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A decision taken in arbitrary manner by state contradicts principle of legitimate expectation

A decision taken in an arbitrary manner by state would contradicts the principle of legitimate expectation

It is one thing for the State to assert that the writ petitioner had no vested right but quite another for the State to assert that it is not duty bound to disclose its reasons for not giving effect to the exemption notification within the period that was envisaged in the Industrial Policy 2012. Both the accountability of the State and the solemn obligation which it undertook in terms of the policy document militate against accepting such a notion of state power. The state must discard the colonial notion that it is a sovereign handing out doles at its will. Its policies give rise to legitimate expectations that the state will act according to what it puts forth in the public realm. In all its actions, the State is bound to act fairly, in a transparent manner. This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts. A deprivation of the entitlement of private citizens and private business must be proportional to a requirement grounded in public interest. This conception of state power has been recognized by this Court in a consistent line of decisions.(para 45)

Since the State has offered no justification for the delay in issuance of the notification, the action by the State is arbitrary and is violative of Article 14 and is against the doctrine of legitimate expectation. (Para 46)

The State of Jharkhand and Ors. v. Brahmputra Metallics Ltd., Ranchi and Anr.

Civil Appeal Nos. 3860-3862 of 2020 (Arising out of SLP (C) Nos. 14156-14158 of 2020)

1 December, 2020.

Counsel for the Appellants: Additional Advocate General, Mr.Tapesh Kumar Singh

Counsel for the respondents: Learned Counsel, Mr. Devashish Bharuka

The Hon’ble Supreme Court comprising of Justice Dr. Dhananjaya Y. Chandrachud and Justice Indu Malhotra held in a case that a decision taken in an arbitrary manner contradicts the principle of legitimate expectation.

the State government of Jharkhand on 16.06.2012 notified the Industrial Policy 2012 which provided an exemption from the payment of 50 per cent of the electricity duty for a period of five years, for captive power plants established for self-consumption or captive use; which would ensue from the financial year following the Date of Production. It also provided that the policies would be enforced by notifications within a month. But the notification was only issued on 08.01.2015 under Section 9 of the Bihar Electricity Duty Act 1948. And the notification was given prospective effect, denying the rebate/deduction of 50 % of the electricity duty to the respondent, a captive power plant, for the financial years 201-2012, 2012-2013, 2013-2014 which was expected as per clause 32.10 of the industrial policy, 2012.

The petitioner filed a writ petition challenging the notification before the High Court of Jharkhand in the year 2019. The High Court by its Judgment struck down the last para of the notification that gives prospective effect to the same and the electricity duty deposited for FYs 2011-12, 2012-13 and 2013-14 was directed to be adjusted against the future liability of the respondent towards electricity duty. The present is preferred by the State against this judgment of the High Court.

The issue for determination: whether the respondent is entitled to claim a rebate or deduction of 50 percent of the amount assessed towards electricity duty for FYs 2011-12, 2012-13 and 2013-14?

The Counsel for the appellants contended that (i) In 2019, three writ petitions were filed with a view to overcome the period of limitation under the general law and these have erroneously been allowed by the common judgment and order of the High Court (ii) There is a presumption in law against the respondent that the amount claimed as rebate/deduction from electricity duty has already been passed on to its customers. Hence, the adjustment which has been granted by the High Court would result in unjust enrichment to the respondent. (iii) Since the unit of the respondent commenced commercial production on 17 August 2011, whereas the Industrial Policy is of 2012, the doctrine of promissory estoppel cannot be extended “backwards in favour of the respondent”.

The Counsel for the respondents contended that (i) The act of the State government in making the exemption notification prospective in effect from 8 January 2015 is in derogation to the promise held out by the State in its Industrial Policy 2012. (ii) The issue of delay has not been raised by the State government either before the High Court or in the Special Leave Petition; (iii) Once the High Court entertained the writ petition on merits, this Court ought not to interfere on the ground of delay alone, particularly when the judgment of the High Court is legally sustainable;

Explaining how the action of the State executive in issuing the notification after three years of the Industry Policy, 2012 is against the goal which the Industry Policy seeks to achieve and how th State breached its policy commitments, the Court observed the following:

The State government was evidently inclined to grant the exemption. This is not a case where due to an overarching requirement of public interest, the State government decided to override the representation which was contained in the Industrial Policy 2012. To the contrary, it sought to implement the representation albeit in fits and starts. Firstly, there was a delay of three years in the issuance of the notification. Secondly, by making the notification prospective, it deprived units such as the respondent of the full benefit of the exemption which was originally envisaged in terms of the Industrial Policy 2012. (Para 23)

After bringing in brief the evolution of the doctrine of Promissory Estoppel in English Law and how the Doctrine of Legitimate Expectations is different from Promissory Estoppel ( by referring to judgments in R vs North and East Devon Health Authority, ex p Coughlan [2001] QB 213 and Regina (Bibi) vs Newham London Borough Council (2002) 1 W.L.R. 237), the Court summed up the English Legal Position in the following words:

Consequently, while the basis of the doctrine of promissory estoppel in private law is a promise made between two parties, the basis of the doctrine of legitimate expectation in public law is premised on the principles of fairness and non-arbitrariness surrounding the conduct of public authorities. This is not to suggest that the doctrine of promissory estoppel has no application in circumstances when a State entity has entered into a private contract with another private party. Rather, in English law, it is inapplicable in circumstances when the State has made representation to a private party, in furtherance of its public functions. (Para 35)

Bringing out the legal basis for the Doctrine of Legitimate Expectation in the Indian Legal System, the court clarified the many inconsistencies in its previous decisions and reproduced the following passage from its judgment in NOIDA Entrepreneurs Assn. vs NOIDA(2011) 6 SCC 508.

A decision taken in an arbitrary manner contradicts the principle of legitimate expectation. An authority is under a legal obligation to exercise the power reasonably and in good faith to effectuate the purpose for which power stood conferred. In this context, “in good faith” means “for legitimate reasons”. It must be exercised bona fide for the purpose and for none other. (Para 44 of NOIDA Entrepreneurs Assn. v. NOIDA)

Relying on the judgment of the Court in National Buildings Construction Corporation vs S. Raghunathan, (1998) 7 SCC 66 the Court observed the following:

Therefore, it is clear that the State had made a representation to the respondent and similarly situated industrial units under the Industrial Policy 2012. This representation gave rise to a legitimate expectation on their behalf, that they would be offered a 50 per cent rebate/deduction in electricity duty for the next five years. However, due to the failure to issue a notification within the stipulated time and by the grant of the exemption only prospectively, the expectation and trust in the State stood violated. Since the State has offered no justification for the delay in issuance of the notification, or provided reasons for it being in public interest, we hold that such a course of action by the State is arbitrary and is violative of Article 14. (Para 46)

Rejecting the argument of the appellants that the filing of the writ petition before the Hugh Court was very much delayed, the Court referred to its judgment in High Court of Judicature of Patna v.Madan Mohan Prasad, (2011) 9 SCC 65 and Dayal Singh v. Union of India, (2003) 2 SCC 593 and observed the following:

In this view of the matter, we are not inclined to interfere with the judgment of the High Court on the ground of delay alone when the judgment is based on legally sustainable principles. The delay of the respondent in filing a writ petition by itself should not defeat the claim unless the position of the State has been so altered that it cannot be retracted on account of a lapse of time or the inaction of the writ petitioner. The State has not in the present case either pleaded or argued any hardship if the respondent were to be granted relief. Finally, the decisions in Bhailal Bhai (supra) and Suganmal (supra) related to a petitioner seeking a refund of an illegally collected tax. In the present case, we are not concerned with such a situation. Rather, the petitioner has come before this Court due to arbitrariness in State action which led to the non-fulfillment of their legitimate expectations. (Para 48)

Applying the principle enunciated by this Court inIndian Council for Enviro-Legal Action v. Union of India, (2011) 8 SCC 161 the Court observed the following:

Applying this definition to the facts of the case at hand, the doctrine of unjust enrichment could have been attracted if the respondent had passed on the electricity duty to its customers and then retained the refund occasioned by the 50 per cent rebate in its own pocket. This is not demonstrated to be the factual position and hence, the respondent cannot be denied relief on the application of the doctrine. (Para 50)

Concluding, the Court held:

The narrow issue is whether the respondent is entitled to a rebate/deduction from electricity duty which is answered in the affirmative. It is necessary, however, to clarify that the respondent would not be entitled to a rebate/deduction for FY 2011-12. In terms of Clause 35.7(b) of the Industrial Policy 2012, the entitlement ensues from the financial year following the commencement of production. The respondent commenced production on 17 August 2011. Hence, the order of the High Court would have to be confirmed for FYs 2012-13 and 2013-14. In conclusion, we are in agreement with the conclusion of the High Court that the respondent was entitled to an exemption from electricity duty, although for the reasons indicated in this judgment. Further, the relief granted would stand confined to FYs 2012-13 and 2013-14. The appeals shall stand disposed of in the above terms. There shall be no order as to costs. (Para 51)

Kalidharun K M



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