REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4021 OF 2022

(ARISING OUT OF SLP(CIVIL) NO. 12277 OF 2021)

SWAMI SAMARTH SUGARS AND

AGRO INDUSTRIES LTD. .....APPELLANT(S)

VERSUS

LOKNETE MARUTRAO GHULE PATIL

DNYANESHWAR SAHAKARI SAKHAR

KARKHANA LTD & ORS. .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 4022 OF 2022

(ARISING OUT OF SLP(CIVIL) NO. 12578 OF 2021)

A N D

CIVIL APPEAL NO. 4023 OF 2022

(ARISING OUT OF SLP(CIVIL) NO. 12579 OF 2021)

J U D G M E N T

HEMANT GUPTA, J.

1. The present appeals arise out of the three writ petitions which were

decided by a common order dated 23.07.2021. Two of the writ petitions

were filed by the respondent herein – Loknete Marutrao Ghule Patil

Dnyaneshwar Sahakari Sakhar Karkhana Ltd.

1

, whereas the third one

1 Existing Sugar Factory

1

was filed by the members of the existing sugar factory. Since the issue

raised in all the three writ petitions was common, therefore, the same

was decided by the High Court by a common order.

2. In the writ petitions, direction was sought that the Industrial

Entrepreneur Memorandum

2

dated 8.9.2010 be de-

recognised/cancelled in view of the provisions of Clause 6C of the

Sugarcane (Control) Order, 1966

3

. The challenge was inter alia on the

ground that the time limit for a new factory to be set up was 2 years

and to commence production was within 4 years (2+4), but the

appellant failed to take any effective steps to set up and commence

production within such time frame contemplated by the Control Order.

Another ground was that the State of Maharashtra had issued a circular

on 03.12.2011 under Clause 6A of the Control Order that no sugar

factory shall be set up within the radius of 25 kms of any existing sugar

factory or any other new factory substituting the provisions that the

minimum distance was for 15 kms existing on the date of grant of IEM,

therefore, the proposed sugar factory does not meet the norm of 25

kilometers. Finally, it was contended that in the absence of steps for

setting up of a sugar factory and commencement of the commercial

production, the IEM stands de-recognised by operation of the provision

of the Control Order. Therefore, the grant of extensions to set up the

sugar factory issued on 14.11.2018 followed by another extension of

2 For short, ‘IEM’

3 For short, ‘Control Order’

2

time and to change the location on 17.10.2019 by the Central

Government was contrary to the Control Order.

3. The brief facts leading to the present appeals are that the existing

sugar factory was set up in the year 1974, claiming to have more than

15000 members with crushing capacity as 1250 M.T. in the year 1974-

75 which was increased to 7000 M.T. per day in the year 2014-15. The

said sugar factory had also set up a Distillery Plant, Co-generation

Plant, Ethanol Plant and enhanced its crushing capacity of 6000 M.T.

per day after a fresh IEM was issued on 01.05.2012.

4. The appellant applied for IEM on 08.09.2010, the same was

acknowledged by Government of India after Commissioner of Sugar,

Maharashtra issued a certificate regarding aerial distance between the

existing sugar factory and the nearby proposed sugar factory in

Ramdoh (Warkhed), Tehsil- Newasa, District- Ahmednagar. It was

reported that aerial distance between the sites of other sugar factories

adjacent to the proposed sugar factory at Ramdoh (Warkhed), Tehsil-

Newasa, District- Ahmednagar was more than 15 kms. On the basis of

such certificate, IEM was acknowledged after the appellant furnished a

bank guarantee of the sum of Rs. 1 crore which was to remain in force

up to 04.04.2016.

5. However, a writ petition was filed soon thereafter on 23.09.2010,

challenging the IEM granted to the appellant on the ground of aerial

distance of proposed sugar factory and existing sugar factory. Another

3

writ petition was filed on 17.03.2011 challenging the IEM on the ground

that the proposed sugar factory was not complying with the provisions

of Environmental Protection Act, 1986. Both the writ petitions were

decided on 27.01.2014 wherein the High Court passed the following

order:

“4. Bare perusal thereof indicates that no new sugar factory shall

be set up within the radius of 15 kms of any existing sugar

factory or another new sugar factory in a State or two or more

States. The proviso has also been inserted in the Control Order

to ensure that the restriction on setting up of two sugar factories

within the radius of 15 kms is complied with.

5. The petitioners have pointed out, and in all fairness, that a

certificate has been issued by the Commissioner of Sugar,

Maharashtra State, Pune pointing out that the aerial distance

between the sites of other sugar factories, adjacent to

respondent No.8 is more than 15 kms.

6. This certificate, dated 17.08.2010, therefore, is in compliance

with the requirement in Clause 6-A reproduced above. That is the

only aspect with which this Court is concerned so far as the

petitioners in this petition are concerned.

7. Now, the Writ petitioners and the PIL petitioners are raising

another issue, namely, the proposed sugar factory not complying

with the provisions of the Environmental Protection Act, 1986

and it would indicate as to how the same falls within the radius

of 500 meters from the bank of river and therefore, it is falling

within no development zone and hence it cannot be set up.

8. After hearing the petitioners on this point, merely because

Clause 6-A has been complied with, it does not mean that the

sugar factory or the proposed sugar factory have not to comply

with other laws. They are obliged to comply with the anti-

pollution laws in the field and the laws relating to preservation of

ecology and environment as well. It is only thereafter and other

laws and Rules in the field being complied with that any question

arises of these sugar factories becoming functional. For the

present, the stand taken in the affidavit by the authorities need

4

not be probed further. In the event, respondent No.6 carries out

construction and development, then needless to clarify that the

said respondent will have to comply with all laws including the

anti-pollution, environmental protection and ecology.

9. In such circumstances, the petitions need not be kept

pending. They are disposed of. However, the issue of aerial

distance certificate cannot be reopened at the instance of the

petitioner or any other party again.”

6. The sugar industry was deleted from the list of industries requiring

compulsory licensing under the provisions of the Industries

(Development and Regulation) Act, 1951 on 31.08.1998. However, the

condition of minimum distance of 15 kms as provided by the Control

Order issued under Section 3 of the Essential Commodities Act, 1955

4

was ordered to continue in order to avoid unhealthy competition

amongst sugar factories.

7. The Control Order was issued in exercise of the powers conferred under

Section 3 of the 1955 Act. Some of the relevant conditions, as

amended on 10.11.2006, read thus:

“6A. Restriction on setting of two sugar factories with in

the radius of 15 kms:-

Notwithstanding anything contained in Clause 6, no new

sugar factory shall be set up within the radius of 15 kms of any

existing sugar factory or another new sugar factory in a State or

two or more States:

Provided that State Government may with the prior

approval of the Central Government where it considers

necessary and expedient on public interest notify such minimum

distance higher than 15 kms or different minimum distances not

less than 15 kms for different regions in their respective States.

Xxx xxx xxx

4 1955 Act

5

Explanation 4: The effective steps shall mean the following steps

taken by the concerned person to implement than 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 requisite advanced and opening of

irrevocable letter of credit with suppliers.

€ Commencement of civil works and construction of building for

the factory.

(d) Sanction of requisite terms loans from bank or financial

institutio€(e) Any others steps prescribed by the Central

Government in this regard through a notification.

xxx xxx xxx

6C. 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 of Industrial Entrepreneur

Memorandum with the Central Government, failing which the

Industrial Entrepreneur Memorandum shall stand derecognized

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 &

Public Distribution, Ministry of Consumer Affairs, Food & Public

Distribution, on the recommendation of the concerned State

Government, may give extension of one year not exceeding six

months at a time, for implementing the Industrial Entrepreneur

Memorandum and commencement of commercial production

thereof.

6D. Consequences of non-implementation of the

provision laid down in clauses 6B and 6C :-

If an Industrial Entrepreneur Memorandum remains

unimplemented within the time specified in clause 6C, the

performance guarantee furnished for its implementation shall be

forfeited after giving the concerned person a reasonable

opportunity of being heard.”

6

8. The Government of Maharashtra, after approval of the Central

Government, directed on 03.12.2011 that in terms of proviso to Clause

6A, no new sugar factory shall be set up within the radius of 25 kms of

any existing sugar factory or any other new factory.

9. On 24.08.2016, the Control Order was amended, when Clause 6C was

substituted and a proviso was inserted after Clause 6D. Such

amendment reads thus:

“6C. Time limit for implementing Industrial Entrepreneur

Memorandum - The stipulated time for taking effective steps

shall be three years and commercial production shall commence

within five years with effect from the date of filing the Industrial

Entrepreneur Memorandum with the Central Government, failing

which the Industrial Entrepreneur Memorandum shall stand de-

recognised 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 may, after the expiry of the aforesaid

period, give extension of maximum two years, not exceeding

more than a year at a time, in cases involving delay due to any

unforeseen circumstances beyond control, such as natural

calamities, drought or non-availability of sugarcane (raw

material) during off season in a year wherein the extended

validity period terminates, non-financing of sugar sectors, stay

on permission for land use by the courts due to environmental or

other reason. In all such cases extension shall be granted in

consultation with respective State Governments, if necessary,

either for taking effective steps or for commencement of sugar

production.

xxx xxx xxx

6D.

Provided that the performance guarantee shall be returned if-

(i) the commercial production is commenced within the

stipulated period of seven years including two years of

extension;

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(ii) the commercial production is not commenced even

after seven years for reasons not attributable to the

project proponent and the same is fully established on

merit and be recorded in writing;

(iii) the project proponent suomotu, opts to forego its

Industrial Entrepreneur Memorandum within two years

from the date of its filing and requests for return of

performance guarantee with due justification.”

10.The Control Order was subsequently amended on 12.08.2018, again

substituting Clause 6C which reads as thus:

“6C. Time limit for implementing Industrial Entrepreneur

Memorandum-

(1) The stipulated time for taking effective steps as

specified in explanation 4 to clause 6A shall be three

years and the commercial production of sugar shall

commence within five years from the date of filing of the

industrial entrepreneur memorandum with the Central

Government under sub-clause (1) of clause 6B failing

which the Industrial Entrepreneur Memorandum shall

stand Defendant-recognized as provided in sub-clause (2)

thereof, and the performance guarantee furnished

thereunder shall be forfeited:

(2)The time limit specified under sub-clause (1) may

be extended in the following manner, namely:-

(a) Where the delay is due to any unforeseen

circumstances beyond the control of the person

concerned such as natural calamities including drought,

non-availability of sugarcane (raw material) during off

season in the year in which the stipulated period

terminates and non-financing of sugar sectors, the Chief

Director (Sugar), Department of Food and Public

Distribution, Ministry of Consumer Affairs, Food and Public

Distribution may, after the expiry of five years’ period

stipulated under sub-clause (1) extend the period

stipulated under sub-clause (1) for a further period of two

years, not exceeding more than a year at a time;

Provided that such extension may be granted for

taking effective steps or for the commencement of

commercial production of sugar, in consultation with the

State Government concerned, if considered necessary.

8

Provided further that in case the commercial

production does not commence within such extended

period, the bank guarantee furnished under sub-clause (2)

of clause 6B shall be forfeited;

(b) Where the delay is due to any court case relating to

land use, environment or such other reason, that may

have arisen within five year from the date of filing of

Industrial Entrepreneur Memorandum, the Chief Director

(Sugar), Department of Food and Public Distribution,

Ministry of Consumer Affairs, Food and Public Distribution

may, after the expiry of five years’ period stipulated

under sub-clause (1), extend the period stipulated under

sub-clause (1) initially for a further period of two years,

not exceeding more than a year at a time;

Provided that such extension may be granted for taking

effective steps or for the commencement of commercial

production of sugar, in consultation with the State

Government concerned and the Department of Legal

Affairs in the Ministry of Law and Justice, if considered

necessary.

(c) in case where such delay due to Court case relating to

land use, environment or such other reason, continues

beyond the period extended under item (b), the Chief

Director (Sugar), Department of Food and Public

Distribution, Ministry of Consumer Affairs, Food and Public

Distribution may grant extension of such further period, as

he deems fit, no exceeding more than a year at a time,

subject to furnishing of a bank guarantee of rupees fifty

lakhs for each year for which the extension is sought,

which shall be in addition to the bank guarantee furnished

under sub-clause (2) of clause 6B;

Provided that such extension may be granted for taking

effective steps or for the commencement of commercial

production of sugar, in consultation with the State

Government concerned and the Department of Legal

Affairs in the Ministry of Law and Justice, if considered

necessary;

Provided further that in case the commercial production

does not commence within any such extended period of

9

one year, such bank guarantee of rupees fifty lakhs so

furnished for that one year of extension shall be forfeited

and if commercial production does not commence within

any of such extended period, the bank guarantee

furnished under sub-clause 6B shall also be forfeited.”

11.The appellant sought no-objection certificate on 14.04.2014 in view of

the order of the High Court that if the appellant (respondent No.6 in

the writ petition) wishes to carry out construction and development,

then the appellant would have to comply with all laws, including anti-

pollution, environmental protection and ecology but the Godawari

Marathwada Irrigation Development Corporation refused to grant no

objection certificate on 22.04.2014.

12.Hence, the appellant applied for extension of time and for change of

location within the same taluka and same group of gram panchayat

due to earlier location being no development zone, as noted by the

High Court in its order dated 27.01.2014 that the proposed sugar

factory falls within the radius of 500 meters from the bank of river.

Such request was submitted on 16.06.2014, soon after the order of the

High Court dated 27.1.2014. The appellant sought change of location

inter alia on the following grounds:

“6. ......... I state that as now the G.M.I.D.C. refused to

issue N.O.C this undersigned now to take steps to search

other land/location as per the earlier I.E.M and within the

Aerial Distance Certificate and therefore to take search for

another land which complies all the conditions and this

undersigned requires more time and therefore, the time as

stipulated as per the Sugarcane Control Order needs to be

extended and also considering the time spent on all the

legal proceeding the validity of the bank guarantee also

10

considering the time spent on all the legal proceeding the

validity of the bank guarantee also needs to be extended.

7. I further state that the proposed location complies all

the norms of the survey of India as well as Aerial Distance

as prescribed all the authorities including the GNIDC

Pollution Control Board and other State Authorities may

take time to issue necessary permission and no objection

certificates that’s the reason, the time needs to be

extended to set up the sugar factory as per the I.E.M.”

13.Even while the matter was pending with the State/Central Government

for amendment and extension of the IEM, the first writ petition was

filed in 2017 after the appellant had approached State Authorities to

measure aerial distance of the proposed location (Writ Petition No.

13836 of 2017). The second writ petition was filed on or about

26.2.2018 by the existing sugar factory after Aerial Distance Certificate

was issued to the appellant and report dated 02.01.2018 was

submitted by the State of Maharashtra to the Union recommending

grant of extension and change of location. The State in its comments

to the Central Government in response to the appellant’s seeking

extension and to change of location, stated as under:

“1. Extension of IEM

xxx xxx xxx

Recently Shri Eknath Bhanudas Barge & Ors has filed writ

petition no. 13836/2017 on 27.11.2017 in Hon’ble High Court

Bench Aurangabad regarding location. This office has no

objection for extension of IEM considering the intervening period

of litigation.

2. Change in Location

11

xxx xxx xxx

According to your office letter dated 15 September, 2015, this

office has intimated to Survey of India vide letter dated 17

October 2015 to measure the aerial/redial distance for the

location Malewadi Dumala, Tal. Newasa, Dist Ahmednagar of M/s

Swami Samarth Sugar & Agro Industries Ltd., the Survey of India

has submitted aerial distance report between pillars of proposed

sugar factory and chimney of existing sugar factories vide letter

dated 01 January, 2018. The copy of this letter is also enclosed

for reference. In this regard a Writ Petition No. 13836/2017 has

filed on 27.11.2017 before Hon’ble High Court Bench

Aurangabad. The request of factory regarding change in location

may be duly considered at your level.”

14.The Government of India on 14.11.2018, after considering the

comments of the State Government dated 2.1.2018, allowed the

extension by observing as under:

“4. The sugar factory of M/s. Swami Samarth Sugar & Agro

Industries Ltd. ( M/s. SSSAIL) was taken on record as New Sugar

Factory as provided in explanation 2 to clause 6A of Sugarcane

(Control) Order 1966, vide order dated 14.11.2018 in reference

of IEM No. 3033/SIA/IMO 2010 dated 08.09.2010 for

establishment of new sugar mill at Warkhed (Ramdoh) Tal.

Newasa, Distt. Ahmednagar, Maharashtra.

5. M/s. SSAIL vide their letters dated 04.01.2018 and 06.11.2018

have mentioned that they could not take effective steps,

primarily, due to involvement of court cases, severe drought

condition and reluctance of bank/financial institutions to finance

the project. Delay appears beyond the control of project

proponent.

6. Moreover, Commissioner of Sugar, Maharashtra State vide

their letter dated 02.01.2018 have, in principal, given permission

for extension of IEM No. 3033/SIA/IMO/2010 dated 08.09.2010

for establishment of new sugar mill at Warkhed (Ramdoh), Tal.

Newasa, Distt. Ahmednagar, Maharashtra.”

12

15.Further extensions were given in similar background on 15.11.2018,

12.04.2019 and 09.05.2019. The appellant submitted bank guarantees

of Rs.50,00,000/- on 09.09.2019 and of Rs.37,30,000/- on 10.10.2019.

Request for extension of time and for change of location was accepted

on 17.10.2019 and one year further extension was granted up to

07.09.2020 to implement the IEM dated 08.09.2010. On 14.08.2020,

the request for change of location was accepted and the existing

location was deleted and the new location, “Gat No. 18, Malewadi

Dumala, Tal. Newasa, Ahmednagar, Maharashtra” was inserted.

16.The third writ petition was filed on or about 1.10.2020 by the existing

sugar factory challenging the extension granted and change of location

permitted by the Central Government on 14.08.2020. It was averred in

the writ petition that the area of operation of the said existing sugar

factory is 92 villages in Newasa Taluka and 122 villages in Shevgaon

Taluka. In the counter affidavit filed on behalf of the appellant, it was

inter alia averred that the existing sugar factory is trying to create its

monopoly in respect of its geographical zone while there is ample

sugarcane available in the said area. The existing sugar factories are

not in a position to harvest the entire sugarcane cultivated in the area

on account of which the helpless farmers are forced to approach other

sugar factories in the district for getting their sugarcane harvested.

The existing sugar factory had even opposed the setting up of a

13

Gangamai Industries and Construction Limited in Taluka Shevgaon by

filing a Writ Petition No. 3063 of 2009. The writ petition was dismissed

on 16.11.2009. It was also pointed out that the sugarcane is being

cultivated in large area in view of the back waters of Jaikwadi Major

Irrigation Project and that there is a need for setting up of a unit.

17.The High Court on considering the respective contentions of the parties

found that the issue involved was the interpretation of Clause 6C of the

Control Order. It was observed that subsequent to the amendment in

the Control Order by the State in the year 2011, the minimum aerial

distance between the new sugar factory and the existing sugar factory

is 25 kms, as cluster of sugar factories near each other would not be a

viable proposition and may affect the survival of the existing sugar

factory. Therefore, if a new sugar factory is allowed to be established

on the terms of the IEM issued in the year 2010, it would render the

existing sugar factory unviable and both sugar factories may not be in

a position to survive.

18.The High Court further held that the appellant had not taken any

effective steps within the period of two years from the date of

acknowledgment of IEM. The appellant had neither purchased the land

for four years in the name of the factory, nor placed confirmed orders

for purchase of plant and machinery and even the civil work had not

commenced. There were no effective steps even five years of IEM. The

change of location was sought on 16.06.2014 whereas the land at the

14

changed location was purchased on or about the year 2017. The High

Court found that the amendment in the Sugar Control Order dated

24.08.2016 would not be helpful to the appellant as the IEM stood de-

recognized before the said amendment was carried out. The IEM stood

de-recognized on 08.09.2014 as the four years for commercial

production had lapsed. Thereafter, the maximum one-year extension

also lapsed on 08.09.2015. Therefore, the amended provision cannot

be applied to a de-recognized IEM. The High Court further found that

the recommendation of the State Government was not on record for

the extension of IEM. In other words, it was concluded by the High

Court that the IEM stood de-recognized before the Sugar Control Order

was amended on 26.08.2016. Therefore, no right accrues to the

appellant. It was further held that the judgment of this Court reported

as M/s Ojas Industries (P) Ltd v. M/s Oudh Sugar Mills Ltd.

5

relating to retrospective effect of the amendment in the Control Order

in the year 2006 would not be applicable to the present IEM which

stood de-recognized prior to the said amendment.

19.The High Court found that there was no stay on IEM, nor was there any

prohibition from taking effective steps, therefore, the appellant was not

prevented from taking steps on account of the orders of the Court in

the first round of litigation. On the other hand, in the second round, an

order was passed by the High Court on 27.03.2018 on an application

filed by the existing sugar factory that the appellant has started

5 AIR 2007 SC 1619

15

construction activity. The High Court ordered that if further

construction is made, the same would be at the risk of the appellant

and subject to the decision of the writ petition and that the appellant

would not be entitled to any equity in case the construction is carried

out, nor can seek any equity for extension of IEM on the ground that

the construction is being carried out. On 10.04.2018, an order was

passed that the earlier order passed on 27.03.2018 would take care of

any construction that would be carried out by the appellant

(Respondent No.6 in the writ petition). Therefore, the appellant could

not take benefit of the investment made on the land purchased and

the construction started. However, the High Court found that till

November 2018, the appellant has not undertaken any construction

work at the site and the stand of the appellant that it had invested in

the construction activity cannot be taken into consideration for the

reasons that extensions were granted in violation to the provisions of

the Rules and the Statute. The High Court also found that as per the

amendment, the new sugar factory had to be at a distance of not less

than 25 kms.

20.With this factual background, the questions required to be examined

are as follows:

(i)Whether in the absence of any interim order against the

appellant in the first round of litigation, the period during which

writ petitions were pending are liable to be excluded?

Alternatively, whether the State/ Central Government was

justified in excluding such period while granting extension of IEM.

16

(ii)Whether the lis initiated against the appellant is a sufficient

reason to exclude the period spent in such litigation and was a

reasonable ground for the State/Central Government to extend

IEM.

(iii)Whether the amended Control Order in terms of proviso to

Clause 6C as amended by the State of Maharashtra on

03.12.2011 would be applicable when the High Court in the

earlier writ petition has held that the issue of Aerial Distance

Certificate cannot be reopened at the instance of the appellant

or any other party again. Pertinently, when the order was passed

by the High Court, the amended Control Order was in force.

Therefore, what is the effect of the said order?

(iv)Whether the IEM stands lapsed on the failure on the part of

entrepreneur to set up the sugar factory and start production

within the time specified in Clause 6C or such lapsing would be

only after an order in terms of Clause 6D of the Control Order is

passed?

21.The undisputed facts are that a writ petition was filed on 23.09.2010,

soon after the acknowledgment of IEM on 08.09.2010. It may be

mentioned that there was no interim order against the appellant, but

the fact remains that the validity of IEM on the ground of aerial

distance was disputed. The writ petition filed against the grant of Aerial

Distance Certificate came to be dismissed on 27.01.2014 and

thereafter the appellant sought extension of time on 16.06.2014 for

implementation of the IEM in view of the litigation from 2010-2014.

22.A perusal of the Control Order shows that initially as per the Control

Order as amended in the year 2006, the time limit for implementing

the IEM was 2 + 4 years and that there was no specific Clause to

17

extend the period of implementation of IEM on account of delay due to

any unforeseen circumstances. The subsequent amendment to the

Control Order dated 24.08.2016 extended the period of

implementation to 3+5 years with a further condition to grant

extension for a maximum period of two years due to any unforeseen

circumstances “beyond control”. However, in the further subsequent

amendment on 12.08.2018, Clause 6C(2)(a) specified that where delay

is due to any unforeseen circumstances “beyond the control of person

concerned” such as natural calamities, the extension could be granted

for a further period of two years after the expiry of five years for

commencing the commercial production, not to exceed more than a

year at a time. However, Clause 6C(2)(b) provided that where delay

was due to any court case relating to land use, environment or “such

other reason” that may have arisen within five years from the date of

filing of IEM, the Ministry of Consumer Affairs may extend the period

stipulated under sub-clause (1) initially for a further period of two years

not to exceed more than a year at a time. Clause 6C(c) provided that

where delay is due to court case relating to land use, environment or

such other reason continues beyond the period extended under clause

(b), the Ministry of Consumer Affairs may grant extension or such

period as may deem fit, not to exceed more than a year at a time, but

subject to furnishing of bank guarantee of Rs. 50 Lakhs for each year

for which extension is sought, in addition to the bank guarantee

18

furnished under sub-clause (2) of Clause 6B of the Control Order. Such

Bank Guarantee is liable to forfeiture but only in terms of Clause 6D of

the Control Order.

23.With this undisputed factual and legal background, the first three

questions, which are interrelated are taken up for discussion first. The

latin maxim ‘Actus Curiae Neminem Gravabit’ i.e., the act of the Court

will not prejudice anyone, is well known, but the applicability of the

same to the facts of the present circumstances need to be examined.

We find that the appellant was justified in not taking any effective

steps pending such lis, as contemplated under Explanation 4 to Clause

6A of the Control Order. The arial distance is one of the foremost

requirements for a valid IEM. This Court in a judgment reported as

South Eastern Coalfields Ltd. v. State of M.P. and Others

6

held

that injury, if any, caused by the act of the Court shall be undone and

the gain which the party would have earned, unless it was interdicted

by the order of the Court would be restored to or conferred on the

party by suitably commanding the party liable to do so. The Court

noticed that the litigation may turn into a fruitful industry. Though

litigation is not gambling yet there is an element of chance in every

litigation. Unscrupulous litigants may feel encouraged to approach the

courts, persuading the court to pass interlocutory orders favourable to

them by making out a prima facie case when the issues are yet to be

heard and determined on merits and if the concept of restitution is

6 (2003) 8 SCC 648

19

excluded from application. It was held as under:

“28. That no one shall suffer by an act of the court is not a rule

confined to an erroneous act of the court; the “act of the court”

embraces within its sweep all such acts as to which the court may form

an opinion in any legal proceedings that the court would not have so

acted had it been correctly apprised of the facts and the law. The factor

attracting applicability of restitution is not the act of the court being

wrongful or a mistake or error committed by the court; the test is

whether on account of an act of the party persuading the court to pass

an order held at the end as not sustainable, has resulted in one party

gaining an advantage which it would not have otherwise earned, or the

other party has suffered an impoverishment which it would not have

suffered but for the order of the court and the act of such party. The

quantum of restitution, depending on the facts and circumstances of a

given case, may take into consideration not only what the party

excluded would have made but also what the party under obligation

has or might reasonably have made. There is nothing wrong in the

parties demanding being placed in the same position in which they

would have been had the court not intervened by its interim order

when at the end of the proceedings the court pronounces its judicial

verdict which does not match with and countenance its own interim

verdict. Whenever called upon to adjudicate, the court would act in

conjunction with what is real and substantial justice. The injury, if any,

caused by the act of the court shall be undone and the gain which the

party would have earned unless it was interdicted by the order of the

court would be restored to or conferred on the party by suitably

commanding the party liable to do so. Any opinion to the contrary

would lead to unjust if not disastrous consequences. Litigation may

turn into a fruitful industry. Though litigation is not gambling yet there

is an element of chance in every litigation. Unscrupulous litigants may

feel encouraged to approach the courts, persuading the court to pass

interlocutory orders favourable to them by making out a prima facie

case when the issues are yet to be heard and determined on merits

and if the concept of restitution is excluded from application to interim

orders, then the litigant would stand to gain by swallowing the benefits

yielding out of the interim order even though the battle has been lost

at the end. This cannot be countenanced. We are, therefore, of the

opinion that the successful party finally held entitled to a relief

assessable in terms of money at the end of the litigation, is entitled to

be compensated by award of interest at a suitable reasonable rate for

the period for which the interim order of the court withholding the

release of money had remained in operation.” (Emphasis supplied)

20

24.In the present appeal, the lis initiated by the writ petitioners in the first

round was nothing less than gamble so as to scuttle the process of

commissioning of plant. The appellant was at the receiving end of the

writ petitions filed and was at the receiving end of such litigation and

the period spent in such lis cannot be used against the appellant.

25.In another judgment reported as Beg Raj Singh v. State of U.P. and

Others

7

, this Court held that ordinary rule of litigation is that the rights

of the parties stand crystallized on the date of commencement of

litigation and the right to relief shall be decided by reference to the

date on which the petitioner entered the portals of the Court. That was

a case where the appellant was granted sand mining lease for a period

of one year but before the expiry of the term of lease, the appellant

sought renewal of lease for another period of two years. Around the

time when the appellant was allowed the extension of two years, the

Government had taken a decision to hold an auction of the sand

mining lease. It was in these circumstances, this Court held as under:

“6. Having heard the learned counsel for the petitioner,

as also the learned counsel for the State and the private

respondent, we are satisfied that the petition deserves to

be allowed. The ordinary rule of litigation is that the

rights of the parties stand crystallized on the date of

commencement of litigation and the right to relief should

be decided by reference to the date on which the

petitioner entered the portals of the court. A petitioner,

though entitled to relief in law, may yet be denied relief

in equity because of subsequent or intervening events

i.e. the events between the commencement of litigation

and the date of decision. The relief to which the petitioner

is held entitled may have been rendered redundant by

7 (2003) 1 SCC 726

21

lapse of time or may have been rendered incapable of

being granted by change in law. There may be other

circumstances which render it inequitable to grant the

petitioner any relief over the respondents because of the

balance tilting against the petitioner on weighing

inequities pitted against equities on the date of

judgment. Third-party interests may have been created or

allowing relief to the claimant may result in unjust

enrichment on account of events happening in-between.

Else the relief may not be denied solely on account of

time lost in prosecuting proceedings in judicial or quasi-

judicial forum and for no fault of the petitioner. A plaintiff

or petitioner having been found entitled to a right to

relief, the court would as an ordinary rule try to place the

successful party in the same position in which he would

have been if the wrong complained against would not

have been done to him. The present one is such a case.

The delay in final decision cannot, in any manner, be

attributed to the appellant. No auction has taken place.

No third-party interest has been created. The sand mine

has remained unoperated for the period for which the

period of operation falls short of three years. The

operation had to be stopped because of the order of the

State Government intervening which order has been

found unsustainable in accordance with stipulations

contained in the mining lease consistently with GO issued

by the State of Uttar Pradesh. Merely because a little

higher revenue can be earned by the State Government

that cannot be a ground for not enforcing the obligation

of the State Government which it has incurred in

accordance with its own policy decision.”

26.In the first round of litigation, two writ petitions were filed in public

interest to dispute the Aerial Distance Certificate. Though there was no

interim order passed in the writ petitions, such petitions created a

cloud on the right of the appellant to set up a sugar factory at the

location earmarked and to commence commercial production. The writ

petitions remained pending for a period of four years. Therefore, the

period spent in defending such writ petitions was validly taken into

consideration by the State/Central Government to grant extension of

time limit fixed in the Control Order. The Government of India granted

22

extension on 14.11.2018 when the Control Order as amended on

12.08.2018 was operative and effective. Since the amendments carried

out in Control Order were for the benefit of the entrepreneurs,

therefore, the Control Order as it is existed on the date of the

extension would be applicable. It is in terms of such Clause that the

appellant was called upon to furnish additional bank guarantee of Rs.

50 Lakhs. Hence, the power exercised by the Central Government is in

terms of the statutory Control Order as amended on 14.11.2018.

27.In the present case, the appellant was not the writ petitioner before the

High Court. Rather, he was defending the permissions granted by the

State and the Central Government. It was not prudent for the appellant

to proceed with the heavy investment required for installation of a

sugar factory and then to suffer the consequences depending on the

outcome of the litigation. The appellant opted for a safer option not to

erect the plant and commence production because of the pending

litigation. It was a reasonable and precautionary option exercised by

the appellant. The litigation initiated in public interest or by the rival

sugar factory cannot be used against the appellant when the writ

petition was disposed of with the condition that there cannot be any

development within 500 meters of river which necessitated the change

of location. The Aerial Distance Certificate was categorically declared

to be not open to challenge even though the State had amended the

Control Order on 03.11.2011 to increase the distance between the

23

existing sugar factory and the new factory was increased to 25

kilometers. Even though the Control Order was already amended by

the State, but the High Court held that the aerial distance would be as

applicable on the date of IEM acknowledged by the Central

Government. It is to be noted that there is no challenge to the order

passed by the High Court in the first round of the litigation. Therefore,

even the High Court in the second round of litigation was not within its

jurisdiction to hold that the amended distance regulations would be

applicable.

28.Still further, the State Government while recommending extension on

02.01.2018 did not dispute that the aerial distance between the

existing sugar factory and the proposed new sugar factory was less

than 25 kms, and rightly so for good reasons. The conditions provided

in the IEM acknowledged on 08.09.2010 would alone be applicable,

which was extended by the Central Government on 14.08.2018. The

appellant has to be restituted in terms of the order passed in South

Eastern Coalfields Ltd. as on the day when the lis was initiated, not

by the appellant but by the other persons. The litigation at the behest

of rival parties cannot be used against the appellants, more so when

they have substantially failed in the first round of lis.

29.The language of the Control Order has been amended time and again

with a view to enable the competent authority to grant extension of

time due to “unforeseen circumstances”. The Control Order amended

24

on 12.08.2018 contemplates more than one unforeseen circumstance

beyond the control of the person concerned. It also empowers the

competent authority to extend the validity of IEM where the delay is

due to any court case relating to land use, environment or “such other

reason”. Sub-clause (c) of Clause 6C empowers the competent

authority to grant further extension for a period of not exceeding a

year at a time subject to furnishing of a bank guarantee. Therefore, the

objective and purpose of such amended Control Order is that a sugar

mill should commence production by excluding the period spent in the

court cases. Though the appellant was the defender of the IEM granted

and there was no stay in the first round of litigation, but the extension

granted would fall under the category of “such other reason”. The

judgment of this Court in South Eastern Coalfields Ltd. is to the

effect that no one shall suffer by the act of the Court which embraces

within its sweep all such acts as to which the Court may form an

opinion in any legal proceedings but the Court would not have so acted

had it been correctly apprised of the facts and the law. In the first

round of litigation, challenge was to the Aerial Distance Certificate, the

writ petitioners have failed in such challenge but the High Court rightly

interdicted that the appellant is required to comply with the anti-

pollution laws in the field and the laws relating to preservation of

ecology and environment. Such order led to the appellant looking for

alternative location in view of the denial of no-objection certificate by

25

Godawari Marathwada Irrigation Development Corporation. Therefore,

the period spent in litigation for the years 2010-2014 has been rightly

excluded by the competent authority.

30.Another question which arises for consideration is whether the decision

of the Central Government based upon the recommendation of the

State Government is so arbitrary, irrational, unjust which warranted

interference in exercise of the power of judicial review in writ

jurisdiction. The High Court has not set aside the said order on only

such ground but also for the reason that the appellant has not

implemented IEM within the time prescribed. This Court in Tata

Cellular v. Union of India

8

has held as under:

“70. It cannot be denied that the principles of judicial review

would apply to the exercise of contractual powers by

Government bodies in order to prevent arbitrariness or

favouritism. However, it must be clearly stated that there are

inherent limitations in exercise of that power of judicial

review. Government is the guardian of the finances of the State.

It is expected to protect the financial interest of the State. The

right to refuse the lowest or any other tender is always available

to the Government. But, the principles laid down in Article 14 of

the Constitution have to be kept in view while accepting or

refusing a tender. There can be no question of infringement of

Article 14 if the Government tries to get the best person or the

best quotation. The right to choose cannot be considered to be

an arbitrary power. Of course, if the said power is exercised for

any collateral purpose the exercise of that power will be struck

down.

xx xx xx

77. The duty of the court is to confine itself to the question of

legality. Its concern should be:

8 (1994) 6 SCC 651

26

1. Whether a decision-making authority exceeded its powers?

2. Committed an error of law,

3. committed a breach of the rules of natural justice,

4. reached a decision which no reasonable tribunal would have

reached or,

5. abused its powers.

Therefore, it is not for the court to determine whether a

particular policy or particular decision taken in the fulfilment of

that policy is fair. It is only concerned with the manner in which

those decisions have been taken. The extent of the duty to act

fairly will vary from case to case. Shortly put, the grounds upon

which an administrative action is subject to control by judicial

review can be classified as under:

(i) Illegality : This means the decision-maker must understand

correctly the law that regulates his decision-making power and

must give effect to it.

(ii) Irrationality, namely, Wednesbury unreasonableness.

(iii) Procedural impropriety.

The above are only the broad grounds but it does not rule out

addition of further grounds in course of time. As a matter of fact,

in R. v. Secretary of State for the Home Department, ex

Brind [(1991) 1 AC 696] , Lord Diplock refers specifically to one

development, namely, the possible recognition of the principle of

proportionality. In all these cases the test to be adopted is that

the court should, “consider whether something has gone wrong

of a nature and degree which requires its intervention”.

xx xx xx

94. The principles deducible from the above are:

(1) The modern trend points to judicial restraint in administra-

tive action.

27

(2) The court does not sit as a court of appeal but merely re-

views the manner in which the decision was made.

(3) The court does not have the expertise to correct the ad-

ministrative decision. If a review of the administrative de-

cision is permitted it will be substituting its own decision,

without the necessary expertise which itself may be falli-

ble.

(4) The terms of the invitation to tender cannot be open to ju-

dicial scrutiny because the invitation to tender is in the

realm of contract. Normally speaking, the decision to ac-

cept the tender or award the contract is reached by

process of negotiations through several tiers. More often

than not, such decisions are made qualitatively by ex -

perts.

(5) The Government must have freedom of contract. In other

words, a fair play in the joints is a necessary concomitant

for an administrative body functioning in an administra-

tive sphere or quasi-administrative sphere. However, the

decision must not only be tested by the application of

Wednesbury principle of reasonableness (including its

other facts pointed out above) but must be free from arbi-

trariness not affected by bias or actuated by mala fides.

(6) Quashing decisions may impose heavy administrative bur -

den on the administration and lead to increased and un -

budgeted expenditure.

Based on these principles we will examine the facts of this case

since they commend to us as the correct principles.”

31.In the absence of any finding by the High Court to the effect that the

decision of the Central Government is so arbitrary, irrational or unjust,

we find that the High Court has gravely erred in taking into

consideration that appellant was remiss in not implementing IEM

during the pendency of the writ petitions in the first round of litigation.

32.The second round of litigation began even before the Aerial Distance

28

Certificate was issued. The appellant was again the defender of the

issuance of the IEM. The High Court therein found that the amendment

carried out by the State of Maharashtra contemplating that no sugar

factory shall be set up within the radius of 25 kms would be applicable,

though it is not even the averment or objection of the State in its

communication dated 02.11.2018. Still further, the scheme of the

Control Order shows that once IEM is granted, the timeline has to be

determined keeping in view the date of the issuance of the IEM.

Therefore, subsequent amendment would be applicable in respect of

new sugar factory which may be proposed to be set up. It is conceded

that during the interregnum from 2010 till the hearing of the appeal

before this Court, no other entrepreneur has applied for IEM in the area

Taluka Newasa and Shevgaon. Since no other entrepreneur has applied

for IEM to set up a sugar factory in the area in question, it is not open

to the existing sugar factory to contend that the revised parameters by

the State Government should be made applicable. IEM fixes the

timeline from the date of issuance of the same and the subsequent

amendment in the Control Order would not have any application

towards the IEM already issued.

33.Mr. Chidambaram, learned Senior Advocate appearing for the existing

sugar factory relies upon the judgment of this Court reported as Ojas

Industries (P) Ltd. to argue that the concept of distance with regard

to the availability of sugarcane and the capacity of crushing of the

29

existing and new factory is of utmost importance.

34.In the said referred case, this Court was considering an application filed

by multiple sugar mills in the State of Uttar Pradesh. That was a case

where the proliferation of IEM to block the competition was the cause

of dispute. The IEM filed by the appellant for setting up of a sugar mill

at Village Baisagapur, Distt. Lakhimpur was acknowledged on

13.05.2004, whereas the respondent in the said appeal filed its IEM on

17.05.2004 for setting up of a sugar mill at Village Saidpur, Khurd,

Distt. Lakhimpur which was at a distance of 7.2 kms from the proposed

sugar mill of the appellant. The Government of India had approved the

IEM filed by the appellant on 30.06.2005 whereas IEM filed by the

respondent was disapproved. The respondent filed a writ petition

challenging the IEM approved in favor of the appellant and another IEM

in favor of the M/s Bajaj Hindustan Ltd. for setting up of a sugar mill at

Village Khambarkhera. This Court held as under:

“30. The Sugarcane (Control) (Amendment) Order, 2006 inserts

clauses 6-A to 6-E in clause 6 of the Sugarcane (Control) Order,

1966. It retains the concept of “distance”. This concept of

“distance” has got to be retained for economic reasons. This

concept is based on demand and supply. This concept has to be

retained because the resource, namely, sugarcane, is limited.

Sugarcane is not an unlimited resource. “Distance” stands for

available quantity of sugarcane to be supplied by the farmer to

the sugar mill. On the other hand, filing of bank guarantee for Rs

1 crore is only as a matter of proof of bona fides. An

entrepreneur who is genuinely interested in setting up a sugar

mill has to prove his bona fides by giving bank guarantee of Rs 1

crore. Further, giving of bank guarantee is also a proof that the

businessman has the financial ability to set up a sugar mill

(factory). Therefore, giving of bank guarantee has nothing to do

30

with the distance certificate.

xxx xxx xxx

34. Before concluding on this issue we may reiterate that raising

of resources and application of resources by a unit is different

from the condition of distance. The concept of “distance” is

different from the concept of “setting up of unit” in the sense

that setting up of a unit is the main concern of the businessman

whereas a concept of “distance” is an economic concept which

has to be taken into account by the Government because it is

the Government which has to frame economic policies and which

has to take into account factors such as demand and supply.”

35.This Court approved the IEM filed by M/s Balrampur Chini Mills Ltd. at

Village Kumbi, where it had invested Rs.213 crores for its plant. The

said sugar factory had also invested Rs. 152 crores at Village Guleria.

The following observations were made by this Court:

“37. We are of the view that out of two projects at Kumbhi and

Guleria, Balrampur can be given milling permission for its factory

(mill) at Kumbhi. In our present judgment we have taken the

view that the Sugarcane (Control) (Amendment) Order, 2006

operates retrospectively. We have also taken the view that in

applying the said 2006 Order there will be a bar on subsequent

IEM-holders during the specified period when the earlier IEM-

holder is taking effective steps. At the same time, we find that in

the case of Kumbhi substantial investment has been made by

Balrampur. Their projections are better than units proposed to be

set up by Oudh. Moreover, the sugarcane crushing season ends

on 15-5-2007, we do not want the cane-growers to suffer.

Therefore, we grant milling permission only to Kumbhi Project. IA

No. 2 of 2007 is made absolute. However, Guleria Project shall

be governed by the principles laid down in this judgment, as

indicated above.”

36.We find that the said judgment is relevant only to examine the

question as to whether the Control Orders are retrospective or not. The

31

finding about the distance while granting permission to Balrampur

Chini Mills is in the facts of that case. In the present appeal, after the

IEM was acknowledged in the year 2010, no other entrepreneur had

even sought or had been granted IEM in the area in question except

the existing sugar factory was permitted to enhance its crushing

capacity.

37.In view of the principles laid down in the aforesaid judgment, the

amendments carried out subsequently in the Control Order would also

be read as retrospective as they are not creating any right for the first

time. Clauses 6A to 6E were inserted by the amendment on

10.12.2006 to substitute the press notes which were found to be under

cloud by this Court. Subsequent amendments on 24.08.2016 and

12.10.2018 would also be retrospective being amendments dealing

with procedural aspects and clarificatory in nature in lieu of the press

notes issued earlier by the Central Government. Such amendments

were necessitated to take care of situation when IEM holder is not able

to take effective steps because of unforeseen circumstances.

38.The judgment reported as Babaji Kondaji Garad v. Nasik

Merchants Co-operative Bank Ltd., Nasik and Others

9

and

Dhananjaya Reddy v. State of Karnataka

10

were pressed to argue

that where the statute prescribes a procedure for doing a thing, it must

be done accordingly, unless there is any contrary indication. The said

9 (1984) 2 SCC 50

10 (2001) 4 SCC 9

32

judgments have no applicability to the facts of the present case as the

extension has been granted by the Central Government on the

recommendation of the State Government keeping in view of the

unforeseen circumstances faced by the appellant.

39.An argument has been raised that the validity of IEM was extended on

15.11.2018, 12.04.2019, 09.05.2019, 17.10.2019 and 18.02.2021.

Such frequent extensions of the IEM show that the extensions were

given at the asking without satisfying the pre-requisite conditions to

seek extensions. We do not find any merit in such arguments. The

extensions were given when the second round of litigation was pending

before the High Court due to which the appellant was not able to take

effective steps. The following tabular chart would show the date of

extensions and the period of extensions.

Sr. No.Central Government

Letter/Date of Extension

Date till extended

1. 15.11.2018 07.09.2017

2. 12.04.2019 07.09.2018

3. 09.05.2019 07.09.2019

4. 17.10.2019 07.09.2020

5. 18.02.2021 07.09.2021

40.A perusal of the above table would show that the extensions granted

on 15.11.2018 and 12.04.2019 were for a period which had already

expired. The extension granted on 09.05.2019 was valid only till

07.09.2019 i.e. less than four months. All the extensions were granted

when the matter was still pending before the High Court and were

subject to the outcome of the writ petitions. Therefore, the objections

33

regarding frequent grant of extension of IEM are not of much

substance.

41.Hence, we find that the decision of the competent authority to grant

extension of time is proper exercise of the powers conferred on it and

cannot be said to be illegal, irrational or suffering from procedural

impropriety. Accordingly, in respect of Question nos. (i), (ii) and (iii), we

find that the findings recorded by the High Court are not sustainable in

law.

42.Learned counsel for the appellant argued that Clause 6C contemplates

that if the steps are not taken within the timeline stipulated under the

IEM, it shall stand de-recognized and the performance guarantee shall

be forfeited. However, the performance guarantee is liable to forfeiture

after giving the concerned person a reasonable opportunity of being

heard. Therefore, the use of word ‘shall’ in Clause C does not make the

provision mandatory but enables the competent authority to forfeit

bank guarantee on failure to comply with the timeline.

43.In the second round of writ petitions, objections were raised by the

existing sugar factory that the appellant has started construction. Such

construction was interdicted on the ground that no equity will follow on

the basis of any construction raised. The reasons which prevail with the

appellant in not setting up of the sugar factory or raise construction in

the first round of litigation are very well applicable in the second round

as well. The IEM was amended subject to the writ petitions filed in the

34

second round. Therefore, having objected to the construction and the

High Court passing an order that the appellant would not be entitled to

claim any equity, it is a reasonable and prudent decision taken by the

appellant not to proceed with the construction and set up a plant.

44.The existing sugar factory had argued that IEM stands lapsed as the

appellant has failed to set up the factory and to commence the

commercial production. However, we are unable to agree with such

interpretation. Though Clause 6C as applicable on 10.11.2006 as well

as on 24.08.2016 and 12.08.2018 contemplates the IEM shall stand de-

recognised and the performance guarantee shall be forfeited, the

performance guarantee is to be forfeited in terms of Clause 6D after

providing the reasonable opportunity of being heard. We find that twin

conditions have to be fulfilled- (i) failure to set up plant and to

commence production and then (ii) the forfeiture of the performance

guarantee. Second will not arise unless the first is satisfied and the

second step cannot be undertaken, without complying with an

opportunity of personal hearing in terms of Clause 6D of the Control

Order. Unless the performance guarantee is forfeited, there is no

lapsing of IEM. Thus, unless the necessary consequences of de-

recognition of IEM are undertaken, there is no automatic lapsing of IEM.

Such is the language in the subsequent amended Control Orders as

well. The appellant had furnished a performance guarantee of Rs. 1

crore, however no steps were taken either by the State Government or

35

by the Central Government to forfeit such performance guarantee

inasmuch as not even a show cause notice was issued. Thus, a

conclusion cannot be drawn that the IEM is deemed to be lapsed

automatically only on account of lapsing of time.

45.The State Government had filed an affidavit to provide information

regarding the sugarcane available and the capacity of the sugar mills

in the areas. It states that during the last five crushing seasons, four

sugar mills i.e., the existing sugar factory and three other mills had

crushed the entire cane available from Newasa and Shevgaon Talukas

and also crushed from neighbouring districts of Aurangabad, Jalana

and Beed. It also stated that in the years 2016-17 and 2019-20, the

cane was used for fodder purpose as crushing was less than the

available cane. It is stated that Newasa and Shevgaon Talukas are

drought prone and there is scarcity of sugarcane with regard to the

crushing capacity of four sugar mills. It submits that since sugarcane

area restrictions (zoning) are removed in Maharashtra since the year

1997, the sugarcane growers are at liberty to provide sugarcane to any

sugar mills as per their choice. In view of the said fact, the appellant

cannot be denied the benefit of setting up of a sugar mill only on the

basis of resistance from the competitor, who had only financial interest

in mind. In case of a competition, it is the consumer (farmer) who is

the beneficiary. In the present case, the farmers are not getting the

advantage of competition which could fetch them timely payment and

better services. In view of the said fact, we find that the order of the

36

High Court allowing the writ petition filed by the competitors is wholly

unjust and unfair and is liable to be set aside.

46.It may be stated that one I.A. has been filed on behalf of the farmers of

the area supporting the setting up of a sugar mill by the appellant. It is

not necessary to dwell on such I.A. except to state that the farmers are

also looking forward for some competition in the area.

47.We may further state that under the Chair of Dr. C. Rangarajan, the

then Chairman, Economic Advisory Council to the Prime Minister, in its

report dated 05.10.2012 has reported under the heading Executive

Summary as under:

“2. The highly perishable nature of sugarcane, the small land

holdings of sugarcane farmers and the need to keep the price of

sugar at a reasonably affordable level while also making it

available through the Public Distribution System (PDS) have

been the drivers for regulation. The principal aspects regulated

in the sugar sector are as under:

(i) Cane reservation area and bonding — Every designated mill is

obligated to purchase from cane farmers within the cane

reservation area, and conversely, farmers are bound to sell to

the mill. As a consequence of the area requirement (distance

criterion), setting up of a new mill requires approvals,

notwithstanding delicensing under the Industries Development &

Regulation Act.

(ii) xxx xxx

3. Cane area reservation and bonding are intended to serve the

twin purpose of giving a minimum assured supply of the highly-

perishable raw material to a mill, while committing the mill to

procure at a minimum price (FRP/SAP). However, this

arrangement may reduce the bargaining power of the farmer,

who is forced to sell to a mill even if there are cane arrears and

also reduces the farmer’s remuneration if the design mill has a

lower recovery rate. Mills also lose flexibility in augmenting cane

supplies, especially when there is a shortfall in sugarcane

production in the cane reservation area. Moreover, mills are tied

down to the quality of cane that is supplied by the farmers in the

37

area…..

4. The minimum distance criterion for setting up of a new mill is

expected to ensure a minimum availability of cane for all mills.

This can cause distortion in the market. The virtual monopoly

over a large area can give the mills power over farmers,

especially where landholdings are smaller.

This restriction inhibits entry and further investment, and

adversely impacts competition for purchase of sugarcane as well

as for improving mill efficiency. As such, it is not in the interest of

development of sugarcane farmers or the sugar sector, and may

be dispensed with as and when a state does away with cane

reservation area and bonding.”

48.In respect of cane reservation area and minimum distance criteria, it

was stated in Chapter 2, while dealing with the “Cane Area Reservation

and the Minimum Distance Criterion” as under:

“2.1 Central Government has been protecting the interests of

sugarcane farmers and sugar mills through various policy

instruments. Sugarcane farmers are assured of a minimum price

for sugarcane, payable by mills. On the other hand, sugar mills

have been assured regular supply of sugarcane by providing that

a minimum distance be maintained between two mills and an

area be earmarked for each mill for drawal of cane. The

expectatons implicit in the extant system of cane area

reservation and the criterion for distance between mills could be

as under:

(i)ensuring adequate cane supply to mills and preventing

unhealthy competition to procure sugarcane;

(ii)ensuring crushing of the entire quantity of cane grown by

sugarcane farmers in the reserved area, with no cane

remaining uncrushed at the end of the season; and

(iii)increasing the productivity of sugarcane cultivation so as to

increase the income of farmers and enhance supplies and

sugar recovery for mills.

xxx xxx xxx

2.5Those who suggest that the reservation of cane area be

done on a permanent basis argue that the system facilitates

sugar factories to undertake cane development work in

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their respective areas. This argument of the industry may

be true in some selected pockets, but appears fallacious

when one looks at the trends of sugarcane productivity in

the country. Cane productivity was 68.57 tonnes/ha in 2000-

01 and stood at about the same level in 2010-11 (68.59

tonnes/ha), marginally declining thereafter to 68.09

tonnes/ha in 2011-12. Thus, for the country as a whole,

cane area reservation does not seem to have promoted

productivity.

xxx xxx xxx

2.7 Those in favour of scrapping the cane area reservation

reiterate the views of the Thorat Committee (2009). The

present system ties farmers to supply cane to a particular

mill whether or not s/he is satisfied with it. The moot

question is whether a farmer should remain “bonded” and

supply cane to a particular mill even if it has not made

payment for her/his earlier supplies. There is a case for

dispensing with cane area reservation and giving freedom

to the farmers to supply their cane to any mill of their

choice. There is no cane area reservation system in

Maharashtra and non-members of cooperative mills are free

to supply cane to any mill which they like.

2.8The system of cane area reservation and maintaining a

minimum distance between mills has been shielding them

from competition and has created perpetual monopolies.

This policy does not allow a farmer to participate in a

competitive market and get the best price for her/his cane.

The farmer has no freedom to choose the buyer and is

more likely to get delayed payments and unfair price for

the cane than in a competitive set up. Thus, these policies

have led to the continued functioning of inefficient sugar

mills by giving them a guaranteed supply of cane and by

not allowing market forces to work towards a viable

equilibrium. For the growth of the sector and in the interest

of efficiency in this industry, policy should allow the

Schumpeterian “process of creative destruction” to work.”

49.The Ministry of Consumer Affairs, Food and Public Distribution has

referred to recommendations of Dr. C. Rangarajan Committee. The gist

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of the recommendations of the Committee and Implementation of

Recommendations of Dr. Rangarajan Committee, is as under:

Issues Gist of Recommendations Status

Cane Area

Reservation:

Over a period of time, states

should encourage development

of such market-based long-term

contractual arrangements, and

phase out cane reservation

area and bonding. In the

interim, the current system

may continue.

States have been

requested to consider

the recommendations

for implementation as

deemed fit. So far,

none of the States

have taken action,

current system

continues

Minimum

Distance

Criteria:

It is not in the interest of

development of sugarcane

farmers or the sugar sector, and

may be dispensed with as and

when a State does away with

cane reservation area and

bonding.

States have been

requested to consider

the recommendations

for implementation as

deemed fit. There is

no reservation of area

in Maharashtra. Rest

of the States have not

made any changes in

the current

arrangement.

50.We also note the reasoning given by the Central Government that in

order to avoid unhealthy competition, the licensing under the

Industries (Development and Regulation) Act, 1951 was done away

with on 31.08.1998. Unhealthy competition has two major aspects- one

relating to the existing and new sugar factory, and second in the

context of the farmers. On account of competition between the existing

and new sugar factory, it would be the farmers who will be the

beneficiary as they would have an option to select the sugar mill which

provides better service in the manner of payment of price. Keeping in

40

view the recommendations of the Rangarajan Committee and the fact

that the Central Government has exercised its jurisdiction to grant

extension in time, the ultimate beneficiary would be the farmer and not

the existing or the new sugar factory.

51.Thus, we find the order of the High Court to be unsustainable.

Consequently, the appeals are allowed and the writ petitions are

dismissed. The period spent in the second round of litigation shall also

be excluded while determining the period during which the plant had

to be set up and to commence commercial production.

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

(HEMANT GUPTA)

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

(V. RAMASUBRAMANIAN)

NEW DELHI;

JULY 13, 2022.

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