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TMI Blog2017 (5) TMI 1509X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 guid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006. 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 Saundatti 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 Saundatti. (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 Saundatti and Yadrav villages had been cleared by the High Level Committee of the State. (d) The Canara Bank granted a performance guarantee for Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the request to make a recommendation for permission to extend time for implementing the project. (q) In view of the progress reports submitted by the Appellant on March 09, 2010, the Government of Karnataka referred the Appellant's case for extension of time for taking effective steps and commencement of production. The Appellant also requested for extension of time. (r) First show cause notice dated April 29, 2010 was issued by the Government of India requiring the Appellant to state why its performance guarantee not be forfeited for not taking effective steps. (s) A detailed reply dated May 06, 2010 was submitted by the Appellant, detailing the effective steps taken. (t) The Appellant wrote letter dated June 21, 2010 to the Chief Director, Sugar, detailing the steps taken and requesting for extension of time. It was followed by another letter dated July 22, 2010 to the Chief Director, Sugar, detailing the steps taken and requesting for extension of time bringing to its notice that 7.17 acres of land had been purchased and loan had been sanctioned. It was pointed out that the Director had been shot at and was in hospital for a year leading to delay. (u) Considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y upholding the action of the Government to invite tenders. In this order dated January 10, 2008 passed by the High Court, it was categorically noted as a fact that this Raibagh factory was lying closed from the year 2001-2002. Be as it may, the tender process went on and ultimately tender of Respondent No. 1 herein, i.e., Shree Renuka Sugar Limited was accepted and lease deed dated October 16, 2008 was executed in favour of Respondent-1 thereby allowing it to restart the said factory. Even this grant of lease was challenged in a bunch of writ petitions which were dismissed by the High Court on February 10, 2010. In this order as well, the High Court again noticed that since the factory had been lying closed since 2001-2002, it needed a restart which was in public interest. In this manner, it is Respondent No. 1 which is now running Raibagh Sahakari factory and has now taken a position that since Raibagh Sahakari is within the radius of 15 kms from the place where Appellant had set up its factory, as per the provisions of Clause 6A of Sugarcane (Control) Amendment Order, 2006, no permission could have been given to the Appellant to start its factory. 12. It may be noted here that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Survey of India in the High Court in the aforesaid writ petitions. Significantly, the Survey of India had not recalled its certificate dated July 16, 2007 on the basis of which the case of the Appellant for setting up the factory was processed and all due permissions accorded to it. 15. The Appellant filed Special Leave Petition against the impugned judgment in which notice was issued on May 13, 2011 and operation of the factory was stayed till further orders. Thereafter, leave was granted and this stay has continued. As a result, the factory of the Appellant is still operational. Certain further events which have taken place after filing of the said Special Leave Petition, in which leave was granted thereby converting it into civil appeal, may also be noted at this stage: (i) The Government grants Factories Act approval. (ii) RTI information from Raibagh stating that there was no crushing from 2002-03. (iii) Statement issued by Joint Collector, Agriculture showing the total availability of sugarcane for the Belgaun District. As per this, a sufficient quantity of sugarcane is available to take care of the needs of all the factories in that area. (iv) The Pollution Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur years time to commence the commercial production was provided in the Amendment Order, 2006 and this amendment was held to be retrospective by this Court, advice of the Additional Solicitor General of India was sought as to whether the Bank Guarantees given by such persons should be accepted or not. The Additional Solicitor General of India in his letter dated June 18, 2007 advised the Government that the Department should not accept the Bank Guarantees from the first or earlier persons whose IEMs were acknowledged in the years 1998/1999/2000 i.e. prior to June, 2003 and who had not taken effective steps. He further advised that Bank Guarantees can only be accepted from the first or earlier IEM holders in terms of Clause 6E of the Control Order, 2006 if the time limit of four years, as prescribed in Clause 6C has not expired. The Union of India further stated that the matter of the Appellant was examined in the light of the aforesaid opinion and that the extension of time for completing the project and to commence the project was given. Insofar as issue of distance is concerned, as per the Union of India, since the certificate issued by the Survey of India was on record, which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osure of Raibag Sahakari Sakkare Karkhane, sugarcane growers of the said area were forced to supply sugarcane to Doodhganga Sahakari Sakkare Karkhane and Halasiddanatha Sahakara Sakkare Karkhane. Those two factories also were unable to receive the sugarcane so grown, resulting in the sugarcane farmers being forced to carry their sugarcane to the neighbouring State of Maharashtra, which has counterproductive of the interest of the farmers in general. It was also pointed out that thereafter notices were issued to Doodhganga Sahakari Sakkare Karkhane as well as Raibag Sahakari Sakkare Karkhane for another meeting which was held on 04.06.2007 wherein the Managing Director of Raibag Sahakari Sakkare Karkhane concurred with the recommendation made by the Deputy Commissioner and Doodhganga Sahakari Sakkare Karkhane also issued no objection. Taking into account these factors, the State Government had passed the order dated November 07, 2007. Another significant aspects highlighted by the Sugarcane Development Commissioner were that for the year 2008-2009, Raibag Sahakari Sakkare Karkhane had crushed only 20,573 tonnes of sugarcane, whereas its crushing capacity is 4 lakh tonnes. Out of 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... daganga Sugar Mills and Raibagh Sugar Mills; (c) the distance certificate obtained is in accordance with law; (d) after filing of the IEM whether effective steps have been taken in terms of Explanation IV to Clause 6A of the Sugarcane Control Order such as: (i) whether the land required for setting up the industry is acquired; (ii) whether civil construction and building was commenced within the stipulated period of two years; (iii) whether firm order for plant and machinery and the letter of credit was within two years period; (iv) whether requisite finance has been arranged (2) If effective steps are not taken within the stipulated period of two years, whether IEM stands de-recognised? (3) Whether the order of extension passed by the Central Government is valid in accordance with law or is void ab initio and non est? (4) Whether these writ petitions filed are not maintainable and liable to be dismissed on the ground of delay, laches, want of bonafides and on the ground that no public interest is involved? (5) What order? 21. Thereafter, the High Court discussed, in great detail, each of the aforesaid points and came to the conclusion that 'effective steps ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an entrepreneur, who has been granted an IEM prior to the amendment on November 10, 2006 and whether the judgment of this Court in the case of Ojas Industries case, insofar as it holds Clause 6A to be retrospective, is per incuriam? (b) Whether assuming that Clause 6A is applicable to an IEM holder, prior to the 2006 amendment, would this Clause be applicable in the present case as M/s. Raibagh Sahakari Sakkare Karkhane Niyamit was not an existing sugar factory (within the meaning of explanation 1 to Clause 6A)? (c) Whether the High Court was correct in holding that the Appellant did not take effective steps (as per explanation 4 to Clause 6A), within the time frame specified under Clause 6C of the Sugarcane Control Order, 1966? (d) Whether the High Court was correct in concluding that if the effective steps are not taken within the time specified, the same would result in an automatic re-recognition would be an order for shutting down the unit? (e) Whether the High Court was correct in concluding that the extensions for commencing commercial production were incorrectly granted by the Union of India, as the application for extension was not filed before the IEM had lapsed? (f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time or extended time as specified in Clause 6-C. Explanation 3.-- The minimum distance shall be determined as measured by the Survey of India. Explanation 4.-- The effective steps shall mean the following steps taken by the person concerned to implement the industrial Entrepreneur Memorandum for setting up of sugar factory-- (a) purchase of required land in the name of the factory; (b) placement of firm order for purchase of plant and machinery for the factory and payment of requisite advance or opening of irrevocable letter of credit with suppliers; (c) commencement of civil work and construction of building for the factory; (d) sanction of requisite term loans from banks or financial institutions; (e) any other step prescribed by the Central Government, in this regard through a notification. 6-B. Requirements for filing the Industrial Entrepreneur Memorandum.-- (1) Before filing the IEM with the Central Government, the concerned person shall obtain a Certificate from the Cane Commissioner or Director [Sugar] or specified authority of the State Government concerned that the distance between the site where he proposes to set up sugar factory and adjacent existing sugar fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledged as on date of this notification but who has not taken effective steps as specified in Explanation 4 to Clause 6-A shall furnish a performance guarantee of rupees one crore to the Chief Director (Sugar), Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution within a period of six months of issue of this notification failing which the Industrial Entrepreneur Memorandum of the person concerned shall stand derecognised as far as provisions of this order are concerned. 25. The aforesaid provisions stipulate the steps which an entrepreneur has to take in an establishment of a sugar factory. These provisions also mention time limit to implement IEM provisions which are made for extension of time as well. Consequences of non-implementation of the provisions are also laid down. Clause 6A also defines what is an existing sugar factory and what is a new factory. This Clause also stipulates the distance requirement and how the minimum distance of 15 km provided therein shall be determined. With this, we advert to the discussion on issues (b) and (g) in the first instance. Issue (b) 26. M/s. Chidambaram and Kavin Gulati, senior advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1 heavily relied upon the reasoning in the impugned judgment of the High Court to support his case. There appears to be force in the aforesaid submissions of the Appellant. Requirement of Explanation 1 to Clause 6A is that in order to qualify as an existing sugar mill, it needs to crush for five consecutive years. We find that the High Court has wrongly recorded that the requirement is of crushing for any of the one season out of five and this has led to error on the part of the High Court in holding that M/s. Raibagh Sahakari was an existing sugar factory. 29. Another aspect which becomes relevant in this behalf (and would also have bearing while deciding issue (g)) is that the case of the Appellant for setting up of the factory was processed keeping in view the fact that M/s. Raibagh Sahakari was not in operation. Further, in one case way back in the year 1995, it had even granted 'no objection' certificate for setting up of the factory by the Appellant. Another significant aspect which is to be borne in mind is that the State Government had passed order of liquidation of M/s. Raibagh Sahakari in exercise of its power Under Section 72 of the Karnataka Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of statutory Rules and conditions, it must be remembered that violation of each and every provision does not furnish a ground for the court to interfere. The provision may be a directory one or a mandatory one. In the case of directory provisions, substantial compliance would be enough. Unless it is established that violation of a directory provision has resulted in loss and/or prejudice to the party, no interference is warranted. Even in the case of violation of a mandatory provision, interference does not follow as a matter of course. A mandatory provision conceived in the interest of a party can be waived by that party, whereas a mandatory provision conceived in the interest of the public cannot be waived by him. In other words, wherever a complaint of violation of a mandatory provision is made, the court should enquire -- in whose interest is the provision conceived. If it is not conceived in the interest of the public, question of waiver and/or acquiescence may arise -- subject, of course, to the pleadings of the parties. This aspect has been dealt with elaborately by this Court in State Bank of Patiala v. S.K. Sharma (1996) 3 SCC 364: 1996 SCC (L&S) 717] and in Krishan Lal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial production commenced on May 25, 2011. These extensions were given after considering replies of the Appellant to the show cause notice that was issued. Even Government of Karnataka had recommended the Appellant's case for extension. State government had also highlighted the public purpose behind this project, which was for the welfare of the farmers as well. (iii) The Appellant took various steps for setting up of this factory from time to time which have been taken note of above. These include purchase of land, placement of firm order for plant and machinery and payment of advance in that behalf, commencement of civil construction, taking term loans from the Banks etc. (iv) These steps were taken along with due permissions which were required under different laws, duly accorded by the various Governmental Authorities, thus, showing its bona fides. (v) The Appellant has incurred an expenditure of Rs. 299.05 crores as per its audited balance sheet for 2015-2016. The expenditure on land and building as well as machinery is Rs. 142.26 crores. (vi) The total loans for the running unit till year 2013 were to the tune of Rs. 237 crores. (vii) The operational cost for run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eters of legal provisions). Interface between law and economics is much more relevant in today's time when the country has ushered into the era of economic liberalization, which is also termed as 'globalisation' of economy. India is on the road of economic growth. It has been a developing economy for number of decades and all efforts are made, at all levels, to ensure that it becomes a fully developed economy. Various measures are taken in this behalf by the policy makers. The judicial wing, while undertaking the task of performing its judicial function, is also required to perform its role in this direction. It calls for an economic analysis of law approach, most commonly referred to as 'Law and Economics' 1 Richard A. Posner in his book 'Frontiers of Legal Theory' explains this concept as follows: Economic analysis of law has heuristic, descriptive, and normative aspects. As a heuristic, it seeks to display underlying unities in legal doctrines and institutions; in its descriptive mode, it seeks to identify the economic logic and effects of doctrines and institutions and the economic causes of legal change; in its normative aspect it advises judges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to permit the quotation, and so the doctrine of fair use brings about the result that the market would bring about if market transactions were feasible. In fact, in certain branches of law there is a direct impact of economics and economic considerations play predominant role, which are even recognised as legal principles. Monopoly laws (popularly known as 'Antitrust Laws' in USA) have been transformed by economics. The issues arising in competition laws (which has replaced monopoly laws) are decided primarily on economic analysis of various provisions of the Competition Commission Act. Similar approach is to be necessarily adopted while interpreting bankruptcy laws or even matters relating to corporate finance, etc. The impress of economics is strong while examining various facets of the issues arising under the aforesaid laws. In fact, economic evidence plays a big role even while deciding environmental issues. There is a growing role of economics in contract, labour, tax, corporate and other laws. Courts are increasingly receptive to economic arguments while deciding these issues. In such an environment it becomes the bounden duty of the Court to have the economic a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y not be decisive in deciding whether any public interest is involved in intervening in such a commercial transaction. It is important to bear in mind that by court intervention, the proposed project may be considerably delayed thus escalating the cost far more than any saving which the court would ultimately effect in public money by deciding the dispute in favour of one tenderer or the other tenderer. Therefore, unless the court is satisfied that there is a substantial amount of public interest, or the transaction is entered into mala fide, the court should not intervene Under Article 226 in disputes between two rival tenderers. 12. When a petition is filed as a public interest litigation challenging the award of a contract by the State or any public body to a particular tenderer, the court must satisfy itself that the party which has brought the litigation is litigating bona fide for public good. The public interest litigation should not be merely a cloak for attaining private ends of a third party or of the party bringing the petition. The court can examine the previous record of public service rendered by the organisation bringing public interest litigation. Even when a publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t while granting a stay, the court should arrive at a proper balancing of competing interests and grant a stay only when there is an overwhelming public interest in granting it, as against the public detriment which may be caused by granting a stay. Therefore, in granting an injunction or stay order against the award of a contract by the Government or a government agency, the court has to satisfy itself that the public interest in holding up the project far outweighs the public interest in carrying it out within a reasonable time. The court must also take into account the cost involved in staying the project and whether the public would stand to benefit by incurring such cost. 38. Even in those cases where economic interest competes with the rights of other persons, need is to strike a balance between the two competing interests and have a balanced approach. That is the aspect which has been duly taken care of in the instant case, as would be discernible from the concluding paragraph of this judgment. 39. Although law and economics traces back to the period of Jeremy Bentham Utilitarian Theory, which is essentially economic theory., i.e. 18th century, in the last few decades, int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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