Himachal Pradesh National Law University, Shimla

2019-20
Assignment

on

Doctrine of Restitution in Indian and English Law

Course code :- LLB 202

Course title :- Law of Contract - I

Submitted by :- Submitted to :-

Bhart Bhardwaj Dr. Girjesh Shukla

Course :- B.A. LL.B.(2nd sem) (Associate Prof. of Law )

Roll no. :- 1020181935

 Acknowledgement :-
I have taken efforts in this project. However, it would not have been
possible without the kind support and help of many friends and our respectful
professor Dr. Girjesh Shukla. I would like to extend my sincere thanks to all
of them.

I am highly indebted to HPNLU for their guidance and constant

supervision as well as for providing necessary information regarding the
report & also for their support in completing the project.

I would like to express my gratitude towards my parents & member of

HPNLU for their kind co-operation and encouragement which help me in
completion of this project.

I would also like to thank all my friends in developing the project and people
who have willingly helped me out with their abilities.

- Bhart Bhardwaj

Contents
S. No. Contents Page
1. Meaning of Restitution and 4
Unjust Enrichment
2. Doctrine of Restitution in Indian 5–6
law
3. Doctrine of Restitution in England 6–7

4. Illustrations 7–8

5. Section – 65 Indian Contract Act 8 – 10

6. Exceptions to the Doctrine of 10

Restitution
7. Conclusion 10

8. Related cases 11 – 15
Meaning of Restitution and Unjust Enrichment:-

In order to understand the doctrine of restitution initially we have to understand the meaning
of two important terms which are restitution and unjust enrichment. Firstly let us understand
the meaning of restitution according to various legal and other dictionaries and then unjust
enrichment.

The word restitution in its normal sense means to restore the benefit which a person has
obtained.

According to the oxford dictionary, restitution means the restoration of the lost or stolen thing
to its proper owner.1

According to Merriam Webster, restitution is a legal action serving to cause the restoration of
the previous state.2

According to Oxford Dictionary, the word unjust enrichment is the combination of two words
in which unjust means not based on or behaving according to what is morally right and fair
while the word enrichment means the process of making someone wealthy or wealthier.3

Thus it means gaining something from the loss of other person from the methods considered
to be not fair or justified.

According to the Black’s Law Dictionary, unjust enrichment means money obtained that is not
a gift that the beneficiary needs to make restitution for.4

Thus restitution means to restore the benefit which a person has obtained and the main purpose
of restitution is firstly to restore the position of the victim i.e. ‘ Plaintiff ’ in case of a contract
to the original position which he enjoyed before entering into contract and secondly to prevent
the unjust enrichment of the defendant i.e. to stop him from making wrongful gains from the
contract which he is not entitled as per law to make.

Illustration

Mr. Anuj entered into a contract with M/S ABC Pvt Ltd Chandigarh for a purchase of 50
tonnes of wheat. Anuj paid an advance of Rs 50,000 which was 10% of the total value of the

1
Restitution, Oxford Dictionary (3rd ed. 2010)
2
Restitution, Merriam Webster (1st ed. 2016)
3
Unjust Enrichment, Oxford Dictionary (3rd ed. 2010)
4
Unjust Enrichment, Black’s Law Dictionary (10th ed. 2014)
contract. Later in the future, ABC Pvt ltd revoked the contract due to some financial loss, after
which they were declared as insolvent and decided to wind up their business. Now, in this case,
the contract becomes void and ABC ltd must return the Rs. 50,000 to Mr. Anuj.

The Doctrine of Restitution in Indian Contract act

The doctrine of restitution is discussed under Section 65 of the Indian contract act 1872 and it
relates to the obligation of the person who has received some advantage or benefits under void
agreement or contract. This section starts from the very basis that there being an agreement or
contract and if there was no agreement or contract then the doctrine of restitution cannot come
into play. This doctrine is based on the rule of consideration which states that a person pays
something only when he gets something in return.

The provisions of section 65 come into existence only when an agreement is discovered to be
void or a contract becomes void later on by the act of one party or the other. But Section 65
will never come into force if the contract was void-ab-initio i.e. void from the very beginning.
Supreme Court of India in the case of Kuju Collieries limited v/s Jharkhand mines ltd 5 held
that an agreement which was discovered to be void at a later stage will invite Section 65 into
the picture and in such a case an advantageous person is bound to restore the disadvantaged
party.

Doctrine of restitution includes the key points as follows

i) One party has entered into a contract with another for consideration.
ii) There was involvement of some consideration in the contract.
iii) Both parties were competent to enter into the contract.
iv) Thereafter one party failed to perform his part of the contract or the contract became
void due to any unforeseen condition or any supervening act.
v) Now the party which has paid any consideration as the advance is entitled to recover
the same from the other party and other party is not entitled to receive an unfair
advantage over it.

Restitution v/s Compensation

Most of the times these two terms are treated as to have a similar meaning but the difference
between these two lies in the manner in which monetary award is calculated. For instance in

5
Kuju Collieries Ltd vs Jharkhand Mines Ltd. & Ors 1974 AIR 1892
compensation the award is calculated on the basis of how much loss the plaintiff suffered,
whereas in restitution the award is calculated on the basis of how much gains the defendant has
earned. However on certain occasions it is based on the discretion of judge based on the facts
of a particular case the judge can give a choice to the plaintiff to choose from restitution and
compensation.

Doctrine of Restitution in England:-

Courts in seventeenth century England first developed the doctrine of restitution as a

contractual remedy. The concept migrated to courts in the United States, and it has since
expanded beyond its original contractual roots. Courts now apply restitution in the areas of
maritime, criminal law, and torts.

In Halsbury’s Laws of England, it is stated, “Any civilized system of law is bound to provide
remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to
prevent a man from retaining the money of, or some benefit derived from, another which it is
against conscience that he should keep.”6

In law the term ‘restitution’ is used in three senses:

(i) return or restoration of some specific thing to its rightful owner or status;
(ii) compensation for benefits derived from a wrong done to another;
(iii) compensation or reparation for the loss caused to another.

Even where a person has received a benefit from another he is liable to pay thereof only if the
circumstances of its receipt or retention are such that, as between the two persons, it is unjust
for him to retain it. The mere fact that a person benefits another is not of itself sufficient to
require the other to make restitution thereof.

Ordinarily the benefit to the one and the loss to the other are co-extensive or are the mutual
event, and the result of the remedies given under the rules stated in the restatement of this
subject is to compel the one to surrender the benefit which he has received and thereby to make
restitution to the other for the loss which he has suffered.

Where benefit and loss do not coincided the amount of recovery is usually limited to the amount
by which he has been benefited.

6
Bhupendra Verma, Inherent Power of the Court to grant Restitution, Legal Services India,
http://www.legalserviceindia.com/article/l419-Inherent-Power-of-the-Court-to-Grant-Restitution.html
Restitution literally means restoration. It is based on the noble principle that a person should
not be allowed to unjustly enrich himself at the expense of another. Therefore, when a contract
becomes void, the party who has received any benefit under it must restore it to the other party
or must compensate the other party by the value of the benefit.

According to Anson, "the principle of restitution is that a person who has been unjustly
enriched at the expense of another is required to make restitution to that other."

Illustration :

A agrees to sell to B, after six months, certain immovable property and receives Rs. 1,000 as
an advance. Immediately thereafter, transfer of immovable property is prohibited by an Act of
the Legislature. The contract becomes void, but A must return the sum of Rs. 1000 to B.

The principle of restitution applies in the following circumstances:

1. When a contract becomes void, all parties who have received benefit under the contract must
restore it back to the person from whom it has been received.

2. The principle of restitution also applies where an agreement is void ab- initio but the fact is
unknown to both the parties, e.g., mutual mistake regarding existence of the subject-matter.

The doctrine of restitution is not applicable in the following circumstances:

(i) Where an agreement is known to be void e.g., where an agreement is for some impossible
act to do or where it is illegal to the knowledge of both the parties from the beginning. For
example, A promises B to produce gold by magic. B pays an advance of Rs. 1,000. B can
neither recover Rs. 1,000 nor compel A to produce gold by magic as A and B know or ought
to know that the act is impossible.

(ii) The principle of restitution does not also apply where the party who has to return the benefit
is a person incompetent to enter into a contract, e.g., minor. For example, in the case of Mohori
beebi vs. Dharmodass Ghosh, it was seen that the minor was not asked to return Rs. 8,000
obtained by him against the mortgage, although the mortgage was declared void.

However, on equitable grounds, the Court may ask the minor to restore the benefit where he
has misrepresented his age. The law has not given any license or liberty to a minor to cheat
men.
(iii) The principle of restitution is also not applicable where a party is required to give some
earnest money which serves as a security that the depositor will perform his part. Such deposit
will not be refunded if the depositor fails to perform his promise.

In case where restitution of the same benefit is not possible, reasonable compensation will have
to be paid to make good the loss of the other party.

Section 65 of the Indian Contract Act, 1872:-

Sometimes, a party does anything or delivers something, under an agreement or contracts

whereby the other party receives some advantage. Then, the advantaged party is under an
obligation to restore the disadvantaged party. Questions relating to restitution, or restoration of
advantage, may arise:

1. If the agreement or contract is void ab initio ; or

2. If the agreement is subsequently discovered to be void; or

3. If the contracts becomes void.

Doctrine of Restitution has no application to agreements or contracts ab initio void, and known
to be so. Therefore it can be stated that this section restricts to only two cases that can termed
as:

1. If the agreement is subsequently discovered to be void; or

2. If the contracts becomes void.

If the case falls within any of the two categories, any person who has received any advantage
under such agreement or contract becomes bound to restore it, or to make compensation for it,
to the person whom he received it. It is known as Doctrine of Restitution.

Section 65 of the Indian contract act, 1872 governs the doctrine of restitution. It may be
observed that this section starts from the basis of there being an agreement or contract. If there
was no agreement or contract or there could be no agreement or contract then this Doctrine of
Restitution has no governance.

A contract entered into with a minor or a person of unsound mind is a nullity, and does not give
rise to any rights and obligations. It is non est. When the parties could not perform the contract
for the variety of reasons, they revert back to their original previous positions, and the mere
fact that the contract is one prohibited by law will not disentitle the plaintiff from recovering
the money advanced, or the present given, so long as there is no part-performance of the illegal
contract.

Section 65 relates to obligation of the person who has received advantage under void agreement
or contract. First of all it is not a case where the contract is discovered to be void. It was not
the case that contract subsequently became void.

It is well established principle of equity that when one person pays money to another in
pursuance of an agreement which is ineffective or which subsequently becomes so, he under
certain circumstances can recover money he had paid. The said rule of equity has been
incorporated in several sections of the Indian Contract Act. Section 65 of the said act is one of
such sections. It lays down the principle of restitution of the benefit received on the basis of an
agreement subsequently discovered to be void or void from the beginning.

The provisions of Section 65 apply only when an agreement at a subsequent stage is discovered
to be void or when a contract became void later on by one person or the other. As a corollary
from this principle, if money is advanced by way of capital for carrying on illegal partnership
which partnership was actually carried out, such advance is not recoverable having regard to
the principle, exturpi causa non oritur7 action.

Scope of section 65 of the contract act which has bearing came into consideration by the
Supreme court of India in the case Kuju Collieries Limited v/s Jharkhand Mines Limited while
interpreting the provisions of the said section it was observed that an agreement being
discovered to be void it means that agreement the not enforceable and is, therefore, not a
contract. It means that it was void. In such a case an advantaged person is bound to restore the
disadvantaged party.

In Bank of Rajasthan Ltd. v/s Sh. Pala Ram Gupta , it held that where even at the time when
the agreement is entered into both the parties knew that it was unlawful and therefore, void,
there was no contract but only an agreement and it is not a case, where it is discovered to be
void subsequently. Nor is it a case of the contract becoming void due to subsequent happenings.
Therefore, Section 65 of the contract act, does not apply.

In Jayantilal Goel v/s Zubeda Khanum, the only basis, on which the recovery of the sum is
based, is the pronote and there is no other alternative allegation. Therefore, when the pronote
was executed and the payment of the sum was said to be contemporaneous with the instrument

7
from a dishonourable cause an action does not arise
and when once the instrument is held to be void on the ground that is hit by Section 87 of the
Negotiable Instruments Act, then the plea under Section 65 of the Indian Contract Act is not
available.

Exceptions to Doctrine of Restitution:-

1. Where an agreement is known to be void:- This doctrine will not be applied for an
agreement known to be void e.g. , where an agreement is for some illegal act or an
impossible act like an agreement that A will pay B Rs 10,000 if B picks stars from the
sky. A pays Rs 500 as security to B, now being an impossible act to perform A cannot
recover even his Rs 500.
2. Where an agreement has been entered into between incompetent persons:-
Contract entered into between incompetent persons like a person suffering from
insanity, intoxication or a minor will not invite this doctrine to play.
3. Where the party is required to give some earnest money as security and later on
defaults:- This provision deals with a situation like paying application money for a
residential scheme. Now if a person fails to future allotment money then his application
money will also be forfeited and he cannot claim his earlier earnest money by revoking
the doctrine of restitution.

Conclusion:-

Now after analysing the key aspects of section 65 we can see that restitution involves restoring
the position of the affected party to his original position before entering into contract and one
party is not entitled to have an unfair advantage over the other and by enforcing the provisions
of Section 65 he can very much claim compensation or restitution as the case may be.
Related cases :-

1. Jijibhai laldas v. Nagji gulab

Facts :-

The plaintiff who was in possession of certain Bhagdari land entered into an
agreement with the defendant that the defendant should hold the land for 199 years
on lease in consideration of a lump sum of Rs. 299 paid in advance and agreed that
should any obstruction or hindrance be caused to the defendant's enjoyment of the
land or should the same be taken away from his possession, then he had authority
to recover his money, from the plaintiff personally. The defendant in pursuance of
the agreement entered into possession of the land. After two years the plaintiff changed
his mind and coming to the conclusion that he Would like to take his land back again,
sued the defendant for possession on the ground that the so-called lease was an unlawful
alienation prohibited by the terms of Section 3 of the Bhagdari Act (Bombay Act) V of
1862.

Issue raised:-

Whether the defendant should be ordered to give up the land without receiving his
money back in terms of the agreement ?

Judgement :-

The decree of the lower appellate court was upheld by the court that the lease is
an unlawful alienation prohibited by the Act, and in that conclusion we agree and the
plaintiff must give compensation to the defendant according to the section 65 of the
Indian contract act 1872.

2. Kuju collieries ltd. v. Jharkhand mines ltd.

FACTS:-

Plaintiff entered into a contract for lease of coal mines from the defendant in lieu of
consideration money (which was paid there and then); however, the deed was hit with
the illegality under the act passed before the contract was made; since the lease of
 property was never conveyed to the plaintiff and the deed was void by the operation of
law, he instituted the suit u/s 65 claiming that the law was unknown to him before
entering the contract and it was the case of “contract discovered to be void”.

ISSUE:-

Whether the case is governed by S.65 of Indian Contract Act?

Judgement:-

As the plaintiff was already in the business of the mining operations and had the
advantage of consulting solicitors evidenced by the fact that the deed was prepared by
the solicitors, hence, there was no occasion for plaintiff to be in ignorance of law such
that the deed was void ab initio and not subsequently discovered to be void. Since the
plaintiff is to be imputed with the knowledge of law in present circumstances, hence
the act of paying the consideration money could not be said to be induced by ‘mistake’
as to law in force under the realm of S.72 such that plaintiff could not recover anything.

3. Mohori bibee v. Dharmodas Ghose

Facts:

The plaintiff, while he was a minor, mortgaged his property in favour of the defendant,
Brahmo Dutt, who was a money-lender to secure a loan. At the time of transaction the
attorney, who acted on behalf of the money-lender had the knowledge that the plaintiff
was a minor. The minor brought an action against the money-lender stating that he was
a minor when the mortgage was executed by him and, therefore, the mortgage was void
and inoperative and the same should be cancelled. By the time of Appeal to the Privy
Council, the defendant Brahmo Dutt died and the appeal was prosecuted by his
executors. The defendant contented that:

(1) The minor had fraudulently misrepresented his age, the law of estoppel should be
applied against him.
 (2) If the mortgage is cancelled as requested by the minor, the minor should also be
asked to refund the loan which he had taken.

Issue:-

Whether the mortgage was void u/s 2, 10, 11 of ICA?

Whether plaintiff to return the money received by him under such mortgage under
section 65 of ICA?

Judgment:

The defendant’s contentions were rejected. Minor’s agreement was held void, and it
was held that the minor could not be asked to repay the loan taken by him.

The contract with a minor falls under the exception of doctrine of restitution, a minor
can’t be forced to repay the loan taken by him even if the contract is void ab initio.

4. Bank of Rajasthan v. Hajarimal Milap C. Surana

FACTS:
The respondents (R) (Hajarimal Milap C. Surana) were indebted to the appellants (A)
(Bank of Rajasthan) and had deposited precious stones as security. For the recovery of
the debt, a suit had been filed in the court by A. Pending the suit, the parties came to an
agreement, for the enforcement of which another suit was filed by A.

ISSUES:

i) Whether the second suit is maintainable since the first suit for recovery of the debt was
already pending?
ii) Whether the precious stones constitute full and final settlement of the debt?
iii) Whether the A’ claim to interest is justified.

Judgement :-

Debts Recovery Tribunal: favoured R

 Rejected appellants claim on two grounds; (a) Bank had taken the precious stones
as full and final settlement (b) Suit was barred under order 23 rule 1(4) of the CPC.

Appellate Tribunal: (favoured R)

Recognized the second suit i.e. did not consider it barred on the basis of CPC
provisions but dismissed the appeal maintaining that the bank had taken the precious
stones in full and final settlement of the debt.

SUPREME COURT (favoured A)

i) (Issue 1) The case was not for the recovery of the original debt but for the enforcement
of the agreement and as such not similar to the first suit.
ii) (Issue 2) The precious stones did not constitute full and final settlement but were merely
security as expressly mentioned in the agreement.
iii) (Issue 3) A’s claim to interest was justified as the agreement revealed that the bank had
agreed to charge any further interest.

S.176 applicable; A was entitled to the recovery of the debt with interest.

5. Haribhai Hansji vs Nathubhai Ratnaji

Facts:-
The defendant obtained possession of the property from the date of the bond and continued
in possession up to the date of the suit. The plaintiff brought the suit in 1910 to recover
possession of the property. Until then it appears that no obstruction was caused to the
defendants' possession under the bond. The plaintiff thought of recovering possession
on the ground that the mortgage of an unrecognized portion of a bhag was void in this
suit. There is nothing to show that the defendant was aware of the fact that the bond
was void under the Bhagdari Act at the date of the bond.

Issue:-
Whether compensation under Section 65 of the Contract Act could be allowed, if the bond
were void?
 Judgement:-
It was held by the trial Court that the document called the valatdan patta was a mortgage,
that the plaintiff was entitled to recover possession, and that he was liable to give certain
compensation to the defendant as claimed by him. The decree of the trial Court was
confirmed subject to a slight variation as to interest by the lower appellate Court. The
trial Court subject to the proviso that the first instalment, if not paid, should be paid by
the 31st of December 1913, the time for the payment of other instalments being the
same as fixed by the decree of the trial Court.
The appellant should pay respondent No. I's costs of this appeal and of the appeal in the
District Court under sec. 65.