2004 (2) TMI 724 - SC - Indian Laws

Supreme Court affirms constitutional validity of U.P. Sugar Act in Ishwari Khetan case

The Supreme Court affirmed the High Court's decision upholding the constitutional validity of the U.P. Sugar Undertakings (Acquisition) Act, 1971 in the ... Acquisition and transfer of a Schedule Undertaking - Schedule Undertaking - lands and buildings held or occupied for the purposes of the factory - distinction between company and undertaking - vesting of property in the Corporation - illegal transfer of possession by Receiver - use of premises as an approved godown for sugar - payment of tax before removal of sugarSchedule Undertaking - lands and buildings held or occupied for the purposes of the factory - distinction between company and undertaking - vesting of property in the Corporation - Whether House No. 54/14 Canal Range, Kanpur vested in the Corporation as part of the Schedule Undertaking under the U.P. Sugar Undertakings (Acquisition) Act, 1971 - HELD THAT: - The Act acquires the sugar undertaking and specifies what constitutes a 'Schedule Undertaking', including lands and buildings held or occupied for the purposes of the factory and guest houses or residences connected with the factory. The Court held that the legislative intent was to acquire only those lands and buildings which were connected with or in use for the purposes of the factory, and not the wider assets of the company. The registered office at House No. 54/14 Canal Range, Kanpur was the registered office of the company and there was no material to show it was held or occupied for purposes of the factory (such as storage or other factory-related use). Consequently, the premises did not fall within Clause (vi) of Section 2(h) and could not vest in the Corporation. The handing over of possession of that registered office by the Receiver to the appellant was therefore contrary to the Act. [Paras 14]House No. 54/14 Canal Range, Kanpur did not vest in the Corporation as part of the Schedule Undertaking and its transfer to the Corporation was illegal.Use of premises as an approved godown for sugar - payment of tax before removal of sugar - Whether the Kanpur premises was an approved or functional godown of the factory such as to bring it within the acquisible assets - HELD THAT: - Under the applicable purchase-tax scheme, sugar may be stored outside the factory in a godown only if approved by the assessing authority; otherwise tax must be paid before removal from the factory. The Court found no material to show that the Kanpur building was approved or actually used as a godown for the factory's sugar. Given the absence of evidence and the physical distance from the factory, the contention that the premises served as a godown was rejected. [Paras 16]The premises was not an approved or used godown of the factory and thus did not qualify as part of the acquisible undertaking on that basis.Illegal transfer of possession by Receiver - vesting of property in the Corporation - Whether the Receiver could lawfully hand over possession of the registered office to the Corporation - HELD THAT: - Because the registered office did not form part of the Schedule Undertaking and did not vest in the Corporation, any act of the Receiver effecting its transfer to the Corporation was contrary to the statutory scheme. The High Court directed restoration of such items which were not acquisible to the respondent, and those findings stand unchallenged by the respondent-company on appeal. [Paras 14, 17]Handing over possession of the registered office by the Receiver to the Corporation was illegal; the High Court's direction to restore such possession to the company remains binding.Final Conclusion: The appeal is dismissed. The registered office at House No. 54/14 Canal Range, Kanpur did not form part of the Schedule Undertaking under the Act, was not an approved godown, and its transfer to the Corporation by the Receiver was illegal; the High Court's orders in favour of respondent No. 1 remain undisturbed. Issues Involved:1. Constitutional validity of the U.P. Sugar Undertakings (Acquisition) Act, 1971.2. Legality of the possession of properties by the appellant.3. Preferential right to purchase the unit by the ex-owner.4. Specific controversy regarding House No. 54/14 Canal Range, Kanpur.Detailed Analysis:1. Constitutional Validity of the U.P. Sugar Undertakings (Acquisition) Act, 1971:The Act was enacted to address serious problems created by the owners or lessees of certain sugar mills for canegrowers and laborers, adversely impacting the general economy of the areas. The Act provided for the acquisition of properties and assets of such mills, payment of compensation, and prioritization of dues of canegrowers and laborers over the State Government's taxes. The High Court upheld the constitutional validity of the Act, and this decision was affirmed by the Supreme Court in the case of Ishwari Khetan Sugar Mills (P) Ltd. and Ors. v. State of UP. and Ors.2. Legality of the Possession of Properties by the Appellant:Respondent No. 1 challenged the possession of properties other than those specified under Section 2(h) of the Act. The High Court concluded that certain properties, such as House No. 54/14 Canal Range, Kanpur, did not vest in the Corporation as it housed the registered office of the company. The possession of other properties like the car and land appurtenant to the factory was retained by the appellant as they were used for factory purposes.3. Preferential Right to Purchase the Unit by the Ex-Owner:Respondent No. 1 filed a writ petition challenging the notice inviting tenders for the sale of the factory, claiming a preferential right to purchase the unit. The High Court did not grant the relief sought by Respondent No. 1, and this decision was not appealed, thus attaining finality.4. Specific Controversy Regarding House No. 54/14 Canal Range, Kanpur:The primary issue in the appeal was whether House No. 54/14 Canal Range, Kanpur, vested in the appellant. The appellant argued that the house was used as a godown for storing sugar, a residence for the Director, and a guest house. However, the court found no material evidence supporting these claims. The house was the registered office of the company and not part of the 'Schedule Undertaking' as defined in Section 2(h) of the Act. The court concluded that the handing over of its possession by the Receiver to the appellant was illegal and contrary to the provisions of the Act.Conclusion:The appeals were dismissed, and the High Court's decision was upheld. The court found no merit in the appellant's claims regarding the use of House No. 54/14 Canal Range, Kanpur, as a godown, residence, or guest house, and confirmed that it did not vest in the appellant under the Act. The judgment emphasized the distinction between the company owning the sugar undertaking and the undertaking itself, with only the latter being acquired under the Act.