Real Estate News

SEZ derecognition not enable, feel experts

THE government's plan to withdraw recognition to special economic zones (SEZs) in Goa could be legally untenable. Legal experts point out that there are a number of recent cases where the apex court had ruled that withdrawal of promised exemptions, after companies make investment decisions relying on them, is violative of the Constitution. If pharma major Cipla, which has a notified SEZ in Goa and is considering a legal challenge, files a case against the government, the verdict would be in favour of the company as there is no provision in the SEZ Act to denotify SEZs, an official handling SEZs said.

Cipla, which has started the process of legal consultations, is yet to take a decision on its future course of action. "Denotifying the SEZs will have major revenue and contractual implications for investors. We are consulting legal experts and are exploring various options. We will take a call in a week," Cipla joint MD Amar Lulla told ET.

Corporate lawyers said the Supreme Court has precluded the government from revoking fiscal and other exemptions granted after an entrepreneur irrevocably alters his position pursuant to promised incentives. This is because the investor enters into contractual obligations and other commitments relying on the promised sops, withdrawal of which could result in losses. The court rulings are based on the doctrine of promisory estoppelthat protects entrepreneurs from arbitrary revocation of policies. The government's right to review policies is subject to this principle and applies not just to policy statements, which are executive orders, but also to the more powerful legislative enactments passed by Parliament, they added.

According to a member of the board of approval (BoA) for SEZs, notified SEZs cannot be denotified as there is no provision in the SEZ Act for this. If a state government wants to discontinue with SEZs, it should agree to compensate the developers to the extent of losses suffered and reach a satisfactory settlement which would lead to a withdrawal of application by the developer. ?The BoA doesn?t approve even a single SEZ without the nod of the state government. If the state has a problem, it has to settle it with the developer,? the official said.

To preserve the government's credibility towards investors, the Supreme Court prevented the UP Power Corporation from reducing a hill development rebate offered to investors in a recent order. "(When) government offers certain benefits to attract entrepreneurs, they act on those beneficial offers. Thereafter, if the government withdraws those benefits, it seriously affects the credibility of the government and shows shortsightedness of governance. To keep the faith of people, the government and its instrumentality should abide by their commitments," the court said.

Centre has power to denotify: Nath

COMMERCE and industry minister Kamal Nath on Monday reiterated his stand that the Centre could denotify SEZs if they get formal directive from the states concerned. Mr Nath said the SEZ Act provides for review of notified SEZs after consultations with the respective state governments.

Last week, Mr Nath had a meeting with Goa chief minister Digambar Kamat who asked for cancellation of all 15 SEZs in the state. The minister also said that SEZs would not be thrust upon any state. Source : Economics times 08 01 08 , Gireesh Chandra Prasad & Amiti Sen NEW DELHI << Back