Source: Supreme Court 

Why in News? 

Recently, the bench of Justices JB Pardiwala and R Mahadevan have held that a person deprived of the use of money he was entitled to has the right to be compensated for the deprivation, in the form of interest. 

• The Supreme Court held this in the matter of Dr. Poornima Advani & Anr. V. Government of Nct & Anr. (2025). 

What was the Background of Dr. Poornima Advani & Anr. v. Government of NCT & Anr. Case? 

• The Appellant purchased an e-stamp paper worth ₹28,10,000 to buy property. 
• The e-stamp paper was misplaced by the broker, causing a delay in the property purchase. 
• Due to the loss of the original e-stamp paper, the Appellant had to purchase another e-stamp paper to proceed with the property transaction. 
• The Appellant filed a police complaint regarding the loss of the e-stamp paper. 
• The Appellant also published a newspaper notice informing us about the loss of the e-stamp paper. 
• Subsequently, the Appellant filed an application before the Collector claiming a refund of the amount paid for the lost e-stamp paper. 
• The Appellant contended that the department was unjustly enriched by retaining the e-stamp amount without legal justification. 
• The Collector of Stamps rejected the Appellant's application for refund. 
• The Appellant then approached the High Court challenging the Collector's decision. 
• The High Court ordered the refund of the e-stamp amount but denied interest on the amount for the period of deprivation. 
• Aggrieved by the denial of interest, the Appellant filed an appeal before the Supreme Court. 
• The Appellant's primary contention was that they were entitled to interest as compensation for being deprived of the use of the money paid for the e-stamp paper. 

What were the Court’s Observations? 

• The Supreme Court made the following observations: 
  • Found merit in the Appellant's contention regarding interest. 
  • Held that the Appellant was entitled to interest on the refunded e-stamp amount 
  • Observed that when a person is deprived of the use of money they are legitimately entitled to, they have a right to be compensated through interest 
  • Applied the doctrine of restitution, which requires restoring to a party what has been lost due to wrongful retention of money 
  • Explained that interest is a normal accretion on capital and serves as compensation for being unable to use one's rightful funds 
  • Ruled that interest should be awarded when money is wrongfully retained 
  • Directed the respondents to pay ₹4,35,968 towards interest within two months 
• The Supreme Court essentially established that the principle of compensation applies even when there is no express statutory provision for payment of interest on refunded amounts. 

What is the Doctrine of Restitution? 

• The Doctrine of Restitution, as envisaged in the Indian Contract Act, 1872 (ICA) pertains to the restoration of benefits received by a party under a contract that is subsequently declared void or unenforceable. 
  • However, it is not explicitly mentioned in ICA. 
• The scope of restitution extends beyond mere compensation and seeks to eliminate any unjust enrichment resulting from a flawed or unfulfilled contract. 
• Essentially, it is designed to prevent a party from unjustly retaining the benefits derived from a contract that fails for legal reasons. 

Which Provision of ICA Covers Doctrine of Restitution? 

Section 65 - Obligation of person who has received advantage under void agreement or contract that becomes void: 

• This section deals with situations where an agreement is discovered to be void or becomes void. 
• In such cases, a person who has received any advantage under the agreement is bound to restore it or to make compensation for it to the person from whom he received it. 

What is the Application of Doctrine Restitution? 

• Void Contracts: 
  • When a contract is declared void, restitution becomes imperative. 
  • Parties involved are obligated to return any benefits received, ensuring neither party gains an undue advantage from a contract that lacks legal validity. 
• Failure of Consideration: 
  • Restitution comes into play when a contract fails due to lack or failure of consideration. 
  • If one party has already received benefits without fulfilling their part of the bargain, restitution requires the return of those benefits. 
• Mistake, Coercion, or Fraud: 
  • Restitution is triggered when a contract is tainted by mistake, coercion, or fraud, rendering it voidable. 
  • In such cases, the innocent party is entitled to restitution, ensuring they are restored to their pre-contractual position. 
• Quasi-Contracts: 
  • The doctrine extends to quasi-contractual situations where there is no express contract but a legal obligation to restore benefits arises. 
  • This is often seen in cases of quantum meruit or unjust enrichment. 

What are the Exceptions of Doctrine of Restitution? 

• In situations where: 
  • Parties are acquainted with the fact that the agreement is void. 
  • Incompetent parties enter into agreement. 
  • The party is obligated to provide a certain amount of earnest money as a form of security but subsequently fails to meet this obligation.

Landmark Judgments 

• Secretary, Irrigation Department, Government of Orissa v. G.C. Roy (1992) 
  • Courts have inherent power to award interest even without specific statutory provisions. 
  • Interest is a natural compensation for money deprivation. 
  • Money has "time value" - its deprivation causes compensable loss. 
  • Interest should be awarded from the date the amount became due until payment. 
• Authorised Officer Karnataka Bank v. M/s R.M.S. Granites Pvt. Ltd. 
  • Money retained without right automatically carries the right to interest. 
  • Based on the doctrine of unjust enrichment. 
  • Government/entities cannot escape paying interest when wrongfully retaining others' money. 
  • Interest is payable even without express statutory provisions.