Doctrine of Promissory Estoppel

Doctrine of Promissory Estoppel

Contracts in India are governed under Indian Contract Act, 1872 (“the Act”). As per sec. 2(a) of the Act willingness is an important element of a contract to form because when one person signifies his willingness to do an act or abstain from doing an act if the willingness is missing the contract will not form. As per sec. 2(d) of the Act specifies that when an act is to be done or abstained from doing for a consideration is at the desire of the promisor if the desire is not present there would be not a valid contract between the parties. There are many instances that the promisor had shown a fake desire and the promisee had incurred losses. And to prove intention or desire in some cases it is tough and in case the promisee acted upon the promise, if the promisor is able to prove that it was in valid condition and had all the essentials of the valid contract as per sec 10 of the Act then the doctrine will be applicable. Doctrine of Promissory Estoppel avoids or bars the person from going back on their own words. This would mean that if the promisor promised certain act to be done or abstain from doing to the promisee and the promisee acted upon the fact then the promisor will not be allowed to go back on his own words. This is done because it will be inequitable for the promisor to go back on his own words as the promisee has already acted upon it and has incurred cost. The concept of promissory estoppel would protect the promisee in respect of reliance and not the bargains[1] i.e. will protect from altogether going back on his words but will not prevent any bargains that will happen between then at a later stage.

Unilateral Promise and Doctrine of Promissory Estoppel

Unilateral promises are promises from one side and an action can be taken by other party but there is no consideration on the part of the promisee only a promise on the part of the promisor. Promissory Estoppel is also a promise from the promisor to the promisee and some action is taken by the promisee. But the difference that lies between the two is that under unilateral promise there is no consideration from the part of the promisee but under promissory estoppel there is some consideration on the part of the promisee.

For eg: A promised to B that he will buy 1000 books from B who runs a book store and later B orders the books and packed them.

The above is an example of promissory estoppel as there is consideration from both sides but A was B’s brother and giving A money to buy books for his shop without wanting anything in return in that case it would be unilateral promise.

So, the concept of unilateral promise and promissory estoppel may look same in first instinct as there is a promise on the part of the promisor and promisee acted upon it but the element of consideration from the side of the promisee that is missing in the case of promisee in case of unilateral promise but not in case of promissory estoppel.

Promissory Estoppel and Government Agencies

The idea of doctrine of promissory estoppel will apply in case of companies or agencies will be when any employee or agent promises to an act or abstain from doing an act. So, due to the acts of the employees of public body the government agencies could be made liable for going back on his words i.e. the doctrine of promissory estoppel will apply. Considering that the promise was made under reasonable situation and in such conditions that it would be acted upon. Since the doctrine of promissory estoppel is an equitable doctrine so it requires the application of principle of equity.[2]

Century Spg. and Mfg. Co. Ltd. v. Ulhasnagar Municipal Council,[3]

In this case J, J.C. Shah said,

“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 contracts 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 form or be executed in the manner prescribed by statute, the obligation may if the contract be not in that form be enforced against it in appropriate cases in equity…..The question is whether the character of an act done in force of a statutory prohibition is affected by the fact that it had been induced by a misleading assumption of authority. In my opinion the answer is clearly: No.”

In this case it was said that both the private and public body are under same plane in this case and the doctrine will be applicable on public bodies or government agencies as well.

No Estoppel Against Statute

Kothari Industrial Corpn. Ltd. v. T.N. Electricity Board,[4]

In this case it was said that,

“In para 47 of the Report this Court has considered and had thought it appropriate to extract the views expressed in an earlier decision i.e. State of Rajasthan v. J.K. Udaipur Udyog Ltd. [State of Rajasthan v. J.K. Udaipur Udyog Ltd., (2004) 7 SCC 673] : (Shree Sidhbali Steels case [Shree Sidhbali Steels Ltd. v. State of U.P., (2011) 3 SCC 193] , SCC p. 212)

“47. … ‘25. An exemption is by definition a freedom from an obligation which the exemptee is otherwise liable to discharge. It is a privilege granting an advantage not available to others. An exemption granted under a statutory provision in a fiscal statute has been held to be a concession granted by the State Government so that the beneficiaries of such concession are not required to pay the tax or duty they are otherwise liable to pay under such statute. The recipient of a concession has no legally enforceable right against the Government to grant of a concession except to enjoy the benefits of the concession during the period of its grant. This right to enjoy is a defeasible one in the sense that it may be taken away in exercise of the very power under which the exemption was granted. (See Shri Bakul Oil Industries v. State of Gujarat [Shri Bakul Oil Industries v. State of Gujarat, (1987) 1 SCC 31 : 1987 SCC (Tax) 74] , Kasinka Trading v. Union of India [Kasinka Trading v. Union of India, (1995) 1 SCC 274] and Shrijee Sales Corpn. v. Union of India [Shrijee Sales Corpn. v. Union of India, (1997) 3 SCC 398] .)’ (J.K. Udaipur Udyog case [State of Rajasthan v. J.K. Udaipur Udyog Ltd., (2004) 7 SCC 673] , SCC pp. 688-89, para 25)”

It said that that provision of doctrine of promissory estoppel is not available in case of statutes or laws or statutory provisions. This would mean that if a person contends something regarding a statute he cannot be barred from stating that the provision is different from previously stated. So, it is the responsibility of the person to go and find whether the law referred to by the other person is correct or not this deals with the maxim, ignorance of law is no excuse.

In the case of Jit Ram Shiv Kumar v. State of Haryana[5], the conditions for invoking the above mentioned rule was said,

The parties need to agree irrespective of statutory provisions.
The agreement must be prohibited by law.
Provision made for public interest not particular class of people.[6]

Importance of the Doctrine

The number of contracts entered upon by both private and public people is increasing. Addition to that the competition between the people is also increasing. So, there are changes that people will try recourse to find loopholes in law and act in a fraudulent manner. This doctrine is important to prevent person from entering into fraudulent activities. Making a person believe that there was a contract formed and then acted upon loss will be suffered.

Conclusion

For a contract to form intention is an important element. But in a condition where a person tries to take revenge and makes a fake promise that leads to loss to other person here the person cannot take a defense that he never intended to form a contract with other person. The doctrine of promissory estoppel will come to rescue. This doctrine is available against both private and public body but not against a statute. At first this contract seem like a unilateral promise but when looked upon closely there is substantial amount of difference between them.

[1] Mulla pg. 19.

[2] http://www.legalserviceindia.com/article/l249-Promissory-Estoppel.html#:~:text=The%20true%20principle%20of%20promissory,other%20party%20to%20whom%20the.

[3] (1970) 1 SCC 582.

[4] (2016) 4 SCC 134 : 2016 SCC OnLine SC 84

[5] 1980 AIR 1285.

[6] http://www.legalserviceindia.com/article/l249-Promissory-stoppel.html text=The%20true%20principle%20of%20promissory,other%20party%20to%20whom%20the.