RAJ RANI VS.

PREM ADIB – MINOR AGREEMENTS VOID AB INITIO

Facts: The plaintiff, a minor, was allotted the role of an actress in a certain film by the defendant,
a film producer. The agreement was made with her father. Subsequent, the role was given to
another actress by the defendant and the agreement with the father was terminated.
Held: Neither the minor nor her father could sue on the promise. The contract, if with the minor,
was null and void. If the contract was with the father, it was without consideration and thus, void.
It was clarified that the promise of a minor to serve was not enforceable against her and thus,
could not have furnished any consideration for the defendant’s promise to pay her a salary.
NASH V. INMAN- MINOR AGREEMENTS VOID AB INITIO
Facts: Plaintiff was a tailor; the defendant, who was an undergraduate at the Cambridge
University, had ordered 11 fancy waistcoats. When the plaintiff sued for payment, the defendant
pleaded lack of capacity. Plaintiff argued that the waistcoats were in categories of necessities.
Held: There was no doubt that they were among the class of things (that is, clothing) capable of
being necessaries. It was up to the plaintiff to prove, however, that the defendant was not already
adequately supplied with the items of this kind, which he was unable to do. The plaintiff was
unable to enforce the contract.
MOHORI BIBEE V. DHARMODAS GHOSE (1903) – MINORS AGREEMENT VOID AB INITIO
Facts: The plaintiff, Dharmodas Ghose, while he was a minor, mortgaged his property in favor
of the defendant, Brahmo Dutt, who was a moneylender to secure a loan of Rs.20,000. The
actual amount of loan given was less than Rs.20,000, an advance of 10,500. At the time of the
transaction the attorney (Kedar Nath), who acted on behalf of the money lender (Principal-Agent
relationship), had the knowledge that the plaintiff is a minor as he got a letter from another
attorney.
The plaintiff brought an action against the defendant stating that he was a minor when the
mortgage was executed by him and, therefore, mortgage was void and inoperative and the same
should be cancelled. By the time of Appeal to the Privy Council the defendant, Brahmo Dutt
died and the Appeal was prosecuted by his executors.
The Defendant, amongst other points, contended that the plaintiff had fraudulently
misrepresented his age and therefore no relief should be given to him, and that, if mortgage is
cancelled as requested by the plaintiff, the plaintiff should be asked to repay the sum of
Rs.10,500 advanced to him.
Held: The defendant’s contention that the minor had falsely misstated his age, the law of
estoppel should apply against him and he should not be allowed to contend that he was a minor,
was considered. The Privy Council found that the defendant’s agent knew the fact that the
plaintiff was a minor at the time making of the agreement. It was held that the law of estoppel as
stated in Section 115, Indian Evidence Act, was not applicable to the present case, where the
statement (about age) is made to a person who knows the real facts and is not misled by the
untrue statement. It was observed:
“There can be no estoppel where the truth of the matter is known to both the parties, And their
Lordships hold, that a false representation, made to a person who knows it to be false, is not such
a fraud as to take away the privilege of infancy.”
Another contention of the defendant was that, if the plaintiff’s claim to order the cancellation of
the mortgage is allowed, the plaintiff should be asked to refund the loan taken by him, according
to Section 64 and 65, Indian contract Act.
Section 64 of the Indian Contract Act reads as under:
“When a person at whose option a contract is voidable rescinds it, the other party thereto need
not perform any promise therein contained of which he is promisor. The party rescinding a
voidable contract shall, if he received any benefit there under from another party to such
contract, restore such benefit, so far as may be, to the person from whom it was received.”
Their Lordships observed that Section 64 was applicable to the case of a voidable contract.
Minor’s agreement being void ab intio, Section 64 was not applicable to the case and therefore
the minor could not ask to pay the amount under this section.
Application of Section 65, Indian Contract Act, to the present case was also considered. Section
65 is as follows:
“When an agreement is discovered to be void or when a contract becomes void, any person who
has received any advantage under such agreement or contract is bound to restore it, or to make
compensation for it, to the person from whom he received it.”
As regards the application of this section to the present case is concerned, it was observed that
this section, like section 64, starts on the basis of there being an agreement or contract between
competent parties, and has no application to a case in which there never was, and never could
have been, any contract. The minor, therefore, could not be asked to repay the amount even
under Section 65because minor’s agreement is a void ab initio agreement.
The defendant claimed the refund of the mortgage money under another provision also, i.e.
Section 41, Specific Relief Act, 1877 (Now, Section 33, 1963). The section reads as follows:
“On adjudging the cancellation of an instrument, the Court may require the party to whom such
relief is granted to make any compensation to the other which justice may require.
As regards this section, it was held that this section gives discretion to the court to order
compensation, but under the circumstances of this case justice did not require the return of
money advanced to the minor, as the money had been advanced with the full knowledge of the
infancy of the plaintiff.
KHAN GUL V. LAKHA SINGH (1928)
Facts: The defendant while still a minor, fraudulently concealing his age, contracted to sell a plot
of land to plaintiff. He received the consideration of Rs. 17,500/- and then refused to perform his
part of bargain. The plaintiff prayed for recovery of possession or refund of consideration.
Held: The court said there could be no question of specific enforcement, the contract being void
ab initio. There is no real difference between restoring the property and refunding the money,
except that the property can be identified but cash cannot be traced. As per Section 33(1) of the
Specific Relief Act, 1963 if a minor comes to the Court as a plaintiff, he can be compelled to
disgorge (to surrender) his gains under the agreement. As per Section 33(2) if the minor is
brought before the court as a defendant, he can be compelled to account for such portion of
money or other benefits received by him has gone to benefit him personally, such as education or
training or has resulted as accretion to the estate. It must be remembered that while in India all
contracts made by infants are void and scope of application of the equitable doctrine of
restitution is comprehensive.
LESLIE V. SHEILL (1914)
Facts: Defendant obtained loans from plaintiff by fraudulently misrepresenting that he was of
full age at the time of contract. Defendant sued him to recover the money.
Issues: 1) Whether defendants are entitled to equitable restitution against loan given to minor?
2) Whether they could claim restitution either under action for tort arising out of contract, or of
quasi-contractual claim?
Held: 1) If an infant obtains property or goods by misrepresenting his age, he can be compelled
to restore it so long as the same is traceable in his possession. This is known as equitable
doctrine of restitution.
However, in present case, since the money was spent by the defendant, there was neither any
possibility of tracing it nor any possibility of restoring the thing got by fraud, for if the court will
ask defendant to pay the equivalent sum as that of loan received, it would amount to enforcing a
void contract. Restitution stops when repayment begins and equity does not enforce against
minor any contractual obligation.
2) Infant can’t be held liable for a wrong when the cause of action is ex contractu or is so directly
connected with the contract that it would be an indirect way of enforcing the contract. But, if the
wrongful act though connected with the subject matter of the contract, yet is independent of it in
the sense of not being an act contemplated by it, then infant can be liable.
In present case, since an action either on torts or on quasi contractual claim would be tantamount
to enforcing the contract by making defendant liable to pay the damages or restitution, hence, no
such action lies.
BALFOUR V. BALFOUR- INTENTION TO CONTRACT
Facts: Husband and wife stayed in Ceylon where the defendant worked and they went to
England for a vacation. On return of Defendant to Ceylon, the wife was advised to stay in
England due to health reasons.
The Husband doesn’t send an allowance to the wife of £30 as support which he promised for the
health maintenance of the wife as the relationship deteriorated
Held: It can’t be enforced in a court of law as there was no intention to enter into a contract with
legal consequences. There was no consideration offered by the wife to the husband.
Another reason being, it would open the floodgates of legislation if agreements between spouses
were considered contracts.
 MERRITT V. MERRITT – INTENTION TO CONTRACT
Facts: Husband and wife were legally separated. The husband was living with another woman
and had a written agreement stating that their jointly owned house would be transferred to the
wife after the monthly sum of £40 would be paid to her to complete the mortgage payments, if
she paid all of the payments on time. When payment was complete, Mr. Merritt refused to make
the transfer.
Held: it was binding on him to make the transfer of his share to his wife as the couple had
separated and had an agreement in a written form which proves their intention to create a legal
obligation.
The presumption in domestic agreements could be rebutted where there was an evidence of an
intention to create legal obligation.
EDWARDS V. SKYWAYS – INTENTION TO CONTRACT
Facts: The claimant was an airline pilot working for the defendant. He was to be made
redundant. The defendants said that if he withdrew his contributions to the company pension
fund, they would pay him the equivalent of company contributions in an ex gratia payment
(some payment made voluntarily and had no legal obligation to pay it). The claimant agreed to
this and withdrew his contributions. The company then ran into further financial difficulty and
went back on their promise relating to the ex gratia payment.
Held: The agreement had been made in a business context which raised a strong presumption
that the agreement is legally binding. The claimant could therefore enforce the agreement and
was entitled to the money. Court also said that the promise to make the ex gratia payment was
made as a business matter. Therefore, it was held to be binding. The defendant couldn’t prove
otherwise. The term ex gratia was used to show that there is no pre-existing obligation but
doesn’t preclude the legal enforceability of the settlement
It was essential as the person had made his services redundant on the basis of it and had
withdrawn his pension fund.
ROSE AND FRANK CO. V. J.R. CROMPTON AND BROS. LTD. – INTENTION TO CONTRACT
Facts: Rose and Frank Co. was the exclusive American distributor for J.R. Crompton’s new
carbonized tissue paper and were to remain the same till March 1920. In their agreement there
was a clause included stating that the arrangement was not intended to be a formal legal
agreement and would not be subject to legal jurisdiction of either the US or the UK. J.R
Crompton cancelled the agreement because they were unhappy with Rose and Frank Co.'s
proceedings and Rose and Frank Co. sued for breach. They were successful at trial, which J.R.
Crompton appealed.
Held: Scrutton, writing for the majority, stated that although in business relations, it is generally
assumed that a contract has been intended, here, there is a specific clause stating the intention of
the parties not to be bound in a legal contract. In contract law it is the intentions of the parties
that matters, and here they are clearly stated. As the parties did not intend to be bound, there is
no legally enforceable contract. (But in general, there can’t be an agreement with such terms as
this is against public policy)
The Blue Pencil Rule- If a specific clause in the contract is not valid, then that clause would be
removed and the rest of the contract would be binding.
In the court of appeals - Atkin, in the dissent, agreed that the document did not form a legally
binding contract, but held that the orders and responses between the parties in the process of
business constituted enforceable contracts of sale.
You can’t put a clause like this in a contract and the way in which the parties were acting was
creating an impression that a legal obligation was intended.
SIMPKINS V. PAYS – INTENTION TO CONTRACT
Facts: A Grandmother, granddaughter and a lodger entered into a weekly competition run by the
Sunday Empire News. The coupon was sent in the Grandmother’s name each week and all three
made forecasts and they took it in turns to pay. They had agreed (express agreement which
became the implied agreement) that if any of them won they would share the winnings between
them. The grandmother received £250 in prize money and refused to share it with the other two.
The lodger brought the action to claim one third of the prize money.
Held: There was a binding contract despite the family connection as the lodger was also party to
the contract (The presence of a third party proves the intention). This rebutted the presumption of
no intention to create legal relations.
 ESSENTIALS OF A VALID OFFER/PROPOSAL
1. Expression of willingness to do/abstain from doing something to obtain the other person’s
assent.
A casual inquiry is not a proposal.
2. An intention to contract: There’s no express provision under the ICA but it can usually be
made out by the terms of the offer.
3. An offer can be express as well as implied.
- Express: usually written/spoken (Here, the intention factor is clear)
- Implied: By way of conduct
UPTON RURAL DISTRICT COUNCIL V POWELL
Facts: A fire broke out in the defendant’s farm. He believed that he was entitled to the free
services of Upton Fire Brigade and, therefore, summoned it. The Brigade put out the fire. It then
turned out that the defendant’s farm was not within free service zone of the Upton, which
therefore, claimed compensation for the services and the defendant refused to pay them.
Held: The court said “The truth of the matter is that the defendant wanted the services of Upton;
he asked for the services of Upton and Upton, in response to that request, provided the services.
Hence, the services were rendered on an implied promise to pay for them.
4. Certainty of offer-
5. Cross offer- When there are two identical offers but there is no knowledge of the offer to
either of the parties. Suppose there are two parties who make identical offers to each
other in ignorance of each other’s offer, it’s said to be a cross offer.
This doesn’t amount to acceptance and therefore, there is no agreement.
6. Communication of Offer-
7. General and specific Offer-
BHAGWAN DAS GOVARDHANDAS KEDIA V. GIRDHARI LAL PURUSHOTTAM DAS (1966) – INSTANT COMMUNICATION
Facts: Plaintiff offered to get certain goods supplied at Ahmedabad to defendants who accepted the offer at
Khamgaon. On defendants’ failure to supply requisite goods, plaintiff sued them at Ahmedabad. Dispute arose as to
where was contract formed- at Khamgaon where acceptance was given by defendants or at Ahmedabad where
acceptance was received by plaintiffs.
Contentions: Defendants contended that according to the section 2, 3 and 4 of ICA, the place where the offer is
accepted is the place where the contract is made and therefore Ahmedabad trial court did not have the jurisdiction to
try the suit.
Held: An agreement does not result from mere intent to accept the offer: Acceptance must be by some external
manifestation (either by speech, writing, conduct in further negotiations, or any other overt act) accompanied by its
communication to the offeror unless expressly waived by him or impliedly by the course of negotiation to the
contrary. Hence, as against cases of correspondence by post or telegram, in present case where there was
correspondence by telephone, contract was formed when acceptance was duly communicated (not sent through in
transmission) to the offeror and hence, at Ahmedabad. It was held that Ahmedabad was the place of contract (the
place where it comes to the knowledge of the offeror).
ENTORES LTD V MILES FAR EAST CORP (1955) – INSTANTANEOUS RULE OF COMMUNICATION
Facts: Entores was a London based trading company. The plaintiff sent a telex (instantaneous) message from
England offering to purchase 100 tons of Copper Cathodes from the defendants in Holland. The defendant sent back
a telex from Holland to the London office accepting that offer. The contract was not fulfilled and so Entores
attempted to sue the owner of the Dutch company for damages. The question for the court was at what point the
contract came into existence. If the acceptance was effective from the time the telex was sent the contract was made
in Holland and Dutch law would apply. If the acceptance took place when the telex was received in London then the
contract would be governed by English law.
Held: Acceptance on receipt of notice principle. However, it was ruled that it would make no sense for an
instantaneous reply to an offer to be deemed to be accepted at the place of origination of acceptance, because this
will conflict with the law as regards acceptance by telephone, etc. To amount to an effective acceptance the
acceptance needed to be communicated to the offeree. Therefore the contract was made in England.
CARLILL V. CARBOLIC SMOKE BALL CO. (1893) – GENERAL OFFER
Facts: The defendant company advertised in several newspapers that a reward of £100 would be paid to any person
who contracted influenza, cold, or any other disease associated with cold even after using the smoke balls of the
company – a preventive remedy, 3 times a day, for 2 weeks in accordance with the printed directions. They also
announced that a sum of £ 1000 had been deposited with the Alliance Bank as a proof of their sincerity.
The plaintiff, Mrs. Carlill had seen the advertisement, used the smoke balls according to the printed directions and
for a period as specified, but still contracted influenza. She sued the defending company to claim the reward of £ 100
as advertised by the company.
The defendants argued inter alia that it was impossible to contract with the whole world and that she should have
notified / communicated to them of her acceptance of the offer.
Held: Rejecting the argument, the Court held that the advertisement constituted the offer to the whole world at large
(general offer) which was accepted by the plaintiff by conduct (by using smoke balls). Therefore she was justified to
the reward of £100.
The Court observed that by performing the required act and complying with the necessary conditions attached to the
offer of this kind (general offer) — the offeree has sufficiently accepted the offer and there is no need for any formal
notification/communication of her acceptance to the offer.
Contentions: The offer is not a definite offer and its vague and ambiguous. The court held that the offer was a pretty
much definite offer as a method was prescribed to consume the medicine and whoever contracted the disease even
after consuming the medicine in the prescribed format and still fell ill could claim a reward of £100. The terms of the
offer were simple and clear and there was nothing vague or indefinite about it.
There was no intention to create a legal obligation and their advertisement was a mere puff. The court held that the
very fact that the advertisements stated the fact that the company had deposited £1000 in a bank account for these
purposes make it very clear that there was an intention to enter into legal relations.
Lalman Shukla vs. Gauri Dutt (1913) – Communication when complete
Facts: In this case, the defandant’s nephew absconded from home. The plaintiff who was the defendant’s servant was
sent to search the missing boy. After the plaintiff had left, the defendant issued handbills of 501 rupees to anyone
who would have found the boy. The plaintiff came to know of this offer only when he had already traced and
informed the defendant about the boy. The plaintiff brought an action for to claim this reward.
In this case, G (defendant) sent his servant L (plaintiff) in search of his missing nephew. G afterwards announced a
reward for information concerning the missing boy. It traced the boy in ignorance of any such announcement.
Subsequently when he came to know of this reward, he claimed it.
Held: It was held that since the plaintiff was ignorant of the offer of reward, his Act of bringing the lost boy didn’t
amount to the acceptance of offer and therefore he was not entitled to claim the reward. There can be no acceptance
of the offer until and unless, there is knowledge about the offer.
Adams Vs Lindsell (1818)
Facts: Defendants mailed their offer to sell on the 2nd of September, 1817. . The Defendants’ letter was misdirected
due to the defendant’s mistakes and did not reach the plaintiffs until 7:00 p.m., Friday the 5th. That night, Plaintiffs
accepted Defendant’s offer, and mailed it directly back in a timely manner. It was received by Defendant on the 9th,
but they expected to receive it on the 7th and, in the meanwhile, had offered and sold their wool to another person on
th
8 September. Plaintiffs brought suit for the losses they sustained by not receiving the fleeces.
Issue: This case considers when mutual assent to an agreement occurs in the particular circumstance of a mail
contract.
Held: The Court of King’s Bench upheld the rule of the trial court- While forming contracts by mail, acceptance is
valid from the time of mailing a letter containing language of same.
Because Defendants, in their offer, notified the Plaintiffs of their terms, that they would await acceptance in the
course of post, they were bound by the terms of their offer until it was accepted or until the terms of the offer had
expired. Plaintiffs accepted within the course of post, by mailing same, and therefore manifested a valid assent.
HARVEY V. FACEY (1893) – VALID ACCEPTANCE
Facts: “Will you sell us Bummer Hall Pen? Telegraph lowest cash prize.” Complainant: “Lowest prize for Bummer
is 900£.” Plaintiff: “I agree to buy the pen for 900£.”
Facey was in negotiations with Mayor’s Council of Kingston to sell a piece of property to City of Kingston.
1. Trial Court ruled in favor of Plaintiff
2. Court of Appeal: Defendant
3. SC: Plaintiff (Harvey)
4. Privy Council: (Defendant)
Held: There were two questions asked and the response was made for only one. Mere quotation of price does not
amount to offer to sell.
PHARMACEUTICAL SOCIETY OF GREAT BRITAIN VS. BOOTS CASH CHEMIST LTD. (1952) – DISPLAY OF GOODS
Facts: Medicines were displayed with price tags. Plaintiff picked up the medicines and brought to the cashier. But
the cashier rejected to sell that medicine. Plaintiff filed a suit for the enforcement of the contract. PSGB contended
that display of the medicine was offer and putting medicine in basket was acceptance
Queen’s Division Bench of HC and Court of Appeals sided with defendant.
Held: The display of articles on shelves in a self-service shop / store merely amounts to invitation to offer. The offer
is made when the customer places goods in the basket and then at the counter, the shopkeeper/cashier has the right to
reject/accept the offer.
 DICKINSON VS DODDS (1876)
Facts: Dodds delivered an offer to sell a house and land to Dickinson on Wednesday, stating that the offer was to
stay open until 9 a.m. on Friday. Dickenson apparently decided to accept the offer on Thursday, but said nothing to
Dodds because he thought he had until Friday morning. However, he was informed that Dodds had sold the property
to someone else on Thursday evening and tried to reach Dodds, leaving a letter with Dodds' mother-in-law where he
was staying. An agent of Dickinson found Dodds on Friday morning at around 7am, but was informed that the
property had already been sold. Dickinson brought an action of specific performance. (In India, there can’t be a third
party to communicate the facts of the deal done [Doctrine of privity of contract] unless there is revocation by the
offeror or his authorized agent/ revocation by the acceptor/ authorized agent)
Held: The offer to be held open until Friday 9 o’clock was only an offer that was not supported by consideration or
acceptance by Plaintiff. There was no binding agreement to keep the property unsold until 9 o’clock Friday morning.
The other party was free to make a more favorable offer to Defendant, which he was free to accept. There was no
binding agreement between Defendant and Plaintiff since Plaintiff had not accepted the offer. In addition, it was
questionable whether Plaintiff could accept at all once he had knowledge that the person had sold the property to
someone else.
Brogden v. Metropolitan Railway Co. (1877)
Facts: The plaintiffs supplied coal to the defendant railway company for a number of years. The parties decided to
formalize the agreement in a written contract. The defendant sent a draft contract to the plaintiff. The plaintiff made
some minor adjustments and completed some blanks and returned it to the defendant, marked approved. Without
further communication, the defendant filed the document. For a further two years the plaintiff continued to supply
the coal, then a dispute arose.
Held: There was a valid agreement. The amendments made by the plaintiff constituted a counter offer, which was
clearly accepted by the defendant, by continuing to receive the coal. Conduct could amount to acceptance. However,
it was unclear when the defendant had in fact accepted the offer. It was sufficient that a valid contract was found to
exist so it was not necessary for the House of Lords to determine if the acceptance occurred when the defendant first
ordered coal, after receipt of the offer, or when it took delivery of the coal.
Felthouse vs. Bindley (1862) – Acceptance communication necessary
Facts: F (uncle) offered to buy his nephew’s horse for £ 30 saying “if I hear no more about it I shall consider the
horse mine at £ 30.” (offer must not thrust the burden of acceptance.) The nephew did not write / reply to F at all. He
told his auctioneer, B to keep the particular horse out of sale of his farm stock as he intended to reserve it for his
uncle, F. B the auctioneer, inadvertently, sold the horse. F sued him, B, for conversion of his property.
Held: F has no right of action against the auctioneer since the horse was not sold to him. This offer of £30 having not
been properly accepted, since the nephew had not properly communicated the acceptance to F.
The Court observed that it was clear that the nephew had in his mind the intention to sell his horse to his uncle. But
an unconditional assent to accept unaccompanied by any external inclination will not suffice. Normally the person to
whom the proposal is sent need not reply and the general rule – acceptance of offer – will not be implied, intended
from the mere silence on the part of the offeree.
The acceptance of an offer should be communicated to the offerer himself or his authorized agent.
An offerer cannot impose on the offeree the burden of refusal or duty to reply. Mere silence or mental assent cannot
be regarded as acceptance of the offer.
Offer should be communicated to the offeror himself or to the person he has authorized to receive the acceptance. A
communication to a stranger, like the auctioneer in the case, would not do.
Secondly, an offeror cannot impose upon the offeree the burden of refusal. “if I receive no answer, I shall….” is
invalid and silence can’t be equivalent to acceptance.
Boulton v. Jones (1857) – Offer made to a particular person
Facts: Jones used to have business dealings with Brocklehurst. He sent an order (offer) to Brocklhurst for the
purchase of certain goods. By the time the order reached Brocklehurst, he had sold his business to Boulton. Boulton
receiving the order sent all the goods to Jones as per the order without informing Jones of the changing of the hands
of the business. When Jones learnt that the goods were not supplied by Brocklehurst, he refused to pay for the goods
which he had already consumed. His contention was that he had never placed an order to Boulton, the offer being
made to Brocklehurst, and therefore had no intention to make a contract with Boulton.
Held: Jones was not liable to pay.
Brambell B has stated: “When anyone makes a contract in which the personality, so to speak, of the particular party
contracted with is important, for any reason whether beacuase it is to write a book or paint a picture or to do any
work of personal skill, or whether because there is a set-off due from that party, no one else is at liberty to step in and
maintain that he is the party contracted with.”
maintain that he is the party contracted with.”
Dutton v. Poole
Facts: A person had a daughter to marry and in order to provide her a marriage portion he intended to sell a wood of
which he was possessed at the time. His son (the defendant) promised that if the father would bear to sell at his
request he would pay the daughter 1000£. The father accordingly forbore but the defendant did not pay. The daughter
and her husband sued the defendant for the amount.
Held: The plaintiff was neither privy to the contract nor interested in the consideration.
1. But the whole objective of the agreement was to provide a portion to the plaintiff.
2. It would have been highly inequitable to allow son to keep wood and yet to deprive his sister of her portion. He
was held liable.
She can also file the suit as there was direct dependency of the right of the daughter on the agreement and there was
also a blood relation.
In Dutton v. Poole, the consideration moved indirectly from the plaintiff to the defendant and the action of the
defendant operated to shut out the plaintiff from a certain benefit. Therefore, the plaintiff could sue. Also, in case of
Chinnaya v. Ramayya, the failure to keep up the promise had deprived the plaintiff of a certain benefit. It is a legal
commonplace that if a promise causes some loss to the promisee, that is sufficient consideration for the promise.
Venkata Chinnaya Rao vs Venkata Ramayya Garu (1882)
Facts: A, an old lady, granted/gifted an estate to her daughter the defendant, with the direction / condition that the
daughter should pay an annuity (annual payment) of Rs.653 to A’s sister, the plaintiff.
On the same day the defendant, daughter (promisor), made a promise via an agreement (Iqrarnama) with her aunt
that she would pay the annuity as directed by her mother, the old lady.
Later the defendant refused to pay on the ground that her uncle (promise/plaintiff) has not given any consideration.
She contended that her uncle was stranger to this consideration and hence he cannot claim the money as a matter of
right.
Held: The Madras HC held that in this agreement between the defendant and plaintiff the consideration has been
furnished on behalf of the plaintiff (uncle) by his own sister (defendant’s mother). Although the plaintiff was stranger
to the consideration but since she was a party to the contract she could enforce the promise of the promisor, since
under Indian law, consideration may be given by the promisee or anyone on his behalf – vide Section 2 (d) of ICA.
The main consideration has moved from the mother to the daughter on the transfer of property. The old lady had
been taking annuity as a matter of right earlier and had waived off that payment from her sister. This payment and its
waiver was a consideration for the contract. The consideration is moving. By signing Iqrarnama (a valid contract),
the consideration has moved from defendant to plaintiff. (READ THE DIFFERENT CONSIDERATIONS)
Thus, consideration furnished by the old lady constitutes sufficient consideration for the plaintiff to sue the defendant
on her promise. Held, the brother / uncle was entitled to a decree for payment of the annual sum of money.
Innes J tried to equate the situation with Dutton v. Poole
Stems from the section “from the promise…”
Intentional beneficiary: If parties entering for the benefit for the third person, that person is the intentional
beneficiary. These persons can also sue in the contract breach cases.
Incidental beneficiary: Not exactly meant to happen but happens.
Privity of Contract: The Doctrine of Privity of Contract means that a contract remains a contract between the parties
only and no third party that is a stranger to the contract can sue upon it even if there was an indirect benefit to him
from the contract.
Tweddle v. Atkinson
Fact: A couple was getting married. The father of the bride entered an agreement with the father of the groom that
they would each pay the couple a sum of money. The father of the bride died without having paid. The father of the
son also died so was unable to sue on the agreement. The groom made a claim against the executor of the will.
Held: Whitman J stated in the judgment ‘No stranger to the consideration can take advantage of a contract although
made for his benefit. Although the contract was made for the sole purpose for securing benefit to the plaintiff, he was
not allowed to sue as the contract was made with his father and not him.
The case laid down the foundations of “privity of contract”- the contract is a contract between the parties only and no
third person can sue upon it even if it is avowedly made for his benefit.
There was no detriment to the plaintiff. There was only a benefit which was deprived.
There was no detriment to the plaintiff. There was only a benefit which was deprived.
Kedarnath v. Gorie Mohmad
Facts: Plaintiff being the commissioner of Howrah and one of the trustees of the Howrah town hall fund,
contemplated that if the necessary amount is raised by the way of subscription, they would build the town hall.
The subscribers of the fund, while promising the money, undertook that in pursuance of the commissioner entering
into a contract for erecting the building, they are paying a certain amount.
After certain amount was raised, the plaintiff entered into a contract with the contractors for building the hall. (It is
the consideration of the contract as a person’s position has been altered because of the non-payment) One of the
subscribers, who had promised to pay Rs.100 refused to pay and plaintiff sued.
Issues:
1. Whether the plaintiff and all other persons interested can sue the defendant for payment of the amount subscribed?
2. Whether the amount subscribed by the defendants can be claimed in event of no consideration for the defendants?
Held: In an ordinary situation, if somebody puts his name for a subscription for a charitable object it cannot be
recovered as there is no consideration.
However, in this particular case, persons subscribing knew the purpose for which the money was applied and was
also aware that on the account of their subscription, the plaintiff entered into the contract. The court considered this a
perfectly valid contract and with good consideration.
Hence, it was held that plaintiff and other persons interested could sue for the amount subscribed and defendant has
to pay the money promised.
The high court ordered the judge of small cause court to decree the suit for the amount claimed.
The plaintiff’s act in entering into a contract with the contractor was done at the desire of the defendant who
was the promisor so as to constitute consideration within the meaning of section 2 (d).
Doraswami Iyer v Arunachala Ayyar
Facts: The repair of a temple was in progress. As the work proceeded, more money was required and to raise these
money subscriptions were invited and a subscription list was raised. The defendant put himself down on the list for
Rs.125 and it was to recover this sum that the suit was filed. The plaint found the consideration for the promise as a
reliance on the promise of the subscriber that they have incurred liabilities in repairing the temple.
Judgment: The learned judge held that there was no evidence of any request by the subscriber to the plaintiff to do
the temple repairs. Since, the temple repairs were already in progress when the subscriptions were invited, the action
was not induced by the promise to subscribe but was rather independent of it. Hence, no recovery was allowed.
1. The repairs are in progress – no new and significant act (enough to be considered a consideration) is being
performed at the behest of the promisor.
Difference: In Kedarnath Case, the construction of the hall began on the faith of the promised subscriptions. But in
the present case, temple repairs were already in progress when the subscriptions were invited. The action was not
induced by the promise to subscribe but was rather independent of it.
Beswick v. Beswick
Facts: Peter Beswick was a coal merchant. He agreed to sell his business to his nephew, the respondent, if he paid
him a certain sum of money for as long as he lived, and then to pay his wife (the appellant) £5 per week for the rest
of her life after he died. He died, and the nephew only paid his aunt once before stating that no contract existed
between them. She was also the administrator of her husband's will. Mrs. Beswick was unsuccessful at trial and
successful at appeal, which John Joseph Beswick appealed.
Issue: Is Mrs. Beswick able to sue her nephew either in her own personal capacity, as the executrix of the will, or
both?
Held: Appeal dismissed. Held, the House of Lords decided that the aunt has no right to sue her nephew in her own
capacity as she was not a party to the contract. This overturns Denning's findings in the lower court allowing third
parties to sue for benefits that were guaranteed to them under a contract. However, in her capacity as the
administrator she is able to sue him for the specific performance of his promise that was made in the contract.
She is the intentional beneficiary.
Ratio:
1. Third parties cannot sue for breach of contract when they were not a party to the contract, even if they were named
as a beneficiary of the contract.
2. Executors of wills can sue for specific performance of promises made in contracts with the deceased.
2. Executors of wills can sue for specific performance of promises made in contracts with the deceased.
DunlopTyre Co. v. Selfridge & Co.
Issue: Is it possible for one party to sue another even though no contractual relationship exists between them?
Facts: Dunlop, a tyre manufacturing company, made a contract with Dew, a trade purchaser, for tyres at a discounted
price on condition that they would not resell the tyres at less than the listed price and that any reseller who wanted to
buy them from Dew had to agree not to sell at the lower price either. Dew sold the tyres to Selfridge at the listed
price and made Selfridge agree not to sell at a lower price either and that they would pay £5 in damages if they
violated this agreement. Selfridge proceeded to sell the tires below the price he promised to sell them for. Dunlop
brought action and was successful at trial but this was overturned by the Court of Appeal.
If there is another rival selling the tyres at a lower price, the demand of Dunlop would reduce in the market.
Issue: Is it lawful for Dunlop to sue Selfridge even though no contractual relationship exists between them?
Held: Appeal dismissed. The Lords agree fundamentally with the decision of the Court of Appeal; there was no
contract between Dunlop and Selfridge and therefore Dunlop cannot sue. There are a few fundamental principles of
law underpinning this decision:
a) the doctrine of privity, which states that only a party to a contract can sue in breach of the contract;
Doctrine of privity is based in the idea of equity- the essentials for a contract are fulfilled and the parties which are a
part of the contract and it is a private agreement between the parties.
b) the doctrine of consideration would require the promisee (Dunlop) to give consideration to Selfridge for the
contract to be completed, and this did not occur as Dunlop did not give anything to Selfridge here (Selfridge made a
promise to Dunlop to only sell at a certain price but it was gratuitous because Dunlop gave no consideration in
return); Dunlop was an incidental beneficiary.
c) the only way that a principal not named in a contract can be sued is if he acted as an agent on behalf of one of the
parties privy to the contract. Dew was not acting as an agent for Dunlop, therefore this does not apply in this case. If
Dew were Dunlop's agent, then the effect of the two deals would really be one deal. In an agency agreement, the
Agent disappears and the contract is between the principal (Dunlop) and the third party (Selfridges) The principal
gives tires and the third party gives money. This did not happen here. The court held that the tires belonged to Dew,
not Dunlop. They had already sold them.
Ratio: Only parties to a contract can sue for a breach of the contract. The only exception to this rule is if a party
named in the contract was acting as an agent of an unnamed party; in this case, the unnamed party can be sued.
M/S MOTILAL PADAMPAT SUGAR MILLS V. STATE OF UTTAR PRADESH & ORS. (PROMISSORY ESTOPPEL)
Facts: Government of UP announced to give tax exemption from sales tax for three years to all new industrial units
of the state. The plaintiff sought confirmation from Director of Industries and he reiterated the government’s
statement. Also, unequivocal assurance was given by Chief Secretary of Govt., on behalf of UP Government, to

plaintiff about the same. Plaintiff on this categorical assurance, borrowed money from financial institutions, brought
plant and machinery and set up a new plant in UP.
However, State govt. went back upon this assurance and instead now promised to give partial concession to which
plaintiff consented and started production. Once again, however, State govt. went back even on this promise denying
any concession to be given. Plaintiff sued the government on account of promissory estoppel.
Issues: Whether plaintiff waived his right to have a cause of action by accepting partial exemption?
1) Whether plaintiff can have a cause of action on grounds of promissory estoppel?
2) Whether any such action against government acting in governmental, sovereign or administrative capacity can lie?
3) Whether in present case, plaintiff’s action is bound to succeed?
Held: Waiver as to a person’s right can operate only when person granting it has full knowledge of his right and
intentionally abandons it, either expressly or impliedly.
The Supreme Court held that the Government was bound by its promise and was liable to exempt the appellants from
sales tax for a period of three years commencing from the date of production.
However, in present case, there was no such waiver of rights by plaintiff: he didn’t have any full knowledge of his
rights to exemption under the assurance given by Chief Secretary. Firstly, the doctrine of promissory estoppel is not
so well defined in scope and ambit and so free from uncertainty that plaintiff must have had full knowledge of his
rights. Secondly, there is no presumption that every person knows the law; there is the rule that ignorance of law is
not an excuse which is altogether different in its scope and application.
KHAWAJA MUHAMMAD KHAN VS HUSSAINI BEGUM (1910)
Facts: Khawaja Muhammad Khan was the father of bridegroom. Hussaini Begum was the bride. Both the bride and
bridegroom were minors at the time at the time of marriage. The plaintiff and defendant’s father entered into an
agreement at the time of marriage. (According to Muslim law, Marriage are contracts) The plaintiff executed an
agreement with the defendant’s father that in consideration of the respondent’s marriage with his son, he would pay
to her a sum of Rs.500 every month in perpetuity for the betel-leaf expenses (kharchipandaan). He also charged
certain properties with the payment giving the power to the defendant (in her favor) to enforce it. The marriage took
place. After some years, the defendant and her husband separated. She sued the plaintiff for the recovery of the
arrears of annuity @ Rs.500 per month. The appellant argued that Hussaini Begum was not a party to the contract
entered by him with the father of Hussaini Begum.
Held: The Privy Council gave the judgment in favor of the defendant. It was held that Hussaini Begum, although
was not a party to the agreement, she was clearly entitled to proceed in equity. She, being the beneficiary of the
contract, could enforce her claim. The Privy Council held that a stranger to a contract is different from a stranger to
consideration. Here the defendant was a stranger to the contract, but she was concerned with the consideration.
Hence the famous rule ‘A stranger to a contract cannot sue’ would not apply in her case.
Exceptions to the privity rule: (nowhere explained in ICA, take case laws)
1. Trust/Charge: Khawaja Mohd. Khan v. Hussaini Begum-
2. Marriage Settlement/ partition/ family arrangement
3. Acknowledgement (By part performance)- Two parties. X tells Y to pay the money to Z and if Y pays it, then it is
acknowledgement. Z can also sue.
4. Assignee in an insurance policy: If Life Insurance Policy, in case husband dies and wife is made assignee, she can
sue the Insurance Company. She is the intentional beneficiary.
CENTRAL LONDON PROPERTY TRUST LTD. V. HIGH TREES HOUSE LTD (1956)
Facts: High Trees (HT) in this case had leased out a new block of flats from Central London Property Trust (CLP) at
a ground rent of £2,500 in 1937 for 99 years. HT faced difficulty in getting tenants for all the flats and the ground
rent left HT with no profit. Even after three years in the year 1940 many of the flats remained unoccupied.
Furthermore, there were conditions of the war looming large around that time. To HT, it did not look as if there was
to going to be any change to the situation in the near future. CLP thus agreed to reduce the rent to £1,250 during the
war times. The agreement was put in writing and HT paid the reduced rent from the year 1941. When the war was
over the flats became fully occupied and the claimant sought to return to the originally agreed rent. It was not
explicitly stated that what would be the time limit of the reduced rent. But it was contended that such arrangement
was due to war-time situation and full rent would be recoverable from the CLP.
Issue: The issue was whether Landlord is entitled to the full rent for the quarters and also the full time arrears.
Held: The promise of a reduction of rent was intended to be legally binding and was actually acted upon by HT.
Thus, it was binding on CLP to the extent that they would not be allowed to act inconsistently with it, although it was
not the subject of estoppel at common law. The promise was for a reduction of rent which was temporary and was to
endure so long only as the block of flats was not substantially let, and, since the block of flats was substantially let
early in 1945, the landlords were entitled to the full rent for the quarters ending Sept. 29 and Dec. 25, 1945.
Though in English law, promissory Estoppel ‘can only be a shield and not a sword’ (High Trees case) i.e. plaintiff
can’t have a cause of action solely on grounds of Promissory Estoppel though latter can serve as a part of cause of
action for if an independent cause of action may arise then it will be tantamount to doing away with the necessity of
consideration, and ‘doctrine of consideration is too firmly fixed to be overthrown by a side wind’ (Combe v. Combe).
Promissory Estoppel: not defined anywhere. Estoppel is defined in Evidence Act. Section 115: Intention factor very
pertinent. Person relies in promise/whatever stated. Promissory estoppel is part of Estoppel.
There should be alteration of position and second, alteration to the detriment to promisor. (Position = usually
Financial Position)
A promise is enforceable by law even if it is made without formal consideration when promisor has made a promise
to the promisee, who by relying on the promise, alters his position.
The promisor would be estopped from going back on the promise. Rule of Equity= No unnecessary harm to one
party.
Union of India v. Indo Afghan Agencies Ltd.
Facts:
Held: The principle of Promissory Estoppel was applied for the first time against the government. It appeared in
1968.
CENTRAL LONDON PROPERTY TRUST LIMITED V. HIGH TREES HOUSE LTD.
Facts: The plaintiffs gave the defendants a tenancy of a block of flats at a ground rent of 2500
pounds a year for a period of 10 years. As a result of WW II, the flats could not be fully let and
the plaintiffs agreed to reduce the rent by half the amount. In 1945, the war conditions ceased to
exist and the flats began to get occupied, but the defendants continued to pay reduced rent. The
plaintiff’s brought an action to recover full rent for the second half of the year in 1945 as well as
the arrears.
Held: One of the questions that the defendants raised was the consideration for the agreements to
reduce the rent. There was apparently no consideration for them to do so, but DENNING J.
stated that there was no need for there to be any form of consideration in a case like this where
the promise is not to set up as a course of action, but only as a defense. The plaintiffs had agreed
to forego the rent and the defendants had acted upon that promise up to the time of action, the
plaintiffs were estopped from alleging that there was no consideration for the promise.
 EXTRA INFORMATION AND CASES
For Privity of Contract:
1. There is no provision in the Indian Contract Act, 1872 either for or against the rule of ‘privity of contract’.
2. Jamna Das vs. Ram Avtar, X mortgaged some property to Y and then sold it to Z who agreed with X to pay the
mortgage debt to Y. Y sued Z for the recovery of the mortgage money. It was held that Y could not succeed as he
was not party to the agreement between X and Z.
3. In M.S. Chacko vs. State Bank Of Travancore, X Bank was indebted to the State Bank of Travancore under an
overdraft. A was the manager of the said X Bank and his father –B, had guaranteed the repayment of the
overdraft. B gifted his properties to the members of his family. The gift deed provided that any liability under the
guarantee should be met by A either from the bank or from the share of the property gifted to him. The State
Bank of Travencore sought to hold A liable on the basis of the gift deed. It was held that the State was not a party
to the deed and could not enforce it.
a) Trust or charge
Where a trust is created for the benefit of a person, he can sue upon the agreement to create the trust even if he is not
a party to it. In case of Khwaja Mohammad Khan v. Hussaini Begum, it was held on the basis of trust.
In the case of Baksh Singh vs. Jang Bahadur, X was appointed successor by his father and put in possession of his
estate. In consideration, X agreed with the father to pay a certain sum of money and property A – illegitimate son of
his father upon on his attaining majority. When A asked for his share upon attaining majority, X refused. It was held
that a trust was created in favour of A for a specific amount and property and the suit was maintainable.
b) Family arrangement
If a contract under a family arrangement is intended to secure a benefit to third party, he may sue in his own right as
a beneficiary.
In Rose Fernandez vs. Joseph Gonsalves, X entered into an agreement for his daughter’s marriage to A. It was held
that the girl could sue A for damages for breach of the promise of marriage. A’s plea that she was not a party to the
agreement did not hold ground.
Similarly, in the case of Rakhmanbai, there was provision made for the marriage expenses of a female member of a
Joint Hindu Family. When partition of the family property took place, the woman sued for her marriage expenses. It
was held that she was entitled to sue for the same.
c) Acknowledgement or estoppel
If a contract requires a party to pay a third party and he acknowledges it to the third party, he will incur a binging
obligation. The acknowledgement may be express or implied
Illustration: X receives Rs 1000 from Y for paying Z. X acknowledges the receipt of funds to pay him. Now, Z can
sue X for the recovery of the sum.
In Devaraja Urs vs. Ram Krishniah, X sold his house to Y and a specific sum was to be paid to A out of the sale
price due from Y. Y made a few payments to A but not the whole amount. It was held that A could recover the
balance because Y had acknowledged his liability by conduct.
d) Assignment of a Contract
A benefit under a contract may be assigned either by an act of the parties or by operation of law (in cases of death
and insolvency) and the assignee can sue upon the contract for the enforcement of his rights. However, in another
case,[11] it was held that a mere nominee, the person for whose benefit the deceased insured his or her life, cannot
sue on the policy because such person is not an assignee.
e) Covenants running with the land
In Tulk vs. Moxhay,[12] it was held that a person is bound by obligations attached to a land via a contract when he
purchases the said land with the notice that the agreements affecting the land bind him though he was not a party to
such contract or agreement.
The doctrine of Promissory Estoppel states that whenever an unequivocal promise is made with the intention of
creating legal relationship or affect a legal relationship to arise in the future (notwithstanding any pre-existing legal
or contractual relationship between the parties), knowing or intending that it would be acted on by other party and is
in fact acted on (altering the position of other party, not necessarily detrimentally) then promisor will be abstained
from going back on the promise if it will be inequitable for him to do so (i.e. if promisor’s going back on the promise
will detrimentally affect the promisee).
Statement of Lord Cairns in Hughes v. Metropolitan Rly Co. that “If parties, who had entered into definite and
distinct terms involving certain legal results, afterwards…enter upon a course of negotiation” may suggest that the
scope of Promissory Estoppel is limited only to cases where parties are already bound by legal or contractual
relationship and one of the parties promises to other that strict legal rights under contract will not be enforced.
However, in present case, Motilal Padampat Sugar Mills, Court held that the principle of Promissory Estoppel, even
when formulated by Lord Denning in High Trees case didn’t contain any such limitation, and in present also, this
limitation can’t apply.
Further, in order to attract the applicability of PE it is not necessary that promisee, acting on the promise should have
suffered any detriment, albeit the essential condition of alteration of position is to be fulfilled. If detriment is to be
necessary condition, it would have acted as consideration in many cases and there would have been no need to
evolve this equitable principle. However, promisee must show that it will be inequitable for promisor to go back on
his promise which can be proven by adducing the evidence of any ‘detriment’ which will be suffered by promisee if
such promise isn’t abided by.
However, in Indian context such a limitation of application of doctrine of PE only by way of defence doesn’t apply
(Motilal Padampat Sugar Mills case). This is because of following reasons: Firstly, it is not based on the principle of
estoppel rather is under the realm of equity and hence, can’t be inhibited by same limitation as estoppel in strict sense
of term; Secondly, rule of equity has been flexible enough to give ‘Propreitary Estoppel’ an independent cause of
action, which in qualitative terms is similar to Promissory Estoppel, albeit with difference of its applicability only to
cases of interest in land, equity must also allow an independent cause of action grounded on PE; SC hence refused to
draw any distinction between PE and Prop E; thirdly, law must be constantly developing and changing according to
changing social concepts and values, if equity demands promises to be enforced to promote justice, honesty and
good faith, there is no reason that the “dead wood” of need for consideration as necessity in enforcing any promise is
not dropped away.
Where the government makes a promise, even in sovereign, administrative or governmental capacity, knowing or
intending that it would be acted on by the promisee and, in fact, promisee, acting in reliance on it, alters his position,
the Government will be abstained to go back on its promise if it will be inequitable to do so, notwithstanding that
there is no consideration for the promise and promise is in fact is not recorded in form of a formal contract as
required by Art.299 of Constitution. The defence of ‘executive necessity’ which holds that Government can’t fetter
its future executive action to be determined by needs of community at relevant time do not release government from
being bound by such promises for it will be ultra-vires to rule of law and justice.
However, Firstly, Government can’t be bound by its promise to do an act or omission either expressly prohibited by
Law or is in prevention of its acting in discharge of its public duty under the Law; Secondly, government can’t be
bound by any promises made by officers or agents without any authority; Thirdly, if in accordance with facts that
have subsequently transpired, it will be inequitable to hold Government to its promise, Courts will not invoke equity
in favor of any such promise made, albeit this onerous burden to prove that any such enforcement of promise will be
against ‘public interest’ and hence against ‘equity’ lies on the Government; Fourthly, even when there is no
overriding public interest, if government gives a reasonable notice, thereby providing promisee a reasonable
opportunity to resume his position, it will be allowed to go back on it unless promisee has so altered his position that
status quo can’t be restored.
Hence, in light of categorical promise made by Chief Secretary, on behalf of Government, that plaintiff will be
entitled to sales tax exemption in respect of new industrial plant established in UP, and the knowledge of government
that such promise is to be acted on, it will be inequitable to allow Government to go back on promise because it was
in fact acted on by promisee resulting into altering his position which could not now be restored. Plaintiff not only
borrowed money from various financial institutions, purchased machinery but also established hydrogenation plant
in UP and went ahead with production. Hence, rule of promissory estoppel can be evoked in present case to be of
avail to plaintiff.
There can therefore be no doubt that the doctrine of promissory estoppel is applicable against the Government in the
exercise of its governmental, public or executive functions and the doctrine of executive necessity or freedom of
future executive action cannot be invoked to defeat the applicability of the doctrine of promissory estoppel. We must
concede that the subsequent decision of this Court in Jeet Ran v. State of Haryana [1980] 3 S.C.R. 689, takes a
slightly different view and holds 145 that the doctrine of promissory estoppel is not available against the exercise of
executive functions of the State and the State cannot be prevented from exercising its functions under the law. This
decision also expresses its disagreement with the observation made in Motilal Sugar Mills case that the doctrine of
promissory estoppel cannot be defeated by invoking the defence of executive necessity, suggesting by necessary
implication that the doctrine of executive necessity is available to the Government to escape its obligation under the
doctrine of promissory estoppel. We find it difficult to understand how a Bench of two Judges in Jeet Ram's case
could possibly overturn or disagree with what was said by another Bench of two Judges in Motilal Sugar Mills Case.
If the Bench of two Judges in Jeet Ram's case found themselves unable to agree with the law laid down in Motilal
Sugar Mills case, they could have referred Jeet Ram's case to a larger Bench, but we do not think it was right on their
part to express their disagreement with the enunciation of the law by a coordinate Bench of the same Court in Motilal
sugar Mills case. We have carefully considered both the decision in Motilal Sugar Mills and Jeet Ram's case and we
are clearly of the view that what has been laid down in Motilal sugar Mills case represents the correct law in regard
to the doctrine of promissory estoppel and we express our disagreement with the observations in Jeet Ram's case to
the extent that they conflict with the statement of the law in Motilal Sugar Mills case and introduce reservations
cutting down the full width and amplitude of the prepositions of law laid down in that case.
Of course we must make it clear and that is also laid down in Motilal Sugar Mills case (supra), that there can be no
promissory estoppel against the legislature in the exercise of its legislative functions nor can the Government or
public authority be debarred by promissory estoppel from enforcing a statutory prohibition. It is equally true that
promissory estoppel cannot be used to compel the Government or a public authority to carry out a representation or
promise which is contrary to law or which was outside the authority or power of the officer of the Government or of
the public authority to make. We may also point out that the doctrine of promissory estoppel being an equitable
doctrine it must yield when the equity so requires, if it can be shown by the Government or public authority that
having regard to the facts as they have transpired, it would be inequitable to hold the Government or public authority
to the promise or representation made by it, the Court would not raise an equity in favour of the person to whom 146
the promise or representation is made and enforce the promise or representation against the Government or public
authority. The doctrine of promissory estoppel would be displaced in such a case, because on the facts, equity would
not require that the Government or public authority should be held bound by the promise or representation made by
it.
This aspect has been dealt with fully in Motilal Sugar Mills case (supra) and we find ourselves wholly in agreement
with what has been said in that decision on this point.
We may now turn to examine the facts in the light of the law discussed by us. Here a representation was undoubtedly
made by the Central Board of Excise and Customs and approved and accepted by the Central Government, that the
cost of corrugated fibre boards containers would not be includible in the value of the cigarettes for the purpose of
assessment to excise duty. The respondents acted upon this representation and continued the use of corrugated fibre
board containers for packing the cartons / outers of cigarettes and did not recover from the wholesale dealers the
amount of excise duty attributable to the cost of such corrugated fibre board containers during the period 24th May
1976 to 2nd November, 1982. It would be most inequitable to allow the Excise Authorities to assess excise duty on
the basis that the value of the cigarettes manufactured by the respondents should include the cost of corrugated fibre
board containers, when it was clearly represented by the Central Board of Excise and Customs in response to the
submission made by the Cigarette Manufacturers' Association – and this representation was approved and accepted
by the Central Government that the cost of corrugated fibre board containers would not be includible in the value of
the cigarettes for the purpose of assessment of excise duty. Of course, this representation could operate to create
promissory estoppel only if it was within the competence of the Central Board of Excise and Customs and the
Central Government to make good such representation and the exclusion of the cost of corrugated fibre board
containers from the value of the cigarettes was not contrary to law. We think that the Central Government had power
under Rule 8 sub-rule (1) of the Rules to issue a notification excluding fibre board containers from the value of the
cigarettes and thereby exempting the cigarettes from that part of the excise duty which would be attributable to the
cost of corrugated fibre board containers. So also the Central Board of Excise and Customs had power under Rule 8
sub-rule (2) to make a special order in the case of each of the respondents granting the game exemption, because it
could 147 legitimately be said that, having regard to the representation made by the Cigarette Manufacturers'
Association, there were circumstances of an exceptional nature which required the exercise of the power under
subrule (2) of Rule 8. The Central Government and the Central Board of Excise and Customs were therefore clearly
bound by promissory estoppel to exclude the cost of corrugated fibre board containers from the value of the B goods
for the purpose of assessment of excise duty for the period 24th May 1976 to 2nd November 1982. The respondents
would therefore be entitled to exclusion of the cost of corrugated fibre board containers from the value of the
cigarettes only during the period 24th May 1976 to 2nd November 1982. Save and except in respect of this period,
the cost of the corrugated fibre board containers would be liable to be included in the value of the cigarettes for the
purpose of assessment of excise duty.
I would therefore pass an order in these appeals in terms of the format order which has been evolved by consent of
parties in the, Bombay Tyre International case (supra) and I would direct that the Assessing Authorities shall assess
the excise duty under the format order in the light of the observations contained in this Judgment. There will be no
order as to costs.
PATHAK, J. I have perused the judgment proposed by the learned Chief Justice in these appeals and while I find
myself in agreement with his views on the question of promissory estoppel, I am unable, with regret, to subscribe to
the view expressed by him on the question of secondary packing. I propose, therefore, to set down my own view in
the matter.
In Union of India v. Bombay Tyre International Ltd.
[1984] 1 S.C.C. 467, while construing sub-cl. (i) of cl.(d) of sub-s. (4) of 8. 4 of the Central Excises and & I.T. Act,
1944, which provides for including the cost of packing in the determination of value for the purpose of excise duty,
we observed that the cost of primary packing as well as of secondary packing in the sense explained in that case
would be included within the meaning of the expression value . In the present case the cigarettes are manufactured
and packed in cardboard packets, each containing 10 to 20 cigarettes.
Those packets constitute primary packing. Those packets are thereafter packed in cartons or “outers” for delivery to
the buyer. Finally, the cartons or outers are themselves packed in corrugated fibre board containers, evidently to
ensure the cartons against injury or damage during transport. The 148 question is whether the corrugated fibre board
containers can be regarded as secondary packing, the cost of which can permissibly be included in the determination
of value n for the purpose of excise duty.
Now it is apparent that under 8. 3 of the Act the levy of excise duty is made on manufactured cigarettes, which after
all are the excisable goods. And 8. 4 provides how the value of manufactured cigarettes shall be determined. The
expression values has been extended to include the cost of packing. The packing itself is not the subject of the levy
of excise duty. The manufactured cigarettes are the subject of the levy, because excise duty is here charged on the
manufactured commodity, that is to say, cigarettes. For the purpose of computing the measure of the levy, however,
the statute has given an extended meaning to the expression value in clause (d) of sub-s.4 of 8. 4 of the Act. Plainly,
the extension must be strictly construed, for what is being included in the value now is something beyond the value
of the Manufactured commodity itself. In Union of India v. Bombay Tyre International Ltd. (supra), we observed : It
seems to us that the degree of secondary packing which is necessary for putting the excisable article in the condition
in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be
included in the value of the article for the purpose of the excise levy.” Is the packing in corrugated fibre board
containers necessary for putting the cigarettes in the condition in which they are generally sold in the wholesale
market at the factory gate? In my opinion, it is not. The corrugate fibre board containers are employed only for the
purpose of avoiding damage or injury during transit. It is prefectly conceivable that the wholesale dealer who takes
delivery may have his depot a very short distance only from the factory gate or may have such transport
arrangements available that damage or injury to the cigarettes can be avoided. The corrugated fibre board containers
are not necessary for selling the cigarettes in the wholesale market at the factory gate.
I think the position expressed by the Central Board of Excise and Custom in its letter dated May 24, 1976 was
prefectly right when it declared that the Collector of the Central Excise has been instructed that the cost of
corrugated fibre board containers in question does not form part of the value of cigarettes for the purpose of excise
duty.
149 The assessing authorities will now proceed to make an assessment in accordance with the opinion expressed in
this judgment .
AMAREDRA NATH SEN, J. I have read the judgment proposed to be delivered by the Learned Chief Justice in this
appeal.
After giving my anxious and careful consideration, I find with regret that I cannot persuade myself to agree with the
view expressed by the Learned Chief Justice on the question of secondary packing. On the other question, namely
the question of promissory estoppel, I am in entire agreement with his views.
The Learned Chief Justice in his judgment has set out all the material facts and circumstances. He has noted the
respective contentions put forward on behalf of the parties.
He has also adverted to the earlier decision of this Court in Union of India v. Bombay Tyre International Ltd; [1984]
1 S.C.C. 467. It does not, therefore, become necessary for me to refer to the facts and circumstances of this case or to
any of these aspect in my judgment.
The cigarettes after manufacture are usually placed in paper/card board packets, each packet containing 10 or 20
cigarettes. These packets before delivery to the wholesale buyer are packed together in paper/card
board/cartons/outers, each of such cartons containing a number of packets of cigarettes with 10 or 20 cigarettes in
each packet. I agree with the Learned Chief Justice that the cost of packing cigarettes in packets of 10 or 20
cigarettes each and thereafter in cartons/outers for delivery to the buyer in the course of whole-sale trade at the
factory gate must necessarily be included in the value for the purpose of levy of excise duty. I however, find it
difficult to agree with the view expressed by the learned Chief Justice that when a number of these cartons are put in
corrugated fibre board containers for delivery, the cost of the further packing incurred for putting cartons/outers in
the corrugated fibre board containers must also be included in the value for the purpose of assessment of excise duty.
When tobacco is rolled up in paper following the appropriate process of manufacturing cigarettes, cigarettes come
into existence. The paper in which cigarettes are rolled is indeed a part of the manufactured product itself.
The paper in which a cigarette is rolled forms no part of the packing and is indeed a part of the cigarette itself.
When the cigarettes, after their 150 manufacture, are put in packets, each packet usually containing 10 or 20
cigarettes, the packets in which the cigarettes are packed indeed constitute the primary packing for the purpose of
delivery and there can be no question that the cost of this packing must necessarily be included in the value for the
purpose of assessment of excise duty. A number of packets, containing cigarettes either 10 or 20 in number in each
packet are then put in larger cartons according to the requirements of the buyer in the whole-sale trade. Packing a
number of packets of cigarettes in a larger carton for delivery to the buyer in the whole-sale trade according to his
requirement constitutes secondary packing but the cost of this packing on a true construction of 8. 4(4) (d)(i) of the
Act read with explanation to the clause but also be included in the value for the purpose of levy of excise duty.
Packets of cigarettes in the larger cartons are to be delivered to the buyer in the whole-sale trade to enable the buyers
in the whole-sale trade to sell to the retail sellers in the same condition or by removing the packets from the cartons.
Packets of cigarettes so packed in cartons can easily be delivered to the buyers in the course of whole-sale trade at
the factory gate without any further packing. If the buyer who is to take delivery in the course of the whole-sale trade
at the factory gate, carries on business within a reasonable distance from the factory premises, the whole-sale buyer
will very likely not want to have cartons of cigarettes further packed in corrugated fibre board containers. Cartons of
cigarettes are usually further packed in corrugated fibre containers for facilitating transport in the course of delivery
to buyers in the whole-sale trade where there is any possibility of the cartons becoming otherwise damaged in course
of transit.
Naturally in such cases, delivery of the cigarettes in those cartons is effected to the buyer at the factory gate after
further packing these cartons in corrugated fibre board containers. The further packing of cartons in which the
packets of cigarettes have been packed in the corrugated fibre board containers is not, indeed in the course of
delivery to the buyer in the whole-sale trade at the factory gate but is only for the purpose of facilitating the 8 month
transport of the cartons containing the packets of cigarettes to the buyer in the whole-sale trade. On a proper
construction of S. 4(4)(d)(i) of the Act read with the explanation, I am of the opinion that any secondary packing
done for the purpose of facilitating transport and 8 month transit of the goods to be delivered to the buyer in the
whole-sale trade cannot be included in the value for the purpose of assessment of excise duty. I, therefore, hold that
the cost of corrugated fibre board containers which the cartons 151 containing the packets of cigarettes is packed,
cannot be included in the value for the purpose of assessment of excise A duty. It is to be borne in mind that the
excise duty which is levied on the goods is ultimately passed on to the consumers of the goods and they have
ultimately to bear the burden. So far as the consumers are concerned they buy cigarettes loose or in packets or even
in cartons. Cartons packed in corrugated fibre board containers are not purchased by the consumers. So far as the
retail sellers are concerned who may buy from whole-sellers, they usually buy loose packets of cigarettes or packets
of cigarettes packed in cartons. So far as the buyers in the whole-sale trade are concerned, they buy the cartons of
cigarettes in which the packets of cigarettes are packed in the course of their whole-sale trade for selling the same to
retailers or to their customers. It is only for the sake of convenience in the matter of smooth delivery of cartons in
which the packets of cigarettes are packed that the cartons may be further packed in corrugated fibre board
containers for facility of transport and smooth transit of the cartons before delivery of the same to the whole-sale
buyer.
The letter dated 4th May, 1976 addressed by the Under Secretary, Central Board of Excise and Customs to the
Cigarette Manufacturers Association which has been referred to and considered at length in the judgment of the
Learned Chief Justice, clearly supports, in my opinion, the view I have taken.
For reasons briefly indicated above, I have to record my dissent with the view expressed by the Learned Chief
Justice on this question of secondary packing.
On the other question, namely, the question of promissory estoppel I am in entire agreement with the views
expressed by the learned Chief Justice for reasons recorded by him in his judgment and I have nothing to add.
I accordingly hold that the cost of the further packing of the cartons in which the packets of cigarettes are packed in
the corrugated fibre board containers cannot be included in the value for the purpose of assessment of excise duty.