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 processing mill and refinery."
The Court held that Clauses 5(b), 6, 13 and 15 had to be read harmoniously as part of an "integrated contractual framework". Patanjali's 2021 affidavit also expressly acknowledged that failure to comply with the requirements under the MOA could attract forfeiture of its deposit and cancellation of the factory zone.
Patanjali further argued that time was not the essence of the contract. It pointed to the State's conduct in allowing it to continue operations after expiry of the stipulated period and issuing repeated show-cause notices rather than immediately cancelling the allotment.
The Bench held that it was unnecessary to determine whether time was, in the strict legal sense, the essence of the MOA. Even assuming it was not, Patanjali's obligation to establish the processing unit remained binding.
The Court found that the company's performance in achieving plantation targets in Suryapet remained unsatisfactory, with only about 14% of the proposed area covered. It rejected Patanjali's argument that its overall ranking under the National Mission on Edible Oils–Oil Palm Scheme should be considered, stating that the relevant question was whether it had discharged its specific obligations concerning the Suryapet factory zone.
The Bench also refused to interfere on the basis of subsequent steps taken by Patanjali towards establishing the mill, including further purchase of land, conversion under the Telangana Non-Agricultural Lands Assessment Act and an application under the TS-iPASS system.
The company's "belated steps" could not invalidate an action otherwise justified by the material available to the authorities at the relevant time it said.
The court upheld the single judge's order and dismissed the appeal.
Case Title: Patanjali Foods Limited v. Department of Horticulture & Ors.
Case No.: Writ Appeal No. 102 of 2026
Citation: 2026 LiveLaw (Tel) 128
Appearance: S. Sriram, Senior Counsel, representing M/s TLH Advocates and Solicitors, for the appellant; B. Mohana Reddy, Government Pleader for Agriculture and Cooperation Department, for Respondent Nos. 1 to 3; Sannapaneni Lohith for Respondent No. 4.