GAURI INDUSTRIES Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) The petitioners have challenged the validity of the two notifications issued by the Government of Karnataka under the provisions of the Karnataka Relief Undertakings (Special Provisions) Act, 1977 (for short the Act) as also the resultant action taken by the second respondent Factory through its Managing Director seeking to take possession of the distillery leased to them by the said respondent under the lease deed executed in their favour on 3-10-1979. The first notification, dated 4 11-1981. produced as Annexure-A in the Writ Petition, was made under Section 3 of the Act declaring the second respondent-Factory "with its distillery" as a relief undertaking for a period of two years. The second notification bearing the same date was made under Section 4(1)(b) of the Act by which the State Government had directed that the operation of all contracts, assurances of property and agreements, to which the second respondent-Factory with its distillery was a party remained suspended and that all rights, privileges, obligations and liabilities accruing thereunder remained suspended and not be enforceable during the period the earlier notification Annexure-A was in force. This notification is produced as Annexure-B in the Writ Petition. In pursuance of these notifications, the Managing Director of the second respondent-Factory notified the petitioners by his letter dated 4-11-1981 (produced as Annexure-C in the Writ Petition) that the lease between the second respondent and the petitioners under which the petitioners were separately operating and running the distillery which is the subject-matter of dispute in the impugned notifications stood suspended and he was entering the premises of the distillery as the owner thereof on account of the suspension of the lease.

(2.) It is not in dispute that by virtue of the interim order granted by me on 4-12-1981 and the order of the Supreme Court, dated 11-3-1983, in Civil Appeal Number 3004/1983, the petitioners have been running the distillery on the same terms and conditions as contained in the lease deed dated 3-10-1979 in their favour (produced as Annexure-E in the Writ Petition).

(3.) The facts of this case, which are not in serious dispute, are as follows : The second respondent is a Sugar Factory registered under the Karnataka Co-operative Societies Registration Act, 1961, and is now placed in-charge of an Administrator appointed by the State Government, who is impleaded as third respondent in the Writ Petition- This Sugar Factory was set up in the Co-operative sector in about the year 1961 and sometime in 1975 it wanted to establish a distillery for the manufacture of industrial alcohol making use of the molasses which is the usual by-product in any sugar factory. The State Government, being one of the major share-holders in the Sugar Factory, gave its approval for setting up the distillery. Accordingly, a site was chosen by the second respondent on its own property but at a distance of half a kilometre away from the factory premises, buildings were constructed and machinery was ordered. The second respondent appears to have borrowed a sum of rupees twenty-five lakhs from another Co-operative Bank and utilised the same on this project. But even till 1978 the distillery was not commissioned by it presumably it had second thoughts about the feasibility and viability of the project. According to the petitioners, the quantum of the molasses produced by the Sugar Factory was hardly twentyfive per cent of the requirement of the distillery as planned. Considering this aspect as also the burden flowing from borrowed investment, the estimated return and other related aspects, the second respondent appears to have realised that it would not be prudent for it to make any further investment and commission the project by borrowing more. Therefore, in consultation with the State Government, it took a policy decision to lease the land, buildings thereon and the machinery which it had erected till then by calling for open tenders. The first petitioner-firm being the highest bidder offered to pay originally a rent of Rs. 3,05,000-00 per annum besides the licence fee of Rs. 80,000-00 to the State Government which was subsequently enhanced after mutual negotiations to Rs. 4,84,000-00 towards annual lease rent in addition to the stipulated licence fee of Rs. 80,000-00 payable to the State Government. It is not in dispute that these terms were finalised in consultation with the Director of Sugar who is an officer of the State Government and the finalised terms were also approved by the State Government by its letter dated 30-8-1979, which is produced as Annexure-D in the Writ Petition. Thereafter, a registered lease deed was executed between the second respondent as lessor and the first petitioner firm as lessee on 3-10-1979. A copy of the lease deed is produced as Annexure-E in this Petition (plans omitted).