The Supreme Court said the State cannot act as a sovereign dispensing benefits at its “absolute discretion” and warned that bureaucratic lethargy will discourage entrepreneurship, innovation, and overall economic growth across the country.
New Delhi: The Supreme Court stated that the State must move away from the colonial notion of viewing itself as a sovereign entity that dispenses benefits at its own discretion.
This remark came during a Civil Appeal stemming from a ruling by the Orissa High Court, which dismissed a Writ Petition from a company and denied it sanctioned incentives, including a capital investment subsidy and a Diesel Generator (DG) Set subsidy under the 1989 industrial policy for the Magneco Metrel Plant (MM Plant Unit).
The two-Judge Bench, consisting of Justice J.B. Pardiwala and Justice R. Mahadevan, asserted:
“The State must abandon the colonial conception of itself as a sovereign dispensing benefits at its absolute discretion. Policies formulated and representations made by the State generate legitimate expectations that it will act in accordance with what it proclaims in the public domain. In the exercise of all its functions, the State is bound to act fairly and transparently, consistent with the constitutional guarantee against arbitrariness enshrined in Article 14 of the Constitution of India.”
The Bench further noted that any reduction or denial of the entitlements of private citizens or businesses must be proportional to a necessity grounded in the public interest.
Senior Advocate Nakul Dewan represented the Appellant, while Advocate Soumyajit Pani appeared for the Respondents.
The Supreme Court remarked that this case is a clear example of bureaucratic lethargy, which has contributed to the prolonged litigation.
The Court has previously reminded various State Governments that if the goal of the industrial policy is to promote investment, job creation, and growth, then the inefficiency of the State apparatus can deter entrepreneurship.
The Court determined that the Appellant company is entitled to receive the capital investment subsidy and DG Set subsidy, stating that the Respondents cannot refuse to provide these funds.
It emphasized that the MM Plant unit qualifies as a new industrial unit under Clause 2.7 of the 1989 industrial policy, as its fixed capital investment was made post the effective date of the policy (01.12.1989), and the unit was separately registered, independently powered, and began commercial production in 1992.
The Court clarified that the MM Plant is not merely an expansion, modernization, or diversification of an existing unit as described in Clause 2.2 of the policy.
The MM Plant is considered a distinct industrial undertaking that meets judicial criteria for distinguishing a new unit from an expanded one.
The Court highlighted that clear and explicit representations were made by the respondent authorities regarding the sanction and grant of subsidies through various communications (particularly letters dated 05.11.1998, 10.04.2003, 19.04.2003, 24.03.2007, and 23.08.2007).
As a result, the appellant company had a legitimate expectation that the sanctioned subsidies would be disbursed.
They acted on these assurances by setting up and continuing production at the MM Plant, incurring substantial expenses based on these commitments.
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The reliance on these promises was not speculative or unidirectional, but was rooted in clear official communications from the respondents, making any retraction both unfair and untenable.
By setting aside the Orissa High Court’s ruling, the Supreme Court clarified that subsidy eligibility belongs to each industrial unit individually, not to the company as a whole. If a promoter sets up multiple independent units, each must be judged separately under the industrial policy.
The Bench also said the State could not withdraw its earlier decision after recognising the MM Plant as a new unit, especially when there was no misrepresentation from the company. Repeated site inspections had confirmed the unit’s functioning and compliance, and the rejection of subsidy after many years was arbitrary.
Consequently, the Court concluded that the Appellant company is entitled to the disbursement of the sanctioned subsidies.
The Supreme Court therefore allowed the Appeal, set-aside the previous judgment, and ordered the Respondents to disburse the amount to the Appellant company within three months.
Case Title: IFGL Refractories Ltd. v. Orissa State Financial Corporation & Ors. (Neutral Citation: 2026 INSC 18)
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