Orissa High Court

Trishool Logistics vs Orissa Industrial on 25 July, 2023

                  ORISSA HIGH COURT: CUTTACK

AFR                     W.P(C) NO. 618 OF 2018

       In the matter of an application under Articles 226 and
       227 of the Constitution of India.
                             ---------------

Trishool Logistics Private Limited, Balasore ..... Petitioner

-Versus-

Orissa Industrial Infrastructure Development Corporation, Bhubaneswar & Ors. ..... Opp. Parties

For petitioner : Mr. G. Misra, Sr. Advocate along with M/s D.K. Patra, A. Dash and J.R. Deo, Advocates

For opp. parties : Mr. G. Mukherjee, Sr. Advocate along with M/s. A.C. Panda, S.D. Ray, S. Sahoo, Mark Wright & S. Priyadarshini, Advocates (O.Ps.3 & 4)

P R E S E N T:

THE HONOURABLE DR. JUSTICE B.R.SARANGI AND THE HONOURABLE MR JUSTICE MURAHARI SRI RAMAN

Date of Hearing: 20.07.2023 :: Date of Judgment : 25.07.2023 // 2 //

DR. B.R. SARANGI,J. The petitioner, by means of this writ

petition, seeks to quash the letter dated 20.10.2017

under Annexure-11 issued by opposite party no.4

directing to deposit Rs.28,09,875/- as penalty towards

damage, as well as the demand notice dated 07.01.2018

under Annexure-12, and to issue direction to the

opposite parties to change the name of the petitioner-

company in the lease agreement as per the application

dated 18.08.2017 under Annexure-8 series and not to

interfere with the possession and day to day activities of

the petitioner-company over the allotted plots in any

manner till the order of cancellation is revoked.

2. The factual matrix of the case, in brief, is that

the petitioner-company was established in the year

1983 and it has been involved in the business of

manufacturing of plastics/polymers. The allotment was

made in the year 1983 and it commenced its

commercial operations from 01.10.1985. On

31.01.1986, the Orissa Industrial Infrastructure

Development Corporation (hereinafter referred to as

'IDCO') formally entered into an agreement with the // 3 //

petitioner-company (formerly known as "Multilayer

Composites Pvt. Ltd.") for leasing out land measuring

2.50 acres at the Industrial Estate, Ganeswarpur in the

district of Balasore and subsequently IDCO Plot Nos.39

to 54 in the Industrial Estate at Balasore were allotted

to the petitioner-company by executing lease deed for a

period of 99 years.

2.1 The name of the petitioner-company was

subsequently changed to Trishool Logistics Private

Limited and the present writ petition has been filed in

the new name of the petitioner-company. At the time of

taking the lease, the petitioner-company gave a full

payment of Rs.2,28,125/-, which was much higher

than the market value prevalent at that point of time.

After getting lease of the land, the petitioner company

commenced its operations and started manufacturing of

a variety of products involving polymers/plastics. A unit

of the petitioner-company also manufactured co-

extruded plastic films, for which it had incurred huge

expenses and made huge investments for the // 4 //

construction of the factory building, office building

along with all the internal amenities.

2.2. As per the terms of the lease agreement

under Annexure-1, the petitioner-company

continuously paid the lease rent and other charges and

cleared all the dues of the opposite parties till

31.03.2018. The unit of the petitioner-company started

making losses and, therefore, it wanted to sub-let a

portion of the property on a temporary basis to revive

its financial crisis, which was duly intimated to the

opposite parties, vide letter dated 23.05.2012, as per

their circular dated 23.12.2010. But the opposite

parties issued a show-cause notice dated 04.06.2012 to

the petitioner-company. In response to the same,

petitioner-company gave its reply on 18.06.2012. When

the same was pending for consideration, the opposite

parties cancelled allotment of some of the plots vide

letter dated 06.06.2012.

2.3 Challenging the cancellation of allotment, the

petitioner-company filed W.P.(C) No.12832 of 2012,

wherein this Court passed interim order on 24.07.2012 // 5 //

restraining the opposite parties from taking over

possession of the property in question without leave of

the Court. Thereafter, a discussion was held between

the parties and the outcome of the discussion permitted

the petitioner to submit online application for change of

name and style of the company. Consequentially, it

submitted online application on 18.08.2017 and also

deposited a sum of Rs.5000/-.

2.4 Opposite party no.3 issued a letter dated

28.08.2017 to the petitioner-company intimating that

its application for change of name was objected and

advised the petitioner-company to withdraw W.P.(C)

No.12832 of 2012 and apply for revocation of

cancellation of allotment. Accordingly, the petitioner-

company withdrew the aforesaid writ petition on

05.09.2017 with a liberty to re-file the same, if so

advised. Thereafter, the petitioner-company filed an

online application on 14.09.2017 for revocation of

cancellation of allotment of IDCO plots.

2.5 In response to the same, opposite party no.4

issued a letter dated 20.10.2017 intimating the // 6 //

petitioner-company that the management of IDCO

revoked the cancellation order issued by the Balasore

Division against the plots allotted to it subject to

compliance of certain terms and conditions. One of the

conditions mentioned in the said letter was that it had

to deposit an amount of Rs.28,09,875/- as penalty

towards damage inclusive of GST @ 18%. Pursuant to

such letter, the opposite parties issued a demand notice

dated 07.01.2018 raising a demand of Rs.28,09,875/-.

Hence, this writ petition.

3. Mr. G. Misra, learned Senior Counsel

appearing for the petitioner vehemently contended that

imposition of penalty and consequential demand notice

issued for realization of Rs.28,09,875/- is absolutely

arbitrary, illegal and violative of the interim order dated

24.07.2012 passed by this Court in W.P.(C) No.12832 of

2012. It is further contended that Clause-17 of the

lease agreement is not applicable to the case of the

petitioner, as the continuance of the possession over

the allotted plot was owing to the interim order passed

by this Court. Therefore, the occupation of allotted plots // 7 //

cannot be construed to be unauthorized. It is further

contended that in any event, since opposite party-IDCO

revoked the cancellation, Clause-17 of the lease

agreement will not come into picture and, thereby, the

illegal demand made by the opposite parties cannot be

sustained in the eye of law. More so, such demand has

been raised without complying the principle of natural

justice, as the penalty has been imposed without giving

opportunity of hearing to show-cause. It is further

contended that imposition of penalty towards damages

for unauthorized use and occupation is not only

arbitrary but also amounting to gross disregard to the

judicial pronouncement of this Court. It is further

contended that since the opposite parties revoked the

cancellation order, occupation of the petitioner-

company over the allotted plots is completely legal and

authorized and the petitioner-company is also willing to

pay the amount of Rs.5,84,100/- towards subletting

charges, as has been demanded in the letter dated

20.10.2017 under Annexure-11. Therefore, the demand

for penalty towards damages is absolutely illegal,

arbitrary and unwarranted. For the above reasons, he // 8 //

seeks for interference of this Court at this stage. To

substantiate his contentions, he has relied upon

Isolators and Isolators through its Proprietor Mrs.

Sandhya Mishra v. Madhya Pradesh Madhya

Kshetra Vidyut Vitran Co. Ltd. and Anr., 2023 SCC

Online SC 444 and M/s. VFPL ASIPL JV Company &

Anr. v. Union of India, 2020(III) ILR-CUT-388.

4. Mr. Mark Wright, learned counsel on behalf

of Mr. S.D. Ray, learned counsel appearing for the

opposite party-IDCO, while justifying the demand raised

by the authority, vehemently contended that since the

petitioner-company has utilized the land other than the

purpose for which it was granted, it is liable to pay the

damages and also penalty in terms of Clause-17 of the

lease agreement executed between the parties. It is

further contended that the claim of damages and

penalty is well within the domain of the opposite

parties, as the lease granted by the opposite parties has

not been utilized for the purpose for which it was

granted. Therefore, issuance of the impugned letter

dated 20.10.2017 under Annexure-11 directing to // 9 //

deposit Rs.28,09,875/- as penalty towards damages is

well justified and as a consequence thereof, the demand

notice issued under Annexure-12 dated 07.01.2018

cannot be said to be illegal so as to cause interference

of this Court at this stage.

5. This Court heard Mr. G. Mishra, learned

Senior Counsel along with Mr. A. Dash, learned counsel

appearing for the petitioner and Mr. Mark Wright,

learned counsel appearing for the opposite party- IDCO

in hybrid mode. Pleadings have been exchanged

between the parties and with the consent of learned

counsel for the parties, the writ petition is being

disposed of finally at the stage of admission.

6. On the basis of factual facts, as discussed

above, the demand raised by the opposite parties is

allegedly made in violation of Clause-17 of the lease

agreement executed between the parties. Therefore, for

better appreciation, Clause-17 of the lease agreement is

extracted below:-

"17. In the event of cancellation of the allotment, the Lessee shall be bound and liable to vacate and deliver to the Lessor the vacant possession // 10 //

of the property free from all obstructions, failing which the lessee shall be liable to pay to the Lessor damages at the rate Rs.500/- per day of unauthorized use and occupation of the property besides any other liabilities provided for in this agreement or in any other law for the time being in force."

On perusal of the aforementioned clause, it is made

clear that in the event of cancellation of the allotment,

the lessee shall be bound and liable to vacate and

deliver to the lessor the vacant possession of the

property free from all obstructions, failing which the

lessee shall be liable to pay to the lessor damages at the

rate of Rs.500/- per day of unauthorized use and

occupation of the property besides any other liabilities

provided for in the agreement. Needless to say, against

cancellation of lease, the petitioner-company had

approached this Court by filing W.P.(C) No. 12832 of

2012 and entertaining the same, this Court passed

interim order on 24.07.2012 restraining the opposite

parties from taking over possession of the property in

question without leave of the Court. Therefore, the

question of any unauthorized use and occupation of the

property by the petitioner-company does not arise, as

the same was protected by the order of this Court. As a // 11 //

consequence thereof, the damages at the rate of

Rs.500/- per day, as mentioned in Clause-17 of the

lease agreement, cannot also be sustained in the eye of

law. More so, while determining such damages, there is

non-compliance of the principle of natural justice by the

opposite parties. Law requires that unless an amount is

determined by following due procedure, the same

cannot be raised against the person concerned.

Therefore, if at all damages have been determined by

the opposite parties in terms of Clause-17 of the lease

agreement, the same should have been done by

following due procedure. But nothing has been placed

on record to indicate that any procedure has been

followed for determination of compensation as well as

the imposition of penalty thereof. In absence thereof,

this Court is of the considered view that such damages

and consequential penalty cannot be imposed on the

petitioner-company. The basic concept of damages, as

has been raised vide letter dated 20.10.2017, is lacking

and without understanding the meaning of damages the

consequential demand has been raised under // 12 //

Annexure-12 dated 07.01.2018. Therefore, it is highly

essential to understand the meaning of damages.

7. For better appreciation and clarity, different

meanings of 'damages' are elaborated below:-

FRANK GAHAN in The Law of Damages 1

(1936) defined 'damages' as follows:

"damages are the sum of money which a person wronged is entitled to receive from the wrongdoer as compensation for the wrong".

HALSBURY, in the 4th Edn. Vol.12 para-1109

at page-415, stated as follows:

"The parties may agree by contract that a particular sum is payable on the default of one of them, and, if the agreement is not obnoxious as a "penalty", such a sum constitutes "liquidated damages" and is payable by the party in default."

Mc Gregor defines damages as the pecuniary

compensation, obtainable by success in an action, for a

wrong which is either a tort or a breach of contract, the

compensation being in the form of a lumpsum which is

awarded unconditionally.

Black's Law Dictionary, Revised Fourth

Edition:-

// 13 //

"Damage. Loss, Injury, or deterioration, caused by the negligence, design, or accident of one person to another, in respect of the latter's person or property. The word is to be distinguished from its plural,-

"damages"- which means a compensation in money or a loss or damage. An injury produces a right in them who have suffered any damage by it to demand reparation of such damage from the authors of the injury. By damage, we understand every loss or diminution of what is a man's own, occasioned by the fault of another."

Section-12 of the Indian Evidence Act states

as follows:-

"The sum claimed or awarded in compensation for loss or injury sustained."

In Organo Chemical Industries v. Union of

India, (1979) 4 SCC 573, the apex Court held as

follows:

"The expression 'damages' is neither vague nor over-wide. It has more than one signification but the precise import in a given context is not difficult to discern. A plurality of variants stemming out of a core concept is seen in such words as actual damages, civil damages, compensatory damages, consequential damages, contingent damages, continuing damages, double damages, etc. the essentials of the damages are (a) detriment to one by wrongdoer of another, (b) reparation awarded to the injured through legal remedies and (c) its quantum being determined by the dual components of pecuniary compensation for the loss suffered and often not always, a punitive addition as a deterrent cum denunciation by the law."

// 14 //

In Divisional Controller, KSRTC v.

Mahadeva Shetty, (2003) 7 SCC 197, the apex Court

held as follows:

"The word 'damages' constitute the sum of money, claimed or adjudged to be paid in compensation for loss or injury sustained."

8. On careful perusal of the meaning attached

to the word 'damages', as mentioned above, it is made

clear that the essentials of the damages are; (1)

detriment to one by wrongdoer of another; (2)

reparation awarded to the injured through legal

remedies; and (3) its quantum being determined by the

dual components of pecuniary compensation for the

loss suffered and often not always, a punitive addition

as a deterrent cum denunciation by the law. But the

'damages' constitute the sum of money, claimed or

adjudged to be paid in compensation for loss or injury

sustained.

9. Applying such meaning of 'damages' to the

present case, it is seen that neither the money has been

claimed nor it has been adjudged to be paid in

compensation for any loss or injury caused to the // 15 //

opposite parties. Rather, the opposite parties, by

making their own calculation, have determined the

damages without affording opportunity of hearing to the

petitioner. Before making any demand for damages, the

same should have been adjudged by the opposite

parties by affording opportunity of hearing to the

petitioner. If according to the opposite parties, the

petitioner is wrongdoer, the demand has to be claimed

by following due procedure established by law. The

same having not been adhered to, the demand raised

vide letter dated 20.10.2017 under Annexure-11 on the

basis of so-called damages cannot be sustained in the

eye of law.

10. Now comes the question of imposition of

penalty on damages. If considered strictly the meaning

attached to the word 'penalty', a penalty is a

punishment inflicted by a law for its violation.

In common parlance, the word 'penalty' is

understood to mean a legal or official punishment such

as a term of imprisonment. In some context, it is also // 16 //

understood to mean some other form of punishment

such as fine or forfeiture for not fulfilling a contract.

A penalty is defined as a temporary

punishment or sum of money imposed by statute, to be

paid as a punishment for the commission of a certain

offence. A penalty is a punishment imposed by law or

contract for doing or failing to do something that it was

the duty of a party to do. A penalty is in the nature of a

punishment for the non-performance of an act, or the

performance of an unlawful act, and in the former case

stands in lieu of the act to be performed.

11. In Karnataka Rare Earth v. Senior

Geologist, Deptt. Of Mines & Geology, (2004) 2 SCC

783, the apex Court held as follows:-

"'Penalty' is a liability imposed as a punishment on the party committing the breach."

12. In Pratibha Processors v. Union of India,

AIR 1997 SC 138, the apex Court held as follows:-

"Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute."

// 17 //

13. In Associate Cement Co. Ltd. V.

Commercial Tax Officer, (1981) 4 SCC 578, the apex

Court held as follows:-

"'Penalty' ordinarily becomes payable when it is found that an assessee has willfully violated any of the provisions of the taxing statute".

14. In Consolidated Coffee Ltd. V. Agricultural

Tax Officer, (2001) 1 SCC 278, the apex Court held as

follows:-

"The word 'penalty' occurring in Section 42(1)(ii) of the Act does not mean 'interest'. It is imposed on the assessee who fails to pay tax in time and the quantum of the penalty increases with the delay."

15. In Amin Chand Payarelal v. Inspecting

Asstt., CIT, (2006) 7 SCC 483, the apex Court held as

follows:-

"The 'penalty' is a punishment imposed on a wrongdoer."

16. In view of such position, a penalty is imposed

for an actual infringement and not deemed

infringement. More so, it is always imposed on account

of personal fault of the person concerned. It is always

relatable to an offender. It is a personal liability and it // 18 //

cannot be imposed on any person other than the

offender. Therefore, the penalty is something in the

nature of punishment or an infliction, i.e., it is

something over and above claimed, i.e., due to by one

party to the other.

17. Mr. Mark Wright, learned counsel appearing

for the opposite party-IDCO vehemently contended that

the impugned demand of damages was raised and

penalty was imposed on the basis of circular no.23232

dated 02.11.2016 issued by the IDCO, which suggests

that penalty of Rs.500/- per acre per day from the date

of cancellation of lease to the date of revocation shall be

realized from the allotees while revoking cancellation of

lease and the said circular was in effect when the

petitioner applied for revocation of cancellation of lease.

Thereby, the action taken by the opposite parties

raising demand is justified. But Mr. G. Mishra, learned

Senior Counsel appearing for the petitioner refuted

such contention raised by learned counsel for the

opposite party-IDCO.

// 19 //

18. As it reveals, the occupation of the petitioner-

company with the lease land continued, even after

revocation of lease, by virtue of interim order passed by

this Court in W.P.(C) No.12832 of 2012. Since

continuance of occupation of the lease land validated by

this Court, the said occupation cannot in any sense be

said to be unauthorized. Thereby, the interest of the

petitioner was protected by virtue of interim order

passed by this Court. Therefore, no damages should

have been raised by the opposite parties. If the damages

and penalty are connected with unauthorized

occupation of the premises of the petitioner and, as

such, it has been protected by this Court by passing

interim order, the so called demand of damages and

penalty cannot also be sustained in the eye of law. More

so, the reliance placed on the circular dated 02.11.2016

issued by the IDCO cannot have any retrospective

application, if at all the same is applied to the present

case, rather the same is prospective in nature. If that be

so, damages can be considered with effect from

24.10.2014, but not prior to that, as the circular

specifically indicates it should be given effect from // 20 //

24.10.2014. Therefore, any damages calculated and

discussed in the counter affidavit from 06.07.2012 to

22.09.2017 is absolutely arbitrary and unreasonable.

19. In Isolators and Isolators through its

Proprietor Mrs. Sandhya Mishra (supra), the apex

Court held in paragraph-37 of the judgment as follows:-

"37. As regards the question of penalty, we find force and substance in the contentions urged on behalf of the appellant that such an imposition cannot be approved for two major factors: The first and foremost being that in the show-cause notice dated 26.11.2019, the appellant was put to notice only as regards the proposition of debarment and in the said notice, nothing was indicated about the proposed imposition of penalty. Though in the cancellation orders dated 19.11.2019 and 21.11.2019, the respondents purportedly reserved their right to take appropriate steps, those orders cannot be read as show-cause notice specifically for the purpose of imposition of penalty. The submissions on behalf of the respondents in this regard that the said orders dated 19.11.2019 and 21.11.2019 have attained finality do not take their case any further. Finality attaching to the action of cancellation cannot be read as a due notice for imposition of penalty even if the respondents chose to employ the expression 'cancelled with imposition of penalty' in those orders. Looking to the terms of contract, quantification of the amount of penalty (if at all the penalty is considered leviable) could not have been carried out without affording adequate opportunity of response to the appellant. That being the position, the action of the respondents in imposing the penalty without even putting the appellant to notice as regards this proposed action cannot be approved."

// 21 //

Taking into consideration the ratio decided in the above

mentioned case, it is made clear that imposition of

penalty without even putting the petitioner to notice as

regards to the proposed action cannot be approved.

20. In M/s. VFPL ASIPL JV Company (supra),

this Court in paragraph-55 of the judgment held as

follows:-

"On perusal of the facts mentioned in the impugned order dated 29.04.2020 read with additional affidavit dated 03.07.2020, it is clearly discernible that the impugned banning order has been passed primarily due to losses suffered by MCL on account of which the production capacity of MCL was severely impaired. It is not the petitioner no.1 but the MCL which is responsible for impairing the production capacity, since MCL is responsible for more than 94% of the total shortfall (or 55.6% of the total targeted quantity). Banning of petitioner no.1 as a consequence of shortfall of only 3.27% in performance, as is evident from the impugned order, can be construed to be unreasonable and wholly disproportionate to the findings. Even if the contention raised in the additional affidavit dated 03.07.2020 would be taken into consideration, the shortfall in performance was only 4.36% and, as such, on that score also banning of petitioner no.1 can be construed to be unreasonable. Even though the right of petitioner no.1 is in the nature of a contractual right, the manner in which the impugned decision has been taken by the MCL, which is a State within the meaning of Article 12 of the Constitution, is subject to judicial review on the touchstone of fairness, relevance, natural justice, non- discrimination, equality and proportionality."

// 22 //

Applying the above principle to the present case, any

damages raised and penalty imposed vide letters dated

20.l0.2017 and 07.01.2018 under Annexures-11 and 12

respectively cannot be sustained in the eye of law, as

the same are arbitrary, unreasonable and violative of

principle of natural justice.

21. For all the above reasons, this Court is of the

considered view that determination of damages as made

vide letter dated 20.10.2017 under Annexure-11 and

consequential demand notice dated 07.01.2018 issued

vide Annexure-12 imposing penalty are liable to be

quashed and are hereby quashed.

22. In the result, the writ petition stands allowed,

but, however, under the circumstances of the case,

there shall be no order as to costs.




                                                              (DR. B.R. SARANGI)
                                                                   JUDGE

           M.S. RAMAN, J.                   I agree.

Signature Not Verified                                          (M.S. RAMAN)
Digitally Signed
Signed by: ALOK RANJAN SETHY                                        JUDGE
Designation: Secretary
Reason: Authentication