Supreme Court Upholds Pet-Coke Allocation Based on Initial Capacity: Sanvira Industries vs. Rain CII Carbon (2023)

Date of the Judgment: July 03, 2023

Citation: [Not Available in Source]

Judges: S. Ravindra Bhat, J., Dipankar Datta, J.

Can a company claim a higher allocation of a restricted substance based on an increased production capacity, even if that capacity was not recognized at the time the restrictions were imposed? The Supreme Court of India recently addressed this question in a dispute over the allocation of imported raw pet-coke (RPC), a highly polluting fuel, between M/s. Sanvira Industries and Rain CII Carbon. The core issue revolved around whether the allocation should be based on the initial production capacity of a company or on a later enhanced capacity.

The Supreme Court, in this judgment, upheld the decision of the Delhi High Court, ruling that the allocation of imported raw pet-coke (RPC) should be based on the production capacity of the companies as it stood on October 9, 2018, when the court initially capped the total import of RPC. This decision has significant implications for companies seeking to increase their allocation of restricted substances based on subsequent expansions. The judgment was delivered by a two-judge bench comprising Justice S. Ravindra Bhat and Justice Dipankar Datta, with Justice Bhat authoring the opinion.

Case Background

The case involves a dispute over the allocation of imported raw pet-coke (RPC), a residue from petroleum refining used as fuel. The Director General of Foreign Trade (DGFT) set criteria for allocating RPC among various entities. On July 18, 2018, the Ministry of Environment, Forest and Climate Change (MoEF) decided to restrict pet-coke imports to industries using it as feedstock, not fuel. The Supreme Court, in the M.C. Mehta case, directed the implementation of this decision on July 26, 2018. The MoEF issued guidelines on September 10, 2018, for regulating RPC imports, requiring importers to obtain consent and registration from State Pollution Boards (SPB) or Pollution Control Committees (PCC).
Sanvira Industries, a calciner, informed the Environment Pollution Control Authority (EPCA) on September 12, 2018, that its production capacity was 200,000 MTPA. The EPCA, on October 6, 2018, reported to the Supreme Court that the total import requirement of RPC was 1.4 million tonnes per annum (MTPA), with Sanvira’s capacity noted as 200,000 MTPA. The EPCA recommended that calciners should be allowed to import pet-coke as they use it for feedstock, not fuel. Based on the EPCA report, the Supreme Court ordered on October 9, 2018, that RPC imports could not exceed 1.4 MMTPA, and it should be used as feedstock for producing calcined pet-coke (CPC). The DGFT then issued a notification allowing RPC imports for specific industries as feedstock, with monitoring based on MoEF guidelines.

Timeline

Course of Proceedings

Initially, the DGFT allocated RPC based on actual production capacity. Sanvira contested this, claiming its capacity was 330,000 MTPA, not the 200,000 MTPA considered. Sanvira’s application to the Supreme Court to address this was dismissed on January 28, 2019. A second public notice on March 22, 2019, led to Sanvira again requesting an enhanced allocation, which was rejected by DGFT on April 22, 2019. The DGFT stated that the additional capacity of 1,30,000 MT was created after the Supreme Court’s order dated 09.10.2018. Sanvira then filed a writ petition before the Delhi High Court, which was adjourned to seek clarification from the Supreme Court.

The Supreme Court rejected Sanvira’s application for clarification on July 8, 2019. Following this, the Delhi High Court directed the DGFT to consider Sanvira’s representation. On February 13, 2020, the Union Ministry of Commerce rejected Sanvira’s request, stating that the capacity of each applicant was decided based on the Consent to Operate certificate available on the date of the Supreme Court order, i.e., 09.10.2018. Sanvira again challenged this decision in the Delhi High Court.

On April 17, 2020, the DGFT issued a public notice indicating that the annual quantity limitation would be operated on a fiscal year basis and that the total quantity permitted for import per annum was 1.4 Million MT for Raw Pet Coke for CPC manufacturing industry. The notice also required a State Pollution Control Board Certificate indicating capacity of the unit as on 9.10.2018. Sanvira applied, claiming a capacity of 330,000 MT as of September 2018. The Andhra Pradesh SPCB issued a letter on May 4, 2020, stating that Sanvira’s capacity was 330,000 MT per annum as of 09.10.2018. The DGFT held a meeting on June 3, 2020, to finalize the allocation, adopting a criteria that additional capacity added after 09.10.2018 would not be considered.

Rain CII challenged the increased allocation to Sanvira. A single judge of the Delhi High Court rejected Rain CII’s petition, holding that the Public Notice dated 17.04.2020 was not challenged by Rain CII and that the certificate issued by the APPCB was valid. Rain CII then filed appeals and writ petitions to the Division Bench of the Delhi High Court, which held that the fixation of 1.4 MMTPA was based on the total capacity of each of the calciners as of 09.10.2018 and that Sanvira’s increased capacity was not to be considered. The Division Bench set aside the decision of the single judge.

Legal Framework

The core of the legal framework in this case revolves around the interpretation and implementation of orders passed by the Supreme Court in the M.C. Mehta case, along with notifications and public notices issued by the Director General of Foreign Trade (DGFT) and the Ministry of Environment, Forest and Climate Change (MoEF). The key legal provisions and guidelines are:

• Supreme Court Order in M.C. Mehta v. Union of India [W.P. No 13029/1985]: The Supreme Court directed the implementation of the decision to restrict pet-coke imports to industries using it as feedstock, not fuel. This order was the basis for subsequent actions by the government.

• MoEF Office Memorandum dated 10.09.2018: This memorandum prescribed guidelines for regulating and monitoring the import of RPC. It mandated that importers obtain consent and registration from State Pollution Boards (SPB) or Pollution Control Committees (PCC). It also specified that the consent issued by the SPCB/PCC should clearly state the quantity permitted for import and its use on a per month and per annum basis.

  The relevant guidelines are:

  “1. Guidelines for Regulation and Monitoring of Imported Petcoke in India
  As per notification of Director General of Foreign Trade (DGFT) dated 17.08.2018, imported of Petcoke for use as fuel is prohibited. However, import of Petcoke is allowed for the following industries namely, cement, lime kiln, calcium carbide and gasification for use a feedstock or in the manufacturing process only on actual user basis as per the conditions stipulated below:
  (1) Petcoke importing industries namely, cement, like kiln, calcium carbide and gasification shall obtain the consent of and registration with the concerned State Pollution Control Boards (SPCB) / Pollution Control Committees (PCC).
  (2) Consent issued by the concerned SPCB /PCC shall clearly specify the quantity permitted for import and its use on a per month and per annum basis.
  (3) Only registered industrial units with valid consent from SPCBs/PCCs as per clause (1) shall be permitted to directly import pet coke and consignment shall be in the name of user industrial units for their own use only.
  (4) Import of pet coke for the purpose of trading shall not be permitted.
  (5) Authorised importers of Petcoke shall furnish opening and closing stock of imported Petcoke to the concerned SPCB/ PCC on a quarterly basis.”

• DGFT Notification dated 09.10.2018: This notification amended the foreign trade policy, allowing the import of RPC for specific industries as feedstock, with monitoring based on MoEF guidelines. It also set the import limit of RPC at 1.4 MMTPA.

• Public Notice No 50/2015-20 dated 26.11.2018: This public notice stipulated the manner in which DGFT would allocate the quota of RPC to eligible CPC manufacturing units. It required units to apply for an import license with a copy to the jurisdictional regional authority of DGFT, along with the capacity of the unit and the consent certificate from the State Pollution Control Board.

• Public Notice dated 17.04.2020: This public notice indicated the procedure for allocation of quota for the import of PET coke (RPC and CPC). It specified that the annual quantity limitation in import would be operated on a fiscal year basis and that the total quantity permitted for import per annum was 1.4 Million MT for Raw Pet Coke for CPC manufacturing industry. The notice also required a State Pollution Control Board Certificate (SPCB)/ Pollution Control Committee (PCC) indicating capacity of the unit as on 9.10.2018.

  The relevant part of the notice reads as follows:

  “All eligible entities desiring to avail quota as mentioned above may apply for import license as per procedure mentioned in Trade Notice No. 49 dated 15th March 2019 along with State Pollution Control Board Certificate (SPCB)/ Pollution Control Committee (PCC) indicating capacity of the unit as on 9.10.2018 (Hon’ble Supreme Court Order in Writ Petition No. 13029/1985) and also valid consent certificate from SPCB/ PCC, In the name of user industrial units indicating the quantity permitted for import and its usage on a monthly and yearly basis.”

Arguments

The arguments presented before the Supreme Court revolved around the interpretation of the Supreme Court’s order dated 09.10.2018, the various public notices issued by the DGFT, and the relevance of the Andhra Pradesh State Pollution Control Board (APPCB) certificate dated 04.05.2020. The main arguments of each party are summarized below:

Arguments of M/s. Sanvira Industries (Appellant)

• Change in Criteria: Sanvira argued that the Public Notice dated 17.04.2020 changed the criteria for determining production capacity. Unlike earlier notices that required certification of production capacity by the unit itself, the 17.04.2020 notice required certification by the SPCB. Sanvira claimed that the APPCB certified its production capacity as 330,000 MT as of 09.10.2018, and this figure should be considered.

• No Challenge to Public Notice: Sanvira contended that Rain CII did not challenge the Public Notice dated 17.04.2020 or the certificate issued by the APPCB regarding Sanvira’s production capacity. Therefore, Rain CII’s challenge was untenable.

• Supreme Court Orders: Sanvira argued that the Supreme Court’s orders dated 28.01.2019 and 08.07.2019 only clarified that the overall import of RPC was limited to 1.4 MMTPA. The court did not consider Sanvira’s claim that its production capacity was 330,000 MT as of 09.10.2018.

• Increased Capacity: Sanvira emphasized that it had initiated Phase-2 expansion in September 2017 to increase its capacity from 200,000 MTPA to 330,000 MTPA, which was completed in October 2018. The Consent to Operate was received from the AP Pollution Control Board on 29.11.2018.

• Reliance on APPCB Certificate: Sanvira relied on the APPCB certificate dated 04.05.2020, which stated that the installed capacity of Sanvira as on 09.10.2018 was 330,000 MT per annum.

Arguments of Rain CII Carbon (Vizag) Ltd. (Respondent)

• Consistent Stand: Rain CII argued that the Committee had consistently rejected requests for enhancement of allocation, stating that any capacity increase after 09.10.2018 would not be considered. This was reflected in the EPCA’s minutes and the GOI’s defense before the High Court.

• No Change in Circumstances: Rain CII contended that there was no change in circumstances or new facts that could have persuaded the committee to change its stand. The alleged increase in capacity was already mentioned in previous requests and applications before the Supreme Court.

• CTO as Basis: Rain CII emphasized that the calculation of capacity was based on the Consent to Operate (CTO) issued by the concerned Pollution Control Board. As per the CTO issued in favor of Sanvira, the capacity was 200,000 TPA.

• No New Development: Rain CII argued that the APPCB certificate issued almost two years after 09.10.2018, certifying the second phase of Sanvira’s expansion, was not a new development. The CTO, which was the basis for the capacity, was for 200,000 MTPA.

• 1.4 MMTPA Limit: Rain CII argued that the 1.4 MMTPA limit was based on the total capacity of each of the calciners as of 09.10.2018. Any adjustments were to be made within this limit, and it was not variable based on subsequent capacity increases.

Arguments of the Government of India (GOI)

• Consistent Position: The GOI initially supported the rejection of Sanvira’s request, stating that any capacity increase after 09.10.2018 would not be considered. This position was reflected in the minutes of meetings and submissions before the High Court.

• No Change in Allocation Method: The GOI, through its counsel, initially argued that there was no change in the allocation method by the public notice of 17.04.2020 and that Sanvira’s repeated requests for enhancement were an abuse of the process.

• Capacity as on 09.10.2018: The GOI argued that the capacity of each applicant was decided based on the Consent to Operate certificate available on 09.10.2018. Any other criteria would be a contentious issue.

Submissions Categorized by Main Submissions

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in a separate section. However, the core issue that the court addressed was:

1. Whether the allocation of imported raw pet-coke (RPC) should be based on the production capacity of a company at the time of the Supreme Court’s initial order (09.10.2018) or on a later enhanced capacity.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issue:

Authorities

The Supreme Court considered the following authorities in its judgment:

Judgment

The Supreme Court, in its judgment, upheld the decision of the Delhi High Court, ruling that the allocation of imported raw pet-coke (RPC) should be based on the production capacity of the companies as it stood on October 9, 2018. The Court rejected the arguments made by Sanvira, stating that the material document to be considered was the Consent to Operate (CTO), which for Sanvira, recorded the capacity at 200,000 TPA as on 09.10.2018.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• M.C. Mehta v. Union of India [W.P. No 13029/1985] The Court relied on its earlier order in this case, which directed the implementation of the decision to restrict pet-coke imports to industries using it as feedstock, not fuel. This order was thebasis for the subsequent actions by the government and the court’s decision.
• EPCA Report (No. 91) The Court relied on the EPCA report, which highlighted that RPC is a highly polluting fuel and that there was an agreement to control its import. The report also formed the basis for the 1.4 MMTPA cap, which was crucial in determining the allocation.
• MoEF Office Memorandum dated 10.09.2018 The Court relied on this memorandum, which prescribed guidelines for regulating and monitoring the import of RPC, requiring consent and registration from State Pollution Boards (SPB) or Pollution Control Committees (PCC).
• Public Notice No 50/2015-20 dated 26.11.2018 The Court relied on this public notice, which stipulated the manner in which DGFT would allocate the quota of RPC to eligible CPC manufacturing units.
• Public Notice dated 17.04.2020 The Court interpreted this notice as not changing the criteria for determining capacity. The Court held that the requirement of a State Pollution Control Board Certificate indicating capacity of the unit as on 9.10.2018 did not alter the fact that the capacity was to be determined based on the Consent to Operate (CTO) as on that date.

Decision

The Supreme Court dismissed the appeal filed by Sanvira Industries and upheld the decision of the Delhi High Court. The Court concluded that the allocation of imported raw pet-coke (RPC) should be based on the production capacity of the companies as it stood on October 9, 2018. The Court held that the Consent to Operate (CTO) was the material document to be considered, and for Sanvira, the CTO as on 09.10.2018 was 200,000 MT per annum. The Court rejected the argument that the certificate issued by the APPCB on 04.05.2020 changed the situation, as the CTO for the increased capacity was issued on 26.12.2019.

Ratio Decidendi

The ratio decidendi of the Supreme Court’s judgment is that the allocation of imported raw pet-coke (RPC) should be based on the production capacity of a company as it stood on the date when the Supreme Court initially capped the total import of RPC (i.e., October 9, 2018). The Court emphasized that subsequent increases in capacity should not be considered for allocation purposes. The Court also highlighted that the Consent to Operate (CTO) is the material document to be considered for determining the production capacity.

Obiter Dicta

The judgment does not contain significant obiter dicta. The Court focused on the specific facts and legal framework of the case. However, the Court’s emphasis on the importance of the Consent to Operate (CTO) as the primary document for determining production capacity can be considered as an obiter dictum, as it provides guidance on how similar cases should be approached.

Analysis

The Supreme Court’s decision in this case provides clarity on the interpretation of regulatory orders and notifications related to the allocation of restricted substances. The Court’s emphasis on the importance of the initial capacity at the time of the Supreme Court’s order ensures a level playing field for all companies involved. The decision also highlights the need for companies to adhere to the prescribed guidelines and procedures when seeking allocation of restricted substances.

The Court’s rejection of Sanvira’s argument that the APPCB certificate changed the situation underscores the principle that regulatory decisions should be based on the facts as they stood at the time of the decision. The Court’s consistent reliance on the Consent to Operate (CTO) as the primary document for determining capacity provides a clear guideline for future cases.

This case also highlights the importance of timelines in regulatory matters. The Court’s adherence to the date of the Supreme Court’s initial order (09.10.2018) as the cut-off date for determining capacity underscores the principle that regulatory decisions should be based on the facts as they stood at the time of the decision. The Court’s rejection of Sanvira’s argument that the APPCB certificate changed the situation underscores the principle that regulatory decisions should be based on the facts as they stood at the time of the decision.

The consistent position taken by the Government of India (GOI) and the Environment Pollution (Prevention and Control) Authority (EPCA) that capacity increases after the cut-off date would not be considered was also a key factor in the Court’s decision. This highlights the importance of regulatory consistency and the need to adhere to established procedures.

Flowchart of the Case

Ratio of Allocation

The Supreme Court upheld the decision that the allocation of RPC should be based on the capacity as on 09.10.2018. The following table shows the allocation ratio based on the capacity as on 09.10.2018:

Note: The specific capacity of Rain CII Carbon and other calciners as on 09.10.2018 was not mentioned in the judgment, but the allocation was based on their respective capacities as of that date. The total import of RPC was capped at 1.4 MMTPA, and the allocation was to be made within this limit based on the capacity of each company as of 09.10.2018.