Stung by the Centre's announcement to limit the size of special economic zones to 5,000 hectares on Thursday, companies affected by the decision are considering several options, including moving court.
"The government cannot keep changing its stand. Hundreds of crores of rupees have already been invested in SEZ projects and by changing the ground rules overnight, these projects can become unviable. This issue is headed towards the courts," said Nikhil Gandhi, chairman of Sea King Infrastructure Ltd.
SKIL set up one of the earliest SEZs in Maharashtra before Gandhi sold a majority stake to Mukesh Ambani-owned Reliance Industries. Gandhi, however, said he was not only referring to the Reliance project.
Supreme Court lawyer YP Trivedi said the government has breached the "principle of promissory estoppel". This suggests that the government cannot go back on promises on the basis of which companies had already made investments.
"Any investor invests money based on certainty and predictability. The Supreme Court has already decided this in the matter of Motilal Padampat Sugar Mills vs the State of Uttar Pradesh where it was held that the government is susceptible to the doctrine of promissory estoppel in whatever area or field the promise is made - contractual, administrative or statutory," he said. "The companies have a case to sue the government," he added.
Based on Thursday's announcement, Reliance Industries, for example, will have to shrink the size of its Mahamumbai SEZ by around 5,000 acres, following the government's ceiling of 5,000 hectares (12,360 acres) per SEZ.
Reliance Industries has two companies setting up separate SEZs in the Raigarh district of Maharashtra. Together, both companies were in the process of acquiring 35,000 acres for their SEZ project. Now, the fate of the remaining 5,000 acres is uncertain.
"What can an SEZ do with such a small size when it has to have a power plant, an airstrip and housing colonies for its employees?" Trivedi asked. "In China, the SEZs are so huge that they run for hundreds of kilometres. SEZs have really helped boost Chinese exports," he said.
An official spokesperson of Reliance SEZ, however, said, "We have no comments to make."
Trivedi, who is also on the board of Reliance Industries, suggests that the government and the SEZ developers should sit together and discuss the issue so that projects do not become unviable or face cost overruns.
On Thursday, a panel of ministers cleared 83 SEZ projects but capped the maximum land area for the multi-product tax-free zones at 5,000 hectares. This has upset the plans of companies like Reliance, DLF and Gujarat Positra Port and Omaxe Ltd that had planned SEZs exceeding this land limit.
