Mistaken Belief| ‘A’ paid some money to the Government as required by a Statute imposing a tax. The Statute is subsequently declared to be void by the Supreme Court of India… Is ‘A’ entitled to sue?

Question: Mistaken Belief | ‘A’ paid some money to the Government as required by a Statute imposing a tax. The Statute is subsequently declared to be void by the Supreme Court of India. Is ‘A’ entitled to sue the Government for the refund of money on the ground that he paid it under a mistaken belief that the Statute was valid? Give reasons for your answer. [Punjab JS 2010]

Find the answer to the mains question only on Legal Bites. [Mistaken Belief| ‘A’ paid some money to the Government as required by a Statute imposing a tax. The Statute is subsequently declared to be void by the Supreme Court of India. Is ‘A’ entitled to sue?]

Answer

Section 72 of The Indian Contract Act,1872 states that “A person to whom money has been paid or anything delivered by mistake or under coercion, must repay or return it.”

The expression “mistake” occurring in Section 72 is not confined to a mistake of facts, but extends to a mistake of law as well. This is the decision of the Privy Council in Shiba Prasad Singh v. Srishchandra Naudi, AIR 1949 PC 297, which resolved the conflict of opinion among the Indian High Courts on the question and held as thereunder:

• Unlike English, American, and Australian law, money paid under a mistake of law can be recovered in India.
• Tax paid under a mistake of law can also be recovered under Section 72.
• However, proposition (iii) above does not imply that “every sum paid under mistake is recoverable, no matter what the circumstances may be. There may in a particular case be circumstances which disentitle a plaintiff by estoppel or otherwise;”

Section 72 incorporates a rule of equity. It is said to be a legislative expression of the principle of equitable restitution. This section and Section 70 can be said to be cognate sections, both incorporating the same rule of equity in their varying facets. Section 70 says that, where a person lawfully does anything for another or delivers anything to him, without intending to do so gratuitously, the other person who enjoys the benefit thereof is bound to compensate the former in respect of, or to restore the thing so done or delivered.

A person who claims an equitable relief from the Court has to satisfy the Court that in equity he is entitled to such relief; a mere bald claim would not do; he must make it appear to the Court that equity demands the grant of relief to him.

The principle of equity as stated by the American authority is “to prevent fraud or manifest injustice“. Instead of resting the doctrine on the basis of contract, consideration, detriment, or cause of action, it should be based upon equity governing the jural relationship between the State and the citizen when the citizen acted to his detriment on the declared policies of the State. So, applying the above dictum and logic to the present case at hand, where ‘A’ paid some money to the Government as required by a Statute imposing a tax and later the statute is declared to be void by the Supreme Court of India.

In this case, based on the principle of equity and justice, ‘A’ entitled to sue the Government for the refund of money on the ground that he paid it under a mistaken belief that the Statute was valid. Hence, ‘A’ is entitled to his refund of money paid under the mistaken belief of law.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X