Doctrine of Promissory Estoppel: Concept, Conditions and Recent Supreme Court Judgment

Recently, the Supreme Court observed that the doctrine of Promissory Estoppel cannot be invoked to claim benefits under a government policy that was never intended to benefit a particular industrial unit.

What is the Doctrine of Promissory Estoppel ?

• Promissory Estoppel is a legal doctrine which provides that if a person relies on a promise and acts upon it or makes decisions based on that promise, and subsequently suffers loss because the promise is not fulfilled, the promise may be enforced by law. 
• This doctrine prevents the promisor from going back on his promise. 
• Its purpose is to protect the interests of the promisee who has altered his position in reliance on the promise. 
• The doctrine is founded on the principles of equity, fairness, and good faith. 

When Does the Doctrine of Promissory Estoppel Apply ?

The doctrine applies in the following circumstances:

• A clear and definite promise has been made by the promisor. 
• The promisee has reasonably relied on that promise. 
• The promisee has acted upon the promise or changed his position based on it. 
• The failure to honour the promise has caused actual loss or detriment to the promisee. 
• Enforcement of the promise is necessary to ensure justice. 

Essential Conditions for the Application of Promissory Estoppel

For this doctrine to apply, the following elements must be present:

• A clear and unambiguous promise. 
• Reasonable reliance by the promisee. 
• Action taken based on such reliance. 
• Loss or detriment resulting from non-fulfilment of the promise. 
• Necessity to prevent injustice. 

Example–I

• Suppose a seller orally promises a customer that clothes can be returned if they do not fit properly. 
• The customer purchases the clothes relying on that promise. 
• Later, when the clothes do not fit, the customer seeks to return them. 
• In such a situation, the seller cannot refuse to accept the return because the customer made the purchase based on the seller’s promise. 

Example–II

• Assume a landlord tells a tenant, “If you renovate this shop at your own expense, I will not increase the rent for the next two years.” 
• Relying on this promise, the tenant spends ₹2 lakh on repairs and renovations. 
• However, after three months, the landlord issues a notice increasing the rent. 
• Under strict contractual principles, there may be no new written agreement between the parties. 
• Under the doctrine of Promissory Estoppel, the court may hold that since the tenant relied on the promise and incurred expenses, the landlord cannot subsequently go back on his assurance. 

Judicial Approach in India

The Supreme Court, in the case of Chhaganlal Keshavalal Mehta v. Patel Narandas Haribhai (1981), laid down important requirements for the application of Promissory Estoppel:

• The promise must be clear and unambiguous. 
• The promisee must have acted upon the promise through reasonable reliance. 
• The breach of the promise must have caused actual detriment or loss to the promisee. 

Recent Supreme Court Judgment

A Bench of the Supreme Court comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan recently observed that:

• The doctrine of Promissory Estoppel cannot be used to claim benefits under a government policy that was never intended to benefit the concerned class. 
• If a government policy does not specifically provide benefits to a particular industry or category, such benefits cannot be claimed merely on the basis of expectation or assumption. 
• The Court set aside a decision of the Himachal Pradesh High Court that had directed the State Government to extend concessional electricity tariff benefits. 

Significance

• The doctrine plays an important role in Administrative Law and Contract Law. 
• It holds both governments and private entities accountable for legitimate promises made by them. 
• It ensures that a person or institution does not unfairly cause loss to another party by withdrawing from a promise after inducing reliance upon it.