REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5181 OF 2002

STATE OF BIHAR & ORS. ….APPELLANT(S)

VERSUS

KALYANPUR CEMENTS LTD. ……RESPONDENT (S)

J U D G M E N T

SURINDER SINGH NIJJAR, J.

1.This appeal has been filed by the State of Bihar

challenging the judgment and order dated 24.04.2002 of

the High Court of Judicature at Patna in CWJC No.6838

of 2000, whereby, the High Court has allowed the writ

petition filed by the respondent herein. The respondent –

M/s. Kalyanpur Cement Ltd. (hereinafter referred to as

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‘the Company’), is a public sector company incorporated

in the year 1937 as a Lime-producing Company. It is

engaged in the business of cement manufacturing and

marketing operations since 1946. It had commenced

production with a capacity of 46000 metric tonnes. It

underwent a series of expansion in 1958, 1968 and

1980. Nowadays, the Company is operating one-million-

tonne cement plant. In view of the changes in the

technology worldwide, it has set up a brand new state-of-

art ‘dry process’ plant in 1994 at a capital cost of Rs.250-

260 crores. This was made possible with financial

assistance of World Bank and the All India Financial

Institutions. Its advisor and financial collaborator is

Holder Bank (HOLCIM) at Switzerland. The Company

claims to be one of the very few large scale surviving

industrial units in the State of Bihar. It is the only large

scale industry in central part of the State. Over 2000

persons are in the employment of the Company. The

Company claims that due to circumstances beyond its

control such as recession in the cement industry as well

3

as Government related problems; delayed decision in

granting Sales Tax Deferment benefit the Company began

to suffer heavy losses. This was accentuated by the non-

availability of the sanctioned working capital from the

financial institutions in the absence of the sale tax

exemption under the Industrial Policy, 1995. There was

continuous loss in production for a number of years.

This has resulted in erosion of Net-Worth of the

Company, as the total Net-Worth of the Company was

less than its accumulated losses in December, 2002, it

has registered with Board for Industrial and Financial

Reconstruction (hereinafter referred to as ‘BIFR’) as a

sick unit. It has been actually declared as sick Company

by BIFR on 28.05.2002. Its reference case is pending

with the BIFR. The Company in order to rehabilitate

itself sought the assistance from financial institutions for

restructuring package. The Company’s proposal for

financial assistance and restructuring has been approved

by various financial institutions, in principal. However,

the same has been made conditional on certain

4

preconditions being met. One of the conditions imposed

by the financial institutions was that the restructuring

package would be made available only on the Company

obtaining a Sales Tax exemption for a period of 5 years

from the State Government, in terms of Industrial Policy,

1995. Accordingly, Company submitted an application

to the State Government on 21.11.1997 for grant of Sales

Tax exemption under the Industrial Policy, 1995 for a

period of 5 years w.e.f. 01.01.1998. Thereafter, the

matter remained pending for consideration by the State

Government and the financial institutions. There were a

series of joint meetings of the Government, Financial

Institutions and the Company, over the next three years.

In all these meetings, as well as correspondence categoric

assurances were given that the necessary Sales Tax

exemption notification would be issued shortly. However,

no such notification was issued causing great hardship

to the Company. It was, therefore, constrained to file

writ petition (CWJC No.6838 of 2000) in the High Court

at Patna.

5

2.In this writ petition, the prayer was for issuance of the

writ in the nature of mandamus directing the State of

Bihar to issue necessary Notification under Clause 24 of

the 1995 Policy. The claim of the Company was that

Notification under Clause 24 of the Industrial Policy,

1995 ought to have been issued within one month of the

release/publication of the Policy in September, 1995.

Voluminous record was produced before the High Court

in support of the submission that the Company is

entitled to exemption under the 1995 Policy. The State of

Bihar contested the writ petition by filing a counter

affidavit. Supplementary counter affidavit was filed on

behalf of the Government through Secretary-cum-

Commissioner, Department of Commercial Taxes

(respondent No.4 in the writ petition) on 05.12.2000. In

paragraph 5 of the aforesaid affidavit it is stated as

under:-

“5. That the Hon’ble Minister, Department of

Commercial Taxes has approved the proposal

along with draft notification regarding extension

of Sales Tax related incentives to sick industrial

units.”

6

3. In paragraph 8 of the affidavit it is averred “That the

deponent states that it shall be possible to issue necessary

notification after approval of the proposal of the relevant

notification by the Hon’ble Chief (Finance) Minister of the

Cabinet.” It is also stated in the affidavit “That the deponent

has further requested the Secretary-cum-Commissioner,

Department of Finance, vide letter dated 28.11.2000 to take

necessary approval earliest as the same has to inform to the

Hon’ble Court.” Thereafter, yet another supplementary counter

affidavit dated 09.01.2001 was filed by Shri Krishan Nand

Roy, Assistant Commissioner, Commercial Taxes, Bihar. In the

affidavit, it was contended that the State Government in a

meeting under the Chairmanship of the Chief Minister held on

06.01.2001 has decided upon due deliberation not to grant

any Sales Tax incentives to sick industrial units. Therefore,

the claim of the Company has been rejected. The four stated

reasons justifying the aforesaid decision were as under:-

“(1)The period of Industrial Policy 1995 was

from 1.9.1995 to 31.8.2000. Therefore, this

policy is not effective to date.

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(2) The question to provide facility to those

sick units are mentioned in clause 22 of the

above policy. No notification has been issued

by the Government to provide facility of Sales

Tax till now, on whose basis, there could be

right of any specialized person/unit to get the

facility.

(3)So far as the question of applicants’ Unit

in petition No. CWJC No.6838/2000 is

concerned, his matter has not yet been

approved by the High Level Empowered

Committee under the Chairmanship of Chief

Secretary under Clause 22(1) of Industrial

Policy, 1995. It is worth mentioning here that in

absence of above mentioned, even approval

cannot be provided.

(4) Tax reforms at All India Level, which has

been continuing last one year it has been

decided at the conference of Chief Ministers

that except States of Special Category Sales

Tax facility must be ended by rest all other

States. The States would not do this, there

could be possibility of cut down the payable

Central Assistance to those States.”

4. Therefore, the Company amended the writ petition and

challenged the decision dated 06.01.2001 of the State

Government. It was pleaded by the Company that the grounds

for rejection of the Company’s case and non-issuance of the

Notification was not in accordance with law It appears that

another counter affidavit was filed on 16.02.2001 by

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respondent No.4. This was followed by yet another

supplementary counter affidavit filed by Virendra Kumar

Singh, Joint Commissioner, Commercial Taxes, Headquarter,

Patna on 02.08.2001. In this affidavit it was brought to the

notice of the Court that the decision taken on 06.01.2001 was

considered by the Cabinet in its meeting held on 05.03.2001

wherein it was decided not to issue any notification for

granting any concession/facility to sick industrial units in the

State. This decision was duly conveyed by letter dated

05.03.2001 to the IDC Bihar, Patna. In view of the aforesaid

decision the Secretary Industries Department rejected the

company’s application and communicated the decision to the

Company on 14.05.2001. Both the decisions were sought to

be justified by the State Government.

5. The High Court considered the entire issue. The Company

as well as the State made detailed reference to the documents

which were placed on the record. Ultimately, the writ petition

has been allowed. The decisions dated 06.01.2001 and

05.03.2001 have been quashed. Further directions issued to

the State Government are as follows;

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“The concerned departments and organizations

are hereby directed to issue follow up

notification to give effect to the provisions of the

policy within one month from today. After the

notification is issued a Committee headed by

the Industrial Development Commissioner

would be constituted to evolve suitable

measures for potentially viable non BIFR sick

industrial unit (the present petitioner) and the

said Committee would submit its

recommendations before the State Level

Empowered Committee which in its turn shall

place the said recommendations before the

Government. After receiving the said

recommendations from the State Level

Empowered Committee, the Government shall

take final decision in the matter. The petition is

thus allowed.”

6. This decision has been challenged by the appellant-State.

7. At this stage it would be appropriate to notice the orders

passed by this Court during the proceedings. On 18.11.2002,

following directions were issued:-

“Heard learned counsel for the parties.

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 bearing account in a

nationalized bank. This amount and the

amount accrued during the pendency of the

appeal, shall not be withdrawn by either side.

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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 shall be deposited. The

issuance of the exemption orders is without

prejudice to the case of the parties in this

appeal.

The IA is thus disposed of.”

8. Thereafter IA No.3 of 2006 was filed by the appellant

seeking stay of the judgment of the High Court, it has been

stated that the application has been necessitated because of

the intervening circumstances and the conduct of the

Company. It was further stated that pursuant to the direction

issued by this Court on 18.11.2002, the appellant issued

Notification No.SO-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 the Special Leave Petition. The Notification was

issued on the following terms:-

“2. Terms and conditions-

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(a) Tax payable by M/s Kalyanpur Cement Ltd.

shall be deposited per month in an interest-

bearing account in a nationalized bank.

(b) M/s Kalyanpur Cement Ltd. shall provide

information of such bank account to the circle

where he is registered.

(c) M/s Kalyanpur Cement Ltd. shall submit the

details regarding amount of payment in the

bank account as mentioned in para (a) above

along with brief abstract each month.

9. Thereafter the appellant requested the company to comply

with the directions of this court. The Company, however,

informed the appellant that it was unable to comply with the

directions because of its ‘sickness’. Since the Company failed

to comply with the aforesaid order, a prayer was made for

recalling the same.

10. The Company in its reply elaborately explained the efforts

being made by the financial institutions to ensure the survival

of the Company. It reiterated that the Company had acted

honestly and in good faith on assurances/approval given by

the appellant at various stages. The Company continued with

its operation in anticipation of receiving the appellant’s

12

approval at some point of time. Had the appellant not given

the assurances, the Company could have suspended its

operation. The Government gave assurances and granted

approval on 07.01.1998, 23.01.1998, 12.03.1998, 21.01.1999,

12.07.1999, 29.10.1999, 02.12.1999, 17.12.1999,

25.01.2000, 31.03.2000, 29.05.2000 and 30.06.2000. It was

also pointed out that even the officers of the Commercial Taxes

Department including Commissioner, Commercial Taxes to the

effect that the Notification was in the process of being issued.

It was also pointed out that even after the VAT regime being

introduced, Sales Tax related incentives to industries are being

given to industries by various States. In fact under the

Industrial Policy 2003 as well as the Industrial Policy, 2006,

Sales Tax incentives in some form or the other have been

retained/provided. It is further pointed out that the

Notification dated 18.10.2004 was issued after expiry of two

years from the date of the order passed by this Court. The

delayed action of the Appellant practically crippled the

Company financially and jeopardized efforts for revival as the

Sales Tax benefit is crucial for the Company’s revival and

13

continued operations. It is reiterated that the Company is

entitled to get the benefit under the Industrial Policy, 1995.

With regard to the non-deposit of the “amount equivalent to the

Sales Tax payable by it as and when it becomes due”, it is

stated that the Company had bona fide opened the Bank

account with a Nationalized Bank but could not deposit the

amount equivalent to the Sales Tax due because of

circumstances beyond its control.

11. During the pendency of the Interim Application, proposal

for the approval of the reconstruction package of the Company

was under the active consideration of the State. Therefore, the

proceedings were adjourned from time to time.

12. During this period an application was also filed by the

Assets Reconstruction Company (I) Ltd. for being impleaded as

a party. The aforesaid application has been allowed by this

Court on 04.09.2006 and the applicant has been impleaded as

respondent No.2.

13. We have heard the Counsel for the parties. Dr. Rajiv

Dhawan and Mr. Dinesh Dwivedi, Senior Advocates made the

submissions on behalf of the appellant. Dr. Dhawan submits

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that in the aforesaid judgment the High Court has held that:

i.the petitioner had a right to be granted sales

tax exemption under 1995 Industrial Policy;

iithe decision of 6 January 2001 denying such

exemption was arbitrary (which was

challenged but alleged not to be on record);

iii.the decision of 5 March 2001 was wrong, even

though not on record and not challenged.

14. According to Dr. Dhawan the High Court has wrongly

quashed the order dated 06.01.2001 on the basis that it was

an arbitrary somersault after 05.12.2000. This conclusion is

erroneous as the aforesaid order had given four cogent reasons

in support of the decisions which have been duly noticed by

the High Court. The aforesaid reasons could not be said to be

extraneous to the decision dated 06.01.2001. Thereafter, it is

submitted that the relevant rule/clauses 22 and 24 were

wrongly interpreted because it stated “Clause 22.2 of the policy

would come into force after a notification under Clause 24 is

issued.” The High Court has wrongly held that the

precondition of revival under Clause 22 came into effect after

15

the final decision under Clause 24. According to the learned

senior counsel the High Court failed to notice that clause 22.2

was about revival of the Company and not just granting Sales

Tax exemptions. Furthermore, Clause 22.3 barred

exemption/deferment to be given to such sick and closed

industrial units which have once availed of such facilities in

the past. This Company has availed the deferment in the past

and had not paid the sums due. It is then emphasized that

Clause 24 was a monitoring Clause, but the time period of one

month was simply a target. Therefore, it was neither

mandatory nor directory.

15. Learned Senior counsel then submitted that the High

Court has wrongly based its decision on Mangalore Chemical

and Fertilizer Ltd. Vs. Deputy Commissioner of

Commercial Taxes and others, (1992) Suppl.1 SCC 21.

According to Dr. Dhawan, this case would be inapplicable

because in fact, in that case, prior permission had already

been granted. He further submitted that the High Court

wrongly ignored the significance of the Chief Ministers’

Conference although the High Court notices the Conferences

16

of the Chief Ministers, it failed to give sufficient importance to

this national public policy aspect emanating from the

Conferences between the Chief Ministers of all States and the

Union Government. Dr. Dhawan further submitted that the

High Court has wrongly assumed that there was any

allurement offered to the Company. In fact the High Court did

not properly apply the doctrine of ‘Promissory Estoppel’. At

best the High Court only found a case of possible intention on

the part of the State to grant exemption to the Company

during the limited period from 5

th

December, 2000 to 6

th

January, 2001. Yet the High Court issued a writ in the nature

of Mandamus directing the State to issue the exemption

notification.

16. In support of his submissions, learned senior counsel

has made detailed reference to the facts and the documents on

record. According to him, the facts in this case are not such

as to give rise to a cause of action, relying on the doctrine of

‘promissory estoppel’. There is no material on the record to

show that any unequivocal promise was made to the Company

and it had acted on such a promise. All the meetings were

17

only exploratory in nature. In any event, no mandamus could

have been issued after the Scheme had lapsed and no default

by the appellant-State has been established. According to the

learned senior counsel, the impugned judgement of the High

Court is wrong in law, in respect of the rules, orders of the

State and the Scheme of the Industrial Policy. It is also wrong

on facts.

17. Learned Senior counsel relied on number of judgments in

support of the submissions Central London Property Trust,

Ltd. Vs. High Trees House, Ltd. (1956) 1 AII ER 256;

Kasinka Trading vs. Union of India (1995) 1 SCC 274;

STO vs. Shree Durga Oil Mills (1998) 1 SCC 572; Bakul

Cashew Co. vs. STO (1986) 2 SCC 365; Sharma Transport

vs. Govt. of AP (2002) 2 SCC 188; Bannari Amma Sugars

Ltd. Vs. Commercial Tax Officer (2005) 1 SCC 625 at 637;

Shri Bakul Oil Industries vs. State of Gujarat (1987) 1

SCC 31; Motilal Padampat Sugar Mills Co. Ltd. Vs. State

of UP (1979) 2 SCC 409; DCM Ltd. Vs. Union of India

(1996) 5 SCC 468; Shrijee Sales Corpn. Vs. Union of India

18

(1997) 3 SCC 398; Pawan Alloys & Castings (P) Ltd. UP

SEB (1997) 7 SCC 251.

18. Mr. Dinesh Dwivedi, Senior Advocate submitted that

there are two categories of cases, where incentive is given (i) to

set up or start an industry;(ii) benefits to improve the industry.

The incentive in the second category can be withdrawn as it is

only an enabling provision. In such circumstances, the

Executive is permitted to resile. Referring to the detailed

provisions of the 1995 Policy, he submitted that Clause 16(1)

and 16(2) relate to new unit. 16(3) relates to units undertaking

expunction/diversification. Clause 22.1 relates to industrial

sickness in SSI sector. Clause 22.2 deals with sickness in

large and medium scale sector. According to him, under this

Clause nothing definite is promised. It permits the Committee

to recommend concessions and facilities for revival of the sick

units to the State-level Empowered Committee (SLEC).

Therefore, any recommendations made by this Committee

cannot be said to be assurances capable of attracting the

doctrine of ‘promissory estoppel’. According to the learned

Senior Counsel the entire matter is covered against the

19

Company by the judgment of this Court in M.P. Mathur vs.

DTC (2006) 13 SCC 706. Learned Senior Counsel also relied

on Kasinka Trading (supra) in support of his submission that

clear foundation has to be laid of the assurance that was

given. It is further submitted that the claim of the Company

cannot possibly succeed by invoking the doctrine of

‘promissory estoppel’ as the Company has not altered its

position by relying on the assurances given by the appellant-

State. Learned counsel then submitted that the Company has

misunderstood the meaning of exemption. They are under the

impression that they can collect tax and not pay to the

Government. That according to the learned Senior Counsel is

not correct. Exemption simply means that no tax shall be

chargeable on goods. In the affidavit filed in reply to IA No.3,

it is admitted by the Company that the tax collected has not

been deposited. Therefore, the Company is in contempt of the

interim orders passed by this Court. The Company is liable to

refund the amount of Rs.60 crores to the Government.

19. Learned Senior counsel submitted that no relief can be

granted to the Company as it had taken advantage of the

20

interim order without complying with the preconditions of the

order. In support of this, he relied upon Prestige Lights Ltd.

Vs. State Bank of India, (2007) 8 SCC 449. It is submitted

that a direction ought to be issued to the Company to refund

the amount of tax collected. He relied on Amrit Banaspati

Co. Ltd and another vs. State of Punjab (1992) 2 SCC 411.

Mr. Dwivedi, thereafter, submitted that the Policy of granting

exemption had lapsed on 31

st

August, 2000. Therefore, no

exemption notification could have been issued thereafter. He

further submits that Industrial Policy, 1995 was only a

temporary scheme, therefore, no benefit could be given after

expiry. He relied on State of UP and another vs. Dinkar

Sinha, (2007) 10 SCC 548; M/s. Velji Lakhamsi and Co.

and others vs. M/s. Benett Coleman and Co. and others

(1977) 3 SCC 160; District Mining Officer and others vs.

Tata Iron and Steel Co. and another (2001) 7 SCC 358.

20. Mr. Ravi Shankar Prashad, Senior Advocate appearing for

the respondent No.1 submitted that the Company is only the

large scale industry left in the State of Bihar. In the 1990s,

the cement industry was in a bad state, as the expectations of

21

the Government of increase in demand did not fructify. The

Company is a viable unit. It has been made sick by the

inaction of the Government. He further submitted that the

exemption has been duly recommended by the Committee

under Clause 22.2(i). It cannot be denied the benefit on the

basis of Clause 22(3). At the time when earlier benefits were

given the Company was not sick. It would be entitled to the

benefit in view of Clause 22(1)(vi). According to the learned

Senior counsel, the Company has gone into a whirlpool as the

rehabilitation package has not been given as the Government

has not issued the exemption notification under Clause 24 of

the Industrial Policy, 1995. Relying on the facts and figures

on the record, it is submitted that the Company would be able

to clear its liability within a short period. He further

submitted that the doctrine of ‘promissory estoppel’ is fully

applicable in the facts of this case. The unequivocal

representation is contained in the Industrial Policy, 1995.

This representation is further reinforced in the documents

which have been relied upon by the Company. According to

him, the eligibility of the Company for exemption is not

22

doubted. In the proceedings before the High Court, the

appellants had filed an affidavit admitting that the draft

notification has been prepared and it is only to be gazetted.

This affidavit was filed after the expiry of the Industrial Policy,

1995. Therefore, it cannot now be submitted by the appellant

that no exemption could be granted since the Policy had

lapsed. Learned senior counsel further submitted that for

three years the State Government had issued assurances that

the notification would be duly issued. The financial

institutions had also approved the rehabilitation package, in

principal, provided the State Government granted the

necessary Sales Tax exemption. It is, therefore, not open to the

appellant to submit that the Government can now resile from

the promise. According to him, that the justification with

regard to the discontinuation of the Sales tax related

concessions/exemptions consequent upon introduction of the

VAT regime is without any basis. These incentives are

continuing even under the Industrial Policy, 2003 and 2006.

It was for these reasons that the High Court set aside the

decisions dated 06.01.2001 and 05.03.2001. Mr. Prasad

23

further submits that by now it is settled that promissory

estoppel gives a cause of action and also preserves a right. The

action of the appellants in passing the impugned orders is

arbitrary and whimsical. It cannot be supported on any of the

four reasons mentioned in the Order dated 06.01.2001. In

support of its submissions, the Learned Senior counsel relied

on Mangalore Fertilizer (supra), Union of India and Others

vs. Godfrey Philips India Ltd. (1985) 4 SCC 369; State of

Punjab vs. Nestle India Ltd. and another (2004) 6 SCC

465; Southern Petrochemical Industries Co. Ltd. vs.

Electricity Inspector & ETIO and others (2007) 5 SCC

447; MRF Ltd., Kottayam vs. Asstt. Commissioner

(Assessment) Sales Tax and others (2006) 8 SCC 702;

Amrit Banaspati (supra). Relying on the aforesaid

judgments, it is submitted that the High Court has estopped

the appellant State Government from hiding behind the

technicality and deny the Sales Tax exemption to respondent

No.1 under the Industrial Policy, 1995. It is further submitted

that during the pendency of appeal before this Court the

Company had submitted a modified package to the State

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Government in October, 2006. This was rejected by the

Government vide order dated 12

th

March, 2007, the proposal

was rejected only on the ground that the Company has huge

liability amounting to Rs.314.12 crores. According to Mr.

Ranjit Singh, the aforesaid figure is not a correct present

figure of the financial status of the Company making detailed

figures to certain facts and figures. He further submitted that

the total amount due from the Company is Rs.46.81 crores out

of which it is eligible to a relief of Rs.30.04 crores under

notification No.24 dated 27.07.2006. The Company is,

therefore, viable. The modified package has been arbitrary

rejected by the appellants.

21. Mr. Ranjit Singh appearing for respondent NO.2 submits

that under the SARFAESI Act, the secured creditor Assets

Reconstruction Company (I) Ltd.- respondent No.2 is now the

lender instead of the financial institution. Aim of respondent

No.2 is to revive the Company by reconstruction. It was

submitted that the Company is a ‘sick company’ registered

with the BIFR under the Sick Industrial Companies (Special

Provisions) Act, 1985 and undergoing a process of

25

restructuring. The Company’s proposal for financial

assistance and restructuring was earlier approved by the

financial institutions, namely, IFCI IDBI, ICICI and IIBI in the

year 1998 subject to the condition of grant of Sales Tax

exemption for a period of 5 years in terms of the Industrial

Policy, 1995 of the Government of State of Bihar. Respondent

No.2 is a Securitization and Reconstruction Company

established under Section 3 of the Securitization and

Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 with the mandate to assist the

Banks and financial institutions in reducing Non-Performing

Assets (NPA) by adopting method for recovery or

reconstruction. As such it has been assigned the loan

outstandings of a number of financial institutions noted

above. Now it is a secured creditor to the extent of

approximately 94.2% of the total secured debt of the

Company. Therefore, respondent No.2 being an assignee of

the outstanding is committed to the rehabilitation and revival

of the Company. The Company has already filed a Scheme of

Arrangement under Section 391 of the Companies Act, 1956

26

for revival of the Company. The Scheme has the support of

respondent No.2. However, the Scheme is pending approval as

it is based on certain relief and concessions to be granted to

the Company by the State Government. One such concession

is the Sales Tax exemption to be given by the State

Government. The claim made by the Company with regard to

being one of the most modernized and efficient cement plants

is reiterated. It is further stated that the plant has a capacity

of about 10 lac tonnes per annum at Rohtas District of the

State. It is further pointed that the main reason for the

sickness of the Company has been the industry and region

specific externalities. It is submitted that the viability studies

conducted by the specialized agencies have confirmed the

Company’s viability and ability to convert its Net-Worth into

positive and repay back Government due another term loan

within 8 to 10 years. It is further submitted that any change

in the Sales Tax exemption would adversely affect the

implementation of the proposed Scheme. However, the

modified revival package which was given to the Government

has been arbitrarily rejected.

27

22. We have considered the submissions made by the

learned counsel for the parties.

23. We have considered the detailed facts and relevant

documents which are on the record. However, in our opinion,

before we consider the submissions made on the factual

situation of this case, it would be appropriate to consider the

primary issue as to whether the Company could have invoked

the principle of ‘promissory estoppel’ in support of its claim.

24. It is well-known that the doctrine of promissory estoppel

has been recognized and enforced in the Courts in England for

a considerable period of time. The principle of ‘promissory

estoppel’ was stated by Denning, J in the oft-quoted judgment

in Central London Property Trust Ltd. v. High Trees

House, Ltd. 1956) 1 All ER 256. In this matter the

landlords had let a new block of flats in 1957 to the tenants on

a 90-99 lease at a ground rent of ₤2500 (Pound Sterling).

However, in view of war time conditions and without

consideration, as a result of discussions, an arrangement was

made between the parties to reduce the ground rent to ₤1,250

for the years 1941, 1942, 1943 and 1944 the tenants paid the

28

reduced rent. At the end of the war in September, 1945, the

landlord, however, claimed that the original ground rent

reserved under the lease had to be paid. The landlord also

claimed arrears for the years when the reduced rent was paid

in the sum of ₤7916. No payment was received. The landlord,

therefore, brought an action to test the proposition of law. The

Court notices the plea of the tenant as follows -“The tenants

said first that the reduction of ₤1,250 was to apply throughout

the term of ninety-nine years, and that the reduced rent was

payable during the whole of that time. Alternatively, they said

that was payable up to Sept.24, 1945, when the increased rent

would start.” Upon consideration of the entire issue, it is

observed by Denning, J as follows:-

“If I consider this matter without regard to

recent developments in the law there is no

doubt that the whole claim must succeed…….”

“As to estoppel, this representation with

reference to reducing the rent was not a

representation of existing fact, which is the

essence of common law estoppel; it was a

representation in effect as to the future – a

representation that the rent would not be

enforced at the full rate but only at the reduced

rate…….. “So at common law it seems to me

there would be no answer to the whole claim. “

29

“What, then, is the position in view of

developments in the law in recent years? The

law has not been standing still even since

Jorden v. Money (1854) (5 HL Cas. 185). There

has been a series of decisions over the last fifty

years which, although said to be cases of

estoppel, are not really such. They are cases or

promises which were intended to create legal

relations and which, in the knowledge of the

person making the promise, were going to be

acted on by the party to whom the promise was

made, and have been so acted on. In such

cases the Courts have said these promises

must be honoured.”

“I am satisfied that the promise was

understood by all parties only to apply in the

conditions prevailing at the time of the flats

partially let, and the promise did not extend

any further than that.”

25. The doctrine of promissory estoppel as developed in

the administrative law of this country has been eloquently

explained in Kasinka Trading v. Union of India (1995) 1

SCC 274 by Dr. A.S. Anand, J, in the following words:-

“11. The doctrine of promissory estoppel or

equitable estoppel is well established in the

administrative law of the country. To put it

simply, the doctrine represents a principle

evolved by equity to avoid injustice. The basis

of the doctrine is that where any party has by

his word or conduct made to the other party an

unequivocal promise or representation by word

or conduct, which is intended to create legal

30

relations or effect a legal relationship to arise in

the future, knowing as well as intending that

the representation, assurance or the promise

would be acted upon by the other party to

whom it has been made and has in fact been

so acted upon by the other party, the promise,

assurance or representation should be binding

on the party making it and that party should

not be permitted to go back upon it, if it would

be inequitable to allow him to do so, having

regard to the dealings, which have taken place

or are intended to take place between the

parties.”

“12. It has been settled by this Court that the

doctrine of promissory estoppel is applicable

against the Government also particularly where

it is necessary to prevent fraud or manifest

injustice. The doctrine, however, cannot be

pressed into aid to compel the Government or

the public authority “to carry out a

representation or promise which is contrary to

law or which was outside the authority or

power of the officer of the Government or of the

public authority to make”. There is

preponderance of judicial opinion that to invoke

the doctrine of promissory estoppel clear, sound

and positive foundation must be laid in the

petition itself by the party invoking the doctrine

and that bald expressions, without any

supporting material, to the effect that the

doctrine is attracted because the party invoking

the doctrine has altered its position relying on

the assurance of the Government would not be

sufficient to press into aid the doctrine. In our

opinion, the doctrine of promissory estoppel

cannot be invoked in the abstract and the

courts are bound to consider all aspects

including the results sought to be achieved and

31

the public good at large, because while

considering the applicability of the doctrine, the

courts have to do equity and the fundamental

principles of equity must for ever be present to

the mind of the court, while considering the

applicability of the doctrine. The doctrine must

yield when the equity so demands if it can be

shown having regard to the facts and

circumstances of the case that it would be

inequitable to hold the Government or the public

authority to its promise, assurance or

representation.”

26. In our opinion, the aforesaid statement of law covers the

submissions of Dr. Dhawan and Mr. Dwivedi that in order to

invoke the aforesaid doctrine, it must be established that (a)

that a party must make an unequivocal promise or

representation by word or conduct to the other party (b) the

representation was intended to create legal relations or affect

the legal relationship, to arise in the future (c) a clear

foundation has to be laid in the petition, with supporting

documents (d) it has to be shown that the party invoking the

doctrine has altered its position relying on the promise (e) it is

possible for the Government to resile from its promise when

public interest would be prejudiced if the Government were

required to carry out the promise (f) the Court will not apply

32

the doctrine in abstract. However, since the judgments have

been cited, we may notice the law laid down therein.

27. In STO vs. Durga Oil Mills (1998) 1 SCC 572 it was

held that “Moreover, as it has been noted earlier that the IPR

itself had not granted any exemption but had indicated that

orders will be issued by various departments for granting the

exemptions. The exemption order under Sales Tax could only

be issued under Section 6 which could be amended or

withdrawn altogether. This is expressly provided by Section 6.

If the respondent acted on the basis of a notification issued

under Section 6 it should have known that such notification

was liable to be amended or rescinded at any point of time, if

the Government felt that it was necessary to do so in public

interest.”

28. In Bakul Cashew Co. v. STO (1986) 2 SCC 365 “In

cases of this nature the evidence of representation should be

clear and unambiguous. It “must be certain to every intent”.

The statements that are made by ministers at such meetings,

such as, “let us see”, “we shall consider the question of

granting of exemption sympathetically”, “we shall get the

33

matter examined,” “you have a good case for exemption” etc.

even if true, cannot form the basis for a plea of estoppel.”

29. In Sharma Transport v. Govt. of AP (2002) 2 SCC 188

it is observed that “There is preponderance of judicial opinion

that to invoke the doctrine of promissory estoppel, clear, sound

and positive foundation must be laid in the petition itself by the

party invoking the doctrine and that bald expressions, without

any supporting material, to the effect that the doctrine is

attracted because the party invoking the doctrine has altered its

position relying on the assurance of the Government would not

be sufficient to press into aid the doctrine.”

30. In Shri Bakul Oil Industries vs. State of Gujarat, this

Court held that “Viewed from another perspective, it may be

noticed that the State Government was under no obligation to

grant exemption from sales tax. The appellants could not,

therefore, have insisted on the State Government granting

exemption to them from payment of sales tax. What

consequently follows is that the exemption granted by the

Government was only by way of concession. Once this position

emerges it goes without saying that a concession can be

34

withdrawn at any time and no time limit can be insisted upon

before the concession is withdrawn. The notifications of the

Government clearly manifest that the State Government had

earlier granted the exemption only by way of concession and

subsequently by means of revised notification issued on July

17, 1971, the concession had been withdrawn. As the State

Government was under no obligation, in any manner known to

law, to grant exemption it was fully within its powers to revoke

the exemption by means of a subsequent notification. This is

an additional factor militating against the contentions of the

appellants.”

31. In Motilal Padampat Sugar Mills Co. Ltd. vs. State of

UP (1979) 2 SCC 409, it is held that “we do not think it is

necessary, in order to attract the applicability of the doctrine of

promissory estoppel, that the promisee, acting in reliance on the

promise, should suffer any detriment. What is necessary is

only that the promisee should have altered his position in

reliance on the promise…”

“But it is necessary to point out that since the doctrine of

promissory estoppel is an equitable doctrine, it must yield when

35

the equity so requires. If it can be shown by the Government

that having regard to the facts as they have transpired, it would

be inequitable to hold the Government to the promise made by

it, the Court would not raise an equity in favour of the promisee

and enforce the promise against the Govenrment. The doctrine

of promissory estoppel would be displaced in such a case

because, on the facts, equity would not require that the

Government should be held bound by the promise made by it.

When the Government is able to show that in view of the facts

as have transpired since the making of the promise, public

interest would be prejudiced if the Government were required to

carry out the promise, the Court would have to balance the

public interest in the Government carrying out a promise made

to a citizen which has induced the citizen to act upon it and

alter his position and the public interest likely to suffer if the

promise were required to be carried out by the Government and

determine which way the equity lies. It would not be enough

for the Government just to say that public interest requires that

the Government should not be compelled to carry out the

promise or that the public interest would suffer if the

36

Government were required to honour it.”

In the same paragraph it is further observed that:-

“24……..the Government cannot, as Shah,J.,

pointed out in the Indo-Afghan Agencies case,

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 its

liability and repudiate it “on an ex parte

appraisement of the circumstances”. If the

Government wants to resist 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 circumstances 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 liability: 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 interest requires that

the Government should not be held bound by the

promise but should be free to act unfettered by it,

that the court would not act on the mere ipse

dixit of the Government, for it is the Court which

has to decide and not the Government whether

the Government should be held exempt from

liability. This is the essence of the rule of law.

The burden would be upon the Government to

show that the public interest in the Government

acting otherwise than in accordance with the

promise is so overwhelming that it would be

37

inequitable to hold the Government bound by the

promise and the Court would insist on a highly

rigorous standard of proof in the discharge of

this burden”

32. It is further held that “Lastly, a proper reading of the

observation of the Court clearly shows that what the Court

intended to say was that where the Government owes a duty to

the public to act differently, promissory estoppel cannot be

invoked to prevent the Government from doing so. This

proposition is unexceptionable, because where the Government

owes a duty to the public to act in a particular manner, and

here obviously duty means a course of conduct enjoined by law,

the doctrine of promissory estoppel cannot be invoked for

preventing the Government from acting in discharge of its duty

under the law. This doctrine of promissory estoppel cannot be

applied in teeth of an obligation or liability imposed by law.”

33. In DCM Ltd. vs. Union of India (1996) 5 SCC 468, this

Court reiterated that “It is well settled that the doctrine of

promissory estoppel 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 realm of

38

estoppel. The basis of this doctrine is the inter-position of

equity which has always proved to its form, stepped in to

mitigate the rigour of strict law. It is equally true that the

doctrine of promissory estoppel is not limited in its application

only to defence but it can also find a cause of action. This

doctrine is applicable against the 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 invoked to defeat the applicability of this doctrine. It

is further well established that the doctrine of promissory

estoppel must yield when the equity so requires. If it can be

shown by the Government or public authority that having

regard to the facts as they have transpired, it would be

unequitable to hold the Government or public authority to the

promise or representation 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 displaced in such a

case because on the facts, equity would not require that the

39

Government or public authority should be held bound by the

promise or representation made by it.”

34. In Shrijee Sales Corpn. Vs. Union of India (1997) 3

SCC 398 it was held that “It is not necessary for us to go into a

historical analysis of the case – law relating to promissory

estoppel against the Government. Suffice it to say that the

principle of promissory estoppel is applicable against the

Government but in case there is a supervening public equity, the

Government would be allowed to change its stand; it would

then be able to withdraw from representation made by it which

induced persons to take certain steps which may have gone

adverse to the interest of such persons on account of such

withdrawal. However, the Court must satisfy itself that such a

public interest exits.”

35. In Pawan Alloys & Casting (P) Ltd. v. UP SEB (1997) 7

SCC 251 it is held that “(31). The appellants will not be able to

enforce the equity by way of promissory estoppel against the

Board if it is shown by the Board that public interest required it

to withdraw this incentive rebate even prior to the expiry of

three years as available to the appellants concerned. It has

40

also to be held that even if such withdrawal of development

rebate prior to three years is not based on any overriding public

interest, if it is shown that by such premature withdrawal the

appellant-promisees would be restored to status quo ante and

would be placed in the same position in which they were prior

to the grant of such rebate by earlier notifications the appellants

would not be entitled to succeed.”

36. In Shreeji Sales Corpn.( supra) it is also held that

“However, in the present case, there is a supervening public

interest and hence it should not be mandatory for the

Government to give a notice before withdrawing the exemption.”

37. In Bannari Amman Sugars Ltd. vs. Commercial Tax

Officer (2005) 1 SCC 625 it is observed that “We find no

substance in the plea that before a policy decision is taken to

amend or alter the promise indicated in any particular

notification, the beneficiary was to be granted an opportunity of

hearing. Such a plea is clearly unsustainable. While taking

policy decision, the Government is not required to hear the

persons who have been granted the benefit which is sought to

be withdrawn.”

41

38. In Rom Industries Ltd. vs. State of J&K (2005) 7

SCC 348, this Court held that “We are not prepared to hold

that the government policy by itself could give rise to any

promissory estoppel in favour of the appellants against the

respondents since the policy itself made it absolutely clear that

if would come into effect only on appropriate notification being

issued. The notification was issued in exercise of the admitted

powers of the State Government under the State General Sales

Tax Act. The State Government having power and competent to

grant the exemption was equally empowered to withdraw it. As

we have also noticed there was nothing either in the notification

or in the policy which provided that the Negative List would not

be amended or altered. On the contrary clause (vii) of para 7 to

GO No.10 of 1995 expressly reserved the Government’s right to

amend the Negative List. The right if any of the appellants was

a precarious one and could not found a claim for promissory

estoppel.”

39. Both the learned Senior counsel had also emphasized

that there is a distinction between cases (a) where a policy

automatically applies subject to eligibility [e.g. Pawan alloys

42

(supra)] (b) where the idea was to allure people and all persons

who set up industries were entitled to an exemption; and (c)

where the exemption would apply only after a considered

decision is taken to consider eligibility and worthiness [e.g.

Rom Industries (supra)].

40. According to the learned Senior counsel there is also a

distinction between cases where (a) an exemption is granted

but taken away prematurely [e.g. Pawan Alloys (supra)]; (b) an

exemption is to be given after due consideration. Thus, in the

present appeal, the promise would be considered to be made

only when a decision is actually made by the empowered

authority after being satisfied that the revival of the Company

was possible.

41. The learned Senior counsel also placed reliance on

Sharma Transport (supra) wherein it was held that “It is

equally settled law that the promissory estoppel cannot be used

to compel the Government or public authority to carry out a

representation or promise which is prohibited by law or which

was devoid of the authority or power of the officer of the

Government or the public authority to make.”

43

42. Learned Senior counsel also relied on the decision in

State of Jharkhand vs. Ambay Cements (2005) 1 SCC 368,

in support of his submission where promissory estoppel

applies only where a person is eligible consistent with the

purpose for which the policy was made. In that case, it was

held that “In our view, the conditions prescribed by the

authorities for grant of exemption are mandatory for availing

the exemption and the High Court exercising jurisdiction under

Article 226 of the Constitution cannot direct the grant of

exemption in favour of the respondent overlooking the statutory

conditions prescribed for such grant and that too in the absence

of any challenge to the validity of such conditions.”

43. In addition Mr. Dwivedi, learned Senior counsel relied on

a number of other decisions which we may notice.

44. In M.P. Mathur (supra), wherein this Court reiterated that

in order to invoke the doctrine of promissory estoppel clear,

sound and positive foundation must be made in the petition

itself by the party invoking the doctrine and bald expressions

without any supporting material would not be sufficient.

45. In Excise Commissioner vs. Ram Kumar (1976) 3 SCC

44

540 this Court reiterated that “it is now well settled by a

catena of decisions that there can be no question of estoppel

against the Government in the exercise of its legislative,

sovereign or executive powers.”

46. With respect to the submissions made by the learned

Senior counsel on IA No.3 reliance is placed on Prestige

Lights (supra), wherein this Court reiterated the principle that

the Court may refuse to hear the parties on merits who has

violated the directions issued by the Court. Since not hearing

a party on merits is a “drastic step” it should not be taken

except in grave and extraordinary situations, “but sometimes

such an action is needed in the larger interest of justice when a

party obtaining interim relief intentionally and deliberately

flouts such order by nor abiding by the terms and conditions on

which a relief is granted by the court in his favour.”

47. In Amrit Banaspati (supra), it is observed that “But

promissory estoppel being an extension of principle of equity,

the basic purpose of which is to promote justice founded on

fairness and relieve a promisee of any injustice perpetrated due

to promisor’s going back on its promise, is incapable of being

45

enforced in a court of law if the promise which furnishes the

cause of action nor the agreement, express or implied, giving

rise to binding contract is statutorily prohibited or is against

public policy.”

“11.Exemption from tax to encourage industrialization

should not be confused with refund of tax. They are two

different legal and distinct concepts. An exemption is a

concession allowed to a class or individual from general burden

for valid and justifiable reason.”

“12.But refund of tax is made in consequence of excess

payment of it or its realization illegally or contrary to the

provisions of law. A provision or agreement to refund tax due to

realize in accordance with law cannot be comprehended. No

law can be made to refund tax to a manufacturer realized

under a statute. It would be invalid and ultra vires.”

48. In the case of Dinakar Sinha (supra), this Court

observed that “31. The 1973 Rules was a temporary statute. It

died its natural death on expiry thereof. The 1980 Rules does

not contain any repeal and saving clause. The provisions of the

relevant provisions of the General Clauses Act will, thus, have

46

no application. Once a statute expires by efflux of time, the

question of giving effect to a right arising thereunder may nor

arise….”

49. In M/s. Bennett Coleman (supra), this Court held that

“This pivotal point canvassed by the learned Counsel for the

appellants though it looks attractive at first sight cannot stand a

close scrutiny. It is true that the offences committed against a

temporary statute have, as a general rule, to be prosecuted and

punished before the statute expires and in the absence of a

special provision to the contrary, the criminal proceedings which

are being taken against a person under the temporary statute

will ipso facto terminate as soon as the statute expires. But the

analogy of criminal proceedings or physical constraint cannot,

in our opinion, be extended to rights and liabilities of the kind

with which we are concerned here for it is equally well settled

that transactions which are concluded and completed under the

temporary statute while the same was in force often endure

and continue in being despite the expiry of the statute and so

do the rights or obligations acquired or incurred thereunder

47

depending upon the provisions of the statute and nature and

character of the rights and liabilities.”

50. In District Mining Officer (supra), this Court

observed that “A statute can be said to be either perpetual or

temporary. It is perpetual when no time is fixed for its duration

and such a statute remains in force until its repeal, which may

be express or implied. But a statute is temporary when its

duration is only for a specified time and such a statute expires

on the expiry of the specified time, unless it is repealed earlier.

The relevant provisions of the different State laws relating to

cesses or taxes on minerals having been deemed to have been

enacted by Parliament and having been deemed to have been

enacted by Parliament and having been deemed to have

remained in force up to the 4

th

day of April, 1991 under the

Validation Act, those laws relating to cesses or taxes on

minerals must be held to be temporary statutes in the eye of

law. Necessarily, therefore, its life expired and it would be

difficult to conceive that notwithstanding the expiry of the law

itself, the collecting machinery under the law could be operated

upon for making the collection of the cess or tax collectable upto

48

4.4.1991. Admittedly, to a temporary statute, the provisions of

Section 6 of the General Clauses Act, 1897 will have no

application.”

51. Let us now examine the factual situation in the light of

the observations made by this Court in various judgments

relied upon by the learned counsel for the parties.

52. The Company applied to the State Government on

21.11.1997 for grant of sales tax exemption under the

Industrial Policy, 1995. Even though the Company was

entitled under the aforesaid Policy to exemption for 8 years, it

made an application only for 5 years’ exemption. This request

of the Company was considered by the State-level Committee

on Rehabilitation in a meeting held on 07.01.1998. This was

attended by the senior Officers of the State Government,

49

representatives of the financial Institutions and the Company.

It was observed as follows:-

“It was felt that the Company is potential sick

unit and is fit for consideration for exemption

from payment of Sales Tax for a period of 5

years from 1.1.1998.

The Committee recommended that as per

the provision of Industrial Policy 1995 the Sales

Tax exemption on finished products can be

granted to M/s. Kalyanpur Cement Ltd. for a

period of five years from 1.1.1998 to

31.12.2002 to improve liquidity of the Company

for its rehabilitation and sound financial

position and decided to put up the case in the

meeting of the High Empowered Committee

under the Chairmanship of the Chief Secretary

for final decision.”

53. In a meeting held on 23.01.1998 it was noticed that the

Company has been provided the facility of deferment of

commercial taxes on two earlier occasions. The deferred

amount is being repaid even though payment of the unit is not

up-to-date. It was also accepted that the benefits under the

Industrial Policy, 1995 which are to be given to the new units

are also to be given to sick and closed units. However, it was

observed that the opinion of the Advocate General should be

taken as to whether any amendment is required in the Sales

50

Tax rules. In an another meeting held on the same date i.e. on

12

th

March, 1998 the reconstruction proposal of the Company

was again considered in a meeting of the High Level

Authorisation Committee (HLAC) held under the

Chairmanship of the Chief Secretary. In this meeting, it was

noticed that the Company is running in losses. The main

reason for the present position of the Company is sluggishness

in the cement market. The Company had, therefore, made an

application for Sales Tax exemption from 01.01.1998 to

31.12.2002 under the Industrial Policy, 1995. Upon

consideration and discussion, it was decided that before

exempting the Company from Sales Tax, opinion of Advocate

General should be taken as to whether any amendment is

required in the Bihar Finance Act. Subsequently, the

Advocate General opined that no amendments are required in

the Bihar Finance Act, 1981 and that the exemption can be

considered for a class of dealers i.e. sick units in terms of

Section 7(3)(b) of that Act.

54.In an another meeting held on 12.07.1999 at IFCI Head

Office, New Delhi, the representatives of the State Government

51

clearly stated that the Government of Bihar was committed to

the revival of industry in the State in general and that of ACL

in particular as it was located in one of the backward districts

of Bihar and provided direct employment to over 2000

persons. With regard to the Sales Tax exemption it was stated

that the legal opinion of the Advocate General, Bihar had

already been obtained and the final decision of the Cabinet

sub-Committee is expected within 2-3 months’ time. The

Indian promoters of the Company had been invited to join the

meeting and were requested to respond to the observations of

the participants. It was explained on behalf of the Company

that although the performance of the Company was

consistently above the rated capacity, it had not been able to

achieve optimum level of operations mainly due to lack of

adequate working capital. Since the promoters were not to

bring any further funds, most of the required amount would

have to be met out of the proposed funding and expected Sales

Tax exemption. In the summary record of the proceedings of

the Joint Meeting, it was recorded that “there was further

discussion amongst the participants and there was a general

52

consensus that a restructuring package would be necessary for

ensuring the revival of KCL and accordingly, KCL be advised to

submit, at the earliest, a revised restructuring proposal with a

cut off date of 31.12.1999……”. “It was considered necessary

to stipulate preconditions such as the State Government of

Bihar granting the Sales Tax exemption and

renewal/revalidation of the mining leases for the proposed

restructuring packages, as and when sanctioned.”

54. Thereafter, the representatives of the Company were

invited to join the meeting held between the Government of

Bihar and financial institutions on 29.10.1999. Reference was

made, in this meeting, to the deliberations at the previous

meeting held on 12.07.1999, when it was decided to undertake

revised restructuring exercise in respect of the Company.

Accordingly, a revised restructuring proposal was formulated

by the Industrial Finance Corporation of India Ltd. (hereinafter

referred to as ‘IFCI’). In this meeting of the representative of

the State Government mentioned that the legal opinion of the

Advocate General Bihar has been obtained. However, decision

of the Sales Tax exemption proposal had been held up due to

53

the Election. It was now expected to be taken up in December,

1999. The financial institutions stated that they would

consider granting reliefs only after grant of Sales Tax

exemptions by the State Government of Bihar.

55.Thereafter by letter dated 02.10.1999, the State

Government informed the financial institutions as under:-

“The State Government has since decided to

notify the provisions of providing Sales Tax

benefits to “Sick Units” and potentially viable

non-BIFR sick units in the meeting of the

Economic Sub-Committee held on November

30,1999. We shall forward a copy of the

notification as soon as it is gazetted….”

56. From the above it becomes apparent that the State

Government had been consistently giving assurances not only

to the Company but also to the financial institutions that the

necessary Sales Tax exemption notification will be issued. In

our opinion the Company had laid a clear, sound and a

positive foundation for invoking the doctrine of ‘promissory

estoppel’. Therefore, it is not possible to accept the

submissions made by Dr. Dhawan and Mr. Dwivedi that no

definite promises were ever made. This, however, is not the

54

end of the matter.

57.Even in the meeting held on 17.12.1999 under the

Chairmanship of the Minister for Water Resources and

Industry, Bihar the problems being faced by the Company

were discussed. It was pointed out by the Industrial

Development Commissioner that future of thousands of people

is linked with the Company and, therefore, positive

cooperation of financial institutions/bank is desirable for its

rehabilitation. The Chairman of the Company was invited to

apprise the meeting of the financial and other difficulties. It

was accepted by the whole-time Director of IFCI, Mr. Ganguly

that the financial institutions have always been supporting the

Company and will support in the future. It was also stated by

him that in the Industrial Policy, 1995 there is a provision of

giving Sales Tax exemption for 8 years to a sick company.

However, the Company had asked for the above facility only

for 5 years. So far as the viability of the Company is

concerned, it was stated to have already been established.

After hearing all the concerned parties, the Minister mentioned

that the Government of Bihar is very keen for rehabilitation of

55

the Company and that all possible support will be provided for

implementation of the rehabilitation package prepared by

financial institutions. So far as the Sales Tax relief is

concerned, it was stated that “a decision will be taken in a day

or two and the notification relating therewith will be issued by

2

nd

week of January, 2000….”. With this assurance a

consensus had emerged among the financial institutions and

the Banks that if the Government implements the Industrial

Policy, 1995 in its true spirit particularly on the issue relating

to deferment/ exemption Sales Tax, the financial institutions

and Banks will give their full cooperation. A number of very

important decisions were taken in the aforesaid meeting.

Decision No.4 was that “State Government will ensure that the

notification regarding Sales Tax exemption is issued by the 2

nd

week of January, 2000”.

58.On 25

th

January, 2000, the State Government informed

the lead institution (IFCI) that the matter was discussed in the

Cabinet Sub-Committee and draft notification was approved

therein. It was further pointed out that due to ensuing

Assembly Elections, it was being examined whether it was a

56

violation of Model Code of Conduct or not. Once it is sorted

out, action will be taken in this regard. Again vide letter dated

31.03.2000, the State Government informed the IFCI that the

matter was delayed due to election and the necessary

notification shall be issued soon. There was another meeting

held on 29.05.2000 under the Chairmanship of the Minister of

Industries on problems faced by the Company. The meeting

recorded as follows:-

“After intense discussion in the meeting, the

following decisions were taken:

1. Under the Industrial Policy, 1995 the

Commercial Tax Department shall

immediately issue the matching

notification to provide the facility of

exemption/deferment from Sales Tax to be

potentially sick and closed units.

2. The Forest and Environment Deptt. Will

take necessary steps immediately to take

out the Limestone bearing areas from the

Kaimur Wild Life Sanctuary and for grant

of Mining Leases to KCL so that the

Limestone availability to the Company is

ensured uninterruptedly and thousands of

workers working are saved from

unemployment (given Forest and

Environment Deptt.)”

59.All the aforesaid material would lead to a conclusion that

57

the Company as well as the financial institutions were entitled

to rely upon the repeated assurances given by the State

Government. However, since the promised notification was

not forthcoming, the Company was constrained to file the writ

petition.

60.Before the High Court the Company had claimed that it

was eligible to avail Sales Tax incentive for a period of 8 years

under clause 22(ii) of the 1995 Policy. This incentive was

necessary for the revival of the Unit. It has been found to be

eligible for exemption at the highest level of the Government.

The State Government had held out clear and unequivocal

assurances and promises to the Company as also the financial

institutions with the necessary Notification under Clause 24 of

the Industrial Policy, 1995 would be issued. The

assurances/promises are contained in official documents. It

was, therefore, submitted that the Government cannot be

permitted to resile from the representations.

61.During the course of the proceedings in the writ petition,

the State Government in its supplementary affidavit dated

05.12.2000 filed on behalf of respondent No.4 (i.e. Secretary-

58

cum-Commissioner, Commercial Taxes Department) again

categorically reiterated that “the Hon’ble Minister, Department

of Commercial Taxes has approved the proposals along with

draft notification regarding extension of Sales Tax related

incentives to sick industrial units……”. It had been submitted

to the Chief (Finance) Minister on 18.11.2000. It shall be

possible to issue necessary notification after approval of the

proposal by the Chief (Finance) Minister. Having made the

aforesaid statements in an affidavit before the High Court, the

Government has resiled from the unequivocal representations

in the decisions dated 06.01.2001 and 05.03.2001. Therefore,

strong reliance was placed on clauses 22 and 24 of the 1995

Policy and the doctrine of ‘promissory estoppel’ in support of

the plea that the action of the State Government in issuing

orders dated 06.01.2001 and 05.03.2001 are wholly arbitrary

and unjust.

62.In reply, it was contended that the decision dated

06.01.2001 had been taken for the four reasons stated earlier.

It was further stated that the decisions taken in the meeting of

the Cabinet held on 05.03.2001 was upon thoughtful and due

59

consideration of all the relevant factors. Taking into

consideration the totality of the circumstance, a policy

decisions had been taken that notification relating to the Sales

Tax incentive be not issued. Therefore, the Company was not

entitled to any relief. It was on consideration of the entire

matter that the High Court concluded as follows:-

“When the State Government gives an

assurance and undertaking, in form of a policy

then in fact it allures person/industries to enter

into the individual ventures, invest money on

the assurances contained in the policy, would it

be justified on the part of the State Government

to say later on that on a second thought they

were withdrawing the policy and the benefits

flowing from that policy? We are unable to

agree to this argument.”

63.We are of the opinion that the aforesaid conclusion

reached by the High Court is based on due consideration of

the material placed before it. We see no reason to differ with

the opinion expressed by the High Court. We are unable to

accept the submissions made by Dr. Dhawan and Mr. Dwivedi

that no clear-cut assurances were held out to the Company.

We are also unable to accept the submissions of Mr. Dwivedi

that the Company has failed to place on the record sufficient

60

material to establish that unequivocal promises and

representations had been made by the appellant to the

Company by word and by conduct.

64.In our opinion, the matter is squarely covered by the

observations made by this Court in the Mangalore

Chemicals (supra) “There is, as set out earlier, no dispute that

the appellant was entitled to the benefit of the Notification

dated June 30, 1969. There is also no dispute that the refunds

were eligible to be adjusted against sales tax payable for

respective years. The only controversy is whether the

appellant, not having actually secured the “prior permission”

would be entitled to adjustment having regard to the words of

the Notification of August 11, 1975, that “until permission of

renewal is granted by the Deputy Commissioner of Commercial

Taxes, the new industry should not be allowed to adjust the

refunds”. The contention virtually means this: “No doubt you

were eligible and entitled to make the adjustments. There was

also no impediment in law to grant you such permission. But

see language of clause 5. Since we did not give you the

permission you cannot be permitted to adjust.” Is this the effect

61

of the law?

“10. The sales tax already paid by the appellant on the

raw materials procured by it is the subject matter of the

refunds. The sales tax against which the refund is sought to be

adjusted is the sales tax payable by appellant on the sales of

goods manufactured by it. If the contention of the Revenue is

correct, the position is that while the appellant is entitled to the

refund it cannot, however, adjust the same against current

dues of the particular year but should pay the tax working out

its refunds separately. The situation may well have been such

but the snag comes here. If the adjustments made by the

appellant in its monthly statements are disallowed, the sales

tax payable would be deemed to be in default and would

attract a penalty ranging from 1 1/2 per cent to 2 1/2 per cent

per month from the date it fell due. That penalty, in the facts of

this case, would be very much more than the amounts of

refund.”

“11. What emerges from the undisputed facts is that

appellant was entitled to the benefit of these adjustments in the

62

respective years. It had done and carried out all that was

necessary for it to do and carry out in that behalf. The grant of

permission remained pending on account of certain outstanding

inter-departmental issues as to which of the departments — the

Department of Sales Tax or the Department of Industries —

should absorb the financial impact of these concessions.

Correspondence indicates that on account of these questions,

internal to administration, the request for permission to adjust

was not processed.”

“22……There is no dispute that appellant had satisfied

these conditions. Yet the permission was withheld — not for

any valid and substantial reason but owing to certain

extraneous things concerning some inter-departmental

issues. Appellant had nothing to do with those issues.

Appellant is now told, “We are sorry. We should have given

you the permission. But now that the period is over, nothing

can be done”. The answer to this is in the words of Lord

Denning:

4

“Now I know that a public authority cannot be

estopped from doing its public duty, but I do think it can be

63

estopped from relying on a technicality and this is a

technicality”.

23. Francis Bennion in his Statutory Interpretation, (1984

edn.) says at page 683:

“Unnecessary technicality: Modern courts seek to cut

down technicalities attendant upon a statutory

procedure where these cannot be shown to be

necessary to the fulfillment of the purposes of the

legislation.”

65.The law with regard to the applicability of the doctrine of

promissory estoppel was again comprehensively considered by

this Court in the case of Nestle India (supra). Ruma Pal, J.

speaking for the Bench observed as follows:-

“24. But first a recapitulation of the law on the

subject of promissory estoppel. The foundation of

the doctrine was laid in the decision of

Chandrasekhara Aiyar, J. in Collector of Bombay v.

Municipal Corpn. of the City of Bombay………….”

“……….Chandrasekhara Aiyar, J. concurred with

the conclusion of Das, J. but based his reasoning on

the fact that by the resolution, representations had

been made to the Corporation by the Government

and the accident that the grant was invalid did not

wipe out the existence of the representation nor the

64

fact that it was acted upon by the Corporation.

What has since been recognised as a signal

exposition of the principles of promissory estoppel,

Chandrasekhara Aiyar, J. said: (AIR p. 476, paras

21 & 22)

“The invalidity of the grant does not lead to the

obliteration of the representation.

Can the Government be now allowed to go back

on the representation, and, if we do so, would it not

amount to our countenancing the perpetration of

what can be compendiously described as legal fraud

which a court of equity must prevent being

committed. If the resolution can be read as meaning

that the grant was of rent-free land, the case would

come strictly within the doctrine of estoppel

enunciated in Section 115 of the Evidence Act. But

even otherwise, that is, if there was merely the

holding out of a promise that no rent will be charged

in the future, the Government must be deemed in the

circumstances of this case to have bound themselves

to fulfil it. … Courts must do justice by the promotion

of honesty and good faith, as far as it lies in their

power.”

“25. In other words, promissory estoppel long

recognised as a legitimate defence in equity was

held to found a cause of action against the

Government, even when, and this needs to be

emphasised, the representation sought to be

enforced was legally invalid in the sense that it

was made in a manner which was not in conformity

with the procedure prescribed by statute.”

“26. This principle was built upon in Union

of India v. Anglo Afghan Agencies where it was

said (SCR at p. 385): (AIR p 728, para 23)

65

“23. Under our jurisprudence the Government is

not exempt from liability to carry out the

representation made by it as to its future conduct

and it cannot on some undefined and undisclosed

ground of necessity or expediency fail to carry out

the promise solemnly made by it, nor claim to be

the judge of its own obligation to the citizen on an

ex parte appraisement of the circumstances in

which the obligation has arisen.”

xxxx xxxx xxxx xxxx

“44. Of course, the Government cannot rely on a

representation made without complying with the

procedure prescribed by the relevant statute, but a

citizen may and can compel the Government to do

so if the factors necessary for founding a plea of

promissory estoppel are established. Such a

proposition would not “fall foul of our

constitutional scheme and public interest”. On the

other hand, as was observed in Motilal Padampat

Sugar Mills case and approved in the subsequent

decisions: (SCC p. 442, para 24)

“It is indeed the pride of constitutional

democracy and rule of law that the Government

stands on the same footing as a private individual

so far as the obligation of the law is concerned: the

former is equally bound as the latter. It is indeed

difficult to see on what principle can a Government,

committed to the rule of law, claim immunity from

the doctrine of promissory estoppel.”

“46. ………..The facts in the present case are

similar to those prevailing in Godfrey Philips. There

too, as we have noted earlier, the statutory

provisions required exemption to be granted by

notification. Nevertheless, the Court having found

that the essential prerequisites for the operation of

66

promissory estoppel had been established, directed

the issuance of the exemption notification.”

66.In Petrochemical (supra), this Court has clearly

reiterated the promissory estoppel would apply where a party

alters his position pursuant to or in furtherance of the promise

made by a State. It is also clearly held that such a policy

decision can be expressed in notifications under statutory

provisions or even by executive instructions. Whenever the

ingredients for invoking the principle of promissory estoppel

are established, it could give rise to a cause of action. Not only

may it give rise to a cause of action but would also preserve a

right. The relevant observations are as under:-

“121. The doctrine of promissory estoppel would undoubtedly

be applicable where an entrepreneur alters his position

pursuant to or in furtherance of the promise made by a State to

grant inter alia exemption from payment of taxes or charges on

the basis of the current tariff. Such a policy decision on the part

of the State shall not only be expressed by reason of

notifications issued under the statutory provisions but also

under the executive instructions. The appellants had

67

undoubtedly been enjoying the benefit of (sic exemption from)

payment of tax in respect of sale/consumption of electrical

energy in relation to the cogenerating power plants.”

“122. Unlike an ordinary estoppel, promissory estoppel gives

rise to a cause of action. It indisputably creates a right. It also

acts on equity. However, its application against constitutional or

statutory provisions is impermissible in law.”

“130. We, therefore, are of the opinion that doctrine of

promissory estoppel also preserves a right. A right would be

preserved when it is not expressly taken away but in fact has

expressly been preserved.”

67.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

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

of India. It was held that the action of the State must be fair.

68

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. CTO

21

. 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. 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 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 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

69

not require the fulfilment of the expectation

where an overriding public interest requires

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)

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 test to apply in such cases is to see

whether there is any discernible principle

emerging from the impugned action and if so,

70

does it really satisfy the test of

reasonableness.” (emphasis supplied)”

“39. MRF made a huge investment in the State of

Kerala 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 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.”

68.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 Motilal Padampat (supra) that the

Government cannot, claim to be exempt from liability to carry

out the promise, on some indefinite and undisclosed ground of

71

necessity or expediency. The Government is required to place

before the 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

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

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 the discontinuance of the Sales Tax

72

exemptions from 01.01.2000 could not have affected the rights

of the Company under the Industrial Policy, 1995. Necessary

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.

69.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.

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

73

measures and to render all possible assistance

for the amelioration of this malaise.

22.1. INDUSTRIAL SICKNESS IN SSI SECTION

The State Government proposes to take

the following measures for the revival of SSI

units:

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

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.

74

v.The Apex Body shall monitor the progress

of the revival package.

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

representatives of Government Department/

Organisations/ financial institutions will also

have its members one representative each of

confederation of Indian Industries, Bihar

Industries Association and Bihar Chamber of

Commerce.

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

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 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 Secretary for final decision.

75

ii.Concessions and facilities identified under

the Scheme of rehabilitation prepared by

the Board for Industrial and Financial

Reconstruction (BIFR) or by Inter-

Institutional 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.

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

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 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 on case to case basis as required.

23.Definition(s) given in the Annexure form(s)

part of the policy.

24. MONITORING AND REVIEW

76

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.

The State Government may carry out Mid

Term Review of this Policy.”

70. A perusal of the aforesaid policy clearly shows that the

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 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 Committee was to recommend concessions

and facilities which were considered necessary for revival of

the unit. The Company was, therefore, eligible under the

77

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:

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 for SSI or the High Level

Empowered Committee headed by the Chief

Secretary for large and medium sector.”

71. The aforesaid definition makes it abundantly clear that

the sickness of the Company could also be decided by the

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

78

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 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.

72. For the same reason we are unable to accept the

submissions of the learned senior counsel for the appellant

that no relief can be granted to the Company as the Policy has

79

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.

73. 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

80

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 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

81

passing of the orders dated 06.01.2001 and 05.03.2001 is

seriously flawed, therefore, the same have been justifiably

quashed by the High Court.

74.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.

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 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.”

75. It is not in dispute for us that pursuant to the aforesaid

directions the appellant has issued the Notification No. SO-

82

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 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 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.

76. 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

83

application was not finally disposed of, even though the

pleadings were complete.

77. 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.

78. During the interregnum the company has been collecting

the amount equivalent to the tax from the consumers.

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.

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

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financially. 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 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 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.

79. We have considered the submissions made by the

learned counsel. It would be not possible to accept the

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

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company. In Amrit Banaspati case (supra) it has been held

that exemption and refund of tax are two different legal and

distinct concepts. The objective 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 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.

80. 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.

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

82. 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

above.

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....……….………………………. J

(TARUN CHATTERJEE)

...………………………………… J

(SURINDER SINGH NIJJAR)

NEW DELHI

JANUARY 08, 2010.