M/S Askins Biofuels Private Limited and M/S Shri. Bharamanandasagar Jaggery Industries V. The Union of India and The Secretary, Department of Promotion of Industry and Internal Trade and The Chief Director (Sugar), Ministry of Consumer Affairs, Department of Food & Public Distribution and The Commissioner for Cane Development and Director of Sugar, Government of Karnataka and M/S Alagawadi Bireshwar Sugars Pvt. Ltd.

WA/100075/2023

AI Insights

The case revolves around the legal dispute concerning the establishment and operation of a standalone distillery by M/s Askins Biofuels Private Limited, which was granted an Industrial Entrepreneur Memorandum (IEM) to manufacture ethanol. The dispute arose when M/s Alagawadi Bireshwar Sugars Pvt. Ltd., holding an IEM in the same area, challenged the operation of the distillery and the procurement of sugarcane juice by M/s Askins from M/s Shri. Bharamanandasagar Jaggery Industries. The legal contention centered on whether the distillery could procure sugarcane juice/syrup for ethanol production in light of the Sugarcane Control Order, which traditionally restricts such activities within reserved areas. The court examined the amendments to the Sugarcane Control Order and the intent behind these amendments, ultimately deciding in favor of the appellants by interpreting the law in a manner that supports the establishment and operation of standalone distilleries under specific conditions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 816826 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 31-03-2023
• Assessment Year: misc
• Other Referred Cases: K.P. Varghese Vs. Income Tax Officer, Ernakulam & another, Punjab State Co-operative Agricultural Development Bank Ltd. Vs. Registrar, Co-operative Societies & others
• Laws Referred To: Sugarcane Control Order, 1966, Companies Act, 1956, Karnataka High Court Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M B KANAVI; V S KALASURMATH; GAUTAM BHARADWAJ; PRASHANT GOUDAR
• Assessee Lawyers: GURUDAS KANNUR; SHREEVATSA HEGDE; ANIRUDHA NAYAK
• Keywords: Ethanol production; Standalone distillery; Sugarcane juice procurement; Molasses based distilleries; Industrial Entrepreneur Memorandum (IEM); Dual feed distilleries
• Section: 4

Judgement Text

"W.A. No. 100075/2023 1 IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH DATED THIS THE 31ST DAY OF MARCH, 2023 PRESENT THE HON'BLE MR JUSTICE R.DEVDAS AND THE HON'BLE MR JUSTICE RAJESH RAI K W.A. NO. 100075/2023 (GM-RES) BETWEEN: 1. M/S ASKINS BIOFUELS PRIVATE LIMITED, A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND HAVING ITS REGISTERED OFFICE AT 150/6, GOKAK ROAD, ALAGAVADI, HARUGERI, RAIBAG TALUK, BELAGAVI DISTRICT, REPRESENTED BY ITS DIRECTOR MR. ASHOK J. ASKI. 2. M/S SHRI. BHARAMANANDASAGAR JAGGERY INDUSTRIES, A PARTNERSHIP FIRM HAVING ITS OFFICE AT 150/6, GOKAK ROAD, ALAGAVADI, HARUGERI, RAIBAG TALUK, BELAGAVI DISTRICT, REPRESENTED BY ITS DIRECTOR MR. ASHOK J. ASKI. - APPELLANTS (BY SRI GURUDAS S. KANNUR, SR. COUNSEL FOR SRI SHREEVATSA HEGDE AND SRI ANIRUDHA R.J. NAYAK, ADVOCATES) AND: 1. THE UNION OF INDIA REPRESENTED BY ITS SECRETARY, MINISTRY OF CONSUMER AFFAIRS, FOOD & PD, DIRECTORATE OF SUGAR, KRISHI BHAVAN, NEW DELHI-110001. 2. THE SECRETARY, DEPARTMENT OF PROMOTION OF R W.A. No. 100075/2023 2 INDUSTRY AND INTERNAL TRADE, MINISTRYOF COMMERCE AND INDUSTRY, UDYOG BHAVAN, NEW DELHI-110 001. 3. THE CHIEF DIRECTOR (SUGAR), MINISTRY OF CONSUMER AFFAIRS, DEPARTMENT OF FOOD & PUBLIC DISTRIBUTION, ROOM NO. 581, KRISHI BHAVAN, R.P. ROAD, NEW DELHI-110 001. 4. THE COMMISSIONER FOR CANE DEVELOPMENT AND DIRECTOR OF SUGAR, GOVERNMENT OF KARNATAKA, HOUSING BOARD BUILDING, CBAB COMPLEX, P BLOCK, V TH FLOOR, CAUVERY BHAVAN, K.G. ROAD, BENGALURU-560 008. 5. M/S ALAGAWADI BIRESHWAR SUGARS PVT. LTD., A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 (AMENDED AS PER COMPANIES ACT, 2013) HAVING ITS REGISTERED OFFICE AT 198/137, KALLESHWAR INDUSTRIES REGULATED MARKET ROAD, BAMBOO BAZAR, DAVANAGERI-577 001 AND HAVING ITS PROPOSED UNIT AT SY. NO. 106, ALAGAWADI-591317, RAIBAG TALUK, BELAGAVI DISTRICT. - RESPONDENTS (BY SRI M.B. KANAVI, CGSC FOR R1 TO R3, SRI V.S. KALASURMATH, HCGP FOR R4, SRI GAUTAM S. BHARADWAJ AND SRI PRASHANT F. GOUDAR, ADVOCATES FOR C/R5) THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT, 1961, PRAYING TO SET ASIDE THE ORDER DATED 06.01.2023 PASSED BY THE LEARNED SINGLE JUDGE IN W.P. NO. 102856/2022 & ETC. THIS WRIT APPEAL HAVING BEEN HEARD AND RESERVED FOR ‘JUDGMENT’ ON 29.03.2023, COMING ON FOR ‘PRONOUNCEMENT OF JUDGMENT’ THIS DAY, R.DEVDAS J., DELIVERED THE FOLLOWING JUDGMENT. W.A. No. 100075/2023 3 JUDGMENT This is an intra court appeal filed at the hands of the writ petitioners being aggrieved of the impugned order passed by the learned Single Judge in W.P. No. 102856/2022. The writ petitioners had approached the learned Single Judge seeking to quash the impugned order dated 25.07.2022 passed by the 4th respondent- Commissioner for Cane Development and Director of Sugar, Government of Karnataka. 2. Brief facts of the case are that appellant No.1 M/s Askins Biofuels Private Limited was granted Industrial Entrepreneur Memorandum (for short ‘IEM’) on 05.12.2019 to establish a standalone distillery, to manufacture ethanol. The Government of India, through the Ministry of Consumer Affairs, Food & Public Distribution, had issued a notification dated 08.03.2019 extending financial assistance to molasses based standalone distilleries. The Scheme for extending financial assistance to molasses based standalone distilleries was proposed by the Central Government with an intention to enhance and augment ethanol production capacity. W.A. No. 100075/2023 4 Only molasses based standalone distilleries were eligible to file application under the Scheme. Provision was made in the said notification calling upon eligible applicants to set up new distilleries, including expansion of the capacity of the existing molasses based standalone distilleries. Accordingly, appellant No.1 filed an application seeking permission and grant of IEM for establishment of a standalone distillery, at the location 106/2, Harugeri Road, Alagawadi, Raibag, Belagavi District. It is the contention of the appellants that after establishment of the distillery in the said location, appellant No.1 started procuring molasses from appellant No.2, which is a factory licenced to produce jaggery. However, subsequently another notification dated 14.01.2021 was issued by the Ministry modifying the Scheme for enhancement of ethanol distillation capacity or to set up distilleries for production of first generation ethanol from feed stocks, such as, cereals (rice, wheat, barlie, corn and sorghum), sugarcane, sugar beet, etc. Provision was made to convert existing molasses based distilleries (whether attached to sugar mills or standalone distilleries) to dual feed and also to convert grain based distilleries to dual feed. Following the W.A. No. 100075/2023 5 said notification permitting standalone distilleries to produce ethanol from dual feeds, including sugarcane, appellant No.1 started procuring sugarcane juice from appellant No.2 for production of ethanol. 3. Respondent No.5-M/s Alagawadi Bireshwar Sugars which was holding IEM in the same area, also called reserved area, was aggrieved of the establishment of standalone distillery within the reserved area and procurement of sugarcane juice by appellant No.1 from appellant No.2. Respondent No.5 filed W.P. No. 100915/2022 seeking a writ of mandamus to the respondent authorities to immediately stop appellant No.1 from establishing the factory, to prevent the appellants herein from dealing with sugarcane / sugarcane juice procured from the reserved area and to stop production. It was also contended that the appellants herein, put together, were a sugar factory and they violated the provisions contained in the Sugarcane Control Order. However, by order dated 15.03.2022, the said writ petition was disposed off directing the concerned authorities to consider various representations and complaints given by respondent No.5 herein and to pass orders in W.A. No. 100075/2023 6 accordance with law. Since opportunity was required to be given to the appellants herein to raise objections and have their say in the matter, the appellants herein gave written representations / objections before the Cane Commissioner. The Cane Commissioner passed an order dated 30.04.2022 holding that appellant No.1 herein is not eligible to utilize sugarcane juice/ syrup for production of ethanol. It was held that appellant No.1 can only produce ethanol extracted from molasses. Being aggrieved, the appellants herein filed W.P. No. 101807/2022. The learned Single Judge, by order dated 26.05.2022 set aside the order dated 30.04.2022 and remanded the matter back to the Cane Commissioner to decide the matter afresh, after hearing the appellants herein. In the meanwhile, the Directorate of Sugar and Vegetable Oils issued a communication dated 23.05.2022 to the Cane Commissioner, Karnataka, directing that the appellant No.1 herein shall not be permitted to produce ethanol from sugarcane juice purchased from any jaggery / khandasari unit. The appellants herein filed one more writ petition in W.P. No. 101968/2022 calling in question the communication dated 23.05.2022 made by the W.A. No. 100075/2023 7 Directorate of Sugar to the Cane Commissioner. The learned Single Judge, by order dated 02.06.2022, allowed the writ petition and quashed the communication dated 23.05.2022. The rival parties were directed to appear before the Cane Commissioner on 10.06.2022 and the Commissioner was directed to reconsider the matter without being influenced by the communication dated 23.05.2022 and decide specific issues, such as, whether the petitioners fall under the definition of ‘factory’ as per the amended provisions of the Sugarcane Control Order; whether the first petitioner /appellant is entitled to receive sugarcane juice/ syrup from appellant/ petitioner No.2; whether appellant / petitioner no.1 is a standalone distillery not crushing sugarcane and therefore entitled to supply of sugarcane juice/ syrup from appellant/ petitioner No.2. 4. The Cane Commissioner thereafter passed the impugned order dated 25.07.2022 holding that if appellant No.1 herein is permitted to procure sugarcane juice for manufacture of ethanol, it would be in violation of the Sugarcane Control Order, as amended on 31.05.2021. The appellants herein approached the learned Single Judge in W.P. No. 102856/2022, challenging the order dated W.A. No. 100075/2023 8 25.07.2022, mainly on the ground that the specific directions issued by the learned Single Judge to consider the issues in terms of the order dated 02.06.2022, viz., whether the petitioners fall under the definition of ‘factory’ as per the amended provisions of the Sugarcane Control Order; whether the first petitioner /appellant is entitled to receive sugarcane juice/ syrup from appellant/ petitioner No.2; whether appellant / petitioner no.1 is a standalone distillery not crushing sugarcane and therefore entitled to supply of sugarcane juice/ syrup from appellant/ petitioner No.2, were not considered and no specific finding is given in that regard. 5. Learned Senior Counsel Sri Gurudas S. Kannur, appearing for the appellants would submit that the standalone distillery was established by appellant No.1 in terms of the notification dated 08.03.2019, although it cannot be denied that such standalone distilleries were permitted to produce ethanol by using molasses only. However, by a subsequent notification dated 14.01.2021 provision was made to convert existing molasses based distilleries (whether attached to sugar mills or standalone distilleries) to produce ethanol by using dual feed and also to convert grain based W.A. No. 100075/2023 9 distilleries to dual feed, including sugarcane. Therefore, it is contended that no fault can be found in the action of appellant No.1 in procuring sugarcane juice/ syrup from appellant No.2 to produce ethanol. 6. Learned Senior Counsel would further submit that the Directorate of Sugar, Government of India erred in issuing a communication dated 23.05.2022 clarifying that standalone distilleries are not allowed procure sugarcane juice/ syrup from any khandasari/ jaggery unit to produce ethanol since it would be in contravention of the Sugarcane Control Order. Similarly, the clarification issued by the Joint Director, Ministry of Consumer Affairs, Food & Public Distribution, Department of Food & Public Distribution, Directorate of Sugar & Vegetable Oils, in terms of communication dated 13.01.2022 in similar terms that in view of the amendment brought to the definition of ‘factory’ as defined in the Sugarcane Control Order vide notification dated 31.05.2021, standalone distilleries cannot procure sugarcane juice/ syrup, is W.A. No. 100075/2023 10 without authority of law. Learned Senior Counsel would submit that a plain reading of the amended provision does not expressly state that a standalone distillery producing ethanol is to be construed as ‘factory’ for the purposes of the Sugarcane Control Order. Moreover, it is submitted that IEM was issued to the first appellant on 05.12.2019 and the amendment was brought to the Sugarcane Control Order on 31.05.2021. Nothing in the amended provision would suggest retrospective operation of the amended provision and its applicability to standalone distilleries established prior to 31.05.2021. At best, it is submitted that if this Court were to hold that the amended provision would bring within its confines a standalone distillery producing ethanol from sugarcane juice/ syrup, even then this Court should clarify that the provision cannot have retrospective effect. 7. Per contra, learned counsel for the 5th respondent would seek to justify the impugned orders passed by the Cane Commissioner and the learned Single Judge. Learned counsel submits that the authority empowered to issue IEM for establishment of standalone distilleries to produce ethanol has clarified in the communication W.A. No. 100075/2023 11 dated 13.01.2022 that in view of the amendment brought to the definition clause of ‘factory’ to include any premises manufacturing ethanol from sugarcane juice or sugar or sugar syrup or molasses, any unit manufacturing ethanol accordingly would become a ‘factory’ within the meaning of the provisions contained in the Sugarcane Control Order. Consequently, from the date when the amendment was brought into effect, appellant No.1 would fall within the confines of the Sugarcane Control Order and its provisions are accordingly made applicable to appellant No.1. In other words, it is contended that even if this Court were to hold that retrospective effect cannot be given to the amended provision, even then, prospectively appellant No.1 would be prohibited from procuring sugarcane/ sugarcane juice/ sugar syrup or molasses from a reserved area. 8. Learned counsel for the 5th respondent sought to draw attention of this Court to many other aspects, such as, the agreement entered into between the appellants interse; that they are not two different entities and therefore when it is admitted that appellant No.2 is only permitted to produce jaggery, that too without using power crusher, it is not permitted to supply sugarcane juice / W.A. No. 100075/2023 12 syrup to appellant No.1. It is submitted that what appellant No.2 could not accomplish directly, cannot be permitted to be accomplished indirectly, circumventing the provisions contained in the Sugarcane Control Order. At any rate, it is submitted, that the Sugarcane Control Order commencing from 16.07.1966 has maintained a restriction, barring establishment of a second unit within the reserved area and from procurement of sugarcane/ by- products of sugarcane from the reserved area. Therefore, the Government of India having realized the mistake in permitting standalone distilleries to come up within the reserved area in terms of the notification dated 08.03.2019 and the modified notification dated 14.01.2021, consciously amended the term ‘factory’ to bring within its confines any unit, including standalone distilleries manufacturing ethanol by using sugarcane juice/ syrup and molasses. 9. Heard the learned Senior Counsel for the appellants, learned counsel for the 5th respondent, learned HCGP for respondent No.4 and the learned Central Government Standing Counsel for the Union of India. W.A. No. 100075/2023 13 10. The crux of the matter is whether the amendment of the term ‘factory or sugar factory’ in terms of the notification dated 31.05.2021, brought to the Sugarcane Control Order, 1966, a standalone distillery permitted to be established in terms of the notification dated 08.03.2019 would fall within the defined term and that they would be governed by the provisions of the Sugarcane Control Order, 1966. Admittedly, on a plain reading of the amended provision, it does not admit a construction bringing within its confines a standalone distillery. Nevertheless, the Directorate of Sugar, in its communication dated 13.01.2022 issued a clarification to all sugar mills/ distilleries that in view of the amendment brought to the Sugarcane Control Order on 31.05.2021, any standalone distillery proposing to produce ethanol from sugarcane juice by crushing sugarcane in its premises shall follow the provisions of the Sugarcane Control Order, including maintaining a distance of 15 kms. from the neighbouring existing sugar mills. It was also directed that such distilleries which are procuring sugarcane juice/ syrup from other sugar mills are required to adhere to the modalities indicated in the guidelines issued by the Directorate in its letter dated W.A. No. 100075/2023 14 02.12.2021. It was also clarified that distilleries including standalone distilleries can produce ethanol from sugarcane juice/ syrup purchased from sugar mills only for supplying to Oil Manufacturing Companies under “ethanol blended with petrol programme”. It was clarified that distilleries / standalone distilleries are not allowed to procure sugarcane juice/ syrup from any khandasari unit to produce ethanol. Following the same, a subsequent communication was issued by the Directorate on 23.05.2022 to the Cane Commissioner, Karnataka, to preclude appellant No.1 herein from procuring sugarcane juice/ syrup from appellant No.2. 11. The established rules of interpretation of a statutory provision would provide that we must construe the language having regard to the object and purpose which the legislature had in view while enacting the provision and in the context of the setting in which they occur. In K.P. Varghese Vs. Income Tax Officer, Ernakulam & another, (1981) 4 SCC 173, the famous words of Judge Learned Hand were beneficially extracted as follows: W.A. No. 100075/2023 15 “… it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statues always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.” 12. In that view of the matter, we are primarily required to find out from the objective of the amendment as to whether the rule making authority envisaged the establishment of standalone distilleries within the reserved area, protected under the Sugarcane Control Order as a mistake or mischief. If so, whether the rule making authority intended to remove such mischief by amending the definition clause of the term ‘factory or sugar factory’ and bring within the confines of the Sugarcane Control Order, the standalone distilleries which were permitted to be established within the reserved area. W.A. No. 100075/2023 16 13. We have gone through the notification dated 31.05.2021 and we do not find the ‘scope or object’ for such amendment. Therefore, we are constrained to say that a plain reading of the amended provision does not suggest inclusion of standalone distilleries within the defined meaning of ‘factory or sugar factory’. 14. We are also of the considered opinion that if the rule making authority intended to bring within the confines of the Sugarcane Control Order any standalone distillery which was permitted to procure molasses initially and thereafter by a subsequent notification issued on 14.01.2021 permitted to procure sugarcane juice/ syrup for manufacturing ethanol, then the rule making authority would have also expressed its intention as to whether the provisions would be made operative prospectively or retrospectively. The rule making authority was required to provide for the established standalone distilleries either by appropriate saving clause or providing a redressal mechanism. Usually, when a vested/ accrued interest is sought to be taken away, then appropriate arrangements will have to be made by the legislature or the rule making authority to redress such grievances. It is by now well settled in a catena of decisions, W.A. No. 100075/2023 17 including the recent decision in the case of Punjab State Co- operative Agricultural Development Bank Ltd. Vs. Registrar, Co- operative Societies & others, (2022) 4 SCC 363, that an amendment having retrospective operation which has the effect of taking away a benefit already available under the existing rule should be held as arbitrary, discriminatory and violative of the rights guaranteed under Articles 14, 16 and 19 of the Constitution of India. In that view of the matter, we should say that if the rule making authority had indeed consciously drawn the prior existing standalone distilleries within the provisions of the Sugarcane Control Order, depriving them of the accrued right of procuring molasses, sugarcane juice/ syrup from the sugar factories, then such standalone distilleries would be entitled to seek a declaration that the amendment should not be made operational retrospectively. Such a claim would be justifiably upheld. 15. This Court should also notice that if the provisions of the Sugarcane Control Order are made applicable to standalone distilleries, such as, appellant No.1, then, the existence and continuation of such distilleries would come under immediate threat W.A. No. 100075/2023 18 on the ground that they are established in violation of the express provisions of the Control Order, viz., Clause-6A which prohibits establishment of a second sugar factory within the radius of 15 kms. There cannot be partial application of the provisions of the Control Order. Decommissioning the establishment or cancellation of the IEM granted to appellant No.1 on the ground that the grant of IEM is in contravention of the provisions of the Control Order would be a fertile ground for appellant No.1 to contend that an accrued right cannot be taken away by a subsequent amendment. Therefore, such an amendment, if intended by rule making authority, it would seriously prejudice the interest of such standalone distilleries. On the other hand, if it was the intention of the department to prevent such standalone distilleries from procurement of sugarcane juice/syrup, it could have simply withdrawn the notification dated 14.01.2021, restricting them to procure molasses only. Taking into consideration all these aspects, we are of the opinion that there was no intent of the rule making authority to bring within the sweep of the amended provision standalone distilleries which were licenced by the Department. W.A. No. 100075/2023 19 16. In the light of the above, we are of the considered opinion that the amended provision vide notification dated 31.05.2021 brought to the Sugarcane Control Order, 1966, will not bring within its sweep the standalone distilleries established consequent to the notification dated 08.03.2019 and 14.01.2021 issued by the Ministry of Consumer Affairs, Food & Public Distribution. We, therefore proceed to declare that the standalone distilleries such as appellant no.1 herein established in terms of the notification dated 08.03.2019 and 14.01.2021 for manufacturing ethanol are not governed by the provisions of the Sugarcane Control Order, 1966. 17. We make it clear that we have not considered the grievance raised at the hands of the 5th respondent as regards appellant No.2 herein. Therefore, respondent No.5 is free to approach the competent authority to redress its grievance as regards appellant No.2 herein if it is of the opinion that appellant No.2 has violated any of the provisions contained in the Sugarcane Control Order or any other law for that matter. W.A. No. 100075/2023 20 18. Consequently, we allow the writ appeal and set aside the impugned order dated 25.07.2022 passed by the 4th respondent- Commissioner for Cane Development and the impugned order dated 06.01.2023 in W.P. No. 102856/2022. Ordered accordingly. In view of disposal of the appeal on merits, pending IAs, if any, also stand disposed off. Sd/- JUDGE Sd/- JUDGE BVV "