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Explainer : Doctrine Of Legitimate Expectation & Promissory Estoppel

Manu Sebastian
2 Dec 2020 3:07 PM GMT
Explainer : Doctrine Of Legitimate Expectation & Promissory Estoppel
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Denial of legitimate expectation can be a circumstance leading to arbitrariness and violation of Article 14 of the Constitution.

The judgment delivered by the Supreme Court on December 1 in the case State of Jharkhand and others v Brahmaputra Metallics Ltd Ranchi and others is a good reference to understand the concepts of legitimate expectation and promissory estoppel.The judgment pronounced by a bench comprising Justices D Y Chandrachud and Indu Malhotra also illustrates how the doctrine of legitimate expectation can...

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The judgment delivered by the Supreme Court on December 1 in the case State of Jharkhand and others v Brahmaputra Metallics Ltd Ranchi and others is a good reference to understand the concepts of legitimate expectation and promissory estoppel.

The judgment pronounced by a bench comprising Justices D Y Chandrachud and Indu Malhotra also illustrates how the doctrine of legitimate expectation can be used against arbitrary State action to claim relief.

Factual background

The factual background of the case is summarized here to help easy understanding of the legal principles. The respondent, Brahmaputra Metallics Ltd, was seeking to enforce a promise made by the Jharkhand Government in 2012 to grant exemption from the payment of 50 per cent of the electricity duty for a period of five years, for captive power plants.

Though this announcement was made in the Industrial Policy of 2012, it was given statutory effect only in 2015, that too only prospectively. The company sought enforcement of this policy with retrospective effect from 2012. Relying on the doctrines of promissory estoppel and legitimate expectation, it approached the High Court. The High Court allowed the company's writ petition. Challenging that, the State approached the Supreme Court.

Principles discussed in the judgment

Some major principles culled out from the judgment are mentioned below :

The judgment first discussed the evolution of the principle of promissory estoppel in the English law and the development of the doctrine of legitimate expectation as its offshoot.

Promissory estoppel developed as an equitable remedy to grant relief to a person who has acted on a promise even in the absence of a contractual relationship or consideration.

It can be used as a "shield" in a legal proceeding and not as a "sword". In other words, promissory estoppel will not by itself constitute a cause of action and was allowed to be used as a defence in a legal proceeding.

Doctrine of Legitimate Expectation

This doctrine developed in parallel to the doctrine of promissory estoppel.

The doctrine of legitimate expectations is founded on the principles of fairness in government dealings. It comes into play if a public body leads an individual to believe that they will be a recipient of a substantive benefit.

Under English Law, the doctrine of legitimate expectation initially developed in the context of public law as an analogy to the doctrine of promissory estoppel found in private law. However, since then, English Law has distinguished between the doctrines of promissory estoppel and legitimate expectation as distinct remedies under private law and public law, respectively.

Another difference between the doctrines of promissory estoppel and legitimate expectation under English Law is that the latter can constitute a cause of action. In other words, doctrine of legitimate expectation can be used as a 'sword'.

Doctrine of Legitimate Expectation based on principles of fairness and non-arbitrariness by the State

While the basis of the doctrine of promissory estoppel in private law is a promise made between two parties, the basis of the doctrine of legitimate expectation in public law is premised on the principles of fairness and non-arbitrariness surrounding the conduct of public authorities, explained the Court.

The judgment notes that under Indian Law, there is often a conflation between the doctrines of promissory estoppel and legitimate expectation.

The Court explained that the doctrine of legitimate expectation is linked to the protection of a citizen who acted after reposing trust in the State. This doctrine's aim is to hold the State to account.

The observations in paragraph 37 of the judgment illuminates this point :

"Representations by public authorities need to be held to scrupulous standards, since citizens continue to live their lives based on the trust they repose in the State. In the commercial world also, certainty and consistency are essential to planning the affairs of business. When public authorities fail to adhere to their representations without providing an adequate reason to the citizens for this failure, it violates the trust reposed by citizens in the State. The generation of a business friendly climate for investment and trade is conditioned by the faith which can be reposed in government to fulfil the expectations which it generates".

Need to prove detriment?

The judgment authored by Justice Chandrachud notes that in the 1989 decision in National Buildings Construction Corporation vs S. Raghunathan it was observed that claims based on legitimate expectation need to establish detriment caused to the claimant on account of acting on the representation by the State, as in the case of promissory estoppel.

However, there has been a deviation from this position over the years to situate the doctrine of legitimate expectations on a broader footing

The judgment explains that in a concurring opinion in Monnet Ispat and Energy Ltd. vs Union of India(2012) Justice H L Gokhale highlighted the different considerations that underlie the doctrines of promissory estoppel and legitimate expectation.

"For the application of the doctrine of promissory estoppel, there has to be a promise, based on which the promise has acted to its prejudice. In contrast, while applying the doctrine of legitimate expectation, the primary considerations are reasonableness and fairness of the State action", the judgment in Monnet observed.

Article 14 and Legitimate expectation

The judgment further refers to the decision in Union of India vs Lt. Col. P.K. Choudhary(2016) where it was held that the doctrine of legitimate expectation cannot be claimed as a right in itself, but can be used only when the denial of a legitimate expectation leads to the violation of Article 14 of the Constitution.

"Thus, the Court held that the doctrine of legitimate expectation cannot be claimed as a right in itself, but can be used only when the denial of a legitimate expectation leads to the violation of Article 14 of the Constitution", the SC observed, referring to P K Choudhary decision.

As regards the relationship between Article 14 and the doctrine of legitimate expectation, a three judge Bench in Food Corporation of India vs Kamdhenu Cattle Feed Industries(1992), said

"The mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirement of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness, a necessary concomitant of the rule of law".

"A decision taken in an arbitrary manner contradicts the principle of legitimate expectation", observed the decision in NOIDA Entrepreneurs Assn. vs NOIDA(2011).

Referring to these precedents, the bench observed :

"We can see that the doctrine of substantive legitimate expectation is one of the ways in which the guarantee of non-arbitrariness enshrined under Article 14 finds concrete expression"

Thus, denial of legitimate expectation can be a circumstance leading to arbitrariness and violation of Article 14 of the Constitution.

Applying principles to the facts

On facts, the Court noted that there was a clear representation made by the State to grant concessions in electricity duty from 2012 for five years. No justification bearing on reasons of policy or public interest was offered for the delay in implementing the policy only from 2015 prospectively.

The Court rejected the argument that State is not duty bound to disclose the reasons for delaying the implementation of the policy.

"The state must discard the colonial notion that it is a sovereign handing out doles at its will. Its policies give rise to legitimate expectations that the state will act according to what it puts forth in the public realm. In all its actions, the State is bound to act fairly, in a transparent manner. This is an elementary requirement of the guarantee against arbitrary state action which Article 14 of the Constitution adopts", the Court observed.

Deprivation of legitimate expectation justifiable only on public interest

Another key principle which flows out of the judgment is that deprivation of legitimate expectation is justifiable only on the ground of public interest. The Court noted that no reasons based on public interest was cited by the State in the instant case.

"A deprivation of the entitlement of private citizens and private business must be proportional to a requirement grounded in public interest", the Court observed.

"Since the State has offered no justification for the delay in issuance of the notification, or provided reasons for it being in public interest, we hold that such a course of action by the State is arbitrary and is violative of Article 14", the Court said.

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