Shri. Nagarajappa Vs the State of Karnataka

THE CONSTITUTION OF INDIA, PRAYING TO ISSUE AN APPROPRIATE WRIT, ORDER OR DIRECTION QUASHING THE REFERENCE OF THE INVESTIGATION MADE BY THE 2ND RESPONDENT TO THE UPA-LOKAYUKTA BY ORDER DATED 17.05.2014 (ANNEXURE-X) AND ETC.

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THIS PETITION HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 19.08.2025, COMING ON FOR PRONOUNCEMENT THIS DAY, D K SINGH J., PRONOUNCED THE FOLLOWING:

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CORAM: HON'BLE MR. JUSTICE D K SINGH and HON'BLE MR. JUSTICE VENKATESH NAIK T

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CAV ORDER

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(PER: HON'BLE MR. JUSTICE D K SINGH)

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I Background:-

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The Mysore Sugar Factory Limited (MySugar) is an unlisted public limited company, a State Government Company located in Mandya, Karnataka, established in 1933. It is one of the oldest sugar mills in India and operates as a sugar manufacturer, with a history that includes adding a molasses discovery in the year 1935.

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The factory was founded in 1933. It is once one of the biggest sugar factories in Asia, but, the Company had suffered systematic losses. The Sugar Company attained the status of a sick unit because of several factors. The sickness of the MySugar is another story of similar stories of public sector undertakings incurring losses because of the several factors including political and bureaucratic interference, lack of

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professional management, technical expertise, and absence of modernisation of the plant and machinery.

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The petitioner in this case claims to be a postgraduate in Agricultural Sciences and he was working as an Agriculturist. He does not claim any experience or qualification to run such a big Sugar Company or any management experience anywhere. However, the State Government appointed him as a Chairman of MySugar by the notification dated 01.10.2008 until further orders and confers on him the status of the Minister of State.

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The petitioner continued as the Chairman of MySugar till 2012. He was removed by the State Government on 26.12.2012. For the year ending March 2008, the total losses of the Company was shown as Rs.249 crores. During the tenure of the petitioner as the Chairman, the total losses of the Company by the end of March 2010 increased to Rs.339 crores and in the year 2010-11, the losses were further increased to Rs.386 crores. The annual losses suffered by the MySugar in the year 2008-09 were only Rs.17 crores and during 2009-2010, they rose to Rs.70 crores and again in the year 2010-2011, the losses caused were at Rs.47 crores.

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A complaint was given to the Lokayukta against the petitioner for systematic plunging the MySugar into losses by the acts of misfeasance and conducting the affairs of the Company in a mala fide manner against the interests of the Company to benefit himself and other private entities, in violation of the Karnataka Transparency in Public Procurement Act, 1999 (hereinafter referred to as 'the KTPP Act') and the Rules made thereunder.

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II The complaint by Mr. M. Srinivas:-

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Mr. M. Srinivas, the Member of Legislative Assembly, vide letter dated 31.01.2012, had filed a complaint before the then Chief Minister alleging serious irregularities, misconduct and misfeasance committed by the petitioner while acting as the Chairman of the MySugar which resulted into heavy losses to the Company and requested the matter to be investigated.

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The investigation in the above matter was initially entrusted to the Regional Commissioner, Mysuru Division, Mysuru by the letter dated 08.02.2012 of the Government. The Regional Commissioner had sought certain clarifications with

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regard to taking up the investigation against the petitioner as the post held by him was equivalent to the Minister of State.

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III Entrustment of the Investigation to the Upalokayukta:-

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The Government of Karnataka, Department of Commerce and Industries, vide order dated 26.12.2012, had cancelled the order appointing the petitioner-Mr. Nagarajappa as the Chairman of MySugar. Thereafter, vide order dated 17.05.2014, withdrawn the matter from the Regional Commissioner and entrusted the same for investigation to the Upalokayukta under Section 7(2-A) of the Karnataka Lokayukta Act, 1984 (hereinafter referred to as 'the Lokayukta Act').

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After entrustment of investigation to the Upalokayukta, the petitioner was called upon to submit his comments. After the petitioner submitted his comments, the matter was referred to the Technical Audit Cell of the Karnataka Lokayukta, Bengaluru, for investigation and report. The Deputy Controller of Accounts, Technical Audit Cell, Karnataka Lokayukta, Bengaluru conducted an investigation and submitted the report on

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01.12.2016 along with the relevant records. The report of the investigation and the relevant records were examined in detail.

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IV Gist of Allegations against the Petitioner:-

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The gist of the allegations made against the petitioner by

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Mr. M. Srinivas-the complainant, may be summarized as under:

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(1) As per the Audit Report for the year ending March 2008, the total loss shown is Rs.249 crores. After the petitioner assumed the office as Chairman of the Mysuru Sugar Company, the total loss of the Company by the end of March 2010 increased to Rs.339 crores. Again for the year 2010-11, the loss has increased to Rs.386 crores. Thus, during the tenure of petitioner, the Company was continuously incurring loss, i.e., during the year 2008-09, the loss caused was Rs. 17 crores; during year 2009-10, the loss caused was Rs.70 Crores and during the year 2010-11, the loss caused was Rs.47 Crores.

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(2) In order to increase the crushing capacity of the Sugar Cane crusher of the capacity of 3500 tons per day to 5000 tons per day and for changing its turbines, the petitioner had issued contract for more than Rs.58 crores. Though the crushing machines that were existing in the Company had the capacity of crushing sugar cane of more than 5,500 tons per day, the petitioner in the guise of repairing and updating the

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machines issued contract, which caused loss to the Company.

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(3) The Petitioner in order to repair the old mill obtained a Project Consultancy Report from one Sri Venkatarao, a retired engineer from KCP Company, as per his whims, i.e., he got the project consultancy report for a sum of Rs.49.10 Crores (Rs.58.00 crores, including taxes) though the said mill could have been repaired within 20 crores. The Petitioner had also managed that the Companies, which could erect a new mill within 10 to 12 months, do not participate in the tender and got the work executed though FC-KCP company by completing the tender process within 24 days. Earlier to this tender process, the petitioner had invited tender prescribing time for 12 days, thereby created situation where, the other companies, though had knowledge of invitation of tender, could not find sufficient time to assess the working condition of old mill and participate in the tender process. By taking advantage of the same, the petitioner had mutual understanding with FC-KCP Company and issued work order to the company. Since a shareholder of the Company had questioned the injustice caused in the tender process before the Hon'ble High Court of Karnataka, the earlier tender was withdrawn. Thereafter, within a period of 3 months, another tender was invited prescribing time limit of 24 days and again the work order was issued to the same FCKCP Company. It is further alleged that the petitioner

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before calling for tender for repair of the old mill, did not get confirmation as to what would be the cost of erection of new mill, thereby he cheated the Company by spending huge amount for repair of the old mill.

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(4) The Petitioner, in order to produce liquor at the Distillery Unit, had purchased an old (spoiled) machine from a private person for a sum of Rs.42,50,000/(excluding tax), which machine did not work even for an hour and the resale value of the machine did not exceed Rs.2,00,000/-.

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(5) The petitioner had remitted Licence fee for IML for the year 2008-09, 2009-10 and 2010-11 for more than Rs. 1 crore.

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(6) The demurrage paid to KSBCL godown for stocking Indian Made Liquor (for short 'IML'), which were not sold exceeds Rs.34,00,000/-.

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(7) The Company had sold the M.G. Alcohol at the rate of Rs. 12/- per litre and thereafter, the Company itself has converted the M.G. Alcohol into Alcohol by obtaining conversion fee of Re. 1/-. It is alleged that, if the company itself had converted the MG alcohol in to alcohol and sold the same, it would have fetched profit of more than Rs. 10/- per litre.

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(8) The petitioner had sold alcohol produced by the company not directly to the liquor producers, on the other hand, the petitioner was selling the same

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through mediators at the lower rates, which had resulted in causing loss to the company to the tune of Rs.25 to 30 lakhs per month. It is further alleged that the petitioner had sold alcohol less than the rate fixed by FC-Karnataka State Breweries Corporation Limited and every month about 8-9 lakhs of litres of alcohol were being sold.

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(9) The Petitioner had started the liquor producing unit, which was not operational since last 10 years, in order to make profit. But instead of making profit, the company had sustained losses from the Liquor unit.

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(10) The Petitioner has violated the provisions of the KTPP Act in inviting tenders in respect of the following:-

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i. In respect of installation of Mist Cooling System in the Company, initially it was presumed that an amount of Rs.70-80 lakhs would be required for the same but, the petitioner with mutual understanding with M/s. Spray Engineering Devices, though single tender was received, obtained approval of the board for entrusting the work for a sum of Rs.2.50 Crores thereby causing losses to the Company.

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ii. In relation to purchase of sacks, earlier the petitioner had directed not to allow M/s. Industrial Associates, Kolkata for supply of Sacks. But thereafter, the petitioner had called the same company and with mutual understanding had given purchase order for purchase of sacks by changing

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the name of company, thereby cheated the company.

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iii. In respect of erection of Bio-digest unit in the company, though one M/s. Venkateshwara Engineering Works had submitted tender for a sum of Rs.70,00,000/- the said tender has been rejected on the ground that the said firm had no experience and the work was entrusted to M/s. Semtech Engineers for a sum of Rs. 1.30 Crores.

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iv. In relation to installation of statues of Sri Krishnarajendra Wodeyar, Kaveri and Colman the petitioner had issued work order without inviting tender, thereby violated the KTPP Act and Rules.

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v. In relation to sale of sugar, the petitioner had sold sugar valuing more than Rs.1 crore at the end of March 2011 to (a) Arul Lakshmi, Palakkad, (b) Kisdutt Traders; (c) Thomas Joseph; (d) Mahalakshmi Traders; (e) SKB Traders, (f) Vijayalakshmi Traders, (g) Sai Traders, etc. and received the amount in April 2011.

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(11) The Petitioner had forcibly obtained resignation from the officers/officials who did not cooperate with him and their salaries were withheld.

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(12) It is further alleged that during the tenure of Sri Nagarajappa, the Government had granted a sum of Rs.208 crores for rehabilitation of the Company. The

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petitioner being Chairman of the Company has to be held responsible for the losses caused to the company along with the Managing Director, Sri Chakravathi Mohan.

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V Findings of Upalokayukta on Each Allegation:-

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During the course of investigation, the Investigating Officer had collected relevant materials such as Annual Reports etc., and was of the view that during the tenure of the petitioner as the Chairman of the MySugar, the Company had incurred huge losses.

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(1) The Investigating Officer had found the first allegation proved against the petitioner. The Upalokayukta had concluded in its report dated 01.09.2021 under Section 7(2-A) of the Lokayukta Act that the MySugar Company had suffered huge losses during the petitioner's tenure as Chairman of the Company for which, there was no explanation offered by him. The petitioner, during his tenure as Chairman, had spent several crores of rupees for upgradation of the unit and reproduction in several other subsidiary units. In spite of the said, the Company had suffered huge losses.

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(2) In respect of the second allegation, the Investigating Officer has reported that the petitioner, without taking into consideration the decision taken by the Board of the Company, for erection of a new mill for a sum of Rs.18 crores, had obtained a new technical report for upgradation of the old mill for a sum of Rs.58 crores (including taxes) and thereby caused deliberate loss to the Company in complete dereliction of his duty. However, the Upalokayukta has held that there was no material to say what would have been the actual cost of upgradation of the old mill during the year 2001-2002 and it could not be said that the decision taken for upgradation of the old mill for a sum of Rs.58 crores had resulted in loss to the exchequer and therefore, opined that the second allegation was not proved.

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(3) In respect of the third allegation, the Upalokayukta, after examining the reply and all the materials as well as the KTPP Act and the Rules made thereunder, has opined that serious irregularities were committed in finalising the tenders in violation of Rule 28B to 28K of the KTPP Rules, 2000 and rejected the stand of the petitioner that the decisions were taken by the

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Board of Directors with the approval of the Government and therefore, he could not be held responsible.

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The Upalokayukta was of the view that it was the duty of the Board of which the petitioner was the Chairman to bring to the notice of the Board and the Government, the Rules and Regulations of the KTPP Act and ought not to have given any room for violation of the Rules.

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(4) In respect of the fourth allegation, the Upalokayukta has found substance in the allegation and said that the petitioner, being Chairman of the Company, ought to have brought to the notice of the Board the relevant provisions of KTPP Act and the Rules inasmuch as a short term tender notification was issued regarding restarting of IML blending and bottling operations in the IML Unit of the Company and no reasons for calling short term tenders were forthcoming. The calling of short term tenders was in violation of Rule 17 of the KTPP Rules, 2000.

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(5) In respect of the fifth allegation, the Upalokayukta has opined that the IML license fee of Rs.71,00,000/- had been paid without getting production from the unit.

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(6) The sixth allegation has not found proved as there was no payment made for demurrage charges of Rs.34,00,000/-.

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(7) The seventh allegation that the Company had sold M.G. Alcohol for Rs.12/- per litre and thereafter by collecting conversion fee of Rs.1/- per litre, the same was converted into alcohol. If the company itself had sold the alcohol after conversion of M.G. Alcohol, it would have earned profit of more than Rs.10/- per litre. The Upalokayukta found the said allegation not established.

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(8) For the eighth allegation that the petitioner had sold alcohol to the mediators, the Upalokayukta has been of the view that the investigation report would show that the details of the tender notifications issued for sale of alcohol to the highest bidders and thus, the said allegation has not been found to be established.

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(9) The ninth allegation is also not found to be proved.

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(10) Regarding the tenth allegation that the petitioner had misused his power in conducting tender process in violation of

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the KTPP Act and the rules made thereunder, the Upalokayuktha has found the said allegation proved. It has been noted that sale receipts in respect of 3,920 quintals of sugar had been issued prior to the payment showing the sale of sugar on 31.03.2011. Further, as per the orders of Sugar Directorate, the balance sugar of 3,920 quintals had not been converted as levy sugar, but it had been shown as lifted on 31.03.2011 in violation of the conditions in the order of Sugar Directorate. Though there was no loss caused to the Company in the sale of sugar, the fact remained that the receipt of amount towards the sale shown to have been made on 31.03.2011 was received from 07.04.2011 to 11.04.2011 i.e., without receipt of amount on the date of sale of sugar, they had been permitted to lift the sugar.

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The Upalokayukta has further held in the report that only one tender was received for installation of Mist Cooling System. The petitioner did not call for competitive tenders and did not confirm the rates with prevailing market rates and issued purchase orders. Therefore, the petitioner had committed dereliction of duty and violated the provisions of the KTPP Act and the rules.

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In respect of the allegation in relation to purchase of gunny bags, the Upalokayukta has held that, as the Chairman of the Company, the petitioner should have directed the officers, who were in charge of procurement of gunny bags to strictly adhere to the provisions of KTPP Act. In many cases, tenders were short term tenders for which, no prior approval of the superior officers than the Tender Inviting Authority had been obtained. Further, while finalising the single tender received for supply of gunny bags, competitive market rates were not confirmed, thus the allegation has been found proved.

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In respect of the allegation that for repair and refurbishing, the existing bio gas digester suitable to operate continuously, though M/s. Venkateshwara Engineering Works had offered price of Rs.70,00,000/-, the petitioner had rejected the tender stating the reason that the Company had no expertise and gave the order for the same to M/s. Cemtech Enterprises, Bengaluru, for a sum of Rs.1,30,00,000/-. The Upalokayukta has held that the petitioner did not follow the Government Circular dated 03.12.2002. In paragraph 3.1 of the said Circular, it is provided:-

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"Negotiations solely for the purpose of obtaining lower prices would be appropriate only in exceptional circumstances such as lack of competition (less than three), single bid, suspected collusion or where the lowest evaluated responsive bid is substantially above the estimated cost. In such cases also, the first choice is for rejection of all tenders and reinviting fresh tenders".

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In regard to supply of bio digester materials and repair of bio digester, a short term tender was invited giving 15 days' time to submit tenders. There was nothing on record to show that prior approval as required under Rule 17(2) of the KTPP Rules was obtained from the authority superior to the Tender Inviting Authority. Even though there was no competitive tender, the petitioner had accepted the single tender without confirming the rates with the prevailing market rates and thereby the provisions of the KTPP Act and the Rules made thereunder were violated.

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In respect of the allegation that the petitioner had, without calling for tenders for installing Krishnarajendra, Cauvery and Colman statues in front of the office of MySugar, issued the work orders. The Upalokayukta in the report has been of the opinion that in installation of the statues, the petitioner has violated Sections 5 and 6 of KTPP Act. The Upalokayukta also opined

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that the excess payment than the order placed to M/s. Sound Cast Alloys Private Limited for erecting the statues was made by the petitioner.

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(11) In respect of allegation No.11 that the petitioner had forced resignations of certain officers of the Company who were not cooperating with him in taking decisions against the interests of the Company, the Upalokayukta has been of the opinion that there is nothing on record to substantiate the said allegation.

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(12) With respect to the last allegation i.e., allegation No.12 that during the tenure of the petitioner as Chairman, MySugar had suffered losses to an extent of Rs.127 crores, the Upalokayukta has opined that the said allegation was proved for several decisions taken by the petitioner on behalf of the Company against the interests of the Company. Thus, the Upalokayukta in the report had opined that allegation Nos.(1), (3), (4), (10) and (12) were prima facie established, and other allegations i.e., allegation Nos. (2), (5), (6), (7), (8), (9) and (11) were not established.

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VI Submissions on behalf of the Petitioner:-

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The petitioner was not a Government servant and as per the reference order, as he was removed from the post of Chairman of the MySugar Company vide order dated 26.12.2012, the departmental enquiry could not be suggested and therefore, recommendation was made to the competent authority to initiate appropriate proceedings for recovery of the loss sustained.

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Mr. Udaya Holla, learned Senior Counsel assisted by Mr. Ashok B. Patil, learned counsel for the petitioner has submitted that the Lokayukta/Upalokayukta ought not to have investigated the complaint filed by Mr. M. Srinivasa, the Member of Legislative Assembly dated 31.01.2012 as the earlier two complaints filed by Sri Nagaraju and Sri Puttaswamygowda for the same allegations were dismissed by the Lokayukta and therefore, the third complaint was barred. It has been further submitted that the entrustment order was bad. The petitioner was not a public servant. He was appointed as Chairman of the Company by the Government and the Chairman of the Company

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cannot be said to be a public servant. Therefore, the entrustment order was also bad.

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The next submission is that the Chairman is one of the members of the Board of Directors and the decisions were taken by the Board of Directors and not by the petitioner alone. Being the Chairman, the petitioner would have presided over the board meetings, however, the decisions were not of his alone but were the collective decisions. Therefore, instituting the enquiry against the petitioner was totally against law. The petitioner cannot be held responsible for the decisions of the Board of Directors.

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VII Submissions of the Respondents:-

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On the other hand, the learned Additional Government

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Advocate has submitted that the reference order to the Upalokayukta is neither bad in law nor required to be interfered with. The earlier two complaints which were closed were not referred by the Government. But when the Government found the allegations have merit, it had referred the matter to the Upalokayukta for investigation and for submission of the report under Section 7(2-A) of the Karnataka Lokayukta Act. The closing of the earlier private complaints by the Lokayukta which

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were not referred by the Government would not come in the way of the Government referring the investigation about the very serious allegations to the Upalokayukta. It is submitted that it is not an investigation under Section 9 of the Lokayukta Act, but the investigation was carried out on the reference made by the Government under Section 7(2-A). The report of the Upalokayukta itself mentions that the petitioner was not a Government servant for initiating disciplinary proceedings as he had been removed. The report of the Upalokayukta is only a recommendation to initiate appropriate proceedings for recovery of the losses caused by the petitioner. The petitioner had been removed from the post of Chairman vide order dated 26.12.2012, the Upalokayukta has only recommended for appropriate action against the petitioner for recovery of the losses caused and therefore, this Court, in exercise of its jurisdiction under Article 226 of the Constitution, may not interfere with the recommendations made by the Upalokayukta. During the tenure of the petitioner as Chairman, the MySugar had suffered huge losses to an extent of Rs.127 crores.

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VIII Analysis and Conclusion:-

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We have given our thoughtful consideration to the submissions and the record of the case.

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Section 2(12) defines the term 'Public Servant'. Under Section 2(12)(e), the Chairman and Vice-Chairman of a Corporation established by or under the law of the State Legislature or a Government Company within the meaning of Section 617 of the Companies Act, 1956 would be a public servant. Therefore, when the petitioner was acting as a Chairman of the MySugar Company, a State-owned Government Company, he would be treated as public servant. As the petitioner was removed from the post of Chairman on 26.12.2012, thereafter, he would not be a public servant. But for the misconduct committed by him during his tenure as Chairman of the MySugar Company, he would be a public servant. The Lokayukta/Upalokayukta would have the power to conduct an investigation regarding the alleged misconduct committed by the petitioner as Chairman of MySugar Company, a State Government Company.

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Section 7(2-A) mandates for investigation of any action taken by or with general or specific approval of a public servant, if the same is referred to the Lokayukta or Upalokayukta by the State Government, as the case may be. Thus, if an action of a public servant amounting to misconduct has been referred by the Government for investigation to the Lokayukta or to Upalokayukta, as the case may be, it would be incumbent upon the Lokayukta or Upalokayukta to investigate the said action of the public servant.

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It cannot be disputed that under the definition of Section 2(12) of the Lokayuktha Act, the petitioner was public servant when he was acting as the Chairman of the MySugar Company. When the petitioner was a public servant and the allegations against him are of serious misconduct, the Government was well within the power to refer the actions of the petitioner taken as Chairman of the MySugar for investigation and therefore, we do not find substance in the submissions made on behalf of the petitioner that as the petitioner was not a public servant, the reference was bad.

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Section 9 provides for investigation of complaint and therefore, the investigation on a reference by the State Government and on a complaint received by the Lokayukta are two different procedures and powers. Once the Government refers the conduct of a public servant for investigation to the Lokayukta or to Upalokayukta, as the case may be, the Lokayukta or Upalokayukta would be required to investigate such conduct and submit a report.

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In view of the aforesaid discussions, we are of the view that the Government was well within the power to refer the conduct(s)/action(s) taken by the petitioner as the Chairman of MySugar Company to the Lokayukta and the reference was not bad in law. Further, the detailed report has been submitted by the Upalokayukta after examining each and every allegations, response and evidence, and therefore, we do not find that there is any error committed by the Upalokayukta in the report. The recommendations for taking appropriate action for recovery of the losses caused for the decisions taken by the petitioner as Chairman of MySugar Company is left to the Government, and the Government should act upon the recommendations.

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We are further of the view that the Government must appoint only qualified person(s) having sound domain knowledge and professional excellence on the post of Chairman of Government Company or public sector undertaking. The decision to appoint a politician would always result in compounding the miseries of the Government Company/Public Sector Undertaking, its workmen and would result in detriment to the public interest. The decision of the Government to appoint the petitioner who had no professional qualifications and domain knowledge as the Chairman of once one of the biggest sugar factory in Asia for political reasons was a bad decision which has resulted in whopping further losses to an extent of Rs.127 crores during his tenure. Therefore, we do not find any merit in this writ petition, which we hereby dismiss, however, without costs.

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Sd/(D K SINGH) JUDGE

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Sd/(VENKATESH NAIK T) JUDGE

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BKV

Shri. Nagarajappa v. the State of Karnataka

Case brief

What is this about?

What did the court decide?

Shri. Nagarajappa v. the State of Karnataka

Case brief

What is this about?

What did the court decide?

What the court decided

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Statutes considered

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