M/S MOTILAL PADAMPAT SUGAR MILLS CO. (P.) LTD. v. STATE OF UTTAR PRADESH AND ORS .
Citation: [1979] 2 S.C.R. 641; 1978 INSC 256
Court: Supreme Court of India
Bench: P.N. BHAGWATI , V.D. TULZAPURKAR
Judgment date:
Case summary
1978 INSC 256. Supreme Court of India judgment dated 1978-12-12. M/S MOTILAL PADAMPAT SUGAR MILLS CO. (P.) LTD. v. STATE OF UTTAR PRADESH AND ORS . Read the...
Judgment text
• • • 6 41 M/s MOTILAL PADAMPAT SUGAR MILLS CO. (P. ) LTD. A v. STATE OF UTTAR PRADESH AND ORS . December 12, 1978. -. · [P. N. BHAGWATI AND V. D. TULZAPURKAR, JJ. J Waiver, doctrine of-Waiver is a question of fact and it must be properly p(~aded and proved. Public luw-Doctrine of Pro111issory Estoppel, its contours and para1neters, explnined. Estoppel-Estoppel in pais-Promissory Estoppel-Applicability of the doctri11e against th~ Governn1ent and extent thereof-Doctrine of executive necessity, whether could be a valid defence and if so under what circumstanc- "· Representations de futuro by a public body, if enforceable ex-contractu by a person who acts upon such representation or promise intended to be acted on-Burden of proof-Degree of standard of proof in such cases. The appellant is a limited company which is primarily engaged in the bpsiness of manufacture and sale of suglar and it has a cold storage plant and a steel foundry.
With reference to a news item dated 10th October 1968 in the National Herald in which it was stated that the State of Uttar Pradesh had decided to give exemption from 001. es tax for a period of three ~ years under section 4A of the U . P. Sales Tax Act to all new industrial units in the State with a view to enabling them "to come on firm footing in developing stage", the appellant addressed a letter dated ! Ith October 1968 to the Director of Industries stating that in view of the sales tax holiday announced by the Government the appellant intended to set up a Hydrogenation plant for manufacture of Vanaspati and sought for confirmation that this industrial unit which it proposed to set up, would be entitled to sales tax holiday' for a period of three years from the date it commenced production.
The Director of Industries by his letter dated 14th October 1968, confirmed that "there will be no sales tax for three years on the finished product of your proposed Vanaspati factory from the date it gets power connection for commencing production". Thereafter when the appellant's representative met the 4th respondent, who was at that time the Chief Secretary to the Government as also Advisor to the Governor and apprised the latter that the appellant was setting up the Vanaspati factory solely on the basis of the assurance given on behalf of the Government thet the appellant would be entitled to exemp- tion from sales tax for a pe'riod of three years from the date of commence- ment of commercial production at the factory, the 4th respondent reiterated the assurance made.
Again the appellant, by its letter dated 13th December 1968, requested the 4th respondent "to please confirm that we shall be allowed sales tax holiday for a period of three years on the sale of Vanaspati from the date we start production". The 4th respondent replied on 22nd December 1968 that "the State Government will be willing to consider your request for grant of exemption from U. P. Sales Tax for a period of three years from the date of B c D E F G H 642 SUPREME COURT REPORTS [ J979] 2 S. C. R. A production" and asked the appellant to obtain the requisite application form and subn1it a formal application to the Secretary to the Government in the Industries department, nnd in the meanwhile "to go ahead with the arrange- ments for setting up the factory". The appellant ill the meantime had sub- mitted an application dated 21st December 1968 for a formal order granting exemption from sales tax under section 4A of the U. P. Sales Tax Act. The appellant v,1.
1•3 also subsequently inforn1ed by the letter dated 23rd January B 1969 of the 4th respondent categorically that the proposed Vanaspati factory of the appellant "will be entilled to exemption fro1n U. P. Sales Tax for a period of three years from the date of going into production and that this \Vill apply to all Vanaspati sold during that period in Uttar Pradesh itself". The appellant, on the basis of these unequivocal assurances, \Vent ahead with the setting of the Vanaspati factory and made much progress. c By the middle of May 1969, the State Government started having second thoughts on the question of exemption nnd the appellant \Vas requested to attend a n1eeting "to discuss the question of giving concession in Sales Tax on Vanaspati products".
The appellant immediately by its letter dated 19th May 1969 pointed out to the 5th respondent that so far as the appellant was concerned, the State Government htrd already granted exemption from sales tax by the letter of the Chief Secretary dated 23rd January, 1969. but still, the appellant would b~ glad to send its representative to attend the meeting. The appellant's representative did attend the meeting held on 3rd June 69 and reiterated that so far as the appellant \vas concerned, it had already been granted exemption fron1 sales tax and the State Government stood committed to it. J) E F G H Tha State Government, ho\vever, went back upon the assurance and a letter dated 20th January 1970 was addressed by the 5th respondent intimating that the Government had taken a policy decision that new Vanaspati units in the State which go into commercial production by 30th September 1970, would be given only partial concession in Sales Tax at different rates on each year of production.
The appellant, by its letter dated 25th June 1970, pointed out to the Secretary to the Government that the appellant proposed to start con1n1ercial production of Vanaspati with effect fron1 1st July 1970 and stated that, as notified in the letter of 20th January 1970, the appellant would be availing of the exemption granted by the State Government and would be charging Sales Tax lit the rate of 3~-% instead of 7% on the sales of Vanaspati manufactured by it for the period of one year commencing from 1st July 1970. The factory of the appellant thereafter \vent into production from 2nd July 1970 and the appellant informed the Secretary to the Government about the same by its letter dated 3rd July 1970. The State Government, however, once a@a1n changed its decision and on 12th August 1970, a news item appeared in the 'Northern Indian Patrika' stating that the Government had decided to rescind the earlier decision i. e.
the decision set out in the letter dated 20th January 1970, to allow concession in the rates of Sales Tax to new Vanaspati Units. The appellant thereupon filed a writ petition in the High Court of Allahabad asking for a writ directing the State Govern- ment to exempt~ the sales of Vanaspati manufactured by the appe11ant fron1 Sales Tax for b: period of three years commencing from 2nd January 1970 by issuing a notification under section 4A of the U. P. Sales Tax Act from the appellant for the said period of three years. The plea based on the • - • • ,,. ~ ~y t ... i • MOT! LAL SUGAR MILLS V. U. P. 643 doctrine of promissory estoppel was, however rejected by the Division Bench A -0f the High Court principally on the ground that the appellant had waived the exemption, if any, by accepting the concessional rates set out in the letter of the respondent dated 20th January 1970. Allowing the appeal by certificate, the Court, ' HELD : 1.
The view taken by the High Court, namely, that even if 1here \1. 'as an assurance given by the 4th respondent on behalf of the State Government and such assurance was binding on the State Government on the principle of promissory estoppel, the appellant had waived its right under it by . accepting the concessional rates of sales tax set out in the letter of the 5th res- pondent dated 20th January, 1970 is not correct. [656 D-E] 2. Waiver is a question of fact and it must be properly pleaded and ! J)roved. No plea of waiver can be allowed to be raised unless it is pleaded and the factual foundation for it is laid in the pleadings. [656 E-F] In the instant case : (a) the plea of waiver was not taken by the State Governn1ent in the . affidavit filed on its behalf in reply to the writ petition, nor was it indicated B c . even vaguely in such affidavit. It wns raised for the first time at the hearing D. of the writ petition.
That was clearly impermissible without an amendment <>f the affidavit in reply or a supplementary affidavit raising such plea. [656 P]. (b) It was not right for the High Court to have allowed the plea of waiver to be raised against the appellant and that plea should have been Teiected in lin1i11e. If waiver were properly pleaded in the affidavit in reply, the appellant would hla'Ve had an opportunity of placing on record facts Show- E ing why and in what circumstances {he appellant came to address the Jetter dated 25th June 1970 and establishing that on those facts there was no waiver by the appe! Jant of its right to exempt:on under the assurance given by the 4th respondent. But in the absence of such pleading in the affidavit in reply, 1his opportunit}r \\'as denied lo the appellant. [656 F-H] 3. Waiver means abandonment of a right and it may be either- express or F implied from conduct, but its basic requirement is that it must be "an intentional act \Vith knowledg·e".
There can be no waiver unless the person who is said to have waived is fully informed as to his right and with full l::nowledge of such right, he intentionally abandons it. [657 A, B] Jn the instant case, on the facts, the plea of waiver could not be slJ:id to tave been made out by the State Government : There was nothing to state that at the date when the appellant addressed the letter dated "25th June 1970, it had full knowledge of its right to exemption under the assurance given bv the 4th respondent and that it intentionally abandoned such right. It is not -possible to presume in the absence of any material placed before the Court, that the appellant had full knowledge of its right to exen1ption so as to -warrant an inference that the appellant waived such right by addressing the letter dated 25th June 1970.
It is difficult to speculate what was the reason why the appellant addressed the letter 25th June 1970 stating that it would -avaiJ of the concessional rates of sales tax granted under the Jetter Gbted 20th January 1970. [657 D-El G H 644 SUPREME COURT REPORTS [1979] 2 S. C. R. A Earl of Darnley v. London, Chathani and Dover Rly. Co. (Proprietors etc. ), [1867] L. R. 2 H. L. 43 @ 57 Craine v. Colonial Mutual Fire lnsuranc U<>e of action would seriously dilute the principle whic3 requires consideration to support a contractual obligation, this new principle, which is a child ot equity brought into the world with a view to promoting honesty and good faith and bringing law closer to justice should not be hdd in fetters but allowed tu operate in all its activist magnitude. so that it rnay fulfir the purpose for v. 'hich it was conceived and born. [668 F-G]. Robertson v Minister of Pensions, [1949] 1 K. B. 227 Evende11 Guldford City A. 1. • • I • \ MOTILAL SUGAR MILLS V. U. P. 649 14.
So frir as the doctrine of promissory estoppel is concerned, no distinc- ·tion can be rnade between a private individual and a public body. This doc- trine is nlso a-pplicable against a public body like a municipal council. Hcv. '- ever, this doctrine cannot be applied in teeth of an obligation or liability imposed by hnv. It cannot be invoked to compel the Government or even a private party to do an act prohibited by law. There can also be no promissory estoppel against the exercise of legislative power. The Legislature can never be precluded from exercising its legislative function by resort to the doctrine of pro- missory "stoppel. [688C, G-H, 689 A]. Century Spinning and Manufacturing Co. Ltd. & Anr. v. The Ulhasnagar ! ,Municipal Council and Anr. , [1970] 3 SCR 854; Turner Mossison and Co. Ltd. v. ll1111gerford /11rest111ent Trust Ltd,, [1972] 3 S. C. R. 711; discussed -& followed. lvt. Ra1na11atha Pillai v. The State of Kerala & Anr.
, [1974] 1 SCR 515 @ 526; Assistant Custodian v. Brij Kishore Agarwala & Ors. , [1975] 2 SCR 359, explained and held inapplicable. State of Kerala v. Gwalior Rayon Silk lt>fanufacturing Co. Ltd. A B c [19741 1 S. C. R. 671 @ 688; reiterated. D Afalhotra and Sons & Ors. v. Union of lndia and Ors. , A. LR. 1976 J & K p. 41 approved. Excise Conunissioncr, U. P. Allahabad v. Ran1 Ku1nar [19761 Suppl. S. C. R. 532; Bihar Eastern Gangetic Fishern1en Cooperative Society Ltd. '" Sipah1 Sangh and Ors. [1978] 1 SCR 375; A. l. R. 1977 S. C. 2149; Radha Krishan Agarwal v. State of Bihar and Ors. , [1977] 3 S. C. R. 249; : [1977] 3 S. C. C. 457; explained. 15. Jn order to attract the applicability of the doctrine of promissory estop~ ·pel, it is not necessary that the promisee, acting in reliance on the promise, should suffer any deteriment. \Vhat is necessary is no more than that there should be alteration of his position in reliance on the promise.
If detriment were a necessary element, there \~'ould be no need for the doctrine of promissory estop· pel because, in that event in quite a few cases, the detriment would form the consideration and the promise \vould be binding as a contract. If by deteriment is ·meant injustice to the promisee \Vhich would result if the promisor were to resile from his promise, then detriment V. 'OUld cert«·inly come in as a necessary ingredient. The detriment in such a case is not so1ne prejudice suffered by the promisee acting on the promise, but the prejudice which would be caused to the promisee, if the promisor were allowed to go back on the promise. It is not necessary for the promisee to show that he has acted. to his detriment. All that he has to shov.. · is that he has acted in reliance on the promise and altered his position. [694 A-B, F-G, 695 E, 694 DJ. Central London Property Trusf Ltd. v. Higl1 Trees llouse, [1947] K. B. p. 130 : : [1956] 1 All. E. R. 256, W. J. Alan & Co. Ltd. v.
El Nasar Export and Import Co. , [1972] 2 All. E. R. p. 127, @ p. 140, Tool 1Vfffal ! t1anufacturing Co. Ltd. v. Tungsten Electric Co. Ltd. , _(1955] All. E. R. 657; [1975] 1 W .. L. R. 761 Emmanuel Ayodeii E F G H 650 SUPREME COURT REPORTS [1979] 2 S. C. R. A Ajayi v. R. T. Briscoe, [1964] All. E. R. 556; Kanunins Ballroo1ns Ltd. v. Zenith Investments (Torquay) Ltd. (1970] 2 AIL E. R. 871, Gmndt v. The Boulder Pty. Gold Mines Ltd. , (1938] 59 C. L. R. 641; quoted. \vith approval. B c D E F In the instant case, The facts necessary for involving the doctrine of promissory estoppel \Vere clearly present and the Government WM bound to carry out the representation and ex. empt the appellant from sales tax iQ respect of sales of Vanaspati effected by it in lJttar Pradesh for a period of three years from the date of comn1ence~ ment of the production.
[693 F-G] (a) The letter dated 23rd Januaq 1969 was a representation on behalf of the Governn1ent, the representation having been made by the 4th respondent in his capacity as the Chief Secretary of the Govern111ent categorica1ly to the effect that the appellant would be entitled to exemption from sales tax in respect of the sale of vanaspati effected in Uttar Pradesh for a period of three years irom the date of commencement of production. This representation was n1ade by way uf clarification in view of the suggestion in the appellant's letter dated 22nd January 1969 that the financial institutions were not prepared to regard the earlier letter of the 4th respondent dated 22nd Decernber 1968 oo a definite commitment on the part of the Government to grant exemption from sales tax.
(692 H, 693 A-Bl (b) The representation made by the 4th respondent was a representation within the scope of his authority and was binding on the Government in as much as the 4th respondent, who was at the materia·l time the Chief Secretary to the Government and also Adviser to the Governor discharging the. functions of the Government during the President's Rule had authority to bind the Gover· nor. 1\foreo\'er the averment to this effect in the \Vrit Petition was not denieO by the State in the affidavit in reply filed on its behalf [693 C-D]. (c) This representation was made by the Government knowing or intending that it would be acted on by the appellant because the appellant made it clear that it v,ias only on account of the exemption from sales tax promised by the Govern1nent that the appellant had decided to set up the factory for manufac- ture of Vanaspati. In fact the appellant relying on this representr..
tion of the Goverrunent, borrowed moneys from various financial institutions, purchfl-~. ed plant and machinery from Mjs. De Smith (India) Pvt. Ltd. , Bombay and set up a Vanaspati factory at Kanpur. [693 E-F] G CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1597 of 1972. H Appeal from the Judgment and Order dated 25th January, 1972 of the Allahabad High Court in Civil Misc. Writ No. 3788/70. S. T. Desai, Shri Narain, J. B. Dadachanji, Ravinder Narain, S. Swarup and Talat Ansari for the Appellant. G. N. Dikshit, M. V. Goswami and 0. P. Rana for RR 1-3 and 5. Girish Chandra for Respondent No. 4. • • • )- ' • • MOT! LAL SUGAR MILLS v. u. P. (Bhagwati, !. ) 6 51 A. B. Dewan, Ravinder Narain, S. Swarup and A. N. Haksar for A the Intervener (M/s. Modi Rubber Ltd. ). The Judgment of the Court was delivered by BHAGWATI, J. , This appeal by certificate raises a question of con- siderable importance in the field of public law.
How far and to what extent is the State bound by the doctrine of promissory estoppel ? It is a doctrine of comparatively recent origin but it is potentially so fruitful and pregnant with such vast possibilities for growth that tradi- tional lawyers are alarmed lest it might upset existing doctrines which are looked upon almost reverentially and which have held the field for a long number of years. The law in regard to promissory estoppel is not yet well settled though it has been the subject of considerable de- bate in England as well as the United States of America and it has also received consideration in some recent decisions in India and we, there- fore, propose to discuss it in some detail with a view to defining its contours and demarcating its parameters. We will first state briefly the facts giving rise to this appeal. This is necessary because it is only where certain fact-situations exist that promissory estoppel can be in- voked and applied.
The appellant is a limited company which is primarily engaged in the businc. ss of manufacture and sale of sugar and it has also a cold storage plant and a steel foundry. On 10th October, 1968 a news item appeared in the National Herald in which it was stated that the State of Uttar Pradesh had decided to give exemption from sales tax for a period of three years under section 4A of the U. P. Sales Tax Act to all new industrial units in the State with a view to enabling them "to come on firm footing in developing stage". This news item was based upon a statement made by Shri M. P. Chatterjee the then Secretary in the Industries Department of the Government.
The appellant, on the basis of this announcement, addressed a letter dated 11th October, 1968 to the Director of Industries stating that in view of the sales tax holiday announced by the Government, the appellant intended to set up a Hydm-genation Plant for manufacture of Vanaspati and sought for confirmation that this industrial unit, which it proposed to set up would be entitled to sales tax holiday for a period of three years from the date it commenced production. The Director of Industries replied by his letter dated 14th October, 1968 confirming that "there will be no sales tax for three years on the finished product of your proposed Vanaspati factory from the date it gets power connection for com- mencing production. " The appellant thereupon started taking steps to contact various financiers for financing the project and also initiated negotiations with manufacturers for purchase of machinery for setting B c D E F G R , . , A B c F G H 652 SUPRE'V! E COURT REPORTS (1979] 2 S. C.
R. up the Vanaspati factory. On 12th December, 1968 the appellant's representative met the 4th respondent who was at that time the Chief Secretary to the Government as also Advisor to the Governor and inti- mated to him that the appellant was setting up the Vanaspati factory solely on ti;e basis of the assurance given on behalf of the Government that the appellant would be entitled to exemption from sales tax for a period of three years from the date of commencement of commercial production at the factory and the 4th respondent reiterated the assur- ance that the appellant would be entitled to sales tax holiday in case the Vanaspati factory was put up by it. The appellant by its letter dated 13th December, 1968 placed on record what had transpired at the meeting on the previous day and requested the 4th respondent "to please confirm that we shall be allowed sales tax holiday for a period of three years on the sale of Vanaspati from the date we start produc- tion.
" On the same day the appellant entered into an agreement with M/s. De Smith (India) Pvt. Ltd. , Bombay for supply of plant and machinery for the Vanaspati factory, providing clearly that the appel- lant wo~ld have the option to terminate the agreement, if within 10 weeks exemption from sales tax was not granted by the State Govern- ment. Tht 4th respondent replied on 22nd December, 1968 confirm- ing that "the State Government will be willing to consider your request for grant of exemption from U. P. Sales Tax for a period of three years from the date of production" and asked the appellant to obtain the requisite application form and submit a formal application to the • \. ) ,-\ 'f Secretary to the Government in the Industries Department and in the / meanwhile to "go ahead with the arrangements for setting up the r factory".
The appellant had in the meantime submitted an application dated 21st December, 1968 for a formal order granting exemption from sales tax under section 4A of the Act. It appears that the letter of the 4th respondent dated 22nd December, 1968 was not regarded as suffi- cient by the financial institutions which were approached by the appel- lant for financing the project since it merc! y stated that the State Government would be willing to consider the request for grant of exemption and did not convey any decision of the State Government that the exemption would be granted. The appellant, therefore, addressed a letter dated 22nd January, 1969 to the 4th n;spondent pointing out that the financial institutions were of the view that the letter of the 4th respondent dated 22nd December, 1968 "did not purport to commit the Government for the concession mentioned" and it was, thtrefore, necessary to obtain a formal order of exemption in terms of the application submitted by it.
The 4th respondent, how- ever, stated categorically in his letter in reply dated 23rd January, 1969 that the proposed Vanaspati Factory Of the appellant "will be • ~ • • ). _ , MOTILAL SUGAR MILLS v. u. P. (Bhagwati, J. ) G53 entitled to exemption from U. P. Sales Tax for a period of three years from the Jate of going into production and that this will apply to all Vanaspati sold during that period in Uttar Pradesh itself" and express- ed his surprise that "a letter from the Chief Secretary to the State Government stating this fact in clear and unambiguous words should not carry conviction with the financial institutions. " In view of this unequivocal assurance given by the 4th respondent, who not only occupied the post of Chief Secretary to the Government but was also Advisor to the Governor functioning under the President's rnle. the appellant went ahead with the setting up of the Vanaspati Factory.
The appellant by its letter dated 25th April, 1969 advised the 4th res- pondent that the U. P. Finance Corporation, being convinced by the clear and categorical assurance given by the 4th respondent that the Vanaspati Factory of the appellant would be entitled to exemption from sales tax for a period of three years from the date of commence- ment of production, had sanctioned financial assistance to the appellant and the appellant was going ahead with the project in full speed to enable it lo start production at the earliest.
The appellant made consi- derable progress in the setting up of the Vanaspati Factory but it seems that by the middle of May 1969 the State Government started having second thoughts on the question of exemption and a letter dated 16 May, 1969 was addressed by the 5th respondent who was Deputy Secretary to the Government in the Industries Department, intimating that a mcetmg has been called by the Chief Minister on 23rd May, 1969 "to discuss the question of giving concession in Sales Tax on Vanaspati products" and requesting the appellant to attend the meet- ing. The appellant immediately by its letter dated 19h May, 1969 pointed out to the 5th respondent that so far as the appellant was con- cerned, the State Government had already granted exemption from Sales Tax by the letter of the Chief Secretary dated 23rd January, 1969 but still, the appellant would be glad to send its representative to attend the meeting as desired by the 5th respondent.
The proposed meeting was, however, postponed and the appellant was intimated by the 5th respondent by its letter dated 23rd May, 1969 that the meeting would now be held on 3rd June, 1969. The appellant's representative attended the meeting on that day and reiterated that so far as the appellant was concerned, it had already been granted exemption from Sales Tax and the State Government stood committed to it. The appellant thereafter proceeded with the work of setting up the Vanaspati plant on the basis that in accordance with the assurance given by the A B c D E F G 4th respondent on behalf of the State Government, the appellant would· H be exempt from payment of Sales Tax for a period of three years from the date of c~mmencement of production. A B c D E F G H 654 SUPREME COURT REP OR TS [ 1979) 2 S. C. R.
The State Government however went back upon this assurance and a letter dated 20th January, 1970 was addressed by the 5th respondent intimating that the Government had taken a policy decision that new Vanaspati Units in the Slate which go into commercial production by 30th September, 1970 would be given partial concession in Sales Tax at the following rates for a period of three years : Frrst year of production 3t% Second year of production 3% T11ird year of production 2t% The appellant by its letter dated 25th Jm1e, 1970 pointed out to the Secretary to the Government that the appellant proposed to start com- mercial production of Vanaspati with effect from 1st July, 1970, and stated that, as notified in the letter dated 20th January, 1970, the appellant would be availing of the exemption granted by the State Government and would be ch~rging sales tax at the rate of 3! % instead df 7 % on the sales of Vanaspati manufactured by it for a period of one year commencing from 1st July, 1970.
The factory of the appellant thereafter went into production from 2nd July, 1970 and the appellant informed the Secretary to the Government about the same by its letlcr dated 3rd July, 1970. The State Government however once again changed its decision and on 12th August, 1970 a news item appeared in 'the Northern India Patrika statin,g that the Govern- ment had decided to rescind the earlier decision i. e. the decision set out in the letter dated 20th January, 1970, to allow concession in the rates of Sales Tax to new Vanaspati Units. The appellant thereupon filed a writ petition in the High Court of Allahabad asking for a writ directing the State Government to exempt the sales of Vanaspati manu- factured by the appellant from sales tax for a period of three years commencmg from 2nd July, 1970 by issuing a notification under sec- tion 4A and not to collect or charge sales tax from the appellant for the said period of three years.
It appears that in the writ petition as originally filed, there was no plea of promissory estoppel taken against the State Government and the writ petition was, therefore, amended by obtaining leave of the High Court with a view to introducing the plea of promissory estoppel. The appellant urged in the amended writ petition that the 4th respondent acting on behalf of the State Govern- ment had given an unequivocal assurance to the appellant that the appellant would be entitled to exemption from payment of sales tax for a period of three years from the ~ate of commencement of the production and this assurance was given by the 4th respondent intend- ing or knowing that it would be acted on by the appellant and in fact ' • ·~.
• ·~ ' ,/ • • • t that the doc- trine of promissory estoppel is limited in its operation to cases where the parties are already contractually bound· and one of the parties induces e the other to believe that the strict rights under the contract would not be enforced. But we do not think any such limitation can justifi1bly be introduced to curtail the width and amplitude of this doctrine. We fail L .. ' ~. ) r • ' r • MOTJLAL SUGAR MILLS v. u. P, (Bhagwati, !. ) 6 61 to see why it should be nece·ssary to the applicability of this doctrine that A there should be some. contractual relationship between the parties. In fact Donaldson, J. pointed out in Durham Fancy Goods Ltd. v. Michael Jackson (Fancy Goods) Ltd.
(') : "Lord Cairns in his enunciation of the principle assumed a pre-existing contractual relationship between the parties, but this does not seem to me to be essential, provided that there is a pre-existing legal relationship which could in certain circum- stances give rise to liabilities and penalties. " B But even this limitation suggested by Donaldson, J. that there should C be- a pm-existing legal relationship which could in certain circumstan- ces give rise to liabilities and penalties is not warranted and it is signifi- cant that the statement of the doctrine by Mr. Justice Denning in the High Trees' case does not contain any such limitation. The learned Judge has consistently refused to introduce any sueh limitation in the doctrine and while sitting in the Court of Appeal, he said in so many D terms, in Evenden v. Guildford City Association Football Club Ltd.
( 2 ) "Counsel for the appellant referred us, however, to the second edition of Spencer Bower's book on Estoppel by Repre- sentation[ (1966) pp. 340-342] by Sir Alexander Turner, a judge of the New Zealand ('_,-0urt of Appeal. He suggests the promissory estoppel is limited to cases where parties are already bound contractually one to the other. I ( • . • iii I• ,ii i ) • l • MOTILAL SUGAR MILLS v. u. P. {Bhagwati, J. ) 663 Combe(') that "Much as I am inclined to favour the principle stated in the High Trees' case, it is important that it should not be stretched too far, lest it should be endangered. That principle does not create new causes of action where none existed before. It only prevents a party from insisting upon his strict legal rights, when it would be unjust to allow him to enforce them, having regard to the dealings which have taken place between the parties ... " So also said Buckley, J. , in the more recent case of Beesly v. Hallwood Estates Ltd. (!
) "The doctrine may afford a defence against the enforcement or otherwise of enfor- ceable rights : it cannot create a cause of action. " It is, however, neces- sary to make it clear that though this doctrine has been called in various judgments and text books as promissory estoppel and it has been various- ly described as 'equitable estoppel', 'quasi ei;toppcl' and 'new cstoppel', it is not really based on the principle of estoppel, but it is a doctrine evolved by equity in order to prevent injustice where a promise is made by a person knowing that it would be acted on by the person to whom it is made and in fact it is so acted on and it is inequitable to allow the party making the promise to go back upon it. Lord Denning him- self observed in the High Trees' case', expressely making a distinction between ordinary estoppel and promissory estoppel that cases like the one before him wcre"-not cases of estoppel in the strict sense.
They are really promises, promises intended to be binding, intended to be acted upon and in fact acted upon". Jenkins, C. J. also pointed out in Municipal Corporation of Bombay v. Secrelary of State ( 2 ) that c1)3J2 IT~s: :fso:-92 L. ed. 10. B c D E F G H 676 SUPREME COURT REPORTS [1979] 2 S. C. R. A rity. - "Man must turn square corners when they deal with the Government", does not reflect a caJlvus outlook. It merely expresses the duty of all courts to observe the condi- tions defined by Congress for charging the public treasury. " B c D E F G H It will be seen that the Corporation was held entitled to repudiate its liability because the wheat crop insurance regulations prohibited insurance of reseeded wheat and the assurance given by the County Committee as the agent of the Corporation that the reseoded wheat was insurable being contrary to the wheat crop insurance regulations, could not be held binding on the Corporation.
It was not within the authority of the County Committee to give such assurance contrary to the wheat crop insurance regulations and hence no promissory estoppel against the Corporation could be founded upon it. This decision did not say that even if an assurance given by an agent is within the scope of his authority and is not prohibited by law, it could still not create promissory estoppel igainst the Government. But, it may be pointed out, even this limited holding has come in for considerable criticism at the hands of 1urists in the United States. See D~vis on Administrative Law (3rd d. ) pages 344-345. Refer- ring ! o the observation of the majority that "Men must turn square corners when they deal with the Government'', Maguire and 'Zimet have poetically responded by saying : "It is hard to see why the Government should not be held to a like standard of ractangular rectitude when dealing with its citizens.
" (Maguire and Zimet, Hobson's Choice and Similar Practices in Federnl Taxation, 48 Harv. L. Rev. 1287 at 1299). There ];as so far not been any decision of the Supreme Court of the United States taking the view that the doctrine of promissory estoppel cannot be invoked against the Government. The trend in the State courts, of late, has been strongly in favour of the applica- tion of the doctrine of promissory estoP,pel against the Government and public bodies "where interests of justice, morality and common fairnees dearly dictate that course. '' It is bGing increasingly felt that "that the Government ought to set a high stnndard in its dealings and relationships with citizens and the word of a duly authorised Gov- ernment agent, acting within the scope of his authority ought to be as good as a Government bond". Of course, as pointed out by the United States Court of Appeals, Third Circuit in Valsonavich v.
United States, (') the Government would not be estopped "by the acts of its offi~rs and agents who without authority enter into (I) 335 F. R. 2d. 96. • • ~ ~ I ' ~ '' HI '-"~ ~· J I I ... ". ,,~ ' ... , .. , I II • ~ • . , • ~ ~ --...... ~ • ... , • MOTJLAL SUGAR MILLS v. u. P, (Bhagwati, !. ) 677 ngreements to do what the law does not sanction or permit" and "those dealing with an agent of the Government must be held to have notice of limitations of his authority" as held in Merrilf s case. This is precisely what the House of Lords also held in England in Howell ~ F'a/mowh Boat Construction Co. Ltd.
(supra) where Lord Simonds stated the law to be : "The illegality of an act is the sam~ whether or not the actor has been misled by an assumption of authority on the part of a Government officer however high or low in the hieracliy-The question is whether the character of an act done in face of a statutory prohibition is affected by the fact that it has been induced by a m:sleading assumption of authority. In my opinion the answer is clearly no. " But if the acts or omissions of the officers ot the Government arc within the scope of their authority and are not otherwise imper- missible under the law, they "will work estoppel against the Govern- ment. " When we turn to the Indian law on the subject it is heartening to find that in India not only has the doctrine of promissory estoppel been adopted in its fullness but it has been recognized as affording a cause of action to the person to whom the promise is made.
The requirement of consideration has not been allawed to stand in the way of enforcement of such promise. The doctrine of promissory estoppel has also been applied against the Gov~nmcnt and the defence based on executive necessity ha. s been categorically negatived. It is remarkable that as far back as 1880, Jong before the doctrine of promissory estoppel was formulated by Denning, J. , in England, A Division Bench of two English Judges in the Calcutta High Court applied the doctrine of promissory estoppel and recognised a cause of action founded upon it in the Ganges Manufacturing Co. v. Suraj- mu/i and other('). The doctrine of promissory ~stoppel was also applied against the Government in a case subsequently decided by the Bombay High Court in Municipal Corparafon of Bombay v. Tlw Secretary of State. (') The facts of this last-mentioned case in Municipal Corporation of Bombay v. The Secretary of State (supra) are a little interesting and it would be profitable to refer to them.
The Government of Bombay, with a view to constructing an arterial road, requested the Municipal Commissioner to remove certain fish and vegetable ------- (1) (5 Calcutta 669). (2) (29 Born. 580) 5-40SCI/79 A B c D E F G H A B c D E F H 678 SUPREME COURT REPORTS [1979] 2 S. C. R. markets which obstructed the construction of the proposed road. The Municipai Commissioner replied that the markets were vested in the Corporation of Justices but that he was willing to vacate certain municipal stables which occupied a portion of the proposed site if the Government would rent other land mentioned in his ktter, to the Municipality at a nominal rent, the Municipality undertaking to bear the expenses of levelling the same and permit the Mun'. cipality to erect on such land "stables of wood and iron with nobble foundation to be ren1oved at six months' notice on other suitabl~ ground being provided by Government". The Government '. ' " .. , • \ ). • MOTILAL SUGAR MILLS v. u. P. (Bhagwati, J.
) 67 9 an equity W«s created in favour of the Municipality which entitle (1) [1952] S. C. R. 41. A ' B c D E F G H A B c Di E G H 680 SUPREME COURT REPORTS [1979] 2 S. C. R. bay City Land Revenue Act. On appeal by the Collector to this Court, the majority Judges held that the Government was not, under the circumstances of the case, entitled to as~t:ss land revenue on the land in question because the Municipal Corporation had taken possession of the land in terms of the Government resolution and had continued in such possession openly, uninterruptedly and of right for over seventy years and thereby acquued the limited title it bad been prescribing for during the period, that is to say, the right t°' hold the land in perpetuity free of rent. Chandrasekhra Aiyar, J. , agreed with the conclusion reached by the majority but rested his decision on the doctrine of promissory estoppel.
He pointed out that the Government could not be allowed to go back on the repi'~ sentation made by it and stressed the point in the form of an interro- gation by asking: "if we do so, would it not amount to our coun- tenancing the perpetration of what can be compcndiously described as legal ! rand which a court of equity must prevent being committed? " He observed that even if the resolution of the Govell\ment amounted merely to "the holding out of a promise that no rent will be charged in the future, the Government must be deemed in the circumstances of this case to have bound themselves to fulfil it. Whether it is the equity recognised in Ramsden's case (supra) or it is some other form of equity, is not of much iniportance. Courts must do justice by the promotion of honesty and good faith, as far as it lies in their power. "· This was of course the solitary view of Chandrasekhara Aiyer, J .
, but it was approved by this Court in no uncertain terms in Inda-Afghan Agencies case (supra). · Then we come to the celebrated decision of this Court in the- Indo-Afghan Agencies case (supra). It was in this case that the doctrine of promissory estoppel found its most eloquent exposition. We may briefly state the facts in order to appreciate the ratio of the- decision. Inda-Afghan Agencies Ltd. who were the respondents be- fore the Court, acting in reliance on the Export Promotion Scheme· issued by the Central Government, exported woollen goods to· Afghanistan and on the basis of their exports claimed to be entitled to obtain from the Textik Commissioner import entitlement certificate· for the foll F. O. B. value of the goods exported as provided in the scheme. The Scheme was not a statutory Scheme having the force- of Jaw but it provided that an export of woollen goods would be· entitled to import raw-material of the total amount equal to 100% of the F. O. B. value of his exports.
The respondents contei:ded that, relying on the promise contained in the Scheme, they had exported woollen goods to Afghanistan and were,. therefore, entitled to enforce the promise against the Government ! ind to obtain import entitlement • • • • • • MOTILAL SUGAR MILLS v. u. P. (Bhagwati, J. ) 681 certificate for the full F. O. B. V! llue of the goods exported on the principle of promissory estoppel. This contention was sought to be answered on behalf of the Government by pleading the doctrine of executive necessity and the argument of the Government based on this doctrine was that it is not competent for the Government to fetter its future executive action which must necessarily be determin- ed by the needs of the community when the question arises and no promise or undertaking can be held to be binding on the Govern- ment so as to hamper its freedom of executive action. Certain obser- vations oi Rowlatt, J. , in Rederiektiabolaget Amphitrite v.
The King (supra) were sought to be pressed into service on behalf of the Government in support of this argument. We have already referred to these observations earlier and we need not reproduce them over again. 1hcse observation undoubtedly supported the contention of the Government but it was pointed out by this Court that these obser- vations were disapproved by Denning J. , in Robertson v. Minister of Pensions (supra) where the learned Judge said that "the Crown can- not escape by praying in aid the doctrine of executive necessity, that is the doctrine that the Crown cannot bind itself so as to fetter its future executive action. -The defence of executive necessity is of limited scope. It only avails the Crown where there is an' implied term to that effect or that is the true meaning of the contract" and this statement of Denning, J. , was to be preferred as laying down the correct law of the sugject. Shah. I'. , speaking on behalf of the Court, observed at p.
376: "We are unable to accede to the contention that the executive necessity releases the Government from honour- ing its solemn promises relying on which citizens have acted to their detriment. Under our constitutional set-up no person may be deprived of his right or liberty except in due course of and by authority of law; of a member of the Executive seeks to deprive a citizen of his right or liberty otherwise than in exercise of power derived from the law--common or statute-the Courts will be competent to and indeed would be bound to, protect the rights of the aggrieved citizen. " The defence of executive necessity was thus clearly negatived by this Court and it was pointed out that it did not release the Gov- ernment from its obligation to honour the promis~ made by it, if the citizen, u~ting in reliance on the promise, had altered liis position. A B c D E F G The doctrine of promissory estoppel was !
ll such a case applicable H against the Government and it could not be defeated by invoking the defence of executive necessity. A B c D E F G H 682 SUPREME COURT REPORTS [1979] 2 S. C. R. It \\'as also contended on behalf of the Govcrr,mcnt that if the Government were held bound by every representation made by it regnr • MOTILAL SUGAR MILLS v. u. P. (Bhagwati, J. ) 693 in respect ofSales of vanaspati effected in Uttar Pradesh for a period of three years from the date of commencement of production. This repre. ~entation was made by way of clarification in view of the suggestion in the appellant's letter dated 22nd January, 1969 that the financial insti- tutions were not prepared to regard the earlier letter of the 4th respon- dent dated 22nd "December, 1968 as a definite commitment on the part of the Government to grant exemption from sales tax.
Now the letter dated 23rd January, 1969 clearly shows that the 4th respondent made ·thi's representation in his capacity as the Chief Secretary of the Govern- ment, and it was, therefore, a representation on behalf of the Govern- ment. It was faintly contended before us on behalf of the State that this representation was not binding on the Government, but we cannot coun- ·tenance this argument,, because, in the first place, the averment in the writ petition that the 4th respondent made this representation on behalf ·of the Government was not denied by the State in the affidavit in reply filed on its behalf, allil secondly, it is difficult to accept tbe contention that the 4th respondent, who was at the material time the Chief Secretary ·to the Government and also advisor to the Governor who was discharg- ;ng the functions of the Government during the President's Rule, had no authority to bind the Government.
We must, therefore, proceed on the basis that this representation made by the 4! h respondent was a represen- ·tation within the scope of bis authority and was binding on the Govern- ment. Now, there can be no doubt that this representation was made by the Government knowing or intending that it would be acted on by the appellant, because the awellant had made it clear that it was only on account of the exemption from sales tax promised by the Govern- mer:t that the appellant had decided to set up the factory for manufac- ture of vanaspati at Kanpur. The appellant, in fact, relying on this repre- . sentation of the Government, borrowed moneys from various financial institutions, purchased plant and machinery from M/s, De Smith (India) Pvt. Ltd. , Bombay and set up a vanaspati factory at Kanpur.
The facts necessary for invoking the doctrine of promissory cstoppel were, therefore, clearly present and the Government was bound to carry out the representation and exempt the appellant from sales tax in respect ·of sales of vanaspati effected by it in Uttar Pradesh for a period of three years from the date of commencement of the production . The State, however, contended that the doctrine oi promissory cstoppel had no application in the present cnse because the appellant ·did not suffer any detriment by acti'ng on the repr· et aside ! he judgment of the High Court and issue a writ, order :ir direction to '. he above effect against the respondents. The State will pay the costs of the appel- ! ant tllfou2hout. S. R. Appeal allowed. • ~ •
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