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AMICUS AI
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Attorney(S)
  • By Adv. Sri. M.P Ashok Kumar
  • R1 by Advs. Sri. K. Narayanan (Parur), Sri. V. Rajendran (Perumbavoor)
Judges
  • Thomas P. Joseph, J.
Acts
  • Sec. 56 of the Indian Contract Act (for short the Act).
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • By Adv. Sri. M.P Ashok Kumar
  • R1 by Advs. Sri. K. Narayanan (Parur), Sri. V. Rajendran (Perumbavoor)
Judges
  • Thomas P. Joseph, J.
Acts
  • Sec. 56 of the Indian Contract Act (for short the Act).
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Smart Summary

Concise Analytical Summary of the Opinion

Factual and Procedural Background

The appeal arises from a dispute under an agreement dated 25.12.1999 (Ext.A1) in which the appellant (owner of 40 cents of paddy land at Survey Nos. 131/3 and 131/4) granted the respondent permission to put up two name boards on the appellant's land for five years in consideration of Rs. 1,30,000/-. Ext.A1 permitted the respondent and his employees to enter the property for installation, repair and maintenance of the boards and required removal of any cultivation that obscured the boards.

The respondent never installed the boards, asserting he could not obtain permission from authorities and that changes (raised road level and hand-railings) made installation unviable. He demanded refund of Rs. 1,30,000/-. The appellant refused and the respondent filed O.S No. 423 of 2004 seeking refund with interest. The trial court dismissed the suit. On first appeal (A.S No. 148 of 2007) the Additional District Judge reversed the trial court in part, applying the principle of unlawful enrichment under Section 70 of the Indian Contract Act to direct refund of Rs. 1,05,000/- (deducting Rs. 25,000/- as compensation to the appellant) with interest at 6% per annum. The appellant challenged that judgment in the present second appeal.

Legal Issues Presented

  1. Whether the lower appellate court properly interpreted and applied Section 70 of the Indian Contract Act (the principle of unlawful enrichment) in allowing the appeal in part and directing refund by the appellant.

Arguments of the Parties

Appellant's Arguments

  • The courts below found against frustration under Section 56 of the Indian Contract Act; the central question is whether Section 70 (unjust enrichment/quasi-contract) applies to the facts.
  • The appellant contended there was no unlawful enrichment because the appellant was required by Ext.A1 to keep the land available for the respondent and thus could not be said to have gratuitously retained a benefit; the respondent was at fault for failing to obtain permissions and cannot blame the appellant.
  • When parties' rights and liabilities are crystallized by a written agreement, they are governed by that agreement and cannot fallback to Section 70; reliance was placed on Haji Adam Sait Dharmastapanam v. Hameed (1985 KLT 169).
  • The appellant maintained he attempted cultivation but could not, and asserted loss claims lacked evidence.

Respondent's Arguments

  • The respondent argued that principles of equity underpinning unlawful enrichment (Section 70) apply even where there is a written agreement, and the appellant should not retain the Rs. 1,30,000/- when the respondent could not put up the boards.
  • It was contended that the actual space required for the boards was tiny (about 1 meter or less than a quarter of a cent), so the appellant could and should have cultivated the remainder and earned profits; therefore the appellant did not suffer the large loss he claimed.
  • The respondent asserted he diligently sought permissions (including efforts in 2004) and that it was not due to his fault that the boards were not erected; equity requires mitigation of the respondent's loss and prevents the appellant from being unjustly enriched.
  • The respondent relied on decisions such as Mulamchand v. State of Madhya Pradesh (AIR 1968 SC 1218) and K.S. Sathyanarayana v. V.R. Narayana Rao ((1999) 6 SCC 104) to support restitution where contracts fail or fall through.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Haji Adam Sait Dharmastapanam v. Hameed (1985 KLT 169) Held that Section 70 deals with cases where there is no valid contract; claim under Sec.70 is not based on a subsisting contract but on a quasi-contract/restitutionary obligation. Cited by the appellant and relied upon by the court to support the position that Sec.70 is inapplicable where a valid express contract governs the parties' rights and liabilities.
State of West Bengal v. B.K. Mondal and Sons (AIR 1962 SC 779) Expressed the view that Section 70 has no application when there is an express contract between the parties. Relied upon by the court as authority for the proposition that Sec.70 is inapplicable if there is an express contract.
Nuli Kanka Rao v. Tetali Sriranga Venkata Ramalinga Reddy (AIR 1966 A.P. 297) Followed the principle that Sec.70 has no application when there is an express contract. Used by the court to reinforce the rule that restitution under Sec.70 is inappropriate where parties are governed by an express agreement.
Union of India v. Lal Chand and Sons (AIR 1967 Calcutta 310) Held that the basis of liability under Section 70 is the absence of a contract. Applied by the court to support the conclusion that Sec.70 cannot be invoked in the presence of an express contract (Ext.A1).
Municipal Board, Lucknow v. Debi Das (AIR 1926 Oudh 388) Held that Section 70 should not be invoked in the case of a benefit received under a contract. Relied upon as authority that benefits conferred under contract are not to be recovered under Sec.70.
Raghunath Abaji Waghodkar v. Lahanu Vithoba Sutar (AIR 1931 Bombay 39) Held that mere benefit to another without an express or implied liability to repay does not confer any right under Section 70. Invoked by the court to show Sec.70 does not create restitutionary rights merely because one party benefits absent liability.
Mulamchand v. State of Madhya Pradesh (AIR 1968 SC 1218) Applied in a situation where a contract was found void; held that the recipient of benefit must return it to avoid unlawful enrichment. The court noted this decision but distinguished the present case because here there was an extant valid written contract (Ext.A1), not a void contract.
K.S. Sathyanarayana v. V.R. Narayana Rao ((1999) 6 SCC 104) Dealt with an agreement for sale and advance payment; where agreement fell through, vendor held liable to return advance. Referred to by the respondent's counsel; the court considered it but observed that the authorities relied upon do not support applying Sec.70 where an express contract governs the parties.
Bibrosa v. Fairvairn (1943 AC 32) and Nelson v. Larholt (1948 -1 KB 339) Discussed principles of equity relevant to restitution in certain contexts (as cited in Mulamchand). The court noted these cases were discussed in Mulamchand but observed that equity operates only in absence of law; here the contract and statutory principles apply.

Court's Reasoning and Analysis

The court proceeded on the basis of facts which were admitted or proved from Ext.A1 and the evidence:

  • Ext.A1 granted permission to the respondent to put up two name boards on the appellant's 40 cents for five years in consideration of Rs. 1,30,000/-. The permission included a right of entry by the respondent and his employees for installation and maintenance; boards were to be 4 meters above ground and any cultivation obscuring them was to be cut.
  • The actual physical space required for the signboards was small (about one meter; the appellant's DW.1 stated it was less than a quarter of a cent), but the agreement authorized entry over the entire 40 cents for the permitted purposes.
  • There was no evidence that the appellant had put the property to profitable use during the contract period; the appellant claimed attempts to cultivate but said he could not. The respondent continued efforts to obtain permissions through 2004 and did not cancel Ext.A1 when it became apparent permission would not be granted.

On the legal question whether unlawful enrichment under Section 70 could be invoked, the court applied controlling principles derived from cited precedents:

  • The court emphasized that Section 70 imposes liability where something has been done for the benefit of another, not gratuitously, and unjust enrichment results in the absence of a contract-based obligation to repay. The court noted that Sec.70 presupposes absence of an express contract governing the matter.
  • The court analyzed Ext.A1 and concluded the Rs. 1,30,000/- was consideration for the specific permission to install and maintain the sign boards, not an amount paid for keeping the entire 40 cents fallow. The appellant had performed his obligation by granting the permission; there was no allegation or proof that the appellant withdrew or withheld the permission.
  • The court held that nothing in the facts showed the respondent had done something gratuitously for the appellant with the intention of conferring a benefit that would give rise to restitution under Sec.70. Consequently, unlawful enrichment as contemplated by Sec.70 was not established.
  • Relying on authorities (State of West Bengal v. B.K. Mondal; Nuli Kanka Rao; Union of India v. Lal Chand and Sons; Municipal Board, Lucknow v. Debi Das; Raghunath Abaji Waghodkar), the court concluded Sec.70 is inapplicable where there is an express contract regulating the parties' rights and obligations. Decisions cited by the respondent (Mulamchand; K.S. Sathyanarayana) were distinguished on facts (e.g., contract void or agreement fell through) and did not control the present case.
  • The court also noted equitable considerations invoked by the respondent do not override the existence of a valid written contract; equity operates where law is absent or inadequate, which the court found not to be the case here.

On this basis the court found the first appellate court erred in invoking Section 70 to direct partial refund; the court reversed that aspect of the first appellate judgment and restored the trial court's dismissal.

Holding and Implications

SECOND APPEAL ALLOWED

The court's dispositive orders and immediate consequences were:

  1. The judgment and decree of the learned Additional District Judge, North Paravur in A.S No. 148 of 2007 (which had allowed recovery of Rs. 1,05,000/- under Sec.70) are set aside.
  2. The judgment and decree of the learned Sub Judge, North Paravur in O.S No. 423 of 2004 (dismissing the suit) are restored; accordingly, the suit for refund stands dismissed.
  3. Parties are directed to bear their respective costs throughout.

Broader implication: The court reaffirmed that Section 70 of the Indian Contract Act (unjust enrichment/quasi-contract) is not to be invoked where the parties are governed by an express written contract that defines their rights and liabilities; no new precedent was laid down beyond application of existing authority to the facts of this case.

Show full summary ...

    Madhavankutty v. Sreekumar T.

    JUDGMENT

    The second appeal arises from the judgment and decree of the learned Additional District Judge, North Paravur in A.S No. 148 of 2007 allowing the respondent to recover Rs. 1,05,000/- with interest at the rate of 6% per annum from 25.12.1999 till realization from the appellant and his assets, in reversal of dismissal of O.S No. 423 of 2004 of the Sub Court, North Paravur.

    2. The appellant owned 40 cents of paddy land in Survey Nos. 131/3 and 131/4. That paddy land is situated on the side of the road to the Air Port at Nedumbassery. The respondent, obviously to further his business wanted to put-up two name boards on the side of the said road taking into account the heavy traffic through the said road. Accordingly, he approached the appellant and that resulted in Ext.A1.agreement dated 25.12.1999 granting permission to put up two name boards in the property of the appellant for a period of five years. It was stipulated in Ext.A1, agreement that for installation of the name boards and its repair, maintenance etc., it will be open to the respondent and his men to enter the 40 cents. In consideration of the above, the respondent was to pay Rs. 1,30,000/- to the appellant which was readily complied. On account of raising of the level of the road and the hand-railing on either side, the respondent found it not viable to put up the name boards since that would not get vision of the passengers going along the road. He also did not get permission from the appropriate authorities to put up the name bards. The respondent was moving earth and heaven, even during 2004 to get permission to put-up the name boards but he did not get it. Thereon, he turned to the appellant and demanded repayment of Rs. 1,30,000/- claiming that for not fault of his, he was not able to put up the name boards. That demand was naturally rejected by the appellant. Thereon the respondent filed O.S No. 423 of 2004 for refund of Rs. 1,30,000/- with interest.

    3. The appellant resisted the suit contending that failure of the respondent to put up name boards was not due to any fault of his and hence he is not liable to refund the amount. He also contended that if there was any technical snag in the authorities granting permission to the respondent to put up name boards, he is not responsible for that. He claimed that he had been cultivating the 40 cents and making profit of about Rs. 50,000/- per year which he lost on account of his keeping the said property fallow during the period of 5 years pursuant to Ext.A1, agreement.

    4. Before the trial court it was contended that Ext.A1, agreement had become void and the parties are discharged from liability due to frustration under Sec. 56 of the Indian Contract Act (for short ‘the Act’). It was contended that the appellant had made unlawful enrichment for himself by making use of the sum of Rs. 1,30,000/- which the respondent had given to him. The trial court however, found against those contentions and dismissed the suit.

    5. The respondent challenged that judgment and decree in A.S No. 148 of 2007. The learned Additional District Judge agreed with the finding of the trial court that the principle of frustration did not apply but held that the principle of unlawful enrichment would apply. The appellant was found liable to refund and a sum of Rs. 1,05,000/- (excluding Rs. 25,000/- which the first appellate court was inclined to allow to the appellant by way of compensation). The respondent was also allowed to recover interest at the rate of 6% per annum. That judgment and decree of the first appellate court are challenged in the second appeal on the following substantial question of law:

    “whether the lower appellate court has properly interpreted under Sec. 70 of the Act in allowing the appeal in part”

    6. The learned counsel for the appellant has contended that the courts below having found against the plea of frustration of the contract and the first appellate court having found that on principle of unlawful enrichment the respondent is entitled to recover Rs. 1,05,000/-, the only question for decision is whether the principle of unlawful enrichment embodied in Sec. 70 of the Act would apply to the facts of the case. According to the learned counsel, there is no question of any unlawful enrichment by the appellant in so far as he was required to keep the 40 cents fallow to enable the respondent put up the sign boards at any time during the contract period of 5 years. It is contended hat if the respondent was not able to put up name boards for any reason whatsoever, the appellant was not at fault. Nor has the respondent done anything gratuitously to the appellant. In the circumstances, the principle of unlawful enrichment would not apply. A further argument the learned counsel has advanced is that when the rights and liabilities of the parties are crystallized by a written agreement, parties are governed by that agreement and the question of falling back to Sec. 70 of the Act did not arise. The learned counsel has placed reliance on the decision in Haji Adam Sait Dharmastapanam v. Hameed (1985 KLT 169).

    7. The learned counsel for the respondent has contended that on principles of equity, the rule of unlawful enrichment underlying Sec.70 of the Act would apply even when there is an agreement in writing between the parties. It is argued that a perusal of Ext.A1, agreement would show that though the total extent of land belonging to the appellant is 40 cents, what was required to be made use of by the respondent was only about 1 meter space which even according to the appellant is less than a quarter of a cent. According to the learned counsel, in the nature of the name boards permitted to be put up by the respondent and the space it would normally occupy, there was no bar to the appellant cultivating rest of the property and making profit as he says. It is contended that the only contention the appellant has raised in the written statement is that on account of his keeping the 40 cents fallow, he has suffered a loss of Rs. 1,40,000/- for which there is no evidence. The learned counsel submits from the documents produced that it was not due to any fault of the respondent that he could not put up the name boards. This is practically conceded by the appellant also when examined as PW.1 In the circumstances, directing the respondent to suffer loss of Rs. 1,30,000/- and allowing the appellant to reap the benefits of unlawful enrichment is against equity which this court may not permit. It is open to this court to at least mitigate the loss caused to the respondent which alone the first appellate court has done. The learned counsel has also invited my attention to the decisions in Mulamchand v. State of Madhya Pradesh (AIR 1968 Supreme Court 1218) and K.S Sathyanarayana v. V.R Narayana Rao ((1999) 6 SCC 104).

    8. Before deciding the substantial questions of law framed, it is necessary to refer to the facts which are admitted and proved. As per Ext.A1, the respondent was permitted to put up two name boards in the property of the appellant which extended to 40 cents. Going by Ext.A1, it would appear that the space required for putting up the name boards was about a meter and DW.1 stated that it came to less than a quarter of a cent. The name boards were to be put-up at a height of 4 meters from the ground level. It is stated in Ext.A1 that if any cultivation made by the appellant in the property grew to a height covering the name boards, the same are to be cut and removed to make the name boards visible from the adjoining road. Ext.A1 states that the respondent and its employees could enter the 40 cents at any point of time for installation of the name boards and for its repair/maintenance etc.

    9. As aforesaid, period of the agreement was 5 years. Going by Ext.A1, agreement, it was clear that even if the space required for installation of the boards was less than a quarter of a cent, the respondent and its employees could enter the property at any time for installation of the name boards and for its repair/maintenance. There is no case for the respondent that during the period of 5 years provided as per Ext.A1, the appellant had put his property to profitable use. At least there is no evidence in that line. On the other hand, the evidence of the appellant as DW.1 is that he had made attempts to cultivate the rest of his property but he could not.

    10. Then the question is whether the appellant could be said to have made unlawful enrichment of the sum of Rs. 1,30,000/-? The first appellate court has deducted a sum of Rs. 25,000/- from the total sum of Rs. 1,30,000/- on a finding that the said sum of Rs. 25,000/- is sufficient to compensate the loss caused to the appellant. It is revealed from Ext.A3 that even during August, 2004 (Ext.A1, agreement is dated 25.11.1999) the respondent was vigorously moving various offices to get permission for putting up the name boards pursuant to Ext.A1, agreement. It is not as if the respondent was unaware that during those times the appellant was keeping his property fallow. At least when he found that it was not possible for him to put up the name boards getting permission from the appropriate authorities, it was necessary for him to cancel Ext.A1, agreement so that from then onwards at least the appellant could cultivate the 40 cents. Instead, the respondent proceeded he proceeded with Ext.A1 for the full time, even in the year, 2004 moving various offices seeking permission for putting up the name boards. In such a situation it is not open to the respondent to turn round and contend that the appellant has made any unlawful enrichment by keeping the sum of Rs. 1,30,000/- with him.

    11. I must also notice that going by Ext.A1, the sum of Rs. 1,30,000/- is consideration for the permission granted by the appellant to the respondent to put up the name boards. That was not an amount stipulated or given to the appellant for keeping the entire property of his fallow. On the other hand, it simply represents consideration for permission granted by the appellant for putting up the name boards. There is no case that the appellant had at any point of time withheld or withdrawn the permission granted for putting up the name board. In other words, what the appellant was required to do as per Ext.A1, was to grant permission to the respondent to put up the name boards in consideration of payment of Rs. 1,30,000/- and that permission was granted. If that be so, there is no point in the respondent contending he has done anything gratuitously to the appellant which the appellant was liable to return.

    12. I must also notice that for the application of Sec.70 of the Act, it should be shown that something was delivered by the respondent or something was done for the benefit of the appellant which was intended to be done not gratuitously and further that on account of such gratuitous act, the appellant has made unlawful enrichment. I am persuaded to think, having regard to the terms and conditions of Ext.A1 that no such situation arises in the case on hand.

    12. A further thing which persuades me to take a view against the view taken by the first appellate court is that the principle of unlawful enrichment applies only when there is no contract between the parties. That view is taken by the Supreme Court in State of West Bengal v. B.K Mondal and sons (AIR 1962 SC 779). Following that decision, it is held in Nuli Kanka Rao v. Tetali Sriranga Venkata Ramalinga Reddy (AIR 1966 A.P 297) and Union of India v. Lal Chand and Sons (AIR 1967 Calcutta 310) that Sec.70 of the Act has no application when there is an express contract. In Union of India v. Lal Chand and Sons (supra) it is held that the basis of liability under Sec.70 of the Act is absence of a contract. In Municipal Board, Lucknow v. Debi Das (AIR 1926 Oudh 388), it is held that Sec.70 of the Act should not be invoked in the case of a benefit received under a contract. In Raghunath Abaji Waghodkar…Plaintiff v. Lahanu Vithoba Sutar…Defendant . (AIR 1931 BOMBAY 39) it is held that mere benefit to another person without an express or implied liability to repay does not confer any right under Sec.70 of the Act. In Haji Adam Sait Dharmastapanam v. Hameed (supra), the Division Bench of this court has held that Sec.70 deals with cases where there in no valid contract and that the claim for compensation under Sec.70 is not on the basis any subsisting contract between the parties but is based on a different kind obligation, quasi contract or restitution.

    13. I must also refer to the decisions the learned counsel for respondents has cited. In Mulamchand v. State of Madhya Pradesh (supra), it was a case where the contract between the parties was found to be void. There, it was held that the party who received the benefit was bound to return it as it otherwise amounted to unlawful enrichment. The learned counsel has invited my attention to the decisions in Bibrosa v. Fairvairn (1943 AC 32) and Nelson v. Larholt (1948 -1 KB 339) referred to in Mulamchand v. State of Madhya Pradesh. What is discussed there is the principle of equity. But equity comes into operation only in the absence of law. K.S Sathyanarayana v. V.R Narayana Rao (supra) relied on by the learned counsel related to an agreement for sale for sale of property and the advance made. The agreement fell through. It was held that the vendor is liable to return the advance money.

    14. So far as this case is concerned, the parties are governed by Ext.A1, agreement and the law arising therefrom. When Ext.A1, agreement is there, the question of applying the principle of equity does not arise. In view of all the above, I hold that the first appellate court was not right in applying Sec.70 of the Act to hold the appellant liable to refund Rs. 1,05,000/-. It follows that the respondent is not entitled to refund of any amount.

    15. The substantial question of law framed is answered as above. Resultantly, The second appeal is allowed as under:-

    1) Judgment and decree of learned Additional District Judge, North in A.S No. 148 of 2007 are set aside.

    2) Judgment and decree of the learned Sub Judge, North Paravur in O.S No. 423 of 2004 are restored. The suit will stand dismissed.

    3) Parties are directed to suffer their cost throughout.

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    Comments

    Madhavankutty v. Sreekumar T.
    (Nov 2, 2012)