Telangana High Court Upholds Cancellation Of Patanjali Foods' Palm Oil Factory Zone Over Failure To Set Up Processing Unit

The Telangana High Court has upheld the State Government's decision to cancel the Suryapet oil palm factory zone allotted to Patanjali Foods Limited, finding that the company failed to establish a processing unit within the stipulated period despite repeated opportunities. [2026 LiveLaw (Tel) 128]The Court also noted its unsatisfactory performance in achieving the agreed plantation targets.A Division Bench of Chief Justice Aparesh Kumar Singh and Justice G.M. Mohiuddin dismissed Patanjali Foods' appeal against a Single Judge's order which had upheld the cancellation. It held that Patanjali could not claim a legitimate expectation that the allotment would continue indefinitely despite its failure to comply with the obligations under its Memorandum of Agreement (MOA) with the State wherein under Clause 5(b), the company was required to establish an oil palm processing unit within 24 months of entering into the agreement.The Court observed:"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 appellant cannot legitimately expect the respondents to indefinitely continue the allotment despite its admitted failure to discharge the obligations undertaken under the 2nd MOA. The continued procurement of FFBs in terms of Clause 15 cannot create a legitimate expectation that the respondents would forbear from exercising the powers available to them under the contractual and statutory framework."The Court held that the State's action was neither arbitrary nor disproportionate. It noted that the authorities had issued successive show-cause notices, considered the company's explanations and afforded it a personal hearing before cancelling the Suryapet factory zone.The dispute arose from the cancellation of Patanjali Foods' factory zone in Suryapet District through G.O.Ms.No.13 dated March 15, 2025. Through another Government Order issued on the same day, the zone was re-allotted to respondent No.4. Patanjali challenged both orders before the High Court.Patanjali has been engaged in oil palm cultivation in the State since 2009, initially through MAC Oil Palm Limited, which was subsequently amalgamated with the company. In 2017, Patanjali entered into a second MOA with the State Government represented by the Commissioner of Horticulture.Under Clause 5(b) of the MOA, the company was required to establish an oil palm processing unit within 24 months of entering into the agreement. Clause 6 required it to identify and finalise the site for the processing unit within two years from receipt of the final order allotting the zones.The company was subsequently allotted additional areas in Nalgonda and Suryapet districts. It also furnished an affidavit in June 2021 undertaking to abide by the terms of the MOA for the extended areas.The authorities issued the first show-cause notice in December 2022, alleging that Patanjali had failed to achieve plantation targets and establish the required processing mill. Further show-cause notices were issued in December 2023 and October 2024.Patanjali attributed the delays to factors including shortage of planting material, deficit rainfall and fluctuations in market prices. It also informed the authorities that it was taking steps to identify and acquire land for the processing unit. In January and March 2025, it informed the authorities that it had purchased 16.24 acres in Nalgonda District for establishing the mill.Before the Division Bench, Patanjali argued that Clause 13 of the MOA permitted cancellation only for failure to furnish information and documents sought by the Commissioner of Horticulture. It contended that failure to establish a processing mill within 24 months did not itself attract cancellation.It relied on Clause 15, which provides that where an occupier fails to commence processing within the stipulated time, it must continue procuring Fresh Fruit Bunches (FFBs) from farmers at Government-notified rates and arrange for their transportation to the nearest processing unit at its own cost. Patanjali submitted that it had complied with this requirement by procuring FFBs from farmers in Suryapet and processing them at its unit in Andhra Pradesh.Rejecting this interpretation, the Court held that Clauses 13 and 15 operate in "distinct fields". While Clause 15 protects farmers by ensuring uninterrupted procurement pending establishment of the processing unit, Clause 13 provides for regulatory consequences when the occupier fails to demonstrate that effective steps are being taken to comply with its obligations.The Bench said:"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 expressly enumerated therein, including establishment of the oil palm...

Telangana High Court Upholds Cancellation Of Patanjali Foods' Palm Oil Factory Zone Over Failure To Set Up Processing Unit

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Telangana High Court Upholds Cancellation Of Patanjali Foods' Palm Oil Factory Zone Over Failure To Set Up Processing Unit

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