Claim For Additional Subsidy Can Only Be Made When Eligible Unit Had Availed Its Benefits In Previous Industrial Policies: Supreme Court

The Supreme Court held that a claim for additional subsidy can only be made when an eligible unit had already availed the benefits of the same and/or part of the same earlier in the previous industrial policies.

The Court held 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 observed, “We are of the opinion that a claim for additional subsidy could only be made when an eligible unit had already availed the benefits of the same and/or part of the same earlier in the previous policies. This means such eligible unit would necessarily would have to be an existing unit first. This is because a new industrial unit (in which fixed capital investment is required to take place only after the effective date of industrial policy of 1989) on the other hand would be receiving a fresh subsidy as per the scheme and objective of entire industrial policy of 1989 and not the additional subsidy which is otherwise meant for an industrial unit which was set up during the operation of previous policies.”

The Bench said that the authorities were absolutely wrong in rejecting the capital investment subsidy and DG Set subsidy for MM Plant unit.

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

Brief Facts

The Appellant was a company registered under the provisions of the Companies Act, 1956 and was engaged in the manufacturing, processing, trading, and selling of specialized refractory products and equipment for the iron and steel industry, such as magnesia carbon and high-alumina bricks, castables, and moulding systems, etc. It was amalgamated with one Indo Flogates Limited. Upon amalgamation, all the properties, rights, and powers of Indo Flogates, including the rights, title, interest, and subsidies in one of the units of Indo Flogates namely, MM Plant unit were transferred in favour of the Appellant company. The Respondent i.e., Orissa State Financial Corporation (OSFC) was a statutory corporation established under the State Financial Corporations Act, 1951 with an object to lend and advance financial assistance to the small & medium scale industries and to recover its dues. Under the industrial policy of 1989, applications for subsidies in case of small-scale industries were required to be submitted to the Respondent directly, whereas in case of medium/large scale industries, applications were to be submitted to the Respondent through the authority.

In the said policy, the main function of the Respondent was to act as a disbursing agency for all subsidies granted therein to all industrial units. Further, the Respondent was also one of the members of the state level committee and the sub-committee respectively for sanctioning the investment subsidies. The Director of Industries, Cuttack (DIC) was established as an administrative and executive wing of the Industries Department, Government of Odisha. The Industrial Promotion and Investment Corporation of Orissa Limited (IPICOL) was established as a nodal agency of the State of Orissa for investment promotion and single-window facilitation to promote medium and large-scale industries in the State by providing necessary support services. Post amalgamation, disbursement was delayed and later was rejected in 2008 on the ground that maximum subsidy limits were already availed under earlier policies. The High Court rejected the Writ Petition filed by the Appellant and denied the sanctioned incentives of capital investment subsidy and DG Set subsidy under industrial policy of 1989 in favour of MM Plant Unit on the ground that the incentive of subsidy under industrial policy of 1989 could have been granted only once. Being aggrieved, the Appellant was before the Apex Court.

Reasoning

The Supreme Court in view of the above facts, noted, “Unlike and contrary to the above submission, the respondents in their counter affidavit before the High Court had stated that the earlier sanction of subsidy of Rs. 11,14,750/- (Rs. 10,00,000/- towards capital investment subsidy and Rs. 1,14,750/- towards DG Set subsidy) was based on the documents submitted by Indo Flogates. It was also argued that the fact of amalgamation of Indo Flogates and the appellant company was not disclosed to or brought to the knowledge of the respondents before sanctioning the subsidies, therefore, MM Plant unit was earlier recognised as a new industrial unit and on that basis capital investment subsidy was sanctioned for MM Plant in favour of Indo Flogates.”

The Court said that had the Respondent authorities not acted in an absent-minded, lackadaisical, and procrastinated manner, they would have known the fact that Indo Flogates was not in existence anymore and that Indo Flogates had amalgamated with the Appellant company.

“That was precisely why the undersigned representative of the appellant company was liaising for sanctioned subsidies for MM Plant unit on behalf of Indo Flogates in all correspondence post amalgamation. In case the respondents had not acted in such an unmindful manner, they would have noted that amalgamation had taken place and would have sought supporting documents to that effect. Whatsoever the case could have been, even otherwise, the non-disclosure of amalgamation could not have been the ground for rejection of subsidies as the rights and benefits in the subsidies sanctioned in favour of Indo Flogates came to be transferred in favour of the appellant company after the amalgamation and, a new industrial unit, irrespective of its ownership, would have been entitled to the subsidies”, it added.

The Court, therefore, held that the MM Plant unit is a new industrial unit under the industrial policy of 1989, as the same had also been classified by the Respondents in the year 1998.

“In such circumstances, the word “eligible unit” used in the instruction letter dated 28.10.1994 and in the amendment notification dated 30.10.2008 would require to be read as the existing industrial unit which is undergoing either expansion / modernisation / diversification”, it observed.

The Court was of the view that the Respondent authorities were wrong in rejecting the capital investment subsidy and DG Set subsidy for MM Plant unit on the ground that since both Indo Flogates and the Appellant company had already availed the overall subsidy limit under the previous industrial policies of 1980 and 1986 respectively, no further subsidies could have been sanctioned for the MM Plant unit in favour of Indo Flogates.

“Consequently, while the basis of the doctrine of promissory estoppel in private law is a promise made between two parties, the basis of the doctrine of legitimate expectation in public law is premised on the principles of fairness and non-arbitrariness surrounding the conduct of public authorities. This is not to suggest that the doctrine of promissory estoppel has no application in circumstances when a State entity has entered into a private contract with another private party. Rather, in English law, it is inapplicable in circumstances when the State has made representation to a private party, in furtherance of its public functions”, it further noted.

The Court remarked that where a new industrial unit had set up an industry not excluded from the purview of the scheme and had commenced commercial production before that industry was subsequently included in the exclusion list, it would be unreasonable and unjust to deprive such an industrial unit of the benefit of the scheme, especially when it had already become eligible and had started receiving the incentives.

“In other words, the Government may withdraw an exemption previously granted, but only if such withdrawal does not offend the doctrine of promissory estoppel or deprive an industrial unit of an exemption which it is otherwise entitled to claim by virtue of that doctrine. Where the Government has offered an incentive of exemption to a new industry, and where an industry has been established in reliance on such representation in order to avail the benefit, that new industry may legitimately contend that the exemption cannot thereafter be withdrawn”, it also said.

Conclusion

Furthermore, 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 added.

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

“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. The MM Plant unit constitutes a physically and functionally distinct industrial undertaking, meeting the judicial tests as more particularly discussed above, distinguishing a new unit from an expanded unit”, it noted.

The Court 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)

Appearance:

Appellant: Senior Advocate Nakul Dewan, AOR Taruna Singh Gohil, 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.

Respondents: AORs Ankita Chaudhary, Gaurav Khanna, and Advocate Soumyajit Pani.

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