G.V. Seethapathy, J.@mdashThis appeal is directed against the judgment and decree dated 28.12.1998 in OS No. 2154 of 1989 on the file of I Senior Civil Judge, City Civil Courts, Hyderabad, wherein the suit filed by the appellant for recovery of a sum of Rs. 1,99,981.08 was dismissed.
2. The appellant herein filed suit against the respondent-defendant with the following averments:
The plaintiff is a statutory Corporation and Central Government Undertaking, dealing in grains and other essential commodities. The defendant is a partnership firm doing business in rice in Thondangi of East Godavari District. The defendant submitted tender for purchase of rice stocks put up for sale by the plaintiff after inspecting the goods. The plaintiff accepted the rates at Rs. 192/- to Rs. 202/- per quintal offered by the defendant i.e., for Lot No. 1 at Vizag for quantity of 151.4 metric tons at Rs. 192/-per quintal, for Lot No. 2 at Vizag for 99.3 metric tons at Rs. 192/- and for Lot No. 3 at Tadepalligudem for 65.1 metric tons at the rate of Rs. 191.50. The plaintiff communicated the acceptance of the above rates by letter dated 7.1.1987 which was received by the defendant under their acknowledgment dated 10.1.1987. As per the terms of the tender, the defendant sent demand draft for Rs. 5,000/- on 22.12.1986 in favour of the plaintiff towards E.M.D. as per Clause D(ii) of the terms and conditions of the tender. The defendant had to deposit 7�% of the value of the total stocks towards security within seven days after issuance of the acceptance letter. As the defendant failed to remit the security deposit within time, the plaintiff issued notice demanding payment of the same. The defendant gave a reply on 1.4.1987 stating that the tender may be cancelled, as he could not obtain permission from the District Collector. As the defendant is fully aware of the terms and conditions, it was not possible to cancel the tender after its acceptance was communicated. Tire defendant is not entitled to seek cancellation of the tender at his pleasure. The issuance of necessary permission by the District Collector arises only after the plaintiff issued release order, which will be subsequent to payment of the cost of the stocks. The defendant had no other option to resale the stocks at the risk and cost of the defendant as per the clause ''F'' of the terms and conditions. Fresh tenders were called and the resale resulted in loss of Rs. 1,99,981.08 to the plaintiff towards differential cost and interest, which the defendant is liable to reimburse.
3. The defendant filed a written statement contending in brief as follows:
The defendant offered to purchase substandard rice stock at Vizag, Tadepallegudem and Khammam relying on the conditions of tender that Sub-standard rice be sold for human consumption after it is brought to the desired quality by carrying it for processing or upgrading to bring it within the limits of Prevention of Food Adulteration Act (for short ''PFA''). After the tender was accepted by the plaintiff, defendant came to know that there are restrictions for movement of the sub-standard rice and on account of the restriction, the defendant withdrew his tender by letter dated 1.4.1987, as the representation of the plaintiff to the Commissioner for Civil Supplies for permission to transport sub-standard rice to the mills of tenderers for processing was rejected. Therefore, the plaintiff is not entitled to claim any damages.
4. On the strength of the pleadings, the trial Court framed the following issues for trial:
1. Whether the plaintiff is entitled to recover the suit amount with interest and costs as prayed for?
2. To what relief?
5. PW. 1 was examined and Exs. A.1 to A.10 were marked on behalf of the plaintiff. DW. 1 was examined and Exs. B.1 to B.3 were marked on behalf of the defendant.
6. On a consideration of the evidence on record, the trial Court gave a finding on issue No. 1 that there is no breach of contract on the part of the defendant and therefore, the plaintiff is not liable for the suit claim and accordingly, the suit was dismissed with costs.
7. Aggrieved by the said judgment and decree, the plaintiff preferred the present appeal.
8. Arguments of the learned Counsel for the appellant and respondent are heard. Records are perused.
9. Learned Counsel for the appellant contended that with the acceptance of the rates quoted by the defendant in their tender, the contract was concluded and on account of failure of the defendant to pay the security deposit as per the terms and conditions of sale, the plaintiff was constrained to put the stocks for resale, which resulted loss and the plaintiff is entitled for recovery of the same by way of damages with interest as per Clause (F) of Schedule-I of Ex. A.1. He further contended that the plea of the defendant that the contract was frustrated and became impossible of performance because of the refusal by Civil Supplies Department to accord permission for movement of the stock of sub-standard rice, is untenable, as the plaintiff does not guarantee the salability of the stock disposed of by them and it is the responsibility of the buyer to make necessary arrangements for the sale of the stocks.
10. Learned Counsel for the respondent on the other hand contended that the plaintiff corresponded with the Civil Supplies Department for securing permission for transportation of the stock of sub-standard rice to the mill of the tenderer for the purpose of processing and upgradation to make it fit for human consumption and suppressing the same, the plaintiff put the stocks for sale misrepresenting that the stock of rice, though sub-standard, can be sold for the purpose of human consumption after subjecting them to the process of upgradation in quality and the rejection of the permission by the Civil Supplies Department to move the stocks to the mill has frustrated the contract and made it impossible of performance in terms of Section 56 of the Indian Contract Act and therefore, there was no breach of contract on the part of the defendant and the loss, if any, incurred by the plaintiff due to resale was on account of the fact that the subject rice was not fit for human consumption.
11. The point for consideration in this appeal is whether the contract under Ex. A. 1 became frustrated for no fault of the defendant and so, the defendant is not liable for the suit amount?
12. There are certain admitted facts, which may be stated thus:
In response to the Tender Notification issued under Ex. B.3 regarding the purchase of sub-standard rice sought to be disposed of by plaintiff, the defendant submitted a tender Ex. A.1 stipulating the rates between Rs. 191.50 to Rs. 202/- per quintal for different quantities of the stock of substandard rice situated in different godowns of the plaintiff at Vizag and Tadepallegudem. The plaintiff accepting the rates quoted by the defendant, communicated the acceptance by their letter dated Ex. A.2 dated 7.1.1987. The defendant deposited a sum of Rs. 5,000/-towards E.M.D. as per the terms and conditions of Ex. A.1. He did not, however, deposit 7�% of the value of sale price towards security deposit within seven days as required under Clause D(ii) of Schedule-I appended to Ex. A.1, the terms and conditions incorporated. The plaintiff addressed a letter Ex. A.3 dated 1.4.1987 calling upon the defendant to remit the security deposit and further informing that in the event of failure, the EMD amount would be forfeited and the stock would be re-tendered at the risk and cost of the defendant as per the terms and conditions. Clause D(ii) of Schedule-1 of Ex. A.1 stipulates that ''if the tenderer/buyer fails or neglects to observe or perform any of the obligations under the contract, it shall be lawful for the Food Corporation of India to forfeit either in whole or in part in its absolute discretion, the security deposit made by the tenderer/buyer towards the satisfaction of any sum due to be claimed from the tenderer/buyer for any damages, losses, charges, expenses or costs that may be suffered or incurred by the Food Corporation of India''. Clause (F) of Schedule-1 of Ex. A.1 stipulates that ''in the event of the cost of the stocks not being deposited as per the scheduled installments within the prescribed date, the plaintiff may at their option forfeit the security deposit and resell the stocks or part thereof to another party at the risk and cost of the original buyer and also recover any loss suffered by the plaintiff as a result of such failure. The defendant gave a reply Ex. A.5 stating that ''the District Collector was not issuing permission for sale after bringing the stocks to the mill for processing the sub-standard rice to upgrade the quality and therefore they have no other go than to cancel the tender in view of the restriction imposed by the Commissioner of Civil Supplies for issue of the permits''. In Ex. A.5 the defendant himself requested the plaintiff to treat the tender as cancelled. A copy of the proceedings of the Commissioner of Civil Supplies, Hyderabad, which was enclosed to Ex. A.5, is marked as Ex. B.1. The plaintiff got issued registered notice dated 24.10.1989 to the defendant under Ex. A.4 demanding payments of Rs. 2,19,201.12 towards alleged loss sustained by the plaintiff on account of resale of stock. The defendant got issued a reply notice Ex. B.2 dated 6.11.1989 denying the liability to pay the amount demanded and contended that because of the restrictions imposed over the movement of the sub-standard rice and refusal of the permission by the Commissioner of Civil Supplies to move stock to the mill for processing and reconditioning and to make them fit for human consumption, the contract became impossible of performance and thereafter, the plaintiff filed the suit for recovery of a sum of Rs. 1,05,259.50 towards differential cost on account of resale and Rs. 52,000.64 towards interest at 18% per annum and Rs. 42,720.94 towards interest on differential cost at 18% per annum, making up a total sum of Rs. l,99,981.08.
13. The question, which arises for consideration, is whether the contract became frustrated and therefore the defendant cannot be said to have committed any default? It is significant to note that what was sought to be sold by the plaintiff was only sub-standard rice as can be seen from Ex. B.3 tender notification and also Ex. A.1 tender document. Clause B of Schedule-1 of Ex. A.1 inter-alia stipulates that an express condition of the sale of the substandard rice is that ''the rice sold against this tender, has to be released for consumption only after carrying out processing/upgradation, wherever necessary to bring it within PFA limits and the plaintiff will not be held responsible for any consequence, legal or otherwise, if it is released for consumption, ''as such'' and also that the plaintiff will not compensate the purchaser for any expenditure/loss in the processing/upgradation''. The above clause contemplates that sub-standard rice sold against tender cannot be released for consumption without carrying out processing/upgradation to bring it within the limits of P.F.A. It also contained disclaimer that the plaintiff will not be responsible for any consequences, if the stock is released for consumption ''as such'' i.e., without subjecting the same for processing/upgradation. The stocks were not therefore meant for human consumption in the condition in which they were sold and they needed to be processed/upgraded in the mills to bring them to the level of prescribed standards and PFA limits before they can be released for human consumption. Necessarily the buyer has to transport the stock from F.C.I. godowns where delivery is effected to the mills for the purpose of processing/upgradation. It is also significant to note that the plaintiff themselves corresponded with Civil Supplies Department for securing necessary permission for transportation. Ex. B.1 proceedings of the Commissioner, Civil Supplies, Hyderabad makes reference to the letter dated 11.8.1986 written by the Regional Manager of F.C.I., wherein the permission was sought to move the rice of 18,118 tons of ''C and D'' category which was unfit for human consumption, outside the State for sale. As seen from Ex. B.1 by letter dated 10.9.1986 the Collectors and Chief Rationing Officers were authorized to issue export permits on the basis of the certificates issued by the District Managers of FCI to the effect that the stocks in question are of ''C and D'' category and they are not fit for distribution through public distribution system. A clarification was issued by letter dated 16.12.1986 stating that the rice of ''C & D'' category disposed of by FCI were meant only for movement to places outside the State on ''as is where is'' basis and not for taking it to the mill for upgrading, mixing, admixing or for blending before it is moved to places outside the State. The Senior Regional Manager, FCI addressed a letter dated 13.1.1987 to the Commissioner, Civil Supplies, requesting to consider permitting the successful tenderer to take ''C & D'' category rice for processing/recondition. On a careful examination of the said request, the Government gave permission for movement of rice of ''C & D'' category which were unfit for human consumption on ''as is where is'' basis to the places outside the State and that the quality obtaining at the time of disposal should be maintained and no upgrading, mixing, admixing, can be permitted and the stocks should not be sold to be taken to mill premises and loaded after re-milling etc. Ex. B.1 proceedings therefore made it very clear that the successful tenderer/buyer can only transport the stock of sub-standard rice, which was not fit for human consumption to the places outside the State directly and he cannot bring them to his mill for the purpose of upgrading the quality. No doubt Ex. B.1 proceedings issued on 28.1.1987 was subsequent to the acceptance by the plaintiff of the defendant''s tender, the said acceptance having been communicated by letter dated 7.1.1987. The fact, however, remains that correspondence entered into by the plaintiff with the Civil Supplies Department which is referred to in Ex. B.1 was prior to the submission of tender Ex. A.1 by the defendant on 22.12.1986. Thus by the date of tender notification by the plaintiff and submission of tender by the defendant, the plaintiff was aware that the Civil Supplies Department refused to grant permission for movement of the sub-standard rice to the mills for processing/upgradation and the department was insisting that such rice which was not fit for human consumption has to be moved only out of the State. But still the plaintiff incorporated Clause (B) of Schedule-1 enjoining the tenderer to release the stock for consumption after carrying out the processing/upgradation. Schedule-1 bears the date 3.12.1986. Ex. B.1 shows that in response to the plaintiffs letter dated 11.8.1986, the Commissioner of Civil Supplies by circular dated 10.9.1986 authorized the Collectors and Chief Rationing Officers to issue export permissions for movement of the said rice which are not fit for distribution through public distribution system and subsequently by letter dated 16.12.1986 the Commissioner of Civil Supplies clarified that such movement shall be on ''as is where is'' basis to supply outside the State and the rice cannot be taken to a mill for upgrading/mixing etc. There is nothing on record to show that the plaintiff informed the tenderers either in the Tender Notification or subsequently that there is restriction over movement of such rice within State and it cannot be taken to the mills for processing/upgradation of quality and that such rice has to be transported only to places out of State on ''as is where is'' basis.
14. PW. 1-Assistant Manager of the plaintiff-Corporation has admittedly no personal knowledge about the food grain involved in the suit transaction, but he admitted that there was correspondence between plaintiff-Corporation and Civil Supplies Department. He further admitted that even before the Civil Supplies Department took final decision in the matter, the plaintiff-Corporation floated tenders in respect of rice involved in the suit. He also admitted that in the tender notice they stated that the rice can be used for human consumption after upgrading the quality and if the quality is not brought under PFA limits, the plaintiff-Corporation is not liable for consequences. He categorically admitted that it was not mentioned in the tender notice or Tender Notification that the product is not fit for human consumption and at the time of purchase, the condition of rice was not good and the technical wing of the Corporation maintained the quality of rice to protect it from deterioration. The plaintiff admittedly has not filed any record to show the steps taken for deterioration. PW.l further admitted that there is so much of stock with plaintiff-Corporation, which is unfit for human consumption. PW. 1 further admitted that the Commissioner, Civil Supplies permitted movement of the stock on ''as is where is'' basis outside the State without taking the stocks to any mill for upgrading. PW. 1 further admitted the tenderer cannot take the material to the mill without permission of the Civil Supplies Department. He also admitted that the tenderers who participated in the second time may be aware that the rice was not fit for human consumption. Though PW. 1 denied the suggestion that to cover-up their latches, they suppressed the actual condition of the commodity in the tender notice and misled the tenderers, the fact remains that the plaintiff never informed the tenderers that the rice was not fit for human consumption and that it has to be moved only within the State and it cannot be taken to the mills of the tenderers/buyers for the purpose of upgradation of the quality. On the other hand, Clause-B of Schedule-1 of Ex. A.1 clearly gives an impression that the buyers can subject the rice to the process of upgradation, to make it conform to the prescribed standards, before it can be released for human consumption. The only disclaimer contained in clause B of Schedule-1 is that in case stocks are released for human consumption without upgrading their quality, the plaintiff would not be responsible for any consequences. Clause-B of Schedule-1 necessarily implies that the buyer can transport the rice to his mill for the purpose of upgradation of the quality and thereafter can release the same for human consumption. Even otherwise, the plaintiff never put the defendant on notice before acceptance of the tender that there was restriction imposed by the Civil Supplies Department on the movement of such substandard rice within the State, though, the plaintiff was engaged in correspondence with the Civil Supplies Department and was aware that the Commissioner, Civil Supplies Department accorded permission only for transport of sub-standard rice outside the State and that too on ''as is where is'' basis. The conduct of the plaintiff in not keeping the defendant or other tenderers informed of the said restriction of the movement of the sub-standard rice and not even informing that it was not fit for human consumption, clearly amounts to misleading the tenderers, which is not expected of a statutory Corporation like plaintiff, which is a Central Government Undertaking. No doubt Sub-clause (ii) of ''G'' of Schedule-1 of Ex. A.1 states that it is the responsibility of the buyer to make arrangements to obtain such licences or permits from the State concerned for movement of the stocks within or outside the State. But in the same clause, it is also stated that the plaintiff-Corporation will provide necessary certificates from their side to facilitate issue of permits. When clause ''B'' Schedule-1 stipulates by way of express condition that the rice has to be released for consumption only after carrying out the processing/upgradation, whereever necessary to bring it within the PFA limits, then it is the responsibility of the plaintiff-Corporation to facilitate the issue of permits for movement of such rice to the mills within the State for the purpose of upgradation of the quality as undertaken by them in Sub-clause (ii) of ''G''. May be the Food Corporation of India has entered into correspondence with the Civil Supplies Department in the course of such facilitation of issuance of permits, but the plaintiff has withheld the information regarding prohibition imposed by the Commissioner, Civil Supplies on the movement of such rice within the State and did not keep the defendant informed of the same. As a prudent buyer the defendant was therefore justified in requesting the plaintiff by his letter Ex. A.5 to treat the tender as ''cancelled'', as he was unable to move the rice to his mill for the purpose of upgradation in view of the restriction imposed by the Commissioner, Civil Supplies on the movement of the rice within the State. The defendant therefore cannot be said to have committed any wilful breach of the contract in not depositing 7�% of the value of the sale price towards security deposit.
15. Section 56 of the Indian Contract Act states that ''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''. The defendant offered to buy stock of rice at a particular rate, which was accepted by the plaintiff. As per Clause 6 of Ex. A.1, the acceptance of tender by the Food Corporation of India shall constitute an agreement between the tenderer and the Food Corporation of India and no separate agreement shall be required to be executed after issue of the acceptance letter. Subsequent to the said agreement, it became known to the defendant about the restriction on the movement of rice imposed by the Commissioner, Civil Supplies by his circular Ex. B.1 dated 28.1.1987. Movement of the rice in contravention of Ex. B.1 circular is certainly unlawful. The contract has therefore become void and also impossible of performance because of the subsequent event. The doctrine of frustration therefore comes into play operating as an excuse to further performance. The contract entered into under Ex. A.1 is certainly not capable of performance in the way, in which, it was contemplated when the agreement was entered into, inasmuch as the defendant was no longer at liberty to take stocks to his mill for upgradation of the quality in view of Ex. B.1 under which restriction of movement of sub-standard rice was imposed, subsequent to the acceptance of the plaintiff''s offer. At the time of entering into Ex. A.1, the intention of the parties as gathered from the terms of Ex. A.1 was that rice can be released for public consumption after carrying out necessary processing/upgradation to bring it in conformity within the PFA limits. Subsequently by virtue of Ex. B.1 the rice could not be subjected to any process of upgradation and had to be moved out of the State directly on ''as is where is'' basis, which was not in the intendment of the parties at the time of Ex. A.1.
16. In
The Court can grant relief on the ground of subsequent impossibility when it finds that the whole purpose or the basis of the contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was not contemplated by the parties at the date of the contract. There would in such a case be no question of finding out an implied term agreed to by the parties embodying a provision for discharge because the parties did not think about the matter at all nor could possibly have any intention regarding it. When such an event or change of circumstances which is so fundamental as to be regarded by law as striking at the root of the control as a whole occurs it is the Court which can pronounce the contract to be frustrated and at an end. This is really a positive rule enacted in Section 56 which governs such situations.
17. In
...This elaborate narration would make it clear that the appellant had bid for the coal under the honest and reasonable impression that he would be allowed to transport the coal to Ferozabad, that this was thwarted by the attitude of the Coal Commissioner, that later on the parties proceeded on the basis mat the auction sale was to be cancelled and the appellant refunded his money. But apparently because by that time much of the coal had been lost and the Railways would have been in difficulty to explain the loss they chose to deny the appellant''s claim. We can see no justification on facts for such a denial and the defendants cannot refuse to refund the plaintiff''s amount. The contract had become clearly frustrated. We must make it clear that we are not referring to the refusal to supply wagons but the refusal of the Coal Commissioner to allow the movement of coal to Ferozabad in spite of the fact that it was not one of the conditions of the auction. The appellant is, therefore, clearly entitled to the refund of his money.
18. In Ramaya v. Firm G.M.S. Shaik Saik Saib AIR 1958 AP 576, the Division Bench of this Court held as follows:
...This neatly summarise what is called the doctrine of frustration. We take the rule to mean that where consideration of the terms of the contract in the light of the circumstances existing when it was made, shows that the parties never agreed to be bound in a fundamentally different situation which has unexpectedly emerged, the contract ceases to bind at that point. Applying this test to the facts of these appeals the first step would be to ascertain whether a fundamentally different situation had arisen due to the unexpected failure of getting the permit.
The next would be whether the parties contemplated being bound in the altered situation. We think the unexpected failure has resulted in making the situation fundamentally different to the appellants. They had made the purchases for exporting the commodity. They had been trying for nearly two years to get the permits. They had made the full payment in June 1944 only when they had been given assurance of getting the permit. Selling the seeds where they were bought would cause loss to them. No specific goods had been earmarked for them.
In these circumstances it cannot but be inferred that the failure had altered the situation fundamentally so far as the appellants were concerned.
19. In the above case referring to the decision of the Apex Court in
This much is clear that the word "impossible" has not been used here in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose which the parties had in view; and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do.
According to this test also the change of circumstances due to failure to get permit, had totally upset the foundation upon which the parties had rested their bargain. We, therefore, hold that u/s 56 of the Contract Act, the purchases have been void.
20. In
The doctrine of frustration comes into play when a contract becomes impossible of performance, after it is made, due to circumstances beyond the control of the parties. It is a special case of discharge of the contract.
When persons enter into a contract the performance of which is dependent on the continued availability of a specific thing and by reason of circumstances beyond the control of the parties, that availability comes to an end, the contract stands dissolved.
It was further held in Para 22 as follows:
...The non-availability of wagons in the instant case prevented the performance of the contract. The non-availability of wagons was not contemplated by the parties when the contract was made. If any of the parties had anticipated the failure of the supply of wagons, we could reasonably expect some provision being made in the contracts themselves contemplating that possibility. The only provision that has been made in item No. 3 of the contract is that in such an event, the plaintiff might have cancelled the contract or might have extended the time of performance. But the plaintiff had not been given the option to offer delivery in any manner other than the one contemplated by the contract. The uncertainties of future were there when the contract was made, but when those uncertainties became realities, we are of the view that the commercial venture frustrated. It appears to us that the performance of the contract in this case depended on the continued existence of a given state of things. The condition of the availability of wagons was implied and the impossibility of performance which resulted from the failure of supply of wagons excuses the performance of the contract for both the parties in the cases on hand.
21. In the light of the propositions laid down in the above decisions and in view of Ex.B.1 circular, the proceedings issued by the Commissioner, Civil Supplies virtually banning the movement of the sub-standard rice within the State for the purpose of upgrading the quality at the mills to enable the buyers to release them for human consumption, the performance of the contract under Ex. A.1 is defeated and the contract remained frustrated for no fault of the defendant. Under those circumstances, the defendant cannot be said to have committed any breach of terms of contract Ex. A.1 and they cannot be fastened with any liability for any loss, which is alleged to have been sustained by the plaintiff on account of resale of the rice. It is quite possible as admitted by PW. 1 that the buyers at the second auction were aware that the rice was not fit for human consumption and the resale fetched lesser price because of such inferior quality of the rice.
22. In the circumstances and for the reasons stated above, the finding of the trial Court that the defendant is not liable to pay the suit amount and consequent dismissal of the suit do not call for any interference.
23. In the result, the appeal is dismissed. No order as to costs.
