New industrial unit subsidy entitlement upheld where a distinct plant and official assurances defeated expansion-limit objections.

A new industrial unit under the 1989 policy is identified by fresh capital investment after the effective date, separate registration, separate location, independent power supply, and functional autonomy; on those factors, the MM Plant was treated as a distinct undertaking rather than an expansion. The overall subsidy-limit restriction was described as applying to expansion, modernisation, or diversification claims, so it did not defeat incentives for a qualifying new unit. The text also notes that repeated official sanction, acknowledgment, and recommendation for release created binding representation and legitimate expectation, preventing the State from resiling from disbursal once the beneficiary had relied on those assurances.

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Issues: (i) Whether the MM Plant unit was a new industrial unit under the industrial policy of 1989 or merely an expansion of an existing unit; (ii) whether the subsidy claims could be rejected on the ground that the overall subsidy limit under earlier industrial policies had already been exhausted; (iii) whether the respondents were estopped from declining disbursal after sanctioning the subsidies and acting on the appellant's subsequent correspondence.

Issue (i): Whether the MM Plant unit was a new industrial unit under the industrial policy of 1989 or merely an expansion of an existing unit.

Analysis: The policy defined a new industrial unit by reference to fixed capital investment made after the effective date, while expansion required additional investment beyond the prescribed threshold and an increase over existing capacity. The unit was separately registered, separately located, separately powered, and commenced commercial production after the policy came into force. The investment, licences, physical setup, and production profile showed a distinct industrial undertaking rather than a continuation of the earlier business. The judicial tests for identifying a new undertaking also supported this conclusion, namely fresh capital outlay, physical separateness, functional independence, and the existence of an identifiable unit capable of operating on its own.

Conclusion: The MM Plant unit was a new industrial unit and not an expansion of the existing unit.

Issue (ii): Whether the subsidy claims could be rejected on the ground that the overall subsidy limit under earlier industrial policies had already been exhausted.

Analysis: The overall-limit restriction introduced through later operational instructions and the subsequent amendment was directed to claims arising in expansion, modernisation, or diversification of existing units. A new industrial unit governed by the incentive provisions for fresh units was not controlled by that restriction. Since the MM Plant unit was found to be a new unit, the earlier subsidies availed under previous policies by the predecessor and the appellant could not be used to deny the fresh entitlements sanctioned for the MM Plant unit.

Conclusion: The rejection on the ground of exhaustion of the overall subsidy limit was unjustified.

Issue (iii): Whether the respondents were estopped from declining disbursal after sanctioning the subsidies and acting on the appellant's subsequent correspondence.

Analysis: The respondents repeatedly treated the unit as eligible, sanctioned the subsidies, acknowledged the amalgamation, and later recommended release of the amounts. The appellant continued to act on those assurances and maintained the unit on that basis. In such circumstances, the State and its instrumentalities were bound by the representations made, and their later refusal was inconsistent with fair, non-arbitrary public administration. The case also attracted the doctrine of legitimate expectation, because the appellant had a reasonable expectation of disbursal arising from clear official communications and repeated confirmations.

Conclusion: The respondents were estopped from refusing disbursal and were bound to honour the sanctioned subsidies.

Final Conclusion: The denial of subsidy was set aside, the appellant was held entitled to the sanctioned amounts, and the respondents were directed to release the subsidy with interest.

Ratio Decidendi: Where a policy grants incentives to new industrial units, a physically and functionally distinct unit set up with fresh capital after the effective date cannot be denied the sanctioned subsidy on the basis of limits meant for expansion claims, and the State cannot resile from clear and repeated representations inducing reliance by the beneficiary.

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