Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh

Facts

The State of U.P. announced that new industrial units would be granted total exemption from sales tax for three years. Relying on this assurance, confirmed in correspondence, Motilal Padampat Sugar Mills borrowed funds and set up a vanaspati factory. The Government subsequently changed its position and sought to deny or curtail the exemption.

Issues

• Whether promissory estoppel can be invoked against the Government to enforce a representation made in exercise of its executive functions.
• Whether the absence of consideration or detriment, or a plea of executive necessity, bars the doctrine.

Arguments

The company argued it had altered its position by establishing the factory in reliance on the clear assurance of exemption, so the State was estopped from going back. The State pleaded that promissory estoppel does not operate against the Government in sovereign/executive matters and that it could not be fettered in the exercise of its statutory taxing powers.

Held

The Supreme Court held the State bound by its promise. It ruled that promissory estoppel is a substantive rule of equity, not merely a rule of evidence, and applies fully against the Government in its executive functions where a clear and unequivocal promise has been made and acted upon. Detriment in the strict sense is not required; it is enough that the promisee altered his position. The Government can escape only by placing material before the Court showing that, on balance of public interest, equity requires it be allowed to resile, and the burden lies on the Government to prove such overriding public interest, which it failed to discharge.

Ratio decidendi

Promissory estoppel binds the Government in the exercise of its executive functions where a clear promise is made intending to create legal relations and is acted upon; it can be defeated only if the Government proves an overriding equity or public interest justifying departure.

Significance

The leading and most authoritative Indian exposition of promissory estoppel against the State; firmly established the doctrine as substantive law binding the executive, and remains the touchstone for all later cases on Government promises and tax/policy concessions.

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