*THE HON’BLE SRI JUSTICE C.V. NAGARJUNA REDDY +WRIT PETITION No. 1040 of 2003 % Dated: 02-09-2008 # Alluri Narayana Murthy Raju. Petitioner VERSUS $ The District Collector, Visakhapatnam District, Visakhapatnam & others. Respondents ! Counsel for Petitioner : Mr. M. Bhaskara Lakshmi ^Counsel for the Respondents: GP for Panchayat Raj. <GIST: > HEAD NOTE: ? Cases referred 1. AIR 1954 SC 44 2. AIR 1969 SC 110 3. AIR 1968 SC 522 4. (2004) 3 SCC 381 5. 2005 (4) ALT 79 IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE SECOND DAY OF SEPTEMBER, TWO THOUSAND EIGHT ONLY PRESENT: THE HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY WRIT PETITION No.1040 of 2003 Between: Alluri Narayana Murthy Raju … Petitioner AND The District Collector, Visakhapatnam District, Visakhapatnam & others. … Respondents Counsel for the petitioner : Smt. M. Bhaskara Lakshmi Counsel for the respondents: GP for Panchayat Raj This Court made the following: THE HON’BLE SRI JUSTICE C.V.NAGARJUNA REDDY WRIT PETITION No.1040 of 2003 ORDER:- This writ petition is ﬁled for a writ of Mandamus to declare the inaction on the part of the respondents in enabling the petitioner to lift sand during the lease period from 28.04.2000 to 27.04.2001 and also during the extended lease period from 28.04.2001 to 27.04.2002, as illegal. The petitioner sought for a consequential direction to respondent No.2 to refund the bid amount of Rs.8,35,000/- together with interest. The facts of the case are stated as under: In pursuance of the notiﬁcation issued by respondent No.2 on 23.12.2000 calling for tenders for auctioning the right to quarry the sand in Gostani river in Maddi Gram Panchayat, Padmanabham Mandal, Visakhapatnam District, the petitioner made his application by paying necessary E.M.D. Respondent No.2 conducted auction on 10.04.2000 and the petitioner emerged as the highest bidder. The contract was awarded to the petitioner for Rs.8,35,000/- per year under proceedings dated 22.04.2000. The period of contract was of two years commencing from 28.04.2000 to 27.04.2001 and 28.04.2001 to 27.04.2002. The petitioner’s woes started with the award of contract as the residents of Maddi village prevented him from carrying on quarry operations on the ground that it will lead to depletion of the ground water aﬀecting the irrigation channels. Consequently, the petitioner approached respondent No.2 with a request to extend the lease period by one more year without having to pay further lease amount. The representation having been forwarded by respondent No.2 to the District Level Sand Auction Committee, the said Committee in its meeting held on 31.05.2001 extended the lease period from 29.04.2001 to 28.04.2002. Respondent No.2 issued formal proceedings dated 10.06.2001 to this effect. As the resistance of the villagers against lifting of sand by the petitioner continued even during the extended lease period, the petitioner approached respondent No.2, who in turn referred the matter to the Irrigation and Ground Water Departments to examine the grievance of the villagers and send a report. After due veriﬁcation, they sent a report to respondent No.1, wherein it was mentioned that there was no harm to the irrigation structures and also to the ground water level, if sand is quarried. On receipt of the said report, respondent No.1 vide his letter dated 10.12.2001 requested the Superintendent of Police, Visakhapatnam, to provide necessary police aid to the petitioner to quarry the sand and when the petitioner started sand quarrying, he again faced stiﬀ resistance from the villagers forcing him to ﬁle complaint to the police, who registered the same as Crime No.68 of 2001 of Padmanabham Police Station. On information given by the Inspector of Police, Bheemunipatnam, respondent No.5 initiated proceedings dated 24.12.2001 under Section 144 Cr.P.C. Despite the said measures, the villagers did not permit the petitioner to lift the sand. He then ﬁled O.S.No.192 of 2000 for permanent injunction against the villagers of Maddi village and the civil Court granted ad-interim injunction in I.A.No.870 of 2000. Despite the said injunction order, the petitioner was not permitted to quarry the sand. The petitioner through his representation dated 06.02.2002 requested respondent No.2 either to issue necessary direction for providing police aid or in the alternative to extend the lease period for another year from 28.04.2002. As there is no response to the said representation, the petitioner ﬁled WP.No.3640 of 2002 in this Court. While disposing of the said writ petition at the admission stage, this Court directed respondent Nos.2 and 6 to consider and dispose of representations dated 25.01.2002 and 06.02.2002 of the petitioner. In compliance with the said direction of this Court, respondent No.6 instructed Inspector of Police, Bheemunipatnam, on 22.03.2002 to provide suﬃcient police protection for the next ten days to enable the petitioner to lift the sand. The petitioner speciﬁcally averred in his aﬃdavit that despite the said instructions, suﬃcient police protection was not provided, disabling him from lifting the sand. As the lease period expired on 28.04.2002, the petitioner vide his representation dated 05.08.2002 made to respondent Nos.1 to 5 requested them to return the bid amount of Rs.8,35,000/- deposited by him, but no action was taken on the said representation. The petitioner again made another representation on 27.08.2002 to respondent No.2 with copies marked to all other respondents to consider his request for refund of the bid amount. As the respondents have not taken any action thereon, the petitioner filed the present writ petition. In the counter-aﬃdavit ﬁled by respondent No.4, the abovementioned facts have not been disputed. It is averred by him that in his letter dated 17.03.2008 addressed by the Circle Inspector of Police, Bheemunipatnam, he mentioned that the Sub-Inspector of Anandapuram and his staﬀ went to Maddi Village and performed Bandobast duty at the sand quarry on 20.12.2001 up to 24.12.2001, that the sand quarry at Maddi village was de-notiﬁed by respondent No.1 in his proceedings dated 21.10.2003 as per G.O.Ms.No.224 Panchayat Raj and Rural Development (Rules-IV) Department dated 15.06.2002 and that the Executive Engineer, Irrigation and CAD, Visakhapatnam, vide his letter dated 25.06.2002 informed respondent No.4 that quarrying of sand at Maddi village is not advisable as the same may endanger the structures. It is averred that in view of the said report, the request made by the petitioner on 06.02.2002, 30.03.2002 and 23.04.2002 for extension of lease for one more year could not be considered. He further stated that the petitioner never represented for refund of amount deposited by him. He also stated that though police protection was provided from 21.12.2001 to 24.12.2001 and orders under Section 144 Cr.P.C. were promulgated, the way bills supplied to the petitioner were turned unutilized. It is pleaded that there was no mistake or inaction on the part of the respondents in the petitioner not operating the sand mine during the lease period and hence, the petitioner is not entitled to refund of the amount. At the hearing, Smt. M. Bhaskara Lakshmi, learned counsel for the petitioner submitted that the right of the petitioner for lifting of the sand is the consideration for payment of the bid amount of Rs.8.35,000/-, that the petitioner’s plea that he could not lift the sand during the entire lease period has not been denied and that resistance by the villagers to the sand quarrying by the petitioner is an un-contemplated event which frustrated the contract. She therefore submitted that the petitioner is entitled to refund of the lease amount along with interest. Learned Assistant Government Pleader for Panchayat Raj, while resisting the said contention of the learned counsel for the petitioner, submitted that the respondents provided all possible assistance to the petitioner and therefore the State is not liable to refund the lease amount as there is no fault on its part in the petitioner not being able to lift the sand. The grant of leasehold rights for mining of sand at river beds is governed by statutory rules called Andhra Pradesh Panchayat Raj (Auction of sand in the water courses vesting in Gram Panchayat) Rules, 2000 (for short, ‘the Rules’). The Rules inter alia provide for the successful bidder in whose favour lease is granted entering into an agreement for mining of sand. The Rules contemplate various terms subject to which the lessee shall carry on sand mining. Thus, undoubtedly, the relationship between the lessee and the State is contractual. Since the terms of contract emanate from the statute, the contract is statutory in nature. Consequently, the parties are governed by the Indian Contract Act, 1872 (for short, ‘the Act’) and the Rules under which contract is entered into. The important question that requires consideration is whether the contract between the petitioner and the State got frustrated. To consider this question, it is necessary to consider the relevant provisions of the Rules and Sections 32 and 56 of the Act. Rule 2 vests right in all the Gram Panchayats to conduct auction in potential sand bearing areas within their jurisdiction as mentioned in caluses (a) to (c). Rule 3(2) envisages that sale of sand shall be on the basis of auction-cum-tender system. Under Rule 4, the Executive Authority shall consult the Gram Panchayat and the Assistant Director of Mines and Geology having jurisdiction to identify the potential independent sources of sand for auction, assess the quantity of the sand that can be obtained during the lease period, its market value and minimum upset price. Rule 5 enumerated precautions to be taken in auctioning the leasehold rights of sand mining. Under Rule 7, the District Committee is made responsible to deal with all the matters pertaining to auctioning of the sand and other matters relating thereto. Rule 8 provided for publication of notice of auction-cum-sale and the manner thereof. Under Rule 11, the duration of the lease is ﬁxed as two years commencing from the 1st October to 30th September of the year. Rules 11 to 18 prescribed procedure for conducting auction. Under Rule 19(a), the successful tenderer shall enter into agreement within ﬁve days after conﬁrmation of the sale. Under clause (b), the lessee shall pay the balance amount of 75% within one week from the date of entering into the agreement and under clause (c) in the event of default by the ﬁrst successful tenderer in payment of 25% of the knocked down amount or the 75% of knocked down amount within the time mentioned in the conﬁrmation order or in completing the formalities of executing the agreement, the competent authority may issue conﬁrmation order in favour of second and subsequent highest bidders in descending order. Rule 20 provided for some of the precautions to be incorporated in the agreement to be entered into with the successful tenderer. Under Rule 26, the District Level Committee shall be competent to issue orders of stopping the lifting of sand after giving due opportunity to the successful bidder, if he violates any condition of the auction or is lifting the sand against the provisions of the Andhra Pradesh (Andhra Area)/Rivers Conservancy Act, 1884. Sections 32 and 56 of the Act, which are very material for the present purpose, read as under: “32. Enforcement of contracts contingent on an event happening:- Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts becomes void. 56. Agreement to do impossible Act: An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful: A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promissor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. Compensation for loss through non- performance of act known to be impossible or unlawful: Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promissor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.” Section 56, which is reproduced hereinabove, exhaustively dealt with the doctrine of frustration. It contains three limbs. Under the ﬁrst limb, it declared an agreement to do an act impossible in itself as void. Under the second limb, it renders the contract void on account of subsequent events which the promissee could not prevent rendering the performance of contract either impossible or unlawful. Under the third limb, the promissor is fastened with the liability of payment of compensation to the promisee for the loss suﬀered by him, if the promissor knew or with reasonable diligence he might have known which the promisee did not know that performance of the contract would be impossible or unlawful. In Satyabrata Ghose vs. Mugneeram Bangur and Company[1] the Supreme Court observed that the diﬀerent legal theories formulated in England on this doctrine do not concern Indian cases because of the statutory provisions in the Indian Contract Act, 1872. It further held that where the Court gathers as a matter of construction that contract itself contains impliedly or expressly, a term according to which it will stand discharged on the happening of certain circumstances, the dissolution of the contract will take place under the terms of the contract itself and such cases would be outside the purview of Section 56 altogether. While the entire ﬁeld of the rule of frustration under the implied term comes within the provisions of Section 32, the relief is given by the Court on the ground of subsequent impossibility under Section 56 when it ﬁnds that the whole performance or basis of the contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances, which were beyond what was contemplated by the parties at the time when they entered into the agreement. I n Boothalinga Agencies vs. V.T.C. Poriaswami Nadar[2] the Supreme Court held that Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties. In Naihati Jute Mills Limited vs. Khyaliram Jagannath[3] the Supreme Court held that whether a contract has become impossible of performance would be inferred by the Courts from the nature of the contract and the surrounding circumstances in which it was made. In the case on hand, neither the petitioner nor the respondents have placed before me the terms of the contract. It is not pleaded by either of the parties that the contract contains any clause, which either expressly or by necessary implication provides that the performance will be subject to the happening of an event. Therefore, the question, whether the contract is frustrated under the terms of the contract, does not arise in this case. The petitioner pleaded frustration on account of the events that have taken place subsequent to entering into the contract, which, according to him, are beyond his control and have rendered performance of contract impossible. The fact that the villagers prevented the petitioner from lifting the sand is neither disputed nor denied by the respondents. The fact of the matter is that having considered the representation of the petitioner, the Sand Auction Committee in its meeting held on 31.05.2001 extended the initial lease period of one year by one more year up to 28.04.2002 and a formal proceedings to that eﬀect was issued on 10.06.2001. As the resistance of the villagers continued unabated, the petitioner gave a criminal complaint to the police, which registered a crime. As the villagers were undeterred even by the registration of the criminal case, the petitioner was constrained to ﬁle a civil suit for permanent injunction and was able to persuade the civil Court to grant an ad-interim injunction. Even as the said injunction order could not enable the petitioner to execute the contract, he approached this Court by way of a writ petition to sensitize the respondents to act on his representations. Eventually, even according to the respondents, police aid was given for a period of ﬁve days from 20.12.2001 to 24.12.2001 and from the admission made by respondent No.4, way bills even for those ﬁve days were returned unutilized by the petitioner, which shows that sand could not be lifted by the petitioner even for those five days. From these uncontroverted facts, the conclusion is inevitable that on account of the events that have taken place subsequent to entering into the contract, which were beyond the contemplation and control of the parties to the contract, performance of contract has become impossible. Therefore, the second limb of Section 56 is squarely attracted to this case and thus the doctrine of frustration envisaged by the said provision applies in all fours to the contract entered into by the petitioner with respondent No.3. By reason of frustration of contract, the respondents are not entitled to retain the sum of Rs.8.35,000/-, which is the consideration paid by the petitioner for lifting the sand. The petitioner is therefore entitled to the refund of the said amount. Though the learned counsel for the petitioner cited the judgment of the Supreme Court in Jai Durga Finvest (P) Limited vs. State of Haryana and others[4], I do not ﬁnd its relevancy to the facts of this case, because in the said case, the Supreme Court, on construction of the contract between the parties therein, observed that the High Court failed to consider the eﬀect of the obligation cast on the State under clause 27 of the agreement in rendering assistance to the other party to the contract and in view of the same, the case was remanded to the High Court to consider whether on account of non-performance of the obligation of the State, the doctrine of frustration can be invoked or not. The judgment cited by the learned counsel for the petitioner in Pallava Granite Industries India Private Limited vs. Andhra Pradesh Mineral Development Corporation Limited, rep., by its Chairman-cum-Managing Director[5] turned on its own facts. Finally the question remains is that whether the petitioner is entitled to payment of interest? Award of interest for the period up to the institution of proceedings is governed by the provisions of the Interest Act, 1978. Section 3 (1) of the said Act reads as follows: “3. Power of Court to allow interest:- (1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the Court may, if it thinks ﬁt, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say, - (a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings; (b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings: Provided that where the amount of the debt or damages has been repaid before the institution of the proceedings, interest shall not be allowed under this Section for the period after such repayment.” Clause (a) of Section 3, reproduced above, has no application because, the amount is not payable under any instrument and at a certain time. As regards clause (b), by representation dated 05.08.2002 sent to respondent Nos.1 to 5, the petitioner demanded return of the sum of Rs.8,35,000/-. It is signiﬁcant to note that he has not claimed interest on the said amount. Ordinarily, the petitioner is not entitled to the refund of the amount paid by him. The right of the petitioner to the refund of the lease amount paid by him was solely dependent upon the adjudication of the issue whether the frustration of contract has taken place or not. As this issue has been adjudicated for the ﬁrst time by this Court in this judgment, it cannot be said that the sum of Rs.8,35,000/- fell due for payment by the respondents to the petitioner at any time anterior to disposal of this writ petition. Therefore, the question of payment of interest up to the date of disposal of the writ petition does not arise. It is not the pleaded case of the petitioner that interest is claimed as a measure for damages. Even assuming so, unless the petitioner raises a proper pleading and prove that the respondents had within their knowledge at the time of entering into the contract that either the contract was not capable of performance or was unlawful, he cannot claim any compensation under the third limb of Section 56 of the Act. Therefore, no interest to compensate the petitioner for the alleged loss sustained by him can be allowed. For the reasons aforementioned, the writ petition is partly allowed. Respondent Nos.1 to 5 are directed to refund the amount of Rs.8,35,000/- to the petitioner within a period of one month from today, failing which they are liable to pay interest @ 18% per annum after the expiry of one month till the date of payment. ____________________________ C.V.NAGARJUNA REDDY, J Date: 02.09.2008 ES Issue CC in one week. B/o. ES LR copies to be marked. [1] AIR 1954 SC 44 [2] AIR 1969 SC 110 [3] AIR 1968 SC 522 [4] (2004) 3 SCC 381 [5] 2005 (4) ALT 79