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TMI Blog2008 (1) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... deciding to lease the aforesaid sugar factory for a period of 30 years on LROT basis. 2. The petitioners are the shareholders and members of the 4th respondent-Raibag Sahakari Sakkare Karkhane Niyamitha, Raibag, Belgaum District, ('for short 'society'). The said society is registered under the Karnataka Co-operative Societies Act, 1957 (for short 'the Act'). The society is carrying on the activities of manufacture of sugar. The society purchases sugarcane from its members and also from farmers in the surrounding villages for the purpose of manufacture of sugar. The society commenced its activity of production of sugar in the year 1978 with an installed capacity of 1250 TDC. The society took up an expansion programme by increasing the crushing capacity of sugarcane from 1250 TDC to 2500 TDC. It is the case of the petitioners that for the purpose of increasing the crushing capacity, the society had availed financial assistance of ₹ 9.85 crores from NCDC and ₹ 7.45 crores from Sugar Development Fund from the Government of India. There was an inordinate delay in release of the fund from the Sugar Development Fund, which resulted in diversion of fund bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the pending bills and necessary payment to cane growers. In this background, the State Government convened a meeting presided over by the Minister for Sugar and Co-operative Societies. A decision was taken in the said meeting to immediately return the factory to the management with all accounts. The Executive Board reconditioned the plant and started manufacture of commercial sugar during the month of April/May, 2003. Since the society did not have a working capital, it sought for pledge loan from the DCC Bank. The DCC Bank refused to grant any loan. Therefore, crushing became extremely difficult. At this juncture, the Government appointed an Administrator to the society. According to the petitioners, the Administrator also misappropriated the funds of the society. At this stage, the State Government decided to put up the sugar factory for sale by way of public auction, which was challenged in appeal No. CMW.4.CAP.2006. During the pendency of the appeal, the State Government decided to revive the society and tender process initiated to sell the sugar factory came to be cancelled. It is the case of the petitioners that without taking into account the interest of the farmers, shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. It is further contended that most of the sugar factories in the State of Karnataka have sustained loses and have accumulated losses, which run into crores of rupees. The losses of these cooperative societies have gone on increasing. It is under these circumstances the State Cabinet took a decision to revive those sugar Co-operative societies, which are defunct or not working to be leased on long term basis as the only methodology of reviving the same as it was impossible for the Government to pump in any more funds. It is further contended that leasing of sugar factories would result in the Co-operative societies continuing to exist and the assets being available to the said societies. The State Government took a decision to revive the Co-operative society in question by leasing out its factory by inviting tenders on the same lines as was done in respect of Pandavapura Co-operative Sugar Factory, Sri Srirama Sugar Factory, Sri Dhanalakshmi Sugar Factory. The State Government took a decision on 14.12.2006 to revive the society in question by leasing out its factory on long term basis and accordingly, the Government order was issued. The shareholders of the society had challenged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot make payment to the sugarcane growers towards purchase of sugarcane within 14 days from the date of procurement as per the provisions of Sugarcane (Control) Order, 1966. The management has defaulted in payment of the purchase price to the sugarcane growers to a tune of ₹ 1625.09 lakhs, the details of which are as under: 1998-1999 ₹ 578.00 lakhs 1999-2000 ₹ 379.93 lakhs 2000-2001 ₹ 671.16 lakhs ₹ 1625.09 lakhs The other liabilities of the 4th respondent society are as under: A. Wages for Labours 11.72 B. LIC Subscription dues of Labours 1.27 C. P.F. dues 1.52 D. Professional Tax 0.58 E. Purchase Tax due to Government 288.00 F. SDF Loan due to Central Government 783.00 G. Pledge loan of sugar due to Belgaum District, Central Co.Op.Bank Ltd. 4150.00 H. OTS due to Government 1164.00 I. Deposits due 636.00 J. Other liabilities (interest on Bank Loan and etc.) 3901.96 K. Total liabilities 11053.49 It is further contended that the society has also defaulted in repayment of loan of ₹ 4150 lakhs borrowed from DCC Bank on pledge of sugar and the interest outstanding is ₹ 3901.96 lakhs. In the aforesaid circumstances, the third respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot in the interest of the members of the society. No general body meeting of the members of the society has been convened. The State Government has no jurisdiction to take a decision without any recommendation from the general body or the board of the society. Relying on the decision of the Apex Court in the case of Daman Singh and Anr. v. State of Punjab and Anr. he submits that a Co-operative society has the status of a body corporate having perpetual succession and a common seal with power to hold property, enter into contracts, institute and defend suits and other legal proceedings and to do all things necessary for the purpose for which it is constituted. A Co-operative society is a Corporation as commonly understood. Promotion of Co-operative movement is one of the directive principles of the state policy. Placing reliance on the decision of the Apex Court in The Registrar of Co-Operative Societies, Trivandrum and Anr. v. K. Kunjabmu and Anr. , he submits that the Co-operative Societies Act is a welfare legislation. The policy and guidelines are discernible from the preamble of the Act which proclaims that the law has been passed to facilitate the formation and working of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livelihood. The factory has not paid cane price to the farmers right from the year 1998-99 onwards. The total price payable to the farmers by the factory is over ₹ 16.25 crores. It has also not paid dues to its employees/workers, financial institutions, State Government and others. The factory was closed from the year 2001-02 due to financial distress. The total liabilities of the factory are in excess of ₹ 15057 lakhs. The factory has sustained accumulated losses aggregating to over ₹ 9892 lakhs and cash loss of ₹ 6169 lakhs as on 31.3.2005. In view of the overwhelming losses sustained by the factory and its inability to pay its dues to the farmers, workers, financial institutions and the State Government, an order was passed by the Commissioner for Cane Development and Director of Sugars, Bangalore, on 24.1.2004 for liquidating the cooperative society in question. It is further argued that majority of the sugar factories have sustained losses and have accumulated losses which run into crores of rupees. It is under these circumstances that the Cabinet took a decision to revive those sugar cooperative societies, which are defunct or not working to be leased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the factory and installation of new units, which add value to the tune of ₹ 100 crores to the assets of the society. The National Bank for Agricultural and Rural Development (NABARD), a Government of India Organization, which funds the Co-operative societies and agricultural sector also recommends under the package for leasing of factories under restructuring of Co-operative sugar factories. The leasing of the factory would result in a win-win situation. Learned Advocate General further submits that there is no prohibition to issue the impugned notification by the State Government under Section 30B of the Act. It is further submitted that this Court should not exercise its discretionary power to annul the decision taken by the State Government in public interest. He prays for dismissal of the writ petition. 7. Learned Counsel appearing for the other respondents have adopted the arguments of the learned Advocate General. 8. I have carefully considered the arguments of the learned Counsel made at the bar and perused the materials placed on record. 9. It is not in dispute that the sugar factory of the 4th respondent-society has sustained heavy losses. It has failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'as is where is' basis. The lessee is required to invest a minimum of ₹ 100 crores in the factory and increase the crushing capacity as well as establish co-generation as well as the distillery and ethanol unit. After the lease period is over, the entire assets including those that have been set up at the cost of the lessee would revert back to the society. It is also clear that if the lease is not resorted to, the only way out of the morass is to sell the factory. The sale of the factory would result in liquidation of the society whereas the lease of the factory would revive keeping the society intact and would facilitate the members to get dividends out of the lease rentals and get the entire assets into their hands after the lease period is over. Further, the lease would result in expansion of the factory and installation of new units, which add value to the tune of ₹ 100 crores to the assets of the society. This arrangement will benefit the society and its members as well as the farmers, employees of the society and the financial institutions of the State Government. It is thus clear that the impugned order has been passed by the State Government in the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires interference, the Court should intervene. It is clear from the undisputed facts that the leasing of the factory on lease, rehabilitated, operate and transfer scheme is in the interest of the farmers, workers and employees, financial institutions and the State Government and also in public interest. The State Government has taken a decision keeping in view the larger public interest in mind. Having regard to the facts and circumstances of the case, the decision taken by the State Government to lease the sugar factory on LROT basis is just and proper. 14. Now let me consider the two contentions urged on behalf of the petitioners. The Co-operative Societies Act is a welfare legislation. The object of every Co-operative society is to promote economic interest of its members by following cooperative principles when the profit motive will be restricted to a reasonable level unlike other commercial bodies as held in S.M. MAHENDRU's case (supra). A cooperative society has the status of a body corporate having perpetual succession and a common seal. 15. The Karnataka Co-operative Societies Act, 1959, has been enacted to consolidate and amend the Co-operative Societies in the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of Cooperative Societies generally or to any Co-operative Society or Co-operative Societies in particular, it may issue directions from time to time and all such Co-operative Societies or the Co-operative Society concerned shall be bound to comply with such directions. 18. Section 30B of the Act empowers the State Government to give directions to any class of Co-operative Societies generally or to any Co-operative Society or Societies in particular if it is satisfied that in public interest and for the purpose of securing proper implementation of cooperative and other development programmes approved and undertaken by the State Government and all such cooperative societies or the Co-operative societies concerned shall be bound to comply with such directions. The direction issued by the State Government as per Annexure 'H' is in public interest, and in the interest of Co-operative society. It has been issued for the purpose of securing proper implementation of cooperative and for the development of the Co-operative Society. As has been stated above, the Co-operative society has sustained heavy loses and it is unable to pay its dues to the farmers, workers, financial insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Sakkare Karkhane Niyamita and Anr. v. The State of Karnataka and Ors. in W.P.No. 577/2006 (CS) disposed of on 24.2.2006 has upheld a similar Government Order issued under Section 30B of the Act. In the case of Sri Somappa v. The State of Karnataka in W.P.No. 10372/2007 (GM-RES) disposed of on 5.10.2007, this Court has followed the decision of this Court in The Karnataka Sahakari Sakkare Karkhane Niyamita's case (supra). 20. Now let me consider the decisions relied on by the learned Counsel for the petitioners. In the case of K. Kunjabmu , while upholding Section 60 of the Madras Co-operative Societies Act, 1932, the Apex Court has held that the Co-operative Societies Act is a welfare legislation. In S.M. Mahendru's case , the Apex Court has held that the object of every Co-operative society is to promote economic interest of its members by following Co-operative principles where the profit motive will be restricted to a reasonable level unlike other commercial bodies. In Daman Singhs case , the Apex Court has held that a cooperative society is a Corporation as commonly understood. There cannot be any dispute with regard to the principles laid down by the Apex Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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