State must abandon colonial conception of itself as sovereign dispensing benefits at discretion: SC

New Delhi, Jan 6 (PTI) The State must abandon the colonial conception of itself as a sovereign dispensing benefits at its "absolute discretion", the Supreme Court said on Tuesday, while flagging that bureaucratic lethargy is a factor that will discourage entrepreneurship.

A bench of Justices J B Pardiwala and R Mahadevan said 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.

"In the exercise of all its functions, the State is bound to act fairly and transparently, consistent with the constitutional guarantee against arbitrariness enshrined in Article 14 of the Constitution of India," it said.

The apex court delivered its verdict on an appeal challenging a December 2018 judgment of the Orissa High Court.

The high court had rejected a petition filed by a company and denied the sanctioned incentives of capital-investment subsidy and DG-set subsidy under the industrial policy of 1989 in favour of an industrial setup.

The top court said this was a fine specimen of bureaucratic lethargy, which gave rise to this long-drawn litigation.

"This court, in many of its decisions, has reminded various state governments that if the object of formulating the industrial policy is to encourage investment, employment and growth, the bureaucratic lethargy of the State apparatus is clearly a factor which will discourage entrepreneurship," the bench said.

It said any curtailment or deprivation of the entitlements of private citizens or private businesses must be proportional to a requirement grounded in public interest.

The bench said this understanding of the limits of State power has been recognised and reiterated by the apex court in a consistent line of decisions.

It noted that representations made by public authorities must be subjected to the most exacting standards, for citizens order their affairs and regulate their conduct on the basis of the trust they repose in the State.

"A failure on the part of public authorities to honour their representations, absent adequate and cogent justification, undermines the confidence of citizens in the State and erodes the credibility of governmental action," the bench said.

It said the creation of a business-friendly environment conducive to investment and trade is intrinsically linked to the degree of faith that may be placed in a government to fulfil the expectations it engenders.

The bench said the industrial policy of 1989 was introduced with the twin objectives of encouraging new industries as well as supporting the existing ones, and the effective date from which the policy came into force was December 1, 1989.

The top court held that the appellant company was entitled to the disbursement of the sanctioned subsidies.

While allowing the appeal, the bench set aside the judgment of the high court.

It directed the authorities concerned to disburse an amount of Rs 11,14,750, along with interest at the rate of 9 per cent per annum from the date of the sanction of the respective subsidies towards capital investment and a DG set, in favour of the appellant firm within three months.

The bench noted that the appellant firm is engaged in the manufacturing, processing, trading and selling of specialised refractory products and equipment for the iron and steel industry, such as magnesia carbon and high-alumina bricks, castables, moulding systems etc.

It pointed out that the appellant company was amalgamated with another firm with effect from April 1, 1999.

The bench said the state government came out with the industrial policy of 1989 with the twin objectives of fostering the establishment of new industrial enterprises and extending institutional support to the existing industrial undertakings.

"Under the said policy framework, a comprehensive scheme of incentives was envisaged, including, inter alia, capital-investment subsidies, sales-tax concessions, exemption from electricity duty and subsidies towards technical know-how fees etc. -- all intended to stimulate industrial growth within the state," the bench said.

It noted that in April 2003, the appellant firm was informed by authorities about the sanctioning of subsidies towards a DG set and a capital-investment subsidy.

Later in 2008, the appellant company was informed about the rejection of the disbursement of the capital-investment subsidy and the DG-set subsidy on the ground that both the firms had availed their maximum limit under the capital-investment subsidy.

Aggrieved by the rejection of the disbursement of the subsidies, the appellant firm had approached the high court. PTI ABA RC