Restitution, doctrine of

AIR 1996 SC 1204

Para 12: In the case of Binayak Swain V/s. Ramesh Chandra Panigrahi, (AIR 1966 SC 948) this Court considered a case where in execution of an ex parte decree the property of the judgment-debtor was purchased by the decree-holder. The decree was set aside in appeal and the case remanded for fresh disposal. This Court said that the judgment-debtor was entitled to restitution even though ultimately after fresh disposal a decree was passed in favour of the decree-holder. It said that the principle of the doctrine of restitution is that on the reversal of a decree the law imposes an obligation on the party to the suit who received the benefit of the erroneous decree to make restitution to the other party for what he has lost. This obligation arises automatically on the reversal or modification of the decree and necessarily carries with it the right to restitution of all that has been done under the erroneous decree; and the Court in making restitution is bound to restore the parties so far as they can be restored to the same position they were in at the time when the Court by its erroneous action had displaced them.

1996 (1) SCC 597

Para 14: Mr Poti has also referred to another decision of the Privy council in L. Guran Ditto V/s. T.R. Ditta. In that case also, the decision in Rodger case was referred to and it has been held by the Privy council that the duty of the court when awarding restitution under Section 144 of the Code of Civil Procedure is imperative.

The court shall place the applicant in the position in which he would have been if the order had not been made and for this purpose the court is armed with powers. The Privy council has also indicated that the .expression 'may' should not be understood as discretionary but it only points out that the court is empowered to grant mesne profits, interest and so forth. The Privy council has also held that the restitution ordinarily involves interest also and the court can grant the same.

Para 15: Mr Poti has also referred to a full bench decision of the Madras High court in Pappu Reddiar V/s. P.S.V. Rm. Ramanatha Iyer. The Madras High court has held that the restitution conceived in the light of doing justice between the parties will necessarily have to depend on the circumstances of each case and cannot be reduced to the form of inflexible rule that the courts should have regard only to the detriments suffered by one party and not to the position of the other. The granting of restitution under Section 144 of the Civil Procedure Code should be consistent with justice to both the parties. Where a sum of money is deposited in court to answer a decree but a restriction is placed to the unconditional withdrawal of the same in terms of the decree by reason of which decree-holder is either unable or unwilling to obtain the use of the money, it cannot be taken as invariable rule in such a case that the decree-holder should pay interest on the amount lying in court on the reversal of the trial court's decree in appeal.

Para 19: In this connection, Mr Dholakia has referred to a decision of Calcutta High court in Surendra Lal Chowdhury V/s. Sultan Ahmed. In the said decision, the High court has held that where the wrongdoers have not been shown to have cultivated the lands but settled the lands with tenants, mesne profits can only be calculated on the basis of rental value of the land. In assessing what a party has lost on account of dispossession, the law takes into account not what he could have made but what his opponent did in fact make or could with reasonable diligence have made.

Para 24:  There is no manner of doubt it is an imperative duty of the court to ensure that the party to the lis does not suffer any unmerited hardship on account of an order passed by the court. The principle of restitution as enunciated by the Privy council in Rodger case has been followed by the Privy council in later decisions and such principle being in conformity to justice and fair play be followed. It should, however, be noted that in an action by way of restitution, no inflexible rule can be laid down. It will be the endeavour of the court to ensure that a party who had suffered on account of decision of the court, since finally reversed, should be put back to the position, as far as practicable, in which he would have been if the decision of the court adversely affecting him had not been passed. In giving full and complete relief in an action for restitution, the court has not only power but also a duty to order for mesne profits, damages, costs, interest etc. as may deem expedient and fair conforming to justice to be done in the facts of the case. But in giving such relief, the court should not be oblivious of any unmerited hardship to be suffered by the party against whom action by way of restitution is taken. In deciding appropriate action by way of restitution, the court should take a pragmatic view and frame relief in such a manner as may be reasonable, fair and practicable and does not bring about unmerited hardship to either of the parties.

2011 (8) SCC 161

Para 176: The above principle has been accepted in India. This Court in several cases has applied the doctrine of unjust enrichment. RESTITUTION AND COMPOUND INTEREST

Para 177: American Jurisprudence 2d. Volume 66 Am Jur 2d defined Restitution as follows:

"The word `restitution' was used in the earlier common law to denote the return or restoration of a specific thing or condition. In modern legal usage, its meaning has frequently been extended to include not only the restoration or giving back of something to its rightful owner, but also compensation, reimbursement, indemnification, or reparation for benefits derived from, or for loss or injury caused to, another. As a general principle, the obligation to do justice rests upon all persons, natural and artificial; if one obtains the money or property of others without authority, the law, independently of express contract, will compel restitution or compensation."

Para 178: While Section (') 3 (Unjust Enrichment) reads as under:

"The phrase "unjust enrichment" is used in law to characterize the result or effect of a failure to make restitution of, or for, property or benefits received under such circumstances as to give rise to a legal or equitable obligation to account therefor. It is a general principle, underlying various legal doctrines and remedies, that one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution of or for property or benefits received, retained, or appropriated, where it is just and equitable that such restitution be made, and where such action involves no violation or frustration of law or opposition to public policy, either directly or indirectly."

Para 179: Unjust enrichment is basic to the subject of restitution, and is indeed approached as a fundamental principle thereof. They are usually linked together, and restitution is frequently based upon the theory of unjust enrichment. However, although unjust enrichment is often referred to or regarded as a ground for restitution, it is perhaps more accurate to regard it as a prerequisite, for usually there can be no restitution without unjust enrichment. It is defined as the unjust retention of a benefit to the loss of another or the retention of money or property of another against the fundamental principles of justice or equity and good conscience. A person is enriched if he has received a benefit, and he is unjustly enriched if retention of the benefit would be unjust. Unjust enrichment of a person occurs when he has and retains money or benefits which in justice and equity belong to another.

Para 180: While the term `restitution' was considered by the Supreme Court in South-Eastern Coalfields 2003 (8) SCC 648 and other cases excerpted later, the term `unjust enrichment' came to be considered in Sahakari Khand Udyog Mandal Ltd vs Commissioner of Central Excise & Customs ((2005) 3 SCC 738).

Para 181: This Court said:

"`Unjust enrichment' means retention of a benefit by a person that is unjust or inequitable. `Unjust enrichment' occurs when a person retains money or benefits which in justice, equity and good conscience, belong to someone else."

Para 182: The terms `unjust enrichment' and `restitution' are like the two shades of green - one leaning towards yellow and the other towards blue. With restitution, so long as the deprivation of the other has not been fully compensated for, injustice to that extent remains. Which label is appropriate under which circumstances would depend on the facts of the particular case before the court. The courts have wide powers to grant restitution, and more so where it relates to misuse or non-compliance with court orders.

AIR 2003 SC 4482

Para 21: We may refer to the decision of this Court in Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa & Ors. v. N.C. Budharaj (Deceased) by Lrs. & Ors., wherein the controversy relating to the power of an arbitrator (under the Arbitration Act 1940) to award interest for pre-reference period has been settled at rest by the constitution bench. The majority speaking through Doraiswamy Raju, J., has opined that the basic proposition of law that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation by whatever name it may be called, viz., interest, compensation or damages and this proposition is unmistakable and valid; the efficacy and binding nature of such law cannot be either diminished or whittled down. It was held that in the absence of anything in the arbitration agreement, excluding the jurisdiction of the arbitrator to award interest on the amount due under the contract, and in the absence of any other prohibition, the arbitrator can award interest.

Para 25: In our opinion, the principle of restitution takes care of this submission. The word 'restitution' in its etymological sense means restoring to a party on the modification, variation or reversal of a decree or order, what has been lost to him in execution of decree or order of the court or in direct consequence of a decree or order (See : Zafar Khan & Ors. V/s. Board of Revenue, U.P., & Ors.). In law, the term 'restitution' is used in three senses: (i) return or restoration of some specific thing to its rightful owner or status; (ii) compensation for benefits derived from a wrong done to another; (iii) compensation or reparation for the loss caused to another. (See Black's Law Dictionary, Seventh Edition, p. 1315). The Law of Contracts by John D. Calamari & Joseph M. Perillo has been quoted by Black to say that "'restitution' is an ambiguous term, sometimes referring to the disgorging of something which has been taken and at times referring to compensation for injury done.

"Often, the result in either meaning of the term would be the same. ........................ Unjust impoverishment as well as unjust enrichment is a ground for restitution. If the defendant is guilty of a non-tortuous misrepresentation, the measure of recovery is not rigid but, as in other cases of restitution, such factors as relative fault, the agreed upon risks, and the fairness of alternative risk allocations not agreed upon and not attributable to the fault of either party need to be weighed."

The principle of restitution has been statutorily recognized in section 144 of the Code of Civil Procedure, 1908. Section 144 of the Code of Civil Procedure speaks not only of a decree being varied, reversed, set aside or modified but also includes an order on par with a decree. The scope of the provision is wide enough so as to include therein almost all the kinds of variation, reversal, setting aside or modification of a decree or order. The interim order passed by the court merges into a final decision. The validity of an interim order, passed in favour of a party, stands reversed in the event of final decision going against the party successful at the interim stage. Unless otherwise ordered by the court, the successful party at the end would be justified with all expediency in demanding compensation and being placed in the same situation in which it would have been if the interim order would not have been passed against it. The successful party can demand (a) the delivery of benefit earned by the opposite party under the interim order of the court, or (b) to make restitution for what it has lost; and it is the duty of the court to do so unless it feels that in the facts and on the circumstances of the case, the restitution would far from meeting the ends of justice, would rather defeat the same. Undoing the effect of an interim order by resorting to principles of restitution is an obligation of the party, who has gained by the interim order of the court, so as to wipe out the effect of the interim order passed which, in view of the reasoning adopted by the court at the stage of final decision, the court earlier would not or ought not to have passed. There is nothing wrong in an effort being made to restore the parties to the same position in which they would have been if the interim order would not have existed.

Para 26: Section 144 of the Code of Civil Procedure is not the fountain source of restitution; it is rather a statutory recognition of a pre-existing rule of justice, equity and fair play. That is why it is often held that even away from section 144 the court has inherent jurisdiction to order restitution so as to do complete justice between the parties. In Jai Berham v. Kedar Nath Marwari, their Lordships of the Privy Council said: "It is the duty of the court under section 144 of the Civil Procedure Code to place the parties in the position which they would have occupied but for such decree or such part thereof as has been varied or reversed. Nor indeed does this duty or jurisdiction arise merely under the said section. It is inherent in the general jurisdiction of the court to act rightly and fairly according to the circumstances towards all parties involved." Cairns, L.C., said in Rodger V/s. Comptoird 'Escomptede Paris:

"One of the first and highest duties of all courts is to take care that the act of the court does no injury to any of the suitors and when the expression, the act of the court is used, it does not mean merely the act of the primary court, or of any intermediate court of appeal, but the act of the court as a whole from the lowest court which entertains jurisdiction over the matter up to the highest court which finally disposes of the case".

This is also on the principle that a wrong order should not be perpetuated by keeping it alive and respecting it, A.A. Nadar V/s. S.P. Rathinasami. In the exercise of such inherent power the courts have applied the principles of restitution to myriad situations not strictly falling within the terms of section 144.

Para 27: That no one shall suffer by an act of the court is not a rule confined to an erroneous act of the court; the 'act of the court' embraces within its sweep all such acts as to which the court may form an opinion in any legal proceedings that the court would not have so acted had it been correctly apprised of the facts and the law. The factor attracting applicability of restitution is not the act of the court being wrongful or a mistake or error committed by the court; the test is whether on account of an act of the party persuading the court to pass an order held at the end as not sustainable, has resulted in one party gaining an advantage which it would not have otherwise earned, or the other party has suffered an impoverishment which it would not have suffered but for the order of the court and the act of such party. The quantum of restitution, depending on the facts and circumstances of a given case, may take into consideration not only what the party excluded would have made but also what the party under obligation has or might reasonably have made. There is nothing wrong in the parties demanding being placed in the same position in which they would have been had the court not intervened by its interim order when at the end of the proceedings the court pronounces its judicial verdict which does not match with and countenance its own interim verdict. Whenever called upon to adjudicate, the court would act in conjunction with what is the real and substantial justice. The injury, if any, caused by the act of the court shall be undone and the gain which the party would have earned unless it was interdicted by the order of the court would be restored to or conferred on the party by suitably commanding the party liable to do so. Any opinion to the contrary would lead to unjust if not disastrous consequences.

Litigation may turn into a fruitful industry. Though litigation is not gambling yet there is an element of chance in every litigation. Unscrupulous litigants may feel encouraged to approach the courts, persuading the court to pass interlocutory orders favourable to them by making out a prima facie case when the issues are yet to be heard and determined on merits and if the concept of restitution is excluded from application to interim orders, then the litigant would stand to gain by swallowing the benefits yielding out of the interim order even though the battle has been lost at the end. This cannot be countenanced. We are, therefore, of the opinion that the successful party finally held entitled to a relief assessable in terms of money at the end of the litigation is entitled to be compensated by award of interest at a suitable reasonable rate for the period for which the interim order of the court withholding the release or money had remained in operation. tracked, the interest is often a normal relief given in restitution. Such interest is not controlled by the provisions of the Interest Act of 1839 or 1978.

AIR 1966 SC 948

Para 4: The question presented for determination in this case is whether the appellant was entitled to restitution of his properties purchased by decree-holder in execution of the decree passed by the District Judge on the ground that the decree was set aside by the High Court and the suit was remanded for re-hearing and fresh disposal under the provisions of sec. 144 of the Civil Procedure Code which states as follows :

"144.(1) Where and in so far as a decree or 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 such part thereof as has been varied on 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."

On behalf of the respondents Mr. Aggarwala made the submission that after the suit was re-heard a decree was passed in favour of the respondents and that decree was eventually affirmed by the High Court and the appellant was, therefore, not entitled to restitution under the provisions of this section. We are unable to accept this argument as correct. The properties of the appellant were sold in execution at the instance of the respondents who were executing the ex parte decree passed by the District Judge on 9.03.1943 In this execution case, the properties of the appellant were sold and the respondents got delivery of possession on 17.05.1946. It is true that the suit was eventually decreed after remand on 27.08.1954 by Judgement of the High Court, but we are unable to accept the argument of the respondents that the execution sale held under the previous ex parte decree which was set aside by the High Court, is validated by the passing of the subsequent decree and therefore the appellant is not entitled to any restitution. It is evident that the application for restitution was filed by the appellant in 1947 in Miscellaneous Judicial Case No. 34 of 1947 before the passing of a fresh decree by the High Court in the Second Appeal. At the time of the application for restitution there- fore the appellant was entitled to restitution, because on that date the decree in execution of which the properties were sold had been set aside. We are of the opinion that the appellant is entitled to restitution notwithstanding anything which happened subsequently as the right to claim restitution is based upon the existence or otherwise of a decree in favour of the plaintiff at the time when the application for restitution was made. The principle of the doctrine of restitution is that on the reversal of a decree, the law imposes an obligation on the party to the suit who received the benefit of the erroneous decree to make restitution to the other party for what he has lost. This obligation arises automatically on the reversal or modification of the decree and necessarily carries with it the right to restitution of all that has been done under the erroneous decree and the Court in making restitution is bound to restore the parties, so far as they can be restored, to the same position they were in that time when the Court by its erroneous action had displaced them from. It should be noticed, in the present case, that the properties were purchased by the decree holder himself in execution of the ex parte decree and not by a stranger auction - purchaser. After the ex parte decree was set aside in appeal and after a fresh decree was passed on remand, the sale held in execution of the ex parte decree becomes invalid and the decree-holder who purchased the properties in execution of the invalid decree is bound to restore to the Judgement - debtor what he had gained under the decree which was subsequently set aside. The view that we have expressed is borne out by the decision of the Judicial Committee in Zain-Ul-Abdin Khan V/s. Muhammad Asghar Ali Khan, ( 1888 ) ILR 10 All 166 (PC) in which a suit was brought by the judgment-debtor to set aside the sale of his property in execution of the decree against him in force at the time of the sales, but afterwards so modified, as the result of an appeal to Her Majesty in Council, that, as it finally stood, it would have been satisfied without the sales in question having taken place. The judgment-debtor sued both those who were purchasers at some of the sales, being also holders of decree to satisfy which the sales took place and those who were bona fide purchasers at other sales under the same decree, who were no parties to it. The Judicial Committee held that as against the latter purchasers, whose position was different from that of the decree-holding purchasers, the suit must be dismissed. 172 of the of the Report, Sir B. Peacock observed as follows : "It appears to their Lordships that there is a great distinction between the decree holders who came in and purchased under their own decree, which was afterwards reversed on appeal, and the bona fide purchasers who came in and bought at the sale in execution of the decree to which they were no parties and at a time when that decree was a valid decree, and when the order for the sale was a valid order."

The same principle has been laid down by the Calcutta High Court in Set Umedmal V/s. Srinath Ray, (1900) ILR 27 Cal 810 where certain immovable properties were sold in execution of an ex parte decree and were purchased by the decree-holder himself. After the confirmation of the sale, the decree was set aside u/s. 108 of the Civil Procedure Code, 1882 at the instance of some of the defendants in the original suit. On an application u/s. 224 of the Civil Procedure Code, 1882 having been made by a prior purchaser of the said properties in execution of another decree, to set aside the sale held in execution of the ex parte decree the defence was that the application could not come u/s. 244 of the Civil Procedure Code, 1882 and that the sale could not be set aside, as it had been confirmed. It, was held by the Calcutta High Court that the ex parte decree having been set aside the sale could not stand, inasmuch as the decree holder himself was the purchaser. Maclean, C. J. stated : "As regards the second point viz., whether, notwithstanding the confirmation, the sale ought to be set aside the fact that the decree-holder is himself the auction purchaser is an element of considerable importance. The distinction between the case of the decree-holder and of the third party being the auction purchaser is pointed out by their Lordships of the Judicial Committee in the case of (1888) ILR 10 All 166 (PC) and also in the case of Mina Kumari Bibee V/s. Jagat Sattani Bibee, (1884) ILR 10 Cal 220, which is a clear authority for the proposition that where the decree-holder is himself the auction-purchaser, the sale cannot stand, if the decree be subsequently set aside. I am not aware that this decision, which was given in 1883 has since been impugned".

The same view has been expressed in Raghu Nandan Singh V/s. Jagdis Singh (1910)14 Cal WN 182 where it was held that if an ex parte decree has been set aside, it cannot by any subsequent proceeding be revived and if a decree is passed against judgment-debtors on re-hearing, it is a new decree and does not revive the former decree. The same opinion has been expressed in Abdul Rahman V/s. Sarafat Ali 20 Cal WN 667 (AIR 1916 Cal 710) in which it was pointed out that as soon as an ex parte decree was set aside, the sale, where the decree-holder was the purchaser, falls through and was not validated by a fresh decree subsequently made. The same principle was reiterated by the Bombay High Court in Shivbai V/s. Yesoo, ILR 43 Bom. 235 . In that case, an ex parte decree was passed against the defendant, in execution of which the defendant's house was sold and purchased by the plaintiff decree-holder. The ex parte decree was subsequently set aside; but at the retrial a decree was again passed in plaintiffs favour. In the meanwhile, the defendant applied to have the sale of the house set aside. It was held in these circumstances, by the Bombay High Court that the previous sale of the house in execution under the previous decree which had been set aside should itself be set aside as being no longer based on any solid foundation, but subject in all the circumstances to the condition that the defendant should pay up the amount due under the second decree within a specified time .

Sandeep Jalan

Advocate

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