Liabilities of Lessees

 Afshan Ahmad | Dharmashastra National Law University, Jabalpur | 15th March 2020

FOOD CORPORATION OF INDIA AND ANR. V. M/s. V.K. TRADERS AND ORG.

Facts:

The different government agencies of Punjab allocate paddy for custom milling to various rice millers which in return supply the rice to Food Corporation of India (FCI), the appellant. The dispute arose and Central Bureau of Investigation (CBI) investigated. It found that the quality of rice was defective and recommended blacklisting of a total of 182 millers for a period of three years for ‘Beyond Rejection Limit’ (BRL) rice and five years for ‘Beyond Prevention of Food Adulteration’ (BPFA) rice. Such ban was put into force by FCI.

The blacklisted mill owners leased out their rice mills to other partnership firms. All such lease deeds were unregistered. M/s Sharma Rice Mills leased out to another firm, M/s V.K. Traders. The land, building, machinery and plant were leased out for an annual consideration of Rs 2 lakhs. Most of the lessees were only newly constituted entities. The new  lessees applied to the appellant FCI for allocation of paddy and FCI declined for the allocation and imposed liabilities of the lessors on them. 

The writ petitions filed by new lessees in the Division Bench of the High Court of Punjab and the ban imposed by the FCI on allocation of paddy to these new lessees was set aside. The FCI appealed to Supreme Court of India against the judgement of High Court. 

Issue:

Whether the new lessee firms were entities separate from the earlier defaulting owners and could they be held to have defaulted in payment of dues or made responsible for substandard milling of paddy.

Judgement:

The lease deeds executed between the defaulting rice miller(s) and the respondent(s) do not satisfy the statutory requirements of Section 17(1)(d) of the Registration Act, 1908. These Lease deeds cannot be accepted as evidence of valid transfer of possessory rights. The plea taken by the appellant FCI, 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. No right to seek allocation of paddy can be claimed by new lessees unless the liabilities arising out of the previous bilateral agreement are satisfied. The writ petitions filed by the respondent lessees are dismissed and the appeal was allowed.