Status Of Statutory Rules Cannot Be Accorded To Regulations Brought Into Existence Under Articles Of Non-Statutory Company- SC

A Supreme Court Bench of Justice Surya Kant and Justice Vikram Nath has observed that the status of “statutory rules” cannot be accorded to regulations that are brought into existence under the Articles of a non-statutory company. 

Senior Counsel Dushyant Dave appeared for the State of Rajasthan, and Senior Counsel Manish Singhvi appeared for the RIICO.

In this case, the appeals arose from a judgment passed by the Rajasthan High Court, whereby the writ petition filed by the respondent was allowed. As a corollary, the decision by the Cabinet Committee of the State of Rajasthan, and resulting instructions issued to the Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) to cancel a series of permissions and approvals granted/awarded to the Respondent in respect of industrial land in Kota, Rajasthan, were set aside. 

On hearing the submissions, the Court held that a relationship of lessor-lessee between the State Government and JKSL/RIICO continued to subsist and had not been affected in any manner, and in that context, observed that "From the first lease deed executed in 1967, till date, the State Government has maintained the position of lessor."

The Court observed that all the leases were signed under the Rajasthan Industrial Areas Allotment Rules, 1959, and the terms of the lease were clearly in compliance. Further, it was also observed that the land was never transferred to the RIICO and the State Government maintained title and ownership. In furtherance of the same, the Court observed that "The land was also never allotted to RIICO on a leasehold basis under Rule 11A of the 1959 Rules. Thus, RIICO was never expressly given any leasehold rights, and had no authority to further sub-lease the land, along with other corresponding powers, under Rule 12 of the 1959 Rules. In any case, Rule 11A of the 1959 Rules is of no importance, as there had to be an express allotment of the land to RIICO on a leasehold basis after the coming into force of Rules 11A and 12. No such express allocation was ever made in favour of RIICO".

The Court proceeded to observe that the RIICO Disposal of Land Rules, 1979 were not statutory in nature, and the reference to them in the 1959 rules did not accord any statutory recognition to them. In that context, it was said that "The distinction between companies that are brought into being “by” an Act, and those created “under” an Act, is that a company incorporated under the Companies Act is not a creation of the said Act but it has come into existence in accordance with the provisions of the Companies Act".

It was also observed that "There was no violation of the Principles of Natural Justice in this case. The entire basis for granting permission for conversion of the land, and subdivision of the plots, was on an incorrect assumption of power by RIICO under the 1979 Rules, to act as the lessor of LIA, Kota. RIICO was never given any leasehold rights over the land. When the basis for a benefit received by a party is itself invalid, there is no question of giving the party a chance to be heard".

Subsequently, it was held that "There was no legitimate expectation nor promissory estoppel that could operate to the benefit of Respondent No. 1, as, once again, no such defences could be raised on the back of RIICO’s own erroneous utilization of powers that vest only with the rightful lessor of LIA, Kota, which is the State Government. Further, public interest overrides both these doctrines, and cannot come to the aid of a private party, when the larger interests of society are involved".

Accordingly, the appeals were allowed. 

Cause Title: Bishambhar Prasad v. M/s Arfat Petrochemicals Pvt. Ltd. & Ors. 

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