Case Analysis of Loop Telecom and Trading Ltd. v. UOI, 2022

Loop Telecom & Trading Ltd. v. Union of India, (2022) 6 SCC 762[1]

Introduction

In Loop Telecom and Trading Limited v Union of India and Another, the Supreme Court denied the Appellant restitution of amount it paid, under a void agreement. The claim for restitution was rejected under Section 65[2] of the Indian Contract Act, wherein the SC placed reliance on the doctrine of ‘in pari delicto’, and clarified that restitution cannot be granted if the party claiming it was equally or more responsible for the illegality of the contract.

The Appellant was granted Unified Access Services licenses (UASL) by the Government of India. Under the Agreement, Appellant paid entry fees. However later the grant of UASL was quashed By Supreme Court in its judgment in CPIL case[3]. The Appellant filed a petition before Telecom Disputes Settlement and Appellate Tribunal (TDSAT). However it was quashed. Due to dismissal of the petition before TDSAT, the Appellant instituted civil appeal, before the Supreme Court.

Held, the application of Section 65 of the Contract Act, 1872 has to be limited to those cases where the party claiming restitution itself was not ‘in pari delicto’. Supreme Court clarifies that restitution cannot be granted if the party claiming it was equally or more responsible for the illegality of the contract. In this case, Loop Telecom had claimed a refund of the entry fee (restitution) for UASL cancelled by the Supreme Court. The Supreme Court refused to refund the entry fee paid by Loop Telecom since it was partly responsible for the illegality behind the UASL. Further, the Court observed that even if Loop Telecom’s promoters are acquitted of criminal charges, it cannot be a ground to grant restitution since the illegal contract would have benefitted Loop Telecom.

Disposition: Appeal Dismissed; In Favour of Respondent

Background

In the case of Mohori Bibee v. Dharmodas Ghose[4], the plaintiff, Dharmodas Ghose, a minor, entered into a mortgage agreement with Brahmo Dutt, a moneylender, for a sum of Rs 20,000. Importantly, the attorney representing Brahmo Dutt during the transaction was fully aware of Dharmodas' minority status. Subsequently, Dharmodas, upon reaching legal age, challenged the validity of the mortgage, arguing that it was void and unenforceable since he was a minor at the time of entering into the contract. The plaintiff contended that as he was a minor when the mortgage agreement was executed, it should be deemed void ab initio due to his incapacity to contract. However, Brahmo Dutt raised defense, asserting that Dharmodas had misrepresented his age, thereby fraudulently inducing the contract. They argued that the doctrine of estoppel should be applied to prevent Dharmodas from avoiding the contract.

The Privy Council found that the contract with the minor was void. The court also sustained the defendant’s arguments that estoppel did not apply as Brahmo Dutt’s counsel, Dharmodas, knew minority facts and secondly, Sections 64 and 65 of the Indian Contract Act did not apply as there was no contract in the first instance.

It can be inferred that Restitution is not provided when there is no contract, void or illegal contract. The restitution is also provided when damages are not sufficient as to breach of contract.

Analysis

Facts

The Appellant was awarded Unified Access Services Licenses (UASL) by the Government of India (GOI) and accordingly, UASL agreements were entered into between the parties. Under the UASL agreement, the Appellant paid an Entry Fee to the GOI. Subsequently, the grant of UASLs was quashed by the Supreme Court vide its judgement of Centre for Public Interest Litigation v Union of India on the ground that the policy of the GOI of “first-come-first-serve” for allocation of the same was arbitrary and illegal.

The Appellant filed a petition before the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) inter-alia to claim a refund of the Entry Fee from the GOI. The said petition was dismissed by TDSAT inter-alia on the following grounds that the quashing of the UASL cannot be brought under Contract Act since UASl agreements had not become void under section 23 and 56 of the Contract Act, and that the claim for restitution under section 65 would rest on the principle of ‘in pari delicto potior est conditio defendentis’ as it was not possible until the possibility of appellant being ‘in pari delicto’ was erased.

During the pendency of the said petition, the Appellant was also facing criminal proceedings in relation to the grant of UASLs before a Special Judge, Central Bureau of Investigation (CBI). In this Appellant was later acquitted of criminal charges. However, upon the Appellant’s acquittal from the criminal proceedings, a second petition was instituted by the Appellant before the TDSAT, which was also dismissed. Aggrieved by the TDSAT’s dismissal of both the petitions, the Appellant instituted civil appeals under Section 18 of the Telecom Regulatory Authority of India Act, 1997, before the Supreme Court.

Issues

1. Whether Appellant is entitled to a refund of UASL entry fees in twenty-one service areas due to the flawed, arbitrary, and illegal "First Come First Serve" policy of the respondent, leading to license quashing and frustration in the nature of contract.
2. Whether such refund is justified under civil, contractual, and constitutional principles.

Law

Section 56 of Indian Contract Act, 1972

56. Agreement to do impossible act.—An agreement to do an act impossible in itself is void.

Contract to do an act afterwards becoming impossible or unlawful.—A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful.—  Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.

Section 65 of Indian Contract Act, 1872

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.
66. What considerations and objects are lawful, and what not.—The consideration or object of an agreement is lawful, unless—

it is forbidden by law; or is of such a nature that if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

In pari delicto - in equal fault (better is the condition of the possessor). Courts shall not assist a party who has paid the money or handed over the property in pursuance of an illegal or immoral contract

Doctrine of Restitution is a legal principle that restores the injured party to their original position before entering into a contract.

Analysis and Judgment

Dr D.Y. Chandrachud, J.

1. The license is in the nature of a contract of a contract between Government and the licensee[5] as per section 4(1) of Telegraph Act. On this groung Appellant invoked doctrine of frustration and and of restitution.
2. The Court placed significance in Satyabrata Ghosh v. Mugneeram Bangur & Co.[6] for doctrine of frustration, observed that Section 56[7], is not limited to cases of physical impossibility. And the only test to determine such is “is that of supervening impossibility or illegality of the act agreed to be contractually done.”
3. Moreover, Section 65[8] of the Act, when a contract becomes void; the section 65 does not operate in derogation of the maxim, in pari delicto potior est conditio possidentis (in equal fault, better is the condition of the possessor). Section 65 does not apply when both the parties knew of the illegality at the time the agreement was entered into and were in pari delicto.[9] The claims for restitution are subject to a defence of illegality, under maxim ex turpi causa non oritur action (no action can arise from bad cause). The in pari delicto principle helps the court to annalyse the case to determine whether the claimant is less responsible for illegality, under which restitution will be denied.
4. The Court, in light of (a) the judgement of CPIL,[10] under which the Appellant was held to be among the group of licensees who were found to be complicit in obtaining benefits under the allocation policy of the GOI at the cost of the public exchequer, i.e., were in pari delicto; and (b) the well-settled principles of restitution u/s 65 of the Act as said, held that the Appellant was not entitled to claim a refund of its Entry Fee.
5. In reference to the Appellant’s acquittal by the CBI, the Court held that the acquittal was on separate grounds and the same would not change the findings of the Court in the decision of CPIL. Therefore, the acquittal of the Appellant had no relation on the case of the Appellant.

Conclusion

Section 65 of Contract deals with the principle of restitution, where a benefit has been received and later agreement turned void.[11] Under this section, any person who has received the advantage is bound to restore the same. Though, it does not apply when the parties knew that the agreement is not lawful and thus void, i.e. the parties are in pari delicto. This principle helps in stopping restitution in illegal or immoral contracts. The Section 65[12] is in line with the English laws on restitution of contract.

The Supreme Court's decision appears justified based on the principles of contract law and the specific circumstances of the case. The Court analysed sections 56 and 65 of the Indian Contract Act, and appropriately applied the doctrine of ‘in pari delicto’ to determine the legality of the Appellant's claim for restitution.

The Court's reliance on the precedent set by the judgment of CPIL case[13], which implicated the Appellant in benefiting from the flawed allocation policy, solidifies the argument against granting a refund of the entry fees. Additionally, the Court's interpretation of the Appellant's acquittal in criminal proceedings as unrelated to the present issue shows a clear separation between criminal and civil matters, ensuring consistency.

Also, the Court has followed the precedence as well as doctrine of restitution, as found in English laws. It may be seen as to only provide restitution in cases when damages for breach of contract does not suffice.

[1] Loop Telecom & Trading Ltd. v. Union of India, (2022) 6 SCC 762

[2] 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.

[3] Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 1

[4] Mohori Bibee v. Dharmodas Ghose, 1903 SCC OnLine PC 4 : ILR 30 Cal 539

[5] Union of India v. Association of Unified Telecom Service Providers of India, (2011) 10 SCC 543

[6] (1953) 2 SCC 432

[7] Indian Contract Act

[8] Ibid.

[9] R Yashod Vardhan and Chitra Narayan, Pollock & Mulla’s The Indian Contract Act and Specific Relief Acts Volume I (16th edition, LexisNexis)

[10] Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 1

[11] R Yashod Vardhan and Chitra Narayan, Pollock & Mulla’s The Indian Contract Act and Specific Relief Acts Volume I (16th edition, LexisNexis)

[12] The Indian Contract Act, 1872

[13] Centre for Public Interest Litigation v. Union of India, (2012) 3 SCC 1