SWAMI SAMARTH SUGARS AND AGRO INDUSTRIES LTD. versus LOKNETE MARUTRAO GHULE PATIL DNYANESHWAR SAHAKARI SAKHAR KARKHANA LTD & ORS.
[2022] 17 S.C.R. 54, Supreme Court of India, 2022
Outcome: Appeal(s) allowed (Granted)
Segment: Issues
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SWAMI SAMARTH SUGARS AND AGRO INDUSTRIES LTD.
v.
LOKNETE MARUTRAO GHULE PATIL DNYANESHWAR
SAHAKARI SAKHAR KARKHANA LTD & ORS.
(Civil Appeal Nos. 4021of 2022)
JULY 13, 2022
[HEMANT GUPTA AND V. RAMASUBRAMANIAN, JJ.]
Essential Commodities Act, 1955:s. 3 – Sugarcane(Control)
Order, 1966 – clause 6A, 6C & 6D –Restriction on setting two sugar
factories – Time limit for implementing Industrial Entrepreneur
Memorandum (IEM) – In 2010, the appellant applied for IEM which
was acknowledged by Govt. of India on the basis of a certificate
regarding aerial distance between the existing sugar factory
(Respondent no. 1) set up in 1974 and the nearby proposed sugar
factory –Writ petitions were filed challenging the grant of IEM to
the Appellant, one on the ground of aerial distance of proposed
sugar factory and existing factory was more than 15 kms and that
the proposed sugar factory falls within the radius of 500 meters
from the bank of river thereby falling under no development zone –
High Court held that the appellant is required to comply with all
laws including the anti-pollution, environmental protection and
ecology; and that the issue of aerial distance certificate cannot be
reopened again–Subsequently the State of Maharashtra directed
that in terms of proviso to Clause 6A of the Control Order, 1966 no
new sugar factory would be set up within the radius of 25 kms of
any existing sugar factory or any
other new factory– Thereafter,
the time limit for implementing industrial entrepreneur memorandum
was amended – Appellant then sought NOC in view of the order of
the High Court which was not granted by State authorities –
Consequently, the appellant applied for extension of time and
change of location due to earlier location being no development
zone and was accepted – Writ petition by the existing sugar factory
challenging grant of extension and change of location– Government
allowed the extension a couple to times till 2020– Another writ
petition filed by the existing sugar factory challenging grant of
extension and change of location – High Court held that the
appellant had not taken any effective steps within the period of two
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years from the date of the acknowledgement of EMI; that the IEM
stood de-recognized before the Sugar Control Order was amended
on 26.08.2016 which extended the period of implementation;that
extensions were granted in violation to the provisions of the Rules
and the Statute; and that as per the amendment, the new sugar
factory had to be at a distance of not less than 25 kms–Issue arose
as regards, 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; whether the
State/ Central Government was justified in excluding such period
while granting extension of IEM; 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; 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, and 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 – Held:
Latin maxim ‘Actus Curiae
Neminem Gravabit’, states that the act of the Court will not prejudice
anyone - During the whole litigation history, the appellant was at
the receiving end of the writ petitions, thus, the period spent in such
lis cannot be used against him - 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 - Writ petitions
remained pending for a period of four years, 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 - 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- Decision of the
competent authority to grant extensions of time was a proper exercise
of the powers- the subsequent amendment in the Control Order would
not have any application towards the IEM already issued–Unless
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the performance guarantee is forfeited, there is no lapsing of IEM
–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 necessary
consequences of de- recognition of IEM are undertaken, there is
no automatic lapsing of IEM – Appellant had furnished a
performance guarantee of Rs. 1 crore, however, no steps taken either
by State Government or 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 –Order passed by the High Court, is unsustainable and is set
aside.
Allowing the appeal, the Court
HELD: 1.1. 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. 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.
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 excluded
from application. [Para 23][74-G-H; 75-A-D]
1.2. The appellant was at the receiving end of the writ
petitions filed and was at the receiving end of such litigation and
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the period spent in such lis cannot be used against the appellant
[Para 24][76-F]
1.3. 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. Government of India granted
extension on 14.11.2018 when the Control Order as amended on
12.08.2018 was operative and effective. The amendments carried
out in Control Order were for the benefit of the entrepreneurs,
therefore, the Control Order as it 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. [Para 26][78-B-D]
1.4 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 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.
[Para 27][78-G-H; 79-A]
1.5. 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 on 12.08.2018 contemplates more than
one unforeseen circumstance beyond the control of the person
SWAMI SAMARTH SUGARS AND AGRO INDUSTRIES  v. LOKNETE M. G.
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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”. 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 Godawari Marathwada Irrigation Development Corporation.
Therefore, the period spent in litigation for the years 2010-2014
has been rightly excluded by the competent authority. [Para
29][79-D-H; 80-A-B]
1.6. 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. 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. [Para 31][82-D-E]
1.7. 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. 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.[Para 32][82-F-G; 83-A]
1.8. All the extensions were granted when the matter was
still pending before the High Court and were subject to the
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outcome of the writ petitions. Therefore, the objections regarding
frequent grant of extension of IEM are not of much substance.
[Para 40][86-A-B]
1.9. 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 [Para 41][86-C]
1.10. 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. The 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 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. [Para 44][86-G-H; 87-A-D]
1.11.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 [Para 45][87-G]
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1.12. 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 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. [Para 50][91-D-E]
1.13. The order of the High Court was held to be
unsustainable. 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. [Para 51][91-F]
South Eastern Coalfields Ltd. v. State of M.P. and Others
(2003) 8 SCC 648 : [2003] 4 Suppl. SCR 651, Beg Raj
Singh v. State of U.P. and Others (2003) 1 SCC 726 :
[2002 ] 5 Suppl. SCR 530 – relied on.
M/s Ojas Industries (P) Ltd v. M/s Oudh Sugar Mills
Ltd. AIR 2007 SC 1619 : [2007] 4
SCR 661, Tata
Cellular v. Union of India (1994) 6 SCC 651: [1994] 2
Suppl. SCR 122, Babaji Kondaji Garad v. Nasik
Merchants Co-operative Bank Ltd., Nasik and Others
(1984) 2 SCC 50 : [1984 ] 1 SCR 767, Dhananjaya
Reddy v. State of Karnataka (2001) 4 SCC 9 : [2001] 2
SCR 399 – referred to.
Case Law Reference
[2007] 4 SCR 661
referred to
Para 18& 33
[2003] 4 Suppl. SCR 651 
relied on
Para 23,28 & 29
[2002] 5 Suppl. SCR 530 
referred to
Para 25
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[1994] 2 Suppl. SCR 122 
relied to
Para 30
[1984 ]1 SCR 767 
referred to
Para 38
2001] 2 SCR 399
referred to
Para 38
CIVIL APPELLATE JURISDICTION : Civil Appeal No.4021
of 2022.
From the Judgment and Order dated 23.07.2021 of the High Court
of Judicature at Bombay Bench at Aurangabad in Writ Petition No.6754
of 2020.
With
Civil appeal nos.4022 and 4023 of 2022.
Mukul Rohatgi, C. A. Sundaram, Anil Y. Sakhare, Harish Salve,
P. Chidambaram, Ms. Sonia Mathur, R. N. Dhorde, Sr. Advs., Dilip
Annasaheb Taur, Nikhil Rohatgi, Rohan S. Mirpury, Shashank Khurana,
Ms. Manjeet Kirpal, Nand Kumar Deshmukh, M. Y. Deshmukh,
Adweetiya, Durga Dutt, Harish Pandey, Shailesh Madiyal, Sharath
Nambiar, Vinayak Sharma, Mohd. Akhil, P. V. Yogeswaran, Amrish
Kumar, Raj Bahadur Yadav, Manan Verma, Ms. Shubhangi Tuli, Ms.
Tanya Agarwal, Ms. Mridula Singh Chauhan, Hitesh Kumar Sharma, S.
K. Rajora, Akhileshwar Jha, E. Vinay Kumar, Ms. Manju Jetley,
Anshuman Ashok, Rahul Chitnis, Sachin Patil, Aaditya P. Pande, Geo
Joseph, Ms. Shwetal Shepal, Advs. for the appearing parties.
The Judgment of the Court was delivered by
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 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 Memorandum2 dated 8.9.2010 be de-recognised/cancelled
in view of the provisions of Clause 6C of the Sugarcane (Control) Order,
1 Existing Sugar Factory
2 For short, ‘IEM’
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19663. 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 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
writ petition was filed on 17.03.2011 challenging the IEM on the ground
3 For short, ‘Control Order’
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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 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.
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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, 19554
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.
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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.
4 1955 Act
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(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.
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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.”
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
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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.
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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;
(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:
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“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.
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
SWAMI SAMARTH SUGARS AND AGRO INDUSTRIES  v. LOKNETE M. G.
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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 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
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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 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
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xxx
Recently Shri Eknath Bhanudas Barge & Ors has filed writ petition
no. 13836/2017 on 27.11.2017 in Hon’ble High Court Bench
SWAMI SAMARTH SUGARS AND AGRO INDUSTRIES  v. LOKNETE M. G.
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Aurangabad regarding location. This office has no objection for
extension of IEM considering the intervening period of litigation.
2. Change in Location
xxx
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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.”
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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 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.
SWAMI SAMARTH SUGARS AND AGRO INDUSTRIES  v. LOKNETE M. G.
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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 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 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
5 AIR 2007 SC 1619
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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.
(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
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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 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 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
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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 Others6 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 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
6 (2003) 8 SCC 648
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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)
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 Others7, 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
7 (2003) 1 SCC 726
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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 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
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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
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 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
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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
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
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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 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 India8 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.
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77. The duty of the court is to confine itself to the question of
legality. Its concern should be:
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,
8 (1994) 6 SCC 651
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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”.
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94. The principles deducible from the above are:
(1)
The modern trend points to judicial restraint in administrative
action.
(2)
The court does not sit as a court of appeal but merely
reviews the manner in which the decision was made.
(3)
The court does not have the expertise to correct
the
administrative decision. If a review of the administrative
decision is permitted it will be substituting its own decision,
without the necessary expertise which itself may be fallible.
(4)
The terms of the invitation to tender cannot be open to
judicial scrutiny because the invitation to tender is in the
realm of contract. Normally speaking, the decision to accept
the tender or award the contract is reached by process of
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negotiations through several tiers. More often than not, such
decisions are made qualitatively by experts.
(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 administrative
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 arbitrariness
not affected by bias or actuated by mala fides.
(6)
Quashing decisions may impose heavy administrative burden
on the administration and lead to increased and unbudgeted
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 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
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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 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 with the distance
certificate.
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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
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
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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 Others9and
Dhananjaya Reddy v. State of Karnataka10 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
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. 
CentralGovernment 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 
9 (1984) 2 SCC 50
10 (2001) 4 SCC 9
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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 regarding
frequent grant of extension of IEM arenot 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
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
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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 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 High Court allowing the writ
petition filed by the competitors is wholly unjust and unfair and is liable
to be set aside.
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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)
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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 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
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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.
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2.5
Those 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 their
respective areas. This argument of the industry may be
true in some selected pockets, but appears fallacious when
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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.
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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.
2.8
The 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 of the recommendations of the Committee and Implementation of
Recommendations of Dr. Rangarajan Committee, is as under:
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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 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.
Nidhi Jain and Amarendra Kumar
Appeals allowed.
(Assisted by : Pragya Samal, LCRA)
SWAMI SAMARTH SUGARS AND AGRO INDUSTRIES  v. LOKNETE M. G.
P. D. SAHAKARI SAKHAR KARKHANA [HEMANT GUPTA, J.]