MAHABIR KISHORE & ORS. v. STATE OF MADHYA PRADESH

Citation: [1989] 3 S.C.R. 596

Court: Supreme Court of India

Bench: G.L. OZA, K.N. SAIKIA

Case summary

this 7-1/2 per cent were pending in the Madhya Pradesh High Court, the Government announced that it would continue to charge it and the question of stopping it was under consideration of the Government whose decision would be binding on the contractors....

Judgment text

The Judgment of the Court was delivered by SAIKIA, J. This plaintiffs' appeal by special leave is from the -:f appellate Judgment of the Madhya Pradesh High Court dismissing the appeal upholding the Judgment of the trial court dismissing the plaintiffs' suit on the ground of limitation. A registered firm Rai Saheb Nandkishore Rai Saheb Jugalki· ;-_ MAHABIR KISHORE v. STATE OF M. P. [SAIKIA, J. ] S99 •- ns under Article 226 of the Constitution of )I"-, " i, India. Though there is no constitutionally provided period oflimitation for petitions under Article 226, the limitation prescribed for such ;;; suits has been accepted as the guideline, though little more latitude is available in the former. t A tax paid under mistake of law is refundable under s. 72 of the Indian Contract Act, 1872. In Sales Tax Officer v.

Kanhaiya Lal, [1959] SCR 1350 where the respondent, a registered firm, paid sales -j tax in respect of the forward transactions in pursuance of the assessment orders passed by the Sales Tax Officer for the year 1949-51; in 1952 the Allahabad High Court held in Mis Budh Prakash Jai Prakash v. Sales Tax Officer, Kanpur, [1952] AU 332 that the levy of sales tax ; /on forward transactions was ultra vires. The. respondent asked for a refund of the amounts paid, filing a writ petition under Ariticle 226 of MAHABIR KISHORE v. STATE OF M. P. [SAIKIA, J. ] 605 ~ the Constitution.

It was contended for the Sales Tax Authorities that 1 the respondent was not entitled to a refund because (1) the amounts in dispute were paid by the respondent under a mistake of law and were, therefore, irrecoverable, (2) the payments were in discharge o(the liability under the Sales Tax Act and were voluntary payments without protest, and (3) inasmuch as the monies which had been received by the Government had not been retained but had been spent away by it and the respondent was disentitled to recover the said amounts. This Court held that the term "mistake" ins. 72 of the Indian Contract Act comprised within its. scope. a mistake of law as well as a mistake of fact and that, under that section a party is e. ntitled to recover money paid . ~Y mistake or under coercion, and if it is established that the payment, ·even though it be of a tax, bas been made by the party labouring under a mistake of law, the party receiving the money is bound to repay or . ,..

_ return it though it might have been paid voluntarily, subject, however, to questions of estoppel, waiver, limitation or the like. On the question of limitation, it was held thats. 17(1)(c) of the Limitation Act, 1%3 would be applicable and that . where a suit will be to recover "monies paid under a mistake of law, a writ petition within the period of limitation prescribed, i. e. , within 3 years' of the knowledge of the mistake, would also lie. " It was also accepted that the period of limitation does not begin to run until the plaintiff has discovered the mistake or could, with reasonable diligence, have discovered it. 1 The money may not be recoverable if in paying and receiving it the parties were in pari delicto. In Kiriri Cotton Co. Ltd. v. Ranchhoddas Keshavji Dewani, (1960] AC 192, where the appellant company, in consideration of granting to the respondent a sub-lease asked for and received from him a premium of Sh. 10,000 and the latter. claimed· .

refund thereof, the Privy Council held that the duty of observing ihe ,~ law was firmly placed by the Ordinance on the shoulders of d! e landl<>rd for the protection of the tenant, and the appellant company and the respondent were not therefore . in pari delicto in receiving and paying respectively the illegal premium, which, therefore, in accilrdance with established common law principles, the respondent was entitled to recover from the landlord and that the omission of a statutory remedy did not in cases of this kind exclude the remedy by money had and received. In the instant case also the parties could not be said ~- to be in pari delicto in paying and receiving the extra 7-1/2% per cent. Had the appellants not paid this amount, they would not have been given the contracts. In D. Cawasji & Co. v. The State of Mysore & Anr.

, 11975] 2 SCR 511, the appellants paid certain amount to the Governlnent as excise duty and education cess for the years 1951-52 to 1965-66 in one ~··"' case and from 1951-52 to 1%1-62 in the other. The High Court struck,·-= down the provisions of the relevant Acts ~ unconstitutional. In Writ ;·Petitions before the High Court claiming refund, the appellants con- , te'nded that the payments in question were made by them under mistake of law; that the mistake was discovered when the High Court struck down the pmvisions as unconstitutional and the petitions were, therefore; in time but the High Court dismissed them on the ground of inordinate delay. Dismissing the appeals, this Court held that where a { suit would lie to recover monies paid under a mistake of law; a writ ~ petition for refund of tai within th& period of limitation would lie.

For filing a wnt i>etition to recover the money paid under a mistake of law 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. It was held in D. Cawasji (supra) that although s. 72 of the Contract Act has been held to cover cases of payment of money under a mistak~. of law, as the State stands in a peculiar position in respect of k . taxes paid to it; there are perhaps practical reasons for the law according different treatment both in the matter of the heads under which they could be recovered and the period oflimitation for recovery. P. N. Bhagwati, J. , as he then was, in Madras Pon Trust v. Hymanshu International, [1979] 4 SCC 176, deprecated any resort to plea of limitation by public authority to defeat just claim of citizens observing that though permissible under law, such technical plea should only be taken when claim is not well founded.

Section 17(1)(c) of the Limitation Act, 1963, provides that in the case of a suit for relief of the ground of mistake, the period of limitation does not begin to run until the plaintiff had discovered the mistake or could with reasonable diligence, have discovered it. In a case where , payment has been made under a mistlike of law as contrasted with a '·. mistake of fact, generally the mistake become known to the party only when a court makes a declaration as to the invalidity of the law. y- ··-··Though a party could, with rea5onable diligence, discover a mistake ofl . fact even before a court makes a pronouncement, it is seldom that a / person can, even with reasonable·'diligence, discover a mistake of law · before a judgment adjudging the validity of the law. · E. S. Venlr. ataramiah, J. , as his Lordship then was, in Shri Vallabh Glass Works Ltd. v: Union ofIndia, (1984) 3 SCR 180, where+,..

the appellants claimed refund of excess duty paid under Central Excise and Salt Act, 1944, laid down that the excess amount paid by the appellants would have become refundable by virtue of s. 72 of the ·( MAHABIR KlSHORE v. STATE OF M. P. {SA! KIA, J. I 607 Indian Contract Act if the appellants had filed a suit within the period of limitation; and thats. 17(l)(c) and Article 113 of the Limitation Act, 1963 would be applicable. In Commissioner ofSales Tax, U. P. v. Mis Auriaya Chamber of Commerce Allahabad, I1986] 3 SCC 50, the Supreme Court in its decision dated May 3, 1954 in Sales Tax Officer v. Budh Prakash Jai Prakash, [1954] 5 STC 193 having held tax on forward contracts to be illegal and ultra vires the U. P. Sales Tax Act, and that the decision was applicable to the assessee's case, the assessee filed several revisions for qua,hing the assessment order for the year 1949-50 and for subsequent years which were all dismissed on ground of limitation.

In appeal to this Court Sabyasachi Mukharji, J. while dismissing the appeal held ···~ that money paid under a mistake of law comes within mistake in s. 72 . ,... of the Contract Act; there is no question of any estoppel when the mistake of law is common to both the assessee and taxing authority. His Lordship observed thats. 5 of the Limitation Act, 1908 and Article 96 of its First Schedule which prescribed a period of 3 years were applicable to suits for refund of illegally collected tax. In Salonah Tea Co. Ltd. & Ors. v. Superintendent of Taxes, Nuwgung and Ors. , [19881 1 SCC 401, the Assam Taxation (on Goods carried by Road or Inland Waterways) Act, 1954 was declared ultra vies the Constitution by the Supreme Court in Atiabari Tea Co. Ltd. v. State ofAssam, AIR 1961 SC 232. A subsequent Act was also declared ,/ ultra vires by High Court on August 1, 1963 against which the State of Assam and other respondents preferred appeals to Supreme Court.

Meanwhile the Supreme Court in a writ petition Khyerbari Tea Co. Ltd. v. State of Assam, [1964] 5 SCR 975, declared on December 13, 1963 the Act to be intra vires. Consequently the above appeals were allowed. Notices were, therefore, issued requiring the appellant under s. 7(2) of the Act to submit returns. Returns were duly filed and ·~ assessment orders passed thereon. On July 10, 1973, the Gauhati High Court in its Judgment in Loong Soong Tea Estate's case, Civil Rule No. 1005 of 1969, decided on July 10, 1973, declared the assessment to be without jurisdiction. In November, 1973 the appellant filed writ petition in the High Court contending that in view of the decision in Loong Soong Tea Estate's case he came to know about the mistake in paying tax as per assessment order and also that he became entitled to refund of the amount paid.

The High Court set aside the order and the notice of demand for tax under the Act but declined to order refund of the taxes paid by the appellant on the ground of delay and ! aches as in view of the High Court it was possible for the appellant to know about (\ the illegality of the tax sought to be imposed as early as in 1963, when ! '- ' the Act in question was declared ultra vires. Allowing the assessee's appeal, Mukharji, J. speaking for this Court held: "In this case indisputably it appears that tax was collected without the authority of law. Indeed the appellant had to pay the tax in view of the notices which were without jurisdiction. It appears that the assessment was made under section 9(3) of the Act. Therefore, it was without jurisdiction. In the premises it is manifest that the respondents had no authority to retain the money collected without the authority of law and as such the money was liable to ~' refund. " The question there was whether in the application under Art.

226 of the Constitution, the Court should have refused refund on ground'of ! aches and delay, the case of the appellant having been that it was after the Judgment in the case of Loong Soong tea Estate, the cause of action arose. That judgment was passed in July, 1973. The High Court was, therefore, held to have been in error in refusing to order refund on the ground that it was possible for the appellant to know about the legality of the tax sought to be imposed as early as 1973 when the Act in question was delcared ultra vires. The Court observed: "Normally speaking in a society governed by rule of law taxes should be paid by citizens as soon as they are due in accordance with law. Equally, as a corollary of the said statemenf of law it follows that taxes collected without the authority of law as in this case from acitizen should be refunded because no State has the right to receive or to ~' retain taxes or monies realised from citizens without the authority of law.

" On the question of limitation referring to Suganmal v. State of M. P. , AIR 1965 SC 1740, and Tilokchand Motichand v. H. B. Munshi, [1969) 2 SCR 824, his Lordship observed that the period of limitation prescribed for recocery of money paid by mistake started from the date when the mistake was known. In that case knowledge was attributable -'f from the date of the Judgment in Loong Soong Tea Estate's case on July 10, 1973. There had been statement that the appellant came to know of that matter in October, 1973 and there was no denial of the averrnent made. On that ground, the High Court was held to be in MAHABIR KISHORE '· STATE OF M. P. {SAIKIA, J. J 609 error. It was accordingly held that the writ petition filed by the appel- Iants were within the period of limitation prescribed under Art. 113 of the Schedule read withs. 23 of the Limitation Act, 1963. It is thus a settled law that in suit for refund of money paid by ~ mistake of law, s.

72 of the Contract Act is applicble and the period of limitation is three years as prescribed by Article 113 of the Schedule to the Indian Limitation Act, 1963 and the provisions of s. 17(l)(c) of that Act will be applicable so that the period will begin to run from the date of knowledge of the particular law, whereunder the money was ~paid, being declared void; and this court be the date of judgment of a 1 competent court declaring that law void. . In the instant case, though the Madhya Pradesh High Court in Surajdin v. 'stale of M. P. , declared the collection on 7-1/2% per cent illegal and that decision was reported in 1960 MPLJ 39, the Government was still charging it saying that the matter was under consideration of the Government. The final decision of the Government as stated in the letter dated 17. 10. 1961 was purely an internal communication of the Government copy whereof was never communicated to the appellants or other liquor contractors.

There could, therefore, be no question of the limitation starting from that date. Even with reasonable diligence, as envisaged ins. 17(1)(c) of the Limitation Act, the appellants would have taken at least week to know about it. Mr. Rana has fairly stated that there was nothing on record to show that the : E appellants knew about this letter on 17. 10. 1961 itself or within a reasonable time thereafter. We are inclined to allow at least a week to the appellants under the above provision. Again Mr. Rana has not been in a position to show that the statement of the appellants that they knew about the mistake only after the judgment in Doongaji's case reported in 1962 MPLJ 130, in or about September, 1962, whereafter they issued the notice under s. 80 C. P. C. was untrue. This statement has not been shown to be false. In either of the above cases, namely, of knowledge one week after the letter dated 17. 10.

1961 or in or about September, 1962, the suit would be within the period of limitation under Article 113 of the Schedule to the Limitation Act, 1963. • In the result, we set aside the Judgment of the High Court, allow the appeal and remand the suit. The records will be sent down (orthwith to the trial court to decide the suit on merit in accordance with law, expeditiously. The appellants shall be entitled to the costs of this appeal. R. N. J. Appeal allowed.