UNION OF INDIAversusLAKSHMI SUGAR & OIL MILLS LTD., HARDOI

    758


A
                               UNION OF INDIA
                                     v.
                 LAKSHMI SUGAR & OIL MILLS LTD., HARDOI

                             NOVEMBER 21, 1985

B
                   [K.S. PATHAK AND M,P, THAKKAR, JJ,]

          The Sugar Undertakings (Taking over of Management)
    Ordinance 1978 Clause 3(1) & The Sugar Undertakings (Taking over
    of Management) Act, 1978. Section 3(a) (b) - Scope of.

          Sugar Undertaking - Arrears of cane dues - Accumulation of
c   - Initiation of action by Central Government - Whether arrears to
    be confined to current 'sugar year' or earlier 'sugar year'.

         The Respondent company manufactures sugar from sugar cane.
    On November 18, 1978, the Central Government issued a notice
    under sub-para ( l) of para 3 of the Sugar Undertakings (Taking
    over of Management) Ordinance, 1978 stating that as on November
D   15, 1978, the respondent-company was in arrears of cane dues in
    relation to the cane purchased before that date for the purpose
    of its sugar undertaking to the extent of more than ten per cent
    of the total price of the cane purchased by it du~ing the imne-
    diately proceeding "sugar year", the total arrears being Rs.
    475.99 lacs, and called upon the respondent to explain in writing
E   the circumstances in which the sugar undertaking had failed to
    clear the arrears of cane dues and why the undertaking should not
    be taken over by the Central Government under that Ordinance. On
    November 25, 1978 the respondent replied to the notice denying
    that it was in arrears. However, the Central Government issued an
    order dated December l, 1978 reciting that it was satisfied after
F   considering the report sent by the respondent that the arrears of
    cane dues had not been cleared by the respondent, and directing
    that the management of the sugar undertaking would vest in the
    Central Government for a period of three years commencing on and
    from December 2, 1978.

G         The respondent filed a writ petition in the High Court
    which was allowed. It was held that while the Central Government
    could take action in respect of the arrears due in respect of
    sugar cane purcll.ased during the current "sugar year" it could not
    do so in respect of the arrears pertaining to a preceding "sugar
    year", and therefore, the impugned orders were invalid. The High
H   Court quashed the order and directed handing over of the
    possession of the sugar undertaking.
              u.o.r. v. LAKSHMI SUGAR & OIL MILLS               759


     Allowing the appeal of the Union of India to this Court,         A

       HELD: l. The language of clause (b) of sub-section (a) of
section 3 is clear. It speaks of arrears of cane dues in relation
to the cane purchased "before that date". The language is wide
enough to include all the arrears of cane dues accwmnulated upto .
"that date" including the arrears pertaining to sugar cane            B
purchased in earlier years •.The judgment and order of the High
Court is set aside and the writ petition is dismissed. [765 D-E]

      2. The Sugar Undertakings (Taking over of Management)
Ordinance, 1978 was replaced by the Sugar Undertakings (Taking
over of Management) Act, 1978. An analysis of the provisions of       c
the Ordinance, and of the Act which replaced it, indicates that
the principal purpose of the legislation is to put mismanaged
sugar undertakings into proper functioning order by empowering
the Central Government to asswne the temporary management of the
undertakings. [761 E; 763 H - 764 A]
                                                                      D
      3. The legislation indicates two kind of cases evidencing
mismanagement. One is the failure of the undertaking to comoence
the manufacture of sugar on or before the appointed day in the
sugar year, or where the sugar undertaking, having started the
manufacture of sugar on or before that date, has ceased to
manufacture sugar before the expiry of the average period of          E
manufacture of sugar. (Clause (a) of sub-section (1) of section
3). The other is the case where the sugar undertaking has
accwnulated arrears of cane dues upto a date in a sugar year to
the extent of m<ire than ten per cent of the total price of the
cane purchased during the illlnediately preceding sugar year.
(Clause (b) of sub-section (1) of section 3). The two cases
merely provide evidence from which a. presumption can be drawn
                                                                      F
that the sugar undertaking is in distress. [764 B-C]

       4. The action intended under the legislation is intended to
serve more than the object of recovering arrears of cane dues. If
the object of recovering arrears of cane dues alone was the
purpose to be achieved, there was already sufficient provision in     G
existing statutes such as the U.P. Sugarcane (Regulation of
Supply and Purchase) Act, 1953, which by section 17 thereof
provides for the recovery of arrears of cane dues. The impugned
Ordinance and Act cannot be considered at par with the statutes
providing merely for the recovery of arrears of cane dues. The
object of the legislation covers a wider range of purpose. [764 G
765 A]                                                                H

      5. The permissible limit of arrears of cane dues provided
for in cl.(b) of sub-section (a) of section 3 merely constitutes
a standard for determi"!-ng whether the arrears of cane dues fall
         760                SUPl<EME COURT REPORTS     [1985) SUPP. 3 s.c.R.


A ' within the permissible limit or have exceeded it. It does nothing
    more than that. It cannot be extended as a criterion or
    determining whether the arrears of cane dues should be confined
    .to the sugar purchased during the instant sugar year or can
    include also the arrears in relation to sugar purchased during an
    earlier sugar year. (765 C-il)
II
               CIVIL APPELL<\TE JURISDICTION : Civil Appeal No. 162 of 1979,

              From the Judgment and Order dated 19.12,1978           of   the
         Allahabad High Court in Writ Petition No. 2774 of 1978.

             M.S, Gujaral, Dalveer Bhandari and R. N. Poddar for the
         Appellant•
c
               Anil Kumar Gupta and Brij Bhushan Sharma for the Respondent.

               The Judgment of the Court was delivered by

               PAll!AK, J. This appeal by special leave is direct against
         the judgment and order of the Allahabad High Court allowing a
D
         writ petition and quashing an order made by the Central
         Government under cl.(b) of sub-para (2) of para 3 of the Sugar
         Undertakings (Taking over of Management) Ordinance, 1978 and a
         consequential order issued under sub-para ( 4) of para 4 of the
         Ordinance.
 E
                The respondent company manufactures sugar from sugar cane.
         On Novemoer 18, 1978 the Central Government issued a notice under
         sub-para (1) of para 3 of the Sugar Undertakings (Taking over of
         Management) Ordinance, 1978 (hereinafter referred to as the
         "Ordinance") stating as on November 15, 1978 the respondent was
         in arrears of cane dues in relation to the cane purchased before
 F
         that date for the purpose of its sugar undertaking to the extent
         of more than ten per cent of the total price of the cane
         purchased by it during the iJilllediately preceding "sugar year",
         the total arrears being 475. 99 lacs, and that as the Central
         Government was satisfied that the effective functioning of the
         sugar undertaking was necessary for the purposes of the said
     G
         Ordinance, the Central Government called upon the respondent to
         explain in writing the circumstances in which the sugar undertak-
         ing had failed to clear the arrears of cane dues and why the
         undertaking should not be taken over by the Central l>overnment
         under that Ordinance. On November 25, 1978 the respondent repl.ed
         to the notice denying that it was in arrears to the extent of . \s.
 H
         475.99 lacs and cla.imed the right to tender oral. and documentary
         u.o.r. v. LAKSHMI SUGAR & OIL MILLS [PATHAK, J.]          761


 evidence on a date fixed for the hearing of the case. However,
 the Central Goverrnnent issued an Order s.o. 696 (E) dated              A
·December 1, 1978 reciting that it was satisfied after considering
 the report sent by the respondent that the arrears of cane dues
 in excess of ten per cent had not been cleared by the respondent,
 and directing that the management of the sugar undertaking would
 vest in the Central Goverrnnent for a period of three years
 conmencing on and from December 2, 1978.                                B

      The respondent filed a writ petition in the Allahabad High
Court, and on December 19, 1978 the High Court allowed the writ
petition holding that while the Central Goverrnnent could take
action in respect of the arrears due in respect of sugar cane
purchased during the current "sugar year" (that is to say, the           c
sugar year during which the action is taken) it could not do so
in respect of the arrears pertaining to a preceding sugar year,
and therefore the impugned orders were invalid. The order dated
December l, 1978 and the consequential order were quashed and the
appellant was directed to hand over possession of the sugar
undertaking to the respondent.                                           D


       The Ordinance has since been replaced by the Sugar
 Undertakings (Taking over of Management) Act, 1978 which while
 repealing the Ordinance adopts everything done or action taken
 under the Ordinance as if i t had been done or taken under the
 corresponding provisions of the Act.                                    E


       The Preamble of the Sugar Undertakings (Taking over of
 Management) Act, 1978 (hereinafter referred to as the "Act")
 recites that for "maintaining the continuity of production of
 sugar, for avoiding undue hardship to cane producing farmers and
 to best subserve the interest of all sections of the people, it
 is expedient in the public interest to provide for the taking           F
 over for a limited period the management of every sugar
· undertaking which fails or ceases to manufacture sugar or which
 fails to pay promptly amounts due for the cane acquired for the
 purposes of the undertaking." Sub-s. (1) of s.3 of the Act
 provides •
                                                                         G
              "3.(1) Where the Central Govermnent is satisfied -

              (a) that any sugar undertaking has in any sugar year
              failed to commence the manufacture of sugar on or
              before the appointed day in respect of that year, or
                                                                         H
    762           SUPREME COURT REPORTS       [1985] SUPP. 3 s.c.R.

A         having started the manufacture of sugar on or before
          that day ceased to manufacture sugar before the
          e.xpiry of the average period of manufacture of sugar
          in relation to that undertaking; or

          (b) that on any date in any sugar year any sugar
B         undertaking has, in relation to the cane purchased
          before that date for the purposes of the undertaking,
          arrears o! cane dues to the extent of more than ten
          per cent of the total price of the cane purchased for
          the purposes of the undertaking during the inmediately
          preceding sugar year; and
c         (c) that in either case the effective functioning of
          the undertaking is necessary for the purposes of this
          Act,

          the Central Government may issue a notice in such f onn
          and in such manner as may be prescribed to the owner
          or the manager of such sugar uncertaking calling upon
D         such owner or manager to report in writing within such
          time,   not   being   less   than five   days 1 as   may   be
          specified in the notice, the circumstances under which
          such undertaking has so failed to conmence or ceased
          to manufacture sugar or, as the case may be, clear the
          Said a·rrears of cane dues and to show cause as to why
          the management of such undertaking should not be taken
          over by the Central Government under this Act."

          And sub-s. (2) of s. 3 reads :-

          "(2) As soon as may be, after the receipt of the
F         report under sub-section (l} from the sugar
          undertaking, or where the sugar undertaking has failed
          to make such report within the time specified in the
          notice to that undertaking under sub-section (1),
          after the expiry of such time, the Central Government
          may make such further inquiry (if any) as i t may be
G         deem fit and -


          (a) if the Central Government is satisfied that having
          regard to all the circumstances of the case and the
          purposes of this Act that it would be expedient to
H         give further time to the undertaking to enable it to
        U.o.I. v. LAKSHMI SUGAR & OIL.MILLS [PATHAK, J.]      763

           commence or resume production of sugar or, as the case
          may be, clear the arrears of cane dues, it may, by        A
          order in writing, specify the date on or before which
          and the manner in which such undertaking shall
          commence or resume production of sugar or, as the
           case may be, clear the said arrears of cane dues; or

           (b) if the Central Government is not satisfied as        B
           provided iTI clause (a), declare by notification that
           the management of such undertaking shall vest in the
           Central Govermnent on and from such date as may be
           specified in such notification."

The expression "sugar year" has been defined by cl.(g) of s.2 of    c
the Act to mean "the period of twelve months commencing on the
lat day of October and ending with the 30th day of September next
following". Sub-s.(5) of s.3 of the Act provides that a
notification issued under sub-s.(2) for vesting the management of
a sugar undertaking in the Central Government shall be in force
for such period not exceeding three years from the date of          D
vesting as may be specified in the notification and that although
such period may be extended the total period for which the
management may remain vested in the Central Government should in
no case exceed three years from the date of vesting.

     From the facts set out before the High Court it appears that   E
the management of the undertaking had been taken over on the
ground that the respondent had not paid in full the price of the
sugar cane purchased before November 15, 1978, and that included
the sugar cane purchased during the sugar year 1977-78, and the
arrears so due were more than ten per cent of the total price of
the cane purchased during the sugar year 1977-78. It was
contended by the respondent that the arrears of cane price for      F
the sugar year 1977-78 could not be a ground for making the
impugned order. It was urged that cl.(b) of sub-para (2) of
para 3 of the Ordinance on a proper construction thereof,
empowered the Central Government to initiate action for assuming
the management of the undertaking only if the arrears of cane
purchased during the period from the commencement of the sugar      G
price were due for sugar cane year 1978-79 to November 15,1978
which period would fall within the sugar year 1978-79. The
contention found favour with the High Court, and it granted
relief on the writ petition.

     It is apparent from an analysis of the provisions of the
Ordinance and thereafter the Act which replaced it, that the        II
    764               SUPREME COURT REPORTS      [1985] SUPP. 3 S.C.R.

A   principle purpose of the legislation is to put mismanaged sugar
    undertakings into proper functioning order by empowering the
    Central Government to assume the temporary management of the
    undertakings. The legislation indicates two kind of cases
    evidencing such mismanagement. One is the failure of the
    undertaking to colllUence the manufacture of s~gar on or before the
B   appointed day in the sugar year or where the sugar undertaking,
    having started the manufacture of sugar on or before that day,
    has ceased to manufacture sugar before the expiry of the average
    period of manufacture of sugar. Vide cl.(a) of sub-s.(l) of s.3.
    The other is the case where the sugar undertaking has accumulated
    arrears of cane dues upto a date in a sugar year to the extent of
    more than ten per cent of the total price of the cane purchased
c   during the illlllediately preceding sugar year. Vide cl.(b) of
    sub-s. (l) of s. 3. The two cases merely provide evidence from
    which a presumption can be drawn that the sugar undertaking is in
    distress. In both cases the statute further requires that the
    Central Government should be satisfied that the effective
    functioning of the undertaking is necessary for the purposes of
    the Act, that is to say, for maintaining the continuity of the
D   production of sugar, for avoiding undue hardship to cane
    producing farmers and far best subserving the interests of all
    sections of the people. Vide cl.(c) of sub-s.(l) of s.3. In other
    worda, what the legislation intends is that where a sugar
    undertaking has been so mismanaged that either the undertaking
    has failed to colllllence the manufacture of sugar in the sugar
E   year, or having commenced manufacture has ceased to carry it on
    during the sugar year, or has accumulated arrears of cane dues in
    excess of the prescribed standard, then in all these cases it
    must further be determined whether the effective functioning of
    the undertaking is necessary for the purposes mentioned earlier,
    and only upon being so satisfied can the Central Government
F   assume the temporary management of the undertaking. It takes over
    the undertaking temporarily in order to put it back on the rails
    after removing the aberrations and shortcomings responsible for
    the mismanagement and restoring the undertaking to a normal
    condition of effective functioning. The action intended under the
    legislation is intended to serve more than the object of
G   recovering the arrears of cane dues. If the object of recovering
    arrears of cane dues alone was the purpose to be achieved, there
    was already sufficient provision in existing statutes such as the
    U,P, Sugarcane (Regulation of Supply and Purchase) Act, 1953,
    which by s .17 thereof provides for the recovery of arrears of
    cane dues. The impugned Ordipance and Act cannot be considered at
H   par with statutes provid~ng merely for the recovery of arrears of
         U.Q.l, v. LAKSHMI SUGAR & OIL MILLS [PATHAK, J.]    76S


cane dues. As has been explained earlier, the object of the         A
legislation covers a wider range of purpose.

     The argument of the respondent before the High Court was
that the permissible limit of arrears of cane dues had been
defined as ten per cent of the total price of the cane purchased    B
during the illloediately preceding sugar year,· and this, it was
said, required the court to confine the arrears of cane dues to
the cane purchased between the comnencement of the instant sugar
year and the date in the sugar year when cognisance of the matter
was taken. We are not satisfied that cl.(b) of sub-s.(a) of s.3     c
should be so limited. The permissible limit merely constitutes a
standard for determining whether the arrears of cane dues fall
within the permissible limit or have exceeded it. It does nothing
more than that. It cannot be extended as a criterion for
determining whether the· arrears of cane dues should be confined
to the sugar purchased during the instant sugar year or can         D
include also the arrears in relation to sugar purchased during an
earlier sugar year. The language of the clauee is clear. It
apeaks of arrears of cane dues in relation to the cane purchased
"before that date", It seems to ue that the language is wide
enough to include all the arrears of cane dues accumulated upto     E
"that date", including the arrears pertaining to sugar cane
purchased in earlier years:

     In the results, the appeal is allowed, the judgment and
order dated December 10, 1978 of the High Court is set aside and
the writ petition is dismissed. As the point is one of first
impression, there is no order es to costs.                          F




N.V.K.                                            Appeal allowed.