State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

Supreme Court of India

State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010
Author: S S Nijjar
Bench: Tarun Chatterjee, Surinder Singh Nijjar
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)

JUDGMENT

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 `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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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.

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."

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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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.

(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 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;

"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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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.

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-

(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.

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

promise. All the meetings were 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 (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 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 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.

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

the Company had submitted a modified package to the State 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
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 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.

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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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. "

"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:-

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

"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 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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

and, though commonly named promissory estoppel, it is neither in the realm of contract nor in the
realm of 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 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 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."

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 (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."

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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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
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, 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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 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 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.

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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-
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 consideration of all the relevant factors. Taking

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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."

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

"11. What emerges from the undisputed facts is that appellant was entitled to the benefit of these
adjustments in the 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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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) "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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

statutory provisions but also under the executive instructions. The appellants had 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. 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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, 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
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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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.

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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

Government through State level Empowered Committee (SLEC) already constituted under the
chairmanship of Chief Secretary for final decision.

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

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 aforesaid Clause 22(2)(ii). The Industrial Policy, 1995 did not

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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 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 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

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 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- 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

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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

the order dated 18.11.2002 and to stay the operation of a judgment under appeal dated 24.04.2002.
However the 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 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 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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 State Of Bihar & Ors vs Kalyanpur Cements Ltd on 8 January, 2010

..........................................J (TARUN CHATTERJEE) ..........................................J (SURINDER

SINGH NIJJAR) NEW DELHI JANUARY 08, 2010.

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