Full Judgment Text
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PETITIONER:
M. LACHIA SETTY & SONS LTD. ETC. ETC.
Vs.
RESPONDENT:
THE COFFEE BOARD, BANGALORE
DATE OF JUDGMENT09/10/1980
BENCH:
TULZAPURKAR, V.D.
BENCH:
TULZAPURKAR, V.D.
PATHAK, R.S.
CITATION:
1981 AIR 162 1981 SCR (1) 884
1980 SCC (4) 636
ACT:
Auction Sales - Auctioneer, if competent to impose his
own terms for holding auctions-Mitigation of loss in resale
of goods not taken delivery of-Rights of defaulting and non-
defaulting parties.
HEADNOTE:
One of the three methods followed by the respondent.
(The Coffee Board), for releasing raw coffee seeds to the
trade for internal consumption was by "pool auctions" in
which only dealers registered with the Board were permitted
to participate. The pool auction was conducted by a Sale
Conducting officer (who was Chief Marketing Officer of the
Board). Condition 8 of the Conditions of Sale provides,
"telegraphic bids or telegraphic instructions regarding
bidding will not be considered." Condition 6 provides, "the
seller does not bind himself to accept the highest or any
bid. He is not bound to assign any reasons for his decision
and his decision shall be final and conclusive."
The bids offered by the two appellants, who were
registered dealers, at a pool auction were accepted by the
Sale Conducting officer, even though the bids were not the
highest. On their failure to take delivery of the stocks and
to pay the bid money within the stipulated period, the
Board, after giving due notice to the appellants re-sold the
stocks two months later at another pool auction. The prices
realised at the re-auction being much lower than the
appellant’s bids, the Board sought to realise the
differences by way of suits.
The appellants disclaimed liability to make good the
loss to the Board mainly on the ground that there was no
concluded contract between the parties in that the
appellants had sent telegrams to the Board revoking their
bids before the declaration of the results of the auction;
that in one case in regard to five lots there was no
concluded contract as the Board even under clause 6 had no
power to accept a lower bid on receipt of a higher bid which
it did; and that the appellants were not responsible for the
loss which the Board had claimed as having arisen out of the
resale of the stocks bid by them in that the loss was the
result of deliberate bringing down of prices by the Board
and further there was inordinate delay in holding the re-
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sale.
The Board, on the other hand, alleged that Condition 8
did not permit telegraphic withdrawal or retraction of any
bid and since the oral retraction had not been properly done
to the officer concerned there was a concluded contract;
Condition 6 was framed to prevent the mal-practice among
dealers by cornering stocks by forming rings among
themselves and puffing up prices to make unlawful gains to
the detriment of the consumer and that lastly the loss which
resulted in the resale of stocks was the result of fall in
prices at the time of resale and therefore, was not unreal.
885
Accepting the appellants’ contention the trial court
dismissed the Board’s suit for recovery of loss. On appeal
by the Board the High Court substantially upheld its
contentions and decreed the suits.
Dismissing the appeals.
^
HELD: 1. (a) Condition No. 8 was wide enough to bar
withdrawal or retraction of bids by telegrams. [891H]
(b) On the face of it "instructions regarding bidding"
would mean any instructions, not merely instructions by way
of clarification, modification, amplification of bids but
also withdrawal or retraction of bids. Such instructions by
telegram would be impermissible. Having regard to the solemn
procedure prescribed and followed by the Board any
instructions by telegram which more often are cryptic and
lack in authenticity on their face are rightly prohibited.
The fact that nowhere else in the Conditions of Sale is the
withdrawal or retraction of bids dealt with, would precisely
be the reason why this Condition should be widely construed
as including the topic of instructions regarding withdrawal
or retraction of bids. [891E-G]
2. There is no force in the contention that there were
no concluded contracts between the parties on account of
oral withdrawal of the bids. Assuming that the oral
retraction was made as claimed by the appellants, the fact
that it was made to the Assistant Coffee Marketing Officer
who had no authority to accept it (instead of to the Sale
Conducting Officer who was in charge of the pool auction)
made the retraction ineffective and of no consequence.
[892C-D]
3. (a) An auctioneer can set his own terms and
conditions for holding an auction. If he does so, it is
these conditions that would govern the rights of the
parties. [893G]
(b) The Chief Marketing Officer was well within his
rights in accepting the lower bids. When Condition 6 says
that the seller is not bound to accept the highest bids, it
necessarily implies that he can accept any lower bids. The
words, "or any bid" after the words "the highest" are used
not for emphasising that even the highest bid need not be
accepted. The use of the words "or any bid" would be
superfluous if the same consequence of holding a fresh
auction was to ensure in the event of the highest bid being
declined. By necessary implication power had been conferred
on the Board or its Chief Marketing officer to accept a
lower bid in preference to any higher bid. [894E-H]
(c) The practice followed by the Board over a period
long before the disputes arose showed that the parties to
the pool auctions understood Condition No. 6 as conferring
power on the Board or its Chief Marketing Officer to accept
lower bids in preference to higher bids. More than all, the
Condition was devised to put an end to the mal-practice of
the dealers cornering stocks, puffing up prices and so on to
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the detriment of the consumer. [895A]
4.(a) The well accepted position in law on the question
of mitigation of loss is that it does not give any right to
the party in breach of the contract but is a concept to be
borne in mind by the Court while awarding damages. The non-
defaulting party is not expected to take steps which would
injure innocent persons. Steps taken by him in performance
or discharge of his statutory duties cannot be weighed
against him. The question in each case would be one of
reasonableness of action taken by the non-defaulting party.
[897C]
886
In the instant case the various measures taken by the
Board were to prevent mal-practice by dealers and to protect
the interest of the consumers. In any event they were not
directed against the defaulting dealers at the pool auction.
At the earlier auction the Sale Conducting Officer decided
to accept the lower bids in preference to the higher bids
offered by the dealers who despite the oral warning issued
by him against such a method, offered higher bids exceeding
the average prices for the month. It was for this reason
that at the re-sale the prices realised were lower than
those offered by the appellants at the earlier pool auction.
At the re-sale at any rate, only the highest bids were
accepted and therefore, the loss arising from the re-sale
was not unreal as claimed by the appellants. [898A-C]
(b) On the facts of this case the re-sale had been held
within a reasonable time. [898G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION ; Civil Appeal Nos. 2567-
2568 of 1969.
From the Judgment and order dated 19-7-1963 of the
Madras High Court in Appeal Nos. 260/58 and 165/60.
S. V. Gupte, S. S. Javali and M. Veerappa for the
Appellant.
Sundran Swami, Ravindra Swami and K.J. John for the
Respondent.
The Judgment of the Court was delivered by
TULZAPURKAR, J.-These appeals by certificates granted
by the High Court of Judicature at Madras are directed
against its common judgment and two decrees dated July 19,
1963 in A.S. No. 260 of 1958 and A.S. No. 165 of 1960
respectively whereby the High Court decreed the respondent
suits (O.S. No. 319/1955 and O.S. No. 316/1955) in damages
against the two appellants (M. Lachia Setty & Sons Ltd. and
Giri Coffee Works) respectively.
The respondent (the Coffee Board, Bangalore) is a
statutory body incorporated under the Coffee Act, 1942
having complete control-almost monopolistic-over the coffee
trade, internal and external. Its functions and duties
require it to keep a control over coffee prices regard being
had to the interest of all concerned, the grower, planter,
licensed curer, trader and consumer. Inter alia, it is
entrusted with a duty of marketing coffee delivered to it by
all owners of coffee estates and for that purpose it is
empowered to make allotments of coffee between export and
internal trade and in regard to the coffee allotment made to
the latter category at the material time it adopted three
methods for releasing the coffee to the trade for internal
consumption: (1) by sales called "pool auctions" (wholesale)
held at Bangalore, Coimbatore and certain other centres in
Madras and Mysore States, (2) by retail sales known
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887
as "local auctions" and (3) by sales to cooperative
societies and at propaganda centres established by it. In
these appeals we are concerned with internal sales falling
under the first category, namely, sales effected
periodically through "pool auctions". Admittedly, at such
"pool auctions" only dealers registered with the respondent
Board to whom permits are issued are entitled to participate
and such "pool auctions" are inter alia governed by special
conditions prescribed by the respondent Board generally for
regulating such sales which are termed as ’Conditions of
sale’ (copy produced at Ex. A-3).
On October 7, 1952 various quantities of coffee (of
various grades and quality) comprised in 315 lots were put
up for sale by the respondent at its "pool auction" held at
Coimbatore, the auction being conducted by the Chief Coffee
Marketing Officer himself as the Sale Conducting Officer. In
that auction several registered dealers including the two
appellants (M. Lachia Setty & Sons Ltd. and M/s Giri Coffee
Works) participated and lodged their bids in the prescribed
forms for certain lots in the Bid Boxes maintained for the
purpose. The result of the auction was announced some time
after 2 P.M. on October 8, 1952 and inter alia. the bids of
the two appellants in respect of the quantities of the lots
for which they had submitted their bids were accepted by the
Chief Marketing Officer, though some of the bids in respect
of five lots were not the highest, and they were declared to
be the successful bidders. On the appellants’ failure to pay
for and take delivery of the lots either within the
stipulated period of 17 days or the extended period the
respondent Board after issuing a notice of re-sale dated
December 18,1952 to the appellants and others, who had
similarly defaulted, held a re-sale (another pool auction)
on December 23, 1952 at which considerably lower price was
realised and the respondent Board filed a batch of 15 suits
against the defaulting bidders including the two appellants.
In suit No. 319/1955 which was filed against the appellant
M. Lachia Setty & Sons Ltd., the loss incurred as a result
of the re-sale was claimed at Rs. 34,570-6-6 as and by way
of damages and in suit No. 316/1955 filed against appellant
M/s Giri Coffee Works a loss of Rs. 5,917 was claimed.
By their written statements the appellants, inter alia,
raised three principal defences. First, the appellants
contended that in their case they had revoked their bids
orally as well as by a telegram dated October 7, 1952 before
the declaration of the results and hence there were no
concluded contracts between them and the Coffee Board and,
therefore, they could not be made liable for the loss
arising on re-sale. Secondly, it was contended that at an
888
auction a lower bid always lapses on receipt of a higher bid
and as such the lower bid becomes incapable of acceptance
and that even under condition No. 6 of the ’Conditions of
Sale’ the Board or its Chief Coffee Marketing Officer had no
power to accept their lower bids (in respect of 5 lots in
the case of Giri Coffee Works) as those were not the highest
bids for the lots concerned. Thirdly, it was contended that
the Coffee Board having deliberately depressed or brought
down the prices of the coffee had disentitled itself to
claim damages in as much as the loss arising on such re-sale
was unreal and in any event the re-sale having been held
after an inordinate delay the appellants were not liable for
the quantum of loss claimed. It is unnecessary to set out
the other defences raised in the suits since in these
appeals only the aforesaid three contentions were pressed by
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counsel for the appellants for our acceptance.
The respondent in its replications refuted the
aforesaid contentions of the appellants. It was pointed out
that under condition No. 8 governing the "pool auctions"
telegraphic withdrawal or retraction of any bid was not
permissible and the oral retraction had not been made to the
proper officer and, therefore, there being no valid
retraction the appellants’ bids had been properly accepted
resulting in concluded contracts. It was denied that in
"pool auction" sales respondent Board was obliged to accept
only the highest bid: on the other hand, it was contended
that power to accept any lower bid in preference to the
highest bid was implied in condition No. 6, especially
having regard to duty owed by the respondent Board to
maintain the coffee prices at proper level in the interest
of all concerned. The respondent further denied that it had
disentitled itself from claiming the loss arising on re-sale
because of the fall in prices at the time of such re-sale or
that the loss sustained was unreal. It pointed out that the
measures taken by it in regulating coffee prices had become
necessary as some of the registered dealer and a few of
their friends had formed themselves into a ring and had
cornered coffee by puffing up prices with a view to make
unlawful gains for themselves to the detriment of the
consumer. It also denied that there was any delay in holding
the re-sale.
Parties led oral as well as documentary evidence and on
an appreciation of the entire material the trial court
accepted the aforesaid defences raised by the appellants and
by a common judgment dated March 31, 1958 dismissed the
suits with costs. The respondent Coffee Board preferred
appeals to the High Court and by its common judgment dated
July 19, 1963 the High Court allowed the appeals and decreed
the respondent’s claims against the appellants. The High
Court took the view that under Condition
889
No. 8 telegraphic withdrawal or retraction of bids was
barred and the oral retraction made by M. L. Gopal Setty on
behalf of both the appellants (as the Managing Director of
M. Lachia Setty & Sons Ltd. and as a partner of M/s Giri
Coffee Works ) to the Assistant Officer was of no avail and,
therefore, the appellants’ bids had been properly accepted
resulting in concluded contracts. It further took the view
that condition No. 6 of Conditions of Sale conferred an
implied power on the Board to accept any lower bid in
preference to the highest one and having regard to the facts
and circumstances obtaining in the instant case the Chief
Coffee Marketing Officer was justified in accepting the
lower bids in preference to the highest bids. The High Court
negatived the appellants’ contentions in regard to the loss
claimed by the respondent Board and decreed the amounts
claimed by it from the appellants. It is these decrees
passed by the High Court in favour of the respondent that
are being challenged by the appellants before us in these
appeals.
The first contention raised by counsel for the
appellants in support of the appeals was that before the
results of the auction were announced a little after 2 -
P.M. On October 8, 1952, the appellants had retracted their
bids orally as well as by a telegram and, therefore, their
bids could not be accepted thereafter and no concluded
contracts resulted between the appellants on the one hand
and the Coffee Board on the other. In this behalf reliance
was placed by counsel on two factual aspects emerging from
the record. He pointed out that M. L. Gopal Setty (D.W.1) as
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the Managing Director of M. Lachia Setty & Sons Ltd. and as
the partner of M/s Giri Coffee Works had despatched a
telegram on October 7, 1952 (Ex. B-22) addressed to the
Chief Coffee Marketing Officer, Coffee Board, Coimbatore to
the effect "Hereby withdraw all bids given today on behalf
of Giri Coffee Works and Mysore lachia Setty & Sons
Limited." It was initially received by F. M. Saldhana (PW1),
the Assistant Coffee Marketing Officer, in his office at
about 12.30 A.M. (midnight) on October 8, 1952 and
thereafter was received by Shri Kuttalalingam Pillai, the
Chief Coffee Marketing Officer (PW3), at about 12.30 P.M. on
October 8, 1952 which was long before the declaration of the
results. Secondly, he pointed out that Saldhana (PW1)
admitted in his evidence that on October 8, 1952 before the
results were announced several dealers including M. L.
Gopal Setty were present waiting in the office and at that
time Gopal Setty asked him whether his telegram to Chief
Coffee Marketing Officer had been received to which he
replied in the affirmative but told Gopal Setty that the
Board could not take cognizance of telegrams regarding bids
whereupon Gopal Setty said
890
that he was giving him (Saldhana) oral instructions then in
confirmation of the telegram to which Saldhana replied that
he (Saldhana) was not the Sale Conducting Officer and that
it was too late to withdraw or retract as the bids had been
accepted by the Sale Conducting Officer, meaning the Chief
Coffee Marketing Officer. It is in this manner that the
appellants contended that they had retracted their bids
before the declaration of the results of the auction. On the
other hand, counsel for the respondent Board relied upon
Condition No. 8 of the Conditions of Sale under which he
urged telegraphic withdrawal or retraction of bids was
impermissible and as regards the oral retraction it was
contended that same’ not having been made to the proper
officer, namely, the Chief Coffee Marketing Officer, was of
no avail.
It would, therefore, be necessary to consider Condition
No. 8 as on its proper construction will depend the question
whether telegraphic withdrawal or retraction of bids was
prohibited or not ? A copy of the Conditions of Sale
governing ’pool auctions’ was produced at Ex. A-3. At the
outset it must be observed that "pool auctions" conducted by
the Coffee Board are very much unlike the usual public
auctions where competitive bids are usually given openly
within the hearing of all the bidders so that any bidder
after knowing what the earlier bid is can improve upon the
same by giving a higher bid. At the "pool auctions"
conducted by the Coffee Board only registered dealers
holding the requisite permits from the Board are allowed to
participate and some solemnity is attached to the act of
giving the bid in as much as Condition No. 1 provides that
the participants shall submit their quotations (bids) in the
form prescribed by the Board and the bids in the prescribed
form are required to be lodged in the closed and sealed bid
boxes maintained for the purpose, and at the close of the
bidding, the boxes are opened and record thereof is made by
the Sale Conducting Officer under his signature which is
also attested by a representative of the bidders; the bids
are then tabulated and the Sale Conducting Officer selects
the bids and makes the allotments to the successful bidders
and a declaration containing the names of the successful
bidders alongwith the lots and quantities allotted to them
is put up on the notice board in the office of the Board. In
reality the "pool auctions" resemble or are more akin to
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sales by inviting tenders. It is in the context of such
undisputed procedure that is solemnly followed in the matter
of conducting the "pool auctions" that Condition No. 8 will
have to be considered. It runs thus:
"8. Telegraphic bids or telegraphic instructions
regarding bidding will not be considered."
891
The question is whether the phrase "telegraphic instructions
regarding bidding" occurring in the above condition is wide
enough to include instructions pertaining to withdrawal or
retraction of bids ? According to counsel for the appellants
the phrase refers only to instructions regarding the making
or giving of bids or at the highest would include
instructions by way of clarification or modification of bids
already given which is impermissible by telegraphic
communications. He urged that the topic of withdrawal or
retraction or cancellation of bids has not been dealt with
anywhere else in the Conditions of Sale nor by Condition No.
8 at all and, therefore, in the absence of any specific or
express bar against withdrawal or retraction by telegrams,
the normal mode under the general law of communicating a
withdrawal or retraction by a telegram would be and was
available to the appellants. According to him the
curtailment of the normal mode of communicating a retraction
which is open to an offerer under the general law must be by
some express provision or must arise by necessary
implication. It is not possible to accept the construction
that is sought to be placed by counsel for the appellants on
the concerned phrase occurring in Condition No. 8. In the
first place giving of telegraphic bids having been expressly
barred in the earlier part of the Condition the phrase
"telegraphic instructions regarding bidding" cannot again
refer to instructions regarding the act of giving or making
bids. Secondly, on the face of it "instructions regarding
bidding" would mean any instructions, not merely
instructions by way of clarification, modification,
amplification of bids but also withdrawal or retraction of
the bids and such instructions by telegrams would be
impermissible. Moreover having regard to the solemn
procedure prescribed and followed by the Coffee Board in the
matter of conducting its "pool auctions" submission of bids
is required to be done in prescribed forms and telegraphic
bids are prohibited it stands to reason that any
instructions concerning such bids whether by way of
clarification, amplification, modification, cancellation or
retraction should not be permissible by telegrams which are
more often cryptic and do not possess authenticity on their
face. Further, the fact that nowhere else in the Conditions
of Sale is the topic of withdrawal or retraction of bids
dealt with would precisely be the reason why Condition No. 8
should be widely construed as including the topic of
instructions regarding the withdrawal or retraction of bids.
In our view, the High Court was right in coming to the
conclusion that Condition No. 8 was wide enough to bar
withdrawal or retraction of bids by telegram.
Turning to the oral retraction made by M. L. Gopal
Setty on October 8, 1952, the High Court has taken the view
that the case
892
of oral retraction before the results were announced was not
true, which may be difficult to sustain. But, even if the
evidence about such oral retraction which consists of the
testimony of Gopal Setty (D.W. 1) and Saldhana (PW 1) were
to be accepted at its face value, the same would be of no
avail to the appellants because, such oral retraction was
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made to Saldhana, the Assistant Coffee Marketing Officer,
who had no authority in the matter. Under the procedure it
is the Sale Conducting Officer who is in charge of the pool
auctions. Therefore, retractions had to be made to either
the Sale Conducting Officer or the Chief Coffee Marketing
Officer, the executive head of the Board, and that is why
the telegram Ex. B-22 was addressed on behalf of the
appellants to the Chief Coffee Marketing Officer. In this
case the Chief Coffee Marketing Officer himself was the Sale
Conducting Officer and the oral retraction was not made to
him but it was made to Saldhana, who had no authority. The
oral retraction was, therefore, ineffective and of no
consequence. In our view, therefore, it is not possible to
accept the contention of the appellants that there were no
concluded contracts between them on the one hand and the
Coffee Board on the other on account of withdrawal or
retraction of their bids.
The next contention urged by counsel for the appellants
was that the Chief Coffee Marketing Officer had no power to
accept lower bids when higher bids had been submitted by
other participants as, according to him, the normal
established rule at auction sales has been that a lower bid
lapses on receipt of a higher bid with the result that the
lower bid becomes incapable of acceptance. He further urged
that even under Condition No. 6 of the Conditions of Sale,
on which the respondent Board sought to rely, confers no
power on the Board or its Chief Coffee Marketing Officer to
accept lower bids, for, all that Condition No. 6 does is
that it frees the Board from the obligation to accept the
highest or any bid and the Board need not assign any reasons
for doing so. Counsel fairly stated that so far as the
appellants are concerned this contention was available to
Giri Coffee Works and that too regarding its bids only in
respect of 5 lots, for, in the case of other bids given by
Giri Coffee Works and all bids given by M. Lachia Setty &
Sons Ltd. that were accepted were the highest bids. In
support of this contention counsel relied upon the following
statement of law occurring in Halsbury’s Laws of England
(4th Edn.) Vol. 9, para 231 at page 102:
"231 Auctions.-At auction sales, it is a long-
established rule that prima facie the auctioneer’s
request for bids is a mere invitation to treat, and
that each bid constitutes an offer which is accepted on
behalf of the seller by the auctioneer when.
893
he signifies his acceptance in the usual manner. It
would seem, moreover, that each bid lapses as soon as a
higher bid is made ................ "
It will appear clear that the underlined portion of the
statement of law is supported by the case of Blackbeard v.
Lindigren referred to at footnote 3. [(1786) 1 Cox Eq Cas
205 = 29 English Reports Chancery) 1130]. It was a case
where an Estate was sold before the Master for payment of
debts and A was reported to be the best bidder at the sum of
‘13,000 but before the report was confirmed it was
discovered that A was insane at the time of the bidding. The
Court was moved on behalf of all the parties in the cause
that B the next best bidder might be reported to be the
purchaser at the sum bidden by him. To this motion B
consented but the Court thought it was irregular and
directed the estate to be re-sold generally. Relying on this
decision counsel for the appellants contended that the
normal rule was that a lower bid lapses on the receipt of a
higher bid, and if the highest bid was not to be accepted
for any reason, the auction must be abandoned and fresh
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auction would be required to be held and, therefore, in the
instant case the Chief Coffee Marketing Officer could not
accept the lower bids of Giri Coffee Works in respect of
five lots.
Counsel for the respondent Board did not cavil at the
aforesaid statement of law but he urged that the same was
applicable to auctions generally in the absence of special
conditions prescribed by the auctioneer governing the
auction. According to him it was well-settled that an
auctioneer can prescribe his own terms and conditions on the
basis of which property is exposed to sale by auction, and
in that event, the special conditions so prescribed by him
would govern the position. He strongly relied upon Condition
No. 6, as being a special condition prescribed by the Board
governing the "pool auctions" conducted by it and the said
condition impliedly confers power upon the Board or its
Chief Coffee Marketing Officer to accept a lower bid in
preference to any higher bid that might be received. It
cannot be disputed that an auctioneer can set his own terms
and conditions for holding an auction and if he does so
those conditions would govern the rights of the parties. The
short question which arises for our consideration is whether
Condition No. 6 includes a power to accept a lower bid in
preference to any higher bid ?
Condition No. 6 runs thus:
"(6) The seller does not bind himself to accept
the highest or any bid. He is not bound to assign any
reasons for his decision, and his decision shall be
final and conclusive."
894
Counsel for the appellant urged that the language of
Condition No. 6 does not show that any power was intended to
be conferred on the seller i.e. the respondent Board but it
is concerned with freeing the Board from the obligation to
accept the highest bid by stating that the seller does not
bind himself to accept highest bid and for such non-
acceptance he is not obliged to give any reasons. Secondly,
all that the condition says is that the seller is not bound
to accept the highest or any bid but does not say that the
seller can accept that lower bid. According to him, the
words "or any bid" which follow the words "the highest"
merely emphasize the aspect that even the highest bid need
not be accepted. He, therefore, urged that in the absence of
any power being conferred on the Board or its Chief Coffee
Marketing Officer to accept any lower bid in preference to a
higher bid the normal rule applied and the five lots should
have been withdrawn from that auction and put up for fresh
auction. We are not impressed by the submissions made by
counsel for the appellants on the question of proper
construction of Condition No. 6. It is true that Condition
No. 6 is couched in a peculiar way but when it states that
the seller is not bound to accept the highest bid it
necessarily implies that he can accept any lower bid. The
addition of the words "or any bid" after the words "the
highest" seems to us to be of some significance. We do not
agree that these words are used merely for the purpose of
emphasising the aspect that even the highest bid need not be
accepted. We are of the view that two separate powers-power
to decline the highest bid and power to decline any bid-with
different consequences ensuing are intended to be conferred
on the seller by this condition. The addition of the word
"or any bid" would be superfluous if the same consequence
(of holding a fresh auction) was to ensue in the event the
highest bid being declined. Therefore, on construction of
the condition it is clear that by necessary implication
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power had been conferred on Board or its Chief Coffee
Marketing Officer to accept a lower bid in preference to any
higher bid. Besides, at Ex. A-275 the respondent Board has
produced a tabulated statement showing a number of instances
where the highest bids were rejected and lower bids accepted
at "pool auctions" conducted by it from 1949 to 1952-a
period long before the instant dispute arose which clearly
shows that the parties to the pool auctions also understood
Condition No. 6 as conferring a power on the Board or its
Chief Coffee Marketing Officer to accept lower bids in
preference to higher bids. Moreover, such construction of
Condition No. 6 would accord with the accomplishment of the
main function of the Board to control coffee prices by
maintaining them at proper level as the power to accept
895
a lower bid in preference to any higher or the highest bid
helps avoiding malpractices such as formation of rings or
syndicates by coffee dealers, cornering of coffee by a few
dealers, puffing up of prices by them, etc. In the view
which we are taking of Condition No. 6, it is clear that the
Chief Coffee Marketing Officer in the instant case was
within his rights when he accepted the lower bids received
from Giri Coffee Works in respect of 5 lots. The appellants’
contention in this behalf, therefore, must fail.
The last contention urged by counsel for the appellants
on the quantum of loss claimed by the respondent comprised a
two pronged attack against the re-sale held in respect of
the defaulted lots of coffee. First, the Board was under an
obligation to mitigate or minimise the loss arising from the
failure on the part of the appellants to pay for and take
delivery of the coffee allotted to them at the pool auction,
but instead deliberate measures were taken by the Board to
bring down the prices of coffee and then effected a re-sale
on December 23, 1952 resulting in the alleged loss of Rs.
34,570-6-6 and Rs. 5,917 respectively, which could not be
regarded as a loss directly and naturally arising from the
breach in the ordinary course of events, but was unreal,
created and brought about by the respondent and, therefore,
the same was not recoverable from the appellants. Secondly,
the re-sale was not held within reasonable time of breach
but was inordinately delayed and, therefore, the appellants
were not liable for the quantum claimed. It may be stated
that the contention that the defaulted coffee ought to have
been put up for sale at Export Auction and not at Pool
Auction, though urged in the lower Courts, was not pressed
before us. For the reasons which we shall indicate
presently, we do not find substance in either of these two
grounds of attack.
At the outset it must be observed that the principle of
mitigation of loss does not give any right to the party who
is in breach of the contract but it is a concept that has to
be borne in mind by the Court while awarding damages. The
correct statement of law in this behalf is to be found in
Halsbury’s Laws of England (4th Edn.) Vol. 12, para 1193 at
page 477 which runs thus:
"1193. Plaintiff’s duty to mitigate loss. The
plaintiff must take all reasonable steps to mitigate
the loss which he has sustained consequent upon the
defendant’s wrong, and, if he fails to do so, he cannot
claim damages for any such loss which he ought
reasonably to have avoided."
Again, in para 1194 at page 478 the following statement
occurs under the heading ’Standard of conduct required of
the plaintiff:
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"The plaintiff is only required to act reasonably,
and whether he has done so is a question of fact in the
circumstances of each particular case, and not a
question of law. He must act not only in his own
interests but also in the interests of the defendant
and keep down the damages, so far as it is reasonable
and proper, by acting reasonably in the matter In cases
of breach of contract the plaintiff is under no
obligation to do anything other than in the ordinary
course of business, and where he has been placed in a
position of embarrassment the measures which he may be
driven to adopt in order to extricate himself ought not
to be weighed in nice scales at the instance of the
defendant whose breach of contract has occasioned the
difficulty
The plaintiff is under no obligation to destroy
his own property, or to injure himself or his
commercial reputation, to reduce the damages payable by
the defendant. Furthermore, the plaintiff need not take
steps which would injure innocent persons." (Emphasis
supplied).
In Banco De Portugal v. Waterlaw & Sons, Ltd., Lord Shankey,
L.C., quoted with approval the statement of law enunciated
in James Finlay & Co. v. N. V. Kwik Hoo Tong, Mondel
Maatchappij, to the effect "In England the law is that a
person is not obliged to minimise damages on behalf of
another who has broken a contract if by doing so he would
have injured his commercial reputation by getting a bad name
in the trade." In American Jurisprudence 2d, Vol. 22 para 33
(at pp. 55-56) contains the following statement of law:
"33. The general doctrine of avoidable
consequences applies to the measure of damages in
actions for breach of contract. Thus, the damages
awarded to the non-defaulting party to a contract will
be determined and measured as though that party had
made reasonable efforts to avoid the losses resulting
from the default. Some courts have stated this doctrine
in terms of a duty owing by the innocent party to the
one in default; that is, that the person who is seeking
damages for breach of contract has a duty to minimise
those damages. However, on analysis, it is clear that
in contract cases as well as generally, there is no
duty to minimize damages, because no one has a right of
action against the non-defaulting party if he
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does not reasonably avoid certain consequences arising
from the default. Such a failure does not make the non-
defaulting party liable to suit; it only indicates that
the damages actually suffered are greater than the law
will compensate. Therefore, in contract actions, the
doctrine of avoidable consequences is only a statement
about how damages will be measured." (Emphasis
supplied).
From the above statement of law it will appear clear that
the non-defaulting party is not expected to take steps which
would injure innocent persons. If so, then steps taken by
him in performance or discharge of his statutory duty also
cannot be weighed against him. In substance the question in
each case would be one of the reasonableness of action taken
by the non-defaulting party.
Here the material on record clearly shows that internal
coffee prices in the year- 1952, particularly from March to
October 1952, had soared very high on account of
malpractices indulged in by coffee dealers and even the
Government of India felt itself very much concerned about it
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and suggestions had been made by Government officials as
well as by the Members of the Coffee Board to take steps to
bring down the coffee prices at reasonable level in the
interest of both the trade as well as the consumer and, in
fact, several measures, including the step of accepting
lower bids in preference to the higher bids, with a view to
regulate coffee prices were taken by the Coffee Board
pursuant to the Government’s directive in that behalf.
Clearly, these measures were being taken by the Board in
discharge of their main function and duty to maintain the
coffee prices at proper level in the interest of all
concerned, particularly the consumer and were not directed
against the defaulting dealers at the concerned pool
auction. In fact, the evidence of Kuttalaingam Pillai (PW3),
the Chief Coffee Marketing Officer, has been that before the
commencement of the "pool auction" on that day he had issued
oral warning to the bidders that Government of India was
concerned about the increase in coffee prices and that they
should not try to push up prices and corner stocks and M. L.
Gopal Setty (D.W. 1) has admitted that Chief Coffee
Marketing Officer had given a warning that the higher bids
will not be accepted. Therefore, when in spite of such
warning being issued unnecessarily higher bids were given
exceeding the average prices prevailing in the month of
September 1952, (which themselves were high), the Chief
Coffee Marketing Officer decided to accept lower bids in
preference to the higher ones. It was in these circumstances
that at the re-sale held on December 23, 1952 the prices
realised were lower than the
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appellants’ bids which had been accepted at the "pool
auction" held on October 7, 1952. It must be stated here
that at the re-sale admittedly only the highest bids were
accepted. So it is not as if at the re-sale lower bids were
deliberately accepted to enhance the loss. It is impossible
to subscribe to the proposition that the Board should have
maintained the high price level at the cost of the consumers
merely with a view to see that the defaulting bidders did
not suffer any loss on re-sale. The loss arising on the re-
sale, therefore, cannot be regarded as "unreal" loss. The
attack of the appellants against the grant of damages to the
respondent on this ground is clearly unsustainable.
As regards the alleged delay in holding the re-sale it
must be observed that both the trial court as well as the
High Court have taken the view that the same was held within
reasonable time at the next "pool auction" conducted in the
normal course. The results of the concerned "pool auction"
were declared some time after 2 P.M. on October 8, 1952. The
period of 17 days (14 days initial period plus 3 days of
grace for taking delivery) expired on October 26, 1952, but
the evidence on record shows that there was a general
request on behalf of the successful bidders for extension of
time for making payment and taking delivery and such
extension had been granted by the Board upto November 10,
1952 by issuing a circular. We have already held that there
was no valid retraction of bids by the appellants and to
their knowledge their retraction had been rejected by the
Board on October 8, 1952 itself. That the appellants were
interested in the extension granted by the Board becomes
evident from their telegram dated October 22, 1952 (Ex. A -
129) seeking confirmation of the extension. After November
10, 1952. some reasonable notice of re-sale would have to be
issued, so the defaulted coffee could not be put up for sale
in the pool auction that was held in the month of November,
1952. The next pool auction was to be held in December, 1952
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and, therefore, after issuing notice of re-sale on December
18, 1952 the re-sale was held by conducting a pool auction
on December 23, 1952. In our view, both the Courts were
right in taking the view that the re-sale had been held
within the reasonable time.
Since all the contentions urged by counsel for the
appellants have failed, the appeals are dismissed with
costs.
P.B.R. Appeals dismissed.
899