Karnataka sugar mills breathe easy as SC stays recovery proceedings

The Supreme Court has stayed the recovery proceedings likely to be initiated by the Karnataka government against sugar mills for failure to pay dues worth more than R100 crore towards additional sugarcane price for 2007-08.

A bench headed by Justice KS Radhakrishnan, while seeking a reply from the ministry of consumer affairs, Karnataka government, and the commissioner for cane development and director of sugar, stayed the operation of the Karnataka High Court's order till the first week of March after the South Indian Sugar Mills Association questioned the powers of the commissioner for sugar and director of sugar to direct its 45 members to pay the additional sugarcane price of R160 per metric tonne for 2007-08 in lieu of the concessions allegedly extended by the state government to save the sugar industry.

Senior counsel Harish Salve and counsel Balaji Srinivasan, appearing for the association, argued the HC judgment was liable to be set aside as the Karnataka government's order of March 31, 2008 was not a consent order but a concessional order granting various exemptions, including excise duty for a limited period, to support the industry,

which was facing a severe financial crisis as the price of sugar had fallen below the levy price.

They contended that the impugned judgment was "inherently contradictory" as, after reaching the conclusion that the central government alone was competent to fix the sugarcane price, it held that the March 2008 order was not an order passed under the Sugar Cane (Control) Order 1966, but of a quid pro quo nature and also a consent order.

The state government had in March 2008 directed sugar factories to pay the additional sugarcane price of R160 per mt for the sugar season 2007-08 while extending small concessions such as exemption of purchase tax and subsidy for extended crushing operations.

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