In W.P.No.8522 of 2022-MAD HC- Price fluctuation cannot be construed as force majeure event warranting invocation of Sec.56 of Indian Contract Act, holds Madras HC Justice G.R. Swaminathan [01-06-2022]

Read Order: M/S STARSHINE LOGISTICS AND ORS Vs. TAMIL NADU CIVIL SUPPLIES CORPORATION 

Mansimran Kaur

Chennai, June 2, 2022:  While observing that that the doctrine of frustration could not apply in the instant  case as the fundamental basis of the contract remained unaltered, the Madras High Court has dismissed the writ petitions assailing  the additional supply of 25 % of  RDB Palmolein oil pouches by the respondent- Tamil Nadu Civil Supplies Corporation. 

A Single Bench of Justice G.R. Swaminathan dismissed the petitions instituted by the petitioners to assail the additional supply of 25 % of RDB Palmolein oil pouches by holding that the said supply was well within the contractual framework and did not frustrate the said contract. 

In this matter, the Tamil Nadu Civil Supplies Corporation issued tender notification dated December 20, 2021 for the supply of 4 Crore nos. of Fortified RDB Palmolein oil pouches. The tender was open for calling bids and in pursuance of the same, the petitioners submitted the tenders and emerged as the successful bidders. The offer made by the petitioner was accepted by the Corporation. 

Thereafter, imposing clause 17 (d) the petitioners were directed to supply the additional 25% quantity. However, the petitioners contended that the market rates had undergone adverse changes, thus the performance of the said contract was impossible, the petitioners stated. The respondents, per contra were adamant on their stand and so, the present writ petitions were filed assailing the additional demand. 

After hearing the rival contention of both the sides, the Court firstly dealt with the preliminary objection pertaining to the presence of the arbitration clause 23 of the tender notification. In view of the same, the Court referred the case of U.P. Power Transmission Corporation Ltd. Vs CG Power & Industrial Solutions Limited, wherein the Apex Court observed that the existence of an arbitration clause does not debar the court from entertaining a writ petition and that relief under Article 226 of the Constitution of India may be granted in a case arising out of a contract.

It was further noted by the  Bench that though the High Courts usually refrain themselves from entertaining the cases wherein there is an arbitration clause and the case requires appreciation of evidence, however, the Court opined that in the present case the facts were not disputed. The respondent being the State instrumentality and the petitioner complained of breach of statutory procedure,so the Bench held that the case should be decided on its merits. 

The Court further opined that the demand made by the respondent for additional 25 % was well within the scope of the contract. However, simultaneously the Court noted that at the time the impugned demand was made, the market conditions underwent drastic changes due to the war between the Ukraine and Russia which broke out on February 24, 2022.  Thereafter, the Court went through the contents of the affidavits and concluded that the petitioners had nowhere stated that the subject matter of the contract was unavailable in the market. It was further observed by this Court that when on April 22, the Corporation issued a notification for supply of Fortified RBD Palmolein, it did evoke a response. Till the issuance of the ban order by the Indonesian Government on April 4, 2022, there were bidders offering to supply the commodity in question, of course at a higher rate.

The Court considered Section 56 and opined that the doctrine of frustration cannot apply to these cases as the fundamental basis of the contract remains unaltered. The escalation of the price of the commodity in the market cannot be a ground to plead frustration.

At the outset, the Court opined that the petitioners were seasoned suppliers and were in a position to have foreseen that the prices might fluctuate.  Price fluctuation cannot be construed as a force majeure event warranting invocation of Section 56, the Court affirmed.  It was also submitted by the Court that the Indonesian ban was made on April 24, 2022 and the demand for additional supply was made on March 2, 2022. Thus, the Court was of view that it did find any need to intervene with the impugned communication issued by the respondent. Accordingly, the petitions were dismissed.