Union of India V. Indo-Afghan Agencies (1968) 2 S.C.R. 366
It is the principle of truism that the “Change is the law of nature”. With the passage of time, society changes in order to respond to the needs of the society. The law being a social institution also changes. As such, the “change” also becomes the nature of law as well; the change as dictated by the changing needs of the society confirming to the cannons of justice, equity and good conscience. A legal system sensitive to these changes can be termed as progressive. In a modern society, changes are taking place at a rapid pace. A progressive and a responsive legal system have to take account of these changes and in the process it undergoes transformation by adopting new concepts, discarding obsolete ones and modifying others.
As a jural postulate of civilized society men must be able to assume that those with whom they deal in the general intercourse of the society will act in good faith, and as a corollary must be able to assume that those with whom they deal will carry out their undertaking according to the expectations which the moral sentiment of the community attaches thereto. Hence, in a commercial and industrial society, a claim or want or demand of society that promises are kept and that undertaking is carried out in good faith, a social interest in the stability of the promises as a social and economic institution becomes of the first importance.
The principle of promissory estoppel is an emerging concept across the globe, in both common law system as well as civil law systems. Irrespective of this principle having an ancient origin, it has not yet been developed to an extent to which other branches of law have been developed in recent times. This project is a detailed study and analysis of a significant case in the Indian legal history. It is a commentary on the case of Union of India v. Indo Afghan agencies (1968).
The primary objective of this project is to study the concept of promissory estoppel and its evolution, which is a good relief for the suffered party which was not at fault at all. In particular, this proposed study seeks to achieve the following objectives:
To trace the history and development of the doctrine of promissory estoppel relating to law of contracts.
To study the evolution and concept of the principle of promissory estoppel in India.
To undergo a detailed study of the case in relation to the doctrine of promissory estoppel.
To analyze the issues involved in the case and how far was the impact on the system in contemporary times.
To critically analyze and comment on the judgment delivered by the Hon’ble Supreme Court of India.
To examine the necessary changes which have been made in this matter and which are yet to be made.
There is no provision as such which clears availability of relief under the principle of promissory estoppel but it is enforceable and based on equity, to protect the innocent party as a shield.
Doctrine itself, its evolution and jurisprudence behind this principle is dealt in this project.
In order to approach the prescribed objectives of study, doctrinal method of research methodology is proposed, intensive literature review on the subject will be applied and the issues under study would be examined in a systematic manner. The broad facets of the study are indicated in terms of proposed chapter in the substantive sections of this proposal. The study of the case Union of India v. Indo Afghan agencies will involve:
An analysis of the features of the legal system under this principle in the law of contracts.
Also an attempt has been made to supplement and update the existing legal literature to promote more intensive research in this area of law.
Study cases of Hon’ble Supreme Court and High Courts of India to get into the crux of the study.
Analysis of the law commission reports has also been undertaken to make this study a fruitful one.
This doctrinal work adopted for the writing of research work and the commentary on the particular case is both analytical as well as descriptive. The researcher will make an effort to critically examine the primary sources like Statutes, reports of the committees and commissions besides the secondary sources like books, articles, journals, newspapers, case-laws, and e-resources. Opinions of research scholars, academicians, and other experts including the advocates who have dealt with this subject will be used as real contribution to research. E-resources have majorly contributed in research for getting the most relevant and latest information on the web which has helped the researcher to explore the subject through various dimensions.
The Textile Commissioner published on October 10, 1962, a scheme called the Export Promotion Scheme providing incentives to exporters of woollen goods. The scheme was extended by a Trade Notice dated January 1, 1963 to exports of woollen goods to Afghanistan. Messrs Indo-Afghan Agencies -hereinafter called the respondents- a firm dealing in woollen goods at Amritsar exported to Afghanistan in September, 1963, woollen goods of the f. o. b. value of Rupees 5, 03,471.73 nP. The Deputy Director in the office of the Textile Commissioner Bombay issued to the respondents an Import Entitlement Certificate for Rs. 1, 99,459 only. Representations made by the respondents to the Deputy Director and to the Union Government that they be granted Import Entitlement Certificate for the full f. o. b value of the goods exported failed to produce any response.
But in a petition under Art. 226 of the Constitution moved before the High Court of Punjab by the respondents for a writ or an order directing the Union of India, the Textile Commissioner and the Joint Chief Controller of Imports and Exports, Bombay, to issue a license “permitting import of wool-tops, raw wool, wool waste and rags of the value of Rs. 3,04,012.73 nP”, the orders of the Textile Commissioner and the Central Government were set aside. The High Court held that the Expert Promotion Scheme specifically provided for granting certificates to import materials of the “value equal to 100 per cent of the f. o. b. value of the goods exported”, and the respondents were entitled to obtain import licenses for an amount equal to 100 per cent of the f. o. b. value, unless it was found on enquiry duly made under Cl. 10 of the Scheme that the respondents had by “over-involving” the goods disentitled themselves to the import licenses of the full value: that no such enquiry was made by the Textile Commissioner and that officer merely proceeded upon his “subjective satisfaction” that-the respondents had “over-invoiced” the goods exported: and that the Union Government acted on irrelevant grounds. The Union of India, the Textile Commissioner and the Joint Chief Controller of Imports and Exports have appealed to this Court with certificate granted by the High Court.
The genesis of the export control scheme may first be noticed. The Imports and Exports (Control) Act 18 of 1947 was enacted on March 24, 1947 with the object of enabling the Central Government to continue to exercise the power to prohibit, restrict or otherwise control imports and exports which had till then been controlled by orders issued in exercise of the powers conferred by R. 84 of the Defence of India Rules, 1939, as extended by the Emergency Provisions (Continuance) Ordinance 20 of 1946. By S. 3 of that Act it was provided.
In exercise of the powers conferred on the Central Government by S. 3, the Central Government issued the Imports (Control) Order, 1955. By paragraph-8 of the Order it was enacted that:
“(1) Save as otherwise provided in this Order, no person shall import any goods of the description specified in Schedule I, except under, and in accordance with, a license or a customs clearance permit granted by the Central Government or by any officer specified in Schedule II.
(2) If, in any case, it is found that the goods imported under a license do not conform to the description given in the license or were shipped prior to the date of issue of the license under which they are claimed to have been imported, then, without prejudice to any action that may be taken against the licensee under the Customs Act, 1962 (52 of 1962), in respect of the said importation, the license may be treated as having been utilized for importing the said goods;”
The Central Government also issued periodical orders which were published in bi-annual official publications setting out the policy governing the grant of import and export licenses. By paragraph 52 of the notification published in the Gazette Extraordinary dated December 29, 1954, it was declared that in certain items, there was “direct and intimate” inter-relationship between imports and exports, and since the ability to export some of those manufactured goods depended largely on the facility with which the exporter or the manufacturer could procure the basic raw materials required in the manufacture, a scheme had been devised with a view to promote export of such goods for the grant of special import licenses to replace the imported raw material content of the exporter product, and to provide an inducement for larger exports. The details of the Scheme were set out in Appendix-23 to the Notification. The Scheme covered a number of commodities of which export was permitted. From time to time this Appendix was modified and fresh schemes were issued in respect of new commodities.
ISSUES AND ARGUMENTS
On October 10, 1962, the Government of India promulgated the Export Promotion Scheme for woollen textiles and woollen goods. Clause 2 of that Scheme provided, insofar as it is material: “It has been decided that manufacturers exporters and merchants- exporters of the above woollen textiles and woollen goods will be entitled to import raw materials, namely, raw wool, wool tops, shoddy manmade fibers and tops, permissible types of dyes and chemicals and machinery and machinery parts and spare parts for woollen industry for a total amount equal to 100 per cent of the f. o. b. value of the exports.” Clause 4 provided:
“Only such exporters who satisfy the Textile Commissioner that they are interested in export (either by past performance or by showing proof of action taken to obtain firm order etc.) will be registered by the Textile Commissioner.”
Clause 6 imposed certain obligations upon the registered exporters, such as adherence to the code of conduct as and when evolved; adoption of the standard contract form with suitable clauses for arbitration and settlement of disputes: abiding by the decision of the Textile Commissioner in the matter of dispute between the exporter and his foreign customers; forwarding figures of exports of woollen goods made by him every month to the Textile Commissioner and abiding by such quality control and pre-shipment inspection procedures as may be evolved. Clause 7 provided for the application for grant of import licenses against actual exports affected on a monthly or on a quarterly basis. Clause 9 provided: “After scrutiny of the applications, the Textile Commissioner shall issue an entitlement certificate indicating the items and value for which license should be issued to the applicant. On receipt of the application and entitlement certificate, the Joint Chief Controller of Imports and Exports, Bombay, shall issue the license.”
Clause 10 provided:
“In case where the Textile Commissioner considers that the declared value of the goods exported is higher than the real value of the goods, the matter may be investigated further by calling for further evidence, e.g., purchase vouchers and any other corroborative evidence to facilitate scrutiny. It shall be the duty of the registered exporter to furnish such evidence as is called for in this connection. On the basis of his enquiry, the Textile Commissioner may assess the correct value of the goods exported and issue an entitlement certificate on the basis of such assessed value.” By notification dated January 1, 1963, the Scheme was extended to exports of woollen textiles and woollen goods to Afghanistan with effect from October 1, 1962.
It was urged on behalf of the Union of India that the Export Promotion Scheme was administrative in character and the recital therein that the exporters will be entitled to import certificates equal to 100 per cent of the f. o. b. value of the exports was a mere instruction issued by the Union Government to the Textile Commissioner: it created no rights in the public generally or in the exporters who exported their goods in pursuance of the Scheme and imposed no obligations upon the Government to issue the import certificates. On behalf of the respondents it was contended that the Scheme was statutory in character and obliged the Textile Commissioner, unless the exporter was after due investigation under Clause 10 of the Scheme shown to have “over invoiced” the goods exported, to issue import certificates of the full value of the exports, and a person exporting goods in pursuance of the Scheme who was denied an import certificate of the full f. o. b. value could seek the assistance of the High Court by a petition for the issue of a writ under Article 226 of the Constitution, for an order compelling the Textile Commissioner to carry out the obligations imposed upon him by the Scheme.
Counsel for the Union said that the import and export policy of the Government is based on availability of foreign exchange, requirement of goods of foreign origin for internal consumption, economic climate in the country, and other related matters, and has in its very nature to be flexible, and on that account the power of the Government to modify or adjust it as the altered circumstances necessitate, cannot be restricted on the ground that promises made by the Government in different situations are not carried out, however a moral that claim may appear to be. According to Counsel the Government is the sole judge of the validity of its actions in matters relating to Import and Export Policy and the citizens who have acted on the representations of the Government have only such rights as the Government in its wisdom chooses to recognize or accept at any given time, He relied in support of his submission upon the doctrine of “executive necessity” on which Rowlett, J., relied in Rederiaktiebolaget Amphitrite v The King, 1921-3 KB 500. In that case during the First World War certain neutral shipowners obtained an undertaking from the British Government that if the shipowners sent a particular ship to the United Kingdom with a specified cargo, she shall not be detained. On the faith of that undertaking, the owners sent the ship to a British port with that specified cargo. The British Government withdrew their undertaking and refused her clearance. On a petition of right for damages for breach of contract it was held that the Government’s undertaking was not enforceable in a Court of law, it not being within the competence of the Crown to make a contract which would have the effect of limiting its power of executive action in the future.
The defense of executive necessity was not relied upon in the present case in the affidavit filed on behalf of the Union of India. It was also not pleaded that the representation in the Scheme was subject to an implied term that the Union of India will not be bound to grant the import certificate for the full value of the goods exported if they deem it inexpedient to grant the certificate. We are unable to accede to the contention that the executive necessity releases the Government from honoring its solemn promises relying on which citizens have acted to their detriment. Under our constitutional set-up, no person may be deprived of his right or liberty except in due course of and by authority of law: if a member of the executive seeks to deprive a citizen of his right or liberty otherwise than in exercise of power derived from the law – common or statute – the Courts will be competent to, and indeed would be bound to, protect the rights of the aggrieved citizen
Rowlett, J., observed at p. 503:
“…. What I have to consider is whether this was a contract at all. I have not to consider whether there was anything of which complaint might be made outside a Court, whether that is to say what the Government did was morally wrong or arbitrary that would be altogether outside my province.”
The orders which the Central Government may issue in exercise of the power conferred by Section 3 of the Imports and Exports Control Act may be executive or legislative. In exercise of that power, the Order was issued on December 7, 1955, that was clearly legislative in character. It appears that prior to the issuance of this notification several orders had been issued under the Defence of India Rules and under the Imports and Exports Act dealing with the grant of licences to import certain classes of goods. Those orders which are set out in the IVth Schedule to the Order were repealed by Clause 12 of the Order of 1955, and machinery for granting licences was set up by the Order dated December 7, 1955. Counsel for the respondents submitted that the Export Promotion Schemes published by the Government under paragraph 52 of the Government Notification dated December 29, 1954, must be deemed to be issued under Section 3 of the Imports and Exports Control Act, 1947, since the Schemes have been published in the Gazette of India, and contain general provisions relating to the grant of licenses and impose restrictions upon the rights of citizens to carry on businesses in certain commodities. Being general provisions restricting the rights of citizens to carry on business in certain commodities the Schemes were, it was said, legislative in character, and the obligations imposed or the sanctions prescribed thereby must on the that account be deemed to be enforceable by command of the Court.
It cannot he assumed merely because the Imports Trade Policy is general in terms and deals with the grant of licenses for import of goods and related matters, it is statutory in character. The Imports and Exports (Control) Act, 1947, authorizes the Central Government to make provisions prohibiting, restricting or otherwise controlling import, export, carriage etc. of the goods and by the Imports (Control) Order, 1955, dated December 7, 1955, and by the provisions which were sought to be repealed restrictions already imposed. The order was clearly legislative in character. The Import Trade Policy was evolved to facilitate the mechanism of the Act and the orders issued there under. Even granting that the Import Trade (Control) Act, l947, the order as already observed authorized the making of executive or administrative instructions as well as legislative directions. It is not the form of the order, the method of its publication or the source of its authority, but its substance, which determines its true character. A large majority of the
Paragraphs of the Import and Export Schemes are in the form of instructions to departmental officers and advice to persons engaged in the export and import business with their foreign Counterparts. It may be possible to pick out paragraphs from the Scheme which appear in isolation to be addressed generally and have direct impact upon the rights and liberties of the citizens. But a large number of paragraphs of the Scheme refer to matters of procedure of departmental officers and heterogeneous material: it sets out forms of applications, the designations of licensing authorities, amounts of application and licensing fees, last dates for applications, intermixed with definitions of ‘Established Importers’, ‘Actual users’, ‘New comers’ and others and details of different schemes such as Quota Registration Schemes, Export Promotion Schemes etc. There is no pattern of order or logical sequence in the policy statement: it is a jumble of executive instructions and matters which impose several restrictions upon the rights of citizens.
Union of India v. Indo Afghan Agencies, A.I.R. 1968 S.C. 718 is the first notable case in India which has heralded the installation of the doctrine of promissory estoppel on the pedestal of law. It was once again declared in emphatic terms that no person may be deprived of his right or liberty except in due course of an course of and by authority of law. If a member of the executive seeks to deprive a citizen of his right or liberty otherwise than in exercise of power derived from law, common or statute, the Courts will be competent to and indeed would be bound to protect the rights of the aggrieved citizen. The Government is bound to honour the promise made by it and if the citizen acting in reliance on the promise has altered his position, the doctrine of promissory estoppel would be applicable against the Government and Government cannot be released from its obligation either on the ground of executive necessity or of the absence of a formal contract executed after due compliance of statutory formalities. The doctrine of promissory estoppel is invoked against the Government as an equitable doctrine and naturally it must yield when the equity so requires. The Government is bound to its promise, because otherwise it would be inequitable to permit it to refrain from carrying out its solemn promise or representation made by it as to its future conduct on some “undefined and undisclosed ground of necessity or expediency”. The next step forward was taken in Century Spinning and Manufacturing Co. Ltd. v. Ulhasnagar Municipal Council, A.I.R. 1971 S.C. 1021 where it was held that the doctrine of promissory estoppel is applicable against a public authority.
LAW COMMISSION RECOMMENDATIONS
In 108th report of law commission submitted in 1984 suggested Section 25 A in ICA.As follows: 25A. (1) where
(a) A person has, by his words or conduct made to another person, an unequivocal promise which is intended to create legal relations or to affect a legal relationship in arise in the future; and
(b) Such person knows or intends that the promise would be acted upon by the person to whom it is made; and
(c) The promise is, in fact, so acted upon by the other person, by altering his position. When notwithstanding that the promise is without consideration, if shall be binding to the person making it. If, having regard to the dealings which have taken place between the parties, it would be unjust not to hold him to be so bound.
(2) The provision of this section shall not apply:-
(a) Where the events that have subsequently happened show that it would be unjust to hold the promisor to be bound by the promise; or,
(b) Where the promisor is the Govt. and enforcing the promise would be inconsistent with an obligation or liability imposed on the Govt. by law.
Following cases were referred by the Hon’ble bench of The Supreme Court of India:
Probhudas Morarjee Rajkotia and Others v Union of India and Others
1966 Indlaw SC 405, AIR 1966 SC 1044
Joint Chief Controller of I. and E., Madras v Aminchand Mutha1965
Indlaw SC 2, AIR 1966 SC 478, 1999 (110) E.L.T. 273, 1966 (2) MLJ (SC)
67,  1 S.C.R. 262
M/S. Ramchand Jagadish Chand v Union of India and Others1961
Indlaw SC 174, AIR 1963 SC 563, 1962 (2) SCJ 189,  3 S.C.R. 72
Collector of Bombay v Municipal Corporation of The City of Bombay and
Others1951 Indlaw SC 13, AIR 1951 SC 469, 1952 (54) Bom LR 122, 1951
SCJ 752,  1 S.C.R. 43
Ahmad Yar Khan v Secretary of State for India in Council LR (28) IA 211
Ganges Mfg Co v Sourajmul ILR (5) Cal 669
Municipal Corp of City of Bombay v Secretary of State for India in Council
ILR (29) Born 5.
Contracts by R.K. Bangia 16th edition
Contracts and Specific Relief Act by Avatar Singh