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TMI Blog2020 (12) TMI 1241X X X X Extracts X X X X X X X X Extracts X X X X ..... age investment, employment and growth, the administrative lethargy of the State apparatus is clearly a factor which will discourage entrepreneurship. The policy document held out a solemn representation. It contemplated the grant of a rebate/deduction from the payment of electricity duty not only to new units but to existing units as well who had or would set up captive power plants. The State, in the present case, held out inter alia a solemn representation in terms of Clauses 32.10 and 35.7(b) of the entitlement of the exemption for a period of five years from the date of production - The State government was evidently inclined to grant the exemption. This is not a case where due to an overarching requirement of public interest, the State government decided to override the representation which was contained in the Industrial Policy 2012. Building on Motilal Padampat [ 1978 (12) TMI 45 - SUPREME COURT ] - HELD THAT:- The policy contained a provision for monitoring and reviewing and envisaged that all departments and organizations would issue a follow-up notification to give effect to the policy within one month. This was similar to Clause 38(b) of the policy in the present case. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having held out a solemn representation in the above terms, it would be manifestly unfair and arbitrary to deprive industrial units within the State of their legitimate entitlement. The State government did as a matter of fact, issue a statutory notification Under Section 9 but by doing so prospectively with effect from 8 January 2015 it negated the nature of the representation which was held out in the Industrial Policy 2012. Absolutely no justification bearing on reasons of policy or public interest has been offered before the High Court or before this Court for the delay in issuing a notification - the State had made a representation to the Respondent and similarly situated industrial units under the Industrial Policy 2012. This representation gave rise to a legitimate expectation on their behalf, that they would be offered a 50 per cent rebate/deduction in electricity duty for the next five years. However, due to the failure to issue a notification within the stipulated time and by the grant of the exemption only prospectively, the expectation and trust in the State stood violated. Since the State has offered no justification for the delay in issuance of the notification, or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommenced production on 17 August 2011. Hence, the order of the High Court would have to be confirmed for FYs 2012-13 and 2013-14. Appeal disposed off. - JUDGMENT Dr. D.Y. Chandrachud, J. A The appeal B The issue C Captive power plant: assessment to electricity duty D Industrial Policy 2012 E Exemption from Electricity Duty F Before the High Court G Submissions of Counsel H Analysis H.1 A State in breach of policy commitments H.2 Building on Motilal Padampat H.3 Promissory estoppel - origins and evolution H.4 From estoppel to expectations H.5 Indian Law and the doctrine of legitimate expectations H.6 Expectations breached by the State of Jharkhand H.7 The technical defences to the claim I Conclusion 1. Leave granted. A The appeal 2. This appeal arises from a judgment of the High Court of Jharkhand. While allowing a petition instituted by the Respondents Under Article 226 of the Constitution, the Division Bench: (i) struck down the last paragraph of a notification dated 8 January 2015 issued by the State government in its Department of Commercial Taxes, giving prospective effect to the rebate/deduction from electricity duty offered under the Jharkhand Industrial Policy, 2012 1 ; (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years, for captive power plants established for self-consumption or captive use: 32.10 Incentive for captive power plant New or existing industrial units setting up captive power plant shall be exempted from the payment of 50% of electricity duty for a period of five years for self-consumption or captive use (i.e. in respect of power being used by the plant) from the date of its commissioning. (ii) Clause 35.7(b) envisaged that the entitlement would ensue from the financial year following the Date of Production (DoP): 35.7(b) Industrial units will be entitled for reimbursement/payment of subsidy/incentives under different categories only from the next financial year of DoP. (iii) Clause 38(b) stipulated that notifications enforcing the terms of the industrial policy would be issued within a period of one month by the Departments of the State government: 38. Monitoring and Review (b) All concerned departments and organizations would issue necessary follow up notifications within a month to give effect to the provisions of this Policy. The implementation of this policy will be duly monitored by Government at the level of Chief Secretary at least once in a quarter, so that the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policy. But since the exemption notification dated 8 January 2015 was made prospective, the Respondent (and other similar units) would receive the benefit of the exemption from electricity duty for a much lesser period. Faced with this situation, the Respondent instituted writ proceedings before the High Court of Jharkhand in August 2019. F Before the High Court 10. Placing reliance on the doctrine of promissory estoppel, the Respondent sought, in its submissions before the High Court, one of two reliefs or directions. First, the Respondent claimed that the Clause in the notification making it prospective should be effaced since it was contrary to the representation that was held out by the Industrial Policy 2012. Alternately, the Respondent sought a direction that it would be entitled to an exemption from electricity duty for a period of five years from the date of the issuance of the notification (the period of five years being the envisaged period under the Industrial Policy 2012). 11. The High Court accepted the first of the two courses of action noted above, placing reliance on the decisions of this Court in State of Bihar v. Kalyanpur Cement Limited (2010) 3 SCC 274 ( Kalyan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Tax Department of the State government ought not to be construed with prospective effect and the Clause making it prospective would have to be struck down. The notification was deemed to be in effect from the date of the Industrial Policy 2012 (1 April 2011). The electricity duty deposited for FYs 2011-12, 2012-13 and 2013-14 was directed to be adjusted against the future liability of the Respondent towards electricity duty. Since the amount has already been deposited no refund, but an adjustment of future payments was directed. 13. The State is in appeal. G Submissions of Counsel 14. Mr. Tapesh Kumar Singh, Additional Advocate General appearing for the State of Jharkhand submits that: (i) In terms of the rebate/concession admissible under the Industrial Policy 2012, the Respondent was required by Column 6(iv) of Form-III to raise a claim for exemption from the payment of electricity duty; (ii) In all the three returns which were furnished by the Respondent, a rebate/deduction was sought only towards auxiliary consumption , which was accepted and allowed by the assessing officer; (iii) In the absence of a claim for rebate/deduction sought before the assessing officer, the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been granted by the High Court would result in unjust enrichment to the Respondent. Reliance was placed on the decision of this Court in Mafatlal Industries Ltd. v. Union of India (1997) 5 SCC 536 ( Mafatlal Industries ); (xiii) An alternative and efficacious statutory remedy of an appeal Under Section 9A of the Bihar Act 1948 was available to the Respondent against the orders of assessment, and hence the High Court should have refused to allow recourse to the extra-ordinary writ jurisdiction; and (xiv) Since the unit of the Respondent commenced commercial production on 17 August 2011, whereas the Industrial Policy is of 2012, the doctrine of promissory estoppel cannot be extended backwards in favour of the Respondent . 15. On the other hand, opposing these submissions on behalf of the Respondent and in support of the judgment of the High Court, Mr. Devashish Bharuka, learned Counsel urged the following submissions: (i) The act of the State government in making the exemption notification prospective in effect from 8 January 2015 is in derogation to the promise held out by the State in its Industrial Policy 2012. The High Court in placing reliance on the doctrine of promissory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable progress in industrialization has been achieved during the policy period . Yet, according to Clause 1.8, there is a need to boost economic activities to sustain the current level of growth and achieve even better pace of development . Clause 1.9 takes notice of the fact that there has been large scale change in (the) industrialization environment (sic) due to economic liberalization, privatization and globalization . The policy document states in Clause 1.12 that it aims at creating (an) industry-friendly environment for maximizing investment : 1.12. The present policy aims at creating industry-friendly environment for maximizing investment especially in mineral and natural resource based industries, MSMEs, infrastructure development and rehabilitation of viable sick units. The objective here is to maximize the value addition to state's natural resources by setting up industries across the state, generating revenue and creating employment. Clause 1.13 stipulates that the policy was drafted after intensive interaction with stakeholders and to accommodate their views. It was expected that the policy would, upon implementation, facilitate industrialization of the State, gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y three years. 22. It is time for the State government to take notice of the observations of the High Court in regard to administrative lethargy. If the object of formulating the industrial policy is to encourage investment, employment and growth, the administrative lethargy of the State apparatus is clearly a factor which will discourage entrepreneurship. The policy document held out a solemn representation. It contemplated the grant of a rebate/deduction from the payment of electricity duty not only to new units but to existing units as well who had or would set up captive power plants. The State, in the present case, held out inter alia a solemn representation in terms of Clauses 32.10 and 35.7(b) of the entitlement of the exemption for a period of five years from the date of production. Besides this, it also contemplated in Clause 38(b) that a follow-up exemption notification would be issued within one month. That period of one month stretched on interminably with the result that the purpose and object of granting the exemption would virtually stand defeated. The net result was that when belatedly, the State government issued a notification Under Section 9 of Bihar Act 1948 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 lapsed on 31-8-2000. 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. 25. In the decision in Manuelsons Hotels Private Limited v. State of Kerala (supra), speaking through Justice Rohinton F Nariman, the Court had to construe a notification dated 11 July 1986 of the Government of Kerala enabling those engaged in tourism promotional activities to become automatically eligible for concessions/incentives as provided to the industrial sector from time to time. An amendment to the Kerala Building Tax Act 1975 was made with effect from 6 November 1990 giving an exemption as promised in 1986 and the amendment was deleted with effect from 1 March 1993. Relying on the earlier decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... toppel - origins and evolution 26. Before the High Court, the State of Jharkhand sought to sustain its action on the ground that though the follow-up notification Under Section 9 was issued on 8 January 2015, no outer limit for the issuance of a notification was prescribed and there was no vested right on the part of the Respondent to get the notification implemented from an earlier date or to obtain the benefit of the policy until it was implemented by a follow-up notification. The decision in Kalyanpur Cement (supra) was sought to be distinguished on the ground that in that case no follow-up notification had been issued at all until the policy lapsed. In sum and substance, the objection was that the writ Petitioner - the Respondent here-had no vested right to claim that a follow-up notification should be issued and that the doctrine of promissory estoppel would not, in the facts, apply. 27. In order to analyze the contentions relating to the doctrine of promissory estoppel in the present case, it is necessary to discuss the origin of the doctrine and the evolution of its application. The common law recognizes various kinds of equitable estoppel, one of which is promissory estoppe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights: 4.089. It has, indeed, been suggested that the doctrine can apply where, before the making of the promise or representation, there is no legal relationship giving rise to rights and duties between the parties, or where there is only a putative contract between them: e.g. where the promisee is induced to believe that a contract into which he had undoubtedly entered was between him and the promisor, when in fact it was between the promisee and another person. But it is submitted that these suggestions mistake the nature of the doctrine, which is to restrict the enforcement by the promisor of previously existing rights against the promisee. Such rights can arise only out of a legal relationship existing between these parties before the making of the promise or representation. To apply doctrine where there was no such relationship would contravene the Rule (to be discussed in para. 4-099 below) that the doctrine creates no new rights. 29. Generally speaking under English Law, judicial decisions have in the past postulated that the doctrine of promissory estoppel cannot be used as a 'sword', to give rise to a cause of action for the enforcement of a promise lacking any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operational efficacy as a justice device for preventing injustice...We do not see any valid reason why promissory estoppel should not be allowed to found a cause of action where, in order to satisfy the equity, it is necessary to do so. H.4 From estoppel to expectations 32. Under English Law, the doctrine of promissory estoppel has developed parallel to the doctrine of legitimate expectations. The doctrine of legitimate expectations is founded on the principles of fairness in government dealings. It comes into play if a public body leads an individual to believe that they will be a recipient of a substantive benefit. The doctrine of substantive legitimate expectation has been explained in R v. North and East Devon Health Authority, exp Coughlan [2001] QB 213 in the following terms: 55.... But what was their legitimate expectation? Where there is a dispute as to this, the dispute has to be determined by the court, as happened in In re Findlay. This can involve a detailed examination of the precise terms of the promise or representation made, the circumstances in which the promise was made and the nature of the statutory or other discretion. ...... 56.... Where the court considers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promissory estoppel, there may be a requirement to show a detriment suffered by a party due to the reliance placed on the promise. Although typically it is sufficient to show that the promisee has altered its position by placing reliance on the promise, the fact that no prejudice has been caused to the promisee may be relevant to hold that it would not be inequitable for the promisor to go back on their promise. 15 However, no such requirement is present under the doctrine of legitimate expectation. In Regina (Bibi) v. Newham London Borough Council [2002] 1 W.L.R. 237, the Court of Appeal held: 55 The present case is one of reliance without concrete detriment. We use this phrase because there is moral detriment, which should not be dismissed lightly, in the prolonged disappointment which has ensued; and potential detriment in the deflection of the possibility, for a refugee family, of seeking at the start to settle somewhere in the United Kingdom where secure housing was less hard to come by. In our view these things matter in public law, even though they might not found an estoppel or actionable misrepresentation in private law, because they go to fairness and through fairness to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted as part of our law and that the decision maker can normally be compelled to give effect to his representation in regard to the expectation based on previous practice or past conduct unless some overriding public interest comes in the way Reliance must have been placed on the said representation and the representee must have thereby suffered detriment. It is suggested that this formulation of the doctrine of legitimate expectation is not correct as it makes legitimate expectation practically synonymous with promissory estoppel. Legitimate expectation may arise from conduct of the authority; a promise is not always necessary for the purpose. 37. While this doctrinal confusion has the unfortunate consequence of making the law unclear, citizens have been the victims. Representations by public authorities need to be held to scrupulous standards, since citizens continue to live their lives based on the trust they repose in the State. In the commercial world also, certainty and consistency are essential to planning the affairs of business. When public authorities fail to adhere to their representations without providing an adequate reason to the citizens for this failure, it vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. 39. However, before we do this, it is important to clarify the understanding of the doctrine of legitimate expectation in previous judgments of this Court. In National Buildings Construction Corporation v. S. Raghunathan (1998) 7 SCC 66 ( National Buildings Construction Corpn. ), a three Judge bench of this Court, speaking through Justice S. Saghir Ahmad, held that: 18. The doctrine of legitimate expectation has its genesis in the field of administrative law. The Government and its departments, in administering the affairs of the country, are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without any iota of abuse of discretion. The policy statements cannot be disregarded unfairly or applied selectively. Unfairness in the form of unreasonableness is akin to violation of natural justice. It was in this context that the doctrine of legitimate expectation was evolved which has today become a source of substantive as well as procedural rights. But claims based on legitimate expectation have been held to require reliance on representations and resulting detriment to the claimant in the same way as claims based on pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases such as the Wells case [1967] 1 WLR 1000 and Lever Finance Ltd. v. Westminster (City) London Borough Council [1971] 1 QB 222, Lord Denning MR used the language of estoppel in relation to planning law. At that time the public law concepts of abuse of power and legitimate expectation were very undeveloped and no doubt the analogy of estoppel seemed useful..... It seems to me that in this area, public law has already absorbed whatever is useful from the moral values which underlie the private law concept of estoppel and the time has come for it to stand upon its own two feet. (emphasis supplied) 40. In a concurring opinion in Monnet Ispat and Energy Ltd. v. Union of India (2012) 11 SCC 1 ( Monnet Ispat ), Justice H.L. Gokhale highlighted the different considerations that underlie the doctrines of promissory estoppel and legitimate expectation. The learned judge held that for the application of the doctrine of promissory estoppel, there has to be a promise, based on which the promisee has acted to its prejudice. In contrast, while applying the doctrine of legitimate expectation, the primary considerations are reasonableness and fairness of the State action. He observed thus: Promi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to conform to Article 14 of the Constitution of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law: A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is 'fairplay in action'. Due observance of this obligation as a part of good administration raises a reasonable or legitimate expectation in every citizen to be treated fairly in his interaction with the State and its instrumentalities, with this element forming a necessary component of the decision-making process in all State actions. To satisfy this requirement of non-arbitrariness in a State action, it is, therefore, necessary to consider and give due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision or else that unfairness in the exercise of the power may amount to an abuse or excess of power apart from affecting the bona fides of the decision in a given case. The decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion in the exercise of power, as it is unrealist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercised in larger public and social interest. Power is to be exercised strictly adhering to the statutory provisions and fact situation of a case. Public authorities cannot play fast and loose with the powers vested in them. A decision taken in an arbitrary manner contradicts the principle of legitimate expectation. An authority is under a legal obligation to exercise the power reasonably and in good faith to effectuate the purpose for which power stood conferred. In this context, in good faith means for legitimate reasons . It must be exercised bona fide for the purpose and for none other...] (emphasis supplied) As such, we can see that the doctrine of substantive legitimate expectation is one of the ways in which the guarantee of non-arbitrariness enshrined Under Article 14 finds concrete expression. H.6 Expectations breached by the State of Jharkhand 43. Applying the abovementioned principles in the present case, we are unable to perceive any substance in the submission of the State which was urged in defense before the High Court. Not only did the State in the present case hold out a solemn representation, this representation was founded on its stated desire to encourage ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in National Buildings Construction Corporation (supra): The Government and its departments, in administering the affairs of the country are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without any iota of abuse of discretion. The policy statements cannot be disregarded unfairly or applied selectively. Unfairness in the form of unreasonableness is akin to violation of natural justice. 46. Therefore, it is clear that the State had made a representation to the Respondent and similarly situated industrial units under the Industrial Policy 2012. This representation gave rise to a legitimate expectation on their behalf, that they would be offered a 50 per cent rebate/deduction in electricity duty for the next five years. However, due to the failure to issue a notification within the stipulated time and by the grant of the exemption only prospectively, the expectation and trust in the State stood violated. Since the State has offered no justification for the delay in issuance of the notification, or provided reasons for it being in public interest, we hold that such a course of action by the State is arbitrary and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P that point regarding delay and laches was argued before the High Court but the same was not dealt with by the High Court when impugned judgment was delivered. Further, Mr. Bharuka has submitted that once the High Court has held the Respondent's writ petition to be legally sustainable on merits, this Court should not interfere on grounds on delays and laches alone. This finds support in the judgment of this Court in Dayal Singh v. Union of India (2003) 2 SCC 593, where a three judge Bench, speaking through Justice S.B. Sinha, held thus: 41. It was submitted that the Respondents having filed a writ petition after a period of eight years, the same ought not to have been entertained. Primarily a question of delay and laches is a matter which is required to be considered by the writ court. Once the writ court has exercised its jurisdiction despite delay and laches on the part of the Respondents, it is not for us at this stage to set aside the order of the High Court on that ground alone particularly when we find that the impugned judgment is legally sustainable. Mr. Bharuka is also correct in submitting that the State cannot possibly contend that the result of the delay has led to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment - the High Court has not ordered a refund at all since the duty has been paid. The Respondent cannot be deprived of an adjustment of the excess duty paid. Further, the State's submission that there was no pleading by the Respondent in the High Court on whether the amount being claimed as rebate/deduction had been passed on by the Respondent to its customers is factually incorrect. In the writ petition filed before the High Court, the Respondent specifically asserted that the burden of differential amount of electricity duty, realized by the State from the Respondent herein, was not passed by the latter to its customers, either directly or indirectly or in any other manner. The relevant excerpt of the pleading in the Respondent's writ petition reads thus: 41. That, at this stage, it is most humbly stated and submitted that if the amount of 50% of the electricity duty is refunded to the Petitioner, the same would not lead to unjust enrichment in the hands of the Petitioner as the Petitioner has not passed on the burden of differential amount of electricity duty, realized by Respondent-State from the Petitioner, to its customers either directly or indirectly or in any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition. The doctrine of unjust enrichment is a just and salutary doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. In the present case, as we have previously held, the present Respondent did not collect the electricity duty from both ends, to deploy the above phrasing. As a result, this doctrine has no application to the facts of the case at hand. 50. In Indian Council for Enviro-Legal Action v. Union of India (2011) 8 SCC 161, a two judge Bench of this Court, speaking through Justice Dalveer Bhandari, outlined the ingredients of unjust enrichment in the following terms: 152. Unjust enrichment has been defined by the court as the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle as the case may be, a return in Form III, within two calendar months from the expiry of the month to which the return relates. The return shall be verified in the manner indicated therein and shall be signed by the Assessee or by his authorised agent. When an Assessee holds more than, one license, separate returns shall be submitted in respect of each license. 6 WP (T) No. 6008 of 2014, decided on 3/4 February 2015. 7 Hugh Beale, Chitty on Contracts (32nd edn., Sweet Maxwell 2017). 8 Wyvern Development, Re, [1974] 1 W.L.R. 1097 cited in Susan M. Morgan, A Comparative Analysis of the Doctrine of Promissory Estoppel in Australia, Great Britain and the United States , (1985) 15 Melbourne University Law Review 134, 139-141. 9 In Tungsten Electric Co. Ltd. v. Tool Metal Manufacturing Co. Ltd., [1955] 1 W.L.R. 761, Lord Simonds states, I do not wish to lend the authority of this House to the statement of the principle which is to be found in Combe v. Combe and may well be far too widely stated . 10 In Baird Textiles Holdings Ltd. v. Marks and Spencer Plc., [2002] 1 All ER (Comm) 737, Court of Appeal stated that there is no real prospect of the claim [estoppel] succeeding unless and u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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