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TMI Blog2007 (4) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Industrial Entrepreneur Memorandums to block competition is the cause of dispute. On 31.8.98 Government of India (for short, 'GOI') decided to delete sugar industry from compulsory licensing under the Industries (Development and Regulation) Act, 1951 (For short, '1951 Act'). In that Press Note No.12, GOI clarified that in order to avoid unhealthy competition among sugar factories to procure sugarcane, a minimum distance of 15 KMs has to be observed between an existing sugar mill and a new mill (factory). Further, the entrepreneur who desires to avail of the de-licensing of sugar industry was required to file an Industrial Entrepreneur Memorandum (for short, 'IEM') with the Ministry of Industry. In the said Press Note it was further clarified that those entrepreneurs who have been issued Letter of Intent (for short, 'LOI') for manufacture of sugar need not file an initial IEM and in such cases, the LOI Holders shall file Part 'B' only of the IEM at the time of commencement of commercial production. The Notification dated 11.9.98 was issued under Section 29B(1) of the said 1951 Act. It had to be read with Press Note No.12 dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of Oudh and that it was open to Oudh or any one else to establish a sugar mill beyond 15 KMs of an existing sugar mill. It was held that the Central Government had executive powers under Article 73 of the Constitution of India to issue the said Press Note No.12. It was further held that the said Press Note, however, applied only to cases where a new mill (factory) is proposed to be set up within 15 KMs of an existing sugar mill. According to the impugned judgment, therefore, in the absence of existing sugar mill the said Press Note No.12 dated 31.8.98 had no application. On facts, it was, therefore, held that Ojas cannot derive any benefit from the said Press Note No.12 dated 31.8.98. In the circumstances, by the impugned judgment it has been held that the said Press Note applies only when there is an existing sugar mill. Accordingly, by the impugned Writ Petition No.7123/05 filed by Ojas for setting aside the IEM filed by Oudh stood dismissed. Whereas Writ Petition No.11748/05 filed by Oudh was allowed and the orders passed by the Chief Director, Sugar, dated 30.6.05 was set aside. Consequently, by the impugned judgment Writ Petition No.12078/05 filed by Oudh challenging the IE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Entrepreneur Memorandum within the stipulated time or extended time as specified in clause 6C. 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 concerned person 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. 6B. Requirements for filing the Industrial Entrepreneur Memorandum. (1) Before filing the Industrial Entrepreneur Memorandum with the Central Government, the concerned person shall obtain a certificate from the Cane commissioner or Director (Sugar) or Specified Authority of the concerned State Government that the distance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Entrepreneur Memorandum has already been acknowledged.- (1) Except the period specified in sub- clause (2) of clause 6B of this Order, the other provisions specified in clauses 6B, 6C and 6D shall also be applicable to the person whose Industrial Entrepreneur Memorandum has already been acknowledged as on date of this notification but who has not taken effective steps as specified in Explanation 4 to the clause 6A. (2) The person whose Industrial Entrepreneur Memorandum has already been acknowledged as on date of this notification but who has not taken effective steps as specified in Explanation 4 to the clause 6A 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 concerned person shall stand de-recognized as far as provisions of this Order are concerned. Learned counsel appearing on behalf of Ojas submitted that the interpretation placed by the Division Bench of the Delhi High Court on the expression existing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arcane much higher than its supply and in such a situation allocation by the Cane Commissioner would become very difficult as he would not be in a position to allocate the sugar mills adequate cane for the mills. Learned counsel urged that under Clause 6 of the Sugarcane (Control) Order, 1966 framed under Section 3 of the Essential Commodities Act, 1955, the Central Government has been empowered to issue directions for regulation, distribution and movement of sugarcane to ensure continuous supply of sugarcane to sugar mills. In order to avoid unhealthy competition among the sugar mills and to ensure procurement of sugar in a systematic manner, the Central Government has been issuing Policy Directives from time to time in the form of press note prescribing a minimum distance between two sugar mills. In this connection, it was pointed out that a perusal of various press notes issued by the Central Government from time to time would show that the minimum radial distance between two sugar mills has always been retained in the past depending upon the cane availability. Under the impugned Press Note No.12, the stipulation was 15 KMs. Therefore, according to the learned counsel, it was ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel, the High Court has failed to appreciate that in respect of two sugar mills, proposed to be set up in a new area, mere filing of IEM was not sufficient but filing of IEM coupled with the effective steps was necessary. According to the learned counsel, IEM plus effective steps to implement such IEM, were the twin requirements enunciated in the impugned Order passed by the Chief Director, Sugar, which has been wrongly set aside by the High Court. Learned counsel urged that an IEM filed first in point of time, should be given primacy over IEM filed subsequently subject to the condition that effective steps have been taken by the First IEM Holder within reasonable time. Learned Counsel urged that where effective steps have been taken by the First IEM Holder, all other IEMs filed thereafter and falling within 15 KMs from that location should be kept in suspense and if the First IEM Holder fails to take effective steps then priority should be given to the Second IEM Holder and so on and so forth. This, according to the learned counsel, has not been appreciated by the Court below. Applying the above tests to the facts of the present case, learned counsel submitted that Ojas fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Explanation 4 to Clause 6A. Learned counsel has suggested in addition thereto certain other effective steps which an applicant should take so that unscrupulous persons are prevented from blocking the sites. These are purchase of minimum 50 acres of land for the factory (mill), placement of firm order for purchase of plant and machinery for the factory, payment of requisite advance or opening of letter of credit with suppliers, investment of at least 25 acres on civil work, sanction of term loans from banks/financial institutions, submission of Project Report for sugar factory with details of fund resources and a timeframe within which effective steps should be taken failing which the IEM would lapse. India has adopted the policy of economic reforms, free trade and liberalization in 1991. Government has taken several steps in that direction. The Licence Raj has been dismantled in phases. Sugar industry is accordingly liberalized. It has been de-licensed. The object being to increase the production of sugar. The object being to make the sugar industry competitive in the world. The object being continuous supply of sugarcane to the entrepreneurs proposing to set up new sugar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the effective steps enumerated in Explanation 4 to Clause 6A are adequate. In this connection, we have to keep in mind the conceptual difference between the distance certificate, the concept of effective steps to be taken by an IEM Holder and the question of bona fides. Sugarcane (Control) (Amendment) Order, 2006 inserts Clauses 6A to 6E 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 ₹ 1 crore is only as a matter of proof of bona fides. An entrepreneur who has genuinely interested in setting up a sugar mill has to prove his bona fides by giving bank guarantee of ₹ 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new units. Therefore, the said 2006 Order operates retrospectively. It will not apply to mills which are already functioning. The said 2006 Order will apply only to cases where IEMs are pending in disputes in various courts. The said 2006 Order will also apply after our judgment to those cases which are under dispute and where milling has not commenced or permitted to commence. On behalf of Ojas certain suggested modifications to Explanation 4 in Clause 6A have been indicated. They are stated hereinabove. They are worthy of considerations by the Central Government. It is for the Central Government to incorporate such modifications as it deems fit keeping in mind the availability of sugarcane in a given area, the crushing capacity of the unit, the installed capacity of the plant and machinery, the nexus with the availability of sugarcane and the capacity utilization of the mill (factory). 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Balrampur has proceeded to implement their Projects at Kumbhi and Guleria at their own risk and, therefore, they should not be allowed to take advantage of fait accompli. 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 15th May, 2007, we do not want the cane growers to suffer. Therefore, we grant milling permission only to Kumbhi Project. I.A. No.2 of 2007 is made absolute. However, Guleria Project shall be governed by the principles laid down in this judgment, as indicated above. TO SUM UP: We hold that the Sugarcane (Control) (Amendment) Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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