Bureaucratic Lethargy Of State Apparatus A Factor Which Will Discourage Entrepreneurship: SC

New Delhi: The Supreme Court on Tuesday said in many of its decisions, it 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 observation was made by a bench comprising justices J B Pardiwala and R Mahadevan in a verdict delivered on an appeal challenging a December 2018 judgment of the Orissa High Court.

The bench, in its 123-page judgment, said “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 the state must abandon the colonial conception of itself as a sovereign dispensing benefits at its absolute discretion.

It added that 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”, said the bench.

The bench said any curtailment or deprivation of the entitlements of private citizens or private business must be proportional to a requirement grounded in public interest. This understanding of the limits of state power has been recognised and reiterated by this court in a consistent line of decisions, it added.

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

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

The apex court allowed the appeal and set aside the judgment of the high court. The bench 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 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.