# M. L. SETTY v. COFFEE BOARD

- **Citation:** [1981] 1 S.C.R. 884
- **Court:** Supreme Court of India
- **Decided:** 1980-10-09
- **Bench:** V: D. Tulzapurkar, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-l-setty-v-coffee-board-8184
- **Pages:** 15

## Headnote

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•,
Auction sales-Auctioneer, if competent to impose his ·own terms for hold·
ing a11ctions-Mitigat1'on of loss in resale of goods 'not taken delivery of-Right~
of defaulting and non-defaulting parties.
One of the three methods followed by the respondent, IThe Coffee Board),
for releasing raw coffee seeds to the trade for internal consumption was by
"pool auctions" in wbich 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 Condi:
tions 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 high'est or any bid.
He is not bound to assigll
any reasons for his decision and his d<~cision shall be final and conclusive." ,
The bi~s offered by the two appell'ants, 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 wiihin 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 Jots there was no concluded contract as the Board ev'cn under clause 6
had no power to accept a lower bid on receipt of a higher bid which it did.;
and that the appellan,ts were not. responsible
for
th~ loss
which
the
Board had claimed as having arisen out of the resale of the stocks bid by them
in that the Joss was the result of deliberate bringing down of prices by the
Board and further there was inordinal<l delay in holding the re-sale.
The Board, on the other hand, alileged that Condition s· 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
Joss which resulted in the resale of stocks was the. result of fall in prices at
the time of resale and therefore, was not unreal.
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M. L. SETTY v. COFFEE BOARD
·sss
Accepting the appellants' contention the trial court dismissed the Board's
A.
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) Conditi~n No. 8. was wide enough to bar withdrawal or
retraction of bids by telegrams: [891H]
(b) Oo: 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 retrac-
, tion of bids dealt with. would precisely be the reason why this Condition should
be 'Yidely 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

## Text

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M. LACHIA SETTY & SONS LTD. ETC. ETC.
V'.
THE COFFEE BOARD, BANGALORE
October 9, 1980
[V: D. TULZAPURKAR AND R. S. PATHAK, JJ)
---
•,
Auction sales-Auctioneer, if competent to impose his ·own terms for hold·
ing a11ctions-Mitigat1'on of loss in resale of goods 'not taken delivery of-Right~
of defaulting and non-defaulting parties.
One of the three methods followed by the respondent, IThe Coffee Board),
for releasing raw coffee seeds to the trade for internal consumption was by
"pool auctions" in wbich 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 Condi:
tions 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 high'est or any bid.
He is not bound to assigll
any reasons for his decision and his d<~cision shall be final and conclusive." ,
The bi~s offered by the two appell'ants, 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 wiihin 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 Jots there was no concluded contract as the Board ev'cn under clause 6
had no power to accept a lower bid on receipt of a higher bid which it did.;
and that the appellan,ts were not. responsible
for
th~ loss
which
the
Board had claimed as having arisen out of the resale of the stocks bid by them
in that the Joss was the result of deliberate bringing down of prices by the
Board and further there was inordinal<l delay in holding the re-sale.
The Board, on the other hand, alileged that Condition s· 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
Joss which resulted in the resale of stocks was the. result of fall in prices at
the time of resale and therefore, was not unreal.
(
M. L. SETTY v. COFFEE BOARD
·sss
Accepting the appellants' contention the trial court dismissed the Board's
A.
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) Conditi~n No. 8. was wide enough to bar withdrawal or
retraction of bids by telegrams: [891H]
(b) Oo: 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 retrac-
, tion of bids dealt with. would precisely be the reason why this Condition should
be 'Yidely 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 auctjon) made the. retraction ineffective . and of no consequence,
[892C-DJ
3. (a) An auctioneer can set hk 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]
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, (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
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was devi~ 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 wbile 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 . statu·
tory 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]
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SUPREME COURT REPORTS
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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 Sa le Conducting Officer decided to accept
the lower bids in preference to the higher bi'ds offered by the dealers who
despite the oral warning issued by him agains! such a method, offered higher
bids exceeding the average prices for the month. It was for this reason that
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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]
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(b) On the facts of this case the re·sale had been held within a reasonable
time.
[898G]
CNIL 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 AS. No. 260 of
1958 and AS. No. 165 of 1960 respectively whereby the High Court
decreed the respondent suits (O.S. No. 319/1955 and 0. S. No. 316/
1955) in damages against the two appe:llants (M.
Lachia Setty &
Sons Ltd. and Giri Coffee Work:;) 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 dutic:s require it· to ke·ep a control over
coffee prices regard being had to the interest of all concerned, the
grower, planter, licensed curer, 1trader and consumer.
Inter alia, it
is entrusted with a duty of marketing coffee d_elivered 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 : (l)
by
sales
called "pool
auctions" (wholesale) held at Bangalore,
Coimbatore and certain
other centres in Madras and Mysore States, (2) by retail sales known
l
··~
M. L. SETTY v. COFFEE·BOARD (Tulzapurkar, J.)
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 §ale' (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 Marketh!g Officer himself as
the Sale Conducting Officer. In that auction several registered
dealers including the two appellants (M: Lachia Setty & SollS' Ltd.
and Mis 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 some
time 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, 1932 at
· which considerably lower price wa.s 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 Mis·
Giri CoJiee Works a loss of Rs. 5,917 was claimed. .
By their written statements !he appellants, inter
ali•a,
raised
three principal defences.
First, the appellants contended that in
their case they had revoked their bids orally as well as bf a
telegram dated October 7, 1952 before the declaration of the results
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and hence there were no concluded. contracts between them and
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the Coffee Board and, therefore, they could :Qot be made liable for
the loss arising on re-sale.
Secondly, it was contended that at an
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[1981] 1 S.C.R.
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 i:tself to
claim damages in as much as the loss arising on such re-sale was
unreal and in any event the re-sak 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 srnce 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 comentions 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
proper.Jy
accepted
resulting in concluded coritracts. It was denied that in "pool auction"
sales respondent Board was obliged to accept only the hig~st 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 sustamed was
unreal. It pointed out that the measures taken by it in regulating
coffee prices had become necessary as some of the reghtered dealers
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, 195 8 dismissed the suits with costs. The
respondent Coffee Board preferrc:d appeals to the High Court and
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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
1
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M. L. SETTY. v. COFFEE BOARD (Tulzapurkar, J.)
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 artd l\fysore Lachia Setty &
·Sons Limited." It was initially received by F. M. Saldhana (PWl),
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 (PWl) admitted in his evidence that on October
8, 1952 before the results were announce.d 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
15-645 S. C. India/SO
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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 aucti:ons1
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 m'uch 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 repr1esentative 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 a\ongwith 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."
1
M. L. SETTY·V. COFFEE BOARD (Tulzapurkar, J.)
The question is whether the phrase "telegraphic instructi9ns 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 ins~ructions by way of clarification or modification of bids
already given which is impermissible by tefegraphic communications.
He urged that the topic of w1thdrawal or retraction or cancellation
·of bids has not been dealt with anywhere else in !he 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 t,he 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 01: retraction should not be permissible by
telegrams
which are more oft,en cryptic and do not possess authenticity on their
face. Further, the fact that nowhere else in the Conditron~· 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 telegrame.
Turning to the oral retraction made by M. L. Gopal Setty on
'°ctober 8, 1952, the High Court has taken the view that the case
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of oral retraction before the results were announced was not true,.
which may be difficul~ 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 I) 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 Offic:er, 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 r~raction was not made to him
but it was made to Saldhana, who had
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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 t;heir 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
incapa:ble of acceptance.
Hefurther 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 Boarq 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 otheT 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 aucticm sales, it is a long-established
H
rule ·that prima facie the auctioneer's ri~quest for bids is a mere
invitation to treat, and th~ each bid constitutes an offer which
is accepted on behalf of the seller by !he auctioneer when;
,.,
r
M. L. SETTY v. COFF~E BOARD (Tulzapurkar, J.) .
893
he signifies his acceptance in the usual manner. It would seem,
A
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 supportted by the case of Blackbeard v. Limligren 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 a~ 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
contenaed 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 ll0t 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 ~e 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 :
B
c
D
E
F
G
" ( 6) The seller does not bind himself to accept the highest
H
or any bid.
He is not bound to assign any reasons for his
decision, and his decision shall be final and conclusive."
894
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SUPREME COURT REPORTS
· [1981] 1 S.C.R.
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 obligatio~ t~ 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 h.ighest 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 sarne conseqm:nce (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 19.52-a period
long
before the
inst.ant 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, such1
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 kvel as the power to accept
•
M. L. SETTY v. COFFEE BOARD (Tulzapurkar, !.)
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 Iower 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 twopronged attack against the' re-sale held in respect of the defaulted
lots of ,coffee.
First, the Board was under an obligati:on to mitigate
or minimise the loss arising from the failure on the part of the
appellants to pay for and take delivery of tbe coffee allotted to them
at the pool auction, but instead deliberate mea~ures 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 sha.Jl indicate presently, we do not
find substance in either of these two grounds of attack.
At the outset i~ 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
mmt take all reasonable steps to mitigate the loss
which he
has sustained consequent upon the defendant's wrong, and, if
hec 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
unCler 1 he heading 'Standard of conduct required of the plaintiff' :
895
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SUPREME COURT REPORTS
-
[1981] 1 S.C.R.
"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 Banca·De Portugal v. Waterlaw & Sons, Ltd.,(1) Lord Shankey,
LC., quoted with approval the slatement of Jaw enunciated in
James Finlay & Co. v. N. V. Kwik Hoo Tong, Mandel Maatchappij, (2 ) to the effect "In England the. Jaw is that a person is not
obliged to minimise damages on IJ,ehalf of another who has broken
a contract if by doing so he would have injured his
commercial
reputation by ge~ting 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 t.,he
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
(!) [1932] All England Law Reports 181.
(2) [1929] 1 K.B. 400.
t
M. L. SETTY v. COFFEE BOARD (Tulzapurkar, J.)
does not repsonably avoid certain consequences .arising from the
default. Such a failure does not make !he 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 wm
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 on~ of the
reasonableness c-f 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
1 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 t]lat
behalf.
Clearly, the,se 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 no~ 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 ithe bidders that Government of India
was concerned about the increase in coffee
prices
and that they
should not try to push up prices ~nd 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.