Functional readiness test for subsidy eligibility: a unit is set up only when ready to operate, not when financing is merely arranged.

An industrial unit is treated as "set up" when it has reached functional readiness to commence its intended operations, not merely when preliminary arrangements or financing are completed. Actual production is not required, but the unit must be ready to function as a productive unit. On the facts, the absence of electricity sanction until February 1989 showed that an essential ingredient for functionality was missing by 1 October 1988. The earlier loan sanction was therefore irrelevant. The unit was not set up by the cutoff date, and the petitioner was entitled to the enhanced subsidy and release of the balance amount under the incentive order.

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Issues: Whether the industrial unit had been "set up" on or before 1 October 1988 so as to qualify for subsidy under the Government order granting incentive to new units set up on or after that date.

Analysis: The expression "set up" was construed to mean that the unit had reached a stage where it was ready to function as a productive unit, and not that it must have actually commenced production. Mere preliminary steps such as obtaining finance did not amount to setting up. On the facts, the unit had not even been sanctioned electricity until February 1989, and electricity supply was an essential ingredient for the unit to become functional. The loan sanctioned earlier was therefore irrelevant, and the unit could not be treated as having been set up by 1 October 1988.

Conclusion: The unit was not set up by 1 October 1988 and the petitioner was entitled to the enhanced subsidy.

Final Conclusion: The rejection of the higher subsidy was unsustainable, and the petitioner was held entitled to release of the balance amount under the incentive order.

Ratio Decidendi: A unit is "set up" when it is ready to commence its intended operations, and not merely when preliminary arrangements or financing have been secured; actual production is not necessary, but functional readiness is essential.

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