Telangana HC Upholds Cancellation of Patanjali Foods' Suryapet Oil Palm Factory Zone for Failing to Set Up Processing Mill

A Division Bench dismissed Patanjali Foods' writ appeal, holding the cancellation of its Suryapet factory zone was contractually justified after years of non-compliance and unsatisfactory plantation performance.

The High Court for the State of Telangana, in a judgment delivered on 3 August 2026, dismissed the writ appeal filed by Patanjali Foods Limited against the cancellation of its oil palm factory zone in Suryapet District. The Division Bench, comprising Chief Justice Aparesh Kumar Singh and Justice G.M. Mohiuddin, affirmed the order of the learned Single Judge in W.P.No.9604 of 2025, which had upheld G.O.Ms.No.13 and G.O.Ms.No.14, both dated 15 March 2025, by which the State cancelled the Suryapet factory zone and re-allotted it to Respondent No.4. The Bench held that the cancellation was grounded in the appellant's admitted failure to establish a processing mill within the contractually stipulated 24-month period, its unsatisfactory plantation performance covering only about 14% of the targeted area, and the undertaking it had itself furnished in an affidavit dated 28 June 2021.

The Dispute Before the Division Bench

Patanjali Foods Limited — which had been operating in oil palm cultivation in Telangana since 2009, initially as MAC Oil Palm Limited — held factory zones in Nalgonda and Suryapet Districts under the Telangana Oil Palm (Regulation of Production and Processing) Act, 1993. The allocation of the Suryapet zone was made by G.O.Ms.No.60 dated 16 December 2020, with four additional mandals added by G.O.Ms.No.24 dated 10 June 2021.

The governing instrument was a Memorandum of Agreement dated 15 March 2017 (the 2nd MOA) between the appellant and the State Government, represented by the Commissioner of Horticulture. Clause 5(b) of the 2nd MOA required the appellant to establish a processing unit within 24 months of executing the agreement. Clause 6 required the site to be identified and finalised within two years of the final allotment order.

Respondent No.1 issued three successive show cause notices — on 12 December 2022, 19 December 2023, and 5 October 2024 — citing failure to achieve plantation targets and non-establishment of the processing mill. A personal hearing was held on 30 December 2024. Notwithstanding the appellant's replies and its communications in January and March 2025 that it had purchased 16.24 acres at Yacharam Village, Nalgonda District, the State proceeded to cancel the Suryapet factory zone on 15 March 2025 and re-allot it to Respondent No.4 on the same date. The appellant challenged both Government Orders before the Single Judge, who dismissed the writ petition on 8 January 2026. The present writ appeal, filed under Clause 15 of the Letters Patent, challenged that dismissal.

The Appellant's Case

Senior Counsel Mr. S. Sriram, representing M/s. TLH Advocates and Solicitors for the appellant, advanced several arguments. He contended that Clause 13 of the 2nd MOA was confined to the obligation of furnishing information and documents; cancellation could follow only upon failure to furnish those documents, not upon substantive non-performance. Clause 15, he argued, specifically addressed the consequence of delay in commissioning a processing mill — requiring continued procurement of Fresh Fruit Bunches (FFBs) from farmers — and conspicuously did not provide for cancellation.

The appellant argued that time was never the essence of the 2nd MOA, pointing to the absence of any express provision to that effect and to the respondents' own conduct in issuing repeated notices rather than cancelling immediately after the 24-month period expired. It also contended that cancellation was grossly disproportionate given its investment of approximately Rs.49.53 crores across Nalgonda and Suryapet Districts, its continued procurement of FFBs at Government-notified prices through collection centres, and the fact that it ranked fourth among fourteen companies implementing the NMEO-OP scheme despite operating in only two districts.

The appellant further pressed the contra proferentem principle, arguing that any ambiguity in the standard-form government-drafted MOA should be read against the drafter. It also relied on subsequent developments during the pendency of the appeal: a registered sale deed dated 16 July 2025 for an additional 5.20 acres, an agreement of sale dated 23 May 2025 for 1.16 acres, approval of land conversion applications under the Telangana Non-Agricultural Lands Assessment Act on 2 August 2025, and the filing of an application under the TS-iPASS system for statutory approvals.

The State's Position

Mrs. B. Mohana Reddy, Government Pleader for Agriculture and Cooperation Department, and Mr. Sannapaneni Lohith for Respondent No.4, argued that judicial review of commercial and contractual decisions of the State is narrow, confined to illegality, irrationality, procedural impropriety, or manifest arbitrariness.

The respondents pointed out that G.O.Ms.No.60 dated 16 December 2020 had prescribed additional conditions, including execution of a new MOA in the prescribed format annexed to that Government Order, which the appellant never executed. The affidavit of 28 June 2021 acknowledged that failure to comply with stipulated conditions would attract forfeiture of the Earnest Money Deposit and cancellation. Despite the Nalgonda factory zone having been allotted even before the bifurcation of Andhra Pradesh, the appellant had never established a processing mill in Telangana and continued to transport FFBs to its plant in Andhra Pradesh, causing revenue loss to Telangana.

The performance data was stark: the appellant covered only about 14% of the proposed area in Suryapet and around 36% in Nalgonda. The District Collector, Suryapet, had by letter dated 2 August 2022 informed Respondent No.1 that farmers were reverting to paddy cultivation due to the appellant's inability to supply adequate planting material and had recommended re-allotment to Respondent No.4. The respondents maintained that all post-March 2025 steps were belated and could not cure an admitted pre-existing default.

How the Bench Reasoned

The Bench first disposed of the maintainability question. Following ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. and Subodh Kumar Singh Rathour v. The CEO and others, it held that where the challenge is directed against the exercise of executive power and the alleged action is arbitrary or unreasonable, the dispute transcends a pure contractual dispute and involves a public law element amenable to judicial review under Article 226. The Single Judge's finding on maintainability was therefore affirmed.

On the interpretation of the 2nd MOA, the Bench applied the principle from Provash Chandra Dalui v. Biswanath Banerjee that a contract must be read as a whole, with each clause brought into harmony with the others. Reading Clauses 5(b), 6, 13, and 15 together, the Bench rejected the appellant's narrow reading of Clause 13. It held that Clause 13's requirement to demonstrate “effective steps” towards setting up the oil palm mill necessarily derived its content from the substantive obligations in Clauses 5(b) and 6. An interpretation confining Clause 13 to mere paperwork, regardless of whether steps had actually been taken, would render the regulatory mechanism under the 2nd MOA largely ineffective.

On Clause 15, the Bench held that it operated in a distinct field from Clause 13. Clause 15 protected farmers during any interim period of delay by ensuring continued FFB procurement; it did not displace or limit the regulatory consequence of cancellation available under Clause 13 where effective steps were not being demonstrated.

On the essence of time argument, the Bench applied the principles from Arosan Enterprises Ltd. v. Union of India and M/s. Hind Construction Contractors v. State of Maharashtra. It observed that the 2nd MOA contained no provision expressly permitting extension of the 24-month period, and Clause 15 prescribed no contractual penalty for delayed commissioning but only a fallback obligation to protect farmers. Crucially, the appellant itself, in its replies to successive show cause notices, had sought extension of time for establishing the processing mill — conduct that acknowledged the obligation as binding. The Bench held it was unnecessary to determine in the strict legal sense whether time was the essence, because even if it was not, the contractual obligation under Clauses 5(b) and 6 subsisted and remained admittedly unfulfilled for several years.

On proportionality, applying Teri Oat Estates Pvt Ltd. v. UT, Chandigarh, the Bench examined whether the cancellation bore a reasonable nexus with the object sought to be achieved. It found no disproportionality: multiple show cause notices had been issued, replies considered, and a personal hearing afforded before the Government Orders were issued. The appellant's plantation coverage in Suryapet was only about 14%. The appellant retained the Nalgonda factory zone and remained free to establish the processing mill there. Post-March 2025 steps — the land purchase, further sale transactions, NALA approvals on 2 August 2025, and the TS-iPASS application — were all communicated to Respondent No.1 after the impugned Government Orders had already been issued and could not retroactively invalidate a decision that was lawful on the date it was taken.

The Bench also rejected the contra proferentem argument. The doctrine applies only where contractual terms are genuinely ambiguous. Clauses 5(b), 6, and 13 of the 2nd MOA were, in the Bench's view, clear and unambiguous. Clause 5(b) unequivocally mandated establishment of the processing unit within 24 months; Clause 13 stipulated the consequences of failure. There was no ambiguity to resolve against the Government.

On legitimate expectation, the Bench held that the doctrine does not confer a right to indefinite continuation of the allotment in the face of admitted non-compliance. Continued FFB procurement under Clause 15 could not generate a legitimate expectation that cancellation powers would never be exercised.

Regarding the argument that poor performance in achieving plantation targets was raised for the first time in the counter-affidavit, the Bench noted that the first show cause notice dated 12 December 2022 had itself referred to the failure to achieve plantation targets, and each subsequent notice reiterated the same. The targets were also part of the affidavit dated 28 June 2021. Accordingly, unsatisfactory plantation performance was not a new ground but reinforced the decision founded principally on the processing mill default.

The Bench closed with an observation that while commercial agreements with the State must inspire confidence among private participants, “the sanctity of such agreements rests upon reciprocal adherence to the obligations voluntarily undertaken by both parties.” The respondents had proceeded only after issuing successive show cause notices, affording a personal hearing, and considering the appellant's explanations.

Outcome

The Division Bench dismissed Writ Appeal No.102 of 2026. The order of the learned Single Judge dated 8 January 2026 in W.P.No.9604 of 2025 was affirmed. G.O.Ms.No.13 dated 15 March 2025, cancelling the Suryapet factory zone allotted to Patanjali Foods Limited, and G.O.Ms.No.14 dated 15 March 2025, re-allotting that zone to Respondent No.4, along with the consequential letters dated 20 March 2025, were upheld. Any miscellaneous petitions pending in the matter were closed. No costs were imposed.