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Civil Appeal No. 51‑D of 1965, decided on 30th October 1967.
(On appeal from the judgment and order of the High Court of East Pakistan, Dacca, dated the 15th February 1963, in Appeal from Original Decree No. 82 of 1957).
S. 73‑Breach of contract Damages‑Contract with respect to commodities to be imported under U. S. Economic Aid‑Under notification issued by Government such contract deemed finalised only when prices approvers' by Director‑General of Supply and Development‑F holding import licence of value of Rs. 22,000 making offer to purchase certain type of cotton threads for Rs. 21.999 from C‑C or: 27‑7‑1955 accepting order and asking E to obtain Textile Commissioner's approval to the prices as required by law‑Pakistan currency, meanwhile, devalued on 1‑8‑1955 and C demanding Rs. 31,350 as purchase price in accordance with new rupee vale‑E refusing to pay enhanced value and filing suit for damages on account of breach of contract claiming that contract stood concluded on 27‑7‑1955 and contract price remained unaffected on devaluation on 1‑8‑1955 Held : Claim was untenable ; contract was to be finalised only on prices being approved by Textile Commissioner in accordance with law ; price quoted by C having been withdrawn on devaluation even subsequent approval of original price by Textile Commissioner did not revive contract.
Ghulam Hafiz, Senior Advocate Supreme court (K. M. Subhan, Advocate Supreme Court with him) instructed by Huq Rab & Co., Attorneys for Appellant.
Akhtaruddin Ahmad, Advocate Supreme Court instructed by S. S. Hoda, Attorney for Respondent.
Date of hearing : 30th October 1967.
This appeal, by special leave, arises out of a suit brought by the plaintiff‑appellant Messrs Ebram Corporation for recovery of Rs. 11,695 as damages for breach of a contract by the respondents, the Central Agency Ltd. The suit was dismissed by the Subordinate Judge, 3rd Court Dacca, and the judgment and decree passed by him were affirmed on appeal by the High Court of East Pakistan.
The case of the plaintiff Messrs Ebram Corporation hereinafter referred to as the Corporation was that they made an offer for purchase of certain type of cotton thread for Rs. 21,999‑7‑0 from the defendants, the Central Agency Ltd., hereinafter referred to as the Company and the said offer was accepted by them on certain terms and conditions. The Corporation complied with the preliminary condition of the contract by obtaining the Textile Commissioner's approval and were ready to perform their part of the contract but the defendants wrongfully refused to supply the goods contracted for on the, plea of devaluation of Pakistan currency. As a result of the breach of the contract, the plaintiff suffered a loss to the extent of Rs. 11,695. They, therefore, filed a suit for recovery of the said amount.
The defendant‑company contested the suit on the grounds, inter alia, that there was no concluded contract between the parties and that even if there was such a contract it being against law and public policy, was void under sections 23 and 24 of the Contract Act.
The Subordinate Judge found in favour of the defendants as below :‑
(1) the contract was not a concluded agreement and therefore not binding; and
(2) even assuming, but not accepting, that it was a concluded agreement, to enforce it involved violation of law, and was against public policy.
He, therefore, dismissed the suit with costs.
The plaintiff appealed to the High Court where a Division Bench came to the following conclusion :‑
(1) "there was no concluded contract, but it was in the negotiation stage;
(2) the Textile Commissioner's instruction showed that "the parties were permitted not to enter into a concluded contract but only to come to a provisional contract which might be rejected by the Textile Commissioner";
(3) "in no circumstances it can be held that there was contingent contract" because by definition, in section 31, Contract Act, "it is crystal clear that the contract that has been entered into must be a concluded one, but that contract cannot be given effect to unless certain contingency happens or does not happen, the contingency being such which is nothing but collateral to the concluded contract itself; and
(4) in view. of the instruction issued by the Textile Commissioner, "the parties were entitled to enter, not into a concluded contract, but only into a provisional contract", and therefore assuming, without holding, that there was a concluded contract, "it must be held that it violated the provision of law and was against public policy."
The learned Judges of the High Court therefore upheld the judgment and decree of the Subordinate Judge and dismissed the appeal.
In order to appreciate the contentions raised by the learned counsel for the parties it will be necessary to refer to certain Government notifications as well as to the correspondence between the parties.
On 31st January 1955, the Chief Controller of Imports and Exports, issued a public notice that certain articles including cotton thread will be imported, either partially or wholly, against aid offered by the United States of America and "that importers will have to pay the value of the goods in rupees in the special accounts opened for the purpose by the State Bank of Pakistan".
On 27th May 1955 another Public Notice No. 35(55)/1 was issued by the Chief Controller in these terms :‑
"Subject : Pre check of prices of commodities to be imported under U. S. Economic Aid.
Attention of holders of sub‑authorisation for imports under U. S. Economic Aid is drawn to paragraph (19) of this office Public Notice No. 7(55)/1, dated 31st January 1955. They are directed not. to finalise contracts or to open letters of credit until purchase prices have been checked and approved by the Director‑General of Supply and Development. This will not apply to contracts finalised and letters of credit opened prior to the issue of this Public Notice.
2. Applications for approval of prices are to be made to the Director‑General of Supply and Development (Price Check Unit), Government of Pakistan, Karachi."
On 29th June 1955, another Press note was issued
"All holders of sub‑authorisations for cotton textiles throughout Pakistan are directed to submit their provisional contracts to the Textile Commissioner within three weeks of the issue of sub‑authorisations. The provisional contracts should be sent in sealed covers super scribed Cloth/Yarn/ Thread (as the case may be) under American Aid', should be accompanied by samples of the material offered and should contain the following particulars for each item:".
On 5th July 1955, the Karachi Chambers of Commerce circulated the above Press note to its members.
The plaintiff‑Corporation who held an import licence of the value of Rs. 22,000 addressed the following letter to the Company on 27‑7‑55:
"We confirm our Indent as under‑noted:
Art. 7186‑14 oz. Alexanders Balltbread Wht. 90 ‑ 566 packets
160 ‑ 1,075 "
Art. 343‑6/1000 Fancy Ticket Cops Wht. 10 ‑ 13 3 gross
Art. 320‑6/500 Gold Chain Cops Wht. 10 ‑ 18 "
Art. V 160‑3/300 Krishna Glace Wht. 6 ‑ 37 6
Quantities may be adjusted as total C & F Value must not excee ' Rs. 22,000.
P. A. No. 15 ‑ 05
Against Import Licence No. S C A 000463 valid for U. K.
only.
Licence expires: 15th November 1955.
Shipment: To Chittagong, despatch to be
effected soonest before 15th
November 1955.
Payment By irrevocable Letter of Credit
with the Westminster Bank Ltd.,
London in favour of the
Central Agency Ltd., Glasgow.
Insurance: Will be arranged locally in
Pakistan by me/us."
On 27‑7‑55, the Company replied as follows :‑
"On behalf of our Principals, the Central Agency Ltd., Glasgow, we are very pleased to accept your order for quantities of Cotton Thread against the above Sub‑Authorisa tion.
We enclose pro forma Invoice for Rs. 21,999‑7‑0 covering the goods you wish to import and as soon as you are able to advise us of the Textile Commissioner's approval to the prices shown your Indent will be passed to our Principals.
We have received their assurance that preparation of the goods will be taken up immediately and despatch arranged by the earliest possible steamer before the expiry of your Sub Authorisation, on 15th November 1955.
We are also empowered by our Principals to confirm the prices quoted on the pro forma Invoice are the actual sale prices of the goods concerned and do not contain any element of hidden commission."
Along with the letter they sent a pro forma Invoice of goods. On the same day they sent another letter to the corporation stating
"In accordance with regulations covering the F. O. A. licence you have received for Cotton Thread, you are required to submit certain information to the Textile Commissioner, Karachi. We, therefore, enclose
(a) Letter of Acceptance of your order on behalf of our principals in duplicate.
(b) Pro forma Invoice 5 copies..
The original of the letter of acceptance and four copies of pro forma invoices should be sent immediately in a registered cover to Karachi and to assist you an addressed envelope is enclosed which may be used for this purpose.
The pro forma Invoices will be examined by the Textile Commissioner and two copies returned to you when the prices have been approved. When these are received back please let us know immediately so that the manufacturers can be instructed to prepare and ship your goods as quickly as possible. The returned pro forma will also require to be produced to your bankers to enable them to open a Rupee Letter of Credit details of which may please also be advised to as immediately.
On the pro forma invoices ‑you will observe a reference to a letter of our Karachi Office to the Textile Commissioner. We would explain that arrangements have been made by us to provide certain information regarding Trade Marks, Yardages, etc. and samples which should be supplied by each licence holder. This special information has been given by us so that there is no need for you to take any further action other than to submit pro formas and Letter of Acceptance as explained above."
On the same day, that is, on 27‑7‑55,' the Corporation addressed the following letter to the Textile Commissioner :‑
"We are enclosing herewith original letter of even date with 4 copies of pro forma invoice from the Central Agency Limited, Dacca, addressed to us regarding an indent for cotton thread that we have placed with them. The indent is under American Aid Sub‑authorisation Licence No. S C A 000463 for Rs. 22,000 that has been issued to us.
We shall be obliged if you will. kindly approve the prices and return 2 copies of the pro forma invoice to us at your earliest convenience, so that we can undertake further arrangements for the import."
Pakistan currency was devalued on 1st August 1955. On 3rd August 1955, the Company wrote to the Corporation
"You will appreciate that the devaluation of the Pakistan Rupee will probably affect the order you have placed with us against your American Aid licence. At the moment we are unable to say if your indent will require to be amended but as soon as we have information on this point we shall advise you immediately.
We are in communication with both our U. K. Principals and the authorities in Karachi, the latter in connection with the extension of time to submit provisional contracts and we have been assured that a further period will be granted and announced in a Public Notice in due course."
On 12th August, the Corporation wrote to .the Textile Commis sioner :‑
"Will you kindly refer to our letter of the 27th ultimo (copy enclosed for ready reference). We have not so far, been favoured with your acceptance of the prices.
But in the meanwhile, because of the devaluation of the rupee the suppliers the Central Agency Limited, have expressed an idea that the indent may have to be amended on account of the devaluation of the Pak. rupee. Obviously, this means that the prices are likely to be enhanced. In this connection, we beg to point out that the prices were firmly engaged by their letter of the 27th and our acceptance of the same date. Hence, the question of any revision of the prices without mutual agreement of both the contracting patties cannot arise at all. The suppliers should have taken due notice of any possibility of devaluation of the Pak. rupee when, they quoted the prices in rupees Even if they, had not doe so, it was their responsibility and they cannot back out now from a firm contract.
We may also add that any such revision will have the effect of raising the prices without any justification whatsoever and Government would not perhaps support move in a firm which will unduly raise the internal prices.
May we therefore hope that you will kindly accept the prices offered by the Central Agency Limited in their pro form a invoice, dated the 27th July 1955, forwarded with' our letter under reference and communicate the same to us at your earliest convenience."
On 17th August 1955, the Corporation sent the following letter to the Company :
"We understand authoritatively that pre‑checking of prices for commodities to be imported under F. O. A. Sub authorisation has been waived. Will you, therefore, be good enough to kindly let us know when we should open the L/C for the above booking. We are anxious to open the L/C as we would like the goods to be shipped as early as possible."
On the same day, the Company wrote to the Corporation :
"Under the C. C. I. anti E's Public Notice No. 70(55)/ Import of 13th August the pre‑check of prices by the Textile Commissioner, Karachi has beet: waived for East Pakistan, It is not therefore necessary for us to supply you with pro forma Invoices etc.
Please open a Rupee Letter of Credit immediately up to the Dollar value of your licence and advise us of the rupee value of this credit.
Following devaluation our Principals have been forced to increase prices but as your licence value in rupees has also been increased some adjustment in the quantity of goods ordered may require to be made. We shall advise you of any changes when you let us know the exact Rupee figure of the Credit opened with your bankers."
On 22nd August 1955, the Company replied to the letter of the Corporation dated 17th August 1955, in these terms
"We thank you for your letter of 17th instant and trust that ours of the same date regarding the earliest possible opening of a Letter of Credit was received by you.
As you are no doubt aware, the State Bank of Pakistan have not yet declared the dollar/rupee rate of exchange for F. O. A. licences but we believe the Pakistan designated banks are quoting Rs. 5 per dollar subject to adjustment when the official rate is announced.
On the dollar value of your licence of U. S. 6,600 the new rupee value will be approximately Rs. 31;350 taking the rate as Rs. 4.75 to the dollar. With the increased C & F prices which will require to apply to your order the quantities called for can be raised to the following totals
Old rate.
Art. 7186 White No. 90 586 Pkts @ Rs. 10/11 (7/12) Rs. 6,270
160 1120 " @ 11/3 (8/3) 12,540
Art. 343 White No. 10 14‑8 grs. @ 319/11 (247/8) 4,702
Art. 320 " No. 10 191 " " 162/3 (124/‑) 3,135
Art. V 160 " No. 6 37.7, " " 125/‑ (88/‑) 4,703
_____________
Rs. 31,350
_______________
When we know the exact rate of exchange we shall further amend these quantities as required but in the interval would be pleased to know if these changes are suitable to you.
P. S.
Since writing the above we have come to know that the original 'arrangements for pre‑check prices have been reintroduced. We shall therefore as soon as possible re‑submit amended pro froma invoices for submission by you to Karachi."
On 26th August 1955, the Corporation replied to the above letter saying
"We acknowledge the receipt of your letters of the 17th and 22nd instant. We could not open the L/C because of the re‑imposition of the pre‑checking of prices. We shall, however, be opening the L/C as soon as the approval of the prices is received.
In the meanwhile we do not understand how any increased C & F price can apply to our order which was finally accepted and confirmed by your letter of the 27th ultimo. Let us repeat that the prices at which we placed the order, vide your Pro forma invoice were as follows:‑
Art. 343 ‑ Rs. 247/8/‑ per gross
320 124/‑
V 160 88/‑
186 W 90/- "7/12
W160 8/3
These prices you were "pleased to accept" and "confirm" as the "actural sale price of the goods", vide your letter of the 27th as pointed above. These rates were offered and accepted in Pakistani currency without any reference to its exchange rate with the sterling or dollar and therefore, any subsequent change in the rate of exchange between the rupee and Sterling or Dollar cannot affect them, Hence, any question of increase or decrease in these rates on any account whatsoever cannot now arise.
It now appears that our licence which was based on Dollar is treated for a higher rupee value on account of the change of ratio between the rupee and the Dollar. Hence, we will be glad to negotiate with you for further business at your new rates, if any, for the excess amount of the licence above Rs. 22,000 which is already booked and for this purpose you may let us have your present quotations."
On 30th August 1955, the Company wrote to the Corporation:-
"The revaluation of the Pakistan Rupee has meant that our principals have been obliged to re‑adjust their prices and also that the rupee value of your Sub‑Authorisation has been increased.
While the official dollar/rupee rate of exchange has not yet been announced this is likely to be about Rs. 4.76 to one dollar and we have used this rate to calculate tile new value of your licence.
Some adjustment has been necessary to your indent and we have taken the liberty of making these changes and which are shown on the pro farina Invoice herewith. As before, please send immediately four copies of the enclosed invoices plus the original of the Letter of Acceptance to the; Textile Commis sioner, Karachi in the envelope provided and in due course advise us when the prices have been approved.
In due course we shall let you have an amended Indent for your records."
On 1st September 1955, the Corporation replied as under :
"We have for acknowledgment your letter of the 30th August, on the above subject. In this connection, we beg to point out that we have no official information so far regarding the enhancement of the rupee value of our sub‑authorisation licence for cotton thread of t_1. K. origin. But we understand it is likely to be enhanced.
As for re‑adjustment of the prices because of the de‑valuation of the Pakistani rupee as you say, it has nothing to do with our order placed with you and accepted and confirmed by your letter of the 27th July, as also already pointed out in our letter of the 26th August. The prices for those items which we had ordered as mentioned in your pro forma invoice of the 27th July, and confirmed in your letter of the same date and referred to in our letter of the 26th August, were final and unchangeable so far that deal was concerned. Hence, the question of having a new pro forma and asking the Textile Commissioner for pre‑checking the new prices does not arise. We, therefore, regret our inability to forward the same to the Textile Commissioner. On the other hand, we are reminding the Textile Commissioner to expedite his approval of the prices that were conveyed to him in our letter of the 27th July, copy to you, so that we can open the L/C at an early date.
As mentioned in our letter of the 26th ultimo, we are prepared to negotiate with you for fresh business at the new rates that you may be offering for any additional rupee value of our licence as soon as the same is officially communicated to us. In the meanwhile, we shall be glad to receive a full range of your present prices for the same purpose."
On the same day, the Corporation also addressed the following letter to the Textile Commissioner
"Will you kindly refer to our, letter of the 27th July, forwarding a pro forma invoice from the Central Agency Limited, showing certain prices for the orders against our F. O. A. licence No. S. C. A. 000463 that we had placed with them. The order and acceptance were firm and final. The suppliers confirmed these prices in their letter of the same date, original of which were enclosed with our letter under reference. This was, therefore, a valid contract in rupees and the suppliers are bound to supply the goods at those rates. Will you, therefore, be good enough to kindly approve the rates at your earliest convenience, so that we can open the required L/C for supply of the goods."
On 15th September, the Company wrote to the Corporation :‑
" We refer to your letter of 1st instant and subsequent conversations with you in connection with your Indent No. 52/55 and now write to confirm our telephone advice of 10th instant that we regret our inability to accept the order at the prices quoted in our provisional contract invoice of 27th July 1955.
It is our normal practice to quote C & F prices in sterling but for American Aid Sub‑Authorisations we were required by the authorities to quote in rupees. The revised quotations as covered by our amended Provisional Contract Invoice of 30th August 1955, were therefore conversion of our sterling C & F prices at the new rate of exchange following revaluation of the Pakistan rupee.
Until we have your acceptance of the revised prices your order is being kept pending so we would like to have your decision as soon as convenient."
On 21st September, the Corporation wrote to the Company
"We have for acknowledgment your letter of the 15th instant on the above subject, sent under registered post. We regret we are unable to take notice of any telephonic advice in a matter like this and you were categorically told about it‑ When you last discussed this matter with us on the telephone.
As for ‑the contract of the 27th July last we have already pointed out that this was not provisional but absolutely firm and final and for your benefit we once more refer you to your letter of the 27th July, and we hope the matter will be clear to you if you will kindly go through that letter once more and find out your commitment. We ate, not concerned with what your practice is or is not. The fact remains that you quoted in rupees without any relation to exchange ratio with sterling and also accepted the same prices as final. Hence, as we have already written to you about it and also discussed this matter with you more than once, the question of any revised or amended contract in respect of the order that you accepted on the 27th July, cannot now arise. What you call your new rates cannot apply to that contract."
On 26th September the Company replied to the letter of the 21st September as under :‑
"We are in receipt of your letter of 21st instant and regret that we have no option but once again to confirm that your order cannot be accepted for execution at the prices quoted in our Provisional Contract Invoice of 27th July 1955. for the reasons explained in our letter of 10th instant."
On 3rd October 1955, the Textile Commissioner approved the contract of the Corporation in these terms :‑
"I am directed to refer to your letter dated the 27th July 1955 and to return herewith your contract as entered by you with Messrs Central Agency Limited, Dacca or, the 27th July 1955 duly approved."
On 10th October 1955, the Company replied to the letter of the Corporation dated' 26th"September as follows :‑
"We are in receipt of your letter of 7th instant and in view of the fact that our prices as submitted to the Textile Commissioner in July 1955 were withdrawn and replaced by amended quotations following devaluation of the Pakistan rupee, it is not understood why the Textile Commissioner has approved these July prices.
In spite of this approval having been received however, our principals cannot accept your order for execution at July prices but will be very pleased to entertain your Indent at the rates quoted on the revised Provisional Contract Invoice submitted with our letter of 30th August. These are the current rupees C & F prices for American Aid supplies and no orders can be accepted at prices other than these August quotations."
On 18th October 1955, the Corporation wrote to the Company insisting on the fulfilment of the contract and thereafter on 11th November 1955, their lawyers sent a notice claiming Rs. 12,195 from the Company as damages. As the Company did not comply with their demand they filed the suit under appeal claiming Rs. 11,695 as damages.
The learned Counsel appearing in support of the appeal has re‑agitated the question that was urged before the High Court, viz. that there was a concluded contract between the parties. It is no doubt true that the Company agreed to sell cotton‑thread mentioned in their letter of 27th July 1955. The parties when they entered into the contract were fully aware of the following directions of the Chief Controller issued under Public Notice No. 35(55)/1 on 27th May 1955 :‑
"They are directed not to finalise contracts or to open letters of credit until purchase prices have been checked and approved by the Director‑General of Supply and Development".
Again, on 29th June 1955, another Press note was issued to this effect : ‑
"All holders of sub‑authorisations for cotton textiles throughout Pakistan are directed to submit their provisional contracts to the Textile Commissioner within three weeks of the issue of sub‑authorisations."
Thus, the above did forbid, in clear terms, the making of final and concluded contracts with respect to commodities to be imported under U. S. Economic Aid. In other words, the contracts would be finalized only when the prices were approved by the Director‑General of Supply and Development. Hence; the Corporation after entering into a provisional contract for purchase of cotton‑thread from the Company wrote several letters to the Textile Commissioner for approval of the prices as mentioned in their indents.
Reading the above notices, along with the correspondence between the parties. one comes to the unhesitating conclusion that the contract entered into between the parties on 27‑7‑55 was of a provisional nature. We are, therefore, clearly of the view that the argument that the Corporation had entered into a concluded contract with the Company for supply of cotton‑thread on 27‑7‑55, cannot prevail.
Now, Pakistan currency was devalued on 1st August 1955, when the contract in question had not been approved by the Director‑General of Supply and Development. The Company, therefore, at once wrote to the Corporation on 3‑8‑55 :‑
"You will appreciate that the devaluation of the Pakistan Rupee will probably affect the order you have placed with us against your American .Aid licence. At the moment, we are unable to say if your indent will require to be amended but as soon as we have information on this point, we shall advise you immediately."
Again, on 17‑8‑55, they wrote to the Corporation
"Following devaluation our principals have been forced to increase prices but as your licence value in rupees has also been increased, some adjustment in the quantity of goods ordered may require to be made. We shall advise you of any changes when you let us know the exact Rupee figure of the credit opened with your bankers."
On 22‑8‑55, they informed the Corporation that the value of their licence under the new rupee value would be approximately Rs. 31,350. They also pointed out that with the increase of C & F prices there would be corresponding increase in the prices of the goods ordered by them. Hence, they informed them that they would re‑submit amended pro forma invoices as soon as possible. The Corporation, however, insisted that the sale price should be at the rate fixed on 27‑7‑55, to which the Company did not agree.
On 15‑9‑55, the Company wrote "Until we have your acceptance of the revised prices, your order is being kept pending, so we should like to have your, decision as soon as convenient."
The Corporation again insisted that the price which had been fixed on 27‑7‑55 could not be revised or amended.
The Company then by their letter dated 26th September 1955, rescinded the provisional contract in these terms
"We are in receipt of your letter of 21st instant and regret that we have no option but once again to confirm that your order cannot, be accepted for execution at the prices quoted in our Provisional Contract invoice of 27th July 1955 for the reasons explained in our letter of 10th instant."
Thereafter, on 3rd October 1955, the Textile Commissioner approved of the contract which the Corporation had entered into with the Company on 27th July 1955. But the fact remains that the price quoted by the Company on 27‑7‑55 was withdrawn on 15‑9‑55 and as such the subsequent approval of the said price by the Commissioner, could not revive the contract. We may also observe that because of the devaluation of Pakistan currency, the value of the import licences of the Corporation had increased from Rs. 22,000 to Rs. 31,300. But, even then they were not willing to revise the rates which had been fixed prior to devaluation. Thus, though the Corporation was getting benefit of this devaluation still they wanted the Company to lose on this transaction. In our view, neither law nor equity support the claim of the appellant.
For the above reasons, we are of the opinion that this appeal must‑be and is hereby dismissed with costs.
Appeal dismissed.
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