Boothalinga Agencies v. V.T.C. Poriaswami Nadar

Facts

Boothalinga Agencies manufactured and sold coffee powder, importing chicory under an actual-user's licence which barred resale and permitted use only as raw material in its factory. On 26 November 1955 it contracted to sell a specific consignment of chicory then on its way by ship to Madras. On 7 December 1955 the Central Government promulgated the Imports (Control) Order making it illegal to breach the licence conditions; the goods arrived and were cleared thereafter, and, prices having risen, the agency refused delivery.

Issues

• Whether the contract of sale, lawful when made, became void under S56 because subsequent legislation rendered its performance unlawful
• Whether the seller could be compelled to deliver in breach of the import-control conditions

Arguments

The seller (Boothalinga) argued performance had become unlawful under the Imports (Control) Order, 1955, which prohibited sale of goods imported on an actual-user's licence, so the contract was void under S56. The buyer (Nadar) sought delivery, the contract having been valid when entered into.

Held

The Supreme Court held that although the contract was enforceable on 26 November 1955 when made, performance became impossible or unlawful after 7 December 1955 when the Imports (Control) Order, 1955 came into force barring sale of goods imported under an actual-user's licence. Accordingly the contract became void under Section 56 of the Indian Contract Act on the commencement of the Order. The seller could not be compelled to perform an act that the law had rendered unlawful.

Ratio decidendi

Under the second paragraph of Section 56, a contract lawful at its formation becomes void when, by reason of a subsequent change in law beyond the promisor's control, its performance becomes unlawful.

Significance

Leading Supreme Court authority on the 'supervening illegality' limb of S56, establishing that subsequent statutory prohibition discharges the contract automatically. Applied alongside cases such as Rozan Mian v. Tahera Begum (AIR 2007 SC 2883) on void-ness through later legislation.

Related