Dec 27, 2020 10:49 UTC
Dec 27, 2020 at 10:49 UTC
STUDY NOTES: Doctrine of Promissory Estoppel
MEANING OF PROMISSORY ESTOPPEL
Promissory Estoppel, also known as Equitable Estoppel , Quasi Estoppel and New Estoppel is a rule of equity in Contract Law that enforces a promise whether executed as a contract or not and seeks to protect the rights of the promisee.
According to this doctrine a promise is enforceable by law [even if made without formal consideration, that is, no consideration (Section 2(d) Indian Contract Act) is necessary] when a promise is made by the promisor relying on which the promisee acts in furtherance but suffers a loss due to non-performance of the contract by the promisor. The doctrine of promissory estoppel stops the promisor from going back on such promise and makes him liable to pay for the damages incurred by the promisee due to non-performance of promise by the promisor.
For instance, an employer (promisor) makes an oral promise to his employees that he would pay handsome amount of money if they work overtime for a month. If the employees subsequently work overtime for a month basing reliance on the employer’s promise, then the employer will be legally estopped from not fulfilling part of his promise to pay overtime money to the employees.
Manjunath v. C.G.Srinivas (AIR 2005 Kar 136): The High Court laid down importance of the principle of estoppels and held that by using this principle the promisor may be stopped to go back on his representation.
Jindal Thermal Power Co. Ltd v. Karnataka Transmission Corporation Ltd. (ILR 2004 Kar 3463): The doctrine of promissory estoppel does not belong to the law of contract or evidence but appertains to equity and fairness in action.
EVOLUTION OF PROMISSORY ESTOPPEL
Hughes v. Metropolitan Railway Company ( 2 AC 439): It is one of the very early cases where the doctrine of promissory estoppels was referred to as raising equity. Lord Cairns explained this concept of equity in its earliest form.
Central London Property Trust Ltd. v. High Trees ( KB 130): This case reaffirmed the doctrine of promissory estoppel and was used against the defendants who announced reduction of flats’ rent by half but charged normal rate. The Court held that- “A promise intended to be binding, intended to be acted upon, and in fact acted upon is binding.”
Ganges Manufacturing Co. v. Soorajmull ((1880) ILR 5 Cal 669): The concept of Promissory Estoppel originated in India via this judgment. The Calcutta High Court held that a promise without consideration was enforceable merely on the basis of interest and reliance. The Court observed that “the doctrine of estoppels was not only limited to the law of evidence but that a person may be prevented from doing any act or relying upon any particular argument or connection, which the rules of equity and good conscience prevent him from using as against the opponent.”
U.O.I v. Anglo-Afghan Agencies  (1968 SCR (2) 366): In this landmark judgment the doctrine of promissory estoppel was applied against the Government for the first time. In this case the Government of India was estopped by the Supreme Court from going back on its promise when it announced certain concessions regarding import of certain raw materials the in order to encourage export of woolen garments to Afghanistan and later on extended only partial concessions.
Motilal Padampat Sugar Mills v. State Of Uttar Pradesh (1979 SCR (2) 641): Relying on assurance made by Chief Secretary of Government regarding total tax exemption to new industrial units for 3 years, the M.P. Sugar Mills started a hydro generation plant taking huge amount of money as loan. But government later on started to charge tax. The Supreme Court applied the principle of promissory estoppel against the government and held that sustenance of loss is not a pre-requisite for the application of this doctrine, in other words, a promise is enforceable even in case of absence of detriment.
REQUISITES OF PROMISSORY ESTOPPEL
- ASSERTION OF THE PROMISE: The first element of the doctrine is that a promise was made between the parties on which the promisee made his reliance to his subsequent detriment and the promise was significant enough that a reasonable person would ordinarily rely on it. Hence, the element of assertion and reasonableness must be present.
- RELIANCE ON THE PROMISE: The second requisite is that the promisee relying on the promise made by the promisor must have acted in furtherance of the promise.
- DAMAGES/DETRIMENT INCURRED BY THE PROMISEE: The next important element is that the promisee must have suffered some economic loss and must have landed in a worse position due to non-performance of the promise by the promisor.
- EQUITY AND FAIRNESS: The promise becomes enforceable if the court determines that it was unjust for the promisor to break the promise and the only way to rectify this injustice is by enforcing the promise and relieving the promisee from the detriment suffered.
Union of India v. Wing Commander R.R. Hingorani (1987 SCR (2) 94): Supreme Court held that three conditions must be satisfied to invoke doctrine of promissory estoppels-
- Representation by a person to another.
- The other should have acted upon the said representation; and
- Such action should have been detrimental to the interests of the person to whom the representation has been made.
- There is no express provision stating promissory estoppel in Indian law. However, Section 25 of Indian Contract Act, 1872 deals with contracts made without consideration (that is to say, the enforceability of promises) and Section 115 of Indian Evidence Act, 1872deals with estoppels.
- According to Section 115 of IEA, rule of estoppel is a rule of evidence unlike in England where it is rule of equity. The doctrine of promissory estoppel is outside the scope of section 115 of IEA as the provision talks about representations made as to existing facts whereas promissory estoppel deals with future promises.
- Law Commission Recommendations
The Law Commission of India in its 108th Report on Promissory Estoppel, 1984 recommended the insertion of Section 25A (Promissory Estoppel) in Indian Contracts Act, 1872.
The Commission stated that since the doctrine of promissory estoppel is a beneficial doctrine based on equity, exclusion of its operation may be allowed only where absolutely necessary.
In case of government, the proper course would be to hold it bound by its promise which has been acted upon by the promisee subject to certain narrowly drawn exceptions. The Law Commission refuted to recommend the test of ‘sovereign’ and ‘non-sovereign’ functions, because, it is not an easy test to apply.
The recommended provision reads as follows:
(a) A person has, by his words or conduct made to another person, an unequivocal promise which is intended to create legal relations or to affect a legal relationship in arise in the future; and
(b) Such person knows or intends that the promise would be acted upon by the person to whom it is made; and
(c) The promise is, in fact, so acted upon by the other person, by altering his position. When notwithstanding that the promise is without consideration if shall be binding to the person making it. If having regard to the dealings which have taken place between the parties, it would be unjust not to hold him to be so bound.
- The provisions of this section apply whether or not there is a preexisting relationship between the parties.
- The provisions of this section shall not apply:
(a) Where the events that have subsequently happened show that it would be unjust to hold the promisor to be bound by the promise; or,
(b) Where the promisor is the Government and the public interest would suffer if the Government is held to be bound by the promise; or,
(c) Where the promisor is the Government, and enforcing the promise would be inconsistent with an obligation or liability imposed on the Government by law.
Explanation (1): Where a question arises whether public interest could suffer within the meaning of Clause (b), the court shall have regard to the amount of harm likely to be caused to the promisee if the promise is not enforced and the extent of injury to be caused to the public interest if the promise is enforced, and shall decide the matter on a balance of the two considerations.
Explanation (2): In this section ‘Government’ includes all public bodies.”
EXCEPTIONS TO PROMISSORY ESTOPPEL
- There are no estoppels against statute and law.
- It does not apply in case of concluded commercial contract.
- It does not apply to those matters where both parties have the knowledge of truthfulness.
- Promissory estoppel does not apply against minors.
- It cannot be used to compel anyone to do an act prohibited by law.
- There can be no promissory estoppel against the exercise of legislative power by the legislature.
- The doctrine of estoppel cannot be invoked to prevent the Government from acting in discharge of its duties under the law.
- Estoppel cannot be applied against the Government if it jeopardizes the constitutional powers of Government.
 B. Manjunath v. C.G.Srinivas, AIR 2005 Kar 136.
 Jindal Thermal Power Co. Ltd v. Karnataka Transmission Corporation Ltd., ILR 2004 Kar 3463.
 Hughes v. Metropolitan Railway Company,  2 AC 439.
 Central London Property Trust Ltd. v. High Trees,  KB 130.
 Ganges Manufacturing Co. v. Soorajmull, (1880) ILR 5 Cal 669.
 U.O.I v. Anglo-Afghan Agencies, 1968 SCR (2) 366.
 Motilal Padampat Sugar Mills v. State Of Uttar Pradesh, 1979 SCR (2) 641.
 Union of India v. Wing Commander R.R. Hingorani, 1987 SCR (2) 94.