Southern Petrochemical ... vs Union Of India (Uoi)
2007 Latest Caselaw 1223 Del

JUDGMENT

Badar Durrez Ahmed, J.

1. The petitioners are manufacturers and/or importers of fertilizers including Di-Ammonium Phosphate (DAP). The petitioners contend that by a circular dated 05.03.1997, issued by the Central Government, it was notified that the concession in respect of, inter alia, DAP would be Rs. 3,750/- per tonne for indigenous DAP and Rs. 2,250/- per tonne for imported DAP. By virtue of this circular, it was also notified that these revised rates of concession would be effective from 01.04.1997 and all stocks held and actually sold on or after 01.04.1997 would be eligible for the enhanced compensation. The circular also indicated that the Government had decided to continue the scheme of concession on sale of decontrolled phosphatic and potassic fertilizers to farmers during 1997-1998 (01.04.97 to 31.03.98) on the existing pattern at the revised rates indicated above for, inter alia, DAP.

2. By virtue of another circular issued by the Government of India on 03.02.1998 (the circular impugned herein) it was notified that the Government had decided that the rates of concession during the Rabi season 1997-98, which would be effective from 01.10.1997 to 31.03.1998, in respect of DAP, would be Rs. 3,500/- per tonne for indigenous DAP and Rs. 2,000/- per tonne for imported DAP. The consequence of this circular dated 03.02.1998 is that the rate of concession notified by the earlier circular dated 05.03.1997 has been reduced by Rs. 250/- per tonne in respect of both indigenous and imported DAP. The second consequence is that the circular was issued on 03.02.1998 and would have retrospective effect from 01.10.1997 to 31.03.1998.

3. The petitioners are aggrieved by the issuance of the circular dated 03.02.1998 whereby the rates of concession have been reduced by Rs. 250/- per tonne in respect of both indigenous and imported DAP. This writ petition has been filed and pressed by the petitioners, as indicated in the order dated 27.03.1998 passed by this court, only on the ground of promissory estoppel. The plea of the petitioners is that the government of India made a clear and unequivocal statement that the rates of concession in respect of DAP would be Rs 3,750/- per tonne for indigenous DAP and Rs. 2,250/- per tonne for imported DAP. It is also contended by the petitioners that these rates of concession were notified for the entire year 1997-1998 i.e., for the entire period 01.04.1997 to 31.03.1998. The petitioners say that, acting on the basis of these declared rates of concession, they made arrangements for the entire year which included both the Kharif (April to September) and the Rabi seasons (October to March). They had, therefore, acted on the basis of the representation made in the circular dated 05.03.1997. Having so altered their position and made commitments for importation etc, it was not open to the Government to change rates of concession in the course of 1997-98 itself and that too by a circular dated 03.02.1998 having virtually retrospective effect from 01.10.1997. It is on the basis of this that the plea of promissory estoppel has been advanced on behalf of the petitioners.

4. On the other hand, the respondent contends that the principle of promissory estoppel would not be applicable. This is based on the contention that the circular dated 05.03.1997 was not a clear and unequivocal representation that the rates of concession would remain the same throughout the year. It was also contended that the issue of revision in the rates of concession were considered by an Empowered Committee and it is only thereafter and that too for the Rabi season that the rates have been reduced. It was also contended that the reduction in the rates had been necessitated by changes in the international market as a result of which the rates of concession, if maintained, would have meant unjust enrichment for the importers/manufacturers such as the petitioners herein. It was submitted that the reduction in the rates of concession have actually meant that there would be savings of approximately Rs. 110 crores of public money. Principally on these grounds, the plea of promissory estoppel was resisted.

5. To appreciate the arguments advanced by the counsel for the parties, it would be necessary to indicate the chronology of events in somewhat greater detail.

6. Prior to 1992, DAP and other complex fertilizers were covered under the Retention Price Scheme falling within the ambit of the fertilizers control order issued under the provisions of Essential Commodities Act 1955. DAP and other complex fertilizers were decontrolled on 25.08.1992 and the Statutory Price Control as well as the subsidy cover were withdrawn. This meant that the manufacturers could fix their own prices for the fertilizers. This, in turn, led to a sharp increase in the consumer prices of fertilizers. To curb this, the Central Government introduced the scheme of subsidy given to the manufacturers in the form of concession. Under this concession scheme, the State Governments fixed the selling price of fertilizers. If the manufacturers / importers sold fertilizers at the Government determined prices then they became eligible to receive a concession of a fixed amount determined by the government from time to time. The object being that the concession would enable the manufacturers and or importers to recover whatever loss they may have suffered due to the sale of the fertilizers at the pre-determined Government price which may have been lower than the costs incurred by them. Apparently, this practice was continued for the years 1993-94, 1994-95 and 1995-96 and the Government followed the practice of announcing the rates of concession on an yearly basis in advance so as to enable the manufacturers / importers to plan their production/imports for the entire year.

7. On 21.02.1997 the Minister of Agriculture made a statement before the Parliament with regard to the price policy on fertilizers. In this statement he indicated that it had been decided to further increase the concessions on phosphatic and potassic fertilizers during 1997-98. It was also indicated that the increase in concession for DAP would be Rs. 750/- per tonne and that the revised concessions would be applicable from 01.04.1997. The existing rates of DAP at that point of time were Rs. 3,000/- per tonne for indigenous DAP and Rs. 1500/- per tonne for imported DAP.

8. Thereafter, on 05.03.1997 the circular indicating the revised rates of concession of, inter alia, DAP was issued by the Government of India. As already noted above, the revised rates were Rs. 3750/- per tonne for indigenous DAP and Rs. 2,250/- per tonne for imported DAP. Since, this circular is being pressed by the petitioners, as constituting an unequivocal representation, it would be proper to set out the material portion thereof:

THE REVISED RATES will be EFFECTIVE FROM 1st APRIL 1997 AND ALL STOCKS HELD AND ACTUALLY SOLD ON OR AFTER 1st APRIL 1997 WILL BE ELIGIBLE FOR ENHANCED CONCESSION.

Government HAS ALSO DECIDED TO CONTINUE THE SCHEME OF CONCESSION ON SALE OF DECONTROLLED PHOSPHATIC AND POTASSIC FERTILIZERS TO THE FARMERS DURING 1997-1998 (1.4.97 TO 31.3.1998) ON EXISTING PATTERN AT THE REVISED RATES INDICATED ABOVE FOR DAP COMMA MOP COMMA SSP AND INDIGENOUS COMPLEXES IN ACCORDANCE WITH GUIDELINES ISSUED VIDE LETTER NO. 1-10/94-FD DATED 7TH SEPTEMBER 1994.

9. On 12.03.1997 the same decision was conveyed to all the State governments by the Central Government. Copies of the same were also sent to the manufacturers. A communication dated 28.03.1997 was also sent by the Central Government to all the Chief Secretaries of State Governments / Union Territories. In this communication also the revision in the rates of concession was reiterated and it was directed that the revised rates would be effective from 01.04.1997 onwards and cautioned the State Governments that no manufacturer / supplier ought to get benefit of double concession on the same quantities i.e., on the old rates as well as on the enhanced rates.

10. On 18.06.1997 the Central Government sent a further communication to all the State Governments indicating that manufacturers / suppliers of DAP would be eligible for 80% on account payment and that the balance 20% would be released on receipt of verification of 100% claims in proforma `B' from the State Governments and Union Territory Administrations. On 24.09.1997 a meeting of the Empowered Committee under the Chairmanship of the Secretary, Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India was held. The meeting was also attended by a representative of the Fertilizer Association of India. In this meeting there was a debate with regard to the reduction in the concession. In the Minutes of the Meeting, there is discussion that there was a suggestion of reduction in the concession for imported DAP by Rs. 250/- per tonne. There was also a suggestion for a reduction of Rs. 450/- per tonne. The Chairman had indicated that when the cost of indigenous DAP was fixed at Rs. 12,050/- for Kharif 1997, the price of ammonia had been taken at $220 per tonne. He stated that it was known then that the price of ammonia was declining and the cost would be required to be adjusted on the basis of the actual cost of Ammonia. It was also suggested that the cost be adjusted in the Rabi 1997-98 season though there was no need to change the price at which the fertilizers would be available to the farmers and any adjustment that should be made ought to be only with regard to the subsidy amount. A view was also taken that while the cost of production was not to be calculated in very precise terms as in the retention price-cum-subsidy scheme, but the declining prices of ammonia could not be ignored. However, in the minutes itself it was noted that after prolonged discussion there was no agreement on the proposal to reduce the concession for indigenous and imported DAP. But there was a consensus amongst the members of the Empowered Committee that there should be no change in the price of DAP.

11. On 07.10.1997 the Central Government sent a communication to all the State Governments notifying the maximum retail prices of, inter alia, DAP as Rs. 8,300/- per tonne for the Rabi 1997-98 season. These maximum retail prices were the same as that notified in the Kharif 1997 season. The communication, however, carried the following sentences also:

In regard to rates of concession on above fertilizers orders will issue shortly.

12. On 02.02.1998 the Government of India issue a press note which, inter alia, indicated that the Government had decided that the concession on indigenous DAP which was Rs. 3,750/- per tonne and on imported DAP which was Rs. 2,250/- per tonne would now be paid at the rate of Rs. 3,500/- and Rs. 2,000/- per tonne on indigenous and imported DAP, respectively, to manufacturers and importers for the sale of these fertilizers during the Rabi 1997-98 season from 1.10.97 to 31.3.98. This was followed by the impugned circular of 03.02.1998 to the same effect.

13. The learned Counsel for the respondent submitted that while construing the above factual position, certain other facts have also to be kept in mind. It was pointed out that before the circular of 05.03.1997, which is heavily relied upon by the petitioner, an order dated 04.03.1997 was issued by the Ministry of Agriculture. By virtue of this order dated 04.03.1997 the constitution of an Empowered Committee under the Chairmanship of the Secretary (Agriculture and Cooperation) was notified. The terms of reference of the Committee were as under:

i) To indicate reasonable prices in respect of decontrolled phosphatic and potassic fertilizers (P&K), whether dervied from straight sources or through complexes.

ii) The Committee may decide upon marginal adjustments in the incremental concessions on P&K fertilizers that may be necessary.

iii) The Committee may formulate a scheme for funding the extra cost of transportation to move fertilizers to more difficult areas i.e., parts of J&K and North Eastern States including Sikkim, to be met out of the concessional scheme.

14. It was pointed out that there are two important factors which have to be kept in mind with regard to the order of 04.03.1997. The first factor was that the Committee could decide upon "marginal adjustments" in the incremental concessions on P&K fertilizers that may be necessary. The second factor was that the representative of the Fertilizer Association of India was also taken in as a member of the Empowered Committee.

15. It was also pointed out in the meeting of the Empowered Committee held on 19.08.1997, where a representative of the Fertilizer Association of India was also present, by the Secretary (Fertilizer) that it would be advisable to maintain the same prices of fertilizers as was decided for the Kharif 1997 season insofar as the Rabi 1997-98 season was concerned. It was also submitted by him that any adjustments required to be made on the basis of cost evaluation could be effected in the rate of concession for the said fertilizers while ensuring proper return to manufacturers.

16. On the basis of the aforesaid factual position, the learned Counsel for the petitioners submitted that the principle of promissory estoppel was applicable in the present case. According to him, the respondent had made a clear and unequivocal representation that rates of concession announced by virtue of the circular dated 05.03.1997 would be the same throughout the year 1997-98 covering the entire period 01.04.1997 to 31.03.1998. The petitioners had acted on the basis of this representation and planned out their imports/manufactures accordingly. Therefore, according to the learned Counsel for the petitioners, the respondent was estopped from altering the rates of concession and the circular dated 03.02.1998 was liable to be set aside. In support of the plea of promissory estoppel, the learned Counsel for the petitioners referred to the following decisions:

1. Moti Lal Padampat Sugar Mills v. State of U.P.

2. Godfrey Philips v. Union of India

3. National Buildings construction Corporation v. S. Raghunathan

The learned Counsel for the petitioners also submitted that the plea of promissory estoppel cannot be defeated as there is no statutory provision which comes in the way of such a plea in the present case.

17. On behalf of the respondent, it was contended that for promissory estoppel to apply, the representation must be firm and unequivocal. According to the learned Counsel for the respondent, the rates of concession notified by the circular dated 05.03.1997 were subject to marginal adjustments as the terms of reference of the Empowered committee, referred to above, itself disclosed. Therefore, there was no representation that the rates of concession mentioned in the circular of 05.03.1997 would remain the same throughout the year 1997-98 period. It was next contended by the learned Counsel for the respondent that the petitioners have only stated that they had contracted for Phosphatic Acid for the whole year and there is no such submission with regard to Ammonia. It is ammonia which is relevant for the purpose of DAP. It is on account of the fall in the price of ammonia that the reduction in the rates of concession of DAP was necessitated. He submitted that when rates of concession were fixed on 05.03.1997, the DAP prices had also been fixed at Rs. 12,050/- per tonne for the Kharif 1997 season. The price of ammonia, at that point of time, was taken to be $220 per tonne. But the prices never reached $220 per tonne and, in fact, the prices of ammonia were far below $ 220 per tonne and were declining. Since it was decided that the consumer price of DAP was to be maintained, retaining the same rates of concession would have meant an undue bonanza for the manufacturers/importers. By the reduction in the rates of concession, as indicated by the circular dated 03.02.1998, the State has been able to save approximately Rs. 110 crores of public money which would have otherwise fallen in the kitty of the private manufacturers/suppliers.

18. It was also contended on behalf of the respondent that a representative of the Fertilizer Association of India was a member of the Empowered committee. The brief of the Empowered Committee included the question of marginal adjustments in the rates of concession if the situation so warranted. It was also contended that on 07.10.1997 when the government indicated its decision to maintain the maximum retail prices of DAP for the Rabi season at the same level as that of the Kharif season, it was made clear that the rates of concession would issue shortly. It was also contended that when 80% on-account payment was stopped in October, 1997, this was yet another signal that the concession rates would be reduced.

19. In sum, it was submitted by the learned Counsel for the respondent that the plea of promissory estoppel cannot be sustained inasmuch as there was no unequivocal promise in respect of a particular rate of concession. Moreover, the Fertilizer Association of India participated through its representative in the deliberations of the Empowered Committee and this in itself indicated that the industry knew very well that the rates of concession could vary.

20. It was also contended that the decision to reduce the rates of concession was not arbitrary but was based on reason and was brought about after due deliberation. The same also amounted in the saving of public money It was also contended that no detriment has been even pleaded by the petitioners with regard to ammonia and all the Letters of Intent that have been placed at pages 28-30 of the paper book relate to Phosphatic Acid. There has been no change with regard to Phosphatic Acid and no detriment has been pleaded with regard to ammonia, which is the constituent of DAP and on the basis of which the reduction in the rates of concession have been necessitated. Lastly, it was contended that, in any event, this was a policy matter and price fixation was clearly within the domain of the Government.

21. In rejoinder, the learned Counsel for the petitioners reiterated that the promise and/or representation that was made was clear and unequivocal. He submitted that the Minister's statement was a clear statement. It was clearly indicated that the rates of concession would be reduced and would be applicable from 01.04.1997. The Circular Dated 05.03.1997 also made it clear that the rates were applicable for the entire years 01.04.1997 to 31.03.1998.

22. It was also submitted that the only adjustments that could be made had to fall within the ambit of marginal adjustments as per the terms of reference of the Empowered Committee. Moreover, such adjustments were to operate prospectively and not retrospectively. It was also submitted that the scheme had been functioning well for several years and the Government had honoured its commitments in the previous years except in the present year. It was also contended that if adjustments were called for on the basis of change in costs then the manufacturers ought to be permitted to ask for alteration in the prices. If they cannot ask for alteration in the prices then the Government also ought not to be permitted to alter the rates of concession. In this background, it was also submitted that the fall in the price of ammonia was irrelevant as according to the learned Counsel for the petitioners, the costs were not relevant. With regard to the plea of unjust enrichment, it was submitted that while the price of ammonia fell, the price of Phosphatic Acid increased more than two times. It was also contented that ammonia constituted only about 14.5 per cent of the total costs. It was then contended that during the relevant period the rupee depreciated as against the U.S.$ and although the dollar price of Phosphatic Acid may have remained the same, because of the depreciation, the rupee price increased. The Railway freight price also increased in October by about 15 %. It was also submitted that after considering all these factors, the costs of DAP in October, 1997 would be around Rs. 9619.50 per tonne whereas in March, it was estimated to be around Rs. 9256/- per tonne. If the concession had not been given then the manufacturers/suppliers would have incurred heavy losses. It was also pointed out that in the next season, that is, commencing on 01.04.1998, the concession was again enhanced to Rs. 4,400/-. And this enhancement in the rates of concession were based on the cost data of 1997-98 as indicated in the counter affidavit at page 191 of the paper book. The learned Counsel for the petitioners submitted that therefore, the petition was liable to be allowed as prayed for.

23. There is no doubt that the rates of concession were notified on 05.03.1997 as being Rs. 3,750/- for indigenous DAP and Rs. 2,250/- for imported DAP. The language of the circular as also the Minister's statement which preceded the same are, to my mind, unequivocal. The Government had decided to continue the scheme of concession on sale of decontrolled phosphatic and potassic fertilizers to farmers during 1997-98 (01.04.97 to 31.03.98) on the existing pattern "at the revised rates indicated" in the said circular of 05.03.1997. There is no doubt in my mind that this would amount to a representation that rates of concession were for the entire year 01.04.1997 to 31.03.1998. But, at the same time, it was also known to the industry, which includes the petitioners herein, that an Empowered Committee had been constituted by virtue of the order dated 04.03.1997 and one of the terms of reference of which was that it could decide upon marginal adjustments in the concession on P&K fertilizers that may be necessary. The representative of the Fertilizer Association of India was a member of the said committee and participated in the deliberations throughout. Therefore, the position is that the industry knew that though the rates of concession had been notified by virtue of the circular dated 05.03.1997 for the entire year, there was scope for marginal adjustments. It is also true that in the preceding years ever since the scheme was operational, there had not been any instance of reduction in the rates of concession during the year. Therefore, it was legitimate for the petitioners to have expected that the rates notified on 05.03.1997 would remain the same throughout the year subject, however, to marginal adjustments.

24. While, I do not agree with the submissions made by the learned Counsel for the petitioners that the rates of concession could not at all be altered during the year 1997-98, I do agree him that the same could be altered only prospectively. This is different from marginal adjustments in the rates. Such marginal adjustments could even be made in the course of the year for transactions completed earlier in the year. Since we are concerned with the plea of promissory estoppel we must be clear with the exact nature of the representation by the Respondents as also the factum of detriment caused to the petitioners because of such representation. The representation here was that the rates notified on 05.03.1997 would hold good for the year 1997-98 subject to marginal adjustments which could even be applied retrospectively. At the same time, the representation was not that the rates could not be altered even prospectively. Therefore, the principle of promissory estoppel would apply in respect of this limited representation and that, too, if the petitioners are able to show that they, in fact, altered their positions to their detriment prior to the announcement of the new rates on 03.02.1998.

25. The submissions by the learned Counsel for the respondent that the petitioners were made aware by the communication of 07.10.1997 and the stoppage of the 80% on-account payment in October 1997 that revision in the rates of concession was around the corner, does not amount to anything. The fact of the matter is that when the Kharif season ended in September 1997 and the Rabi season began in October, 1997, there was no indication that the rates of concession would be reduced to the extent of Rs. 250/- per tonne. The manufacturers and the suppliers continued their operations of manufacture and sale acting on the same basis on which they had conducted their business for the Kharif season. In any event, the understanding that could be imputed to the petitioners of a change in rates of concession was only with regard to marginal adjustments. If a change in rates of concession was to be more than marginal then it would definitely have to be prospective. The change brought about in the present case is of a reduction of Rs. 250/- per tonne in both imported and indigenous DAP. This amounts to a 6% change insofar as indigenous DAP is concerned and an 11% change insofar as imported DAP is concerned. By no stretch of imagination can these changes be considered to be marginal adjustments.

26. Keeping these factors in mind, I am of the view that up to 03.02.1998 when the impugned circular was issued, the petitioners would be entitled to claim concession on the rates notified on 05.03.1997 provided they establish detriment as a fact. However, after 03.02.1998 the petitioners would be only entitled to the reduced rates of concession as notified in the circular of 03.02.1998. The respondent is accordingly directed to process the petitioners' claims for concession and to make the payments thereof, if any, Along with interest thereon @ 7% from the date on which they became due till the date of payment. The said claims be cleared in the aforesaid manner within eight weeks from today.

This writ petition is allowed to this extent. No order as to costs.