Punj Sons Pvt Ltd vs Union of India case is one of the most interesting and significant cases dealing with the questions pertaining to what makes up an act impossible to perform, as mentioned in Section 56 of the Indian Contract Act, 1872.
BENCH: Justice R.N. Aggarwal
Indian Contract Act: Section 56
- The petitioner in this case, Punj Sons Pvt. Ltd., based in New Delhi, agreed with the Government of India on May 1, 1969, for the supply of 8420, 20-litre milk containers. According to the contract, the containers were to be coated with “hot dip tin coating” which was a canalised item.For this purpose, the petitioner wrote to the Director General of Supplies and Disposals requesting the issuance of a quota certificate for tin. The Director General of Supplies and Disposals recommended that release orders for the procurement of tin ingots be issued by the Director General of Technical Development. However, the Director General of Technical Development failed to issue an order permitting the tin ingots to be released.
- The petitioner wrote to the Director General of Supplies and Disposals stating that the release orders for tin ingots can only be issued to them after the department makes a provision to that effect in the agreement. The respondent reverted by stating that there was no provision in the agreement for help in the procurement of tin ingots, but that the request could be on an ex gratia basis if it made a price reduction. The department also stated that it was without prejudice to the purchasers’ rights and remedies under the terms of the contract.
- The petitioner responded they cannot offer any price reductions and pleaded that a quota certificate for tin ingot be issued, following which the respondent cancelled the contract. The respondent sought damages from the petitioner in the amount of Rs. 3,13,224on February 13, 1976. The petitioner, in a letter dated April 24, 1976, refuted the aforementioned claim. Dr. Bakhshish Singh, Additional Legal Adviser to the Government of India, Ministry of Law, was appointed to arbitrate the disputes. The arbitrator awarded the Union of India a sum of Rs. 3,13,224. 00 in a nonspeaking award.
- The petitioner then appealed against the award in the High Court of Delhi, challenging the legality and validity of the award because tin ingots were a necessity to complete the contract and that because the tin ingots were a canalised item and not available on the market, the contract could not be completed without the government releasing the required quantity. Thus, the contract became impossible to perform and was frustrated.
- Whether the contract between Punj Sons, Pvt. Ltd. and the Union of India stood frustrated?
- Whether the arbitral award was legally valid?
- The petitioner contended they had categorically stated that the tin ingots were a canalised item, and that the said item could only be issued to them by the Mineral and Metal Trading Corporation of India Ltd. on the recommendation of the Union of India or its department. The failure of the concerned authority to issue the quota of tin ingots, which was critical to the contract’s fulfilment, resulted in the petitioner’s failure to meet their contractual obligations. Thus, undoubtedly, the contract could not be performed because of the non-availability of one of the essential items tin ingots, which were required for the manufacture and supply of the contracted store.
- The learned counsel for the Union of India argued that the agreement contained no condition or stipulation regarding the petitioner’s supply of tin ingots, and that the objector was obligated under the contract to supply the contracted store within the stipulated time.
- Justice R.N. Aggarwal: The tin ingot was an essential and key element for hot tin dip coating of the 8420 containers for milk of 20 litres each, and the petitioner could not complete the contract without it. Because of the non-availability of tin ingots, the contract became impossible to perform, and this was beyond the promisor’s control.
- When the respondent stated that the Punj Sons must pay Rs. 3,13,224 in compensation, the petitioner objected because the petitioner had incurred high costs while performing the contract, and it was impossible for the petitioner to make and sell the containers at a lower price.
- The Court based its decision on the second paragraph of Section 56 of the Indian Contract Act, 1872 which states: “A contract to do an act which, after the contract is made, becomes impossible, or, by some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.” The Court referred to the decision with Sannidhi Gundayya v. Illoori Subbaya (AIR 1927 Mad 89).
The Honourable Delhi High Court held that the contract had become impossible to be performed and had thus been declared void. The Court also deemed the arbitral award to be legally flawed.
The judgement in Punj Sons Pvt. Ltd. v. Union of India is notable, which is widely referred to when determining cases related to the performance of contract and frustration of contract. This case explains the concept of ‘impossible to perform’ as mentioned in Section 56 of the Indian Contract Act, 1872.