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Rudiments Of The Doctrine Of Promissory Estoppel

The Doctrine of Promissory Estoppel is an equitable doctrine evolved to avoid injustice and though commonly named Promissory Estoppel, it falls in the sphere of neither contract nor estoppel. This principle is commonly invoked in common law in case of breach of contract or against a Government. The doctrine is popularly called as Promissory Estoppel, Equitable Estoppel , Quasi Estoppel and New Estoppel. It can be said that if the Government in India makes a promise to any person and the promise is not inconsistent with the law of the land and is not against public interest, then afterwards it cannot refuse to abide by its promise.

The Concept Of Promissory Estoppel

Being a doctrine Promissory Estoppel defies easy summarization into a simple definition, however the Supreme Court in [M. P Sugar Mills Co. Ltd Vs. State of Uttar Pradesh & Ors., (1979) 2 SCC 409] sought to explain the doctrine as such:
..that where one party has by his true words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or affect legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties, and this would be so irrespective whether there is any pre-existing relationship between the parties or not.

Thus, the idea of Promissory Estoppel is essentially - where there exist two parties, and one makes a promise to the other, with the intent of creating a legal relationship, and such promise is acted upon by the party to whom it is made, then the party making such promise would not be allowed to renege on its word.

The concept is founded upon the idea of equity, and it seeks to prevent the injustice that would be caused when persons making promises that are acted upon by others, refuse to honor their initial pledge.

Evolution Of The Doctrine Of Estoppel

In order to understand the precise scope of the doctrine of promissory estoppel, it is necessary to trace its evolution. Estoppel is a rule of equity. That rule has gained new dimensions in recent years. A new class of estoppel i.e. promissory estoppel has come to be recognised by Courts in the country, as well as in England. The full implication of promissory estoppel is yet to be spelled out

... The seeds of Promissory Estoppel were first sown in [Hughes Vs. Metropolitan Railway Co., (1877) 2 A. C 479] where it was held that if negotiations subsequent to entering of a contract led a party to such contract to believe that rights under the contract would not be enforced/would be kept in suspension, the person in a position to enforce these rights would not be allowed to enforce them in as much as it would inequitable to do so.

Lord Cairns stated the doctrine in its earliest form in the following words in Hughes Vs. Metropolitan Railway Co. (supra):
It is the first principle upon which all Courts of equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results afterwards by their own act or with their won consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.

Subsequently, it was Lord Denning who nurtured the idea of Promissory Estoppel in [Central London Property Trust Ltd. Vs. High Trees House Ltd., (1956) 1 All. E. R 256; 1947 KS. 130], wherein, he ruled …that a promise intended to be binding, intended to be acted on and in fact acted on, is binding so far as its terms properly apply.
The correctness of Denning J.'s dictum has, however, been subject of considerable controversy.

[Cheshire and Fifoot (1947) 63 L. Q. R. 283; (1948) 64 L.Q.R. 28; Wilson (1951) 67 L. Q. R. 330; Lord Denning (1952) 15 M.L.R. 338; Bennion (1953) 16 M.L.R. 441; Wilson [1965] C.L.J. 257].

In particular, two criticisms have been leveled against it.

First, it was argued that the concept of Promissory estoppels offends against the rule in [Jorden Vs. Money, (1845) 5 H. L. C. 185], and applied in [Citizen's Bank of Louisiania Vs. First National Bank of New Orleans (1873) L. R. 6 H. I. 352: Maddison Vs. Alderson, (1853) 8 App. Cas. 467, at P. 473] in which it was held that only a representation of existing or past fact, and not one relating to future conduct, will ground an estoppels. Estoppel would not therefore apply, as in the High Trees case, to a promise as to the future.

The rule in Jordan Vs. Money (supra), however is not an absolute one, and it is qualified by a number of exceptions.13 One of this exception is that the principle expressed in Hughes Vs. Metropolitan Railway Co. (supra), which applies where two parties stand together in a contractual or other similar legal relationship, and one of them makes to the other promise to forbear from enforcing its strict legal rights. To this situation the rule in Jorden Vs. Money (supra) has no application.

Secondly, it was that the dictum of Denning J. is inconsistent with the decision of the House of Lords in [Foakes Vs. Beer, (1884) UKHL 1]. But the principle upon which he relied in the High Trees was that of estoppels, which must be specially pleaded. A plea of estoppel was never raised in Foakes Vs. Beer (supra).

However, while with this Promissory Estoppel had finally assumed a shape and form we would recognize today, there were several limitations, or rather curbs which Courts chose to apply such as the notion that Promissory Estoppel could not in itself be a cause of action and instead was solely a defense that could be adopted [Combe Vs. Combe. (1951) 2 K.B 215; Beesly Vs. Hallwod Estates Ltd. (1960) 2 All. E.R. 314; Crabb Vs. Arun District Council (1975) 3 All. E.R. 865].

Thankfully this soon gave way, albeit with a gentle nudge American Courts [Drennan Vs. Star Paving Company, (1958) 31 Cal. 2d. 409], to the prevailing position wherein Promissory Estoppel is allowed to be the basis of a cause of action.

Another fetter on Doctrine of Promissory Estoppel that was applied in its early days pertained to its applicability to the Government. English Courts consistently held that it would not be applicable [Rederiaktiebolaget Amphirite Vs. The King, (1921) 3 K.B. 500] despite the best efforts of Lord Denning in [Roberston Vs. Minister of Pensions, (1949) 1 K. B 227] where he expressed his disagreement in no uncertain terms. This stand has also long been abandoned and it is largely settled that the Doctrine of Promissory Estoppel can be invoked against and applied to the Government.

Interestingly, Courts in India have been enthusiastic in fostering the Doctrine of Promissory Estoppel and have exhibited absolutely no reticence in allowing its use as a cause of action [Ganges Manufacturing Co. Vs. Surajmuli & Other, (5 Calcutta 669)], and also its applicability to the dealings of the Government. [Municipal Corporation of Bombay Vs. The Secretary of State, (29 Bom. 580)].

Doctrine Of Promissory Estoppel In India & Role Played By Indian Courts

Under The Indian Contract Act, 1872, the term contract has been defined as an agreement enforceable by law in S. 2 (h). Under S. 2 (e), every promise is an agreement. But, unless the agreement is supported by consideration' the agreement would be void except in the three instances mentioned in S. 25.

Therefore, unless a promise is supported by consideration it will not, ordinarily, be enforceable by law. S. 2 (d) defines consideration as follows:
When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do, or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

Hence, when a person makes a promise, unless the promisee does, has done or promises to something, at the desire of the promisor, the promise would be without consideration and the promise cannot be enforced in a Court of law.

Suppose a person promises a subscription to a charitable institution with the knowledge that a building will be constructed with the money received, from the subscribers, but does not desire the institution to do so; the institution however, on the faith of the promise, incurs expenditure in putting up a structure. If the promisor does not honor his promise, the institution may not be able to sue him successfully for the amount promised, because, the promise is not supported by consideration.

Take the case of the Government making an announcement relating to some relief such as a sales-tax holiday if something is done by the citizen such as opening a new factory in a specified area. On the faith of the announcement, a citizen may do the necessary thing and thus change his .position. The Government thereafter changes its policy. Even if it is assumed that the citizen acted at the desire of the Government there cannot be a conduct enforceable against the Government, because, contracts, which can be enforced against the Government, should be in a particular form. (Article 299 of Constitution of India).

Estoppels in the sense in which the term is used in English legal phraseology, are matter of infinite variety, and are by no means confined to subjects which are dealt with in Chapter VIII of The Indian Evidence Act, 1872. A man may be estoppled not only from giving particular evidence, but from doing acts, or relying upon any particular arguments oil contention which the rules of equity and good conscience prevent him from using as against his opponent.

Despite the fact that there are earlier Indian decisions that deal with Promissory Estoppel, it is the decision of the Supreme Court in [Union of India Vs. Indo-Afghan Agencies, (1968) 2 SCR 366] that truly set in motion the jurisprudence of Promissory Estoppel in India.

Herein the Court held:
We hold that the claim of the respondents is appropriately founded upon the equity which arises in their favour as a result of the representation made on behalf of the Union of India in the Export Promotion Scheme, and the action taken by the respondents acting upon that representation under the belief that the Government would carry out the representation made by it. On the facts proved in this case, no ground has been suggested before the Court for exempting the Government from the equity arising out of the acts done by the exporters to their prejudice relying upon the representation.

[Motilal Padampat Sugar Mills Co. Ltd. Vs. State of Uttar Pradesh & Ors., AIR 1979 SC 621] is perhaps the most exhaustive Indian judgment dealing with the Doctrine of Promissory Estoppel, and fully achieves the objective Bhagwati, J sought to achieve, that is to discuss it in some detail with a view to defining its contours and demarcating its parameters.. The importance of this Judgment lies in its thoroughness, in as much as the Court traces the origin of the Doctrine of Promissory Estoppel right from Hughes v. Metropolitan Railway Co. (supra) to then recent Indian cases.

The Court explored various facets of the Doctrine such as its applicability to the Government, which it affirmed. In addition to this, the decision also touched upon the issue of whether it was necessary for the promisee to show that he suffered detriment as a result of acting in reliance on the promise; Here the Court truly ensured a broad scope of applicability of the Doctrine of Promissory Estoppel by holding that it would apply so long as prejudice would be caused to the promisee if the promisor was allowed to go back on the promise.

Coming 20 years after the decision in Motilal Padampat Sugar Mills Co. Ltd & Ors, (supra) the Honble Supreme Court in [State of Punjab Vs. Nestle India Ltd. & Anr., (2004) 6 SCC 465] comprehensively examines the development of the law of Promissory Estoppel in India after the decision in the former.

It examines in great detail the applicability of the law of Promissory Estoppel to the Government and concludes by affirming such applicability by saying:
The Appellants have been unable to establish any overriding public interest which would make it inequitable to enforce the estoppel against the State Government. The representation was made by the highest authorities …. It would, in the circumstances, be inequitable to allow the State Government now to resile from its decision…

The decision of the Supreme Court in [Monnet Ispat & Energy Ltd. & Ors Vs. Union of India & Ors., (2012) 11 SCC 1] is another more recent exposition of the law of Promissory Estoppel, in addition to discussing the growth and evolution of the Doctrine of Promissory Estoppel, the Judgment also juxtaposes it alongside the Doctrine of Legitimate Expectation which is in many ways analogous to that of Promissory Estoppel.

[Manuelsons Hotels Private Limited Vs. State of Kerala & Ors., (2016) 6 SCC 766] this case reiterated certain fundamentals of the Doctrine of Promissory Estoppel. These were that the underpinning rationale of the doctrine is that the law must not permit an:
unconscionable departure by one party from the subject matter of an assumption which may be a fact of law, present or future, and which has been adopted by the other party as the basis of some course of conduct, act or omission and also that relief to be given in cases involving the doctrine of promissory estoppels contains a degree of flexibility which would ultimately render justice to the aggrieved party.

Promissory Estoppel And Its Applicability To The Government

The principle of estoppel in India is a rule of evidence incorporated in Section 115 of The Indian Evidence Act, 1872.

The section reads as follows:
When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe such a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.

The applicability of Promissory Estoppel to the Governments has been the cause of much deliberation; while certain Courts were hesitant to countenance this, the preponderant view is that in legal system marked by rule of law, the Government can scarcely claim it is exempt from the principles of equity.

The decision in Union of India Vs. Indo-Afghan Agencies (supra) touched upon this when it observed:
Under our jurisprudence the Government is not exempt from liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be judges of its own obligation to the citizen on an ex parte appraisement of the circumstance in which the obligation has arisen.

[Radha Krishna Agarwal Vs. State of Bihar & Ors., (1977) 3 SCR 249] is another decision where the Supreme Court observed upon the applicability of Promissory to the Government; however, it must be noted that the primary issue before the Court was not specifically this.

Nevertheless, the Supreme Court observed so It rightly held that the cases such as Union of India Vs. Anglo Afgan Agencies, and Century Spinning & Manufacturing Co Ltd Vs. Ulhasnagar Municipal Council, and Robertson Vs. Minister of Pensions belong to the first category where it could be held that:
public bodies or the State are as much bound as private individuals are to carry out obligations incurred by them because parties seeking to bind the authorities have altered their position to their disadvantage or have acted to their detriment on the strength of the representations made by these authorities.

The Supreme Court in [Century Spinning & Manufacturing Co Ltd. & Anr Vs. The Ulhasnagar Municipal Council & Anr., 1970 SCR (2) 854] in no uncertain terms reiterated the well settled principle that the Government/Public Authorities are not exempt from the applicability of Promissory Estoppel.

A public body is, in our judgment, not exempt from liability to carry out its obligation arising out of representations made by it relying upon which a citizen has altered his position to his prejudice.

Negation Of The Doctrine Of Promissory Estoppel

Despite the sweeping scope of the Doctrine of Promissory Estoppel, there are quite a few conditions, the existence of which would preclude its its applicability. Some of these include:
A bar on applicability of Promissory Estoppel when Government exercises its legislative/sovereign powers, this was held by the Supreme Court in [Excise Commissioner, U. P Allahabad Vs. Ram Kumar, (1976) Cri. L. J 920] where it was held that it is now well settled by a catena of decisions that there can be no question of estoppel against the Government in the exercise of its legislative, sovereign or executive powers.

The same was reiterated in [Shree Sidhbali Steels Ltd. & Ors Vs. State of U. P & Ors., (2011) 3 SCC 193] when the Supreme Court held that :
There can be no estoppel against statute.

Yet another decision that espoused this view was that of the High Court of Jammu & Kashmir in [Malhotra & Sons & Ors. Vs. Union of India & Ors., AIR 1976 J&K 41] Which held that;
The Courts will only bind the Government by its promises to prevent manifest injustice or fraud and will not make the Government a slave of its policy for all times to come when the Government acts in its Governmental, public or sovereign capacity.

[State of Kerala Vs. Gwalior Rayon Silk Manufacturing (Wvg) Co., (1974) 1 SCR 671] where the Supreme Court reiterated the same principle and held that the surrender by the Government of its legislative powers to be used for public good cannot avail the company or operate against the Government as equitable estoppel.

Courts have also made it clear that it is a sine qua non that the party claiming Promissory Estoppel must have actually acted upon the promise made, a decision in this regard is that of [Bihar Eastern Gangetic Fisherman Co-operative Society Ltd. Vs. Siphai Singh & Ors., (1978) 1 SCR 375] where the Supreme Court held that in the absence of clear pleadings, details or particulars or even any documents it cannot be accepted that a party has sufficiently altered his position on the basis of a promise made by the other so as to entitle the former to the benefit of Promissory Estoppel.

Additionally it has also been held as in the case of [Amrit Banaspati Co. Ltd. Vs. State of Punjab, (1992) 59 ETL 13] that even where the necessary ingredients promissory estoppel have been established, the principle of promissory estoppel would not apply where the promise or representation was in itself illegal and a fraud on the Constitution and a breach of faith of the people.

Another situation in which Courts would desist from applying the Doctrine of Promissory Estoppel is where it would be against public interest to apply the Doctrine, the decision in [Shree Sidhbali Steels Ltd. & Ors Vs. State of U. P, (2011) 3 SCC 193] aptly dealt with this wherein it said:
However, if it can be shown by the Government that having regard to the facts as they have subsequently transpired, it would be inequitable to hold the Government to the promise made by it, the Court would not raise an equity in favour of the promise and enforce the promise against the Government. Where public interest warrants, the principles of promissory estoppel cannot be invoked.

Promissory Estoppel And Allied Concepts

Sections 115 of the Indian Evidence Act, 1872 pertains to Estoppel and serves as a bar on persons who by their acts/omissions have caused/permitted another to believe a particular thing to be true and consequently act upon such belief, from denying the truth of such thing in a suit or proceeding between himself and such other person.

Despite the similarity in nomenclature, there exist some differences between Promissory Estoppel, and mere Estoppel. The first is that while Promissory Estoppel has its foundation in equity and can be extended to contractual relationships, Estoppel has its roots in equity but also the Law of Evidence. Another difference between the two is that while Promissory Estoppel is applicable to a wide range of situations including contracts, Estoppel as under Section 115 can only be invoked in a suit or proceeding between the parties. In addition to this while Promissory Estoppel has an element of expectation to it, in that the representation made pertains to future conduct, this is not so in case of mere Estoppel where the representation made pertains to the past/present state of affairs.

Another species of estoppel can be found in the Code of Civil Procedure, 1908; Section 11 Res Judicata sets down a bar upon a Civil Court from trying any Suit/issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former Suit between the same parties, litigating under the same title, and has been heard and finally decided by such Court. [See Section 11 Code of Civil Procedure, 1908]. This again is different from the concept of Promissory Estoppel in that it acts as a bar only upon the Court, and such bar is applicable only to a Suit/issue before it, and therefore of a much narrower ambit when compared to Promissory Estoppel.

Doctrine Of Legitimate Expectation

Legitimate Expectation is explained as:
A person may have a legitimate expectation of being treated in a certain way by an administrative authority even though he has no legal right in private law to receive such treatment. The expectation may arise either from a representation or promise made by the authority, including an implied representation, or from consistent past practice…it may mean that the authority ought not to act so as to defeat the expectation without some overriding reason of public policy to justify its doing so;…. [Halsburys Laws of England, Fourth Edition, Volume I (I) 151].

There exist significant similarities between the Doctrine of Promissory Estoppel, and that of Legitimate Expectation, for instance both are founded upon the principles of equity, fairness and natural justice [See Monnet Ispat and Energy Ltd. And Ors Vs Union of India & Ors., (supra)], in addition to this they are firmly embedded in public law and can be the basis of enforcement of substantive rights. [M.P Oil Extraction & Ors Vs. State of M. P & Ors., AIR 1998 SC 145].

The Supreme Court in [National Buildings Construction Corporation Vs. S. Raghunathan & Ors., AIR 1998 SC 2779] succinctly summed up the similarity in establishing applicability of the Doctrine of Promissory Estoppel, and the Doctrine of Legitimate Expectation when it said:
…claims based on Legitimate Expectation have been held to require reliance on representations and resulting detriment to the claimant in the same way as claims based on promissory estoppel.

However, despite the many similarities they are distinct doctrines; perhaps the most significant point of difference between the two is that while Promissory can be invoked against private parties, the Doctrine of Legitimate Expectation can be invoked only against the Government.

It therefore comes as no surprise that the some defenses which would apply to a claim of Promissory Estoppel would also apply to an invocation of the Doctrine of Legitimate Expectation, in as much as where the Court finds that the actions of the Government/Public Authority are founded upon public interest it would be reluctant to interfere i.e. personal benefit must give way to public interest [Findlay Vs. Secy. Of State of Home Deptt (1984) 3 All ER 801; Kerala State Beverages (M and M) Corporation Limited and Ors. V. P.P Suresh and Ors.].

Despite the great deal of uncertainty regarding the various aspects of the Doctrine of Promissory Estoppel, the law has come to be settled by means of several authoritative pronouncements which have more than adequately dealt with the various uncertainties that persisted and laid down a jurisprudence that is now clear and unambiguous. The Doctrine of Promissory Estoppel, being one founded in equity and fairness has been earnestly applied by Courts across jurisdictions, and for good reason.

Dinesh Singh Chauhan, Advocate
J&K High Court of Judicature, Jammu.
Email: [email protected], [email protected]

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