KOTHARI OIL PRODUCTS COMPANY, RAJKOT v. STATE — 1981 DIGILAW 114 (GUJ)

B. J. DIVAN, J. ( 1 ) THE first petitioner before us is a partnership firm and the second petitioner is one of the partners of the first petitioner firm. The firm carries on business of manufacture of Vanaspati ghee edible oil de-oiled cakes cotton seed oil cotton lints and cotton seed oil extraction and for that purpose it has set up a factory at Jetpur Road Gondal in Rajkot District. The petitioner firm went into production and started its factory for the purpose of manufacturing Vanaspati ghee somewhere in the month of February 1972 in the industrially backward area of Gondal in the District of Rajkot. The said factory of the petitioner firm is also registered and a licence to that effect has been secured by the petitioner firm under the provisions of the Factories Act. Somewhere in the end of 1972 the petitioner firm started its oil mill in the same pre- mises for the purpose of procuring raw material for manufacturing Vanaspati Ghee. In this oil mill the petitioner firm used to crushing groundnuts and therefrom the raw material namely groundnut oil for the manufacture of Vanaspati ghee was obtained. Thus by setting up the oil mill the petitioner were starting what may be called a vertical integration. Somewhere in the year 1973 the petitioner firm erected cotton seed plant and the said cotton seed plant was for the manufacture of cotton seed oil by crushing cotton seeds. At that time the Government of India had started giving rebate in connection with excise duty on usage of non- traditional oil like indigenous cotton seed oil in the manufacture of Vanaspati ghee. In the year 1974 the petitioner firm erected a solvent extraction plant for maximum recovery of oil from oil cakes. All these activities namely manufacture of Vanaspati ghee extraction of groundnut oil extraction of cotton seed oil and solvent extraction plant are fully carried on in the same premises as before by the petitioners. During the year 1977-78 there was a heavy shortage of edible oil in Gujarat and the Central Government banned the use of groundnut oil in the manufacture of Vanaspati ghee in order to encourage use of minor oil seeds like cotton seeds soyabeen seeds rice-bran etc. During the year 1977-78 there was a heavy shortage of edible oil in Gujarat and the Central Government banned the use of groundnut oil in the manufacture of Vanaspati ghee in order to encourage use of minor oil seeds like cotton seeds soyabeen seeds rice-bran etc. As a result of this encourage- ment the first petitioner firm was compelled to stop its activities of using groundnut oil for the purpose of manufacturing Vanaspati ghee and thus at present the petitioner firm is mainly engaged in the activities of processing minor oil seeds like cotton seeds for the purpose of manu- facturing Vanaspati ghee. The State of Gujarat issued two resolutions simultaneously both dated 22/12/1977 They are annexed as Annexure A collectively to the petition in this special civil application. Under the first resolution which is part of Annexure A Government made available incentive benefit of cash subsidy for various industrial units in developing areas of the State of Gujarat. It is the petitioners contention that the cash subsidy as mentioned in the resolution of 22/12/1977 is available to the first petitioner firm. It may be pointed out out that no time limit was laid down so far as the cash subsidy part of it was concerned under the resolution of 22/12/1977 which is the first resolution in Annexure A to the petition. The other two benefits which were mentioned in the other resolution of 22/12/1977 were a tax-free loan for the purpose of paying sales-tax by the units entitled to the benefit of the resolution and the other benefit was an exemption from sales-tax. Under clause 6 of the resolution of 22/12/1977 which may be called the sales-tax resolution it was pointed that the industries which were set out in clause 6 were to be excluded from the purview of this scheme Mr. Trivedi learned advocate appearing for the petitioners states that the petitioner firm would be falling within items 12 and 13 of the list of the excluded industries and therefore so far as the scheme for the exemption from sales-tax was concerned he is not claiming any relief against the State Government. As regards the scheme for interest-free sales-tax loans that scheme is to be found set out in clauses 8 to 14 both inclusive of the second resolution part of Annexure A to the petition. As regards the scheme for interest-free sales-tax loans that scheme is to be found set out in clauses 8 to 14 both inclusive of the second resolution part of Annexure A to the petition. Both the schemes namely the scheme for exemption from sales-tax and the scheme for tax-free sales- tax loans were to be in operation for a period of five years from 1/11/1977. In paragraph 5 of the petition it has been mentioned that in the month of February 1978 the first petitioner firm diversified its activities by starting manufacturing cotton lints by erecting a delinting plant and the said process of delinting of cotton seeds for the purpose of the recovery of cotton lints therefrom was amongst first few to be adopted in the State of Gujarat. They have further submitted that the aforesaid expansion was done by the petitioner company with an intention to get the aforesaid two incentive benefits namely cash subsidy and interest-free sales-tax loan though the cost for the said expansion was very high. Thus there is a specific case of the petitioners that relying on the two resolu- tions both dated 22/12/1977 collectively marked Annexure A they have erected the plant by spending a considerable amount in that behalf. So far as the cash subsidy is concerned it may be pointed out that it was recognised that the cotton delinting plant of the first petitioner firm was entitled to cash subsidy under the provisions of the first scheme and by Annexure C to the petition the decision of the State level Com- mittee in its 34th Meeting held on 27/02/1979 had sanctioned cash subsidy of Rs. 6 43 891 to the first petitioner firm and it was mentioned in that document Annexure C which is dated 13/03/1979 that amount of Rs. 42 92 0 was the accepted capital investment in the proposed unit of cotton delinting plant. It appears that out of this amount of 6 43 891 an aggregate amount of Rs. 5 79 828 has admit- tedly been received by the petitioners and the balance of Rs. 64 63 has yet to be received from the Government. The General Manager of the District Industrial Centre Rajkot has by Annexure G to the petition certified on 2/01/1980 that the cotton delinting plant of the petitioners is a new plant. 5 79 828 has admit- tedly been received by the petitioners and the balance of Rs. 64 63 has yet to be received from the Government. The General Manager of the District Industrial Centre Rajkot has by Annexure G to the petition certified on 2/01/1980 that the cotton delinting plant of the petitioners is a new plant. ( 2 ) THE Government of Gujarat passed a resolution on 26/09/1979 stating that the State Government had decided to reserve the edible oil industry including manufacture of Vanaspati for the co-operative sector and in the context of that policy of encouraging co-operative societies in the field of manufacture of edible oils the entire matter was under consideration of the Government and it was decided after considerable deliberation that to the units falling outside co-operative sector the benefits of the two resolutions of 22/12/1977 for the manufacture of edible oils and manufacture of Vanaspati would not be available to such units falling outside the co-operative sector. It was stated that this order of 26th September 1979 would be enforced immediately. In the case of private units in whatever cases benefits have been sanctioned cash subsidy which has already been sanc- tioned was to be paid but after the date of the resolution 26/09/1979 any further cash subsidy or exemption from sales-tax or interest- free sales-tax loans would not be available and no further amount under any of the three heads and incentives for such units would be available. It was further mentioned in the resolution that in the case of those units whose cases were not sanctioned no benefit whatsoever either by way of cash subsidy or by way of exemption from sales-tax or by way of interest-free sales-tax loans would be sanctioned thereafter. That document is Annexure H to the petition. Annexure I to the petition is by way of an explanation to the resolution of 26/09/1979 and by the resolution Annexure I dated 27/02/1980 it was clarified that the three types of edible oils namely groundnut oil cotton seed oil and castor oil and the industry of Vanaspati manufacture were to be reserved for co-operative sector and it was further decla- red that for the units falling outside the co-operative sector so far as the above-mentioned reserved areas Were concerned the benefits of the schemes set out in the resolution of 22/12/1977 would not be available to those private sector units. ( 3 ) IN the affidavit-in-reply of C. N. Shah. Additional Commissioner of Industries Stare of Gujarat being the affidavit dated 14/07/1981 so far as the remaining amount of cash subsidy is concerned the deponent says that the Government is prepared to pay the amount pro- vided the formalities for the obtaining of that cash subsidy are complied with. Mr. Trivedi for the petitioners is agreeable that on complying with the necessary formalities the balance of the cash subsidy may be made available to them. As regards the exemption from sales-tax there is no claim on behalf of the petitioners and as regards the claim for interest- free sates-tax loans the case of the Government is that because the cotton seed delinting plant of the petitioners falls in items 12 and 13 of clause 6 of the second resolution of 22/12/1977 the petitioners are not entitled to interest-free sales-tax loans. Now this contention urged on behalf of the Government in the affidavit-in-reply is utterly untenable. From the two schemes under the second resolution of 22/12/1977 one scheme is for exemption from sales-tax and the other scheme is for interest-free sales-tax loans. Clause 6 of the resolution which sets out the list of the excluded industries is only in the context of the scheme from exemption from sales-tax and not as regards the scheme for interest-free sales-tax loans. Yet according to the affidavit-in-reply the petitioners are not entitled to the benefit of the scheme for interest-free sales tax loans though under the notification of 22/12/1977 the scheme was to remain in force for the period of five years from 1/11/1977. ( 4 ) MR. Trivedi for the petitioners has relied upon the doctrine of promissory estoppel and contended that inasmuch as a large sum of nearly forty-three lacs rupees has been invested by the petitioners in their cotton delinting plant relying on the assurance of the State Government the benefit of the incentive set out in the two resolutions of 22/12/1977 would be available to them. According to him it is now not open to the State Government to resile from the two schemes and tell the petitioners that they will not be entitled to interest-free sales-tax loans. ( 5 ) THE doctrine of promissory estoppel was considered by the Supreme Court in M/s. JIT RAM SHIV KUMAR V. THE STATE OF HARYANA A. I. R. 1980 S. C. 1285. ( 5 ) THE doctrine of promissory estoppel was considered by the Supreme Court in M/s. JIT RAM SHIV KUMAR V. THE STATE OF HARYANA A. I. R. 1980 S. C. 1285. The Bench which disposed of this matter consist- ing of two learned Judges namely Fazal Ali and Kailasarn JJ. and Kailasam J. speaking for the Supreme Court summed up the legal position as follows in paragraph 39 of the judgment at page 1302. The position has been culled out after examination of all the relevant decisions having bearing on the point and the principles laid down are as follows:" (1) The plea of promissory estoppel is not available against the exercise of the legislative functions of the State. (2) The doctrine cannot be invoked for preventing the Government from discharging its functions under the law. (3) When the officer of the Government acts outside the scope of his authority the plea of promissory estoppel is not available. The doctrine of ultra vires will come into operation and the Government cannot be held bound by the unauthorised acts of its officers. (4) When the officer acts within the scope of his authority under a scheme and enters into an agreement and makes a representation and a person acting on that representation puts himself in a disadvantageous position the Court is entitled to require the officer to act according to the scheme and the agreement or represen- tation. The officer cannot arbitrarily act on his mere whim and ignore his promise on some undefined and undisclosed grounds of necessity or change the conditions to the prejudice of the person who had acted upon such representation and put himself in a disadvantageous position. (5) The officer would be justified in changing the terms of the agreement to the prejudice of the other party on special considerations such as difficult foreign exchange position or other matters which have a bearing on general interest of the The position was again reiterated in more or less the same terms in paragraph 50 at page 1305;"on a considerations of the decisions of this Court it is clear that there can be no promissory estoppel against the exercise of legislative power of the State. So also the doctrine cannot be invoked for preventing the Government from acting in discharge of its duty under the law. So also the doctrine cannot be invoked for preventing the Government from acting in discharge of its duty under the law. The Government would not be bound by the act of its officers and agents who act beyond the scope of their authority and a person dealing with the agent of the Government must be held to have notice of the limitations of his authority. The Court can enforce compliance by a public authority of the obligation laid on him if he arbitrarily or on his mere whim ignores the promises made by him on behalf of the Government It would be open to the authority to plead and prove that there were special considerations which necessitated his not being able to comply with his obligations in public interest". ( 6 ) IT may be pointed out that there is a decision earlier to the decision in M/s. Jit Rams Case (supra) and it is a decision by a Bench of three Judges of the Supreme Court in the case of BHIM SINGH AND OTHERS V. STATE OF HARYANA AND OTHERS A. I. R. 1980 S. C. 768. In that case the State Government held out certain specific promises as induce- ments for its employees to move into a newly created department and the Supreme Court held applying the doctrine of promissory estoppel that the employees having believed the representations of the State Government and having acted thereon could not be denied the rights and benefits promised to them. Under these circumstances it is clear that even in the field of purely executive functions of the State the doctrine of promissory estoppel has been applied by a Bench of three Judges of the Supreme Court. Under these circumstances it is clear that even in the field of purely executive functions of the State the doctrine of promissory estoppel has been applied by a Bench of three Judges of the Supreme Court. Though the decision in Bhim Singhs case (supra) was delivered on 24/07/1979 and the decision in M/s. Jit Rams case (supra) was delivered on 16/04/1980 the decision in Bhim Singhs case is not considered in the case of M/s Jit Rams case but the principle so far as the instant case is concerned is the same namely that if the Government or any authority on behalf of the Government has made a representation and acting on that representation on a party has altered its situation then it is not open to the Government to resile from that position and at the instance of the party who has altered its situation to its disadvantage the Court is entitled to direct the Government the authority to carry out its premises or its scheme. ( 7 ) MR. Mehta for the respondent State has relied on certain obser- vations of a Bench consisting of Goswami Jaswant Singh and Kailasam JJ. in THE BIHAR EASTERN GANGETIC FISHERMEN CO-OPERATIVE SOCIETY LTD. V. SIPAHI SINGH AND OTHERS A. I. R. 1977 S. C. 2149. There it was pointed by Jaswant Singh J. speaking for the Supreme Court that there could not be any estoppel against the Government in exercise of its sovereign legisla- tive and executive functions. The decision in The Bihar Eastern Gangetic Fishermen Co-operative Societys case (supra) was thus explained by Kailasam J. in M/s. Jit Rams case (supra) at page 1300. . ". . THIS Court held that the respondent could not invoke the doctrine of promissory estoppel because he was unable to show that relying on the representation of the Government he had altered his position to his prejudice. The Court accepted the view of this Court expressed in Ram Kumars case (A. I. R. 1976 S. C. 2237) and held that there cannot be any estoppel against the Government in the exercise of its sovereign legislative or executive functions". The legal position being very clear in the light of proposition No. (4) and in the light of the last portion of paragraph 50 in M/s Jit Rams case (supra) in the instant case since the petitioners have been that they have spent nearly Rs. The legal position being very clear in the light of proposition No. (4) and in the light of the last portion of paragraph 50 in M/s Jit Rams case (supra) in the instant case since the petitioners have been that they have spent nearly Rs. 43 0 0 in the setting up of the cotton delinting plant after February 1978 relying on the schemes set out in the two notifications of 22/12/1977 it is now not permissible to the State authorities to back out of the schemes and to say that the peti- tioners will not be entitled to the benefits of the schemes set out in the said resolutions under which they are eligible to obtain the benefits. We have pointed out that as regards the cash subsidy there is no dispute now left between the parties. As regards exemption from sales-tax the petitioners do not claim the same and the dispute now remains only as regards interest-free sales-tax loan. Since the doctrine of promissory estoppel would very much apply in the instant case Government is estopped for a period of five years from 1/11/1977 from denying the benefits of the scheme for interest-free sales-tax loan to the first petitioner firm so far as its cotton delinting plant is concerned. We therefore hold that the resolution of 26/09/1979 in so far as it purports to take away the benefits of interest-free sales-tax loan from the petitioners is not applicable in the case of the petitioners and cannot be allowed to apply as against the petitioners. That resolution is Anne- xure `h to the petition. This special civil application is therefore allowed and the respondents are directed not to apply the impugned resolutions dated 26/09/1979 and 27/02/1980 to the interest-free sales-tax loans for which the petitioners are eligible for a period of five years from 1/11/1977 in respect of their cotton delinting plant. The special civil application is allowed accordingly. Rule is made absolute to that extent. The respondents must pay the costs of this special civil application to the petitioners. Petition allowed. .