M/S Arfat Petrochemicals Private Limited vs. State Of Rajasthan

Held

The Court held that while the State Government has the power under Article 138 of RIICO's Articles of Association to issue directions for managing RIICO's affairs, this power cannot be used to directly order the cancellation of lease deeds and permissions granted to a third party without adhering to the procedures laid down in the RIICO Disposal of Land Rules, 1979, and other relevant rules. The Court found that the cancellation of the petitioner's approvals and lease deeds was done arbitrarily and without due process. The decision of the Cabinet Committee and the subsequent orders from the State Government and RIICO were quashed and set aside. The Court declared that the petitioner is entitled to act upon the approvals and permissions granted by RIICO. The Show Cause Notice issued by the District Collector was also quashed. The applications for impleadment by labour unions were dismissed. The Court directed RIICO's Managing Director to expeditiously process any applications from the petitioner within four weeks to prevent further impediments to the project. The ratio decidendi is that administrative powers, even under broad articles of association, must be exercised reasonably and in compliance with established procedural norms, especially when affecting third-party rights.

Facts

M/s Arfat Petrochemicals Private Limited (petitioner) was allotted 227.15 acres of land by RIICO, Kota, which was transferred from J.K. Synthetics Ltd. The petitioner obtained approvals for sub-division and change of land use from industrial to commercial/institutional use under the RIICO Disposal of Land Rules, 1979. The petitioner deposited Rs. 5,21,61,276/- towards various charges. Subsequently, a Cabinet Committee of the State Government reviewed decisions of the previous government and directed cancellation of permissions granted to the petitioner. Consequently, RIICO cancelled the approvals and lease deeds, refunding Rs. 2,97,16,321/-. The petitioner challenged these actions, arguing that Article 138 of RIICO's Articles of Association does not grant the State Government power to arbitrarily cancel approvals. The District Collector later issued a show cause notice for lease deed cancellation, despite an interim stay, and subsequently apologized.

Key Issues

1. Whether Article 138 of the Articles of Association of RIICO, read with the Office Order dated 27.05.2019, has statutory force and binds third parties, and if so, whether it grants the State Government the power to direct RIICO to cancel lease deeds and permissions granted to the petitioner without following prescribed procedures (Question of law). The petitioner argued that Article 138 is not statutory and does not empower arbitrary cancellation, citing precedents. The respondents contended that Article 138 grants the State Government broad powers to manage RIICO's affairs, including reviewing and cancelling prior decisions, especially those made by the previous government. 2. Whether the decision of the Cabinet Committee dated 03.08.2019 and subsequent orders cancelling the petitioner's approvals are ultra vires, unconstitutional, arbitrary, and violative of Articles 14, 19, 21, and 300-A of the Constitution (Question of law). The petitioner argued the cancellation was arbitrary and discriminatory. The respondents argued the review was a legitimate exercise of power to correct potentially flawed decisions. 3. Whether Article 138 of RIICO's Articles of Association should be read down to exclude quasi-judicial functions, thereby setting aside decisions made by RIICO's committees (Question of law). The petitioner sought to limit the scope of Article 138. The respondents did not explicitly argue on reading down the provision but defended the State's power under it.