2013 Supreme(SC) 978

SUPREME COURT OF INDIA
CHANDRAMAULI KR. PRASAD, V.GOPALA GOWDA, JJ.
MARY – APPELLANT
VERSUS
STATE OF KERALA AND ORS. – RESPONDENTS
CIVIL APPEAL NO.9466 OF 2003
Decided On : 22-10-2013

IMPORTANT POINT
The doctrine of reasonableness or fairness cannot apply in a commercial transaction.

Headnote:Contract Act, 1872- Section 56- Doctrine of Frustration of contract- Consequences of non-performance of contract is provided in the statutory contract itself - The doctrine of frustration excludes ordinarily further performance where the contract is silent as to the position of the parties in the event of performance becoming literally impossible. However, in our opinion, a statutory contract in which party takes absolute responsibility cannot escape liability whatever may be the reason. In such a situation, events will not discharge the party from the consequence of non-performance of a contractual obligation. Further, in a case in which the consequences of non-performance of contract is provided in the statutory contract itself, the parties shall be bound by that and cannot take shelter behind Section 56 of the Contract Act. Rule 5(15) in no uncertain terms provides that "on the failure of the auction purchaser to make such deposit referred to in sub-rule 10" or "execute such agreement temporary or permanent" "the deposit already made by him towards earnest money and security shall be forfeited to Government". When we apply the aforesaid principle we find that the appellant had not carried out several obligations as provided in sub-rule (10) of Rule 5 and consequently, by reason of sub-rule (15), the State was entitled to forfeit the security money. (Para 13)

        Contract Act, 1872- Duty to act fairly not applicable in statutory contract - The duty to act fairly is sought to be imported into the statutory contract to avoid forfeiture of the bid amount. The doctrine of fairness is nothing but a duty to act fairly and reasonably. It is a doctrine developed in the administrative law field to ensure rule of law and to prevent failure of justice where an action is administrative in nature. Where the function is quasi-judicial, the doctrine of fairness is evolved to ensure fair action. But, in our opinion, it certainly cannot be invoked to amend, alter, or vary an express term of the contract between the parties. This is so even if the contract is governed by a statutory provision i.e. where it is a statutory contract. It is one thing to say that a statutory contract or for that matter, every contract must be construed reasonably, having regard to its language. But to strike down the terms of a statutory contract on the ground of unfairness is entirely different. Viewed from this angle, we are of the opinion that Rule 5(15) of the Rules cannot be struck down on the ground urged by the appellant and a statutory contract cannot be varied, added or altered by importing the doctrine of fairness. In a contract of the present nature, the licensee takes a calculated risk. Maybe the appellant was not wise enough but in law, she can not be relieved of the obligations undertaken by her under the contract. (Para 18)

        Kerala Abkari Shops (Disposal in Auction) Rules, 1974- Rules 5(8), 15(15) and 5(16)- Forfeiture of the entire deposited amount of the auction purchaser - Not possible for her to open and run the shops of abkari- From a plain reading of the aforesaid provision it is evident that on the failure of the auction purchaser to execute the agreement whether temporary or permanent, the deposit already made by auction purchaser towards earnest money and security money shall be forfeited. (Para 12)

        Kerala Abkari Shops (Disposal in Auction) Rules, 1974- Rule 5(15)- Duty to act fairly- Rule 5(15) of the Rules cannot be struck down on the ground urged by the appellant and a statutory contract cannot be varied, added or altered by importing the doctrine of fairness. In a contract of the present nature, the licensee takes a calculated risk. Maybe the appellant was not wise enough but in law, she can not be relieved of the obligations undertaken by her under the contract. (Para 18)

        Kerala Abkari Shops (Disposal in Auction) Rules, 1974- Rule 5(15)- Doctrine of reasonableness or fairness - Doctrine of reasonableness or fairness cannot apply in a commercial transaction. It is not possible for us to equate a contract of employment with a contract to vend arrack. A contract of employment and a mercantile transaction stand on a different footing. It makes no difference when the contract to vend arrack is between an individual and the State. (Para 19)

       Facts of the case :

        The officer conducting the sale declared the appellant to be the 'auction purchaser' and she deposited 30% of the bid amount i.e. Rs.7,68,600/- on the same date and executed a temporary agreement which was subject to confirmation by the Board of Revenue. Because of mass movement it was not possible for her to open and run the shops. Accordingly, she requested the Board of Revenue, District Collector and Assistant Commissioner of Excise not to confirm the sale in her favour as it was impossible for her to execute the privilege for the reasons beyond her control. She also requested that the proposed contract may be treated as rescinded. She further reserved her right to claim refund of the security amount. The State Government did not take any step to re-sell or re-dispose the arrack shops in question. The Assistant Excise Commissioner called upon the appellant to pay a sum of Rs.33,41,400/- towards the balance amount payable by her, together with interest at the rate of 18% thereon. Revenue recovery notice dated 30.6.1995 was also issued for realisation of the aforesaid amount. The appellant challenged the aforesaid notices issued to her in a writ petition filed before the Kerala High Court . The learned Single Judge quashed the notices and all the proceedings initiated against the appellant and further directed the refund of the amount of Rs.7,68,600/- deposited by her along with interest. The Division Bench held that the State is justified in forfeiting the said amount in view of Rule 5(15).

       Findings of the Court :

        In a contract under the Abkari Act and the Rules made thereunder, the licensee undertakes to abide by the terms and conditions of the Act and the Rules made thereunder which are statutory and in such a situation, the licensee cannot invoke the doctrine of fairness or reasonableness.

       Result : Appeal dismissed.