Holding

The plaintiff must prove breach of contract; where the plaintiff offers no evidence, the court cannot find breach and must set aside any decree in the plaintiff's favour.

Summary

The Food Corporation of India (FCI) invited tenders for damaged foodgrains and accepted a bid from Laxmi Cattle Feed Industries, which deposited the earnest money. The buyer later sought cancellation of the portion of the contract that could not be performed and a refund of the balance, also requesting waiver of storage charges. FCI refunded part of the deposit and later issued a telegram demanding the buyer lift the remaining stocks by a specified date, threatening disposal at the buyer's risk. The buyer filed suit alleging breach of contract; the trial court and the Delhi High Court held FCI in breach and awarded damages. On appeal, the Supreme Court observed that the buyer presented no evidence, while FCI produced evidence of loss, and held that the burden of proof lies on the plaintiff; consequently, the decree in favour of the buyer was set aside and the appeal allowed.

Issues considered

Whether the Food Corporation of India breached the contract by refunding the balance amount and failing to deliver the entire quantity of damaged foodgrains.
Whether storage charges and interest claimed by the corporation are payable under the terms of the contract.
Who bears the burden of proof in a breach of contract action when the plaintiff offers no evidence.
Interpretation of the contract clauses relating to forfeiture of security deposit, storage charges, and liability for loss.

Legislation cited

Indian Contract Act, 1872

Subjects

breach of contracttenderdamaged foodgrainsstorage chargesinterestforfeitureburden of proofcontract interpretation

Judgment

r
J

FOOD CORPORATION OF INDIA A
. ---r v.
MIS. LAXMI CATTLE FEED INDUSTRIES

FEBRUARY 22, 2006

[ARIJIT PASAYAT AND TARUN CHATTERJEE, JJ.] B

-1 Contract Act, 1872:
.~

Breach of contract-Agreement for sale of damaged-food grains entered
into between Food Corporation and an Industry-Industry could not fulfil its c
part of the contract and requested for refand of balance amount deposited in
terms of the contract-Corporation warned the industry to lift the ~alance
stocks failing which the stocks would be disposed of at its risk-Industry filing
a suit for recovery of damages-Decreed by Trial Court-Appeal against
dismissed by the High Court-On appeal, Held: Evidence furnished by the D
Corporation clearly established the loss sustained by them-Without any

. .., material in support the Courts below held the Corporation liable for committing
breach of the contract-Hence, judgment and decree of the Trial Court set
,, ),
aside.

The appellant-Corporation invited tenders for purchasing the E
damaged foodgrains. Tender submitted by the respondent-Industries was
accepted by the Corporation. In terms of the contract, respondent
deposited certain amount with the appellant. Later, the respondent
requested the appellant that part of the agreement which was not capable
of being perfor.med may be cancelled and balance amount be refunded
and for waiver of storage charges levied by the authorities concerned. F
~ Certain amount was refunded by the appellant. In the meantime, a
telegram was issued by the appellant-Corporation asking the respondent
lift the balance stocks from the Depot immediately, failing which the stocks
would be disposed of at the respondent's risk as per the terms of the
contract. However, a suit was filed by the respondent for recovery of G

- \
~
certain sum from the appellant alleging breach of contract. The Trial
Court decreed the suit holding that the appellant had committed breach
of the contract in refunding the balance amount and not supplying the
goods to the entire extent for which the bid was submitted by the

-j 409 H
1
410 SUPREME cot;Rr REPORTS [2006] 2 S.C.R.

A respondent. First Appeal was filed by the appellant-Corporation before
the Delhi High Court which was dismissed by the High Court upholding
the judgment and decree of the Trial Court. Hence the present appeal.

Allowing the appeal, the Court

B HELD: Without any material whatsoever the Courts below held that
the appellant had committed breach. On the contrary, the evidence clearly
established that the appellant had proved the loss sustained. The
respondent was to establish its own case. It did not choose to lead evidence. ~
Therefore, the Trial Court in the absence of any evidence tendered by the
C plaintiff should not have decreed the suit The High Court committed error
by proceeding under the erroneous a!:sumption that the respondent had
led evidence and not the appellant-Corporation. Hence, the judgment and
decree of the trial Court as affirmi!d by the High Court cannot be
sustained, and are set aside. (413-D-E .. F]

D CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5261 of2003.

From the Final Order & Judgment and dated 30.1.2003 of Delhi High
Court in Regular First Appeal No. 546 of 1988.
. '

Ajit Pudussery for the Appellant.
E The Judgment of the Court was d1:livered by

ARIJIT P ASAY AT, J. Appellant-Corporation calls in question legality
of the judgment rendered by a Division Bench of the Delhi High Court
dismissing the First Appeal questioning correctness of the order dated
13.11.1987 of learned Additional District Judge, Delhi who had granted a
F
decree of Rs.81,442.53 with interest in favour of the respondent who was the
plaintiff before the Trial Court.

The background facts in a nutshell are as follows:-

G The appellant invited tenders from persons intending to purchase
damaged foodgrains, by advertisement dated 9.6.1983. Tender submitted by
the respondent was accepted on 22.7.1983. It is to be noted that the respondent
was one of the successful bidders. Certain terms of the agreement which shall
be indicated in detail stipulated payment of the price and the consequence of
-
failure to do so i.e. levy of storage charges for the stock not lifted and
H interest. The tendered quantity was 2246 M.T. of damaged foodgrains.
\

~ )
FOODCORPN. OF INDIA"· LAXMI CA TILE FEED INDUSTRIES [PASA YAT. J.] 411

Respondent deposited certain amounts. On I .2.1984 the respondent requested A
,>.-1 that part of the agreement which was not capable of being executed may be
I
cancelled and balance amount may be refunded. Prayer was also made for
waiver of storage charges levied by the concerned district Manager. A sum
of Rs.1,46,04950 was refunded by the appellant. Subsequently on 16.7.1984,
a further sum of Rs.9959.68 was also refunded. The total amount of deposit
by the respondent was Rs.8,45,972.31. Out of the same, a sum of
B
Rs.1,44,864.85 was refunded by the district office of the appellant-Corporation,
Amritsar. On 16.2.1982 a telegram was issued by the Senior Regional Manager
i of the appellant-Corporation, Punjab Region requesting the respondent to
-' immediately lift the balance stocks from Jalandhar Depot latest by 5th March,
1985 failing which, it was mentioned the stocks would be disposed of at the c
respondent's risk as per the terms indicated in the contract. A suit was filed
by the respondent which was numbered as Suit No.310 of 1985 for recovery
of Rs.99,900/- from the appellant alleging breach of contract. On 15.1.1986
,
written statement was filed substantially denying the allegations. It is to be
noted that the plaintiff-respondent did not tender any evidence and evidence
was led only by the appellant-Corporation. The Trial Court decreed the suit D
holding that the appellant had committed breach of the contract in refunding
the balance of amount and not supplying the goods to the entire extent for
-"'
..;. ,):
which the bid was submitted by the plaintiff-respondent. Regular Firft Appeal
was filed by the appellant-Corporation before the Delhi High Court which
was dismissed by impugned judgment and order dated 30.1.2003 upholding E
the judgment and decree of the Trial Court.

In support of the appeal learned counsel for the appellant submitted
that the Trial Court and the High Court have not considered the clauses
relevant for the purpose of adjudication. The Trial Court proceeded on the
basis as if appellant was required to supply the goods for the whole amount F
deposited. The Trial Court as well as the High Court have also erroneously
~
'. held that when the appellant had failed to deliver the goods for the whole
amount deposited, there was breach of contract and storage charges and
interest on account of late payment cannot be claimed. The Trial Court also
erroneously held that the goods were justifiably not lifted by the plaintiffs in
time and it had paid more amount, and therefore no question of charging
G
interest arises. The respondent has not entered appearance in spite of service
of notice.
\
i It is to be noted that the following issues were framed by the Trial
Court: H-
~

"
412 SUPREME COURT REPORTS [2006] 2 S.C.R.

A ·· 1. Whether the defendant is entitled to adjustment of Rs.31,097. 91
on account of storage charges and Rs.5J 74.20 on account of
interest for the late payment? OPD
2. To what amount, if any, in the plaintiff firm entitled on account
of principal sum and interest? OPP.
B 3. Relief."

A few conditions in the contract need to be noted. They read as follows:

"A. (ii) It will be the responsibility of the buyer to obtain necessary
import/export permits from the concerned authorities in case the stocks
c are to be moved to place outside the one, where they are held. Such
permit shall have to be produced at the time of taking delivery.

B. The Food Corporation of India do not guarantee to make any
definite quantity of damaged foodgrains available to the buyers.

D xx xx xx xx

E(ii) The earnest money deposited by the successful tenders, along
with the tender will be adjusted towards security deposit for due
performance of the contract and would be liable to forfeiture. The
security deposit will be refunded on the due completion of the contract
E but the Corporation will not be liable to pay interest thereon.

(iii)( a) If the contractor fails or neglects to observe or perform any of
his obligations under the contract, it shall be lawful for the Corporation
to forfeit either in whole or in part in its absolute discretion the
security deposit furnished by the contractor or any part thereof towards
F the satisfaction of any sum due to be claimed from the contractor for
any damages, losses charges expenses or costs that may be incurred
or suffered by the Corporation. Th'! decision of the Corporation in
this regard shall be final and binding on the contractor.

xx xx xx xx
G
(F)(ii) In the event of failure to complete the payment and present
the demand draft or deposit at call receipt within the aforesaid period
of seven days, the Food Corporation of India shall have the option to
forfeit the security and resale stocks at the risk and cost of the original
buyer and also recover the loss sustained by the Food Corporation of
H India as a result of such failure or extend the period by 7 days for
FOOD CORPN. OF INDIA v. LAXMJ CATTLE FEED INDUSTRIES [PASAYAT, J.] 413

making the payments provided interest of 18% per annum and storage A
charges at the rate of three paise per bag or part thereof are paid by
the party. Any saving or profit on resale as aforesaid shall be
exclusively to the account of the Food Corporation of India.

(G) The buyer will make his own arrangements for transport and will
not be entitled to claim any facility or assistance for transport from B
the Food Corporation of India. The things shall be placed at Food
Corporation of India's cost by godown labour on buyer's trucks at
the godown rates, or wagons of godowns labour or buyer will be
responsible for subsequent handling including stacking of bags in the
trucks/wagons."
c
It is to be noted from the judgment of the Trial Court that no evidence
was Jed by the plaintiff. The High Court proceeded on the basis as if the
plaintiff had led evidence and the appellant-Corporation had not led any
evidence. On the contrary, the records clearly show that evidence was led to
establish loss suffered on account of delay in lifting damaged stock. Without D
any material whatsoever the Trial Court as well as the High Court held that
the appellant had committed breach. On the contrary the evidence clearly
-: established that the appellant had proved the loss sustained. The plaintiff was
to establish its own case. It did not choose to lead evidence. Therefore, the
Trial Court in the absence of any evidence tendered by the plaintiff should
not have decreed the suit. The High Court committed error by proceeding E
under the erroneous assumption that the plaintiff had led evidence and not
the appellant-Corporation who was the defendant.

Above being the position, the judgment and decree of the trial Court as
affirmed by the High Court cannot be sustained, and are set aside. The appeal
is allowed. No costs. F
S.K.S. Appeal allowed.