The State Industrial and Investment Corporation of Maharashtra Ltd. vs Narang Hotels Private Limited and another

The State Industrial and Investment Corporation of Maharashtra Ltd., has filed this suit against Narang Metals Private Limited for refund of a sum of Rs. 13,26,236.82 along with further interest at the rate of 12% per annum on Rs. 6,59,700/-from the date of filing of the suit till payment inter alia on the ground that a sum of Rs. 6,59,700/- was erroneously disbursed to defendant No. 1 as subsidy for setting up a hotel project at Aurangabad, a backward area in the State of Maharashtra, even though the hotel project was not covered under Central Subsidy Scheme 1971. Prior to disbursement of the said amount, two agreements were entered into between President of India and defendant No. I on 22nd November, 1973 and 14th February, 1974 for disbursement of subsidy to defendant No. 1. The plaintiff was the agent of defendant No. 2 for disbursement of Central Govt. Subsidy under the Scheme propounded by defendant No. 2. The plaintiffs have impleaded Union of India as defendant No. 2 in this suit. The Union of India is a pro forma defend ant in this suit. The defendant No. 1 in the suit has filed its written statement contesting the suit claim on various grounds. The defendant No. 2 has not filed any written statement. The defendant No. 2 has taken no interest in prosecution of this suit.

At the hearing of the suit on 2-2-1995 the following issues were framed by the Court :

(1) Whether the plaint discloses any cause of action?

(2) Whether the plaintiffs paid a sum of Rs. 6,59,700/- to the 1st respondent as a result of mistake as alleged in para. 11 of the plaint? If so, whether the said amount is refundable by defendant No. 1 to the plaintiffs as claimed?

(3) Whether the ''hotel industry'' was not covered by the Central Subsidy Scheme at the material time as alleged in paras. 8 to 10 of the plaint?

(4) Whether the agreement dated 22-11-1973 and the agreement dated 14-2-1974 made between the plaintiffs and the 1st defendant are lawful agreement? If so, whether the sum of Rs. 6,59,700/- was lawfully disbursed by the plaintiffs to defendant No. 1 and the same is not refundable by defendant No. 1?

(5) Whether the defendant No. 1 acted on the representation of the plaintiffs in respect of the availability of subsidy and invested large amount in the hotel project referred to in the pleadings and thus altered their position as alleged in para. 10 of the written statement? (Deleted)

(6) If so, whether the plaintiffs are estopped from resiling from the suit agreement or agreements on the ground that the hotel project was not really covered by and under the subsisting scheme as alleged in para. 10 of the written statement? (Deleted)

(7) Whether the plaintiffs are entitled to obtain any relief against defendant No. 1, if so what?

The learned counsel for defendant No. I did not press the contentions raised in para. 10 of the written statement and made it clear that the defendant No. 1 was not pressing the suit claim in view of there being specific agreement between the parties for disbursement of subsidy i.e. agreement dated 22-11-73 and 14-2-74. In view of the statement made by the learned counsel for defendant No. 1, issues 5 and 6 were directed to be deleted.

On 2-2-1995, by consent, copies of agreement dated 22-11-73 and 14-2-74 arrived at between defendant No. 1 and the President of India were admitted in evidence and marked Exhibit ''A'' collectively. By consent, copies of correspondence exchanged between the parties was admitted in evidence and marked Exhibit ''B'' collectively. A copy of the Central Government Subsidy Scheme 1971 is tendered today although it was supposed to have been tendered on 2nd February, 1995. A copy of the said scheme is admitted in evidence and marked Exhibit ''C''. A copy of the amended scheme is tendered by learned counsel for the plaintiff and is admitted in evidence and marked Exhibit ''D''. Copy of the minutes of the meeting of the State Level Committee held on 26th June, 1979 tendered by the learned counsel for the plaintiff is admitted in evidence and marked Exhibit ''E'' No oral evidence was led on either side.

The facts of this case are far too simple. The following facts emerge from the pleadings and the documentary evidence led by the parties at the trial of the suit. There can be no serious dispute about these facts.

On 3-9-1971, the Government of India was pleased to publish its scheme of 10% Central grant or subsidy for industrial units to be set up in certain selected backward districts/areas with a view to promote the growth of industries there. The said scheme was called "The 10% Central Out-right Grant or Subsidy Scheme 1971 for industrial units to be set up in subsided backward districts/ areas". The said Scheme came into effect from 26-8-1971. The said Scheme was made applicable to ''industrial units'' in selected districts/ areas as defined in the Scheme other than those whose total fixed capital investment would exceed Rs. 50 lacs. It was provided in the said scheme that in case all units involving total fixed capital investment exceeding Rs. 50 lakhs, the scheme might be made applicable on consideration or merits, at the discretion of the Government of India or the State/Union Territory. The expression "Industrial Unit" was defined by clause 4(a) of the said Scheme as under :

"Industrial Unit" means any industrial undertaking and suitable servicing unit, other than that run departmentally by Government."

The definition of the expression ''Industrial Unit'' is too wide within meaning of the said expression as defined under clause 4(a) of the said Scheme. The said Scheme defined the expression ''Industrial Unit'', generally and did not annex a Schedule thereto listing specific industries thereto as such. The said Scheme provided for assessment of "fixed capital investment". The said scheme prescribed the method for computation of ''fixed capital assessment''. The said scheme specifically provided for computation of price of land, building, plant and machinery for purpose of arriving at the figure of subsidy payable.

The Government of India through the Government of Maharashtra appointed the State Industrial and Investment Corporation Maharashtra Limited, the plaintiff herein, as its agent for operation of the said Central Subsidy Scheme. The defendant No. 1 set up a hotel project/industries at Aurangabad. The defendant No. 1 satisfied all the conditions of eligibility etc. prescribed by the said Central Subsidy Scheme as set out in the suit agreement duly executed between defendant No. 1 and defendant No. 2 referred to in later part of this judgment.

On 16th June, 1973, the defendant No. 1 made an application to the plaintiff for grant of 10% of Central Subsidy. The defendant No. 1 represented to the plaintiff and defendant No. 2 that the fixed capital investment pertaining to the new unit of defendant No. 1 at Aurangabad (i.e. the specified backward district of the State) would be Rs. 25 lacs.

On 22nd November, 1973, an agreement was arrived at between the President of India and the defendant No. 1 whereunder the defendant No. 2 agreed to give the Central Subsidy to defendant No. 1 in sum of Rs. 2.5 lacs on the defendant creating fixed assets of Rs. 25 lacs for the purpose of its new unit at Aurangabad. It was recited in the said agreement that the said scheme was made applicable to three districts namely Aurangabad, Chandrapur and Ratnagiri and the defendant No. 1 had satisfied all the conditions of the Central Subsidy Scheme. By consent a copy of the said agreement was marked as part of Exhibit ''A'' collectively at the trial of the suit. The said agreement was acted upon. At this late stage, the plaintiffs and defendant No. 2 want to resile from the said agreement, on the ground of alleged mistake. The plaintiff claims to have now discovered that ''the Hotel Industry'' or the ''Hotel Project'' was not covered by and under the Central Subsidy Scheme.

The earlier agreement dated 22-11-73 was modified by the subsequent agreement dated 14-2-74. By consent, a copy of the said agreement was also marked as part of Exhibit ''A'' collectively at the trial of the suit. It was recited by the parties in this agreement that the defendant No. 1 was entitled to subsidy equivalent to 15% of the capital invested subject to minimum limit of Rs. 15 lacs. It was recited in the said agreement, that the defendant No. 1 had made an application to the plaintiffs on 16-5-73 for grant of 15% Central subsidy. It was further recited in the said agreement that the total fixed capital investment to be made for the purpose of the said new unit at Aurangabad after 26-8-71 was estimated to be Rs, 83 lacs. The defendant No. 2 accordingly agreed to crystalise the grant of Central subsidy admissible to defendant No. 1 for the project of defendant No. 1 at Aurangabad meaning thereby the Hotel Project at Rs. 12.45 lacs inclusive of Rs. 2.50 lacs referred to in agreement dated 22nd November, 1973. By this time, the rate of subsidy was increased to 15%. The defendant No. 2 agreed to disburse the said amount of subsidy by installments. By the said agreement, several obligations were imposed on defendant No. 1 like non-shifting of the location of the project, etc. The said agreement contains several admissions on the part of defendant No. 2 which are binding on the plaintiff as well. It is not the case of the plaintiffs or defendant No. 2 that the defendant No. 1 has committed breach of any of its obligations under the said agreements or either of them. The said agreements were acted upon. Substantial amounts have already been disbursed to defendant No. 1. The plaintiffs now wish to resile from this agreement also.

It is now necessary to refer to the amended scheme dated 26-3-1977 a copy of which is made available to the Court by the learned counsel for the plaintiff forming part of a compilation. The said amended scheme is included in the compilation of documents tendered by the learned counsel for the. plaintiff. The said amended scheme contains a schedule listing the industries covered thereunder including ''Hotel Industry'':

Clause 2.1 of the said amended Scheme reads as under :

"2. I New Industrial Units engaged in manufacture of items specified in Para (B) of Annexure II are eligible to claim 10% -- 15% Central Investment Subsidy under the scheme provided such industrial units are located in areas specified in Part (A) of Annexure II and are also covered by S. 1.3 above. Existing industrial units engaged In manufacture of items specified in Part (B) of Annexure II are eligible to claim 10% -- 15% Central Investment Subsidy under the scheme provided such industrial units arc located in areas specified in Part (A) of Annexure II and are also covered by S. 1.3 above for purposes of expansion only.

Annexure II Part (B) appended to the said amended scheme specifically includes ''hotels'' in the industries eligible for Central Investment Subsidy vide Items 3(5) of the said Scheme. Merely because the amended Scheme now contains a list of industries including ''Hotel'' it does not necessarily follow that the specified industries were not covered by and under unamended Scheme, covering all industrial units generally, subject to their location in areas specified.

The learned counsel for the plaintiff has submitted that the suit agreements dated 22-11-73 and 14-2-74 were arrived at between the defendant No. 1 and defendant No. 2 as a result of mistake. The learned counsel for the plaintiff has submitted that "hotel industry" was not covered by the Central Subsidy Scheme prior to 26-3-1977. The learned counsel has submitted that the plaintiff, the disbursing agency for defendant No. 2, had thus disbursed a sum of Rs. 6,59,700/- to defendant No. 1 by installments under mistake of law and the said amount is, therefore, refundable by defendant No. 1 to the plaintiffs with interest at the rate of 12% per annum for period commending from 3-12-73. The learned counsel for the plaintiff has invited the attention of the Court to the averments made in the plaint as well as the particulars of the plaintiff''s claim appearing at Exhibit ''E'' to the plaint.

It is not the case of the plaintiffs that the defendant No. 1 had made any misrepresentation to the plaintiffs or that there was any mutual mistake regarding a fact essential to the above referred agreements. It was open to the Union of India to enter into an agreement with the defendant No. 1 and agree to disburse subsidy for its project set up in a backward district. The agreement dated 22-11-73 and the agreement dated 14-2-74 are not shown to be opposed to any law. The said agreements are already acted upon. It is recited in each one of the said agreement that the defendant No. 1 had complied with all the prescribed conditions of Central Subsidy Scheme. The admissions set out in the two agreements are binding on defendant No. 2 as well as its agent, the plaintiff herein. The suit agreements are not shown to be ultra vires the authority and powers of President of India or opposed to law.

The principal question agitated at the bar on behalf of the plaintiffs is that the ''hotel industry'' was specifically brought within the purview of the Central Subsidy Scheme on 26-3-77 for the first time by specifically including the same in the schedule appended to the Scheme and it must therefore follow that the hotel industry or the hotel project was not covered by the Central Subsidy Scheme, 1971 prior to 26th March, 1977. With respect, this submission is totally erroneous. At times the industries which are to be covered under the Subsidy Scheme are described generally. At times, a schedule of industries covered under the Scheme may be appended to the Scheme listing the particular industries specifically. The draftsman of the Scheme has an option to follow either methodology. The definition of the expression "industrial unit" as set out in the scheme dated 3-9-71 is wide enough to include any industrial undertaking and suitable service unit too. Under the Industrial Law, "hotels" are generally considered as ''Industrial Units or industrial undertakings''. Even under the Income Tax Law, ''hotel projects'' are often considered as industrial unit for various purposes. It all depends. Clause 2.1 of the amended scheme provides that new industrial unit engaged in manufacture of items specified in Part (B) of Annexure II are eligible to claim 15% Central Investment Subsidy under the Scheme provided such industrial units are located in areas specified in Part (I) of Annexure II and are also covered by S. 1.3 of the Scheme. The said clause, further provides that even existing industrial unit engaged in manufacture of items specified in Part (B) of Annexure II are eligible to claim 10% -- 15% Central Investment Subsidy under the scheme provided such industrial units are located in areas specified in Part (A) of Annexure II. It is not possible to accept the submission made by the learned counsel for the plaintiff and hold that the above referred sum of Rs. 6,59,700/- was paid by the plaintiffs to defendant No. 2 by reason of mistake of law or as a result of mutual mistake and the said amount is liable to be refunded by defendant No. 1 to the plaintiffs. If any of the high officials of the plaintiff or defendant No. 2 had committed such a serious mistake and disbursed amounts to various entrepreneurs engaged in hotel projects wrongly, at least one of such high official ought to have entered the witness box and satisfied the judicial conscience of the Court that in fact the suit agreements were entered into as a result of mistake. No oral evidence is led. I have no doubt in my mind that this is a speculative and a chance litigation commenced by the plaintiffs at the instance of defendant No. 2 without any justification. At all material times, the parties believed and rightly so, that the hotel project was also covered by the Central Subsidy Scheme 1971. The learned counsel for the plaintiffs invites the attention of the Court to clause 4(f) of 1971 Scheme and submits that the said scheme was applicable only to such industrial units which manufacture goods with the aid of plant and machinery. The hotel projects can also own plant and machinery. The hotel projects can be considered even as a factory. The burden of proof was on the plaintiffs to prove that the above referred amounts were disbursed by the plaintiffs as a result of mistake and further prove that the plaintiffs were entitled to claim refund of the said amount at this late stage. The plaintiffs have failed to discharge the onus. It appears from the agreements marked as Exhibit ''A'' collectively that the project was set up sometime prior to the year 73/74 at the costs of about Rs. 83 lacs. The plaintiffs have disbursed a sum of Rs. 6,59,700/- only with a view to promoting economic development of backward areas in public interest.

It is necessary to complete the narration of facts by referring to the minutes of 40th meeting of the State Level Committee of the plaintiffs held on 26-6-79 on the basis of which the plaintiff is supposed to have filed this suit. The minutes of the said meeting read as under :

"The State Level Committee in its meeting held on 10-12-73 had sanctioned a subsidy amounting to Rs. 12,45,000/- in favour of this firm for disbursement through SICOM, and in pursuance to this, SICOM disbursed the amounts totalling Rs. 6,59,700/- from time to time to M/s. Narang Hotels Pvt. Ltd. and out of this an amount of Rs. 2,21,300/- was reimbursed by the Government of India. The matter regarding reimbursement was pursued by SICOM and by the Government for along time, and the Government of India finally decided that hotel industry was not eligible for subsidy prior to 1-1-77. Hence the State Level Committee revoked the sanction of subsidy amounting to Rs. 12,45,000/- and directed that the disbursed subsidy amount should be recovered from this company as provided under the scheme and the existing rules and thereafter an amount of Rs. 2,21,300/- reimbursed by the Government of India should be refunded to the Ministry of Industry, Government of India."

The plaintiffs have filed this suit having regard to the opinion expressed by the officials of defendant No. 2 to the effect that the ''hotel units'' were not covered under the Scheme prior to a particular date, at a late stage.

The defendant No. 2 has taken no interest in this litigation. The defendant No. 2 has not even filed its written statement. The defendant No. 2 has not produced any documents, The defendant No. 2 has not lead any evidence. The suit agreements were entered into in conformity with Art. 299 of the Constitution of India. The authorised officer executing the two agreements on behalf of and in the name of President of India have not been examined.

In the result, I have no hesitation in reaching the conclusion that the plaintiff has failed to prove the case as laid in the plaint.

The learned counsel for the plaintiff invited the attention of the Court to the alternative plea raised in para. 11 of the plaint. By para. 11 of the plaint, the plaintiffs have contended in alternative as under :

"11. Plaintiffs say that thus the amount which has been paid by the plaintiffs to the 1st defendants are their own monies and the said amount, as stated above, has been paid by the plaintiffs to the 1st defendants under the mistake. In any event, as stated above, the 1st defendants are liable, under the terms of the said agreement, to repay the said amount on the plaintiffs having decided that the 1st defendants were not entitled to the said amount, with interest thereon at the rate of 12 per cent per annum."

There is no merit in this plea as well. No written order of the Government is produced before the Court in this behalf. In my opinion, the alternative plea is also taken very casually. No one has tried to prove the plea. In this case, there is no dispute in respect of quantum of subsidy payable. The said clause has thus no application on any view of the matter.

Section 20 of the Indian Contract Act 1872 reads as under:

"Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement the agreement is void.

Explanation.-- An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.

It is nobody''s case that the suit contracts were arrived at as a result of mutual mistake of fact. Section 20 of the Indian Contract Act 1872 is thus not attracted. The said section is referred to only for the sake of clarity and as a matter of abundant caution.

Section 21 of the Indian Contract Act, 1872 reads as under :--

"A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in India has the same effect as a mistake of fact."

The learned counsel for the plaintiffs submits that the defendant No. 2 and the plaintiffs committed mistake of law in interpreting the Central Subsidy Scheme of 1971 by erroneously assuming that the "hotel industry" was an Industrial Unit" covered by and under the said Scheme. Assuming for the sake of argument that a mistake of law was committed by the plaintiff and defendant No. 2 in this behalf, such alleged mistake of law is of no consequence as the suit contracts continue to be enforceable even if the contracts were framed as a result of alleged mistake of law in view of the clear provision of S. 21 of the Contract Act referred to hereinabove. Neither the plaintiffs nor the defendant No. 2 is entitled to avoid the suit contracts on the ground of alleged mistake of law. It must also be stated here and now that at the most there could be at least two opinions in respect of interpretation of Central Subsidy Scheme 1971 on this aspect and the hotel project or ''hotel industry'', could also be considered as an "industrial unit" within meaning of 1971 scheme. Thus the defendant No. 2 can never resile from the suit contract/s on such a ground. Thus neither the plaintiffs nor the defendant No. 2 can seek refund of amounts already paid to defendant No. 1 nor refuse to pay the balance of the amount payable under the said contracts.

In Dhanyalakshmi Rice Mills and Others Vs. The Commissioner of Civil Supplies and Another, , the Supreme Court observed in para. 31 of the judgment as under : --

"This Court has said that the true principle is that of one party under a mistake of law pays to another money which is not due by contract or otherwise that is to be repaid."

"A contract entered into under a mistake of law of both parties falls under S. 21 of the Contract Act and not S. 72. If a mistake of law had led to the formation of a contract, S. 21 enacts that that contract is not for that reason voidable. If money is paid under that contract, it cannot be said that the money was paid under mistake of law, it was paid because it was due under a valid contract, if it had not been paid payment could have been enforced." (See AIR 1949 297 (Privy Council) -- See also Pollock and Mulla --Contract Act 915 Edition by J. L. Kanpur p. 519-520). In this case, the suit contracts were and are enforceable and are not rendered void. Neither S. 20 nor S. 21 of the Contract Act is applicable. Thus S. 72 of the Contract Act has also no application to the facts of this case.

There is one more aspect having bearing fen this case. The suit agreements were duly acted upon by the parties on both sides. The onus was heavy on the plaintiff to prove that the payments in question were made by the plaintiffs to defendant No. 1 as a result of mistake. The said onus has not been discharged. The plaintiff appears to have taken the decision at its State Level Meeting held on 26-6-1979 to seek refund of amounts already paid merely in view of change of opinion on the part of the Central Government. It appears from the minutes of the meeting Exhibit ''E'' that the Central Government did change its mind an the subject after number of years and took a view to the effect that the hotel project was not covered under the Subsidy Scheme prior to 1977. The defendant No. 2 has not attempted to justify the basis of its alleged changed decision, no order of the Central Government was produced before the Court. No witness was examined on behalf of defendant No. 2. No written statement was filed by and on behalf of the defendants. No affidavit of documents was filed on behalf of defendant No. 2. All the above facts lead the Court to the conclusion that the suit claim lacks bona fides and is not maintainable.

In the result, the suit is bound to fail.

I answer the issues framed at the beginning of the trial of the suit as under:--

(1) The plaintiff''s have failed to prove the suit claim. In this sense, the plaintiffs have no cause of action to sue defendant No. 1.

(2) Negative on both the counts. The suit agreements are valid. No mistake is proved. The amounts paid are not refundable.

(3) Negative. The Hotel Industry was covered by the Subsidy Scheme at the material time. The suit agreements are valid and not void. The amounts disbursed to defendant No. 1 are not refundable on ground of alleged mistake or otherwise.

Suit dismissed.