The Supreme Court of India has allowed the appeal filed by IFGL Refractories Ltd., setting aside the Orissa High Court’s 2018 judgment that had denied the company capital investment and DG Set subsidies. The Bench, comprising Justice J.B. Pardiwala and Justice R. Mahadevan, held that the “MM Plant unit” established by the erstwhile Indo Flogates Ltd. constituted a “New Industrial Unit” under the Industrial Policy of 1989 (IPR 1989) and was entitled to fresh subsidies, rejecting the State’s contention that it was merely an expansion subject to previous financial limits.
Criticizing the conduct of the state authorities, the Court directed the respondents to disburse the sanctioned amount of Rs. 11,14,750/- along with interest at the rate of 9% per annum to the appellant within three months.
Legal Issue and Outcome
The core legal issues before the Court were:
- Whether the MM Plant unit set up by Indo Flogates could be termed as a “New Industrial Unit” under IPR 1989.
- Whether the respondents were justified in rejecting the subsidies on the ground that the overall subsidy limit had been exhausted under previous policies.
- Whether the doctrine of promissory estoppel prevented the respondents from refusing disbursement after sanctioning the subsidies.
The Supreme Court answered all issues in favor of the appellant, holding that the unit was a distinct new industrial undertaking and that the respondents were estopped from resiling on their unequivocal promises.
Background of the Case
The case originated from the Industrial Policy of 1989, introduced by the Government of Orissa effectively from December 1, 1989. Indo Flogates Ltd. (which later amalgamated with the appellant, IFGL Refractories Ltd., in 2000) established a unit named “MM Plant” in the Kalunga Industrial Estate, Rourkela.
Indo Flogates made the initial fixed capital investment for the MM Plant on February 1, 1992, and commercial production commenced on November 21, 1992. The company applied for a DG Set subsidy and Capital Investment Subsidy (CIS) in 1993. On November 5, 1998, the Director of Industries (Respondent No. 2) recognized the MM Plant as a “separate new industrial unit.”
Subsequently, in April 2003, the Sub-Committee of the State Level Committee (Respondent No. 4) sanctioned Rs. 1,14,750/- for the DG Set subsidy and Rs. 10,00,000/- for the CIS. However, despite repeated requests for disbursement and acknowledgments of the amalgamation, the respondents issued a rejection letter on October 4, 2008. The rejection was based on the premise that both Indo Flogates and the appellant company had already availed the maximum subsidy limits under previous policies (IPR 1980 and IPR 1986), and thus, no further amount was payable.
The appellant challenged this rejection before the Orissa High Court, which dismissed the writ petition on December 7, 2018, accepting the committee’s interpretation that benefits could be granted “only once.”
Arguments of the Parties
For the Appellant: Senior Advocate Nakul Dewan, appearing for the appellant, argued that under Clause 2.7 of IPR 1989, the MM Plant qualified as a “New Industrial Unit” because the fixed capital investment was made after the effective date of the policy. He submitted that Clause 4.1 makes new units eligible for “all incentives,” distinguishing them from expansion projects under Clause 4.4 where incentives are allowed only once. He further contended that the respondents were estopped from rejecting the claim after classifying the unit as “new” in 1998 and sanctioning the subsidies in 2003.
For the Respondents: Counsel for the respondents argued that the MM Plant was merely an expansion of the existing Indo Flogates unit. Relying on an instruction letter dated October 28, 1994, and a subsequent amendment to the policy in 2008, they contended that subsidy claims, including those for expansion, were subject to overall financial limits prescribed under previous IPRs. Since the entities had collectively availed subsidies of Rs. 35 lakhs under previous policies, they argued no further disbursement was permissible.
Court’s Analysis
1. “New Industrial Unit” vs. Expansion Justice Pardiwala, authoring the judgment, analyzed the definition of “New Industrial Unit” under Clause 2.7 of IPR 1989. The Court observed that the MM Plant’s fixed capital investment occurred after the effective date of the policy. Drawing on precedents like Textile Machinery Corpn. Ltd. v. CIT (1977) and CIT v. Indian Aluminium Co. Ltd. (1977), the Court applied the test of whether the unit was a “physically separate industrial unit capable of functioning on its own as a viable entity.”
The Court noted:
“Indo Flogates had acquired land and two sheds… and had further invested Rs. 75,24,000/- towards plant and machinery… aggregating to a substantial investment of Rs. 1,42,02,000/-. It is also significant to note that the location of the MM Plant unit… was entirely separate from that of the erstwhile Indo Flogates unit… The manufacturing outputs of the MM Plant unit and the Indo Flogates unit were distinct.”
The Court concluded that the MM Plant was a new identifiable undertaking, separate from the existing business, and not merely an expansion.
2. Applicability of Overall Financial Limits The Court rejected the respondents’ reliance on the 1994 instruction letter and the 2008 amendment to limit the subsidy. It held that the concept of an overall financial limit applied only to “Expansion/Modernisation/Diversification” of existing units under Clause 4.4, not to “New Industrial Units” governed by Clause 4.1.
“A claim for additional subsidy could only be made when an eligible unit had already availed the benefits of the same… This means such eligible unit would necessarily would have to be an existing unit first. This is because a new industrial unit… would be receiving a fresh subsidy as per the scheme… and not the additional subsidy.”
3. Promissory Estoppel and Legitimate Expectation The Court strongly criticized the “bureaucratic lethargy” of the respondents. It held that the doctrine of promissory estoppel applied as the respondents had made unequivocal representations by sanctioning the subsidies, leading the appellant to alter its position by incurring expenses and continuing production.
Citing Motilal Padampat Sugar Mills v. State of U.P. (1979) and Pawan Alloys & Casting (P) Ltd. v. U.P. SEB (1997), the Bench observed:
“The respondents are precluded from refusing to disburse the same in favour of the appellant company… 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.”
Decision
The Supreme Court allowed the appeal, setting aside the High Court’s order. The Court observed:
“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.”
Directions:
- The MM Plant is declared a “New Industrial Unit” under IPR 1989.
- Respondents are directed to disburse Rs. 11,14,750/- towards Capital Investment and DG Set subsidies.
- Interest at 9% p.a. is awarded from the date of sanction of the respective subsidies.
- Payment is to be made within 3 months.
Case Details:
Case Title: IFGL REFRACTORIES LTD. vs. ORISSA STATE FINANCIAL CORPORATION & ORS.
Case No.: Civil Appeal No. 66 of 2026 (Arising out of SLP (C) No. 7013 of 2019)
Bench: Justice J.B. Pardiwala and Justice R. Mahadevan
