State Must Discard ‘Colonial Notion’ of Being Sovereign in Handing Out Doles at Will: SC

The state must discard the colonial notion that it is a sovereign handing out doles at its will and is bound to act fairly and in a transparent manner, the Supreme Court Tuesday said while rapping the Jharkhand government for depriving an industrial unit of its legitimate entitlement to the policy benefits.

Both the accountability of the State and the solemn obligation which it undertook in terms of the policy document militate against accepting such a notion of state power.

The state must discard the colonial notion that it is a sovereign handing out doles at its will. Its policies give rise to legitimate expectations that the state will act according to what it puts forth in the public realm. In all its actions, the State is bound to act fairly, in a transparent manner. This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts, said a bench of Justices DY Chandrachud and Indu Malhotra.

The dispute pertained to one of the clauses of the Jharkhand’s 2012 Industrial Policy and under which a company can get the benefit of exemption from the payment of 50 per cent of the electricity duty for a period of five years for captive power plants established for self-consumption or captive use. The state government had come in appeal against the high court’s order granting the benefit of rebate 50 per cent of electricity duty to Brahmputra Metallics Ltd. The top court did not agree to the submissions of the state government and answered in affirmative the issue whether Brahmputra Metallics Ltd was entitled to a rebate in electricity duty under the industrial policy. It, however, modified the high court’s order to the extent that the firm would not be entitled for the rebate for financial year 2011-12 as the industrial policy provided that the entitlement ensues from the financial year following the commencement of production. It confirmed the high court’s order granting rebates in electricity duty for financial years 2012-13 and 2013-14.

Justice Chandrachud, writing the judgement for the bench, noted that the state was to notify the rebate in electrical dues to the firm within one month under the policy which came into being from April 1, 2011. However, it was notified in January, 2015 that too with prospective effect. Holding Jharkhand guilty of breaching the expectations, the top court said, the state having held out a solemn representation in the terms, it would be manifestly unfair and arbitrary to deprive industrial units within the State of their legitimate entitlement. The State government did as a matter of fact, issue a statutory notification under Section 9 but by doing so prospectively with effect from January 8, 2015 it negated the nature of the representation which was held out in the Industrial Policy 2012. Absolutely no justification bearing on reasons of policy or public interest has been offered before the High Court or before this Court for the delay in issuing a notification, the 44-page judgement said.

The top court said that state is bound to act fairly and in transparent manner and it cannot escape by taking the plea that the company had no vested right to get the rebate. A deprivation of the entitlement of private citizens and private business must be proportional to a requirement grounded in public interest, it said. The judgement said that state government had made a representation to the respondent firm and similarly situated industrial units under the Industrial Policy 2012 and this representation gave rise to a legitimate expectation on their behalf that they would be offered a 50 per cent rebate in electricity duty for the next five years.

However, due to the failure to issue a notification within the stipulated time and by the grant of the exemption only prospectively, the expectation and trust in the State stood violated. Since the State has offered no justification for the delay in issuance of the notification, or provided reasons for it being in public interest, we hold that such a course of action by the State is arbitrary and is violative of Article 14, it said. It also asked the state government to take notice of the observations of the High Court in regard to administrative lethargy. If the object of formulating the industrial policy is to encourage investment, employment and growth, the administrative lethargy of the state apparatus is clearly a factor which will discourage entrepreneurship, it said.

The policy document held out a solemn representation. It contemplated the grant of a rebate/deduction from the payment of electricity duty not only to new units but to existing units as well who had or would set up captive power plants, it said.

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