Supreme Court Upholds State’s Authority in Industrial Land Dispute: Bishambhar Prasad vs. Arfat Petrochemicals (2023)

Introduction

Date of the Judgment: 20 April 2023

Citation: 2023 INSC 406

Judges: Surya Kant, J. and Vikram Nath, J.

Can a state government revoke permissions granted by a state industrial development corporation for land use change? The Supreme Court of India recently addressed this question in a complex case involving land allotted for industrial purposes. The core issue revolved around whether the Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) had the authority to grant changes in land use for industrial land, or if that power rested solely with the State Government. The bench, comprising Justice Surya Kant and Justice Vikram Nath, delivered the judgment.

Case Background

The dispute originated from the allotment of approximately 271.39 acres of land in Kota, Rajasthan, to J.K. Synthetics Ltd. (JKSL) on 12 September 1958. The land was intended for industrial use, and subsequent lease deeds reiterated this purpose. Over time, the Rajasthan State Industrial and Mineral Development Corporation Ltd. (RSIMDC) was formed and later split into two entities, with RIICO as its successor. The State Government issued an order on 18 September 1979, to allot all industrial lands to RSIMDC, raising questions about the control of the land previously allotted to JKSL.

JKSL faced financial difficulties and was declared a “sick company” by the Board for Industrial and Financial Reconstruction (BIFR) on 02 April 1998. This led to a rehabilitation scheme that involved the demerger of JKSL’s units and the transfer of 227.15 acres of land to M/s Arfat Petrochemicals Pvt. Ltd. (Respondent No. 1). Tripartite agreements were signed to settle dues of JKSL’s workers and offer them employment under Respondent No. 1.

In 2007, the State Government, through the District Collector, executed seven fresh lease deeds in favor of Respondent No. 1, maintaining the industrial purpose of the land. However, the industrial units failed to revive, and in 2018, Respondent No. 1 sought to change the land use from industrial to commercial. This request was made to RIICO, which granted in-principle approval. However, the newly elected State Government formed a Cabinet Committee to review decisions made by the previous government, leading to the cancellation of the permissions and approvals granted to Respondent No. 1.

Timeline

Course of Proceedings

The High Court of Judicature for Rajasthan at Jaipur initially heard the case before a Single Judge, but it was later transferred to a Division Bench presided over by the Chief Justice. The Division Bench allowed the Writ Petition filed by Respondent No. 1, setting aside the decision of the Cabinet Committee and the actions of RIICO to cancel the allotment. The High Court held that RIICO had the authority to allow the conversion of land use under the RIICO Disposal of Land Rules, 1979, and that the State Government’s actions were arbitrary and violated the principles of natural justice. The High Court also noted that the conversion of land was permissible under the Master Plan for the LIA, Kota. This decision was then appealed to the Supreme Court by the State of Rajasthan, RIICO, and various workers’ unions.

Legal Framework

The case primarily involves the interpretation of the Rajasthan Land Revenue Act, 1956, and the Rajasthan Industrial Areas Allotment Rules, 1959.

✓ Section 100 of the Rajasthan Land Revenue Act, 1956: This section empowers the State Government to make rules regulating the sales of lands in industrial and commercial areas and to impose annual assessments.

✓ Rule 2 of the 1959 Rules: Specifies that land in industrial areas may be allotted on leasehold basis for 99 years by the State Government.

✓ Rule 8 of the 1959 Rules: States that land given for industrial purposes shall not be used for any other purpose except constructing factory premises and residential quarters for those engaged in that industry. It also allows the State Government to grant permission for establishing an industry different from the one for which the land was initially allotted.

✓ Rule 9 of the 1959 Rules: Deals with the lessee’s limited ownership and rights of assignment, and specifies that the lessee has no right to sell the land. It also provides conditions for transfer of rights or interest in the leased land, especially in the case of sick units.

✓ Rule 11A of the 1959 Rules: Provides for the allotment of land to the Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) for setting up and developing industrial areas.

✓ Rule 12 of the 1959 Rules: Empowers RIICO to make allotments in accordance with the RIICO Disposal of Land Rules, 1979, and to execute lease deeds.

The 1959 Rules were framed under the Rajasthan Land Revenue Act, 1956, to regulate the allotment of industrial plots across the state and the grant of leases. The 1979 Rules were issued under Article 93(xv) of the Articles of Association of RIICO to regulate RIICO’s activities in respect of the lands over which it would have control.

Arguments

Arguments by the State of Rajasthan and RIICO:

• The land allotted to Respondent No. 1 remained with the State Government and was never allocated to RIICO.
• The fresh lease deeds were executed by the District Collector, Kota, not RIICO.
• The land was regulated by the 1959 Rules, not the 1979 Rules.
• Rule 8 of the 1959 Rules prohibits land use for any purpose other than industrial development without State Government authorization.
• RIICO never demanded lease rent or service charges from Respondent No. 1, indicating its lack of authority.
• Respondent No. 1 failed to revive industrial units, violating the AAIFR scheme.
• The conversion of land was for private benefit, violating the AAIFR scheme and the Model Code of Conduct.
• The new government had the right to examine decisions of the previous government.
• Article 138 of RIICO’s AoA empowers the State to issue directions to RIICO.
• RIICO had decided not to allow any further conversions of land use.
• There can be no estoppel against statute.
• Respondent No. 1 failed to show concrete investments on the land.
• The transfer of the case to the Division Bench was irregular.

Arguments by M/s Arfat Petrochemicals Pvt. Ltd. (Respondent No. 1):

• The Cabinet Committee decision was to target Respondent No. 1.
• The Model Code of Conduct was irrelevant as the application for conversion was made before the election process began.
• There are 30 other instances of conversion where RIICO acted as the competent authority.
• The Collector signed the initial transfer lease deeds because the AAIFR scheme required the State Government’s consent.
• The land in LIA, Kota, was transferred to RIICO, and RIICO was the sole authority.
• The allotment to RIICO is a statutory allotment under the Rajasthan Land Revenue Act and 1959 Rules.
• Respondent No. 1 acted on RIICO’s approvals, and the Appellants are bound by promissory estoppel and legitimate expectations.
• A change in government cannot be a reason for cancellation of decisions.
• Governments cannot blow hot and cold and are not permitted to approbate and reprobate.
• The decision of 03 August 2019 did not include the Minister for Industries.
• Article 138 of RIICO’s AoA cannot be used to affect rights of third parties.
• The Order of 18 September 1979 transferred all industrial areas to RIICO.
• The State Government has admitted that RIICO has stepped into the shoes of the State Government.
• The 1979 Rules were incorporated into the 1959 Rules by reference.
• The change of use of land was permitted under the Master Plan.
• The letter dated 12 January 1995 was overridden by a letter dated 31 March 1995.
• The Jan Aavas Yojana application was mandatory under the scheme itself.
• Lack of a show cause notice is fatal to the Appellants’ case.
• The Supreme Court’s earlier orders put a quietus to the issue of the AAIFR scheme.

Submissions of the Appellant Unions:

• The unions challenged the initial transfer lease deed to Respondent No. 1 signed in 2007, which is pending before the High Court.
• The unions accepted the AAIFR scheme on the basis that the industrial units at LIA, Kota, would be restarted.
• The workers are owed their entire dues as the rehabilitation plan failed.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

1. Whether the LIA, Kota has been always under the management and control of the State Government or it was transferred to RIICO pursuant to Government Order dated 18.09.1979?
2. Whether the 1979 Rules of RIICO are statutory in nature?
3. Whether failure to observe Principles of Natural Justice by the State Government vitiated its decision to annul the permissions/approvals granted by RIICO in favour of Respondent No.1?
4. Whether the State Government could have exercised its powers under Article 138 of the AoA of RIICO to direct cancellation?
5. Whether the Rules of Business were not followed?
6. Does the Doctrine of Legitimate Expectations and Promissory Estoppel apply in favour of Respondent No. 1?
7. Whether the Appellant Unions are entitled to relief?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered various authorities, categorized by the legal points they addressed:

On the nature of companies and their internal rules:

• Life Insurance Corporation of India v. Escorts Ltd. & Ors. [1986] 1 SCC 264 (Supreme Court of India): Emphasized the character of companies and their business conduct via AoA and internal rules.
• S.S. Dhanoa v. Municipal Corporation, Delhi & Ors. 1981 (3) SCC 431 (Supreme Court of India): Explained the meaning of a corporation established by or under an Act of Legislature.
• Executive Committee of Vaish Degree College v. Lakshmi Narain 1976 (2) SCC 58 (Supreme Court of India): Differentiated between statutory bodies and institutions governed by statutes.

On the interpretation of statutory rules and executive orders:

• M.G. Pandke & Ors. v. Municipal Council, Hinganghat, Dist. Wardha & Ors. 1993 Supp (1) SCC 708 (Supreme Court of India): Discussed the enforceability of non-statutory codes when referenced in statutory regulations.

On the principles of natural justice:

• Union of India v. P .K. Roy (1968) 2 SCR 186 (Supreme Court of India): Stated that the application of natural justice depends on the context.
• A.K. Kraipak v. Union of India (1969) 2 SCC 262 (Supreme Court of India): Explained the nature of administrative powers and the need to act fairly.
• S.L. Kapoor v. Jagmohan & Ors. (1980) 4 SCC 379 (Supreme Court of India): Discussed when non-observance of natural justice can be condoned.
• K. Balasubramanian (Ex. Capt.) v. State of Tamil Nadu (1991) 2 SCC 708 (Supreme Court of India): Held that no right can be claimed on the basis of invalid orders.
• Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664 (Supreme Court of India): Emphasized the need for natural justice in administrative decisions.

On the power of the State Government:

• Krishna Ballav Sahay & Ors. v. Commission of Enquiry & Ors. [1969] 1 SCR 387 (Supreme Court of India): Upheld the right of a new government to examine decisions of a previous government.
• Management of Fertilizer Corporation of India v. Their Workmen [1969] 2 SCR 706 (Supreme Court of India): Upheld the power of the State to issue directions to government-controlled entities.
• Sukhdev Singh & Ors. v. Bhagat Ram & Ors. (1975) 1 SCC 421 (Supreme Court of India): Affirmed the power of the State to issue directions to government-controlled entities.

On the limitations of powers:

• B. Rajagopala Naidu v. State Transport Appellate Tribunal, Madras & Ors. (1964) 7 SCR 1 (Supreme Court of India): Held that powers cannot be used as appellate powers for vengeance.
• Kalabharati Advertising v. Hemant Vimalnath Narichania & Ors. (2010) 9 SCC 437 (Supreme Court of India): Discussed the concept of malice in law.

On the Rules of Business:

• MRF v. Manohar Parrikar & Ors. (2010) 11 SCC 374 (Supreme Court of India): Cemented the mandatory nature of the Rules of Business.
• Gulabrao Keshavrao Patil & Ors. v. State of Gujarat (1996) 2 SCC 26 (Supreme Court of India): Explained the purpose behind Article 166(3) of the Constitution.
• Lalaram and Ors. vs. Jaipur Development Authority and Ors. (2016) 11 SCC 31 (Supreme Court of India): Laid down the purpose of Rules of Business.

On Promissory Estoppel and Legitimate Expectations:

• Motilal Padampat v. State of Uttar Pradesh (1979) 2 SCC 409 (Supreme Court of India): Ruled that estoppel would be overridden by public interest.
• Bannari Amman Sugars Ltd. vs. Commercial Tax Officer and Ors. (2005) 1 SCC 625 (Supreme Court of India): Outlined the scope of legitimate expectation.
• Food Corporation of India v. Kamdhenu Cattle Feed Industries (1993) 1 SCC 71 (Supreme Court of India): Discussed the nature of legitimate expectation and its limitations.

On the need for reasons in orders:

• Mohinder Singh Gill v. The Chief Election Officer (1978) 1 SCC 405 (Supreme Court of India): Stated that reasons behind certain actions had to be included in the final decision itself.
• Sachidananda Pandey v. State of West Bengal & Ors. (1987) 2 SCC 295 (Supreme Court of India): Outlined that the process, deliberations, and minutes of the meeting preceding a decision would be taken into account when ascertaining the reason for a particular measure to be taken.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Life Insurance Corporation of India v. Escorts Ltd. & Ors. [1986] 1 SCC 264*: Cited to emphasize the nature of companies and their business conduct via AoA and internal rules.
• S.S. Dhanoa v. Municipal Corporation, Delhi & Ors. 1981 (3) SCC 431*: Used to explain the meaning of a corporation established by or under an Act of Legislature.
• Executive Committee of Vaish Degree College v. Lakshmi Narain 1976 (2) SCC 58*: Cited to differentiate between statutory bodies and institutions governed by statutes.
• M.G. Pandke & Ors. v. Municipal Council, Hinganghat, Dist. Wardha & Ors. 1993 Supp (1) SCC 708*: Discussed the enforceability of non-statutory codes when referenced in statutory regulations but found to be unhelpful to the case of the Respondent No. 1.
• Union of India v. P .K. Roy (1968) 2 SCR 186*: Cited to highlight that the application of natural justice depends on the context.
• A.K. Kraipak v. Union of India (1969) 2 SCC 262*: Used to explain the nature of administrative powers and the need to act fairly.
• S.L. Kapoor v. Jagmohan & Ors. (1980) 4 SCC 379*: Discussed when non-observance of natural justice canbe condoned.
• K. Balasubramanian (Ex. Capt.) v. State of Tamil Nadu (1991) 2 SCC 708*: Used to emphasize that no right can be claimed on the basis of invalid orders.
• Swadeshi Cotton Mills v. Union of India (1981) 1 SCC 664*: Cited to emphasize the need for natural justice in administrative decisions.
• Krishna Ballav Sahay & Ors. v. Commission of Enquiry & Ors. [1969] 1 SCR 387*: Upheld the right of a new government to examine decisions of a previous government.
• Management of Fertilizer Corporation of India v. Their Workmen [1969] 2 SCR 706*: Upheld the power of the State to issue directions to government-controlled entities.
• Sukhdev Singh & Ors. v. Bhagat Ram & Ors. (1975) 1 SCC 421*: Affirmed the power of the State to issue directions to government-controlled entities.
• B. Rajagopala Naidu v. State Transport Appellate Tribunal, Madras & Ors. (1964) 7 SCR 1*: Held that powers cannot be used as appellate powers for vengeance.
• Kalabharati Advertising v. Hemant Vimalnath Narichania & Ors. (2010) 9 SCC 437*: Discussed the concept of malice in law.
• MRF v. Manohar Parrikar & Ors. (2010) 11 SCC 374*: Cemented the mandatory nature of the Rules of Business.
• Gulabrao Keshavrao Patil & Ors. v. State of Gujarat (1996) 2 SCC 26*: Explained the purpose behind Article 166(3) of the Constitution.
• Lalaram and Ors. vs. Jaipur Development Authority and Ors. (2016) 11 SCC 31*: Laid down the purpose of Rules of Business.
• Motilal Padampat v. State of Uttar Pradesh (1979) 2 SCC 409*: Ruled that estoppel would be overridden by public interest.
• Bannari Amman Sugars Ltd. vs. Commercial Tax Officer and Ors. (2005) 1 SCC 625*: Outlined the scope of legitimate expectation.
• Food Corporation of India v. Kamdhenu Cattle Feed Industries (1993) 1 SCC 71*: Discussed the nature of legitimate expectation and its limitations.
• Mohinder Singh Gill v. The Chief Election Officer (1978) 1 SCC 405*: Stated that reasons behind certain actions had to be included in the final decision itself.
• Sachidananda Pandey v. State of West Bengal & Ors. (1987) 2 SCC 295*: Outlined that the process, deliberations, and minutes of the meeting preceding a decision would be taken into account when ascertaining the reason for a particular measure to be taken.

Decision

The Supreme Court overruled the decision of the Jaipur Bench of the High Court of Judicature for Rajasthan. The Court held that the State Government had the ultimate authority over the land in question, and RIICO did not have the power to grant land use changes. The Court emphasized that the 1959 Rules governed the allotment and use of land, and the State Government’s decision to cancel the permissions granted by RIICO was valid. The Court also noted that the doctrines of promissory estoppel and legitimate expectations did not apply in this case, as RIICO’s actions were illegal. The Court upheld the State’s right to review decisions made by the previous government and to act in the public interest. The appeals filed by the State of Rajasthan, RIICO, and the workers’ unions were allowed. The Court clarified that the Appellant Unions were free to pursue their remedies in other forums.

Flowchart

Conclusion

The Supreme Court’s judgment in Bishambhar Prasad vs. M/s Arfat Petrochemicals Pvt. Ltd. & Ors. reaffirms the State’s authority over industrial land allotted under the Rajasthan Industrial Areas Allotment Rules, 1959. The Court clarified that RIICO’s powers are limited to those delegated by the State Government and that RIICO’s internal rules are not statutory in nature. The judgment underscores the importance of adhering to established legal frameworks and the State’s ability to act in the public interest, even when it involves reviewing decisions made by previous administrations. The case serves as a significant precedent for similar disputes involving land allotment and the powers of state industrial development corporations.