2009 (12) TMI 39 - HC - Customs

Import of goods under EPCG licence Breach of contract - order of settlement commission grant of immunity from payment of interest held that - As party is excused of nonperformance, if it proves that nonperformance was due to an impediment beyond its control, and it could not have reasonably been foreseen by it at the time of making of the contract, nor could it have avoided or overcome it or its consequences. In other words due to act of god or act of nature, if the contract is frustrated party cannot be asked to perform the contract. The contract automatically stands determined and cannot be enforced through the legal process.- Assuming Mr. Jetly is right in his submission that Settlement Commission has no power to grant immunity from the payment of interest but in the facts and circumstances of the case, the Settlement Commission has no power to enforce the contract which is already frustrated or which does not exist in the eye of law

Summary

Issues:
Challenge to order granting immunity from payment of interest by Settlement Commission.

Analysis:
1. Introduction: The Petition challenges an order by the Settlement Commission granting immunity from interest payment to the Respondent who failed to fulfill export obligations after importing goods under an EPCG license.

2. Facts: Respondent imported a plant under EPCG license with zero duty, failed export obligations, and saved duty of Rs.1,48,79,898. Customs issued notices for duty payment, encashed bank guarantee, and demanded interest. Respondent applied to Settlement Commission for interest settlement due to financial losses from a cyclone.

3. Submissions: Petitioner argued Respondent had a contractual obligation to pay interest, citing legal precedents. Respondent claimed frustration of contract due to cyclone, rendering the obligation impossible to perform.

4. Consideration: Court considered the impact of the cyclone on Respondent's ability to fulfill obligations. The doctrine of frustration of contract under Section 56 of the Indian Contract Act was discussed, where contracts become void if performance is impossible. Various legal precedents were cited to support the concept of frustration leading to contract discharge.

5. Conclusion: The court accepted Respondent's argument of frustration of contract due to the cyclone, leading to the automatic discharge of the obligation to pay interest. Despite Settlement Commission's lack of power to grant immunity, the court found no purpose in remanding the case back for consideration, ultimately dismissing the Petition.

6. Judgment: The Petition was dismissed with no order as to costs, with both judges concurring on the decision.