Report No. 13
92. Section 72.-
This section is restricted to cases of payment or delivery by mistake or under coercion. It should be extended to cover cases where payment or delivery has been made, as a result of the exercise of fraud, misrepresentation or undue influence, or where money or delivery has been obtained by taking undue advantage of the situation of a person entitled under the law to protection under the circumstances. This extension of the section will bring it in line with the English Law.1
1. Chitty; Op. Cit., Vol. I, p. 96.
93. The word 'coercion' has not been used in this section in the sense in which it has been defined in section 15. It has been used, in the words of the Privy Council, "in its general and ordinary sense as an English word and its meaning is not controlled by the definition in section 15.1" The contrary view held by some Courts in India has thus been superseded. In order to remove any possibility of doubt, an Explanation should be added in a suitable to state form that the definition in section 15 is only for the purposes of the Chapter in which that section is contained.
1. Kanhayalal v. National bank of India, 40 IA 56 (65).
94. To give effect to the Privy Council decision in Shiba Prasad v. Srish Chandra, AIR 1949 PC 297 (301). which set at rest the controversy whether 'mistake' in section 72 was confined to mistakes of fact or covered mistakes of law also, the words, "whether of fact or law" may be added after the word 'mistake'.
95. There is a conflict of authority on the question whether section 72 will apply to a case where a third party had acquired interest in the property prior to the attachment, deposited the purchase money under 0. 21, r. 89 C.P.C. to set aside the sale in execution and subsequently succeeded in his suit for declaration of his right to the property, and such person would be entitled to a refund of the deposit so made by him. The High Courts of Bombay,1 Patna2 and Madras3 took the view that section 72 did not apply and the money was not recoverable.
The High Court of Madras in later cases,4 however, held that it was recoverable. The decision in Raman v. Kannan, AIR 1940 Mad 725 is by Patanjali Sastri, J. (as he then was), and we think that the law is laid down correctly therein. This conflict, however, does not call for any clarification by way of change in the language of the section, because even if the former view be correct the case would be covered by the residuary section1 proposed by us, as obviously the case would be one of unjust enrichment or unjust benefit.
1. Narayan v. Amaguda, 45 Bom 1094; Shankar Rao v. Vadhilal, 57 Bom 601.
2. Raguram Pande v. Deokali, 7 Pat 30.
3. Kummakutty v. Neelakandan, 53 Mad 943.
4. Satyam v. Perraju, AIR 1931 Mad 753; Raman v. Kannan, AIR 1940 Mad 725.
5. AIR 1940 Mad 725.
96. Some writers treat actions on judgments as falling within the area of quasi-contracts. We do not consider it necessary to make any provision for such cases in Chapter V. By reason of procedural provisions suits on judgments passed by Indian Couits are not necessary. Suits on foreign judgments belong to the subject of Conflict of Laws, and we have already got certain provisions on this subject in sections 13-14 of the Code of Civil Procedure. Hence, it would be advisable to leave this matter outside the Contract Act.
97. The rule in pari delicto potior est conditio possidentis, with its exceptions, has been followed in Indian cases and it has also received statutory recognition in section 84 of the Indian Trusts Act. To quote one of such cases1 a plaintiff's predecessor-in-title had in 1895 successfully executed a benami sale deed of certain property to the defendants' predecessor in order to defeat the claim of a prior equitable mortgagee. This mortgagee at once sued the parties to the benami sale deed and obtained satisfaction of his claim with costs. The result was that the purpose of the sale was defeated. Holding that the plaintiff was entitled to a decree for recovery of land, the Privy Council made the following observations:
"If, however, he has not defrauded any one, there can be no reason why the Court should punish his intention by giving his estate away to B, whose roguery is even more complicated than his own. This appears to be the principle of the English decisions. For instance, persons have been allowed to recover property which they had assigned away where they had intended to defraud creditors, who, in fact, were never injured. But where the fraudulent or illegal purpose has actually been effected by means of the colourable grant, then the maxim applies, 'in pari delicto potior est conditio possidentis'. The Court will help neither party. 'Let the estate lie where it falls."2
It was further observed that the purpose of the fraud having not only not been effected, but absolutely defeated, there was nothing to prevent the plaintiff from repudiating the entire transaction, revoking all authority of his confederate to carry out the fraudulent scheme, and recovering possession of his property.
Section 84 of the Trusts Act is, however, confined to transfers of property and may not cover cases of payment of money or delivery of property for illegal purposes. We are of the view that it would be better to have a specific provision relating to such cases.
The question is whether the provision should be introduced into the Contract Act or the existing provision in the Trusts Act should be widened to include cases arising out of contracts other than those of transfer of property. In England and in the United States, the principle is re-regarded as a part of the law of contract.
In England, the rule was formulated by Lord Mansfield in 1775 in the case of Holman v. Johnson, 98 ER 1120 (1121), and the Court of Appeal has in the case of Bowmakers Ltd. v. Barnet Instruments Ltd., (1944) 2 All ER 579 (582). remarked that the principle has even been extended since Lord Mansfield's day. Chitty states the rule thus:-
"If the illegal purpose has not been carried out, the law allows a locus poenitentiae to the party who demands the return of money paid before this happens. So either party to an illegal contract may rescind it while it remains executory, and may recover from the other party any money which he may have paid to him thereunder, although, to enable him to do so, he must prove the making of the illegal contract as part of his case. But if the illegal purpose has been wholly or substantially effected or frustrated the law allows no locus poenitentiae".3
In the American Restatement of the Law, the rule has been thus stated in the Volume on Contract (section 598):
"A party to an illegal bargain can neither recover damages for breach thereof, nor by rescinding bargain, recover the performance that he has rendered thereunder or its value".
The doctrine underlying section 84 of the Trusts Act is obviously different. But the conditions for the application of the rule are the same in the Trusts Act as under the principle of quasi-contract and the result is similar. The extension of the provision in section 84 to include the contractual aspect would result in the advantage of having a comprehensive provision relating to the subject of frustration of an illegal purpose instead of having two parallel provisions in two separate enactments. The title of the Chapter of the Trusts Act in which section 84 is included is also wide enough to admit of the extension, inasmuch as it does not deal with cases of trusts proper but of 'Certain obligations in the nature of trusts'.
We have, accordingly, come to the conclusion that in our future Report on the law of trusts, a recommendation should be made for amending section 84 to include the following proposition:
"Where a person makes payment or delivery of property for any illegal purpose and such purpose is not carried into execution, or the person making the payment or delivering the property is not as guilty as the person receiving the payment or the property or the effect of permitting him to retain the money or property might be to defeat the provisions of, any law, he must restore the benefit to the person making the payment or delivery of the property".
1. Petherperumal v. Muniai, 35 IA 98.
2. Petherperumal v. Muniai, 35 IA 98 (102).
3. Chitty; Op. Cit., Vol. I, p. 473.
98. Sections 73-74.- No change is recommended in sections 73-74.