Shatrughan Prasad v. State of Uttar Pradesh — 1992 DIGILAW 18 (ALL)

JUDGMENT : Om Prakash, J. Petitioner, who entered into a contract for purchase of Tendu leaves with the Respondents, seeks quashing of the notice dated 27-6-1982 (Annexure "8" to the writ petition) whereby the was called upon to pay the entire purchase price, i.e. Rs. 50,000/- plus Rs. 4,000/- towards the sales tax. 2. Admittedly, Petitioner's tender for purchase of Tendu leaves for Rs. 50,000/- in regard to Unit No. 40 Donda Block, Markundi Range, for the year 1980 had been accepted by the Respondents and the Petitioner then deposited Rs. 15,000/- with the Divisional Forest Officer as security The Petitioner executed an agreement in the prescribed form in the month of April, 1980 It is averred that tenders are usually invited in the month of January on the basis of the estimated yield of the next preceding years and that plucking season starts in the month of May. It is contended by the Petitioner that having entered into contract for purchasing Tendu leaves he inspected the Unit No. 40 in the month of May and then he discovered that Tendu leaves were not at all available in the said Unit due to unprecedented drought and that fact was immediately reported by him to the Deputy Conservator of Forest, Banda Division, Banda, by his letter dated 13-5-1980 (Annexure "1" to the petition). He also sent a copy of this letter to the Chief Conservator of Forest. Lucknow, and Conservator of Forest, Jhansi Division, Jhansi. He also requested thereunder to the authorities to inspect the Unit No 40 to verify the fact, it is said that Sri K.K. Chaudhry, Sub-Divisional Forest Officer, Karvi, inspected the Unit No. 40 and he had accepted the contention of the Petitioner that no leaf worth manufacturing Bidi was available in the whole area and that his inspection report was forwarded by the Divisional Forest Officer to the Conservator of Forest with his letter dated 30 6 1980. A letter dated 5-7-1980 was addressed by the Conservator of Forest to the Divisional Forest Officer making certain enquiries in the matter. A letter dated 5-7-1980 was addressed by the Conservator of Forest to the Divisional Forest Officer making certain enquiries in the matter. The Divisional Forest Officer sent a reply to the Conservator of Forest by his letter dated 9-7-1980 (Annexure "3" to the petition recommending that the Petitioner be exempted from paying the contract amount, as only 15% Tendu leaves were there in the Unit No. 40 as compared to the previous years and that quantity too was wholly useless for manufacturing Bidi As the Petitioner could not collect even a single leaf from the aforesaid Unit, he claimed refund of his security. The Petitioner made serious efforts to retrieve the earnest money, but the authorities, though accepted the fact that the Petitioner could not collect Tendu leaves at all from the Unit No 40, as the whole crop was adversely affected, eventually refused to refund the earnest money on the plea that there was no provision to refund the security. Not only the refund of earnest money was refused the Respondents by notice dated 27 6-1982 (Annexure 8' to the petition) called upon the Petitioner to deposit Rs. 50 000/-i.e., the purchase price of Tendu leaves, within a week failing which it was stated that his property, which was attached, would be sold to recover the purchase price This is ho v the Petitioner came up to this Court for quashing the aforesaid notice. 3. In the counter-affidavit filed on behalf of the Respondents, it is stated that the Petitioner entered into a contract for lumpsum and that he is absolutely liable to pay the purchase price regardless of the quantity or quality of Tendu leaves. It is said that all the orders were given opportunity to inspect the respective Units before filing tenders and that they made tenders only after having satisfied about the yield and quality of Tendu leaves. It is not denied that tenders were invited on the basis of quantity of Tendu leaves being estimated by the Department considering the yield of the respective areas in the preceding years. It is averred in paragraph 15 of the counter-affidavit that on the application of the Petitioner, a Sub-Divisional Officer (Forest), Karvi, inspected the Unit in the first week of June, 1980, and he then stated that the Petitioner had started plucking the leaves in the concerned Unit, but stopped later. It is averred in paragraph 15 of the counter-affidavit that on the application of the Petitioner, a Sub-Divisional Officer (Forest), Karvi, inspected the Unit in the first week of June, 1980, and he then stated that the Petitioner had started plucking the leaves in the concerned Unit, but stopped later. It is averred in paragraph 23 of the counter-affidavit that the Petitioner was informed of the decision of the Conservator of Forest. Bundelkhand Circle, U.P., Jhansi, who is the competent authority, that there was no provision of any rebate or exemption and that the Petitioner having entered into a contract was liable to pay the full purchase price, as he took the contract with the open eyes and having inspected the Unit No 40 before submitting the tenders. 4. Submission of Sri J.N. Tewari, learned Counsel for the Petitioner, is that the contract stood frustrated u/s 56 of the Contract Act on account of the supervening event that the whole crop of Tendu leaves was adversely affected and, therefore, both parties to the contract were discharged of their contractual obligations. It is submitted by him that if the performance of a contract becomes impracticable or useless having regard to the object and purpose, the parties had in view, then the performance of the contract having become impossible, the parties cannot be blamed for non-performance and in that situation the parties to the contract are discharged of their contractual obligation under the doctrine of frustration envisaged by section 56 of the Contract Act. It is stated by him that the Petitioner entered into a contract with the normal expectation that he would collect Tendu leaves from the relevant area, which was the basis of the contract and that having disappeared on account of the supervening impossibility the Petitioner could not he held liable to pay the purchase price and he is entitled to the refund of earnest money, which he deposited for due performance of the contract. 5. Let us have a hurried look on the scheme of the Uttar Pradesh Tendu Patta (Vyapar Viniyamin) Adhiniyam, 1972 (for short, 'the Act, 1972' and of the U.P. Tendu Patta (Vyapar Viniyaman) Niyamawali, 1972 (briefly, 'the Rules, 1972'). 5. Let us have a hurried look on the scheme of the Uttar Pradesh Tendu Patta (Vyapar Viniyamin) Adhiniyam, 1972 (for short, 'the Act, 1972' and of the U.P. Tendu Patta (Vyapar Viniyaman) Niyamawali, 1972 (briefly, 'the Rules, 1972'). The preamble of the Act, 1972 shows that the Act was enacted to provide In public interest for creation of the State monopoly in the purchase and distribution of Tendu leaves and for matters connected therewith. Section 2(d) of the Act 1972 defines the expression "grower of Tendu leaves" meaning as the State Government Gaon Sabha or the other local authority, tenure holder, on whose land Tendu leaves are grown and the receiver, who for the time being is in the custody of the land on which the leaves are grown Section 5A of this Act states that the State Government an Officer empowered by it by general or special order in this behalf, may by permit authorise in the manner prescribed a person to whom the State Government has sold or with whom it has agreed to sell Tendu leaves to collect the same on its behalf directly from the grower of Tendu leaves, on payment of price thereof to such growers. Thus, it is the State Government or an officer authorised by it, only may authorise a person to whom the State Government has sold or has agreed to sell Tendu leaves to collect the same on its behalf directly from the growers of Tendu leaves, It means that a grower other than the State Government cannot directly sell Tendu leaves to any person and he cannot permit any person to collect Tendu leaves. Section 8(1) states that the State Government shall be bound to purchase at the price fixed u/s 7 all Tendu leaves offered for sale to it at a depot set up by the State Government. Section 10(1) then says that all Tendu leaves purchased by or for the State Government shall be sold or otherwise disposed of in such manner as the State Government may direct. The entire trade of Tendu leaves is, thus, monopolised by the State Government. Right of sale, purchase or transport of Tendu leaves is vested only in the State Government by virtue of Section 5 of the Act, 1972. It means a grower of Tendu leaves other than the State Government cannot trade in Tendu leaves. The entire trade of Tendu leaves is, thus, monopolised by the State Government. Right of sale, purchase or transport of Tendu leaves is vested only in the State Government by virtue of Section 5 of the Act, 1972. It means a grower of Tendu leaves other than the State Government cannot trade in Tendu leaves. Section 3 says that the State Government may divide any area into such number of units as it may deem fit. Section 4 empowers the State Government to appoint agents in respect of different units for the purpose of purchase of Tendu leaves in its behalf. Rule 2 (9) of the Rules, 1972 defines the term "purchaser" meaning as a person to whom Tendu leaves have been sold by the State Government u/s 10, Rule 3-A states that a person who has been appointed as a purchaser, may be issued a permit in Form 'O' by he Divisional Forest Officer authorising him to collect Tendu leaves from the growers of a particular unit of which he is a purchaser. 6. The facts of the case have to be seen in the backdrop of the aforesaid legal provisions. The Petitioner was authorised to collect Tendu leaves from the Unit No. 40, but before the stage of collection reached, it was discovered by the Petitioner that no Tendu leaves were available in the entire area as it was adversely hit by unprecedented drought and that he immediately reported that fact to the concerned authorities requesting them to make inspection of the area immediately on their own; that the authorities did inspect the Unit Mo 40, in respect of which the Petitioner entered into the contract of purchase of Tendu leaves and that they found the contention of the Petitioner to be correct that only 15% of Tendu leaves as compared to earlier years, were available in the Unit No. 40, which too were wholly useless for manufacturing Bidi. This is how the Petitioner averred that no collection was done by him. 7. The question for consideration is whether on these facts the contract was frustrated u/s 56 of the Contract Act and whether the parties to the contract were discharged. This is how the Petitioner averred that no collection was done by him. 7. The question for consideration is whether on these facts the contract was frustrated u/s 56 of the Contract Act and whether the parties to the contract were discharged. Ordinarily this type of dispute is carried to a civil court, which decides the factual position whether or not the basis of the contract disappeared and whether the performance of the contract became impossible on account of the supervening events But, in the instant case, we find sufficient material to come to the conclusion that the Respondents have admitted the case of the Petitioner that no Tendu leaves were available in the year 1980 in the Unit No. 40 for being collected and that no collection whatsoever could be done by the Petitioner due to supervening impossibility. 8. The contention of the Petitioner that no Tendu leaves were available in the Unit No. 40 in the year 1980 is fully corroborated by the letter dated 9-7-1980 (Annexure "3" to the Writ Petition) sent by the Divisional Forest Officer to the Conservator of Forest, in which the former stated that it was manifest from the report of Sri K.K. Chaubey, Sub-Divisional Officer (Forest) that not a single leaf was worth manufacturing Bidi and the yield was only 15 percent as compared to earlier years. He further stated that in such circumstances the Petitioner would be put to a heavy loss if he was called upon to pay the purchase price. Though there was no provision for rebate or exemption, but the said authority sympathising with the Petitioner urged the Conservator of Forest, Jhansi. to strongly recommend to the State Government to exempt the Petitioner. It is also stated by him in the said letter that Tendu leaves were not there when tenders were filed and, therefore, the prospective buyers could not have predicted the good crop of Tendu leaves. It shows that the tenderers while filing tenders were guided by the position which then obtained and by the quantity depicted in the invitation to tenders, which was estimated on the basis of the yield of previous years. When there was no response from the authorities, the Petitioner again sent a letter dated 7-7-1981 (Annexure "4" to the petition) to the Secretary, Forest Department, U.P., clearly urging him to refund his security. When there was no response from the authorities, the Petitioner again sent a letter dated 7-7-1981 (Annexure "4" to the petition) to the Secretary, Forest Department, U.P., clearly urging him to refund his security. The Divisional Forest Officer, Banda, reiterated in his letter dated 16-7-1981 (Annexure "5" to the petition) sent to the Secretary, Forest Department, U.P., that no collection whatsoever was done by the Petitioner from Unit No. 40 in the year 1980, that he himself accompanied by the Sub-Divisional Officer (Forest) inspected the Unit and then found the contention of the Petitioner to be correct that no leaf worth manufacturing Bidi was available in the entire area due to drought. When no action was taken by the State Government the Petitioner again addressed a letter dated 24-8-1981 (Annexure "6" to the petition) to the Secretary, Forest Department, U.P requesting him to direct the authority concerned to refund his security. Enclosure to Annexure 3 to the counter-affidavit is the report of Sri K.K. Chaudhary, Sub-Divisional Officer (Forest) Karvi, who inspected the Unit No 40on the request of the Petitioner, wherein it is clearly stated that the yield in the year 1980 was only 15 percent as compared to the earlier years and too was wholly use lass and for manufacturing Bidi. Is stated that he himself plucked some leaves from one or two trees and found them badly affected by disease rendering them wholly useless for manufacturing Bidis. The Respondents themselves having relied on such report are bound by the contents thereof Adverting to this report the Respondents contended in paragraph 15 of the counter-affidavit that the Petitioner started plucking leaves, but later stopped Sri K.K. Chaudhry states in the said report that he was told by some children playing outside the village that plucking had been done one day before the election. No enquiry could be mad by him from the adults, who according to him, had run away at the time of enquiry. No document can be read in piece-meal. From his own knowledge gathered at the time of inspection, Sri. K.K. Chaudhry stated that the yield was not only lesser as compared to earlier years, but that was wholly unless for manufacturing Bidi. It fully corroborates the version of the Petitioner and hence the factual position no longer remains disputed one. 9. No document can be read in piece-meal. From his own knowledge gathered at the time of inspection, Sri. K.K. Chaudhry stated that the yield was not only lesser as compared to earlier years, but that was wholly unless for manufacturing Bidi. It fully corroborates the version of the Petitioner and hence the factual position no longer remains disputed one. 9. The entire area being adversely affected by drought no collection of leaves whatsoever could be done by the Petitioner. The question for consideration then is whether on these facts and circumstances the doctime of frustration is applicable to the case. 10. Section 56 of the Contract Act, in so far as material, provides; 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 pre-vent, unlawful, becomes void when the act becomes impossible or unlawful. Under Section 56 where an event, which could not reasonably have been in the contemplation of the parties when the contract was made, renders performance impossible or unlawful, the contract is rendered void and the parties are excused from performance of their respective obligations Where performance is rendered by intervention of law invalid, or the subject matter assumed by the parties to continue to exist is destroyed, or a state of thing assumed to be the foundation of the contractfails, or does not happen, or where the performance is to be rendered personally and the person dies, or is disabled, the contract stand discharged. In Satyabrata Ghose Vs. Mugneeram Bangur and Co. and Another, AIR 1954 SC 44 , it has been held that the rule in Section 56 exhaustively deals with the doctrine of frustration of contracts law. 11. In Satyabrata (supra) the Supreme Court elucidated: When such an event or change or circumstances occurs which is so fundamental as to be regarded by law as striking at the root of the contract as a whole, it is the court which can pronounce the contract to be frustrated and at an end. The court undoubtedly has to examine the contract and he circumstances under which it was made. The court undoubtedly has to examine the contract and he circumstances under which it was made. The belief, knowledge and intent on of the parties and evidence, but evidence only on which the court has to form its own conclusion whether the changed circumstances destroyed altogether the basis of the adventure and its underlying object. 12. We will now proceed to examine whether or not the disturbing element, which is alleged to have happened here, has substantially prevented the performance of the contract as a whole. As already pointed out, the Petitioner entered into a contract for purchase of Tendu leaves, but before the actual stage of plucking and collection arrived, the Petitioner discovered that collection of Tendu leaves was impossible, as the whole area from where the collection was to be done, was badly affected by drought. From the enclosure to Annexure "3" to the counter-affidavit, which is the report of the Sub-Divisional Officer (Forest), Karvi, it is manifest that collection became well nigh impossible, as no leaf was useful or fit for manufacturing Bidi. Tendu leaves are normally used only for manufacturing Bidis and there is no other use of it and the Petitioner entered into contract having that purpose in view. Tendu leaves were not rendered useless due to any fault or the act of the Petitioner, but due to the supervecing event that the whole area was affected by drought. The basis of the whole contract was plucking and collecting Tendu leave, but that disappeared in entirely due to the circumstances, which could not have been foreseen or visualised by the Petitioner while entering into the contract. It has come in evidence that when tenders were given, there was no leaf at that time in the area and even on inspection, which was permissible as per the terms of invitation of tenders, the prospective buyers could not have predicted the yield and the circumstances adversely affecting the yield, but the tenders were filed with the normal expectation that yield would be there as estimated by the authorities on the basis of the result of earlier years. In regard to Unit 40, on the basis of the earlier year's yield the authorities estimated yield of 860 standard bags and that was the normal hope of the Petitioner. In regard to Unit 40, on the basis of the earlier year's yield the authorities estimated yield of 860 standard bags and that was the normal hope of the Petitioner. Under Rule 3-A of the Rules, 1972, a purchase shall collect Tendu leaves from the growers on payment of price to the State Government for the unit as agreed under Form-R. The contents of Form-R do not indicate that the Petitioner is liable to pay the purchase price even though the basis of the contract disppeared before the stage of collection arrived. 13. On the facts of this case, it must be held that the changed circumstances destroyed altogether the basis of the adventure and its underlying object. 14. In Har Prasad Choubey Vs. Union of India (UOI) and Another, (1973) 2 SCC 746 , facts were no better than the case on hand, yet the Supreme Court took the view that the contract stood frustrated and the parties were discharged. The Appellant, who belonged to Firozabad (in U P.), entered into contract to purchase slack coal (unsuitable for brick burning) lying at Kumhari Station of the Bengal Nagpur Railway by public auction. He then applied for allotment of wagons for transport of coal to Firozabad. No wagons could be allotted, except with the permission of Coal Commissioner. The Railway Authorities wrote to the Coal Commissioner to accord permission for allotment of requisite wagons. The Coal Commissioner refused the permission. The result was that the Appellant was wholly unable to bring the coal purchased by him to his native district Firozabad. The Appellant then took up the plea that owing to harsh attitude of the Coal Commissioner in not having permitted allotment of wagons, the contract was frustrated and he, therefore, demanded refund of purchase money. The Supreme Court said: We can see no justification on facts for such a denial and the Defendants cannot refuse to refund the Plaintiff's amount. The contract had become clearly frustrated. 15. The Supreme Court said: We can see no justification on facts for such a denial and the Defendants cannot refuse to refund the Plaintiff's amount. The contract had become clearly frustrated. 15. In Har Prasad Choubey (supra) the contract was only for purchase of slack coal and there was no term in the contract that the Appellant would be allotted wagons to transport the coal purchased by him, yet the Supreme Court considering the object of the contract and the normal expectation of the Appellant that he bought the coal to bring the same to his native district, held that upon refusal by the Coal Commissioner to accord permission for allotment of wagons, the contract was frustrated and the parties were discharged. 16. In Smt. Sushila Devi and Another Vs. Hari Singh and Others, (1971) 2 SCC 288 , also, the Supreme Court took the view that the contract was frustrated. In this case the Appellants are legal representatives of Vidyawati, who was the owner of the village situate in Tahsil Gujranwalla. She used to give lands in that village on lease for a term of years by calling for tenders and accepting highest tender. Pursuant to the notice inviting tenders published in January, 1947, the Respondents' tender of highest amount was accepted. Tahsil Gujranwalla became part of Pakistan as a result of partition of India on August 15, 1947. Even before the partition Vidyawati as well as the Respondents had migrated to India, because of communal disturbances. The Respondents lead evidence that even before the actual partition took place, it was not possible for them because of serious communal troubles to go to Gujranwalla either to cultivate the land or even to collect the rent from those who are cultivating the land. The Respondents, therefore, (ailed upon Vidyawati to refund the amount deposited as security for the payment of rent as well as to pay them a sum of Rs. 2000/- as damages. She declined to comply with the demand. The Respondents then filed a suit. Before the trial court, the main issue was whether the contract was frustrated because of the supervening circumstances The trial court and a Division Bench of Jammu & Kashmir High Court both agreed with the contention of the Respondents that the contract was frustrated because of the supervening circumstances. The Respondents then filed a suit. Before the trial court, the main issue was whether the contract was frustrated because of the supervening circumstances The trial court and a Division Bench of Jammu & Kashmir High Court both agreed with the contention of the Respondents that the contract was frustrated because of the supervening circumstances. Then the matter came up to the Supreme Court, which formulated the question for consideration in Para 7 on page 1758 as follows: The only question that falls for decision in this appeal is whether the contract referred to in the plaint has become void in view of the circumstances established. Answering the question the Supreme Court had to say in Para 12: From the facts found in this case it is clear that the Plaintiffs sought to take on lease the properties in question with a view to enjoy those properties either by personally cultivating them or by sub-leasing them to others. That object became impossible because of the supervening events. Further the terms of the agreement between the parties relating to taking possession of the properties also became impossible of performance. Therefore, we agree with the trial court as well as the appellate court that the contract had become impossible of performance. In such matters instead of having wooden interpretation, the Courts should look into the belief, knowledge, intention of the parties, underlying objective and normal expectation of the parties entering into the contract and a justice oriented approach should be adopted. 17. In the instant case the purpose of the entire contract was defeated, as no Tendu leaves were found in the entire area having been adversely affected by drought before the stage of collection arrived. Collection of Tendu leaves was the only underlying objective of the contract. Collection of Tendu leaves having become impossible due to unforeseen circumstances, we are of the firm view that the contract was frustrated u/s 56 of the Contract Act and both parties to the contract were discharged. The departmental authorities themselves were of the view that a serious injustice would be caused to the Petitioner, if he was called upon to pay, the entire purchase price. The Petitioner is, therefore, entitled to get his earnest money, i.e., Rs. 15000/-, refunded from the Respondents and is not liable to pay the purchase price, i.e. Rs. 50,000/-. 18. In the result, the petition succeeds and is allowed. The Petitioner is, therefore, entitled to get his earnest money, i.e., Rs. 15000/-, refunded from the Respondents and is not liable to pay the purchase price, i.e. Rs. 50,000/-. 18. In the result, the petition succeeds and is allowed. The impugned notice dated 27-6-1982 (Annexure 8' to the petition), calling upon, the Petitioner to pay the purchase price of Rs. 50,000/- and Rs. 4000/- towards the sales tax is quashed; the Respondents are directed to refund earnest money, i.e. Rs. 15,000/- to the Petitioner and the Respondents are further directed to release the goods of the Petitioner attached for the impugned recovery. There will be no order as to costs.