Court Quashes Forfeiture Order, Directs Refund of Rs.5.47 Lakh After Finding Contract Frustrated

A single-judge bench of Justice S. Talapatra heard a writ petition by Murrrah Livestock Corporation challenging a communication dated 05.11.2011 that purported to forfeit Rs. 5,47,500 for alleged breach of a supply contract. The petitioner sought quashing of the forfeiture and a direction for refund with interest; the respondents defended the forfeiture as a contractual consequence for non-deposit of security money.

The Court allowed the petition, quashed the letter of forfeiture and directed refund of Rs. 5,47,500 within three months, but declined to award interest. The judge found that the amount had been unilaterally converted into security money without the petitioner’s consent and that the respondents had not shown any loss or damage occasioned by the alleged breach. The Court observed that the petitioner had narrated an insurmountable impediment to performance arising from refusal of transport permission by police authorities and accepted the plea of impossibility leading to frustration of the contract. The Court, in its reasoning, observed: “When the respondents could not show that they suffered loss or damage, the forfeiture is clearly an unjust enrichment. Moreover, this court on the face of the record, is inclined to accept the fact of impossibility leading to frustration of the contract and hence, no compensation can be imposed on the petitioner.” The judge also recorded there was no averment showing damage to the respondents and that no firm order under the second agreement was ever placed on the petitioner.

Background The dispute arose from two successive supply agreements between Murrrah Livestock Corporation and respondent No.2 for supply of milch cattle. Under the first agreement dated 09.01.2010 the petitioner supplied 200 cross-breed milch cows and obtained a work completion certificate; an outstanding payment and security deposit totalling Rs.5,58,400 remained with respondent No.2. A second agreement dated 13.04.2011 required the petitioner to deposit 5% security (Rs.5,32,500) before a firm order for 300 Jersey cross-bred pregnant heifers would be placed. The petitioner sought police permission to transport animals from Ambala to Tripura but the Superintendent of Police, Ambala refused permission on law-and-order grounds. The petitioner informed the respondent of the transport denial by letters dated 19.08.2011, 26.08.2011 and 08.09.2011 and explained inability to furnish the security deposit was caused by that impossibility. The respondent nevertheless communicated on 05.11.2011 that Rs.5,47,500 was forfeited for breach.

The petitioner contended there was no consent to convert the outstanding sum from the first contract into security for the second, no firm purchase order was placed under the second agreement, and the transport prohibition rendered performance impossible, thereby frustrating the contract. The respondents maintained that the petitioner defaulted in depositing security and accepted conversion of funds as security; they asserted breach and justified forfeiture. The Court considered whether the writ was maintainable given contractual dispute-resolution clauses and authorities such as Kurien E. Kalathil and Rajasthan State Industrial Development and Investment Corporation, but found the facts showed arbitrariness and unjust enrichment. The judge noted the respondents did not deny the impossibility nor demonstrate any loss, and accepted that equity warranted intervention by mandamus to prevent unjust enrichment. As a consequence the forfeiture communication dated 05.11.2011 was quashed, the petition was allowed and no costs were awarded. The Court expressly refused to award interest on the refunded amount.

Case Details: Case No.: Not stated in the judgment extract Case Title: Murrrah Livestock Corporation v. The Tripura Cooperative Milk Producers Union Ltd. & Ors. Appearances: For the Petitioner(s): Mr. A. Bhowmik, Advocate For the Respondent(s): Mr. S. Deb, Senior Counsel