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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3
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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