A Bench of Justices DY Chandrachud, Surya Kant and Vikram Nath noted that in such cases, claims for restitution under Section 65 of the Indian Contract Act will fail, even though the illegality has to be determined on case-to-case basis.
The Court, therefore, rejected the plea by Loop Telecom seeking refund of entry fees it had paid for 2G license, before the top court had in 2011 quashed the award of licenses in its notable judgment in Centre for public Interest Litigation (CPIL) v Union of India (CPIL judgment).
Section 65 of the Act says that “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.”
The Supreme Court held that unless the party claiming restitution was party to the illegal act involuntarily, they would be held in pari delicto or in equal fault.
“In determining a claim of restitution, the claiming party’s legal footing in relation to the illegal act (and in comparison to the defendant) must be understood. Unless the party claiming restitution participated in the illegal act involuntarily or the rule of law offers them protection against the defendant, they would be held to be in pari delicto and therefore, their claim for restitution will fail,” the judgement stated.