Doctrine Of Promissory Estoppel

CONCEPT

The doctrine of promissory estoppel is that when one individual with the intention of creating or affecting lawful relationship makes a promise with another individual and that individual acts on it, that promise must be binding for the individual who is making it. It would not be allowed to go back from its words. Because reverting from the words shall be against equity.

Thus, the promissory estoppels doctrine is based on the principles of justice, fair play, as well as a good conscience.

The government can enter into a contract just like any other individual or entity. Today, state officials make promises to individual parties who enter into commitments on the basis of these promises, only to find that the government’s discretion cannot be relied upon. The defence of statutory provisions provides sufficient umbrage for the government to go back on promises. Therefore, in this time of escalating administrative and executive facets of the State, the doctrine of promissory estoppel has gained considerable importance in the field of administrative law.

 

PRINCIPLE OF PROMISSORY ESTOPPEL

The principle of estoppel in India is a rule of proof incorporated into section 115 of The Indian Evidence Act, 1872. “When an individual has, by his declaration, act or omission, intentionally prompted or accredited every other individual to accept as true with this type of element to be real and to act upon such notion, neither that individual nor his consultant would be allowed, in any shape or proceeding among himself and such individual or his representative, to disclaim the reality of that issue.

The principle of promissory estoppel stated in India, consequently in which one by his phrases or demeanor made to the alternative individual, a clean and unequivocal promise, who supposed that it would be acted upon through the individual towards whom the promise is made and it is far in fact so acted upon by the opposite, the promise may be binding making it and the individual might be not entitled to go lower back upon it, if it had been inequitable to allow the individual to achieve this having regards towards the dealings that have taken region amongst the individuals, and this would be so no matter whether or not there is any pre-existing courting amid the individuals or no longer.

 

EVOLUTION OF THE DOCTRINE

The foundation of the doctrine of promissory estoppel in India, as such, was laid down in the case of Collector of Bombay v. Municipal Corporation of the City of Bombay. 

Chandrashekar Aiyer J. in this case, expressed the following view :

“But even otherwise, that is if there was merely the holding out of a promise that no rent will be charged in the future, the Government must be deemed in the circumstances of this case to have bound themselves to fulfil it. Courts must do justice by the promotion of honesty and good faith, as far as it lies in their power”.

Nevertheless, it was in the case of Union of India vs. Anglo Afghan Agencies that there was a manifest depiction of the newfound stress on the principles of equity under the doctrine. The Government of India announced certain concessions with regard to the import of certain raw materials in order to en-courage export of woollen garments to Afghanistan. Subsequently, only partial concessions and not full concessions were extended as announced. The Supreme Court applied the rule of estoppel based on equity and maintained that such promises may bind the Government even in the absence of constitutional formalities prescribed for government contracts.

Motilal Padampat Sugar Mills vs State Of Uttar Pradesh And Ors, the Chief Secretary of Govt. made an assurance that in order to establish industries firmly the total tax exemption will be given to the new industrial units for next 3 years based on this assurance M.P. sugar mill started hydro generation plant taking huge amount of money as loan. Afterward govt. makes some changes in the tax policy saying that industries will be taxed at a varying rate.

Applying the doctrine of promissory estoppels the SC held that appellant took a huge loan relying on the assurance made by govt. so no tax should be imposed for the period of 3 years from the date of production as the promise was made. And there is nothing like to make that promise enforceable one party should suffer harm or damages, in absence of detriment also the promise is binding.

M. P. Sugar Mills v State of U. P. is one that is more in consonance with the principles of equity. The rationale behind this opinion is that though the government may be justified in making a change in public policy in exercise of its statutory powers, it is necessary to put in safeguards against the retrospective effects of such a policy change. For example, the government may be justified in saying that all industrial units that are established from this date onwards will not be entitled to the benefits but it is not justified in saying that from this date onwards all industrial units, even those that have been established earlier, will no longer be entitled to the benefits that had provided them the incentive to be established in the first place. Therefore, in the author’s opinion, the doctrine of executive necessity should not be treated as an effective defence against the doctrine of promissory estoppel.

Another contention that arose was in the case of Jit Ram Shiv Kumar v State of Haryana which diluted the impact of the decision made in Motilal. It was held in this case that the doctrine of estoppel is not available against the exercise of executive functions of the state.

However, the Apex Court in Union of India vs. Godfrey Phillips India Limited removed this doubt. The Court held that the law laid down in Motilal’s case represents the correct law on promissory estoppel.

 

PROMISSORY ESTOPPEL AND GOVERNMENT AGENCIES

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.”

 

Essential characteristics to make promise binding on Government

The following are the essentials to make any promise binding on the Government:

1. The State makes the promise within the ambit of law.

2. There is an intention to enter into a legal relationship.

3. The other party must do an act in furtherance of that promise or is forbidden to do anything.

 

No estoppel against statute and law

The doctrine of estoppel does not apply to statutes. In other words, a person who makes a statement as to the existence of the provisions of a statute is not estopped, subsequently, from contending that the statutory provision is different from what he has previously stated.

A person may not represent the true status of a statute or law, but the other person who relies on such a representation is at liberty to find out the position of law on the matter and as the maxim says, ignorance of law is no excuse. So a person cannot take recourse to the defence of estoppel to plead that a false representation has been made regarding the provisions of a statute or law. The principles of estoppel cannot override the provisions of a statute. Where a statute imposes a duty by positive action, estoppel cannot prevent it. The doctrine cannot also be invoked to prevent the legislative and executive organs of the Government from performing their duties.

 

Conditions to invoke “No estoppels against a Statute”

The following conditions have been laid down as necessary to invoke the maxim of ‘No estoppel against a statute’-

• The parties must bilaterally agree to contract irrespective of statutory provisions of the applicable Act
• The agreement entered into by the parties must be expressly prohibited by the Act.
• The provision of law must be made for public interest and not pertain to a particular class of persons.
• The agreement of the parties should not have been merged into an order of the court which by the conduct of the parties had been dissuaded from performing its statutory obligations.

The doctrine of promissory estoppel has also been applied against the Government and the defence based on executive necessity has been categorically negated. The Government is not exempted from liability to carry out the representation made by it to its future conduct and it cannot on some undefined and undisclosed grounds of necessity or expediency fail to carry out the promise made, solemnly by it. The Supreme Court has refused to make any distinction between a private individual and public body so far as the doctrine of promissory estoppel is concerned. But if the promise is on behalf of the Government is unconstitutional, against any statute or against public policy the question of promissory estoppel against Government does not apply. Thus, the Government through its officers is bound by the doctrine and cannot invoke any defence for their inaction, unless backed by statutory authority. Statute imposes a public duty while the duties imposed by a promise are owed by the Government not to the public but to private individuals.

Thus estoppel does not apply to contravention of a statute but applies to the breach of a promise by the Government. Where the Government makes a promise knowing or intending that it would be acted upon by the promisee and, in fact, the promisee acting in reliance of it, alters his position, the Government will be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of The Constitution of India.

Since the doctrine of promissory estoppel is an equitable doctrine it must yield when the equity so requires. If it can be shown by the Government that having regard to the facts as they have subsequently transpired, it would be inequitable to the Government to abide by the promise made by it, the court would not raise an equity in favor of the promise and enforce the it against the Government. The doctrine of promissory estoppel will be displaced is such a case because equity would not require the Government to be bound by the promise. When the Government is able to show that due to the facts which have transpired subsequent to the promise being made, public interest would be prejudiced if the Government were required to carry out the promise made, the court would have to balance the public interest in the Government carrying out the promise made to a citizen which has induced the citizen to alter his position to his prejudice and the public interest likely to suffer if the Government were to carry out the promise, and determine which way the equity lies.

 

When the doctrine can’t be invoked:

The doctrine of estoppel cannot be invoked for preventing the Government from acting in discharge of its duties under the law. The doctrine of cannot be applied in teeth of an obligation or liability imposed by the law. It cannot be used to compel the Government or even a private party to do an act prohibited by law. There can be no promissory estoppel against the exercise of legislative power. The legislature can never be precluded from exercising its legislative functions by resort to the doctrine of promissory estoppel.

An insight into judicial behaviour further indicates that estoppel cannot be applied against the Government if it jeopardizes the constitutional powers of Government.

Sankaranarayanan v. State of Kerala

 The court rejected the contention of estoppel and held that the power conferred by the Constitution cannot be curtailed by any agreement. The court also did not allow the plea of estoppel against the Government if it had the effect of repealing any provision of the Constitution.

In Mulamchand v. State of Madhya Pradesh,

 The Supreme Court did not apply estoppel against the Government in cases of contracts not entered into in accordance with the form prescribed in Article 299 of the Constitution. The court held that if the estoppel is allowed it would mean the repeal of an important constitutional provision, intended for the protection of the general public.

 

RECOMMENDATIONS BY THE LAW COMMISSION OF INDIA IN ITS 108th REPORT

The following were the recommendations suggested in the 108th Report of the Law Commission of India:

It is suggested that since the doctrine of promissory estoppel is a beneficial doctrine based on equity, exclusion of its operation may be allowed only where absolutely necessary. The proper course would be to hold the government bound by its promise which has been acted upon by the other party (promisee) subject to certain narrowly drawn exceptions. We are not recommending the test of ‘sovereign’ and ‘non-sovereign’ functions, because, it is not an easy test to apply. Our recommendation is that a new section may be inserted in the Indian Contract Act after s. 25 as suggested below.

1) Where

•  a person has, by his words or conduct made to another person, an unequivocal promise which is intended to create legal relations or to affect a legal relationship to arise in the future; and
• such person knows or intends that the promise would be acted upon by the person to whom it is made : and
• the promise is, in fact, so acted upon by the other person, by altering his position, then, notwithstanding that the promise is without consideration, it shall be binding on the person making it, if, having regard to the dealings which have taken place between the parties, it would be unjust not to hold him to be so bound.

(2) The provisions of this section apply whether or not there is a preexisting relationship between the parties.

 (3) The provisions of this section shall not apply:—

(a) Where the events that have subsequently happened show that it would be unjust to hold the promisor to be bound by the promise; or,

(b) Where the promisor is the Government and the public interest would suffer if the Government is held to be bound by the promise; or,

 (c) Where the promisor is the Government and enforcing the promise would be inconsistent with an obligation or liability imposed on the Government by law.

Explanation (1).Where a question arises whether public interest could suffer within the meaning of Clause (b), the court shall have regard to the amount of harm likely to be caused to the promisee if the promise is not enforced and the extent of injury to be caused to the public interest if the promise is enforced, and shall decide the matter on a balance of the two considerations.

 Explanation (2).In this section ‘Government’ includes all public bodies.

 

CONCLUSION

The sanctity of promises in our society lies in the societal and moral conventions that allow a promisor to be treated as bound to his promise. This moral convention is usually reflected in law by the enforcement of promises that are given in return of other promises or consideration, compelling the promisor to perform his end of the promise or pay expectation damages. In order to maintain this, there are yet more moral rules which govern promises, statements and agreements. These are embodied in the concept of estoppel which may be invoked in case of a breach in contract or against the government.

Today we are living in a world where a promise of Government to any citizen or non citizen matters a lot, especially if it is done in a contractual or business transaction. When a person relies on the Government’s promise and invests hard earned money and the Government afterwards does not abide by its promise then it creates a position where the person’s investment is in danger and he becomes helpless and paralyzed. The judiciary in India has played a very significant role in making the State responsible and accountable and made it abide by its promise.

In conclusion, it can be said that if the Government of India or of any State 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 Supreme Court of India has said that acting on the assurance or representations is enough and consequent detriment, damage or prejudice caused is not to be proved. It is also immaterial whether such representation was wholly or partially responsible for such alteration in the position. . Hence, one can rely on the lawful promise of the Government of India and can safely act on the same because the law of the land is there to protect the citizens.

 

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