THE NAIHATI .JUTE MILI.S LTD v. KBYALIRAMJAGANNATB

Section 56 of the Contract Act inter alia provides that a con tract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor oould O · not prevent, unlalWful, becomes void when the act becomes impossible oc unlawful. It also provides that where one person has promised to do something which he knew, or, with reason able diligence might have known, and which the promisee did not know to be impossible or unlawful, such a promisor must make compensation to such promisee foc any loss which such D promisee sustains through the non-performance. As envisa~ by s. 56, impossibility of performance would be inferred by the courts from the nature of the contract and the surrounding cir cumstances in which it was made that the parties must have made their bargain upon the basis that a partiCIUlar ·tiring or state of B things ·would continue to exist and because of the altered circum stances the bargain should no longer be held binding. The courts would also infer that the foundation of the contract had disappear· ed either by the destruction of the subject matter or by reason of such long interruption or delay that the performance would really in effect be that of a different contract for which the parties had' not agreed. Impossibility of · performance may also arise P where without any default of either party the contractual obliga tion had become incapable of being performed because the cir cumstances in which performance . was called for was radically different from that undertaken by the contract. But the oommon law rule of contract is that a man is bound to perform the obliga- G tion which he has undertaken aml c.tnnot claim to be excused by the mere fact that performance has subsequently become impossible. Courts in England have, however, evolved from time to time various theories to soften the harshness of the aforesaid rule and for that purpose have tried to formulate the true basis of the dbctrine of discharge of contract when its performance is made impossible by intervening causes over which the parties to it had R no control. One of such theories is what has been ,called the theory of implied term as illustrated in F.A. Tamplin Steamship Co. Ltd. v. Anglo-Mexican Petroleum Products Co. Ltd.(') where Lord Loreburn stated:- (') [1916] 2 A.C. ·397. 8UP111D1E OOUBT IIJIPOBTS (1968) 1 B.C.R. A B "A court can and ought to examine the contract and the circumstances in which it was made, not of course to vary, but only to explain it, in order to see whether or not from the nature of it the parties must have made their bargain on the footing that a particular thing or a state of things would continue to exist And if they must term to that effect would be have done so, then a implied; though it be not expressed in the contract". He further observed:- O "It is in my opinion the true principle, for no court has an absolving power, but it can infer from the nature of the contract and the surrounding circumstances that a condition which was not expressed was a foundation on altered conditions such that, had they thought of them, they would have taken their chance of them, or such that as .sensible men they would have said, "if that hap pens. of course, it is all over between us." the parties contraieted .. .. .. . .. . .. .. . Were D The same theory in a slightly different form was expressed by Lord Wallion in Dahl v. Nelson, Donkin & Co.(') in the following words:- B "The meaning of the contract must be taken to be, not what the parties did intend (for they had neither thought nor intention regarding it), but that which the parties, as fair and sensible men, would presumably have agreed upon if, having such possibility in view, they had made. express provision as to their several righlli and liabilities in the event of illi occurrence." In the first case the term is a genuine term, implied though not r .expressed; in the ·second it is 81 fiction, something added to the rontract by the law.(') It appears that the theory of implied term was ·not found to be quite satisfactory as it contained elemenlli of contradiction. For, if the parties foresaw the circumstances which existed at the date of performance they would provide for them in the contract; if they did not, that meant that they. deli- 9 berately took the risk and therefore no question of an implied term could really arise: In Russkoe v. John Strik & Sons Ltd.(') Lord Atkin propounded the theory of disappearance of the founda tion of oontra~ stating thalt he could see no reason why if certain circumstances, which the court would find, must have been oon tetnplated by the. parties as being of the essence. of the contract and the continuance Of which must have been deemed to be B e8$e11tial to the perfdrniance of the contract, the court cannot say (') [1881] 6 A.C. 38. (') Anso'I, Principles of the English Law of Controct, 22nd ed. (') [1922] 10 Ll.L.R. 214 (quoted at p. 466 in Anson's Law of Con.

#464. %1'act, 22nd ed.) NAIHA'J'l JUTE JIIWI LTD. V. xBYALllWl (She/at, J.) 827 .that when thei;e circumstances cease to exist, the contract ceases A to operate. The third theory is that the court would exercise power to qualify the absolutely binding nature of the contract in order to do what is just and reasonable in the new situation. Denning L. J. in British Movietones Ltd. v. London and District ·Cinemas Ltd.(') expounded this theory as follows: - "Even if the contract is absolute in its term, neverthelei;s, if it is not absolute in intent, it will not be held absolute in effect The day is done when we can excuse an unfore.. seen injustice by saying to the sufferer. "It is your own folly. You ought not to have passed that form of words. You ought to have put in a clause to protect yourself." We no longer credit a party with the foresight of a prophet or his lawyers with the draftsmanship of a Chalmers." B c ·This theory would mean that the Court has inherent jurisdiction to go behind the express words of the contract and attribute to the Court the absolving power, a power consistently held not to D be inherent in it The House of Lords in the appeal from that In decision [reported in 1952 A.C. 166] discarded the theory. more recent times the theory of a change in the obligation has come to be more and more generally accepted. Lord Radcliffe, .the author of this theory, in Davis Contractors v. Fareham U.D.C.(') formulated it in the following words:- B "Frustration 'OCQUrs whenever the law recognises that without default of either party a contractual obligation bas · become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract" It is not hardship or incOnvenience or material loss which brings about the principle of frustration into play. There must be a. . change in the significance of obligation that the thing undertaken would, if performed, be a different thing from that which was contracted for. · F G These theories have been evolved in the main to adopt a realistic approach to the problem Of performance of contract when it is found that owing. to causes unforeseen and beyond the con trol of the parties intervening between the date of the contract and the date of its performance it would be both unreasonable and unjust to exact its performance in the clianged circumstances. Though none of them was fuHy accepted and the court construed B the contracts coming before them applying one or the other of th~ as aI1PC3ring to be more rational than the other, the con clUSIOns arrived at were the same. The necessity of evolving one {'~ !1951] 1 K.B. 190. (') [1956] A.C. 166. 828 SuPREJIE COllBT REPORTS [1968) 1 8.C.R. A or the other theory was due to the common law rule that courts have no power to absolve a party to the contract from his obliga tion. On the one hand, they were anxious to preserve intact the sanctity of contract while on the other the courts could not shut their eyes to the harshness of the situation in cases where per formance became impossible by causes which could not have been foreseen and which were beyond the control of parties. B Such a, difficulty has, however, not to be faced by the courts in this country. In Ganga Saran v. Ram Charan(') this Court emphasised that so far as the courts in this country are concern ed they must look primarily to the law as embodied in secs. 32 and 56 of the Contract Act. In Satyabrata Ghose v. Mugneeram(') C also, Mukherjee J. (as he then was) stated that sec. 56 laid down a rule of positive law and did not leave the matter to be deter mined according to the intention of the parties. Since under the Contract Act a: promise may be expressed or implied, in cases where the court gathers as a matter of construction that the con tract itself contains impliedly or expressly a term according to D which it would stand discharged on the happening of certain cir· cumstances the dissolution of the contract would take place under the terms of the contract itself and such cases would be outside the purview of sec. 56. Although in English law such cases would be treated as cases of frustration, in India they would be dealt with under sec. 32. In a majority of cases, however, the E doctrine of frustration is applied not on the ground that the parties themselves agreed to an implied term which operated to release them from performance of the contract. The Court can grant relief on the ground of subsequent impossibility when it finds that the whole purpose or the basis of the contract was frustrated by the intrusion or occurrence of an unexpected event or change of F circumstances which was not contemplated by the parties at the date of the contract. There would in such a case be no question of finding out an implied term agreed to by the parties embody ing a provision for discharge because the parties did not think about the matter at all nor could possibly have any intention regarding it. When such an event or change of circumstances G which is so fundamental as to be regarded by law as striking at the root of the contract as a whole occurs it is the court which can pronounce the contract to be frustrated and at an end. This is really a positive rule enacted in sec. 56 which governs such situa tions. The question then is, was there a change in the policy of the H Government of India of a total prohibition of import of ]:>akistan jute as contended by the appellants which was not foreseen by the parties and which i.ntervened at the time of performance and which made the performance of their stipulation to obtain a (') [1952) S.C.R. 36. I') [1954) S.C.R. 310. J NAIBATI JUTE MILLS LTD v. ltJIYALIRAH (Shelat, J,) 829 licence impossible? It is clear from the circulars produced during A the trial that as eaily as March 1958 the Government of India had issued warnings that import of Pakistan jute would be per· mitted to the absolute minimum and that the jute mills should satisfy theiI needs by purchasing Indian jute. It appears that at the time when the parties entered into the contract the policy was to giant licences in the ratio of 5 : l. that is, if an importer had bought 500 maunds of Indian jute he would be allowed a B licence to import 100 maunds of Pakistan jute. This policy is in\:licated by the Ciicular dated July 17, 1958 issued by the Indian Jute Mills Association to its members. Such licences would be issued to mills who had stock of less than two months' consump tion. As already stated, the appellants applied on August 8, 1958 for an import licence for 14.900 maunds and the Jute Commis- sioner declined to certify that application on the giound that they held stock sufficient to last them for some months. In November 1958, they applied again, this time stating that theiI stock had been reduced and in December 1958 they were told to buy Indian jute. The said Ciicular appears to show that the Government had not placed a total embargo on import of Pakistan jute. At D any rate, such an embargo was not proved by the appellants. It appears, on the contrary, from the documents on record tha.t the policy of the Government was that the licensing authorities would scrutinise the case of each applicant on its own merit 0 What is however important in cases such as the one before B us is to ascertain what the parties themselves contemplated at the time of entering the contract. That the appellants were aware that licences ,were not issued freely is evident by the provisions of the contract themselves which provide that if the appellants failed to furnish to the respondents the import licence in Novem- ber 19 58 the period of shipment was to be extended upto Decem- F ber 1958 and the price in that event would be enhanCed by 50 nP. The contract further provided that if the appellants were not able to furnish the licence by December 1958 they would pay damages at the market rate prevailing on January 2, 1959 for January. February shipment goods. These clauses clearly indicate that the appellants were conscious of the difficulty of getting the licence G in time and had therefore provided in the contract for excusing delay from November to December 1958 and for the appellants' liability to pay damages to procure it even in if they failed December 1958. The contract, no doubt, contained the printed ter-m that the !myers would not be responsible for dela,y in deliver- ing the licence but such delay as therein provided was to be excused only if it occurred by such reasons as an act of God, war, R mobilisation etc., and other force majeure. It is nobody's case that the performance became impossible by reason of such forct majeure. As already stated when the appellants applied for the licence .• the authorities refused to certify theiI application becallSe they held at that time stock for more than 2 months. It is therefore SUl'll1':ME COt:RT UEPORTS [1968) l B.O,R. A manifest that their application was refused because of a personal disqualification and not by reason of any force majeure. Since this was the position there is no question of the performance becoming impossible by reason of any change in the Government's policy which could not be foreseen bv the parties. No question a !so would arise of importing an implied term into the contract. 11 Assuming. however, that there was a change of policy and that the Government in the intervening period had decided to place an embargo on i~port of Pakistan jute the question would still be whether the appella'nts were relieved from liability for their failure to deliver the licence. A contract is not frustrated merely because the circumstances in which it was made are ·C altered. The Courts ha.ve no general power to absolve a party from the performance of his part of the contract merely because its performance has become onerous on account of an unforeseen turn of events.(') The question would depend upon whether the contract which the appellants entered into was that they would make their best endeavours to get the licence or whether the con- D tract was that they ·would obtain it or else be liable for breach of ·that stipulation. In a case falling under the former category, Lord Reading C.J. in Anglo-Russian Merchants-Traders v. John Batt & Co.(') observed' that there was no reason why the law should imply an absolute obligation to do that which the law forbids. It was so said because the Court construed the contract to mean E only that the sellers there were to make their best efforts to obtain the requisite permits. As a contrast to such a case there are the cases of Pattahmull Rajeshwar v. K. C. Sethia(') and Peter Cassidy Seed Co. v. Osuustickaanppa(') where the courts have observed that there is nothing improper or illegal for a party to take upon himself an absolute obligation to obtain a permit or a licence and F in such a case if he took the risk he must be held bound to his stipulation. As Lord Sumner in Bank Lime Ltd. v. Capel (A) Co. Ltd.(') said : - G B "Where the contract makes provision (that is, full and complete provision, so intended) for a given contingency it is not for the court to import into "the contract some other different provisions for the same contingency called by different name." In such a case the doctrine of discharge by frustration cannot be available, nor that of an implied term that the existing state of (') M/s Alopi Parshad & Sons v. Union of India [1960] 2 S.C.R. 793 at p. 808. (') [1917] 2 K.B. 679. ('.) [1957] W.L.R. 273. (3) [1951] 2 All. E.R. 352. (') [1919] A.C. 435 at p. 455. C\AJHATI JUTE :MILT.S LTD. !'. KHYALIRA>I (S/ielat, .J.) 831 affairs would continue at the date of performance. The reason A is that where there is an express term the court cannot find on construction of the contract an implied term inconsistent with such express term. In our view, the provision in the contract that whereas the delay to provide a licence in November 1958 was to be excused but that the contract was to be settled at the market rate prevail- B ing on January 2, 1959 if the appellants failed to deliver the licence in December 1958 clearly meant that the appellants had taken upon themselves absolutely the burden of furnishing the licence latest by the end of December 1958 and had stipulated that in default they would pay damages on the basis of price pre vailing on January 2. 1959. That being the position the defence c of impossibility of performance or of the contract being void for that reason or that the court should spell out an implied term in the contract would not be available to them. In the view that we take that the said contract cannot be said to be or t0 have been void and that in altly event the stipulation as to obtaining the import licence was absolute, the question that D the arbitration clause perished along with the contract and consequently the arbitrators had no jilrisdiction cannot arise. But assuming that the appellants had established frustration even then it would not be as if the contract was ab initio void and therefore not in existence. In cases of frustration it is the "performance of the contract which comes to an end but the contract would still E be in existence for purposes such as the resolution of disputes arising uader or in connection with it. The question as to whether the contract became impossible of performance and was discharg- ed under the doctrine of frustra, tion would still have to be decid- ed under the arbitration .:lause which operates in respect of such purposes. (Union of India v. Kishorilal>('). F Mr. B. Sen for the appellants also raised two other questions, as to the legal misconduct on the part of the arbitrators and as regards interest on damages awarded by them. We need not how ever say anything about these two questions as ultimately they were not pressed by him. G The last contention raised by him was that the arbitrators awarded damages on the basis of the market rate at Rs. 51 per maund instead of Rs. 65 which was the export price fixed by the Government of Pakistan. The argument was that such a basis was contrary to the public policy laid down by the Governmen• of Pakistan and it would not be expedient on our part to give our. imprimatur to an infringement by the arbitrators of such a H pohcy. There is. in our view. no merit in the argument. The Goyernment _of Pakistan cannot lay down any public or economic policy for this country. If the arbitrators found the prevalent rate --·-.. -·--------· ('l (1960] 1 S.C.R. 514. 832 SUPREJIB COUJIT RllPORTS [1968) 1 S,C.B. A on January 2, 1959 in Calcutta to be Rs. 51 a maund there can be no objection to their adopting that rate for adjudicating the quantum of damages. The appeal fails and is dismissed with costs. B·R.K.P.S. Appeal dismissed.