D C M LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) Delhi Cloth Mills Limited (Petitioner No. 1) is a com pany, incorporated under the Indian Companies Act, which, amongst other manufacturing units, owns and operates two sugar factories in Meerut, namely, Daurala Sugar Works, Daurala and Mawana Sugar Works, Mawana. Both of these factories are engaged in the business of selling and manufacturing of sugar by vacuum pan process. The petitioner No. 2 is a share -holder of the petitioner company.

(2.) THROUGH this petition, filed under Article 226 of the Constitution, the petitioners have claimed two main relief's, which are : (i) writ in the nature of mandamus directing the Union of India to issue supplementary eligibility certificate of 1. 63 lac quintals of additional free sale sugar entitlements (1. 13 lac quintals in case of Mawana and 0. 50 lac quintals in case of Daurala) over and above the entitlements declared by the Central Government for the years 1980 -81,81 -82 and 82 -83 to both the sugar factories with corresponding concession in excise duty and (ii) a writ in the nature of mandamus directing the Union of India to issue further eligibility certificate determining the amount of ad ditional free sale entitlements to the petitioner company's sugar factories for the years 1983 -84 and 84 -85 under the incentive scheme of 6 -12 -1974.

(3.) WITH the objective of making the existing sugar factories economically viable and with the objective of engaging existing sugar factories to undertake their expansion projects, the Central Government constituted a committee known as 'sampath Committee' under the Chairmanship of S. V. Sampath, the then Joint Secretary in the Ministry of Agriculture and Irrigation, to give its recommenda tions. The Committee submitted its recommendations in the year 1975. After examining the recommendations of the Sampath Committee, the Central Govern ment announced a scheme of new incentives for sugar factories and expansion projects. Those sugar factories which completed their licensed expansion pro jects during the period 1 -11 -1975 to 30 -10 -1980 will get incentive in the form of additional higher free sale quota of sugar and concessional excise duty. Accord ing to the scheme, the eligible sugar factories were entitled for the aforesaid incentive for a period of five years from the date of their completion of licensed expansion. According to the letter dated 6 -12 -1975, issued by the Government of India to all the sugar factories, the percentage of levy free quota of sugar in the high, medium and low recovery areas, would be as follows : Year of High Medium Low produc - recovery recovery recovery of tion of area of area area 1st year 0 2nd year 0 3rd year 0 4th year 5 5th year 5 6th year 5 6. According to the petitioners Daurala completed its expansion on August 13, 1980, whereas Mawana completed it on August 6, 1980. These expansions were thus completed within the period of November 1, 1975 to October 31, 1980, as envisaged by the 1975 scheme. Thereafter the Central Government announced a subsequent scheme of incentive on November 15, 1980, vide their circular dated November 15, 1980. The incentive continued to be in the form of additional free sale. 7. In the 1975 scheme, entitlement of free sale sugar was to be calculated on the excess production of the average of last three preceding years' production. However, the method of calculation was changed in 1980 scheme. The relevant portion of 1980 scheme about the additional production is given below : (i) The excess of production over the average of the last three years before the year of completion of expansion or (ii) The excess of actual production (such actual production being limited to the norms of post -expansion capacity) over the norms of pre -expansion capacity, whichever is lower. The pre -expansion capacity and expanded capacity will be calculated on the basis of duration and recovery assumed for different recovery areas for working out the incentive for new sugar factories, which are as follows : High Medium Low Duration (days) Recovery 10. 5 140 9. 5 120 8. 5 8. The petitioners had completed the expansion of both these units within the period of November 1, 1975 to October 3j, 1980 as required by the incentive scheme of 1975. Expansion project at Daurala was completed on August 13, 1980, and the expansion project at Mawana on August 6, 1980. According to the petitioner it incurred a cost of rupees nine crores in its expansion project, out of which a sum of rupees 6. 5 crores was borrowed from various financial institu tions. Thereafter the petitioners pursued the matter with the Government to grant the incentives by issuing what were known as 'eligibility certificates' which, were ultimately granted by the Union of India. Since these eligibility certificates did not conform to the incentives announced under the 1975 scheme and having been calculated on the basis of 1980 scheme, the petitioner made representa tions to the Central Government vide its letters dated August 13 and August 17, 1983. 9. The quantum of additional free sale quota for the first three years after the completion of expansion as claimed in the representation is as follows : As per 1st scheme of 6 -12 -1975 (for the seasons 1980 -81 -82 and 82 -83) : : 98,012 Qtls. The additional free sale quota entitlements, according to the petitioners, got reduced by 50,132 quintals for the three years, i e. , 1980 -81, 81 -82 and 82 -83. 10. The grievance of the petitioners was that the certificate 01 additional free sale quota allowed to it was not what the petitioners were entitled to under the scheme dated December 6, 1975, inasmuch as the Central Government errone ously calculated the entitlement on the basis of 1980 scheme and 1975 scheme. The representation of the petitioners was rejected by the Central Government on September 19, 1983, by stating that the petitioners' entitlement was to be calcula ted on the basis of the Directorate's revised circular letter dated November 15, 1980, wherein it was mentioned that those factories which had completed expan sion between the period November 1, 1975 and September 30, 1983, would be suitably fited under the new scheme. The order of the Central Government rejecting the representation stated that whatever the petitioners were entitled to get as incentive claimed had already been finally settled and eligibility certificate for the quantum had already been issued. 11. The petitioners contended that they had complied with each and every promise of the 1976 incentive scheme and were, therefore, entitled to hold the Central Government to its promise made en free sugar entitlements therein. It was not possible for the Central Government to recall out of the obligations under the 1975 scheme as the petitioner had already completed its expansion projects within the time required and it incurred very heavy expenditure, 6. 5crcresof which was from borrowings. It was further submitted that the refusal to grant the incentive was wholly arbitrary and unreasonable. 12. The Learned counsel for the petitioners urged that as the promise was acted on, the petitioners are entitled to all the benefits which had been sanc tioned by the 1975 scheme. 13. The doctrine of promissory estoppel has its foundation on consider ation of equity. It represents a principle evolved by equity to avoid injustice and, though commonly named promissory estoppel, it is neither in the realm of contract nor in the name of estoppel. The basis of this doctrine is the interposi tion of equity which had always been true to its form stopped into mitigate the rigour of strict law Union of India v. Godfrey Philips India Ltd. , (1985) 4 SCC 369. The settled view is that the doctrine of promissory estoppel applies against Government in the exercise of its governmental, public or executive functions and the doctrine of executive necessity or freedom of future executive action cannot be avoided to defeat the application of the doctrine. In Motilal Padampat Sugar Mills Co. Ltd. case, (1979) 2 SCC 409, Bhagwati, J. , speaking for the Court refer red with approval the observations of. Shah. J. in Indo -Afghan Agencies, MR 1958 SC 718, namely, that the Government cannot claim to be exempt from the liability to carry' out the promise on some indefinite and undisclosed ground of necessity or expediency, nor can the Government claim to be the sole judge of the liability and repudiate it on an ex pane appraisement of the circumstances. Affirming this it was, however, laid down in Motilal Padampat (supra) : If the Government wants to resists the liability, it will have to disclose to the Court what are the facts and circumstances on account of which the Government claims to be exempt from the liability and it would be for the Court to decide whether those facts and circums tances are such as to render it inequitable to enforce the liability against the Government. Mere claim of change of policy would not be sufficient to exonerate the government from the liablity the Government would have to show what precisely is the changed policy and also its reason and justification so that the Court can judge for itself which way the public interest lies and what the equity of the case demands. It is only if the Court is satisfied on proper and adequate material placed by the Government that overriding public interest requires that the Government should not be held bound by the promise but should be free to set unfettered by it, that the Court would refuse to enforce the promise against the Government. Later, in Godfrey Philips India Limited (supra), referred to Mutilal Padampat Sugar Mills case, (supra) it was reiterated by Bhagwati, J. : We may also point out that the doctrine of promissory estoppel being an equitable doctrine, it must yeild when the equity so requires if it can be shown by the Government or public authority that having regard to the facts and they have transpired, it would be inequitable to hold the Government or public authority to the promise or repre sentation made by it, the Court would not raise an equity in favour of the person to whom the promise or representation is made and enforce the promise or representation against the Government or public authority. The doctrine of promissory estoppel would be dis placed in such a case because on the facts, equity would not require that the Government or public authority should be hold bound by the promise or representation made by it. This aspect has been dealt with fully in Motif al Pad amp -it Sugar Mills case and we find ourselves wholly ia agreement with what has been said in that decision on this point. 14. In Gujarat Stale Financial Corporation v. Lotus Hotels Pvt. Ltd, (1983) 3 SCC 379, Desai, J. noticed the difference of opinion expressed in Jit Ram Shiv Kumar, (1981)1 SCC 11 from that of Motilal Padampat Sugar Mills, but said that on this point both the decisions 'concur' and the 'ratio' would govern, namely, that: The Officer cannot arbitrarily on his mere whim ignore his promise on some underfind and undisclosed pounds of necessity or change the conditions to the prejudice of a person which, had acted upon such representation and put himself in a disadvantageous position. 15. The scheme for incentives, in the case before us, was put into effect by the Central Government as earlier pointed out, on December 6, 1975. The scheme had for its object the achievement of the targeted production envisaged in the fifth five year plan, the off, setting of higher cost of plant and machinery required by the sugar factories for expansion and enabling the financial institution to advance loans to such units. The scheme introduced double benefit, that is, the benefit in pricing by permitting the sugar producing units free sale of sugar in higher percentage than ordinarily admissible and reduction in excise duty requir ing the units covered in the scheme to pay excise duty as per the normal rates only applicable to the existing units contributing 35% in levy. This undisputedly was in the background of the then existing control on the price, movement and the distribution of sugar. The incentives had in contemplation a concession or relaxation partially from the rigors of sugar control. Government of any authority acting on its behalf did neither represent nor indicate, expressly or by necessary implication, that given a change in the relevant conditions, the existing control on the supply distribution, movement may not be lifted. The petitioners nowhere point out nor is it shown that there was estoppel against Government of obligating it to maintain intact the restrictions embodying the control and not to withdraw or relax the same at any stage the basis postulates changing notwith standing so long as the incentives could otherwise be availed. The thought under lying the scheme for incentives necessarily was that in the then existing conditions created due to the shackles of the control operations, the manufacturer be enabled to have free sale in the market in percentage higher than commonly admissible. This basic promise changed materially upon public policy intervening in the larger public interest. The control in this sphere has to take into account varying factors like the general growth of sugar cane, the existing stock and the avail ability of sugar in the market, the prevailing prices and the others economic con ditions. Decontrol brought about with effect from August 16, 1978, was a policy decision taken at the highest level and legislative in character being in the exercise of powers of the Central Government under Section 3 of the Essential Commodes Act read with the Sugar (Control) Order, 1966 and others order issued thereunder Shree Meenakshi Mills Lid. v. Union of India, (1974) 1 SCC 420, 46 d Saraswati Industrial Syndicate Ltd. , (1974) 2 SCC 630 Union of India v. Cynamide India Ltd. , (1987) 2 SCC 720. There is significantly no suggestion that the decontrol introduced was not bonafide or that it was a device colourable in character intended to thwart the provisions for incentives contained in the 1975 scheme. It is not that the decontrol may have come in due to whims of certain officials or out of caprice. That there could be no harm intended against the sugar manu facturers in the position of the petitioners is manifest also from the fact upon decontrol with effect from August 16, 1978, and continuing upto December 12, 197,they became entitled to dispose of their entire produce in free sale in the market and the obligation to give sugar in any quantity in levy altogether dis appeared. We find it undeniable that with these measures forthcoming the basic objective underlying the 1975 scheme was amply sub -served as the producers were left free to avail during this period the open market for the entire produce as against a specified percentage alone. 16. A Note need also be made that the petitioners did avail of the benefit flowing under decontrol without demur. When the 1980 scheme came on November 15, 1980, in the wake of control reintroduced on December 16, 1979, they were admitted to its full benefit and it is only thereafter on December 8,1981, for the first time that they asserted claim to benefit under the 1975 scheme realiz ing evidently that the percentage allowed for free sale in the 1980 scheme was less than admissible under the scheme of 1975. And where do the equitiel lie on the total incentive releases of 1,80,667 quintals made thus far the petitioners have already obtained incentive benefit of more than several crores under the 1980 scheme. If the petitioners were further allowed incentive under the '1975 scheme, additional quantity in the tune of several lac quintals, will have to be released as incentive sugar by diversion from the levy quota meant for the public distribution system currently. Substantial chunk of sugar produced estimated at 1. 63 lac quintals for the years 1980 -81, 1982 -83 by the petitioners themselves and for two ears thereafter will have in that event to be withdrawn from availability to the public in controlled prices and released of levy despite the benefit which the petitioners have enjoyed already during the period of August 16, 1978 to Decem ber 16, 1979 Under the 1975 scheme moreover the expanding units were required to pay excise duty as per normal rates applicable to the existing units on the foot ing of 65 : 35 ration of levy and free sale sugar. Due to decontrol, the petitioners could sell away the entire product in free market paying the then prevailing excise duty. According to them, now the benefit under the 1975 scheme would enable them to generate surplus funds by changing a higher price incorporating the component of higher rate of excise duty from the customers through sale of incentive free sugar meaning thereby also the availing of unjust enrichment. 17. Upon balance the court may not regard equitable to hold the Govern ment bound to re -implement the 1975 scheme despite the changed events and circumstances and ignoring the resulting injustice and unfairness on the other hand. The justice of the doctrine of promissory estoppel must be viewed in the background of natural equity, good sense, common justice, morality, fairness, wholesomeness and the like. Inequity, injustice, unfairness, playing fast and lose with justice cannot be allowed to prevail. The law permits the Government in an appropriate case to resile from a promise or an assurance given by it on the ground that undue advantage was being taken or misuse was being made of the concession granted Assistant Commissioner of Commercial Taxes Dharwar and others v. Dhamedra Trading Co. and others, (1982) 3 SCC 570. When the scheme was introduced on December 6, 1975, the decontrol of supply, movement, dis tribution of sugar was not in contemplation. The scheme was to remain opera tive in the then prevailing market situation hedged in by the control restrictions. Decontrol which came later was a supervening event not envisaged in 1975 and a bonafide act of the Central Government in the larger public interest. Govern ment had not precluded itself by any act or omission from exercising the legislative function of rescinding the statutory control as and when the occasion arose for the same. The petitioners who availed of the resulting benefit due to decontrol cannot in all fairness lay claim to be restored the benefit of the incentives in full now over again though the basic premise became non -existent. The benefit under the subsequent scheme in force from November 15, 1980 has already been accorded to them in full measure. 18. We have noted in the beginning that the petitioner No. 1 had applied for grant of a licence in the year 1971 and had mentioned in the licence applica tion that the entire expansion would be done by the said petitioner at its own expense. The petitioner No. 1 was granted the licence in February, 1975. At that time nobody could imagine about the incentive scheme which was announced on December 6, 1975. The petitioner No. 1 could not, therefore argue that the scheme announced induced it to undertake the expansion of which licence had been received by it in February 1975. On these facts the expansion carried out by the petitioners in pursuance of the licence issued in February 1975 was indepen dent and had nothing to do with the incentive announced in December, 1975. The gist of the equity lies in the fact that one party has by its conduct, led the other to alter its position. 19. The Union of India relied on a decision of the Division Bench given by the Delhi High Court in CW No. 332 of 1982 (M/s Tungbhadra Sugar Works (P.) Ltd. and another v. Union of India and others') decided on October 21, 1987. In this case the appellant -company completed its expansion under the extension licence granted to it in December 1971. Before the company completed its expansion, the Government of India announced 1975 incentive scheme. In January, 1978 the company submitted to the Government of India its expansion completion report and claimed incentives on the basis of excess production. 20. An important fact intervened, before the company was found eligible for grant of incentive, namely, decontrol of sugar with effect from August 16, 1978. The company was informed by the Government of India letter dated November 22, 1978 that the 1975 scheme was reviewed and intimation would be sent as soon as a decision was taken in that regard. 21. The decontrol of Sugar continued upto December 1979. It was there after the revised incentive scheme dated November 15, 1980, was announced. The 1980 scheme also provided for incentive for new sugar factories and also for expansion projects. 22. The percentage of the levy free quota sugar under the 1980 scheme for the high recovery area was 40 per centum for all five years unlike different percentages for different areas under 1975 scheme. The method of calculating higher percentage of levy free quota of sugar was also changed. The appellant - company claimed in the representation that as the company completed expansion in 1977 -78, it was eligible for additional release of free sugar according to 1975. 23. The High Court repelled the claim made by the company for implementing the 1975 scheme. The Delhi High Court held : All these incentives were to be given if control had continued. The effect of decontrol with effect from 16th August, 1978 was that the company was free to sell its full production in the free market after paying the excise duty then prevalent. This aspect is not disputed by the petitioner. 24. What is more important in this judgment is that the Delhi High Court found that, when after the lifting of control, the Government announced 1980 scheme on November 15, 1980, it was this scheme under which the appellant could be fitted. The appellant -company could not avail of any benefits under 1975 scheme. The relevant observations are extracted below : The 1980 scheme provided that such of the units which had completed expansion and become eligible under 1975 scheme but could not avail of any benefits under the 1975 scheme would be fitted wholly under i980 scheme. The company bas also been fitted wholly under this 1980 scheme. These observations support our view that the claim of the petitioner No. 1 that it was entitled to be given benefit of 1975 scheme is untenable. In a matter like the present, the Central Government could not be estopped from changing the incentives its method of calculation of the excess production and the free quote to be given. 25. The learned counsel for the petitioners contended , that incorrect and wrong facts had been alleged in the counter -affidavits and on those facts the Union of India wanted to defeat the claim of the petitioners for extra -free sale sugar. The petitioner's counsel was particularly critical about the counter - affidavit of A. K. Bose, who was the Director, S. T. at the relevant time. There can be no denial to the argument of the petitioner counsel that from the Government a citizen expects a correct reply. However, in this case it is not necessary for us to go into this controversy since on the point we have held that the petitioners are not entitled to any relief. 26. In the result, the writ petition fails and is dismissed with costs. Petition dismissed. .