Introduction:
The Supreme Court of India, in Patanjali Foods Limited v. Department of Horticulture (SLP (C) No. 5434 of 2026), has stepped into an intensifying dispute between a major agri-food corporation and the State of Telangana over the cancellation of a factory zone allotted under the National Mission of Edible Oils – Oil Palm (NMEO-OP) scheme. A Bench comprising Justice J.B. Pardiwala and Justice K.V. Vishwanathan issued notice on Patanjali Foods’ Special Leave Petition challenging the refusal of the Telangana High Court Division Bench to grant interim stay against a Single Judge order that upheld the State’s decision to cancel Patanjali’s factory zone in Suryapet district. While issuing notice returnable in four weeks, the Supreme Court directed the parties to maintain status quo, thereby temporarily halting any irreversible action pursuant to the impugned Government Order dated 15 March 2025. The dispute raises significant questions at the intersection of contractual obligations under government schemes, the limits of judicial review in policy-linked contracts, performance benchmarks under national agricultural missions, and the balance between administrative discretion and corporate rights. Though the Supreme Court has not yet ruled on the merits, its intervention signals the seriousness of the issues involved, particularly given the strategic importance of edible oil self-sufficiency and oil palm cultivation under national policy.
Background and Genesis of the Dispute:
The controversy traces its origins to the National Mission of Edible Oils – Oil Palm (NMEO-OP), a flagship scheme of the Government of India aimed at reducing India’s dependence on imported edible oils by promoting domestic oil palm cultivation. Under this scheme, States are empowered to identify suitable areas, allot zones to private entities, and enter into Memoranda of Agreement (MoA) to ensure plantation, procurement of seedlings, establishment of processing mills, and long-term farmer engagement.
Pursuant to this scheme, the Government of Telangana, on 16 December 2020, allotted Patanjali Foods Limited extensive areas for oil palm cultivation: 7,738 hectares in Nalgonda district and 11,300 hectares in Suryapet district. Subsequently, on 10 June 2021, four additional mandals were allocated to Patanjali, further expanding its operational footprint. On 28 June 2021, Patanjali submitted a formal affidavit agreeing to adhere to the terms of the MoA dated 15 March 2017 and undertook to bring 1,22,595 acres under oil palm cultivation within five years.
The MoA envisaged not only plantation targets but also the establishment of a processing mill within the designated factory zone, which was considered integral to the success of the project. The State’s case has consistently been that oil palm cultivation and processing are inseparable, and failure to establish the processing infrastructure undermines the entire scheme.
Show-Cause Notices and Cancellation Order:
Over time, the State began to express dissatisfaction with Patanjali’s performance, particularly in Suryapet district. According to the State, Patanjali failed to procure the requisite quantity of seed sprouts and did not establish the processing mill within the stipulated or reasonably extended timelines.
As a result, the Agriculture and Cooperation (Horticulture & Sericulture) Department of Telangana issued three show-cause notices dated 12 December 2022, 19 December 2023, and 05 October 2024. These notices alleged non-compliance with contractual obligations under the MoA, specifically highlighting deficiencies in seed procurement, plantation coverage, and failure to operationalise the processing unit.
A personal hearing was afforded to Patanjali on 30 December 2024, after which the State proceeded to issue a Government Order dated 15 March 2025, cancelling the allotment of the Suryapet factory zone. By the same order, the cancelled zone was re-allotted to another company, effectively divesting Patanjali of its rights in Suryapet while retaining its allotment in Nalgonda.
Proceedings Before the Telangana High Court:
Aggrieved by the cancellation, Patanjali Foods approached the Telangana High Court by way of a writ petition challenging the Government Order. The matter was heard by Justice T. Madhavi Devi, who dismissed the petition by judgment dated 08 January 2026.
Findings of the Single Judge
The Single Judge held that the dispute was essentially contractual in nature, arising out of obligations voluntarily undertaken by Patanjali under the MoA. The Court reiterated settled principles that judicial review in contractual matters involving the State is limited, and courts do not sit as appellate authorities over administrative or contractual decisions unless the action complained of is arbitrary, mala fide, discriminatory, or violative of Article 14.
The Court noted that while Patanjali had made satisfactory progress in Nalgonda district, there was a clear shortfall in Suryapet. It was observed that the State, as the implementing authority of a national mission, was entitled to assess district-wise performance and take corrective measures, including cancellation of underperforming zones.
On the issue of non-establishment of the processing unit, the Court rejected Patanjali’s contention that time was not of the essence of the contract. It was held that repeated show-cause notices and a Government-level review meeting had clearly communicated timelines and expectations. The Court concluded that sufficient opportunity had been granted and that the decision to cancel the Suryapet allotment could not be characterised as arbitrary or unreasonable.
Appeal Before the Division Bench and Refusal of Interim Relief:
Patanjali preferred an intra-court appeal before a Division Bench of the Telangana High Court, challenging the Single Judge’s decision. Along with the appeal, Patanjali sought interim stay of the operation of the judgment and the cancellation order, particularly since the factory zone had already been re-allotted to another entity.
The Division Bench, however, declined to grant interim relief, effectively allowing the cancellation to operate pending appeal. It was this refusal to grant interim stay that prompted Patanjali to approach the Supreme Court by way of the present Special Leave Petition.
Arguments on Behalf of Patanjali Foods Limited:
Before the Supreme Court, Patanjali Foods contended that the High Court erred in treating the matter as a mere contractual dispute divorced from constitutional scrutiny. It was argued that although the relationship arose out of a contract, the State’s actions were infused with public law elements, given that the allotment was made under a national mission involving public interest, farmer livelihoods, and food security.
Patanjali asserted that the cancellation of only the Suryapet zone, while allowing it to continue in Nalgonda, was arbitrary and discriminatory, particularly when the overall performance under the NMEO-OP scheme was substantial. It was contended that the State failed to adopt a holistic view of performance and instead selectively penalised one district without proportionate justification.
On the issue of the processing mill, Patanjali argued that external factors, including delays in land acquisition, regulatory approvals, and logistical challenges, contributed to the delay, and that the State had been kept informed of these constraints. It was further submitted that the MoA did not make time an inflexible essence of the contract and that extensions had been implicitly or explicitly granted in the past.
Patanjali also assailed the re-allotment of the cancelled zone to another company, contending that such action created irreversible third-party rights and rendered the appeal illusory unless interim protection was granted. It was argued that refusal of interim stay by the Division Bench effectively prejudged the appeal and caused grave and irreparable harm to Patanjali’s investment, reputation, and long-term project planning.
Arguments on Behalf of the State of Telangana:
The State of Telangana defended the impugned actions by emphasising the performance-linked nature of the NMEO-OP scheme. It was argued that oil palm cultivation is a time-sensitive and capital-intensive activity, and delays in establishing processing infrastructure directly impact farmers, who are left without assured procurement and processing facilities.
The State submitted that Patanjali was given multiple opportunities through repeated show-cause notices and personal hearings, but failed to demonstrate satisfactory compliance in Suryapet. The cancellation, it was contended, was not punitive but corrective, aimed at ensuring the objectives of the national mission were not defeated.
On the question of arbitrariness, the State argued that district-wise assessment was both rational and necessary, as ground realities, plantation progress, and infrastructure readiness vary from district to district. The retention of the Nalgonda allotment was cited as evidence of fairness and proportionality, not discrimination.
The State further submitted that courts must exercise restraint in interfering with policy implementation and contractual enforcement, particularly where technical and administrative expertise is involved. It was argued that granting interim relief at this stage would derail the scheme and undermine public interest.
Supreme Court’s Order and Observations:
After hearing the parties, the Supreme Court issued notice on the Special Leave Petition, making it returnable in four weeks. Importantly, the Bench directed the parties to maintain status quo in the meantime. While the order is interim and does not delve into detailed reasoning, its implications are significant.
By directing status quo, the Supreme Court has effectively paused the consequences of the cancellation and re-allotment, ensuring that no further irreversible steps are taken until the matter is examined in greater depth. The order reflects the Court’s recognition that the dispute involves substantial questions concerning administrative discretion, contractual enforcement under national schemes, and the balance between public interest and private enterprise.
The issuance of notice also indicates that the Supreme Court considers the matter worthy of detailed examination, particularly in light of the refusal of interim relief by the High Court Division Bench.