Rules Of Business Not Violated By State, When Actions Of Cabinet Committee Are Validated By Council Of Ministers : Supreme Court

The Supreme Court has held that when the Cabinet constitutes a committee and the latter’s actions are validated by the Minister and the rest of the Council, then it cannot be claimed that Rules of Business have not been followed by the State Government in the course of its decision-making process.

The Bench comprising of Justice Surya Kant and Justice Vikram Nath, while adjudicating the case The Rajasthan Industrial Development and Investment Corporation Ltd. v M/s Arfat Petrochemicals Pvt. Ltd. & Ors., has validated the decision making done by a sub-committee constituted by the Cabinet, by holding that the sub-committee was merely acting on behalf of the entire Council of Ministers while carrying out its functions and thus Rules of Business have been complied with.

Background Facts

In 1958, the State of Rajasthan allotted a land (“Land”) on leasehold basis to J.K. Synthetics Ltd. (“JKSL”), in Large-Scale Industrial Area, Kota (“LIA, Kota”). The allotment was made in furtherance of the State Government’s industrial policy read with the Rajasthan Land Revenue Act, 1956.

While the lease was subsisting, the Rajasthan State Industrial and Mineral Development Corporation Ltd. (“RSIMDC”) was incorporated for carrying out development projects across the State. RSIMDC was subsequently split into two entities, with Rajasthan State Industrial Development and Investment Corporation Ltd. (“RIICO”) acting as its direct successor. In order to regulate RIICO’s activities with respect to lands under its control, the RIICO Disposal of Land Rules, 1979 (“1979 Rules”) came into being.

In 1998, JKSL was declared a sick company and M/s. Arfat Petrochemicals Pvt. Ltd. (“Respondent No.1”) stepped into the shoes of JKSL, under the orders of Appellate Authority for Industrial and Financial Reconstruction (“AAIFR”). The lease of Land in favour of JKSL was shifted in favour of Respondent No. 1. After sometime, the Respondent No. 1 failed to revive the industrial units of JKSL.

Thereafter, the Respondent No. 1 submitted a proposal before RIICO for change of use of leased Land from industrial to commercial and to sub divide the Land. In 2018, RIICO granted the permission for sub division and conversion of Land, however, on the very next day the Model Code of Conduct came into effect in view of upcoming Rajasthan State Assembly Elections.

The conversion of leased Land came under scrutiny after the change of government in the 2018 Rajasthan elections. The newly elected Council of Ministers constituted a Cabinet Committee on 01.01.2019 to review decisions of the previous ruling government, which were taken during 6 months period preceding the elections.

Though RIICO directed its unit offices to cease grant of permissions for conversion of Land, but the Kota branch of RIICO proceeded to allow sub-division of Land as requested by Respondent No. 1.

The State Government directed RIICO to annul the approvals provided to Respondent No. 1. In October 2019, RIICO issued orders to cancel the permission for conversion of land and also for cancellation of supplementary leases subsisting in the name of Respondent No. 1.

The Respondent No. 1 filed a Writ Petition before the High Court, challenging the cancellation of its lease and the permission for conversion of land use by RIICO.

The High Court quashed the decision of the Cabinet Committee and the steps taken by RIICO to cancel the allotment to Respondent No. 1. Thereafter, RIICO and State Government preferred appeals before the Supreme Court.

The Respondent No. 1 opposed the appeal while contending that failure to abide by the Rules of Business framed under Article 166(3) of the Constitution of India, leads to invalidation of the government decision. The matters relating to RIICO are to be addressed by the Industries Department and the Minister for Industries would be the nodal authority for finalizing such decisions. Since the Minister for Industries was neither included in the Cabinet Committee, nor involved while taking the final decision, his absence vitiates the decision of cancelling the lease and sub division of Land.

SUPREME COURT VERDICT

When Cabinet Sub-Committee is merely acting on behalf of entire Council of Ministers, then it cannot be claimed that Rules of Business were not followed by the State Government

The Bench observed that the Council of Ministers had collectively decided to constitute the Committees to look into various irregularities. Similarly, a specific committee was authorized to investigate the decisions taken by RIICO and its alleged misuse of non-existent powers in favour of Respondent No. 1. Thus, the Rules of Business were complied with. The Bench observed as under:

“The entire Cabinet was called on 29.12.2018 to consider various decisions taken by RIICO during the previous regime. Among these were the supplementary leases and connected permissions to Respondent No. 1 by RIICO. The Cabinet, which included the Minister for Industries, then proceeded to constitute three subcommittees to investigate these alleged irregularities, along with an inter-departmental committee. The Minister for Industries is not expected to look into each individual matter pertaining to RIICO as this would render the entire working of government unviable. The Minister of Industries was not, at any point, missing from the overall decision to review the actions taken by RIICO and to take necessary steps thereafter. The cabinet sub-committee was merely acting on behalf of the entire Council of Ministers, when carrying out the exhaustive fact-finding enquiries.”

It was opined that governance must be carried out in a convenient and efficient manner. The Rules of Business also advocates for collective governance by the Council of Ministers in terms of recommendations made to the Governor. Accordingly, the Bench held that the Council was collectively involved in the decision to set up sub-committees for revisiting the decisions taken by the prior government, including with respect to actions by RIICO.

“The sub-committee’s actions in this context were completely validated and backed by the Minister and the rest of the Council. It is, thus, difficult to hold that Rules of Business have not been followed by the State Government in the course of its decision-making process” the Court held.

The Bench held that the sub-committee which recommended the cancellation of the permissions/approvals to Respondent No. 1, was acting for and on behalf of the entire Council of Ministers. Therefore, there was no violation of the Rajasthan Rules of Business. The High Court’s judgment has been set aside.

Case Title: The Rajasthan Industrial Development and Investment Corporation Ltd. v M/s Arfat Petrochemicals Pvt. Ltd. & Ors.

Citation: 2023 LiveLaw (SC) 337

Counsel for State of Rajasthan and RIICO: Mr. Dushyant Dave (Sr. Adv.) and Dr. Singhvi (Sr. Adv.).

Counsel for Respondent No. 1: Mr. Mukul Rohatgi (Sr. Adv.) and Mr. A.N.S. Nadkarni (Sr. Adv.).

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