Restitution in Indian Contract Law: The Statutory Routes under Sections 64, 65, 70 and 72, Restitution After Frustration, and Restitution Compared with Compensation, Damages and Quantum Meruit

Restitution is scattered across the Act rather than collected in one place, and a claimant's first task is to identify which provision fits his facts. Four do most of the work. Section 64 governs restoration when a voidable contract is rescinded. Section 65 governs an agreement discovered to be void or a contract that becomes void, and is the sole route to adjustment on frustration. Section 70 governs work done or things delivered without a contract. Section 72 governs money paid by mistake or under coercion. This topic maps the four against each other, sets out what each requires and what it yields, and then distinguishes restitution from the neighbouring remedies it is most often confused with.

1. The Principle

The organising idea is unjust enrichment, and the Supreme Court stated its three requisites in Mahabir Kishore v. State of Madhya Pradesh, (1989) 4 SCC 1: the defendant has been enriched by the receipt of a benefit; the enrichment is at the expense of the plaintiff; and the retention of the enrichment is unjust. The third element is not an appeal to general fairness but requires a recognised ground, such as mistake, compulsion, total failure of consideration, or the ineffectiveness of the transaction under which the benefit was conferred.

2. The Four Statutory Routes

2.1 Sections 64 and 65

1. Section 64 presupposes a valid contract which was voidable and has been avoided. The obligation falls on the party rescinding, and the other party is relieved from performing any promise in which he is promisor.
2. Section 65 covers two limbs: an agreement void from the outset whose invalidity is discovered later, and a contract valid when made which afterwards becomes void.
3. The word discovered carries a condition. Kuju Collieries Ltd. v. Jharkhand Mines Ltd., (1974) 2 SCC 533 holds that Section 65 does not assist a party who knew, or must be taken to have known, when he made the agreement that it was void or unlawful.
4. Neither section reaches a minor's agreement, both presupposing parties competent to contract, per Mohori Bibee v. Dharmodas Ghose. Relief there lies under Section 33 of the Specific Relief Act, 1963, and is confined to the benefit actually retained.
5. Section 66 governs communication of a rescission under Section 64, applying the rules on proposals.

2.2 Sections 70 and 72

• Section 70 requires three things: a lawful act done for another, no intention to act gratuitously, and enjoyment of the benefit. The third is the demanding one, and requires that the recipient had a real option to accept or reject, as State of West Bengal v. B. K. Mondal & Sons, AIR 1962 SC 779 and Falcke v. Scottish Imperial Insurance Co., (1886) 34 Ch D 234 show from opposite directions.
• Section 70 is the route against the Government where a contract is void for non-compliance with Article 299, precisely because it imposes a statutory obligation and not a contract.
• Section 72 requires no acceptance at all. The receipt of the money is itself the benefit.
• Mistake in Section 72 includes a mistake of law, per Shiba Prasad Singh v. Maharaja Srish Chandra Nandi, (1949) 76 IA 244 and Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf, AIR 1959 SC 135.
• Coercion in Section 72 bears its general meaning and is not controlled by Section 15, per Kanhaya Lal v. National Bank of India Ltd., (1913) 40 IA 56.

3. Restitution After Frustration

India has no statute corresponding to the English legislation on frustrated contracts, and adjustment is worked out under Section 65 alone. The consequences are worth stating precisely, because they differ from the English position.

1. The contract becomes void when performance becomes impossible or unlawful, under the second paragraph of Section 56, and Section 65 is engaged by the words a contract becomes void.
2. An advance paid is recoverable, the payer having conferred a benefit which the recipient cannot conscionably keep.
3. Expenditure incurred is not recoverable, because Section 65 reaches an advantage received and not money spent. A party who has spent heavily in preparation and conferred nothing on the other side bears the loss.
4. Partial performance conferring a real benefit is recoverable as compensation for the advantage received.
5. Rights accrued before the frustrating event are not disturbed, an instalment that fell due before remaining payable.
6. Where a force majeure clause governs the event, Section 56 is not engaged at all, the contract being contingent under Section 32, and the clause determines the financial consequences.

4. Restitution Outside the Contract Act

• Article 265 of the Constitution, under which no tax may be levied or collected except by authority of law, read with Section 72. The position for indirect taxes is qualified by Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536, which requires the statutory machinery to be followed and applies the passing-on defence.
• Section 144 of the Code of Civil Procedure, 1908, requiring restitution on the reversal or variation of a decree.
• Section 33 of the Specific Relief Act, 1963, permitting the court to require restoration where a defendant successfully pleads incompetence.
• Tracing and the constructive trust, by which a claimant follows his property or its product into a recipient's hands, subject to the bona fide purchaser defence.
• Subrogation, as with a surety under Section 140 or an insurer on payment.
• Restitution for wrongs, where the claimant waives the tort and claims the wrongdoer's gain rather than his own loss, which the Supreme Court applied in Indian Council for Enviro-Legal Action v. Union of India, (2011) 8 SCC 161.

Six questions, each pointing to a different statutory route

5. Restitution Compared

5.1 Restitution and quantum meruit

Quantum meruit is not an alternative to restitution but one of its measures: a claim for a reasonable sum for work done or services rendered where no contract price governs. The relationship is between a principle and the form a claim takes under it.

6. Choosing the Right Route

1. Was there a contract, and what became of it? A valid contract excludes restitution altogether as to the ground it covers; a voidable contract rescinded points to Section 64; a void or frustrated one to Section 65.
2. Was the benefit money? If so, and it was paid by mistake or under compulsion, Section 72 is the widest route and requires no acceptance.
3. Was the benefit work or services? Section 70 applies, but only if the recipient enjoyed the benefit with a real option to decline.
4. Did the claimant know of the invalidity? If he did, Kuju Collieries bars Sections 65, 70 and 72.
5. Is the defendant the State? Section 70 survives Article 299, and Article 265 with Section 72 governs unauthorised exactions, subject to Mafatlal.
6. Is there a defence? Change of position, payment under a compromise, payment with knowledge, passing on, laches and limitation must each be considered.

7. The Position Stated Shortly

1. Unjust enrichment requires enrichment of the defendant, at the claimant's expense, which it would be unjust to retain, per Mahabir Kishore.
2. Restitution is measured by the defendant's gain, which is why wasted expenditure is irrecoverable under Section 65.
3. Section 64 applies on rescission of a voidable contract and binds the party rescinding; Section 65 applies to void contracts and binds anyone who received an advantage.
4. Kuju Collieries: Section 65 does not assist a party who knew the transaction was void or unlawful.
5. Neither Section 64 nor Section 65 reaches a minor's agreement; Section 33 of the Specific Relief Act, 1963 is the route there.
6. Section 70 requires a lawful non-gratuitous act and enjoyment of the benefit with a real option to decline, and is the route against the Government under Article 299.
7. Section 72 requires no acceptance, and mistake there includes a mistake of law while coercion bears its general meaning.
8. Section 65 is the sole route to adjustment on frustration in India, and it reaches an advantage received rather than expenditure incurred.
9. Bhailal Bhai: money exacted without authority of law is recoverable, and a writ court may order a refund, subject to laches.
10. Restitution also operates through Section 144 of the Code of Civil Procedure, 1908, Section 33 of the Specific Relief Act, 1963, tracing, subrogation and restitution for wrongs.
11. Quantum meruit is not an alternative to restitution but one of its measures, for work and services where no contract price governs.

8. Related Topics and Provisions