How far and to what extent is the State bound by the doctrine of promissory estoppel ?
Held
It is clear from the letter of the 4th respondent dated 23rd January, 1969 that a categorical representation was made by the 4th respondent on behalf of the Government that the proposed Vanaspati factory of the appellant would be entitled to exemption from sales tax in respect of sales of Vanaspati effected in Uttar Pradesh for a period of three years from the date of commencement of production. This representation was made by way of clarification in view of the suggestion in the appellant’s letter dated 22nd January, 1969 that the financial institutions were into prepared to regard the earlier letter of the 4th respondent dated 22nd December, 1968 as a definite commitment on the part of the Government to grant exemption from sales tax. Now the letter dated 23rd January, 1969 clearly shows that the 4th respondent made this representation in his capacity as the Chief Secretary of the Government, and it was, therefore, a representation on behalf of the Government. It was faintly contended before us on behalf of the State that this representation was not binding on the Government, but we cannot countenance this argument, because, in the first place, the averment in the writ petition that the 4th respondent made this representation on behalf of the Government was not denied by the State in the affidavit in reply filed on its behalf, and secondly, it is difficult to accept the contention that the 4th respondent, who was at the material time the Chief Secretary to the Government and also advisor to the Governor who was discharging the functions of the Government during the President’s Rule, had no authority to bind the Government. We must, therefore, proceed on the basis that this representation made by the 4th respondent was a representation within the scope of his authority and was binding on the Government. Now, there can be no doubt that this representation was made by the Government knowing or intending that it would be acted on by the appellant, because the appellant had made it clear that it was only on account of the exemption from sales tax promised by the Government that the appellant had decided to set up the factory for manufacture of Vanaspati at Kanpur. The appellant, in fact, relying on this representation of the Government, borrowed moneys for various financial institutions, purchased plant and machinery from M/s De Smith (India) Pvt. Ltd., Bombay and set up a Vanaspati factory at Kanpur. The lacts„ necessary for invoking the doctrine of promissory estoppel were, therefore, clearly present and the Government was bound to carry out the representation and exempt the appellant from sales tax in respect of sales of Vanaspati effected by it in Uttar Pradesh for a period of three years from the date of commencement of the production. (Para No 32)
SUPREME COURT OF INDIA
Motilal Padampat Sugar Mills Co. Ltd.
v.
State of Uttar Pradesh
P.N. BHAGWATI AND V.D. TULZAPURKAR, JJ.
CIVIL APPEAL NO. 1597 OF 1972
DECEMBER 15, 1978
JUDGMENT
Bhagwati, J – This appeal by certificate raises a question of considerable importance in the field of public law. How far and to what extent is the State bound by the doctrine of promissory estoppel ? It is a doctrine of comparatively recent origin but it is potentially so fruitful and pregnant with such vast possibilities for growth that traditional lawyers are alarmed lest it might upset existing doctrine which are looked upon almost reverentially and which have held the field for a long number of years. The law in regard to promissory estoppel is not yet well settled though it has been the subject of considerable debate in England as well as the United States of America and it has also received consideration in some recent decisions in India and we, therefore, propose to discuss it in some detail with a view to defining its contours and demarcating its parameters. We will first state briefly the facts giving rise to this appeal. This is necessary because it is only where certain fact-situations exist that promissory estoppel can be invoked and applied.
2. The appellant is a limited company which is primarily engaged in the business of manufacture and sale of sugar and it has also a cold storage plant and a steel foundry. On 10th October, 1968 a news item appeared in the National Herald in which it was stated that the State of Uttar Pradesh had decided to give exemption from sales tax for a period of three years under Section 44 of the U. P. Sales Tax Act to all new industrial units in the State with a view to enabling them “to come on firm footing in developing stage”. This news item was based upon a statement made by Shri M. P. Chatterjee the then Secretary in the Industries Department of the Government. The appellant, on the basis of this announcement, addressed a letter dated 11th October, 1968 to the Director of Industries stating that in view of the Sales Tax Holiday announced by the Government, the appellant intended to set up a Hydro-generation Plant for manufacture of Vanaspati and sought for confirmation that this industrial unit, which they proposed to set up, would be entitled to Sales Tax Holiday for a period of three years from the date it commences production. The Director of Industries replied by his letter dated 14th October, 1968 confirming that “there will be no sales tax for three years on the finished product of your proposed Vanaspati factory from the date it gets power connection for commencing production.” The appellant thereupon started taking steps to contact various financiers for financing the project and also initiated negotiations with manufacturers for purchase of machinery for setting up the Vanaspati factory. On 12th December, 1968 the appellant’s representative met the 4th respondent who was at that time the Chief Secretary to the Government as also Advisor to the Governor and intimated to him that the appellant was setting up the Vanaspati factory solely on the basis of the assurance given on behalf of the Government that the appellant would be entitled to exemption from sales tax for a period of three years from the date of commencement of commercial production at the factory and the 4th respondent reiterated the assurance that the appellant would be entitled to sales tax holiday in case the Vanaspati factory was put up by it. The appellant by its letter dated 13th December, 1968 placed on record what had transpired at the meeting on the previous day and requested the 4th respondent “to please confirm that we shall be allowed sales tax holiday for a period of three years on the sale of Vanaspati from the date we start production”. On the same day the appellant entered into an agreement with M/s De Smet (India) Pvt. Ltd , Bombay for supply ,of plant and machinery for the Vanaspati factory providing clearly that the appellant would have to option to terminate the agreement, if within 10 weeks exemption from sales tax was not granted by the State Government. The 4th respondent replied on 22nd December, 1968 confirming that “the State Government will be willing to consider your request for grant of exemption from U. P. Sales Tax for a period of three years from the date of production” and asked the appellant to obtain the requisite application form and submit a formal application to the Secretary to the Government in the Industries Department and in the meanwhile “to go ahead with the arrangements for setting up the factory”. The appellant had in the meantime submitted an application dated 21st December, 1968 for a formal order granting exemption from sales tax under Section 4A of the Act. It appears that the letter of the 4th respondent dated 22nd December, 1968 was not regarded as sufficient by the financial institutions which were approached by the appellant for financing the project since it merely stated that the State Government would be willing to consider the request for grant of exemption and did not convey any decision of the State Government that the exemption would be granted. The appellant, therefore, addressed a letter dated 22nd January, 1969 to the 4th respondent pointing out that the financial institutions were of the view that the letter of the 4th respondent dated 22nd December, 1968 “did not purport to commit the Government for the concession mentioned” and it was, therefore, necessary to obtain a formal order of exemption in terms of the application submitted by it. The 4th respondent, however, stated categorically in his letter in reply dated 23rd January, 1969 that the proposed Vanaspati Factory of the appellant “will be entitled to exemption from U. P. Sales Tax for a period of three years from the date of going into production and that this will apply to all Vanaspati sold during that period in Uttar Pradesh itself” and expressed his surprise that “a letter from the Chief Secretary to the State Government stating this fact in clear and unambiguous words should not carry conviction with the financial institutions.” In view of this unequivocal assurance given by the 4th respondent, who not only occupied the post of Chief Secretary to the Government but was also Advisor to the Governor functioning under the President’s rule, the appellant went ahead with the setting up of the Vanaspati factory. The appellant by its letter dated 25th April, 1969 advised the 4th respondent that the U. P. Finance Corporation, being convinced by the clear and categorical assurance given by the 4th respondent that the Vanaspati factory of the appellant would be entitled to exemption from sales tax for a period of three years from the date of commencement of production, had sanctioned financial assistance to the appellant and the appellant was going ahead with the project in full speed to enable it to start production at the earliest. The appellant made considerable progress in the setting up of the Vanaspati factory but it seems that by the middle of May 1969 the State Government started having second thoughts on the question of exemption and a letter dated 16 May, 1969 was addressed by the 5th respondent who was Deputy Secretary to the Government in the Industries Department, intimating that a meeting has been called by the Chief Minister on 23rd May, 1969 “to discuss the question of giving concession in Sales Tax on Vanaspati products” and requesting the appellant to attend the meeting. The appellant immediately by its letter dated 19th May, 1969 pointed out to the 5th respondent that so far as the appellant was concerned, the State Government had already granted exemption from sales tax by the letter of the Chief Secretary dated 23rd January, 1969, but still, the appellant would be glad to send its representative to attend the meeting as desired by the 5th respondent. The proposed meeting was, however, postponed and the appellant was intimated by the 5th respondent by its letter dated 23rd May, 1969 that the meeting would now be held on 3rd June, 1969. The appellant’s representative attended the meeting on that day and reiterated that so far as the appellant was concerned, it had already been granted exemption from Sales Tax and the State Government stood committed to it. The appellant thereafter proceeded with the work of setting up the Vanaspati plant on the basis that in accordance with the assurance given by the 4th respondent on behalf of the State Government the appellant would be exempt from payment of Sales Tax for a period of three years from the date of commencement of production.
3. The State Government however went back upon this assurance and a letter dated 20th January, 1970 was addressed by the 5th respondent intimating that the Government had taken a policy decision that new Vanaspati Units in the State which go into commercial production by 30th September, 1970 would be given partial concession in sales tax at the following rates for a period of three years :
0
First year of production
31/2%
Second year of production
3%
Third year of production
21/2%
The appellant by its letter dated 25th June, 1970 pointed out to the Secretary to the Government that the appellant proposed to start commercial production of Vanaspati with effect from 1st July, 1970 and stated that, as notified in the letter dated 20th January, 1970, the appellant would be availing of the exemption granted by the State Government and would be charging sales tax at the rate of 31/2% instead of 7% on the sales of Vanaspati manufactured by it for a period of one year commencing from 1st July, 1970 The factory of the appellant thereafter went into production from 2nd July, 1970 and the appellant informed the Secretary to the Government about the same by its letter dated 3rd July, 1970. The State Government however once again changed its decision and on 12th August, 1970 a news item appeared in the Northern India Patrika stating that the Government had decided to rescind the earlier decision i.e. the decision set out in the letter dated 20th January, 1970 to allow concession in the rates of Sales Tax to new Vanaspati Units. The appellant thereupon filed a writ petition in the High Court of Allahabad asking for a writ directing the State Government to exempt the sales of Vanaspati manufactured by the appellant from sales tax for a period of three years commencing from 2nd July, 1970 by issuing a notification under Section 4A and not to collect or charge Sales Tax from the appellant for the said period of three years. It appears that in the writ petition as originally filed, there was no promissory estoppel taken against the State Government and the writ petition was, therefore, amended by obtaining leave of the High Court with a view to introducing the plea of promissory estoppel. The appellant urged in the amended writ petition that the 4th respondent acting on behalf of the State Government had given an unequivocal assurance to the appellant that the appellant would be entitled to exemption from payment of Sales Tax for a period of three years from the date of commencement of the production and this assurance was given by the 4th respondent intending or knowing that it would be acted on by the appellant and in fact the appellant, acting in reliance on it, established the Vanaspati factory investing a large amount and the State Government was therefore, bound to honour the assurance and exempt the Vanaspati manufactured and sold by the appellant from payment of sales tax for a period of three years from 2nd July, 1970. This plea based on the doctrine of promissory estoppel was, however, rejected by the Division Bench of the High Court principally on the ground that the appellant had waived the exemption, if any, by accepting the concessional rates set out in the letter of the Deputy Secretary dated 20th January, 1970 The (appellant thereupon preferred the present appeal after obtaining a certificate of fitness from the High Court.
4. The principal argument advanced on behalf of the appellant in support of the appeal was that the 4th respondent had given a categorical assurance on behalf of the State Government that the appellant would be exempt from payment of sales tax for a period of three years from the date of commencement of production and such assurance was given intending or knowing that it would be acted on by the appellant and in fact the appellant, acting in reliance on it altered its position and the State Government was, therefore, bound, on the principle of promissory estoppel to honour the assurance and exempt the appellant from sales tax for a period of three years from 2nd July, 1970, being the date on which the factory of the appellant commenced production. The appellant assailed the view taken by the High Court that this claim of the appellant for exemption based on the doctrine of promissory estoppel was barred by waiver, because the appellant had by its letter dated 25th June, 1970 accepted that it would avail of the exemption granted under the letter of the 5th respondent dated 20th January, 1970 and charged sales tax at the concessional rate of 31/2% instead of 7% during the first year of its production. The appellant urged that waiver was a question of fact which was required to be pleaded and since no plea of waiver was raised in the affidavit filed on behalf of the State Government in opposition to the writ petition it was not competent to the State Government to rely on the plea of waiver for the first time at the hearing of the writ petition. Even if the plea of waiver were allowed to be raised, notwithstanding that it did not find place in the pleadings, no waiver was made out, said the appellant, since there was nothing to show what were the circumstances in which the appellant had addressed the letter dated 25th June, 19,0 stating that it would avail of the exemption granted under the letter dated 20th January, 1970 and it was not possible to say that the appellant, with full knowledge of its right to claim total exemption from payment of sales tax, waived that right and agreed to accept the concessional rates set out in the letter dated 20th January, 1970. The State Government on the other hand strongly pressed the plea of waiver and submitted that the appellant had clearly waived its right to complete exemption from payment of Sales Tax by addressing the letter dated 25th June, 1970. The State Government also contended that, in any event, even if there was no waiver, the appellant wish not entitled to enforce the assurance given .by the 4th respondent, since such assurance was not binding on the State Government and moreover, in the absence of notification under Section 4A, the State Government could not be prevented from enforcing the liability to sales tax imposed on the appellant under the provisions of the Act. It was urged on behalf of the State Government that there could be no promissory estoppel against the State Government so as to inhibit it from formulating and implementing its policies in public interest. These were broadly the rival contentions urged on behalf of the parties and we shall now proceed to consider them.
5. We shall first deal with the question of waiver since that can be disposed of in a few words. The High Court held that even if there was an assurance given by the 4th respondent on behalf of the State Government and such assurance was binding on the State Government on the principle of promissory estoppel, the appellant had waived its light under it by accepting the concessional rates of sales tax set out in the letter of the 5th, respondent dated 20th January, 1970. We do not think this view taken by the High Court can be sustained. In the first place, it is elementary that waiver is a question of fact and it must be properly pleaded and proved,, No plea of waiver can be allowed to be raised unless it is pleaded and the factual foundation for it is laid in the pleadings. Here it was common ground that the plea of waiver was not taken by the State Government in the affidavit tiled on its behalf in reply to the writ petition, nor was it indicated even vaguely in such affidavit. It was raised for the first time at the hearing of the writ petition. That was clearly impermissible without an amendment of the affidavit in reply or a supplementary affidavit raising such plea. If waiver were properly pleaded in the affidavit in reply, the appellant would have had an opportunity of placing on record facts showing why and in what circumstances the appellant came to address the letter dated 25th June, 1970 and establishing that on these facts there was no waiver by the appellant of its right to exemption under the assurance given by the 4th respondent. But in the absence of such pleading in the affidavit in reply, this opportunity was denied to the appellant. It was, therefore, not right for the High Court to have allowed the plea of waiver to be raised against the appellant and that plea should have been rejected in limine.
6. Secondly, it is difficult to see how, on the facts, the plea of waiver could be said to have been made out by the State Government. Waiver means abandonment of a right and it may be either express or implied from conduct, but its basic requirement is that it must be “an intentional act with knowledge”. Per Lord Chelmsford, L. C. inEarl of Darnley v. London, Chatham and Dover Rly. Co., (1867) LR 2 HL 43 at 57. There can be no waiver unless the person who is said to have waived is fully informed as to his right and with full knowledge of such right, he intentionally abandons it. It is pointed out in Halsbury’s Laws of England (4 d.) Volume 16 in paragraph 1472 at page 994 that for a “waiver to be effectual it is essential that the person granting it should be fully informed as to his rights’- and Isaacs, J, delivering the judgment of the High Court of Australia in Crainev. Colonial Mutual Fire Insurance Co. Ltd., 28 CLR 305, has also emphasised that waiver ”must be with knowledge, an essential supported by many authorities” Now in the present case there is nothing to show that at the date when the appellant addressed the letter dated 25th June, 1970, it had full knowledge of its right to exemption under the assurance given by the 4th respondent and that it intentionally abandoned such right. It is difficult to speculate what was the reason why the appellant addressed the letter dated 25th June, 19/0 stating that it would avail of the concessional rates of sales tax granted under the letter dated 20th January, 1970. It is possible that the appellant might have thought that since no notification exempting the appellant from sales tax had been issued by the State Government under Section 4-A, the appellant was legally not entitled to exemption and that is why the appellant might have chosen to accept whatever concession was being granted by the State Government. The claim of the appellant to exemption could be sustained only on the doctrine of promissory estoppel and this doctrine could not be said to be so well defined in its scope and ambit and so free from uncertainty in its application that we should be compelled to hold that the appellant must have had knowledge of its right to exemption on the basis of promissory estoppel at the time when it addressed the letter dated 25th June, 1970. la fact, in the petition as originally filed, the right to claim total exemption from sales tax was not based on the plea of promissory estoppel which was introduced only by way of amendments. Morever, it must be remembered that there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement : there is no such maxim known to the law. Over a hundred and thirty years ago, Maule, J., pointed out in Martindale v. Falkner, (1846) 2 CB 706: “There is no presumption in this country that every person knows the law : it would be contrary to common sense and reason if it were so”. Scrutton, LJ„ also once said : “It is impossible to know all the statutory law, and not very possible to know all the common law”. But it was Lord Atkin who, as in so many other spheres, put the point in its proper context when he said in Evans v. Bartlam, 1937 AC 473″…the fact is that there is not and never has been a presumption that every one knows the law. There is the rule that ignorance of the law does not excuse a maxim of very different scope and application.” It is, therefore, not possible to presume, in the absence of any material placed before the Court, that the appellant had full knowledge of its right to exemption so as to warrant an inference that the appellant waived such right by addressing the letter dated 25th June, 1970. We accordingly reject the plea of waiver raised on behalf of the State Government.
7. That takes us to the question whether the assurance given by the 4th respondent on behalf of the State Government that the appellant would be exempt from sales tax for a period of three years from the date of commencement of production could be enforced against the State Government by invoking the doctrine of promissory estoppel. Though the origin of the doctrine of promissory estoppel may be found in Hughes v.Metropolitan Railway Co. (1877) 2 AC 439 and Birminghum & District Land Co. v. London & North-Western Rail Co., (1888) 40 Ch. D. 268, authorities of old standing decided about a century ago by the House of Lords, it was only recently in 1947 that it was rediscovered by Mr. Justice Denning, as he then was, in his celebrated judgment in Central London Property Trust Ltd. v. High Trees House Ltd . (1956) 1 All. E. R. 256 : 1947 KB 130. This doctrine has been variously called ‘promissory estoppel’, ‘equitable estoppel’, ‘quasi estoppel’ and ‘new estoppel.’ It is a principle evolved by equity to avoid injustice and though commonly named ‘promissory estoppel’, it is, as we shall presently point out, neither in the realm of contract nor in the realm of estoppel. It is interesting to trace the evolution of this doctrine in England and to refer to some of the English decisions in order to appreciate the true scope and ambit of the doctrine particularly because it has been the subject ot considerable recent development and is steadily expanding. The basis of this doctrine is the interposition of equity. Equity has always, true to form, stepped in to mitigate the rigours of strict law. The early cases did not speak of this doctrine as estoppel. They spoke of it as ‘raising equity’. Lord Cairns stated the doctrine in its earliest form – it has undergone considerable development since then – in the following words in Hughes v.Metropolitan Railway Company (supra) :
“It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.”
8. This principle of equity laid down by Lord Cairns made sporadic appearances in stray cases now and then but it was only in 1947 that it was disinterred and restated as a recognised doctrine by Mr. Justice Denning, as he then was, in the High Tree’s case. The facts in that case were as follows : The plaintiffs leased to the defendants, a subsidiary of the plaintiffs, in 1937 a block of flats for 99 years at a rent of £.2500/- a year. Early in 1940 and because of the war, the defendants were unable to find sub-tenants for the flats and unable in consequence to pay the rent. The plaintiffs agreed at the request of the defendants to reduce the rent to £.1250/- from the beginning of the term. By the beginning of 1945 the conditions had improved and tenants had been found for all the flats and the plaintiffs, therefore, claimed the full rent of the premises from the middle of that year. The claim was allowed because the court took the view that the period for which the full rent was claimed fell outside the representation, but Mr. Justice Denning, as he then was, considered Obiter whether the plaintiffs could have recovered the covenanted rent for the whole period of the lease and observed that in equity the plaintiffs could not have been allowed to act inconsistently with their promise on which the defendants had acted. It was pressed upon the Court that according to the well settled law as laid down in Jorden v. Money,(1854) 5 BL 185, no estoppel could be raised against the plaintiffs since the doctrine of estoppel by representation is applicable only to representations as to some state of facts alleged to be at the time actually in existence and not to promises de futuro which, if binding at all, must be binding only as contracts and here there was no representation of an existing state of facts by the plaintiffs but it was merely a promise or representation of intention to act in a particular manner in the future. Mr. Justice Denning, however, pointed out :
“The law has not been standing still since Jorden V. Money. There has been a series of decisions over the last fifty years which, although they are said to be cases of estoppel are not really such. 1 hey are cases in which a promise was made which was intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on by the person to whom it was made, and which was in fact so acted on. In such cases the courts have said that the promise must be honoured.”
The principle formulated by Mr. Justice Denning was, to quote his own words, “that a promise intended to be binding intended to be acted on and in fact acted on, is binding so far as its terms properly apply.” Now Hughesv. Metropolitan Railway Co. (supra) and Birmingham and District Land Co. v. London & North Western Railway Co. (supra), the two decisions from which Mr. Justice Denning drew inspiration for evolving this new equitable principle, were clearly where the principle was applied as between parties who was already bound contractually one to the other. In Hughes Metropolitan Railway Co. (supra) the plaintiff and the defendant were already bound in contract and the general principle stated by Lord Cairns, L. C. was :
“If parties who have entered into definite and distinct terms involving certain legal results afterwards—enter upon a course of negotiations”.
Ten years later Bowen, L. J. also used the same terminology in Birmingham and District Land Co. v. London and North Western Rail Co. (supra) that :
”If persons who have contractual rights against others induce by their conduct those against whom they have such rights to believe.”
These two decisions might, therefore, seem to suggest that the doctrine of promissory estoppel is limited in its operation to cases where the parties are already contractually bound and one of the parties induces the other to believe that the strict rights under the contract would not be enforced. But we do not think any such limitation can justifiably be introduced to curtail the width and amplitude of this doctrine. We fail to see why it should be necessary to the applicability of this doctrine that there should be some contractual relationship between the parties. In fact Donaldson, J. pointed in Durham Fancy Goods Ltd. v. Michael Jackson (Fancy Goods) Ltd.(1968) All. ER 987 :
“Lord Cairns in his enunciation of the principle assumed a preexisting contractual relationship between the parties, but this does not seem to me to be essential, provided that there is a preexisting legal relationship which could in certain circumstances give rise to liabilities and penalties.”
But even this limitation suggested by Donaldson, J. that there should be a pre-existing legal relationship which could in certain circumstances give rise to liabilities and penalties is not warranted and it is significant that the statement of the doctrine by Mr. Justice Denning in the High Trees case does not contain any such limitation. The learned Judge has consistently refused to introduce any such limitation in the doctrine and while sitting in the Court of Appeal, he said in so many terms, in Evenden v. Guildford City Associa ttion Football Club Ltd.(1969) All. ER 987 :
quot;Counsel for the appellant referred us, however, to the second edition of Spencer Bower’s book on Estoppel by Representation (1966) pp. 340-342) by Sir Alexander Turner, a judge of the New Zealand court of Appeal. He suggests the promissory estoppel is limited to cases where parties are already bound contractually one to the other. I do not think it is so limited : see Durham Fancy Goods Ltd. v. Michael Jackson (Fancy Goods) Ltd. It applies whenever a representation is made, whether of fact or law, present or future, which is intended to be binding, intended to induce a person to act on it and he does act on it.”
This observation of Lord Denning clearly suggests that the parties need not be in any kind of legal relationship before the transaction from which the promissory estoppel takes its origin. The doctrine would seem to apply even where there is no pre-existing legal relationship between the parties, but the promise is intended to create legal relations or affect a legal relationship which will arise in future. Vide Halsbury’s Laws of England 4th ed. p. 1018, Not 2 to para 1514. Of course it must be pointed out in fairness to Lord Denning that he made it clear in the High Trees case that the doctrine of promissory estoppel cannot found a cause of action in itself, since it can never do away with the necessity of consideration in the formation of a contract, but he totally repudiated inEvenderis’ case the necessity of a pre-existing relationship between the parties and pointed out in Crabb v. Arun District Council, (1975) All ER 865, that equity will in a given case where justice and fairness demand, prevent a person from insisting on strict legal rights even where they arise, not under any contract, but on his own title deeds or under statute. The true principle of promissory estoppel, therefore, seems to be that there one party has by his words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties, and this would be so irrespective whether there is any pre-existing relationship between the parties or not.
9. It may be pointed out that in England the law has been well-settled for a long time, though there is some indication of a contrary trend to be found in recent juristic thinking in that country, that promissory estoppel cannot itself be the basis of an action. It cannot found a cause of action : it can only be a shield and not a sword. This narrow approach to a doctrine which is otherwise full of great potentialities is largely the result of an assumption, encouraged by its rather misleading nomenclature, that the doctrine is a branch of the law of estoppel. Since estoppel has always been traditionally a principle invoked by way of defence, the doctrine of promissory estoppel has also come to be identified as a measure of defence. The ghost of traditional estoppel continues to haunt this new doctrine formulating and applying this new equity in the High Trees’ case, Lord Denning added a qualification that though in the circumstances set out, the promise would undoubtedly he held by the courts to be binding on the party making it, not understanding that under the old common law it might be difficult to find any consideration for it, “the courts have not gone so far as to give a cause of action in damages for the breach of such a promise, but they have refused to allow the party making it to act,inconsistently with it”. Lord Denning also pointed out in Combe v. Combe, (1951)2 KB 215, that “Much as I am inclined to favour the principle stated in the High Trees case, it is important that it should not be stretched too far, lest it should be endangered. That principle does create new causes of action where none existed before. It only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties…” So also said Buckley. J., in the more recent case of Besley v. Hollwood Estates Ltd., (1960) 2 All ER 314: “The doctrine may afford a defence against the enforcement or otherwise of enforceable rights : it cannot create a cause of action.” It is, however, necessary to make it clear that though this doctrine has been called in various judgments and text books as promissory estoppel and it has been variously described as ‘equitable estoppel’, ‘quasi estoppel’ and ‘new estoppel’, it is not really based on the principle of estoppel, but it is a doctrine evolved by equity in order to prevent injustice where a promise is made by a person knowing that it would be acted on by the person to whom it is made and in fact it is so acted on and it is inequitable to allow the party making the promise to go back upon it. Lord Denning himself ODserved in the High Trees’ case, expressly making a distinction between ordinary estoppel and promissory estoppel, that cases like the one before him were “…not cases of estoppel in the strict sense. They are really promises, promises intended to be binding, intended to be acted upon and in fact acted upon”. Jenkins, C. J. also pointed out in Municipal Corporation of Bombay v. Secretary of State, 29 Bombay 80 at 607 that the “doctrine is often treated as one of estoppel, but I doubt whether this is correct, though it may be a convenient name to apply”. The doctrine of promissory estoppel need not, therefore, be inhibited by the same limitation as estoppel in the strict sense of the term. It is an equitable principle evolved by the courts for doing justice and there is no reason why it should be given only a limited application by way of defence.
10. It may be noted that even Lord Denning recognised in Crabb v. Arun District Council (supra) that “there are estoppels and estoppels. Some do give rise to cause of action. Some don’t” and added that “in the species of estoppel called ‘proprietary estoppel’, it does give rise to a cause of action” The learned Law Lord, after quoting what he had said in Moorgate Mercantile Co. Ltd. v. Twitchings, (1975)3 WLR 286 namely that the effect of estoppel on the true owner may be that :
“his own title to the property, be it land or goods, has been held to be limited or extinguished, and new rights and interests have been created therein. And this operates by reason of his conduct— what he has led the other to believe – even though he never intended it.”
proceeded to observe that “the new rights and interests, so created by estoppel, in or over land, will he protected by the courts and in this way give rise to a cause of action”. The Court of Appeal in this case allowed Crabb a declaration of “a right of access at point B over the verge on to the Mill Park Road and a right of way along that road to Hook Lane” on the basis of an equity arising out of the conduct of the Arun District Council. Of Course, Spencer Bower and Turner, in their Treatise on the Law Relating to Estoppel by Representation’ have explained this decision on the basis that it is an instance of the application of the doctrine of estoppel by encouragement or acquiescence or what has now come to be known as proprietary estoppel which, according to the learned authors, forms an exception to the rule that estoppel cannot found a cause of action. But if we look at the judgments of Lord Denning and Scarman, L.J., it is apparent that they did not base their decision on any distinctive featurs of proprietary estoppel but proceeded on the assumption that there was no distinction between promissory and proprietary estoppel so tar as the problem before them was concerned. Both the learned Law Lord and the learned Lord Justice applied the principle of promissory estoppel in giving relief to Crabb. Lord Denning, referring to what Lord Cairne had said in Hughes v. Metropolitan Railway Co., (1877) 2 App. Cas 439 at 48 a decision from which inspiration was drawn by him for evolving the doctrine of promissory estoppel in the High Tree’s case, observed that “…it is the first principle on which all courts of equity proceed…that it will prevent a person from insisting on his strict legal rights – whether arising under a contract, or on his title deeds, or by statute – when it would ‘ e inequitable for him to do so having regard to the dealings which have taken place between the parties”. The decision in the High Trees’ case was also referred to by the learned Law Lord and so also other cases supporting the doctrine of promissory estoppel. Scarman, L.J. also observed that in pursuing the inquiry as to whether there was an equity in favour of Crabb, he did not find helpful “the distinction between promissory and proprietary estoppel”. He added that this “distinction may indeed be valuable to those who have to teach or expound the law, but I do not think that, in solving the particular problem raised by a particular case, putting the law into categories is of the slightest assistance”. It does appear to us that this was a case decided on the principle of promissory estoppel. The representative of the Arun District Council clearly gave assurance to Crabb that they would give him access to the new road at point B to serve the southern portion of his land and the Arun District Council in fact constructed a gate at point B, and in the belief induced by this representation that he would have right of access to the new road at point B, Crabb agreed to sell the northern portion of his land without reserving for himself as owner of the southern portion any right of way over the northern portion for the purpose of access to the new road. This was the reason why the Court raised an equity in favour of Crabb and held that the equity would be satisfied by giving Crabb “the right of access at point B free of charge without paying anything for it”. Arun District Council was held bound by its promise to provide Crabb access to the new road at point B and this promise was enforced against Arun District Council at the instance of Crabb. The case was one which fell within the category of promissory estoppel and it may be regarded as supporting the view that promissory estoppel can be the basis of a cause of action. It is possible that the case also came within the rule of proprietary estoppel enunciated by Lord Kingsdown in Ramsden v, Dyson (1866) LR 1 HL 129 :
“The rule of law applicable to the case appears to me to be this. If a man, under a verbal agreement with a landlord for a certain interest in land, or what amounts to the same thing, under an expectation, created or encouraged by the landlord i hat he shall have a certain interest, takes possession of such land, with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord, and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation.” And Spencer Bower and Turner may be right in observing that that was perhaps the reason why it was held that the promise made by Arun District Council gave rise to a cause of action in favour of Crabb. But, on what principle, one may ask, is the distinction to be sustained between promissory estoppel and proprietary estoppel in the matter of enforcement by action. If proprietary estoppel can furnish a cause of action, why should promissory estoppel not. There is no qualitative difference between the two Both are the off-springs of equity and if equity is flexible enough to permit proprietary estoppel to be used as a cause of action, there is no reason in loyic or principle why promissory estoppel should also not be available as a cause of action, if necessary to satisfy the equity.
11. But perhaps the main reason why the English Courts have been reluctant to allow promissory estoppel to found a cause of action seems to be the apprehension that the doctrine of consideration would otherwise be completely displaced. There can be no doubt that the decision of Lord Denning in the High Trees’ case represented a bold attempt to escape from the limitation imposed by the House of Lord in Jorden v. Money(supra) and it rediscovered an equity which was long embedded beneath the crust of the old decisione in Hughesv. Metropolitan Railway Co. (supra) and Birmingham and District Land Co. v. London and North Western RailCo. (supra), and brought about a remarkable development in the law with a view to ensuring its approximation with justice, an ideal for which the law has been constantly striving. But it is interesting to note that Lord Denning was not prepared to go further, as he thought that having regard to the doctrine of consideration which was so deeply entrenched in the jurisprudence of the country, it might be unwise to extend promissory estoppel so as to found a cause of action and that is why he uttered a word of caution in Combe v. Combe (supra) that the principle of promissory estoppel “should not be stretched too far, lest it should be endangered”. The learned Law Lord proceeded to add “seeing, that the principle never stands alone as giving a cause of action in itself, it can never do away with the necessity of consideration when that is an essential part of the cause of action. The doctrine of consideration is too firmly fixed to be overthrown by a side wind.” Spencer Bower and Turner also point out at page 384 of their Treatise (3rd ed.) that it is difficult to see how in a case of promissory estoppel a promise can be used to found a cause of action without according to it operative contractual force and it is for this reason that “a contention that a promissory estoppel may be used to found a cause of action must be regarded as an attack on the doctrine of consideration.” The learned authors have also observed at page 387 that “to give a plaintiff a cause of action on a promissory estoppel must be little less than to allow an action in contract where consideration is not shown” and that cannot be done because consideration “still remains a cardinal necessity of the formation of a contract.” It can hardly be disputed that over the last three or four centuries the doctrine of consideration has come to occupy such a predominant position in the law of contract that under the English law it is impossible to think of a contract without consideration and, therefore, it is understandable that the English courts should have hesitated to push the doctrine of promissory estoppel to its logical conclusion and stopped short at allowing it to be used merely as a weapon of defence, though, as we shall point out, there are quite a few cases where this doctrine has been used not as founding a cause of action in itself but as a part of a cause of action.
12. The modern attitude towards the doctrine of consideration is, however, changing fast and there is considerable body of juristic thought which believes that this doctrine is “something of an anachronism”. Prof. Holds worth pointed but long ago in his History of English Law that “the requirements of consideration in its present shape prevent the enforcement of many contracts, which ought to be enforced, if the law really wishes to give effect to the lawful intentions of the parties to them; and it would prevent the enforcement of many others, if the judges had not used their ingenuity to invest considerations. But the invention of considerations, by reasoning which is both devious and technical, adds to the difficulties of the doctrine.” Lord Wright remarked in an article published in 49 Harvard Law Review, 1225 that the doctrine of consideration in its present form serves no practical purpose and ought to be abolished. Sir Federick Pollook also said in his well known work on ‘Genius of Common Law, p. 91 that the application of the doctrine of consideration “to various unusual but not unknown cases has been made subtle and obscured by excessive dialectic refinement.” Equally strong is the condemnation of this doctrine in judicial pronouncements. Lord Dunedin observed in the well known case of Dunlop Pneumatic Tyre Co. (1915) AC 847 : “I confess that this case is to my mind apt to nip any budding affection which one might have had for the doctrine of consideration. For the effect of that doctrine in the present case is to make it possible for a person to snap his fingers at a bargain deliberately made, a bargain not in itself unfair, and which the person seeking to enforce it has a legitimate interest to enforce/’ The doctrine of consideration has also-received severe criticism at the hands of Dean Roscos Pound in the United States. The reason is that promise as a social and economic institution becomes of the first importance in a commercial and industrial society and it is an expression of the moral sentiment of a civilised society that a man’s word should be ‘as good as his bond’ and his fellowmen should be able to rely on the one equally with the other. That is why the Law Revision Committee in England in its Sixth Report made as far back as l937 accepted Prof. Holosworth’s view and advocated that a contract should exist if it was intended to create or affect legal relations and either consideration was present or the contract was reduced to writing. This recommendation, however, did not fructify into law with the result that the present position remains what it was. But having regard to the general opprobrium to which the doctrine of consideration has been subjected by eminent jurists, we need not be unduly anxious to protect this doctrine against assault or erosion nor allow it to dwarf or stultify the full development of the equity of promissory estoppel or inhibit or curtail its operational efficacy as a juristic device for preventing injustice. It may be pointed out that the Law Commission of India in its 13th Report adopted the same approach and recommended that, by way of exception to Section 25 of the Indian Contract Act, 1925, a promise, express or implied, which the promisor knows or reasonably should know, will be relied upon by the promisee, should be enforceable, if the promisee has altered his position to his detriment in reliance on the promise. We do not see any valid reason why promissory estoppel should not be allowed to found a cause of action where, in order to satisfy the equity, it is necessary to do so.
13. We may point out that even in England where the judges, apprehending that if a cause of action is allowed to be founded on promissory estoppel it would considerably erode, if not completely overthrow, the doctrine of consideration, have been fearful to be used as a weapon of offence, it is interesting to find that promissory estoppel has not been confined to a purely defensive role. Lord Denning himself said in Combe v. Combe(supra) that promissory estoppel “may be a part of a cause of action”, though “not a cause of action itself”. In fact there have been several cases where promissory estoppel has been successfully invoked by a party to support his cause of action, without actually founding his cause of action exclusively upon it. Two such cases are : Robertson v. Minister of Pensions, (L949) 1 KB 227 and Evenden v. Guildford City Association Football Club Ltd., (1975) 3 All ER 269. The English courts have thus gone a step forward from the original position when promissory estoppel was regarded merely as a passive equity and allowed it to be used as a weapon of offence to a limited extent as a part of the cause of action, but still the doctrine of consideration continues to inhibit the judicial mind and that has thwarted the full development of this new equitable principle and the realisation of its vast potential as a juristic technique for doing justice. It is true that to allow promissory estoppel to found a cause of action would seriously dilute the principle which requires consideration to support a contractual obligation, but that is no reason why this new principle, which is a child of equiy brought into the world with a view to promoting honestly and goodfaith and bringing law closer to justice, should be held in fetters and no. allowed to create in all its activist magnitude, so that it may fulfil the purpose for which it was conceived and born. It must be remembered that law is not a mausoleum. It is not an antique to be taken down, dusted, admired and put back on the shelf. It is rather like an old but vigorous tree, having its roots in history, yet continuously taking new grafts and putting out new sprouts and occasionally dropping dead wood. Et is essentially a social process, the end product of which is justice and hence it must keep on growing and developing with changing social concepts and values. Otherwise, there will be estrangement between law and justice and law will cease to have legitimacy. It is true, as pointed out by Mr. Justice Holmes, that continuity with the past is a historical necessity but it must also be remembered at the same time, as pointed out by Mr. Justice Cardozo that ‘conformity is not to be turned into a fetish”. We would do well to recall the famous words uttered by Mr. Justice Cardozo while closing his first lecture on “Paradoxes of Legal Science :”
“The disparity between precedent and ethos may so lengthen with the years that only covin and chicanery would be disappointed if the separation were to end. There are many intermediate stages, mores, if inadequate to obliterate the past, may fix direction for the future. The evil precedent may live, but so sterilized and truncated as to have small capacity for harm. It will be prudently ignored when invoked as an apposite analogy in novel situations, though the novel element be small. There will be brought forward other analogies, less precise, it may be, but more apposite to the needs of morals. The weights are constantly shifted to restore the equilibrium between precedent and justice.”
Was it not Lord Denning who exhorted judges not to be timorous souls but to be bold spirits, ready to allow a new cause of action, if justice so required. Candelar v. Craine Chrsmas & Co., (1951) 2 KB 164 at 178.
14. We may profitably consider at this stage what the American law on the subject is because in the United Sates the law has always shown a greater capacity for adjustment and growth than elsewhere. The doctrine of promissory estopped has displayed remarkable vigour and vitality in the hands of American Judges and it is still rapidly developing and expanding in the United States. it may be pointed out that this development does not derive its origin in any way from the decision of Lord Denning in the High Trees’ case but ante-dates this decision by a number of years ; perhaps it is possible that it may have helped to inspire that decision. It was long before the decision in the High Trees case that the American Law Institute’s Restatement of the Law of Contracts came out with the following proposition in Article 90 :
“A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee, and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise.”
This proposition was explained and elucidated by several illustrations given in the article and one of such illustrations was as follows :
“A promise B to pay him an annuity during B’s life. B thereupon resigns a profitable employment, as A expected that he might. B receives the annuity for some years, in the meantime becoming disqualified from again obtaining good employment. A’s promise is binding.”
It is true that the Restatement has not the same weight, as a source of law, as actual decisions of courts of high standing, yet the principle set out in Article 90 has in fact formed the basis of a number of decisions in various States and it is now becoming increasingly clear that a promise may in the United States derive contractual enforceability if it has been made by the promisor intending that it should be acted on and the promisee has altered his position in reliance on it, notwithstanding that there is no consideration in the sense in which that word is used in English and Commonwealth jurisprudence. Of course the basic requirement for invoking this principle must be present, namely, that the fact-situation should be such that “injustice can be avoided only by enforcement of the promise.” There are numerous examples of the application of this principle to be found in recent American decisions. There is, for instance, the long line of cases in which a promise to give a charitable subscription has been consistently held to be enforceable at the suit of the charity. Though attempts have been made to justify these decisions by reasoning that the charity by commencing or continuing its charitable work after receiving promise has given good consideration for it, we do not think that, on closer scrutiny, the enforceability of the promise in these cases can be supported by spelling out the presence of some form of consideration and the true principle on which they are really based is the principle of promissory estoppel. This is also the view expressed in the following statement at page 657 of Vol. 19 of American Jurisprudence :
“A number of courts have upheld the validity of charitable subscriptions on the theory of promissory estoppel holding that while a mere promise to contribute is unenforceable for want of consideration, if money has been expanded or liabilities have been incurred in reliance on the promise so that non fulfilment will cause injury to the payee, the donor is estopped to assert the lack of consideration, and the promise will be enforced.”
Chief Justice Cardozo, presiding over the Court of Appeals of the State of New York, explained the ratio of these decisions in the same terms in Allegheny College v. National Cheutenqus County Bank, 57 ALR 98o ;
“The half-truths of one generation tend at times to perpetuate themselves in the law as the whole truths of another, when constant repetition brings it about that qualifications, taken once for granted, are disregarded or forgotton. The doctrine of consideration has not escaped the common lot. As far back as 1881, Judge Holmes in his lactures on the Common Law (p. 292) separated the detriment which is merely a consequence of the promise from the detriment which is in truth the motive or inducement, and yet added that the courts ‘have gone far in obliterating this distinction’. The tendency toward effacement has not lessened with the years. On the contrary there has grown up of recent days a doctrine that a substitute for consideration or an exception to its ordinary requirements can be found in what is styled a ‘promissory estoppel’. Willston Contract, Section 139, 116. Whether the exception has made its way in this State to such an extent as to permit us to say that the general law of consideration has been modified accordingly was attempt to say. Cases such as 234 N. Y. 479 and 221 N. Y 431 may be signposts on the road. Certain at least it is that we have adopted the doctrine of promissory estoppel as the equivalent of consideration in connection with our law of charitable subscriptions. So long as those decisions stand the question is not merely whether the enforcement of a charitable subscription can be squar2d with the doctrine of consideration in 11 its ancient rigor. The question may also be whether ft can be squared with the doctrine of consideration as qualified by the doctrine of promissory estoppel.
We have said that the cases in this State have recognized this exception, if exception it is thought to be. Thus, in 12 N. Y. is subscription was made without request, express or implied that the church do anything on the faith of it. Later, the church did incur expense to the knowledge of the promisor, and in the reasonable belief that the promise would be We heldpromise binding, though consideration there was new Such upon the theory of a promissory estoppel. In74NVsituation substantially the same become the basis; for a likeruling. So in 103 N. Y. 600 and (1901) 167 N. Y. 96 the moulds of consideration as fixed by the old doctrine were Subject to a like expansion. Very likely conceptions of public policy have shaped, more or less subconsciously, the rulings thus of that character are ‘breaches of faith towards the public, and aspecially towards those engaged in the same enterprise and an unwarrantable disappointment of the reasonable expectation of those enterested.’ W. F. Allen J. in 12 N. Y. 18 and of 97 Vt. 495 and cases there cited. The result speaks for itself irrespective of the motive. Decisions which have stood for itself irrespective of the motive. Decisions which have stood son long and and reasons, will not be overruled to save the symmetry of a concept which itself came into our law, not so much from historical accidents of practice and procedure. (8 Holdsworth, History of English Law, 7 et. Seq). The Concept survives as one of the distinctive features of our legal system. We have no thought suggest that it is obsolete or on the way to be abandoned. As in the case of the other concepts, however, the pressure of exceptions has led to irregularities of form.”
It is also interesting to note that the doctrine of promissory estoppel has been widely used in the United States in diverse other situations as founding a cause of action. The most noteable instances are to be found in what may be called the “sub-contractory bid cases” in which a contractor about to tender for a contract, invites a sub-contractor to submit a bid for a sub-contract and after receiving his bid, the sub-contractor has bee held unable to retract his bid and be liable in damages if he does so. It is not possible to say that any detriment which the contractor may be able to show in these cases would amount to consideration in its strict sense and these decisions have plainly been reached on an application of the doctrine of promissory estoppel. One of such cases was Orennan v. Star Paving Company, (1958) 31 Cal. 2nd 409 where Traynor, J. explicitly adopted as good law the text of Article 90 of the Restatement of the Law of contracts quoted above and stated in so many words that “the absence of consideration is not fatal to the enforcement of such a promise”. There are also numerous cases where the doctrine of promissory estoppel has been applied against the Government where the interest of justice, morality and common fairness clearly directed such a course. We shall refer to these cases when we discuss the applicability of the doctrine of equitable estoppel against the Government. Suffice it to state for the present that the doctrine of promissory estoppel has been taken much further in the United States than in English and Common-wealth jurisdictions and in some States at least, it has been used to reduce, if not to destroy, the prestige of consideration as an essential of valid contract. Vide Spencer Bower and Turner’s estoppel by Representation (2nd) page 358.
15. We now go on to consider whether, and if so to what extent is the doctrine of promissory estoppel applicable against the Government. So far as the law in England is concerned, the position cannot be said to be very clear Rowlatt J., in an early decision in Rederiaktiebolaget Amphitrite v. The King, (1921) 3 KB 500 held that an undertaking given by the British Government to certain ne