Promissory Estoppel Revisited: Comment on State of Jharkhand v. Brahmputra Metallics Ltd.

[Kaustav Saha is a Lecturer at Jindal Global Law School. His research interests include private law and legal theory.]

The doctrine of promissory estoppel has had a somewhat unprincipled evolution in Indian law, particularly in its relation to the doctrine of consideration and, more pertinently to this post, in its role and character as a public law remedy. In this context, the case of State of Jharkhand v. Brahmputra Metallics Ltd., Ranchi raises important questions regarding the doctrine’s applicability in a certain class of cases. While a substantial portion of the judgement attempts to articulate the foundations of the doctrine of legitimate expectation in contrast to promissory estoppel, this post focuses on why promissory estoppel is not appropriately applied to non-contractual cases involving the government or public bodies. 

Facts and Decision

The State of Jharkhand notified the Jharkhand Industrial Policy, 2012 (“Policy”), on 16 June 2012. Clause 32.10 of the Policy provided an exemption from the payment of 50% of the electricity duty for a period of five years for captive power plants established for self-consumption or captive use. Clause 38(b) of the Policy provided that notifications enforcing the terms of the Policy would be issued within one month by the Departments of the State Government. Such notifications were legally necessary to give effect to the exemption in terms of the Bihar Electricity Duty Act 1948. However, contrary to the Policy, no notification was issued until 8 January 2015—and when issued, it only operated prospectively. The effect of the delay in issuing the notification, and making its operation prospective, was to deprive the respondent of the exemption from electricity duty for a substantial period that it would have been entitled to, had the notification been issued within the stipulated period of one month.

In challenging the prospective nature of the notification before the Jharkhand High Court, the respondent placed reliance on the doctrine of promissory estoppel, contending that the grant of exemption with prospective effect was contrary to the representation of the State Government made in the Policy.  The High Court accepted this contention, noting that by virtue of the Policy, a promise was made by the State Government to grant the exemption for a period of five years. Despite clearly intending to grant the exemption, the State did so belatedly, effectively depriving the respondent and similarly placing industrial units of the full period of exemption. In these circumstances, it would be unconscionable for the government to not fulfil its promise. Particular reliance was placed on Manuelsons Hotels Private Limited v. State of Kerala, which, in turn, was based on the doctrine of promissory estoppel as articulated in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. While the Supreme Court upheld the High Court’s decision, it did so by relying on the doctrine of legitimate expectation as opposed to promissory estoppel, and the significance of the case lies in this choice.

On the Issue of Promissory Estoppel

Having noted that promissory estoppel developed in English common law as an equitable remedy, and its limited nature as a defence instead of a separate cause of action, the Court referred to the observations in Motilal Padampat, which gave a more expansive interpretation to the doctrine in India. The Court then went on to discuss the distinct nature of the doctrines of promissory estoppel and legitimate expectation. It observed that the doctrine of legitimate expectation evolved as a distinct public law remedy in English law, with a wider scope of application as compared to the doctrine of promissory estoppel. In particular, legitimate expectation constituted a cause of action, which did not require a promise but encompassed official practice. The claimant did not have to show that detriment was suffered in reliance upon the official representation.

Perhaps the most pertinent observation in distinguishing the two doctrines is that “while the basis of the doctrine of promissory estoppel in private law is a promise made between two parties, the basis of the doctrine of legitimate expectation in public law is premised on the principles of fairness and non-arbitrariness surrounding the conduct of public authorities”. This distinction assumes particular importance given that in most similar cases between the government and a private party, it is difficult to find a “promise” made by the government, without artificially stretching the meaning of that word. The facts of Motilal Padampat itself illustrate this. The case concerned a claim for exemption of sales tax on the appellant’s industrial unit, pursuant to a series of communications between the appellant and the government of Uttar Pradesh, through which the government assured the appellant that it would be entitled to the exemption. Contrary to its initial assurances, the government reneged on its representations, which the appellant challenged. It is submitted that even a series of communications addressed by the government to a specific party assuring that a benefit will be conferred cannot be construed as a “promise” in the natural sense of the term. This is primarily because it is difficult to conceive of the government intending to enter into a contractual obligation to exercise its statutory powers in a certain manner.

Moreover, promissory estoppel, historically a contract law doctrine, ordinarily operates to ensure the exercise of a contractual right by supplementing the lack of consideration which would otherwise be an essential element of a contractual claim. However, it would be artificial to construe an entitlement to exemption from taxes or duties as a contractual right. The artificiality of this construction is even more starkly illustrated in the facts of Brahmputra Metallics, where the challenge is based on the issuance of a notification and no specific written communication to the party raising the challenge. Interestingly, in Jit Ram Shiv Kumar v. State of Haryana, which was decided shortly after Motilal Padampat, the Court disapproved of its earlier observations in Motilal Padampat regarding the need for an activist approach to the question of promissory estoppel. Specifically, it observed that regardless of how expansive an approach courts in the USA have taken to the doctrine of consideration (a comparative analysis that played a significant role in Bhagwati J’s analysis in Motilal Padampat), Section 10 of the Indian Contract Act must be read strictly when it makes consideration an essential element of a contract. This indicates that some authority exists for not unduly expanding the scope of the doctrine of promissory estoppel in the context of the government and public bodies.

On the other hand, it is unclear why concepts such as unconscionability, unfairness, or arbitrariness should be used to expand the scope of promissory estoppel when, as the Court rightly notes, the doctrine of legitimate expectation directly addresses the issue of public bodies acting contrary to their representations. In this regard, the Court’s detailed articulation of legitimate expectation as a more principled basis to challenge arbitrary government action is a welcome departure and hopefully signals the beginning of the end of stretching promissory estoppel beyond its natural contours.

– Kaustav Saha

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