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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1840 OF 2013

Sahyadri Co-operative Credit Society Ltd. … Appellant

Versus

The State of Maharashtra and others …Respondents

WITH

CIVIL APPEAL NO. 1841 OF 2013

J U D G M E N T

Prafulla C. Pant. J.,

These appeals are directed against judgment and order

dated 10.02.2012, 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 them

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under Section 218 of Maharashtra Land Revenue Code, 1966

(for short “the MLR Code”).

2. Brief facts of the case are that the appellants are Multi

State  Co-operative  Societies  registered  under  Multi  States

Co-operative  Societies  Act,  2002  and  operate  in  the

geographical territories of 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 M/s. Tasgaonkar Sugar Mills Ltd. is lessee

of  business  of  respondent  no.  5  Daulat  Shetkari  Sahakari

Sakhar Karkhana Ltd. under the deed dated 15.10.2010, and,

as  such,  respondent  no.  6  has  taken  over  the  business  of

respondent  no.  5.   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 of  Rs.12,20,00,000/- on similar terms to it.   Both the

sums  are  credited  into  the  account  of  Kolhapur  District

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Central  Co-operative  Bank  Ltd.,  erstwhile  creditor  of

respondent no. 5.  Said Bank had consented to respondent No.

5 for creation of charge in favour of the appellants in the form

of pledge.  As such, sugar stock of 35,000 quintals stored in

godown no. 6 of respondent nos. 5 and 6 was agreed to be

pledged  in  favour  of  appellant  Sahyadri  Co-operative  Credit

Society  Ltd.,  and  sugar  stock  of  80,985  quintals  stored  in

godown Nos. 7-I and 7-II 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 duly registered.  It is pleaded that respondent no. 8

Daulat  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/

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Special  Registrar,  Co-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  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 nos. 7-I and 7-II 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  notice  was

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issued in the newspapers, including Daily Sakal,  wherein it

was informed that godown no. 6 and godown nos. 7-I and 7-II

along with other stock would be put to auction on 22.6.2011

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. 4539 and 4533 of 2011

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 that the amount receivable against

the stock of sugar pledged to the appellants shall be deposited

with the Registrar (Judicial) of the High Court whereafter the

Registrar (Judicial) was to keep the amount in a nationalized

bank in fixed deposit.  On 11.7.2011, Sub Divisional Officer

filed an affidavit stating that the entire stock of sugarcane was

sold for a sum of Rs.52,95,36,483/-, out of which the amount

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realized against the pledged sugar was Rs.27,94,27,910/-.  A

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 of 2011) holding that

the  appellants  would  have  first  right  over  the  amount  of

pledged sugar,  and respondent  no.  3 was directed to make

distribution of the amount collected in accordance with rules

keeping  in  mind  the  rights  of  precedence  of  the  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

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

(Daulat  Shetkari  Sahakari  Sakhar  Karkhana  Ltd.).   It  is

further directed by respondent no. 3 that the balance amount,

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after auction of sugar stock, be paid to the workers of factory

of respondent no. 5.   

4. Aggrieved by aforesaid order of  the Collector,  Kolhapur

(respondent  no.  3),  the  appellants,  namely,  Sahyadri

Co-operative  Credit  Society  Ltd.  and  Navhind  Co-operative

Credit Society Ltd. filed Writ Petition Nos. 8452 of 2011 and

8453 of 2011 respectively before the High Court.  Notices were

issued and the respondents 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 of  Rs.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 of arguments on 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

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Rs.52,95,36,483/-.  It is further observed by the High Court in

the  interim  order  dated  17.11.2011  that  a  sum  of

Rs.27,94,27,910/- was deposited in the High Court, and out of

balance  amount  of  Rs.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  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  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-section (1) may, within one year from the date of the order, institute a suit to establish the right which he claims to the property attached or

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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,  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 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 already an order

passed by the High Court on 12.8.2011 in Writ Petition Nos.

4533  of  2011  and  4539  of  2011  holding  the  right  of

precedence of the appellants in respect of the pledged sugar.

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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 others1, and it is submitted

that the High Court has lost sight of  right of precedence of

pawnee, recognized in said case.

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.  It is pointed out that in

respect  of  loan  disbursed  on  31.3.2011 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 of 2011 (Annexure P-5 to Civil Appeal No.

1841  of  2013)  and  order  dated  12.8.2011  passed  in  Writ

1 (2007) 8 SCC 353

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Petition No. 4539 of 2011 (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.   

10. 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 4539 of 2011

respectively  which  were  disposed  of  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 the High Court accepted that the stock of

sugar  in  question  was  pledged  in  favour  of  the  appellants.

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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 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 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.  

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 favour of

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the  appellants  and  we  find  no  reason  to  doubt  the

transactions.   Copy  of  letter  No.  CMA-856/2010-11  dated

21.2.2011,  on  the  record,  discloses  that  Kolhapur  District

Central Cooperative Bank Ltd. communicated “No 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 loan from other financial institutions.  Copy of

resolution dated 6.3.2011, passed by Special General Body of

Sahyadri  Multi-State  Co-operative  Credit  Society  Ltd.

(Annexure  A-6  to  additional  affidavit  filed  on  behalf  of  the

appellant  in  Civil  Appeal  No.  1840  of  2013)  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  Board  of  Management  Committee.   Through

letter  dated  23.3.2011  (Annexure  A-10)  respondent  no.  5

Daulat Shetkari Sahakari Sakhar Karkhana Ltd. informed the

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appellants giving consent for raising working capital against

pledge of goods.  Copy of letter No. Accts/Fin/1732/2010-11

dated 25.3.2011 (Annexure A-11 to additional affidavit 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  letter  No.  CMA-868/2010-11

dated 29.3.2011 (Annexure A-14 to additional 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.

12. In  Central  Bank  of  India  v.  Siriguppa  Sugars  &

Chemicals Ltd.  (supra), in similar facts, this Court has held

as under: -

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“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. 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 were forcibly taken possession  of  at  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 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.

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.”

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

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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.

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 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.

……………………………..J.                  [Ranjan Gogoi]

……………………………..J.  [Prafulla C. Pant]

New Delhi; March  28 , 2016.