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State of Rajasthan Vs. the Maharaja Shree Umaid Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtRajasthan High Court
Decided On
Case NumberS.B. Civil First Appeal No. 11 of 1973
Judge
Reported in1985(1)WLN745
AppellantState of Rajasthan
RespondentThe Maharaja Shree Umaid Mills Ltd.
DispositionAppeal dismissed
Cases ReferredGanpatrao Kadu v. Ramrao Balasaheb Dhote
Excerpt:
contract act - sections 65, 70 & 72--amount paid by mill to state of rajasthan as royalty in consideration for tax exemptions under agreement between mills and former jodhpur state--held, agreement be scrapped and state is bound to refund amount to mill.;the plaintiff-mills had not paid the amount of rs. 5,78,887.13 to the state of rajasthan gratuitously, but on expectation of getting tax exemption as consideration under the agreement. the defendant had received the money in the form of royalty and had enjoyed the benefit of it for more than 20 years. the defendant-appellant is bound to return the money received and enjoyed by it and to compensate the plaintiff for it. the defendant-appellant never refused to accept the money offered by the plaintiff on the other hand, it always.....guman mal lodha, j.1. this appeal has been filed by the state of rajasthan, the appellant-defendant, against the judgment and decree-dated 11th april, 1972 passed by the additional district judge no. 2, jodhpur, decreeing the suit of the plaintiff-respondent for a sum of rs. 5,78,817.13p.2. before i proceed to consider the respective contentions of the learned counsel for the parties in appeal, it would be useful to mention, in brief, the facts.3. the plaintiff-respondent filed the suit under appeal on may 18, 1955 against the appellant as well as the union of india and the income tax officer, jodhpur. the his highness maharaja of erstwhile state of jodhpur invited applications from the financiers for the purpose of industrial development of the jodhpur state and in pursuance of that, the.....
Judgment:

Guman Mal Lodha, J.

1. This appeal has been filed by the State of Rajasthan, the appellant-defendant, against the judgment and decree-dated 11th April, 1972 passed by the Additional District Judge No. 2, Jodhpur, decreeing the suit of the plaintiff-respondent for a sum of Rs. 5,78,817.13p.

2. Before I proceed to consider the respective contentions of the learned Counsel for the parties in appeal, it would be useful to mention, in brief, the facts.

3. The plaintiff-respondent filed the suit under appeal on May 18, 1955 against the appellant as well as the Union of India and the Income tax Officer, Jodhpur. The His highness Maharaja of erstwhile State of Jodhpur invited applications from the financiers for the purpose of industrial development of the Jodhpur State and in pursuance of that, the plaintiff-respondent submitted an offer for establishing a Mill under the State sponsorship and patronage. The said offer was accepted by the erstwhile Government of Jodhpur State and eventually on 17th April, 1941 a formal agreement was entered into and executed between the parties In the said agreement, amongst many concessions & immunities granted to the plaintiff-Mill also included a concession in regard to the exemption from the payment of duties and royalties. According to the appellant, the plaintiff-Mill in consideration of the concessions and immunities granted to it by the erstwhile State of Jodhpur under the said agreement agreed vide its Clause 12 to pay to the State royalties at rate of 7-1/2% of the profits of the company in each of its financial year.

4. The case of the plaintiff respondent before the lower court was that the agreement in question was acted upon by the erstwhile Government of Jodhpur so long as it remained in existence. The plaintiff-respondent had filed the present suit when its suit No. 13/52 was dismissed by the District Judge, Jodhpur on 3rd September 1954 and when the District Judge had already held that the agreement of 17th April, 1941 was not at all binding and enforceable against the State of Rajasthan. Since the appeal against the judgment of the District Judge in suit No. 13/52 was pending before this Court and since after the decision of this Court dated the 7th April, 1959 a further appeal in this connection was pending before the Supreme Court along with an appeal which the plaintiff respondent had filed before the Supreme Court against the decision of this Court dated the 19th October, 1959 given in Civil Writ Petition No. 47/53 so the proceedings of the present suit under appeal remained stayed uptil 26th October, 1963 when a review petition filed by the plaintiff-respondent in relation to the decision of the Supreme Court dated 27th November, 1961 was also dismissed by the Supreme Court.

5. Thereafter the plaintiff respondent filed an application on 28th November, 1964 praying for permission to amend the plaint so as to include the prayer for refund of money of royalty paid to the State @ 7-1/2% on its net profits in respect of the period commencing from 2nd June, 1949 to 22nd January, 1954 amounting to Rs. 5,78,887.13. The application for amendment was contested on behalf of the appellant State and it was contended that the said application was a highly belated one and, that any permission which may be granted now at that stage to amend the plaint would change the very nature of the suit.

6. The amendment was partly allowed to the effect that the amount paid within three years of the filing of the suit from 18th March, 1952 to 18th March, 1955 be included in the plaint and prayer for its refund may be made. The Union of India and the Income Tax Officer prayed that the suit against them be dismissed in view of the decision of the Supreme Court in a former-suit. This prayer was accepted and the suit against the defendant Nos. 1 and 3 was dismissed.

7. The learned Addl. District Judge No. 2, Jodhpur who tried the suit, decreed the suit of the plaintiff respondent, in toto and hence this appeal has been filed by the State of Rajasthan on the grounds that, the learned Addl. District Judge has seriously erred in deciding issue No. 11 in favour of the plaintiff and against the defendant; that the learned Addl. District Judge has seriously further erred in holding that in the present case, the plaintiff was entitled to take the advantage of Section 70 of the Indian Contract Act, 1872 (here in after referred to as 'the Contract Act') According to the appellant, the learned trial court further erred in observing that even according to the Government Advocate the royalty was not paid gratuitously. It has been contended that the Government Advocate never made such submission or concession on the point and on the contrary, it was argued that the payment which the plaintiff made in this connection was made knowing well that, the State had been contending right from the year 1952 when it filed its written statement in suit No. 13/52 that, the agreement in question dated the 17th April, 1941 had become invalid as a result of the (sic) of the State under which the erstwhile State of Jodhpur merged into the State of Rajasthan and, that the plaintiff Mill knowing fully well and having been made aware of that position in an unmistakable terms, still gratuitously deposited and made payment of royalty to the State probably for the reason that in default on its part in not paying the royalty amount may adversely affect the suit which the plaintiff had brought in connection with the recovery of the excise duty i.e. suit No. 13/52. According to the State, the learned Additional District Judge in these circumstances was wholly in error when she has observed that 'even according to the learned Government Advocate, the royalty amount was not paid gratuitously', and as such the learned trial court was, wrong in attracting the provisions of Section 65 of the Contract Act and, in holding that the plaintiff respondent was entitled to the benefit of Section 70 of the Contract Act.

8. The learned Government Advocate Shri Udawat, argued that the learned Trial Court was again in error in holding that in its opinion Section 72 of the Contract Act was also attracted in the present case and, that the plaintiff while making the payment of royalty was labouring under a mistake of law. It has been submitted that the learned trial Court has not taken note of the fact that there was a fresh instrument of accession on April 15. 1949 on behalf of United State of Rajasthan by which the United State of Rajasthan accepted all matters enumerated in List I and List III of Seventh Schedule of Government of India Act, 1935 as matters in respect of which the legislature might make laws for the United State of Rajasthan. The legislature of State of Rajasthan was competent to impose any duty of tax within its territory. In these circumstances, it has been submitted that when the pre-convenating State of Jodhpur merged into the State of Rajasthan and when a fresh instrument of accession on 15th April, 1949 was executed, the agreement dated 17th April, 1941 became wholly invalid in so far as its binding nature and enforceability against the State of Rajasthan was concerned.

9. According to Shri Udawat, the State of Rajasthan never affirmed the said agreement and as such the position of law being absolutely clear on the point as this question was set at rest even by the decision of their Lordships of Privy Council in Baijai Singh's case AIR 1924 PC 216 which was followed by the Apex Court in its subsequent decisions, and, as such, it can not be said that there was any ambiguity left in the matter or that the plaintiff was under any honest belief and mistake when it deposited the amount of royalty with the State that the impugned agreement was still enforceable against the State or that, in the said agreement the plaintiff was not responsible and liable either for being assessed under the Indian Income Tax Act, 1922 or for making payment of duty to the State of Rajasthan under the Rajasthan Excise Duty Ordinance, 1949. The payment which the plaintiff made in this regard was absolutely gratuitously and more so in the year 1952 when the State of Rajasthan in suit No. 13/53 filed by the plaintiff in relation of to the payment of excise duty it clearly and in unequivocal terms had denied Its liability of any kind under the agreement of 17th April, 1941.

10. The next submission of the learned Addl. Government Advocate is that, the learned trial Court has seriously erred in deciding issue No. 12 in favour of the plaintiff respondent and against the appellant State. The learned trial court has further erred in holding that Article 96 of the Limitation' Act, 1908 was applicable to the facts and circumstances of the present case, argued Shri Udawat. It was further argued that the suit filed by the plaintiff is clearly governed by Article 62 of the Indian Limitation Act, 1908 and, that, the learned trial court has failed to consider that Article 96 of the Limitation Act, 1908 had no application to a case to which the provisions of Section 70 of the Contract Act are attracted, and, that, the learned trial Court should have held that the suit of the plaintiff in respect of those amounts which did not fall within three years from the date on which the suit under appeal was filed, was clearly barred by time because admittedly when the plaintiff filed the suit under appeal the learned trial Court in suit No. 13/52 had held unequivocally that the agreement in question was invalid and unenforceable against the State of Rajasthan.

11. According to the appellant, the learned trial Court seriously erred in deciding issue No. 9 against the appellant and in holding that the notice which was later served on the appellant State under Section 80 CPC was valid in law.

12. Shri Udawat pointed out that the lower court was not justified in holding that the agreement was not repudiated by the State. In brief, the learned Counsel argued that Section 65 of the Contract Act had no application and, it was wrongly attracted and, the learned trial Court could not understand the implications of Sections 70, 72 and 65 of the Contract Act.

13. The learned Counsel for the State further pointed out that the lower court could not understand correctly the implications of the decisions in Sales Tax Officer, Banaras and Ors. v. Kanhaiyalal Mukandlal Sufar : [1959]1SCR1350 and Caltex (India) Ltd., Indore v. Asstt. Commissioner of Sales Tax, Indore Region, Indore and Anr. : AIR1971MP162 .

14. Shri Rajesh Balia, the learned Advocate, appearing on behalf of the plaintiff respondent Mill, has vehemently opposed the appeal of the State defendant, and tried to repeal the various contentions of the appellant both, by oral as well as detailed written arguments.

15. Two important issues emerged for decision, in this appeal, and other issues have neither been pressed by either of the parties nor, they are much relevant for this appeal.

16. Issues Nos. 11 and 12 read as under:

(11) Is the plaintiff entitled to the refund of Rs. 5,78,887.13/- from the State of Rajasthan, which the plaintiff deposited as royalty under Clause 12 of the agreement dated 17th April, 1941 from time to time on the grounds mentioned in para 23A of the plaint?

(12) Is the suit for the refund of various amounts deposited by the plaintiff as royalty is within limitation?

I would first adjudicate the controversy regarding issue No. 11 and the related points, the pivot of which are Sections 65, 70 and 72 of the Contract Act which reads as under:

65. When an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore, it, or to make compensation for it, to the person from whom he received it

70. Where a person lawfully does anything for another person, or delivers anything to him not intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered, and

72. A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

17. On a thoughtful consideration of the rival contentions of the learned Counsel for the parties and, on a detailed study of the facts and law involved in this appeal, I feel that before I proceed with my findings, I must re-capitulate historical aspect of the controversy which has got great bearing and, which has been mentioned at the very threshold of this judgment, in brief.

18. Before the Dominion of India and coming into force of the Constitution of India, the State of Marwar which was also known as Jodhpur State, was ruled by a monarchy of His Highness who used to function under the British regime.

19. The bedrock of the entire controversy relates to the events, first one being agreement dated the 17th April, 1941 between the Maharaja Shree Umaid Mills, the plaintiff respondent and His Highness of Jodhpur, second event in point of time is merger of Jodhpur State in the United State of Rajasthan, on 7th April, 1949, followed by the coming into force of the Constitution of India on 26th January, 1950; and formation of the State of Rajasthan known as Part B State of Rajasthan on 26th January, 1950.

20. This agreement dated the 17th April, 1941 was finally declared void and unenforceable after coming into force of the Constitution of India and not binding on the Union of India and the State of Rajasthan by the Apex Court on 26th October, 1963 by which the review petition was dismissed by the Supreme Court.

21. The history of the review petition would require mention of the fact that the plaintiff-Pali Mills filed suit against the Union of India before the District Court on 16th April, 1952 for declaration that the agreement of 1941 is yet valid and the State of Rajasthan is bound by it and secondly it cannot recover excise duty. The suit was dismissed on 3rd September, 1954 by the District Court followed by dismissal of appeal by the High Court on 7th May 1959 and by the Supreme Court on 27th November, 1962.

22. During this period on 18th March, 1953 the present suit under appeal was filed in respect of the income-tax alike the earlier suit which was for excise duty.

23. After the judgment of review petition in the Supreme Court declaring the agreement of 1941 as void, an application for amendment was moved in this suit on 28th November, 1964 and this gave a new facet to the plaint by praying refund of royalty paid by the plaintiff Mills to the State under the agreement of 1941 and amounting to Rs. 5,78,887.13/- under receipts Exs. 2 to 10, during the period from 2nd June, 1949 to 22nd January, 1954. The amendment proceedings resulted in three revision petitions before the High Court which were decided on 5th July, 1966 by a common judgment in which the amendments were allowed and the High Court amongst other things making the following important pertinent observations:

It is argued that the mistake if any was discovered by the plaintiff when its first suit No. 13 of 1952 relating to the refund of excise duty was dismissed by the District Judge on 3-9-54. I am unable to agree with this contention. In my opinion the mistake can be said to have become apparent when the review application filed by the plaintiff against the decision of their Lordships of the Supreme Court dated 27-11-62 was finally disposed of on 26-10-63.

It would thus be seen that so far as the parties are concerned, this Court has already on 5th July, 1966 decided that the mistake in paying the royalty became apparent when the review application of the Pali Mills was decided on 26th October, 1963.

24. The date, 26th October, also assumes importance on the one hand for the purpose of limitation, which would be dealt with a little later and the findings that the Pali Mills committed mistake in depositing the royalty assumes importance for the purpose of deciding the crucial debate relating to the application of Sections 65, 70 and 72 of the Contract Act.

25. In this appeal, it has not been disputed that the royalty was paid between 2nd June, 1949 to 22nd January 1954 and, the sole point, which ultimately emerged during the arguments relates to mistake of fact and/or law if any committed by the Mills, as held by the trial Court and, which is under challenge.

26. The trial Court has already discussed the evidence and, observed rightly so, in my opinion, that as per the agreement of 1941 (Ex. 1) between the plaintiff-Mills and the erstwhile ruler of Marwar, the royalty was required to be paid in lieu of and as a consideration of the exemptions from income-tax excise duty granted to the plaintiff-Mills by the former Ruler of Marwar.

27. The State of Marwar, as well as its successor State continued to realise this royalty. The successor State received the above amount through its officers acting under the same belief and Officers of Industries Department were required by the defendant to check the balance sheet and a Profit and Loss A/c of the Company from time to time to see that correct amount of Royalty is being paid by the Company as is apparent from the evidence of Radha Kishan (PW 3) and admitted documentary evidence in the letters (Ex. 31, 32, 35 to 39, 41 and 43.)

28. It would thus be seen that, in view of this, the plaintiff had paid the suit amount under an honest belief that agreement dated 17th April, 1941 (Ex. 1) being signed by sovereign Ruler of State of Marwar was a law, binding and enforceable against the successor State of Rajasthan. When the Supreme Court finally dismissed the review petition filed by the plaintiff-Mills on 26th October, 1963 it was found that the said agreement could not be treated as law. According to the Apex Court, the agreement of 1941 rested solely on the consent of parties, it was entirely contractual in the nature and was invalid. As neither the United State of Rajasthan nor Part B State of Rajasthan affirmed the agreement, the plaintiff could not enforce any right against the State of Rajasthan under the agreement.

29. Obviously, I am inclined to hold that the suit amount was paid by the plaintiff-Mills to the defendant State of Rajasthan on account of mistake and as such, the question which now emerges for consideration is, whether the amount paid by mistake deserves to be refunded.

30. Before I discuss the question of refund, I must take notice of the various important principles of law authoritatively laid down by their Lordships of the Apex Court and other High Courts in respect of the mistake in similar situations.

31. While dealing with Section 62 of the Contract Act, the Apex Court in Sales Tax Officer v. Kanhaiyalal (supra) observed as under:

The mistake of law became apparent only on 3-5-1954 when this Court confirmed the said decision of the Allahabad High Court : AIR1952All764 and on that position being established, the respondent became entitled to recover back the said amount which had been paid by mistake of law. The state of mind of the respondent would be the only thing relevant to consider in this context and once the respondent established that the payments were made by it under a mistake of law, it was entitled to recover back the said amount and the State of UP was bound to repay or return the same to the respondent irrespective of any other considerations.

In State of Madhya Pradesh v. Bhailal Bhai and Ors. : [1964]6SCR261 , it has been observed as followed:

It cannot now be disputed that this payment was made under a mistake within Section 72 of the Indian Contract Act and so the Government to whom the payment has been made by mistake, must in law repay.

32. The above would show that the state of mind of the respondent has been held to be relevant to consider in this context and once it is found that it was on account of mistake of law, the refund should be made by the State.

33. It is almost undisputed though technically disputed that the plaintiff had paid this amount to the State under agreement of 1941 and the best proof of it is that as soon as the State of Rajasthan started seriously challenging the agreement of 1941 and contested the validity of it and exemptions granted under it, it stopped the recovery of royalty in the year 1954.

34. Obviously, it realised that if the agreement cannot subsist for exemptions of excise duty, income-tax then, it cannot also subsist for royalty in lieu of giving benefits of exemptions. In substance, the State was convinced that either they have to accept the agreement of 1941, as a whole or to scrap it as a whole. The moment they decided to scrap it as a whole by contesting the exemptions of income-tax and excise duty they directed their functionaries to stop the realisation of royalty.

35. Seemingly, the legal experts must have advised them that they can not blow hot and cold, together, approbate and reprobate and, if they continue to take royalty, their challenge to the validity of the agreement may not be sustained.

36. Thus, the amount which was paid by the plaintiff and received by the State of Rajasthan defendant under the agreement dated the 17th April, 1941, discovered on 26th October, 1963 to have become unenforceable and void from 7th April, 1949 on the merger of erstwhile State of Marwar with United State of Rajasthan. The State of Rajasthan having received the suit amount under the agreement (Ex. 1) which was discovered subsequently to have become void, is bound to restore the same to the plaintiff Mills from whom it had received Rs. 5.78,887.13/-.

37. I am in agreement with the contention of Shri Balia that the plaintiff-Mills had not paid the amount of Rs. 5,78,887.13 to the State of Rajasthan gratuitously, but on expectation of getting tax exemption as consideration under the agreement. The defendant had received the money in the form of royalty and had enjoyed the benefit of it for more than 20 years. The defendant-appellant is bound to return the money received and enjoyed by it and to compensate the plaintiff for it. The defendant-appellant never refused to accept the money offered by the plaintiff, on the other hand, it always desired check up whether correct amount due under the agreement was being paid or not.

38. In order to appreciate the doctrine of equitable principles as contained in Sections 65 and 70 of the Contract Act, it may be noticed that in The Municipal Committee, Kishangarh v. Maharaja Kishangarh Mills Ltd. (ILR 1960 Rajasthan 501), this Court observed as under:

The rule of equity and justice requires that if in fact money has been paid to the defendant under the agreement not otherwise unlawful, it should pay back the amount to the plaintiff even if for some reasons the contract as such is not enforceable. The law safeguards against any unlawful enrichment at the cost of an innocent party and provides restitution in all such cases. These equitable principles are embodied in Sections 65 and 70 of the Contract Act and relief should be granted to the extent that these provisions justify.

Similar considerations would apply to a contract when it ceases to be enforceable.

The conditions which are required to be fulfilled for the purpose of Section 70 of the Contract Act have been articulated by the Apex Court in State of West Bengal v. R.K. Mondal and sons : AIR1962SC779 which read as under:

It is plain that three conditions must be satisfied before this section can be invoked. The first condition is that a person should lawfully do something for an other person or deliver something to him. The second condition is that in doing the said thing or delivering the said thing he must not intend to act gratuitously; and the third is that the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof. When these conditions are satisfied Section 70 imposes upon the latter person the liability to make compensation to the former in respect of, or to restore, the thing so done or delivered. In appreciating the scope and effect of the provisions of this section it would be useful to illustrate how that section would operate. If a person delivers something to another it would be open to the latter person to refuse to accept the thing or to return it, in that case Section 70 would not come into operation. Similarly, if a person does something for another it would be open to the latter person not to accept what has been done by the former; in that case again Section 70 would not apply. In other words, the person said to be made liable Under Section 70 always has the option not to accept thing or to return it. It is only when he voluntarily accepts the thing or enjoys the work done that the liability Under Section 70 arises.

Thus, where a claim for compensation is made by one person against another Under Section 70, it is not on the basis of any subsisting contract between the parties, it is on the basis of the fact that something was done by the party for another and the said work so done has been voluntarily accepted by the other party. That broadly stated is the effect of the conditions prescribed by Section 70.

39. Their Lordships of the Supreme Court, again, authoritatively laid down, in what circumstances, Section 70 of the Contract can be invoked and Act termed it as quasi contract or restitution, in Mulamchand v. State of Madhya Pradesh : [1968]3SCR214 by observing as under:

But, if money is deposited and goods are supplied or if services rendered in terms of the void contract, the provisions of Section 70 of the Indian Contract Act may be applicable. In other words, if the conditions imposed by Section 70 of the Indian Contract Act are satisfied then the provisions of that section can be invoked by the aggrieved party to the void contract. The first condition is that a person should lawfully do something for another person or deliver something to him; the second condition is that in doing the said thing or delivering the said thing, he must not intend to act gratuitously; and the third condition is that the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof. If these conditions are satisfied, Section 70 imposes upon the latter person the liability to make compensation to the former in respect of, or to restore, the thing so done or delivered.

The juristic basis of the obligation in such a case is not founded upon any contract or tort but upon a third category of the law, namely quasi-contract or restitution.

40. The following observations made in Nelson v. Larholt (1948) 1 KB 339 by Lord Denning have been approved by their Lordships of the Apex Court while dealing with Section 70 of the Contract Act in Mulamchand v. State of Madhya Pradesh (supra).

Remedies now depend on the substance of the right, not on whether they can be fitted into a particular framework. The right here is not peculiar to equity or contract or tort, but falls naturally within the important category of cases where the court orders restitution if the justice of the case so requires.

41. The principle that, Section 70 of the Contract Act prevents unjust enrichment, was evolved in Pannalal v. Deputy Commr., Bhandara : AIR1973SC1174 . The relevant observation are as follows:

It was held that merely because the contract was illegal it does not follow that the contractor has done something which is not lawful. This Court pointed out that the real basis of liability Under Section 70 is the fact that the person for whom the work has been done, has accepted the work and has received the benefit thereunder, and that what Section 70 prevents is unjust enrichment and it applies as much to individuals as to Corporations or Government.

42. I am convinced that the legislative object of Sections 65, 68 to 72 of the Contract Act is to prevent unjust enrichment and ensure refund or return of such amount. Sections 65, 70 and 72 are the bedrock of the above doctrine of law which, under English Law, are called quasi-contracts and, under the Indian Contract Act. 'have received statutory recognition.

43. The relevant clause in the agreement of 1941 (Ex. 1) which is regarding royalty, excise duty and income-tax, is Clause 6 so also Clause 12, both read as under:

6. The State will exempt or remit the following duties and royalties:

(a) State import duty on materials imported into the State for use in the construction of buildings and works on the said land

(b) State import duty on machinery, plant, equipment electrical installation and fittings and on re-placement or spare imported by the company for installation or use in the mill premises, Ginning factory or press from time to time

(c) State import duty on cotton, wool, artificial silk and other raw materials and stores imported by the Company for consumption in the mill premises Ginning factory or Press

(d) State export duty on yarn, piece goods both cotton and woollen or other articles manufactured by the company in the mill premises and by products thereof exported by the company from the State territories

(e) State or Federal excise duty on goods manufactured in the mill premises. If any such duty has to be paid by the company the State will refund the same wholly to the Company

(f) State or Federal income tax or super tax or surcharge or any other tax on income. If any such tax has to be paid by the Company the State will refund the same wholly to the Company

(g) State royalties on clay, stone and Kankar for use in the construction repairs or maintenance of buildings or other erection upon the said land.

12. In consideration of the concessions hereby given and of the premises the Company agrees to pay in the State a royalty of 7-1/2% on the net profits of the Company in each of its financial years, such payments to be made within three months after the close of each financial year. For the purposes of this clause 'net profits' shall mean the profits of the company calculated after making all proper allowances and deductions from revenue for working expenses chargeable against profits, for interest on loans and advances, for repairs and outgoings and for the depreciation at rates not higher than those permitted from time to time under the Indian Income Tax Act or Rules made thereunder, but without making any deduction for expenditure by way of interest on debentures or otherwise on capital account of any sum which may be set aside in each year out of the profits for reserve or any other special fund or in respect of any remuneration to the Managing Agents, Provided further that no payment of the said royalty shall be made by the Company to the State in respect of each of the Company's profits for the period ending 12th February, 1946.

44. All those who are conversant with the evolution of the industrialisation, urbanisation and independence, constitutional formation of the United State of Rajasthan, the judicial notice of which has been taken in series of the decisions by the Apex Court, and this Court some of which are mentioned above, know very well that in 1941 the industrialisation in the erstwhile federal States was neither phenomenon unknown to the citizens and the Ruler had to attract the industrialisation or businessmen who were otherwise investing their money through many British territories of West Bengal or Maharashtra or such other places particularly Calcutta and Bombay The Rulers, therefore, granted certain exemptions like exemptions from income-tax excise duties, and other taxes but in order to ensure reasonable revenue decided to charge royalty in lieu thereof as happened in the present case that attracted capital and industrial talent, here also.

45. With the constitutional changes, when the State of Rajasthan was formed, such exemptions were thought to be unwarranted privileges of feudal era and, therefore, the Constitution scrapped earlier agreements by giving options to the successor States to recognise and honour them or not. It was in these circumstances that the State of Rajasthan finally did not want to continue the hang over of the feudalism and capitalism combined in the form of concessions to capitalists and honoured the guarantee, so that other citizens can also do business in competition to them, whatever might have been other intentions, I have spelt out from the Constitutional history which is of common knowledge and well recognised in catena of judicial decisions.

46. It would thus be fair, equitable and legal to respect the rule of law by scraping the agreement as a whole, and the provisions of Sections 66 70 and 72 of the Contract Act therefore have been correctly applied by the Lower court for directing the refund of the amount of royalty of a period where the corresponding exemptions of income-tax, excise duties etc., were not granted by the State of Rajasthan to the Mills concerned.

47. I am unable to accept the contention of Shri Udawat, the learned Addl. Govt. Advocate that the State had a sovereign right to scrap the exemptions and still charge the royalty, nor I can accept the unreal contention that the royalty was charged not in lieu of exemptions but, otherwise. As already stated, no royalty can be charged in this manner after scraping the agreement of 1941 and treating it as void.

48. The decision of the Apex Court declaring the agreement of 1941 as void is not limited to the clauses giving benefit to the State, as it is based on the constitutional bedrock of Article 295 & Chapter III of the Constitution of India.

49. I am therefore, convinced that the detailed reasons given by the trial court in respect of the grant of decree for the refund of the amount of the royalty are justified both, in fact and law. Since I am in agreement with reasonings of the trial court I am not inclined to repeat them, as a whole.

50. I am now coming to the question of Limitation covered by issue No. 12, which is second limb of the submissions of Shri Balia. Issue No. 12 reads as under for ready reference:

12. In the suit for the refund of various amount deposited by the plaintiff as royalty is within limitation?

The refund claim is of the following amounts of the following dates:

S.No. Receipts Number and date Amount paid

(1) 419 dt. 2-6-49 Rs. 1,00,000-00-0

(2) 573 dt. 6-10-49 Rs. 73,419-00-6

(3) 653 dt. 7-11-49 Rs. 13,039-12-0

(4) 1112 dt. 8-3-50 Rs. 50,000-00-0

(5) 84 dt. 15-6-50 Rs. 34,549-00-6

(6) 211 dt. 5-10-51 Rs. 79,297-10-0

(7) 14461 dt. 17-11-52 Rs. 1,07,837-12-0

(8) 14639 dt. 7-1-54 Rs. 99,968-12-0

(9) 14636 dt. 22-1-54 Rs. 20,775-14-0

Total 5,78,887-13-0

51. The trial Court has held that it was only when the Apex Court gave its judgment on 27th November, 1962 and when the review petition against that was decided on 26 th October, 1963, that the plaintiff-respondent discovered the mistake in payment of royalty as per the Clause 12 of the agreement of 1941 which had been declared void. The trial court held that the payment was made under a mistake and Section 72 of the Contract Act was applicable and, therefore, the case was governed by Articles 96,97 & 120 of Indian Limitation Act, 1908 (here in after referred to as 'the Old Limitation Act') it was also held that the refund was being claimed also on account of Section 65 of the Contract Act and, therefore, Articles 97 and 120 of the Old Limitation Act are applicable.

52. The contention of the appellant is that Article 62 is applicable and not Articles 96, 97 or 120 of the Old Limitation Act. Shri Balia has argued that the judgment of the Trial Court on the point of Limitation is based on cogent and substantial tangible grounds.

53. Obviously, since the suit was filed on 18th March, 1955, the Old Limitation Act would apply.

54. It is also further clear that the suit is based for seeking relief of the amount paid by the plaintiff under the mistake to the defendant as the defendant has retained it and is not refunding it.

55. As per the decision of the earlier issue regarding right to refund, it has been held that the entitlement to refund of amount flows from the statutory provisions of Section 65, 70 and 72 of the Contract Act.

56. The logical and legal corollary to the above would be that Article 96 of Schedule I of the Indian Limitation Act, 1908 governs the limitation as it will have relevancy which reads as under:

96. For relief on the Three years When the mistake

ground of mistake becomes known

to the plaintiff

57. Article 96 of the Old Limitation Act has got corresponding provision to Section 17(1)(c) of the Indian Limitation Act, 1963 (here in after referred to as 'the New Limitation Act') Obviously the starting point of limitation is from the date when the mistake becomes known to the plaintiff.

58. The crucial point in controversy now is, when the mistake became known to the plaintiff.

59. A bare look at the history of the events including the history of the litigation would show that the plaintiff bonafide believed that the agreement dated the 17th April, 1941 is a binding as a whole and its enforcement on the successor State of Rajasthan, also, even it became Part B State of Rajasthan on the commencement of the Constitution. It was under this bonafide belief that the plaintiff continued to pay the royalty and claimed concessions under Clause 6 of the agreement of 1941. The history of the litigation upto the Apex Court ending of the final litigation of the review petition on 26th October, 1963 only confirms the above deduction that the plaintiff claimed the exemptions under Clause 6 of the agreement of 1941 even after merger and even after formation of the United State of Rajasthan and then State of Rajasthan and coming into force of the Constitution.

60. Realising that the Apex Court of country has declared the agreement of 1941 between His highness of Jodhpur and the plaintiff-Mills, as void and unenforceable after coming into force of the Constitution, the plaintiff discovered the mistake in making the payment of royalty.

61. At the present juncture, I would like to take notice of the important decision of this Court in three revision petitions and the relevant observation which reads as follows for ready reference:

In my opinion, the mistake can be said to have become apparent when the review application filed by the plaintiff against the decision of the Lordships of the Supreme Court dt. 27-11-62 was finally disposed of on 26-10-63.

62. I am inclined to accept the contention Shri Balia that so far as the parties are concerned on account of the above decision of this Court, it is not longer open to them to reagitate the matter. The fact that the mistake was known to the plaintiff on 26th October, 1963 has become final between the parties when after the decision of the aforesaid Supreme Court in appeals arising out of previous suit filed in relation to levy of excise duty and the writ petition, the plaint of the present suit was sought to be amended by the plaintiff by claiming the refund of the amount paid to the State of Rajasthan under the mistake which became apparent on the dismissal of review application by the Supreme Court on 26th October, 1963. The amendment was opposed by the defendant on the ground that the suit for refund of the amount is barred by time as and the amendment ought not to be allowed. The Trial Court allowed the amendment in part by restricting the claim for refund to the amount paid by the plaintiff within 3 years from the date of the suit i.e. 18th March, 1955 and rejected the rest of the amendment. Against this partial allowing of the amendment application, the State of Rajasthan as well as the plaintiff-Mills preferred revision before the High Court. As the plaintiff had filed the fully amended plaint and the trial court had refused to accept that plaint, a third revision was also filed against that order. All the three revisions were decided by a common judgment dated the 5th July, 1966.

63. This finding is obviously between these very parties and in an earlier stage of this very suit and, therefore is binding on all subsequent stages of the suit. In fact, if the defendant-State was aggrieved from the above it could have and should have challenged the above finding before the Supreme Court.

64. Shri Balia has placed reliance upon the decisions of the Apex Court in Satyadhyan Ghosal v. Smt. Deorajin Debi : [1960]3SCR590 and Y.B. Patil v. Y.L. Patil AIR 1977 SC 392, to emphasise the point that even in the same proceedings, a point can be res judicata if at earlier stage it has been decided one way or the other.

65. In my opinion, the judgment of Jagat Narayan, J., as he then was, holding squarely that the mistake became apparent when the review application was decided finally on 26th October, 1963 and the earlier judgment of the Supreme Court dated the 27th November, 1962 was upheld, is binding not only for purpose of the amendment but also for the purpose of computation of the limitation.

66. Now, examining the other facets of this controversy, the law is equally well settled that where a party is litigating on a certain point, the mistake becomes apparent when the final judgment is pronounced by the highest court and the limitation starts from the date the mistake becomes apparent. In support of this contention, Shri Balia placed reliance upon the decisions in Sales Tax Officer v. Kanhaiyalal (supra), the relevant observation of which have been extracted above and in D. Cawasji & Co. v. State of Mysore : 1978(2)ELT154(SC) wherein in para 8 it has been observed as under:

Therefore, where a suit will lie to recover moneys paid under a mistake of law, a writ petition for refund of tax within the period of limitation prescribed i.e. within 3 years of the knowledge of the mistake, would also lie. For filing a writ petition to recover the money paid under a mistake of law this Court has said that the starting point of limitation is from the date on which the judgment declaring as void the particular law under which the tax was paid was rendered, as that would normally be the date on which the mistake becomes known to the party. If any writ petition is filed beyond three years after that date it will almost always be proper for the court to consider that it is unreasonable to entertain that petition, though, even in cases where it is filed within three years, the court has a discretion, having regard to the facts and circumstances of each case, not to entertain the application.

In Madras Rubber Factory v. Union of India 1981 Excise Law Times 879, it has been held that the mistake was discovered when the Supreme Court gave its decision and therefore, the suit is not barred by time even though the tax was paid long before. Shri Balia further relied upon the decision in Zila Parishad, Gurdaspur v. M/s. R.L. Kuthala 1978 Current Law Journal 483. According to this decision, it is authoritatively settled that prior to the declaration by the competent court it would be an opinion of the plaintiff and he can be said to have acquired knowledge of a mistake of law only when the law is declared void by the court. The controversy there remained to be settled between the parties was as to when the plaintiff can be said to have acquired knowledge of the mistake from the judgment of trial court or from the judgment of appellate court.

67. The relevant observations read as under:

Once it is accepted that the plaintiff would be said to have come to know of the mistake only when a judgment and adjudging the validity of the law is passed, there seems to be no escape in my view from the conclusion that the judgment adjudging the validity of the law ought to be of a binding nature. So long as the judgment declaring the law to be void does not become final and is under challenge that judgment cannot provide the basis for a person to discover the mistake of law. The judgment referred to in the Supreme Court case would, therefore, be only that judgment which has attained finality and is of a binding nature.

68. Even otherwise, it has been authoritatively repeatedly held that Article 96 applies to a suit for recovery of money paid under a mistake of law and the starting point of limitation is the date when the mistake becomes known to the plaintiff.

69. In support of this contention, Shri Balia referred to the decisions of Madhya Pradesh High Court in Caltex India Ltd. v. Asstt. Commr. of Sales Tax, Indore (supra) and Murwara Municipality v. S.K. Kahansons & Co. : AIR1976MP228 .In Caltex Ltd. v. A.C. Sales Tax Indore (supra) it has been held that right to relief Under Section 72 extends to money paid under mistake thinking that it was due when in fact it was not due and Article 96 applies to a suit for recovery of money paid under a mistake of law and starting point of limitation is the date when the mistake becomes known to the plaintiff. Their Lordships of the Madhya Pradesh High Court while deciding the point as to when can the petitioner be said to have acquired knowledge of the fact that it had paid the amount of tax under a mistake of law, held that the petitioner's knowledge cannot be taken to a date earlier to the date of the Supreme Court decision.

70. In Murwara Municipality v. S.K. Mahansons (supra), it has been held that, since the amount was paid under mistake of law, suit will be governed by Section 17(1)(c)(corresponding to Article 96 of the Old Act) read with Article 24 of the Limitation Act, and the plaintiff having discovered the mistake when the Supreme Court finally decided that the levy of such tax was ultra vires and illegal, limitation would run from the date of the decision of Supreme Court and the suit filed within 3 years from the date is within limitation.

71. The Apex Court in State of M.P. v. Bhailal Bhai (supra), reminded the State to repay the amount recovered under a mistake of law, and further observed that the limitation is three years from the date when the mistake is known.

72. I have got no hesitation in accepting that in view of the above, where money is paid under mistake irrespective of the finding, whether the mistake is unilateral or bilateral, such a money is recoverable Under Section 72 of the Contract Act by filing a suit for refund, which is governed by Article 96 of the Old Limitation Act and Section 17(1 )(c) of the New Limitation Act. This limitation would start from the date when the plaintiff discovered the mistake.

73. It is further established that when such payments are made during litigation or for rights which are litigated, the mistake is always said to be discovered when the final judgment of the Apex Court is pronounced in the litigation.

74. From the application of the above principles, it is obvious that the amount of Rs. 5,78,887.13p. was paid as royalty envisaged by Clause 12 of the agreement of 1941 in lieu of the exemptions and concessions which ultimately were declared to be not available and the agreement of 1941 having been declared to be unenforceable. The plaintiff committed mistake under the erroneous impression that the Constitution confers such a right. The aforesaid mistake was discovered only when the Supreme Court in the prolonged litigation finally decided the review petition on 26th October, 1963 and held that as earlier held in appeal, on 27th November, 1962 the agreement was void and unenforceable, the agreement was void.

75. The earliest point for starting limitation would, therefore, be 25th October, 1963 or 27th November, 1962 and as the suit would be governed by Article 96 of the Old Limitation Act and Section 17(1)(c) of the New Limitation Act, the suit is within limitation of 18th March, 1955 when the original suit was filed and further when the amendment application was made on 27th November, 1964 and also on 23rd December, 1964 when the amendment was allowed in consequence of which the amended plaint was filed on 6th January, 1965.

76. Article 62 of the Old Limitation Act has got no application as it is general article to cover the case where the suit is for money received by the defendant for the plaintiff's use. Article 96 of the Old Limitation Act is specific article. This article would prevail and apply in comparison to the general articles. In fact, money paid under a mistake to a person is also money payable by the receipt to the payer which he had received for the payer's use i.e. to say it is money payable by the defendant to the plaintiff for money received by the defendant for the plaintiff's use. Similarly, where a person receives money from another by committing fraud, that person also receives the money for other persons use and that is also the money payable by him to the person from whom money is received. In both the cases the ingredients of money payable by the defendant to the plaintiff for money received by the defendant for the plaintiff's use is present, but for both the above contingencies specific provision has also been made in the Limitation Act for calculating the limitation. In a case where the money is sought to be recovered on the ground that it was paid on account of fraud, a specific provision has been provided under Section 18 of the Old Limitation Act, where it has been specifically stated that the period of limitation shall be computed from time to time when the fraud first became known to the petitioner injuriously affected thereby. Similarly where the money has been received by the defendant because the plaintiff was labouring under a mistake, the suit to recover such amount paid under mistake shall be governed by the specific provision provided under Article 96 of the Act, which provides that in the event the relief is claimed on the ground of mistake, the limitation shall commence from the date when the mistake is known to the plaintiff. Taking any other view would render the provision like Section 18 and Article 96 of the Old Act or for that matter, Section 17 of the New Act otiose. On the well settled canons of interpretation, such an interpretation cannot be given, as is contended by the defendant appellant which will render some provision of the Act as otiose.

77. Shri Balia's last contention that, when applying statutes of limitation if two articles are applied for the same cause of action, this Court should choose the article while keeps alive remedy rather than one which bars the claim, cannot be termed as inapplicable in view of the decisions of the Supreme Court in M/s K.S. Venkataraman and Co. v. State of Madras : [1966]60ITR112(SC) wherein it has been held that the suit was filed on March 23, 1955, which was within 3 years from the date of the said knowledge of mistake and, therefore, it was clearly within time under Article 96 of the Limitation Act.

78. The Trial Court has already held that the decisions in Mubarak Hussain v. State of Rajasthan would not apply in the present case. The trial Court has also rightly relied upon the decision in S.R. Manichavagam v. C. Muthuveeraswami Naidu : AIR1963Mad362 in which it was held that when there is a special article and in case of mistake Article 96 would apply.

79. I am in agreement with the view taken by the trial Court in toto and, therefore, I would not repeat the various references made by the trial court in its judgment in support of the finding that in the present suit, the limitation would start from the date of the final judgment of the Supreme Court and further that Article 96 of the Old Limitation Act would apply and on account of that, the entire claim in the plaint in within limitation and not beyond limitation.

80. The contention of Shri Udawat that the plaint was time barred, is, therefore, rejected.

81. So far as the notice Under Section 80, CPC is concerned, a valid notice was given as discussed by the trial Court while deicing issue No. 9. In this connection, the evidence of Mohanlal Gupta (PW 1) and Chitranjan Verma (PW 2) is relevant. Mohanlal Gupta (PW 1) was the Assistant Manager with the plaintiff. Mohanlal Gupta (PW 1) stated that notice was issued to the Rajasthan State through Ghisulal Advocate and carbon copy of this notice is Ex. 21. According to him, it was signed by Ghishulal Advocate in the original copy in his presence and they were sent to the Union of India and State of Rajasthan, including Income Tax Officer Jodhpur by a registered post The postal receipts of which were submitted and are Exs. 26 to 29. Chitranjan Verma (PW 2) has corroborated this version. According to him, he typed the original notices which were signed by his father. Another notice (Ex. 31) was sent during the pendency of the suit and prior to the amendment in the plaint which has also been proved by Mohanlal Gupta (PW 1) who has produced carbon copy as Ex. 13. Para 5 of this notice makes a reference to the Supreme Court decision in paras 9 and 11 deal with the amendments and relief as contained in the copy of the amended application which was annexed to it.

82. The trial Court placing reliance upon the decision of Bommidala Poornaish v. Union of India AIR 1967 AP 338 and State v. A.S.I. Kota Ltd. AIR 1971 Raj. 128 held that even if there is omission in the notice in respect of one of the grounds to which relief was given it would not amount to non-compliance of Section 80 CPC and the Court can grant relief.

83. Confronted with the above, established legal position and unsure countable difficulty in disproving the facts, the learned Counsel for the appellant State could not show, how there is any infirmity in the decision of issue No. 9.

84. Consequently, I am of the opinion that there was no infirmity or defect in giving of notice and compliance of Section 80 CPC in the present suit. In view of the above, this appeal filed by the State deserves to be dismissed.

85. However, before passing the formal order of dismissal of the said appeal, I would like to take up the cross-objection of the plaintiff-respondent which relates to the interest on the claimed amount which has not been grant ed by the trial Court. The Trial Court has passed a money decree for refund of Rs. 5,78,887.13p. which I am confirming while rejecting the appeal of the State-appellant.

86. The pendente lite and future interest on the decretal amount and so also the costs have not been awarded. Obviously, no reason can be decipher ed from the impugned judgment.

87. The State even after merger continued to accept the amount of royalty though it did not allow exemptions from 2nd June, 1949 to 22nd January, 1954. Obviously, the State became conscious that after coming into force of the Constitution it should not respect the agreement of the erstwhile Ruler of Jodhpur with the Mills-plaintiff. As a logical and legal corollary of it the State should have stopped recovering royalty on net profits as per Clause 12 which ultimately stopped after 22nd January, 1954.

88. The liability of the State under the agreement of 1941 for granting exemptions ceased & the agreement was not binding, was agitated by the State in the written statement on 22nd September, 1952 in the earlier suit also as alleged in the written arguments and which is not in dispute.

89. It would thus be seen that the State was recovering the royalty after coming into force of the Constitution and merger of the State unauthorisedly according to the stand which the State has taken in respect of the agreement being void. In all, fairness, the State should have refunded the amount of royalty immediately on realisation even if it is accepted under mistake for some time after merger. Instead of refund of amount, the State of Rajasthan not only failed to respond the notices but resisted the suit for the refund of the amount and seemingly there was no justification for such a resistance.

90. In my opinion, a social welfare State or for that reason, any State worth its name should act fairly to all citizens. It should not have accepted the amount of royalty and in any case should have refunded it at the earliest opportunity.

91. Even if earlier to 22nd January, 1954 it was not realising the mistake, the fact that it realised it, after realisation goes to show that there was no justification in retaining the amount thereafter. In view of this, the plaintiff is entitled to pendente lite interest and future interest as envisaged under Section 34 CPC.

92. This Court has held repeatedly in Gheesalal v. Molia and Anr. and Kishanlal v. Mst. Prabhu that pendente lite and future interest should be allowed unless there are reasons to deprive the successful plaintiff of it. Such reasons must be indicated.

93. Obviously, the Trial Court has got no reason and even before me no such reason has been given either during verbal arguments or by submitting written arguments.

94. Their Lordships of Nagpur High Court took the similar view in Ganpatrao Kadu v. Ramrao Balasaheb Dhote AIR 1943 Nagpur 240.

95. As I have stated above, in the instant case, the amount was received by the defendant State of Rajasthan from 2-6-1949 to 22-1-1954 and the amount was not paid to the plaintiff not with standing the stand taken by the State of Rajasthan that the said agreement is not binding on them and according to their own stand, they were not entitled to receive the amount of royalty to the tune of Rs. 5,78,887.13 and the money has been kept by the State and enjoyed by it even by contesting the suit on most unjust grounds and deprived the plaintiff of the use of its money for more than 20 years. Even after the decree was passed, the State preferred wholly an untenable appeal and was not prepared to refund the amount which was justly to be refunded to the plaintiff. In these circumstances, there is no reason why the plaintiff should not be allowed the pendente lite and future interest from the date of suit or decree till realisation.

96. Since no reason has been given by the trial Court nor it has been shown to me and as I am, therefore, of the opinion that the retention of the money by the State was unjust and unfair after having scraped the agreement in question as void and disallowed the exemption; I have got no other alternative but to allow the pendente lite and future interest to the plaintiff at the rate of 6% p.a. However, this interest would not be allowed from the date of filing of the original plaint but, I would allow it only from the date of the suit with amendment, i.e. 6th January, 1965.

97. Similarly, the trial Court has refused to allow the costs without assessing any good ground. Normally, the established principle is that the costs should follow result. Obviously, the State resisted a just claim on untenable and unjust grounds. Even the point of limitation and frivolous objection regarding notice of Section 80 CPC were taken though it has been repeatedly observed by the Apex Court that the objection of limitation though permissible under law, should not be taken by a welfare State. The suit was contested at all stages and even the amendments were contested, with the result that three revision petitions were accepted by this Court vide judgment of jagat Narayan, J., as he then was, dated the 5th July, 1966.

98. Once the State decided not to honour and respect and rectify the agreement of 1941, it should have in all fairness stopped realising the royalty which was being realised on net profits under Clause 12 of the agreement of 1941 in lieu of the benefit conferred by the agreement which has since been denied contrary to it. It persisted on realisation and then contesting the notice and suit at all stages. In view of such a conduct it would be putting premium on the State's tendency of not avoiding litigation if the costs are not allowed. I would therefore allow the costs of the suit as well as this appeal against the state. 99. In view of the above the cross objection is accepted and the respondent plaintiff would get interest on the suit amount from the date of the amended plaint i.e. 6th January 1965 till the date of decree @6% p.a. and further get future interest @6% p.a. on the decretal amount from the date of the decree till, he realisation. The parties would get proportionate costs on the basis of their success in suit as well as the appeal and cross objection.

99. consequently the appeal is dismissed and the cross objection is partially accepted as indicated above.


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