Andhra HC (Pre-Telangana)
G.V. Jayachandra Chowdary And Ors. vs Government Of Andhra Pradesh And Ors. on 30 April, 2004
Equivalent citations: 2004(3)ALD474, 2004(3)ALT417
Author: B. Sudershan Reddy
Bench: B. Sudershan Reddy, K.C. Bhanu
JUDGMENT B. Sudershan Reddy, J.
1. In this second round of litigation the constitutional validity of Section 12-A of the Andhra Pradesh Co-operative Societies Act, 1964 (Act No. 7 of 1964) (for short 'the Act') as substituted by Act No. 16 of 2003 is once again challenged and put in issue. The attack is based upon more or less similar grounds that were raised in the previous round of litigation that resulted in the decision in M. Krishnama Naidu and Ors. v. State of A.P., (DB).
Factual backdrop:
2. The petitioners herein are mainly aggrieved by the action of the respondents in proposing to transfer the assets or assets and liabilities of the co-operative sugar factories in question, in whole or in part, to any other society or person, etc. The orders passed by the Registrar of Co-operative Societies, Andhra Pradesh under Section 12-A(1) of the Act in purported public interest are challenged; and so also the consequential proceedings about which we shall refer in detail hereinafter.
3. In M. Krishnama Naidu (supra), this Court noticed the background facts leading to the policy decision of the State Government to make a provision for transfer of assets and liabilities of sick cooperative sugar factories to non-co-operative institutions by suitably amending the Act. We do not propose to burden this judgment by reincorporating those background facts leading to the policy formulation by the State Government.
4. There is no dispute that for whatever reason most of the sugar factories in the co-operative sector are continuously incurring losses resulting in erosion of their net wroth. The losses may be for a variety of reasons, such as cyclical nature of industry, high cost of production and untimely expansion of some of the units. The market forces to whom the unlimited freedom appears to have been granted in the wake of ongoing process of globalisation may have made their own contribution.
5. The State Government claims to have invested Rs. 146 crores in the share capital of 18 co-operative sugar factories in the State. These co-operative sugar factories, according to the State, owe an amount of Rs. 87 crores as dues to various financial institutions, State Government and Sugar Development Fund. The accumulated losses in 14 co-operative sugar factories, which are in operation, are to a tune of about Rs. 198 crores.
6. The petitioners and respondents blame each other for this unfortunate situation in which the sugar factories in the co-operative sector are placed practically resulting in their extinction. The entrustment, of the management of the affairs of the cooperative sugar factories to the officers of the State Government in the place of elected management, according to the petitioners, resulted in colossal loss on account of mismanagement by the said official persons-in-charge. It is unnecessary to further dilate on this issue.
7. The Central Government in exercise of its power under the provisions of the Essential Commodities Act, 1955 has issued several Control Orders regulating the production, distribution, etc., of the sugar and sugarcane. Under Clause (3) of the Sugarcane (Control) Order, 1966, the Central Government is authorised to fix minimum price of the sugarcane to be paid by the producers or their agents for the sugarcane purchased by them. The price so fixed by the Central Government is called Statutory Minimum Price (SMP).
8. The State Government fixed the State Advisory Price (SAP) in the perceived interest of the farmers and in order to sustain the sugar industry itself. There is no dispute that the SAP fixed by the State Government is more than the SMP fixed by the Central Government in exercise of the power under Clause (3) of the Control Order, 1966. A Division Bench of this Court in Government of Andhra Pradesh v. KCP Sugars and Industries Corporation Limited 2002 Suppl. (2) ALD 768 (DB), declared that the State Government has no such power whatsoever to fix any SAP over and above the SMP fixed by the Central Government.
9. The State of Andhra Pradesh, as a policy measure, decided to convert the loan given on account of Differential Cane Price (DCP) into equity. There is any amount of controversy in this regard, about which we shall deal at the appropriate stage.
10. Be it as it may, the State Government, in the process of implementation of the Reforms Programme as part of Andhra Pradesh Economic Restructuring Project to achieve certain specific objectives, having accepted the report of the Restructuring Committee, State Level Cooperative Enterprises; appointed for the purpose of restructuring public enterprises and the units under the Co-operative Sector decided to privatise those sugar factories which were unable to make any significant improvement in performance that resulted in heavy burden of financial expense. It is in that process of implementation of reforms; these sugar factories are also slated for privatisation.
11. Section 12-A of the Act, which is a special provision in respect of spinning mills and sugar factories, has been inserted by Act No. 22 of 1996 into the principal Act. It is just and necessary to notice Section 12-A before its amendment by Act No. 16 of 2003 as well as after its amendment as it exists today.
The un-amended and amended Section 12A of the Act:
The un-amended Section 12-A of the Act reads as follows:
"12-A. Special provision in respect of spinning mills and sugar factories :--(1)(a) Notwithstanding anything contained in this Act or the rules made thereunder or the bye-laws of the societies concerned or in any other law for the time being in force, where, in the opinion of the Registrar, a Cooperative Spinning Mill or a Co-operative Sugar factory in which majority of the shares are held by the Government, is or has become sick, and that there is no possibility to rehabilitate the same, the Registrar shall, after consulting the Government and the financing Bank, if any, to which such spinning mill or sugar factory is indebted, call upon the Committee concerned by notice in writing containing such particulars as may be prescribed and within such time as may be specified in the notice to transfer its assets or its assets and liabilities, in whole or part to any other society or a company or a firm or a body whether incorporated or not on such terms and conditions as may be formulated in the manner prescribed, and on such transfer the society formed for such spinning mill or sugar factory under this Act shall stand dissolved;
(b) if, within the time specified in the notice referred to in Clause (a), the society fails to comply with the direction of the Registrar, he shall after giving an opportunity in the manner prescribed, to the general body, the committee of such society and the creditors thereof to make their representation, if any, by order notified in the Andhra Pradesh Gazette, take such action as he deems fit in the matter, including the issue of a direction to the society to transfer its assets or its assets and liabilities, in whole or part in the manner referred to in Clause (a).
(2) It shall be competent for the Government to make rules and to give such directions as they deem fit to the Registrar, for purposes of this section, Explanation :--For the purpose of this section 'company' means a company as defined in the Companies Act, 1956.
(3) Omitted by Act 2 of 2001 with effect from 27-9-2000."
The objects and reasons for incorporating Section 12-A of the Act, as originally incorporated, are as under:
"The Sugar Mills and Spinning Mills were set up in the Co-operative Sector with the idea of involving the farmers in organising, financing and managing these mills. The role of the Government was to help them with share capital, margin money, the required administrative guidance and managerial support. For a variety of reasons, some of these Co-operative Institutions have become non-viable and call for massive investment, not only for their revival but also for: recurring overheads including salaries and wages. It was never the intention that Government should fund these organisations in case they become non-viable. On account of financial constraints faced by the State, Government is not in a position to fund the resources to meet these commitments. The managements have to, therefore, look for alternative avenues for improving the functioning and reviving of these Units so that the interests of the farmers and workers of these mills can be safeguarded.
The existing provisions of the Andhra Pradesh Co-operative Societies Act, 1964 do not permit the transfer of the assets of a Co-operative Institution to any non-cooperative institution. The Government have, therefore, decided to provide for the transfer of the assets and liabilities of such sick units to non-co-operative institutions by suitably amending the Andhra Pradesh Cooperative Societies Act, 1964."
12. This Court in M.Krishnama Naidu (supra) while upholding the constitutional validity of Section 12-A of the Act as originally incorporated, however, held that the rule of audi alteram partem has to be read into the said provision requiring the Registrar to issue notice and provide an opportunity of being heard to the Managing Committee, before formation of his opinion under Section 12-A of the Act in respect of each of the Co-operative Sugar Factories. No decision can be taken to hold that in a particular Co-operative Sugar Factory (a) the majority of the shares are held by the Government; (b) it is or has- become sick;
and (c) there is no possibility to rehabilitate the same, unless a notice has been issued and an opportunity of being heard is provided to the Managing Committee. This Court also observed that the Registrar is required to act independently and discharge the statutory power vested in him under Section 12-A of the Act in a fair and reasonable manner by duly taking relevant considerations into account in respect of each of the Cooperative Sugar Factories.
13. The objects and reasons for further amending Section 12-A of the Act, by Act No. 16 of 2003, are as under:
"Whereas, Section 12-A of the Andhra Pradesh Co-operative Societies Act, 1964, provides special provisions in respect of cooperative spinning mills and sugar factories and empowers the Registrar to give directions to transfer the assets or assets and liabilities of such societies to non-cooperative institutions in the circumstances mentioned therein;
And whereas, the High Court of Andhra Pradesh, by its order dated 25th February, 2003 in Writ Petition No. 8766 of 2002 and batch concerning certain sugar factories, while upholding the constitutional validity of Section 12-A of the said Act, held, inter alia, that the Registrar is required to issue a notice and provide an opportunity of being heard to the management as well as the members of the society concerned even before forming his opinion that majority of the shares in it are held by the Government, that it has become sick and that there is no possibility to rehabilitate the same;
And whereas, the Government considers that it is necessary to amend the provisions of Section 12-A of the said Act suitably so as to bring them in conformity with the above said order of the High Court dated 25th February, 2003 and to provide for matters connected therewith or incidental thereto."
14. The very amendment has been made so as to make Section 12-A of the Act in conformity with the orders of this Court dated 25th February, 2003 in M.Krishnama Naidu (supra), Section 12-A of the Act as amended by Act No. 16 of 2003 reads as follows:
"12-A. Special provisions in respect of certain societies :--(1) Notwithstanding anything contained in this Act or the rules made thereunder or the bye-laws of the societies concerned or in any other law for the time being in force, where, in the opinion of the Registrar, a society,--
(a) in which majority of the shares are held, or
(b) to which loan exceeding fifty per cent of the total loan borrowed is advanced, or
(c) in which liabilities by way of guarantee for borrowing including working capital borrowing exceeding fifty per cent of the total borrowings are undertaken, by the Government or one or more Government Companies or one or more corporations owned or controlled by the Government, or a society in which majority of shares are held by one or more of the aforesaid persons or any combination thereof,--
(i) has become a sick co-operative society and there is no possibility to rehabilitate it; or
(ii) being in processing, manufacturing or other industrial sector, has its unit or units lying incomplete or idle or underutilized for want of funds or for any other reason, or ceased to undertake its operations, or cannot undertake its operations in a viable manner; or
(iii) being in marketing, trading, commercial or any other sector has ceased to 'undertake its operations, or cannot undertake its operations in a viable manner; and it is necessary in public interest to transfer its assets or assets and liabilities, in whole in part, to any other person, he may make an order to that effect.
(2)(i) The Registrar shall, before forming the opinion and making the order under subsection (1), give an opportunity to the society by calling upon it by notice in writing in such manner as may be prescribed to state its objections or make its representations, if any, and consider the objections or representations, if any, so stated or made.
(ii) It shall be the responsibility of the society to place the notice received from the Registrar before the general body convened for the purpose and communicate its objections or representations, if any, to the Registrar within a period of four weeks from the date of receipt of the notice from him:
Provided that the Registrar may receive the objections or representations, if any, from the society after the said period of four weeks but not later than five weeks from the date aforesaid, if he is satisfied that the society was prevented by sufficient cause from stating its objections or making its representations, if any, in time.
(3) Where the Registrar has made an order under Sub-section (1), he may appoint the Implementation Secretariat or any other committee, consultant or adviser having the requisite expertise or experience to assist and advise him for the purpose of,--
(i) assessing the value of the assets or the assets and liabilities, in whole or in part, of the society;
(ii) formulating terms and conditions for transfer of assets or assets and liabilities, in whole or in part, of the society;
(iii) calling for tenders or offers for the assets or assets and liabilities, in whole or in part, to obtain the best possible offer;
(iv) evaluating the offers received and identifying the best offer;
(v) finalising sale agreement and other documents relating to the transfer;
(vi) receiving the proceeds from the sale;
(vii) applying the proceeds towards discharge of the liabilities of the society as per the priorities set out in Sub-section (9);
(viii) providing such other service or assistance as the Registrar may think it necessary; and
(ix) advising and assisting generally on matters relating to employees, creditors and other matters connected with the sale.
(4) Where the best offer for the assets or assets and liabilities, in whole in part, of the society concerned is identified in the manner prescribed, the Registrar shall, before approving the best offer and the terms and conditions of transfer thereof, consult the Government and the financing bank, if any, to which such society is indebted.
(5) Where the best offer is approved, the Registrar may make an order directing that the Committee of the society concerned shall stand dissolved from the date specified in the order and that the assets or assets and liabilities, in whole or in part, of the society shall be transferred to the person submitting the best offer on fulfilment of such terms and conditions including payment of the purchase price as may be specified in the order in the manner prescribed.
(6) (i) The Registrar shall, before making the order under Sub-section (5), give an opportunity to the society by calling upon it by notice in writing in such manner as may be prescribed to state its objections or make its representations, if any, and consider the objections or representations, if any, so stated or made.
(ii) It shall be the responsibility of the society to place the notice received from the Registrar before the general body convened for the purpose and communicate its objections or representations, if any, to the Registrar within a period of four weeks from the date of receipt of the notice from him:
Provided that the Registrar may receive the objections or representations, if any, from the society after the said period of four weeks but not later than five weeks from the date aforesaid, if he is satisfied that the society was prevented by sufficient cause from stating its objections or making its representations, if any, in time.
(7) On the Registrar making an order under Sub-section (5) and on such order being notified in the Andhra Pradesh Gazette, the Committee of the society shall stand dissolved and all members of the Committee including the President and the Vice-President if any, shall vacate their respective office from the date specified in the order. The Registrar shall simultaneously appoint a person or persons, wherever necessary, to manage the affairs of such society till it is dissolved.
(8) The person or persons appointed by the Registrar under Sub-section (7) shall transfer the assets or assets and liabilities, in whole or in part, of the society concerned to the person submitting the best offer in the manner specified in the order.
(9) The proceeds realised from the transfer of assets or assets and liabilities, in whole or in part, of the society concerned, shall be applied in discharge of the liabilities of such society in the following order of priority, namely:--
(i) all expenses incurred for preservation and protection of the assets;
(ii) (a) dues payable to workmen and employees;
(b) debts payable to secured creditors according to their rights and priorities inter se;
(c) dues payable to provident fund or other authorities which are protected under a statute by a charge on the assets;
(iii) debts payable to ordinary creditors.
(iv) Share capital contributed by the members of the society:
Provided that the cases covered under Category (i) shall have precedence over all other categories, Category (ii) shall have precedence over Categories (iii) and (iv) and Category (iii) shall have precedence over Category (iv);
Provided further that the debts specified in each of the categories shall rank equally and be paid in full, but in the event of the amount being insufficient to meet such debts, they shall abate in equal proportions and be paid accordingly;
Provided also that the question of discharging any liability with regard to a debt specified in a lower category shall arise only if a surplus fund is left after meeting all the liabilities specified in the immediately higher category.
(10) When the assets and liabilities of the society concerned are transferred, or when the assets of the society are transferred and the realisations therefrom applied towards discharge of its liabilities, on the making of an order by the Registrar, the registration of such society shall stand cancelled and the society shall stand dissolved from the date specified in the order.
(11) Notwithstanding anything contained in other provisions of this Act or any other law, or any contract or any other instrument for the time being in force, the provisions of the order or orders of the Registrar under this section shall be binding on the society concerned and its members.
(12) No suit or other legal proceeding shall be instituted or maintained or continued in any Civil Court, Tribunal or other authority in respect of any order made under this section, (13) It shall be competent for the Government to make rules and to give such directions as they deem fit to the Registrar to carry out the provisions of this section.
Explanation :--For the purpose of this section,
(a) "sick co-operative society" means a cooperative society which has,--
(i) the accumulated losses in any financial year equal to fifty per cent or more of its average net worth during four years immediately preceding such financial year; or
(ii) fail to repay its debts within any three consecutive quarters on demand made in writing for its repayment by a creditor or creditors of such society;
(b) "net worth" means the sum total of the paid up capital and free reserves after deducting the provisions or expenses as may be prescribed.
(c) "free reserves" means all reserves created out of the profits and share premium account but does not include reserves created out of revaluation of assets, write back of depreciation provisions and amalgamation;
(d) "debt" means any liability (inclusive of interest), which is due and payable by a society, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of any Civil Court or otherwise and legally recoverable from such society;
(e) the expression "cannot undertake its operations in a viable manner" shall mean the level of operations of the society in any financial year during four financial years immediately preceding the financial year in which the issue is being considered, is such that the income generated therefrom is not adequate to meet even the operating and establishment costs, current liabilities and to service the loans and working capital borrowings availed by it.
(f) "person" includes an individual, partnership, trust, company, corporation, co-operative society, an association of persons or a body of individuals, whether incorporated or not, and every artificial juridical persons, not falling within any of the preceding categories;
(g) "Implementation Secretariat" means the implementation Secretariat established in the Department of Public Enterprises by the State Government in G.O. Ms. No. 150, General Administration (PE-II) Department), dated 30th April, 1998,
(h) "best offer" means the offer received that best satisfies the criteria specified in the call for tenders or offers."
15. The un-amended Section 12-A of the Act deals with transfer of assets or assets and liabilities, in whole or in part, of a sick Co-operative Spinning Mill or a Cooperative Sugar Factory in which the majority of shares are held by the Government and there is no possibility to rehabilitate the same in favour of any other society or a body or a firm etc. After the amendment, such transfer of assets or assets and liabilities is not restricted to that of Co-operative Spinning Mills or Co-operative Sugar Factories alone, but, even the assets or assets and liabilities, in whole or in part, of anv sick co-operative society may be transferred to any other person in public interest, if in the opinion of the Registrar, such society in which majority of shares are held or to which loan exceeding fifty per cent of the total loan borrowed is advanced or in which liabilities by way of guarantee for borrowing exceed fifty per cent of the total borrowings; by the Government, or one or more Government Companies or one or more corporations owned or controlled by the Government. The amended provision takes into its sweep and ambit all the co-operative societies, which have become sick.
Submissions:
16. Sri M.V. Durga Prasad and Sri D.V. Bhadram, learned Counsel appearing on behalf of the petitioners, made elaborate submissions. The main ground of challenge to the validity of Section 12-A of the Act is on the touchstone of Article 14 of the Constitution of India. It is also challenged on the ground of want of legislative competence.
Prologue :
17. Before we proceed to discuss the details of the grounds on which the challenge is mounted, we propose to remind ourselves and bear it in mind that the function of the Courts is to interpret the laws made by the Legislature and not to act as a third or revising Chamber. The Courts are invariably guided by certain settled norms in discharging their duty while examining the constitutional validity of laws passed by a Legislature. There is always a strong presumption in favour of the constitutionality, and a law will not be declared unconstitutional unless the case is so clear as to be free from doubt; "to doubt the constitutionality of a law is to resolve it in favour of its validity." (See: V.M. Syed Mohammad & Co. v. Andhra, and Madhubhai Amathalal Gandhi v. Union, ). Our attempt must be to preserve and not destroy.
18. It is equally well settled that where the validity of a statute is questioned and there are two interpretations, one of which would make the law valid and the other void, the former must be preferred and the validity of the law upheld and in that process every possible presumption will be indulged to sustain it.
19. In F.N. Balsam v. Bombay, AIR 1951 SC 318, the Supreme Court observed that in pronouncing on the constitutional validity of a statute, the Court is not concerned with the wisdom of the law. The law made by the State Legislature within the scope of the power conferred on it and violates no restrictions on that power; the law must be upheld whatever a Court may think of it. Suffice it to observe that striking down of a provision or a statute, as the* case may be, is not a matter of course. The Court in discharging its solemn duty to declare the law passed by a Legislature unconstitutional is required to discharge that duty with utmost care and caution.
20. But it is equally well settled that it is as much the plain duty of the Constitutional Courts to declare the provisions of a Statute to be unconstitutional if those provisions are found to be violative of Articles of the Constitution as it is their to uphold validity in case if they are found to suffer from no such infirmity.
Subsidiary Submissions;
Whether a legislation can be struck down on the ground of it being violative of preamble to the Constitution?
21. We are constrained to address ourselves to these basic and well known rules for the reason that Sri M.V.Durga Prasad, learned Counsel for the petitioners, in W.P.No. 22463 of 2003, made an attempt to contend that the very policy of the Government to privatise the sugar factories in the State is against the spirit of the Constitution. The learned Counsel relies upon the Preamble to the Constitution in support of his contention that socialism is a part of basic structure of the Constitution of India. Privatisation is an anti democratic and runs counter to the proclaimed faith in socialism. An argument is sought to be built on the basis of certain observations made by the Supreme Court in Indra Sawhney v. Union of India, 1992 Supp. (3) SCC 217, that a legislation can be struck down on the ground of infringement of Preamble to the Constitution. In the said decision, Pandian, J., framed the question in the following manner that had fallen for consideration:
"Though forty-five years from the commencement of the Indian independence after the end of British paramountcy and forty-two years from the advent of our Constitution have marched on, the tormenting enigma that often nags the people of India is whether the principle of 'equality of status and of opportunity' to be equally provided to all the citizens of our country from cradle to grave is satisfactorily consummated and whether the clarion of 'equality of opportunity in matters of public employment' enshrined in Article 16 (4) of the Constitution of India has been called into action?"
22. The learned Judge while explaining the interplay between Part III dealing with "Fundamental Rights" and Part IV dealing with "Directive Principles of State Policy" observed that they represent the core of the Indian Constitutional philosophy and envisage the methodology for removal of historic injustice and inequalities and ultimately for achieving an egalitarian society in terms of the basic structure of our Constitution as spelt out by the Preamble. It is further observed that the very blood and soul of our Constitutional scheme are to achieve the objectives of our Constitution as contained in the Preamble "which is part of our Constitution as declared by this Court in Kesavananda Bharati v. State of Kerata, . So it is incumbent to lift the veil and see the notable aspirations of the Constitution."
23. Sawant, J., highlighted the need to bring about equality between the unequals by adopting positive measures to abolish inequality. The equalising measures will have to use the same tools by which inequality was introduced and perpetuated. "Article 14 which guarantees equality before law would by itself, without any other provision in the Constitution, be enough to validate such equalising measures...... The trinity of the goals of the Constitution, viz., socialism, secularism and democracy cannot be realised unless all sections of the society participate in the State power equally, irrespective of their caste, community, race, religion and sex and all discriminations in the sharing of the State power made on those grounds are eliminated by positive measures."
24. Jeevan Reddy, J., while explaining the concept of "equality before the law" and "the equal protection of the laws" observed that the content and sweep of these two concepts is not the same though there may be much in common. The content of the expression "equality before the law" is illustrated not only by Articles 15 to 18 but also by the several articles in Part IV, in particular, Articles 38, 39, 39-A, 41 and 46. The concept of equality before the law contemplates minimising the inequalities in income and eliminating the inequalities in status, facilities and opportunities not only amongst individuals but also amongst groups of people, securing adequate means of livelihood to its citizens and to promote with special care the educational and economic interests of the weaker sections of the people, including in particular the Scheduled Castes and Scheduled Tribes and to protect them from social injustice and all forms of exploitation.
25. Jeevan Reddy, J., in S.R. Bommai v. Union of India, , while making an analysis of Article 356 of the Constitution of India construed the words "provisions of this Constitution" mean what they say. The said words cannot be limited or confined to a particular chapter in the Constitution or to a particular set of Articles...... The provisions of the Constitution include the chapter relating to fundamental rights, the chapter relating to directive principles of the State policy as also the preamble to the Constitution. Though, at one time, it was thought that preamble does not form part of the Constitution, that view is no longer existent. It has been laid by the majority of Judges in Keshavananda Bharti v. State of Kerala, , that preamble does form part of the Constitution. It cannot be otherwise.
26. The learned Counsel for the petitioners having derived support from the above observations made by the Supreme Court contended that a provision of law can be struck down by this Court even on the ground of infringement of any of the concepts enshrined in the Preamble to the Constitution.
27. The observations made by the Supreme Court referred to hereinabove cannot be torn out of the context. Those observations cannot form the basis for striking down any provision of law enacted by competent Legislature. The law cannot be struck down on the ground that it infringes the expression 'socialism' used in the Preamble. What is socialism? It means many different things to different thinkers. Each one of us may have our own conceptual understanding, what socialism is. It would be dangerous to import one's own values and views and make them basis for striking down a legislation. The concept of socialism or a socialist State has undergone changes from time to time, from country to country and from thinker to thinker. But some basic concepts may still hold the field.
28. In Excel Wear v. Union of India, , the Supreme Court after referring to its earlier decision in Akadasi Padhan v. State of Orissa, , observed: "the difference pointed out between the doctrinaire approach to the problem of socialism and the pragmatic one is very apt and may enable the Courts to lean more and more in favour of nationalization and State ownership of an industry after the addition of the word 'Socialist' in the Preamble of the Constitution."
29. Suffice it to say that in none of the cases referred to hereinabove any law as such was struck down by the Supreme Court on the ground of infringement of concepts enshrined in the Preamble. Each of those concepts find their place in the Constitution, we may find concept of Socialism incorporated in the Directive Principles, of State Policy. The concept of Equality is enshrined in Articles 14, 15 and 16 of the Constitution. Likewise the values of Secularism in Articles 25 to 30 forming part of guaranteed fundamental rights. The legislation can be struck down in case if it infringes the guaranteed fundamental rights which may find their echo in the Preamble to the Constitution. But the legislation cannot be struck down on the ground that it infringes the Preamble to the Constitution. The concepts enshrined in the Preamble are to be identified in the guaranteed fundamental rights and if it is found that the provisions of the legislation contravene the guaranteed fundamental rights they could be struck down as unconstitutional.
30. In Keshavan Madhava Menon v. Bombay, , the Supreme Court observed:
"An argument founded on what is claimed to be the spirit of the Constitution is always attractive, for it has a powerful appeal to sentiment and emotion; but a Court of Law has to gather the spirit of the Constitution from the language of the Constitution. What one may believe or think to be the spirit of the Constitution cannot prevail if the language of the Constitution does not support that view..... It is, therefore, quite clear that the Court should construe the language of Article 13(1) according to the established rules of interpretation and arrive at its true meaning uninfluenced by any assumed spirit of the Constitution"
31. It is in the light of these principles; we propose to examine each of the contentions.
Impugned provision, if violative of Article 19(1)(C) and 19(1) (g) and Article 31-A of the Constitution of India?
32. We are not inclined to reconsider the decision rendered by this Court in M. Krishnama Naidu (supra) and examine the contentions in detail relating to the constitutional validity of the impugned provision based on Articles 19(1)(c) and 19(1)(g) as well as on Article 31-A of the Constitution of India. We adopt the same reasoning assigned by this Court in M. Krishnama Naidu (supra) for upholding the constitutional validity of Section 12-A(1)(2) of the Act and reject the contentions accordingly.
Legislative Competence:
33. We do not find any merit in the submission that Section 12-A of the Act suffers from lack of legislative competence as held by this Court in M.Krishnama Naidu (supra). The legislation squarely falls within the Entry 32 of List II, which provides for incorporation, regulation and winding up of the companies including Co-operative Societies other than those specified in List I. Main Issue:
Challenge to the validity of Section 12-A of the Act based on Article 14 of the Constitution of India:
34. The question that falls for our consideration is whether Section 12-A of the Act is liable to be struck down as violative of Article 14 of the Constitution of India?
35. A law made by the State Legislature can be struck down only on two grounds i.e., (a) lack of legislative competence; and (b) violation of any of the fundamental rights guaranteed in Part in of the Constitution or of any other constitutional provision. There is no third ground. (See: State of A.P. v. Mc. Dowell and Company, .)
36. More or less the same contentions that were urged in M. Krishnama Naidu (supra) were reiterated before us attacking the validity of Section 12-A of the Act on the touchstone of Article 14 of the Constitution. The acceptance of submissions made would practically amount to reviewing this Court's previous decision simply on the ground that another view is possible. In our considered opinion, the finality of the decisions of this Court may have to be respected and we cannot treat our own judgments as open to reconsideration. Deviation from the well accepted norms that this Court cannot review its previous decision simply on the ground that another view is possible may encourage the litigant public to think that it is always worthwhile to indulge in speculative litigation. Therefore, we shall confine ourselves to examine the attack of challenge to the validity of Section 12-A of the Act on the touchstone of Article 14 of the Constitution, with regard to such of those parts that were newly incorporated by the amended Act.
37. A close analysis of pre-amended Section 12-A of the Act and the changes made by Act No. 16 of 2003 reveals that the core content and object of the pre-amended Section 12-A of the Act, which was to provide for transfer of assets/assets and liabilities of sick co-operative societies, has been retained and only its scope has been widened by amendment in Act No. 16 of 2003 to bring within its fold other sick and non-viable co-operative societies, in which the Government has a majority stake.
38. We fail to appreciate as to how Section 12-A(1) and (2) of the Act fails to satisfy the test of reasonable classification. The classification of sick co-operative societies, in which the Government has a majority stake either in the form of majority shares, lending/guarantee of loans in excess of 50% of the total loans, is founded on an intelligible differentia which clearly distinguishes such sick and non-viable cooperative societies grouped together from other co-operative societies left out of the group. The contention that the object sought to be achieved is not in conformity with the objects of the parent Act is totally unacceptable.
39. In M. Krishnama Naidu (supra), this Court in clear and categorical terms held that Section 12-A merely provided one mode of dissolution of a sick co-operative society in which the Government has majority of shares. Such dissolution of societies is for the reasons inbuilt in Section 12-A of the Act itself.
40. The contention that Section 12-A(1) and (2) of the Act as amended runs counter to the object of the principal Act is totally unacceptable. The whole of the provisions of the Act are to be read together. It is not possible to strike down a provision in the statute on the ground that it runs counter to the other provisions of the Act, nor on the ground that the provision in the Act runs counter to the object and scheme of the Act. The decision in Harbilas Rai Bansal v. State of Punjab, , upon which reliance has been placed by the learned Counsel for the petitioners in no manner supports the contention of the petitioners.
41. The object of Section 12-A of the Act as can be gathered from the statement of objects and reasons is primarily to protect the interest of the sugarcane growers and the workers by transfer of assets/assets and liabilities of sick co-operative societies in favour of persons who were in a position to invest the necessary funds to carry on business of manufacture of sugar.
Such transfer of assets/assets and liabilities is confined only to such sick co-operative societies in which the Government has a majority stake either in the form of majority shares, lending/guarantee of loans in excess of 50% of the total loans. The classification, in our considered opinion, is founded on an intelligible differentia, which clearly distinguishes those sick and non-viable cooperative societies, grouped together from other co-operative societies left out of the group.
42. That an analysis of Section 12-A of the Act after the amendment makes it explicitly clear that the Registrar of the Co-operative Societies is empowered to transfer the assets or assets and liabilities, in whole or in part, of a sick co-operative society on forming an opinion that it has become sick co-operative society and there is no possibility to rehabilitate it; that after an order is made under Sub-section (1) to transfer its assets or assets and liabilities, in whole or in part, the Registrar may appoint the Implementation Secretariat or any other committee, consultant or adviser having the requisite expertise or experience to assist and advise for various purposes such as assessing the value of the assets, formulating terms and conditions for transfer of assets, calling for tenders or offers for the assets or assets and liabilities, in whole or in part, to obtain the best possible offer, evaluating the offers to be received and identifying the best offer, etc. The Registrar is duty bound to consult the Government and financing Bank, if any, to which the society is indebted before approving the best offer and the terms and conditions of the transfer thereof. That an obligation is imposed upon the Registrar to put the sick co-operative society on notice at every stage, i.e., before forming an opinion that the society has become sick and there is no possibility to rehabilitate it as well as before the approval of the best offer. The proceeds realised from the transfer of assets or assets and liabilities, in whole or in part, of the society concerned, shall be applied in discharge of the liabilities of such society in the manner prescribed under Sub-section (9) of Section 12-A of the Act.
43. The expressions, 'sick co-operative society', 'net worth', 'free reserves', 'debt', 'person', 'Implementation Secretariat' and 'best offer' are defined in the Act itself. Nothing is left to the discretion of Registrar except with regard to the 'best offer'. 'Best offer' as defined in Explanation (h) appended to Section 12-A of the Act, means the offer received that best satisfies the criteria specified in the call for tenders or offers.
44. Section 12-A of the Act as such does not specify that the assets or assets and liabilities, in whole or in part, of a sick co-operative society be transferred only to a 'person' who can undertake the operations of sick co-operative society in viable manner. The only duty of the Registrar is to identity the 'best offer' of assets or assets and liabilities, in whole or in part, of ..the society concerned and transfer such assets after the approval of the 'best offer'. There is no obligation imposed upon the Registrar to transfer the assets or assets and liabilities only in favour of a 'person' who undertakes to revitalize or undertakes the operations of the sick co-operative society in a viable manner. The revival of the sick co-operative society, though, is one of the objects that is sought to be achieved but the same is not reflected in the provision which itself is a complete package special in nature which enables the Registrar to transfer the assets of sick Co-operative Societies.
45. It is clearly evident from subsection (9) of Section 12-A of the Act that the proceeds realised from the transfer of assets or assets and liabilities, in whole or in part, of the society concerned shall have to be applied in discharge of liabilities of such society in the following order of priority, viz.,
(i) all expenses incurred for preservation and protection of the assets;
(ii)(a) dues payable to workmen and employees;
(b) debts payable to secured creditors according to their rights and priorities inter se;
(c) dues payable to provident fund or other authorities which are protected under a statute by a charge on the assets;
(iii) debts payable to ordinary creditors and the share capital contributed by members of the society.
46. The Registrar under Sub-section (3) of Section 12-A of the Act is authorised to appoint the Implementation Secretariat Or any other committee, consultant or adviser having the requisite expertise or experience to assist and advise for the purpose of assessing the value of assets or assets and liabilities, in whole or in part, of the society; formulating terms and conditions for transfer of assets or assets and liabilities, in whole or in part of the society; calling for tenders or offers for the assets or assets and liabilities, in whole or in part, to obtain the best possible offer. We have noted the 'best offer' that means the offer received that best satisfies the criteria specified in the call for tenders or offers. There is no uniform and discernable criteria and standard as such laid down either in the provisions of the Act or under the rules framed thereunder.
Whether any unguided power is conferred upon the Registrar?
47. The question that arises for consideration is whether unguided and unfettered power is conferred upon the Registrar in identifying the transferee?
48. Neither the Act nor the rules framed thereunder provide for realisation of market value of the assets or assets and liabilities of the sick society concerned. The process of identification of the 'best offer' and the criterion to be specified therefor is completely left to the discretion of the Registrar who in turn may depend upon the assistance and advise of the Implementation Secretariat or any other committee, consultant or adviser appointed by him for the purpose of evaluating the offers received and identifying the 'best offer'. The 'best offer' as defined need not be an offer equivalent to the market value of the assets. The 'best offer' as envisaged enables the Registrar to specify criteria in respect of each of the co-operative societies whose assets or assets and liabilities, in whole or in part, to be transferred according to his own choice. What is the criterion to be specified in the call for tenders or offers is not provided for under Section 12-A of the Act. The legislative policy underlying Section 12-A of the Act is clearly discemable from the very provision itself. No doubt, the object of the un-amended provision was to enable the managements to look for alternative avenues for improving the functioning and reviving of the sick units so that the interest of the farmers and workers can be safeguarded. But those objects are not reflected in the un-amended Section 12-A of the Act nor are they reflected in Section 12-A of the Act as it stands with which we are concerned for the present. The underlying policy as is evident from a bare reading of Section 12-A of the Act is to transfer the assets or assets and liabilities, in whole or in part, of a sick co-operative society to any other person. The 'person' as defined includes an individual, partnership, trust, company, corporation, co-operative society, association of persons or body of individuals whether incorporated or not and every artificial juridical person not falling within any of the preceding categories. It is not the legislative policy to transfer the assets or assets and liabilities, as the case may be, only for the purpose of improving the functioning and reviving of the sick units. The Government, obviously, wanted to extricate itself from the quagmire and realise the monies invested by it to the extent possible. At any rate, it is clear that the Government , felt that on account of financial constraints faced by it; it would not be in a position to fund the resources to make any further investments. There is no restriction as is evident from the legislative policy underlying Section 12-A of the Act that the assets or assets and liabilities are to be transferred only in favour of a 'person' who is capable of reviving or rehabilitating the sick units, The transfer of assets could be in favour of 'any person' after approving the 'best offer' which in its turn means the offer received that best satisfies the criteria specified in the call for tenders or offers. To put it plainly, the 'best offer' means the best amongst the offers received in accordance with the criteria specified in the call for tenders or offers. The terms and conditions of a tender are to be again formulated by the Registrar in consultation with the Implementation Secretariat or any other Committee appointed by him to assist and advise him for that purpose. Does it confer any unguided and uncanalised power? The provision does not disclose any policy, principle or standard, which might act as a guidance for the Registrar in exercise of that power to identify the "best offer". The Registrar himself is authorised to fix the criteria and specify in the call for tenders of offers and one such offer that best satisfies the criteria becomes the "best offer".
49. In Harishankar Bagla v. The State of Madhya Pradesh, AIR 1951 SC 332, the Supreme Court dealt with the validity of Clause 3 of the Cotton Textile (Control of Movement) Order, 1948 promulgated by the Central Government under Section 3 of the Essential Supplies (Temporary Powers) Act, 1946. While upholding the validity of the impugned Clause, the Court observed that the Legislature must declare the policy of the law and the legal principles which are to control any given cases and must provide a standard to guide the officials or the body in power to execute the law, and where the . Legislature has laid down such a principle in the Act, the exercise of the power was valid.
50. The power to identify the 'best offer' appears to be over broad and too bald. The power conferred upon the Registrar does not obligate him to transfer the assets or assets and liabilities of the society for a consideration equivalent to the market value of the assets. He is not put under any obligation to make realisation of amounts equivalent to market value of the assets of the society sought to be transferred under Section 12-A of the Act. He is not even under an obligation to fix any reserved price that may ensure transparency and accountability. The discretion vested is absolutely uncontrolled without any guidelines.
51. In State of Punjab v. Khan Chand, , the Supreme Court while observing that vesting of discretion in authorities in the exercise of power under an' enactment does not by itself entail contravention of Article 14, held:
"What is objectionable is the conferment of arbitrary and uncontrolled discretion without any guidelines whatsoever with regard to the exercise of that discretion. Considering the complex nature of problems which have to be faced by a modern State, it is but inevitable that the matter of details should be left to the authorities acting under an enactment. Discretion has, therefore, to be given to the authorities concerned for the exercise of the powers vested in them under an enactment. The enactment must, however, prescribe the guidelines for the furtherance of the objects of the work of those guidelines that the authorities can use their discretion in the exercise of the powers conferred upon them. Discretion which is absolute uncontrolled and without any guidelines in the exercise of the powers can easily degenerate into arbitrariness. When individuals act according to their sweet-will, there is bound to be an element of 'pick and choose' according to the notion of the individuals. If a Legislature bestows such untrammeled discretion on the authorities acting under an enactment, it abdicates its essential function for such discretion is bound to result in discrimination which is the negation and antithesis of the ideal of equality before law as enshrined in Article 14 of the Constitution. It is the absence of any principle or policy for the guidance of the authority concerned in the exercise of discretion which vitiates an enactment and makes it vulnerable to the attack on the ground of violation of Article 14. It is no answer to the above that the executive officers are presumed to be reasonable men who do not stand to gain in the abuse of their power and can be trusted to use "discretion" with discretion. As mentioned on page 3 of Parliamentary Supervision of Delegated Legislation by John E. Kersell, 1960 Ed.:
"The point is, however, that no one ought to be trusted with power without restraint. Power can be of an encroaching nature, and its encroachments are usually for the sake of what are sincerely believed to be good, and indeed necessary, objectives. Throughout history the most terrible form of tyranny has been the forcing on human beings of what someone believes to be good for them. The imposition of controls on the use of delegated legislative authority, therefore, does not imply a deep suspicion of malevolent intentions. Human nature, being what it is, has to be protected, against itself, and where power is concerned the very existence of the possibility of restraint, as we shall see, is a safeguard against abuses in which ends may be used to justify means and the good in intent becomes the evil in effect."
52. The discretion conferred upon the Registrar which is unstructured may result in discrimination, as it enables the Registrar to fix the criteria for himself and characterize the same as the 'best offer'. There is no guidance as to how the terms and conditions and other criterion is to be specified by the Registrar while calling for tenders and offers.
53. The Government's interest in the sick Co-operative societies whose assets are sought to be transferred is clear and about which there is a little controversy. The assets of only such sick Co-operative societies (a) in which majority of the shares are held; or (b) to which loan exceeding fifty per cent of the total loan borrowed is advanced; or (c) in which liabilities by way of guarantee for borrowing including working capital borrowing exceeding fifty per cent of the total borrowings are undertaken, by the Government, or one or more Government Companies or one or more corporations owned or controlled by the Government, are sought to be transferred on the ground that such societies have become sick and there is no possibility to rehabilitate them. On account of the Government holding the majority of the shares and on account of predominant Government's interest and its financial involvement in such Co-operative societies, the assets of such Co-operative societies attained the character of public property. Public Interest gets involved:
54. It is fairly well settled that unlike a private individual, the Government cannot act as it pleases in the matter to transfer of its property or the properties in which it has a predominant interest. Such properties are nof the properties of the Government, but of the State. The Government of the day holds such properties as custodian for and on behalf of the people. The action of the Government in dealing with such properties is subject to restraints inherent in its position in a democratic society. Any law made by the legislature authorising the Government to alienate or transfer its property or dealing with the properties of the State Government are liable to be tested for its validity on the touchstone of reasonableness as enshrined in Article 14 of ' the Constitution of India and if it fails to satisfy the test, it would be unconstitutional and invalid. (See: Ramana Dayaram Shetty v. International Airport Authority of India. , Kasturi Lal Lakshmi Ready v. State of J&K, and Ram and Shyam Company v. State of Haryana and Ors., ).
55. It is settled law that where transfer of a property by the Government is for augmentation of the revenue and nothing else, the State is under an obligation to secure the best market price available in a market economy.
56. As noticed hereinabove, it is not evident from Section 12-A of the Act that the assets of the sick Co-operative societies in which the Government had the predominant interest are sought to be transferred to achieve some constitutionally recognised public purpose. Infinite variety of considerations may arise requiring the Court to take into account if the transfer of assets of a sick Co-operative society was to achieve the goals set up in Part IV of the Constitution or for the purpose of carrying out a welfare scheme or to achieve any constitutionally permissible objective.
57. In Sachidanand Pandy and Anr. v. State of West Bengal, AIR 1987 SC 1109, the Supreme Court observed:
"...... State-owned or public-owned property is not be dealt with at the absolute discretion of the executive. Certain precepts and principles have to be observed. Public interest is the paramount consideration. One of the methods of securing the public interest, when it is considered necessary to dispose of a property, is to sell the property by public auction or by inviting tenders."
58. The same test would be applicable whenever any law is enacted by the State Legislature providing for transfer of State-owned or public owned properties. The law is required to prescribe the rational basis in case wherever it authorises the authorities to transfer the State-owned or public owned properties. Whether the impugned legislation provides for any such rational basis, is the question.
59. The learned Additional Advocate-General, however, contended that the discretion conferred under the Act cannot be said to be unfettered and uncanalised when the object of the Act and its provisions indicate when, and under what circumstances, the power conferred has to be exercised. The policy can be gathered from the Preamble, the provisions of the enactment and other, surrounding circumstances. Reliance has been placed upon the decisions of the Supreme Court in J, Jayalalitha v. Union of India, , Organo Chemical Industries v. Union of India, AIR 1979 SC 1803, and of this Court in M. Krishnama Naidu (supra.).
60. In J. Jayalalitha (supra), the Supreme Court while considering the constitutional validity of Section 3 (1) of the Prevention of Corruption Act, 1988 which empowered the Government to appoint Special Judges for such cases or group of cases observed that the discretion conferred by Section 3 upon the Government is not unfettered or unguided and, therefore, challenge to the validity of Section 3 (1) of the Act must fail. It is further observed:
"Policy can be gathered from the preamble, the provisions of the enactment and other surrounding circumstances. What has to be considered is whether the Act discloses a policy and lays down a guideline in accordance with which the discretion conferred by Section 3 is to be exercised by the Government. One of the objects of the Prevention of Corruption Act is to provide speedy trial for offences punishable under the Act. Relevant provisions of the Act (Sections 4(4), 5(4)) sufficiently indicate the intention of the legislature and also the object of the Act that the cases of corruption shall be tried speedily and completed as early as possible. This is the policy of the Act and it underlies Section 3 also. Therefore, while exercising the power under Section 3 the Government shall have to be guided by the said policy."
61. The Court further observed that considering the object and scheme of the Act and the context in which it is used it would mean requirement in public interest and cannot be said to be so vague as not to provide a good guideline. Thus the exercise of discretion by the Government under Section 3 has to be guided by the element of requirement in public interest.
62. In Organo Chemical Industries (supra), the Supreme Court held that the power conferred under Section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 on the Provident Fund Commissioner to impose damages on an employer defaulting in payment of contributions to the provident fund is not unguided nor arbitrary and, hence, is not violative of Article 14 of the Constitution. The Court further observed:
".....the more bereft of explicit guidelines a statutory power is, the more searching must be the judicial invigilation to discover hidden injustice and masked mala fides. Even so, let us examine the ground that, absent detailed guidelines, the law is void. What is not explicit may still be implicit. What is not articulated at length may be spun out from a single phrase. What is not transparent in particularized provisions may be immanent in the preamble, scheme, purpose of subject-matter of the Act. What is real is not only the gross but also the subtle, if I may strike a deeper note. Such a perspective dispels the submission that Section 14-B is bad as uncircumscribed and over-broad."
63. But our search and analysis of the whole of the provision including the statement of objects and reasons, scheme and purpose of subject matter of the Act do not disclose any rational structuring of the power vested in the Registrar and presence of any guidelines ensuring transfer of assets of sick Co-operative societies in order to realise the best price.
64. The submission that the very expression 'best offer' denotes more than one offer and that the offer, which should be accepted as the best among the offers received, ensures the best possible offer is totally unacceptable. The 'best offer' means what? The 'best offer' means the offer received according to the terms and conditions and criteria specified by the Registrar in call for tenders and offers. .
65. The decision in Workmen v. Meenakshi Mills Ltd., , upon which reliance has been placed by the learned Additional Advocate General, does not support the point urged by him. The Supreme Court, while considering the argument that Sub-section (2) of Section 25-N of the Industrial Disputes Act, 1947 does not prescribe any guidelines or principles to govern the exercise of the power that has been conferred on the appropriate Government or the authority in the matter of grant or refusal of permission for retrenchment and in the absence of such guidelines or principles governing the exercise of the power, it would be permissible to pass order in an arbitrary manner because there is no touchstone to assess the validity of those reasons, observed that the nature of power that is exercised while refusing or granting permission under Sub-section (2) is not purely administrative in character but partakes of exercise of a function which is judicial in nature. "There is need for such principles or guidelines when the discretionary power is purely administrative in character to be exercised on the subjective opinion of the authority. The same is, however, not true when the power is required to be exercised on objective considerations by a speaking order after affording the parties an opportunity to put forward their respective points of view. That apart, it cannot be said that no guidance is given in the Act in the matter of exercise of the power conferred by Sub-section (2) of Section 25-N of the Industrial Disputes Act, 1947."
66. Clause (h) of Explanation appended to Section 12-A of the Act, which enables the Registrar to specify the criteria in the call for tenders or offers, cannot be equated to that of exercise of quasi-judicial power. At the stage of specifying the criteria in the call for tenders or offers, no speaking order is required to be passed. There is no adjudication as such involved. There are no principles indicated governing the exercise of power and, therefore, there is no touchstone to assess the validity of the decision making process in specifying the conditions in the call for tenders or offers, which ultimately forms the basis for deciding as to what the "best offer' is.
67. The case on hand itself reveals that the total value of the assets of Chittoor Co-operative Sugar Factory Limited (subject-matter of WP No. 20572 of 2002) is assessed as Rs. 33.01 crores, but the highest bid received in respect of the said factory is only Rs. 21.00 crores. In case of Sri Venkateswara Co-operative Sugar Factory Limited (subject-matter of W.P. No. 22463 of 2003), the highest bid received is Rs. 22.22 crores as against the total value of assets assessed at Rs. 24.34 crores. Even the valuation and the criteria adopted for assessment of assets are in dispute about which we do not propose to express any opinion. The argument that the primary object of transfer of assets is to protect the interest of the cane growers and workers and not merely for augmentation of revenue is without any substance. Resurrection and revival of sick sugar factories is not provided for in the package of Section 12-A of the Act.
68. Section 12-A of the Act in no manner imposes any restriction upon the exercise of power by the Registrar in the matter of transfer of asset or assets and liabilities, in whole or in part, only in favour of such person who intends to revise or resurrect the sick Co-operative Sugar Factories. Revival and resurrection of the sick units is not an obligation on the person making the 'best offer' nor is it an obligation on the part of the Registrar to transfer the assets of the sick units only in favour of such person who made the 'best offer' to revive the industry. On the other hand, the scheme of Section 12-A(9) of the Act provides for the utilisation of the proceeds realised from the transfer of the assets and application of such proceeds in discharge of the liabilities of the Cooperative sugar factory/industry concerned, but does not impose any legal obligation on the transferee to resurrect the factory/ industry in public interest and to protect the interest of the cane growers and workers. The whole scheme in clear terms demonstrates that the transfer of assets is intended to discharge the liabilities from out of the proceeds realised and, therefore, realization of maximum revenue alone is the predominant consideration while transferring the assets of sick units. The unguided and uncanalised power conferred upon the Registrar to accept the best offer, which in its turn is nothing but which best satisfies the criteria specified by the Registrar himself while calling for tenders or offers. The power to specify the criteria and to identify the best offer and to accept the same on the ground that it best satisfies the criteria is left to the complete unstructured discretion of the Registrar.
Clause (h) of the Explanation, in our considered opinion, confers unguided and uncanalised power in the Registrar and the same is arbitrary being violative of Article 14 of the Constitution.
69. So far as the constitutional validity of Section 12-A(1) and (2) is concerned, we adopt the same reasoning given by the Bench in M.Krishnama Naidu (supra) and accordingly uphold its constitutional validity. Sub-sections (3) to (8) of Section 12-A also do not suffer from any other constitutional vice except the concept of "best offer" runs through those provisions being integral and forms part having direct, impact on the operation of those sub-sections. Sub-sections (9) to (13) and the explanations, except (h), which deal with the best offer, do not suffer from any constitutional infirmities.
70. In the result, the constitutional validity of Section 12-A, Sub-sections (1), (2) and (9) to (13) and explanations, except (h), is upheld. The rest of the provisions are struck down as violative of Article 14 of the Constitution of India.
Whether the decision making process is vitiated?
71. The next question that falls for consideration is whether the decision making process is vitiated for any reason whatsoever ?
72. The learned Counsel for the petitioners, Sri D.V. Bhadram, Sri M.V. Durga Prasad and Sri M.S. Prasad, made elaborate and detailed submissions challenging the decision making process and the decision of the Registrar to transfer, the assets of the sick co-operative sugar factories. The learned Counsel for the petitioners broadly contended that Section 12-A of the Act is not at all applicable to the Co-operative sugar factories of which the petitioners are the members. The contentions made are broadly indicated as follows:
(a) The Government has converted Differential Cane Price (DCP) loan into equity, but for which the Government's holding in the society would not be in excess of 50%.
(b) The amounts that were paid by the Government to the co-operative societies towards differential cane price were more in the nature of subsidy and not as loan. Therefore, the subsidies so granted cannot suo motu be allowed to be converted into loans.
(c) The amount paid for the benefit of sugar cane farmers, has been declared ultra vires by a Division Bench of this Court in K.C.P. Sugar and Industries Corporation Ltd. (supra) and as such the conversion of DCP loan into equity is a nullity.
(d) The suo motu decision of the Government in converting the DCP loan into equity resulting in increase in the paid up capital of the society exceeds its authorised share capital and, therefore, void ab initio being contrary to the bye-laws of the societies.
(e) The petitioners have gone to the extent of the contending that though the Cooperative societies were capable of carrying on their business on their own without any assistance whatsoever from the State Government, loans were thrust on them during 2002-2003 to bring them within the ambit of Section 12-A. The Government deliberately pumped its money by way of loans so as to ensure that the advances made by it exceed 50% of the total loans of the society. This action of the Government is mala fide and is a part of grand design to transfer the assets of Co-operative societies to persons picked and chosen.
73. We have already noticed that the Government of Andhra Pradesh from 1974-75 to 2000-2001, with a view to provide remunerative prices to the farmers growing sugarcane, fixed the State Advisory Price (SAP) admittedly higher than the statutory minimum price fixed by the Central Government under the Sugarcane Control Order. None of the Co-operative sugar factories herein ever questioned the said policy decision of the Government That apart, the members of the societies, including the petitioners themselves, are the farmers growing sugarcane. The membership of the society essentially and predominantly consists of sugarcane growers. The members of the societies including the petitioners are the beneficiaries of such fixation of State Advisory Price by the Government ever since 1974-75.
74. Obviously, some of the Cooperative sugar factories, on account of financial constraints, were unable to pay the State Advisory Cane Price as fixed by the Government. It is under those circumstances, the Government came to the rescue of those societies and accordingly sanctioned loans as differential cane price loan (difference between the statutory minimum price and the State Advisory Price). The said loans were given to the Co-operative societies during the year 1982 to 1989. Later on the Government unable to realise its loans converted the Differential Cane Price (DCP) into equity under various Governmental Orders.
75. In case of Sri Venkateswara Cooperative Sugar Factory Limited, the Government advanced a total amount of Rs. 312.05 lakhs as loan during the period from 1983 to 1989. The Government having examined the proposals from the Director of Sugar and Cane Commissioner, vide G.O. Ms. No. 380, dated 10-12-1999 decided to convert the said DCP loan of Rs. 312.05 lakhs sanctioned to Sri Venkateswara Co-operative Sugar Factory Limited from 1983 to 1989 and the interest/penal interest accrued thereon up to 31-3-1999 amounting to Rs. 513.50 lakhs into equity. In the similar manner, the Government issued G.O. Ms. No. 383, dated 10-12-1999 ordering to convert the DCP loan of Rs. 291.98 lakhs sanctioned to Nizamabad Co-operative Sugar Factory Limited during the period from 1982 to 1986 and interest/penal interest accrued thereon at Rs. 698.56 lakhs into equity. The said G.O. reveals that even the Nizamabad Cooperative Sugar Factory Limited represented to the Government to convert the DCP loan along with the interest accrued thereon into equity.
76. Likewise, various Governmental Orders produced for our perusal during the course of hearing of this batch of cases make it abundantly clear that the amount sanctioned was a loan but not a subsidy. The required details of the loan sanctioned including the period of the loan, moratorium towards repayment of loan, interest chargeable on the loan, etc., are clearly evident from various Governmental Orders issued from time to time.
77. The expression 'financial assistance' used in various Governmental Orders while sanctioning the loan itself cannot be construed as if the Government granted financial assistance as a subsidy and not as a loan. The financial aid given to the Cooperative societies in the instant cases is clearly in the form of loans carrying interest and not as subsidy. It is unnecessary to go into the details of the loans given during the period 1982 to 1989 and the interest accrued thereon etc., in respect of each of the Co-operative Sugar Factories. The order passed by the Registrar after providing a reasonable opportunity of being heard to the members of the Cooperative societies is clear in this regard. Each of the objections has been taken into consideration and a clear finding thereon is recorded.
78. The Andhra Pradesh State Federation of Co-operative Sugar Factories Limited vide its letter dated 17-9-1999 suggested that it is desirable to convert the principal and interest as equity in the interest of Co-operative sugar factories. It is explicitly made clear that this conversion does not involve in any further financial commitment on the part of State Government as it is only the conversion of loan to equity and change of character of the amount already disbursed/arranged. The permission was accordingly sought by the Co-operative Sugar Factories to increase their authorised capital' in order to accommodate the converted loan in the capital structure. The Government accordingly at the instance of the A.P. State Federation of Co-operative Sugar Factories Limited having considered the proposals converted the DCP loan with interest accrued thereon up to 31st March, 1999 into equity to enable the Co-operative sugar factories to obtain working capital loans from the financial institutions.
79. It is true that this Court in K.C.P. Sugar and Industries Corporation Limited (supra), held that it is the only Central Government that is competent to fix the minimum price of sugarcane to be paid to the growers and the State Government is not competent "to enhance or decrease the said price". The subject-matter of challenge in K.C.P. Sugar and Industries Corporation Limited (supra), was in respect of the State Advisory Price fixed by the Government for the cane years 1998-99 to 2000-2001 vide G.O. Ms. No. 420, dated 4-2-1998, G.O. Ms. No. 398, dated 17-12-1999 and G.O. Ms. No. 606, dated 7-12-2000. It is clear that the State Advisory Price fixed by the Government prior to 1998-99 including the period 1982 to 1989 when the DCP loans were given to the Co-operative sugar factories was not challenged in that case. None of the Co-operative sugar factories in the State including the Co-operative sugar factories of which the petitioners herein are the members were parties to any of the writ petitions and writ appeals. The Court did not grant any relief of refund of the amount already paid.
80. We have already noticed that the petitioners herein have received the benefit of DCP. They are the beneficiaries of the policy of the Government in fixing the DCP. We are in complete agreement with the submission made by the learned Additional Advocate-General that it shall not be open to the petitioners to turn round and contend that the Government should waive the DCP loan amounts and interest accrued thereon, which were utilised by the societies to make payments to its members including the petitioners herein.
81. Even in the case of illegal levy of taxes, refund is not automatic. In the instant case, unlike in the case of levy of tax, where the amounts paid as tax are received by the Government, in the case of State Advisory Price, the Differential Cane Price was paid by the sugar factories to the farmers, most of whom were its members and no amount has been received by the Government.
82. In Mafatlal Industries v. Union of India, the Supreme Court laid down certain propositions with regard to the "doctrine of unjust enrichment", including:
(i) It is not open to any person to make a refund claim on the basis of the decision of a Court or Tribunal rendered in the case of another person. He cannot also claim that the decision of the Court/ Tribunal in another person's case lead to the discovery of mistake of law.
(ii) While examining the claims for refund, financial chaos which would result in administration of the State is not an irrelevant consideration, as huge claims may result in financial chaos in the administration of the affairs of the State.
83. In the counter-affidavit, it is explained that the amount which the Cooperative Sugar Factories paid to the sugarcane growers, as State Advisory Price, if required to be refunded to the sugar factories by the Government, would entail payment of a minimum of Rs. 1100 crores since the State Advisory Price was being fixed ever since 1974-75 till 2000-2001. In the circumstances, we are not inclined to grant any relief whatsoever and direct the refund of State Advisory Price to the Co-operative sugar factories by the Government. The prayer in this regard is totally misconceived.
Whether the Conversion of Loan into equity exceeded the share capital?
84. It is unnecessary to go into the question whether the conversion of Differential Cane Price loan into equity, since exceeded the authorised share capital of the society, is void in law?
85. The issue has become academic for the reason that even if the Court finds that such action to be void, the DCP loan converted into equity would regain its character of a loan and would be required to be added to the existing loan of the society, thereby, resulting in much more than 50% of the total loans of the society, being loans given by the Government and consequently satisfying the requirement of Section 12-A(1)(b) of the Act. It is fairly well settled and needs no restatement at our hands that such academic questions shall not be gone into by this Court in exercise of its jurisdiction under Article 226 of the Constitution of India.
Whether Non-Recurring Deposits should be converted into equity capital?
86. We are also not impressed by the submission that non-recurring deposit should have been converted into equity capital, as if it only in such an event that the share capital of other members would exceed that of the Government. There has been no such demand by the general body of Sri Venkateswara Co-operative Sugar Factory Limited for conversion of non-recurring deposit into capital. It is an argument raised for the sake of argument. We find no substance in the submission.
87. Each of the orders passed by the Registrar in respect of three Co-operative sugar factories in question in clear and categorical terms reveals the accumulated losses far exceeding its paid up capital and free reserves. As has been rightly pointed out by the learned Additional Advocate General if the DCP loan with interest accrued thereon up to 31-3-1999 is excluded, the paid up capital would be far less and as a result the difference between the accumulated losses and free reserves would increase multifold. We accordingly find no merit in the submission.
Was there any possibility to rehabilitate the sick Co-operative sugar factories in question by the Societies themselves?
88. In reply to the show-cause notice of the Registrar dated 5-8-2003, Sri Venkateswara Co-operative Sugar Factory Limited made its representation containing various resolutions of the general body inter alia resolving (a) purchase tax arrears of Rs. 738.80 lakhs should be cancelled/ waived; (b) Rs. 29.50 crores, paid by factory from 1977-1978 to 2000-2001 to implement differential cane price, should be refunded; (c) the interest free loan granted during 2002-2003 (i.e., for a sum of Rs. 13.39 crores) should be converted into grant; and (d) the Government should discuss with banks and arrange to provide working capital finance to the society on the pledge or mortgage of sugar and other assets without Government guarantee.
Some resolutions passed by the Nizamabad and Chittoor Co-operative Sugar Factories themselves establish that the societies are not in a position to rehabilitate themselves and they continue to seek the support from the Government including the waiver of loans, conversion of loans into grants, cancellation of tax arrears, etc. The submissions made in this regard are totally unsustainable.
Whether Registrar abdicated his functions?
89. Equally, we are also not impressed by the submission that the Registrar abdicated his statutory functions in favour of the Implementation Secretariat. Section 12-A(3) of the Act empowers the Registrar to appoint any expert including the Implementation Secretariat to assist and advise him for the purpose of matters enumerated in Clauses (i) to (ix) of Section 12-A(3). The Implementation Secretariat- has been defined in explanation (g), to mean the Implementation Secretariat established in the Department of Public Enterprises by the State Government in G.O. Ms. No. 150, dated 30-4-1998. The role of the Implementation Secretariat is only to assist and advise the Registrar on the matters specified in Clauses (i) to (ix) of Section 12-A(3) of the Act. It has no role in the decision making process of the Registrar and the order to be passed under Section 12-A(1) of the Act The decision that a particular Co-operative society has become sick and there is no possibility to rehabilitate the same and it is necessary in public interest to transfer the assets or assets and liabilities, in whole or in part, of such society to any other person, is required to be taken by the Registrar in which the Implementation Secretariat has no role to play. In view of the decision, which we have taken necessitating fresh exercise to be undertaken for the sale of assets, it is not necessary to go into the question as to what is the effect of publication of notification in the newspapers one day after the Implementation Secretariat is appointed to assist and advise the Registrar.
90. For all the aforesaid reasons, we hold that the decision of the Registrar in identifying the Co-operative sugar factories in question as sick Co-operative societies and there is no possibility to rehabilitate them and in the public interest it is necessary to transfer its assets or assets and liabilities, in whole or in part, to any other person, is not vitiated for any reason whatsoever.
91. In the result, we;
(a) uphold the constitutional validity of Section 12-A(1), (2) and (9) to (13) and explanations, except explanation (h), which defines the 'best offer';
(b) strike down explanation (h), which defines 'best offer', as unconstitutional being violative of Article 14 of the Constitution of India;
(c) do not find any constitutional infirmity in Sub-sections (3) to (8) of Section 12-A of the Act, but the concept of 'best offer' as defined in explanation (h) runs through the said provisions and or so inextricably bound up those forming an integral part of the said sub-sections and, therefore, we find it difficult to apply the 'doctrine of severability' and save them. Therefore, Sub-sections (3) to (8) are also struck down as unconstitutional being violative of Article 14 of the Constitution of India;
(d) uphold the decision of the Registrar taken under Section 12-A(1) of the Act alone; and
(e) other consequential decisions are declared void in view of striking down of explanation 'h' and as well as subsections (3) to (8) of Section 12-A of the Act.
92. In the result, WP Nos. 20572, 21396 and 22463 of 2003 are partly allowed to the extent indicated above.
93. WA No. 2221 of 2003 and WP No. 25453 of 2003 shall accordingly stand dismissed. So also WP No. 21512 of 2003 shall stand dismissed as not pressed.
94. The parties are directed to bear their own costs.