Section 70 Contract Act | Co-Owners Not Liable To Refund Advance Sale Consideration Unless Benefit Is Voluntarily Accepted: Kerala High Court

"It is only where the person voluntarily accepts the thing or enjoys the work done that the liability under S.70 arises." Kerala High Court has held that co-owners of a property who are not signatories to an agreement for sale cannot be made liable to refund advance consideration under Section 70 of the Contract Act unless it is proved they voluntarily accepted the benefit of the transaction.

A division bench of Justice Sathish Ninan and Justice P. Krishna Kumar observed that Section 70, which embodies the principle of unjust enrichment, cannot be invoked to impose liability on persons who did not desire the services or "officiously interfere" in the affairs of another.

The court further clarified that a claim for compensation under Section 70 is governed by the residuary Article 113 of the Limitation Act, 1963. The bench noted that if additional defendants are impleaded years after the cause of action arose, the suit against them is deemed to have been instituted only on the date of their impleadment under Section 21 of the Limitation Act, unless a specific prayer for relation back is sought and granted.

The dispute arose from an agreement for sale (Ext.A1) dated May 16, 2011, entered into between the plaintiff and two defendants (D1 and D2) for a total consideration of ₹17.60 Crores. The plaintiff paid ₹2.92 Crores to clear bank liabilities existing over the property and obtained the title deeds. However, the property was co-owned by several others (Defendants 3 to 15) who were not parties to the agreement. When the sale failed to materialize, the plaintiff sought the return of the advance amount with interest and damages from all co-owners.

The primary question before the court was whether co-owners who were not signatories to the sale agreement could be held liable for the return of advance consideration and damages. The court was also called upon to determine if the claim against these supplemental defendants was barred by limitation under Section 21 and Article 113 of the Limitation Act, 1963.

Applicability Of Section 70 Of The Contract Act

The court analyzed the scope of Section 70 of the Contract Act, which deals with the obligation of a person enjoying the benefit of a non-gratuitous act. It noted that for this section to be invoked, three conditions must be satisfied: the act must be done lawfully, it must not be done gratuitously, and the other person must enjoy the benefit thereof. The bench emphasized that the person sought to be made liable must have had the option to refuse the benefit.

Relying on the Supreme Court's decision in State of W.B. v. M/s B.K. Mondal and Sons, the bench observed that the liability under Section 70 arises only when a person voluntarily accepts the work done. The court highlighted that this provision is not intended to entertain claims for compensation made by persons who impose undesired services on others.

"Section 70 is not intended to entertain claims for compensation made by persons who officiously interfere with the affairs of another or who impose on others services not desired by them."

Lack Of Pleadings On Voluntary Acceptance

The High Court found that the plaintiff failed to lay the necessary foundation in the pleadings to establish the ingredients of Section 70. Although the plaintiff argued that the advance money was used to clear bank liabilities benefiting all co-owners, the court noted that the exact quantum of benefit used for each co-owner remained unproved.

The bench remarked that the mere fact that a part of the advance was utilized to clear a bank debt does not automatically make non-signatory co-owners liable. It held that the "ingredients of Section 70 have neither been pleaded nor proved" against Defendants 3 to 15, especially since they specifically denied being liable in their written statements.

Limitation Period For Claims Against Added Defendants

Regarding the issue of limitation, the court observed that even if a claim under Section 70 could be raised, it was time-barred against the supplemental defendants. Under Article 113 of the Limitation Act, the period of limitation is three years, beginning when the "right to sue accrues." In this case, the right to claim arose on the date of payment, which was before June 25, 2011.

The bench pointed out that while the suit was filed in 2012 against the original two defendants, the additional co-owners were impleaded only on January 9, 2015. Invoking Section 21 of the Limitation Act, the court held that the suit is deemed to have been instituted against the new defendants only on the date they were made parties.

"The suit as against the defendants 3 to 15 being apparently beyond the period of limitation, the court is bound to consider the issue in the light of Section 3."

Mandatory Duty Of Court To Consider Limitation

The court rejected the appellant's argument that limitation is a mixed question of fact and law that cannot be raised for the first time in appeal. Citing Section 3 of the Limitation Act and the Apex Court's ruling in R. Nagaraj v. Rajmani, the bench held that it is the obligation of the court to consider whether a suit is filed within the period of limitation, irrespective of whether a defense plea has been raised.

The High Court concluded that since the plaintiff did not seek to invoke the proviso to Section 21(1) to deem the institution at an earlier date, the suit against the co-owners was ex-facie barred by time. The court maintained the trial court's decree which held only the signatory defendants (D1 and D2) liable for the refund.

The appeals were dismissed, confirming that non-signatory co-owners cannot be burdened with the liability of a sale agreement they did not enter into, especially when the statutory requirements of Section 70 are not met and the claim is hit by limitation. The court found no merit in the challenge against the trial court's judgment.

Date of Decision: 14 July 2026