Punjab-Haryana High Court
M/S Medi Gas Corporation vs State Of Punjab And Ors on 13 March, 2024
Neutral Citation No:=2024:PHHC:038707
Neutral Citation No. 2024:PHHC:038707
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
252
CWP-5575-2023
Date of decision: 13.03.2024
M/S MEDI GAS CORPORATION ......Petitioner
VERSUS
STATE OF PUNJAB AND OTHERS .......Respondents
CORAM : HON'BLE MR. JUSTICE VINOD S. BHARDWAJ
*****
Present: - Mr. Chirag Girdhar, Advocate
for the petitioner.
Mr. Aditya Sharda, DAG, Punjab.
*****
VINOD S. BHARDWAJ, J. (Oral)
1. Prayer in the present writ petition is for directing the
respondents to disburse 30% State Capital Investment Subsidy amounting to
Rs. 24,05,000/- alongwith interest as sanctioned to the petitioner-Unit vide
sanction letter dated 01.02.2011 under the Industrial Policy, 1996 and for
setting aside the communication dated 18.11.2022 whereby the genuine
claim of the petitioner for release of the sanctioned amount has been rejected
for invalid and unsustainable reasons.
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2. Learned Counsel appearing on behalf of the petitioner contends
that the petitioner had submitted an application for grant of Investment
Incentive (Capital Subsidy) under the Punjab Industrial Incentive Code as
per the Industrial Policy of 1996 on 14.05.2001 for expansion of its
business. The petitioner intended to set up a plant for manufacturing Nitrous
Oxide Gas L.P. at village Jandaili (H.B. No. 225), Tehsil & District
Ludhiana which was declared as Rural Industrial Focal Point. The unit of the
petitioner was classified under the Head "Pharmaceutical Industry" and was
one of the fields of thrust areas being developed by the State of Punjab. The
above said unit had been established and had achieved commercial
production on regular basis w.e.f. 15.12.2000. The details of the capital
investment in the land, building and machinery etc. was duly furnished to
the competent authority and upon consideration of the entire documentary
evidence appended alongwith the application and finding the petitioner
eligible, the respondent-State of Punjab sanctioned an amount of Rs.
24,05,000/- as a capital subsidy vide memo No. Inc-1/Sub/LDH/M-
259/2701-B dated 01.02.2011. The petitioner thereafter submitted various
representations for release of the abovesaid sanctioned subsidy, however, the
same was not disbursed even though the petitioner had submitted all
necessary documents including the balance sheets of the year 2005-06;
2006-07; 2007-08 and 2008-09 on 30.03.2011, as demanded by the
respondent-Department.
3. He further contends that originally, the petitioner was a
partnership firm and one Parmod Kumar Mehta was the partner in the firm.
However, after passage of some time, there was a change in the constitution
of the firm and the old partnership was dissolved on 02.06.2012 and a new
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partnership deed was thereafter executed with Vinay Mehta and Pankaj
Mehta sons of Parmod Mehta, Parmod Mehta son of Murari Lal Mehta. The
said details were also furnished to the office of the respondents and it was
informed that there was no sale of unit. The same is being run by the family
members of the original partner Parmod Kumar Mehta. All the requisite
additional documents had also been duly furnished to the respondent-
Department. The respondents also sought certain additional information vide
communication dated 05.11.2015 in light of the judgment passed by this
Court in the matter of M/s Balak Gases Oxygen Plant, Mandi Gobindgarh
and others". The requisite information i.e. the account name, bank account
number alongwith IFSC Code etc., for facilitating disbursement of the
capital subsidy, were also furnished to the respondent-Department, however,
yet, the subsidy was not released. Finally, the petitioner was constrained to
send a legal notice dated 01.09.2022 calling upon the respondents to pay the
subsidy, which was replied to vide communication dated 18.11.2022. The
claim of the petitioner for release of sanctioned amount of capital subsidy
was conveyed to have been denied on the ground that there has been a
change of the composition of the partnership firm and that it has become a
sole proprietorship from the erstwhile partnership concern. The operative
part of the impugned communication is extracted as below:
From
Director of Industries & Commerce, Punjab,
Chandigarh.
To
Sh. Rajesh Kumar Girdhar,
Advocate,
Punjab and Haryana High Court,
Room No. 11, New Bar Complex,
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Resi. Cum-Off. Kothi No. 1335
Sector 37-B, Chandigarh.
Memo No. Inc/Sub/Ludhiana/M-259/5420-A
Dated 18.11.2022
Subject: Legal Notice -M/s Medi Gas Corporation,
Jandiali, Chandigarh Road, Ludhiana.
Please refer to your legal notice dated
01.09.2022 vide which legal notice has been send
on behalf of M/s Medi Gas Corporation, Jandiali,
Chandigarh Road, Ludhiana.
2. In this connection, it is informed that case of
the unit was considered by the department as per
Operational Guidelines notified on 13-11-2019 and
it has been found that Constitution of the unit has
been changed from Proprietorship from to
Partnership concern and vice versa. Hence, the
unit is not eligible for the release of sanctioned
amount of capital subsidy as per Operational
Guidelines-2019.
3. Therefore, legal notice dated 01.09.2022
served by you on behalf of M/s Medi Gas
Corporation, Jandiali, Chandigarh Road,
Ludhiana is considered and filed.
4. This is for your information
Superintendent (Incentive)
For Director of Industries & Commerce
Punjab, Chandigarh
4. Aggrieved thereof, the present writ petition has been filed.
5. The respondents have filed their reply wherein the factual
aspect extracted above is not disputed. It is admitted that the capital subsidy
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to the tune of Rs. 24,05,000/- was sanctioned on 01.02.2011 subject to
conditions prescribed thereunder and that certain guidelines were also
notified by the Government of Punjab under the Industrial Policy of 1978,
1987, 1989, 1992, 1996 and 2003 vide notification dated 13.11.2019. The
said guidelines set out specific instances where the Department would be
liable to release and disburse the sanctioned capital subsidy or the
investment incentive and also the category of entities which would not be
entitled for release of such capital subsidy. It is contended that as all partners
in the partnership firm had resigned, the composition of the petitioner
Industrial Unit has changed to Proprietorship from Partnership and that it is
deemed to be a dissolution of the partnership concern. The same disentitled
the petitioner for the release of capital subsidy under the operational
guidelines of the Government. Hence, a communication dated 18.11.2022
was accordingly sent to the petitioner.
6. Counsel for the petitioner has argued that the stand of the
respondent is bad and liable to be set aside inter alia on the following
grounds:-
i) That the capital incentive was sanctioned in favour of the
petitioner on 01.02.2011 and that the petitioner became entitled to
release thereof on fulfillment of the terms and conditions prescribed
thereunder. Any change in the composition of the unit later in point of
time could not be cited as a reason to disallow the subsidy already
sanctioned since the delay in disbursement of the subsidy is
attributable solely to the respondent themselves.
ii) It is further contended that the guidelines for disbursement of
the capital subsidy relied upon by the respondents had been notified
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on 13.11.2019 which is nearly 08 years after the capital subsidy had
already been sanctioned. He contends that similar guidelines
determining eligibility and entitlement of industrial unit for release of
capital subsidy were a subject matter of challenge in a batch of writ
petitions bearing CWP-19007 of 2002 titled as "M/S Balak Gases
Oxygen Gas Plant and another versus State of Punjab and others" .
It was held by this Court that the respondent-State would be estopped
from denying the benefits on the basis of operational guidelines issued
later in point of time and that it would be estopped from withdrawing
the benefits that had accrued in favour of the beneficiary industrial
units. He contends that the reliance of the respondent-State on the
guidelines issued in November, 2019 could not be used to the
impediment of the petitioner and to disentitle the petitioner to the
capital subsidy which had already been sanctioned after examining the
validity of the application and assessing the eligibility and entitlement
of the petitioner to the release thereof.
7. Learned counsel further contends that the objections as regards
changes of status of petitioner would not be sustainable since Clause 1.2.2 of
the operational guidelines notified by the respondent -State of Punjab in
2019 recognizes a change in constitution of a partnership firm. Merely
because one of the partners resigns and his family members have been
inducted as partners cannot be construed to mean that the status of the
partnership firm becomes that of a sole proprietorship (even for a brief
period). The status of the petitioner unit thus is still that of a partnership and
that it cannot be construed to be covered under Clause 1.2.3 (2) as relied
upon by the respondents.
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8. Responding to the same, counsel for the respondent-State
contends that Clause 1.2.3 (2) of the operational guidelines of 2019 deals
with the issue that where the partners in a particular firm resign from the
partnership, the same would be termed as a dissolution of the partnership
firm disentitling such firm from seeking release of capital
subsidy/investment. He further submits that the impugned decision had been
taken by the respondents as per the operational guidelines that have already
been notified and that the petitioner has been rightly held disentitled to the
release of the subsidy.
9. I have heard learned counsel appearing on behalf of the
respective parties and have gone through the documents appended alongwith
the present writ petition.
10. It is not in dispute that the capital subsidy to the petitioner was
sanctioned on 01.02.2011 and that the said capital subsidy has not been
released to the petitioner even till date. The conditions incorporated in the
letter sanction of subsidy are extracted as under:-
i) That the unit will supply balance sheets and
Sales Tax/Vat Returns for the last five years.
ii) The disbursement will be made on the
availability of funds and strictly as per seniority provided
that the unit is found to be in working condition/operation
at the time of disbursement.
11. The said details were immediately furnished and supplied
alongwith letter dated 30.03.2011. The conditions required to be fulfilled
was merely the balance sheets of five years preceding the date of sanction.
The same does not even empower the State to prescribe any new condition
over a period of time.
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12. It was nearly two months thereafter that the sole proprietorship
by Vinay Mehta was converted into a partnership by induction of the family
members as partners on 04.06.2012. It is also noticed that the petitioner-
Medi Gas Corporation was working as a Partnership since 17.01.1999. The
partnership deed came into being on 07.10.2000 between five persons
namely Girish Gupta; Jyoti Gupta; Harbans Lal Gupta; Paramjit Kaur and
Parmod Mehta & Sons H.U.F. Later, sons of Parmod Mehta became partners
and composition of partners changed on 04.06.2012 but the claim was still
being considered valid for release. It was only after issuance of new
operational guidelines notified on 13.11.2019 that the respondents found a
basis to reject the claim of the petitioner. There was thus no impediment for
nearly 08 years since sanction of the capital subsidy.
13. All the requisite documents as asked for by the respondents had
been duly supplied to them including the balance sheets upto the year 2009
alongwith communication dated 30.03.2011. Hence, the entitlement of the
petitioner is required to be seen as on the date when the capital subsidy was
sanctioned to it and the terms and conditions incorporated in the letter of
sanction. The operational guidelines issued later in point of time cannot be
read into the terms and conditions for the grant of capital subsidy and
sanction thereof. Introduction of new terms and conditions would materially
alter the Rules of the game after the same is already over. No industrialist
can be put to disadvantage by incorporating additional conditions, later in
point of time, notwithstanding that the respondent-State has itself been at
lapse in complying its own obligation to release the capital incentive
subsidy.
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14. Such an attempt made earlier on the part of the respondent-State
in prescribing additional guidelines for release of subsidy was considered by
this Court in the matter of "M/S Balak Gases Oxygen Gas Plant and
another versus State of Punjab and others" bearing CWP-19007 of 2002
which was decided against the respondents vide judgment dated 20.05.2011.
The said judgment has already attained finality. Yet another attempt has
been made by the respondent-State by notifying fresh operational guidelines
to create an artificial distinction regarding eligibility for release of the capital
subsidy by introducing certain conditions that did not form part of the
original letter of sanction and/or the industrial policy and the Capital
Incentive Subsidy Scheme. Such an attempt needs to be deprecated. The
relevant extract of judgment in the case of Balak Gases (supra) is extracted
as under:-
22. Thus, it would be seen that the State of Punjab has
repeatedly admitted its liability to pay the amount of
subsidies/incentives to the Industrial Units and sanctioned the
amount, but it did not release the same on unteriable grounds of
closure of units and non-availability of funds etc. without any
legal basis in this relevant connection.
23. Ex facie, the argument of counsel for the
respondents that in the wake of recommendations of the
committees, the State Government has issued the guidelines
dated 8.9.2009 to make the payment in public interest, so, the
doctrine of promissory estoppel is not applicable in the present
case, is neither tenable nor the observations of Hon'ble Apex
Court in M/s Motilal Padampat's case (supra). are at all
attracted to the facts of the present case, wherein it was
observed that "when the Government is able to show that in
view of the facts as have transpired since the making of the
promise, public interest would be prejudiced if the Government
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were required to carry out the promise, the Court would have to
balance the public interest in the Government carrying out a
promise made to a citizen which has induced the citizen to act
upon it and after his position and the public interest likely to
suffer if the promise were required to be carried out by the
Government and determine which way the equity lies."
24. Possibly, no one can dispute with regard to the
aforesaid observations, but, to me, the same would not come to
the rescue of the respondents-State in the instant controversy,
as at the same time and in the same judgment, it was also ruled
(in M/s Motilal Padampat's case (supra)) in para 24 as under:-
"Under our jurisprudence the Government is not
exempt from liability to carry out the representation
made by it as to its future conduct and it cannot on some
undefined and undisclosed ground of necessity or
expediency fail to carry out the promise solemnly made
by it, nor claim to be the judge of its own obligation to
the citizen on an ex parte appraisement of the
circumstances in which the obligation has arisen. The
law may, therefore, now be taken to be settled as a result
of this decision, that where the Government makes a
promise knowing or intending that it would be acted on
by the promisee and, in fact, the promisee, acting in
reliance on it, alters his position, the Government would
be held bound by the promise and the promisee would be
enforceable against the Government at the instance of the
promisee, notwithstanding that there is no consideration
for the promise and the promise is not recorded in the
form of a formal contract as required by Article 299 of
the Constitution. It is elementary that in a republic
governed by the rule of law, no one howsoever high or
low, is above the law. Everyone is subject to the law as
fully and completely as any other and the Government is
no exception. It is indeed the pride of constitutional
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democracy and rule of law that the Government stands on
the same footing as a private individual so far as the
obligation of the law is concerned; the former is equally
bound as the latter. It is indeed difficult to see on what
principle can a Government, committed to the rule of law,
claim immunity from the doctrine of promissory estoppel.
Can the Government say that it is under no obligation to
act in a manner that is fair and just or that it is not bound
by considerations of "honesty and good faith"? Why
should the Government not be held to a "high standard of
rectangular rectitude while dealing with its citizens""?
There was a time when the doctrine of executive necessity
was regarded as sufficient justification for the
Government to repudiate even its contractual
obligations; but, let it be said to the eternal glory of this
Court, this doctrine was emphatically negatived in the
Indo- Afghan Agencies case and the supremacy of the
rule of law was established. It was laid down by this
Court that the Government cannot claim to be immune
from the applicability of the rule of promissory estoppel
and repudiate a promise made by it on the ground that
such promise may fetter its future executive action. If the
Government does not want its freedom of executive action
to be hampered or restricted, the Government need not
make a promise knowing or intending that it would be
acted on by the promisee and the promisee would alter
his position relying upon it. But if the Government makes
such a promise and the promisee acts in reliance upon it
and alters his position, there is no reason why the
Government should not be compelled to make good such
promise like any other private individual. The law cannot
acquire legitimacy and gain social acceptance unless it
accords with the moral values of the society.
Xxx xxxx xxxx xxxx xxxx xxxx xxxx xxx
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27. The matter did not rest there. As indicated earlier,
the State has already admitted its liability during the course of
hearing of the above mentioned writ petitions and have
sanctioned and paid the subsidy amount to other industrial
entrepreneurs. The petitioner-Industries have also pressed into
service the plea of discrimination. In that eventuality, it cannot
possibly be saith and State is estopped from denying the
legitimate right of petitioner-Industries as well, in view of the
analogy of law hidden under section 115 of the Indian Evidence
Act, 1872, which envisages that when one person has, by his
declaration, act or omission, intentionally caused or permitted
another person to believe a thing to be true and to act upon
such belief, neither he nor his representative shall be allowed,
in any suit or proceeding between himself and such person or
his representative, to deny the truth of that thing. Above-all, the
petitioner-Industries are also legally entitled to the same
treatment on the principle of equality enshrined in the
Constitution of India.
28. This is not the end of the matter. The question of
applicability of promissory estoppel was considered by the
Hon'ble Supreme Court in case Union of India and others v.
Anglo-Afghan Agencies etc. AIR 1968 SC 718 and it was held
that "we are unable to accede to the contention that the
executive necessity releases the Government from honouring its
solemn promises relying on which citizens have acted to their
detriment. Under our constitutional setup no person may be
deprived of his right or liberty except in due course of and by
authority of law: if a member of the executive seeks to deprive a
citizen of his right or liberty otherwise than in exercise of power
derived from the law-common or statute, the Courts will be
competent to and indeed will be bound to, protect the rights of
the aggrieved citizen."
29. Not only that, having considered the various
judgments, including the judgment of M/s Motilal Padampat's
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case (supra) (relied on behalf of the respondents) on the point
of promissory estoppel, in a recent judgment of U.P.Power
Corporation Ltd.'s case (supra), the Hon'ble Apex Court has
observed (para 20) as follows :-
"In this 21st century, when there is global economy, the
question of faith is very important. Government offers
certain benefits to attract the entrepreneurs and the
entrepreneurs act on those beneficial offers. Thereafter,
the Government withdraws those benefits. This will
seriously affect the credibility of the Government and
would show the shortsightedness of the governance.
Therefore, in order to keep the faith of the people, the
Government or its instrumentality should abide by their
commitments. In this context, the action taken by the
appellant-Corporation in revoking the benefits given to
the entrepreneurs in the hill areas will sadly reflect their
credibility and people will not take the word of the
Government. That will shake the faith of the people in the
governance. Therefore, in order to keep the faith and
maintain good governance it is necessary that whatever
representation is made by the Government or its
instrumentality which induces the other party to act, the
Government should not be permitted to withdraw from
that. This is a matter of faith"
30. Meaning thereby, the doctrine of promissory estoppel
is also applicable to the State and its instrumentality/officers.
The Rule of estoppel is a principle of law by which a person is
held bound by the representation, made by him or arising out of
his conduct. If, a person made a statement intending that some
other person should act upon it, he will be estopped and will be
prevented, from denying the truth of his statement once the
other person has altered his position on the basis of the
statement. Where any person by his words or conduct willfully
causes another to believe in the existence of a certain state of
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things, rule of estoppel precludes a person from denying the
truth of the statements previously made by him. In order to hold
a person bound by estoppel, there should be a representation
that a certain state of thing is true and secondly, the person to
whom such a representation is made, should have acted on the
belief of it.
31. Above being the legal position and material on
records, now the short and significant questions, thought
important that arises for determination in these cases, are (i) as
to whether the principle of promissory estoppel is applicable in
the instant case and (ii) whether the State has the power to
unilaterally alter the eligibility clause, by means of
administrative guidelines, to deny the benefits already accrued
to the petitioner-Industries emanating from the Industrial
Policies/relevant rules (Annexure P1 and P2) on the grounds of
closure of units and non-availability of funds etc. or not?
Xxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx
39. In the present cases, the offer of subsidy is a manner
of providing incentives for such investment and an entrepreneur
that assumes a business risk in investment, is entitled to believe
that the scheme is not an empty promise but rooted on a sound
government policy and is squarely covered under the regime of
promissory estoppel of the industrial units. The State could not
legally be permitted to completely defeat the rights of
petitioner-Industries by constant re- appraisal of the scheme
retrospectively, that too by issuing administrative instructions
of any kind and by its officers by passing the impugned orders.
Even in case of those industries, which after several years of
operation has perforce to close its business by the only reason
that assured subsidy did not reach him or any other valid
ground beyond their control. A businessman, who makes
investment and obtains loans from the market or financial
institution for establishment of the industry, is at least entitled
to assume that a portion of debt could be redressed from the
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amount of subsidy/incentive and benefits as promised by the
State WA emanating from the Industrial Policies and relevant
rules framed thereunder.
40. Now adverting to the next celebrated contention of
the State counsel that since the respondents have issued
administrative instructions/guidelines, altering the original
Industrial Policies (Annexure P1) and the relevant rules framed
thereunder, so, the petitioner-Industries, as such, are not
entitled to the subsidies/incentives contrary to the guidelines, is
not only devoid of merit but misplaced as well. Once the
Governor has issued the notifications publishing the Industrial
Policies (Annexure P1) in Government Gazette and State Govt.
notified the relevant rules (Annexure P2) to implement the
indicated Policies, then, to my mind, the
administrative/executive instructions/guidelines cannot legally
be issued, unilaterally to alter the eligibility criteria and
imposing such restrictions on the payment of amount of
incentives detrimental to already accrued valuable rights of the
petitioner-Industries, that too, without issuing any notice and
providing adequate opportunity of hearing to them. Such
substantive rights of the petitioner- Industries cannot be taken
away by issuing the executive instructions/guidelines, which
have no sanctity of law and did not contain any legal force. It
cannot possibly be denied that only the State Government (not
its officers) has the power to amend the rules in a legal manner
that too prospectively and even State cannot take away any such
rights already accrued to a party by way of subsequent
amendment. In the present cases, as the impugned guidelines
are based on recommendations of the officers' committees,
therefore, the administrative instructions/guidelines will not in
any way override the effect and operation of Industrial Policies
and relevant rules framed thereunder in this regard by the
State.
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41. Moreover, the respondents cannot be permitted to
keep on changing the eligibility criteria for the benefit emitting
from the scheme, which was primarily intended to promote the
industrial growth in the specified category of area and industry
in general and production and employment in border area in
particular. As indicated earlier, the entitlement of petitioner-
Industries to claim the incentives and subsidies under the
scheme has not been denied and was sanctioned, but the
respondents did not release the amount for one or the other
untenable grounds grounds in the garb of impugned orders,
which are entirely beyond the scope and jurisdiction of the
original Industrial Policies and relevant rules framed
thereunder. In the same manner, a welfare State cannot
possibly be heard to say that the amount was not released on
account of paucity of funds with it.
42. In this manner, to my mind, any subsequent
administrative instructions/guidelines issued by the State or any
orders passed by its officers, impugned in the present writ
petitions, which have no sanctity of law and legal force, are
illegal, contrary to the Industrial Policies and indicated
relevant rules, without jurisdiction and in operative on the
rights of the petitioner-Industries. The State cannot deny the
release of the amount of incentive/subsidies to them (petitioner-
Industries) in this relevant connection.
43. Therefore, there cannot be any gainsaying that the
petitioner- Industries did act on the assurance of the State. If
the crux of the pleadings, materials placed on the records and
admission of the respondents, as discussed hereinabove, is put
together and the case is construed in its totality, then the only
possible conclusion, that can be drawn, is that the petitioner-
Industries were given an assurance by the respondents-State
and they actually acted in pursuance of the assurance in this
behalf. That by itself would be sufficient to attract the doctrine
of promissory estoppel.
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44. In this view of the matter, it is held that the State and
its instrumentality/officers are legally duty bound to fulfill their
promises and are liable to release the indicated benefits to the
petitioner-Industries on the principle of promissory estoppel,
which is deeply applicable to the facts and in the special
circumstances of the present cases. Therefore, the contrary
arguments of State counsel "stricto sensu" deserve to be and are
hereby repelled under the present set of circumstances as the
law laid down in the aforesaid judgment "mutatis mutandis' is
applicable to the present controversy and is the complete
answer to the problem in hand in this context."
15. Further, the specific stand of the petitioner that it is still a
partnership firm, as taken in Para No.20 of the present writ petition, has not
been specifically denied by the respondents in their reply submitted in Para
No.20 of the written statement. The requisite documents of the re-
composition/constitution of the partnership firm have already been furnished
and that they have not been adversely commented thereupon. Hence, the
status of the petitioner as a partnership firm, as on date, still exists.
16. That even otherwise, as per the law, every partner has an
unlimited obligation/liability against the partnership firm and has all rights
to operate the accounts as per Section 25 of the Partnership Act, 1932.
Therefore, each partner has an obligation towards all other partners and that
he can act and/or operate account and receive payments for and on behalf of
other partners. Such a distinction, which has been referred to by the
respondents to portray that the earlier identity of the petitioner firm having
undergone material change, it would be deemed to have been dissolved
(notwithstanding reconstitution of the partnership) even though new
partnership is admitted by the respondents in their own communication
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dated 18.11.2022 bearing Memo No. INC/Sub/Ludhiana/M-259/5420-A.
17. Notwithstanding that the operational guidelines issued on
13.11.2019 for release of subsidy would be hit by judgment in M/s Balak
Gases (supra), even the above stand is fallacious and liable to be rejected.
Reference is thus being made to the relevant clauses of the operational
guidelines:-
1.2.1. Dissolution of a Partnership Firm
A dissolved partnership ceases to be a legal
person/juristic entity and is thus not entitled to be
released/disbursed the sanctioned capital
subsidy/investment incentive upon/after its dissolution. A
Partnership Firm is governed by a Partnership
Deed/Contract if any and the provisions of the
Partnership Act, 1932.
A Partnership Firm which dissolves for the reasons set
out in the Partnership Act, 1932 or the Partnership
Contract/Deed ceasing to be a juristic entity would not be
entitled to the sanctioned capital subsidy/incentive.
Needless to say, the provisions of the Partnership Act,
1932 would be taken into account while deciding not to
release/disburse sanctioned capital subsidy/incentive
under this category.
In addition to any events/type of dissolution contemplated
in the Partnership Deed/Contract rendering the
Entity/Industrial Unit disentitled to release/disbursal of
capital subsidy/investment incentive, the following types
and/or events of dissolution would also render the
Industrial Unit disentitled to release/disbursal of
sanctioned capital subsidy/investment incentive: -
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(1) Dissolution by agreement/consent of all Partners or
in accordance with a contract/deed between Partners
under Section 40 of the Partnership Act, 1932
(2) Compulsory Dissolution as contemplated under
Section 41 of the Partnership Act. 1932 upon either of the
following two events happening:
(a) by the adjudication of all the partners or of all
the partners but one as insolvent, or
(b) by the happening of any event which makes it
unlawful for the business of the firm to be carried
on or for the partners to carry it on in partnership.
Provided that where more than one separate adventure
or undertaking is carried on by the firm, the illegality of
one or more shall not of itself cause the dissolution of the
firm in respect of its lawful adventures and undertakings.
(3) Dissolution upon happening of certain
contingencies/events as contemplated under Section 42 of
the Partnership Act, 1932 which is subject to contract
between the partners/ Partnership Deed:
(a) if constituted for a fixed term, by the expiry of
that term;
(b) if constituted to carry out one or more
adventures or undertakings, by the completion
thereof;
(c) by the death of a partner, and
(d) by the adjudication of a partner as an insolvent.
(4) Dissolution by Notice of Partnership at Will as
contemplated under Section 43 of the Partnership Act,
1932:
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(a) Where the partnership is at will, the firm may
be dissolved by any partner giving notice in writing
to all the other partners of his intention to dissolve
the firm.
(b) The firm is dissolved as from the date
mentioned in the notice as the date of dissolution
or, if no date is so mentioned, as from the date of
the communication of the notice.
(5) Dissolution of the Partnership Firm by Court for the
grounds mentioned in Section 44 of the Partnership Act
1932.
1.2.2. Reconstitution/Change in Constitution of the
Partnership Firm
Change in constitution as a legal concept is distinct from
'Dissolution' because dissolution ends the very juristic
existence of the Partnership Firm, whereas a 'change in
constitution' means the continuation of the Partnership
Firm under altered circumstances (such as on addition or
reduction of the numbers of original partners). Therefore,
there would be no impediment for release of sanctioned
subsidy/ investment incentive to an Entity/ Industrial Unit
being a Partnership Firm that has undergone
reconstitution/change in constitution (unless such
impediment flows from relevant policy/scheme under
which the subsidy was sanctioned). This is especially so,
when the original terms and conditions of
disbursal/release do not contemplate bar on/ stoppage of
release/disbursal of sanctioned subsidy/investment
incentive upon such change in constitution/reconstitution.
Hence, a Partnership Firm that has undergone such a
limited change in its constitution may be released the
sanctioned subsidy/investment incentive.
Xxxx xxxxx xxxxx xxxx xxxx
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3) Partnership run by family members- A Partnership of
family members where all the family members decide to
quit the Partnership Firm except one family member, is
no longer a legally subsisting Partnership Firm. Upon
the resignation/exit/retirement of all family members
except one, such an Industrial Unit stands reduced to a
sole proprietorship which is legally not the same entity as
the Partnership Firm in whose favour the capital
subsidy/investment incentive stood sanctioned. Thus, in
such an event, the Industrial Unit is not entitled to
release/disbursal of the sanctioned capital subsidy/
investment incentive.
(4) Exit of Partners with simultaneous induction of New
Partners- Where the Entity/Industrial Unit being a
Partnership Firm had inducted new partners upon exit of
old partners then the Partnership Deed/Contract may be
adverted to understand whether a new Partnership comes
into existence or the old Partnership survives:
a. If a new Partnership Firm comes into existence, then
the Entity/Industrial Unit is not entitled to the
release/disbursal of the sanctioned capital
subsidy/investment incentive (originally in favour of the
old Partnership Firm)
b. If the Partnership Firm (old) continues despite
induction of new partners and exit of old partners, then
the entity/Industrial Unit is entitled to the
release/disbursal of the sanctioned capital subsidy/
investment incentive.
If there is no Partnership Deed/Contract in place, there
being no impediment in the relevant policy/ scheme of
the time to release/disbursal of sanctioned capital
subsidy/investment incentive upon such
Reconstitution/Change in Constitution, the
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Entity/Industrial Unit may be released such sanctioned
capital subsidy/investment incentive."
18. A perusal of the Notification shows that the same was intended
to ensure release of capital subsidy and attempts to streamline the process in
light of the judgment in Balak Gases (supra).
19. Surprisingly, the said guidelines permit change in constitution
or reconstitution of a partnership firm but disentitle the petitioner for an
event of change of event and does not recognize the petitioner regaining the
same status.
20. The respondent cannot be allowed to read a change merely to
the prejudice of the petitioner and discard a change which fulfills the
requirement. The exercise of power to determine eligibility cannot be
selective and even a change which favours the petitioner too need to be
considered by the respondent especially when the petitioner regained its
status before the release of subsidy. It is required to be kept in mind that all
these restrictions are being apprised only by way of notification dated
13.11.2019 and cannot be applied retrospectively even when the subsidy fell
due in 2011.
21. The respondents cannot be permitted to take a stand at their
convenience. Vide the aforesaid communication, they have acknowledged that
the status of the petitioner is that of a partnership unit, while declining the case of
the petitioner unit for release of the capital subsidy. The stand of the respondents
is nothing more than a self serving statement to cover up their lapse and to
find a justification for their acts before this Court. The provisions as
contained in the operational guidelines notified in the year 2019 need to be
reconciled and harmoniously constructed. A brief status of a partnership
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firm, as a sole proprietor on account of resignation of one of the partners,
and before execution of fresh partnership deed, inducting new partners
cannot be construed as conferring the status of a sole proprietorship so as to
attract Clause 1.2.3 (2) of the Operational Guidelines and to hold a
partnership firm disentitled from the benefits that have already enured in its
favour. This would not have been the intent even of the appropriate
government since any such clause would easily be avoided by mere
induction of an additional partner before resignation of an existing partner.
Thus, a mere logistic lapse cannot be construed as depriving a person of a
right that has accrued in his favour.
22. I find that the conduct of the respondent-State is dishonest as it
is devising ways and mechanisms to find excuse from performing its
obligation. It is not in dispute that the petitioner became entitled for release
of the capital subsidy in the year 2011 when the incentive was sanctioned.
The conditions as are incorporated in the letter of sanction are the sole
conditions required to be fulfilled by an applicant. Introduction of any new
conditions for determination of eligibility is clearly a dishonest attempt on
the part of the State and adds to the agony of an industrialist who had
invested pursuant to an assurance given by the respondent-State. More so,
such attempt earlier has already been set aside by this Court. Fresh
notification is just yet another attempt at doing again, what had been held to
be illegal and bad by this Court earlier.
23. Accordingly, the present writ petition is disposed of. The
respondent is directed to release the sanctioned capital subsidy as on
01.02.2011 within a period of two months of the receipt of certified copy of
this order alongwith interest @ 6% per annum from the date of sanction till
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its actual release. In case the above said amount is not released within a
period of two months as above, the petitioner shall be entitled to interest @
8% per annum. The respondent-State is also burdened with an additional
cost of Rs. 50,000/- to be deposited with the "High Court Legal Services
Committee, Chandigarh".
24. It is seen that a large number of such cases are coming up
before this Court where the Industrialists are being forced to litigate by such
artificially devised objections and to approach the Court for seeking benefits
that had accrued in their favour more than a decade ago. Invariably, the
respondent-State is attempting ways and means to disobey the directions
issued by the Court in CWP-19007 of 2002 titled as "M/S Balak Gases
Oxygen Gas Plant and another versus State of Punjab and others".
25. Let a copy of this order be also placed before the Chief
Secretary, Punjab as any such attempt to disobey the order passed by this
Court by devising ways and mechanisms which are not sustainable in law
would be viewed as an attempt to disobey the order already passed and as an
attempt to commit contempt of this Court.
(VINOD S. BHARDWAJ)
MARCH 13, 2024 JUDGE
Vishal Sharma
Whether speaking/reasoned : Yes/No
Whether Reportable : Yes/No
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