Full Judgment Text
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PETITIONER:
BOOTHALINGA AGENCIES
Vs.
RESPONDENT:
V. T. C. PORIASWAMI NADAR
DATE OF JUDGMENT:
22/04/1968
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C.
MITTER, G.K.
CITATION:
1969 AIR 110 1969 SCR (1) 65
CITATOR INFO :
R 1971 SC 170 (9)
ACT:
Indian Contract Act (9 of 1872) s. 56-Contract entered in
contravention of licence terms--Doctrine of frustration-
"self induced frustration"--If applies to--Imports and
Exports (Control) Act (18 of 1947) s. 5--Contract entered in
contravention of licence terms before amendment in
1960--Whether statutory order breached--Sale if contravening
cl. 5(4) of 1955 order.
HEADNOTE:
The appellant entered into a contract to sell certain goods
to the respondent which he was importing under ’actual
users’ licence. Under the terms of the licence the sale of
the, goods was prohibited and was to be utilised for
consumption by the importer. The goods arrived, and were
cleared by the appellant. The respondent filed a suit,
which was contested by the appellant on the ground that the
contract was illegal, and, therefore, void. The trial court
decreed the suit holding that the contravention of the terms
of licence entailed only an administrative penalty, the sale
could not be held to be prohibited by law and the contract
was a legal contract The High Court upheld the decree. In
appeal, this Court :
HELD: The appeal must be allowed.
(i) The licence was granted by virtue of a statutory
notification issued under the Defence of India Rules. The;
notification authorises the licensing officer to impose one
or more conditions prescribed by that order and the
licensing officer has therefore power to impose conditions
in the licence, issued by him, but if the licensee
contravenes the conditions imposed by the licence it is
merely a contravention of the conditions of a licence and
not a contravention of the provisions of s. 5 of the Imports
and Exports (Control) Act, Section 5 of Act was amended by
the Amending Act 4 of 1960 much after the present
controversy, so as to include contravention of a condition
of a licence granted under any order as an offence under s.
5 of the Act. Therefore on the material date a breach of
the condition of a licence was not tantamount to a breach of
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the statutory order within the meaning of s. 5 of the Act 18
of 1947.
[73H; 74A-D]
East India Commercial Co. Ltd., Calcutta, v. The Collector
of Customs, Calcutta, [1963] 3 S.C.R. 338, followed.
(ii) The goods which arrived at the Indian Port on 13th
December 1955 were governed by the provisions of Imports
(Control) Order, 1955 which came into force on 7th December
1955. Clause 5(4) of the 1955 order expressly provided that
the licensee shall comply with all the conditions imposed or
deemed to be imposed under that clause. Therefore the sale
of the imported goods would be a direct contravention of cl.
5(4) and under s. 5 of the Act any contravention of the Act
or any order made or deemed to have been made under the Act
was punishable with imprisonment or fine or both. In
consequence, even though the contract was enforceable when
it was entered, the performance of the contract became
impossible or unlawful when the 1955 Order came into force,
and so the contract became void under s. 56 of the Indian
Contract Act. [75B-D]
66
The doctrine of frustration of contract is really an aspect
or par; 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 s. 56 of the
Indian Contract Act. It should be noticed than s. 56 lays
down a rule of positive law and does not leave the matter to
be determined according to the intention of ,,he parties.
In English law the question of a frustration of contract has
been treated by courts as it question of construction
depending upon the true intention of the parties In
contrast, the statutory provisions contained in s. 56 of the
Indian Contract Act lay down a positive rule of law and
English authorities cannot therefore be of direct
assistance, though they have persuasive value in showing how
English courts have approached and decided cases under
similar circumstances. [75G; 77H; 78A-B]
Denny. Mott and Dickson Ltd. v. James B. Fraser & Co., Ltd.,
[1944] A.C. 265; British Movietonews Ltd. v. London and
District Cinemas Ltd. [1951] 1 K.B. 190; House of Lords,
[1952] A.C. 166 at 185, referred to.
(iii)The licensing authority could have given written
permission for disposal of goods under cl. 1 of the
notification but the condition imposed in the licence, in
the present case was a special condition imposed under cl.
(v) of paragraph (a) of the notification and there was no
option given tinder this clause for the licensing authority
to modify the condition of the licence prohibiting disposal
of the goods. [78D-E]
(iv) The appellant was not under obligation, to have
purchased the gooods from the open market and supplied it to
the respondent. Under the contract the quality of the goods
to be sold was of specific description as described therein.
The doctrine of frustration of contract cannot apply where
the event which is alleged to have frustrated the contract
arises from the act or election of a party, i.e., to a "self
induced frustration". This principle could not be applied
to the present case for there was no choice or election left
to the appellant to supply the goods other thin under the
terms of the contract. [78G; 79C-D]
Maritime National Fish, Limited v. Ocean Trawels, Limited,
[1935] A.C. 524, referred to.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 479 of 1965.
Appeal from the judgment and decree dated March 16, 1962 of
the Madras High Court in Appeal No. 367 of 1958.
H. R. Gokhale and S. Balakrishnan, for the appellant.
R. Thiagarajan and T.R. Sangameswaran, for respondent No. 2.
The Judgment of ;the Court was delivered by
Ramaswami, J. This appeal is brought, by certificates from
the judgment of the Madras High Court dated March 16, 1962
in A.S. No. 367 a 1958.
The appellant carries on business in the manufacture and
sale of coffee powder. He was for this purpose importing
chicory
67
under actual user’s licence issued by the Government. The
consignment of chicory in question was a consignment of 24
3/4 tons495 cases which arrived at Madras port by "S. S.
Alwaki" in December, 1955. Exhibit B-9 was the licence
under which the consignment was imported. The goods were
cleared by the appellant on December 20, 1955. The case of
the respondent was that the appellant agreed to sell the
consignment to him under Ex. A-1 dated November 26, 1955
after taking an advance of Rs. 7,500/-. The contract was,
however, entered into in the name of the first defendant and
P.W. 2 acted as a broker in the transaction. The respondent
paid another sum of Rs. 20,000/on December 23, 1955 after
the goods arrived and were cleared on the representation
that the delivery would be given in one month. Defendant
No. 1 executed a letter, Ex. A-2 in this connection but
thereafter owing to rise in prices the appellant committed a
default. The suit was contested by the first defendant on
the ground that the contract was illegal and therefore void.
The case of the second defendant was that he had nothing to
do with the contract entered into between the plaintiff and
the first defendant and, in any case, the contract for sale
of chicory was illegal and void ab initio as contravening
the provisions of the licence granted to him for the import
of chicory. The trial court held, upon examination of the
evidence, that both defendants 1 and 2 undertook with the
plaintiff to fulfil the terms of the contract.On the
question of legality of the contract the trial court held
that as the contravention of the terms of the licence by the
sale of the imported goods would entail only an
administrative penalty, the sale cannot be held to be
prohibited by law and the contract was therefore a legal
contract binding on both the parties. The trial court found
that the date of the breach of the contract February 14,
1956 and granted a decree in favour of the plaintiff against
both the defendants for a sum of Rs. 35,640/-. Two appeals
were filed in the Madras High Court against the judgment of
the trial court-A.S. No. 367 of 1958 by the second defendant
and A.S. No. 363 of 1959 by the first defendant. The
appeals were heard together by the High Court which by its
judgment dated March 16, 1962 allowed the appeal of the
first defendant-A.S. No. 363 of 1959 and dismissed the suit
as against him. As regards the appeal filed by the 2nd
defendant the High Court reduced the amount of damages to
the sum of Rs. 23,265/-. The High Court agreed with the
finding of the trial Judge that the contract for the sale of
imported chicory was entered into by the respondent directly
with the second defendant and the second defendant was
liable for its breach. As regards the legality of the
contract, the High Court took the view that it could not be
regarded as a contract prohibited by any law and so it was
valid and binding between the parties and the plaintiff
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could properly sustain an action for damages for it-,
breach.
68
The High Court further held that the real contract which the
plaintiff had entered into was with the second defendant and
the first defendant was only a dummy in whose name the
contract was entered into for ulterior reasons.
The first question to be considered in this appeal is
whether the contract was in violation of the restrictions
placed by the Imports and Exports (Control) Act, 1947 and
the notifications issued thereunder and in consequence
whether it was void and illegal and whether a claim for
breach of such a contract is maintainable.
It is -necessary at this stage to refer to the terms of the
licence, Ex. B-9 and to the relevant provisions of the
statutes and the notifications.
Exhibit B-9 was issued on September 29, 1955 and reads as
follows :
’Messrs. Boothalinga Agencies, of 2/21, Dr.
Vasudevan Road, Madras-10, are hereby
authorised to import the goods of which
particulars are given below
1. Country from which consigned. Soft
currency licensing.
2. Country of origin.-Area/Not valid for
South Africa.
3. Description of goods.Chicory.
4. Serial number and part of the I.T.C.
Schedule 79. V/IV.
5. Quantity.-24 3/4 tons.
6. Approximate value c.i.f. (in words)
rupees thirty two thousand and two only (in
figures) Rs. 32,002.
7. Period of shipment : Valid up to 31st
March 1956 from the date of issue.
8. Limiting factor for purposes of
clearance through Customs.
Quantity/value
Both.
This licence is granted under Government of India, late
Ministry of Commerce Notification No. 23-ITC/43, dated the
1st July 1943, as continued in force by the Imports and
Exports (Control) 1947 (XVIII of 1947) and is without
prejudice to the application of any other prohibition or
regulation affecting the importation of the goods which may
be in force at the time of their arrival.
69
This licence is issued subject to the
condition that the goods will be utilised only
for consumption as raw material or accessories
in the licence holder’s factory and that no
portion thereof will be sold to any party.
(Signed)
For Chief Controller of Imports.
This licence was granted under Government of India, late
Commerce Department Notification No. 23. ITC/43 dated July
1, 1943 made under Rule 84(3) of the Defence of India Rules
which was intended to "prohibit bringing into British India
by sea, land or air from any place outside India of any
goods of the description specified in the schedule (hereto
annexed) except the following........"
Sub-Clause Xll:-Any goods of the description
specified in Part IV of the Schedule which are
covered by a special licence issued by an
Import Trade Controller appointed in this
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behalf by the Central Government."
Imported chicory is one of the goods described in Part IV.
The effect of the )notification is that if there is a
special licence for the importing of chicory there would be
no prohibition against its import. Sections 3, 4 and 5 of
the Imports and Exports (Control) Act, 1947 provided for the
continuance of the notifications previously issued under the
Defence of India Rules. Sections 3, 4 and 5 of that Act are
to the following effect
"3. Powers to prohibit or restrict imports and
exports.-(I) The Central Government may, by
order published in the Official Gazette, make
provision for prohibiting, restricting or
otherwise controlling, in all cases or in
specified classes of cases, and subject to
such exceptions, if any, as may be made by or
under the order,-
(a) the import, export, carriage coastwise
or shipment as ships’ stores of goods of any
specified description;
(b) the bringing into any port or place in
British India of goods of any specified
description intended to be taken out of
British India without being removed from the
ship or conveyance in, which they are being
carried.
(2) All goods to which any order under sub-
section (1) applies shall be deemed to be
goods of which the import or export has been
prohibited or restricted under section 19 of
the Sea Customs Act, 1878, and all
70
.lm15
the provisions of that Act shall have effect accordingly,
except that section 183 ’thereof shall have effect as if for
the word ’shall’ therein the word ’may’ were substituted.
(3) Notwithstanding anything contained in the aforesaid
Act, the Central Government may, by order published in the
Official Gazette, prohibit, restrict or impose conditions on
the clearance, whether for home consumption or for shipment
abroad, of any goods or class of goods imported into British
India.
4. All orders made under rule 84 of the Defence of India
Rules or that rule as continued in force by the Emergency
Provisions (Continuance) Ordinance, 1.946, and in force
immediately before the commencement of this Act shall, so
far as they are not inconsistent with ,the provisions of
this Act, continue in force and be deemed to have been made
under this Act.
5. If any person contravenes any order made or deemed to
have been made under this Act, he shall, without prejudice
to any confiscation or penalty to which he may be liable
under the provisions of the Sea Customs Act, 1878, as
applied by sub-section (2) of section 3, be punishable with
imprisonment for a term which may extend to one year, or
with fine, or with both."
On March 6, 1948 the Central Government issued a
notification under sub-r. (3) of r. 84 of the Defence of
India Rules which -reads as follows :
"No. 2-ITC/48-In exercise of the, powers
conferred by sub-s. (1) and sub-s. (3) of s. 3
of the Imports and Exports (Control) Act, 1947
(XVIII of 1947) the Central Government is
pleased to make the following order, namely,
(a) Any officer issuing a licence under
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clauses VIII to XIV of the Notification of the
Government of India in the late Department of
Commerce No. 23-ITC/43 dated the 1st July 1943
may issue the same subject to one or more of
the conditions stated below :
(i) That goods covered by the licence shall
not be disposed of or otherwise dealt with or
without the written permission of the licens-
ing authority or any person duly authorised by
it.
(ii) That the goods covered by the licence on
importation shall not be sold or distributed
71
at a price more than that which may
be .specified in any directions attached to
the, licence.
(iii) That the applicant for a licence shall
execute a bond for complying the terms subject
to which a licence may be granted.
(iv) That the licence shall not be
transferable except in accordance with the
permission of the licensing authority or a
person duly authorised by it.
(v) That such other conditions may be
imposed which the licensing authority
considers to be expedient from the
administrative point of view and which are not
inconsistent with the provisions of the said
Act.
(b) Where a licensee is found to have
contravened the order or the terms and
conditions embodied in or accompanying a
licence, the appropriate licensing authority
or the Chief Controller of Imports may notify
him that, without prejudice to any penalty to
which he may be liable under the Imports and
Exports (Control) Act 1947 (XVIII of 1947) or
any other enactment for the time being in
force, he shall either permanently or for a
specified period, be refused any further
licence for import of goods.
(c) Where an Importer is found guilty of
contravention of the proviso to the said
notification or of any orders or terms or
conditions embodied in or accompanying a
licence or an application for a license or any
other import trade control rules or
regulations duly promulgated the appropriate
licensing authority or the Chief Controller of
Imports may notify him that, without prejudice
to any penalty to which he may be liable under
the Imports & Exports (Control) Act 1947
(XVIII of 1947) or any other enactment for the
time being in force, he shall either perma-
nently or for a specified period be refused
any license for import of goods."
By S. 4 of Act 4 of 1960 there was an amendment of certain
provisions of the Imports and Exports (Control) Act, 1947
(Act XVIII of 1947). By s. 4 of the Amending Act the words
"Or any condition of a licence granted under any such order"
were introduced after the clause "any order made or deemed
to have been made under this Act."
72
On December 7, 1955, the Imports (Control) Order was
promulgated by the Central Government in exercise of the
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powers conferred by ss. 3 and 4A of the Imports and Exports
(Control) Act, 1947. Clause 3 of this Order prohibited
import of goods except in accordance with a licence issued
by specified authorities. Clause 5 authorised imposition of
conditions under which goods could be imported. Clause 5
provides as follows :
"Conditions of Licence.-(1) The licensing
authority issuing a licence under this Order
may issue the same subject to one or more of
the conditions stated below :
(i) that the goods covered by the licence
shall not be disposed of, except in the manner
prescribed by the licensing authority, or
otherwise dealt with, without the written
permission of the licensing authority or any
person duly authorised by it;
(ii) that the goods covered by the licence on
importation shall not be sold or distributed
at a price exceeding that which may be
specified in any directions attached to the
licence;
(iii) that the applicant for a licence shall
execute a bond for complying with the terms
subject to which a licence may be granted.
(2) A licence granted under this Order may
contain such other conditions, not
inconsistent with the Act or this Order, as
the licensing authority may deem fit.
(3) It shall be, deemed to be a condition of
every such licence, that :
(i) no person shall -transfer and no person
shall acquire by transfer any licence issued
by the licensing authority except under and in
accordance with the written permission of the
authority which granted the licence or of any
other person empowered in this behalf by such
authority;
(ii) that the goods for the import of which a
licence is granted shall be the property of
the licensee at the time of import and
thereafter upto the time of clearance through
Customs;
(iii) the goods for the import of which a
licence is granted shall be new goods unless
otherwise stated in the licence.
(4) The licensee shall comply with all
condition imposed or deemed to be imposed
under this clause."
73
Notification No. 23. ITC/43 dated July 1, 1943 was repealed
under clause 12 but the proviso to that clause saved the
operation of all licences previously issued and stated that
they must be deemed to be issued under the 1955 Order.
Clause 12 reads as follows :
"12. Repeals- The Orders contained in the
notifications specified in Schedule IV are
hereby repealed :
Provided that anything done or any action
taken, including any appointment made or
licence issued under any of the aforesaid
Orders, shall be deemed to have been done or
taken under the corresponding provision of
this Order.
Schedule IV
Notifications repealed
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1. Notification No. 23-ITC/43, dated the
1st July, 1943 issued by the late Department
of Commerce, as amended.
2. Notification No. 2-ITC/48, dated 6th
March, 1948, issued by the late Ministry of
Commence.
On the basis of these provisions it was contended by Mr.
Gokhale on behalf of the appellant that the contract which
is the sabject-matter of the suit was unlawful and the
respondent cannot claim damages for breach of such a
contract. It was not disputed by Mr. Gokhale that the
contract between the parties was entered into on November
26, 1955 before the coming into force of the Imports
(Control) Order. It was nevertheless argued that a breach
of the conditions of the licence was punishable under s. 5
of Act XVIII of 1947 as it stood at the relevant time and
therefore the contract was illegal and no claim for the
breach thereof was maintainable. The contention of the
appellant was that the contravention of the terms of the
licence issued, under the notification dated March 6, 1948
was a contravention of the notification itself within the
meaning of s. 5 of Act XVIII of 1947 and was punishable. We
are unable to accept this argument as correct. It is clear
that s. 5 before its amendment only penalised the
contravention of any order made or deemed to have been made
under the Act. It is true that a licence was granted by
virtue of a statutory notification dated March 6, 1948
issued under the Defence of India Rules and later deemed to
have been issued under Act XVIII of 1947. Notification No.
23-ITC/43, dated July 1, 1943 merely provides that no goods
shall be imported except the goods covered by special
licences issued by an authorised,
OSup. C. I./68-6
74
,officer. Notification No. 2-ITC/48, dated March 6, 1943
authorises the licensing officer to impose, one or more
conditions prescribed by that order and the licensing
officer has therefore power to impose conditions in the
licence issued by him, but if the licensee contravenes the
conditions imposed by the licence it is difficult to hold
that it is not merely a contravention of the ,conditions of
a licence but there is contravention of the terms of the
notification and so the provisions of s. 5 of Act XVIII of
1947 are attracted. Reference was made on behalf of the
appellant to the amendment made of s. 5 of Act XVIII of 1947
by the Amending Act 4 of 1960. By the Amending Act s. 5 of
Act XVIII of 1947 was amended so as to include contravention
of a condition of a licence granted under any order as an
offence under s. 5 of the Act. It is not, however
permissible, in the circumstances of the present case, to
construe the language of s. 5 of the parent Act with the aid
of the Amending Act (Act 4 of 1960). It is not possible for
us to accept the contention of Mr. Gokhale that the Amending
Act of 1960 is something in the nature ,of a Parliamentary
exposition of the meaning of s. 5 as it stood in the parent
Act. It follows therefore that on the material, date a
breach of the condition of- a licence was not tantamount to
a breach of the statutory order within the meaning of s. 5
of Act XVIII of 1947. The view that we have expressed is
borne out by the decision of this Court in East India
Commercial Co. Ltd. Calcutta v. The Collector of Customs,
Calcutta(1) in which it was held by the majority judgment
that an infringement of the condition of a licence was not
equivalent to an infringement of the two ,orders dated July
1, 1943 and March 6, 1948 i.e., Nos. 23-ITC/43 and 2-ITC/48
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made under the Imports and Exports (Control) Act, 1947 and
therefore the provisions of s. 167(8) of the Sea Customs Act
were not attracted. We accordingly reject the argument of
Mr. Gokhale on this aspect of the case.
We pass on to consider the next contention put forward on
behalf of the appellant, namely, that in any event the
imports (Control) Order, 1955 had come into force on
December 7, 1955 and the performance of the contract became
illegal after that date. It was pointed out that the goods
arrived at the Madras port on December 13, 1955 and were
cleared on December 20, 1955. Reference was made to the
conditions imposed in the licence, Ex. B-9. that "the goods
will be utilised only for consumption as raw material or
accessories in the licence holder’s factory and that no
portion thereof will be sold to any party". It was
contended that the appellant would be committing an offence
under s. 5 of Act XVIII of 1947 if he sold the goods to the
respondent in pursuance of the contract as the condition of
the
(1) [1963] 3 S.C.R. 338.
75
licence would be violated. In our opinion, the argument of
the appellant is well-founded and must be accepted as
correct. It is manifest that the disposal of the imported
chicory which arrived at Madras port on December 13, 1955
was governed by the provisions of the Imports (Control)
Order, 1955 which came into force on December 7, 1955.
Clause 5(4) of the 1955 Order expressly provides that the
licensee shall comply with all the conditions imposed or
deemed to be imposed under that clause. Therefore the sale
of the imported goods would be a direct contravention of cl.
5(4) and under s. 5 of the Imports and Exports (Control)
Act, 1947 any contravention of the Act or any order made or
deemed to have been made under the Act is punishable with
imprisonment up to one year or fine or both. In
consequence, even though the contract was enforceable on
November 26, 1955 when it was entered into, the performance
of the contract became impossible or unlawful after December
7, 1955 and so the contract became void under s. 56 of the
Indian Contract Act after the coming into force of the
Imports (Control) Order, 1955. Section 56 of the Indian
Contract Act states :
"An agreement to do an Act impossible in
itself is void.
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.
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 loss which such promisee
sustains through the nonperformance of the
promise."
The doctrine of frustration of contract 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 s. 56 of the
Indian Contract Act. It should be noticed that s. 56 lays
down a rule of positive law and does not leave the matter to
be determined according to the intention of the parties.
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In English Law a case of supervening illegality is treated
as an instance of frustration of contract. In Metropolitan
Water Board v. Dick, Kerr & Co., Ltd(1), under a contract
made in
(1) [1918] A.C. 119,
76
July 1914, a reservoir was to be constructed and to be
completed in six years from 1914 subject to a proviso that
if the contractors should be impeded or obstructed by any
cause the engineer should have power to grant an extension
of time. Under the powers conferred by the Defence of the
Realm Acts and Regulations, the contractors were obliged to
cease work on the reservoir by order of the Ministry of
Munitions in 1916. The House of Lords held that the
contract was frustrated by supervening impossibility, and
that the provision for extending the time did not apply to
the prohibition by the Ministry. Lord Finlay, L.C. said
that the interruption was "of such a character and duration
that it vitally and fundamentally changed the conditions of
the contract, and could not possibly have been in the,
contemplation of the parties to the contract when it was
made." In a subsequent case-Denny, Mott and Dickson Ltd. v.
James B, Fraser & Co., Ltd.(1) a contract for the sale and
purchase of timber contained an option for the appellants to
purchase a timber-yard (which was meanwhile let to them) if
the contract was terminated on notice given by either party.
By the Control of Timber (No. 4) Order, 1939, further
trading transactions under the contract became illegal, but
in 1941 the appellants gave notice to terminate the
contract, and also to exercise their option to purchase the
timber-yard. The House of Lords held that the option to
purchase was dependent on the trading agreement, that the
1939 Order had operated to frustrate the contract, and that,
consequently, the option to purchase lapsed upon the
frustration since it arose only if the contract was
terminated by notice. At page 274 of the Report, Lord
Wright made the following observations
"It is now I think well settled that where
there is frustration a dissolution of a
contract occurs automatically. It does not
depend, as does rescission of a contract on
the ground of repudiation or breach, on the
choice or election of either party. I
t
depends on what actually has happened on its
effect on the possibility of performing the
contract. Where, as generally happens, and
actually happened in the present case, one
party claims that there has been frustration
and the other party contests it, the court
decides the issue and decides it ex post facto
on the actual circumstances of the case. The
data for decision are, on the one hand, the
terms and construction of the contract, read
in the light of the then existing
circumstances, and on the other hand the
events which have occurred............. I find
the theory of the basis of the rule in Lord
Sumner’s pregnant statement (loc. cit.) that
the doctrine of frustration is really a de-
vice by which the rules as to abso-
(1) [1944] A.C, 265.
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lute contracts are reconciled with the special
exception which justice demands. Though it
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has been constantly said by high authority,
including Lord Sumner,, that the explanation
of the rule is to be found in the theory that
it depends on an implied condition of the
contract, that is really no explanation. It
only pushes back the problem a single stage.
It -leaves the question what is the reason for
implying a term. Nor can I reconcile that
theory with the view that the result does not
depend on what the parties might, or would as
hard bargainers, have agreed. The doctrine is
invented by the court in order to supplement
the defects of the actual contract. The
parties did not anticipate, fully and
completely, if at all, or provide, for what
actually happened."
In the recent case of British Movietonews Ltd. v. London and
District Cinemas Ltd.(1), Denning; L.J. in the Court of
Appeal took the view that "the court really exercises a
qualifying power-a power to qualify the absolute, literal or
wide terms of the contract-in order to do what is just and
reasonable in the new situation". "The day is gone," the
learned Judge went on to, say, "when we can excuse an
unforeseen injustice by saying to the sufferer ’it is your
own folly, you ought not to have passed that form of words.
You ought to have put in a clause to protect yourself.’ We
no longer credit a party with the foresight of a Prophet or
his lawyer with the draftsmanship of a Chalmers. We realise
that they have their limitations and make allowances
accordingly. It is better thus. The old maxim reminds us
that he who clings to the letter clings to the dry and
barren shell and misses the truth and substance of the
matter. We have of late paid heed to this warning, and we
must pay like heed now." The decision of the Court of Appeal
was reversed by the House of Lords(2) and Viscount Simon
expressed disapproval of the view taken by Denning, L.J. At
page 184 of the Report, Viscount Simon said:
"The principle remains the same. Particular
applications of it may greatly vary and
theoretical lawyers may debate whether the
rule should be regarded as arising fro
m implied
term or because the basis of the ,contract no
longer exists. In any view, it is a question
of construction as Lord Wright pointed out in
Constantine’s case and as has been repeatedly
asserted by other masters of law."
In English Law therefore the question of frustration of con-
tract has been treated by courts as a question of
construction
(1) [1951] 1 K.B. 190
(2) [1957] A.C. 166 at 184.
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depending upon the true intention of the parties. In
contrast, the statutory provisions contained in S. 56 of the
Indian Contract Act lay down a positive rule of law and
English authorities cannot therefore be of direct
assistance, though they have persuasive value in showing how
English courts have approached and decided cases under
similar circumstances.
Counsel on behalf of the respondent, however, contended that
the contract was not impossible of performance and the
appellant cannot take recourse to the provisions of s. 56 of
the Indian Contract Act. It was contended that under cl. 1
of the Import Trade Control Order No. 2-ITC/48, dated March
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6, 1948 it was open to the appellant to apply for a written
permission of the licensing authority to sell the chicory.
It is not shown by the appellant that he applied for such
permission and the licensing authority had refused such
permission. It was therefore maintained on behalf of the
respondent that the contract was not impossible of
performance. We, do not think there is any substance in
this argument. It is true that the licensing authority
could have given written permission for disposal of the
chicory under, cl. 1 of Order No. 2-ITC/48, dated March 6,
1948 but the condition imposed in Ex. B-9 in the present
case is a special condition imposed under cl. (v) of
paragraph (a) of Order No. 2-ITC/48, dated March 6, 1948 and
there was no option given under this clause for the
licensing authority to modify the condition of licence that
" the goods will be utilised only for consumption as raw
material or accessories in the licence holder’s factory and
-that no portion thereof will be sold to any party". It was
further argued on behalf of the respondent that, in any
event, the appellant could have purchased chicory from the
open market and supplied it to the respondent in terms of
-the contract. There is no substance in this argument also.
Under the contract the quality of chicory to be sold was
chicory of specific description"Egberts Chicory, packed in
495 wooden cases, each case containing 2 tins of 56 1b.
nett". The delivery of the chicory was to be given by "S.
S. Alwaki" in December, 1955. It is manifest that the
contract, Ex. A-1 was for sale of certain specific goods as
described therein and it was not open to the appellant to
supply chicory of any other description. Reference was made
on behalf of the respondent to the decision in Maritime
National Fish, Limited v. Ocean Trawlers, Limited(1). In
that case, the respondents chartered to the appellants a
steam trawler fitted with an otter trawl. Both parties knew
at the time of the contract that it was illegal to use an
otter trawl without a licence from the, Canadian government.
Some months later the appellants applied for licences for
five trawlers which they were operating, including
(1) [1935] A.C. 524.
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the respondents’ trawler. They were informed that only
three licences would be granted, and were requested to state
for which of the three trawlers they desired to have
licences. They named three trawlers other than the
respondents’, and then claimed that they were no longer
bound by the charter-party as its object had been
frustrated. It was held by the Judicial Committee that the
failure of the contract was the result of the appellants’
own election, and that there was therefore no frustration of
the contract. ’We think the principle of this case applies
to the Indian law and the provisions of s. 56 of the Indian
Contract Act cannot apply to a case of "self-induced
frustration". In other words, the doctrine of frustration
of contract cannot apply where the event which is alleged to
have frustrated the contract arises from the act or election
of a party. But for the reasons already given, we hold that
this principle cannot be applied to the present case for
there was no choice or election left to the appellant to
supply chicory other than under the terms of the contract.
On the other hand, there was a positive prohibition imposed
by the licence upon the appellant not to sell the imported
chicory to any other party but he was permitted to utilise
it only for consumption as raw material in his own factory.
We, are accordingly of the opinion that Counsel for the
respondent has been unable to make good his argument on this
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aspect of the case.
For the reasons expressed we hold that this appeal should be
allowed and the decree of the Madras High Court in A.S. No.
367 of 1958 should be set aside and the suit brought by the
respondent should be dismissed in its entirety. We do not
propose to make any order as to costs in this appeal.
Y.P. Appeal allowed.
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