2008 (1) TMI 964 - HC - Companies Law

Court upholds State Govt's 30-year sugar factory lease decision for public interest & cooperative society revival

Sri Ramu Solanke And Ors. Versus State Of Karnataka By Its

Sri Ramu Solanke And Ors. Versus State Of Karnataka By Its - ILR 2008 KAR 606 Issues Involved:1. Validity of the notification inviting tenders for leasing the sugar factory.2. Legality of the State Government's decision to lease the sugar factory.3. Jurisdiction of the State Government in issuing the impugned order.4. Impact of the decision on the members of the cooperative society and public interest.Detailed Analysis:1. Validity of the Notification Inviting Tenders:The petitioners challenged the notification dated 19.7.2007 issued by respondent Nos. 3 and 4, inviting tenders for leasing the Raibag Sahakari Sakkare Karkhane Niyamitha sugar factory on a Lease, Rehabilitate, Operate, and Transfer (LROT) basis for 30 years. The petitioners, who are shareholders and members of the society, argued that the decision to lease the factory was taken unilaterally by the State Government without consulting the general body of the society, which is against the cooperative principles and the Karnataka Co-operative Societies Act, 1959.2. Legality of the State Government's Decision:The petitioners contended that the State Government's decision to lease the sugar factory was arbitrary and not in the interest of the members of the society. They argued that the decision was taken without any recommendation from the general body or the board of the society. The respondents, however, justified the decision, stating that the factory had sustained heavy losses and was unable to pay its dues to farmers, workers, financial institutions, and the State Government. The factory was closed since 2001-02 due to financial distress, and the decision to lease was seen as the only viable option to revive the factory and safeguard the interests of all stakeholders.3. Jurisdiction of the State Government in Issuing the Impugned Order:The petitioners argued that the order at Annexure 'H' was issued without jurisdiction, as Section 30B of the Karnataka Co-operative Societies Act does not empower the State Government to issue such an order. The respondents countered this by stating that Section 30B empowers the State Government to issue directions in public interest and for the proper implementation of cooperative and other development programs. They argued that the decision to lease the factory was in public interest and aimed at reviving the cooperative society, thus falling within the jurisdiction of the State Government.4. Impact of the Decision on the Members of the Cooperative Society and Public Interest:The respondents highlighted that the factory's closure had adversely affected over 50,000 to 60,000 people dependent on it for their livelihood. The total liabilities of the factory were in excess of Rs. 15057 lakhs, with accumulated losses aggregating to over Rs. 9892 lakhs. The decision to lease the factory was seen as a means to revive it, keep the society intact, and benefit the members, farmers, employees, financial institutions, and the State Government. The lessee was required to invest a minimum of Rs. 100 crores in the factory, increase the crushing capacity, and establish co-generation and ethanol units. After the lease period, the entire assets would revert to the society, adding value to its assets.Conclusion:The court concluded that the decision to lease the factory was taken in public interest and was aimed at reviving the cooperative society. The State Government's decision was found to be just and proper, given the financial distress faced by the factory and its inability to pay its dues. The court held that the impugned order was within the jurisdiction of the State Government under Section 30B of the Karnataka Co-operative Societies Act and dismissed the writ petition.