Mistake or Coercion (Section 72, Indian Contract Act, 1872)

Introduction

Sometimes a person receives money or goods from another person by mistake or because the other person was forced or pressured to pay. In such situations, the law does not allow the receiver to keep the benefit unfairly.

Section 72 of the Indian Contract Act states that a person who receives money or goods by mistake or under coercion must return it to the person who paid or delivered it.

This rule prevents unjust enrichment (unfair benefit at the expense of another person).

Meaning / Definition

Section 72 provides that:

A person to whom money has been paid, or anything delivered, by mistake or under coercion (pressure or force) must repay or return it.

This section applies even when there is no contract between the parties. The law imposes an obligation (legal duty) to return the benefit received.

Modes or Types

Money Paid or Goods Delivered by Mistake

Sometimes a person may pay money or deliver goods because of an incorrect belief (mistake).

The mistake may be:

• Mistake of fact – misunderstanding about facts
• Mistake of law – misunderstanding about legal rules

Under Section 72, both types of mistakes are covered. If money is paid due to such a mistake, it must be returned.

Example situations include:

• Paying tax that was not legally payable
• Paying money twice due to an accounting error
• Paying money to the wrong person

Money Paid Under Coercion (Pressure or Force)

Sometimes a person pays money because the other person forces or pressures him to do so.

In such situations, the payment is not voluntary. The person paying may do so simply to avoid loss or recover his property.

In these cases, the law allows the person who paid the money to recover the excess or illegal amount paid.

Important Case Law

New India Industries Ltd. v. Union of India

The court referred to Article 265 of the Constitution of India, which states that no tax can be collected without legal authority.

If tax or duty is collected without proper legal authority, the payment is considered to be made by mistake under Section 72.

Therefore, the government must refund the amount collected, because it cannot keep money received without legal authority.

Sales Tax Officer, Banaras v. Kanhaiya Lal

In this case, sales tax was collected on certain transactions in silver bullion under the U.P. Sales Tax Act.

Later, the court declared the tax invalid (not legally valid).

The Supreme Court held that:

• Section 72 applies to mistake of law as well as mistake of fact.
• Therefore, the taxpayer was entitled to a refund of the tax already paid.

Roplas (India) Ltd. v. Union of India

In this case, a company paid excise duty by mistake.

However, the company had already recovered that amount from its customers.

The court held that the company cannot claim a refund, because the money had not actually come from its own pocket.

If the refund were allowed, the company would receive an unfair benefit (unjust enrichment).

Radha Flour Mills Pvt. Ltd. v. Bihar State Financial Corporation

In this case, due to an accounting error, a financial corporation failed to recover a certain amount from the borrower.

After many years, the corporation demanded the amount with interest.

The court held that demanding interest would be unfair because the delay occurred due to the corporation's own mistake. Allowing such a claim would result in unfair benefit to the corporation.

Practical Example

Suppose a railway company refuses to deliver goods to a customer unless the customer pays an illegal extra charge.

The customer pays the amount only to obtain his goods.

Under Section 72, the customer has the right to recover the excess amount paid, because the payment was made under pressure.

Summary

• Section 72 deals with money or goods received by mistake or under coercion (pressure or force).
• A person receiving such money or goods must repay or return them.
• The section applies to mistake of fact and mistake of law.
• Money paid without legal authority, such as an illegal tax, must be refunded.
• A person cannot claim a refund if the money did not actually come from his own pocket.
• Courts do not allow recovery if it would result in unfair benefit (unjust enrichment) to the claimant.