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Tuesday, October 22, 2013

When the contract is governed by Statutory rules and Regulations - General terms of contract Act like sec. 56 Doctrine of Frustration apples - No = MARY ...APPELLANT VERSUS STATE OF KERALA AND ORS. ... RESPONDENTS - judis.nic.in/supremecourt/filename=40891

When the contract is governed by Statutory rules and Regulations - General terms of contract Act like sec. 56 Doctrine of Frustration apples  - No =

Abkari Licence - Highest bidder - public opposing for stalling a shop - refund of deposited amount - contract frustrated due to public oppose  - When the contract is governed by Statutory rules and Regulations - General terms of contract Act like sec. 56 Doctrine of Frustration apples - Apex court confirmed the high court Division bend order in writ appeal - upheld that state is entitled to  forfeit the deposited amount of Rs.7,68,600/- as per rule 15(5)  - Writ petitioner/Highest bidder not entitled to refund of the same =

 whether  the  appellant  could  invoke  the
         doctrine of frustration or impossibility or whether  she  will  be
         bound by the terms of the statutory contract. 
In other words,  in
         case of a statutory contract, will it necessarily destroy all  the
         incidents of an ordinary contract that are otherwise  governed  by
         the Contract Act? =

From a plain reading of  the  aforesaid  provision sub-rule (15) of  Rule  5, it  is
         evident that 
on the failure of the auction  purchaser  to  execute
         the agreement whether temporary or permanent, the deposit  already
         made by auction purchaser towards earnest money and security money
         shall be forfeited. 
 Un disputedly, the appellant was  declared  as
         auction purchaser and, in fact, she had deposited 30% of  the  bid
         amount, that is, 7,68,600/- in terms of Rule 5(10) of  the  Rules.
         
It is further an admitted position  that  the  appellant  did  not
         execute a permanent agreement or for that matter, did not  execute
         the privilege.  
Hence, in terms of sub-rule (15) of  Rule  5,  the
         money deposited by her is liable to  be  forfeited.   
  doctrine of  reasonableness  or
         fairness cannot apply in  a  commercial  transaction.  It  is  not
         possible for us to equate a contract of employment with a contract
         to vend  arrack.   
A  contract  of  employment  and  a  mercantile
         transaction stand on a different footing. 
 It makes no  difference
         when the contract to vend arrack is between an individual and  the
         State.  
This would be evident from the  following  text  from  the
         judgment:
      “286. ……This principle, however, will not apply where  the  bargaining
                   power of the contracting parties is equal or almost equal
                   or where both parties are businessmen and the contract is
                   a commercial transaction.”


                                       (underlining ours)




                Accordingly, we are of the opinion that in a contract under
         the Abkari  Act  and  the  Rules  made  thereunder,  the  licensee
         undertakes to abide by the terms and conditions of the Act and the
         Rules made thereunder which are statutory and in such a situation,
         the  licensee  cannot  invoke  the   doctrine   of   fairness   or
         reasonableness.  Hence,  we  negative  the   contention   of   the
         appellant.


                       In the result, we do not find any merit in the appeal
         and it is dismissed accordingly but without any order as to costs.


                                                                REPORTABLE


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION


                        CIVIL APPEAL NO.9466 OF 2003






         MARY                                           ...APPELLANT
                                   VERSUS


         STATE OF KERALA AND ORS.        ... RESPONDENTS




                                  JUDGMENT




         CHANDRAMAULI KR. PRASAD,J.




                 The appellant, aggrieved by the judgment and  order  dated
         13.6.2002 passed by the Division Bench of the Kerala High Court in
         Writ Appeal No.1734 of 1995 setting aside the judgment  and  order
         dated 4.8.1995 passed by learned Single Judge  of  the  said  High
         Court in Original  Petition  No.12514  of  1994;  whereby  it  had
         directed for refund of  an  amount  of  Rs.7,68,600/-  along  with
         interest, is before us with the leave of the Court.




                 The appellant, Mary was a successful bidder in  an  auction
         conducted on 24.3.1994 for sale of privilege  to  vend  arrack  in
         Shop Nos. 47 to 55 and 57 in Kalady  Range  –III  for  the  period
         1.4.1994 to 31.3.1995. 
 Her bid was for a sum  of  Rs.25,62,000/-.
         The sale of the privilege to vend arrack is governed by the Kerala
         Abkari  Shops  (Disposal  in  Auction)  Rules,  1974  (hereinafter
         referred to as ‘the  Rules’).
The  officer  conducting  the  sale
         declared the appellant to be the ‘auction purchaser’ in  terms  of
         Rule 5(8) of the Rules.
Being declared as auction purchaser,  she
         deposited 30% of the bid amount i.e.  Rs.7,68,600/-  on  the  same
         date and executed a temporary agreement in  terms  of  Rule  5(10)
         which was subject to confirmation  by the Board of  Revenue.
Rule
         5(19) makes this deposit as security for due  performance  of  the
         conditions of licence.
Kalady is the  holy  birth  place  of  Adi
         Sankaracharya and adjoining thereto existed  a  Christian  pilgrim
         centre associated with St. Thomas. 
The residents  of  those  areas
         objected to the running of any abkari  shop.  A  large  number  of
         people collected and offered physical resistance to the opening of
         the abkari shops and the law and order enforcing agency could  not
         assure smooth conduct of business. 
The aforesaid circumstances led
         the appellant to believe that it was impossible for her to run the
         arrack shop in the locality in question.
The appellant, therefore,
         by her letter dated 3.4.1994 addressed to the  Board  of  Revenue,
         District Collector and Assistant Commissioner  of Excise, informed
         them that because of mass movement it was not possible for her  to
         open  and run the shops.
Accordingly, she requested  them  not  to
         confirm the sale in her favour as it was  impossible  for  her  to
         execute the privilege for the reasons beyond her control. She also
         requested that the proposed contract may be treated as  rescinded.
         She further reserved her right to claim  refund  of  the  security
         amount. There  is  nothing  on  record  to  show  that  after  the
         appellant  refused  to  carry  out  her  obligations,  the   State
         Government took any step to re-sell or re-dispose the arrack shops
         in question.


                  Notwithstanding that, the Excise Inspector of Kalady Range
         sent a notice dated 8.4.1994 to the appellant, inter alia, stating
         that the sale has  already  been  confirmed  in  her  favour.  The
         appellant was asked to accept the confirmation  notice  and  enter
         into  a  permanent  agreement.  By  the  said  notice  the  Excise
         Inspector also called upon the appellant to show cause as  to  why
         further proceedings as contemplated under the Rules should not  be
         initiated against her.
The appellant filed her reply to show cause
         on 17.4.1994 reiterating her inability to run the arrack shops and
         further requested that all proceedings  pursuant  to  the  auction
         held on 24.3.1994 be cancelled and the amount already deposited by
         her be refunded to her. 
It seems that   the  cause  shown  by  the
         appellant did not find favour with the authority and the Assistant
         Excise Commissioner, by notice dated 20.4.1995,  called  upon  the
         appellant to pay a  sum  of  Rs.33,41,400/-  towards  the  balance
         amount payable by her, together with interest at the rate  of  18%
         thereon.
Revenue recovery notice dated 30.6.1995 was  also  issued
         for realisation of the aforesaid amount. 
The appellant  challenged
         the aforesaid notices issued to  her  in  a  writ  petition  filed
         before the Kerala High Court  which  was  registered  as  Original
         Petition No.9976 of 1995 (Mary vs.  State  of  Kerala  &  Others).
         While challenging the aforesaid notices and  further  proceedings,
         the appellant contended that Rule 5(15) and  5(16)  are  arbitrary
         and violative of Article 14 of  the  Constitution  of  India.  The
         appellant filed another writ petition,  inter  alia,  praying  for
         direction to  the  State  authorities  to  refund   an  amount  of
         Rs.7,68,600/- paid by her  as initial deposit. This writ  petition
         was registered as Original Petition No.12514  of  1994  (Mary  vs.
         State of Kerala & Others).


                 Both the  writ  petitions  were  heard  together  and  the
         learned Single Judge vide judgment dated 4.8.1995 allowed both the
         writ petitions. The learned Single Judge quashed the  notices  and
         all the proceedings initiated against the  appellant  and  further
         directed the refund of the amount of  Rs.7,68,600/-  deposited  by
         her along with interest. However, learned  Single  Judge  did  not
         strike down Rule 5(15) and 5(16).  While doing so, learned  Single
         Judge observed as follows:


                       “15.  The  undisputed  and  uncontroverted  facts  as
                   appearing  above  clearly   attract   the   doctrine   of
                   frustration and impossibility leading to  the  conclusion
                   that the contract from its  inception  becomes  void  and
                   discharged. Consequently, it is needless to consider  and
                   decide other contentions urged as  regards   excesses  of
                   delegated legislation in the forms of the rules, as  they
                   are  unnecessary  altogether  in  view   of   the   above
                   conclusion. Both these petitions succeed accordingly.”




                 The State of Kerala and its  functionaries,  aggrieved  by
         the aforesaid  judgment,  preferred  separate  appeals.  Both  the
         appeals were heard together and disposed of by a common  judgment.
         Writ Appeal No.1722 of 1995, filed against  the  recovery  of  the
         balance amount was dismissed.  While allowing Writ Appeal  No.1734
         of 1995 which was against the  direction  of  the  learned  Single
         Judge for refund of the initial deposit, the Division  Bench  held
         that the State is justified in forfeiting the said amount in  view
         of Rule 5(15). While doing so,  the  Division  Bench  observed  as
         follows:


                   “8………However, where there are statutory  provisions,  the
                   contractual terms are defined by the statutory provisions
                   which must govern the relationship between  the  parties.
                   Where the statute governs the  relationship,  it  is  the
                   statutory terms which have to be applied for deciding the
                   disputes between the parties. In this view of the matter,
                   particularly when the contention of  invalidity  of  sub-
                   rule (15) and (16) of Rule 5 was negatived by the learned
                   Single Judge, we are of the  view  that  the  rights  and
                   liabilities between the parties have  to  be  worked  out
                   purely in accordance with the applicable rules.”




                 Accordingly, the Division Bench found that the offer of the
         appellant  having  been  accepted,  same  could  not   have   been
         withdrawn. For coming to the aforesaid conclusion, the High  Court
         placed reliance on sub-rules (10)&(15) of Rule 5 and  observed  as
         follows:


                   “10. It is on the basis of these rules that the rights of
                   the parties have to be  determined.  These  rules  really
                   form the substratum of the contract between the  parties,
                   though all disputes arising between the parties  have  to
                   be resolved in accordance with the principles of contract
                   law, taking the  rules  as  forming  the  basic  contract
                   between the parties. That the accepted offer is incapable
                   of being withdrawn, is clear from  the  provisions  under
                   sub-rule(10) of Rule 5. The first respondent,  therefore,
                   could not have purported to withdraw the offer or rescind
                   the contract by letter dated  3.4.1994.  That  the  first
                   respondent did  not  carry  out  several  obligations  as
                   provided in sub-rule  (10)  of  Rule  5  is  also  beyond
                   dispute. Consequently, by reason of sub-rule(15) of  Rule
                   5 of the Rules, the State was  entitled  to  forfeit  the
                   entire deposit amount of Rs.7,68,600/-.  Thus far,  there
                   is no difficulty. “






                  In the present appeal, we have been called upon to examine
         the validity of this part of the  judgment  whereby  the  Division
         Bench held that the State  was  entitled  to  forfeit  the  entire
         deposited amount of Rs. 7,68,600/-.


                  We have heard Ms. Neha Aggarwal for the appellant and  Ms.
         Mukta Chowdhary for respondents.  Ms. Aggarwal contends  that  the
         appellant  could  not  carry  out  her  obligation  as  it  became
         impossible in view of the mass movement and resistance which State
         could  not  contain.   In  this  connection,  she  has  drawn  our
         attention to Section 56 of the Contract Act.  In  support  of  the
         submission reliance has also been placed on  a  decision  of  this
         Court in the case of Sushila Devi v. Hari Singh, (1971) 2 SCC 288,
         and our attention has been drawn to Paragraph 11 of  the  judgment
         which reads as follows:


                   “11. In our opinion on this point the conclusion  of  the
                   appellate court is not sustainable. But in fact, as found
                   by the Trial Court as well as by the appellate court,  it
                   was impossible  for  the  plaintiffs  to  even  get  into
                   Pakistan. Both the Trial Court as well as  the  appellate
                   court  have  found  that  because   of   the   prevailing
                   circumstances, it was impossible for  the  plaintiffs  to
                   either take possession of the properties intended  to  be
                   leased or even to collect rent from the cultivators.  For
                   that situation the plaintiffs were not responsible in any
                   manner.
As observed by this Court in Satyabrata Ghose  v.
                   Mugneeram Bangur and Co.,(1954) SCR 310,
the doctrine  of
                   frustration is really an aspect or part  of  the  law  of
                   discharge  of   contract   by   reason   of   supervening
                   impossibility or illegality of the act agreed to be  done
                   and hence comes within the purview of Section 56  of  the
                   Indian Contract Act.
The view  that  Section  56  applies
                   only to cases of physical impossibility  and  that  where
                   this section is not applicable recourse can be had to the
                   principles of English law on the subject  of  frustration
                   is not correct.
Section 56 of  the  Indian  Contract  Act
                   lays down a rule of positive law and does not  leave  the
                   matter to be determined according to the intention of the
                   parties. 
The impossibility contemplated by Section 56  of
                   the Contract Act is not confined to  something  which  is
                   not humanly possible. If the performance  of  a  contract
                   becomes impracticable or useless  having  regard  to  the
                   object and purpose the parties had in view then  it  must
                   be held that the performance of the contract  has  become
                   impossible. But the supervening events should  take  away
                   the basis of the contract and it  should  be  of  such  a
                   character that it strikes at the root of the contract.”




                  Yet another decision on  which  Ms.  Aggarwal  has  placed
         reliance is the decision of this Court in Har  Prasad  Choubey  v.
         Union of India, (1973) 2 SCC 746, in Paragraph 9  whereof  it  has
         been held as follows:


                   “9. 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 that 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. Furthermore,
                   the contract itself not being in accordance with  Section
                   175 of the Government  of  India  Act  is  void  and  the
                   appellant is entitled to the refund of his money. We  are
                   unable to understand the reasoning of the High Court when
                   it proceeds as though the appellant was trying to enforce
                   the contract. We can see no justification for  the  lower
                   Court refusing to  allow  interest  for  the  plaintiff's
                   amount at least from the  date  of  his  demand,  or  the
                   latest from the date of suit.”




                  Ms. Chowdhary, however, contends that in the case in hand,
         the terms and conditions for grant of privilege is governed by the
         Rules and in view  of  specific  consequences  provided  for  non-
         compliance of the  terms  and  conditions  of  the  contract  i.e.
         forfeiture of the security money, the Division Bench of  the  High
         Court has not committed any error in holding that  the  State  was
         entitled to forfeit the entire deposit.


                  In view of the rival submission we deem it expedient to go
         through the relevant rules.
Rule  2(a)  defines  Abkari  shop  to
         include an arrack shop with which we are concerned in the  present
         appeal.  Chapter IV of the Rules provides for  general  conditions
         applicable to sale of Abkari shops.
It consists of only one  Rule
         i.e. Rule 5 but it has 22 sub-rules.
Sub-rule 15 of Rule 5  reads
         as follows:
                  5.         xxx        xxx        xxx
                   (15) In addition to the  solvency  certificate  and  cash
                   security mentioned in sub-rule(10) the auction  purchaser
                   shall furnish such personal sureties as may  be  required
                   of him  to  the  satisfaction  of  the  Assistant  Excise
                   Commissioner.  The Board of  Revenue  may,  if  in  their
                   opinion it is necessary, require the auction purchaser to
                   furnish additional cash security as may be fixed by  them
                   at the time of confirmation.  The auction purchaser shall
                   also  execute  a  permanent  agreement  in  Form  No.  11
                   appended to these rules and take  out  necessary  licence
                   before installation of the shop or shops. On the  failure
                   of the auction purchaser to make such deposit referred to
                   in sub-rule (10) or take out such licence or execute such
                   agreement temporary or permanent or furnish such personal
                   surety or additional  cash  security  as  aforesaid,  the
                   deposit already made by him  towards  earnest  money  and
                   security shall be forfeited to Government  and  the  shop
                   resold or otherwise disposed of by the  Assistant  Excise
                   Commissioner subject to  confirmation  by  the  Board  of
                   Revenue.   Disposal   otherwise   includes   closure   or
                   departmental management.  In the  case  of  death  of  an
                   auction purchaser before the execution of  the  permanent
                   agreement, the same shall be obtained from the  heirs  of
                   the deceased unless  the  Assistant  Excise  Commissioner
                   subject to the  confirmation  by  the  Board  of  Revenue
                   cancels the contract.  In the case of death of an auction
                   purchaser after confirmation of the sale of the  shop  or
                   shops, his heirs, if any, shall be  required  to  produce
                   the necessary legal evidence in support  of  their  claim
                   and  on  production  of  the  same  the  shop  shall   be
                   transferred to them and pending such  transfer  the  shop
                   shall be run on departmental management.  It is  open  to
                   the Assistant Excise Commissioner to call  upon  them  to
                   furnish additional security, if  in  his  opinion  it  is
                   necessary for the successful working of the contract.  If
                   the heirs fail to produce within a period  of  one  month
                   from the date of  death  of  the  auction  purchaser  the
                   necessary evidence  in  support  of  their  claim  or  to
                   deposit the additional security required,  the  Assistant
                   Excise Commissioner shall order the re-sale of  the  shop
                   or shops or otherwise dispose of the shop or shops at the
                   risk of the original purchaser subject to confirmation by
                   the Board of Revenue.


                             xxx        xxx        xxx”
                                            (underlining ours)




                 From a plain reading of  the  aforesaid  provision  it  is
         evident that 
on the failure of the auction  purchaser  to  execute
         the agreement whether temporary or permanent, the deposit  already
         made by auction purchaser towards earnest money and security money
         shall be forfeited. 
 Undisputedly, the appellant was  declared  as
         auction purchaser and, in fact, she had deposited 30% of  the  bid
         amount, that is, 7,68,600/- in terms of Rule 5(10) of  the  Rules.
         
It is further an admitted position  that  the  appellant  did  not
         execute a permanent agreement or for that matter, did not  execute
         the privilege.  
Hence, in terms of sub-rule (15) of  Rule  5,  the
         money deposited by her is liable to  be  forfeited.   
However,  as
         stated above, the appellant’s plea is that it was due to the facts
         beyond her control that she could  not  derive  benefit  from  the
         privilege  granted  to  her  and  hence  did  not  run  the  shop.
       
Therefore, the security amount deposited by her is not fit  to  be
         forfeited.  
In  view  of  the  aforesaid,  what  falls  for   our
         determination is as to
whether  the  appellant  could  invoke  the
         doctrine of frustration or impossibility or whether  she  will  be
         bound by the terms of the statutory contract.
In other words,  in
         case of a statutory contract, will it necessarily destroy all  the
         incidents of an ordinary contract that are otherwise  governed  by
         the Contract Act?


                  It is not  the  case  of  the  State  that  appellant  has
         purposely, or for any oblique motive, or as a device to avoid  any
         loss, refused to execute the agreement.  It appears to us that the
         State was helpless because of the public upsurge against the  sale
         of arrack at Kaladi, the birth place of Adi Shankaracharya as,  in
         their  opinion,  the   same   will   render   the   soil   unholy.
         Consequently, the State also found it impossible to re-sell or re-
         dispose of the arrack shops.   In  view  of  second  paragraph  of
         Section 56 of the Contract Act, a contract  to  do  an  act  which
         after the contract is made, by reason  of  some  event  which  the
         promissory could not prevent becomes impossible, is rendered void.
         Hence, the forfeiture of the security amount may be  illegal.  But
         what would be the position in a case in which the consequence  for
         non-performance of contract is provided in the statutory  contract
         itself? The case in hand is one of such cases.   The  doctrine  of
         frustration excludes  ordinarily  further  performance  where  the
         contract is silent as to the position of the parties in the  event
         of performance becoming literally  impossible.   However,  in  our
         opinion, a  statutory  contract  in  which  party  takes  absolute
         responsibility cannot escape liability whatever may be the reason.
          In such a situation, events will not discharge the party from the
         consequence  of  non-performance  of  a  contractual   obligation.
         Further, in a case in which the consequences of non-performance of
         contract is provided in the statutory contract itself, the parties
         shall be bound by that and cannot take shelter behind  Section  56
         of the Contract Act.  Rule 5(15) in no  uncertain  terms  provides
         that “on the failure of the auction purchaser to make such deposit
         referred to in sub-rule 10”  or “execute such agreement  temporary
         or permanent” “the deposit already made  by  him  towards  earnest
         money and security shall be forfeited  to  Government”.   When  we
         apply the aforesaid principle we find that the appellant  had  not
         carried out several obligations as provided in  sub-rule  (10)  of
         Rule 5 and consequently, by reason of sub-rule (15), the State was
         entitled to forfeit the security money.


                  Now reverting to the decisions of this Court in the  cases
         of Sushila Devi (supra) and Har Prasad Choubey (supra), we are  of
         the opinion that they are clearly distinguishable.  In those cases
         the contract itself did not provide for the consequences  for  its
         non-performance.  On the face of the same, relying on the doctrine
         of frustration, this Court came to the conclusion that the parties
         shall not be liable.  As  stated  earlier,  in  the  face  of  the
         specific consequences having been provided, the appellant shall be
         bound by it and could not  take  benefit  of  Section  56  of  the
         Contract Act to resist forfeiture of the    security money.


                  Confronted with this, Ms. Aggarwal  raises  the  issue  of
         validity of Rule 5(15). The learned Single Judge had  allowed  the
         writ petition filed by the appellant but negatived  her  challenge
         to the validity of Rule 5(15) and 5(16) of the Rules. In an appeal
         preferred by the State, it does not seem that  the  appellant  had
         raised the plea of invalidity of the Rules but before us it is the
         contention of the appellant that Rule  5(15)  does  not  meet  the
         requirement of the doctrine of reasonableness or fairness  and  on
         this ground alone the  rule  is  invalid.   As  a  corollary,  the
         forfeiture made is illegal. It is pointed out that in  a  contract
         of the present  nature,  the  relative  bargaining  power  of  the
         contracting parties cannot be overlooked. Viewed from this  angle,
         the rule  is  opposed  to  public  policy,  contends  the  learned
         counsel. Reference in this connection has been made to a  decision
         of this Court  in the  case  of  Central  Inland  Water  Transport
         Corporation Limited and Another v. Brojo Nath Ganguly and  Another
         etc. (1986) 3 SCC 156. In this case, the terms in the  contract of
         employment as also  service  rules  provided  for  termination  of
         service of permanent employees without  assigning  any  reason  on
         three months’ notice or pay in lieu thereof  on  either  side  was
         under challenge. Taking  into  account  unequal  bargaining  power
         between the employer and the employee, the term  in  contract  and
         the rules were held to be  unconscionable,  unfair,   unreasonable
         and against the public policy. On these grounds, this Court struck
         down the  termination  as  void.   The  relevant  portion  of  the
         judgment reads as follows:

                   “100…………The said Rules  form  part  of  the  contract  of
                   employment between the Corporation and its employees  who
                   are  not  workmen.  These  employees  had   no   powerful
                   workmen’s Union to support them. They had no voice in the
                   framing of the said Rules. They  had  no  choice  but  to
                   accept the said  Rules  as  part  of  their  contract  of
                   employment.  There  is  gross   disparity   between   the
                   Corporation and its employees, whether they be workmen or
                   officers. The Corporation can afford to dispense with the
                   services of an officer. It will find hundreds  of  others
                   to take his place but an officer cannot  afford  to  lose
                   his job because if he does so, there are not hundreds  of
                   jobs waiting for him. A clause such as clause (i) of Rule
                   9  is  against   right   and   reason.   It   is   wholly
                   unconscionable. It has been entered into between  parties
                   between whom there  is  gross  inequality  of  bargaining
                   power. Rule 9(i) is a term of the  contract  between  the
                   Corporation and all its  officers.  It  affects  a  large
                   number of  persons  and  it  squarely  falls  within  the
                   principle  formulated  by  us  above.  Several  statutory
                   authorities have a clause similar to Rule 9(i)  in  their
                   contracts of employment.  As  appears  from  the  decided
                   cases, the West Bengal State Electricity  Board  and  Air
                   India International have it. Several government companies
                   apart from the Corporation (which is the first  appellant
                   before us) must be having it. There  are  970  government
                   companies  with paid-up  capital of Rs.16,414.9 crores as
                   stated in the written arguments submitted  on  behalf  of
                   the Union of India. The government and its  agencies  and
                   instrumentalities constitute the largest employer in  the
                   country. A clause such as Rule  9(i)  in  a  contract  of
                   employment affecting large  sections  of  the  public  is
                   harmful and injurious to the public interest for it tends
                   to create a sense of insecurity in the minds of those  to
                   whom it applies and consequently  it  is  against  public
                   good. Such a clause,  therefore,  is  opposed  to  public
                   policy and being opposed to public  policy,  it  is  void
                   under Section 23 of the Indian Contract Act.”




                 Reference has  also  been  made  to  a  Constitution  Bench
         judgment of this Court in the case of Delhi Transport  Corporation
         v. D.T.C.Mazdoor Congress and Another 1991 Supp (1)  SCC  600.  In
         this  case,  Brojo  Nath  Ganguly  (supra)  has  elaborately  been
         discussed and while endorsing the view by majority this Court held
         as follows:


                       “338. Accordingly I hold that the ratio in Brojo Nath
                   Ganguly case, (1986) 3 SCC 156  was  correctly  laid  and
                   requires no reconsideration  and  the  cases  are  to  be
                   decided in the light of the  law  laid  above.  From  the
                   light shed by the path I tread, I express my deep regrets
                   for my inability to agree with my  learned  brother,  the
                   Hon’ble  Chief  Justice  on  the  applicability  of   the
                   doctrine  of  reading  down  to  sustain  the   offending
                   provisions.  I  agree  with  my  brethren   B.C.Ray   and
                   P.B.Sawant,JJ. with their reasoning  and  conclusions  in
                   addition to what I have laid earlier.”




                 However,  it  has  been  contended   by   learned   counsel
         representing the respondent-State that  doctrine  of  fairness  or
         reasonableness is  not  capable  to  be  invoked  in  a  statutory
         contract. Strong reliance has been placed on a  decision  of  this
         Court in the case of Assistant Excise Commissioner and  Others  v.
         Issac Peter and Others (1994) 4 SCC 104,  and  our  attention  has
         been drawn to the following passage.


      “26…………We are, therefore, of the opinion that  in  case  of  contracts
                   freely entered into with  the  State,  like  the  present
                   ones, there is no  room  for  invoking  the  doctrine  of
                   fairness and reasonableness  against  one  party  to  the
                   contract(State), for the purpose of altering or adding to
                   the terms and conditions of the contract, merely  because
                   it happens to be the State. In  such  cases,  the  mutual
                   rights and liabilities of the parties are governed by the
                   terms of the contracts (which may be  statutory  in  some
                   cases) and the laws relating to  contracts.  It  must  be
                   remembered that these contracts are entered into pursuant
                   to public auction, floating of tenders or by negotiation.
                   There is no compulsion on  anyone  to  enter  into  these
                   contracts. It is voluntary on both sides. There can be no
                   question of  the  State  power  being  involved  in  such
                   contracts.”



                 We have  given  our  most  anxious  consideration  to  the
         submission advanced and we  do  not  find  any  substance  in  the
         submission of the  learned  counsel  for  the  appellant  and  the
         decision relied on by her, in fact, carves  out  an  exception  in
         case of a commercial transaction. The duty to act fairly is sought
         to be imported into the statutory contract to avoid forfeiture  of
         the bid amount. The doctrine of fairness is nothing but a duty  to
         act fairly and reasonably. It  is  a  doctrine  developed  in  the
         administrative law field to ensure rule  of  law  and  to  prevent
         failure of justice where an action is  administrative  in  nature.
         Where the function is quasi-judicial, the doctrine of fairness  is
         evolved to ensure fair action. But, in our opinion,  it  certainly
         cannot be invoked to amend, alter, or vary an express term of  the
         contract between the parties. This is so even if the  contract  is
         governed by a statutory provision i.e. where  it  is  a  statutory
         contract.  It is one thing to say that a statutory contract or for
         that matter, every contract must be construed  reasonably,  having
         regard to its language.   But  to  strike  down  the  terms  of  a
         statutory  contract  on  the  ground  of  unfairness  is  entirely
         different. Viewed from this angle, we are of the opinion that Rule
         5(15) of the Rules cannot be struck down on the  ground  urged  by
         the appellant and a statutory contract cannot be varied, added  or
         altered by importing the doctrine of fairness.  In a  contract  of
         the present nature, the licensee takes a calculated  risk.   Maybe
         the appellant was not wise enough but  in  law,  she  can  not  be
         relieved of the obligations undertaken by her under the  contract.
         Issac Peter (supra) supports this view and says so  eloquently  in
         the following words:

      “26…………In short, the duty to act fairly is sought to be imported  into
                   the contract to modify and alter its terms and to  create
                   an obligation upon the State which is not  there  in  the
                   contract. We must confess, we are not aware of  any  such
                   doctrine of fairness or  reasonableness.  Nor  could  the
                   learned counsel bring to our notice any  decision  laying
                   down such a proposition. Doctrine of fairness or the duty
                   to act fairly and reasonably is a doctrine  developed  in
                   the administrative law field to ensure the  rule  of  law
                   and to prevent failure of justice  where  the  action  is
                   administrative in nature. Just as principles  of  natural
                   justice ensure fair decision where the function is quasi-
                   judicial, the doctrine of fairness is evolved  to  ensure
                   fair action where the function is administrative. But  it
                   can certainly not be invoked to amend, alter or vary  the
                   express terms of the contract between the  parties.  This
                   is so, even if the  contract  is  governed  by  statutory
                   provisions, i.e., where it is a statutory contract  —  or
                   rather more so. It is one thing to say that a contract  —
                   every contract —  must  be  construed  reasonably  having
                   regard to its language…”




                 Now, referring to the decision of this Court in  the  case
         of Brojo Nath Ganguly (supra),  the  same  related  to  terms  and
         conditions of service and the decision in the said case  has  been
         approved by this Court in the  case  of  D.T.C.  Mazdoor  Congress
         (supra). 
But while doing so,  the  Constitution  Bench  explicitly
         observed in unequivocal terms that 
doctrine of  reasonableness  or
         fairness cannot apply in  a  commercial  transaction.  It  is  not
         possible for us to equate a contract of employment with a contract
         to vend  arrack.   
A  contract  of  employment  and  a  mercantile
         transaction stand on a different footing. 
 It makes no  difference
         when the contract to vend arrack is between an individual and  the
         State.  
This would be evident from the  following  text  from  the
         judgment:
      “286. ……This principle, however, will not apply where  the  bargaining
                   power of the contracting parties is equal or almost equal
                   or where both parties are businessmen and the contract is
                   a commercial transaction.”


                                       (underlining ours)




                Accordingly, we are of the opinion that in a contract under
         the Abkari  Act  and  the  Rules  made  thereunder,  the  licensee
         undertakes to abide by the terms and conditions of the Act and the
         Rules made thereunder which are statutory and in such a situation,
         the  licensee  cannot  invoke  the   doctrine   of   fairness   or
         reasonableness.  Hence,  we  negative  the   contention   of   the
         appellant.


                       In the result, we do not find any merit in the appeal
         and it is dismissed accordingly but without any order as to costs.






                                                  ………………………………………………………………J.
                                                   (CHANDRAMAULI KR. PRASAD)




                                                    ………..………………………………………..J.
                                             (V.GOPALA GOWDA)
         NEW DELHI,
         OCTOBER 22, 2013.
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