Establishment of SEZ and Approval Procedure under the SEZ Act

Understand Establishment of SEZ and Approval Procedure

Key rules to remember

Who may establish an SEZ

Central Government / State Government / any person, jointly or severally (Section 3(1))

Purpose: manufacture of goods, rendering services, both, or a Free Trade and Warehousing Zone.

Three proposal routes

Person → State Government (s.3(2)); Person → Board directly (s.3(3)); State Government → Board (s.3(4))

Under the direct route in s.3(3), the Board may approve and the person must then obtain State Government concurrence within the prescribed period.

Suo motu route

Central Government may, after consulting the State Government and identifying the area, set up and notify an SEZ without referring to the Board (proviso to s.3(4))

All three conditions apply together: consultation, no Board reference, area identified.

Role of State Government on a s.3(2) proposal

State Government may forward the proposal with its recommendations to the Board within the prescribed period (s.3(6))

The word is 'may'. Board then acts under s.3(7).

Board's powers

Approve with conditions / modify / reject (s.3(7))

Central Government may prescribe minimum land area and conditions, and Developer's terms, obligations and entitlements (s.3(8)). Different minimum areas may be prescribed for classes of SEZs.

Board's communication

Approve without modification → tell Central Government; approve with modifications → tell person/State, and once accepted tell Central Government; reject → record reasons, tell Central Government, which informs the person/State (s.3(9))

Rejection needs recorded reasons.

Letter of approval to Developer

Central Government grants within prescribed time, on terms approved by Board (s.3(10))

More than one Developer is allowed where one lacks the prescribed minimum contiguous land; each is a Developer for the land in its possession.

Notification

After letter of approval, Developer submits exact particulars of the area; Central Government notifies if s.3(8) and other prescribed requirements are met (s.4(1))

Additional area may be notified later. Existing SEZs are deemed notified and established.

Setting up a unit

Proposal → Development Commissioner → Approval Committee → letter of approval by Development Commissioner (s.15(1), (2), (3), (9))

Appeal against the Approval Committee's order lies to the Board (s.15(4)).

How to solve Establishment of SEZ and Approval Procedure questions

1. 1Identify what is being set up: the zone itself (Section 3 and 4) or a unit inside a notified zone (Section 15).
2. 2Identify who is proposing: a person, a State Government, or the Central Government acting on its own. This decides the route.
3. 3State the route and the section: person to State Government (s.3(2)), person direct to Board (s.3(3)), State to Board (s.3(4)), or suo motu by Centre.
4. 4Describe the Board's decision under s.3(7) and the communication under s.3(9), including the effect of modification or rejection.
5. 5State the letter of approval under s.3(10), then the Developer's submission of exact particulars and notification under s.4(1). For units, state the Development Commissioner, Approval Committee, hearing and appeal steps.
6. 6Check special points in the facts: minimum land area, more than one Developer, Co-Developer, existing zone or unit.
7. 7Close with a clear conclusion that answers the exact question asked.

Quickest way: Zone ladder and unit ladder

Common mistakes in Establishment of SEZ and Approval Procedure

• Saying the Board grants the letter of approval.

  Students merge the Board's approval with the grant that follows it.

  Fix: The Board approves; the Central Government grants the letter of approval under s.3(10), on terms approved by the Board.

• Treating State Government recommendation as compulsory for every proposal.

  Students remember s.3(2) and forget s.3(3) and s.3(4).

  Fix: A person may apply directly to the Board under s.3(3). The Board may approve, and the person then obtains State concurrence within the prescribed period.

• Stating a fixed minimum land area in hectares or acres.

  Students recall figures from rules or notes and attribute them to the Act.

  Fix: The Act only empowers the Central Government to prescribe minimum area and conditions (s.3(8)), and different areas for classes of SEZs. Say so, and give figures only if you are certain of the Rules.

• Confusing Developer, Co-Developer and unit entrepreneur.

  All three invest in the zone.

  Fix: Developer holds the letter of approval for the zone. Co-Developer provides infrastructure or authorised operations under agreement with the Developer (s.3(11), (12)). A unit carries on authorised operations under a Development Commissioner's letter of approval (s.15(9)).

• Sending a unit proposal to the Board or the Approval Committee first.

  Students mix the zone and unit procedures.

  Fix: A unit proposal goes to the Development Commissioner, who submits it to the Approval Committee (s.15(1), (2)).

• Forgetting natural justice and appeal for units.

  Students stop at approval.

  Fix: Before modifying or rejecting, the Approval Committee must give a reasonable hearing and record reasons (s.15(3) proviso). An aggrieved person may appeal to the Board within the prescribed time (s.15(4)); late appeals need sufficient cause (s.15(5) proviso).

Worked examples