Shivashakti Sugars Limited v Shree Renuka Sugar Limited

Shivashakti Sugars Limited v Shree Renuka Sugar Limited

C.A. No.-005040-005040 / 2014

A.K. SIKRI, J.

1) The Industries (Development and Regulation) Act, 1951 (for short, the ‘Act’) contains the provisions whereby certain industries mentioned in the First Schedule to the said Act are brought under the control of the Union Government. It mentions, vide Entry 25 of the First Schedule, “sugar industry” as well, to be ‘scheduled industry’. The effect thereof is that by virtue of Sections 11 and 12 of the Act, compulsory licensing is required in respect of sugar industry. Sugar is also one of the essential commodities covered by Essential Commodities Act, 1955. In respect of such essential commodities, Union Government is empowered to fix the prices of the product and also to regulate the distribution and supply of such products. In exercise of the powers conferred by Section 3 of the Essential Commodities Act, 1955, the Union Government promulgated the Sugarcane Control Order, 1966 which, inter alia, provided for the minimum price of sugarcane to be fixed, power to regulate the distribution and movement of sugarcane and power to issue licenses to cane crushers etc. Clause 11 provides that the Central Government may delegate to the State Government or any Officer of the State to perform any of the functions of the Central Government.

2) The Government of India, periodically issued guidelines, under the Act, in respect of the sugar industry through ‘press notes’. These press notes, inter alia, provided that lincenses for new sugar factories would be granted subject to a minimum distance requirement (which was varied from time to time). A Press Note no. 16 dated November 08, 1991 provided for a 25 km distance which could however be relaxed to 15 km in deserving cases where cane availability so justified. Clauses 2 and 3 are important as they provided that the basic criteria would be the availability of the cane and the potential for development of sugarcane. These clauses read as follows :

“Industrial Policy Highlights EXHIBIT NO. 12

PRESS NOTE NO. 16[1991 SERIES]

GUIDELINES FOR LICENSING OF SUGAR FACTORIES

A. A Government of India have reviewed the guidelines for licensing of new and expansion of existing sugar factories issued vide this Ministry’s Press Note No. 4[1990 Series] dated 23.7.1990. In sup-0ersession of the aforesaid Press Note, Government have formulated the following revised guidelines:

“1. New sugar factories will continue to be licensed for a minimum economic capacity of 2500 tones cane crush per day [TCD]. There will not be any maximum limit on such capacity. However, in area specified as industrially backward areas by the Government of India and certified by the Indian Council of Agricultural Research to be agro-climatically suited for development of sugarcane, licensing of new sugar factories in the co-operative and public sectors would be allowed for an initial capacity of 1750 TCD subject to the condition that the units would expand their capacity to 2500 TCD within a period of 5 years of going into production.

2.Licenses for new sugar factories will be issued subject to the condition that the distance between the proposed new sugar factory and an existing/already licensed sugar factory should be 25 kms. This distance criterion of 25 kms could, however be relaxed to 15 kms in special cases, where can availability so justifies.

3. The basic criterion for grant of licenses for new sugar units would be their viability, mainly from the point of view of cane availability and potential for development of sugarcane.

4. All new licenses wil be issued with the stipulation that cane price will be payable on the basis of sucrose content of sugarcane.

5. Other things being equal, preference in licensing will be given to proposals from the co-operative sector and the public sector, in that order, as compared to the private sector. In case more than on application is received from any zone of operation, priority will be given to the application received earlier.

6. Priority will continue to be given to sugar factories with capacity less than 2500 TCD to expand to the aforesaid minimum economic capacity.

7. While granting licenses for new units and expansion projects, the additional capacity to be created up to the end of the English Plan, i.e., 1996-97, will be kept in view.

8. While granting licenses for new sugar factories, industrial licenses in respect of down-stream units for the use of molasses, i.e., industrial alcohol, etc. will be given readily.

B. Applications for licenses will be initially screened by the Screening Committee of the Ministry of Food. While considering such applications, the comments of the State Government/Union Territory Administration concerned would also be obtained. The State Government/Union Territory Administration concerned would also be obtained. The State Government/Union Territory Administration would be required to furnish their comments within 3 months of the receipt of communication from the Ministry of Food.
C. Applications for grant of industrial licenses for the establishment of new sugar factories as well as expansion of existing units should be submitted directly to the Secretariat for Industrial Approvals in the Department of Industrial Development in Form IL along with the prescribed fee of Rs. 2500/-. A copy of the application may also be sent to the Ministry of Food.

D. The procedure and guidelines, as given above, are brought to be notice of the entrepreneurs for their information and guidance.
__________________________________________________________________________________
No. 10[74]/91-LP New Delhi, the 8^th November, 1991
Forwarded to Press Information Bureau for wide publicity to the contents of the above Press Note.

SD/- [S.BHAVANI]

DEPUTY SECRETARY TO THE GOVERNMENT OF INDIA

PRINCIPAL INFORMATION OFFICER, PRESS INFORMATION BUREAU, SHASTRI BHAWAN, NEW DELHI-110 001.”

This Press Note was amended from time to time by Press Notes dated January 10, 1996, June 15, 1998 and August 31, 1998.

3) Press Note-12 dated August 31, 1998 is of some relevance in the present case. This was the result of liberalization policy of the Central Government. After embarking on liberalization and globalization, in order to ease the doing of business, the Government decided to relax the control over various types of industries. By the aforesaid Notification dated August 31, 1998, the Government exempted persons from taking licenses to set up a sugar factory. This was done in exercise of power contained under Section 29(b) of the Act subject to the condition that a minimum distance of 15 km would continue to be observed between an existing sugar mill and a new mill. Pertinently, insofar as Sugarcane Control Order, 1966 is concerned, there was no provision of minimum distance between the two sugar mills. For this reason, the aforesaid Press Notes were held to be administrative guidelines, not having statutory character by Allahabad High Court.

4) The appellant herein had made an application for permission to establish a new sugar factory. One, M/s. Raibagh Sahakari, which was in the same vicinity where the appellant was seeking to establish its factory, gave a ‘no objection’ certificate to the appellant for establishing a sugar factory in the year 1995. The application of the appellant was processed and the Government of India issued a Letter of Intent (LOI) to the appellant on July 03, 1996 permitting it to establish a sugar factory at Village Saundatti, Tehsil Raibagh, District Belgaum. This was done before the new policy was announced vide Press Note-12 dated August 31, 1998, i.e., during the Licence Raj . After the aforesaid Press Note, there was paradigm shift in the approach as no licence was now required and instead requirement was to file an Industrial Entrepreneurs Memoranda (IEM) only. Accordingly, only condition which was to be fulfilled by the appellant was that there was no sugar factory existing within the radius of 15 km from the appellant’s proposed site which was so stipulated in Press Note dated August 31 1988, i.e., by administrative decision. On June 05, 2006, the Commissioner of Cane Development/Director of Sugar issued a certificate to this effect certifying that there was no such sugar factory within the radius of 15 km from the appellant’s site. After the issuance of this certificate, the appellant filed its IEM which was duly acknowledged by the Ministry of Commerce and Industries.

5) We may point out, at this stage, that the present dispute is about the existence of Raibagh Sahakari Factory, i.e., whether it is within the radius of 15 km from the appellant’s factory or not? Pertinently, on January 24, 2004, the Government of Karnataka had passed an order of liquidation of Raibagh Sahakari in exercise of its power under Section 72 of the Karnataka Co-operative Societies Act, 1951. Certain developments took place qua Raibagh Sahakari thereafter. We would like to state those events and developments subsequently, though these events were taking place simultaneously with the process of setting up of the factory by the appellant. It would be apposite to first take note of the manner in which the appellant has set up its factory at the proposed site.

6) As pointed out above, the appellant filed its IEM on August 08, 2006, supported by the certificate issued by the Cane Development Commissioner that there was no existing sugar factory within the radius of 15 km. Thereafter, on October 20, 2006, the Government of Karnataka granted permission to the appellant for purchase of agricultural lands for industrial purposes in Raibagh Taluk in village Yadrav. Similar permission was granted under Section 109(1) of the Karnataka Land Reforms Act, 1961. Similar permission under Section 109(1) on November 20, 2006 for land admeasuring a total of 38 acres and 11 guntas for setting up a sugar factory in village Yadrav and Saundutti was also granted by the Deputy Commissioner, Belgaum.

7)The Karnataka Udyog Mitra set up under the Karnataka Industrial Facilitation Act, 2002 forwarded a proposal to the Commissioner for Cane Development, for setting up a sugar factory by the appellant. It was placed before the State High Level Clearance Committee, inviting comments from Commissioner.

8) On November 03, 2006, the Karnataka Udyog Mitra, acting as a single window for clearance of projects in the State invited comments from the Deputy Cane Commissioner with regard to specific survey numbers in villages Saundutti and Yadrav, describing the type of land which was required to be sued. While this process was on, another significant development took place with which this case is directly concerned.

9) While the IEM of the appellant was being processed, a significant step was taken by the Government of India, which has turned out to be very crucial for the appellant’s factory. The Sugarcane (Control) Amendment Order, 2006 was brought into force on November 10, 2006. Clauses 6A to 6E were inserted. Now by Clause 6A, a minimum distance requirement of 15 kms was brought into force. This requirement, which was hitherto administrative in nature, has, become a statutory requirement. However, only Clauses 6B(1) to 6D were made applicable by virtue of Clause 6E to industries whose IEM stood acknowledged till this date. Thereafter, following steps were undertaken for establishment of the factory by the appellant:

(a) The Karnataka Pollution Control Board inspected the site at village Yadrav and Saundutti and gave its opinion on December 15, 2006 with regard to the viability of the project to the Karnataka Udyog Mitra.

(b) Another factory, known as Doodhganga Sugar Factory also issued its No Objection Certificate for establishment of the sugar factory at village Saundutti.

(c) The Director of Industries informed the appellant on May 03, 2007 that its project of establishing a 3000 TCD plant, 12 MW Co-generation Plant and 30 KLPD Molasses to Ethanol Plant with an investment of Rs. 106.840 Crores in Saundutti and Yadrav villages had been cleared by the High Level Committee of the State.

(d) The Canara Bank granted a performance guarantee for Rs. 1 Crores as per the requirement of Clause 6A Explanation 2 r/w clause 6E(2) of the Order, 2006.

(e) The Survey of India on an application by the appellant issued a Distance Certificate certifying that the distance between the appellant’s factory and that of M/s. Raibagh and Shree Doodhganga was not less than 15 Kms

(f) The Cane Commissioner, issued a Certificate stating that the crushing operations of M/s. Raibagh had stopped from 2001-2002.

(g) The Government of Karnataka allotted 14 villages of Raibagh and six of Doodhganga to the appellant.

(h) The Commissioner, Cane Development/ Director of Sugar certified that the distance of the two factories in question from the appellant’s unit was more than 15 kms vide its letter dated August 17, 2007.

(i) Appellant was granted permission under the Karnataka Industries (Facilitation) Act, 2002 on November 07, 2007.

(j) After obtaining all requisite permissions, various steps were taken by the appellant such as, purchasing land, placing an order for machinery, placing an order for setting up civil works and applications and approvals for financial assistance.

(k) The Government of India accepted the performance guarantee submitted by the appellant on April 15, 2008 and directed it to file the progress report of the project