2026 (1) TMI 349 - SC - Indian Laws

MM Plant's status as a 'new industrial unit' under 1989 policy, securing subsidies despite earlier overall ceiling; rejection overturned

The dominant issues were whether the MM Plant qualified as a 'new industrial unit' under the 1989 industrial policy, and whether the State could deny ... MM Plant unit set up by Indo Flogates could be termed as a new industrial unit in accordance with the terms of industrial policy of 1989 or not - rejection of capital investment subsidy and DG Set subsidy respectively for MM Plant unit on the ground that both Indo Flogates and the appellant company had already exhausted the overall subsidy limit under the previous industrial policies - respondents are estopped from refusing to disburse the capital investment subsidy and DG Set subsidy respectively for the MM Plant unit to the appellant company. Whether the MM Plant unit set up by Indo Flogates could be termed as a new industrial unit in accordance with the terms of industrial policy of 1989? - HELD THAT:- The objectives underlying the introduction of the industrial policy of 1989 were grounded in public interest and in the broader framework of liberalizing the package of incentives so as to encourage the establishment of new industrial units in the backward areas of the State of Orissa, while simultaneously providing support to existing industries. To fulfil the objective of promoting new industries in the State, the Government of Orissa resolved to extend subsidy-based incentives to all such units that were established through investment in fixed capital made after the effective date, i.e., 01.12.1989. In this regard, Clause 4.1 of the industrial policy of 1989 expressly provides that, subject to certain stipulated conditions, a new industrial unit shall be eligible to seek all incentives contemplated under the policy. Capital investment subsidy and DG Set subsidy are among the incentives available to new industries under Clause 4.1. Having explained the meaning of expansion of existing unit under industrial policy of 1989, it is now pertinent to highlight the fact that the respondent nos. 2 and 4 respectively in their counter affidavit before this Court have stated that the sanctioned subsidies were rejected due to the reason that MM Plant unit was nothing but an expansion of the Indo Flogates unit and that under Clause 4.4 of the industrial policy of 1989 though an industrial unit may carry any number of expansions but the subsidy incentive for such industrial unit would be allowed once only - It was essential for the respondent authorities to provide cogent reasons behind their decision in recognizing the MM Plant unit as an expansion, especially in the context of Clause 20.1 of the industrial policy of 1989, which mandated that the respondents reject the application for incentives on merit. Thus, in view of the above, the requirement of Clause 2.7 of industrial policy of 1989 and the tests for qualifying as a new unit appears to have been met by Indo Flogates while establishing MM Plant unit and there being nothing on record to prove contrary, we are of the view that MM Plant should be treated as a new industrial unit only. The MM Plant unit satisfies the requirements of a new industrial unit and that the respondents failed to justify its classification as an expansion, it also becomes necessary to examine the manner in which the respondents sought to defend their stance before this Court and the High Court. 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. Whether the respondents were justified in rejecting the capital investment subsidy and DG Set subsidy respectively for the MM Plant unit on the ground that both Indo Flogates and the appellant company had already exhausted the overall subsidy limit under the previous industrial policies? - HELD 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. 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. This view would fall squarely into place when one would refer to the heading of the amendment notification dated 30.10.2008 that clarified the intent behind the requirement of the instruction letter dated 28.10.1994. The heading of the amendment notification dated 30.10.2008 states that an amendment to industrial policy of 1989 is being carried out for the provisions of sanction of capital investment subsidy under expansion / modernisation / diversification programme and not for a new industrial unit. Thus, having already held the MM Plant unit to be a new industrial unit under the industrial policy of 1989, we are of the view that the respondent authorities were absolutely 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. Whether the respondents are estopped from refusing to disburse the capital investment subsidy and DG Set subsidy respectively for the MM Plant unit to the appellant company? - HELD THAT:- The industrial policy of 1989 was introduced with the twin objectives of encouraging new industries as well as supporting the existing industries. The effective date from which the industrial policy of 1989 came into force was 01.12.1989. On the strength of the incentives made available to a new industrial unit and having regard to the objectives underlying the industrial policy of 1989, Indo Flogates invested funds for the establishment of the MM Plant unit. The date of initial fixed capital investment in the said MM Plant unit was 01.02.1992, and thereafter the unit commenced commercial production. The date of commencement of commercial production stood recorded as 21.11.1992. Pursuant thereto, Indo Flogates submitted two applications dated 28.08.1993 and 29.09.1993 respectively to the respondent no. 3, inter alia seeking the grant of DG Set subsidy and capital investment subsidy. Thereafter, the respondent no. 2, on 05.11.1998, communicated the decision of the respondent no. 3 recognising the MM Plant unit as a separate new industrial unit of Indo Flogates. Subsequently, the respondent no. 2 informed Indo Flogates, vide letter dated 09.06.2000, that the applications for the respective subsidies had been recommended to the State Government for approval. 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. The impugned judgment and order of the High Court is hereby set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the MM Plant unit qualified as a 'new industrial unit' under the industrial policy of 1989, as opposed to being an expansion/modernisation/diversification of an existing unit. (ii) If the MM Plant unit was a new industrial unit, whether disbursement of the sanctioned capital investment subsidy and DG Set subsidy could be refused on the ground that the entities had already exhausted an 'overall subsidy limit' under earlier industrial policies, relying on an operational instruction later incorporated into the policy. (iii) Whether, in the facts found, the respondents were precluded (by promissory estoppel/legitimate expectation) from refusing to disburse the subsidies after classifying the unit as new and issuing sanction and related official assurances. 2. ISSUE-WISE DETAILED ANALYSIS (i) Qualification of MM Plant as a 'new industrial unit' Legal framework: The Court examined the policy definitions: 'new industrial unit' depended on fixed capital investment being made on or after the effective date; 'expansion/modernisation/diversification' required defined essentials including additional investment over a threshold and increased production over existing capacity. The Court also applied judicial tests used to distinguish a genuinely new, identifiable undertaking from a mere reconstruction/expansion, focusing on physical and functional separateness, fresh capital outlay, and distinct identity. Interpretation and reasoning: The Court held that although the policy definition looked to timing of fixed capital investment, an additional inquiry was appropriate to ensure the unit was not an expansion 'masquerading' as new. On the facts, the MM Plant involved post-effective-date fixed capital investment; separate industrial licensing; separate electricity connection; substantial fresh investment in land/sheds/plant and machinery; separate physical location; separate commencement of commercial production; and distinct output as compared to the older unit. The respondents' later characterization of the unit as 'expansion' lacked reasons and did not show how the essentials of 'expansion' were met. Conclusion: The MM Plant was conclusively held to be a new industrial unit under the industrial policy of 1989 and not an expansion/modernisation/diversification. (ii) Validity of rejection based on 'overall subsidy limit' under prior policies/instructions Legal framework: The Court considered the operational instruction issued under the policy's enabling clause for guidelines, and the later amendment that incorporated that instruction into the policy wording (described as retrospective). The Court focused on the language and context of the 'overall financial limit' concept and its linkage to 'additional subsidy' for expansion/modernisation/diversification. Interpretation and reasoning: The Court reasoned that the 'overall limit' mechanism concerned claims for additional subsidy where a unit had already availed subsidy under earlier policies, i.e., an existing unit seeking further subsidy on expansion/modernisation/diversification. A new industrial unit under the 1989 policy was entitled to 'fresh' incentives subject to the unit-wise caps stated in the relevant clauses, and was not governed by the 'overall limit' concept meant for additional subsidy. The Court also noted that the instruction did not exist when the subsidy applications were filed, and that the later amendment's stated purpose was directed to expansion/modernisation/diversification rather than new units. Conclusion: The respondents were not justified in rejecting disbursement of the sanctioned subsidies for the MM Plant on the ground of exhaustion of overall subsidy limits under previous policies; the 'overall limit' principle applied only to expansion/modernisation/diversification, not to new industrial units. (iii) Estoppel/legitimate expectation against refusal to disburse after classification and sanction Legal framework: The Court examined promissory estoppel and legitimate expectation in the context of governmental representations and incentive policies, and applied these doctrines to official communications and conduct showing clear assurances and reliance. Interpretation and reasoning: The Court found clear and unequivocal official representations: the unit was treated as a new unit; subsidies were sanctioned; subsequent communications acknowledged processing/recommendation; and continuity of production was verified. The Court rejected the contention that amalgamation/non-disclosure justified refusal, holding that the authorities had been informed before sanction and, in any event, rights/benefits transferred to the successor under the amalgamation. The Court held that the later volte-face was unfair and untenable where the unit was set up and production continued with substantial expenditure on the faith of official assurances and sanction. Conclusion: The respondents were precluded from refusing disbursement; the appellant was entitled to payment based on promissory estoppel/legitimate expectation arising from the respondents' official representations and sanction. FINAL DISPOSITIVE DIRECTIONS (as relevant to decided issues) The Court set aside the denial and directed disbursement of the sanctioned capital investment subsidy and DG Set subsidy amount, together with interest at 9% per annum from the respective sanction dates, within a fixed time.