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1997 (1) TMI 544

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..... the following details was ₹ 40,38,500.00 :- 1.Century Rayon: 180,000 kgs. valued at ₹ 36,11,000. 2. Indian Rayon : 30,000 kgs. valued at ₹ 4,27,500. Along with the letter a copy of the letter dated June 4, 1973 received from M/s. Sharvan D. Sethi accepting the above arrangement and requesting the defendants to cover the foreign exchange in dollars through any bank was forwarded to the plaintiff. The defendants by means of the aforesaid letter also requested the plaintiff to cover the Us dollars for the above said amount. By the same letter the defendants requested the plaintiff to convey the rate for the former's acceptance. In response to the letter of the defendants the plaintiff by its letter dated June Ii, 1973 required the defendant to intimate the exact amounts in terms of Us dollars and specific periods of the forward contracts which the defendants wanted the plaintiff to book. On receipt of the letter of the plaintiff, the defendants by their letter dated June 15, 1973 gave the necessary details and requested the plaintiff to book four forward purchase contracts on their behalf as per below:- Amount Peri .....

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..... arding export of the banned item. The defendants were also asked to intimate the latest developments in the matter so that the plaintiff could approach its Foreign Department again. Again by their letter dated September 14, 1973 the defendants requested the plaintiff to extend two contracts No. ET/73/2 and ET/73/3 for a further period of two months pending the decision of the Government of India with regard to the request of the defendants for permission to execute the contracts. In response to the letter of the defendants dated 14th September 1973 the plaintiff intimated to the defendants that it (plaintiff) had been advised by its Foreign Department that it was unable to extend the foreign purchase contracts No. ET/73/2 and ET/73/3 in absence of clearance from the Government of India. The plaintiff by the same letter advised the defendants that it will not be in the defendants' interest to allow the contracts to remain overdue until clearance is obtained from the Government of India as the contracts will attract overdue interest at the rate of 9-1/2% per annum in addition to the cancellation charges. The letter also indicated that the cancellation charges for the forward cont .....

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..... pril 25, 1977 the defendants through their solicitors denied their liability in respect of the aforesaid amount. Thereupon on July Ii, 1977 the plaintiff Filed the instant suit against the defendants for recovery of ₹ 6,50,970.00 instead of ₹ 15,27,087.12. The defendants raised a number of pleas in their written statement, the main plea being that the contract had been rendered impossible of performance due to the ban imposed by the Government of India on the export of Rayon Filament. On January 9, 1980 the following issues were framed:- 1.What Shri M.L. Chandra duly authorised to sign and verify the plaint and to institute the suit? Opp 2. Whether the exchange contract bearing No. ET/71/1/1 to 4 was signed by the defendants as agents for Century Rayon, Bombay and India Rayon Corporation? If so, what is its effect? Opp 3. What is the effect of the ban on the export of rayon, filament and yarn covered by the contracts on the contract? Opd 4. What is the effect of the extension given for performance of the contracts? Opd 5. Are the defendants liable to pay the cancellation charges to the plaintiff as mentioned in paras 28 and 30 o the plaint? Opp 6. W .....

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..... une 21, 1972 published in the Govt. of India Gazette Part Ii, Section 4, dated August 26, 1972. This notification came into force w.e.f. September 1, 1972. Thus, any Manager of the plaintiff bank would be fully authorised to sing and verify the pleadings and would also be entitled to institute the legal proceedings, for and on behalf of the bank. In this view I am supported by the decision of the Punjab Haryana High Court in State Bank of India v. Kashmir Art Printing Press and others, (1983) 54 Comp Cos 56. Therefore, I hold that shri M.L. Chandra, Manager of the plaintiff bank, was duly authorised to sing and verify the plaint and institute the suit. Accordingly, issue No. 1 is decided in favour of the plaintiff. Issue No. 2: Defendants produced number of witnesses in their endeavour to show that they had entered into forward contracts with the Bank as agents of Indian Rayon and Century Rayon. It will not be necessary to examine the same as the defendant No. 2, who is the partner of the defendant No. 1, has admitted in his deposition that he was dealing with the State Bank on his own accord and not on behalf of Indian Rayon or Century Rayon. This is what defendant No. 2 s .....

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..... ing the reasons for entering into such transactions, he stated that this was done to secure against the fluctuations in foreign currency rates. He-also asserted that he dealing banks and the customers arc bound by the Exchange Control Manual and Foreign Exchange Dealers' Association of India Rules (for short 'FEDA' Rules) issued by the Reserve Bank of India. He alluded to the fact that the plaintiff bank entered into forward purchase contracts with defendant No. 1 of which only one was honoured, while the other three were not carried out. According to the witness, the controversy with regard to the remaining three contracts cropped up due to the ban on export of Rayon filament 'imposed by the Govt. of India and, therefore, defendant No. 1 was required by the plaintiff to cancel the contracts. He further stated that the plaintiff bank wanted to secure its position by getting the cover contracts entered into with other banks cancelled and this could be done only if defendants first got their forward contracts with the plaintiff cancelled; threat where the exporter does not deliver dollars within the stipulated period fixed by a forward contract, the plaintiffs obligat .....

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..... ndants by the plaintiff bank but the defendants were aware of them and the same were explained by the bank to the defendants. PW-2, ShriA.K. Mehra Senior Management Officer stated that he was dealing with the accounts of the defendants; that the defendants were to export rayon filament to Afghanistan; that they approached the plaintiff bank for executing forward contracts in order to secure against fluctuations in foreign exchange; that four such contracts were entered into between the plaintiff and defendants; that one of them materialised fully while the other three could not materialise; that foreign exchange dealings are governed by the Feda Rules; that the defendants were apprised of the fact that the contracts will be governed by those Rules; that when the ban came in August 1973, the plaintiff bank wrote vide Exhibit P-8 to the defendants to cancel the forward contracts as the extension was not possible because of the said ban, but the defendants requested vide Exhibits P-9 and P-12 to the bank for extension on the ground that they were hopeful of getting permission for exporting the goods; that the defendants did not succeed in their efforts and the plaintiff continued r .....

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..... prevalent in London Market. Coming to the evidence of the defendants, the statement of defendant No. 2, Shri Kewal Krishan Sethi, need be noticed. Shri Kewal Krishan Sethi stated that the earnest traders at the time of filing of the suit were dealing in export of goods to Afghanistan; that it used to export tea, spices, rayon yarn, that yarn used to be exported as agents of Century Rayon and Indian Rayon, on payment of two and a half per cent and 3 per cent as commission on the value of rayon exported; that the export benefit was being paid to the defendants by the Government which used to be passed on to the principals; that the Government of India imposed ban on 27th July, 1973 and as a result thereof the goods, except relating to one contract, could not be exported. The witness admitted that he had been seeking extensions from the plaintiff bank so that he could secure exemption from the ban. In the cross-examination, he admitted that he was dealing with the State Bank of India on his own account and not on account of Indian Rayon or Century Rayon. This is all the evidence which parties led in regard to the aforesaid issues. I will first determine the implication of t .....

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..... sted that the same be extended in the hope that the Government of India would lift the ban or would permit the defendants to export the goods as the export orders were prior to the coming into force of the 'banning order'. He further contended that the defendants are liable to pay interest to the. plaintiff in accordance with sub-rule 2 of Rule 9(III), and Rule 9(III) of the Feda Rules, which are statutory in nature. He also convassed that in order to secure the interest of the bank, the plaintiff had entered into cover contracts with other banks and had to purchase dollars at a loss from other sources in order to discharge its liability to the covering banks. I have considered the submissions of the learned counsel for the plaintiff. In order to appreciate the contention of the learned counsel, it will be relevant to notice Rule 9 (III) (IV) of the Feda Rules. Therefore, at this stage it will be convenient to set out these Rules to the extent they are relevant for the resolution of the controversy :- Rule No. 9(111) : (1) In the case of Bank sales, interest at not less than 2% p.a. over the Reserve Bank of India rate from the date of expiry to the date of .....

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..... This much is clear that the word impossible has not been used here in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose which the parties had in view, and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do. In the large majority of cases however the doctrine of frustration in applied not on the ground that the parties themselves agreed to an implied term which operated to release them from the performance of the contract. The relief is given by the court on the ground of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement. .... xx xx xx It is well settled and not disputed before us that if and when there is frustration the di .....

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..... ff. For the foregoing reasons Issues No. 3,4,5 6 are decided as follows: Issue No. 3 Contract was rendered impossible of performance on coming into effect of the banning order'. --- *** --- Issue No. 4 Since the contracts stood discharged and automatically dissolved w.e.f. the date of the banning order, the extensions given for performance of the contracts were of no effect and legally the contracts were not extended. Issues No. 5 6 The defendants are not liable to pay any cancellation charges to the plaintiff as the contracts were discharged on July 27, 1973, when the 'banning order' came into force, and the subsequent cancellation, if any, by the plaintiff was of no consequence. Similarly, the non-cancellation of the contracts by the defendants is also of no consequence and did not have the effect of keeping them alive. Issue No. 7 It would be necessary to recapitulate a few dates. The banning order came into effect on July 27, 1973. However, the suit was instituted on July Ii, 1977. As already noticed the contract was discharged with effect from the date of the banning order. The suit having been filed on July Ii, 1977, after three years of the com .....

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