STATE OF KERALA v. PAILY CHANDY — 1983 DIGILAW 231 (KER)

Judgment :- 1. This second appeal by the defendants, the State of Kerala and the District Collector, Ernakulam, is against the decision of the lower appellate court decreeing the suit for injunction against the defendants from realising the amount of abkari arrears due from the plaintiffs for the year 1968-69. The plaintiffs were the successful bidders for conducting six toddy shops for the aforesaid period at an auction held by the Excise Department of the 1st defendant at Ernakulam. Shortly after the hid the plaintiffs deposited 3/10 of the bid amount as security. The balance amount was to be paid in seven monthly instalments. The plaintiffs commenced business in all the shops they had bid and paid some instalments due to the government. Thereafter, according to the plaintiffs, there were labour disputes on account of certain unreasonable demands of the toddy tappers and suppliers. The plaintiffs found it impossible to carry on and abandoned the business on 15-11-1968. The government took possession of the shops on 19-11-1968 and leased the same to different persons. The defendants had initiated proceedings against the plaintiffs for recovery of the abkari dues under the Revenue Recovery Act and the present suit was filed for an injunction to restrain the defendants from realising the balance amount as per the bids accepted by the government, under the Kerala Revenue Recovery Act. The plaintiffs' case is based on S.56 of the Indian Contract Act as according to them, for the reason of the labour dispute referred to in the plaint, it had become impossible for them to perform the contract between the parties. The defendants denied that the contract had become impossible of performance. According to them the plaintiffs are liable to pay good the balance amount due under the agreement. As per Clause.28 of the auction notification, the auction purchasers are bound to make good the loss that may be sustained by the government on account of the default of the auction purchaser. They also contend that under S.28 of the Abkari Act 1/1077 the Government has every right to recover the arrears due by resort to the Revenue Recovery Act. The trial court found that the contract has not become impossible of performance for the reason of the labour strike urged and the plaintiffs cannot avoid the contract for any such reason. They also contend that under S.28 of the Abkari Act 1/1077 the Government has every right to recover the arrears due by resort to the Revenue Recovery Act. The trial court found that the contract has not become impossible of performance for the reason of the labour strike urged and the plaintiffs cannot avoid the contract for any such reason. It was also found that the defendants are entitled to recover the amount due from the plaintiffs by resort to the provisions of the Revenue Recovery Act. On these findings the suit was dismissed. 2. In appeal the learned Subordinate Judge has come to the finding that the contract between the parties had become impossible of performance for the reason of the labour strike, to prevent which the government had not taken any steps. It is also held, following the decision of this Court in Universal Marine Agencies v. State of Kerala & Others (1977 KLT. 949), that the government should not have acted as judges in their own cause and the amount if any due to the government should have been ascertained and adjudicated upon by filing a suit against the plaintiffs. It is against this that the defendants have come up in second appeal. 3. The point that the defendants are incompetent to adjudicate upon the claim against the plaintiffs for the purpose of ascertaining the loss sustained by the government was not taken in the plaint; nor was any such question urged before the trial court. The lower appellate court has followed the decision of a Single judge of this Court in Universal Marine Agencies v. State of Kerala & Others reported in 1977 KLT. 949. This decision had been reversed by a Division Bench in the decision in State of Kerala v. Universal Marine Agencies reported in 1980 KLT. 187. The Division Bench has held that if the agreement between the parties provide for the machinery for adjudication of the loss sustained by the government, there is nothing wrong in resorting to that machinery for ascertainment of the quantum of damages due to the government. In Para.4 it is stated thus: 'We now turn to Clause.17 extracted supra. That gives the Government the right of deciding the amount due to the Government by reason of the operation of the agreement' in cases of dispute between the lessor and the lessee as to the said amount. In Para.4 it is stated thus: 'We now turn to Clause.17 extracted supra. That gives the Government the right of deciding the amount due to the Government by reason of the operation of the agreement' in cases of dispute between the lessor and the lessee as to the said amount. The Government's decision is to be final and conclusive and binding on the lessee. This clause again is wide and comprehensive, and approximates to the clause that was construed by this Court in the Division Bench ruling in State of Kerala v. Joseph (1975 KLT. 551). In the presence of this clause, we are not prepared to agree with the learned judge that there was no provision or machinery provided in Ext. P1 to adjudicate on the amount due by reason of the working of the provisions of the agreement. The learned judge was inclined to view the clause as acting in terrorem and as penal in nature, in so far as it concedes to one party to the contract a right of deciding against the other. The learned judge apparently failed to note or to appreciate the ratio of the Division Bench ruling in Joseph's case (1975 KLT.551). That decision construed a similar clause and found it conferred a power similar to what is sought for in this case. The basis of treating as valid the conferral of such a power was explained in detail in the said decision." In view of the decision of the Division Bench there cannot be any doubt that if the agreement between the parties provides for adjudication by the government or any of its officers, that agreement is binding on the plaintiffs and the same cannot be ignored as a clause in terrorem against the plaintiffs. 4. The further question is as to whether the agreement between the parties had become impossible of performance to relieve the plaintiffs of their obligations under the agreement. The only ground on which the plaintiffs claim frustration of the contract is on account of a labour strike by the toddy tappers and suppliers. Exts. A2 and A4 produced in the case show that the toddy tappers had on 15-11-1968 struck work and that the plaintiffs had made representations to the Excise Commissioner, Trichur Division and the Board of Revenue complaining against the strike. As earlier stated, the plaintiffs abandoned the shops on 15-11-1968. Exts. A2 and A4 produced in the case show that the toddy tappers had on 15-11-1968 struck work and that the plaintiffs had made representations to the Excise Commissioner, Trichur Division and the Board of Revenue complaining against the strike. As earlier stated, the plaintiffs abandoned the shops on 15-11-1968. The government took over the same and leased out these shops to other persons on 19-11-1968. Thus third party lessees were conducting these shops with effect from 19-11-1968. The mere fact that there was a strike by the toddy tappers and suppliers attached to the shops concerned in this case does not render the agreement between the parties impossible of performance. Para.2 of S.56 of the Indian Contract Act is extracted below: "56. Contract to do 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. In the decision in M/s. Alopi Parshad v. Union of India (AIR. 1960 SC. 588) the Supreme Court has referred to the following passage from the speech of Lord Simon in British Movietonews Ltd. v. London and District Cinemas Ltd. 1952 AC 166 at pp. 185 and 186: - "The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate a wholly abnormal rise or fall in prices a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation. When it is said that in such circumstances the court reaches a conclusion which is 'just and reasonable' (Lord Wright in Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd., 1942 AC 154 at p. 186) or one 'which justice demands' (Lord Sumner in Hirji Mulji v. Cheong Yue Steamship Co. Ltd., (1926) AC 497 (510) ) this result is arrived at by putting a just construction upon the contract in accordance with an 'implication from the presumed common intention of the parties': It is held at page 594: "(22) There is no general liberty reserved to the courts to absolve a party from liability to perform his part of the contract, merely because on account of an uncontemplated turn of events, the performance of the contract may become onerous. That is the law both in India and in England, and there is, in our opinion, no general rule to which recourse may be had, as contended by Mr. Chatterjee, relying upon which a party may ignore the express covenants on account of an uncontemplated turn of events since the date of the contract." In the decision of the Supreme Court in Sushila Devi v. Hari Singh reported in AIR. 1971 SC. 1756 it is stated thus at page 1759: "If the performance of a contract becomes impracticable or useless having regard to the object and purpose the parties had in view then it must be held that the performance of the contract has become impossible. But the supervening events should take away the basis of the contract and it should be of such a character that it strikes at the root of the contract." In the later decision in Govindbhai v. Gulam Abbas (AIR. 1977 SC. 1010) the Supreme Court states at page 1024: "10. The meaning of the aforesaid expression 'impossible of performance' as used in the above quoted section would be clear from the following observations made by Lord Loreburn in Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd., (1916) 2 AC. 397,403 which is generally considered to contain a classic and terse exposition of the law relating to frustration: "The parties shall be excused if substantially the whole contract becomes impossible of performance or in other words impracticable by some cause for which neither was responsible." 11. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd., (1916) 2 AC. 397,403 which is generally considered to contain a classic and terse exposition of the law relating to frustration: "The parties shall be excused if substantially the whole contract becomes impossible of performance or in other words impracticable by some cause for which neither was responsible." 11. We find ourselves in complete accord with this view which also finds support from the decisions of this Court in Satyabrata Ghose v. Mugneeram Bangur and Co., (AIR. 1954 SC. 44) (Supra) and Smt. Sushila Devi v. Hari Singh, (1971) 2 SCC 288: (AIR. 1971 SC. 1756) where it was held that the performance of a contract becomes impossible if it becomes impracticable from the point of view of the object and the 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 promisor found it impossible to do the act which he promised to do." In Satyabrata Ghose v. Mugneeram Bangur and Co., (AIR. 1954 SC. 44) it is stated: "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 unless 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 promisor found it impossible to do the act which he promised to do." 5. In the light of these decisions it is perfectly clear that merely for the reason of a strike by the toddy tappers and suppliers, there was no frustration of the contract rendering it impossible of performance. The lower appellate court was wrong in holding that the contract should be deemed to have been discharged for the reason of impossibility of performance. The plaintiffs are not, therefore, entitled to a decree for injunction against the defendants from enforcing their claim for damages for breach of contract committed by the plaintiffs. 6. S.28 of the Abkari Act empowers the government to recover all amounts due to the government by any grantee of a privilege under the Act by resort to the provisions of the Revenue Recovery Act as if it were arrears of land revenue. The defendants have not adduced any evidence in the case. Neither the auction notification, nor the agreement between the parties is before court. It is not, therefore, possible for me to consider whether the contract between the parties contains a provision for adjudication of the quantum of damages by the Government or any other agency agreed to between the parties. If the parties have agreed for such adjudication, it is not open to the plaintiffs to contend that the liability and the quantum of damages should be adjudicated upon by a civil court before the claim could be enforced by the government. Since the suit is for a permanent injunction to restrain the defendants from enforcing their claim for damages in any manner against the plaintiffs on account of their abandoning the shops on 15-11-1968, it is not necessary for me to decide whether the agreement between the parties provide for an adjudication of the claim otherwise than by way of a suit in a civil court. I have already found that the contract between the parties has not become impossible of performance. The plaintiffs are not therefore entitled to the reliefs prayed for in the suit. The result is, I set aside the judgment and decree of the lower appellate court and restore the decree of the trial court dismissing the suit. It is however made clear that the claim for damages for the loss sustained by the Government can be enforced against the plaintiffs only after its ascertainment in accordance with law. The second appeal is allowed. It is however made clear that the claim for damages for the loss sustained by the Government can be enforced against the plaintiffs only after its ascertainment in accordance with law. The second appeal is allowed. There will however be no order as to costs.