Introduction

• 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.

What are the Landmark Judgments of Doctrine of Restitution?

• Mohori Bibee v. Dharmodas Ghose (1903):
  • This seminal case highlighted the necessity of restitution in contracts involving a minor’s agreement.
  • The court emphasized the importance of restoring parties to their pre-contractual positions in situations where contracts are void ab intio due to incompetent parties.
• Sadasiva Panda v. Prajapati Panda (2017):
  • The defendant agreed to sell his property to the plaintiff for Rs. 5000, with an advance payment of Rs. 2600.
    • However, the defendant sold the property to someone else, refusing ownership rights to the plaintiff.
  • The plaintiff filed a case under Section 65 of ICA, and the court applied the Doctrine of Restitution, ruling the defendant's actions as wrongful.
    • The plaintiff was deemed eligible for the restitution of the advance payment.