H.Champalal Jain v. The Union of India

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 23.3.2009C O R A M :THE HONOURABLE MR. JUSTICE K. CHANDRUW.P.No.23946 of 2006andM.P.No.1 of 2006H.Champalal Jain .. Petitioner-vs-1.The Union of India, rep.by its Secretary,Department of Commerce,New Delhi.2.The Deputy Director Generalof Foreign Trade, for JointDirector General of ForeignTrade, Peters Road, Chennai-14.3.M/s.State Bank of India,Overseas Branch, Rajaji Salai,Chennai-600 001. .. RespondentsPRAYER : Petition filed under Article 226 of the Constitution ofIndia praying for the issuance of a writ of certiorarified mandamuscalling for the records relating to the order in File No.1(2)/ECA/AM07/Che/35, dated 23.6.2006 of the second respondent and quash thesame and direct the third respondent to pay the petitioner the amountof Rs.8,83,400/- being the premium for the value of the scripssurrendered to the third respondent, the details of which have beenset out above in para 6 together with interest at the rate of 18%from the date of submission of the Licences to the third respondent.For petitioner : Mr.Habibulla Badsha, SC for Mr.E.S.GovindanFor respondents : Mr.K.Ravichandra Babu, ACGSC (R1 and R2) Mr.K.Sankaran (R3)***** https://hcservices.ecourts.gov.in/hcservices/ O R D E R This matter came to be posted before this Court on beingspecially ordered by the Hon'ble Chief Justice vide order dated23.10.2008. The writ petitioner seeks to set aside the order dated23.6.2006 passed by the second respondent and also for a furtherdirection to the third respondent to pay the petitioner the amount ofRs.8,83,400/- being the value of the scrips surrendered to the thirdrespondent State Bank of India with interest at the rate of 18% fromthe date of submission of licence till the date of payment.2. Pending the writ petition, the petitioner sought for aninterim direction in the miscellaneous petition and only notice wasordered. On behalf of the second respondent, a counter affidavitdated 07.11.2008 was filed. The third respondent also filed a counteraffidavit dated 22.9.2006. 3. It is seen from the records that the first respondent Union ofIndia introduced a scheme for issue of exim scrips with effect from4.7.1991 at the rate of 30% on the foreign exchange earned by theexporters by the issuance of a public notice No.185 ITC dated31.7.1991. The exim scrips were easily transferable and saleable.Thereafter, when the issuance of exim scrips were withdrawn, theState Bank of India was authorised to buy exim scrips at a premium of20% of the sale value of exim scrips.4. On 27.3.1992, the first respondent designated branches of theState Bank of India (third respondent) stating that the exim scripswill be purchased by the notified list of branches and the bona fideholders of the exim scrips were directed to submit an application andthe branches of the bank were authorised to straightaway purchase thescrips upto the face value of Rs.5 lakhs and the premium amount willbe paid to the holder of the scrips. The dates which were given wereextended from time to time. On 05.6.1992, the first respondent issueda circular extending the date upto 31.7.1992 for payment of premiumfor scrips issued earlier upto 30.6.1992. It was also stated that thelicences issued thereafter will be accepted provided they aretendered within one month from the date of issue. 5. On 30.9.1992, the first respondent issued another circular in33/92. In paragraphs 2 and 3 of the aforesaid circular, it was statedas follows:-''2. It has been represented that there have beendelay in the receipt of REP licences issued by thelicensing authorities after 30th June, 1992 and in somecases these licences were received by the exporters after alapse of considerable time from the date of issue and,therefore, such licences could not be tendered to the StateBank of India within the period of one month from the date https://hcservices.ecourts.gov.in/hcservices/ of issue. It has been represented that such licences shouldalso be accepted for payment of premium by the SBI.3. The matter has been considered. It has been decidedthat REP licences etc. issued after 30th June 1992, will bepurchased by the SBI, if otherwise eligible, provided suchlicences are tendered within a period of one month from theactual date of delivery indicated on the licences by thelicensing authority concerned. For this purpose thelicensing authority will make an endorsement on the licenceindicating the actual date of delivery of the licence tothe exporters". 6. The petitioner who purchased 20 exim scrips presented the samebefore the third respondent for encashment. The details of the scripswere set out in paragraph 6 of the affidavit filed in support of thewrit petition. The total value of the scrips came to aboutRs.44,17,100/- and the 20% premium if calculated on the scrips, itworks out to Rs.8,83,400/-. In the meanwhile, the second respondentDeputy Director General of Foreign Trade, Chennai instructed thethird respondent not to pay the amounts as some scrips were found tobe bogus and action was taken against M/s.Ayisha Exports Limited fromwhom the exim scrips were purchased. 7. It was stated that the vendor of the exim scrips M/s.AyishaExport Private Limited was prosecuted by the CBI for submitting bogusand forged documents and a criminal case was registered in C.C.No.100/ 1996. The case was tried by the Additional Chief MetropolitanMagistrate, Economic Offence Wing, which tried the case by a judgmentdated 06.9.2001 in E.O.C.C.No.100 / 1996 convicted the Ayisha ExportCompany and its director and imposed a fine of Rs.2,25,000/-. In thatcase, the petitioner was arrayed as a witness (P.W.16). In that case,the accused also filed a petition for pleading guilty and prayed forleniency on the quantum of punishment.8. Therefore, it was stated that the first set of exim scrips tothe value of Rs.14,11,200/- purchased by the petitioner from the saidAyisha Exports and got encashed, was obtained by submitting bogus andforged documents. 9. However, the petitioner filed W.P.No.18382 of 1992 before thisCourt for the issuance of a writ of mandamus to direct the State Bankto pay a sum of Rs.8,83,400/- in respect of the genuine exim scripspurchased by the petitioner. The writ petition was heard along withother writ petitions filed by other individuals. The followingpassages found in paragraph 7 may be usefully extracted below:-''7. ..... The claim of the petitioners that they were bonafide purchasers and therefore payments to them cannot beinvalidated is not an issue on which I am rendering a https://hcservices.ecourts.gov.in/hcservices/ judgment in this case. I make it clear, I am concerned inthese writ petitions only with regard to the exim scripspurchased by the petitioners from genuine exporters andabout which there is no allegation of fraud orillegality. ....If negotiations of the exim scrips are restricted, ormade difficult the entire policy will collapse. Whateverthat may be, in law the respondents have not been able toshow any provision be it, statutory or contractual whichwould enable them to refuse the payment in respect of thetender of genuine exim scrips. Consequently, all the writpetitions are allowed as prayed for. I make it clear thatthe respondents are at liberty to take whatever steps,which are available to them, to recover the amounts paid tothe petitioners in respect of the exim scrips which wereissued to M/s.Aisha Exports Pvt.Ltd., Trimex Agencies (Pvt)Ltd. or Trimex Minerals (Pvt) Ltd. In respect of some ofthe claims made in the writ petitions, it is stated thatpayments have been made. Therefore, the present judgmentwill govern only those claims under genuine exim scrips,which have not already been satisfied by the respondents.The writ petitions are allowed in the above terms."10. As against the said common order of the learned Judge dated22.12.1993, the Union of India filed appeals being W.A.Nos.294 to 297of 1994. The writ appeal against the petitioner's writ petition wasW.A.No.294 of 1994. The Division Bench held as follows:-''Even to this day, the appellants are not in a position toclaim that the exim scrips which were produced by thepetitioners in the past and which are now investigation,were bogus ones. It can be stated only after investigationis completed, as to whether these exim scrips were bogus orgenuine. In the event they are found to be bogus, it shallhave to be determined whether the writ petitioners hereinare liable for the amounts. As the matter is underinvestigation, the interests of the appellants can very wellbe safeguarded if each of the petitioners is directed tofurnish adequate security of immovable property having clearand marketable title to the satisfaction of the secondappellant. It is not disputed that on furnishing of securityin the aforesaid terms, the interests of the appellants andalso of the Revenue would be sufficiently safeguarded. Atthe same time, we are also of the view that, when thepetitioners are entitled to the payments as against thepresent exim scrips which are accepted to be genuine andvalid, the payments cannot at all be directed to bewithheld, nor can it be withheld by the appellants.Therefore, we are of the view that safeguarding the interestof the appellants, the amounts payable under the presentexim scrips can very well be directed to be paid. https://hcservices.ecourts.gov.in/hcservices/ Accordingly, we dispose of the writ appeals in the followingterms:If the petitioners as detailed below, furnish adequatesecurity of immovable property having clear and marketabletitle or bank guarantee whichever is convenient to the writpetitioners, to the satisfaction of the second appellant(Joint Chief Controller of Imports and Exports, Madras) theappellants shall on accepting such security, pay the amountspayable on the present exim scrips.W.P.NO.Security ofimmovable propertyforAppellants shall payto petitioners17894/92Rs.12,58,200/-Rs.19,47,315/-18294/92Rs.13,68,900/-Rs.15,94,400/-19205/92Rs.10,44,900/-Rs.35,000/-18382/92Rs.14,11,200/-Rs.8,83,400/-The order of the learned Single Judge stands modifiedaccordingly."11. Thus it can be seen the exim scrips purchased by thepetitioner were also referred to by the Division Bench. Subsequent tothe Division Bench order dated 21.2.1994, summons were issued to thepetitioner and the investigation was also completed. The petitionersent letters dated 08.7.1998 and 17.9.1998. The Joint DirectorGeneral of Foreign Trade, by an order dated 15.12.1998 rejected thepetitioner's request. 12. Once again the petitioner filed W.P.No.2194 of 1999challenging the said order. This Court by an order dated 24.2.2006set aside the order and directed the second respondent to pass afresh order after giving an opportunity to the petitioner. Pursuantto the said order, the second respondent passed the impugned orderdated 23.2.2006 and rejected the case of the petitioner. It wasstated that unless the petitioner pays Rs.14 lakhs with interestagainst the first set of exim scrips which were obtained byfraudulent means, the respondent will not honour his claim forpremium for the second set of scrips. It is this order which is underchallenge in this writ petition. 13. On behalf of the third respondent, in their counter affidavitin paragraph 4, the following averments have been made:-'' .... Further, this respondent received direction not tomake premium payment against the cancelled scrips and torecover any amount paid already on the cancelled scrips andif necessary not to make payment on any other scrips. Asinstruction were received from statutory authority (2ndrespondent) not to make payment, this respondent hadwithheld payment to the petitioner. I submit the question https://hcservices.ecourts.gov.in/hcservices/ of making payment to the petitioner will arise only if thesecond respondent expressly authorises such payment as thisrespondent is only a designated branch."14. On behalf of the second respondent, in their counteraffidavit in para 3.(v), the following averments have been made:-''3.(v) It is submitted that as the petitioner had alreadyobtained pecuniary gains by tendering licences which wereobtained by fraudulent means, he cannot be permitted torealize the present sum of Rs.8,83,400/- even though theyare found to be genuine. Unless the petitioner pays thesaid sum of Rs.14,11,200/- with interest, the departmentwill not be in a position to pay the petitioner's claim ofRs.8,83,400/-. If the present claim is also to be paid tothe petitioner, there cannot be any hold to the departmentand consequently the amount of Rs.14,11,200/- cannot berecovered from the petitioner. Therefore, even in thepresent impugned order, the second respondent has directedthe petitioner to pay Rs.14,11,200/- together with interestwithin seven days from the date of the said order to enablethe second respondent to consider the petitioner's requestfor payment of premium as against the present 20 scrips forthe value of Rs.8,83,400/-." 15. Mr.Habibullah Badsha, the learned Senior Counsel contendedthat the respondents are bound to make the payment on the principleof equitable estoppel. It is also stated that the second respondenthas no power to direct the third respondent not to honour thecircular issued by the RBI and such an action is violative ofArticles 14 and 19(1)(g) of the Constitution. He also submitted thatthe respondents cannot go behind the order passed by this Court bothby the learned Judge as well as the Division Bench in rejecting theclaim of the petitioner. The respondents though sought for a set-offclaim, the legal basis for such a claim was not revealed. Noprovision of law has been referred to for making a counter-claim. Iffor some reason the first set of scrips was found to be not genuine,then that should not have been honoured but should have beenstraightaway rejected. In the alternative, they should haveprosecuted persons who were responsible for making bogus claim, inwhich event, there would have been justification for either denyingthe claim or for recovering the amounts received by takingappropriate steps to recover those amounts in accordance with law.16. In the present case, the rights of the petitioner have beensecured by earlier orders of this Court to the effect that the eximscrips sold by them were genuine. It gives an automatic right for thepetitioner to claim the premium of 20% on the exim scrips sold by thethird respondent and, hence, it is bound to honour the promise heldout by the earlier circular issued. The contention that therespondents are estopped from denying the right of the petitioner on https://hcservices.ecourts.gov.in/hcservices/ the principle of promissory estoppel is well founded.17. In this context, it is necessary to refer to the judgmentof the Supreme Court in Southern Petrochemical Industries Co.Ltd.-vs- Electricity Inspector & ETIO and others reported in (2007) 5 SCC447 wherein the Supreme Court surveyed all the earlier decisionsregarding promissory estoppel and set out the circumstances underwhich such a right can be set up before the Courts. It is necessaryto refer to paragraphs 118 to 130, and they may be usefully extractedbelow:-Para 118. It is in the aforementioned context, that the doctrineof promissory estoppel is sought to be invoked. Wewill notice hereinafter that even a right can bepreserved by reason of invocation of doctrine ofpromissory estoppel.Para 119. Submission of Mr Andhyarujina, however, is that therecannot be an estoppel against a statute and, in anyevent, an exemption granted under sub-section (1) ofSection 13 of the 1962 Act was subject to cancellationor variation under sub-section (2) of Section 13thereof.Para 120. In regard to the evolution of the said doctrine, itmay not be necessary for us to notice all thedecisions cited at the Bar as most of them haverecently been taken into consideration by this Courtin A.P. Steel Re-Rolling Mill Ltd. v. State ofKerala51.Para 121.The doctrine of promissory estoppel would undoubtedlybe applicable where an entrepreneur alters his positionpursuant to or in furtherance of the promise made by aState to grant inter alia exemption from payment oftaxes or charges on the basis of the current tariff.Such a policy decision on the part of the State shallnot only be expressed by reason of notifications issuedunder the statutory provisions but also under theexecutive instructions. The appellants had undoubtedlybeen enjoying the benefit of (sic exemption from)payment of tax in respect of sale/consumption ofelectrical energy in relation to the cogenerating powerplants.Para 122.Unlike an ordinary estoppel, promissory estoppel givesrise to a cause of action. It indisputably creates aright. It also acts on equity. However, itsapplication against constitutional or statutoryprovisions is impermissible in law. This aspect of thematter has been considered in State of Bihar v.Project Uchcha Vidya, Sikshak Sangh52 stating: (SCCpp. 575-76, para 77) https://hcservices.ecourts.gov.in/hcservices/ “77. We do not find any merit in the contentionraised by the learned counsel appearing on behalfof the respondents that the principle of equitableestoppel would apply against the State of Bihar.It is now well known, the rule of estoppel has noapplication where contention as regards aconstitutional provision or a statute is raised.The right of the State to raise a question asregards its actions being invalid under theconstitutional scheme of India is now wellrecognised. If by reason of a constitutionalprovision, its action cannot be supported or theState intends to withdraw or modify a policydecision, no exception thereto can be taken. Itis, however, one thing to say that such an actionis required to be judged having regard to thefundamental rights of a citizen but it is anotherthing to say that by applying the rule ofestoppel, the State would not be permitted toraise the said question at all. So far as theimpugned circular dated 18-2-1989 is concerned,the State has, in our opinion, a right to supportthe validity thereof in terms of theconstitutional framework.” Para 123. . Yet again in Mahabir Vegetable Oils (P) Ltd. v. Stateof Haryana53 it was stated: (SCC pp.632-33, para 38)“38. The promises/representations made by wayof a statute, therefore, continued to operatein the field. It may be true that theappellants altered their position only fromAugust 1996 but it has neither been denied nordisputed that during the relevant period,namely, August 1996 to 16-12-1996 not only havethey invested huge amounts but also theauthorities of the State sanctioned benefits,granted permissions. Parties had also takenother steps which could be taken only for thepurpose of setting up of a new industrial unit.An entrepreneur who sets up an industry in abackward area unless otherwise prohibited, isentitled to alter his position pursuant to orin furtherance of the promises orrepresentations made by the State. The Stateaccepted that equity operated in favour of theentrepreneurs by issuing Note 2 to thenotification dated 16-12-1996 whereby andwhereunder solvent extraction plant was for thefirst time inserted in Schedule III i.e. in thenegative list.” https://hcservices.ecourts.gov.in/hcservices/ Para 124. We may, however, notice that a survey of the earlierdecisions has also been made by this Court in Stateof Punjab v. Nestle India Ltd.9 wherein the law hasbeen stated in the following terms: (SCC p.474, para25)“25. In other words, promissory estoppel longrecognised as a legitimate defence in equitywas held to found a cause of action against theGovernment, even when, and this needs to beemphasised, the representation sought to beenforced was legally invalid in the sense thatit was made in a manner which was not inconformity with the procedure prescribed bystatute.”Para 125. Referring to Motilal Padampat Sugar Mills Co. Ltd. v.State of U.P.54 this Court observed: (Nestle India Ltd.case9, SCC pp. 475-76, para 29)“29. As for its strengths it was said: thatthe doctrine was not limited only to cases wherethere was some contractual relationship or otherpre-existing legal relationship between theparties. The principle would be applied evenwhen the promise is intended to create legalrelations or affect a legal relationship whichwould arise in future. The Government was heldto be equally susceptible to the operation ofthe doctrine in whatever area or field thepromise is made — contractual, administrative orstatutory. To put it in the words of the Court:‘The law may, therefore, now be taken to besettled as a result of this decision, that wherethe Government makes a promise knowing orintending that it would be acted on by thepromisee and, in fact, the promisee, acting inreliance on it, alters his position, theGovernment would be held bound by the promiseand the promise would be enforceable against theGovernment at the instance of the promisee,notwithstanding that there is no considerationfor the promise and the promise is not recordedin the form of a formal contract as required byArticle 299 of the Constitution. (SCC p.442,para 24)***[E]quity will, in a given case where justiceand fairness demand, prevent a person frominsisting on strict legal rights, even wherethey arise, not under any contract, but on his https://hcservices.ecourts.gov.in/hcservices/ own title deeds or under statute. (SCC p.425,para 8)***Whatever be the nature of the function whichthe Government is discharging, the Governmentis subject to the rule of promissory estoppeland if the essential ingredients of this ruleare satisfied, the Government can be compelledto carry out the promise made by it. (SCCp.453, para 33)’ ”(emphasis in original) Para 126. This Court distinguished its earlier decision inKasinka Trading v. Union of India whereupon MrAndhyarujina placed strong reliance, in the followingterms: (Nestle India Ltd. case, SCC p.479, para 40)“40. The case of Kasinka Trading v. Union ofIndia55 cited by the appellant is an authorityfor the proposition that the mere issuance of anexemption notification under a provision in afiscal statute such as Section 25 of the CustomsAct, 1962, could not create any promissoryestoppel because such an exemption by its verynature is susceptible to being revoked ormodified or subjected to other conditions. Inother words, there is no unequivocalrepresentation. The seeds of equivocation areinherent in the power to grant exemption.Therefore, an exemption notification can berevoked without falling foul of the principle ofpromissory estoppel. It would not, in thecircumstances, be necessary for the Governmentto establish an overriding equity in its favourto defeat the petitioner’s plea of promissoryestoppel. The Court also held that theGovernment of India had justified the withdrawalof exemption notification on relevant reasons inthe public interest. Incidentally, the Courtalso noticed the lack of established prejudiceto the promises when it said: (SCC p.289, para22)‘The burden of customs duty, etc. is passedon to the consumer and therefore the question ofthe appellants being put to a huge loss is notunderstandable.’(See also Shrijee Sales Corpn. v. Union ofIndia56 and STO v. Shree Durga Oil Mills57.) We donot see the relevance of this decision to thefacts of this case. Here the representations are https://hcservices.ecourts.gov.in/hcservices/ clear and unequivocal.”Para 127. In MRF Ltd. v. Asstt. CST8 wherein one of us (Katju,J.) was a member, Kasinka Trading555 has also been heldto be inapplicable where a right has already accrued;for instance, in a case where the right to exemptionof tax for a fixed period accrues and the conditionsfor that exemption have also been fulfilled, thewithdrawal of that exemption cannot affect the alreadyaccrued right.Para 128. In MRF Ltd.8 it was held that the doctrine ofpromissory estoppel will also apply to statutorynotifications.Para 129. We may also notice an interesting observation made byBeg, J. in Madan Mohan Pathak v. Union of India010wherein the learned Judge in his concurrent judgmentwhile striking down the Life Insurance Corporation(Modification of Settlement) Act, 1976, opined: (SCCp.87, para 34)“34. Furthermore, I think that the principlelaid down by this Court in Union of India v.Indo-Afghan Agencies Ltd.58 can also be taken intoaccount in judging the reasonableness of theprovision in this case. It was held there (at SCRp.385):‘Under our jurisprudence the Government is notexempt from liability to carry out therepresentation made by it as to its futureconduct and it cannot on some undefined andundisclosed ground of necessity or expediencyfail to carry out the promise solemnly made byit, nor claim to be the judge of its ownobligation to the citizen on an ex parteappraisement of the circumstances in which theobligation has arisen.’ In that case, equitable principles were invokedagainst the Government. It is true that, in theinstant case, it is a provision of the Act ofParliament and not merely a governmental orderwhose validity is challenged before us.Nevertheless, we cannot forget that the Act isthe result of a proposal made by the Governmentof the day which, instead of proceeding underSection 11(2) of the Life Insurance CorporationAct, chose to make an Act of Parliament protectedby emergency provisions. I think that theprospects held out, the representations made, theconduct of the Government, and equities arising https://hcservices.ecourts.gov.in/hcservices/ therefrom, may all be taken into considerationfor judging whether a particular piece oflegislation, initiated by the Government andenacted by Parliament, is reasonable.”Para 130. We, therefore, are of the opinion that doctrine ofpromissory estoppel also preserves a right. A rightwould be preserved when it is not expressly taken awaybut in fact has expressly been preserved. 18. In the light of the above, the writ petition will standallowed. The third respondent is directed to pay within eight weeks asum of Rs.8,83,400/- together with interest at the rate of 6% fromthe date of submission of the licence till the date of the payment.However, there will be no order as to costs. Consequently, theconnected miscellaneous petition is closed.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarjsTo1. The Secretary to Union of India, Department of Commerce,New Delhi.2.The Deputy Director Generalof Foreign Trade, for JointDirector General of ForeignTrade, Peters Road, Chennai-14.3.M/s.State Bank of India,Overseas Branch, Rajaji Salai,Chennai-600 001.1 cc To Mr.K.Sankaran, Advocate, SR.87851 cc To Mr.K.Ravichandran, Advocate, SR.88121 cc To Mr.E.S.Govindan, Advocate, SR.9035W.P.No.23946 of 2006and M.P.No.1 of 2006 SSR(CO)SRA(25/03/2009)