Bombay HC issues restraining order against co-op sugar factory controlled by Vikhe-Patil family

A single-judge bench of Justice Girish S Kulkarni directed the parties to the case to commence the arbitral proceedings within a month from date of the order and refused request to stay the operation of its judgment.

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The court also reprimanded the conduct of the respondent sugar factory of “subverting or delaying the proceedings by repeated pleadings”. It imposed a cost of Rs 2 lakh on the respondent sugar co-operative, asking it to deposit the amount within a week with the J J Hospital where it will be utilised in treatment of the terminally ill and financially weak cancer patients.

“…This is a classic case where the Cooperative Sugar Factory stated to be of repute is not only acting by taking law into its hands, in brazen breach of the terms and conditions of the agreement, but also completely oblivious to the rule of law. No contracting party, however mighty, is permitted to take law into its hands…” the court said.

Justice Kulkarni was hearing an arbitration plea filed by PREL, a special purpose vehicle incorporated by its parent company Gammon Infrastructure Project Limited to undertake installation and functioning of the co-generation plant at the respondent co-operative sugar factory situated at Pravara Nagar in Ahmednagar district.

The petitioner, through senior advocate Zal Andhyarijuna, had claimed that the respondent sugar co-operative had begun coercive actions to oust the petitioner from the plant after the present plea was filed in October last year and that the respondent was exploiting its dominating position as a “powerful sugar factory.”

The petitioner said that as per terms and conditions of the Preliminary Development Agreement (PDA), it had set up, at a cost of Rs. 274 crore, a co-gen plant after undertaking substantial borrowings from the banks. The PREL said that it faced several financial losses including gross revenue loss of Rs. 179. 36 crore from FY 2015-16 to 2020-21 due to respondent’s failure to supply bagasse and biogas as per agreement and therefore the respondent be directed to abide by contractual obligations.

The bench observed that prima facie, it is quite apparent that there is a systematic commercial modus operandi on the part of the respondent to take over the co-gen plant. “This firstly, by permitting the petitioner to set up the co-gen plant for which the petitioner incurred substantial expenditure of Rs.274 crores by borrowing funds fully to the knowledge of the respondent, and thereafter by not supplying the agreed amount of bagasse and biogas, the basic raw-material for generation of power and steam, thereby depriving the petitioner of a normal functioning of the plant to recoup its investments and earn profits.”

The Court also passed remarks on respondent’s conduct of dismantling of biogas pipeline and using it for the captive generation facility and said that same was “a clear indication that there was no intention to supply biogas thereby crippling the petitioner.”

“All such actions which appear to be systematically planned, have resulted in serious financial difficulties for the petitioner, which also caused the petitioner’s account to be a non-performing asset, and thereafter, when the petitioner found itself in such financial distress, the respondent by adopting coercive methods, has attempted to take over the co-gen plant,” Justice Kulkarni observed. He also said that the respondent appeared to have used local influences to pressurise the PREL to “succeed in its attempts to take over the co-gen plant.”