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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4026  OF 2014 [Arising out of Special Leave Petition (Civil) No.12463/2012]

Executive Director,  Steel Authority of India & Ors. … Appellants

vs.

Tycoon Traders & Ors. …  Respondents

J U D G M E N T

Pinaki Chandra Ghose, J.

1. Leave granted.

2. This appeal has been filed against the order dated February  

21,  2012  passed  by  the  High  Court  of  Karnataka  in  W.P.  

No.38280/2011.

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3. The facts of the case reveal that on February 19, 2007, Steel  

Authority of India (for short ‘SAIL’) had advertised for E-auction of  

1.00  lakh  metric  tons  of  iron  ore  (fines)  from  Kemmanagundi  

mines. On March 13, 2007, auction was held and respondent No.1  

was declared as the successful tenderer. It would be evident from  

the sale order dated March 16, 2007 that the price was agreed  

upon at  1,132/- per metric ton plus VAT of 4% aggregating to  

11,32,00,000/- plus VAT of 4%.  The appellant duly paid  176  

lakhs being 15% of the total sale value on March 15, 2007. Out of  

the said amount,  58.86 lakhs being 5% of the total sale value  

was retained as Security Deposit and a sum of 117.74 lakhs was  

kept for adjustment along with the final instalment. The balance  

payment was to be made in two monthly instalments with the  

grace period of 30 days with interest at the rate of 6% per annum.  

The entire material was to be lifted within four months from the  

date of the sale order.

4. On May 26,  2010,  SAIL  informed the respondent  that  the  

contract  was  revalidated  by  letter  dated  July  27,  2009  till  

November 26, 2009 for a period of four months commencing from

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July 27, 2009 and that the said contract had expired on the lapse  

of the said period. It is also not in dispute that on November 9,  

2009,  SAIL  had  addressed  a  letter  to  the  Principal  Chief  

Conservator  of  Forests  (Wildlife)  and  Chief  Wildlife  Warden,  

Karnataka,  for  renewal  of  permission  granted  for  lifting  and  

transporting iron ore fines through Bhadra Wildlife Sanctuary. The  

Principal Chief Conservator of Forests by letter dated March 31,  

2010, declined to grant such permission for the removal of 1.00  

lakh  tons  of  iron  ore  fines  by  plying  vehicles.  In  these  

circumstances, the High Court held that the contract itself stood  

frustrated and could not have been performed by the respondent  

even  if  it  desired  to  do  so,  and  further  held  that  in  case  of  

frustrated  contract,  parties  must  be  restored  to  their  original  

position.  

5. On the basis of the aforesaid reason, the High Court held  

that it  is  illegal  and unconscionable for  SAIL not to  refund the  

entire sum of money received by it from the respondent. The High  

Court further held that the extension was granted at the instance  

of  SAIL  and such  extension amounts  to  waiver  of  the delivery

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conditions in the sale order dated March 16, 2007. The High Court  

further held that the Bhadra Wildlife Sanctuary has been declared  

as a ‘Tiger Reserve’ and that it is required to be maintained as  

‘inviolate’ for tiger population, and the permission which has been  

refused cannot be granted in view of section 38(v) of the Wildlife  

(Protection) Act, 1972 as amended in 2006. In this background,  

the writ petition was allowed and SAIL was directed to refund the  

entire amount within four weeks from the date of the order.

6. Being  aggrieved,  the  appellant  filed  the  present  appeal  

before this Court. It was contended before us that this is a case  

where there was a breach of contract which was committed by  

the respondent and thereby SAIL has a right to forfeit the earnest  

money and security deposit on the basis of such breach. It is also  

stated whether  it  would come within the purview of  a  case of  

frustration  of  the  contract.  Dr.  Rajiv  Dhawan,  learned  senior  

counsel  appearing in  support  of  the appellants,  has drawn our  

attention to the original agreement and contended that there was  

a  breach  of  the  original  agreement  since  no  clearances  were  

obtained, payments were not made and further contract was not

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completed.  It  has  been  further  submitted  that  the  respondent  

could not lift the iron ore fines although SAIL could manage to get  

permission  from the  State  Government.  Furthermore,  it  is  the  

case of the appellant that in the light of the respondent’s request,  

the contract was revalidated on July 27, 2009 on the same terms  

and conditions and, in fact, there was no waiver of any conditions  

stipulated in the sale order dated March 16 2007; therefore, on  

this question the High Court is not correct since, according to him,  

there was no question of any waiver. He further submitted that  

there was no frustration due to impossibility because the Principal  

Chief Conservator of Forests had granted clearance.

7. Per  contra,  Mr.  Sushil  Kumar  Jain,  learned  senior  counsel  

appearing on behalf of the respondent, drew our attention to the  

letter  dated  March  31,  2010  whereby  the  Principal  Chief  

Conservator  of  Forests  (Wildlife)  &  Chief  Wildlife  Warden,  

Bangalore,  has  specifically  stated  to  the  General  Manager  

(Operations) of the appellant that Bhadra Wildlife Sanctuary was  

declared as a Tiger Reserve and was required to be maintained as  

‘inviolate’  for  tiger  population,  hence,  refused  to  allow  the

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transportation through the said Tiger Reserve under Section 38(v)  

of the Wildlife (Protection) Act, 1972 as amended in 2006. By the  

said letter, the request to lift and transport the iron ore fines was  

rejected. Therefore, the contract which was entered into between  

the parties, as would be evident, is in violation of the said Act and  

is  against  public  policy.  Hence,  the  contract  cannot  be  given  

effect to as the contract is already frustrated. He also drew our  

attention to the fact that the appellant by a fax message dated  

July 6, 2007 duly relaxed condition Nos.8, 9 and 10 as stipulated  

in the G.O. dated 2nd May, 2007. Learned senior counsel further  

contended that by relaxing the said conditions, there was no need  

for the respondent to obtain permission. On the contrary it was  

the duty of the appellant to take permission from the authority for  

implementation of such contract.  

8. After  considering  the  submissions  made  on  behalf  of  the  

parties, we find that there is substance to accept the contentions  

of Mr. Jain, learned senior counsel in the matter. In our opinion,  

the contract is unenforceable and further, the contract is also hit  

by Section 38(v) of the Wildlife (Protection) Act, 1972 as amended

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in 2006. Therefore, the object of the contract is forbidden by law.  

Hence, the said contract is unlawful and cannot be given effect to.  

In these circumstances, we do not accept the contention of Dr.  

Dhawan, appearing on behalf of the appellants.  

9. Accordingly, we hold the High Court was correct in allowing  

the writ petition, and we do not find any reason to interfere with  

the said order of the High Court. Hence, we do not find any merit  

in the appeal, and the same is dismissed.

…....……………………..J. (Gyan Sudha Misra)

New Delhi;                                         ......... …………………….J. March 26, 2014.                         (Pinaki  Chandra  Ghose)