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Vibgyor Textile International v. Union Of India
Structured Summary of the Opinion
Factual and Procedural Background
The petitions concern entitlement to cash assistance under the Export Assistance Scheme for Cotton Textiles announced by the Union of India (1st respondent) for the period 1 April 1978 to 31 March 1979. The petitioners are manufacturers and exporters of cotton ready-made garments. The Scheme, announced by circular of 19 April 1978 issued by the Indian Cotton Mills Federation (2nd respondent), set out rates of cash assistance (12.5% for industrial garments and children's clothing; 7.5% for other ready-made garments) and included a final sentence disclaiming any binding obligation on the Federation.
The petitioners entered into export contracts with foreign buyers under the Scheme at prices below usual market price in reliance on the cash assistance, and allege they thereby suffered losses because export prices were below cost and profit margin. The exports under those contracts were effected after 1 January 1979. Applications for cash assistance were refused by the 1st respondent on the ground that, by a circular dated 6 January 1979 (issued by the 2nd respondent), cash assistance for certain ready-made garments had been discontinued with effect from 1 January 1979 for exports to specified countries (USA, EEC, Australia, Finland, Sweden and Norway).
The petitioners made representations against the withdrawal and filed these petitions seeking quashing of the withdrawal decision. An identical writ petition (Writ Petition No. 1869 of 1979) was previously allowed by Pendse J. (24 November 1983), who held that contracts concluded prior to 1 January 1979 entitled exporters to cash assistance despite exports occurring later, applying the doctrine of promissory estoppel. In the present proceedings the 1st respondent filed an affidavit in reply setting out reasons for withdrawal and the factual basis relied upon for it.
Legal Issues Presented
- Whether the petitioners are entitled to cash assistance under the Export Assistance Scheme for Cotton Textiles for the period 1 April 1978 to 31 March 1979.
- Whether the withdrawal of cash assistance with effect from 1 January 1979 (by circular dated 6 January 1979) could be applied to contracts entered into prior to 1 January 1979.
- Whether the doctrine of promissory estoppel prevents the 1st respondent from withdrawing the representation of cash assistance in respect of contracts concluded prior to 1 January 1979.
Arguments of the Parties
Petitioners' Arguments
- The petitioners entered into contracts for export of ready-made garments under the Scheme prior to 1 January 1979 in reliance upon the representation that cash assistance would be available.
- They entered into those contracts at prices below usual market prices because of the expected cash assistance, and consequently incurred losses (exports were effected after 1 January 1979 but contracts were concluded earlier).
- They sought quashing of the withdrawal and an order for grant of the cash assistance in respect of contracts entered into before 1 January 1979.
First Respondent's Arguments (as presented in affidavit and by counsel)
- The cash assistance (described in the affidavit as "cash compensatory support") was announced and given to offset losses of the trade.
- The Scheme was withdrawn with effect from 1 January 1979 because the floor price of the categories of garments had substantially risen in the international market (especially in the countries to which the declaration applied), justifying withdrawal of assistance for exports after that date.
- Counsel for the 1st respondent submitted that the court should first be satisfied that petitioners actually incurred losses and second that the 1st respondent had no good reason to withdraw the Scheme; only if both were shown could relief be granted.
- Counsel also relied on the sentence in the April 1978 circular (stating the Federation incurred no binding obligation) to argue that the Scheme did not impose any binding obligation to maintain benefits for the specified period and that the 1st respondent could withdraw benefits at its discretion.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Alok Exports (Division Bench of this Court) | Interpreted the representation and concluded that no promise of the sort pleaded by petitioners had been made, so promissory estoppel did not arise. | The judgment was drawn to the court's attention by counsel for the 1st respondent. The court noted that in that case no promise was found on the facts, but nonetheless proceeded to evaluate the facts of the present petitions and found that, on the evidence and averments before it, promissory estoppel and equity favored the petitioners here. |
| M/s. Motilal Padampat Sugar Mills Co. Ltd. v. The State of Utter Pradesh (Supreme Court) | Authoritative observation that the doctrine of promissory estoppel can be displaced where, on facts, equity would require that the Government should not be held bound by a promise made by it. | The court acknowledged this principle, noted counsel's reliance upon it, and applied the balancing of equities mandated by that authority: after considering the facts, the court concluded that equities in the present case were wholly in favour of the petitioners and against the 1st respondent. |
Court's Reasoning and Analysis
The court's analysis proceeded in a step-wise manner based on the facts and the affidavit filed by the Deputy Chief Controller of Imports & Exports for the 1st respondent:
- Nature and purpose of cash assistance: The affidavit stated that the cash assistance was given to offset exporters' losses. The court treated this as establishing the Scheme's compensatory purpose.
- Effect of international price changes: The affidavit explained the withdrawal was prompted by a substantial rise in the floor price of relevant garment categories in the international market (especially in specified countries). The court accepted that this furnished a valid reason to withdraw assistance prospectively for contracts entered into after the price rise.
- Distinction between contracts concluded before and after 1 January 1979: The court reasoned that exporters who entered into contracts prior to 1 January 1979 did so expecting cash assistance and would sustain losses because they had contracted at earlier, lower prices; the subsequent international price rise would not benefit them. Therefore, the reason for withdrawal (price rise) did not fairly apply to those who had already committed to contracts under the Scheme.
- Application of promissory estoppel and equity: The court found that the petitioners acted on the 1st respondent's representation, entered into unprofitable contracts, and sustained losses. There was no countervailing equity or public interest sufficient to allow the 1st respondent to resile from its representation as against those petitioners. The court agreed with the earlier decision of Pendse J. that promissory estoppel applied to contracts concluded prior to 1 January 1979.
- Interpretation of the disclaimer in the April 1978 circular: Counsel for the 1st respondent relied on the sentence that the Federation incurred no binding obligation. The court held that this sentence was intended only to absolve the 2nd respondent (the Federation) of binding obligations and could not be read as allowing the 1st respondent to repudiate its representation to exporters where equity and promissory estoppel applied.
- Relief fashioned: On the factual findings and equitable considerations, the court ordered that the decision/withdrawal as reproduced in the 6 January 1979 circular be quashed insofar as it affected exporters who had entered into contracts under the Scheme prior to 1 January 1979, and directed the 1st respondent to examine the listed contracts and grant the assistance where appropriate within six months.
Holding and Implications
Holding: The court quashed and set aside the decision/order of the 1st respondent reproduced in the 2nd respondent's circular dated 6 January 1979 insofar as it affected exporters who had entered into contracts under the Scheme prior to 1 January 1979. The petition against the 2nd respondent was dismissed. The 1st respondent was directed to examine the contracts annexed to the petitions within six months and grant cash assistance under the Scheme to petitioners who had entered into such contracts prior to 1 January 1979. The 1st respondent was ordered to pay costs to the petitioners.
Implications:
- Direct effect on the parties: Petitioners who can establish that their contracts were entered into under the Scheme and prior to 1 January 1979 are entitled to have their claims for cash assistance considered and, if so established, to receive the assistance within the six-month period ordered by the court.
- No broad new legal principle announced: The court applied established equitable doctrine (promissory estoppel) and relied on factual findings about the purpose of the Scheme and the impact of international price changes. The opinion directs relief on the facts of the case; it does not purport to create a novel legal rule beyond applying promissory estoppel and equitable considerations to these facts.
If a particular piece of information (such as more detailed findings on individual contracts) was not included in the provided opinion, that information is not reported here because it was not available in the source text.
1. The question that is to be determined is whether the petitioner in these petitions are entitled to cash assistance under the Export Assistant Scheme for Cotton Textiles announced by the Union of India, the 1st respondent, for the period between 1st April 1978 and 31st March 1979.
2. The petitioners are manufacturers and exporters of cotton ready- made garments. The said Scheme was introduced with a view to induce exporters to export the textiles covered thereby and give them the incentive of replenishment licences or cash assistance. The cash assistance is given by the first respondent through the Indian Cotton Mills Federation, the 2nd respondent.
3. By a circular dated 19th April 1978 the second respondent announced the said Scheme and gave therein the rates of cash assistance admissible on the export of textiles effected during the stated period. In regard to industrial garments and children's clothing the rate of cash assistance was 12.5% of the f.o.b. value of the exports and 7.5% in regard to other ready-made garments. The last sentence of the circular stated,
"It may further be noted that this circular is being issued on the understanding that no binding obligation of any nature is cast upon the Federation".
4. The petitioners entered into contracts with their foreign buyers for the sale and export of ready-made garments under the said Scheme, particulars whereof are annexed to each of the petitions. It is the case of the petitioners in the petitions that the said contracts were entered into by them at a price less than the usual market price, and that they did so in view of the cash assistance granted by the 1st respondent under the said Scheme. It is their case that in respect of the exports under the said contracts they incurred losses as the price quoted by them was less than the actual cost of the export of the goods and their margin of profit. Exports under the said contracts were effected after 1st January 1979. In respect of the said contracts the petitioners filed applications for cash assistance under the said Scheme. They were rejected by the 1st respondent. This, admittedly, was on the ground that the said Scheme had, in respect of cotton ready-made garments, been withdrawn with effect from 1st January 1979.
5. The circular announcing the withdrawal was issued by the second respondent and was dated 6th January 1979. After reference to the circular dated 19th April 1978 it stated that cash assistance applicable to the exports of shirts, blouses, dresses, skirts and trousers would be discontinued with effect from 1st January 1979 if the exports were made to USA, EEC, Australia, Finland, Sweden and Norway.
6. The petitioners made representations against the withdrawal and, ultimately, filed these petitions seeking to quash the decision to withdraw contained in the circular dated 6th January 1979.
7. An identical petition, being Writ Petition No. 1869 of 1979, came up for hearing before my brother Pendse and by his judgment and order dated 24th November 1983 he allowed it. It may be noted, however, that that petition proceeded without an affidavit in reply on behalf of the 1st respondent. Pendse J. Held that in respect of contracts concluded prior to 1st January 1979 the petitioners were entitled to the advantage of the cash assistance. The fact that the goods were actually exported subsequent to 1st January 1979 was not enough to deprive the petitioners of it. The doctrine of promissory estoppel applied. The contracts had been entered into on the assurance given under the said Scheme. They were detrimental to the interests of the petitioners and had been entered into only because of the assurance. The first respondent was, therefore, not entitled to withdraw such assurance with retrospective effect and deprive the petitioners of the advantage of the said Scheme. Whatever the reasons that prompted the first respondent to withdraw the said Scheme with effect from 1st January 1979 it could not affect the right of the petitioners to demand cash assistance in respect of contracts concluded prior to 1st January 1979. Upon a consideration of various judgments, Pendse J. held that the petitioners were entitled to the benefit of the cash assistance under the said Scheme provided that the first respondent was satisfied that the contracts set out in the petition had been entered into and concluded prior to 1st January 1979 and were in pursuance of the said Scheme. The petition as against the second respondent was dismissed.
8. There is in the first of the abovementioned petitions an affidavit in reply filed by the first respondent which sets out its case with regard to the withdrawal of the said Scheme. The deponent of the affidavit, the Deputy Chief Controller of Imports & Exports, states that the cash assistance ("cash compensatory support", as he calls it) was announced and given for the purpose of offsetting the losses of the trade. He submits that the 1st respondent was entitled to and justified in law and "on facts in withdrawing the said Scheme with effect from 1st January 1979 inasmuch as the floor price of the categories of garments in respect of which cash compensatory support has been discontinued with effect from 1st January 1979 had substantially risen in the international market and more particularly in the countries in respect of which the said declaration was applicable."
9. It was the submission of Mr. Sethna, learned counsel for the first respondent, that the court should, first, be satisfied that the petitioners had incurred losses and, secondly, that the first respondent had no good reason to withdraw the Scheme; only then could the relief sought in the petition be justifiably given. He is right.
10. The reason for withdrawal of the said Scheme is contained in the extract from the affidavit of the Deputy Controller of Imports & Exports which is set out above. What is stated there is (1) that the cash assistance or compensation was given for the purpose of offsetting losses on export and (2) that it was withdrawn with effect from 1st January 1979 when the floor price of the categories of garments in respect of which the said Scheme was withdrawn had substantially risen in the international market and, more particularly, in the countries to which the exports were to be made. This establishes that exporters entering into contracts prior to 1st January 1979 would do so at a loss and would need the cash assistance under the said Scheme to compensate for the loss. This, coupled with the averments in the petitions, satisfies me that the petitioners did incur losses upon the said contracts.
11. What is stated in the affidavit furnishes a very good reason to withdraw the cash assistance in respect of contracts entered into after 1st January 1979. The rise of prices after 1st January 1979 would not benefit those exporters such as the petitioners who had entered into contracts prior to 1st January 1979. They would sustain a loss and would need the cash assistance under the said Scheme to offset it. There was, therefore, no good reason to withdraw the cash assistance to exporters who had entered into contracts under the said Scheme prior to 1st January 1979.
12. The petitioners acted upon the representation of the 1st respondent that they would get cash assistance to compensate their losses. They entered into unprofitable contracts and suffered losses. There is no good reason, no equity, no supervening public interest that justifies the conduct of the 1st respondent in resiling from its representation. I, therefore, agree with the view taken earlier by Pendse J.
13. Mr. Sethna, learned counsel for the 1st respondent, brought to my attention the judgment of a Division Bench of this court in Union of India v. Alok Exports, . The Court there, upon interpretation of the representation, came to the conclusion that no promise of the sort pleaded by the petitioners had been made and that, therefore, no question of promissory estoppel arose. Mr. Sethna also drew my attention to the observations of the Supreme Court in M/s. Motilal Padampat Sugar Mills Co. Ltd. v. The State of Utter Pradesh, . It is well laid down there and in other decisions that the doctrine of promissory estoppel is displaced in cases where, on facts, equity would require that the Government should not be held to be bound by a promise made by it. I find, for the reasons that I have already stated, that the equities are wholly in favour of the petitioners and against the first respondent.
14. Mr. Sethna, lastly, relied upon the lasts sentence of the said Scheme which is quoted above. He submitted that, by reason of this sentence, and even otherwise, the said Scheme did not cast upon the first respondent any obligation to maintain the benefits thereunder for the specified period. Put more bluntly, the submission was that, by reason of this sentence and otherwise, the 1st respondent was free to withdraw the benefits under the said Scheme at any time at its caprice.
15. It is crystal clear that this sentence was used in the circular announcing the said Scheme only to make it plain that the 2nd respondent incurred no obligation under the said Scheme.
16. To accept Mr. Sethna's letter submission would be tantamount to holding that, however clearly the 1st respondent may express its representations, the representations cannot be relied upon and the 1st respondent is always free not to act thereon. The 1st respondent itself would not, I think, want its representations so treated.
17. The petition is dismissed against the 2nd respondent. The decision and order of the first respondent reproduced in the circular of the 2nd respondent dated 6th January 1979 is quashed and set aside insofar as it affects those exporters who had entered into contracts under the said Scheme prior to 1st January 1979. The first respondent shall, within a period of 6 months from today, examine each of the contracts mentioned in the annexures to each of the petitions to determine whether they were entered into under the Scheme and whether they were entered into prior to 1st January 1979. To the petitioners who had entered into such contracts the 1st respondent shall grant cash assistance under the said Scheme within the said period of 6 months. The 1st respondent shall pay to the petitioners the costs in each petitions. Rules accordingly.
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