The Supreme Court in State of Himachal Pradesh & Ors. v. M/s Kundlas Loh Udyog (2026 INSC 534) delivered an important judgment clarifying the limits of the doctrine of promissory estoppel in matters involving governmental incentive schemes. The Court held that promissory estoppel cannot be invoked to compel the State to grant a benefit that was never intended for a particular class of beneficiaries under the policy framework.
This judgment is significant for administrative law, industrial policy disputes, and fiscal jurisprudence because it carefully balances fairness to private entities with the State’s power to frame and implement economic policy in the public interest.
Background of the Dispute
The dispute arose from the Himachal Pradesh Industrial Policy, 2019, introduced to create an investor-friendly climate, encourage industrial development, and generate employment opportunities in the State. The policy contemplated incentives for both new industrial enterprises and existing industrial enterprises undertaking substantial expansion.
M/s Kundlas Loh Udyog, the respondent company, was an existing industrial unit engaged in industrial metal processing. The company had commenced commercial production in 2006 and was permanently registered since 2008. In 2020, it undertook substantial expansion by significantly increasing investment in plant and machinery. Its expansion proposal was approved, and a certificate acknowledging such expansion was issued by the authorities.
Under Clause 16 of the Industrial Policy, concessional electricity benefits were contemplated. Clause 16(a) stated that “eligible enterprises” would receive electricity at 15% lower approved energy charges for three years, while Clause 16(b) provided existing industrial consumers a 15% rebate on additional power consumption beyond the preceding financial year.
The respondent argued that, being an “eligible enterprise,” it was entitled to the concessional tariff benefit under Clause 16(a). The State, however, contended that Clause 16(a) was always intended only for new industrial enterprises, whereas existing industries undergoing expansion were covered separately under Clause 16(b).
High Court’s View
Himachal Pradesh High Court accepted the respondent’s case and directed the State to extend the benefit under Clause 16(a). The High Court appeared to proceed on a literal reading of the expression “eligible enterprises,” holding that the respondent fell within that description and could therefore claim the benefit.
The State challenged this decision before the Supreme Court.
Issues Before the Supreme Court
- Whether the benefit under Clause 16(a) was ever intended for existing industrial enterprises undertaking substantial expansion;
- Whether the doctrine of promissory estoppel could compel the State to extend such a benefit to the respondent.
Interpretation of the Industrial Policy
The Supreme Court closely examined the structure and purpose of the Industrial Policy, 2019. It observed that the policy consciously created two distinct categories of beneficiaries: new industrial enterprises and existing industrial enterprises undertaking substantial expansion.
The Court found that the respondent undeniably fell within the second category. It had commenced commercial production in 2006, well before the relevant appointed date under the policy framework, and merely undertook expansion in 2020. The expansion, though substantial, did not transform it into a new industrial enterprise.
The Court stressed that policy interpretation cannot be based on isolated words alone. A clause must be understood within the broader scheme of the policy.
According to the Court, Clause 16(a) was intended to incentivise fresh industrial investment by offering lower electricity charges to newly established industries. Clause 16(b), on the other hand, was specifically designed to encourage existing industries to expand capacity by offering rebates on additional electricity consumption.
Thus, both clauses served separate economic objectives.
No Double Benefit Intended
A major factor influencing the Court’s reasoning was the risk of overlapping benefits.
If the respondent’s interpretation were accepted, an existing industrial enterprise undertaking expansion would become entitled to both:
- the concessional tariff under Clause 16(a), and
- the rebate under Clause 16(b).
The Court held that such an interpretation would lead to an irrational and unintended double benefit. The policy never contemplated cumulative benefits for the same class of enterprises. Such an approach would distort fiscal planning and undermine the rational classification underlying the incentive scheme.
Effect of the 2022 Amendment
During the litigation, the State amended Clause 16(a) by replacing the word “eligible” with “new.” The respondent argued that this amendment was prospective and therefore could not affect rights that had already accrued.
The Supreme Court rejected this submission. It held that the amendment was clarificatory rather than substantive.
A clarificatory amendment merely explains the original legislative or policy intent; it does not create a new right or extinguish an existing one. The Court concluded that Clause 16(a) had always been intended for new industrial enterprises alone, and the amendment merely removed ambiguity caused by a drafting error.
Promissory Estoppel
The judgment contains an important discussion on promissory estoppel. The Court reiterated that promissory estoppel is an equitable doctrine intended to prevent injustice. Where one party makes a clear and unequivocal promise intended to induce action, and the other party relies on it and alters its position, the promisor may be prevented from going back on that promise. However, the doctrine has limits.
It cannot be invoked merely because a party expected a benefit. There must be a clear promise relating to that specific benefit.
The Court reaffirmed that the doctrine applies against the government in appropriate cases, but governmental fiscal policies remain subject to modification in public interest.
Precedents Discussed
The Supreme Court relied on several landmark authorities while explaining the doctrine.
In Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh (1979) 2 SCC 409, the Court recognised that promissory estoppel can apply against the government where a clear assurance induces reliance.
In Shree Sidhbali Steels Ltd. v. State of U.P. (2011) 3 SCC 193, discussed in the present judgment, the Court held that fiscal concessions granted under industrial policy may be modified or withdrawn in public interest.
Similarly, in State of Rajasthan v. J.K. Udaipur Udyog Ltd. (2004) 7 SCC 673, the Court observed that recipients of concessions do not ordinarily acquire indefeasible rights, since such benefits remain defeasible depending on policy considerations.
In Arvind Industries v. State of Gujarat (1995) 6 SCC 53, it was reaffirmed that governments are free to revise industrial policies and alter incentives in accordance with changing circumstances.
The Court also relied upon its recent decision in IFGL Refractories Ltd. v. Orissa State Financial Corporation (2026 SCC OnLine SC 28), where modern principles governing promissory estoppel were comprehensively restated.
Why Promissory Estoppel Failed Here
The respondent’s central argument was that it had altered its position by investing heavily in expansion based on the Industrial Policy and therefore, the State could not deny the promised benefit.
The Supreme Court disagreed. It held that the respondent’s reliance argument failed at the threshold because Clause 16(a) was never intended to apply to its category in the first place. Promissory estoppel cannot be used to create an entitlement contrary to the true meaning of the policy.
The Court further clarified that the certificate issued to the respondent merely acknowledged its status as an existing industrial enterprise undertaking substantial expansion. It did not amount to a sanction granting the concessional electricity tariff under Clause 16(a).
Importantly, the respondent had already received the benefit legitimately available under Clause 16(b). Therefore, no inequity remained that required equitable intervention.
Supreme Court’s Final Decision
Allowing the State’s appeal, the Supreme Court set aside the High Court’s judgment.
It held that Clause 16(a) was always intended exclusively for new industrial enterprises, while existing industrial enterprises undergoing substantial expansion were entitled only to the rebate benefit under Clause 16(b). The amendment replacing “eligible” with “new” was merely clarificatory and retrospective in effect. Since the respondent had already received the benefit applicable to its category, promissory estoppel had no role to play.
Conclusion
The Supreme Court’s ruling in State of Himachal Pradesh v. M/s Kundlas Loh Udyog is an important reminder that equitable doctrines cannot be stretched beyond their legitimate boundaries. Promissory estoppel exists to prevent unfairness arising from broken promises, but it cannot be invoked to secure benefits that governmental policy never intended to confer.
The judgment reinforces that policy interpretation must be guided by context, structure, and purpose rather than isolated wording. It also protects fiscal discipline by ensuring that industrial incentive schemes are not expanded through litigation beyond their intended scope. For businesses and policymakers alike, the message is clear: reliance may create equity, but equity cannot manufacture rights where none ever existed.
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