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Duncan Industries Ltd. and Anr Vs. Union of India

Posted on 24 June 2009 by jyoti

Title

Duncan Industries Ltd. and Anr Vs. Union of India



Coram

H. K. SEMA, B.N. SRIKRISHNA



Act

Essential Commodities Act



Subject

Essential Commodities Act, 1995: Section 3.

Retention Price Scheme-Granted to fertilizer manufacturers- Retrospective modification of-To the detriment of manufacturers-Permissibility-Government fixed the maximum retail price of fertilizers, which was to be complied with by dealers, manufacturers act.-This controlled-price mechanism resulted in losses for the manufacturer-Retention Price scheme was devised with a view to determining the appropriate subsidy for fertilizer manufacturers and was brought into operation-Retention Prices for five pricing periods up to 31.3.1991 were notified-Since the calculation of the Retention prices and its approval by the Government involved administrative delays, the approval of the policy and the computation of the Retention Prices, though made subsequently, were made effective from the beginning of the pricing period-Until the Retention Price fixed pricing period was brought into force, the Retention Price that was fixed for the previous year continued to operate-This pricing period which was to be operative only up to 31.3.1994 was actually continued up to 30.6.1997-During the continuance of the Seventh (1.7.1997 to 31.3.2000) and the Eighth (1.4.2000 to 31.3.2003) pricing periods, the retention Price for each of the manufacturers was revised-Thereafter, the representatives of the Fertilizer company were informed that based upon information received by the Fertilizer-coordination Committee (FIC), certain items of expenditure were disallowed while finalizing the Retention price for the Seventh and Eighth pricing periods-Fertilizer company challenged the consequent demand raised for the recovery of a certain sum under the Scheme-High Court dismissed the writ petition-Held: Retention Price Scheme is nothing but an administrative order and is not linked to any statute in any manner whatsoever-Retention Price Scheme, both conceptually and in its actual operation, has always had an element of retrospectivity built-in-Although the result of an administrative decision, the Retention Price Scheme was grounded in an agreement reached between the Government and certain fertilizer manufacturers-Therefore, the Retention Price Scheme was not something that was compulsorily imposed on fertilizer manufacturers-As the Scheme was a voluntary one, and the fertilizer company having agreed to abide by the decision of the Governments, there is no question of its `legitimate expectations' being belied-In the matters of administrative discretion it is not open to courts to interfere in minute details-The action of the FIC Committee to adversely modify the subsidies framework cannot be questioned on its merits-Hence, Retention Price Scheme could be retrospectively modified to the detriment of the manufacturers-Fertilizer (Control) Order, 1957-Constitution of India, 1950, Art. 14-Administrative Law.

The appellant was engaged in business of manufacturing and selling urea (a fertilizer). Through the Fertilizer (Control) Order, 1957 made under Section 3 of the Essential Commodities act, 1955, the Government fixed the maximum retail price of fertilizers, which was to be complied with by dealers, manufacturers etc. This controlled-price mechanism resulted in losses for the manufacturers.

A Retention Price Scheme was devised with a view to determining the appropriate subsidy for fertilizer manufacturers and was brought into operation. The Retention Price fixed initially was to be operative for the period 1.11.1977 to 31.3.1979. From time to time, the Retention Prices for five pricing periods up to 31.3.1991 were notified. Since the calculation of the Retention Price and its approval by the Government involved administrative delays, the approval of the policy and the computation of the Retention Prices, though made subsequently, were made effective from the beginning of the pricing period. The sixth pricing period was to commence from 1.4.1991 and remain in force up to 31.3.1994. However, the Retention Price for this period was actually approved and made operative from 1.4.1991. Until the Retention Price fixed for this pricing period was brought into force, the Retention Price that was fixed for the previous year continued to operate. This pricing period which was to be operative only up to 31.3.1994 was actually continued up to 30.6.1997.

During the continuance of the Seventh (1.7.1997 to 31.3.2000) and the Eighth (1.4.2000 to 31.3.2003) pricing periods, the Retention Price for each of the manufacturers was revised. Thereafter, the representatives of the appellant-company were informed that based upon information received by the Fertilizer Inter-Coordination Committee, certain items of expenditure were disallowed while finalizing the Retention Price for the Seventh and Eighth Pricing periods.

The appellant challenged before the High Court the interim revision of Retention Price and the consequent demand raised upon the appellant for recovery of Rs. 184.01 crores under the Scheme. The High Court dismissed the writ petition. Hence the appeal.

The following question narrows before the Court:-

Whether the Scheme of subsidies (down as the ``Retention Price Scheme'') granted by the respondent-Union of India to fertilizer manufacturers could be retrospectively modified to the detriment of these manufacturers?



Citation

2006 AIR 3699, 2006(2 )SCR149 , 2006(3 )SCC129 , 2006(2 )SCALE284 , 2006(2 )JT294



Head Notes

Dismissing the appeal, the Court

HELD: 1. The High Court's finding that the Retention Price Scheme is nothing but an administrative order is correct. Evidently, there is nothing in the Essential Commodities Act, 1955 that deals with Retention Prices. Indeed, Clause 3 of the Fertilizer (Control) Order, 1957 merely provides that it is open to the Government to fix the maximum retail price of fertilizers. Therefore, fertilizer manufacturers cannot sell fertilizer at a price exceeding the maximum price fixed under the said clause.
[162-H; 163-a]

2. On the other hand, there is no provision that deals with the grant of subsidies for producing fertilizer. There is no law under which the Government was obliged to make available subsidies to fertilizer manufacturers. There was no such obligation on the Government and if the Government decided to withdraw the Scheme, it would only have to comply with the requirements of Article 14. Indeed, it must be remembered that the Retention Price Scheme is a result of the Report of a Committee. It was intended to serve as a measure of alleviation to fertilizer manufacturers so that they were not hit by the rising prices of inputs especially since the retail price of the fertilizer was itself controlled. Thus it is evident that the Retention Price Scheme is not linked to any statute in any manner whatsoever, but is a mere administrative order. [163-b-d]

Neyveli Lignite Corporation Ltd. v. Commercial Tax Officer, [2001] 9 SCC 648, relied on.

3. The Retention Price Scheme, both conceptually and in its actual operation, has always had an element of retrospectivity built-in. Indeed, the correspondence between the parties indicates that the Retention Price was always fixed and made applicable ex post facto from the beginning of the pricing period with adjustments to be made towards payments and recoveries. However, the process for determining the policy norms from the actual process of computing the Retention Price cannot be differentiated. It is not possible to accept the appellant's contention that what was ad hoc and could be retrospectively changed were the subsidies payable or recoverable in line with actuals but the pricing norms (the formula for calculating Retention Prices ) could not be retrospectively changed. [163-g, 164-a-b]

4. From its inception, the Retention Price Scheme has always had an element of retrospectivity built-in. Therefore, the undertaking entered into by the manufacturers clearly allows the Government to retrospectively revise the price norms/policy for the Retention Price Scheme. Further. The appellant was at all stages fully aware of and party to the deliberations that went into determining the norms for calculating the Retention Price. Hence, the distinction sought to be made between the norms for determining Retention Price and the actual computation of the Retention Price is not tenable. [164-f-g]

5.1. The Scheme was not the result of any unilateral action on the part of the Government. Although the result of an administrative decision, it was grounded in an agreement reached between the Government and certain fertilizer manufacturers. Indeed, it was open to the manufacturers to decline to enter into such arrangement. This is evident from the letter of the Government dated 24.10.1977, which put forward the Scheme. The letter requested the appellant to enter into the Scheme as suggested, so that it may get the subsidy. The subsidies were, of course, subject to the provisions of the Retention Price Scheme, and subject to the undertaking to be given. In response to the letter of 24.10.1997, the appellant gave a categorical undertaking ``to abide by the decision of the Committee, which was final and binding on all matters relating to the determination of retention price, net realization, equated freight, etc.'' [165-a-d]

5.2. In the face of this undertaking, it is not possible to accept the appellant's contention that the Retention Price Scheme was something that was compulsorily imposed on fertilizer manufacturers. Indeed, it is not as if the manufacturers are challenging the maximum retail price fixed under the Fertilizer (Control) Order, 1957. They are merely challenging the manner in which the Retention Price, which determines the subsidy payable under an agreed arrangement, is determined. In fact, when the undertaking is read, it appears that the manufacturers had agreed to abide by the decision of the Fertilizer Inter-Coordination Committee (FIC), on all matters relating to determination of the Retention Price as being "final and binding" upon them. In the light of this, the argument of estoppel is actually the boot on the other foot. [165-e, f]

5.3. It is not possible to accept the appellant's contention the since the Government controls the retail price of fertilizer, it would be `unfair', `unreasonable' and violative of Article 14 for them to revise the scheme of subsidies, so that there would be losses caused to fertilizer manufacturers. This contention has no merit for both the facts and the applicable legal principles indicate that there is nothing arbitrary or unreasonable in what the FIC Committee has done. [166-b]

6.1. The material placed on record clearly demonstrates that the representatives of the appellant were party to the deliberations before the FIC Committee, who explained the material particulars regarding the manner of working out the Retention Price for the Seventh and Eighth pricing periods. The minutes of the said discussions, read with the correspondence between the parties pertaining to the Retention Price fixation for the Seventh and Eighth pricing periods, leave no doubt that the appellant was party to what was being done. Further, at no point, during the discussions or in the subsequent correspondence, did the appellant question the validity or correctness of the manner of fixation of the Retention Price (except on some minor issue like bank interest charges).
[166-c-e]

6.2. Doctrine of `legitimate expectation' cannot have application to the present case. The Scheme was voluntary one and the appellant having agreed to abide by the decision of the Government, there is no question of its `legitimate expectation' being belied. [166-g]

6.3. Turning to the Article 14 argument, the now-accepted position that Article 14 does not require this Court to examine the intricacies of an economic scheme or pricing policy for its merits or its correctness, for that is in the domain of the executive or the legislative branches of the Government is emphatically reiterated. Indeed, even if the Scheme, as revised, is ``unwise'' or even ``unjust'', there is no recourse before this Court. [166-h; 167-a]

BALCO Employees' Union (Regd.) v. Union of India, [2002] 2 SCC 333, Bhavesh D. Parish v. Union of India, [2000] 5 SCC 471, Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India, [1992] 2 SCC 343, State of M.P. Nandlal Jaiswal, [1986] 4 SCC 566, Premji Bhai Parmar v. Delhi Development Authority, [1980] 2 SCC 129 and Noble State Bank v. IIaskell, 219 US 575, referred to.

7. In matters of administrative discretion it is not open to the courts to interfere in minute details, except on the grounds of mala fides or extreme arbitrariness. Interference should be only within very narrow limits, such as, where there is a clear violation of a statute or a constitutional provision, or extreme arbitrariness in the Wednesbury sense. Neither the High Court nor this Court has found any of these vitiating factors in the administration of the Retention Price Scheme and the consequent payments/recoveries of the subsidy amounts. Thus, the action of the FIC Committee to adversely modify the subsidies framework cannot be questioned on its merits. [167-c, d]

Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, (1948) 1 KB 223, referred to.

Rajiv Dhawan, R.S. Suri, and Pradeep Aggarwal for the Appellants

Gopal Subramanium ASG, Navin Prakash, V.K. Verma and P. Parmeswaran for the Respondent.



Judgment Made On

02/10/2006

CASE NO.:
Appeal (civil) 1073 of 2006

JUDGMENT:
J U D G M E N T
(arising out of SLP (C) No. 6297/2004)
With
Civil Appeal No.1074/2006 @ SLP (C) No. /2006 @CC No.
12164/2004


SRIKRISHNA, J.

Delay condoned in the Special Leave Petition arising out of CC No.
12164 of 2004. Leave granted in both the Special Leave Petitions.

The question to be answered in this case is: whether the scheme of
subsidies (known as the "Retention Price Scheme") granted by the
Respondent-Union of India (hereinafter "the Government") to fertilizer
manufacturers, could be retrospectively modified to the detriment of these
manufacturers. In our view, this question needs to be answered in the
affirmative.

The Retention Price Scheme
M/s Duncan Industries Ltd. (hereinafter "the First Appellant") is
engaged in the business of manufacturing and selling urea (a fertilizer). In
1993, the First Appellant acquired the urea plant of M/s Indian Explosives
Ltd. (a unit of ICI India Ltd.). The Second Appellant is a shareholder in the
First Appellant-Company (hereinafter, collectively "the appellants").

In 1957, the Government notified fertilizers (including urea) as an
"essential commodity", under the Essential Commodities Act, 1955
(hereinafter "the EC Act"). The Fertilizer (Control) Order, 1957 (hereinafter
"the Fertilizer (Control) Order") was made in exercise of the powers
conferred by Section 3 of the EC Act. The Fertilizer (Control) Order has
been revised from time to time. Through the Fertilizer (Control) Order, the
Government was able to fix the maximum retail price of fertilizers, which
was to be complied with by dealers, manufacturers etc. However, since this
controlled-price mechanism resulted in losses for manufacturers, it was
suggested that the Government provide subsidies to make good the losses.
Accordingly, the Government constituted a Committee under the
Chairmanship of Mr. S.S. Marathe (hereinafter "the Marathe Committee") to
introduce a rational system for the pricing of fertilizers in the country. The
Marathe Committee was to suggest a mechanism that would ensure a
reasonable return on investment to manufacturers of fertilizer, facilitate the
healthy development and growth of the fertiliser industry, and also ensure
that the prices of fertilizer were kept within reasonable limits. To this effect,
the Marathe Committee made a detailed report suggesting an intricate
system of fertilizer subsidies known as the "Retention Price Scheme"
(hereinafter also mentioned as "the Scheme"). This report was considered in
detail by the Government, which decided to introduce the Retention Price
Scheme for units in the nitrogenous fertilizer industry (with effect from
1.11.1977).

A brief outline of the Retention Price Scheme is necessary. The
Retention Price Scheme was devised with a view to determine the
appropriate subsidy for fertilizer manufacturers. The subsidy is calculated as
the difference between the "Retention Price" and the maximum retail price
fixed for fertilizers (under the Fertilizer (Control) Order). A detailed formula
prescribed under the Scheme determines the Retention Price for fertilizers.

The Retention Price was to be worked out by calculating the cost of
manufacture of urea per ton. The cost of manufacturing urea comprises three
types of costs: (i) Capital-related costs (ii) Conversion costs (or Fixed costs)
and (iii) Variable costs (or Input costs). Capital-related costs incurred by a
manufacturer were the total amount of capital invested, including loan and
equity. Conversion costs included salaries, overheads, chemicals and
consumables, repair and selling expenses, catalysts etc. Variable costs
included the costs of the feedstock (the feedstock may vary from unit to
unit), utilities costs, packaging etc. Also, this formula of Retention Price
provided a post-tax return of 12% on the net worth. The working of the
Scheme provided for a fair ex-factory Retention Price per ton of urea based
upon a capacity utilization of 80% to arrive at the Variable Cost. In this
manner, the Marathe Committee had worked out the Retention Price for
each of the twenty-one urea-manufacturing units. In summary, the
combination of Conversion costs, Variable costs and Capital-related charges
(including the 12% post-tax return) was styled as the Retention Price.

The Retention Price Scheme envisaged a Fertilizer Price Fund
Account for the payment of subsidies. In respect of those units where the
Retention Prices were lower than the maximum retail price, the units were
required to credit the difference to the Fertilizer Price Fund Account.
Conversely, units whose Retention Prices were higher than the maximum
retail price would receive the difference from the Fertilizer Price Fund
Account, as a subsidy.

The Scheme was to be administered by an inter-ministerial committee,
which also had representatives of the fertilizer industry. This committee was
called the Fertilizer Inter-Coordination Committee (hereinafter "the FIC
Committee"). The FIC Committee was to have an Executive Director and
adequate staff to maintain accounts, make and recover payments, undertake
costing, and collect and analyze production data, cost and other inputs, in
order to work out the Retention Price periodically and make appropriate
adjustments.

The Operation of the Retention Price Scheme
The Government's decision to introduce the Retention Price Scheme
was formally notified on 1.11.1977 in the Official Gazette. However, even
prior thereto, a letter (dated 24.10.1977) was written by the Government to
the Managing Director of M/s Indian Explosives Ltd. (later acquired by the
First Appellant), wherein the details of the Retention Price Scheme were
indicated. It was pointed out in this letter that:
"It is the intention of the Government to bring the scheme of
retention prices in respect of nitrogenous fertiliser into effect
from 1.11.1977 on the basis of voluntary agreements on the part
of individual units to participate in the scheme"
(emphasis supplied)

Accordingly, the Government asked for an undertaking to be signed
by a competent authority on behalf of each of the manufacturers and
enclosed a draft of the undertaking to be signed. Finally, the letter stated:
"your (M/s Indian Explosives Ltd.) willingness to participate
in the retention price scheme communicated, and undertaking
the enclosed form duly executed by a competent authority on
behalf of your company set so as to reach this Ministry before
29th October, 1977."

Ms/ Indian Explosives Ltd. gave such an undertaking on 10.12.1977,
which was incidentally after the specified deadline. The undertaking,
addressed to the President of India, was in the following terms:
"Whereas the Government of India (hereinafter called the
"Government") have introduced and are operating, a scheme of
plant-wise retention price in respect of Nitrogenous and
Phsophetic (sic) fertilisers, with a view to ensuring that there is
a sustained and healthy development of the feertiliser (sic)
industry in view, particularly, of the statutory prices control
exercise (sic) by the Government over the selling prices of
fertilisers.

2. And whereas the retention price scheme envisages
determination of fair retention prices for each product
manufactured by each fertiliser unit taking into account the cost
of production based on norms, return on net-worth, etc. and that
the introduction of this Scheme has been rendered possible by a
contribution from the Government of India by way of removal
of excise duty/FPEC, payment of subsidy and/or otherwise;

3. And whereas the Government are also being (sic) freight
subsidy in respect of the Nitrogenous and Phsophetic (sic)
fertilisers with a view to covering the cost of transport of
fertilisers, as part of the retention price scheme;

4. And whereas the retention price scheme also provides for
periodical revisions in the retention prices so as to reflect the
changes in the cost of raw materials/ inputs, cost of
transportation of raw materials/ inputs, etc.;

5. And whereas Government have been fixing from time to
time a specified amount for tonne (hereinafter referred to as net
realisation) in respect of each product of each manufacturer
based on the prevailing statutory maximum retail selling price,
the rate of distribution margin, etc.;

6. And whereas it is a feature of the scheme that units
whose retention price as fixed under the scheme is lower than
the net realization, shall pay the difference to the Fertiliser
Industry Coordination Committee (hereinafter referred to as the
"Committee"), which has been set up by the Government to
administer the retention price scheme, and that units whose
retention price as fixed under the scheme is higher than the net
realisation, will receive the difference as subsidy from the said
Committee;

7. We, IEL Ltd., do hereby undertake that, in the event of
the retention price fixed for our unit(s)/product(s) being lower
than the net realisatin (sic), we shall credit every month to the
Committee in accordance with such instructions and procedures
as the Government/Committee may prescribe from time to time,
an amount calculated at a rate per tonne of the concerned
nitrogenous/phosphetic fertiiser (sic), equivalent to the
difference between the net realisation and the retention price
fixed for our unit/product on the quantity of the
nitrogenous/phosphetic fertiliser moved out of the factory every
month, within a period of 45 days from the last day of the
month to which the credit relates.

8. We further undertake that if the aforesaid amount is not
credited by us in the time limit specified above, we shall pay
interest @ 2.5% above the ruling bank rate for working capital
loans as now prescribed, or at such rate as may be prescribed
from time to time, by the Government (Ministry of Chemicals
and Fertilisers).

9. We also undertake and promise to abide by the decision
of the Committee, which is final and binding on all matters
relating to the determination of retention price, net realisation,
equated freight, etc.

10. We also agree to make available to the Government, or
any person nominated for the purpose of inspection, all our
books of accounts and other records connected thereto. We also
agree to follow the procedure for submission of bills/ recoveries
in respect of Nitrogenous and Phsophetic (sic) fertilisers under
the retention price scheme as prescribed by the Government of
India, Ministry of Chemicals and Fertilisers from time to time."
(emphasis added)

Accordingly, the Retention Price Scheme was brought into operation.
The Retention Price fixed initially, was to be operative for the period
1.11.1977 to 31.3.1979. Thereafter, it was fixed for a period of three years
from 1.4.1979 to 31.3.1982. From time to time, the Retention Prices for five
pricing periods up to 31.3.1991 were notified. Since the calculation of the
Retention Prices and its approval by the Government involved
administrative delays, the approval of the policy and the computation of the
Retention Prices, though made subsequently, were made effective from the
beginning of the pricing period. The Sixth pricing period was to commence
from 1.4.1991 and remain in force up to 31.3.1994. However, the Retention
Price for this price period was actually approved in the Sixty-sixth meeting
of the FIC Committee on 16.12.1994, but made operative from 1.4.1991. It
is important to note that until the Retention Price fixed for this pricing period
was brought into force, the Retention Price that was fixed for the previous
year continued to operate. However, once the Retention Price for the Sixth
pricing period was notified, it was brought into effect from 1.4.1991.

The Retention Price fixed, which was to be operative only up to
31.3.1994, was actually continued beyond that date. It was initially extended
up to 31.3.1997, and finally to 30.6.1997 (hereinafter "the Six-A pricing
period"). The details of the policy parameters relating to the Sixth pricing
period (1.4.1991 to 31.3.1994) and the Six-A pricing period (1.4.1994 to
30.6.1997) were notified on 24.7.1997/ 5.8.1997. During the extended
period of the Sixth pricing period that is from 1.4.1994 to 30.6.1997 (i.e. the
Six-A period), the Retention Price and the subsidy amount were worked out
on the basis of the Sixth pricing period and payments made and recoveries
effected. All of these transactions were consistent with a continuing practice,
namely, that the Retention Price would be approved after the expiry of the
pricing period, but recoveries and payments would be done, and accounts
settled from the commencement of the pricing period.

During the continuance of the Seventh (1.7.1997 to 31.3.2000) and the
Eighth (1.4.2000 to 31.3.2003) pricing periods, the Retention Price for each
of the manufacturers was revised on account of changes, as well as,
variations in the different cost factors, the base year being the last year of the
previous pricing period.

In 2000-2001, complaints were voiced that fertilizer manufacturers
were misusing the Retention Price Scheme. For instance, it was alleged that
fertilizer manufacturers were actually consuming much lower quantities of
naphtha/furnace oil but were actually being compensated for higher
consumption, resulting in undue gains for them. The Government constituted
a committee chaired by Dr. Y.K. Alagh (hereinafter "the Alagh Committee")
for the purpose of reassessing the production capacity of such fertilizer units.
The Retention Prices were also reduced with effect from 1.4.2000, on an
interim basis. When the final statement of accounts of payments/ recoveries
arising from the implementation of the Seventh and Eighth pricing policies
were drawn, it was seen that an amount of Rs. 2303 crores had to be paid
while recoveries to the tune of Rs. 923 crores could be made.

In the process of finalizing the Seventh and Eighth pricing period,
there were detailed discussions held in a meeting between the Government's
officials and authorized representatives of the fertilizer manufacturing units.
As far as the First Appellant was concerned, one such meeting was held on
7.8.2002 at 2:30 PM, which was attended by the Managing Director and
General Manager (Finance) of the First Appellant-Company. The Minutes of
this meeting show that the Executive Director of the FIC Committee broadly
explained the aspects on which the Retention Price had been worked out for
the Seventh and Eighth pricing periods to the representatives of the First
Appellant-Company. It was also pointed out in the meeting that Retention
Price fixation was subject to the reports of the committees that had been
constituted to examine certain pending issues. It was further pointed out that
the Retention Prices determined for the Seventh and Eighth pricing periods
were subject to further scrutiny of the repairs and maintenance charges and
capital additions allowed in the Retention Price. Thereafter, the
representatives of the First Appellant-Company were informed that based
upon information received by the FIC Committee, certain items of
expenditure were disallowed while finalizing the Retention Price for the
Seventh and Eighth pricing periods, as these were not related to urea
activity.

On 8.8.2002, the First Appellant addressed a letter to the FIC
Committee, giving particulars as to the repairs and maintenance charges
incurred for the years 1997-98 to 2000-01. It also raised the issue with
regard to disallowance of the bank charges for Base Years 1997-98 and
1999-2000. Apart from this, no other issue was raised in the said letter.

The Litigation
A Civil Miscellaneous Writ Petition No. 43934/2001 was moved by
the appellants in the High Court of Judicature at Allahabad to challenge the
interim revision of Retention Price made on 5.11.2001 and the consequent
demand raised upon the First Appellant on 13.11.2001 for recovery of
Rs.184.01 crores under the Scheme. Although, the appellants had filed the
Writ Petition sometime in 2001, it was actually moved in 2002, by which
time the Government had recovered Rs. 127.21 crores by way of
adjustments, leaving a balance of Rs. 56.80 crores.

A Civil Miscellaneous Application No. 40383/2002 was taken out by
the appellants for interim relief, which was disposed of by an agreed order.
A perusal of the agreed order made on 3.4.2002 does not indicate that there
was any challenge to the manner of computation of the Retention Price, but
only suggested that the recovery of the balance amount of Rs. 56.80 crores
be made in 10 monthly instalments, subject to disposal of a representation
made by the appellants. On the question of payment of subsidy for the
month of January 2002, it was stated in the order itself that it would be
subject to the Government's power of revision, review and recovery of
excess payment, if exercised, in the future.

The appellants challenged the working of the Retention Price Scheme
by Civil Miscellaneous Writ Petition No. 43042/2002. This Writ Petition
was dismissed by the High Court through the impugned judgment dated
7.11.2003. By another order dated 7.11.2003, following the impugned
judgment, the High Court also dismissed Civil Miscellaneous Writ Petition
No. 43934/2001.

The Contentions
The appellants impugn the judgment of the High Court under appeal,
on the following grounds:

Firstly, Dr. Rajeev Dhavan, learned Senior Counsel for the appellants,
contends that the Retention Price Scheme was a statutory scheme made
under the provisions of the EC Act read with the Fertiliser (Control) Order.
Dr. Dhavan contends that this being a delegated legislation could not have
been given retrospective effect to the detriment of the appellants.

Next, Dr. Dhavan contended that the High Court had misunderstood
the operation of the Retention Price Scheme as being entirely ad hoc.
According to him, what was ad hoc was the periodic revision of the
subsidies payable or receivable on account of input particulars, but the
pricing policy determined for the pricing periods would remain constant. Dr.
Dhavan has thus, sought to differentiate the process for determining the
policy norms from the actual process of computing the Retention Price.

Third, learned counsel contends that there was a promise made out to
the manufacturers that there would be assured post-tax returns of 12%,
which has allegedly not been fulfilled as a result of the revision of the
pricing norms. Hence, according to Dr. Dhavan, the Government was
estopped from implementing any revision of the Retention Price Scheme,
which would take away the "vested right" of 12% post-tax returns.

Finally, Dr. Dhavan argued that the retrospective and adverse revision
of the pricing norms by the Government is "arbitrary", "unreasonable" and
violative of Article 14 of the Constitution, especially since the Government
fixes the maximum retail price of fertilizer.

The learned Additional Solicitor General, by reference to the
voluminous record, contended that the High Court was fully justified in its
conclusion, and that there was no substance in the Writ Petition.

The Nature of the Retention Price Scheme
The first contention of Dr. Dhavan is that the Retention Price Scheme
is a statutory scheme, and he accordingly contends that a delegated
legislation could not be retrospectively validated. This argument needs
consideration only if the Retention Price Scheme can be said to have
statutory flavour.

In our view, the High Court's finding that the Retention Price Scheme
is nothing but an administrative order, is correct. Evidently, there is nothing
in the EC Act that deals with Retention Prices. Indeed, Clause 3 of the
Fertiliser (Control) Order merely provides that it is open to the Government
to fix the maximum retail price of fertilizers. Therefore, fertilizer
manufacturers cannot sell fertilizer at a price exceeding the maximum price
fixed under the said clause.

On the other hand, there is no provision that deals with the grant of
subsidies for producing fertilizers. We repeatedly asked Dr. Dhavan as to
under which law the Government was obliged to make available subsidies to
fertilizer manufacturers. He fairly admitted that there was no such obligation
on the Government, and stated that if the Government decided to withdraw
the Scheme, it would only have to comply with the requirements of Article
14. Indeed, it must be remembered that the Retention Price Scheme is a
result of the Report of the Marathe Committee. It was intended to serve as a
measure of alleviation to fertilizer manufacturers, so that they were not hit
by the rising prices of inputs, especially since the retail price of the fertilizer
was itself controlled. Thus, it is evident that the Retention Price Scheme is
not linked to any statute in any manner whatsoever, but is a mere
administrative order.

Our conclusions are fortified by a judgment of this Court in Neyveli
Lignite Corporation Ltd. v. Commercial Tax Officer where the nature of
this very Scheme came to be considered, albeit in the context of a sales tax
case. This Court held that the Retention Price Scheme is:
"clearly an administrative decision of the Government of
India. It has been issued pursuant to the Ministry's resolution
and it enables a factory (sic)to receive subsidy from the
Government in case the retention price is more than the price
fixed under clause 3 of the Fertiliser (Control) Order."

The first contention of Dr. Dhavan must, therefore, fail since the
Retention Price Scheme is a mere administrative scheme without any
statutory flavour.

Retrospectivity in the Scheme
At the outset, we must note that the Retention Price Scheme, both
conceptually and in its actual operation, has always had an element of
retrospectivity built-in. Indeed, the correspondence between the parties
indicates that the Retention Price was always fixed and made applicable ex
post facto from the beginning of the pricing period with adjustments to be
made towards payments and recoveries. However, Dr. Dhavan seeks to
differentiate the process for determining the policy norms from the actual
process of computing the Retention Price. According to learned counsel,
what was ad hoc and could be retrospectively changed were the subsidies
payable or recoverable in line with actuals. On the other hand, according to
him, the pricing norms (the formula for calculating Retention Prices) could
not be retrospectively changed. We cannot, however, accept this distinction.

At the outset, the First Appellant had voluntarily entered into the
undertaking dated 10.12.1977, where it promised inter alia:
"to abide by the decision of the Committee, which is final
and binding on all matters relating to the determination of
retention price, net realization, equated freight, etc."
(emphasis supplied)
Firstly, neither the above-mentioned undertaking, nor the evidence on
record, appears to indicate that there exists any distinction on the lines
suggested by Dr. Dhavan. Secondly, in our view, "all matters relating to
the determination of retention price" unambiguously includes the power to
determine the norms and policy that would be used for computing the
Retention Price. Also, as we have already mentioned, from its inception, the
Retention Price Scheme has always had an element of retrospectivity built-
in. Therefore, the undertaking entered into by the manufacturers clearly
allows the Government to retrospectively revise the pricing norms/policy for
the Retention Price Scheme. Further, as we shall see, the First Appellant was
at all stages fully aware of and party to the deliberations that went into
determining the norms for calculating the Retention Prices. Hence, in our
view, the distinction sought to be made between the norms for determining
Retention Price and the actual computation of the Retention Price is not
tenable.

Assured Returns
It is next contended by Dr. Dhavan that the Government is estopped
from formulating a scheme under which the Retention Price fixed would
deny the First Appellant the assured 12% post-tax returns. We do not agree.

At the outset, we notice that the Scheme was not the result of any
unilateral action on the part of the Government. Although the result of an
administrative decision, it was grounded in an agreement reached between
the Government and certain fertilizer manufacturers. Indeed, it was open to
the manufacturers to decline to enter into such arrangement. This is evident
from the letter of the Government dated 24.10.1977, which put forward the
Scheme. As discussed earlier, this letter requested M/s Indian Explosives
Ltd. (later acquired by the First Appellant) to enter into the Scheme as
suggested, so that it may get the subsidy. The subsidies were, of course,
subject to the provisions of the Retention Price Scheme, and subject to the
undertaking to be given. In response to the letter of 24.10.1977, M/s Indian
Explosives Ltd. gave a categorical undertaking dated 10.12.1977 in the
terms that we have already extracted. It is of significance that M/s Indian
Explosives Ltd., undertook and promised inter alia:
"to abide by the decision of the Committee, which is final
and binding on all matters relating to the determination of
retention price, net realization, equated freight, etc."
(emphasis supplied).
In the face of this undertaking, we are unable to accept the contention
of Dr. Dhavan that the Retention Price Scheme was something that was
compulsorily imposed on fertilizer manufacturers. Indeed, it is not as if the
manufacturers are challenging the maximum retail price fixed under the
Fertiliser (Control) Order. They are merely challenging the manner in which
the Retention Price, which determines the subsidy payable under an agreed
arrangement, is determined. In fact, when we read the undertaking which
was extracted above, it appears to us that the manufacturers had agreed to
abide by the decision of the FIC Committee, on all matters relating to
determination of the Retention Price as being "final and binding" upon them.
In the light of this, the argument of estoppel is actually the boot on the other
foot.

Moreover, even if we were to assume for a moment that certain
returns have been assured, and that this assurance is binding on the
Government, we are not satisfied that this assurance has actually been
breached. We agree with the High Court that there are too many
imponderables and too many disputed questions of fact for an effective
decision in a writ proceeding on this issue. In our view, therefore, this
contention of the learned counsel for the appellants must also fail.

Reasonableness and Legitimate Expectation
Dr. Dhavan next contended that the retrospective application of the
new policy parameters by the FIC Committee is 'arbitrary', 'unreasonable'
and against the Doctrine of Legitimate Expectation. Learned counsel
contends that since the Government controls the retail price of fertilizer, it
would be 'unfair', 'unreasonable' and violative of Article 14 for them to
revise the scheme of subsidies, so that there would be losses caused to
fertilizer manufacturers. In our view, this contention has no merit for both
the facts and the applicable legal principles indicate that there is nothing
arbitrary or unreasonable in what the FIC Committee has done.

At the outset, the material placed on record clearly demonstrates that
the representatives of the First Appellant were party to the deliberations
before the FIC Committee, who explained the material particulars regarding
the manner of working out the Retention Price for the Seventh and Eighth
pricing periods. The minutes of the said discussions, read with the
correspondence between the parties pertaining to the Retention Price fixation
for the Seventh and Eighth pricing periods, leave no doubt that the First
Appellant was party to what was being done. Further, at no point, during the
discussions or in the subsequent correspondence, did the First Appellant
question the validity or correctness of the manner of fixation of the
Retention Price (except on some minor issue like bank interest charges).

Dr. Dhavan cited a number of authorities to support his argument.
However, these cases pertain to situations where tax exemptions, which
were already granted and pursuant to which transactions had been held, were
retrospectively withdrawn. Other authorities also pertained to setting up of
industries in backward areas on promises of rebate/ concessions. In our
view, none of these authorities is of any assistance for resolving the issue
before us, which is purely a consensual working arrangement between the
Government and fertilizer manufacturers. The argument of 'legitimate
expectation', in our view, cannot have application to the present case. As we
have said, the Scheme was a voluntary one, and having agreed to abide by
the decision of the Government, there is no question of the appellant's
'legitimate expectations' being belied.

Turning to the Article 14 argument, we emphatically reiterate the
now-accepted position that Article 14 does not require this Court to examine
the intricacies of an economic scheme or pricing policy for its merits or its
correctness, for that is in the domain of the executive or the legislative
branches of the Government. Indeed, even if the Scheme, as revised, is
"unwise" or even "unjust", there is no recourse before us for, as Justice
Holmes elegantly put it:
"We fully understandthe very powerful argument that can be
made against the wisdom of the legislation, but on that point we
have nothing to say, as it is not our concern."

We are broadly in concurrence with the reasoning of the High Court
that in matters of administrative discretion it is not open to the courts to
interfere in minute details, except on grounds of mala fides or extreme
arbitrariness. Interference should be only within very narrow limits, such as,
where there is a clear violation of a statute or a constitutional provision, or
extreme arbitrariness in the Wednesbury sense. Neither the High Court nor
we have found any of these vitiating factors in the administration of the
Retention Price Scheme and the consequent payments/ recoveries of the
subsidy amounts. Thus, in our view, the action of the FIC Committee to
adversely modify the subsidies framework, cannot be questioned on its
merits.

The Case of M/s Nagarjuna Fertilizers

The learned Additional Solicitor General brought to our notice that,
out of all the concerned fertilizer manufacturing units, only two units have
challenged the Retention Price Scheme for the relevant periods. One of these
is the First Appellant and the other was M/s Nagarjuna Fertilisers and
Chemicals Ltd. (hereinafter "Nagarjuna Fertilizers"). Nagarjuna Fertilizers
had filed SLP (Civil) No. 20721/2003 against the judgment of the High
Court of Andhra Pradesh dismissing its Writ Petition No. 18242/2002 (dated
25.7.2003). This SLP was, however, summarily dismissed by this Court
through order dated 17.11.2003. Although, we have carefully applied our
mind to the case of the First Appellant, independent of the outcome in the
case of Nagarjuna Fertilizers, we find that the two cases are actually
indistinguishable on facts and the present case should have also been
similarly dismissed. In any event, after a detailed examination, we have
arrived at the same result.

The Final Findings
Despite the bulky material and lengthy arguments presented to us, we
find that this is a case full of sound and fury, signifying nothing. Indeed, we
have found against the appellants on every point that they have chosen to
impugn the judgment of the High Court. In the result, these appeals must fail
and are hereby dismissed with no order as to costs.



Tags :-    duncan   industries   ltdanr   vsunion   india      

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