JUDGMENT
Dinesh Maheshwari, J.
1. The petitioner, Highway Tyre Retread Pvt. Ltd. is a Private Limited Company engaged in the business of retreading of tyres. The petitioner applied for a loan to the Rajasthan Financial Corporation which was sanctioned to the tune of Rs. 13.1 lacs. The petitioner also applied for the sanction of investment subsidy under a scheme called “The State Capital Investment Subsidy Scheme For New Industries, 1990” (hereinafter referred to as the Scheme/the Subsidy Scheme’). The application of the petitioner for grant of subsidy was allowed and the petitioner was sanctioned an amount of Rs. 2,09,6007- being 20% of the amount of fixed capital investment as admissible for the grant of capital investment subsidy under the aforesaid scheme on 16.3.1991 in the first meeting of the District Level Committee (‘DLC’ for short) held on 16.3.1991. An agreement was executed between the petitioner and the respondents State of Rajasthan and Rajasthan Financial Corporation (‘RFC’ for short) on 31.5.1991 and an amount of Rs. 1,57,2007- was disbursed towards the sanctioned subsidy by way of a cheque dated 21.6.1991.
2. It appears that the fifth meeting of State Level Committee (‘SLC’ for short) was held on 26.6.1991 in which a question raised by RFC as to whether the tyre retreading units could be considered for subsidy under the scheme was taken up for consideration and the SLC decided that these units were not eligible for subsidy..In pursuance to this decision, the Directorate of Industries instructed the RFC on 30.9.1991 to recover back the amount paid to the petitioner and for this purpose, the RFC issued letters and reminders to the petitioner and finally informed the petitioner by letter dated 15.3.1993 that the petitioner had been requested and reminded to refund the subsidy alongwith update interest and as the petitioner had failed to do so, the RFC had debited his account with the disbursed subsidy amount alongwith interest totaling Rs. 2,05,5717-.
3. The petitioner has submitted this writ petition questioning the legality of such action on the part of the respondents in recalling the subsidy already sanctioned and paid to it and has prayed for quashing of the orders dated 9.7.1992 (Annex.4), 10.9.1992 (Annex.6), 30.6.1993 (Annex.7) and 15.7.1993 (Annex.8) by which the petitioner was asked to refund the amount of subsidy. The petitioner has also prayed for a declaration that it be held entitled to the grant of subsidy and that the sanction had rightly been accorded and for ancillary reliefs.
4. The petitioner has averred in the writ petition that in the tyre retreading process old and worn out tyres are processed and prepared in such a way that the same tyre could be used again almost as a new one. The worn out tyres are given firstly the surface treatment to make the tyre even and thereafter rubber is applied to it by the process of heat treatment and thus, tyre retreading process in one sense may be treated as manufacturing process and in another sense, it is also a service industry or service unit. The petitioner has submitted that the loan was applied to RFC for Rs. 18 lacs but the same was sanctioned to Rs. 13.1 lacs. The petitioner also applied for sanction of investment subsidy under the aforesaid subsidy scheme being eligible therefor. The industry of the petitioner became operational on 30.6.1990. The subsidy was notified by the State Government on 5.9.1990 by issuing issuing a notification and the scheme was made operational with effect from 1.4.1990 so to remain in force upto 31.3.1995. The scheme gives out eligible industries as stated in Annex.A to the notification, whereas, a list of industries not eligible for this subsidy has been given out in Annex.B. This negative list of Annex.B at item No. 17 excludes ‘Service Units’ as being ineligible for the subsidy. However, four exceptions to Item No. 17 have been given which include “Heat treatment/surface treatment units”. The petitioner has claimed that its unit was engaged in manufacturing process and another sense, it was also a service unit but entitled for the grant of investment subsidy.
5. According to the petitioner, under the aforesaid scheme, the DLC headed by the Collector is the competent authority for sanctioning the subsidy for the industrial units having eligible fixed capital investment below Rs. 25 lacs, whereas, for other industrial units, the subsidy is to be sanctioned by SLC headed by the Commissioner and Secretary to the Government, Industries Department. A detailed procedure for recovery has also been provided under the scheme and guidelines issued under the scheme and according to the petitioner, none of the conditions requisite for recovery of the subsidy already sanctioned and disbursed are applicable to the case of the petitioner. The petitioner was sanctioned subsidy of Rs. 2,09,6007- by the DLC on 16.3.1991 (Annex. 1) and formal sanction order was also issued on that very day (Annex.2). A formal agreement was also executed on 31.5.1991 (Annex.3). Para 3 in the agreement recites that the State Government has agreed to grant the said subsidy on the terms and conditions contained therein. The petitioner had been advanced only the amount of Rs. 1,57,2007- as subsidy against the sanctioned amount of Rs. 2,09,6007-. This amount instead of being given in cash to the petitioner had been adjusted in the loan account. The petitioner received an order dated 9.7.1992 (Annex.4) informing that subsidy has been called back by the Director of Industries and the petitioner was advised to deposit the disbursed subsidy amount within seven days, else the same would be debited in its loan account. The petitioner protested against calling back of the subsidy and requested the RFC to supply copy of letter received from the Director of Industries so that it could make representations and till the matter was finally decided, the subsidy amount be not mixed up with the loan account and also requested for disbursement of the balance loan. However, the RFC repeated its order directing the petitioner to deposit the disbursed subsidy amount by the letters dated 10.9.1992 (Annex.6) and 30.6.1993 (Annex.7). As the petitioner still failed to deposit the amount, the RFC sent the letter dated 15.7.1993 (Annex.8) stating thus:–
Please refer to our Regd.A/D. letter No. 1900 dt. 9.7.1992 & subsequent reminders dt. 10.9.1992 & dt. 30.6.1993 and personal discussions had with your goodself in number of times in which we have requested you to refund the subsidy alongwith upto date interest as Govt. has rejected your subsidy claim on the ground that unit is not entitled for subsidy under the State Capital Investment Subsidy Scheme, 1990. As you have failed to refund the subsidy alongwith upto date interest, we have debited your A/c. with disbursed subsidy of Rs. 1.57 lacs plus upto date interest of Rs. 48571/- Total Rs. 2,05,571/-.
6. The petitioner has challenged this action coupled with stoppage of disbursement of further loan amount by the RFC by way of this writ petition. This petition was admitted on 1,11.1993 and by an interim order, the recovery of subsidy amount was stayed on the condition of the petitioner furnishing surety in the like amount to the satisfaction of the Branch Manager, RFC, Udaipur. This stay order was later on confirmed to last till the decision of the writ petition on 2.11.1995.
7. The respondents Rajasthan Financial Corporation and the State of Rajasthan have submitted separate replies to this writ petition.
8. On behalf of RFC, it has been submitted that tyre retreading was not a manufacturing process; that of course the petitioner applied for loan and subsidy but the RFC has no concern with the grant of subsidy which is under the competence of DLC only. In case, any grant is made by mistake, the amount can always be recovered and in the present case, as the tyre retreading was not found to be a manufacturing process, so the amount granted by mistake can be recovered. The allegation of direct adjustment of the subsidy amount in the loan account has been denied with the submissions that cheque No. 081590 dated June 21, 1990 amounting to Rs. 1,57,2007-of the amount of subsidy was handed over to the petitioner but the petitioner on his own endorsed the said cheque in favour of RFC for depositing it in the loan account.
9. It may be clarified at this juncture itself that during the course of hearing an incongruity, so far as this date of cheque is concerned was noticed. The date of cheque had been stated in the reply of RFC as well as of State to be 21.6.1990. However, learned Counsel for the respondent-RFC has clarified the same to be a typographical error only and has produced on record a receipt dated 21.6.1991 for the aforesaid cheque signed on behalf of the petitioner. Learned Counsel for the petitioner has also admitted that the cheque was given to the petitioner on 2.6.1991.
10. It has been submitted by the RFC that the petitioner’s unit was not eligible for grant of subsidy and accordingly as per directions of the Industries Department, this amount was to be recovered for which the petitioner was reminded time and again. It has been submitted that loan was disbursed on creation of assets by the petitioner and as the petitioner failed to deposit the amount of subsidy, it was not possible to disburse the remaining loan amount and hence the loan sanctioned was cancelled. Else, the stand of RFC has been that it works merely an agent on behalf of Government in the matter of grant of subsidy and it has only informed the petitioner for compliance of the orders of the Industries Department. Even in reply to the averments made in ground (ix), the RFC has submitted that whether the petitioner unit was entitled for subsidy or not, is to be explained by the other respondents and not by the RFC. However, it has been asserted that the SLC found tyre retreading unit to be not entitled for subsidy, hence decision of the calling back the subsidy was perfectly justified.
11. On behalf of the respondent No. 1 State of Rajasthan, it has been submitted in reply to the writ petition that tyre retreading process cannot be treated to be manufacturing process and tyre retreading is a service based unit. It has been admitted that State subsidy was granted to the unit but it has been contended that it was granted under the bonafide mistake by DLC treating this unit as manufacturing unit, whereas, this unit is service based unit because no manufacturing take place. According to the respondent-State, when this situation came in the knowledge of SLC, the matter was considered whether such units are manufacturing units or service units and the SLC came to the conclusion that the tyre retreading units are service based units covered under Item No. 17 of Annex.B and did not come within the purview of exception mentioned under item No. 17 and, therefore, the petitioner’s unit was not considered eligible for this subsidy. While producing the proceedings of the meeting of SLC held on 26.6.1991, it has been submitted with reference to Item No. 3 therein that the same clarifies the whole position. According to the respondent-State, consequently, the disbursing agency, namely, RFC was directed to call back the disbursed subsidy and a copy of the direction issued by the Industries Department has been produced as Annex.R/2.
12. The State has also relied upon Clause (7) of the agreement dated 31.5.1991 (Annex. 3) wherein it has been stipulated that the grantee shall refund the said subsidy or part thereof to the State Government, in case the same was found recoverable under the provisions of the scheme or the guidelines issued thereunder.
13. The learned Counsel for the petitioner has pressed the following grounds in support of the writ petition: that the petitioner’s unit was eligible and entitled for the subsidy and was found so by DLC under the relevant provisions of the scheme and the subsidy was sanctioned and a part thereof was disbursed; other than DLC no authority or person was competent either to sanction the subsidy or call the same back; that the SLC headed by the Commissioner and the Secretary to the Government was not a competent body or the authority to sanction the subsidy in the case of the petitioner nor it was a revisional or appellate or even supervisory authority over the DLC so as to sit over and reverse the decision taken by DLC; that the so-called order by SLC is entirely without jurisdiction and so also calling back of the subsidy by the Director of Industries was without jurisdiction; that no reason has been assigned for withdrawal, rejection or calling back of the subsidy and the order for calling back has been passed without hearing the petitioner and the orders were even otherwise wholly non-speaking; that respondents are estopped from calling back the subsidy which has once been sanctioned and disbursed by the competent authority and the orders in question were in violation of principles of promissory estoppel; that the disbursed subsidy could only be recovered under the circumstances enumerated under the scheme and the guidelines and the case of the petitioner does not fall within any of the mischief under such provision; that the subsidy was rightly sanctioned in favour of the petitioner inasmuch as the petitioner’s unit is a manufacturing unit or at any rate it is a service unit dealing with heat treatment/surface treatment.
14. Learned Counsel for the respondents have countered with the submissions: that petitioner’s unit was not a manufacturing unit and it was a service based unit not falling in any of the exceptions in Clause 17 and, therefore, it was not eligible for the grant of subsidy. The sanction in its favour was erroneously and mistakenly made by DLC and no rights accrued to the petitioner for such mistake; that SLC was definitely higher authority than the DLC and it had the jurisdiction to provide for proper guidelines for the DLC and any sanction made contrary to the decision of SLC cannot be sustained; that the petitioner had clearly been informed that subsidy granted to it has been recalled in pursuance to the directions of SLC and it was also informed that its unit was not found eligible for grant of subsidy. The reason was specifically informed to the petitioner and as the sanction itself was made under a pure mistake of fact by DLC, the provisions requiring hearing a unit before recovering the amount of subsidy do not apply; that there is no question of any estoppel in this case as the petitioner has been disbursed an amount which was not admissible to it and contrary to the scheme framed by the Government. The amount having been wholly illegally disbursed, the principles of promissory estoppel do not apply; that the provisions of Clause (3) referred by the petitioner are not relevant for the present purposes because the same refer to some mistake or fault on the part of the unit. However, in the present case, the grant itself was made under a mistake and, therefore, has to be treated as void and non-est and, therefore, the amount received under such a void decision is required to be restituted by the petitioner; that the petitioner unit is not engaged in manufacturing process and is only service unit which is ineligible by virtue of Clause 1.7 of Annex.B attached to the scheme and it does not fall within any of the exceptions of Clause 17.
15. Having heard the learned Counsel for the parties and having scanned through the entire record and having examined the law applicable to the case, this Court is clearly of opinion that the action of the respondents in seeking to recall the sanctioned subsidy and to recover the disbursed amount from the petitioner and all consequential proceedings are entirely arbitrary, unfair, illegal and unauthorised and deserve to be struck down.
16. A copy of some of the provisions of the scheme and “Procedure and Guidelines for Claiming State Capital Investment Subsidy” was placed by the learned Counsel for the respondents. However, as the copy placed by learned Counsel for the petitioner was not complete, learned Counsel for the respondents was asked to supply a complete set of the subsidy scheme and the learned Counsel for the respondent-RFC has placed before the Court for perusal a booklet titled “Subsidy Schemes for Industries As amended upto 31st March, 1991”.
17. The said scheme was framed by the State and notified on 5.9.1990 but was given retrospective operation making it effective from 1.4.1990. The scheme provides for capital investment subsidy on the eligible fixed capital investment at the rate of 15% subject to a maximum of Rs. 15 lacs to medium and large scale industries; but at the rate of 20% of the eligible fixed capital investment subject to a maximum of Rs. 20 lacs to small scale and ancillary industrial units or the industries based on resources available in the State or the industries set up by NRIs or 100% export oriented units. An additional subsidy at the rate of 2% subject to maximum of Rs. 2 lacs has been provided for labour intensive industries. The fact that the petitioner answers to the description of small scale industrial unit is not in dispute.
18. The types of units which have been held eligible for the subsidy are those industrial units which are coming under commercial production on or after 1.4.1990 and during the operational period of the scheme. Expansion and diversification projects of existing industrial units have also been made eligible for subsidy. The petitioner falling to this description of coming into commercial production after 1.4.1990 is also not in dispute.
19. There are certain locational restrictions for the units located within the municipal limits of some of the towns and within urban agglomeration limits of some other towns but this restriction does not apply to the Electronics and Telecommunication units. Be that as it may, locational restriction also does not operate against the petitioner whose unit has been shown to be situated at National Highway No. 8, Sethji Ka Kundal, 11 kms. away from Udaipur.
20. The sanctioning and disbursement of subsidy has been provided to be carried out by the District Level Committee headed by (i) the District Collector for the industrial units having eligible fixed capital investment below Rs. 25 lacs, and (ii) for other industrial units by the State Level Committee headed by the Commissioner and Secretary to the Government, Industries Department. The disbursement of subsidy in the case of units financed by RIICO and RFC has been provided to be made by those financial institutions.
21. Annex.A to the scheme provides for industries eligible for this investment subsidy which include the industries covered under the Industries (Development £ Regulation) Act, 1951 (‘the Act of 1951’ for short) requiring letter of intent/registration/licence and small scale industries as defined in the Act of 1951 and provisionally/permanently registered with the Director of Industries. In the present case, it has never been put to question that petitioner does not answer to the description of the industries who were made eligible under the Annex.A.
22. Annex.B to the scheme contains a list of industries not eligible for this subsidy. This negative list excludes various industries like flour and spice mills with reference to population of town where it is installed; manufacturing of ice, ice-cream, sweetmeats etc.; fertilizer mixing; tailoring; repacking of goods etc. etc. Item No. 17 with which we are concerned in the present case provides thus,-
17. Service units except the following:
(i) Electro-plating units.
(ii) Refining/reprocessing of used lubricants and used engine/machine oils
(iii) Heat treatment/surface treatment units,
(iv) Test House.
23. The scheme in its operation provides for granting of the subsidy by way of its sanction by DLC or SLC as the case may be and disbursement by the concerned financial institution, in case of units financed by them and in other cases by Member Secretary of the Committee concerned. The District Committee has been provided to be consisting of,-
(a) Collector of the District Chairman
(b) Representative of RFC Member
(c) Treasury Officer Member
(d) General Manager, DIG Member-Secy.
24. The quantification and disbursement of subsidy has been provided in Clause 12 in the manner that the subsidy might be sanctioned as per approved project report but disbursement is to be made in proportion to the assets created.
25. From perusal of the State Capital Investment Subsidy Scheme for New Industries, 1990, it further appears that it provides for making of the application to the Committee concerned and then disposal of the application has been provided in Clause 2 of the guidelines thus,-
2. SANCTION & DISBURSEMENT OF SUBSIDY
The applications received by the Member-Secretary, State Level Committee/District Level Committee or through any other agency as prescribed in Para 1 shall be examined by the Member- Secre’tary, District Level Committee/State Level Committee as the case may be. The checklist appended to the procedure may also be referred to the Member-Secretary for that purpose. RFC/RIICO or any central financial institution, who receive the applications on behalf of the Mem-ber-Secretary, DLC/SLC shall forward the same to the Member-Secretary, DLC/SLC as the case may be with its recommendations in Form No. 7, at least a fortnight before the scheduled meetings. In the cases of self-financed or units financed by Banks, the applications will be forwarded by DLC, with its recommendation in Form No. 8.
The agenda note for the meeting of SLC/DLC will be prepared by the Member-Secretary in Form No. 9.
The Member-Secretary, DLC/SLC will communicate the sanction of the subsidy to the applicant in Form No. 10 along with a copy of the agreement to be executed by the applicant in Form No. 6. This agreement is to be executed by the eligible industrial unit on a non-judicial stamp paper of Rs. 5/- before the actual disbursement of subsidy. Where the subsidy is disbursed by a State Financial Institution, the concerned institution shall execute the agreement with the party on behalf of the State Government while in other cases, the agreement will be signed by the Collector (Industries) or Director Industries as the case may be.
26. Clause 3 of the aforesaid guidelines makes the provision for recovery of State Investment Subsidy thus,-
3. PROVISIONS OF RECOVERY OF THE STATE INVESTMENT SUBSIDY
In each of the following events or circumstances the State Investment Subsidy availed by an industrial unit shall be recoverable from it along with a simple interest @ 15% as arrears of land revenue and/or dues of the State Financial Institution:
(a) Where an industrial unit has obtained the State Investment Subsidy by mis-representation of facts or by furnishing false information, or
(b) Where the industrial unit goes out of production or is sold without prior approval of the sanctioning authority, within five years from the date of commence of production. This will not apply in a case where the industrial unit remains out of production for short periods extending up to (six months due to reasons beyond its control such as shortage of raw materials, power etc. or
(c) Where the industrial unit fails to furnish the prescribed statement and/or information which it is called upon to furnish.
(d) Where the industrial unit violates any covenant or the Agreement executed.
(e) Where the unit has received an Advance Investment Subsidy but does not come into commercial production within two years of receiving the Advance Subsidy or before 31st March, 1995 whichever is earlier.
(f) Where any overpayment is found to have been made by the Disbursing Agency.
In the cases of default/misuse or breach of agreement the disbursing agency shall recover the amount as per the provisions of the agreement.
27. The powers and functions of State Level Committee and so also District Level Committee have been detailed out in Clause 6 of the guidelines aforesaid which reads as under:-
6. POWERS AND FUNCTIONS OF THE STATE LEVEL COMMITTEE/DISTRICT LEVEL COMMITTEE
The State Level Committee/District Level Committee shall go into the merit of each case as the case may be, to decide whether the industrial unit qualifies for grant of the State Investment Subsidy and shall also determine the quantum of subsidy admissible. The State Level Committee/District Level Committee may hold as many meetings as are considered necessary for speedy implementation of the scheme. The minutes of the proceedings at each such meeting shall be recorded and circulated to all the members.
The Member-Secretary of the State Level Committee/District Level Committee shall organise the entire work relating to the meetings, maintenance of the record of proceedings, finalisation, certification and circulation of the minutes and disbursing agencies shall maintain proper account and records in connection with the disbursement of the State Investment Subsidy. Disbursing agencies shall submit unit-wise quarterly disbursement statement to Member-Secretary.
The Member-Secretary of the District Level Committee shall submit to the Director of Industries quarterly progress return in Form No. 12 detailing the progress about sanction and disbursement of State Investment Subsidy, bottlenecks and/or handicaps in working of the Scheme or any other matter of importance concerning State Investment Subsidy. The Director of Industries will in turn consolidate the progress of the District Level Committee and the State Level Committee and will send the annual return to the State Government in Form No. 13.
28. The residuary clause No. 7 in the form of interpretation clause has also been provided which may also be usefully reproduced for ready reference:-
7. INTERPRETATION
Where any matter arises for the purpose of interpretation or in case where any suggestions are made in regard to the implementation of the scheme such matters shall be referred to the State Government in the Industries Department and the decision of the State Government in this regard shall be final.
29. For completion of narration of the relevant clauses applicable in the present case in view of rival submissions it may also be noticed that Clause 7 and 8 of Form No. 6 of the agreement contemplated under this scheme, upon which the respondents have heavily relied to justify their action of recalling back the subsidy, reads as under:-
7. The grantee shall refund the said subsidy or part thereof to the State Government in case the same is found recoverable under the provisions of the scheme or the procedure & guidelines issued thereunder.
8. That in case it is found that the grantee has given some false, incorrect or incomplete information or the grantee has gone out of production within 5 years from the date of production or has committed any breach of any of the covenants, as mentioned above, or any of the provisions in the State Capital Investment Subsidy Scheme for new Industries 1900 the disbursing authority after according him an opportunity of being heard shall be empowered to recover the whole amount of subsidy paid to the grantee together with 15% interest per annum from the date of payment of subsidy. This amount shall be recoverable as an arrear of Land Revenue Act, 1956 dues of the financial institution.
30. The fact that such agreement as contemplated by Form No. 6 containing the aforesaid clauses was entered into between the petitioner and the Governor of State of Rajasthan (Annex.3) is not in dispute.
31. The fundamental question which arises for consideration in this case is the authority behind the decision at item No. 3 in Annex.R/3 as taken by SLC on 26.6.1991 and its applicability to the petitioner. It is on the basis of this decision dated 26.6.1991 alone the respondents have chosen their action of recalling back the subsidy sanctioned and partly disbursed to the petitioner.
32. From the set up of the scheme, it is apparent that the State Government has come out with this scheme providing for grant of subsidy on capital investment made by certain industries in certain areas of the State of Rajasthan. The scheme has obviously been framed for the benefit of enterprenures setting up industries in the State of Rajasthan and was clearly a step in promoting and encouraging the enterprenures to set up their industries in the State of Rajasthan. The scheme though notified on 5.9.1990 has been made operational with retrospective effect from 1.4.1990. The task of identification of the eligible industrial units and sanctioning the subsidy to them on capital investments has been entrusted to two separate committees, one called State Level Committee and another as District Level Committee respectively having the jurisdiction to deal with medium/large scale units on one hand and small scale industrial units on the other hand with further provision that for the units having eligible fixed capital investment below Rs. 25 lacs, the subsidy would be sanctioned by DLC and in other cases by SLC. The composition of both SLC and DLC show it clearly that the representatives of Industries Department, State Administration and so also RFC/RIICO have been made the members of these committees. The General Manager, District Industries Centre is the Member Secretary for DLC, whereas Director, Industries is the Member Secretary for SLC. The applications are required to be made to these Member Secretaries of respective Committees depending on the claim and the power of the related Committee. The applications are to be examined by the Member Secretary whether received directory through the recognised agency and thereafter agenda note for DLC/SLC would be prepared in Form No. 9 by the Member Secretary detailing out all the necessary facts and figures requisite for consideration of the application including location of the unit, particulars of the registration, constitution of the unit, the character of the project, financial datas with recommendation of the Member Secretary. The last item of this Form No. 9 is the decision of the Committee.
33. The Member Secretary would communicate the sanction of subsidy to the applicant in Form No. 10 alongwith a copy of agreement to be executed by the grantee.
34. The facts that such communication was sent to the petitioner by Annex.2 dated 16.3.1981 and that the agreement (Annex.3) was executed on 31.5.1991 are not in dispute. It is also not in dispute that an amount of Rs. 1,57,200 was disbursed towards sanctioned subsidy by cheque No. 18590 dated 21.6.1991.
35. It is only after the sanction having been issued and part disbursement having been made that a meeting of SLC dated 26.6.1991 has been alleged to have taken place in which in agenda Item No. 3, the SLC considered a question raised by RFC as to whether the tyre retreading units would be eligible for subsidy under the exception clauses provided in item No. 17 of Annex.B? The SLC took a decision that such units are not covered under the exception and, therefore, the SLC decided not to consider these units eligible for subsidy. Before this Item No. 3 in the minutes dated 26.6.1991 (Annex.R/1) at ijem No. 1, two cases of marble tiles and polished marble slabs units have been considered and their applications have been rejected and then a case of another glazed wall tiles unit has been considered accepting its contention of grant of 20% subsidy. Item No. 3 has been referred hereinabove; item No. 4 relates to a general question for grant of subsidy to the units established in the rented premises; item No. 5 on the clarification sought by RIICO whether any security should be created for amount of subsidy; and item No. 6 relates to the admissibility of subsidy to the industrial units located in Sukher Industrial Area of Udaipur which was referred to the Director, Local Bodies for information about the location of Sukher Industrial area with reference to municipal limits and one case was deferred and another was to be disposed of after obtaining the opinion regarding the municipal limits and other cases of subsidy were sanctioned as proposed.
36. It is at once evident on the face of record that so far the case of petitioner is concerned, the same had already been dealt with by the competent committee (DLC) on 16.3.1991 and it has already resulted in sanction in favour of petitioner. It has not been shown anywhere on record that the case of the petitioner which had already been concluded was referred to the SLC and the SLC took any decision in that respect.
37. The learned Counsel for the respondents were unable to show that under the entire set of provisions made for grant of this capital investment subsidy and so also the procedure and guidelines for granting this subsidy, the SLC was having any such appellate, revisional or even supervisory power over the DLC to lay down any interpretation to the eligibility clauses to bind the DLC or to annul a decision to sanction subsidy, already taken by the DLC. If at all any matter required interpretation, the same was required to be referred to the State Government in the Industries Department and the SLC had absolutely no jurisdiction or authority to lay down any interpretation on the operation of this scheme or admissibility of the same to any particular unit. The powers and functions of both the committees as detailed out in para 6 of the guidelines and so also in the relevant clauses of the scheme itself nowhere show that the SLC was invested with any such power by which a concluded and decided case by DLC could be taken up or suo motu reviewed by it.
38. Moreover, so far the case of the petitioner is concerned, it has never been before the SLC either for sanction or even for review of the sanction. It is beyond comprehension as to how a so-called decision taken in abstract by the SLC on 26.6.1991 could be made applicable to the petitioner whose case had already been decided, sanctioned and even partly implemented.
39. Even the inapplicable and unauthorised decision taken by SLC does not say that the grant already made to the petitioner is required to be recalled.
40. It is not in dispute that the act of recalling the subsidy granted to the petitioner owes its origin to this decision dated 26.6.1991 only as is apparent from Annex.R/2 by which the Government in its Industries Department has asked the RFC to recover the subsidy from the petitioner as per this decision dated 26.6.1991 only. The action is fundamentally hollow, groundless and unauthorised. It cannot be sustained.
41. It is also evident from Clause 3 of the guidelines that the subsidy availed by an industrial unit could only be recovered in the events and circumstances detailed therein. Those events and circumstances relate to misrepresentation or fraud in obtaining the subsidy, the unit going out of production, for the unit failing to furnish requisite information, for the unit violating any covenant, for the unit failing to commence commercial production within two years or where over-payment has been made. All these clauses relate either to such acts for which a contract is vitiated or which show the misuse of the subsidy granted. Clause 8 of the agreement clearly gives the aforesaid recoverability of the subsidy a shape as a term of the agreement and Clause 7 provides that the grantee shall refund the subsidy or part thereof in case the same is found recoverable.
42. Learned Counsel for the petitioner has rightly urged that the clauses authorising recovery are not applicable to the petitioner at all. The sanction was made after examination of the case of the petitioner and the agreement was executed between the parties. It is not the allegation of the respondents that petitioner has supplied any false information or made any misrepresentation of facts or made any default as contemplated by Clause 3 of the guidelines for which the sanctioned and partly paid subsidy could be recalled. The action of the respondents in attempting to recover the subsidy remains fundamentally devoid of any power, authority or jurisdiction and cannot be sustained.
43. It is a different matter that even under Clause 8 when any such power to recall and recover the subsidy is to be exercised, the grantee is required to be given an opportunity of being heard which has also admittedly not been extended in the present case. Be that as it may, that aspect does not require further consideration in the present case because admittedly, the subsidy was not sought to be recalled for any of the fault/default/misuse as contemplated by Clause 3 of the guidelines read with Clause 8 of the agreement.
44. Learned Counsel for the petitioner has made elaborate submissions to the effect that respondents are also bound by principles of promissory estoppel and they cannot resile from the promise already made. This Court is of opinion that such submissions are not relevant to the facts of the present case nor require any consideration for the fundamental reason that no such precise ground has been taken to impose promissory estoppel upon the State Government in this case. The petitioner has only stated in para (vii) of the grounds of writ petition that impugned orders calling back the disbursed subsidy are in violation of the principle of promissory estoppel.
45. The principles of promissory estoppel can be invoked on the basis of representation made by the Government only if the petitioner could show and establish that he acted on the representation and thereby altered his position. As the Hon’ble Supreme Court has cautioned in Bannari Amman Sugars Ltd. v. Commercial Tax Officer and Ors. thus,-
19. In order to invoke the doctrine of promissory estoppel clear, sound and positive foundation must be laid in the petition itself by the party invoking the doctrine and bald expressions without any supporting material to the effect that the doctrine is attracted because the party invoking the doctrine has altered its position relying on the assurance of the Government would not be sufficient to press into aid the doctrine.
46. In the present case, not only the contention is bereft of any foundation, but moreover, it is apparent that the petitioner cannot allege to have altered his position on this representation of the government of granting the subsidy, because the unit has admittedly come into operation and production as back as on 30.6.1990, whereas, this subsidy scheme itself was notified on 5.9.1990 and it is only for it having been given a retrospective effect from 1.4.1990 that the petitioner became eligible to make a claim thereunder. The petitioner had set up the unit prior to coming into force of the scheme and obviously the entire project has already been conceived and commenced irrespective of the subsidy. The principles of promissory estoppel are not attracted in this case at all.
47. Having failed to lay any foundation bf the facts of having acted on any representation of the Government, the petitioner is not entitled to claim that the principles of promissory estoppel be applied against the Government. The cases cited and relied upon by the learned Counsel for the petitioner like that of (i) Pournami Oil Mills etc. v. State of Kerala , where the small scale industrial units set up in response to an exemption order dated 11.4.1979 and prior to the second order dated 21.10.1980 curtailing the concessions were held entitled to the exemption extended and/or promised under the first order; or that of (ii) The Gujarat State Financial Corporation v. Lotus Hotels Pvt. Ltd. , where the respondent acting upon the promise made by the appellant-Financial Corporation incurred expenditure and thereafter the Corporation’s intention to back out from the promise made was not countenanced; or that of (iii) Akhara Brahm Buta v. State of Punjab and Anr. , where there was an agreement between the land owners and improvement trust for excluding certain area of land from the scheme, the State being also a party to the compromise, the intention of the State to back out from the agreement was not countenanced; or that of (iv) Assistant Commissioner of Commercial Taxes (Asst.), Dharwar v. Dharmendra Trading Co. , where the enterprenure started new industries and the incentive scheme giving sales tax concession was sought to be modified on the ground of misuse of the scheme and the facts establishing such misuse were not shown and, therefore, the government was not permitted to resile from the promise; or that decided by this Court of (v) Union of India v. J.K. Industries Ltd. 1989 (2) RLR 662, where the industry claimed to have acted on the assurance of granting excise concessions and having altered its position in pursuance to those assurances, then unilaterally revoking of the benefits by the appellant Union of India was not approved; all are based on a fundamental fact that in response and/or pursuance to a particular assurance made by the State Government, the other party altered its position and therefore, the principles of promissory estoppel were applied. Such is not a position available in the present case inasmuch as the petitioner has not shown that it has in any manner altered its position on the basis of this incentive scheme. As noticed above, in fact, the petitioner has already set up its industry and commenced production even before incentive scheme came to be declared by the Government. Therefore, the submissions on the basis of principles of promissory estoppel are not germane and related to the present dispute.
48. However, as found hereinabove, the action of the State is clearly shown to be arbitrary and bereft of the reasons and contrary to the agreement entered into. In the same case of Bannari Amman Sugars Ltd. (supra), the Hon’ble Supreme Court held,-
…The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence and substance is the heartbeat of fair play. Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for discernible reasons, not whimsically for any ulterior purpose. The meaning and true import and concept of arbitrariness is more easily visualised than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given case. A basic and obvious test to apply in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness.
49. Applying the test of reasonableness aforesaid, this Court clearly finds that the granted subsidy has been sought to be recalled in a wholly arbitrary manner and whimsical fashion. Such an action on the part of State cannot be approved and deserves to be struck down.
50. Apart from the aforesaid, even otherwise, the basic question as to whether the unit of petitioner was eligible for subsidy or not and whether it was covered under the list Annex. B of the Ineligible units was considered and, as found hereinabove, the State took a decision to sanction. The State having taken a particular decision and having entered into an agreement with the petitioner remains bound by it and cannot back out. Any power which was available with the State Government not to grant subsidy had already worked itself out, once the application was duly considered and was duly sanctioned by the empowered committee and disbursement was made.
51. Yet, for the test of reasonableness,. tenability of the claim of the petitioner may also be examined. As noticed above, list Annex.B enumerates ineligible industries to which the subsidy would not be granted. Item No. 17 stated therein that service units would not be eligible. However, four exceptions have been provided in the service units, meaning thereby that these four kind of units, which are although service units, but still would be entitled for the subsidy. A close examination of these four clauses show that all these units of Electro-plating; reprocessing of used lubricants and engine oil; heat treatment/surface treatment; and test houses are such kind of units which are otherwise not engaged in manufacturing inasmuch as they do not bring about any commercially distinct or different entity, whether it is electro-plating, whether it is reprocessing used oils and lubricants and whether any heat treatment or surface treatment is supplied or whether any test is carried out. The fundamental commodity on which any such process is carried out remains the same and, therefore, they are defined as service units but these kind of service units have been specifically and knowingly added as exception to list Annex. B. Meaning thereby that such kind of service units are eligible for subsidy.
52. Learned Counsel for the respondents has relied upon a decision of the Hon’ble Supreme Court in P.C. Cheriyan v. Mst. Barfi Devi and strenuously contended that retreading of tyre is not manufacturing. The aforesaid case arose in the circumstances that some accommodation was let out and the lessee was carrying on business of retreading of tyres in the premises. On default in payment of rent, lessor gave one month’s notice terminating tenancy and filed suit for ejectment and arrears of rent. The lessee resisted the suit on the ground that lease was for a manufacturing purpose, and therefore under Section 106 of the Transfer of Property Act, six months’ notice was required. In that context, the Hon’ble Supreme Court affirmed the findings of the courts below that retreading of tyres was not a manufacturing purpose and, therefore, thirty days’ notice given by the plaintiff for terminating the tenancy was valid. The Hon’ble Supreme Court held,-
In our opinion, this finding of the courts below is unassailable. The retreading of old tyres does not bring into being a commercially distinct or different entity. The old tyre retains its original character, or identity as a tyre. Retreading does not completely transform it into another commercial article, although it improves its performance and serviceability as a tyre. Retreading of old tyres is just like resoling of old shoes. Just as resoling of old shoes does not produce a commercially different entity having a different identity, so from retreading no new or distinct article emerges. The old tyre retains its basic structure and identity. The courts below were, therefore, right in holding that the lease in the present case was not for manufacturing purposes, and the tenancy had been rightly terminated by thirty days’ notice.
53. However, in the very same decision, the Hon’ble Supreme Court in the next paragraph cautioned thus,-
Before parting with this judgment we may sound a note of caution, . that definitions of “manufacture” given in other enactments, such as, in the Factories Act or the Excise Act should not be blindly applied while interpreting the expression “manufacturing purposes” in Section 106 of the Transfer of Property Act. In some enactments, for instance in the Excise Act, the term “manufacture” has been given an extended meaning by including in it “repairs”, also.
54. Although a feeble attempt has been made on behalf of the petitioner to say that tyre retreading practically amounts to a manufacturing process inasmuch as the old worn out tyres looses all its existence and by retreading, the tyre gets an entirely new life and could be used as good as new tyre. However, such contentions being fundamentally baseless cannot be countenanced as the Hon’ble Supreme Court has held that old tyre retains its basic structure and identity and, therefore, it cannot be termed as manufacturing process. However, at the same time, the submissions by the learned Counsel for the respondents also, beyond this aspect cannot be accepted that because of the unit being not a manufacturing unit it would not be entitled for subsidy at all.
55. It has been averred in reply to the writ petition that DLC granted the sanction treating it to be a manufacturing unit. The contention is fundamentally incorrect. From the sanction Annex. 1, it is evident that at item No. 8, for petitioner’s unit the end-product was specifically mentioned as tyre retreading and then the sanction was issued. There had been other units producing marble titles and slabs and granite tiles which have also been sanctioned the subsidy. The petitioner’s unit being engaged in tyre treading was not in doubt and it has obviously been considered to be calling to the description of such “service unit” which is engaged in heat treatment/surface treatment and falling under the exception in Clause 17 of Annex.B that sanction has been issued. The decision taken in abstract and generalised manner by SLC (vide Annex.R/1 Item No. 3) does not stand to reason and in any case, if there was any doubt, it was required of the State Government to have clarified the doubt before issuing a sanction of subsidy. On such matters of contract, by entertaining self-inflicted or generated doubt, the State cannot act arbitrarily and whimsically to recall a concluded agreement.
56. It could be said that even if a reasonable doubt could have been entertained on the eligibility of the petitioner and then if two views were possible and the State took a particular view, which was one of the possible views, and then entered into the contract; then the contract cannot be avoided by the State on its second thought. This Court is of opinion that in the matters of contract, such equivocating stands are not permissible even for a private party and the sweep of Article 14 puts the State under moreover a strict liability to adhere to the agreement entered into by it with open eyes and with the knowledge of all consequences.
57. In view of the aforesaid, this Court is clearly of opinion that the action of the respondents in seeking to avoid the contract and to unilaterally annul the same cannot be countenanced and this State action falling short of reasonableness and clearly answering to the description of arbitrariness and unfairness deserves to be quashed.
58. As a result of the aforesaid, this writ petition is allowed and the impugned orders/letters dated 9.7.1992 (Annex.4), 10.9.1992 (Annex.6), 30.6.1993 (Annex.7) and 15.7.1993 (Annex.8) are quashed.
59. So far the disbursement of remaining amount of subsidy is concerned, as the same is required to be disbursed with reference to the eligible fixed capital investment, the respondents shall be free to consider the disbursement of the remaining amount in accordance with the scheme. However, any recovery made or adjusted in pursuance to the letters/orders quashed hereinabove shall, as a necessary consequence, stand annulled and the respondents shall recast the account of the petitioner in accordance with the existing agreement. The respondent-State of Rajasthan shall also pay costs of this writ petition quantified at Rs. 30007- to the petitioner.