M/s Motilal Padampat Sugar Mills v. State of Uttar Pradesh & Ors.

M/s Motilal Padampat Sugar Mills v. State of Uttar Pradesh & Ors.

1979 SCR (2) 641

(Promissory Estoppel)

FACTS:

Government of UP announced to give tax exemption from sales tax for three years to all new industrial units of the state. Based on this, plaintiff sought confirmation from Director of Industries who reiterated the decision of UP govt. Further unequivocal assurance was given by Chief Secy of Govt., on behalf of UP Government, to plaintiff about the same. Plaintiff on this categorical assurance, borrowed money from financial institutions, brought plant and machinery and set up a new plant in UP. However, State govt. went back upon this assurance and instead now promised to give partial concession to which plaintiff consented and started production. Once again, however, State govt. went back even on this promise denying any concession to be given. Plaintiff sued the government on account of promissory estoppel.

ISSUES:

1) Whether plaintiff waived his right to have a cause of action by accepting partial exemption?

2) Whether plaintiff can have a cause of action on grounds of promissory estoppel?

3) Whether any such action against government acting in governmental, sovereign or administrative capacity can lie?

4) Whether in present case, plaintiff’s action is bound to succeed?

HELD:

Waiver as to a person’s right can operate only when person granting it has full knowledge of his right and intentionally abandons it, either expressly or impliedly.

However, in present case, there was no such waiver of rights by plaintiff: he didn’t have any full knowledge of his rights to exemption under the assurance given by Chief Secretary. Firstly, the doctrine of promissory estoppel is not so well defined in scope and ambit and so free from uncertainty that plaintiff must have had full knowledge of his rights. Secondly, there is no presumption that every person knows the law; there is the rule that ignorance of law is not an excuse which is altogether different in its scope and application.

The doctrine of Promissory Estoppel state that whenever an unequivocal promise is made with the intention of creating legal relationship or affect a legal relationship to arise in the future (notwithstanding any pre-existing legal or contractual relationship between the parties), knowing or intending that it would be acted on by other party and is in fact acted on (altering the position of other party, not necessarily detrimentally) then promisor will be abstained from going back on the promise if it will be inequitable for him to do so (i.e. if promisor’s going back on the promise will detrimentally affect the promisee).

Statement of Lord Cairns in Hughes v. Metropoliton Rly Co. that “If parties, who had entered into definite and distinct terms involving certain legal results, afterwards…enter upon a course of negotiation” may suggest that the scope of Promissory Estoppel is limited only to cases where parties are already bound by legal or contractual relationship and one of the parties promises to other that strict legal rights under contract will not be enforced. However, in present case, Motilal Padampat Sugar Mills, Court held that the principle of Promissory Estoppel, even when formulated by Lord Denning in High Trees case didn’t contain any such limitation, and in present also, this limitation can’t apply.

Further, in order to attract the applicability of PE it is not necessary that promisee, acting on the promise should have suffered any detriment, albeit the essential condition of alteration of position is to be fulfilled. If detriment is to be necessary condition, it would have acted as consideration in many cases and there would have been no need to evolve this equitable principle. However, promisee must show that it will be inequitable for promisor to go back on his promise which can be proven by adducing the evidence of any ‘detriment’ which will be suffered by promisee if such promise isn’t abided by.

Though in English law, promissory Estoppel ‘can only be a shield and not a sword’ (High Trees case) i.e. plaintiff can’t have a cause of action solely on grounds of Promissory Estoppel though latter can serve as a part of cause of action for if an independent cause of action may arise then it will be tantamount to doing away with the necessity of consideration, and ‘doctrine of consideration is too firmly fixed to be overthrown by a side wind’ (Combe v. Combe). However, in Indian context such a limitation of application of doctrine of PE only by way of defence doesn’t apply (Motilal Padampat Sugar Mills case). This is because of following reasons: Firstly, it is not based on the principle of estoppel rather is under the realm of equity and hence, can’t be inhibited by same limitation as estoppel in strict sense of term; Secondly, rule of equity has been flexible enough to give ‘Propreitary Estoppel’ an independent cause of action, which in qualitative terms is similar to Promissory Estoppel, albeit with difference of its applicability only to cases of interest in land, equity must also allow an independent cause of action grounded on PE; SC hence refused to draw any distinction between PE and Prop E; thirdly, law must be constantly developing and changing according to changing social concepts and values, if equity demands promises to be enforced to promote justice, honesty and good faith, there is no reason that the “dead wood” of need for consideration as necessity in enforcing any promise is not dropped away.

Where the government makes a promise, even in sovereign, administrative or governmental capacity, knowing or intending that it would be acted on by the promisee and, in fact, promisee, acting in reliance on it, alters his position, the Government will be abstained to go back on its promise if it will be inequitable to do so, notwithstanding that there is no consideration for the promise and promise is in fact is not recorded in form of a formal contract as required by Art.299 of Constitution. The defence of ‘executive necessity’ which holds that Government can’t fetter its future executive action to be determined by needs of community at relevant time do not release government from being bound by such promises for it will be ultra-vires to rule of law and justice.

However, Firstly, Government can’t be bound by its promise to do an act or omission either expressly prohibited by Law or is in prevention of its acting in discharge of its public duty under the Law; Secondly, government can’t be bound by any promises made by officers or agents without any authority; Thirdly, if in accordance with facts that have subsequently transpired, it will be inequitable to hold Government to its promise, Courts will not invoke equity in favor of any such promise made, albeit this onerous burden to prove that any such enforcement of promise will be against ‘public interest’ and hence against ‘equity’ lies on the Government; Fourthly, even when there is no overriding public interest, if government gives a reasonable notice, thereby providing promisee a reasonable opportunity to resume his position, it will be allowed to go back on it unless promisee has so altered his position that status quo can’t be restored.

Hence, in light of categorical promise made by Chief Secretary, on behalf of Government, that plaintiff will be entitled to sales tax exemption in respect of new industrial plant established in UP, and the knowledge of government that such promise is to be acted on, it will be inequitable to allow Government to go back on promise because it was in fact acted on by promisee resulting into altering his position which could not now be restored. Plaintiff not only borrowed money from various financial institutions, purchased machinery but also established hydrogenation plant in UP and went ahead with production. Hence, rule of promissory estoppel can be evoked in present case to be of avail to plaintiff.

Author: Vishrut Kansal (National University of Juridical Sciences, Kolkata)