The Uttar Pradesh government has approached the Supreme Court, challenging the Allahabad High Court’s order to offer incentives to Bajaj Hindusthan promised under a policy initiated by the state in 2004 to attract investment in the sugar sector.

In a special leave petition before the apex court, UP’s advocate Ardhendumauli Kumar Prasad submitted that “rescinding the benefits under the Sugar Policy of 2004 was valid in law” and the Allahabad High Court “ought to have considered that the (state government’s) order dated July 7, 2007, was passed as a policy decision, and hence was not amiable to the writ jurisdiction of the Honourable High Court”.

The petition also contended that the state exchequer was facing a “heavy financial burden of about Rs 3,500 crore”, which forced it to revoke the sugar policy in “overwhelming public interest”.

A bench, headed by Justice Vikramajit Sen, has issued notices to Bajaj and others. Some other sugar mills had filed applications to be impleaded as parties in the case.

To lure investors, the Mulayam Singh Yadav-led UP government had firmed up the policy under which eligible mills were entitled to incentives, including exemption from entry tax on sugar, trade tax on molasses, stamp duty and registration charges on purchase of land, purchase tax on cane and reimbursement on transport of sugar, and a capital subsidy of 10% on the investment made. However, just within a week of Mayawati coming to power in 2007, the policy was “scrapped” through an executive order, leaving the mills that had taken huge loans to fund the expansion strapped for funds. While some mills that had made early investments under the policy, including Bajaj Hindusthan, had been granted the incentives for a while, many others couldn’t reap the benefits.

Interestingly, the Akhilesh Yadav government is now seeking to endorse the decision taken by Mayawati and is opposed to providing incentives announced by the Mulayam Singh Yadav government.

Criticising the state’s move, the Allahabad High Court had last year ruled that the abrupt suspension of policy was “arbitrary” and done “without application of mind”. The verdict was in favour of Bajaj primarily on three counts: the doctrine of promissory estoppel that mandates the state to fulfil its promise; the court’s ruling that a legislative enactment made by a notification under a statute can’t be cancelled through an executive order; and non-withdrawal of notifications under which various exemptions and incentives were proposed to be extended.

Challenging the verdict, the latest petition by the state before the Supreme Court said the high court ought to have considered that “there was no eligibility certificate granted” for offering incentives, so “no exemption could be granted” and the issue of promissory estoppel,too, did not apply in the present case.

It also contended that the state is “entitled to withdraw, alter or amend its policy decision, if such a decision of withdrawal is taken in overwhelming public interest”.