Page 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2480 OF 2008

M/S MANUELSONS HOTELS  PRIVATE LIMITED                  ....APPELLANT  

VERSUS

STATE OF KERALA & OTHERS        ….RESPONDENTS

J U D G M E N T  

R.F. Nariman, J. 1. On  11th July,  1986,  the  State  Government,  by  a

Government  Order (G.O.),  accepted the recommendations of

the Government of India suggesting that tourism be declared an

“industry”.   The fallout of this G.O. was that this would enable

those  engaged  in  tourism  promotional  activities  to  become

automatically eligible for concessions / incentives as applicable

to the industrial sector from time to time.  Apart from various

1

Page 2

other concessions that were granted, exemption from Building

Tax  levied  by  the  Revenue  Department  was  one  such

concession.  It was stated in the said G.O. that action to amend

the Kerala Building Tax Act, 1975 will be taken separately.  The

G.O. went on to state that persons eligible for such concessions

will, among others, be classified hotels i.e. from 1 to 5 stars. A

Committee was set up consisting of three government officers

to oversee the aforesaid scheme.   

2. Vide a letter dated 25th March, 1987, the Government of

India approved the hotel project of the appellants, being a 55

double  room 3  star  hotel  project  to  be  set  up in  the  city  of

Calicut.  

3. Pursuant to the aforesaid G.O. dated 11th July, 1986 and

the aforesaid approval, the appellants began constructing the

hotel building, which was completed in the year 1991.  Notice

for filing returns under the Kerala Buildings Tax Act was issued

to  the  appellants  on  5th September,  1988.   The  appellants

replied that they relied upon the G.O. dated 11th July, 1986 and

stated that they were under no obligation to furnish any return

2

Page 3

under  the  said  Act  as  they  were  exempt  from  payment  of

building tax.  

4. In pursuance of the said G.O. dated 11th July, 1986, the

Kerala Buildings Tax Amendment Act of 1990 was passed with

effect from 6th November, 1990.   The Objects and Reasons for

said amendment act read as follows:

“STATEMENT OF OBJECTS AND REASONS   

The Government has declared tourism as an industry with a view to develop tourism in the State and  announce  various  concessions  to  tourism related activities as per GO (P) 224/86/GAD dated 11.07.1986.  One  of  the  concessions  declared  by Government  was  to  exempt  the  buildings constructed  in  relation  to  tourism  from  the provisions of the Kerala Building Tax Act, 1975.  

For  achieving  the  above  said  purpose  the Kerala Building Tax Act, 1975 has to be amended suitably  and  the  Government  have  decided  to amend  the  Kerala  Building  Tax  Act  1975  for  the purpose.  

As the above proposal had to be given effect to immediately and as the Legislative assembly was not in session the Kerala Building Tax (Amendment) Ordinance,  1990  (Ordinance  No.8  of  1990)  was promulgated by the Governor of Kerala on the 2nd day of November, 1990, and published in the Kerala Gazette Extraordinary dated 6th day of November, 1990.  

The Bill  seeks to replace the said ordinance by an Act of Legislature.  

3

Page 4

         (Published in KG Ex No.1159 dt 7.12.1990)”  

5. In pursuance of the said object, Section 3A was added,

which reads as under:

“3A.(1)  Power  to  make  exemption:-  The Government may, if they consider it necessary so to do for the promotion of tourism, by notification in the Gazette  make  exemption  from  the  payment  of building tax under the Act in respect of any building or buildings the construction of which is completed during such period and in such areas as may be specified  in  the  notification  and  having  such specifications as may be prescribed in the rules in this behalf.”

Also, to effectuate the said exemption provision, Rule 14A

was added in the Kerala Buildings Tax Rules, 1974 as under:  

“Rule 14A  

(1)  The exemption contemplated in  Section 3A of the  Kerala  Building  Tax  Act,  1975  shall  be applicable  to  the  buildings  having  the  following specifications  in  such  Tourism  sector  and  the construction  of  which  is  completed  during  such period as may be specified in the notifications:-  

(i) Classified hotels (1 to 5 stars)  

(ii) Motels(which conform to the specification of the Department  of  Tourism  of  Kerala/  Central Government)  

(iii)  Restaurants  (approved  by  Classification committee of the Government of India)  

4

Page 5

(iv)   Amusement  parks  and  research  centres approved by the Government.  

(v) Ropeways at tourist centres.  

(vi)  Construction  of  structures  like Koothambalam/Auditorium  etc  by schools/institutions  teaching  Kalaripayattu  and traditional art forms of Kerala.

(vii)  Institutions  teaching  surfing,  sking,  gliding, trekking  and  similar  activities  which  will  promote tourism;  

(viii) Ayurvedic centres with tourism potential;  

(ix) Exclusive handicrafts with emporia (approved by the State/Central Department of Tourism)  

(2) The area so notified shall  be approved Tourist Centres  and  such  other  locations  certified  by  a Committee consisting of Secretary to Government, Tourism  Department,  Secretary  to  Government Taxes  Department  and  Director,  Department  of Tourism.  

(3)  The period of  exemption shall  be 10 years or such shorter period in respect of specific areas as may  be  notified  in  the  Gazette  based  on  the recommendation of the Committee.”  

6. By a Writ Petition filed in 1989, the appellants challenged

the  notice  dated  5th September,  1988.   This  resulted  in  a

judgment of the Kerala  High Court dated 30th August, 1995 by

which the appellants were relegated to the Committee set up

under the 1986 G.O. to pursue their claim.  Till final orders were

passed  by  the  Committee,  the  judgment  stated  that  the

5

Page 6

respondents would not take any coercive steps to recover any

building  tax  assessed  on  the  building  constructed  by  the

appellants.  

7. By  a  letter  dated  6th February,  1997,  the  exemption

promised by the G.O.  of  1986 was denied to  the appellants

stating that as Section 3A had been omitted w.e.f. 1st March,

1993,  the  power  to  grant  exemption  had  itself  gone  and,

therefore, no such exemption could be given to the appellants.  

8. Pursuant to the aforesaid letter dated 6th February, 1997,

a notice dated 28th April,  1997 was issued by the authorities

asking the appellants to submit the necessary statutory return

under the Kerala Buildings Tax Act.  This notice was, in turn,

challenged in O.P. No.  9601 of  1997,  which culminated in  a

judgment   dated 20th July, 1998.  Vide this judgment, the High

Court allowed the original petition and directed the Committee

to consider the matter afresh in the light of the judgment of the

Supreme Court in M/S Motilal Padampat Sugar Mills v. State

Of  Uttar  Pradesh &  Ors., (1979)  2  SCR 641 and  Shrijee

Sales Corporation & Anr. v. Union of India, (1997) 3 SCC

398.  

6

Page 7

9. Vide an order  dated 4th February, 1999,  the authorities

once again rejected the appellant’s application for  exemption

from property tax.  This order was challenged in Writ Petition

No.  9820 of  1999 which  has  led  to  the  impugned judgment

dated 5th December, 2006.  The High Court essentially rejected

the aforesaid Writ Petition on two grounds. First, it stated that

as no exemption Notification had, in fact,  been issued under

Section 3A when it  was in  existence in  the statute book, no

claim  for  exemption  from payment  of  building  tax  would  be

allowed.  It further held that the mere promise to amend the law

does not  hold  out  a  promise  of  exemption  from payment  of

building tax.  And finally, the High Court held that the question

of now exempting the appellants from building tax would not

arise as Section 3A itself  had been omitted w.e.f.  1st March,

1993.  

10. Shri V. Giri, learned Senior Advocate appearing on behalf

of the appellants before us, has argued that the High Court has

failed  to  consider  various  Supreme  Court  judgments  on

promissory estoppel in their true perspective. In his submission,

the aforesaid judgment clearly led to the conclusion that when

7

Page 8

the Government  holds  out  a  promise which  has  been acted

upon, except in cases of overriding public interest, which has

not  been  claimed  in  the  facts  of  the  present  case,  the

Government cannot resile from the said promise and must be

held  to  be  bound  thereby.   He  added  that  there  was  no

necessity for the Government to be directed to actually issue a

Notification under Section 3A as that would only be a ministerial

act  which  would  be  regarded  as  having  been  performed  if

Government was to be held to its promise.  According to the

learned counsel, therefore, a reading of the judgments of this

Court would necessarily lead to granting of relief to his client.   

11. Shri Radhakrishnan, learned senior counsel appearing on

behalf  of  the respondents,  countered these submissions and

supported the impugned judgment of the High Court.  According

to Shri Radhakrishnan, a mandamus cannot be issued to the

executive to frame or amend the law.  In any event, according

to the learned counsel, Section 3A having been deleted w.e.f.

1st March, 1993, it is clear that no relief can be granted to the

appellants as on date.  

8

Page 9

12. Having heard the learned counsel for both the sides, we

are of  the view that  it  will  first  be necessary to examine the

doctrine of  promissory  estoppel  as laid down in  M/S Motilal

Padampat Sugar Mills,  (1979) 2 SCR 641 and as followed in

State of Punjab v. Nestle India Ltd., (2004) 6 SCC 465.  

13. In  the  M/S  Motilal  Padampat  Sugar  Mills  case,  the

appellant  before  this  Court  was  primarily  engaged  in  the

business of manufacture and sale of sugar.  An assurance was

given by the State Government in that case that new Vanaspati

units in the State which go into commercial production by 30 th

September,1970 would be given partial concession in sales tax

for a period of three years.  The appellant having set   up such

Vanaspati unit thereafter went into the production of Vanaspati

on  2nd July,  1970  and  sought  exemption.   The  Government

apparently turned around and rescinded its earlier decision of

January, 1970 in August 1970, by which time the factory of the

appellant had gone into commercial production.  A Writ Petition

was  filed  in  the  High  Court  of  Allahabad  asking  for  a  writ

directing  the  State  Government  to  exempt  the  sales  of

Vanaspati  manufacturer  from sales  tax  for  a  period  of  three

9

Page 10

years commencing 2nd July, 1970 as per the promise held out.

This plea fell upon deaf ears in the High Court, as a result of

which  the  petitioner  in  that  case  appealed  to  the  Supreme

Court.  After discussing the authorities in detail, this Court held:

“The law may, therefore, now be taken to be settled as  a  result  of  this  decision,  that  where  the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against  the  Government  at  the  instance  of  the promisee,  notwithstanding  that  there  is  no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. It  is elementary that in a republic governed by the rule of law, no one,  howsoever  high  or  low,  is  above  the  law. Everyone  is  subject  to  the  law  as  fully  and completely as any other and the Government is no exception.  It  is  indeed  the  pride  of  constitutional democracy  and  rule  of  law  that  the  Government stands on the same footing as a private individual so far as the obligation of the law is concerned: the former is  equally  bound as the latter. It  is  indeed difficult to see on what principle can a Government, committed to the rule of law, claim immunity from the  doctrine  of  promissory  estoppel.  Can  the Government say that it is under no obligation to act in  a  manner  that  is  fair  and  just  or  that  it  is  not bound  by  considerations  of  “honesty  and  good faith”? Why should the Government not be held to a high “standard of rectangular rectitude while dealing with  its  citizens”?  There  was  a  time  when  the doctrine  of  executive  necessity  was  regarded  as

10

Page 11

sufficient  justification  for  the  Government  to repudiate even its contractual obligations; but, let it be  said  to  the  eternal  glory  of  this  Court,  this doctrine  was  emphatically  negatived  in the Indo-Afghan Agencies case and the supremacy of the rule of law was established. It was laid down by this Court that the Government cannot claim to be  immune  from  the  applicability  of  the  rule  of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action. If the Government does not want  its  freedom  of  executive  action  to  be hampered or restricted,  the Government need not make a promise knowing or intending that it would be  acted  on  by  the  promisee  and  the  promisee would alter  his  position relying upon it.  But  if  the Government  makes  such  a  promise  and  the promisee  acts  in  reliance  upon  it  and  alters  his position,  there is  no reason why the Government should  not  be  compelled  to  make  good  such promise like  any other  private  individual.  The law cannot  acquire  legitimacy  and  gain  social acceptance unless it accords with the moral values of  the society  and the constant  endeavour  of  the Courts  and  the  legislature,  must,  therefore,  be to close the gap between law and morality and bring about as near an approximation between the two as possible. The doctrine of promissory estoppel is a significant judicial contribution in that direction. But it is necessary to point out that since the doctrine of promissory estoppel is an equitable doctrine, it must yield when the equity so requires. If it can be shown by the Government that having regard to the facts as they have transpired, it would be inequitable to hold the Government to the promise made by it, the Court  would  not  raise  an  equity  in  favour  of  the promisee  and  enforce  the  promise  against  the Government.  The  doctrine  of  promissory  estoppel would be displaced in such a case because, on the facts, equity would not require that the Government

11

Page 12

should be held bound by the promise made by it. When the Government is able to show that in view of the facts as have transpired since the making of the promise, public interest would be prejudiced if the  Government  were  required  to  carry  out  the promise, the Court would have to balance the public interest in the Government carrying out a promise made to a citizen which has induced the citizen to act  upon  it  and  alter  his  position  and  the  public interest likely to suffer if the promise were required to be carried out by the Government and determine which way the equity lies. It would not be enough for the  Government  just  to  say  that  public  interest requires  that  the  Government  should  not  be compelled to carry out the promise or that the public interest  would  suffer  if  the  Government  were required to honour it.  The Government cannot, as Shah, J., pointed out in the Indo-Afghan Agencies case, claim to be exempt from the liability to carry out the promise “on some indefinite and undisclosed ground  of  necessity  or  expediency”,  nor  can  the Government claim to be the sole Judge of its liability and repudiate it “on an ex parte appraisement of the circumstances”.  If  the Government wants to resist the liability, it will have to disclose to the Court what are  the  facts  and  circumstances  on  account  of which the Government claims to be exempt from the liability  and  it  would  be  for  the  Court  to  decide whether those facts and circumstances are such as to render it inequitable to enforce the liability against the  Government.  Mere  claim  of  change  of  policy would  not  be  sufficient  to  exonerate  the Government  from  the  liability:  the  Government would have to show what precisely is the changed policy and also its reason and justification so that the Court can judge for itself which way the public interest  lies  and  what  the  equity  of  the  case demands.  It  is  only  if  the  Court  is  satisfied,  on proper  and  adequate  material  placed  by  the Government, that overriding public interest requires

12

Page 13

that the Government should not be held bound by the promise but should be free to act unfettered by it,  that  the  Court  would  refuse  to  enforce  the promise against the Government. The Court would not act on the mere ipse dixit of the Government, for it  is  the  Court  which  has  to  decide  and  not  the Government  whether  the  Government  should  be held exempt from liability. This is the essence of the rule  of  law.  The  burden  would  be  upon  the Government to show that the public interest in the Government  acting  otherwise  than  in  accordance with the promise is so overwhelming that it would be inequitable to hold the Government  bound by the promise  and  the  Court  would  insist  on  a  highly rigorous standard of proof in the discharge of this burden. But even where there is no such overriding public  interest,  it  may  still  be  competent  to  the Government  to resile  from the promise “on giving reasonable  notice,  which  need  not  be  a  formal notice,  giving  the  promisee  a  reasonable opportunity  of  resuming  his  position”  provided  of course  it  is  possible  for  the  promisee  to  restore status quo ante. If,  however, the promisee cannot resume  his  position,  the  promise  would  become final  and  irrevocable.  Vide Emmanuel  Avodeji Ajaye v. Briscoe [(1964)  3  All  ER  556  :  (1964)  1 WLR 1326].” [pp. 682 – 685]  

14. The  Court  further  went  on  to  hold  that  it  was  not

necessary for  the petitioner to  show that  it  had suffered any

detriment, and it was enough that the petitioner had relied upon

the promise or representation held out, and altered its position

relying upon such assurance.  Importantly, the Court held:

“Of  course,  it  may be pointed out  that  if  the U.P. Sales  Tax  Act,  1948  did  not  contain  a  provision

13

Page 14

enabling  the  Government  to  grant  exemption,  it would not be possible to enforce the representation against the Government, because the Government cannot be compelled to act contrary to the statute, but since Section 4 of the U.P. Sales Tax Act, 1948 confers  power  on  the  Government  to  grant exemption  from  sales  tax,  the  Government  can legitimately be held bound by its promise to exempt the appellant from payment of sales tax.  It  is true that  taxation  is  a  sovereign  or  governmental function,  but,  for  reasons  which  we have  already discussed, no distinction can be made between the exercise  of  a  sovereign  or  governmental  function and  a  trading  or  business  activity  of  the Government,  so far  as the doctrine of  promissory estoppel is concerned. Whatever be the nature of the function which the Government is discharging, the Government is subject to the rule of promissory estoppel and if the essential ingredients of this rule are satisfied, the Government can be compelled to carry out the promise made by it. We are, therefore, of the view that in the present case the Government was bound to exempt the appellant from payment of sales tax in respect of sales of vanaspati effected by it in the State of Uttar Pradesh for a period of three years  from  the  date  of  commencement  of  the production  and  was  not  entitled  to  recover  such sales tax from the appellant.” [pp. 696 – 697]

15. Having so held, the Court then went on to hold that since

the  Government  is  bound  to  exempt  the  appellant  from

payment of sales tax for a period of three years w.e.f. 2nd July,

1970, being the date of  commencement of  the production of

Vanaspati, the appellant would not be liable to pay any sales

14

Page 15

tax, subject only to the State’s claim to retain any part of such

amount under any provision of  law.  In the absence of  such

claim, the State would have to refund the amount of sales tax

collected by it from the appellant with interest thereon.   

16. It  is  important  to  notice  that  the  necessary  exemption

Notification in  Motilal Padampat’s case had not been issued

under Section 4 of the U.P. Sales Tax Act, 1948.  Yet, this Court

held  that  sales  tax  for  the  period  in  question  could  not  be

recovered.   This  was  done  presumably  because  promissory

estoppel is itself an equitable doctrine. One of the maxims of

equity is that one must regard as done that which ought to be

done.  In  this view of  the matter, it  is  obvious that  the High

Court judgment is incorrect when it holds that as no exemption

Notification  was,  in  fact,  issued  by  the  Government  under

Section 3A, the petitioner would have to be denied relief. This

judgment has been followed repeatedly and has been applied

to  give  the  benefit  of  sales  tax  exemption  in  similar

circumstances in Pournami Oil Mills & Ors. v. State of Kerala

& Anr., (1986) Supp. SCC 728 at Paras 7 and 8.  

15

Page 16

17. The same result  would  obtain  on a  reading of  a  more

recent judgment of this Court reported in  State of Punjab v.

Nestle  India Ltd.,  (2004)  6 SCC 465.   On the facts of  that

case, for the period from 1.4.1996 to 4.6.1997, purchase tax on

milk  was  to  be  abolished  by  the  State  Government.   An

announcement to this effect was given wide publicity in several

newspapers  in  the  State  and  a  speech  was  given  to  the

aforesaid  effect  by  the  Finance  Minister  of  the  State  while

presenting the budget for the year 1996-1997.  That was further

translated into a memorandum of the financial Commissioner,

dated  26.4.1996,  which  was  addressed  to  the  Excise  and

Taxation Commissioner of  the State.    When a meeting was

held on 27th June, 1996 by the Chief Minister and the Finance

Minister  with  the  Excise  and  Taxation  Commissioner  and

various Financial a financial notification would be issued “in a

day or two”.   For   the   first   time,     on    4 th   June,  1998, the

Council  of  Ministers   decided  that  the  decision  to  abolish

purchase tax on milk was not accepted and, consequently, the

authorities issued notice to the respondents requiring them to

pay purchase tax on milk for the year 1996-1997.  

16

Page 17

18. In  this  background,  the High  Court  held  that  the State

Government was bound by its promise and representation to

abolish  purchase  tax.    According  to  the  High  Court,  the

absence  of  a  financial  notification  was  no  more  than  a

ministerial  act  which  remained  to  be  performed.  As  the

respondents had acted on the representation made, they could

not be asked to pay purchase tax for the year 1996-1997.  The

Writ Petition was allowed and the demand notice of tax for the

aforesaid year was struck down.   

19. This Court,  after  adverting to Section 30 of  the Punjab

General Sales Tax Act, 1948, which gave the State Government

the power to exempt from purchase tax, by notification, any of

the goods mentioned in the Schedule, recapitulated the entire

law of promissory estoppel in great detail.   It referred to  M/S

Motilal Padampat Sugar Mills,  (1979) 2 SCR 641 and other

judgments, and finally held:

“The appellant has been unable to establish any overriding  public  interest  which  would  make  it inequitable to enforce the estoppel against the State Government. The representation was made by the highest authorities including the Finance Minister in his  Budget  speech  after  considering  the  financial implications of the grant of the exemption to milk. It

17

Page 18

was  found  that  the  overall  benefit  to  the  State's economy  and  the  public  would  be  greater  if  the exemption  were  allowed.  The  respondents  have passed  on  the  benefit  of  that  exemption  by providing various facilities and concessions for the upliftment of the milk producers. This has not been denied.  It  would,  in  the  circumstances,  be inequitable to allow the State Government now to resile from its decision to exempt milk and demand the  purchase  tax  with  retrospective  effect  from 1-4-1996  so  that  the  respondents  cannot  in  any event readjust the expenditure already made. The High  Court  was  also  right  when  it  held  that  the operation of the estoppel would come to an end with the 1997 decision of the Cabinet.

In  the  case  before  us,  the  power  in  the  State Government  to  grant  exemption  under  the  Act  is coupled  with  the  word  “may”  —  signifying  the discretionary  nature  of  the  power.  We are  of  the view that the State Government's refusal to exercise its  discretion  to  issue  the  necessary  notification “abolishing” or exempting the tax on milk was not reasonably exercised for the same reasons that we have upheld the plea of promissory estoppel raised by  the  respondents.  We,  therefore,  have  no hesitation in affirming the decision of the High Court and dismissing the appeals  without  costs.”  [paras 47 – 48]

20. A perusal of this judgment would also show that relief was

not denied on the ground that no exemption notification was, in

fact, issued under Section 30 of the Punjab General Sales Tax

Act,  1948.  In  fact,  this  Court  emphasized  the  discretionary

nature of the power to grant exemption.  This Court held that

the  State  Government’s  refusal  to  exercise  its  discretion  to 18

Page 19

issue the necessary notification abolishing or exempting tax on

milk was not reasonably exercised inasmuch as it was bound

by the doctrine of promissory estoppel to do so. And the finding

of  the  High  Court  that  such  Notification  would  only  be  a

ministerial  act  which  had  to  be  performed  was,  therefore,

upheld by this Court.  This judgment has been recently applied

and followed in  Devi Multiplex & Ors. v. State of Gujarat &

Ors., (2015) 9 SCC 132 at Para 20.   

21. In  fact,  we  must  never  forget  that  the  doctrine  of

promissory estoppel is a doctrine whose foundation is that an

unconscionable departure by one party from the subject matter

of an assumption which may be of fact or law, present or future,

and which has been adopted by the other party as the basis of

some course of conduct, act or omission, should not be allowed

to pass muster.  And the relief to be given in cases   involving

the    doctrine   of    promissory   estoppels   contains   a

degree    of       flexibility which would ultimately render justice

to the aggrieved party.  The entire basis of this doctrine has

been  well  put  in  a  judgment  of  the  Australian  High  Court

19

Page 20

reported  in  The Commonwealth  of  Australia  v. Verwayen,

170 C.L.R. 394, by Deane,J. in the following words:

1.  While  the  ordinary  operation  of  estoppel  by conduct  is  between  parties  to  litigation,  it  is  a doctrine of substantive law the factual ingredients of which  fall  to  be  pleaded  and  resolved  like  other factual issues in a case. The persons who may be bound by or who may take the benefit of such an estoppel extend beyond the immediate parties to it, to their privies, whether by blood, by estate or by contract. That being so, an estoppel by conduct can be the origin  of  primary  rights  of  property  and of contract. 2. The central principle of the doctrine is that the law will  not  permit  an  unconscionable  -  or,  more accurately,  unconscientious  -  departure  by  one party  from  the  subject  matter  of  an  assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if  the assumption be not adhered to for the purposes of the litigation. 3. Since an estoppel will not arise unless the party claiming  the  benefit  of  it  has  adopted  the assumption as the basis of action or inaction and thereby  placed himself  in  a  position  of  significant disadvantage if  departure from the assumption be permitted, the resolution of an issue of estoppel by conduct will involve an examination of the relevant belief, actions and position of that party. 4. The question whether such a departure would be unconscionable  relates  to  the  conduct  of  the allegedly estopped party  in  all  the circumstances. That  party  must  have  played  such  a  part  in  the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were now to depart from it. The cases indicate

20

Page 21

four main, but not exhaustive, categories in which an  affirmative  answer  to  that  question  may  be justified, namely, where that party: (a) has induced the  assumption  by  express  or  implied representation; (b)  has entered into contractual or other material relations with the other party on the conventional  basis  of  the  assumption; (c)  has  exercised  against  the  other  party  rights which  would  exist  only  if  the  assumption  were correct; (d) knew that the other party laboured under the assumption and refrained from correcting him when  it  was  his  duty  in  conscience  to  do  so. Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all  the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted. In cases  falling  within  category  (a),  a  critical consideration  will  commonly  be  that  the  allegedly estopped party knew or intended or clearly ought to have known that the other party would be induced by his conduct to adopt, and act on the basis of, the assumption.  Particularly  in  cases  falling  within category (b), actual belief in the correctness of the fact  or  state  of  affairs  assumed  may  not  be necessary. Obviously, the facts of a particular case may be such that it falls within more than one of the above categories. 5. The assumption may be of fact or law, present or future. That is to say it may be about the present or future  existence  of  a  fact  or  state  of  affairs (including the state of the law or the existence of a legal right, interest or relationship or the content of future conduct).

21

Page 22

6.  The doctrine should  be seen as a  unified one which operates consistently in both law and equity. In  that  regard,  "equitable estoppel"  should not  be seen  as  a  separate  or  distinct  doctrine  which operates only  in  equity  or  as  restricted to  certain defined  categories  (e.g.  acquiescence, encouragement, promissory estoppel or proprietary estoppel). 7. Estoppel by conduct does not of itself constitute an independent cause of action. The assumed fact or state of affairs (which one party is estopped from denying) may be relied upon defensively or it may be used aggressively as the factual foundation of an action  arising  under  ordinary  principles  with  the entitlement  to  ultimate  relief  being  determined on the basis of  the existence of  that  fact  or  state of affairs. In some cases, the estoppel may operate to fashion an assumed state of affairs which will found relief (under ordinary principles) which gives effect to the assumption itself (e.g. where the defendant in an action for a declaration of trust is estopped from denying the existence of the trust). 8.  The  recognition  of  estoppel  by  conduct  as  a doctrine  operating  consistently  in  law  and  equity and  the  prevalence  of  equity  in  a  Judicature  Act system combine to give the whole doctrine a degree of  flexibility  which  it  might  lack  if  it  were  an exclusively common law doctrine. In particular, the prima  facie  entitlement  to  relief  based  upon  the assumed state of affairs will be qualified in a case where  such  relief  would  exceed  what  could  be justified  by  the  requirements  of  good  conscience and would be unjust to the estopped party. In such a case,  relief  framed  on  the  basis  of  the  assumed state  of  affairs  represents  the  outer  limits  within

22

Page 23

which the relief  appropriate to do justice between the parties should be framed.”

22. The above statement,  based on various earlier  English

authorities,  correctly  encapsulates  the  law  of  promissory

estoppel with one difference – under our law, as has been seen

hereinabove,  promissory  estoppel  can  be  the  basis  of  an

independent cause of action in which detriment does not need

to be proved.  It  is  enough that  a party has acted upon the

representation made.  The importance of the Australian case is

only  to  reiterate  two  fundamental  concepts  relating  to  the

doctrine of promissory estoppel – one, that the central principle

of the doctrine is that the law will not permit an unconscionable

departure  by  one  party  from  the  subject  matter  of  an

assumption which has been adopted by the other party as the

basis of a course of conduct which would affect the other party

if the assumption be not adhered to.  The assumption may be of

fact or law, present or future.  And two, that the relief that may

be given  on  the  facts  of  a  given  case  is  flexible  enough to

remedy injustice wherever it is found.  And this would include

the relief of acting on the basis that a future assumption either

23

Page 24

as to fact or law will be deemed to have taken place so as to

afford relief to the wronged party.  

23. In the circumstances, the High Court  judgment when it

holds that no notification was, in fact, issued under Section 3A

of the Kerala Buildings Tax Act, 1975, (which would be sufficient

to deny the appellants relief) is, therefore, clearly incorrect in

law.  

24. However, some of the judgments of this Court have held

that a Writ of Mandamus cannot be issued to the executive to

frame  rules  or  regulations  which  are  in  the  nature  of

subordinate legislation. (See:  State of Jammu & Kashmir v.

A.R. Zakki & Ors. 1992 Supp. (1) SCC 548 at paragraphs 10

and 15, and State of Uttar Pradesh and Ors. v. Mahindra and

Mahindra Limited (2011) 13 SCC 77 at 81).  This is for the

reason that a court would then trespass into forbidden territory,

as  our  Constitution  recognizes  a  broad  division  of  powers

between legislative and judicial activity.  

25. However, though the power to grant exemption under a

statutory provision may amount to subordinate legislation in a

24

Page 25

given case, but being in the domain of exercise of discretionary

power, is subject to the same tests in administrative law, as is

executive or  administrative  action,  as  to its  validity  – one of

these tests being the well-known Wednesbury principle under

which a court may strike down an abuse of such discretionary

power  on  grounds  that  irrelevant  circumstances  have  been

taken into  account  or  relevant  circumstances  have  not  been

taken into account (for example).  This is clearly exemplified in

Indian Express Newspapers (Bombay) Private Limited and

others v. Union of India and others, (1985) 1 SCC 641.  

26. In  that  case,  by  a  notification  dated  15.7.1977  issued

under Section 25(1) of the Customs Act, a total exemption from

customs  duty  was  granted  on  imported  newsprint.   On

1.3.1981, the said Notification was superseded by the issue of

a fresh notification which exempted customs duty beyond 15%.

The second notification was the subject matter of challenge in

the aforesaid judgment in this Court.  In an instructive passage

in the judgment under Heading V entitled  “Are the impugned

notifications issued under Section 25 of the Customs Act, 1962

beyond the reach of Administrative Law?” this Court proceeded

25

Page 26

by assuming that the power to grant exemption under Section

25 of the Customs Act is a legislative power and a notification

issued by the Government thereunder would amount to a piece

of subordinate legislation. Despite this being so, this Court held:

“That subordinate legislation cannot be questioned on the ground of  violation of  principles  of  natural justice  on  which  administrative  action  may  be questioned has been held by this Court in Tulsipur Sugar  Co.  Ltd. v. Notified  Area  Committee, Tulsipur [AIR 1980 SC 882 : (1980) 2 SCR 1111 : (1980)  2  SCC  295]  , Rameshchandra  Kachardas Porwal v. State of Maharashtra [(1981) 2 SCC 722 : AIR  1981  SC  1127  :  (1981)  2  SCR  866]  and in Bates v. Lord Hailsham of St. Marylebone [(1972) 1 WLR 1373 : (1972) 1 A11 ER 1019 (Ch D)] . A distinction must be made between delegation of a legislative function in the case of which the question of reasonableness cannot be enquired into and the investment  by  statute  to  exercise  particular discretionary powers. In the latter case the question may  be  considered  on  all  grounds  on  which administrative action may be questioned, such as, non-application  of  mind,  taking  irrelevant  matters into consideration,  failure to take relevant  matters into  consideration,  etc,  etc.  On  the  facts  and circumstances of a case, a subordinate legislation may  be  struck  down  as  arbitrary  or  contrary  to statute if it fails to take into account very vital facts which either expressly or by necessary implication are required to be taken into consideration by the statute or, say, the Constitution.  This can only be done on the ground that it does not conform to the statutory  or  constitutional  requirements  or  that  it offends  Article  14  or  Article  19(1)(a)  of  the Constitution. It cannot, no doubt, be done merely on

26

Page 27

the ground that it is not reasonable or that it has not taken into account relevant circumstances which the Court considers relevant." [para 78]

27. Shri  Radhakrishnan  pressed  into  service  Kasinka

Trading and another v. Union of India and another, (1995) 1

SCC  274.   This  was  a  case  in  which  PVC  resins  were

exempted  from  basic  import  duty  by  a  notification  dated

15.3.1979.   The  said  notification  was  in  force  up  to  and

inclusive of 31.3.1981.  However, before expiry of the time fixed

in the notification,  a notification withdrawing such exemption,

dated 16.10.1980,  was issued.   The  petitioners  in  that  case

invoked the doctrine of promissory estoppel.  This Court held

that  no  representation  had  been  made  on  facts,  and  that  it

could not be said that a notification could not be rescinded or

modified before the date of expiry even if  the Government is

satisfied that it was necessary in the public interest to rescind it.

28. This case is clearly distinguishable in that it was held (see

paragraphs 22 and 27) that no incentive to set up any industry

to use PVC resins had been made, and secondly, it was found

necessary  in  public  interest  to  rescind  or  withdraw  such

27

Page 28

notification. On the facts of the present case, it is clear that a

clear representation/promise had been made pursuant to which

the State actually amended the Kerala Building Tax Act, 1975

by inserting Section 3A. And equally, there is no claim in the

present case that there is any change in circumstance because

of overriding public interest so that the doctrine of promissory

estoppel cannot be said to apply.  

29. Shri  Radhakrishnan also referred to a judgment  of  this

Court in Shree Sidhbali Steels Limited and others v. State of

Uttar Pradesh and others, (2011) 3 SCC 193.  On the facts in

that case, a new industrial policy dated 30.4.1990 was declared

by  the  State  Government  assuring  the  grant  of  33.33%  hill

development  rebate on the total  amount  of  electricity  bills  to

new entrepreneurs for a period of 5 years.  This period was

extended by another period of 5 years to be made available to

new industrial  units  set  up  till  31.3.1997.   Vide notifications

dated 18.61998 and 25.1.1999, uniform tariffs of electricity were

introduced by which the rebate so given was reduced to 17%.

Post 2000,  vide a notification dated 7.8.2000, a new tariff was

announced  which  completely  withdrew  the  hill  development

28

Page 29

rebate.  A challenge to the aforesaid notifications was turned

down by this Court.  This Court was concerned with an earlier

decision reported in  U.P. Power Corporation Limited v. Sant

Steels and Alloys (P) Ltd., (2008) 2 SCC 777, which took a

very restrictive view of Section 49 of the Electricity Supply Act

of 1948, stating that any notification issued thereunder can only

be revoked or modified if express provision was made for such

revocation  under  Section  49  itself.  Further,  such  revocation

could take place under the General Clauses Act only if  such

withdrawal was in  larger public interest,  or if  legislation was

enacted  by  the  legislature  authorizing  the  Government  to

withdraw  the  benefit  granted  by  the  notification.  The  larger

Bench overruled the  Sant Steels  case stating that its view of

Section 49 of the Electricity Supply Act was plainly incorrect,

and that Sections 14 and 21 of the General Clauses Act made it

clear  that  a  notification  issued  under  Section  49  could  be

exercised from time to time, including the power to revoke such

notification.  

30. However, when it came to the applicability of the doctrine

of promissory estoppel, this Court relied upon the observations

29

Page 30

made  in  State  of  Rajasthan  and  another  v.  J.K.  Udaipur

Udyog  Ltd.  and  another,  (2004)  7  SCC  673,  and  Arvind

Industries and others v. State of Gujarat and others, (1995)

6 SCC 53.

31. From the State of Rajasthan case, para 25 was quoted

by this Court in order to arrive at a conclusion that the recipient

of  an  exemption  granted  by  a  fiscal  statute  would  have  no

legally enforceable right against the Government inasmuch as

such right is a defeasible one in the sense that it may be taken

away in exercise of the very power under which the exemption

was granted.  What was missed from that case was the very

next paragraph which states as follows:-

“In this case the Scheme being notified under the power in the State Government to grant exemptions both under Section 15 of the RST Act and Section 8(5) of the CST Act in the public interest, the State Government was competent to modify or revoke the grant for the same reason.  Thus what is granted can  be  withdrawn  unless  the  Government  is precluded  from  doing  so  on  the  ground  of promissory estoppel, which principle is itself subject to considerations of equity and public interest. (See STO v. Shree Durga Oil  Mills).   The vesting of  a defeasible  right  is  therefore,  a  contradiction  in terms.  There  being  no  indefeasible  right  to  the continued  grant  of  an  exemption  (absent  the exception of promissory estoppel),  the question of

30

Page 31

the respondent Companies having an indefeasible right  to  any facet  of  such exemption such as the rate, period, etc. does not arise.” (at Para 26)

32. The  aforesaid  paragraph  26  has  been  noticed  by  this

Court in Mahabir Vegetable Oils (P) Ltd. and another v. State

of Haryana and others, (2006) 3 SCC 620, (see paragraphs

34 and 35).  It is clear, therefore, that the reliance by this Court

in  the  Shree  Sidhbali  Steels  Ltd. case  upon  the  aforesaid

judgment when it comes to non application of the principle of

promissory estoppel to exemptions granted under statute would

be wholly inappropriate.   

33. Similarly, the Arvind Industries case is again a judgment

in  which  it  is  clear  that  the  doctrine  of  promissory  estoppel

could have no application because the appellant in that case

was not able to show that any definite promise was made by or

on behalf of the Government and that the appellant had acted

upon such promise. (see paragraph 9)  

34. It is clear, therefore, that Shree Sidhbali Steels Limited

was a case which was concerned only with whether a benefit

given  by  a  statutory  notification  can  be  withdrawn  by  the

31

Page 32

Government  by  another  statutory  notification  in  the  public

interest if circumstances change  - (see paragraphs 30 and 42).

Such is  not  the case before  us.   On the facts  before  us,  a

notification which ought to have been issued under Section 3A

after  it  was introduced pursuant to a promise made was not

issued  at  all.   And  change  in  circumstances  leading  to

overriding public interest displacing the doctrine of promissory

estoppel is absent in the facts of the present case.  We are,

thus,  satisfied  that  the  aforesaid  judgment  can  have  no

application whatsoever to the facts of the present case. 1

35. Shri  Radhakrishnan  then  referred  us  to  Excise

Commissioner, U.P. v. Ram Kumar, (1976) 3 SCC 540 at para

19, for the proposition that it is now well settled by a catena of

decisions that there can be no question of estoppel against the

Government  in  the  exercise  of  its  legislative,  sovereign,  or

executive powers.  

36. This  very  passage  was  referred  to  in  M/S  Motilal

Padampat Sugar Mills and was explained thus:

1 Shree Sidhbali Steels Ltd. has been applied recently in Kothari Industrial  Corporation Ltd. v. Tamil Nadu Electricity Board & Ors., (2016) 4 SCC 134.  

32

Page 33

“The next decision to which we must refer is that in Excise  Commissioner  U.P.  Allahabad v. Ram Kumar [(1976) 3 SCC 540 : 1976 SCC (Tax) 360 : 1976 Supp SCR 532] . This was also a decision on which strong reliance was placed on behalf of the State. It is true that, in this case, the Court observed that “it is now well settled by a catena of decisions that there can be no question of estoppel against the  Government  in  the  exercise  of  its  legislative, sovereign  or  executive  powers,”  but  for  reasons which we shall presently state, we do not think this observation can persuade us to take a different view of the law than that enunciated in the  Indo-Afghan Agencies case. …

It will thus be seen from the decisions relied upon in the judgment that the Court could not possibly have intended to lay down an absolute proposition that there  can  be  no  promissory  estoppel  against  the Government  in  the  exercise  of  its  governmental, public or executive powers. That would have been in  complete  contradiction  of  the  decisions  of  this Court  in  the Indo-Afghan  Agencies  case, Century Spinning  and  Manufacturing  Co.  case and Turner Morrison case and we find it difficult to believe that the Court could have ever intended to lay down any such proposition without expressly referring to these earlier  decisions  and  overruling  them.  We  are, therefore, of the opinion that the observation made by the Court in Ram Kumar case does not militate against the view we are taking on the basis of the decisions  in  the Indo-Afghan  Agencies case, Century  Spinning  &  Manufacturing  Co. case and Turner  Morrison  case in  regard  to  the

33

Page 34

applicability of the doctrine of promissory estoppel against the Government.” [SCR at pp. 689, 691]

37. Shri Radhakrishnan then referred us to the judgment in

Sharma  Transport  v.  Govt.  of  A.P.,  (2002)  2  SCC  188 at

paragraph  24,  and  Bannari  Amman  Sugars  Ltd.  v.  CTO,

(2005) 1 SCC 625, at  paragraph 20,  for  the proposition that

promissory  estoppel  must  yield  to  overriding  public  interest.

There can be no quarrel with this proposition except that, as

has been pointed out above, this case does not contain any

such overriding public interest.  

38. Shri Radhakrishnan also referred us to Avinder Singh v.

State of Punjab, (1979) 1 SCC 137, at paragraphs 11 and 17,

for  the  proposition  that  the  legislature  cannot  delegate  its

essential legislative functions.  We are at a loss to understand

how this authority would at all apply to the facts of the present

case as it is not the State’s stand that there is any excessive

delegation of legislative power in the present case.   

39. In the present case, it is clear that no Writ of Mandamus is

being  issued  to  the  executive  to  frame  a  body  of  rules  or

34

Page 35

regulations which would be subordinate legislation in the nature

of  primary  legislation  (being  general  rules  of  conduct  which

would  apply  to  those  bound  by  them).  On  the  facts  of  the

present  case,  a  discretionary  power  has to  be  exercised on

facts under Section 3A of the Kerala Buildings Tax Act, 1975.

The non-exercise of such discretionary power is clearly vitiated

on  account  of  the  application  of  the  doctrine  of  promissory

estoppel  in  terms  of  this  Court’s  judgments  in  Motilal

Padampat and  Nestle (supra).   This  is  for  the  reason that

non-exercise of  such power is itself  an arbitrary act  which is

vitiated by non-application of mind to relevant facts,  namely,

the fact  that a G.O. dated 11.7.1986 specifically provided for

exemption from building tax if hotels were to be set up in the

State of Kerala pursuant to the representation made in the said

G.O.   True,  no  mandamus  could  issue  to  the  legislature  to

amend  the  Kerala  Buildings  Tax  Act,  1975,  for  that  would

necessarily  involve  the  judiciary  in  transgressing  into  a

forbidden field under the constitutional scheme of separation of

powers.   However, on facts, we find that Section 3A was, in

fact, enacted by the Kerala legislature by suitably amending the

35

Page 36

Kerala  Buildings Tax  Act,  1975 on 6.9.1990 in  order  to  give

effect to the representation made by the G.O. dated 11.7.1986.

We find that the said provision continued on the statute book

and was deleted only with effect  from 1.3.1993.  This would

make it clear that from 6.9.1990 to 1.3.1993, the power to grant

exemption  from  building  tax  was  statutorily  conferred  by

Section 3A on the Government.  And we have seen that the

statement  of  objects  and reasons for  introducing Section 3A

expressly states that the said Section was introduced in order

to  fulfill  one  of  the  promises  contained  in  the  G.O.  dated

11.7.1986.  We find that, the appellants, having relied on the

said  G.O.  dated 11.7.1986,  had,  in  fact,  constructed  a  hotel

building by 1991.  It is clear, therefore, that the non-issuance of

a  notification  under  Section  3A was  an  arbitrary  act  of  the

Government  which  must  be  remedied  by  application  of  the

doctrine  of  promissory  estoppel,  as  has  been  held  by  us

hereinabove.  The ministerial act of non issue of the notification

cannot possibly stand in the way of the appellants getting relief

under the said doctrine for it would be unconscionable on the

part of Government to get away without fulfilling its promise.  It

36

Page 37

is  also  an  admitted  fact  that  no  other  consideration  of

overwhelming  public  interest  exists  in  order  that  the

Government be justified in resiling from its promise.  The relief

that must therefore be moulded on the facts of the present case

is that for the period that Section 3A was in force, no building

tax is payable by the appellants.  However, for the period post

1.3.1993,  no  statutory  provision  for  the  grant  of  exemption

being available,  it  is  clear  that  no relief  can be given to the

appellants  as the doctrine of  promissory  estoppel  must  yield

when it  is found that  it  would be contrary to statute to grant

such relief.  To the extent indicated above, therefore, we are of

the view that no building tax can be levied or collected from the

appellants in the facts of the present case.  Consequently, we

allow the appeal to the extent indicated above and set aside the

judgment of the High Court.

..............................J. (A.K. Sikri)

..............................J. (R.F. Nariman)

New Delhi; May 11, 2016.  

37