M/S. SUN BEVERAGES (P) LTD.versusTHE STATE OF UTTAR PRADESH AND ORS.

A                      MIS. SUN BEVERAGES (P) LTD.
                                    v.
                THE STATE-OF UTTAR PRADESH AND ORS.

                             NOVEMBER 28, 2003

•B    [P. VENKATARAMA REDDI AND DR. AR. LAKSHMANAN, JJ.)

          Industrial Laws:

         Industrial Development-Formulation of Scheme for the grant of
.C subsidy to industrial unit-Unit set up in zero industrial area treated as
   pioneer unit within the terms of the scheme and registered with Director
   General of Technical Development (DGTD) as Medium Scale Indust1y-
   Sanction of subsidy-Subsequent notification of the Government of India
   altering the definition ofSmall Scale and Medium Scale Indus fly-Unit de-
   registered as Small Scale lndustly-Noticefor refund of subsidy-Justifi-
'D cation of-Held: Unit practicing no fi·aud or misrepresentation in obtain-
   ing sanction/eligibility of subsidy and also there is no provision under the
   Scheme or agreement that unit granted subsidy to remain as DGTD unit
   for a period ofjive years- but unit de~recognised as DGTD Unit due to
   change in the definition of Small Scale Indus fly-Hence State not entitled
 E to seek refund of subsidy.
        State Government formulated a scheme for grant of subsidies to
   various industrial .units for giving an ·impetus to the industrialisation
   of the backward areas - zero industrial areas of the State. The unit
F :bad to be a pioneer unit-having investment of more than Rs.I crore
   and established after 01.10.1982 and was -to be registered with ithe
   Director General of Technical· Development for the grant of subsidy
   Appellant's unit was set up in the zero industrial area. :fts· investment
   in plant and machinery exceeded Rs. 20 lacs and was registered with
   DGTD .as a Medium Scale ·Industry. As it fulfilled the conditions
G prescribed under the scheme, it was sanctioned subsidy ofRs.15 lacs
   to be paid in ·two instalments. Appellant's unit and ·the respondent-
   State entered into an agreement under which the mode and method of
   payment of subsidy was prescribed. Thereafter the Government of
   India altered the definitions of Small Scale and Medium Scale Industry
H and increased the limit of investment in plant and machinery for Small
                                        420
                    SUN BEVERAGES (P) LTD. v. STATE                     421

     Scale Industry from Rs. 20 lacs to Rs. 35 lacs. One year after the A
     sanction and payment of subsidy, appellant's unit was de-registered as
     a Medium Scale Industry. Appellant applied for registration to Direc-
     tor oflndustries, U.P. as a Small Scale Industry. As the appellant's unit
     ceased to be a ·Medium Scale Industry before the expiry of the period
     of five years, respondent-State issued notice for the refund of the B
     subsidy. It also issued a recovery certificate for recovery of amount as
     arrears of land revenue. Appellant filed writ petition challenging the
     recovery proceedings. High Court dismissed the petition holding that
     there was breach of the terms granting subsidy as the unit was de-
     r<'.gistered by DGTD, and the respondents are entitled to recover
     subsidy with interest. Hence the present appeal.                          C
          Respondent-State contended that the appellant on his own freewill
     applied for de-registration; that the appellants were no more entitled
     to be registered under DGTD; and that since the constitution of the
     Company had undergone change and under the changed conditions the D
     respondents were entitled to recover the subsidy given to the appellant.

          Allowing the appeal, the Court

          HELD : 1. The respondent-State have acted arbitrarily and
     contrary to the terms of the Scheme and the Agreement and on the E
     basis of unwarranted assumptions in seeking to recover the amounts
     given as subsidy to the appellant. (435-B·CJ

          2.1. In the instant case, appellant's unit was registered as small
     scale industry in view of the revised notification of the Gover.nment of F
     India. Even though the investment of the appellant in the machineries
     was more than Rs. 35 Iacs, but the machineries utilized for manufactur-
     ing was less than Rs. 35 lacs, the appellant was. compelled to get it
     registered as Small Scale Industry Unit, instead of a DGTD Unit. The
     requisite registration certificate was granted to the appellant register-
.J
     ing the appellant as a Small Scale Industry Unit, but it continued to be a G
     pioneer unit in terms of the scheme to which the subsidy had been granted
     to the appellant. Further, the respondents could not point out that there
     was any change in the investment, assets, production, land, building,
     plant and machinery of the appellant and also that there had been 3llJ'
     change in the control exercised by respondent Nos. 1 and 2 over the H
       422               SUPREME COURT REPORTS (2003] SUPP. 6 S.C.R.

···· A appellant and its units. There had been no change in the obligations of
       the appellant. Therefore, the registration of a unit as a Small Scale and
       Medium Scale Industry is done in pursuance of notifications issued under
       the Industries Development and Regulation Act, 1951 by the Government
       of India and that the subsequent cancellation of registration by DGTD
   B   on account of change of criteria has no bearing on .the status of an
       industri~I unit as a Pioneer Unit under the scheme framed by the State
       ofU.P. (431-G-H; 432-A, 432-D-E; 431-FJ

          2.2. A perusal o_f the pleadings would r~veal that there is no
    allegation regarding playlngof fraud or mis-representation in obtain-
  C ·ing the sanction/eligibility. The only provisio~ which refers for recov-
    ery of cash subsidy as arrears of land rel\lenue is mentioned in Clause
     13 of the Scheme and Clause 3 of the Agreement and inasmuch as none
    of the conditions enumerated therein is attracted, the entire recovery
    of the cash subsidy as arrears of land revenue is illegal. Even otherwise,
  D the allegations made in the call notice for recovery of the cash subsidy
    as arrears of land revenue is uncalled for. (434-G-H, 434-A)

             2.3. It has been provided in the scheme that the production should .
       not be stopped for a period of five years but it nowhere provides that the
   E   unit should remain as a DGTD Unit for a period of five years. Appellant
       had been compelled to get the registration under the Small Scale
       Industries Unit and de-recognised as DGTD Unit on account of the change
       in the definition of Small Scale Industries Unit by the Central
       Government and not on account of any inaction of the appellant:
   F   Therefore, it can not be denied the benefit of cash subsidy. [434-C-EJ

             2.4. A close scrutiny of Clause 13 of the scheme and clause 2 of
       the Agreement shows that in the event of violation. of any conditions
       the recovery will be made as arrears of land revenue and so prior to
       initiating action for breach of the terms of clause 13 of the Scheme
  G    and clause 2 of the Agreement, opportunity ought to have been
       provided by respondent No. 2 to the appellant to demonstrate whether
       the provisions of the Scheme a_nd the Agreement are violated or not
       and that having not been done so the entire recovery proceedings
       initiated ~gainst the appellant is bad for violation of principles of
   H   natural justice. (434-E-G)
        SUN BEVERAGES (P) LTD. v. STATE [LAKSHMANAN, J.] 423

        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4617 of A
   1996.

        From the Judgment and Order dated 19.5.95 of the Allahabad High
   Court in C.M.W. No. 1607 of 1988.

       Kailash Vasdev, Sanjay K. Shandilya and Mrs. V.D. Khanna for the          B
   Appellant.

        R.K. Singh and Ashok K. Srivastava for the Respondents.

        The Judgment of the Court was delivered by
                                                                                 c
         Dr. AR. LAKSHMANAN, J. : The present appeal was filed against
   the judgment dated 19.05.1995 pronounced by the Division Bench of the
   High Court of Judicature at Allahabad by which the writ petition of the
   appellant bearing No. 1607 of I 988 was dismissed. The writ petition was
   filed by the appellant to issue a writ prohibiting the respondents from D
   recovering Rs. 18,72,82 I .92 constituting cash subsidy plus interest thereon
   from the appellant-Company as arrears of land revenue after quashing
., notice dated I5.09.I987 (Annexure 8 to the petition) and recovery
   certificate dated 31.I O. I 987 (Annexure I l to the petition).

        The sequence of fads and events leading to the filing of this civil
                                                                                 E
   appeal are as follows :

         By an order dated 30.09.1982, the Government of Uttar Pradesh
   formulated a scheme known as 'Capital Grant Scheme' (hereinafter
   referred to as 'Scheme') for the grant of subsidies to various industrial units F
   for giving an impetus to the industrialisation of the backward areas i.e. zero
   industrial areas of the State.

        In the said Scheme., 'Pioneer Unit' has been defined as :

            "Such industrial units to be set up during the period fro1n G
            01.10.1982 to 31.03.1985 firstly in any part of the Tehsil or at
            Tehsil level where no heavy industry is established prior to
            0 I. l 0.1982 and that those capital investment is more than Rs. one
            crore shall be treated as a Pioneer Unit."
                                                                                 H
    424                SUPREME COURT REPORTS {2003] SUPP. 6 S.C.R.

A         In view of the aforesaid incentive Scheme, Shri Rajan Sethi (since
    deceased) and his wife decided to incorporate a Company for bottling of
    aerated waters in the backward area of the District Agra. The Company
    was incorporated under the Companies Act on 0 I. I 0.1983 and it had
    entered into a franchise agreement with Mis. Campa Beverages Private
B   Limited on 06.05.1983 for bottling various brands of aerated waters. For
    the purpose of becoming entitled to the cash subsidy under the aforesaid
    Scheme, the appellant purchased land and building and made an investment
    of Rs. 17, 11,845.95. The Company made fu1ther investment on installing
    plant and machinery in the unit. The total investment made by the appellant

c                -
    in establishing this unit amounted to Rs. 1,07,78;368.34 with the location
    of the industrial unit in a zero industrial area. According to the appellant,
    because of'.the. total investments made, the appellant became entitled to
    cash subsidy. under.the aforesaid Scheme as a pioneer unit.

         The aforesaid Scheme prescribed the following two conditions for-
D   grant of cash subsidy to industrial units -

          (i) That it will be a 'Pioneer Unit' within the terms of the Scheme.

        (ii) That it is registered with the Director General of Technical
    Development.
E
          Under the Notification issued by the Government ofindia, in the year
    1983; a Small Scale 1ndustry has been defined under the Industries
    Development Regulation Act, l 948'a one which had made an investment
    of up to Rs. 20 lacs in plant and ·machinery alone apart from other assets.
F   As a Small Scale Industry, the appellant was liable to be registered with
    the Government and as a Medium Scale Industry, the appellant was entitled
    to be registered· with the Director General of Technical Development (in
    short 'the DGTD'), Government oflndia. The investment of the appellant
    in the plant and machinery exceeded Rs. 20 lacs. The DGTD was obliged
    to register the appellant industry as a Medium Scale Industry since the
G   investment in the plant and machinery exceeded Rs. 20 lacs. The appellant
    accordingly applied to the Director General of Industries for registration
    and the appellant· was registered on 28: 11.1984 with the DGTD as a
    Medium Scale Industry for the manufacture of 43.2 million bottles of soft
    drinks per annum. The appellant applied for cash subsidy to the Govern•
     SUN BEVERAGES (P) LTD. v. STATE [LAKSHMANAN, J.] 425

ment of U.P. as it fulfilled both the above stated conditions under the A
Scheme. The Government of U.P., on 31.03.1986, sanctioned a subsidy of
Rs. 15 lacs to the appellant and this subsidy was paid to the appellant in
two instalments. An agreement was entered into between the appellant and
the respondents under which the mode and method of the payment of
subsidy of Rs. 15 lacs was prescribed. It was covenanted :                 B

        "l(b). That the grantee will comply with and faithfully observe
        all the provisions of the said Scheme as also any other conditions
        imposed by the order sanctioning the said subsidy.

        ( c) That for a period of five years from the date of receiving the C
        subsidy or any part thereof or from the date of production starts,
        whichever of these dates are earlier, the grantee will allow the
        officers subordinate to the Director or any other person or persons
        authorised by the Director or by the State Level tommittee
        constituted under the said Scheme to inspect the work for which D
        the Special State Capital Subsidy has been given and also the
        machine plant, appliances, tools equipment for the procuring of
        which the grant has been made.

        (f) That within a period of five years from the date of going into E
        production or of the date of receipt of the Subsidy or any part
        thereof whichever of these dates are later. The Grantee will not
        change the place or location of the said Industrial Unit entirely
        or partly, nor enter into partnership with anyone nor change its
        constitution nor will the grantee effect substantial contractive F
        disposal of substantial part of its total fixed capital investment
        without the written prior permission of the Director.

         2. It. is hereby agreed and declared by and between the parties
         hereto that in any of the following cases the Director shall have
         the right to stop further payment of the State Capital Subsidy and G
         to require the Grantee to refund the amount of subsidy already
         paid and the Grantee shall refund the same forthwith together with
         interest at the Bank lending rate then prevailing and in the case
         of Grantee's failure to do so, the Director may recover the same.
         as arrears of land revenue.                                        H
    426                 SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.

A            (a) Where Grantee has obtained the said Subsidy by misrepre-
             sentation as to an essential fact or by furnishing of false informa-
             tion/or where his industrial unit· does not go into production;

             (b) Where the Grantee's said industrial unit goes out of
B            production within five years from the date of commencement
             of production except in cases where the unit remains out·
             of production for short periods extending to six months due
             to reason beyond its control such as shortage of raw material,
             power, etc. or

c            (c) Where the Grantee fails to furnish the prescribed statement
             and/or information which it is called upon to furnish, or

            . (d) Ifthe Grantee commits a breach of any one of the covenants
              herein contained' or of the Provisions of the said Scheme."
D
          Subsequent to the registration of the appellant as Medium Scale
    Industry, the (iovemment of India, by Notification dated 18.03.1985
    altered the definitions of 'Small Scale Industry' and 'Medium Scale
    Industry'. By this. notification, it was provided that if the investment of an
E industrial unit in plant and machinery alone (excluding other investments)
    Wl!S up to Rs. 35 lacs, it was entitled to be registered as a Small Scale
    Industry, but if it exceeded Rs. lacs, it was entitled to be registered as
    Medium Scale Industry. In other words, the limit of investment in plant
    and machinery for Small Scale Industry was increased from Rs. 20 lacs
F to Rs. 35 lacs .. The existing registered medium scale industries were given
    option to get themselves registered as small scale industries if they so chose
    within six. months. The appellant was advised to apply to the DGTD for
    de-registration on the ground that its investment in plant and machinery
    was less than Rs. 35 lacs in view of the revised definition of the Small Scale
    Industry and the Medium Scale Industry made by the Government of India
G '"by its Notification issued on 18.03.1985. The appellant was advised to
    apply to the ·DGTD for de-registration more than a year after the cash
    subsidy had been sanctioned and granted,to the appellant under the Scheme
    and much after the expiry of the option period. By letter dated 04.08.1987,
    the DGTD cancelled the registration of the appellant as a Medium Scale
H Industry and directed the appellant to approach the Director of Industries,
      SUN BEVERAGES (P) LTD. v. STATE [LAKSHMANAN, J.] 427

U.P. for registration as a Small Scale Industry. According to the appellant, A
the registration could not be cancelled as the option period of six months
had already expired. The appellant thereupon applied for registration with
the General Manager, District Industries, Agra, for being registered as a
Small Scale Industry.

       On 24.09.1987, the appe:lant received a communication dated
                                                                            B
 15.09.1987 from respondent No. 2 calling upon the appellant to refund the
 cash subsidy together with interest amounting to more than Rs. 18,40,767. I 2
 on the only ground that the unit of the appellant was required to continue
 to remain a Medium Scale Industry for five years from the date of the
 agreement and on account of the cancellation of its registration by the C
 DGTD, the appellant had caused a violation of the scheme. It is also stated
 that the power to seek refund of the subsidy is also circumscribed by clause
 2 of the Agreement dated 3 I .03.1986 executed between the parties. Clause
 2 of the said Agreement has already been extracted. above.

      While so, the respondent without waiting for a reply from the from
                                                                            D
 the appellant or affording any oppo1tunity of hearing straight away issued
 a recovery certificate on 3 I. I 0. I 987 to the third respondent calling upon
 him to recover the sum of Rs. 18 lacs and odd as arrears of Land revenue
 from the appellant. The appellant thereupon made a representation to the
 Government of U.P. that the said demand and subsequent recovery order E
 were illegal and contrary to the factual position. As no response was
 received to the aforesaid representation and as the respondents were taking
 recourse to coercive processes, the appellant filed a writ petition before the
 High Court.

        It was contended before the High Court on behalf of the respondents F
  that the appellant has not faithfully observed all the provisions of the
  Scheme as also other conditions imposed by the order sanctioning the
  scheme and that a perusal of the terms of the scheme under which the
  subsidy was allowed only show that a Pioneer Unit holding. DGTD
  registration was eligible for subsidy under the Scheme and a combined G
  reading of the Scheme and the agreement shows that the loanee that is the
· petitioner (appellant) had to retain its character as a Pioneer unit holding
  DGTD registration for a period of five years to be computed from the year
  in which the disbursement of the subsidy was made. It was further
 submitted that after raising of the limit from Rs. 20 lacs to Rs. 35 lacs in H
    428                SUPREME COURT REPORTS {2003] SUPP. 6 S.C.R.
A the meanwhile, the appellant lost its DGTD registration which was
  canc_elled on its own application vide order dated 04.08.1987 as a result
  of which the appellant was relegated to the character of a Small Scale Unit.
  It was further argued by the respondents that the inevitable consequence
  of the loss of the DGTD registration by the appellant as aforesaid was that
B the appellant ceased to be eligible for spec:ial subsidy paid to it under the
  Scheme and this indeed constituted violation of condition No.I (b) of the
  Agreement. Under such circumstances, the subsidy of.Rs. 15 lacs paid to
  the appellant under the Scheme as a Pioneer Unit holding DGTD regis-
  tration became recoverable by the respondents as provided in clause 2 and
  clause 2(d) of the Agreement aiong with interest at current bank lending
C rate calculated from the date of payment of subsidy till the date of recovery
  of the amount.

         The Division Bench of the High Court held that the writ petition filed
    by the appellant was bereft of merits and that the respondents are entitled
D   to recover the subsidy with interest as demanded. The High Court
    proceeded on the basis that there was breach of the terms granting subsidy
    by reason of the appellant being de-recognised by DGTO.

         Aggrieved by the judgment of the High Court, the above appeal has
E   been filed.

          We have perused the pleadings, the judgment under appeal, the
    annexures and other relevant documents arid, in particular, the. Scheme,
    notice for recovery of subsidy, certificate for recovery issued by the
    Commissioner and Director of Industries, U.P., correspondence between
F   the appellant and the respondents, Sanction letter dated 31.3 .1986, Agree-
    ment dated 31.3 .1986, cancellation order of DGTD registration dated
    04.08.1987 and the proceedings issued by the Government of India iii
    regard to the procedure for registration of units..on transfer from DGTD
    etc., consequent upon revision in the definition of Small Scale Industries
G   dated 17.01.1981 and the Notification dated 18.03.1985.

         We heard the arguments of Mr. Kailash Vasdev, learned senior
    counsel for the appellant and Mr. R.K. Singh, learned counsel for the
    respondents. The counsel for the respective parties reiterated their submis-
H   sions advanced before the High Court.
     SUN BEVERAGES (P) LTD. v. STATE [LAKSHMANAN, J.] 429

     On the aforesaid facts and circumstances of the case, the following A
questions may arise for consideration :

        (I)      If an industrial unit of a Company is granted subsidy in
                terms of the Scheme framed by the State Government when
                it fulfils all the terms and conditions of the Scheme, is it open B
                to the State GoVern·mentto call for refund of the subsidy at
                 a later stage when the 'pioneer unit' chooses to get itself
                             a
                 registered as Small Scale Industry with the State Govern-
                 ment instead of remaining registered as a Medium Scale
                 Industry with the Director General of Technical Develop-
                 ment, Government of India in accordance with the change C
                effected in the definition of a Small Scale Industry and a
                 Medium Scale Industry by the· Government of India,
               . although it continues to remain· 'pioneer unit' and there is
                 absolutely no change in the control of the State Government
                 over the unit in the obligations, investments and assets of the D
                 pioneer unit? .

        (2)      Whether there is any provision in the Scheme or Agreement
                    a
                 that 'Pioneer Unit' which had been granted subsidy must
              .. continue to remain registered with the Director General of E
                 Technical Development for a period of five years and if it
                 does not remain registered, are respondents 1 & 2 entitled
                .to seek refund of the subsidy?

        In the instant· case, the following facts are· not in dispute :
                                                                                      F
        (I)     That both the parties to this actiOn have entered into an
                Agreement;

        (2)     That the Government of U.P. formulated a scheme knoWll
                as 'Capital Grant Scheme' for the grant of subsidies to G
                various industrial units for giving an impetus to the indus- ·
                trialisation of the backward areas of the State;
                                           ~ ~'




        (3)     That the Scheme provides for payment ofsubsidies to the
                industries sector in the zero industrial area;
                                                                                      H


                                                                        •.   '   .-
    430                 SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.

A            (4)   That the petitioner, in fact, had set up his industrial unit in
                   the zero industrial area;

             (5)   That the industrial unit had been set up during the period
                   from 01.10.1982 to 31.03.1985 in a backward area where no
                   heavy industry is established prior to 01.10.1982;
B                                                                          .;


             (6)   That the appellant's unit was treated as a Pioneer Unit within
                   the terms of the scheme and that it was registered with
                   DGTD;

c            (7)     That the appellant had made a total investment of Rs.
                     1,07,78,368 on building, land and machinery etc. and be-
                   . came entitled to cash subsidy under the Scheme;

             (8)   That the appellant's unit was registered with DGTD as a
                   Medium Scale Industry and that the appellant had fulfilled
D                  the conditions of the scheme;

             (9)    That the sanction of subsidy of Rs. 15 lacs to the appellant
                    and payment of the same in two installments;

E            (I 0) That the Government of India has issued fresh guidelines on
                   18.03 .1985 which provided that an industry, investment of
                   which did not exceed Rs. 35 lacs in plant and machinery
                   alone shall bt entitled to be treated as a Small Scale Industry;

            · (11) That the DGTD cancelled the registration of the appellant
F                  as a Medium Scale Industry on 04.08.1987 and directed the
                   appellant to approach Director of Industries, U.P. for regis-
                   tration as a Small Scale Industry arid as a consequence of
                   de-registration as Medium Scale Industry by the DGTD, the
                   Government ofU.P. issued notice for recovery of Rs. 15 lacs
G                  and again called upon the appellant to refund Rs. 15 lacs as
                   DGTD had cancelled the registration contending that the
                   appellant had violated condition 1(b) of the Agreement.

          A resume of the aforesaid undisputed facts clearly show that there has
H been absolute by no violation of any provision of the Scheme on the part
     SUN BEVERAGES (P) LTD. v. STATE [LAKSHMANAN, J.) 431

of the appellant and that the demand for the refund was wholly illegal and A
arbitrary.

      In this background, we have also to see as to whether the grantee/
appellant complied with and observed all the provisions of the Scheme and
of the covenants of the Agreement or violated any terms of the Agreement. B

     We have already noticed as a result of change in the definition of
Small Scale Industry by the Development Commissioner, Government of
India the Industrial units which had invested upto 35 lacs in plant and
machinery was liable to be treated as small scale industries and that it was
on this ground alone, the appellant's industrial unit been de-registered as
                                                                             c ....
a Small Scale Industry but it continued to be a pioneer unit in terms of the
scheme to which the subsidy had been granted to the appellant. In the
circumstances, the appellant stated that the question of seeking refund of
the amount from them did not arise as the appellant had not violated any
terms of the Scheme or of the Agreement. In our view, the High Court has D
overlooked the aforesaid facts and documents in this regard.

      It is also pertinent to notice that subsequent to the registration of the
appellant as Medium Scale Industry, the Government of India, by Noti-
fication dated 18.03.1985 altered the definitions of Small Scale Industry E
arid Medium Scale Industry. By this Notific.ation, it was provided that if
the investment of an industrial unit in plant and machinery alone was up
to Rs. 35 lacs. It was entitled to be registered as a Small Scale industry,
but if it exceeded Rs. 35 lacs, it was entitled to be registered as a Medium
Scale Industry. In fact, the respondents could not point out that there was
any change in the investment, assets, production, land, building, plant and F
machinery of the appellant and that there had been any change in the
control exercised by the respondent Nos. 1 and 2 over the appellant and
its units. There has been no change in the obligations of the appellant. The
appellant had applied for re-registration with DGTD as a Small Scale
Industry more than a year after grant o(subsidy on the advise that in view G
of the revised Notification issued by the Government oflndia, the appellant
was liable to be registered as a Small Scale Industry. In our opinion, the
registration of a unit as a Small Scale and Medium Scale Industry is done
\n pUl'suance of notifications issued under the Industries Development and
RP.gulation Act, 195 l by the Government of India and that the subsequent H
    432                 SUPREME COURT REPORTS [2003] SUPP. 6 S;.C.R.

A cancellation ofregistration by DGTD on account of change of criteria has
    no bearing on the status ofan industrial unit as a Pioneer Udit under the
    scheme framed by the State of U.P.

          The appellant was registered as a DGTD Unit on 21. I 0. I 983 and the
B   said registration continued. Thereafter, in the year 1985, ~here haye been
    some changes in the definition of the Small Scale Industries by .the
    Deyelopment Commissioner; Government of India by which·the definition
    of a Small Scale Industries Unit .has been amended and the limit of
    investment in the plant and machineries has been extended from Rs. 20
    lacs to.Rs .. 35 lacs. It has also been made clear that while computing the
C   value of the machineries,. only the value of those machineries will be
    considered which are directly involved in the production, while the other
    accessories and ·other machineries which· are used· in the manufacturing
    process but are not directly involved in the process of manufacture were·
    not to be included for considering the unit as Small Scale Industry unit.
D   In this view of the matter, even though the investment of the appellant in
    the machineries was more than Rs. 35 lacs, but the machineries while· are
    utilised for manufacturing was less than Rs: 35 lacs i.e. Rs. 32,15,861,
    hence the appellant was compelled to get it registered as Small Scale
    Industry unit, instead of a DGTD Unit. Thereafter, the appellant applied
E   for registration as Small Scale Industry Unit and the requisite registration
    certificate.was granted to the appellant by the General Manager, District
    Industries Centre, Agra, registering the appellant as a Small Scale Industry
    Unit.

          It is also -pert.inent to notice that the respondents without issuing any
F show cause no,tice to the appellant as to why the said recovery be not made
    against the appellant and without affording any opportunity to show ~ause;
    a call notice dated 15.09.1987 has been issued to the appellant for
    recovering that amount and again followed by a recovery certificate from
    the office of the Commissioner and Director of Industries for recovering
G the sum of Rs. 18,72,821.92 as the arrears·ofland revenue. In our opinion
    the entire recovery proceedings initiated against the appellant by the
    respondents as arrears of land revenue is absolutely illegal and in gross
  · violation of the principles of natural justice.

         In this· ccmtext, we may reproduce clause 13 of the Scheme which
H   reads as follo~s :
     SUN BEVERAGES (P) LTD. v. STATE [LAKSHMANAN;-J.] 433
        "13. Recovery of Special State Capital Grant: The Director of A
        Industry, Uttar Pradesh shall have power to get the Special State
        Grant recovered as is the recovery of land revenue is done
        consequent to following circumstances;

        (a) If the Industrial Unit has obtained the State Capital Grant by B
        giving false facts or by submitting necessary facts in fraudulent
        manner.

        (b) If the Unit has stopped the production work within five years
       ·of the commencement of the production. However, this condition
        of restriction shall not be applicable to such units where the C
        production work has remained suspended for a short period of 6
        months due to reasons beyond its control such as sick and shortage
        of power etc.

        (c) If industrial Unit fails to provide prescribed details and         p
        information sought for. If Director of Industries of Uttar Pradesh
        could· not get the Special State Capital Grant recovered from the
        Unit under the normal procedure, then he can get the amount of
        loan recovered as the arrear of land revenue recovery done under
        the Government of Uttar Pradesh rules.
                .          .                               .                   E
        {d) If the Director of any Unit who has partly or fully re41eived
        the grant has to change the plac~ of his unit or dispose of any part
        of immoveable property/assets within five years from the date of
        start of production.
                                                                               F
         Clause 2 of the A,greement has been extracted in paragraphs supra.

     The- above two clauses mentioned the circumstances under which the
cash subsidy may be recovered as arrears ofland revenue. None of the said
clauses is applicable or attracted in the instant case. Therefore, we are of
the opinion that the entire r~covery proceedings are absolutely il~egal and G
without jurisdiction. It is not the case of the respondents that the appellant
has practised any fraud or guilty of making of any mis-representations in
obtaining the sanction/eligibility-The only provision which refers for
recovery of cash subsidy as a(rears of land revenue is mentioned in the
above two clauses and inasmuch as none of the conditions enumerated H
    434                SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.

A therein is attracted, the entire recovery of the cash subsidy as arrears of
    land revenue is illegal. Even otherwise, the allegations made in the call
    notice for recovery of the cash subsidy as arrears of land revenue is
    uncalled for.

B         We have carefully perused the entire Scheme which goes to show that
    the cash subsidy would be granted to the unit which is a· Pioneer Unit i.e.
    having an investment of more than Rs. 1 crore and which has been
    established after 0 I.I 0.1982 and at the time of grant of cash subsidy, the
    said Unit should be registered as DGTD Unit. Nowhere it provides that the
    said industry should remain as a DGTD Unit for a period of five years
C   mentioned in clause 4 of the call notice. A perusal of the scheme further
    goes to show that it has been provided in the scheme that the production
    should not be stopped for a period of five years but it nowhere provides
    that the unit should remain as a DGTD Unit for a period of five years. In
    fact, the appellant had been compelled to get the registration under the
D   Small Scale Industries Unit on account of the change in the definition of
    the Small Scale Industries Unit by the Central Government and not on
    account of any inaction of the appellant. Hence, if on account of the change
    in the definition of the Small Scale Industries Unit, the appellant was de-
    recognised as DGTD Unit then the appellant could not be denied the benefit
E   of cash subsidy.

          We have already seen that clause 13 of the Scheme and clause ·2 of
    the Agreement has been invoked by the respondents for the recovery of
    the subsidy. A close scrutiny of the above two clauses goes to show that
    in the event of violation of any conditions, the recovery will be made as
F   arrears of land revenue and so prior to initiating action for breach of the
    terms of clause 13 of the Scheme and clause 2 of the Agreement, the
    opportunity ought to have been provided by the respondent No. 2 to the
    appellant to demonstrate whether the provisions of the Scheme and the
    Agreement are violated or not and that having not done so the entire
G   recovery proceedings initiated against the appellant is bad for violation of
    principles of natural justice.

          As already observed, a perusal of the pleadings would reveal that
    there is no allegation regarding playing of fraud or mis-representation in
H   obtaining the sanction/eligibility. The argument of the learned counsel for
       SUN BEVERAGES W) LTD. v. STATE [LAKSHMANAN, J.] 435

the respondents that the appellant on his own freewill applied for de- A
registration vide latter dated 12.06.1987 and that the appellants were no
more entitled to be registered under DGTD and since the constitution of
the Company had undergone charge and under the changed conditions the
respondents were entitled to recover the subsidy given to the appellant
cannot at all be countenanced.
                                                                            B
      Having taken note of the aforesaid factual situation, we have no
hesitation to hold that the respondents have acted arbitrarily and contrary
to the terms of the Scheme and the Agreement and on the basis of
unwarranted assumptions in seeking to recover the amounts given as
subsidy to the appellant.                                                   C
    In the facts and circumstances of the aforesaid, we set aside the
judgment of the High Court impugned in this appeal and allow this appeal.
However, there will be no order as to costs.

N.J.                                                    Appeal allowed.
                                                                            D