Holding

The Retention Price Scheme is an administrative order that may be retrospectively modified, and the appeal is dismissed.

Summary

Duncan Industries Ltd. and its associate challenged the Union of India’s Retention Price Scheme, which determines fertilizer subsidies, alleging that the scheme was a statutory entitlement that could not be retrospectively altered to their detriment. The Supreme Court held that the scheme is merely an administrative order, not created under any statutory provision, and that the manufacturers had voluntarily undertaken to abide by the decisions of the Fertilizer Inter‑Coordination Committee. Consequently, the scheme’s inherent retrospectivity was permissible, and the government’s revision of subsidy calculations did not violate Article 14 or the doctrine of legitimate expectation. The Court found no arbitrariness or extreme unreasonableness warranting judicial interference. The appeal was dismissed, upholding the High Court’s decision.

Issues considered

Whether the Retention Price Scheme is a statutory scheme under the Essential Commodities Act or an administrative order.
Whether the scheme can be retrospectively modified to the detriment of fertilizer manufacturers.
Whether retrospective modification violates Article 14 of the Constitution or the doctrine of legitimate expectation.
Whether the manufacturers’ undertaking binds the government from altering the subsidy norms.
Whether courts may intervene in the detailed administration of the subsidy scheme.

Legislation cited

Constitution of Indias. Article 14

Subjects

Retention Price Schemefertilizer subsidiesretrospective modificationadministrative lawEssential Commodities ActArticle 14legitimate expectationWednesbury unreasonablenessgovernment contracts

Judgment

- ~..... DUNCAN INDUSTRIES LTD. AND ANR. A
v.
UNION OF INDIA

FEBRUARY 10, 2006

[H.K. SEMA AND B.N. SRIKRISHNA, JJ.] B

.
---\ Essential Commodities Act, 1995: Section 3.

Retention Price Scheme-Granted to fertilizer manufacturers-
Retrospective modification of-To the detriment of manufacturers- c
Permissibility-Government fixed the maximum retail price offertilizers, 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
D
)(
Retention prices and its approval by the Government involved administrative
delays, the approval of the policy and the computation ofthe 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 E
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 (FlC), certain F
items of expenditure were disallowed while finalizing the Retention price for
the Seventh and Eighth pricing periods-Fertilizer company challenged the
consequent demand raised/or the recovery ofa 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 G
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

149 H
,
150 SUPREME COURT REPORTS [20061 2 S.C.R.

A fertilizer manufacturers·-Therefore, the Retention Price Scheme was not .... , .
something that was compulsorily imposed un 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 nut
B open lo courts to interfere in minute details--The action of the F!C Com mi/lee
lo adversely modifj; 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- ,
Conslilulion of India, 1950, Art. 14-Administralive Law.

The appellant was engaged in business of manufacturing and selling
·-
C 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.
D 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
E 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
F 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 (l.7.1997 to 31.3.2000) and
G 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
H Seventh and Eighth Pricing periods.
DUNCAN INDUSTRIES LTD. v. U.0.1. 151
. - )-·· The appellant challenged before the High Court the interim revision A
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:-
B
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?

Dismissing the appeal, the Court c
HELD: I. The High Court's finding that the Ret~ntion Price Scheme
-' is n·othing 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 D
~
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
E
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. F
,.J 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-DJ
G
Neyveli Lignite Corporation Ltd. v. Commercial Tax Officer, [2001) 9
~\ sec 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,
.j
H
i

152 SUPREME COURT REPORTS [2006] 2 S.C.R.

A 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
B 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)

C 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.
D 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,
E 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
p 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-DJ
G
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
H under the Fertilizer (Control) Order, 1957. They are merely challenging
~
DUNCAN INDUSTRIES LTD. v. U.0.1. 153

-- 'r,I the manner in which the Retention Price, which determines the subsidy A
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, Fl
B

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
c
applicable legal principles indicate that there is nothing arbitrary or
unreasonable in what the FIC Committee has done. (166-BJ

6.1. The material placed on record clearly demonstrates that the
representatives of the appellant were party to the deliberations before the D
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 dou ht that
the appellant was party to what was being done. Further, at no point, E
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)
F
6.2. Doctrine of 'legitimate expectation' cannot have application to
_j
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-GJ

6.3. Turning to the Article 14 argument, the now-accepted position G
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
t Court. [166-H; 167-A[ H
i

154 SllPREME COURT REPORTS [2006] 2 S.C.R.

A BALCO Employees' Union (ReRdJ v. Union of India, (200212 SCC 333, "',. .
Bhavesh D. Parish v. Union of India. (20001 5 SCC 471, Peerless General
Finance and Investment Co. ltd v. Reserve Bank of India, I 1992( 2 SCC 343,
State of M.P. Nandla/ Jaiswal, fl986( 4 SCC 566, Premji Bhai Parmar v.
Delhi Development Authority, 11980( 2 SCC 129 and Noble State Bank v.
B l/askell, 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 ma/a ftdes or
extreme arbitrariness. Interference should be only within very narrow
limits, such as, where there is a clear violation of a statute or a
C 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, DJ
D
Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation,
(1948) 1 KB 223, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. I 073 of2006.

E From the Judgment and Order dated 7.11.2003 of the Allahabad High
Court in Civil Misc. Writ Petition No.43042 of 2002.

WITH

C.A. No. 1074/2006.
F
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.

G The Judgment of the Court was delivered by

SRI KRISHNA, J. Delay condoned in the Special_ Leave Petition arising
out of CC No. 12164 of 2004. Leave granted in both the Special Leave
Petitions.

H The question to be answered in this case is: whether the scheme of
(
~

DUNCAN INDUSTRIES LTD. v. U.0.1. [SRIKRISHNA, J.] 155
subsidies (known as the "Retention Price Scheme") granted by the Respondeht- A
·-v Union of India (hereinafter "the Government") to fertilizer manufacturers,
could be retrospectively modified to the detriment of these manufacturers. Jn
our view, this question needs to be answered in the affirmative.

i The Retention Price Scheme
B
Mis 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 Mis Indian Explosives Ltd. (a unit
... of!CI India Ltd.). The Second Appellant is a shareholder in the First Appellant-
Company (hereinafter, collectively "the appellants").
c
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 D
-(
' to time. Through the Fertilizer (Control) Order, the Government was able to
~ ), fix the maximum retail price offertilizers, 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 E
...-
! (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
F
_J report suggesting an intricate system of fertilizer subsidies known as the
"Retention Price Scheme" (hereinafter also mentioned as "the Scheme").
This report was cansidered in detail by the Government, which decided to
t introduce the Retention Price Scheme for units in the nitrogenous fertilizer
;
industry (with effect from 1.11.1977). G

..
~
")-
'
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
H
156 SUPREME COURT REPORTS [2006] 2 S.C.R.

A the Fertilizer (Control) Order). A detailed formula prescribed under the Scheme
' t- .
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)
B 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
C 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,
D 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
E 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,
F 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
G 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
H
DUNCAN INDUSTRIES LTD. v. U.0.1. [SRIKRISHNA. J.) 157

prior thereto, a letter (dated 24.10.1977) was written by the Government to A
the Managing Director of Mis 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 I.I LI 977 B
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 C
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 (Mis 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 D
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:
E
"Whereas the Government of India (hereinafter called the
"Government") have introduced and are operating, a scheme of plant-
wise retention price in respect of N itrogen_ous and Phsophetic (sic)
fertilisers, with a view to ensuring that there is a sustained and healthy
development of the fertiliser (sic) industry in view, particularly, of F
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 G
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 H
.,
I

158 SUPREME COURT REPORTS [2006) 2 S.C.R.

A 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
B 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
C 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
D (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;
E 7. We, lEL 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
F 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.

G 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).

H 9. We also undertake and promise to abide by the decision of the
I

'y·

DUNCAN INDUSTRIES LTD. v. U.0.1. [SRIKRISHNA, J.) 159
Committee, which is final and binding on all matters relating to the A
determination of retention price, net realisation, equated freight, etc.

I0. 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 B
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)
c
..
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. I979. 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 31.3.19')1 were notified. Since the calculation of the Retention Prices D
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,
E

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 1.4.199 l.
F
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 (l.4.1994 to G
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,
H
160 SUPREME COllRT REPORTS [2006) 2 S.C.R.

A 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 (I. 7.1997 to 31.3.2000) and the
Eighth ( 1.4.2000 to 31.3.2003) pricing periods, the Retention Price for each
B 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 2000-200 I, complaints were voiced that fertilizer manufacturers were
C 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
D 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.

E In the process offinalizing 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
F 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
G 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
H received by the FIC Committee, certain items of expenditure were disallowed
~
DUNCAN INDUSTRIES LTD. v. U.0.1. [SRIKRISHNA. J.] 161
..,.
--.,._/ while finalizing the Retention Price for the Seventh and Eighth pricing periods, A
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 2000-0 I. It also raised the issue with regard to disallowance
of the bank charges for Base Years 1997-98 and 1999-2000. Apart from this, B
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 c

-
interim revision of Retention Price made on 5.11.200 I and. the consequent
demand raised upon the First Appellant on 13.11.2001 for recovery of
Rs.184.01- crores·under tlfe· 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, D
leavini;, a balance of Rs. 56.80 crores.
>'

..Ir- 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 E
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 wo11ld be subject to
the Government's power ofrevision, review and recovery of excess payment,
if exercised, in the future .
F
.J
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. I 1.2003.
By another order dated 7.11.2003, following the impugned judgment, the G
High Court als\J dismissed Civil Miscellaneous Writ Petition No. 43934/
2001.
l,
The Contentions

The appellants impugn the judgment of the High Court under appeal, H
162 SUPREME COURT REPOR rs [20061 2 S.C.R.

A 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
B 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 hod.
..
According to him, what was ad hod was the periodic revision of the subsidies
C 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.
D the manufacturers that there would be assured post-tax returns of 12%, which
has allegedly not been fulfilled as a result of the ri:v1sion 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.

E Finally, Dr. Dhavan argued that the recrospective 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
F 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
G 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
H is nothing but an administrative order, is correct. Evidently, there is nothing
DUNCAN INDUSTRIES LTD. v. U.0.1. [SRIKRISHNA. J.] 163
- v· in the EC Act that deals with Retention Prices. Indeed, Clause 3 of the A
Fertiliser (Contr~I) Order merely provides that it is open to the Government
to fix the maximum retail price offertilizers. 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 B
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 C
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 D
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: E
"... 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 th.e price fixed under clause 3 of the F
Fertiliser (Control) Order."2

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
G

At the outset, we must note that the Retention Price Scheme, both
'1200 t J9 sec 648.
'Ibid. at p.652 (paragraph 12), per Kirpal, J.
H
164 SUPREME COURT REPORTS [20061 2 S.C.R.

A 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
B differentiate the process for determining the policy norms from the actual
tJrocess of computing the Retention Price. According to learned counsel,
what was ad hod and could be retrospectively changed were the subsidies
payable or recoverable in line with actuals. On the other hand, according to
him, the pri~ing norms (the formula for calculating Retention Prices) could
not be retrospectively changed. We cannot, however, accept this distinction.
c At the outset, the First Appellant had voluntarily entered into the
undertaking dated I0.12.1977, 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,
D 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
E 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
F 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
G 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
H deny the First Appellant the assured 12% post-tax returns. We do not agree.
DUNCAN INDUSTRIES LTD. v. U.0.1. [SRIKRISHNA. J.] 165
At the outset, we notice that the Scheme was not the result of any A
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. B
(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, Mis Indian Explosives Ltd.
gave a categorical undertaking dated I0.12.1977 in the terms that we have C
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).
D

+-
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 E
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 F
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 G
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.
H
166 SUPREME COURT REPORTS [2006[ 2 S.C.R.

A 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
B '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.
c 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
D 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).
E
Dr. Dhavan cited a number of authorities to Silpport 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
F industries in backward areas on promises ofrebate/ 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
G tlie 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
H correctness, for that is in the domain of the executive or the legislative branches
DUNCAN INDUSTRIES LTD. v. U.0.1. (SRIKRISHNA. J.) 167

of the Government. 3 Indeed, even if the Scheme, as revised, is "unwise" or A
even "unjust", there is no recourse before us for, as Justice Holmes elegantly
put it:

"We fully understand .... the 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."' B
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 ma/a 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 C
extreme arbitrariness in the Wednesbury 5 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. D

The Case of Mis 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 E
is the First Appellant and the other was Mis 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 F
mind to the case of the First Appellant, independent of the outcome in the

'See, e.g. BALCO Employees' Union (Regd.) v. Union of India, [2002) 2 SCC 333 at pp.
362-363 (paragarphs 46, 47), 381-382 (paragraphs 92, 93); Bhavesh D. Parish v. Union of
India. [2000) 5 sec 471 at pp. 484-485 (paragarph 23); Peerless General Finance and G
Investment Co. Ltd. v. Reserve Bank of India, [1992) 2 SCC 343 at p. 397 (paragarphs 69
and 70); State of MP. v. Nandla/ Jaiswal. [1986) 4 SCC 566 at pp. 605-606 (paragarph 34)
and Premji Bhai Parmar v. Delhi Development Ai1thority. [1980) 2 SCC at pp. 137-139
l;-., (paragarph 9).

'Noble State Bankv. Ilaskell. 219 US 575 at p. 580 (1910).

'Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation. (1948) I KB 223. H
168 SUPREME COURT REPORTS (2006) 2 S.C.R.

A 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.

B 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
C and are hereby dismissed with no order as to costs.
v.s. Appeal dismissed.

+