Report No. 108
The exception recommended was:
"Section 25(4). It is a promise, express or implied, which the promisor knew or should reasonably have known, would be relied upon by the promisee, where the promisee has altered, his position to his detriment in reliance on the promise."
The effect of this recommendation is to allow promissory estoppel as a cause of action, though it is not clear whether the result was foreseen. That recommendation has not been so far accepted. As regards the second proposition laid down by the learned Judge, we feel he has gone too far for the following reasons:-
(i) The learned author5 on whom Bhagawati, J. relied has himself stated thus:
One can easily see why courts and other Judicatory tribunals should not be estopped in the performance of the judicial function, and one can readily see why major governmental policies must be kept within the control of Congress and of the principal policy making officers and why such policies cannot feasibly be subjected to significant alteration by judicially enforced estoppel. But we cannot readily see why the government in its business and property dealings should not be subject to the same rules of fairness that courts apply to others engaging in such dealings. The author was only arguing for similar treatment in business and property dealings and not with respect to governmental functions. This is made clear when he says:
The movement is towards the idea that the government units in their proprietary capacity may be treated like any other party for purposes of estoppel and that even in the governmental capacity estoppel may be applied when the accommodation of the needs of justice to needs of effective government so required.
(ii) It is true that a republic is also governed by Law, but a democratic or republican constitution cannot be denied the means for preserving itself; and such means are Revenue. It is for the government to determine its priorities between the hungry millions and the affluent few. In this very vital aspect there is absolutely no parallel or comparison between an individual and the government. As Sri Seervai puts it:6
The reference (By Shah, J.) to standards of conduct in a nascent democracy overlooks the fact that public authorities are, and private parties are not, charged with protecting the public interest, and the protection of the public interest must, to that extent, require different standards to be applied to private persons and to public authorities.
(iii) When a government changes its policy, it is not right for the court to assume dishonesty or immorality, and throw the burden on the government to satisfy the court that government has acted fairly under compulsion of executive necessity. The burden should be on the party invoking estoppel against the Government to show fraud or manifest injustice. Government acts as honestly is laying down a legal proposition and later on changes its view. If it is argued that it is a different Bench of the Court that generally changes the law, it is also true that a change in government policy is often due to a change in the government. In the instant case the original policy of tax holiday was under President's Rule and the withdrawal of the concession was by an elected government.
Even otherwise, the same government can and must change its policy if experience shows that such a change is necessary in the public interest. And whether such a change is required in the public interest only the government can decide and not a Court. Democratic process, requires changes of policy not only by successive governments but also by the same government. If a government cannot change its policy when there is a change in government it is incomprehensible when it can do so. Judicial enforcement by invoking estoppel against the government will be nothing but trespassing into the legitimate field of activity of another limb of the government and would be nothing short of interfering with the democratic process.
(iv) Bhagwati, J. has excluded the legislature from the operation of the doctrine. The reason can only be because there is an irrebuttable presumption that the legislature acts in public interest because it knows the public needs. Does not a similar presumption apply in the case of the executive? The utmost one can say is that it may be a case of rebuttable presumption if the person who invokes the doctrine against the government establishes fraud or manifest injustice.
(v) In the Gwalior Rayon case, the Court has exempted the legislature from the doctrine and Bhagwati, J. accept it. In N. Ramanatha's case, the Court has held that estoppel cannot be pleaded against an authority which owes a duty to the public. In Ramkumar's case the Court held that there can be no question of estoppel against the government in the exercise of its legislative, executive and sovereign functions. In the case of such unanimous views especially of larger Benches of five Judges judicial comity requires that a Bench of two Judges should not have followed the judgments in the Anglo-Afghan case and the Century Spg. and Mfg. Co. case.
These are Judgments of three Judges and the reference to promissory estoppel by Shah, J. in the first case was merely obiter. Bhagwati, J. distinguished Ramanatha saying that the petitioner knew that the post was temporary. But then are not all governmental policies subject to charge? He also agreed with Ramanatha where it is stated, 'where a government does a duty to the public to act differently, promissory estoppel cannot be invoked to prevent government from doing so,' but interpreted 'duty to public' to mean a course of conduct enjoined by law. No law imposed a duty on the government to abolish a post in Ramanatha. And what is more government always owes a duty to the public and not, only when it is 'enjoined by law'. The reasons why Ramkumar did not refer to Anglo-Afghan, Century Spg. and lurner Mordson cases, are, the reference to promissory estoppel in the first was obiter: the second was wrong because it dealt with legislative power, and the third was between private parties.
Bhagzvati, J. relies on Malhotra for saying that that decision shows that estoppel can be invoked against the government. But Malhotra says:
"The doctrine of estoppel in its application to the State has undergone some radical thinking since the judgments in the AngloAfghan and Century Spg. cases."
As already stated the reference to promissory estoppel by Shah, J. in Anglo-Afghan is obiter and the same Judge's reliance on the doctrine in Century Spg. case is clearly wrong even according to Bhagwati, J.'s view because, the municipality's decision to impose octroi duty is the exercise of legislative power.
(vi) Lastly, many legal eyebrows in the U.K. and the U.S. are bound to be lifted at this proposition, because, in those countries there has never been any controversy arising from .a government changing its policy.
In an interesting English ease7 in 1972, the plaintiffs were granted an air transport licence by the Civil Aviation Authority for low cost passenger service to run what was called a 'Skytrain, for 10 years from 1973. The plaintiffs spent large sums of money as operation costs, but in 1975, there was a change of policy due to a change in the government, and the licence was cancelled in 1975. The challenge to the cancellation was successful on the ground that the new policy was ultra vires the powers of the Secretary of State. But on the question of estoppel the following views were expressed:
"Lord Denning: The underlying principle is that the Crown cannot be estopped from exercising its powers, whether given in a statute or by Common law, when it is doing so in the proper exercise of its duty to act for the public good, even though, this may work some injustice or unfairness to a private individual It can however be estopped when it is not properly exercising its powers but is misusing them; and it does misuse them if it exercises them in circumstances which work injustice or unfairness to the individual without any countervailing benefit for the public."
In the present case, if the Secretary of State did have a prerogative to withdraw the resignation, and properly exercised the prerogative, then there would be no case for estoppel. He would be exercising the prerogative for the public good and would be entitled to do it, even though it did work injustice to some individuals. Lord Roskill pointed out that when a party comes into power, it generally makes a change in policy an election issue and observed:
"The doctrine of estoppel cannot be allowed to hinder the formation of government policy-or one might add the constitutional result of a general election. Whatever representations the Secretary of State in office between 1972 and 1974 may have made to the plaintiffs he made them pursuant to his public duty and in good faith. If in 1976 his successor was of the opinion that the public interest required him to go back on those representations, he was in duty bound to go back on them. The fact that Laker Airways suffered loss as a result of the change is unfortunate; they have been the victims of a change of government policy. This often happens. Estoppel cannot be allowed to hinder, the formation of government policy."
In the U.S. academic discussion has centered round two cases.8 Neither of these cases had anything to do with changes in governmental policy. In the first case, the U.S. Supreme Court had categorically stated that even in business matters there is a difference between government and private individuals. In both these countries, which continue to be a source for our law, the controversy is how far government is bound by the representations of its officials. As regards the third proposition of Bhagwati, J. we feel that here also the learned Judge has gone a bit too far in not requiring detriment to be established. After all the principle is one of equity and no question of equity can ever arise unless someone is hurt.
That is, unless the person to whom the representation is made would be unjustly harmed if the rule of equity is not invoked. On this question of detriment to the person to whom the representation is made, there are two views. One view is that the mere 'acting upon' the representation by the person to whom the representation is made is itself 'detriment' suffered by such person. The other view is that the person who acted upon the representation, would suffer some injustice, if the person who made the representation is allowed to resile from what he stated. The two views are lucidly explained by Dixon, J. as follows:
"The principle upon which estoppel in pais is founded is that the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations. This is, of course, a very general statement. But it is the basis of the rules governing estoppel. Those rules work out the more precise grounds upon which the law holds a party disentitled to depart from an assumption in the assertion of rights against another. One condition appears always to be indispensable. That other must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption.
In stating this essential condition, particularly where the estoppel flows from representation, 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 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 a source of prejudice."9