M/S Motilal Padampat Sugar Mills Co.
(P.) Ltd. Vs. State of Uttar Pradesh & Ors [1978] INSC 254 (12 December
1978)
BHAGWATI, P.N.
BHAGWATI, P.N.
TULZAPURKAR, V.D.
CITATION: 1979 AIR 621 1979 SCR (2) 641 1979
SCC (2) 409
CITATOR INFO :
F 1980 SC 768 (1) O 1980 SC1285 (40) R 1983
SC 848 (8) E&R 1985 SC 941 (4) R 1986 SC 806 (9,10,11,12,13,14) RF 1986 SC
872 (181,182) F 1987 SC 590 (7) RF 1987 SC2414 (22,23) RF 1988 SC1247 (3) RF
1989 SC1933 (28) R 1989 SC2138 (64) C 1991 SC 14 (11) D 1991 SC 818 (18) RF 1992
SC1075 (3) RF 1992 SC2169 (28)
ACT:
Waiver doctrine of-Waiver is a question of
fact and it must be properly pleaded and proved.
Public law-Doctrine of Promissory Estoppel,
its contours and parameters, explained.
Estoppel-Estoppel in pais-Promissory
Estoppel- Applicability of the doctrine against the Government and extent
threre of-Doctrine of executive necessity whether could be a valid defence and
if so under what circumstance.
Representations de futureo by public body if
enforceable ex-contractu by a person who acts upon such representation or
promise intended to be acted on-Burden of proof-Degree of standard of proof in
such cases.
HEADNOTE:
The appellant is a limited company which is
primarily engaged in the business of manufacture and sale of sugar and it has a
cold storage plant and a steel foundry. With reference to a news item dated
10th October 1968 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 4A 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", the appellant 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
Hydrogenation plant for manufacture of Vanaspati and sought for confirmation
that this industrial unit which it proposed to set up, would be entitled to
sales tax holiday' for a period of three years from the date it commenced
production. The Director of Industries by his letter dated 14th October 1968,
confirmed 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".
Thereafter when 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 apprised the latter 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, the 4th respondent
reiterated the assurance made.
Again the appellant, by its letter dated 13th
December 1968, 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". The 4th respondent replied
on 22nd December 1968 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 642 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 in the meantime had submitted an application dated 21st December 1968
for a formal order granting exemption from sales tax under section 4A of the
U.P. Sales Tax Act. The appellant was also subsequently informed by the letter
dated 23rd January 1969 of the 4th respondent categorically 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". The appellant, on the basis of these unequivocal
assurances, went ahead with the setting of the Vanaspati factory and made much
progress.
By the middle of May 1969, the State
Government started having second thoughts on the question of exemption and the
appellant was requested to attend a meeting "to discuss the question of
giving concession in Sales Tax on Vanaspati products". 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. The appellant's representative did attend
the meeting held on 3rd June 69 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 State Government, however, went back upon
the 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 only partial concession in Sales Tax at
different rates on each year of production. 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 of 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 3 1/2% instead of 7%
on the sales of Vanaspati manufactured by it for the 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 Indian 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 January 1970 by issuing a
notification under section 4A of the U.P. Sales Tax Act from the appellant for
the said period of three years. The plea based on the 643 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
respondent dated 20th January 1970.
Allowing the appeal by certificate, the
Court,
HELD: 1. The view taken by the High Court,
namely, 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 right under it by a accepting the concessional rates of sales tax set out
in the letter of the 5th respondent dated 20th January, 1970 is not correct.
[656 D-E]
2. 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. [656 E-F] In the instant case:
(a) the plea of waiver was not taken by the
State Government in the affidavit filed 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. [656 F] (b) It was 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. 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 those 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 [656F-H]
3. 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". 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.
[657A, B] In the instant case, on the facts, the plea of waiver could not be
said to have been made out by the State Government: There was nothing to state
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 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. It is difficult to speculate what was the reason
why the appellant addressed the letter 25th June 1970 stating that it would
avail of the concessional rates of sales tax granted under the letter dated
20th January 1970. [657 D-E] 644 Earl of Darnley v. London, Chathan and Dover
Rly. Co.
(Proprietors etc.), [1867] L.R. 2 H.L. 43 @
57 Craine v. Colonial Mutual Fire Insurance Co. Ltd. 28 C.L.R. 305;
Martindala v. Faulkner [1846] 2 Q.B. 706;
quoted with approval.
4. The doctrine called 'promissory estoppel',
'equitable estoppel', 'quasi estoppel', and 'new estoppel' is a principle
evolved by equity to avoid injustice where a promise is made by a person
knowing that it would be acted on and it is 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. Though commonly named promissory estoppel it is
neither in the realm of contract nor in the realm of estoppel. The basis of the
doctrine is the inter position of equity, which has always true to its form
stepped in to mitigate the rigours of strict law. [658 E-G]
5. The true principle of promissory estoppel
is that where one party has by his words or conduct made to the other a clear
and unequivocal promise which is intended to create legal relationship 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. 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. [662 B-D] To the applicability of
the doctrine of promissory estoppel it is not necessary that there should be
some contractual relationship between the parties. Nor can any such limitation,
namely, 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 be justifiably introduced to curtail the width and amplitude of
the doctrine. The parties need not be in any kind of legal relationship before
the transaction from which the promissory estoppel take its origin. The
doctrine would 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 whish will arise in future. [660 G-H, 661 A, F-G].
Jorden V. Money, [1854] 5 H.L. 185, Hughes v.
Metropolitan Railway Co., [1857] 2 A.C. 439, Birmingam & District Land Co.
v. London and North- Western Rail Co., ]1888] 40 Ch. D. 268; discussed and
questioned.
Central London Property Trust Ltd. v. High
Trees House Ltd., [1947] K.B. p. 130:: [1956] 1 All. E.R. 256;
explained.
Evenden v. Guildford City Association
Football Club Ltd., [1975] 3 All. E.R. 269 @ 272 :: [1975] 3 W.L.R. 251 @ 255;
Crabb v. Arun District Council. [1975] All E.R. 865 @ 875:: [1975] 8 W.L.R. 847
@ 858 CA; quoted with approval.
645
6. The doctrine of promissory estoppel cannot
be inhibited by the same limitation 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 and it should only be a shield and not a sword to found a cause of
action. It can be the basis of a cause of action. [662 D-E, 663 E-F].
There is no qualitative difference between
'proprietary estoppel' and 'promissory estoppel'. 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 logic or principle why
promissory estoppel should also not be available as cause of action, if
necessary to satisfy the equity. [665 G-H] Central London Property Trust Ltd.
v. High Trees House Ltd . [1947]1 K.B.P. 130: [1956] 1 All. E.R. 256; Combe v.
Combe [1951] 2 K.B. 215; Beesly v. Hallwood
Estate Ltd.
[1960] 2 All. E.R. 314; Municipal Corporation
of Bombay.v Secty. of State I.L.R. 29 Bomb. 580 @ 607; Mooregate Mercantile Co.
Ltd. v. Twichings,s [1975] 3 W.L.R. 286;
referred to.
Crabb v. Arun District Council [1975] All.
E.R. 865 @ 875 explained. Ramsden v. Dysen,[1866] L.R H.L. 129; Dunlop
Pneuntafic Tyre Co. v. Saifridge & Co. Ltd. 1915 A.C. 847:
discussed.
7. 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. It 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 Though 'continuity with the
past is a historical necessity', 'conformity is not to be turned into a
fetish'. [668 H, 669 A-B].
Therefore, despite the fact that allowing
promissory estoppel to found a cause of action would seriously dilute the
principle which requires consideration to support a contractual obligation,
this new principle, which is a child of equity brought into the world with a
view to promoting honesty and good faith and bringing, law closer to justice
should not be held in fetters but allowed to operate in all its activist
magnitude. so that it may fulfill the purpose for which was conceived and born.
[668 F-G].
Robertson v Minister of Pensions. [1949] 1 K.
B. 227 Evenden Guldford city Association Football Club Ltd. [1975] 3 All. E.R.
p. 269. Candler v. Crane Christmas & Co. [1951] 2 K. B. 164 @ 178; quoted
with approval.
8. A promise may, in the United States,
derive contractual enforceability if it has been made by the promisor knowing
or intending that it would 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 646 and Commonwealth jurisprudence.
However, 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. The doctrine of promissory estoppel has
been used in the United States to reduce, if not to destroy, the prestige of
consideration as an essential of valid contract and also used in diverse other
situations as founding a cause of action: [670 D-E, 673 B].
Alleghany College v. National Chauteaque
Country Bank 57 Am L. R. 980; Drennan v. Stat Paving Company [1958] 31
California 2nd 409; referred.
Under the English law, the judicially formed
view is that the crown is not immune from liability under the doctrine of
promissory estoppel and the view taken by Denning J., in [1949] 1 K. B. 227
that the crown cannot escape its obligation under the doctrine of promissory
estoppel by "praying in aid the doctrine of executive necessity"
still holds the field. [674 D].
Robretson v. Minister of Pensions [1949] 1 K.
B.
227; quoted with approval:
Rederiaktiebolaget Amphitrities. v. The King
[1921] 3 K. B. 500; referred to.
Howell v. Falmouth Boat Construction Co. Ltd.
1951 A. C. 837; explained
10. Even in the United States, the trend in
the State Courts, of late, has been strongly in favour of the application of
the doctrine of promissory estoppel against the Government and public bodies
"where interests of justice, morality and common fairness clearly dictate
that course". It is being increasingly felt that "the Government ought
to set a high standard in its dealings and relationships with citizens and the
word of a duly authorised Government agent, acting within the scope of his
authority, ought to be as good as a Government bond". The Government would
not be estopped "by the acts of its officers and agents who without
authority enter into agreements to do what the law does not sanction or
permit" and "these dealing with an agent of the Government must be
held to have notice of limitations of his authority". But if the acts of omissions
of officers of the Government are within the scope of their authority and are
not otherwise impermissible under the law, they "will work estoppel
against Government". [676 F-H, 677 A-D] Federal Crop Insurance Corporarion
v. Maroill 332 U.S. 380: 92 L. ed. discussed and explained.
Valsonavich v. United States 335 Fed. Rep.
2nd p.
96; quoted With approval.
11. Where the Government makes a promise
knowing or intending that it would be acted on by the promisee and, in fact,
the promisee, acting in reliance on it, alters his position, the Government
would be held bound by the promise and the promise would be enforceable against
the Government at the instance of the promisee notwithstanding that there is no
consideration for the promise and the promise is not recorded in the form of a
formal contract as required by Article 299 of the Constitution. [682 G-H,
683-A].
647 It is elementary that in a Republic
governed by the rule of law, no one, a however high or low is above the law.
Everyone is subject to the law as fully and
completely as any other and the Government is no exception. It is indeed the
pride of constitutional democracy and rule of law that the Government stands on
the same footing as a private individual so far as the obligation of the law is
concerned;
the former is equally bound as the latter. On
no principle can a Government committed to the rule of law, claim immunity from
the doctrine of promissory estoppel. The Government cannot be heard to say that
it is under no obligation to act in a manner that is fair and just or that it
is not bound by considerations of 'honesty and good faith'. In fact the
Government should be held to a high "standard of rectangular rectitude
while dealing with its citizens". [683 A-C].
Gangaes Manufacturing co v. Surajmull and
Ors., I.L.R. 5 Cal. 669; Municipal Corporation of Bombay v. The Secretary of
State, I,L.R. 29 Bomb. 588; approved.
Collector of Bombay v. Municipal Corporoaton
of rlle City of Bombay and Ors. [1952] S.C.R. 43; Union of India v. Indo-Afghan
Agencies, [1968] 2 S.C.R. 366;
followed.
Ransden v. Dyson,[1866] L.R. 1HL 170;
referred to.
Robertson v. Minister of Pensions, [1949] 1
K. B.
227; quoted with approval as the correct law.
12. The doctrine of executive necessity,
regarded as sufficient Justification for the Government to repudiate even its
contractual obligations was emphatically negatived in the Indo-Afghan Agencies
case and the supremacy of the laws was established, [683 C-D].
Therefore, it is not open to Government to
claim immunity from the applicability of the rule of promissory estopped and
thereby repudiate a promise made by it on the ground that such promise may
fetter its future executive action. If the Government wants to preserve its
freedom of executive action from being hampered or restricted, the Government
should not make a promise knowing or intending that it would be acted on by the
promisee and the promisee would alter his position relying upon it. But, if the
Government makes such a promise and the promisee acts in reliance upon it and
alters his position the Government would be compelled to make good such promise
like any other private individual. [683 D-F].
13. The law cannot acquire legitimacy and
gain social acceptance unless it accords with the moral values of the society.
It should be the constant endeavor of the Courts and the legislatures to close
the gap between law and morality and bring about as near an approximation
between the two as possible. The doctrine of promissory estopped is a
significant judicial contribution in that direction.[683 F-G].
Since the doctrine of promissory estoppel is
an equitable doctrine, it must yield when the equity so requires. If it could
be shown the by Government that having regard to the facts as they have
transpired, it would be inequitable to hold the Government to the promise made
by it, the Court would not raise an equity in favour of the promisee and
enforce the promise against the Government.
648 The doctrine of promissory estoppel would
be displaced in such a case because on the facts, equity would not require that
the Government should be held bound by the promise made by it. [683 G-H, 684 A]
When the Government is able to show that in view of the facts, as they have
transpired public interest would be prejudiced if the Government were required
to carry out the promise, the Court would have to balance, the public interest
in the Government carrying out a promise made to a citizen which has induced
the citizen to act upon it and alter his position and the public interest
likely to suffer if the promise were required to be carried out by the
Government and determine which way the equity lies. It would not be enough for
the Government just to say that public interest requires that the Government
should not be compelled to carry out the promise or that the public interest
would suffer if the Government were required to honour it. The Government
cannot claim to be exempt from the liability to carry out the promise 'on some
indefinite and undisclosed ground of necessity or expediency', nor can the
Government claim to be the sole judge of its liability and repudiate it 'on an
exparte appraisement of the circumstances. [684 A-D] In order to resist its
liability, the Government should disclose to the Court the various events necessitating
its claim to be exempt from the liability and it would be for the Court to
decide whether those events are such as to render it inequitable to enforce the
liability against the Government. [684 D-E].
Mere claim of change of policy would not be
sufficient to exonerate the Government from the liability: the Government would
have to show precisely the changed policy with the reason and justification therefore,
to enable the Court to judge for "itself which way the public interest
lies and what equity of the case demands. It is only if the Court is satisfied,
on proper and adequate material placed by the Government, that over-riding
public interest requires that the Government should not be held bound by the
promise but should be free to act unfettered by it that the Court would refuse
to enforce the promise against the Government.
[684 E-F] The essence of the rule of law is
that the Court would not act on the mere ipse dixit of the Government, for it
is the Court which has to decide and not the Government, whether the Government
should be held exempt from liability.[684 F-G] The burden would be upon the
Government to show that the public interest in the Government acting otherwise
than in accordance with the promise is so overwhelming that it would be
inequitable to hold the Government bound by the promise and the Court would
insist on a highly rigorous standard of proof in the discharge of this burden.
But even where there is no such over-riding public interest, it may still be
competent to the Government to resile from the promise 'on giving reasonable
notice, which need not be a formal notice, giving the promisee a reasonable
opportunity of resuming his position' provided of course it is possible for the
promisee to restore status quo ante. If, however, the promisee cannot resume
his position, the promise would become final and irrevocable. [684 G-H, 685 A].
Emmanuel Ayodeji Ajayi v. R. T. Briscoe,
[1964] 3 All.
E.R. 556; referred to 649
14. So far as the doctrine of promissory
estoppel is concerned, no distinction can be made between a private individual
and a public body. This doctrine is also applicable against a public body like
a municipal council.
However, this doctrine cannot be applied in
teeth of an obligation or liability imposed by law. It cannot be invoked to
compel the Government or even a private party to do an act prohibited by law.
There can also be no promissory estoppel against the exercise of legislative
power. The Legislature can never be precluded from exercising its legislative
function by resort to the doctrine of pro- missory estoppel. [688C, G-H 689 A].
Century Spinng and Manufacturing Co. Ltd.
& Anr. v. The Ulhasnagr Municipal Council and Anr. [1970] 3 SCR 854;
Turner Mossison and Co. Ltd. v. Hunngerfard
Investmetn Trust Ltd.[1972] 3 S.C.R. 711; discussed & followed.
M. Ramanatha Pillai v. The Stare of Kerala
& Anr. [1974] 1 SCR 51 5 @ 526; Assistant Cusrodian v. Brij Kishore
Agarwala & Ors. [1975] 2 SCR 359, explained and held inapplicable.
Sate of Kerala v. Gwalior Rayon Silk
Manufacturing Co. Ltd. [1974] 1 S.C.R. 671 @ 688; reiterated.
Malhortra and Sons & Ors. v. Union of
India and Ors. A.I.R. 1976 J & K p. 41 approved.
Excise Commissioner U.P. Allahabad v. Ram
Kumar [1976] Suppl. S.C.R. 532; Bihar Eastern Gangetic Fishermen Cooperative
Society Ltd. v. Sipali Sangil and Ors. [1978] 1 S R 375; A.I.R. 1977 S.C. 2149;
Radha Krishan Agarwal v. State of Bihar and Ors. [1977] 3 S.C.R. 249;: [1977] 3
S.C.C. 457; explained.
15. In order to attract the applicability of
the doctrine of promissory estoppel, it is not necessary that the promisee,
acting in reliance on the promise, should suffer any deteriment. What is
necessary is no more than that there should be alteration of his position in
reliance on the promise. If detriment were a necessary element, there would be
no need for the doctrine of promissory estoppel because, in that event in quite
a few cases, the detriment would form the consideration and the promise would
be binding, as a contract. If by deteriment is meant injustice to the promisee
which would result if the promisor were to resile from his promisee, then
detriment would certainly come in as a necessary ingredient. The detriment in
such a case is not some prejudice sneered by the promisee acting on the promise,
put the prejudice which would be caused to the promisee, if the promisor were
allowed to back on the promise. It is not necessary for the promisee to show
that he has acted to his detriment. All that he has to show is that he has
acted to reliance on the promise and altered his position. [694 A-B, F-G, 695
E, 694 D].
Central London Property Trust Ltd. V. High
Trees House, [1947] K.B. p. 130:: [1956] 1 All. E.R.
256, W. J. Alan & Co. Ltd. v. El Nasar
Export and Import Co. [1972] 2 All. E.R. p. 127, @ p. 140, Tool Metal
Manufacturing Co. Ltd. v. Tunosten Electric Co. Ltd. [1955] All. E. R. 657;
[1975] 1 W. L. R. 761 Emmaulel Ayodeji 650 Ajya V. R. T. Briscoe [1964] All. E.
R. 556 Karnmins Ballrooms Ltd. v. Zenith Investments (Torquay) Ltd.
[1970] 2 All. E.R. 871, Grurldt v. the
Boulder Pty.
Gold Mines Ltd. [1938] 59 C.L.R. 641; quoted
with approval.
In the instant case.
The facts necessary for involving the
doctrine of promissory estoppel were clearly resent 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. [693 F-G] (a)
The letter dated 23rd January 1969 was a representation on behalf of the
Government, the representation having been made by the 4th respondent in his
capacity as the Chief Secretary of the Government categorically to the effect
that the appellant would be entitled to exemption from sales tax in respect of
the sale 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 letter dated 2nd
January 1969 that the financial institutions were not prep ed 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.
[692 H, 693 A- B] (b) The representation made by the 4th respondent was a
representation within the scope of his authority and was binding on the
Government in as much as the 4th respondent, who was at the material time the
Chief Secretary to the Government and also Adviser to the Governor discharging
the functions of the Government during the President's Rule had authority to
bind the Governor. Moreover the averment to this effect in the Writ Petition
was not denied by the State in the affidavit in reply filed on its behalf [693
C-D].
(c) This representation was made by the
Government knowing or intending that it would be acted on by the appellant
because the appellant 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. In fact the appellant
relying on this representation of the Government, borrowed moneys from various
financial institutions, purchased plant and machinery from M/s. De Smith
(India) Pvt. Ltd., Bombay and set up a Vanaspati factory at Kanpur. [693 E-F]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1597 of 1972.
Appeal from the Judgment and Order dated 25th
January, 1972of the Allahabad High Court in Civil Misc. Writ No. 3788/70.
S.T. Desai, Shri Narain, J. B. Dadachanji,
Ravinder Narain, S Swarup and Talat Ansari for the Appellant.
G. N. Dikshit, M. V. Goswami and O. P. Rana
for RR 1-3 and 5.
Girish Chandra for Respondent No. 4.
651 A. B. Dewan, Ravinder Narain, S. Swarup
and A. N.
Haksar for the Intervener (M/s. Modi Rubber
Ltd.).
The Judgment of the Court was delivered by
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 doctrines 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.
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 4A 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-genation Plant for manufacture of Vanaspati and
sought for confirmation that this industrial unit, which it proposed to set up
would be entitled to sales tax holiday for a period of three years from the
date it commenced 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 652 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 Smith (India)
Pvt. Ltd., Bombay for supply of plant and machinery for the Vanaspati factory,
providing clearly that the appellant would have the 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 653 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.
654 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:
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 Patricia 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 plea of 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 655 the appellant, acting in reliance on it, established the Vanaspati
factory by 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.
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 that were the circumstances in which the appellant had
addressed the letter dated 25th June, 1970 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 656 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 was not entitled to enforce the assurance given by the
4th respondent, since such assurance was not binding on the State Government
and more-over, 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.
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 right 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 filed 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.
657 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. in Earl of
Darnley v. London, Chatham and Dover Rly. Co. 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 Craine v. Colonial
Mutual Fire Insurance Co. Ltd. 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, 1970 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 4A, 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. In 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
amendment. Moreover, it must be remembered that there is no presumption that
every person knows the law. It is often said that everyone 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
Martindala v. Faulkner(3): "There is no presumption in this country 658
that every person knows the law: it would be contrary to common sense and
reason if it were so". Scrutton, 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. Bartlem(1)"_____the
fact is that there is not and never has been a presumption that everyone 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.
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.(2) and Birmingham & District Land Co. v. London &
North-Western Rail Co.(3) 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.(4) 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 of
considerable recent development and is steadily expanding.
The basis of this doctrine is the
inter-position of equity.
Equity has always, true to form, stepped into
mitigate the rigours of strict law. The early cases did not speak of this
doctrine as estoppel. They spoke of it as 'raising an equity'. Lord Cairns
stated 659 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." 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 Trees'
case (supra). The facts in that case were as follows: The plaintiffs leased to
the defendents, 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 out side
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 y. Money(1), no estoppel could be raised against
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 representa- 660 tion 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. They 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 Hughes v. Metropolitan Railway Co. (supra) and Birmingham and
District Land Co. v. London & North Western Rail Co. (supra), the two
decisions from which Mr. Justice Denning drew inspiration for evolving this new
equitable principle, were clearly cases where the principle was applied as
between parties who were already bound contractually one to the other. In
Hughes v. 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 661 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 out in Durham Fancy Goods Ltd. v.
Michael Jackson (Fancy Goods) Ltd. (1) :
"Lord Cairns in his enunciation of the
principle assumed a pre-existing contractual relationship between the parties,
but this does not seem to me to be essential, provided that there is a
pre-existing 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 Association Football Club
Ltd.(2) "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 suggest 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. Vol. 16 p.
1018, Note 2 para 1514. Of course it must be
pointed out in fairness to Lord Denning that he made it clear 662 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 in
Evenden's case the necessity of a pre-existing relationship between the parties
and pointed out in Crabb v. Arun District Council(1) 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 statue. The true principle of promissory estoppel,
therefore seems to be that where 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 affect 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 preexisting relationship between the parties or not.
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 it 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 and that is why we find that
while boldly 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 be held by the courts to be binding on the party
making it, notwithstanding 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.
663 Combe(2) that "Much as I am inclined
to favour the principles 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 not 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 Beesly v. Hallwood Estates Ltd.(1) "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 observed 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 (2)
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.
It may be noted that even Lord Denning
recognised in Crabb v. Arun Distric Council (supra) that "there are
estoppels and estoppels. Some do give rise to a 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,(3)
namely that the effect of estoppel on the true owner may be that :
664 "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 be 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 over the verge
on to 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 feature of proprietary estoppel but proceeded on the assumption
that there was no distinction between promissory and proprietary estoppel so
far 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 Cairns had said in Hughes v.
Metropolitan Railway Co.,(1) 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 person from insisting on his strict legal
rights-whether arising under a contract, or on his title deeds, or by
statute-when it would be 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 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 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(1) :
"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 that 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 land
lord, 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
logic or principle why promissory estoppel should also not be available as a
cause of action, if necessary to satisfy the equity.
666 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 Lords in Jorden v. Money (supra) and it
rediscovered an equity which was long embedded beneath the crust of the old
decisions in Hughes v. Metropolitan Railway Co. (supra) and Birmingham and
District Land Co. v. London and North Western Rail Co. (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 the 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 667 not as
founding a cause of action in itself but as a part of a cause of a action.
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 anchronism".
Prof. Holdsworth pointed out 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 Pollock also said in
his well known work of `Ganius 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 Duned observed in the well known case of Dunlop Pneumatic Tyre Co. v.
Selfridge and Co. Ltd.(1) "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 Roscoe 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 fellow-men 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 1937 accepted Prof.
Holdsworth'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 668 by eminent jurists, we need not be unduly anxious to
project 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 justice 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.
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 allow promissory estoppel
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(1) and Evenden v. Guildford City Association
Football Club Ltd.(2) 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 equity brought into the world with a
view to promoting honesty and good faith and bringing law closer to justice
should be held in fetters and not allowed to operate in all the activist
magnitude, so that it may fulfill 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 669 down, dusted, admired and put back on the shelf. It is rather
like an old vigorous tree, having its roots in history, yet continuously taking
new grafts and putting out new sprouts and occasionally dropping dead wood. It
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 chicenery 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 opposite 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 sours but to be bold spirits, ready to allow a new
cause of action if justice so required. (Candler v. Crane Christmas &
Co.(1) We may profitably consider at this stage what the American law on the
subject is because in the United States the law has always shown a greater
capacity for adjustment and growth than elsewhere. The doctrine of promissory
estoppel 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
Contract's came out with the following proposition in Article 90:
670 "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 promises 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 would 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 expended or liabilities have been incurred in
reliance on the promise so 671 that non fulfillment 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 Alleghany College v. National Chauteuque County Bank(1):
"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 forgotten. The doctrine of consideration has not
escaped the common lot. As far back as 1881, Judge Holmes in his lectures 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'. Williston, Contract, Ss. 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, we
do not now 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 squared with the doctrine of consideration in all its
ancient rigor. The question may also be whether it 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. 18 the 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 kept. We held the promise
binding, though 672 consideration there was none except upon the theory of a
promissory estoppel. In 74 N.Y. 72 a situation substantially the same became
the basis for a like ruling. 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 made. Judges have
been affected by the thought that 'defences of that character' are 'breaches of
faith towards the public, and especially towards those engaged in the same
enterprise, and an unwarrantable disappointment of the reasonable expectations
of those interested'. 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 so long, and which are supported by so many considerations of public
policy and reason, will not be over-ruled to save the symmetry of a concept
which itself came into our law, not so much from any reasoned conviction of its
justice, as 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 to suggest that it
is obsolete or on the way to be abandoned. As in the case of 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 notable instances are to be found in what may be
called the "sub-contractor 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 contractor submits a tender. In such cases, the
sub-contractor has been 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
Drennan v. Star Paving Company(1) 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 673 the interest of justice, morality and common fairness
clearly dictated 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
Commonwealth 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 (2d)
page 358.
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 English is concerned, the position cannot be
said to be very clear.
Rowlett J., in an early decision in
Rederiaktiebolaget Amphitrite v. The King(1) held that an undertaking given by
the British Government to certain neutral ship owners during the First World
War that if the shipowners sent a particular ship to the United Kingdom with a
specified cargo, she shall not be detained, was not enforceable against the
British Government in a court of law and observed that his main reason for
taking this view was that:
"--it is not competent for the
Government to fetter its future executive action, which must necessarily be
determined by the needs of the community when the question arises. It cannot by
contract hamper its freedom of action in matters which concern the welfare of
the State." This observation has however not been regarded by jurists as
laying down the correct law on the subject since it is "very wide and it is
difficult to determine its proper scope".
Anson's English Law of Contract, 22d. 174.
The doctrine of executive necessity propounded by Rowlatt, J., was in fact
disapproved by Denning, J., as he then was, in Roberston v. Minister of
Pensions (supra) where the learned Judge said:
The Crown cannot escape by saying that
estoppels do not bind the Crown for that doctrine has long been exploded. Nor
can the Crown escape by praying in aid the doctrine of executive necessity,
that is, the doctrine that the Crown cannot bind itself so as to fetter its
future executive action. That doctrine was propounded by Rowlatt, J., in
Rederiak-tiebolaget Amphitrite v. The King but it was unnecessary for the
decision because the statement there was not a promise which was intended to be
binding but only an expression of intention. Rowlatt, J., seems to have been
influenced by 674 the cases on the right of the Crown to dismiss its servants
at pleasure, but those cases must now all be read in the light of the judgment
of Lord Atkin in Reily v. The King-(1954) A.C. 176, 176).-In my opinion the
defence of executive necessity is of limited scope.
It only avails the Crown where there is an
implied term to that effect or that is the true meaning of the contract."
It is true that the decision of Denning J., in this case was overruled by the
House of Lords in Howell v. Falmouth Boat Construction Co. Ltd. (1) but that
was on the ground that the doctrine of promissory estoppel cannot be invoked to
"bar the Crown from enforcing a statutory prohibition or entitle the
subject to maintain that there has been no breach of it". The decision of
the House of Lords did not express any disapproval of the applicability of the
doctrine of promissory estoppel against the Crown nor did it overrule the view
taken by Denning J., that the Crown cannot escape its obligation under the
doctrine of promissory estoppel by "praying in aid the doctrine of
executive necessity." The statement of the law by Denning, J., may,
therefore, still be regarded as holding the field and it may be taken to be a
judicially favoured view that the Crown is not immune from liability under the
doctrine of promissory estoppel.
The courts in America for a long time took
the view that the doctrine of promissory estoppel does not apply to the Government
but more recently the courts have started retreating from that position to a
sounder one, namely, that the doctrine of promissory estoppel may apply to the
Government when justice so requires. The second edition of American
Jurisprudence brought out in 1966 in paragraph 123 points out that
"equitable estoppel will be invoked against the State when justified by
the facts", though it does warn that this doctrine "should not be
lightly invoked against the State." Later in the same paragraph it is
stated that "as a general rule, the doctrine of estoppel will not be
applied against the State in its governmental, public or sovereign
capacity", but a qualification is introduced that promissory estoppel may
be applied against the State even in its governmental, public or sovereign
capacity if "its application is necessary to prevent fraud or manifest
injustice". Since 1966 there is an increasing trend towards applying the
doctrine of promissory estoppel against the State and the old law that promissory
estoppel does not apply against the government is definitely declining. There
have been numerous cases in the State courts where it has been held that
promissory estoppel may be applied even against the Govern- 675 ment in its
governmental capacity where the accommodation of the needs of justice to the
needs of effective government so requires.
The protagonists of the view that promissory
estoppel cannot apply against the Government or a public authority seek to draw
inspiration from the majority decision of the United States Supreme Court in
Federal Crop Insurance Corporation v. Merrill.(1) But we do not think that
decision can be read as laying down the proposition that the doctrine of
promissory estoppel can never be invoked against the Government. There the County
Committee acting as the agent of the Federal Crop Insurance Corporation which
was a wholly Government-owned corporation constituted under the Federal Crop
Insurance Act, advised the respondents that their entire 460 acres of spring
wheat crop which included spring wheat reseeded. On winter wheat acreage was
insurable and acting upon it, the respondents made an application for insurance
which was forwarded by the County Committee to the Denver office of the
Corporation with a recommendation for acceptance. The application did not
mention that any part of the insured crop was reseeded and it was accepted by
the Denver office of the Corporation. There were at this time wheat crop
insurance regulations framed by the Corporation and published in the Federal Register
which prohibited insurance of spring wheat reseeded on winter wheat acreage but
neither the respondents nor the County Committees which was acting as the agent
of the Corporation was aware of them. A few months later, most of the
respondent's crop was destroyed by drought and on a claim being made by the
respondents under the policy of insurance, the Corporation refused to pay the
loss on the ground that the wheat crop insurance regulations expressly
prohibited insurance of reseeded wheat. The refusal was upheld by the Supreme
Court by a majority of five to four. The majority observed:
"It is too late in the day to urge that
the Government is just another private litigant, for purposes of charging it
with liability, whenever it takes over a business theretofore conducted by
private enterprises or engages in competitions with private ventures. Whatever
the form in which the Government functions, anyone entering into an arrangement
with the Government takes the risk of having accurately ascertained that be who
purports to act for the Government stays within the bounds of his authority And
this is so even though as here, the agent himself may have been unaware of the
limitations upon his authority.-"Man must turn square corners when they
deal with the Government", does not reflect a callous outlook. It merely
expresses the duty of all courts to observe the conditions defined by Congress
for charging the public treasury." It will be seen that the Corporation
was held entitled to repudiate its liability because the wheat crop insurance
regulations prohibited insurance of reseeded wheat and the assurance given by
the County Committee as the agent of the Corporation that the reseeded wheat
was insurable being contrary to the wheat crop insurance regulations, could not
be held binding on the Corporation. It was not within the authority of the
County Committee to give such assurance contrary to the wheat crop insurance
regulations and hence no promissory estoppel against the Corporation could be
founded upon it. This decision did not say that even if an assurance given by
an agent is within the scope of his authority and is not prohibited by law, it
could still not create promissory estoppel against the Government. But, it may
be pointed out, even this limited holding has come in for considerable
criticism at the hands of jurists in the United States. See Davis on
Administrative Law (3rd d.) pages 344-345. Referring to the observation of the
majority that "Men must turn square corners when they deal with the
Government", Maguire and Zimet have poetically responded by saying:
"It is hard to see why the Government should not be held to a like
standard of rectangular rectitude when dealing with its citizens."
(Maguire and Zimet, Hobson's Choice and Similar Practices in Federal Taxation,
48 Harv.
L. Rev. 1287 at 1299).
There has so far not been any decision of the
Supreme Court of the United States taking the view that the doctrine of
promissory estoppel cannot be invoked against the Government. The trend in the
State courts, of late, has been strongly in favour of the application of the
doctrine of promissory estoppel against the Government and public bodies
"where interests of justice, morality and common fairness clearly dictate
that course." It is being increasingly felt that "that the Government
ought to set a high standard in its dealings and relationships with citizens
and the word of a duly authorised Government agent, acting within the scope of
his authority ought to be as good as a Government bond".
Of course, as pointed out by the United
States Court of Appeals, Third Circuit in Valsonavich v. United States, (1) the
Government would not be estopped "by the acts of its officers and agents
who without authority enter into 677 agreements to do what the law does not
sanction or permit" and "those dealing with an agent of the
Government must be held to have notice of limitations of his authority" as
held in Merrill's case. This is precisely what the House of Lords also held in
England in Howell v. Falmouth Boat Construction Co. Ltd. (supra) where Lord
Simonds stated the law to be:
"The illegality of an act is the same
whether or not the actor has been misled by an assumption of authority on the
part of a Government officer however high or low in the hierachy. The question
is whether the character of an act done in face of a statutory prohibition is
affected by the fact that it has been induced by a misleading assumption of
authority. In my opinion the answer is clearly no." But if the acts or
omissions of the officers of the Government are within the scope of their
authority and are not otherwise impermissible under the law, they "will
work estoppel against the Government." When we turn to the Indian law on
the subject it is heartening to find that in India not only has the doctrine of
promissory estoppel been adopted in its fullness but it has been recognized as
affording a cause of action to the person to whom the promise is made. The
requirement of consideration has not been allowed to stand in the way of enforcement
of such promise. The doctrine of promissory estoppel has also been applied
against the Government and the defence based on executive necessity has been
categorically negatived. It is remarkable that as far back as 1880, long before
the doctrine of promissory estoppel was formulated by Denning, J., in England,
A Division Bench of two English Judges in the Calcutta High Court applied the
doctrine of promissory estoppel and recognised a cause of action founded upon
it in the Ganges Manufacturing Co. v. Surajmuli and other(1). The doctrine of
promissory estoppel was also applied against the Government in a case
subsequently decided by the Bombay High Court in Municipal Corporation of
Bombay v. The Secretary of State.(2) The facts of this last-mentioned case in
Municipal Corporation of Bombay v. The Secretary of State (supra) are a little
interesting and it would be profitable to refer to them. The Government of
Bombay, with a view to constructing an arterial road, requested the Municipal
Commissioner to remove certain fish and vegetable 678 markets which obstructed
the construction of the proposed road. The Municipal Commissioner replied that
the markets were vested in the Corporation of Justices but that he was willing
to vacate certain municipal stables which occupied a portion of the proposed
site if the Government would rent other land mentioned in his letter, to the
Municipality at a nominal rent, the Municipality undertaking to bear the
expenses of levelling the same and permit the Municipality to erect on such
land "stables of wood and iron with nobble foundation to be removed at six
months' notice on other suitable ground being provided by Government". The
Government accepted the suggestion of the Municipal Commissioner and sanctioned
the application of the Municipal Commissioner for a site for stabling on the
terms set out above and the Municipal Commissioner thereafter entered into
possession of the land and constructed stables, workshops and chawls on the
same at considerable expense. Twenty-four years later the Government served a
notice on the Municipal Commissioner determining the tenancy and requesting the
Municipal Commissioner to deliver possession of the land within six months and
in the mean time to pay rent at the rate of Rs.12,000/- per month. The
Municipal Corporation declined to hand over possession of the land or to pay
the higher rent and the Secretary of State for India thereupon filed a suit
against the Municipal Corporation for a declaration that the tenancy of the
Municipality stood determined and for an order directing the municipality to
pay rent at the rate of Rs. 12,000/- per month. The suit was resisted by the
Municipal Corporation on the ground then the events which had transpired had
created an equity in favour of the Municipality which afforded an answer to the
claim of the Government to eject the Municipality. This defence was upheld by a
Division Bench of the High Court and Jenkins C.J., speaking on behalf of the
Division Bench, pointed out that, in view of the following facts, namely:
"-the Municipality gave up the old
stables, levelled the ground, and erected the moveable staibles in 1866 in the
belief that they had against the Government an absolute right not to be turned
out until not only the expiration of six months notice, but also other suitable
ground was furnished: that this belief is preferable to an expectation created
by the Government that their enjoyment of the land would be in accordance with
this belief: and that the Government knew that the Municipality were acting in
this belief so created:" 679 an equity was created in favour of the
Municipality which entitled it "to appeal to the Court for its aid in
assisting them to resist the Secretary of State's claim that they shall be
ejected from the ground". The learned Chief Justice pointed out that the
doctrine which he was applying took its origin "from the jurisdiction
assumed by Courts of Equity to intervene in the case of or to prevent
fraud" and after referring to Ramsden v. Dyson(1) observed that the Crown also
came within the range of this equity. This decision of the Bombay High Court is
a clear authority for the proposition that it is open to a party who has acted
on a representation made by the Government to claim that the Government shall
be bound to carry out the promise made by it, even though the promise is not
recorded in the form of a formal contract as required by the Constitution. That
is how this decision has in fact been interpreted by this court in Union of
India v. Indo-Afghan Agencies:(2) We don't find any decision of importance
thereafter on the subject of promissory estoppel until we come to the decision
of this Court in Collector of Bombay v. Municipal Corporation of the City of
Bombay & Ors.(3). The facts giving rise to this case were that in 1865 the
Government of Bombay called upon the predecessor in title of the Municipal
Corporation of Bombay to remove old markets from a certain site and vacate it
and on the application of the Municipal Commissioner, the Government passed a
resolution approving and authorizing the grant of another site to the
Municipality. The resolution stated further that "the Government do not
consider that any rent should be charged to the Municipality as the markets
will be like other public buildings, for the benefit of the whole
community". The Municipal Corporation gave up the site on which the old
markets were situated and spent a sum of Rs. 17 lakhs in erecting and
maintaining markets on the new site. In 1940 the Collector of Bombay assessed
the new site to land revenue and the Municipal Corporation there upon filed a
suit for a declaration that the order of assessment was ultra vires and it was
entitled to hold the land for ever without payment of any assessment. The High
Court of Bombay held that the Government had lost its right to assess the land
in question by reason of the equity arising on the facts of the case in favour
of the Municipal Corporation and there was thus a limitation on the right of
the Government to assess under section 8 of the Bom 680 bay City Land Revenue
Act. On appeal by the Collector to this Court, the majority Judges held that
the Government was not, under the circumstances of the case, entitled to assess
land revenue on the land in question because the Municipal Corporation had
taken possession of the land in terms of the Government resolution and had
continued in such possession openly, uninterruptedly and of right for over
seventy years and thereby acquired the limited title it had been prescribing
for during the period, that is to say, the right to hold the land in perpetuity
free of rent. Chandrasekhra Aiyar, J., agreed with the conclusion reached by
the majority but rested his decision on the doctrine of promissory estoppel. He
pointed out that the Government could not be allowed to go back on the
representation made by it and stressed the point in the form of an
interrogation by asking: "if we do so, would it not amount to our
countenancing the perpetration of what can be compendiously described as legal
fraud which a court of equity must prevent being committed?" He observed
that even if the resolution of the Government amounted merely to "the
holding out of a promise that no rent will be charged in the future, the
Government must be deemed in the circumstances of this case to have bound
themselves to fulfill it. Whether it is the equity recognised in Ramsden's case
(supra) or it is some other form of equity, is not of much importance. Courts
must do justice by the promotion of honesty and good faith, as far as it lies
in their power." This was of course the solitary view of Chandrasekhara
Aiyer, J., but it was approved by this Court in no uncertain terms in
Indo-Afghan Agencies case (supra).
Then we come to the celebrated decision of
this Court in the Indo-Afghan Agencies case (supra). It was in this case that
the doctrine of promissory estoppel found its most eloquent exposition. We may
briefly state the facts in order to appreciate the ratio of the decision.
Indo-Afghan Agencies Ltd. who were the respondents before the Court, acting in
reliance on the Export Promotion Scheme issued by the Central Government,
exported woollen goods to Afghanistan and on the basis of their exports claimed
to be entitled to obtain from the Textile Commissioner import entitlement
certificate for the full F.O.B. value of the goods exported as provided in the
scheme. The Scheme was not a statutory Scheme having the force of law but it
provided that an export of woollen goods would be entitled to import
raw-material of the total amount equal to 100% of the F.O.B. value of his
exports. The respondents contended that, relying on the promise contained in
the Scheme, they had exported woollen goods to Afghanistan and were,.
therefore, entitled to enforce the promise against the Government and to obtain
import entitlement 681 certificate for the full F.O.B. value of the goods
exported on the principle of promissory estoppel. This contention was sought to
be answered on behalf of the Government by pleading the doctrine of executive
necessity and the argument of the Government based on this doctrine was that it
is not competent for the Government to fetter its future executive action which
must necessarily be determined by the needs of the community when the question
arises and no promise or undertaking can be held to be binding on the
Government so as to hamper its freedom of executive action.
Certain observations of Rowlatt, J., in
Rederiektiabolaget Amphitrite v. The King (supra) were sought to be pressed
into service on behalf of the Government in support of this argument. We have
already referred to these observations earlier and we need not reproduce them
over again. These observation undoubtedly supported the contention of the
Government but it was pointed out by this Court that these observations were
disapproved by Denning J., in Robertson v.
Minister of Pensions (supra) where the
learned Judge said that "the Crown cannot escape by praying in aid the
doctrine of executive necessity, that is the doctrine that the Crown cannot
bind itself so as to fetter its future executive action.The defence of
executive necessity is of limited scope. It only avails the Crown where there
is an implied term to that effect or that is the true meaning of the
contract" and this statement of Denning, J., was to be preferred as laying
down the correct law of the subject.
Shah, J., speaking on behalf of the Court,
observed at p.
"We are unable to accede to the
contention that the executive necessity releases the Government from honouring
its solemn promises relying on which citizens have acted to their detriment.
Under our constitutional set-up no person may be deprived of his right or
liberty except in due course of and by authority of law; of a member of the
Executive seeks to deprive a citizen of his right or liberty otherwise than in
exercise of power derived from the law-common or statute-the Courts will be
competent to and indeed would be bound to, protect the rights of the aggrieved
citizen." The defence of executive necessity was thus clearly negatived by
this Court and it was pointed out that it did not release the Government from
its obligation to honour the promise made by it, if the citizen, acting in
reliance on the promise, had altered his position. The doctrine of promissory
estoppel was in such a case applicable against the Government and it could not
be deteated by invoking the defence of executive necessity.
682 It was also contended on behalf of the
Government that if the Government were held bound by every representation made
by it regarding its intention, when the exporters have acted in the manner they
were invited to act, the result would be that the Government would be bound by
a contractual obligation even though no formal contract in the manner required
by Article 299 was executed. But this contention was negatived and it was
pointed out by this Court that the respondents "are not seeking to enforce
any contractual right: they are seeking to enforce compliance with the
obligation which is laid upon the Textile Commissioner by the terms of the
Scheme, and we are of the view that even if the Scheme is executive in
character, the respondents who were aggrieved because of the failure to carry
out the terms of the Scheme were entitled to seek resort to the Court and claim
that the obligation imposed upon the Textile Commissioner by the Scheme be
ordered to be carried out". It was thus laid down that a party who has,
acting in reliance on a promise made by the Government, altered his position,
is entitled to enforce the promise against the Government, even though the
promise is not in the form of a formal contract as required by Article 299 and
that Article does not militate against the applicability of the doctrine of
promissory estoppel against the Government.
This Court finally, after referring to the
decision in the Ganges Manufacturing Co. v. Surujmull (supra). The Municipal
Corporation of the City of Bombay v. The Secretary of State for India (supra)
and Collector of Bombay v.
Municipal Corporation of the City of Bombay
& Ors. (supra), summed up the position as follows:
"Under our jurisprudence the Government
is not exempt from liability to carry out the representation made by it as to
its future conduct and it cannot on some undefined and undisclosed ground of
necessity or expediency fail to carry out the promise solemnly made by it, nor
claim to be the Judge of its own obligation to the citizen on an ex parte
appraisement of the circumstances in which the obligation has arisen." The
law may, therefore, now be taken to be settled as a result of this decision
that where the Government makes a promise knowing or intending that it would be
acted on by the promises and, in fact, the promisee, acting in reliance on it,
alters his position, the Government would be held bound by the promise and the
promise would be enforceable against the Government at the instance of the
promises, notwithstanding that there is no consideration for the promise and
the promise is not recorded in the form of a formal contract 683 as required by
Article 299 of the Constitution. It is elementary that in a Republic governed
by the rule of law, no one, howsoever high or low, is above the law. Every one
is subject to the law as fully and completely as any other and the Government
is no exception. It is indeed the pride of constitutional democracy and rule of
law that the Government stands on the same footing as a private individual so
far as the obligation of the law is concerned:
the former is equally bound as the latter. It
is indeed difficult to see on what principle can a Government, committed to the
rule of law, claim immunity from the doctrine of promissory estoppel. Can the
Government say that it is under no obligation to act in a manner that is fair
and just or that it is not bound by considerations of "honesty and good
faith"? Why should the Government not be held to a high "standard of
rectangular rectitude while dealing with its citizens"? There was a time
when the doctrine of executive necessity was regarded as sufficient
justification for the Government to repudiate even its contractual obligations,
but let it be said to the eternal glory of this Court, this doctrine was
emphatically negatived in the Indo-Afghan Agencies case and the supremacy of
the rule of law was established. It was laid down by this Court that the
Government cannot claim to be immune from the applicability of the rule of
promissory estoppel and repudiate a promise made by it on the ground that such
promise may fetter its future executive action. If the Government does not want
its freedom of executive action to be hampered or restricted, the Government
need not make a promise knowing or intending that it would be acted on by the
promisee and the promisee would alter his position relying upon it. But if the
Government makes such a promise and the promises acts in reliance upon it and
alters his position, there is no reason why the Government should not be
compelled to make good such promise like any other private individual. The law
cannot acquire legitimacy and gain social acceptance unless it accords with the
moral values of the society and the constant endeavor of the Courts and the
legislatures must, therefore, be to close the gap between law and morality and
bring about as near an approximation between the two as possible. The doctrine
of promissory estoppel is a significant judicial contribution in that
direction.
But it is necessary to point out that since
the doctrine of promissory estoppel is an equitable doctrine, it must yield
when the equity so requires. If it can be shown by the Government that having regard
to the facts as they have transpired, it would be inequitable to hold the
Government to the promise made by it, the Court would not raise equity in
favour of the promisee and enforce the promise against the 684 Government. The
doctrine of promissory estoppel would be displaced in such a case because, on
the facts, equity would not require that the Government should be held bound by
the promise made by it. When the Government is able to show that in view of the
facts as have transpired, public interest would be prejudiced if the Government
were required to carry out the promise, the Court would have to balance the
public interest in the Government carrying out a promise made to a citizen
which has induced the citizen to act upon it and after this position and the
public interest likely to suffer if the promise were required to be carried out
by the Government and determine which way the equity lies. It would not be
enough for the Government just to say that public interest requires that the
Government should not be compelled to carry out the promise or that the public
interest would suffer if the Government were required to honour it. The
Government cannot, as Shah, J., pointed out in the Indo-Afghan Agencies case,
claim to be exempt from the liability to carry out the promise "on some
indefinite and undisclosed ground of necessity or expediency", nor can the
Government claim to be the sole judge of its liability and repudiate it
"on an ex-parte appraisement of the circumstances". If the Government
wants to resist the liability, it will have to disclose to the Court what are
the facts and circumstances on account of which the Government claims to be
exempt from the liability and it would be for the Court to decide whether these
facts and circumstances are such as to render it inequitable to enforce the
liability against the Government. Mere claim of change of policy would not be
sufficient to exonerate the Government from the liability: the Government would
have to show what precisely is the changed policy and also its reason and
justification so that the Court can judge for itself which way the public
interest lies and what the equity of the case demands. It is only if the Court
is satisfied, on proper and adequate material placed by the Government, the over-riding
public interest requires that the Government should not be held bound by the
promise but should be free to act unfettered by it, that the Court would refuse
to enforce the promise against the Government. The Court would not act on the
mere ipse dixit of the Government, for it is the Court which has to decide and
not the Government whether the Government should be held exempt from liability.
This is the essence of the rule of law. The burden would be upon the Government
to show that the public interest in the Government acting otherwise than in
accordance with the promise is so overwhelming that it would be inequitable to
hold the Government bound by the promise and the Court would insist on a highly
rigorous standard of proof in the discharge of this burden. But even where
there is no such over-riding public interest, it may still be competent to 685
the Government to resile from the promise "on giving reasonable notice
which need not be a formal notice, giving the promisee a reasonable opportunity
of resuming his position" provided of course it is possible for the
promisee to restore status quo ante. If however, the promisee cannot resume his
position, the promise would become final and irrevocable. Vide Emmanuel Ayodeji
Ajayi v. Briscoe.(1) The doctrine of promissory estoppel was also held
applicable against a public authority like a Municipal Council in Century
Spinning & Manufacturing Co. Ltd. & Anr. v. The Ulhasuagar Municipal
Council & Anr.(2) The question which arose in this case was whether the
Ulhas Nagar Municipal Council could be compelled to carry out a promise made by
its predecessor municipality that the factories in the industrial area within
its jurisdiction would be exempt from payment of octroi for seven years from
the date of the levy. The appellant company, in the belief induced by the
assurance and undertaking given by the predecessor municipality that its
factory would be exempt from octroi for a period of seven years, expanded its
activities, but when the municipal council came into being and took over the
administration of the former municipality, it sight to levy octroi duty on
appellant-company. The appellant company thereupon filed a writ petition under
Article 226 of the Constitution in the High Court of Bombay to restrain the
municipal council from enforcing the levy of octroi duty in breach of the
promise made by the predecessor municipality.
The High Court dismissed the petition in
limine but, on appeal, this Court took the view that this was a case which
required consideration and should have been admitted by the High Court. Shah,
J., speaking on behalf of the Court, pointed out "Public bodies are as
much bound as private individuals to carry out representations of facts and
promises made by them, relying on which other persons have altered their
position to their prejudice. The obligation arising against an individual out
of his representation amounting to a promise may be enforced ex contracted by a
person who acts upon the promise:
when the law requires that a contract
enforceable at law against a public body shall be in certain from or be
executed in the manner prescribed by statute, the obligation may be if the
contract be not in that form be enforced against it in appropriate cases in
equity." The learned Judge then referred to the decision in the Indo
Afghan Agencies case and observed that in that case it was laid down by this
686 Court that "the Government is not exempt from the equity arising out
of the acts done by citizens to their prejudice relying upon the representations
as to its future conduct made by the Government". It was also pointed out
by the learned Judge that in the Indo-Afghan Agencies case this Court approved
of the observations made by Denning, J. in Robertson v. Minister of Pensions
(supra) rejecting the doctrine of executive necessity and held them to be
applicable in India. The learned Judge concluded by saying in words pregnant in
the hope and meaning for democracy:
"If our nascent democracy is to thrive
different standards of conduct for the people and the public bodies cannot
ordinarily be permitted. A public body is, in our judgment, not exempt from
liability to carry out its obligation arising out of representations made by it
relying upon which a citizen has altered his position to his prejudice."
This Court refused to make a distinction between a private individual and a
public body so far as the doctrine of promissory estoppel is concerned.
We then come to another important decision of
this Court in Turner Morrison & Co. Ltd. v. Hungerford Investment Trust
Ltd. (1) where the doctrine of promissory estoppel was once again affirmed by
this Court. Hegde, J, speaking on behalf of the Court, pointed out:
"Estoppel" is a rule of equity. "That rule has gained new
dimensions in recent years. A new class of estoppel i.e. promissory estoppel
has come to be recognised by the courts in this Country as well as in England.
The full implication of 'promissory estoppel' is yet to be spelled out."
The learned Judge, after referring to the decisions in High Trees case,
Robertson v. Minister of Pensions (supra) and the Indo-Afghan Agencies case,
pointed out that "the rule laid down in these decisions undoubtedly
advanced the cause of justice and hence we have no hesitation in accepting it.
We must also refer to the decision of this
Court in M. Ramanatha Pillai v. The State of Kerala & Anr.(1) because that
was a decision strongly relied upon on behalf of the State for negativing the
applicability of the doctrine of estoppel against the Government. This was a case
where the appellant was appointed to a temporary post and on the post being
abolished, the service of the appellant was terminated. The appellant
challenged the validity of termination of service, inter alia, on 687 the
ground that the Government was precluded from abolishing the post and
terminating the service on the principle of promissory estoppel. This ground
based on the doctrine of promissory estoppel was negatived and it was pointed
out by the Court that the appellant knew that the post was temporary,
suggesting clearly that the appellant could not possibly be led into the belief
that the post would not be abolished. If the post was temporary to the
knowledge of the appellant, it is obvious that the appellant knew that the post
would be liable to be abolished at any time and if that be so, there could be
no factual basis for invoking the doctrine of promissory estoppel for the
purpose of precluding the Government from abolishing the post. This view taken
by the Court was sufficient to dispose of the contention based on promissory
estoppel and it was not necessary to say anything more about it, but the Court
proceeded to cite a passage from American Jurisprudence, Vol. 28 (2d) at 783,
paragraph 123 and observed that the High Court rightly held "that the
courts exclude the operation of the doctrine of estoppel, when it is found that
the authority against whom estoppel is pleaded has owed a duty to the public
against whom the estoppel cannot fairly operate." It was this observation
which was heavily relied upon on behalf of the State but we fail to see how it
can assist the contention of the State. In the first place, this observation
was clearly obiter, since, as pointed out by us, there was on the facts of the
present case no scope for the applicability of the doctrine of promissory
estoppel.
Secondly, this observation was based upon a
quotation from the passage in paragraph 123 at page 783 of Volume 28 of
American Jurisprudence (2 d), but unfortunately this quotation was incomplete
and it overlooked, perhaps inadvertently, the following two important sentences
at the commencement of the paragraph which clearly show that even in the United
States the doctrine of promissory estoppel is applied against the State
"when justified by the facts":
"There is considerable dispute as to the
application of estoppel with respect to the State.
While it is said that equitable estoppel will
be invoked against the State when justified by the facts, clearly the doctrine
of estoppel should not be lightly invoked against the State" (emphasis
supplied).
Even the truncated passage quoted by the
Court recognised in the last sentence that though, as a general rule, the
doctrine of promissory estoppel would not be applied against the State in its
governmental, public or sovereign capacity, the Court would unhesitatingly
allow the doctrine to be invoked in cases where it is necessary in order
"to prevent fraud or manifest injustice". This passage leaves no
doubt that the 688 doctrine of promissory estoppel may be applied against the
State even in its governmental, public or sovereign capacity where it is
necessary to prevent fraud or manifest injustice. It is difficult to imagine
that the Court citing this passage with approval could have possibly intended
to lay down that in no case can the doctrine of promissory estoppel be invoked
against the Government. Lastly, a proper reading of the observation of the
Court clearly shows that what the Court intended to say was that where the
Government owes a duty to the public to act differently, promissory estoppel
cannot be invoked to prevent the Government from doing so. This proposition is
unexceptionable, because where the Government owes a duty to the public to act
in a particular manner, and here obviously duty means a course of conduct
enjoined by law, the doctrine of promissory estoppel cannot be invoked for
preventing the Government from acting in discharge of its duty under the law.
The doctrine of promissory estoppel cannot be applied in teeth of an obligation
or liability imposed by law.
We may then refer to the decision of this
Court in Assistant Custodian v. Brij Kishore Agarwala & Ors.(1) It is not
necessary to reproduce the facts of this case, because the only purpose for
which this decision was relied upon on behalf of the State was to show that the
view taken by the House of Lords in Howell v. Falmouth Boat Construction Co. Ltd.
(Supra) was preferred by this Court to that taken by Lord Denning in Robertson
v. Minister of Pension (supra). It is true that in this case the Court
expressed the opinion "that the view taken by the House of Lords is the
correct one and not the one taken by Lord Denning" but we fail to see how
that can possibly help the argument of the State.
The House of Lords did not in Howell's case
negative the applicability of the doctrine of promissory estoppel against the
Government. What it laid down was merely this, namely, that no representation
or promise made by an officer can preclude the Government from enforcing a
statutory prohibition. The doctrine of promissory estoppel cannot be availed to
permit or condone a breach of the law. The ratio of the decision was succinctly
put by Lord Normand when he said"- neither a minister nor any subordinate
officer of the Crown can by any conduct or representation bar the Crown from
enforcing a statutory prohibition or entitle the subject to maintain that there
has been no breach of it". It may also be noted that promissory estoppel
cannot be invoked to compel the Government or even a private party to do an act
prohibited by law. There can also be no promissory estoppel against the
exercise of legislative power. The Legislature can never be precluded 689 from
exercising its legislative function by resort to the doctrine of promissory
estoppel. Vide State of Kerala v. Gwalior Rayon Silk Manufacturing Co. Ltd.(1)
The next decision to which we must refer is that in Excise Commissioner, U.P.
Allahabad v. Ram Kumar.(2) This was also a decision on which strong reliance
was placed on behalf of the State. It is true that, in this case, the Court
observed that "it is now well settled by a catena of decisions that there
can be no question of estoppel against the Government in the exercise of its
legislative, sovereign or executive powers," but for reasons which we
shall presently state, we do not think this observation can persuade us to take
a different view of the law than that enunciated in the Indo-Afghan Agencies'
case. In the first place, it is clear that in this case there was factually no
foundation for invoking the doctrine of promissory estoppel.
When the State auctioned the licence for
retail sale of country liquor and the respondents being the highest bidders
were granted such licence, there was in force a Notification dated 6th April,
1959, issued under section 4 of the U.P.
Sales Tax Act, 1948, exempting sale of
country liquor from payment of sales tax. No announcement was made at the time
of the auction whether the exemption from sales tax under this Notification
dated 6th April, 1959 was or was not likely to be withdrawn. However, on the
day following the commencement of the licence granted to the respondents, the
Government of U.P. issued a Notification dated 2nd April, 1969 superseding the
earlier Notification dated 6th April, 1959 and imposing sales tax on the
turnover in respect of country spirit with immediate effect. This notification
dated 2nd April, 1969 was challenged by the respondents by filing a writ
petition and amongst the several grounds of challenge taken in the writ
petition, one was that "since the State Government did not announce at the
time of the aforesaid auction that the Notification---------- dated 6th April,
1959 was likely to be withdrawn and the sales of country liquor were likely to
be subjected to the levy of sales tax during the excise year and in reply to
the query made by them at the time of the auction they were told by the
authorities that there was no sales tax on the sale of country liquor, the
appellants herein were estopped from making the demand in respect of sales tax
and recovering the same from them". It was in the context of this ground
of challenge that the Court came to make the observation relied upon on behalf
of the State. Now, it is clear that, even taking the case of the respondents at
its highest, there was no representation or promise made by the Government that
they would continue the exemption from sales tax granted under the Notification
dated 6th April, 1959 and would not withdraw it, and the Notification dated 2nd
April, 1969 could not, therefore, be assailed as being in breach of any such
representation or promise. There was accordingly, no factual basis for making
good the plea of promissory estoppel and the observation made by the court in
regard to the applicability of the doctrine of promissory estoppel against the
Government was clear obiter. That perhaps was the reason why the Court did not
consider it necessary to refer to the earlier decisions in Century Spinning
& manufacturing Co.'s case and Turner Morrison's case and particularly the
decision in the Indo-Afghan Agencies case where the court in so many terms
applied the doctrine of promissory estoppel against the Government in the
exercise of its executive power. It is not possible to believe that the Court
was oblivious of these earlier decisions, particularly when one of these
decisions in the Indo-Afghan Agencies case was an epoch making decision which
marked a definite advance in the field of administrative law. Moreover, it may
be noted that though, standing by itself, the observation made by the Court
that "there can be no question of estoppel against the Government in
exercise of its legislative, sovereign or executive powers" may appear to
be wide and unqualified, it is not so, if read in its proper context. This
observation was made on the basis of certain decisions which the Court
proceeded to discuss in the succeeding paragraphs of the judgment. The Court
first relied on the statement of the law contained in paragraph 123 at page
783, Volume 28 of the American Jurisprudence (2d), but it omitted to mention
the two important sentences at the commencement of the paragraph and the words
"unless its application is necessary to prevent fraud or manifest
injustice" at the end, which clearly show that even according to the
American Jurisprudence, the doctrine of promissory estoppel is not wholly
inapplicable against the Government in its governmental, public or sovereign
capacity, but it can be invoked against the Government "when justified by
the facts" as for example where it is necessary to prevent fraud or
injustice. In fact, as already pointed out above, there are numerous cases in
the United States where the doctrine of promissory estoppel has been applied
against the Government in the exercise of its governmental, public or executive
powers. The Court then relied upon the decision in the Gwalior Rayon Silk
Manufacturing Co.'s case, but that decision was confined to a case where
legislation was sought to be precluded by relying on the doctrine of promissory
estoppel and it was held, and in our opinion rightly, that there can be no
promissory estoppel against the legislature in the exercise of its legislative
function.
That decision does not negative the
applicability of the 691 doctrine of promissory estoppel against the Government
in the exercise of its governmental, public or executive powers. The decision
in Howell's case was, thereafter, relied upon by the Court, but that decision
merely says that the Government cannot be debarred by promissory estoppel from
enforcing a statutory prohibition. It does not countenance an absolute
proposition that promissory estoppel can never be invoked against the
government. The Court also cited a passage from the judgment of the High Court
of Jammu & Kashmir in Malhotra & Sons & Ors. v. Union of India
& Ors.,(1) but this passage itself makes it clear that the courts will bind
the Government by its promise where it is necessary to do so in order to
prevent manifest injustice or fraud. The last decision on which the Court
relied was Federal Crop Insurance Corporation v. Morrill (supra) but this
decision also does not support the view contended for on behalf of the State.
We have already referred to this decision earlier and pointed out that the
Federal Crop Insurance Corporation in this case was held not liable on the
policy of insurance, because the regulations made by the Corporation prohibited
insurance of reseeded wheat. The principle of this decision was that promissory
estoppel cannot be invoked to compel the Government or a public authority to
carry out a representation or promise which is contrary to law. It will thus be
seen from the decisions relied upon in the judgment that the Court could not
possibly have intended to lay down an absolute proposition that there can be no
promissory estoppel against the Government in the exercise of its governmental,
public or executive powers. That would have been in complete contradiction of
the decisions of this Court in the Indo- Afghan Agencies Case, Century Spinning
and Manufacturing Co.'s case and Turner Morrison's case and we find it
difficult to believe that the Court could have ever intended to lay down any
such proposition without expressly referring to these earlier decisions and
over-ruling them. We are, therefore, of the opinion that the observation made by
the Court in Ram Kumar's case does not militate against the view we are taking
on the basis of the decisions in the Indo- Afghan Agencies' case, Century
Spinning & Manufacturing Co.'s case and Turner Morrison's case in regard to
the applicability of the doctrine of promissory estoppel against the
Government.
We may then refer to the decision of this
Court in Bihar Eastern Gangetic Fishermen Co-operative Society Ltd. v. Sipahi
Singh & Ors.(2) It was held in this case in paragraph 12 of the judgment
that the respondent could not invoke the doctrine of promissory estoppel
because he was unable to show that, relying on the representation of the Government,
he had altered his position by investing moneys and the allegations made by him
in that behalf were "much too vague and general" and there was
accordingly no factual foundation for establishing the plea of promissory
estoppel.
On this view, it was unnecessary to consider
whether the doctrine of promissory estoppel was applicable against the
Government, but the Court proceeded to reiterate, without any further
discussion, the observation in Ram Kumar's case that "there cannot be any
estoppel against the Government in the exercise of its sovereign, legislative
and executive functions". This was clearly in the nature of obiter and it
cannot prevail as against the statement of law laid down in the Indo-Afghan
Agencies case. Moreover, it is clear from paragraph 14 of the judgment that
this Court did not intend to lay down any proposition of law different from
that enunciated in the Indo-Afghan Agencies case because it approved of the
decision in the Indo-Afghan Agencies case and distinguished it on the ground
that in that case there was not enforcement of contractual right but the claim
was founded upon equity arising from the Scheme, while in the case before the
Court, a contractual right was sought to be enforced. There is, therefore,
nothing in this decision which should compel us to take a view different from
the one we are otherwise inclined to accept.
We may point out that in the latest decision
on the subject in Radha Krishna Agarwal v. State of Bihar & Ors.(1) this
Court approved of the decisions in the Indo-Afghan Agencies case and Century
Spinning and Manufacturing Co's case and pointed out that these were cases
where it could be held that public bodies or the State are as much bound as
private individuals are to carry out obligations incurred by them because
parties seeking to bind the authorities have altered their position to their
disadvantage or have acted to their detriment on the strength of the
representations made by these authorities". It would, therefore, be seen
that there is no authoritative decision of the Supreme Court which has departed
from the law laid down in the celebrated decisions in the Indo-Afghan Agencies
case and the Century Spinning & Manufacturing Co's case. The law laid down
in these decisions as elaborated and expounded by us continues to hold the
field.
We may now turn to examine the facts in the
light of the law discussed by us. 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 693 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 not 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. 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 from 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 facts 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 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.
The State, however, contended that the
doctrine of promissory estoppel had no application in the present case because
the appellant did not suffer any detriment by acting on the representation made
by the Government : the vanaspati factory set up by the appellant was quite a
profitable concern and there was no prejudice caused to the 694 appellant. This
contention of the State is clearly unsustainable and must be rejected. We do
not think it is necessary, in order to attract the applicability of the
doctrine of promissory estoppel, that the promisee acting in reliance of the
promise, should suffer any detriment. What is necessary is only that the
promisees should have altered his position in reliance on the promise. This
position was implied accepted by Denning, J., in the High Trees' case when the
learned Judge pointed out that the promise must be one "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 acted an" (emphasis supplied). If a promise is "acted
on", "such action, in law as in physics, must necessarily result in
an alteration of position." This was again reiterated by Lord Denning in
W.J. Alan & Co. Ltd. x. El. Nasr Export and Import Co.(1) where the learned
Law Lord made it clear that alteration of position "only means that he
(the promise) must have been led to act differently from what he would
otherwise have done. And if you study the cases in which the doctrine has been
applied, you will see that all that is required is that the one should have
acted on the belief induced by the other party." Viscount Simonds also
observed in Tool Metal Manufacturing Co. Ltd v. Tungsten Electric Co. Ltd. (2)
that "the gist of the equity lies in the fact that one party has by his
conduct led the other to alter his position". The judgment of Lord Tucker
in the same case would be found to depend likewise on a fundamental finding of
alteration of position, and the same may be said of that of Lord Coheb. Then
again in Emmanuel Avodeji v. Briscoe (supra) Lord Hodson said: "This
equity,is however, subject to the qualification (1) that the other party has
altered his position". The same requirement was also emphasised by Lord
Diplock in Kaminins Ballrooms Ltd.
v. Zenith Investments (Torquay) Ltd. (3) What
is necessary, therefore, is no more than that there should be alteration of
position on the part of the promisee. The alteration of position need not
involve any detriment to the promises. If detriment were a necessary element,
there would be no need for the doctrine of promissory estoppel because in that
event, in quite a few cases, the detriment would form the consideration and the
promise could be binding as a contract. There is in fact not a single case in
England where detriment is insisted upon as a necessary ingredient 695 of
promissory estoppel. In fact, in W. J. Alan & Co. Ltd. v. El Nasar Export
and Import Co. (supra), Lord Denning expressly rejected detriment as an
essential ingredient of promissory estoppel, saying:
"A seller may accept a less sum for his
goods than the contracted price, thus inducing (his buyer) to believe that he
will not enforce payment of the balance; see Central London Property Trust Ltd.
v. High Trees House Ltd. and D. & C. Builders Ltd. v. Rees [1956] 3 All
E.R. 837]. In none of these cases does the party who acts on the belief suffer
any detriment. It is not a detriment, but a benefit to him to have an extension
of time or to pay less, or as the case may be. Nevertheless, he has conducted
his affairs on the basis that he has had that benefit and it would not be
equitable now to deprive him of it." We do not think that in order to
invoke the doctrine of promissory estoppel it is necessary for the promise to
show that he suffered detriment as a result of acting in reliance on the
promise. But we may make it clear that if by detriment we mean injustice to the
promisee which could result if the promisor were to recede from his promise
then detriment would certainly come in as a necessary ingredient.
The detriment in such a case is not some
prejudice suffered by the promisee by acting on the promise, but the prejudice
which would be caused to the promisee, if the promisor were allowed to go back
on the promise. The classic exposition of detriment in this sense is to be
found in the following passage from the judgment of Dixon, J in the Australian
case of Grundt v. The Great Boulder Pty. Gold Mines Ltd. (1):
"-It is often said simply that the party
asserting the estoppel must have been induced to act to his detriment. Although
substantially such a statement is correct and leads to no misunderstanding, it
does not bring out clearly the basal purpose of the doctrine.
That purpose is to avoid or prevent a
detriment to the party asserting the estoppel by compelling the opposite party
to adhere to the assumption upon which the former acted or abstained from
acting. This means that the real detriment or harm from which the law seeks to
give protection is that which would flow from the change of position if the
assumption were deserted that led to it. So long as the assumption is adhered
to, the party who altered his situation upon the 696 faith of it cannot
complain. His complaint is that when afterwards the other party makes a
different state of affairs the basis of an assertion of right against him then,
if it is allowed, his own original change of position will operate as a
detriment. His action or inaction must be such that, if the assumption upon
which he proceeded were shown to be wrong, and an inconsistent state of affairs
were accepted as the foundation of the rights and duties of himself and the
opposite party, the consequence would be to make his original act or failure to
act or source of prejudice." If this is the kind of detriment
contemplated, it would necessarily be present in every case of promissory
estoppel because it is on account of such detriment which the promisee would
suffer if the promisor were to act differently from his promise, that the Court
would consider it inequitable to allow the promisor to go back upon his
promise. It would, therefore, be correct to say that in order to invoke the
doctrine of promissory estoppel it is enough to show that the promisee has
acting in reliance of the promise, altered his position and it is not necessary
for him to further show that he has acted to his detriment.
Here, the appellant clearly altered its
position by borrowing moneys from various financial institutions, purchasing
plant and machinery from M/s. De Smet (India) Pvt. Ltd., Bombay and setting up
a vanaspati plant, in the belief induced by the representation of the
Government that sales tax exemption would be granted for a period of three
years from the date of commencement of the production. The Government was,
therefore bound on the principle of promissory estoppel to make good the
representation made by it. Of course, it may be pointed out that if the U.P.
Sales Tax Act, 1948 did not contain a provision enabling the Government to
grant exemption, it would not be possible to enforce the representation against
the Government because the Government cannot be compelled to act contrary to
the statute, but since section 4 of the U.P.Sales Tax Act, 1948 confers power
on the Government to grant exemption from sales tax, the Government can
legitimately be held bound by its promise to exempt the appellant from payment
of sales tax. It is true that taxation is a sovereign or governmental function,
but, for reasons which we have already discussed, no distinction can be made
between the exercise of a sovereign or governmental function and a trading or
business activity of the Government so far as the doctrine of promissory
estoppel is concerned. Whatever be the nature of the function which the
Government is discharging, the Government is subject to the rule of promissory
estoppel and if the 697 essential ingredients of this rule are satisfied, the
Government can be compelled to carry out the promise made by it. We are,
therefore, of the view that in the present case the Government was bound to
exempt the appellant from payment of sales tax in respect of sales of vanaspati
effected by it in the State of Uttar Pradesh for a period of three years from
the date of commencement of the production and was not entitled to recover such
sales tax from the appellant.
Now, for the assessment year 1970-71, that
is, 2nd July, 1970 to 31st March, 1971, the appellant collected from its
customers sales tax amounting to Rs. 6,81,178.95 calculated at the rate of 3
1/2% on the sale price. But when the assessment was made by the Sales Tax
Authorities, sales tax was levied on the appellant at the rate of 7% and the
appellant was required to pay up a further sum of Rs. 6,80,969.42. The
appellant had prayed for an interim order in the present appeal staying further
proceedings, but this Court, by an order dated 3rd April, 1974, granted interim
stay only on the appellant paying up the amount of sales tax due for the
assessment year 1970-71 before 31st July, 1974 and so far as the assessment
years 1971-72, 1972-73 and 1973-74 were concerned, the Court directed that the
assessments for those years may proceed, but only the final order shall not be
passed. The result was that the appellant had to pay up the further sum of Rs.
6,80,949.42 for the assessment year 1970-71. The appellant collected from the
customers for the assessment year 1971-72 an aggregate sum of Rs. 9,91,206.17
by way of sales tax at the rate of 3 1/2% for the period 1st April, 1971 to 1st
July, 1971, 4% for the period 2nd July, 1971 to 24th January, 1972 and 7% for
the period 25th January, 1972 to 31st March, 1972 and deposited this amount in
the Treasury. Similarly, for the assessment year 1972-73, the appellant
collected from its customers an aggregate sum of Rs. 19,36,597.23 as and by way
of sales tax at the rate of 7% of the sale price and this amount was deposited
by the appellant in the Treasury, and so also for the first quarter of the
assessment year 1973-74 upto the end of which the exemption from sales tax was
to continue, the appellant collected and paid an aggregate sum of Rs. 4,84,884.05
at the rate of 7% of the sale price. It appears that surcharge amounting to Rs.
2,83,008.09 for the period of the exemption was also paid by the appellant into
the Treasury. The assessments for the assessment years 1971-72, 1972-73 and
1973-74 were, however, not completed in view of the stay order granted by this
Court. Now, obviously since the Government is bound to exempt the appellant
from payment of sales tax for a period of three years from 2nd July, 1970,
being the date of commencement of the production, the appellant would not be
liable to 698 pay any sales tax to the State in respect of sales of vanaspati
effected during that period and hence the State would have to refund to the
appellant the amount of sales tax paid for the period 2nd July, 1970 to 31st
March, 1971, subject to any claim which the State may have to retain any part
of such amount under any provision of law. If the State has any such claim, it
must be intimated to the appellant within one month from today and it must be
adjudicated upon within a further period of one month after giving proper
opportunity to be heard to the appellant. If no such claim is made, or, if
made, not adjudicated upon within the time specified, the State will refund the
amount of sales tax to the appellant with interest thereon at the rate of 6%
per annum from the date when such refund becomes due and if such claim is made
and adjudicated upon within the specified time and it is found that a part of this
amount is liable to be retained by the State under some provision of law, the
State will refund the balance to the appellant with interest at the like rate.
So far as the assessment years 1971-72, 1972- 73 and 1973-74 are concerned, the
Sales Tax Authorities will proceed to complete the Assessments for those
assessment years in the light of the law laid down in this judgment and the
amounts of sales tax deposited by the appellant will be refunded to the
appellant to the extent to which they are not found due and payable as a result
of the assessments, subject to any claim which the State may have to retain
those amounts under any provision of law.
We accordingly allow the appeal, set aside
the judgment of the High Court and issue a writ, order or direction to the
above effect against the respondents. The State will pay the costs of the
appellant throughout.
S.R. Appeal allowed.
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