Principle of Restitution not applicable when party claiming it is equally or more responsible for illegality of contract

In the matter of Loop Telecom and Trading Limited vs Union of India [CA 1447-1467 of 2016] decided by the Hon’ble Supreme Court on 03.03.2022

FACTS: In this case the Appellant namely, Loop Telecom approached Telecom Disputes Settlement and Appellate Tribunal (TDSAT) claiming a refund of Rs 1454.94 crores, the Entry Fee paid by it for 2G licences for twenty-one service areas. The 2G licences which were granted by the Union of India, including to the appellant were quashed by the Supreme Court in Centre for Public Interest Litigation vs Union of India (CPIL).

The TDSAT held that the quashing of the appellant’s licences by the Hon’ble Supreme Court cannot be equated with the agreements becoming void within the meaning of Section 65 of the Indian Contract Act and therefore it cannot claim restitution. It held that in any case, the claim for restitution under Section 65 would be governed by the principle of in pari delicto potio rest condition defendentis (in equal fault, better is the condition of the possessor).

CONTENTION OF THE APPELLANT: The contention raised was that the quashing of the licences by the Supreme Court amounted to a frustration of each licence, which was in the nature of a contract, in terms of Section 56 of the Indian Contract Act. Consequently, the appellant contended that it entitled to a restitution of the Entry Fee paid in terms of Section 65, as the licences were quashed not on account of the fault of the appellant but due to the culpability of the Union government.

OBSERVATIONS: The Apex Court relied on the principles laid down in the judgment of Anmani Appa Rao v. Gollapalli Ramalingamurthi wherein ‪a three-judge Bench held that where both the parties before ‪the Court are confederates in the fraud, the Court must lean in favour of the ‪approach which would be less injurious to public interest. Reliance was also placed on Kuju Collieries Ltd. v. Jharkhand Mines Ltd. wherein it was categorically held that if both the transferor and transferee are in pari delicto (in wrong) the courts do not assist them.

It was further observed that Section 65 had to be limited to those cases were the party claiming restitution itself was not in pari delicto. However, when the party claiming restitution is equally or more responsible for the illegality of a contract, they are considered in pari delicto. In view of the said observations, it was then held that in adjudicating a claim of restitution under Section 65 of the Indian Contract Act, the court must determine the illegality which caused the contract to become void and the role the party claiming restitution has played in it. If the party claiming restitution was equally or more responsible for the illegality (in comparison to the defendant), there shall be no cause for restitution which would depend on the facts and circumstances of each case.

Applying the said principles and observations, in the present case, the Appellant was held to be to be in pari delicto as the decision of this Court in CPIL left no manner of doubt that the Appellant was among the group of licensees who were found to be complicit in obtaining benefits under the “First Come First Serve” policy of the Union government at the cost of the public exchequer. In such a situation and following the well-settled principles, the appellant could not be held entitled to claim a refund of its entry fees.