Andhra Pradesh High Court - Amravati

Nandi Rythu Samakhya, Nandyal vs Govt. Of A.P. Rep.By Its ... on 15 February, 2022

Bench: U.Durga Prasad Rao

            HON'BLE SRI JUSTICE U.DURGA PRASAD RAO

                     Writ Petition No.24794 of 2011

ORDER:

The petitioner - Nandi Rythu Samakhya, Nandyal prays for writ of

mandamus declaring the action of 2nd respondent alienating its Sugar

factory and appurtenant lands covered by different survey numbers of

Ayyalur Village, Nandyal Mandal, Kurnool District to third parties

without considering the interest of the petitioner association as illegal,

arbitrary and for such other orders.

2. The petitioner's case succintly is thus:

(a) Originally the Nandyal Cooperative Sugar Factory was

established in the year 1973 under the A.P. Cooperative Societies Act,

1964 (for short ‗APCS Act') at Nandyal by acquiring Ac.120.00 cents

from various ryots. Several ryots, some of whom are the members of the

petitioner society invested amount in the said Sugar Factory. The majority

of the shares were held by the State Government.

(b) The said factory was closed down during the crushing season

1990-1991 on account of non-availability of raw material, high cost of

production and fall in sugar price. In 1994-1995 the factory was restarted

and again closed in 1996-1997. Its accumulated losses rose above the

paid-up capital and in May 2001 the Registrar of Cooperative Societies,

A.P. exercising the power vested in him under Section 12-A(1) of the

APCS Act advertised for the sale of Nandyal sugar. Ultimately the 2nd

respondent became the highest bidder and a Sale Deed dated 27.09.2003

was executed in favour of 2nd respondent for running the sugar mill. The

members of the petitioner association contributed Rs.60.00 lakhs at the

time of establishment of the sugar factory. So also, the farmers of the

surrounding villages also contributed about Rs.40.00 lakhs as non-

refundable deposit with the Nandyal Sugar Factory. However, the

Registrar of Cooperative Societies sold away the Sugar factory to 2 nd

respondent behind the back of the shareholders and the ryots. Some ryots

and third parties filed writ petitions questioning the sale. However, those

writ petitions were dismissed by this Court. Several thousands of sugar

crane growers surrounding the sugar factory were depending on the sugar

factory and cultivating the sugarcane.

respondent is not interested to run the sugar factory and trying to alienate

the lands appurtenant to the sugar factory and making negotiations with

private parties, in which case, the members of the petitioner association

would suffer a lot.

Hence, the writ petition.

3. The 2nd respondent filed counter contending as follows:

(a) The 2nd respondent is a private entity i.e., a company registered

under the Companies Act, 1956. Neither the State nor any of its

instrumentalities have any share in the company. Therefore, the 2nd

respondent will not fall within the definition of ―State‖ under Article 12 of

the Constitution of India. Hence, the writ petition seeking mandamus is

not maintainable against 2nd respondent.

(b) The petitioner has no locus standi to file the writ petition. The

petitioner allegation that the petitioner association consists of shareholders

of Nandyal Cooperative Sugar Factory and crane growers is denied. The

petitioner has not produced any particulars in proof of the said allegation.

In any case no shareholder and crane grower has any right or interest to

the properties or assets of the 2nd respondent company.

Cooperative Society under the A.P. Cooperative Societies Act, 1964. The

majority shares to an extent of 92.97% were held by the State

Government. The factory was commissioned in April 1981 with an

installed capacity of 1250 TCD and it was closed down in crushing season

of 1991 on account of non-availability of raw materials, high cost of

production, fall in sugar prices. There was no crushing season in 1990-

1991, 1992-1993, 1993-1994 and from 1996-1997 till May 2001. The

IFFCO to whom the assets were mortgaged operated the Unit briefly. As

they accumulated losses shot of twice the share capital, the Registrar of

Cooperative Societies issued advertisement for sale of assets of the sugar

factory in May 2001. In the open bidding process the 2nd respondent was

declared as successful bidder and consequently took over the assets of the

sugar factory in June 2003. The registered sale deed was executed on

27.09.2003 and thereby the 2nd respondent became the full and absolute

owner of all the assets of the sugar factory including the land. The 2nd

respondent made substantial and considerable investments and

expenditure and brought the sugar factory into operation during the

crushing season in November 2003. The 2nd respondent obtained

substantial credit facilities from the financial institutions as term loans and

working capital loans on the primary security of the assets of the sugar

factory and also on the collateral security by way of personal guarantees

and mortgage of personal property of the Directors of the 2nd respondent

and others.

(d) The allegation of the petitioner association that they contributed

Rs.60.00 lakhs at the time of establishment of sugar factory and also that

they invested Rs.40.00 lakhs as non-refundable deposit is denied and

contended that 2nd respondent is not at all responsible for any such

deposits. It is further denied that the Registrar of the Cooperative

Societies sold the Nandyal Cooperative Sugar Factory to 2nd respondent

behind the back of the shareholders and ryots.

(e) In 2001, one G.Thimma Reddy purporting to be the President of

Nandyal Sugar Factory filed W.P.No.15218/2001 on behalf of the

shareholders of the Sugar Factory questioning the bidding process and the

sale of sugar factory. The said writ petition was dismissed by the Division

Bench of this Court by an order dated 31.08.2006. Further, in 2004, an

association calling itself Nandyal Cooperative Sugar Factory Collective

Farm Cane Growers Association filed W.P.No.3266/2004 challenging the

sale of the sugar factory. The said writ petition was also dismissed by a

learned single Judge of this Court by an order dated 24.02.2004. The

W.A.No.563/2004 was also dismissed by the Division Bench on

31.08.2006. In 2004, another W.P.No.2977/2004 was filed by six persons

claiming to be the shareholders of the Sugar Factory questioning its sale.

The said writ petition was dismissed on 19.02.2004 by a learned single

Judge and the W.A.No.1933/2004 filed was also dismissed by an order

dated 31.08.2006.

(f) The allegation that the 2nd respondent is not interested to run the

sugar factory is incorrect. The further allegation that if the sugar factory is

sold, the petitioner association will suffer irreparable loss is denied. The

petitioner association has no rights whatsoever and hence, the question of

suffering any loss does not arise. The 2nd respondent has right, power and

title to transfer including by sale of any part of the land or other assets of

the 2nd respondent company, subject to any mortgage or other security,

interest created in any bank or financial institution and the petitioner

association cannot question the same. Even though the petitioner has no

locus standi to question and even though the 2nd respondent is not liable to

give any reasons, however, the 2nd respondent explains the circumstances

under which it is selling a mere Ac.13.00 cents of land appurtenant to

sugar factory as below:

(g) The 2nd respondent made substantial investments to bring the

sugar factory to operation in November, 2003 and has been operating the

sugar factory continuously since then. Upto 2009, the 2nd respondent was

able to run the sugar factory by maintaining the financial balance.

However, in 2010 the sugar price shot up from Rs.25/- to Rs.45/- per Kg

for about two months. During the said period, on the demand of the

farmers the price of the sugarcane was increased from Rs.1400/- to

Rs.2000/- per MT. After two months, the sugar price plunged to Rs.26/-

per Kg but the purchase price of sugarcane remained at high level of

Rs.2000/- per Kg. At the same time the unprecedented rains in Krishna

basin and floods resulted in damage of cane. Due to combination of

several other factors, the sugar factory sustained huge losses. The loan

accounts of the company with the bank became irregular. The bank has

increased interest rates from 11% to 18%. The banks were pressing for

regularization of the loan accounts so as to avoid the company being

declared as NPA. Further, the company owed nearly Rs.4.00 Crores to the

farmers which was to be cleared immediately. In those circumstances, the

2nd respondent obtained consent of the Syndicate Bank to whom the

immoveable properties of the company was mortgaged to sell Ac.13.00

cents of the company's land appurtenant to the sugar factory. The

company entered into agreements for sale of plots in the aforesaid

Ac.13.00 cents and it has to complete registration by 30.09.2009. Thus

the sale of Ac.13.00 cents of the company land is an urgent necessity to

save the company from the financial problems, to save the interest of the

employees of the company and the cane growers and farmers. It is stated

that the 2nd respondent company seriously intends to continue the

operation of the sugar factory and the proposed sale of small portion is to

meet the above end. The company requires the consent of only the

Syndicate Bank but not others including State Government for sale of any

part of the land of the company or any other assets of the company.

(h) The 2nd respondent does not owe any public duty towards the

writ petitioner or to any other person. Hence, the writ petition is not

maintainable as it is wholly devoid of merits. Hence, the writ petition may

be dismissed.

4. The petitioner filed reply affidavit denying the averments in the

counter. It is pleaded that the lands were given to the sugar factory free of

cost by various ryots with a fond hope that their economic status would

change with the establishment of sugar factory. Thereafter, in view of the

bad management tactics and changed policies of the Government, the

ryots have lost every thing including their share capital. Now, the 2nd

respondent is trying to defeat the purpose for which the sugar factory was

established and selling away appurtenant lands belonging to the sugar

factory to the third parties for personal gain ignoring the welfare of ryots.

(a) It is further pleaded that the 2nd respondent along with bid

documents submitted information regarding its experience in running

sugar factories, financial position and further plans for development of the

factory. The bid was only for running the sugar factory and on that basis

only the sugar factory was sold and it was a condition precedent for the 2nd

respondent to run it as a sugar factory. Had it been a free sale without any

conditions (1) there would not have been any bid offer asking for the

conditions relating to the experience of the 2nd respondent and financial

capacity in running the sugar factory, its future plans for development of

sugar factory etc. (2) there would not have been a clause in the sale deed

dated 29.07.2003 at paragraph No.6 mentioning ―......the purchaser, to

run the sugar mill it was decided that the sellers should sell the assets and

business for the purchasers‖.

5. The petitioner denied that the 2nd respondent made substantial

investments and incurred expenditure in bringing the sugar factory into

operation during November 2003. On the other hand, the 2nd respondent

borrowed amounts from Syndicate Bank, Nandyal for purchase of the

sugar factory and for meeting the registration expenses. Part of the loan

was obtained prior to the registration of the Sale Deed itself and balance

loan was obtained after obtaining registered Sale Deed. The averments in

the counter regarding the fluctuations in the sugarcane price and other

financial terms were also denied. It is pleaded that the 2nd respondent

company made huge money of Rs.30.00 Cr. every year and earned huge

profits but not correctly reflected. It is also pleaded that having obtained

orders in W.V.M.P.No.3630/2011, to sell Ac.13.01 cents, the 2nd

respondent sold an extent of Ac.18.58 cents and thus violated the order of

this Court.

6. The 2nd respondent filed additional counter traversing the

allegations made in the reply affidavit of the petitioner. The 2nd

respondent denied that the ryots from whom the lands were acquired are

the members of the petitioner society and they made investment in the

sugar factory. It is also denied that the ryots have given land free of cost.

It is pleaded that none of them have any right or interest in the assets of

the factory which was transferred to the 2nd respondent absolutely.

(a) It is denied that the 2nd respondent mentioned in the bid

document its experience in running the sugar factory. The bids were only

for the sale of the assets of the sugar factory. The assets were sold to the

2nd respondent unconditional and absolute without any fetter,

encumbrance or obligation. The purported interpretation of the paragraph

6 of the Sale Deed dated 29.07.2003 made by the petitioner is refuted as

misconceiving and misleading. That was only a recital with respect to the

promotion of a Special Purpose Vehicle to whom the assets are to be

transferred. The other allegations in the reply affidavit are also denied.

7. The petitioner filed rejoinder affidavit against the additional counter

filed by the 2nd respondent. It is reiterated that though the registered Sale

Deed dated 27.09.2003 is an outright sale, a condition was stipulated in

Paragraph 6 to the effect that to run the sugar mill, it was decided that the

seller to sell the assets and business to the purchaser. It is further pleaded

that the Government could not run the sugar factory and incurred heavy

losses and so with an intention to save the mill from closure and to help

the local sugarcane growers, invited bids from the bidders having

experience in the field to run the sugar mill and accordingly, sold the

sugar mill to the 2nd respondent, with a condition precedent to run the

sugar factory effectively. The 2nd respondent under the guise of interim

order gifted Ac.5.09 cents to Ayyalur Gram Panchayat which is also an

alienation and it amounts to alienating more than Ac.13.01 cents permitted

by the Court.

8. The 1st respondent did not file any counter.

9. It should be noted that when the 2nd respondent was about to

alienate Ac.13.01 cents of the land appurtenant to the sugar factory, this

writ petition came to be filed by the petitioner. In

W.P.M.P.No.30485/2011 dated 05.09.2011, a learned Judge of the High

Court of A.P. initially injuncted the 2nd respondent from alienating any of

its movable or immoveable properties which are forming part of the assets

that have been transferred in its favour pursuant to the decision taken by

the Government, without obtaining prior permission to do so from the

Government. However, subsequently on the request of 2nd respondent,

vide order dated 28.09.2011 in W.P.M.P.No.3630/2011, the earlier order

in W.P.M.P.No.30485/2011 was modified to the extent of allowing the 2nd

respondent to liquidate the land of an extent of Ac.13.01 cents only. It

was ordained that the 2nd respondent shall not create any third-party

interest, other than in favour of a nationalized bank and any other

recognized financial institution, over the remaining land, other than

Ac.13.01 cents permitted to be sold.

(a) Thus, by virtue of the subsequent order, this Court gave

permission to 2nd respondent to liquidate Ac.13.01 cents only out of the

total assets purchased by it from the Government. It is pertinent to note

that this permission to alienate is not a conditional one viz., the alienation

is subject to the result of the writ petition. Pursuant to the aforesaid order,

the 2nd respondent, it appears, liquidated the said extent of the land. Of

course, the writ petitioner contends that the 2nd respondent has alienated

more than the permitted extent.

10. Be that it may, what is germane for consideration here is, if the

issue in the writ petition is only to the extent of 2nd respondent's right to

alienate Ac.13.01 cents, that aspect has already been decided by this Court

by virtue of the above two interim orders and ultimately the 2nd respondent

was unconditionally permitted to alienate that extent of land and

consequently no final orders need to be passed in the writ petition.

However, it must be noted that the prayer in the writ petition has much

wider amplitude than confining to question the 2nd respondent's right to

alienate Ac.13.01 cents. The petitioner association, through this writ

petition challenges the very right of the 2nd respondent in alienating the

sugar factory as well as the appurtenant lands covered by different survey

numbers. Precisely, the petitioner questions the right of the 2nd respondent

to alienate any of the assets purchased under registered Sale Deed dated

27.09.2003 from the 1st respondent. This has necessitated this Court to

pass the final orders.

11. Heard arguments of Sri M.Bala Subramanyam, learned counsel for

petitioner, learned Government Pleader for Industries & Commerce

representing the 1st respondent, and Sri K.Gopal Chowdary, learned

counsel for 2nd respondent.

12. Counsel on either side reiterated their elaborate pleadings in their

arguments. While it is the argument of learned counsel for petitioner that

the sale of the sugar factory made in favour of 2nd respondent was only a

conditional one to run the sugar factory but not to alienate any of its

assets, in oppugnation, the contention of 2nd respondent is that the sale is

an out and out transfer of assets for valuable consideration in favour of 2 nd

respondent without any hindrance and therefore, the petitioner cannot

question its right to alienate the assets.

13. The points arise for consideration are

(1) Whether sale of the Nandyal Cooperative Sugar Limited (NCSL) (Sugar factory) by its Managing Director in favour of 2nd respondent is only a conditional sale to run the sugar factory or was it an outright sale without any condition?

(2) If the sale is held to be a conditional sale, whether restriction on the 2nd respondent from making future alienation is valid in the eye of law?

(3) Whether the 2nd respondent comes within the purview of State as mentioned in Article 12 of the Constitution of India to entertain the writ petition?

(4) To what relief?

14. Points 1 & 2: These points are intertwined and hence, taken

up together. Admittedly, Nandyal Sugars was registered as a

cooperative society under the APCS Act. The majority of its shares

(92.97%) were held by the State Government. Its installed capacity

was 1250 TCD and it had to be closed down during the crushing

season 1990-1991 on account of non-availability of raw materials,

high cost of production and fall in the sugar prices. After three

years, the factory was restarted in 1994-1995 under the management

of IFFCO, but was again closed in 1996-1997. By 2000, the

accumulated losses exceeded the paid up capital. Therefore, in May

2001, the Registrar of Cooperative Societies, AP issued

advertisement for sale of the assets of the Nandyal Sugars.

Ultimately, the bid of 2nd respondent for Rs.601.25 lakhs was

accepted by the Competent Authority. The Sale Deed dated

27.09.2003 was executed by the Managing Director of Nandyal

Cooperative Sugars Limited in favour of the 2nd respondent in

respect of the assets of the said Sugar factory. As per para 9 of the

Sale Deed, the land measuring about Ac.120.00 cents situated at

Ayyalur Village, Nandyal Mandal, various buildings and other

structures and plant & machinery and other equipment were

collectively referred as ―immoveable assets‖ and formed part of the

Sale Deed. Now, the crucial question is whether the sale of above

assets under the Sale Deed dated 27.09.2003 was only a conditional

sale to enable the 2nd respondent to run the sugar factory or was it an

outright sale without any condition.

15. Learned counsel for petitioner Sri M.Bala Subramanyam

referring to the booklet ―Information Memorandum and Bid

documents‖ relating to privatization by way of sale of assets and

business of M/s. Nandyal Cooperative Sugars Limited issued by the

Government of A.P., Public Enterprises Department,

Implementation Secretariat, would argue that the Government have

decided to privatize the Nandyal Cooperative Sugars Limited with a

view to achieve economic viability and lend credibility to the

privatization programme. He argued that the Government intended

that the bidders who intend to purchase the NCSL shall have the

experience in that field. That is why in the evaluation process, apart

from other parameters, the track record in sugar industry, previous

experience, bidders plans for cane development and extension of

services to farmers were also verified by the Evaluating Committee.

He would argue that the bidding and evaluation process would

clearly show that the sugar factory was sold with an intention that

the purchaser should run the industry but not to dispose of. Further,

while confirming the bid of the 2nd respondent for Rs.601.25 lakhs

being the highest bid, the transaction advisor of Implementation

Secretariat addressed a letter wherein he clearly mentioned that the

bid of 2nd respondent was approved as preferred bidder and accepted

with certain conditions viz., (1) 25% of the bid amount is payable

within one week from the date of communication of the acceptance

of the bid (2) balance 75% is payable at the time of handing over of

the assets (3) revival of the unit. Learned counsel argued that

revival of the sugar factory was part of the prime consideration for

the seller. That apart, he would argue, in para 6 of the Sale Deed, it

was clearly mentioned that the assets were sold to run the factory.

Learned counsel vehemently argued that the recitals in the Sale

Deed would clearly depict that it was purely a conditional transfer

in favour of 2nd respondent but there was no absolute right title or

interest created. Therefore, the 2nd respondent has to fulfil the

condition of running the sugar factory set out in the Sale Deed and it

has no right to alienate either the appurtenant lands or other assets

of the sugar factory. He placed reliance on Indu Kakkar v.

Haryana State Industrial Development Corporation Limited &

another1.

(a) Learned counsel further argued that though the 2nd

respondent is not a State by itself or an instrumentality of the State,

still it is required to perform public function i.e., to run the sugar

factory as per the mandate of the Sale Deed and therefore, this

Court can exercise its plenary jurisdiction under Article 226 of the

Constitution and issue writ of mandamus restraining it from

alienating the assets and preserve the functional domain of the sugar

factory. He relied upon Ramakrishna Mission & another v. Kago

Kunya & another2, Uttar Pradesh Power Transmission

Corporation Limited & another v. CG Power & Industrial

Solutions Limited & another3.

16. Per contra, learned counsel for 2nd respondent Sri K.Gopal

Chowdary argued that the revival and operation of sugar factory by

the successful bidder is only a wish or intendment of the

Government while selling the sugar factory. However, that is not a

condition precedent for alienating the assets of the sugar factory.

That was why, no express term or condition was stipulated in the

Sale Deed to the effect that the purchaser shall only run the sugar

factory but under no circumstances should alienate partial or total

assets of the sugar unit. Learned counsel would emphasize that no

penal clause was imposed to the effect, should the purchaser violate

1999 (2) SCC 37 = MANU/SC/0760/1998

2019 (16) SCC 303 = MANU/SC/0413/2019

2021 (6) SCC 15 = MANU/SC/0349/2021

the condition, the sale stand cancel and assets revert back to the

vendor or any other consequence would ensue. On the other hand,

the sale was an outright transfer of right, title and interest in the

sugar factory assets in favour of 2nd respondent without any fetter,

encumbrance or obligation. Referring to Para 6 of the Sale Deed,

learned counsel vehemently argued that the employment of the

words ―to run the sugar mill‖ shall not be mistaken as a condition

imposed by the seller that the vendor shall run the sugar factory or

run eternally. He sought to explain that those words were used in

the context of explaining that Sri Rayalaseema Sugar and Green

Energy Limited, the original preferred bidder has promoted a

Special Purpose Vehicle (SPV) in the name of Sree Rayalaaseema

Sugar and Energy Limited, who is the purchaser to run the sugar

mill and the seller decided to sell the assets and business of the

sugar factory to the said purchaser free of encumbrances. Learned

counsel would thus argue that in those circumstances, the

terminology used as aforesaid was only an indicative of the

purchaser's wish to run the sugar factory after sale process was

over, but it does not reflect a condition precedent set out by the

seller and therefore, the writ petitioner cannot take any advantage

from the recitals in Para 6. Learned counsel further argued that

even otherwise, the 2nd respondent had, to the best of its ability,

operated the sugar unit from 2003 to 2010 and it was only because

the unfavourable conditions beseized, it was constrained to sell

Ac.13.01 cents of the land. Therefore, the petitioner cannot

challenge the right of 2nd respondent to run, close or alienate the

sugar unit. He finally argued that the sugar factory is a private

entity and no public function is being undertaken by it and hence,

the writ petition is not maintainable.

17. Perused the pleadings, documents and gave my anxious

consideration to the above respective arguments.

18. I have meticulously gone through the booklet styled

―Information Memorandum and Bid Documents‖ issued by the

Public Enterprise Department of the Government of A.P. filed by

the 2nd respondent. It contains the policy of the Government to

achieve public enterprise reformation including privatization for

overall economic development of the State. It is mentioned that the

privatization which changes the ownership and control of

enterprises from the public sector to private sector plays a key part

in improving the management decisions and accountability and

promote private investment. This booklet deals with the procedure

for privatization of Nandyal Cooperative Sugar Limited. It is stated

that the Government is committed to select a purchaser for the

assets to optimize the sale proceeds, minimize governmental

exposure to post-sale risks and liabilities, contribute to the

credibility of the privatization programme and achieve sustainable

economic activity. The booklet contains bid procedure. The

evaluation criteria mentioned at clause 6.20 would show that the

commercial and technical part of the bid would be evaluated

looking inter alia the parameters like previous experience, track

record in sugar industry, bidders plans for cane development and

extension services to farmers etc. An overall scrutiny of the

aforesaid booklet would no doubt depict that the Government

intended to privatize the Nandyal Cooperative Sugar Limited for

being operated. However, we do not find any express and assertive

condition that the intended bidder must invariably run the sugar

factory continuously after purchase. No penal clause is mentioned

in this prospectus booklet that if the purchaser violates the

intendment of the Government, some penal consequences would

ensue. From this booklet, one can only conclude that the intended

privatization was only with the hope that an experienced purchaser

would run the sugar factory.

(a) Then I perused the copy of the letter dated NIL addressed

by Transaction Advisor of Implementation Secretariat to the 2nd

respondent. The copy of the said letter is filed by the petitioner

along with additional material papers. It is mentioned in the said

letter that the bid offered by the 2nd respondent was the highest offer

and the same has been approved as preferred bidder subject to the

three terms, one of which is the revival of the Unit. From this term,

it is argued by the petitioner's counsel that the sale is only a

conditional one but not absolute.

(b) It must be noted that to determine whether the sale in the

instant case is a conditional or absolute, the cardinal principle is that

the intention of the parties must be gathered from the substance but

not the form recitals of the concerned document which they entered.

Vide:

(1) Board of Revenue v. A.M. Ansari4. The Hon'ble Apex

Court observed thus:

"As to whether a particular transaction creates a lease or a licence is always a question of intention of the parties which is to be inferred from the circumstances of each case. For the purpose of deciding whether a particular grant amounts to a lease or a licence, it is essential, therefore, to look to the substance and essence of the agreement and not to its form."

(2) Tarkeshwar Sio Thakur Jiu v. Dar Dass Dey5. The

Apex Court observed thus:

"24. It is well-settled that in ascertaining the real character of a document, regard must be had to the substance of the transaction and not merely the words or the form in which it is dressed."

(3) Sohan Lal Naraindas v. Laxmidas Raghunath Gadit6.

The Supreme Court observed thus:

―8. Intention of the parties to an instrument must be gathered from the terms of the agreement examined in the light of the surrounding circumstances. The description given by the parties may be evidence of the intention but is not decisive. Mere use of the words appropriate to the creation of a lease will not preclude the agreement operating as a licence. A recital that the agreement does not create a tenancy is also not decisive. The crucial test in each case is whether the instrument is intended to create or not to create an interest in the property the subject matter of the agreement. If it is in fact intended to create an interest in the property it is a lease, if it does not, it is a licence. In determining whether the agreement creates a lease or a licence the test of exclusive possession, though not decisive, is of significance."

AIR 1976 SC 1813 = 1976 (3) SCR 661 = MANU/SC/0038/1976

AIR 1979 SC 1669 = MANU/SC/0430/1979

1971 (1) SCC 276 = MANU/SC/0593/1971

19. Therefore, necessarily the sale deed dated 27.09.2003 executed by

Managing Director of Nandyal Cooperative Sugars Limited in favour of

2nd respondent should be referred to gather the real intention of the parties.

It is mentioned that Government of A.P. is the substantial shareholder and

the seller and it has approved privatization / sale of assets of the seller as a

part of public enterprises reform programme. Para 9 of the Sale Deed

would show that free hold land admeasuring about Ac.120.00 cents

situated in Ayyalur Village, various buildings and other structures and

plant & machinery collectively referred to as ―immoveable assets‖

forming integral part of the sale. Then, under the heading ―This indenture

witnesses and the parties hereto agree as follows‖ it is mentioned that

upon receiving the sale price of Rs.3,52,35,000/- from the purchaser, the

seller grants, sells, conveys, assigns and assures unto the buyer forever

free from, mortgages, charges, encumbrances, liens, adverse claims,

preemptive rights, attachments, restriction of any kind whatsoever in

respect of immoveable assets. Thus, a holistic scrutiny of sale deed dated

27.09.2003 shows it was an outright sale deed executed after receiving

valuable consideration from 2nd respondent by conveying clear and

absolute right, title and possession. There is no express condition

implying that the 2nd respondent after purchase, shall run the sugar factory

eternally without the right of alienation. There is no default clause either

showing that if the purchaser fails, the sale becomes void or purchaser will

be penalized in some form. The petitioner banks upon clause 6 of the Sale

Deed which reads thus:

"6. LS invited bids on behalf of the registrar for the purchase of assets of the seller by public advertisement in may, 2001. Two bids were received which were found to be substantially responsive and were evalued against the criteria set in the published procedure. On receipt of the results of bid evaluation Govt. AP and Registrar approved Sree Rayalaseema Sugar and Green Energy Limited as the preferred bidder for the assets and business of the seller subsequently promoted Sree Rayalaseema Sugar and Energy Limited, the purchaser, to run the sugar mill it was decided that seller to sell the assets and business to the purchaser free of encumbrances subject to the terms and conditions agreed to between them‖.

20. The above clause contains the words ―to run the sugar mill‖. As

rightly argued by learned counsel for 2nd respondent, the above phrase

cannot be treated as a condition imposed by the seller to the purchaser to

run the sugar factory. On the other hand, it would appear, the preferred

bidder i.e., Sree Rayalaseema Sugar and Green Energy Limited has

promoted a Special Purpose Vehicle (SPV) in the name of Sree

Rayalaseema Sugar and Energy Limited, who is the purchaser, to run the

sugar mill and the seller decided to sell the assets and business to the

purchaser free of encumbrances. Therefore, the phrase ―to run the sugar

mill‖ cannot be treated as a condition imposed by the seller on the

purchaser. Therefore, Point No.1 is concerned, the sale must be held to be

an absolute sale without any condition or fetter on alienation or mode of

enjoyment.

(a) Point No.2 is concerned, even assuming that the seller while

transferring the assets of the sugar factory imposes a condition of non-

alienability or restricting the mode of enjoyment in a particular manner

i.e., to run the sugar factory eternally by the purchaser, such a condition

being repugnant to the absolute nature of transfer, is void and can be

ignored as per Section 10 & 11 of the Transfer of Property Act. These

sections read:

10. Condition restraining alienation:-- Where property is transferred subject to a condition or limitation absolutely restraining the transferee or any person claiming under him from parting with or disposing of his interest in the property, the condition or limitation is void, except in the case of a lease where the condition is for the benefit of the lessor or those claiming under him:

Provided that property may be transferred to or for the benefit of a woman (not being a Hindu, Muhammadan or Buddhist), so that she shall not have power during her marriage to transfer or charge the same or her beneficial interest therein.

11. Restriction repugnant to interest created:--Where, on a transfer of property, an interest therein is created absolutely in favour of any person, but the terms of the transfer direct that such interest shall be applied or enjoyed by him in a particular manner, he shall be entitled to receive and dispose of such interest as if there were no such direction.

[Where any such direction has been made in respect of one piece of immoveable property for the purpose of securing the beneficial enjoyment of another piece of such property, nothing in this section shall be deemed to affect any right which the transferor may have to enforce such direction or any remedy which he may have in respect of a breach thereof.]

21. In the case of Bhavani Amma Kanaka Devi & others v. C.S.I.

Dekshina Kerala Maha Idavaka7, the plaintiff therein filed the suit

against the defendant seeking a decree for a direction to execute the Sale

Deed and reconvey the property which the plaintiff earlier sold to the

defendant on the ground that the defendant failed to fulfil the condition

imposed in the Sale Deed to construct a private college in the property

sold to him. The defendant resisted the suit contending that the said

clause in the sale deed was repugnant to Section 10 of the Transfer of

AIR 2008 Kerala 38 = MANU/KE/0556/2007

Property Act and hence, void ab initio. The High Court of Kerala

dismissed the appeal filed by the plaintiff holding that the condition

imposed in the sale deed was contrary to the spirit of Section 10 and 11 of

the Transfer of Property Act. It observed thus:

―The principal underlying the section is that a right of transfer is incidental to and inseparable from, the beneficial ownership of property. If an absolute estate is created and after the creation of such estate, a condition which brings a diminution of that absolute estate is imposed on the person in whose favour the absolute estate is created the said which was created is void and unenforceable. The principle is founded on the principle of public policy allowing free disposition of property. Section 11 of Transfer of property Act embodies principles of universal application that when the main object of transferor is to make an absolute transfer, an inconsistent provision therein cannot be given effect to."

22. Therefore, in case of an absolute transfer as in the present case, no

condition against alienation or restricting the mode of enjoyment can be

imposed. The decision in Indu Kakkar's case (supra 1) cited by the

petitioner can be distinguished on facts. In that case, the Haryana State

Industrial Development Corporation Limited has allotted a plot to M/s.

York Printers and registered under a Deed of conveyance with a condition

that the allottee shall start on the site the construction of a building for

setting up an industry within a period of six months and complete the

construction within two years and commence the production within three

years from the date of allotment of the plot, failing which the plot will be

liable to be resumed by the Corporation. It appears, the said M/s. York

Printers violated the aforesaid conditions and sold the plot to the third

party. The matter went upto the Supreme Court. The Apex Court found

that the original allottee has not taken any steps for implementation of the

proposed industrial unit and so the petitioner before it who is only a

transferee of the original allottee cannot claim any right. It appears, the

petitioner pressed into service Section 11 of the Transfer of Property Act

to contend that clause 7 in the Allotment Agreement imposing the

resumption condition as illegal. Discarding such an argument, the Apex

Court observed that for a transferee to claim benefit under Section 11 of

the Transfer of Property Act, an absolute interest in favour of the

transferee has been created. That was not the case because the agreement

was entered into between the Corporation and the original allottee

pursuant to the request made by the allottee to give him an industrial plot

for the purpose of setting up an industry. He assured that he would start

industry by constructing a building. Hence, the resumption was held to be

valid. However, in our case, it was not a matter of allotment of the sick

industry to the 2nd respondent for running the same. On the other hand, it

was, as observed supra, an outright sale. Therefore, the recitals in the sale

deed do not contain any conditions either restricting the further alienation

or restricting the mode of enjoyment to run the industry eternally. Even if

such condition is sought to be introduced by the petitioner, the same shall

be held to be void and ignorable by 2nd respondent. Thus, points 1 and 2

are held against the petitioner and in favour of the 2nd respondent.

23. Point No.3: It is contended that the 2nd respondent does not come

within the meaning of the State as envisaged in Article 12 of the

Constitution of India and therefore, writ petition is not maintainable. I

find considerable force in the said argument. In Federal Bank Limited v.

Sagar Thomas8, the Apex Court by analyzing its earlier judgments

classified the entities against whom writ petition may be maintainable.

"19. From the decisions referred to above, the position that emerges is that a writ petition under Article 226 of Constitution of India may be maintainable against (I) the State Government; (II) an authority; (III) a statutory body (IV) an instrumentality or agency of the State; (V) a company which is financed and owned by the State (VI) a private body run substantially on State funding; (VII) a private body discharging public duty or positive obligation of public nature (VIII) a person or a body under liability to discharge any function under any statute to compel it to perform such a statutory function"

24. In the instant case, the 2nd respondent does not fit into any of the

classifications made above. It is not discharging any public duty rather

than running a sugar factory on commercial basis. The public duty or

function must be of a character that is closely related to the functions

performed by the State in its sovereign capacity. Running the risk of

pleonasm, it must be said the 2nd respondent is not even remotely

discharging the sovereign functions. Hence, it is not a State within the

ambit of Article 12 of Constitution of India. Therefore, as rightly

contended by the counsel for 2nd respondent, the writ petition is not

maintainable. The decisions in Ramakrishna Mission & another (supra

2) and also Uttar Pradesh Power Transmission Corporation Limited

(supra 3) by the petitioner do not improve its case. The point is answered