Lord Denning: “A man should keep his word. All the more so when the promise is not a bare promise but is made with the intention that the other party should act upon it.”[1]
The doctrine of promissory estoppel means that “A person is estopped from denying what he has promised and relying upon which another person has acted and would be put to loss if the promise is not acted upon.”[2] However, the doctrine is not really based on the principle of ‘estoppel’ but it has instead been evolved through the principles of equity in order to prevent injustice, where there is no remedy under the common law.
The modern administrative state casts a duty upon the Government to undertake wide and diverse socio-economic activities. However, little can be achieved merely by passing Acts of Parliament and leaving it to the courts to enforce them. There are far too many problems with details and far too many issues, which cannot be decided in advance. Hence, there must be discretionary powers so as to enable the administration to translate the vague and indefinite statutory provisions into action by applying discretion with a view to realize the real intent and purpose of the statute. Discretionary powers are a fact of modern life. It is not only impossible to do away with such powers, but such powers are indispensable in a modern welfare state.
In this perspective, the doctrine of promissory estoppel has assumed great contemporary relevance. It is especially so because, with the expanding administrative facets of the State, its officials in the exercise of their discretion are quite liberal in making ‘promises’ or representations to the parties who acting upon those promises alter their position and later on find that the Government is unwilling to stick to those promises or representations. They take umbrage under statutory provisions that are quite in derogation of those promises.[3] In this situation, the question for consideration is that whether on grounds of promissory estoppel, the Government can be prevented from going back upon its promise or representation. As the doctrine of promissory estoppel has its origin in private law obviously, therefore, some considerations in favor of the Government occupying special position arising out of its duty towards the people, comes into play when this doctrine is pleaded against the Government.
The intensive government of the modern kind cannot be carried on without plenty of discretionary powers. Rule of law, however, requires that the courts should prevent its abuse, and for this purpose, they have performed many notable exploits, by reading between the lines of the statute and developing general doctrines for keeping executive powers within proper checks and balances both under substance and in the procedure. To some extent, promissory estoppel seeks to discipline administrative authorities in so far as it insists that they cannot resile from their promises at their own whim and fancy and also that if they make any promises they must keep them. For some time now, the courts have been developing norms for the control of discretionary powers. Promissory estoppel as a principle of equity may also be regarded as an extension of the same process.
The traditional view has been that, the doctrine of promissory estoppel applies to private individuals only and that the Government is not bound by it for the Crown cannot fetter its future executive action[4] has been emphatically rejected when Lord Denning in Robertson v. Ministry of Pensions[5] loudly proclaimed that “the Crown cannot escape by saying that estoppels do not bind the Crown for that doctrine has been exploded.” He further added that the “Crown cannot escape by praying in aid the doctrine of executive necessity.”[6]
In India, the Courts have not only adopted the doctrine but also recognized the same as affording cause of action to whom the promise is made. The doctrine has also been applied against the Government and the defense based on executive necessity has been categorically negative. Iyar J. in Collector of Bombay v. Bombay Municipal Corporation[7] as early as in 1905 which later on came to be approved in Anglo-Afghan case[8] in 1986 in which Shah J. categorically held that “the defense of executive necessity did not release the Government from honoring its solemn promise relying on which the citizens have acted to their detriment.”
Vast judicial pronouncements have now accumulated in the area of application of promissory estoppel against the Government. This definitely suggests that a stage has been reached when it can no longer be said that promissory estoppel does not apply against the Government. The courts have also traveled a long way in controlling arbitrary promissory conduct of the Government or the public authorities in the exercise of their discretionary power. The Courts have thus recognized a distinct group of governmental liability under the doctrine, in the area of administrative public law.
Although the circle of immunity around the Government and its instrumentalities with respect to the application of promissory estoppel has been broken and in a number of cases the Government has been compelled by its promise, there has, however, been lots of controversy over the issue as to how far the doctrine can be invoked against the Government. In M. P. Sugar Mills case[9] the Apex Court, inter alia, gave detailed consideration as to the extent to which the doctrine of promissory estoppel is applicable against the Government. Bhagwati J. speaking for the court, after analyzing Indian as well as English and American decisions on the point, held that “no distinction can be made between the exercise of a sovereign or governmental function and a trading o business activity of the Government, so far as the doctrine of promissory estoppel is concerned” and he further added that “whatever be the nature of the function which the Government is discharging, the Government is subject to rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it.”[10]
The learned judge thus refused to accept any general exception in favor of the Government on the ground of its sovereign, public or executive functions. It was however stated that since promissory estoppel is an equitable doctrine, it could not be enforced if its enforcement will be inequitable.
The rationale put forward behind applying the doctrine against the Government like any other private individual and refusing any immunity with respect to its governmental functions is the rule of law notion, which negates arbitrariness in the exercise of governmental power. Bhagwati J. forcefully expressed this in the following words, “It is elementary that in a republic governed by rule of law, no one, howsoever high or low, is above the law……the Government stands on the same footing as private individual as far as the obligation of law is concerned; the former is equally bound as latter. It is indeed difficult to see on what principle can a Government committed to the rule of law claim immunity from the doctrine of promissory estoppel.”[11]
The view taken by the court in this decision as to the extent of application of the doctrine against the Government invited severe criticism from some of the legal scholars. The major premise of such criticism has been that such a wide application of the doctrine against the Government is not sustainable. As in that case, the court would be able to estop the Government against changing its policies if some individuals have altered their position by relying upon such policies and the court is not convicted with the reasons forwarded by the Government for such a change.[12] Such critical view also found expression by the Supreme Court itself, sitting in a co-equal bench only after a year and few months of the said landmark decision of Bhagwati J., in Jit Ram case[13] that raised serious doubts over the law as laid down in M.P. Sugar Mills case and held that the doctrine of promissory estoppel is not available against the exercise of executive functions of the State and the State cannot be prevented from exercising the functions under the law.
Likewise, the Law Commission of India in its Report on Promissory Estoppel[14] expressed that the application of the doctrine of promissory estoppels should be kept confined to business and property dealings of the Government. In support of its view, the Commission contended that “to invoke the doctrine of promissory estoppel against the Government in its Government activities would be making the Government and its agencies ineffective…….”
In the later decisions of the Supreme Court, this restricted view as to the application of the doctrine against the Government, however, does not appear to have found favor.[15] These decisions, in principle, accept that the doctrine of promissory estoppel applies to the Government as well as to other public authorities.[16] The Supreme Court in Shrijee Sales Corporation Case[17] laid down parameters for the application of the doctrine against the Government and reaffirmed and clarified the position of law as laid down in M.P. Sugar Mills Case on the applicability of the doctrine against the Government.
The application of the doctrine of promissory estoppel against the Government in India thus does not appear to be confined merely to business and property dealings of the Government. However, a loud and clear extension of the doctrine of promissory estoppel without recognizing any general exception on the ground of its sovereign public or executive functions as expressed in M.P. Sugar Mills Case and other subsequent decisions following it gives rise to the problem of protecting unclogged and unhindered discretion in the hands of the Government to take the necessary action as and when the public interest demands. It may be argued that in a developing society like India, the Government in order to justify its existence must be able to deal efficiently with the enormous problems and demands of the people and to change or recharge or readjust policies to suit the compulsions.
The courts thus stand confronted with the problems of reconciling the two self-conflicting values while applying promissory estoppel against the Government. On one hand, is the consideration that the governmental powers be kept unclogged so that it can perform its functions efficiently as the situation demands in the public interest; on the other hand, is the demand of the rule of law that the Government is subjected to the doctrine of promissory estoppel like any individual in order to prevent injustice towards an individual.
In their endeavor to strike a balance between the aforesaid two conflicting values, the courts refuse to apply the doctrine against the Government under certain conditions even though the factual foundation for application of the doctrine are present. Certain limitations have thus come to be evolved by the courts whereby application of the doctrine against the Government is restricted to that extent.
The extent of application of the doctrine against the Government is thus conditioned by the limitations, which have been carved out by the courts. Therefore, the actual area of operation of the doctrine of promissory estoppel depends on the ambit of these limitations as the courts have conceived them.
The Authors of this article, Sanjeev Kumar is a Partner and Anshul Sehgal is a Managing Associate in the Litigation & Dispute Resolution Team at L&L Partners Law Offices, New Delhi. They can be reached out at sanjeevk@luthra.com and asehgal@luthra.com. The view expressed are personal.
[1] Central London Property Trust Ltd. v. High Tress House Ltd., (1956) 1 All ER 256.
[2] Sathe, S.P., Administrative Law, Lexis Nexis, Butterworths, New Delhi, 6th ed., 1998.
[3] Dube, Dipa and Indrajit Dube, “Role and contribution of the Indian judiciary in the Development of Promissory Estoppel – A perspective study” in All India Reporter (J) 57 (2003).
[4] R. Amphirite v. The King, (1921) 3 KB 500.
[5] (1949) 1 KB 227 at p. 229.
[6] Ibid.
[7] (1905) 29 ILR Bom 580.
[8] Union of India v. M/s Anglo-Afghan Agencies Ltd., AIR 1986 SC 718 at p. 723.
[9] M. P. Sugar Mills v. State of U.P., AIR 1979 SC 621 at p. 651.
[10] Ibid.
[11] Id. at p. 643.
[12] Seervai, H.M., Constitutional law of India, N.M.Tripathi Pvt. Ltd., Bombay, 4th ed., 1999, p.873.
[13] Jit Ram Shiv Kumar v. State of Haryana, AIR 1980 SC 1285.
[14] 108th Report, 1984.
[15] Union of India v. Godfrey Philips India Ltd., AIR 1986 SC 806; Vasant Kumar Radha Kishan Vora v. Board of Trustees of the Port of Bombay, AIR 1991 SC 14
[16] Ganguli, A.K.,“Principles of Estoppel and Ultra Vires in their application to the discharge of public duties by Public Authorities”, 41 JILI 335 (1999) 352.
[17] (1997) 3 SCC 398.
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