In a setback to the Uttar Pradesh government, the Supreme Court on Wednesday upheld the Allahabad High Court’s order that had termed the state’s abrupt suspension of incentives under a policy in 2004 to attract investments in the sugar sector “arbitrary” and done “without the application of mind”, in a case filed by Bajaj Hindusthan.
Although Bajaj Hindusthan – which accounted for a third of investements worth Rs 9,000 crore under the scheme — would be the biggest beneficiary, the verdict could have ramifications on cases filed by a dozen-odd sugar mills against the state for the abrupt policy withdrawal.
A bench headed by justice AK Goel rejected the Uttar Pradesh government’s appeal which stated that “rescinding the benefits under the Sugar Policy of 2004 was valid in law” and the HC ought to have considered that the state government’s order of July 7, 2007, was a policy decision and hence was not amiable to the HC’s jurisdiction.
It also rejected rival sugar company LH Sugar Factories’ plea that sought level playing field with other 30 mills which had invested in terms of the policy. The firm argued that the policy was tailor-made to suit certain companies.
To lure investors, the Mulayam Singh Yadav-led UP government had firmed up the policy in 2004 under which eligible mills were entitled to incentives, including exemption from entry tax on sugar, trade tax on molasses, stamp duty and registration charges on purchase of land, purchase tax on cane and reimbursement on transport of sugar, and a capital subsidy of 10% on the investment made.
However, just within a week of Mayawati coming to power in 2007, the policy was “scrapped” through an executive order, leaving the mills that had taken huge loans to fund the expansion strapped for funds. While some mills that had made early investments under the policy, including Bajaj Hindusthan, had been granted incentives for a while, many others couldn’t reap the benefits.
The UP government through additional advocate general Ashwarya Bhati contended in the Supreme Court that the state is “entitled to withdraw, alter or amend its policy decision, if such a decision of withdrawal is taken in overwhelming public interest”. Besides, the state exchequer was facing a “heavy financial burden of about Rs 3,500 crore”, which forced it to revoke the sugar policy in “overwhelming public interest”, the state government stated in its appeal against the HC order.
The state said there was no eligibility certificate granted for offering incentives, so no exemption could be granted and the issue of promissory estoppel, too, did not apply in the Bajaj’s case. Bajaj’s senior counsel AM Singhvi argued that the company had made a huge investment of around `3,000 crore and set up units across the state in 2005 on the basis of the sugar policy.