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The law of contract is a body of limiting principles which draws some boundaries, along which parties are allowed to enter into enforceable understandings, which are thereby protected by law. One such ubiquitous condition is the principle of ‘consideration’, mentioned in Section 2(d) of the Indian Contract Act, 1872, and is essential for the formation of a contract under Section 10 of the Act.
But this principle of consideration is losing its importance in contemporary times of ‘judicial activism’. It is on its way to transform into a supplementary evidentiary instrument due to the emergence of a new practice which is the ‘Doctrine of Promissory Estoppel’.
This doctrine has been expressed by a two-judge bench in M.P. Sugar Mills vs State of UP (A.I.R. 1979 S.C. 621) as:
“…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 affect 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 if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties, and this would be so irrespective whether there is any pre-existing relationship between the parties or not.”
This doctrine of ‘Promissory Estoppel’, also known as Equitable Estoppel, Quasi Estoppel and New Estoppel, is a common law doctrine and based on the principles of justice, equity, good consciousness and works as a ‘shield’ to prevent any form of injustice and inequitably.
The doctrine had been formerly used in many forms several times, but it was only in Central London Property Trust Ltd. v. High Trees House Ltd. (1947 KB 130) that it was invoked properly as a doctrine. In this case, the appellant i.e., High tress leased a block of flats from the defendant who at the time of war, agreed to reduce the rent of the flats till the war is over. After the war, the defendant asked the plaintiff to pay the normal rent for current as well as war times. The appellant approached the court where Justice Denning put forth the extent of promissory estoppel, which originally evolved in the case of Hughes v. Metropolitan Railway Company (1877 (2) AC 439). However, on the question of whether this doctrine can function as a cause of action or not, there is an unequivocal assertion by several judges that no matter how important the doctrine of promissory estoppel is, it can never do away with a traditional doctrine of consideration.
In India, the history of the doctrine can be traced back to as early as the judgment in Ganges Mfg Co. v. Sourajmul (1880 ILR 5 Cal 669) in which the Calcutta High Court ruled out that estoppel is not only a rule of evidence but a person can also be stopped in favour of the rule of equity. It was heralded in U.O.I v. Anglo-Afghan Agencies (1968 SCR (2) 366) but MP Sugar Mills v. State of UP (AIR 1979 SC 621) was the first case in which the Supreme Court explicitly defined the doctrine and its extent by putting forth the contention that though this new doctrine should not eclipse the traditional principle of consideration but just because of that reason, an equitable doctrine cannot be prevented from developing. Also, the court, in this case, gave prevalence to estoppel over sovereign immunity provided in Article 299 of the Indian Constitution and removed the distinction between sovereign and non-sovereign functions.
Subsequently, the 108th Report of the Law Commission of India endorsed this decision by recommending incorporating Section 25A in the Indian Contract Act, 1872 whose provisions would be as follows:
(a) A person, has, by words or conduct made to another person, an unequivocal promise which is intended to create legal relations or to affect a legal relationship to arise in the future; and
(b) Such a person knows or intends that the promise would be acted upon by the person whom the promise is made; and
(c) The promise, is, in fact so acted upon by the other person, by altering his position, then, notwithstanding, that the promise is without consideration, it shall be binding on the person making it, if, having regard to the dealings which have been taken place between the parties, it would be unjust not to hold him so bound.
Clause 2 of the Section provided that the section shall not apply when the doctrine if upheld would be unjust to the promisor and in case of promises by Government, would go against the law.
Though the impact of these advances was found more in concepts than in practical use, this judgment by Justice Bhagwati received major criticism in M/s Jit Ram Shiv Kumar v. State of Haryana (1980 AIR 1285) in which the principle of consideration was declared as integral to the law of contract and hence, it cannot be dealt away with and the doctrine was made inapplicable in the legislative functions of State. The final judgment regarding this came in the case of Union of India v. Godfrey Philips India Ltd ((1985) 4 SCC 369), where the Government was allowed protection only in the legislative domain or when the promise goes against any statute, which remains valid till this date.
The doctrine of promissory estoppel is a very contemporary development in a lugubrious, traditional, limiting system which needed to be modified. Some of its features include:
- The doctrine of promissory estoppel is special in the aspect that it falls neither under the category of estoppel as provided under Section 115 of Indian Evidence Act nor under the contract because it deals with future promises rather than past actions as is the case with estoppel and is an equitable remedy unlike the absolute remedial rights provided for the breach of contract respectively.
- There need not be any pre-existing legal relationship for the doctrine to come into effect.
- The doctrine can be applied only when a promise is made unequivocally to form a legal relationship between the parties, otherwise, the principle of consideration will hold sway.
- Additionally, the promisor must be aware, at the time of making the promise that his promise would be acted upon by the other party and the other party must have acted to its prejudice, thereby changing or altering his position, to invoke the doctrine.
- Government stands on the same footing as any private individual in its application, subject to the promise not being made against any statute or act or the public interest.
- There can be no estoppel against a minor except if he fraudulently induces the other person to believe that he is of the age.
- This doctrine is merely a ‘shield’ not a ‘sword’. Though it can be used as a course of action in India, provided there is no other way to obstruct injustice.
The doctrine of promissory estoppel, in its present form, is a result of distinguishing judgments in various landmark cases. Some of these are:
- Collector of Bombay v. Bombay Municipal Corporation (1952 SCR 43)
In this case, the appellant gave its land to the Government in consideration for some other land on lease and spent money on the construction of Crawford Land over the leased land. Seven decades later, the government asked the appellant to pay money as rent due to the appellant. The appellant approached the High Court to rule the assessment of rent as ultra vires. The Court held the promise by the government as binding as it was an inseverable part of the contract between the appellant and the Government, hence irreversible on any later date.
- Municipal Corporation of the City of Bombay v. Secretary of State (152 Ind Cas 947)
In this case, the Municipal Corporation, on the assurance of the Government, vacated a site having municipal stables and accepted another land from the Government for building stables, workshops etc. 24 years later, the government asked the appellant to vacate the site and pay due rent for the same. The plea by the appellant that this action goes against the principle of equity was upheld and the Government was restricted on its endeavour of acquiring the land.
- U.O.I v. Anglo-Afghan Agencies (1968 SCR (2) 366)
The Government of India provided for concessions in respect of import of raw materials to boost export to Afghanistan but subsequently, provided only part concession for which the Court estopped the Government and negative the government’s contention of official need, asking it to pay the full concession.
- Motilal Padampat Sugar Mills v. State of U.P (1979 SCR (2) 641)
Government of UP announced for tax exemption to new industrial units but later on went back on its words when the appellant moved forward with setting up a hydrogenation plant by taking up a heavy loan, relying on the promise. Supreme Court, in this case, stated that allowing promissory estoppel would generate a cause of action but disregarding it would lead to unjust suppression of an equitable principle. Hence, a cause of action was allowed by way of estoppel.
v. Combe v. Combe  2 KB 215)
In this case, the doctrine of consideration was given a firm stand and the doctrine of promissory estoppel was started as just a shield and not a sword i.e., not a means of a cause of action in England.
The doctrine of promissory estoppel, a contemporary development, is based on the exclusive principle of equity to prevent any kind of hindrance in the path of justice. This very fact makes the doctrine important with regards to the law as the law has to keep pace with society and any change in the society, asks for a consequent change in the law itself to keep it from falling into the abyss. Furthermore, the view of keeping the judges on the same footing as an individual is praiseworthy, in itself, to keep a check on the powers of the sovereign. The government works for the people and hence, is not allowed to work for the detriment of the commons.
The recommendations of the Law Commission sounds fairly reasonable and lays down a clear doctrine, keeping in mind the authority and needs of the government as well, though it has not received any place in the official body of law yet. Overall, the doctrine of promissory estoppel holds a significant position as a leading concept in our legal system.
The doctrine of promissory estoppel, which started its journey as a handmaid of a legal jurist, has become an integral part of the Corpus Juris. It negates the principle of consideration and gives preference to justice over rigid limiting laws. The principle of consideration is traditional in nature and in contemporary times, it becomes difficult to pertain to it. The doctrine of promissory estoppel is a relief and serves as a shield from any form of injustice.
Though the doctrine is more prevalent in concepts, for now, there is a fair chance of it becoming more popular in the coming times. With the growing extent of the doctrine of estoppel, the principle of consideration might soon become redundant with only evidentiary value as justice prevails all.
Author: Manvi Raj from University School of Law and Legal Studies, GGSIPU.
Editor: Harinie.S from Symbiosis Law School Hyderabad.