‘Promissory Estoppel’ and ‘Legitimate Expectations’ : Same wine in different bottles?

Well, they are not. Supreme Court says so in the very lucidly written – State of Jharkhand & Ors v. Brahmputra Mettalics Ltd. Ranchi & Another (2020 SCC OnLine SC 968) that all students of administrative and civil law should absolutely read.

The occasion to clarify this arose in a case where a company (let’s call it X) was aggrieved by the state’s decision not to grant exemption (from a part of the electricity duty), in breach of its own Industrial policy and notification.

The Industrial Policy not only promised this exemption but also held out that the follow up notification (effectuating the same) would be issued within a month.

But in a display of characteristic bureaucratic lethargy, the files didn’t move and the officers didn’t sign – in time, and X ended-up losing out on exemption for a part of the period. This caused not only heartache but also considerably lightened X’s pockets. “You may be the ‘State’ but a promise is a promise,” X argued and sued for the amount.

The State, as expected, argued that there was no vested right in having a follow-up notification in a given time period. It also sought to rely on its sovereign power to formulate economic policy, which, it argued, is not amenable to writ jurisdiction.

The Court didn’t agree. While ruling in favour of X, the Court elaborated on the confusion and the blurring of the distinction between promissory estoppel (PE) and legitimate expectation. (LE)

This is what the Court said:

“doctrine of legitimate expectation (LE) initially developed in the context of public law as an analogy to the doctrine of promissory estoppel (PE) found in private law. However, since then – English Law has distinguished between the promissory estoppel and legitimate expectations as distinct remedies under private law and public law”.

The Court further observed that

“Another difference between the doctrines of PE and LE under English Law is that the latter can constitute cause of action. The scope of the doctrine of legitimate expectation is wider than promissory estoppel because it not only takes into consideration a promise made by a public body but also official practice, as well. Further, under the doctrine of PE, there may be a requirement to show detriment suffered by a party due to the reliance placed on its promise. Although typically it is sufficient to show that the promisee has altered its position by placing reliance on the promise, the fact that no prejudice has been caused to the promisee may be relevant to hold that it would not be inequitable for the promisor to go back on their promise. However, no such requirement is present under the doctrine of LE.

The Court observed that Indian Law has usually conflated these two doctrines leading to much confusion. The Court advocates the liberal use of doctrine of LE for protection of the rights of citizens. States should be held to their promises. If they promise the moon they better serve the moon, and if they don’t – pay damages. Representations by public authorities, the court said, need to be held to scrupulous standards.

The Court then applies the above to the facts of the case and finds that the State’s policy document clearly spelt out :

i) nature of the incentives;

ii) period during which the incentives will be available; and

iii) the time limit within which follow up action would be taken by the State government through its departments for implementing the Industrial Policy, 2012.

It found that the State could not make out a case of greater public interest in not keeping its word and the detriment to public should it be held to its promise. (Please note that as per settled jurisprudence, the State can go back on its word if it conduces to a larger public interest. Lot of precedent on this.)

The State’s claim that grant of this benefit would amount to unjust enrichment was found to be bad given the fact that X had not charged its customers the extra duty and not passed on the burden to them. Had it done so, it would not have been able to claim exemption from the State as that would amount to a double benefit. (Picture a case of X charging its customers more and, at the same time, getting duty from the State) But, given that this was not the case here, the Court shot down the argument.

All in all, the judgment is a welcome one and, hopefully, would pave way for : i) greater accountability of the State; ii) honouring of legitimate expectations of citizens and businesses.

PS: As an aside, the traditional conception of doctrine of PE as constituting only a shield and not a sword has been debunked in India by the fantastic exposition of law by J.Bhagwati in Motilal Padampat Sugar Mills v. State of UP, 1979(2) SCC 409. The Court in this case also held that ‘detriment’ (one should lose something by acting on promise) and ‘consideration’ (a price for acting on the promise) are not necessary to make out a case of PE. PE can constitute a good cause of action regardless, and is not just a defensive shield. (Public interest, of course, being the most paramount consideration in such cases.) In doing so, Moti lal unshackled PE from a lot of historical dross and baggage of strict principles of estoppel. It is a great read for sure.