TMI Blog1958 (9) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. Lal, Advocates, with him), for the appellants. -------------------------------------------------- The Judgment of the Court was delivered by BHAGWATI, J.- The facts leading up to this appeal lie within a narrow compass. The respondent is a firm registered under the Indian Partnership Act dealing in bullion gold and silver ornaments and forward contracts in silver bullion at Banaras in the State of Uttar Pradesh. For the assessment years 1948-49, 1949-50 and 1950-51 the Sales Tax Officer, Banaras, the appellant No. 1 herein, assessed the respondent to U.P. Sales Tax on its forward transactions in silver bullion. The respondent had deposited the sums of Rs. 150-12-0, Rs. 470-0-0 and Rs. 741-0-0 for the said three years which sums were appropriated towards the pay- ment of the sales tax liability of the firm under the respective assessment orders passed on May 31, 1949, October 30, 1950 and August, 22, 1951. The levy of sales tax on forward transactions was held to be ultra vires by the High Court of Allahabad by its judgment delivered on February 27, 1952, in Messrs Budh Prakash Jai Prakash v. Sales Tax Officer, Pilibhit [1952] 3 S.T.C. 185; 1952 A.L.J. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this Court. This appeal has accordingly come up for hearing and final dis- posal before us at the instance of the Sales Tax Officer, Banaras, appellant No. 1, the Commissioner, Sales Tax, U.P., Lucknow, appellant No. 2 and the State of U.P., appellant No. 3. The question that arises for our determination in this appeal is whether section 72 of the Indian Contract Act applies to the facts of the present case. The learned Additional Solicitor-General appearing for the appellants tried to urge before us that the procedure laid down in the U.P. Sales Tax Act by way of appeal and/or revision against the assessment orders in question ought to have been followed by the respondent and that not having been done the respondent was debarred from proceeding in the Civil Courts for obtaining a refund of the moneys paid as afore- said. He also tried to urge that in any event a writ petition could not lie for recovering the moneys thus paid by the respondent. Both these contentions were, however, not available to him by reason of the categorical statement made by the Advocate-General before the High Court. The whole matter had proceeded on the basis that the respondent was entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be reopened." (See also National Pari Mutual Association Ltd. v. The King 47 T.L.R. 110. and Pollock on Contract, 13th Edition at pp. 367 and 374). The American doctrine is also to the same effect as appears from the following passage in Willoughby on the Constitution of the United States, Vol. 1, p. 12: "The general doctrine that no legal rights or obligations can accrue under an unconstitutional law is applied in civil as well as criminal cases. However, in the case of taxes levied and collected under statutes later held to be unconstitutional, the taxpayer cannot recover unless he protested the payment at the time made. This, however, is a special doctrine applicable only in the case of taxes paid to the State. Thus, in transactions between private individuals, moneys paid under or in pur- suance of a statute later held to be unconstitutional, may be recovered, or release from other undertakings entered into obtained." The High Court of Australia also expressed a similar opinion in Werrin v. The Commonwealth 59 C.L.R. 150., where Latham, C.J., and MacTiernan, J., held that money paid voluntarily under a mistake of law was irrecoverable. Latham, C.J., in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracting it by a minute critical examination of the prior decision......" This passage was quoted with approval by their Lordships of the Privy Council in Norendra Nath Sircar v. Kamal Basini Dasi (1896) I.L.R. 23 Cal. 563, 571. while laying down the proper mode of dealing with an Act enacted to codify a particular branch of the law. The Privy Council adopted a similar reasoning in Mohori Bibee v. Dhurmodas Ghose (1902) L.R. 30 I.A. 114. where they had to interpret section 11 of the Indian Contract Act. They had before them the general current of decisions in India that ever since the passing of the Indian Contract Act the con- tracts of infants were voidable only. There were, however, vigorous protests by various judges from time to time; and there were also decisions to the contrary effect. Under these circumstances, their Lord- ships considered themselves at liberty to act on their own view of the law as declared by the Contract Act, and they had thought it right to have the case re-argued before them upon this point. They did not consider it necessary to examine in detail the numerous decisions above referred to, as in their opinion the "whole question turns upon what is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1919) I.L.R. 44 Bom. 631, 649. and Appavoo Chettiar v. S.I. Ry. Co. A.I.R. 1929 Mad. 177. In reaching those decisions the courts were particularly influenced by the English decisions and also provisions of section 21 of the Indian Contract Act which provides that a contract is not voidable because it was caused by a mistake as to any law in force in British India. On the other hand, the Calcutta High Court had decided in Jagdish Prasad Pannalal v. Produce Exchange Corporation Ltd. A.I.R. 1946 Cal. 245. that the word "mistake" in section 72 of the Indian Contract Act included not only a mistake of fact but also a mistake of law and it was further pointed out that this section did not conflict with section 21 because that section dealt not with a payment made under a mistake of law but a contract caused by a mistake of law, whereas section 72 dealt with a payment which was either not under a contract at all or even if under a contract, it was not a cause of the contract. The Privy Council resolved this conflict in Shiba Prasad Singh v. Maharaja Srish Chandra Nandi (1949) L.R. 76 I.A. 244.. Their Lordships of the Privy Council observed that the authorities which dealt with the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Payment 'by mistake' in section 72 must refer to a payment which was not legally due and which could not have been enforced; the 'mistake' is in thinking that the money paid was due when, in fact, it was not due. There is nothing inconsistent in enacting on the one hand that if parties enter into a contract under mistake in law that contract must stand and is enforceable, but, on the other hand, that if one party acting under mistake of law pays to another party money which is not due by contract or otherwise, that money must be repaid. Moreover, if the argument based on inconsistency with section 21 were valid, a similar argument based on inconsistency with section 22 would be valid and would lead to the conclusion that section 72 does not even apply to mistake of fact. The argument submitted to their Lordships was that section 72 only applies if there is no subsisting contract between the person making the payment and the payee, and that the Indian Contract Act does not deal with the case where there is a subsisting contract but the payment was not due under it. But there appears to their Lordships to be no good reason for so limiting the scope of the Act. Once it is establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... away by it, the respondent was disentitled to recover the said amounts. Here also, we may observe that these contentions were not specifically urged in the High Court or in the statement of case filed by the appellants in this Court; but we heard arguments on the same, as they were necessarily involved in the question whether section 72 of the Indian Contract Act applied to the facts of the present case. Re: (i) The respondent was assessed for the said amounts under the U.P. Sales Tax Act and paid the same; but these payments were in respect of forward transactions in silver. If the State of U.P. was not entitled to receive the sales tax on these transactions, the provision in that behalf being ultra vires, that could not avail the State and the amounts were paid by the respondent, even though they were not due by contract or otherwise. The respondent committed the mistake in thinking that the moneys paid were due when in fact they were not due and that mistake on being established entitled it to recover the same back from the State under section 72 of the Indian Contract Act. It was, however, contended that the payments having been made in discharge of the liability under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of taxes" after the word "paid." If this is the true position the fact that both the parties, viz., the respondent and the appellants, were labouring under a mistake of law and the respondent made the payments voluntarily would not disentitle it from receiving the said amounts. The amounts paid by the respond- ent under the U.P. Sales Tax Act in respect of the forward transactions in silver, had already been deposited by the respondent in advance in accordance with the U.P. Sales Tax Rules and were appropriated by the State of U.P. towards the discharge of the liability for the sales tax on the respective assessment orders having been passed. Both the parties were then labouring under a mistake of law, the legal position as established later on by the decision of the Allahabad High Court in Messrs Budh Prakash Jai Prakash v. Sales Tax Officer, Pilibhit [1952] 3 S.T.C. 185; 1952 A.L.J. 332., subsequently confirmed by this Court in Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash [1955] 1 S.C.R. 243; 5 S.T.C. 193. not having been known to the parties at the relevant dates. This mistake of law became apparent only on May 3, 1954, when this Court confirmed the said decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general rule applies, namely, the rules that, if money is paid voluntarily, without compulsion, extortion, or undue influence, without fraud by the person to whom it is paid and with full knowledge of all the facts, it cannot be recovered, although paid without consideration, or in discharge of a claim which was not due or which might have been successfully resisted. " The principle of estoppel which has been adverted to by the Privy Council in Sri Sri Shiba Prasad v. Srish Chandra Nandi (1949) L.R. 76 I.A. 244. as disentitling the plaintiff to recover the moneys paid under mistake can best be illustrated by the decision of the Appeal Court in England reported in Halt v. Markham [1923] 1 K.B. 504. where it was held that as the defendant had been led by the plaintiffs' conduct to believe that he might treat the money as his own, and in that belief had altered his position by spending it, the plaintiffs were estopped from alleging that it was paid under a mistake; and this brings us to a consideration of point No. 2 above stated. Re: (ii) Whether the principle of estoppel applies or there are circumstances attendant upon the transaction which disentitle the res- pondent to reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared void must refund the advantage which he had got out of the same, their Lordships observed that this argument did not require further notice except by referring to a recent decision of the Court of Appeal in Thurstan v. Nottingham Permanent Benefit Building Society [1902] 1 Ch. 1. since affirmed by the House of Lords, and they quoted with approval the following passage from the judgment of Romer, L.J., at page 13 of the earlier report: "The short answer is that a Court of Equity cannot say that it is equitable to compel a person to pay moneys in respect of a transaction which as against that person the Legislature has declared to be void." That ratio was applied by their Lordships to the facts of the case before them and the contention was negatived. Merely because the State of U.P. had not retained the moneys paid by the respondent but had spent them away in the ordinary course of the business of the State would not make any difference to the position and under the plain terms of section 72 of the Indian Contract Act the respondent would be entitled to recover back the moneys paid by it to the State of U.P. under mistake of law. The result, therefore, is that none ..... 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