1978  the respondent repelled to the notice denying that it was  in arrears  to the  extent of  Rs. 475.99  lacs  and claimed the right to tender oral and documentary 761 evidence on  a date  fixed for  the  hearing  of  the  case. However, the Central Government issued an Order S.O. 696 (E) dated December  1, 1978 reciting that it was satisfied after considering the  report sent  by  the  respondent  that  the arrears of  cane dues in excess of ten per cent had not been cleared by the respondent, and directing that the management of  the   sugar  undertaking   would  vest  in  the  Central Government for  a period  of three  years commencing  on and from December 2, 1978.      The respondent  filed a  writ petition in the Allahabad High Court,  and on December 19, 1978 the High Court allowed the writ  petition holding that while the Central Government could take  action in  respect of the arrears due in respect of sugar  cane purchased  during the  current  "sugar  year" (that is  to say,  the sugar year during which the action is taken) it  could  not  do  so  in  respect  of  the  arrears pertaining to  a preceding  sugar year,  and  therefore  the impugned orders  were invalid.  The order  dated December 1, 1978 and  the  consequential  order  were  quashed  and  the appellant was  directed to hand over possession of the sugar undertaking to the respondent.      The Ordinance  has since  been replaced  by  the  Sugar Undertakings (Taking  over of  Management) Act,  1978  which while repealing  the Ordinance  adopts  everything  done  or action taken  under the  Ordinance as if it had been done or taken under the corresponding provisions of the Act.      The Preamble  of the Sugar Undertakings (Taking over of Management) Act, 1978 (hereinafter referred to as the "Act") recites that  for "maintaining  the continuity of production

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of sugar,  for avoiding  undue hardship  to  cane  producing farmers and to best subserve the interest of all sections of the people,  it is  expedient  in  the  public  interest  to provide for  the  taking  over  for  a  limited  period  the management of  every sugar undertaking which fails or ceases to manufacture  sugar or which fails to pay promptly amounts due  for   the  cane   acquired  for  the  purposes  of  the undertaking." Sub-s. (1) of s.3 of the Act provides :-           "3.(1) Where the Central Government is satisfied -           (a) that  any sugar  undertaking has  in any sugar           year failed  to commence  the manufacture of sugar           on or  before the appointed day in respect of that           year, or 762           having started  the manufacture  of  sugar  on  or           before that day ceased to manufacture sugar before           the expiry of the average period of manufacture of           sugar in relation to that undertaking; or           (b) that  on any  date in any sugar year any sugar           undertaking has, in relation to the cane purchased           before  that   date  for   the  purposes   of  the           undertaking, arrears of cane dues to the extent of           more than  ten per  cent of the total price of the           cane purchased for the purposes of the undertaking           during the immediately preceding sugar year; and           (c) that  in either case the effective functioning           of the  undertaking is  necessary for the purposes           of this Act,           the Central  Government may issue a notice in such           form and  in such  manner as  may be prescribed to           the owner or the manager of such sugar undertaking           calling upon  such owner  or manager  to report in           writing within such time, not being less than five           days, as  may be  specified  in  the  notice,  the           circumstances under  which such undertaking has so           failed to  commence or ceased to manufacture sugar           or, as  the case may be, clear the said arrears of           cane  dues  and  to  show  cause  as  to  why  the           management of such undertaking should not be taken           over by the Central Government under this Act."           And sub-s. (2) of s. 3 reads :-           "(2) As  soon as  may be, after the receipt of the           report  under   sub-section  (1)  from  the  sugar           undertaking, or  where the  sugar undertaking  has           failed  to   make  such  report  within  the  time           specified in  the notice to that undertaking under           sub-section (1),  after the  expiry of  such time,           the  Central  Government  may  make  such  further           inquiry (if any) as it may be deem fit and -           (a) if  the Central  Government is  satisfied that           having regard to all the circumstances of the case           and the  purposes of  this Act  that it  would  be           expedient to  give further time to the undertaking           to enable it to 763           commence or  resume production of sugar or, as the           case may  be, clear  the arrears  of cane dues, it           may, by  order in  writing, specify the date on or           before  which   and  the   manner  in  which  such           undertaking shall commence or resume production of           sugar or,  as the  case may  be,  clear  the  said           arrears of cane dues; or           (b) if  the Central Government is not satisfied as           provided in  clause (a),  declare by  notification           that the management of such undertaking shall vest

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         in the Central Government on and from such date as           may be specified in such notification." The expression  "sugar year"  has been  defined by cl.(g) of s.2 of  the  Act  to  mean  "the  period  of  twelve  months commencing on  the 1st  day of  October and  ending with the 30th day  of September  next following". Sub-s.(5) of s.3 of the Act  provides that a notification issued under sub-s.(2) for vesting  the management  of a  sugar undertaking  in the Central Government  shall be  in force  for such  period not exceeding three  years from  the date  of vesting  as may be specified in  the notification and that although such period may be  extended the  total period  for which the management may remain  vested in  the Central  Government should  in no case exceed three years from the date of vesting.      From the facts set out before the High Court it appears that the  management of  the undertaking had been taken over on the  ground that  the respondent had not paid in full the price of  the sugar cane purchased before November 15, 1978, and that  included the sugar cane purchased during the sugar year 1977-78,  and the arrears so due were more than ten per cent of  the total  price of  the cane  purchased during the sugar year  1977-78. It was contended by the respondent that the arrears  of cane  price for the sugar year 1977-78 could not be  a ground for making the impugned order. It was urged that cl.(b)  of sub-para (2) of para 3 of the Ordinance on a proper   construction   thereof,   empowered   the   Central Government to initiate action for assuming the management of the undertaking only if the arrears of cane purchased during the period from the commencement of the sugar price were due for sugar cane year 1978-79 to November 15,1978 which period would fall  within the  sugar year  1978-79. The  contention found favour  with the  High Court, and it granted relief on the writ petition.      It is  apparent from  an analysis  of the provisions of the Ordinance and thereafter the Act which replaced it, that the 764 principle purpose  of the  legislation is  to put mismanaged sugar  undertakings   into  proper   functioning  order   by empowering the  Central Government  to assume  the temporary management of  the undertakings.  The legislation  indicates two kind  of cases evidencing such mismanagement. One is the failure of  the undertaking  to commence  the manufacture of sugar on  or before  the appointed  day in the sugar year or where the  sugar undertaking, having started the manufacture of sugar  on or  before that  day, has ceased to manufacture sugar before the expiry of the average period of manufacture of sugar.  Vide cl.(a) of sub-s.(1) of s.3. The other is the case where  the sugar undertaking has accumulated arrears of cane dues  upto a date in a sugar year to the extent of more than ten  per cent  of the total price of the cane purchased during the  immediately preceding sugar year. Vide cl.(b) of sub-s.(1) of s.3. The two cases merely provide evidence from which a  presumption can be drawn that the sugar undertaking is in  distress. In  both cases the statute further requires that the  Central Government  should be  satisfied that  the effective functioning  of the  undertaking is  necessary for the purposes of the Act, that is to say, for maintaining the continuity of  the production  of sugar,  for avoiding undue hardship to  cane producing  farmers and far best subserving the interests  of all sections of the people. Vide cl.(c) of sub-s.(1) of  s.3. In  other  words,  what  the  legislation intends is  that where  a  sugar  undertaking  has  been  so mismanaged  that   either  the  undertaking  has  failed  to commence the  manufacture of  sugar in  the sugar  year,  or

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having commenced  manufacture has  ceased  to  carry  it  on during the  sugar year,  or has  accumulated arrears of cane dues in excess of the prescribed standard, then in all these cases it  must further  be determined  whether the effective functioning of the undertaking is necessary for the purposes mentioned earlier,  and only upon being so satisfied can the Central Government  assume the  temporary management  of the undertaking. It  takes over  the undertaking  temporarily in order to  put it  back  on  the  rails  after  removing  the aberrations   and    shortcomings   responsible    for   the mismanagement and  restoring the  undertaking  to  a  normal condition of  effective  functioning.  The  action  intended under the  legislation is  intended to  serve more  than the object of recovering the arrears of cane dues. If the object of recovering  arrears of cane dues alone was the purpose to be achieved,  there  was  already  sufficient  provision  in existing statutes  such as the U.P. Sugarcane (Regulation of Supply and  Purchase)  Act,  1953,  which  by  s.17  thereof provides for  the recovery  of arrears  of  cane  dues.  The impugned Ordinance  and Act cannot be considered at par with statutes providing merely for the recovery of arrears of 765 cane dues.  As has been explained earlier, the object of the legislation covers a wider range of purpose.      The argument  of the  respondent before  the High Court was that  the permissible  limit of arrears of cane dues had been defined  as ten per cent of the total price of the cane purchased during  the immediately  preceding sugar year, and this, it was said, required the court to confine the arrears of cane  dues to the cane purchased between the commencement of the  instant sugar  year and  the date  in the sugar year when  cognizance  of  the  matter  was  taken.  We  are  not satisfied that  cl.(b) of  sub-s.(a) of  s.3  should  be  so limited. The permissible limit merely constitutes a standard for determining whether the arrears of cane dues fall within the permissible  limit or  have exceeded it. It does nothing more than  that. It  cannot be  extended as  a criterion for determining whether  the arrears  of  cane  dues  should  be confined to  the sugar  purchased during  the instant  sugar year or  can include  also the  arrears in relation to sugar purchased during  an earlier sugar year. The language of the clause is  clear. It  speaks of  arrears  of  cane  dues  in relation to  the cane purchased "before that date". It seems to us  that the  language is  wide enough to include all the arrears of cane dues accumulated upto "that date", including the arrears  pertaining to  sugar cane  purchased in earlier years.      In the results, the appeal is allowed, the judgment and order dated December 10, 1978 of the High Court is set aside and the  writ petition  is dismissed. As the point is one of first impression, there is no order as to costs. N.V.K.                                       Appeal allowed. 766