Author: Ashwarya Sharma, Advocate & Co-Founder, RB LawCorp
Date: 16/01/2026
Supreme Court Reaffirms Binding Nature of Government Promises
In IFGL Refractories Ltd. v. Orissa State Financial Corporation & Ors. (2026), the Supreme Court of India delivered a significant ruling reinforcing the doctrines of promissory estoppel and legitimate expectation, holding that the State is constitutionally bound to honour its policy promises. The Court made it clear that government assurances are not mere policy statements but enforceable commitments when acted upon by businesses.
Background of the Dispute
The case arose from the State of Odisha’s refusal to disburse capital investment and DG set subsidies sanctioned under the Industrial Policy of 1989, on the ground that the company had allegedly exhausted benefits under earlier policies. The High Court upheld the State’s stand, prompting an appeal to the Supreme Court.
Interpretation of ‘New Industrial Unit’
The Supreme Court adopted a functional and pragmatic test to determine whether a unit qualifies as a “new industrial unit.” It held that factors such as fresh capital investment, physical and functional independence, and standalone viability are determinative. Applying this test, the Court concluded that the MM Plant Unit was a new industrial undertaking, fully eligible for incentives under the 1989 Policy.
Promissory Estoppel as a Constitutional Principle
Reaffirming settled Indian jurisprudence, the Court held that once the State makes a clear promise, and an enterprise alters its position in reliance on that promise, the State is estopped from withdrawing the benefit, unless overriding public interest and equity demand otherwise. Importantly, the Court clarified that actual financial loss is not mandatory—reliance and change of position are sufficient.
Legitimate Expectation & Article 14
The Court further held that sanctioned subsidies create a legitimate expectation, and arbitrary denial amounts to a violation of Article 14 of the Constitution. Government policies and representations must be applied fairly, consistently, and non-selectively, reinforcing transparency and accountability in public administration.
Judicial Censure of Bureaucratic Conduct
Strongly criticising bureaucratic inertia, the Court described the litigation as a “specimen of bureaucratic lethargy”, emphasizing that the State, as a trustee of public power, must act with credibility and consistency. Policy reversals without compelling justification were held to undermine investment confidence and economic governance.
Conclusion
The judgment stands as a powerful constitutional reminder that State credibility is central to economic policy. By reaffirming promissory estoppel and legitimate expectation, the Supreme Court underscored that public power cannot be exercised arbitrarily—captured aptly in the Court’s message:
“Jo vaada kiya, wo nibhana padega.”
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(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)