Telangana High Court Upholds Cancellation of Patanjali Foods Oil Palm Factory Zone Over Mill Delay

The Telangana High Court has upheld the State Government's decision to cancel the Suryapet oil palm factory zone allotted to Patanjali Foods Limited, ruling that the company's failure to establish a processing unit within the stipulated 24-month period constituted a valid ground for termination. A Division Bench of Chief Justice Aparesh Kumar Singh and Justice G.M. Mohiuddin dismissed the writ appeal against a Single Judge's order that had affirmed the cancellation.

The Contractual Framework and the Allotment

Patanjali Foods (formerly MAC Oil Palm Limited) has been engaged in oil palm cultivation in the State since 2009. In 2017, it executed a Memorandum of Agreement (2nd MOA) with the State's Commissioner of Horticulture, under which Clause 5(b) mandated the establishment of an oil palm processing unit within 24 months. The company was allotted factory zones across Nalgonda and Suryapet districts, and in June 2021 it furnished an affidavit undertaking to comply with the terms.

Despite multiple show-cause notices issued between 2022 and 2024, and a personal hearing in December 2024, Patanjali failed to establish the processing mill. The land for the mill was purchased only in January 2025, and the State proceeded to cancel the Suryapet allotment via G.O.Ms.No.13 dated March 15, 2025, re-allotting the zone to Respondent No.4 through G.O.Ms.No.14 the same day.

Patanjali's Plea: Clause 13 Is Not a Catch-All

Senior Counsel S. Sriram argued that Clause 13 of the MOA only governed the furnishing of information and documents to the Commissioner, and that cancellation could be triggered solely by failure to comply with such information requests. He contended that Clause 15 specifically prescribed the consequences of delayed mill establishment—namely, continued procurement of Fresh Fruit Bunches (FFBs) at Government rates—without any provision for cancellation. The appellant also invoked the principle of contra proferentem , stating that any ambiguity in the standard-form contract should be resolved against the Government.

The State's Counter: Failure to Fulfil Core Obligations

The Government Pleader countered that Patanjali had achieved only 14% of the plantation targets in Suryapet and had failed to execute the MOA as mandated under G.O.Ms.No.60. It was also pointed out that the company had transported FFBs to its mill in Andhra Pradesh, causing revenue loss to Telangana. The State contended that the cancellation was preceded by adequate opportunities and was based on the MOA's integrated framework.

Court's Analysis: Reading the Clauses Together

The Division Bench rejected Patanjali's narrow interpretation of Clause 13. It held that the requirement to furnish information is not an end in itself but a means to verify "effective steps" toward fulfilling substantive obligations, including establishment of the mill. The Court observed:

"The requirement of furnishing information and documents is not an end in itself but serves the purpose of enabling the Commissioner to satisfy himself that the occupier is taking effective steps towards fulfilment of the obligations expressly enumerated therein, including establishment of the oil palm processing mill and refinery."

The Bench further held that Clauses 13 and 15 operate in "distinct fields"—Clause 15 protects farmers during the interim period, while Clause 13 provides regulatory consequences for non-compliance.

Time Not of the Essence? No Escape from the Obligation

The Court found it unnecessary to decide whether time was of the essence. Even assuming it was not, the obligation to establish the mill remained binding. As the Court noted:

"Admittedly, the appellant failed to establish the processing unit within the stipulated period and continued to remain in default despite repeated opportunities and extensions afforded by the respondents."

It rejected the argument that the State's issuance of successive show-cause notices amounted to a waiver, pointing out that the subsequent steps taken by Patanjali—purchase of land, NALA conversion, and TS-iPASS applications—were all "belated developments" that could not invalidate an otherwise lawful decision.

No Legitimate Expectation of Indefinite Continuance

The Court also dismissed the legitimate expectation argument, observing:

"The appellant cannot legitimately expect the respondents to indefinitely continue the allotment despite its admitted failure to discharge the obligations undertaken under the 2nd MOA."

The Verdict

The writ appeal was dismissed with costs ordered. The Court affirmed the Single Judge's order, ruling that the cancellation was neither arbitrary nor disproportionate. The decision underscores that companies operating under government-backed agricultural schemes must strictly adhere to contractual timelines, or face forfeiture of allotments.