Lafarge?s fate hangs in fire till July

With French cement giant Lafarge being directed to comply with Indian environmental laws, the Supreme Court has sent strong signals to offshore and domestic firms to follow stringent rules for mining operations in forest areas. The apex court?s refusal to vacate its stay order of February 5 that restrained Lafarge from resuming limestone mining operations from the eco-fragile forests of Meghalaya for the company?s $255 million cement plant in Bangladesh has put India in a piquant diplomatic situation.

The French major?s fate hangs in fire until it completes a comprehensive study for resuming mining operations. The matter has been posted for hearing in the first week of July. Requests by governments of Bangladesh and France to seek intervention by the Manmohan Singh government proved futile. Attorney General GE Vahanvati pleaded before the special forest bench of SC that the cement venture in Bangladesh was an important initiative to generate employment in the natural disaster ravaged region as well as to fight poverty. Besides, stopping the supply of raw material guaranteed in 2001 by India would mean a fall in cement production in Bangladesh and a severe setback to the neighbouring country?s housing projects, he stated without attempting to veil the magnitude of the diplomatic embarrassment being faced by India. But the court not only rejected the AG?s contentions but also refused to accept the environmental clearance granted ?hurriedly in two days? by the ministry of environment and forest (MoEF).

The bench has asked the company to conduct a comprehensive engineering and biological study. The case has become controversial as Lafarge has acknowledged that it has mortgaged tribal land in Meghalaya to international banks to secure a loan of $153m to finance its $255m manufacturing plant in Bangladesh. It said the mortgage was approved by RBI in March 2005. Lenders include the Asian Development Bank, the International Finance Corporation, the European Investment Bank, Arab Bangladesh Bank and the Bangladesh arm of Standard Chartered Bank. There are also allegations by Shella Action Committee, a registered voluntary agency claiming to represent the tribal people of the region, that not only was the land, which falls under Schedule VI of the Constitution banning its transfer to non-tribals illegally taken over in collusion with local officials, but mining was started without the mandatory MoEF clearance.

The cement plant set up in Bangladesh, adjacent to Meghalaya, doesn?t add any value in terms of ?employment generation, development of ancillary industry, consequential taxes and revenues and other economic benefits to India?, the SC appointed-Central Empowered Committee stated in its report to the court. Amicus curiae Harish Salve and ADN Rao said that the eco-fragile area was opened up without the mandatory forest clearance and raw material was being sent to the plant in Bangladesh on a conveyor belt at cost price, depriving India of huge revenue, including customs and other duties. Recently, the ministry had granted forest and environment clearances for continuing mining activities subject to Lafarge meeting all 31 conditions, including the key condition relating to payment of money for afforestation activities in an area twice the size. MoEF said Lafarge Umiam Mining Pvt Ltd has to pay five times the normal afforestation cost, which works out to Rs 55 crore with an interest of 9% from April 1, 2007. This amounts to nearly Rs 70 crore, taking into account the interest component.

Plus, Lafarge has to pay Rs 90 per tonne of the mined mineral since the commencement of mining. With Lafarge Surma having already mined around 4m tonnes of limestone, it would have to pay around Rs 36 crore; this will constitute the special purpose vehicle, which would be spent for tribal welfare. But Lafarge says it has met legal and environmental compliances, and the MoEF high powered committee that visited the site recently confirmed the high environmental standards maintained at the project. It also rebutted claims that it exported raw material at cheap prices to favour its Bangladesh subsidiary. It said limestone was sold to LSC at $11 per tonne, which is 37.5% higher than the government notified minimum export price of $8 per tonne and so satisfies the arms length pricing principle.

SC for stiff penalty in cheque bounce cases

Holding that defaulters would be subjected to more stringent punishment in terms of fines and interest, the Supreme Court has framed a series of guidelines for out-of-court settlement of cheque bounce cases of lending banks, financial institutions and others. Keeping in view that as per the 213th Report of the Law Commission of India, over 38 lakh cheque bounce cases were clogging the courts as of October 2008, it held that the delay in settling cheque bounce cases would cost the defaulter dearly; by up to 20% of the cheque amount in the case of Damodar S Prabhu vs Sayed Babalal.

The court was constrained to issue the guidelines as Section 147 of the Negotiable Instruments Act does not specify the timeframe within which the offence could be compounded (settled out of court). The move is important since, at present, a disproportionately large number of cases involving the dishonour of cheques are choking our criminal justice system, especially at the level of magistrates? courts. According to the guidelines, the court can give directions to the accused to make an application for the compounding of offences at the first or second hearing of the case without imposing any costs on the accused.

The penalty for delayed settlement of the cheque amount, after conviction in the trial court, will rise steadily from 10% in district courts, 15% in high courts to 20% in the Supreme Court.