SCA/909/1990 1/32 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 909 of 1990 For Approval and Signature: HONOURABLE MS.JUSTICE H.N.DEVANI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ========================================================= SARVOTTAM CEMENT & 1 - Petitioner(s) Versus STATE OF GUJARAT & 2 - Respondent(s) ========================================================= Appearance : MR AC GANDHI for Petitioner MRS REETA CHANDARANA, AGP for Respondent(s) : 1 - 2. MR JITENDRA MALKAN for Respondent : 3, ========================================================= CORAM : HONOURABLE MS.JUSTICE H.N.DEVANI Date : 24/08/2006 ORAL JUDGMENT 1. Mrs.Reeta Chandarana, learned Assistant Government Pleader seeks permission to place on record a compilation of documents comprising of SCA/909/1990 2/32 JUDGMENT copies of various Government Resolutions in respect of incentive schemes for industrial units to be set up in developing areas; orders dated 24th February, 1984 whereby the petitioner was registered under the Central as well as State Subsidy Schemes; communication dated 23rd May, 1985 informing the petitioner regarding sanction of subsidy in its favour, both under the Central and the State Scheme; disbursement orders dated 14th October, 1986 and 28th October, 1986; minutes of the State Level Committee meeting No.125, held on 30th September, 1988 and disbursement order dated 29th September, 1989. The aforesaid documents being relevant for the purpose of adjudicating the controversy involved in the present petition, leave is granted. The aforesaid documents are taken on record and shall be treated as part of the record of the Special Civil Application. 2. By this petition under Article 226 of the Constitution of India, the writ petitioners challenge the Government Resolution dated 9th October, 1984 of the Government of Gujarat, Industries, Mines & Power Department, whereby it has been directed that the State Cash Subsidy should be restricted to the amounts to make the total subsidy (the Central as well as the State) admissible to the concerned eligible units under the State Subsidy Scheme in respect of assets created after 1st April, 1983. The petitioners SCA/909/1990 3/32 JUDGMENT also seek direction against the respondents to pay the petitioner the balance amount of Rs.22 lakhs as subsidy at 25% of the fixed assets along with interest till the date of payment as well as to release the amount of Rs.2,32,193/- recovered from the petitioner No.1 (hereinafter referred to as the “petitioner Company”). 3. Being attracted by various incentives offered by the State Government, as well as the Central Government, the petitioner No.1, a Company registered under the Companies Act, 1956 had established a mini-cement factory. The State Government, at the relevant time, had framed a scheme called the “State Subsidy Scheme for Industries” vide resolution dated 22nd December, 1977. Under the said Scheme, medium and large scale industries set up in Grade “C” Growth Centres were entitled to subsidy at the rate of 15% of the fixed assets or Rs.25 lakhs, whichever is less. Subsequently, by Government Resolution dated 27th August, 1980, the Government of Gujarat introduced a package of new incentives for promotion of industries in rural and backward areas, which provided that pioneer units would be eligible for incentives admissible at “C” Grade Growth Centres. It is an admitted position that the petitioner is registered as a pioneer unit and as such, is eligible for incentives admissible to “C” Grade Growth Centres. On 27th April, 1983, Union of SCA/909/1990 4/32 JUDGMENT India announced subsidy of 10% under the Central Cash Subsidy Scheme for “C” Grade Growth Centres. As the petitioner came within the ambit of “C” Grade Growth Centres, the petitioner was also entitled to the benefit of Central Cash Subsidy under the said Scheme. 4. The petitioner had applied for registration for subsidy under both State as well as Central Scheme on 15th February, 1984 and was registered in respect of both the Schemes on 24th February, 1984. On 28th June, 1984, the petitioner applied for sanction of subsidy, both Central and State, which was duly sanctioned by the respondents and payments towards subsidy were received by the petitioner on 28th October, 1985 and 14th October, 1986. The grievance of the petitioner is that the respondent refused to make further disbursement on the ground that, by virtue of the impugned resolution dated 9th November, 1994, which was made effective from 1st April, 1983, the total subsidy State and Central could not exceed 15%, and that, central subsidy is to be adjusted as if the same has merged in the State subsidy. It is the case of the petitioner that, being a medium scale unit in the District of Mehsana, it is entitled to 15% State subsidy as per the notification dated 22nd December, 1977 read with the resolution dated 27th August, 1980, subject to a maximum of Rs.25 lakhs and that over and above the said amount, it is also SCA/909/1990 5/32 JUDGMENT entitled to 10% subsidy of Central Government as per the press-note dated 27th April, 1983 in view of the fact that it is situated in the “C” Grade Growth Centre. It is the case of the petitioner that, based upon the representations made by the State Government and the Central Government, the petitioner had set up the industry and borrowed huge amounts for the said purpose. That, by virtue of the notification dated 9th November, 1994, the respondents are going back from their promise; that the petitioner having acted on the basis of the promise held out by the respondents, has changed its position, hence, the respondents are now estopped from denying the petitioner Company the benefits under both the Schemes separately. 5. It appears that, subsequently, the estimated project price and the cost had escalated and accordingly, the petitioner has claimed subsidy at 25% of Rs.22,75,000/-. 6. Being aggrieved by the Government Resolution dated 9th November, 1984, whereby both the State and Central subsidies are sought to be clubbed together, the petitioner has invoked the jurisdiction of this Court under Article 226 of the Constitution of India. 7. Heard Mr.Gandhi, learned advocate for the petitioner, Mrs.Chandarana, learned Assistant SCA/909/1990 6/32 JUDGMENT Government Pleader for the respondents No.1 and 2 and Mr.J.M.Malkan, learned Assistant Solicitor General for the respondent No.3. 8. Learned Advocate Mr.Gandhi submitted that, acting upon the promise held out by the Government by virtue of the Government Resolution dated 22nd December, 1977 and 27th August, 1980, the petitioner had established the unit for manufacturing and production of Ordinary Port Land Cement. Moreover, pursuant to the press note dated 27th April, 1983 setting out the policy of the Union of India for grant of cash subsidy for “C” Grade Growth Centres, the petitioner which was a Small Scale Industry till then, got itself converted into a Medium Scale Industry and decided to increase its project cost. For this purpose, the petitioner had availed of loans from financial institutions and banks and arranged for additional funds to meet with the increased project cost. Relying upon the promises of the respondents that the petitioner would be eligible for 25% cash subsidy, the petitioner had changed its position by investing huge amounts and creating further liabilities. It was submitted that, pursuant to its registration, cash subsidy had been sanctioned at 15% under the State scheme and 10% under the Central scheme and disbursement was duly made as per the eligibility under both the Schemes. However, subsequently, the Government SCA/909/1990 7/32 JUDGMENT has come out with the impugned Government Resolution dated 9th November, 1984 restricting the total subsidy, both Central and State, to the amount that the said unit would be eligible under the State Subsidy Scheme. Therefore, the respondents have restricted the total subsidy to 15% instead of the 25%, to which the petitioner is legally entitled. 9. It is pointed out that, even after the issuance of the impugned Government Resolution, the respondents had continued to disburse the subsidy as per the sanction order issued in its favour. However, subsequently, vide communication dated 29th September, 1989, the petitioner has been informed that the disbursement of Rs.3,31,752/- under the Central Cash Subsidy Scheme would be paid to the petitioner only after the excess amount of Rs.2,32,193/- paid to the petitioner under the State Subsidy Scheme is recovered. 10.It was submitted that initially, by virtue of the State and Central Cash Subsidy Schemes, the respective Governments have held out promises that the petitioner would be entitled to subsidy at the rates specified in both the Schemes, acting upon which, the petitioner had established an industry and expended a considerable amount after the same. That the respondents had sanctioned cash subsidy in SCA/909/1990 8/32 JUDGMENT accordance with the respective Government Resolutions. It was submitted that once the Government had sanctioned a particular amount, they are estopped from changing the same subsequently. It was urged that the subsidy had been sanctioned in 1985 on the basis of 15% and 10% in respect of State Cash Subsidy and Central Cash Subsidy respectively. Not only that, respondents have also acted upon the said sanction orders and disbursed the amounts granted. It was contended that once the amount has been disbursed on the basis of valid sanction orders, the respondents cannot subsequently change their stand and seek to recover the same. 11.In support of his submissions, the learned advocate relied upon the following decisions: (i)The decision of the Apex Court in the case of State of Orissa v. Mangalam Timber Products Ltd., AIR 2004 SC 297, was relied upon, with special reference to paragraph No.4 of the said decision, which reads as under: “4. Having heard the learned counsel for the parties, we are satisfied that no case is made out for interference with the judgment of the High Court. Before the High Court, the principal plea of the respondent was that there was no contract in writing and, therefore, the applicability of the principle of promissory estoppel was SCA/909/1990 9/32 JUDGMENT not established. The High Court has rightly discarded this plea. To attract the applicability of the principle of estoppel it is not necessary that there must be a contract in writing entered into between the parties. We are not satisfied even prima facie that it was a case of an error committed by the State Government of which it was not aware. The State of Orissa should have, while holding out the representation, taken into consideration the fact who will have to do replantation and that the permission of the Government of India would be needed for the purpose. The State cannot take advantage of its own omission. The State Government having persuaded the respondent to establish an industry and respondent having acted on the solemn promise of the State Government, purchased the raw material at a fixed price and also sold its products by pricing the same taking into consideration the price of raw material fixed by the State Government and supplied, the State Government cannot be permitted to revise the terms for supply of raw material adversely to the interest of the respondent and effective from a back date and place the respondent in a situation which it will not be able to resolve. The respondent could not have revised their price from a back date and recovered it from innumerable consumers to whom their finished products were supplied at a fixed price.” It was submitted that, in the circumstances, the respondents were barred by the principle of promissory estoppel from changing the terms of the sanction order and reducing the amount on the basis of the impugned notification. SCA/909/1990 10/32 JUDGMENT (ii)The decision of the Apex Court in the case of M.P.Sugar Mills v. State of U.P., AIR 1979 SC 621, was cited wherein the doctrine of promissory estoppel has also been applied against the Government and the defence based on executive necessity has been categorically negatived. It has been held that where the Government makes a promise knowing or intending that it would be acted upon 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. The Court also held that the Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action. It was also held that the Government cannot claim to be exempt from the liability to carry out the promise on some indefinite and undisclosed ground of necessity or expediency, nor can the Government claim to be the sole judge of its liability and repudiate it on an ex-parte appraisement of the circumstances. SCA/909/1990 11/32 JUDGMENT It was contended that the Government having held out a promise to the petitioner and the petitioner having acted upon the same and altered its position, the Government was bound by its promise and could not repudiate the same. 12.It was submitted that, by the impugned Government Resolution, the respondents had sought to retrospectively restrict the combined subsidy under the Central and the State Schemes to the amount admissible to an eligible unit under the State Subsidy Scheme. It was submitted that the impugned Government Resolution which takes away the right already vested in the petitioner for grant of subsidy as per the orders of sanction, is required to be quashed and set aside, or in the alternative, it may be held that the same may not be given effect to in case of the petitioner. It was prayed that the balance amount under the Scheme at the rate of 15% under the State Scheme and 10% under the Central Scheme be directed to be paid to the petitioner. 13.Mrs.Chandarana, learned Assistant Government Pleader opposed the petition and supported the action taken by the respondents. Learned Assistant Government Pleader referred to and relied upon the affidavit-in-reply filed on behalf of the respondent No.2, and submitted SCA/909/1990 12/32 JUDGMENT that the action taken by the State Government of restricting the amount of cash subsidy to 15% was just, legal and proper. 14.Mr.J.M.Malkan, learned Assistant Solicitor General for the respondent No.3 was not in a position to make any submissions on the merit of the matter, nor could he clarify the stand of the Central Government in the matter. However, with a view to assist the Court, the learned Counsel drew attention of the Court to the provisions of Section 15 of the Code of Civil Procedure, 1908 which provides that every suit shall be instituted in the Court of the lowest grade competent to try it, to submit that the relief prayed for vide paragraph 31(b) and (c) tantamount to seeking a money decree, which would require investigation and examination of bundle of facts, hence, the petition is not maintainable. As can be seen from the relief clause, the principal prayer in the petition challenges the Notification dated 9th November, 1984. Besides, the petition does not involve any disputed questions of fact, in the circumstances, the aforesaid submission made by the learned Counsel being thoroughly irrelevant, deserves to be rejected. 15.Before entering into the merits of the matter, it would be necessary to examine the various Schemes floated by the State Government for cash SCA/909/1990 13/32 JUDGMENT subsidy for industrial units. Initially, by Government Resolution dated 22nd December, 1977, the State Government introduced a Scheme titled “The State Cash Subsidy Scheme for Industries”. The operative period of the said Scheme was for a period of five years from 1st November, 1977. The Scheme was applicable to “developing areas” indicated in Annexure “I” to the said resolution. The “developing areas” consist of zones and growth centres, as defined in the Annexure “I”. Three types of growth centres have been defined under the Scheme, viz. Grade “A”, Grade “B” and Grade “C”. Clause (e) of the Scheme, which provides for “Cash Subsidy”, specifies the rates at which cash subsidy would be available to industries situated in different zones. For the purpose of the present petition, we are concerned with industries situated in “C” Grade Growth Centres for which subsidy is available at the rate of 15% of the fixed assets or Rs.25 lakhs whichever is less. 16.By a Government Resolution dated 27th August, 1980, the Government announced a scheme of sales tax incentives with effect from 1st June, 1980 for a period of five years i.e. upto 31st May, 1985. The said scheme was titled “The New Sales Tax Incentive Scheme for Industries.” The said scheme being primarily a sales tax incentive scheme would not have much relevance insofar as cash subsidy is concerned but for the fact that SCA/909/1990 14/32 JUDGMENT under clause (7) of the said Scheme, provision has been made for special incentives for “pioneer units”. Clause (7) insofar as the same is relevant for the purpose of the present petition reads as under : “Recognizing the need for some special incentive for large industrial units going to a completely new location in backward areas so as to compensate for extra economic burden / handicaps involved to such Pioneer Units, Government is pleased to direct that such Units will be eligible for incentives admissible at a “C” Grade Growth Centre.” It appears that the petitioner being a “Pioneer Unit” as envisaged under the aforesaid scheme was, therefore, eligible to cash subsidy under the Government Resolution dated 22nd December, 1977 at the rate admissible at “C” Grade Growth Centres, namely at the rate of 15% of the fixed assets. 17.As the operative period of the Government Resolution dated 22nd December, 1977 was to expire on 31st October, 1982 and under the provisions of the said Scheme, only fixed assets created during the operative period of the Scheme were eligible for Cash Subsidy, the State Government vide resolution dated 15th October, 1982 decided that those Industrial Units which SCA/909/1990 15/32 JUDGMENT have taken the steps enumerated therein before 31st October, 1982, would be eligible to receive full subsidy, provided they complete the creation of all assets before 31st October, 1983. Subsequently, by a resolution dated 27th March, 1984, the Government provided for certain relaxations in case of those units who had not been able to complete creation of all assets before 31st October, 1983 on account of certain genuine difficulties. To enable such units to retain their eligibility for subsidy, the Government had decided that such units will be eligible for subsidy on the assets created by them till 31.10.1983 subject to the condition that only those units which have taken effective steps as per G.R. dated 15.10.1982 and have been sanctioned subsidy thereunder will be eligible for this relaxation. In such cases, 15% of the amount of the subsidy to which the Industrial Unit would be entitled would be disbursed after the commencement of production as usual. It appears that even thereafter the period has been extended till 1986. 18.By a press-note dated 27th April, 1983, the Government of India, Ministry of Industries, Department of Industrial Development, declared certain incentives for setting up industries in No Industries Districts/Backward Areas. Under the said Scheme, for the first time, Central subsidy was introduced for category “C” areas SCA/909/1990 16/32 JUDGMENT which was so far eligible only for concessional finance. The said Scheme provided for a subsidy of 10% subject to maximum of Rs.10 lakhs in case of category “C” areas. Accordingly, those units situated in “C” Grade Growth Centres became eligible for central investment subsidy of 10% of its fixed assets. 19.By the impugned Government Resolution dated 9th November, 1984, the State Government after considering the Government Resolutions referred to hereinabove as well as the Government of India, Ministry of Industry, Press Note dated 27th April, 1983, noted that the Government of India had for the first time extended central subsidy with effect from 1st April, 1983 to the category “C” areas under the Central Subsidy Scheme announced on 17th April, 1983. The category “C” areas in respect of Gujarat are districts Amreli, Banaskantha, Bhavnagar, Junagadh, Kutch, Mehsana and Sabarkantha. It was further noted that under the previous scheme as well as under Government Resolution dated 15th October, 1982, the eligible areas in these districts were entitled to State subsidy at the specified rates; that since the object of the State subsidy was to supplement the Central subsidy in eligible areas, the question of reducing the quantum of State subsidy was under consideration in respect of those areas which have for the first time become eligible for SCA/909/1990 17/32 JUDGMENT central subsidy from 1-4-1983. The State had, therefore, vide letter dated 28th September, 1983 issued instructions that the State subsidy should be restricted in each case to the amount to make up the total subsidy (the Central as well as State) admissible to the concerned eligible units under the State subsidy scheme in respect of assets created after 1st April, 1983. The said instructions were reiterated in the said Government Resolution and the said order was given retrospective effect from 1st April, 1983. 20.It appears that the petitioner applied for registration under both the State and the Central Subsidy Schemes on 15th February, 1984 and was registered under both the Schemes on 24th February, 1984. The petitioner had not annexed the aforesaid Certificates of Registration, therefore, the learned Assistant Government Pleader had been asked to place copies of the same on record. Accordingly, copies of the orders of registration under both the Schemes were placed on record. It may be pertinent to note that, under the said orders, the petitioner has been registered under the “Capital Investment” Subsidy Scheme 1983” which was introduced by the Government Resolution dated 19th August, 1983. 21.The petitioner having fulfilled all the SCA/909/1990 18/32 JUDGMENT conditions necessary for registration as a Pioneer Unit, was registered as such, initially on a provisional basis on 24th April, 1984 and thereafter, permanently by order dated 4th June, 1986. Though the petitioner was registered under the Government Resolution dated 19th August, 1983, it appears that the petitioner represented to the State Government that the petitioner being a Pioneer Unit be granted benefits under the earlier Scheme. It appears that the petitioner being a Pioneer Unit was entitled to the incentives admissible at a “C” Grade Grown Centre during the operative period of the Scheme introduced by the Government Resolution dated 27th July, 1980. Accordingly, the petitioner was entitled to subsidy at the rate of 15% of fixed assets as State Government Subsidy as well as 10% cash subsidy under the Central Subsidy Scheme, which was introduced with effect from 1st April, 1983. However, vide impugned Government Resolution dated 19th November, 1984, the State Government gave effect to a policy decision whereby it decided to restrict the amount of subsidy in each case falling under category “C” areas, whereby the total of both Central and State subsidy would be equal to the amount of subsidy that the eligible unit would be entitled under the State Scheme. In other words, the sum total of subsidy was limited to the amount admissible under the State Subsidy Scheme. SCA/909/1990 19/32 JUDGMENT 22.It appears that, subsequent to its registration as a Pioneer Unit as well as under both the State as well as Central Subsidy Schemes, the petitioner applied for sanction of subsidy under both the Schemes on 28th June, 1984. 23.By a communication dated 23rd May, 1985, the Member Secretary, State Level Committee informed the petitioner that the said Committee had in its 92nd meeting held on 16th April,