New Delhi: The Supreme Court has held that the doctrine of promissory estoppel cannot be invoked to compel the State to grant a benefit which was never intended for the class of industry to which the claimant belonged. The Court delivered this ruling while allowing an appeal filed by the State of Himachal Pradesh against a manufacturer that had sought concessional electricity charges meant exclusively for new industrial enterprises.
A Bench of Justices J.B. Pardiwala and K.V. Viswanathan set aside the judgment of the Himachal Pradesh High Court, which had directed the State to issue an enabling notification extending the benefit of a 15% concessional electricity tariff to the respondent, M/s Kundlas Loh Udyog, an existing industrial enterprise that had undergone substantial expansion.
The Himachal Pradesh Industrial Policy of 2019 was notified on 16 August 2019 with the objective of attracting industrial investment into the State by offering a range of incentives, subsidies, and concessions. Clause 16 of the policy dealt with concessional electricity charges. Clause 16(a) provided that eligible enterprises would be charged energy charges 15% lower than the approved energy charges for their category for a period of three years. Clause 16(b) separately provided that existing industrial consumers would receive a rebate of 15% on energy charges for additional power consumption beyond the level of the preceding financial year.
The respondent company had been in operation since 2006 and was registered as a Small Scale Enterprise since 2008. In 2020, it undertook a substantial expansion of its manufacturing unit, increasing its plant and machinery by 88.69%, far exceeding the minimum threshold of 25% required under the policy. On 12 February 2021, the State issued a certificate of commencement of production recognising the respondent as an existing enterprise having undergone substantial expansion. The respondent then sought the benefit of Clause 16(a), claiming that as an eligible enterprise, it was entitled to the 15% concessional tariff on all its energy consumption.
During the pendency of the writ petition before the High Court, the State on 29 April 2022 amended the Industrial Policy of 2019, substituting the word “eligible” with “new” in Clause 16(a). The State contended that this amendment was merely clarificatory and applied retrospectively, as the benefit under Clause 16(a) was always intended only for new industrial enterprises, and the original use of the word “eligible” had been an inadvertent drafting error.
The High Court rejected this contention and ruled in favour of the respondent. It directed the State to issue the enabling notification and struck down certain clauses of the policy and the 2019 Rules as inconsistent with the original Industrial Policy.
The Supreme Court reversed this finding. Examining the structure of Clause 16 alongside the contemporaneous tariff orders issued by the Himachal Pradesh State Electricity Board, the Court found that the distinction between Clause 16(a) and Clause 16(b) was deliberate and purposeful. Clause 16(a) was intended for new industrial enterprises, incentivising fresh investment by offering a flat concessional tariff. Clause 16(b) was intended for existing enterprises undergoing expansion, offering a rebate only on incremental consumption.
The Court observed that accepting the respondent’s interpretation would produce an anomalous and unintended result: “Such an interpretation would also lead to an anomalous consequence whereby a benefit specifically intended for new industrial enterprises, i.e., concessional lower energy charges for a period of 3 years aimed at encouraging the establishment of fresh industrial units within the State, would stand extended even to existing industrial enterprises merely because they had undertaken expansion. The very object underlying the distinction between new industrial enterprises and existing industrial enterprises undergoing substantial expansion would thereby stand obliterated.”
On the effect of the 2022 amendment, the Court held that the substitution of the word “eligible” with “new” was clarificatory and therefore retrospective. It noted a telling detail: the amendment notification required all substantive amendments to be italicised and underlined. The changes to Clause 16(a) were not so marked, indicating that the drafters themselves regarded them as merely corrective. By contrast, the amendment introducing for the first time a three-year cap on the rebate under Clause 16(b) was italicised and underlined, as it was a genuine substantive change.
The Court then turned to the doctrine of promissory estoppel. It reaffirmed the settled principles governing the doctrine at length, drawing upon its recent decision in IFGL Refractories Ltd. v. Orissa State Financial Corporation as well as earlier precedents. The Court reiterated that the doctrine applies with full force against the State, and that where the State frames an industrial incentive scheme to attract investment, makes a clear representation, and an entrepreneur acts upon it by establishing a unit and commencing production, an enforceable equity arises. As the Court stated: “Once an entrepreneur, relying upon such representation, establishes an industrial unit, commences commercial production, or otherwise satisfies the eligibility conditions during the currency of the scheme, and the State agencies recognise them as being eligible, the promise crystallises, and an enforceable equity arises in its favour.”
However, the Court found that this principle could not assist the respondent in the present case. The COP Certificate issued in February 2021 merely recognised the respondent as an existing enterprise having undergone substantial expansion. It did not amount to a sanction or grant of the benefit under Clause 16(a), which under Rule 27 of the 2019 Rules required specific approval by the Director of Industries upon the recommendation of a designated committee. No such sanction was ever granted.
More fundamentally, the Court held that the doctrine of promissory estoppel could not be stretched to create an entitlement contrary to the true scope and intent of the policy itself. Since Clause 16(a) was never meant for existing enterprises, there was no representation to that effect upon which the respondent could have relied. The Court observed: “The doctrine of promissory estoppel cannot be invoked to compel the State to grant a benefit which was never intended for the class of industry to which the respondent belonged.”
The Court also noted that the respondent had already received the benefit legitimately available to its category under Clause 16(b). Having received the rebate intended for existing enterprises undergoing expansion, no inequity remained that would warrant invoking promissory estoppel. Any contrary view, the Court held, would result in a double benefit to the same class of enterprises, contrary to the scheme of the policy, public interest, and fiscal discipline.
The appeal was accordingly allowed and the High Court’s judgment was set aside.
Case Title: State of Himachal Pradesh & Ors. v. M/s Kundlas Loh Udyog, Civil Appeal arising out of Special Leave Petition No. 26731 of 2025
