By Vibha Nadig
Introduction
The doctrine of promissory estoppel applies to situations wherein one party (the promisor), through their explicit or implicit conduct, shows an intention to create a legal relationship with another party (the promisee). In displaying such intent, if a person makes a promise, that promise can be held to be binding, and the promisor can be ordered to act on the said promise, even in the absence of an explicit contract, or any other form of pre-existing relationship.[1] The American Restatement of Contracts categorises promissory estoppel as contracts that have no consideration.[2]
The doctrine can be called upon in a situation where the promisee has acted upon the promisor’s word. While it is not necessary that the promisee suffer any material loss, an action based on the promise is a prerequisite.[3] This article aims at analyzing the development of the doctrine in terms of state liability through case laws in India. There are three parts to the article. First, an understanding of the doctrine in the landmark Anglo Afghan Agencies case. Second, tracing the development of the doctrine post Anglo Afghan. Third, is a comparison of the doctrine in India, and the United Kingdom and United States.
Understanding the Doctrine in the Anglo Afghan Agencies Case
Union of India v. Anglo Afghan Agencies (hereinafter Afghan Agencies) was a landmark judgement in the judicial recognition of the doctrine of promissory estoppel.[4] While courts across India had previously employed the doctrine to necessitate state or individual action, Afghan Agencies concretised the manifest need of the doctrine in Indian jurisprudence.
The respondents in Afghan Agencies were exporters of woolen goods.[5] Under a scheme announced by the Union in 1962, they were allowed to import in equal values to their export, certain goods. However, the respondents were subsequently not given permission to import the full export value under the scheme, as the government denied any right that the respondents had under this scheme.[6] Owing to this denial, the respondents filed a writ of mandamus to be issued by the Punjab High Court. Their claim was to direct the government to issue a certificate that entitled full rights under the aforementioned scheme. The High Court allowed the petition, and directed the issuance of an import entitlement certificate.[7]
It was, however, the Supreme Court, in the appeal before it, recognised that the state is not exempt from carrying out futuristic commitments made by it.[8] This means that the state, simply by virtue of it being the state, cannot escape liability from representations made by it that have led to the subsequent conduct of the promisee.
There are three very important points that the bench makes regarding the liability of the state. First, is the power of contractual obligation. The government argued that executive necessity can allow the government to act in a manner unhindered by the prior promises made by it.[9] The Supreme Court disagreed with this, not only on grounds of the contractual obligation that the state cannot escape from, but also on grounds of equity and estoppel.[10] In doing so, it draws upon provisions from the Indian Contract Act to show that a proposal becomes a promise once accepted.[11] Thus, the first important point the bench makes, is that in order for promissory estoppel to apply against the state, an agreement in the form of a promise as per the definition in the Indian Contracts Act[12] is a prerequisite. Afghan Agencies was the first case that recognised an agreement, as opposed to a contract, as enforceable on the basis of the promise (the import scheme).[13]
The second important observation the bench makes is that the government could not have technically been estopped per Section 115 of the Indian Evidence Act.[14] The operative part of Section 115 is:
“When one person has, by his declaration, act or omission intentionally, caused or permitted another person to believe a thing to be true”.
The bench noted that “to believe a thing to be true” necessarily means that in order for someone to be estopped under this Section, there needs to be proof that they induced someone into believing in the actual existence of something[15]. Such a provision cannot apply to a futuristic declaration, because the current law regarding estoppel requires the object of the promise to currently exist.[16]
The third important point the bench makes is that administrative acts are not exempt from liability on arbitrary grounds of executive necessity.[17] Justice Shah makes an eloquent comment that seeks to justify the ethical, and legal grounding of promissory estoppel. He remarks that the executive, if in its exercise of administrative power, seeks to deprive a citizen of life and liberty, the same must have reason grounded in a statute. In observing this, J. Shah takes the approach that Lord Denning did, in Central London Property Trust Ltd v High Trees House Ltd (hereinafter High Trees) c,[18] as recognising promissory estoppel as a means of securing citizens their rights against the State.
Lastly, the case also engages with state contractual liability under Article 299 of the Constitution.[19] Article 299 states that the President, Governor, or any person executing a contract entered into by the government, cannot be held personally liable for the same. In such a scenario, there were two arguments against state liability. First, that it sets a precedent that any representation made by the government can be considered binding, and that such a precedent necessarily infringes on administrative necessity.[20] Second, that Article 299 necessarily needs an actual contract in terms of any liability being imposed on the government.[21]
The bench responded to both these questions with the same answer—that the respondents are not asking for the imposition of a contractual liability, rather compliance with a representation made by the government itself.[22] Justice Shah grounded this in the fact that a government can be held liable on grounds of equity. If one looks closely, this does not necessarily answer the question of whether a state can truly be held liable for every single representation that it makes, and is one of the grounds this judgement has been critiqued on.
Development Post The Afghan Agencies Case
While Afghan Agencies was the beginning of the formal representation of the doctrine of promissory estoppel, there are several cases that come after it, that have either answered questions regarding the doctrine with more nuance than Afghan Agencies did, or contradicted its ruling.[23] This section compares the judgement in Afghan Agencies to several other judgements concerning the doctrine of promissory estoppel.
Motilal Padampat Sugar Mills vs State Of Uttar Pradesh And Ors (hereinafter Motilal) played a large role in shaping the way the judiciary interprets the doctrine.[24] One of the central issues with the Afghan Agencies case, was that it merely transplanted the way that the High Trees case interpreted the doctrine in the UK,[25] to the Indian context.[26] The Motilal case was the first to deviate from the UK standard, and differentiate the doctrine. The High Trees case explicitly stated that promissory estoppel cannot be considered the sole cause of action of a plaintiff.[27] While the Afghan Agencies case makes no effort to rebut this, the Motilal case decisively deviates from the High Trees position. In doing so, the bench in Motilal said that the UK limitation on promissory estoppel does not apply to the Indian context because the doctrine is formulated more as an equity provision, as opposed to estoppel under Section 115 of the Evidence Act.[28] That necessarily means that the doctrine is not limited by the same principles that estoppel under the Evidence Act is limited by.[29]
The bench also redefined the lines of executive necessity and public policy in the context of promissory estoppel. First, the bench created an exception to promissory estoppel, wherein if the execution of the representation made by the government would not be in the interest of public policy, then courts would not enforce this equity.[30] Second, the bench went on to carve out another exception, wherein even in the absence of a public policy impact, if the government gives reasonable notice to the promisee to resume their original position, the government may be allowed to revoke that promise.[31]
Another reason to critique the Afghan Agencies case, is that it did not set a realistic limit as to the application of the doctrine of promissory estoppel against the state. The Bench seems to have avoided the responsibility of determining the extent to which a state may be held liable for its representations. This seems to be clarified in the case of Excise Commissioner. U.P., … vs Ram Kumar (hereinafter Ram Kumar).[32] The bench in Ram Kumar goes out of its’ way to clarify that if a government is exercising its executive, sovereign, or legislative powers, no question of any form of estoppel can arise against the government. This idea of restricted estoppel against the government is upheld in the case of Malhotra and Sons v. Union of India (hereinafter Malhotra),[33] wherein the bench agreed with Ram Kumar,[34] and stated that promissory estoppel can only be called upon against the government, if a lack of acting on a representation would cause grave injustice. The benches in Malhotra[35] clearly deviate from the idea that Afghan Agencies propagated, which is that a state should be held to their representations the same way an individual is held liable under the same regime.[36] Even though Afghan Agencies may have erred in terms of not having made a concrete statement on government liability, it certainly pushed for a system wherein state liability was the norm, and evading that responsibility was the exception.
The most recent development of the doctrine of promissory estoppel, has been less of a question of law, and more of a question of accountability. Khadeeja Nargees vs State Of Kerala (hereinafter Khadeeja) addressed the question of whether political parties may be held liable to the promises made in their manifesto under the doctrine of promissory estoppel.[37] While it is common knowledge that political parties often make promises that are unlikely to get acted on, it is important to note whether this act fulfills the conditions of the doctrine. One of the important conditions that is fulfilled, is the change in position of the promisee.[38] If an electorate, upon exposure to a manifesto, chooses to vote for that particular party, it may be argued that they ‘changed their position’ according to the promises of the party. However, the bench in Khadeeja opined that a political party cannot be held liable under this doctrine by citing the reason of awareness of the electorate regarding hollow promises.[39] This article argues that while political parties should not be held liable under this doctrine, Khadeeja presents an incomplete analysis for two reasons. First, Khadeeja attempts to use standards such as ‘public policy’ to justify its decision, while being well aware that the public policy standard with regards the doctrine is used where the promisor is the State.[40] Political parties cannot be read synonymously with the state, and hence cannot be subject to the exact same standards. The second issue with Khadeeja, is that it does not engage with the fact that political parties are likely to make promises that favor their vote banks, but may be to the detriment of other groups of citizens.
These promises need not be illegal, rather, they appeal to religious, caste-based sentiments of their vote banks.[41] Even promises such as building religious places of worship may often come at the cost of the sentiments and rights of minority groups. In such a regard, holding a party to its manifesto by using the doctrine of promissory estoppel is a dangerous manner of ensuring accountability.
An International Comparison
The United Kingdom saw some of the first cases relating to promissory estoppel, and a number of observations in India regarding the doctrine have been directly or indirectly inferred from cases in the UK.
Despite this interlacing of the development of the doctrine, courts in the two countries have diverged on a very important front regarding the doctrine. Afghan Agencies was the first case to mention these divergences, though they were analysed further by the Motilal case. The courts in the United Kingdom have explicitly held that promissory estoppel and proprietary estoppel can, and should be, distinguished from one another.[42] They reason that while promissory estoppel in temporary in effect, proprietary estoppel can be permanent in eliciting a certain action. Further, while High Trees held that promissory estoppel itself cannot be the cause of action, proprietary estoppel can confer this right upon a person.[43]
In India, both Anglo Afghan as well as Motilal disagree with this distinction. Both the cases blur the line between promissory and proprietary estoppel, by stating that there is no real qualitative distinction between the two. The courts said that both the forms of estoppel were rooted in the idea of equity, and that it is illogical to say that promissory estoppel in and of itself cannot be a cause of action.[44]
The United States has a completely different approach to promissory estoppel all together. First, promissory estoppel only applies to actions of “substantial character”—courts in the US have interpreted this to mean that in order to bring a suit under promissory estoppel, the victim needs to suffer material loss because of a change in position due to the promise.[45] Second, specifically with regards estoppel against the state, the US holds the position that the general case is that promissory estoppel is not applicable against the state. Promissory estoppel may be applied in cases where the state is responsible for fraud, specifically within contracts it has entered into. However, fraud within a contract is well established as a grounds within contract law to deem the contract void. It is unclear what the position of promissory estoppel is, in holding a state responsible for fraud, as there is already a governing body of law in the form of contract law which would address the same.
From the very start of formalisation of the doctrine in India, as clarified in Afghan Agencies,[46] one does not have to suffer any material damage to claim the benefit of the doctrine of promissory estoppel. A person merely needs to have changed their original position based on a representation. Further, while cases in India have started to adopt the standard of ‘manifest injustice’ in order to hold the State liable under the doctrine, Anglo Afghan clearly pushed for a system wherein the doctrine had the same applicability to individuals as well as the state.
In conclusion, there is significant confusion amongst courts in India regarding both the quantitative and qualitative application of estoppel against the state. This problem is also exaggerated as there is no formal statutory reference to promissory estoppel. Courts need to be firmer in their stance regarding the application of promissory estoppel against the State.
The author, Vibha Nadig, is currently a law student at the National Law School of India University, Bangalore (NLSIU).
[1] Stanley D Henderson, Promissory Estoppel and Traditional Contract Doctrine, 78 The Yale Law Journal (1969) available at https://www.jstor.org/stable/794874?seq=1#metadata_info_tab_contents.
[2] Eric Mills Holmes, The Four Phases of Promissory Estoppel, 20 The Seattle University Law Review (1996) available at https://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=1490&context=sulr.
[3] Supra 1.
[4] Union Of India & Ors vs M/S. Indo-Afghan Agencies Ltd, 1968 AIR 718.
[5] Id.
[6] Id, para 1.
[7] Id, para 2.
[8] Id, para 24.
[9] V. Ramaseshan, Promissory Estoppel And State Liability, 41 Journal of Indian Law Institute (1989) available at https://www.jstor.org/stable/43951265?seq=1#metadata_info_tab_contents.
[10] Supra 4, para 20.
[11] §2(e), The Indian Contract Act, 1872.
[12] §2(e), The Indian Contract Act, 1872.
[13] Supra 4, para 20.
[14] §115, The Indian Evidence Act, 1872.
[15] Michael Cameron, ‘Equitable Estoppel: Its Genesis, Development and Application in Government Contracting’, (1990) 19 Public Contract Law Journal <https://www.jstor.org/stable/25755609?seq=1#metadata_info_tab_contents> accessed 11 May 2020.
[16] Ram Bhajan Rai, Issue Estoppel And Its Application In Cases—A Short Study, 15 Journal of Indian Law Institute (1973) available at https://www.jstor.org/stable/43950189?Search=yes&resultItemClick=true&searchText=estoppel&searchText= &refreqid=search%3A6dcc8714bcb8e55a1b8c84a2a27dd649&seq=1#metadata_info_tab_contents.
[17] Yuvraj Rathore, The Doctrine Of Estoppel As A Rule Of Evidence: An Overview, 4 International Journal For Legal Developments And Allied Issues (2011) available at http://thelawbrigade.com/wp-content/uploads/2019/05/YuvrajShhaurya.pdf.
[18]Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.
[19] Art. 299, The Constitution of India, 1950.
[20] Supra 4, ¶ 19.
[21] Id.
[22] Supra 1.
[23] Supra 4.
[24] 1979 AIR 621.
[25] 1 All ER 256.
[26] Jay Feinman, Promissory Estoppel and Judicial Method, 97 Harvard Law Review (1984) available at https://www.jstor.org/stable/1340893?seq=1#metadata_info_tab_contents.
[27] M.P Thompson, From Representation to Expectation: Estoppel as a Cause of Action, 43 Cambridge Law Journal (1983) available at https://www.jstor.org/stable/4506557?seq=1#metadata_info_tab_contents.
[28] § 115, The Indian Evidence Act, 1872.
[29] J.G Malark, Contracts and Promissory Estoppel, 20 Virginia Law Review (1993) available at https://www.jstor.org/stable/1067013?seq=1#metadata_info_tab_contents.
[30] Supra 24, ¶ 13.
[31] Law Commission of India, Government of India, Promissory Estoppel, http://lawcommissionofindia.nic.in/101-169/Report108.pdf, last seen on 2/8/2020.
[32] 1976 AIR 2237.
[33] Harbans Lal Malhotra & Sons Ltd. vs Union Of India 2003 (1) AWC 610 SC.
[34] Jit Ram Shiv Kumar And Ors. Etc vs State Of Haryana And Anr, 1980 AIR 1285.
[35] Supra 33.
[36] Supra 16.
[37] W.P(C).9630/2020.
[38] Supra 1.
[39] Supra 37, ¶50.
[40] Id.
[41] Ravi Bhatia, A Decade of Parliamentary Elections in India – Mapping of Trends, (62) The Indian Journal of Political Science 2001 available at https://www.jstor.org/stable/pdf/42743564.pdf?ab_segments=0%252Fbasic_SYC-5187_SYC-5188%252Fcontrol.
[42] Supra 18.
[43]J. Unger, The High Trees Case: Promise or Gift, 8 The Modern Law Review (1965) available at https://www.jstor.org/stable/1092571?seq=1#metadata_info_tab_contents.
[44] Supra 21, ¶ 6.
[45] Sam Marholono, Promissory Estoppel: A Basis for Enforcement of Governmental Promises by Third Parties, 4 The University of Chicago Law Review (1950) available at https://www.jstor.org/stable/1597870?seq=1#metadata_info_tab_contents.
[46] Supra 1.
The Journal of Indian Law and Society 