M. Lachia Setty & Sons Ltd. Vs.
The Coffee Board, Bangalore [1980] INSC 197 (9 October 1980)
TULZAPURKAR, V.D.
TULZAPURKAR, V.D.
PATHAK, R.S.
CITATION: 1981 AIR 162 1981 SCR (1) 884 1980
SCC (4) 636
ACT:
Auction Sales - Auctioneer, if competent to
impose his own terms for holding auctions-Mitigation of loss in resale of goods
not taken delivery of-Rights of defaulting and non- defaulting parties.
HEADNOTE:
One of the three methods followed by the
respondent.
(The Coffee Board), for releasing raw coffee
seeds to the trade for internal consumption was by "pool auctions" in
which only dealers registered with the Board were permitted to participate. The
pool auction was conducted by a Sale Conducting officer (who was Chief
Marketing Officer of the Board). Condition 8 of the Conditions of Sale
provides, "telegraphic bids or telegraphic instructions regarding bidding
will not be considered." Condition 6 provides, "the seller does not
bind himself to accept the highest or any bid. He is not bound to assign any
reasons for his decision and his decision shall be final and conclusive."
The bids offered by the two appellants, who were registered dealers, at a pool
auction were accepted by the Sale Conducting officer, even though the bids were
not the highest. On their failure to take delivery of the stocks and to pay the
bid money within the stipulated period, the Board, after giving due notice to
the appellants re-sold the stocks two months later at another pool auction. The
prices realised at the re-auction being much lower than the appellant's bids,
the Board sought to realise the differences by way of suits.
The appellants disclaimed liability to make
good the loss to the Board mainly on the ground that there was no concluded
contract between the parties in that the appellants had sent telegrams to the
Board revoking their bids before the declaration of the results of the auction;
that in one case in regard to five lots there
was no concluded contract as the Board even under clause 6 had no power to
accept a lower bid on receipt of a higher bid which it did; and that the
appellants were not responsible for the loss which the Board had claimed as
having arisen out of the resale of the stocks bid by them in that the loss was
the result of deliberate bringing down of prices by the Board and further there
was inordinate delay in holding the re- sale.
The Board, on the other hand, alleged that
Condition 8 did not permit telegraphic withdrawal or retraction of any bid and
since the oral retraction had not been properly done to the officer concerned
there was a concluded contract;
Condition 6 was framed to prevent the
mal-practice among dealers by cornering stocks by forming rings among
themselves and puffing up prices to make unlawful gains to the detriment of the
consumer and that lastly the loss which resulted in the resale of stocks was
the result of fall in prices at the time of resale and therefore, was not
unreal.
885 Accepting the appellants' contention the
trial court dismissed the Board's suit for recovery of loss. On appeal by the
Board the High Court substantially upheld its contentions and decreed the
suits.
Dismissing the appeals.
HELD: 1. (a) Condition No. 8 was wide enough
to bar withdrawal or retraction of bids by telegrams. [891H] (b) On the face of
it "instructions regarding bidding" would mean any instructions, not
merely instructions by way of clarification, modification, amplification of
bids but also withdrawal or retraction of bids. Such instructions by telegram
would be impermissible. Having regard to the solemn procedure prescribed and
followed by the Board any instructions by telegram which more often are cryptic
and lack in authenticity on their face are rightly prohibited.
The fact that nowhere else in the Conditions
of Sale is the withdrawal or retraction of bids dealt with, would precisely be
the reason why this Condition should be widely construed as including the topic
of instructions regarding withdrawal or retraction of bids. [891E-G]
2. There is no force in the contention that
there were no concluded contracts between the parties on account of oral
withdrawal of the bids. Assuming that the oral retraction was made as claimed
by the appellants, the fact that it was made to the Assistant Coffee Marketing
Officer who had no authority to accept it (instead of to the Sale Conducting
Officer who was in charge of the pool auction) made the retraction ineffective
and of no consequence.
3. (a) An auctioneer can set his own terms
and conditions for holding an auction. If he does so, it is these conditions
that would govern the rights of the parties. [893G] (b) The Chief Marketing
Officer was well within his rights in accepting the lower bids. When Condition
6 says that the seller is not bound to accept the highest bids, it necessarily
implies that he can accept any lower bids. The words, "or any bid"
after the words "the highest" are used not for emphasising that even
the highest bid need not be accepted. The use of the words "or any
bid" would be superfluous if the same consequence of holding a fresh
auction was to ensure in the event of the highest bid being declined. By
necessary implication power had been conferred on the Board or its Chief
Marketing officer to accept a lower bid in preference to any higher bid.
[894E-H] (c) The practice followed by the Board over a period long before the
disputes arose showed that the parties to the pool auctions understood
Condition No. 6 as conferring power on the Board or its Chief Marketing Officer
to accept lower bids in preference to higher bids. More than all, the Condition
was devised to put an end to the mal-practice of the dealers cornering stocks,
puffing up prices and so on to the detriment of the consumer. [895A] 4.(a) The
well accepted position in law on the question of mitigation of loss is that it
does not give any right to the party in breach of the contract but is a concept
to be borne in mind by the Court while awarding damages. The non- defaulting
party is not expected to take steps which would injure innocent persons. Steps
taken by him in performance or discharge of his statutory duties cannot be
weighed against him. The question in each case would be one of reasonableness
of action taken by the non-defaulting party.
[897C] 886 In the instant case the various
measures taken by the Board were to prevent mal-practice by dealers and to
protect the interest of the consumers. In any event they were not directed
against the defaulting dealers at the pool auction.
At the earlier auction the Sale Conducting
Officer decided to accept the lower bids in preference to the higher bids
offered by the dealers who despite the oral warning issued by him against such
a method, offered higher bids exceeding the average prices for the month. It
was for this reason that at the re-sale the prices realised were lower than
those offered by the appellants at the earlier pool auction.
At the re-sale at any rate, only the highest
bids were accepted and therefore, the loss arising from the re-sale was not
unreal as claimed by the appellants. [898A-C] (b) On the facts of this case the
re-sale had been held within a reasonable time. [898G]
CIVIL APPELLATE JURISDICTION; Civil Appeal
Nos. 2567- 2568 of 1969.
From the Judgment and order dated 19-7-1963
of the Madras High Court in Appeal Nos. 260/58 and 165/60.
S. V. Gupte, S. S. Javali and M. Veerappa for
the Appellant.
Sundran Swami, Ravindra Swami and K.J. John
for the Respondent.
The Judgment of the Court was delivered by
TULZAPURKAR, J.-These appeals by certificates granted by the High Court of
Judicature at Madras are directed against its common judgment and two decrees
dated July 19, 1963 in A.S. No. 260 of 1958 and A.S. No. 165 of 1960
respectively whereby the High Court decreed the respondent suits (O.S. No.
319/1955 and O.S. No. 316/1955) in damages against the two appellants (M.
Lachia Setty & Sons Ltd. and Giri Coffee Works) respectively.
The respondent (the Coffee Board, Bangalore)
is a statutory body incorporated under the Coffee Act, 1942 having complete
control-almost monopolistic-over the coffee trade, internal and external. Its
functions and duties require it to keep a control over coffee prices regard
being had to the interest of all concerned, the grower, planter, licensed
curer, trader and consumer. Inter alia, it is entrusted with a duty of
marketing coffee delivered to it by all owners of coffee estates and for that
purpose it is empowered to make allotments of coffee between export and
internal trade and in regard to the coffee allotment made to the latter
category at the material time it adopted three methods for releasing the coffee
to the trade for internal consumption: (1) by sales called "pool
auctions" (wholesale) held at Bangalore, Coimbatore and certain other centres
in Madras and Mysore States, (2) by retail sales known 887 as "local
auctions" and (3) by sales to cooperative societies and at propaganda
centres established by it. In these appeals we are concerned with internal
sales falling under the first category, namely, sales effected periodically
through "pool auctions". Admittedly, at such "pool
auctions" only dealers registered with the respondent Board to whom
permits are issued are entitled to participate and such "pool auctions"
are inter alia governed by special conditions prescribed by the respondent
Board generally for regulating such sales which are termed as 'Conditions of
sale' (copy produced at Ex. A-3).
On October 7, 1952 various quantities of
coffee (of various grades and quality) comprised in 315 lots were put up for
sale by the respondent at its "pool auction" held at Coimbatore, the
auction being conducted by the Chief Coffee Marketing Officer himself as the
Sale Conducting Officer. In that auction several registered dealers including
the two appellants (M. Lachia Setty & Sons Ltd. and M/s Giri Coffee Works)
participated and lodged their bids in the prescribed forms for certain lots in
the Bid Boxes maintained for the purpose. The result of the auction was
announced sometime after 2 P.M. on October 8, 1952 and inter alia. the bids of
the two appellants in respect of the quantities of the lots for which they had
submitted their bids were accepted by the Chief Marketing Officer, though some
of the bids in respect of five lots were not the highest, and they were
declared to be the successful bidders. On the appellants' failure to pay for
and take delivery of the lots either within the stipulated period of 17 days or
the extended period the respondent Board after issuing a notice of re-sale
dated December 18, 1952 to the appellants and others, who had similarly
defaulted, held a re-sale (another pool auction) on December 23, 1952 at which
considerably lower price was realised and the respondent Board filed a batch of
15 suits against the defaulting bidders including the two appellants.
In suit No. 319/1955 which was filed against
the appellant M. Lachia Setty & Sons Ltd., the loss incurred as a result of
the re-sale was claimed at Rs. 34,570-6-6 as and by way of damages and in suit
No. 316/1955 filed against appellant M/s Giri Coffee Works a loss of Rs. 5,917
was claimed.
By their written statements the appellants,
inter alia, raised three principal defences. First, the appellants contended
that in their case they had revoked their bids orally as well as by a telegram
dated October 7, 1952 before the declaration of the results and hence there
were no concluded contracts between them and the Coffee Board and, therefore,
they could not be made liable for the loss arising on re-sale. Secondly, it was
contended that at an 888 auction a lower bid always lapses on receipt of a
higher bid and as such the lower bid becomes incapable of acceptance and that
even under condition No. 6 of the 'Conditions of Sale' the Board or its Chief
Coffee Marketing Officer had no power to accept their lower bids (in respect of
5 lots in the case of Giri Coffee Works) as those were not the highest bids for
the lots concerned. Thirdly, it was contended that the Coffee Board having
deliberately depressed or brought down the prices of the coffee had disentitled
itself to claim damages in as much as the loss arising on such re-sale was
unreal and in any event the re-sale having been held after an inordinate delay
the appellants were not liable for the quantum of loss claimed. It is unnecessary
to set out the other defences raised in the suits since in these appeals only
the aforesaid three contentions were pressed by counsel for the appellants for
our acceptance.
The respondent in its replications refuted
the aforesaid contentions of the appellants. It was pointed out that under
condition No. 8 governing the "pool auctions" telegraphic withdrawal
or retraction of any bid was not permissible and the oral retraction had not
been made to the proper officer and, therefore, there being no valid retraction
the appellants' bids had been properly accepted resulting in concluded
contracts. It was denied that in "pool auction" sales respondent
Board was obliged to accept only the highest bid: on the other hand, it was
contended that power to accept any lower bid in preference to the highest bid
was implied in condition No. 6, especially having regard to duty owed by the
respondent Board to maintain the coffee prices at proper level in the interest
of all concerned. The respondent further denied that it had disentitled itself
from claiming the loss arising on re-sale because of the fall in prices at the
time of such re-sale or that the loss sustained was unreal. It pointed out that
the measures taken by it in regulating coffee prices had become necessary as
some of the registered dealer and a few of their friends had formed themselves
into a ring and had cornered coffee by puffing up prices with a view to make
unlawful gains for themselves to the detriment of the consumer. It also denied
that there was any delay in holding the re-sale.
Parties led oral as well as documentary
evidence and on an appreciation of the entire material the trial court accepted
the aforesaid defences raised by the appellants and by a common judgment dated
March 31, 1958 dismissed the suits with costs. The respondent Coffee Board
preferred appeals to the High Court and by its common judgment dated July 19,
1963 the High Court allowed the appeals and decreed the respondent's claims
against the appellants. The High Court took the view that under Condition 889
No. 8 telegraphic withdrawal or retraction of bids was barred and the oral
retraction made by M. L. Gopal Setty on behalf of both the appellants (as the
Managing Director of M. Lachia Setty & Sons Ltd. and as a partner of M/s
Giri Coffee Works ) to the Assistant Officer was of no avail and, therefore,
the appellants' bids had been properly accepted resulting in concluded
contracts. It further took the view that condition No. 6 of Conditions of Sale
conferred an implied power on the Board to accept any lower bid in preference
to the highest one and having regard to the facts and circumstances obtaining
in the instant case the Chief Coffee Marketing Officer was justified in
accepting the lower bids in preference to the highest bids. The High Court
negatived the appellants' contentions in regard to the loss claimed by the
respondent Board and decreed the amounts claimed by it from the appellants. It
is these decrees passed by the High Court in favour of the respondent that are
being challenged by the appellants before us in these appeals.
The first contention raised by counsel for
the appellants in support of the appeals was that before the results of the
auction were announced a little after 2 - P.M. On October 8, 1952, the appellants
had retracted their bids orally as well as by a telegram and, therefore, their
bids could not be accepted thereafter and no concluded contracts resulted
between the appellants on the one hand and the Coffee Board on the other. In
this behalf reliance was placed by counsel on two factual aspects emerging from
the record. He pointed out that M. L. Gopal Setty (D.W.1) as the Managing
Director of M. Lachia Setty & Sons Ltd. and as the partner of M/s Giri
Coffee Works had despatched a telegram on October 7, 1952 (Ex. B-22) addressed
to the Chief Coffee Marketing Officer, Coffee Board, Coimbatore to the effect
"Hereby withdraw all bids given today on behalf of Giri Coffee Works and
Mysore lachia Setty & Sons Limited." It was initially received by F.
M. Saldhana (PW1), the Assistant Coffee Marketing Officer, in his office at
about 12.30 A.M. (midnight) on October 8, 1952 and thereafter was received by
Shri Kuttalalingam Pillai, the Chief Coffee Marketing Officer (PW3), at about
12.30 P.M. on October 8, 1952 which was long before the declaration of the
results. Secondly, he pointed out that Saldhana (PW1) admitted in his evidence
that on October 8, 1952 before the results were announced several dealers
including M. L. Gopal Setty were present waiting in the office and at that time
Gopal Setty asked him whether his telegram to Chief Coffee Marketing Officer
had been received to which he replied in the affirmative but told Gopal Setty
that the Board could not take cognizance of telegrams regarding bids whereupon Gopal
Setty said 890 that he was giving him (Saldhana) oral instructions then in
confirmation of the telegram to which Saldhana replied that he (Saldhana) was
not the Sale Conducting Officer and that it was too late to withdraw or retract
as the bids had been accepted by the Sale Conducting Officer, meaning the Chief
Coffee Marketing Officer. It is in this manner that the appellants contended
that they had retracted their bids before the declaration of the results of the
auction. On the other hand, counsel for the respondent Board relied upon
Condition No. 8 of the Conditions of Sale under which he urged telegraphic
withdrawal or retraction of bids was impermissible and as regards the oral
retraction it was contended that same' not having been made to the proper
officer, namely, the Chief Coffee Marketing Officer, was of no avail.
It would, therefore, be necessary to consider
Condition No. 8 as on its proper construction will depend the question whether
telegraphic withdrawal or retraction of bids was prohibited or not ? A copy of
the Conditions of Sale governing 'pool auctions' was produced at Ex. A-3. At
the outset it must be observed that "pool auctions" conducted by the
Coffee Board are very much unlike the usual public auctions where competitive
bids are usually given openly within the hearing of all the bidders so that any
bidder after knowing what the earlier bid is can improve upon the same by
giving a higher bid. At the "pool auctions" conducted by the Coffee
Board only registered dealers holding the requisite permits from the Board are
allowed to participate and some solemnity is attached to the act of giving the
bid in as much as Condition No. 1 provides that the participants shall submit
their quotations (bids) in the form prescribed by the Board and the bids in the
prescribed form are required to be lodged in the closed and sealed bid boxes
maintained for the purpose, and at the close of the bidding, the boxes are
opened and record thereof is made by the Sale Conducting Officer under his
signature which is also attested by a representative of the bidders; the bids
are then tabulated and the Sale Conducting Officer selects the bids and makes
the allotments to the successful bidders and a declaration containing the names
of the successful bidders alongwith the lots and quantities allotted to them is
put up on the notice board in the office of the Board. In reality the
"pool auctions" resemble or are more akin to sales by inviting
tenders. It is in the context of such undisputed procedure that is solemnly followed
in the matter of conducting the "pool auctions" that Condition No. 8
will have to be considered. It runs thus:
"8. Telegraphic bids or telegraphic
instructions regarding bidding will not be considered." 891 The question
is whether the phrase "telegraphic instructions regarding bidding"
occurring in the above condition is wide enough to include instructions
pertaining to withdrawal or retraction of bids? According to counsel for the
appellants the phrase refers only to instructions regarding the making or
giving of bids or at the highest would include instructions by way of
clarification or modification of bids already given which is impermissible by
telegraphic communications. He urged that the topic of withdrawal or retraction
or cancellation of bids has not been dealt with anywhere else in the Conditions
of Sale nor by Condition No. 8 at all and, therefore, in the absence of any
specific or express bar against withdrawal or retraction by telegrams, the
normal mode under the general law of communicating a withdrawal or retraction
by a telegram would be and was available to the appellants. According to him
the curtailment of the normal mode of communicating a retraction which is open
to an offerer under the general law must be by some express provision or must
arise by necessary implication. It is not possible to accept the construction
that is sought to be placed by counsel for the appellants on the concerned
phrase occurring in Condition No. 8. In the first place giving of telegraphic
bids having been expressly barred in the earlier part of the Condition the
phrase "telegraphic instructions regarding bidding" cannot again
refer to instructions regarding the act of giving or making bids. Secondly, on
the face of it "instructions regarding bidding" would mean any
instructions, not merely instructions by way of clarification, modification,
amplification of bids but also withdrawal or retraction of the bids and such
instructions by telegrams would be impermissible. Moreover having regard to the
solemn procedure prescribed and followed by the Coffee Board in the matter of
conducting its "pool auctions" submission of bids is required to be
done in prescribed forms and telegraphic bids are prohibited it stands to
reason that any instructions concerning such bids whether by way of
clarification, amplification, modification, cancellation or retraction should
not be permissible by telegrams which are more often cryptic and do not possess
authenticity on their face. Further, the fact that nowhere else in the Conditions
of Sale is the topic of withdrawal or retraction of bids dealt with would
precisely be the reason why Condition No. 8 should be widely construed as
including the topic of instructions regarding the withdrawal or retraction of
bids.
In our view, the High Court was right in
coming to the conclusion that Condition No. 8 was wide enough to bar withdrawal
or retraction of bids by telegram.
Turning to the oral retraction made by M. L.
Gopal Setty on October 8, 1952, the High Court has taken the view that the case
892 of oral retraction before the results were announced was not true, which
may be difficult to sustain. But, even if the evidence about such oral
retraction which consists of the testimony of Gopal Setty (D.W. 1) and Saldhana
(PW 1) were to be accepted at its face value, the same would be of no avail to
the appellants because, such oral retraction was made to Saldhana, the
Assistant Coffee Marketing Officer, who had no authority in the matter. Under
the procedure it is the Sale Conducting Officer who is in charge of the pool
auctions. Therefore, retractions had to be made to either the Sale Conducting
Officer or the Chief Coffee Marketing Officer, the executive head of the Board,
and that is why the telegram Ex. B-22 was addressed on behalf of the appellants
to the Chief Coffee Marketing Officer. In this case the Chief Coffee Marketing
Officer himself was the Sale Conducting Officer and the oral retraction was not
made to him but it was made to Saldhana, who had no authority. The oral
retraction was, therefore, ineffective and of no consequence. In our view,
therefore, it is not possible to accept the contention of the appellants that
there were no concluded contracts between them on the one hand and the Coffee
Board on the other on account of withdrawal or retraction of their bids.
The next contention urged by counsel for the
appellants was that the Chief Coffee Marketing Officer had no power to accept
lower bids when higher bids had been submitted by other participants as,
according to him, the normal established rule at auction sales has been that a
lower bid lapses on receipt of a higher bid with the result that the lower bid
becomes incapable of acceptance. He further urged that even under Condition No.
6 of the Conditions of Sale, on which the respondent Board sought to rely,
confers no power on the Board or its Chief Coffee Marketing Officer to accept
lower bids, for, all that Condition No. 6 does is that it frees the Board from
the obligation to accept the highest or any bid and the Board need not assign
any reasons for doing so. Counsel fairly stated that so far as the appellants
are concerned this contention was available to Giri Coffee Works and that too
regarding its bids only in respect of 5 lots, for, in the case of other bids
given by Giri Coffee Works and all bids given by M. Lachia Setty & Sons
Ltd. that were accepted were the highest bids. In support of this contention
counsel relied upon the following statement of law occurring in Halsbury's Laws
of England (4th Edn.) Vol. 9, para 231 at page 102:
"231 Auctions.-At auction sales, it is a
long- established rule that prima facie the auctioneer's request for bids is a
mere invitation to treat, and that each bid constitutes an offer which is
accepted on behalf of the seller by the auctioneer when.
893 he signifies his acceptance in the usual
manner. It would seem, moreover, that each bid lapses as soon as a higher bid
is made ................ " It will appear clear that the underlined
portion of the statement of law is supported by the case of Blackbeard v. Lindigren
referred to at footnote 3. [(1786) 1 Cox Eq Cas 205 = 29 English Reports
Chancery) 1130]. It was a case where an Estate was sold before the Master for
payment of debts and A was reported to be the best bidder at the sum of `13,000
but before the report was confirmed it was discovered that A was insane at the
time of the bidding. The Court was moved on behalf of all the parties in the
cause that B the next best bidder might be reported to be the purchaser at the
sum bidden by him. To this motion B consented but the Court thought it was
irregular and directed the estate to be re-sold generally. Relying on this
decision counsel for the appellants contended that the normal rule was that a
lower bid lapses on the receipt of a higher bid, and if the highest bid was not
to be accepted for any reason, the auction must be abandoned and fresh auction
would be required to be held and, therefore, in the instant case the Chief
Coffee Marketing Officer could not accept the lower bids of Giri Coffee Works
in respect of five lots.
Counsel for the respondent Board did not
cavil at the aforesaid statement of law but he urged that the same was
applicable to auctions generally in the absence of special conditions
prescribed by the auctioneer governing the auction. According to him it was
well-settled that an auctioneer can prescribe his own terms and conditions on
the basis of which property is exposed to sale by auction, and in that event,
the special conditions so prescribed by him would govern the position. He
strongly relied upon Condition No. 6, as being a special condition prescribed
by the Board governing the "pool auctions" conducted by it and the
said condition impliedly confers power upon the Board or its Chief Coffee
Marketing Officer to accept a lower bid in preference to any higher bid that
might be received. It cannot be disputed that an auctioneer can set his own
terms and conditions for holding an auction and if he does so those conditions
would govern the rights of the parties. The short question which arises for our
consideration is whether Condition No. 6 includes a power to accept a lower bid
in preference to any higher bid ? Condition No. 6 runs thus:
"(6) The seller does not bind himself to
accept the highest or any bid. He is not bound to assign any reasons for his
decision, and his decision shall be final and conclusive." 894 Counsel for
the appellant urged that the language of Condition No. 6 does not show that any
power was intended to be conferred on the seller i.e. the respondent Board but
it is concerned with freeing the Board from the obligation to accept the
highest bid by stating that the seller does not bind himself to accept highest
bid and for such non- acceptance he is not obliged to give any reasons.
Secondly, all that the condition says is that the seller is not bound to accept
the highest or any bid but does not say that the seller can accept that lower
bid. According to him, the words "or any bid" which follow the words
"the highest" merely emphasize the aspect that even the highest bid
need not be accepted. He, therefore, urged that in the absence of any power
being conferred on the Board or its Chief Coffee Marketing Officer to accept
any lower bid in preference to a higher bid the normal rule applied and the five
lots should have been withdrawn from that auction and put up for fresh auction.
We are not impressed by the submissions made by counsel for the appellants on
the question of proper construction of Condition No. 6. It is true that
Condition No. 6 is couched in a peculiar way but when it states that the seller
is not bound to accept the highest bid it necessarily implies that he can
accept any lower bid. The addition of the words "or any bid" after
the words "the highest" seems to us to be of some significance. We do
not agree that these words are used merely for the purpose of emphasising the
aspect that even the highest bid need not be accepted. We are of the view that
two separate powers-power to decline the highest bid and power to decline any
bid-with different consequences ensuing are intended to be conferred on the
seller by this condition. The addition of the word "or any bid" would
be superfluous if the same consequence (of holding a fresh auction) was to
ensue in the event the highest bid being declined. Therefore, on construction
of the condition it is clear that by necessary implication power had been
conferred on Board or its Chief Coffee Marketing Officer to accept a lower bid
in preference to any higher bid. Besides, at Ex. A-275 the respondent Board has
produced a tabulated statement showing a number of instances where the highest
bids were rejected and lower bids accepted at "pool auctions"
conducted by it from 1949 to 1952-a period long before the instant dispute
arose which clearly shows that the parties to the pool auctions also understood
Condition No. 6 as conferring a power on the Board or its Chief Coffee
Marketing Officer to accept lower bids in preference to higher bids. Moreover,
such construction of Condition No. 6 would accord with the accomplishment of
the main function of the Board to control coffee prices by maintaining them at
proper level as the power to accept 895 a lower bid in preference to any higher
or the highest bid helps avoiding malpractices such as formation of rings or
syndicates by coffee dealers, cornering of coffee by a few dealers, puffing up
of prices by them, etc. In the view which we are taking of Condition No. 6, it
is clear that the Chief Coffee Marketing Officer in the instant case was within
his rights when he accepted the lower bids received from Giri Coffee Works in
respect of 5 lots. The appellants' contention in this behalf, therefore, must
fail.
The last contention urged by counsel for the
appellants on the quantum of loss claimed by the respondent comprised a two
pronged attack against the re-sale held in respect of the defaulted lots of
coffee. First, the Board was under an obligation to mitigate or minimise the
loss arising from the failure on the part of the appellants to pay for and take
delivery of the coffee allotted to them at the pool auction, but instead
deliberate measures were taken by the Board to bring down the prices of coffee
and then effected a re-sale on December 23, 1952 resulting in the alleged loss
of Rs. 34,570-6-6 and Rs. 5,917 respectively, which could not be regarded as a
loss directly and naturally arising from the breach in the ordinary course of
events, but was unreal, created and brought about by the respondent and,
therefore, the same was not recoverable from the appellants. Secondly, the
re-sale was not held within reasonable time of breach but was inordinately
delayed and, therefore, the appellants were not liable for the quantum claimed.
It may be stated that the contention that the defaulted coffee ought to have
been put up for sale at Export Auction and not at Pool Auction, though urged in
the lower Courts, was not pressed before us. For the reasons which we shall
indicate presently, we do not find substance in either of these two grounds of
attack.
At the outset it must be observed that the
principle of mitigation of loss does not give any right to the party who is in
breach of the contract but it is a concept that has to be borne in mind by the
Court while awarding damages. The correct statement of law in this behalf is to
be found in Halsbury's Laws of England (4th Edn.) Vol. 12, para 1193 at page
477 which runs thus:
"1193. Plaintiff's duty to mitigate
loss. The plaintiff must take all reasonable steps to mitigate the loss which
he has sustained consequent upon the defendant's wrong, and, if he fails to do
so, he cannot claim damages for any such loss which he ought reasonably to have
avoided." Again, in para 1194 at page 478 the following statement occurs
under the heading 'Standard of conduct required of the plaintiff:
896 "The plaintiff is only required to
act reasonably, and whether he has done so is a question of fact in the
circumstances of each particular case, and not a question of law. He must act
not only in his own interests but also in the interests of the defendant and
keep down the damages, so far as it is reasonable and proper, by acting
reasonably in the matter In cases of breach of contract the plaintiff is under
no obligation to do anything other than in the ordinary course of business, and
where he has been placed in a position of embarrassment the measures which he
may be driven to adopt in order to extricate himself ought not to be weighed in
nice scales at the instance of the defendant whose breach of contract has
occasioned the difficulty The plaintiff is under no obligation to destroy his
own property, or to injure himself or his commercial reputation, to reduce the
damages payable by the defendant. Furthermore, the plaintiff need not take
steps which would injure innocent persons." (Emphasis supplied).
In Banco De Portugal v. Waterlaw & Sons,
Ltd., Lord Shankey, L.C., quoted with approval the statement of law enunciated
in James Finlay & Co. v. N. V. Kwik Hoo Tong, Mondel Maatchappij, to the
effect "In England the law is that a person is not obliged to minimise
damages on behalf of another who has broken a contract if by doing so he would
have injured his commercial reputation by getting a bad name in the
trade." In American Jurisprudence 2d, Vol. 22 para 33 (at pp. 55-56)
contains the following statement of law:
"33. The general doctrine of avoidable
consequences applies to the measure of damages in actions for breach of
contract. Thus, the damages awarded to the non-defaulting party to a contract
will be determined and measured as though that party had made reasonable
efforts to avoid the losses resulting from the default. Some courts have stated
this doctrine in terms of a duty owing by the innocent party to the one in
default; that is, that the person who is seeking damages for breach of contract
has a duty to minimise those damages. However, on analysis, it is clear that in
contract cases as well as generally, there is no duty to minimize damages,
because no one has a right of action against the non-defaulting party if he 897
does not reasonably avoid certain consequences arising from the default. Such a
failure does not make the non- defaulting party liable to suit; it only
indicates that the damages actually suffered are greater than the law will
compensate. Therefore, in contract actions, the doctrine of avoidable
consequences is only a statement about how damages will be measured."
(Emphasis supplied).
From the above statement of law it will
appear clear that the non-defaulting party is not expected to take steps which
would injure innocent persons. If so, then steps taken by him in performance or
discharge of his statutory duty also cannot be weighed against him. In
substance the question in each case would be one of the reasonableness of
action taken by the non-defaulting party.
Here the material on record clearly shows
that internal coffee prices in the year- 1952, particularly from March to
October 1952, had soared very high on account of malpractices indulged in by
coffee dealers and even the Government of India felt itself very much concerned
about it and suggestions had been made by Government officials as well as by
the Members of the Coffee Board to take steps to bring down the coffee prices
at reasonable level in the interest of both the trade as well as the consumer
and, in fact, several measures, including the step of accepting lower bids in
preference to the higher bids, with a view to regulate coffee prices were taken
by the Coffee Board pursuant to the Government's directive in that behalf.
Clearly, these measures were being taken by
the Board in discharge of their main function and duty to maintain the coffee
prices at proper level in the interest of all concerned, particularly the
consumer and were not directed against the defaulting dealers at the concerned
pool auction. In fact, the evidence of Kuttalaingam Pillai (PW3), the Chief
Coffee Marketing Officer, has been that before the commencement of the
"pool auction" on that day he had issued oral warning to the bidders
that Government of India was concerned about the increase in coffee prices and
that they should not try to push up prices and corner stocks and M. L. Gopal
Setty (D.W. 1) has admitted that Chief Coffee Marketing Officer had given a
warning that the higher bids will not be accepted. Therefore, when in spite of
such warning being issued unnecessarily higher bids were given exceeding the
average prices prevailing in the month of September 1952, (which themselves
were high), the Chief Coffee Marketing Officer decided to accept lower bids in
preference to the higher ones. It was in these circumstances that at the
re-sale held on December 23, 1952 the prices realised were lower than the 898
appellants' bids which had been accepted at the "pool auction" held
on October 7, 1952. It must be stated here that at the re-sale admittedly only
the highest bids were accepted. So it is not as if at the re-sale lower bids
were deliberately accepted to enhance the loss. It is impossible to subscribe
to the proposition that the Board should have maintained the high price level
at the cost of the consumers merely with a view to see that the defaulting
bidders did not suffer any loss on re-sale. The loss arising on the re- sale,
therefore, cannot be regarded as "unreal" loss. The attack of the
appellants against the grant of damages to the respondent on this ground is
clearly unsustainable.
As regards the alleged delay in holding the
re-sale it must be observed that both the trial court as well as the High Court
have taken the view that the same was held within reasonable time at the next
"pool auction" conducted in the normal course. The results of the
concerned "pool auction" were declared sometime after 2 P.M. on
October 8, 1952. The period of 17 days (14 days initial period plus 3 days of
grace for taking delivery) expired on October 26, 1952, but the evidence on
record shows that there was a general request on behalf of the successful
bidders for extension of time for making payment and taking delivery and such
extension had been granted by the Board up to November 10, 1952 by issuing a circular.
We have already held that there was no valid retraction of bids by the
appellants and to their knowledge their retraction had been rejected by the
Board on October 8, 1952 itself. That the appellants were interested in the
extension granted by the Board becomes evident from their telegram dated
October 22, 1952 (Ex. A - 129) seeking confirmation of the extension. After
November 10, 1952. some reasonable notice of re-sale would have to be issued,
so the defaulted coffee could not be put up for sale in the pool auction that
was held in the month of November, 1952. The next pool auction was to be held
in December, 1952 and, therefore, after issuing notice of re-sale on December
18, 1952 the re-sale was held by conducting a pool auction on December 23,
1952. In our view, both the Courts were right in taking the view that the
re-sale had been held within the reasonable time.
Since all the contentions urged by counsel
for the appellants have failed, the appeals are dismissed with costs.
P.B.R. Appeals dismissed.
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