Food Corporation Of India Ltd. ... vs M/S Ajay Company Manjari Building ...
2017 Latest Caselaw 7241 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

A.F.R.
 
Court No. - 10
 

 
Case :- FIRST APPEAL No. - 243 of 2007
 

 
Appellant :- Food Corporation Of India Ltd. Thru. Distt. Manager
 
Respondent :- M/S Ajay Company Manjari Building ,Ambala Road & Others
 
Counsel for Appellant :- Satish Chaturvedi,Arun Kumar Shukla
 
Counsel for Respondent :- Arjun Singhal,Vikrant Pandey
 
With
 

 
Case :- FIRST APPEAL No. - 234 of 2007
 

 
Appellant :- Food Corporation Of India Thru' Chairman & Others
 
Respondent :- M/S Ajay & Company Thru' Partner Mahendra Kumar & Others
 
Counsel for Appellant :- Satish Chaudhari,Arun Kumar Shukla,Satish Chaturvedi
 
Counsel for Respondent :- Devendra Gupta,Hanuman Prasad Dube,Purshottam Maurya,Vikrant Pandey
 

 

 
Hon'ble Arun Tandon,J.

Hon'ble Rajiv Joshi,J.

Heard learned counsel for the appellant-Food Corporation of India and learned counsel for the respondent-M/s. Ajay & Company in both the appeals.

Both the aforesaid appeals under Section 96 of the Code of Civil Procedure are directed against the common judgment and order of the Special Judge/Additional District Judge, Court No. 4, Saharanpur passed in Original Suit No. 108 of 1989 and Original Suit No. 523 of 1986.

Facts as borne out from the paper books supplied by the learned counsel for the parties and the judgment and decree of the court below are as under:

M/s. Ajay & Company (hereinafter referred to as the "Company") submitted a tender in response to the advertisement published by the Food Corporation of India (hereafter referred to as the "FCI") for handling and transportation of goods from the railway station to the godowns of the FCI and vice-versa as per the terms and conditions of the tender notice so published. The period of contract was specified as two years to commence from the date the contractor enters into the contract or from such later date as the Senior Regional Manager may direct.

Original Suit No. 523 of 1986 was filed by the Company contending therein that they were intimated about the acceptance of their bid in terms of the advertisement published vide Telegram dated 26/27th December, 1985 and a week's time was granted to enter into the contract after deposit of the security money etc. On 4th January, 1986, such deposit of the security money was made and other formalities were completed with a request to permit the Company to enter into the contract, within 2 days. According to the company such permission was not granted, a reminder was sent vide letter dated 13th January, 1986 to which no response was received. Ultimately the Company vide letter dated 17th February, 1986 terminated the contract. After such termination of the contract the Company asked for refund of the earnest money deposited with the tender bid to the tune of Rs. 10,000/- as well as for return of the security money to the tune of Rs. 25,000/-, which was deposited in terms of the Telegram referred to above. It was the case of the Company that on receipt of the letter of the Company, the FCI returned the earnest money of Rs. 10,000/- while it illegally retained the amount of security i.e. Rs. 25,000/- necessitating the filing of the suit.

FCI filed the connected Suit No. 108 of 1989 against the company contending therein that vide letter dated 17th April, 1986, the Company was called upon to enter into the contract which they failed to do so, as a result whereof the FCI was forced to take work from outside agency/third party resulting in loss of Rs. 7 lacs and odds. It was stated that the FCI had a right to forfeit the security money on non-compliance of the terms and conditions of the contract.

Both the suits were clubbed together. The Trial Court, after exchange of pleadings framed following issues for determination in the two suits:

In suit no. 523 of 1986

"1. Whether the plaintiffs are entitled to recover Rs. 25000/- from the defendants as alleged in the plaint?

2. Whether the plaintiffs are entitled to get interest on Rs. 25000/- as alleged by them? If so, at what rate?

3. Whether this court has no jurisdiction to hear and try the suit as alleged in para 13 of the W.S.?

4. Whether the suit is barred by Section 69 of the Partnership Act as alleged in para 14 of the W.S.?

5. Whether plaintiffs committed breach of contract? If so, its effect?

6. Whether the defendants could not fulfill their part of the contract due to circumstances beyond control of the defendants? If so, its effect?

7. Two what relief, if any, is the plaintiff entitled?"

In Suit No. 108 of 1989

"1. Whether the defendant is entitled to recover Rs. 7,34,629= 12 from the plaintiff as alleged in the plaint?

2. Whether plaintiff breached the contract as alleged in the W.S.?

3. Whether notice dated 25.1188 is illegal? If so, its effect?

4. Whether the suit is time barred?

5. Whether the court has no jurisdiction to try the suit?

6. To what relief the plaintiff is entitled?

7. Whether the contract arising out of tender of defendants accepted by telegram 26/27, 12.85 of the plaintiff was subsisting between the period 17.4.86 to 16.4.88 and if so it was breached by the defendant or it had been terminated vide letter dated 17.2.86 of the defendant? If so, its effect?

8. Whether plaintiff was entitled to take the work at the risk and cost of the defendant for the period 17.4.86 to 16.4.88 under the Contract ? Is so, its effect?"

The trial court has been pleased to hold that the termination of the contract at the hands of the Company was legally justified, as the FCI had refused to permit the company to enter into the contract, despite notice in writing by the Company, after acceptance of its bid, which virtually amounts to refusal to perform its part of the contract by the FCI in its entirety and for the purpose reference has also been made to Section 39 of the Indian Contract Act. After recording the aforesaid finding the trial court has found that since there had been valid termination of the contract by the Company. FCI was liable to return the security money. Further the loss caused, if any, to the FCI because of work being taken from an outside agency/third party was due to its own fault and therefore, they cannot call upon the Company to make good the loss so suffered. Accordingly, the suit as filed by the Company was decreed, while the suit filed by the FCI has been dismissed.

Not being satisfied with the common judgment and decree passed in two suits referred to above, the FCI has approached this Court by means of the aforesaid two appeals.

There is hardly any dispute with regard to the facts which have been noticed in the common judgment and decree of the trial court including the terms and conditions of the tender notice as well as telegram and letters exchanged between the parties in the matter of acceptance of the bid of the Company, intimation of the Company in respect of deposit of security money with the prayer to permit the Company to enter into the contract as well as in respect of the letter dated 17th February, 1986, whereby the Company had terminated the contract and the letter of the FCI dated 17th April, 1986 whereby the Company was called upon to enter into the contract.

On behalf of the appellant-FCI, it is contended before us that on the admitted facts the provisions of Section 39 of the Indian Contract Act were not attracted and therefore, the finding returned by the trial court with regard to the repudiation of the contract with reference to Section 39 of the Indian Contract Act is totally misconceived. It is explained that from the terms and conditions of the tender notice it was apparent that the contract was for a period of two years, the period whereof was to commence only from the date the contractor enters into the contract or from such later date as the Senior Regional Manager may direct. Therefore, the two years term of the contract will not start running till the contractor was permitted to enter into the contract. Such condition was agreed upon by the Company with open eyes. It is submitted that because of the injunction order granted by the civil court in suit no. 9 of 1986 filed by a third party, the FCI was constrained to refuse the Company to enter into the contract within two days as per their letter dated 4th January, 1986 or subsequent letter dated 13th January, 1986. As soon as the period of contract with third party came to an end, a letter dated 17th April, 1986 was written by the competent authority requiring the Company to enter into the contract and perform its obligation which they failed to do so. It is submitted that the contract was still subsisting. The letter dated 17th February, 1986 of the Company refusing to perform its part of the obligation and repudiating the contract was legally not justified. The loss suffered by the FCI because of such deliberate violation of the terms and conditions of the tender notice by the Company entitles the FCI to recover the loss caused as well as to forfeit the security money deposited by the Company.

Learned counsel for the appellant would contended that in the facts of the case, the common judgment and decree of the trial court cannot be legally sustained and is liable to be set aside and the suit filed by the FCI was liable to be decreed while that filed by the Company was liable to be dismissed.

Sri Sharad Sharma, Advocate holding brief of Sri Vikrant Pandey, Advocate on behalf of respondent-Company submitted before us that acceptance of the tender bid of the company was duly communicated under letter of the FCI dated 26/27th December, 1985. In compliance thereto the Company had not only deposited the requisite security money, it also informed the FCI to be permitted to enter into the contract within two days failing which it will not be possible for the Company to perform its part of the obligation. A reminder was also sent in that regard vide letter dated 13th January, 1986, which was not responded by the FCI. It is in these circumstances that the Company vide letter dated 17th February, 1986 terminated the contract. It is contended that since the FCI had refused to perform its part of obligation, the Company was justified in terminating the contract. It was the FCI which had created the situation resulting in termination of the contract. The security money deposited by the Company was liable to be returned with interest. It is further submitted that loss, if any caused to the FCI is because of the acts of the FCI itself and therefore, no liability could be fastened upon the company.

We have considered the submissions made by the learned counsel for the parties and have gone through the records of both the appeals.

The correctness or otherwise of the stand taken by the parties in both the appeals is squarely dependent upon the issue as to whether there had been valid termination of the contract by the Company as claimed under letter dated 13th January, 1986 or the contract between the Company and FCI was still in existence on the date the letter dated 17th April, 1986 was sent by the FCI requiring the Company to enter into the contract and to perform its part of obligation of handling and transportation of the goods from the railway station to godown of the FCI and vice-versa.

Therefore, what is to be examined by us is as to what were the terms and conditions of the tender notice, whether the letter written by the company dated 17th February, 1986 is a lawful termination of the contract within the meaning of Section 39 of the Indian Contract Act or not.

For appreciating the controversy, it would be necessary for this Court to refer to Section 39 of the Indian Contract Act, which reads as follows:

"39. Effect of refusal of party to perform promise wholly.--When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. --When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance." Illustrations

(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to put an end to the contract. (a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to put an end to the contract."

(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during next two months, and B engages to pay her at the rate of 100 rupees for each night. On the sixth night A wilfully absents herself. With the assent of B, A sings on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A's failure to sing on the sixth night. (b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during next two months, and B engages to pay her at the rate of 100 rupees for each night. On the sixth night A wilfully absents herself. With the assent of B, A sings on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A's failure to sing on the sixth night."

From a simple reading of the Section 39, it would be clear that it stands attracted only when a party to the contract refuses to perform its part of obligation in its entirety. The phrase "in its entirety" has relevance.

The question to be asked is as to whether the FCI by its inaction had put to an end to the contract or not. Refusal in terms of Section 39 of the Indian Contract Act is one which effects vital part of the contract and prevents the promisee from getting in substance what he bargained for. It has to be established that the promiser to the contract in quite plain and simple words/action has made his intention to not to perform the contract in its entirety clear.

We have to examine as to whether the conduct of the FCI in refusing to act upon the letters of the Company dated 4th and 13th January, 1986 amounts to refusal to perform its part of the obligation in its entirety and whether the Company could have acted up it, as a reason for repudiating the contract.

If judged on the aforesaid principle, we find that what had been done by the FCI was that it had only deferred the permission to enter into the contract, which was as per the provisions of Clause-9 of the terms and conditions of the tender notice.

For ready reference, clause-9 is quoted below:

"XI. Period of Contract:

The contract shall remain in force for a period of two years, from the date of joining or such later date as may be decided by the Sr. Regional Manager but the Sr. Regional Manager reserves the right:

(i) To terminate the contract at any time during its currency without assigning any reason therefore, by giving thirty day's notice in writing to the contractors at their best known place of residence/business and the contractors shall not be entitled to any compensation by reason of such termination.

The action of the Sr. Regional Manager, Food Corporation of India, under this clause shall be final, conclusive and binding on the contractor and shall not be called into question."

There had been in fact no act of the FCI to deny the permission to enter into the contract for all times so as to signify its intention to not to perform its promise in its entirety. In these circumstances, the Company could not have repudiating the contract.

We are inclined to hold that FCI had not refused to perform the contract altogether nor there has been any refusal to the whole of the contract. Therefore, the Company was not justified in putting to an end to the contract under its letter dated 17th February, 1986.

In the facts of the case, we find that according to the tender notice the period of contract was to commence only from the date the company was permitted to enter into the contract or such later date as the Senior Regional Manager would indicate. Although the telegram dated 25/27th December, 1985 was forwarded by the FCI to the Company to enter into the contract within a period of one week (reference paper no.29-B) but the Company had not acted upon the telegram within the time specified. Period of one week from 26/27th December, 2017 would expire on 3rd January, 1986. Admittedly, the Company had responded to the letter on 4th January, 2017 only.

Even otherwise, irrespective of the date asking the contractor to enter into the contract, the Regional Manager could determine the date for commencement of the contract to be later than the date of such entering into the contract. We find that letter written by the Regional Manager on 17th April, 1986 calling upon the company to enter into the contract is necessarily referable to the power conferred under Clause-IX of the tender notice as quoted above.

We are also of the opinion that there had been no denial by the FCI at any point of time to not to perform its part of obligation in its entirety.

From the correspondences, which have been brought on record, including the letters written by the Company dated 4th and 13th January, 1986 and that by the Regional Manager dated 17th April, 1986, at best it can be said that the FCI had deferred the date for commencement of the period of two years of the contract. There had been no denial at any point of time by the FCI in permitting the company to enter into the contract and perform its part of obligation in its entirety.

The other aspect of the matter, which has escaped the attention of the Court below is the impact of the return of the earnest money by the FCI to the Company (as stated by the Comp-any). What impact the return of the earnest money will have on the subsistence of the contract having regard to the terms and conditions of the tender notice is an important aspect for deciding the issues as raised by the FCI and the Company in their respective suits.

Having arrived at the said conclusion, we find that the judgment of the court below which records that there had been valid termination of the contract by the Company vide letter dated 13th February, 1986 under Section 39 of the Indian Contract Act cannot be legally sustained and has to be set aside. It is ordered accordingly.

Once termination of the contract as claimed by the Company is found to be bad, the issue which needs determination is the amount of compensation to which the FCI would be entitled from the Company for non-performance of the Contract. The loss suffered thereof has to be reassessed on the basis of the evidence led by the parties.

It is also necessary for the trial court to examine as to whether forfeiture of the security amount in the facts of the case is justified when the FCI itself had returned the earnest money to the Company (as stated by the Company). The impact of the return of the earnest money on the subsistence of the contract has also to be considered.

Since the aforesaid aspects of the matter have not been examined by the Trial Court, we deem it if fit and proper to remand the matter to the Trial Court for examining the same on the basis of the evidence led by the parties.

For all the aforesaid reasons, the common judgment and decree of the Trial Court dated 28th April, 2007 is hereby set aside. Both the suits referred to above are restored to their original number to be decided afresh in light of the observations made above. Since the parties have already led their evidence, we request the Trial Court to conclude the proceedings on remand preferably within six months from the date a certified copy of this order is filed before the Court concerned.

In view of the aforesaid, both the appeals are allowed.

Money, if any, deposited by the FCI shall abide by the orders to be passed by the Court below on remand.

(Rajiv Joshi, J.)             (Arun Tandon, J.)
 
Order Date :- 24.11.2017
 
Sushil/-
 

 

 
Case :- FIRST APPEAL No. - 243 of 2007
 

 
Appellant :- Food Corporation Of India Ltd. Thru. Distt. Manager
 
Respondent :- M/S Ajay Company Manjari Building ,Ambala Road & Others
 
Counsel for Appellant :- Satish Chaturvedi,Arun Kumar Shukla
 
Counsel for Respondent :- Arjun Singhal,Vikrant Pandey
 

 
Hon'ble Arun Tandon,J.
 
Hon'ble Rajiv Joshi,J.
 
Allowed.
 
For orders, see our order of date passed on the separate sheets.
 

 

 
(Rajiv Joshi, J.)             (Arun Tandon, J.)
 
Order Date :- 24.11.2017
 
Sushil/-