Difference between Promissory Estoppel and Legitimate Expectation: Explainer

Introduction

In a democratic country like India, the “rule of law” is supreme, and an elected Government is also bound by the same as any citizen. The Government is considered a trustee of public resources and is duty-bound to act in a fair and reasonable manner while exercising its power. Further, the Constitution of India¹, vide its Directive Principles of State Policy directs the Government to create a welfare State resulting in greater interaction between the Government and its people. It is in this context, a question arises as to whether a Government is bound to act in a fair manner with all its people and whether it can be forced to carry through on its promises?

In a poor country with a powerful executive like India, promises by the State must not be taken lightly and must be rigorously enforced. The tools to enforce such promises are: (i) legitimate expectation; and (ii) promissory estoppel. In this article, an attempt is made to highlight the differences between the two abovementioned tools and explain their meaning and scope.

Legitimate expectation

This principle can be related to Article 14 of the Constitution of India, which binds the State to maintain equality in its interactions with its citizens and to act fairly, reasonably and non-arbitrarily.² This obligation, in turn, raises the “legitimate expectation” of the citizens to be treated fairly by the State and its instrumentalities. The State has to make every decision after giving due consideration to the “legitimate expectation” of all the stakeholders who might be affected by the decision.³ However, it was made clear that the “legitimate expectation” may not be a distinct enforceable right, but it is only the non-consideration of it that makes the decision arbitrary and creates certain rights to approach the equitable courts.⁴ In Union of India v. P.K. Choudhary⁵, the Supreme Court held that only the “legitimate expectation” of a party cannot be a right in itself and that some violation of Article 14 has to be shown.

An example of the application of the doctrine of “legitimate expectation” can be found in Food Corporation of India v. Kamdhenu Cattle Feed Industries⁶, wherein, a tender was floated by the appellant and the respondent was admittedly the highest bidder. However, the appellant was not satisfied with the quoted price and called for further negotiations within the time-frame during which the offer remains open. In the negotiations, the appellant was able to secure a higher offer and the respondent refused to revise his rate despite being given an opportunity to do so. Consequently, the appellant rejected the bid of the respondent. Aggrieved by the same, the respondent filed a writ petition before the High Court alleging the action of the appellant to be arbitrary and violative of Article 14 of the Constitution of India. The matter reached the Supreme Court, which held that it is no doubt true that the appellant has the authority to reject all the bids/tenders but the same must be done with cogent reasons. The object of calling a tender is to secure the highest price for a particular commodity by giving all bidders an equal opportunity to take part in the bidding. Inadequacy of price, therefore, can be a valid ground to further negotiate with the bidders to obtain a higher price. In the present case, negotiations were made with all the bidders and a significantly higher price was secured. Further, the respondent (previous highest bidder) was given an opportunity to call for a higher price than that reached after negotiations. However, the respondent did not agree to raise his price.⁷

The Court determined that the appellant considered the respondent’s “legitimate expectation” and that the acceptance of the highest revised offer could not be faulted. Hence, the Court concluded that negotiating due to inadequacy of price within the stipulated time-frame and consequently, securing a significantly higher bid with also allowing the respondent to outbid the same shows that that “legitimate expectation” of the respondent was considered by the appellant and its decision was non-arbitrary, warranting no interference.

The doctrine of “legitimate expectation” has found application in various places. In Syed Khalid Rizvi v. Union of India⁸, it was held that the promotee officers have a “legitimate expectation” for consideration of promotion as IPS officers. Therefore, the Court directed that select list must be prepared every year.

Promissory estoppel

The proper application of the principle of “promissory estoppel” can be found in Central London Property Trust Ltd. v. High Trees House Ltd.⁹, wherein Lord Denning explained the scope and meaning. He explained it to be a principle of equity, and hence, back then it was even called as “equitable estoppel”. He observed that once a promise is made with an intention to make it binding and consequently, acted upon by the promisee, is binding on the promisor and he cannot be allowed to retract back from it. However, it is pertinent to note that in High Trees case¹⁰, Lord Denning relied on cases wherein two parties were contractually bound to each other and was also called upon to adjudicate wherein both parties had entered into a contract. Hence, subsequently, confusion arose as to whether some contractual elements or consideration are necessary to apply the doctrine of promissory estoppel? The confusion also increased as in Combe v. Combe¹¹, the English Court had held that doctrine of promissory estoppel requires the presence of consideration to be applied and cannot by itself form a cause of action.

The abovementioned questions were answered in the Indian context in Motilal PadampatSugar Mills Co. Ltd. v. State of U.P.¹² In this case, the Supreme Court speaking through Bhagwati, J. enunciated the principle in the following words:

8. … The true principle of promissory estoppel, therefore seems to be that 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.¹³

Hence, the Court held that if a promise is made by one party that may affect legal relations and the other party acts upon it, that is sufficient to invoke the principle of promissory estoppel. Hence, through a broad interpretation, the Supreme Court held that no element of consideration/contractual element or a legal relationship is required to invoke promissory estoppel. It is also clear that being a child of equity, the courts can refuse to apply promissory estoppel if it would be inequitable to do so. Further, it was also held that the “promissory estoppel” can be considered as a cause of action in itself to seek remedy in equitable courts.¹⁴

Difference between promissory estoppel and legitimate expectation

Conclusion

The morality in our society dictates that promises should be kept and especially when made by the Government as one promise may trigger thousands of actions by its citizens. The subsequent withdrawal from the promise by citizens or Government should not be taken lightly if the promisee has acted upon it. The recent case laws like State of Jharkhand v. Brahmputra Metallics Ltd.¹⁷ shows that our courts have rightly built upon Motilal case¹⁸ and have not diluted it. Further, it is also important that the all powerful executive is made to follow Article 14 of the Constitution so that the “legitimate expectation” of citizen is respected.