1968 (4) TMI 75 - SC - Indian Laws

Summary

Issues Involved:
1. Legality of the contract under the Imports and Exports (Control) Act, 1947.
2. Validity and binding nature of the contract.
3. Applicability of Section 56 of the Indian Contract Act, 1872 (Doctrine of Frustration).
4. Performance of the contract post the Imports (Control) Order, 1955.
5. Liability of the defendants.

Issue-wise Detailed Analysis:

1. Legality of the Contract under the Imports and Exports (Control) Act, 1947:
The primary issue was whether the contract violated the restrictions under the Imports and Exports (Control) Act, 1947, and the relevant notifications, rendering it void and illegal. The appellant argued that the contract was illegal as it contravened the terms of the import licence which prohibited the sale of imported chicory. The Court examined the terms of the licence, Ex. B-9, and relevant statutory provisions, concluding that the contravention of the licence terms was not equivalent to a breach of the statutory order within the meaning of Section 5 of the Act as it stood at the relevant time.

2. Validity and Binding Nature of the Contract:
The trial court held the contract legal and binding, as the contravention of the licence terms entailed only an administrative penalty. The High Court agreed, stating that the contract was not prohibited by law and was valid and binding. However, the Supreme Court found that the performance of the contract became illegal after the Imports (Control) Order, 1955 came into force, as it prohibited the sale of imported chicory, making the contract void under Section 56 of the Indian Contract Act.

3. Applicability of Section 56 of the Indian Contract Act, 1872 (Doctrine of Frustration):
The Court analyzed whether the contract became void due to supervening impossibility or illegality under Section 56. It was held that the contract, initially enforceable, became void after December 7, 1955, when the Imports (Control) Order, 1955 came into force, making the performance illegal. The doctrine of frustration applied as the contract's performance became impossible or unlawful due to the new legal restrictions.

4. Performance of the Contract Post the Imports (Control) Order, 1955:
The appellant contended that the performance of the contract became illegal after December 7, 1955, due to the new order. The Court agreed, stating that the sale of imported chicory would be a direct contravention of Clause 5(4) of the 1955 Order and punishable under Section 5 of the Imports and Exports (Control) Act, 1947. Thus, the contract became void due to supervening illegality.

5. Liability of the Defendants:
The trial court found both defendants liable for breach of contract and awarded damages. The High Court, however, dismissed the suit against the first defendant and reduced the damages against the second defendant. The Supreme Court, considering the contract void under Section 56, dismissed the suit entirely, absolving both defendants of liability.

Conclusion:
The Supreme Court allowed the appeal, setting aside the Madras High Court's decree and dismissing the respondent's suit in its entirety. The Court held that the contract became void due to supervening illegality under Section 56 of the Indian Contract Act, 1872, following the enforcement of the Imports (Control) Order, 1955. No costs were awarded in the appeal.