Principles On Promissory Estoppel

Source: Supreme Court

Why in News?

A Division Bench of the Supreme Court of India, comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan, in State of Himachal Pradesh & Ors. v. M/s Kundlas Loh Udyog (2026), set aside the judgment of the Himachal Pradesh High Court which had directed the State to extend concessional electricity tariff benefits under the Industrial Policy, 2019 to an existing industrial unit on the basis of substantial expansion undertaken by it. 

• The Court held that the doctrine of promissory estoppel cannot be invoked to claim a benefit under a government policy which was never aimed at benefiting a specific class of industrial unit, and further laid down twelve governing principles on the doctrine, drawing guidance from its earlier decision in IFGL Refractories Ltd. v. Orissa State Financial Corporation (2026).

What was the Background of State of Himachal Pradesh & Ors. v. M/s Kundlas Loh Udyog (2026) Case? 

• The respondent-company, an existing manufacturer engaged in industrial metal processing and stamping, was established in 2005–06. 
• In 2020, it undertook substantial expansion by increasing its plant and machinery by 88.69% and generating additional employment. 
• The respondent claimed that Clause 16(a) of the Himachal Pradesh Industrial Policy, 2019, which originally used the expression "eligible enterprises," extended the concessional electricity tariff benefit to existing industries undergoing substantial expansion. 
• The State contended that the use of the word "eligible" was a drafting error and that the policy always intended to differentiate between new industries and existing expanding industries. 
• The Himachal Pradesh High Court ruled in favour of the respondent and directed the State to extend the concessional tariff benefit. 
• Aggrieved, the State appealed to the Supreme Court. 
• The central issue was whether an existing industrial unit could invoke the doctrine of promissory estoppel or legitimate expectation to claim a benefit under a policy never intended to cover it.

What were the Court's Observations? 

• On Scope of Industrial Policy, 2019: The Court held that Clause 16(a) of the policy, properly construed, was never intended to extend concessional tariff benefits to existing industrial enterprises undergoing substantial expansion. The policy was aimed exclusively at new industrial enterprises, and the High Court had erred in overlooking this fundamental distinction. 
• On Invocation of Promissory Estoppel: The Court held that the doctrine of promissory estoppel cannot be invoked to compel the State to grant a benefit which was never intended for the class of industry to which the respondent belonged. Once the true scope of the policy was established, the foundation of the respondent's plea substantially fell. 
• On Legitimate Expectation: The Court held that the benefit of the doctrine of legitimate expectation could not be claimed by the respondent, which was an existing industrial unit, regardless of the substantial expansion it had undertaken in reliance on the policy. 
• On Double Benefit: The Court observed that the respondent had already availed a benefit under Clause 16(b) of the Policy by taking a rebate incentive of 15% on energy charges for additional power consumption. Extending the additional benefit of concessional tariff would amount to conferring a double benefit on the respondent, contrary to the scheme of the policy, public interest, and fiscal discipline governing industrial incentives. 
• On Surviving Equity: The Court held that once the respondent had already received the benefit legitimately attachable to its category under Clause 16(b), no enforceable equity survived in its favour to claim an additional concessional tariff.

What are the Principles Governing the Doctrine of Promissory Estoppel? 

Taking guidance from IFGL Refractories Ltd. v. Orissa State Financial Corporation (2026), the Court laid down the following twelve principles: 

• The doctrine of promissory estoppel is a principle evolved by equity to avoid injustice, operating not in the realm of contract or technical estoppel under evidence law, but upon broader considerations of fairness, justice, and good conscience. 
• Where one party makes a clear, unequivocal, and unambiguous promise to another, intended to create or affect a legal relationship, knowing or intending that it would be acted upon, and it is in fact acted upon, the promise becomes binding upon the promisor. 
• The doctrine's foundation is that an unconscionable departure from an assumption — of fact or law, present or future — which has been adopted by another party as the basis of some course of conduct, act, or omission, should not be permitted. The relief contains a degree of flexibility to render justice. 
• The doctrine is not merely defensive in nature. Under Indian law, it may furnish a cause of action and can be affirmatively enforced where equity so requires. 
• It is not necessary that the promisee prove actual detriment. It is sufficient that the promisee has altered his position in reliance upon the promise. 
• The alteration of position may consist in making substantial investments, incurring liabilities, establishing industrial infrastructure, entering into agreements, or otherwise rearranging one's affairs on the faith of the representation. 
• The doctrine applies with full force against the State, its departments, statutory corporations, and instrumentalities falling within Article 12 of the Constitution, which cannot arbitrarily resile from a solemn representation upon which another has acted. 
• Where the State or its instrumentalities frame industrial or fiscal incentive schemes to attract investment, the representations contained therein are intended to induce entrepreneurs to act upon them, and such representations are enforceable. Once an entrepreneur establishes an industrial unit, commences commercial production, or satisfies the eligibility conditions during the scheme's currency, the promise crystallises and an enforceable equity arises. Whether a benefit has accrued depends on the facts and circumstances of each case. 
• The grant of an exemption, concession, or incentive under a statutory scheme is ordinarily defeasible, and the Government is competent to modify or revoke the same. However, the Government may be precluded from doing so on the ground of promissory estoppel, which principle remains subject to considerations of equity and public interest. 
• Where a specific sanction, approval, or eligibility certificate has been issued in favour of an individual enterprise, and the enterprise has acted thereon by making substantial investment, the promisor is all the more firmly bound by its representation. 
• The doctrine rests upon the larger constitutional principle that State action must be fair, non-arbitrary, and consistent; governmental assurances are solemn representations on the faith of which citizens regulate their affairs. 
• The ultimate object of the doctrine is to prevent manifest injustice and to ensure that a party, particularly the State, does not act inconsistently to the prejudice of one who has relied upon its promise and altered his position irretrievably.

What is the Doctrine of Promissory Estoppel? 

About: 

• The doctrine of promissory estoppel is a product of equity and evolved to prevent injustice. 
• The true principle of promissory estoppel is 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. 
• This rule is applied by the courts of equity in England, as estoppel is a rule of equity. 
  • In India the rule of estoppel is a rule of evidence. 
• In India, the doctrine of promissory estoppel is equally applicable to the government as is applicable to private individuals. 
• In the 108th Report of Law commission submitted in 1984 suggested Section 25 A in ICA. 

Key Elements: 

• Representation/Promise: 
  • There was a promise or representation made between two parties regarding something to be done in future. 
  • Such promise or representation was intended to affect the legal relationship of the parties. 
• Act: 
  • The other party must act in furtherance of that promise or is forbidden to do anything. 
  • That it is, one on which, the other side has, in fact, acted to its prejudice. 

How Doctrine of Promissory Estoppel Evolved? 

• This doctrine was applied for the first time in India in 1880 by Calcutta High Court in the case of Ganges Mfg Co v. Soorujmull ILR (1800). 
• When Calcutta HC upheld that a promise without consideration was enforceable based on interest and reliance. 
• In England this doctrine was applied for the first time by the House of Lords in Thomas Hughes v Metropolitan Railway Co. (1877). 
• The doctrine was restated as a recognized doctrine by Lord Denning in Central London Properties Ltd. V. High Tress House Ltd. (1947), wherein court asserted that “a promise intended to be binding, intended to be acted upon, and in fact acted upon is binding.” 
• The doctrine of promissory estoppel is well developed in Indian as well as in England and many other countries.