Supreme Court Upholds Recovery of Dues from Rice Millers as Public Demand: Pawapuri Rice Mills vs. Bihar State Food and Civil Supplies Corporation Ltd. (2024) INSC 999 (18 December 2024)

Date of the Judgment: 18 December 2024
Citation: 2024 INSC 999
Judges: Hrishikesh Roy, J., S.V.N. Bhatti, J.
Can a State government recover dues from rice millers for undelivered custom milled rice (CMR) as a ‘public demand’? The Supreme Court of India recently addressed this question, clarifying the scope of the Bihar and Orissa Public Demands Recovery Act, 1914. The court held that the Bihar State Food and Civil Supplies Corporation, acting as a nodal agency for the State, can initiate recovery proceedings against rice millers for failing to deliver the agreed quantity of CMR. This judgment impacts how State agencies recover dues related to public food distribution. The bench comprised Justices Hrishikesh Roy and S.V.N. Bhatti, with the majority opinion authored by Justice S.V.N. Bhatti.

Case Background

This case involves a dispute between several rice millers in Bihar and the Bihar State Food and Civil Supplies Corporation (Civil Supplies Corporation). The dispute arose from the procurement of Custom Milled Rice (CMR) for the procurement year 2011-12. The State of Bihar shifted from a levy rice system to a CMR procurement policy. Under the CMR policy, the Civil Supplies Corporation, acting as the nodal agency, was responsible for procuring paddy from farmers and entrusting it to rice millers for processing. The rice millers were then required to deliver a specified percentage of rice to designated Food Corporation of India (FCI) depots.

The rice millers entered into agreements with the Civil Supplies Corporation, agreeing to deliver 67% of raw rice or 68% of par-boiled rice for every hundred quintals of paddy. However, disputes arose when the FCI did not accept the CMR, leading to the rice millers not fulfilling their delivery obligations. The Civil Supplies Corporation then initiated recovery proceedings against the rice millers under the Bihar and Orissa Public Demands Recovery Act, 1914, seeking to recover the cost of the undelivered CMR.

Timeline

Course of Proceedings

The rice millers challenged the recovery proceedings initiated by the Civil Supplies Corporation by filing writ petitions in the High Court of Patna. The Single Judge of the High Court set aside the recovery proceedings, holding that the dues did not qualify as a ‘public demand’ under the Bihar and Orissa Public Demands Recovery Act, 1914. The Single Judge also noted that the Civil Supplies Corporation was not a government department or official and that the relationship between the millers and the Corporation was contractual.

Aggrieved by the decision of the Single Judge, the Civil Supplies Corporation filed Letters Patent Appeals (LPAs). The Division Bench of the High Court allowed the LPAs, holding that the dues did qualify as a ‘public demand’ and that the Civil Supplies Corporation, as a nodal agency of the State, was entitled to initiate recovery proceedings under the Act. The Division Bench relied on the Full Bench decision of the Patna High Court in Ram Chandra Singh v. State of Bihar and others [(1986) SCCOnLine Pat 229], which had interpreted the scope of ‘public demand’ broadly.

Legal Framework

The core legal issue revolves around the interpretation of “public demand” under the Bihar and Orissa Public Demands Recovery Act, 1914. Section 3(6) of the Act defines “public demand” as:

“Public Demand” means any arrear or money mentioned or referred to in Schedule I and includes an interest which may by law be chargeable thereon up to the date on which a certificate is signed under Part II [.]

Schedule I of the Act lists various types of dues that qualify as public demands. The relevant clauses are:

Clause 8-A:
Any outstanding loans and advances are payable to the state government or to a department or official of the state government by anybody whatsoever.

Clause 15:
Any money payable to – (i) State Bank of India constituted under the State Bank of India Act, 1955 (No.23 of 1955) ; or (ii) A bank specified in (ii) of the first schedule to the banking companies (Acquisition and Transfer or Undertaking) Act, 1970 (Act V of 1970) ; or (iii) a company or a statutory body, including a registered society carrying on financial transactions, owned by or in which Government has a majority of shares or which is managed by an authority appointed under any law for the time being in force; or (iv) the Bihar State Electricity Board. in respect of which the person liable to pay the same has agreed, by a written instrument that it shall be recoverable as public demand.

The Supreme Court examined whether the dues owed by the rice millers to the Civil Supplies Corporation fell within the scope of these provisions, particularly clause 8-A of Schedule I.

Arguments

Arguments of the Rice Millers

• The recovery proceedings initiated under the Act are illegal and without jurisdiction because the dues are not a ‘public demand’ under Section 3(6) of the Act, read with Schedule I.
• Clauses 8-A and 15 of Schedule I are inapplicable. Clause 8-A does not apply to the Civil Supplies Corporation as it is not the Government, a department, or an official of the Government. Even if the Corporation acts as an agent, its dues do not become the dues of the Government.
• The paddy was not purchased from the State Government’s funds but from funds provided by the FCI.
• Even if the Government advanced money to the Civil Supplies Corporation, the paddy does not become the Government’s property. The default in delivering CMR is a breach of contract, which should be addressed in a civil suit.
• The recovery certificate was issued without deciding the jurisdictional fact of whether the amount was a public demand.
• The impugned judgment expanded the scope of recoverable sums under clause 8-A of Schedule I to the Act, and the reliance on Ram Chandra Singh v. State of Bihar and others [(1986) SCCOnLine Pat 229] is incorrect.
• The recovery certificates do not conform to the procedure stipulated by the Act.

Arguments of the Civil Supplies Corporation

• The Civil Supplies Corporation is a Government Company under Section 617 of the Companies Act, 1956, and can act as an agent of the State. In the subject procurement, it acted as the Government’s agent.
• The State changed the procurement policy to align with the FCI policy and appointed the Civil Supplies Corporation as a nodal agency.
• The Corporation pays farmers the MSP and transfers the paddy to the rice millers for CMR, which is to be delivered to FCI depots. The Corporation, as an agent of the State, can recover the cost of undelivered rice through summary recovery under the Act.
• The characteristic of ‘public demand’ is decided from the totality of circumstances. The definition of Section 3(6), read with clause 8-A of Schedule I to the Act, applies to this case.
• The Full Bench decision in Ram Chandra Singh v. State of Bihar and others [(1986) SCCOnLine Pat 229] supports the Corporation’s position.
• The procedure stipulated by the Act and Rules has been complied with; objections were considered, and an order was passed by the primary authority. The decision is subject to appeal or revision before the competent authorities.

The innovativeness of the argument of the Civil Supplies Corporation lies in its emphasis on the “totality of circumstances” to define ‘public demand’ and its reliance on the Full Bench decision in Ram Chandra Singh v. State of Bihar and others [(1986) SCCOnLine Pat 229], which broadened the scope of ‘public demand’.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for determination:

1. Whether the recovery by the Civil Supplies Corporation qualifies as a ‘public demand’ under the Act and the Rules?
2. Whether the Civil Supplies Corporation can initiate recovery proceedings under the Act against the Rice Millers as the nodal agency of the State Government?
3. Whether the procedural safeguards under the Act and principles of natural justice have been adhered to during certificate proceedings?
4. Whether the Rice Millers can avail alternate statutory remedies to challenge the recovery certificate?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

Cases Relied Upon by the Court

Legal Provisions Considered by the Court

Judgment

The Supreme Court upheld the decision of the Division Bench of the Patna High Court, ruling that the recovery proceedings initiated by the Civil Supplies Corporation against the rice millers were valid. The Court held that the dues for undelivered CMR constituted a ‘public demand’ under the Bihar and Orissa Public Demands Recovery Act, 1914.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Supreme Court relied on the Full Bench decision in Ram Chandra Singh v. State of Bihar and others [(1986) SCCOnLine Pat 229]* , stating that the term ‘public demand’ is of wide amplitude and encompasses all arrears or dues explicitly mentioned or implied in Schedule I. The Court also approved the view expressed in the case. The cases Arun Kumar v. Union of India [(2007) 1 SCC 732]* and Ramesh Chandra Sankala v. Vikram Cement [(2008) 14 SCC 58]* were used to define jurisdictional facts.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure the effective functioning of the Public Distribution System (PDS) and the efficient recovery of public dues. The Court emphasized the broad and inclusive definition of “public demand” under the Bihar and Orissa Public Demands Recovery Act, 1914, and the role of the Civil Supplies Corporation as a nodal agency of the State.

The Court also considered the legislative intent to create a special procedure for the recovery of public demands, including those that may be strictly enforceable through ordinary civil procedure. The practical difficulties in enforcing certain claims through traditional legal processes and the need for a more efficient and expeditious recovery mechanism were also considered.

The Court’s reasoning was also influenced by the fact that the non-compliance by the Rice Millers with the terms of the agreement directly impacted the PDS, a matter of significant public interest.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact : Law Ratio Analysis

Logical Reasoning

The Court rejected the argument that the absence of a specific clause in the agreement authorizing recovery under the Act negates the jurisdiction of the certificate officer. The Court held that the Act itself provides a framework for the recovery of public demands.

The Court also considered the practical implications of its decision, noting that the recovery of public demands expeditiously is essential for the functioning of the State and its ability to provide public services.

The Supreme Court quoted the following from the judgment:

“The definition of ‘public demand’ under section 3(6) is broad and inclusive. It incorporates any arrears mentioned in Schedule I and allows for recovery of such arrears under the Act.”

“The word loan is not defined by section 3 of the Act. In a given case, a loan could be money or in kind. The jurisdictional facts would decide whether the sum recovered from the Rice Millers is a loan or not.”

“The State Government enabled the Civil Supplies Corporation to enter into an agreement with the Rice Millers for the procurement, milling, and distribution of paddy. The objection of Rice Millers is purely one of convenience and contravenes the conduct and the admitted contemporaneous circumstances.”

Key Takeaways

• The definition of ‘public demand’ under the Bihar and Orissa Public Demands Recovery Act, 1914, is broad and inclusive.
• State agencies acting as nodal agencies can initiate recovery proceedings for dues related to public distribution.
• The absence of a specific clause in an agreement does not negate the jurisdiction of the certificate officer under the Act.
• Rice millers and other entities dealing with state agencies should be aware of their obligations and the potential for recovery proceedings under the Act.

Directions

The Supreme Court allowed the Rice Millers to avail statutory remedies under the Act within thirty days from the date of the judgment. The Court also directed that the statutory authority shall entertain the case without reference to the delay and the period of limitation in availing a remedy before the said authority.

Development of Law

The ratio decidendi of this case is that the dues owed by rice millers to the Civil Supplies Corporation for undelivered CMR qualify as a ‘public demand’ under the Bihar and Orissa Public Demands Recovery Act, 1914, and that the Civil Supplies Corporation, as a nodal agency of the State, can initiate recovery proceedings under the Act. This case reinforces the broad interpretation of ‘public demand’ established in Ram Chandra Singh v. State of Bihar and others [(1986) SCCOnLine Pat 229].

Conclusion

The Supreme Court’s judgment in Pawapuri Rice Mills vs. Bihar State Food and Civil Supplies Corporation Ltd. clarifies the scope of the Bihar and Orissa Public Demands Recovery Act, 1914, and affirms the power of State agencies to recover dues related to public distribution. The Court’s decision ensures that State governments can effectively recover dues owed to them, promoting public interest and efficient governance.