INDIA BUSINESS WORLD - APRIL 2007
The Month that was ...

SUPREME COURT UPHOLDS BAN ON NEW SUGAR MILLS NEAR OLD ONES

THE Supreme Court has upheld the ban on setting new sugar factories within 15 km of an existing mill if effective steps for the functioning of the sugar factory are taken by the owner within the stipulated time period. However, the apex court has ruled that the ban will not be applicable on the mills which are already functioning.

The government, by inserting clause 6A to 6E in the Sugarcane (Control) (Amendment) Order, 2006, had put a ban on setting up of a new sugar mill within 15 km of an existing one, if the owner of the mill was taking effective steps for its functioning after filling the industrial entrepreneur memorandum (IEM) to start the mill.

The court clarified that the effective steps contemplated under the government order includes the purchase of required land in the name of mill, placement of a firm order for purchase of plant and machinery for the factory, payment of advance or opening of letter of credit with suppliers, commencement certificate of civil work and construction of building, sanction of requisite term loans from the banks or financial institutions and any other step prescribed by the government in this regard.

A bench, comprising Justice Arijit Pasayat and Justice SH Kapadia said, "We hold that the Sugarcane (Control) (Amendment) Order, 2006 imposes a bar on the subsequent IEM holders in matter of setting up of new sugar mills (factories) during the stipulated period given to the earlier IEM holders to take effective steps enumerated in Explanation 4 to clause 6A of the Sugarcane (Control) (Amendment) Order, 2006".

The judges ruled that if sugar mills are allowed to be set up in close proximity then demand of sugarcane will be much higher than supply and existing sugar mills will be starved of the sugarcane and will become unviable. Consequently, the farmers will also suffer.

"The order of 2006 is not putting a ban on setting up of new units. It is only giving a priority in the matter of setting up of new units. Therefore, it operates retrospectively. It will not apply to mills which are already functioning" the court said.