Sales Tax Officer, Banaras & Ors Vs.
Kanhaiya Lal Mukundlal Saraf  INSC 81 (23 September 1958)
BHAGWATI, NATWARLAL H.
DAS, SUDHI RANJAN (CJ) SINHA, BHUVNESHWAR P.
CITATION: 1959 AIR 135 1959 SCR Supl. (1)1350
CITATOR INFO :
R 1959 SC 149 (30) R 1964 SC1006 (14) R 1965
SC1942 (34) RF 1970 SC 898 (18,25,32,46,63) RF 1976 SC2243 (29) R 1984 SC 971
(9) E&R 1985 SC 901 (12) E 1986 SC1556 (1,27) R 1990 SC 313 (18)
Mistake of Law-Payment-Sales tax on forward
transactions, subsequently held invalid--Claim for refund-Voluntary
payment-Equitable considerations-Indian 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 in respect of its forward transactions in pursuance of the assessment
orders passed by the sales tax officer for the years 194951, but in 1952, the
Allahabad High Court having held in Messrs. Budh Prakash jai Prakash v. Sales
Tax Officer, Kanpuy, 1952 A. L. J. 332, that the levy of sales tax on forward
transactions was ultra vires, the respondent applied for a refund of the
amounts paid, by a writ petition under Art. 226 of the Constitution. It was
contended for the sales tax authorities that the respondent was not entitled to
a refund because (1) the amounts in dispute were paid by the respondent under a
mistake of law and were therefore irrecoverable, (2) the payments were in
discharge of the liability under the Sales Tax Act and were voluntary payments
without protest, and (3) inasmuch as the monies which had been received by the
Government had not been retaine but had been spent away by it, the respondent
was disentitled to recover the said amounts.
Held, that the term " mistake " in
s. 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 is entitled to
recover money paid by mistake or under coercion, and if it is 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 receiving the money is bound to repay or
return it though it might have been paid voluntarily, subject, however, to
questions of estoppel, waiver, limitation or the like.
Shib Prasad Singh v. Maharaja Srish Chandra
Nandi, (1949) L.R. 76 I.A. 244, relied on.
Where there is a clear and unambiguous
provision of law which entitles a party to the relief claimed by him, equitable
considerations cannot be imported and, in the instant case, the fact that the
Government had not retained the monies paid by the respondent but had spent
them away in the ordinary course 1351 of business of the State would not make
any difference, and under the plain terms of s. 72 Of the Act the respondent
was entitled to recover the amounts.
Observations in Nagorao v. Governor-General
in Council, A. 1. R. 1951 Nag. 372, 374, to the effect that where a party
receiving money paid under a mistake has no longer the money with him,
equitable considerations might arise, disapproved.
CIVIL APPELLATEJURISDICTION: Civil Appeal No.
87 of 1957.
Appeal from the judgment and decree dated
December 1, 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. C. Mathur and C. P. Lal, for the appellants.
P. R. Das and B. P. Maheshwari, for the
B. P. Maheshwari, for Agra Bullion Exchange
K. Veeraswami and T. M. Sen, for the State of
R. C. Prasad, for the State of Bihar
H. N. Sanyal, Additional Solicitor-General of
India, B. Gopalakrishnan and T. M. Sen, for the Union of India (Intervener).
1958. September 23. The Judgment of the Court
was delivered by BHAGWATI J.-The facts leading up to this appeal lie within 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, 1949-50 and 1950-51 the Sales Tax Officer, Banaras,
the appellant No. 1 herein assessed the respondent to U. P. Sales Tax on its
forward transactions in Silver Bullion. The respondent had deposited the sums
of Rs. 15012-0, Rs. 470-0-0 and Rs. 741-0-0 for the said 1352 three years which
sums were appropriated to-wards the payment of the sales tax liability of the
firm under the respective assessment orders passed on May 31, 1949, October 30,
1950 and August 22, 1951.
The levy of sales tax on forward transactions
was held to be ultra vires, by the High Court of Allahabad by its judgment
delivered on February 27, 1952, in Messrs. Budh Prakash 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
No. 2, the Commissioner of Sales Tax, U. P., Lucknow, however, by his letter
dated July 19, 1952, refused to refund the same.
The respondent thereafter filed in the High
Court of Allahabad the Civil Misc. Writ Petition No. 355 of 1952 under Art. 226
of the Constitution and asked for a writ of certiorari for quashing the
aforesaid three assessment orders and a writ of mandamus requiring the
appellants to refund the aforesaid amounts aggregating to Rs. 1,365-12-0.
The judgment of the Allahabad High Court was
confirmed by this Court on May 3, 1954, in Sales Tax Officer, Pilibhit v.
Budh Prakash Jai Prakash () and the writ
petition aforesaid was heard by Chaturvedi J. The learned judge by an order
dated November 30, 1954, quashed the said assessment orders in so far as they
purported to assess the respondent in respect of forward contracts in silver
and also issued a writ of mandamus directing the appellants to refund the
amounts paid by the respondent.
The appellants filed a Special Appeal No. 18
of 1955 in the High Court of Allahabad against that order of the learned Judge.
A Division Bench of the said High Court heard the said appeal on December 1,
1955. It was argued by the Advocate-General on, behalf of the appellants that
the amounts in dispute were paid by the respondent under a mistake of law and
were therefore irrecoverable. The Advocate-General also stated categorically that
in that appeal he did not contend that the respondent ought to have (1) (1952)
(2) [I955] 1 S.C.R. 243.
1353 proceeded for the recovery of the amount
claimed otherwise than by way of a petition Under Art. 226 of the Constitution.
The High Court came to the conclusion that s.
72 of the Indian Contract Act applied 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
The appellants then applied for a certificate
133(1)(b) of the Constitution which
certificate was granted by the High Court on July 30, 1956, on the AdvocateGeneral'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. 1, 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 to the facts of the present case.
The learned Additional Solicitor-General
appearing for the appellants tried to urge before us that the procedure laid
down in the U.P. Sales Tax Act 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 could not 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 that the respondent was entitled to recover the amount claimed in the
writ petition which was filed. No such point had been taken either in the
grounds of appeal or in the statement of case filed before us in this Court and
we did not feel justified in allowing the 1354 learned Additional
Solicitor-General to take this point at this stage.
Section 72 of the Indian Contract Act is in
the following terms:
" A person to whom money has been paid,
or anything delivered by mistake or under coercion, must repay or return
it." As will be observed the section in terms does not make any
distinction between a mistake of law or a mistake of fact.
The term " mistake " has been used
without any qualification or limitation whatever and comprises within its scope
a mistake of law as well as a mistake of fact. It was, however, attempted to be
argued on the analogy of the position in law obtaining in England, America and
Australia that money paid under a mistake of law could not be recovered and
that that was also the intendment of s. 72 of the Indian Contract Act.
The position in English law is thus
summarised in Kerr on " Fraud and Mistake " 7th Edn., at p. 140:
" As a general rule it is
well-established in equity as well as at law, that money paid under a mistake
of law, with full knowledge of the facts, is not recoverable, and that even a
promise to pay, upon a supposed liability, and in ignorance of the law, will
bind the party. " The ratio of the rule was thus stated by James L. J. in
Rogers v. Ingham(1) :
" If that proposition were trite in
respect of this case it must be true in respect to every case in the High Court
of Justice where money has been paid under a mistake as to legal rights, it
would open a fearful amount of litigation and evil in the cases of distribution
of estates, and it would be difficult to say what limit could be placed to this
kind of claim, if it could be made after an executor or trustee had distributed
the whole estate among the persons supposed to be entitled, every one of them
having knowledge of all the facts, and having given a release. The thing has
never been done, and it is not a thing which, in my opinion, is to be
encouraged. Where people have a (1) (1876) 3 Ch. D. 351,356.
1355 knowledge of all the facts and take
advice, and whether they get proper advice or not, the money is divided and the
business is settled, it is not for the good of mankind that it should be
reopened..." (See also National Pari Mutual Association Ltd. v. The King
(1) and Pollock on Contract, 13th Edn., at 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
civil as well as criminal cases. However, in the case of taxes levied and
collected under statutes later 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 only 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 recovered, or
release from other undertakings entered into obtained. " The High Court of
Australia also expressed a similar opinion in Werrin v. The Commonwealth (2)
where Latham C. J. and MacTiernan J. held that money paid voluntarily under a
mistake of law was 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.
63 " that money paid voluntarily, that
is to say, without compulsion or extortion or undue influence and with a
knowledge of. all the facts, cannot be recovered although paid without any
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 extortion or undue influence and with a knowledge of all
facts, cannot here covered although paid without any consideration.Is the
position the same in India ? (1) 47 T.L.R. 110. (2) 59 C.L.R. 150.
172 1356 It is necessary to observe at the
outset that what we have got to consider are the plain terms of s. 72 of the Indian
Contract Act as enacted by the Legislature. If the terms are plain and
unambiguous we cannot have resort to the position in law as it obtained in
England or in other countries when the statute 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 find
out what was the true intendment of the Legislature.
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 Bank
of England v. Vagliano Brothers (1) :
" I think the proper course is in the
first instance to examine the language of the statute and to ask what is its
natural meaning uninfluenced by any considerations derived from the previous
state of the law, and not to start with enquiring how the law previously stood,
and then, assuming that it was probably intended to leave it unaltered, to see
if the words of the enactment will bear an interpretation in conformity with
this view. " "If a Statute, intended to embody in a code a particular
branch of the law, 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 of such a statute surely was that
on any point specifically dealt with by it, the law should be ascertained by
interpreting the language used instead of, as before, by roaming oyer a vast
number of authorities in order to discover what the law was, extracting it by a
minute critical examination of the prior decision...............
This passage was quoted with approval by
their Lordships of the Privy Council in Narendranath Sircar v. Kamal-Basini
Dasi (2) while laying down the proper mode of dealing with an Act enacted to
codify a particular branch of the law.
(1)  A.C. 107, 144.
(2) (1896) I.L.R. 23 Cal. 563, 571.
1357 The Privy Council adopted a similar
reasoning in Mohori Bibee v. Dhurmodas Ghose (1) where they had to interpret s.
11 of the Indian Contract Act. They had
before them the general current of decisions in India that ever since the
passing of the Indian Contract Act the contracts of infants were voidable only.
There were, however, vigorous protests by various judges from time to time; and
there were also decisions to the contrary effect. Under these circumstances,
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 reargued 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
that the question whether a contract is void or voidable presupposes the
existence of a contract within the meaning of the Act and cannot arise in the
base of an infant who is not " competent to contract. " In Satyabrata
Ghose v. Mugneeram Bangur & Co. (2), 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 Fazl Ali J. in Ganga Saran v. Ram Charan (3):
" It seems necessary for us to emphasise
that so far as the courts in this country are concerned, they must look
primarily to the law as embodied in sections 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 impossibility
and that where this section is not applicable, 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 Contract Act deals (1) (1902) L.R. 30 I.A.
114. (2)  S.C.R. 310.
(3)  S.C.R. 36, 52.
1358 with a particular subject, it is
exhaustive upon the same and it is not permissible to import the principles of
English law dehors these statutory provisions. The decisions of the English
courts possess only a persuasive value and may be helpful in showing how the
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, we 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 elsewhere at the
time when the statute was enacted. To do otherwise would be to make the law,
not to interpret it. (See Gwynne v. Burnell (1) and Kumar Kamalranjan Roy v.
Secretary of State (2).
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 not apply to money paid under a mistake of law, e.g.,
Wolf & Sons v. Dadyba Khimji & Co. (3) and Appavoo Chettiar v. S. 1.
Ry. Co. (4). In reaching those decisions the courts were particularly
influenced by the English decisions and also provisions of s. 21 of the Indian
Contract Act which 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 Ltd. (5), that the word " mistake " in s. 72 of
the Indian Contract Act included not only a mistake of fact but also a mistake
of law and 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 contract caused by a mistake of law, whereas s.
72 dealt with a payment which was either not
under a contract at all or even if under a contract, it was not a cause of the
(1) 7 Cl. & F. 696. (2) L. R. 66 I. A. 1,
10. (3) (1919) I.L.R. 44 Bom. 631, 649. (4) A.I.R. 1929 Mad. 177.
(5) A.I.R. 1946 Cal. 245.
1359 The Privy Council resolved this conflict
in Shiba Prasad Singh v. Srish Chandra Nundi(1). Their Lordships of the Privy
Council observed that the authorities which dealt with the meaning of "
mistake " in the section were surprisingly few and it could not be said
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:
" 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 in 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 & Co. (2). Macleod
J. said referring to s. 72 " on the face of it mistake includes mistake of
law. But it is said that under 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
to such a contract could recover what he had paid by means of s. 72 though
under s. 21 the contract remained 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 Chettiar v. South Indian Rly. (3), Ramesam and Jackson
JJ. say: " Though the word ' mistake' in s. 72 is not limited it must
refer to the kind of mistake that can afford a ground for relief as 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 other ground. In their
(1) (1949) L.R. 76 I.A. 244. (2) (1919) I.L.R. 44 Bom. 631.
(3) A.I.R. 1929 Mad. 648.
1360 Lordships' opinion this reasoning is
fallacious. If a mistake of law has led to the formation of a contract, s. 21
enacts that that contract is not for that reason voidable.
If money is paid under that contract, it
cannot be said that that money was paid under mistake of law ; it was paid
because it was due under a valid contract, and if it had not been paid payment
could have been enforced. Payment " by mistake " in s. 72 must refer
to a payment which was not legally due 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 the 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 be repaid. Moreover, if the argument based on
inconsistency with s. 21 were valid, a similar argument based on inconsistency
with s. 22 would be valid and would lead to the conclusion that s. 72 does not
even apply to mistake of fact. The argument submitted to their Lordships was
72 only applies if there is no subsisting
contract between the person making the payment and the payee, and that the Indian
Contract Act does not deal with the case where there is a subsisting contract
but the payment was not due under it. But there appears to their Lordships to
be no good reason for so limiting the scope of the Act. Once it is established
that the payment in question was not due, it appears to their Lordships to be
irrelevant to consider whether or not there was a contract between the parties
under which some other sum was due. Their Lordships do not find it necessary to
examine in detail the Indian authorities for the wider interpretation of "
mistake " in s. 72. They would only refer to the latest of these authorities,
Pannalal v. Produce Exchange Corp. Ltd. (1), in which a carefully reasoned
judgment was given by Sen J.
Their Lordships agree with this judgment. It
may be well to add that their (1) A.I.R. 1946 Cal. 245.
1361 Lordships' judgment does not imply that
every sum paid under mistake is recoverable, no matter what the circumstances
may be. There may in a particular case be circumstances which disentitle a
plaintiff by estoppel or otherwise." We 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 I 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 that mistake, if
established, entitles the party paying 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
circumstances 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 also, 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 same, as they were necessarily involved in the question
whether s. 72 of 1362 the Indian Contract Act applied to the facts of the
Re: (i):-The respondent was assessed for the
said amounts under the U. P. Sales Tax Act and paid the same; but these
payments were in respect of forward transactions in silver.
If the State of U. P. was not entitled to
receive the sales tax on these transactions, the provision in that behalf being
ultra vires, that could not avail the State and the amounts were paid by the
respondent, even though they were not 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 State under s. 72 of the Indian Contract Act. It
was, however, contended that the payments having been made in discharge of the
liability under the U. P. Sales Tax Act, they were payments of tax and even
though the terms of s. 72 of the Indian Contract Act applied to the facts of
the present case no monies paid by way of tax could be recovered. We do not see
any warrant for this proposition within the terms of s. 72 itself. Reliance
was, however, placed on two decisions of the Madras High Court reported in (1)
Municipal Council, Tuticorin v. Balli Bros. (1) and (2) Municipal Council,
Rajahmundry v. Subba Rao (2). It 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 Madras High Court was not
within the purview of s. 72 of the Indian Contract Act. The High Court then
proceeded to consider whether they fell within the second part of s. 72, viz.,
whether the monies had been paid under coercion. The court held on the facts of
those cases that the payments had been voluntarily made and the parties paying
the same were therefore not entitled to recover the same. The voluntary payment
was there considered in contradistinction to payment under coercion and the
real ratio of the decisions was that there was no coercion or duress exercised
by the authorities for (1) A.I.R. 1934 Mad. 420. (2) A.I.R, 1937 Mad. 559.
1363 exacting the said payments and therefore
the payments having been voluntarily made, though under mistake of law, were
not recoverable. The ratio of these decisions, therefore, does not help the
appellants before us. The Privy Council decision in Shiba Prasad Singh v. Srish
Chandra Nandi (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 respect of a tax liability and any other
liability on a plain reading of the terms of s. 72 of the Indian Contract Act,
even though such a distinction has been made in America vide the passage from
Willoughby on the Constitution of the United States, Vol. 1, p. 12 opcit. 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 adding some such words as "
otherwise than by way of taxes " after the word " paid ".
If this is the true position the fact that
both the parties, viz., 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 mistake of law, the legal position as established later on by the
decision of the Allahabad High Court in Messrs. Budh Prakash Jai Prakash v.
Sales Tax Officer, Kanpur (2) subsequently confirmed by this Court in Sales Tax
Officer, Pilibhit v. Budh Prakash Jai Prakash (3) not having been known to the
parties at the relevant (1) (1949) L. R. 76 1. A. 244. (2) (1952) A.L.J. 332.
(3)  I S.C.R. 243.
173 1364 dates. This mistake of law became
apparent only on May 3, 1954, when this Court confirmed the said decition of
the Allababad High Court and on that position being established the respondent
became entitled to recover back the said amounts which had been paid by mistake
of law. The state of mind of the respondent would be the only thing relevant to
consider in this context and once the respondent established that the payments
were made by it under a mistake of law, (and it may be noted here that the whole
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 the said amounts and the State of U. P. was bound to repay or
return the same to the respondent irrespective of any other consideration.
There was nothing in the circumstances of the case to raise any estoppel
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
Voluntary payment of such tax liability was
not by itself enough to preclude the respondent from recovering the said
amounts, once it was established that the payments were made under a mistake of
law. On a true interpretation of s. 72 of the Indian Contract Act the only two
circumstances there indicated as entitling the party to recover the money back
are that the monies must have been paid by mistake or under coercion. If
mistake either of law or of fact is established, he is entitled to recover the
monies and the party receiving the same is bound to repay or return them
irrespective of any consideration whether the monies had been paid voluntarily,
subject however to questions of estoppel, waiver, limitation or the like. If
once that circumstance is established the party is entitled to the relief
claimed. If, on the other hand, neither mistake of law nor of fact is
established., the party may rely upon the fact of the monies having been paid
under coercion in order to entitle him to the relief claimed and it is in that
position that it becomes relevant to consider whether the payment has been a
voluntary payment or a payment under coercion. The 1365 latter position has
been elaborated in English law in the manner following in Twyford v. Manchester
Corporation (1) where Romer J. observed:
" Even so, however, I respectfully agree
with the 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 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 Nandi (2) 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) "here it
was held that as the defendant had been led by the plaintiffs' conduct to
believe that he might treat the money as his own, and in that belief had
altered his position by spending it, the plaintiffs were estopped from alleging
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 estoppel
applies or there are circumstances attendant upon the transaction which
disentitle the respondent to recover back the monies, 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 one party is 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 setting 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 (1)  1 Ch. 236, 241. (2)  L. R. 76 I. A. 244.
(3)  1 K.B. 504.
1366 such occasion arises when the mistake of
law is common to both the parties. The other circumstances would be such as
would entitle a court of equity to refuse the relief claimed by the plaintiff
because on the facts and circumstances of the case it would be inequitable for
the court to award the relief to the plaintiff. These are, however, equitable
considerations and could scarcely be imported when there is a clear and unambiguous
provision of law which entitles the plaintiff to the relief claimed by him.
Such equitable considerations were imported
by the Nagpur High Court in Nagorao v. G. G.-in-Council where Kaushalendra Rao
" The circumstances in a particular
case, disentitle the pltf. to recover what was paid under mistake." "
If the 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 the money with him or cannot be considered
as still having it as in a case when he has spent it on his own purposes-which
is not the case here-different considerations must necessarily arise." We
do not agree with these observations of the Nagpur High Court. No such
equitable considerations can be imported when the terms of s. 72 of the Indian
Contract Act are clear and unambiguous. We may, in this context, refer to the
observations of their Lordships of the Privy Council in Mohori Bibee v.
Dhurmodas Ghose (2) at p. 125. In dealing with the argument which was urged
there in regard to the minor's contracts which were declared void, viz., that
one who seeks equity must do equity and 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 this argument did not require further
notice except by referring to a recent decision of the Court of Appeal in
Thurstan v. Nottingham Permanent Benefit Building Society (3) (1) A.I.R. 1951
Nag. 372,374. (2) [19O2] L. R. 30 I. A.
(3) [I9O2] 1 Ch. 1.
1367 since affirmed by the House of Lords and
they quoted with approval the following passage from the judgment of Romer L. J.,
at p. 13 of the earlier report:
" The short answer is that a Court of
Equity cannot say that it is equitable to compel a person to pay moneys in
respect of a transaction which 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 away in the
ordinary course of the business of the State would not make any difference to
the position 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 urged 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 accordingly dismissed with costs.