Holding

The owner is liable to return the plaintiff’s money under the doctrine of undue enrichment, and the lack of privity of contract is a specious defence.

Summary

The plaintiff paid Rs.1 lakh each to the property owner (defendant 1) and his agent (defendant 2) based on a written authorisation allowing the agent to sell the ground floor. The sale fell through; the agent returned Rs.50,000 but the owner refused to refund his share, denying any contractual relationship with the plaintiff. The trial court dismissed the plaintiff’s claim against the owner on the ground of lack of privity, a decision affirmed by the High Court. On appeal, the Supreme Court held that the owner’s defence of no privity was a specious plea because the plaintiff’s payment was not gratuitous and the owner was unjustly enriched. Applying Sections 70 and 72 of the Indian Contract Act and the doctrine of quasi‑contract, the Court ordered the owner to repay the amount with interest and costs, and criticised the lower courts for not invoking Order X of the CPC or Section 73 of the Evidence Act to resolve the signature dispute. The appeal was allowed and the judgments of the lower courts were set aside.

Issues considered

Whether the owner (defendant 1) is liable to return the money paid by the plaintiff despite the absence of a direct contract between them.
Whether the doctrine of undue enrichment/quasi‑contract under Sections 70 and 72 of the Contract Act applies.
Whether the trial court should have examined the disputed signatures under Section 73 of the Evidence Act and proceeded under Order X of the CPC.

Legislation cited

Code of Civil Procedure, 1908s. Order X Rule 2
Indian Contract Act, 1872s. 70, s. 72
Indian Evidence Act, 1872s. 73

Subjects

undue enrichmentquasi‑contractrestitutionprivity of contractSection 70Section 72signature comparisonsubstantial justicecivil procedurecontract law

Judgment

,
K.S. SATY ANARA YANA A
v.
V.R. NARA YANA RAO

JULY 27, 1999

[S. SAGHIR AHMAD AND D.P. WADHWA, JJ.] B

Contract Act, 1872: Sections 70 and 72.

Undue enrichment-Privily of contract-Lack of -Plaintiff entered
into an agreement to sell, with defendant No. 2, on being so authorised in c
writing and signed by defendant 1(owner)-Plaintiff paid Rs. 1 lakh each to
defendants Nos. 1 and 2-Agreement to sell fell through-Plaintiff demanded I
money back and filed suit for recovery against both defendants-Suit decreed
against defendant No. 2, but dismissed against defendant 1 for lack privily .
ofcontract-Held: Lack ofprivily ofcontract is a specious plea when defendant D
No. 1 received the money and payment was not gratuitously made-High
Court and Trial Court not attentive to procedural laws and their duty to do
substantial justice-Courts below erred in going into the question of privily
of contract and in dismissing plaintiffs suit against defendant No. 1.

Code of Civil Procedure, 1908: Order JO, Rule 2.
E
Substantial justice-Defendant did not deny receiving money but denied
r his signatures on the written authorisation, written statement and
vakalatnama-Held: Falsehood is writ large on the face of such denial-
Trial Court should have probed into the matter and also recorded the
statement of defendant's counsel-Instead of going into a protracted trial, p
Trial Court could have decreed the suit for recovery at the stage Order X
C.P.C. (Examination of Parties by the Court) itself-Practice and Procedure.

Evidence Act, 1872: Section 73.

Signature-Comparison of-Defendant denied his signatures on various G
documents, vakalatnama and written statement-Held: Trial Court should
have compared the signatures with the admitted signature of the defendant.

Words and Phrases:

"Specious plea" and "quasi contract"-Meaning of
1213 H
1214 SUPREME COURT REPORTS [1999) 3 S.C.R.

A Doctrines:

Doctrine of undue enrichment-Doctrine of restitution.

The respondent-defendant No. 1 entered into an agreement with
defendant No. 2 to sell his property. Defendant No.1 further in a signed
B written letter authorised defendant No. 2 to enter into any sale agreement
of the said property with anyone. On the strength of this written authorisation,
defendant No. 2 entered into an agreement with the appellant-plaintiff to sell
the ground floor of the said property for a certain consideration. The appellant-
plaintiff also made payments by cheque of Rs. 1. lakh each to defendant Nos.
C 1 and 2. The agreement to sell with defendant No. 2, however, fell through
and the appellant demanded his money back. Defendant No. 2 repaid Rs.
50,000, but defendant No.1 refused to return the money.

The appellant filed a suit for recovery against defendant No.1 for Rs.
1 lakh and for the balance amount against defendant No. 2. At the trial
D respondent-defendant No.1 did not unequivocally deny the receipt of Rs. 1
lakh form the appellant-plaintiff but stated that defendant No •. 2 had handed
over the cheque to him. Defendant No.1 also denied his signatures on the
written autborisation, the agreement to sell entered into between the appellant

E
and defendant No. 2 the written statement and the vakalatnama in favour of
his counsel. The suit was decreed against defendant No. 2 but dismissed
against defendant No.1 on the ground that there was no privity of contract
between the appellant and defendant No.1. The appellant's appeal to the High
-
Court met with the same fate. Hence this appeal.

Allowing the appeal, this appeal.

F HELD : 1. After the 1st defendant admitted having received rupees one
lakh from the plaintiff he could not retain that money having received on the
specious plea that there was no privity of contract between him and the

G
plaintiff. The plaintiff had given the amount of rupees one lakh to him, as
he wanted to purchase the grouno floor of his property. The agreement to
sell for this purposeiwas entered into through the 2nd defendant whom the
1st defendant had authorised to enter into any such agreement on his behalf.
-
The plaintiff could not have paid to the 1st defendant rupees one lakh but for
the agreement to sell in respect of the ground floor of his property. It is only
on the basis of this agreement which is entered into by the 2nd defendant
on the strength of the written authorisation, that the plaintiff paid rupees one
H lakh each to the 1st and 2nd defendants. If the pleadings of the 1st defendant
K.S. SATYANARAYANAv. V.R. NARAYANARAO [D.P. WADHWA, J.) 1215
are accepted, then it would have to be said that the plaintiff under some A
mistake had given the amount of rupees one lakh. In any case, it was not a
payment gratuitously made. Doctrine of undue enrichment would squarely
apply in the present case and the plaintiff would be entitled to restitution as
provided under Sections 70 and 72 of the Contract Act, 1872. [1218-E-G] ·

Mulamchand v. State of MP., AIR (1968) SC 1218, relied on. B
Bibrosa v.· Fairbairn, (1943) AC 32 and Nelson v. Larholt, (1948) IKB
339, cited.

2.1. When the 1st defendant denied his signatures on the written
authorisation, written statement and vakalatnama in favour of his counsel, C
falsehood is writ large on the face of such denial. The Trial Court should
have immediately probed into the matter and recorded the statement of the
counsel for the 1st defendant. The Trial Court could have also compared the
signatures of the 1st defendant with his admitted signature as provided in
Section 73 of the Evidence Act, 1872. Instead of going into a protracted trial, D
the Trial Court could have decreed the suit of the plaintiff against the 1st
defendant as well at the stage of Order X (Examination of Parties by the
Court) of the Code of Civil Procedure, 1908 itself. (1217-G; 1218-E)

2.2. It is unfortunate that the courts below were not attentive to the
procedural laws and their duty to do substantial justice in the case. Had that E
been so, the plaintiff would have been spared the tribulations of knocking at
the doors of the highest court of the land. The Courts below fell into error
in going into the question of privity of contract and lost sight of the basic
issue involved in the case. (1220-G)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4048 of F
1999.

From the Judgment and Order dated 3.3.98 of the Kamataka High Court
in R.F.A. No. 460of1996.

S.K. Kulkarni for Ms. Sangeeta Kumar for the Appellant. G
E.C. Vidya Sagar for the Respondent.

The Judgment of the Court was delivered by

D.P. WADHWA, J. Leave granted.
H
1216 SUPREME COURT REPORTS [1999] 3 s.c.~

A This is plaintiffs appeal against the judgment dated March 3, 19981 1 ~f <"-

the Kamataka High Court dismissing his appeal. Earlier plaintiffs suit had
been dismissed by the Trial Court against respondent, who was arraigned' as
1st defendant. The suit had been partly decreed against the 2nd defendant.
. '
Respondent - the 1st defendant - is the owner of the property in
B Malleswaram, Bangalore, which consisted of ground floor and two upper
floors. 1st defendant entered into an agreement to sell dated December 26,
1991 respecting his said property with the 2nd defendant. Name of the 2nd
defendant is R. Sridhar. 1st defendant further authorised in writing (Exh.P-1)
R. Sridhar to ~nter into any sale agreement of this property with anyone. This
C writing is as under:-

"Mr. R. Sridhar, s/o Sri Rama Raju,' residing at No. 17/2, 7th Temple
Road, Malleswarama, Bangalore, has got eyery right to enter into any
Sale Agreement on my property bearing No. 25, 4th Temple Road,
Malleswarama, Bangalore. consisting of Ground Floor, First Floor and
Second Floor of my side measuring 30'x40'."
D
On the strength of this writing 2nd defendant entered into agreement
with the plaintiff to sell ground floor of the said property for a consideration
of Rs. 5,55,000. The agreement to sell with R. Sridhar of the whole of the
house envisaged consideration of Rs.12,85,000. Towards sale consideration
E plaintiff gave an amount of Rs. 2 lakhs by means of cheques, one lakh was
given to each of the defendants. Cheques when presented for payment were
encashed by the respective payees. Sale agreement with the plaintiff, which
was entered into by the 2nd defendant, is dated February 22, 1992. This sale
agreement fell through. Plaintiff did not go for specific performance of
agreement to sell against both the defendants. Rather he demanded his
F money back. While the 2nd defendant repaid him Rs. 50,000 1st defendant
refused to return the money alleging breach of the agreem.~m of sale between
him and the 2nd defendant. In the suit filed by the plaintiff for recovery of
Rs.2,12,637 against both the defendants, he claimed Rs.1,36,167 from the.1st
defendant and Rs.76,470 from the 2nd defendant. Both these amounts included
G interest at the rate of 14% per annum. The suit of the plaintiff was decreed
against the 2nd defendant for Rs.76,470 with proportionate costs and future
interest at the rate of 10% per annum on the principal amount of Rs. 50,000
from the date of decree till realization. Suit against the 1st defendant was,
however, dismissed on the ground that there was no privity of contract
between the 1st defendant and the plaintiff. Plaintiff's appeal to the High
H Court met the same fate. High Court was also of the view that the suit of the
K.S. SATYANARAYANAv. V.R. NARAYANARAO [D.P. WADHWA,J.] 1217

~ plaintiff against the 1st defendant was bad as there was no privity of contract A
between them.

~ Facts of the case which we have set out above are not in dispute. The
issue on the basis of which the 1st defendant succeeded was: Whether the
1st defendants proves that he is not liable to pay the amount. There was som~
dispute ifthe writing (Exh.P-1) was signed by the 1st defendant. High Court B
noticed that the I st defendant did not unequivocally deny the receipt of
rupees one lakh from the plaintiff. But then the High Court proceeded even
on the assumption that 1st defendant authorised the 2nd defendant to enter
into a sale agreement in respect of hi~ property with any one but said that
would not advance. the case of the plaintiff any further. C
Writing (Exh.P-1) was put to the I st defendant when he appeared as
witness in the court. He denied the writing and his signatures on it. He also
denied his signatures on the agreement to sell, which was entered into
between the plaintiff and the 2nd defendant (Exh. P-2). In fact he denied
knowledge of any such agreement. His only plea was that he was not liable D
to pay any amount to the plaintiff since there was no privity of contract
between him and the plaintiff. He said that the cheque of the plaintiff was
handed over to him by the 2nd defendant and the same was encashed by him.
He was cross-examined. He was asked if the Vakalatnama given by him in
favour of his counsel was signed by him. He denied his 3ignatures on the E
Vakalatnama (Exh. P-6). Then he was asked if the written statement filed by
him was signed by him at two places. He denied his signatures on the written
statement as well (Exh.P-7). He admitted that the plaintiff had come to him in
1991 but that he said was at the instance of the 2nd defendant. Now this very
written statement (Exh.P-7) has been filed by the 1st defendant as an annexure
to his counter affidavit filed in this Court on notice being issued to him in F
the Special Leave Petition.

A piquant situation had developed before the Trial Court when the 1st
defendant denied his signatures on the written statement and Vakalatnama in
favour of his counsel. Trial Court should have immediately probed mto the G
matter. It should have recorded statement of the counsel for the lst defendant
to find out if Vakalatnama in his favour and written statement were not signed
by the 1st defendan~ whom he represented. It was apparent that the lst
defendant was trying to get out of the situation when confronted with his
signatures on the Vakalatnama and the written statement and his having
earlier denied his signatures on Exh.P-1 and Exh.P-2 in order to defeat the H
1218 SUPREME COURT REPORTS [1999] 3 S.C.R.

A claim of the plaintiff. Falsehood of the claim of the I st defendant was Writ , .
large on the face of it. Trial Court could have also compared the signatures
of the 1st defendant as provided in Section 73 of the Indian Evidence Act.
Section 73 is reproduced as under:-

"Comparison of signature, writing or seal with other admitted or proved.
B
73. In order to ascertain whether a signature, writing, or seal is that
of the person by whom it purports to have been written or made, ar/y
signature, writing, or seal admitted or proved to the satisfaction of the
Court to have been written or maqe by that person may be compared
with the one which is to be proved, although that signature, writing,
c or seal has not been produced or proved for any other purpose.

The Court may direct any person present in Court to write any words
or figures for the purpose of enabling the Court to compare the words
or figures so written with any words or figures alleged to have been
written by such person.
D
This section applies also, with any necessary modifications, to finger
impressions."

It was a case where instead of going into a protracted trial, Trial Court
E could have decreed the suit of the plaintiff against the lst defendant as well
at the stage of Order X (Examination of Parties by the Court) of the Code of
Civil Procedure. After the 1st defendant admitted having received rupees one
lakh from the plaintiff he could not retain that money on the spacious plea
that there was no privity of contract between him and the plaintiff. Amount
of rupees one lakh had been given to him by the plaintiff as he wanted to
F purchase ground floor of his property. The agreement to sell for the purpose
was entered into through the 2nd defendant whom the 1st defendant had
authorised to enter into any such agreement on his behalf. The plaintiff could
not have paid to the 1st defendant rupees one lakh but for the agreement to
/ sell in respect of ground floor of his property. It is only on the basis of this
G agreement (Exh.P-2) which is entered into by the 2nd defendant on the
strength of Exh.P-1 that the plaintiff paid rupees one lakh each to the 1st and
2nd defendants. If we accept the pleadings of the 1st defendant then the
amount of rupees one lakh had been given by the plaintiff under some
mistake. In any case, it was not a payment gratuitously made. Doctrine of
undue enrichment would squarely apply in the present case and the plaintiff
H would be entitled to restitution. In this connection Sections 70 and 72 of the
I

K.S. SATYANARAYANAv. V.R. NARAYANARAO [D.P. WADHWA,J.] 1219

',
Indian Contract Act, 1872 may be referred to, which are as under:- A
"70. Obligation of person enjoying benefit of non-gratuitous act.-
Where a person lawfully does anything for another person, or delivers
anything to him, not intending to do so gratuitously, and such 9ther
person enjoys the benefit thereof, the latter is bound to make
compensation to the former in respect of, or to restore, the thing so B
done or delivered.

72. Liability ofperson to whom money is paid, or thing delivered, by
.mistake or under coercion.-A person to whom money has been
paid, or any thing delivered, by mistake or under coercion, must repay
or return it."
c
In Mulamchand v. State of Madhya Pradesh, AIR (1968) SC 1218, the
contract between the appellant and the State Government was held to be void
as it was entered into in contravention of the provisions of the Government
of India Act, 1935. Appellant, however, sued for return of his deposit and for D
the goods supplied and services rendered. This Court .said: -
I
"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
E
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 F
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 important point to notice is that in a case falling under Section

....
70 the person doing something for another or delivering something to
another cannot sue for the speCific performance of the contract, nor
ask for damages for the breach of the contract, for the simple reason
G
that there is no contract between him and the other person for whom
he does something or to whom he delivers something. So 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 but on a different kind of obligation. The juristic basis of H
1220 SUPREME COURT REPORTS [1999] 3 S.C.R.

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

This Court quoted with approval two decisions of the English Courts,
which are quite illuminating and which we reproduce as under:-

.B I. "Jn Bibrosa v. Fairbairn, (1943) AC 32 Lord Wright has stated the
legal position as follows:

" .... any civilised system of law is bound to provide remedies for
cases of what has been called unjust enrichment or unjust benefit,
that is, to prevent a man froJll retaining the money of, or some
c benefit derived from, another which it is against conscience that
he should keep. Such remedies in English Law are generically
different from remedies in contract or in tort, and are now
recognised to fall within a third category of the common law
which has been called quasi-contract or restitution."
D 2. In Nelson v. Larholt, (1948) I KB 339 Lord Denning has observed
as follows:

"It is no longer appropriate to draw distinction between law and
equity. Principles have now to be stated in the light of their
E combined effect. Nor is it necessary to canvass the niceties of
the old forms of action. 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
F requires."

It is unfortunate that the courts below were not attentive to the procedural
laws and their duty to do substantial justice in the case. Had that been so
the plaintiff would have been spared the tribulations of knocking at the doors
G of the highest court of the land. Courts below fell into error in going into the
question of privity of contract and lost sight of the basic issue involved in
the case.

It was a case where perhaps action could have been taken against the
lst defendant as he was apparently guilty of perjury in not only denying his
H signatures on Exh.P-1 and Exh.P-2 but also on written statement and the
K.S. SATYANARAYANAv. V.R. NARAYANARAO[D.P. WADHWA,J.) 1221
Vakalatnama filed by him. A
We allow the appeal, set aside the judgments of the Trial Court as well
as of the High Court and decree the suit of the plaintiff for Rs.1,36,167 against
the 1st defendant with costs throughout. Plaintiff shall also be entitled to
int~rest at the rate of 10% per annum on the principal amount of rupees one
lakh from the date of institution of the suit till realisation. B
v.s.s. Appeal allowed.