As early as 1950, the union government had approved in principle the need to reserve certain items of cloth production for the handloom sector. Under the Handloom (Reservation of Articles of Production) Act, 1985, the textiles ministry issued an order stating that certain varieties in 22 items of cloth, including saree, were to be reserved for the handloom sector. The defined varieties under these items cannot be produced except by handloom.

The government argument that CADEU does not fall under the act is perverse because once the items have been reserved for handloom, it should mean that no mechanized processes should be allowed to duplicate them.