Section 72 enacts :
“A person to whom money has been paid or anything delivered by mistake or under coercion must repay or return it.”
This section makes no distinction between mistakes of fact and mistakes of law, but it must of course be read together with the rest of the Act and in particular with Sections 21 and 22 which also deal with mistake. Section 21 enacts :
“A contract is not voidable because it was caused by a mistake as to any law in force in British India, but a mistake as to a law not in force in British India has the same effect as a mistake of fact.”
Section 22 enacts :
“A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.”
The construction of Section 72 has given rise to differences of opinion in India. There is a considerable body of authority dealing with the meaning of “coercion” in this section but their Lordships have not found in those authorities anything which is of material assistance in deciding the present case. The authorities which deal with the meaning of “mistake” in the section are surprisingly few and it cannot be said that there is any settled trend of authority. Their Lordships are, therefore, bound to consider this matter as an open question.
Those learned Judges who have held that mistake in this context must be given a limited meaning appear to have been largely influenced by the view expressed in Pollock and Mulla’s commentary on Section 72, Contract Act, where it is stated (Contract and Specific Relief Acts, 1931 Edn. p. 402) :
“Mistake of law is not expressly excluded by the words of this section : but Section 21 shows that it is not included.”
For example in Wolf and Sons v. Dadiba Khimji and Co, 44 Bom. 631 : (AIR. (7) 1920 Bom. 192), Macleod J, said (p. 648) referring to Section 72, “On the face of it mistake includes mistake of law. But it is said that under Section 21 a contract is not voidable on the ground that the parties contracted under a mistaken belief of the law existing in British India, and the effect of that section would be neutralised if a party to such a contract could recover what he had paid by means of Section 72 though under Section 21 the contract remained legally enforceable. This seems to be the argument of Messrs. Pollock and Mulla and as far as I can see it is sound.”
In Appavoo Chettiar v. South Indian Railway, AIR. (16) 1929 Mad. 177 : (114 IC 358), Ramesam and Jackson JJ. say :
“Though the word mistake in Section 72, is not limited it must refer to the kind of mistake that can afford a ground for relief as laid down in Sections 20 and 21 of the Act …. Indian law seems to be clear, namely, that a mistake in the sense that it is a pure mistake as to the law in India resulting in the payment by one person to another and making it equitable that the payee should return the money is no ground for relief.”
Their Lordships have found no case in which an opinion that “mistake” in Section 72 must be given a limited meaning has been based on any other ground. In their Lordships’ opinion, this reasoning is fallacious. If a mistake of law has led to the formation of a contract, section 21 enacts that that contract is not for that reason voidable. If money is paid under that contract, it cannot be said that that money was paid under mistake of law : it was paid because it was due under a valid contract, and if it had not been paid payment could have been enforced. Payment “by mistake” in Section 72 must refer to a payment which was not legally due and which could not have been enforced : the “mistake” is thinking that the money paid was due when in fact it was not due. There is nothing inconsistent in enacting on the one hand that if parties enter into a contract under mistake in law that contract must stand and is enforceable, but on the other hand that if one party acting under mistake of law pays to another party money which is not due by contract or otherwise, that money must be repaid.
Moreover if the argument based on inconsistency with Section 21 were valid, a similar argument based on inconsistency with Section 22 would be valid and would lead to the conclusion that Section 72 does not even apply to mistake of fact. The argument submitted to their Lordships was that Section 72 only applies if there is no subsisting contract between the person making the payment and the payee and that the Contract Act does not deal with the case where there is a subsisting contract but the payment was not due under it. But there appears to their Lordships to be no good reason for to limiting the scope of the Act.
Once it is established that the payment in question was not due, it appears to their Lordships to be irrelevant to consider whether or not there was a contract between the parties under which some other sum was due their Lordships do not find it necessary to examine in detail the Indian authorities for the wider interpretation of “mistake” in Section 72.
They would only refer to the latest of these authorities Pannalal v. Produce Exchange Co. Ltd., AIR 1946 Calcutta 245 : (80 CLJ 170), in which a carefully reasoned judgment was given by Sen J. Their Lordships agree with this judgment. It may be well to add that their Lordship’s judgment does not imply that every sum paid under mistake is recoverable no matter what the circumstances may be. There may in a particular case be circumstances which disentitle a plaintiff by estoppel or otherwise.
Reference
Edited excerpt from the Judgement Sri Sri Shiba Prasad Singh Versus Maharaja Srish Chandra Nandi and another (1949)