In the High Court of Calcutta Equivalent Citation: AIR 1972 Cal 420 Plaintiff Corporation of Calcutta Defendant Hindustan Construction Company Limited Decided on 01 March 1972 Bench Salil Kr. Hazra, J.
According to section 72 of the Indian Contract Act, 1872, a person to whom any money is paid by mistake or under coercion is liable to repay it. The word ‘mistake’ used here comprises mistake of fact as well as mistake of law. The rule with respect to mistake of law is different in English law as money paid under a mistake of law is not recoverable under English law. The question in this case was whether the word mistake refers includes ignorance of law as well.
The defendant, Hindustan Construction Company Limited, carried on business as engineers and contractors. In January/March, 1952, the plaintiffCorporation of Calcutta invited tenders for completion of Dry Water Flow Channel for ‘Dr. Dey’s Kulti Outfall Scheme’, for construction of channels. The defendant’s bids were selected and three contracts were entered between the plaintiff and the defendant for the construction of channels under the aforementioned scheme. The parties expressly and/or impliedly agreed that in case any sales tax was payable in respect of the said contracts by the respondent to the State of West Bengal, the plaintiffwould reimburse the defendant for the same. The defendant completed the contractual work in 1953 and throughout the construction had periodically submitted bills of the sales tax paid by them to the State of West Bengal which amounted to Rs.54, 498.92/-. The plaintiff paid the defendant a sum of Rs.40,871 as an advance towards the sales tax paid upon the request of the defendant.
In April, 1958, the plaintiff discovered that the amount paid to the defendants had been paid under a mistake of fact and law. On September 25, 1958, the plaintiff wrote to the defendant seeking refund of the same. The plaintiff wrote that there was no liability to pay sales tax on construction contracts as per the Supreme Court’s decision (1959) 1 SCR 379 and the decision of Calcutta High Court in AIR 1957 Cal 283; and that they had discovered the same upon the publication of Supreme Court’s decision in Ganon Dunkerley’s case [1958 SC 560]. As the defendant failed to refund the amount, the plaintiff instituted this suit for recovery of the same. The defendant contended that the contract in question did not come within the definition of construction contracts and the plaintiff was not entitled to recover the same. The payment of the sales tax had been done by the defendant in good faith and with the knowledge and consent of the plaintiff which estopped them from denying its validity.
1. (a)Was the sum of Rs. 40,871/- advanced by the plaintiff to the defendant by mistake of fact and/or law on the representation of the defendant that the sales tax was payable in respect of the contracts as stated in the plaint?
(b) Was there any agreement that the defendant would pay sales tax to the State of West Bengal on account of the plaintiff in relation to the contract insuit?
2. (a). Was the mistake of fact or law discovered in view of the decisions of the Supreme Court holding that no sales tax was payable on construction contracts?
(b). Were the contracts between the parties and in any event the contracts for manufacture of bricks at Kantatolla ‘Construction contracts’ within the meaning of the Supreme Court decision?
3. Has the consideration for payment of Rs. 40,871/- wholly failed or become illegal or void as alleged in paragraph 12 of the plaint?
4. Is the plaintiff estopped from denying the validity of the payment of sales tax made by the defendant and/or its liability to reimburse and/or to indemnify as pleaded in paragraph 11 (c) of the Written Statement?
5. Is the suit bad for non-joinder of parties as the State of West Bengal has not been made a party in this suit?
6. Is the suit barred by the law of limitation?
7. To what relief, if any, is the plaintiff entitled?
- The advance amount was paid under a mistake of fact and law.
- The mistake was only discovered upon the publication of Ganon Dunkerley’s case.
- The contracts between the parties were work contracts or construction contracts and no sales tax was payable with respect to those contracts.
- Sales tax was not paid by the defendant as an agent of the plaintiff but as dealer under the Bengal Finance (Sales Tax) Act, 1941.
- There was a separate contract for construction of bricks at Kantatolla for which sales tax is payable.
- Ignorance of law is not an excuse.
- It was a term of the contract that the plaintiff would reimburse the defendant for any sales tax payable with respect to the contracts between them.
The Hon’ble Court found that there was no separate contract for manufacture of bricks in Kantatolla on Corporation land and it was a part of the other three contracts as the manufacture of bricks was necessary for the construction of channels and drains as mentioned in the three contracts.The principles of law laid down in 1SCR379 and in AIR1957Cal283 were clearly attracted and no sales tax was payable on the three contractswhich were construction contracts. When the sales tax was assessed by the authorities and the payment of the same was made, the law was not clear on that point. Both the plaintiff and the defendant had mistakenly believed sales tax to be payable on construction contracts.
According to section 72 of the Indian Contract Act, 1872, any money paid to a person under mistake or coercion is recoverable. The leading case on this point is Sri Sibaprosad Singh v. Maharaja Srish Chandra Nandy [54 Cal WN 1] decided by the Privy Council wherein the application of section 72 in cases where money was paid under mistake of law was upheld. The same was reiterated by Sen J., in AIR 1916 Cal 245. The Hon’ble Court relied on the two aforementioned cases and decided that the instant case attracted section 72 of the Indian Contract Act, 1872.
With regard to the question whether the plaintiff was disentitled to receive the money paid under mistake of law due to estoppel, the Hon’ble Court held that the plaintiff was not estopped from claiming the refund as estoppel must be of fact and not law [AIR 1916 Nag 61]. When both the parties are acting under a common misapprehension, there could be no estoppel until the position was cleared up [ AIR 1963 Cal 198]. The defendant in the instant case paid sales tax before realisation of money as sales tax from the plaintiff.Estoppel arises when the plaintiff by his act or conduct makes a representation to the defendant that certain state of facts exists which is acted upon by the defendant to his detriment, it is only then that the plaintiff is estopped from setting up a different state of facts [ AIR1962SC1471]. Hence, the question of estoppel does not arise here.
The Hon’ble Court answered the third issue in the affirmative and also decided that the suit was not barred by limitation and that the State of West Bengal is not a necessary party to the suit. The plaintiff was held to be entitled to recover the money paid to the defendant but the plaintiff was denied ad interim interest as both the parties had laboured under a mistake of law.
In the instant case, both the parties were labouring under the same mistake and both had paid the amount in question in good faith unaware of the disputed point of law. The fact that the plaintiff in his ignorance of law undertook to indemnify the defendant for the payment of sales tax would not serve as estoppel. The Hon’ble Court took into consideration the circumstances of the case and held that both the parties in the case were ignorant of the law and the payment of money had been made by mistake which entitled the plaintiff to recover the same from the defendant.
Edited by Parul Soni
Approved & Published – Sakshi Raje