State Bank Of Patiala vs The Zila Adhikari, Bareilly And 7 ...
2013 Latest Caselaw 7038 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

?Court No. - 10
 

 
Case :- WRIT - C No. - 63208 of 2013
 

 
Petitioner :- State Bank Of Patiala
 
Respondent :- The Zila Adhikari, Bareilly And 7 Others
 
Counsel for Petitioner :- M.P. Sarraf
 
Counsel for Respondent :- C.S.C.
 

 
Hon'ble Arun Tandon,J.

Hon'ble Anjani Kumar Mishra,J.

Petitioner before this court is a subsidiary bank of the State Bank of India. The Bank is stated to have entered into a loan agreement with the respondent Oswal Industries Ltd., Nawabganj, Bareilly, through its General Manager of providing credit facility to the tune of Rs.15 crores against the Warehouse Receipts of National Bulk Handling Corporation.

According to the petitioner bank, necessary agreement for advance against pledge stocks of sugar stored in the warehouse dated 18.12.2010 was also executed between the parties.

The Sugar Mill has defaulted in payment of the dues of the farmers in the last crushing season. Therefore, the State authorities have initiated proceedings for recovery of the money from the Sugar Mill as arrears of land revenue by attachment of stocks of sugar and its sale.

The Tehsildar and the Sub Divisional Magistrate, Nawabganj visited the go-down of National Bulk Handling Corporation (NBHC) and have drawn sample of the sugar available for the purpose of putting the same to auction so that the dues of the farmers could be liquidated. The aforesaid fact has been communicated by the Vice President of the Sugar Mill to the State Bank of Patiala under letter dated 30.10.2013.

The District Magistrate, Bareilly on 25.10.2013 issued an order to the Managing Director and the Chief Manager of respondent Sugar Mill to ensure that 876.5 quinttel of levy sugar is immediately transferred to P.C.F., Bareilly in terms of the order of the Central Government date 26.02.2013 whereunder for the months of April and May 438.2 quinttel of levy sugar for each month was directed to be drawn from Oswal Industries Ltd. and which had not been complied with.

The Sub Divisional Magistrate has accordingly directed the District Manager, P.C.F., Bareilly to ensure lifting of said quantity of levy sugar from the Sugar mill.

It appears that the levy sugar was not available in the Sugar Mill, therefore, the stocks of sugar as available in the go-down of NBHC are being taken possession of by the district authorities in lieu of the levy sugar.

The State Bank of Patiala claims that it has the first charge over the stocks of sugar of respondent no. 8 sugar mills stored in the NBHC go-down has approached this Court for challenging the attachment and sale of sugar for the purpose of payment of dues of the farmers.

Shri M.P.Sarraf, counsel for the bank with reference to the judgment of High Court in the case of State Bank of India vs. State of U.P. and others reported in 2003 Current Law Rulings, 374 submits that the Bank has first charge over the sugar stored in the NBHC go-down and the state authorities do not have any right in preference to the Bank to either sell the sugar for liquidating the dues of the farmers.

Standing Counsel points out that release of levy sugar is required to be done by the Sugar Mill in terms of the control orders issued which are statutory in nature. It is stated that the levy sugar is being recovered from the stocks stored in other go-down and not in the go-down of NBHC, the stock whereof is pledged with the petitioner Bank.

We are not called upon to address on the aspect of recovery of levy sugar. The issue up for consideration before this Court as to whether in terms of the judgment in the case of State Bank of India (supra), the State authorities can proceed to attach and sell the sugar bags stored in NBHC go-down for the purposes of liquidating the dues of the farmers. It has to be examined as to whether the charge created in favour of the bank shall take preference over the dues of the farmers and as to what in fact has been laid down by the Division Bench in the State Bank of India (supra).

For gathering the real proposition of law which has been laid down by the Division Bench of this Court in the case of State Bank of India (Supra), we may only reproduce paragraphs no. 11 and 12 of the judgment which read as follows :

?11. In State of Madhya Pradesh v. State Bank of Indore, 2002 STC 1, it appears that there was a retrospective amendment in the M.P. General Sales Tax Act by which the tax dues of the sales tax department were to be treated to be first charge over the property. In the present case we have not been shown any statutory provision which over-ride the rights of the secured creditor. Hence reading both these decisions, namely Dena Bank's case (supra) and and State of M.P.'s case (supra), the legal position emerges that the secured creditors right to recover dues over-rides the right of the State unless there is a statute to the contrary.

12. In State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation and others, (1995) 2 SCC, 19 there was a statutory provision to the effect that the sales tax dues will be first charge over the property. Hence this decision will not be of any avail to the State Government. In the present case there is no statutory provision giving priority to State Government dues over the debts owed to the State Bank which is a secured creditor.?

Thus it has to be seen as to whether there is any statutory provision which give priority to the dues of the farmers over the debts owed to the Bank.

It is not in dispute that the supply of Sugarcane by the farmers and payment of cane price by sugar factories to them in the State of U.P. is regulated by the provisions of the U.P. Sugarcane (Regulation of Supply & Purchase) Act, 1953. Section 17 provides for the manner of payment of cane price to the farmers. Section 17 reads as follows :

?17. Payment of cane price :-- (1) The occupier of a factory shall make such provision for speedy payment of the price of cane purchased by him as may be prescribed.

(2) Upon the delivery of cane the occupier of a factory shall be liable to pay immediately the price of the cane so supplied, together with all other sums connected therewith,

(3) Where the person liable under sub-section (2) is in default in making the payment of the price for a period exceeding fifteen days from the date of delivering, he shall also pay interest at a rate of 7-1/2 per cent per annum from the said date of delivering, but the Cane Commissioner may, in any case, direct, with the approval of the State Government, that no interest shall be paid or be paid at such reduced rate as he may fix.

(4) The Cane Commissioner shall forward to the Collector a certificate under his signature specifying the amount of arrears on account of the price of cane plus interest, if any, due from the occupier and the Collector, in receipt of such certificate, shall proceed to recover from such occupier the amount specified therein as if it were an arrear of land revenue.

5(a) Without prejudice to the provisions of the foregoing sub-sections, where the owner or any other person having control over the affairs of the factory or any other person competent in that behalf enters into an agreement with a bank under which the bank agrees to give advance to him [on the security of sugar or ethanol (directly produced from the sugarcane juice or B-Heavy molasses)'] produced or to be produced in the factory, the said owner or other person shall provide in such agreement that a [percentage determined by such authority and in such manner as may be prescribed] of the total amount of advance shall be set apart and be available only for re-payment to cane-growers or their co-operative societies on account of the price of sugarcane purchased or to be purchased for the factory during the current crushing season from those cane-growers or from or through those societies, and interest thereon, and, such societies, commission in respect thereof.

(b) Every such owner or other person as aforesaid shall send a copy of every such agreement to the Collector within a week from the date on which it is entered into?

From a joint reading of Section 17(2) and 17(4), it is clear that cane price is to be paid by sugar factory as soon as the cane is supplied with other dues. In case of default on a certificate to be issued by the Commissioner, the amount due towards cane price is to be recovered as arrears of land revenue.

We may record that sub section 5(a) and 5(b) to Section 17 were introduced by U.P. Act No. 28 of 1974. The purpose is obvious i.e. to protect the interest of the farmers vis-a-vis competitive claim of the bank which is to advance loan to the sugar factory against the stock of sugar. It is in this background that the legislature has made an statutory provision requiring the owner or any other person in control of the factory to ensure that at the time of entering into an agreement with the bank, for the purposes of obtaining loan/cash credit facility as against the security of sugar or ethanol directly produced from the sugarcane juice or heavy molasses by the factory, it shall be provided that a percentage determined by such authority and in such manner as may be prescribed of the total amount of advance shall be set apart and be available only for re-payment to cane-growers or their co-operative societies for the price of sugarcane purchased or to be purchased for the factory during the current crushing season from those cane-growers or from or through those societies, and interest thereon.

In order to ensure that this statutory provision is adhered to legislature under sub section 17(5)(b) has further provided that every such owner or other person as aforesaid shall send a copy of every such agreement to the Collector within a week from the date on which it is entered into.

The statute does contemplate that money be kept a part of the total advance for the purpose of payment of cane price to cane-growers as a condition in the agreement between the bank and sugar factory. There is neither any pleading nor it is stated by the counsel for the petitioner that the provisions of Section 17(5)(a) and 17(5)(b) have been complied with. The agreement for providing financial assistance entered into between the petitioner bank and owner of the factory is, therefore, in defiance to the statutory provisions.

If the owner of sugar factory and the bank have not cared to carry out the statutory provisions as contemplated by Section 17 (5)(a) and (5)(b) and have entered into a loan agreement de hors the statutory provisions, then it is the bank which has to suffer and not the farmers. The statutory provisions cannot be permitted to be diluted at the hands of the owners of the factory and the bank so as to jeopardize the rights of the farmers.

We further hold that the intention of the legislature is clear that the interest of the farmers should not be permitted to suffer because of the arrangement between the bank and the sugar factory for obtaining loan/cash credit.

In these set of circumstances we refuse to interfere in the present petition in exercise of jurisdiction under Article 226 of the Constitution of India with the attachment and sale of sugar bags by the district authorities for liquidating the outstanding dues of the farmers.

We clarify that it shall be open to the bank to resort to such other proceedings as may be available for recovery of its money from the sugar factory.

Writ petition is dismissed.

Dated :20.11.2013

VR/63208/13