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TMI Blog1962 (2) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... vy of the tax as illegal, and giving him liberty to take the necessary action for its recovery from the Government, if it is not paid otherwise. The respondent demanded the refund of the tax collected from him, but the Government repaid only the principal amount with interest from the date of the judgment (i.e., 25th February, 1954). The suit was therefore laid for recovery of interest on Rs. 7,248-6-2 from the date of collection (26th September, 1949) till the date of judgment (25th February, 1954) at six per cent. per annum. The suit was resisted by the State, contending that the appellant was not entitled to recover interest as there was no wrongful withholding of the amount after it was declared that the levy was illegal, and also on the ground that the claim of the appellant was barred by time. The learned District Munsiff of Eluru held that the present case did not fall within any of the instances in which, according to the decision in Nanchappa Koundan v. Mannadiar[1930] I.L.R. 53 Mad. 549., interest could be awarded either at law or in equity, and accordingly dismissed the suit, although held that the suit was in time. On appeal (A.S. No. 32 of 1956) preferred to the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: "144. (1) Where and in so far as a decree or an order is varied or reversed, the Court of first instance shall, on the application of any party entitled to any benefit by way of restitution or otherwise, cause such restitution to be made as will, so far as may be, place the parties in the position which they would have occupied but for such decree or order or such part thereof as has been varied or reversed; and for this purpose, the Court may make any orders including orders for the refund of costs and for the payment of interest, damages, compensation and mesne profits, which are properly consequential on such variation or reversal. (2) No suit shall be instituted for the purpose of obtaining any restitution or other relief which could be obtained by application under sub-section (1)." The doctrine of restitution is based on the principle that the law raises an obligation on the party who received the benefit of the erroneous judgment to make restitution to the other party for what he had lost, and it is the duty of the Courts to enforce this obligation, unless it is shown that restitution would be clearly contrary to the real justice of the case. This section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "In equity interest may be recovered in certain cases where a particular relationship exists between the creditor and the debtor, such as mortgagor and mortgagee; obligor and obligee on a bond; personal representative and beneficiary; principal and surety; vendor and purchaser; principal and agent; solicitor and client; trustee and cestui que trust; or where the debtor is in a fiduciary position to the creditor. Interest is also allowed on pecuniary legacies not paid within a certain time; on the dissolution of a partnership, on the arrears of an annuity where there has been misconduct or improper delay in payment; or in the case of money obtained or retained by fraud. It may also be allowed where the defendant ought to have done something which would have entitled the plaintiff to interest at common law, or has wrongfully prevented the plaintiff from doing something which would have so entitled him." In the next parapraph entitled "interest under statute", it is stated as follows: "A right to interest is conferred by statute in many cases, as for example, in the administration of bankrupt estates, and in the liquidation of companies; and, by statute, the court has now the gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct were anxious that the right of interest, if any, otherwise possessed, should not be interfered with by that enactment, and inserted the proviso to the Act that interest shall be payable "in all cases in which it is now payable by law." The interest Act was not exhaustive on the subject. Referring to the decision in The London, Chatham and Dover Railway Company v. The South Eastern Railway Company[1893] A.C. 429., it was observed that: "The noble Lords who took part in the discussion, especially Lord Herschell, point out that there has been a course of decisions in England which tied the hands of Courts from awarding interest on equitable grounds; and they regretted that they were obliged on the principle of stare decisis to decline to reopen the question. There is no such course of decisions in this country. On the other hand, the Privy Council held very early that on principles of equity, justice and good conscience which are specially referred to in the Civil Courts Act, the Courts in India are at liberty to award interest in cases not coming within the purview of the Interest Act. The Indian Courts have followed this rule for a long time. The Courts in this country therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered, and Venkatasubba Rao, J., held that those cases gave effect to definite and well-recognised rules of equity and were never treated as authorities in English Courts for their position that interest can be allowed on a debt on what are termed the general equitable grounds. Adverting to section 73, illustration (n), the learned Judge observed: "If the English rule as to damages has not had the effect of superseding Lord Tenterden's Act in regard to interest on debts, why should it be assumed that section 73 of the Contract Act has produced just the contrary result? I am not prepared to hold that the Legislature, by adding illustration (n) to section 73, intended to depart from the law which must be treated as having been settled beyond doubt." Madhavan Nair, J., summed up the effect of the decision in The London, Chatham and Dover Railway Company v. The South Eastern Railway Company[1893] A.C. 429. The learned Judge referred to the case in which interest is payable by the rules of equity and observed that unless a claim for interest on debts fell within any of the above four cases in which interest could be awarded at common law, or the three cases in which according to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Bengal Nagpur Railway Company Limited v. Ratanji Ramji I.L.R. [1938] 2 Cal. 72 (P.C.)., a contractor entered into a contract with the railway company to execute certain works at scheduled rates. As the rates were found to be inadequate, they were abandoned by mutual consent, but the works were continued and completed. In a suit by the contractor against the railway company for payment at fair rates with interest on the amount due to him from the date of the completion of the work till the date of the claim, it was held that the contractor was not entitled to interest on the money due for the period prior to the date of suit, but should have interest at six per cent. per annum on the amount awarded from the date of the plaint till decree, and further interest from the date of decree till payment, relying on section 34 of the Code of Civil Procedure. Adverting to the question whether interest could be awarded prior to the date of the plaint, Sir Shadi Lal, who delivered the judgment on behalf of the Board, summed up the position at page 77 thus: "The crucial question, however, is whether the Court has authority to allow interest for the period prior to the institution of the suit; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen he is not entitled to such interest under any provision of the law. Nor can an illustration have the effect of modifying the language of the section which alone forms the enactment. The learned Judge, referring to the decision of the Privy Council in Jamal v. Moolla Dawood Sons Co. [1915] I.L.R. 43 Cal. 493., and of the House of Lords in London, Chatham and Dover Railway Company v. South Eastern Railway Company[1893] A.C. 429. observed that section 73 is merely declaratory of the common law as to damages and that interest cannot be allowed at common law by way of damages for wrongful detention of debt, and that where the plaintiff is not entitled to interest at law, interest can be awarded only if it attracted the equitable jurisdiction of the Court. The law has been amended in England by section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934, empowering a Court of record to award interest on the whole or any part of any debt or damages, at such rate as it thinks fit, for the whole or any part of the period between the date when the cause of action arises and the date of the judgment. But there has been no such amendment of the law in India. In this view, interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but for section 34, even a Court would not have the power to give interest after the date of the suit. It may be noted that in Nachiappa Chettiar v. Subramaniam Chettiar[1960] 2 S.C.R. 209; A.I.R. 1960 S.C. 307., the Supreme Court referred to the decisions in Seth Thawardas Pherumal v. Union of India[1955] 2 S.C.R. 48. , and observed that the observation of Justice Bose, that section 34 of the Civil Procedure Code could not be relied on by an arbitrator as he is not a "Court" within the meaning of the Civil Procedure Code was open to doubt whether they were intended to lay down a broad and unqualified proposition that in no case can the arbitrator award interest. But that question was not finally allowed to be raised, much less decided. In the recent decision of the Supreme Court in Satinder Singh v. Umrao Singh A.I.R. 1961 S.C. 908., Gajendragadkar, J., on behalf of the Court, referred to the decisions in Seth Thawardas Pherumal v. Union of India[1955] 2 S.C.R. 48. and Nachiappa Chettiar v. Subramaniam Chettiar[1960] 2 S.C.R. 209; A.I.R. 1960 S.C. 307., and referring to Interest Act, XXXII of 1839, observed thus: "Section 2 (sic) of the Interest Act, 1839, confers power on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed him to collect the land revenue. There was no notice in writing given by the respondents-appellants that interest would be demanded in default of payment of the amount paid by them. It was held, following the decision of the Privy Council in Bengal Nagpur Railway Company Limited v. Ratanji Ramji(1), that the respondent was not entitled to interest in respect of the amount due towards land revenue, because the case did not fall within the proviso to section 1 of the Interest Act. The learned Judges also laid down that the proviso to the Interest Act leaves it open to the Court to award interest where a Court of equity would recognise the claim, i.e., not on general equitable grounds or consideration. The decision in Abdul Saffur Rowther v. Hamida Bivi Ammal[1919] I.L.R. 42 Mad. 661. cannot, therefore, be considered as good law. The conclusion therein could, however, be supported as in that case the jurisdiction of the equity Courts would be attracted. Another decision which may be referred to here is The Municipal Borough of Ahmedabad v. Vadilal DalsukhramI.L.R. 1944 Bom. 134. In that case, a bill was issued to a ratepayer by the Ahmedabad Municipality claiming certain rates in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The contrary view, that is, that interest on tax refunds, at least before judgment, cannot be allowed without statutory authority, has been frequently taken in cases refusing, upon that ground, to allow any interest. Some of these cases rest the decision on the general principle that interest is not to be awarded against a sovereign Government unless its consent to pay interest has been manifested by an Act of its Legislature or by lawful contract. Others, however, apparently place the decision upon the ground that the statute providing for tax refunds, by not including the right to interest, impliedly excludes it; and such cases are not necessary authority against the right to interest, where the right to refund has not been made the subject of statute, but depends upon common law principles with respect to payments made involuntarily and under duress. Manifestly, interest will not be allowed where the allowance would be against public policy, as where the general legislative intent opposes such allowance. In the absence of an express statutory provision as to interest, a taxpayer cannot maintain an independent action for interest alone after he has already received and accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal was filed and to any other authority concerned. (2) The order passed on appeal or revision shall be given effect to by the licensing or assessing authority who shall refund any excess tax or fee found to have been collected, and shall also have power to collect any additional tax or fee which is found to be due, in the same manner as a tax or fee assessed by himself." This rule, therefore, empowers only the refund of any excess tax collected, even where the refund has become necessary by reason of an order passed by the appellant or revising authority. As per the amendments made by the Madras General Sales Tax (Amendment) Act, VI of 1951, it was provided by the second proviso to section 12-A(5) as follows: "Provided further that if as a result of the appeal any change becomes necessary in such assessment, the Appellate Tribunal may authorise the assessing authority to amend the assessment, and on such amendment being made, the amount overpaid by the assessee shall be refunded to him without interest, or the further amount of tax due from him shall be collected in accordance with the provisions of this Act, as the case may be." A similar provision is also to be found i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Interest Act in the light of the foregoing discussion. Further, it may be noted that the claim made in the Privy Council case is for interest due by way of quantum meruit on an obligation resembling that created by contract. Section 73 of the Indian Contract Act enacts that when an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. It would thus be seen that whatever might have been the basis, whether legal or equitable, in an action for money had and received the principles are now embodied in the Indian Contract Act in Chapter V entitled "Of Certain Relations Resembling Those Created by Contract", and even in such cases section 73 lays down that the principles applicable to damages for breach of contract should apply. It has already been noticed how interest cannot be awarded as damages under section 73 of the Indian Contract Act in cases in which interest otherwise cannot be awarded. Further, as pointed out in the Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced on either side relating to the question whether the Government can be made liable vicariously for the tortious act of its subordinates need not be considered, as I am of the opinion, following the decision of the Bombay High Court in Municipal Borough of Ahmedabad v. Vadilal Dalsukhram(1), that the conduct of the Sales Tax Department in collecting the tax is not a tort. The learned District Judge has not rightly understood the scope of the Privy Council decision, and did not realise that it is opposed to the principle laid down in Abdul Saffur Rowther v. Hamida Bivi Ammal(2). He was clearly in error in thinking that Nanchappa Koundan v. Mannadiar(3) laid down that interest would be awarded on equitable considerations, independent of Interest Act and Contract Act, and that the present case is one in which such considerations exist. I have pointed out in some detail how that is not the view of the Madras High Court in Nanchappa Koundan v. Mannadiar(3), nor is it the view of the Privy Council in Bengal Nagpur Railway Company Limited v. Ratanji Ramji(4) nor of the Supreme Court. His reasoning that section 144 of the Civil Procedure Code enabled interest to be awarded is equally ..... X X X X Extracts X X X X X X X X Extracts X X X X
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