Supreme Court settles burden of proof in money recovery suits: Anita Rani vs. Ashok Kumar & Ors. (2021)

Introduction

Date of the Judgment: 16 December 2021
Citation: Civil Appeal Nos. 7750-7751 of 2021 (Arising out of Special Leave Petition (C) Nos.12558-12559 of 2018)
Judges: Hemant Gupta, J., V. Ramasubramanian, J. (authored the judgment)

When a person claims money back, who has to prove their case? The Supreme Court of India recently addressed this question in a case involving a dispute over money lent and business transactions. The core issue revolved around who bears the burden of proof when a defendant claims that a partial repayment was a full and final settlement or that the payment was gratuitous (without any obligation). This judgment clarifies the legal responsibilities of both parties in such disputes.

Case Background

The case involves two money suits filed by Anita Rani (the appellant) against Ashok Kumar and others (the respondents). The first suit claimed Rs. 10,48,000, while the second sought Rs. 67,31,000. The appellant alleged that the respondents borrowed money and made unauthorized withdrawals from her bank account. The respondents, on the other hand, claimed that the money was either part of a business investment or a gratuitous payment.

In the first suit, the appellant stated that she lent Rs. 10,50,000 to the respondents on 18 November 2003, and they repaid Rs. 5,00,000 on 7 August 2006, promising to repay the balance. In the second suit, the appellant claimed that the respondents had withdrawn Rs. 54,50,000 from her account without authorization between 2005 and 2006. She also filed a criminal complaint against the respondents.

Timeline

Course of Proceedings

The Trial Court dismissed both suits, stating that the appellant failed to prove the loan in the first suit and that the repayment of Rs. 5,00,000 was a full and final settlement in both suits. The District Judge reversed these decisions, granting decrees in favor of the appellant. However, the High Court reversed the District Court’s decision and dismissed the suits. The High Court also ordered the appellant to refund Rs. 55,00,000 paid by the respondents during the anticipatory bail proceedings, along with interest.

Legal Framework

The Supreme Court considered Section 70 of the Indian Contract Act, 1872, which deals with the obligation of a person enjoying the benefit of a non-gratuitous act. Section 70 states:

“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.”

This section applies when someone does something for another person without intending to do it for free, and the other person benefits from it. In such cases, the person who benefited is legally bound to compensate the person who acted. This provision is crucial in cases where there isn’t a formal contract but one party has gained an advantage at the expense of another.

Arguments

Appellant’s Arguments:

• The appellant argued that the Trial Court and High Court erred by accepting the respondents’ plea of full and final settlement.
• The appellant contended that the High Court overstepped its bounds by ordering a refund of money paid during anticipatory bail proceedings.
• The appellant submitted that the respondents failed to prove that the payment of Rs. 5,00,000 was a full and final settlement.
• The appellant claimed that the withdrawals from her account were unauthorized and that the respondents did not provide evidence of business transactions to justify these withdrawals.

Respondents’ Arguments:

• The respondents argued that the appellant’s failure to include her son as a co-plaintiff or witness was detrimental to her case.
• They contended that the payments were authorized and part of a real estate business venture.
• They argued that a settlement was reached with the appellant through third-party mediators, and the payment of Rs. 5,00,000 was a full and final settlement.
• The respondents claimed that a sum of Rs. 30,00,000 was given by the appellant out of love and affection.

Sub-Submissions:

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the main issues that the court dealt with were:

1. Whether the respondents had discharged the burden of proving that the payment of Rs. 5,00,000 was in full and final settlement of the loan in the first suit.
2. Whether the respondents had discharged the burden of proving that the withdrawals/transfers in the second suit were authorized and accounted for, or were a gratuitous payment.
3. Whether the High Court was correct in reversing the decision of the First Appellate Court.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authority:

The Supreme Court considered the following legal provision:

• Section 70 of the Indian Contract Act, 1872: This section was central to the Court’s decision, as it deals with the obligation of a person who enjoys the benefit of a non-gratuitous act. The Court used this provision to emphasize that since the respondents benefited from the money transferred from the appellant’s account, they were obligated to compensate her, as they could not prove the money was a gift or part of a business transaction.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court referred to State of West Bengal vs. B.K. Mondal & Sons [AIR 1962 SC 779] to emphasize that Section 70 of the Indian Contract Act, 1872, applies when someone does something for another without intending to do it for free, and the other person benefits from it. The court clarified that the plea that there was a subsisting contract is antithetical to the very essence of section 70.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the failure of the respondents to discharge the burden of proof. The court emphasized that when a party admits receiving money, the onus shifts to them to prove any claims of full and final settlement or gratuitous payment. The absence of documentary evidence, the contradictory nature of the respondents’ defense, and the lack of business records all weighed heavily against them. The court also noted the implausibility of the events, such as the claim of a gratuitous payment of Rs. 30,00,000 followed by a settlement for Rs. 5,00,000 within a short period.

Fact:Law Ratio

Logical Reasoning:

The court rejected the respondents’ claims due to the lack of evidence and the contradictory nature of their defense. The court emphasized that once the appellant proved the flow of money, the burden shifted to the respondents to prove their claims, which they failed to do.

The court’s reasoning was based on the principle that when a party admits receiving money, the onus shifts to them to prove any claims of full and final settlement or gratuitous payment. The court highlighted the absence of documentary evidence, the contradictory nature of the respondents’ defense, and the lack of business records as factors that weighed heavily against the respondents. The court also noted the implausibility of the events, such as the claim of a gratuitous payment of Rs. 30,00,000 followed by a settlement for Rs. 5,00,000 within a short period.

“When payment of a certain amount of money and the repayment of only a portion of the same are admitted, the party pleading that such a part repayment was in full and final settlement, has a huge burden cast upon him to show that there was a settlement.”

“In a suit for recovery of money, a defendant admitting the receipt of money but pleading that the same was a gratuitous payment, is obliged to prove that it was a gratuitous payment.”

“As pointed out earlier, the respondents have admitted that the moneys as claimed by the appellant-plaintiff were either paid by the plaintiff or flown out of the plaintiff’s account into their own account. Therefore, the onus was actually on the respondents to prove either a discharge by way of settlement of accounts or the gratuitous nature of the payment.”

Key Takeaways

• In money recovery suits, the burden of proof lies on the defendant to show that a partial repayment was a full and final settlement.
• Oral evidence of third-party mediators is not sufficient to prove a full and final settlement when transactions occur through banking channels.
• If a defendant claims a payment was gratuitous, they must prove it.
• The absence of documentary evidence and business records can be detrimental to a defendant’s case.
• Section 70 of the Indian Contract Act, 1872, can be invoked when a person benefits from a non-gratuitous act, obligating them to compensate the other party.

Directions

The Supreme Court set aside the judgment and decrees of the High Court and restored the judgment and decrees of the First Appellate Court. The court also directed that the amount deposited by the appellant, along with accrued interest, be released to her.

Specific Amendments Analysis

There were no specific amendments analyzed in this judgment.

Development of Law

The ratio decidendi of this case is that in money recovery suits, when the defendant admits receiving money but claims a full and final settlement or gratuitous payment, the burden of proof shifts to the defendant to prove such claims. This judgment reinforces the principle that the party asserting a claim or defense has the burden to prove it, particularly when the basic facts (like the flow of money) are admitted. This case also clarifies that oral evidence is not enough to prove full and final settlement when all the transactions are through banking channels. This judgment also clarifies the applicability of Section 70 of the Indian Contract Act, 1872, in such matters.

Conclusion

The Supreme Court allowed the appeals, setting aside the High Court’s judgment and restoring the First Appellate Court’s decision. The Court emphasized that the respondents failed to prove their claims of full and final settlement and gratuitous payment. This judgment reinforces the principle that the burden of proof lies on the defendant to prove their claims in money recovery suits, particularly when the initial receipt of money is admitted. The court also highlighted the importance of documentary evidence and business records in such cases. The judgment clarifies the legal responsibilities of both parties in disputes involving money lending and business transactions.