Delhi Cloth & General Mills Ltd v. Union Of India 1987 Air 2414

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Introduction

Have you ever thought of the position of promises made in pursuance of a legal relationship? Are these promises binding? What will be the consequences if these promises are not fulfilled?

This case of Delhi Cotton & General Mills v. Union of India[1] revolves around the legal position of doctrine of promissory estoppel. This doctrine has not been firmly settled in India. This Estoppel Principle is widely used and not just in administrative law but also contract law and other service laws. In many cases, it has been ruled that Promissory Estoppel[2] is only a shield and it should not be used as a sword. 

In Motilal Padampat Sugar Mills v. State of Uttar Pradesh[3], Justice P.N. Bhagwati has ruled out that “if this doctrine is used as a sword, then the floodgates will be opened”. The essence of this doctrine is equity, and it is in direct proportion to justice. However, in certain judgments the court has proved that no estoppel exists against a statue. In the case of C. Sankaranarayanan v. State of Kerala[4], the court rejected the contention on estoppel by ruling out that any agreement cannot retrench the power conferred by the Constitution. The doctrine of Estoppel is fundamental and is highly applicable in today’s era, where thousands of agreements are signed daily between the citizens or the government and the citizens in different forms. Here we will discuss the position of estoppels and the contribution of our judiciary in it through case law.  

Facts of the Case

The factual matrix of this case revolves around a few sets of events in chronological orders. The Delhi Cloth & General Mills had planned to set up a fertilizer company in Kota, an industrial town in Rajasthan. For the purpose of manufacturing Urea and other fertilizers, some raw ingredients like Naphtha were required to be procured from Indian Oil Corporation’s Koyali Refinery. The distance between the procuring Corporation and the refinery was 520km which was the main concern of the refinery.

On September 5, 1996, the company, by way of the letter requested the Railway Board to offer concessional freight rates (62.5-B) by reducing forty-three per cent in the standard tariff for the transportation of Naphtha. Through this letter, the company propounded that it would put them into a disadvantaged position over other factories which were located near the ports or refineries. 

The Railway Board replied on November 5, 1966, and conveyed their acceptance of the proposal and agreed to offer a concessional rate. The letter further mentioned that the company would have to approach the Board once again to review the freight rates once the company starts operating. This was because the factory had not set-up and the rates have been estimated in advance. 

On June 5, 1967, when the company was almost ready to move the goods, wrote a letter to the Board requesting them to change the rates of 62.5-B from 85-B (Special). The Board, however, repudiated the request. 

On May 31, 1968, the company wrote another letter to the Board stating that the transport of goods would begin from June/July 1968 and asked them to agree with the earlier communicated rates of 85-B (Special). But, to their surprise, the company rejected this request also. 

On July 11, 1968, the Board wrote another letter to the company stating that if they manage to adduce any data for a period of one year, indicating their cost of production and that the production of fertilizers was economical in Kota, then the Board will reconsider their decision.

On April 19, 1969, aggrieved by this clause, the fertilizer manufacturing company filed a complaint in the Indian Railway Act, 1890 under Section 41 clause 1 (a) and (b) before the Railway Rates Tribunal, Madras. 

Issues of the Case

The company raised three issues for contemplation before the Court:

  • Whether the Railway Board was bound to give concessional rates for the transport of goods as stated by them in the letter dated November 5, 1966?
  • Whether the rates levied for the transport of Naphtha from Baujuva to Dadhevi station was unreasonable under Section 41 (1) of the Indian Railways Act, 1890 or not?
  • Whether the Railway Board was acting in contravention of Section 28 of the Railways Act, 1890 or not?

Arguments on behalf of the Petitioner 

Advocate K.K. Singh presented the contentions of the petitioner and laid down the following arguments:

  1. That the rates charged by Railway authorities for the carrying of Naphtha are unreasonable as they are earning extra profits by this deduction.
  2. That crude oil and Naphtha are considered as comparable commodities, basically for the purpose of carriage. 
  3. That the Board had promised via their letter for providing the requested concession for the carrying of the industry. 
  4. That the Board neither has an obligation to pass an extra amount realised by the carriage of goods to customers nor is it necessary to share the profit with the commuters.

Arguments on behalf of the Respondent 

The respondent’s contention was presented by Advocate Mr. Brat Barua, and he gave the following arguments:

  1. That the cost of operation cannot be the basis for judging the reasonableness of the changed rate as in the case of commodities like food grains, crude oil, etc it may be necessary to charge below the operation cost. 
  2. That the Company produces no evidence to justify any grievance raised under Section 28[5] and the appellants did not seriously dispute the correctness of the findings recorded by the Tribunal.
  3. That the transport of chemicals like Naphtha which had been already given a low rate did not require any further concession. 
  4. That the Railway Board was very clear while quoting the concessional rates by stating that the rates were provisional in nature and were subject to review when the company starts operating.
  5. That the Board had explicitly mentioned that the company would have to approach once again to confirm the rates once they begin moving their goods.
  6. That the company cannot operate depending solely upon the concessional rates offered by the Railway Administration. 

Judgment of the Case

Initially, the case went to the Tribunal, and it ruled out entirely in favour of the Railway Board. The Tribunal held that the rate charged on the carrying of goods was not unreasonable and the Railway authorities were not acting in contravention of Section 28 of the Railways Act, 1890 as no one was given any sort of preferential treatment. The Tribunal ruled that the letter was not the only basis to set up a company in Kota. In furtherance of it held that if the letter was not the sole basis for setting up, then the withdrawal of such assurance had not obstructed any of the interests of the company.  

Further, the case went on to the Apex Court, and the court ruled the following points on the issues raised.

The most debated issue of this case was the first issue associated with the doctrine of Promissory Estoppel. The tribunal had rejected the contention of the company that the Board was bound by the estoppel and held that the letter was the sole basis for the company to set up the factory in Kota. Since there was no impact of withdrawal upon the company, it does not attract the principle of estoppel. 

However, the Supreme Court did not find the ruling of the Tribunal appropriate. The court opposed the reasoning of the Tribunal concerning the concept of adverse impact on the factory to prevail estoppel.  The apex court agreed with the findings of the Tribunal, but the disparity occurred in the rationale used to conclude those findings. The Court finally held that the Company was cognizant with the fact that the rates mentioned by the Board on the letter were not final and had to be reviewed later when the goods actually started moving. Hence, the court ruled in favour of the Board by specifying proper reasoning.

On the second issue of the unreasonableness of freight charges, the court ruled that the onus of proving the same lies upon the party making such allegations. To prove their part, the appellants produced certain documents that depicted certain surplus working costs by Railways for transporting their goods. The court, however, did not give importance to the report and opined that even if the Railway authorities were earning some surplus through transportation, it could not be held as unreasonable. The railway is a department that works as a commercial undertaking, and it has to balance the losses incurred in transporting commodities at lower costs. Hence, it was defensible by it to charge higher freight on other entities. Further, the court intellectually differentiated between the commodities like crude oil and Naphtha and concluded that since Naphtha was classified as a dangerous commodity, it required extra precautions while transporting and such care required higher charges. 

On the third issue, the Court asserted the decision of the Tribunal that the Company had produced no evidence that could prove that the Railways had acted unreasonably by giving preference to a particular group over others. The Court upheld the decision of the tribunal by stating that even the appellant company did not seriously dispute the findings of this issue. 

The Supreme Court further went on to track down the legal observance of the Doctrine of Promissory Estoppel and discerned that in the past years it was upon the claiming party estoppel to show that they were induced into taking such action which caused a deleterious impact on their interests. This is the principle which was applied by the Tribunal and despite giving a precise decision failed to give an accurate reasoning to it. The Court further added that the position has, however, changed over the recent years.

Analysis of the Judgement 

While pronouncing this judgment, the Court relied upon various other judicial pronouncements like Central London Property Trust Ltd. v. High Trees House Ltd[6], Union of India v. Godfrey Philips India Ltd[7]. The Court considered Estoppel as a matter of attention and successfully established a clear and precise method to interpret this doctrine. Similarly, in the instant case, the Court held that the representation of facts was vague and not at all clear and in Estoppel, there should be no ambiguity. Thus, this case has played a significant role in settling this developing area of law in our country. 

Though the Tribunal had passed a similar decision, yet the Hon’ble Court decided to pronounce this judgment in a more refined and understandable manner. The judiciary of our nation has proved that they not only find a temporary solution to the cases that are arriving before them but are looking to the most significant possibility and finding a permanent solution to any problem, such that if the same problem persists in the near future, the other judges do not have to waste their precious time in clarifying the same. Thus, it can be said that this decision has carried a lot of impact on the laws of this country as this doctrine is a part of many areas of law. 

Conclusion 

In this case, the Court has refined the doctrine of Promissory Estoppel. The Court clarified that in order to claim this doctrine, the complainant need not be required to prove the fact that he/she suffered any loss to their interests by acting upon the assurance made by another party. The court further ruled that it is not enough to show that the complainant had acted upon any representation made by the other party. Just like the bench ruled out exclusively in this case and gave their opinions, it is a necessity on the part of our judiciary to look upon the delicate issues of our country and give them the designated position and clarity. Thus, the judiciary plays a significant role in uplifting the society by providing such landmark decisions.


[1] Delhi Cloth & General Mills Ltd v. Union Of India, 1987 Air 2414.

[2] Madhubala Solanki, Promissory Estoppel, 8th October, 2017, https://www.lawctopus.com/academike/promissory-estoppel/.

[3] (1988) 1 SCC 86.

[4] 1971 AIR 1997.

[5] Indian Railways Act, 1890.

[6] (1956) 1 All. ER 256.

[7] (1985) 4 SCC 369.

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