TaxTMI 
TaxTMI 
2015 (10) TMI 2148
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....mmerce and Industry, SEZ Section, Union of India, New Delhi, to issue the Notification under Section 4(1) of the Special Economic Zones Act, 2005 (for short, 'the SEZ Act') for the establishment of SEZ Project by the fourth respondent-Pondicherry Special Economic Zone Company Limited in Pondicherry. 3. They subsequently filed W.P.Nos.23801 and 23802 of 2013 challenging G.O.Ms.No.3/2013-Ind.A, dated 19.8.2013 issued by the second respondent-Government of Puducherry and consequently to forbear the respondents from in any manner acting contrary to the agreements, namely, Development and State Support Agreement, dated 28.8.2006, Share Subscription and Shareholders' Agreement, dated 28.8.2006 and Lease and Possession Agreement, dated 13.2.2008. 4. The learned single Judge dismissed all the Writ Petitions. Following are the facts and circumstances involved in these matters: (i) A policy decision was taken by the Government of Pondicherry to establish a Special Economic Zone (for short, 'SEZ') at Pondicherry. For establishment of such project, the said Government invited applications from private promoters by issuing advertisement. The Government o....
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....istry of Home Affairs of the Government of India for granting ex-post-facto approval for the transfer of lands measuring about 336 hectares. By proceedings dated 6.8.2007, the Union Home Ministry granted its ex-post-facto approval for 336.12.52 hectares of lands. On finding by the Development Commissioner, MEPZ, in pursuant to the inspection of the site, that the parcels of lands were intercepted by pathways and canals, another extent of 10.36.12 hectares were sought to be acquired for the purpose of establishing contiguity. Therefore, a request was made to the Union Home Ministry seeking its permission for the said purpose. In the meantime, the Board also extended the formal approval of the Project by one year from 20.8.2009. (iv) As the Notification under Section 4(1) of the SEZ Act, 2005 was not issued and as the approval granted would also expire shortly, the appellants herein being the private developers, filed the above referred Writ Petitions in Nos.17059 and 17060 of 2010, seeking for issuance of Writs of Mandamus to issue the Notification under Section 4(1) of the SEZ Act. (v) In those Writ Petitions, the Ministry of Commerce and Industry file....
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....ivil consequences, passing of the same without affording an opportunity of hearing to the appellants/writ petitioners, violates the principles of natural justice. 6. The above contentions of the appellants/writ petitioners were vehemently opposed by the respondents by contending that the very selection of the developer was not transparent and the name of the private developer was not disclosed earlier, even though a request was made by the Government of Pondicherry to grant ex-post-facto approval. Another Company, namely Om Metal Infra Projects Limited, which was no way connected with the tender process, was taken as a partner through backdoor method and the Ministry entertained serious doubts about the credentials of the said developer and the process adopted for selection. 7. It was contended by the Government of Pondicherry that it has committed a bona-fide error in issuing the Notification for selection first and to prepare the Project Report later and that too by the selected private developer. It is their contention that preparation of DPR is a mandatory requirement before calling for Notification for selection of private developer. It was also admitted by the Governmen....
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.... in saying that it was not a transparent selection process. (j) The In-principle approval issued on 24.12.2004 by the Ministry of Commerce is much earlier to the selection of developers. After selecting the developer, the Government of Pondicherry requested M/s.KITCO Limited, a Government of Kerala establishment to prepare a Project Report. (k) The Development Commissioner, Government of Pondicherry expressed his concern about selecting the developer without preparing DPR and a competitive bid. (l) The selection of providing developer must obtain a previous consent of the Central Government, in view of various exemption from taxes. (m) The Home Ministry was not having any occasion earlier to examine the selection process undertaken by the Government of Pondicherry to select the private developer, since the Government of Pondicherry at all points of time referred only the name of SPV, and its composition was not disclosed, and therefore, it cannot be said that the Central Government having approved the selection of the developer, cannot direct the Pondicherry Government later to cancel the selection. (n) Only....
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.... the very same grounds, a Public Interest Litigation (PIL) was filed challenging the selection of the appellants in respect of another Project, namely Port Project and a Division Bench of this Court upheld the selection process and the matter was taken on appeal before the Honourable Supreme Court, which confirmed the order of this Court, upholding the selection of SPML/OMIL for the Port Project. Central Vigilance Enquiry was initiated only in respect of the Port Project, and therefore, that cannot be a ground for finding fault with the selection process in the year 2009. SPML Infra Limited is in existence for over four decades and more and executed various Projects and it is a successful infrastructure Company including the Projects which had been awarded by the Ministry of Home Affairs in the years 2010 and 2011. The Ministry of Home Affairs as well as the Government of Pondicherry are bound by the principles of promissory estoppel. The Notification issued by the Government of Pondicherry calling for Expression of Interest, permitted the strategic partner to include any Indian investor or financial institution by way of a consortium for executing the Project. Therefore, the inclu....
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....ly); (c) 1979 (2) SCC 409 (Motilal Padampat Sugar Mills Vs. State of U.P); (d) AIR 1980 SC 1285 = 1981 (1) SCC 11 (M/s.Jit Ram Shiv Kumar Vs. State of Haryana); (e) AIR 1986 SC 806 = 1985 (4) SCC 369 (Union of India Vs. Godfrey Philips India Ltd.); (f) 1988 (1) SCC 86 (Delhi Cloth and General Mills Ltd. Vs. Union of India); (g) 1992 (4) SCC 477 (Navjyoti Co-op. Group Housing Society Vs. Union of India); (h) 1993 (1) SCC 71 (F.C.I. Vs. Kamdhenu Cattle Feed Industries); (i) 1996 (6) SCC 634 (I.T.C.Bhadrachalam Paperboards Vs. Mandal Revenue Officer); (j) 2004 (6) SCC 465 (State of Punjab Vs. Nestle India Ltd.); (k) 2007 (5) SCC 447 (Southern Petrochemical Industries Co. Ltd. Vs. Electricity Inspector & ETIO); (l) 2008 (3) SCC 128 (LML Ltd. Vs. State of U.P); (m) 2009 (13) SCC 55 (Pepsico India Holdings (P) Ltd. Vs. State of Kerala); (n) 2003 (8) SCC 100 (5 M & T Consultants, Secunderabad Vs. S.Y.Nawab) and (o) 2011 (6) MLJ 43 (SC) (State of Tamil Nadu Vs. Shyam Sunder). 11. Mr.T.P.Manohara....
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....SEZ. Even otherwise, eligibility information of the other appellant, namely Om Metal Infra Projects Ltd., was not placed before the Committee and the same was not verified, tested and satisfied by the Committee. Therefore, the Om Metal Infra Projects Ltd. was permitted to enter through backdoor as a strategic partner and developer. In view of Article 239 of the Constitution of India, the fifth respondent is having power, authority and jurisdiction to prevent the perpetuation of such illegality at any time. Actual physical possession of the acquired lands was not handed over to the appellants and they have not entered into the same, nor done any work and spent any money till this date. The financial statement of the fourth respondent ended on 31.3.2010 would show that its total equity share capital is Rs. 50.40 crores, out of which, Rs. 22 crores was the value of the shares issued by it to the third respondent in lieu of cash payment of a portion of the premium lease amount. Therefore, the appellants have brought in only a sum of Rs. 28.40 crores and even the said sum was spent only for payment of salaries to the staff appointed by them, their own travelling expenses, accommodation ....
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....ry of Home Affairs. Though in-principle approval was granted by the Ministry of Home Affairs to the SPV, later on, reports from Vigilance Commission and the Planning Commission made the Central Government to examine the matter, followed by the decision taken, which is impugned in these proceedings. The Planning Commission, by proceedings dated 14.10.2008 found that there was no transparent procedure adopted in selecting the strategic partner. Apart from the above basic objections, the lands in question are also lacking contiguity. For the establishment of SEZ, the area identified as a project area should be contiguous area, because the area is tax free and the third parties who are not connected with the area, should have no access to the SEZ, which has several exemptions. Though the land is not contiguous, the appellant, namely SPML has mentioned in the application as if the land is contiguous. After the formal approval, dated 21.8.2006, an inspection was made by the Central Government authority and it was noticed that the land was not contiguous, as at various places, there are channels, public thoroughfares etc., of an area of over 10 hectares. It has been falsely stated in the ....
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....ne by the Ministry of Home Affairs and in the light of the issues that emerged during such process, the Union Home Ministry Secretary recommended for cancellation of the agreements and suggested that if the Government of Pondicherry was still willing to go ahead with the project, they could go in for transparent competitive bidding process. The recommendation of the Union Home Secretary and the facts available on record were examined by the Union Home Minister, who directed to advise the Government of Pondicherry to cancel the entire agreement with the strategic partner and not to part with the lands in favour of SPV and if any part of the land had already been transferred, the same should be resumed immediately. A self-explanatory detailed letter dated 19.9.2009 was sent to Commerce Secretary by the Union Home Secretary with a request not to issue the order for notifying the SEZ and also to take steps to withdraw the order in the light of the decision taken by the Ministry of Home Affairs. 14. In support of his submissions, the learned Additional Solicitor General relied on the following decisions: (i) 1993 (1) SCC 445 = AIR 1996 SC 51 (Sterling Computers Limited....
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....after, the Government of Puducherry approached the Ministry of Home Affairs for approval of the transfer of 10.36.13 hectares. The Ministry of Home Affairs did not approve the same. On the other hand, they sought remarks on several infirmities in the selection process pointed out by the Planning Commission. The Ministry of Home Affairs communicated that they are not approving the selection of strategic partner and also the transfer of lands to PIPDIC and further advised to cancel the entire agreement with the strategic partner. Article 2 of the Development and State Support Agreement, dated 28.8.2006 entered into between the second and fourth respondents contains a clause for termination and according to the said clause, the agreement shall be subject to termination, if the Zero Date does not occur within 36 months. The Zero Date shall mean the date or extended period. In view of the said stand taken by the Ministry of Home Affairs, the Government of Puducherry, vide letter dated 22.1.2010, communicated to PIPDIC, directing them to handover the lands within a month to the District Collector, Puducherry. The Government of Puducherry cannot implement the project without the approval ....
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....ed in detail by the learned single Judge in his common order, in order to avoid repetition, we are not reiterating those facts in detail once again hereunder. Thus, we proceed to answer the questions above formulated as follows: Question (i): Whether the selection process done by the second respondent, namely the Government of Puducherry in selecting the strategic partner of SPV, was proper and in accordance with the minimum expected norms and procedures? The Government of Puducherry took a policy decision to establish SEZ at Puducherry. A Special Purpose Vehicle (SPV) was constituted by the Government of Puducherry for the said purpose and accordingly, the PIPDIC, namely the third respondent herein was appointed as the Nodal Agency for the project. Advertisement was issued through paper publications, calling for applications from private promoters to participate in the establishment of the project. Admittedly, bids from 20 companies were received, out of whom, 11 companies were invited to give Presentation. It is not known as to how these 11 companies, including the appellant-SPML Infra Ltd, were brought under the zone of consideration, out of 20 applicants. However, t....
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....irement that before selecting the developer, the Government of Puducherry should have prepared the DPR and kept the same in its hands. In other words, preparation of the DPR must necessarily precede the selection of the developer for the project. Only when the Government of Puducherry knows what the project is about and what sort of developmental activities are required to be done by the developer in establishing the SEZ, it would be in a position to select the suitable developer thereafter. In this case, admittedly, it has been vice-versa. The cart has been put up before the horse. It is not known as to why such a hurried selection was made without following even the minimum basic expected procedures. Only the explanation of the Puducherry Government is to the effect that they do not have previous experience in the matter of establishing the SEZ . Technical and commercial criteria had not been followed. No technical person was there in the Selection Committee. There was no discussion of the merits of the shortlisted companies or participants. With all these uncondonable lapses, the appellant-SPML was selected as a private developer. Certainly, such selection cannot be sustained. I....
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....: Whether the inclusion of the other appellant, namely Om Metals Infra Projects Ltd. as the consortium partner, after selecting the developer, namely the appellant-SPML Infra Ltd., is proper and valid? We have perused the Notification issued by the Nodal Officer, SEZ, PIPDIC, published in the newspapers calling upon applications for selection of a private developer. From the said Notification, it is seen that the SPV, a subsidiary of PIPDIC, was being formed and would have a strategic private investor having maximum participation/stake. It was further made clear therein that the partner may be a single company or a consortium of companies. It was further made clear therein that pre-qualification of parties for selection of the strategic partner, will be based on technical and financial criteria. Admittedly, out of these two appellants, the appellant-SPML was the applicant in response to the abovesaid advertisement. It is also not in dispute that the appellant-SPML made the said application as a single company and not as consortium of companies. Therefore, it is evident that the application submitted by the appellant-SPML as a single company, cannot be treated or construed as app....
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.... going through the established procedures in the tender process of selection. There might have been persons better qualified with better experience than the appellants. No comparative discussion of merits is available to discard their doubt. Unless a thorough analysis of comparative merits and abilities is made and set out in the selection proceedings in writing, the appellants cannot claim themselves as the most suitable persons for executing the project. Therefore, we are of the view that the merits and abilities of the appellants, as claimed by them, even assuming to be true, itself, cannot give rise to a cause of action for them to challenge the impugned proceedings, when the very inception of the appellants, itself is bad in the eye of law, as discussed supra. Hence, we answer the second question also against the appellants. 23. Question (iii): Whether the Ministry of Home Affairs, Union of India, is justified in directing the Government of Puducherry to cancel the entire agreement with the strategic partner? It is not in dispute that the Government of Puducherry cannot act on its own, especially in the matters involving economic policy and also parting of lands for any ....
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....hosen to challenge the subsequent impugned proceedings of the Ministry of Home Affairs and on the other hand, they returned the entire lands to the Government of Puducherry by abandoning the project itself. Under those circumstances, the appellants being only developers, cannot have any independent claim or right to challenge the cancellation, as admittedly they cannot act independently or parallely, that too against the interest of the PIPDIC or SPV. In fact, the Ministry of Home Affairs, by proceedings, dated 22.5.2007 sought for certain details from the Government of Puducherry in pursuant to the request made by them for grant of ex-post-facto approval and the said proceedings, dated 22.5.2007 reads as follows: "B.A.Coutinho, Joint Secretary (UT) Tel.No.23092514 Fax No.23093750 Ministry of Home Affairs Government of India North Block, New Delhi-110001 D.O.No.13034/31/2007-GP Dated, the 22nd May, 2007. Dear Sir, Please refer to your letter No.11017/5/2003/Ind.A dated 23rd April, 2007 regardings ex-post facto approval of the Government of India to the transfer of 336.12.52 Hectares o....
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....structure) Yojana Bhavan, Sansad Marg, New Delhi-14th October, 2008 OFFICE MEMORANDUM Subject: Setting up of a SEZ at Sedarpet, Karasur, Puducherry. The undersigned is directed to refer letter No.U-13034/31/2007-GP dated 23rd September, 2008 of MHA, in connection with the above mentioned subject and enclose a copy of the observations of Planning Commission on the above proposal. Encl: as above (K.Ranga Reddy) Jt.Adviser (PPPA) Tel.2309 6530 Shri J.P.Misra, Director (ANL), Ministry of Home Affairs, North Block, New Delhi. Subject: Setting up of a SEZ at Sedarpet, Karasur, Puducherry The proposal of Govt. of Pondicherry/MHA for setting up of a SEZ at Sedarpet, Karasur, Puducherry has been examined and the comment/observations are indicated below: 1. All the PPP project of State Govts., seeking viability gap funding under VGF Scheme would have to be got approved by the Empowered Institution (EI) and Empowered Committee, chaired by Additional Secretary and Secretary, DEA respectively. 2. All the PPP projects of Govt. of India, its undertakin....
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.... interest rate of 6% p.a. This arrangement is very lopsided and the interest rate charged (6%) is very low. The private partner would, thus, derive undue benefit from this arrangement which is not in fair. 12. GoP has not conveyed its response to the conditions/queries of MHA raised in the meeting held on 23.04.2008, regarding transfer of 10.36 ha of land and other issues. 13. The response of GOP regarding a corruption complaint in award of Port Project is awaited. GOP also needs to clarify/respond to the observation of MHA regarding the CVC angle and also the procedure adopted for selection of the private developer for the SEZ project." 26. The abovesaid Office Memorandum submitted by the Planning Commission to the Ministry of Home Affairs is self-explanatory. It is also to be noted that such Office Memorandum was issued subsequent to the abovesaid ex-post-facto approval granted by the Ministry of Home Affairs. When such irregularities and illegalities were brought to the knowledge of the Ministry of Home Affairs by the Planning Commission, though subsequent to the grant of ex-post-facto approval, it cannot be said that, still, the Ministry of Home Affairs sho....
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....efore, the said decision cannot be relied upon by the appellants. 28. At this juncture, it is relevant to note the recent decision of the Honourable Supreme Court reported in 2014 (7) MLJ 315 (SC) (Manohar Lal Sharma Vs. Principal Secretary), namely the Coal Case, wherein in paragraph 154, it has been observed as follows: "154. To sum up, the entire allocation of coal block as per recommendations made by the Screening Committee from 14.07.1993 in 36 meetings and the allocation through the Government dispensation route suffers from the vice of arbitrariness and legal flaws. The Screening Committee has never been consistent, it has not been transparent, there is no proper application of mind, it has acted on no material in many cases, relevant factors have seldom been its guiding factors, there was no transparency and guidelines have seldom guided it. On many occasions, guidelines have been honoured more in their breach. There was no objective criteria, nay, no criteria for evaluation of comparative merits. The approach had been ad-hoc and casual. There was no fair and transparent procedure, all resulting in unfair distribution of the national wealth. Common good and publ....
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....ants for the purpose of emphasising one and the same point, in order to avoid multiplicity, we would like to refer the last decision, namely 2007 (5) SCC 447 (Southern Petrochemical Industries Co. Ltd. Vs. Electricity Inspector & ETIO), wherein, the Apex Court has held in paragraphs 128, 130 and 133 as follows: "128. In MRF Ltd. (MRF Ltd. Vs. Asstt. CST - 2006 (8) SCC 702) it was held that the doctrine of promissory estoppel will also apply to statutory notifications." "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." "133. Legitimate expectation is now considered to be a part of the principles of natural justice. If by reason of the existing state of affairs, a party is given to understand that the other party shall not take away the benefit without complying with the principles of natural justice, the said doctrine would be applicable. The legislature, indisputably, has the power to legislate but where the law itself recognises existing right and did not take away the same expressly or by necessary ....
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....ead that the action of the respondents in cancelling the agreement subsequently, is hit by the principles of promissory estoppel and legitimate expectation. Certainly, such principles have to be applied only in deserving cases, where the facts and circumstances permit for application of those principles as well. If the promise given was on suppression of facts or against the well-established principles and procedures of law or without appraisal of the entire facts, the promisor can always withdraw from such promise either by direct action or by implication, if those lapses come to his knowledge at a later point of time. Justification for making the promise must not only exist at the time of making it, but also should continue to exist till the end of the transaction or event. Subsequent developments, if any, warranting change of mind, will have to be taken note of to decide as to whether the promise must continue or to be withdrawn. Under those circumstances, the person who obtained such promise, cannot plead estoppel against the promisor. This is what the position in the case of the legitimate expectation also. Therefore, we are of the view that the appellants cannot succeed in th....
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....approval under sub-section (10) of section 3, submit the exact particulars of the identified area referred to in sub-sections (2) to (4) of that section, to the Central Government and thereupon that Government may, after satisfying that the requirements, under sub-section (8) of section 3 and other requirements, as may be prescribed, are fulfilled, notify the specifically identified area in the State as a Special Economic Zone: Provided that an existing Special Economic Zone shall be deemed to have been notified and established in accordance with the provisions of this Act and the provisions of this Act shall, as far as may be, apply to such Zone accordingly: Provided further that the Central Government may, after notifying the Special Economic Zone, if it considers appropriate, notify subsequently any additional area to be included as a part of that Special Economic Zone." On a perusal of the above Section, it is clear that the developer cannot compel the Central Government to notify the area as a Special Economic Zone and discretion is given to the Central Government to satisfy itself that the requirements under sub-section (8) of Section 3 and other requirem....
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....anation. Therefore, it is crystal clear that such explanation or objection to be given by the affected person, must have a bearing on the decision to be taken by the authority concerned. In other words, such objection or explanation must be in a position to make the authority concerned to take a different view also, other than the one proposed already. To put it in a nut-shell, there must be two views possible, one in favour and the other against the noticee. Only under such circumstances, the requirement of issuing notice and following the principles of natural justice arises. If no other view is possible or the explanation or objection to be made by such person cannot alter or have any bearing on the decision to be taken, there is no need to issue such notice. In those cases, issuance of notice would be only an empty formality. 36. In this connection, it is useful to refer the decision of the Honourable Supreme Court reported in 2007 (4) SCC 54 (Ashok Kumar Sonkar Vs. Union of India), wherein, in paragraphs 26 to 28, it has been observed as follows: "26. This brings us to the question as to whether the principles of natural justice were required to be complied with. T....
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....ed principle is that the courts should not interfere. Moreover in the context of the changed economic scenario the expertise of people dealing with the subject should not be lightly interfered with. The consequences of such interdiction can have large-scale ramifications and can put the clock back for a number of years. .. ..." (emphasis supplied) 39. In the decision reported in 1993 (1) SCC 445 = AIR 1996 SC 51 (Sterling Computers Ltd. Vs. M & N Publications Ltd), the Honourable Supreme Court observed in paragraphs 17 to 19 as follows: "17. It is true that by way of judicial review the Court is not expected to act as a court of appeal while examining an administrative decision and to record a finding whether such decision could have been taken otherwise in the facts and circumstances of the case. In the book Administrative Law, Prof. Wade has said: "The doctrine that powers must be exercised reasonably has to be reconciled with the no less important doctrine that the court must not usurp the discretion of the public authority which Parliament appointed to take the decision. Within the bounds of legal reasonableness is the area in which the deciding authorit....
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.... conclusion which is correct in the eyes of the court." By way of judicial review the court cannot examine the details of the terms of the contract which have been entered into by the public bodies or the State. Courts have inherent limitations on the scope of any such enquiry. But at the same time as was said by the House of Lords in the aforesaid case, Chief Constable of the North Wales Police v. Evans (1982 (3) All.E.R. 141) the courts can certainly examine whether "decision-making process" was reasonable, rational, not arbitrary and violative of Article 14 of the Constitution. 19. If the contract has been entered into without ignoring the procedure which can be said to be basic in nature and after an objective consideration of different options available taking into account the interest of the State and the public, then Court cannot act as an appellate authority by substituting its opinion in respect of selection made for entering into such contract. But, once the procedure adopted by an authority for purpose of entering into a contract is held to be against the mandate of Article 14 of the Constitution, the courts cannot ignore such action saying that the aut....