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Promissory Estoppel: A Primer

Vilas Pavithran
7 Jun 2020 12:43 PM GMT
Promissory Estoppel: A Primer
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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 v. State of Uttar Pradesh[i] 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 preexisting 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 be bound by it and 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.

THE EARLY YEARS

The seeds of Promissory Estoppel were first sown in Hughes v. Metropolitan Railway Co. 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.

Subsequently, it was Lord Denning who nurtured the idea of Promissory Estoppel in Central London Property Trust Ltd. v. High Trees House Ltd 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."

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. Thankfully this soon gave way, albeit with a gentle nudge from American Courts, 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 despite the best efforts of Lord Denning in Roberston v. Minister of Pensions 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, and also its applicability to the dealings of the Government.

TREATMENT BY INDIAN COURTS

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 v. Indo-Afghan Agencies 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. v. State of Uttar Pradesh and Ors [xi]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 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, State of Punjab v. Nestle India Ltd. [xii]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 and Energy Ltd. and Ors v. Union of India and Ors 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 and Ors[xiv] 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 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 v. Indo-Afghan Agencies 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 v. State of Bihar and Ors is another decision where the Supreme Court observed upon the applicability of Promissory Estoppel 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 v. Anglo Afgan Agencies, and Century Spinning & Manufacturing Co Ltd v. Ulhasnagar Municipal Council, and Robertson v. 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. and Anr v. The Ulhasnagar Municipal Council and Anr 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 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, UP Allahabad v. Ram Kumar 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. and Ors v. State of U.P and Ors 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 and Sons and Ors. v. Union of India and Ors. 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 v. Gwalior Rayon Silk Manufacturing (Wvg) Co. 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. v. Siphai Singh and Ors 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. v. State of Punjab 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. and Ors v. State of U.P 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

ESTOPPEL

Sections 115 of the Indian Evidence Act 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; 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. 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;…"

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, in addition to this they are firmly embedded in public law and can be the basis of enforcement of substantive rights.

The Supreme Court in National Buildings Construction Corporation v. S. Raghunathan and Ors 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 Estoppel 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.

AFTERWORD

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.

(Views are personal. The author is an advocate practicing in the courts of Goa)



(1979) 2 SCC 409

[1877] 2 A.C 439

[1956] 1 All. E.R 256: 1947 KS. 130

Combe v. Combe [1951] 2 K.B 215; Beesly v. Hallwod Estates Ltd. [1960] 2 All. E.R. 314; Crabb v. Arun District Council [1975] 3 All. E.R. 865

Drennan v. Star Paving Company [1958] 31 Cal. 2d. 409

Rederiaktiebolaget Amphirite v. The King [1921] 3 K.B. 500

[1949] 1 K.B. 227

Ganges Manufacturing Co. v. Surajmuli and Other (5 Calcutta 669).

Municipal Corporation of Bombay v. The Secretary of State (29 Bom. 580)

[1968] 2 SCR 366

AIR 1979 SC 621

(2004) 6 SCC 465

(2012) 11 SCC 1

(2016)6SCC766

[1977] 3 SCR 249

[1070] 3 SCR 854

1976 Cri LJ920

(2011)3SCC193

A.I.R. 1976 J &K 41

[1974] 1 SCR 671

[1978] 1 SCR 375

1992 (59) ELT 13 (SC)

(2011) 3 SCC 193

Section 115 Indian Evidence Act, 1872

See Section 11 Code of Civil Procedure, 1908

Halsbury's Laws of England, Fourth Edition, Volume I(I) 151

See Monnet Ispat and Energy Ltd. And Ors v Union of India and Ors.

M.P Oil Extraction and Ors v. State of M.P and Ors AIR 1998 SC 145

AIR 1998 SC 2779

Findlay v. 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.

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