Doctrine of restitution

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This article was written by Rishabh Soni and further updated by Samiksha Singh and Sakshi Singh. This article discusses the doctrine of restitution, its applicability, scope, and objective under the Indian Contract Act, 1872, as well as the Specific Relief Act, 1963, along with the relevant provisions and legal precedents. The application of the doctrine of restitution under the Code of Civil Procedure, 1908, has also been explored.

In Indian legal jurisprudence, contracts are one of the most commonly used legal relations of give and take. Since the relations of give and take, i.e. the exchange of liabilities and claims, are the most conducive arrangements for taking the unjust disadvantage of another party, the most common incorporation of the doctrine of restitution is done via the Indian Contract Act, 1872 (hereinafter referred to as “ICA, 1872”). When a party to the contract is unjustly enriched or benefitted by the other party, it is the obligation of the party so unjustly enriched to return the benefits or compensate the other party. 

If one party performs his part of the obligation under the contract and the other party refuses subsequently, either damages can be claimed under Sections 73, 74 and 75 of the ICA, 1872, or the parties can apply for specific performance of the contract under the Specific Relief Act, 1963 (hereinafter referred to as “SRA, 1963”). However, if one of the parties performs its obligation and the contract becomes void or is discovered to be void, relief can be sought under Section 65 of the ICA, 1872, which is often termed as ‘restitution’. 

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In this article, we will discuss the doctrine of restitution in detail. However, it must be noted that restitution is not only a concept under contract law but is also used to restore the position of a party in a civil suit if one of the parties has derived undue advantages. This article will explore the same with reference to relevant case laws.

The word restitution is derived from the Latin word ‘restituere’ which means to ‘rebuild’ or to ‘restore’. It refers to the restoration of wrongful gains by the defendant and putting the plaintiff in the status quo possessed before the contract was made. The doctrine of restitution is derived from the Latin phrase ‘restitutio in integrum’, which implies a restoration of the rightful recipient back to his original position. The aim of restitution is not the creation of a new contract between the parties, but merely the restoration of the benefit received by one of the parties back to the rightful owner. 

The rationale behind this doctrine is that one party must not be allowed an advantage or benefit which is not owed to him at the expense of the rightful owner. In other words, restitution is to return or give back, thereby restoring the original status of the rightful owner. 

To restore the rightful owner back to the original position

The aim of restitution is not to create a new contract or an obligation. Rather, the aim of restitution is to restore the benefit or advantage wrongly received by one party back to the rightful owner. 

This may be better understood with the help of an illustration: P pays an advance of Rs 5000/- to S for a dance performance at P’s event. On the date of the event, S broke her leg and was unable to perform. Here, S is bound to return the advance sum paid to her by P. Thus, in this case, there was no new contract that was entered into between P and S. S was only obligated to return what was duly owed to P in order to restore P’s original position. 

Prevent unjust enrichment

The aim of this doctrine is to prevent unjust enrichment. In other words, the objective of this doctrine is to prevent a party from avoiding the agreement he entered into after certain benefits are received by him under that agreement. Sometimes, one of the parties to a contract derives the benefit of the contract but does not perform the duties assigned to him under it. In such a situation, the doctrine of restitution applies, and it compels the person so unjustly enriched to return the benefit. 

In the case of Ram Nagina Singh vs. Governor General in Council (1952), the Calcutta High Court held that the concept of restitution embodied in Section 65 of the ICA, 1872, is a compensatory principle to prevent unjust enrichment.

Provide compensation to the rightful owner

Another objective of the doctrine of restitution is to provide compensation. It must be borne in mind that, in a given case, there can only be two ways in which restitution may be made. These are:

  • By way of restoration, if it is possible; or 
  • By payment of compensation. This is to state that where restoration is not possible, the party may be asked to pay an equivalent sum as compensation. 

Deriving thereby, if there is a contract between two parties and one of the parties unjustly receives a benefit, then, as per the doctrine of restitution, he is bound to return such a benefit to the rightful owner. If restoration in a given case is not possible, then equivalent compensation must be paid to the other party. It is pertinent to not confuse the term “compensation” with “damages.” Damages are paid for the loss suffered by one party on account of a breach of contract. The aim of restitution is not to pay back for the loss suffered by the rightful owner because of the breach. It is only to pay back what was wrongly received from the rightful owner. So, if A wrongly receives Rs. 1000/- from B and because of this, B has to incur an additional cost of Rs. 500/-, A would not be liable to pay Rs. 1500/- to B. A would only be liable to pay back Rs. 1000/- to B, as was originally received. 

Under the ICA, 1872, Section 65 contains the provisions for the doctrine of restitution. It deals with the obligation of the person who has received some advantage under a void agreement or contract. This doctrine is based on a very common rule of consideration, which lays down that a person is required to pay consideration only when he gets something in return. As per Section 25 of the ICA, 1872, an agreement without consideration is void. 

Provisions of Section 65 apply only when an agreement, at a subsequent stage, is discovered to be void by one person or the other. However, Section 65 will never come into play if the contract was void-ab-initio, that is, void from the very beginning. The Supreme Court in the case of Kuju Collieries Ltd vs. Jharkhand Mines Ltd. (1974) held that an agreement that was discovered to be void at a later stage will invite Section 65 into the picture, and in such a case, the advantageous person is bound to restore the disadvantaged party.

Requirements of the doctrine of restitution

  • One party has entered into a contract with another for consideration.
  • There was some consideration involved in the said contract.
  • Both parties were competent to enter into a contract.
  • Thereafter, one party failed to perform his part of the contract, or the contract became void due to any unforeseen condition.

Now the party that has paid any consideration as the advance is entitled to recover the same from the other party, who is not entitled to receive an unfair advantage.

Applicability of doctrine of restitution

There might be 4 conditions for the invalidity of the contract. These are:

  • The contract was void ab initio, and the parties had knowledge about it;
  • The contract was void ab initio, but it was discovered at a later stage of the performance of the contract; 
  • The contract was valid when entered into, but subsequently become void after the performance of the contract
  • The performance of the contract becomes impossible, i.e., frustration of the contract.

Parties had knowledge about the contract being void ab initio

Where the agreement was void and the parties knowingly entered into such a void agreement, the parties cannot claim restitution. However, where it is discovered at a later stage that the agreement entered into by the parties was void due to some reason, restitution can be claimed. Thus, it can be said that in Bank of Rajasthan Ltd vs. Sh Pala Ram Gupta (2000), it was held that an agreement or contract that was void and illegal from the very beginning can never attract the provisions of this doctrine. Section 65 is applicable only when an agreement was valid when it was entered into and became void at a future date. Moreover, if the agreement was entered into between an adult, the plaintiff, and a minor defendant, the doctrine of restitution would not apply. This was held in the case of Mohori Bibee vs. Dharmodas Ghose (1903). However, the scenario would be different if the minor has misrepresented his age, and he can be forced by the court to return the benefit.

Contract is later discovered to be void ab initio

The phrase “discovered to be void” in Section 65 of the ICA, 1872, means that the agreement when it was entered into was void ab initio. However, it was only later that the parties discovered that the agreement was void. This section includes cases of mistake wherein both parties entered into a contract under a mistaken belief of either the law or the facts. Thus, for example, if the parties entered into a contract for a certain sale of goods and one of the parties to the contract advanced a sum of money as consideration for the goods. Herein, however, both parties did not know at the time of entering into the contract that the goods had already perished. In this case, the doctrine of restitution would be applicable. 

Following are the situations in which a contract would be discovered to be void:

  • If the parties have contracted on the basis of a mutual mistake as to a fact essential to the agreement;
  • If the meaning of the agreement is not capable of being made certain; or
  • If the parties have discovered later that the supposed contract was unlawful or contravening some statutory provisions. 

In the case of Kuju Collieries Ltd. vs. Jharkhand Mines Ltd. (1974), the Apex Court differentiated between an “agreement” and a “contract”, stating that only agreements that can be enforced by law would be construed as contracts. In that light, the Supreme Court observed that there may be instances wherein one of the parties did not have knowledge that the agreement he was entering into would not be enforceable by law and discovered the same later on. In this case, any of the parties who received any benefit or advantage are obligated to return such advantage to the rightful owner. However, this principle would not apply in instances where both parties were aware of the unlawful nature of the contract while entering into it.

The doctrine of restitution would also apply if the parties were not aware of the unlawful object and proceeded with the performance of the contract. The same can be recovered at any moment after it was discovered that the agreement had an unlawful object. In the case of Ram Singh vs. Jethamall Wadhumal (1964), the parties entered into a contract for hydrogenated groundnut oil. Prior to that, the Defence of India Rules, which prohibited such contracts, were introduced. The parties, being unaware of the same, entered into the agreement with an unlawful object. The Rajasthan High Court held that it was a contract that was subsequently discovered to be void, and therefore, a purchaser who has advanced some money under this contract is entitled to get a refund of the same.

Agreement becomes void

Another situation that comes under the ambit of the doctrine of restitution is when a valid contract was made in the beginning, but it subsequently becomes either unlawful or it becomes frustrated. In other words, the doctrine of restitution becomes applicable once the original contract is put to an end by one party, or the contract becomes ineffective due to a mistake of the parties or an impossibility in the performance of a contract. 

Illustration: Mr. Deepak entered into a contract with ABC Pvt Ltd., Delhi, for the purchase of 20 tonnes of wheat. Deepak paid an advance of Rs. 50,000, which was 10% of the total value of the contract. Later, at a future date, ABZ Pvt Ltd. rescinded the contract due to some financial loss, after which they were declared insolvent and decided to wind up their business. Now, in this case, the contract becomes void, and ABZ Ltd. must return the Rs. 50,000 to Mr. Deepak.

Performance of the contract becomes impossible

As explained in the case of Satyabrata Ghose vs. Mugneeram Bangur and Co. (1954), in cases wherein due to some reasons the contract is impossible to perform by law or due to factors beyond the control of the parties, the contract subsequently becomes impossible to perform, the doctrine of restitution may be applied. The party that received benefits from such a contract must return the same.

Exceptions to the doctrine of restitution

Where an agreement is known to be void

If, at the time of entering into the contract, both parties knew that the contract was not valid, then the doctrine of restitution would not apply. 

Illustration: Where an agreement is for some illegal act or an impossible act, such as an agreement that A would pay B Rs 10,000 if B picks stars from the sky. A pays Rs 500 as security to B,for the same. However, it being an impossible act to perform, A cannot recover his Rs 500.

Where the benefits have been encashed 

We know that the principle of restitution will apply if any agreement is void, but it was discovered later on. That implies, if a person of either unsound mind or below 18 years of age enters into a contract while misrepresenting their mental capacity or age, the restitution of benefits advanced to such incompetent parties can be claimed back. However, there is one exception to this rule, which states that if benefits are provided to a person of unsound mind or a minor and he has subsequently encased or enjoyed that benefit, restitution cannot be claimed. 

Restitution in cases of payment of earnest money 

In instances of frustration with a contract relating to the sale of any property, the buyer may claim the earnest money (a sum deposited by the buyer as security money for the purchase of a house). However, in instances where one of the parties validly rescinds the contract, there would be no claim for restitution of earnest money. In the case of National Highways Authority of India vs. Ganga Enterprises (2003), the Supreme Court examined the validity of forfeiture of earnest money. While doing so, it was observed that the whole purpose of allowing forfeiture of earnest money is to ensure that only genuine bids are submitted. Thus, in instances where the contract has validly been rescinded, the buyer cannot claim a restitution of the earnest money paid. 

In pari delicto 

The doctrine of in pari delicto serves as an exception to the doctrine of restitution. The understanding of the concept of in pari delicto can be found in the Rajasthan High Court judgement of Onkarmal and Anr. vs. Banwarilal and Ors. (1961). Herein, it was observed that when both parties are equally at fault, the law shall not come to their rescue and shall not determine the rights between such parties. Thus, in cases where both parties are guilty and one of the parties unjustly benefits at the expense of the other party, the court shall not come to their rescue. In a recent case of Loop Telecom and Trading Limited vs. Union of India and Anr. (2022), the Supreme Court denied the claim of restitution of the appellant on the ground that the appellant himself was a beneficiary of an unlawful policy and hence was not entitled to any refund.

Doctrine of restitution and quasi-contract 

The doctrine of restitution extends to the situation of quasi-contract as well. Quasi-contracts are not express contracts and do not fulfil the requirements of a contract. However, it does resemble a contract in some ways. Section 68 to Section 72 [Chapter 5] of the ICA, 1872, provides for certain relations resembling those created by contract. These are referred to as quasi-contracts under English law. In a quasi-contractual relation, there is neither a contract between the parties nor is there any tortious liability, but one party is liable to compensate the other for the benefits it received. 

The ICA, 1872, provides for different quasi-contractual relations. Those are as follows:

  • Claim for necessaries supplied to a person incompetent to contract 
  • Reimbursement of money paid, which was due to a third person
  • Obligation of a person enjoying the benefit of a non-gratuitous act
  • Responsibility of the finder of goods
  • Liability of a person getting benefits by mistake or coercion. 

The terms, “claim”, “reimbursement”, “obligation”, “responsibility”, and “liability” denote the concept of restitution. In simple words, the benefits received by a person in the manner listed in Sections 68 to 72 of the ICA, 1872, must be returned or resituated to the person advancing such benefits. The person enjoying the benefits is obligated or responsible to reimburse the benefit so enjoyed to the person advancing them. In order to receive the restitution, the following essentials must be established: 

  • The defendant has been ‘enriched’ by the plaintiff;
  • The plaintiff has no apparent obligation to enrich the defendant; 
  • The said enrichment was done at the expense of the plaintiff. 

Let us understand each type of quasi-contractual relation and the restitution thereof. However, for a detailed analysis of quasi-contractual obligations, click here. 

Restitution of necessities supplied 

Section 68 of the ICA, 1872, provides for the restitution of necessities supplied to an incapable person or dependents of such an incapable person. It states that a person shall be reimbursed from the property of an incapable person if he has been supplied with the necessities of life, such as food, clothing, shelter, education, etc. 

In other words, if a person supplies necessities of life to another person who is incapable or incompetent to contract (minor, person of unsound mind, lunatic, etc.) or his dependents (wife, minor son, unmarried daughter, etc.), that person will be entitled to be resituated or reimbursed from the property of such an incapable person. For restitution under this Section, the following essentials must be met:

  • Only the supply of necessities of life will be resituated: If a person is supplied with luxuries, the absence of which shall not prevent him from living a dignified life, it shall not be considered as a supply of necessities, and restitution would not apply.
  • Such necessities of life must be supplied to a person incompetent to contract: Section 11 of the ICA, 1872, classifies persons who are competent to contract, namely, minors, persons of unsound mind, and persons disqualified by law from entering into a contract. Only in case where necessities of life are supplied to such people who are incompetent to contract in accordance with Section 11, restitution shall apply.

Restitution of money paid

Section 69 of the ICA, 1872, provides that if law requires a person to make a payment, but if such payment is made by any other person who himself is interested in the same, he must be reimbursed by the person who was obligated by law to make the payment. 

Illustration: There is a piece of land owned by A. This land is held by B on lease. Herein, A is obligated to pay certain revenue to the Government. However, because A failed to pay the same, the government put up an advertisement for A’s land stating that it was for sale. If this property is sold, B’s interest in the land would also be hampered. Thus, in order to protect his interest, B made the payment required of A to the government. In this case, B would be liable to be reimbursed by A. 

A perusal of the Supreme Court judgement in the case of Numaligarh Refinery Limited vs. Daelim Industrial Co Ltd (2007), the party claiming reimbursement of the money paid has to establish that the other party had a legal duty to make the payment. If the party claiming reimbursement is not able to establish the same, there would be no reimbursement.

Restitution of non-gratuitous benefits

Section 70 of the ICA, 1872, encapsulates the essence of restitution to be made for non-gratuitous acts. Gratuitous acts refer to those acts that are done for free without the need for a payment of any compensation. In accordance with Section 70, if:

  • Any person lawfully does or delivers something to any other person;
  • The person acted non-gratuitously (that is to say, that he intended to be compensated in return for the act done or goods delivered);
  • The other person enjoys the benefit of such an act or delivery;

Then such a person who enjoys the benefit would be liable to pay for it. Any compensation under this section is based on the implied conduct of the parties. 

For a better understanding, an illustration can be considered. For example, P and S live on different floors of the same apartment building. P orders food from Zomato. The delivery boy accidentally delivers the food to S’s apartment. S voluntarily takes the food and consumes it. S is bound to pay P for the food.

Quantum meruit 

The expression “quantum meruit” is the Latin term for “as much as he has earned.” If, in a given case, the obligations under the contract are discharged by one party in such a way that no further obligations are to be performed by the other party, then the other party can claim compensation quantum meruit (under Section 70) for the work already done by him. It is a form of compensation for the work already done by a party to the contract. However, it must be borne in mind that in cases where work is done on the basis of a contract and the contract specifically provides for the amount of compensation to be paid, there cannot be a claim for compensation quantum meruit. Stating that the compensation provided in the contract is not adequate would also not be a valid ground to claim it. This principle was reiterated by the Supreme Court in the case of Mahanagar Telephone Nigam Limited vs. Tata Communications Limited (2019). It was further observed that a compensation quantum meruit is in a way based on the implication of a contract. This is to say that any compensation is paid in quantum meruit when the amount of compensation is not specified in a contract. It is paid on the basis of the work done. 

Restitution of goods

Section 71 of the ICA, 1872, specifies the responsibility of a person who finds certain goods that belong to some other person. Accordingly, if any person finds and takes into custody some goods that belong to any other person, his responsibility towards those goods is similar to that of a bailee. The finder must take the measures required to find the owner of those goods. He is further liable to take care of the goods in order to preserve them. Subsequently, upon finding the original owner, he is bound to return the goods to them. The finder of the goods may, however, keep the goods with him till he receives compensation from the original owner for the expenses he incurred in preserving the goods, as well as locating the owner, in accordance with Section 168 (right of finder of goods) of the ICA, 1872.

Restitution for benefits received under mistake or coercion

Section 72 of the ICA, 1872, provides that if any person receives any payment or has something delivered, either on account of a mistake or coercion, he is liable to return or repay for the same. It is pertinent to note that this Section does not specify whether the expression “mistake” implies a “mistake of fact” or a “mistake of law”. In that light, the Supreme Court in the case of Sales Tax Officer vs. Kanhaiya Lal Mukund Lal Saraf (1958) clarified that for the purposes of Section 72, the expression “mistake” incorporates both a mistake of fact and a mistake of law. 

Section 33 of the SRA, 1963, also embodies the principle of restitution. In accordance with this Section, if any instrument is either:

  • Cancelled; or
  • Established to be void or voidable

In these circumstances, a party may be required to restore the benefits he may have received from the other party under such an instrument. 

Ingredients of Section 33 of the Specific Relief Act, 1963

As per Section 33 of the SRA, 1963, in the following circumstances, the court may order restitution:

  • Section 33(1): It may so happen that either the plaintiff or the defendant, in a given case, prays for cancellation of any instrument. If, upon being convinced, the court cancels the instrument, then whichever party (be it the plaintiff or defendant) actually prayed for such cancellation may be required to restore to the other party any benefit he received. Such a party may also be required to pay compensation in the interest of justice. 
  • Section 33(2): This Section only applies to a defendant in the suit. Accordingly, in a given suit, if the defendant is successfully able to counter any suit against him on either of the two grounds mentioned below, he may be directed to restore the benefits he received from the plaintiff. These two circumstances are:
  1. Section 33(2)(a): If the defendant is able to defend himself and show that the instrument which the plaintiff was seeking to enforce against him was voidable in nature, then the court may order a grant of restitution. However, in this case, the court may either order a grant of restitution or the payment of any compensation.
  2. Section 33(2)(b): It may so happen that the defendant himself was not a competent person to contract, in terms of Section 11 of the ICA, 1872. In such cases, wherein the defendant defends himself by showing that the instrument that the plaintiff is seeking to enforce against him is void because the defendant himself was incompetent to contract, the court may grant restitution. Herein, the liability to restore the plaintiff would be as much as the defendant or his estate benefited from the plaintiff. Under this provision, the defendant would not be liable to pay any compensation.

Whether restitution under Section 33 of the Specific Relief Act, 1963, is discretionary

The grant of restitution under this Section is a discretionary relief. It is up to the court to decide whether, in any case, an order of restitution is to be granted or not. Further, if the court decides to order a grant of restitution, it is also up to the court to decide what the extent of restitution that is to be granted would be. 

The principle of restitution can also be found under Section 144 of the Code of Civil Procedure, 1908 (hereinafter referred to as CPC, 1908). While Section 144 incorporates the doctrine of restitution, there is still no definition of restitution provided under CPC, 1908. However, as discussed previously, the expression “restitution” implies an act of restoration. In simple terms, if any party unjustly benefits from any decree that is subsequently varied or reversed, then according to Section 144 of the CPC, 1908, that party is bound to give back the benefits he received to the rightful recipient. 

In instances wherein the decree is subsequently modified or reversed, there may be a party who has unjustly gained some benefits in accordance with the original decree. Consequently, there is also a party who has lost what is rightly owed to him by the original decree. Thus, the party who stands unjustly benefited by virtue of the original decree must return and restore the position of the rightful owner. In that light, the Supreme Court in the case of Zafar Khan vs. Board of Revenue (1984) examined the etymological meaning of the term “restitution.” While doing so, the Court observed that if any party loses something as a direct consequence of a decree, then upon a subsequent modification or reversal of that decree, restitution would denote a restoration of what has been lost by the rightful owner.

Object of Section 144 of the Code of Civil Procedure, 1908

The rationale behind the incorporation of the doctrine of restitution under Section 144 rests on a maxim, that is, actus curiae neminem gravabit. This maxim means that the court, by virtue of its acts, must not harm anyone. The reason for this is simple and can also be traced to the Bombay High Court judgement in Martand Ramchandra Potdar vs. Dattatraya Ramchandra Potdar (1974). It was observed that one of the primary and most significant duties of courts is to ensure that their acts do not harm the interests of the suitors. While the law places an obligation on the party who has unjustly benefitted from an erroneous decree or order to restore and return such benefits to the rightful owner, it is the courts who are ultimately duty-bound to enforce such an obligation. 

In the recent case of Bhupinder Singh vs. Unitech Limited (2023), the Supreme Court reiterated the implication of the above-mentioned maxim, that is, actus curiae neminem gravabit. It was observed that it is an established principle that the court must not prejudice the interests of any party. Further, if a circumstance arises, the court is obligated to undo any wrong or injury that is caused to any party by any act of the court.

Furthermore, in the case of V Senthil vs. State (2023), a wider scope of the maxim was examined. It was observed by the Supreme Court that this maxim does not only apply to cases wherein the courts were erroneous in their acts. There may also be situations wherein the courts are forced to take a particular course of action because they are not properly apprised of the facts and the law. The Supreme Court thus observed that even in such cases where it can be established that the courts would have acted differently had they been properly apprised of the facts and/or the law, the maxim of actus curiae neminem gravabit would be applicable.

Power to order restitution is an inherent power of courts

While Section 144 of the CPC, 1908, manifests the idea of restitution, it is not the source of the doctrine of restitution. This Section merely recognises the doctrine. As was observed by the Supreme Court in the case of Southern Eastern Coalfields Ltd. vs. State of M.P. (2003), the power or jurisdiction of the courts to order restitution in a given case does not stem from Section 144 of the CPC, 1908. This power is inherent, and the courts have a general jurisdiction to order restitution in order to do complete justice. This principle was further reiterated by the Supreme Court in the case of Citibank N.A. vs. Hiten P. Dalal (2015).

Conditions for an order of restitution

As was observed by the Bombay High Court in the case of Ramdas Rupla Wagh vs. Mohd. Ayyub Mohd. Bashir (2019), for there to be an order of restitution under the CPC, 1908 the following three conditions must be met:

  • The restitution sought must relate to the erroneous decree or order that has subsequently been reversed or modified.
  • The party who approaches the court for an order of restitution must be entitled to receive any benefit under such a reversed decree or order.
  • The relief sought must result from the modification or reversal of the decree or order.

It must be borne in mind that once these conditions are met, it is the obligation of the court to order restitution. This is implied by the use of the word “shall” in Section 144. 

Who can make an application for a grant of restitution

The use of Section 144 for a grant of restitution can be taken by any party who is entitled to receive a benefit by virtue of restitution upon the modification or reversal of a decree or order. For any person to be entitled to make an application under Section 144, the following conditions must be met:

  • The party making such an application for a grant of restitution must be a party to that decree or order, which has been modified or reversed. However, the expression “party to a decree/order” must not be construed narrowly. As was observed by the Calcutta High Court in Jotindra Nath Ghose vs. Jugal Chandra Santra and another (1966), the term “party” does not only include parties to the suit or appeal but any such person who may be a beneficiary as per the final judgement. 
  • Upon a reversal or modification of the decree or order, such party should become entitled to any benefit by virtue of restitution. 

By whom can restitution be granted

Section 144(1) of the CPC, 1908 specifies that an application for grant of restitution should be preferred to such a court that has passed the decree or order. Herein, according to Explanation 1, the expression “court which has passed the decree or order” comprises the following:

  • When the decree or order is varied or reversed under an appellate/revision jurisdiction: In this case, the court wherein application for grant of restitution would lie shall be the court of first instance, which shall grant restitution.
  • When decree/order set aside in a separate suit: In this case, it is the court of first instance that had passed such a decree/order.
  • When the court of first instance either ceases to exist or ceases to have jurisdiction to execute: In this case, it would be whichever court that would have jurisdiction to try the suit if such a suit were instituted at the time of making an application for restitution.

Against whom can restitution be granted

For the purpose of Section 144 of the CPC, 1908, restitution may be granted not just against the parties to the suit but also against such party’s legal representatives.

Nature of proceedings under Section 144 of the Code of Civil Procedure, 1908

The case of Mahjibhai Mohanbhai Barot vs. Patel Manibhai Gokalbhai (1964) settled the position with respect to the nature of proceedings under Section 144 of the CPC, 1908. The Supreme Court, after examination Section 144, clarified that any application under this Section would be construed as an application for execution of a decree.

Extent to which restitution may be granted

As previously discussed, the object of restitution is the restoration of the position of the rightful owner. Thus, as far as possible, the restitution order would aim to place the party back in the same position as it would have been if not for the erroneous decree or order.  

Mohori Bibee vs. Dharmodas Ghose (1903)

Facts of the case 

In this case, a minor, Dharmodas Ghose, mortgaged his property to Brahmo Dutt in order to secure a loan of Rs. 20,000/-. Herein, the attorney who was responsible for preparing the mortgage had suspicions regarding the age of Dharmodas Ghose. When the attorney inquired about the same, he misrepresented his age and declared that he was 21 years old. However, it was noted that Brahmo Dutt’s agent was aware that Dharmodas Ghose was a minor.

Issues raised

Whether Section 65 of the Indian Contract Act, 1872, would be applicable to seek compensation?

Judgement of the case

In this case, the Privy Council observed that there can be no question of compensation under Section 65 of the Contract Act. This is because, in the instant case, one of the parties was not competent to contract. 

Kuju Collieries Ltd vs. Jharkhand Mines Ltd. (1974)

Facts of the case 

In this case, an agreement was entered into between the plaintiff and the defendant for the lease of mines. However, the defendant had not transferred possession of the leased property to the plaintiff. As a result, the plaintiff instituted a suit for recovery of possession of the leased property or the refund of the sum already paid to the defendant in pursuance with the lease agreement. 

After the institution of the suit, the Bihar Land Reforms Act (1974) came into force, which provided that any lessee of any working mine became a direct lessee under the State. Since the plaintiff was not working the mines, any claim in respect of the possession of the mines became unenforceable. The plaintiff claimed Rs 80,000 as paid to the defendant under Section 65 and Section 72 of the Contract Act. 

Issues raised 

Whether the plaintiff can recover the sum under Section 65 or Section 72 of the Contract Act?

Judgement of the case

It was held by the Supreme Court that the leave agreement was void ab initio, as the lease of the property was never conveyed to the plaintiff and the deed became void by the operation of the Bihar Land Reform Act. Thus, it could not be said that it became void subsequently. Further, it is also highlighted by the Court that the plaintiff was already in the business of mining and had the advantage of consulting his lawyers and solicitors. So there was no occasion for the plaintiff to have been under any kind of ignorance of the law. Thus, in this case, neither Section 65 nor Section 72 of the Contract Act apply.

Sadasiva Panda vs. Prajapati Panda (2017)

Facts of the case

In this case, the plaintiff asserted that the defendant had originally offered to sell his land to the plaintiff for a total sum of Rs. 5000/-. The plaintiff, while agreeing to this proposal, paid an advance sum of Rs. 2600/-. Following this, the plaintiff was given possession of the property, and the defendant further stated that he would execute the sale deed upon payment of the balance amount. Later, despite several requests, there was no execution of the sale deed. After some time, the plaintiff learned that the defendant had agreed to sell that land to defendant 2. Subsequently, the plaintiff filed a suit for declaration and permanent injunction in favour of the plaintiff.

The defendant, however, objected that there was any sale made by him to the plaintiff. Instead, the defendant asserted that the sum of Rs. 2600/- was actually a loan that the defendant had taken from the plaintiff’s elder brother. The defendant stated that he was made to sign a blank paper by the plaintiff’s brother as security for the payment of the loan. It is the defendant’s case that this blank paper is now being used as an agreement to sell.

Issues raised

Whether the plaintiff is entitled to a recovery of the amount paid in terms of Section 65 of the ICA, 1872?

Judgement of the case

The Orissa High Court construed the exchange between the parties to be an agreement to sell and the payment of the amount of Rs. 2600/- as part of the consideration. It was further observed by the High Court that neither of the parties contemplated that this exchange between them was not enforceable. In that light, with the agreement being valid, it was held that the plaintiff was entitled to recover the sum paid to the defendant in accordance with Section 65 of the ICA, 1872.

Loop Telecom and Trading Limited vs. Union of India and Anr. (2022) 

Facts of the case

In this case, Loop Telecom and Trading Ltd. had applied for Unified Access Service Licences (UASL) for 21 service areas. A UASL agreement was entered into between the government and Loop Telecom. In furtherance of the said agreement, the appellant had paid Rs. 1454.94 crore as entry fees for 21 service areas. However, after payment of the entry fee, the grant of UASL was quashed by the Supreme Court vide its judgement in the case of Centre for Public Interest Litigation vs. Union of India (2020), on the grounds that the government’s policy to allocate 2G spectrum on a first come, first serve basis was arbitrary and illegal.

To claim back the entry fee, the appellant petitioned before the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). However, the same was rejected on the following grounds that the agreement had neither become void nor had been discovered to be void, so as to satisfy the condition for restitution under Section 65. Furthermore, the principle of in pari delicto cannot be applied, as a criminal proceeding was ongoing against the appellant for the grant of the service license (UASL). 

Aggrieved by the ruling of the Tribunal (TDSAT), the appellant appealed before the Supreme Court of India.

Issues raised 

Whether the appellant is entitled to claim restitution of the Entry fee paid in furtherance of UASL?

Judgement of the case

It was observed by the Supreme Court that the appellant was not entitled to the refund of the entry fee. This is because the appellant was the beneficiary of an unlawful policy. In that light, the Supreme Court observed that since the appellant was in pari delicto with the government, the appellant was not entitled to receive a refund of the entry fee.

Restitution, as discussed above, implies a restoration of the original position of the rightful owner. While the concept of restitution can be found in the Indian Contract Act, 1872, the Code of Civil Procedure, 1908; and the Specific Relief Act, 1963, the intent behind all these laws remains the same, that is, to restore the status of the rightful owner. As the law prescribes, one person cannot be unjustly allowed to be placed in an advantageous position at the expense of the rightful owner. Thus, the doctrine of restitution safeguards the rights of the person with whom the right exists. The law of contracts and specific relief generally lays down the concept of restitution in terms of the benefit received by a party to a contract (whether express or implied) in pursuance of the same. As opposed to this, the concept of restitution under the CPC is slightly different. Herein, if a party unjustly receives any benefit by reason of a decree or order, then upon reversal or variation of that decree, he is bound to return such benefit to the rightful owner. While the doctrine of restitution is codified under various laws, the essence of all the laws remains the same. 

What is the difference between remedies under Section 65 and Section 70 of the Contract Act?

Both Section 65 and Section 70 provide for restitution of the sum already paid. However, Section 65 proceeds with the fact that there has been a contract between the parties, which was later discovered to be void or becomes void, while on the other hand, Section 70 does not require a contract to exist for their application. 

Notably, Section 70 provides that when any person does anything non-gratuitously or delivers anything non-gratuitously, then such person would be entitled to restore the things so done or delivered. For the restoration of benefits already provided, it is essential that the party to whom such benefit is delivered have enjoyed the benefit thereof. The party who enjoys such benefits is liable to pay compensation to the party who has delivered something or did something non-gratuitously. 

What is the difference between restitution and compensation?

Most of the time, these two terms are treated as having a similar meaning, but the difference between them lies in the manner in which monetary awards are calculated. For instance, for compensation, the award is calculated based on how much loss the plaintiff has suffered, whereas for restitution, the award is calculated based on the amount of benefit the defendant has earned. However, on certain occasions, it is at the discretion of the judge, based on the facts of a particular case, which means that the judge may give the plaintiff a choice to choose between restitution and compensation.  

What are the legal provisions that provide for the doctrine of restitution? 

As discussed in this article, Section 65 of the Indian Contract Act, 1872, and Section 33 of the Specific Relief Act, 1963, provide for the doctrine of restitution. Apart from these, Section 144 of the Code of Civil Procedure, 1908, also provides for restitution if any mesne profit is derived. 



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