SCA/6596/1988 1/46 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 6596 of 1988 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 ========================================================= ATUL PRODUCTS LTD. & 1 - Petitioner(s) Versus STATE OF GUJARAT & 1 - Respondent(s) ========================================================= Appearance : MRS YOGINI V PARIKH for Petitioners MS PAURAMI SHETH, AGP for Respondent(s) : 1 - 2. ========================================================= CORAM : HONOURABLE MS.JUSTICE H.N.DEVANI Date : 29/08/2006 ORAL JUDGMENT 1. This petition challenges the decision of the State Level Committee, Ahmedabad in its 119th Meeting was held on 28th January, 1988, cancelling the sanction of cash subsidy made in SCA/6596/1988 2/46 JUDGMENT favour of the petitioner in respect of its Dinitro Chloro Benzene (DNCB) Project as well as calling upon the petitioner Company to pay to the State Government an amount of Rs.19,38,300/- disbursed to it as cash subsidy in respect of its Sulphuric Acid Plant. The said decision was communicated to the petitioner vide letter dated 21st / 28th April, 1988. 2. The petitioner No.1 (hereinafter referred to as “the petitioner Company”) is a Company incorporated and registered under the Indian Companies Act, 1913 in the year 1947 and therefore, it is an existing Company under the Companies Act, 1956. The petitioner Company is engaged in the business of manufacturing dyestuffs amongst other chemicals. 3. By a resolution No.NSC-1076-7637(1)-J dated 22nd December, 1977, the Government of Gujarat announced a State Cash Subsidy Scheme for new industrial units to be set up in developing areas. The said Scheme was to come into effect from 1st November, 1977 and remain in force for a period of five years. In the year 1979, during the operative period of the aforesaid cash subsidy scheme, the petitioner Company put up an industrial unit for manufacture of Caustic Soda and the State Government accepted the same as a “new industrial unit” within the meaning of sub- clause (b) of Clause (iv) of Section 6 of the SCA/6596/1988 3/46 JUDGMENT Scheme and granted a subsidy of Rs.25 lakhs to the petitioner Company. 4. During the operative period of the aforesaid Cash Subsidy Scheme, the petitioner Company, vide letter dated 6th November, 1980 sought for certain clarifications from the Commissioner of Industries, Gujarat State on various points. The Commissioner of Industries gave his response to the said letter by a communication dated 1st May, 1981. 5. It appears that, on the basis of the clarification given by the Industries Commissioner, the petitioner Company made an application for Cash Subsidy in relation to its Sulphuric Acid Plant to the District Industries Centre, Valsad on 10th November, 1981. A further detailed application was submitted to the Centre on 27th September, 1982. The State Level Committee, in its 77th Meeting held on 9th June, 1983 sanctioned the cash subsidy of Rs.21,48,870/- which was communicated to the petitioner vide Industries Department letter dated 17th June, 1983. The full disbursement of cash subsidy was to be effected after the project was evaluated by the Gujarat Industrial Investment Corporation. Out of the sanctioned cash subsidy, Rs.19,38,000/- was disbursed to the petitioner Company and it is the case of the petitioner Company that Rs.2,10,570/- is still SCA/6596/1988 4/46 JUDGMENT payable to the petitioner Company. 6. During the operative period of the Scheme, the petitioner Company put up yet another new plant for manufacture of Dinitro Chloro Benzene (DNCB). The said project was taken up for implementation in the year 1979 and was commissioned in December 1982. The petitioner Company vide letter dated 28th April, 1983 addressed to the General Manager, District Industries Centre, Valsad applied for State Cash Subsidy in respect of the said Plant in the prescribed form under the State Cash Subsidy Scheme. The application was registered as Subsidy Registration No.6538. Pursuant to the aforesaid application, the matter was considered in detail and other procedures and formalities as contemplated under the Scheme were completed. Thereafter, the State Level Committee in its 81st Meeting held on 28th December, 1983, approved the application of the petitioner Company in respect of its DNCB Project, and an amount of Rs.13,48,300/- was sanctioned by way of cash subsidy to the petitioner Company. Pursuant to the aforesaid, the petitioner Company also executed a formal agreement in favour of the Government of Gujarat on 18th February, 1984. 7. Thereafter, the office of the Industries Commissioner raised query regarding IDR licence in respect of the said unit. The said office SCA/6596/1988 5/46 JUDGMENT also decided to get the project appraised by a financial institution viz. the Gujarat Industrial Investment Corporation (GIIC). GIIC completed the appraisal of the project and submitted its report in September 1985. The petitioner followed up the matter for disbursement of subsidy with the office of the Industries Commissioner through letters and personal visits. By a letter dated 1st May, 1986 the Industries Commissioner informed the petitioner company to appear for personal hearing on 13th May, 1986. It appears that the State Level Committee in its 99th Meeting held on 27th May, 1986 examined the petitioner's application for cash subsidy in relation to its DNCB plant and called for certain information from the Company as well as from the District Industries Centre for further consideration in the matter. The petitioner Company, by a letter dated 15th July, 1986 addressed to the Industries Commissioner, Ahmedabad clarified the entire matter and replied all the queries which were raised. It was also pointed out that the investment decision for putting up the unit was taken, inter alia, on the basis of availability of State Cash Subsidy as confirmed by Joint Industries Commissioner. Hence, it was not proper for the Industries Department to review and/or revise the interpretation of the definition of “new Industrial Unit” now. SCA/6596/1988 6/46 JUDGMENT 8. By the impugned letter dated 21st/28th April, 1988, the petitioner Company was informed that the State Cash Subsidy sanctioned to its DNCB Unit was not disbursed as the issue was under further examination and that its case for its DNCB project was further discussed by the State Level Committee in its 119th Meeting held on 28th January, 1988 under the provisions of the State Cash Subsidy Scheme of 1977-82 and its Manual. It was stated that the State Level Committee had observed that the petitioner Company is an industrial undertaking and has already availed benefit by way of disbursement of State subsidy to the maximum permissible limit of Rs.25 lakhs under “C” Grade Growth Centre, and that, therefore, the State Level Committee had decided to cancel the sanction of Rs.13,48,500/- towards the State Cash Subsidy for the petitioner's DNCB project accorded in the 81st Meeting of the State Level Committee held on 28th December, 1983. It was further stated that, in view of this decision, the sanction order dated 18th January, 1984 was cancelled. Subsequently, by a letter dated 27th June, 1988, the petitioner was informed that, as per the provisions of State Cash Subsidy Scheme, 1977-82, the petitioner, as an industrial undertaking, would be eligible for subsidy at the rate of 15% of fixed capital investment or Rs.25 lakhs whichever was less, as the petitioner's location falls under Grade “C” Growth Centre. That the petitioner had availed SCA/6596/1988 7/46 JUDGMENT of total State Cash Subsidy of Rs.44,38,300/-, which had exceeded the permissible limit of Rs.25,00,000/- by an amount of Rs.19,38,300/-, which is liable to be recovered from the petitioner. In the circumstances, the petitioner Company was requested to refund the excess State subsidy of Rs.19,38,300/- paid to it. 9. The petitioner thereafter made several representations to the respondents justifying its claim, however, the sanctioned amount of cash subsidy was not disbursed to the petitioner. Being aggrieved by the aforesaid action of the respondent of cancelling the subsidy for its DNCB Unit and seeking to recover the amount of Rs.19,38,300/- paid to the petitioner in relation to its Sulphuric Acid Plant, the petitioner has invoked the jurisdiction of this Court under Article 226 of the Constitution of India. 10.Heard Ms.Yogini Parikh, learned advocate for the petitioner and Ms.Paurami Sheth, learned Assistant Government Pleader for the respondents. 11.Learned advocate for the petitioner assailed the impugned order dated 24th/28th April, 1988 as well as communication dated 27th June, 1988 on several counts. It was submitted that the impugned SCA/6596/1988 8/46 JUDGMENT order was based upon a total misreading and misinterpretation of the provisions of the Scheme. The learned advocate drew the attention of the Court to the Scheme framed vide Government Resolution dated 22nd December, 1977. Referring to the definition of “Industrial Unit” as defined under Clause 6(iv)(a) of the Scheme, which reads as under: “[a] “Industrial Unit” means any industrial undertaking and suitable servicing unit, other than that run departmentally by the government of India / State Government. Decision as to whether a unit is an industrial unit or not shall be by of the Industries Commissioner.” it was submitted that, by virtue of the said provisions, the Industries Commissioner was the competent authority to decide as to whether the unit is an “industrial unit” or not. [11.1] The learned advocate drew the attention of the Court to the letter dated 6th November, 1980 addressed by the petitioner to the Commissioner of Industries, whereby the petitioner had sought clarification from the said authority on various points. Paragraph 2 of the said communication, which is relevant for the purpose of the present petition, reads as under : SCA/6596/1988 9/46 JUDGMENT “We have obtained the State cash subsidy of Rs.25 lacs in respect of our Caustic Soda Expansion Plant in terms of Government of Gujarat Resolution No. MSC:1976:7637(1)-J dated 22nd December, 1977. We are not aware whether we are eligible to receive any State cash subsidy on our new Sulphuric Acid Plant to be commissioned in December, 1980 either in terms of aforesaid Government Resolution or any other scheme of cash subsidy of Gujarat Government. In case there is any amendment to the aforesaid Resolution No. MSC:1976:7637(1)-J dated 22nd December, 1977 for State cash subsidy, we shall thank you to kindly send us the above Resolution as amended upto date.” [11.2] The learned advocate submitted that, pursuant to the aforesaid queries raised by the petitioner, the Industries Commissioner had, by a communication dated 1st May, 1981, given his reply in the following terms : “I am in receipt of your letter dated the 6th November, 1980 and regret the delay in reply. With regard to your question of whether Central Cash Subsidy can be given per project even if it is set up by the same Company, I am state this is so, provided there is no linkage between the SCA/6596/1988 10/46 JUDGMENT products of one investment and another investment on which subsidy has already been claimed. This would mean that an entrepreneur should not be permitted to derive additional benefit by having one license for manufacturing a product upto an intermediate stage and another license for manufacturing the finished products. They would also has to be separate licensed items. However, with regard to the State Cash Subsidy, there is no stipulation and state cash subsidy would be admissible on each separate identifiable investment. With regard to Sales Tax exemption and deferment also, the exemption and deferment will apply to each separate investment, even if the Company is the same.” [11.3] It was submitted that the Industries Commissioner, who is the competent authority under the Scheme for the purpose of deciding as to whether the unit is an industrial unit or not, had opined in respect of a specific query raised by the petitioner that the State Cash Subsidy would be admissible on each separate identifiable investment, and that, cash subsidy can be given per project even if it is set up by the same Company. In the circumstances, it was not open to the State Level Committee to go beyond the decision of the competent authority and hold that the petitioner SCA/6596/1988 11/46 JUDGMENT Company was entitled to avail of the benefit of State subsidy to the extent of Rs.25 lakhs only in respect of all its industrial units as a whole. [11.4] It was submitted that the State Government had declared a policy in respect of cash subsidy by virtue of the Government Resolution dated 22nd December, 1977. Acting upon the said declaration, the petitioners have changed their position and have spent huge amounts for putting up the industrial unit for the DNCB Project. The State Level Committee, after considering all relevant aspects, after due application of mind and following due procedure, had sanctioned subsidy of Rs.13,48,500/- in its 81st Meeting held on 28th December, 1983. Accordingly, the General Manager, District Industries Centre, Valsad issued a sanction letter dated 8th February, 1984 for payment of subsidy of the said amount. It was submitted that subsequent cancellation of the said sanction was violative of the petitioner's fundamental rights under Article 14 of the Constitution of India. [11.5] The learned Advocate further referred to the definition of “new industrial unit” as defined under sub-section (b) of Clause 6(vi) of the Scheme, wherein a “new industrial unit” has been defined to mean an industrial SCA/6596/1988 12/46 JUDGMENT unit which has been commissioned on or after 1st November, 1977 or which has made fixed capital investment, as defined in sub-section (d) during the operative period of the Scheme. It was submitted that as per the said definition for an industrial unit to qualify as a new industrial unit it had to satisfy either of the two conditions precedent viz. (1) it should have been commissioned on or after 1st November, 1977 or (2) it should have made fixed capital investment as defined in sub-section (d) during the operative period of the Scheme. It was pointed out that both the industrial units of the petitioner company, namely the Sulphuric Acid Unit as well as the DNCB Unit, satisfy both the aforesaid alternative requirements in that fixed capital investment as defined under sub- section (d) had been made in respect of the said units within the operative period of the scheme and both the units have been commissioned after 1st November, 1977. It was further submitted that both the aforesaid units have been separately registered with the Directorate of Industries as required under clause (h) of section iv of the Scheme. It was urged that in the circumstances, both the aforesaid units having satisfied the requirements of the definition of “new industrial unit” as defined under the Scheme, are eligible as well as entitled to the benefit of cash subsidy under the scheme. SCA/6596/1988 13/46 JUDGMENT [11.6] It was submitted that the eligibility of the petitioner's DNCB Unit for subsidy under the Scheme had been fully examined and scrutinized by the competent authority, including the State Level Committee and thereafter, cash subsidy had been sanctioned in favour of the petitioner. However, subsequently, the Scheme is so interpreted as if the maximum cash subsidy is in respect of the entire operative period and it is also in respect of one Company which puts up its industrial unit, irrespective of the fact whether the said Company puts up its industrial unit and/or makes substantial expansion and/or diversification. It was submitted that such interpretation of the Scheme is on the face of it perverse, and is not bona fide. It was submitted that the State Level Committee has manifestly erred in interpreting the Scheme on irrelevant consideration and extraneous matters. [11.7] It was submitted that the action of the respondents is not bona fide and the impugned decision appears to have been taken only with a view to avoid the liability of making payment of the amount due and payable to the petitioner under the Scheme. [11.8] Learned advocate for the petitioner emphatically argued that, under the Scheme, the State Government is not empowered to review its SCA/6596/1988 14/46 JUDGMENT own decision. It was contended that it is well settled that the power of review must be conferred by the statute or as in the present case, under the Scheme. That, in absence of any such express power of review, the State Level Committee could not have reviewed its earlier order whereby subsidy had been sanctioned in favour of the petitioner. It was submitted that the impugned order reviewing the earlier order was ultra vires the Scheme and without jurisdiction. [11.9] It was submitted that, without prejudice to the aforesaid contentions, assuming that the power of review is conferred under the Scheme, even then the same cannot be exercised without any cogent and convincing reasons or without the coming into existence of any new fact. [11.10] Learned advocate for the petitioner submitted that the petitioner had relied upon the letter of approval dated 30th December, 1983 approving its application and the letter of sanction dated 18th January, 1984 sanctioning the amount of subsidy of Rs.13,48,300/- in respect of its DNCB Project. It was submitted that the State Government cannot arbitrarily withhold granting of the amount of subsidy on the ground that maximum subsidy amount has been paid to and availed of by the petitioner Company in respect SCA/6596/1988 15/46 JUDGMENT of capital investment made by it on two separate distinct units. It was contended that the declaration of the policy by the State Government by means of cash subsidy in question amounts to a promise made to all industries in the State and any action in contravention of the cash subsidy scheme would be illegal on the ground of principles of promissory estoppel. [11.11] In support of her submissions, the learned advocate placed reliance upon the following decisions : [a] Reliance was placed upon a decision of this Court in the matter of Gujarat State Financial Corporation v. M/s Lotus Hotels Pvt. Ltd., 1982 (2) GLR 49, wherein, in the facts of the said case, the Court held that, after the appellant Corporation promised to advance a loan to the respondent Company, the respondent Company did certain acts whereby it altered its position to its detriment and, therefore, it is entitled to contend that the doctrine of promissory estoppel applies in its full vigour and the appellant Corporation should be directed to honour its commitment of advancing the loan in the manner agreed by and between the parties under the agreement. [b] The decision of this Court in the case of Ahmedabad Advance Mills Ltd. v. State of SCA/6596/1988 16/46 JUDGMENT Gujarat, 1992(2) GLR 1232, was cited, wherein the Court held as under : “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.” [c] The decision of the Apex Court in the case of Harbhajan Singh v. Karam Singh, AIR 1966 SC 641 was cited for the proposition that, in absence of express power, an authority cannot review its previous order. It was submitted that the Scheme in question does not make any provision for review of an order passed by the State Level Committee whereby it has sanctioned cash subsidy. In the circumstances, the decision of the State Level Committee reviewing its earlier decision was ultra vires and without jurisdiction. 12.The learned Assistant Government Pleader Ms.Sheth submitted that subsidy was sanctioned SCA/6596/1988 17/46 JUDGMENT in respect of the petitioner's Caustic Soda Project on 24th January, 1980 and in respect of its Sulphuric Acid Project on 9th June, 1983. The application for subsidy in respect of DNCB Project was made on 28th April, 1983, whereas the reply of the Industries Commissioner on which strong reliance has been placed on behalf of the petitioners, is dated 1st May, 1981. It was argued that, from the aforesaid facts, it is apparent that no promise had been held out in respect of the petitioner's DNCB Plant, as is sought to be contended on behalf of the petitioner, in view of the fact that the explanation sought for by the petitioner was in respect of its Sulphuric Acid Plant. [12.1] Referring to the definition of the term “expansion” under the Scheme of 1977, it was submitted that under the said Scheme, expansion and diversification were one; whereas under the subsequent Scheme of 1986, the meaning of expression “diversification” has been specifically clarified. It was submitted that both the Sulphuric Acid project as well as the DNCB project of the petitioner were projects and as such, fell within the ambit of the expression diversion under the Scheme and were not new units, as is sought to be contended on behalf of the petitioner. Referring to the application wherein against the column-unit, the name “Atul Products” has been stated, it was submitted that SCA/6596/1988 18/46 JUDGMENT Atul Products is the unit whereas the Sulphuric Acid and DNCB units are merely projects of the said Unit. [12.2] Referring to clause (g) of the Scheme, which provides for eligibility under the Scheme, it was submitted that the State Level Committee was the only authority empowered to sanction loan, which includes power to rectify mistake. It was submitted that the sanctioning of subsidy in favour of the petitioner in excess of Rs.25 lakhs was a mistake and the Committee has, accordingly, rectified its mistake, which was permissible under the Scheme. It was submitted that there was no review on the merits of the petitioner's application, it was only a rectification of the mistake committed by the Committee in sanctioning subsidy in favour of the petitioner in excess of Rs.25 lakhs. It was submitted that the sanction was void ab-initio as being in contravention of the Scheme and as such, had rightly been cancelled by the Committee. [12.3] As regards the powers of the State Level Committee to review its earlier decision, reference was again made to clause (g) of the Scheme, to submit that by virtue of the said provision, the State Government was duly empowered to review any of its decisions. It was submitted that incentives under the Scheme SCA/6596/1988 19/46 JUDGMENT being discretionary in nature, were always subject to review. [12.4] Attention was drawn to the provisions of the subsequent Scheme introduced by the State Government viz., Capital Investment Subsidy Scheme for New Industries in Backward Areas, 1986, to submit that under the said Scheme a definition for the expression “diversification” had been introduced whereby “diversification” has been defined as the launching of a new product line under the same company, firm or partnership provided the fixed capital investment in such a diversification exceeds at least 25% of the net fixed assets of the original project. It was submitted that the said Scheme was partially modified by a Government Resolution dated 31st August, 1987 whereby it was provided that under the new scheme (86-91) an eligible unit shall be entitled to subsidy, as per rates prescribed in Annexure-D of the said Government Resolution dated 5th May, 1986 for each diversification irrespective of the number of diversifications, subject to financial limits as specified in Annexure-D for each diversification. It was contended, that in respect of the Scheme of 1977 under which the petitioner company is claiming subsidy, no such modification has been made. It was argued that, in absence of any such provision indicating that an industrial unit SCA/6596/1988 20/46 JUDGMENT would be entitled to subsidy in respect of each of its projects, the petitioner company is not entitled