STATE OF BIHAR & ORS. v. KALYANPUR CEMENTS LTD.

67Copy pinpoint67. This Court in MRF Ltd. Kottayam (supra) considered the legality of a notification withdrawing the exemption granted by an earlier notification. Relying on the representations C contained in the earlier notification, MRF had altered its position. Whilst setting aside the subsequent notification withdrawing the exemptions, this Court held that the whole actions of the State including exercise of executive power has to be tested on the touchstone of Article 14 of the Constitution D of India. It was held that the action of the State must be fair. In this context we may notice the observations made in paragraph 38 and 39 of the judgment:-

"38. The principle underlying legitimate expectation which is based on Article 14 and the rule of fairness has been restated by this Court in Bannari Amman Sugars Ltd. v. CT02 1 • It was observed in paras 8 and 9: (SCC pp. 633-34)

"8. A person may have a 'legitimate expectation' of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice. G The doctrine of legitimate expectation has an important place in the developing law of judicial review. It is, however, not necessary to explore the doctrine in this case, it is enough merely to note that a legitimate expectation can provide a sufficient interest to enable one who cannot point to the existence of a substantive right to obtain the leave

STATE OF BIHAR & ORS. v. KALYANPUR CEMENTS 979 LTD. [SURINDER SINGH NIJJAR, J.]

of the court to apply for judicial review. It is generally agreed that 'legitimate expectation' gives the applicant sufficient locus standi for judicial review and that the doctrine of legitimate expectation to be confined mostly to right of a fair hearing before a decision which results in negativing a promise or withdrawing an undertaking is B · taken. The doctrine does not give scope to claim relief straightaway from the administrative authorities as no crystallised right as such is involved. The protection of such legitimate expectation does not require the fulfilment of the expectation where an overriding public interest requires c otherwise. In other words, where a person's legitimate expectation is not fulfilled by taking a particular decision then the decision-maker should justify the denial of such expectation by showing some overriding public interest. (See Union of India v. Hindustan Development Corpn) D

9. While the discretion to change the policy in exercise of the executive power, when not trammelled by any statute or rule is wide enough, what is imperative and implicit in terms of Article 14 is that a change in policy must be made fairly and should not give the impression that it was so done arbitrarily or by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence and substance is the heartbeat of fair play. Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for discernible reasons, not whimsically for any ulterior purpose. The meaning and true import and concept of arbitrariness is more easily visualised than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given case. A basic and obvious H

980 SUPREME COURT REPORTS [2010] 1 S.C.R.

A test to apply in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness." (emphasis supplied)"

"39. MRF made a huge investment in the State of Kerala B under a promise held to it that it would be granted exemption from payment of sales tax for a period of seven years........ " ....... The action of the State cannot be permitted to operate if it is arbitrary or unreasonable. This Court in E.P. Royappa v. State of T.N c observed that where an act is arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is therefore violative of Article 14. Equity that arises in favour of a party as a result of a representation made by the State is founded on the basic concept of "justice and fair play". The attempt to take away the said benefit of exemption with effect from 15-1-1998 and thereby deprive MRF of the benefit of exemption for more than 5 years out of a total period of 7 years, in our opinion, is highly arbitrary, unjust and unreasonable and deserves to be quashed."

68Copy pinpoint68. We are also unable to accept the submission with the decisions dated 06.01.2001 and 05.03.2001 had been taken due to the change in the national policy. This was sought to be justified by Dr. Dhawan on the basis of the Conferences of Chief Ministers/Finance Ministers. It is settled law as noticed by Bhagwati, J in Motila/ Padampat (supra) that the Government cannot, claim to be exempt from liability to carry out the promise, on some indefinite and undisclosed ground of necessity or expediency. The Government is required to place before the G Court the entire material on account of which it claims to be exempt from liability. Thereafter, it would be for the Court to decide whether those facts and circumstances are such.as to render it inequitable to enforce the liability against the Government. Mere claim of change of policy would not be H

STATE OF BIHAR & ORS. v. KALYANPUR CEMENTS 981 LTD. [SURINDER SINGH NIJJAR, J.]

sufficient to exonerate the Government from liability. It is only when the Court is satisfied that the Court would decline to enforce the promise against the Government. However, the burden would be upon the Government to show that it would be inequitable to hold the Government bound by the promise. The Court would insist a highly rigorous standard of proof in the discharge of this burden. In the present case, the claim of the Government is based on a change in policy advocated in the Chief Ministers' Conference. These Conferences .have taken place before the affidavit is filed on 05.12.2001. Therefore, the High Court concluded that the Government has c not been candid in disclosure of the reasons for passing the order dated 06.01.2001. In our opinion, the aforesaid decisions with regard to ttie discontinuance of the Sales Tax exemptions from 01. 01.2000 could not have affected the rights of the Company under the Industrial Policy, 1995. Necessary 0 application was made to the Government seeking exemption on 21.11.1997. For more than 3 years, the Company and the financial institutions had been assured by the Government that the notification will be issued forthwith. However, it was not issued. We are of the opinion that the action of the appellants is arbitrary and indefensible.

69Copy pinpoint69. Learned Senior counsel for the appellants had also submitted that it was not necessary to issue the notification within one month as stipulated in clause 24 of the Industrial Policy, 1995. In order to appreciate the aforesaid submission, it would be necessary to make a reference to the relevant clauses of the Industrial Policy, 1995. Clause 22, 23 and 24 are as under:- ·

"REVIVAL OF SICK UNITS. G The continuing problems of industrial sickness is a matter of great concern for the Government. Closure of units leads to unemployment and locking up of capital · deployed in such ventures. The State Government is determined to take effective measures and to render all H

982 SUPREME COURT REPORTS [2010] 1 S.C.R.

A possible assistance for the amelioration of this malaise.

22.1. INDUSTRIAL SICKNESS IN SS/ SECTION

The State Government proposes to take the following measures for the revival of SSI units: B i. there are scores of medium and small scale units which are sick but have the potential of becoming viable. For such SSI units which are outside the purview of the Bureau of Industrial and Financial c Reconstruction (BIFR), the State Government · proposes to form an apex body on the lines of BIFR with Director of Industries as its Head to consider their revival.

ii. The State level apex body for rehabilitation of sick industry would be vested with adequate powers so that it can effectively implement management and financial restructuring.

iii. The sick SSI units would be identified as per guidelines given by RBI/IDBI. Appropriate packages of reliefs and concessions for such units would be approved for their rehabilitation.

iv. Sick units undergoing rehabilitation will not have to take sickness certificate every year. The approved revival package for each sick unit would indicate the period of revival.

v. The Apex Body shall monitor the progress of the revival package. G vi. A sick unit being revived would be entitled to Sales Tax exemption/deferment exemption from Minimum Guarantee etc. as determined in the revival package. ·

vii. The State level Apex body would besides H

STATE OF BIHAR & ORS. v. KALYANPUR CEMENTS 983 LTD. [SURINDER SINGH NIJJAR, J.]

representatives of Government Department/ A Organisations/ financial institutions will also have its members one representative each of confederation of Indian Industries, Bihar Industries Association and Bihar Chamber of Commerce. B The rehabilitation package would be implemented within a fixed time frame so that the process of revival is not delayed.

22.2 SICKNESS IN LARGE AND MEDIUM SECTOR c i. A committee with Industrial Development Commissioner as its head will be constituted to evolve suitable measures for potentially viable non-BIFR sick industrial units including PSUs in the large and medium sector.

The Committee will recommend concessions and D facilities including those in this policy statement if considered necessary for revival of the Unit; These recommendations would be placed before the Government through State level Empowered Committee (SLEC) already constituted under the chairmanship of Chief E Secretary for final decision.

ii. Concessions and facilities identified under the Scheme of rehabilitation prepared by the Board for Industrial and Financial Reconstruction (BIFR) or by Inter-Institutional F Committee of IRBI, BICICO/BSFC and Bank would be placed before the Committee headed by the Industrial Development Commissioner for consideration and recommendation to Government through SLEC for approval. G

iii. Rehabilitation measures for sick but potentially viable industrial units may, inter alia, include reliefs ·and concessions or sacrifice from various government departments/ organizations and or additional facilities H

984 SUPREME COURT REPORTS [2010] 1 S.C.R.

A including allocation of power from BSEB/DVC and any other agency/statutory body/local authority."

22.3. Such closed and sick industrial units which have once availed of the facility of Sales Tax exemption/ deferment under a rehabilitation package prepared by B BIFR shall not get the same facility again if they turn sick or are closed again. This will also apply to other facilities given to such sick and closed industrial units which have once availed of such facilities in the past. However, the State Government may consider extending such facilities c on case to case basis as required. ·

23. Definition(s) given in the Annexure form(s) part of the policy.

D 24. MONITORING AND REVIEW

All concerned departments and organizations will issue follow up notifications to give effect to the provisions of the policy within a month. This will be appropriately monitored by the Govt. E The State Government may carry out Mid Term Review of this Policy."

70Copy pinpoint70. A perusal of the aforesaid policy clearly shows that the F Government was determined to take effective measures to render all possible assistance for amelioration of the continuing problem of industrial sickness in the State. It was viewed as a matter of great concern for the Government. Under Clause 22(1), the State Government was to constitute an apex body on the lines of BIFR with Director of Industries to consider the G revival of sick Medium and Small Scale Units. Clause 22(2) deals with sickness in large and medium sector. Under clause 22(2)(i), a Committee headed by the Industrial Development Commissioner was to evolve suitable measures for potentially viable non-BIFR sick industrial units. Under Clause 22(2)(ii) the H

STATE OF BIHAR & ORS. v. KALYANPUR CEMENTS 985 LTD. [SURINDER SINGH NIJJAR, J.]

Committee was to recommend concessions and facilities which were considered necessary for revival of the unit. The Company was, therefore, eligible under the aforesaid Clause 22(2}(ii). The Industrial Policy, 1995 did not envisage sickness in its strict terms as defined under the Sick Industrial Companies (Special Provisions) Act, 1985. The policy was of a wider application and included industrial sickness not only qua BIFR companies but also in relation to non-BIFR potentially viable sick companies. The Clause 6 of the Annexure attached to the Policy defines a sick unit as under:-

"Sick Unit: c Sick unit means an industrial unit declared sick by the Board of Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provision) Act, 1985 or by the Apex Body headed by the Director of Industries D for SSI or the High Level Empowered Committee headed by the Chief Secretary for large and medium sector."

71Copy pinpoint71. The aforesaid definition makes it abundantly clear that the sickness of the Company could also be decided by the E SLEC headed by the Chief Secretary. The exemption claim of the Company was duly considered by the Committee constituted under Clause 22.2(i). Its recommendations were duly placed before the SLEC under Clause 22.2(ii). The recommendations were not implemented only because the Government failed to issue a notification under Clause 24 of the Industrial Policy, 1995 within the stipulated period of one month. Even if we are to accept the submissions of Dr. Dhawan and Mr. Dwivedi that the provisions contained in Clause 24 was mandatory the time of one month for issuing the notification could only have been extended for a reasonable period. It is inconceivable that it could have taken the Government 3 years to issue the follow up notification. We are of the considered opinion that failure of the appellants to issue the necessary notification within a reasonable period of the enforcement of the Industrial Policy, 1995 has rendered the decisions dated H

986 • SUPREME COURT REPORTS [2010) 1· S.C.R.

A 06.01.2001 and 05.03.2001 wholly arbitrary. The appellant cannot be permitted to rely on its own lapses in implementing its policy to defeat the just and valid claim of the Company.

72Copy pinpoint72. For the same reason we are unable to accept the submissions of the learned senior counsel for the appellant that 8 no relief can be granted to the Company as the Policy has lapsed on 31.08.2000. Accepting such a submission would be to put a premium and accord a justification to the wholly arbitrary action of the appellant, in not issuing the notification in accordance with the provisions contained in Clause 24 of the Industrial Policy, 1995. The entire sequence of meetings adverted to above would clearly indicate that rehabilitation package for the Company was considered by the financial institutions keeping in view the provisions contained in the Industrial Policy, 1995. The two Committees constituted under the aforesaid policy had duly recommended granting of exemptions. This was much before the policy lapsed on 31.08.2000.

73Copy pinpoint73. The assurances given in various meetings were reiterated before the High Court in the Affidavit dated 05.12.2000. It was clearly stated that the draft notification was being prepared and being approved. It was thus obvious that the notification merely had to be published in the Official . Gazette. After making the aforesaid statements in the affidavit, order dated 06.01.2001 was issued. The four reasons given in support of the decision are clearly arbitrary. It was no longer open to the appellant not to issue the notification on the ground that the Policy had lapsed on 31.08.2000. The second reason that the exemption could not be granted to the Company as no notification had been issued under Clause 24 cannot be accepted as the appellant-State cannot be permitted to take advantage of its own wrong. The third reason given is that the State-level Empowered Committee (SLEC) had not approved · the rehabilitation package. This clearly is against the record which has been examined by us in the earlier part of the .

STATE OF BIHAR & ORS. v. KALYANPUR CEMENTS 987 LTD. [SURINDER SINGH NIJJAR, J.]

judgment. Not only the exemption was recommended by the competent Committees under the Industrial Policy,· 1995, emphatic assurances were given that the notification will be issued within a very short period. The fourth reason with regard to the resolution passed at the Chief Ministers' Conference is equally extraneous to the issue. The Company had made the application for exemption at a much prior time in 1997. No material has been placed either before the High Court or before this Court about the legal enforceability of the resolutions passed at the Chief Ministers' Conference. In our opinion the decision making process which culminated in passing of the c orders dated 06.01.2001 and 05.03.2001 is seriously flawed, therefore, the same have been ju::tifiably quashed by the High Court.

74Copy pinpoint74. We may now consider the submissions made in IA No.3 of 2006. On 18.11.2002, this Court passed the following order:

"As an interim arrangement during the pendency of this appeal, with a view to protect the interests of either side, we direct the respondent to deposit an amount equivalent to the sale tax payable by it as and when it becomes due in an interest hearing account in a nationalized bank. This amount and the amount accused during the pendency of the appeal, shall not be withdrawn by other side. F

The amount so kept in deposit shall become payable to the party which ultimately succeeds in this appeal.

The appellants are directed to issue the exemption orders and on receipt of such order, the above said amount G shall be deposited. The issuance of the exemption order is without prejudice to the case of the parties in this appeal..

The I.A. in the disposed of." H

988 SUPREME COURT REPORTS [2010] 1 S.C.R.

75Copy pinpoint75. It is not in dispute for us that pursuant to the aforesaid directions the appellant has issued the Notification No. S0-174 dated 18.10.2004 granting exemption to the company. The notification was to have effect for five years from the date of publication in the official gazette or till the disposal of special B leave petition No.5181 of 2002, whichever is earlier. The notification was issued subject to the terms and conditions notice earlier in the judgment. Under the aforesaid terms and conditions, the company was to deposit the tax payable per month with an interest bearing (wrongly typed in the order as c hearing) account in a nationalized bank. The company was also to provide information of the bank account to the circle where it is registered. Details regarding amount of payment made each month was also to be supplied to the appellant.

76Copy pinpoint76. It is now the submission of the learned counsel for the appellant that the company has neither complied with the order passed by this Court on 18.11.2002 nor the conditions stipulated in the notification dated 16.10.2004. It is further submitted that prayers in the application were to recall the order dated 18.11.2002 and to stay the operation of a judgment under appeal dated 24.04.2002. However the application was not finally disposed of, even though the pleadings were complete.

77Copy pinpoint77. During the pendency of the proceedings there have been some further development, which will now need to be taken into consideration by the Court, to do justice between the parties.

78Copy pinpoint78. During the interregnum the company has been collecting the amount equivalent to the tax from the consumers. G According to Dr. Rajiv Dhawan, Mr. Dwivedi during this period the company has collected more than Rs.60 crores on the sale of cement by virtue of the directions issued by this Court in the Order dated 18.11.2002. In view of the law laid down by this Court in Amrit Banaspati (supra) the company cannot be permitted to retain the amount collected from the customers.

STATE OF BIHAR & ORS. v. KALYANPUR CEMENTS 989 LTD. [SURINDER SINGH NIJJAR, J.]

This would amount unjust enrichment. Therefore, a direction is required to be issued that the amount deposited by the company with the bank pursuant to the orders of this Court be released to the appellant State. On the other hand, Mr. Parshad has submitted that the delay in issuance of the exemption Notification by the State has crippled the Company financially. B Even then the Company is trying to revive itself through financial restructuring. The survival of the Company now depends on the approval of the Financial Restructuring Package prepared by the respondent No.2. This package has been submitted to the Chief Minister of Bihar which is still on the consideration of the c Government. With regard to the non-deposit of amount equivalent to the tax due, Mr. Parshad reiterated that the Company had made bona fide efforts, but was unable to deposit the amount due to its 'sickness'. On the one hand the revised rehabilitation package is kept under consideration, on 0 the other the appellants seeks the vacation of the order dated 18.11.2002. The application, according to the learned senior counsel, deserves outright dismissal.

79Copy pinpoint79. We have considered the submissions made by the learned counsel. It would be not possible to accept the E submissions of Mr. Parshad that in view of the financial condition of the company it may be permitted to retain the amount collected under the orders of this Court. The amount was collected from the consumer to offset the tax liability. Such amount cannot be permitted to be retained by the company. In F Amrit Banaspati case (supra) it has been held that exemption and refund of tax are two different legal and distinct concepts. The obj~ctive of the exemption is to grant incentive to encourage industrialization. It is to enable the industry to compete in the market. On the other hand, refund of tax is made G only when it has been realized illegally or 'contrary to the provisions of law. Tax lawfully levied and realized cannot be refunded. In view of the settled 'position of the law, we decline to accept the suggestion made by Mr. Parshad. H

990 SUPREME COURT REPORTS [2010] 1 S.C.R.

80Copy pinpoint80. Direction is, therefore, issued that the amount deposited by the company in the designated account opened and operated pursuant to the order of this Court dated 18.11.2002 together with accrued interest shall be released to the appellant State, forthwith. 8

81Copy pinpoint81. I.A. No.3 is therefore allowed in the aforesaid terms.

82Copy pinpoint82. In view of the above, the appeal filed by the State challenging the judgment and order dated 24.4.2002 is dismissed, however, I.A. No.3 is allowed to the extent indicated C above.

K.K.T. Appeal dismissed and Application allowed.