2020 INSC 0651
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2070 OF 2020
[Arising out of Special Leave Petition(C)No. 3127 OF 2014]
Food Corporation of India and Another ..... Appellants(s)
                  VERSUS
M/s. V.K. Traders and Others  .....Respondents(s)
WITH
CIVIL APPEAL NO. 2075 OF 2020
[Arising out of Special Leave Petition(C)No. 3273 OF 2014]
WITH
CIVIL APPEAL NO. 2071 OF 2020
[Arising out of Special Leave Petition(C)No. 2522 OF 2014]
WITH
CIVIL APPEAL NO. 2072 OF 2020
[Arising out of Special Leave Petition(C)No. 3349 OF 2014]
WITH
CIVIL APPEAL NO. 2076 OF 2020
[Arising out of Special Leave Petition(C)No. 3405 OF 2014]
WITH
CIVIL APPEAL NO. 2073 OF 2020
[Arising out of Special Leave Petition(C)No. 3134 OF 2014]
AND
CIVIL APPEAL NO. 2074 OF 2020
[Arising out of Special Leave Petition(C)No. 3125 OF 2014]
JUDGMENT
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Leave granted.
2. These   appeals   have   arisen   from   an   order   dated   21.10.2013
passed   by   a   Division   Bench   of   the   Punjab   and   Haryana   High   Court
whereby   a   batch   of   letters­patent   appeals   filed   by   the   Food
Corporation of India (FCI) challenging a learned Single Judge’s order of
15.03.2012 was dismissed. 
3. The primary issue before the High Court was whether or not the
respondents,   who   had   taken   over   on   leasehold   basis   certain
blacklisted   rice   mills,   were   entitled   to   allocation   of   paddy   for   custom
milling.
F ACTS : 
4. It   was   common   practice   in   Punjab   for   different   government
agencies to allocate paddy for custom milling to hundreds of rice mills,
which   in   turn   would   supply   the   rice,   post   milling   as   per   approved
specifications,   to   the  appellant­FCI.   Such   allocation   would   take  place
through   terms   of   a   bipartite   agreement   and   the   same   took   place   for
the Kharif Marketing Season of 2004­05 (hereinafter, “KMS”) also.  
5. A dispute  arose as to  the  quality of the milled rice stock for the
aforementioned   KMS,   leading   to   an   investigation   by   the   Central
Bureau   of   Investigation   (CBI).   Finding   the   quality   to   be   defective,   the
CBI   initiated   prosecution   against   numerous   rice   millers   and
additionally   recommended   blacklisting   of   a   total   of   182   millers   for   a
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period   of   three   years   for   ‘Beyond   Rejection   Limit’   (BRL)   rice   and   five
years   for   ‘Beyond   Prevention   of   Food   Adulteration’   (BPFA)   rice.   Such
ban   was   effectuated   by   the   FCI   vide   a   Circular   dated   10.10.2012,
relevant extracts of which read as follows: 
“ 1. The   millers   who   have   supplied   rice   which   was   beyond   PFA
limits, the ban imposed may continue.  Final decision on the matter
may be taken by the CBI court.
2. As regards the millers who stocks were found BRL by the CBI,
the   proposal   for   limiting   the   ban   to   a   period   of   three   (03)   Kharif
Marketing   Seasons   (KMS)   w.e.f.   the   date   of   imposition   of   ban,   has
been accepted.
3. In   the   case   of   millers   whose   stocks   were   in   mixed   condition
though   the   same   was   found   beyond   PFA   and   were   given   benefit   of
doubt   by   the   CBI,   the   proposal   for   limiting   the   ban   to   a   period   of
Five   (05)   Kharif   Marketing   Seasons   (KMS)   w.e.f.   the   date   of
imposition of ban, has been accepted.
4. The   proposals   at   St.   No.   2   and   3   above,   would   be   subject   to
condition that the defaulting millers deposit the loss suffered by the
Corporation   along   with   penal   interest.   In   cases   where,   FCI   has
already   effected   recovery   from   the   concerned   State   Government   &
its   Agencies,   the   State   Government   &   its   Agencies   should   recover
the said amount from the defaulter miller under intimation to FCI.
5. As   there   is   no   specific   clause   in   the   Custom   Milling
Agreement/Levy   Order   for   debarring   those   rice   millers   who   are
found supplying sub­standard rice in CMR/Levy, FCI Headquarters
will examine the issue and make specific provisions in this regard in
the   CMR   Agreement   as   well   as   advise   State   Govt.   To   make   such
suitable provisions in the Levy Order.   Action on this to be initiated
at Headquarters.
6. The   cases   of   lease   or   ownership   transfer   will   be   decided   on
merit   of   each   case   by   a   Committee   of   Officers   consisting   of   GM(R)
Punjab,   a   representative   from   Zonal   Office   (North)   and
Headquarters after obtaining required verification/report from State
Govt.   The   said   committee   shall   see   genuineness   of   each   such
transaction,   subject   to   Court   decisions,   if   any   regulating   such
decision.
7. In the matter of pending Court Cases, ED (North)/GM, Punjab
may   take   suitable   decision   on   lifting   of   the   ban   imposed   on   the
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Millers or otherwise of each case, on merits.”
6. It is  relevant  to  note  that  before  imposing   the  ban   on  allocation
of paddy for custom milling and blacklisting the defaulting rice millers,
showcause   notices   were   served   and   objections   duly   considered.
Illustratively,   M/s   Sharma   Rice   Mills,   situated   at   Katcha   Firozpur
Road,   Mukhtsar,   was   informed   vide   registered   show   cause   notice
dated 04/06.12.2007  that 1814  MT of rice delivered  by  it, was found
as   being   BRL   and   BFPA,   besides   the   588   MT   of   stock   which   was   yet
untested. The notice pointed out how the delivered stock was inedible
and caused huge financial losses to the appellant. It called upon M/s
Sharma   Rice   Mills   to   replace   the   sub­standard   rice,   as   well   as
compensate   the   appellant.   However,   the   rice   mills   refused   to   accept
liability   and   failed   to   make   any   payment   to   the   FCI   for   the   losses
caused.
7. The blacklisted rice mills, thus, were not allocated any paddy for
purposes   of   custom   milling   in   2011­12.   Allegedly   with   a   view   to
wriggle   out   of   the   ban­period,   the   mill   owners   leased­out   their   rice
mills   to   other   similar   partnership/proprietorship   firms.   Notably,   all
such   lease   deeds   were   unregistered.   A   reference   to   one   such   lease
deed of 21.09.2011 shows that the rice mill of M/s Sharma Rice Mills
along   with   land   measuring   21   kanal   16   marlas   on   which   it   was
situated   was   leased   to   another   firm,   M/s   BK   Traders.   The   land,
building,   machinery   and   plant   were   leased   out   for   an   annual
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consideration   of   Rs   2   lakhs.   Most   of   the   lessees   were   only   newly
constituted entities.
8. These new lessees consequently applied to the appellant­FCI for
allocation of paddy and asserted that none of them had committed any
default   or   been   blacklisted,   and   that   the   disqualification   attached   to
their   lessors   could   not   traverse   onto   their   lawful   entitlements.   The
FCI,   on   the   other   hand,   declined   to   entertain   such   requests   on   the
premise that the new lessees had simply stepped into the shoes of the
earlier   blacklisted   lessors   as   the   lease   deeds   were   nothing   but   sham
transactions   to   circumvent   the   ban   imposed   by   the   Circular   dated
10.10.2012.
9. The   learned   Single   Judge   of   the   High   Court   opined   that   a
defaulting   mill   ought   to   be   understood   as   the   legal   entity   which
controlled   the   mill,   which   could   be   the   proprietor­owner,   Director   of
an   owning­company   or   the   lessee.   He   held   that   the   new   lessee­firms
were   entities   separate   from   the   earlier   defaulting   owners   and   could
hence   not   be   held   to   have   defaulted   in   payment   of   dues   or   made
responsible   for   sub­standard   milling   of   paddy.   Furthermore,   it   was
observed   that   the   “ proprietor   of   petitioner­firm   has   not   been   shown   to
have   any   connivance   with   the   erstwhile   defaulter ”.   The   writ   petitions
filed   by   some   of   the   new   entities   were,   thus,   allowed   and   the   ban
imposed  by   the  FCI   on  allocation  of  paddy  to  these   new entities,   was
set aside. The Division Bench of the High Court has vide the judgment
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under appeal upheld the aforestated view of the learned Single Judge.
C ONTENTIONS   OF  P ARTIES :
10. Shri Gaurab Banerjee, learned senior counsel for FCI contended
that the lease deeds relied upon by the new entities were unregistered
documents,   which   had   no   sanctity   in   the   eyes   of   law.     Making   a
pointed   reference   to   the   lease   deeds   produced   by   the   respondents,
wherein duration of the lease was between 2 to 5 years or even for an
indefinite period, he highlighted that such period exceeded the cut­off
of 1 year for compulsory registration.  He urged that these lease deeds
were   nothing   but   sham   transactions   and   had   been   executed   by   the
defaulting   rice   millers   deliberately   to   escape   their   liability   for   FCI’s
losses.   Such   details   have   been   furnished   by   the   counsel   through   a
chart   which   shows   how  lakhs   of   rupees   were   recoverable   by   the   FCI.
It was accordingly  argued that what was impermissible in law for the
defaulting rice millers could not be permitted through indirect means
in the name of emasculated new lessees. 
11. Per contra, learned counsel for the respondents maintained that
the legality of the lease arrangement had not been disputed by either
parties to the agreement (the lessee and the lessor), and no third party
(including   the   FCI)   had   any   locus   standi   to   call   in   question   such
binding contract. He submitted that the liability for default of dues or
supply of sub­standard rice was attached only to a rice miller who was
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found responsible after due enquiry and notice. The lease holders had
merely   taken   over   land,   building   and   machinery   without   any
obligation to discharge previous liabilities of the lessors. Hence, it was
unreasonable for the FCI to coerce the lessees to make payments. 
A NALYSIS :
12. We are of the considered opinion, that no reliance can be placed
upon   the   lease   deeds   allegedly   executed   between   the   defaulting   rice
miller(s)   and   the   respondent(s),   as   they   do   not   satisfy   the   statutory
requirements   of   Section   17(1)(d)   of   the   Registration   Act,   1908.   These
Lease­deeds   thus   cannot   be   accepted   as   evidence   of   valid   transfer   of
possessory   rights.   The   plea   taken   by   the   appellant­FCI,   that   such
documentation   was   made   only   to   escape   the   liability   fastened   on   the
defaulting   rice   millers,   carries   some   weight,   though   it   is   a   pure
question of fact. The High Court nevertheless ought to have refrained
from opining on the sufficiency of such lease deeds for recognition of a
new   legal   entity,   and   consequential   non­transfer   of   liability   to   the
lessees. 
13. Even in a case where a proprietorship/partnership firm has been
in   existence   for   long   and   took   over   a   mill­in­default   only   on­word
basis, no right to seek allocation of paddy can be claimed by it unless
the   liabilities   arising   out   of   the   previous   bilateral   agreement   are
satisfied. We are, thus, of the view that the High Court erred gravely in
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setting   aside   the   orders   through   which   the   FCI   declined   to   allocate
paddy to the new lessees of the defaulting rice mills.
C ONCLUSION :
14. For   the   reasons   aforestated,   these   appeals   are   allowed.     The
orders   passed   by   the   learned   Single   Judge   as   well   as   the   Division
Bench  of  the  High  Court  are  set  aside.  The  writ  petitions  filed  by  the
respondent­lessees   are   dismissed,   however,   with   liberty   to   pay   dues
with   penalty/interest   of   the   original   rice­millers   and   thereafter   on
production of ‘No Dues Certificate’ seek allocation of paddy for custom
milling in accordance with the policy of FCI.  No orders as to costs.    
……………………………..J.
(S.A. BOBDE)
CJI
……..……………………..J.
(B.R. GAVAI)
…………………………… J.
(SURYA KANT)
NEW DELHI
DATED : 06.03.2020
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