Even if a contract is found to be unenforceable due to formal defects, the party benefiting from the contract may still be bound to pay compensation under the Indian Contract Act.

JUDGMENT :- The second appeal by the State of Madras represented by the Director of Agriculture, the plaintiff in both the courts below, is upon a short point. The following facts are sufficient for an adjudication of the issue now arising for determination.

2. The plaintiff-appellant stated that the defendant was supplied with a 30 H.P. crude oil engine by the Director of Agriculture, pursuant to a treaty between the parties. The engine was delivered on 20-10-1946 and the defendant (respondent) paid a tentative cost of Rs. 3500. The understanding between the parties was that the final price was to be determined by Government, and that, thereafter, the defendant should pay the difference. Admittedly, the defendant gave a letter agreeing to pay the difference in price, after the final fixation of the price of the engine by Government. The Government (appellant) claimed that they had determined the figure at Rs. 6060, and that the defendant should pay the balance. This was the controversy at the trial.

3. The learned District Munsif found that the letter by the defendant dated 8-12-1949 was not enforceable as a valid agreement in law, as it did not conform to the requirements of section 175 (3) of the Government of India Act, 1935 and that Act governed the parties at that time, and not the Constitution of India which came subsequently into effect. In the result, the suit was dismissed.

4. The matter came up in first appeal before the learned Additional Subordinate Judge, Tiruchirapalli. The learned Subordinate Judge pointed out that the contention of the respondent that the agreement was void for uncertainty (section 29 of the Indian Contract Act) could not be upheld. He equally pointed out that the suit based upon the agreement was bound to fail, because all contracts which were binding on the Government had to be executed in a particular mode and form under section 175 (3) of the Government of India Act, 1935 and that the contract (Ex. A-2) did not satisfy these requirements. The agreement was hence, according to the first appellate court, invalid and the suit was dismissed on this short ground.

5. The learned Government Pleader now draws my attention to the fact that the outright dismissal of the suit could not, in any event, be justified. For, upon the principles of sections 65 and 70 of the Indian Contract Act, either where an agreement has become void, or generally in other circumstances where a person enjoys the benefit of something which is not intended to be taken by him gratuitously, such person benefiting is bound to make compensation in respect of the value. In other words, even apart from any formal contract, the respondent is bound to pay the Government the difference in value between Rs. 3500 which has already been paid by him, and the actual reasonable value of the oil engine on the date of sale. This view of the matter has been confirmed in a Bench decision of this court (Rajamannar C.J. and Veeraswami, J.) in App. No. 227 of 1957 (unreported). The learned Judges observed :

"In our opinion these principles are equally applicable to an equitable claim under section 65 or 70 of the Indian Contract Act where the contract itself is found to be unenforceable for non-compliance with the formal requirements prescribed in Art. 299 (1) of the Constitution. We find that in Dominion of India v. Preety Kumar, AIR 1958 Pat 203, Sinha and Dayal, JJ. have taken the same view."

In this view of the matter, the second appeal has to be allowed, and the matter remitted to the trial court for further disposal in the light of the above observations. It will be for the trial Court to determine, in the light of existing record and such other data as may be made available by parties; "what was the proper price or value of the engine as supplied to defendant on the date of that supply?" It is no doubt true that the Government reserved the right to fix the price, but, owing to the formal defect in the agreement, the Government cannot c