(a) Discuss the concept and classification of 'Quasi contracts' under Indian Contract Act, 1872. 20 (b) "Limited Liability…

(a) Concept

• What quasi-contracts are: obligations that the law imposes in circumstances where it would be unjust for one person to retain a benefit at another's expense. There is no offer, acceptance or consent; the obligation arises by operation of law.
• Indian framing: Chapter V of the Indian Contract Act (ss.68–72) calls them "certain relations resembling those created by contract".
• Theoretical basis:
• unjust enrichment and restitution (Moses v Macferlan (1760), per Lord Mansfield: the defendant is obliged "by the ties of natural justice and equity" to refund money);
• the older implied contract theory has been abandoned in England (Fibrosa (1943)).
• Supplementary remedies: in India, the statutory heads are supplemented by quantum meruit and by s.65 (restitution when an agreement is discovered to be void or a contract becomes void).

Classification (ss.68–72)

• 1. Supply of necessaries to a person incapable of contracting (s.68):
• a person who supplies necessaries suited to the condition in life of a minor or a person of unsound mind, or of anyone whom he is legally bound to support, is entitled to be reimbursed from the property of the incapable person;
• there is no personal liability, and the supplier must prove that the goods were necessaries (Nash v Inman (1908)).
• 2. Payment by an interested person (s.69):
• a person who is interested in the payment of money that another is bound by law to pay, and who pays it, is entitled to be reimbursed;
• Govindram Gordhandas Seksaria v State of Gondal (1950): a mortgagee who paid the land revenue due from the mortgagor, to save the property from sale, recovered it.
• 3. Obligation to pay for a non-gratuitous act (s.70):
• where a person lawfully does something for another, or delivers something to him, not intending to do so gratuitously, and the other enjoys the benefit, the other must compensate or restore it;
• ***State of West Bengal v B.K. Mondal & Sons* (1962):** a contractor who built structures for the State without a valid contract (Art 299 not being complied with) recovered under s.70, since the State accepted and enjoyed the work;
• ***Mulamchand v State of MP* (1968):** the same principle was applied to Government contracts void for non-compliance with Art 299.
• 4. Responsibility of the finder of goods (s.71):
• a person who finds goods belonging to another and takes them into custody has the same responsibility as a bailee;
• under ss.168–169, the finder may retain the goods until paid his expenses, and may sell them if the owner cannot be found or refuses to pay, where the goods are perishable or the lawful charges amount to two-thirds of their value.
• 5. Money paid or thing delivered by mistake or under coercion (s.72):
• the recipient must repay or return it;
• ***Sales Tax Officer v Kanhaiya Lal Mukundlal Saraf* (1959): "mistake" includes a mistake of law**, so tax paid under an invalid law was recoverable;
• ***Mahabir Kishore v State of MP* (1989):** limitation runs from the discovery of the mistake.

Features and limits

• Nature of the right: it is a right in personam, to money or to restoration.
• Denial of relief: relief is denied where the benefit was officiously conferred, where it was gratuitous, or where restitution would be inequitable, for example where the payer has passed the burden on, following the doctrine of unjust enrichment in tax refunds (Mafatlal Industries v Union of India (1997)).
• Conclusion: quasi-contracts fill the gaps in contract law, preventing unjust enrichment on principles of equity and good conscience.

(b)

• Background: the LLP Act, 2008, based on the Naresh Chandra Committee (2003) recommendations, created a hybrid form. Its chief characteristics follow.
• 1. Body corporate and separate legal entity (s.3):
• the LLP is distinct from its partners;
• it has perpetual succession;
• it can sue and be sued, own property, and have a common seal (s.14).
• 2. Limited liability:
• the LLP itself is liable for its obligations, to the full extent of its assets (s.27);
• a partner is not personally liable for the LLP's obligations merely because he is a partner (s.28);
• a partner remains liable for his own wrongful acts;
• there is unlimited liability in cases of fraud (s.30).
• 3. No mutual agency (s.26): every partner is an agent of the LLP, not of the other partners. One partner is therefore not liable for another's misconduct, unlike in a firm under the Partnership Act, 1932, which does not apply to LLPs (s.4).
• 4. Flexibility of a partnership (s.23): internal matters, such as capital, profit-sharing, management and admission or exit of partners, are governed by the LLP agreement. The First Schedule applies by default where the agreement is silent.
• 5. Structure:
• at least two partners (s.6), with no maximum;
• at least two designated partners, one of whom must be resident in India, responsible for compliance (s.7);
• bodies corporate may be partners.
• 6. Light compliance:
• an annual Statement of Account and Solvency and an Annual Return (ss.34–35);
• audit only above prescribed thresholds;
• fewer procedural formalities than under the Companies Act, 2013.
• 7. Conversion: firms, private companies and unlisted public companies may convert into an LLP (ss.55–58; Schedules II–IV).
• 8. The LLP (Amendment) Act, 2021:
• decriminalised many offences, converting them into civil penalties by adjudication;
• introduced "small LLPs" and "start-up LLPs";
• expanded compounding of offences;
• allowed LLPs to use accounting and auditing standards.
• 9. Winding up: under the IBC, 2016 (insolvency), or voluntarily or by order of the Tribunal (s.63).

Assessment

• A popular vehicle: LLPs are a popular vehicle for professionals and small businesses, because they combine the limited liability and entity status of a company with the internal freedom of a partnership.
• Limits: they have limits in raising equity, and are subject to tax treatment as firms.

(c) Free consent

• Consent (s.13): agreeing upon the same thing in the same sense (consensus ad idem).
• Free consent (s.14): consent that is not caused by coercion, undue influence, fraud, misrepresentation or mistake.
• Validity (s.10): free consent is an essential of a valid contract.

Factors and their effect

• 1. Coercion (s.15):
• committing, or threatening to commit, any act forbidden by the BNS (formerly the IPC), or unlawfully detaining property, with the intention of causing a person to enter into an agreement;
• Chikham Amiraju v Chikham Seshamma (1917): a threat to commit suicide was held to be coercion;
• Effect: the contract is voidable at the option of the coerced party (s.19). Money paid under coercion is recoverable (s.72).
• 2. Undue influence (s.16):
• where one party is in a position to dominate the will of the other, as in real or apparent authority, a fiduciary relationship or mental distress, and uses that position to obtain an unfair advantage;
• Mannu Singh v Umadat Pande (1890): a gift obtained by a spiritual adviser was set aside;
• Subhas Chandra Das Mushib v Ganga Prasad Das Mushib (1967) set out the tests: a relationship of domination, unfair use of it, and an unconscionable transaction;
• Effect: the contract is voidable, and the court may set it aside absolutely or on terms (s.19A);
• Burden of proof: where the transaction appears unconscionable, the burden shifts to the dominant party to prove good faith (s.16(3); BSA s.123, formerly Evidence Act s.111).
• 3. Fraud (s.17):
• deliberate deception with intent to deceive: a false suggestion made knowingly, active concealment, or a promise made without any intention of performing it;
• mere silence is not fraud unless there is a duty to speak, as in contracts of utmost good faith, or unless silence is equivalent to speech;
• Derry v Peek (1889): fraud requires a false statement made knowingly, without belief in its truth, or recklessly;
• Effect: the contract is voidable, and the deceived party may also claim damages (s.19; tort of deceit). The exception to s.19 applies where the party could have discovered the truth with ordinary diligence, except in cases of fraud by silence.
• 4. Misrepresentation (s.18): an innocent false statement, a breach of duty that gains an advantage, or causing a mistake about the subject matter.
• Effect: the contract is voidable, and the party may rescind or insist on being placed in the position he would have occupied had the representation been true. There are no damages for innocent misrepresentation.
• 5. Mistake:
• bilateral mistake of fact essential to the agreement makes it void (s.20). For example, where the subject matter had perished (Couturier v Hastie (1856));
• mistake of Indian law does not affect the contract (s.21), but a mistake of foreign law is treated as a mistake of fact;
• unilateral mistake does not make a contract voidable (s.22), except for mistake as to the identity of the party where identity is material (Cundy v Lindsay (1878)), or as to the nature of the document signed (non est factum).

Consequences of rescission

• Restoration of benefits: a party rescinding a voidable contract must restore benefits received (s.64). Money paid under a void agreement must be restored (s.65).
• Rescission is lost where:
• the contract is affirmed;
• there is unreasonable delay;
• third-party rights have intervened;
• restitution is impossible.
• Conclusion: vitiating factors make the contract voidable, except mistake, which makes it void. This protects the integrity of consent while also protecting commercial certainty.