Administrative action removing an MSME from a subsidy scheme must adhere to proportionality and provide signed, reasoned orders.

The Petitioner, an MSME manufacturing Single Super Phosphate (SSP) fertilizer, was inducted into the Nutrient Based Subsidy (NBS) Scheme.

Following an inspection in December 2023, the Department of Fertilizers (DoF) issued a show-cause notice and subsequently removed the Petitioner from the NBS Scheme on 13.03.2024 alleging violations of the Fertilizer Control Order, 1985 (FCO) and DoF guidelines.

This removal was previously set aside by the High Court on 10.05.2024 due to natural justice violations, with directions for a fresh hearing by a "Neutral Officer".

Following the neutral hearing, a report was issued on 24.07.2024 "upholding" the original removal.

However, a subsequent court-ordered re-inspection on 18.08.2024 found the Petitioner fully compliant, leading to their re-induction into the NBS Scheme effective 09.09.2024.

The remaining dispute concerns the Petitioner's entitlement to subsidy for the interim period between 13.03.2024 and 09.09.2024.

1. Whether the "Oral Hearing Report" and the consequent denial of subsidy for the period of 13.03.2024 to 09.09.2024 were procedurally and legally sustainable.

2. Whether the penalty of removal from the NBS Scheme was disproportionate to the alleged "first violation" under the DoF’s own penalty guidelines.

The court applied the principles of Natural Justice, requiring that a party be informed of all materials used against them.

It relied on the Department of Fertilizers Guidelines dated 08.06.2023, which establish a "proportionate sanction regime" for violations, prescribing financial recovery for the first three violations and removal from the NBS Scheme only for repeated offenses (more than three times).

The court also referenced the Fertilizer (Control) Order, 1985 (FCO), specifically Clause 31 regarding the suspension or cancellation of authorization, but noted that such statutory powers must be explicitly invoked in a show-cause notice to satisfy due process.

The Court found the DoF's second attempt to remove the Petitioner fatally flawed on several grounds.

First, the "Oral Hearing Report" was anonymous, lacking the name, signature, or designation of the deciding officer.

Second, the Hearing Officer violated natural justice by seeking and relying upon ex-parte submissions from the DoF after the hearing concluded, without allowing the Petitioner to rebut them.

Third, the DoF's communication purported to "uphold" a previous order dated 13.03.2024 that the Court had already expressly set aside.

Substantively, the Court noted that while the DoF justified the removal under Clause 31 of the FCO, the initial show-cause notice failed to mention the FCO, rendering the action beyond the scope of the notice.

Finally, the Court observed that the DoF completely ignored its own 08.06.2023 guidelines, which mandate a graduated penalty system; since this was the Petitioner's "first violation," the extreme penalty of removal was prima facie disproportionate and contrary to the DoF's established policy.

The Court held that the previous exercise was marred by procedural lapses and non-consideration of relevant guidelines.

The Respondent was directed to conduct a fresh exercise to determine the Petitioner's eligibility for subsidy for the period 13.03.2024 to 09.09.2024.

The Secretary of DoF must nominate a new senior official who has not previously dealt with the matter to afford the Petitioner a fresh hearing and pass a reasoned order.

If it is determined that the removal was unjustified or that the Petitioner is entitled to the subsidy, necessary consequential orders for payment must be passed.