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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 3RD DAY OF APRIL 2017
BEFORE
THE HON’BLE MR. JUSTICE A S BOPANNA
WRIT PETITION No.56686/2015 (GM-RES)
BETWEEN:
M/S. G M SUGARS AND ENERGY PVT.LTD. (A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956), HAVING ITS REGISTERED OFFICE AT GANDHINAGAR, BENGALURU-01 REPRESENTED BY ITS CHAIRMAN, G M LINGARAJU AGED ABOUT 47 YEARS ... PETITIONER
(BY SRI RAVIVARMA KUMAR, SR.COUNSEL FOR SRI. V R SARATHY, ADV. )
AND:
THE STATE OF KARNATAKA REPRESENTED BY THE SECRETARY TO THE GOVERNMENT, COMMERCE AND INDUSTRIES DEPARTMENT, VIKAS SOUDHA, BENGALURU-560001.
THE COMMISSIONER FOR CANE DEVELOPMENT & DIRECTOR OF SUGAR IN KARNATAKA, KARNATAKA HOUSING BOARD COMPLEX, CBAB COMPLEX, "F" BLOCK, 5TH FLOOR, KAUVERI BHAVAN, K.G ROAD, BENGALURU-560001.
THE KARNATAKA SAHAKARI SAKKARE KARKHANE NIYAMIT
A CO-OPERATIVE SOCIETIES REGISTERED UNDER THE KARNATAKA CO-OPERATIVE SOCIETIES ACT 1959, HAVING ITS REGISTERED OFFICE SITUATED AT SANGUR HAVERI TALUK, HAVERI DISTRICT.
... RESPONDENTS
(BY SRI. JAYAKUMAR S PATIL, SR.COUNSEL FOR SRI. A MOHAMMED TAHIR, ADV. FOR R3 SRI. A G SHIVANNA, ADDL.AG. ALONG WITH SRI. R.B. SATYANARAYANA SINGH, AGA. FOR R1 & 2)
THIS PETITION IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA, WITH A PRAYER TO QUASH THE LETTER / ORDER DTD.13.10.2015 ISSUED BY THE R-1 VIDE ANNEX-L AND QUASH THE LETTER/ ORDER DT.03.11.2015 ISSUED BY THE R2 VIDE ANNX-M.
THIS WRIT PETITION HAVING BEEN RESERVED FOR ORDERS ON 27.03.2017, COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT PRONOUNCED THE FOLLOWING :
O R D E R
The petitioner is before this Court assailing the communications/orders dated 13.10.2015 and 03.11.2015 as at Annexures-L and M. By the said communications, respondent No.1 has ordered that the direction for payment of interest at 10% on the amount paid by the petitioners towards voluntary retirement of the employees of respondent No.3 is withdrawn and pursuant to the same the communication is addressed
to inform the petitioner that the amount towards such interest shall not be deducted from the lease rentals payable by them. The petitioner therefore claims to be aggrieved.
The petitioner, an integrated sugar manufacturing company has taken on lease the sugar factory of respondent No.3, since respondent No.3 due to financial constraint was unable to run the sugar factory and carry on with the crushing activity. The Government of Karnataka had in that view taken a policy decision to lease out the respondent No.3 on Lease, Rehabilitate, Operate and Transfer (‘LROT’ for short) basis for a fixed period. In that view a tender inviting the bids was floated and the petitioner being the successful bidder was given the approval, pursuant to which a lease agreement dated 18.02.2008 was entered into between the petitioner and respondent No.3.
Though the said process was completed, the petitioner contends that the respondent No.3 had not disclosed certain material facts and information at the
time of entering into the lease deed. In that regard it is contended that the Voluntary Retirement Scheme (‘VRS’ for short) which had been announced and the amount required to be paid as arrears to the workmen in that regard had also not been disclosed, except for stating that the amount payable is meager. However, subsequently when the farmers and employees started demanding the arrears of wages, the Co-operative Minister of the Government of Karnataka convened a meeting on 04.08.2008 wherein the petitioner is stated to have brought to the knowledge of the Minister the misrepresentation made by respondent No.3 at the time of entering the lease deed. Hence, it was resolved in the meeting that the petitioner would pay the amount of Rs.770.34 lakhs and the Managing Board of respondent No.3 had agreed to pay 10% interest on the advance payment made by the petitioner and also permitted the petitioner to deduct the said interest amount from the payment of annual lease amount. The respondent No.2 is said to have directed respondent No.3 as well as the
petitioner to implement the resolution through its letter dated 08.09.2008.
However, respondent No.3 has subsequently refused to implement the proceedings due to which the petitioner addressed the letter dated 11.08.2011 and requested that the matter be placed before the State Advisory Board so as to direct payment of 10% interest. Though this was the position the Government of Karnataka by the letter dated 10.11.2011 intimated respondent No.2 that the petitioner is not entitled to claim interest on the advance payment. Subsequently when the issue was taken up by the petitioner, the respondent No.1 addressed the letter dated 14.03.2013 to respondent No.2 and stated that there is no burden to the Government and the parties can take an independent decision. The petitioner contends that the letters dated 16.03.2013 was addressed by respondent No.1 to respondent No.2 to intimate that the Government has agreed to recover 10% on the advance payment. The meetings thereafter held is referred and through the letter dated 03.11.2014 the respondent
No.2 had directed that the change be effected in the lease deed as per the modalities.
However, subsequently by the impugned communications at Annexures-L and M the decision to pay the interest being withdrawn the petitioner claims to be aggrieved.
The respondents have filed their objections. Respondents No.1 and 2 have at the outset contended that the writ petition is not maintainable in view of the arbitration clause contained in the lease deed. It is the further contention of respondents No.1 and 2 that the terms of lease are guided by the agreement dated 18.02.2008 to which they are not parties and any issues arising thereunder cannot be treated as a liability of these respondents. It is stated that since there was unrest due to non-payment of the arrears of wages and other dues to farmers, in order to ease the situation in the meeting dated 04.08.2008 called by the Co-operative Minister this issue was discussed since at this point the petitioner had brought to the knowledge of the Minister about the actual amount payable not being disclosed by respondent No.3. It is in that light the deduction
towards interest was considered. Though that is the position, the perusal of Clauses 46 and 47 of the lease deed does not indicate the liability to pay any interest.
The respondents in that regard have referred to the correspondences dated 30.08.2011, 10.11.2011, 09.10.2012 and 08.11.2012 as also letter dated 14.03.2013 to contend that the respondent No.1 had referred to the term in the clause which does not entitle payment of interest and also that the Government does not have any role in the matter. Through the letter dated 22.09.2014 they claim to have made it clear that the terms of the agreement can be amended only if there is mutual agreement between the parties to the agreement. Despite all this, since the amount towards interest was sought to be deducted the impugned letters were issued.
The respondent No.3 has filed a separate statement wherein a preliminary objection is raised about the maintainability of the writ petition as it arises out a contractual agreement dated 18.02.2008 entered
into between the petitioner and respondent No.3. The Clause No.46 contained in the agreement is extracted and it is contended that it expressly states that no interest will be payable. This respondent also has referred the very same correspondence to indicate that the petitioner had been informed that they cannot claim interest on the amount payable by them as per the agreement. With regard to the meeting dated 04.08.2008 it is contended that the Managing Director of respondent No.3 though shown to be present, he does not have the authority to take a decision to alter the terms of the agreement. The proceedings of the meeting was never placed before the committee for ratification nor did it translate into an alteration of the term in the agreement. Thus certain observations relating to a matter which was not on the agenda for the meeting cannot bind the respondent No.3 is the contention. Hence when the Board of respondent No.3 has not agreed to pay interest at 10% and when it is not a part of the contract and the Government has no role in the matter even if any assurance is given, the same will not
bind the parties to the agreement. Even in the absence of the impugned communication the petitioner did not have the right to deduct amount towards interest and as such they cannot make out any grievance.
In the above background, I have heard Sri Ravivarma Kumar, learned senior counsel along with Sri. V.R.Sarathy, learned counsel for the petitioner, Sri Jayakumar S.Patil, learned senior counsel along with Sri. A.Mohammed Tahir, learned counsel for respondent No.3, Sri.A.G.Shivanna, learned Addl. Advocate General along with Sri. R.B. Sathyanarayana Singh, learned Government Advocate for respondents No.1 and 2 and perused the petition papers.
From the rival contentions urged in the backdrop of the pleadings, it is seen that the undisputed fact is that the rights of the petitioner and the respondent No.3 would stem out of the lease deed dated 18.08.2008 which is a bipartite agreement. Among the several other terms and conditions agreed therein, Clause No.46 is relating to the regulation of the
payment which is to be made by the petitioner in the manner as indicated therein regarding which the petitioner is claiming interest at 10% presently. For better appreciation of the issue, Clause Nos.45 and 46 are reproduced, which reads as hereunder; "45. The Lessee shall avail services of all existing employees of the factory for the crushing season 2007-08 only and pay their salaries and allowances from the date of agreement till the closer of crushing season 2007-08. The Lessor as agreed to formulate the voluntary retirement schemes on the lines of Pandavapura SSK, in consultation with the Lessee, the employees unions and also with the approval of the Commissioner for Cane Development and Director of Sugar to reduce the existing staff strength. The Voluntary Retirement Scheme (VRS) shall be finalized and got approved before 31.05.2008 and implemented before start of the next crushing season during 2008-09 i.e., before 30.09.2008. the Lessor has also agreed to provide consent letters from their employees unions and also enter in to a Memorandum of Understanding for acceptance of Voluntary Retirement Scheme and settlement of arrears of salaries, wages etc.
The Lessor has agreed to work out the details of compensation, gratuity and other statutory payment to be payable to the employees those who
opt for VRS. The Lessee and the Lessor have agreed to bear the cost of compensation of VRS in the ratio of 30:70 towards Voluntary Retirement Scheme (VRS) settlement. Further the Lessee has also agreed to advance the share of the Lessor in respect of VRS settlement and gratuity payable by the Karkhane to the employees those who opt for VRS as and when required. This advance shall not bear any interest. The Lessee is entitled to deduct 50% of the lease rental from fifth year of the lease, towards the advance made by him for VRS settlement till the entire advance is recovered from the Lessor.” (emphasis supplied)
In that situation, whether the proceedings recorded in the meeting dated 04.08.2008 would create any right in favour of the petitioner by over-riding the terms agreed in the lease deed dated 18.08.2008 is the moot question so as arrive at a conclusion, whether the impugned communications will fall foul of the same?
The terms of the lease deed will disclose, though the petitioner is presently contending that certain aspects relating to the VRS to the employees had been suppressed, the terms in the deed is explicit of such VRS scheme existing and the amount in the ratio
of 30:70 to be paid to such employees and it is also agreed that the share payable by the respondent No.3- the Lessor will also be paid by the petitioner- the Lessee and it would be deducted from the rent payable, in the manner as indicated in the deed. It is explicitly clarified therein that such payment will not bear any interest. The petitioner therefore as a prudent businessman, with open eyes has entered into such transaction. If any of the terms are to be altered, no doubt it can be done in accordance with law and it will take effect as provided under Section 62 of the Contract Act. In the instant case, there is no dispute to the fact that no other contract has been executed between the parties to the initial deed dated 18.02.2008.
If that be the position, the meeting dated 04.08.2008 is seen to be convened to discuss the issue relating to the Government providing security for the amount invested by the Co-operative Bank in the respondent No.3. In that view, the Managing Director of respondent No. 3 was also present. In the said meeting the issue on hand is also referred and it is stated that
10% interest will be payable and the proceedings is signed by the Minister alone. Such consideration has not translated into an agreement between the parties nor has it been made a part of the initial deed by altering it. The payment of the amount to the employees opting for VRS was not a new issue that arose subsequent to the parties executing the lease deed dated 18.02.2008, but formed a part of the agreement and also the mode and manner in which it would be paid and recovered is also contained in the deed. The same could not have been altered in a casual manner as it is sought to be made out. Even if it is the grievance of the petitioner that they have been made to incur the quantum of amount for which they had not bargained for if according to them all details on this aspect had not been disclosed, it is a matter of inter se dispute relating to the terms of the contract between the parties which will have to be resolved in the manner as provided under the deed.
The Minister having participated in the meeting and merely because it was discussed and the proceedings are recorded, it cannot bind respondent No.3 nor can it be considered as the promise held out by the Government, to pay the petitioner. The documents produced at Annexures-R1 to R9 along with the objection statement of respondents No.1 and 2 will disclose that the Government was clear in its stand which ultimately resulted in the issue of the impugned communications dated 13.10.2015 (Annexure-L) and dated 03.11.2015 (Annexure-M) when the petitioner unilaterally deducted the interest component also from the lease amount payable.
The learned senior counsel for the petitioner has relied on the decisions in the case of M/s. Motilal Padampat Sugar Mills -vs- State of U.P. [(1979) 2 SCC 409]; in the case of Manuelsons Hotels Private Limited -vs- State of Kerala [(2016) 6 SCC 766] relating to the principle of estoppel and in the case of Southern Petrochemical Industries -vs- Electricity Inspector & ETIO [(2007) 5 SCC 447] on the issue
relating to legitimate expectation. Having carefully perused the said cases, it is clear that the said decisions cannot be made applicable to the present case since as already indicated above the parties are governed by the contract where under the terms are regulated. The petitioner, even as per the terms was required to pay the proportion of the VRS amount payable by the respondent No.3, that too with the clear understanding that interest is not payable. In such event an entity who is not a party to the contract holding out any assurance contrary to the terms agreed between the parties by itself is not valid so as to raise any expectation much less legitimate expectation and to contend estoppel.
The learned senior counsel for the petitioner has further contended that the impugned communications are not sustainable as it is issued without compliance of the principles of natural justice as no notice was issued. In that regard, the decisions in the case of S.L.Kapoor -vs- Jagmohan and others [(1980) 4 SCC 379]; in the case of
Sahara India (Firm), Lucknow -vs- Commissioner of Income Tax, Central-I and another [(2008) 14 SCC 151] and in the case of Associate Builders -vs- Delhi Development Authority [(2015) 3 SCC 49] are relied upon. Having perused the said decisions, I am of the opinion that the same will not assist the petitioner in the instant facts. Firstly, in the instant facts this Court is not examining the matter in the context of an administrative action, but is essentially a contractual matter. Secondly, though the impugned letter dated 13.10.2015 employs the word withdrawal, the same does not withdraw any benefit available under the agreement entered into between parties or otherwise. It refers only to the modalities that had been suggested being withdrawn which in any event was not binding on the parties. Thirdly, the impugned communication is not by a party to the lease deed who could neither confer any additional benefits or withdraw the benefits which are agreed to between the parties without the consent of both the parties to the deed. In that view, in the instant facts when the matter was governed by a
contract, the issue of notice will only be an empty formality nor was it required to be complied. The same therefore has not violated any existing right of the petitioner. However, as already indicated above if there are any inter se disputes relating to the terms of the deed or the performance of the terms agreed between the parties, certainly it will be open for the petitioner to avail the appropriate remedy in accordance with law. The contentions in that regard are left open and any of the observations contained herein shall not prejudice the parties. The forum concerned shall consider all aspects based on the material and evidence available before it.
In the result, the challenge to the communications dated 13.10.2015 and 03.11.2015 at Annexures-L and M fails. The petition is disposed of leaving it open to avail other remedies if open to the petitioner in accordance with law. No costs.
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JUDGE akc/bms