Narmada Sugar secures stay order against reduction in ethanol production quota

In a relief to M/s Narmada Sugar Pvt. Ltd., the Madhya Pradesh High Court on March 18 has stayed the reduction in its ethanol production quota imposed by the Union of India.

The writ petition (WP No. 5176 of 2024) filed by Narmada Sugar challenged the reduction in the quantity of ethanol production allowed under a Letter of Award (LOA) for the period 01.11.2023 to 31.10.2024.

The petitioner argued that they had entered into a contract with the concerned government departments (respondents 3, 4, and 5) based on the LOA, which specified a specific production quota. However, the government subsequently reduced this quota through impugned orders dated December 7th, 15th, and 20th, 2023 (Annexure P-6, P-7 & P-8).

Narmada Sugar argued that the unilateral reduction by the government violated the terms of the contract and would cause them significant financial losses as they had already geared up for the originally agreed-upon production level.

The petitioner’s counsel, Shri Naman Nagrath, also cited a similar case decided by the Karnataka High Court (Writ Petition No.107496 of 2023 – Hermes Distilleries Pvt. Ltd. Vs. Union of India) where a reduction in quota was stayed under similar circumstances.

A division bench of the Madhya Pradesh High Court, comprising Chief Justice Ravi Malimath and Justice Vishal Mishra, found merit in the petitioner’s arguments. The court noted, “On considering the same, we are of the view that by unilaterally reducing the quantum agreed upon earlier, which certainly have adverse affect on the petitioner, prima facie would be against the terms of the contract. Hence, we are of the view that the impugned orders require to be stayed.”

Consequently, stay of the impugned orders dated 07.12.2023 (Annexure P-6), 15.12.2013 (Annexure P-7) and 20.12.2023 (Annexure P-8) so far as they relate to the petitioner, until further orders.

The court has issued a rule nisi. Respondents are at liberty to file an application seeking vacation/modification of this order.

This development could have wider implications for the ethanol production industry, particularly for companies facing similar quota reductions. The final outcome of the case will depend on the arguments presented by both sides and the court’s interpretation of the contract terms.

Read copy of the order


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