When in case of frustrated contract, parties must be restored to their original position?

Mr. Sushil Kumar Jain, learned senior counsel
appearing on behalf of the respondent, drew our attention to the
letter dated March 31, 2010 whereby the Principal Chief
Conservator of Forests (Wildlife) & Chief Wildlife Warden,
Bangalore, has specifically stated to the General Manager
(Operations) of the appellant that Bhadra Wildlife Sanctuary was
declared as a Tiger Reserve and was required to be maintained as
‘inviolate’ for tiger population, hence, refused to allow the

transportation through the said Tiger Reserve under Section 38(v)
of the Wildlife (Protection) Act, 1972 as amended in 2006. By the
said letter, the request to lift and transport the iron ore fines was
rejected. Therefore, the contract which was entered into between
the parties, as would be evident, is in violation of the said Act and
is against public policy. Hence, the contract cannot be given
effect to as the contract is already frustrated. He also drew our
attention to the fact that the appellant by a fax message dated
July 6, 2007 duly relaxed condition Nos.8, 9 and 10 as stipulated
in the G.O. dated 2nd May, 2007. Learned senior counsel further
contended that by relaxing the said conditions, there was no need
for the respondent to obtain permission. On the contrary it was
the duty of the appellant to take permission from the authority for
implementation of such contract.

After considering the submissions made on behalf of the
parties, we find that there is substance to accept the contentions
of Mr. Jain, learned senior counsel in the matter. In our opinion,
the contract is unenforceable and further, the contract is also hit
by Section 38(v) of the Wildlife (Protection) Act, 1972 as amended

in 2006. Therefore, the object of the contract is forbidden by law.
Hence, the said contract is unlawful and cannot be given effect to.

 In these
circumstances, the High Court held that the contract itself stood
frustrated and could not have been performed by the respondent
even if it desired to do so, and further held that in case of
frustrated contract, parties must be restored to their original
position.

Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4026 OF 2014
[Arising out of Special Leave Petition (Civil) No.12463/2012]
Executive Director,
Steel Authority of India & Ors.

vs.
Tycoon Traders & Ors.
Citation; 2014(3) ALLMR 961 SC
Pinaki Chandra Ghose, J.

1. Leave granted.
2. This appeal has been filed against the order dated February
21, 2012 passed by the High Court of Karnataka in W.P.
No.38280/2011.

3.
The facts of the case reveal that on February 19, 2007, Steel
Authority of India (for short ‘SAIL’) had advertised for E-auction of
1.00 lakh metric tons of iron ore (fines) from Kemmanagundi
mines. On March 13, 2007, auction was held and respondent No.1
was declared as the successful tenderer. It would be evident from
the sale order dated March 16, 2007 that the price was agreed
upon at 1,132/- per metric ton plus VAT of 4% aggregating to
11,32,00,000/- plus VAT of 4%.
The appellant duly paid
176
lakhs being 15% of the total sale value on March 15, 2007. Out of
the said amount,
58.86 lakhs being 5% of the total sale value
was retained as Security Deposit and a sum of 117.74 lakhs was
kept for adjustment along with the final instalment. The balance
payment was to be made in two monthly instalments with the
grace period of 30 days with interest at the rate of 6% per annum.
The entire material was to be lifted within four months from the
date of the sale order.
4.
On May 26, 2010, SAIL informed the respondent that the
contract was revalidated by letter dated July 27, 2009 till
November 26, 2009 for a period of four months commencing from

July 27, 2009 and that the said contract had expired on the lapse
of the said period. It is also not in dispute that on November 9,
2009, SAIL had addressed a letter to the Principal Chief
Conservator of Forests (Wildlife) and Chief Wildlife Warden,
Karnataka, for renewal of permission granted for lifting and
transporting iron ore fines through Bhadra Wildlife Sanctuary. The
Principal Chief Conservator of Forests by letter dated March 31,
2010, declined to grant such permission for the removal of 1.00
lakh tons of iron ore fines by plying vehicles. In these
circumstances, the High Court held that the contract itself stood
frustrated and could not have been performed by the respondent
even if it desired to do so, and further held that in case of
frustrated contract, parties must be restored to their original
position.
5.
On the basis of the aforesaid reason, the High Court held
that it is illegal and unconscionable for SAIL not to refund the
entire sum of money received by it from the respondent. The High
Court further held that the extension was granted at the instance
of SAIL and such extension amounts to waiver of the delivery

conditions in the sale order dated March 16, 2007. The High Court
further held that the Bhadra Wildlife Sanctuary has been declared
as a ‘Tiger Reserve’ and that it is required to be maintained as
‘inviolate’ for tiger population, and the permission which has been
refused cannot be granted in view of section 38(v) of the Wildlife
(Protection) Act, 1972 as amended in 2006. In this background,
the writ petition was allowed and SAIL was directed to refund the
entire amount within four weeks from the date of the order.
6.
Being aggrieved, the appellant filed the present appeal
before this Court. It was contended before us that this is a case
where there was a breach of contract which was committed by
the respondent and thereby SAIL has a right to forfeit the earnest
money and security deposit on the basis of such breach. It is also
stated whether it would come within the purview of a case of
frustration of the contract. Dr. Rajiv Dhawan, learned senior
counsel appearing in support of the appellants, has drawn our
attention to the original agreement and contended that there was
a breach of the original agreement since no clearances were
obtained, payments were not made and further contract was not

completed. It has been further submitted that the respondent
could not lift the iron ore fines although SAIL could manage to get
permission from the State Government. Furthermore, it is the
case of the appellant that in the light of the respondent’s request,
the contract was revalidated on July 27, 2009 on the same terms
and conditions and, in fact, there was no waiver of any conditions
stipulated in the sale order dated March 16 2007; therefore, on
this question the High Court is not correct since, according to him,
there was no question of any waiver. He further submitted that
there was no frustration due to impossibility because the Principal
Chief Conservator of Forests had granted clearance.
7.
Per contra, Mr. Sushil Kumar Jain, learned senior counsel
appearing on behalf of the respondent, drew our attention to the
letter dated March 31, 2010 whereby the Principal Chief
Conservator of Forests (Wildlife) & Chief Wildlife Warden,
Bangalore, has specifically stated to the General Manager
(Operations) of the appellant that Bhadra Wildlife Sanctuary was
declared as a Tiger Reserve and was required to be maintained as
‘inviolate’ for tiger population, hence, refused to allow the

transportation through the said Tiger Reserve under Section 38(v)
of the Wildlife (Protection) Act, 1972 as amended in 2006. By the
said letter, the request to lift and transport the iron ore fines was
rejected. Therefore, the contract which was entered into between
the parties, as would be evident, is in violation of the said Act and
is against public policy. Hence, the contract cannot be given
effect to as the contract is already frustrated. He also drew our
attention to the fact that the appellant by a fax message dated
July 6, 2007 duly relaxed condition Nos.8, 9 and 10 as stipulated
in the G.O. dated 2nd May, 2007. Learned senior counsel further
contended that by relaxing the said conditions, there was no need
for the respondent to obtain permission. On the contrary it was
the duty of the appellant to take permission from the authority for
implementation of such contract.
8.
After considering the submissions made on behalf of the
parties, we find that there is substance to accept the contentions
of Mr. Jain, learned senior counsel in the matter. In our opinion,
the contract is unenforceable and further, the contract is also hit
by Section 38(v) of the Wildlife (Protection) Act, 1972 as amended

in 2006. Therefore, the object of the contract is forbidden by law.
Hence, the said contract is unlawful and cannot be given effect to.
In these circumstances, we do not accept the contention of Dr.
Dhawan, appearing on behalf of the appellants.
9.
Accordingly, we hold the High Court was correct in allowing
the writ petition, and we do not find any reason to interfere with
the said order of the High Court. Hence, we do not find any merit
in the appeal, and the same is dismissed.
.................................J.
(Gyan Sudha Misra)
New Delhi;
.........................J.
March 26, 2014.
Ghose)
.........
(Pinaki
Chandra