C.W.P. No.14901 of 2010 -1- IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT CHANDIGARH C.W.P. No.14901 of 2010 Date of Decision. 26.09.2011 2. C.O.C.P. No.1819 of 2010 Anil Satia, son of Shri Balraj Satia, resident of Railway Road, Muktsar, Punjab .....Petitioner Versus Punjab State Industrial Development Corporation Limited, Udyog Bhawan, 18, Himalaya Marg, Sector 17, Chandigarh through its Managing Director .....Respondent Present: Mr. Rajiv Atma Ram, Senior Advocate with Mr. Rahul Sharma, Advocate and Mr. A.P. Atma Ram, Advocate for the petitioner. Mr. Ashwani Chopra, Senior Advocate with Mr. Vikas Chatrath, Advocate and Mr. G.S. Sullar, Advocate for the respondents. CORAM:HON'BLE MR. JUSTICE K. KANNAN 1. Whether Reporters of local papers may be allowed to see the judgment ? No 2. To be referred to the Reporters or not ? Yes 3. Whether the judgment should be reported in the Digest? Yes -.- K. KANNAN J. I. The relief claimed by the petitioner 1. The writ petition is filed at the instance of the petitioner in individual capacity for a mandamus directing the respondent-Corporation to transfer its equity share holdings in M/s Satia Synthetics Ltd. to the petitioner or its nominees. There is an additional prayer for issuance of a writ of certiorari to quash the letter dated 22.01.2010 issued by PSIDC under the terms of which there is a demand for Rs.33,22,126/- alleged to be interest on the OTS amount outstanding after adjusting the down C.W.P. No.14901 of 2010 -2- payment of 15% paid by the petitioner to PSIDC. The facts leading to dispute between the parties could be summarized as under. II. Facts of the case (a) Institutional lending in the shape of shares will concomitant liability to transfer 2. The petitioner entered into a Financial Collaboration Agreement on 13.12.1995 for setting up a cotton spinning mill with capacity of 27120 spindles at District Ferozepur. Through the infusion of capital to the tune of Rs.830 lacs, besides a collaborative contribution of Rs.810 lacs and public funding to the tune of Rs.1150 lacs, the Corporation offered to contribute 29.75% of equity but with the concomitant liability to transfer the shares provided the collaborator namely the petitioner shall have the option to buy at any time after the commencement of commercial production by the company the equity shareholding of the Corporation in the company. If the company's shares were also quoted in public, the collaborator's right of option shall be only after the quotation of shares of the company was available in the Stock Exchange where the shares were listed. After the period of 5 years, the collaborator was bound to purchase the shares. It was another way of saying that PSIDC was entitled to expect that the capital brought by it shall be returned to it and the Corporation could off load its shares to the collaborator. The price of such shares in the absence of quotation in Stock Exchange shall be the amount paid by the Corporation for the acquisition of shares plus simple interest at the rate equal to the rate at which Central/State Financial Corporations provide for long term finance to companies calculated from the date of payment by the Corporation for the shares in question, as sale C.W.P. No.14901 of 2010 -3- priceto the collaborator, less any dividend received by the Corporation in respect of the said shares in the intervening period. Alternatively, it could be the highest price at which the shares of the company were traded in the Stock Exchange where the company's shares are listed on the date of exercise of option to purchase by the collaborator or the date on which the collaborator ought to purchase the shares held by the Corporation i.e. immediately upon the expiry of five years which ever was higher. (b) The Corporation's right of representation in the Board 3. Since the collaboration agreement itself has been a device for availing of the requisite capital for running a company by the petitioner and therefore, a requirement of compulsory acquisition of share on the expiry of five years, the agreement contains stipulation that Corporation has option to recommend one of his nominees to be appointed as Managing Director in the Board of Directors and he shall continue so long as default on the part of the collaborator continues. The agreement also contains a clause for arbitration if there are any differences or disputes between the parties. III. Failed responses of the petitioner for OTS for years 2003 & 2004 4. Admittedly, the petitioner was not able to purchase the shares from the company on the expiry of five years. The institutional funding, which had taken the shape of equity participation was offered to be liquidated by the petitioner through some beneficient scheme under One Time Settlement Scheme brought originally in the year and later, in the year 2004. To the Corporation which was said to have issued an equity C.W.P. No.14901 of 2010 -4- buy back scheme on 23.06.2004 through an advertisement, the petitioner responded by stating that the petitioner had already sought to take the benefit under an earlier policy on 31.07.2003 requiring a deposit of 10% amount payable and calculated upto 31.07.2003. When the new scheme of 2004 came, the petitioner expressed that based on the calculations of interest on Rs.663.93 lacs injected by the Corporation and working out 10% of the amount upto 31.03.2003 as contained in the previous scheme and 12.5% per annum from 01.04.2003 to 30.06.2004, the total amount that became payable was Rs.12,90,61,941. The amount payable at 10% of the same was to the tune of Rs.1,29,06,194/- and since the petitioner had already deposited Rs.1,16,26,000/- on 31.07.2003 under the 2003 scheme, the balance payable was only Rs.12,80,194/- and towards the said amount Rs.13,00,000/- was paid along with draft dated 30.06.2004. 5. The proposal to take the benefit under the OTS and brought through the communication 30.06.2004 was responded by Corporation with an acknowledgment of receipt of the amount and approved the exercise of option for buy back of shares under the OTS policy. After making the payment, the petitioner had also made an issue of reduction of interest from 10% to 8% and further concessions and to that respondent had replied that no further concession would be possible. The Corporation advised the petitioner that balance of 90% of the amount was to be paid at 12.50% on reducing amount till the date of final settlement but in case, the entire amount was paid within 60 days or 120 days starting from 01.07.2004 then 10%/5% rebate respectively could also be given on the interest upto the actual date of buy back of shares. However, if the amount was received beyond 120 days and in less than C.W.P. No.14901 of 2010 -5- one year, no rebate would be offered and if the payment was made after one year, compound interest of 12% on reducing amount would be charged from 01.07.2004 till the date of final settlement. This was subject to a further outer limit of the entire buy back operations to be completed within three years from 01.07.2004. Evidently, the amount as undertaken to be paid and what was provided under the 2004 OTS Scheme was not complied with by the petitioner. It has to be, therefore, only taken that the OTS Scheme of the year 2004 could not be availed of by the petitioner. IV. The formulation under 2009 OTS and the petitioner's initiative 6. There was a further notification of a fresh scheme in the year 2009, which provided the eligibility criteria that excluded collaborator/promoters of profit making companies as per Audit and Balance Sheet as on 31.03.2008 but to other persons, who were eligible, the requirement of payment as per the OTS was payment of 10% of the amount invested by the Corporation from the date of disbursement plus expenses in current account of PSIDC. The terms of payment as prescribed under the OTS Scheme released on 02.03.2009 was payment within 90 days from the date of notification and the interest on the OTS amount, which was determined would be collected at 13.20% per annum from the cut off date. A rebate of 5% on the OTS amount was available to persons, who had opted for lump sum payment within a period of 90 days when no interest would be charged and the payment should be in the following fashion:- (i) 15% of the tentative OTS amount to be paid along with C.W.P. No.14901 of 2010 -6- application; (ii) 30% of OTS after adjusting the down payment with interest @ 13.12% from the cut off date within 30 days from the conveying of acceptance of the proposal; (iii) Balance of OTS amount shall carry out interest at 13.20% compound quarterly and payable in the eight equated quarterly installments. 7. The admitted case is that in this case having regard to the proposal initiated by the petitioner, the cut off date was 31.03.2009. The OTS Policy had also a slightly different formulation for loans advanced that were not to take the shape of equities and they are not reproduced now for the present. This 2009 policy, however, stipulated that if there were multiple loans, they have to be settled simultaneously. It has to be assumed that multiple loan must be with reference to the same borrower. When 2009 policy was announced, the petitioner had applied by means of a letter dated 04.03.2009 to obtain the benefits thereof and to that the Corporation responded by its letter dated 31.03.2009 that as per the policy conveyed, the amount of Rs.1385.55 lacs was payable but subject to “audit and compliance of various terms and conditions as stipulated in the notification.” The petitioner immediately expressed that he was willing to accept the terms and paid 15% of the same namely Rs.2,07,85,000/-. The petitioner had also stated that he would make the balance of amount in 8/12 equated installments after the acceptance of the aforesaid amount by the PSIDC. Responding to the issue of petitioner's proposal, PSIDC explained by its letter dated 17.06.2009 that as per the OTS Policy of 2009, the amount payable on the C.W.P. No.14901 of 2010 -7- cut off date had been worked out to be Rs.13,85,54,377/- and after receiving Rs.2,07,85,000/- already, the balance of amount could be either paid in lump sum in 90 days or in 8/12 equated installments as per the terms of OTS Policy. As undertaken in the OTS, the petitioner claimed that he had made the further payment of Rs.2,07,85,000/- on 15.04.2009, Rs.06,08,43,960/- on 14.09.2009 and Rs.5,00,00,000/- on the same day on 14.09.2009 through cheques issued by the Punjab National Bank. According to the petitioner, the payment of all these amounts concluded the liability on its part and it was entitled to obtain the buy back of the share. It was at this time that the respondent contended that there was a further sum of Rs.33,22,126/- that was payable being interest on the OTS amount outstanding after adjusting the down payment and it is this communication that was sought to be quashed. V. PSIDC's fresh demands, petitioner's cause for complaint of contempt of Court and Court's interim direction 8. The petitioner appears to have engaged the respondentin several other correspondences before issuing a letter on 02.07.2010 that the entire amount as payable under the OTS had been paid on the various dates and therefore, PSIDC was bound to transfer the shares within 15 days from the date of payment and since PSIDC had released shares/charges in respect of four similar cases of other companies for equity/loan settlement, the shares must also be released in favour of petitioner and handed over. When the petitioner did not get a favourable response, the petitioner has filed the writ petition in August, 2010 and brough up the case for orders on 20.08.2010. The Court had also directed the respondent-Corporation to transfer the shares to the extent of C.W.P. No.14901 of 2010 -8- amount already paid by the petitioner without any prejudice to the rights to recover the balance. The respondent-Corporation did not act as per the direction and hence the petition had been filed in COCP No.1819 of 2010 for contempt and the Court had also directed notice of that petition but granted exemption for personal appearance before Court. 9. The Court had observed on 13.12.2010 that Rs.1385.55 lacs had already been paid as per the tentative OTS amount payable under the policy and when the petitioner was now willing to pay even the amount of Rs.33,22,126.00 being the interest on the OTS amount outstanding after adjusting the down payment of 15%, the response through the reply affidavit saying that petitioner's request for OTS had not been accepted, was not appropriate and therefore, the Court had directed the Managing Director of the Corporation to remain present in Court. The Court had examined at the next hearing on 17.12.2010 whether there were certain other modalities that could be worked out for completion of the deal between the parties and the Court had directed the respondent to give an additional affidavit regarding the same and also affording to the petitioner an opportunity to counter the same by reply affidavit. This order dated 17.12.2010 was after taking note of the supplementary affidavit that had been filed by the Managing Direction in his application in C.M. No.17893 of 2010. In that additional affidavit, the respondent had sought to bring to fact that the petitioner had made a payment except for a pending amount of Rs.36,44,205/- as on 30.07.2010 but the audit objection had been raised by the CAG when it observed that the Corporation was allowing a rebate of 5% to an ineligible unit and in case of loan, the company (in which the petitioner was a Director) was making C.W.P. No.14901 of 2010 -9- payments in 7 installments of Rs.92.22 lacs aggregating to Rs.645.54 lacs and amounts were was still pending. The CAG was said to have made further observations in February, 2010 as to why the Corporation was not trying to secure the loan account also. VI. PSIDC's volte face- CAG's objection cited as justification 10. Through the affidavit, the respondent was trying to contend that the petitioner was not even eligible since the company was a willful defaulter, which had actually accumulated profits but they had not repaid the sums. The Corporation contended that by a letter dated 11.01.2010, the company had been requested to make 8 post dated cheques of Rs.92.22 lacs but the company had still not submitted the said cheques. The Corporation explained that it would not be possible to transfer the equity in favour of the petitioner, given the track record of the petitioner that he might default on making the further installments on the loan account that caused a huge loss to the State Exchequer. Keeping in view the audit objections, the Corporation was seeking for collateral security of post dated cheques against the pending loan accounts and that as and when the collateral security or post dated cheques were received, the shares except for 69.28 lacs would be transferred. This Rs.69.28 lacs was an amount, which the audit had found as a rebate wrongly given to the petitioner. 11. The petitioner had also joined issues on the additional affidavit filed through A.K. Sud and contended that CAG was said to have come only in February, 2010 but the decision not to transfer the equities had been taken in January, 2010 itself. The CAG 's objection that the petitioner was an ineligible unit was itself untenable, for the Corporation C.W.P. No.14901 of 2010 -10- had never contended that the petitioner was ineligible to enter into OTS. The petitioner pointed out a statement, which the Corporation was said to have made in a case in Rana Gurjit Singh Vs. Punjab State Industrial Development Corporation Ltd. in C.W.P. No.13175 of 2009 that the petitioner and the company of which he was Director were eligible persons for the OTS and having taken such a contention in some other writ proceedings, the Corporation was barred from contending that the petitioner was ineligible. On the attempt of the Corporation to drag its feet that transfer of shares would be undertaken if the loan by the company was properly secured by post dated cheques, the petitioner brings to fact that the loan extended to the company to the extent of Rs.312 lacs was not in any way connected to the collaboration agreement with the petitioner. The petitioner and the company are two entities and when OTS was being claimed in terms of policy notified by PSIDC, the latter cannot insist on any conditions, which were not part of the scheme itself. No amount of company had been used to buy back the equity shares and as a matter of fact, the company itself had entered into an independent OTS Scheme with the respondent-Corporation, which had been also accepted. The petitioner would refer to the fact that the payment of Rs.4,90,60,000/- had been made by the company to the respondent and there had been no default payment of the amount undertaken by the company under the OTS Scheme. The Corporation has filed a further counter to the reply filed by the petitioner for the affidavit filed by the Corporation on 15.12.2010. The petitioner brings out new facts and relies on a recent order said to have been made with reference to notices that he had issued as regards the OTS Scheme by the C.W.P. No.14901 of 2010 -11- company. With the appraisal of the balance sheet of the company, the Corporation is purported to have taken a decision that company itself was not entitled to OTS and it had been a willful defaulter. I will take no notice of these contentions, for whether the issue of whether company was entitled to OTS, does not arise for consideration in this case. VII. Finding: Discharge of loan by company has no bearing to petitioner's right to demand transfer of equity 12. Learned Senior Counsel Sh. Ashwani Arora refers to a subsequent policy amendment to the OTS Policy as brought about by notification dated 19.11.2010. The said amendment introduced a clause that runs as follows:- "Collaborators/Promoters/Companies who have availed the facility of equity investment/direct subscription along with terms loan or any other loan shall have to settle the dues of both, loan accounts and equity investment/direct subscription under the OTS Policy. The security documents/transfer of shares shall be released/made only after settlement of all the loan accounts and buy back of equity investment/direct subscription made by the Corporation." 13. It is, therefore, contended that any collaborator, who has availed of a facility along with term loan or any other loan, shall settle the dues of both namely the loan account as well as the equity investments under the OTS Policy. According to the Corporation, therefore, the loan account to which the petitioner has stood guarantee must also be settled simultaneously with the equity and the petitioner is bound to amend writ petition to seek for an appropriate relief in the light C.W.P. No.14901 of 2010 -12- of amended terms of the OTS Policy. 14. The issue is whether the petitioner is entitled to treat the obligation of the petitioner as having been completed under the OTS 2009 and entitled to require the respondent to transfer the shares. The rights will have to be determined as on the date when the writ petition was filed and when the petitioner claimed that the whole obligation under OTS 2009 had been completed. When the amount had been received in full the respondent cannot change the rules of the game by reference to an amendment brought about subsequently that required not merely the equity but also the loan account to be settled. If the OTS proposal had been rejected and if the amount had not been paid as undertaken to be paid the matter could have been viewed differently. In such a situation, if a fresh appraisal were to be taken subsequent to 19.11.2010 when amended notification came, Corporation could have insisted that the petitioner was bound to discharge the loan account also. Before 19.11.2010, the petitioner had settled the additional amount of Rs.38,35,082/- then no further obligation existed for the petitioner. Learned counsel appearing for the petitioner has relied on judgment of the Hon'ble Supreme Court in K. Manjusree Vs. State of A.P. and another JT 2008 (2) SC 347 that dealt with the issue under service law that Rules of selection procedure cannot be changed after selection process has commenced. This is bring to parity in reasoning that when the conclusion of the OTS Scheme 2009 was under consideration, any further imposition of conditions cannot be relevant. I have held independently that the amended notification will not apply at all not because that additional conditions cannot be imposed but because the C.W.P. No.14901 of 2010 -13- loan had been concluded and the liability had been admitted between parties even before the amended notification came about. The settlement as subject to auidt has to understand the context of the finality of the amount to be calculated and not to idea of OTS itself. If there was still amount due and payable, it was only because the amount had not been ascertained and conveyed to the petitioner. The petitioner has already expressed that he was prepared to make the payment and therefore, adjudication regarding the payment itself will conclude the issue and exclude the operation of the amended notification. The counsel refers to a decision in State of Bihar and Ors. Vs. Kalyanpur Cements Ltd. JT 2010 (1) SC 225 to contend that the doctrine of promissory estoppel would operate against State at its functionality, if the petitioner had acted on the basis of a promise and the State itself would be bound by such representation. This is stated in the context of binding nature holding out the applicability of OTS Scheme to the petitioner. After given a positive statement contending that the petitioner was entitled to OTS, it was unjustified in refusing to the petitioner such a benefit by contending that there was loan outstanding by the company of which he was a Managing Director and the company was itself not eligible for the OTS Scheme. This is surely volte face which the respondent had adopted and it shall be impermissible. The same point had been affirmed in M/s Motilal Padampat Sugar Mills Cl. Ltd. Vs. The State of Uttar Pradesh and others 1979 SC 621, while upholding all principles of promissory estoppel to apply to State action. As early as in Union of India and others Vs. M/s Indo Afghan Agencies Ltd. (1968) 2 SCR 366 the Hon'ble Supreme Court had clearly laid down C.W.P. No.14901 of 2010 -14- that the Government was not exempt from liability to carry out the representations made by it as to its future conduct and it could not be on some undefined and undisclosed grounds of necessity or expediency that could allow the State to fail to carry out its promise solemnly made by it. VIII. Arbitration clause is no bar, under special circumstances stated 15. Learned Senior Counsel appearing for the Corporation was contending that there existed an arbitration clause in the collaboration agreement and the petitioner was bound to invoke the same and cannot have a remedy in the writ petition. Learned Senior Counsel for the respondent relies on judgments in Central Academy Progressive Society of India Vs. National Fertilizer Ltd. and others 2005(4) RCR (Civil) 320 and Jagjit Khanna Vs. State of Haryana 1997(2) PLR 688 to contend that where there is an arbitration clause in private contracts, being not a pure statutory contract, it is not appropriate to entertain writ petition on account of infringement of condition of contract. I will have no use for applying this case to a situation where the dispute is not with reference to the arbitral agreement contained in the collaboration agreement between the petitioner and the respondent. The petitioner was trying to use the applicability of OTS Scheme coming through