Person Deprived Of Money Has Right To Be Compensated By Payment Of Interest : Supreme Court Explains Doctrine Of Restitution

The Supreme Court recently held that a person deprived of the use of money he was entitled to has the right to be compensated for the deprivation, in the form of interest.

“Thus, when a person is deprived of the use of his money to which he is legitimately entitled, he has a right to be compensated for the deprivation which may be called interest or compensation. Interest is paid for the deprivation of the use of money in general terms which has returned or compensation for the use or retention by a person of a sum of money belonging to other.”, the court observed.

The Court explained that interest is paid as compensation to address the unjust enrichment of one person at the expense of another without legal justification, preventing the rightful owner from using their money. The purpose of paying interest as compensation is to 'restore' the affected party to the position they would have been in if the money had been returned promptly.

"Money received and retained without right, carries with it the right to interest. There being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue, the Government cannot shrug off its apparent obligation to reimburse the deductors lawful monies with accrued interest for the period of undue retention of such monies. Obligation to refund money received and retained without right implies and carries with in the right to interest," the Court explained, quoting from Union of India through Director of Income Tax v. Tata Chemicals Ltd., (2014) 6 SCC 335.

The Case

The bench comprising Justices JB Pardiwala and R Mahadevan heard the case where the Appellant was deprived of the e-stamp she purchased to purchase a property. The e-stamp paper purchased worth ₹28,10,000 by the Appellant was misplaced by the broker due to which there was delay in purchasing the property as the Appellant had to purchase another e-stamp paper. The Appellant filed a police complaint reporting the loss of the e-stamp paper to the police and also published a newspaper notice informing about the loss.

The Appellant then filed an application before the Collector claiming the refund of the e-stamp amount which was purportedly lost. The Appellant argued that the department was unjustly enriched with the e-stamp paper amount without legal justification due to which he was unable to make use of such e-stamp paper despite paying the amount for the same.

Pursuant to the rejection of the refund of the e-stamp amount by the Collector of Stamps, the Appellant approached the High Court.

The High Court ordered the refund of the e-stamp amount to the Appellant but denied interest on the deprivation of the use of the e-stamp amount for purchasing its property.

Following this, an appeal was preferred to the Supreme Court by the Appellant contending that he was entitled to an interest in the form of compensation for depriving him of making use of the e-stamp paper for purchasing the property.

In other words, the appellant argued for the applicability of the 'doctrine of restitution' stating that he should be restored to the original position that has been lost to him.

Decision

Finding merit in the Appellant's contention, the Court held that the Appellant was entitled to interest over the refund of the e-stamp amount because he was deprived of the e-stamp money amount and was entitled to the benefit of the doctrine of restitution which requires restoring to a party what has been lost due to wrongful retention of money.

Explaining the concept of restitution, the Court observed:

“If on facts of a case, the doctrine of restitution is attracted, interest should follow. 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. The term “restitution” is used in three senses, firstly, return or restoration of some specific thing to its rightful owner or status, secondly, the compensation for benefits derived from wrong done to another and, thirdly, compensation or reparation for the loss caused to another.”

The Court ruled that the appellants were entitled to interest on the refunded amount.

The Court relied on the principle that interest is a normal accretion on capital and is compensation for the deprivation of the use of money.

It cited several precedents, including Authorised Officer Karnataka Bank v. M/s R.M.S. Granites Pvt. Ltd. and Secretary, Irrigation Department, Government of Orissa v. G.C. Roy (1992) 1 SCC 508, to support the view that interest should be awarded when money is wrongfully retained.

The respondents were directed to pay an amount of Rs. 4,35,968/- (Rs. Four Lakh Thirty Five Thousand Nine Hundred Sixty Eight Only) towards interest within a period of two months.

Case Title: DR. POORNIMA ADVANI & ANR. VERSUS GOVERNMENT OF NCT & ANR. 

Citation : 2025 LiveLaw (SC) 254

Click here to read/download the order

Appearances:

For Appellant(s) : Mr. Abhishek Puri, Adv. Mr. Sahil Grewal, Adv. Ms. Surbhi Gupta, Adv. Mrs. Reeta Dewan Puri, Adv. Mr. P. N. Puri, AOR

For Respondent(s) : Ms. Jyoti Mendiratta, AOR