Case BriefsSupreme Court

Supreme Court: In the case where the Jharkhand Government had failed to give effect to the Industrial Policy and subsequent Notification that promised 50% rebate to Industrial Units on electricity duty, the Dr. DY Chandrachud* and Indu Malhotra, JJ took the opportunity to explain the evolution and application of the doctrines of Promissory Estoppel and Legitimate Expectations over the years.

Here is a summary of the discussion by the Court:

Origin and evolution of Doctrine of Promissory Estoppel

Under English Law, judicial decisions have in the past postulated that the doctrine of promissory estoppel cannot be used as a ‘sword’, to give rise to a cause of action for the enforcement of a promise lacking any consideration. Its use in those decisions has been limited as a ‘shield’, where the promisor is estopped from claiming enforcement of its strict legal rights, when a representation by words or conduct has been made to suspend such rights.

However, in the absence of a definitive pronouncement by the House of Lords holding that promissory estoppel can be a cause of action, a difficulty was expressed in stating with certainty that English Law has evolved from the traditional approach of treating promissory estoppel as a ‘shield’ instead of a ‘sword’. By contrast, the law in the United States and Australia is less restrictive in this regard.

India adopted a more expansive statement of the doctrine in order to remedy the injustice being done to a party who has relied on a promise.

In Motilal Padampat Sagar Mills Co. Ltd. v State of UP, (1979) 2 SCC 409, the Supreme Court viewed promissory estoppel as a principle in equity, which was not hampered by the doctrine of consideration as was the case under English Law. The judgment that was penned by Justice P N Bhagwati stated:

“… having regard to the general opprobrium to which the doctrine of consideration has been subjected by eminent jurists, we need not be unduly anxious to project this doctrine against assault or erosion nor allow it to dwarf or stultify the full development of the equity of promissory estoppel or inhibit or curtail its operational efficacy as a justice device for preventing injustice…We do not see any valid reason why promissory estoppel should not be allowed to found a cause of action where, in order to satisfy the equity, it is necessary to do so.”

Doctrine of Legitimate Expectations vis-à-vis Promissory Estoppel

Under English Law, the doctrine of promissory estoppel has developed parallel to the doctrine of legitimate expectations. The doctrine of legitimate expectation initially developed in the context of public law as an analogy to the doctrine of promissory estoppel found in private law. However, since then, English Law has distinguished between the doctrines of promissory estoppel and legitimate expectation as distinct remedies under private law and public law, respectively.

The doctrine of legitimate expectations is founded on the principles of fairness in government dealings. It comes into play if a public body leads an individual to believe that they will be a recipient of a substantive benefit.”

Another difference between the doctrines of promissory estoppel and legitimate expectation under English Law is that the latter can constitute a cause of action. The scope of the doctrine of legitimate expectation is wider than promissory estoppel because it not only takes into consideration a promise made by a public body but also official practice, as well.

Under the doctrine of promissory estoppel, there may be a requirement to show a detriment suffered by a party due to the reliance placed on the promise. Although typically it is sufficient to show that the promisee has altered its position by placing reliance on the promise, the fact that no prejudice has been caused to the promisee may be relevant to hold that it would not be “inequitable” for the promisor to go back on their promise. However, no such requirement is present under the doctrine of legitimate expectation.

Further, while the basis of the doctrine of promissory estoppel in private law is a promise made between two parties, the basis of the doctrine of legitimate expectation in public law is premised on the principles of fairness and non-arbitrariness surrounding the conduct of public authorities.

“This is not to suggest that the doctrine of promissory estoppel has no application in circumstances when a State entity has entered into a private contract with another private party. Rather, in English law, it is inapplicable in circumstances when the State has made representation to a private party, in furtherance of its public functions.”

Indian Law and the doctrine of legitimate expectations

Under Indian Law, there is often a conflation between the doctrines of promissory estoppel and legitimate expectations. While this doctrinal confusion has the unfortunate consequence of making the law unclear, citizens have been the victims. Representations by public authorities need to be held to scrupulous standards, since citizens continue to live their lives based on the trust they repose in the State. In the commercial world also, certainty and consistency are essential to planning the affairs of business.

“When public authorities fail to adhere to their representations without providing an adequate reason to the citizens for this failure, it violates the trust reposed by citizens in the State. The generation of a business-friendly climate for investment and trade is conditioned by the faith which can be reposed in government to fulfil the expectations which it generates.”

In National Buildings Construction Corporation vs S. Raghunathan, (1998) 7 SCC 66, a three Judge bench, speaking through Justice S. Saghir Ahmad, held that:

“The doctrine of “legitimate expectation” has its genesis in the field of administrative law. The Government and its departments, in administering the affairs of the country, are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without any iota of abuse of discretion. The policy statements cannot be disregarded unfairly or applied selectively. Unfairness in the form of unreasonableness is akin to violation of natural justice. It was in this context that the doctrine of “legitimate expectation” was evolved which has today become a source of substantive as well as procedural rights. But 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, it is important to note that this observation was made by this Court while discussing the ambit of the doctrine of legitimate expectation under English Law, as it stood then. Since then and since the judgment in National Buildings Construction Corporation, the English Law in relation to the doctrine of legitimate expectation has evolved. More specifically, it has actively tried to separate the two doctrines and to situate the doctrine of legitimate expectations on a broader footing.

In a concurring opinion in Monnet Ispat and Energy Ltd. vs Union of India, (2012) 11 SCC 1, Justice H L Gokhale highlighted the different considerations that underlie the doctrines of promissory estoppel and legitimate expectation. He said:

“… for the application of the doctrine of promissory estoppel, there has to be a promise, based on which the promise has acted to its prejudice. In contrast, while applying the doctrine of legitimate expectation, the primary considerations are reasonableness and fairness of the State action.”

In Union of India vs Lt. Col. P.K. Choudhary, (2016) 4 SCC 236, speaking through Chief Justice T S Thakur, the Court discussed the decision in Monnet Ispat and held:

“… the doctrine of legitimate expectation cannot be claimed as a right in itself, but can be used only when the denial of a legitimate expectation leads to the violation of Article 14 of the Constitution.”

Conclusion

Hence, in an attempt to provide a cogent basis for the doctrine of legitimate expectation, which is not merely grounded on analogy with the doctrine of promissory estoppel, the Court, in the present case, concluded:

“… the doctrine of legitimate expectation cannot be claimed as a right in itself, but can be used only when the denial of a legitimate expectation leads to the violation of Article 14 of the Constitution. the doctrine of substantive legitimate expectation is one of the ways in which the guarantee of non-arbitrariness enshrined under Article 14 finds concrete expression.”

[State of Jharkhand v. Brahmputra Metallics Ltd.,  2020 SCC OnLine SC 968, decided on 01.12.2020]


*Justice Dr. DY Chandrachud has penned this judgment. Read more about him here

Counsels heard:

For the State of Jharkhand: Additional Advocate General Tapesh Kumar Singh, appearing for the State of Jharkhand

For Respondent: Advocate Devashish Bharuka

Also read: ‘Administrative lethargy of State will discourage entrepreneurship’; SC calls out Jharkhand Govt for not giving 50% electricity rebate to Industrial Units as promised

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Arun Mishra, MR Shah and BR Gavai, JJ has held that by invoking the doctrine of promissory estoppel, the Union of India cannot be estopped from withdrawing the exemption from payment of Excise Duty in respect of certain products, which exemption is granted by an earlier notification; when the  Union of India finds that such a withdrawal is necessary in the public interest. The bench said that the larger public interest would outweigh an individual loss, if any.

In the present case the withdrawal of the exemption to the pan masala with tobacco and pan masala sans tobacco in the State of Assam was under challenge before the Court. The Court, however, said that it had no hesitation to hold that the withdrawal of the exemption to the pan masala with tobacco and pan masala sans tobacco is in the larger public interest. As such, the doctrine of promissory estoppel could not have been invoked in the present matter.

Noticing that by a scientific research conducted by Experts in the field, it has been found that the consumption of pan masala with tobacco as well as pan masala sans tobacco is hazardous to health and that the percentage of teenagers consuming the hazardous product was very high and as such exposing a large chunk of young population of this Country to the risk of oral cancer, the Court said,

“if the State has decided to withdraw the exemption granted for manufacture of such products, we fail to understand as to how it can be said to be not in the public interest.”

The Sikkim High Court had observed that the appellant herein has been unable to establish any overriding public interest, which would make the doctrine of promissory estoppel inapplicable. It has further observed that, the pan masala has not been declared as hazardous to health by any notification or order of the Government of India or the State Government. It found that, no material or scientific report had been placed on record to demonstrate that the pan masala is a health hazard. The Supreme Court, however, held that the reasoning arrived at by the Sikkim High Court was totally erroneous.

The Court said that the legislative policy as reflected in Section 154 of the Finance Act was to withdraw the exemption granted to the manufacturers of cigarettes as well as pan masala with tobacco and that too with retrospective effect. Apart from the fact that, it is a common knowledge that tobacco is highly hazardous, the legislative intent was also unambiguous. It, hence, said,

“In these circumstances, the finding of the High Court that the withdrawal of exemption for tobacco products was not in the public interest, to say the least is shocking.”

[Union of India v. Unicorn Industries, 2019 SCC OnLine SC 1231, decided on 19.09.2019]

Case BriefsHigh Courts

Sikkim High Court: A Single Judge Bench of Meenakshi Madan Rai, J. addressed an application under Article 226 of the Constitution of India.

Facts of the case were that the petitioners had a shop on the first floor of “non-veg” building for the purpose of selling fish, dressed chicken and mutton. The petitioners were aggrieved by the fact that the respondents were opening a shop on the ground floor with same products having the same price. The ground on which respondents’ license was challenged was that it would hamper similar business being run by the petitioner on the first floor as a customer would prefer to buy from the ground floor then go to the first floor for the same product at the same price.

The petitioners contended that the stalls allotted to the respondents had been earmarked for construction of toilets for use of the vendors, workers and the customers of the said building but had instead been allotted to the respondents without adherence to the tender process. In furtherance of their contention, the petitioners added that the government had assured the construction of toilets which estopped the State from allotting stalls and license to private respondents.

The High Court was of the view that the petitioners could not seek to restrain private respondents from carrying business for their livelihood. The doctrine of promissory estoppel was not applicable as any document to show assurance of government to build toilets was not found. If requisite conditions were fulfilled then the respondents could not be stopped from getting licenses for selling meat. Therefore, the writ petition was dismissed. [Dawa Phuti Bhutia v. State of Sikkim, 2018 SCC OnLine Sikk 226, dated 02-11-2018]