Calcutta High Court
Prakash Kumar Thaker vs The Jharkhand State Co-Operative Lac ... on 11 December, 2023
Author: Sugato Majumdar
Bench: Sugato Majumdar
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
COMMERCIAL DIVISION
Present:
The Hon'ble Justice Sugato Majumdar
CS/634/2001
PRAKASH KUMAR THAKER
VS
THE JHARKHAND STATE CO-OPERATIVE LAC MARKETING AND
PROCUREMENT FEDERATION LIMITED
For the Plaintiff : Mr. Subhasis Sengupta, Adv.
Mr. Avijit Dey, Adv.
For the Defendant : Mr. Sakya Sen, Adv.
Mr. Chanchal Kumar Dutta, Adv.
Ms. Krishna Mullick, Adv.
Hearing concluded on : 30.11.2023
Judgment on : 11.12.2023
Sugato Majumdar, J.:
The instant suit is filed by the Plaintiff praying for a decree of Rs. 14,23,920/-,
interest along with other prayers.
The Plaintiff carries on business of export and trading of shellac. The
Defendant is a co-operative society having its office at Ranchi, Jharkhand. The plaint
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case in nutshell is that pursuant to negotiation between the parties, the Plaintiff
agreed to purchase and the Defendant agreed to sell, confirmed by the later in terms
of a letter dated 15/04/2000, to sell 24 metric ton shellac. In terms of the agreement,
the Plaintiff deposited 10 per cent of the contract value as the earnest money by a
demand draft dated 17/04/2000, drawn on Indian Overseas Bank, amounting to
Rs.2,73,600/-. The said demand draft was duly received by the Defendant at its office
at Ranchi. Acknowledgement was made on 18/04/2000. In terms of the letter dated
17/04/2000 the Plaintiff inquired into when the Defendant would be ready to deliver
the first lot of 12 metric ton shellac so that the Plaintiff's representative may collect
the same and deposit the balance consideration money. The Plaintiff's object to
purchase shellac was to supply and sell the same to an Egyptian buyer. The
Defendant had contractual obligation to deliver the entire quantity of machine-made
T.N shellac within 20/05/2000. Since the stipulated supply was not made till mid-
May, 2000, the Plaintiff asked the Defendant to supply shellac.
By a letter dated 26/07/2000, the Defendant wrongfully terminated the
contract. On pretext of labor problem, the Defendant expressed inability to supply
the said shellac. The Defendant also returned the earnest money, previously
deposited by the Plaintiff. It is contention of the Plaintiff that in spite of extension of
delivery period till 01/09/2000, the Defendant neglected, failed and refused to
deliver any part of shellac as agreed upon. The Plaintiff made it known to the
Defendant that the former is an exporter and goods are required for sale to his
foreign customers. Since the Defendant failed to supply shellac in breach of
agreement, the Plaintiff had to purchase shellac from market at enhanced rate to
discharge contractual obligation to overseas party. Since the Plaintiff had to purchase
shellac at enhanced rate, he suffered business loss and loss of profit to the tune of
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Rs.14,23,920/- being the difference between market price and contractual price as on
01/09/2000. The Plaintiff filed the instant suit praying for recovery of the said
damages along with interest and to pass decree for such amount as may be found
payable by the Defendant.
During pendency of the suit, because of bifurcation of the State of Bihar and
creation of the State of Jharkhand w.e.f. 27/08/2001 and subsequent amendments in
relevant bye-laws, the present Defendant succeeded the original Defendant.
The Defendant contested the suit by filing written statement. The Defendant is
a society registered under Jharkhand Co-operative Societies Act 1935. Functioning of
the society is governed by the registered bye-laws of the society.
Contention of the Defendant is that no written agreement was ever executed
between the parties for purchase and sale of shellac, as alleged. No contract came
into existence between the parties, as alleged. The Plaintiff merely gave proposal to
purchase T.N. Shellac from the Defendant which was accepted by the Defendant on
the basis of decision taken by the Business Committee of the Defendant. The said
decision was communicated to the Plaintiff by a letter dated 15/04/2000. The
Plaintiff deposited the earnest money in compliance with the requirement as
contemplated in the said letter. It is further contended that the proposal of t he
Plaintiff was provisionally accepted. In view of such factors namely labour trouble,
and defect of chimney beyond control, the Defendant expressed its inability to give
effect to the Plaintiff's proposal. The Defendant referred to force majeure clause of
the agreement. The Defendant denied all other contents and specifically stated that
this Court has no territorial jurisdiction to entertain the suit. According to the
Defendant, the suit is liable to be dismissed with costs.
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On the basis of rival pleadings, the following issues were framed:
1) Is the suit barred under the provision of section 57 read
with bye-law of Jharkhand Co-operative Societies Act 1935
and therefore, not maintainable?
2) Did the Plaintiff and the Defendant entered into any
agreement on 15 t h April, 2000?
3) Did the Defendant commit any breach of agreement for
sale with regard to claim a sum of Rs.14,23,920/-?
4) Is the Plaintiff entitled to claim a sum of Rs.14,23,920/- ?
5) Has the Plaintiff suffered any loss or damage?
6) To what further or other relief is the Plaintiff entitled?
Parties adduced oral as well as documentary evidences.
The Defendant raised a plea that the suit is barred under section 57 of the
Jharkhand Co-operative Societies Act, 1935. Section 57 of the Act states:
"57. Bar of jurisdiction of Court. - (1) Save in so far as
expressly provided in this Act, no Civil or Revenue Court shall
have any jurisdiction in respect of any matter concerned with the
winding up or dissolution of the registered society or suspension
of the Managing Committee of a registered society under its act,
or of any dispute required by section 48 or any other section of
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this Act to be referred to the Registrar, Tribunal, Forum, as the
case may be, or of any proceedings, under Chapter VIIA.
(2) While a society is in liquidation, no suit or other legal
proceeding shall be proceeded with or instituted against the
liquidator as such or against the society or any member thereof
on any matter touching the affairs of the society, except by leave
of the Registrar and subject to such terms as he may impose.
(3) No order of the State Government, District Judge, Registrar, a
person appointed to assist the Registrar, liquidator, State
Tribunal or Forum or an arbitrator or arbitrators purporting to
be one, which under any provision of this Act is declared to be
final shall be liable to be challenged, set aside, modified, revised,
or declared void in any Court upon merits or upon any ground
whatsoever except want of jurisdiction."
Section 48 refers to disputes related to business of the co-operative societies as
detailed therein. There is no bar in the Act to institute a suit in a civil court to enforce
a contract entered into by a co-operative society with a third party in relation to any
business activity. The underlying principle and scope of section 48 and section 57 of
the Act came up for consideration before a five Judges' Bench of the Supreme Court
of India. The Supreme Court of India considered the case in respect of Section 48(1)
read with Section 57 of the Bihar and Orissa Cooperative Societies Act, 1935, the
precursor of the present Act . It was explained:
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"9. From the provisions of the Act, set out above, it is manifest
that the Act created a special tribunal, namely, the Registrar of
Cooperative Societies, to deal with certain disputes specified in
Section 48(1) (a) to (e). This special tribunal was created with a
view to shortening litigation and providing speedy relief to
registered societies and their members in their disputes inter se
in respect of the business of the society. Before the amendments
introduced by the Act of 1948, the disputes which could be
entertained by the Registrar were disputes amongst members,
past members or their heirs or their sureties, or between a
society and its officers, agents or servants, or between a society
and other registered societies (without meaning to exhaust all
the categories.) But, before the amendments, one who was not a
member of a society or was not claiming through a member or a
past member or a deceased member, or was not a surety of a
member or a deceased member, was not subject to the
jurisdiction of the Registrar under Section 48. That is to say,
any dispute between a society or its members, past members or
deceased members or sureties of such members on the one
hand and non-members on the other, was not within the
purview of the section, so that the appellant Company, which is
not a registered society or a member of a registered society,
could not have its claim, or a claim against it by a registered
society, referred to the Registrar for decision, under this section.
Such a dispute by a society or its members against a non-
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member had to be taken to the ordinary courts for decision."
(Sugauli Sugar Works (P) Ltd. v. Asst. Registrar, Co-op.
Societies, AIR 1962 SC 1367).
In a subsequent case Bihta Co-op. Development Cane Marketing
Union Ltd. v. Bank of Bihar, (AIR 1967 SC 389) a three Judges' Bench of the
Supreme Court of India reiterated the same:
"The scheme of sub-section (1) of Section 48 seems to be that
certain disputes touching the business of a registered society
should not be taken to Civil Courts and made the subject-matter
of prolonged litigation. The legislature took pains to specify the
persons whose disputes, were to be subject-matter of reference
to the Registrar. Non-members did not come into the picture at
all."
In the present case, the Plaintiff is neither an agent or ser vant of the
cooperative society nor is a member, past member, heir of deceased member of the
Defendant cooperative society within the meaning of the aforesaid Act of 1935 .
Disputes of the present suit do not come within purview of section 48 or section 57 of
the Jharkhand Co-operative Societies Act, 1935. Therefore, the suit is maintainable.
Issue No.1 is decided in favour of the Plaintiff.
The Issue No.2 is whether the Plaintiff and the Defendant entered into any
agreement. It is one of the pleas in the written statement and also argued by the
Learned Counsel for the Defendant that there was no binding agreement between the
parties. The Learned Counsel for the Defendant argued, on the other hand, that
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material evidences clearly establish that there was a concluded contract between the
parties.
Although averred in the written statement that there was no agreement
between the parties, written statement states in Para.5:
"The plaintiff merely gave a proposal to purchase T.N. Shellac
from the defendant which proposal was accepted by the
defendant on the basis of the decision taken by the Business Sub-
committee of the defendant. The said decision was
communicated to the plaintiff by letter dated 15 th April, 2000
relied upon by the plaintiff. Issuance of the said letter dated 15 th
April, 2000 does not result in a contract coming into existence
by and between the plaintiff and the defendant for
purchase/sale of T.N. Shellac."
This is an admission that a proposal was made by the Plaintiff to the
Defendant for purchase of T.N. Shellac and the same was accepted by the
Defendant. It is also admitted that acceptance was communicated to the Plaintiff in
terms of the letter dated 15/04/2000. The said letter was marked as Ext. "E". In the
said letter offer of the Plaintiff was accepted subject to condition that the Plaintiff
shall deposit 10% of the earnest money. It is also admitted in the written statement
that the Plaintiff deposited the earnest money with the Defendant. In the conspectus
of facts it is evident that offer of the Plaintiff was accepted and a concluded contract
came into being.
Issue No.2 is decided in favour of the Plaintiff.
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Issue No.3 is whether the Defendant committed any breach of agreement or
not.
It is argued by the Learned Counsel for the Plaintiff that the Defendant
delayed delivery of the goods. On 23 r d June, 2000 the Defendant purportedly raised
two grounds of lack of productivity and rise in price by the Board. Ultimately, in
terms of the letter dated 26t h July, 2000 (Ext.-K), the Defendant terminated the
agreement on plea of labour problem and strike. According to the Learned Counsel
for the Plaintiff, this is breach of agreement.
Per contra the Learned Counsel for the Defendant argued that delivery of the
goods could not be made for reasons beyond control. It is a case of failure to
perform contractual obligation because of supervening events beyond control
resulting in frustration of contract. The Learned Counsel relied upon the principle of
law laid down in Satyabrata Ghosh vs Mugneeram Bangur & Co. and Ors.
(AIR 1954 SC 44).
There was a time when contractual duties were regarded as absolute. There
was no excuse for any supervening event which made contractual performance
impossible. In Paradine vs Jane [(1647) Aleyn 26], this principle was
expounded by a British Court. It was decided that when a party by his own contract
creates a duty or charge upon himself, he is bound to make it good, if he may,
notwithstanding any accident by inevitable necessity, because he might have been
provided against it by his contract. The doctrine of absolute contract probably never
applied where a contract called for personal performance by a party who died or was
permanently incapacitated. Another early exception to it was recognised in cases of
supervening illegality. In Taylor vs Caldwell [(1863) 3 B. & S. 826] Blackburn,
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J, relied on the first exception as bases for formulating the general rule of discharge
which became known as the doctrine of frustration. Owing its genesis in Taylor vs
Caldwell, this doctrine of frustration entered into its growth in subsequent period.
In Krell vs Henry [(1903) 2 K.B 740] the doctrine was further expounded and
applied to cases where the event which renders the contract in capable of
performance is the cessation or non-existence of an express condition or state of
things, going to the root of the contract and essential to its performance.
In India, the doctrine of frustration is embodied in section 56 of the Indian
Contract Act, 1872. The section states:
".56. Agreement to do impossible act. -An agreement to
do an act impossible in itself is void.
Contract to do an act afterwards becoming impossible
or unlawful.--A contract to do an act which, after the contract
is made, becomes impossible, or, by reason of some event which
the promisor could not prevent, unlawful, becomes void when
the act becomes impossible or unlawful.1
Compensation for loss through non-performance of
act known to be impossible or unlawful.--Where one
person has promised to do something which he knew, or, with
reasonable diligence, might have known, and which the
promisee did not know, to be impossible or unlawful, such
promisor must make compensation to such promisee for any
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loss which such promisee sustains through the non-
performance of the promise."
In Satyabrata Ghose v. Mugneeram Bangur & Co.,[(1953) 2 SCC
437], B.K. Mukherjee, J, speaking for three Judges' Bench, explained that the first
paragraph of the section lays down the law in the same way as in England. It speaks
of something which is impossible inherently or by its very nature, and no one can
obviously be directed to perform such an act. The second paragraph enunciates the
law relating to discharge of contract by reason of supervening impossibility or
illegality of the act agreed to be done. The wording of this paragraph is quite
general, and though the illustrations attached to it are not at all happy, they cannot
derogate from the general words used in the enactment. This much is clear that the
word "impossible" has not been used here in the sense of physical or literal
impossibility. The performance of an act may not be literally impossible but it may
be impracticable and useless from the point of view of the object and purpose which
the parties had in view; and if an untoward event or change of circumstances totally
upsets the very foundation upon which the parties rested their bargain, it can very
well be said that the promissor finds it impossible to do the act which he promised
to do. It is further explained as follow:
"17. In the large majority of cases however the doctrine of
frustration is applied not on the ground that the parties
themselves agreed to an implied term which operated to
release them from the performance of the contract. The relief
is given by the court on the ground of subsequent impossibility
when it finds that the whole purpose or basis of a contract was
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frustrated by the intrusion or occurrence of an unexpected
event or change of circumstances which was beyond what was
contemplated by the parties at the time when they entered into
the agreement. Here there is no question of finding out an
implied term agreed to by the parties embodying a provision
for discharge, because the parties did not think about the
matter at all nor could possibly have any intention regarding
it. When such an event or change of circumstance occurs
which is so fundamental as to be regarded by law as striking at
the root of the contract as a whole, it is the court which can
pronounce the contract to be frustrated and at an end. The
court undoubtedly has to examine the contract and the
circumstances under which it was made. The belief, knowledge
and intention of the parties are evidence, but evidence only on
which the court has to form its own conclusion whether the
changed circumstances destroyed altogether the basis of the
adventure and its underlying object [Morgan v. Manser,
(1948) 1 KB 184] . This may be called a rule of construction by
English Judges but it is certainly not a principle of giving effect
to the intention of the parties which underlies all rules of
construction. This is really a rule of positive law and as such
comes within the purview of Section 56 of the Contract Act."
It was also explained that if the parties do contemplate the possibility of an
intervening circumstance which might affect the performance of the contract, but
expressly stipulate that the contract would stand despite such circumstance, there can
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be no case of frustration because the basis of the contract being to demand
performance despite the happening of a particular event, it cannot disappear when
that event happens.
In Naihati Jute Mills Ltd. v. Khyaliram Jagannath (AIR 1968 SC
522) the doctrine was again considered by the three Judges' Bench of the Supreme
Court of India. In the language of the Court:
"5. Section 56 of the Contract Act inter alia provides that a
contract to do an act which, after the contract is made becomes
impossible, or by reason of some event which the promisor
could not prevent, unlawful, becomes void when the act
becomes impossible or unlawful. It also provides that where
one person has promised to do something which he knew, or,
with reasonable diligence might have known, and which the
promisee did not know to be impossible or unlawful, such a
promisor must make compensation to such promisee for any
loss which such promisee sustains through the non-
performance. As envisaged by Section 56, impossibility of
performance would be inferred by the courts from the nature
of the contract and the surrounding circumstances in which it
was made that the parties must have made their bargain upon
the basis that a particular thing or state of things would
continue to exist and because of the altered circumstances the
bargain should no longer be held binding. The courts would
also infer that the foundation of the contract had disappeared
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either by the destruction of the subject-matter or by reason of
such long interruption or delay that the performance would
really in effect be that of a different contract for which the
parties had not agreed. Impossibility of performance may also
arise where without any default of either party the contractual
obligation had become incapable of being performed because
the circumstances in which performance was called for was
radically different from that undertaken by the contract."
Coming to the case in hand, the letter dated 26t h July, 2000 (Ext.-K), the
Defendant terminated the agreement on plea of labour problem and strike. In the
written statement plea was taken that chimney of the Defendant's factory was
damaged and some labour trouble also cropped up. On account of these intervening
events beyond control of the Defendant stipulated T.N. Shellac could not be supplied
and the Defendant expressed inability to give effect to the proposal of the Plaintiff.
The Defendant adduced evidence to show that chimney and boiler of the factory
broken down disabling them to supply. It is not the Plaintiff's case that these
incidents were forceable and existed at the time of making of the contract or
acceptance of the proposal. It is in the evidence of D.W.1 that because of breakdown
of chimney and boiler in the factory, production became standstill, consequently
stipulated supply of T.N. Shellac could not be made. Evidence shows that running
and working of chimney and boiler are so essential for production that break-down of
the same disabled the Defendant to perform its part of contract.
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In Dhanrajamal Gobindram v. Shamji Kalidas & Co., (AIR 1961 SC
1285) the Supreme Court of India considered the issue of force majeure. It was
explained:
"17. McCardie, J. in Lebeaupin v. Crispin [(1920) 2 KB 714]
has given an account of what is meant by "force majeure", with
reference to its history. The expression "force majeure" is not a
mere French version of the Latin expression "vis major". It is
undoubtedly a term of wider import. Difficulties have arisen in
the past as to what could legitimately be included in "force
majeure". Judges have agreed that strikes, breakdown of
machinery, which, though normally not included in "vis
major" are included in "force majeure". An analysis of rulings
on the subject into which it is not necessary in this case to go,
shows that where reference is made to "force majeure", the
intention is to save the performing party from the
consequences of anything over which he has no control. This is
the widest meaning that can be given to "force majeure", and
even if this be the meaning, it is obvious that the condition
about "force majeure" in the agreement was not vague. The use
of the word "usual" makes all the difference, and the meaning
of the condition may be made certain by evidence about a force
majeure clause, which was in contemplation of parties."
Break down of machineries are included in force majeure, as observed above.
It is neither alleged nor in evidence that break down of machineries was a ploy of
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the Defendant to avoid contractual obligation. Therefore, from the facts and
circumstances of the case and material evidences, it is clear that the Defendants
were prevented from supplying stipulated T.N. Shellac by supervening
circumstances beyond control. This is a case of frustration of contract, as
contemplated in section 56 of the Indian Contract Act, 1872 and not a case of breach
of contract.
Issue No.3 is decided in favour of the Defendant.
Issue No.4, 5 and 6 are taken up together. As discussed and concluded above,
this is a case of frustration of contract and the contract is void. Under section 65 of
the Act, when an agreement is discovered to be void, or when a contract becomes
void, any person who has received any advantage under such agreement or contract
is bound to restore it, or to make compensation for it to the person from whom he
received it. In Kuju Collieries Ltd. v. Jharkhand Mines Ltd., [(1974) 2 SCC
533] it was explained that the second part of the section refers to a contract
becoming void. That refers to a case where an agreement which was originally
enforceable and was, therefore, a contract, becomes void due to subsequent
happenings. In both these cases any person who has received any advantage under
such agreement or contract is bound to restore such advantage, or to make
compensation for it to the person from whom he received it. In South East Asia
Marine Engg. & Constructions Ltd. (SEAMEC LTD.) v. Oil India Ltd.,
(2020) 5 SCC 164, it has been succinctly elucidated by three Judges Bench of the
Supreme Court of India that when the parties have not provided for what would take
place when an event which renders the performance of the contract impossible, then
Section 56 of the Contract Act applies. When the act contracted for becomes
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impossible, then under Section 56, the parties are exempted from further
performance and the contract becomes void. With reference to section 65 of the
Indian Contract Act, 1872, it was observed:
"23. In India, the Contract Act, 1872 had already recognised the harsh
consequences of such frustration to some extent and had provided for a
limited mechanism to ameliorate the same under Section 65 of the
Contract Act, 1872. Section 65 provides as under:
"65. Obligation of person who has received
advantage under void agreement, or contract that
becomes void.--When an agreement is discovered to be
void, or when a contract becomes void, any person who has
received any advantage under such agreement or contract is
bound to restore it, or to make compensation for it, to the
person from whom he received it."
The aforesaid clause provides the basis of restitution for "failure of basis".
We are cognizant that the aforesaid provision addresses limited
circumstances wherein an agreement is void ab initio or the contract
becomes subsequently void."
In the case in hand, earnest money deposited by the Plaintiff was returned
forthwith to him by the Defendant. This is in evidence and admitted fact. Advantage
derived under the contract was returned to the Plaintiff. Therefore, the Defendant is
not liable to pay any compensation. The Plaintiff is also not entitled to any relief
prayed for reasons stated above.
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Issue No.4, 5 and 6 are, therefore, decided against the Plaintiff.
On hearing rival submissions and appreciation of material evidences and for
reasons discussed above this Court is of opinion that the instant suit of the Plaintiff
fails on merit and is liable to be dismissed.
Hence, it is ordered that the instant suit is dismissed on merit without cost
on merit.
The instant suit is disposed of along with pending applications.
(Sugato Majumdar, J.)
