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Katras Jherriah Coal Co. Ltd. Vs. Mercantile Bank - Court Judgment

LegalCrystal Citation
SubjectBanking;Commercial
CourtKolkata High Court
Decided On
Case NumberCivil Rule No. 1333 of 1980
Judge
Reported inAIR1981Cal418,1981(2)CHN146,86CWN1
ActsContract Act, 1872 - Section 56; ;Coal Mines (Nationalisation) Act, 1973 - Section 7 and 7(1); ;Coal Mines (Taking Over of Management) Act, 1973
AppellantKatras Jherriah Coal Co. Ltd.
RespondentMercantile Bank
Appellant AdvocateSudhir Das Gupta and ;Sailen Datta, Advs.
Respondent AdvocateTapas Banerjee, ;G.R. Datta and ;Subrata Ray, Advs.
Cases ReferredNaihati Jute Mills Ltd. v. Khyaliram Jagannath
Excerpt:
- .....an agreement entered into by and between the claimant bank (hereinafter called the bank) and the coal company (hereinafter called the company) in 1962 the bank agreed to grant accommodation to the company by way of overdraft facilities on current account up to a drawing limit of rs. 10,000,00.00. this limit was enhanced from time to time until december 26, 1972 when an agreement was executed whereby the drawing limit was raised to rupees 40,000,00.00. in pursuance of the agreement the stocks of coal and stores of every kind wherever stored or kept and whether in the possession of the company or of the bank or of any third party including all such properties as may be in the course of shipment, transit or delivery and also all documents of title, negotiable instruments, policies of.....
Judgment:

B.C. Chakrabarti, J.

1. This is an application under Article 227 of the Constitution of India at the instance of the petitioner, Katras Jherriah Coal Co. Ltd., and is directed against an appellate order passed in Misc. Appeal No. 52 of 1979 of the Court of the District Judge, Burdwan, affirming the order of the Commissioner of Payments in several claim cases brought at the instance of the opp. party, Mercantile Bank Ltd. The claim cases related to several collieries known as Lachipur, Seebpore, Pretoria and Dangra, of which the petitioner was the owner, the total claim being Rs. 40,23,580.29. Separate claims in respect of the aforesaid separate collieries were made and alt the cases were heard analogously.

2. Briefly stated the case of the claimant is as follows : --

By virtue of an agreement entered into by and between the claimant Bank (hereinafter called the Bank) and the Coal Company (hereinafter called the Company) in 1962 the Bank agreed to grant accommodation to the company by way of overdraft facilities on current account up to a drawing limit of Rs. 10,000,00.00. This limit was enhanced from time to time until December 26, 1972 when an agreement was executed whereby the drawing limit was raised to Rupees 40,000,00.00. In pursuance of the agreement the stocks of coal and stores of every kind wherever stored or kept and whether in the possession of the Company or of the Bank or of any third party including all such properties as may be in the course of shipment, transit or delivery and also all documents of title, negotiable instruments, policies of insurance and other documents and instruments relating to all such property together with the benefit of all rights relating thereto and all present and future book debts, outstanding bills and moneys receivable of the company together with the benefit of all rights relating thereto were hypothecated to the Bank. In terms of the agreement the Bank granted accommodation and charged interest at the stipulated rate of l3 1/2. While this arrangement and agreement were in force, the Coal Mines (Nationalisation) Act 1973 came into effect on and from 1st May, 1973. This Act was preceded by the Coat Mines (Taking Over of Management) Act, 1973 which was deemed to have come into effect on the 30th day of January, 1973. With the passing of the Coat Mines (Nationalisation) Act. 1973 the four Coal Mines belonging to the company vested in the Central Government free of all encumbrances, with the result that the Bank's first charge was shifted from the aforesaid securities to the amounts payable by the Central Government to the company. After giving credit for all sums paid by and on behalf of the company, a sum of Rs. 40,23,580.29 remained due as on October 31, 1973. The Bank further claimed interest on and from 1st November, 1973 till realisation at the rate of 13% per annum with monthly rests.

3. The claim was resisted by the company. They contended that as a result of the takang over of management of the Coal Mines belonging to the company all the Bank accounts of the company stood frozen with effect from 31st January, 1973 and the company was unable to operate or derive any benefit out of the said account. They further contended that the company had no liability to pay any amount to the Bank beyond what was due on the close of business on 30th January, 1973. The book debts collected by the coal mines authority as the successor in interest of the company should be credited in the said overdraft account and the balance thereof only shall be payable to the claimant.

4. Before the Claims Commissioner the claimant Bank filed a statement of accounts, the correctness and authenticity of which was not disputed by either party. The claim was however fought mainly on the quest ion whether the contract between the parties stood frustrated and if so from what date. Relying upon two notifications issued by the Custodian General of the Coal Mines Authority, dated 31st January, 1973 it was contended before the Claims Commissioner on behalf of the company, that the company could no longer operate the Bank account and the book debts also could not be collected by them and as such the Contract stood frustrated with effect from that date. The Bank on the other hand took a stand that there could be no question of frustration inasmuch as the Bank had already performed its part by advancing the money in terms of the agreement and the company was bound to pay interest at the stipulated rate till repayment. The learned Claims Commissioner upon a consideration of the relevant provisions of law held that all the hypothecated immovable properties had been nationalised by operation of law and vested in the Central Government free from all encumbrances and that the other properties which, though did not vest in the Central Government, were also taken charge of under the authority of the Central Government with the result that the company was not allowed to manage or handle those properties in any manner. In such view of the matter the learned Claims Commissioner held that the doctrine of frustration as provided in Section 56 of the Contract Act should come into play. He found that during the transitory period, i.e. from 31st January, 1973 to 1st May 1973 the Government company was merely acting as an agent of the erstwhile owner namely the company although in law the existence of the company during this period could not be disputed. He concluded therefore that the contract stood frustrated and became void with effect from 1st May, 1973 and not with effect from 30th January, 1973 as contended by the company. Then upon a reference to Section 65 of the Contract Act the learned Claims Commissioner found that even though the contract became void the company would be liable to compensate the Bank for the benefit they had already derived from the contract The company by reason of the Nationalisation Act has been given a certain amount which is being held by the Commissioner of Payments which is fetching an interest at the rate of 4% per annum. Such being the position the Commissioner held that the Bank will be entitled to simple interest at the rate of 4% per annum on the amount which became payable on the expiry of 30th April, 1973, He also allowed pendente lite interest at the same rate. Upon a reference to the statement of accounts and taking into account the discounted bills relating to the period prior to the appointed day namely 1st May, 1973 the claim of the Bank was admitted for a sum of Rs. 39,22,199.01 with interest thereon at the rate of 4% till payment.

5. Being aggrieved at the decision of the learned Claims Commissioner the company preferred an appeal to the learned District Judge, Burdwan. The learned District Judge observed that the claim of the Bank based on the contract between the parties, was in the nature of a charge of the money advanced and included not only the principal but also the interest thereon which could not be said to have been frustrated by virtuue of nationalisation. He affirmed the finding of the learned Claims Commissioner that the Bank was entitled to realise interest at the contractual rate up to 30-4-1973 together with interest at 4% till realisation on the sum appearing due as per the statement of accounts. The statement of accounts does not appear to have been disputed before the learned District Judge either. In the result the appeal was dismissed. Hence the present revisional application.

6. The principal contention of Mr. Das Gupta appearing in support of the revisional application is that the contract between the parties stood frustrated not with effect from 1st May, 1973 but with effect from 31st January, 1973 which was the appointed day under the provisions of the Coal Mines (Taking Over of Management) Act, 1973. He argued that the loan having been taken by the company and advanced by the Bank for the ordinary purpose of the company's business, and the company being unable to carry on the business with effect from 31st January, 1973, the contract must be deemed to be frustrated and to have become void with effect from that date. In other words the dispute now is limited to the question whether the claimant namely, the Bank would be entitled to interest at the contractual rate from 31st January, 1973 to 1st May 1973.

7. The application and the contentions thus urged by Mr. Das Gupta in support thereof were strenuously contested by Dr. Banerjee on behalf of the opp. party, Bank. At the close of the arguments Mr. Das Gupta also claimed that there were certain other sums and book debts collected relating to a period prior to the appointed day under the Coal Mines (Nationalisation) Act, which also should be given credit before admitting the claim of the Bank. This, however, is a question which does not appear to have been raised either before the Claims Commissioner or the Appellate Authority who seem to have acted on the statement of accounts furnished by the Bank the authenticity of which was not apparently disputed. This, however, is an aspect of the matter which we shall have occasion to refer to later.

8. The principal point in dispute in this revisional application is as to the claim of interest for the transitory period referred to above. The main burden of sons of the petitioner company is that the contract stood frustrated with effect from 31st January, 1973 hence the liability to pay interest in terms of the contract ceased. Some English decisions on the subject were cited but it may not be necessary to refer to them for our purposes. The doctrine of frustration is a vexed question which was differently interpreted by the English authorities although the main emphasis was always laid on the intention of the parties, until the divergence of opinion was to an extent resolved by the Law Reform (Frustrated Contracts) Act 1943. So far as our country is concerned Section 56 of the Contract Act varies the English common law to a large extent. While the English authorities have contented to regard the question as a matter of construction depending on the true intention of the parties, Section 56 provides a positive rule of law on the subject. The English authorities, therefore can be of very little use as guide to the application of the section. In the case of Satyabrata v. Magniram, : AIR1954SC44 followed in the case of Boothalinga Agencies v. V.T.O. Poraineswami, : [1969]1SCR65 it has been observed that in view of the statutory provisions laid down by Section 56 of the Contract Act, the English Authorities cannot be of direct assistance though they may have a persuasive value in showing how the English Courts have approached and decided cases under similar circumstances.

9. In the present case we are concerned with the 2nd paragraph of Section 56 of the Contract Act which is to the following effect :

'A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful'.

10. This clause contemplates a supervening impossibility or illegality. The essential idea upon which the doctrine is based is that of impossibility of performance of the contract by intrusion or occurrence of an unexpected event or change of circumstances beyond the contemplation of parties (see Satyabrata's case Supra). It is indeed true that at the time when the parties entered into the contract in this case, neither could possibly contemplate that the company may be nationalised in near future. In view of the Coal Mines (Nationalisation) Act, 1973 the erstwhile owner has undoubtedly ceased to remain the owner of the Coal Mines. A few months prior thereto management of the Coal Mines was taken over under the provisions of Coal Mines (Taking Over of Management) Act, 1973, as a result whereof the Company was unable to run the business so as to take advantage of the credit facilities advanced by the claimant Bank to them essentially for the purpose of their business as owner of Coal Mines. Incidentally it may be mentioned that in the agreement entered into between the parties it was specifically mentioned that the company will apply all advance made by the Bank to the ordinary purpose of the company's business and will forthwith pay to the credit of the said current account all moneys realised in the course of such business (vide paragraph 2 of the initial agreement dated January 22, 1962). Mr. Das Gupta therefore, argues that since the company was unable to run the business any longer after the taking over of management with effect from the appointed day namely 31st January, 1973 the liability to pay the interest in terms of the contract no longer subsisted. We are, however, unable to subscribe to this view, Section 7(1) of the Coal Mines (Nationalisation) Act, 1973 provides that every liability of the owner, agent, manager or managing contractor of the Coal Mines in respect of any period prior to the appointed day, shall be the liability of such owner, agent, manager or managing contractor as the case may be, and shall be enforceable against him and not against the Central Government or the Government company. The appointed day under the Act is the 1st day of May, 1973. Therefore, the provisions contained in Section 7 stated just hereinbefore clearly lay down that the liability of the owner prior to the appointed day i.e. 1st of May 1973 shall be enforceable against the owner and not the Central Govt. The passing of the Coal Mines (Taking Over of Management) Act did not in law obliterate the ownership of the company. True, that even during the transitory period the management was taken over by the government but the government was really acting as the agent of the company. The legal existence of the company as the constituent of the Bank continued and the same account continued to be operated. Such change in the management simpliciter cannot amount to supervention of an event frustrating the contract and as such could not absolve the company from the liability to repay the loan with interest.

11. Mr. Das Gupta relying on the authority of Bengal Nagpur Railway Co. v. Ruttenji 65 Ind App 66 : (AIR 1938 PC 67) and L. I. C. v. Rajmata Saheb Chowhanji, : [1979]1SCR11 contends that the Company cannot, in the facts and circumstances of the case, be held liable for interest beyond 31st January, 1973. The aforesaid two decisions seem to us to be clearly besides the point. In the former the suit was founded on a claim for a sum of money on account of work done. The price of the work done was determined at Rs. Sixty six thousand and odd. The railway company was liable In pay the sum to the plaintiff/respondent on July 26, 1925. The suit was instituted on November 29. 1927. The point of controversy before the Privy Council was whether the Court had authority to allow interest for the period prior to the institution of the suit. The High Court allowed such interest by way of damages. I was held that in the absence of a contract or usage or any provision of law to justify award of interest on the decretal amount for the period before the institution of the suit interest for that period could not be allowed by way of damages caused to the respondents for the wrongful detention of the money by the railway administration. The facts of the case before us are entirely different. Here the claimant Bank is either entitled to the interest up to 1st May, 1973 under the Contract or not at all. There could be no question of awarding of damages for wrongful detention of money.

12. The other case also envisages a proposition which does not fit in with the facts of the case before us. There a company entered into a void contract before the introduction of the L. I. C. Act. Section 7(2) of the Act was found to be wide enough to include all debts, liabilities, obligations of whatever kind then existing and appertaining to the controlled business of the insurer namely the predecessor company. There was no doubt that at the time when the L. I. C. took over the company the obligation to restitute a benefit received by the company had been fastened and the appellant L. I. C. was legally bound to return the same. It was held that as the party was entitled to restitution of the benefit under Section 65 he could only get the amount which he had paid to the predecessor company and not any interest thereon up to the date of the suit. In the case before us there is no claim for interest at the stipulated rate provided in the contract up to the date of the claim. That apart, the case under report relates to a contract found to be void, not because of frustration due to introduction of the L. I. C. Act.

13. In the present case we have found that the company continued its legal existence at least up to the 1st of May, 1973. The mere fact of taking over of Management could not enure to the benefit of the company so as to absolve them from their liability under the contract. The taking over of management could not frustrate that liability. In a case reported in 50 Ind App 9 : (AIR 1923 PC 54 (2) ) there was an agreement by 'A' to deliver cotton goods to 'B' as and when the same may be received from the mills. The contract was found not to be frustrated if the mills fail to perform their contract with 'A'. It was further held that even the destruction of the mills could not affect the contract between 'A' and 'B' if the contract was in absolute terms. There could be no question of frustration if the mills continued to exist and we have found in this case that the company continued to exist up to 1st May. 1973.

14. The doctrine of frustration has no application to a case where there is an express contract to repay money in case of supervening impossibility of performance of the major obligation (M.M. Tacki v. Dharam Say, AIR 1947 Bom 98). So far as the contract between the Bank and the company is concerned we find a similar stipulation in clause (A) of the contract which provides that even when the relationship of banker and customer may cease, the Bank would be entitled to add the interest calculated at the rate agreed to debit balance of the account and ''the said daily debit balance and all money payable to the Bank shall carry interest at the rate aforesaid'.

15. The Bank had performed its part of the contract by advancing the credit facilities and the company was obliged under the contract to repay the same in terms of the contract. There was nothing further for the company to perform beyond repayment. There is no prohibition in that regard so that the company could chum exemption from payment of the money together with interest. Even though by reason of the taking over of management it may be less advantageous to the company now than anticipated before. Lord Justice Denning says that the fact that it has become mere onerous or more expensive for one party than he thought is not sufficient to bring about a frustration and that it must be more than merely more onerous or more expensive in order to invoke frustration of the adventure (The Discipline of Law P. 45). Such a situation has not been established.

16. Having considered the agreement between the parties and the position of law, we feel inclined to accept the concurrent view of the Tribunals below viz., that the company is not only liable to repay the loan but also is liable for all other terms of the agreement including the agreement for payment of interest up to 1st May, 1973.

17. The conclusion of ours is supportable from another stand point. Assuming for a moment that the contract between the parties stood frustrated on 30th January, 1973 as contended by Mr. Das Gupta when the Coal Mines (Taking Over Management) Act came into force, the only effect is that the contract came to an end only prospectively. It did not render the contract void so that the contract still subsists for adjustment of the rights between the parties taking the contract to have come to an end on that date. The liability to repay the amount advanced to the company with agreed interest does not perish due to frustration, so that the said agreement to pay interest still remains there as remains the liability under the agreement to repay. This view is supported by the decision of the Supreme Court in the case of Naihati Jute Mills Ltd. v. Khyaliram Jagannath, : [1968]1SCR821 .

18. The learned Claims Commissioner has determined the amount payable upon a reference to the statement of accounts furnished by the Bank which was not disputed at any stage until the close of hearing before us. The company filed a supplementary affidavit in which it is complained that the learned Commissioner of payment has not taken into account a sum of Rs. l,69,699.73 p. said to have been credited to the Company's account before the date of the order i.e. August 31, 1978. It is further alleged that even thereafter Rs. 1,14,899.00 have been further credited to the company's account between the order of the Commissioner and up to November 4, 1980. The company therefore prayed for giving due credit for the aforesaid sums. The Bank filed an affidavit-in-opposition stating that the period from April 30, 1973 to August 31, 1978 or even thereafter were outside the purview of the Act and as such the Commissioner of Payments did not take them into account. It is further affirmed in the affidavit-in-opposition that the Commissioner of Payments has taken into consideration all the credits from January 31, 1973 to April 30, 1973 along with debits and/or transactions entered into prior to April 30, 1973. Finally it is stated in paragraph of the affidavit-in-opposition that in order to shorten litigation the Bank has been advised, without prejudice to their rights and contentions in other proceedings between the parties, that the learned District Judge may be pleased to direct the Commissioner of Payment to disburse to the Bank the amount admitted by the Commissioner of Payments with interest awarded by him less a sum of Rupees 18.39,283.92 already paid, and another sum of Rs. 2,50,754.53 claimed by the owner company as subsequent credit. Dr. Banerjee appearing in support of the Bank also pleaded that there is a comprehensive suit pending in which all these adjustments claimed by the company may be considered and settled. We, however, do not think it advisable to leave the matter at that for, we do not know how the suit would end, whether in a decree or in dismissal and when. This apart the question of limitation so far as the claim for adjustment of those sums in that suit may also reasonably arise. We, therefore, think that the proper course under the circumstances would be to dispose of the revisional application by affirming the impugned orders and by directing the payment to the Bank of the admitted sum namely Rs. 30,22,199.01 less the sum already paid. The claim of the company regarding further payment of Rupees 2,50,754.53 being disputed we direct the learned Appellate Authority to consider the respective claims of the parties in that behalf on such further evidence that may be adduced before him. In the result the Bank is found entitled to the payment of the amount admitted by the Claims Commissioner. From this however, should be set apart Rs. 2,50,754.53 which represents the disputed claim of the owner. This should be adjudicated by the appellate authority as indicated hereinbefore and the appellate authority is directed to order disbursement of the balance to the Bank.

19. The revisional application is thus disposed of. The matter is remitted back to the learned District Judge, Burdwan for the limited purpose aforesaid. He shall dispose of the matter on the evidence already on record and on such further evidence as the parties may choose to adduce.

20. There will be no order for costs.

21. Leave under Article 133(1) of the Constitution has been prayed for and is refused.

Anil K. Sen, J.

22. I agree.


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