MSME Act Overrides Panchayat Regulations: Supreme Court Allows Hot Mix Plant Operation (April 12, 2023)

Date of the Judgment: April 12, 2023
Citation: (2023) INSC 335
Judges: V. Ramasubramanian, J., and Pankaj Mithal, J.

Can a local Panchayat’s regulations prevent the operation of a business that has obtained necessary clearances under a state-level act designed to promote small businesses? The Supreme Court of India recently addressed this question in a case involving a Hot Mix Plant, clarifying the relationship between the Kerala Micro, Small and Medium Enterprises Facilitation Act, 2019 and the Kerala Panchayat Raj Act, 1994. The Court held that the MSME Act overrides the Panchayat Act in this instance. The judgment was delivered by a bench of Justices V. Ramasubramanian and Pankaj Mithal, with the majority opinion authored by Justice V. Ramasubramanian.

Case Background

George Elias and Associates, the writ petitioners, are involved in road construction in Kerala. They acquired Hot Mix Plants to support their work. On March 6, 2019, they secured a road work contract in Cherthala Aroorkutty. Following the enactment of the Kerala Micro, Small and Medium Enterprises Facilitation Act, 2019 (Kerala MSME Act), they obtained an Acknowledgement Certificate under Section 5 of the Act.

On February 5, 2020, they applied to the Kalloorkad Panchayat for a license to install a Hot Mix Plant. On March 4, 2020, the Kerala State Pollution Control Board granted “Consent to Establish.” When the Panchayat did not respond, the writ petitioners invoked the deemed approval provision under Rule 12(3) of the Kerala Panchayat Raj (Issue of License to Factories, Trades, Entrepreneurship Activities and Other Services) Rules, 1996, and transported equipment to the site.

Local objections led to a conciliation meeting, but on May 12, 2020, the Panchayat rejected the license application. The writ petitioners then filed a writ petition, WP (C) No. 10381 of 2020, challenging the rejection. They also filed another writ petition arguing that the Acknowledgement Certificate under the Kerala MSME Act made a Panchayat license unnecessary.

The High Court initially ruled that the Hot Mix Plant was portable and did not require building permission, and that the Panchayat’s permission was a mere formality after the Pollution Control Board’s consent. This decision was appealed by both the writ petitioners (seeking full relief) and local objectors.

Timeline

Course of Proceedings

The writ petitioners initially filed two writ petitions in the High Court of Kerala at Ernakulam. The first, WP (C) No. 10381 of 2020, challenged the Panchayat’s denial of a license for their Hot Mix Plant. The second, WP (C) No. 17920 of 2020, sought a declaration that their Acknowledgement Certificate under the Kerala MSME Act rendered a Panchayat license unnecessary.

A Single Judge of the High Court disposed of both writ petitions on March 18, 2021, directing the writ petitioners to apply for permission under Rule 68 of the Kerala Panchayat Building Rules, 2019, and instructing the Panchayat Secretary to grant permission subject to conditions. The Single Judge held that the Pollution Control Board’s consent meant the Panchayat could not refuse permission, though it could impose general conditions.

The order was challenged in three intra-court appeals. The writ petitioners filed one appeal seeking full relief, while local residents filed the other two appeals objecting to the plant. The Division Bench of the Kerala High Court dismissed all appeals on December 9, 2021, leading to the current appeals before the Supreme Court.

Legal Framework

The case revolves around the interpretation of the Kerala Micro, Small and Medium Enterprises Facilitation Act, 2019 (Kerala MSME Act) and its relationship with the Kerala Panchayat Raj Act, 1994.

Section 6(1) of the Kerala MSME Act states:

“6. Effect of the Acknowledgement Certificate.—(1) An acknowledgment certificate issued under section 5 shall, for all purposes, have effect as if it is an approval as defined in clause (c) of section 2, for a period of three years from the date of its issuance and after the expiry of the said period of three years, such enterprise shall have to obtain required approvals as defined in clause(c) of section 2, within six months from the date of such expiry: Provided that the acknowledgement certificate shall not entitle a person to use a land contrary to the provisions contained in the Kerala Conservation of Paddy Land and Wetland Act, 2008 (28 of 2008) and it shall also not entitle a person to use the land in deviation to the land use specified in the master plan notified under the Kerala Town and Country Planning Act, 2016 (9 of 2016), wherever such plan is in force.”

Section 2(c) of the Kerala MSME Act defines “approval” as:

“2.(c) “approval” means licenses, permissions, approvals, clearances, registration, consents, no objection certificate and the like, required under any State law in connection with the establishment or operation of micro small and medium enterprise in the State;”

Section 10 of the Kerala MSME Act provides an overriding effect:

“10. Overriding effect of this Act on other laws.— (1) The provisions of this Act shall have overriding effect, notwithstanding anything inconsistent therewith contained in any other law, for the time being in force. (2) In particular and without prejudice to the generality of the foregoing provisions of this Act, such provisions shall have effect notwithstanding anything inconsistent therewith contained in the following enactments and the provisions of these enactments shall be read as amended in conformity with the provisions of this Act, namely:— 1. The Kerala Panchayat Raj Act, 1994 (13 of 1994) 2. The Kerala Municipality Act, 1994 (20 of 1994) 3. The Kerala Shops and Commercial Establishments Act, 1960 (34 of 1960) 4. The Kerala Lift and Escalators Act, 2013 (18 of 2013) 5. Travancore – Cochin Public Health Act, 1955 (XVI of 1955) 6. Madras Public Health Act, 1939 (3 of 1939)”

The Supreme Court noted that Section 10(2) specifically mentions the Kerala Panchayat Raj Act, 1994, indicating that the MSME Act’s provisions should prevail over it.

Arguments

The writ petitioners argued that their Acknowledgement Certificate under the Kerala MSME Act should be treated as equivalent to all necessary approvals, including the Panchayat license, for a period of three years from its issuance, as per Section 6(1) of the Kerala MSME Act. They contended that Section 10 of the Kerala MSME Act gives it overriding effect over other laws, including the Kerala Panchayat Raj Act, 1994.

The objectors argued that Rule 3 of the Kerala Micro Small Medium Enterprises Facilitation Rules, 2020, requires self-certification in Form-I, which includes an undertaking to comply with the Kerala Panchayat Building Rules, 2019. Therefore, they contended that the writ petitioners could not avoid the requirement of permission from the local Panchayat. They also argued that the Panchayat has a public duty to protect its area from environmental pollution and that the precautionary principle should be applied.

The objectors relied on the decisions of the Supreme Court in Municipal Corporation of Greater Mumbai (MCGM) vs. Abhilash Lal & Ors. [(2020) 13 SCC 234] and A.P. Pollution Control Board vs. Prof. M.V. Nayudu (Retd.) and Ors. [(1999) 2 SCC 718]. They also argued that the Panchayat, as a grassroots institution, has the right to participate in decision-making and cited Lafarge Umiam Mining Private Limited in T.N. Godavarman Thirumulpad vs. Union of India and Ors. [(2011) 7 SCC 338].

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether a self-certification obtained by the writ petitioners under the Kerala MSME Act is sufficient in itself to set up a Hot Mix Plant.
2. Whether in light of such self-certification, no permission from the Panchayat is required under the Kerala Panchayat Raj Act, 1994 and the Kerala Panchayat Building Rules, 2019.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Court held that the Acknowledgement Certificate obtained under the Kerala MSME Act is sufficient to allow the operation of the Hot Mix Plant. The Court noted that Section 6(1) of the Kerala MSME Act treats the Acknowledgement Certificate as equivalent to all necessary approvals, and Section 10 of the Act gives it overriding effect over other laws, including the Kerala Panchayat Raj Act, 1994.

The Court rejected the argument that Rule 3 of the Kerala Micro Small Medium Enterprises Facilitation Rules, 2020, which requires self-certification to comply with the Kerala Panchayat Building Rules, 2019, could override the statutory provisions of the Kerala MSME Act. The Court stated that rules cannot annul the effect of statutory provisions.

The Court also rejected the argument that the Panchayat has a public duty to protect its area from environmental pollution, noting that the Kerala MSME Act does not override pollution control laws, and the writ petitioners had already obtained consent from the Pollution Control Board.

The Court observed that:

“All Panchayats want motorable roads. But if they do not want road construction materials to be manufactured within their Panchayat, we do not know where from these materials can be imported.”

The Court also stated that:

“…the Acknowledgement Certificate obtained under the Kerala MSME Act, alone is sufficient to clinch the issue in favour of the writ petitioner.”

The Court also observed that:

“Section 10(2) of the Kerala MSME Act makes it clear that the provisions of the Act of 1994, shall be read as amended to be in conformity with the provisions of the Kerala MSME Act. Therefore, the objectors cannot fall back upon the Rules to nullify the effect of the provisions of the Act.”

The appeal filed by George Elias and Associates was allowed, the impugned orders were set aside, and the writ petitions filed by them were allowed. The appeals filed by the objectors were dismissed.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the statutory provisions of the Kerala MSME Act, particularly Sections 6 and 10. The Court emphasized that the Kerala MSME Act is a special legislation designed to promote micro, small, and medium enterprises, and its provisions should be given full effect. The Court was also influenced by the fact that the writ petitioners had already obtained consent from the Pollution Control Board, addressing environmental concerns. The Court’s reasoning focused on the supremacy of the state legislation over local regulations in this specific context.

Key Takeaways

• The Kerala Micro, Small and Medium Enterprises Facilitation Act, 2019, has an overriding effect over the Kerala Panchayat Raj Act, 1994, in matters concerning approvals for MSMEs.
• An Acknowledgement Certificate issued under Section 5 of the Kerala MSME Act is equivalent to all necessary approvals for a period of three years from its issuance.
• Local Panchayats cannot refuse permission for MSME operations if the enterprise has obtained an Acknowledgement Certificate under the Kerala MSME Act and has consent from the Pollution Control Board.
• Rules framed under an Act cannot nullify the effect of the statutory provisions of the Act.

Directions

The Supreme Court allowed the appeal filed by the writ petitioner, George Elias and Associates, set aside the impugned orders of the High Court, and allowed the writ petitions filed by George Elias and Associates. The appeals filed by the objectors were dismissed.

Development of Law

The judgment clarifies that the Kerala MSME Act has an overriding effect over the Kerala Panchayat Raj Act, 1994, in matters concerning approvals for MSMEs. This decision reinforces the legislative intent behind the MSME Act to promote and facilitate the establishment and operation of micro, small, and medium enterprises. The ratio decidendi is that an Acknowledgement Certificate under the Kerala MSME Act is sufficient for operation of an MSME, and no separate permission from the local Panchayat is required. This is a shift in the previous position where local Panchayat permissions were considered mandatory.

Conclusion

The Supreme Court’s ruling in this case establishes that the Kerala Micro, Small and Medium Enterprises Facilitation Act, 2019, holds precedence over the Kerala Panchayat Raj Act, 1994, in matters concerning the establishment and operation of MSMEs. The Court’s decision ensures that businesses with a valid Acknowledgement Certificate under the MSME Act can operate without unnecessary hindrances from local authorities, provided they have obtained necessary environmental clearances. This judgment is a significant step towards promoting ease of doing business and supporting small and medium enterprises in Kerala.