Hyderabad: The Telangana High Court upheld the state government’s decision to cancel an oil palm factory zone in Suryapet district allotted to Patanjali Foods Limited, holding that the company failed to set up a processing unit within the agreed timeframe despite repeated extensions.
A division bench of Chief Justice Aparesh Kumar Singh and Justice GM Mohiuddin dismissed Patanjali’s appeal against an earlier single-judge ruling that had upheld the cancellation. The court also found the company’s performance in meeting plantation targets in the zone unsatisfactory, with only about 14 per cent of the proposed area actually covered.
“Admittedly, the appellant failed to establish the processing unit within the stipulated period and continued to remain in default despite repeated opportunities and extensions afforded by the respondents,” the court observed, holding that the company could not expect the allotment to continue indefinitely in the face of its own admitted failure to meet its obligations.
Background of dispute
Patanjali has been engaged in oil palm cultivation in the state since 2009, initially through MAC Oil Palm Limited, which was later merged into the company. In 2017, it signed a second memorandum of agreement (MOA) with the state government. Under that agreement, the company was required to set up an oil palm processing unit within 24 months and to identify and finalise a site for it within two years of receiving the final allotment order.
The company was later allotted additional areas in Nalgonda and Suryapet districts, and in June 2021 gave a sworn undertaking to abide by the MOA’s terms for those extended areas, an affidavit that expressly acknowledged that failing to comply could result in forfeiture of its deposit and cancellation of the factory zone.
Authorities issued a first show-cause notice in December 2022, alleging the company had missed its plantation targets and failed to build the required processing mill. Further notices followed in December 2023 and October 2024. Patanjali blamed the delays on a shortage of planting material, deficit rainfall and price fluctuations. It said in early 2025 that it had bought 16.24 acres in Nalgonda district for the mill.
The state cancelled the Suryapet factory zone through a government order dated March 15, 2025, and re-allotted the zone to another party the same day. Patanjali challenged both orders.
Patanjali’s arguments rejected
Before the division bench, Patanjali argued that the MOA permitted cancellation only where a company failed to furnish information and documents sought by the Commissioner of Horticulture and that failing to build a processing mill within 24 months did not by itself justify cancellation.
It relied on a separate clause requiring companies that have not yet begun processing to keep buying Fresh Fruit Bunches (FFB) from farmers at government-notified rates and transport them to the nearest processing unit at their own cost. This requirement, it said, was met by procuring FFBs from Suryapet farmers and processing them at its unit in Andhra Pradesh.
The court rejected this, holding that the two clauses operate in “distinct fields” – one protects farmers by ensuring their produce continues to be bought while a mill is pending, while the other provides for regulatory consequences when a company fails to show it is taking effective steps to meet its obligations.
“The requirement of furnishing information and documents is not an end in itself but serves the purpose of enabling the Commissioner to satisfy himself that the occupier is taking effective steps towards fulfilment of the obligations,” the bench said, holding that all the clauses had to be read together as part of an “integrated contractual framework.”
Patanjali also argued that time was not of the essence in the contract, pointing to the state having allowed it to continue operating past the deadline and issuing repeated notices instead of cancelling outright. The bench held it was unnecessary to settle that question, since even if time was not strictly essential, the obligation to build the processing unit remained binding.
High Court finds state’s action justifiable
The court held the state’s action was neither arbitrary nor excessive, noting that authorities had issued successive show-cause notices, considered the company’s explanations and granted it a personal hearing before cancelling the zone.
It also declined to give weight to Patanjali’s overall ranking under the National Mission on Edible Oils–Oil Palm Scheme, holding that the only relevant question was whether the company had met its specific obligations for the Suryapet zone.
Steps taken by the company after the cancellation, including further land purchases, land-use conversion and an application under the state’s TS-iPASS single-window clearance system, were dismissed as “belated,” with the court holding that they could not invalidate an action that was justified on the material available to authorities at the time it was taken.
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