SALES TAX OFFICER, BANARAS & OTHERS versus KANHAIYA LAL MUKUNDLAL SARAF

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[1959]

SALES TAX OFFICER, BAXARAB.& OTHERS • • v . • KANHAIY A LAL 111UKUNDLAL SARAF (S. R. DAs C. J., BHAGWATI, B. P. SnrnA, SuI:DA HAo. and K. N. W ANCHOO JJ.)

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Mistake of Law-Paymc11t-Sales tax on forttard

transactio11s, wbseq11cutly loeld i11valid·-Claim for ref11nd-Vol11nfary paymcnt Equitable considcraiio11s-Indim1 Contract Act, 1872 (9 of 1872), s. 72.

Under s. 72 of the Indian Contract Act, 1872: "A person to whom money has been paid ... by mistake or under coercion must repay or return it".

The respondent, a registered firm, paid sales tax : n respect of its forward transactions in pursuance of the assessment ordell6 passed by the sales tax officer for the years 1949-51, bllt in 1952, the Allahabad High Court having held in Messrs. B11dh Pr.1kash jai I'rakash v. Sales Tax Officer, Kanpur, 1952 A. L. J 332, that the levy of sales tax on for\\'ard transactions was ultra vircs, the respondent applied for a refund of the amounts :;iaid, by a writ petition under Art. 226 of the Constitution. It was con;, tended for the sales tax authorities that the respondent was not entitled to a refund because (I) the amounts in disputc were paid by the respondent under a mistake of law and were ~herefore irrecoverable, (2) the payments. were in discharge of the liabili(¥ under the Sales Tax Act and were 1•oluntary payments without protest, and (3) inasmuch as the monies which had be"n received by the Govern1'1ent had not been retained but had been spent away by it, the respondent was disentitled to reCO\'•or the said amounts.

Held, that the term "mistake" ins. 72 of the Indian Con tract Act comprises within its scope a mistake of law as well as a mistake of fact and that, under that section a party.;s entitled to recover money paid by mistake or under coercion, and if it is csta~lished that the payment, even though it he o1 a t~x. has been made by the party labouring un<lr.r a mistake of Jaw, the party receiving the money is hound to repay or return it though it rr.ight have been paid voluntarily, subject, ho\\'ever, to ques tions of estoppel, waiver. limitation or the like.

Shib Prlllad Singlo v. Maloaraja Srish Chandra /\'andi, (1949)

L. I<. 76 I.A. 244, relied on.

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\\'here there is a clear and unanlbiguous prov,sion of law which entitles a parry to the relief claimed by him, equitable considerations•cannol be imported and, in the instant case, the fact that tile Covernmcnt had not retained the moni~s paid by 'the respondent but had spent them away in (he ordnary course •

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of business of the 0 Sfate would not make any difference, and under the plain terms of s. 72 o.f t!Te Act the respondent was entitled to recover the amounts.

t958

Sal" Tax Offio<Y in Council, Mukun;ial Saraf

Observations in Nagorao v. Governor-General

A. I. R. r95r Nag. 372, 374, to the effect that where a party receiving money paid under a mistake has no longer the ;noney with him, equitable considerations might arise, disapproved.

CIVIL APPELLATE J URISDIOTION : Civil Appeal No.

87 of 1957.

the

Appeal from

judgment and decree dated December l, 1955, of the Allahabad High Court in Special Appeal No. 18 of 1955, arising out of the judg ment and order dated November 30, 1954, of the said Court in Civil Misc. Writ No. 355 of 1952.

'H. N. Sanyal, Additional Solicitor-General of India,

G. G. ~Mathur and 0. P. Lal, for the appellants.

P. R. Das and B. P. JJfaheshwari, for the respon

dent . • B. P. Malteshwari, for Agra

• (Intervener).

:Bullion Exchange

K. Vetl'aswami and T. M. Sen, for the State of

ll'l<tdras (Intervener).

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R. G. Prasad, for the State of Bihar (Intervener). H. N. Sanyal, Additional Solicitor-Generctl, of India, R. Gopalakrishnan and T. M. Sen, for the Union of India (Intervener).

1958. September 23. The Judgment of the Court

was deliv~red by

BHAGWATI J.-The facts leading up to this app<!al lie witliin a narrow compass. The respondent is a firm registered under the Indian Partnership Act deal- ing in Bullion, Gold and Silver ornaments and forward contracts in Silver Bullion at Banaras in the State of Uttar Pradesh. For the assessment years 1948-49, 1949-5!'.l and 1950-51 the Sales Tax Officer, Banaras, the appellant No. 1 herein assessed the respondent to U. P. Sales Tax on its forward trans11.cti0Rs in Sil v.er Bullion. The respondent had deposited thll sums of R.s. 150-12-0, Rs. ~70-0-0 and Rs. 741-0-0 for the said

Bhagwati J.

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three years which sums were appropri'a.loed towards the payment of the sales tax' Iiabilitv of the firm 1mder the respective assessment o'l'ders passed on May ill, 1949,

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r958

S I T O

II IS

'"' 11ICtr

llX v.

Muk1<ndlal Saraf October 30, 1950 and August 22, 1951.

Bhagwali ].

The levy of sales ta.x on forward transactions was held eo be ultra vires, by the High Court of Allahabad by its judgment delivered on February 27, 1952, in Messrs. Budh Pral.-ash Jai Prakash v. Sales Tax Officer, Kanpur (1 ) and the respondent by its letter dated July 8, 1952, asked for a refund of the amounts of sales tax paid as aforesaid. The appellant !\o. 2, tho Commissioner of Sales Tax, U. P., Lucknow, however, by his letter dated July 19, 1952, refused to refund the same.

to Rs. 1,365-12-0. The

The respondent thereafter filed in the High Court ~f Allahabad the Civil !lfisc. \\'rit Petition ::'>o. 355 of 1952 under Art. 226 of the Constitution lnd asked for 11. writ of certiorari for quashing the aforesaid three assessment orders and 1~ writ. of mandamus requiring the appcll<Lnts to refund the aforesaid aniounts aggre. gating judgmel'.t of tho Allahabad High Court was confirmed by this ~ourt on !\fay 3, 1954, in Sales 'J.'ax Officer, Pilibhit '" Budh Prakash J ai Prakash (2 ) and the writ petition aforesaid w<1s heard by Chaturvedi ,J. The learned jndge by an order dated' ~overnbcr 30, 1954, quashed t.he said assessment or<lern in so far as they purport<:d to assess the respondent in respect of forward contraJts in silver and also issued a writ of mandamus directing the appellants to refund the 1tmounts paid b,v the res pondent.

The appellants filed a Special Appe1tl °NQ. 18 of 1955 in the High Court of Allahabad ag1tinst that order of the learned Judge. A Division B1mch of the s:1i<l High Court heard the Haid appeal on December 1, It .was argued by the Advocate.General on 1955. behalf of the appellants that the <Lmount1. in \lispute were paid by the respondent imder a rnidtake of law and were therefore irrecoverable. The Advocate General also stat'ed categorically that in that appeal • he did not contend that the respondept ougl\t to have

(l) (1952) A.L.J. 332,

(2) [1955] I S.C.H. 243.

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proceeded for tire recovery of the amount claimed otherwise than°bv way o{ a •petition under Art. 226 of the Constitution. The High. Court came to t e con- clusion that s. 72 of the Indian Contract Act applied Mukundtal Saraf to the present case and the State Government must refund. the moneys unlawfully received by it from the respondent on account of Sales Tax. It accordingly dismissed the appeal with costs.

Sales Tax Officer v.

Bhagwuti 1.

I958

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The appellants then applied for a certificate under Art. 133(1)(b) of the Constitution which certificate was granted by the High Court on July 30, 1956, on the Advocate-General's giving to the Court an under taking that the State will, in any event, pay the costs, charges and expenses incurred by or on behalf of the respondent as taxed by this Court. This appeal has accordingly come up for hearing and final disposal before us at the instance of the Sales Tax Officer, Banaras, appellant No. I, the Commissioner, Sales Tax, U.P., Lucknow, appellant No. 2 and the State of U.P., appellant No. 3. • The question that arises for our determination in this appeal is whether s. 72 of the Indian Contract Act applies ttl the facts of the present case.

·The learned Additional Soltcitor-General appearing for the appellants tried to urge before us that the pro cedure laid down in the U.P. Sales Tlk'( !ct by way of appeal and/or revision against the assessment orders in question ought, to have been followed by the res pondent and that not having been done the respondent was debarred from proceeding in the civil courts for obtaining'a refund of the monies paid as aforesaid. He also tried to urge that in any event a writ petition conld n'.ot lie for recovering the monies thus paid by the respondent. Both those contentions were, how ever, not available to him by reason of the categorical statement made by the Advocate-General before the High-Court. The whole matter had proceeded on the basis tTiat the respondent was entitled to recover the amount claimed in the'writ petition which was filed. No such poiut had been taken either in the. grounds. of appeal or in the statement of case filed bef@re us in this Court: and we did not feel justified in allowing the • •

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1958

learned Additional Solicitor-General to.take this point at this stage. • . s 72 • cct1011

. . I ct 1s Ill t 1e

c· ,ontract

y t e .. nu1an

A

,J.

Sales 1"a.t O!ficu v.

f h o M•A1rndlal Sam/ following terms :

Bhogwoti J.

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" A person to whom money has been paid, or a.ny thing.dt>livered by mistake or under cocrci:in,. must repay or return it.."

As will be observed the section in terms does nut make any distinction between a mistake of law or a mistake of fact. Tho term " mistake " has been used without any qualification or limitation whatever and comprises within its scope a mistake of law as well a.s a mistake of fact. It was, however, attempted to be argued on the a11!1logy of the position in law obtaining in England, America and Australia that money pa.id under a mistake of law could not be recovered and that that was also the intcndment of s. 72 of the Indian Contract Act.

The position in English law is thus summarised in

Kerr on "Fraud and l\Iistakc" 7th Edn,. a.t p. 140:

" As a general rnlc it is well-established in cqui(y a.H well as at law, that money paid under a mistake of law, with full knowledge of the facts, is not· recover able, and that oven a pr<'>misc to pay, upon ~ suppob'tltl liability, and in ignorance of the law, will bintl the party. "

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The ratio of the rule wa.s thus statctl by Jam es

L. J. in Rogers v. Ingham('):

"If that JJroposition were true in respect of this case it must be true in respect to every •:aso in the High Court of Justice where money ha~ "been paid under a mistake as to legal rights, it would open. a fear ful amount of litigation and evil in the cases of di•tribution of estates, and it would be difficult to say what limit could be placed to this kind of claim, if it coultl be made uftcr an executor or trustee had distri- buted the 'whole estate among the persons supp~scd to be entitled, c\'ery one of them having knowledge of all the facts, and having given a release. The thing has mwcr been.dot1L'1 anrl it is not a. thing which, in my opinion,- is' to be encouraged. Where peo:eic have a

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[t) (1876) 3 Ch. D. 3.1'· 356.

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knowledge of. itll the facts and take advice, and whether they get proper oadv'ice or not, the money is . divided and the business is 'Settled, it is not for the Sales Tax good of mankind that it should be reopened ... " also National Pari Mutual Association Ltd. v. The King•(') and Pollock on Contract, 13th Edn., at pp. 367 & 374).

0 'fficer (See M .. kun:Z·al S•••f

Bhogwoti J.

1958 -

The American doctrine is also to the same effect as appears from the following passage in Willoughby on the Constitution of the United States, Vol. 1, p. 12:

" The general doctrine that no legal rights or obligation can accrue under an unconstitutional law is applied in ci vii as well as criminal cases. However, in the case of taxes levied and collected under statutes l~ter held to be unconstitutional, the tax payer cannot recover unless he protested the payment at the time made. This, however, is a special doctrine applicable OI\IY in the case of taxes paid to the State. Thus, in transactions between private individuals, moneys paid .under or in pursuance of a statute later held to be un constitutional, may be reco.vered, or release from other undertakings entered into obtained. "

The E:igh Court of Australia also expressed a s1m1- Ia.r opinion in Werrin v. The Commonwealth (2 ) where Latham C. J. and MacTiernan J. held that money paid voluntarily under a mistake of law '1'1ts irrecover able. Latham C. J. in the course of his judgment at p. 157 relied upon the general rule, as stated in Leake on Contracts, 6th Edn. (1911), p. 63 "that money paid voluntarpy, that is· to say, without compulsion or extortion or undue influence and with a knowledge of all the facts, cannot be recovered although paid 11~th­ out a~y consideration. "

It is no doubt true that in England, America and Australia the position in law is that monies paid voluntarily, that is to say, without compulsion or extorljjon or undue influence and with a k1iowledge of all facts, cannot be recovered although paid without any consideration. the same in India?

·is the position

(1) 47 T.L.R. 110. •

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(2) 59 C.L.R:15<t.

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0 'fficer

ntract Act•as cnactc

It is necessary to observe at the ou't~t that what we have got to consider !!re !he plain terms of s. 72 of I d. l a" ax y the eg1slature. tie n mn v. ,w,.k,.ndlal Sa•af If the terms are plain and unambiguous we cannot have resort to the position in law as it obtained in Bl:agwati J. Englal'ld or in other countries when the statut6 was enacted by the Legislature. Such recourse would be permissible only if there was any latent or patent ambiguity and the courts were required to !ind out what was the true intendment of the Legislaturo. Where, however, the terms of the statute do not admit of any such ambiguity, it is the clear duty of the courts to construe the plain terms of the statute and give them their legal effect.

As was observed by Lord Herschell in the Ba.nk of

England v. Va.glia.no Brothers (1):

" I think the proper course is in the first iusta.nce to examine the language of the statute and to ask what is its natural meaning uninfluenced by irny con siderations derived from the previous iotate of the, law, and not to start with enquiring how the law previously Htood, and then, assuming that it was pro. to set: if the bably intended to leave it unaltered, words of the enactment will bear an interpretation i1\ conformity with this view. "

"If a Statnte, intended to embody in a code a particular branch of the Jaw, is to be treated in this fashion, it appears to me that its utility will be almost entirely destroyed, and the very object with which it was enacted will be frustrated. The purpose •if such a statut~ surely was that 011 any point specifically dealt wit.II. by it, t.he law shonld be ascertained by ,inter preting the language used instead of, as l;efore, by roaming over a vast number of authorities in order to discover what the law was, extracting it by 1• minute critical examination of the prior decision ............ ".

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This pas0sage was quoted with approval by. their Lordships of the Privy Coun~il in N arewlra.na.th Sircar v. Kainal-Ba.sini Dasi(') while laying down the proper modCJo of dealing with an Act enacted to codify a particular 0 branch of the law. •

• (2) (1896) 1.L.R. 23 ?I. S6J, 571 .

(1) [1891] A.C. 10?, lM·

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The Privy Co~mcil adopted a similar reasoning in

r95s T aes ax v.

,

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cer

O'ffi

Bhagwati J.

) where they had 5 1

Mohori Bibee v. Dhurmooos ~hose (1 to mterpret s. 11 of the Indmm Contract Act. They had before them the general current of decisions in Mukundlal Saraf India that ever since the passing of the Indian Con- trac1' Act the contracts of infants were voidab!G only. There were, however, vigorous protests by various judges from time to time ; and there were also decisions to the contrary effect. Under these cir-· cumstances, themselves their Lordships considered at liberty to act on their own view of the law as declared by the Contract Act, and they had thought it right to have the case re-argued before them upon this point. They did not consider it necessary to examine in detail the numerous decisions above referred to, as in their opinion the "whole question turns upon what is the true construction of the Contract Act itself". They then referred to the various relevant sections of the Indian Contract Act and came to the conclusion J;hat the queoition whether a contract is void or void- able pre-supposes the existence of a contract within the me~ning of the Act and cannot arise in the case of an infant who is not "competent to contract." ' In Satyabrata Ghose v. Mugneeram Bangur & Co. ('), s. 56 of the Indian Contract Act came up for consi deration by this Court. B. K. Mukherjea J. (as he then was) while delivering the judgment of the Court quoted with approval the following observations of Faz! Ali J. in Ganga Saran v. Ram Charan('):

"It.seems necessary for us to emphasise that so far as the courts in' this country are concerned, they must jook primarily to the law as embodied in l!ec tions 32 and 56 of the Indian Contract Act, 1872. " and proceeded to observe :

" It would be incorrect to say that section 56 of the Contract Act applies only to cases of physical im- possil;Plity and that where this section is hot applic- able, recourse can be ,had to the principle of English law on the subject of frustration. It must be held also that to the. extent that the Indian Oontra.ct Act d,eals

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(I) (19q;<) L.R 30 LA. II4.

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(2) (1954) s.c."R. po.

(3) (1952) S.C.R 36, 52.

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1958

ng 1s

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with 11 particular subject, it is exha.1tsVve upon the same a.nd it is not pormiB!!ib~ to import the principles f E Suits Ta> Ojfiw aw e ors t iese statutory prov1S1ons. The . o Muh•~~r Saraf decisions of the English courts possess only a persua sive value and may be helpful in showing how the courts.in England have decided cases under circum stances similar to those which have come before our courts."

BAagwati J.

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It is, therefore, clear that in order to ascertain the true meaning and intent of the provisions, wo have got to turn to the very terms of the statute itself, divorced from all considerations as to what was the state of the previous law or the law in England or elsewhc~c at the time when the statute was enacted. To do ctherwise would be to make the law, not to interpret it. (Sell Gwynne v. Burnell(') and Kumar Kamalmi\jan Roy v. Secretary of State(').

In

The courts in India do not appear to have consist ently adopted this course and there were several deci sions reached to the effect that s. 72 did n.ot apply to money pa.id under a mistake of law, e.g., IV oif & Sons" ) and Appavoo Chettiar v. v. Dadyba Khimji & Co. (3 S. I. Ry. Co.('). reaching those dccisi6ns the courts were particularly• influenced by the English decisions and also provisions of s. 21 of the Indian Contra.ct AcJ; '\\Wich provides that a. contract is not voidable because it was caused by a mistake as to any law in force in British India. On the other hand, the Calcutta. High Court had decided in Jagdish Prasad Pannalal v. Produce Exchange Corporation Lt.l. ('), that the word " mistake" in s. 72 of th'e Indian Contract Act, included not only a. mistake of fact but also a mistake of law a.nd it was further pointed out that this section did not conflict with s. 21 because that section dealt not with a payment made under a mistake of law but a contra.ct caused by a mistake of law, where- a.s s. 72 dealt with a payment which was either not under a. contract e.t a.II or even if under a. contract, it was not a. ca.use of the contra.ct.'

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(1• 7 CL & F. 596. (3) (1919) i.L.R. H Rom. 631, 649.

(2) L. R 66 I. A. " 10. (4) A.l.R. 1929 Mad. 177.

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(~) A.I.R. 1946 Cal. 245.

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The Privy .0-ouncil resolved this conflict in Shiba

r958

Prasad Sinqh v. Sr~sh '()hrlnd~a Nundi (1 Lordships of the Pr1vy Council observed that the authorities which dealt with the meaning of" mistake " Mukundlal Saraf in the section were surprisingly few and it could not be sa:id that there was any settled trend of authority. Their Lordships were therefore bound to consider this matter as an open question, and stated at p. 253:

). Their Sal" Tax Offim

Bhagwati J.

v.

"Those

learned judges who have held

that mistake in this context must be given a limited mean ing appear to have been largely influenced by the view expressed i1,1 Pollock and Mulla's commentary on s. 72 of the Indian Contract Act, where it is stated (Indian Contract & Specific Relief Acts, 6th Edn., p. 402) : "Mistake of law is not expressly excluded by the words of this section; but s. 21 shows that it is not included". For example, Wolf & Sons v. Dadyaba Khimji & Go.('). Macleod J. said referring to s. 72 "on the face of it mistake includes mistake of law. But it is said that und;Jr s. 21 a contract is not voidable on the ground that the parties contracted under a mistaken belief of the law existing in British India, and the effect of that section would be neutralized if a party tel such a contract could recover what he had paid by means of s. 72 though under s. 21 the contract rema.in ed legally enforceable. This seems to be the argument of Messrs. Pollock and Mulla and as far as I can see In Appavoo Ghettiar v. South Indian it is sound." Rly. ('), Ramesam and Jackson JJ. say: "Though the worq ' mistake ' in s. 72 is not limited it must refer to the kind of mistake that can afford a ground for relief a.s laid down in ss. 20 and 21 of the Act ..... ~ ... Indian'law seems to be clear, namely, that a mistake, in the sense that it is a pure mistake as to the law in India resulting in the payment by one person to another and making it equitable that the payee should return. the money is no ground for relief." Their Lordships have found, no case in which an opinion that "mistake" in s. 72 must be given a limited meaning has been based on any otherground. In their •

(2) (1919) I.L.R. .j4 Born. 631.

(1) (19494L.R. 76 I.A. 244.

• (3) A.I.R. 1929 Mad. 648.

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Solis Ta11 Ojfic1r v.

Lordships' opinion this reasoning is •ri.uacious. If a mistake of law has led t~ t.He formation of a contract, s. 21 enacts that that eontract is not for that. reason ~1"k1mdlal sa,.f voidable. If money is paid under that contract, it cannot bo said that that money was paid under Bhagu-a1i J. mistake of law ; it was paid because it was dne tmder a valid contract, and if it ha<l not hecn paid payment could have been enforced. Payment "by mistake" in s. 72 must refer to a payment which was not legally rlue and which could not have been enforced ; the "mistake" is thinking that the money paid was due when, in fact, it was not due. There is nothing incon sistent in enacting on the one hand that if parties enter into a contract under mistake in law that contract must stand and is enforceable, but, on tli.e other hand, that if one party acting under mistake of law pays to another party money which is not due by contract or otherwise, that money must he ropaid. ~foreover, if the argument based on inconsist•3ncy with s. 21 were valid, a similar argument ba;ied on incon; sistcncy with s. 22 would be valid and would lead to the conclusion that s. 72 does not even aJiply to mistake of fact. The a;gumcnt submitted t-0 their Lordships was that s. 72 only applies if there is rio subsisting contract between the person making tho payment arrd the p1>yee, and that the India.a Contract Act does not deal with the case where ther•3 is a sub sisting contract but the payment was not due under it. But there appears to their Lordships t-0 be no good reason for so limiting the scope of the Act. !)nee it is established that the payment in questioh w:is not duo, to it 'appears to their 1-0rdships to be irreleva.nt consider whether or not there was a contraot between the p11.rties under which some other sum m~R due. Their Lordships do not find it necessary to examine in detail the lndian authorities for tho wider interpreta tion of "mistake " in s. 72. They would c nly ~fer to the latest of these authorities, Pannalal v. Produce Exchange Corp. Ltd. ('), in which a carefully reasoned judgment w:as git-en by Sen J. Their Lord:ihips agr~e • with this judgment. It may be well to add tpat thcJI . .

.(1) A.!.R 1946 Gal. 245.

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Lordships' judgment does not imply that every sum paid under mistake is recmer~ble, no matter what the · Th ere may m a part10u ar circumstances may ' " case be circumstances which disentitle a plaintiff by Mukundlal Saraf estoppel or otherwise."

· 1

'958 T

5 1 a "

ax v.

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W eo are of opinion that this interpretation put by their Lordships of the Privy Council on s. 72 is correct. There is no warrant for ascribing any limited meaning to the word ' mistake ' as has been used therein and it is wide enough to cover not only a mistake of fact but also a mistake of law. There is no conflict between the provisions of s. 72 on the one hand and ss. 21 and 22 of the Indian Contract Act on the other and the true principle enunciated is that if one party under. a mistake, whether of fact or law, pays to another party money which is not due by contract or otherwise that money must be repaid. The mistake lies in thinking that the money paid was due when in fact it was not due and tha.t mistake, if established, entitles the party :uaying the money to recover it back from the party receiving the same.

The learned Additional Solicitor-General, however, sought to bring his case within the observations of tHeir Lordships of the Privy "Council that their judg ment did not imply that every sum paid under mistake is recoverable no matter what the circumstances might be and that there might be in a particular case circum stances which disentitle a plaintiff by estoppel or otherwise. It was thus urged that having regard to the circu.mstances of the present case, (i) in so far as the payments were in discharge of the liability under the U .• P. Sales Tax Act and were voluntary payments without protest and also (ii) inasmuch as the monies which had. been received by the State of U. P. had not been retained but had been spent away by it, the respondent was disentitled to recover the said amounts. Here aJso, we may observe that these contentions were not specifically urged, in the High Court or in the statement of case filed by the appellants in this court; but we heard arguments on the sanre, as. they were necessarily involved in the question whetlier · s. 72 of

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I Sa es

ctr R

Bhaiwati J.

. O'ffi 7 ax v.

the Indian Contract Act applied to •t~e facts of the • present case. c : (1) :-The respondent was assessed for the said MukundJol S•r•f amounts under the U. P. Salrs Tax Act and paid the same ; but these payments were in respect of forward transitctions in silver. If the State of U. P. w&s not entitled to receive the sales tax on these transactions, the provision in that behalf being ultra vircs, that could not avail the State and the amounts were paid by the respondent, even though they were no•; due by contract or otherwise. The respondent committed the mistake in thinking that the monies paid were due when in fact they were not due and that mistake on being established entitled it to recover the same back from the Stat-0 under s. 72 of the Indian Contract A<ot. It was, however, contended that the payments having beon made in discharge of the liability under the U. l'. Sales Tax Act, they were payments of tax and m·cn though the terms of s. 72 of the Indian Co1l'uract Act a pp lied to the facts of the present ca8') no monies paid by way of lax could be recovered. We do not sec any warrant for this proposition within the terms of s. 72 itself. Reliance was, however, plac.,cI on two decisions of the )fadras •High Court reported in (t) Municipal Council, '.I'uticorin v. Balli Brcs. (') and (2) Jfunicipal Council, Rajahmundry v. 8ulba Rao('). lt may be noted, however, that both these decisions proceeded on the basis that the payments of the taxes there were made under mistake of law which as understood then by the ;\laclras High Cour~ was not within the purview uf s. 72 of the Indian Cor1tract Act. The High Court then proceeded to consider whether they fell within the second pa.rt of s. 72, vi7 . ., w~1ether the monies had been paid under coercion. .The court held on the facts of. those cases tha,t the payments had been volunt,Lrily made and the p1uties paying the same "were therefore not entitled to reco"-er the same. The voluntary payment was thcie consider ed in contradistinction to payment under coercion and the. real ratio of 1!he decision8 was that there was no coercion ·or" duress exercised by the authorities for •

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(1) A.LR 1934 ~lad. *20.

(2) A.LR 1937 ~lad. 559 .

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~UPREMJl] COURT REPORTS•

1363

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Bhagwuti J.

exacting the su-id payments and therefore the pay- men ts having been voluntarl'Iy made, though under , mistake of law, were not reccverable. The ratio of·"" ~~ 'ffim these decisions, therefore, does not help the appellants Mukundlal Saraf before us. The Privy Council decision in Shiba Prasad, Singh. v. Srish Chand,ra Nand,i (1 ) has set the whole controversy at rest and if it is once established that the payment, even though it be of a tax, has been made by the party labouring under a mistake of law the party is entitled to recover the same and the party receiving the same is bound to repay or return it. No distinction can, therefore, be made in rl)Spect of a tax liability and any other liability on a plain reading of the terms of s. 72 of the Indian Contract Act, even t!J.ough such a distinction has been made in America vide the passage from Willoughby on the Constitution of the United States, Vol. 1, p. 12 op cit. To hold that tax paid by mistake of law cannot be recoverd under s. 72 will be not to interpret the law but to make a law by addi~ some such words as "otherwise than oy way of taxes " after the word "paid ''.

If this is the true position the fact that both the parties, ~iz., the respondent and the appellants were labouring under a mistake of'law and the respondent made the payments voluntarily would not disentitle it from receiving the said amounts. The-amounts paid by the respondent under the U. P. Sales Tax Act in transactions in silver, had respect of the forward already been deposited by the respondent in advance in accordance with the U. P. Sales Tax Rules and were appropriated by the State of U. P. towards the discharge of the liability for the sales tax on the res pective' assessment orders having been passed. Both the parties were then labouring under a mi~take of law, the legal position as established later on by the decision of the Allahabad High Court in Messrs. Bud,h Prakash Jai Prakash v. Sales Tax Officer, 'Kanpur(') subseqi!ently confirmed by this Court in Sales Tax Officer, Pilibhit v. Buah Prakash J ai Prakash (') not having been known to the parties 6t the relevant

(1) (1949) L. R. 76 I. A. 244.

(2) (1952) A.L.r 33z.

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SUPREME COURT REPORTf!

[1959]

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Hhagwati J.

Salcs Tax O(ftcr' v.

dates. This mistake of law became lfp11are11t only on May 3, 1954, when this t:outt confirmed the siLid deci- tion o the Allahabad High Court and on that position Mukiindl•l Snrnf being established the respondent became entitled to recover back the said amom!ts which had been paid by mistake of law. The :;t.ate of mind of thi; rnspon dent would be the only thing relevant to co~sider in this context and once the respondent establiHhed that the payments W<'t'e made by it. under a mistake of law, (and it may be noted here that the whofo matter pro ceeded before the High Court on the basis that the respondent had committed a mistake of law in making the said payments), it was entitled to recover back tho said amounts and the State of U. P. was bound to repay or return the same t-0 the respondent irresp~c­ tive of any other consideration. There was nothing in the circumstances of the case to raise any estoppcl against the respondent nor would the fact that the payments were made in discharge of a tax liability come within the dictum of the Privy Council above referred to. Voluntary payment of such tax liability was uot by it-self enough to preclude the rospondent from recovering tho said amounts, once it '·''as estab lished that the payments were made under a mistairn of law. On a true interpretation of s. 72 oft.he Indian Contract Aet tho only two circumstances t.herc indi cated as entitling the party to recover the money back are that the monies must have been paid hy mistake or under coercion. If mistake either of law cir of fact is established, he is entitled to recover the mouies and the party receiving the samo is bound t.o repay° or return tltem irrespecti\'C of any cousideration whet.her the monies had been paid voluntarily, subject hO\~evcr to questions of cstoppel, waiver, limitation or the like. If once that circumstance is established the pitrty is enti- tled to the relief claimed. If, on the other h<md, neither mistake of law nor of fact is established, the party may rely upon the fact of tpo monies ha.vi7ig been paid under coercion in ordor to entitle him to the relief claimed a.nd it is in that position that it becomes relevant t6 consider whether the payment has been a . . • voluntary payment or a payment under coercion. The

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latter position kas been elaborated in English Law in the manner following in-TuJyford v. Manchester Cor- poration (1) where Romer J. {)bserved:

"Even so, however, I respectfully agree with the Mukun;i.1 Saraf

Salos Tax Offi"r

_ Bhagwati ;:

rest of Walton J.'s judgment, particularly with his statement that a general rule applies, namely, the rule that, if money is paid voluntarily, without compul- sion, extortion, or undue influence, without fraud by the person to whom it is paid and with full knowledge of all the facts, it cannot be recovered, although paid without consideration, or in discharge of a claim which was not due or which might have been success- fully resisted."

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The principle of estoppel which has been adverted to by the Privy Council in Shiba Prasad Singh v. Srish Chandra N andi (') as disentitling the plaintiff to recover the monies paid under mistake can best be illustrated by the decision of the Appeal Court in ) where it was England reported in Holt v. Markham (3 held that as .the defendant had been led by the plain- 'tiffs' conduct to believe that he might treat the money as his own, and in that belief had altered his position by spent!ing it, the plaintiffs were estopped from alleg i>1g that it was paid under a "mistake ; and this brings. us to a consideration of point No. 2 above stated.

Re: (ii): Whether the principle of-estappel applies or there are circumstances attendant upon the tran the respondent to recover saction which disentitle back the m01iies, depends upon the facts and circum stances of each case. No question of estoppel can ever arise where both the parties, as in the present case, are labouring under the mistake of law and tlne party fa not more to blame than the other. Estoppel arises only when the plaintiff by his acts or conduct makes a representation to the defendant of a certain state of facts which is acted upon by the defendant to his detriment; it is only then that the 'plaintiff is estopped from settin~ up a different state of facts. Even if this position can be availed of where the representation is in regard to a position. in law,. no

(I) [1946] I Ch. 236, 241.

(2) [1949] L. R. 761. A. 244.

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(3) [1923] I K.B. 504.

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SUPREME COURT R~PORTS I

[1959]

rix v.

t95l - S I T a 's

such occasion ariAes when the mistake- ~flaw is com. ,,. mon to both the partic!f. The other circum1.tances 'J.l'ce, 0 would be such as would. entitle a court of equity to M11k• .. •dlal Saraf refuse the relief claimed by the plaintiff because on thr facts and circumstances of the case it wculd be inequitable for the court to award the relief ta the plaintiff. These are, howeYer, equitable considC"rations and could scarcely be imported when there is a clear and unambiguous provision of law which entitles tho pli>intiff to the relief claimed by him.

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Such equitable considerations were imported by tho Nagpur High Court in Nagorao >. G. G.-in-Ccuncil (1 ) where Kaushalendra Rao ,J. observed :

"The circumstances in a particular case, disen title the pltf. to recover what was paid under mis,; take."

" If tho reason for the rule that a person paying money under mistake is entitled to recover it is that it is against conscience for the receiver to retain it, then when the receiver has no longer tho mOll.fY with him or cannot be eonRidered as still having it as in a caso" when he has spent it on his own purposes-which is the case hcre--differcnt considerat.ior.!f must not necessarily arise."

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Wo do not agree with these observatioILs of the Xagpur Higb Ccturt. Xo such equitable considerations can be imported when the terms of s. 72 of tho Indian Contract Act arc clear and unambigw)ltS. Wo may, in this context, refer to the observations of their Lordships of the Privy Council in .Mol?ori Bibee v. Dhurrrwdas Ghose (') at p. 125. In dealing \vith the argument which waR urged there in rcgai'l to the minor's contracts which were declared void, viz~, that one who seeks equity must do equity irnd that the minor against whom the contract was declared void must refund the advantage which he had got out of the same, their Lordships observed that t.his arg.:,1ment did not require further notice except by referring to a recent decision of the Court of Appeal in Thurstan v. N ottingha.m Permanent Benefit Building Society (') (2) (1902) L. R. 30 I. A. 114.

(1) A.LR. 1951 :-lag. Ji>, 374.

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1367

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since affirmed.by the House of Lords and they quoted with approval the followtng 'passage from the judg- ment of Romer L. J., at p. 13-of the earlier report:

T Offi 5 1 a es ~~ " ' " The short answer is that a Court of Equity Mukundlal Sarnf

Bhagwati J.

cannot say that it is equitable to compel a person to pay •moneys in respect of a transaction whitih as against that person the Legislature has declared to be void."

That ratio was applied by their Lordships to the .

facts of the case before them and the contention was negatived. Merely because the State of U. P. had not retained the monies paid by the respondent but had spent them a way in the ordinary course of the business of the State would not make any difference to the µpsition and under the plain terms of s. 72 of the Indian Contract Act the respondent would be entitled to recover back the monies paid by it to the State of U. P. under mistake of law.

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The result, therefore; is that none of the contentions vrged before .us on behalf of the appellants in regard • to the non-applicability of s. 72 of the Indian Con tract Act to the facts of the present case avail them · and the 'appeal is accordingl.Y, dismissed with costs.

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Appeal dismissed.

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8TATE OF MADHYA PRADESH v. REV ASHANKAR (.JAFER IMAM, S. K. DAS and J. L. KAPUR JJ.) Contempt of Court-Ouster of High Court's jurisdiction-Test -Contempt of Courts Act, I952 (XXXII of I952), s. "J(2)-Indian Penal Cwie, I86o (XLV of I86o), s. 228.

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The respondent, who h~d filed a complaint in respect of an alleged offence under s. 500 of the Indian Penal Code in the Court of the Additional District Magistrate' of I1\dore, macfe a number of aspersions against the Magistrate in in a·pplication

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