Unjust Enrichment: Indian Contract Act Provisions

SECTION-B

5. Answer the following questions in about 150 words each. Support your answer with relevant legal provisions and judicial pronouncements:

(a) “Law as well as justice should try to prevent unjust enrichment." Elucidate the statement in reference to relevant provisions of the Indian Contract Act, 1872.

How to Approach

The question requires an elucidation of the statement "Law as well as justice should try to prevent unjust enrichment" in the context of the Indian Contract Act, 1872. The answer should begin by defining unjust enrichment and explaining its equitable basis. The core of the answer must focus on the specific provisions (Sections 68-72, quasi-contracts) of the Indian Contract Act that embody this principle. Relevant judicial pronouncements should be integrated to substantiate the legal position. The conclusion should reiterate the importance of preventing unjust enrichment for fairness and equity in contractual relationships.

Understanding Unjust Enrichment

Unjust enrichment occurs when one party gains a benefit at the expense of another without any legal justification for retaining that benefit. The core idea is that it is against conscience for a person to keep a benefit derived from another. This principle ensures that the legal system provides remedies where formal contractual obligations might be absent, but equity demands restitution.

Legal Provisions in the Indian Contract Act, 1872 (Sections 68-72)

Sections 68 to 72 of the Indian Contract Act, 1872, codify the doctrine of unjust enrichment under the umbrella of quasi-contracts. These sections impose obligations resembling those created by contract, not due to mutual agreement, but by operation of law based on principles of equity, justice, and good conscience.

Key Sections Preventing Unjust Enrichment:

Section 68: Claim for Necessaries Supplied to Persons Incapable of Contracting

This section provides that if necessaries suited to their condition in life are supplied to a person incapable of entering into a contract (like a minor or a person of unsound mind), or to anyone whom they are legally bound to support, the supplier is entitled to be reimbursed from the property of such incapable person. The aim is to prevent the incapable person from being unjustly enriched by receiving essential goods/services without compensation.
Example: If 'A' supplies food and clothing to 'B', a minor, 'A' can recover the cost from 'B's property.

Section 69: Reimbursement of Money Paid by an Interested Person

Where a person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other. This prevents the legally bound person from being unjustly enriched by avoiding their obligation.
Example: A pays overdue land revenue for B's land to prevent its auction, as A is a lessee of B's land. A can recover the amount from B.

Section 70: Obligation of Person Enjoying Benefit of Non-Gratuitous Act

When a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered. This is a broad provision against unjust enrichment arising from benefits accepted without an intention to return them or compensate for them.
Example: A, a tradesman, mistakenly delivers goods to B's house. B, thinking they are a gift, consumes them. B is bound to pay A for the goods.
Judicial Pronouncement: In State of West Bengal v. B.K. Mondal & Sons (AIR 1962 SC 779), the Supreme Court emphasized three conditions for Section 70: (1) a person must lawfully do something or deliver something, (2) not intend to do it gratuitously, and (3) the other person must enjoy the benefit.

Section 71: Responsibility of Finder of Goods

A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. This ensures the finder does not unjustly appropriate the goods for their own benefit but is obliged to take reasonable care and restore them to the true owner.

Section 72: Liability of Person to Whom Money is Paid, or Thing Delivered, by Mistake or Under Coercion

A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. This directly addresses situations where a party receives a benefit they are not legally entitled to, thereby preventing unjust enrichment.
Example: A and B jointly owe C Rs. 1000. A pays the amount. Unaware of A's payment, B also pays Rs. 1000 to C. C is bound to repay Rs. 1000 to B.
Judicial Pronouncement: In Mafatlal Industries v. Union of India (1997) 5 SCC 536, the Supreme Court elaborated on the law of unjust enrichment concerning the recovery of excess taxes paid under a mistake of law.

Judicial Recognition of Unjust Enrichment

Indian courts have consistently upheld the principle of unjust enrichment. Lord Mansfield's observation in the 18th-century English case of Moses v. Macferlan (1760), stating that "no one ought to be enriched at another's expense," has profoundly influenced Indian jurisprudence. The Supreme Court has repeatedly affirmed that courts have a "bounden duty and obligation... to neutralize any unjust enrichment and undeserved gain made by any party."

In Indian Council for Enviro-Legal Action v. Union of India (2011), the Supreme Court applied the principle of unjust enrichment to environmental law, holding polluters liable for remedial costs, underscoring its broad applicability beyond traditional contractual disputes.

Additional Resources

Key Definitions

Unjust Enrichment

Unjust enrichment refers to a situation where one person is unfairly enriched at the expense of another, without a legal basis or justification for the enrichment. The law mandates restitution to prevent such unfair retention of benefits.

Quasi-Contracts

Quasi-contracts (also known as constructive contracts or 'relations resembling those created by contract') are legal obligations imposed by law, not by agreement, to prevent unjust enrichment. They compel a party who has received a benefit to make restitution to the party providing the benefit.

Key Statistics

Sections 68-72 of the Indian Contract Act, 1872, dealing with quasi-contracts and unjust enrichment, have been cited in over 1500 reported judgments by Indian High Courts and the Supreme Court since 2000, underscoring their frequent application in legal disputes. (Approximate data based on legal research databases)

Examples

Mistaken Payment

If a bank accidentally deposits a large sum of money into a customer's account due to a technical error, the customer is unjustly enriched. Section 72 of the Indian Contract Act obliges the customer to return the money, as it was received by mistake.

Finder of Lost Goods

If 'X' finds a wallet containing money and identification papers, Section 71 makes 'X' responsible as a bailee. 'X' cannot simply keep the money and is obligated to make reasonable efforts to find the owner and return the wallet. If 'X' uses the money, 'X' is unjustly enriched.

Frequently Asked Questions

▶What is the difference between a contract and a quasi-contract?

A contract is an agreement enforceable by law, arising from mutual consent, offer, and acceptance. A quasi-contract, however, is not a true contract; it is an obligation imposed by law to prevent unjust enrichment, even without mutual agreement between parties.

▶Can unjust enrichment claims arise outside the Indian Contract Act?

Yes, while the Indian Contract Act codifies a significant portion, the principle of unjust enrichment is a broader equitable doctrine. Courts may apply it in various contexts, including tax law (as seen in the Mafatlal Industries case) and environmental law (Indian Council for Enviro-Legal Action case), where statutory provisions might not directly cover the specific scenario but the fundamental principle of preventing unfair gain is applicable.