SUPREME COURT HOLDS THAT PRINCIPLES OF PROMISSORY ESTOPPEL AND LEGITIMATE EXPECTATION DO NOT BIND STATE FROM CREATING POLICIES

INTRODUCTION

The Bench comprising of Hon’ble Justice Vikram Nath and Hon’ble Justice Ahsanuddin Amanullah of the Hon’ble Supreme Court reiterated the principles of promissory estoppel and legitimate expectation while partly allowing appeals in the matter of Rewa Tollway P. Ltd. v. State of M.P. & Ors. Civil Appeal No. 8985 OF 2013 on 19/07/2024. The judgment decided a batch of 13 Appeals against an amendment made by the State of Madhya Pradesh (“State”) to the Indian Stamp (M.P.) Act, 2002 (“IS Act”). The Hon’ble Supreme Court upheld the decision of the High Court and only partly allowed the Appeals.

FACTS

The State authorised Respondent No. 3 – Madhya Pradesh Rajya Nirman Nigam Ltd. (“MPRSNN”) for reconstruction, strengthening, widening and rehabilitation of a section of road on the Satna-Maihar-Parasimod-Umaria Road Project to be executed through Concession on Build, Operate and Transfer Scheme (“BOT Scheme”).

MPRSNN invited tenders for the aforesaid project, according to which the Appellant’s – Rewa Tollways P. Ltd. bid was accepted. On 08/08/2002, a Letter of Acceptance was issued by MPRSNN to the Appellant for the execution of the Concession Agreement within 30 days.

Before these 30 days got over, on 12/08/2002, the State notified an amendment made to the IS Act and proviso (c) to Clause (C) was inserted to Entry No. 33 of Schedule-1(A) (“Amendment”), which provided that there shall be levy of stamp duty @ 2% on the amount likely to be spent on the project.

MPRSNN and the Appellant signed a Concession Agreement on 15/09/2002 on a stamp paper of Rs. 100. Almost two years later, the Appellant received a show cause notice to produce the original Concession Agreement before the Collector of Stamps, Bhopal (“Collector”). The Collector had to determine whether the Concession Agreement could be treated as a lease under the IS Act.

If the Concession Agreement qualified as a lease under the IS Act, the stamp duty should be calculated @ 2% of the amount spent by the lessee – which would amount to much more than the stamp amount originally signed upon by the Parties, i.e., Rs. 100.

The Collector directed recovery of deficit stamp duty amounting to over Rs. 1 Crore, payable by the Appellant. The Appellant challenged the Collector’s Order through a writ petition before the Hon’ble High Court of M.P. seated at Jabalpur.

The Appellant contended that the State was bound by legitimate expectation and promissory estoppel since the Chief Secretary had issued a Clarification dated 01/07/2002 stating that stamp duty would not be payable on such agreements in the State.

A further clarification was issued vide letter dated 21.07.2002 by the Chief Secretary of the State concerning the Resolution dated 01.07.2002, that no stamp duty would be levied on BOT Projects in future and such agreements would be signed on stamp paper of Rs.100/-, as was done through the Concession Agreement of the present case.

The High Court, vide Judgment and Order dated 11.02.2010, dismissed the Writ Petition along with eleven other matters and upheld the demand raised by the Collector.

Aggrieved by the Judgment passed by the High Court, the Appellant moved the Hon’ble Supreme Court by way of the present Appeal.

ISSUES

The Hon’ble Court had to adjudicate on the following issues:

1) Was the State bound by the principles of legitimate expectation and promissory estoppel, thereby making the concerned Amendment arbitrary, illegal and bad in law?

2) Does the Concession Agreement qualify as a lease, and if so, is the Appellant bound to pay the concerned stamp duty?

JUDGMENT AND ANALYSIS

The Hon’ble Supreme Court carefully examined all the material on record and held that the judgment of the High Court impugned in the present Appeals does not require any interference. However, the Hon’ble Court partially allowed the Appeals to the following extent:

1) Legitimate expectation protects an Applicant’s right to a fair hearing before a decision that violates a promise or withdraws an undertaking based on an expectation of a certain outcome or treatment. It does not, however, establish an absolute right to the anticipated outcome.

2) Legitimate expectations may not always result in relief, significantly when public interest, policy changes, or other justifiable reasons justify deviating from the expected course of action.

3) The Hon’ble Court upheld the Government’s flexibility in policy-making above fair treatment given due to the doctrine of legitimate expectation. Hence, in the present matter, the State was not bound by the said doctrine.

4) As an equitable doctrine, the theory of promissory estoppel only applies where equity compels a party to be estopped from retracting its commitment. The Hon’ble Court referred to its previous judgments and held that the doctrine of estoppel will not be applied against the State in its governmental, public or sovereign capacity.

5) It was further held that a past executive decision does not preclude the State legislature from implementing legislation or developing a policy that contradicts or conflicts with the previous executive decision in the wider public interest.

6) If a party acts upon the earlier promise by the State, it does not bestow any enforceable right upon that party and neither can the authorities be estopped from withdrawing its promise.

7) Therefore, the concepts of legitimate expectation and promissory estoppel would not apply in this case since the appellants do not have any enforceable legal rights in light of the preceding legislation or policy and executive action.

8) Coming to the question of whether the Concession Agreement is a lease, a bond, or a license, the Hon’ble Court held that the Agreement fulfils all the ingredients of a lease as given under Section 105 of the Transfer of Property Act, 1882 (“Lease defined.”). The Bench cited previous judgments of this Hon’ble Court and held that the term “lease” under the Stamp Act has a wider meaning than the Transfer of Property Act and any instrument by which tolls of any description are let “is considered as lease”.

9) The Hon’ble Court reduced the amount payable by the Appellant since the Amendment clearly stated that the lessee is only liable to pay stamp duty to the extent of the amount he spent. This amount excludes any amount spent by the lessor or any other stakeholder.

10) Further, the Hon’ble Court directed the Collector of the concerned district to determine the payable amount within two months from the judgment.

CONCLUSION

The Supreme Court, in Rewa Tollway P. Ltd. v. State of M.P. & Ors., reiterated the principles of promissory estoppel and legitimate expectation but held that these doctrines do not bind the State from creating or amending policies. The Court upheld the High Court’s decision requiring the appellant to pay stamp duty as per the amended Indian Stamp (M.P.) Act, 2002, asserting that the doctrines of promissory estoppel and legitimate expectation do not establish enforceable rights against legislative or policy changes made in the public interest. The judgment also clarified that the Concession Agreement qualifies as a lease under the IS Act, necessitating appropriate stamp duty payment.

 

Himangi Nagar

Intern

The Indian Lawyer & Allied Services