Case: State Of Kerala Vs. Cochin Chemical Refineries Ltd

1. On October 9, 1950, a deed styled an "indenture of mortgage" was executed by the Cochin Chemicals and Refineries Ltd. - hereinafter called the Company, and N. C. John, a Director of the Company, in favour of the State of Travancore-Cochin. The relevant terms of the indenture were :"In consideration of the sum of Rupees 2.5 lakhs (2,50,000) borrowed by the mortgagor No. 1 from the mortgagee (the receipt of which sum mortgagor No. 1 cloth hereby admit and acknowledge) mortgagor No. 1 hereby covenants with the mortgagee us follows :"(a) That the mortgagor No. 1 shall supply to the mortgagee 3,000 tons of ground-nut cake at the rate of 600 tons per month within a period of five months commencing with the first day of November 1950 and ending with the last day of March 1951(b) That the account for the groundnut cakes supplied by mortgagor No. 1 to the mortgagee will be settled and adjusted against the loan amount of Rs. 2.5 lakhs and interest thereon at 41/2 per cent per annum at the end of March 1951, the groundnut cakes supplied being valued at the average price fixed by the Government during the period for purchases from other sources. If on such adjustment any amount is found due to the mortgagor No. 1 the same will be paid by the mortgagee. If however it is found that the price of the groundout cakes supplied is not sufficient to make up the loan amount with the interest thereon, mortgagor No. 1 shall pay the deficit amount to the mortgagee immediately after the settlement of account(c) That mortgagor No. 1 shall deliver the groundout cakes at any depot in the Travancore-Cochin State as may from time to time be required by the Director of Agriculture from the mortgagee free of transport charges."II. "For the consideration aforesaid the mortgagor No. 1 hereby transfers by way of simple mortgage to the mortgagee" all the assets described in Sch. I, and mortgagor No. 2 hereby transfers by way of simple mortgage to the mortgagee" the assets described in Sch. II, "to the intent that the said premises shall remain and be charged as security for the payment to the mortgagee of the said principal money, interest and costs in accordance with the covenants hereinbefore contained."III. "The mortgagors hereby covenant with the mortgagee as follows :-* * * * *"The indenture was executed by the Company and N. C. John and also by the Secretary to the Government of Travancore-Cochin on behalf of His Highness the Rajpramukh. A supplementary deed was executed on November 7, 1950, whereby it was agreed that without prejudice to the right to recover the amount secured or any portion thereof as stipulated, it shall also be recoverable under the Revenue Recovery Act for the time being in force or in other manner as the mortgagee may deem fit2. It is common ground that the amount acknowledged in the indenture was not advanced at the date of the indenture and was never advanced thereafter. The Company arranged for the supply of goods agreed to be sold under the terms of paragraph I (a) and wrote from time to time letters to the appropriate officers of the State asking them to give instructions about the depots where the supplies were to be made. In reply to the letter Ext. H. the Assistant Director of Agriculture by Ext. M dated January 3, 1951, replied that:"I write to invite your attention to my letter of even No, dated 12-12-1950 and to inform you that I shall be placing orders for the supply of groundnut cake as soon as I get orders from Government providing the necessary funds for paying you the advance of Rs. 21/2 lakhs."No instructions for supply were however given to the Company to supply the goods agreed to be purchased by the State. The Company instituted on March 9, 1953, an action against the State of Travancore-Cochin for a decree for Rs. 3,600 being damages for failure to advance the loan of Rs. 2,50,000, and Rs. 1,68,600 as damages for breach of contract to purchase 3,000 tons of groundnut cake under the indenture. The Trial Court decreed the suit for Rs. 3,600 being damages for failure to advance the loan, and for Rs. 1,23,000 being damages for breech of contract to purchase groundnut cake. In appeal to the High Court the liability of the State to Compensate the Company for failure to take delivery of the goods offered to be delivered alone was challenged. The High Court confirmed the decree passed by the Trial Court negativing the contention raised on behalf of the State that the obligation to take delivery of the goods agreed to be purchased was contingent on the Governments advancing Rs. 2,50,000. The State has appealed to this Court with special leave.

Court's reasoning:
4. The indenture incorporates two transactions: (l) a mortgage in favour of the State by the Company and N. C. John charging properties belonging to the two mortgagors for repayment of Rs. 2,50,000 and (2) the Company agreeing to sell and the State agreeing to purchase 3,000 tons of groundnut cake at the rate of 600 tons per month for five months to be supplied at any of the depots in the Travancore-Cochin State as may from time to time be designated by the Director of Agriculture. The indenture expressly recited that the amount of Rs.2,50,000 was advanced to the Company, but the supplementary deed dated November 7, 1950, and the correspondence make it clear that though the money was recited to have been actually advanced, it was not in fact advanced, but it was intended by the State Government to advance it. For some reason which it is difficult to ascertain from the record, the State Government did not carry out its obligation to advance the money, after obtaining the indenture and the supplementary deed from the Company and its Director. But even as late as January 3, 1951, as is clear from Ext. M-the Assistant Director of Agriculture reiterated the promise that the money will be advanced and delivery of goods offered by the Company will be accepted7. Nor is there any substance in the second contention that the State was by its default liable to compensate the Company only for loss arising out of its failure to advance the money, and not out of its failure to purchase the goods. The State had undertaken to advance Rs. 2,50,000 to the Company. It had also undertaken to take delivery of 3,000 tons of groundnut cake offered by the Company under the terms of contract of sale.These were two independent, though inter-related transactions, and by committing a breach of its own obligation to advance the sum of Rs. 2,50,000 the State did not absolve itself from liability for the breach arising from the refusal to take delivery of the goods offered.The cause of action arising out of the refusal to take delivery of the goods offered was independent cause of action arising out of the breach committed by the State in not advancing the loan. The two causes of action were cumulative and not alternative. There is therefore no warrant for the plea that by claiming damages for loss suffered by it as a result of the failure to advance the loan. the Company elected to give up its claim for damages for breach of the contract to take delivery of 3,000 tons of groundnut cake by the State.