The Indian Contract Act, 1872
65. Obligation of person who has received advantage under void agreement, or contract that becomes void –
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.
(a) A pays B 1,000 rupees, in consideration of B’s promising to marry C, A’s daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the 1,000 rupees.
(b) A contracts with B to deliver to him 250 maunds of rice before the first of May. A delivers 130 maunds only before that day, and none after. B retains the 130 maunds after the first of May. He is bound to pay A for them.
(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her a hundred rupees for each night’s performance. On the sixth night, A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B must pay A for the five nights on which she had sung.
(d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing. A is not bound to make compensation to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B the 1,000 rupees paid in advance.
Where under a contract of Insurance the insured gave a cheque to the insurer for payment of first premium amount, but the cheque was dishonoured by the drawee-bank due to inadequacy of the funds in the account of the drawer, the insurer is not liable in such a situation to honour the claim of the insured. Even if the insurer has disbursed the amount covered by the policy to the insured before the cheque was returned dishonoured insurer is entitled to get the money back; National Insurance Company Ltd. v. Seema Malhotra, AIR 2001 SC 1197.