☰iPleaders

Doctrine of Promissory Estoppel

June 08, 2019

13198 Views

Image Source: https://bit.ly/2WwXaZy

This article has been written by Subodh Asthana, from Hidayatullah National Law University, and Jigyasa
Fonia, from National Law University, Odisha. The author has discussed the doctrine of promissory
estoppel.

Introduction

The Doctrine of Promissory Estoppel works on the principle of equity, fairness and moral conscience.
The doctrine of Promissory Estoppel means when an individual with an intention of forming a
relationship which is lawful makes a clear promise to another individual and the latter individual acts on
it, that promise becomes an obligation for the individual who made the promise. Hence, then going back
from its words is not permissible. Going back from the words will be in contradiction of equity. Just in
order to pull the applicability of the doctrine of promissory estoppel it is not important for the promisee
to suffer any damage while acting on dependence of the promise. The most important thing is that the
promisee must have changed the position in dependence on the assurance. The arena of this doctrine is
vague but the law commission recommended suggestions to form a new section as Section 25A in the
Indian Contract Act in the 108th report. No provisions as such are there which ensures availability of
relief under this doctrine but at the same time it can be implemented on the basis of equity, to defend
the aggrieved party. The doctrine of estoppel in India is a rule of evidence included into Section 115 of
The Indian Evidence Act, 1872. The sections says “When an individual has, by his declaration, act or
omission, intentionally prompted or accredited every other individual to accept as true with this type of
element to be real and to act upon such notion, neither that individual nor his consultant would be
allowed, in any shape or proceeding among himself and such individual or his representative, to disclaim
the reality of that issue.” Promissory estoppel is related to future promises whereas Section 115 talks
about representations regarding existing facts. Promissory Estoppel’s application can invalidate the
constitutional provision provided under Article 299, which talks about immunity granted against the
personal accountability of an individual making the promise. Promissory Estoppel is known by various
names like – Equitable Estoppel, Quasi Estoppel and New Estoppel. The accurate principle is thus when
one party makes a clear promise to the other party by his words with an intention of forming a lawful
relationship, knowing that the other party to whom the promise is made may act upon it and in fact
acted upon by the other party on dependence of the assurance, the promise becomes an obligation and
hence the party who made the promise cannot go back from his words. As this would be the root cause
of injustice to the promise as well as unfair to the other party.

Promissory Estoppel: Explained

Promissory estoppel is a moderately new advancement. To follow the development of teaching in

England, we have to allude to a portion of the English choices. The early cases did not talk about this
tenet as estoppel. They discussed it as ‘raising equity’. Lord Cairns expressed the regulation in its most
punctual structure in the accompanying words in Hughes v. Metropolitan Railway Company.

“It is the main rule whereupon all courts of equity continue, that if parties who have gone into clear and
unmistakable terms which includes certain lawful outcomes for a short time later by their own
demonstration or with their own consent enter upon a course of exchange which has the impact of
driving one of the parties to assume that the severe rights emerging under the agreement won’t be
enforced, or will be kept in anticipation, or held in hold, the individual who generally may have enforced
those rights won’t be permitted to uphold them where it would be inequitable having respect to the
dealings which have along these lines occurred between the parties.”

The doctrine of Promissory Estoppel was also based on obiter dicta of Justice Denning in Central London
Property Trust Ltd vs. High trees House Ltd wherein the court ruled that after promising to reduce the
rent of flats and then again increasing it, would affect the intended legal obligations of the parties. It was
also held in Combes vs Combes that where one party by his words or conduct made an offer to another
party to which any promise and assurance was intended to affect relations between them and to be
acted upon accordingly, then one party has taken him on his word and then acted upon it.

Under English Law, the principle and rule has been applied in the case of explicit and not an unequivocal
promise where one party, without a new consideration, makes a deal to avoid implementing his rights,
since it is inequitable for the promisor to backpedal on such guarantee since the promisee probably
adjusted his position independence of the guarantee made, which need not really be inconvenient.
The promisor can resile from his guarantee on giving reasonable notice, which may not be formal, giving
the promisee a reasonable chance of continuing his position. The promise would move toward
becoming last and irreversible if the promisee can’t continue his position, Promissory estoppel serves to
suspend and not entirely quench the current obligation, The rule applies not exclusively to the
contractual relationship, yet additionally to statutory rights, or to a connection between neighbouring
landowners.

Evolution of the doctrine of promissory estoppel

Estoppel talks about rules of equity, fairness and justice. And in recent years that rule expanded its
dimensions. One of the classifications of estoppel was Promissory Estoppel that was acknowledged by
courts in the country. In 1880, the concept of Promissory Estoppel was originated in the Indian Law
System through Ganges Manufacturing Co. V. Soorajmull, when Calcutta High Court upheld that a
promise without consideration was enforceable merely on the basis of interest and reliance. In 1892,
judgement of Calcutta High Court was not followed as Madras High Court dismissed the basis of interest
and reliance and returned back to the traditional approach that consideration is necessary in Schoulank
V. Mulhunaryan and examined the application of estoppel under provisions of Indian Evidence Act.
During the developing period, the promisee cannot appeal the doctrine of promissory estoppel unless
any damage was suffered by the party. One thing that is mandatory is the other party’s reliance on the
promise and acting upon the assurance given by the promisor. The only crucial requirement of this
doctrine is the change of position by the party. The doctrine of promissory estoppel found its complete
explanation in the case of Union of India V. Anglo Afghan Agencies. Earlier promissory estoppel was
never applied against the government. But with time, this case changed the position. To uplift export of
woollen garments to Afghanistan, the government made a declaration about specific modifications
regarding the import of specific raw materials. But later, only limited modifications were permitted, not
all modifications as promised were permitted. The government was held liable by the Supreme Court as
they were stopped by its promise. So, the promissory estoppel was applied against the Government by
the courts. The doctrine of promissory estoppel was fully accepted in India devoid of notion of
consideration and made it familiar as a reason of action to the parties to whom the promise was made.

Fundamental components of promissory estoppel

Following five components existence are very much crucial for the doctrine to be enforced properly-

Lawful Relationship: There must be an existence of a lawful relationship or a relationship anticipated to

exist between the two parties.
Assurance: It must be clearly displayed that a promise was made between the two parties which
ultimately led the aggrieved party to presume that some kind of action needs to be taken. Such a
promise must be reasonable and reliable.

Reliance: Aggrieved party’s reliance on the promise made must be displayed clearly and because of
which the aggrieved party took some action.

Damage: The aggrieved party who relied upon the promise made by the other party must suffer some
sort of damage or loss which ultimately lands the other party in the worst position.

Unconscionability: It must be clearly demonstrated that it was unjust for the promisor to break the
promise.

If all of the above-mentioned components are present then most of the courts will apply the doctrine to
the situation. Though, some courts may still apply the doctrine only if the situations that precisely give
rise to the concept. And such an example of the precise situation is the one regarding real property.

Click Here

Promissory Estoppel in India

Sometime before the doctrine of promissory estoppel was defined, the Calcutta High Court perceived
that the principle of estoppel was not kept distinctly to the law of evidence, however, that an individual
might be estopped from doing acts or depending on specific contentions or contention. In a later case,
the Bombay High Court empowered the municipality to oppose the case of the Secretary of State to be
launched out starting from the earliest stage the municipality had levelled, and raised versatile claims, in
the conviction that they had a flat outright which should not be turned out except if other reasonable
ground was outfitted, a conviction which was preferable to a desire made by the administrative
authority which the legislature realized that the municipality would act upon.

Much later, the Supreme Court connected the standard (with one judge really utilizing the term
promissory estoppel) to block the administration from evaluating land income in connection to a market
site, when it had prior settled not to charge any lease on business sectors for business sectors would
resemble other open buildings.
The court in UOI vs Anglo Afghan Agencies ruled that the doctrine of promissory estoppel discovered its
most articulate exposition. For this situation, the writ-applicant had depended on the fare advancement
plot issued by the Central Government which had sent out woollen products, and after that guaranteed
the import qualification authentication for the full an incentive under the plan. The solicitor put together
its case with respect to dependence, and the administration argued official need.

The Supreme Court negatived the protection of official need, and brought up that it didn’t discharge the
legislature from its commitment to respect the guarantee made by it, if the native acting in dependence
on the guarantee, had adjusted his position, and that as well, despite that the guarantee was not
recorded in the structure required by article 299 of the Constitution.

Afterwards, in Century spinning and manufacturing Co Ltd vs Ulhasnagar Municipality, the doctrine was
connected to implement a guarantee of exception from the instalment of octroi obligation given by a
metropolitan organisation. The court drew the refinement between the portrayal of the current
actuality and description that something would be done in future was spelt out, and it was thus carefully
observed.

At last, in, the Supreme Court managed the doctrine of promissory estoppel at the incredible length and
held that it afforded a reason for the activity. For this situation in Motilal Padampat Sugar Mills vs. State
of UP, wherein the Government of Uttar Pradesh proclaimed a plan exempting all new modern units
from deals charge for a long time in the paper. The appealing party sugar organisation got the portrayal
affirmed from the Secretary, Industries Department, the Director of Industries, and the Chief Secretary,
expressing that in perspective on the business charge exception declared by the administration, is
expected to set up a hydrogenation plant for vanaspati.

It was held that the all-out portrayal contained in the letters for the benefit of the Government of Uttar
Pradesh, based on which the appealing party acquired cash from money related organizations and set
up a plant, conjured the doctrine of promissory estoppel and the administration will undoubtedly
complete the portrayal and excluded the litigant from the instalment of offers charge in regard to
produced merchandise for a time of three years.

The Supreme Court has seen that the doctrine of promissory estoppel is a guideline developed by value
to keep away from foul play, and however generally named promissory estoppel, it is neither in the
domain of agreement nor in the realm of estoppel, yet it is a doctrine advanced by value so as to avert
lousy form where guarantee is made by an individual realizing that it would be followed up on by the
individual to whom it is made and in actuality it is so followed up on and it is inequitable to permit the
gathering making the guarantee to return upon it.

Applicability of Promissory Estoppel in India

On account of Motilal Padampat Sugar Mills the Supreme Court, after a review of Indian, English and
American cases, held that:

The rule can outfit a reason for the activity.

The pertinence of the doctrine isn’t limited to parties as of now authoritatively bound to each other or
having a prior legitimate relationship.

The doctrine did not depend on estoppel, nor can its task be shackled by consideration. It isn’t essential
to demonstrate any consideration for the materialism of the doctrine of promissory estoppel.

The rule would be connected where the actualities are with the end goal that foul play can stay away
from just by the requirement of guarantee.

It is unimportant if no hindrance is appeared to have been caused, it is sufficient if there is a difference

in position.

The state isn’t resistant from obligation for promissory estoppel and it can’t depend on the doctrine of
official need not to shackle its future official activity. It might be connected against the state, even in its
legislative or open or sovereign limit, if its application is essential to avert extortion or show unfairness.
The official authority is no safeguard.

The doctrine of promissory estoppel must respect value when required, yet it isn’t sufficient to state
that open intrigue will endure. It will be for the court to choose if the administration indicates reasons.

There is no promissory estoppel against the state in its authoritative limit.

The certainty that the guarantee isn’t as a formal contract required by workmanship 299 of the
Constitution won’t influence the materialism of the doctrine.

Promissory Estoppel in a contractual relationship

The rule of promissory estoppel applies, when it does, just without a finished up contract. It couldn’t be
conjured where a particular term in the agreement engaged a bank to end the advance agreement or
the organization dropped the permit to run pay phones on expiry of the term or where the court would
not expand the mining permit past the concurred time of a half year or wherein regard of office
understandings for working pay telephones, rate of commission was decreased and the measure of
security store upgraded, and the understanding gave such powers to the phone division.
The rule has been connected to force of the civil law to execute a rent deed, where ensuing upon a
correspondence from the load up about distribution, the solicitor had spent sums on getting water and
power associations and set up development on the plot or to avoid the power load up from pulling back
the refund guaranteed, despite the fact that the standard concurrence with the power shopper explicitly
given that the buyers will pay such rates as might be updated by the Board every once in a while.

The rule has been additionally connected to keep town or lodging advancement experts from making
changes to plans of portions or to the singular distribution of plots or houses or to force such specialists
to allocate or hand over plots or houses or even to keep such specialists from making changes in
assignments by amending their policies. It has likewise been connected to implement guarantees of
monetary foundations to give fund or advances.

Applicability of doctrine on public and private entities

In the case, the court observed,Public bodies are as much bound as private individual to complete
portrayals of certainties and guarantees made by them, depending on which different people have
adjusted their situation to their preference, in this way declining to make a refinement between the
private individual and a public body as respects the utilization of the doctrine of promissory estoppel. It
was recommended that the commitment could emerge as legal action, and if the law requires the
agreement to be in a specific structure, it could be authorised in equity.

The case after examining the doctrine of promissory estoppel by and large, chose to what degree the
doctrine was pertinent against the administration. The judgment nonetheless, insinuates the utilisation
of the doctrine to private gatherings observing.

It is valid that promissory estoppel can’t be summoned to urge the administration or even a private
gathering to complete a demonstration denied by law or promissory estoppel can’t be conjured to
constrain the legislature or even a private gathering to complete a demonstration restricted by law and
keeping in mind that it alludes with endorsement to the perceptions in 41 public bodies or the State is
as much bound as private people to complete commitments brought about by them.

In all the Indian cases alluded over, the portrayals comprising the guarantees were made by or for the
benefit of the state or public bodies. The doctrine has from there on created in India for the most part in
the field of authoritative law.
The primary issue for the situation concerned the applicability of the doctrine to the legislature in its
different capacities, and the court continued to choose the equivalent after choosing the extent of the
doctrine. There is no case explicitly applying the doctrine between private parties. Except for a lone
perception that the rule has been held pertinent to managerial law and not between private parties,
there is no perception blocking the utilisation of the rule between private gatherings (not government or
public bodies). Nor has the Supreme Court constrained the utilisation of the doctrine while detailing it.

It is along these lines presented that the doctrine as propounded for the situation applies with
equivalent power to guarantees and obligations made and created by people other than the legislature
or public bodies.

Exceptions to the doctrine

Some immunities and limitations have been given wherein the doctrine of promissory estoppel would
not apply. Some of the exceptions of the Doctrine of promissory estoppels are as follows.

The doctrine must respect equity when required. The promise may not be upheld against the
administration if it is biased to expect the legislature to remember. On the off chance that the
administration fights that public intrigue would endure by requirement, the legislature should
demonstrate the realities and conditions to the court, and it would be for the court to choose whether
those would render it unjust to uphold risk against the government.

Mere supplication of the progress of strategy isn’t sufficient, it would need to be legitimised. It is just if
the court is fulfilled on appropriate and adequate material set by the administration that superseding
and overpowering public intrigue necessitates that the legislature ought not to be held bound by the
promise (the weight of indicating it lies on the legislature), the court would decline to authorise it.

No portrayal or promise made by an officer can block the legislature from upholding a statutory
restriction. The doctrine can’t be profited to allow or excuse a rupture of law. Nor can the legislature or
public bodies be constrained to complete the portrayal if it is in opposition to the law, or past their
position or power.21 Nor would it be able to be conjured against the activity of administrative authority.
The governing body additionally can’t be blocked by this doctrine from practising its capacity.

The promisor might be pardoned from playing out the promise in exceptional cases, where the resulting
occasions make it outlandish or discriminatory for the promisor to play out his sole obligation.

Promise
The portrayal or assurance depended upon must be unambiguous and unequivocal, and not a matter of
induction, or a negligible expectation or possibility. But simple demonstrations of extravagance,
especially in business exchanges, don’t make rights. While an aim to influence lawful relationship must
be set up, such an objective might be found impartially, i.e., it might be demonstrated that the promisor
as far as he could tell proposed to influence lawful relationship or that he deliberately so acted that he
can’t be heard to state that he didn’t plan this to be the outcome.

At the point when promissory estoppel is conjured, the promise or confirmation essential to help it is
definitely not exactly a promising official on the gatherings in the contract. It would not be necessary to
summon the doctrine of promissory estoppel at all if the promise held contractual power.

Be that as it may, be the promise supporting promissory estoppel is firmly comparable to in many
regards to a promise having a contractual impact. One of its basic properties is a similar level of
unequivocally, which with the giving of full thought would have dressed it with contractual effect. In the
Court of Appeal, Lord Denning alluded to the exceptional outcomes of holding that an affirmation
inadequate (because of inconclusiveness) to shift a contract was yet unmistakable to help promissory
estoppel achieving a similar outcome.

Impediments

To pull in the applicability of the doctrine, it isn’t essential that the promisee, acting in dependence on
the promise, ought to have endured any weakness. What is just vital is that the promisee ought to have
modified his situation in reliance on the promise, only that he more likely than not been directed to act
uniquely in contrast to what he would somehow or another have done.

The altering position should mean such modification in the situation of the promisee as it causes it to
appear to the court that holding the promisor to his portrayal is essential to do equity between the
parties. The change of position need not include any disadvantage to the promisee except if by
drawback, treachery to the promisee, which would result if the promisor was to subside from his
promise.

The Law Commission of India couldn’t help contradicting the view that disservice was not necessary, and
prescribed that so much hindrance was significant as that harm or misfortune which the promisee was
probably going to endure if the promisor was permitted to backpedal on the promise or portrayal.
Promise irrevocable

The promisor may deny his promise except if it is unjust for him to backpedal on it. It would be unfair if
the promisee, having acted in dependence on the promise, can’t be re-established to the situation
where he was before he made a move. If the promisee can be re-established to that position, the
promisor may backpedal on his promise. It has been held that even where there is no abrogating public
intrigue, the promisor may resile from the obligation by giving reasonable notice, giving the promisee
reasonable open door for continuing his position, if it is feasible for the promisee to reestablish the
present state of affairs risk. Be that as it may, if the promisee can’t continue his position, the promise
ends up last and irrevocable.

Cures

The doctrine depends on dependence, and it produced for anticipating unfairness. Any cure should, in
this way, be formed for the reasons for counteracting it.

The promise can be authorised by explicit authorisation, directives and obligations. A fundamental
inquiry emerges about the premise of conceding pay rather than the abovementioned when the idea of
the exchange requests or when the above cures are insufficient.

When cures in the contract are worried to put the plaintiff in as high a situation as he would have
involved had the litigant played out his promise they are said to satisfy the desires caused and to ensure
the desire intrigue of the plaintiff. Then again, the assurance of dependence intrigue is worried about
putting the plaintiff in as high a situation as he was in before the promise was made, i.e., to put the
plaintiff in the status quo. This can be outlined with the accompanying precedents, the principal where
the doctrine is utilised as a reason for the activity, and the second where it is utilised as protection.

No Estoppel against Minors

Assume that a minor by distorting his age incites another to contract with him, will there be any
estoppels against him, or, as it were, will he be blocked from unveiling his actual age in case coming
about because of the contract?

Indeed, even this inquiry had at one time made a debate. Yet, it is currently settled by the dominance of
power that there are no such estoppels against a minor.
The infant isn’t ceased from setting up the resistance of outset. The reason is exceptionally
straightforward. There can be no estoppel against a resolution. The strategy of the law of contract is to
shield people underneath age from contractual risk and usually, the doctrine of estoppels can’t be
utilised to overcome that approach. In this manner, for a situation under the steady gaze of the Bombay
High Court, Beaumont CJ audited the previous specialists and closed by saying:

“The Court is of the conclusion that where an infant speaks to falsely or generally that he is of age and in
this manner incites another into a contract with him then in an activity established on the contract the
infant isn’t halted from setting up outset.”

Landmark judgement: Motilal Padampat Sugar Mills V. State of Uttar Pradesh and Ors. (1979)

FACTS

There was an announcement made by the Uttar Pradesh government that all new industrial units of the
state will be relieved from the sales tax for the upcoming three years. After this announcement, the
plaintiff went for confirmation to the Director of Industries who restated the announcement made by
the government earlier. Chief Secretary of Government, on behalf of the UP government, gave clear
assurances to the plaintiff about the same. After getting definite assurance the plaintiff thought of
setting up a new plant in Uttar Pradesh and for this, he took a large amount of money on credit from
monetary organizations. Afterwards, the government made some changes in the announcement and
assured to offer limited concessions. Plaintiff agreed to the assurance and started his work. However,
the state government after some time denied to grant any kind of concessions. This left the plaintiff with
no other option than to sue the government on account of a promissory estoppel.

ISSUES

By giving consent to limited concession did the plaintiff surrender his right to have a cause of action?

On grounds of promissory estoppel, can the plaintiff have a cause of action?

Whether any action taken against the government while acting in administrative capacity can lie?

Can a plaintiff’s action be destined to succeed in this case?

HELD
The writ was dismissed by the High Court of Uttar Pradesh and also rejected the plea against the
government of Uttar Pradesh of promissory estoppel. The Supreme Court heard the plea and held that
appellant on the assurance made by the government took a loan. The government by his words made a
clear promise which created a lawful relationship between both the parties and the appellant relied on
that assurance and acted upon it. Therefore, the promise would be obligatory on the party who made it
and cannot back off from his words. The appellant suffered detriment because of the assurance given by
the government. It would be unfair to allow the government to back off from his words as the appellant
acted upon the promise that resulted in changing the position which cannot be reinstated. Appellant not
only took loan but also purchased machinery and established the hydrogenation plant. So, promissory
estoppel can be invoked.

Critical analysis of doctrine of promissory estoppel

Nothing in this world can go smoothly perfect without a glitch. Where on one hand promissory estoppel
acts as a shield on the promisee but on the other it also gives rise to problems of financial ones. In a
country, even if there exists a well settled administration problem still arises as citizens have some
expectations from specific departments to act in compliance with the assurances they have made and
procedures they have instituted. Some of the problems that aroused because of this doctrine but with
time have settled down are:

Can promissory estoppel be allowed to be used as a cause of action?

Is it necessary for the promisee to go through any damage before he appeals for the doctrine?

Promissory estoppel is considered to act as a shield as it is used as defence in general. It is not used as a
course of action. Promisor can use this defence to recover the damages suffered by him because of the
reliance on the promise. Even if consideration does not exist promissory estoppel will act as a shield as
this doctrine is the exception to ‘consideration is a required’ rule. In contract, consideration is required
to make the agreement a valid contract as a contract without consideration is considered void. So, for
promissory estoppel to act as a sword consideration will be required and somewhere in this doctrine
lacks consideration. And this reason makes a promissory estoppel to act as only shield not a sword.
Justice Bhagwati also mentioned in one of the cases that if a promissory estoppel is used as a sword
then surely the floodgates will be opened. The role played by the Supreme Court and its contribution in
development of the doctrine has been noteworthy but still there occurs a restricted interpretation and
limited application of the doctrine.

Conclusion
It tends to be said that if the Government of India or of any State in India makes a promise to any
individual and the promise isn’t conflicting with the law and regulation that must be adhered to and isn’t
against the public intrigue, at that point a short time later it can’t decline to maintain its promise. The
Supreme Court of India has said that following up on the affirmation or portrayals are sufficient and
ensuing burden, harm or bias caused isn’t to be demonstrated.

It is likewise insignificant whether such portrayal was completely or halfway in charge of such
adjustment in the position. It can be also said that wherein the Government or any private entity has
promised to fulfil any contractual obligations and then that entity backs out without committing the
obligation to its entirety then it would lead to arbitrariness on one party’s right and therefore rights of
one party would be lynched if every party is allowed to back from their obligations. Thus the same was
also ruled in Pournami Oil Mills Case, wherein the court directed the government to fulfil the promise
done by it.

Categories: Contract Law

Leave a Comment

iPleaders

Back to top

Exit mobile version