Holding

The compensation payable under Section 7(5) is to be included in the total compensation pool and first used to satisfy the deductions under Section 7(6); only the balance, if any, is to be distributed to the persons interested.

Summary

Diwan Sugar Mills, a partnership that owned a sugar factory leased to Diwan Sugar and General Mills (Pvt) Ltd., claimed Rs 12 lakhs as compensation under Section 7(5) of the Uttar Pradesh Sugar Undertakings (Acquisition) Act, 1971, arguing that no deductions should be made for liabilities of the lessee. The Prescribed Authority and the Tribunal rejected this claim, applying the deductions prescribed in Section 7(6). The Supreme Court examined whether the amount payable under sub‑section 5 is exempt from the deductions listed in sub‑section 6 and whether the East India Coal case was applicable. The Court held that the entire compensation, including the amount under sub‑section 5, must be pooled and first used to satisfy all deductions under sub‑section 6, with any balance thereafter distributed to interested persons. Consequently, the appeal and the accompanying writ petition were dismissed.

Issues considered

Whether the compensation amount specified in Section 7(5) of the Uttar Pradesh Sugar Undertakings (Acquisition) Act, 1971, is payable to the owner without deduction of liabilities of the lessee.
Whether the deductions prescribed in Section 7(6) apply to the amount payable under sub‑section 5.
Whether the decision in East India Coal Company Ltd. v. East Bulli… (1987) 2 SCC 124 is applicable to the present case.

Legislation cited

Uttar Pradesh Sugar Undertakings (Acquisition) Act, 1971s. 11, s. 2(h), s. 3, s. 7(1), s. 7(12), s. 7(2), s. 7(3), s. 7(4), s. 7(5), s. 7(6), s. 7(9), s. 8, s. 9

Subjects

compensationacquisitionstatutory interpretationSection 7deduction of liabilitiesUttar Pradesh Sugar Undertakings ActSupreme Courtappeal

Judgment

A DIWAN SUGAR Mll..LS AND ORS.
v.
STAIB OF U.P. AND ORS.

MAY3, 2000

B [B.N. KIRPAL AND SYED SHAH MOHAMMED QUADRI, JJ.]

~ .....
U.P. Sugar Undertakings (Acquisition) Act, 1971 :

S. 7-Sugar factory-Taken over by State Government-Compensation
for-Distribution ofamongst interestedpersons after deduction towards liabili-
c ties-Sugar factory owned by a partnership finn-Leased out to another com-
pany-Owners filing a claim before Prescribed Authority for Compensation
contending that the amount payable in respect of acquisition of the properties
and assets should be paid without deducting any liabilities of the lessee- )-
Contention rejected by Prescribed Authority as also by Tribunal-Held, s. 7
D requires types ofcGmpensation payable under sub-sections ( 1) to (5) being first
utilised for discharging liabilities under sub-section (6) and thereafter if any
amount remains that is to be deposited with the Prescribed Authority for
distribution amongst interested persons.

East India Coal Company limited v. East Bulliaree/Kendwadih Colliery
E Co. (P) limited and others, (1987) 2 SCC 124, held inapplicable.

CIVILAPPELL.KI'E JURISDICTION :Civil Appeal No. 4872of1989.

From the Judgment and Order dated 7.7.84 of the U.P. Sugar Under-
takings (Acquisition) Advt. 1971, 26/16, at Lucknow in Appeal No. 6 of
F 1983.
t-
WITH
Writ Petition (Civil) No. 15781 of 1984

(Under Article 32 of the Constitution of India.)
G
Bedri Dass Agarwala, Rajinder Sachar, Shivi Sharma, N.N. Sharma,
Shobha Dikshit, A.S. Pundir, H.K. Puri, S.K. Puri, Rajesh Srivastava, Ujjwal
Banerjee, Pramod Swarup, R.B. Misra, Pradeep Misra and S.K. Sabharwal for
the appearing parties.
--
H The following Order of the Court was delivered :
948
DIWAN SUGAR MILLS v. STATE 949
;;;,
j.
The challenge in this appeal as well as in the r.onnected writ p~tition A
is to the decision of the Tribunal constituted under the U.P. Sugar Undertak-
ings (Acquisition) ACT, 1971 which had interpreted Secti6n 7 of the said Act
and had come to the conclusion that the claim of the appellant for payment
of Rs. 12 lakhs could not be accepted.

Briefly stated, the facts are that M/s. Diwan Sugar Mills was a B
partnership fnm which owned a sugar factory. On 1st July, 1951, this factory
.... ''Y
is stated to have been leased out to Mis. Diwan Sugar and General Mills (Pvt.)
Ltd. This factory was first taken over by the Government of India under the
Defence of India Rules on 4th December, 1965 and thereafter it was taken
over by the U.P. Government under Section 15 of the Industrial Development c
& Regulation Act. Ultimately, the factory was acquired by the U.P. Govern-
ment under the aforesaid Acquisition Act.
~ The owners, namely, the partnership firm filed a claim before the
prescribed authority for payment of compensation. The case of the owners
was that under sub-section (5) of Section 7 read with the Schedule to the said D
Act, a sum of Rs. 12 lakhs was payable in respect of the acquisition of the
properties and assets and the said payment should be made without deducting
any liabilities of the lessee. On the prescribed authority rejecting this con-
tention, the owners then filed an appeal under Section 11 of the said Act
y
before the Tribunal but without success. The appeal is by special leave from
E
the said decision of the Tribunal.

In order to understand the controversy in issue, we may first refer to
relevant provisions of the said Act. Section 2(h) defines 'scheduled under-
taking' to mean an undertaking engaged in the manufacture or production of
sugar and comprises of plants, machinery, workshop, etc. This scheduled F
undertaking vested with the U.P. State Sugar Corporation Ltd. by virtue of
Section 3 of the Act which provides that such vesting and transfer shall be
free from any debt, mortgage, charge or other encumbrance or lien, etc.
Section 7 provides for determination and mode of payment of compensation.
Sub-sections (1) to (6) of Section 7 which are relevant for our purpose read
G
as follows : ,,
~
"7. Determination and mode of payment of compensation. -
(l)(a) Subject to the provisions of clauses (b) and (c), the State
Government shall pay as compensation for any sugar stocks com-
prised in a scheduled undertaking their value, which shall be calcu- H
A
950 SUPREME COURT REPORTS [2000] 3 S.C.R.
lated at the ex-factory market price prevailing immediately before the
appointed day, minus basic excise duty and additional excise duty in
lieu of sales tax leviable thereon.
'

~
-
(b) Such sugar stocks shall be disposed of from time to time (if
necessary, by arrangement with any bank which has made advances
B before the appointed day on the security thereot), and as and when
the stocks are disposed of, so much of the said compensation as relates
to the quantity disposed of shall be paid in cash by deposit with the
prescribed authority in accordance with the provisions of sub-sections
~
-
(6) and (9).
c
(c) Out of the said compensation the amount of any advance or,
as the case may be, the proportionate amount of advance, made on
the security of the quantity disposed of together with interest and any
other charges relating thereto payable under the terms of the advance, >--
and storage and other incidental charges relating thereto payable to
D the Corporation or to any other person, shall be paid first, and the
balance shall be deposited as aforesaid with the prescribed authority
and be paid to the persons entitled thereto in accordance with the
decisions of that authority or of the Tribunal, as the case may be,
under sub-section (9) or sub-section (12) or under Section 8, Section
~
E 9 or Section 11.

(2) The State Gove~ent shall pay as compensation for the
acquisition of any stocks of molasses comprised in the scheduled
undertaking their value calculated at the price prevailing immediately
before the appointed day, as fixed under the Uttar Pradesh Sheera
F Niyantran Adhiniyam, 1964 (U.P. Act XXIV of 1964), and the
provisions of clauses (b) and (c) of sub-section (1) shall mutatis
m'utandis apply in relation to such compensation.

(3) The State Government shall pay as compensation for the
G acquisition of any stocks of sugarcane comprised in the scheduled
undertaking the actual cost of their purchase, as may be agreed upon
between the State Government and the persons interested and failing ~
such agreement, as may be determined by the prescribed authority.

(4) The State Government shall pay as compensation of the
H acquisition of any sugar in the process of production or any bagasse
DIWAN SUGAR MILLS v. STATE 951
.;. or press-mud comprised in the scheduled undertaking its market value A
as may be agreed upon between the State Government and the persons
interested, and failing such agreement, as may be determined by the
prescribed authority.

(5) In addition to the compensation, if any, payable under sub-
sections (1), (2), (3) and (4) for the acquisition of the properties and B
assets referred to in those sub-sections, the State Government shall
.... "J( pay as compensation for the acquisition of every scheduled under-
taking specified in Column 2 of any of the Schedules to this Act an
amount specified against it in Column 3 thereof, by depositing it with
the prescribed authority in accordance with the provisions of sub- c
sections (6) and (9) and the same shall be paid to the persons entitled
thereto in accordance with the decisions of that authority or of the
Tribunal, as the case may be, under sub-section (9) or sub-section (12)
~
;
or under Section 8, Section 9 or Section 11.

(6) The State Government shall provisionally deduct from the D
compensation refeITed to in sub-sections (1), (2), (3), (4) and (5) the
following amounts, namely :

(a) any amount due on account of any debt, mortgage, charge or
< y other encumbrance or lien, trust or similar obligation attached to
the scheduled unde1taking which by virtue of the provisions of E
Section 3 shall, on the appointed day, attach to the compensation
in substitution for the undertaking :

(b) any amount due to any cane-growers or any cane growers'
cooperative societies in respect of the price of sugarcane sup-
F
plied by such cane-growers or by members of such society to the
scheduled undertaking before the appointed day;

(c) any amount of wages, retaining allowance, bonus, provident
....,. fund or other payment due to persons employed as workmen
(within the meaning of the U.P. Industrial Disputes Act, 1947) in G
connection with the scheduled undertaking immediately before
the appointed day;

(d) any amount due in respect of either the employer's contribu-
tion or the employees' contribution realised by the employer or
any other dues recoverable from the employer under the Employ- H
952 SUPREME COURT REPORTS [2000] 3 S.C.R.
A ees' Provident Fund Act. 1952 or the Employees' State Insur-
ance Act. 1948, in respect of persons employed in connection
with the scheduled undertaking immediately before the appointed
day that the employer may have failed to pay in accordance with
the respective Acts;

B (e) any amount, not being an amount referred to in clause (a),
claimed by the State Government to be due immediately before
the appointed day from any person interested in the scheduled
undertaking on account of any loan, tax or cess, or any penalty or
interest due in respect of such loan, tax or cess, -
c and deposit the balance, if, any, with the prescribed authority, and
where such deductions are equal to or exceed the compensation, it
shall inform the prescribed authority accordingly :
~-
Provided that the amount provisionally deducted Under clause
D (a), in so far it is not claimed by the State Government as due to itself,
be deposited with the prescribed authority for disbursement to the
persons interested according to their respective titles. -

Explanation. - The amounts referred to in clauses (a), (b ), (c) and
(d) shall be provisionally deducted on the basis of information
E available with the State Government in respect thereof, and it shall
be open to the State Government to obtain relevant information either
from the Corporation or from the Cane Commissioner, the Labour
Commissioner, the Employees' Provident Fund Commissioner or the
Employees' State Insurance Corporation, as the case may be."
F As already noticed in Schedule I to the Act at SI. No. 6 it is stated that
compensation of Rs. 12 lakhs is to be paid to Diwan Sugar Mills which is
also described as Diwan Sugar and General Mills (Pvt.) Ltd. which is stated
to be the lessee of the factory.

Mr. Rajinder Sachar, learned senior counsel for the appellant has
G
contended that the compensation referred to in sub-section (5) of Section 7
is payable only to the owner of the undertaking and no deduction from the
said amount of Rs. 12 lakhs is required to be made under clauses (b) to (e)
of sub-section (6) of Section 7. He has submitted that the amounts due which
are referred to under clauses (b) to (e) are attributable or relatable only to
H the lessee and from the amount of compensation payable to the owner it will
DIWAN SUGAR MILLS v. STATE 953
be unfair and unjust to deduct any such amount. A
Despite the fact that along with the appeal, a petition under Article
32 has been filed by one of the partners of the firm which owned the said
factory, there is no challenge to the vires of the Act or Section 7 in particular.
What we are, therefore, to see is what is the correct interpretation of the said
Section 7. B

Sub-sections (1) to (4) of Section 7 talk of compensation in respect of
sugar, molasses, sugarcane and sugar in process of production or any bagasse
or press-mud. The manner in which compensation in respect of the sugar
stocks to be calculated is indicated in clauses (a) to (c) of sub-section (1) of c
Section 7. Sub-section (5) provides that in addition to the compensation
payable under sub-sections (1) to (4) an amount stipulated in the Scheduled
will also be payable as compensation for the acquisition of the scheduled
undertaking. From the amount of compensation anived at under sub-sections
(1) to (5) of Section 7, the State Government is required to deduct the
amounts referred to in clauses (a) to (e) of sub-section (6). What remains after D
the said deductions is the sum which is required to be deposited with the
prescribed authority which is then distributed or disbursed to the persons
interested according to their respective titles.

Till the stage of distribution the amount of compensation is regarded E
as one composite sum. From the total amount payable, the deductions under
sub-section (6) are first to be made and Section 7 does not provide that
compensation for the acquisition of the scheduled undertaking referred to in
sub-section (5) is to be treated differently from the compensation of the
stocks, etc., envisaged by sub-sections (1) to (4) of Section 7. It is from the
F
sum total of the compensation so arrived at that deductions under sub-section
(6) are to be made. It is true that the deductions refered to by clauses (b)
to (e) of sub-section (6) may relate to the enterprise which was actually
running the undertaking, in this case the lessee, but sub-clause (a) of sub-
section (6) which refers to the amount due on account of debt, mortgage,
charge or other encumbrances can conceivably relate to any such debt, G
mortgage, charge, etc., undertaken by the owner himself. If the proceeds of
sub-sections (1) to (4) of Section 7 can be utilised, along with the compen-
sation under sub-section (5), for paying the amount due on account of a debt
or a mortgage which may have been incurred by an owner, than it is not
incongruous that compensation referred to in sub-section (5) of Section 7 H
954 SUPREME COURT REPORTS [2000] 3 S.C.R.
A may likewise be used for discharging the amounts due under clauses (b) to
(e) of Section 7(6). In other words, the Act requires the entire compensation
payable to put in one basket from which payments to different types of
creditors under sub-section (6) have to be made and thereafter the balance,
if any, which remains is the only amount which is required to,-be deposited
with the prescribed authority for disbursement to the persons interested
B
therein.

Learned senior counsel for the appellant/petitioner has placed reliance
on a decision of this Court in East India Coal Company limited v. East
Bulliaree/Kendwadih Colliery Co. (P) limited and Others, (1987] 2 SCC 124
c and submitted that there has to be apportionment of the compensation.

In our opinion, the said decision has no application in the present case.
East India Coal Company Ltd. (supra) was concerned with the Coking Coal
Mines (Nationalisation) Act, 1972. There were owners who owned the said
mines and there were also raising contractors and selling agents who were
D operating the coking coal mines. That Nationalisation Act contemplated
compensation being paid to the owners. The raising contractors and selling
agents had contended, and this is what this Court was concerned with, as to
whether these raising contractors and selling agents could also be regarded
as owners or not. This Court held that after reading the scheme of the
E Nationalisation Act, the raising contractors would also come within the ambit
of the expression 'owner' in the Act and thereafter it determined as to how
the compensatioD. between two types of owners was to be distributed. That
question does not arise in the present case. As we have already seen, Section
7 of the Acquisition Act requires all types of compensation payable under
sub-sections (1) to (5) being first utilised for discharging the liabilities under
F sub-section (6) and thereafter if any amount remains that is to be deposited
with the prescribed authority for distribution amongst interested persons. The
aforesaid decision in East India Coal Company's case has no application in
the present case.

Therefore, we come to the conclusion that there is no merit in the
G
appeal as well as in the writ petition and the same are dismissed. However,
parties will bear their own costs.

R.P. Appeal and Petition dismissed.