State Must Abandon Colonial Conception Of Itself As Sovereign Dispensing Benefits At Its Absolute Discretion: Supreme Court

The Supreme Court has remarked that the State must abandon the colonial conception of itself as a sovereign dispensing benefits at its absolute discretion.

The Court remarked thus in a Civil Appeal arising from the Judgment of the Orissa High Court, by which it rejected a Writ Petition of a company and denied the sanctioned incentives of capital investment subsidy and Diesel Generator (DG) Set subsidy under industrial policy of 1989 in favour of industrial setup namely, Magneco Metrel Plant (MM Plant Unit).

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan emphasised, “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 added that any curtailment or deprivation of the entitlements of private citizens or private business must be proportional to a requirement grounded in public interest.

Senior Advocate Nakul Dewan appeared on behalf of the Appellant, while Advocate Soumyajit Pani appeared on behalf of the Respondents.

Court’s Observations

The Supreme Court in view of the facts of the case, observed, “This litigation is a fine specimen of the bureaucratic lethargy. It is this bureaucratic lethargy which gave rise to this long drawn litigation. This Court in many of its decisions has reminded various State Governments that if 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.”

The Court held that the Appellant company is entitled to disbursal of capital investment subsidy and DG Set subsidy and that the Respondents are precluded from refusing to disburse the same in favour of the Appellant company.

“The MM Plant unit fulfils the definition of a “new industrial unit” under Clause 2.7 of the industrial policy of 1989. This is because the fixed capital investment for the MM Plant unit was made after the effective date of the industrial policy of 1989, i.e., 01.12.1989, and the unit was separately registered, separately located, independently powered, and commenced independent commercial production in 1992”, it said.

The Court was of the view that the MM Plant is not an expansion/modernisation/ diversification of an existing unit as defined under Clause 2.2 of the industrial policy of 1989 and the MM Plant unit constitutes a physically and functionally distinct industrial undertaking, meeting the judicial tests, distinguishing a new unit from an expanded unit.

“We have held that a clear and unequivocal representation was made by the respondent authorities with respect to sanction and grant of subsidies by way of various communications particularly the letters dated 05.11.1998, 10.04.2003, 19.04.2003, 24.03.2007, and 23.08.2007 respectively as mentioned above, and the appellant company having legitimate expectation that sanctioned subsidies would be disbursed, and acting upon the same set up and continued the production in the MM Plant unit by incurring substantial expenses pursuant to such promises and assurances. This reliance on the promises and assurances of respondents was neither speculative nor unilateral, but flowed directly from unequivocal sanction and official communications issued by the respondents, rendering the subsequent volte-face not only unfair but also untenable”, it noted.

The Court, therefore, concluded that the Appellant company is entitled to the disbursement of sanctioned subsidies.

Accordingly, the Apex Court allowed the Appeal, set aside the impugned Judgment, and directed the Respondents to disburse the amount in favour of the Appellant company within 3 months.

Cause Title- IFGL Refractories Ltd. v. Orissa State Financial Corporation & Ors. (Neutral Citation: 2026 INSC 18)

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