India – Doctrine Of Promissory Estoppel And Its Application Against Government – An Explainer.

Introduction

The doctrine of promissory estoppel is an equitable doctrine evolved by equity to prevent injustice. The doctrine estops the promisor to retract from his promise in case while acting on the promise of the promisor, the promisee alters his/ her position. It is based upon principles of justice, fair play, and good conscience. The doctrine is different from the rule of estoppel spelled out in Section 115 of the Indian Evidence Act, 1872 as said Section talks about the representation made as to the existing facts whereas the promissory estoppel deals with the future promises. The doctrine is neither in the realm of contract nor in the realm estoppel¹.

The question whether doctrine is applicable against Government or not assumes more importance in view of the Article 229 of the Constitution of India which provides for the procedure for execution of contracts by the Government and requires the same to be compulsorily recorded in the form of a formal contract. And also, since the doctrine of promissory estoppel dilutes the principle which require consideration to enforce a contractual obligation². The Supreme Court in catena of judgments has held that the promissory estoppel is applicable against the Government, but with the passage of time certain exceptions are developed to this general rule. Thus, where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government has been held bound by the promise and the promise is held to 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 229 of the Constitution.

In Collector of Bombay v. Municipal Corporation of the City of Bombay³ the Municipal Corporation removed old markets from a certain site and vacated it in the year 1865 upon the assurance of the Government who approved and authorized the grant of another site to the Municipality. The Government also assured the Municipality that no rent should be charged from it. The Municipality on the assurance of the Government gave up the required site and erected new markets on the new site after spending a sum of Rs. 17 lakhs. The Government thereafter in the year 1940 assessed the new site to land revenues. The Municipality challenged the actions of the Government and the Supreme Court held that the Government, under the circumstances of the case, has lost its right to assess the land in question by reason of the equity arising in favour of the Municipality Corporation because Corporation has taken possession of the land in terms of assurance given by the Government. This is the first instance of doctrine of promissory estoppel deployed against the Government by the Supreme Court where the Court did not allow the Government to go back on its representation and charge the land revenues from the Municipality.

In the case of Union of India v. Indo-Afghan Agencies⁴, the Textile Commissioner published a scheme called the Export Promotion Scheme providing incentives to exporters of woollen goods by granting Import Entitlement Certificate for full value of goods exported by the exporters. Relying upon the assurance under the Export Promotion Scheme the Petitioner therein exported the woollen goods of certain value. However, contrary to the terms of the scheme and assurance thereunder, the Petitioner was issued an Import Entitlement Certificate for an amount lesser than the full value of goods exported by it. The Supreme Court while essentially invoking doctrine of promissory estoppel against the Government held that the Petitioner had acted upon the unequivocal promises held out to it by the Textile Commissioner and exported goods on the specific assurance given to it and hence the Commissioner is bound by the assurance given thereof and obliged to carry out the promise made thereunder.

In another case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. and others⁵ the Government gave assurance to the Petitioner therein that it will be entitled to exemption from sales tax for three years from date of commencement of production and based on the assurance the Petitioner set-up a vanaspati plant after taking finance from various financial institutions. The Supreme Court enforced the assurance given by the Government by invoking the doctrine of promissory estoppel against the Government.

Circumstances under which the doctrine of estoppel cannot be applied against the Government

1. Doctrine of promissory estoppel cannot be applied to aid to compel Government to carry out a representation or promise which is contrary to law- There is no promissory estoppel against law. This exception was first laid down by the United States Supreme Court in Federal Crop Insurance Corporation v. Merrill⁶ wherein the promise made by the Government that even reseeded wheat is insurable was held to be not enforceable against the Government since the crop insurance regulations prohibited insurance of reseeded wheat. The promise being contrary to the wheat crop insurance regulations was held to be not binding on the Government. The Government being a non-natural person is basically dependent upon its officers and agents, therefore as a rule of prudent the government is not bound by the promise of its officers and agents who without authority enter into agreements to do what the law does not sanction or permit⁷.The exception is well recognized in India also. The Supreme Court of India in Kasinka Trading v. Union of India⁸ while adjudicating the applicability of the doctrine of promissory estoppel against the Government concluded that the doctrine cannot be used to compel the Government to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government to make.In Shree Sidhbali Steels Ltd. v. State of U.P.⁹ it has been observed by the Supreme Court that there is no promissory estoppel against the settled proposition of law therefore, Government cannot be compelled to do something which is not allowed by law or prohibited by law.
2. Public interest prevails over promissory estoppel – The Courts in India has in various judgments held that the doctrine of promissory estoppel cannot be invoked in the abstract against the Government and the courts are bound to consider all aspects including the public good at large. In Shrijee Sales Corporation v. Union of India¹⁰ it was held by the Supreme Court that doctrine may be applicable against the Government but its determination hinges upon balance of equity or public interest. And in case there is a supervening public interest, the Government would be allowed to change its stand and it would then be able to withdraw from representation made by it which induced persons to take steps which may have gone averse to the interest of such person on account of such withdrawal.In STO v. Shree Durga Oil Mills¹¹ the Government was allowed to retract from its representation on the ground of public interest. The Supreme Court held that the public interest must override any consideration of private loss or gain.In another case of State of Rajasthan v. Mahaveer Oil Industries¹² the Supreme Court has held that the Government can withdraw the representation if public interest so requires.

Thus, it can be safely concluded that the doctrine of promissory estoppel which has been also called equitable estoppel is applied against the Government. But under certain circumstances as discussed above, the Government (with due regard to the doctrine of executive necessity) can be exempted from the application of the doctrine of promissory estoppel even though the person may have acted upon the representation and altered his position.

1 Central London Property Trust Ltd. v. High Trees House Ltd. [1956] 1 All. E.R. 256:1947 KS. 130

2 Consideration being one of the essential condition for a valid contract under Section 10 of the Indian Contract Act, 1872

3 (1952) 1 SCR 43

4 (1968) 2 SCR 366

5 (1979) 2 SCC 409

6 332 U.S. 380: 92 L.ed. 10.

7 See Third circuit in Valsonavich v. United States, 335 F.R. 2d. 96

8 (995) 1 SCC 345

9 (2011) 3 SCC 193

10 (1997) 3 SCC 398

11 (1998) 1 SCC 572

12 (1999) 4 SCC 357

Even though by enforcing promissory estoppel, the courts dilute the principle which mandatorily requires consideration in support of contractual obligation, yet the doctrine of promissory estoppel has been allowed to operate in all its activist magnitude. Albeit, when the promisor is government, the doctrine is applied with certain exceptions. The article published on Mondaq, authored by Manisha Singh and Nisha Sharma, explains such recognized exceptions by the courts in India.