- The Hon’ble Supreme Court (SC or Court),in Loop Telecom and Trading Ltd v UOI,has observed that the principle of restitution would not apply to contracts if the party claiming such restitution was voluntarily part of the agreement without any external influence.
- The appeal arose from the judgments of the Telecom Disputes Settlement and Appellate Tribunal (DSAT or Tribunal).
- The Appellant claimed a refund to the tune of 1455 crores paid by it towards 2G licenses which were later quashed by the SC in Centre for Public Interest Litigation v. Union of India (CPIL). According to the contention of the Appellant, it’s claim refund was founded on the “well settled principles of civil, contractual and constitutional law”.
- The Appellant entered into Unified Access Service Licences (UASL) with the Respondent and pursuant the judgment in case of CIPL (Supra), stating that the policy of the Union government for allocation of 2G spectrum on a “First Come First Serve” basis was illegal.
- The TDSAT, dismissing the petition of the Appellant, held that quashing of the appellant’s licences by the Court could not be equated with the UASL agreements becoming void within the meaning of Section 65 of the Indian Contract Act 1872 (ICA).
- The Tribunal further held that the claim for restitution under Section 65 would be governed bythe principle of in pari delicto potio rest condition defendent is (in equal fault, better isthe condition of the possessor) and refund could not be made until the possibility of the Appellant being in pari delicto was completely erased.
- The Appellant contended that quashing of the licences by the Court amounted to a frustration of the licenses which were in the nature of a contract, in terms of Section 56 of ICA. Therefore, the Appellant was entitled to a restitution of the Entry Fee paid since the licences were quashed due to the culpability of the Union government and not on account of the fault of the Appellant.
- The Court observed that the application of Section 65 has to be limited to cases were the party claiming restitution was not in pari delicto and the claiming party's legal position in relation to the illegal act (and in comparison, to the defendant) must be understood.
- The Court further observed that unless the party claiming restitution participated in the illegal act involuntarily or the rule of law offered them protection against the defendant, they would be held to be in pari delicto and therefore, their claim for restitution will fail
- The Court, relying on the judgments of the Supreme Court in Inmani Appa Rao v Gollapalli Ramalingamurthi and Narayanamma v. Govindappa observed that in adjudicating a claim of restitution under Section 65 of ICA, the court must determine the illegality which caused the contract to become void and the role the party claiming restitution has played in it.
- Rejecting the Appellant’s contention that the licences were quashed on account of the Government’s culpability, the Court observed that the appellant has been held to be in pari delicto and amongst the group of licensees who obtained benefits under the "First Come First Serve"at the cost of the public exchequer.
- In light of the above, the appellant was entitled to claim a refund of its Entry Fee and the appeal was hence dismissed.
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