Administrative action removing an MSME from a subsidy scheme must adhere to the principles of proportionality and natural justice.

The Petitioner, an MSME manufacturing Single Super Phosphate (SSP) fertilizer, was inducted into the Nutrient Based Subsidy (NBS) Scheme in 2007

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

Earlier writ proceedings (W.P.(C) 6667/2024) resulted in the High Court setting aside the removal order on 10.05.2024 due to natural justice violations, directing a fresh hearing by a "Neutral Officer"

On 24.07.2024, the DoF issued an unsigned "Oral Hearing Report" upholding the original 13.03.2024 removal

During the pendency of these petitions, a court-ordered re-inspection on 18.08.2024 found the Petitioner compliant, leading to its re-induction into the NBS Scheme effective 09.09.2024

The remaining dispute concerns the entitlement to subsidy for the interim period between 13.03.2024 and 09.09.2024

Whether the "Oral Hearing Report" and the subsequent denial of subsidy were procedurally and substantively valid given the lack of signatures and reliance on post-hearing materials

Whether the Respondent could justify the Petitioner's removal from the NBS Scheme based on FCO violations when the SCN did not specifically invoke FCO provisions and the DoF admitted no formal action was taken under the FCO

Whether the penalty of total removal from the NBS Scheme was disproportionate and contrary to the DoF’s own "graded" penalty guidelines dated 08.06.2023

The court applied the principles of Natural Justice, specifically the right to a fair hearing and the requirement that an adjudicatory report must be signed and transparent

It relied on the Fertilizer (Control) Order, 1985 (FCO), which regulates quality and allows for suspension or cancellation under Clause 31, but noted that such statutory power must be explicitly invoked in the SCN

Furthermore, the court applied the Doctrine of Proportionality as embodied in the DoF Guidelines dated 08.06.2023, which prescribe a graduated sanction regime: recovery of one day’s production subsidy for the first violation, and removal from the NBS Scheme only after more than three violations

The court found the Respondent's fresh exercise clinically flawed.

First, the "Oral Hearing Report" was legally untenable as it was unsigned, anonymous, and relied on ex-parte clarifications obtained from the DoF after the hearing concluded, without affording the Petitioner a chance to rebut them

Second, the report erroneously purported to "uphold" the 13.03.2024 order which the High Court had already set aside

Third, the court noted a fatal contradiction in the Respondent's logic: while the DoF claimed the Petitioner was removed for FCO violations under Clause 31, it simultaneously admitted the Petitioner was never "tried" or formally penalized under the FCO

Most significantly, the court observed that the DoF ignored its own 08.06.2023 Guidelines; since this was the Petitioner's first violation, the maximum permissible penalty was a limited recovery of subsidy, making the total removal from the scheme grossly disproportionate and a "non-consideration of relevant aspects"

The Court held that the DoF must conduct a fresh determination of the Petitioner's eligibility for subsidy for the period from 13.03.2024 to 09.09.2024

The Court directed that if the Respondent seeks to justify removal based on FCO infractions, it must issue a specific, fresh SCN

The Secretary of the DoF was directed to nominate a new senior official to conduct a hearing and pass a reasoned order, specifically accounting for the proportionality prescribed in the 08.06.2023 guidelines

If found eligible, the Respondent must grant the subsidy for the disputed period