SAHYADRI CO-OPERATIVE CREDIT SOCIETY LTD.versusTHE STATE OF MAHARASHTRA AND OTHERS

                         [2016] 2 S.C.R. 347


     SAHYADRI CO-OPERATIVE CREDIT SOCIETY LTD.                              A
                                   v.
        THE STATE OF MAHARASHTRA AND OTHERS
                 (Civil Appeal No. J840of2013 etc.)
                          MARCH 28, 2016                                    B
      [RANJAN GOGOi AND PRAFULLA C. PANT, JJ.)
        Debt - Money lent by appella11/-creditors - To the sugar
factory (respo11dents) - Certain amount of sugar stocks in the
godown of the sugar factories agreed to be pledged i11 favour of
the appe/la11ts - 011 failure 011 the part of the respondents to pay
                                                                            c
outstanding dues to sugarcane suppliers, order under Sugarcane
(Control) Order, 1966 directing release of certain amount to be paid
to sugarcane suppliers was passed - Co11seque11tly stock of sugar
in the godowns of the respondents including the stock pledged i11
 favour of the appella11ts, attached - Objectio11 to attachme11t filed      D
by the respondent-sugar factories a11d the appellants - Sugar stock
further put to auction - Writ petitio11 by appellants pleading that
they had right of precedence in the repayment of loan amount -
High Court disposed of the petitions holding that the appellants
 had first right over the amount of pledged sugar - Pursuant to
 High Court order when the appellants approached the authority              E
 concerned, the authority rejected their claim - Writ petitions by
 appellants against the rejection order - High Court dismissed the
 writ petitions holding that the appellants had alternative remedy to
 file suit uls.218 of Maharashtra Land Revenue Code - On appeal,
 held: The order of the High Court in the earlier round of litigation,      F
 having attained finality, genuineness in favour of the appe/lants-
 creditors cannot be doubted - High Court erred in dismissing the
  writ petitions - The authorities concerned directed to disburse the
  amount giving precedence to appellants over the dues payable to
  the workers and sugarcane farmers - Sugarcane (Control) Order,
  1966.
         Aliowing the appeals, the Cnurt
         HELD:. 1. It is not "disputed that in the earlier round
  of litigation, appellants filed Writ Petitions. It is also not disputed
  that in said writ petitions the factum relating to pledge made in
  favour of appellants by rcsponilcnt No.5 was considered, and the          H
                                   347
348             SIJPREME COIJRT REPORTS                 [2016] 2 S.C.R.


/\   lligh Court accepted that the stock or sugar in question was
     pledged in favour or the appellants. llowever, the lligh Court
     observed that the order dated 28.5.2011, passed by the
     Commissioner or Sugar & Special Registrar, Co-operative
     Societies, Maharashtra, was not challenged, as such, no
 l3 adjudication was m>lllC in respect or entitlement or the appellants
    ,us against the claints oflvorkcrs' union or the sugarcane farntcrs.
     The. High Court disposed or the writ petitions direcling the
     Collector to consider the entitlement and priorily or the
     appellants, sugarcane farmers and the workers. The order
     dated 12.8.2011 was passed by the High Court in the earlier round
 C or litigation not only artcr hearing the respondents orsaid case
     but also the intenrcnors, lvho arc contesting respondents in .the
     present round or litigation, as such, it is not open for the
     contesting respondents now to challenge the genuineness or the
     pledge made in favour or the appellants, as the order in the earlier
     round has attained finality. Even in view or the record pertaining
 D
     lo the trausactions or pledge by which respondent Nos. 5 and 6
     pledged the sugar stock in 11ucstion, in favour or the appellants,
     there is uo reason to doubt the transactions. Tims, the High
     Court has erred in law in dismissing the writ pctitious filed by
     the appclla1its. fl'ams 10, II and 13( (353-E-11; 354-A-B; 355-Gf
 E         Ce11tral Bank <!f1mlia 1: SiriKllflf'" SuKcirs & Chemicals
           ltd. """others 2007 (8 ) sen 898 : (2007) .8 sec 353
           - relied on .
            .2. The authorities concerned arc directed to disburse the
      amount in the light of the observations made, regarding
 F    cutitlcmcnl of the appellants with precedence over the dues
      payable to workers and sugarcane farmers, under Sugarcane
      (Control) Order, 1966. However, ii is clarified that the amount·
      already distributed shall not be recovered from the workers and
      the sugarc:rne farmers .. (Para 14( (355-11; 356-A-Bf     ·

 G                          Case Law Reference
      2001 (8) sen 898              relied on.                 Para 7.
             CIVIL/\PPELL/\TE_JURISDICTION: Civil /\ppeal No. 1840 of
      2013
            From the.Judgment and Order dated 10.02.2012 passed by the
 II   lligh Court ofJudicaturc of Bombay in Writ Petition No. 8452of2011.
SAHYADRI CO-OPERATIVE CREDIT SOCIETY LTD. v. THE                           349
             STATE OF MAHARASHTRA

                                    WITH                                    A
      C.A. No. 1841 of2013
      Harin P. Rawal, Shyam Divan, Sr. Advs., Shivaji M. Jadhav, Ms.
Astha Deep, Brij Kishor Sah, Advs., for the Appellant.
     Vinay Navare, Ms. Abha R. Sharma, Ms. Aparna Bhat, Ms.
Runjun Borah, Satyajit A. Desai, Ms. Anagha S. Desai, Akash Kakade,         B
Anuradha Mutatkar, Neelmani Pant, K. N. Rai, Nishant Ramakantrao
Katnesbwarkar, Arpit Rai, Adv., for the Responaent.
      Sachin Patil, Adv. for the Intervenor.
    · The Judgment of the Court was delivered by
       PRAFULLA c, PANT. J., I. These appeals are directed                  c
against judgment and order dated I 0.02.2012, passed by the High
Court of Judicature at Bombay in Writ Petition Nos. 8452 of 2011
and 8453 of 2011, whereby the High Court dismissed the writ
petitions filed by the writ petitioner-societies (present appellants),
observing that the alternative remedy of filing suit was available to       D
them under Section 218 of Maharashtra Land Revenue Code, 1966
(for short "the MLR Code").
        2. Brief facts of the case are that tlie appellants are Multi
State C9- operative Societies registered under Multi States Co-operative
Societies Act, 2002 and operate in the geographical territories of          E
Maharashtra and Karnataka. The appellant-societies are engaged in
the business of accepting deposits from its members, and lending
money to them. Respondent no. 6 Mis. Tasgaonkar Sugar Mills Ltd. is
lessee of business of respondent no. 5 Daulat Shetkari Sahakari Sakbar
Karkhana Ltd. under the deed dated 15. I 0 .20 I 0, and, as such,
respondent no. 6 bas taken over the business of respondent no. 5.           F
They approached the appellants for financial assistance. Appellant
Sahyadri Co-operative Credit Society Ltd. sanctioned loan of
Rs.7,00,00,000/- repayable within a period of six months to respondent
no. 5, and appellant Navhind Co-operative Credit Society Ltd. sanctioned
loan ofRs.12,20,00,000/- on similar terms to it. Both the sums are          G
credited into the account of Kolhapur District Central Co-operative
Bank Ltd., erstwhile creditor of respondent no. 5. Said Bank bad
consented to respondent No. 5 for creation of charge in favour of the
appellants in the form of pledge. As such, sugar stock of35,000 quintals
stored in godown no. 6 of respondent nos. 5 and 6 was agreed to be
pledged in favour of appellant Sabyadri Co-operative Credit Society         H
350              SUPREME COURT REPORTS                        [2016) 2 S.C.R.


A     Ltd., and sugar stock of80,985 quintals stored in godown Nos. 7-1 and
      7-11 was agreed to be pledged in favour of appellant Navhind Co-operative
      Credit Society Ltd. In respect of said transactions of pledge, separate
      letters dated 31.03.2011 regarding consent of respondent no. 6 were
      issued in favour of the appellants. The appellants and respondent nos.
      5 and 6 entered into an agreement on 25.05.2011 and the same was
B
      duly registered. It is pleaded that respondent no. 8 Dau lat Sakhar Kamgar
      Sangh (workers union) also gave consent for creation of pledge.
         3. Admittedly, respondent nos. 5 and 6 ran into losses and failed
  to pay the outstanding dues of the cane growers. Consequently,
  respondent no. 2, Commissioner of Sugar/ Special Registrar, Co-
c operative Societies, State of Maharashtra, Pune, passed an order under
  Sugarcane (Control) Order, 1966 directing release of Rs.36,22,66,591
  with interest accrued to be paid to the members who had supplied
  their sugarcane post May 15, 2010. Respondent no. 3 Collector,
  Kolhapur, was nominated as authorized officer for disbursement of
D said amount. In pursuance of said order, respondent no. 3 directed -
  respondent no. 4 Tehsildar, Chandgad, District Kolhapur,
  Maharashtra, to recover the amount of Rs.36,22,66,591 /-as arrears of
  land revenue under clause 3(9) of the Sugarcane (Control) Order,
   1966, from respondent no. 5. Accordingly, respondent no. 4 visited site
  of respondent no. 5 and attached the stock of godown no. 6 and godown
E nos. 7-1 and 7-11 under clause 3(9) of the Sugarcane (Control) Order,
  and directed respondent no. 5 not to dispose of the stock of sugar lying
   in the above godowns. Respondent nos. 5 and 6 objected to the
  attachment of sugar stock pledged to them. The appellants also raised
  their objections to the attachment. However, on 18.6.2011 a public
F notice was issued in the newspapers, including Daily Sakal, wherein
   it was informed that godown no. 6 and godown nos. 7-1 and 7-11 along
   with other stock would be put to auction on22.6.201 I at 3.30 p.m.
   in pursuance of the order dated 28.5.2011. Aggrieved by this,
   appellant Navhind Co-operative Credit Society Ltd., and appellant
   Sahyadri Co-operative Credit Society Ltd. filed Writ Petition Nos.
G 4539 and 4533of2011 respectively before the High Court of Judicature
   at Bombay pleading that they have right of precedence in the repayment
   of loan amount. The High Court, vide its order dated 22.6.2011 (on the
   day of public auction), directed that auction, as notified, should be
   conducted after fixing the set price. The High Court further directed
H that the amount receivable against the stock of sugar pledged to the
SAHYADRI CO-OPERATIVE CREDIT SOCIETY LTD. v. THE                             351
   STATE OF MAHARASHTRA (PRAFULLA C. PANT, J.]

appellants shall be deposited with the Registrar (Judicial) of the            A
High Court whereafter the Registrar (J.udicial) was to keep the
amount in a nationalized bank in fixed deposit. On 11.7.201 l, Sub
Divisional Officer filed an affidavit stating that the entire stock of
sugarcane was sold for a sum ofRs.52,95,36,483/-, out of which the
amount realized against the pledged sugar was Rs.27,94,27,910/-. A
                                                                              B
sum of Rs.21,65,00,000/- was deposited in the High Court, and regarding
rest, it was stated before the High Court that the same would be
deposited after receiving the same from the auction-purchaser. The
High Court finally disposed of both the writ petitions (Nos. 4533 and
4539 of201 l) holding that the appellants would have first right over
the amount of pledged sugar, and respondent no. 3 was directed to             c
make distribution of the amount collected· in accordance with rules
keeping in mind the rights of precedence ofthe parties. Consequently,
the appellants approached respondent no. 3, but said authority rejected
the claim of the appellants and held that the payment of Provident Fund
amounting to Rs.4,66,40,511/- on account of dues to the Assistant
                                                                              D
Provident Fund Commissioner would be the first priority, and a sum of
Rs.36,22,66,591/- plus interest shall be paid to the cane growers who
supplied sugarcane to respondent no. 5 (Dau lat Shetkari Sahakari Sakhar
~arkhana Ltd.). It is fut1her directed by respondent no. 3 that the
balance amount, after auction of sugar stock, be paid to the workers
of factory of respondent no. 5.                                               E
       4. Aggrieved by aforesaid order of the Collector, Kolhapur
(respondent no. 3), the appellants, namely, Sahyadri Co-operative
Credit Society Ltd. -ai1d Navhind Co-operative Credit SocJety Ltd.
filed Writ Petition Nos. 8452 of 2011 and 8453 of 2011 respectively
before the High Court. Notices were issued and the respondents                 F
objected to the maintainability of the two writ petitions. Vide.interim
order dated 17.11.2011, the High Court passed common order in both
the writ petitions declining interim stay prayed by the writ petitioners
and observed that a sum ofRs.27,94,27,910/- deposited in the High
Court shall continue to remain invested in fixed deposit and the objection
relating to the maintainability shall be heard at the time ofarguments on     G
admission. In said order the High Court took note of the fact that the
total amount realized after auction of 2, 17,984 bags/ quintals of sugar
manufactured by respondent no. 5 (including the disputed pledged
sugar in favour of the appellants), is Rs.52,95,36,483/-. It is further
observed by tb.e High Court in the interim order dated 17.11.2011 that a      H
                                    /
352                   SUPREME COURT REPORTS                    [2016) 2 S.C.R.


A     sum ofRs.27,94,27,910/- was deposited in the High Court, and out of
      balance amount ofRs.25,01,08,573/- with the Collector, Kolhapur, an
      amount of Rs.20,00,00,000/- has been distributed amongst workers.
      And rest of the sum left with the Collector, as allowed by the High Court
      on 23.12.2011, was disbursed towards Provident Fund of workers. Finally,
      the High Court, vide impugned order dated 10.2.2012, dismissed the writ
B
      petitions on the ground that the appellant-creditors have alternative
      remedy available to them to file suit under Section 218 of the MLR
      Code.
               5. Section 218 of the MLR Code reads as under: -
               "218. Claims to attached property how to be disposed. - (1) If
c              any claim is set up by a third person to the property attached or
               proceeded against under the provisions of this Code, the Collector
               may on a formal inquiry held after reasonable notice, admit or
               reject it.
               (2) The person against whom an order is made under sub-
D              section ( 1) may, with in one year from the date of the order,
               institute a suit to establish the right which he claims to the
               property attached or proceeded against, but subject to the
               result of such suit, if any, the order shall be conclusive."
             6. On behalf of the appellants it is argued that the claim of the
      appellants is independent of the MLR Code, and the Collector, Kolhapur,
 E    passed the order in exercise of power under the provisions of Sugarcane
      (Control) Order, 1966, as such the bar contained in clause 218(2) of the
      MLR Code is not applicable to them. In this connection, it is pointed
      out that the High Court, while disposing of the writ petitions filed in
      earlier round, had directed the Collector to disburse the sum keeping in
 F    mind the right of precedence.
            7. It is further argued that the appellants, being secured creditors,
      had a right of precedence in repayment of dues outstanding against
      respondent no. 5, and sugar pledged in their favour was not liable to be
      attached by the respondent authorities. It is reiterated that there was
 G    already an order passed by the High Court on 12.8.2011 in Writ Petition
      Nos. 4533 of 2011 and 4539of2011 holding the right of precedence
      of the appellants in respect of the pledged sugar. Attention of this
      Court is drawn to the principle of law laid down by this Court in
      Central Bank of India v. Siriguppa Sugars & Chemicals Ltd.
      and others', and it is submitted that the High Court has lost sight of
H     1
          (2007J   s sec 353
 SAHYADRI CO-OPERATIVE CREDIT SOCIETY LTD. v. THE                              353
    STATE OF MAHARASHTRA [PRAFULLA C. PANT, J.]

right of precedence of pawnee, recognized in said case.                         A
      8. On the other hand, learned counsel for the contesting
respondents argued that the transactions of alleged pledge in favour of
the appellants are sham, and created only to defeat the payment due to
the workers and the cane growers. In this connection, our attention is
drawn to Annexure P-1, i.e. copy of Working Capital Loan Agreement.             B
It is pointed out that in respect of loan disbursed on 3 1.3 .20 11 the
agreement was registered later on 26.5.2011, and the document shows
pledge of sugar was only promised.
       9. In reply to the above argument, the appellants drew our attention
 again to the order dated 22.6.2011, passed in Writ Petition No. 4533           c
 of 2011 (Annexure P-5 to Civil Appeal No. 1841 of2013) and order
 dated 12.8.2011 passed in Writ Petition No. 4539 of2011 (Annexure P-
 5 to Civil Appeal No. 1840 of 2013), wherein the High Court has
 observed that stock of sugar in question was pledged in favour of the
 appellants, and it is submitted that the orders in that round of litigation
 have attained finality, as such, the same cannot be questioned now.            D

          I 0. We have considered the above submissions and also perused
  the record of the case. It is not disputed that in the earlier round of
  litigation appellants Navhind Co-operative Credit Society Ltd. and
  Sahyadri Co- operative Credit Society Ltd. filed Writ Petition Nos.
  4533 of 2011 and 4539of2011 respectively which were disposed of               E
  by the High Court on 12.8.2011. It is also not disputed that in said writ
  petitions the factum relating to pledge made in favour of appellant
  Sahyadri Co-operative Credit Society Ltd of godown no. 6, and the
  pledge of godown nos. 7-I and 7-II in favour of appellant Navhind Co-
  operative Credit Society Ltd. by respondent no. 5 was considered, and          F
  the High Court accepted that the stock of sugar in question was
  pledged in favour of the appellants. However, the High Court observed
  that the order dated 28.5.2011, passed by the Commissioner of Sugar
  & Special Registrar, Co-operative Societies, Maharashtra, was not
· challenged, as such, no adjudication was made in respect of entitlement
  of the appellants as against the claims of workers' union or the              G
  sugarcane farmers. The High Court disposed of the writ petitions
  directing the Collector to consider the entitlement and priority of the
  appellants, sugarcane farmers and the workers. It appears that the
  order dated 12.8.2011 was passed by the High Court in the earlier
  round of litigation not only after hearing the respondents of said            H
354              SUPREME COURT REPORTS                        [2016] 2 S.C.R.


A case but also the intervenors, who are contesting respondents in
      the present round of litigation, as such, in our opinion, it is not open
      for the contesting respondents now to challenge the genuineness of the
      pledge made in favour of the appellants, as the order in the earlier
      round has attained finality.
B             11. Apart from this, we have examined the papers on record
      pertaining to the transactions of pledge by which respondent Nos. 5
      and 6 pledged the sugar stock in question in fav"ur of the appellants
      and we find no reason to doubt the transactions. Copy of letter
      No. CMA-856/2010-11dated21.2.2011, on the record, discloses that
      Kolhapur District Central Cooperative Bank Ltd. communicated "No
c     Objection" to respondent no. 5, Daulat Shetkari Sahakari Sakhar
      Karkhana Ltd., by enclosing No Objection Certificate in favour of
      respondent no. 6 Tasgaonkar Sugar Mills Ltd. for raising working
      capital Joan from other financial institutions. Copy ofresolution dated
      6.3.20 I I, passed by Special General Body ofSahyadri Multi- State Co-
D     operative Credit Society Ltd. (Annexure A-6 to additional affidavit
      filed on behalf of the appellant in Civil Appeal No. 1840 of2013)
      shows that a decision was taken to raise loan of Rs.12,00,00,000/-
      against pledge of sugar. Consequential resolution dated 8.3.2011
      (Annexure A-8) appears to have been passed by appellant Sahyadri
      Multi-State Co- operative Credit Society Ltd. in the meeting of the
 E    Board of Management Committee. Through letter dated 23.3.20 I I
      (Annexure A-I 0) respondent no. 5 Dau lat Shetkari Sahakari Sakhar
      Karkhana Ltd. informed the appellants giving consent for raising
      working capital against pledge of goods. Copy of letter No. Accts/
      Fin/1732/20 I 0- I I dated 25.3.2011 (Annexure A-11 to additional affidavit
 F    filed in Civil Appeal No. 1840 of 2013) shows that respondent no. 5
      Daulat Shetkari Sahakari Sakhar Karkhana Ltd. requested Kolhapur
      District Central Co-operative Bank Ltd. for issuance of NOC in
      favour of the appellant-societies specifying the godown numbers and
      the quantity of sugar in stock. Record further reveals that through Jetter
      No. CMA-868/2010-1 I dated 29.3.201 I (Annexure A-14 to additional
G     affidavit filed in Civil Appeal No. 1840 of 2013) Kolhapur District
      Central Co- operative Bank Ltd. gave consent for pledge of sugar stock
      of godown Nos. 6 and 7 in favour of the appellants. All the above
      documents remove the clouds of doubt as to the transactions of pledge
      in question in favour of the appellants.
H
SAHYADRI CO-OPERATIVE CREDIT SOCIETY LTD. v. THE                            355
   STATE OF MAHARASHTRA [PRAFULLA C. PANT, J.]

      12. In Central Bank oflndia v. Siriguppa Sugars & Chemicals            A
Ltd. (supra), in similar facts. this Court has held as under: -
      "17. Thus, going by the principles governing the matter propounded
      by this Court, there cannot be any doubt that the rights of the
      appellant Bank over the pawned sugar had precedence over the
      claims of the Cane Commissioner and that of the workmen.               B
      The High Court was, therefore, in error in passing an interim
      order to pay parts of the proceeds to the Cane Commissioner
      and to the Labour Commissioner for disbursal to the cane
      growers and to the employees. There is no dispute that the
      sugar was pledged with the appellant Bank for securing a loan of
      the first respondent and the loan had not been repaid. The goods
                                                                             c
      were forcibly taken possession oTat the instance of the revenue
      recovery authority from the custody of the pawnee, the appellant
      Bank. In view of the fact that the goods were validly pawned
      to the appellant Bank, the rights of the appellant Bank as pawnee
      cannot be affected by the orders of the Cane Commissioner or           D
      the demands made by him or the demands made on behalf of the
      workmen. Both the Cane Commissioner and the workmen in the
      absence of a liquidation, stand only as unsecured creditors and
      their rights cannot prevail over the rights of the pawnee of the
      goods.
                                                                             E
      18. We are also of the view that pending the writ appeals, the
      High Court ought not to have passed such an interim order of
      consequence especially in the light of the legal principles settled
      by this Court. The order of the High Court, therefore, cannot be
      sustained and calls for interference."
                                                                             F
       13. In view of law laid down, as above, by this Court in Central
Bank of India v. Siriguppa Sugars & Chemicals Ltd. (supra), and
further considering the facts and circumstances of the case, we are of
the opinion that the High Court has erred in law in dismissing the
writ petitions filed by the appellants.
                                                                             G
      14. For the reasons, as discussed above, both the appeals
deserve to be allowed. Accordingly, the appeals are allowed. The
impugned judgment and order dated 10.2.2012, passed in Writ Petition
Nos. 8452 of 2011 and 8453 of 2011 is set aside. We direct the
authorities concerned to disburse the amount in the light of the
observations made above regarding entitlement of the appellants with         H
356              SUPREME COURT REPORTS                     [2016] 2 S.C.R.


A     precedence over the dues payable to workers and sugarcane
      farmers, under Sugarcane (Control) Order, 1966. However, we
      clarify that the amount already distributed shall not be recovered from
      the workers and the sugarcane farmers. There shall be no order as to
      costs.
B     Kalpana K. Tripathy                                     Appeals allowed.