Skip to content


Bansilal Fomra and ors. Vs. the Thadava Co-operative Agricultural and Industrial Society Limited - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai High Court
Decided On
Reported in(1976)1MLJ39
AppellantBansilal Fomra and ors.
RespondentThe Thadava Co-operative Agricultural and Industrial Society Limited
Cases ReferredSannidhi Gundayya v. Illoori Subbayya
Excerpt:
- - the plaintiffs were unsuccessful in their attempt to recover damages with interest as against thandava co-operative agricultural and industrial society limited, tuni in andhra pradesh which is a society which was manufacturing and distributing sugar to its customers. aries sugar agencies limited to perform the contract, that the defendant failed to deliver the goods and that in accordance with the main term of the contract, the defendant did not apply for or obtain an allotment to the waggons from the railway for the purpose of despatching the goods to the plaintiff. aries sugar agencies limited and was awaiting supply till the first week of april, 1963. the defendant failed to supply the goods and did not deliver the goods as per the contract. the plaintiff accuses the defendant.....t. ramaprasada rao, j.1. the appellants in both the appeals are the plaintiffs respectively in o.s. nos. 139 of 1966 and 3527 of 1963 on the file of the court of the city civil judge, madras. the plaintiffs were unsuccessful in their attempt to recover damages with interest as against thandava co-operative agricultural and industrial society limited, tuni in andhra pradesh which is a society which was manufacturing and distributing sugar to its customers. the plaintiff in o.s. no. 139 of 1966 claims that he entered into a contract with the defendant through messrs. aries sugar agencies limited, madras, for the purchase of 'tuni' sugar, four waggons (880 bags) from the 1962-63 crops of sugar manufactured by the defendant at rs. 106 per bag, f.o.r. tuni. the contract was so entered into on.....
Judgment:

T. Ramaprasada Rao, J.

1. The appellants in both the appeals are the plaintiffs respectively in O.S. Nos. 139 of 1966 and 3527 of 1963 on the file of the Court of the City Civil Judge, Madras. The plaintiffs were unsuccessful in their attempt to recover damages with interest as against Thandava Co-operative Agricultural and Industrial Society Limited, Tuni in Andhra Pradesh which is a Society which was manufacturing and distributing sugar to its customers. The plaintiff in O.S. No. 139 of 1966 claims that he entered into a contract with the defendant through Messrs. Aries Sugar Agencies Limited, Madras, for the purchase of 'Tuni' Sugar, four waggons (880 bags) from the 1962-63 crops of sugar manufactured by the defendant at Rs. 106 per bag, f.o.r. Tuni. The contract was so entered into on or about 7th January, 1963 under Exhibit A-3. A sum of Rs. 4,400 was paid as earnest money by the plaintiff-appellant through Messrs. Aries Sugar Agencies Limited. According to the plaintiff, he was ready and willing to perform the contract by paying and taking delivery of the goods, that he was calling upon the defendant through Messrs. Aries Sugar Agencies Limited to perform the contract, that the defendant failed to deliver the goods and that in accordance with the main term of the contract, the defendant did not apply for or obtain an allotment to the waggons from the railway for the purpose of despatching the goods to the plaintiff. The plaintiff having waited for a reasonable time and as in any event such goods were not supplied before the first week of April, 1963, issued the suit notice Exhibit A-5 and the reply Exhibit A-6 given by the defendant not being satisfactory, has come to Court claiming damages for non-delivery of the said 880 bags at the rate of Rs. 19 per bag being the difference between the market rate and the contract rate which was reckoned on the basis of the prevailing market rate between the second week of March and first week of April, 1963.

2. Similarly, the plaintiff in O.S. No. 3527 of 1963 entered into a contract with the defendant through Messrs. Aries Sugar Agencies Limited, under the contract marked as Exhibit A-l for the purchase of 660 bags of sugar of the 1962-63 crop at Rs. 108 per bag f.o.r. Tuni. The clause regarding despatch, which we shall consider in detail in the course of our judgment, provides that the goods have to be despatched to Royapuram as and when waggons were allotted to the defendant by the Railways. The plaintiff in this action also paid the necessary advance through Messrs. Aries Sugar Agencies Limited and was awaiting supply till the first week of April, 1963. The defendant failed to supply the goods and did not deliver the goods as per the contract. The plaintiff accuses the defendant as not having taken diligent steps in the matter of the application and allotment of waggons by the Railways and that the defendant failed to deliver the goods within a reasonable time and in any event such supplies ought to have been made by the first week of April, 1963. Consequent upon the defendant's failure to do so and after issuing the suit notice and after having obtained a reply on the same lines of the reply notice given in the other suit, the plaintiff has come to Court claiming a sum of Rs. 11,220 as damages for non-performance of the contract, though the plaintiff was ready and willing to do his part under it, on the basis of Rs. 17 per bag being the difference between the contract rate and the market rate.

3. The defendant raised practically a common defence which we shall summarise in so far as it is relevant for our purposes. According to the defendant, the City Civil Court had no territorial jurisdiction to entertain the suit and the defendant denied that it committed any breach of contract. It referred to the Sugar Control Order of 1955 and stated that there were enough Governmental restrictions in the matter of the release and supply of goods for domestic consumption and that such inevitable delays were beyond the control of all the parties to the contract and they were bound by such delays. The defendant says that the Society and the plaintiff were not direct contracting parties sui juris and it was only the Madras firm of Aries Sugar Agencies Limited which brought about the contracts and which was acting as Agent of the plaintiffs both in the matter of the formation of the contracts as well as in the manner of its execution. A bunch of contracts were entered into at about the same time when the suit contracts came into existence and Messrs. Aries Sugar Agencies Limited, expressed that such performance was to be in strict priority, that is to say, according to the numerical order of the purchase contracts. There were three sets of contracts, two of them relating to the new crop (1962-63) sugar) and the other to the old crop of which there was a small stock available with the defendant society at or about the time when Messrs. Aries Sugar Agencies Limited caused the contracts to be made. The defendant explains that the necessity for obtaining the waggons would arise only after the necessary release orders were obtained from the Governmental authorities and that the said application for waggons could only be made thereafter should be deemed to be an implied term in the contract. The defendant set out seriatim as to how and in what manner it secured the necessary release orders from the Government and would explain that in accordance with the instructions given by Messrs. Aries Sugar Agencies Limited, who were the prime movers of these contracts throughout, both in their formation and in the matter of their execution, it supplied according to the priority rule to the buyers of sugar strictly in conformity with the serial number of their contracts and by the time they could reach the suit contracts, the Sugar Control Order of 1963 was promulgated whereby it became impossible for the Society to respect the contracts, as under the Control Order the performance of the suit contracts became impossible or unlawful. It would refer to the Sugar Control Order of 1963, dated 17th April, 1963 and the consequential notifications issued thereunder by which all the pending contracts including the suit contracts had become completely frustrated. In those circumstances the defendant would state that at no point of time there was any breach of the conditions of the contract and that it is not in any way responsible for the non-performance of the contract. Regarding waggons, the case of the defendant is that it was possible for the Society to apply for waggons only after the release of stocks by the orders of Government and only for such number of waggons as were required for the despatch of the quantity of sugar released. The defendant claims that it has performed the contract in accordance with the strict instructions given by Messrs Aries Sugar Agencies Limited and that there was no delay or wanton avoidance on its part in the matter of the application for the waggons or getting the allotment of waggons from the Railways. It would add that the contracts contained reciprocal promises and that the plaintiff did not apply to the Society for delivery of the goods and that the plaintiffs cannot be said to be persons who were always ready and willing to perform the contracts. In these circumstance the defendant claims that the plaintiff in both the actions are not entitled to the damages as claimed.

4. The following issues were framed for trial in O.S. No. 3527 of 1963:

1. Has this Court no territorial jurisdiction to try this suit?

2. What are the nature and terms of the suit contract?

3. Has the defendant committed breach of contract as alleged in the plaint?

4. Is the. suit for damages maintainable where the plaintiff does not allege that he ever applied for delivery and that he was ever ready and willing to pay and perform his part of the contract?

5 Whether the plaintiff can claim damages without any attempt by him to mitigate the alleged loss or damages?

6. Is the plaintiff entitled to any damages? If so to what extent?

7. To what relief is the plaintiff entitled?

8. Is the defendant entitled to compensatory costs under Section 35-A of the Civil Procedure Code?

Additional issues framed on 14th November 1966:

1. Whether the suit contract is a contingent on conditional one and not an absolute contract?

2. Whether performance of the contract was rendered impossible and the contract became void for the reasons mentioned in the written statement?

The, following issues were framed in C.S. No. 139 of 1966:

1. Has the defendant committed breach of the contract?

2. Has this Court no jurisdiction to try the suit?

3. Is the plaintiff entitled to any damages and if so to what amount?

4. Was the suit contract conditional contract and not an absolute contract?

5. Was there any time limit for the performance of the contract by the defendant?

6. Was the performance of the contract rendered impossible for the reasons mentioned in para. 10 of the written statement and the other paragraphs?

7. To what relief if any is the plaintiff entitled?

The defendant did not press toe, issue that the City Civil Court had no jurisdiction to try the suit. On the nature of the terms of the contract and so to whether the defendant committed a breach the learned Judge came to the conclusion that the contract is not an absolute contract, but a conditional one, that the term, in the contract that the goods should be despatched only after the defendant obtained release orders from the Government and thereafter only should apply for the waggons could be implied in it, that in view of the Control Orders which were in force and having regard to the manner in which the bunch of contracts should be executed strictly in accordance with the priority rule imposed by Messrs. Aries Sugar Agencies Limited there was no breach of contract on the part of the defendant and the Aries Sugar Agencies Limited acted throughout as representatives of the plaintiff s and not as indenting agents of the defendant, and that the unperformed portions of the contracts including the suit contracts became frustrated after the Sugar Control Order of 1963, was promulgated. It was in those circumstances the learned Judge held that the plaintiff was not entitled to any damages. He also held that there was no. time limit for the performance of the contract. On the question whether the plaintiff would at all be entitled to damages, he held that as the plaintiff did not suffer actual damages, he is not entitled to claim damages. In the result he dismissed O.S. No. 3527 of 1963 with costs and refused to award compensatory costs in both the suits, but denied costs to the defendant in O.S. No. 139 of 1966-as both the suits were tried together. It is as against this judgment and decree that the plaintiff in each of these suits has come up to this Court in appeal as stated above.

5. The defendant in O.S. No. 139 of 1966 has filed a cross appeal since the lower Court did not award costs to it. It is said in the memorandum of cross objections that there was no exercise of real judicial discretion when costs were disallowed by the trial Court in the connected suit.

6. Mr. P.V. Subramaniam, learned Counsel for the appellants contended that the lower Court was wrong in having implied a term into the contract and holding that the obligation to apply for allotment of waggons would arise only after release of the sugar by the Governmental authorities. He would also say that Aries Sugar Agencies cannot be said to be their agent or representative and that the defendant in any event had enough stock after its performance in part of the prior contracts which were anterior in point of time to the suit contract and that it failed to despatch the goods notwithstanding such availability of stock and on. this ground the defendant is bound to pay damages for non-performance of the contract at least in part as was done in the other prior contracts. He would not seriously object to the finding of the Court below that the performance of the contract in so far as it related to their unperformed portion is concerned became impossible by the promulgation of the Sugar Control Order, 1963. He would however state that there was no such frustration in the instant case. His case is that the defendant avoided to apply for waggons and get an allotment of such waggons even though it had the requisite stock with it for despatch to a few of the contracting parties in accordance with the so called priority rule and that there is no proof in the instant case that the defendant did apply for such waggons and did not get allotment within time as required under these contracts to enable it to despatch the goods at least in part performance of the contract. He would say that in so far as the plaintiff in O.S. No. 139 of 1966 is concerned, he would be entitled to damages for non-supply of at least a part of the contracted goods and he claims such damages at the rate of R.s. 11 per bag, though, according to him, there is evidence available in the Court below that the difference between the contract rate and the market rate was decidedly more. On the other hand Mr. P.V. Chalapathi Rau, learned Counsel for the respondent, while sustaining the judgment of the Court below, urged that in commercial practice like the one with which we are concerned, an implied term could be introduced and that the defendant was obliged to apply for waggon only after release of the stock by the Government and that its course of conduct in the light of the above plea by Aries Sugar Agencies Limited throughout the bargain does not reflect any breach of the concerned contacts on its part and that it is therefore not liable for damages He would, however, press his cross-objections in A..S. No. 724 of 1969.

7. Instead of considering the issues framed by the trial Court seriatim and answering them, we find it convenient to consider the contentions raised by the learned Counsel before us and group the said contentions under certain decipherable heads so that the issues between the parties could be adjudged in the light of the concerned material and evidence let in. Broadly speaking, the points for determination are:

(1) Whether Aries Sugar Agencies Limited acted as the agent of the plaintiff or only as an indenting agent?

(2) Whether the rule of priority dictated by Aries Sugar Agencies Limited was accepted by all the buyers and was it acted upon to the knowledge of the buyers including the appellants?

(3) Whether the defendant at all material points of time attempted to obtain release of stock from Governmental authorities?

(4) After obtaining such release, did the defendant take all reasonable steps to despatch the goods in accordance with the contract and instruct in order of priority all the contracts which formed part of the bunch of contracts entered into by it with various buyers including the appellants through Aries Sugar Agencies Limited?

(5) Whether the defendant at the crucial point of time attempted to get waggons for the despatch of the released stock of sugar with it, and it did not do so at least in respect of a portion of the stock with it?

(6) Is the defendant liable for damages for non-performance of at least a part of the contract?

(7) Is the contract an absolute one or a contingent one?

(8) Has the remaining portion of the 'unperformed part of the contract become frustrated by reason of the Sugar Control Order, 1963?

(9) Is the plaintiff in any of the suit entitled to damages? If so, what is the quantum of damages?

(10) Is the respondent in A.S. No. 724 of 1969 entitled to succeed in the cross appeal?

8. Though there are three groups of contracts which were brought about by Aries Sugar Agencies Limited, we are practically concerned with only two groups. The second group of contracts in the series of the activities of Aries Sugar Agencies Limited related to the purchase and sale of sugar of 1961-62 crop. It consisted of three contracts, one of which was forged by the plaintiff in O.S. No. 139 of 1966 on the file of the City Civil Court, Madras. By order, dated 15th March, 1963, under Exhibit B-41, the Government of India treated the available stock of 1961-62 crop with the defendant as 1962-63 stock for purposes of release of such stock by the Sugar Mills for purposes of domestic consumption. Thus it is evident that the 1961-62 crop sugar, which was the subject-matter of the second group of contracts, was never released at all by the Government for distribution until March, 1963. Therefore the contract Exhibit B-14, though entered into by the plaintiff in relation to the old crop, is not the subject-matter of these suits under consideration by us. There is no reference to this in the pleadings.

9. We have therefore the contract Exhibit A-3, dated 7th January, 1963 between the plaintiff in O.S. No. 139 of 1966 and the defendant for the supply of 880 bags from 1962-63 stock, which could be loaded in four waggons and the contract Exhibit A-l, dated 28th January, 1963 between the plaintiff in O.S. No. 3527 of 1963 and the defendant for the supply of 880 bags in three waggons from the new crop. It is necessary in the first instance to ascertain as to who was responsible for the formation of these contracts. Aries Sugar Agencies was a firm at Madras who was interested in bringing together the defendant as manufacturer of sugar with persons like the plaintiffs in both the suits, as the purchasers of the stock. It is abundantly clear from the correspondence and the evidence let in these cases, that Aries Sugar Agencies Limited, hereinafter referred to as Aries, initiated the commercial activity more at the instance of the plaintiff rather than the defendant. D.W. 1 examined on the side of the defendant makes this position clear. D.W. 1 says that the plaintiffs did not contact the defendant directly and Aries brought about the suit contracts and that there was no direct correspondence between the plaintiff and defendant in both the suits before-the formation of the contracts. He would add that all contracts were received from Aries and that Aries sent the advances under the contract after collecting them from buyers and that they personally negotiated with the buyers. It may also be stated that this was the stand of the defendant in the pleadings. In the written statement, the defendant's case was that the defendant society and the plaintiff were not directly the contracting parties sui juris and that Aries conducted and managed the course of performance of the same. D.W. 1's categorical assertion on the role, of Aries was not in the least disturbed in cross-examination. Above all, the plaintiff did not care to examine Aries, a Madras firm on whom they had reposed so much of confidence and through whom they spoke and acted throughout till they came to Court. From the exhibits filed it is seen that Aries started the correspondence in December, 1962 and kept on doing so until all the contracts in the three groups were ultimately finalised. The plaintiffs chose to remain in the background and held out Aries as the catalyst and indeed as their negotiating representative or in other words as their agent. Exhibits B-67, B-68, B-69, B-60 and B-71 exchange ed between 31st December, 1962 and 7th January, 1963 advert to the first group of contracts including Exhibit B-11 which is numbered as T-11 contract (in O.S. No. 139 of 1966), Exhibits B-75 to B-79 written between 10th January, 1963 and 18th January, 1963 relate to the second group, numbered as T-12, T-13 and T-14 contracts. The prior correspondence between Aries and defendant in relation to the third group of contracts have been marked as Exhibits B-16 to B-19, exchanged during 22nd January, 1963 and 28th January, 1963 and which culminated in the suit contract Exhibit A-l for Exhibit B-25) numbered as T-20 contract (in O.S. No. 3527 of 1963). There is no particular reason why the plaintiffs should remain in the background throughout the relevant and material time. In fact, as we shall establish presently, the contracting parties willingly acquiesced as well in the manner of performance of the contract by Aries. 10. It was Aries who was dictating on behalf of the generality of the buyers and especially for and on behalf of the plaintiffs, as to who should be supplied first. The priority rule as to 'supply was the mandate of Aries. This was acquiesced in by all the buyers. The tone of correspondence also supports this view. In Exhibits B-19, B-27, B-28, B-32, B-35 and B-26, Aries brings out its real image and the significant part played by it for the plaintiffs and other buyers. It imposes on the defendant what is understood by the parties as a priority rule. The learned trial Judge has referred to those documents. In all the above exhibits it gives specific instructions as to hew the defendant should execute the bunch of contracts. The buyers were aware and at least presumed to be aware of the fact that sugar had long been a Government controlled commodity under the provisions of the Sugar (Control) Order of 1955 promulgated by the Central Government under the Essential Commodities Act, The defendant rightly referred in the written statement to the following:

Sugar had long been a Government-controlled commodity under the provisions of the Sugar (Control) Order, 1955 promulgated by the Central Government under the powers conferred by Section 3 of the Essential Commodities Act, 1955. By the force of the said Order, all sugar produced by the Society was made liable to be stored in or removable from the banded godowns of the Society's factory in the presence of the Central Excise Inspector in charge of the Factory and the Society was not free to fulfil its contracts with buyers until and unless the Directorate of Sugar and Vanaspati, Ministry and Food and Agriculture of the Government of India issued orders c f release of quantities of sugar for domestic consumption and the Society was. enabled on the strength of such orders to apply for and obtain allotments of wagons for despatch of sugar to its buyers under subsisting contracts. These Governmental restrictions caused inevitable delays beyond control and both sellers and buyers were bound by such delays.

The mandates it gave in the correspondence are highly consistent with its attitude as agent of the plaintiffs. It would ask the defendant to execute the contracts belonging to the second group first before it touched upon. Grade I and Grade III contracts. It wants the defendant to execute the suit contracts and the allied contracts strictly in serial order as all the buyers knew of their serial order numbers. Regarding the first and third group contracts, it says in Exhibit B-28:

106. Contracts : 'You have loaded one waggon New Crop on account of Haji Kamaludeen Saib and Company and one waggon on account of R. V. Ramia Chetty and Company'. So, now, you should load the next waggon for Ayyaswamy Nadar and the next to this for Ponnuswamy Chetty. Then contract No. ASA/T/5 should start; Likewise, please despatch according to contracts serial numbers, so that parties may not be displeased.

Then it gave encouragement to part and piecemeal performance of the contracts in seriatim. In Exhibit B-32 it says:

Priorities : As already requested kindly see that all orders are executed strictly in the serial order of the purchase contracts so that complaints may not emanate from parties.

in Exhibit B-35 it wires:

Despatch strictly according to contracts serial numbers only.

In Exhibit B-36 it assets:

As already advised you, in our previous letters and also by our above telegram kindly see that the orders at Rs. 106 per bag, are executed very strictly according to the serial numbers of the buyers' contracts only, so that there may not be misunderstanding from them on our side as we now understand parties have been either writing to you or wiring you to despatch their ordered quantity. All parties are aware of their priority turns as per their numbers of their contracts.

In this letter it is further stated that the five waggons, under despatch, accordingly should be on the account of the persons mentioned in it. It would be fantastic to expect an indenting agent, as Aries is sought to be made out by the appellants, to assume the role of a representative of the buyers, if it was not authorised to do so and if it was not allowed to act as such. Thus we agree with the Court below that Aries was held out more as agent of the plaintiffs than as a bare indenting agent and the buyers also elected to accept performance of their respective contracts piecemeal, having regard to the stringent supply position of sugar, which was admittedly a controlled commodity under the Sugar (Control) Order.

11. The next relevant consideration is to see what steps did the defendant take to obtain the necessary release order from the Government so as to bona fide perform their part of the contract in making the supplies according to the agreed priority rule envisaged by Aries. We have already referred to the fact that the 1961-62 stock was to be treated for purposes of release, as 1962-63 stock (vide Exhibit B-41). With regard to 1962-63 stock, with which the present litigation is concerned, 11 contracts Exhibits B-l to B-11 and 7 contracts Exhibits B-20 to B-26 in January/February, 1963 were entered into. The contracts bear serially a number. We are concerned with T/11 which is the suit contract in O.S. No. 139 of 1966 (in A.S. No. 724 of 1969) and Contract No. T/20 which is the subject-matter of O.S. No. 3527 of 1963 (in A.S. No. 725 of 1969). No doubt, in the second group, with which however we are not concerned, the contracts were given numbers, to wit T/12, T/13 and T/14. Thus, in accordance with the priority rule of supply and that too in part, the defendant was obliged to exhaust the first ten contracts, i.e., T/1 to T/11, before it could think of performing contracts bearing numbers T/11, T/12, etc. To make such uniform supplies even in part, the defendant should have sought for release of stock from Government. Did it take reasonable steps for obtaining such order of release to respect the contracts on hand and see to the harmonious and equitable performance of all the contracts though in part and by piecemeal supply?

12. The above aspect could be well appreciated if we summarise the necessary events which led to the issuance of the release orders by the Government of India from time to time. The first release of the stock from the 1962-63 crop was under Exhibit B-15 dated 18th January, 1963. Under this order the Government directed the respondent Society to sell in India for the purpose of domestic consumption only including despatches to Nepal, Bhutan and Sikkim 45 Tonnes (Metric tonnes (450 bags) of sugar out of the production of 1962-63 and complete despatch of the aforesaid quantity of sugar by the 4th of March, 1965. As a result of such a release order, the Society applied for and obtained 2 waggons and delivered 440 bags under contracts T-l and T-4. This is seen from Exhibits B-28 and B-89. It had therefore a net balance of 10 bags stock of released sugar with it. Thereafter, a second release was made by the Government under Exhibit B-34 dated 11th February, 1963 for 204 Metric Tonnes (2,040 bags) of sugar out of the 1962-63 production. The despatch was to be completed by 28th March, 1965. The Society promptly applied for waggons for such despatch. But, according to the evidence of D.W. 1, he could only get an allotment of 5 waggons. The result was the Society despatched 1,100 bags in 5 waggons, each waggon containing 220 bags, to each of the buyers under contracts T-2, T-5, T-6, T-7 and T-8: This is evidenced by Exhibits B-36 and B-89.

13. Immediately thereafter the Society, under Exhibit B-37 dated 4th March, 1963 applied for further release of 300 Metric Tonnes, so that it could complete the bunch of contracts which were by then pending performance with it. It repeated its request for such release under Exhibits B-38 dated 13th March, 1963. Finally, on 14th March, 1963 the Government issued the third and the final release order under Exhibits B-40 releasing 54 Tonnes (540 bags) for distribution for domestic consumption. It is therefore clear that on or about 14th March, 1963 the Society thus had a stock of 10 bags as balance under the first release order, 940 bags under the second release order and 540 bags under the third release order, totalling 1,490 bags. Out of this 1,490 bags, it is not in dispute that one Sankaralinga Nadar, who entered into the contract T-9, took delivery of 220 bags at Tuni itself and removed the same by a lorry arranged by him. Deducting the said 220 bags, the net available stock of released sugar with the Society in or about the second week of March, 1963 was 1,270 bags. To despatch these sugars in accordance with the priority rule, the Society should have secured at least 6 waggons. We may also refer to Exhibit B-42 wherein the Society again requested for a release order for about 300 Metric Tonnes, apparently the request was not complied with. But it cannot be overlooked that if the Society obtained about 5 waggons at least from the Railways in order to clear the stock of released sugar in its hands by the second week of March, 1963 it would have performed five more contracts which would take in at least contracts T-10, T-11, T-12, T-13 and T-14. We are here concerned in these appeals with T-11 to T-20. To reach contract T-20 further release orders were required. The question is whether the -defendant made reasonable endeavours to secure at least 5 waggons before the control order was clamped on 17th April, 1963 making it impossible for the defendant to perform any portion of the subsisting contracts with it.

14. At this stage it is essentials to weigh the bone of contention of each of the parties, which has assumed some proportion due to the impact of law on the relative facts and situations projected in these contracts. As already observed, the parties were well aware of the difficult supply position of the essential commodity of sugar even by the manufacturer during the relevant period when the contracts were forged. The term of the contract which has bearing on this part of the case is:

Despatching Despatchable as and period : when waggons are a Hotted to you by railways as agreed.

On the bare text of this clause, Mr. P.V. Subramaniam contended that if the defendant strained every nerve to assure the waggons after performing in part contract No. T-9, it would not have been difficult for it to get the waggons allotted so as to perform at least contract No. T-11. On the other hand Mr. P.V. Chalapathi Rau urged that in the wake of the events that surrounded the formation of those contracts, an implied term can be spelt in them that waggons should only be sought for after the release orders and that such efforts were made by the defendant and therefore the defendant is not in breach to suffer damages for alleged non-performance of contract No. T-11. He would say that in so far as contract No. T-20 which is the subject-matter of O.S. No. 3527 of 1963 is concerned, it became frustrated because of the supervening imposition of the Control Order in April, 1963.

15. It is not in dispute that the Sugar Control Order, 1963 and the relevant communications were issued by the Government of India under the Essential Commodities Act in or about April, 1963. Exhibit B-91 is the copy of the notification dated 17th April, 1963 in Clause 3 of which a restriction on sale of sugar by purchasers is envisaged. Under Clauses 3 and 4 the sugar factory can sell as directed by the Government only to recognised dealers. It is common ground that the plaintiff in both the suits were not recognised dealers. Exhibit B-90 is a further communication dated 19th April, 1963 from the Chief Directorate of Sugar and Vanaspathi stating that the scheme for distribution of sugar will now be that the sugar factories will supply specified quantities of sugar at the ex-factory prices in accordance with the notification in Exhibit B-91. D.W. 1 in the witness box while referring to the Sugar Control Order of 1963 says that it was so promulgated by the Central Government after a declaration of emergency due to the Chinese aggression. Soon after the promulgation, of the Order, Aries, on behalf of buyers other than the plaintiffs, made efforts to adjust all the pending contracts by settling the issue and, as is seen from Exhibit B-54 and Exhibit B-56, such settlement was arrived at between the buyers under the various contracts excepting the plaintiffs in these two actions. It is also seen from the documentary evidence that under Exhibits B-59 and B-60 the defendant attempted to compromise the issue with the plaintiffs but was not successful. Exhibits B-62 to B-66 and B-84 to B-88 disclose that the defendant had made it clear to the plaintiffs that it was impossible for it to perform the contract after 17th April, 1963. We shall presently advert to the impossibility of performance of the unperformed portions of the contract to which practically there is no dispute by the appellants in these appeals.

16. At this stage it would be relevant to consider whether a term that waggons should be sought only after release of the sugar by the Government could be implied in the contract. Generally all contracts are to be interpreted literally without any interpolation in its text. But there are myriad circumstances attendant upon contracts which sometimes prompt the interpretation of such contracts, unless the language is scrupulously plain, to read into the contract a term, which was predominantly in the minds of parties when they farmed the same. Such an intention can be gathered from the surrounding circumstances, the conditions under which the contract was entered into, the compelling dents which the law would make in them for the general good and welfare of the community, etc. If such an irresistible intention which was at the back of the mind of the parties could be gathered by reasonable probe into the attendant circumstances governing the situation in a given case, then Courts as the authoritative interpreters of such contracts can imply a term in a contract, without unduly tinkering with it.

17. Two decisions of our Courts reported in Sannidhi Gundayya v. Illori Subbayya : (1926)51MLJ663 and Satyabrata Ghose v. Mugneeram Bangur and Co. : AIR1954SC44 practically cover the issue. In Sannidhi Gundayya v. Illori Subbayya (1950) 1 All E.R. 51:

The defendant entered into a contract with the plaintiffs for the delivery of certain bags of rice. The contract contemplated delivery by railway waggons. As a war measure the Government had imposed 'waggon restrictions' and 'priority certificates' all over the Presidency; and the existence of those restrictions was well-known to all the parties. Owing to the shortage of waggons on account of the enforcement of the rules the defendant was not able to perform his contract. In a suit by the plaintiffs for damages for breach of contract, the defendant therefore pleaded impossibility of performance as a defence to to the suit.

Held, that the reasonable view of the contract was that the defendant agreed to supply the promised number of bags of rice if after using his best endeavours he was able to secure the necessary number of waggons, that the obligation to perform the contract was therefore, not absolute, but impliedly conditional, and that as the defendant failed to secure the waggons in spite of his best endeavours, he was not liable.

Strong reliance, however, was placed by Mr. P.V. Subramanyam on the decision of English Courts reported in C.K.C. Sethia (1944) Limited v. Partabmull Rameshwar. (1950) 1 All E.R. 51 Considering the question whether in such circumstances a term could be implied in a contract, the Court of Appeal said:

The Court would read an implied term into a contract only where it was clear that both parties knew that the contracts could only be met out of the sellers' quota, the question whether that quota would suffice for the purpose depended on matters concerning the conduct of the sellers' business which were peculiarly within their knowledge as opposed to that of the buyers (e.g., the sellers alone would know (a) which year they had chosen as their basic year and what quota they were likely to receive as a result of their choice, and (b) what contracts with other buyers had to be satisfied out of their quota), and an unqualified provision to the effect that the contract was subject to the quota being sufficient and to the seller using his best endeavours to obtain a sufficient quota, would be quite inadequate to secure the business efficacy of the contracts; as, therefore, the parties could not be taken to have intended that the term. sought by the sellers to be implied should be incorporated in the contracts, it was impossible to read into the contracts of July and September, 1947, the term contended for by the sellers.

That case was decided on its facts. Further, as was observed by the Supreme Court in Satyabrala Ghose v. Mugneeram Bangur and Co. 1954 S.C.J. 1 : 1954 S.C.R. 310 : (1954) 1 M.L.J. 41 'The. decisions of the English Courts possess only a persuasive value'. We are of ,the view that it does not lay down a general principle which is applicable to all contracts which ex facie present a condition for performance instead of being absolute in its tenor. La our case the specific clause contains the words 'Despatch-able as and when wagons are allotted to you by railways as agreed'. Generally in a commercial contract such a peculiar situation is not contemplated. The parties usually give the station c f destination and the station of despatch. Normally the Railways are bound, subject to availability, to allot waggons for movement of goods, which are not subject to any control or the movement of which is not regulated by any law or order. But under Clause 3 (b) of the Sugar (Control) Order, 1955, the Central Government may even restrict or prohibit the transportation of an 'essential commodity like sugar. The parties were aware of this. If they do not know ignorantia juris non-excusat. It is this statutory control not only in production, but also in movement, that has compelled the parties to stipulate that the goods are to be despatched after allotment of waggons. They knew that such an allotment would be made only if the sugar is released sugar. If the sugar is not released for distribution or for home consumption, it will be an offence to move the same or carry the same. Having regard to such inherent difficulties surrounding such contracts, the clause regarding despatch was introduced. We have no hesitation to hold that the contract is a contingent contract or a conditional contract and not an absolute one as contended by Mr. P.V. Subramaniam. It should be held that the defendant agreed to supply the contract sugar after obtaining the release order and that his applying for the waggon was conditional upon his securing free sugar, free from control and free to move. A term that the defendant should apply for waggons after the release order is made can be implied in the suit contracts.

18. But even then the question is whether the defendant made all best endeavours to obtain the waggons. We have already referred to the principle in Sannidhi Gundayya v. Illoori Subbayya (1927) 99 I.C. 459 : (1927) 51 M.L.J. 663 : A.I.R. 1927 Mad. 89 and according to it, the defendant should establish that it used its best endeavours to secure the necessary number of waggons and if such proof is available it will not be liable. It follows that if such proof is not available, it would be liable. We shall refer to a few letters marked in the course of trial which have a bearing on the question. Under Exhibit B-33 Aries queries the Society and regrets that the Society did not furnish so far the registration numbers of indents to enable expeditious allotment of waggons. Under Exhibit B-81 dated 18th February, 1963 the Society replies that it has indented for 5 waggons and gave the registration number of indents and concluded that as and when waggons were allotted it shall be despatching sugar. Under Exhibit B-46 dated 28th March, 1963 the Society writes, after obtaining the third release order for 54 tonnes, that it has indented for two more waggons and gave the indent numbers. It also confirmed that it gave a telegram reading ''Release order received fifty-four tonnes indented wagons. Sending according to priority.' Thereafter we do not have any follow-up correspondence to show what endeavours were made by the Society to obtain an allotment of waggons. It would not be sufficient for a seller under a conditional contract like the one under consideration, to refer to his application for indents without proving as to what steps he took to pursue the matter further to obtain an allotment of waggons. Even when D.W. 1 was in the box he was not specific on this question. After referring to the fact that it was possible for the Society to perform the contract piecemeal because of the limited release of the sugar by the Government and apparently in view of the strict instructions as to priority issued by Aries, the witness would say 'we have not registered waggon in respect of the suit contracts because the time had not come for performance. We did not apply to the Railway in respect of the suit contracts'. But he would add thereafter that he did not maintain any register for placing indents with the Railway and that Rs. 35 should be deposited per waggon and that he applied for waggons for despatching 940 bags. The question, therefore is whether a mere application for indenting waggons or by paying the necessary fees which is to accompany such indents by itself would be equated to an honest bona fide endeavour on the part of the seller to perform the contract in accordance with its tenor. Though the contract is not absolute as is legally understood, and though it is conditional upon the allotment of waggons by the Railway, yet it is obligatory on the part of the seller to place such clinching material before the Court to show that he made all such endeavours to obtain an allotment of the waggons. In fact, no proper registers were produced and enough proof is not available to snow as to how the matter was pursued by the Society in the matter of allotment of waggons. It is doubtful whether waggons were or were not allotted between 21st February, 1963 and the beginning of April, 1963. There is not even clear proof to show as to what would be the time which the Railway would take to allot waggons after the indent is made for the purpose. Even assuming that the Society did make such application by forwarding indents for waggons in or about the end of February, 1963, the Society neither examined the Railway nor produced enough data for us to assume that there was no such allotment of waggons during that period. The reasonable presumption is that at least 6 waggons could have been obtained by the defendant which were the number of waggons which were required for the despatch of the available released stock with it. If such 6 waggons should be deemed to have been allotted if particular care was taken in the matter of such allotment, then the Society ought to have performed at least contract No. T-11 which is the subject-matter of O.S. No. 139 of 1966. To this extent, therefore, the Society is responsible for non-performance of the contract, even though it is a conditional one.

19. For the purpose of completing the discussion, we may also refer to the attitude of the Society in the matter of the non-performance of the contracts other than the suit contracts. D.W. 1 would say that at the intervention of Aries they adjusted several of the contracts which were contemporaneously entered into by settling the same with the buyers. He would say that a settlement was arrived at and the buyers not only got back the advance but dropped the demand for performance of the contract. He would also admit that an ex gratia payment was made to the parties other than the plaintiffs in this action. This is also a pointer to the fact that the Society felt guilty at one time for non-performance of the contracts. This could only be attributed to the fact that it did not take realistic steps to obtain waggons for the discharge and performance of the contracts as contemplated.

20. If, in the circumstances, it could reasonably be surmised that the Society could have obtained 6 waggons from the Railway, then it could have despatched one waggon each to 6 contracting parties. We have already referred to the fact that up to contract No. 1-9 the Society performed its part of the contract. By the reasonable assumption which we make in the instant case that 6 more waggons of sugar could have been despatched from the available released stock, the Society could have performed 6 more contracts. This takes us to contract No. T-15. As contract No. T-11 is included in that group, there has been a failure in the normal discharge of the contractual obligations by the Society in re: the plaintiff in O.S. No. 139 of 1966. To this extent, therefore, the Society is liable to pay the difference between the market price and the contract price as and towards damages. As regards the unperformed portion of the contract in T-11, beyond the supply of one waggon as above, it is frustrated as we would presently demonstrate.

21. Contract No. T-20 is the subjectmatter of O.S. No. 3527 of 1963. As, in our view, the time for performance of this contract according to the priority Rule did not arise prior to 17th April, 1963 when the Sugar (Control) Order came into force, the plaintiff in this action would not be entitled to any damages as no allotment of waggons for the performance of any portion of it was possible after the Sugar (Control) Order, 1963 came into force. The plaintiff in O.S. No. 3527 of 1963, therefore, would not be entitled to any damages.

22. Before quantifying the damage to which the appellant in A.S. No. 724 of 1969 would be entitled to, we would like to touch upon the law of frustration as in force in our country. Law is well settled that the doctrine of frustration takes into its fold not only cases of physical or literal impossibility, but also circumstances which make it impossible and illegal on the part of one of the contracting parties to perform the contract in terms agreed upon. There may be circumstances where Court may be inclined to opine that a case of literal impossibility has not been established. But such literal impossibility by itself is not the sole ground for accepting the non-performance of the contract on the ground of doctrine of frustration. If in a given lease there is acceptable material to show |that the events supervening after the formation of the contract have shaken the very root of it and the foundation of the contract having thus been shaken it would be impracticable to accept performance of the contract by a reasonable and prudent person; then only Courts will excuse the performance. The conclusion must be arrived at by sitting in the arm chair of prudence and practical wisdom. A priori and theoretical consideration ought not to weigh while deciding whether a contract has become frustrated or not. The decision should be the dictate of common sense, practical wisdom and normal commercial experience. Judged by these standards, we have to accept the case of the Society that on and after 17th April, 1963 contracts as a whole have become frustrated in so far as their undischarged and unperformed portion are concerned and therefore the claim of the plaintiff for damages for alleged non-performance is opposed to Section 56 of the Contract Act. Presumably because of this well-established principle Mr. P.V. Subramaniam would not pursue this aspect before us.

23. Having therefore held that a major portion of the obligation as to performance of the contract has become discharged by the doctrine of frustration, the only surviving question is as to what damages would the plaintiff in O.S. No. 139 of 1966, who is the appellant in A.S. No. 724 of 1969, be entitled to.

24. The plaintiff in O.S. No. 139 of 1966 claimed damages at the rate of Rs. 19 per bag. P.W. 1, an Accountant in a similar trade, was examined and he filed Exhibit A-7 to show the market rate of sugar at or about the time when the breach was committed. Exhibit A-8 is a purchase book filed by the same witness to show that 10 bags at the rate of Rs. 118 per bag were purchased and that the market was an the upward trend. This witness was subjected to severe cross-examination. The trend of cross-examination was that the witness was unable to say whether the subject-matter of the sale under Exhibit A-8 was equatable in all respects to the contracted sugar. We cannot, however, lightly brush aside Exhibit A-8 which shows that the market rate of sugar was Rs. 118 per bag. The contract rate was Rs. 106 per bag. In O.S. No. 3527 of 1963 the contract rate was Rs. 108 per bag. In the memorandum of grounds of appeal the appellant restricted his claim to Rs. 11 per bag. Taking all the circumstances into consideration and in the absence of any other proof, we accept that a sum of Rs. 11 per bag appears to be the reasonable damages to which the appellant in A.S. No. 724 of 1969 would be entitled to in the circumstances. We have already found that the Society is guilty of non-performance of the contract to the extent of non-supply of 220 bags (one waggon) before the Sugar (Control) Order came into force. It therefore follows that the appellant in A.S. No. 724 of 1969 would be entitled to Rs. 2,420 with proportionate costs throughout. As the performance of the contract in O.S. No. 3527 of 1963 did not arise prior to 17th April, 1963, the appellant in A.S. No. 725 of 1969 would not be entitled to any damages. In the result A.S. No. 724 of 1969 is allowed in part with proportionate costs throughout and A.S. No. 725 of 1969 is dismissed with costs.

25. The cross objections filed by Mr. Chalapathi Rao also deserves some consideration. We do not find any particular reason why the learned Judge could not have given costs in O.S. No. 139 of 1966. As costs always follow the event, he ought to have provided for costs and it is for this reason we have provided for proportionate costs throughout in O.S. No. 139 of 1966. Therefore the memorandum of cross objections in A.S. No. 724 of 1969 is partly allowed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //