1. Construction work performed for the State without a valid contract under Section 175(3), Government of India Act, 1935 — Claim for compensation under Section 70, Indian Contract Act. (Para 1 , 2 , 4 )
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1961 Supreme(SC) 385
SUPREME COURT OF INDIA
5th , December 1961
P.B. GAJENDRAGADKAR, A.K. SARKAR, K.N. WANCHOO, K.C. DAS GUPTA AND N. RAJAGOPALA AYYANGAR, JJ.
State of W.B., Appellant
Versus
M/s. B. K. Mondal and Sons, Respondents.
Civil Appeal No. 286 of 1958. 780
Advocates appeared
Mr. B. Sen, Senior Advocate (M/s. P. K. Chatterjee and P. K. Bose, Advocates, with him), for Appellant; Mr. N. C. Chatterjee, Senior Advocate (M/s. A. N. Sinha and P. K. Mukherjee, Advocates, with him), for Respondents.
Advocates:
A.N.SINHA, B.SEN, N.C.CHATTERJI, P.K.BOSH, P.K.CHATTERJI, P.K.MUKHERJI
A.N.SINHA, B.SEN, N.C.CHATTERJI, P.K.BOSH, P.K.CHATTERJI, P.K.MUKHERJI
Section 70 of the Indian Contract Act provides for compensation based on the voluntary acceptance and enjoyment of a benefit, regardless of whether a valid contract existed. This prevents unjust enrichment and applies to the State, even if statutory formalities for government contracts were not met.
Headnote:(A) Government of India Act, 1935 - Section 175(3) - Indian Contract Act - Section 70 - Mandatory nature of statutory requirements for government contracts - Non-compliance with the requirement that contracts be expressed to be made by the authorized head of the province and executed by authorized persons renders the contract invalid (Para 6) - Such provisions are intended to protect the State from unauthorized and spurious claims (Para 6).
(B) Indian Contract Act - Section 70 - Quasi-contractual liability - Liability to make compensation arises when: (i) a person lawfully does something for another or delivers something to him, (ii) not intending to act gratuitously, and (iii) the other person enjoys the benefit thereof (Para 14) - The cause of action is based on the voluntary acceptance and enjoyment of the benefit, not on the breach of a subsisting contract (Para 14, 15) - Section 70 prevents unjust enrichment and applies to the State Government (Para 21).
(C) Interpretation of "lawfully" in Section 70 - The term indicates that once a thing is delivered or done and is accepted and enjoyed by the recipient, a lawful relationship is born between the parties, giving rise to a claim for compensation (Para 17).
Facts of the case:
A firm of contractors carried out construction work for a government department based on requests from officers. The government accepted and used the constructions but refused to pay certain bills, contending that the contracts were invalid as they did not comply with the mandatory statutory requirements for government contracts.
Findings of Court:
The contracts were invalid due to non-compliance with statutory formalities. However, since the government had voluntarily accepted and enjoyed the benefit of the construction work, and the contractor had not intended to act gratuitously, the government was liable to pay compensation under the principles of quasi-contract.
Issues: Whether the mandatory requirements of Section 175(3) of the Government of India Act, 1935, render a contract void, and whether such invalidity precludes a claim for compensation under Section 70 of the Indian Contract Act.
Ratio Decidendi: Section 70 of the Indian Contract Act operates independently of the validity of a contract. While a party cannot sue for specific performance or damages for breach of an invalid contract, they can claim compensation if the other party voluntarily accepts and enjoys the benefit of the work done. This prevents unjust enrichment and does not nullify the mandatory requirements of statutory contract formalities.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether Section 70, Indian Contract Act applies to invalid government contracts — Whether non-compliance with Section 175(3), Government of India Act, 1935 renders the act unlawful. (Para 3 , 5 , 8 , 15 , 16 , 17 , 21 )
3. Section 70 creates liability based on voluntary acceptance and enjoyment of benefit, independent of contract validity — Mandatory statutory formalities for government contracts do not preclude quasi-contractual compensation. (Para 6 , 7 , 9 , 10 , 11 , 12 , 13 , 14 , 18 , 19 , 20 , 23 , 33 , 34 , 43 , 44 , 45 )
4. Liability under Section 70, Indian Contract Act arises from the voluntary enjoyment of a non-gratuitous lawful act, regardless of the invalidity of the underlying contract. (Para 14 , 19 )
5. Appeal dismissed — Decree for compensation under Section 70, Indian Contract Act upheld. (Para 25 , 46 )
6. Does Section 70 of the Indian Contract Act apply when a government contract is invalid due to non-compliance with mandatory statutory formalities?
Yes. Section 70 deals with relations resembling contracts, not the contracts themselves. If the government voluntarily accepts and enjoys the benefit of a non-gratuitous lawful act, it is bound to make compensation, regardless of whether the underlying contract was invalid. (Para 14 , 15 , 19 , 20 )
7. What does the term lawfully mean under Section 70 of the Indian Contract Act in the context of government works?
It denotes that the act must not be forbidden by law. Non-compliance with statutory formalities for executing a contract does not make the act of performing the work itself unlawful or forbidden. (Para 16 , 17 , 44 )
8. How does a claim for compensation under Section 70 differ from a claim for breach of contract?
A Section 70 claim is based on the voluntary acceptance of a benefit, not a subsisting contract. Consequently, the claimant cannot seek specific performance or damages for breach, only compensation for the work done or restoration of the thing delivered. (Para 14 , 18 , 19 )
9. Is the State government exempt from Section 70 liability on the grounds of incapacity to contract, similar to a minor?
No. The State is not in the position of a minor. Section 70 is designed to prevent unjust enrichment and applies to individuals, corporations, and the Government alike. (Para 21 )
Judgment
GAJENDRAGADKAR, J. : This appeal by special leave arises out of a suit filed by the respondent B. K. Mondal and Sons against the appellant the State of West Bengal on the Original Side of the Calcutta High Court claiming a sum of Rs. 19,325/- for works done by it for the appellant. This claim was made out in two ways. It was alleged that the works in question had been done by the respondent in terms of a contract entered into between the parties and as such the appellant was liable to pay the amount due for the said works. In the alternative it was alleged that if the contract in question was invalid then the respondent s claim fell under S. 70 of the Indian Contract Act. The respondent had lawfully done such works not intending to act gratuitously in that behalf and the appellant had enjoyed the benefit thereof.
2. The respondents case was that on February 8, 1944, it offered to put up certain temporary storage godowns at Arambagh in the District of Hooghly for the use of the Civil Supplies Department of the State of Bengal and that the said offer was accepted by the said department by a letter dated February 12, 1944. Accordingly the respondent completed the said construction and its bill for Rs. 39,476/- was duly paid in July 1944. Meanwhile, on April 7, 1944, the respondent was requested by the Sub-Divisional Officer, Arambagh, to submit its estimate for the construction of a kutcha road, guard room, office, kitchen and room for clerks at Arambagh for the Department of Civil Supplies. The respondent alleged that the Additional Deputy Director of Civil Supplies visited Arambagh on April 20, 1944 and instructed the respondent to proceed with the construction in accordance with the estimates submitted by it. Accordingly the respondent completed the said constructions and a bill for Rs. 2,322/8/- was submitted in that behalf to the Assistant Director of Civil Supplies on April 27, 1944. Thereafter the Sub-Divisional Officer, Arambagh required the construction of certain storage sheds at Khanakul and the Assistant Director of Civil Supplies wrote to the respondent on April 18, 1944, asking it to proceed with the construction of the said storage sheds. This work also was completed by the respondent in due course and for the said work a bill for Rs. 17,003/- was submitted. In the present suit the respondent claimed that the two bills submitted by it in which the respondent had claimed Rs. 2,322/8/- and Rs. 17,003/- respectively had remained unpaid and that was the basis of the present claim.
3. The appellant denied all the material allegations made by the respondent in its plaint. It alleged that the requests in pursuance of which the respondent claims to have made the several constructions were invalid and unauthorised and did not constitute a valid contract binding the appellant under S.175(3) of the Government of India Act, 1935 (hereafter called the Act). It pleaded that there was no privity of contract between the respondent and itself and it denied its liability for the entire claim. The written statement filed by the appellant was very vague and general in terms and no specific or detailed pleas had been set out by the appellant in its pleading.
4. However, G.K. Mitter, J., who tried the suit, framed five material issues on the pleadings and recorded his findings on them. He held that having regard to the provisions of S. 175(3) of the Act there was no valid and binding contract between the respondent and the appellant for the construction of huts and sheds at Khanakul and Arambagh. This finding was in favour of the appellant. He held that the respondent s claim against the appellant was, however, justified under S. 70 of the Indian Contract Act, and he came to the conclusion that the said claim was not barred by limitation. He also rejected the plea of the appellant that the liability of the Province of Bengal had not devolved upon the appellant under the provisions of the Indian Independence (Rights, Property and Li
