Calcutta High Court
Prakash Kumar Thaker vs The Jharkhand State Co-Operative Lac … on 3 July, 2025
Author: Soumen Sen
Bench: Soumen Sen
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IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
COMMERCIAL DIVISION
ORIGINAL SIDE
BEFORE:
The Hon'ble Justice Soumen Sen
and
The Hon'ble Justice Biswaroop Chowdhury
AD-COM/5/2024
With
CS/634/2001
I.A. No. GA (Com.) 03 of 2025
PRAKASH KUMAR THAKER
VS
THE JHARKHAND STATE CO-OPERATIVE LAC MARKETING AND
PROCUREMENT FEDERATION LIMITED
For the Appellant : Mr. Suvasish Sengupta, Adv.,
Mr. Balarko Sen, Adv.,
Mr. Avijit Dey, Adv.
For the Respondent/ : Mr. Sakya Sen, Sr. Adv.,
Defendant Mr. Chanchal Kumar Dutt, Adv.,
Ms. Krishna Mullick, Adv.,
Mr. Sunil Das, Adv.,
Ms. Pallavi Chatterjee, Adv.
Hearing concluded on : 10th June, 2025
Judgment on : 3rd July, 2025
Soumen Sen, J.
1. The appeal is arising out of the judgement and decree dated
11th December, 2023 passed by the learned Single Judge in a suit for
recovery of damages due to breach of contract.
2. The suit was dismissed on a finding that the contract between
the parties stands frustrated.
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3. The plaintiff/appellant carries on the business, inter alia, as an
exporter and trader in Shellac. The defendant/respondent is a co-operative
society having its office at Ranchi, Jharkhand.
4. The parties have a long-standing business relationship.
5. The case of the plaintiff in a nutshell is that pursuant to the
negotiations between the parties, the plaintiff agreed to purchase and the
defendant agreed to sell 24 metric ton shellac of specified grade confirmed
by the latter in terms of a letter dated 15th April 2000.
6. In terms of agreement, the plaintiff deposited 10 percent of the
contract value as the earnest money by a demand draft dated 17th April
2000, drawn on Indian Overseas Bank, amounting to Rs.2,73,600/-. The
acknowledgement for the same was made on 18th April 2000 by the
defendant.
7. On 17th April 2000 the plaintiff inquired regarding supply of the
first lot of 12 metric ton shellac so that the plaintiff’s representative may
collect the same and deposit the balance consideration money.
8. The plaintiff entered into contract to purchase shellac for
supplying the same to Egyptian buyers.
9. There was a contractual obligation on the defendant to supply
the shellac within 20th May 2000 and since the stipulated supply was not
made, the plaintiff by a letter dated 16th May 2000 inquired as to when the
goods would be ready for delivery.
10. The defendant by a communication dated 26th July, 2000
terminated the contract on the pretext of labour problem and also returned
the earnest money, previously deposited by the plaintiff.
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11. It is the contention of the plaintiff that in spite of extension of
delivery date till 1st September 2000, the defendant neglected, failed and
refused to deliver the said shellac and the plaintiff had made known to the
defendant that the former is an exporter and needed goods for export. To
meet his contractual obligations, the plaintiff had to purchase shellac at an
enhanced rate and suffered loss and loss of profit to the tune of
Rs.14,23,920/- being the difference between the market price and contract
price as on 1st September 2000.
12. The suit is essentially for recovery of damages claimed to have
been suffered by the plaintiff by reason of failure on the part of the
defendant to supply 24 MT shellac of specified quality.
13. The defendant in the written statement has denied any
concluded contract entered into between the parties. The defendant further
alleged that proposal of the plaintiff for purchase of T.N. Shellac from the
defendant did not materialise inasmuch as immediately after such proposal
was given and the same was “provisionally accepted” by the defendant; the
chimney of the defendant’s factory was damaged which “physically affected”
the production of T.N. Shellac. At an about the same time, there was some
labour trouble in the defendant’s factory. Tender was invited for repairing of
the chimney. In view of such development, namely, labour trouble and the
defect in chimney beyond the control of the defendant, the ‘Force Majeure’
clause is applicable and in view thereof, the defendant expressed its inability
to give effect to the proposal which was purchase of T.N. Shellac by the
plaintiff.
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14. On the basis of the pleadings, the learned Single Judge has
framed the following issues:
1) Is the suit barred under the provision of section 57 read with
bye-law of Jharkhand Co-operative Societies Act 1935 and
therefore, not maintainable?
2) Did the plaintiff and the defendant entered into any agreement
on 15th April 2000?
3) Did the defendant commit any breach of agreement for sale
with regard to claim a sum of Rs.14,23,920/-?
4) Is the plaintiff entitled to claim a sum of Rs.14,23,920/-?
5) Has the plaintiff suffered any loss or damage?
6) To what further or other relief is the plaintiff entitled?
15. On the basis of oral and documentary evidence, the learned
Single Judge answered issue nos. 1 and 2 in favour of the plaintiff. However,
issue no. 3 was decided against the plaintiff with the following observation:
“Break down of machineries are included in force majeure. It is neither alleged
nor in evidence that break down of machineries was a ploy of the defendant
to avoid contractual obligation. Therefore, from the facts and circumstances of
the case and material evidences, it is clear that the defendants were
prevented from supplying stipulated T.N. Shellac by supervening
circumstances beyond control. This is a case of frustration of contract, as
contemplated in section 56 of the Indian Contract Act, 1872 and not a case of
breach of contract”. As a corollary to the aforesaid finding, the issue nos. 4,5
and 6 were decided against the plaintiff.
16. Hence, this appeal.
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17. The defendant however has not filed any cross appeal against
the finding in issue no. 1 and 2.
Submissions on behalf of the plaintiff/appellant
18. Mr. Suvasish Sengupta, the Learned Counsel appearing on
behalf of the appellant submits with regard to issue no 3 framed in trial
relating to the breach of contract, that in spite of there being an agreement,
the defendant delayed the delivery and on 23rd June, 2000 purportedly
raised two grounds being lack of productivity and rise in price by the Board
and thereafter on 26th July, 2000 terminated the agreement on the plea of
acute labour problem and strike and returned the 10% earnest money
deposited by plaintiff. Hence, it was argued that the defendant had breached
the contract.
19. The learned counsel submits that the defendant claimed that
the failure in performance was due to circumstances beyond its control,
primarily the damage to a chimney, citing documents marked as Exhibits-
J, K and N. However, this claim of frustration due to chimney damage was
raised for the first time only in paragraph 8 of the Written Statement. Mr.
Sengupta argued that even if the chimney was damaged or there was a
strike, the defendant had a duty to inform the plaintiff, which they failed to
do. The plaintiff was only informed by a letter dated 26th June 2000 and
along with the letter the defendant refunded the earnest money. The
defendant’s prolonged silence of over three months was presented as
indicative of suspicious conduct and malafide intent.
20. The learned counsel draws our attention to the petition of
Employees/Workers dated 17th April, 2000, in respect of damage to the
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chimney. It is argued that the above petition was generated as an
afterthought by the management of the Defendant despite having full
knowledge of the damaged chimney by issuing a so-called Tender Notice for
repair of the chimney by an Advertisement in a Ranchi Newspaper on
17th February, 2000.
21. Mr. Sengupta while arguing has referred to the evidence of the
defendant’s witness, Mr. Rabindra Kumar to show that the oral evidence of
Rabindra is contrary to the documentary evidence and the relevant portions
on which reliance is placed is set out below:-
Examination-in-chief of Rabindra Kumar
“Q21. Please see Ext. K (26th July,2000) and tell Milord what is this
document about. Why was this document issued?
Ans. In this letter it was stated that due to break down of the chimney
and the boiler in the factory, production work came to a standstill and,
therefore, negotiations could not take place and 10 per cent of the
earnest money deposited by the plaintiff would be refunded.
Q31. Do you accept the plaintiff’s contention as contained in this letter
that the reason for cancellation is rise in market price of contracted
goods as appearing from your letter no. 86 dated 23rd June, 2000 to
the Chairman of Shellac Export Promotion Council?
Ans. I do not accept the contention of the plaintiff as mentioned in this
letter.
Q35. Did the plaintiff ever inform you before refund of the earnest
money that they had already entered into a contract with a foreign
-7-buyer for sale of the shellac on the basis of the defendant’s letter of
15th April, 2000?
Ans. No. Till then the samples were yet to be approved. Due to break
down of the chimney and the boiler as I have already stated earlier,
the production in the factory had stopped.”
22. Mr. Sengupta while setting out the relevant portions submits
that analysis of the letter dated 26th July, 2000 (Exhibit-K) shows that the
issue of breakdown of the chimney was never mentioned; in the letter dated
23rd June, 2000 (Exhibit.-J) issued by Bihar State Co-operative Lac
Marketing Federation Ltd., the subject was “sudden rise in lac market price”
and in the letter dated 26th July, 2000 (Exhibit. K), the defendant
mentioned that the production work of shellac has been stopped due to
acute labour problem and strike. The reason has been reiterated in the reply
dated 22nd September, 2000. Hence, the oral evidence is contrary to the
documentary evidence.
23. With regards to issue nos. 4, 5 and 6, the Learned Counsel of
the plaintiff has submitted that the plaintiff has suffered loss and damage
due to non-delivery of the aforesaid goods. During 23rd May 2000 and 1st
August 2000, the plaintiff exported goods but could not get the said
machine-made T.N. Shellac at the rate of Rs.114/- per kg as agreed between
the plaintiff and the defendant thereto.
24. Mr. Sengupta has drawn our attention to the letters dated 16 th
August, 2000 and 12th September, 2000 respectively, wherein the plaintiff
demanded a sum of Rs.14, 23,920/- as damages being the difference in
market price and the contract price. In reply, the defendant, by letter dated
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22nd September, 2000 disputed the existence of a concluded contract. The
plaintiff vide letter dated 26th September, 2000, reiterated his stand.
25. Mr. Sengupta has relied on the Calcutta Shellac Market Report
published by the Shellac Export Promotion Council dated 26 th July, 2000
[Exhibit-U & U/l] and 6th September, 2000 (Exhibit-Q] to justify the claim
towards damages. He submitted that the market price of machine-made T.N.
Shellac increased from Rs.148/- per Kg. to Rs.173.33/- per Kg. during this
period. The said report of 6th September, 2000 is binding between the
parties. The Shellac Export Promotion Council is the Registering Authority
for all export sales of Lac Products as per the Exim Policy of the Govt. of
India.
26. Mr. Sengupta has claimed a sum of Rs.14, 23,920/- as damages
by way of loss of profit. The breakup of such claim being the difference
between the market price and contract price being (Rs.173.33 – Rs.114.00) =
Rs.59.33 per Kg. Therefore, in terms of the contract for 24MT equivalent to
24,000 Kg, the plaintiff would be entitled to Rs.14,23,920/-
(Rs.59.33 X 24,000kg).
27. The learned counsel has referred to section 57 of the Sales of
Goods Act which deals with justification of damages due to non-delivery. It
is submitted that the said section recognises that where the seller
wrongfully neglects or refuses to deliver the goods to the buyer, the buyer
may sue the seller for damages for non-delivery.
28. The learned counsel goes on to place reliance on the case of
Firm H. Sham Sunder and Sons -vs. – Ram Chand Spinning and
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Weaving Mills1 wherein the Hon’ble High Court held that the contract was
governed by Section 57 of the Sales of Goods Act, 1930 and that the
difference in the market price is the measure of damages for the purpose of
determining the amount of compensation payable to the buyer.
29. In furtherance of the aforesaid proposition reliance has been
placed on Vishwanath vs. Amarlal2. In this case, reference was made to
Erroll Mackay vs. Kameshwar Singh3, and Ismail Sait and Sons vs.
Wilson & Co.,4 wherein it was held that it is not necessary for the plaintiff
to prove that he purchased the item from other sources at a price exceeding
the contract price and sustained a loss. According to these decisions, the
fact that the buyer sustained no actual loss from the seller’s failure to
deliver the goods is no ground for awarding nominal damages to the buyer.
The illustration (a) to Section 73 of the Contract Act indicates that the buyer
is entitled to receive from the seller by way of compensation the sum by
which the contract price falls short of the price for which the buyer might
have obtained goods of like quality at the time when they ought to have been
delivered.
30. Reliance is also placed by the learned counsel on the case of
The Standard Chemicals Company (P) Ltd, Fort Bombay vs. The
Palakol Co-Operative Sugars Ltd.5 The relevant paragraphs have been
reproduced below:-
“8. In view of this correspondence, the legal position urged by
the learned counsel relying on Ramayya v. Firm of Gulfarosh1
AIR 1957 P&H 90
2
AIR 1957 MB 190:1956 SCC Online MP 76
3
AIR 1932 PC 196
4
AIR 1919 Mad 1053
5
(1988) 2 ALT 405: 1987 SCC Online AP 380
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Mohideen [(1958) 2 An. W.R. 384.] that there is a fundamental
change in the position since the contract was entered into and
the doctrine of frustration can be invoked cannot be accepted
and hence I am of the opinion that the trial Court is right in
holding that the defendant-Company agreed to supply the
contractual quantity of sulphur making the plaintiff to believe
that they would supply from the existing stock and that the
agreement has not become impossible of the performance by
virtue of the events that took place subsequent to entering into
the contract and the frustration did not take place in view of the
change in the import policy of the Government and accordingly I
confirm the finding on issues 3, 4 and 6.
10. Let me examine the legal position on this question. Section
57 of the Sale of Goods Act, (Act III of 30) simply declare.
“Where the seller wrongfully neglects or refuses to deliver the
goods to the buyer, the buyer may sue the seller for damage for
non-delivery.”
14. The principle embodied in Section 51(3) of the English Sale
of Goods Act is also deduced from the Illustration given in Sec.
73 of the Contract Act. It is well known that the market price
rule was laid down in the celebrated case
in Hadley v. Baxendale [156 E.R. 156.] . See Union of
India v. Commercial Metal Copn. [A.I.R. 1982 Delhi, 267.] . It is
also approved by the Privy Council in India Jamal v. Moola
Dawood & Sons [A.I.R. 1915 P.C. 47.] . Whether this rule of
market price should depend upon the actual loss sustained by
the buyer was examined in detail by the earliest judgment of
the Madras High Court in Ismail Sait & Sons v. Wilson &
Co. [A.I.R. 1919 Madras, 1053.]- The Division Bench consisting
of Wallis, C.J., and Sadasiva Aiyar, J., allowed the appeal
where the trial Court awarded only nominal damages for the
breach of damages to deliver goods when the plaintiff could not
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show the actual loss. It was ruled that the fact that the buyer
sustained no actual loss when the seller failed to deliver the
goods is no ground for awarding nominal damages to the
buyer. The buyer is entitled, as indicated in the Illustration (a)
to the section, to receive from the seller by way of compensation
the sum by which the contract price falls short of the price for
which the buyer might have obtained goods of like quality at
the time when they ought to have been delivered. Even though
the learned Judges delivered separate judgments, they made it
clear that the question is clearly governed by the illustration (a)
to Section 73 when there is breach of contract due to non-
delivery. This case is followed by a Division Bench of Madhya
Bharat High Court in Vishwanath v. Amarlal [A.I.R. 1957
Madhya Bharath, 190.] holding that it is not necessary for the
plaintiff to prove that he purchased the goods from other
sources at a price exceeding the contract price and sustained a
loss. Further, the Privy Council in Erroll Mackay v. Maharaja
Dhiraj Kameshwar Singh [A.I.R. 1932 Privy Council, 196.]
indicated clearly the difference in price between the contract
price and the market price is the sole test for claiming damages.
However, a dissenting note was struck in Union of
India v. Tribhuwan Das Lalji Patel [A.I.R. 1971 Delhi, 120.] by a
single Judge with the Madras High Court and Madhya Bharath
High Court holding that the Government who sustained loss for
the non-supply of goods can succeed only by proving the actual
loss of non-supply. This view was again dissented twice by the
same High Court in All India Institute of Medical
Sciences v. American Refrigeration Co. Ltd. [A.I.R. 1982 Delhi,
275.] and Saraya Distillery v. Union of India [A.I.R. 1984 Delhi,
360.] . On this question we have got the pronouncement of the
Supreme Court in Muralidhar Chiranjilal v. Harishchandra
Dwarakadas [A.I.R. 1962 S.C., 366.] . K.N. Wanchoo, J., while
reiterating the principle of rule of market price in the case of
non-delivery held:
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“Even if the respondent did not actually buy them in the market
at Kanpur on the date of breach it would be entitled to damages
on proof of the rate for similar canvse prevalent in Kanpur on
the date of breach if that rate was above the contracted rate
resulting in loss to it.”
16. Mc Gregor on Damages, Fourteenth Edition, states at Page
424 at Paragraph 583 that the buyer is entitled to such
damages even if he does not choose to rebuy them in the
market, his loss will remain the same.
17. Thus, these judicial pronouncements make clear that on a
reading of Section 73 read with the Illustration the crucial test
is the market price on the date of breach. The damages shall be
the difference of market rate and the contract rate. Once the
breach of non-delivery is established, it is not essential for the
purchaser to prove that he actually repurchased the goods and
sustained loss. The law does not penalise the purchaser’s
inaction in not making the repurchase. The object of damage is
only to place the purchaser in the same situation with respect to
damages as if the contract has been performed.” (emphasis
supplied)
31. Mr. Sengupta while submitting that the plaintiff is entitled to
18% interest on the awarded sum on and from May, 2000 till its
actual realization argues that as per Section 34 of the Code of Civil
Procedure, 1908, the interest should not exceed 6% per annum but proviso
to Section 34 is clear that where the liability in relation to sum so adjudged
had arisen out of a commercial transaction, the rate of such interest may
exceed 6% per annum but shall not exceed the contractual rate of interest
or where there is no contractual rate, the rate at which the monies are lent
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and advanced by a nationalized bank in relation to a commercial
transaction.
Submissions on behalf of the defendant/respondent
32. Per contra, Mr. Sakya Sen, the learned Senior Counsel
appearing on behalf of the defendant submits that there was no concluded
or binding contract existing between the parties, as essential terms such as
the specification of goods, delivery schedule, and payment terms had not
been finalized as would be evident from Exhibits- A, B, C, D and E. The said
exhibit would show that there is only a provisional confirmation of the offer
and is dependent upon the finalisation of the terms and conditions offer
deposit of the earnest money. Moreover Exhibit-F would show that the
essential terms and conditions of the contract were yet to be finalised.
33. There was no agreement with regard to mode and manner of
delivery vis-à-vis whether delivery would be in one go or in batches. Exact
specifications of Shellac were not settled. Plaintiff for the first time suggested
a new condition, namely, sending of samples by the defendant so that
suggestions can be given for improving quality.
34. The learned Senior Counsel has also referred to Exhibits-I and
H to show that essentials were not finalised and that the contract between
the plaintiff /appellant and the defendant was not concluded.
35. The learned counsel has argued that the plaintiff’s reliance on
money receipt (Exhibit-G) as a final acceptance is erroneous. Plaintiff’s
claim that it assumed there was a concluded contract on the basis of use of
the word “advance” is not tenable because the said amount was admittedly
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an earnest money deposit. The term “advance” written in receipt was a mere
typographical mistake and does not conclude contract.
36. Mr. Sen submits that since there was no concluded contract,
there is no question of termination. The proposal of the plaintiff was not
materialized because chimney of defendant’s factory was damaged and there
was labour strike which affected the production from 17 th April 2000.
37. Mr. Sen further submits that the alleged export contracts
entered into by the plaintiff with foreign buyers are irrelevant and not
binding on the defendant, as they were made without a final concluded
contract between the parties. He also pointed out that the plaintiff has
himself deposed that the defendant was not the sole source of supply for
fulfilling those export obligations and being a trader engaged in continuous
business, the plaintiff covers his business requirements from various
suppliers from the market. Therefore, the plaintiff’s claim that he has
suffered damages by way of loss of profit due to failure of defendant to
supply the Shellac is untenable as the plaintiff has failed to prove exclusive
reliance on the defendant’s supply for meeting its foreign obligations. Even
assuming the existence of a binding contract, the alleged damages are
merely indirect and remote consequences, not legally attributable to the
defendant. Furthermore, it was argued that the earnest money was
deposited on 18th April 2000 and the contracts with the foreign buyers were
entered on 18th April 2000 and 19th April 2000 indicating that the plaintiff
had not depended upon the defendant’s supplies for fulfilling those
obligations.
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38. The learned counsel further submits that the plaintiff had not
informed the defendant that the purchase was intended for export purposes.
The first proforma invoice dated 18th April 2000 is before receipt of money
received by plaintiff. Thus, in the absence of a final and concluded contract
prior to 18th and 19th April 2000, the plaintiff alone is responsible for its
commitments under those proforma invoices.
39. The Learned Counsel submits that due to supervening
impossibilities, namely, a labour strike and boiler breakdown, the
performance of the contract became impossible, rendering it void under
Section 56 of the Indian Contract Act, 1872. The defendant, by letter dated
26th July 2000, expressed its inability to perform the contract and returned
the earnest money. As these events occurred after the date of the alleged
contract and were not foreseeable with reasonable diligence, the
requirements of the 3rd paragraph of Section 56 are not satisfied, and thus,
the defendant bears no liability to pay compensation.
40. To buttress his submissions, Mr. Sen places reliance on
Satyabrata Ghose v. Mugneeram Bangur & Co6 (Para-9, 10 & 15) for the
proposition that supervening impossibility discharges the contract and
Markapur Municipality vs. Dodda Raraireddy7 (Para 4) to argue that in
case of the sale of future goods and frustration of contract, no damage can
be awarded if contract is not concluded.
41. He further submits that the plaintiff’s claim is erroneous
because plaintiff’s claim is on account of loss of profits which does not arise
naturally in the course of things in view of Sec.73 of Indian Contract Act,
6
AIR 1954 SC 44
7
AIR 1972 AP 299
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1872. The plaintiff has not suffered any actual loss. The plaintiff has not
proved that he delivered the goods to purchaser at the price prevailing on 6th
September 2000 or that he has been monetarily penalised by purchaser as
consequence of cancellation under Section 73. To strengthen his submission
Mr. Sen has placed reliance on Karsandas H. Thacker v. M/s The Saran
Engineering Co. Ltd.8 (Paragraphs 13 & 14) for the proposition that loss of
profit does not arise naturally in course of things.
42. Mr. Sen submits that the three situations as contemplated
under Section 73 has not been established by the plaintiff as they have not
shown any fax message wherein the foreign contract was cancelled and
deposed that defendant was one of the various suppliers.
43. The Learned Counsel has placed reliance on the case of
Murlidhar Chiranjilal vs. Harishchandra Dwarkadas and Anr.9
wherein the Hon’ble Supreme Court has stated that the quantum of
damages for a breach of contract has to be determined under Section 73 of
the Contract Act, 1872. It has also stated the following two principles upon
which the damages in such cases are calculated:
“9. The two principles on which damages in such cases are
calculated are well-settled. The first is that, as far as possible, he
who has proved a breach of a bargain to supply what he contracted
to get is to be placed, as far as money can do it, in as good a
situation as if the contract had been performed; but this principle is
qualified by a second, which imposes on a plaintiff the duty of
taking all reasonable steps to mitigate the loss consequent on the
breach, and debars him from claiming any part of the damage
which is due to his neglect to take such steps : (British8
AIR 1965 SC 1981
9
1961 SCC OnLine SC 100: AIR 1962 SC 366
– 17 –
Westinghouse Electric and Manufacturing Company
Limited v. Underground Electric Railways Company of
London [(1912) AC 673, 689] ). These two principles also follow from
the law as laid down in Section 73 read with the Explanation
thereof. If therefore the contract was to be performed at Kanpur it
was the respondent’s duty to buy the goods in Kanpur and rail them
to Calcutta on the date of the breach and if it suffered any damage
thereby because of the rise in price on the date of the breach as
compared to the contract price, it would be entitled to be re-imbursed
for the loss. Even if the respondent did not actually buy them in the
market at Kanpur on the date of breach it would be entitled to
damages on proof of the rate for similar canvas prevalent in Kanpur
on the date of breach, if that rate was above the contracted rate
resulting in loss to it. But the respondent did not make any attempt
to prove the rate for similar canvas prevalent in Kanpur on the date
of breach. Therefore it would obviously be not entitled to any
damages at all, for on this state of the evidence it could not be said
that any damage naturally arose in the usual course of things.
13. We may in this connection refer to the following observations
in Chao v. British Traders and Shippers Ltd. [(1954) 1 All ER 779,
797] which are apposite to the facts of the present case:
“It is true that the defendants knew that the plaintiffs were
merchants and, therefore, had bought for resale, but every one who
sells to a merchant knows that he has bought for resale, and it does
not, as I understand it, make any difference to the ordinary
measure of damages where there is a market. What is contemplated
is that the merchant buys for resale, but, if the goods are not
delivered to him, he will go out into the market and buy similar
goods and honour his contract in that way. If the market has fallen
he has not suffered any damage, if the market has risen the
measure of damages is the difference in the market price.”
In these circumstances this is not a case where it can be said that
the parties when they made the contract knew that the likely result
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of breach would be that the buyer would not be able to make profit
in Calcutta. This is a simple case of purchase of goods for resale
anywhere and therefore the measure of damages has to be
calculated as they would naturally arise in the usual course of
things from such breach. That means that the respondent had to
prove the market rate at Kanpur on the date of breach for similar
goods and that would fix the amount of damages, in case that rate
had gone about the contract rate on the date of breach. We are
therefore of opinion that this is not a case of the special type to
which the words “which the parties knew, when they made the
contract, to be likely to result from the breach of it” appearing in
Section 73 of the Contract Act apply. This is an ordinary case of
contract between traders which is covered by the words “which
naturally arose in the usual course of things from such breach”
appearing in Section 73. As the respondent had failed to prove the
rate for similar canvas in Kanpur on the date of breach it is not
entitled to any damages in the circumstances. The appeal is
therefore allowed, the decree of the High Court set aside and of the
trial court restored with costs to the appellant throughout.”
(emphasis supplied)
44. Mr. Sen has placed reliance on the case of Karsandas H.
Thacker (supra) in which, the Hon’ble Supreme Court while dealing with
the quantum of damages stated that the appellant claimed damages at an
amount equal to the difference between the price paid by the Export
Corporation and the price he would have paid to the respondent for 200
tons of scrap iron. It was held that the appellant is not entitled to calculate
damages on such basis, unless he had entered into contract with the
respondent after informing the latter that he was purchasing the scarp for
export. There is nothing on record to show that the respondent was told
– 19 –
before the contract was entered into that the appellant was purchasing
scrap for export. The first indirect indication of scrap required for being
exported was made late in October 1952 which the respondent could have
possibly inferred. Such information was belated. Its liability to damages for
breach of contract on the basis of market price of scrap for export would not
depend on its belated knowledge but would depend on its knowledge of the
fact at the time it entered into the contract. Therefore, it upheld the High
Court’s view that the defendant/respondent did not know that the appellant
was purchasing the scrap iron for export. Reference is also made to
Illustration (k) to Section 73 of Contract Act. The relevant paragraphs of the
said judgment are reproduced below:
“14. We are therefore of opinion that the High Court was right in
coming to the conclusion that the defendant respondent did not
know that the appellant was purchasing scrap iron for export. The
appellant, on the breach of contract by the respondent, was
entitled, under S. 73 of the Contract Act, to receive compensation
for any loss by the damage caused to him which naturally arose
in the usual course of business from such breach or which the
parties knew when they made the contract to be likely to result
from the breach of it. Under S. 73 of the Contract Act, such
compensation is not to be given for any remote and indirect loss or
damage sustained by reason of the breach. Now, the loss which
could have naturally arisen in the usual course of things from the
breach of contract by the respondent in the present case would be
nil, The appellant agreed to purchase scrap iron from the
respondent at Rs. 100 per ton. It may be presumed that he was
paying Rs. 70, the controlled price, and Rs. 30, the balance, for
other incidental charges. On account of the non-delivery of scrap
iron, he could have purchased the scrap iron from the market at
the same controlled price and similar incidental charges. This
– 20 –
means that he did not stand to pay a higher price than what he
was to pay to the respondent and there fore he could not have
suffered any loss on account of the breach of contract by the
respondent. The actual loss, which, according to the appellant, he
suffered on account of the breach of contract by the respondent
was the result of his contracting to sell 200 tons of scrap iron for
export to the Export Corporation. It may be assumed that, as
stated, the market price of scrap iron for export on January 30,
1953, was the price paid by the Export Corporation for the
purchase of scrap iron that day. As the parties did not know and
could not have known when the contrtet was made in July 1952
that the scrap iron would be ultimately sold by the appellant to
the Export Corporation, the parties could not have known of the
likelihood of the loss actually suffered by the appellant, according
to him, on account of the failure of the respondent to fulfil the
contract.
15. Illustration (k) to S. 73 of the Contract Act is apt for the
purpose of this case. According to that illustration, the person
committing breach of contract has to pay to the other party the
difference between the contract price of the articles agreed to be
sold and the sum paid by the other party for purchasing another
article on account of the default of the first party, but the first
party has not to pay the compensation which the second party
had to pay to third parties as he had not been told at the time of
the contract that the second party was making the purchase of the
article for delivery to such third parties.” (emphasis supplied)
45. The Learned Counsel cites the case of M. Lachita Settu and
Sons Ltd. Vs. Coffee Board Bangalore and Giri Coffee Works vs. Coffee
Board, Bangalore10 where the Hon’ble Supreme Court has held that the
10
(1980) 4 SCC 636
– 21 –
principle of mitigation of loss does not give any right to the party who is in
breach of the contract but it is a concept that has to be borne in mind by
the court while awarding damages. The non-defaulting party is not expected
to take steps which would injure innocent persons and as such the steps
taken by him in performance or discharge of his statutory duty also cannot
be weighed against him. In substance, the question in each case would be
one of the reasonableness of action taken by the non-defaulting party. The
relevant paragraphs are reproduced below:
“14. At the outset it must be observed that the principle of
mitigation of loss does not give any right to the party who is in
breach of the contract but it is a concept that has to be borne in
mind by the court while awarding damages. The correct
statement of law in this behalf is to be found
in HALSBURY’S LAWS OF ENGLAND (4th Edn.) Vol. 12, para 1193 at
page 477 which runs thus:
“1193. Plaintiff’s duty to mitigate loss.–The plaintiff must take
all reasonable steps to mitigate the loss which he has
sustained consequent upon the defendant’s wrong, and, if he
fails to do so, he cannot claim damages for any such loss which
he ought reasonably to have avoided.”
Again, in para 1194 at p. 478 the following statement occurs
under the heading Standard of conduct required of the plaintiff:
“The plaintiff is only required to act reasonably, and whether he
has done so is a question of fact in the circumstances of each
particular case, and not a question of law. He must act not only
in his own interests but also in the interests of the defendant
and keep down the damages, so far as it is reasonable and
proper, by acting reasonably in the matter… In cases of breach
of contract the plaintiff is under no obligation to do anything
other than in the ordinary course of business, and where he
– 22 –
has been placed in a position of embarrassment the measures
which he may be driven to adopt in order to extricate himself
ought not to be weighed in nice scales at the instance of the
defendant whose breach of contract has occasioned the
difficulty….”
The plaintiff is under no obligation to destroy his own property,
or to injure himself or his commercial reputation, to reduce the
damages payable by the defendant. Furthermore, the plaintiff
need not take steps which would injure innocent persons.
In Banco De Portugal v. Waterlow & Sons Ltd. [1932 All ER Rep
181 : 1932 AC 452] , Lord Shankey, L.C., quoted with approval
the statement of law enunciated in James Finlay & Co. v. N.V.
Kwik Hoo Tong, Handel Maatchappij [(1929) 1 KB 400] , to the
effect: “In England the law is that a person is not obliged to
minimise damages on behalf of another who has broken a
contract if by doing so he would have injured his commercial
reputation by getting a bad name in the trade”. In AMERICAN
JURISPRUDENCE, 2d, Vol. 22, para 33 at pp. 55-56 contains the
following statement of law:
“33. The general doctrine of avoidable consequences applies to
the measure of damages in actions for breach of contract. Thus,
the damages awarded to the non-defaulting party to a contract
will be determined and measured as though that party had
made reasonable efforts to avoid the losses resulting from the
default. Some courts have stated this doctrine in terms of a
duty owing by the innocent party to the one in default; that is,
that the person who is seeking damages for breach of contract
has a duty to minimise those damages. However, on analysis,
it is clear that in contract cases as well as generally, there is no
duty to minimise damages, because no one has a right of action
against the non-defaulting party if he does not reasonably
avoid certain consequences arising from the default. Such a
failure does not make the non-defaulting party liable to suit; it
– 23 –
only indicates that the damages actually suffered are greater
than the law will compensate. Therefore, in contract actions, the
doctrine of avoidable consequences is only a statement about
how damages will be measured,”
From the above statement of law it will appear clear that the
non-defaulting party is not expected to take steps which would
injure innocent persons. If so, then steps taken by him in
performance or discharge of his statutory duty also cannot be
weighed against him. In substance the question in each case
would be one of the reasonableness of action taken by the non-
defaulting party.” (emphasis supplied)
46. Further our attention is drawn to the case of Pannalal
Jugatmal v. State of Madhya Pradesh11, which also states that the one
who has suffered loss from breach of contract must take reasonable steps
that is available to him to mitigate the extent of damages caused by breach.
The relevant paragraphs of the judgment are set out hereunder:
“21. Now, the rule is that damages are compensatory and not penal
and that one who has suffered loss from breach of contract must
take every reasonable step that is available to him to mitigate the
extent of damages caused by the breach. He cannot claim to be
compensated by the party in default for loss which is really due not
to the breach but to his own failure to behave reasonably after the
breach. This rule is incorporated in the explanation to Section 73 of
the Contract Act. It runs thus:
“In estimating the loss or damage arising from the breach of a
contract the means which exist of remedying the inconvenience
caused by the non-performance of the contract must be taken into
account.”
11
1953 SCC OnLine MP 1: AIR 1963 MP 242
– 24 –
22. In Frost v. Knight, (1872) 7 Ex. 111 (115), Cock-bum, C.J.,
observed:
“In assessing the damages for breach of performance, a jury will of
course take into account whatever the plaintiff has done, or has had
the means of doing, and as a prudent man, ought in reason to have
done, whereby his loss has been, or would have been, diminished.”
23. This rule was exemplified in Brace v. Calder, 1895-2 QB 253.
Again Lord Haldane said in British Westing House Electric and
Manufacturing Co. Ltd. v. Under Ground Electric Rly.1912 AC 673
(689):
“The fundamental basis is thus compensation for pecuniary loss,
naturally flowing from the Breach; but this first principle is qualified
by a second, which imposes on a plaintiff the duty of taking all
reasonable steps to mitigate the loss consequent on the breach and
debars him from claiming any part of the damage which is due to
his neglect to take such steps.”
24. The explanation to Section 73 of the Contract Act casts a burden
upon the person complaining of breach of the contract to show that
he did not possess means of remedying the inconvenience caused
by the non-performance of the contract. See also Jamal v. Moola
Dawood Sons and Co., AIR 1915 PC 48; Foley Brothers v. James A.
Mcilwee, AIR 1917 PC 255, and Karim Bux v. Debi, AIR 1933 All
511. The law, for wise reasons, imposes upon a party subjected to
injury from a breach of a contract the active duty of making
reasonable exertions to render the injury as light as possible.
25. In this case, the Government could have and, in all events,
should have, reauctioned the contracts since Pannalal intimated to
the Deputy Commissioner on December 15, 1951, of his having
rescinded the contract. It must be recalled that the Deputy
Commissioner had asked the contractor to appear before him on the
17th December to execute an agreement. He having received the
– 25 –
intimation of rescinding of the contract on the 15th December, the
date of the breach can be safely fixed as the 17th December, 1951.
If on that date, or soon thereafter, the Government could do
something to mitigate the damage, the defaulting contractor is
entitled to the benefit of it.” (emphasis supplied)
47. The Learned Counsel lastly places reliance on the case of
Mackay vs. Maharajadhiraj Kameshwar Singh 12 wherein the Privy
Council has held that if there is an available market for the goods at the
date of breach the damages must be based on the difference between that
market price and the contract price. A contract of resale becomes
immaterial, because if there was a market, the law presumes that the buyer
can minimise his damages by procuring substituted goods in the market, so
that he is thus in the same position, apart from the price difference, as if the
seller had not made default. Hence, the difference in price, if the market
price exceeds the contract price, is the sole damage that is generally
recoverable.
Our Observations
48. Although six issues were framed in the trial of the suit, it has
been fairly conceded by the learned Senior Counsel for the defendant that
the appeal is required to be heard on the claim on account of damages if the
plaintiff at all succeeds in establishing that the contract is not frustrated.
Even without the concession of the learned Counsel for the defendant it is
well evident from the documentary evidence as well as oral evidence that a
concluded contract was entered into by and between the parties. The revised
12
1932 SCC OnLine PC 34: ILR (1932) 11 Pat 600
– 26 –
offer of the plaintiff dated 13th April 2000 was accepted on 15th April 2000
and the plaintiff was asked to deposit 10% of the earnest money as a
condition precedent for the acceptance of the offer. In terms of the said
communication, the plaintiff had deposited 10% of the contract value by way
of earnest money on 17th April, 2000. The earnest money in the form of
demand draft has been acknowledged by the defendant on 18 th April 2000.
Therefore, the acceptance of the earnest money is not in dispute. Moreover,
the subsequent communication refers to the contract.
49. Section 8 of the Contract Act provides for the acceptance of the
proposal by conduct as against other modes of acceptance. It can be divided
in two parts: (1) performance of the conditions of a proposal; and (2)
acceptance of any consideration for a reciprocal promise which may be
offered with a proposal. The latter corresponds to general division of
proposals into those which offer a promise in exchange for an act or acts
and those which offer a promise for exchange for a promise. The promise on
the part of the appellant was acted upon by the respondents (see Bharat
Sanchar Nigam Limited & Anr. Vs. BPL Mobile Cellular Ltd & Ors.).13
50. A definite price is an essential element of a binding agreement.
A definite price although need not be stated in the contract but assertion
thereof either expressly or impliedly is imperative and it must be worked out
on some premise as was laid down in the contract. A contract cannot be
uncertain. It must not be vague. As per the provisions of Section 29 of the
Contract Act, 1872 a contract must be construed so as to lead to a
13
(2008) 13 SCC 597
– 27 –
conclusion that the parties understood the meaning thereof (see DDA v.
Joint Action Committee, Allottee of SFS Flats).14
51. The formation and conclusion of the contract would show that
the parties were ad idem with regard to the price and both the parties have
understood the meaning of the contract as would be evident from the
exchange of correspondence. The parties have understood that it is the
contract for sale of the item mentioned therein.
52. The argument of Mr. Sen is that the 10 per cent of the contract
value paid was only in form of an earnest money and subject to further
negotiation are not acceptable. The earnest money is part of the purchase
price when the transaction goes forward and it is forfeited when the
transaction falls through, by reason of the fault or failure of the purchaser.
(see Chiranjit Singh v. Har Swarup15)
53. “Earnest money is paid or given at the time when the contract is
entered into and, as a pledge for its due performance by the depositor to be
forfeited in case of non-performance by the depositor. There can be converse
situation also that if the seller fails to perform the contract the purchaser can
also get double the amount, if it is so stipulated”. It is also the law that part-
payment of purchase price cannot be forfeited unless it is a guarantee for
the due performance of the contract. In other words, if the payment is made
only towards part-payment of consideration and not intended as earnest
money then the forfeiture clause will not apply.” (Emphasis supplied) (see
Satish Batra v. Sdudhir Rawal)16.
14
(2008) 2 SCC 672
15
(1926) 23 LW 172 : AIR 1926 PC 1).
16
(2013) 1 SCC 345 : 2012 SCC Online SC 1244
– 28 –
54. The difference between earnest and advance money was recently
considered by the Hon’ble Supreme Court in K. R. Suresh V. R. Poornima
& Ors.17 in which this finer distinction has been explained.
55. The letter of termination of the contract would show that the
defendant had acknowledged a concluded contract and terminated it “under
force majeure situation”. Price is the most essential term in a contract.
Initially, there was some disagreement on the price, however, subsequently
the revised offer has been accepted by the respondent. The parties have
agreed on the price. The delivery schedule also was accepted but
subsequently, the contract was rescinded due to “force majeure situation.”
56. The jurisdiction of the Civil Court to try and decide the suit has
not been disputed at all in the appeal as the respondent has realised that,
there is no merit in the said challenge and we also agreed with the learned
Single Judge that the suit is not barred under Section 57 of the Jharkhand
Co-operative Societies Act, 1935. The said Act has no manner of application
in so far as the present dispute is concerned.
57. Therefore, the first two issues as decided by the Learned Single
Judge does not require any intervention and are affirmed.
58. In order to show that the contract is frustrated the defendant
has relied upon the following six documents:
a) A copy of letter dated 26th July 2000 issued by the defendant to
M/s. Parwati Lac Udyog Kunti, another buyer. (Exhibit-1
(collectively)
17
(2025) SCC Online SC 1014
– 29 –
b) A copy of letter dated 26th July 2000 issued by the defendant to
M/s. Tolaram Overseas Corporation, another buyer. (Exhibit-1
(collectively)
c) Tender notice dated 17th February 2002 inviting tender
applications in respect of repairing chimney and other machines
published in “PRABHAT KHABAR”. (Exhibit-2)
d) A Hindi document dated 17th April, 2000 in photocopy
alongwith an official translation (Marked for identification ‘X’)
e) The executed portion of Hindi words and a date and signature of
Hindi photocopy of the document marked as Exhibit ‘X’ were
marked as Exhibit-3A and 3 respectively.
f) Letter dated 20th March 2002 regarding inauguration of
Alluretic Acid Plant and starting of production in the presence of
the Chief Minister marked as DD-6 which has not been exhibited.
59. While addressing the issue no. 3, the Learned Single Judge has
placed reliance on the case of Satyabrata Ghose (supra). However, what
seems to have been overlooked is the principle stated in the following
paragraph:
“17. It must be pointed out here that if the parties do con-
template the possibility of an intervening circumstance
which might affect the performance of the contract, but
expressly stipulate that the contract would stand despite
such circumstances, there can be no case of frustration
because the basis of the contract being to demand
performance despite the happening of a particular event, it
cannot disappear when that event happens. As Lord
Atkinson said in Matthey v. Curling [Matthey v. Curling,
(1922) 2 AC 180 (HL)] : (AC p. 234)
– 30 –
“… a person who expressly contracts absolutely to do a
thing not naturally impossible is not excused for non-
performance because of being prevented by the act of God
or the King’s enemies … or vis major.”
This being the legal position, a contention in the extreme
form that the doctrine of frustration as recognised in
English law does not come at all within the purview of
Section 56 of the Contract Act cannot be accepted.”
60. Under the Indian Contract Law, the consequences of a Force
Majeure event are stated in Section 56 of the Indian Contract Act which
states that on the occurrence of an event which renders the performance
impossible, the contract becomes void thereafter. In contrast to the English
Law where frustration of contract is decided on the true intention of the
parties on construction of the contract the statutory provision in Section 56
lays down a positive law and is exhaustive on the subject.
61. In the Indian context, it has been settled by a long catena of
decisions that when the parties have not provided for what would happen
when an event which renders the performance of the contract impossible,
Section 56 of the Contract Act comes into play as it excuses parties from
further performance due to impossibility and renders a contract void. The
expression ‘Force Majeure’ is not a mere French version of the Latin
expression ‘vis major’. It is undoubtedly a term of wider import. Difficulties
have arisen in the past as to what could be legitimately being included in
Force Majeure. Judges have agreed that strikes, breakdown of machinery,
which though normally not included in ‘vis major’ are included in Force
Majeure. An analysis of rulings on the subjects shows that where references
– 31 –
are made in Force Majeure, the intention is to save the performing party
from any consequences over which he has no control. This is the widest
meaning which can be given to Force Majeure. (see Dharanjmal
Govindram v. Shanchi Kalidas & Co.18 considered in Nabha Power
Limited v. Punjab SPCL19).
62. In Northern Indiana Public Service Co. v. Carbon County
Coal Co.20, the Court of Appeals for the 7th Circuit in addressing the issue
of impossibility said that “the proper question in impossibility cases is
whether the promisor’s non-performance would be excused because the
parties, if they had thought about the matter, would have warned to assign
the risk of the contingency that made performance impossible or
uneconomical to the promisor or to the promisee: if to the latter, the
promisor is excused.” Impossibility is thus, a doctrine for shifting risk to the
better able to bear it either because he is in a better position to prevent the
risk from materializing or because he can better reduce the dis-utility of the
risk.
63. The contracts are discharged by frustration in accordance with
the general law of contract where a change of circumstance subsequent to
the formation of the contract results in such a fundamental and radical
difference between the circumstances as envisaged by the contract and the
reality that the interests of justice demand that the parties are released from
18
AIR 1961 SC 1285
19
2018 (11) SCC508
20 th
799 F. 2d 265 (7 Cir. 1986)
– 32 –
heir bargain.(see Davis Contractors Ltd v Fareham UDC 21; National
Carriers Ltd v. Panalpina (Northern) Ltd 22;
64. In National Carriers (supra) Lord Simon has aptly summarised
the principle:-
“Frustration of a contract takes place when there supervenes an event
(without fault of either party and for which the contract makes no
sufficient provision) which so significantly changes the nature (not
merely the expense of onerousness) of the outstanding rights and/or
obligations from what the parties could reasonably have contemplated
at the time of its execution that it would be unjust to hold them to the
literal sense of its stipulations in the new circumstances; in such case
the law declares both parties to be discharged from further
performance.” (Ibid., at p 700. F-G)
65. There is, however, no general doctrine of commercial
impossibility whereby a party can invoke frustration simply because it has
become unexpectedly costly to perform, even to the point where what would
have been a profitable contract has been rendered a losing contract.
(Tenants (Lancashire) Ltd v. CS Wilson & Co Ltd 23).
66. In the present case, the defendant could have easily
contemplated that the possibility of the contract not been able to be fulfilled
as the defendant had the knowledge as the defendant claimed now that the
chimney of the boiler had been damaged and there were many holes in the
chimney and same could endanger the life of the workers before they
21
[1956] A.C. 696 at 728-9
22
[1981] A.C 675 esp. At 700-1, 717
23
[1917] A.C. 495 at 510
– 33 –
acknowledged the receipt of the 10 per cent of the contract amount as the
earnest money which is evident from Exhibits-3A and H, respectively.
Therefore, the contract cannot be avoided on the basis of “force majeure
situation” as there was a possibility of the performance of the contract and
its performance was not impossible to make it a void contract. If the
defendant had entered into the contract conscious of the condition of the
boiler and chimney, they were quite confident that they would be in a
position to execute the contract. Moreover, the poor condition of the
chimney is not the ground on which the contract was cancelled. The
defendant has prevaricated in their defence. They have been avoiding the
truth.
67. The learned single judge has also cited the case of Naihati Jute
Mills Ltd. V. Khyaliram Jagannath24 which stated as envisaged by
section 56, impossibility of a contract would be inferred by the courts from
the nature of the contract and the surrounding circumstances in which it
was made that the parties must have made their bargain upon the basis
that a particular thing or state of things would continue to exist and
because of the altered circumstances the bargain should no longer be held
binding. It was also stated that –
“…..But the common law rule of contract is that a man is
bound to perform the obligation which he has undertaken
and cannot claim to be excused by the mere fact that
performance has subsequently become impossible. ….”
(emphasis supplied)
24
(AIR 1968 SC 522)
– 34 –
68. The principal defence to the claim of the plaintiff is frustration
of contract. The plea of impossibility of performance is based on shut down
of the chimney of the defendant on 17th April, 2000 which makes it
impossible for the defendant to manufacture and supply the specified
quality and quantity of shellac to the plaintiff. In this regard the defendant
has placed reliance on a communication dated 17th April, 2000 (Exhibit-
3A).
69. However, the said letter being Exhibit-3A appears to be an
internal communication from the Boiler-in-Charge to the Managing Director
of the respondent as would appear from the said letter itself disclosed to
show that the chimney of the boiler has been damaged and there are many
holes in the chimney and the condition of the said boiler is such that it may
fall any time and it can cause serious life threat to the worker. It was never
communicated to the plaintiff. The basis of the claim however appears to be
a communication dated 26th July, 2000 (Exhibit-K). For better appreciation
the said letter is reproduced below:
“Dear sir,
Referring the above it is to remind you that the sale acceptance
decided by our Business Sub Committee in your favour for the
delivery on your demand of 24.00M.T. of T.N. shellac by BISCOLAMF
and your subsequent deposit of 10% of earnest money in the
Federation exhibited our mutual sincerity to accomplish the deal.
However, further it is to intimate you that unfortunately since then
production work of shellac has been stopped due to acute labour
– 35 –
problem & strike. You must be aware of this fact as it was a burning
topic in the daily newspaper.
Therefore, as per the decision taken by the authorised committee,
under this force major situation your deposited 10% of Earnest
money in BISCOLAMF, regretfully, is being returned to you vide
D.D.NO.287457 for Rs. 273600 Kindly acknowledge the receipt.
Besides under the prevailing situation and with lapse of delivery
schedule our sale of shellac is not possible.”
70. Expressing inability to supply, the Managing Director in the
said communication to the plaintiff has stated that subsequent to the said
acceptance of supply, production work of shellac has been stopped due to
acute labour problem and strike and it has received wide publicity in the
daily newspaper. The defendant offered to return the earnest money and
forwarded a demand draft for Rs. 2,73,600/- to the plaintiff towards refund
of the 10% earnest money.
71. The labour problem and strike subsequent to the contract was
claimed to be force majeure situation for avoidance of the said contract.
However, no evidence was adduced on behalf of the defendant to show that
by reason of any strike or labour problem the defendant is unable to
perform the contract. The doctrine of frustration or impossibility of
performance has to be a supervening impossibility which makes it
impossible for one of the contracting parties to perform the contract. There
is no evidence on record to show that the chimney was broken beyond repair
or that there has been acute labour problem or strike for which the
defendant is unable to perform the contract. There has to be a specific
– 36 –
pleading and proof to sustain a claim of impossibility of performance. The
onus of frustration of contract is on the defendant and the defendant has
failed to discharge the said onus thereof.
72. In the instant case, the contract was made keeping in mind the
conditions of the chimney in the boiler, and therefore, at a later stage, the
contract cannot be left unfulfilled for the reason that was already allegedly
known to it. At the time of terminating the contract, the truth about the
boiler conditions had been concealed by the defendants, and the same was
disclosed at a later stage in the written statement of the defendants. The
contemporaneous evidence suggests that due to rise in price of shellac and
labour trouble the contract could not be performed.
73. Lastly, reliance was placed on the case of Dhanrajamal
Gobindram v. Shamji Kalidas & Co.,25 by the learned single judge
wherein it was stated that breakdown of machineries is included in “force
majeure”.
74. Force Majeure is a principle of law which is applied as a defence
to performance and discharge of contractual duties and obligations, and
entitles a party to refuse liability for damages caused arising out of such
non-performance by reason of an unforeseeable or unpreventable event
which has rendered the performance of an obligation impossible.
75. The learned Single Judge has relied upon the evidence which is
unreliable and unsubstantiated. There is no evidence establishing that the
contract is frustrated or it was impossible for the defendant to manufacture
the said shellac. The doctrine of frustration or impossibility of performance
has been lucidly explained in South East Asia Marine Engineering and
25
(AIR 1961 SC 1285)
– 37 –
Constructions Limited vs. Oil India Limited,26 where it has been held by
the Hon’ble Supreme Court that under the Indian Contract Law, the
consequences of a force majeure event are provided for under Section 56 of
the Contract Act, which states that on the occurrence of an event which
renders the performance of the contract impossible, the contract becomes
void thereafter. When the act contracted for becomes impossible, then under
Section 56, the parties are exempted from further performance, and the
contract becomes void. However, there is no doubt that the parties may
instead choose the consequences that would flow on the happening of an
uncertain future event, under Section 32 of the Contract Act. In India, the
Contract Act had already recognised the harsh consequences of frustration
of contract to some extent and had provided for a limited mechanism to
ameliorate the same under Section 65 of the Contract Act.
76. A letter dated 26th July 2000 addressed to another buyer by the
defendant was also disclosed where the non-performance of the contract
was on similar ground. The tenor of the said letter is the same.
77. A further letter addressed to another buyer of the same date
with the same tenor and reason for non-supply has also been disclosed. The
newspaper report showing labour problem and strike has been relied upon
during evidence. An invitation to tender dated 17th February 2002 has been
relied upon to show that tenders are invited for repairing of different
machines and chimney of JASCOLAMPF factory situated at Sidroll followed
by inauguration of Alluretic Acid Plant and resuming production at the
factory in the presence of the Chief Minister has been disclosed. The said
documents have been marked as Exhibit 2 and DD-6 respectively. However,
26
(2020) 5 SCC 164
– 38 –
the letter dated 17th April 2000 written in Hindi and claimed to have been
written by the employees and workers of the factory was not proved and
marked for identification as Exhibit-3A and the signature of Buchuwa
Oraon was separately marked as Exhibit-3 on 15th July 2014 during his
evidence.
78. Buchuwa Oraon one of the witnesses for the defendant during
cross-examination has deposed that between April 2000 and the time for
which boilers were ready sometime in 2002 the chimney and the side patti
borders were prepared. He has deposed that the boilers stopped working
from 17th April 2000 and then the work stopped. According to the witness,
the last date of manufacturing the goods for supply was 17th April 2000 and
thereafter no goods were produced. If the said witness is to be believed, then
at the time when the contract was entered into the boiler was not working.
Then the defendant could not have entered into the said contract for supply
of 24 MT TN Shellac. When the plaintiff reminded the defendant by fax dated
16th May 2000 that the plaintiff would require the said quantity for export
on or before 20th May, 2000, the defendant in its communication dated 26th
July, 2000 has expressed its inability to perform the contract due to acute
labour problem and strike.
79. However, the plaintiff has disclosed the document dated 23 rd
June, 2000 and 26th July, 2000 wherefrom it would appear that due to
unbelievable rise in market price of shellac and labour problem and strike
the contract could not be performed. However, the fax dated 23rd June, 2000
is an internal document that refers to unbelievable price rise which has not
been exhibited. The only ground for rescinding the contract is labour
– 39 –
problem and strike as would appear for the letter of the defendant dated 26 th
July, 2000 (Exhibit-K).
80. Rabindra Kumar, the other witness for the defendant however in
his cross-examination agreed to the fact that the defendant after having
failed to deliver the said shellac came up with the flimsy excuse of labour
problem and strike.
81. It is well settled that rise or fall of a price of a commodity
forming the subject matter of a contract would not be a ground to avoid
performance of the contract. In the decision in Energy Watchdog v.
CERC27, it is stated that as the force majeure occurs dehors the contract, it
is dealt with by a rule of positive law under section 56 of the Contract Act.
The word “impossible” does not mean physical or literal impossibility. It may
not be literally impossible but may be impracticable and useless from the
point of view of the object and the purpose of the parties. If an untoward
event or change of circumstance totally upsets the very foundation upon
which the parties entered their agreement, it can be said that the promissor
finds it impossible to do the act which he had promised to do. In the context
of a defence of frustration of the ground of rise in freight charges and price
escalation in coal it was held that mere incidence of expense or delay or
onerous is not sufficient and there has to be as it were a break in identity
between the contract as provided for and contemplated and its performance
in the new circumstances. The court applying the “radically different” test
has observed that since the subject matter of the doctrine of frustration is
contract and contracts are about the allocation of risk and since the
allocation and assumption of risk is not simply a matter of express or
27
2017 (14) SCC 80
– 40 –
implied provision but may also depend on less easily defined matters such
as “the contemplation of the parties”, the application of the doctrine could be
a difficult one. The possibility of rise in the prices of fuel was a risk
known to the parties.
82. The application of the concept of “radically difficult” test in
frustration of the contract has been explained by Lord Radcliffe in Davis
Contractors Ltd. (supra) in the following words: (AC pp.728-29)
“… frustration occurs whenever the law recognises that without default
of either party a contractual obligation has become incapable of being
performed because the circumstances in which performance is called
for would render it a thing radically different from that which was
undertaken by the contract. …
There must be as well such a change in the significance of the
obligation that the thing undertaken would, if performed, be a different
thing from that contracted for.”
83. The High Court at Calcutta in Ram Kumar v. P.C Roy & Co.
(India) Ltd.28 in the context of knowledge of the parties with regard to the
restriction imposed by the government on the supply of wagons held that
“22. Frustration depends on what has actually happened and its effect
on the possibility of performing the contract. Where one party claims
that there has been frustration and the other party contests it, the
Court has got to decide the issue “ex post facto” on the actual
circumstances of the case.
‘The data for decision are, on the one hand, the terms and construction
of the contract, read in the light of the then existing circumstances, and
on the other hand the events which have occurred. It is the court which
has to decide what is the true position between the parties.’
28
1949 SCC OnLine Cal 48 : AIR 1952 Cal 335
– 41 –
23. Denny, Mott case [Denny, Mott & Dickson Ltd. v. James B. Fraser
& Co. Ltd., 1944 AC 265 (HL)] . Lord Sumner observed in Hirji Mulji
[Hirji Mulji v. Cheong Yue Steamship Co. Ltd., 1926 AC 497 (PC)] that
the legal effect of the frustration of the contract does not depend on the
intention of the parties or their opinions or even knowledge as to the
events which brought about the frustration but upon its occurrence in
such circumstances as to show it to be inconsistent with the further
prosecution of the adventure. In my view, this principle is applicable in
this case.”
84. In a fairly recent decision in National Agricultural
Cooperative Marketing Federation of India v. Alimenta S.A.29 on a
review of decisions on frustration of contract the Hon’ble Supreme Court has
observed that frustration of a contract takes place when there supervenes
an event (without default of either party and for which the contract makes
no sufficient provision) which so significantly changes the nature (not
merely the expense or onerousness) of the outstanding contractual rights
and/or the obligations from what the parties could reasonably have
contemplated at the time of its execution that it would be unjust to hold
them to the literal sense of its stipulations in the new circumstances; in
such a case the law declares the parties to be discharged from further
performance. The provisions of Section 56 of Contract Act could not apply to
self-induced frustrations.
85. In the aforesaid case, in Clause 14 of the Agreement, it was
contemplated that during the contract if there is any prohibition of the
export or any other executive or legislative act by or on behalf of the
Government of the country of origin, the unfulfilled part of the contract shall
be cancelled. The parties had agreed to the said term.
29
(2020) 19 SCC 260
– 42 –
86. In view thereof, the finding with regard to the issue no.3 framed
by the Trial Court relating to breach of contract is set aside. We are of the
view that the contract is not frustrated and that there has been a breach of
contract by the defendant.
87. The plaintiff claimed damages of Rs. 14,23,920, calculated as
the difference between the contract price and the market price on the date of
breach. Section 73 of the Contract Act and Section 57 of the Sale of Goods
Act provide for such compensation. In Hadley v. Baxendale30, it was held
that damages are recoverable only if they were within the contemplation of
both parties at the time the contract was entered into.
88. The claim for damages has to be proved by the plaintiff. The
pleadings as well as the evidence would unmistakeably show that the
contract was entered into for foreign export and in this regard two invoices
dated 12th May, 2000 and 30th May, 2000 disclosed in the application for
additional evidence having proforma invoice dated 19th April, 2000 and 25th
April, 2000 (Exhibit-P Collectively) respectively been relied upon by the
plaintiff. Although the said invoices are subsequent to the contract but they
are very close to the date when the contract was concluded. Moreover, in the
communication dated 17th April, 2000 there was specific reference of foreign
supply to be affected for which the plaintiff has requested to supply samples
to ensure that it matches the quality of the exporter’s requirement. In view
thereof, we are not inclined to accept the submission of Mr. Sakya Sen,
learned Senior Counsel appearing on behalf of the defendant that at the
time of contract, it was not disclosed that the said procurement would be for
the purpose of export to a named foreign buyer. It is not denied that the
30
[1854] EWHC J70
– 43 –
plaintiff and defendant had a long-standing business relationship and it can
be safely presumed that the said contract was entered into for the purpose
of trading in shellac be it domestic or overseas.
89. Consequently, the defendant could have reasonably
contemplated losses arising from the plaintiff’s export commitments. The
Supreme Court in Karsandas H. Thacker (supra) referred to illustration (K)
to Section 73 of Contract Act. However in the present case, the defendant’s
knowledge of the plaintiff’s export business distinguishes the facts and
brings the loss within the contemplation of the parties
90. The plaintiff has alleged to have supplied 24MT to its overseas
buyers in terms of the invoices dated 12th May, 2000 and 30th May, 2000
having proforma invoice dated 19th April, 2000 and 26th April, 2000
respectively. The invoices were disclosed by the plaintiff at the appellate
stage through an application for additional evidence. The proforma invoices
however, have been marked as Exhibit-P Collectively during trial. We are
inclined to accept these invoices as they are required for proper adjudication
of the dispute and to establish a proper chain of events.
91. In the case of Sri Gopal Krushna Panda @ Gopal Krishna
Panda v. Manager, Utkal Grameen Bank & Anr.31, the issue of whether
the appellate court can take into account the application filed under Order
41 Rule 27 CPC for admitting additional evidence before hearing the appeal
was taken into consideration. The Court cited an earlier ruling in Sankar
Pradhan v. Premananda Pradhan (dead) & Ors.,32 in which it was stated
31
2019 SCC Online Ori 34
32
2015 SCC Online Ori 308: 2016 AIR CC 1169: 2016 (3) SCC 40
– 44 –
that under clause (1)(b) of Rule 27, additional evidence can only be admitted
where the appellate court “requires” it (i.e., finds it necessary). Therefore, the
court requires such documents, namely, the invoices dated 12th May, 2000
and 30th May, 2000 for deciding the issues raised in the appeal.
92. It is well settled that in a situation like this the buyer would be
entitled to damages which shall be the difference between the contract price
and the market price of the commodity prevailing on the date of the
purchase.
93. It is a settled principle of law that a party claiming damages for
breach of contract is under a duty to take all reasonable steps to mitigate
the loss consequent upon such breach as held in Pannalal Jugatmal
(supra). This principle is expressly embodied in the explanation to Section
73 of the Indian Contract Act, 1872, which states:
“The person who suffers by the breach of a contract is bound to take
all reasonable steps to mitigate the loss consequent on the breach,
and cannot claim as damages any sum which he could have avoided
by the exercise of reasonable diligence.”
94. The law on this subject has been clearly enunciated by the
House of Lords in British Westinghouse Electric Co. v. Underground
Electric Railways33, wherein it was observed that the claimant is required
only to take reasonable steps to mitigate the loss. The duty is not to take
every conceivable step, but only those which a reasonable and prudent
person would take in the circumstances.
95. The Supreme Court of India, in the case of M/s. Murlidhar
Chiranjilal (supra), clarified the well-established principles governing the
33
[1912] AC 673
– 45 –
assessment of damages in breach of contract cases. The first principle is
that a party who has established a breach of contract is entitled, as far as
monetary compensation can achieve, to be placed in the position he would
have occupied had the contract been duly performed. However, this
entitlement is subject to a second, equally important principle: the aggrieved
party has a duty to take all reasonable steps to mitigate the loss resulting
from the breach, and cannot recover any portion of the damages which
could have been avoided by exercising such reasonable diligence.
96. In Union of India v. M/s. Commercial Metal Corporation &
Ors.34, where it was held:
“9. The object of an award of damages for breach of contract is to
place the plaintiff, so far as money can do it, in the same situation,
with respect to damages, as if the contract had been performed. He
is thus enabled to recover damages in respect of the loss of gains of
which he has been deprived by the breach. He is entitled to sue for
the loss of this bargain, that is to say, for the loss of the particular
benefit which he expected to receive by the contract which has been
broken. This is the benefit which the buyer expects from the
promised performance. With the amount of money, that is, the
difference between the contract price and the market price the buyer
should therefore be in the same financial position as he would have
been if the seller had performed this contractual obligation to deliver
the goods. In other words, the plaintiff is entitled to compensation for
the loss of his bargain, so that his expectations arising out of or
created by contract are protected. This protection of expectations is
the distinguishing mark of an action for damages for breach of
contract.” (emphasis supplied)
11. On cancellation of the contract the transaction is repudiated. The
bargain is rescinded. The buyer is entitled to claim damages. The34
AIR 1982 Del 267
– 46 –
normal measure of damages when the seller fails to deliver the
goods is the difference between (a) market price of the contracted
goods at the time fixed for delivery and at the place fixed for
delivery, and (b) the contract price.
This market price rule was laid down in 1854 in the most celebrated
case in the field for contract damages namely Hadley vs. Baxendale
(1854) 9 Ex 341. In India Jamal v. Moolla Dawood Sons, (1915) 43
Ind Apps 6 (8) remains unimpaired as the classic authority on the
topic. (emphasis supplied)
97. In Mackay (supra) it was further clarified that if a market is
available, the buyer can minimise his loss by procuring goods from the
market so that he is put in the same position as if the seller had not made
any default and the sole damage would be the difference in the price if the
market price exceeds the contract price.
98. In the present case, the plaintiff made timely inquiries regarding
delivery and attempted to secure alternatives.
99. In order to meet its contractual obligations with the foreign
buyers, the appellant procured the goods from the market available and was
able to fulfil only two of its export orders being Exhibit-P collectively and the
other two contracts were cancelled being Exhibit-S collectively vide
cancellation letter dated 15th September, 2000 being Exhibit-T for orders
under proforma invoice dated 18th April, 2000 and 19th April, 2000. It is
quite evident that the appellant made genuine efforts to mitigate its loss by
sourcing goods from the open market. Given the circumstances, procuring
goods from the market was the only viable option available to the appellant.
100. The plaintiff’s claim for damages, arising from a breach of
contract governed by Section 57 of the Sale of Goods Act, 1930, must be
– 47 –
assessed in light of established legal principles and the facts at hand.
Section 57 entitles the aggrieved party to recover the difference between the
contract price and the market price at the date of breach, a principle
affirmed in the judgments of Firm H. Sham Sunder & Sons (supra),
Vishwanath (supra), and The Standard Chemicals Company (P) Ltd.
(supra). In these cases, the courts have consistently held that damages must
be calculated based on the prevailing market price on the date the breach
occurred, and that reliable, contemporaneous evidence of such price is
essential.
101. In the instant case, the breach occurred on 26th July, 2000, as
evidenced by the letter of termination (Exhibit-K) and therefore, the market
price of the machine made TN shellac of that day will be taken into
consideration for calculating the loss or damage suffered by the plaintiff.
Although, the plaintiff initially sought to substantiate his loss of
Rs.14,23,920/- using the market price of TN Shellac as on 6 th September,
2000 (Exhibit-Q), this approach is flawed, as the relevant date for
calculating damages is the date of breach. Reliance can be placed on the
Calcutta Shellac Market Report published by the Shellac Export Promotion
Council on 26th July, 2000 (Exhibit U and U/1), which indicated the market
price of 75 kg of TN Shellac at Rs.11,100/-, or Rs.148 per kg. The court also
noted that Exhibits Q and (U and U/1) were issued by the same authority,
thus overruling objections to the admissibility of Exhibit U and U/1.
102. The plaintiff has claimed a sum of Rs.14,23,920 towards
damages allegedly suffered as a consequence of the defendant’s failure to
perform its contractual obligations. The said amount has been computed on
– 48 –
the basis of the difference between the contract price and the prevailing
market price of TN Shellac subsequent to the breach. Additionally, reliance
has been placed on the cancellation of a corresponding export order by a
foreign buyer, as evidenced by Exhibit-T, on account of the non-supply of
the contracted goods. The plaintiff contends that the cancellation directly
resulted in commercial losses for which the defendant must be held liable
for damages.
103. The plaintiff’s calculation of damages is substantiated by the
market price of shellac as on 6th September, 2000 as per the Shellac Export
Promotion Council’s report (Exhibit Q).
104. Applying the correct market price, the difference between the
market rate and the contract price (Rs.148 – Rs.114 = Rs.34 per kg) was
established. For the contracted quantity of 24 MT equivalent to 24,000 kg,
the plaintiff is thus entitled to damages amounting to Rs.8,16,000/- (Rs.34
X 24000Kg). Issues No. 4 and 5 stand resolved in favour of the plaintiff.
There shall be a decree for a sum of Rs.8,16,000/-. If the said amount is
paid within the period of four weeks from date it shall not attract interest,
failing which, it shall attract interest @ 7% per annum till payment.
105. With respect to Issue No. 6, it is in evidence and an admitted
fact that the earnest money of Rs. 2,73,600/- which was deposited by the
plaintiff vide demand draft dated 17th April, 2000 (Exhibit-G) was returned
to the plaintiff by the defendant at the time of terminating the contract on
26th July, 2000 (Exhibit-K). The advantage derived under the contract was
returned to the plaintiff. Therefore, the plaintiff is not entitled to any further
or other relief prayed for reasons stated above.
– 49 –
106. The judgment of the learned Single Judge is set aside.
107. The appeal and the application are thus disposed of.
108. There shall be no order as to costs.
I agree (Soumen Sen, J.) (Biswaroop Chowdhury, J.)