1989 (7) TMI 99 - SC - VAT and Sales Tax

Whether, in the application under article 226 of the Constitution, the court should have refused refund on the ground of laches and delay? Held that - In the instant case, though the Madhya Pradesh High Court declared the collection of 71/2 per cent. illegal the Government was still charging it saying that the matter was under consideration of the Government. The final decision of the Government as stated in the letter dated October 17, 1961, was purely an internal communication of the Government, copy whereof was never communicated to the appellants or other liquor contractors. There could, therefore, be no question of the limitation starting from that date. Even with reasonable diligence, as envisaged in section 17(1)(c) of the Limitation Act, the appellants would have taken at least a week to know about it. Mr. Rana has fairly stated that there was nothing on record to show that the appellants knew about this letter on October 17, 1961, itself or within a reasonable time thereafter. We are inclined to allow at least a week to the appellants under the above provision. Again Mr. Rana has not been in a position to show that the statement of the appellants that they knew about the mistake in or about September, 1962, whereafter they issued the notice under section 80 of the Code of Civil Procedure was untrue. This statement has not been shown to be false. Thus knowledge one week after the letter dated October 17, 1961, or in or about September, 1962, the suit would be within the period of limitation under article 113 of the Schedule to the Limitation Act, 1963. In the result, we set aside the judgment of the High Court, allow the appeal and remand the suit.

Issues Involved:
1. Limitation period for filing the suit.
2. Applicability of Section 17(1)(c) of the Limitation Act, 1963.
3. Refund of money paid under a mistake of law.
4. Doctrine of unjust enrichment.
5. Juridical basis of the obligation to refund.
6. Applicability of Section 72 of the Indian Contract Act.

Detailed Analysis:

1. Limitation Period for Filing the Suit:
The primary issue was whether the suit filed by the appellants was barred by limitation. The trial court and the High Court dismissed the suit based on articles 62, 96, and 113 of the Limitation Act, 1963, respectively, holding that the limitation period began from the date the payments were made or the date the Government decided not to charge the extra 7 1/2 percent.

2. Applicability of Section 17(1)(c) of the Limitation Act, 1963:
The appellants contended that the limitation period should start from the date they discovered the mistake, as per Section 17(1)(c) of the Limitation Act, 1963. This section provides that the period of limitation does not begin until the plaintiff has discovered the mistake or could, with reasonable diligence, have discovered it. The court accepted this argument, noting that the appellants could not have known about the Government's decision on October 17, 1961, as it was an internal communication not conveyed to them.

3. Refund of Money Paid Under a Mistake of Law:
The court established that the suit was for the refund of money paid under a mistake of law. The appellants paid the extra 7 1/2 percent believing it was legally required, but subsequent High Court judgments declared the levy illegal. The court cited precedents such as STO v. Kanhaiya Lal Makund Lal Saraf and D. Cawasji and Co. v. State of Mysore, affirming that money paid under a mistake of law is refundable under Section 72 of the Indian Contract Act.

4. Doctrine of Unjust Enrichment:
The court discussed the doctrine of unjust enrichment, which requires that the defendant has been enriched at the plaintiff's expense and that retaining this enrichment would be unjust. The appellants' payment of the extra 7 1/2 percent, which was later declared illegal, constituted unjust enrichment of the Government.

5. Juridical Basis of the Obligation to Refund:
The court referenced various legal theories and cases to explain the juridical basis of the obligation to refund money paid under a mistake of law. It cited Lord Mansfield's explanation in Moses v. Macferlan and the principle of "indebitatus assumpsit" in English common law, which evolved into the modern principle of restitution and quasi-contract.

6. Applicability of Section 72 of the Indian Contract Act:
Section 72 of the Indian Contract Act mandates that a person to whom money is paid by mistake must repay it. The court acknowledged that this section covers payments made under a mistake of law and that the appellants were entitled to a refund. The court also noted that the appellants and the Government were not in pari delicto (equal fault), as the appellants had no choice but to pay the extra amount to secure the contracts.

Conclusion:
The Supreme Court set aside the judgment of the High Court, allowing the appeal and remanding the suit to the trial court for a decision on merits. The court held that the suit was within the limitation period under Article 113 of the Limitation Act, 1963, considering the appellants' discovery of the mistake. The appellants were awarded the costs of the appeal.

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