Nagorao Govindrao Ayachit v. Governor-General In Council

1. This appeal arises out of an action for recovery of money paid under mistake which is regarded as a particularly troublesome class of action. The appeal is by the deft, who lost in both the Cts. below.

2. The facts of the case are not in question. The applt. is the wahiwatdar of the Ayachit Temple, a very oil temple in the city. One Dhanpalsingh alias Tatyarao Deshmukh used to visit the temple. In December, 1939, he told the applt. that he had to fulfil a vow by feeding one thousand Brahmins as he had been blessed with a son. The applt. was further told that Dhanpalsingh was new to the place & so he would get money from Raipur from his father-in-law to the applt.'s address. After a few days the applt. received three money orders totalling Rs. 1,772. Dhanpalsingh appeared the next day & collected the money from the applt. saying that they would go to make purchases in the market for feeding the Brahmina. While they were going to the market Dhanpalsingh slipped away into a lane and disappeared with the money. It was the applt.'s report to the police which ultimately led to the prosecution & conviction of Dhanpalsingh. It was discovered that the money orders were forged. Three money orders for Rs. 10, Rs. 69-3 & Rs. 28-8-0 sent to different persons at Nagpur were forged for Rs. 600, Rs. 600 & 572-8-0 respectively as sent from Raipur by one Ramachandra Dewaji Tatyarao Deshmukh to be payable to the applt. Dhanpalsingh was awarded a sentence of 2 years R.I & was ordered to pay a fine of Rs. 2000. Out of the fine, if recovered, the Ct. ordered the payment of Rs. 1772 to the City Post Office as compensation. Though Dhanpalsingh was sent to prison, the amount of fine could not be recovered from him. The suit out of which the present appeal arises was, therefore, instituted by the Governor-General in Council against the applt. for refund of money paid under mistake.

3. The only question is one of law whether the resp. can in the circumstances of the case recover the amount of the money orders from the applt. According to the view of the learned appellate Judge the words of Section 72 of the Contract Act, are unambiguous & leave no room to the applt. to escape from liability to refund the money. In support of his decision the Judge relied on Kelly v. Solari, (1841) 152 E.R 24 : (9 M & W 54) & R.E Jones, Ltd. v. Waring and Gillows, Ltd., 1926 A.C 670 : (95 L.J K.B 913).

4. In Kelly v. Solari, (1841) 152 E.R 24 : (9 M. & W. 54) (supra) Baron Parke expounded the principle of cases of refund on account of mistake in fact thus:

“I think that where money is paid to another under the influence of a mistake, that is, upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, & the money would not have been paid if it had been known to the payer that the fact was untrue, an action will lie to recover it back, & it is against conscience to retain it; though a remand may be necessary in those cases in which the party receiving may have been ignorant of the mistake. The position that a person so paying is precluded from recovering by laches, in not availing himself of the means of knowledge in his power, seems, from the cases cited, to have been founded on the dictum of Bayley, J. in the case of Milnes v. Duncan, (1827) 6 B. & C. 671 : 108 E.R 598) & with all respect to that authority, I do not think it can be sustained in point of law. If, indeed, the money is intentionally paid, without reference to the truth or falsehood of the fact, the pltf. meaning to waive all inquiry into it, & that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain it; but if it is pail under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been in omitting to use due diligence to inquire into the fact. In such a case the receiver was not entitled to it, nor intended to have it.”

5. The principle enunciated in Kelly v. Solari, (1841) 152 E.R 24 : (9 M. & W. 54) (supra) was affirmed by the House of Lords in R.E Jones, Ltd. v. Waring & Gillow, Ltd., 1926 A.C 670 : (95 L.J.K.B 913). The facts in the case before the House of Lords were these. One B who was without means was indebted to the reaps, on account of furniture obtained under a hire-purchase agreement. B went to the applts. & falsely represented that he would on behalf of International Motors appoint the applts., as agents for the sale of a new car called “Roma” if they would give him an order & make a deposit. He further told the applts. the reaps, a firm of high standing were the principals who were financing the International Motors. The applts. placed with B an order for 500 Roma cars & gave him a cheque for £5000 payable to the resps. The cheque was made over by B to the resps. for clearing his own account under the hire-purchase agreement & taking the furniture. On discovering the fraud the applts. sued the resps. for recovery of £5000 was paid under mistake of fact. The House of Lords held that under the rule laid down in Kelly v. Solari, (1841) 152 E.R 24 : (9 M. & W. 54), the applts. were entitled to recover the sum paid under the cheque. The decision was however, not unanimous. Viscount Cave L.C, who was in the minority with Lord Atkinson was of the view that the applts. were precluded on the ground of estoppel from recovering the money. According to the Lord Chancellor there is a great body of authority in favour of the view that where a person to whom money has been paid by mistake has been misled by the payer's conduct & on the faith of that conduct has acted to his own detriment, the payer cannot in law—as surely he cannot in fairness—insist on repayment. Lord Shaw of Dunfermline observed that though various attempts had been made not to attack the rule in Kelly v. Solari, (1841) 152 E.R 24 : (9 M. & W. 54) (supra), but to set up a species of estoppel by reason of the carelessness of the person who was misled into the mistake in fact, that decision has remained of paramount authority as part of the law of England. Lord Sumner & Lord Carson held that the circumstances of the case did not give rise to any application of the doctrine of estoppel.

6. I am relieved from the necessity of considering the merits of the two lines of thought be found in the decision of the House of Lords. Section 72 of the Contract Act, under which the question in the present appeal has to be decided has recently been considered by their Lordships of the P.C in Saiba Prasad v. Srish Chandra, A.I.R (36) 1949 P.C 297 : (76 I.A 244). The learned Dist. J., while deciding this case had not the decision of the P.C before him. The decision makes it clear that the law in India governing actions for recovery of money paid under mistake is not the same as in England. Under the common law, it is well established that a person cannot recover money paid under a mistake of law, the reason given being that no one can plead ignorance of the law. See William Whiteley Ltd. v. The King, (1909) 101 L.T 741 at p. 745 & Baylis v. London (Bishop), (1913) 1 Ch. D. 127 at p. 137 : 82 L.J Ch. 61). According to their Lordships of the P.C.S 72, Indian Contract Act, makes no distinction between mistakes of fact & mistakes of law. The decision of Sen, J. in Jagadish Prosad Pannalal…Plaintiff; v. Produce Exchange Corporation Ltd.…Defendant., Ltd., A.I.R (33) 1946 Cal. 245 : (80 C.L.J 170) that a payment made under a mistake of law which is not the origin of a contract can be recovered under S. 72 has been approved in Shiba Prasad v. Srish Chandra, (A.I.R (36) 1949 P.C 297 : 76 I.A 244) (supra). Further Lord Reid who delivered the judgment of the Board observed:

“It may be well to add that their 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 pltf. by estoppel or otherwise.”

7. The limitation under which a claim for refund of money hag to be dealt with under the common law was emphasized by the Ct. of Appeal in Baylis v. London (Bishop), (1818) 1 Ch. D. 127 at p. 137 : (82 L.J Ch. 61). Under that law the legal & equitable considerations applicable to an action of this kind seem to have become so crystallized notwithstanding the very liberal pronouns aments of Lord Mansfield in Lady Windsor's Case; Sedler v. Evans, (1766) 98 E.R 34 : (4 Burr 1984) & Moses v. Macferlan, (1760) 97 E.R 676 : (2 Burr 1005) that it is now not possible for a Judge to invent any new doctrine not already recognized in the reported decisions. (See the judgment of Far veil L.J & Lord Sumner, then Hamilton L.J). But no such limitation need hamper a Judge dealing with a case under Section 72 of the Contract Act.

8. The pronouncement of Lord Reid not only gives countenance to the view expressed by the Lord Chancellor in R.E Jones Ltd. v. Waring & Gillow, Ltd., (1926) A.C 670 : (95 L.J K.B 913) but also permits the Ct. to hold that the circumstances in a particular case, disentitle the pltf. to recover what was paid under mistake. It is not possible to devise a single formula which will cover all the cases in which the pltf. must be held to be disentitled to recover what was paid under mistake. Reference may, however, be made to Solomon Jacob…Plaintiff v. National Bank Of India Ltd.…Defendants, Aden, 42 Bom. 16 : (A.I.R (4) 1917 Bom. 119), Raghunath v. Imperial Bank of India, Ltd., 50 Bom. 49 : (A.I.R (13) 1926 Bom. 66), China & Southern Bank Ltd. v. Te Thoe Seng, 8 Rang 477 : (A.I.R (13) 1926 Rang 14) & Punjab Industrial Agency, Ltd. v. Mercantile Bank of India, Ltd., 11 Lah. 667 : (A.I.R (17) 1930 Lah. 852) as examples of cases in which the pltfs. failed to recover what was paid under mistake.

9. 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.

10. It was not disputed before me that the applt. & the resp. were both victims of fraud perpetrated on them by Dhanpalsifagh. The applt. was used as but a conduit pipe by Dhanpalsingh for fraudulently obtaining the money from the resp. The applt. paid the money to Dhanpalsingh labouring under the very mistake which induced the resp. to deliver the money orders to the applt. The learned counsel for the resp. contended that the applt. had been careless in permitting Dhanpalsingh to make use of the address of the applt. & he should, therefore, bear the loss. I do not agree. I do not think, as far as carelessness is concerned, that the applt. can be charged with carelessness of any greater degree than that of the employees of the resp. who made the forgery of the money orders possible & delivered more than one money order for a higher sum without there having been any corresponding remittance from Raipur. In any Case the fact that the applt. permitted Dhanpalsingh to use the applt's address in no way influenced the resp. in making the payment to the applt. On the contrary, because the resp. paid the money to the applt. as though it had been sent from Raipur, the applt. was induced to pay the money to Dhanpalsingh. When the money was received, the applt. believed that the money was meant for Dhanpalsingh as told by him earlier. The conduct of the applt. is above board. The applt. was misled by the resp's conduct & on the faith of that conduct altered his own position before the discovery of the mistake. In my view, these circumstances are sufficient to disentitle the resp. from recovering the money. The loss must, therefore, lie where it fell. The appeal is allowed with costs in all the Cts. The decree of the lower appellate Ct. is set aside & the suit is dismissed.

11. Appeal allowed.