A

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MAHABIR KISHORE & ORS.

v.

STATE OF MADHYA PRADESH

JULY 31, 1989

[G.L. OZA AND K.N. SAIKIA, JJ.]

Indian Contract Act-Section 72-Suit for refund of money paid by

mistake

of law-Period of limitation-three years.

Limitation Act 1968-Section 17( l)(c) and Schedule Article 113-

,

Suit for refund of money paid under mistake of law-Period of limita-fk

C lion-Three years-Date of knowledge of particular law being declared

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void-Date of judgment of the competent court declaring that law void. ·"'

Words and pharases: 'Nul ne doit senrichir aux depens des

autres'-'Jndebitatus assumpsit'-'Aequum et bonum'-Meaning of.

The appellant firm was allotted contracts for manufacture and

sale

of liquor for the year 1959 and for the subsequent periods from 1.1.1960 to 31.3.1961 for Rs.2,56,200 and Rs.4,71,900 respectively by

the M.P. Govt. who also charged 7-1/2% over the auction money as

mahua and fuel cess. As writ petitions challenging the government's

right to charge this 7-1/2% were pending in the M.P. High Court, the

Govt. announced that it would continue to charge it and the question of

stopping it was under consideration of Govt. wltose decision would be

binding on the contractors. The appellant firm paid for the above con­

tracts a total extra sum of

Rs.54,606.00. On 24.4.1959 the M.P. High

Court in Surajdin v. State of M.P., [1960] MPLJ 39 declared the collec­

tion of 7-1/2% as illegal. Even after this decision the Govt. continue to

charge 7-1/2% extra money. Again on 31.8.1961, the High Court of

Madhya

1

Pradesh in N.K. Doongaji v. Collector, Surguja, [1962]

MPLJ. 130 decided that charging of 7-1/2% by the Govt. above the

auction money was illegal. Appellants came to know of this decision only

in

or about September, 1962.

On 17.10.1964 the appellants gave a notice under section 80

C.P.C. to the Govt. of Madhya Pradesh requesting for the refund of

Rs.54,606.00. failing which a suit for recovery would be riled and later

they instituted a civil suit in the court of additional District Judge,

Jabalpur on 24.12.1964. The Govt. resisted the suit inter alia on the

ground of limitation. The Trial Court held that the suit was barred by

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MAHABIR K!SHORE v. STATE OF M.P. 597

---., limitation and dismissed it. The High Court also dismissed the appeal. A

The appellants then came up

in appeal by special leave. While allowing

the appeal and remanding the suit to the Trial

Caurt for decision on

merits. This

Court,

HELD: 'Nul ne doit senrichir aux depens des autres' No one ought ~ to enrich himself at the expense of others. This doctrine at one stage of B

English common Law was remedied

by 'indebitatus assumpsit' which

action lay for money' had and received to the use of the

plaintiff'. It lay

to recover money paid under a mistake

or extorted from the plaintiff by ~-duress of his goods, or paid to the defendant on a consideration which

I totally failed. On abolition of 'indebitatus assumpsit', courts used to

imply a promise to pay which, however, in course of time was held to

he c .,_,.. purely fictitious. [601G-602A]

Courts is England have since been trying to formulate a juridical

basis

of this obligation.

Idealistic formulations as 'aequum et bonum'

and 'natural justice' were considered to he inadequate and the more

legalistic basis of unjust enrichment is formulated. The doctrine of D

"unjµst enrichment' is that in certain situations it would be 'unjust' to

allow the defendant to retain a benefit at the plaintiff's expense. The

relatively modern principle

of restitution is of the nature of quasi con-.). tract. But the English law has not yet recognised any generalised right

to restriction in every case of unjust enrichment. [602H-603B]

E

The principle of unjust enrichment requires; first, that the

defendant has been 'enriched'

by the receipt of a

"benefit"; secondly.

that this enrichment is "at the expense of the plaintiff" and thirdly,

that the retention of the enrichment he unjust. This justified restitution.

Enrichment may take the form of direct advantage to the recipient

wealth such as

by the receipt of money or indirect one for instance F

where inevitable expense has been saved.

[603C-603D)

There is no doubt that the suit in the instant case, is for refund of

money paid

by mistake and refusal to refund may result in unjust

enrichment depending on the facts

and circumstances of the

c~. [6040)

Though there is no constitutionally provided period of limitation

for petitions under Article 226, the limitation prescribed for such suits

has been accepted as the guideline, though little more latitude is

avail­

able in the former. [604F)

G

For filing a writ petition to recover the money paid under a mis-H

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598

SUPREME COURT REPORTS [l989) 3 S.C.R.

take of law the starting point of limitation is three years as prescribed

by Article

113 of the Schedule to the Indian Limitation Act, 1963 and · the provisions of S. 17(i)(c) of the Act will be applicable so that the

period will begin to run from the date of knowledge of the particular

law,

whereunder the money was paid, being declared void and this

could be the

date of the judgment of a competent court declaring that

law void.

[609B]

Moses v. Macferlan, [1760) 2 Burr. 1005 at 1012; Sinclair v.

Brougham, [1914) AC 398; Fibrosa Spolka v. Fairbairn Lawson, [1943)

AC 32 = (1942) 2 All E.R. 122; Sales Tax Officer v. Kanhaiya Lal,

[1959] SCR 1350; Mis Budh Prakash Jai Prakash v. Sales Tax Officer:·~

Kanpur,. [1952) ALJ 332; Kiriri Cotton Co. Ltd. v. Ranchhoddas

Keshavji Dewani, [1960] AC 192; D. Cawasji & Co. v. The State of -..(

Mysore & Anr., [1975) 2 SCR 511; Madras Port Trust v. Hy.manshu

International,

[1979] 4

SCC 176; Shri Vallabh Glass Works Ltd. v.

Union of India, [1984] 3 SCR 180; Commissioner of Sales Tax, U.P. v.

Mis. Auriaya Chamber of Commerce Allahabad, [1986) 3 SCC 50;

Sales Tax Officer v. Budh Prakash Jai Prakash, [1954) 5 STC 193;

Sa/onah Tea Co. Ltd. & Ors. v. Superintendent of Taxes, Nowgong &

Ors., [1988) I SCC 401; Atiabari Tea Co. Ltd. v. State of Assam; AIR

1961 SC 232; Khyerbari Tea Co. Ltd. v. State of Assam, [1964) 5 SCR

975; Loong Soong Tea Estate's, case decided on July JO, 1973; Sugan-..(

ma/ v. State of M.P., AIR 1965 SC 1740; Tilokchand Motichand v.

H.B. Munshi, [1969] 2 SCR 824, referred to.

CIVIL APPELLATE JURffiDICTION: Civil Appeal No. 1826

(N) of 1974.

From the Judgment and Order dated 6.4. 1972 of the Madhya \I,

Pradesh High Court in F.A. No. 23·of 1966. i"

M. V. Goswami for the Appellants.

U .A .. Rana and S.K. Agnihotri for the Respondents.

The Judgment of the Court was delivered by

SAIKIA,

J. This plaintiffs' appeal by special leave is from the

-:f

appellate Judgment of the Madhya Pradesh High Court dismissing the

appeal upholding the Judgment of the trial court dismissing the

plaintiffs' suit on the ground of limitation.

H A registered firm Rai Saheb Nandkishore Rai Saheb Jugalki·

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MAHABIR KISHORE v. STA TE OF M.P. [SAIKIA, J.] S99

•-< shore (Appellants) was alloltf<d contracts for manufacture and sale o°f A

liquor for the calendar year 1959 and for the subsequent period from

1.1.1960 to 31.3.1961 for Rs.2,56,200.00 and Rs.4,71,900.00, respec­

tively,

by the Government of Madhya

Pradesh who also charged 7-1/2

per cent over the auction money as mahua and fuel cess. As writ

petitions challenging the Government's right to charge .this 7-1/2 per

cent were pending in the Madhya Pradesh High Court, the Govern­

ment announced that it would continue to charge it and the question of

stopping it was under consideration of the Government whose decision

would be binding on the contractors. The firm (appellants) thus paid

. for the above contracts a total extra sum of Rs.54,606.00.

B

-..i.r

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On 17.10.1961 the Under Secretary to Government, M.P., C

Forest

Department, Bhopal wrote the following letter No.

10130-X/6 l

(Exhibit D-23) to the Chief Conservator

of Forests, Madhya

Pradesh,

Rewa:

"Subject: Levy of cess on liquor contractors. Under

former M.P. Government (Forest Department) memo No. D

4595-CR-73-XI dated 25th July,

1953, a royalty at 7-1/2

·per

cent of the license fee for liquor shops was imposed on

liquor contractors to cover the value of mahua

& fuel

extracted from the reserved

or protected forests by the

contractors for their still.

2. The

M.P. High Court has since decided that the.

levy

of the aforesaid cess is illegal and the cess cannot be

recovered from the liquor contractors.

In pursuance of this

decision, Government desires that all processes whenever

issued

or proceedings instituted against liquor contractors

E

for recovery of the mahua or fuel cess should forthwith be F

withdrawn and no revenue recovery certificates should be

issued in respect of this cess.

3. Simultaneously no free supply

of mahua or fuel

should be permitted

by virtue of the imposition mentioned

above. G

Immediate compliance

is requested.

No

..... X/61 Dt. Bhopal the ..... 661

·Copy forwarded for immediate compliance to: H

j

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600 SUPREME COURT REPORTS I 1989] 3 S.C. R.

I. -Conservator of For~sts, Bilaspur.

2. All Divisional Forest Officers, Bilaspur Circle.

3. Copy to C.F. Raipur Circle for similar auction in this

cess levied in any division

of his

Circle."

y'

On 24.4. 1959 the Madhya Pradesh High Court's Judgment in

Surajdin v. State of M. P., declaring the collection of 7-1/2 per cent

illegal was reported

in

1960 MPU-39. Even after this decision

Government continued to charge 7-1/2 per cent extra money. Againy

on 31.8.1961 the High Court of Madhya Pradesh in N.K. Doongaji v.

Collector, Surguja, decided that the charging of 7-1/2 per cent by the

Government above the auction money was illegal. This Judgment was ~

reported in 1962 MPU-130. It is the appellants' case that they came

to know about this decision only in or about September 1962. On

17.10.1964 they served a notice on Government of Madhya Pradesh

under s. 80 of the Code of Civil Procedure requesting the refund of

Rs.54,606.00, failing which, a suit for recovery would be filed; and

later they instituted Civil Suit No. 1-B of 1964 in the court of Addi­

tional District Judge, Jabalpur on 24.12.

1964. The Government

resisted the suit on,

inter alia, ground of limitation. The trial court J

•·

taking the view that Articles 62 and 96 of the First Schedule to the ""-

Limitation Act, 1908 were applicable and the period of limitation

began

to run from the dates the payments were made to the Govern-

ment, held the suit to be barred by limitation and dismissed it. In

appeal, the High Court took the view that Article 113 read with s. 17,

and not Article 24, of the Schedule to the Limitation Act 1963, was

applicable; and held that the limitation began to run from 17.10.1961

on which date the Government decided not to charge extra 7-1/2 per

cent on the auction

money, and as such, the suit was barred on

17. 12. 1964 taking into consideration the period of two months pre-

scribed

by s.

80 of the Code of Civil Procedure. Consequently. the

appeal was dismissed. The appellants' petition for leave to appeal to

this

Court was also rejected observing,

"it was unfortunate that the

petitioners filed their suit on 24.12.

1964 and as such the suit was bar-

red by time by seven

days."

Mr. \.1.V. Goswami, learned counsel for the appe1lants, submits,

inter alia, that the High Court erred in holding that the limitation

started running from 17.10.1961 being the date of the letter, Exhibit

D-23, which was not communicated to the appellants

or any other

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H contractor and therefore the appellants had no opportunity to know

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MAHABIR KISHORE v. STATE OF M.P. (SAIKIA, J.] 601

~

about it on that very date with reasonable diligence under s. 17 and the A

High Court ought to allow atleast a week for knowledge of it by the

appellants in which case the suit would be within time. Counsel further

submits that the High Court while rightly discussing that

s. 17 of the

Limitation Act,

1963 was applicable, erred in not applying that section

to the facts

of the instant case, wherefore, the impugned Judgment is

B liable to be set aside.

Mr. Ujjwal A. Rana, the learned counsel for the respondent,

*'

submits, inter a/ia, that 17.10.1961 having been the date on which the

Government finally decided not to recover extra 7-1/2 per cent above

the auction money, the High Court rightly held that the limitation

~

started from that date and the suit was clearly barred under Article 24

or 113 of the Schedule to the Limitation Act, 1963; and that though the

c

records did not show that the Government decision was communicated

to the appellants, there was no reason

why they, with reasonable dili-

gence, could not have known about it on the same date.

The only question to be decided, therefore,

is

whether the deci- D

sion of the High Court is correct. To decide that question it was neces-

sary to know what was the suit for. There

is no dispute that 7-1/2 per

cent above the auction money

was charged by the Government of

Madhya

Pradesh as mahua and fuel cess, and the High Court subse-

quently held that it had no power to do so. In

view of those writ

petitions challenging that power, Government asked the contractors to E

continue to pay the same pending Government's decision on the ques-

tion; and the appellants accordingly paid. Ultimately on

17.10.1961

Government decided not to recover the extra amount any more but

M

did not yet decide the fate of the amounts already realised. There is no

denial that the liquor contracts were perforrned by the appellants.

There is no escape from the conclusion that the extra 7-1/2 per cent F

was charged by the Government believing that it had power, but the

High Court

in two cases held that the power was not there. The money

realised was

under a mistake and without authority of law. The appel-

lants also while paying suffered from the same mistake. There is there-

fore no doubt that the suit

was for refund of money paid under mistake

of law. G ~

<"

The question is what was the law applicable to the case. 'Nu/ ne

doit senrichir aux depens des

autres'-No one ought to enrich himself

at the expense of others. This doctrine at one stage of English common

law

was ·remedied by 'indebitatus assumpsit' which action lay for

money "had and received to the use of the plaintiff''. It lay to recover H

!!

602 SUPREME COURT REPORTS [ 1989 3 S.C R.

A money paid under a mistake, or extorted from the plaintiff by duress of

his goods,

or paid to the defendant on a cosideration which totally

failed.

On abolition of 'indebitatus assumpsit', courts used to imply a

promise

to pay which, however, in course of time was held to be purely

fictitious. Lord Mansfied

in

Mos'l!s v. Macferlan, 11760] 2 Burr. 1005 at

JO 12 explained the juridical basis of the action for money "had and

B received" thus:

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"This kind of equitable action, to recover back money,

which ought not

in justice to be kept, is very, beneficial, arid

therefore much encouraged. It lies 'only for money which,

'ex aequo et bona', the defendant ought to refund; it does

not lie for money paid

by the plaintiff, which is claimed of

him as payable

in point of honour and honesty, although it

could not have been recovered from him

by any course of

law;

as-in payment of a debt barred by the Statute of Limi­

tations, or contracted during his infancy, or to the extent of

principal and legal interest upon a usurious contract, or, for

money fairly lost at play; because

in all these cases, the

defendant may retain it with a safe conscience, though

by

positive law he was barred from recovering. But it lies for

money paid by mistake; or upon a consideration which hap-

pens to fail;

or for money got through imposition, (express

or implied); or extortion; or oppression; or an undue

advantage taken

of the plaintiffs situation, contrary to laws

made for the protection of persons under those

circums­

tances. In one word, the gist of this kind of action is, that

the defendant, upon the circumstances of the case,

is

obliged by the ties of natural justice and equity to refund

the

money."

In that case Moses received from Jacob four promissory notes of

30sh. each. He endorsed these to Macferlan who, by a written agree­

ment, contracted that he would not hold Moses liable on the endorse­

ment. Subsequently, however, Macferlan sued Moses on the notes in a

Court of Conscience. The Court refused'to recognise the agreement,

G and Moses was forced to pay. Moses then brought an action against --Y

Macferlan in the king's Bench for money "had and received" to his

use. Lord Mansfieq allowed him to recover observing as above.

Courts

in England have since been trying to formulate a

juridi­

cial basis of this obligation. Idealistic formulations as 'aequum et

H bonum' and 'natural justice' were considered to be inadequate and the

·-~

MAHABIR KISHORE v. STATE o·F M.P. (SAIKIA, J.] 603

more legalistic basis of unjust enrichment is formulated. The doctrine A

.of

'unjust enrichment' is that in certain situation it would be 'unjust' to

allow the defendant to retain a benefit at the plaintiff's expense. The

relatively modern principle of Restitution

is of

the· nature of quasi

contract. But the English

Jaw has not yet recognised any generalised ·./ right to restitution in every case of unjust enrichment. As Lord

Diplock has said, "there is no general doctrine of "unjust enrichment" B

recognised

in English law. What it does is to provide specific remedies

in particular cases of what might be classed as unjust enrichment

in a

legal system i.e. based upon the civil

law." In Sinclair v. Brougham,

j,,(1:914] AC 398 Lord Haldane said that law could 'de jure' impute

' promises to repay whether for money "had and received" otherwise,

)' which may, if made de facto, it would inexorably avoid. C

The principle of unjust enrichment requires: first, that the

deferidant has been 'enriched'

by the receipt of a

"benefit"; secondly,

that this enrichment is "at the expense of the plaintiff"; and thirdly,

that the retention of the enrichment be unjust. This justifies restitu­

tion. Enrichment may take the form of direct advantage to the reci-D

pient wealth such as by the receipt of money or indirect one for

instance where inevitable expense has been saved.

Another analysis of the obligation is of quasi contract.

It was

said;

"if the defendant be under an obligation from the ties. of natural

justice, to refund; the

Jaw implies a debt, and give this action

fqunded E

in the equity

of the plaintiff's case, as it were, upon a contract (quasi ex

contractu)

as the Roman Jaw expresses

it." As Lord Wright in Fibrosa

Spolka v. Fairbairn Lawson, [1943] AC 32-1942 2 All RR. 122

pointed out, "the obligation is as efficacious as if it were upon a con­

tract. Such remedies are quasi contract or restitution and theory of

unjust enrichment has not been dosed in English Jaw." f-

Section 72 of the Indian Contract Act deals with liability of

person to whom money is paid

or thing delivered, by mistake or under

coercion.

It says: "A person to whom money has been paid, or anything G

delivered, by mistake or under coercion, must repay or

return

it."

Illustration (b) to the section is:

"A Railway Company refuses to deliver up certain goods to H

the consignee, except upon the payment of an illegal

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604 SUPREME COURT REPORTS [1989] 3 S.C.R. r

charge for carriage. The consignee pays the sum charged in

order to obtain the goods. He is entitled to recover so much

of the charge as was illegally excessive."

Our law having been codified, we have to apply the law. It is \.­

true, as Pollock wrote in 1905 in the preface to the first Edition of

Pollock and Mulla's Indian <:;ontract and Specific Relief Acts:

"The Indian Contract Act is in effect ....... a code of

English law. Like all codes based on an existing authori~

live doctrine, it assumes a certain knowledge of the princi-' '

pies and habits

of thought which are embodied in that doctrine." ~

It is, therefore, helpful to know "those fundamental notions in

the common law which are concisely declared, with or, without modifi­

cation by the text."

There is no doubt that the in.slant suit is for refund of money paid

by mistake and refusal to refund may result in unjust enrichment

depending on the facts and circumstances of the case. It may be said

that this court has referred to unjust enrichment in cases under s. 72 of

the Contract Act. See AIR 1980 SC 1037; AIR 1985 SC 883 and AIR

1985 SC 901.

The next question is whether, and if so, which provision of the

Limitation Act will apply to such a suit. On this question we find two

l._

lines of decisions of this Court, one in respect of civil suits and the

1

other in respect of petitii>ns under Article 226 of the Constitution of )I"-,

India. Though there is no constitutionally provided period of limita-

tion for petitions under Article 226, the limitation prescribed for such

suits

has been accepted as the guideline, though little more latitude is

available in

the former.

A tax paid under mistake

of law is refundable under s. 72 of the

Indian Contract Act, 1872. In Sales Tax Officer v. Kanhaiya Lal,

[ 1959]

SCR 1350 where the respondent, a registered firm, paid sales -j

tax in respect of the forward transactions in pursuance of the assess-

ment orders passed by the Sales Tax Officer for the year 1949-51; in

1952

the Allahabad High Court held in Mis Budh Prakash Jai Prakash

v. Sales Tax Officer, Kanpur, [1952] AU 332 that the levy of sales tax

/on forward transactions was ultra vires. The. respondent asked for a

refund of the amounts

paid, filing a writ petition under Ariticle 226 of

~

MAHABIR KISHORE v. STATE OF M.P. [SAIKIA, J.] 605

~ the Constitution. It was contended for the Sales Tax Authorities that A

1 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 o(the

liability under the

Sales Tax Act and were voluntary payments without

protest, and

(3) inasmuch as the monies which had been received by

B

the Government had not been retained but had been spent away by it

and the respondent was disentitled to recover the said amounts. This

Court held that the term

"mistake" ins. 72 of the Indian Contract Act

comprised within its.scope.a mistake of

law as well as a mistake of fact

and that, under that section a party

is e.ntitled to recover money paid

.~Y mistake or under coercion, and if it is established that the payment,

·even though it be of a tax, bas been made by the party labouring under C

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. On the ques-

tion

of limitation, it was held thats. 17(1)(c) of the Limitation Act,

1%3 would be applicable and that . where

a suit will be to recover

"monies paid under a mistake of law, a writ petition within the period D

of limitation prescribed, i.e., within 3 years' of the knowledge of the

mistake, would also lie." It was also accepted that the period of limita-

tion does not begin to run until the plaintiff has discovered the mistake

1

or could, with reasonable diligence, have discovered it.

The money may not be recoverable

if in paying and receiving it

the parties were in pari delicto. In Kiriri Cotton Co. Ltd. v.

Ranchhod­

das Keshavji Dewani, (1960] AC 192, where the appellant company, in

consideration of granting to the respondent a sub-lease asked for and

received from him a premium of Sh. 10,000 and the latter. claimed·

. refund thereof, the Privy Council held that the duty of observing ihe

,~ law was firmly placed by the Ordinance on the shoulders of d!e land­

l<>rd for the protection of the tenant, and the appellant company and

the respondent were not therefore . in pari delicto in receiving and

paying respectively the illegal premium, which, therefore,

in

accilr­

dance with established common law principles, the respondent was

entitled to recover from the landlord and that the omission of a statu-

E

F

tory remedy did not in cases of this kind exclude the remedy by money G

had and

received. In the instant case also the parties could not be said

~-to be in pari delicto in paying and receiving the extra 7-1/2% per cent.

Had the appellants not paid this amount, they would not have been

given the contracts.

In D. Cawasji

& Co. v. The State of Mysore & Anr., 11975] 2 H

SCR 511, the appellants paid certain amount to the Governlnent as

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606 SUPREME COURT REPORTS [ 1989] 3 S.C.R.

excise duty and education cess for the years 1951-52 to 1965-66 in one ~··"'

case and from 1951-52 to 1%1-62 in the other. The High Court struck,·-=

down the provisions of the relevant Acts ~ unconstitutional. In Writ

; · Petitions before the High Court claiming refund, the appellants con-

, te'nded that the payments in question were made by them under mis-

take of law; that the mistake was discovered when the High Court

struck down the pmvisions as unconstitutional and the petitions were,

therefore; in time but the High Court dismissed them on the ground of

inordinate delay. Dismissing the appeals, this Court held that where a {

suit would lie

to recover monies paid under a mistake of

law; a writ ~

petition for refund of tai within th& period of limitation would lie. For

filing a wnt i>etition to recover the money paid under a mistake of law

C

the starting point of limitation is from the date on which the judgment · declaring as void the particular law under which the tax was paid was

rendered. It was held in D. Cawasji (supra) that although s. 72 of the

Contract Act has been held to cover cases of payment of money under

D

E

a mistak~. of law, as the State stands in a peculiar position in respect of k

. taxes paid to it; there are perhaps practical reasons for the law accord-

ing different treatment both in the matter

of the heads under which

they

could be recovered and the period oflimitation for recovery. P .N.

Bhagwati, J., as he then was, in Madras Pon Trust v. Hymanshu

International,

[1979] 4

SCC 176, deprecated any resort to plea of limi­

tation by public authority to defeat just claim of citizens observing that

though permissible under law, such technical plea should only be

taken when claim is not well founded.

Section 17(1)(c)

of the Limitation Act, 1963, provides that in the

case

of a suit for

relief of the ground of mistake, the period of limita­

tion does not begin to run until the plaintiff had discovered the mistake

or could with reasonable diligence, have discovered it. In a case where

, F payment has been made under a mistlike of law as contrasted with a

'·.mistake of fact, generally the mistake become known to the party only

when a court makes a declaration as to the invalidity of the law. y­

··-··Though a party could, with rea5onable diligence, discover a mistake of l

. fact even before a court makes a pronouncement, it is seldom that a

/

person can, even with

reasonable·'diligence, discover a mistake of law

· G before a judgment adjudging the validity of the law.

H

· E.S. Venlr.ataramiah, J ., as his Lordship then was, in Shri

Vallabh Glass Works Ltd. v: Union of India, (1984) 3 SCR 180, where+,..

the appellants claimed refund of excess duty paid under Central Excise

and Salt Act, 1944, laid down that the excess amount paid by the

appellants would have become refundable by virtue

of s. 72 of the

·(

MAHABIR KlSHORE v. STATE OF M.P. {SA!KIA, J.I 607

Indian Contract Act if the appellants had filed a suit within the period

A

1

of limitation; and thats. 17(l)(c) and Article 113 of the Limitation

Act, 1963 would be applicable.

In Commissioner

of

Sales Tax, U.P. v. Mis Auriaya Chamber of

Commerce Allahabad, I 1986] 3 SCC 50, the Supreme Court in its

decision dated May 3,

1954 in

Sales Tax Officer v. Budh Prakash Jai B

Prakash, [ 1954] 5 STC 193 having held tax on forward contracts to be

illegal and ultra vires the U.P. Sales Tax Act, and that the decision was

applicable to the assessee's case, the assessee filed several revisions for

qua,hing the assessment order for the year 1949-50 and for subsequent

···~

years which were all dismissed on ground of limitation. In appeal to

this

Court Sabyasachi Mukharji, J. while dismissing the appeal held

c

that money paid under a mistake of law comes within mistake in s. 72 .,... of the Contract Act; there is no question of any estoppel when the

mistake

of law is common to both the assessee and taxing authority.

His Lordship observed

thats. 5 of the Limitation Act,

1908 and Article

96

of its First Schedule which prescribed a period of 3 years were

applicable to suits for refund of illegally collected tax.

D

In

Salonah Tea Co. Ltd. & Ors. v. Superintendent of Taxes,

Nuwgung and Ors., [ 19881 1 SCC 401, the Assam Taxation (on Goods

carried by Road

or Inland Waterways) Act, 1954 was declared ultra

vies the Constitution

by the Supreme Court in Atiabari Tea Co. Ltd. v.

State of Assam, AIR 1961 SC 232. A subsequent Act was also declared E

ultra vires by High Court on August

1, 1963 against which the State of

,/

Assam and other respondents preferred appeals to Supreme Court.

Meanwhile the Supreme Court in a writ petition Khyerbari

Tea Co.

Ltd. v.

State of Assam, [1964] 5 SCR 975, declared on December 13,

1963 the Act to be intra vires. Consequently the above appeals were

·~

allowed. Notices were, therefore, issued requiring the appellant under

F

s. 7(2) of the Act to submit returns. Returns were duly filed and

assessment orders passed thereon. On July 10, 1973, the Gauhati High

Court in its Judgment in Loong Soong Tea Estate's case, Civil Rule

No.

1005 of 1969, decided on July

10, 1973, declared the assessment to

be without jurisdiction. In November,

1973 the appellant filed writ

petition in the High Court contending that in view

of the decision in

G

Loong Soong Tea Estate's case he came to know about the mistake in

paying tax as per assessment order and also that he became entitled to

refund of the amount paid. The High Court set aside the order and the

notice

of demand for tax under the Act but declined to order refund of

the taxes paid by the appellant on the ground of delay and !aches as in

view

of the High Court it was possible for the appellant to know about H

608 SUPREME COURT REPORTS I 1989] 3 S.C.R.

( the illegality of the tax sought to be imposed as early as in 1963, when !'-'

the Act in question was declared ultra vires. Allowing the assessee's

B

c

appeal, Mukharji, J. speaking for this Court held:

"In this case indisputably it appears that tax was collected

without the authority

of law. Indeed the appellant had to

pay the tax in view of the notices which were without

jurisdiction.

It appears that the assessment was made under

section 9(3) of the Act. Therefore, it

was without jurisdic-

tion.

In the premises it is manifest that the respondents had

no authority to retain the money collected without the

authority of law and

as such the money was liable to

~'

refund."

The question there was whether in the application under Art.

226

of the Constitution, the Court should have refused refund on

ground'

of !aches and delay, the case of the appellant having been that

it was after the Judgment

in the case of Loong Soong

tea Estate, the

D cause

of action arose. That judgment was passed in July, 1973. The

High Court was, therefore, held to have been

in error in refusing to

order refund on the ground that it was possible for the appellant to

know about the legality of the tax sought to be imposed

as early as

1973 when the Act in question was delcared ultra vires. The Court

observed:

E

"Normally speaking in a society governed by rule of law

taxes should be paid by citizens as soon as they are due in

accordance with law. Equally, as a corollary of the said

statemenf of

law it follows that taxes collected without the

authority of law

as in this case from

a citizen should be

F refunded because no State has the right to receive or to ~'

retain taxes or monies realised from citizens without the

authority of law."

On the question of limitation referring to Suganmal v. State of

M.P., AIR 1965 SC 1740, and Tilokchand Motichand v. H.B. Munshi,

G [ 1969) 2 SCR 824, his Lordship observed that the period of limitation

prescribed for recocery of money paid

by mistake started from the date

when the mistake was known. In that case knowledge was attributable

-'f

from the date of the Judgment in Loong Soong Tea Estate's case on

July 10, 1973. There had been statement that the appellant came to

know

of that matter in October, 1973 and there was no denial of the

H averrnent made.

On that ground, the High Court was held to be in

MAHABIR KISHORE '· STATE OF M.P. {SAIKIA, J.J 609

error. It was accordingly held that the writ petition filed by the appel-A

Ian ts were within the period

of limitation prescribed under Art. 113 of

the Schedule read withs. 23 of the Limitation Act, 1963.

It is thus a settled law that in suit for refund of money paid by ~ mistake of law, s. 72 of the Contract Act is applicble and the period of

limitation is three years as prescribed

by Article 113 of the

Schedule to

the Indian Limitation Act,

1963 and the provisions of s. 17(l)(c) of

that Act will be applicable so that the period will begin to run from the

date of knowledge of the particular law, whereunder the money was ~paid, being declared void; and this court be the date of judgment of a

1

competent court declaring that law void.

. In the instant case, though the Madhya Pradesh High Court in

Surajdin v. 'stale of M.P., declared the collection on 7-1/2% per cent

illegal

and that decision was reported in

1960 MPLJ 39, the Govern­

ment was still charging it saying that the matter was under considera-

B

c

tion of the Government. The final decision of the Government as

stated in the letter dated 17 .10. 1961 was purely an internal comm uni-D

cation of the Government copy whereof was never communicated to

the appellants or other liquor contractors. There could, therefore, be

no question of the limitation starting from that date. Even with reason-

able diligence, as envisaged

ins. 17(1)(c) of the Limitation Act, the

appellants would have taken at least week to know

about it. Mr. Rana

has fairly stated that there was nothing on record

to show that the : E

appellants knew about this letter on

17.10.1961 itself or within a

reasonable time thereafter.

We are inclined to allow at least a week to

the appellants under the above provision. Again Mr. Rana has not

been in a position to show that the statement of the appellants that

they knew about the mistake only after the judgment

in Doongaji's case

reported in 1962

MPLJ 130, in or about September, 1962, whereafter

they issued the notice under

s.

80 C.P.C. was untrue. This statement

has not been shown to be false. In either of the above cases, namely, of

knowledge

one week after the letter dated

17.10.1961 or in or about

September, 1962, the suit would be within the period of limitation

under Article 113 of the Schedule to the Limitation Act, 1963.

• In the result, we set aside the Judgment of the High Court, allow

the appeal and remand the suit. The records will be sent down (orth­

with to the trial court to decide the suit on merit in accordance with

law, expeditiously. The appellants shall be entitled to the costs

of this

appeal.

R.N.J. Appeal allowed.

F

G

H