Sangam Milk Producer Company ... vs The State Of Andhra Pradesh
2021 Latest Caselaw 1877 AP

           THE HON'BLE SRI JUSTICE D.V.S.S.SOMAYAJULU

                               I.A.NO.01 OF 2021

                                        IN

                     WRIT PETITION NO.9279 of 2021

ORDER:

The writ petition is filed under 226 of Constitution of India for the

following relief.

"..to issue an appropriate writ, order or direction particularly one in the nature of writ of Mandamus declaring the G.O.Ms.No.19 Animal Husbandry, Dairy Development & Fisheries (Dy.Vig) Department, dated 27.4.2021 of the 1 st

respondent as illegal, arbitrary without authority of law, contrary to the provisions of the Companies Act, 2013, against the Rules of Law and unconstitutional and consequently set aside the said G.O.Ms.No.19 Animal Husbandry, Dairy Development & Fisheries (Dy.Vig) Department, dated 27.4.2021 of the 1 respondent and to st

pass such other order or orders..."

This Interlocutory Application is filed to stay the operation

of the said G.O.Ms.No.19, dated 27.4.2021.

This Court has heard Sri B. Adinarayana Rao, learned

Senior Counsel appearing for the petitioners, and the learned

Advocate General. Even though this is an interlocutory

application still in view of the detailed arguments advanced, this

Court is also compelled to reproduce the same in some detail.

Learned senior counsel points out that the impugned G.O.

that has been issued on 27.4.2021 seeks to set aside an earlier

G.O. that was issued on 17.7.1978 i.e after 43 years.

Learned senior counsel initially draws the attention of this

Court to the G.O.Ms.No.515, Forests and Rural Development

(Corporation) Department, dated 17.7.1978 and its contents.

Prior to that, he points out that the State Government has

decided to establish a Feeder Balancing Dairy at Sangam

Jagarlamudi, Guntur District. According to the learned senior

counsel, the milk producers of Guntur District contributed money

to purchase the land in Vadlamudi adjoining Sangam

Jagarlamudi village. The details of purchase are mentioned in

Table-A of the affidavit. One Sale-deed bearing No.1446/1973 is

also filed as an illustrative example. This document as per the

Learned Senior Counsel shows that the financial contribution for

the purchase was made by the milk producers. Learned senior

counsel also draws the attention of this Court to the Table-B,

which is mentioned in the writ petition, in which he states that

the land acquired by the Andhra Pradesh Dairy Development

Corporation (for short 'APDDC') is mentioned. He also draws the

attention of this Court to the fact under the A.P. Cooperative

Societies Act, 1964, the Guntur District Milk Producers

Cooperative Union (hereinafter called as 1964 Cooperative

Society) started functioning. In the year 1978, by G.O.Ms.No.675,

Dairy Development and Fisheries Department, dated 27.08.1977,

Vadlamudi Dairy was directed to be transferred to the said

Society. Since then, according to the learned senior counsel, the

Feeder Dairy at Vadlamudi popularly called as Sangam Dairy was

transferred to the 1964 Society. On settlements of accounts, it

was found that the State Government invested a sum of

Rs.81,00,000/-(Rupees Eighty One Lakhs only), which was

according to the learned counsel was directed to be treated as

'share capital'. This valuation was done by the State only as per

the learned senior counsel According to the learned senior

counsel, with effect from 1978 and by virtue of G.O.Ms.515, the

assets became the assets of the Sangam Dairy. Learned senior

counsel also draws the attention of this Court to the repayment of

the amount and the challans, by which the money invested by the

State was repaid to the State Government .He also points out that

the audited accounts also reveal that the State Government

became the shareholder alone. Later in 1995, when the Mutually

Aided Co-operative Societies Act, 1995 came into force, the 1964

Society was converted into MACS Society. The NDDB (National

Dairy Development Board) also advised the 1964 Society to get

converted into an MACS Society. Accordingly, the learned senior

counsel submits that the Society submitted its application in

December, 1996 and ultimately the 1964 Society converted into

an MACS Society on 01.2.1997. Later, the learned senior counsel

submits that the General Body has passed a Resolution in

September, 2011 to convert the 1995 MACS Society into a

producer company. Learned senior counsel submits that after

following legal procedure and after securing all the necessary

statutory approvals etc., the petitioners' company was formed as

a company with the name of Sangam Milk Producers Company

Limited on 18.6.2013. Learned senior counsel also draws the

attention of this Court to legal hurdles faced by the petitioners'

company and the result of the legal challenge, as decided by the

Hon'ble Supreme Court of India in Andhra Pradesh Dairy

Development Corporation Federation Vs. B. Narasimha

Reddy and others1. Learned senior counsel submits that the

Hon'ble Supreme Court of India recognized the conversion from

1964 Act to 1995 Act and also that the judgment in paragraph 53

recognizes the fact that after the conversion under the 1995 Act,

(2011) 9 Supreme Court Cases 286

with the permission of the Government 1964 Society cannot be

treated as aided Societies or Societies holding the assets of the

Government or of the Federation. Relying upon this judgment

and the judgment of the learned Single Judge reported in APDDC

Staff and Workers Union and others Vs. Government of A.P.

and others2, he points out that the conversion from the 1964 Act

to 1995 Act was recognized and the learned senior counsel argues

that the petitioners' company has come into existence after

following the due process of law. He therefore argues that the

assets of the petitioners' company cannot be treated as the assets

of the Government and that the State cannot unilaterally take

over the operations and /or the assets of the petitioners'

company. Learned senior counsel argued that the petitioners'

company is duly formed under law and that the State cannot

treat itself as the "owner" of the assets of the company.

He draws the attention of this Court to the impugned

G.O.Ms.No.19, dated 27.4.2021 and argues that under the guise

of a vigilance enquiry and by a mere administrative order the

entire action has been taken and the Sub-Collector, Tenali cannot

be appointed to supervise the management of the operations. It is

also his contention that the second reason mentioned in the

impugned G.O is incorrect and there are no depletion of assets as

sought to be made out. He submits that the assets of the

company were already mortgaged to NDDB and the mortgage was

only extended. Therefore, the learned senior counsel argues that

the entire action taken by the State is mala fide and is for

1999 (6) ALD 357

extraneous political reasons. He urges that there is no public

interest involved at all.

Learned Advocate General on the other hand argues that

taking over of the assets is necessitated as the State still remains

the owner of the assets, more particularly, the Feeder Balancing

Unit at Sangam Jagarlamudi. Learned Advocate General points

out that G.O.Ms.No.515, dated 17.7.1978 merely transfers the

operation and management of the unit. According to him, the

ownership has not been transferred. He points out that the

Chairman of the Milk producers Union adopted a Resolution to

set up a Trust in memory of its Ex-chairman i.e., in the name of

Sri Dhulipalla Veeraiah Chowdary Memorial Trust and the Board

of Directors passed a Resolution to transfer Ac.10.00 of this land

in favour of the Trust. According to the learned Advocate General

the land belongs to the Government and the transfer to the

proposed Trust is contrary to law. He also argues that this

transfer is subject matter of the investigation in Criminal Case

FIR No.2 of 2021. Learned Advocate General argues that further

execution of the gift deeds in April, 2020 in favour of the Trust is

contrary to law. The Certificate obtained by the Union in

February, 2011 according to the learned Advocate General is

given by an officer who is also arrayed as accused in the criminal

case. Learned Advocate General submits that the said document

is prepared to suit the interest of the Chairman and Managing

Director. He also argues that the conversion of the MACS into a

producer company is also suspicious and that the provisions of

law are not complied with. He draws the attention of this Court to

paragraphs No.13 to 21 of the counter affidavit and argued that

the entire sequence of events are suspect beginning with the

conversion from 1964 Cooperative Society to MACS under 1995

Act and later the conversion into producer company. He also

points out that the Anti Corruption Bureau of the State has also

registered a crime, which is detailed in paragraph 22 of the

counter affidavit against the Managing Director and others, which

is pending investigation. He draws the attention of this Court to

an order passed by the learned Single Judge of this Court in

I.A.No.1 of 2021 in Criminal Petition No.2675 of 2021. Relying

upon Paragraph 13 of the Judgment, the learned Advocate

General argues that the single Judge observed that there is no

provision of law by which there would be automatic vesting of

property once the 1964 Cooperative Society becomes an MACS.

Lastly, he argues that as per the General Clauses Act etc., the

power to withdraw a GO is inherent in the State. He argues that

there is no need for separate legal provision to enable the

Government to withdraw the sanction/grants under

G.O.Ms.No.515, Forests and Rural Development (Corporation)

Department, dated 17.7.1978.

In rejoinder, Sri B. Adinarayana Rao, learned senior counsel points

out that from 1978 the petitioners' company has been functioning by

utilizing the assets and by an executive order control of the petitioners'

company has been taken over. While relying upon the contents of

G.O.Ms.No.515, dated 17.7.1978 and G.O.Ms.No.19, dated 27.4.2021 the

learned senior counsel argues that neither of these two GOS are issued

under any law nor can the power be traced to any statute. He argues

that these are mere executive instructions. He submits that there is no

depletion of assets as made out in the G.O .He also argues that by use of

force and under the guise of ACB case the Management has been taken

over by the respondents. Lastly, he again submits that there is absolutely

no public interest involved in this case.

This Court, after hearing the learned counsels, notices that there

are certain issues which need to be gone into deeper and decided. It is

apparent from the reading of the sale deed, copy of which has been filed,

the contribution to the purchase of the property has been made by the

two individuals, who are mentioned in the sale-deed. In Table-A of the

writ affidavit in paragraph No.5 the details of the purchase of the land

said to be with the contribution/payment by the milk producers union

are given. This group of people who are Milk Producers are organized

themselves into the Guntur District Milk Producers Co-operative Union

under the A.P. Cooperative Societies Act, 1964.(1964 Society).

By G.O.Ms.No.515, dated 17.7.1978, the Feeder Balancing Dairy at

Jagarlamudi was handed over to the 1964 Society /Milk Producers

Union. Thereafter, as the State Government funds were involved,

clarifications were sought and it was decided that the payments made by

the Government would be treated as 'share capital' of the Government.

As pointed out by the learned senior counsel, the contribution for

purchase of the land by Milk Producers is also reflected in the annual

accounts of the 1964 Dairy, which is audited.

After the MACS Act came into force the need to convert/register the

Union under the new Act was discussed with the statutory authority and

NDDB. This proposal was hanging in the air. Ultimately, NDDB directed

the 1964 union to return the Rs.81,00,000 (Rupees Eighty One lakhs

only) to the State. The same was done under the challan dated

11.12.1996 etc.

On 01.2.1997, the 1964 Union was registered as an MACS under

the 1995 Act. Thereafter, the MACS is converted into a producer

company. This is evidenced by the Certificate of Incorporation issued by

the Registrar of Companies. In the intermediate period the disputes were

decided by the Hon'ble Supreme Court of India and also the A.P. High

Court. In 1999 (6) ALD 357 (APDDC Staff and Workers Union and

others Vs. Government of A.P. and others), the learned Single Judge

noticed the conversion/migration from 1964 Cooperative Society to 1995

Act.. Even in 2011 (9) Supreme Court Cases 286 (Andhra Pradesh

Dairy Development Corporation Federation Vs. B. Narasimha Reddy

and others), the Hon'ble Supreme Court of India noticed the conversion

/migration from 1964 Act to 1995 Act. The effect of these two judgments

and the arguments of the learned Advocate General are matters that

have to be considered at a greater depth and in a final hearing. Apart

from this, this Court also notices that the investigation by the ACB is at a

nascent stage. No Court of competent jurisdiction has come to the

conclusion that the issues raised by the ACB are correct or that the

accused are guilty. Since the matters are pending investigation this Court

is not expressing further opinions.

The other contention urged by the learned Advocate General is that

only the management is transferred by G.O.Ms.No.515, dated 17.7.1978

and that there is no automatic transfer of assets. The learned Single

Judge in the course of Criminal petition also prima facie held that there is

no automatic transfer. This Court is not entering into this area also at

present. This needs to be probed further. But for the purpose of present

application, it is to be noticed that from 1978 onwards, the Management

of certain assets were given to the Milk Producers Union registered under

1964 Act. Management of the assets includes putting the society in

possession of the assets. It is needless to say that this Court is dealing

with a Dairy, which is established for the purpose of processing and

selling milk and milk products. For this purpose, the 1964 Society has

been in possession of the property. According to the petitioners, the 1964

Society migrated and became MACS under the 1995 Act and later a

producer company. Admittedly, the petitioners were still in possession. In

the prima facie opinion of this court once they are in settled possession

even if the Government has a claim over the property they cannot

summarily and by an Executive order take over the possession. This is

contrary to the settled law on the subject. The argument of the learned

Advocate General about the conversion being contrary to law, is a matter

that is not yet finally decided.

The other major argument is about the depletion of the assets. As

per the learned Advocate General the interest of the Government is only

to protect the assets of the Union in Public Interest and to avoid further

depletion. Ac.10.00 of land, which is supposedly transferred to the Trust

is the bone of contention. It is argued that the G.O.Ms.No.515, dated

17.7.1978 imposed the condition that the Union shall not encumber or

alienate the property, and it is argued that the transfer to the TRUST is

contrary to the condition and the law. The final answer to this would

depend on the various issues to be decided in this writ and in a way will

also depend on the criminal investigation. No firm /conclusive opinion

can thus be expressed now on this issue. It is also argued that contrary

to the interim orders in WPMP.No.26060/2013 in WP.No.21278/2013

the extension of equitable mortgage took place. This is another facet of

this argument of depletion. Whether an equitable mortgage amounts to

alienation or transfer of an asset is also a matter that is required to be

looked into greater depth. The documents filed by the State with their

counter affidavit show that the "existing mortgage" was extended by the

producer company in February, 2020. As stated earlier this is an issue

which requires further investigation/elucidation.

Lastly, this Court is the prima facie opinion that G.O.Ms.No.515,

dated 17.7.1978 is in the nature of administrative/executive instruction,

and it does not refer to any statutory provision as its source of power .

Whether in such a case, the State can rely upon Section 15 of the State

General Clauses Act or Sec 21 of the Central General Clauses Act is also

a moot point. In the absence of any statutory power this court is of the

prima facie opinion that the State by an executive order/administrative

order cannot take over possession summarily even if the argument that

only the management of the assets is handed over is accepted. The

period of time that elapsed is also an important point and what is

given/conferred in 1978 is reversed in 2021.

In the opinion of this Court, these are all matters which require to

be decided in the writ petition. Prima facie, this Court is of the opinion as

the petitioner has made out an arguable case Balance of convenience is

also in their favor and they have been in this business by managing the

Diary along with possession since decades. Greater harm will be caused

to them by this action. The petitioner is therefore entitled to a relief.

However, what is stated by the State cannot also be totally overlooked

and as highlighted by the Learned Advocate General, the endeavour of

the State is only to protect the assets and to prevent their depletion. The

Counter affidavit however states in para 38 that the management is

continued to be vested in and is being exercised by the Board of

Directors. The impugned GO also talks of the day to day activities

continuing with the existing staff and employees and of the need to

ensure uninterrupted supply of the essential services.

Therefore, this Court is of the opinion that interests of justice would

be met if the following order is passed.

1. There shall be an interim suspension of G.O.Ms.No.19 Animal Husbandry, Dairy Development & Fisheries (Dy.Vig) Department, dated 27.4.2021

2. The 1st petitioner shall be entitled to continue in the management and control of the petitioners' union

3. However, the posting of an IAS officer would lead to administrative difficulties particularly as the petitioner is a process industry requiring special expertise. Therefore, this Court directs that the administration and management shall continue to be exercised by the Directors of the company and the Sub Collector Tenali shall not be present in the premises or take part in the operations /administration .

4. Regular day to day activities, the payment of salaries, payments of statutory dues and contractual obligations etc., shall be carried out as before by the 1st petitioner only.

5. However, the Board shall not except with the permission of this Court create any further charge, encumbrance etc., on the properties. All future transactions by which the movable and immovable assets of the petitioners are sought to be alienated, mortgaged, transfered etc., should be with the prior permission of the court.

6. The normal business activities of the 1st petitioner - buying , processing and selling of milk and milk products shall be continued by the 1st petitioner without any hindrance .

In view of the fact that I.A.No.1 of 2021 is allowed and

G.O.Ms.No.19 Animal Husbandry, Dairy Development & Fisheries

(Dy.Vig) Department, dated 27.4.2021, is suspended with certain

directions no further orders are immediately called for in I.A.No.2 of

2021 .

The opinions expressed in this order are prima facie opinions for the

disposal of this application only .

With the above observation, this interlocutory application is allowed.

________________________________ JUSTICE D.V.S.S.SOMAYAJULU Date: 07.05.2021 GR