2016 (2) TMI 1 - HC - Indian Laws

State's Power to Modify OTS Scheme Upheld; Promissory Estoppel Protects Petitioners

V.K. Indrayan Versus State of Punjab & another

The court held that the State could modify the One Time Settlement Scheme (OTS) in the interest of public policy, limiting benefits to non-profit-making ... One Time Settlement Scheme - Notification dated 06.02.2009 whereby the One Time Settlement Scheme (for short, the 'OTS') for equity disinvestment in joint sectors/assisted sector companies, promoted by the respondent-Punjab State Industrial Development Corporation Ltd. (in short, the 'Corporation') and Punjab Agro Industries Corporation, has been amended challenged - Whether the State was permitted to alter the terms of the OTS on the ground that it being a public policy, could be modified? - Held that:- Question is answered in favour of the State that it has power to alter or modify the scheme once it comes to a conclusion that it was against the financial interest of the State and no fault can be found as such or any challenge can be raised to the withdrawal of the OTS to a certain category of industries who are profit making. Whether the said decision could be with retrospective effect in the absence of any statutory provision? - Held that:- Adverting to the factual matrix herein, as noticed, the petitioner, in pursuance to the OTS floated by the respondent- Corporation, had entered into an agreement with the Corporation on 04.08.2004 (Annexure P8) wherein he had taken the benefit of the low rate of interest and offered to pay within the time frame of the policy. In pursuance of the said agreement, the arbitration proceedings pertaining to the buy-back agreement were also terminated by placing the agreement on record and therefore, the Corporation also gave up its claim regarding the amounts due under the FCA, vide order dated 18.08.2004 (Annexure P9) passed by the Arbitrator. In pursuance of the agreement, further payments were made by the petitioner and it is not disputed that a sum of ₹ 96,94,094/- has been paid but was not acted upon. The Corporation cannot be allowed to blow hot and cold at the same time and could not withdraw from the concluded contract. The petitioner had also chosen to litigate and approached this Court seeking direction for transfer of shares on pro-rata basis, as per the agreement which provided that on the receipt of minimum payment of ₹ 20 lacs transfer would be made as per the OTS value of the shares, as calculated upto the date of transfer of shares. The Corporation had also agreed that in case the amounts were not paid as per the OTS, the Corporation would be entitled to claim the payments, as per the FCA. The resultant amendment, subsequently, would not and could not have been done, with retrospective effect. The withdrawal of the OTS offer earlier given would not apply with retrospective or retroactive effect. The amendment by way of notification could only be from the date of the decision so notified and the date could not have been preponed to a earlier point of time, to the prejudice of the petitioner who had acted upon the offer given. Thus, from the above discussion, it can be safely concluded that under the strength of public policy, the State is well within its vested right to review its earlier decision and restrict the benefit of the OTS which was a mere concession to a limited set of eligible persons on a valid criteria as to whether it was a profit making industry or not but not with retrospective effect. Whether the State and the Corporation are bound by the principle of promissory estoppel and can go back on the terms of the OTS agreement which had been duly acted upon by the petitioner by materially altering its position? - Held that:- issue no. (iii) is answered in favour of the petitioners that the State and the Corporation were bound by the principle of Promissory Estoppel and could not go back on the terms of the OTS which had already been offered and accepted by the collaborators/petitioners. The said persons had made payments in pursuance of the OTS and entered into agreements and acted on the promise held out by the State and the Corporation and the State was, thus, bound by the OTS agreement entered into. Having acted upon the said agreement, the petitioners had paid the amounts and were thus, entitled for the benefits of the lesser interest rate as per the OTS scheme. The said petitioners might not have taken offer of making the payment and the Corporation would have been left with litigation in hand by way of arbitration and for enforcement of the buy back agreements. However, after having given the offer and the petitioners having accepted the same and the Corporation having received the payments in satisfaction of the contract entered into, could not turn around and submit that they were not bound by the terms of the OTS. The pendency of the public interest litigation and the decision therein would not be of any assistance to the State since the writ petition was disposed of that the Corporation would take appropriate decisions in view of the modified policy. The petitioners were also left free to seek appropriate redressal in case adverse decision was taken and the petitioners were also given liberty to challenge the notification. Thus, the Division Bench has not opined on the said issue and it was a policy decision of the State as such. Consequently, issue no. is answered against the State and the Corporation. Issues Involved:1. Whether the State was permitted to alter the terms of the OTS on the ground that it being a public policy, could be modifiedRs.2. If question no. (i) is answered in favour of the State, whether the said decision could be with retrospective effect in the absence of any statutory provisionRs.3. Whether the State and the Corporation are bound by the principle of promissory estoppel and can go back on the terms of the OTS agreement which had been duly acted upon by the petitioner by materially altering its positionRs.Issue-Wise Detailed Analysis:Issue No. 1:Whether the State was permitted to alter the terms of the OTS on the ground that it being a public policy, could be modifiedRs.The court concluded that the State was within its rights to alter the terms of the One Time Settlement Scheme (OTS) on the grounds of public interest. The initial OTS dated 26.03.2003, which provided benefits irrespective of the unit's status, led to financial imprudence as even profit-making companies benefitted, causing revenue loss to the State. The State Government was justified in modifying the policy to restrict benefits to non-profit-making companies. The modification aimed to correct the economic harm caused by the initial policy. The Government's power to issue and alter directives under Article 135 of the Articles of Association of the respondent-Corporation was upheld. The court referenced several judgments, including Amrit Banaspati Company Ltd. Vs. State of Punjab and Kaniska Trading & Industry Vs. Union of India, to support the State's right to change policies in public interest.Issue No. 2:If question no. (i) is answered in favour of the State, whether the said decision could be with retrospective effect in the absence of any statutory provisionRs.The court held that the amendment to the OTS could not have retrospective effect. An amendment order cannot be retrospective unless expressly stated or implied by statute. The court referenced several judgments, including Sri Vijayalakshmi Rice Mills Vs. State of Andhra Pradesh and I.T.C. Bhadrachalam Paperboards Vs. Mandal Revenue Officer, to support this view. The petitioner had entered into an agreement with the Corporation, made payments, and acted upon the OTS. The Corporation could not withdraw from a concluded contract. The amendment by way of notification could only be from the date of the decision and not retrospectively. The court concluded that the State could review its decision and restrict the OTS benefits but not with retrospective effect.Issue No. 3:Whether the State and the Corporation are bound by the principle of promissory estoppel and can go back on the terms of the OTS agreement which had been duly acted upon by the petitioner by materially altering its positionRs.The court held that the State and the Corporation were bound by the principle of promissory estoppel. The petitioner had materially altered his position based on the promise held out by the State. The petitioner had opted for the OTS, made payments, and entered into agreements based on the OTS. The Corporation had also agreed to the terms of the OTS and modified its claims under the Financial Collaboration Agreement (FCA). The principle of promissory estoppel, as established in cases like Union of India Vs. Indo-Afgan Agencies Ltd. and Motilal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar Pradesh, applied. The State and the Corporation could not resile from the promise made. The court concluded that the State and the Corporation were bound by the terms of the OTS, and the petitioners were entitled to the benefits of the lesser interest rate as per the OTS scheme.Conclusion:The court concluded that the State could alter the terms and conditions of the OTS on the grounds of public interest and restrict the benefits to non-profit-making companies. However, the decision could not be retrospective in the absence of statutory power. The State and the Corporation were bound by the principle of promissory estoppel and could not go back on the terms of the OTS agreement. The writ petitions and LPA No. 1635 of 2010 were disposed of with a direction to the Corporation to give necessary effect to the OTS where payments had been made in pursuance of the OTS. Where complete amounts had not been paid, the Corporation could proceed as per the terms of the OTS and fall back on the FCA.