Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: AL-BARAKA BANK (PAKISTAN) LTD VS Respondent: PROVINCE OF PUNJAB through JUDGMENT
Court Name: Lahore High Court Judge(s): Ayesha A. Malik Title:AL-BARAKA BANK (PAKISTAN) LTD vs PROVINCE OF PUNJAB through
JUDGMENT
Reported As: PLD 2018 Lahore 450 Result: Order accordingly Judgment JUDGMENT AYESHA A. MALIK, J.---This judgment decides upon the issues raised in the instant Petition as well as the connected petitions detailed in Schedule "A" and "B", appended with this judgment, as all the petitions raise common questions of law and facts. 2. There are two sets of Petitioners before the Court, cane growers and Banks. The common Respondents before the Court are the Cane Commissioner, Punjab and three sugar mills being Brother Sugar Mills, Darya Khan Sugar Mills and Pattoki Sugar Mills ("the Sugar Mills"). 3. The case of the cane growers is that they supplied sugarcane to the respective Sugar Mills for the year 2014-15 and 2016-17 yet no payment has been made to them. In this regard, their debt has been verified by the Cane Commissioner, Punjab yet no payment has been made to them. It was argued that the cane growers earn their bread and butter from payment of sugarcane delivered to the Sugar Mills. That the cane growers have fulfilled their obligation of supplying sugarcane to the Sugar Mills, however the Sugar Mills have not fulfilled their obligation to make payment for the sugarcane delivered. It was also alleged that this has become regular practice that payments are delayed and that the cane growers are compelled to approach the Cane Commissioner and the courts for payments due to them. In these cases since the Sugar Mills refused to make payment to the cane growers, the Cane Commissioner took action under the Punjab Sugar Factories Control Act, 1950 ("Act") read with the Punjab Sugar Factories Control Rules, 1950 ("Rules") whereby bags of sugar lying in the godowns of the Sugar Mills were seized so as to sell them, in order to settle the debt of the cane growers. The learned counsel also argued that it is a gross violation of their fundamental right to do business and earn their livelihood, protected under the Constitution of
---
## Page 2
Islamic Republic of Pakistan, 1973 as the Sugar Mills have taken the sugarcane from the cane growers, produced tons of bags of sugar, yet made no payment to the cane' growers. 4. In the cases of the cane growers, who are to receive payment from Brother Sugar Mills, it was argued that if the amount which is lying in the custody of the Court from the sale of the bags of sugar is handed over to the Banks there is no chance of recovering any amount from the said sugar mill as it stopped operations in 2016 and all its assets have since been mortgaged with the Bank. It is important to note that the bags of sugar lying with Brother Sugar Mills in W.P. No,4562/2016 filed by Al-Baraka Bank (Pakistan) Limited were auctioned under the supervision .of this Court vide order dated 21.03.2017 and the amount has been placed in the custody of the Deputy Registrar (Judicial) of this Court. So far as Darya Khan Sugar Mills and Pattoki Sugar Mills are concerned, the possession of the bags of sugar has been restored in favour of the Banks vide interim orders dated 14.9.2017 and 29.8.2017 passed in W.Ps. Nos,67851 and 63883 of 2017. It is also maintained that through a lengthy exercise this Court has verified the Jaims of all the cane growers before the Court, with respect to amounts due to them and a detailed report has been filed by the Cane Commissioner which is not disputed by the Sugar Mills. 5. The case of the Banks is that the Sugar Mills before the Court have pledged bags of sugar with the Banks against finance facilities availed by them and the creation of the pledge is not denied. The Cane Commissioner illegally and unlawfully evicted the respective muqadams of the Banks arid forcibly took possession of the bags of sugar lying in the godowns of the Sugar Mills. The Banks have challenged the orders of the Cane Commissioner who seized the bags of sugar to satisfy the debt of the cane growers. It is their stance that the bags of sugar being pledged stock are in the possession of the Banks, who are secured creditors and no claimant including the cane growers has a right superior to that of the Bank. That the Bank is a secured creditor and has preferential rights which cannot be defeated by any claim especially that of an unsecured creditor such as the cane growers. Learned counsel for the Banks argued that the Banks in terms of Section 173 of the Contract Act, 1872 ("Contract Act") have the right to retain the pledged bags of sugar and keep it in their possession until the repayment of the debt. In the event that there is a default, the Bank can recover its debt under the Contract Act through sale of the pledged stock, without recourse to the courts. Hence the Bank must always retain possession over the bags of sugar in order to maintain its security against finances availed. Essentially the counsel argued that the pledged security is a continuing security until all sums are paid to the Banks and the Banks are secured creditors consequent to the pledge. 6. On behalf of the Cane Commissioner, Punjab, Mrs. Sarnia Khalid, Additional Advocate General argued that the cane growers are before the Court for the protection of their statutory right whereas the Banks are before the Court for the protection of their contractual rights. She argued that the Cane Commissioner is obligated under the Act and the Rules to ensure payment is given to the cane growers for the sugarcane supplied and in the event that the sugar mill defaults in paying the cane grower, the Cane Commissioner has specific powers under the Act and the Rules to take necessary action in order to settle the debt of the growers. She argued that it was incumbent upon the Banks before creating the pledge, to ensure that the Sugar Mills have no liability against the bags of sugar offered for pledge especially with reference to payment of the cane growers. She further argued that in these cases the Banks extended finance facilities to the Sugar Mills to pay the cane growers, however the Sugar Mills did not utilize the funds as per its given purpose and the cane growers were never paid. She clarified that the amount sought by the cane growers is not a government due and the role of the Cane Commissioner is the performance of his statutory obligation. It is her submission that the law provides for a mechanism to be adopted by the Cane Commissioner to recover payments for the cane growers in the event of default. This obligation of the Cane Commissioner does not translate into recovery of government
---
## Page 3
dues. Moreover the purpose of the Act and the Rules must be given effect to by the Courts in order to ensure that the cane grower does not suffer at the hands of the Sugar Mills and the Banks. 7. On behalf of Brother Sugar Mills, the Counsel did not deny the claim of the cane growers, however it is their contention that against the sale proceeds lying in the custody of this Court all amounts should be given to the Banks to settle the debts of the sugar mill and that the cane growers have no right to claim the price of the sugarcane from the pledged stock of the Banks. He explained that in terms of order dated 24.6.2016 in W.P. No,4562/2016 the total amount claimed by the cane growers is around Rs,820 million and the amount claimed by the Banks is more than Rs,800 million. That the sugarcane bags were auctioned by the orders of this Court and some stock of brown sugar remains to be auctioned. The counsel adopted the arguments of the Banks and pressed for release of all amounts in favour of the Bank. 8. From what has been argued before the Court, the basic issue which needs to be decided is whether the cane growers are entitled to recover amounts due to them through sale of bags of sugar by the Cane Commissioner under the Act or whether the Banks have priority over the bags of sugar for the settlement of their debt. In this regard, it is also in issue that if the bags of sugar are sold, priority of payment out of the sale proceeds, will be given to the Banks and not to the cane growers. Furthermore the parties dispute the role of the Cane Commissioner and whether the Cane Commissioner can forcibly take possession of bags of sugar, in order to settle the debt of the cane growers. In order to resolve the disputes before the Court, it is necessary to first understand the nature of the rights sought to be protected and enforced. Right of the Banks 9. The case of the Banks is that the Sugar Mills pledged bags of sugar with them, hence by virtue of being a secured creditor they have the right to retain possession of the bags of sugar and the right to sell the bags to recover amounts due to them against the finance facilities availed. The right 'of the Banks is provided under Section 172 of the Contract Act which defines and prescribes the conditions applicable to a pledge such that it is the bailment of goods as security for payment of debt. Bailment as per Section 148 of the Contract Act is the delivery of goods by one person to another person, which goods are either returned or otherwise disposed of as per the direction of the person delivering them. Effectively bailment is for a purpose and includes the power to retain the goods until the purpose for which delivery was given is achieved. Therefore Section 172 read with Section 148 of the Contract Act establishes the conditions for creation of a pledge such that the delivery of goods is necessary and that the pledgee retains the right to keep possession of the goods till repayment of the debt. Section 173 of the Contract Act gives the pledgee the right to retain the pledged goods, meaning thereby that the Bank has the right to retain the bags of sugar in their possession until the repayment of the debt. Hence the basic contention of the Banks is that the pledged stock maintained in the godowns of the Sugar Mills cannot be sold by the Cane Commissioner for settlement of any debt of the cane growers as the pledge of the bags of sugar in favour of the Banks is protected under the law. The other argument of the Banks is that they are all secured creditors whose rights are protected under the law and can only be curtailed if there is any other secured creditor who has priority or preference over the right of the Banks. In this case the debt of the cane grower, as argued by the Counsel for the Banks, is an unsecured debt meaning thereby that the cane growers do not have preference over the rights of the Banks. Reliance is placed on the case The Bank of Bihar v. The State of Bihar and others (AIR 1971 SC 1210). It was also argued that the Act does not give the cane grower any priority over secured creditors and that even the general law does not give them priority. That at best the debt of the cane grower is a government due, which does not get preferential rights over secured creditors. Reliance is placed on M/s Industrial Development Bank of Pakistan v. M/s Maida Limited and others (1994 SCMR 2248), United Bank Limited v. P.I.C.I.0 and others (1992 SCMR 1731) and Collector of Customs,
---
## Page 4
Karachi v. Naya Daur Motors (Pvt.) Ltd. and others (2015 SCMR 1376). 10. In terms of the law laid down by the august Supreme Court of Pakistan in 1992 SCMR 1731 (supra) a secured creditor is free to deal with its security and to realize it for the repayment of the debt as it chooses. Furthermore a secured creditor has first priority for recovery of its dues from the sale of the security, in this case being pledged goods and that even government dues do not get preference over secured creditors. Reliance is placed on In Re: Saifee Development Corporation Ltd. (1989 MLD 3909), Orix Leasing Pakistan Limited v. Sunshine Cloth Limited (2001 PTD 3146), Polyolefins Industries Ltd. (In liquidation) v. Kosmek Plastics Manufacturing Co. Ltd. (2002 PTD 1638) and 2015 SCMR 1376 (supra). The gist of the law from the cases relied upon is that the pledged goods cannot be attached or sold for the satisfaction of claims other than the claim of the Bank being a secured creditor. Therefore, as per what was argued, the Banks' case is that the Cane Commissioner could not seize the bags of sugar because they have been pledged with the Banks and if the pledged bags are sold then the sale proceeds will be given to the Banks by way of priority over all other claimants. Hence the Banks seek protection and enforcement of their rights as pledgees under the Contract Act and seek priority as secured creditors in terms of the law pronounced by the august Supreme Court of Pakistan. Right of the Cane Growers 11. As per the arguments of Mrs. Samia Khalid, Additional Advocate General, Sections 13 and 16 of the Act read with Rule 14(2) of the Rules imposes a statutory duty on the sugar mill to pay the cane grower the price of the sugarcane within fifteen days of delivery of the cane. She argued that sugar is an essential crop and that the sugar industry is regulated by a special law. That the supply of sugarcane and the payment of the said supply is an integral part of the whole transaction which is regulated under the Act. She argued that the purpose of the Act is to ensure that supply and payment of sugarcane is made. Hence the cane growers have a statutory right to receive the price of the sugarcane, within fifteen days of delivery, in accordance with the mandate of the Act and the Rules. Syed Ali Zafar, Advocate differed with this view and argued that Rule 14(2) does not confer a statutory obligation on the sugar mill nor do the Rules give the Cane Commissioner the right to recover payments due to the cane grower. As per his arguments Rule 14(2) merely confirms a contractual obligation of the sugar mill to make payment for the sugarcane supplied. He also argued that Rule 14 does not give priority to the cane growers over the rights of the secured creditors being the Banks. Hence as per his arguments the obligation to pay the cane growers is contained in the agreement between the parties for supply of cane at a given price and the cane growers have a contractual right to receive payment. Consequently in the event of nonpayment the cane growers' remedy, at best is a suit for recovery of amounts due. 12. Mr. Anwaar Hussain, Additional Advocate General argued that the Act and the Rules provide for a comprehensive procedure for delivery and payment of sugarcane because the lawmaker needed to balance the relationship between the cane grower and the sugar mill. The cane growers do not, have any bargaining power as they have to deliver sugarcane to the sugar mill. Under the circumstances the legislature deemed it necessary to protect the cane growers interest by ensuring that the minimum price for sugarcane is fixed by the Provincial Government and that the sugar mill pay that price to the cane grower without any deductions. In this regard the Cane Commissioner was given the required powers under Section 6 of the Act to recover amounts due to the cane growers. 13. The relevant Act is the Punjab Sugar Factories Control Act, 1950 and the Rules framed thereunder. The preamble of the Act provides that the scope of the Act is to regulate the supply of sugarcane and the price at which the sugarcane may be purchased. As per Section 6 of the Act, the Provincial Government may appoint any officer, not below the status of a Collector, to be a Cane Commissioner to exercise the powers and duties conferred upon him under the Act and all
---
## Page 5
powers and duties that may be prescribed by the Provincial Government from time to time. In terms of the Act, the Cane Commissioner ensures that sugarcane is purchased by the sugar mill during a crushing season. In this regard, Section 8 of the Act requires a sugar mill to inform the Cane Commissioner of its intent to start crushing, one month before tfie crushing season commences. As per the section, the crushing season begins on the 1st day of October and ends on the 30th day of June of the following year. Under Section 9, the sugar mill must provide an estimate of the quantity of sugarcane it requires for a particular crushing season. In terms of Section 10, the Cane Commissioner confirms the request and once the quantity of sugarcane is confirmed, he may after consulting the Board, declare any area to be a reserved area for the purposes of supply of sugarcane to a particular sugar mill, during a particular crushing season. Under Section 13 of the Act, the sugar mill is required to purchase quantified amount of sugarcane from the cane grower in the reserved area. The terms and conditions of the purchase are provided by the Cane Commissioner stipulating the quantity of cane to be delivered within a prescribed time, at the agreed to price. The price is fixed by the Government of Punjab through a notification in terms of Section 16 of the Act. Furthermore sugarcane from a reserved area must be purchased by the sugar mill and the cane grower must supply to the designated mills. The sugar mill is required to pay to the cane grower the amount fixed by the Provincial Government as the price of sugarcane without any deductions. Section 16 of the Act specifically states that no deduction shall be made from the price of the sugarcane due to a cane grower. In terms of Section 16-A, any person who fails to comply with the provisions of Section 16 of the Act, shall be punishable with imprisonment which may extend up to two years or with fine which may extend to twice the price of the sugarcane or twice the amount of quality premium due, as the case may be. 14. The Rules were framed under Section 23 of the Act. Rules 11 and 12 provide for the general provisions related to the purchase of sugarcane through a purchase centre and a licensed purchase agent. Rule 13 provides that the cane grower must receive the minimum price. In terms of Rule 14, the sugar mill must provide adequate facilities to the satisfaction of the Cane Commissioner for payment of the price of sugarcane and all payments for cane must be made within fifteen days of the delivery of sugarcane. Payment is to be made on the basis of the recorded weight, directly to the cane grower and the occupier or purchasing agent shall be liable for all payments due for sugarcane supplied to him or on his behalf. In case a purchasing agent fails to make payment for the sugarcane purchased, the sugar mill shall be responsible for making such payments. Rule 14(6) provides that no deduction shall be made by way of fine or otherwise from the price of the sugarcane purchased, which would reduce such price to a figure below the prescribed rate. The only amount that can be deducted is a loan amount given to a grower to help with the cultivation. In case payment is not cleared within fifteen days, the occupier or purchasing agent shall be liable to pay interest at the rate of eleven percent per annum. 15. In terms of the Act and the Rules, the supply of sugarcane for a particular crushing season is regulated such that the quantity of sugarcane to be supplied is fixed by the Cane Commissioner and the price for the sugarcane is fixed by the Provincial Government. The Act and the Rules provide for a rational distribution of sugarcane to sugar mills so as to ensure that the requirement for sugar is met with. The sugar mill is bound to pay the price fixed by the Government and can make no deduction from the notified price. The entire process for weightment including the scales and weights used is regulated under the Rules through the Cane Commissioner. The Act and the Rules ensure that sugarcane is supplied to the sugar mill during a given crushing season and that the cane grower is paid for the sugarcane at the notified price. The Act and the Rules set out the terms and conditions for the purchase of sugarcane and require the Cane Commissioner to ensure that the mill is supplied sugarcane on time and that the cane grower is paid in a timely manner. The terms and conditions of the purchase are prescribed under the Rules whereby Rules 13 and 14
---
## Page 6
deal with weighments, scales, weights, purchasing centres and payment requirements. The stated Rules protect the rights of the sugar mills who are guaranteed supply of the required sugarcane from a particular area and particular cane growers. Conversely the cane growers have agreed to supply sugarcane to a particular sugar mill at a given price and are ensured payment under the law. Therefore the right of the cane growers to receive payment is not dependent on any contract or negotiated terms and conditions rather the Act requires the sugar mill to pay the price fixed by the Government under Section 16 of the Act. Furthermore Section 13(2)(3) and (4) requires the sugar mill to purchase the sugarcane from the cane grower on the prescribed terms and conditions which are provided for in the Rules. Hence the right to recover the price of the sugarcane is a statutory right and the cane growers before the Court seek protection of their statutory right to receive payment for the sugarcane purchased by the sugar mill. 16. One of the arguments raised by the Banks with reference to the nature of the cane growers right is that amounts due to the cane grower are government dues as the Cane Commissioner can only recover government dues, and government dues have no priority over the rights of secured creditors. This argument is totally misconceived as the cane grower has a statutory right to receive payment for the sugarcane delivered. The Act and the Rules create a regulatory framework which recognizes the necessity of the sugar mill to receive sugarcane during a crushing season in order to meet the demand for sugar being an essential commodity. The Act and the Rules ensure that the sugar mill receives the desired quantity of sugarcane from the cane grower at a given time. The Act also requires that the cane grower be paid the minimum price for the sugarcane supplied. Hence the rights and obligations with reference to the supply of sugarcane are of the sugar mill and cane grower. As part of the scheme of the regulatory framework, keeping in mind the relationship of the sugar mill and cane grower, a regulator oversees the entire process of supply and delivery and a mechanism is created under the Act to recover amounts due to the cane grower through the Cane Commissioner. The powers of the Cane Commissioner for the purposes of recovery are the same as a Collector under the West Pakistan Land Revenue Act, 1967 ("LRA") as provided in Section 6 of the Act. This power as and when exercised by the Cane Commissioner is not to recover government dues but to recover amounts due to the cane grower. The regulatory framework puts the Cane Commissioner in a pivotal position to regulate the supply and delivery of sugarcane as well as to ensure that the cane grower is paid. Hence the Cane Commissioner while exercising power under Section 6 of the Act can recover amounts due to the cane grower and this power does not translate into recovering government dues. The Cane Commissioner acts as the regulatory authority who is empowered under the law to protect the rights of the cane grower in the same way as he is empowered under the Act to protect the rights of the sugar mills. Therefore the cane growers right to recover amounts due to them through the Cane Commissioner does not make their debt a government due. The Law and Regulatory Framework 17. The Act is a special law specifically designed to regulate the purchase and delivery of sugarcane. The Rules were framed under Section 23 of the Act and must be read as an integral part of the Act itself. In this regard the Supreme Court of India held in the case titled National Insurance Company Limited v. Swaran Singh and others [(2004) 3 Supreme Court Cases 297)] that rules validly made under a statute become part of the statute and such rules are to be read as part of the main enactment. The Rules are statutory rules made in accordance with the powers conferred under the Act and have the force of law. Since the parties before the Court seek protection and enforcement of their rights, that is the Banks seek protection of their rights as secured creditors and the cane growers seek protection of their statutory rights to receive payment, the law, its purpose and the regulatory framework must be considered in order to appreciate the rights and the remedies available to the parties.
---
## Page 7
18. Sugarcane is an important cash crop and food crop being a vital source of income and employment for the farming community of Pakistan. Sugarcane contribution in the agriculture sector is 3.4% and to the Gross Domestic Product ("GDP") is 0.7%. Furthermore Pakistan occupies an important position globally in sugarcane producing countries, ranking within the top five producing countries. Sugar is termed as an essential commodity under the Essential Commodities Act, 1957 ("1957 Act")…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.