ANDHRA BANK TANUKU Vs. STATE OF ANDHRA PRADESH

JUDGEMENT

(1.) THE success of the State of Andhra Pradesh in O. S. No. 58 of 1985 on the file of the Subordinate Judge's Court, Bhimavaram by being granted a decree for rs. 23,99,720-88 ps. with costs and subsequent interest at 12 per cent per annum from the date of the suit till the date of realization against both the defendants recoverable to an extent of Rs. 2,66,467-25 ps. , together with interest from the date of deposit into bank with proportionate costs from the 1st defendant and the balance from the 2nd defendant by the judgment dated 20-01-1989, led the Andhra Bank, Tanuku, the 1st defendant in the suit, to file the appeal.

(2.) THE plaintiff-State filed the suit against the appellant and Sivakami Sugars limited, Pydiparru alleging that the 2nd defendant, a manufacturer of sugar by vacuum pan process, received sugarcane from various growers in Tanuku and nearby tanuku in the crushing seasons in 1968-69 and 1969-70, for which the price had to be paid within 14 days from the date of delivery and in default with interest at 15 per cent per annum recoverable as arrears of land revenue, under Section 19 (2) of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961. The 2nd defendant had already to pay tax to the plaintiff on such purchases with interest at 9 per cent per annum under Section 21 of the said act. For recovery of sugarcane price and purchase tax due from the 2nd defendant by 14-04-1970, the Tahsildar, Tanuku attached sugar godown No. I of the 2nd defendant, against which the 2nd defendant filed W. P. No. 1558 of 1970, in which the 1st defendant got itself impleaded claiming the godown to be under its pledge. As per the interim order of the High Court, Rs. 4,46,559-35 ps. realized by sale of 4,331 bags of sugar in the said godown were deposited with the 1st defendant bank and as the demand was not satisfied, the Tahsildar, Tanuku directed the 1st defendant to hand over the keys of godown Nos. II and III of the 2nd defendant on 28-05-1970 to enable attachment of sugar stocks. The 2nd defendant filed another writ in W. P. No. 2850 of 1970 in which the 1st defendant got itself impleaded as a party and the High Court gave an interim direction restraining the State from attaching any sugar stocks more than the quantity, the value of which was equal to the amount demanded. Accordingly, Rs. 2,16,844-25 ps. realized by sale of sugar sought to be attached on 23-05-1970 and the value of 834 bags of sugar sold by Tahsildar, Tanuku at Rs. 49,623/- were kept in deposit with the 1st defendant bank. Thus, a total sum of Rs. 7,13,026-58 ps. was with the 1st defendant bank as per the interim orders of the High Court. The bank claimed the sugar stocks in the three godowns to be under its pledge for Rs. 5,00,000/- advanced under open cash credit system and Rs. 15,00,000/-advanced under key cash credit system. The 1st defendant claimed priority over the State as a secured creditor. But the High Court directed the rival claims to be agitated in separate proceedings. The 1st defendant bank filed W. P. No. 4987 of 1974 to restrain the State from taking action for recovery of the amount due to it, which was dismissed on 19-01-1976. W. A. No. 11 of 1977 by the 1st defendant was also dismissed leaving open the parties to agitate before civil Court. The pledge in favour of the 1st defendant is illegal and void being prohibited under Clause 4 of the Sugar (Control) Order read with the notification in G. S. R. 1762 (1752) published in the Gazette of India dated 20-11-1967. Under the doctrine of priority of Crown debts, the 1st defendant cannot claim any priority over the State and its claim of having any lien over the funds available with it, was repelled in W. A. No. 11 of 1977. The High Court also held in the said writ appeal that the 1st defendant cannot claim priority over Crown debts, basing on the decision in W. A. No. 459 of 1973 dated 10-08-1973. The 1st defendant still refused to return the amounts lying in deposit with it claiming the question to have been kept open to be decided in a civil suit and hence, the suit for recovery of Rs. 23,56,127-98 ps. with interest at 12 per cent per annum till payment and costs.

(3.) THE 1st defendant contested the suit claiming that the 1st defendant sanctioned credit facilities to the 2nd defendant to a tune of Rs. 5,00,000/- under open cash credit, Rs. 15,00,000/- under key cash credit, Rs. 5,00,000/- under documentary bills and Rs. 2,00,000/- under usance discounting bills by 13-11-1969. The 2nd defendant executed promissory notes for Rs. 5,00,000/- and rs. 15,00,000/- and other usual documents on 22-01-1970 in respect of the first two facilities. Sri Kurumuttu Thyagaraja Chettiar executed a letter of guarantee on 22-01-1970 undertaking liability of Rs. 27,00,000/ -. The 2nd defendant executed documents at Tanuku where it is carrying on business as a public limited company in the manufacture of sugar. The amounts were lent from time to time on hypothecation of sugar stocks then in possession or thereafter coming into possession of the 2nd defendant under an agreement of hypothecation of goods dated 22-01-1970. A similar agreement was executed for key cash credit facility also on 22-01-1970 and by 14-04-1970 there were 4,331, 2,997 and 5,550 bags of sugar in godowns I to III respectively, the stock in the first godown being hypothecated and the stock in godowns II and III being given as security to the 1st defendant. The plaintiff did not state why action was not taken for recovery of the cane price before 22-01-1970 or why the Cane Commissioner did not insist upon the 2nd defendant to make a suitable provision for payment or why he did not take any action for recovery of cane value or purchase tax and hence, the said arrears towards cane price and purchase tax to a tune of Rs. 3,86,767/-, Rs. 2,16,844-25 ps. and rs. 1,33,915-96 ps. are not first charge Crown debts or debts with precedence over secured creditors. The plaintiff is estopped from taking such action in april, 1970 against the stocks already secured to the bank contrary to the rule of 14 days and in fact, the plaintiff attached the property of Sivakami mills and machinery as per Form No. 1 notice dated 11-04-1970. The 2nd defendant claims that many payments were not given credit to in spite of its letter dated 02-05-1970 and stated the arrears to be not more than Rs. 62,712-27 ps. in the affidavit in W. P. No. 2850 of 1970. The plaintiff cannot claim any relief against the bank, which is not its debtor. The plaintiff attached 4,331 bags in godown No. I and the Tahsildar, Tanuku issued a notice on 26-05-1970 to the 1st defendant seeking the key of godown No. II for attachment of stocks for recovery of cane price. But no attachment was made on 28-05-1970 as threatened. The bank informed on 27-05-1970 itself its paramount right as pledgee. The 2nd defendant filed W. P. No. 1558 of 1970 and W. P. No. 2850 of 1970 in which the interim orders were passed. By way of abundant caution, the 1st defendant kept an amount of rs. 2,16,844-25 ps. towards the outstanding debt. The amount was accordingly appropriated and later the Collector, West Godavari by a letter dated 16-04-1972 claimed that the Tahsildar had no jurisdiction to hold that there was no attachment and directed the 1st defendant to deposit the amount in a separate account. The Collector's letter is void and inoperative. But the Tahsildar, tanuku issued another notice dated 22-08-1972 to transfer the money within three days. Hence, the 1st defendant filed W. P. No. 4987 of 1974 in which an interim injunction was granted against the State from seizing any cash. The High Court held that no attachment was made by the plaintiff and the 1st defendant's rights as pledgee outweigh those of the plaintiff. The plaintiff can claim only any surplus amount for satisfaction of the debt due from the 2nd defendant to the 1st defendant. Clause 4 of the Sugar (Control) Order was amended in 1974 removing the restriction against pledge of sugar stocks and hence, the pledge is perfectly valid. In any view, a charge is created for the debt, which was duly registered with Registrar of Companies under Section 125 of the Companies Act making the 1st defendant a secured creditor. It was never held in the writ that the plaintiff has priority over the 1st defendant and no amount can be recovered from the 1st defendant as arrears of land revenue. Cane price is not a Crown debt and as the amount was directed to be kept in suspense account with the 1st defendant and as it was not utilized or adjusted towards the liabilities of the 2nd defendant, the amount did not earn any interest or advantage and the plaintiff cannot claim any interest. The 1st defendant is a secured creditor with first charge and priority and the plaintiff cannot make the claim in respect of stocks in godown No. I of a value of Rs. 4,48,644-20 ps. in view of the judgment in O. S. No. 33 of 1973, which is the subject of first appeal in A. S. No. 737 of 1978. Hence, the 1st defendant sought for dismissal of the suit with costs.