RSA NO.1760 OF 2001 :1: IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. DATE OF DECISION: 28.4.2008 K.V.Industries ...Appellant VERSUS Union of India and others …Respondents CORAM HON'BLE MR.JUSTICE PERMOD KOHLI PRESENT: Mr.P.S.Dhaliwal, Advocate for appellant Mr.S.K.Sharma, Advocate for respondent no.1- Union of India Mr.G.S.Anand, Advocate for respondent no.3 Permod Kohli, J. (Oral) The appellant-M/s K.V.Industries is a partnership firm registered as Small Scale Industries with the Directorate of Industries under Registration No.P.S.I./02204/PS.02/F.W.L./ dated 3.2.1988 and is engaged in business of cotton ginning and expelling oil. The appellant-Firm applied for loan of Rs.7,30,000/- for setting up of the industry and vide letter dated 6.11.1986. defendant no.3 sanctioned loan of Rs.6,50,000/-. At the time of establishment of the Industry, a Scheme framed by the Central Government for grant of central subsidy to the small scale industries to the extent of 15% of the capital investment was in RSA NO.1760 OF 2001 :2: operation. Appellant also applied for an additional loan of Rs.1,55,000/- to defendant no.3, the sanctioning and disbursing agency in lieu of the central subsidy which the appellant was allegedly entitled under the Scheme. This application was moved on 22.9.1987. On completion of the various formalities, defendant no.3 advanced a loan of Rs.1,55,000/- on 16.12.1987. Appellant/plaintiff approached defendant no.3 through various letters referred to in the plaint for adjustment of the central subsidy against the loan so that he is not made liable to pay the interest. Defendant no.3 vide letter dated 29.12.1988 assured the plaintiff that its case for central subsidy is under process. Defendant no.3, however, informed the appellant that the Central Government has discontinued the central subsidy vide instructions dated 22.9.1988. Plaintiff accordingly filed a writ petition before the Hon'ble High Court of Punjab and Haryana which was dismissed on 3.10.1990 allowing the plaintiff to resort to the ordinary remedy by way of civil suit. The plaintiff/appellant accordingly approached Civil Court seeking a direction for release of the central subsidy at the rate of 15% of the total investment and also for a direction to respondent no.3 not to charge any interest from the plaintiff/appellant on loan amount of Rs.1,55,000/- which was advanced in lieu of the central subsidy. The plaintiff also challenged the validity of the letter dated 22.9.1988 issued by the Government of India-defendant no.1 where under the central subsidy scheme was withdrawn. Both the courts have dismissed the suit of the plaintiff on RSA NO.1760 OF 2001 :3: two counts- (1) that the Central Government has withdrawn the Scheme vide letter dated 22.9.1988 and (2) that the plaintiff had not gone into production in whole before he applied for grant of central subsidy vide letter dated 22.9.1987. The crucial question that needs consideration in the present case is whether the defendants are bound to grant central subsidy under central subsidy scheme and whether the letter dated 22.9.1988 withdrawing central subsidy takes away the plaintiff/appellant's right to secure the central subsidy. The Central Government Subsidy Scheme has been issued vide brochure (Ex.P-25 ) on the record of the trial court relevant part of which reads as under:- “Eligibility. (1)Subsidy @ 15% of the fixed capital investment made by the unit shall be allowed in Districts of Amritsar, Ferozepur and Gurdaspur, the bet areas, the sub-mountane areas, the Districts/areas declared as such by the State Government from time to time excluding the three Districts of Hoshiarpur, Sangrur and Bhatinda and Fariodkot tehsil of Faridkot District where 15% Central subsidy on capital investment is available. XXX XXX XXX 8.2. The total amount of subsidy admissible to a unit shall not exceed Rs.15 lacs even cases involving capital investment of more than Rs.1 RSA NO.1760 OF 2001 :4: crore. 8.3. Computation of Entitlement. 8.3 (1) The amount of subsidy shall be 15% of the fixed capital investment to be assessed as follows:- Land & Building Actual price paid for the land/building including development charges to the extent needed for the purpose of the unit. Where land and/or building is held on premium lease arrangements, premium paid by the lease holder will be eligible for claiming subsidy where land and or building are already owned by the unit, the market value thereof assessed by the authority competent to sanction subsidy will also be taken for purpose of computation fixed capital investment. Rent of a hired building will not be taken into account. Plant & Machinery The cost of plant and machinery as erected at site will be taken into account which will include the cost of productive equipment as tools, jigs, dies and moulds, transport charges, insurance premium, erection cost etc. will also be included. Balancing accessories, etc. added to the main plant and machinery for modernisation, diversification, etc. would also be taken into account while computing the value of plant and machinery. RSA NO.1760 OF 2001 :5: 8.4 Procedure Form `G' 8.4 (1) Application in form “G” for the grant of capital subsidy alongwith the following documents shall be submitted to the District Officer alongwith the following documents, not later than six months of the close of the financial year during which the unit has gone into production:- (i)Affidavit as per Annexure V. (ii)Chartered Accountant's certificate certifying the expenditure incurred in the Prescribed form G. (iii) A certificate from a Government Engineer of Public Works or an Engineer or the Estate owned Corporation, Industrial Infrastructure Corporation or the Industrial Promotion Corporation or qualified architect/Civil Engineers certifying the civil works done in the prescribed form G-2. (iv) A certificate in the prescribed pro forma G-3 from the financial institution certifying extent of loan sanctioned and disbursed as also the extent of fixed capital investment as per the project report/scheme which are the subject matter of scrutiny at the Financial institution. (v)A copy of the latest audited accounts of the unit. (vi) A copy of the Scheme/project report: Provided that these documents will not be required RSA NO.1760 OF 2001 :6: to be submitted in cases where the subsidy amount does not exceed Rs.15,000/-. 8.4 (2) The District Officer will forward the application to the Director 8.4 (3) The subsidy shall be sanctioned by the authority as may be prescribed by Government. 8.5 Mode of disbursement 8.5(1) The subsidy may be claimed and sanctioned in not more than three instalments as follows:- (a) upto 85% before the unit goes into production. (b) the balance amount admissible, after the unit has gone into production.” From the reading of the Scheme, it is clear that the central subsidy becomes payable to small scale industries on capital investment at the rate of 15% of the capital investment, on completion of the conditions specified therein. These are following conditions in the Central Subsidy Scheme:- (1)One of the conditions is registration under the Central Subsidy Scheme, (2) the Unit must go in production, and (3) the plaintiff must apply within the time specified under the Scheme. The plaintiff applied for Central Subsidy on 22.9.1987, admittedly, much before the Scheme was withdrawn on 22.9.1988. This fact is admitted by the Punjab State Financial Corporation in the written statement as also vide letter dated 3.8.1989. It is also admitted that the plaintiff has gone into production, but the defendants' stand is that the entire unit had not gone into RSA NO.1760 OF 2001 :7: production. The defendants admitted that the part of the unit had started production, when the plaintiff/appellant applied for grant of subsidy on 22.9.1987. It is common case of the parties that the Scheme was applicable to the backward districts, so declared. The District of Bhatinda was a backward district at the relevant time when the industry was established by the plaintiff. The issue involved in the present case is squarely covered by a judgment of the Hon'ble Apex Court in the case of Under Secretary, Ministry of Industries and others vs. Marchon Textile Inds. (P) Ltd. and another, (2005) 10) SCC 554 wherein the Hon'ble Supreme Court has observed as under:- “8.The schemes floated by the State releasing grant of subsidy for industrial units to be set up in certain selected backward districts/areas have a benevolent and public purpose to achieve, and that is, to promote the growth of industries in such districts/areas which but for the State encouragement would continue to remain backward and the industrial investment will not be attracted to such areas. Such Schemes have to be construed with practical and pragmatic approach so as to achieve and not frustrate the purpose sought to be achieved. The benefit of the Scheme ought to be allowed, if it can be done. The applications should not RSA NO.1760 OF 2001 :8: be dealt with a hypertechnical approach or in a pedantic manner. If the application filed before the cut-off date is substantially in order and satisfies the formalities expected of the scheme, then an opportunity should be allowed to the applicant to cure the defects which are not of substantial nature or are capable of being cured so that the deserving units are not left out of the Scheme.” In the aforesaid case, the Hon'ble Supreme Court relied upon an earlier judgment in the case of Umesh Textiles v. Union of India (CA No.6240 of 1994 decided on 5.12.1995 by the Apex Court) wherein following directions have been issued:- “It appears that there was some controversy as to how and in what manner the cut-off date of 30.9.1988 was to be applied. The dispute travelled upto this Court and came to be decided vide order dated 5.12.1995 in Umesh Textiles v. Union of India. The Court having invited the comments of the Ministry of Industry decided that all the applications filed up to 30.9.1988 should be considered for grant of Central investment subsidy provided the said applications were complete in terms of the Scheme dated 26.8.1971, as modified from time to time.” RSA NO.1760 OF 2001 :9: In view of the above directions, the case of plaintiff/appellant requires to be considered as admittedly, the appellant filed its application for grant of subsidy on 22.9.1987. Mr. Sharma, learned counsel appearing on behalf of respondent no.1/defendant stated that Union of India cannot disburse subsidy unless the case of the applicant is considered and recommended by the State Level Committee. Similar prayer is made by Mr.G.S.Anand, learned counsel appearing on behalf of respondent no.3/defendant. From the record it appears that the application of the applicant, though received by defendant no.3-Punjab State Financial Corporation within time, but it was never forwarded to the State Level Committee for consideration and approval and thus, the plaintiff/appellant came to be deprived of the right to subsidy or at least consideration. Under the above circumstances and in view of the directions of the Hon'ble Apex Court in the case of Umesh Textiles (supra), I direct defendant no.3 to forward the application of the plaintiff/appellant for grant of central subsidy to the State Level Committee envisaged under the Scheme. If the State Level Committee is not functional as on date, defendant no.2 is directed to constitute such a Committee and place the case of plaintiff/appellant before such Committee for consideration. In the event, the State Level Committee recommends the case of the appellant, defendant no.1 shall release the funds through defendant no.3, the sanctioning and disbursing authority. The amount shall be adjusted against the loan amount of the plaintiff, RSA NO.1760 OF 2001 :10: if any such amount is still payable by it. It has also come on record that defendant no.3 for no valid reasons, kept the application of the appellant pending with it and did not refer it to the State Level Committee as was obligatory upon it under the Scheme. Defendant no.3 shall also consider the question of liability of the petitioner for payment of interest on the amount of Rs.1,55,000/- or at least waiving of compound and penal interest. Let the case of the plaintiff be forwarded by defendant no.3 to defendant no.2 for placement before the State Level Committee within two months. Defendant no.2 shall place the case before State Level Committee, if in existence or to be constituted within three months thereafter. The State Level Committee shall consider the case of the applicant within one month from the date of receipt. On receipt of the recommendation of the State Level Committee, defendant no.1 shall release the funds within three months and accordingly disbursement/adjustment shall be made by defendant no.3, immediately thereafter. Appeal allowed. (PERMOD KOHLI) JUDGE 28.4.2008 MFK