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High Court Of Madhya Pradesh
S. K. DUBEY, USHA SHUKLA
FOOD CORPORATION OF INDIA, BHOPAL - Appellant
Versus
BABULAL AGARWAL, BHOPAL - Respondents
FIRST APPEAL 6 Of 1995
Decided On : 09/18/1996
CONTRACT - Breach of contract - Promissory estoppel - Applicability - FCI inviting offers for construction of plinths and other facilities for storing food grains, sugar, fertilizers, etc., and to lease the same to FCI for 3 years with an option to FCI to extend it by a further period of one year on the same terms and conditions - Respondent-firm submitting its offer and after negotiations, the offer was accepted - Agreement entered into between the parties - Respondent constructing the plinths within the extended period - FCI taking possession of the plinths and paying rent for a period of 21 months - FCI serving a notice of vacation of plinths due to low utilization - Respondent instituting a suit for recovery of damages for breach of contract - Trial Court holding that the plaintiff firm is entitled to reasonable damages on the principle of promissory estoppel - FCI appealing against the judgment - HELD, dismissing the appeal, that the FCI was bound to discharge its obligations arising out of the agreement - FCI being the statutory Corporation cannot be allowed to resile from its promise so as to cause harm or injury to respondent - Respondent entitled to damages to be calculated after deduction of six per cent from the agreed rent for the unexpired period of three years.
Fact of the Case:
FCI invited offers for construction of plinths and other facilities for storing food grains, sugar, fertilizers, etc., and to lease the same to FCI for 3 years with an option to FCI to extend it by a further period of one year on the same terms and conditions. Respondent-firm submitted its offer and after negotiations, the offer was accepted. An agreement was entered into between the parties. Respondent constructed the plinths within the extended period. FCI took possession of the plinths and paid rent for a period of 21 months. FCI served a notice of vacation of plinths due to low utilization. Respondent instituted a suit for recovery of damages for breach of contract. Trial Court held that the plaintiff firm is entitled to reasonable damages on the principle of promissory estoppel. FCI appealed against the judgment.
Finding of the Court:
The FCI was bound to discharge its obligations arising out of the agreement. FCI being the statutory Corporation cannot be allowed to resile from its promise so as to cause harm or injury to respondent. Respondent entitled to damages to be calculated after deduction of six per cent from the agreed rent for the unexpired period of three years.
Issues: None
Ratio Decidendi: The doctrine of promissory estoppel is applicable in the facts of this case. The FCI, after the acceptance of its tender, negotiations on the agreed term contained in the agreement, after deposit of security deposit and on taking huge amount of loan on interest from the Bank, constructed the plinths and other facilities as per requirements and specifications of the FCI, on the assurance and agreed condition that plinths and other facilities so constructed to the satisfaction of FCI shall be taken on lease as agreed for a period of three years with an option of FCI, to extend for one more year on the same terms and conditions of the lease. The FCI not only entered into agreement to that effect but, its officers also wrote a letter to the Branch Manager, UCO Bank, Bhopal that FCI has accepted the offer of the respondent and agreed to take plinths on rent at 0.40 paise per sq. ft. and the rent payable to the respondent for the entire period of three years and one year more if extended from the date of occupation shall be remitted to the Bank. However, this arrangement continued only for a period of 21 months as FCI terminated the tenancy in public interest the reason being low utilisation due to drought situation.
Final Decision: Appeal partly allowed. The decree passed by the trial Court is modified to the extent that the respondent would be entitled to damages to be calculated after deduction of six per cent from the agreed rent for the unexpired period of three years. The respondent would be entitled to interest on the amount so calculated at the rate of 6% per annum from the date of the suit, 4-10-1991 and would also be entitled to Rs. 10,000/- of security deposit and Rs. 3037/- interest as awarded by the trial Court. The costs of this appeal shall be borne by the parties as incurred.
( 1 ) THIS is a defendants' appeal under S. 96 of the Code of Civil Procedure against the Judgment and decree dated 7-10-1994 passed in Civil. Suit No. 26-B/91, by the District Judge, Bhopal.
( 2 ) ADMITTED facts are thus, the appellant No. 1 Food Corporation of India (FCI) in the year 1985, invited offers from the owners of land for construction of plinths and other facilities (including building) as per specifications detailed in the advertisement for storing foodgrain, sugar, fertilisers and any other material handled by the FCI and after construction to lease to FCI on rent for 3 years with an option to FCI of renewal for one more year, on the same terms and conditions. The respondent-plaintiff firm had its land at Rasal Khedi near Bhopal submitted its offer for construction of plinths and other constructions as specified in advertisement, after negotiations, the offer of the respondent at the negotiated rate of 40 paisa per sq. feet was accepted vide letter dated 11-6-1985 (Ex. P. 1), stating therein that the work will be executed in accordance with the FCI guide-lines, drawings and specifications and a lay out plan approved by the Regional Office before start of the work. Respondent was asked to submit all relevant documents pertaining to ownership of land, flood level certificate and lay out plan etc. and to execute an agreement on stamp paper of Rs. 5/- within 10 days of the issue of Ex. P. 1. Original offer and letter of negotiation dated 31-5-1985 to form a part of the agreement. A similar letter dated 12-8-1985 (Ex. P. 2) was also sent in pursuance of the letter of the respondent dated 24-6-1985 for hiring capacity of 40,000 Metric tonnes, in addition to the capacity of 45,000 MTs under Ex. P. 1, Vide letter dated 19-8-1985, the FCI accepted the revised offer for construction of plinth for 85,000 MT at the rate of 40 Paisa per sq. feet with effect from 12-8-1985. An agreement dated 12-2-1986 (Ex. P. 6) was entered into by the respondent as party No. 1 and FCI as Party No. 2 at Bhopal, clauses and terms of agreement relevant for the purpose of this appeal are extracted below. "whereas Party No. 2 by open advertisement in the news paper had called for offers from any person (s) for construction of plinth along with other facilities upon pieces of land as per Appendix 'a' by the party No. 2 for the purpose of storing food grains/sugar/fertilisers or any other material handled by the Food Corporation of India and thereafter to lease the same to party No. 2 on rent for a period of three years with a right/option to party No. 2 to extend it by a further period upto one year on the same rates, terms and contitions applicable to the initial period of lease i. e. three years; ANDWHEREAS party No. 1 has agreed to construct plinths alongwith the facilities as per Appendix 'a' 85000 MT capacity at Rasal Khedi Bhopal in the State of M. P. andwhereas party No. 1 has further agreed to lease out the aforesaid plinths with other facilities after the same is constructed according to the specification mentioned in Appendix 'a' and enclosures thereto laid down by party No. 2 on lease for a period of 3 years at the rent of 0. 40 paisa (Fourty Paise only) per sq. feet with a right of option on party No. 2 to extend the lease further for a period upto one year on the same rates, terms and conditions provided the plinths with other facilities are completed and made ready for occupation within a period of three months from the date of the execution of this agreement. NOW THIS AGREEMENT WITNESSETH AS UNDER :-1. The opposite party No. 1 would be solely responsible for obtaining necessary permission from the land ceiling authority and sanction for the plan of plinths and other facilities to be constructed from the local bodies like Municipal Authorities or any other competent authority before proceeding with the constructions2 The size and height of the plinths and other facilities will be as per specifications laid down in App
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