Citation

1979 AIR 621, 1979 SCR (2) 641

Date of Judgment

12/12/1978

Court

Supreme Court of India

Bench

• Justice P.N. Bhagwati
• Justice V.D. Tulzapulkar

Introduction

According to the Promissory Estoppel doctrine, the promisor will refrain from breaking the promise if it would be unfair for him to do so whenever an unambiguous promise is made with the intent to establish a legal relationship or affect one that will arise in the future, knowing or intending that it would be acted on by the other party and is in fact acted on. This is the main referred law in this present case. If parties who had already agreed to clear-cut terms involving specific legal outcomes later engage in negotiation, it may be assumed that Promissory Estoppel only applies to situations in which the parties are already bound by a legal or contractual relationship and one of them promises the other that strict legal rights under the contract won’t be enforced. However, the court found that the theory of promissory estoppel, even as it was originally stated by Lord Denning in the High Trees case, did not contain any such limitation, and thus it cannot apply in the current case, Motilal Padampat Sugar Mills.

Background of the Case

The appealing party in this instance was a limited sugar production company. His main line of work was producing and selling sugars. On October 10th, 1968, news broke that the respondent (In this case- The state of Uttar Pradesh) had decided to exempt all new modern units in the State of Uttar Pradesh from the Tax charges for a period of three years under Section 4-A of the Uttar Pradesh Sales Tax Act, 1948. On October 11th, 1968, the appealing party spoke with the Director of Industries, stating that the party sought confirmation of the exemption and wished to establish a factory to produce vanaspati in light of the business charge occasion given by the administration. The appointment was confirmed by the director of industries. The Chief Secretary of the Government of Uttar Pradesh made an affirmation with a similar effect too.

The appealing party went ahead and built up the processing plant after receiving these certifications. The Uttar Pradesh State government reexamined the issue of exclusion in May 1969 and suggested the litigant attend a gathering. The representative of the appealing party testified at the meeting that the plaintiff had continued constructing the manufacturing facility on the affirmation and assurance of the respondent (the legislature of Uttar Pradesh). He took out a sizable loan and began to pay it back under the impression that the government had exempted him from paying taxes. But after some time, the government reconsidered its tax exemption strategy. It requested the petitioner attend a meeting discussing this matter and called for one to be held. To attend the meeting, the petitioner dispatched a representative. In any case, the State Government of Uttar Pradesh made the strategic decision on January 20th, 1970, to grant a small reduction in the deals charge to new vanaspati units that began operations by September 30th, 1970. Once again, however, the State govt. went back even on this promise denying any concession to be given. Plaintiff sued the government on account of promissory estoppel.

Issues Raised

The issues raised in this case are-

1. Whether the plaintiff’s acceptance of a partial exemption rendered his entitlement to have a cause of action?
2. Whether the plaintiff has a claim based on promissory estoppel?
3. Is it possible to take such action against the government when it is functioning in such capacities as government, sovereign, or administrative?
4. Given that the plaintiff did not experience any harm, would the theory of Promissory Estoppel apply in the current situation?

Contentions of Parties

Arguments of Petitioner- The main defence put forth on behalf of the appellant was that the respondent had made a categorical assurance on behalf of the State Government that the appellant would be exempt from payment of sales tax for a period of three years from the date of commencement of production. This assurance was made knowing or intending that the appellant would act on it, and in fact, the appellant did act in reliance on it and the State Government changed its position. The appellant argued that since waiver was a factual issue that needed to be pled and since it wasn’t addressed in the affidavit submitted by the State Government in opposition to the writ petition, the State Government was ineligible to rely on the waiver argument. It was claimed by the appellant that even if the waiver defence was allowed to be raised, despite the fact that it had no mention in the pleadings, no waiver had been established because there was no evidence to support the circumstances under which it had sent the letter. It was also impossible to claim that the appellant, with full knowledge of its right to claim complete exemption from payment of sales tax, had sent the letter.

Arguments from Respondent side- On the other hand, the State Government vigorously advanced the waiver argument, arguing that by addressing the letter dated June 25, 1970, the appellant had expressly forfeited its entitlement to full exemption from payment of sales tax. The State Government further argued that, even in the event of a waiver, the appellant would not be permitted to enforce the assurance provided by the fourth respondent because the State Government was not a party to the assurance, and that, in addition, in the absence of notification under section 4A, the State Government could not be prevented from enforcing the appellant’s obligation to pay sales tax under the terms of the Act. The State Government argued that there could not be a promissory estoppel against the State Government in order to prevent it from developing and carrying out its policies in the public interest. These were essentially the opposing arguments put out on behalf of the parties, and we will now analyse them.

Judgement

Though the division bench of the High Court rejected the plea for seeking promissory Estoppel against the respondents, the honourable Supreme Court held that-

1. The decision of the High Court of not granting Promissory Estoppel on the ground that the petitioner has waived that right and so can not have his course of action was wrong.
2. The waiver is a factual issue that needs to be adequately argued and proven. No plea of waiver may be raised unless it is pleaded and the facts supporting it are set forth in the pleadings.
3. Waiver is the act of giving up a right; it can be expressed or inferred from behaviour, but it must be “an intentional act with knowledge” in order to be considered valid. There can be no waiver unless the individual who is supposed to have done so is fully aware of his rights and intentionally gives them up while doing so.
4. ‘Promissory estoppel’ is a legal theory that was developed by equity to prevent injustice when a promise is made by someone who knows that it will be carried out and who is the person to whom it is made and in fact it is so. It is unfair to permit the party making the promise to break it after it has been acted upon. Despite being known as promissory estoppel, this legal doctrine has nothing to do with contracts or estoppel. The interposition of equity, which has always acted in accordance with form to lessen the burdens of strict law, serves as the foundation of the concept.
5. The true meaning of promissory estoppel is that when one party makes a clear and unambiguous promise to another party through words or conduct that is intended to forge a future legal relationship, knowing or intending that the other party will act on the promise, and that the other party actually does act on the promise, the promise will be enforceable against the party who made it and he will be bound by it whether there is a pre-existing relationship between those parties or not. In a situation when justice and fairness call for it, equity will prevent a person from insisting on stringent legal rights even when they originate from his own title deeds or from legislation rather than under any contract.
6. The same limiting estoppel in the strict meaning of the word cannot prevent the notion of promissory estoppel. It is an equitable concept that the Courts developed for the purpose of upholding justice, thus there is no reason why it should only be applied sparingly as a form of defence or used as a shield rather than a sword to establish a claim. It might serve as the impetus for legal action.
7. The Government would be held bound by the promise and the promise would be enforceable against the Government at the request of the promisee even though there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required when the Government makes a promise knowing or intending that it would be acted on by the promisee and the promisee, acting in reliance on it, changes his position.
8. The doctrine of promissory estoppel must give way when equity demands it since it is an equitable doctrine. The Court would not raise equity in favour of the promisee and enforce the promise against the Government if the Government could demonstrate that, given the facts as they have developed, it would be unfair to hold it to the promise it made.
9. The moral standards of the society must be in accordance with the law for it to be legitimate and win social approval. Closing the gap between morality and law and achieving as close to a match as feasible between the two should be the constant goal of legislatures and courts. A key judicial advancement in that direction is the promissory estopped concept.
10. The distinction between a private person and a public body cannot be made in terms of the promissory estoppel theory.  This idea also applies to a government entity like a city council. This approach, however, cannot be used to circumvent a legal responsibility or liability. It cannot be used to force the government or even a private person to carry out an unlawful act. Additionally, promissory estoppel cannot be used to prevent the exercise of legislative power. By using the promissory estoppel concept, the Legislature can never be prevented from doing its legislative duties.

Conclusion

The case turned out to be very important in other cases. The court attempted to define promissory estoppels in this instance. This case did a good job of demonstrating how promissory estoppel could be a defence. However, it must be used with the doctrine of consideration if it is to be used as a weapon. This case demonstrated how important it is for society to stop fraud and injustice. This certificate appeal brings up a significant issue in the area of public law. Although it is a relatively new doctrine, it has the potential to be so prolific and packed with development opportunities that traditional attorneys are concerned it could upend established doctrines, which are viewed almost reverently and have held the line for decades.

This article is authored by Dibyojit Mukherjee, a student at the Institute of Law, Nirma University.

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