RAMU SOLANE Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) IN this case; the petitioners have challenged the validity of the notification at Annexure 'e' dated 19-7-2007 issued by respondent Nos. 3 and 4 whereby tenders have been invited for lease of Raibag Sahakari sakkare Karkhane Niyamitha, Rajbag, belgaum District, under lease, rehabilitated, operate and transfer (for short 'lrot') basis for a period of 30 (thirty) years starting from the year 2007-2008 to 2036-37. The petitioners have also challenged the proceedings of the State Government at Annexure 'g' dated 5-8-2006 whereby the State Government has decided to revive the aforesaid sugar factory by way of lease on the model of Srirama sahakari Sakkare Karkhane Limited and the government order at Annexure 'h' dated 16-1-2007 deciding to lease the aforesaid sugar factory for a period of 30 years on LROT basis.

(2.) THE petitioners are the shareholders and members of the 4th respondent-Raibag sahakari Sakkare Karkhane Niyamitha, raibag, Belgaum District, (for short 'society' ). The said society is registered under the karnataka Co-operative Societies Act, 1957 (for short 'the Act' ). The society is carrying on the activities of manufacture of sugar. The society purchases sugarcane from its members and also from farmers in the surrounding villages for the purpose of manufacture of sugar. The society commenced its activity of production of sugar in the year 1978 with an installed capacity of 1250 TDC. The society took up an expansion programme by increasing the crushing capacity of sugarcane from 1250 TDC to 2500 TDC. It is the case of the petitioners that for the purpose of increasing the crushing capacity, the society had availed financial assistance of Rs. 9. 85 crores from ncdc and Rs. 7. 45 crores from Sugar Development Fund from the Government of India. There was an inordinate delay in release of the fund from the Sugar Development Fund, which resulted in diversion of fund borrowed from the DCC Bank for expansion programme. During the same time, the turbine alteration failed resulting delay in crushing of sugarcane. Therefore, the society faced financial problems as a result of which the state Government appointed Managing Director to the sugar factory. It is further contended that the Managing Director misappropriated the funds of the society. An enquiry was conducted in this regard. In the enquiry, it was found that the Managing Director has misappropriated the funds. Therefore, the society approached the State Government to put the factory back on rails and help the farmers for whose benefit the society came into existence. The State Government by its order dated 1-3-2000 gave a guarantee for a sum of Rs. 71 crores for the finance to be given by the Apex bank and Belgaum District Co-operative bank Limited. By another Government order dated 4-6-2001 superseding the earlier Government order dated 1-3-2000, the Government stood guarantee for payment of pledged loan of Rs. 41. 50 crores availed earlier by the society and as per the said Government Order, tripartite agreement was entered into between the society, DCC Bank and the Deputy commissioner, and thereafter, the Deputy commissioner was to operate the accounts of the society. It is contended that the arbitrary action of the Deputy Commissioner made the dcc Bank not to accept the Government guarantee. Due to the inaction on the part of the Deputy Commissioner, spare parts were not purchased and crushing of sugarcane did not take place. The labour force remained idle and the sugarcane growers could not harvest their crops. The society in anticipation of the proposed tripartite agreement undertook large scale repairs of machinery and placed orders for new parts and equipments. In view of the failure to enter into tripartite agreement, all the orders for supply of spares and new equipments were cancelled and the society suffered further losses. A legal notice was issued to the Deputy Commissioner calling upon him to forbear from interfering with the affairs of the society. Finally, a writ petition was filed before this Court in W. P. No. 3847/2002 seeking direction to the Deputy Commissioner to transfer the accounts of the factory to the management of the society. An interim order was passed in the said case on 9-9-2002 directing the Deputy Commissioner to make payment of all the pending bills and necessary payment to cane growers. In this background, the State government convened a meeting presided over by the Minister for Sugar and Co-operative Societies. A decision was taken in the said meeting to immediately return the factory to the management with all accounts. The Executive Board reconditioned the plant and started manufacture of commercial sugar during the month of April/may, 2003. Since the society did not have a working capital, it sought for pledge loan from the DCC Bank. The DCC Bank refused to grant any loan. Therefore, crushing became extremely difficult. At this juncture, the Government appointed an Administrator to the society. According to the petitioners, the administrator also misappropriated the funds of the society. At this stage, the State Government decide to put up the sugar factory for sale by way of public auction, which was challenged in appeal No. CMW. 4. CAP. 2006. During the pendency of the appeal, the State Government decided to revive the society and tender process initiated to sell the sugar factory came to be cancelled. It is the case of the petitioners that without taking into account the interest of the farmers, shareholders, cane growers, who are the beneficiaries, the State Government has unilaterally decided to lease out the sugar factory under LROT basis. Petitioners have called in question the said action of the state Government in this writ petition.

(3.) THE respondent Nos. 1 to 3 and 6 have filed their statement of objections and additional objections. It is contended that Raibag co-operative Sugar Factory Limited was registered during the year 1968-69. The sugarcane growing areas falling within 46 villages in and around Raibag are reserved for this factory. The sugarcane requirement of this factory is around 4. 5 to 5 lakh metric tons. Over ten thousand fanners, who grow sugarcane supply their entire output of sugarcane to the said factory. It is further contended that over 50,000 to 60,000 persons depend upon the sugar factory in question for their livelihood. It is the case of the respondents that the factory has not paid arrears of cane price to the farmers right from the year 1998-99 onwards. The arrears of price payable to the farmers by the factory is over Rs. 16. 25 crores. The factory has also not paid dues to its employees/workers, financial institutions, State government and others. The factory was closed from the year 2001-02 due to financial distress. The total liabilities of the factory are in excess of Rs. 15057 lakhs. The details of the dues are as under : <FRM>JUDGEMENT_537_AIRKARR2_2008Html1.htm</FRM> It is further contended that the factory has sustained accumulated losses aggregating to over Rs. 9892 lakhs and cash loss of Rs. 6169 lakhs as on 31-3-2005. In view of the overwhelming losses sustained by the factory and its inability to pay the dues to the farmers, workers, financial institutions and the State government, an order was passed by the Commissioner for Cane Development and Director of Sugars, Bangalore, on 24-1-2004 for liquidating the co-operative society in question. The liquidator initiated proceedings for sale of the sugar factory in question. The same came to be challenged before this Court in w. P. No. 27273/2005. It is further contended that most of the sugar factories in the State of karnataka have sustained losses and have accumulated losses, which run into crores of rupees. The losses of these co-operative societies have gone on increasing. It is under these circumstances the State Cabinet took a decision to revive those sugar co-operative societies, which are defunct or not working to be leased on long term basis as the only method-ology of reviving the same as it was impossible for the Government to pump in any more funds. It is further contended that leasing of sugar factories would result in the co-operative societies continuing to exist and the assets being available to the said societies. The state Government took a decision to revive the co-operative society in question by leasing out its factory by inviting tenders on the same lines as was done in respect of pandavapura Co-operative Sugar Factory, Sri srirama Sugar Factory, Sri Dhanalakshmi sugar Factory. The State Government took a decision on 14-12-2006 to revive the society in question by leasing out its factory on long term basis and accordingly, the Government order was issued. The shareholders of the society had challenged the liquidation order passed by the Commissioner for Cane Development and Director of Sugars by filing an appeal before the State Government under S. 106 of the Act. In view of the decision of the state Government as per the Government order dated 26-6-2006, the appeal was disposed of as having become infructuous. It is further contended that the bye-laws of the society which have been approved by the Registrar of Co-operative Societies way back in the year 1968-69 empowers the society to sell or otherwise dispose of the whole or any part of its business or assets or undertakings including its factory, buildings, machinery and lands in the interest of the society. It is further contended that quashing of the impugned order would result in continuance of the status quo as on date, viz. , the continued closure of the factory and non-payment of enormous dues to the farmers, workers and employees, financial institutions and the State Government and public interest would not be served by granting the reliefs sought for by the petitioners. It is contended that there is no other methodology by which the factory could be revived. If the lease is not resorted to, the only way out of the morass is to sell the factory. The sale of the factory would result in liquidation of the society whereas the lease of the factory would revive keeping the society intact and would facilitate the members to get dividends out of the lease rentals and get the entire assets into their hands after the lease period is over and the co-operative movement is restored. Further, the lease would result in expansion of the factory and installation of new units, which add value to the tune of Rs. 100 crores to the assets of the society. The National Bank for agricultural and Rural Development (NABARD), a Government of India organisation, which funds the co-operative societies and agricultural sector also recommends under the package for leasing of factories under restructuring of co-operative sugar factories. The leasing of the factory would result in a win-win situation.