MOTILAL PADAMPAT SUGAR MILLS COMPANY LIMITED Vs. STATE OF UTTAR PRADESH

JUDGEMENT

(1.) THIS appeal by certificate raises a question of considerable importance in the field of public law. How far and to what extent is the State bound by the doctrine of promissory estoppel? It is a doctrine of comparatively recent origin but it is potentially so fruitful and pregnant with such vast possibilities for growth that traditional lawyers are alarmed lest it might upset existing doctrines which are looked upon almost reverentially and which have held the field for a long number of years. The law in regard to promissory estoppel is not yet well settled though it has been the subject of considerable debate in England as well as the United States of America and it has also received consideration in some recent decisions in India and we, therefore, propose to discuss it in some detail with a view to defining its contours and demarcating its parameters. We will first state briefly the facts giving rise to this appeal. THIS is necessary because it is only where certain factsituations exist that promissiory estoppel can be invoked and applied.

(2.) THE appellant is a limited company which is primarily engaged in the business of manufacture and sale of sugar and it has also a cold storage plant and a steel foundry. On 10/10/1968 a news item appeared in the National Herald in which it was stated that the State of Uttar Pradesh had decided to give exemption from sales tax for a period of three years under Section 4A of the U. P. Sales Tax Act to all new industrial units in the State with a view to enabling them "to come on firm footing in developing stage". This news item was based upon a statement made by Shri M. P. Chatterjee the then Secretary in the Industries Department of the Government. THE appellant, on the basis of this announcement, addressed a letter dated 11/10/1968 to the Director of Industries stating that in view of the Sales Tax Holiday announced by the Government, the appellant intended to set up a Hydrogenation Plant for manufacture of Vanaspati and sought for confirmation that this industrial unit, which they proposed to set up, would be entitled to Sales Tax Holiday for a period of three years from the date it commences production. THE Director of Industries replied by his letter dated 14th Oct., 1968 confirming that "there will be no sales tax for three years on the finished product of your proposed Vanaspati factory from the date it gets power connection for commencing production." THE appellant thereupon started taking steps to contact various financiers for financing the project and also initiated negotiations with manufacturers for purchase of machinery for setting up the Vanaspati factory. On 12/12/1968 the appellant's representative met the 4th respondent who was at that time the Chief Secretary to the Government as also Advisor to the Governor and intimated to him that the appellant was setting up the Vanaspati factory solely on the basis of the assurance given on behalf of the Government that the appellant would be entitled to exemption from sales tax for a period of three years from the date of commencement of commercial production at the factory and the 4th respondent reiterated the assurance that the appellant would be entitled to sales tax holiday in case the Vanaspati factory was put up by it. THE appellant by its letter dated 13/12/1968 placed on record what had transpired at the meeting on the previous day and requested the 4th respondent "to please confirm that we shall be allowed sales tax holiday for a period of three years on the sale of Vanaspati from the date we start production". On the same day the appellant entered into an agreement with M/s. De Smet (India) Pvt. Ltd., Bombay for supply of plant and machinery for the Vanaspati factory, providing clearly that the appellant would have to (sic) option to terminate the agreement, if within 10 weeks exemption from sales tax was not granted by the State Government. THE 4th respondent replied on 22/12/1968 confirming the "the State Government will be willing to consider your request for grate of exemption from U. P. sales tax for a period of three years from the date of production" and asked the appellant to obtain the requisite application form and submit a formal application to the Secretary to the Government in the Industries Department and in the Industries Department and in the meanwhile to 'go ahead with the arrangements for setting up the factory'. THE appellant had in the meantime submitted an application dated 21/12/1968 for a formal order granting exemption from sales tax under Section 4A of the Act. It appears that the letter of the 4th respondent dated 22/12/1968 was not regarded as sufficient by the financial institutions which were approached by the appellant for financing the project since it merely stated that the State Government would be willing to consider the request for grant of exemption and did not convey any decision of the State Government that the exemption would be granted. THE appellant, therefore, addressed a letter dated 22/01/1969 to the 4th respondent pointing out that the financial institutions were of the view that the letter of the 4th respondent dated 22/12/1968 "did not purport to commit the Government for the concession mentioned" and it was, therefore, necessary to obtain a formal order of exemption in terms of the application submitted by it. THE 4th respondent, however, stated categorically in his letter in reply dated 23/01/1969 that the proposed Vanaspati factory of the appellant "will be entitled to exemption from U. P. sales tax for a period of three years from the date of going into production and that this will apply to all Vansapati sold during that period in Uttar Pradesh itself" and expressed his surprise that 'a letter from the Chief Secretary to the State Government stating this fact in clear and unambiguous words should not carry conviction with the financial institutions'. In view of this unequivocal assurance given by the 4th respondent, who not only occupied that post of Chief Secretary to the Govt. but was also Advisor to the Governor functioning under the President's rule, the appellant went ahead with the setting up of the Vanaspati factory. THE appellant by its letter dated 25/04/1969 advised the 4th respondent that the U. P. Finance Corporation, being convinced by the clear and categorical assurance given by the 4th respondent that the Vanaspati factory of the appellant would be entitled to exemption from sales tax for a period of three years from the date of commencement of production, had sanctioned financial assistance to the appellant and the appellant was going ahead with the project in full speed to enable it to start production at the earliest. THE appellant made considerable progress in the setting up of the Vanaspati factory but it seems that by the middle of May 1969 the State Government started having second thoughts on the question of exemption and a letter dated 16/05/1969 was addressed by the 5th respondent who was Deputy Secretary to the Government in the Industries Department, intimating that a meeting has been called by the Chief Minister on 23/05/1969 'to discuss the question of giving concession in sales tax on Vanaspati products' and requesting the appellant to attend the metting. THE appellant immediately by its letter dated 19/05/1969 pointed out to the 5th respondent that so far as the appellant was concerned, that State Government had already granted exemption from sales tax by the letter of the Chief Secretary dated 23/01/1969, but still, the appellant would be glad to send its representative to attend the meeting as desired by the 5th respondent. THE proposed meeting was, however, postponed and the appellant was intimated by the 5th respondent by its letter dated 23/05/1969 that the meeting would now be held on 3/06/1969. THE appellant's representative attended the meeting on that day and reiterated that so far as the appellant was concerned, it had already been granted exemption from sales tax and the State Government stood committed to it. THE appellant thereafter proceeded with the work of setting up the Vanaspati plant on the basis that in accordance with the assurance given by the 4th respondent on behalf of the State Government, the appellant would be exempted from payment of sales tax for a period of three years from the date of commencement of production.

(3.) WE shall first deal with the question of waiver since that can be disposed of in a few words. The High Court held that even if there was an assurance given by the 4th respondent on behalf of the State Government and such assurance was binding on the State Government on the principle of promissory estoppel, the appellant had waived its right under it by accepting the concessional rates of sales tax set out in the letter of the 5th respondent dated 20th Jan., 1970. WE do not think this view taken by the High Court can be sustained. In the first place, it is elementary that waiver is a question of fact and it must be properly pleaded and proved. No plea of waiver can be allowed to be raised unless it is pleaded and the factual foundation for it is laid in the pleadings. Here it was common ground that the plea of waiver was not taken by the State Government in the affidavit filed on its behalf in reply to the writ petition, nor was it indicated even vaguely in such affidavit. It was raised for the first time at the hearing of the writ petition. That was clearly impermissible without an amendment of the affidavit in reply or a supplementary affidavit raising such plea. If waiver were properly pleaded in the affidavit in reply, the appellant would have had an opportunity of placing on record facts showing why and in what circumstances the appellant came to address the letter dated 25/06/1970 and establishing that on these facts there was no waiver by the appellant of its right to exemption under the assurance given by the 4th respondent. But in the absence of such pleading in the affidavit in reply, this opportunity was denied to the appellant. It was, therefore, not right for the High Court to have allowed the plea of waiver to be raised against the appellant and that plea should have been rejected in limine.