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

Introduction

Date of the Judgment: July 3, 2023

Citation: 2023 INSC 586

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

Can a company’s allocation of a restricted resource be increased based on a later claim of enhanced production capacity? 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. The court had previously set a cap on the total import of RPC, and this case revolved around whether a company could claim a larger share based on increased capacity after that cap was set.

The Supreme Court, in this judgment, clarified 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 of the court’s initial order, not on any later claimed enhanced capacity. This decision has significant implications for how resources are allocated and regulated in India. The judgment was delivered by a division bench comprising Justice S. Ravindra Bhat and Justice Dipankar Datta.

Case Background

The case revolves around the allocation of imported raw pet-coke (RPC), a residue from petroleum refining used as fuel. Due to its polluting nature, the import of RPC was restricted to industries using it as a feedstock, not as fuel.

Initially, the Director General of Foreign Trade (DGFT) determined the criteria for allocating imported RPC. On July 18, 2018, the Ministry of Environment, Forest and Climate Change (MoEF) decided to restrict pet-coke imports to industries using it as a feedstock. The Supreme Court, in the M.C. Mehta case, directed the implementation of this decision on July 26, 2018.

The Environment Pollution Control Authority (EPCA) filed a report on October 6, 2018, recommending a total import requirement of 1.4 million tonnes per annum (MTPA) of RPC. This was based on the production capacities of various calciners, including Sanvira Industries, whose capacity was recorded as 200,000 MTPA.

On October 9, 2018, the Supreme Court ordered that RPC import should not exceed 1.4 MMTPA, to be used as feedstock for producing calcined pet coke (CPC). Following this, the DGFT issued a notification allowing RPC import for specific industries on an actual user basis.

Sanvira Industries claimed its production capacity was 330,000 MTPA, not 200,000 MTPA, due to a Phase-2 expansion completed in October 2018. They sought an increased allocation of RPC, which was rejected by the DGFT. This rejection was challenged in various applications and writ petitions, eventually reaching the Supreme Court.

The core dispute arose because Sanvira argued that its increased capacity should be considered for allocation, while the authorities maintained that the allocation should be based on the capacity as of October 9, 2018, when the Supreme Court set the import limit.

Timeline:

Course of Proceedings

Sanvira’s initial challenge to the allocation was through an application in the M.C. Mehta case, which was dismissed by the Supreme Court on January 28, 2019.

Sanvira then filed a writ petition before the Delhi High Court, which directed the DGFT to consider Sanvira’s representation. The Union Ministry of Commerce rejected Sanvira’s request on February 13, 2020, stating that the capacity was decided based on the Consent to Operate certificate available on October 9, 2018.

Sanvira again challenged this decision in the Delhi High Court. The High Court dismissed Sanvira’s application, observing that the relief could not be claimed by an application.

A single judge of the Delhi High Court initially ruled in favor of Sanvira, stating that the public notice of April 17, 2020, changed the criteria for allocation. However, this decision was overturned by the Division Bench of the Delhi High Court, which held that the allocation should be based on the capacity as of October 9, 2018.

The Division Bench held that the total limit of import of 1.4 MMTPA was based on the total production capacity as on 09.10.2018, which had been fixed by the court on the basis of the capacity disclosed by the calciners themselves.

The appeals against the Division Bench judgment were then filed before the Supreme Court.

Legal Framework

The legal framework for this case includes several key components:

✓ The initial decision by the Ministry of Environment, Forest and Climate Change (MoEF) on July 18, 2018, to restrict pet-coke imports to industries using it as feedstock.

✓ The Supreme Court’s order on July 26, 2018, in the M.C. Mehta case, directing the implementation of the MoEF’s decision.

✓ The MoEF’s office memorandum dated September 10, 2018, prescribing guidelines for the regulation and monitoring of imported RPC. These guidelines mandated that importers obtain consent and registration from the State Pollution Board or Pollution Control Committee (SPB/PCC).

✓ The notification issued by the Director General of Foreign Trade (DGFT) on October 9, 2018, amending the foreign trade policy to allow import of RPC for specific industries on an actual user basis.

✓ Public notice issued by the Ministry of Commerce and Industries on November 26, 2018, stipulating the manner in which DGFT would allocate the quota of RPC.

✓ Public notice dated 17.04.2020, which required a certificate from the State Pollution Control Board (SPCB) indicating the capacity of the unit as on 09.10.2018, along with a valid consent certificate from SPCB/PCC.

The guidelines issued by the MoEF on September 10, 2018, 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.

Arguments

Sanvira Industries’ Arguments:

• Sanvira contended that its production capacity was 330,000 MTPA as of September 2018, prior to the Supreme Court’s order on October 9, 2018.
• Sanvira argued that the public notice dated April 17, 2020, changed the criteria for allocation by requiring a certificate from the State Pollution Control Board (SPCB) indicating the capacity of the unit as on 09.10.2018, and that the certificate from APPCB confirmed its capacity as 330,000 MTPA.
• Sanvira claimed that the Supreme Court’s orders of January 28, 2019, and July 8, 2019, only clarified that the overall import of RPC was limited to 1.4 MMTPA and did not address its claim that its production capacity was 330,000 MTPA as of October 9, 2018.
• Sanvira relied on an inspection report by the State Bank of India and a report by an inspecting officer of the APPCB, both dated prior to October 9, 2018, to support its claim of increased capacity.

Rain CII Carbon’s Arguments:

• Rain CII argued that the allocation should be based on the production capacity as of October 9, 2018, when the Supreme Court set the import limit at 1.4 MMTPA.
• Rain CII contended that the committee had consistently rejected requests for enhanced allocation based on capacity increases after October 9, 2018.
• Rain CII highlighted that Sanvira’s claims of increased capacity were already presented in previous requests for enhancement and in applications before the Supreme Court, and that the certificate from APPCB was not a new development.
• Rain CII argued that the total limit of import of 1.4 MMTPA was based on the total production capacity as on 09.10.2018, which had been fixed by the court on the basis of the capacity disclosed by the calciners themselves.
• Rain CII pointed out that the Consent to Operate (CTO) issued by APPCB in Sanvira’s favor recorded the total capacity at 200,000 TPA, and the CTO for the increased capacity was issued only on November 29, 2018, after the cut-off date.

Government of India’s Arguments:

• The Government of India initially supported the rejection of Sanvira’s request for increased allocation, stating that any capacity increase after October 9, 2018, would not be considered.
• The Government of India argued that Sanvira was abusing the judicial process by repeatedly requesting the same relief.
• However, the GOI later changed its position and argued that the public notice of April 17, 2020, changed the criteria for allocation, and that the certificate from APPCB should be considered.

The innovativeness of the arguments lies in Sanvira’s attempt to leverage the change in criteria in the public notice of April 17, 2020, to claim an increased allocation based on a certificate from the APPCB, despite the consistent position of the authorities that capacity increases after October 9, 2018, would not be considered.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame 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 (October 9, 2018), or on a later claimed enhanced capacity.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court relied on the following authorities:

Cases:

• M.C. Mehta v. Union of India [W.P. No 13029/1985] (Supreme Court of India): This case was the basis for the initial restrictions on pet-coke imports and the subsequent orders regarding allocation. The court referred to this case to highlight the context of the environmental concerns that led to the restrictions on pet-coke imports.

Legal Provisions:

• Notification of Director General of Foreign Trade (DGFT) dated 17.08.2018: This notification prohibited import of Petcoke for use as fuel, but allowed import for certain industries for use as feedstock or in the manufacturing process.
• Guidelines for Regulation and Monitoring of Imported Petcoke in India issued by MOEF on 10.09.2018: These guidelines stipulated that industries importing petcoke must obtain consent and registration from the concerned State Pollution Control Boards (SPCB) / Pollution Control Committees (PCC). The consent was to specify the quantity permitted for import and its use on a per month and per annum basis.

The court considered these authorities to determine the basis for the allocation of imported pet-coke and to ensure that the allocation was consistent with the environmental concerns and the court’s previous orders.

Judgment

The Supreme Court upheld the decision of the Division Bench of the Delhi High Court, ruling against Sanvira Industries. The court found no infirmity in the Division Bench’s findings and conclusions.

The court emphasized that the outer limit of import of RPC was fixed at 1.4 million tonnes per annum based on the assessment by EPCA, which considered the availability of appropriate grade domestic pet-coke, the overall impact on the environment and climate, and the figures provided by the industry itself.

The court noted that the EPCA report clearly stated that the total capacity was 1.17 million tonnes, based on the Consent to Operate (CTO) issued by the concerned Pollution Control Board. In the case of Sanvira, the capacity recorded was 200,000 MTPA.

The court rejected Sanvira’s argument that the public notice dated April 17, 2020, changed the criteria for allocation. The court held that the relevant document to be considered was the CTO, which for the relevant period (i.e., as on 09.10.2018) was 200,000 MT per annum for Sanvira.

The court held that the clarification of APPCB, that as on a particular date, the production capacity was 3,30,000 MTPA was of no consequence, because it was the CTO that was considered all along, in all previous meetings.

The court dismissed the appeals, without order on costs.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to maintain consistency and adhere to the established framework for the allocation of imported pet-coke. The court emphasized the following points:

• Consistency with Previous Orders: The court stressed that the total import limit of 1.4 MMTPA was based on the total production capacity as of 09.10.2018, and any deviation would undermine the established framework.
• Adherence to CTO: The court gave significant weight to the Consent to Operate (CTO) issued by the APPCB, which recorded Sanvira’s capacity as 200,000 TPA as of the relevant date.
• Rejection of Changed Criteria: The court rejected the argument that the public notice of April 17, 2020, changed the criteria for allocation, emphasizing that the SPCB certificate was merely a clarification of the capacity as of 09.10.2018.
• No Change in Circumstances: The court noted that there was no change in circumstances, as the material document to be considered was the CTO, which for the relevant period was 200,000 MT per annum for Sanvira.
• Rejection of Sanvira’s Claim: The court rejected Sanvira’s claim that its capacity was 330,000 MTPA as of September 2018, stating that the CTO for the increased capacity was issued after the cut-off date.

The court’s reasoning indicates a strong emphasis on maintaining the integrity of the established regulatory framework and ensuring that allocations are based on consistent and reliable data.

The sentiment analysis of the reasons given by the Supreme Court is as follows:

The ratio of fact to law in the court’s decision is as follows:

This indicates that the court gave more weight to the factual aspects of the case, such as the CTO and the dates of various notifications and orders, than to purely legal interpretations.

Logical Reasoning:

Final Verdict

The Supreme Court dismissed the appeals filed by Sanvira Industries, thereby upholding the decision of the Division Bench of the Delhi High Court. The court did not impose any costs on the parties.

The judgment reinforces 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 of the court’s initial order (October 9, 2018), and not on any later claimed enhanced capacity.

The court’s decision ensures that the total import limit of 1.4 MMTPA is maintained, and the allocation is based on the capacities as they existed when the limit was set. This ruling has significant implications for how resources are allocated and regulated in India, particularly in cases where environmental concerns necessitate restrictions on resource use.

Implications

For Sanvira Industries:

• Sanvira Industries will not receive an increased allocation of imported RPC based on its claimed enhanced capacity.
• The company will have to operate within the allocation based on its original capacity of 200,000 MTPA as of October 9, 2018.
• The decision may impact Sanvira’s production plans and its competitive position in the market, as it will have access to a smaller quantity of RPC than it had sought.

For Rain CII Carbon:

• Rain CII Carbon’s position that the allocation should be based on the original capacity as of October 9, 2018, was upheld by the Supreme Court.
• The judgment provides certainty and stability to the allocation process, ensuring that the total import limit of 1.4 MMTPA is maintained.

For the Legal Landscape:

• The judgment clarifies that the allocation of restricted resources should be based on the capacity at the time of the initial order or decision, and not on later claims of enhanced capacity.
• The decision emphasizes the importance of maintaining consistency and adherence to the established regulatory framework.
• It reinforces the principle that the courts will not easily allow changes to the allocation process based on subsequent claims that were not part of the original decision-making.

For the Regulatory Framework:

• The judgment highlights the importance of accurate and reliable data in the allocation of restricted resources.
• It underscores the need for regulatory bodies to establish clear and transparent criteria for allocation and to ensure that these criteria are consistently applied.
• The decision may prompt regulatory bodies to review their procedures for allocating resources and to ensure that they are robust and resistant to manipulation.

Critical Analysis

Strengths of the Judgment:

• Consistency and Stability: The judgment provides consistency and stability to the allocation process by upholding the original criteria for allocation based on the capacity as of October 9, 2018.
• Clarity on Capacity: The court clearly emphasized that the relevant capacity is the one recorded in the Consent to Operate (CTO) and not any later claim of enhanced capacity.
• Adherence to Regulatory Framework: The judgment reinforces the importance of adhering to the established regulatory framework and not allowing changes based on subsequent claims.
• Environmental Considerations: The court’s decision aligns with the environmental concerns that led to the restrictions on pet-coke imports, ensuring that the total import limit is maintained.

Weaknesses of the Judgment:

• Rigidity in Approach: The court’s rigid adherence to the capacity as of October 9, 2018, might be seen as a weakness, as it does not allow for any flexibility to consider genuine capacity enhancements that may have occurred after the cut-off date.
• Potential for Injustice: The judgment may result in some companies being unfairly disadvantaged if they had genuinely increased their capacity shortly after the cut-off date but were not able to get it officially recorded.
• Limited Consideration of Public Notice: While the court rejected the argument that the public notice of April 17, 2020, changed the criteria, it could have explored the intent behind that notice more thoroughly.

Potential Implications for Future Cases:

• Precedent for Resource Allocation: The judgment sets a precedent for how restricted resources should be allocated, emphasizing the importance of the capacity at the time of the initial order or decision.
• Need for Clear Regulatory Frameworks: The decision underscores the need for regulatory bodies to establish clear, transparent, and robust frameworks for allocating resources, with well-defined cut-off dates and criteria.
• Importance of Documentation: The judgment highlights the importance of accurate and timely documentation of capacity and other relevant information.
• Potential for Future Litigation: The judgment may lead to future litigation if companies feel that their genuine capacity enhancements are not being considered due to a rigid application of the cut-off date.

Overall, the judgment is a significant step towards ensuring consistency and stability in the allocation of restricted resources. However, it also highlights the need for a more flexible approach that can take into account genuine changes in circumstances while ensuring environmental protection.