Indian Contract Act

Introduction

• 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 108^th Report of Law commission submitted in 1984 suggested Section 25 A in ICA.

What are Key Elements of the Doctrine of Promissory Estoppel?

• 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.

What is the Legal Provision Related to Doctrine of Promissory Estoppel under Indian Contract Act, 1872?

• Section 25 A of Indian Contract Act, 1872
  • There is no provision of promissory estoppel in Indian law. Section 25 of ICA talks about contracts made without consideration (in other words the enforceability of promises)

What are the Other Landmark Cases Related to Doctrine of Promissory Estoppel?

• Motilal Padampat Sugar Mills Co Ltd v. State of U.P. (1979):
  • This case is a trendsetter regarding the application of promissory estoppel against the government. The state was held liable on the basis of promissory estoppel despite there being no existing legal relationship between the parties.
  • The court widened the scope of the doctrine as applied in England by stating that the doctrine can give rise to a cause of action in itself.
• Union of India v. Indo Afghan Agencies Ltd. (1968):
  • The Supreme Court held that the Government was estopped by its promise. And the defence based on executive necessity has been negated.
• Delhi Cloth and General Mills Ltd v. Union of India (1987):
  • It was held that is now required is that the party asserting the estoppel must have acted upon the assurance given to him. Must have relied upon the representation made to him.
  • It means that the party has changed or altered his position by relying on assurance or representation. The alteration of his position by the party is the only indispensable requirement of the doctrine.
• Pournami Oil Mills v. State of Kerala (1987):
  • The government was not permitted to go back on its earlier promise of wider exemption from sales tax in pursuance of which certain industries were set up.

What are the Limitations on the Doctrine of Promissory Estoppel?

• Pre-existing Legal Relationship:
  • The doctrine of promissory estoppel applies only when there is an existing legal relationship between the parties, and it is modified or varied.
    • This means a new contract must be supported by consideration.
• Alteration of Position:
  • The essence or beauty of a bilateral executory contract is that it comes into existence the moment promises are exchanged forming consideration for each other.
  • But the doctrine of promissory estoppel applies only when the party who wants to enforce a promise has altered its position by relying upon it.
• Inequitable to Retract:
  • Since the origin of the doctrine of promissory estoppel lies in equity, it would apply only in those cases where it would be inequitable for the promisor to go back on his promise.
  • If that is not the case, the doctrine does not apply.
• Shield not a Sword:
  • The very nature of the doctrine of promissory estoppel is that it can be used only to save a party from the effect of a promise which was modified by the promisor.
  • It cannot be used to give rise to a claim. Hence, it can only be used as tool of defence and not of attack.
• Suspensory
  • It is considered that the doctrine can have only suspensory effect on the obligations created under the original contract and cannot extinguish them.

What is the Position of Minors in Case of Doctrine of Promissory Estoppel?

• The minor is not stopped from setting up the defence of minority.
  • The reason is there can be no estoppels against a statue.
  • The policy of the law of contract is to protect persons below age from contractual liability and naturally the doctrine of estoppels cannot be used to defeat that policy.

Conclusion

Promissory estoppel serves to enable an injured party to recover on a promise. There are a number of cases where governmental bodies have been made liable on the basis of promissory estoppel, if the promisee has altered his position in reliance upon the promise, irrespective of whether the promise was supported by any consideration. The intended purpose of this doctrine is to prevent the promisor from retracting their words and stopping the promisor from arguing that an implied promise should not be legally upheld or enforced.