State Sugar Corporation Vs. Burwal Sugar Mills Co. Ltd. & Others  Insc
117 (24 February 2004)
Bhan & S.H. Kapadia. Bhan,J.
U.P. State Sugar Corporation Limited, appellant herein, is a company registered
under the provisions of the Companies Act, 1956, It is 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
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 renovating those and rehabilitating mills or carry
out improvement therein.
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 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.
prepare the mills for crushing before the next crushing season, the usual
annual repairs (which are carried out during off season) had 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
State Government have since decide that the dues of canegrowers and labourers shouldf
be given higher priority than the State Government's taxes and other unsecured
This Bill is being introduced to replace the aforesaid Ordinance with the above
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:
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
Section 3 of the Act provided that on the appointed day, every sugar
undertaking shall deemed to be acquired and transferred to the Corporation-
Sugar Mills Co. Ltd., respondent No.1 herein, is a company registered under the
Companies Act. It runs a sugar factory at Barabanki.
coming into force of the Act the respondent No. 1's undertaking stood
transferred and vested in the Corporation-appellant as provided under Section 3
of the Act.
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.1 also filed writ petition 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.1 were rejected. The Constitutional
validity of the Act was upheld.
against the order of the High Court, appeals were filed in this Court which
were rejected and the order of the High Court was upheld. The judgment is
reported in Ishwari Khetan Sugar Mills (P) Ltd. and Others vs. State of U.P.
& Others [1980 (4) SCC 136]. After the dismissal of the writ petitions,
possession of the scheduled property was taken over by the appellant.
Respondent No.1 filed writ petition No. 2292 of 1983 objecting to the taking
over of the properties other than those provided under Section 2(h) of the Act.
According to the respondent No.1 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.
Registered office at House No. 54/14 Canal Range at Kanpur.
Plot of Siddhaur
4. Grove Land
Land appurtenant to the factory
6. Sale proceeds of Siddhaur Khan Sari Plant
Amount of loan realised from Sri Kishandas, Bhagirath Lal Arora
Share and securities Bonds.
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.
House No.54/14 Canal Range at Kanpur from
where sugar sale of the sugar manufactured in Burhwal Sugar Factory used to the
stored immediately before the appointed day.
Ambassador Car No. 7142 (and not 481 307).
Land appurtenant to the factory which was used immediately before the appointed
day for the purposes of parking of cane carts 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.
State Government took a decision to dispose of eight units of the appellant-corporation
to the private sector which included the factory of respondent No.1 as well.
Respondent No.1 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.
Both the writ petitions were taken up for hearing together and disposed 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. 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.
held that the same were being used for the purposes of factory and, therefore,
the appellant could retain possession 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 respondent No.1
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.
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 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 factory. As against this, learned
counsel appearing for respondent No.1 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. from Barabanki where the sugar was being manufactured. It
was denied that the premises in dispute were being used either as the residence
of the Director or as a guest house of the factory.
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
"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
all plant, machinery 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;
engineering workshop, including machinery and equipment thereof;
chemical laboratory including any apparatus and equipment thereof;
motor or other vehicle or locomotive or railway sidings pertaining to that
any dispensary or hospital or community or welfare centre exclusively for the
benefit of workmen and other persons employed in that factory;
all lands (other than lands held or occupied for purposes of 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 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;
limestone quarries pertaining to that factory, including any mining lease
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
tools, spare parts and stores pertaining to that factory;
fire arms for the use of watch and ward staff employed in that factory;
maps, plans, sections, drawings and designs pertaining to that factory;
sugarcane, sugar in the process of manufacture for production and stocks of
sugar and molasses and all bagasse and pressmud;
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 any income or other tax,
investments and books, debts or rights, liabilities and obligations respecting
any other contract."
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, dispensaries,
hospitals, community or welfare centre exclusively used for the benefit of the
workmen and other persons employed in the factory. Limestone queries,
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 were
also taken over.
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 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
No.1 is a registered company and is running a sugar factory at Barabanki with
its registered office in House No. 54/14 Canal Range, Kanpur. Under the 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 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 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 possession by the Receiver to the appellant was
illegal and contrary to the provisions of the Act.
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 authority.
Section 3A of this Act reads:
of tax before removal of sugar factory:-
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 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 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"
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. 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.
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.
The relief as prayed for in Writ Petition No. 1954 of 1994 was not granted to
respondent No.1. Respondent No.1 has not come up in appeal to challenge the
findings which have been recorded against it. The same have attained finality.
For the reasons stated above, we do not find any merit in these appeals and the
same are dismissed with no order as to costs.