MANUELSONS HOTELS PRIVATE LIMITED v. STATE OF KERALA AND OTHERS [(2016) 6 SCC 766]

The Concept

The doctrine of promissory estoppel is an equitable doctrine which finds its existence in both common and civil law. If one party acts on the promise of the other party, the other party is not allowed to go back on the said promise.

However, a promissory estoppel cannot be invoked against a settled principle of law. A promissory estoppel has the following three ingredients: 

  • A clear and unambiguous promise. 
  • The promisee must rely and act upon the given promise 
  • It is inequitable for the promisor to go back on his promise after the promisee has relied and acted upon the same.

Please note that promissory estoppel can only be used as a defence and cannot be enforced against the promisor. It has the effect of merely suspending the obligations. It is a rule of evidence which prevents the promisor from denying the truth of the statement on which the promisee relied and acted upon.

Typically, the right of the promissor is suspended till the time it becomes equitable for him to claim the same. 

Facts

On 11th July, 1986, the State Government, by a Government Order (G.O.), accepted the recommendations of the Central Government suggesting that tourism be declared an “industry” which had the effect of granting tax exemptions and accordingly the Kerala Building Tax Act, 1975 had to be amended.

Notice for filing returns was issued to the  Appellants on 5th September, 1988 and they relied upon the G.O. stating that they were under no obligation to furnish any return under the said Act as they were exempt from payment of building tax vide Kerala Buildings Tax Amendment Act of 1990.

Appellants filed a writ petition to the Kerala HC challenging the notice and the HC asked the Committee setup under G.O. to decide on the claim which was rejected by the Committee. The  exemption was denied on grounds that the promise under the G.O. is yet to materialize and w.e.f. 1st March, 1993 Section 3A was omitted.

Consequently, another writ petition was filed before the HC which was disposed off stating “mere promise to amend the law does not hold out a promise of exemption from payment of building tax” and the appeal was made before SC.

Issue

Whether the promise made by the State Government is enforceable, especially  when the Appellant has acted relying on it which has resulted in his detriment?

Arguments by the Appellant

  1. When the Government holds out a promise which has been relied and acted upon, the government cannot retract from that promise and should be held bound by the same. 
  2. There was no necessity for the government to be directed to issue a notification under Section 3A, as this would only be a ministerial act which would be regarded as having been performed if the government is held bound by its promise. 

Arguments by the Respondent

  1. A mandamus cannot lie against the executive to frame or amend the law. 
  2. Section 3A being deleted, no relief can be given to the  Appellants.

Judgment

The Hon’ble Supreme Court partly allowed the appeal by giving following reasons:

  1. The government had enacted Section 3A in order to give effect to the intent expressed in the government order. It was stated in this provision’s statement of objects that this was enacted to fulfill one of the promises made in the government order. The  Appellants relied on this promise and went ahead with the construction of their hotels. Hence, the non-issuance of notification under Section 3A was an arbitrary act of the government, as it clearly violated the principles of promissory estoppel.
  2. The ministerial act of non-issuance of the notification cannot prevent the  Appellants from getting relief under the doctrine of promissory estoppel.
  3. It is also an admitted fact that no other consideration of overwhelming public interest exists, which may permit the government to retract from its promise. 
  4. However, the court decided partially in favour of the  Appellants. It stated that for the period between 1990 and 1993 (when section 3A was in force) no building tax is payable by the  Appellants, however, for the period post March, 1993 as there was no statutory provision granting exemption, the tax was payable. The doctrine of promissory estoppel cannot run contrary to a statute.

Reflective Question

Is suffering a detriment essential for promissory estoppel to be applicable?