# [1959] 1 S.C.R. 1350

- **Citation:** [1959] 1 S.C.R. 1350
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Bench:** S. R. DAs C. J, Bhagwati, B. P. SnrnA, SuI:DA HAo, K. N. W Anchoo
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1959-1-s-c-r-1350-1557
- **Pages:** 18

## Headnote

'
Mistake of Law-Paymc11t-Sales tax on forttard transactio11s,
wbseq11cutly loeld i11valid·-Claim for ref11nd-Vol11nfary paymcntEquitable 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 Contract 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 questions of estoppel, waiver. limitation or the like.
Shib Prlllad Singlo v. Maloaraja Srish Chandra /\'andi, (1949)
L. I<. 76 I.A. 244, relied on.
•
\\'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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SUPREME COURT REPORTS"
1351
of business of the 0 Sfate would not make any difference, and
t958
under the plain terms of s. 72 o.f t!Te Act the respondent was
entitled to recover the amounts.
Sal" Tax Offio<Y
Observations in Nagorao v. Governor-General in Council, Mukun;ial Saraf
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.
Appeal from the judgment and decree dated
December l, 1955, of the Allahabad High Court in
Special Appeal No. 18 of 1955, arising out of the judgment 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 respondent .
• B. P. Malteshwari, for Agra :Bullion Exchange
• (Intervener).
K. Vetl'aswami and T. M. Sen, for the State of
ll'l<tdras (Intervener).
•
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 dealing 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,

## Text

_Characters 0–39,913 of 40,370. This is a partial read: ask again with offset=39913 for what follows._

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1350
~UPREME COURT REPORTS
[1959]
SALES TAX OFFICER, BAXARAB.& OTHERS
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KANHAIY A LAL 111UKUNDLAL SARAF
(S. R. DAs C. J., BHAGWATI, B. P. SnrnA, SuI:DA HAo.
'
and K. N. W ANCHOO JJ.)
'
Mistake of Law-Paymc11t-Sales tax on forttard transactio11s,
wbseq11cutly loeld i11valid·-Claim for ref11nd-Vol11nfary paymcntEquitable 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 Contract 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 questions of estoppel, waiver. limitation or the like.
Shib Prlllad Singlo v. Maloaraja Srish Chandra /\'andi, (1949)
L. I<. 76 I.A. 244, relied on.
•
\\'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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1351
of business of the 0 Sfate would not make any difference, and
t958
under the plain terms of s. 72 o.f t!Te Act the respondent was
entitled to recover the amounts.
Sal" Tax Offio<Y
Observations in Nagorao v. Governor-General in Council, Mukun;ial Saraf
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.
Appeal from the judgment and decree dated
December l, 1955, of the Allahabad High Court in
Special Appeal No. 18 of 1955, arising out of the judgment 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 respondent .
• B. P. Malteshwari, for Agra :Bullion Exchange
• (Intervener).
K. Vetl'aswami and T. M. Sen, for the State of
ll'l<tdras (Intervener).
•
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 dealing 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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'tlUPREllIE COURT REPORTS
[1959]
r958
three years which sums were appropri'a.loed towards the
S I
T
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payment of the sales tax' Iiabilitv of the firm 1mder the
II IS
llX
11ICtr
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respective assessment o'l'ders passed on May ill, 1949,
Muk1<ndlal Saraf October 30, 1950 and August 22, 1951.
The levy of sales ta.x on forward transactions was
Bhagwali ].
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.
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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 to Rs. 1,365-12-0.
The 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 respondent.
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,
1955. It .was argued by the Advocate.General on
behalf of the appellants that the <Lmount1. in \lispute
were paid by the respondent imder a rnidtake of law
and were therefore irrecoverable. The AdvocateGeneral 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
I958
otherwise than°bv way o{ a •petition under Art. 226
O
h
Sales Tax Officer
of the Constitution. The High. Court came to t e conv.
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
Bhagwuti 1.
respondent on account of Sales Tax. It accordingly
dismissed the appeal with costs.
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 undertaking 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 procedure 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 respondent 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, however, 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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1354
·SUPREME COURT ~EPORTS
[1959]
1958
learned Additional Solicitor-General to.take this point
at this stage.
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Sales 1"a.t O!ficu
s .
72
f
h
y
,J.
c·
A
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I
v.
• cct1011
o t e .. nu1an ,ontract
ct 1s Ill t 1e
M•A1rndlal Sam/ following terms :
" A person to whom money has been paid, or a.nyBhogwoti J.
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· recoverable, and that oven a pr<'>misc to pay, upon ~ suppob'tltl
liability, and in ignorance of the law, will bintl the
party. "
•
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 fearful 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
•
[t) (1876) 3 Ch. D. 3.1'· 356.
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1355
knowledge of. itll the facts and take advice, and
1958
whether they get proper oadv'ice or not, the money is .
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0
divided and the business is 'Settled, it is not for the Sales Tax 'fficer
good of mankind that it should be reopened ... "
(See M .. kun:Z·al S•••f
also National Pari Mutual Association Ltd. v. The
King•(') and Pollock on Contract, 13th Edn., at
Bhogwoti J.
pp. 367 & 374).
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 unconstitutional, may be reco.vered, or release from other
undertakings entered into obtained. "
The E:igh Court of Australia also expressed a s1m1Ia.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 irrecoverable. 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.
·is the position the same in
India?
(1) 47 T.L.R. 110.
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(2) 59 C.L.R:15<t.
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1356
SUPREME COURT REPORTS
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r958
It is necessary to observe at the ou't~t that what
S I
T
0
we have got to consider !!re !he plain terms of s. 72 of
a" ax 'fficer
l
I d.
Co
d b
L
.
v.
tie n mn
ntract Act•as cnactc
y the eg1slature.
,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.
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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 considerations 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.
bably intended to leave it unaltered, to set: if the
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 ,interpreting 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 ............ ".
This pas
0sage 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
0branch of the law.
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(1) [1891] A.C. 10?, lM·
(2) (1896) 1.L.R. 23 ?I. S6J, 571 .
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1357
The Privy Co~mcil adopted a similar reasoning in
r95s
Mohori Bibee v. Dhurmooos ~hose (1) where they had 5 1
T
O'ffi
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aes
ax
cer
to mterpret s. 11 of the Indmm Contract Act. They
v.
had before them the general current of decisions in Mukundlal Saraf
India that ever since the passing of the Indian Contrac1' Act the contracts of infants were voidab!G only.
Bhagwati J.
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, their Lordships considered themselves
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 voidable 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 consideration 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!ections 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 impossil;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
(I) (19q;<) L.R 30 LA. II4.
(2) (1954) s.c."R. po.
0
(3) (1952) S.C.R 36, 52.
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1358
SUPREME COURT R]!:PORTS
[1959)
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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
Suits Ta> Ojfiw f E
) ' h )
d h
1
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o
ng 1s
aw e ors t iese statutory prov1S1ons.
The
Muh•~~r Saraf decisions of the English courts possess only a persuasive value and may be helpful in showing how the
BAagwati J.
courts.in England have decided cases under circumstances similar to those which have come before our
courts."
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(').
The courts in India do not appear to have consistently adopted this course and there were several decisions 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"
v. Dadyba Khimji & Co. (3) and Appavoo Chettiar v.
S. I. Ry. Co.(').
In 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.'
(1• 7 CL & F. 596.
(2) L. R 66 I. A. " 10.
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(3) (1919) i.L.R. H Rom. 631, 649.
(4) A.l.R. 1929 Mad. 177.
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(~) A.I.R. 1946 Cal. 245.
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S.C.R.
SUPREME COURT REPORTS'
1359
The Privy .0-ouncil resolved this conflict in Shiba
r958
Prasad Sinqh v. Sr~sh '()hrlnd~a Nundi (
1).
Their Sal" Tax Offim
Lordships of the Pr1vy Council observed that the
v.
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.
Bhagwati J.
Their Lordships were therefore bound to consider this
matter as an open question, and stated at p. 253:
"Those learned judges who have held that
mistake in this context must be given a limited meaning 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.ined legally enforceable. This seems to be the argument
of Messrs. Pollock and Mulla and as far as I can see
it is sound." In Appavoo Ghettiar v. South Indian
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
(1) (19494L.R. 76 I.A. 244.
(2) (1919) I.L.R. .j4 Born. 631.
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• (3) A.I.R. 1929 Mad. 648.
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1360
~UPREME COURT REPORTS
[l!l59]
Lordships' opinion this reasoning is •ri.uacious. If a
mistake of law has led t~ t.He formation of a contract,
Solis Ta11 Ojfic1r
v.
s. 21 enacts that that eontract is not for that. reason
1958
~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 inconsistent 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 subsisting 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,
it 'appears to their 1-0rdships to be irreleva.nt to
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 interpretation 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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1361
Lordships' judgment does not imply that every sum
'958
paid under mistake is recmer~ble, no matter what the 5 1
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a "
ax
'"
circumstances may
e.
ere may m a part10u ar
v.
case be circumstances which disentitle a plaintiff by Mukundlal Saraf
estoppel or otherwise."
W eo are of opinion that this interpretation put by
Bhagwati J.
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 judgment 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 circumstances 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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1362
SUPRE;\1E COURT REPORTS'
[1959]
1958
the Indian Contract Act applied to •t~e facts of the
I
7.
O'ffi
present case.
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Sa es
ax
ctr
R
.
v.
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
Bhaiwati J.
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 considered 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
exacting the su-id payments and therefore the payi958
men ts having been voluntarl'Iy made, though under , 1
-:;--- 0
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
Bhagwuti J.
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
respect of the forward transactions in silver, had
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 respective' 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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• (3) [1955] l S.C.R. 24J.
173
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1364
SUPREME COURT REPORTf!
[1959]
dates.
This mistake of law became lfp11are11t only on
May 3, 1954, when this t:outt confirmed the siLid deciSalcs Tax O(ftcr'
f
v.
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
Hhagwati J.
by mistake of law.
The :;t.ate of mind of thi; rnspondent 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 proceeded 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 established 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 indicated 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-
•
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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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~UPREME COURT REPORT~
1365
latter position kas been elaborated in English Law in
the manner following in-TuJyford v. Manchester Corporation (1) where Romer J. {)bserved:
Salos Tax Offi"r
"Even so, however, I respectfully agree with the Mukun;i.1 Saraf
rest of Walton J.'s judgment, particularly with his
_
statement that a general rule applies, namely, the rule
Bhagwati ;:
that, if money is paid voluntarily, without compulsion, 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 successfully resisted."
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
England reported in Holt v. Markham (3) where it was
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 allegi>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 transaction which disentitle the respondent to recover
back the m01iies, depends upon the facts and circumstances 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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1366
SUPREME COURT R~PORTS I
[1959]
t95l
such occasion ariAes when the mistake- ~flaw is com.
S I
T0,,.
mon to both the partic!f. The other circum1.tances
a 's
rix
'J.l'ce,
v.
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
Rhac•••1i /.
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.
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, disentitle 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
not the case hcre--differcnt considerat.ior.!f
must
necessarily arise."
•
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 (')
(1) A.LR. 1951 :-lag. Ji>, 374.
(2) (1902) L. R. 30 I. A. 114.
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{3) [ I902] I Ch. I.
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\sUPREME COURT REPORTS
1367
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since affirmed.by the House of Lords and they quoted
r958
with approval the followtng 'passage from the judg5 1
T
Offi
ment of Romer L. J., at p. 13-of the earlier report:
a es
~~
"'
" The short answer is that a Court of Equity Mukundlal Sarnf
cannot say that it is equitable to compel a person to
pay •moneys in respect of a transaction whitih as
Bhagwati J.
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.
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 Contract 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.