Holding

The house, being the registered office and not used for factory purposes, is not part of the schedule undertaking and could not be vested in the State; the transfer of its possession was illegal.

Summary

The Uttar Pradesh State Sugar Corporation (appellant) took possession of the scheduled property of Burwal Sugar Mills Ltd. (respondent) under the Uttar Pradesh Sugar Undertaking (Acquisition) Act, 1971. The respondent challenged the acquisition of its registered office, a house in Kanpur, arguing it was not part of the factory’s undertaking. The High Court held that the house could not vest in the corporation, and the appellant appealed. The Supreme Court examined the definition of "schedule undertaking" in Section 2(h) of the Act and found no evidence that the house was used as a godown, guest house, or director’s residence, nor that it was connected with factory operations. Consequently, the Court held that the Act only acquires the factory and its directly related assets, not the company’s registered office, making the transfer of possession illegal. The appeals were dismissed.

Issues considered

Whether the registered office of Burwal Sugar Mills Ltd., situated at House No. 54/14 Canal Range, Kanpur, falls within the definition of "schedule undertaking" under Section 2(h) of the Uttar Pradesh Sugar Undertaking (Acquisition) Act, 1971.
Whether the house was used as a godown or for any purpose connected with the sugar factory, thereby bringing it within the scope of acquisition.
Whether the transfer of possession of the house by the receiver to the appellant corporation was lawful under the Act.

Subjects

acquisition of propertyschedule undertakingstatutory interpretationsugar industrycorporate assetspossession transferlegislative intent

Judgment

-- U.P. STATE SUGAR CORPORATION
v.
BURWAL SUGAR MILLS CO. LTD. AND ORS.
A

FEBRUARY 24, 2004
·-
[ASHOK BHAN AND S.H. KAPADIA, JJ.] B

-- UP. Sugar Undertaking (Acquisition) Act, 1971; Ss. 2(h) and 3:

Acquisition of sugar factory of the Respondent and others by the State-
Constitutional validity-Challenge to-Upheld by High Court-Affirmed by c
Supreme Court-Transferring of possession of the scheduled property of
undertaking ofthe company to appellant-Sugar Corporation-Disposal ofsome
of the units of sugar factory to private sector-Issuance of notice inviting
tenders-Challenge to-Partly allowing the writ petition, High Court held
f
that certain portion of the scheduled property could not vest in the
D
Corporation-On appeal, held: As per provisions in the Act, the factory with
properties connected thereto/being used for the purposes of the factory could
.. be acquired and not other properties/assets being usedfor running the factory-
Company is much wider entity as against the Undertaking which is an asset
of the Company-Legislature intends to acquire the Undertaking and not the
Company-Registered Office of the Company not includible in the schedule E
property of the Undertaking, since it was never used as godown of the factory
under the provisions ofthe UP. Sugarcane (Purchase Tax) Act-Hence, transfer
of its possession to appellant-Corporation illegal/contrary to the provisions of
the Act-Interpretation of Statutes-UP. Suggr cane (Purchase Tax) Act,
1961-Section 3A. ·
F
Sugar factories of Respondent No.1-Company and Others had been
taken over by the State of Uttar Pradesh as the Company and others had
failed to clear outstanding dues to the cane growers/labourers/Government
under the provisions of the U.P. Sugar Undertakings (Acquisition) Act, 1971.
Later, the factory/Undertaking of Respondent No.1 stood transferred to the
G
appellant-Corporation. Respondent No.1 and others challenged the
constitutional validity of the Acquisition Act. High Court upheld the
constitutional validity of the Act. In appeal, order of the High Court was

-·
~ affirmed by the Supreme Court in lshwari Khetan Sugar Mills (P) Ltd& Ors.
v. State of UP. and Ors., [1980) 4 SCC 136.
605 H
606 SUPREME COURT REPORTS [2004] 2 S.C.R.

A In the meanwhile, Appellant-Corporation took over possession of the
schedule property of the Undertaking of Respondent No:l, who filed a writ
petition objecting to taking over of the properties other than as provided under
Section 2(h) of the Act Later, the State Government decided to dispose of
some of the units/sugar factories of the appellant-Corporation including
B factory of Respondent No.1 by issuing notice inviting tenders for sale, which
was also challenged by him by filing another writ petition. Both the writ
petitions were disposed of by the High Court holding that certain portions of
the schedule property could not vest in the Corporation. Hence the present
appeals by the Appellant-Corporation.

c premises
It was contended for the appellant-Corporation that since the house/
in question was being used as godown for storing sugar and also
used as a residence of the Director/guest house of the factory, State acted
rightly in taking over possession thereof. On behalf of the Respondent No.1-
Company, it was submitted that the house/premises in question could not have )·,
been used as godow for storing sugar since it was situated far away from the
D factory.

Dismissing the appeals, the Court

HELD: 1.1. There is no material on record to show that the premises
in question were being used or occupied for the storage of sugar, and that
E the house in question was being used as a guest house or for the residence of
a Director of the factory. Under the provisions of U.P. Sugar Undertaking
(Acquisition) Act, it is the factory along with its properties which were
connected with or were in use for the purposes of the factory which were
·-
acquired and not the properti'es and assets of the Company running that
F factory. The Act specifically differentiates between a Company owning a
Sugar Undertaking and the Sugar Undertaking itself. The Company is much
wider entity as against the undertaking which is only one of the assets of the
Company. The Legislature deliberately did not touch the Company and
acquired only the undertaking as per the objects of the Legislature. The
registered office of the Company is owned and possessed by the Company
G and is not a part of the 'Schedule Undertaking' and, therefore, the same could
not vest in the State. Handing over of its possession by the Receiver to the
appellant-Corporation was illegal and contrary to the provisions of the Act
[612-H; 613-A-C]

1.2. The building in question or any part of it was never approved or
H used as a godown of the factory under the provisions of the U.P. Sugarcane
U.P. STATE SUGAR CORPORATION v. BURWALSUGARMILLSCO. LTD. [BHAN ,J] 607

(Purchase Tax) Act, 1961. lt cannot be said that the premises in question was A
being used as a godown to store the sugar. (613-G)

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1981-82
of 1998.

From the Judgment and Order dated 14.2.97 of the Allahabad High B
Court in C.M.W.P. No. 2292/83 and 1954 (MB) of 1994.

Ms. Shobha Dikshit, Pradeep Misra and Ms. Indu Misra with her for
the Appellant.

Manoj Swamp, Ms. Lalita Kohli and Anubhav Kumar for the C
Respondent.

The Judgment of the Court was delivered by

BHAN, J. I. U.P. State Sugar Corporation Limited, appellant herein, is
a company registered under the provisions of the Companies Act, 1956. It is D
owned and controlled by the State Government. In the year 1971, U.P. Sugar
Undertakings (Acquisition) Ordinance, 1971 (U.P. Ordinance 13 of 1971)
was issued which was replaced by U.P. Sugar Undertaking (Acquisition) Act,
1971 (for short 'the Act'). The objects of the Act as given in the Statement
of Objects and Reasons are as follows:
E
"The owners of certain sugar mills of the State or their lessees had
created serious problems for the cane-growers and labour which created
an adverse impact on the general economy of the areas, where those
mills were situate. The only solution of these problems was for the
State Government to take immediate steps to acquire with a view to F
renovating those and rehabilitating mills or carry out improvement
therein.

2. Accordingly, a legislation was prepared to acquire such mills, which
provided for acquisition of properties and assets pertaining to those
mills and for payment of compensation for the same and for the G
replacement of the dues of cane-growers, labourers and of the
Government out of the amount or compensation and for other
connected and incidental matters.

,
..
3. To prepare the mills for crushing before the next crushing season,
the usual annual repairs (which are carried out during off season) had H
A
608 SUPREME COURT REPORTS [2004) 2 S.C.R.

to be carried out well in time and since the time available was short,
immediate action was called for. As both the Houses of the State
--
Legislature were not in session, the Governor promulgated the Uttar
Pradesh Sugar Undertakings (Acquisition) Ordinance, 1971 on July
3, 1971.

B 4. The State Government have since decide that the dues of
canegrowers and labourers should be given higher priority than the __,,,,
State Government's taxes and other unsecured dues.

5. This Bill is being introduced to replace the aforesaid Ordinance
with the above modifications."
c
2. Act provided for acquisition of properties and assets pertaining to the
mills which had failed to clear their outstanding dues to the canegrowers,
labourers and the government and for payment of compensation for the same.
The Preamble of the Act reads:

D "An Act to provide, in the interest of the general public, for the
acquisition and transfer of certain sugar undertakings and for matters
connected therewith or incidental thereto."

3. Section 3 of the Act provided that on the appointed day, every sugar
undertaking shall deemed to be acquired and transferred to the Corporation-
E appellant.

4. Burwal Sugar Mills Co. Ltd., respondent No. I herein, is a company
registered under the Companies Act. It runs a sugar factory at Barabanki. On
the coming into force of the Act the respondent No. l's undertaking stood
transferred and vested in the Corporation-appellant as provided under Section
F 3 of the Act.

5. Several persons whose sugar undertakings had been acquired by the
said Act challenged the constitutional validity of the same by filing writ
petitions in the High Court. Respondent No. I also filed writ petition
G challenging the constitutional validity of the Act. The High Court passed an
interim order on 3rd July, 1971 directing the parties to maintain status quo
as it existed on 3rd July, 1971. Since at the time of acquisition, the sugar mill
was in possession of the Receiver, the possession was restored to the Receiver.
The writ petitions including the one filed by respondent No. I were rejected.
The Constitutional validity of the Act was upheld. Aggrieved against the
H order of the High Court, appeals were filed in this Court which were rejected
U.P. STATE SUGAR CORPORATION v. BUR WAL SUGAR MILLS CO. LTD. [BHAN, J.] 609

and the order .of the High Court was upheld. The judgment is reported in A
Jshwari Khetan Sugar Mills (P) Ltd and Ors. v. State of U.P. and Ors.,
(1980] 4 SCC 136. After the dismissal of the writ petitions, possession of the
scheduled property was taken over by the appellant. ·

6, Respondent No. I filed writ petition No. 2292 of 1983 objecting to
the taking over of the properties other than those provided under Section 2(h) B
of the Act. According to the respondent No. I the factory was being run by
a Receiver appointed by the State Government as on the date of the vesting
of the mill in the corporation. It was averred in the writ petition that the
Receiver had handed over possession of-the following properties illegally to
the appellant. C
I. Registered office at House No. 54/14 Canal Range at Kanpur.
2. Ambassador Car
3. Plot of Siddhaur
4. Grove Land D
5. Land appurtenant to the factory
6. Sale proceeds of Siddhaur Khan Sari Plant
7. Amount of loan realised from Sri Kishandas, Bhagirath Lal Arora
8. Share and securities Bonds. E
7. Appellant filed its counter affidavit wherein it was mentioned that
except the following properties which have vested in the corporation, the
possession of no other property was transferred to it.

1. House No.54/14 Canal Range at Kanpur from where sugar sale of F
the sugar manufactured in Burhwal Sugar Factory used to the
stored immediately before the appointed day.
2 One Ambassador Car No. 7142 (and not 481 307).
3. Land appurtenant to the factory which was used immediately
before the appointed day for the purposes of parking of cane carts G
and trollies, purpose directly connected with the process of the
sugar factory. The same land was also used as approach land for
the cane carts, trollies and trucks upto the mill gate.
8. State Government took a decision to dispose of eight units of the
appellant-corporation to the private sector which included the factory of H
610 SUPREME COURT REPORTS [2004] 2 S.C.R.
-....
A respondent No. I as well. Respondent No. I thereafter filed writ petition No. /-
1954 of 1994 challenging the notice inviting tenders for the sale. It was
contended in this petition that being the ex-owner of the property it had a
preferential right to purchase the unit on the price fixed by the corporation.

9. Both the writ petitions were taken up for hearing together and disposed
B of by a common order. Writ Petition No. 2292 of 1983 was allowed in part.
Out of the three properties the possession of which was admittedly taken over
by the appellant, the High Court held that the House No. 54/14 Canal Range,
Kanpur could not vest in the Corporation as it housed the registered office
of the Company. Its possession could also be not transferred to the Corporation.
C Even if some sugar was stored in that building as alleged by the appellant it
would not in any manner affect the dispute on merits. So far as other two
properties, namely, the car and the land appurtenant to the factory which was
being used immediately before the acquired date for the purposes of parking
of cane carts and trolleys etc. it wa~ held that the same were being used for
the purposes of factory and, therefore, the appellant could retain possession
D of those properties. In so far as other items were concerned the case of the
appellant was that those items had neither vested in the appellant nor their
possession had been taken. The High Court concluded that those items naturally
would be in possession of the Receiver appointed by the State and accordingly
directed the Receiver to give back the possession of those properties to
E respondent No. l.
I 0. Aggrieved against the judgment of the High Court the appellant has
filed the present appeals. The only controversy• raised in these appeals is
regarding House No. 54/14 Canal Range, Kanpur.

F l l. According to the, appellant the house apart from the registered
office of the company was also being used as a godown to store the
manufactured sugar for sale which was very much for the purpose of the t-
·factory and therefore its possession was rightly taken over and the same
stood vested in the appellant. It was also argued that the house in question
was being used as the residence of the Director and a guest house of the
G factory. As against this, learned counsel appearing for respondent No. I
supported the findings recorded by the High Court to the effect that the
building was the registered office of the company and the same was not
being used as a godown and indeed it could not have been used as such
because the same was situated at Kanpur which is at a distance of 116 Kms.
H .from Barabanki where the sugar was being manufactured. It was denied that
-- U.P. STATE SUGAR CORPORATION v. BURWAL SUGAR MILLS CO.LTD. [BHAN, J.] 611

the premises in dispute were being used either as the residence of the Director
or as a guest house of the factory.
A

12. For the purpose of resolving the controversy as indicated, a reference
to the definition of the word "Schedule Undertaking" as defined in the Act
may be made. It is defined in clause (h) of Section 2 of the Act, the same
~: B
"(h) "Schedule Undertaking" means an undertaking engaged in the
manufacture or production of sugar by means of vacuum pans and
with the aid of mechanical power in factory specified in the schedule
and comprises
c
(i) all plant, machine;·y and other equipment (including milling plant,
boiling house equipment, other sugar machinery, cane unloading
equipment and power plant), weight bridges, cranes, chimneys.
turbines and boilers (including the foundations, superstructure and
roofing thereof) pertaining to that factory;
D·
(ii) any engineering workshop, including machinery and equipment
thereof;
(iii) any chemical laboratory including any apparatus and equipment
thereof;
(iv) any motor or other vehicle or locomotive or railway sidings E
pertaining to that factory;
(v) any dic;pensary or hospital. or community or welfare centre
exclusively for the benefit of workmen and other persons employed
in that factory;
(vi) all lands (other than lands held or occupied for purposes of
F
cultivation and grove lands) and buildings held or occupied for
purposes of that factory (including buildings pertaining to any of
the properties and assets herein-before specified and guest houses
and residences of Directors, managerial personnel, staff and
workmen or of any other person as lessee or licensee, and any 0.
store houses, molasses, tanks, roads, bridges, drains, culverts, tube
wells, water storage or distribution system and other civil
engineering works) including. any leasehold interest therein;
(vii) all limestone quarries pertaining to that factory, including any
mining lease relating thereto; HI
A
612 SUPREME COURT REPORTS [2004] 2 S.C.R._

(viii) all electrical installations including any plant or equipment for
the generation or transmission of energy, telephone equipment,
·-
furniture and fixtures pertaining to that factory or to any property
or asset herein before specified;
(ix) all tools, spare parts and stores pertaining to that factory;
B (x) all fire arms for the use of watch and ward staff employed in that
factory;
(xi) all maps, plans, sections, drawings and designs pertaining to that
factory;
C (xii) all sugarcane, sugar in the process of manufacture for production
and stocks of sugar and molasses and all bagasse and--pressmud;
(xiii) · all books of account, registers and other documents pertaining to
the factory or to any property or asset hereinbefore specified, but
does not include cash-in-hand, cash at Bank, advances towards
D any income or other tax, investments and books, debts or rights,
liabilities and obligations respecting any other contract."

13. A perusal of the above provision shows that generally all machines,
tools, plants and other equipment which were being used for manufacturing
sugar were acquired including the workshops, chemical laboratories, vehicles,
E dispensaries, hospitals, community or welfare centre exclusively used for the
benefit of the workmen and other persons employed in the factory. Limestone
quarries, electrical installations, tools, spare parts and stores pertaining to that
factory were also acquired. Under sub-clause (vi) all lands and buildings held
or occupied for the purposes of that factory, guest houses and residences of
directors, managerial personnel, staff and workmen or of any other person
F were also taken over.

14. The intention of the Legislature is clear that the land and buildings
which were connected with or were in use for the purposes of the factory
would be covered by clause (vi) of section 2 (h). Admittedly, the registered
office of the respondent company was located at House No. 54/14 Canal
G Range, Kanpur. There is no material on the record to show the premises in
question were being used or occupied for the storage of sugar. Similarly,
there is no material on record to show that the house in question was being
used as a guest house. or for the residence of a Director of the factory.
Respondent No. I is a registered company and is running a sugar factory at
H Barabanki with its registered office in House No. 54114 Canal Range, Kanpur.
U.P. STATE SUGAR CORPORATION v. BURWALSUGARMILLSCO. LTD. [BHAN ,J J 613

Under the Act it is the factory along with its properties which were connected A
with or were in use for the purposes of the factory which were acquired and
not the properties and assets of the company running that factory. The Act
specifically differentiates between a company owning a sugar undertaking
and the sugar undertaking itself. The Company is much wider entity as against
the undertaking which is only one of the assets of the company. The Legislature
deliberately did not touch the company and acquired only the undertaking as B
per the objects of the Legislature. The registered office of the company is
located in House No. 54/14 Canal Range, Kanpur which is owned and
possessed by the company and is not a part of the 'Schedule Undertaking'
and, therefore, the same could not vest in the State. Handing over of its
possessicm by the Receiver to the appellant was illegal and contrary to the C
provisions of the Act.

15. Under the U.P. Sugarcane (Purchase Tax) Act 1961 the tax is levied
and is payable on the manufactured sugar by a sugar factory before the sugar
can be taken out from the factory campus except when it is kept in a godown
situated outside the factory campus and is approved as such by the assessing D
authority. Section 3A of this Act reads:

"Payment of tax before removal of sugar factory:- (1) No owner of
a factory shall remove, or cause to be removed any sugar produced
in the factory on or after the first day of October, 1971, hereinafter
referred to as the said date, either for consumption, or for sale or for E
manufacture of any other commodity in or outside the factory, until
he had paid towards the tax levied under Section 3 a sum specified
under sub-section (2) sub section (3) or sub section (4) as the case
may be

Provided that such sugar may be deposited without payment of any F
such sum in a godown or other place of storage approved by the
assessing authority and where it is so deposited it shall not be removed
therefrom until the sum as aforesaid has been paid ....... "

16. The building in question at Kanpur or any part of it was never
approved or used as a godown of the factory under the above said provisions. G
The plea taken by the respondent that the premises in question was being
used as a godown to store the sugar is therefore not sustainable. As pointed
out earlier, there is no material on record to show that the premises in dispute
were being used as a residence of a Director or a guest house. The plea raised
by the appellant to this effect is also rejected. H
614 SUPREME COURT REPORTS [2004) 2 S.C.R.

A 17. The relief as prayed for in Writ Petition No, I 954 of I 994 was not
granted to respondent No. I. Respondent No. I has not come up in appeal to
challenge the findings which have been recorded against it. The same have
attained finality.

I 8. For the reasons stated above, we do not find any merit in these
B appeals and the same are dismissed with no order as to costs.

S.K.S. Appeals dismissed.