Principles of : Finality of judgment, Restitution and Compound interest, Unjust Enrichment.

 “interest Republicae ut sit finis litium'

 

extracted by

Rohit Suri and Er. Sandeep Suri

Advocates

Punjab and Haryana High court, Chandigarh

Editors-in-Chief, Punjab Law Reporter 

 

The power to order such damages as part of restitution, cannot be disputed, otherwise, there can never be restitution. Unscrupulous litigants cannot derive benefit of technicalities of law by agitating the matter time and again.

 

extracted from

Indian Council for Enviro-Legal Action vs. Union of India, 2011(8) SCC 161

 

The maxim `interest Republicae ut sit finis litium' says that it is for the public good that there be an end of litigation after a long hierarchy of appeals. At some stage, it is necessary to put a quietus. It is rare that in an adversarial system, despite the judges of the highest court doing their best, one or more parties may remain unsatisfied with the most correct decision. Opening door for a further appeal could be opening a flood gate which will cause more wrongs in the society at large at the cost of rights.

 

UNJUST ENRICHMENT

Unjust enrichment has been defined as: "A benefit obtained from another, not intended as a gift and not legally justifiable, for which the beneficiary must make restitution or recompense." See Black's Law Dictionary, Eighth Edition (Bryan A. Garner) at page 1573.

A claim for unjust enrichment arises where there has been an "unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience."

`Unjust enrichment' has been defined by the court as the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience. A person is enriched if he has received a benefit, and he is unjustly enriched if retention of the benefit would be unjust. Unjust enrichment of a person occurs when he has and retains money or benefits which in justice and equity belong to another.

Unjust enrichment is "the unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience." A defendant may be liable "even when the defendant retaining the benefit is not a wrongdoer" and "even though he may have received [it] honestly in the first instance." (Schock v. Nash, 732 A.2d 217, 232-33 (Delaware. 1999). USA)

Unjust enrichment occurs when the defendant wrongfully secures a benefit or passively receives a benefit which would be unconscionable to retain.

 

RESTITUTION AND COMPOUND INTEREST

American Jurisprudence 2d. Volume 66 Am Jur 2d defined Restitution as follows:

"The word `restitution' was used in the earlier common law to denote the return or restoration of a specific thing or condition. In modern legal usage, its meaning has frequently been extended to include not only the restoration or giving back of something to its rightful owner, but also compensation, reimbursement, indemnification, or reparation for benefits derived from, or for loss or injury caused to, another. As a general principle, the obligation to do justice rests upon all persons, natural and artificial; if one obtains the money or property of others without authority, the law, independently of express contract, will compel restitution or compensation."

While Section 3 (Unjust Enrichment) reads as under:

"The phrase "unjust enrichment" is used i law to characterize the result or effect of a failure to make restitution of, or for, property or benefits received under such circumstances as to give rise to a legal or equitable obligation to account therefor. It is a general principle, underlying various legal doctrines and remedies, that one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution of or for property or benefits received, retained, or appropriated, where it is just and equitable that such restitution be made, and where such action involves no violation or frustration of law or opposition to public policy, either directly or indirectly."

Unjust enrichment is basic to the subject of restitution, and is indeed approached as a fundamental principle thereof. They are usually linked together, and restitution is frequently based upon the theory of unjust enrichment. However, although unjust enrichment is often referred to or regarded as a ground for restitution, it is perhaps more accurate to regard it as a prerequisite, for usually there can be no restitution without unjust enrichment. It is defined as the unjust retention of a benefit to the loss of another or the retention of money or property of another against the fundamental principles of justice or equity and good conscience. A person is enriched if he has received a benefit, and he is unjustly enriched if retention of the benefit would be unjust. Unjust enrichment of a person occurs when he has and retains money or benefits which in justice and equity belong to another.

While the term `restitution' was considered by the Supreme Court in South-Eastern Coalfields 2003 (8) SCC 648 and other cases excerpted later, the term `unjust  enrichment' came to be considered in Sahakari Khand Udyog Mandal Ltd vs Commissioner of Central Excise & Customs ((2005) 3 SCC 738).

The Apex  Court said:

"`Unjust enrichment' means retention of a benefit by a person that is unjust or inequitable. `Unjust enrichment' occurs when a person retains money or benefits which in justice, equity and good conscience, belong to someone else."

The terms `unjust enrichment' and `restitution' are like the two shades of green - one leaning towards yellow and the other towards blue. With restitution, so long as the deprivation of the other has not been fully compensated for, injustice to that extent remains. Which label is appropriate under which circumstances would depend on the facts of the particular case before the court. The courts have wide powers to grant restitution, and more so where it relates to misuse or non-compliance with court orders.

Restitution and unjust enrichment, along with an overlap, have to be viewed with reference to the  two stages, i.e., pre-suit and post-suit. In the former case, it becomes a substantive law (or common law) right that the court will consider; but in the latter case, when the parties are before the court and any act/omission, or simply passage of time, results in deprivation of one, or unjust enrichment of the other, the jurisdiction of the court to levelise and do justice is independent and must be readily wielded, otherwise it will be allowing the Court's own process, along with time delay, to do injustice.

For this second stage (post-suit), the need for restitution in relation to court proceedings, gives full jurisdiction to the court, to pass appropriate orders that levelise. Only the court has to levelise and not go further into the realm of penalty which will be a separate area for consideration altogether.

 

A nine judge Bench of the Supreme Court of Canada in Bank of America Canada vs Mutual Trust Co. [2002] 2 SCR 601 = 2002 SCC 43 (both Canadian Reports) took the view :

"There seems in principle no reason why compound interest should not be awarded. Had prompt recompense been made at the date of the wrong the plaintiff should have had a capital sum to invest; the plaintiff would have received interest on it at regular intervals and would have invested those sums also. By the same token the defendant will have had the benefit of compound interest. Although not historically available, compound interest is well suited to compensate a plaintiff for the interval between when damages initially arise and when they are finally paid."

This view seems to be correct and in consonance with the principles of equity and justice. Another way of looking at it is suppose the judgment-debtor had borrowed the money from the nationalised bank as a clean loan and paid the money into this court. What would be the bank's demand.  In other words, if payment of an amount equivalent of what the ledger account in the nationalised bank on a clean load would have shown as a debit balance today is not paid and something less than that is paid, that differential or shortfall is what there has been : (1) failure to restitute; (2) unfair gain by the non-complier; and (3) provided the incentive to obstruct or delay payment.  Unless this differential is paid, justice has not been done to the creditor. It only encourages non-compliance and litigation. Even if no benefit had been retained or availed even then, to do justice, the debtor must pay the money. In other words, it is this is not only disgorging all the benefits but making the creditor whole i.e. ordering restitution in full and not dependent on what he might have made or benefitted is what justice requires.

 

LEGAL POSITION UNDER THE CODE OF CIVIL PROCEDURE

Reason the law has not developed on this is because of the wording of Section 34 of the Code of Civil Procedure which still proceeds on the basis of simple interest.

In fact, it is this difference which prompts much of our commercial litigation because the debtor feels - calculates and assesses -that to cause litigation and then to contest with obstructions and delays will be beneficial because the court is empowered to allow only simple interest. A case for law reform on this is a separate issue.

In the point under consideration, which does not arise from a suit for recovery under the Code of Civil Procedure, the inherent powers in the court and the principles of justice and equity are each sufficient to enable an order directing payment of compound interest. The power to order compound interest as part of restitution cannot be disputed, otherwise there can never be restitution.

 

INTEREST ON INTEREST

The apex court in Alok Shanker Pandey vs Union of India & Others (2007) 3 SCC 545 observed as under:-

"We are of the opinion that there is no hard and fast rule about how much interest should be granted and it all depends on the facts and circumstances of the each case. We are of the  opinion that the grant of interest of 12% per annum is appropriate in the facts of this particular case. However, we are also of the opinion that since interest was not granted to the appellant along with the principal amount the respondent should then in addition to the interest at the rate of 12% per annum also pay to appellant interest at the same rate on the aforesaid interest from the date of payment of instalments by the appellant to the respondent till the date of refund on this amount, and the entire amount mentioned above must be paid to the appellant within two months from the date of this judgment.

It may be mentioned that there is misconception about interest. Interest is not a penalty or punishment at all, but it is the normal accretion on capital."

 

COMPOUND INTEREST

`Compound interest' is defined in Black's Law Dictionary, Eighth Edition (Bryan A. Garner) at page 830 as `Interest paid on both the principal and the previously accumulated interest.' It is a method of arriving at a figure   which nears the time value of money submitted under Head-2 earlier.

As noted, compound interest is a norm for all commercial transactions.

To do complete justice, prevent wrongs, remove incentive for wrongdoing or delay, and to implement in practical terms the concepts of Time Value of Money, restitution and unjust enrichment noted above - or to simply levelise - a convenient approach is calculating interest. But here interest has to be calculated on compound basis - and not simple - for the latter leaves much uncalled for benefits in the hands of the wrongdoer. Further, a related concept of inflation is also to be kept in mind and the concept of compound interest takes into account, by reason of prevailing rates, both these factors, i.e., use of the money and the inflationary trends, as the market forces and predictions work out.

Some of our statute law provide only for simple interest and not compound interest. In those situations, the courts are helpless. However, the power of the court to order compound interest by way of restitution is not fettered in any way.

Graham Virgo in his important book on `The Principles of the Law of Restitution" at pp26-27 has stated and relevant portion is reproduced as under:

"In Westdeutsche Landesbank Girozentrale v London Borough Council 1996 A.C. 669 the issue for the House of Lords was whether compound interest was available in respect of all restitutionary claims. By a majority it was decided that, since the jurisdiction to award compound interest was equitable, compound interest could only be awarded in respect of equitable restitutionary claims. Consequently, where the claim was for money had and received the claimant could only obtain simple interest because this was a common law claim. The majority supported their conclusion by reference to a number of different arguments. In particular, they asserted that, since Parliament had decided in 1981 that simple interest should be awarded on claims at common law, it was not for the House of Lords to award compound interest in respect of such claims. But the Supreme Court Act 1981 does not specifically exclude the award of compound interest in respect of common law claims. Rather, it recognizes that the court can award simple interest for such claims. The equitable  jurisdiction to award compound interest is still available in appropriate cases.

In two very strong dissenting judgments, Lords Goff and Woolf rejected the argument of the majority. They asserted that, since the policy of the law of restitution was to remove benefits from the defendant, compound interest should be available in respect of all restitutionary claims, regardless of whether they arise at law or in equity. This argument can be illustrated by the following example. In the straightforward case where the claimant pays money to the defendant by mistake and defendant is liable to repay that money, the liability arises from the moment the money is received by the defendant, who has the use of it and so should pay the claimant for the value of that benefit. This was accepted by all the judges in the case. The difficulty relates to the valuation of this benefit. If the defendant was to borrow an equivalent amount of money from a financial institution, he or she would be liable to pay compound interest to that institution. It follows that the defendant has saved that amount of money and so this is the value of the benefit which the defendant should restore to the claimant, in addition to the value of the money which the defendant received in the first place. If it could be shown that, had the defendant borrowed the equivalent amount of money, the institution would only have paid simple interest, it would be appropriate for the interest awarded to the claimant to be simple rather than compound. Usually, however, the interest awarded in commercial transactions will be compound interest."

In Marshall sons and company (I) Limited v. Sahi Oretrans (P) Limited and another (1999) 2 SCC 325 this court in para 4 of the judgment observed as under:

"...It is true that proceedings are dragged for a long time on one count or the other and, on occasion, become highly technical accompanied by unending prolixity at every stage providing a legal trap to the unwary. Because of the delay, unscrupulous parties to the proceedings take undue advantage and a person who is in wrongful possession draws delight in delay in disposal of the cases by taking undue advantage of procedural complications. It is also a known fact that after obtaining a decree for possession of immovable property, its execution takes a long time. In such a situation, for protecting the interest of the judgment-creditor, it is necessary to pass appropriate orders so that reasonable mesne profit which may be equivalent to the market rent is paid by a person who is holding over the property. In appropriate cases, the court may appoint a Receiver and direct the person who is holding over the property to act as an agent of the Receiver with a direction to deposit the royalty amount fixed by the Receiver or pass such other order which may meet the interest of justice. This may prevent further injury to the plaintiff in whose favour the decree is passed and to protect the property including further alienation. ..."

In Ouseph Mathai and others v. M. Abdul Khadir (2002) 1 SCC 319 this court reiterated the legal position that  the stay granted by the court does not confer a right upon a party and it is granted always subject to the final result of the matter in the court and at the risk and costs of the party obtaining the stay. After the dismissal, of the lis, the party concerned is relegated to the position which existed prior to the filing of the petition in the court which had granted the stay. Grant of stay does not automatically amount to extension of a statutory protection.

Apex Court in South Eastern Coalfields Limited v. State of M.P. and others (2003) 8 SCC 648 on examining the principle of restitution in para 26 of the judgment observed as under:

"In our opinion, the principle of restitution takes care of this submission. The word "restitution" in its etymological sense means restoring to a party on the modification, variation or reversal of a decree or order, what has been lost to him in execution of decree or order of the court or in direct consequence of a decree or order (see Zafar Khan v. Board of Revenue, U.P - (1984) Supp SCC 505) In law, the term "restitution" is used in three senses: (i) return or restoration of some specific thing to its rightful owner or status; (ii) compensation for benefits derived from a wrong done to another; and (iii) compensation or reparation for the loss caused to another."

The court in para 28 of the aforesaid judgment very carefully mentioned that the litigation should not turn into a fruitful industry and observed as under:

"... ... ...Litigation may turn into a fruitful industry. Though litigation is not gambling yet there is an element of chance in every litigation. Unscrupulous litigants may feel encouraged to approach the courts, persuading the court to pass interlocutory orders favourable to them by making out a prima facie case when the issues are yet to be heard and determined on merits and if the concept of restitution is excluded from application to interim orders, then the litigant would stand to gain by swallowing the benefits yielding out of the interim order even though the battle has been lost at the end. This cannot be countenanced. We are, therefore, of the opinion that the successful party finally held entitled to a relief assessable in terms of money at the end of the litigation, is entitled to be compensated by award of interest at a suitable reasonable rate for the period for which the interim order of the court withholding the release of money had remained in operation."

The court in the aforesaid judgment also observed that once the doctrine of restitution is attracted, the interest is often a normal relief given in restitution. Such interest is not controlled by the provisions of the Interest Act of 1839 or 1978.

In Amarjeet Singh and others v. Devi Ratan and others (2010) 1 SCC 417 the court in para 17 of the judgment observed as under:

"No litigant can derive any benefit from mere pendency of case in a court of law, as the interim order always merges in the final order to be passed in the case and if the writ petition is ultimately dismissed, the interim order stands nullified automatically. A party cannot be allowed to take any benefit of its own wrongs by getting an interim order and thereafter blame the court. The fact that the writ is found, ultimately, devoid of any merit, shows that a frivolous writ petition had been filed. The maxim actus curiae neminem gravabit, which means that the act of the court shall prejudice no one, becomes applicable in such a case. In such a fact situation the court is under an obligation to undo the wrong done to a party by the act of the court. Thus, any undeserved or unfair advantage gained by a party invoking the jurisdiction of the court must be neutralised, as the institution of litigation cannot be permitted to confer any advantage on a suitor from delayed action by the act of the court. ... ..."

In Kalabharati Advertising v. Hemant Vimalnath Narichania and others (2010) 9 SCC 437 in para 15 it was observed as under:

"No litigant can derive any benefit from the mere pendency of a case in a court of law, as the interim order always merges into the final order to be passed in the case and if the case is ultimately dismissed, the interim order stands nullified automatically. A party cannot be allowed to take any benefit of his own wrongs by getting an interim order and thereafter blame the court. The fact that the case is found, ultimately, devoid of any merit, or the party withdrew the writ petition, shows that a frivolous writ petition had been filed. The maxim actus curiae neminem gravabit, which means that the act of the court shall prejudice no one, becomes applicable in such a case. In such a situation the court is under an obligation to undo the wrong done to a party by the act of the court. Thus, any undeserved or unfair advantage gained by a party invoking the jurisdiction of the court must be neutralised, as the institution of litigation cannot be permitted to confer any advantage on a party by the delayed action of the court."

 

In consonance with the concept of restitution, it was observed that courts should be careful and pass an order neutralizing the effect of all consequential orders passed in pursuance of the interim orders passed by the court. Such express directions may be necessary to check the rising trend among the litigants to secure the relief as an interim measure and then avoid adjudication on merits.

 

 In consonance with the principle of equity, justice and good conscience judges should ensure that the legal process is not abused by the litigants in any manner. The court should never permit a litigant to perpetuate illegality by abusing the legal process. It is the bounden duty of the court to ensure that dishonesty and any attempt to abuse the legal process must be effectively curbed and the court must ensure that there is no wrongful, unauthorized or unjust gain for anyone by the abuse of the process of the court. One way to curb this tendency is to impose realistic costs, which the respondent or the defendant has in fact incurred in order to defend himself in the legal proceedings. The courts would be fully justified even imposing punitive costs where legal process has been abused. No one should be permitted to use the judicial process for earning undeserved gains or unjust profits. The court must effectively discourage fraudulent, unscrupulous and dishonest litigation.

 

The court's constant endeavour must be to ensure that everyone gets just and fair treatment. The court while rendering justice must adopt a pragmatic approach and in appropriate cases realistic costs and compensation be ordered in order to discourage dishonest litigation. The object and true meaning of the concept of restitution cannot be achieved or accomplished unless the courts adopt a pragmatic approach in dealing with the cases.

 

IMPOSITION OF COSTS

In Ramrameshwari Devi and Others v. Nirmala Devi and Others 2011(6) Scale 677 dealing with imposition of realistic costs and restitution it was observed :

"While imposing costs we have to take into consideration pragmatic realities and be realistic what the defendants or the respondents had to actually incur in contesting the litigation before different courts. We have to also broadly take into consideration the prevalent fee structure of the lawyers and other miscellaneous expenses which have to be incurred towards drafting and filing of the counter affidavit, miscellaneous charges towards typing, photocopying, court fee etc. The other factor which should not be forgotten while imposing costs is for how long the defendants or respondents were compelled to contest and  defend the litigation in various courts. The appellants in the instant case have harassed the respondents to the hilt for four decades in a totally frivolous and dishonest litigation in various courts. The appellants have also wasted judicial time of the various courts for the last 40 years."

 

We reiterate that the finality of the judgment of the Apex Court has great sanctity and unless there are extremely compelling or exceptional circumstances, the judgments of the Apex Court should not be disturbed particularly in a case where review and curative petitions have already been dismissed.

 

This Court has consistently taken the view that the judgments delivered by this Court while exercising its jurisdiction under Article 136of the Constitution cannot be reopened in a writ petition filed under Article 32 of the Constitution. In view of this legal position, how can a final judgment of this Court be reopened by merely filing interlocutory applications where all possible legal remedies have been fully exhausted? When we revert to the facts of this case, it becomes abundantly clear that this Court delivered  final judgment in this case way back in 1996. The said judgment has not been permitted to acquire finality because the respondent Nos. 4 to 8 had filed multiple interlocutory applications and has ensured non-compliance of the judgment of this Court.

 

On consideration of pleadings and relevant judgments of the various courts, following irresistible conclusion emerge:

i) The judgment of the Apex Court has great sanctity and unless there are extremely compelling, overriding and exceptional circumstances, the judgment of the Apex Court should not be disturbed particularly in a case where review and curative petitions have already been dismissed

ii) The exception to this general rule is where in the proceedings the concerned judge failed to disclose the connection with the subject matter or the parties giving scope of an apprehension of bias and the judgment adversely affected the petitioner.

iii) The other exception to the rule is the circumstances incorporated in the review or curative petition are such that they must inevitably shake public confidence in the integrity of the administration of justice if the judgment or order is allowed to stand.

These categories are illustrative and not exhaustive but only in such extremely exceptional circumstances the order can be recalled in order to avoid irremedial injustice.

 

PRINCIPLES LAID

The other aspect which has been dealt with in great details is to neutralize any unjust enrichment and undeserved gain made by the litigants. While adjudicating, the courts must keep the following principles in view.

1. It is the bounden duty and obligation of the court to neutralize any unjust enrichment and undeserved gain made by any party by invoking the jurisdiction of the court.

2. When a party applies and gets a stay or injunction from the court, it is always at the risk and responsibility of the party applying. An order of stay cannot be presumed to be conferment of additional right upon the litigating party.

3. Unscrupulous litigants be prevented from taking undue advantage by invoking jurisdiction of the Court.

4. A person in wrongful possession should not only be removed from that place as early as possible but be compelled to pay for wrongful use of that premises fine, penalty and costs. Any leniency would seriously affect the credibility of the judicial system.

5. No litigant can derive benefit from the mere pendency of a case in a court of law.

6. A party cannot be allowed to take any benefit of his own wrongs.

7. Litigation should not be permitted to turn into a fruitful industry so that the unscrupulous litigants are encouraged to invoke the jurisdiction of the court.

8. The institution of litigation cannot be permitted to confer any advantage on a party by delayed action of courts."

The High Courts and Supreme Court of India have followed above principles in many cases. So, the inherent powers of the Courts / quasi judicial authorities and the principles of justice and equity are sufficient to enable an order directing payment of damages and interest thereon.

The power to order such damages as part of restitution, cannot be disputed, otherwise, there can never be restitution. Unscrupulous litigants cannot derive benefit of technicalities of law by agitating the matter time and again.