APRIL 05, 2024

By Ms Sonu Bhatnagar, Sr. Standing Counsel, CBIC, Delhi High Court

DOCTRINE of Legitimate Expectation and Promissory Estoppel have their genesis in the field of administrative law. Doctrine of legitimate expectation is a concept fashioned by courts for judicial review of administrative action and the said doctrine has been judicially recognized by Supreme Court of India. The root of principle of legitimate expectation is the constitutional principle of rule of law, which requires regularity, predictability and certainty in government dealings with the public. The Government and its departments, in administering the affairs of the country, are expected to honour their statements of policy or intention and treat the citizens with full personal consideration without any iota of abuse of discretion. The policy statements cannot be disregarded unfairly or applied selectively. Unfairness in the form of unreasonableness is akin to violation of natural justice. It is in this context that the doctrine of legitimate expectation has evolved, which has today become a source of substantive as well as procedural right. While applying the doctrine of legitimate expectation, primary considerations are reasonableness and fairness of State action. However, a claim based merely on legitimate expectation without anything more cannot ipso facto give a right. For legal purposes, expectation is not same as anticipation. Legitimacy of an expectation can be inferred only if it is founded on the sanction of law. Legitimate expectation even when made out does not always entitle the expectant to a relief. Public interest, change in policy, conduct of the expectant or any other valid or bonafide reasons given by the decision maker, maybe sufficient to negate the legitimate expectation.¹

In Union of India vs. Hindustan Development Corporation ², it was observed that decision taken by the authority must be found to be arbitrary, unreasonable and not taken in public interest, for the doctrine of legitimate expectation to be applied. In a given case whether there are such facts and circumstances giving rise to legitimate expectation, would primarily be a question of fact. As was observed in Punjab Communications Ltd. vs. Union of India ³ , the change in policy can defeat a substantive legitimate expectation if it can be justified on 'Wednesbury reasonableness'. The decision maker has the choice in balancing of the pros and cons relevant to the change in policy. It is, therefore, clear that the choice of policy is for the decision maker and not the court. The legitimate substantive expectation merely permits the court to find out if the change of policy which is the cause for defeating the legitimate expectation is irrational or perverse or one which no reasonable person could have made. In P.T.R. Exports Madras Pvt. Ltd. vs. Union of India ⁴ the Court has held that Government or legislature has power to evolve its new fiscal policy in public interest which include power to withdraw the old policy and court would not bind the government to its previous policy by invoking the doctrine of legitimate expectation unless the change in policy is vitiated by malafide or abuse of power which the appellant must plead and prove.

Similar to the doctrine of substantive legitimate expectation is the doctrine of promissory estoppel. Doctrine of promissory estoppel is neither in the realm of contract nor in the realm of estoppel, it represents a principle evolved by equity to avoid injustice. The doctrine of promissory estoppel is well established doctrine in the administrative laws of India. Justice G.P. Singh in his book on Principles of Statutory Interpretations ⁵ has stated "If the government or an authority or a person who is competent to act on its behalf makes a promise or representation to a person knowing or intending that it would be acted upon by the person and the person, in fact, acts upon the promise or representation and alters his position, the government will be bound by the promise or representation which would be enforceable against it and it would not be open to the government to regal out on the plea that there was no consideration for the promise or that some statutory order or notification was required to give the representation a binding effect which was not done. The doctrine of promissory estoppel is an equitable doctrine, therefore, if there is an overriding public interest that the government should not be held by the promise or representation, the doctrine will not apply." The foundation of the said doctrine in the Indian context was laid in the decision of Justice Chandrasekhara Aiyar in the case of Collector of Bombay vs. Municipal Corporation of City of Bombay ⁶ and was built upon in the case of Union of India vs. Anglo-Afghan agencies Ltd ⁷ wherein, the Supreme Court held that "Under our jurisprudence the government is not exempt from liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it, nor claim to be the judge of its own obligation to the citizen on an ex parte appraisement of the circumstances in which the obligation has arisen." The Constitutional Bench in the case of M. Ramanatha Pillai vs State of Kerela ⁸, approved the view in American jurisprudence that doctrine of promissory estoppel will not be applied against the State in its governmental, public or sovereign capacity, except when it is necessary to prevent fraud or manifest injustice.

The doctrine of promissory estoppel was fully outlined and structured along with its limitations and preconditions in the landmark decision of Motilal Padampat Sugar Mills vs. State of U.P. ⁹ wherein after analyzing the United Kingdom and the United States jurisprudence, the Court held that the government committed to the rule of law cannot claim immunity from the doctrine of promissory estoppel. It cannot say that it is under no obligation to act in a manner that is fair and just or that it is not bound by considerations of honesty and good faith. The Court held that "where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution". The Court further held that as the doctrine of promissory estoppel is an equitable doctrine, it must yield when equity so requires. It was also inter alia held that doctrine of promissory estoppel cannot be availed to permit or condone a breach of law or an act prohibited by law. If the statute does not contain a provision enabling the government to grant exemption, it would not be possible to enforce the representation against the government, because the government cannot be compelled to act contrary to the statute. Whatever be the nature of the function which the government is discharging, the government is subject to rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the government can be compelled to carry out the promise made by it. However, a contrary view was taken in the case of Jit Ram Shiv Kumar vs. State of Haryana ¹⁰ where the Court held that plea of estoppel is not available against the State. The case of Jit Ram (supra) was disapproved by a larger bench of Supreme Court in the case of Union of India vs. Godfrey Philips India Ltd.¹¹

In another landmark case of State of Punjab vs. Nestle India Limited ¹², argued by Mr. F.S. Nariman and Mr. Anil B. Divan, the Supreme Court while dealing with demand of Purchase Tax on milk, analyzed the earlier cases including contrary judgments and held the doctrine of promissory estoppel applicable against the State Government. In this case, since the government was unable to establish any overriding public interest which would make it inequitable to enforce the estoppel against them, the government was held by its representation and demands for purchase tax were quashed. In MRF Ltd., Kottayam vs. Assistant Commissioner Sales Tax ¹³, the Court applied the principle of promissory estoppel against a statutory notification and held that a plea of promissory estoppel must be determined in the facts and circumstances of each case where it is raised. The doctrine of promissory estoppel can by itself be the basis of action, even retrospective amendments made by statutory rules can be hit by promissory estoppel. However, mere issuance of exemption notification would not create any promissory estoppel because such an exemption by its very nature is suspectable to being revoked or modified or subject to other conditions, therefore, an exemption notification can be revoked without falling foul of principle of promissory estoppel.¹⁴

In the case of Shrijee Sales Corporation vs. Union of India ¹⁵ the Court while dealing with the issue of retrospective withdrawal of time bound exemption notification, again reiterated that principle of promissory estoppel is applicable against the government. The determination of applicability of promissory estoppel against government hinges upon balance of equity or public interest. In case there is a supervening public equity, the government would be allowed to change its stand, it would be able to withdraw from representation made by it which induced persons to take certain steps which may have gone adverse to the interest of such persons on account of such withdrawal. The said case recognized and accepted public interest as the superior equity which can override individual equity. However, it has been held that court must satisfy itself that such a public interest exists. It is for the court to determine whether the government should be held exempt from the liability of 'promise' or 'representation'. State cannot be prevented from withdrawing an incentive granted through earlier notifications, when the change in policy is in larger public interest. In case of Hero Motocorp Limited vs. Union of India ¹⁶, Supreme Court while dealing with withdrawal of area-based exemption notification on migration to GST, held, that plea of promissory estoppel is not available against the legislature in the exercise of its legislative function. Equally plea of promissory estoppel cannot be invoked for preventing the government from discharging its function under the law. There cannot be any hard and fast rule for applying the doctrine of promissory estoppel but the doctrine has to evolve and expand itself so as to do justice between the parties and ensure equities between the parties.

While the equitable principle of promissory estoppel requires a valid promise, based on which the promisee has changed its position, the principle of legitimate expectation does not take into account such considerations. Instead, it is rooted in fundamental ideas like reasonableness, fairness and non-arbitrariness.¹⁷

The doctrines of legitimate expectation and promissory estoppel as per the established Indian jurisprudence are applicable against the State where it is necessary to prevent fraud or manifest injustice. However, the government or public authority under the said doctrines cannot be asked to do an act prohibited in law or to carry out a promise or representation which is contrary to law or which was outside the authority or the power of the officer of the government to make. No promise can be enforced which is statutorily prohibited or against public policy. Doctrine of promissory estoppel and legitimate expectations cannot come in the way of larger public interest which prevails over private interest. The courts are circumspect while interfering in matters of policy which are essentially within the domain of the executive. The wisdom or unwisdom, and the soundness of reason or their sufficiency cannot be proper subject matter of judicial review. Judicial scrutiny can extend to consideration of legality and bonafides of the decision.

[The views expressed are strictly personal.]

¹ (1998) 7 SCC 6, National Buildings Construction Corporation vs. S. Raghunathan; (2008) 10 SCC 1, Official Liquidator vs. Dayanand; (2006) 8 SCC 381, Ram Pravesh Singh vs. State of Bihar; (2003) 5 SCC 437, Union of India vs. International Trading Co.

² (1993) 3 SCC 499, Union of India Vs. Hindustan Development Corporation

³ (1999) 4 SCC 727, Punjab Communications Ltd. Vs. Union of India

⁴ (1996) 5 SCC 268, PTR Exports Madras Pvt. Ltd. Vs. Union of India

⁵ Justice G.P. Singh, Principles of Statutory Interpretations (14th Edition)

⁶ (1951) SCC 987, Collector of Bombay vs. Municipal Corporation of the City of Bombay

⁷ (1968) 2 SCR 366, Union of India vs. Indo-Afghan Agencies Ltd.

⁸ (1973) 2 SCC 650, M. Ramanatha Pillai vs. State of Kerala = 2002-TIOL-2789-SC-MISC-CB

⁹ (1979) 2 SCC 409, Motilal Padampat Sugar Mills vs. State of U.P. = 2002-TIOL-1041-SC-CT

¹⁰ (1981) 1 SCC 11, Jit Ram Shiv Kumar vs. State of Haryana = 2002-TIOL-2788-SC-MISC-CB

¹¹ (1985) 4 SCC 369, Union of India vs. Godfrey Philips India Ltd.

¹² (2004) 6 SCC 465, State of Punjab vs. Nestle India Ltd. = 2004-TIOL-55-SC-CT

¹³ (2006) 8 SCC 702, MRF Ltd. Kottayam vs. Assistant Commissioner (Assessment) Sales Tax = 2006-TIOL-124-SC-CT

¹⁴ (1995) 1 SCC 274, Kasinka Trading vs. Union of India = 2002-TIOL-583-SC-CUS; (2020) 20 SCC 57, Union of India vs. VVF Ltd. = 2020-TIOL-83-SC-CX-LB; 2023 SCC OnLine SC 622, Union of India vs. ABP Pvt. Ltd. = 2023-TIOL-62-SC-CUS; (2006) 3 SCC 620, Mahabir Vegetable Oils (p) Ltd. vs. State of Haryana = 2006-TIOL-23-SC-CT; (2005) 7 SCC 725, R.C. Tobacco Ltd. vs. Union of India = 2005-TIOL-115-SC-CX

¹⁵ (1997) 3 SCC 398, Shrijee Sales Corporation vs. Union of India

¹⁶ (2023) 1 SCC 386, Hero Motocorp Limted vs. Union of India

¹⁷ (2022) 6 SCC 626, Augustan Textile Colours Limited vs. Director of Industries; (2023) 5 SCC 688, A. U. Tayyaba vs. Union of India; Monnet Ispat & Energy Ltd. Vs. Union of India (2012) 11 SCC 1.