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

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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

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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.  

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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.”

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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

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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

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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;

ii the 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

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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

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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  5th December,  2000  to  6th  

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

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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

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(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

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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

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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 31st 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

24

Government  in  October,  2006.   This  was  rejected  by  the  

Government vide order dated 12th 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

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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  4th 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  

12th 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  

2nd 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 2nd  

week of January, 2000”.   

58. On 25th 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-

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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

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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

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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

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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  

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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  

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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

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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.

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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. CTO21. 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,  

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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

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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

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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

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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.

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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.

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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  

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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

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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

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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

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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

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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

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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-

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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

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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.