Chennai, Jun 1 (PTI) The Madras High Court on Wednesday upheld a communication of the Tamil Nadu Civil Supplies Corporation (TNCSC) requiring the tenderers to supply 25 per cent more palmolein oil in addition to the original contract.

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Vacation judge Justice G R Swaminathan upheld the notification while dismissing a batch of writ petitions from Starshine Logistics and four other companies in the city.

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The TNCSC issued a tender notification on December 20, 2021 for supply of four crore pouches of fortified RDB palmolein oil. The petitioners submitted their tenders and they emerged as successful bidders. Their offers were accepted by the Corporation on January 13 this year. As per the terms of the contract, the tenderers supplied the quantities in two spells.

Invoking a tender clause, the TNCSC issued the impugned communications directing the petitioners to supply an additional 25 per cent quantity. Contending that the market conditions had undergone adverse change, the petitioners claimed impossibility of performance.

They sent representations to that effect expressing their inability to supply the additional quantity. Since the Corporation had unrelented, the writ petitions came to be filed challenging the additional demand.

Petitioners' senior counsel submitted that it is a classic case in which Section 56 of the Indian Contract Act deserves to be invoked. When the tenders were finalised, the parties did not envisage that the war between Russia and Ukraine would break out.

As a result, palmolein oil supplies got diverted to Ukraine. Since crude oil prices shot up, freight costs went up and the movement of cargo vessels also got affected severely. To add to their woes, Indonesia imposed a ban order on palmolein oil exports on April 27.

These factors cumulatively broke the back of the petitioners and therefore they could not supply the additional quantity of palmolein oil, he added.

Rejecting the submissions, the judge observed that the demand by the Corporation for supply of additional 25 per cent is well within the scope of the contract. It has not made any demand outside its framework.

It is true that by the time the impugned demand was made, the market conditions had undergone a change and war between Russia and Ukraine had broken out on February 24.

"I carefully went through the contents of the affidavits filed in support of the writ petitions. Nowhere is there any averment that the subject matter of the contract is unavailable in the market. The petitioners in fact cannot be heard to argue so. When in April 2022, the Corporation issued a notification for supply of Fortified RBD Palmolein, it did evoke a response," the judge said.

"Till the issuance of ban order by the Indonesian government on April 27, there were bidders offering to supply the commodity in question, of course at a higher rate. The contract was concluded on January 13. The impugned communications for supply of additional quantity of 25 per cent were issued on March 2. Hence, it is clear that the doctrine of frustration cannot apply to these cases as the fundamental basis of the contract remains unaltered," Justice Swaminathan said.

"The escalation of the price of the commodity in the market cannot be a ground to plead frustration. In any event, the escalation is only by 25 per cent or more. The petitioners are seasoned suppliers. With their market experience, they obviously would have foreseen that prices may fluctuate. Price fluctuation cannot be construed as a force majeure event warranting invocation of Section 56 of the Indian Contract Act," the judge added.

The petitioners cannot be said to have been “hindered or prevented” from making the additional supplies, the judge said adding that the Indonesian ban came only on April 27, whereas the impugned demand for additional supply was made on March 2.

"The profit calculation originally made by the petitioners might have gone for a toss. That is no reason to permit them to wriggle out of the consequences that flow logically from the contractual arrangements knowingly entered into by them. I do not find any ground to interfere with the impugned communications issued by the Corporation and all the writ petitions stand dismissed," the judge said.

The judge, however, quashed the tenders for supply of two lakh packets of palmolein weighing one litre each.

The judge was allowing the petitions from KTV Health Foods and Ruchi Soya Industries, who sought to quash the bids since the Ukraine war had an adverse impact on the international market.

The judge said the Corporation cannot be allowed to take advantage of the unfortunate situation in which the petitioners found themselves. The principles of fairness and reasonableness are very much applicable to the facts of these cases, he added.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)