TaxTMI 
TaxTMI 
TaxTMI 
2015 (10) TMI 2148
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....ndia, 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 of Pondicherry also decided to constitute a Special Purp....
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....st-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 filed counter affidavit contending that the Ministry of Home Affairs has stated that....
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....ants/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 Government of Pondicherry that the mistake was committed in taking Om Metal Infra Projects Limited as a part....
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....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 in the meeting held on 23.4.2008, the Union Home Ministry, for the first time, examined the selection process, that too only after receipt of proposal for transferring 10.36.13 hectares of Governm....
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....e 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 inclusion of Om Metals was transparent with the knowledge and consent of the State Government. Regarding the contiguity of lands, neither the Ministry of Home Affairs in letter dated 6.8.2009, nor the Government of Pondicherry raised any i....
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....dia 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.Manoharan, learned counsel appearing for the third respondent in his oral and written submissions, submitted as follows: The method and procedure for participating in the selection process as "a single Company" and as "a consortium of Companies" are entirely different. The third respondent as the nodal agency to the SEZ, has published advertisement in newspap....
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....e 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 etc., and they have not spent any money towards physical progress of setting up of the SEZ till this date. The fourth respondent-SPV is the "developer" within the meaning of Section 2(g) of the said Act and as per Section 4(1) of the said Act, only the developer can seek the Central Government to notify, that too after satisfying the conditions prescribed ther....
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....e 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 application that the area was contiguous. Even though the Ministry of Commerce has taken a decision on 11.8.2009 to examine in respect of such lack of contiguity, on 6.8.2009 itself, Ministry of Home Affairs had directed the Pondicherry Government to cancel the entire process. 346 hectares were transferred to the SPV without any prior approval from the Central Governmen....
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....on 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 Vs. M & N Publications Ltd); (ii) AIR 1979 SC 1628 = 1979 (3) SCC 489 (R.D.Shetty Vs. International Airport Authority); (iii) AIR 1980 SC 1992 = 1980 (4) SCC 1 (Kasturi Lal Lakshmi Reddy Vs. State of J and K) and (iv) 2007 (4) SCC 54 (Ashok Kumar Sonkar Vs. Union of India) and 15. Mr.T.Murugesan, learned Government Pleader (Pondicherry) appearing for t....
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....ner 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 of the Government of India. It is the first respondent which has to issue the final Notification under Section 4 of the SEZ Act. In view of the termination and cancellation of the agreement, the PIPDIC handed over the entire lands to the District Collector, Puducherry. The PIPDIC which was the applicant for setting up of the SEZ, by returning the entire lands to the Government of Puducherry, has in effect, ....
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....dures? 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, those shortlisted 11 companies were called upon to give their Presentation on 10.3.2005. It is seen that only 10 Minutes Power Presentation was given by each of the companies before the Internal Committee set up by the Government of Puducherry under the Chairmanship of the Chief Secretary. Among those 11 companies which gave their Power Presentation, three were shortlisted by the Internal Committee, in which, the appellant-SPML Infra Ltd. was placed in No.1 in....
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....he 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. In this case, the peculiar circumstance is that the very selectee, namely the Government of Puducherry, concedes that such selection was bad, as the same was made not by going through the established procedures. 19. Such being the facts and circumstances, we are of the view that selection of the appellant-SPML is bad, as the very inception itself is against the well-established procedures in the tender process for selection, especially when the project for wh....
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....tegic 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 application by the consortium of companies subsequent to the selection of the appellant-SPML and by including the appellant-Om Metal thereafter. It is not known as to how such inclusion of the appellant-Om Metal was permitted by the Government of Puducherry, when the appellant-Om Metal did not take part in the process of selection; did not make any Power Presentation; did not satisfy that they have participated or invested in the construction of infrastructure project of comparable mag....
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....w 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 developmental activities, in view of Article 239 of the Constitution of India. It has to necessarily obtain the approval from the Ministry of Home Affairs, Government of India. It is true that originally, the Ministry of Home Affairs, Union of India has given its ex-post-facto approval for the transfer of 336.12.52 hectares of lands by the PIPDIC to the Puducherry Special Economic Zone Company Limited, for speedy implementation of the SEZ project, by communication dated 6.8.2007. In the v....
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.... 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 of land by Pondicherry Industrial Promotion Development and Investment Corporation Ltd. for setting up a Special Economic Zone at Sedarapet-Karasur. 2. Without keeping the MHA in the picture, Puducherry Government has now requested to accord ex-post facto approval. The proposal does not even give the following information:- (a) The name of the Developer Company; (b) The financial capacity of the Developer Company; (c) The criteria adopted for selecting the Developer Company; (d) The period for which the lease has to be signed; (e) What happens to the land in the event of Developer Company defaulting or going into liquidation? ....
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....te 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 undertakings and Statutory Entities under the administrative control of the Ministries of Govt. of India have to be approved by Public Private Partnership Projects Approval Committee (PPPAC) chaired by Secretary, DEA. 3. In this case, no VGF Grant has been sought. MHA has to take a view whether this project falls under the category of State Project or Central Project. In case, it is considered as a Central Project, then approval of PPPAC is mandatory. 4. M/s.Subhash Projects & Marketing Ltd has been selected as the private developer for the SEZ project. The aware of project is not based on a transparent and open competitive bidding process. The bidding should have been based on a specific bidding parameter. 5. Approval of MHA should have been obtained or the representatives of MHA should have been involved in the negotiations/process right from the beginning so that GOP could have got a better advice/feedback from Govt.....
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....e 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 should keep quiet without re-considering the earlier approval granted and consequently directing the Puducherry Government to cancel the agreement. The learned single Judge has also dealt with this issue in detail by referring to various proceedings from the files, which we do not wish to reproduce once again hereunder in order to avoid multiplicity. 27. Learned Senior Counsels appearing for the appellants relied upon a decision of the Honourable Supreme Court reported in 2003 (8) SCC 100 (5 M & T Consultants, Secunderabad Vs. S.Y.Nawab) to contend that the respondents herein are not entitled to make 'U' Turn and decide against the appellants, even assuming that there are some lapses. It is true that in paragraph 17 of the said decision, the Apex Court observed that, " ...It is by now well settled that non-floating of tenders or absence of public auction or invitation alone is no sufficient reason to castigate the move or an action of a public authority as either arbitrary or unreasonab....
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....rative 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 public interest have, thus, suffered heavily. Hence, the allocation of coal blocks based on the recommendations made in all the 36 meetings of the Screening Committee is illegal." 29. We have already pointed out that the very inception of the appellants was not in accordance with the well-established procedures. Therefore, such selection undoubtedly suffers on the ground of arbitrariness and legal flaws. Consequently, the Ministry of Home Affairs cannot be found fault with in directing the Government of Puducherry to cancel the entire agreement. Accordingly, we hold that the Ministry of Home Affairs is justified in their action and thus, we answer this question also against the appellants. 30. Question (iv): Whether the appellants are entitled to raise the grounds of "promissory estoppel" and "legitimate expectation" under the facts and circumstances of the case? On this issue, the learned Senior Counsels appearing for the appellants relied on the following decisions to contend that the respondents are e....
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....ight and did not take away the same expressly or by necessary implication, the principles of legitimate expectation of a substantive benefit may be held to be applicable." 32. There is no quarrel about the said proposition. At the same time, it cannot be disputed that the requirement of application of those principles depends upon the facts and circumstances of each case. It is needless to say that a person who seeks application of the principles of promissory estoppel and legitimate expectation, must prove on facts that he has a legal basis or right to seek for application of those principles to the facts and circumstance of his case. Hence, the appellants herein, unless succeed in their attempt in establishing their legal right to sustain the very selection itself based on the facts and circumstances of the present case, they cannot be permitted to plead that the conduct of the respondents is against the principles of promissory estoppel and legitimate expectation. A person who was not selected through well-established procedures, cannot plead for application of those principles. When the very inception of such person itself is bad, question of application of those principles do....
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.... we are of the view that the appellants cannot succeed in their attempt to seek for application of those principles based on the above referred case laws, which are factually distinguishable compared to the facts and circumstances of the present case. Moreover, we have already discussed in detail and found that the very inception of the appellants, itself, is bad. If such inception is bad, any subsequent action or conduct of the parties cannot make such inception good or sanctified. Therefore, based upon such subsequent conduct, the party whose inception was found to be bad, cannot plead promissory estoppel or legitimate expectation. 33. At this juncture, it is useful to refer to the decision of the Honourable Supreme Court reported in 2011 (3) SCC 436 (State of Orissa Vs. Mamata Mohanty), wherein the Apex Court observed in paragraph 37 as follows: "Order bad in inception 37. It is a settled legal proposition that if an order is bad in its inception, it does not get sanctified at a later stage. A subsequent action/development cannot validate an action which was not lawful at its inception, for the reason that the illegality strikes at the root of the order. It would be beyond ....
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.... other requirements of the said Act prescribed, are fulfilled by the developer to notify. In this case, in view of our discussion made above in answering the other questions, we are of the view that the appellants-writ petitioners are not entitled to seek for issuance of Writ of Mandamus to direct the issuance of Notification under Section 4(1) of the SEZ Act, as they do not have any legal right to seek for the same. In fact, the lands transferred to PIPDIC were withdrawn and a direction was issued by the Ministry of Home Affairs to cancel the entire agreement with the strategic partner and not to part with the lands in favour of PIPDIC or Pondicherry SEZ Company Ltd. Neither the PIPDIC nor the SPV has chosen to challenge the impugned action. On the other hand, they returned the lands to the Government of Puducherry in pursuant to the impugned communication issued by the Ministry of Home Affairs. They have also abandoned the project. It is also specifically pointed out by the learned single Judge in paragraph 63 of his order that the Government of Pondicherry has taken a decision not to establish the SEZ and to use the lands for other public purpose to improve the economic conditio....
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.... There cannot be any doubt whatsoever that the audi alteram partem is one of the basic pillars of natural justice which means no one should be condemned unheard. However, whenever possible the principle of natural justice should be followed. Ordinarily, in a case of this nature the same should be complied with. Visitor may in a given situation issue notice to the employee who would be effected by the ultimate order that may be passed. He may not be given an oral hearing, but may be allowed to make a representation in writing. 27. It is also, however, well settled that it cannot put any straightjacket formula. It may not be applied in a given case unless a prejudice is shown. It is not necessary where it would be a futile exercise. 28. A court of law does not insist on compliance with useless formality. It will not issue any such direction where the result would remain the same, in view of the fact situation prevailing or in terms of the legal consequences. Furthermore in this case, the selection of the appellant was illegal. He was not qualified on the cut-off date. Being ineligible to be considered for appointment, it would have been a futile exercise to give him an opportunit....
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....es those bounds, it acts ultra vires. The court must therefore resist the temptation to draw the bounds too tightly, merely according to its own opinion. It must strive to apply an objective standard which leaves to the deciding authority the full range of choices which legislature is presumed to have intended. The decisions which are extravagant or capricious cannot be legitimate. But if the decision is within the confines of reasonableness, it is no part of the court's function to look further into its merits. 'With the question whether a particular policy is wise or foolish the court is not concerned; it can only interfere if to pursue it is beyond the powers of the authority.'" But in the same book Prof. Wade has also said: "The powers of public authorities are therefore essentially different from those of private persons. A man making his will may, subject to any rights of his dependants, dispose of his property just as he may wish. He may act out of malice or a spirit of revenge, but in law this does not affect his exercise of his power. In the same way a private person has an absolute power to allow whom he likes to use his land, to release a debtor, or, where th....
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....erence by court amounts to encroachment on the exclusive right of the executive to take such decision." 40. Therefore, this Court cannot compel the Puducherry Government to have or not to have the SEZ, as such decision is undoubtedly an economic policy decision, that too involving huge expenditure of Government exchequer and parting of vast extent of lands. It is better to leave it in the hands of the Puducherry Government to take its own decision, considering the various aspects of the matter and the interest of the public. That being the position, the appellants being the private developers, cannot compel the issuance of Notification under Section 4(1) of the SEZ Act to develop the SEZ project, especially when it is found that they do not have a legal right to do so. Therefore, this question is also answered against the appellants. 41. The appellants, in fact, projected their case as if the impugned decision was taken only because of the change of men in power, without there being any valid reason. In support of such contention, the decision of the Honourable Supreme Court reported in 2011 (6) MLJ 43 (SC) (State of T.N. Vs. K.Shyam Sunder) was relied upon by the learned Senior ....