Promissory estoppel on the anvil of public interest

The doctrine of promissory estoppel is the principle that if a promise is made with an expectation that it would be acted upon, and it is so acted upon, the party making the promise will not be permitted to renege on such promise[1].

Such a promise may be specifically enforced when it is established that it would be ‘inequitable’ for the promisor to go back on the promise, that is, when the promisee cannot be restored to its original position prior to acting upon such a promise. There is no requirement to show that such person suffered any detriment / actual harm due to his reliance on such a promise, but only that the promisee altered his position in reliance on the promise[2]. In certain cases, a promisor is bound to the bargain even where there is no consideration[3].

This principle of estoppel is also embodied in Section 115 of the Indian Evidence Act 1872, which states that a promisor is not permitted to deny the truth or existence of a promise or representation, in any suit or proceeding between him and the promisee, if such promisee was intentionally caused or permitted to believe that the promise was true.

In order to invoke the doctrine of promissory estoppel as a cause of action[4], the claimant / promisee would need to demonstrate (a) an unequivocal promise or representation[5] (that is, a representation which is unambiguous and not a matter of inference), (b) an intention to affect the legal relationship (that is, promise made with an expectation that it would be acted upon), (c) the fact that the promisee had altered its position by relying on the promise[6] and (d) that there is no concluded contract[7].

In India, the jurisprudence on the doctrine of promissory estoppel has developed primarily on account of claims against the Government and in relation to Government promises. In a recent order by the High Court of Bombay (Nagpur Bench)[8], the Court held that the Government could not claim immunity from the application of the said doctrine on “indefinite and undisclosed” grounds, and mere claim of change of policy would not be “sufficient to exonerate the Government from its liability”.

Having said this, the doctrine cannot prevent any Government body from performing its duties (including the legislature) and must give way to ‘public interest’[9], when dealing with promises made by the Government. This was recently emphasized by the Supreme Court in the case of Union of India & Anr. vs. V.V.F. Limited & Anr.[10] . This does not mean that a promise made by the Government cannot be enforced[11], but that individual interests must be weighed against the larger public interest. For instance, the case of State of Punjab vs. Nestle India Limited & Anr., where the Supreme Court prevented a State Government from retracting its decision to provide exemption to a product and charge taxes retrospectively, on the ground that it did not exercise its discretionary powers reasonably[12].

The doctrine, however, cannot be invoked, inter alia, against the Legislature[13] or a minor[14], or used to compel anyone to do anything illegal. It is also inapplicable in the fiscal domain, that is, in relation to taxation (which is the sole prerogative of the Legislature)[15].

In conclusion, it is clear that the doctrine of promissory estoppel is settled law, but being a doctrine of equity, must be juxtaposed with the larger ‘public interest’ especially when being enforced against the Government (presumed to be acting in public interest under statutory powers). In many cases, Indian Courts have given effect to the said doctrine, and held the Government accountable for its ‘promises’ and in some others the doctrine gave way to larger ‘public interest’. Some of these cases are where incentives were introduced for the promotion of industrial activities, and subsequently, withdrawn or scaled back on vague and indefinite grounds, increasing the risk (due to uncertainty) to enterprises who acted on the basis of such promised incentives. On the other hand, Courts have also provided ample guidance to the Government on how such incentives / schemes can be modified (inter alia, on the ground of necessity, public interest etc.)[16]. Therefore, while the doctrine serves to introduce a degree of certainty (especially in relation to Government policies and schemes), its enforceability is evaluated on the fundamentals of equity; and public interest ‘must override private loss or gain’[17].

Author:

Kirti Balasubramanian, Senior Associate

Footnotes:

[1] Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh, 1979 (2) SCC 409, Century Spinning & Manufacturing Co. Ltd. vs Ulhasnagar Municipal Council, AIR 1971 SC 1021.
[2] See footnote 1 (Para 33).
[3] See footnote 1 (Paras 19, 24).
[4] See footnote 1 (Paras 9, 10).
[5] Ude Ram vs. State of Haryana, AIR 1994 P&H 175.
[6] Delhi Cloth & General Mills Ltd. vs. Union of India, AIR 1987 SC 2414.
[7] Kalpana Das vs. Contai Co-op Bank Ltd., AIR2005Cal95 wherein the Court held that once contract is entered into, the parties must act as per its terms, and there is no question of promissory estoppel in such a case.
[8] K.M. Refineries and Infraspace Pvt. Ltd. vs. the State of Maharashtra & Ors., [2020]72GSTR94(Bom), the Court held that “It was laid down by this Court that the Government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action. If the Government does not want its freedom of executive action to be hampered or restricted, the Government need not make a promise knowing or intending that it would be acted on by the promisee and the promisee would alter his position relying upon it. But if the Government makes such a promise and the promisee acts in reliance upon it and alters his position, there is no reason why the Government should not be compelled to make good such promise like any other private individual. The law cannot acquire legitimacy and gain social acceptance unless it accords with the moral values of the society and the constant endeavor of the Courts and the legislature must, therefore, be to close the gap between law and morality and bring about as near an approximation between the two as possible. The doctrine of promissory estoppel is a significant judicial contribution in that direction.”
[9] Union of India v. Unicorn Industries, 2019 SCC OnLine SC 1231, wherein the Court held (in the context of inapplicability of the doctrine of promissory estoppel as regards excise duty imposed for certain products) that “the larger public interest would outweigh an individual loss, if any.”
[10] Union of India & Anr. Vs. Ms. V.V.F. Limited & Anr., 2020 SCC OnLine SC 378 (order dated April 22, 2020).
[11] Union of India vs. Godfrey Phillips India Ltd., AIR 1986 SC 806. The Godfrey Philips case disapproved the Jit Ram case (see footnote 9) to the extent that promissory estoppel is applicable against the Government in exercise of its governmental, public or executive function.
[12] State of Punjab vs. Nestle India Limited & Anr., (2004)6SCC465.
[13] Jit Ram Shiv Kumar & Ors. etc. vs. State of Haryana & Anr., 1980 SCR (3) 689.
[14] Mohori Bibee v. Dharmodas Ghose (1903) ILR 30 Cal. 539 wherein Lordship Romer commented that “a Court of equity cannot say that it is equitable to compel a person to pay any monies in respect of a transaction which as against that person the Legislature has declared to be void.”
[15] Bombay Conductors and Electricals Ltd. v. Government of India, 1983 SCC OnLine Del 65 (Full bench)(Para 21).
[16] Ibid.
[17] STO v. Shree Durga Oil Mills, (1998) 1 SCC 572.

Date: December 10, 2020