India Adani Ports
Supreme Court quashes Adani takeover bid for state warehouses
Mar 08, 2023
India's Supreme Court has quashed a bid by Adani to take over state-owned warehouses at Adani's mega-port at Mundra.

When the Adani Group attempted to take over the warehouses of a government-owned authority in 2017, the issue wound up in the courts. Adani claimed rights to the property because it was part of a ‘special economic zone’ declared by the government, neglecting to consider that the warehouses had been established there prior to this declaration. The Supreme Court has overruled the verdict of a lower court that ruled in Adani’s favour. The issue is not yet resolved, because the lower court – in Adani’s home state of Gujarat – has been ordered to reconsider the matter.

On 13 October 2022, India’s Supreme Court quashed and set aside a judgment by the Division Bench of the Gujarat High Court that allowed Adani Ports and Special Economic Zone (‘Adani Ports’) to acquire 34 acres of land in possession of the government-owned Central Warehousing Corporation (CWC) within Adani’s special economic zone at Mundra. The Supreme Court found that the order of the Gujarat Court dated 30 June 2021 was ‘not sustainable in law’.

The decision is a rare instance of the Adani Group losing a legal battle in India’s courts.

The issue arose after the Adani company, in 2017, staked a claim over two CWC warehouses. The warehouses in question predate the existence of the special economic zone but had been declared to be a part of the SEZ in 2006. The CWC had asked a union ministry to reverse this decision and remove the warehouses from the SEZ but had twice been denied support by the ministry in decisions that supported the Adani Group’s claim. The issue wound through the courts for five years, before the Supreme Court ruled in the CWC’s favour.

More stories See all
Coal imports surge: Adani bullish about coal in India
Adani Bijahan coal project suffers setback in court
Too clever by half? How Adani’s lobbying may cost Adani Green over US $100 million
Homeless and jobless? How Adani’s ‘redevelopment’ of Mumbai’s huge slum will impact residents.
Sreedhar Ramamurthi: A geologist who campaigned for Mother Earth

Background

In 2001, the Gujarat Maritime Board (GMB), a state-government company that used to control all of Gujarat’s ports until a wave of privatisation in the 2000s, leased out an undeveloped piece of land within New Mundra Port Limits to Gujarat Adani Port Ltd (GAPL) for a period of 30 years. The Concession Agreement dated 17 February 2001 provided GAPL with development rights over the land. On 2 June 2004, 34 acres of the said land was further subleased by GAPL to CWC for setting up a warehouse for the storage and handling of foodgrains, notified materials and related activities until 16 February 2031.

Aerial image of the port and the CWC warehouses (top left). Image Google

On 1 October 2004, CWC set up two warehouses of 33,000MT (metric tonnes) capacity each. It also spent Rs.8.29 crore (just under US $1.5 million) in 2005 towards the development of infrastructure.

Meanwhile, in 2005, India’s Parliament created the concept of ‘special economic zones’, passing the SEZ Act. A notification under the SEZ Act, issued on 23 June 2006 by the Union Ministry of Commerce and Industries created a large area around the Mundra port, including the land on which CWC’s warehouses stood, as an SEZ. Subsequently, the ministry denied multiple requests by the CWC for delineation/denotification of the 34 acres from the SEZ area. Then, on 5 January 2017, Adani Ports (GAPL’s successor company) notified CWC of its intention to take over the land. It told CWC that it would stop issuing gate passes to CWC staffers and vehicles allowing them to enter the SEZ, and CWC was asked to end its warehousing activities on the site.

The Division Bench of the Gujarat High Court on 11 January 2017 provided interim relief to CWC and directed APSEZ to allow CWC to carry out its activities until the next court hearing. Meanwhile, the Ministry of Commerce and Industries rejected another request by the CWC for delineation/denotification on 17 January 2017. A judgement and order passed by the Gujarat High Court on 30 June 2021 gave an undue advantage to APSEZ and was further contested by CWC in the Supreme Court of India.

Contradictions

During settlement talks while the case was still in court, Adani Ports put forward a three-point offer to CWC on 9 March 2019 proposing an alternative location (of 34 acres) in the non-SEZ area of Mundra Industrial Estate where it would construct a warehouse of the existing dimensions. Adani Ports also proposed to underwrite the revenue risks of CWC by taking the warehouse at the new location on rent as per the CWC’s published tariff for the remaining lease period.

The Board of Directors of CWC accepted the proposal in principle on the condition that Adani Ports should sign an agreement giving a suitable bank guarantee for the same. However, after this, Adani Ports unilaterally backed out from the commitment to underwrite the new warehouses, arguing that CWC’s published tariffs were too high. Instead, Adani Ports said, a tariff should be worked out by mutual discussion and should be based on market rates. As an alternative, Adani Ports proposed a one-time monetary settlement.

The Gujarat High Court, while ruling in favour of Adani Ports, tried to force CWC to agree to the first two conditions and asked the parties to reach a compromise regarding the third condition. While the proposal was a composite one where all three conditions were mutually complementary, forcing one party to settle for two while the other retracted from the third was seen by some to be biased decision. The High Court found CWC to be ‘insistent and persistent’, and ‘non-compliant to the law’. The HC accused CWC of acting ‘egoistically’, simply for refusing to settle for a deal not in its interests. It is to be noted that the court used these remarks against a Public Sector Enterprise for not agreeing to the conditions of a private company which was also a beneficiary of the services provided by CWC.

Public vs private

The Central Warehousing Corporation was set up by the Government of India in 1957 for supporting the storage and warehousing needs of the growing agricultural sector. It became a statutory corporation under the Warehousing Corporation Act of 1962 and operates under the Ministry of Consumer Affairs, Food & Public Distribution.

The establishment of CWC was to provide logistic support for agriculture and allied activities. Since then, it has expanded its scope of operations and aided in the efficient implementation of various government programmes. It has been serving several public and private entities with their logistical needs and provides safe storage options across the country.

India has a long history of successfully running public institutions and enterprises for the larger good of the society. Such investments have been made to develop physical and social infrastructure for the better performance of the economy. The Central Warehousing Corporation has served as a lifeline for the agriculture sector, enabling distribution of goods.

Ideally, one would hope that the government and its machinery would stand up to protect public enterprises for the larger social good. It should also be expected that the judiciary ought to take a stand for the common good. However, it appears that the Gujarat HC acted in a partisan way by forcing a statutory body to settle for the conditions put forward by the private company. Ultimately, the Supreme Court found the Gujarat High Court’s decisions as ‘unwarranted’ as there was evidence to prove that the said settlement was leaving CWC worse off.

In 2010, there was a complaint against one of the Directors of the CWC before the Central Vigilance Commission (CVC). According to the office memorandum issued by the CVC on 12 January 2010, the presence of CWC in the said area had led to various development activities by other government undertaking such as the Railways and has considerably raised the land value in the area. Shifting the warehouse to a different place would lead to CWC losing business and would result in it struggling with the creation of similar infrastructure facilities from scratch. The commission was of the opinion that GAPL (now Adani Ports) would ‘unduly benefit’ from the deal. The vigilance commission suspected that there may be ‘vested interests’ in the deal that was proposed by Adani Ports, and later forced upon CWC by the Gujarat High Court. Furthermore, it said ‘it is the responsibility of the Department of Commerce to accept the request by CWC for the de-notification of its premises.’

The decision of the Gujarat High Court in favour of APSEZ raises a few questions. It is obvious from the CVC report that settling for the conditions put forward by Adani Ports would not only increase expenditure for the government but would also choke its business and revenue considerably. Why would the Gujarat High Court force a public enterprise to choose a deal that would leave it and the government at a massive loss by way of future costs and loss of business?

Conflicting interests within government

It was asserted to the Supreme Court that the Ministry of Commerce and Industries (Min of C&I) had told the CWC that a proposal for seeking delineation/denotification could not be considered unless it had an unambiguous ‘No Objection Certificate’ from the concerned state government. The repeated requests from CWC, starting in 2015, regarding the delineation/denotification of the 34 acres were refused by the Min of C&I.

The Central Warehousing Corporation is a statutory body under the Ministry of Consumer Affairs, Food and Public Distribution (Min of CAF&PD), Government of India. Contrary to the stance of the Min of C&I, the Min of CAF&PD has noted that partial denotification was possible, and has been previously done in an SEZ, citing such an instance in the SEZ at Jamnagar on the initiative of the Developer (Reliance Industries Ltd) at that SEZ. It also observed that Adani Ports had not sought the consent of CWC while submitting the proposal for the notification of the SEZ even though Adani Ports was not in possession of the 34 acres at the time.

Adani Ports had thus resorted to ‘suppression of facts’, potentially a breach of contract, so as to get the larger area notified as a SEZ. While having been an active beneficiary of the warehousing facility of the CWC, Adani Ports claimed that the agreement it had with CWC was null and void for ‘technical reasons’. This was questioned by the CWC in the Supreme Court. With clear violations of contract, the deliberate covering up of facts, and providing misinformation, Adani Ports, a private entity, had tried to disrupt the functioning of a public enterprise. Interestingly, the Min of C&I decided to side with Adani Ports.

The Supreme Court criticised the choosing of ‘diagonally opposite’ stances by two ministries of the Union of India. The contradictory voices of the two departments pointed toward a conflict of interest within the government.

The tussle between the Central Warehousing Corporation (CWC), a statutory body under the Ministry of CAF&PD, and Adani Ports, a private company under the ownership of one of the richest men in the country, appears to this writer to be yet another chapter in the saga of systemic destruction of the public sector in the country. The proceedings in the Supreme Court demonstrated to this writer that a major part of the government had been trying to pressure the warehouse corporation to give in to the conditions laid down by the Adani-owned company. The recommendations and directions of the Central Vigilance Commission were not heeded by the government. Unfortunately, the Gujarat High Court also seemed to have compromised views on the matter, a matter of criticism by the Supreme Court.

The case of CWC vs APSEZ appears to be a case of the Union government’s unflinching commitment to the corporate sector at the expense of the public interest. The Supreme Court has put a stop to it in this case. The apex court’s decision sent the matter back to the Gujarat High Court to take a fresh look at the first petition on the subject. It remains to be seen how the case concludes.

The author is an independent journalist.