Holding

The Sugarcane (Control) (Amendment) Order, 2006 is a clarificatory, retrospective amendment that extends the distance restriction to two proposed sugar factories and bars subsequent IEM holders while the earlier IEM holder implements the project.

Summary

The dispute arose when Ojas Industries filed an Industrial Entrepreneur Memorandum (IEM) to set up a sugar mill, and Oudh Sugar Mills filed a later IEM within 7.2 km of Ojas' proposed site. The Delhi High Court held that the 15‑km distance rule applied only between an existing and a proposed mill, not between two proposed mills, and set aside the approval of Ojas' IEM. The Supreme Court examined the Sugarcane (Control) (Amendment) Order, 2006, which inserted clauses 6A‑6E into the 1966 Order, extending the distance restriction to cover two proposed factories and requiring a performance guarantee and specific "effective steps" within a stipulated period. The Court held that the Amendment Order is clarificatory, retrospective, and imposes a bar on subsequent IEM holders while the earlier IEM holder implements the project, to ensure adequate sugarcane supply and prevent unhealthy competition. Applying this principle, the Court allowed the Kumbhi project of Balrampur but barred other pending projects, and disposed of all appeals and transfer petitions without costs.

Issues considered

The scope of the 15‑km distance requirement under the 1998 Press Note – whether it applies only between an existing and a proposed sugar mill or also between two proposed mills.
The retrospective applicability of the Sugarcane (Control) (Amendment) Order, 2006 and its effect on pending IEMs.
The legal effect of the "effective steps" and performance guarantee requirements introduced by the Amendment Order.
Whether the Amendment Order creates a bar on subsequent IEM holders during the period the earlier IEM holder takes effective steps.

Legislation cited

Essential Commodities Act, 1955s. 3
Industrial Development and Regulation Act, 1951s. 298(1), s. 29B(1)
Sugarcane (Control) Order, 1966s. 6

Subjects

de‑licensingsugar industrydistance requirementIndustrial Entrepreneur Memorandumretrospective amendmenteffective stepssugarcane supplycompetitionpriority of IEM

Judgment

MIS OJAS INDS. (P) LTD. A
v.
MIS OUDH SUGAR MILLS LTD. AND ORS.

APRIL 2, 2007
' . '

[DR. ARIJIT PASAYAT AND S.H. KAPADIA, JJ.] 8

Industrial (Development and Regulation) Act, 1951-Section 29B(J)-
Sugarcane (Control) Order, 1966 as amended by Sugarcane (Control)
Amendment,Order, 2006--Clauses 6A, 6B, 6C, 6D & 6E-Notification issued
de-licensing sugar industry under the Act-Distance requirement prescribed C
between an existing and a proposed sugar factory-Two Industrial
Entrepreneur Memorandums (!EM) filed by two entrepreneurs with Central
Governmentproposing to set up their sugar factories within the prescribed
distance requirement-Central Government approving the !EM filed earlier
and rejecting the !EM filed subsequently-Writ Petition by subsequent !EM D
holder challenging the decision of the Central Government was allowed by
High Court holding that· the prescribed distance requirement is between an
existing and a proposed sugar factory and not between two proposed sugar
factorin.s-Amendment Order introduced prescribing the distance requirement
between two proposed sugar factories also and setting up conditions for
approved !EM holder for taking effective steps within stipulated period- E
Retrospective applicability of the Amendment Order-Held, the object of
prescribing distance requirement is for disciplined procurement of sugarcane
and sufficient supply of sugarcane to the sugar factories-Amendment Order
is introduced by Central Government to put an end to several litigations and
to plug loopholes in the Order-Hence, the Amendment Order is clarificatory F
and is applicable retrospectively.

)
Central Government issued a Notification under section 298(1) of the
Industrial (Development and Regulation) Act, 1951 de-licensing sugar
industry. It prescribed a minimum radial distance of 15 kilometers between
an existing sugar factory and a proposed sugar factory in order to avoid
unhealthy competition among sugar factories to procure sugarcane.
Appellant-company fded Industrial Entrepreneur Memorandum (IEM) with the
Central Government for setting up a sugar factory. Thereafter, respondent-
company also filed its IEM for setting up a sugar factory at a place which is
661
662 SUPREME COURT REPORTS [2007] 4 S.C.R.

A only 7.2 kms from the proposed sugar factory of the appellant The appellant
:-.
filed a Writ Petition before High Court for setting aside the IEM filed by the
respondent. The respondent also filed a Writ Petition for the same prayer
against the appellant. The High Court disposed of both the Writ Petitions by
directing the Central Government to look into the dispute between the parties.
The Central Government approved the IEM filed by the appellant and
B disapproved the IEM filed by the respondent. The respondent filed a Writ
Petition before the High Court challenging the decision of the Central
Government. The High Court allowed the Writ Petition by holding that the
minimum radial distance prescribed in the Notification is only between an
existing sugar factory and a proposed sugar factory and not between two
C proposed sugar factories. The High Court, however, observed that the Central
Government is free to amend the Notification and prescribe the minimum radial
distance requirement between the two proposed factories also.

The Central Government issued a Sugarcane (Control) (Amendment)
Order, 2006 inserting clauses 6A to 6E to the Sugarcane (Control) Order,
D 1966. Clause 6A of the Order provided that no new sugar factory shall be set
up within the radius of IS kilometers of any existing sugar factory or another
new sugar factory in a state or two or more states. The Amendment Order
further provided that a new sugar factory shall mean a sugar factory which
has filed the IEM and has submitted a performance guarantee of rupees one
crore with the Central Gcvernment for implementation of the IEM within the
E stipulated time. The Amendment Order further provided that an existing sugar
factory shall also include a sugar factory that has taken all effective steps as
specified in Explanation 4 to 6A of the Amendment Order to set up a sugar
factory.

F In appeal to this Court, the appellant contended that the distance
requirement from existing sugar factories provides full protection to
inefficient existing sugar factories which was not the intention of de-licensing
the sugar industry; that this will discourage new investments in sugar
industry and would be a frustration of the policy of liberali7Jltion; that, if the
judgment of the High Court is upheld, then any number of sugar factories
G would be set up in close proximity to each other which would make the demand
for sugarcane much higher than its supply; that the minimum distance should
be retained even betwee.n the IEM holders so that adequate supply of raw
material is assured; that subsequent IEMs should be kept in suspensr till the
completion of the stipulated period during which the first IEM holder has to
take effective steps; and that when effective steps are taken by the first IEM
H
-+
OJAS INDS. (P) LTD. v. OUDH SUGAR MILLS LTD. 663'
~
~
... holder, then the subsequent IEMs will become non est.
A
The respondents contended that the Sugarcane (Control) Amendment
Order is prospective in effect and cannot be retrospective since it lays down
new conditions such as filing of bank guarantee, filing of distance certificate
and the effective steps of implementing the IEM; that before the Amendment
Order was introduced, the distance requirement is between an existing sugar B
factory and a proposed sugar factory and not between two proposed sugar
factories which filed IEMs.
,.,
.
,
- Disposing of the Appeals and the Transfer Petitions, the Court

HELD: 1.1. The object of de-licensing sugar industry is to increase c
production of sugar. The object is 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 plants ofviable capacities. The
object being disciplined procurement of sugarcane and sufficient supply of
sugarcane to the mills. If sugar mills are allowed to be set up in close
proximity then the demand of sugarcane will be much higher than supply and D
in which even the existing sugar mills will be starved of the sugarcane and,
will become unviable consequently the farmers will also suffer.
[Para 16) [673-F-G)

1.2. The Sugarcane (Control) (Amendment) Order, 2006 shall apply
retrospectively to all cases, including the present cases in which IEMs are
E
pending. The 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 resou1 ~e, namely, sugarcane, is limited. "Distance",
stands for available quantity of sugarcane to be supplied by the farmer to the
sugar mill. Under the Order, an entrepreneur who is genuinely interested in F
setting up a sugar mill has to prove his bonajides by giving a bank guarantee.'
Further, giving of bank guarantee is also a proof that the entrepreneur has
the financial ability to set up a sugar mill and it has nothing to do with the,
Distance Certificate. Clauses 6A to 6E introduced in Clause 6 of the
Sugarcane (Control) Order, 1966, are clarificatory in nature. The effective
steps enlisted in Explanation 4 to Clause 6A of the Order are in-built norms: G
which are made explicit Hence Explanation 4 to Clause 6A of the Amendment
.,, Order is clarificatory and is retrospective. [Para 18) (674-E-G; 675-B-C)

1.3. The Central Government has issued the Amendment Order to put
an end to litigations to plug the loophole. Hence, the Order is retrospective.
H
664 SUPREME COURT REPORTS [2007] 4 S.C.R.

A In all pending cases, the Central Government seeks to put a bar for setting
up new sugar mill for a limited period during which the Earlier IEM Holder
is required to take effective steps. The Amendment Order 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, the Order operates retrospectively. The
B Amendment Order applies only to cases where IEMs are pending in disputes
in various courts. [Para 18) (675-E-G)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1730 of2007.

From the Final Judgment and Order dated 22.12.2005 of the High Court
C of Judicature of Delhi at New Delhi in Writ Petition (C) No. 7123 of 2005.
WITH

C.A. Nos. 1731-1735 of2007.T.P. ©No. 421 of2006, TP ©No. 623 of
2006.

D Mohan Parasaran, ASG., Mukul Rohtagi, V.A. Mohta, Gaurab Banerjee,
Shanti Bhushan, Soli J. Sorabjee, T.R. Andhiyarujana, Jayant Bhushan, Vivek
K. Tankha, Harish N. Salve, Arun Jaitely, Rakesh Dwivedi, A.M. Singhvi and
Rajiv Dutta, Bhargava Desai, Uday Kumar, Sanjeev Kumar Singh, Hina Rizvi,
Syed Shahid Husain Rizvi, Akhilesh Kalra, Mahesh Agarwal, Gaurav Goel,
E Ankur Chawla, Sanjeev Kumar, Vikram Bajaj (for Mis. Khaitan & Co.), Ankur
Sharma, Nikhil Majothia, Joseph Pookatt, Prashant Kumar, Rajiv Dubey,
Kamlendra Mishra, E.C. Agrawala, V.K. Venna, Sumit Goel, Gaurav Bhatia, S.
Wasim A. Qadri, Kush Chaturvedi (for P.H. Parekh & Co.), Praveen Kumar,
Navin Prakash, W.A. Qadri, Chidananda D.L., Vijay Goyal, R.S. Rana, V.K.
Verma, Bhargava Desai, Gaurav Bhatia, Vijaylakshmi Menon, Indu Malhotra,
F Sanjeev Anand, Satish Vig, Parijat Sinha, and Manik Karanjawala for the
appearing parties.

The Judgment of the Court was delivered by

KAPADIA, J. 1. Leave granted in petitions for special leave.
G
2. In this batch of matters we are required to interpret Press Note No.12
dated 31.8.1998 issued by Government of India, Ministry of Industry,
concerning de-licensing of Sugar Industry.

3. For the sake of convenience we state the facts occurring in Civil
H
OJAS INDS. (P) LTD. v. OUDH SUGAR MILLS LTD. [KAPADIA, J.] 665

Appeal No. 1730 of2007 arising out of S.L.P.(C) No.7690 of2006 - Mis. Ojas A
Industries (P) Ltd. Versus Mis. Oudh Sugar Mills Ltd. & Others.

4. Proliferation of Industrial Entrepreneur Memorandums to block
competition is the cause of dispute.

5. On 31.8.98 Government of India (for short, 'GOI') decided to delete B
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 C
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 D
commercial production.

6. The Notification dated 11.9.98 was issued under Section 29B(l) of the
said 1951 Act. It had to be read with Press Note No.12 dated 31.8.98. It was
issued to usher in the policy of de-licensing.
E
7. After de-licensing 2232 IEMs were filed till July 2005 out of which 600
IEMs were filed in U.P.

8. On 13.5.04 Mis. Ojas Industries (P) Ltd. (for short, 'Ojas') filed its
IEM for setting up a sugar mill at village Baisagapur, Distt. Lakhimpur Kheri,
U.P. It was acknowledged by GOI. Ojas claims to have obtained permission F
for purchase of lands under U.P. Zamidari Abolition & Land Regulation Act.
It claims to have placed orders for entire plant and machinery from Mis. S.S.
Engineers, Pune in February 2005. It claims to have placed an order of the
value ofRs.8.65 crores for construction of the factory building. It also claims
to have made financial tie-ups with banks and other financial institutions for G
meeting expenses of more than Rs.20 crores. It claims to have approached U.P.
Pollution Control Board for grant of NOC dated 28.4.05. It claims to have
obtained such NOC. Ojas claims to have spent Rs.20 crores under various
Other Heads. After four days on 17.5.04, Mis. Oudh Sugar Mills Ltd. (for
short, 'Oudh') filed its IEM for setting up a sugar mill (factory) at village
Saidpur, Khurd, Distt. Lakhimpur Kheri, U.P. within 7.2 Kms from the proposed H
'I
t-
666 SUPREME COURT REPORTS [2007] 4 S.C.R.

A sugar mill of Ojas in Basaigapur. This has led t~ the dispute between the two ,....
companies.

9. On 23.4.~5 Ojas filed its Writ Petition No.7123/05 before the Delhi
High Court for setting aside the IEM filed by Oudh. On 28.5.05 Oudh filed
a writ petition in Delhi High Court bearing No.9892/05 to set aside the IEM
B filed by Mis. Bajaj Hindustan Ltd. for setting up the sugar mill in Titarpur.

10. On 30.6.2005, pursuant to the Orders of the Delhi High Court,· the
matter was heard by Chief Director, Sugar, (GOI) who approved the IEM filed
by Ojas. The IEM filed by Oudh was disapproved. Aggrieved by the decisions
C of the Chief Director, Sugar, (GOI), Oudh filed Writ Petition No.11748/05. On
26.7.05 Oudh filed another Writ Petition No.12078/05 challenging the IEM of
Mis. Bajaj Hindustan Ltd'. for setting up its sugar mill at village Khambarkhera.

11. Be that as it may, by the impugned judgment dated 22.12.05 the
Division Bench of the Delhi High Court held that the Notification dated
D 11.9.98 read with the Press Note No.12 dated 31.8.98 prescribing 15 KMs
distance between existing sugar mill and a new sugar mill did not operate to
the prejudice 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
E 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
F 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,
G by the impugned judgment Writ Petition No.12078/05 filed by Oudh challenging
the IEM of Mis. Bajaj Hindustan Ltd. for Khambarkhera was also dismissed.

12. Aggrieved by the impugned judgment dated 22.12.05 Ojas have
come to this Court by way of civil appeals.

H 13. Before proceeding further we may point out that in the impugned
-t
OJAS INDS. (P) LTD. v. OUDH SUGAR MILLS LTD. [KAPADIA, J.] 667

~
judgment vide para '63' , the High Court observed that it was always open A
to the Central Government to amend Press Note No.12 dated 31.8.98 and
provide that if an IEM is filed by one party, then the subsequent IEM for
setting up a sugar mill within 15 KMs of the place indicated by the Earlier
IEM will not be entertained. This is now precisely done by Union of India.
It has issued Sugarcane (Control) (Amendment) Order, 2006 on 10.12.06 inter
alia laying down the effective steps which the applicant is required to take.
B
The said Sugarcane (Control) (Amendment) Order, 2006 has inserted Clauses
6A to 6E into Sugarcane (Control) Order, 1966. We quote hereinbelow the
newly added clauses which read as under:

"6A. Restriction on setting up of two sugar factories within the
radius of 15 Kms.-Notwithstanding anything contained in clause 6,
c
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 the State Government may with the prior approval
D
of the Central Government, where it considers necessary and
expedient in 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.
Explanation 1.- An existing sugar factory shall mean a sugar
~

factory in operation and shall also include a sugar factory that
E
has taken all effective steps as specified in Explanation 4 to set
up a sugar factory but excludes a sugar factory that has not
. "'·
carried out its crushing operations for last. five sugar seasons.

Explanation 2.- A new sugar factory shall mean a sugar factory,
which is not an existing sugar factory, but has filed the Industrial F
Entrepreneur Memorandum as prescrib.ed by the Department of
Industrial Policy and Promotion, Ministry of Commerce and
Industry in the Central Government and has submitted a
performance guarantee of rupees one crore to the Chief Director
(Sugar), Department ofFood and Public Distribution, Ministry of G
Consumer Affairs, Food and Public Distribution for implementation
of the Industrial 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. H
t
\

668 SUPREME COURT REPORTS [2007) 4 S.C.R.

A 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
B 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;
C (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
D 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 between the site
E where he proposes to set up sugar factory and adjacent existing sugar
factories and new sugar factories is not Jess than the minimum distance
prescribed by the Central Government or the State Government, as the
case may be, and the concerned person shall file the Industrial
Entrepreneur Memorandum with the Central Government within one
F month of issue of such certificate failing which validity of the certificate
shall expire.

(2) After filing the Industrial Entrepreneur Memorandum, the concerned
person shall submit a performance guarantee of rupes one crore to
Chief Director (Sugar), Department of Food and Public Distribution,
G Ministry of Consumer Affairs, Food and Public Distribution within
thirt)r days of filing the Industrial Entrepreneur Memorandum as a
'' surety for implementation of the Industrial Entrepreneur Memorai{dum
as a surety for implementation of the Industrial Entrepreneur
Memorandum within the stipulated time or extended time as specified
in clause 6C failing which Industrial Entrepreneur Memorandum shall
H stand de-recognized as far as provisions of this Order are concerned.
OJAS INDS. (P) LTD. v. OUDH SUGAR MILLS LTD. [KAPADIA, J.] 669
6C Time limit to implement Industrial Entrepreneur Memorandum.- A
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 the Industrial Entrepreneur memorandum with
the Central Government, failing which the Ind'.lstrial Entrepreneur
Memorandum shall stand de-recognized as far as provisions of this B
Order are concerned and the perfonnance guarantee shall be forfeited:

Provided that the Chief Director (Sugar), Department of Food and
Public Distribution, Ministry of Consumer Affairs, Food and Public
Distribution on the recommendation of the concerned State l

Government, may give extension of one year not exceeding six C
months at a time, for implementing the Industrial Entrepreneur
Memorandum and commencement of commercial production
thereof.

6D. Consequences of non-implementation of the provisions laid down
in clauses 6B and 6C.- If an Industrial Entrepreneur Memorandum p
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.
'
6E. Application of clauses 6B, 6C and 6D to the person whose E
Industrial 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 F
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 G
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 H
+-
\

670 SUPREME COURT REPORTS [2007) 4 S.C.R.

A notification failing which the Industrial Entrepreneur Memorandum
of the concerned person shall stand de-recognized as far as
provisions of this Order are concerned."

14. Learned counsel appearing on behalf of Ojas submitted that the
interpretation placed by the Division Bench of the Delhi High Court on the
B expression "existing sugar mill" in the Press Note No.12 will lead to
discrimination. In this connection, it was submitted that if in a given case
there exists a sugar mill, whose performance is poor, even then, no new sugar
mill (factory) can be set up within an area of 15 KMs thereof. According to
the. learned counsel, this was not the intention while introducing de-licensing.
C Learned counsel further submitted that the impugned judgment was erroneous
in interpreting the said Press Note. It was urged that in a case, even if there
is no existing sugar mill any number of sugar mills can be set up. According
to the learned counsel, such an interpretation would not only result in
discrimination under Article 14 of the Constitution of India but it would
provide protection to inefficient existing mills at the cost of the interest of the
D farmers in the area. Learned counsel submitted that ifthe impugned judgment
is upheld then the existing sugar mills will get full protection. They will be.
assured of continuous supply of sugarcane whereas the entrepreneurs
proposing to set up new sugar plants of higher capacities will not get adequate
sugarcane for their sugar mills. Learned counsel submitted that the impugned
judgment will discourage the new investments in the sugar industry and the
E result would be frustration of the policy of liberalisation. Learned counsel
submitted that such an interpretation will completely desist the entrepreneur
from setting up a sugar mill in a new area. Learned counsel submitted that
the impugned judgment should not be upheld since it would lead to disastrous
consequences. In this connection, it was submitted that according to the
F impugned judgment unless and until the sugar mill becomes an existing sugar
mill the said entrepreneurs shall have no protection from business rivals who
can set up sugar mills in close proximity creating difficulties for such
entrepreneurs for procurement of basic raw material. Learned counsel submitted
that under the provisions of the Sugarcane (Control) Order, 1966 and under
the provisions of U.P. Sugarcane (Regulation of Supply and Purchase) Act,
G 1953, the Cane Commissioner has been entrusted with the object of ensuring
adequate supply of sugarcane to the sugar mills. Learned counsel urged that
by reason of the impugned judgment any number of mills can be set up in
close proximity to each other which would make the demand for sugarcane
much higher than its supply and in such a situation allocation by the Cane
H Commissioner would become very difficult as he would not be in a position
I

-t
OJAS INDS. (P)LTD. v. OUDH SUGAR MILLS LTD. [KAPADIA, J.] 671
to allocate the sugar mills adequate cane for the mills. Learned counsel urged A
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 B
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 C
the cane availability. Under the impugned Press Note No.12, the stipulation
was 15 KMs. Therefore, according to the learned counsel, it was necessary
to retain the minimum radial distance between two sugar mills so that a given
sugar mill having all. IEM in the first instances is assured of adequate supply
of raw material. Learned counsel submitted that reading of various Press
Notes issued by GOI shows that the distance between two sugar mills has D
a direct relationship with the availability of sugarcane. Learned counsel urged
that these aspects have not been taken into account in the impugned judgment.
Learned counsel submitted that the High Court erred in holding that Press
Note No.12 would apply only in cases where there is a mill in existence
(existing mill). It was submitted that such an interpretation would lead to E
chaos. It was submitted that the result of the impugned judgment would be
that the sugar mills would be allowed to be set up in close proximity leading
to unhealthy competition and starvation of basic raw material which would
make the mills unviable. Learned counsel submitted even after de-licensing it
was necessary to retain the condition of radial Distance, namely, sufficient
distance between two sugar mills having nexus with the availability of F
sugarcane in an area. In this connection, it was pointed out that "Distance"
has been a relevant Condition for last 20 years. It was urged that this
Condition has got to be retained even after de-licensing. As regards IEMs,
it was submitted that under Notification dated 25.7.91 issued under Section
29B of the 1951 Act, industries exempted from de-licensing had to file IEMs. G
Learned counsel submitted that the same concept has been continued even
after de-licensing. Learned counsel pointed out that after de-licensing, industrial
licence was not required but the Condition of filing IEM embodied in
Notification dated 25.7 .91 has been retained and, therefore, it has legal sanctity
and validity. Learned counsel, therefore, urged that the Distance Condition
should be maintained not only between existing and proposed mill but also H
)

t- l

672 SUPREME COURT REPORTS (2007] 4 S.C.R.

A between two proposed mills. Learned counsel urged that an IEM _gives an
entrepreneur a right to take steps for setting up a sugar mill and without an
IEM one cannot proceed to set up a sugar mill. Therefore, according to the
learned counsel, Part 'A' of the IEM was equated with LOI and Part 'B' of
IEM was equated with industrial licence in terms of the Press Note No.12
B dated 31.8.98. According to the learned 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 ChiefDirect9r, Sugar, which has been
C 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 ~ffective
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
D 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 filed its IEM on 13.5.04 for setting up a sugar mill at Baisagapur,
E it had taken effective steps to implement its IEM and, therefore, according to
the learned counsel, the Subsequent IEM filed by Oudh, should have been
declared as non est by the High Court. For the above reasons, learned
counsel submitted that the impugned judgment needs to be set aside.

15. On the other hand, learned counsel appearing on behalf of Oudh
F submitted that prior to the Sugarcane (Control) (Amendment) Order, 2006
dated 10.11.2006, the only restriction was with regard to Distance as contained
in Press Note No.12 dated 31.8.98. That Distance was of 15 KMs required to
be maintained between an existing sugar inill and a new sugar mill (factory).
It was not from one IEM to another IEM. Learned counsel submitted that
under Press Note No.12 in order to preclude a new sugar mil! from being set
G up there has to be an existing sugar mill within 15 KMs of the.proposed sugar
mill. It is urged, in Order, for a mill to be regarded as an exi~~ing.;~gar mill,
a mere IEM or effective steps to implement such IEM were riot sufficient but
the mill should have become an existing sugar mill. Therefor~; acc<ifding to
the learned counsel, this view taken by the Delhi High Court \\'.as the correct
H interpretation of the law existing before l 0.11.06. Learned counsel urged that
OJAS INDS. (P) LTD. v. OUDH SUGAR MILLS LTD. [KAPADIA, J.] 673
the Sugarcane (Control) (Amendment) Order, 2006 by which Clause 6A to 6E A
stood inserted in the Sugarcane (Control) Order, 1966 was not retrospective
because it lays down new conditions such as filing of bank guarantee, filing
of distance certificate and also it lays down effective steps of implementing
of IEM. Therefore, according to the learned counsel, the said Sugarcane ,
(Control) (Amendment) Order, 2006, cannot affect the position as it obtained ·
before 10.11.06. In the alternative, learned counsel urged that if this Court is, B
of the view that the aforestated Sugarcane (Control) (Amendment) Order, 2006
constitutes a bar for setting up new sugar mill in the sense of the First IEM
Holder taking effective steps for its implementation qua the Subsequent IEM ·
Holders then, according to the learned counsel, one has to decide as to what
are these effective steps and what would be the relevant date for determining C
whether the effective steps have been undertaken. Learned counsel submitted
that the effective steps to be taken by the IEM Holder are set out 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 D
plant and machinery for the factory, payment ofrequisite advance or opening
of letter of credit with suppliers, investment of at least 25 acres on civil work,
sanction of term loans from banks/fin~cial 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. E
16. 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 F
world. The object being continuous supply of sugarcane to the entrepreneurs
proposing to set up new sugar plants of viable capacities. The object being
disciplined procurement of sugarcane and sufficient supply of sugarcane to
the mills (factories). This last object is the basis of Press Note No.12 dated
31.8.98. If sugar mills are allowed to be set up in close proximity then the G
demand of sugarcane will be much higher than supply and in which event the
existing sugar mills will be starved of the sugarcane and will become unviable
consequently the farmers will also suffer.

17. Before the High Court one of the submissions made on behalf of the
Oudh was that the Notification dated 11.9.98 under Section 29B(l) of the 1951 H
'

t
674 SUPREME COURT REPORTS [2007] 4 S.C.R.

A Act read with Press Note No.12 dated 31.8.98, did not provide for a bar for
the Subsequent IEM Holder in the face of the First IEM Holder talcing
effective steps within the specified time-limit. In the impugned judgment (vide
para '65') the High Court has stated, while accepting the contention ofOudh,
that the Central Government was free to amend Press Note No.12 and provide
B for a bar for Subsequent IEM Holders from setting up a sugar mill within 15
KMs of the place where the proposed sugar mill under the Earlier IEM is
proposed to be set up. When High Court decided the matter there was no
such express bar. However, by way of Sugarcane (Control) (Amendment)
Order, 2006 dated 10.11.06 a bar is introduced vide Clause 6A to 6E for setting
up a new sugar factory (mill) by a person taking effective steps after filing
C IEM. In other words, if the First IEM Holder or the Earlier IEM Holder takes
effective steps to implement its IEM then the Subsequent IEM Holder cannot
proceed with his IBM. If the First or Earlier IEM Holder completes its Projects
successfully then the Remaining IEMs for that area shall become non est.
They shall, however, remain in suspense during stipulated period when the
Earlier IEM Holder takes effective steps for implementing its IEM. Therefore,
D the very basis of the impugned judgment is now eliminated. Hence, we are
no.t required to examine once again the validity of the said judgment.

18. Suffice it to state, that the Sugarcane (Control) (Amendment) Order,
2006 shall apply retrospectively to all cases; including the present cases in
E which IEMs are pending. In this connection, the question which arises for
determination is : firstly, whether the Sugarcane (Control) (Amendment) Order,
2006 operates retrospectively and if so whether 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 talcen by an IEM Holder and the question
F of bona tides. 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.
G 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. I crore is only as a matter of proof of bona
tides. An entrepreneur who has genuinely interested in setting up a sugar mill
has to prove his bona fides by giving bank guarantee of Rs. I crore. Further,
giving of bank guarantee· is also a proof that the businessman has the
H financial ability to set up a sugar mill (factory). Therefore, giving of bank
OJASINDS. (P)LTD. v. OUDHSUGARMILLSLTD. [KAPADIA, I.] 675
guarantee has nothing to do with the Distance Certificate. As far as effective A
steps are concerned we may point out that apart from the steps enlisted in
the earlier Notification dated 11.9.98 read with Press Note No.12 dated 31.8.98,
the Sugarcane (Control) (Amendment) Order, 2006 has laid down such steps
like purchase of required land in the name of the factory (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 B
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
Central Government in this regard. In our view Clauses 6A to 6E have been
introduced in Clause 6 of Sugarcane (Control) Order, 1966. In our view Clauses
6A to 6E are clarificatory in nature. There are certain norms mentioned in the C
Accounting Standards of Institute of Chartered Accountants for setting up
industries. They may be sugar mills, paper mills, textile mills etc. When
effective steps are enlisted in Sugarcane (Control) (Amendment) Order, 2006
dated 10.11.06 vide Explanation 4 to Clause 6A those in-built norms are made
explicit, therefore, Explanation 4 to Clause 6A is clarificatory. Therefore, it is
retrospective. There is one more reason why we hold that the Sugarcane D
(Control) (Amendment) Order, 2006 is retrospective. The Central Government
has taken note of various pending matters in different courts on the
interpretation of Sugarcane (Control) Order, 1966, Press Note No.12 and the
Notification dated 11.9 .98 issued under Section 29B( 1) of the said 1951 Act
to put an end to litigations and keeping in mind the concept of "Distance E
Certificate" as distinct from the concept of "effective steps", the Central
Government has issued the Sugarcane (Control) (Amendment) Order, 2006. It
is to plug the loophole that the said Order has been issued on 10.11.06. In
our view, therefore, the Sugarcane (Control) (Amendment) Order, 2006 is
retrospective. In all pending cases the Central Government now seeks to put
a bar for setting up new sugar factory (mill) for a limited period during which F
the Former or Earlier IEM Holder is required to take effective steps. The said
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, 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 G
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 H
I

1-
(

676 SUPREME COURT REPOl,lTS (2007] 4 S.C.R.
~
A 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 Distan~e. The concept of "Distance" is
B 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 h~ 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
c supply.

l.A.No.2 of 2007 in T.P.(C) No.421

19. This I.A. pertains to matters pending in Allahabad High Court
(Lucknow Bench). I.A. No.2 of2007 has been filed by Mis. Balrampur Chini
D Mills Ltd. (for short, 'Balrampur'). It is for grant of milling permission to its
factory at Kumbhi, Distt. Lakhirripur Kheri (U.P.), which is complete. -It is
submitted on behalf of Balrampur that the sugarcane crushing season ~

continuous upto 15th May every year. The factory is ready to start milling.
Even a Cane Reservation Order has been made in its favour. The factory (mill)
is ready. Balrampur has made a huge investment ofRs.213 crores. According
E to Balrampur, the IEM of Ojas is filed for Bhogotipur, only in order to block
the IEM filed by Balrampur. Therefore, they pray that milling perinission
should be granted to Balrampur and that this Court should permit them to
obtain and implement such milling permission. According to Balrampur, this
Court should grant such permission as it would be in the interest of cane
F growers, shareholders and general public. According to Balrampur no prejudice
will be caused to Ojas if they are given such milling permission. According
to Balrampur, they are setting up two mills in Kumbhi and Guleria and ifOjas
is unable to set up two mills in Bhagotipur and in Bijuwa which are' within
15 KMs. from Kumbhi and Guleria respectively, then they can still go ahead
and set up other mills in Distt. Lakhimpur and, therefore, no preju~ice will be
G caused to Ojas. Balrampur claims to have spent 213 crores at Kumbhi and 152
crores at Guleria. The Kumbhi unit is complete. It is ready for milling activity.

20. On behalf of Ojas it has been vehemently argued that Balrampur
took the risk of making investment in the Kumbhi and Guleria Projects despite
"'
pendency of matters in the High Courts. It is urged that by interim orders
H
OJAS INDS. (P) LTD. v. OUDH SUGAR MILLS LTD. [KAPADIA, J.] 677
;
Balrampur was put to notice that they are free to implement their above two A
Projects at Kumbhi and Guleria subject to the outcome of the pending writ
petitions. It is urged that due to deference to the courts, Ojas did not proceed
further for implementation of their programme whereas 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/ait accompli. B
21. 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 C
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 ofKumbhi 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 D
2007 is made absolute. However, Guleria Project shall be governed by the
principles laid down in this judgment, as indicated above.

TO SUM UP:

22. We hold that the Sugarcane (Control) (Amendment) Order, 2006 E
imposes a bar on the Subsequent IEM Holders in the matter of setting up of
new sugar mills (facories) 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 dated 10.11.2006. We
further hold that the said 2006 Order operates retrospectively. We have F
cleared the Kumbhi Project. All other Projects falling in various writ petitions
in the Allahabad High Court (Lucknow Bench) will be decided by the High
Court in accordance with the principles laid down in this judgment.

23. All civil appeals, transfer petitions and interlocutory applications
accordingly stand disposed of with no order as to costs. G
B.S. Appeals, petitions and applications disposed of.