LETTERS PARENT APPEAL NO. 542 OF 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. DATE OF DECISION: May 12, 2010. Parties Name Food Corporation of India ...APPELLANT. VERSUS M/s Pooja rice mills and others ...RESPONDENTS CORAM: HON'BLE MR. JUSTICE MUKUL MUDGAL,CHIEF JUSTICE HON'BLE MR. JUSTICE JASBIR SINGH. PRESENT: Mr. O.P.Goyal, Senior Advocate, with Mr. Hari Pal Verma, Advocate, for the appellant. JASBIR SINGH, J. JUDGMENT The appellant – Food Corporation of India has filed this appeal to lay challenge to the judgment, passed by the learned Single Judge, on January 12, 2010, vide which Civil Writ Petition No. 16795 of 2009, filed by respondent No. 1, was allowed, action of the appellant in declaring respondent No. 1 a defaulter Mill was set aside and opportunity was given to respondent No. 1 to make a representation to the appellant for supply of paddy for custom milling as per Scheme (P-4)for milling of paddy for the period Kharif 2009-10 . As per the record, respondent No. 1 (a partnership Firm) is the owner of a rice mill, situated at Khadial Road, Sunam, district Sangrur. It LETTERS PARENT APPEAL NO. 542 OF 2010 -2- has purchased the said mill from M/S Gopal Rice Mills in the year 2007. It is an admitted fact that for the year 2007-08 and 2008-09, respondent No. 1 was allotted the stock of paddy, for custom milling, as per policy of the appellant and it had supplied the milled rice to the appellant as per agreement entered into between the parties and for the said two years, no default was committed by respondent No. 1 in supplying the milled rice to the appellant. As per the record, in the year 2004-05, this rice mill was taken on lease from its owner M/S Gopal Rice Mills by another partnership firm, namely, M/S Mahadev Rice Mlls and paddy stock was supplied to the above said lessee, by the appellant, as per the policy then existing for custom milling. In the year 2005, on receipt of a complaint, the CBI had conducted inspection of FCI godowns/ depots in Punjab region. It was allegation against the Millers that they had supplied rice to the appellant, which was beyond the limits prescribed under the Prevention of Food Adulteration Act (PFA) and also the rice supplied was beyond the rejection limit but within PFA limits. The investigation continued and ultimately report was submitted by the CBI on March 31, 2008, and it was recommended as under: “(i) Prosecution of 50 rice millers involved in the scam, who had supplied rice beyond limits prescribed in the Prevention of Food Adulteration Act (PFA). (ii)Prosecution of FCI officials/ officers who had accepted the stocks beyond PFA Limits. (iii)Regular Departmental Action against other FCI officials/ officers. LETTERS PARENT APPEAL NO. 542 OF 2010 -3- (iv)Black listing of 182 rice millers involved in the scam who had supplied rice beyond rejection limits but within PFA limits.” It is an admitted fact that in the year 2004-05, respondent No. 1 was not supplied any paddy for custom milling and no action of respondent No. 1 was under investigation by the CBI. It is also an admitted fact that neither name of the original owner, i.e., M/s Gopal rice mills nor name of respondent No. 1 figured in the list of 182 rice millers, which were recommended for black-listing by the CBI. Despite the above said fact, respondent No. 1 was declared as a defaulter and paddy stock was not supplied to it, for custom milling, for the year 2009-10. The respondent No. 1 filed civil writ petition No. 16795 of 2009, which was allowed by the learned Single Judge vide the impugned judgment. Hence this appeal. Before the learned Single Judge, it was vehemently contended by the appellant that in the year 2004-05, default was committed by M/s Mahadev rice mills, on account of which, it is the Mill which had become a defaulter, the owner at present may be different. It is necessary to mention here that there is no allegation against respondent No. 1 that it has any nexus with M/s Mahadev rice mills and that the transfer in the year 2007 was a sham transaction to overcome any anticipated action by the CBI. Before this Court, it has also been admitted that even to M/S Mahadev rice mills, the appellant continued to supply paddy stock, for custom milling, up to the year 2008-09. Shri O.P.Goyal, Senior Advocate, has vehemently contended that it was the Mill, which has become defaulter , the ownership may have LETTERS PARENT APPEAL NO. 542 OF 2010 -4- changed and as per policy of the Government of Punjab (Annexure P-4), paddy stock for custom milling cannot be supplied to respondent No. 1. In the alternative, he argued that before purchase of the rice-mill, it was for the appellant No. 1 to verify whether any default had been committed by the original owner or the lessee or not? A prayer has been made to set aside the judgment under challenge. After hearing counsel for the appellant, we are of the view that the appellant has failed to indicate any legal flaw in the judgment, passed by the learned Single Judge. To rebut contention of the appellant that it was the Mill, which has committed a default and not the Miller, the learned Single Judge has opined as under: “4. In my view, the reading of the Scheme to disqualify the petitioner as canvassed on behalf of the respondents is clearly wrong. It is one thing to stop the transfer made as a make- belief affair and putting it in the name of another entity only in order to get over the disqualification of blacklisting or being termed as a defaulter but quite another to say that there cannot be transfer by means of either a lease or a conveyance to another person and such a lessee or a purchaser should also be termed to be defaulter or a blacklisted Mill. The Scheme which refers to a defaulter does not make the rice mill itself as a defaulter. A legal fiction could be extended only I so far as law would permit. For example, a company that is not an individual, who can breathe or walk, can still be a person by a fiction enacted through the provisions of the Companies Act. The same way a legal entity could be attributed to a partnership LETTERS PARENT APPEAL NO. 542 OF 2010 -5- by the fiction introduced by the Partnership Act. A defaulter Mill must be understood as a person, as a legal entity, who owns the mill or who is a lessee of a mill or who is a Director of the company that owns. All that the Scheme does is that if an owner, partner or director of a rice mill, which is run on ownership basis or on the basis of lease also becomes an owner or a partner or a director to a new mill, then such a mill in question will not be considered for allotment. In other words, the identity of a person in the old mill as well as in the new mill must be homogenous in some way as an owner or as a partner or as a director. Such an owner or a partner or a director could either be an owner of the mill or as a lessee of the mill. If a new entity such as a new mill comes into the hands of a lessee from an owner or a partner or a director, who is a distinct individual and that person is not in any way connected to the earlier entity, then such a new entity cannot be found to be disqualified for allotment. 5.The learned Senior Counsel appearing for the Food Corporation makes the point that it is the mill, which is disqualified, and whoever is a subsequent transferee or a lessee will also suffer from the same disqualification. The Scheme does not provide for such a course and if the apprehension is that an owner of defaulter mill will escape the disqualification by a transfer, such an apprehension will have value only in the case of sham transactions of sale or lease, where the owner or a lessee or a defaulter mill uses the name of another person but LETTERS PARENT APPEAL NO. 542 OF 2010 -6- still continues to run the mill. The only other situation which the Scheme contemplates is when a family member of a defaulter rice mill, who continues to live in the same family will also be disqualified but if a proof is offered that he was separate residence or separate family such a person cannot be disqualified. I see the weight in the argument advanced by the learned counsel appearing for the petitioners that a subsequent purchaser or a lessee cannot be worse off than another member of the same family who remains separate or who has a separate residence. The disqualification attributed to each one of the petitioners is, in my view, untenable and cannot be sustained.” We are of the view that the finding given above is perfectly justified and the same is supported by documents on record. To say that the default committed would relate to the mill and not the miller, reference was made to clause 6(g) of the custom milling policy (Annexure P-4). Special emphasis has been laid on conditions No. 4 and 7 mentioned in clause 6(g). We feel that the acceptance of the appellant's plea amounts to misconstruing the said provision of the Custom Milling Scheme. Clause 6 of the Scheme relates to allotment of rice to the mills and it contains the terms and conditions, under which paddy stock can be allotted to a rice miller for custom milling. Clause 6(g) mandates that no defaulter rice mill shall be considered for allotment/ provisional registration. It then enumerates the conditions to term a mill as a defaulter. Relevant sub clause 6(g) and conditions No. (iv) and (vii) read thus: “(g) No defaulter rice mill shall be considered for allotment / LETTERS PARENT APPEAL NO. 542 OF 2010 -7- provisional registration. The default may be on the following counts:- (i)to (iii) xxx xxx (iv)If the owner/ partner/ director of a lessee/ owner rice mill becomes defaulter and is a owner/ partner/ director of a new/ lessee/ owner rice mill, the mill in question will not be considered for allotment. Any family member of a defaulter rice mill, unless living separately will also be treated as a defaulter. In such a case proof of separate residence/ separate family will be required to the effect that his project is not being financed/ promoted by his defaulter family members/ blood relations . (v) To (vii) (viii)The millers with whom FCI has banned its business dealings on account of delivery of rice “Beyond Rejection Limit” (BRL) and beyond PFA during the previous years. (ix) To (xi) xxx xxx”(emphasis supplied) On a combined reading of the provision, mentioned above, we are of the view that the default committed would relate to the miller and not to the rice mill as has rightly been held in the judgment under challenge. In this case, the default committed relates to the year 2004-05, when the rice mill was being run by M/S Mahadev rice mill, a partnership firm. Respondent No. 1 was not at the scene at that time. It had purchased the rice mill in the year 2007 from M/S Gopal Rice Mills. It is coming out from the record that the CBI submitted its report on March 31, 2008. Prior LETTERS PARENT APPEAL NO. 542 OF 2010 -8- thereto, neither the original owner of the rice mill, namely, Gopal rice mill nor its lessee for the year 2004-05, namely, M/S Mahadev rice mill were ever served with any notice. This fact becomes apparent on reading of a report made by Inspection Department of Food and Supply Services. Relevant portion of the report dated October 14, 2009, reads thus: “M/s Pooja Rice Mills Sunam have purchased M/s Gopal Rice Mills Sunam in the year 2007. Smt. Pooja Goyal, Smt. Nidhi Goyal, Sh. Sanjiv Kumar, Sh. Parshotam Dass, Sh. Narinder Kumar, Shri Anil Kumar and Smt. Rita Rani are the partners in M/s Pooja Rice Mills. No letter to M/s Gopal Rice Mill and lessee Mahadev Rice Mill of their being defaulters had been issued till the purchase nor Pooja Rice Mill or any partner had any concern of their being defaulters. Accordingly Pooja Rice Mills does not become a defaulter. Allotment to the Sheller agency is recommended.” Similarly, Senior District Manager by letter dated October 3, 2009 (P-5) certified that respondent No. 1 had supplied the milled rice to the department as per contract agreement between the parties and it was recommended that its sheller may be allotted paddy for milling for the year 2009-10. From the above facts, it becomes apparently clear that when rice Mill was purchased by respondent No. 1 in the year 2007, no notice of alleged default committed by lessee M/S Mahadev Rice Mill was ever issued to the owner or the above said firm. Otherwise also, as is apparent from the records, the CBI has recommended the black-listing of only those Firms, which had supplied defective material/ rice in the year 2004-05. A LETTERS PARENT APPEAL NO. 542 OF 2010 -9- reading of letter dated September 7, 2009, clearly indicates that name of the petitioner did not figure in the list of Millers, whose name was recommended by the CBI for blacklisting. It is also on record that respondent No. 1 had furnished an affidavit to the department that it had no concern with the defaulter firm, namely, M/s Mahadev Rice Mills. In view of facts, mentioned above, we are of the opinion that the order passed by the learned Single Judge is perfectly justified and needs no interference at the instance of the appellant. Consequently, the appeal fails and the same is dismissed at the admission stage. (MUKUL MUDGAL) CHIEF JUSTICE (JASBIR SINGH) JUDGE May 12, 2010. DKC