The State challenged interim suspension of its order taking over dairy management. The Court dismissed the appeal, leaving management with the company subject to court permission for asset transactions. It declined to conclusively determine ownership at the interim stage.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF ANDHRA PRADESH : AMARAVATI
HON’BLE MR. JUSTICE ARUP KUMAR GOSWAMI, CHIEF JUSTICE
&
HON’BLE MR. JUSTICE NINALA JAYASURYA
WRIT APPEAL No.281 of 2021
(Taken up through video conferencing)
State of A.P. rep. by its Special Chief Secretary, Animal Husbandry, Dairy Development and Fisheries (Dy.&Vig) Department, Secretariat, Velagapudi, Amaravati, Guntur District.
.. Appellant.
Versus
Sangam Milk Producers Company Limited, Sangam Dairy, Vadlamudi, S. Jagarlamudi, Guntur District, Represented by its Director and others.
.. Respondents.
| Counsel for the appellant | : Mr. S. Sri Ram, Advocate General |
|---|---|
| Counsel for respondent Nos.1&2 |
: Mr. B. Adinarayana Rao, Sr.Counsel for Mr. Srinivasa Rao Bodduluri |
| Counsel for respondent No.3 |
: Mr. G.L. Nageswara Rao, GP for Revenue |
| Counsel for respondent No.4 | : Mr. K. Appa Rao, Standing Counsel |
| Date of hearing | : 01.07.2021 |
| Date of judgment | : 01.09.2021 |
J U D G M E N T
(per Arup Kumar Goswami, CJ)
Heard Mr. S. Sri Ram, learned Advocate General for the appellant.
Also heard Mr. B. Adinarayana Rao, learned Senior Counsel appearing for respondent Nos.1 and 2.
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justice would be met if the following order is passed.
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products shall be continued by the 1st petitioner without any hindrance.
In view of the fact that I.A.No.1 of 2021 is allowed and G.O.Ms.No.19 Animal Husbandry, Dairy Development & Fisheries (Dy.Vig) Department, dated 27.4.2021, is suspended with certain directions no further orders are immediately called for in I.A.No.2 of 2021.
The opinions expressed in this order are prima facie opinions for the disposal of this application only.
With the above observation, this interlocutory application is allowed.”
(i) With a view to achieve the objects of ‘Operation Flood’ which was launched by the Government of India on 13.01.1970, the Government of composite State of Andhra Pradesh had incorporated the Andhra Pradesh Dairy Development Corporation (for short, ‘APDDC’) as a Government company on 02.04.1974. A programme was taken up as ‘Milk
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Shed Programme’ comprising of the districts of Guntur, Krishna, East Godavari and West Godavari. Under the said programme, the State Government had decided to establish a Feeder Balancing Dairy at Sangam Jagarlamudi, Guntur District, vide G.O.Ms.No.1222 dated 09.11.1973 at an estimated cost of Rs.168 lakhs with a handling capacity of 1.50 lakh litres per day. For the purpose of establishing the said Feeder Balancing Dairy, the milk producers of Guntur District, who were the members of Vijayawada Milk Products Factory, had contributed Rs.1.20 lakhs for purchasing Ac.32.22½ cents of land in Vadlamudi, which adjoins Sangam Jagarlamudi Village. However, the sale deeds were obtained in the name of Milk Commissioner, Andhra Pradesh, though in the sale deeds it was recited that payment of sale consideration was made by the Vice President and Treasurer of Milk Producers Society. As the consideration amount was funded by the milk producers, the Government had decided not to treat the said land as its asset.
(ii) Subsequently, the State Government issued G.O.Ms.No.80, Forest and Rural Development (Dairy) Department, dated 15.04.1974, transferring the milk chilling centres in Kolluru, Returu, Narsaraopet and Gurajala, along with staff, machinery and equipment, to the APDDC. For construction of Feeder Balancing Dairy, contributions were made by the Government of Andhra Pradesh to the tune of Rs.50 lakhs and by Indian Dairy Corporation (for short, ‘IDC’) to the tune of Rs.228 lakhs, comprising 70% by way of loan component and the balance 30% as grant. The Feeder Balancing Dairy was constructed by National Dairy Development Board (for short, ‘NDDB’) on turnkey basis and the same was inaugurated on 30.08.1977.
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(iii) The APDDC had commenced operations by collecting milk from 127 milk producer co-operatives, who were part of Vijayawada Milk Products Factory. The APDDC had also acquired an extent of Ac.13.22¼ cents of land in its own name, adjoining the Feeder Balancing Dairy. A sum of Rs.28.00 lakhs was allotted to the APDDC by the Government of Andhra Pradesh during 1976-77 for construction of staff quarters and minor dairy equipment and out of the said allocation of funds, the APDDC had acquired an extent of Ac.17.38 cents of land from the Central Warehousing Corporation, which had its warehouses next to the Feeder Balancing Dairy. From the balance of funds remaining, the APDDC had constructed staff quarters.
(iv) A Co-operative Society in the name of Guntur District Milk Producers Co-operative Union (for short, ‘the Co-operative Society’) came to be registered on 23.02.1977 under the provisions of the Andhra Pradesh Co-operative Societies Act, 1964 (for short, ‘the Act of 1964’) and it started functioning from 14.04.1978 with its headquarters at Vadlamudi.
(v) By G.O.Ms.No.675, Forests and Rural Development (Corporation) Department, dated 27.08.1977, the Feeder Balancing Dairy, along with its assets, was transferred to the APDDC and the Co-operative Society had been managing the affairs of the Feeder Balancing Dairy. As the milk procured was directly sold by the Co-operative Society, the same resulted in loss of turnover and commission to the APDDC and on representations being made by the APDDC, the Government had issued G.O.Ms.No.515, Forest and Rural Development (Corporation) Department, dated 17.07.1978, in supersession of the order under G.O.Ms.No.675 dated 27.08.1977. With the coming into force of G.O.Ms.No.515 dated 17.07.1978, products produced by the Feeder Balancing Dairy were
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marketed by the APDDC under its brand name ‘Vijaya’ and the role of the Co-operative Society was confined to milk procurement and processing the same into various products and receiving amount from the APDDC for payment to milk producers.
(vi) During the year 1979, for a complete transfer of assets to the Co-operative Society, valuation of the assets was undertaken and a sum of Rs.81.00 lakhs was found to be the value of the assets due to investments made by the State Government/APDDC. The aforesaid sum was directed to be treated as share capital contribution of the State Government and thus, the State Government became a shareholder in the Co-operative Society. All capital investments made by the Government were converted into share capital of the Co-operative Society and thus, the assets stood transferred and vested in the Co-operative Society. In course of time, the Co-operative Society had acquired an extent of Ac. 17.54¼ cents of land, making the total land holding of the Feeder Balancing Dairy to Ac.80.04 cents.
(vii) Having regard to the various disputes between Co-operative Societies and officials of various Departments regarding conduct of the affairs of the societies and in order to provide autonomy to the Cooperative Societies, the Andhra Pradesh Legislature enacted the Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995 (for short, ‘the MACS Act’) conferring autonomy to the elected management to run the affairs of the Co-operative Society and entrusting limited role to the Registrar of Co-operative Societies. After enactment of the MACS Act, in view of the encouragement of the State Government to the societies to get themselves registered under the MACS Act, the Co-operative Society had filed an application for conversion into a society under MACS Act on
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12.12.1996. In order to satisfy the requirement of Section 4(3)(e) of the MACS Act, which provides that for conversion of a society registered under the Act of 1964 into a society under the MACS Act, it had to demonstrate that the society is not in possession of share capital from Government and is also not in receipt of any Government loans or guarantees, the Co-operative Society had returned the share capital amount of Rs.81.00 lakhs to the Government and also other sums payable, totalling Rs.96,04,943/-. Thereafter, the conversion took place and the Co-operative Society was registered under the MACS Act and Certificate of Registration was issued by the competent authority.
(viii) With the change of Government, an attempt was made by the State Government to bring back Co-operative Societies under the control of the Government by introducing by way of amendment a proviso to Section 4(1) and Section 4(1A) of the MACS Act with retrospective effect from 01.06.1995. The said attempt of the Government failed as this Court as well as the Hon’ble Supreme Court had struck down the amendment as unconstitutional.
(ix) Over a period of time, the operation of the Co-operative Society had spread over many states and as there were frequent interjections on its independence and autonomy, the General Body of the Co-operative Society had passed a resolution on 23.09.2011 to convert the Co-operative Society as a producer company under Section 581-J of the Companies Act, 1956 (for short, ‘the Act of 1956’) and finally on 18.06.2013, it got itself converted into a producer company under the name and style of ‘Sangam Milk Producer Company Limited’, i.e., the writ petitioner No.1, and it is presently having 589 members.
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(x) To somehow gain the control over the affairs of the writ petitioner No.1 company, the Government went on making various efforts. The Chairman of the Company who was a Member of the State Legislative Assembly for five consecutive terms upto 2019 was considered to be a strong opposition leader and to throw aspersions on him and to malign him, a complaint of the year 2015 made against him was entrusted to the District Vigilance Authority for an enquiry in the year 2020. The notice issued by the District Vigilance Authority was challenged by the writ petitioner No.1 company along with its Chief Executive Officer-cumManaging Director by filing W.P.No.23709 of 2020 and by an interim order dated 11.12.2020, this Court had stayed the notice.
(xi) In the counter filed to the aforesaid writ petition, it was stated that the Regional Vigilance and Enforcement Officer, Guntur, had made enquiries about the irregularities committed for converting a mutually aided co-operative society into a company and later on, the enquiry was entrusted to Anti Corruption Bureau (ACB) and a crime, being Crime No.2/RCO-GNT-ACB/2021 dated 22.04.2021 was registered against the Chairman of the Company and others on the basis of the complaint of Managing Director of the APDDC. The ACB arrested three persons, including Chairman and Managing Director on 23.04.2021 and had conducted searches. Assailing the registration of the aforesaid crime, a quash petition was filed before this Court.
(xii) Immediately thereafter, the Government issued G.O.Ms.No.19, Animal Husbandry, Dairy Development & Fisheries (Dy.&Vig.) Department, dated 27.04.2021, withdrawing G.O.Ms.No.515 dated 17.07.1978, purportedly, in public interest.
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In supersession of the orders issued in the G.O. 1st read above the Government direct that the management of the Feeder/Balancing Dairy, Sangamjagarlamudi shall be handed over by the A.P. Dairy Development Corporation to the Guntur District Milk Producers’ Cooperative Union Ltd., Sangamjagarlamudi immediately for its operation.
The transfer of management orders in para 1 above is subject to the following conditions:-
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expenses of the Corporation will be passed on to the Union) and
“3. In the reference 6th read above, the Milk Commissioner & Registrar of Milk Co-operatives submitted that certain irregularities including misuse of the assets of the Government handed over for management through the G.O. 5th read above, were committed by the then Chairman & Management of the Guntur District Milk Producers Mutually Aided Cooperative Union Limited. Hence, in the reference 7th read above, Government has requested the Anti Corruption Bureau, Andhra Pradesh, to enquire into the allegations. Accordingly, in the reference 8th read above, the Anti Corruption Bureau has submitted its Enquiry Report declaring that there is prima facie material evidence with respect to connivance of the then Chairman of the Guntur District Milk Producers Mutually Aided Cooperative Union Limited with the then Managing Director and other officials of Guntur District Milk Producers Mutually Aided Cooperative Union Limited and the then District Cooperative Officer, Guntur in getting transfer of Ac.10.00 cents of Government land in the name of the trust which was set up
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in memory of his late father and getting the Dairy incorporated as a Producer Company and getting memorandums of equitable mortgage executed in favour of National Dairy Development Board by depositing the title deeds of the properties which are in the name of Andhra Pradesh Government/Andhra Pradesh Dairy Development Corporation Limited (APDDC) by defying the orders of the Hon’ble High Court, and fraudulently availed huge loans from National Dairy Development Board (NDDB). The present unit at Vadlamudi is the same feeder dairy whose management was transferred to Guntur District Milk Producers’ Cooperative Union Limited, Sangamjagarlamudi. The ownership had always remained with APDDC only. The Crime No.2/RCOGNT-ACB/2021 registered by ACB pursuant references 7th and 8th read above is also on record. The above facts reveal that encumbrances have been created by the unit in violation of law is under investigation.
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dt. 17.07.1978, the Government deemed it appropriate to direct the following:
The above arrangement shall be in place for a period of three months initially subject to further periodic review. The above measures are necessitated in view of overriding public interest to ensure uninterrupted supply of essential services and to ensure protection of the assets of the unit in public interest and to avoid any further depletion in the asset base of the unit.”
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direction was issued to the Board of the writ petitioner No.1 company not to create any further charge, encumbrance on the property except with the permission of the Court and all future transactions with regard to the movable and immovable assets are also directed to be carried out only with the prior permission of the Court.
(i) The learned single Judge erred in law in not pronouncing on any of the pleaded facts on either side relevant to the subject matter and, more particularly, concerning the entity and status of the writ petitioner No.1 company; the legality of its claim to be being the successor entity of the society established in the year 1964; the claim as to ownership of the assets as also the antecedent events that had taken place before issuing the impugned G.O. While the learned single Judge did not rule on the aforesaid issues, with regard to the question raised regarding the power of the Government to issue the impugned G.O., the learned single Judge opined that there is an implied fetter on the Government to retrace itself because of afflux of time.
(ii) The learned single Judge had misconstrued the impugned G.O. to be one seeking to dispossess the writ petitioner No.1 entity without reference to common law remedy, whereas the impugned G.O. in categorical terms had laid down that the arrangement was made for a period of three months initially subject to further periodic review and that the same was occasioned in order to ensure that there is no further depletion of assets.
(iii) The writ petitioner No.1 entity is not a company converted into a milk producing company under Section 515-J of the Act of 1956 and
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therefore, the claim of the writ petitioner No.1 entity to be the successor to the Co-operative Society is dubious if not vitiated by fraud played on everybody concerned.
(iv) The learned single Judge did not advert to the aspect as to whether the writ petitioner No.1 entity could lawfully claim to be in possession of the assets in question and set up an adverse claim against the original owner.
(v) For exercising discretion to grant an interim order, apart from existence of a prima facie case, balance of convenience and irreparable loss or injury, supervening public interest has also to be considered in a petition under Article 226 of the Constitution of India. The learned single Judge ought not to have exercised discretion in favour of the writ petitioners in the attending facts and circumstance of the case, as
the Government was concerned that essential services have to be protected and people at large for whose benefit all these assets have been created should not be compromised and, therefore, it was felt that maintenance of the assets with the presence of the Government officers would inhibit further depletion of assets. Learned Advocate General has also drawn the attention of the Court in detail with regard to initiation of enquiry through Anti Corruption Bureau as indicated in the impugned G.O. and, accordingly, contended that it was not a case where the learned single Judge ought to have exercised discretion in favour of the writ petitioners for passing of an interim order.
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taking into consideration the changes that have occurred in the interregnum.
(ii) The society registered under the Act of 1964 had converted itself into a society under the MACS Act and such conversion had attained finality in the year 2011 with the Hon’ble Supreme Court affirming the decision of the High Court striking down the amendments made to Section 4(1) and Section 4(1A) of the MACS Act.
(iii) The share capital of the Government was paid back. While the conversion of the society into a society under the MACS Act had attained finality, the conversion into producer company is not final as a writ petition filed by the APDDC is pending before this Court.
(iv) The impugned G.O. was issued on the basis that the Government had given the asset to the Society. The said assumption is incorrect inasmuch as the asset was converted into share capital and subsequently redeemed.
(v) Assuming for the sake of argument it is accepted that conversion as a producer company is irregular, even then the status of the society as a society under the MACS Act is not affected and, therefore, the Act of 1964 cannot be applied for the purpose of governance.
(vi) When there is a law governing the field and a procedure is prescribed by the Act, the Government cannot override a statute under the garb of exercise of executive power and cannot interfere with a proprietary concern under Article 162 in violation of Article 300-A of the Constitution of India.
(vii) 10 acres of land was gifted by the Co-operative Society in the year 2000 and the issue is sought to be raked up after 21 years. The Co-operative Society had achieved a turnover of about Rs.1100 crores
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catering to about 30,000 milk producers and it appears that only because of report of ACB, the impugned G.O. came to be issued.
(viii) By virtue of G.O.Ms.No.515 dated 17.07.1978, the assets became the assets of the Feeder Balancing Dairy and after conversion of the Co-operative Society under the MACS Act with the permission of the Government, the Society registered under the Act of 1964 cannot be treated as holding the assets belonging to the Government and, therefore, the assets of the writ petitioner No.1 company cannot be treated as the assets of the Government and the State cannot unilaterally take over the operations and assets of the writ petitioner No.1 company. It is submitted that there is no depletion of assets and the assets of the writ petitioner No.1 company were already mortgaged to NDDB and the same was extended.
(ix) The entire exercise is mala fide and orchestrated for extraneous political considerations.
(x) The direction to Sub-Collector, Tenali Division, Guntur District, to be present in the premises of the writ petitioner No.1 company is a camouflaged intrusion into the affairs of the company to jeopardise the operations of the company.
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remained with the APDDC. An observation was made that the issue regarding the encumbrances that have been created by the writ petitioner No.1 company in violation of law is under investigation. The G.O. indicates that it proceeded on the basis that the Chairman and management of the Guntur District Milk Producers Mutually Aided Co-operative Union Limited had committed certain irregularities, including misuse of the assets which, according to the Government, were its assets and on a request being made to the ACB to enquire into the allegations, the ACB submitted its enquiry report stating that there is prima facie material of irregularity in getting transfer of Ac.10.00 cents of Government land in the name of a Trust and also getting the Dairy incorporated as a producer company as well as in creating equitable mortgage in favour of NDDB. It was asserted that the ownership had always remained with the APDDC and as such, encumbrances that have been created by the Co-operative Society are in violation of law. The object for which the impugned G.O. was issued was to ensure that there is no further depletion of assets and in view of overriding public interest to ensure uninterrupted supply of essential services and accordingly, three directions were issued to be in place for a period of three months initially, subject to further periodic review.
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transferred to the Union, prima facie, there was no occasion to incorporate a clause that the Union shall not encumber or alienate the property as question of alienation would not arise if the property is not vested in the Union. This Court, mindful of the fact that the appeal is arising out of an interim order, will not record any conclusive finding as to whether the property/asset of Feeder Balancing Dairy or only the management thereof was transferred to the Co-operative Society.
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that the Court was of the prima facie opinion that the writ petitioners had made out an arguable case and that balance of convenience is also in their favour as they have been managing the business of Dairy by being in possession of the same since decades and that greater harm would be caused to them by the impugned action.
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Judge, while suspending the impugned G.O., thereby maintaining status quo with regard to the existing state of affairs, protected the interest of the State by laying down a condition that the Board of the writ petitioner No.1 shall not, except with the permission of the Court, create any further charge, encumbrance etc. on the properties and that all future transactions by which the movable and immovable assets of the writ petitioners are sought to be alienated, mortgaged, transferred etc., should be with the prior permission of the Court, thereby sub-serving public interest. As by the impugned G.O., the State had sought to unilaterally take over the management of the Feeder Balancing Dairy and had deputed a Sub-Collector to run its operations, keeping in view the best interest of the writ petitioners, the learned single Judge directed that the Sub-Collector, Tenali Division, shall not be present in the premises of writ petitioner No.1.
ARUP KUMAR GOSWAMI, CJ NINALA JAYASURYA, J
IBL
2 issues framed by the court
Was the single Judge required to conclusively determine the disputed issues while considering interim relief?
Did the interim suspension of the Government's takeover of dairy management warrant interference despite safeguards against depletion of assets?
State of A.P.
Sangam Milk Producers Company Limited
ARUP KUMAR GOSWAMI
NINALA JAYASURYA
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
