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Report No. 108

1.2. Promissory Estoppel.-

Suppose a person promises a subscription to a charitable institution with the knowledge that a building will be constructed with the money received from the subscribers, but does not desire the institution to do so; the institution however, on the faith of the promise, incurs expenditure in putting up a structure. If the promisor does not honour his promise, the institution may not be able to sue him successfully for the amount promised, because, the promise is not supported by consideration.

Take the case of the Government making an announcement relating to some relief such as a sales-tax holiday if something is done by the citizen such as opening a new factory in a specified area. On the faith of the announcement, a citizen may do the necessary thing and thus change his position. The Government thereafter changes its policy. Even if it is assumed that the citizen acted at the desire of the Government there cannot be a contract enforceable against the Government, because, contracts, which can be enforced against the Government, should be in a particular form.1

On the question whether the person promising the subscription to the institution or the Government, in the second example, could be held to the promise and representation respectively, that is, whether the court could compel them to honour their representation, one view is that the court could do so on the basis of the doctrine of Promissory Estoppel. The doctrine has been expressed by a Bench of two Judges of the Supreme Court of India2 as follows:-

"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 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.3

1. Article 299 of the Constitution of India.

2. M.P. Sugar Mills v. State of Uttar Pradesh, AIR 1979 SC 621 (Bhagwati and Tulzapurkar,

3. M.P. Sugar Mills v. State of Uttar Pradesh, AIR 1979 SC 621 (631).

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