Specific Relief Act (SRA)
Refund versus Compensation
When a sale falls through, a buyer may recover money in two quite different ways. A refund gives him back the money he himself paid, the earnest or the deposit. Compensation pays him for the loss the breach caused, which may exceed what he paid. One is restitution, the return of what was received; the other is reparation, making good a loss. This note explains each in its own right, compares them, and works through an example, showing how the two are claimed under Sections 22 and 21.
Figure: Refund against compensation, restitution against reparation, and how each is claimed in a specific-performance suit
1. Refund in Its Own Right
A refund is the return of money the plaintiff himself paid, typically the earnest money or the deposit, often with interest. Its basis is restitution: giving back what was received, so that the plaintiff is not left out of pocket for a sale that did not go through. Its measure is simple, the amount actually paid. In a specific-performance suit the buyer may claim it in the alternative under Section 22: if performance is refused, he asks for a refund of his earnest or deposit.
2. Compensation in Its Own Right
Compensation is a sum for the loss the plaintiff suffered from the breach, which may be more than the money he paid. Its basis is reparation: making good the loss, measured on the principles of Section 73 of the Contract Act, the loss naturally arising or in the parties' contemplation. In a specific-performance suit the buyer may claim it, in addition to or instead of performance, under Section 21. He must prove not merely that he paid money, but the fact and quantum of his loss.
3. The Two Compared
Basis | Refund | Compensation (damages) |
|---|---|---|
What it is | The return of money the plaintiff himself paid | A sum for the loss the plaintiff suffered from the breach |
Measure | The amount paid (earnest or deposit), often with interest | The loss naturally arising or in the parties' contemplation (Section 73) |
Basis | Restitution: giving back what was received | Reparation: making good the loss caused |
When it arises | Where performance is refused and the sum must be returned | Where the breach causes a loss beyond the sum paid |
In a specific-performance suit | Claimed in the alternative under Section 22 | Claimed with or instead of performance under Section 21 |
Proof needed | The fact and amount of payment | The fact and quantum of loss |
4. Restitution against Reparation
Getting your money back, or being paid for your loss ▪ Refund is restitution. It gives the plaintiff back the money he paid; its measure is simply the amount paid. ▪ Compensation is reparation. It pays him for the loss the breach caused, on the Section 73 principles, and may exceed the sum paid. ▪ They can combine. A buyer whose sale falls through may claim a refund of his deposit under Section 22 and, separately, compensation for further loss under Section 21. |
5. A Worked Example
Suppose a buyer paid a deposit of five lakh under an agreement to buy a shop, and the seller wrongfully refused to complete, by which time the buyer had also lost a sub-sale to a third party at a profit of three lakh. If the court refuses specific performance, the buyer may claim a refund of his five-lakh deposit under Section 22, restitution of what he paid, with interest. Separately, he may claim compensation under Section 21 for the three-lakh profit he lost on the sub-sale, reparation for the loss the breach caused, provided that loss was within the parties' contemplation. The refund returns his own money; the compensation makes good his further loss, and the two together aim to put him where he would have stood.
6. Frequently Asked Questions
Q. What is the difference between a refund and compensation?
A. A refund returns the money the plaintiff himself paid, as restitution; compensation pays him for the loss the breach caused, as reparation, and may exceed the sum paid.
Q. How is each measured?
A. A refund is measured by the amount paid, often with interest; compensation is measured on the Section 73 principles, the loss naturally arising or in the parties' contemplation.
Q. Under which provisions are they claimed?
A. In a specific-performance suit, a refund of earnest or deposit is claimed in the alternative under Section 22, and compensation with or instead of performance under Section 21.
Q. Can a buyer claim both?
A. Yes. He may claim a refund of his deposit under Section 22 and, separately, compensation for further loss under Section 21.
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