MSME Act Prevails: Supreme Court Rules in Favor of Hot Mix Plant Over Panchayat Objections (2023)

Introduction

Date of the Judgment: April 12, 2023

Citation: 2023 INSC 365

Judges: V. Ramasubramanian, J., and Pankaj Mithal, J.

Can a business, holding a certificate under the Micro, Small and Medium Enterprises (MSME) Act, bypass local Panchayat regulations when setting up a plant? The Supreme Court of India recently tackled this question, focusing on the conflict between the Kerala MSME Act and the Kerala Panchayat Raj Act, 1994, concerning the establishment of a Hot Mix Plant. The core issue revolved around whether an MSME certificate provides an automatic approval for businesses, overriding the need for local Panchayat licenses. This judgment clarifies the extent of the MSME Act’s overriding powers over local regulations. The judgment was delivered by a bench comprising Justice V. Ramasubramanian and Justice Pankaj Mithal, with Justice V. Ramasubramanian authoring the opinion.

Case Background

George Elias and Associates, the writ petitioners, are road contractors in Kerala. They purchased Hot Mix Plants for their road construction projects. After securing a road work contract in Cherthala Aroorkutty on March 6, 2019, they obtained an Acknowledgement Certificate under Section 5 of the Kerala MSME Act. On February 5, 2020, they applied to the Kalloorkad Panchayat for a license to install their Hot Mix Plant. The Kerala State Pollution Control Board granted “Consent to Establish” on March 4, 2020.

Claiming a deemed approval due to lack of response from the Panchayat under Rule 12(3) of the Kerala Panchayat Raj (Issue of License to Factories, Trades, Entrepreneurship Activities and Other Services) Rules, 1996, the writ petitioners began transporting equipment. However, local residents objected, leading to the Panchayat rejecting the license application on May 12, 2020. This rejection prompted the writ petitioners to file a writ petition challenging the Panchayat’s decision. They also filed a second writ petition seeking a declaration that the MSME certificate eliminated the need for a Panchayat license.

The High Court initially allowed the writ petition, stating that the Panchayat’s permission was merely a formality after the Pollution Control Board’s consent. However, both the writ petitioners and the objectors (local residents) filed appeals, leading to the Division Bench dismissing the appeals. This resulted in both parties approaching the Supreme Court.

Timeline

Course of Proceedings

The writ petitioners initially filed two writ petitions before the High Court of Kerala at Ernakulam. The first writ petition challenged the Kalloorkad Gram Panchayat’s order that refused to grant a license for establishing a Hot Mix Plant. The second sought a declaration that the MSME certificate deemed all necessary licenses obtained.

A Single Judge of the High Court disposed of both petitions, directing the writ petitioners to apply for permission under Rule 68 of the Kerala Panchayat Building Rules, 2019. The Judge held that since the State Pollution Control Board had already granted consent, the Panchayat could not refuse permission, though it could impose general conditions.

Dissatisfied with the outcome, the writ petitioners filed an intra-court appeal. Simultaneously, some local residents also filed appeals objecting to the establishment of the Hot Mix Plant. The Division Bench of the Kerala High Court dismissed all the appeals, upholding the Single Judge’s order. Consequently, both the local residents and the writ petitioners appealed to the Supreme Court.

Legal Framework

The core of this case involves the interpretation and interaction of several key legal provisions. The Kerala Micro Small and Medium Enterprises Facilitation Act, 2019 (Kerala MSME Act), aims to promote and facilitate the establishment of MSMEs in the state. Section 6(1) of the Kerala MSME Act states that an Acknowledgement Certificate issued under Section 5 has the effect of an approval for three years, as defined in Section 2(c).

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

“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 over other laws, specifically mentioning the Kerala Panchayat Raj Act, 1994. Section 10 states:

“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)”

The Kerala Panchayat Raj Act, 1994, and the Kerala Panchayat Building Rules, 2019, outline the requirements for obtaining licenses and permissions from local Panchayats for establishing various businesses and structures.

Arguments

The writ petitioners argued that the Acknowledgement Certificate obtained under the Kerala MSME Act should be considered as an approval, thus overriding the need for a separate license from the Panchayat. They emphasized Section 10 of the Kerala MSME Act, which provides the Act with overriding effect over other laws, including the Kerala Panchayat Raj Act, 1994.

The objectors, represented by Shri K. Parameshwar, contended that a self-certification under the Kerala MSME Act was insufficient to set up a Hot Mix Plant without Panchayat permission. They referred to Rule 3 of the Kerala Micro Small Medium Enterprises Facilitation Rules, 2020, which requires applicants to undertake compliance with the Kerala Panchayat Building Rules, 2019. They also argued that the Panchayat has a public duty to protect its area from environmental pollution, invoking the precautionary principle. They cited the decisions 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] to support their argument regarding environmental protection.

The objectors further argued that the Panchayat, being a grassroots institution, has the right to participate in decision-making regarding projects within its jurisdiction. They relied on the decision in Lafarge Umiam Mining Private Limited in T.N. Godavarman Thirumulpad vs. Union of India and Ors. [(2011) 7 SCC 338] to support their argument for the Panchayat’s right to participate in decision-making.

The writ petitioners countered that the Kerala MSME Act specifically overrides the Kerala Panchayat Raj Act, 1994, and that the consent from the Pollution Control Board addressed environmental concerns. They argued that the rules framed under the Act cannot override the statutory provisions.

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 Supreme Court allowed the appeal filed by the writ petitioners (George Elias and Associates) and dismissed the appeals filed by the objectors (people of the locality). The Court set aside the impugned orders of the High Court and allowed the writ petitions filed by George Elias and Associates.

Authorities:

• Municipal Corporation of Greater Mumbai (MCGM) vs. Abhilash Lal & Ors. [(2020) 13 SCC 234]: The Court distinguished this case, stating that the Kerala MSME Act does not override pollution control laws and the writ petitioners had obtained the necessary consent from the Pollution Control Board.
• A.P. Pollution Control Board vs. Prof. M.V. Nayudu (Retd.) and Ors. [(1999) 2 SCC 718]: The Court distinguished this case on the same grounds as the previous one, emphasizing that the MSME Act does not override pollution control laws.
• Lafarge Umiam Mining Private Limited in T.N. Godavarman Thirumulpad vs. Union of India and Ors. [(2011) 7 SCC 338]: The Court found this case misplaced, stating that Panchayats cannot object to the manufacturing of road construction materials within their jurisdiction, as it is necessary for development.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the clear statutory language of the Kerala MSME Act, particularly Section 10, which gives the Act overriding effect over other laws, including the Kerala Panchayat Raj Act, 1994. The Court emphasized that the MSME Act aims to facilitate the establishment of small and medium enterprises, and this objective should not be hindered by local regulations that are inconsistent with the Act. The Court also noted that the writ petitioners had obtained the necessary consent from the Pollution Control Board, addressing environmental concerns. The Court held that the rules framed under the Act cannot override the statutory provisions.

The Court’s reasoning was heavily based on statutory interpretation and the legislative intent behind the Kerala MSME Act. The Court did not delve deeply into the factual aspects of the case, such as the nature of the Hot Mix Plant, as it considered the legal framework to be decisive.

The Court rejected the objectors’ arguments based on the precautionary principle and the Panchayat’s right to participate in decision-making, stating that the MSME Act facilitates the establishment of industries and the Panchayat cannot object to road construction materials being manufactured within their jurisdiction.

The Court quoted from the judgment:

“Therefore, the prayer made by the writ petitioners in their second writ petition, deserved to be granted, clearly in the light of the statutory prescription. But unfortunately, both the learned Single Judge and the Division Bench completely overlooked this most vital aspect.”

“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.”

“In view of the above, the writ petitioner who is respondent No.1 in three of these appeals and the appellant in one of these appeals is entitled to the reliefs sought in both the writ petitions.”

Key Takeaways

• ✓ An Acknowledgement Certificate under the Kerala MSME Act acts as an approval for establishing an MSME for a period of three years, overriding conflicting provisions in the Kerala Panchayat Raj Act, 1994.
• ✓ Local Panchayats cannot refuse permission for establishing an MSME if the enterprise holds a valid MSME certificate and has obtained necessary environmental clearances.
• ✓ Rules framed under an Act cannot override the statutory provisions of the Act itself.
• ✓ The judgment clarifies the legislative intent to promote and facilitate the establishment of MSMEs, and local regulations should not hinder this objective.
• ✓ This decision underscores the importance of statutory interpretation and the hierarchy of laws, where the parent statute prevails over subordinate legislation.

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 ratio decidendi of this case is that the Kerala MSME Act, 2019, has an overriding effect over the Kerala Panchayat Raj Act, 1994, and other local laws, when it comes to the establishment of Micro, Small, and Medium Enterprises (MSMEs). This means that if an MSME has obtained an Acknowledgement Certificate under the Kerala MSME Act, it is considered to have the necessary approvals for a period of three years, and local bodies like Panchayats cannot impose additional licensing requirements that are inconsistent with the MSME Act.

This judgment clarifies the interplay between state laws and local regulations, and it establishes that the MSME Act takes precedence in matters concerning the establishment of MSMEs. This decision reinforces the legislative intent behind the Kerala MSME Act to facilitate the growth of small and medium businesses by streamlining the approval process and reducing bureaucratic hurdles.

Conclusion

In conclusion, the Supreme Court’s judgment in Jolly George & Anr. vs. George Elias and Associates & Ors. upholds the overriding effect of the Kerala MSME Act, 2019, over the Kerala Panchayat Raj Act, 1994, regarding the establishment of MSMEs. The Court ruled that an Acknowledgement Certificate under the MSME Act is sufficient for setting up a Hot Mix Plant, without requiring additional permissions from local Panchayats, provided that the enterprise has obtained the necessary environmental clearances. This decision reinforces the legislative intent to promote MSMEs and clarifies the hierarchy of state laws over local regulations.