MARYversusSTATE OF KERALA AND ORS,

                        (2013] 9 S.C.R. 1126


A                                MARY
                                   v.
                  STATE OF KERALA AND ORS.
                  (Civil Appeal No. 9466 of 2003)
                        OCTOBER 22, 2013.
B
       [CHANDRAMAULI KR. PRASAD AND V. GOPALA
                     GOWDA, JJ.]

     KERALA ABKARI SHOPS (DISPOSAL IN AUCTION)
C RULES, 1974:

        "· 5 (10), (15) and (19) - Auction purchaser failing to
    execute the agreement - Forfeiture of deposit - Held: In terms
    of sub-r. (15) of r. 5, security money deposited by auction
    purchaser is liable to be forfeited.
0
        CONTRACT ACT, 1872:

       s. 56 - Contract to do act, afterwards becoming
  impossible - Doctrine of frustration - Statutory contract -
E Auction purchaser finding impossible to run abkari shops due
  to resistance by local residents, the area being a holy place
  - State also found it impossible to re-sell or re-dispose of
  arrack shops -- Held: Doctrine of frustration excludes
  ordinarily further performance where the contract is silent as
F to the position of the parties in the event of performance
  becoming literally impossible -- However, in a statutory
  contract in which party takes absolute responsibility, it cannot
  escape liability whatever may be the reason -- In such a
  situation, events will not discharge the party from the
G consequence of non-performance of contractual obligation -
  - Further, in a case in which consequence of non-performance
  of contract is provided in statutory contract itself, parties shall
  be bound by that and cannot take shelter behind s. 56 - In
  the instant case, by reason of sub-r. (15) of r. 5 of 1974 Rules,

H                                1126
             MARY v. STATE OF KERALA                      1127

State was entitled to forfeit the security money -- In the face    A
of specific consequences having been provided, appellant
shall be bound by it and could not take benefit of s.56 - Kera/a
Abkari Shops (Disposal in Auction) Rules, 1974 -- r. 5(15) -
Doctrines/ Principles -- Doctrine of frustration - Doctrine of
fairness.                                                          B

    ADMINISTRATIVE LAW:

      Doctrine of fairness - Held: It is a doctrine developed in
the administrative law field to ensure rule of law and to prevent
failure of justice where an action is administrative in nature - C
- Where the function is quasi-judicial, the doctrine of fairness
is evolved to ensure fair action -- But, it certainly cannot be
invoked to amend, alter, or vary an express term of the
contract between the parties -- This is so even if the contract
is governed by a statutory provision - Sub-r.(15) of r.5of1974 o
Rules cannot be struck down on the ground of
reasonableness and fairness -- Kera/a Abkari Shops
(Disposal in Auction) Rules, 1974 - r.5(15).

     The appellant, being the successful bidder in an
auction conducted for sale of privilege to vend arrack in          E
two shops, deposited 30% of the bid amount and
executed a temporary agreement in terms of r. 5(10) of the
Kerala Abkari Shops (Disposal in Auction) Rules, 1974,
which was subject to confirmation by the Board of
Revenue. The area being the holy place, the local                  F
residents objected to the running of any abkari shop in
the area. A large number of people collected and offered
physical resistance to the opening of the abkari shops
and the law and order enforcing agency could not assure
smooth conduct of business. However, the appellant was             G
asked to deposit the balance amount payable by her,
together with interest at the rate of 18% thereon. Revenue
recovery notice was also issued for realisation of the
amount. The appellant challenged the notices in a writ
petition before the High Court contending that rr.5(15) and        H
   1128 . SUPREME COURT REPORTS                [2013] 9 S.C.R.


A 5(16) were arbitrary and violative of Art. 14 of the
  Constitution of India. The appellant filed another writ
  petition, inter alia, praying for direction to the State
  authorities to refund the amount paid by her as initial
  deposit. The writ petitions were allowed by the single
8 Judge and the notices and all the proceedings initiated
  against the appellant were quashed. The amount
  deposited by the appellant was directed to be refunded
  along with interest. However, the single Judge did not
  strike down rr. 5(15) and 5(16). The writ appeal filed as
C regards the recovery of the balance amount was
  dismissed whereas the writ appeal against the direction
  for refund of the initial deposit was allowed by the
  Division Bench.

      In the instant appeal filed by the bidder, the appellant
D contended, inter alia, that r. 5(15) did not meet the
  requirement of the doctrine of reasonableness or fairness
  and on this ground alone the rule would be invalid.
  However, such a plea was not raised before the High
  Court. In relation to the validity of the part of the judgment
E whereby the Division Bench held that the State was
  entitled to forfeit the entire deposited amount, the
  question for consideration before the Court was: whether
  the appellant could invoke the doctrine of frustration or
  impossibility or whether she was bound by the terms of
F the statutory contract.

        Dismissing the appeal, the Court

      HELD: 1. Rule 5(15) of the Kerala Abkari Shops
  (Disposal In Auction) Rules, 1974 makes it evident that on
G the failure of the auction purchaser to execute the
  agreement whether temporary or permanent, the deposit
  already made by auction purchaser towards earnest
  money an.d security money shall be forfeited.
  Undisputedly, the appellant was declared as auction
H purchaser and, in fact, she had deposited 30% of the bid
             MARY v. STATE OF KERALA                     1129

amount in terms of r.5(10) of the Rules. It is further an        A
admitted position that the appellant did not execute a
permanent agreement or for that matter, did not execute
the privilege. Therefore, in terms of sub-r. (15) of r. 5, the
money deposited by her is liable to be forfeited. [para 12)
[1139-E-G]                                                       B
    2.1 It is not the case of the State that appellant has
purposely, or for any oblique motive, or as a device to
avoid any loss, refused to execute the agreement. It
appears that the State was helpless because of the
public upsurge against the sale of arrack at the holy            C
place. Consequently, the State also found it impossible
to re-sell or re-dispose of the arrack shops. [para 13)
[1140-B-C]

     2.2 In view of second paragraph of s. 56 of the             D
Contract Act, a contract to do an act which after the
contract is made, by reason of some event which the
promissory could not prevent becomes impossible, is
rendered void. Therefore, the forfeiture of the security
amount may be illegal. But in the instant case, the              E
consequence for non-performance of contract is
provided in the statutory contract itself. The doctrine of
frustration excludes ordinarily further performance where
the contract is silent as to the position of the parties in
the event of performance becoming literally impossible.
                                                                 F
However, a statutory contract in which party takes
absolute responsibility cannot escape liability whatever
may be the reason. In such a situation, events will not
discharge the party from the consequence of non-
performance of a contractual obligation. Further, in a case      G
in which the consequences of non-performance of
contract is provided in the statutory contract itself, the
parties shall be bound by that and cannot take shelter
behind s. 56 of the Contract Act. Rule 5(15) in no
uncertain terms provides that "on the failure of the
auction purchaser to make such deposit referred to in            H
    1130    SUPREME COURT REPORTS                [2013) 9 S.C.R.


A sub-rule (10)" or "execute such agreement temporary or
  permanent", "the deposit already made by him towards
  earnest money and security shall be forfeited to
  Government". In the instant case, the appellant had not
  carried out several obligations as provided in sub-r. (10)
B of r. 5 and consequently, by reason of sub-r. (15), the
  State was entitled to forfeit the security money. In the face
  of the specific consequences having been provided, the
  appellant could not take benefit of s.56 of the Contract
  Act to resist forfeiture of the security money. [para 13]
C [1140-C-H; 1141-A]
         Sushi/a Devi v. Hari Singh (1971) 2 SCC 288; Har
    Prasad Choubey v. Union of India (1973) 2 SCC 746 -
    distinguished.
         3.1 The duty to act fairly is sought to be imported into
D   the statutory contract to avoid forfeiture of the bid
    amount. The doctrine of fairness is nothing but a duty to
    act fairly and reasonably. It is a doctrine developed in the
    administrative law field to ensure rule of law and to
    prevent failure of justice where an action is administrative
E   in nature. Where the function is quasi-judicial, the
    doctrine of fairness is evolved to ensure fair action. But,
    it certainly cannot be invoked to amend, alter, or vary an
    express term of the contract between the parties. This is
    so even if the contract is governed by a statutory
F   provision i.e. where it is a statutory contract. In a contract
    under the Abkari Act and the Rules made thereunder, the
    licensee undertakes to abide by the terms and conditions
    of the Act and the Rules made thereunder which are
    statutory and in such a situation, the licensee cannot
G   invoke the doctrine of fairness or reasonableness. [para
    18 and 20] [1144-D-E; 1146-B-C]
         Delhi Transport Corporation v. D. T.C.Mazdoor Congress
    and Another 1990 (1) Suppl. SCR 142=1991 Supp (1) SCC
    600; and Central Inland Water Transport Corporation Limited
H   and Another v. Brojo Nath Ganguly and Another etc. 1986 (2)
             MARY v. STATE OF KERALA                      1131

SCR 278 = (1986) 3 SCC 156 - referred to.                         A
     3.2 Therefore, this Court holds that r. 5(15) of the Rules
cannot be struck down on the ground urged by the
appellant and a statutory contract cannot be varied, added
or altered by importing the doctrine of fairness. In such a
contract, the licensee takes a calculated risk. The appellant     B
cannot be relieved of the obligations undertaken by her
under the contract. [para 18] [1144-G-H]

    Assistant Excise Commissioner and Others v. Issac Peter
                                 =
and Others= 1994 (2) SCR 67 (1994) 4 SCC 104 - relied             c
on.
                     Case Law Reference:
    (1971) 2 sec 288             distinguished       para 8
    (1973) 2 sec 746             distinguished       para 9       D

    1986 (2) SCR 278             referred to         Para 15
    1990 (1) Suppl. SCR 142 referred to              para 16
    1994 (2) SCR 67              relied on           para 17      E
    CIVIL APPELLATE JURISDICTION : Civil Appeal No.
9466 of 2003.
    From the Judgment and Order dated 13.06.2002 of the
High Court of Kerala at Emakulam in W.A. No. 1734 of 1995A.       F
      Neha Aggarwal, Shyam D. Nandan, Subramonium Prasad
for the Appellant.
    Mukti Chowdhary, Ramesh Babu M.R., G. Prakash for the
Respondents.                                                      G
    The Judgment of the Court was delivered by
     CHANDRAMAULI KR. PRASAD, J. 1. The appellant,
aggrieved by the judgment and order dated 13.6.2002 passed
by the Division Bench of the Kerala High Court in Writ Appeal     H
    1132     SUPREME COURT REPORTS                  [2013) 9 S.C.R.


A   No.1734 of 1995 setting aside the judgment and order dated
    4.8.1995 passed by learned Single Judge of the said High
    Court in Original Petition No.12514 of 1994; whereby it had
    directed for refund of an amount of Rs.7,68,600/- along with
    interest, is before us with the leave of the Court.
B         2. The appellant, Mary was a successful bidder in an
    auction conducted on 24.3.1994 for sale of privilege to vend
    arrack in Shop Nos. 47 to 55 and 57 in Kalady Range -Ill for
    the period 1.4.1994 to 31.3.1995. Her bid was for a sum of
    Rs.25,62,000/-. The sale of the privilege to vend arrack is
C   governed by the Kerala Abkari Shops (Disposal in Auction)
    Rules, 1974 (hereinafter referred to as 'the Rules'). The officer
    conducting the sale declared the appellant to be the 'auction
    purchaser' in terms of Rule 5(8) of the Rules. Being declared
    as auction purchaser, she deposited 30% of the bid amount
D   i.e. Rs.7,68,600/- on the same date and executed a temporary
    agreement in terms of Rule 5(10) which was subject to
    confirmation by the Board of Revenue. Rule 5(19) makes this
    deposit as security for due performance of the conditions of
    licence. Kalady is the holy birth place of Adi Sankaracharya and
E   adjoining thereto existed a Christian pilgrim centre associated
    with St. Thomas. The residents of those areas objected to the
    running of any abkari shop. A large number of people collected
    and offered physical resistance to the opening of the abkari
    shops and the law and order enforcing agency could not assure
F   smooth conduct of business. The aforesaid circumstances led
    the appellant to believe that it was impossible for her to run the
    arrack shop in the locality in question. The appellant, therefore,
    by her letter dated 3.4.1994 addressed to the Board of
    Revenue, District Collector and Assistant Commissioner of
G   Excise, informed them that because of mass movement it was
    not possible for her to open and run the shops. Accordingly,
    she requested them not to confirm the sale in her favour as it
    was impossible for her to execute the privilege for the reasons
    beyond her control. She also requested that the proposed
H   contract may be treated as rescinded. She further reserved her
              MARY v. STATE OF KERALA                          1133
           [CHANDRAMAULI KR. PRASAD, J.)

right to claim refund of the security amount. There is nothing          A
on record to show that after the appellant refused to carry out
her obligations, the State Government took any step to re-sell
or re-dispose the arrack shops in question.

      3. Notwithstanding that, the Excise Inspector of Kalady           B
Range sent a notice dated 8.4.1994 to the appellant, inter alia,
stating that the sale has already been confirmed in her favour.
The appellant was asked to accept the confirmation notice and
enter into a permanent agreement. By the said notice the
Excise Inspector also called upon the appellant to show cause           c
as to why further proceedings as contemplated under the Rules
should not be initiated against her. The appellant filed her reply
to show cause on 17.4.1994 reiterating her inability to run the
arrack shops and further requested that all proceedings
pursuant to the auction held on 24:3.1994 be cancelled and the
                                                                        0
amount already deposited by her be refunded to her. It seems
that the cause shown by the appellant did not find favour with
the authority and the Assistant Excise Commissioner, by notice
dated 20.4.1995, called upon the appellant to pay a sum of
Rs.33,41,400/- towards the balance amount payable by her,
together with interest at the rate of 18% thereon. Revenue              E
recovery notice dated 30.6.1995 was also issued for realisation
of the aforesaid amount. The appellant challenged the aforesaid
notices issued to her in a writ petition filed before the Kerala
High Court which was registered as Original Petition No.9976
of 1995 (Mary vs. State of Kerala & Others). While challenging          F
the aforesaid notices and further proceedings, the appellant
contended that Rule 5(15) and 5(16) are arbitrary and violative
of Article 14 of the Constitution of India. The appelrant filed
another writ petition, inter alia, praying for direction to the State
authorities to refund an amount of Rs.7,68,600/- paid by her as         G
initial deposit. This writ petition was registered as Original
Petition No.12514of1994 (Mary vs. State of Kerala & Others).

     4. Both the writ petitions were heard together and the
learned Single Judge vide judgment dated 4.8.1995 allowed               H
    1134    SUPREME COURT REPORTS                   [2013] 9 S.C.R.


A both the writ petitions. The learned Single Judge quashed the
  notices and all the proceedings initiated against the appellant
  and further directed the refund of the amount of Rs.7,68,600/-
  deposited by her along with interest. However, learned Single
  Judge did not strike down Rule 5(15) and 5(16). While doing
B so, learned Single Judge observed as follows:

              "15. The undisputed and uncontroverted facts as
        appearing above clearly attract the doctrine of frustration
        and impossibility leading to the conclusion that the contract
        from its inception becomes void and discharged.
c       Consequently, it is needless to consider and decide other
        contentions urged as regards excesses of delegated
        legislation in the forms of the rules, as they are
        unnecessary altogether in view of the above conclusion.
        Both these petitions succeed accordingly."
D
       5. The State of Kerala and its functionaries, aggrieved by
  the aforesaid judgment, preferred separate appeals. Both the
  appeals were heard together and disposed of by a common
  judgment. Writ Appeal No.1722 of 1995, filed against the
E recovery of the balance amount was dismissed. While allowing
  Writ Appeal No.1734 of 1995 which was against the direction
  of the learned Single Judge for refund of the initial deposit, the
  Division Bench held that the State is justified in forfeiting the
  said amount in view of Rule 5(15). While doing so, the Division
F Bench observed as follows:

        "8 ......... However, where there are statutory provisions, the
        contractual terms are defined by the statutory provisions
        which must govern the relationship between the parties.
        Where the statute governs the relationship, it is the statutory
G       terms which have to be applied for deciding the disputes
        between the parties. In this view of the matter, particularly
        when the contention of invalidity of sub-rule (15) and (16)
        of Rule 5 was negatived by the learned Single Judge, we
        are of the view that the rights and liabilities between the
H       parties have to be worked out purely in accordance with
             MARY v. STATE OF KERALA                       1135
          [CHANDRAMAULI KR. PRASAD, J.]

    the applicable rules."                                          A

     6. Accordingly, the Division Bench found that the offer of
the appellant having been accepted, same could not have been
withdrawn. For coming to the aforesaid conclusion, the High
Court placed reliance on sub-rules (10)&(15) of Rule 5 and
                                                                    B
observed as follows:                                ·

    "10. It is on the basis of these rules that the rights of the
    parties have to be determined. These rules really form the
    substratum of the contract between the parties, though all
    disputes arising between the parties have to be resolved        C
    in accordance with the principles of contract law, taking the
    rules as forming the basic contract between the parties.
    That the accepted offer is incapable of being withdrawn,
    is clear from the provisions under sub-rule(10) of Rule 5.
    The first respondent, therefore, could not have purported       D
    to withdraw the offer or rescind the contract by letter dated
    3.4.1994. That the first respondent did not carry out several
    obligations as provided in sub-rule (10) of Rule 5 is also
    beyond dispute. Consequently, by reason of sub-rule(15)
    of Rule 5 of the Rules, the State was entitled to forfeit the   E
    entire deposit amount of Rs.7,68,600/-. Thus far, there is
    no difficulty. "

     7. In the present appeal, we have been called upon to
examine the validity of this part of the judgment whereby the
                                                                    F
Division Bench held that the State was entitled to forfeit the
entire deposited amount of Rs. 7,68,600/-.

     8. We have heard Ms. Neha Aggarwal for the appellant
and Ms. Mukta Chowdhary for respondents. Ms. Aggarwal
contends that the appellant could not carry out her obligation      G
as it became impossible in view of the mass movement and
resistance which State could not contain. In this connection, she
has drawn our attention to Section 56 of the Contract Act. In
support of the submission reliance has also been placed on a
decision of this Court in the case of Sushi/a Devi v. Hari          H
    1136    SUPREME COURT REPORTS                    [2013] 9 S.C.R.


A   Singh, (1971) 2 sec 288, and our attention has been drawn
    to Paragraph 11 of the judgment which reads as follows:

        "11. In our opinion on this point the conclusion of the
        appellate court is not sustainable. But in fact, as found by
        the Trial Court as well as by the appellate court, it was
B
        impossible for the plaintiffs to even get into Pakistan. Both
        the Trial Court as well as the appellate court have found
        that because of the prevailing circumstances, it was
        impossible for the plaintiffs to either take possession of
        the properties intended to be leased or even to collect rent
c       from the cultivators. For that situation the plaintiffs were not
        responsible in any manner. As observed by this Court in
        Satyabrata Ghose v. Mugneeram Bangur and Co.,(1954)
        SCR 310, the doctrine of frustration is really an aspect or
        part of the law of discharge of contract by reason of
D       supervening impossibility or illegality of the act agreed to
        be done and hence comes within the purview of Section
        56 of the Indian Contract Act. The view that Section 56
        applies only to cases of physical impossibility and that
        where this section is not applicable recourse can be had
E       to the principles of English law on the subject of frustration
        is not correct. Section 56 of the Indian Contract Act lays
        down a rule of positive law and does not leave the matter
        to be determined according to the intention of the parties.
        The impossibility contemplated by Section 56 of the
F       Contract Act is not confined to something which is not
        humanly possible. If the performance of a contract
        becomes impracticable or useless having regard to the
        object and purpose the parties had in view then it must be
        held that the performance of the contract has become
G       impossible. But the supervening events should take away
        the basis of the contract and it should be of such a
        character that it strikes at the root of the contract."
       9. Yet another decision on which Ms. Aggarwal has placed
  reliance is the decision of this Court in Har Prasad Choubey
H v. Union of India, (1973) 2 SCC 746, in Paragraph 9 whereof
             MARY v. STATE OF KERALA                         1137
          [CHANDRAMAULI KR. PRASAD, J.]

it has been held as follows:                                          A

    "9. This elaborate narration would make it clear that the
    appellant had bid for the coal under the honest and
    reasonable impression that he would be allowed to
    transport the coal to Ferozabad, that this was thwarted by        8
    the attitude of the Coal Commissioner, that later on the
    parties proceeded on the basis that the auction sale was
    to be cancelled and the appellant refunded his money. But
    apparently because by that time much of the coal had been
    lost and the Railways would have been in difficulty to            C
    explain the loss they chose to deny the appellant's claim.
    We can see no justification on facts for such a denial and
    the defendants cannot refuse ,to refund the plaintiffs
    amount. The contract had become clearly frustrated. We
    must make it clear that we are not referring to the refusal
    to supply wagons but the ~efusal of the Coal                      D
    Commissioner to allow the movement of coal to
    Ferozabad in spite of the fact that it was not one of the
    conditions of the auction. The appellant is, therefore, clearly
    entitled to the refund of his money. Furthermore, the
    contract itself not being in accordance with Section 175          E
    of the Government of India Act is void and the appellant is
    entitled to the refund of his money. We are unable to
    understand the reasoning of the High Court when it
    proceeds as though the appellant was trying to enforce the
    contract. We can see no justification for the lower Court         F
     refusing to allow interest for the plaintiffs amount at least
    from the date of his demand, or the latest from the date of
    suit."

      10. Ms. Chowdhary, however, contends that in the case in        G
hand, the terms and conditions for grant of privilege is governed
by the Rules and in view of specific consequences provided
for non-compliance of the terms and conditions of the contract
i.e. forfeiture of the security money, the Division Bench of the
High Court has not committed any error in holding that the State      H
    1138     SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A was entitled to forfeit the entire deposit.

       11. In view of the rival submission we deem it expedient
  to go through the relevant rules. Rule 2(a) defines Abkari shop
  to include an arrack shop with which we are concerned in the
B present appeal. Chapter IV of the Rules provides for general
  conditions applicable to sale of Abkari shops. It consists of only
  one Rule i.e. Rule 5 but it has 22 sub-rules. Sub-rule 15 of Rule
  5 reads as follows:

        5.    xxx                     xxx               xxx
c
        (15) In addition to the solvency certificate and cash security
        mentioned in sub-rule(10) the auction purchaser shall
        furnish such personal sureties as may be required of him
        to the satisfaction of the Assistant Excise Commissioner.
D       The Board of Revenue may, if in their opinion it is
        necessary, require the auction purchaser to furnish
        additional cash security as may be fixed by them at the
        time of confirmation. The auction purchaser shall also
        execute a permanent agreement in Form No. 11
        appended to these rules and take out necessary licence
E
        before installation of the shop or shops. On the failure of
        the auction purchaser to make such deposit referred to in
        sub-rule (10) or take out such licence or execute such
        agreement temporary or permanent or furnish such
        personal surety or additional cash security as aforesaid,
F       the deposit already made by him towards earnest money
        and security shall be forfeited to Government and the shop
        resold or otherwise disposed of by the Assistant Excise
        Commissioner subject to confirmation by the Board of
        Revenue. Disposal otherwise includes closure or
G       departmental management. In the case of death of an
        auction purchaser before the execution of the permanent
        agreement, the same shall be obtained from the heirs of
        the deceased unless the Assistant Excise Commissioner
        subject to the confirmation by the Board of Revenue
H       cancels the contract. In the case of death of an auction
             MARY v. STATE OF KERALA                          1139
          [CHANDRAMAULI KR. PRASAD, J.]

     purchaser after confirmation of the sale of the shop or           A
     shops, his heirs, if any, shall be required to produce the
     necessary legal evidence in support of their claim and on
     production of the same the shop shall be transferred to
     them and pending such transfer the shop shall be run on
     departmental management. It is open to the Assistant              8
     Excise Commissioner to call upon them to furnish
     additional security, if in his opinion it is necessary for the
     successful working of the contract. If the heirs fail to
     produce within a period of one month from the date of
     death of the auction purchaser the necessary evidence in          C
     support of their claim or to deposit the additional security
     required, the Assistant Excise Commissioner shall order
     the re-sale of the shop or shops or otherwise dispose of
     the shop or shops at the risk of the original purchaser
     subject to confirmation by the Board of Revenue.
                                                                       D
           )()()(                  )()()(             xx.X'

                                                 (underlining ours)

     12. From a plain reading of the aforesaid provision it is
evident that on the failure of the auction purchaser to execute        E
the agreement whether temporary or permanent, the deposit
already made by auction purchaser towards earnest money and
security money shall be forfeited. Undisputedly, the appellant
was declared as auction purchaser and, in fact, she had
deposited 30% of the bid amount, that is, 7,68,600/- in terms          F
of Rule 5(10) of the Rules. It is further an admitted position that
the appellant did not execute a permanent agreement 9r for that
matter, did not execute the privilege. Hence, in terms of sub-
rule (15) of Rule 5, the money deposited by her is liable to be
forfeited. However, as stated above, the appellant's plea is that      G
it was ~ue to the facts beyond her control that she could not
derive benefit from the privilege granted to her and hence did
not run the shop. Therefore, the security amount deposited by
her is not fit to be forfeited. In view of the aforesaid, what falls
for our determination is as to whether the appellant could invoke      H
    1140     SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A the doctrine of frustration or impossibility or whether she will be
  bound by the terms of the statutory contract. In other words, in
  case of a statutory contract, will it necessarily destroy all the
  incidents of an ordinary contract that are otherwise governed
  by the Contract Act?
B          13. It is not the case of the State that appellant has
    purposely, or for any oblique motive, or as a device to avoid
    any loss, refused to execute the agreement. It appears to us
    that the State was helpless because of the public upsurge
    against the sale of arrack at Kaladi, the birth place of Adi
C   Shankaracharya as, in their opinion, the same will render the
    soil unholy. Consequently, the State also found it impossible to
    re-sell or re-dispose of the arrack shops. In view of second
    paragraph of Section 56 of the Contract Act, a contract to do
    an act which after the contract is made, by reason of some
D   event which the promissory could not prevent becomes
    impossible, is rendered void. Hence, the forfeiture of the
    security amount may be illegal. But what would be the position
    in a case in which the consequence for non-performance of
    contract is provided in the statutory contract itself? The case
E   in hand is one of such cases. The doctrine of frustration
    excludes ordinarily further performance where the contract is
    silent as to the position of the parties in the event of
    performance becoming literally impossible. However, in our
    opinion, a statutory contract in which party takes absolute
F   responsibility cannot escape liability whatever may be the
    reason. In such a situation, events will not discharge the party
    from the consequence of non-performance of a contractual
    obligation: Further, in a case in which the consequences of non-
    performance of contract is provided in the statutory contract
G   itself, the parties shall be bound by that and cannot take shelter
    behind Section 56 of the Contract Act. Rule 5(15) in no
    uncertain terms provides that "on the failure of the auction
    purchaser to make such deposit referred to in sub-rule 1O" or
    "execute such agreement temporary or permanent" "the deposit
H   already made by him towards earnest money and security shall
             MARY v. STATE OF KERALA                          1141
          [CHANDRAMAULI KR. PRASAD, J.]

be forfeited to Government". When we apply the aforesaid               A
principle we find that the appellant had not carried out several
obligations as provided in sub-rule (10) of Rule 5 and
consequently, by reason of sub-rule (15), the State was entitled
to forfeit the security money.
                                                                       B
      14. Now reverting to the decisions of this Court in the
cases of Sushi/a Devi (supra) and Har Prasad Choubey
(supra), we are of the opinion that they are clearly
distinguishable. In those cases the contract itself did not provide
for the consequences for its non-performance. On the face of
the same, relying on the doctrine of frustration, this Court came      C
to the conclusion that the parties shall not be liable. As stated
earlier, in the face of the specific consequences having been
provided, the appellant shall be bound by it and could not take
benefit of Section 56 of the Contract Act to resist forfeiture of
the security money.                                                    D
      15. Confronted with this, Ms. Aggarwal raises the issue of
validity of Rule 5(15). The learned Single Judge had allowed
the writ petition filed by the appellant but negatived her challenge
to the validity of Rule 5(15) and 5(16) of the Rules. In an appeal
                                                                       E
preferred by the State, it does not seem that the appellant had
raised the plea of invalidity-of the Rules but before us it is the
contention of the appellant that Rule 5(15) does not meet the
requirement of the doctrine of reasonableness or fairness and
on this ground alone the rule is invalid. As a corollary, the
forfeiture made is illegal. It is pointed out that in a contract of    F
the present nature, the relative bargaining power of the
contracting parties cannot be overlooked. Viewed from this
angle, the rule is opposed to public policy, contends the learned
counsel. Reference in this connection has been made to a
decision of this Court in the case of Central Inland Water             G
Transport Corporation Limited and Another. v. Brojo Nath
Ganguly and Another etc. (1986) 3 sec 156. In this case, the
terms in the contract of employment as also service rules
provided for termination of service of permanent employees
without assigning any reason on three months' notice or pay in         H
    1142    SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A lieu thereof on either side was under challenge. Taking into
  account unequal bargaining power between the employer and
  the employee, the term in contract and the r:.;!es were held to
  be unconscionable, unfair, unreasonable and against the public
  policy. On these grounds, this Court struck down the termination
B as void. The relevant portion of the judgment reads as follows:

        "100 ............ The said Rules form part of the contract of
        employment between the Corporation and its employees
        who are not workmen. These employees had no powerful
        workmen's Union to support them. They had no voice in
c       the framing of the said Rules. They had no choice but to
        accept the said Rules as part of their contract of
        employment. There is gross disparity between the
        Corporation and its employees, whether they be workmen
        or officers. The Corporation can afford to dispense with
D       the services of an officer. It will find hundreds of others to
        take his place but an officer cannot afford to lose his job
        because if he does so, there are not hundreds of jobs
        waiting for him. A clause such as clause (i) of Rule 9 is
        against right and reason. It is wholly unconscionable. It has
E       been entered into between parties between whom there
        is gross inequality of bargaining power. Rule 9(i) is a term
        of the contract between the Corporation and all its officers.
        It affects a large number of persons and it squarely falls
        within the principle formu~ated by us above. Several
F       statutory authorities have ~ clause similar to Rule 9(i) in
        their contracts of employment. As appears from the
        decided cases, the West Bengal State Electricity Board
        and Air India International have it. Several government
        companies apart from the Corporation (which is the first
G       appellant before us) must be having it. There are 970
        government companies with paid-up capital of Rs.16,414.9
        crores as stated in the written arguments submitted on
        behalf of the Union of India. The government and its
        agencies and instrumentalities constitute the largest
H       employer in the country. A clause such as Rule 9(i) in a
             MARY v. STATE OF KERALA                            1143
          [CHANDRAMAULI KR. PRASAD, J.]
    contract of employment affecting large sections of the A
    public is harmful and injurious to the public interest for it
    tends to create a sense of insecurity in the minds of those
    to whom it applies and consequently it is against public •
    good. Such a clause, therefore, is opposed to public policy
    and being opposed to public policy, it is void under B
    Section 23 of the Indian Contract Act."

    16. Reference has also been made to a Constitution
Bench judgment of this Court in the case of Delhi Transport
Corporation v. D. T.C.Mazdoor Congress and Another 1991
Supp (1) SCC 600. In this case, Brojo Nath Ganguly (supra)               C
has elaborately been discussed and while endorsing the view
by majority this Court held as follows:

            "338. Accordingly I hold that the ratio in Brojo Nath
    Ganguly case, (1986) 3 sec 156 was correctly laid and                D
    requires no reconsideration and the cases are to be
    decided in the light of the law laid above. From the light
    shed by the path I tread, I express my deep regrets for my
    inability to agree with my learned brother, the Hon'ble Chief
    Justice on the applicability of the doctrine of reading down         E
    to sustain the offending provisions. I agree with my brethren
    B.C.Ray and P.B.Sawant,JJ. with their reasoning and
    conclusions in addition to what I have laid earlier."

     17. However, it has been contended by learned counsel
representing the respondent-State that doctrine of fairness or           F
reasonableness is not capable to be invoked in a statutory
contract. Strong reliance has been placed on a decision of this
Court in the case of Assistant Excise Commissioner and
Others v. Issac Peter and Others (1994) 4 sec 104, and our
attention has been drawn to the following passage.                       G

           "26 ............ We are, therefore, of the opinion that in.
    case of contracts freely entered into with the State, like the
    present ones, there is no room for invoking the doctrine
    of fairness and reasonableness against one party to the              H
    1144     SUPREME COURT REPORTS                   [2013) 9 S.C.R.


A        contract(State), for the purpose of altering or adding to the
         terms and conditions of the contract, merely because it
         happens to be the State. In such cases, the mutual rights
         and liabilities of the parties are governed by the terms of
         the contracts (which may be statutory in some cases) and
B        the laws relating to contracts. It must be remembered that
         these contracts are entered into pursuant to public auction,
         floating of tenders or by negotiation. There is no
         compulsion on anyone to enter into these contracts. It is
         voluntary on both sides. There can be no question of the
c        State power being involved in such contracts."

          18. We have given our most anxious consideration to the
    submission advanced and we do not find any substance in the
    submission of the learned counsel for the appellant and the
    decision relied on by her, in fact, carves out an exception in
D   case of a commercial transaction. The duty to act fairly is
    sought to be imported into the statutory contract to avoid
    forfeiture of the bid amount. The doctrine of fairness is nothing
    but a duty to act fairly and reasonably. It is a doctrine developed
    in the administrative law field to ensure rule of law and to
E   prevent failure of justice where an action is administrative in
    nature. Where the function is quasi-judicial, the doctrine of
    fairness is evolved to ensure fair action. But, in our opinion, it
    certainly cannot be invoked to amend, alter, or vary an express
    term of the contract between the parties. This is so even if the
F   contract is governed by a statutory provision i.e. where it is a
    statutory contract. It is one thing to say that a statutory contract
    or for that matter, every contract must be construed reasonably,
    having regard to its language. But to strike down the terms of
    a statutory contract on the ground of unfairness is entirely
G   different. Viewed from this angle, we are of the opinion that
    Rule 5(15) of the Rules. cannot be. struck down on the ground
    urged' by the appellant and a statutory contract cannot be
    varied, added or altered by importing the doctrine of fairness.
    In a contract of the present nature, the licensee takes a
H   calculated risk. Maybe the appellant was not wise enough but
             MARY v. STATE OF KERALA                           1145
          [CHANDRAMAULI KR. PRASAD, J.]

in law, she can not be relieved of the obligations undertaken           A
by her under the contract. Issac Peter (supra) supports this
view and says so eloquently in the following words:

    "26 ............ In short, the duty to act fairly is sought to be
    imported into the contract to modify and alter its terms and        B
    to create an obligation upon the State which is not there
    in the contract. We must confess, we are not aware of any
    such doctrine of fairness or reasonableness. Nor could the
    learned counsel bring to our notice any decision laying
    down such a prpposition.' Doctrine of fairness or the duty
    to act fairly and reasonably is a doctrine developed in the         C
    administrative law field to ensure the rule of law and to
    prevent failure of justice where the action is administrative
    in nature. Just as principles of natural justice ensure fair
    decision where the function is quasi-judicial, the doctrine
    of fairness is evolved to ensure fair action where the              D
    function is administrative. But it can certainly not be
    invoked to amend, alter or vary the express terms of the
    contract between the parties. This is so, even if the contract
    is governed by statutory provisions, i.e., where it is a
    statutory contract - or rather more so. It is one thing to say      E
    that a contract - every contract - must be construed
    reasonably having regard to its language ... "

      19. Now, referring to the decision of this Court in the case
of Brojo Nath Gangu/y (supra), the same related to terms and F
conditions of service and the decision in the said case has been
approved by this Court in the case of D. T.C. Mazdoor
Congress (supra). But while doing so, the Constitution Bench
explicitly observed in unequivocal terms that doctrine of
reasonableness or fairness cannot apply in a commercial G
transaction. It is not possible for us to equate a contract of
employment with a contract to vend arrack. A contract of.
employment and a mercantile transaction stand on a different
footing. It makes no difference when the contract to vend arrack
is between an individual and the State. This would be evident
                                                                   H
    1146       SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A   from the following text from the judgment:

           "286 ....... This principle. however. will not apply where the
           bargaining power of the contracting parties is equal or
           almost equal or where both parties are businessmen and
B          the contract is a commercial transaction."

                                                      (underlining ours)

       20. Accordingly, we are of the opinion that in a contract
  under the Abkari Act and the Rules made thereunder, the
C licensee undertakes to abide by the terms and conditions of
  the Act and the Rules made thereunder which are statutory and
  in such a situation, the licensee cannot invoke the doctrine of
  fairness or reasonableness. Hence, we negative the contention
  of the appellant.
D
          21. In the result, we do not find any merit in the appeal and
    it is dismissed accordingly but without any order as to costs.

    R.P.                                            Appeal dismissed.