Bishambhar Prasad vs M/s. Arfat Petrochemicals Pvt. Ltd. and Ors.

Company Law – Distinction between companies that are brought into being “by” an Act, and those created “under” an Act – Held: A company incorporated under the Companies Act is not a creation of the said Act but it has come into existence in accordance with the provisions of the Companies Act.

Rules and Regulations – Statutory rules – The status of “statutory rules” cannot be accorded to regulations that are brought into existence under the Articles of a non-statutory company.

Doctrines / Principles – Principle of natural justice – Steps taken which are themselves vitiated, cannot form the basis for principles of natural justice to be applied.

Doctrines / Principles – Promissory estoppel – Supervening public interest acts as a veto against the invocation of promissory estoppel.

Disposing of the appeals, the Court

HELD:

Whether the LIA, Kota has been always under the management and control of the State Government or it was transferred to RIICO pursuant to Government Order dated 18.09.1979?

1. The relationship of lessor and lessee between State of Rajasthan and JKSL continued uninterruptedly till JKSL was declared a ‘sick company’. Respondent No.1 then stepped into the shoes of JKSL under the orders of AAIFR, and by virtue of the tripartite agreements executed with the labour unions, for the land at LIA, Kota. It is also an admitted fact that neither under the tripartite settlements dated 9.10.2002 and 22.10.2002, nor under the sanctioned rehabilitation scheme dated 23.1.2003, the relationship of lessor and lessee between State, JKSL, or Respondent No.1, as the case may be, was ever disrupted. There is no cessation in the relationship of lessor and lessee between the State and Respondent No. 1, or its predecessor JKSL. This contractual relationship duly governed under the 1956 Act read with the 1959 Rules, was never terminated expressly or otherwise and neither was it substituted by a supplementary conveyance deed. A relationship of lessor–lessee between State Government and JKSL/RIICO continued to subsist and has not been affected in any manner by virtue of Government order dated 18.09.1979. [Paras 40, 41 and 48][282-E-G; 283-A-B; 284-F]

Whether the 1979 Rules of RIICO are statutory in nature?

2.1. The plain wording of Rule 11A of the Rajasthan Industrial Areas Allotment Rules, 1959 clearly shows that the Corporation can have merely managerial power over the land that is allocated to it. As laid down very clearly under Rule 11A, the allotment to RIICO is done purely on a leasehold basis, and ownership and title remain unequivocally with the State Government. RIICO acts as nothing but an agent of the State in its efforts to increase industrial production and further economic progress. The State remains the overarching power in this dynamic and RIICO remains subservient to it. The relationship of lessor and lessee between State and Respondent No. 1 has been validly subsisting at all times and RIICO was never authorised either by Government order dated 18.09.1979 or under Rules 11A and 12 of the 1959 Rules, to bypass the State Government and assume the self – styled role of the lessor in respect of LIA, Kota. Since, the 1967 and 2007 lease deeds in favour of JKSL and Respondent No. 1, respectively, were executed by the State Government in terms of Rule 2 of the 1959 Rules, RIICO had no authority whatsoever to permit Respondent No. 1 to change the land use or allow for the sub – division of plot without the prior approval of the State Government, which is the sole competent authority to accord such permission in exercise of its power under Rule 8 of the 1959 Rules. The contrary view taken by the High Court is plainly erroneous in law and is based on a misconstruction of the provisions of 1959 Rules read with the binding bilateral contracts between the parties. [Paras 50, 52 and Para 58][284-H; 287-E-H; 285-F-G]

2.2. RIICO is not a statutory body. The Company was brought into being under the Companies Act, 1956 by the State of Rajasthan, which holds 100% shares in it. RIICO does not owe its existence to a statute, but is rather created under the Companies Act and is subject to its provisions. It is only governed by the provisions of the Companies Act and not created by it. Rule 12 of the 1959 Rules merely states that lands allotted to RIICO will be further dealt with by the Corporation as per its 1979 Rules. At best, this imposes an obligation upon RIICO to abide by its own guidelines, which it had issued under Article 93 of its AoA. The obligation for RIICO to abide by the 1979 Rules stems from its own AoA under which those Rules came into being. By no stretch, does this make the 1979 Rules statutory in nature. [Paras 61, and 67][288-E-F; 291-F-G]

Whether failure to observe Principles of Natural Justice by the State Government vitiated its decision to annul the permissions/approvals granted by RIICO in favour of Respondent No.1?

3. The Principles of Natural Justice entailed giving Respondent No.1 an opportunity to defend its rights. However, the most decisive and crucial factor is whether any legally vested ‘right’ ever accrued in favour of Respondent No. 1, which the State Government could not have despoiled behind its back. RIICO had no authority whatsoever to accord permission for conversion and sub – division of the industrial land allotted to Respondent No. 1. State Government has always retained its authority as lessor and was the only competent authority to grant such permissions to Respondent No. 1 within the framework of the 1959 Rules. The irresistible conclusion would be that the self – styled power exercised by RIICO, was without any sanction in law; it lacked inherent competence and RIICO acted beyond its jurisdiction in respect of LIA, Kota. The permissions accorded by RIICO in favour of Respondent No. 1 did not confer any rights whatsoever, much less any enforceable right in the eyes of law. RIICO usurped the powers vested in the State Government and passed palpably illegal orders in favour of Respondent No.1. The agreements between RIICO and Respondent No. 1 are nothing but brutum fulmen. Steps taken which are themselves vitiated, cannot form the basis for principles of natural justice to be applied. The supplementary lease deeds were signed by RIICO without any authority to do so. It similarly lacked the capacity to grant the permission for conversion of use for the land to commercial, and the allowance to sub – divide the plot. Thus, no legally vested right of Respondent No.1 has been infringed and it has no legitimate ground to seek an opportunity to be heard in a matter strictly between RIICO and State Government. [Paras 74 and 78][295-B-E; 297-B-C]

Whether the State Government could have exercised its powers under Article 138 of the AoA of RIICO to direct cancellation?

4. The State Government has directed RIICO to recall its permission for conversion of the usage of land, sub – division of plots and supplementary lease deeds executed in favour of Respondent No. 1. All these actions of RIICO pertained to its business affairs. Since RIICO took these decisions exceeding its powers and in a completely unauthorised and illegal manner, the State Government was well within its rights to invoke Article

138 of AoA and nullify the unauthorised and unlawful decisions taken by RIICO. The very objective behind reposing power in the State Government under Article 138 of the AoA is to enable it to undo and annul the decisions taken by RIICO in the conduct of its business affairs, which the State Government may find is derogating from public interest or in conflict with its own policy. The State Government is entitled to resort to Article 138 where it finds that the business affairs have been conducted by RIICO detrimental to the State’s interest as a Principal stake holder. [Para 81][298-B-D]

Whether the Rules of Business were not followed?

5. It appears to this Court that the Rules of Business have been substantially complied with. The entire Cabinet was called on 29.12.2018 to consider various decisions taken by RIICO during the previous regime. Among these were the supplementary leases and connected permissions to Respondent No. 1 by RIICO. The Cabinet, which included the Minister for Industries, then proceeded to constitute three subcommittees to investigate these alleged irregularities, along with an inter – departmental committee. The Minister for Industries is not expected to look into each individual matter pertaining to RIICO as this would render the entire working of government unviable. It was a collective decision of the Council of Ministers to constitute the Committees to look into irregularities of various kinds. The specific committee that was authorized to investigate RIICO and its alleged misuse of non – existent powers in favor of Respondent No. 1, was a creation of the entire Council, including the Minister for Industries. The sub – committee’s actions in this context were completely validated and backed by the Minister and the rest of the Council. It is, thus, difficult to hold that Rules of Business have not been followed by the State Government in the course of its decision making process. [Para 85 and 90][300-H; 301-A-B; 302-E-G]

Does the Doctrine of Legitimate Expectations and Promissory Estoppel apply in favour of Respondent No. 1?

6. It is clear that no legitimate expectation could have arisen in favor of Respondent No. 1. There was no implicit or explicit representation made by the State Government in favour of its request for conversion of the land, nor for sub – division of plots. RIICO, in completely untenable fashion, took over the role of the lessor without there being any right to do so, and issued the requisite permissions. Evidently, such approvals had no legs to stand on as they were devoid of any force of law. The lessor of LIA, Kota, was the State Government. When the entity purporting to exercise the powers of a lessor, RIICO in this case, does so without having the requisite legal status to act in this manner, Respondent No. 1 as the beneficiary of these wrongful actions, cannot seek any legitimate expectation or promissory estoppel in its favour. Supervening public interest acts as a veto against the invocation of promissory estoppel. Respondent No. 1 cannot claim any right to the continuation of the supplementary lease deeds. [Paras 93 and 96][304-D-F; 305-F]

Conclusion

7.1. The supplementary leases signed between Respondent No. 1 and RIICO are unsustainable. RIICO did not possess the authority to enter into these agreements, as the land in LIA, Kota remained under the ownership and control of the State Government uninterruptedly from the first lease signed with JKSL, till the present date. Respondent No. 1 was also cognizant of this fact as evinced by it entering into the 7 transfer lease deeds with the Collector, Kota, in 2007, after it stepped into the shoes of JKSL. [Para 104][307-E-F]

7.2. The leases with JKSL were executed under the 1959 Rules which remained applicable and there was no authority ever vested in RIICO to have issued the permissions for conversion and sub-division of plots in the LIA, Kota, and for signing the supplementary lease deeds with Respondent No. 1. There is no legal infirmity in the action of the Appellants in setting aside the decisions taken by RIICO or in directing to cancel the supplementary leases of 2018. Hence, we uphold the cancellation of the supplementary deeds and quashing of the approvals for conversion of land and sub-division of plots. [Para 105][307-FH]

7.3. This shall, however, not preclude Respondent No. 1 from reapproaching the State Government and seeking conversion of the usage of land and attendant approvals under the 1959 Rules. The State Government shall be at liberty to consider such a proposal in public interest and in accordance with the 1959 Rules. With regard to the Appellant Unions, it is not considered expedient by this Court to enter into the demands made by the labour unions for the dues of JKSL’s employees. No views are expressed on the content of the prayers by the Appellant Unions, and it is left open for them to seek their remedies under law from the Appropriate Government, and judicial forums. [Para 107, 106][308-A-C]

7.4. The overall conclusions are summarized in the following points: –

A. There has been an uninterrupted and subsisting relationship of lessor and lessee between the State Government and either JKSL or Respondent No. 1, in the context of LIA, Kota. From the first lease deed executed in 1967, till date, the State Government has maintained the position of lessor;

B. The lease with JKSL, and all leases thereafter with JKSL and/or Respondent No. 1, have been signed under the 1959 Rules. The terms of the lease are clearly in compliance with the 1959 Rules;

C. The land in LIA, Kota was never transferred to RIICO under the Government Order dated 18.09.1979. The State Government has always maintained title and ownership of the area;

D. The land was also never allotted to RIICO on a leasehold basis under Rule 11A of the 1959 Rules. Thus, RIICO was never expressly given any leasehold rights, and had no authority to further sub – lease the land, along with other corresponding powers, under Rule 12 of the 1959 Rules;

E. In any case, Rule 11A of the 1959 Rules is of no importance, as there had to be an express allotment of the land to RIICO on a leasehold basis after the coming into force of Rules 11A and 12. No such express allocation was ever made in favour of RIICO;

F. The 1979 Rules are not statutory in nature. The reference to the 1979 Rules in Rule 12 of the 1959 Rules, does not accord any statutory recognition to the former;

G. There was no violation of the Principles of Natural Justice in this case. The entire basis for granting permission for conversion of the land subdivision of the plots, was on an incorrect assumption of power by RIICO under the 1979 Rules, to act as the lessor of LIA, Kota. RIICO was never given any leasehold rights over the land. When the basis for a benefit received by a party is itself invalid, there is no question of giving the party a chance to be heard;

H. The State Government was competent to issue directions under Article 138 of the AoA of RIICO, to cancel the supplementary lease deeds and attendant permissions. This fell squarely within the ambit of Article 138 of the Articles of Association;

I. There was no violation of the Rajasthan Rules of Business as the sub – committee which recommended the cancellation of the permissions/approvals to Respondent No. 1, was acting for and on behalf of the entire Council of Ministers. Hence, the Rules of Business were complied with;

J. There was no legitimate expectation nor promissory estoppel that could operate to the benefit of Respondent No. 1, as, once again, no such defences could be raised on the back of RIICO’s own erroneous utilization of powers that vest only with the rightful lessor of LIA, Kota, which is the State Government. Further, public interest overrides both these doctrines, and cannot come to the aid of a private party, when the larger interests of society are involved;

K. The Appellant Unions and workers are at liberty to approach the Appropriate Government and various judicial forums to pursue their remedies in accordance with law. The Appeals by the State of Rajasthan and RIICO are accordingly allowed; the impugned judgment dated 20.07.2021 passed by the High Court of Judicature for Rajasthan at Jaipur, is set aside. Consequently, the Writ Petition filed by Respondent No.1 before the High Court is dismissed save and except the liberty granted. [Paras 104, 108 and 109][308-D-H; 309-A-H; 310A-B]

M.G. Pandke & Ors. v. Municipal Council, Hinganghat, Dist. Wardha & Ors.1993 Supp (1) SCC 708 : [1992] 1 Suppl. SCR 464 and Sachidananda Pandey v. State of West Bengal & Ors. (1987) 2 SCC 295 : [1987] 2 SCR

223 – distinguished.

S.L. Kapoor v. Jagmohan & Ors. (1980) 4 SCC 379 : [1981] 1 SCR 746 and K. Balasubramanian (Ex. Capt.) v. State of Tamil Nadu (1991) 2 SCC 708 : [1991] 1 SCR 845 – relied on.

Mohinder Singh Gill v. The Chief Election Officer (1978) 1 SCC 405 : [1978] 2 SCR 272; Krishna Ballav Sahay & Ors. v. Commission of Enquiry & Ors. [1969]

1 SCR 387; Management of Fertilizer Corporation of India v. Their Workmen [1969] 2 SCR 706; Sukhdev Singh & Ors. v. Bhagat Ram & Ors. (1975) 1 SCC 421 : [1975] 3 SCR 619; Motilal Padampat v. State of Uttar Pradesh (1979) 2 SCC 409 : [1979] 2 SCR 641; State of Tamil Nadu v. Shyam Sunder (2011) 8 SCC 737 : [2011] 11 SCR 1094; MRF v. Manohar Parrikar & Ors. (2010) 11 SCC 374 : [2010] 5 SCR 1081; B.

Rajagopala Naidu v. State Transport Appellate Tribunal, Madras & Ors. (1964) 7 SCR 1; Kalabharati

Advertising v. Hemant Vimalnath Narichania & Ors. (2010) 9 SCC 437 : [2010] 10 SCR 971; Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664 : [1981] 2 SCR 533; Life Insurance Corporation of India v. Escorts Ltd. & Ors. (1986) 1 SCC 264 : [1985] 3 Suppl. SCR 909; S.S. Dhanoa v. Municipal

Corporation, Delhi & Ors. 1981 (3) SCC 431 : [1981]

3 SCR 864; Executive Committee of Vaish Degree College v. Lakshmi Narain 1976 (2) SCC 58 : [1976] 2 SCR 1006; Union of India v. P.K. Roy (1968) 2 SCR 186; A.K. Kraipak v. Union of India (1969) 2 SCC 262 : [1970] 1 SCR 457; Gulabrao Keshavrao Patil & Ors. v. State of Gujarat (1996) 2 SCC 26 : [1995] 6 Suppl. SCR 97; Lalaram and Ors. vs. Jaipur Development Authority and Ors. (2016) 11 SCC 31 : [2015] 14 SCR 403; Bannari Amman Sugars Ltd. vs. Commercial Tax Officer and Ors. (2005) 1 SCC 625 : [2004] 6 Suppl. SCR 264; Food Corporation of India v. Kamdhenu Cattle Feed Industries (1993) 1 SCC 71 : [1992] 2 Suppl. SCR 322 – referred to.