“The object of formulating the industrial policy is to encourage investment, employment and growth; the bureaucratic lethargy of the State apparatus is clearly a factor which will discourage entrepreneurship”
Emphasising that the State must abandon the colonial conception of itself as a sovereign dispensing benefits at its absolute discretion, the Supreme Court opined that any curtailment or deprivation of the entitlements of private citizens or private business must be proportional to a requirement grounded in public interest. Accordingly, the Court held that the IFGL Refractories (appellant) is entitled to disbursal of capital investment subsidy and DG Set subsidy and that the Orissa State Financial Corporation (respondents) are precluded from refusing to disburse the same in favour of the appellant company.
The Apex Court identified three primary issues for determination: (i) whether the MM Plant unit was a “new industrial unit” under the 1989 policy; (ii) if so, whether the rejection based on exhausted overall subsidy limits was justified; and (iii) whether the respondents were estopped from refusing to disburse the sanctioned subsidies. The Court observed that a plain construction of Clause 2.7 of the Industrial Policy defines a “new industrial unit” as one where fixed capital investment was made on or after the effective date of December 01, 1989, and the investment in the MM Plant on February 01, 1992, clearly met this criterion.
The Court went beyond this definition to determine if the unit was genuinely new or merely an expansion. It applied established judicial tests from tax law precedents, including Textile Machinery Corporation vs CIT, West Bengal [(1977) 2 SCC 368], which held that the true test is “whether it is all the same a new and identifiable undertaking separate and distinct from the existing business”.
The Court found that the MM Plant satisfied the tests as it involved (i) a new emergence of a physically separate industrial unit which may exist on its own as a viable unit; (ii) a substantial investment of fresh capital in new land, sheds, plant, and machinery; (iii) a separate industrial license and electrical connection; and (iv) production of distinct marketable products (special refractory products) compared to the old unit’s products (slide gates). Thus, the Court concluded that the MM Plant was an “identifiable undertaking, separate and distinct from the existing business of Indo Flogates”, and hence qualified as a new industrial unit.
The Court, therefore, directed the respondents to disburse an amount of Rs. 11.14 lacs along with interest at the rate of 9% p.a. from the date of sanction of respective subsidies towards the capital investment and the DG Set for the MM Plant unit in favour of the appellant company within a period of 3 months.
A Two-Judge Bench of Justice J.B. Pardiwala and R. Mahadevan observed that the respondents’ rejection was based on an instruction letter dated October 28, 1994, which imposed an overall financial limit on subsidies, and noted that this instruction was issued after Indo Flogates had already applied for the subsidies in 1993. The Bench added that this instruction was later incorporated verbatim into the policy via an amendment notification, titled “provisions for sanction of Capital Investment Subsidy under Expansion/Modernisation/Diversification (E/M/D) Programme” and not for new industrial units.
The Bench held that the phrase “claim for additional subsidy” in the amended clause could only apply to an existing unit that had previously availed benefits, not a new industrial unit receiving a ‘fresh subsidy’. Thus, the overall financial limit applied only to expansion projects and had no application to new industrial units. Essentially, the respondents were absolutely wrong in rejecting the subsidies on this ground.
The Bench extensively analysed the doctrines of promissory estoppel and legitimate expectation, noting their evolution in Indian law to remedy injustice and ensure fairness in State action. Citing Motilal Padampat Sugar Mills vs State of Uttar Pradesh [(1979) 2 SCC 409], the Bench reiterated the principle that where one party makes a ‘clear and unequivocal promise’ which is intended to be acted upon, and is in fact acted upon, the promise is binding, and the promisor cannot go back on it if it would be inequitable to do so.
The Bench emphasised that the appellant, having set up and continued production in the MM Plant unit by incurring substantial expenses in the expectation of such promises and assurances, had altered its position. This reliance created a legitimate expectation that the sanctioned subsidies would be disbursed. Accordingly, the subsequent rejection was deemed not only unfair but also untenable. The Bench concluded that the respondents were precluded by the doctrine of promissory estoppel from refusing to disburse the sanctioned amounts.
Briefly, the Government of Orissa introduced the policy to encourage new industries and support existing ones, which provided for a Capital Investment Subsidy of 10% of the fixed capital investment, up to a limit of Rs. 10,00,000, for units in Zone ‘C’. This policy also provided for an additional subsidy of 15% of the cost of new generating sets, up to a maximum of Rs. 5,00,000. In pursuance of the same, Indo Flogates Limited established the MM Plant unit after the policy’s effective date, making its first capital investment in 1992 and commencing commercial production therefrom. In 1993, Indo Flogates submitted applications for DG Set subsidy and capital investment subsidy, asserting that the MM Plant was a new industrial unit with separate registration, sheds, and electrical connection.
In 1998, the Director of Industries communicated its decision to treat the MM Plant unit as a separate new industrial unit. Later, in 1999, Indo Flogates was amalgamated with the appellant company (IFGL Refractories Ltd.). Thereafter, in 2003, the State Level Committee sanctioned a DG Set subsidy of Rs. 1.14 lacs and a capital investment subsidy of Rs. 10 lacs, respectively. However, despite repeated requests for disbursement and recommendations from the respondents’ own departments, the funds were not released. Thereafter, in 2008, the respondents issued a Rejection Letter, stating that the disbursement was rejected because both Indo Flogates and the appellant company had already availed their maximum subsidy limits under previous industrial policies. The High Court upheld this rejection, opining that the interpretation that ‘only once benefit will be granted to the company is correct’.
Appearances:
Senior Advocate Nakul Dewan, AOR Taruna Singh Gohil, along with Advocates Pradhuman Gohil, Rushabh N. Kapadia, Rohan Andrew Naik, Sathvik Chandrashekhar, Alapati Sahithya Krishna, Hetvi Ketan Patel, Taniya Bansal, Kawalpreet Kaur, Pulkit Khanduja, Ishika Garg, Adya Joshi, and Satyender Saharan, for the Appellant
AORs Ankita Chaudhary and Gaurav Khanna, for the Respondent
