STATE OF KERALA Vs. R. SIVADASAN

JUDGEMENT

(1.) This second appeal by the 1st defendant the State of Kerala is against the decision of the District Court, Trivandrum in A.S. No. 320 of 1975, decreeing the suit for injunction against the 1st defendant from realizing the balance amount due under Ext. B2 agreement between the plaintiff and the 1st defendant. The plaintiff was the highest bidder for the privilege of vending toddy in shop No. 21 in Varkala Range for the period 15-6-1967 to 31-3-1968. The auction sale of the privilege to vend toddy was in accordance with Ext. B1 notification dated 13-5-1967 published by the Government in the Kerala Gazette. The bid by the plaintiff accepted by the Government was for Rs. 18,000/-. Ext. B2 dated 12-9-1967 is the agreement between the plaintiff and the 1st defendant embodying the terms and conditions under which the plaintiff was allowed to conduct toddy shop No. 21 of Varkala Range. The plaintiff stopped the business on 12-12-1967 for the reason that the 2nd defendant who was the vendee of the privilege for sale of toddy in shop No. 20 had established an unauthorized shop in the area allotted to Shop No. 21 and the 1st defendant had failed to get the unauthorized shop closed down in spite of protests and complaints by the plaintiff. The plaintiff had till 1-12-1967 paid a sum of Rs. 9350.00 towards the total amount of Rs. 18,300/- payable on the acceptance of his bid. The Ist defendants was taking steps for the realization of the balance Rs. 8,950.00 by resort to revenue recovery proceedings against the plaintiff. For the rest of the period after 12-12-1967 covered by the agreement Ext. B2 the Excise Department of the Ist defendant had been conducting shop No. 21 and the plaintiff is not liable to pay the balance amount of Rs. 8,950.00 as per his bid accepted by the Government. The plaintiff claims that for the reason of the Ist defendant's failure to stop the unauthorized shop run by the 2nd defendant and later by his successor the 3rd defendant in the area demarcated for shop No. 21, the plaintiff is entitled to put an end to the contract u/s 39 of the Indian Contract Act and no claim can be enforced against him for the balance amount due as per Ext. B2 agreement. After the 2nd defendant had stopped the business in Shop No. 20, the Government re-auctioned the said Shop and the 3rd defendant who was the highest bidder was granted the privilege for vending toddy in Shop No. 20. He had also continued the unauthorized shop in the area of Shop No. 21 and the Ist defendant took no steps to stop the illegal encroachment by defendants 2 and 3. According to the plaintiff, the Ist defendant had refused to perform his obligation under the contract in not having stopped the unauthorized shop and hence the plaintiff is exonerated from liability for payment of any further amounts due under Ext. B2 agreement. There is also a claim for damage Rs. 100/- against the Ist defendant. According to the 1st defendant the plaintiff had no justification to stop the business in Shop No. 21 on 12-12-1967 and refuse payment of the amounts due under Ext. B2 agreement. The plaintiff's liability under Ext. B2 agreement continues even after his abandonment of the shop and merely for the reason of an unauthorized shop said to have been run by defendants 2 and 3 in the area allotted to Shop No. 21, the plaintiff is not exonerated from liability for payment of the balance amount due as per his bid accepted by the Government. The trial court found that Section 39 of the Indian Contract Act has no application to the facts of the case and for the reason of the 2nd and 3rd defendants having run an unauthorized shop in the area allotted to Shop No. 21 the plaintiff cannot absolve himself of his liability under Ext. B2 agreement. The suit was accordingly dismissed. His claim for damages was also found against. In appeal, the lower appellate court found that the 1st defendant having conducted the shop departmentally for the period after 12-12-1967, covered by Ext. B2 agreement, The 1st defendant is not entitled to claim the balance amount due under Ext. B2 agreement from the plaintiff. It is also found that the 1st defendant was under an obligation to see that the unauthorized shop run by defendants 2 and 3 was closed down and the 1st defendant should therefore be held responsible for the loss occasioned to the plaintiff on account of the encroachment by defendants 2 and 3 in the area allotted to Shop No. 21. It was therefore held that the 1st defendant is not entitled to recover the balance amount of Rs. 8,950.00 claimed as per demand notice issued to the plaintiff under the Revenue Recovery Act. On these findings, the lower appellate court granted a decree of injunction restraining the defendant from recovering the sum of Rs. 8,950.00 as per the demand notice issued to the plaintiff. The plaintiffs claim for damages Rs.100/- was negatived confirming the decision of trial court to that extent. Both the courts below have concurrently found that defendants 2 and 3 cannot be made liable for the amounts if any due to the 1st defendant from the plaintiff. It is against this that the 1st defendant has come up in second appeal.

(2.) The main point urged in this second appeal is that the contract between the plaintiff and the 1st defendant should be deemed to have been discharged u/s 39 of the Indian Contract Act. As per Section 39, when a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promises may put an end to the contract, unless he has signified, by words or conduct his acquiescence in its continuance." The only ground on which the plaintiff claims a refusal on the part of the 1st defendant to perform its part of the contract is for the reason of its failure to stop the unauthorized shop of defendants 2 and 3 in the area allotted to Shop No. 21. Ext. B2 agreement between the parties does not contain any such promise by the 1st defendant to stop unauthorized encroachment by third parties. The act of running an unauthorized shop by defendants 2 and 3 does not in any way affect the contract between the plaintiff and the 1st defendant. Whatever may be the obligations of the Government to stop the unauthorized business in liquor in the public interest such an obligation does not form part of the contract between the parties. It is true that defendants 2 and 3 are not entitled to encroach upon the area allotted to Shop No. 21 and any such encroachment may give the plaintiff a cause of action against them. But such encroachment of a third party will not absolve the plaintiff of his liability to the 1st defendant under the contract Ext. B2 The plaintiff is not therefore entitled to treat the contract as discharged u/s 39 of the Indian Contract Act. The main prayer in the suit is "to declare that the 1st defendant is not entitled to recover Rs. 8,950.00 with interest from the plaintiff." It is not disputed before me that the 1st defendant had been running Shop No. 21 departmentally after the plaintiff had stopped the business on 12-12-1967. It is also admitted that the demand notice under the Revenue Recovery Act issued to the plaintiff was for Rs. 8,950.00 to make up the amount for which the plaintiff had bid shop No. 21. The plaintiff can be held liable only for the loss sustained by the Government for his failure to perform his obligations under Ext. B2 agreement. It is the admitted case of both parties in their pleadings that a sum of Rs. 1, 100/- was collected by the Government during the period of departmental management of Shop No. 21 from 13-12-1967 to 31-3-1968. The amount thus realized will be applied in mitigation of damages or loss sustained by the Government. The court below has only granted a decree declaring that the 1st defendant is not entitled to recover the sum of Rs. 8,950/- from the plaintiff, pursuant to the demand notice issued to him. The plaintiff is entitled to the said relief granted by the lower appellate court. But that does not preclude the 1st defendant-State from enforcing its claim against the plaintiff for the loss on account of the breach of Ext. B2 contract sustained by the Government, in accordance with law.