Compensation Under Section 64, 65 and 70 Of Indian Contract

Act, 1872

Introduction

In India, the law of contract is governed by the Indian Contracts Act, 1872. It is the
key act regulating the Indian Contract Law and is based on the principles of English
Common Law. It extends to the whole of India and is in force from 1st September,
1872. Section 2(h) of the Indian Contract Act, defines the meaning of the term
“contract”. Section 2(h) – “An agreement enforceable by law is a contract”. It means
that only those agreements which are lawful or recognised under the eyes of law forms
a contract and rest are void. Section 10 of the act mentions certain essential conditions
to form a valid contract. It states that only those agreements form a contract if they are
made by the free consent of the competent parties for a lawful consideration of a legally
recognised object and are not expressly declared as void. It means that the essentials of
a valid contract are free consent of the parties, parties must be competent, the
consideration and object must be lawful and the agreement must not be void.

In case of a contract, each party is bound by certain legal obligations to perform their
respective part of the contract and are bound to follow these legal obligations. If any of
the parties fails to do or perform its part or obligation, then it is bound to compensate
the other party for the loss they may have incurred due to the non-performance of the
contract by the 1st party. Section 73, Section 74 and Section 75 provides for the
compensation and damages which a party is entitled to receive for the loss incurred by it
due to non-performance of contract by the other party. Section 73 exclusively provide
for the damages and compensation by the breach of contract i.e... when a contract is
broken, then the party is entitled to receive damages for the loss incurred from the other
party which has broken the contract. Section 74 deals with the compensation for breach
of contract where the penalty is already mentioned in the contract. For example, X and
Y forms a contract where it is exclusively mentioned that if any party fails to perform
the contract, it must pay Rs10000 to the other party. X fails to perform the contract. Y is
entitled to recover Rs10000 from X as compensation but not more than that under
Section 74. Section 75 deals with the compensation that a party is entitled to after
 rightfully rescinding the contract. For example, X and Y forms a contract where X has
to cater food in Y’s house for 3 days. X wilfully absents herself on the 2 nd day and in
consequence Y rescinds the contract. Y is entitled for compensation to any loss incurred
by him due to non-fulfilment of contract by X. This article will deal with the
compensation under section 63, section 64 and section 70 of the Indian Contract
Act,1872.

Section 64

Section 64: Consequences of rescission of voidable contract. —"When a person at

whose option a contract is voidable rescinds it, the other party thereto need not perform
any promise therein contained in which he is promisor. The party rescinding a voidable
contract shall, if he have received any benefit thereunder from another party to such
contract, restore such benefit, so far as may be, to the person from whom it was
received.”

Section 2(i) defines voidable contract as “An agreement which is enforceable by law at
the option of one or more of the parties thereto, but not at the option of the other or
others, is a voidable contract”. It means that a contract which can be terminated or
continued only on the option of one party is a voidable contract.

Section 64 states that if a person on whose option the contract is voidable rescinds the
contract, then he must restore the benefit he has received from the other party in the
contract and the other party is not obliged to perform any promise it had promised to
perform in the contract as a promisor. In Sinaya Pillai Vs Muniswami Iyyer,1 it was
postulated that; "This principle is acknowledged in section 64 of the Indian Contract
Act and generally by the Indian Courts as Courts of Equity and good conscience."

The Indian Contract Act only provides for the restoration received by the party
rescinding the voidable contract, whereas under The Specific Relief Act there is a
provision for the payment of compensation to which the other party may require. This
provision of The Specific Relief Act is more logical as compared to the provision in
Section 64. For example, X has received some loan from Y on a voidable contract. It is
not enough to only return the amount borrowed by X but he should also pay some
interest to Y on account of benefit obtained on such a transaction. It is suggested to

1
22. Mad. 289,291.
 amend Section 64 to bring it in line with the provisions of The Specific Relief Act but
strangely the Law Commission recommended no change in it.

Section 65

Section 65: Obligation of person who has received advantage under void
agreement, or contract that becomes void.—"When an agreement is discovered to be
void, or when a contract becomes void, any person who has received any advantage
under such agreement or contract is bound to restore it, or to make compensation for it
to the person from whom he received it.”

When the performance of contract becomes impossible or unlawful due to the

happening of some event, the contract becomes void. Sometimes, an agreement appears
to be a valid agreement but is subsequently discovered as a void agreement. In such a
situation, it is possible that before the contracts become void or an agreement is
discovered as void, one of the parties may have gained some benefit under the contract.
In such a situation Section 65 permits restoration or compensation of such advantage
received. This can be understood through an illustration, where X pays Rs5000 in
consideration of Y’s promising to marry Z, who is the daughter of X. Z is dead at the
time of the promise. The agreement subsequently becomes void and Y must repay Rs
5000 to X under Section 65.

Section 65 covers two kinds of situations, First, when a contract becomes void and
second when the agreement is discovered to be void. An agreement is discovered to be
void only if it was void ab initio but it was not known to the parties. Void ab initio
means ‘Void from the beginning’. Only in this situation the advantage gained has to be
restored. Section 65 cannot be applied if the parties knew that the agreement was void.

In Faqir Chand Seth Vs. Dambarudhar Bania,2 the plaintiff (the person who files
the case) advanced money to the defendant (the person who is sued in the court) for the
supply of paddy. The plaintiff was not aware of the fact that the agreement so formed
was in violation of the Orissa Rice and Paddy Control Order, 1965. It was held that the
agreement was discovered to be void and the plaintiff was entitled to receive the refund
of the money he advanced to the defendant. This relevant case law apprises about the
application of Section 65 in Indian Courts.

2
A.I.R Orissa 1987 50.
 Section 70

Section 70: Obligation of person enjoying benefit of non-gratuitous act.—Where 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.

There are certain conditions which are necessary to be fulfilled to invoke Section 70.
The conditions are that the person must be doing something lawful for another person,
the person making the payment or delivering the thing must not be doing it gratuitously
and the other person must enjoy the benefit from the act of the person. The point may
be explained referring the decision of the Allahabad High Court in Indu Mehta Vs
State of UP.3 In this case, Indu Mehta was an advocate practising at the District Court,
Kanpur, was appointed as Asst. District Government Counsel, in pursuance she
rendered her service. The appointment was found void under Criminal Procedure Code,
1973. It was held that the government was not entitled to recover back the fees it paid to
her as the state had enjoyed the benefit of services rendered by Indu Mehta.

When the person doing the act expects the payment for the same on doing such act can
ask for compensation under Section 70. In P Mudaliar Vs. Neelavathi Ammal,4 the
defendants were 3 sisters and the plaintiff were husband of one of them. On the death of
the defendants’ father there was a dispute regarding certain properties. The plaintiff was
asked by the defendants to take overt the management of the estate. After the plaintiff
had working for five years, he asked for remuneration for the services provided by him.
The defendants issued a promissory note in favour of the plaintiff as they had no money
immediately. Subsequently the defendants sought to avoid the liability under the
promissory note. It was held that the plaintiff was entitled to receive compensation from
the defendants under Section 70.

Section 70 is formed on the basic principle that one should not receive unjust benefit at
the cost of the other. If there is no unjust benefit gained, then there is no application of
Section 70. In Aries Advertising Bureau Vs C T. Devaraj,5 the plaintiff was an
advertiser who made advertisements at the instance of circus owner for the circus. The
3
A.I.R. 1987 All 309
4
A.I.R. 1937 P.C. 50.
5
A.I.R 1995 S.C. 2251
 advertiser was not a party to the contract between the circus owner and the financer.
The advertiser brought an action against the financer to recover expenses of
advertisements from the financer. It was held that as the financer did not enjoy any
benefit from the advertisements and hence, he cannot be made liable to pay under
Section 70.

It has known that the agreement with a minor is void because he is incompetent to
contract. But if necessaries are supplied to a minor his estate can be made liable under
section 68. No compensation can be recovered from a minor under Section 70 as his
case specifically provided in Section 68. But the above stated fact appears to be illogical
because the Section cover every “person” whether he is competent or not and nothing in
law debars a minor from enjoying the benefit under of the act by another person. There
is no provision which prevents the case of a minor being covered both in Section 70 and
Section 68.

Referring to the above facts, it can be concluded that The Indian Contract Act,1872 aim
to provide protection to the parties which may suffer a loss due to the breach of contract
or a voidable contract or due to any other reason through compensation and damages.
Section 64,65 & 70 provides for the provision of compensation in various different
scenarios where a party to a contract has suffered a loss and hence, maintain status quo.6