The Hindu Business Line : A broken promise

The rule of promissory estoppel can be relaxed in public interest. But it should be an overriding public interest and not a mere undefined ground of expediency.

Prachi Manekar

The decision of the Goa Government to scrap SEZs is unreasonable and an abuse of power vested in the Government. It has cast a shadow on the future of SEZs, not only those situated in Goa but also in the northern States which have taken unilateral, populist measures against the industry’s interest.

The Goa Government’s move is in complete disregard to the established principle of promissory estoppel that has been endorsed by the Supreme Court in numerous cases.

This doctrine is applicable where an entrepreneur alters position pursuant to or in furtherance of the promise made by a State to grant, inter alia, exemption from payment of taxes or charges on the basis of the current tariff.

Promissory estoppel

In Goa, seven SEZs have received formal approvals and three have been notified. The principle of promissory estoppel is applicable not only post-notification but even after in-principle approval is granted.

After receipt of in-principle approval, the developer acquires land and, thus, alters his position, and formal approval is granted only after the developer is in possession of the requisite land.

Thus, this approval constitutes a promise of the government, as laid down in the State SEZ policy and Central SEZ Act.

During the approval stage, the developer not only incurs expenditure on land acquisition but also spends a sizeable sum on feasibility studies, procuring finances (which for an SEZ are by no means cheap), consultancy and legal services. Thus, the unilateral move to withdraw the recommendation and scrap SEZs is against the established doctrine of promissory estoppel, which forbids the State from going back on its representations.

The Supreme Court first explained and applied this doctrine in the Anglo Afghan case in 1968. Since then, the doctrine has been endorsed by it in a number of cases, such as the Hitech Electrothermic and Hydropower Ltd vs State of Kerala in 2003 and Southern Petrochemical Industries Co Ltd vs. Electricity Inspector and E.T.I.O. in 2007.

In each of these cases, the Hon’ble Court made it amply clear that when, on the basis of the representations made by the State or under its authority, a person has changed his position, this must necessarily result in preventing the State from going back on its representations. The Government is not exempt from liability to carry out the representation made by it as to its future conduct. This rule can, however, be relaxed in public interest. But it should be an overriding public interest and not a mere undefined ground of expediency.

Opportunity to be heard

The Supreme Court has further clarified that the government cannot be the judge of its own obligation to the citizen on an ex parte appraisement of the circumstances in which the obligation has arisen.

Thus, the principle of equity requires that the government should give each of the 15 SEZs an opportunity to be heard.

An SEZ, as against the popular perception of an exploitation zone established on land captured by profit-hungry developers, is a risky and expensive proposition.

It is necessary to reiterate the role of the SEZ as a globally tested model, which will boost exports and economic growth.

Further, the total area to come under SEZs is only 0.03 per cent of the area of Goa. A quick glance at the nature of SEZs being set up will clearly show that the environmental concerns are overplayed.

The protests are largely because of anxiety caused due to the lack of awareness and provocation by vested interests. The present move of the Goa government makes political sense but has little economic rationale.

Such unilateral moves will have serious repercussions. They affect India’s image amongs foreign investors.

Backtracking on policies sends wrong signals, not only to investors abroad but also to domestic industrialists, and drastically increases the uncertainty in doing business.

It is time the government put in place strict controls to prevent the abuse of power and avoids setting wrong precedents that would mar India’s image as a liberalised country and stifle development.

(The author is a Company Secretary with LIC of India and an SEZ consultant. E-mail: prachimanekar@gmail.com)

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SEZs: The avoidable Goa tangle
Cipla taking relook at Goa SEZ project

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