Govt likely to use 1897 Act to denotify Goa SEZs

A 111-year-old law is one of the key options the government could invoke to handle the challenges arising out of the possible denotification of three Special Economic Zones (SEZs) in Goa.

Last week, the inter-ministerial Board of Approvals had recommended starting talks with the Goa government on denotifying the three SEZs following strong local protests in Goa last year, creating a precedent that is being closely watched by potential investors in India and abroad.

This is because the process of denotification itself is complex and could be long-drawn. The SEZ Act, 2005, does not have specific provisions for denotification.

The Act, however, has provisions empowering the central government to issue policy directions to the Board of Approvals (under subsections 5 and 6 of Section 9).

This power is derived from the General Clauses Act of 1897, an umbrella law covering all Acts and government notifications passed by the Centre. Section 21 of this Act empowers the government to add, amend, vary or rescind sections in notifications, orders, rules or bylaws issued by it.

This means the central government is, on reading the two laws together, empowered to override the SEZ Act to account for measures like denotification.

The other two denotification routes are amendment of the SEZ Act through Parliament and through a presidential ordinance.

The latter has been ruled out since Parliament is in session and there is nothing to stop the developers of the three SEZs from going to court if the government waits for the session to end.

An amendment of the SEZ Act will not only need approval from the commerce ministry, but also may provoke political opposition from the Congress itself. For this reason, the government is unlikely to follow this route.

There are, however, some aspects of the denotification that the government cannot escape – the state government will have to pay compensation to the developers who bought land in the hope of developing it into sought-after tax free zones.

Legal experts, however, said if the government denotifies the zones there could be serious legal consequences that could see the matter ending up in court for an unforeseen period.

“There are no problems if provisions on denotifications are implemented with prospective effect. However, it is the implementation from retrospective effect that presents a hurdle,” said Hitendra Mehta, head, Vaish Associates.
(Rituparna Bhuyan / New Delhi February 28, 2008)