The Madras High Court on Wednesday dismissed writ petitions filed by five government contractors expressing their inability to comply with a contract condition to supply 25% more of the agreed quantity of palmolein and toor dal by citing steep rise in the prices of commodities following the Russia-Ukraine crisis.
Justice G.R. Swaminathan concurred with the remark of the Advocate General R. Shunmugasundaram that the Tamil Nadu Civil Supplies Corporation (TNCSC) had not made any demand outside the scope of the contract and hence the petitioners, being seasoned suppliers, could not do a volte face and refuse to supply 25% more.
The judge said the TNCSC had called for tenders on December 20, 2021 for supplying 4 crore pouches (one litre each) of palmolein and the contract was awarded to the five petitioners and each of them was awarded the contract to supply varying quantity ranging between 65 lakh to 1 crore pouches.
The contract was finalised in January this year and the supplies were made thereafter. In the second week of March, the corporation asked the petitioners to supply 25% more, as per the tender conditions, at the same rate at which the tenders had been finalised and hence the contractors had moved the court expressing their inability to do so.
Not finding any justification in their stand, the judge pointed out that Indonesia, one of the major exporters of palmolein, had banned exports only on April 27 because of the Russia-Ukraine conflict. The petitioners could not cite such a ban as a reason for not being able to meet TNCSC’s demand made much before the ban came into effect, the court ruled.
“The escalation of the price cannot be a ground to plead frustration. In any event, the escalation is only by 25% or more. The petitioners are seasoned suppliers. With their market experience, they obviously would have foreseen that prices may fluctuate,” the judge observed.
Further, stating that the price fluctuation could not be construed as a force majeure warranting invocation of Section 56 of the Indian Contract Act, Justice Swaminathan said: “The profit calculation originally made by the petitioners might have gone for a toss. That is no reason to wriggle out of consequences of contractual arrangements.”
Toor dal
In so far as the claim made by a petitioner (Arunachala Impex Private Ltd) that it was not in a position to supply additional quantity of toor dal because of the Russia-Ukraine crisis, the judge said: “Toor dal is grown in India in Uttar Pradesh, Madhya Pradesh, Gujarat, Bihar, Tamil Nadu and Karnataka.
“It is available in the Indian market. The claim that the Ukraine war has affected procurement of toor dal and has caused price fluctuation in the open market is far fetched. It is of course possible that the cost of transportation has gone up. But these are purely commercial difficulties and cannot constitute a force majeure event,” he said.
Tenders quashed
Passing separate orders on two other writ petitions filed by KTV Health Foods Private Ltd. and Ruchi Soya Industries Ltd. who were given contract in April this year to supply palmolein, the judge quashed the tender process since there was a delay in opening the tenders by when Indonesia had banned exports.
The judge pointed out that the tender notification related to these two cases was issued on April 4 and the bids were supposed to be opened on April 21. However, there was a delay of nearly seven days and the bids were opened only on April 28. Just a day before that, Indonesia banned export of palmolein.
“The ban had a direct bearing not only on the price aspect but also the availability of the commodity in quantities as sought for. Had the petitioners known about the ban order, they would obviously not have offered the terms set out in their tender documents. One can come to such a conclusion by applying an objective test.
“The tender inviting authority (TNCSC) having failed to open the tenders at the notified time cannot now insist that the tender process must be taken to its logical conclusion after occurrence of the supervening events that fundamentally altered the market situation,” the judge said.
