# MIS AROSAN ENTERPRISES LTD v. UNION OF INDIA AND ANR

- **Citation:** [1999] Supp. 2 S.C.R. 621
- **Court:** Supreme Court of India
- **Decided:** 1999
- **Bench:** B.N. Kirpal, Umesh C. Banerjee
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-arosan-enterprises-ltd-v-union-of-india-and-anr-16851
- **Pages:** 33

## Headnote

B
Contract Act 1872-Section 55-Time as essence of the contractContractor for supply of sugar within specified time-But contract also
provided for extension of time-Buyer not fulfilled some of ~is obligationsNeither the port of discharge named nor the surveyor appointed-Further C
buyer cancelled the contract for non-supply within time and later withdrew
the cancellation order and again cancelled contract-Held, time is not the
essence of contract and mere fixation of time for delivery of goods will not
make it essence of contract-Jn such a case agreement shou.ld be read as
whole alongwith corresponding obligations of the parties in order to gather D
the true intention-Further, no presumption about extension of time or
presumed acceptance of a renewed date would arise-More so, withdrawing
of cancellation order of the contract by the buyer amounted to wavier of nonperformance by seller-Further, silence on the part of the buyer to the
repeated request of the seller for extension of time forfeited his right under
the contract and does not entitle the buyer to cancel the contract.
E
Letter of Credit-Bank cannot raise a dispute as to whether the gooqs
have been supplied within time or not-It is rule of prudence to have extended
delivery date on the letter of credit by way of amendment and the counter
guarantee should stipulate the delivery date-Buyer must state whether
amendment in the letter of credit was necessary or not.
F
Arbitration Act, 1940-Section 30 and 33-Court's interference with
the arbitration award-Scope of-Default, time if essence of contract, quantum
of damages are issues of fact-Held, courts have no authority to interdict an
award on factual issues-Further, in case of speaking award, unless there is G
total perversity court cannot set aside the award by reappraising the
evidence.
Respondents entered into a contract with the appellants for supply of
sugar within specified time. The shipment within the contracted delivery
period was to be the essence of contract. In case of delay the appellants were H
621
622
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A deemed to be in contractual default with a right to the respondents to cancel
the contract. Appellants furnished bank guarantee. TherJafter, the
respondents assigned the contract to the Food Corporation of India. Then, the
Corporation opened a letter of credit for full value of the contract; however,
its authentication was not effected within the delivery date. Even then, the
B respondents cancelled the contract for non supply of sugar within time.
Subsequently they withdrew the cancellation order but the letter of withdrawal
did not contain any new date of delivery. Appellants reminded the corporation
to fax the delivery date and take steps to effect the payment But the respondents
and corporation maintained total silence. Respondents cancelled the contract
on the ground of failure on the part of the appellants to fulfil its contractual
C obligations within the stipulated time. The performance bank guarantee of
the appellants was also forfeited. By the reason of forfeiture the matter was
referred to the arbitrator. The arbitrator published the award to the effect
that the appellants were entitled to refund of performance bank guarantee
amount This arbitral award was sustained by the Single Judge. In appeal,
the Division Bench held that the respondents had accepted the new date of
D delivery by which the appellants were bound to deliver and the failure of the
appellants to supply by the said date amounted to breach of contract and thus,
set aside the order of the Single Judge and also the arbitral award. Hence
this app~al.
E
Allowing the appeal, the Court
HELD: 1.1. Where time is essence of the contract there is no question
of any presumption or presumed extension or presumed acceptance of a •
renewed date. When there is no specific date available in the course of
conduct of the parties, then courts are not left with any conclusion but a
finding that the parties themse

## Text

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MIS AROSAN ENTERPRISES LTD.
A
v.
UNION OF INDIA AND ANR.
SEPTEMBER 16, l 999
[B.N. KIRPAL AND UMESH C. BANERJEE JJ.]
B
Contract Act 1872-Section 55-Time as essence of the contractContractor for supply of sugar within specified time-But contract also
provided for extension of time-Buyer not fulfilled some of ~is obligationsNeither the port of discharge named nor the surveyor appointed-Further C
buyer cancelled the contract for non-supply within time and later withdrew
the cancellation order and again cancelled contract-Held, time is not the
essence of contract and mere fixation of time for delivery of goods will not
make it essence of contract-Jn such a case agreement shou.ld be read as
whole alongwith corresponding obligations of the parties in order to gather D
the true intention-Further, no presumption about extension of time or
presumed acceptance of a renewed date would arise-More so, withdrawing
of cancellation order of the contract by the buyer amounted to wavier of nonperformance by seller-Further, silence on the part of the buyer to the
repeated request of the seller for extension of time forfeited his right under
the contract and does not entitle the buyer to cancel the contract.
E
Letter of Credit-Bank cannot raise a dispute as to whether the gooqs
have been supplied within time or not-It is rule of prudence to have extended
delivery date on the letter of credit by way of amendment and the counter
guarantee should stipulate the delivery date-Buyer must state whether
amendment in the letter of credit was necessary or not.
F
Arbitration Act, 1940-Section 30 and 33-Court's interference with
the arbitration award-Scope of-Default, time if essence of contract, quantum
of damages are issues of fact-Held, courts have no authority to interdict an
award on factual issues-Further, in case of speaking award, unless there is G
total perversity court cannot set aside the award by reappraising the
evidence.
Respondents entered into a contract with the appellants for supply of
sugar within specified time. The shipment within the contracted delivery
period was to be the essence of contract. In case of delay the appellants were H
621
622
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A deemed to be in contractual default with a right to the respondents to cancel
the contract. Appellants furnished bank guarantee. TherJafter, the
respondents assigned the contract to the Food Corporation of India. Then, the
Corporation opened a letter of credit for full value of the contract; however,
its authentication was not effected within the delivery date. Even then, the
B respondents cancelled the contract for non supply of sugar within time.
Subsequently they withdrew the cancellation order but the letter of withdrawal
did not contain any new date of delivery. Appellants reminded the corporation
to fax the delivery date and take steps to effect the payment But the respondents
and corporation maintained total silence. Respondents cancelled the contract
on the ground of failure on the part of the appellants to fulfil its contractual
C obligations within the stipulated time. The performance bank guarantee of
the appellants was also forfeited. By the reason of forfeiture the matter was
referred to the arbitrator. The arbitrator published the award to the effect
that the appellants were entitled to refund of performance bank guarantee
amount This arbitral award was sustained by the Single Judge. In appeal,
the Division Bench held that the respondents had accepted the new date of
D delivery by which the appellants were bound to deliver and the failure of the
appellants to supply by the said date amounted to breach of contract and thus,
set aside the order of the Single Judge and also the arbitral award. Hence
this app~al.
E
Allowing the appeal, the Court
HELD: 1.1. Where time is essence of the contract there is no question
of any presumption or presumed extension or presumed acceptance of a •
renewed date. When there is no specific date available in the course of
conduct of the parties, then courts are not left with any conclusion but a
finding that the parties themselves by their conduct have given a go-by to the
F original term of contract as regards the time being essence of the contract
[632-E-G]
1.2. When the contract provides for extension of time, th_e same cannot
be termed to be essence of the contract and default in such a case does not
G make the contract voidable. It becomes voidable provided the matter in issue
can be brought within the ambit of the first para of Section 55 of the Contract
Act and it is only in that event the government would be entitled to claim
damages. (633-E]
·
Indian Contract and Specific Relief Acts by Pollock & Mui/a, referred
H to.
..
AROSAN ENTERPRISES LTD. v. U.0.1.
623
1.3. Mere fixation of a period of delivery or time does not make time A
as the essence of contract, but the agreement should be considered in its
entirety with the corresponding obligations of the parties so as to ascertain
the true intent of the parties. (643-G; 644-AI
1.4. The contract ought to be read with the time clause but subject to
certain other conditions. In the instant case, the goods were on the high seas B
and to be diverted to the ports of India, shortly, as such nomination of the
port, was an essential requirement, in order to make the seller liable for
breach of contract and entitlement of the buyer to claim damages. The port
of discharge had not been named nor was the surveyor appointed without
whose certificate - question of any payment would not arise, thus, it cannot C
be said that time was the essence of the contract.(643-C; 643-E; 644-A]
Benjamins 's Sales of Goods Act, (4th Edition), relied on.
1.5. When the contract itself provides reciprocal obligations and in the
event of non-fulfilment of some such obligations which have directed bearing D
on the contract, strict adherence of the time schedule or question of
continuing with the notion of the time being essence of the contract would
not arise. [642-G-H)
Halsbury 's Laws of England, (4th Edn.) Vol. 41, referred to.
1.6 The buyer cancelled the contract for non-supply within time and
later withdrew the letter of cancellation. This withdrawal of the cancellation
order of the contract by the buyer amounted to waiver of non-performance
E
by the seller. Thus, the presumption of the High Court to the effect that the
cancellation was on the representation of the seller is totally unwarranted. F
In the absence of any evidence fixation of future date of performance by the
appellate court is not justified and is untenable in law. Court cannot fix a date
on its own for performance of the contract. [634-H; 635-A-B)
1. 7. There was a duty to speak on the part of the buyer to the repeated G
request of the seller for extension of time; failure to speak would forfeit all
the rights of the buyer in terms of the agreement. Further, failure to speak
would not jeopardise the seller's interest; neither would the same authorise
the buyer to cancel the contract. [637-F-G)
1.8. The bank cannot raise any dispute regarding the goods being H
624
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A actually supplied or not. It is the matter of prudence that to facilitate ..
payment there should be an extended delivery date on the lettef of credit by
way of an amendment and the counter guarantee should stipulate the delivery
date. The requirement of a certificate that the original contract had been
fully complied with, it is necessary that the delivery for the purpose of the
B contract had to be extended since the original date by reason of efflux of time
had lapsed and the buyer must state"whether the amendment in the letter of
credit was necessary or not. [646-G-H; 647-A; D-E]
China Cotton Exporters v. Beharilal Ramcharan Cotton Mills ltd AIR
( 1961) SC 1295 and ITC Ltd., v. Debts Recovery Appellate Tribunal, [1998)
c 2 sec 70, distinguished.
UP. Coop. Federation Ltd. v. Singh Consultants and Engineers (P)
Ltd, [1998) 1 SCC 174, referred to.
2.1. The issues relating to default, time being the essence of contract
D and quantum of damages are all issues of fact and arbitrators are within
their jurisdiction to decide the issue as they deem fit. The courts have no
right or authority to interdict an award on a factual issue. [652-G)
E
Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan & Ors.,
[1999) 5 sec 651, relied on.
2.2. In the instant case, the Single Judge rightly held that the findings
of the arbitrators in regard to the extension of delivery period and failure
to fix fresh date has resulted in breach of the contract on the part of the
buyer and the same being purely based on appreciation of material on record,
it cannot be termed to he an error apparent on the face of the record entitling
F the court to interfere. [651-D-E)
M Chel/appan v. Secretary, Kera/a State Electricity Board & Anr.,
[1975) 1 sec 289, relied on.
Champsey Ehara & Co. v. Jivraj Ba/oo Co., AIR (1923) PC 66 and
G Union of India v. Bungo Steel Furniture Pvt. Ltd., AIR (1967) SC 1032, cited.
2.3. Reappraisal of evidence by the court is not permissible and this
exercise of power by the court is unknown to a proceeding under Section 30
of the Arbitration Act. When there are no reasons in the award, question
of interference of the Court would not arise and when there are reasons, the
H interference would still not be available unless there exist total perversity
ARO SAN ENTERPRISES LTD. v. U.0.1. [BANERJEE, J.]
625
in the award or the judgment is based on a wrong proposition of law, also A
when two views are possible on a question of law the court would not be
justified in interfering with the award. [649-B-C]
2.4. Error apparent on the face of record does not mean and imply
closer scrutiny of the merits of documents and materials on record. The
court cannot substitute its evaluation and come to the conclusion that the B
arbitrator had acted contrary to the bargain between the parties and if the
view of the arbitrator is a possible view, award or reasoning contained
therein cannot be examined. (649-D-E]
State of Rajasthan v. Puri Construction Co. Ltd, (1994) 6 SCC 485, C
relied on.
Sudarsan Trading Co. v. Govt. of Kera/a & Anr., [1989) 2 SCC 38,
referred to.
CIVIL APPELATE JURISDICTION: Civil Appeal Nos. 8010of1995. b
From the Judgment and Order dated 12.5.95 of the Delhi High Court in
F.A.O. (OS) No. 217of1994.
Mukul Rohtagi, G.L. Sanghi, R.N. Karanjawala, Ms. Seema Sapra, Ms.
Pooja Dua and Mrs. Manik Karanjawala for the Appellant.
S.K. Dholakia and Dr. A Francis Julian, for Mis. Arputham Aruna & Co.,
for the Respendent in F.C.I.
K.N. Rawal, Additional Solicitor General , P.P. Malhotra, Ms. Indira
Sawhney and B.V. Bairam Das for the Union of India.
The Judgment of the Court was delivered by
E
F
BANERJEE, J. These two Appeals by the grant of Special Leave and
arising out of the Judgment of the Delhi High Court focus two singularly
singular questions pertaining to (i) the time being the essence of the contract G
and (ii) authority of the High Court in the mafter of interference with an
Arbitral Award under the Repealed Act of 1940 (The Arbitration Act, 1940).
For effectual disposal of these two questions, noticed above, reference
to certain factual details in this judgment is inevitable and adverting thereto
it appears that on October 4, 1989 Union of India floated an invitation to H
626
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A tender for purchase of sugar to meet the urgent requirement of anticipated
scarcity in the Indian market during the Dussehra and Diwali festivals in
November, 1989 which however, and without much of a factual narration,
culminated in an Agreement dated 24th/25th October, 1989 with Mis. Arosan
Enterprises, being the Appellants herein, for the supply of 58000 metric
B tonnes of sugar. The Contract as above inter alia contained the following
terms:
c
"(a) That the claimant shall supply 58,000 M. T. of sugar (net weight
plus minus 5% at sellers option).
(b) That the claimant shall arrange shipment of entire quantity of the.
contracted sugar so as to reach InE:i Ports not later than 31st
October, 1989; shipment within
contracted delivery period
was to be the essence of the co tract.
/
In case of delay the seller was to be deemed to be in contractual default
with a right to the buyer to canpel the contract. The buyer could however
D extend the delivery period at a discount as may be mutually agreed between ·
the buyer and the seller.
E
F
G
(c)
That price payable was to be U.S. Dollar 480 per metric tonne.
(d) That the seller had to establish an unconditional irrevocable
performance guarantee in favour of the buyer by any Indian
Nationalised Bank at New Delhi for 10% of the total contract
value of the maximum guaranteed quantity to be shipped, within
7 days of the contract.
(e)
That the payment was to be made to the seller by irrevocable
letter of credit (L/C) covering 100% value of the contract quantity.
The L/C was to be established by the buyer within seven days
of the receipt of an acceptable performance Bank Guarantee.
(f)
The Performance Bank Guarantee (PBG) was to be by any Indian
Nationalised Bank at New Delhi and was to be kept valid for a
minimum period of ninety days beyond the last date of contract
shipment period."
The factual score further depicts that on 24th October, 1989, itself the
appellant did furnish a performance bank guarantee for $ 29,28,000 and upon
bank guarantee being furnished, the Government of India assigned the contract
to the Food Corporation oflndia (FCI) under clause 20 of the Agreement. FCI
H also in its tum opened a Letter of Credit for the full. value of the contract
-
AROSAN ENTERPRISES LTD. v. U.0.1. [BANERJEE, J.]
627
though, however, as the records depict that while on 26th October, 1989, the A
Letter of Credit was opened by FCI but its authentication was not effected
within the delivery date i.e. 31st October, 1989.
Be it noted that in terms of the payment claus~, the payment was to be
made by the buyer by way of irrevocable letter of credit covering 100% of B
the contract quantity and Jetter of credit was to be established by the buyer
within seven days from the receipt of performance bank guarantee and it is
upon completion of the period of 7 days from the date of acceptance of the
performance guarantee, the letter of credit should have been authenticated
and that was to be effected by about 31st October, 1989. In the contextual
facts the authenticated bank guarantee was effected only on 2nd November, C
1989 i.e. after the expiry of the date of the delivery - It is on this score detailed
submissions have been made by both Mr. Rohtagi appearing in support of
the appeal and Mr. Dholakia appearing for FCI and Mr. K.N. Rawal, the
learned Addi. Solicitor General for the Union of India and it is in this perspective
certain further factual details would be of some assistance.
The telex messages from Food Corporation of India dated 3rd, 7th and
8th November, 1989 go to show that in fact there was the anxiety of the buyer
D
to obtain the goods and it is on these anxious inquiries, Mr. Rohtagi contended
that the time for delivery obviously stands extended and the essence of the E
contract been given a go-by.
The facts further depict that while the correspondence were had between
the parties as regards the delivery schedule, Government of India by a letter
dated 8th November transmitted an intimation which was despatched on 9th
November, 1989, canceling the contract at the risk and cost of the appellaut F
herein. Subsequently, however, on 11th November, 1989, the Government of
India unilaterally by its letter withdrew the Jetter of cancellation and on 15th
November, 1989 the appellant informed the FCI that by reason of the
cancellation, the cargo arranged already, has gone out of control and that a
new cargo was being arranged by reason wherefor FCI was asked to fix a new G
delivery date and consequently steps would be taken in regard thereto.
Needless to refer here, that the letter of withdrawal of cancellation, however,
did not contain any fixed date or new date of delivery. There was, however,
as the records depict, total silence from FCI, and consequently, the appellants
on 24th and 30th November, 1989 further reminded the cooperation to fix the
delivery date and take necessary steps to effect the payment under the law H
628
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A of trading. Significantly, both FCI and Government of India maintained a total
silence in regard thereto in spite thereof.
On the factual matrix it further appears that subsequently a meeting was
held between the claimants and the Union Minister for Food and Civil Supplies
wherein it was agreed that on the claimants paying a sum of Rs.5 lakhs
B towards the expenses incurred by the Government in opening the letter of
credit and claimants giving up any claim for damages, the performance bank
guarantee would be released - this aspect of the matter has however been
very emphatically disputed by respondents and both the learned senior
Advocates appearing on behalf of the respondents contended that the Court
C would not be justified in assessing this aspect of the matter to be of any
relevance in the contextual facts. We shall refer to this aspect of the matter
later more fully in this judgment, but to complete the factual score, it appears
that on 25th January, 1990 the Government of India canceled the contract on
the ground that the seller had failed to fulfil its contractual obligations within
stipulated time which was mentioned to be on 31.l 0.89 and the performance
D bank guarantee of the claimants was also forfeited by FCI.
It is by reason of such a forfeiture, however, that the matter was
referred to arbitration in terms of the arbitration clause in the agreement
between the parties. There being however, no dispute, as regards the
E
arbitration clause, we deem it convenient not to set out the same in
extenso and suffice it would be further to note th.at Sri Justice S.N.
Shankar, the former Chief Justice of the High Court of Orissa and Sri
K. C. Diwan, an Advocate were appointed as Arbitrators in terms
therewith and who in their turn made and published their award to the
effect that the claimants were entitled to the refund of the performance
F
bank guarantee amount of $ 29,28,000. The claim of the claimantappellant herein, however, on account of interest was rejected. It is
this Arbitral award which was challenged before High Court and the
learned Single Judge found that FCI's letter dated 8th November, 1989
clearly depicted that they were still interested in taking delivery of the
G
H
goods and therefore the claimant was justified in asking for fixation
of a fresh delivery date. The learned Single Judge further found that
the findings of the Arbitrators in regard to extention of the delivery
period and failure to fix the fresh date has resulted in breach of the
contract on the part of the Government and the same being purely
based on appreciation of materials on record, question of interference
therewith would not arise since by no stretch it can be termed to be
•
-
AROSAN ENTERPRISES LTD. v. U.0.1. [BANERJEE, J.]
629
an error apparent on the face of the record. The award, therefore, was A
sustained by the learned Single Judge. In an appeal therefrom however,
the fmding of the Single Judge was reversed and the Bench of the
Delhi High Court dealing with the Appeal in question recorded that
the buyer, being the Appellant herein, had in fact impliedly accepted
14/lSth November, 1989 as the new date of delivery by which the
seller was bound to deliver and the failure of the seller to supply by B
the said date constituted a breach of contract justifying the cancellation
and thus set aside the judgment and order of the learned Single Judge
as also the arbitral award. The Bench further ordered that the fmdings
of the Arbitrators to the effect that the buyer was obliged to fix fresh
dates of delivery was an error of law ori the fa~e of the record and C
as such there was a breach committed by the seller. It is against this
order of the Division Bench of the High Court that a Special Leave
Petition was filed before this Court and this Court by an order dated
4th September, 1995 granted special leave in pursuance whereof this
matter has come up for final disposal before this Bench.
Turning now on to th~issues as noticed above namely, whether
time was the essence of the contract or not, it would be convenient
to note the relevant extracts of the Arbitral award pertaining to the
issue in question. The Arbitrators, inter a/ia, found:
D
~'The ;.ithdrawal of the letter of cancellation (vide Ex.A.21) had E
the effect of reviving the original contract dated 24/25 October, 1989
with all its te~s except that sugar had to be delivered by 31 October,
1989. Stipulation in clause 3 of the contract that shipment with contract
delivery period is of the essence of the contract" also stood revived.
Letter of Credit had been established on the basis of the original F
contract which stipulated a fixed time for delivery but as no time for
delivery was fixed in the letter withdrawing the cancellation (Ex.A- 21 ),
the claimants naturally felt concerned and repeatedly requested the
respondent to do the needful.
Evidence adduced thus clearly shows that the Respondents sent
G
no reply whatever to the request of the claimants asking for
specification of the delivery time and for the needful being done in
regard to L/C in the changed circumstances after the withdrawal of the
letter of cancellation. On the contrary, all of a sudden they canceled H
630
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A
the contract again by the letter dated 25.1.1990 Ex.A36. In our view,
this conduct of the respondents was unjustified and illegal in the
facts of this case.
B
·c
D
E
F
G
H
Then again ft would be seen that the ground of cancellation taken
in the letter of second cancellation Ex.A36 is the same as had been
taken earlier in letter Ex.A 17, namely failure t~ fulfil the contractual
obligation within the stipulated time of 31st October, 1989. The
respondents had already waived this ground. They were precluded
from canceling the contract on the same ground again after its revival.
The cancellation by Ex.A36 thus on a non-existent ground and illegal."
The Arbitrators further held that
"We further find that L/C opened by the respondents was with
reference to the contract which stipulated a fixed time for delivery
(namely 31st October, 1989) but after revival of the contract the position
had changed materially. The original contract had been cancelled and
this cancellation. had been withdrawn and in the contract that stood
after withdrawal of the cancellation no time for delivery was stipulated.
It was incumbent on the respondents to apprise this position to the
Bank and make suitable changes in the L/C. The claimants could
receive from the Bank, the amount secured by L/C for their benefit
only after satisfying the bank, that they had shipped the contracted
sugar in accord.ance with the terms of the contract. There is nothing
on the record to show that the respondents took any steps to inform
the Bank of the changed position so that shipping documents
presented by the claimants after 31st October, 1989 could be examined
by the bank in the light of the new situation."
The argument is without merits. If the contract was revived on the
understanding why was not this fact communicate.d to the claimants
in reply to their persistent queries about the date of delivery and why
was the L/C not suitably modified and the bank issuing the L/C
infomied accordingly. In fact, there is no foundation in the pleadings
for such a plan.
I
AROSAN ENTERPRISES LTD. v. U.0.1. [BANERJEE, J.]
631
Admittedly in spite of these requests of the claimant for extension of A
delivery period no fresh delivery date was notified by the respondents.
Thus the extension of delivery period was never granted nor intimated
to the supplier/claimant."
The Arbitrators therefore came to a conclusion that there is a breach
of the contract committed by the respondents herein and consequently
forfeiture of the performance bank guarantee was illegal and not sustainable.
The learned Single Judge in the application for setting aside the award was
pleased to record:
"The cancellation of the contract on 25. l.1990 on the basis of nondelivery of material by 31st October, 1989 was usually misconceived,
untenable and illegal because 31st October, 1989 had admittedly ceased
to be delivery date ....... .It appears that the argument that 14th November,
B
c
1989 or 15th November, 1 ~
were the fresh delivery dates is an afterthought. If the respondents believed that these were the delivery D
dates, nothing prevented them from saying so at the relevant time.
The claimant repeatedly asked them to fix fresh delivery date.
Respondents could reply that these were the dates.
These show that the original delivery date of the contract hap become
part of the letter of credit. Unless the same was modified and the
modified date had been notified to the banks, the banks would be
paying under the credit at their own risk. No bank would be willing
E
to take such a risk. The result that follows is that the payment to the
supplier/claimant would have been in jeopardy unless the letter of F
credit was amended. The intention in the original contract was that
the supplier should get immediate payment through irrevocable letter
of credit. Without amendment of the letter of credit, the. said intention
of the contract could not be fulfilled. The supplier was justified in
ensuring that he would get the_ payment for the material supplied by- G
him before the supplies were made."
In the facts of the matter under consideration the leameti Single Judge
found that FCI by its letter dated 8th November, 1989 clearly depicted in no
uncertain terms that they were still interested in taking delivery of the goods
and which as a matter of fact according to the learned Single Judge changed H
632
SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
A the entire complexion of the matter. The other issue in which the learned
Single Judge delved into is in regard to the Court's authority of interference
vis-a-vis the award-this aspect of the matter would be dealt with later in this
judgment alongwith the second issue, as such we refrain ourselves from
making any comment thereon ~t this juncture.
B
Turning attention on to the first issue, the Division Bench of the High
Court proceeded mainly on certain presumptions to wit:
(i)
the telex message from the seller dated 8.11.89 was sent to the
buyer after receipt of the cancellation and thus const.ituted a
C
representation against the cancellation . and it was pursuant to
this representation that the buyer had issued the letter dated
11th November, 1989 withdrawing the letter of cancellation.
D
(it) the presumption of the High iourt went also on to the effect
tbat the buyer had therefore impliedly fixed 14th/15th November,
1989 as the new date of delivery by which time, the seller was
bound to deliver and the failure of the seller to supply by the
said date constituted the breach of contract justifying the
cancellation in January, 1990.
E
These presumptions of the High Court in our view are wholly
unwarranted in the contextual facts for the reasons detailed below but before
so doing it is to be noted that in the event the time is the essence of the
contract, question of their being any presumption or presumed extension or
presumed acceptance of a renewed date would not arise. The extension if
there be any, should and ought to be categorical in nature rather than being
F vague or in the anvil of presumptions. In the event the parties knowingly give
a go by to the stipulation as regards the time - the same may have two several
effects: (a) parties name a future specific date for delivery and (b) parties may
also agree to the abandonment of the contract - as regards· (a) above, there
must be a specific date within which delivery has to be effected and in the
G event there is no such specific date available in the course of conduct of the
parties, then and in that event, the Colirts are not left with any other conclusion
but a finding that the parties themselves by their conduct have given a go
by to the original tenn of the contract as regards the time being the essence
of the contract. Be it recorded that in the event the contract comes within the
ambit of Section 55, the remedy is also provided therein. For convenience
H sake Section 55 reads as below:
AROSAN ENTERPRISES LTD. v. U.O.I. [BANERJEE, J.]
633
"55. When a party to a contract promises to do a certain thing at or A
before a specified time, or certain things at or before specified times,
and fails to do any such thing at or before the specified time, the
contract, or so much of it as has not been performed, becomes voidable
at the option of the promiseP., if the intention of the parties was that
time should be of the essence of the contract.
If it was not the intention of the parties that time should be of the
essence of the contract, the contract does not become voidable by the
failure to do such thing at or before the specified time; but the
promisee is entitled to compensation from the promisor for any loss
occasioned to him by such failure.
If, in case of a contract voidable on account of the promisor's failure
B
c
to perform his promise at the time agreed, the promisee accepts
performance of such promise at any time other than that agreed, the
promisee cannot claim compensation for any loss occasioned by the
non-performance of the promise at the time agreed, unless, at the time D
of such acceptance, he gives notice to the promisor of his intention
to do so."
Incidentally the law is well settled on this score on which no further
dilation is required in this judgment to the effect that when the contract itself
provides for extension of time, the same cannot be termed to be the essence E
of the contract and default however, in such a case does not make the
contract voidable either. It becomes voidable provided the matter in issue can
be brought within the ambit of the first paragraph of Section 55 and it is only
in that event that the Government would be entitled to claim damages and not
otherwise.
In Pollock & Mulla's Indian Contract and Specific Relief Acts, three
several cases have been very lucidly discussed, where time can be termed to
be the essence of contract:
F
"I. Where the parties have expressly stipulated in their contract that
the time fixed for performance must be exactly complied with,
G
2. Where the circumstances of the contract or the nature of the
subject matter indicate that the fixed date must be exactly complied
with and
3. Where time was not originally of the essence of the contract, but H
.....
634
SUPREME COURT REPORTS (1999) SUPP. 2 S.C.R.
A
one party has been guilty of undue delay, the other party may give
notice requiring contract to be performed within reasonable time and
what is reasonable time is dependant on the nature of the transaction
and on proper reading of the contract in its entirety."
In the contextual facts, the Division Bench relied on the Telex messages
B of the seller, as noticed above, as a representation against cancellation but
the fact remains that there was in fact a definite indication of expression of
stand of the Government as regards the withdrawal of the letter of cancellation.
The issue arises as to the true effect of the withdrawal of the cancellation.
Incidentally on the factual score it appears that after withdrawai of the first
C letter of cancellation the Government again for the second time cancelled the
Agreement by a letter dated 25th January, 1990 to the following effect:
l. "Your attention is invited to the contract mentioned above for
supply of 58000 MTs of imported sugar, Clause 3 whereof stipulates
that the seller shall arrange shipment of the entire quantity so as to
D
reach Indian ports, basis coast as per Clause 4(1) ibid not later than
31st October, 1989
E
2. As you have failed to fulfil the contractual obligation within
stipulated time and the time being the essence of the contract, the
contract is hereby cancelled at your risk and cost
3. The Performance Bank Guarantee tendered with reference to the
above contract .is also forfeited for the reasons mentioned above."
There is therefore, a cancellation of an agreement which once stood
cancelled and withdrawn: can it be termed to be an otherwise valid termination
F after recalling of the letter of cancellation in the month ofNovember, 1989. The
High Court has dealt with the entire correspondence in extenso between the
parties during this interegnum and as such we refrain ourselves from dealing
with the same in detail, suffice it to record that as a matter of fact from the
date of recalling of the cancellation letter, there were consistent reminders
G about the dispatch instruction, about the arrival of vessels and as to the port
of landing which were for the Respondents herein, to fix, .in term'S of the
Agreement but there was a total silence from the Respondent's end. Admittedly
and there cannot possibly be any doubt as regards the cancellation of
Agreement on the expiry of the time if the time is treated to be the essence
of the contract, but in the contextual fac;ts when as a matter of fact, there was
H a letter of cancellation in terms of the contract and assuming by reason of
.-
(
AROSAN ENTERPRISES LTD. v. U.0.1. [BANERJEE, .T.)
635
failure to supply as per the Agreement between the parties - but that cancellation A
stands withdrawn. There is, therefore, a waiver of the breach if there be any,
as regards non- performance of the contract and it is on this score that the
High Court has gone wrong on the issue of duty to speak and it is on this
score that the presumption of the High Court to the effect that the cancellation
was on the representation of the seller, is totally unwarranted. Fixation of a B
future date of performance in the absence of any evidence by the Appellate
Court, is not only unjustified but wholly untenable in law. Court cannot
possibly fix a date on its own for performance of the contract. It is thus
necessary to detail out herein below the observations of the Appellate Court
on this count. The Appellate Court in paragraph 29 of the judgment observed
~~~:
c
"29. The delivery was to be effected by 31st October, 1989. On the
representation of the seller as contained in their messages dated 8th
and 9th November 1989 the cancellation was withdrawn. That is the
only conclusion possible. Any other conclusion will be wholly
erroneous. We therefore, cannot accept the submission that the D
withdrawal of cancellation was not on the representation of the seller.
On this view the respondents were bound in law to accept delivery
if effected by 14th/15th November, 1989. It is implicit that the buyers
had consented to take delivery by 14th/15th November, 1989. The
contention of learned counsel for the seller that the mention of 3 lst E
October, 1989 by the respondents in letter dated 25th January, 1990also shows that the respondents did not treat 14th/15th November,
1989 as the extended delivery date cannot be accepted. Since delivery
was not made at all, the mention of 31st October, 1989 in the letter of
cancellation (25th January, 1990) by itself would not show that the
buyer did not treat 14th/15th November, 1989 as delivery date. It thus F
cannot be said that the cancellation was on non-existent grounds. The
contract also stipulates that the buyer may extend the delivery period
at a discount as may be mutually agreed to between buyer and seller.
rn this state of affairs the further contention that the supply could not
be made by 14th/15th November, 1989 on account ofnon amendment G
of the delivery period in the contract and non amendment of Jetter of
credit cannot be accepted. This plea is clearly an after thought. Our
attention has not been drawn to any legal proposition which casts an
obligation, under these circumstances, on t~e buyer to fix a fresh date
of ~elivery. The effect of accepting the contention of the seller would
be that prior to 8th November, 1989, on the facts and circumstances H
636
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B
c
D
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SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.
of the present case, the breach was on the part of the seller but the
buyer having withdrawn the cancellation and not having specified the
fresh date of delivery, 31st October, 1989 having already passed, the
breach would be on the part of the buyer. The contention on the face
of it is fallicious. It has to be rejected."
In paragraph 30 of the judgment the Bench observed:
"30. Apart from the urgent need for supply of sugar, otherwise too,
in commercial transaction of this nature, in law, ordinarily time is of
essence (See: Mis. China Cotton Exporters v. Beharilal Ramcharan
Cotton Mills Ltd., AIR (1961) SC 1295. Further, in the present case,
the contract itself stipulates that the supply within the contracted
delivery period was to be the essence of the contract. In this view,
the delivery of sugar firstly before 31st October, 1989 and later by
J 4th/15th November, 1989 was of essence and non supply within the
aforesaid periods by the seller would show that the seller is in breach
of the contract. The buyer having withdrawn the cancellation of the
contract on seller's representation that the delivery will be made by
14th/15th November 1989 could not have refused to accept delivery
within the said period. It is also not possible for us to accept the
contention that the cancellation was not withdrawn on the
representation of the seller. On account of non-supply of sugar upto
8th November, 1989 and even failure to supply the shipping particulars
the contract was cancelled by the buyer. Thereupon the seller supplied
the shipping particulars and made a representation that the supply
would be made on or before 14th/15th November, 1989. Under these
circumstances the cancellation of the contract was withdrawn. The
letter dated 11th November, 1989 withdrawing the cancellation states
that on reconsideration of the matter the cancellation is withdrawn. In
~
.
the letter dated 11th November, 1989 the absence of specific reference
to the representation of the seller that the delivery would be made by
14th/15th November, 1989. Under these circumstances, is of no
consequence. As already noticed above, the letter dated 11th
November, 1989 was personally handed over to the representative of
the seller. On receipt of that letter the seller did not write to the buyer
to specify the fresh date of delivery or to ask for amendment of the
letter of credit. The next letter thereafter is dated 15th November, 1989.
The seller did not say in this letter that pursuant to what had been
stated by it in message dated 8th November, 1989 the Ships had
-·
...
AROSAN ENTERPRISES LTD. v. U.O.l. [BANERJEE, J.]
637
entered Indian waters and as such the buyer should incorpor~te fresh . A
date of delivery and amend the letter of credit so that shipping
documents could be furnished by seller to the buyer and that without
these amendments the bank may not pay the amount covered by the
letter of credit. On the other hand, the seller in the letter dated 15th
November, 1989 stated that the cargo had gone out of its control and B
fresh cargo would be arranged which will be arriving at Indian port
within a few days. The seller asked for minimum 15 days time to
supply the cargo and requested for delivery period being extended
upto 30th November, 1989 with consequential amendments in the
letter of credit for acceptance of the documents. The buyer was not
obliged in law to extend the delivery period.