Promissory Estoppel

The doctrine of promissory estoppel, closely related to the doctrine of legitimate expectation,
states that the promises made by the government which are intended to be relied upon ought to
be kept. It is a rule of equity intended to give relief to people when they are not able to justify
their claims on the basis of law in the strict sense of the word, though they have suffered a civil
consequence as a result of a violation of their legitimate expectations.
The term 'legitimate expectation' was first used by Lord Denning in Schmidt v Secretary of State
for Home Affairs, though it was meant in the nature of a right. However, it was established in
Breen v Amalgamated Engineering Union wherein it was held that a trade union member has a
legitimate expectation that his election would be approved unless there are relevant reasons for
not doing so, and hence, the principles of natural justice are attracted.
In Union of India v Anglo Afghan Agencies, the government was authorised under the Imports
and Exports Act to issue a circular that an exporter would be entitled to import goods of value
equal to those exported. The company relied on this circular and exported goods worth 5 lakhs,
but received a license to import only 2 lakhs worth. The court held that the party had acted on
the basis of the government's promise and was now suffering a loss. Hence, it could invoke
promissory estoppel. In Century Spinning and Manufacturing Co. v Ulhasnagar Municipal
Corporation, the corporation announced that it would give concession to goods brought to their
market, and would not impose octroi for a certain no. of years. This promise was broken. The
issue dealt with the power of the corporation to withdraw from the policy of exemption from
octroi. Is the municipality bound by its promise of exemption? The court said that the promise
made by the munipality should be kept as it was permitted under the statute. It was done under a
policy to encourage the free flow of commodities to protect the interests of farmers.
However, promissory estoppel cannot be invoked if the promise was illegal, or beyond the
powers of the administrative authority to make. In K Ramdas Shenoy v Town Municipal
Corporation of Udupi, the municipal corporation allowed a building in a residential area to be
used as a cinema hall, contrary to the Town Planning Act. The owner of the hall claimed
promissory estoppel. The Court held that any promise made in violation of law cannot be
respected or given legal recognition. Similarly, in State of Kerala v Gwalior Rayon Silk
Manufacturing Co, the factory entered into agreement with the government that the latter would
provide the raw materials so that the factory could manufacture rayon for a period of 60 years.
Subsequently, the government changed its policy and acquired lands for the purpose of
agricultural reforms instead of supplying raw materials to the factory. So the company suffered a
huge loss. The SC said that when the constitution has conferred powers to pass laws relating to
land reforms, any agreement being violated by this law cannot be protected.
The case of Motilal Padampat Sugar Mills v State of UP evolved promissory estoppel on the
basis of morality and government's reliability. The government promised tax exemptions for 3

years, but withdrew it. The HC said that the government had all right to use its discretion as it
saw fit. But the SC said that it is important for the government to act morally and thus there is
promissory estoppel. However, in Jit Ram Shiva Kumar v State of Haryana, it was held that the
Motilal rule cannot be applied to any policy of the government made in exercise of discretion,
because discretion should not be fettered by policy.
Thus, in C Shankar Narayan v State of Kerala, the government made a promise that the age of
retirement would be fixed at 58 but later reduced it to 55. The SC said that the power of fixing
age is a service matter, which can be decided via power granted under the constitution. Thus, the
rule of promissory estoppel will not apply.
The rule of promissory estoppel is an equitable principle. However, this rule of equity is subject
to public interest. In MP Mathur v DTC, there existed a policy of providing housing facility to
retired employees of DTC. But the authority later changed this policy on grounds of public
interest. The court said that public interest is paramount and thus, promissory estoppel is not
applicable.