http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 12  

CASE NO.: Appeal (crl.)  410 of 1997

PETITIONER: State (Union of India)                                   

RESPONDENT: Ram Saran                                                

DATE OF JUDGMENT: 04/12/2003

BENCH: DORAISWAMY RAJU & ARIJIT PASAYAT. @ J U D G M E N T

ARIJIT PASAYAT,J

       Questioning conviction made by the Assistant Commandant of Central  Reserve Police Force (in short the ’CRPF’) made under Section 10(m) of  the Central Reserve Police Force Act, 1949 (in short the ’Act’) and  consequential sentences imposed, the respondent filed an appeal before  the Sessions Judge, Solan and Sirmaur. The Sessions Judge held that the  Assistant Commandant had no jurisdiction to record conviction and impose  sentence. The said judgment was questioned before the High Court of  Himachal Pradesh by a revision petition filed by the Union of India. The  revision was also dismissed. Both the Sessions Judge and the High Court  held that the Assistant Commandant, III Battalion, ITBP, Nahan could not  have exercised powers of Judicial Magistrate Ist Class and, therefore,  the trial and conviction of the accused-respondent were illegal. The  High Court held that combined reading of Sections 11, 12 and 13 of the  Code of Criminal Procedure, 1973 (in short the ’Code’) clearly rule out  the appointment of any person exercising powers of Judicial Magistrate,  Ist Class in the absence of conferment of powers by the High Court.  This, according to the Sessions Judge and the High Court stemmed from  the fact that there was separation of judiciary from the Executive in  1973 and thereafter the powers of appointment and conferment for  functioning as Judicial Magistrate either of First Class or Second Class  could only be done by the High Court and the Central Government or the  State Government had no power to invest any person with powers of  Judicial Magistrate of any class. Reference was also made to Section 5  of the Code and observed that the expression "in the absence of a  specific provision to the contrary" used therein did not render Section  16(2) of the Act redundant.           At this juncture, it would be necessary to take note of the  factual position.  

       The respondent while functioning as a Constable (Sweeper) in the  III Battalion, ITBP, Nahan did not join duty after expiry of the leave  granted to him. Though he was granted leave for the period from 9.4.1987  to 24.5.1987, he did not join after expiry of the period. There was no  intimation to the competent authority or request for extension of leave.  The respondent accepted that he had stayed beyond the period of leave,  but indicated several reasons as to why the same was necessitated.  Complaint was lodged by the concerned authorities and the Assistant  Commandant exercising powers of Judicial Magistrate, Ist Class in terms  of Section 10 (m) of the Act, issued notice in terms of Section 251 of  the Code and after trial found him guilty and sentenced him to undergo  imprisonment for three months. The said order as noted above was  questioned before the Sessions Judge by the respondent and in view of  the relief granted to him by the Sessions Judge, the matter was carried  in revision by the Union of India. But the same having been rejected,  this appeal has been filed.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 12  

       In support of the appeal, learned senior counsel for the appellant  submitted that the Sessions Judge and the High Court clearly lost sight  of Section 16(2) of the Act and Rule 36 (a), (b), (e) and (f) of the  Central Reserve Police Force Rules, 1955 (in short the ’Rules’) as well  as Sections 4 and 5 of the Code. Section 16(2) of the Act clearly  indicates that notwithstanding anything contained in the Code, the  provisions of the Act could be applied. Section 4(2) of the Code permits  action under any law other than the Indian Penal Code, 1860 (for short  the ’IPC’). Section 5 refers to absence of a specific provision to the  contrary in any special or local law. The Act was a special law which  operated in a specified field. These aspects were not considered in  their proper perspective by the Sessions Judge and the High Court.  

       Per contra, learned counsel for the respondent submitted that the  Sessions Judge and the High Court were justified in interfering with the  order passed by the Assistant Commandant as he had no jurisdiction to  function and his appointment by a Notification issued by the Central  Government could not have conferred on him any power to act as a  Judicial Magistrate when the sole repository of the power to so notify  is the High Court after the Code was enacted in 1973. The position may  have been different under the Code of Criminal Procedure, 1898 (in short  the ’Old Code’), but the present position is entirely different and the  Ministry of Home Affairs’ Notification dated 25.1.1978 was really of no  consequence.

       The Courts below have overlooked certain essential and vital  aspects necessary to appreciate the relevant issues arising in their  proper perspective. Under Section 3(1) of the Act, CRPF is constituted  to be an ’armed force’ maintained by the Central Government, and  consequently it would be ’any other armed forces of the union’ as  envisaged in Entry 2 of List I of the VII Schedule to the Constitution  of India. Entry 93 of List I enables Parliament also to provide for  offences against laws with respect to any of the matters enumerated in  List I. Sections 9 and 10 create by enumerating what are stated to be  ’more heinous offences’ and ’less heinous offences’ respectively and  many of such specially created offences for the purposes of this Act  cannot constitute or amount to be offences under the ordinary criminal  law of the land.  To that extent they are new class of offences created  with punishments therefor, which are unknown to ordinary criminal law in  force.  Section 16 provides for empowering Competent Authorities in the  hierarchy of the force itself with powers or duties conferred or imposed  on a police officer of any class or grade by any law for the time being  in force and by further enacting a provision with a specific "non  obstante" clause stipulates that notwithstanding anything contained in  the Code, the Central Government may invest the Commandant or Assistant  Commandant with the powers of a Magistrate of any class for the purpose  of inquiring into or trying any offence committed by a member of the  force and punishable "under this Act" or any offence committed by a  member of the force against the person or property of another member.   Consequently, what is purported to be done by these provisions are  merely to refer to the nature and extent of powers possessed by such  authorities under the other laws being made available to the authorities  designated under this Act, for discharging their duties under this Act,  without exhaustively enumerating the details of all such powers or  without re-enacting all such provisions in detail as part and parcel of  this law \026 the Act, and not to constitute them to be or empower them as  Magistrates as such for all or any of the purposes for which Courts of  ordinary criminal justice have been constituted under the Code. Section  5 of the Code sufficiently protects the authorities empowered to  function and exercise powers under the Act, from any such challenge as  are directed against them, in this case.  The fallacy in the reasoning  of the Courts below lies in their superficial and cursory nature of  consideration undertaken therein, without reference to the competence  and powers of the Parliament to specifically and specially provide for

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 12  

trial and punishment of offences separately created under a special  enactment of Parliament, in a manner distinct and separate from the  method of trying other ordinary criminal offences under the general  criminal law of the country.                           

       At the outset, it must be noted that certain infractions which are  relatable to service broadly fall within the spectrum of disciplinary  proceedings. Section 10(m) is an infraction which though normally would  have attracted departmental proceedings, keeping in view the  essentiality of force and imminent and ever alert situation in which  with high sense of morale and duty consciousness the member of this  service is expected to be demonstrate at all times, a serious view of  the same is being taken. But the CRPF, the Army, the Navy and the Air  Force are disciplined forces and even any infraction which otherwise  would not be an offence is deemed to be an offence under certain  provisions like Section 10(m) of the Act. Unauthorised absence of an  employee staying beyond the sanctioned period of leave is not an offence  in the normal course under the ordinary criminal law of the land. But as  noted above, disciplined forces with the intention of enforcing  discipline have made them punishable considering them as offences and  have prescribed various sentences. For such particular purposes the  designated officials have been conferred with magisterial powers. The  Assistant Commandant who passed the order undisputedly acted as a  Judicial Magistrate in view of the powers conferred on him under the  Act. The conferment of such power has not been distinctly questioned and  could not have been questioned in a proceeding, appeal or a revision  under the Code. As long as the specific provision in Act exists enabling  the competent Authority to pass the order under challenge, the same will  have full force and efficacy. It is well settled that creature of any  statute cannot consider the vires of a particular provision in that  statute or any other statute as well. Exclusive power for such purposes  are vested under the Constitution of India, 1950 (in short ’the  Constitution’) only on Courts exercising powers of judicial Review under  Articles 32/226 of the Constitution alone. While exercising appellate or  revisional jurisdiction under the Code it is impermissible for any Court  to decide on the vires of the provision. That is precisely what the  Sessions Judge and the High Court have done in the present case. The  vires of a provision can only be questioned in a writ proceeding before  the Constitutional Court. That being the position, neither the Sessions  Judge nor the High Court could have found fault with the exercise of  jurisdiction by the Assistant Commandant in exercising magisterial  powers. It will also be relevant to note that in List I of Seventh  Schedule to the Constitution in Union List, Entry 2 makes the position  clear that members of CRPF are part of the armed forces of the Union  Government. The punishments to be imposed under the Act for various  offences are defined by Sections 9 and 10, which have been created by  statute. As noted earlier, they are deemed offences and in the scheme of  enforcing discipline they have been treated as infractions unbecoming of  members belonging to disciplined forces like the CRPF That being the  position, the Sessions Judge and the High Court were not justified in  holding that the Assistant Commandant had no jurisdiction to deal with  the respondent in the concerned trial.  

It would also be necessary to take note of Sections 10(m), 16(2)  of the Act and Sections 4 and 5 of the Code:  

               Act "Section 10 (m)- Every member of the Force who  absents himself without leave, or without sufficient  cause overstays leave granted to him shall be  punishable with imprisonment for a term which may  extend to one year, or with fine which may extend to  three months’ pay, or with both".

Section 16(2)- Notwithstanding anything contained in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 12  

the Code of Criminal Procedure, 1898 (5 of 1898) the  Central Government may invest the Commandant or an  Assistant Commandant with the powers of a Magistrate  of any class for the purpose of inquiring into or  trying any offence committed by member of the Force  and punishable under this Act, or any offence  committed by a member of the Force against the person  or property of another member:

       Provided that-

(i) when the offender is on leave or absent  from duty, or

       (ii)    when the offence is not connected with  the offender’s duties as a member of the Force, or

       (iii)when it is a petty offence, even if  connected with the offender’s duties as a member of  the Force,

the offence may, if the prescribed authority within  the limits of whose jurisdiction the offence has been  committed, so directs, be inquired into or tried by  an ordinary criminal court having jurisdiction in the  matter".   Code

Section 4:      Trial of offences under the Indian Penal  Code and other laws- (1) All offences under the  Indian Penal Code (45 of 1860) shall be investigated,  inquired into, tried, and otherwise dealt with  according to the provisions hereinafter contained.

       (2)     All offences under any other law shall be  investigated, inquired into, tried, and otherwise  dealt with according to the same provisions, but  subject to any enactment for the time being in force  regulating the manner or place of investigating,  inquiring into, trying or otherwise dealing with such  offences.

Section 5:Saving- Nothing contained in this Code  shall, in the absence of a specific provision to the  contrary, affect any special or local law for the  time being in force, or any special jurisdiction or  power conferred, or any special form of procedure  prescribed, by any other law for the time being in  force".

       Provisions of the Code would be applicable to the investigations,  inquiries into and trials of cases by criminal Courts of various  descriptions, being the parent statute, in the absence of any contrary  provision in any special statute or special provision excluding  jurisdiction or applicability of the Code. Sub-section (1) of Section 4  deals with offences under the IPC. Second limb of sub-section (2) deals  with the exclusion, reading ".........but subject to any enactment for  the time being in force regulating the manner or place of investigating,  inquiring into, trying or otherwise dealing with such offences". (See  Directorate of Enforcement v. Deepak Mahajan and Anr.  (1994 (3) SCC  440). In a case involving Bombay Prevention of Gambling Act, 1887 it was  held that the Act was a special law providing special procedures for the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 12  

manner or place of investigating or inquiring into the offences under  it, and therefore the provisions thereof must prevail and no provisions  of the Code can apply. (See Nilratan Sircar v. Lakshmi Narayan Ram Niwas  (AIR 1965 SC 1).

       Section 5 consists of three components, and as observed in Maru  Ram etc.etc. v. Union of India and Ors. (1981 (1) SCC 107), they are as  follows:

       "(1)    The Code covers matters covered by it;         (2)     If a special or local law exists covering  the same area, the said law is saved and will  prevail;

       (3)     If there is a special provision to the  contrary, that will override the special or local  law. A "special law", as observed in Kaushalya Rani  v. Gopal Singh (AIR 1964 SC 260), means a law enacted  for special cases, in special circumstances, as  distinguished from the general rules of law laid down  as being applicable to all cases dealt with by the  general law. The Act fits the description.  Additionally, Section 16(2) of the Act begins with a  non obstante clause relating to the Code."             

       There are parallel provisions to Section 10(m) of the Act in the  Army Act, 1950 (hereinafter referred to as the ’Army Act’). In fact  Section 39 of the Army Act deals with ’absence without leave’. The  maximum period of imprisonment may extend to three years or with such  less punishment as is mentioned in the said Act itself.  

       The inevitable conclusion is that the Assistant Commandant was  clothed with necessary jurisdiction for trial of the matter.           Residual question is what would be an appropriate sentence. It is  not disputed and rather fairly conceded that for a person in a  disciplined service like the CRPF, any act of indiscipline deserves  adequate and stringent punishment under the Act. In terms of Section  10(m) an employee who absents himself without leave or without  sufficient cause overstays leave granted to him can be punished with  imprisonment for a term which may extend to one year or with fine which  may extend to three months pay or with both. The offence has been  treated as one of "less heinous offences". More heinous offences are  provided in Section 9. The Assistant Commandant has found the  explanation given by the respondent to be not acceptable. Therefore, he  has been rightly held to have committed a less heinous offence. Taking  note of the relevant aspects, we feel the fine of two months pay which  respondent was drawing at the time when the proceedings were initiated  would meet the ends of justice. By altering the punishment we are not  belittling the gravity of offence but, in our view deterrent punishment  must be resorted to when such absence is resorted to avoid and evade  undertaking a testing or trying venture or deployment \026 essential at any  given point of time, and not as a routine in the normal course. The  appeal is allowed to the extent indicated above.           

+ 5 4617 1996   ! M/s. Sun Beverages (P) Ltd.                                           Vs. The State of Uttar Pradesh & Ors.                                     @

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 12  

November 28, 2003. # P. Venkatarama Reddi & Dr. AR. Lakshmanan.

JUDGMENT: J U D G M E N T

Dr. AR. Lakshmanan, J.

       The present appeal was filed against the judgment dated 19.05.1995  pronounced by the Division Bench of the High Court of Judicature at Allahabad by  which the writ petition of the appellant bearing No. 1607 of 1988 was dismissed.  The  writ petition was filed by the appellant to issue a writ prohibiting the respondents from  recovering Rs. 18,72,821.92 constituting cash subsidy plus interest thereon from the  appellant-Company as arrears of land revenue after quashing notice dated 15.09.1987  (Annexure 8 to the petition) and recovery certificate dated 31.10.1987 (Annexure 11 to  the petition).

The sequence of facts and events leading to the filing of this civil appeal are as  follows:- By an order dated 30.09.1982, the Government of Uttar Pradesh formulated a  scheme known as ’Capital Grant Scheme’ (hereinafter referred to as ’Scheme’) for the  grant of subsidies to various industrial units for giving an impetus to the industrialisatio n  of the backward areas i.e. zero industrial areas of the State. In the said Scheme, ’Pioneer Unit’ has been defined as :  "Such industrial units to be set up during the period from 01.10.1982 to  31.03.1985 firstly in any part of the Tehsil or at Tehsil level where no heavy  industry is established prior to 01.10.1982 and that those capital investment is  more than Rs. one crore shall be treated as a Pioneer Unit."

In view of the aforesaid incentive Scheme, Shri Rajan Sethi (since deceased)  and his wife decided to incorporate a Company for bottling of aerated waters in the  backward area of the District Agra.  The Company was incorporated under the  Companies Act on 01.10.1983 and it had entered into a franchise agreement with M/s  Campa Beverages Private Limited on 06.05.1983 for bottling various brands of aerated  waters.  For the purpose of becoming entitled to the cash subsidy under the aforesaid  Scheme, the appellant purchased land and building and made an investment of Rs.  17,11,845.95.  The Company made further investment on installing plant and machinery  in the unit.  The total investment made by the appellant in establishing this unit  amounted to Rs.1,07,78,368.34 with the location of the industrial unit in a zero industrial  area.  According to the appellant, because of the total investments made, the appellant  became entitled to cash subsidy under the aforesaid Scheme as a pioneer unit.

The aforesaid Scheme prescribed the following two conditions for grant of cash  subsidy to industrial units -  (i) That it will be a ’Pioneer Unit’ within the terms of the Scheme. (ii) That it is registered with the Director General of Technical Development. Under the Notification issued by the Government of India, in the year 1983, a  Small Scale Industry has been defined under the Industries Development Regulation  Act, 1948  as one which had made an investment of up to Rs. 20 lacs in plant and  machinery alone apart from other assets.  As a Small Scale Industry, the appellant was  liable to be registered with the Government and as a Medium Scale Industry, the  appellant was entitled to be registered with the Director General of Technical  Development (in short ’the DGTD’), Government of India.  The investment of the  appellant in the plant and machinery exceeded Rs. 20 lacs.  The DGTD was obliged to  register the appellant industry as a Medium Scale Industry since the investment in the  plant and machinery exceeded Rs. 20 lacs.  The appellant accordingly applied to the  Director General of Industries for registration and the appellant was registered on  28.11.1984 with the DGTD as a Medium Scale Industry for the manufacture of 43.2  million bottles of soft drinks per annum.  The appellant applied for cash subsidy to the  Government of U.P. as it fulfilled both the above stated conditions under the Scheme.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 12  

The Government of U.P., on 31.03.1986, sanctioned a subsidy of Rs. 15 lacs to the  appellant and this subsidy was paid to the appellant in two instalments.  An agreement  was entered into between the appellant and the respondents under which the mode and  method of the payment of subsidy of Rs. 15 lacs was prescribed.  It was covenanted :  "1(b).  That the grantee will comply with and faithfully observe all the  provisions of the said Scheme as also any other conditions imposed by the  order sanctioning the said subsidy.

(c)     That for a period of five years from the date of receiving the subsidy or  any part thereof or from the date of production starts, whichever of these  dates are earlier, the grantee will allow the officers subordinate to the Director  or any other person or persons authorised by the Director or by the State  Level Committee constituted under the said Scheme to inspect the work for  which the Special State Capital Subsidy has been given and also the machine  plant, appliances, tools, equipment for the procuring of which the grant has  been made.

(f)     That within a period of five years from the date of going into  production or of the date of receipt of the Subsidy or any part thereof  whichever of these dates are later.  The Grantee will not change the place or  location of the said Industrial Unit entirely or partly, nor enter into partnership  with anyone nor change its constitution nor will the grantee effect substantial  contractive disposal of substantial part of its total fixed capital investment  without the written prior permission of the Director.

2.      It is hereby agreed and declared by and between the parties hereto  that in any of the following cases the Director shall have the right to stop  further payment of the State Capital Subsidy and to require the Grantee to  refund the amount of subsidy already paid and the Grantee shall refund the  same forthwith together with interest at the Bank lending rate then prevailing  and in the case of Grantee’s failure to do so, the Director may recover the  same as arrears of land revenue.

(a)     Where Grantee has obtained the said Subsidy by misrepresentation  as to an essential fact or by furnishing of false information/or where his  industrial unit does not go into production;

(b)     Where the Grantee’s said industrial unit goes out of production within  five years from the date of commencement of production except in cases  where the unit remains out of production for short periods extending to six  months due to reason beyond its control such as shortage of raw material,  power, etc. or

(c)     Where the Grantee fails to furnish the prescribed statement and/or  information which it is called upon to furnish, or

(d)     If the Grantee commits a breach of any one of the covenants herein  contained or of the Provisions of the said Scheme."

Subsequent to the registration of the appellant as Medium Scale Industry, the  Government of India, by Notification dated 18.03.1985 altered the definitions of ’Small  Scale Industry’ and ’Medium Scale Industry’.  By this notification, it was provided that if  the investment of an industrial unit in plant and machinery alone (excluding other  investments) was up to Rs. 35 lacs, it was entitled to be registered as a Small Scale  Industry, but if it exceeded Rs. 35 lacs, it was entitled to be registered as Medium Scale  Industry.  In other words, the limit of investment in plant and machinery for Small Scale  Industry was increased from Rs. 20 lacs to Rs. 35 lacs.  The existing registered medium  scale industries were given option to get themselves registered as small scale  industries if they so chose within six months.  The appellant was advised to apply to the  DGTD for de-registration on the ground that its investment in plant and machinery was  less than Rs. 35 lacs in view of the revised definition of the Small Scale Industry and  the Medium Scale Industry made by the Government of India by its Notification issued  on 18.03.1985.  The appellant was advised to apply to the DGTD for de-registration  more than a year after the cash subsidy had been sanctioned and granted to the  appellant under the Scheme and much after the expiry of the option period.  By letter

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 12  

dated 04.08.1987, the DGTD cancelled the registration of the appellant as a Medium  Scale Industry and directed the appellant to approach the Director of Industries, U.P. for  registration as a Small Scale Industry.  According to the appellant, the registration could  not be cancelled as the option period of six months had already expired.  The appellant  thereupon applied for registration with the General Manager, District Industries, Agra,  for being registered as a Small Scale Industry.

On 24.09.1987, the appellant received a communication dated 15.09.1987 from  respondent No.2 calling upon the appellant to refund the cash subsidy together with  interest amounting to more than Rs.18,40,767.12 on the only ground that the unit of the  appellant was required to continue to remain a Medium Scale Industry for five years  from the date of the agreement and on account of the cancellation of its registration by  the DGTD, the appellant had caused a violation of the scheme.  It is also stated that the  power to seek refund of the subsidy is also circumscribed by clause 2 of the Agreement  dated 31.03.1986 executed between the parties.  Clause 2 of the said Agreement has  already been extracted above.                

While so the respondent without waiting for a reply from the appellant or  affording any opportunity of hearing straight away issued a recovery certificate on  31.10.1987 to the third respondent calling upon him to recover the sum of Rs. 18 lacs  and odd as arrears of Land revenue from the appellant.  The appellant thereupon made  a representation to the Government of U.P. that the said demand and subsequent  recovery order were illegal and contrary to the factual position.  As no response was  received to the aforesaid representation and as the respondents were taking recourse  to coercive processes, the appellant filed a writ petition before the High Court.   

It was contended before the High Court on behalf of the respondents that the  appellant has not faithfully observed all the provisions of the Scheme as also other  conditions imposed by the order sanctioning the scheme and that a perusal of the terms  of the scheme under which the subsidy was allowed only show that a Pioneer Unit  holding DGTD registration was eligible for subsidy under the Scheme and a combined  reading of the Scheme and the Agreement shows that the loanee that is the petitioner  (appellant) had to retain its character as a Pioneer Unit holding DGTD registration for a  period of five years to be computed from the year in which the disbursement of the  subsidy was made.  It was further submitted that after raising of the limit from Rs. 20  lacs to Rs. 35 lacs in the meanwhile, the appellant lost its DGTD registration which was  cancelled on its own application vide order dated 04.08.1987 as a result of which the  appellant was relegated to the character of a Small Scale Unit.  It was further argued by  the respondents that the inevitable consequence of the loss of the DGTD registration by  the appellant as aforesaid was that the appellant ceased to be eligible for special  subsidy paid to it under the Scheme and this indeed constituted violation of condition  No.1(b) of the Agreement.  Under such circumstances, the subsidy of Rs. 15 lacs paid  to the appellant under the Scheme as a Pioneer Unit holding DGTD registration  became recoverable by the respondents as provided in clause 2 and clause 2(d) of the  Agreement along with interest at current bank lending rate calculated from the date of  payment of subsidy till the date of recovery of the amount.

The Division Bench of the High Court held that the writ petition filed by the  appellant was bereft of merits and that the respondents are entitled to recover the  subsidy with interest as demanded.  The High Court proceeded on the basis that there  was breach of the terms granting subsidy by reason of the appellant being de- recognised by DGTD

Aggrieved by the judgment of the High Court, the above appeal has been filed.

We have perused the pleadings, the judgment under appeal, the anneuxres and  other relevant documents and, in particular, the Scheme, notice for recovery of subsidy,  certificate for recovery issued by the Commissioner and Director of Industries, U.P.,  correspondence between the appellant and the respondents, Sanction letter dated  31.03.1986, Agreement dated 31.03.1986, cancellation order of DGTD registration  dated 04.08.1987 and the proceedings issued by the Government of India in regard to  the procedure for registration of units on transfer from DGTD etc., consequent upon  revision in the definition of Small Scale Industries dated 17.01.1981 and the Notification  dated 18.03.1985.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 12  

We heard the arguments of Mr. Kailash Vasdev, learned senior counsel for the  appellant and Mr. R.K. Singh, learned counsel for the respondents.  The counsel for the  respective parties reiterated their submissions advanced before the High Court.   

On the aforesaid facts and circumstances of the case, the following questions  may arise for consideration : (1)     If an industrial unit of a Company is granted subsidy in terms of the  Scheme framed by the State Government when it fulfils all the terms and  conditions of the Scheme, is it open to the State Government to call for  refund of the subsidy at a later stage when the ’pioneer unit’ chooses to  get itself registered as a Small Scale Industry with the State Government  instead of remaining registered as a Medium Scale Industry with the  Director General of Technical Development, Government of India in  accordance with the change effected in the definition of a Small Scale  Industry and a Medium Scale Industry by the Government of India,  although it continues to remain ’pioneer unit’ and there is absolutely no  change in the control of the State Government over the unit in the  obligations, investments and assets of the pioneer unit? (2)     Whether there is any provision in the Scheme or Agreement that a  ’Pioneer Unit’ which had been granted subsidy must continue to remain  registered with the Director General of Technical Development for a  period of five years and if it does not remain registered, are respondents  1 & 2 entitled to seek refund of the subsidy? In the instant case, the following facts are not in dispute :- (1)     That both the parties to this action have entered into an Agreement;  (2)     That the Government of U.P. formulated a scheme known as ’Capital  Grant Scheme’ for the grant of subsidies to various industrial units for  giving an impetus to the industrialisation of the backward areas of the  State; (3)     That the Scheme provides for payment of subsidies to the industries  sector in the zero industrial area; (4)     That the petitioner, in fact, had set up his industrial unit in the zero  industrial area; (5)     That the industrial unit had been set up during the period from  01.10.1982 to 31.03.1985 in a backward area where no heavy industry is  established prior to 01.10.1982; (6)     That the appellant’s unit was treated as a Pioneer Unit within the terms of  the scheme and that it was registered with DGTD; (7)     That the appellant had made a total investment of Rs.1,07,78,368/- on  building, land and machinery etc. and became entitled to cash subsidy  under the Scheme; (8)     That the appellant’s unit was registered with DGTD as a Medium Scale  Industry and that the appellant had fulfilled the conditions of the scheme; (9)     That the sanction of subsidy of Rs.15 lacs to the appellant and payment  of the same in two instalments; (10)    That the Government of India has issued fresh guidelines on 18.03.1985  which provided that an industry, investment of which did not exceed Rs.  35 lacs in plant and machinery alone shall be entitled to be treated as a  Small Scale Industry; (11)    That the DGTD cancelled the registration of the appellant as a Medium  Scale Industry on 04.08.1987 and directed the appellant to approach  Director of Industries, U.P. for registration as a Small Scale Industry and  as a consequence of de-registration as a Medium Scale Industry by the  DGTD, the Government of U.P. issued notice for recovery of Rs. 15 lacs  and again called upon the appellant to refund Rs. 15 lacs as DGTD had  cancelled the registration contending that the appellant had violated  condition 1(b) of the Agreement. A resume of the aforesaid undisputed facts clearly show that there has been  absolutely no violation of any provision of the Scheme on the part of the appellant and  that the demand for the refund was wholly illegal and arbitrary.

In this background, we have also to see as to whether the grantee/appellant  complied with and observed all the provisions of the Scheme and of the covenants of  the Agreement or violated any terms of the Agreement.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 12  

We have already noticed as a result of change in the definition of Small Scale  Industry by the Development Commissioner, Government of India the industrial units  which had invested upto Rs. 35 lacs in plant and machinery was liable to be treated as  small scale industries and that it was on this ground alone, the appellant’s industrial unit   been de-registered as a Small Scale Industry but it continued to be a pioneer unit in  terms of the scheme to which the subsidy had been granted to the appellant.  In the  circumstances, the appellant stated that the question of seeking refund of the amount  from them did not arise as the appellant had not violated any terms of the Scheme or of  the Agreement.  In our view, the High Court has overlooked the aforesaid facts and  documents in this regard.

It is also pertinent to notice that subsequent to the registration of the appellant  as Medium Scale Industry, the Government of India, by Notification dated 18.03.1985  altered the definitions of Small Scale Industry and Medium Scale Industry.  By this  Notification, it was provided that if the investment of an industrial unit in plant and  machinery alone was up to Rs.35 lacs.  It was entitled to be registered as a Small Scale  Industry, but if it exceeded Rs.35 lacs, it was entitled to be registered as a Medium  Scale Industry.  In fact, the respondents could not point out that there was any change  in the investment, assets, production, land, building, plant and machinery of the  appellant and that there had been any change in the control exercised by the  respondent Nos. 1 and 2 over the appellant and its units.  There has been no change in  the obligations of the appellant.  The appellant had applied for re-registration with  DGTD as a Small Scale Industry more than a year after grant of subsidy on the advise  that in view of the revised Notification issued by the Government of India, the appellant  was liable to be registered as a Small Scale Industry.  In our opinion, the registration of  a unit as a Small Scale and Medium Scale Industry is done in pursuance of notifications  issued under the Industries Development and Regulation Act, 1951 by the Government  of India and that the subsequent cancellation of registration by DGTD on account of  change of criteria has no bearing on the status of an industrial unit as a Pioneer Unit  under the scheme framed by the State of U.P. The appellant was registered as a DGTD Unit on 21.10.1983 and the said  registration continued.  Thereafter, in the year 1985, there have been some changes in  the definition of the Small Scale Industries by the Development Commissioner,  Government of India by which the definition of a Small Scale Industries Unit has been  amended  and  the  limit  of investment in the plant and machineries has been extended  from Rs. 20 lacs to Rs. 35 lacs.  It has also been made clear that while computing the  value of the machineries, only the value of those machineries will be considered which  are directly involved in the production, while the other accessories and other  machineries which are used in the manufacturing process but are not directly involved  in the process of manufacture were not to be included for considering the unit as Small  Scale Industry unit.  In this view of the matter, even though the investment of the  appellant in the machineries was more than Rs.35 lacs, but the machineries which are  utilised for manufacturing was less than Rs.35 lacs i.e. Rs.32,15,861/-, hence the  appellant was compelled to get it registered as Small Scale Industry unit, instead of a  DGTD Unit.  Thereafter, the appellant applied for registration as Small Scale Industry  Unit and the requisite registration certificate was granted to the appellant by the  General Manager, District Industries Centre, Agra, registering the appellant as a Small  Scale Industry Unit.

It is also pertinent to notice that the respondents without issuing any show cause  notice to the appellant as to why the said recovery be not made against the appellant  and without affording any opportunity to show cause, a call notice dated 15.09.1987 has  been issued to the appellant for recovering that amount and again followed by a  recovery certificate from the office of the Commissioner and Director of Industries for  recovering the sum of Rs.18,72,821.92 as the arrears of land revenue.  In our opinion,  the entire recovery proceedings initiated against the appellant by the respondents as  arrears of land revenue is absolutely illegal and in gross violation of the principles of  natural justice.  

In this context, we may reproduce clause 13 of the Scheme which reads as  follows : "13. Recovery of Special State Capital Grant: The Director of Industry,  Uttar Pradesh shall have power to get the Special State Grant recovered  as is the recovery of land revenue is done consequent to following

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 12  

circumstances:

a)      If the Industrial Unit has obtained the State Capital Grant by  giving false facts or by submitting necessary facts in fraudulent manner.

b)      If the Unit has stopped the production work within five years of  the commencement of the production.  However, this condition of  restriction shall not be applicable to such units where the production  work has remained suspended for a short period of 6 months due to  reasons beyond its control such as sick and shortage of power etc. c)      If industrial Unit fails to provide prescribed details and information  sought for.  If Director of Industries of Uttar Pradesh could not get the  Special State Capital Grant recovered from the Unit under the normal  procedure, then he can get the amount of loan recovered as the arrear  of land revenue recovery done under the Government of Uttar Pradesh  rules.  

d)      If the Director of any Unit who has partly or fully received the  grant has to change the place of his unit or dispose of any part of  immoveable property/assets within five years from the date of start of  production.

Clause 2 of the Agreement has been extracted in paragraphs supra.

The above two clauses mentioned the circumstances under which the cash  subsidy may be recovered as arrears of land revenue.  None of the said clauses is  applicable or attracted in the instant case.  Therefore, we are of the opinion that the  entire recovery proceedings are absolutely illegal and without jurisdiction.  It is not the  case of the respondents that the appellant has practised any fraud or guilty of making of  any mis-representations in obtaining the sanction/eligibility.  The only provision which  refers for recovery of cash subsidy as arrears of land revenue is mentioned in the  above two clauses and inasmuch as none of the conditions enumerated therein is  attracted, the entire recovery of the cash subsidy as arrears of land revenue is illegal.   Even otherwise, the allegations made in the call notice for recovery of the cash subsidy  as arrears of land revenue is uncalled for.

We have carefully perused the entire Scheme which goes to show that the cash  subsidy would be granted to the unit which is a Pioneer Unit i.e. having an investment  of more than Rs. 1 crore and which has been established after 01.10.1982 and at the  time of grant of cash subsidy, the said Unit should be registered as DGTD Unit.   Nowhere it provides that the said industry should remain as a DGTD Unit for a period of  five years as mentioned in clause 4 of the call notice.  A perusal of the scheme further  goes to show that it has been provided in the scheme that the production should not be  stopped for a period of five years but it nowhere provides that the unit should remain as  a DGTD Unit for a period of five years.  In fact, the appellant had been compelled to get  the registration under the Small Scale Industries Unit on account of the change in the  definition of the Small Scale Industries Unit by the Central Government and not on  account of any inaction of the appellant.  Hence, if on account of the change in the  definition of the Small Scale Industries Unit, the appellant was de-recognised as DGTD  Unit then the appellant could not be denied the benefit of cash subsidy.   

We have already seen that clause 13 of the Scheme and clause 2 of the  Agreement has been invoked by the respondents for the recovery of the subsidy.  A  close scrutiny of the above two clauses goes to show that in the event of violation of  any conditions, the recovery will be made as arrears of land revenue and so prior to  initiating action for breach of the terms of clause 13 of the Scheme and clause 2 of the  Agreement, the opportunity ought to have been provided by the respondent No.2 to the  appellant to demonstrate whether the provisions of the Scheme and the Agreement are  violated or not and that having not done so the entire recovery proceedings initiated  against the appellant is bad for violation of principles of natural justice.

As already observed, a perusal of the pleadings would reveal that there is no  allegation regarding playing of fraud or mis-representation in obtaining the  sanction/eligibility.  The argument of the learned counsel for the respondents that the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12  

appellant on his own freewill applied for de-registration vide letter dated 12.06.1987 and  that the appellants were no more entitled to be registered under DGTD and since the  constitution of the Company had undergone change and under the changed conditions  the respondents were entitled to recover the subsidy given to the appellant cannot at all  be countenanced.

Having taken note of the aforesaid factual situation, we have no hesitation to  hold that the respondents have acted arbitrarily and contrary to the terms of the  Scheme and the Agreement and on the basis of unwarranted assumptions in seeking to  recover the amounts given as subsidy to the appellant.   

In the facts and circumstances of the aforesaid, we set aside the judgment of the  High Court impugned in this appeal and allow this appeal.  However, there will be no  order as to costs.