IMPORTANT POINT
The government can unilaterally rescind a contract if the terms thereof so provide.

JUDGMENT

Thomas, J.-Can the government unilaterally rescind a contract if the terms thereof provide ? A Single judge of the Madras High Court has held that any such term in the agreement is null and void being repugnant to the essence of the contract. Upon such a finding learned single judge granted a decree in favour of the appellant for a sum of nearly Rupees Thirty Six lacs with future interest. But a division bench of the same High Court, before which the government appealed, reversed the decree and dismissed the suit of the appellant mainly on the strength of the provisions of the Government Grants Act, 1895 (for short the Grants Act ). Appellant has preferred this appeal after obtaining a certificate from the High Court under Article 134-A of the Constitution of India.

2. Facts, bereft of elaborate details but necessary for this appeal, are the following:

Pursuant to acceptance of the offer made by the appellant, being the highest bid, agreements were executed between Government of Tamil Nadu and the appellant as per which right to collect "chank shells" from four different coastal sites situated in four different districts in Tamil Nadu was granted to the appellant for a period of three years. Appellant deposited with the government the required amount as security deposit in terms of the agreements and spent some good amount for execution of the fishing work at four different sites. Fishing operations commenced on 2.2.1971 but they did not continue for long as differences arose between government and the appellant. On 2.6.1971 government sent a communication to the appellant, the operative portion of which reads thus :

"In pursuance of the orders contained in G.O. cited as per clause 7 of the agreement, the lease of the above area is hereby cancelled and the lease is terminated with effect from 10.6.1971.

The proportionate lease amount for the unexpired portion of the lease period and the security deposit remitted by you in respect of the above fishery will be refunded to you shortly."

Clause 7 of the agreement, which is referred to in the said communication, reads thus :

"The lease shall also be liable to be terminated at any time by the Lessor or any officer of the Department acting for and on his behalf without assigning any reasons therefor."

Government after issuing the communication returned a sum of Rs. 78,402/- to the appellant which comprises part of the rent paid in advance and also the security deposit made by the appellant at the first instance. Appellant received the said amount under protest.

3. In the suit filed by the appellant claiming damages for the aforesaid action of the Government, he contended, inter alia, that (i) the agreement had actually created a lease of land and (ii) the clause empowering the lessor to terminate the lease is void and unenforceable being repugnant to the core of the contract itself. Appellant further contended that as termination of the contract was made without affording an opportunity to him to be heard the action of the Government is bad being in violation of the principles of natural justice. Appellant claimed damages to the tune of Rs. 36,44,705/- being the loss suffered by him including interest till the date of suit.

4. Government contended that the agreement has created only a licence which was revocable at the will of the grantor. Government defended the action of revoking the contract as necessitated in the larger public interest and relied on the aforesaid clause 7 of the agreement as the source of power to revoke the contract. It was alternatively contended that appellant did not suffer any loss.

5. Learned single judge found that the transaction was only a licence coupled with interest and hence it was irrevocable. Regarding clause 7 of the agreement learned single judge accepted the stand of the appellant that it was unenforceable and found that appellant is entitled to the entire damages claimed by him. Suit was hence decreed in terms of the plaint.

6. When a Letters Pat