Promissory estoppel, legitimate expectation and proportionality

1. Promissory estoppel

The doctrine is equitable. Where one party, by words or conduct, makes a clear and unequivocal promise intended to create legal relations, knowing that the other will act on it, and the other does act on it and alters his position, the promisor is bound, even without consideration. It differs from estoppel under section 121 of the Bharatiya Sakshya Adhiniyam, 2023 (formerly section 115 of the Indian Evidence Act, 1872), which concerns a representation of existing fact; promissory estoppel concerns a promise about the future. In England it is traced to the High Trees case (King's Bench, 1946).

Against the Government. In Union of India v. Indo-Afghan Agencies Ltd., 1967 INSC 267, AIR 1968 SC 718, an export promotion scheme promised import entitlements to exporters of woollen goods to Afghanistan. Having exported on that basis, the respondents were given less than the scheme promised. The Court held the Government bound: it is not exempt from equity merely because it is the Government, and the plea of executive necessity is no answer.

The leading case is Motilal Padampat Sugar Mills Co. v. State of U.P., 1978 INSC 256, (1979) 2 SCC 409. The State announced that new industrial units would be exempt from sales tax for three years. Relying on assurances given in correspondence, the company set up a vanaspati factory. The State later decided to withdraw the exemption. Bhagwati J. held:

• the Government is bound by promissory estoppel where a promise is made and acted on, even if the promise is not in the form required by Article 299, because the doctrine is not based on contract;
• the Government can escape only by showing that it would be inequitable to hold it to the promise, because of an overriding public interest, and it must establish that interest on material, not merely assert it;
• there can be no estoppel against a statute or to compel the Government to do something it has no power to do.

The limits. In Kasinka Trading v. Union of India, 1994 INSC 463, (1995) 1 SCC 274, a customs duty exemption granted by notification was withdrawn before the period stated. The claim of estoppel failed: an exemption under section 25 of the Customs Act, 1962 is granted in the public interest and may be withdrawn in the public interest, and such a notification is not a promise on which estoppel can be founded. In State of Punjab v. Nestle India Ltd., 2004 INSC 341, (2004) 6 SCC 465, the Finance Minister had announced in the budget speech that purchase tax on milk would be abolished, and the decision was conveyed to dealers, but no notification was issued and the tax was demanded. The Court applied Motilal Padampat and held the State bound: it had offered no public interest justification for going back on its announcement.

2. Problem

The Government announced that new industrial units would be exempt from tax for three years. Acting on the assurance, X set up a factory. The Government later withdrew the benefit. X wants to approach the court. Advise him. (June 2025)

Issue. Whether the Government is bound by its announcement under the doctrine of promissory estoppel, or of legitimate expectation.

Law. Motilal Padampat: a clear promise by the Government, intended to be acted upon and in fact acted upon to the promisee's detriment, binds the Government unless it shows an overriding public interest. No estoppel lies against a statute (Motilal Padampat), and a statutory exemption granted in the public interest may be withdrawn in the public interest (Kasinka). Nestle: the announcement need not be in statutory form.

Application. The announcement was clear and addressed to those who would set up new units; X altered his position by investing in a factory. Unless the Government shows, on material, an overriding public interest such as a fiscal emergency, it cannot withdraw the exemption for units that relied on it. If the exemption was in a statutory notification and the statute permits withdrawal, the Government must still justify withdrawal before the period ended, and act fairly towards those who relied on it.

Conclusion. X should file a writ petition under Article 226 for a mandamus directing the Government to honour the exemption for the full three years, relying on promissory estoppel and, in the alternative, legitimate expectation and Article 14. He is likely to succeed unless the Government establishes an overriding public interest.

3. Legitimate expectation

A person may have a legitimate expectation of being treated in a certain way by a public authority even though he has no legal right to it, because of an express promise or a regular past practice. In England the doctrine was explained by Lord Diplock in Council of Civil Service Unions v. Minister for the Civil Service (the GCHQ case, House of Lords, 1984): GCHQ staff had a legitimate expectation of consultation before their right to belong to trade unions was taken away, though national security in the end justified the decision.

• Navjyoti Co-op. Group Housing Society v. Union of India, 1992 INSC 255, (1992) 4 SCC 477. Land had been allotted to housing societies in order of their registration. The authority changed to a new criterion without notice. The Court held that the societies had a legitimate expectation that the existing practice would be followed, and that a change could be made only after giving them an opportunity to be heard.
• Food Corporation of India v. Kamdhenu Cattle Feed Industries, 1992 INSC 301, (1993) 1 SCC 71. The highest tenderer claimed a right to the contract. The Court held that legitimate expectation is not an independent right enforceable in itself; it is part of the requirement of non-arbitrariness under Article 14. Rejection of the highest bid for a fair reason after negotiation did not violate it.
• Union of India v. Hindustan Development Corporation, 1993 INSC 154, (1993) 3 SCC 499. The doctrine is chiefly procedural: it entitles a person to a hearing or an explanation before the expectation is defeated, and it yields to an overriding public interest or a change of policy made in good faith.
• State of Jharkhand v. Brahmputra Metallics Ltd., 2020 INSC 667. The State promised a rebate in electricity duty under its industrial policy but delayed the notification and then granted it only prospectively. The Court held the State bound to give the rebate from the date of the policy, treating legitimate expectation as an aspect of Article 14 and of fairness in government action.

4. Proportionality

Proportionality asks whether the means used by the administration are appropriate to the aim, and whether the action goes further than necessary. It is applied in four steps: a legitimate aim; a rational connection between the measure and the aim; necessity, meaning no less restrictive measure would do; and a fair balance between the measure's benefit and its cost to the individual.

It is a stricter standard than Wednesbury unreasonableness, which asks only whether the decision is one no reasonable authority could reach.

• Ranjit Thakur v. Union of India, 1987 INSC 285, (1987) 4 SCC 611. Besides the bias point (see the Rule against bias note), the sentence of rigorous imprisonment and dismissal for refusing food in custody was held so disproportionate to the offence as to be in itself evidence of bias, and quashed. The Court treated proportionality as part of the concept of judicial review.
• Om Kumar v. Union of India, 2000 INSC 532, (2001) 2 SCC 386. The Court explained that where administrative action restricts a fundamental right under Article 19 or 21, the court applies proportionality as a primary reviewer; where action is challenged as arbitrary under Article 14, such as the quantum of punishment in service law, the court acts as a secondary reviewer applying Wednesbury, and if it finds the punishment shockingly disproportionate it will usually send the matter back to the authority.
• Coimbatore District Central Co-operative Bank v. Employees Association, 2007 INSC 448, (2007) 4 SCC 669, restated the doctrine of proportionality and its application to the review of punishment imposed in disciplinary proceedings.
• The four-step test was adopted for fundamental rights by the Constitution Bench in Modern Dental College and Research Centre v. State of Madhya Pradesh (2016), (2016) 7 SCC 353, and applied in K.S. Puttaswamy v. Union of India, 2017 INSC 801, (2017) 10 SCC 1, to any invasion of privacy.

How this is examined

The tax-exemption problem (June 2025) is the most frequent problem in Unit IV and is answered from Motilal Padampat. Six-mark notes on promissory estoppel, legitimate expectation and proportionality are set regularly. For each note: definition, origin (English case), the leading Indian cases, and the limits (public interest for the first two; primary and secondary review for proportionality).