Holding

Where the statutory obligations of the authority under the mining concession rules are not fulfilled, the contractor’s performance becomes impossible and the doctrine of frustration may apply, rendering the High Court’s demand for payment untenable.

Summary

Mish. Jai Durga Finvest Pvt. Ltd. obtained a mining lease for mineral sand in the Bega Murtha zone of Haryana and entered into an agreement containing clauses requiring payment of compensation to land owners (clause 9) and obligating the State to determine such compensation (clause 27). The land owners refused compensation; the appellant sought the respondent's (District Collector) intervention under clause 27, but received no response, rendering extraction of sand impossible. The State terminated the contract for alleged non‑payment of contract money, forfeited the security, and later demanded additional amounts with 24% interest. The Punjab and Haryana High Court partially set aside the demand but held the appellant still liable for the contract money, reasoning that he had entered the contract voluntarily. The Supreme Court held that the High Court erred by not examining whether the State had complied with its statutory obligations under the Punjab Minor Mineral Concession Rules, 1964 (Rule 33) and that such non‑compliance could invoke the doctrine of frustration, thereby setting aside the High Court’s order and remitting the matter for fresh consideration.

Issues considered

Did the State authorities comply with their statutory obligations under the Punjab Minor Mineral Concession Rules, 1964 and clause 27 of the mining agreement?
Whether the non‑performance of the statutory obligation renders the mining contract impossible to perform, invoking the doctrine of frustration?
Is the appellant liable to pay the contract money and interest despite being unable to extract sand due to the State's omission?
Does clause ISA, which bars the contractor from seeking relief for non‑extraction, remain enforceable when the State fails to fulfill its statutory duties?

Legislation cited

Subjects

mining leasecontract frustrationstatutory obligationPunjab Minor Mineral Concession Rulescompensation to land ownerscontract terminationinterest liabilityclause 27clause ISA

Judgment

\

"f

MIS. JAi DURGA FINVEST PVT. LTD. A
v.
STATE OF HARYANA AND ORS.

JANUARY 5, 2004

[V. N. KHARE, CJ, S.B. SINHA AND DR. AR. LAKSHMANAN, JJ.] B

Punjab Afinor Mineral Concession Rules, 1964-Rule 33-Contractfor
mining operation-Non-performance of contract by the contractor due to non-
compliance of statutOIJ' obligation on part of concerned authority-Demand C
of contract amount by authority-Demand held justified by High Court-On
appeal, held: Demand nut justified in view of non-compliance of statutory
obligation on part of the authority-However, case remitted back to High
Court for determination of doctrine of frustraiion.

Respondent got a confract for mining operation for extraction of D
mineral sand in an auction. In furtherance of acceptance of his bid he
entered into an agreement. According to clause 9 of the agreement
appellant approached the land owners for settlement of compensation.
When the land owners did not permit him to operate, he requested
respondent No.3 as per clause 27 of the agreement to get the compensation E
determined by the District Collector, but no response thereto was made.
As a result, performance of the contract by the appellant became
impossible despite having paid a large amount. Appellant also did not seek
any relief in payment of contract money on the plea of non-extraction of
sand in view of condition No.ISA of the contract agreement. Respondent F
No.2 terminated the contract of the appellant on 9.3.2000 for not having
paid the contract money from Septetnber 1999 to January 2000 and his
... security amount was also forfeited. In appeal against the order terminating
the contract, Appellate Authority directed adjustment of security amount
against the outstanding amount of contract money and upto date interest
thereon. Thereafter respondent No.3 demanded the alleged balance G
amount, which was paid by appellant, but he submitted that contract
money for the period 10.3.2000 to 7.4.2000 was wrongly raised in view of
the fact that the contract was terminated on 9.3.2000.

Appellant filed writ petition, which was partly allowed by High H
Court regarding the amount for the period 10.3.2000 to 7.4.2000 and it
157
158 SUPREME COURT REPORTS (2004) I S.C.R.

A further held that appellant was obliged to deposit the amount in terms of
the contract, as he had entered into the contract voluntarily without any
coercion and undue influence.

In appeal to this Court, appellant contended that the contract became
impossible to be performed as the compensation was not paid to the land
B owners due to non-enforceability of Clause 27 of the agreement on the
part of respondent No.3.

Allowing the appeal and remitting the case to the High Court, the
i
Court
c HELD: Grant of mining lease in favour of the appellant for the
extraction of mineral sand by the respondents is governed by the
provisions of Punjab Minor Mineral Concession Rules, 1964. In terms of
Rule 33, the bidder is required to execute a deed in Form 'L'. Clause 27
of the agreement in Form 'L' obligates the respondent to comply with the
D request made in terms thereof. The Appellant Authority had not
considered this aspect of the matter. High Court also did not apply its mind
in this behalf. As the High Court has merely proceeded on the basis that
the appellant had entered into the contract with his eyes wide open; but,
the same would not mean that they were bound to pay the contract
'.
E amount, get its security amount forfeited, as also pay interest at the rate
of 24 per cent, although it could not, by reason of acts of omission and
commission on the part of the respondents, carry out the mining operation
as per the terms of the agreement. Whether in such a situation the doctrine
of frustration will be invoked or not should have been considered by the
High Court. 1162-F-H; 163-A-BI
F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9267 of2003.
....
.

From the Judgment and Order dated 7. I0.2002 of the Punjab and ~

Haryana High Court in C.W.P. No. 12114 of 2000.
G Dr. Vikas Vashishth for Kuldip Singh for the Appellant.

Aditya K. Choudhary, Sanjay Singh for Ms. Kavita Wadia for the

H
Respondents.

The Judgment of the Court was delivered by
,..
-
.IAI DURGA FINVEST PVT. LTD. v. STATE [SINHA. J.] 159
S.B. SINHA, J. The writ petitioner before the High Court is appellant A
herein.

Admitted fact of the matter is as under:

An auction for grant of mining operation that is for extraction of mineral
sand in Bega Murtha! comprising 56 villages in the district of Sonepat in the B
State of Haryana was held on 6.4.1998. The reserved price therefor was fixed
Rs. 83,23,000 (Rupees eighty three lacs twenty three thousand only). The
appellant herein became the highest bidder, the bid amount being
Rs. 1,48,00,00 (Rupees on crore forty eight lacs) per annum for the period
I Ith October, 1998 to 31st March, 200 I. The said bid was accepted and
pursuant to and in furtherance thereof an agreement was entered into by and C
between the parties on 30th October, 1998. The appellant herein deposited an
amount of Rs. 37,00,000 (Rupees thirty seven lacs) as security.

The relevant clauses of the said agreement are as under :

"9. Payments of Compensations to land owners: D
The contractor shall make and pay reasonable satisfaction and
compensation for all damages or disturbance which may be done by
him in exercise of the powers granted by this contract and shall
indemnify and keep indemnify fully and completely the Government E
against all claims which may be made by any. person or persons in
respect of any such damage, injury or disturbance 'and costs any
·expenses in connection therewith.

17. Termination of the contract by State Government in public interest:

Except as otherwise provided, the contract may be terminated by F
Govt. if considerable by it to be in public interest, by giving one
month's notice.

Provided that in the state of national emergency or war contract may
be terminated without giving such notice.
G
18. Recovery of contract money as arrears of land revenue:

Any sum from the contractors on account of contract money in respect
of the contract, shall be recovered from him/them as arrears of land
revenue.
H
I
"(

160 SUPREME COURT REPORTS (2004) I S.C.R.

A ISA The contractor shall have no right to seek any relief in payment
of contract money on the plea that he was not able to extract sand
from any village falling in the zone.

27. Acquisition of land of third parties and compensation thereof:-

In accordance with provisions of clause 9 of this agreement the
B
contractor shall offer to pay compensation to an occupier or owner of
the surface of the land where from the minor mineral will be raised,
including the land required for use as access to the quarry/mine,
stracking of mineral and purpose subsidiary thereto for any damage
or injury which may arise from the proposed mining operations of the
c contractor and in case the said occupier or owner refuses his consent
to the exercise or the rights and powers reserved to the government
and demised to the contractor under these presents the contractor
shall report the matter to the Assistant Mining Engineer/Mining Officer
posted in the District who shall request the collector of the District
concerned to direct the occupier or the owners on such mining/
D
quarrying operations as may be necessary for the working of the
mine/quarry on deposit with the collector to the occupier or the owner
by the contractor subject to its final fixation by the collector under
the Land Acquisition Act, 1894."

E The contention of the appellant was that in terms of clauses 9 and 27,
he approached the land owners of villages Nandnaur, Larsauli, Pipli Khera,
Murtha( and Bhigan for settlement of compensation, but, they did not accede
thereto. Thereafter, the appellant requested respondent No.3 to get the amount
of compensation determined by the District Collector and pay the same to the
land owners but no response thereto was made. Further contention of the
F appellant is that although in the aforementioned situation he has not been
able to extract and even for a day, he had deposited a huge sum of Rs.
2, 12,07,573 (Rupees two crores twelve lacs seven thousand five hundred
J
seventy three only.) The appellant further urged that having regard to the said
conduct on the part of the respondents, performance of contract on his part
G became impossible. Despite the same, one month notice was issued by the
3rd respondent herein on or about 19th January, 2000, terminating the .contract
on the ground that the contract money from September 1999 to January 2000
had not been paid; whereafter the Director, 2nd respondent terminated the
,., I
contract by an order dated 9th March, 2000; as a result whereof the s.ecurity
amount deposited by the appellant was also forfeited.
H
JAi DURGA FINVEST PVT. LTD. v. STATE [SINHA, J.] 161
"- Aggrieved by the said order, the appellant preferred an appeal which A
was partly allowed by the Appellate Authority in tem1s of an Order dated
I0th July, 2000, whereby and whereunder the security amount deposited by
the appellant was directed to be adjusted against the outstanding amount of
contract money and upto date interest thereon, The 3rd respondent thereafter
issued a notice to the appellant on 4th August, 2000 demanding the alleged
balance amount along with the interest at the rate of 24 per cent per annum B
which was worked out to Rs. 68,35,290 (Rupees sixty eight lacs thirty five
~ thousand two hundred ninety only). The appellant deposited the said amount,
but submitted a representation before the 2nd respondent inter a/ia contending
that the contract money for the period 10.3.2000 to 7.4.2000 has wrongly
been raised having regard to the fact that the contract stood terminated on 9th c
March, 2000.

The appellant thereafter filed a Writ Petition before the Punjab and
Haryana High Court which was marked as C.W.P. No. 12114 of2000, praying
inter alia therein th.e following reliefs:-
D
(a) issue a writ of certiorari quashing the impugned notice dated
4.8.2000 to the extent it demands contract money and interest
thereon@ Rs. 24% P.A. after expiry of one month notice dated
19.1.2000 terminating the contract or in the alternative demand
of contract money and interest thereon from 9.3.2000 to 7.4.2000,
be declared null and void and quashed; E
(b) issue an appropriate writ, order or directions declaring clause 19
of the agreement; (P/l) as null and void to the extent it stipulates
no11-payment of interest on the heavy amount of security deposited
by the petitioner and that direction be issued to respondents to
pay interest @ 24% P.A. on the amount of security till final F
~-
adjustment qua the outstanding contract money;
A
(c) issue further an appropriate writ, order or direction to the
respondents not to charge interest on the amount of contract
money being demanded from the petitioner vide order dt.
10.7.2000; P/3 and notice dated 4.8.2000." G
The High Court allowed the writ petition in part i.e. as regard the
demand of the amount for the period 10.3.2000 to 7.4.2000 of the contract
' /' money. As regard the other contentions of the appellant, the High Court
proceeded on the basis that as it was not coerced into bid by any of the
representatives of the State nor the contract was signed under undue influence H
I
-.;

162 SUPREME COURT REPORTS (2004) I S.C.R.

A or pressure, the appellant cannot be discharged of its liability as it entered
into the contract voluntarily and as in terms thereof it was obliged to deposit
the amount in question.

It appears to us that the High Court committed an error in not going
into the principal issue involved in the matter.
B
We may notice that the second respondent in its order dated 10th July,
2000 held :
)
"It is an admitted fact that the appellant did not operate the Bega
Murtha! Sand Zone, even if by their own choice, but facts remain that
c they did not derive any benefit from the contract. On the other hand
they had bound themselves by condition No. ISA of the contract
agreement not to seek any relief in payment of conduct money on the
plea of non extraction of sand".

The question, thus, which was required to be posed and answered was
D as to whether Clause ISA of the agreement would remain enforceable despite
the fact that the appellant allegedly could not extract any sand by reasons of
omission and commission on the part of the concerned respondents. The
appellant herein has raised a plea that the contract became impossible to be
performed as the land owners of the area in question did not receive ""'
E compensation and despite request the 3rd respondent did not enforce clause
27 of the agreement.

It is not in dispute that the grant of mining lease in favour of the
appellant herein for the extraction of mineral sand by the respondents is
governed by the provisions of Punjab Minor Mineral Concession Rules, 1964.
F In tenns of Rule 33 the bidder is required to execute a deed in Form 'L'.
Clause 27 of the agreement in Form 'L' obligates the respondent to comply
with the request made in terms thereof. The Appellate Authority had not '"
J
considered this aspect of the matter. The High Court also did not apply its
mind in this behalf. The first question that arises whether the respondents
complied with their statutory obligations when the request.was made by the
G appellant. If not, the second question would be the effect on non-compliance
of the statutory obligation of the respondents which formed part of the contract
insofar as they did not comply with the appellant's request as aforementioned
f
which had a direct bearing to the right of the appellant to raise sand. As the "
High Cou11, as noticed here-in-before, has, merely proceeded on the basis
H that the appellant had entered into the contract with his eyes wide open, but,
JAi DURGA FINVEST PVT.LTD. v. STATE [SINHA, J.] 163
the same would not, in our opinion, mean that they were bound to pay the A
contract amount, get its security amount forfeited, as also pay interest at the
rate of 24 per cent, although it could not, by reason of acts of omission and
commission on the part of the respondents, carry out the mining operation as
per the terms of the agreement.

Whether in such a situation the doctrine of frustration will be invoked B
or not should have been considered by the High Court. (See MD. Army
. < Welfare Housing Organisation v. Sumangal Service Pvt Ltd., (2003) 8 Scale
' 424).

For the reasons afore-mentioned, the impugned judgment cannot be
sustained which is set aside accordingly. The appeal is allowed and the matter C
is remitted back to the High Court for consideration of the matter afresh in
the light of the observations made herein on. an early date. No costs.

K.K.T. Appeal allowed.