IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 23.3.2009 C O R A M : THE HONOURABLE MR. JUSTICE K. CHANDRU W.P.No.23946 of 2006 and M.P.No.1 of 2006 H.Champalal Jain .. Petitioner -vs- 1.The Union of India, rep.by its Secretary, Department of Commerce, New Delhi. 2.The Deputy Director General of Foreign Trade, for Joint Director General of Foreign Trade, Peters Road, Chennai-14. 3.M/s.State Bank of India, Overseas Branch, Rajaji Salai, Chennai-600 001. .. Respondents PRAYER : Petition filed under Article 226 of the Constitution of India praying for the issuance of a writ of certiorarified mandamus calling for the records relating to the order in File No.1(2)/ECA/AM 07/Che/35, dated 23.6.2006 of the second respondent and quash the same and direct the third respondent to pay the petitioner the amount of Rs.8,83,400/- being the premium for the value of the scrips surrendered to the third respondent, the details of which have been set out above in para 6 together with interest at the rate of 18% from the date of submission of the Licences to the third respondent. For petitioner : Mr.Habibulla Badsha, SC for Mr.E.S.Govindan For respondents : Mr.K.Ravichandra Babu, ACGSC (R1 and R2) Mr.K.Sankaran (R3) ***** https://hcservices.ecourts.gov.in/hcservices/ O R D E R This matter came to be posted before this Court on being specially ordered by the Hon'ble Chief Justice vide order dated 23.10.2008. The writ petitioner seeks to set aside the order dated 23.6.2006 passed by the second respondent and also for a further direction to the third respondent to pay the petitioner the amount of Rs.8,83,400/- being the value of the scrips surrendered to the third respondent State Bank of India with interest at the rate of 18% from the date of submission of licence till the date of payment. 2. Pending the writ petition, the petitioner sought for an interim direction in the miscellaneous petition and only notice was ordered. On behalf of the second respondent, a counter affidavit dated 07.11.2008 was filed. The third respondent also filed a counter affidavit dated 22.9.2006. 3. It is seen from the records that the first respondent Union of India introduced a scheme for issue of exim scrips with effect from 4.7.1991 at the rate of 30% on the foreign exchange earned by the exporters by the issuance of a public notice No.185 ITC dated 31.7.1991. The exim scrips were easily transferable and saleable. Thereafter, when the issuance of exim scrips were withdrawn, the State Bank of India was authorised to buy exim scrips at a premium of 20% of the sale value of exim scrips. 4. On 27.3.1992, the first respondent designated branches of the State Bank of India (third respondent) stating that the exim scrips will be purchased by the notified list of branches and the bona fide holders of the exim scrips were directed to submit an application and the branches of the bank were authorised to straightaway purchase the scrips upto the face value of Rs.5 lakhs and the premium amount will be paid to the holder of the scrips. The dates which were given were extended from time to time. On 05.6.1992, the first respondent issued a circular extending the date upto 31.7.1992 for payment of premium for scrips issued earlier upto 30.6.1992. It was also stated that the licences issued thereafter will be accepted provided they are tendered within one month from the date of issue. 5. On 30.9.1992, the first respondent issued another circular in 33/92. In paragraphs 2 and 3 of the aforesaid circular, it was stated as follows:- ''2. It has been represented that there have been delay in the receipt of REP licences issued by the licensing authorities after 30th June, 1992 and in some cases these licences were received by the exporters after a lapse of considerable time from the date of issue and, therefore, such licences could not be tendered to the State Bank of India within the period of one month from the date https://hcservices.ecourts.gov.in/hcservices/ of issue. It has been represented that such licences should also be accepted for payment of premium by the SBI. 3. The matter has been considered. It has been decided that REP licences etc. issued after 30th June 1992, will be purchased by the SBI, if otherwise eligible, provided such licences are tendered within a period of one month from the actual date of delivery indicated on the licences by the licensing authority concerned. For this purpose the licensing authority will make an endorsement on the licence indicating the actual date of delivery of the licence to the exporters". 6. The petitioner who purchased 20 exim scrips presented the same before the third respondent for encashment. The details of the scrips were set out in paragraph 6 of the affidavit filed in support of the writ petition. The total value of the scrips came to about Rs.44,17,100/- and the 20% premium if calculated on the scrips, it works out to Rs.8,83,400/-. In the meanwhile, the second respondent Deputy Director General of Foreign Trade, Chennai instructed the third respondent not to pay the amounts as some scrips were found to be bogus and action was taken against M/s.Ayisha Exports Limited from whom the exim scrips were purchased. 7. It was stated that the vendor of the exim scrips M/s.Ayisha Export Private Limited was prosecuted by the CBI for submitting bogus and forged documents and a criminal case was registered in C.C.No.100 / 1996. The case was tried by the Additional Chief Metropolitan Magistrate, Economic Offence Wing, which tried the case by a judgment dated 06.9.2001 in E.O.C.C.No.100 / 1996 convicted the Ayisha Export Company and its director and imposed a fine of Rs.2,25,000/-. In that case, the petitioner was arrayed as a witness (P.W.16). In that case, the accused also filed a petition for pleading guilty and prayed for leniency on the quantum of punishment. 8. Therefore, it was stated that the first set of exim scrips to the value of Rs.14,11,200/- purchased by the petitioner from the said Ayisha Exports and got encashed, was obtained by submitting bogus and forged documents. 9. However, the petitioner filed W.P.No.18382 of 1992 before this Court for the issuance of a writ of mandamus to direct the State Bank to pay a sum of Rs.8,83,400/- in respect of the genuine exim scrips purchased by the petitioner. The writ petition was heard along with other writ petitions filed by other individuals. The following passages found in paragraph 7 may be usefully extracted below:- ''7. ..... The claim of the petitioners that they were bona fide purchasers and therefore payments to them cannot be invalidated is not an issue on which I am rendering a https://hcservices.ecourts.gov.in/hcservices/ judgment in this case. I make it clear, I am concerned in these writ petitions only with regard to the exim scrips purchased by the petitioners from genuine exporters and about which there is no allegation of fraud or illegality. .... If negotiations of the exim scrips are restricted, or made difficult the entire policy will collapse. Whatever that may be, in law the respondents have not been able to show any provision be it, statutory or contractual which would enable them to refuse the payment in respect of the tender of genuine exim scrips. Consequently, all the writ petitions are allowed as prayed for. I make it clear that the respondents are at liberty to take whatever steps, which are available to them, to recover the amounts paid to the petitioners in respect of the exim scrips which were issued to M/s.Aisha Exports Pvt.Ltd., Trimex Agencies (Pvt) Ltd. or Trimex Minerals (Pvt) Ltd. In respect of some of the claims made in the writ petitions, it is stated that payments have been made. Therefore, the present judgment will govern only those claims under genuine exim scrips, which have not already been satisfied by the respondents. The writ petitions are allowed in the above terms." 10. As against the said common order of the learned Judge dated 22.12.1993, the Union of India filed appeals being W.A.Nos.294 to 297 of 1994. The writ appeal against the petitioner's writ petition was W.A.No.294 of 1994. The Division Bench held as follows:- ''Even to this day, the appellants are not in a position to claim that the exim scrips which were produced by the petitioners in the past and which are now investigation, were bogus ones. It can be stated only after investigation is completed, as to whether these exim scrips were bogus or genuine. In the event they are found to be bogus, it shall have to be determined whether the writ petitioners herein are liable for the amounts. As the matter is under investigation, the interests of the appellants can very well be safeguarded if each of the petitioners is directed to furnish adequate security of immovable property having clear and marketable title to the satisfaction of the second appellant. It is not disputed that on furnishing of security in the aforesaid terms, the interests of the appellants and also of the Revenue would be sufficiently safeguarded. At the same time, we are also of the view that, when the petitioners are entitled to the payments as against the present exim scrips which are accepted to be genuine and valid, the payments cannot at all be directed to be withheld, nor can it be withheld by the appellants. Therefore, we are of the view that safeguarding the interest of the appellants, the amounts payable under the present exim scrips can very well be directed to be paid. https://hcservices.ecourts.gov.in/hcservices/ Accordingly, we dispose of the writ appeals in the following terms: If the petitioners as detailed below, furnish adequate security of immovable property having clear and marketable title or bank guarantee whichever is convenient to the writ petitioners, to the satisfaction of the second appellant (Joint Chief Controller of Imports and Exports, Madras) the appellants shall on accepting such security, pay the amounts payable on the present exim scrips. W.P.NO. Security of immovable property for Appellants shall pay to petitioners 17894/92 Rs.12,58,200/- Rs.19,47,315/- 18294/92 Rs.13,68,900/- Rs.15,94,400/- 19205/92 Rs.10,44,900/- Rs.35,000/- 18382/92 Rs.14,11,200/- Rs.8,83,400/- The order of the learned Single Judge stands modified accordingly." 11. Thus it can be seen the exim scrips purchased by the petitioner were also referred to by the Division Bench. Subsequent to the Division Bench order dated 21.2.1994, summons were issued to the petitioner and the investigation was also completed. The petitioner sent letters dated 08.7.1998 and 17.9.1998. The Joint Director General of Foreign Trade, by an order dated 15.12.1998 rejected the petitioner's request. 12. Once again the petitioner filed W.P.No.2194 of 1999 challenging the said order. This Court by an order dated 24.2.2006 set aside the order and directed the second respondent to pass a fresh order after giving an opportunity to the petitioner. Pursuant to the said order, the second respondent passed the impugned order dated 23.2.2006 and rejected the case of the petitioner. It was stated that unless the petitioner pays Rs.14 lakhs with interest against the first set of exim scrips which were obtained by fraudulent means, the respondent will not honour his claim for premium for the second set of scrips. It is this order which is under challenge in this writ petition. 13. On behalf of the third respondent, in their counter affidavit in paragraph 4, the following averments have been made:- '' .... Further, this respondent received direction not to make premium payment against the cancelled scrips and to recover any amount paid already on the cancelled scrips and if necessary not to make payment on any other scrips. As instruction were received from statutory authority (2nd respondent) not to make payment, this respondent had withheld payment to the petitioner. I submit the question https://hcservices.ecourts.gov.in/hcservices/ of making payment to the petitioner will arise only if the second respondent expressly authorises such payment as this respondent is only a designated branch." 14. On behalf of the second respondent, in their counter affidavit in para 3.(v), the following averments have been made:- ''3.(v) It is submitted that as the petitioner had already obtained pecuniary gains by tendering licences which were obtained by fraudulent means, he cannot be permitted to realize the present sum of Rs.8,83,400/- even though they are found to be genuine. Unless the petitioner pays the said sum of Rs.14,11,200/- with interest, the department will not be in a position to pay the petitioner's claim of Rs.8,83,400/-. If the present claim is also to be paid to the petitioner, there cannot be any hold to the department and consequently the amount of Rs.14,11,200/- cannot be recovered from the petitioner. Therefore, even in the present impugned order, the second respondent has directed the petitioner to pay Rs.14,11,200/- together with interest within seven days from the date of the said order to enable the second respondent to consider the petitioner's request for payment of premium as against the present 20 scrips for the value of Rs.8,83,400/-." 15. Mr.Habibullah Badsha, the learned Senior Counsel contended that the respondents are bound to make the payment on the principle of equitable estoppel. It is also stated that the second respondent has no power to direct the third respondent not to honour the circular issued by the RBI and such an action is violative of Articles 14 and 19(1)(g) of the Constitution. He also submitted that the respondents cannot go behind the order passed by this Court both by the learned Judge as well as the Division Bench in rejecting the claim of the petitioner. The respondents though sought for a set-off claim, the legal basis for such a claim was not revealed. No provision of law has been referred to for making a counter-claim. If for some reason the first set of scrips was found to be not genuine, then that should not have been honoured but should have been straightaway rejected. In the alternative, they should have prosecuted persons who were responsible for making bogus claim, in which event, there would have been justification for either denying the claim or for recovering the amounts received by taking appropriate steps to recover those amounts in accordance with law. 16. In the present case, the rights of the petitioner have been secured by earlier orders of this Court to the effect that the exim scrips sold by them were genuine. It gives an automatic right for the petitioner to claim the premium of 20% on the exim scrips sold by the third respondent and, hence, it is bound to honour the promise held out by the earlier circular issued. The contention that the respondents are estopped from denying the right of the petitioner on https://hcservices.ecourts.gov.in/hcservices/ the principle of promissory estoppel is well founded. 17. In this context, it is necessary to refer to the judgment of the Supreme Court in Southern Petrochemical Industries Co.Ltd. -vs- Electricity Inspector & ETIO and others reported in (2007) 5 SCC 447 wherein the Supreme Court surveyed all the earlier decisions regarding promissory estoppel and set out the circumstances under which such a right can be set up before the Courts. It is necessary to refer to paragraphs 118 to 130, and they may be usefully extracted below:- Para 118. It is in the aforementioned context, that the doctrine of promissory estoppel is sought to be invoked. We will notice hereinafter that even a right can be preserved by reason of invocation of doctrine of promissory estoppel. Para 119. Submission of Mr Andhyarujina, however, is that there cannot be an estoppel against a statute and, in any event, an exemption granted under sub-section (1) of Section 13 of the 1962 Act was subject to cancellation or variation under sub-section (2) of Section 13 thereof. Para 120. In regard to the evolution of the said doctrine, it may not be necessary for us to notice all the decisions cited at the Bar as most of them have recently been taken into consideration by this Court in A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala51. Para 121.The doctrine of promissory estoppel would undoubtedly be applicable where an entrepreneur alters his position pursuant to or in furtherance of the promise made by a State to grant inter alia exemption from payment of taxes or charges on the basis of the current tariff. Such a policy decision on the part of the State shall not only be expressed by reason of notifications issued under the statutory provisions but also under the executive instructions. The appellants had undoubtedly been enjoying the benefit of (sic exemption from) payment of tax in respect of sale/consumption of electrical energy in relation to the cogenerating power plants. Para 122.Unlike an ordinary estoppel, promissory estoppel gives rise to a cause of action. It indisputably creates a right. It also acts on equity. However, its application against constitutional or statutory provisions is impermissible in law. This aspect of the matter has been considered in State of Bihar v. Project Uchcha Vidya, Sikshak Sangh52 stating: (SCC pp. 575-76, para 77) https://hcservices.ecourts.gov.in/hcservices/ “77. We do not find any merit in the contention raised by the learned counsel appearing on behalf of the respondents that the principle of equitable estoppel would apply against the State of Bihar. It is now well known, the rule of estoppel has no application where contention as regards a constitutional provision or a statute is raised. The right of the State to raise a question as regards its actions being invalid under the constitutional scheme of India is now well recognised. If by reason of a constitutional provision, its action cannot be supported or the State intends to withdraw or modify a policy decision, no exception thereto can be taken. It is, however, one thing to say that such an action is required to be judged having regard to the fundamental rights of a citizen but it is another thing to say that by applying the rule of estoppel, the State would not be permitted to raise the said question at all. So far as the impugned circular dated 18-2-1989 is concerned, the State has, in our opinion, a right to support the validity thereof in terms of the constitutional framework.” Para 123. . Yet again in Mahabir Vegetable Oils (P) Ltd. v. State of Haryana53 it was stated: (SCC pp.632-33, para 38) “38. The promises/representations made by way of a statute, therefore, continued to operate in the field. It may be true that the appellants altered their position only from August 1996 but it has neither been denied nor disputed that during the relevant period, namely, August 1996 to 16-12-1996 not only have they invested huge amounts but also the authorities of the State sanctioned benefits, granted permissions. Parties had also taken other steps which could be taken only for the purpose of setting up of a new industrial unit. An entrepreneur who sets up an industry in a backward area unless otherwise prohibited, is entitled to alter his position pursuant to or in furtherance of the promises or representations made by the State. The State accepted that equity operated in favour of the entrepreneurs by issuing Note 2 to the notification dated 16-12-1996 whereby and whereunder solvent extraction plant was for the first time inserted in Schedule III i.e. in the negative list.” https://hcservices.ecourts.gov.in/hcservices/ Para 124. We may, however, notice that a survey of the earlier decisions has also been made by this Court in State of Punjab v. Nestle India Ltd.9 wherein the law has been stated in the following terms: (SCC p.474, para 25) “25. In other words, promissory estoppel long recognised as a legitimate defence in equity was held to found a cause of action against the Government, even when, and this needs to be emphasised, the representation sought to be enforced was legally invalid in the sense that it was made in a manner which was not in conformity with the procedure prescribed by statute.” Para 125. Referring to Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P.54 this Court observed: (Nestle India Ltd. case9, SCC pp. 475-76, para 29) “29. As for its strengths it was said: that the doctrine was not limited only to cases where there was some contractual relationship or other pre-existing legal relationship between the parties. The principle would be applied even when the promise is intended to create legal relations or affect a legal relationship which would arise in future. The Government was held to be equally susceptible to the operation of the doctrine in whatever area or field the promise is made — contractual, administrative or statutory. To put it in the words of the Court: ‘The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. (SCC p.442, para 24) * * * [E]quity will, in a given case where justice and fairness demand, prevent a person from insisting on strict legal rights, even where they arise, not under any contract, but on his https://hcservices.ecourts.gov.in/hcservices/ own title deeds or under statute. (SCC p.425, para 8) * * * Whatever be the nature of the function which the Government is discharging, the Government is subject to the rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it. (SCC p.453, para 33)’ ” (emphasis in original) Para 126. This Court distinguished its earlier decision in Kasinka Trading v. Union of India whereupon Mr Andhyarujina placed strong reliance, in the following terms: (Nestle India Ltd. case, SCC p.479, para 40) “40. The case of Kasinka Trading v. Union of India55 cited by the appellant is an authority for the proposition that the mere issuance of an exemption notification under a provision in a fiscal statute such as Section 25 of the Customs Act, 1962, could not create any promissory estoppel because such an exemption by its very nature is susceptible to being revoked or modified or subjected to other conditions. In other words, there is no unequivocal representation. The seeds of equivocation are inherent in the power to grant exemption. Therefore, an exemption notification can be revoked without falling foul of the principle of promissory estoppel. It would not, in the circumstances, be necessary for the Government to establish an overriding equity in its favour to defeat the petitioner’s plea of promissory estoppel. The Court also held that the Government of India had justified the withdrawal of exemption notification on relevant reasons in the public interest. Incidentally, the Court also noticed the lack of established prejudice to the promises when it said: (SCC p.289, para 22) ‘The burden of customs duty, etc. is passed on to the consumer and therefore the question of the appellants being put to a huge loss is not understandable.’ (See also Shrijee Sales Corpn. v. Union of India56 and STO v. Shree Durga Oil Mills57.) We do not see the relevance of this decision to the facts of this case. Here the representations are https://hcservices.ecourts.gov.in/hcservices/ clear and unequivocal.” Para 127. In MRF Ltd. v. Asstt. CST8 wherein one of us (Katju, J.) was a member, Kasinka Trading555 has also been held to be inapplicable where a right has already accrued; for instance, in a case where the right to exemption of tax for a fixed period accrues and the conditions for that exemption have also been fulfilled, the withdrawal of that exemption cannot affect the already accrued right. Para 128. In MRF Ltd.8 it was held that the doctrine of promissory estoppel will also apply to statutory