Tata International Limited, vs The State Of Andhra Pradesh,
2022 Latest Caselaw 4993 AP

           *HONOURBLE SRI JUSTICE D.V.S.S. SOMAYAJULU
                             +   W.P.No. 27846 of 2021


% 04.08.2022
#Tata International Limited,
A Company incorporated under the Companies Act, 1956
Having its registered Office at Lodha Excelus,
24th Floor, New Cuffparade, Off Eastern Freeway,
Sewri - Chembur Road, near IMAX Dome, Wadala,
Mumbai - 400037,
Rep., by its Authorized Signatory,
                                                           ... Petitioner


Vs.
$ The State of Andhra Pradesh,
Rep., by its Principal Secretary,
Revenue Department, Secretariat Buildings,
Velagapudi, Amaravati, Guntur District
Andhra Pradesh and 5 others.
                                                         ... Respondents


! Counsel for the petitioner : Sri P.Veera Reddy

! Counsel for the Respondent Nos.1 to 4 : Sri Kasa Jagan Mohan
                                 Reddy, Special Government Pleader
! Counsel for the Respondent No.5      : Challa Gunaranjan
! Counsel for the Respondent No.6: Sri V.S.R.Anjaneyulu
! Counsel for the Respondent Nos.7 to16: J.Ugra Narasimha
< Gist:


> Head Note:
? Cases referred:
1   1983 (2) APLJ (HC) 127
2   2005 (6) ALD 480
3   2013 (4) ALT 51

4 AIR 2008 A.P.11
5   AIR 1997 SC 2502
6   AIR 1995 Karnataka 185
7   (2009) 4 SCC 94
8   2022 SCC Online SC 227
9   AIR 2003 SC 3184
10   (2010) 9 SCC 496
                                  2




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


                    W.P.No.27846 of 2021


ORDER:

This writ petition is filed by the petitioner seeking a writ in

the nature of Mandamus for declaring the impugned order

dated 23.11.2021 bearing R.C.No.985/2021/D3 confirming the

distraint order and notice bearing R.C.No.141/2021/A dated

11.06.2021 as illegal and arbitrary etc.

The petitioner before this Court claims to be the owner of

sugar which was purchased by them from respondent No.5. The

contention of the State namely respondents 1 to 3 is that

respondent No.5 defaulted in the payment of the price of the

sugarcane to the farmers and therefore, they invoked the

provisions of the A.P. Revenue Recovery Act, 1864 (for short 'the

Act') to recover the sum due by attaching the sugar/property.

The order of distraint and the subsequent order confirming the

same which are mentioned above are the subject matter of the

challenge.

This Court has heard Sri P.Veera Reddy, learned Senior

Counsel for the petitioner, Sri Kasa Jagan Mohan Reddy, Special

Government Pleader representing respondents 1 to 4 in the

Office of the Advocate General, Sri Challa Gunaranjan, learned

counsel appearing for respondent No.5, Sri V.S.R.Anjaneyulu,

learned senior counsel for respondent No.6 and Sri J.Ugra

Narasimha for the implead respondent Nos. 7 to 16.

I.A.No.2 of 2021 filed by the implead petitioners to implead

the respondents Nos.7 to 16 to the writ petition is allowed by

this order. Sri J.Ugra Narasimha was permitted to argue the

matter on behalf of the respondents/farmers for whose dues the

sugar was attached.

The essence of the submission of the learned Senior

Counsel Sri P.Veera Reddy for the petitioner is that petitioner is

the owner of the sugar, which has been distrained/ attached

under the provisions of the Act for the dues of the 5th

respondent. Learned senior counsel therefore argues that as the

petitioner is the owner of the sugar, the respondents have

committed a mistake in invoking the provisions of the Act for

recovery of the sugarcane dues which are payable to the

farmers. Learned Senior Counsel emphasizes that unless the

title in the property/sugar remains with the 5th respondent, the

proceedings cannot be taken against the same.

Learned senior counsel draws the attention of this Court to

the terms and conditions of the agreement dated 06.11.2020, in

particular to clauses 2, 7, 16, 20 and 23 to argue that the title in

the sugar has passed to the petitioner from respondent No.5.

He points out that under the provisions of the Sale of Goods Act

and in particular sections in 19 and 20, the petitioner has

become the owner of the sugar. He also submits that they have

given a Stock Management Agreement on 07.11.2020 to a

company called 'DACPL 'which is the physical control of the

sugar.

Learned counsel also points out that the payment of the

price is borne out by the record that they have filed before this

Court. He also draws the attention of this Court to the counter

affidavit filed by the 5th respondent, wherein it is clearly

admitted that a sum of Rs.29,24,32,787/- was received from the

petitioner-company in the period 16.12.2020 to 25.02.2021

towards sale consideration. The respondent No.5 also agrees

that out of this a sum of Rs.21.99 crores has been paid to the

farmers. Therefore, Learned Senior Counsel submits that as

there is a transfer of title, the invocation of the provisions of the

Act against the sugar which belongs to the petitioner-company

and not to the defaulter is clearly illegal. He relies upon the case

law (which would be considered later in the course of judgment)

to buttress his argument. He also submits that a learned single

Judge of this Court by its order dated 19.11.2021 while

disposing W.P.No.21644 of 2021 has permitted the petitioner

to submit a detailed representation and directed the official

respondents to take a decision on the matter. Learned senior

counsel points out that the petitioner has submitted a detailed

representation and categorically asserted that title in the sugar

has passed to the petitioner, but the 2nd respondent has not

passed a reasoned order by deciding this point as directed by

the Learned Single Judge. On this ground also he points out

that they have challenged the impugned order and draws the

attention of this Court to paragraphs (c) (d) (e) and (g) of the

grounds raised in the writ petition. He also argues that the

language in the Andhra Pradesh Sugarcane (Regulation of

Supply and Purchase) Act, 1961 (for short 'the 1961 Act'), does

not create a charge on the sugar that is purchased by the

petitioner. Therefore, he submits that the invocation of the Act

is per se bad. He prays for an order.

On behalf of the State and the respondents 1 to 4, Sri Kasa

Jaganmohan Reddy argues the matter at length. According to

the learned counsel, the 5th respondent is a chronic defaulter

and in the present case also he has defaulted in the payment of

price to the sugarcane farmers. Learned counsel submits that

in view of the 1961 Act, in the area of the factory, the sugarcane

growers had to supply the sugarcane only to the 5th respondent.

The 5th respondent utilized the sugarcane for production of

sugar, but did not pay the price leading to a huge agitation by

the farmers. The State, therefore, had to step in and protect the

interests of the farmers. He relies upon various provisions of the

1961 Act to show that once the factory zone has been

established, the farmers can only sell their sugar to the factory

of R 5. He also relies upon Sections 19 and 21 of the Act read

with Rules and in particular, Rule 39-B of the A.P.Sugarcane

(Regulation of Supply & Purchase) Rules 1961 (for short 'the

1961 Rules'). He submits that a priority/charge is created over

the sugar and hence the State is right in distraining and selling

the sugar. He submits that as the occupier of the factory of

respondent No.5 has failed to pay the sum due, the invocation of

the provisions of the Act is correct and is in accordance with

Rule 39-B of the 1961 Rules. He argues that the agreement is

contrary to the statute and is per se void. He submits that as

only advance is contemplated to be paid, there is no transfer of

title .Learned counsel also relies upon Punjab National Bank v.

Challapalli Sugars Ltd., and others1, Central Bank of India

v. State of A.P. and others2, and State Bank of Hyderabad,

MSME Branch, Warangal v. Tahsildar, Hanamkonda

Mandal, Warangal District and others3 to argue that

respondent No.5 should not be given any leeway by this Court

as he is a defaulter and similarly, the petitioner should not be

granted any order in view of the fact that he has purchased the

sugar contrary to law from the 5th respondent. He argues that

the clauses in the agreement relied on by the petitioner do not

support a case of transfer of title. He submits that title in the

sugar has not passed onto the petitioner.

Sri J.Ugra Narasimha argues for the farmers. He also

strongly supports the submissions of the learned Government

Pleader which are reproduced earlier. He also submits that a

reading of the agreement does not lead to a conclusion that

there is actually a "sale". Relying upon clause 16.6, he argues

that unless a deed of sale is executed, there is no transfer of title

1983 (2) APLJ (HC) 127

2005 (6) ALD 480

2013 (4) ALT 51

to the petitioner. Learned counsel also submits that any alleged

charge created is in "brazen violation" of the statutory

provisions. The petitioner and respondent No.5 have entered

into an agreement which is per se void under law as it is

contrary to the 1961 Act. He also relies upon the very same

judgments which are mentioned earlier to argue his point that

as the Revenue/State has a charge over the property and a

priority, their rights should be upheld.

On behalf of respondent No.5, Sri Challa Gunaranjan

submits arguments and highlights the statements/figures in the

counter affidavit of respondent No.5. He submits that the sum

due to the farmers has been settled and that the bulk of the

consideration received from the petitioner has been disbursed to

the farmers. He, therefore, submits that the interests of the

farmers are protected. He also submits that the title in the

sugar has already passed on to the petitioner. In the alternative,

he submits that against the 5th respondent, action has already

been commenced under Insolvency and Bankruptcy Code and a

Resolution Professional has already been appointed. He submits

that since the said Code takes priority of all the dues, the

respondent-State has to join the list of creditors. This is an

alternative submission made by the learned counsel without

prejudice to the earlier contention that the sale is already

affected.

Sri V.S.R.Anjaneyulu, learned senior counsel appearing for

the 6th respondent submits that the 6th respondent is the bona

fide purchaser for value of the sugar for which an auction has

been conducted and that they have invested substantial sums of

money for purchase of the sugar. The auction was held on

23.11.2021 and by virtue of the orders passed by this Court, the

sugar has been stuck and delivery has not been affected. The

6th respondent is therefore facing severe hardships because his

money is stuck and the quality of the sugar is also deteriorating.

Therefore, he seeks a prayer for the reimbursement of the

amount paid along with interest.

Consideration by the Court:

After considering the submission, noting the facts etc this

court opines that two fundamental issues that have to be

decided in this case (1) Is there a transfer of title in the sugar?.

(2) Is there a charge created on the said Sugar?. The other

issues which arise as a consequence are dealt with later in this

order.

Point 1 - The cases cited by the learned counsel for the

petitioner are not in doubt and proceedings under the Revenue

Recovery Act can only be taken against the property of the

"defaulter" alone. Section 5 clearly talks of proceedings against

the property of the "defaulter". Section 5 of the Act is reproduced

hereunder:

5. Arrear of revenue how recovered: Whenever revenue may be in arrear, it shall be lawful for the Collector, or other officer empowered by the Collector in that behalf, to proceed to recover the arrear, together with interest and costs of process, by the sale of the defaulter's movable and

immovable property, or by execution against the person of the defaulter in manner hereinafter provided.

The case cited is Taherunnisa Begum v. District

Collector, Cuddapah District and another4. This judgment

very clearly holds that the property of the defaulter alone can be

proceeded against or sold under the Act. The earlier cases on

this subject were also considered.

At the outset this Court has to therefore see if the sugar

remains the property of the defaulter or not. The judgment of

the Hon'ble Supreme Court of India reported in Agricultural

Market Committee v. Shalimar Chemical Works Ltd.,5 which

is relied upon by the learned Senior Counsel for the petitioner is

useful in this context. Paras 35, 37, 38 and 39 which are

reproduced hereunder are relevant.

35. We may, at this stage, consider certain provisions of the Sale of Goods Act, 1930, specially as the Andhra Pradesh (Agricultural Produce and Livestock) Markets Act, 1966 does not contain any definition of sale or purchase. Sections 19 and 20 of the Sale of Goods Act are quoted bellows :

19. Properly passes when intended to pass-

(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

4 AIR 2008 A.P.11

AIR 1997 SC 2502

(3) Unless a different intention appears, the rules contained in Sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.

...

37. Section 19 attempts to give effect to the elementary principle of the Law of Contract that the parties may fix the time when the property in the goods shall be treated to have passed. It may be the time of delivery, or the time of payment of price or even the time of the making of contract. It all depends upon the intention of the parties. It is, therefore, the duty of the Court to ascertain the intention of the parties and in doing so, they have to be guided by the principles laid down in Section 19(2) which provides that for ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

38. Section 19 indicates that in case of unconditional contract to sale in respect of specified goods in a deliverable state, the property in the goods passes to the buyer at such time as the parties intend it to be transferred . Section 19(3) provides that Section 20 to 24 contain the rules for ascertaining the intention of the parties as to the time at which the property in the goods shall be treated to have passed to the buyer. Both Sections 19 and 20 apply to the sale of "specific" or "ascertained" goods.

39. Section 20, which contains the first rule for ascertaining the intention of the parties, provides that where there is an unconditional contract for the sale of "specific goods" in a "deliverable state", the property in the goods passes to the buyer when the contract is made. This indicates that as soon as a contract is made in respect of specific goods which are in a deliverable state, the title in the goods passes to the purchaser. The passing of the title is not dependent upon the payment of price or the time of delivery of the goods. If the time for payment of price or the time for delivery of goods, or both, is postponed, it would not affect the passing of the title in the goods so purchased.

Against the backdrop of the settled law and the provisions

of the Sale of Goods Act, the provisions of the present contract

dated 06.11.2020 are being examined to decide point 1.

The seller is respondent No.5 and the buyer is the

petitioner.

Clauses 2, 4, 7, 16, 17 (i to iii) and clause 23 are

reproduced here under:

2. Quantity: 30000 MT or 100% of sugar production from crop year 2020-21. For each and every transaction/shipment placed under this Agreement, Buyer will raise Purchase Order (PO) specifying the exact quantity, quality, place of delivery, time and date of delivery, point of delivery, price and other commercial details and the Purchase Order is binding on the Seller.

4. Price/ Payment: i) Price for 30,000 MT =((as per Prevailing MSP rate + GST)

ii)These pricing arrangements is subject to change as per prevailing market condition and other commercial factors as per sole discretion of Buyer.

iii) the seller will make available 30,000 MT of sugar in favour of the buyer.

iv) upon the production of sugar, the Seller will deposit the sugar as per the agreement under the control of Buyer's appointed super vision company

v) upon the receipt of the sugar against sale invoice of every 100 MT, the buyer will remit 90% value prevailing Minimum support price as advance + GST.

vi) after the sale of sugar to the third parties by Tata's against receipt of sale proceeds Tata's will adjust their advance payment of 80% and the Trade Discount proportionately on prorata basis and then the balance they will be credit to the NCS account for every lots of 500 MTS.

7. Delivery time: The delivery of the total quantity of Sugar to be completed by 31 March 2021. Failing which there will be penal charges of 30% per annum on the outstanding advance amount (i.e. balance remain after adjustment as per clause

4). Buyer can buy the deficit quantity from the open market at the cost risk of Seller. This is without prejudice to other rights / remedies of Buyer under this Agreement and/ or law.

16. SALE OF WHITE SUGAR-EXCLUSIVE CHARGE TO TATA'S

1) The Seller shall provide all the white sugar produced (DURING THE SEASON 2020-21) day to day / everyday to the Buyer on 'SALE BASIS ONLY'. The Buyer shall, however, arrange payments @ 90% of the value of the Sugar+ GST thereon, (placed under exclusive charge on SALE BASIS to TATA's in the designated warehouse), on the Same day in lots of 100 mt each.

2) As and when Sale / deliveries are affected out of the said sugar placed under SMA as per the instructions of the BUYER, all the sale proceeds / amounts shall be duly received into the account of TATA's thereon and the Buyer shall set off / deduct from the outstanding advance amounts made by them to the Seller, again in lots of 100 mt each.

3.) The Seller herein warrants and assures that save and except this exclusive charge made in favour of the Buyer, he has not created any other charges / hypothecation/lien in favour of any other third party.

4.) The Seller shall specifically mark and segregate all the said quantity of Sugar placed in the designated warehouse under the SMA from its other stock of sugar and clearly identify the same with conspicuous signage "EXCLUSIVE CHARGE TO TATA INTERNATIONAL LTD."

5.) The Seller unequivocally agrees that in case of any breach of any of the terms and conditions of this Agreement, the Buyer can dispose off / sell the said stock of white sugar placed under its Exclusive Charge" in open market to any

third party as per its sole discretion without prejudice to its other rights / remedies under this Agreement and/or Law.

6.) The Seller shall sign and execute a separate DEED OF SALE" in a format as specified by the Buyer.

(17) Stock Management:

(i) Buyer will appoint at its sole discretion an independent stock management agency (SMA) for controlling the stock of Sugar and monitoring the stock management system.

(ii) No Sugar will be moved out of Factory without the valid delivery order issued by the Buyer.

(iii) It is clear understanding between the Parties that, entire Sugar production of the Seller will be under the control of the SMA appointed by Buyer

23. TITLE AND RISK: Title shall pass from Seller to Buyer on signing of this Agreement. Risk shall pass only when Sugar stock reaches the destination of the Buyer.

The Stock Management Agreement dated 07.11.2020 also

defines the petitioner as the buyer and the 5th respondent as the

seller. Clause 5 and clause 13 of the same are reproduced

here under:

5. RELEASE OF GOODS: DACPL shall not allow the release of any Goods unless it has received written authorisation from the Buyer stating the person(s) to whom Goods shall be released which shall include the date, quantity and manner of such release.

13. DURATION: This Agreement comes into force on the first day on which the Processor/Seller delivers the goods into the storage warehouse and thereafter receipt at the warehouse No.1 of NCS SUGARS LTD, situated 'Lakshmi Thirumala' Latchayapeta, Seethanagaram (M), Bobbill. A.P., and delivered to the account of the Buyer and shall be valid until all physical releases have been effected by DACPL from its custody/ unless terminated as provided for in Paragraph 14 below.

A reading of these two agreements clearly shows that the

delivery of the total quantity of the sugar produced was to be

completed by 31st March 2021. As per clause 4, immediately on

the production of the sugar, the seller-respondent No.5 will

deposit the sugar with the buyers appointed supervision

company. Clause 16 categorically states that all the sugar

produced on a day-to-day basis shall be on a sale basis only. It

is also clarified that an exclusive charge is created in favour of

the petitioner and the sugar delivered to the warehouse should

be identified with the signage that says there is an 'exclusive

charge' in the petitioner's favour. Clause 23 clearly states that

title shall pass from respondent No.5 to the petitioner on the

signing of the agreement. Risk will only be passed when the

sugar reaches the destination of the buyer that is the godown.

The primary principle of contractual interpretation is the

plain language interpretation of a contract. A plain language

interpretation of this contract and the subsequent agreement

dated 07.11.2020 makes it very clear that title passes on to the

petitioner on the date of signing of the agreement. Clause 23

makes it very clear. Delivery is also to be affected to their

authorized representative namely DACPL with whom the Stock

Management Agreement is equated. The said DACPL will release

the goods only on a written authorisation from the petitioner.

These are actions of an 'owner' of the goods. Therefore, in

terms of clause 1 and 2 of section 19 of the Sale of Goods Act,

this Court is of the opinion that the title of the specific goods

namely sugar which is in a deliverable stage has passed to the

petitioner when the contract was made. The passing of the title

is not dependent upon the payment of the price or the time of

delivery. The execution of a formal sale deed is also not needed

to transfer title in view of the express language used particularly

as the property is moveable property. As per the counter filed by

the 5th respondent (to which no reply has been filed by the

State), sugar has been sold between 16.12.2020 and

25.02.2021. A total sum of Rs.29,24,32,787/- was realized.

Out of this, a sum of Rs.21,99,75,311/- is paid to the farmers

by respondent No.5.

Therefore, this Court has to hold that in view of the

provisions of the Sale of Goods Act, the clauses in the

agreement coupled with the actions of the parties, there was a

transfer of title in favour of the petitioner long prior to the notice

dated 11.06.2021 issued by the respondents under the

provisions of the Act. By this date, the 5th respondent is not the

owner of the sugar and the sugar is not the property of the

defaulter.

POINT 2- is about a "charge" on the property/sugar or

priority of the State.

Learned Government Pleader for the State and the counsel

for the farmers argued the matter at length on the basis of the

provisions of 1961 Act. Learned counsel argued that this is a

special enactment governing the supply and produce of

sugarcane required for use of sugarcane factories and

khandasari units. Learned counsel argued that the farmers of

an area which has been declared as the factory zone have to sell

the entire produce of sugarcane only to the notified factory as

per section 16. The Cane Commissioner, who is the designated

authority, has been given certain powers to monitor the entire

scenario. This position is not in doubt.

Learned counsel for the State and the farmers rely upon

sections 19 (1), 19 (2), 19 (2) (a) and 19 (3) to argue that within

14 days of supply of sugarcane, the occupier is bound to pay the

amount due. It is also submitted that after expiry of 14 days, the

amount will carry interest and it can be recovered as arrears of

land revenue. In addition, a penalty under the Essential

Commodities Act, 1955 is also provided. Lastly, on the basis of

section 19(4), it is submitted that when an occupier of a factory

enters into an agreement with a third party and secures a loan,

it has to be mandatorily mentioned in the said agreement that

50% of the amount advanced shall be set apart and paid to the

cane growers only. In addition, Rule 39-B of the 1961 Rules is

relied upon to submit that if the occupier of a factory fails to pay

the price of cane, details can be furnished to the District

Collector for recovery of the dues in accordance with the

provisions of the Act. Both the learned counsels argue that by a

reading of section 19 and Rule 39-B of 1961 Rules, a charge is

created over the sugarcane and that there is a priority for the

payment of the sugarcane owners over and above any other

dues. They relied upon Punjab National Bank, Central Bank

of India (supras 1 and 2) and State Bank of Hyderabad,

MSME Branch, Warangal (3 supra). It is also argued that the

agreement entered into by the petitioner is void under Section

23 of the Act since it is contrary to the statute.

As far as the creation of a charge is concerned, this Court

is of the opinion that in view of the settled law that a charge can

be created either by the operation of a statute (statutory charge)

or by voluntary act of the parties. The language in the act must

be very clear to create a statutory charge. In the case of creation

of a voluntary charge by an act of parties the intention to create

a charge assumes enormous importance in view of the law on

the subject. This intention particularly for a charge on

moveables must be expressly manifest and clear. For the sake

of good order amongst the many orders on the subject,

Hindustan Machine Tools Ltd., v. Nedungadi Bank Ltd.,6 is

relied upon. Para 17 of the order is reproduced here under:

17.............. At this juncture, it is necessary to have a clear idea with reference to the concept of 'charge'. The word 'charge' is described in S. 100 of the Transfer of Property Act. I hasten to add here that the charge referred to in S. 100 of the T.P. Act relates to immovable property. However, the definition of the word 'charge' given in S. 100 of the T.P.

Act will give an inkling as regards as to what exactly is meant by charge. Charge can be created in respect of immovable property and charge can be created also in respect of moveables. A charge is nothing but a devise to create security which is enforceable in a court of law. In

AIR 1995 Karnataka 185

order to create a charge in respect of immovable property, it is necessary that the same is required to be embodied in document. However, in order to create a charge relating to moveables it need not be in writing. Further in order to create a charge, it is not necessary to employ any technical or any particular form of expression. All that is required is that there should be a clear intention to make a particular property as a security for the payment of money. In other words, creation of enforceable security is the essence of charge either in respect of immovable property or in respect of moveables..........." (emphasis supplied)

If the facts in this case are viewed against the backdrop of

the settled law on the subject, it is clear that the clear intention

of respondent No.5 to create a charge over the sugar produced is

not at all visible from the record. On the contrary, clause 16 of

the agreement between the petitioner and respondent No.5

clearly states that a charge is created in favour of the petitioner

only. Therefore, this Court has to hold that creation of a charge

or a priority by act of parties is not manifest from the record.

As far as the statutory charge is concerned, this Court is of

the opinion that section 19 of the 1961 Act does not create a

charge by itself. It only provides for a method for recovery of the

price of outstanding along with interest. Section 19 (1) of the

1961 Act merely states that the owner of a Khandasari unit shall

make a provision for payment of price. If he fails to make

payment within 14 days, he shall pay the same along with

interest. If the price or the interest due is not paid, the same

can be recovered as arrears of land revenue in terms of Rule 39-

B of the 1961 Rules. The Inspector shall furnish the documents

to the District Collector, the price or amount due from the

defaulter along with details of properties etc., to facilitate

recovery. The cane commissioner is also vested with certain

powers and duties. Therefore, in the opinion of this Court,

section 19 does not by itself create a charge.

Learned counsel relied upon clause (4) of the agreement

between the petitioner and respondent No.5 to argue that the

price is only an "advance". Relying upon Section 19(4) of the

1961 Act, it is argued that the petitioner is similar to a Bank

mentioned in 19(4). Therefore, it is stated that respondent No.5

should set aside a fixed percentage of the amount for the

payment of cane farmers dues. This argument is also fallacious

because it very specifically deals with an agreement entered into

by the factory or the owner with a Bank for advances on the

security of sugar produced or to be produced. Once such an

agreement is entered into, it should contain a clause for

payment of the fixed percentage. The mere use of the word

'advance' will not make it a loan. The entire agreement has to be

read to understand it in the proper perspective. A word or a

clause cannot be read in isolation.

On the issue of statutory charge, this Court is relying upon

the following two judgments, which deal with certain statutes

which created a statutory charge.

Central Government of India vs. State of Kerala7. Paras

126 and 129 of the judgment are reproduced hereunder:

126. While enacting the DRT Act and Securitisation Act, Parliament was aware of the law laid down by this Court wherein priority of the State dues was recognized. If Parliament intended to create first charge in favour of banks, financial institutions or other secured creditors on the property of the borrower, then it would have incorporated a provision like Section 529A of the Companies Act or Section 11(2) of the EPF Act and ensured that notwithstanding series of judicial pronouncements, dues of banks, financial institutions and other secured creditors should have priority over the State's statutory first charge in the matter of recovery of the dues of sales tax, etc. However, the fact of the matter is that no such provision has been incorporated in either of these enactments despite conferment of extraordinary power upon the secured creditors to take possession and dispose of the secured assets without the intervention of the Court or Tribunal. The reason for this omission appears to be that the new legal regime envisages transfer of secured assets to private companies.

129. If Parliament intended to give priority to the dues of banks, financial institutions and other secured creditors over the first charge created under State legislations then provisions similar to those contained in Section 14A of the Workmen's Compensation Act, 1923, Section 11(2) of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Mines and Minerals (Development and Regulation) Act, 1957, Section 30 of the Gift- Tax Act, and Section 529A of the Companies Act, 1956 would have been incorporated in the DRT Act and Securitisation Act.

(2009) 4 SCC 94

Similarly, Punjab National Bank v. Union of India8.

Paras 41 and 42 are reproduced hereunder:

41. A Full Bench of the Madras High Court in the case of UTI Bank Ltd. v. Dy. Commissioner Central Excise, while dealing with a similar issue, has held that:

"25. In the case on hand, the Petitioner Bank which took possession of the property Under Section 13 of the SARFAESI Act, being a special enactment, undoubtedly is a secured creditor. We have already referred to the provisions of the Central Excise Act and the Customs Act. They envisage procedures to be followed and how the amounts due to the Departments are to be recovered. There is no specific provision either in the Central Excise Act or the Customs Act, claiming "first charge" as provided in other enactments, which we have pointed out in earlier paragraphs.

26. In the light of the above discussion, we conclude, "(i) Generally, the dues to Government, i.e., tax, duties, etc. (Crown's debts) get priority over ordinary debts.

(ii) Only when there is a specific provision in the statute claiming "first charge" over the property, the Crown's debt is entitled to have priority over the claim of others.

(iii) Since there is no specific provision claiming "first charge" in the Central Excise Act and the Customs Act, the claim of the Central Excise Department cannot have precedence over the claim of secured creditor, viz., the Petitioner Bank.

(iv)....

42. This Court, while dismissing the Civil Appeal No. 3627 of 2007 filed against the judgment of the Full Bench, vide order dated 12.09.2009 held as under:

"Having gone through the provisions of the Securitization Act, 2002, in light of the judgment of the Division Bench of this Court in the case of Union of India v. Sicom Ltd. and Anr., reported in MANU/SC/8377/2008 :

2022 SCC Online SC 227

2009 (1) SCALE 10, we find that under the provisions of the said 2002 Act, the Appellants did not have any statutory first charge over the property secured by the Respondent bank. In the circumstances, the Civil Appeal is dismissed with no order as to costs" (emphasis supplied)

43. Hence the reasoning given by the High Court stands strong and has been affirmed by this Court.

The absence of any specific/ express language in the 1961

Act makes it very clear that there is no priority as is sought to be

argued in the present case. Only a procedure for recovery is

spelt out in the Act.

This conclusion is further supported by the provisions of

Section 21 of 1961 Act, which deals with "purchase tax".

Section 21 clearly states that the Government may by

notification levy a tax on the purchase of cane required for use,

consumption or sale. Clause 21(3) states that notwithstanding

anything contained in any other law, the sum due to the

Government towards the purchase tax levied under this section

shall be a first charge on the sugar produced out of the cane

already purchased. The legislature in its wisdom clearly

stipulated that there will be a first charge on the sugar produced

towards the purchase tax only. They have not used similar

language in section 19. This makes the intention of the

Legislature clear and this Court cannot read anything more into

the statute as that would amount to "judicial legislation".

Therefore, this Court is of the opinion that neither section 19 of

the 1961 Act nor 39-B of 1961 Rules support the contention

that the payment of price either assumes priority or a charge

over the sugar produced. Even G.O.Ms.No.588, dated

20.02.1980 which is relied upon by the counsel for the farmers

does not advance their case. Point 2 is also decided against the

official respondents.

Lastly, this Court also notices on this particular aspect that

the distraint notice dated 11.06.2021 talked of sugarcane price

arrears of Rs.16.34 crores. The same is reiterated in Form-1

and in distraint order also. The counter filed by respondent No.5

clearly shows that Rs.21.99 crores has already been paid to the

farmers out of the sale consideration paid by the petitioner.

Further, land of the 5th respondent was auctioned on

09.02.2022 for a price of Rs.20.05 crores. Out of this, an

amount of Rs.5.25 crores was already deposited by the bidder.

The balance amount payable is Rs.14.79 crores. Once these

dues are cleared, it is asserted that all the other dues will be

cleared. This Court notices that as far as the sugar is

concerned, the action to recover Rs.16.34 crores only was

initiated. The distraint order is also for Rs.16.34 crores.

Therefore, it appears from the record that the dues to the

sugarcane farmers for which the entire dispute has arisen are

actually settled. The existence of other dues which have now

been raised are not very material to decide this case. The crux

is the recovery of the dues of Rs 16.34 crores only.

As far as the case law cited by the learned Government

Pleader and the counsel for the respondents is concerned, this

Court notices that in the case of Central Bank of India (2

supra), the borrower hypothecated the plant and machinery and

created an equitable mortgage for certain property as security

for the loan availed from the Bank. Whether this immovable

property could be auctioned for recovery of the Bank dues was

the issue. Learned Single Judge did not finally decide the lis,

Prima facie observations were made and parties were relegated

to the appropriate forum for adjudication. In para 12, it is also

noted that the submission about 19(4) and Rule 39 of the Rules

creating a charge is misconceived.

The second judgment is Punjab National Bank (1 supra).

In this case also, the dispute was between a Banker that

advanced loans to a sugar factory and had obtained security and

sale of the same. Since the agreement was with a Banker, a

learned single Judge came to the conclusion in para 31 as per

Rules 19 (4) and 39-B and a provision must be made in the

agreement to set aside a fixed amount to be paid. This case

relates to an agreement with a bank which is contrary to the

express terms of the statute. Same is not the case in this writ

petition.

Similarly, in State Bank of Hyderabad, MSME Branch,

Warangal (3 supra) also a learned single Judge was deciding a

case of a secured creditor. In para 19 it is clearly held that

proceedings under the Act would have precedence over a

mortgage. In the present case, we are dealing with a question

of transfer of title and sale of sugar and not a case of security for

payment of price.

These cases do not therefore help or advance the

respondents case as the factual matrix is wholly different in this

case. Even a difference of one fact can make a difference in its

applicability to later cases (Megh Singh v. state of Punjab9)

The last issue that survives for consideration is the order

passed by the learned single Judge in W.P.No.21644 of 2021

and its compliance. The Learned single Judge in para 7 of the

order gave option to the present petitioner to file a detailed

representation along with all the relevant documents and

directed the District Collector (respondent No.2) to pass a

detailed order in accordance with law. One of the main issues

raised in the writ petition is that the petitioner is the owner of

the sugar/ property. This Court notices that on 21.11.2021, the

petitioner gave a detailed representation to the 2nd respondent

wherein para 4 and in other paragraphs it is asserted that the

petitioner is the "owner" of the sugar. The invoices, stock

reports and other documents were referred to prove their

contention that the petitioner is the owner. In para 11, about

16 documents are referred to in support of their contention.

However, a reading of the impugned order dated 23.11.2021

does not indicate that any of the issues raised are actually

considered. The transfer of title which has been asserted by the

petitioner has not at all been considered or answered by the 2nd

respondent in the course of the impugned order. Specific

grounds are also raised in para 14 of the writ petition to show

9 AIR 2003 SC 3184

that 2nd respondent has not considered these issues at all.

Section 5 of the Act is also clearly mentioned along with

judgments of the A.P.High Court in Paras M and N.

Time and again, this Court and the highest Courts of the

land have held that in matters having civil consequences a

reasoned order should be passed. Reasons are held to be the

heartbeat of any decision. Reasons should link the conclusions

with the factual and legal issues that are raised. Unless and

until the issues raised are answered in a proper manner, it

cannot be said that the order is a reasoned other. This is a clear

facet of the rule of natural justice. The law is too well settled on

this aspect to be repeated here and only Kranti Associates (P)

Ltd., v. Masood Ahmed Khan10 is referred to for this. This

Court has therefore no hesitation to hold that on this ground

also the impugned order must be set aside.

In conclusion therefore, this Court holds that by the date of

the distraint order i.e. 11.06.2021, there is transfer of title in

favour of the petitioner The sugar is not the property of the 5th

respondent by the date of the distaint order. Hence, the State

cannot proceed against the said sugar for recovery of the dues.

There is no charge created over the said sugar nor is any

statutory preference given for recovery of the price payable to the

sugarcane farmers. The dues of the sugarcane farmers which

are mentioned in the distraint notice on 11.06.2021 also

appeared to have been fulfilled. Lastly, it is held that despite the

10 (2010) 9 SCC 496

order passed by the learned single Judge in WP.No.21644 of

2021, the 2nd respondent has not passed a reasoned order as

warranted.

For all these reasons, the writ petition is allowed and both

the orders dated 23.11.2021 bearing R.C.No.985/2021/D3 and

the earlier distraint notice bearing R.C.No.141/2021/A dated

11.06.2021, are set aside. As a consequence of this, the 6th

respondent is also entitled to immediately seek a refund of the

money deposited/paid by them in the auction conducted. To

prevent multiplicity of proceedings and to render complete

justice this consequential direction is also given. No order as to

costs.

As a sequel, the miscellaneous petitions if any shall stand

dismissed.

________________________ D.V.S.S.SOMAYAJULU,J

Date : 04.08.2022 Note: L.R. Copy be marked.

KLP