SCA/148219/1999 1/15 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 1482 of 1999 For Approval and Signature: HONOURABLE MR.JUSTICE AKIL KURESHI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 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 ? 5 Whether it is to be circulated to the civil judge ? ========================================================= ESSAR STEEL LIMITED - Petitioner(s) Versus STATE OF GUJARAT & 2 - Respondent(s) ========================================================= Appearance : MR JR NANAVATI, WITH MR AR THACKER for Petitioner MS MANISHA LAVKUMAR, AGP for Respondent(s) : 1 - 3. ========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI Date : 12/12/2008 ORAL JUDGMENT In the present petition, petitioner Essar Steel Limited, has challenged an order dated 12.2.96 passed by respondent No.2 as also recovery notice dated SCA/148219/1999 2/15 JUDGMENT 31.1.99 seeking to recover certain amount with interest which, as per the respondents, was payable by the petitioner as indicated in order dated 12.2.96. 2. Shortly stated, facts leading to the petition are as follows:- The petitioner was desirous of putting up an industrial unit at land bearing survey Nos.353 and 354 of Hazira, Taluka Choryasi, District Surat. Respondent No.2 by letter dated 12.9.90 informed the petitioner that it has been resolved to grant 40 Hectares and 20 Are of land out of survey No.353 and 354 of Hazira to the petitioner for its project on an ad hoc rate of Rs.22.20 per sq. meters on certain terms and conditions. First condition was as follows:- “As and when the Committee comprising of Secretary, Revenue Department, Secretary, Finance and Secretary, Industries, Mining and Energy assesses the price of the land, the petitioner shall have to pay the difference to the Government and thereafter enter into an agreement with the Government.” In the said communication, it was further stipulated that the petitioner shall have to pay a sum of Rs.88,80,000/- within one month from the date of the order calculating the ad hoc price of the land SCA/148219/1999 3/15 JUDGMENT at the rate of Rs.22.20 per square meter. The petitioner was to be put in possession of the land only after receiving the said amount. In response to the said communication, the petitioner wrote a letter dated 26.9.90 to the District Collector, Surat with a copy to the Deputy Secretary, Revenue Department of the Government of Gujarat in which the petitioner undertook that as and when the Special Committee consisting of three Secretaries of the Government finalises and assesses the final price and if it is in excess of and over and above the present market price of Rs.22.20 the petitioner shall, within 30 days from receiving the communication from the Committee, pay the difference if any. The petitioner also undertook to pay to the Government the expenditure that may be incurred for providing infrastructural facilities as also tax and assessment as may be fixed for the above land. On 28.9.90, respondent No.2 passed order formally allotting the land to the petitioner upon the petitioner paying ad hoc price at the rate of Rs.22.20 per square meter on certain terms and conditions. Condition No.8 of the order reads as follows:- “Government has approved collection of market price of the land in question at the rate of 22.20 per square mater on condition that whenever the Committee comprising of Secretary, SCA/148219/1999 4/15 JUDGMENT Revenue, Secretary, Finance and Secretary Industry, Mines and Energy assess the price of the land, at that time whatever the difference, the Company shall have to pay the same.”. It is not in dispute that sometime thereafter the petitioner paid the ad-hoc price of Rs.88,80,000/- and was put in actual possession, use and occupation of the land in question. Even while passing the order dated 28.8.91, regarding receipt of amount of Rs.88,80,000/- from the petitioner and reiterating grant of the land, above mentioned condition of the petitioner having to pay the difference as and when the land price is finally assessed by the Committee was repeated. It is not in dispute that for several years thereafter, the Committee did not finalise the price of the land allotted to the petitioner. By communication dated 12.2.96 as at Annexure F to the petition, the Collector, Surat conveyed to the petitioner that as per the condition of the grant of land, the petitioner had to pay the difference of amount as may be determined by the Committee. Accordingly, the Committee decided total sale price of Rs.1,42,81,028/- as price of the land, meaning thereby that the petitioner had to pay further sum of Rs.54,01,028/- towards the difference and also pay 15% interest on the said sum from 30.6.88 which should be paid within seven days. SCA/148219/1999 5/15 JUDGMENT The petitioner responded to the said communication vide letter dated 4th March 1996 asking for the break-up of the sum of Rs.54,01,028/- and the basis for arriving at the said figure. The same was supplied to the petitioner vide letter dated 20th April 1996 of the Collector, Surat indicating that the land granted to the petitioner was divided into three categories and the Committee had fixed price of the land at Rs.40.80, Rs.54.00 and Rs.28.70 per sq.mtrs. respectively for different categories. Vide letter dated 2nd August 1997, the petitioner paid principal sum of Rs.54,01,028/- under protest and further contended that interest and other charges are not payable and the same may, therefore, be waived. The Collector, Surat, however did not accede to the request and insisted upon the petitioner paying the interest. The petitioner deposited a further sum of Rs.12 lacs with the Government towards interest for the period between 12.2.96 (i.e. date on which the price of the land was finally assessed by the Committee) and 2.8.97 (i.e. date on which the principal sum of difference as per the decision of the Committee was paid). Some further correspondence ensued between the parties without breaking the dead-lock and eventually, the petitioner filed the present petition challenging the action of the Government in first SCA/148219/1999 6/15 JUDGMENT fixing the price of the and which according to the petitioner was on the higher side as also demanding interest at the rate of 15% from the date of handing over possession of the land till actual payment. 3. Before adverting to the contentions raised by both sides, one more document which may be noted is an order dated 18.12.95 passed by the Government produced at Annexure I to the petition. By the said order, certain minor corrections in the demand made against the petitioner on account of calculation mistake are sought to be made. However, what is significant is that in para 4 of the said order, it is stated that Three Members Committee has recommended that the difference payable by the petitioner be recovered with interest at the rate of 15% from the date of possession and accordingly, the Government has decided to charge the said interest. 4. Appearing for the petitioner, learned advocate Shri J.R.Nanavati with Mr.A.R.Thacker has contended that there was no agreement between the parties to pay difference of the price of the land with interest. In absence of any such contract, interest cannot be charged. He further contended that the Committee took decision only in the month of February 1996. Till such time, price of the land was not finally ascertained. When the amount payable by the petitioner was not ascertained, there was no question SCA/148219/1999 7/15 JUDGMENT of charging any interest for the period prior to such ascertainment. He further contended that in absence of any statutory provision or contractual agreement, interest can be charged, if at all, on equity but such charging of interest is subject to certain conditions and such conditions were not satisfied in the present case. Reliance was placed on a decision of the Apex Court in the case of Thawardas Pherumal v. Uniono f India, AIR 1955 SC 468 wherein it was observed that before interest can be charged under the Arbitration Act, there must be a debt or a sum certain, it must be payable at a certain time or otherwise, the debts or sums must be payable by virtue of some written contract at a certain time and that there must have been a demand in writing stating that interest will be demanded from the date of the demand. Reliance was also placed on a decision of this Court in the case of Union of India v. Ahmedabad Manufacturing, 1984 (17) E.L.T. 246 (Guj.) wherein the above conditions were referred and reiterated for claim of interest. Reliance was also placed on the decision of the Apex Court in the case of J.K.Synthetics Ltd. v. Commercial Tax Officer, AIR 1994 SC 2393 wherein the Apex Court did not allow interest on unpaid tax subsequent to filing of revised returns. SCA/148219/1999 8/15 JUDGMENT Reliance was also placed in the case of E.I.D.Parry (India) Ltd v. Assitt. Commissioner of Commercial Taxes, AIR 2005 SC 2645 wherein it was observed that in absence of assessment or any demand notice prior to final assessment made after revised return, no interest could be charged. 5. On the other hand, learned AGP Ms.Shah opposed the petition and contented that the petitioner who was granted Government land with clear understanding of paying the difference as and when the Committee takes a final decision on the market value, the petitioner enjoyed the use and possession of the land from 1988 and the Committee in the year 1996 decided the price as on the said date and simultaneously also resolved to charge interest at the rate of 15% on such difference. She, therefore, contended that the decision of the respondents to recover the difference of land price from the petitioner with interest was justified. 6. In the case of B.N.Railway v. Ruttanji Ramji, AIR 1938 Privy Council 67, it is observed that interest for the period prior to the date of the suit may be awarded if there is an agreement for the payment of interest at a fixed rate, or it is payable by the usage of trade having the force of law, or under the provision of any substantive law entitling the plaintiff to recover interest. It was further observed that under the Interest Act 32 of 1839, the Court may allow interest to the plaintiff SCA/148219/1999 9/15 JUDGMENT if the amount claimed is a sum certain which is payable at a certain time by virtue of a written instrument. It was further observed that the Interest Act contains a proviso that interest shall be payable in all cases in which it is now payable by law and the proviso applies to cases in which the Court of equity exercises jurisdiction to allow interest. In order to invoke the rule of equity, it is necessary in the first instance to establish the existence of a state of circumstances which attracts the equitable jurisdiction, for example, the non- performance of a contract of which equity can give specific performance. In the case of Satinder Singh v. Umrao Singh, AIR 1961 SC 908, the Apex Court observed that claim for interest proceeds on the assumption that when the owner of the immovable property loses the same, he is entitled to claim interest in place of right to retain possession. While interpreting the provisions of the Land Acquisition Act, it was held that when the lands are acquired under the Land Acquisition Act and when the claimants are awarded compensation, the claimants are entitled to interest on the amount of compensation for the period between the taking of possession of the land by the State and the payment of compensation by it to the claimants and the East Punjab Requisition of Immovable Property (Temporary Powers) Act did not intend to exclude the general rule of payment of interest. It was observed that the power to award interest on SCA/148219/1999 10/15 JUDGMENT equitable grounds or under any other provisions of law was expressly saved under the Interest Act, 1839. The above decision in the case of Satinder Singh (supra) was followed in the case of Hirachand Kothari v. State of Rajasthan, AIR 1985 SC 998 holding that the Court, under proviso to section 1 of the Interest Act 1839, has power to award interest on equitable grounds. In the case of South Eastern Coalfields Ltd v. State of M.P., AIR 2003 SC 4482, the Apex Court considering the question of payment of interest on royalty for the period of delay observed that interest is included within the expression “other charges”. The Apex Court approved the observations of the Division Bench of the Andhra Pradesh High Court holding that interest payable by a lessee for delayed payment is a financial liability on the lessee and, therefore, a debt. It may also be construed as a cost or price or compensation payable to the contracting State authority for delay in payment of dues such as cess, royalty, etc. In the case of Life Insurance Corporation of India v. S.Sindhu, AIR 2006 SC 2366, the Apex Court in para 9 of the decision observed that it is well settled that interest prior to the date of suit can be awarded in following circumstances: (a) Where the contract provides for payment of SCA/148219/1999 11/15 JUDGMENT interest; or (b) Where a statute applicable to the transaction/liability, provides for payment of interest; or (c) Where interest is payable as per the provisions of the Interest Act, 1978. In para 13 of the decision, the Apex Court doubted whether in view of the Interest Act, 1978, interest can be awarded on the ground of equity at all and made following observations: “13. Even assuming that interest can be awarded on ground of equity, it can be awarded only on the reduced sum to be quantified and paid from the date when it becomes due under the policy (that is on the date of death of the assured) and not from the earlier date. We do not propose to examine the question as to whether interest can be awarded at all, on equitable grounds, in view of enactment of Interest Act, 1978 making a significant departure from the old Interest Act (of 1839). The present Act does not contain the following provision contained in the proviso to section 1 of the old Act: “interest shall be payable in all cases in which it is now payable by law.” How far the decisions of this Court in Satinder Singh v. Umrao Singh etc. (AIR 1961 SC 908)and Hirachand Kothary (D) by L.Rs. v. State of Rajasthan & Anr. (1985 Suppp. SCC 17) and the decision in the Privy Council in Bengal Nagpur Railway Co. Ltd. v. Rultanji Ramji (AIR 1938 PC 67), holding that interest can be awarded on equitable grounds, all rendered with reference to the said proviso to section 1 of old Interest Act (Act of 1839) will be useful to interpret the provisions of the new Act (Act of 1978) may require detailed examination in an appropriate case.” SCA/148219/1999 12/15 JUDGMENT 7. Bearing in mind the above legal principles, I find that the claim of interest by the respondents is not based on any statutory provisions. It is doubtful whether on equity the same can be granted in view of the changed statutory provisions under the Interest Act 1978 and where the proviso to section 1 of Interest Act 1839 does not find place. The claim for interest by the respondents, therefore, shall have to be examined on the basis of agreement between the parties. From the correspondence exchanged between the parties to which I have made references in the earlier portion of the order, I find that at the time of handing over the possession of the land in question to the petitioner and collecting ad-hoc price for the same at the rate of Rs.22.20 per sq. meters, the only stipulation was that as and when the Committee decides the actual price, the difference shall have to be paid by the petitioner. At several stages, this condition finds place in correspondence between the parties. At no stage, either the petitioner agreed to pay the difference with interest nor the Government specified that the difference shall carry interest. However much I tried, it is not possible to stretch the language used in the said condition to interpret that the term 'difference' should include the basic price difference with interest as may be decided by the Committee. At all stages, reference is that the difference that may be determined as per the assessment of the price of the land shall be paid over by the petitioner. In fact, in the corrigendum dated 18.12.95, as noted earlier, it was clarified SCA/148219/1999 13/15 JUDGMENT that the difference as per the final price assessment of the Committee shall have to be recovered with 15% interest. The intention of the Government is also therefore amply clear. What the Committee was required to decide was the correct market price of the land on the date of handing over the possession. The component of interest was thereafter added, of course, on the suggestion of the Committee which did not form part of the agreement between the parties. To my mind, therefore, there was no term in the contract between the parties that can be culled out as to suggest that upon ultimate assessment of the market price, the difference which the petitioner may have to pay for the land granted by the Government shall carry any interest. 8. As noted, the land was allotted to the petitioner some time in the year 1990. Perhaps, the petitioner was put in possession thereof even earlier thereto. The Committee took a final decision in February 1996. There is no suggestion that the petitioner was responsible for any delay in the Committee concluding this issue. The petitioner was also not involved in the final decision of rate of interest which the Committee decided to charge on the deferred payment. On all the counts, therefore, I find that the demand of the respondents for interest from the petitioner from the date of handing over possession till 12.2.96 i.e. the date when the decision of finalization of market price was conveyed to the petitioner is not legal and the same is not backed by any authority of law. SCA/148219/1999 14/15 JUDGMENT 9. I have also perused the original file of the Committee and was also taken through the stages of the decision making process of the Committee by the learned AGP. I do not find that the deliberations of the Committee and the notings on the file would in any way alter the view that I have taken. 10. Learned advocate Shri J.R.Nanavati stated that though the petition is also directed against the price fixation, the petitioner is not pressing the said challenge and confines the petition to the demand of interest on the difference ascertained by the Committee. It may also be noted that while entertaining this petition, this Court had prevented the respondents from recovering interest from the petitioner. For the delayed payment of principal amount subsequent to 12.2.96, the petitioner has admittedly paid over the interest at the rate of 15% till actual payment. 11. In the result, while allowing the petition to the extent of declaring that the demand of interest by the respondents for the difference in price of the land from the date of possession till 12.2.96 is illegal, the respondents shall not recover the same from the petitioner. Remaining portion of the order dated 12.2.96 is not altered. Rule is made absolute to the above extent. (Akil Kureshi, J.) (vjn) SCA/148219/1999 15/15 JUDGMENT