REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5040 OF 2014

SHIVASHAKTI SUGARS LIMITED .....APPELLANT(S)

VERSUS

SHREE RENUKA SUGAR LIMITED & ORS. .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 5041 OF 2014

CIVIL APPEAL NO. 5042 OF 2014

A N D

CIVIL APPEAL NO. 5043 OF 2014

J U D G M E N T

A.K. SIKRI, J.

The Industries (Development and Regulation) Act, 1951 (for

short, the ‘Act’) contains the provisions whereby certain industries

Civil Appeal No. 5040 of 2014 & Ors. Page 1 of 58

mentioned in the First Schedule to the said Act are brought under

the control of the Union Government. It mentions, vide Entry 25

of the First Schedule, “sugar industry” as well, to be ‘scheduled

industry’. The effect thereof is that by virtue of Sections 11 and 12

of the Act, compulsory licensing is required in respect of sugar

industry. Sugar is also one of the essential commodities covered

by Essential Commodities Act, 1955. In respect of such essential

commodities, Union Government is empowered to fix the prices of

the product and also to regulate the distribution and supply of

such products. In exercise of the powers conferred by Section 3

of the Essential Commodities Act, 1955, the Union Government

promulgated the Sugarcane Control Order, 1966 which, inter alia,

provided for the minimum price of sugarcane to be fixed, power to

regulate the distribution and movement of sugarcane and power

to issue licenses to cane crushers etc. Clause 11 provides that

the Central Government may delegate to the State Government

or any Officer of the State to perform any of the functions of the

Central Government.

2)The Government of India, periodically issued guidelines, under

the Act, in respect of the sugar industry through ‘press notes’.

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These press notes, inter alia, provided that lincenses for new

sugar factories would be granted subject to a minimum distance

requirement (which was varied from time to time). A Press Note

no. 16 dated November 08, 1991 provided for a 25 km distance

which could however be relaxed to 15 km in deserving cases

where cane availability so justified. Clauses 2 and 3 are

important as they provided that the basic criteria would be the

availability of the cane and the potential for development of

sugarcane. These clauses read as follows :

“Industrial Policy Highlights

EXHIBIT NO. 12

PRESS NOTE NO. 16[1991 SERIES]

GUIDELINES FOR LICENSING OF SUGAR

FACTORIES

A.A Government of India have reviewed the

guidelines for licensing of new and expansion of

existing sugar factories issued vide this

Ministry’s Press Note No. 4[1990 Series] dated

23.7.1990. In sup-0ersession of the aforesaid

Press Note, Government have formulated the

following revised guidelines:

“1.New sugar factories will continue

to be licensed for a minimum economic

capacity of 2500 tones cane crush per

day [TCD]. There will not be any

maximum limit on such capacity.

However, in area specified as industrially

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backward areas by the Government of

India and certified by the Indian Council

of Agricultural Research to be

agro-climatically suited for development

of sugarcane, licensing of new sugar

factories in the co-operative and public

sectors would be allowed for an initial

capacity of 1750 TCD subject to the

condition that the units would expand

their capacity to 2500 TCD within a

period of 5 years of going into

production.

2.Licenses for new sugar factories will be

issued subject to the condition that the

distance between the proposed new sugar

factory and an existing/already licensed

sugar factory should be 25 kms. This

distance criterion of 25 kms could, however

be relaxed to 15 kms in special cases, where

can availability so justifies.

3. The basic criterion for grant of licenses for

new sugar units would be their viability,

mainly from the point of view of cane

availability and potential for development of

sugarcane.

4.All new licenses wil be issued with the

stipulation that cane price will be payable on

the basis of sucrose content of sugarcane.

5.Other things being equal, preference in

licensing will be given to proposals from the

co-operative sector and the public sector, in

that order, as compared to the private sector.

In case more than on application is received

from any zone of operation, priority will be

given to the application received earlier.

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6. Priority will continue to be given to sugar

factories with capacity less than 2500 TCD to

expand to the aforesaid minimum economic

capacity.

7.While granting licenses for new units

and expansion projects, the additional

capacity to be created up to the end of the

English Plan, i.e., 1996-97, will be kept in

view.

8. While granting licenses for new sugar

factories, industrial licenses in respect of

down-stream units for the use of molasses,

i.e., industrial alcohol, etc. will be given

readily.

B. Applications for licenses will be initially screened by

the Screening Committee of the Ministry of Food.

While considering such applications, the comments of

the State Government/Union Territory Administration

concerned would also be obtained. The State

Government/Union Territory Administration concerned

would also be obtained. The State Government/Union

Territory Administration would be required to furnish

their comments within 3 months of the receipt of

communication from the Ministry of Food.

C.Applications for grant of industrial licenses for the

establishment of new sugar factories as well as

expansion of existing units should be submitted

directly to the Secretariat for Industrial Approvals in

the Department of Industrial Development in Form IL

along with the prescribed fee of Rs. 2500/-. A copy of

the application may also be sent to the Ministry of

Food.

D. The procedure and guidelines, as given above, are

brought to be notice of the entrepreneurs for their

information and guidance.

Civil Appeal No. 5040 of 2014 & Ors. Page 5 of 58

-----------------------------------------------------------------------

No. 10[74]/91-LP New Delhi, the 8

th

November, 1991

Forwarded to Press Information Bureau for wide

publicity to the contents of the above Press Note.

SD/-

[S.BHAVANI]

DEPUTY SECRETARY TO THE GOVERNMENT OF

INDIA

PRINCIPAL INFORMATION OFFICER, PRESS

INFORMATION BUREAU, SHASTRI BHAWAN, NEW

DELHI-110 001.”

This Press Note was amended from time to time by Press

Notes dated January 10, 1996, June 15, 1998 and August 31,

1998.

3)Press Note-12 dated August 31, 1998 is of some relevance in the

present case. This was the result of liberalization policy of the

Central Government. After embarking on liberalization and

globalization, in order to ease the doing of business, the

Government decided to relax the control over various types of

industries. By the aforesaid Notification dated August 31, 1998,

the Government exempted persons from taking licenses to set up

a sugar factory. This was done in exercise of power contained

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under Section 29(b) of the Act subject to the condition that a

minimum distance of 15 km would continue to be observed

between an existing sugar mill and a new mill. Pertinently, insofar

as Sugarcane Control Order, 1966 is concerned, there was no

provision of minimum distance between the two sugar mills. For

this reason, the aforesaid Press Notes were held to be

administrative guidelines, not having statutory character by

Allahabad High Court.

4)The appellant herein had made an application for permission to

establish a new sugar factory. One, M/s. Raibagh Sahakari,

which was in the same vicinity where the appellant was seeking to

establish its factory, gave a ‘no objection’ certificate to the

appellant for establishing a sugar factory in the year 1995. The

application of the appellant was processed and the Government

of India issued a Letter of Intent (LOI) to the appellant on July 03,

1996 permitting it to establish a sugar factory at Village Saundatti,

Tehsil Raibagh, District Belgaum. This was done before the new

policy was announced vide Press Note-12 dated August 31, 1998,

i.e., during the Licence Raj . After the aforesaid Press Note, there

was paradigm shift in the approach as no licence was now

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required and instead requirement was to file an Industrial

Entrepreneurs Memoranda (IEM) only. Accordingly, only condition

which was to be fulfilled by the appellant was that there was no

sugar factory existing within the radius of 15 km from the

appellant’s proposed site which was so stipulated in Press Note

dated August 31 1988, i.e., by administrative decision. On June

05, 2006, the Commissioner of Cane Development/Director of

Sugar issued a certificate to this effect certifying that there was no

such sugar factory within the radius of 15 km from the appellant’s

site. After the issuance of this certificate, the appellant filed its

IEM which was duly acknowledged by the Ministry of Commerce

and Industries.

5)We may point out, at this stage, that the present dispute is about

the existence of Raibagh Sahakari Factory, i.e., whether it is

within the radius of 15 km from the appellant’s factory or not?

Pertinently, on January 24, 2004, the Government of Karnataka

had passed an order of liquidation of Raibagh Sahakari in

exercise of its power under Section 72 of the Karnataka

Co-operative Societies Act, 1951. Certain developments took

place qua Raibagh Sahakari thereafter. We would like to state

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those events and developments subsequently, though these

events were taking place simultaneously with the process of

setting up of the factory by the appellant. It would be apposite to

first take note of the manner in which the appellant has set up its

factory at the proposed site.

6)As pointed out above, the appellant filed its IEM on August 08,

2006, supported by the certificate issued by the Cane

Development Commissioner that there was no existing sugar

factory within the radius of 15 km. Thereafter, on October 20,

2006, the Government of Karnataka granted permission to the

appellant for purchase of agricultural lands for industrial purposes

in Raibagh Taluk in village Yadrav. Similar permission was

granted under Section 109(1) of the Karnataka Land Reforms Act,

1961. Similar permission under Section 109(1) on November 20,

2006 for land admeasuring a total of 38 acres and 11 guntas for

setting up a sugar factory in village Yadrav and Saundutti was

also granted by the Deputy Commissioner, Belgaum.

7)The Karnataka Udyog Mitra set up under the Karnataka Industrial

Facilitation Act, 2002 forwarded a proposal to the Commissioner

for Cane Development, for setting up a sugar factory by the

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appellant. It was placed before the State High Level Clearance

Committee, inviting comments from Commissioner.

8)On November 03, 2006, the Karnataka Udyog Mitra, acting as a

single window for clearance of projects in the State invited

comments from the Deputy Cane Commissioner with regard to

specific survey numbers in villages Saundutti and Yadrav,

describing the type of land which was required to be sued. While

this process was on, another significant development took place

with which this case is directly concerned.

9)While the IEM of the appellant was being processed, a significant

step was taken by the Government of India, which has turned out

to be very crucial for the appellant’s factory. The Sugarcane

(Control) Amendment Order, 2006 was brought into force on

November 10, 2006. Clauses 6A to 6E were inserted. Now by

Clause 6A, a minimum distance requirement of 15 kms was

brought into force. This requirement, which was hitherto

administrative in nature, has, become a statutory requirement.

However, only Clauses 6B(1) to 6D were made applicable by

virtue of Clause 6E to industries whose IEM stood acknowledged

till this date. Thereafter, following steps were undertaken for

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establishment of the factory by the appellant:

(a) The Karnataka Pollution Control Board inspected the site at

village Yadrav and Saundutti and gave its opinion on December

15, 2006 with regard to the viability of the project to the

Karnataka Udyog Mitra.

(b)Another factory, known as Doodhganga Sugar Factory also

issued its No Objection Certificate for establishment of the sugar

factory at village Saundutti.

(c)The Director of Industries informed the appellant on May

03, 2007 that its project of establishing a 3000 TCD plant, 12 MW

Co-generation Plant and 30 KLPD Molasses to Ethanol Plant with

an investment of Rs. 106.840 Crores in Saundutti and Yadrav

villages had been cleared by the High Level Committee of the

State.

(d)The Canara Bank granted a performance guarantee for Rs.

1 Crores as per the requirement of Clause 6A Explanation 2 r/w

clause 6E(2) of the Order, 2006.

(e)The Survey of India on an application by the appellant

issued a Distance Certificate certifying that the distance between

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the appellant’s factory and that of M/s. Raibagh and Shree

Doodhganga was not less than 15 Kms.

(f)The Cane Commissioner, issued a Certificate stating that

the crushing operations of M/s. Raibagh had stopped from

2001-2002.

(g) The Government of Karnataka allotted 14 villages of

Raibagh and six of Doodhganga to the appellant.

(h) The Commissioner, Cane Development/ Director of Sugar

certified that the distance of the two factories in question from the

appellant’s unit was more than 15 kms vide its letter dated August

17, 2007.

(i)Appellant was granted permission under the Karnataka

Industries (Facilitation) Act, 2002 on November 07, 2007.

(j) After obtaining all requisite permissions, various steps were

taken by the appellant such as, purchasing land, placing an order

for machinery, placing an order for setting up civil works and

applications and approvals for financial assistance.

(k) The Government of India accepted the performance

guarantee submitted by the appellant on April 15, 2008 and

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directed it to file the progress report of the project.

(l) The Gram Panchayat Diggiwadi granted and NOC for

establishment for factory at village Yadrav.

(m) The Gram Panchayat Diggiwadi granted an NOC for

establishment of factory at Village Saundutti.

(n) The appellant submitted progress reports to the Chief

Director, Sugar for the month of September, 2008. Further,

progress reports dated October 31, 2008, July 30, 2009, January

27, 2010 were also submitted.

(o) NOC was issued by the Pollution Control Board for setting

up the appellant unit. As the Raibagh factory stood closed, the

Government took steps to restart the factory and after a tender

process Shree Renuka Sugar was allowed to restart the factory,

for which a lease deed was executed.

Even the grant of this lease was challenged in a bunch of

writ petitions bearing no. 31661 of 2008 and connected matters.

These writ petitions were dismissed by an order dated February

10, 2010 wherein, in para 4 of that order, it was noticed that the

sugar factory had stopped crushing since 2001-2002.

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(p) The appellant filed an application dated January 27, 2010

before the State Government with the request to make a

recommendation for permission to extend time for implementing

the project.

(q) In view of the progress reports submitted by the appellant

on March 09, 2010, the Government of Karnataka referred the

appellant’s case for extension of time for taking effective steps

and commencement of production. The appellant also requested

for extension of time.

(r)First show cause notice dated April 29, 2010 was issued by

the Government of India requiring the appellant to state why its

performance guarantee not be forfeited for not taking effective

steps.

(s) A detailed reply dated May 06, 2010 was submitted by the

appellant, detailing the effective steps taken.

(t)The appellant wrote letter dated June 21, 2010 to the Chief

Director, Sugar, detailing the steps taken and requesting for

extension of time. It was followed by another letter dated July 22,

2010 to the Chief Director, Sugar, detailing the steps taken and

Civil Appeal No. 5040 of 2014 & Ors. Page 14 of 58

requesting for extension of time bringing to its notice that 7.17

acres of land had been purchased and loan had been

sanctioned. It was pointed out that the Director had been shot at

and was in hospital for a year leading to delay.

(u)Considering the reply filed by the appellant, the

Government of India dropped the show cause notice and granted

an extension to the appellant to commence production by

December 07, 2010.

(v)The Labour Commissioner granted registration to the

appellant.

(w)Government of Karnataka, on November 16, 2010,

requested GOI for a further extension. The Government of India

granted the second extension of time to the appellant till June 07,

2011. It is an admitted case that factory was duly set up and

production started before June 07, 2011. The appellant has also

been given the environmental clearance. Government of India

even granted licence dated March 24, 2011 for crushing for the

season 2010-2011.

10)After recapitulating the aforesaid background leading to the

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establishment of factory and start of production in the said factory

by the appellant herein, we now advert to the contentious issue of

setting up of this factory within 15 km from the sugar factory,

Raibagh Sahakari. As pointed out above, on November 06, 1995,

M/s. Raibagh Sahakari had issued ‘no objection’ certificate to the

appellant. In any case, on January 24, 1995, order of liquidation

in respect of Raibagh Sahakari was passed by the Government of

Karnataka. On September 14, 2006, the Cane Commissioner

had written to the Secretary, Government of Karnataka bringing to

its notice the fact that in Raibagh Taluk, the total production of

sugarcane was 23.32 lakh tonnes as on that date Raibagh

Sahakari factory was lying closed. According to the appellant,

because of this reason there was excess cane available which

was being taken to Maharashtra from Karnataka, thus, causing

the loss to the exchequer. In this backdrop, another factory

Doodhganga Krishna Sahakari which was in the same vicinity

(though more than 15 kms away) had given ‘no objection’ dated

August 12, 2006 for allocating six villages to the appellant’s

proposed factory.

11)Insofar Raibagh Sahakari Factory is concerned, a liquidator had

Civil Appeal No. 5040 of 2014 & Ors. Page 16 of 58

been appointed by the State Government. The State

Government, however, made endeavour thereafter to revive this

sugar mill. For this purpose on July 19, 2007 the Government

notified tenders for giving this factory by way of lease. This

Notification inviting tender was challenged by certain persons in

the form of writ petition filed in the High Court. The High Court

dismissed the writ petition, thereby upholding the action of the

Government to invite tenders. In this order dated January 10,

2008 passed by the High Court, it was categorically noted as a

fact that this Raibagh factory was lying closed from the year

2001-2002. Be as it may, the tender process went on and

ultimately tender of Respondent No. 1 herein, i.e., Shree Renuka

Sugar Limited was accepted and lease deed dated October 16,

2008 was executed in favour of Respondent – 1 thereby allowing

it to restart the said factory. Even this grant of lease was

challenged in a bunch of writ petitions which were dismissed by

the High Court on February 10, 2010. In this order as well, the

High Court again noticed that since the factory had been lying

closed since 2001-2002, it needed a restart which was in public

interest. In this manner, it is Respondent no. 1 which is now

running Raibagh Sahakari factory and has now taken a position

Civil Appeal No. 5040 of 2014 & Ors. Page 17 of 58

that since Raibagh Sahakari is within the radius of 15 kms from

the place where appellant had set up its factory, as per the

provisions of clause 6A of Sugarcane (Control) Amendment

Order, 2006, no permission could have been given to the

appellant to start its factory.

12)It may be noted here that between June, 2010 and November,

2010, four writ petitions, in quick succession, came to be filed

against the appellant for stalling its project, at the stages when

substantial work had been accomplished by the appellant for

setting up of the factory. The details of these writ petitions are as

under:-

1.On June 17, 2010: W.P. No. 64254 of 2010 filed by

Renukaat Dharwad for declaring the IEM dated June 08,

2006 to have lapsed. No interim Order passed in this

case.

2.On September 14, 2010 : W.P. Nos. 66903-907/2010,

W.P. Nos. 66926-35/2010, purportedly filed through

some members of M/s. Raibagh Sahakari. No interim

order passed in this case also.

3.On October 18, 2010: W.P. No. 66920/2010 and W.P.

No. 66972-990/2010 filed by certain members of

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Doodhganga Krishna Sahakari of Nandi. In this case,

an interim order was passed to the effect that all steps

taken by the appellant would abide by the result of the

writ petitions.

4.On November 26, 2010: W.P. No. 37143 of 2010 filed

as PIL.

13)These writ petitions were finally heard together and have been

decided by the High Court vide impugned judgment dated March

29, 2011. The High Court has held that the distance between the

factory of the appellant and Raibagh Sahakari is less than 15 kms

and, therefore, the setting up of the factory is in violation of

clause 6A of the Sugarcane (Control) Amendment Order, 2006.

As a consequence, the IEM of the appellant is held to be

derecognized. The High Court has also held that extensions

dated August 18, 2010 and December 01, 2010 were without

jurisdiction as “effective steps” in terms of Sugarcane Control

Amendment Order were not taken and, therefore, no extension

could be given.

14)It has already been pointed out that the Survey of India had

issued the certificate dated July 16, 2007 certifying that distance

Civil Appeal No. 5040 of 2014 & Ors. Page 19 of 58

between the appellant’s proposed factory and Raibagh Sahakari

factory as well as Doodhganga was more than 15 kms. Before

the High Court, Survey of India had filed an affidavit stating that

such certificate was issued as per the prevailing procedure which

was prevalent till December 31, 2007. It was further pointed out

that the Survey of India had notified new rules for measuring

distance on September 02, 2007. The measurement of distance,

as per new Rules, showed that distance between the two

factories was less than 15 kms. Such a clarification was given by

the Survey of India in the High Court in the aforesaid writ

petitions. Significantly, the Survey of India had not recalled its

certificate dated July 16, 2007 on the basis of which the case of

the appellant for setting up the factory was processed and all due

permissions accorded to it.

15)The appellant filed Special Leave Petition against the impugned

judgment in which notice was issued on May 13, 2011 and

operation of the factory was stayed till further orders. Thereafter,

leave was granted and this stay has continued. As a result, the

factory of the appellant is still operational. Certain further events

which have taken place after filing of the said Special Leave

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Petition, in which leave was granted thereby converting it into civil

appeal, may also be noted at this stage:

(i)The Government grants Factories Act approval.

(ii)RTI information from Raibagh stating that there was no

crushing from 2002-03.

(iii)Statement issued by Joint Collector, Agriculture showing the

total availability of sugarcane for the Belgaun District. As

per this, a sufficient quantity of sugarcane is available to

take care of the needs of all the factories in that area.

(iv)The Pollution Control Board indicates that M/s. Raibagh did

not have air and water pollution clearances between

2002-08.

(v)The Government informs that there was no license obtained

by Raibagh Sahakari for the years 2003-2008 for crushing.

(vi)Cane Commissioner under RTI informs that there is no

application by Raibag Sahkari for crushing from 2001-208.

(vii)Najilingappa Sugar Institute issues a report giving details of

sugarcane available, crushed and uncrushed till 2011.

(viii)While the present appeals were pending, this Court directed

the Survey of India to undertake fresh measurements as

per the policy of measurements now formulated from

January 01, 2008.

16)A perusal of the order of the High Court would reveal that all the

Civil Appeal No. 5040 of 2014 & Ors. Page 21 of 58

official respondents, viz., the Union of India, the Commissioner for

Cane Development and Director for Sugar (Government of

Karnataka), the Government of Karnataka as well as the Survey

of India had supported the appellant herein, by filing their

detailed responses-cum-statement of objections in the writ

petitions filed in the High Court. The Union of India had, inter alia,

pointed out that the minimum distance criteria of 15 km as

mentioned in Press Note dated August 31, 1998 was directive in

nature and not mandatory and in this behalf reference was made

to the judgment of Allahabad High Court. At the same time, Delhi

High Court had decided otherwise. In view of these

developments, expert advice of Department of Legal Affairs was

sought which opined that Sugarcane (Control) Order, 1966 may

be amended suitably. In the meantime, even this Court vide its

order dated September 05, 2006 in the case of M/s. Ojas

Industries Pvt. Ltd. v. Oudh Sugar Mills Ltd. & Ors. [(2007) 4

SCC 723] granted eight weeks time to the Union of India to iron

out some of the difficulties highlighted by the parties in the said

case. This led to the amendment in the Sugarcane (Control)

Order, 1966 vide amendment dated November 10, 2006 giving

statutory backing to the concept of minimum distance. This order

Civil Appeal No. 5040 of 2014 & Ors. Page 22 of 58

was made applicable to the date of issuance of the order i.e.

November 10, 2006. The Union of India also pointed out in its

counter affidavit that in the case of M/s. Ojas Industries Pvt.

Ltd., this Court held that the said amendment was retrospective in

operation and also highlighted the consequence of

non-implementation of IEM within the period stipulated. Since

four years time to commence the commercial production was

provided in the Amendment Order, 2006 and this amendment was

held to be retrospective by this Court, advice of the Additional

Solicitor General of India was sought as to whether the Bank

Guarantees given by such persons should be accepted or not.

The Additional Solicitor General of India in his letter dated June

18, 2007 advised the Government that the Department should not

accept the Bank Guarantees from the first or earlier persons

whose IEMs were acknowledged in the years 1998/1999/2000 i.e.

prior to June, 2003 and who had not taken effective steps. He

further advised that Bank Guarantees can only be accepted from

the first or earlier IEM holders in terms of Clause 6E of the Control

Order, 2006 if the time limit of four years, as prescribed in Clause

6C has not expired. The Union of India further stated that the

matter of the appellant was examined in the light of the aforesaid

Civil Appeal No. 5040 of 2014 & Ors. Page 23 of 58

opinion and that the extension of time for completing the project

and to commence the project was given. Insofar as issue of

distance is concerned, as per the Union of India, since the

certificate issued by the Survey of India was on record, which was

valid and since it disclosed that the sugar factory was beyond 15

km from the existing factory, the appellant was allowed to go up

with the setting up of the said factory.

17)The Sugarcane Commissioner in his statement of objections to

the writ petitions mentioned that the State Government had, vide

its order dated November 07, 2007, granted ‘in-principle

clearance’ for establishment of the sugar factory. It was found

that Raibag Sahakari factory was lying close for several years and

the order of liquidation has been passed by the State

Government. From the year 2001-2002 itself, the crushing

activity of the said Raibag Sahakari factory came to be stopped.

It was also pointed out that in the year 1995 itself, Raibag

Sahakari had conveyed a ‘No Objection Certificate’ for

establishment of factory by the appellant. Apart from this, on a

recommendation made by the Deputy Commissioner regarding

the viability and availability of the cane in the area concerned,

Civil Appeal No. 5040 of 2014 & Ors. Page 24 of 58

respondent-Authority has passed an order known as ‘The

Karnataka Sugarcane (Regulation of Distribution) M/s.

Shivashakti Sugars, Saudatti Village, Raibag Taluk, Order 2007’.

The said order admittedly is not called into question by the

appellant nor by Raibag Sahakari Sakkare Karkhane. They have

accepted the said order. According to the Cane Commissioner,

the allocation of cane area made in favour of M/s. Shivashakti

Sugars (the appellant) is an informed decision. It is a decision

made on the basis of relevant materials. It is a decision made

eminently in public interest, that is to say, in the interest of

sugarcane farmers growing sugarcane in and around Raibag

Taluk. The Cane Commissioner also emphasised in his affidavit

filed in the High Court, that Deputy Commissioner, Belgaum vide

its communication dated August 25, 2006 has made a

recommendation for allocation of 16 villages situated in Raibag

Taluk and 7 villages situated in Chikodi Taluk to be allocated in

favour of the appellant and on receipt of this communication, a

meeting was convened under the Chairmanship of the Secretary,

Commerce & Industries Department, on May 12, 2006. It was

noticed that the Taluk Agricultural Officer had reported that the

total potential of sugarcane growth is 23.22 lakh tones per year

Civil Appeal No. 5040 of 2014 & Ors. Page 25 of 58

and that the necessity of the appellant was merely 5 lakh tone per

year. It was also noticed that in view of the closure of Raibag

Sahakari Sakkare Karkhane, sugarcane growers of the said area

were forced to supply sugarcane to Doodhganga Sahakari

Sakkare Karkhane and Halasiddanatha Sahakara Sakkare

Karkhane. Those two factories also were unable to receive the

sugarcane so grown, resulting in the sugarcane farmers being

forced to carry their sugarcane to the neighbouring State of

Maharashtra, which has counter productive of the interest of the

farmers in general. It was also pointed out that thereafter notices

were issued to Doodhganga Sahakari Sakkare Karkhane as well

as Raibag Sahakari Sakkare Karkhane for another meeting which

was held on 04.06.2007 wherein the Managing Director of Raibag

Sahakari Sakkare Karkhane concurred with the recommendation

made by the Deputy Commissioner and Doodhganga Sahakari

Sakkare Karkhane also issued no objection. Taking into account

these factors, the State Government had passed the order dated

November 07, 2007. Another significant aspects highlighted by

the Sugarcane Development Commissioner were that for the year

2008-2009, Raibag Sahakari Sakkare Karkhane had crushed only

20,573 tonnes of sugarcane, whereas its crushing capacity is 4

Civil Appeal No. 5040 of 2014 & Ors. Page 26 of 58

lakh tonnes. Out of 23 lakh tones of sugarcane so grown in that

area, if the entire 4 lakh tones is given away to Raibag Sahakari

Sakkare Karkhane, yet there would be excess cane available in

the area. In these circumstances, the commencement of the

appellant’s factory would be actually in the interest of sugarcane

farmers, which would encourage sugarcane growth and it will also

prevent the farmers from transporting their sugarcane outside the

State. There has been under-crushing of sugarcane frown in the

entire State as such. In fact, for the year 2007-2008, it was

noticed that as against the growth of 340 lakh tonnes of

sugarcane, only 270 lakh tones was crushed, thereby leaving

about 70 lakh tonnes of sugarcane remaining uncrushed. For the

year 2008-2009, it was projected that 90 lakh tonnes would go

without crushing. Therefore, the State Government announced

several incentives to sugarcane farmers for paying compensation

for uncrushed sugarcane and also incentives to Sugar Factory

were given to crush sugarcane apart from the allocated area, with

an incentive of Rs.100/- for every tone of sugarcane so crushed.

All these would go to show that commencement of new Sugar

Factories would be in the interest of all concerned and in the

public interest.

Civil Appeal No. 5040 of 2014 & Ors. Page 27 of 58

18)The appellant, in its counter affidavit filed in the High Court, apart

from reiterating the aforesaid facts, submitted that entire action of

the appellant, in this behalf, was bonafide and it had invested

substantial amounts for the establishment of the factory.

Therefore, there was no reason to interfere in the matter.

19)Survey of India also opposed the writ petitions. It justified its

earlier distance certificate by mentioning that the area was

measured by taking recourse to the methodology that was

operating at that time.

20)On the basis of pleadings in the said writ petitions and the

arguments that were advanced by the counsel for the writ

petitioners and the respondents, the High Court formulated as

many as five points which arose for consideration in all those writ

petitions which are as follows:

“(1) Whether Shivashakti Sugars has set up a sugar

factory at Saundatti Village in accordance with law in

as much as

(a) is there a valid industrial entrepreneur

memorandum filed in accordance with the

Sugarcane Control Order;

Civil Appeal No. 5040 of 2014 & Ors. Page 28 of 58

(b)is the new sugar factory established beyond 15

kms from the existing sugar mills viz. Doodaganga

Sugar Mills and Raibagh Sugar Mills;

(c)the distance certificate obtained is in accordance

with law;

(d)after filing of the IEM whether effective steps have

been taken in terms of Explanation IV to Clause 6A

of the Sugarcane Control Order such as:

(i)whether the land required for setting up the

industry is acquired;

(ii)whether civil construction and building was

commenced within the stipulated period of two

years;

(iii)whether firm order for plant and machinery and the

letter of credit was within two years period;

(iv)whether requisite finance has been arranged

(2) If effective steps are not taken within the stipulated

period of two years, whether IEM stands

de-recognised?

(3) Whether the order of extension passed by the

Central Government is valid in accordance with law or

is void ab initio and nonest?

(4) Whether these writ petitions filed are not

maintainable and liable to be dismissed on the ground

of delay, laches, want of bonafides and on the ground

that no public interest is involved?

Civil Appeal No. 5040 of 2014 & Ors. Page 29 of 58

(5) What order?”

21)Thereafter, the High Court discussed, in great detail, each of the

aforesaid points and came to the conclusion that ‘effective steps’

as required under the provision of Sugarcane (Control) Order

were not taken by the appellant; the order giving extensions to the

appellant for completing the objections were not valid; there could

not be any new sugar factory established by the appellant in view

of existing sugar mills, namely, Doodhganga Sugar Mills and

Raibag Sugar Mills within 15 km from the sugar factory of the

appellant; the Survey of India had not determined the distance by

conducting the measurements independently; clause 6A of the

Sugarcane Control Order was mandatory and retrospective in

nature and, therefore, was applicable in the case of the appellant

as well. In the process, the High Court also held that Raibag

Sugar Factory was an existing factory within the meaning of

clause 6A of the Sugarcane Control Order 2006.

22)The appellant has challenged the aforesaid findings of the High

Court. In the first instance, it is argued that interpretation of

clause 6A of the Sugarcane Control Order by this Court in M/s.

Civil Appeal No. 5040 of 2014 & Ors. Page 30 of 58

Ojas Industries case holding it to be retrospective, is per

incuriam. It is also argued that, in any case, since M/s. Raibag

Sahakari Sakkare Karkhane was not an existing sugar factory at

the relevant time, rigours of clause 6A was not applicable in the

case of the appellant as the question of distance did not arise. It

was also argued that the findings of the High Court that the

appellant did not take effective steps as per explanation to clause

6A was clearly erroneous and, therefore, it resulted in an

automatic de-recognition of the IEM of the appellant. The

appellant has questioned the correctness of the decision of the

High Court insofar as it holds that extensions given by the Union

of India were inappropriate. Even the locus standi of the writ

petitioners who filed the writ petitions is challenged. It was also

submitted that having regard to the subsequent events and

particularly to the effect that very substantial amount was spent by

the appellant on the establishment of the factory and appellant

had taken all possible steps and sanctions from various

Authorities, it should not be made to suffer the closure of the

factory since the factory of the appellant is in business from the

year 2011. In nutshell, following issues have been raised for

consideration:

Civil Appeal No. 5040 of 2014 & Ors. Page 31 of 58

(a)Whether Clause 6A of the Sugarcane Control Order, 1966

(as amended in 2006) can be made applicable to an

entrepreneur, who has been granted an IEM prior to the

amendment on November 10, 2006 and whether the

judgment of this Court in the case of Ojas Industries case,

insofar as it holds Clause 6A to be retrospective, is per

incuriam?

(b)Whether assuming that Clause 6A is applicable to an IEM

holder, prior to the 2006 amendment, would this Clause be

applicable in the present case as M/s. Raibagh Sahakari

Sakkare Karkhane Niyamit was not an existing sugar

factory (within the meaning of explanation 1 to Clause 6A)?

(c)Whether the High Court was correct in holding that the

appellant did not take effective steps (as per explanation 4

to Clause 6A), within the time frame specified under Clause

6C of the Sugarcane Control Order, 1966?

(d)Whether the High Court was correct in concluding that if the

effective steps are not taken within the time specified, the

same would result in an automatic re-recognition would be

an order for shutting down the unit?

(e)Whether the High Court was correct in concluding that the

extensions for commencing commercial production were

incorrectly granted by the Union of India, as the application

Civil Appeal No. 5040 of 2014 & Ors. Page 32 of 58

for extension was not filed before the IEM had lapsed?

(f)Whether the petitioners in the four writ petitions, could be

considered persons aggrieved and had locus to maintain

the writ petitions?

(g)Whether even if the High Court is correct in law, in view of

the subsequent events, i.e. the establishment of the sugar

mill by the appellant and it continuing to crush sugarcane

since the year 2011, the appellant’s factory may be

permitted to continue, in the interest of justice, in the facts

and circumstances of the present case?”

23)We feel that it would be more appropriate to first deal with the

issues (b) and (g), inasmuch as our answer thereto would reveal

that there is no need to traverse through the other issues at all.

24)Before we touch upon the discussion on these issues, let us

reproduce the provisions of Clauses 6A to 6C and 6E of the

Sugarcane (Control) Order which were introduced by way of an

amendment in the year 2006. These are set out as under:

“6- A Restriction on setting up of two sugar

factories within the radius of 15 km.—

Notwithstanding anything contained in clause 6, no

new sugar factory shall be set up within the radius of

15 km of any existing sugar factory or another new

sugar factory in a State or two or more States:

Civil Appeal No. 5040 of 2014 & Ors. Page 33 of 58

Provided that the State Government may with the prior

approval of the Central Government, where it

considers necessary and expedient in public interest,

notify such minimum distance higher than 15 km or

different minimum distances not less than 15 km for

different regions in their respective States.

Explanation 1.— An existing sugar factory shall mean

a sugar factory in operation and shall also include a

sugar factory that has taken all effective steps as

specified in Explanation 4 to set up a sugar factory but

excludes a sugar factory that has not carried out its

crushing operations for last five sugar seasons.

Explanation 2.— A new sugar factory shall mean a

sugar factory, which is not an existing sugar factory,

but has filed the Industrial Entrepreneur Memorandum

as prescribed by the Department of Industrial Policy

and Promotion, Ministry of Commerce and Industry in

the Central Government and has submitted a

performance guarantee of rupees one crore to the

Chief Director (Sugar), Department of Food and Public

Distribution, Ministry of Consumer Affairs, Food and

Public Distribution for implementation of the Industrial

Entrepreneur Memorandum within the stipulated time

or extended time as specified in clause 6-C.

Explanation 3.— The minimum distance shall be

determined as measured by the Survey of India.

Explanation 4.— The effective steps shall mean the

following steps taken by the person concerned to

Civil Appeal No. 5040 of 2014 & Ors. Page 34 of 58

implement the industrial Entrepreneur Memorandum

for setting up of sugar factory—

(a)purchase of required land in the name of the

factory;

(b)placement of firm order for purchase of plant and

machinery for the factory and payment of requisite

advance or opening of irrevocable letter of credit

with suppliers;

(c)commencement of civil work and construction of

building for the factory;

(d)sanction of requisite term loans from banks or

financial institutions;

(e)any other step prescribed by the Central

Government, in this regard through a notification.

“ 6-B . Requirements for filing the Industrial

Entrepreneur Memorandum.— (1) Before filing the

IEM with the Central Government, the concerned

person shall obtain a Certificate from the Cane

Commissioner or Director [Sugar] or specified

authority of the State Government concerned that the

distance between the site where he proposes to set up

sugar factory and adjacent existing sugar factories

and new sugar factories is not less than the minimum

distance prescribed by the very Central Government

or the State Government, as the case may be, and the

person concerned shall file the Industrial

Entrepreneur Memorandum with the Central

Government within one month of issue of such

certificate failing which validity of the certificate shall

expire.

Civil Appeal No. 5040 of 2014 & Ors. Page 35 of 58

(2) After filing the Industrial Entrepreneur

Memorandum, the person concerned shall submit a

performance guarantee of rupees one crore to Chief

Director (Sugar), Department of Food and Public

Distribution, Ministry of Consumer Affairs, Food and

Public Distribution within thirty days of filing the

Industrial Entrepreneur Memorandum as a surety for

implementation of the Industrial Entrepreneur

Memorandum within the stipulated time or extended

time as specified in clause 6-C failing which Industrial

Entrepreneur Memorandum shall stand derecognised

as far as provisions of this order are concerned.

6-C . Time-limit to implement Industrial

Entrepreneur Memorandum.— The stipulated time

for taking effective steps shall be two years and

commercial production shall commence within four

years with effect from the date of filing the Industrial

Entrepreneur Memorandum with the Central

Government, failing which the Industrial Entrepreneur

Memorandum shallstand derecognised as far as

provisions of this order are concerned and the

performance guarantee shall be forfeited:

Provided that the Chief Director (Sugar), Department

of Food and Public Distribution, Ministry of Consumer

Affairs, Food and Public Distribution on the

recommendation of the State Government concerned,

may give extension of one year exceeding six months

at a time, for implementing the Industrial Entrepreneur

Memorandum and commencement of commercial

production thereof.

xxx xxx xxx

Civil Appeal No. 5040 of 2014 & Ors. Page 36 of 58

6 -E. Application of clauses 6-B, 6-C and 6-D to the

person whose Industrial Entrepreneur

Memorandum has already been acknowledged.—

(1)Except the period specified in sub-clause (2) of

clause 6-B of this order, the other provisions

specified in clauses 6-B, 6-C and 6-D shall also be

application to the person whose Industrial

Entrepreneur Memorandum has already been

acknowledged as on date of this notification but

who has not taken effective steps as specified in

Explanation 4 to clause 6-A.

(2)The person whose Industrial Entrepreneur

Memorandum has already been acknowledged as

on date of this notification but who has not taken

effective steps as specified in Explanation 4 to

clause 6-A shall furnish a performance guarantee

of rupees one crore to the Chief Director (Sugar),

Department of Food and Public Distribution,

Ministry of Consumer Affairs, Food and Public

Distribution within a period of six months of issue

of this notification failing which the Industrial

Entrepreneur Memorandum of the person

concerned shall stand derecognised as far as

provisions of this order are concerned.”

25)The aforesaid provisions stipulate the steps which an

entrepreneur has to take in an establishment of a sugar factory.

These provisions also mention time limit to implement IEM

provisions which are made for extension of time as well.

Consequences of non-implementation of the provisions are also

Civil Appeal No. 5040 of 2014 & Ors. Page 37 of 58

laid down.

Clause 6A also defines what is an existing sugar factory and

what is a new factory. This Clause also stipulates the distance

requirement and how the minimum distance of 15 km provided

therein shall be determined. With this, we advert to the

discussion on issues (b) and (g) in the first instance.

Issue (b)

26)M/s. Chidambaram and Kavin Gulati, senior advocates argued the

matter on behalf of the appellant. It was their submission that on

the date when the appellant applied for and got acknowledged its

IEM on June 08, 2006, M/s. Raibag Sahakari Sugar factory was

not in operation on that date. Therefore, distance requirement as

provided for under Clause 6A was not applicable in the instant

case. It was also emphasised that M/s. Raibag Sahakari had not

crushed sugarcane since 2001-2002 i.e. in the last five crushing

seasons prior to June 08, 2006, which was also a relevant

consideration to hold that distance requirement was inapplicable

in this case. It was submitted that there was a clinching evidence

to prove the aforesaid facts inasmuch as this has been judicially

acknowledged in the orders of the High Court itself while dealing

Civil Appeal No. 5040 of 2014 & Ors. Page 38 of 58

with the challenge to the action of the State Government in

inviting tenders for giving lease to M/s. Raibag Sahakari and while

deciding challenge to the grant of the said lease in favour of

respondent No.1.

27)We may point out at this stage that the aforesaid fact is not in

dispute. There cannot be any quarrel about the same having

regard to plethora of evidence produced in support of this

submission which has already been recorded above. The

question is as to whether M/s. Raibagh Sahakari would be treated

as ‘existing sugar factory’ within the meaning of Clause 6A of the

Sugarcane Control Order. It is the case of the appellant that

Clause 6A of the Sugarcane Control Order provides a minimum

distance of 15 km to be maintained between an existing sugar

factory and another new sugar factory. Explanation 1, defines an

existing sugar factory. This explanation is in three parts. The first

part provides that a factory shall be considered as an existing

sugar factory to be a sugar factory ‘in operation’. The second part

provides that, it shall also include a sugar factory that has taken

all effective steps as specified in explanation 4. The third part

provides that a sugar factory shall not be considered as an

Civil Appeal No. 5040 of 2014 & Ors. Page 39 of 58

existing sugar factory if ‘a sugar factory that has not carried out its

crushing operations for the last five sugar seasons’. It is

submitted that if a sugar factory, is not ‘in operation’ on the date

when a new sugar mill applies for an IEM, the old sugar factory,

shall not be considered as an existing sugar mill.

28)The learned counsel for respondent no. 1 heavily relied upon the

reasoning in the impugned judgment of the High Court to support

his case. There appears to be force in the aforesaid submissions

of the appellant. Requirement of Explanation 1 to Clause 6A is

that in order to qualify as an existing sugar mill, it needs to crush

for five consecutive years. We find that the High Court has

wrongly recorded that the requirement is of crushing for any of the

one season out of five and this has led to error on the part of the

High Court in holding that M/s. Raibagh Sahakari was an existing

sugar factory.

29)Another aspect which becomes relevant in this behalf (and would

also have bearing while deciding issue (g)) is that the case of the

appellant for setting up of the factory was processed keeping in

view the fact that M/s. Raibagh Sahakari was not in operation.

Further, in one case way back in the year 1995, it had even

Civil Appeal No. 5040 of 2014 & Ors. Page 40 of 58

granted ‘no objection’ certificate for setting up of the factory by the

appellant. Another significant aspect which is to be borne in mind

is that the State Government had passed order of liquidation of

M/s. Raibagh Sahakari in exercise of its power under Section 72

of the Karnataka Co-operative Societies Act, 1951. Even a

liquidator was appointed to undertake the liquidation process.

From this scenario, everybody would get a bonafide impression

that such a factory which is non-operational, is going to be

liquidated in due course of time. No doubt, subsequently the

State Government decided to revive this factory and steps in this

behalf were taken in the year 2008. However, much before that

IEM of the appellant was got acknowledged on June 08, 2006. As

on that date, there was no ‘existing’ sugar factory within the

meaning of Clause 6A of the Sugarcane Control Order.

Therefore, the requirement of distance as prescribed in Clause 6A

would be inapplicable.

30)Insofar as M/s. Doodhganga Sahakari factory is concerned, two

aspects need to be stressed upon. First, as per the certificate of

Survey of India given on June 05, 2006, distance between the

said factory and the then proposed factory of the appellant is

Civil Appeal No. 5040 of 2014 & Ors. Page 41 of 58

shown to be 15 km. Secondly, M/s. Doodhganga Sahakari had

given their no objection to the setting up of the factory by the

appellant on the basis of which matter was processed further.

31)We have to keep in mind that the requirement of distance

mentioned in the Amendment Order was inserted keeping in mind

the benefit of the existing sugar factories. In a situation like this,

when such a factory itself gave ‘no objection’ certificate, thereby

waived the requirement, the bonafides of the appellant cannot be

doubted. We would like to reproduce here the following

observations from the judgment in the case of Rajendra Singh v.

State of M.P. & Ors., (1996) 5 SCC 460:

“6. It has been held by a Constitution Bench of this

Court in Har Shankar v. Dy. Excise and Taxation

Commr. [(1975) 1 SCC 737 : AIR 1975 SC 1121] that:

(SCC p. 748, para 22)

“[T]he writ jurisdiction of High Courts under Article 226

of the Constitution is not intended to facilitate

avoidance of obligations voluntarily incurred.”

At the same time, it was observed that the licensees

are not precluded from seeking to enforce the

statutory provisions governing the contract. It must,

however, be remembered that we are dealing with

parties to a contract, which is a business transaction,

no doubt governed by statutory provisions.

[ Reference may also be made to the decision of this

Court in Asstt. Excise Commr. v. Issac Peter, (1994) 4

Civil Appeal No. 5040 of 2014 & Ors. Page 42 of 58

SCC 104.] While examining complaints of violation of

statutory rules and conditions, it must be remembered

that violation of each and every provision does not

furnish a ground for the court to interfere. The

provision may be a directory one or a mandatory one.

In the case of directory provisions, substantial

compliance would be enough. Unless it is established

that violation of a directory provision has resulted in

loss and/or prejudice to the party, no interference is

warranted. Even in the case of violation of a

mandatory provision, interference does not follow as a

matter of course. A mandatory provision conceived in

the interest of a party can be waived by that party,

whereas a mandatory provision conceived in the

interest of the public cannot be waived by him. In other

words, wherever a complaint of violation of a

mandatory provision is made, the court should enquire

— in whose interest is the provision conceived. If it is

not conceived in the interest of the public, question of

waiver and/or acquiescence may arise — subject, of

course, to the pleadings of the parties. This aspect has

been dealt with elaborately by this Court in State Bank

of Patiala v. S.K. Sharma [(1996) 3 SCC 364 : 1996

SCC (L&S) 717] and in Krishan Lal v. State of

J&K [(1994) 4 SCC 422 : 1994 SCC (L&S) 885 :

(1994) 27 ATC 590] on the basis of a large number of

decisions on the subject. Though the said decisions

were rendered with reference to the statutory rules

and statutory provisions (besides the principles of

natural justice) governing the disciplinary enquiries

involving government servants and employees of

statutory corporations, the principles adumbrated

therein are of general application. It is necessary to

keep these considerations in mind while deciding

whether any interference is called for by the court —

whether under Article 226 or in a suit. The function of

the court is not a mechanical one. It is always a

considered course of action.”

Civil Appeal No. 5040 of 2014 & Ors. Page 43 of 58

32)Another aspect which is to be borne in mind is that the purpose of

distance requirement is that there is sufficient availability of

sugarcane in the area so that it could easily cater to all the sugar

factories. It is not disputed that appellant’s factory has not

adversely affected the utilisation of crushing capacity of either

M/s. Doodhganga Sahakari factory or M/s. Raibagh Sahakari

factory. It was pointed out by the learned counsel for the

appellant during arguments, which fact was not denied by either

side, that for last three years, M/s. Doodhganga Sahakari factory

had crushed more sugarcane than their target.

33)We, therefore, answer this issue by holding that in the facts of the

present case, the necessity of distance requirement between M/s.

Raibagh Sahakari factory and the appellant’s factory as contained

in Clause 6A was not attracted.

Issue (g)

34)We have already highlighted various steps which were taken by

the appellant for setting up its factory. The High Court has held

that these were not “effective steps” in terms of Sugarcane

Control Amendment Order. However, whether such steps would

Civil Appeal No. 5040 of 2014 & Ors. Page 44 of 58

constitute as ‘effective’ steps as required by amended provisions

contained in Clauses 6A, 6B and 6C of the Sugarcane Control

Order or not need not even be gone into. Important aspects

which need to be highlighted are the following:

(i) IEM of the appellant was acknowledged on June 08, 2006.

It had time till June 08, 2010 to commence commercial production

as per the Sugarcane Control Order.

(ii)Extension was applied first on January 27, 2010 which was

granted and thereafter second extension was granted by the

Union of India till June, 2011. Commercial production commenced

on May 25, 2011. These extensions were given after considering

replies of the appellant to the show cause notice that was issued.

Even Government of Karnataka had recommended the

appellant’s case for extension. State government had also

highlighted the public purpose behind this project, which was for

the welfare of the farmers as well.

(iii)The appellant took various steps for setting up of this

factory from time to time which have been taken note of above.

These include purchase of land, placement of firm order for plant

and machinery and payment of advance in that behalf,

Civil Appeal No. 5040 of 2014 & Ors. Page 45 of 58

commencement of civil construction, taking term loans from the

Banks etc.

(iv)These steps were taken along with due permissions which

were required under different laws, duly accorded by the various

Governmental Authorities, thus, showing its bona fides.

(v)The appellant has incurred an expenditure of Rs.299.05

crores as per its audited balance sheet for 2015-2016. The

expenditure on land and building as well as machinery is

Rs.142.26 crores.

(vi)The total loans for the running unit till year 2013 were to the

tune of Rs. 237 crores.

(vii)The operational cost for running the factory in the year

2012-2013 was Rs.149.29 crores.

(viii)The appellant’s unit is having 377 persons as employees on

its rolls that are in regular employment. In addition, indirect

employment of approximately 7150 persons during each crushing

season is facilitated by the running of the appellant’s factory.

(ix)The appellant has also set up a co-generation plant for

production of electricity which was initially 15 megawatt and, at

Civil Appeal No. 5040 of 2014 & Ors. Page 46 of 58

present, is giving supply of 37 megawatt electricity.

(x)There is ample sugarcane supply in the State of Karnataka

and, in particular, in Raibagh region and, therefore, there is no

adverse effect on the operation of any other sugar mills including

M/s. Raibagh Sahakari and M/s. Doodhganga Sahakari

35)When we keep in mind all the aforesaid factors cumulatively, we

see that no purpose is going to be served in getting the unit of the

appellant closed. On the contrary, public purpose demands that

the appellant’s factory remain in operation and continue to

function.

36)We have already highlighted the factors which weigh in favour of

continuing the operations of the appellant’s factory. Apart from

equitable considerations on the side of the appellant, there are

certain economic factors as well which tilt the balance totally in

favour of the appellant herein. These include expenditure of

approximately Rs.300 crores by the appellant in establishing the

factory (including expenditure on land and building to the tune of

Rs.142.26 crores); loans raised to the tune of Rs.237 crores;

operational cost of Rs.150 crores; generation of employment of

377 persons on regular basis and indirect employment of more

Civil Appeal No. 5040 of 2014 & Ors. Page 47 of 58

than 7000 persons; and setting up of co-generation plant for

production of electricity which is giving supply of 37 mw of

electricity. These factors, particularly, bank loans, employment,

generation and production at the factory serve useful public

purpose and such economic considerations cannot be

overlooked, in the context where there is hardly any statutory

violation.

37)It has been recognised for quite some time now that law is an

inter disciplinary subject where interface between law and other

sciences (social sciences as well as natural/physical sciences)

come into play and the impact of other disciplines of law is to be

necessarily kept in mind while taking a decision (of course, within

the parameters of legal provisions). Interface between law and

economics is much more relevant in today’s time when the

country has ushered into the era of economic liberalization, which

is also termed as ‘globalisation’ of economy. India is on the road

of economic growth. It has been a developing economy for

number of decades and all efforts are made, at all levels, to

ensure that it becomes a fully developed economy. Various

measures are taken in this behalf by the policy makers. The

Civil Appeal No. 5040 of 2014 & Ors. Page 48 of 58

judicial wing, while undertaking the task of performing its judicial

function, is also required to perform its role in this direction. It

calls for an economic analysis of law approach, most commonly

referred to as ‘Law and Economics’

1

. In fact, in certain branches

of law there is a direct impact of economics and economic

1

Richard A. Posner in his book ‘Frontiers of Legal Theory’ explains this concept as follows:

“Economic analysis of law has heuristic, descriptive, and normative aspects.

As a heuristic, it seeks to display underlying unities in legal doctrines and

institutions; in its descriptive mode, it seeks to identify the economic logic and

effects of doctrines and institutions and the economic causes of legal change;

in its normative aspect it advises judges and other policymakers on the most

efficient methods of regulating conduct through law. The range of its subject

matter has become wide, indeed all-encompassing. Exploiting advances in

the economics of nonmarket behavior, economic analysis of law has

expanded far beyond its original focus on antitrust, taxation, public utility

regulation, corporate finance, and other areas of explicitly economic

regulation. (And within that domain, it has expanded to include such fields as

property and contract law). The “new” economic analysis of law embraces

such nonmarket, or quasi-nonmarket, fields of law as tort law, family law,

criminal law, free speech, procedure, legislation, public international law, the

law of intellectual property, the rules governing the trial and appellate process,

environmental law, the administrative process, the regulation of health and

safety, the laws forbidding discrimination in employment, and social norms

viewed as a source of, an obstacle to, and a substitute for formal law.”

Posner also mentioned that this interface between Law and Economics might

grandly be called ‘Economic Theory of Law’, which is built on a pioneering article by Ronald

Coase {R.H. Coase, “The Problem of Social Cost”, 3 Journal of Law and Economics 1

(1960)}:

“The “Coase Theorem” holds that where market transaction costs are zero,

the law’s initial assignment of rights is irrelevant to efficiency, since if the

assignment is inefficient the parties will rectify it by a corrective transaction.

There are two important corollaries. The first is that the law, to the extent

interested in promoting economic efficiency, should try to minimize transaction

costs, for example by defining property rights clearly, by making them readily

transferable, and by creating cheap and effective remedies for breach of

contract…

The second corollary of the Coase Theorem is that where, despite the law’s

best efforts, market transaction costs remain high, the law should simulate the

market’s allocation of resources by assigning property rights to the

highest-valued users. An example is the fair-use doctrine of copyright law,

Civil Appeal No. 5040 of 2014 & Ors. Page 49 of 58

considerations play predominant role, which are even recognised

as legal principles. Monopoly laws (popularly known as ‘Antitrust

Laws’ in USA) have been transformed by economics. The issues

arising in competition laws (which has replaced monopoly laws)

are decided primarily on economic analysis of various provisions

of the Competition Commission Act. Similar approach is to be

necessarily adopted while interpreting bankruptcy laws or even

matters relating to corporate finance, etc. The impress of

economics is strong while examining various facets of the issues

arising under the aforesaid laws. In fact, economic evidence

plays a big role even while deciding environmental issues. There

is a growing role of economics in contract, labour, tax, corporate

and other laws. Courts are increasingly receptive to economic

arguments while deciding these issues. In such an environment it

becomes the bounden duty of the Court to have the economic

analysis and economic impact of its decisions. We may hasten to

add that it is by no means suggested that while taking into

account these considerations specific provisions of law are to be

which allows writers to publish short quotations from a copyrighted work

without negotiating with the copyright holder. The costs of such negotiations

would usually be prohibitive; if they were not prohibitive, the usual result would

be an agreement to permit the quotation, and so the doctrine of fair use brings

about the result that the market would bring about if market transactions were

feasible.”

Civil Appeal No. 5040 of 2014 & Ors. Page 50 of 58

ignored. First duty of the Court is to decide the case by applying

the statutory provisions. However, on the application of law and

while interpreting a particular provision, economic impact/effect of

a decision, wherever warranted, has to be kept in mind. Likewise,

in a situation where two views are possible or wherever there is a

discretion given to the Court by law, the Court needs to lean in

favour of a particular view which subserves the economic interest

of the nation. Conversely, the Court needs to avoid that particular

outcome which has a potential to create an adverse affect on

employment, growth of infrastructure or economy or the revenue

of the State. It is in this context that economic analysis of the

impact of the decision becomes imperative

2

. At times, this Court

has laid emphasis on this aspect, al beit in other context. For

example, in Raunaq International Limited v. I.V.R.

Construction Ltd. & Ors., (1999) 1 SCC 492, this Court

cautioned the High Courts not to easily grant interim stay while

dealing with the writ petitions where challenge is to award of

tender by the Government in favour of a party, highlighting the

fact that even commercial transactions of State or public body

2 In the jurisprudence of the Economic Approach to Law, there are various theories

propounded by the jurists, e.g., The Positive Theory or Normative Theory etc. However,

here, we are limiting the discussion to that facet which relates to economic impact of a

judicial decision.

Civil Appeal No. 5040 of 2014 & Ors. Page 51 of 58

may involve element of public law or public interest and grant of

such interim stay may delay the approach, and in turn escalate

the cost thereof, which may not be in public interest. Relevant

paragraphs from the said judgment read as under:

“11. When a writ petition is filed in the High Court

challenging the award of a contract by a public

authority or the State, the court must be satisfied that

there is some element of public interest involved in

entertaining such a petition. If, for example, the

dispute is purely between two tenderers, the court

must be very careful to see if there is any element of

public interest involved in the litigation. A mere

difference in the prices offered by the two tenderers

may or may not be decisive in deciding whether any

public interest is involved in intervening in such a

commercial transaction. It is important to bear in mind

that by court intervention, the proposed project may be

considerably delayed thus escalating the cost far more

than any saving which the court would ultimately effect

in public money by deciding the dispute in favour of

one tenderer or the other tenderer. Therefore, unless

the court is satisfied that there is a substantial amount

of public interest, or the transaction is entered into

mala fide, the court should not intervene under Article

226 in disputes between two rival tenderers.

[Emphasis supplied]

12. When a petition is filed as a public interest

litigation challenging the award of a contract by the

State or any public body to a particular tenderer, the

court must satisfy itself that the party which has

brought the litigation is litigating bona fide for public

good. The public interest litigation should not be

merely a cloak for attaining private ends of a third

party or of the party bringing the petition. The court

can examine the previous record of public service

rendered by the organisation bringing public interest

litigation. Even when a public interest litigation is

Civil Appeal No. 5040 of 2014 & Ors. Page 52 of 58

entertained, the court must be careful to weigh

conflicting public interests before intervening.

Intervention by the court may ultimately result in delay

in the execution of the project. The obvious

consequence of such delay is price escalation. If any

retendering is prescribed, cost of the project can

escalate substantially. What is more important is that

ultimately the public would have to pay a much higher

price in the form of delay in the commissioning of the

project and the consequent delay in the contemplated

public service becoming available to the public. If it is

a power project which is thus delayed, the public may

lose substantially because of shortage in electricity

supply and the consequent obstruction in industrial

development. If the project is for the construction of a

road or an irrigation canal, the delay in transportation

facility becoming available or the delay in water supply

for agriculture being available, can be a substantial

setback to the country's economic development.

Where the decision has been taken bona fide and a

choice has been exercised on legitimate

considerations and not arbitrarily, there is no reason

why the court should entertain a petition under Article

226.

xx xx xx

18. The same considerations must weigh with the

court when interim orders are passed in such

petitions. The party at whose instance interim orders

are obtained has to be made accountable for the

consequences of the interim order. The interim order

could delay the project, jettison finely worked financial

arrangements and escalate costs. Hence the

petitioner asking for interim orders in appropriate

cases should be asked to provide security for any

increase in cost as a result of such delay or any

damages suffered by the opposite party in

consequence of an interim order. Otherwise public

detriment may outweigh public benefit in granting such

interim orders. Stay order or injunction order, if issued,

must be moulded to provide for restitution.

xx xx xx

Civil Appeal No. 5040 of 2014 & Ors. Page 53 of 58

24. Dealing with interim orders, this Court observed

in CCE v. Dunlop India Ltd. [(1985) 1 SCC 260] (SCR

190 at p. 196) that an interim order should not be

granted without considering the balance of

convenience, the public interest involved and the

financial impact of an interim order. Similarly,

in Ramniklal N. Bhutta v. State of Maharashtra [(1997)

1 SCC 134] the Court said that while granting a stay,

the court should arrive at a proper balancing of

competing interests and grant a stay only when there

is an overwhelming public interest in granting it, as

against the public detriment which may be caused by

granting a stay. Therefore, in granting an injunction or

stay order against the award of a contract by the

Government or a government agency, the court has to

satisfy itself that the public interest in holding up the

project far outweighs the public interest in carrying it

out within a reasonable time. The court must also take

into account the cost involved in staying the project

and whether the public would stand to benefit by

incurring such cost.” [Emphasis supplied]

38)Even in those cases where economic interest competes with the

rights of other persons, need is to strike a balance between the

two competing interests and have a balanced approach. That is

the aspect which has been duly taken care of in the instant case,

as would be discernible from the concluding paragraph of this

judgment.

39)Although law and economics traces back to the period of Jeremy

Bentham

3

, i.e. 18

th

century, in the last few decades, interplay

between law and economics has gained momentum throughout

3 Utilitarian Theory, which is essentially economic theory

Civil Appeal No. 5040 of 2014 & Ors. Page 54 of 58

the world. Indian judiciary has resorted to economic analysis of

law on ad hoc basis. Time has come to consider the

inter-discipline between law and economics as a profound

movement on sustainable basis. These are the additional

relevant considerations which have weighed in our mind in

adopting a particular course of action in the instant case.

40)Even if we find some technical violation, the aforesaid factors

demand this Court to exercise its power under Article 142 of the

Constitution of India. This Court would be inclined to do so in the

instant case which is a fit case for exercise of such powers

keeping in view the equitable considerations and moulding the

relief.

41)The learned senior counsel for the appellant had made a very fair

suggestion that even if there is a shortage of sugarcane (though it

is not so), sugarcane from the 14 villages originally assigned to

respondent No.1 and now with the appellant can be re-allotted to

respondent No.1. Having regard to this submission, we dispose

of these appeals by setting aside the directions contained in the

judgment of the High Court and allowing the appellant’s factory to

continue its operation subject to the condition that 14 villages

Civil Appeal No. 5040 of 2014 & Ors. Page 55 of 58

which were originally assigned to respondent No.1 would be

re-allotted to it after taking these villages from the appellant.

Appeals allowed in the aforesaid terms. No order as to

costs.

............................................J.

(A.K. SIKRI)

.............................................J.

(ABHAY MANOHAR SAPRE)

NEW DELHI;

MAY 09, 2017.

Civil Appeal No. 5040 of 2014 & Ors. Page 56 of 58

ITEM NO.1A COURT NO.7 SECTION IVA

(For judgment)

S U P R E M E C O U R T O F I N D I A

RECORD OF PROCEEDINGS

Civil Appeal No. 5040/2014

SHIVASHAKTI SUGARS LTD. Appellant(s)

VERSUS

SHREE RENUKA SUGAR LTD. & ORS. Respondent(s)

WITH

C.A. No. 5041/2014

C.A. No. 5042/2014

C.A. No. 5043/2014

Date : 09/05/2017

These appeals were called on for pronouncement of

judgment today.

For Parties

Mr. Gopal Sankaranarayanan, Adv.

Ms. Ranjeeta Rohatgi, Adv.

Mnr. Zeeshan Diwan, Adv.

Ms. Kaveeta Wadia, Adv.

Mr. Shashank Tripathi, Adv.

M/s. Karanjawala & Co.

Ms. Liz Mathew, Adv.

Mr. Joseph Aristotle S., Adv.

Ms. Priya Aristotle, Adv.

Mr. Ashish Yadav, Adv.

Ms. Romsha Raj, Adv.

Mr. Kush Chaturvedi, Adv.

Ms. Sushma Suri, Adv.

Mr. D. S. Mahra, Adv.

Ms. Anitha Shenoy, Adv.

Civil Appeal No. 5040 of 2014 & Ors. Page 57 of 58

Mr. Rameshwar Prasad Goyal, Adv.

Mr. Dipak Kumar Jena, Adv.

Mr. Naresh Kumar, Adv.

Mr. Rameshwar Prasad Goyal, Adv.

Ms. Anitha Shenoy, Adv.

Mr. Ashok Kumar Sharma, Adv.

Mr. Venkita Subramoniam T. R., Adv.

Ms. Anitha Shenoy, Adv.

Mr. D. S. Mahra, Adv.

Mr. Debasis Misra, Adv.

Mr. Raghavendra S. Srivatsa, Adv.

Mr. N. Ganpathy, Adv.

Hon'ble Mr. Justice A. K. Sikri pronounced the

judgment of the Bench comprising His Lordship and

Hon'ble Mr. Justice Abhay Manohar Sapre.

The appeals are allowed in terms of the signed

reportable judgment.

Applications pending, if any, stand disposed of.

(Nidhi Ahuja) (Mala Kumari Sharma)

Court Master Court Master

[Signed reportable judgment is placed on the file.]

Civil Appeal No. 5040 of 2014 & Ors. Page 58 of 58