MANU/SC/0266/1980

Equivalent Citation: AIR1980SC 1149, 1980(12)UJ706

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 1450/1463 of 1979
Decided On: 08.05.1980
Appellants: Union of India (UOI) and Ors.
Vs.
Respondent: C. Damani & Co. and Ors.
Hon'ble Judges/Coram:
R.S. Pathak and V.R. Krishna Iyer, JJ.
Case Note:
Customs - export of silver - Sections 3 and 3 (1) of Import and Exports
(Control) Act, 1947, Section 11 of Customs Act, 1962, Exports (Control)
Order, 1977, Articles 19 and 136 of Constitution of India and Contract Act -
export trade in silver was canalized through State Trading Corporation
(STC) which was wholly Government owned - D has been in bullion
business - when silver export came to be canalized STC enjoyed monopoly
export business - bullion suppliers were fed into stream by private dealers
like D - D attacked on vires of ban order to its operation on contracts
already completed before ban - all that remained was shipping the bullion -
failure to do so unreasonably expose supplier to unforeseeable risk of heavy
liability in foreign jurisdiction - Apex Court held, Clause 9 (a) which creates
indemnity clause not to be enforced by STC against D.

JUDGMENT
V.R. Krishna Iyer, J.
1 . Silver is a precious metal and a policy decision that the silver resources of the
nation shall be conserved may will be wise policy. But public morality is more
precious than silver and gold for individual and nation and to honour the plighted
word of a public body is proof of this higher policy. The relevance of this
observation, about the link up of law and morality is basic to the decision of this
case. What then, is the morality of the law vis a vis Government policy in export of
silver? This is the question, in its jural dimensions, which has been ably argued by
Counsel. Such a capsulated statement, we know, is but an over-simplification and we
will proceed to unfold in fuller detail the facts and the law, the conflict and its
resolution.
2 . Arguments have been beard on the substantive issues as if we were disposing
them of really and not provisionally on an interlocutory basis. This has been made
clear even in the ad interim order passed by this Court while granting leave.
Therefore, this decision will virtually and the writ petition pending in the Bombay
High Court. This procedure has the consent of all the Counsel and their parties and
brings to a close a litigation whose life may otherwise lengthen into after-life.
3 . We are in the province of export of silver which is governed by the Imports and
Expels (Control) Act, 1947 (for short, the Act). Section & clothes the Central

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Government with power to :
...make provision for prohibiting, restricting or otherwise controlling, in all
cases or in specified classes of cases, and subject to such exceptions, if any,
as may be made by or under the order:
(a) the import-export, carriage coastwise or shipment as ship. stores
of goods of any speeded description;
(b) the bringing into any port or place in India of goods of any
specified description intended to be taken out of India without being
removed from the ship or conveyance in which they are being
carried.
(2) All goods to which any order under Sub-section (1) applies shall be
deemed to be goods of which the import of export has been prohibited under
Section 11 of the Customs Act, 1962 and all the provisions of that Act shall
have effect accordingly,
(3) No withstanding anything contained in the aforesaid Act, the Central
Government may by order published is the official Gazette, prohibit, restrict
or impose conditions on the clearance, whether for home consumption or for
shipment abroad of any goods or class of goods imported into India.
4 . Pursuant to Government's broad policy, it promulgatory inter alia, the Exports
(Control) Order, 1977, Clause 3 where of reads thus;
Restrictions on export of certain goods:
(1) Save as otherwise provided in this Order, no person shall export
any goods of the description specified in Schedule I, except under
and in accordance with a licence granted by the Central Government
or by an officer specified in Schedule II.
5. The anatomy of the Order discloses two parts-parts A and B to Schedule I. Items
included in part A are not normally allowed to the exported while those in part 1 are
more liberally exportable.
6 . The story of silver wad its export has been one of fluctuating fortunes. Until
February 1974 its export had been banned. Then followed a permissive period for
private exporters until August 26, 1976. Thereafter, export trade in silver was
canalised through the State Trading Corporation (we may use the acronym STC, for
convenience) which is wholly government owned but with separate statutory
personality. By the Exports (Control) Fifteenth Amendment Order, 1979, silver the
jumped from part B to part A to Schedule I. This switch came about since February
20, 1979, and meant a virtual ban (not normally allowed to be exported) on export of
silver. This embargo on export of bullion hurt the Respondent) M/s. Datnani & Co. or,
for short, Damani) for reasons we will now state.
7 . There is big money in bullion dealings, more so in the export/import business
thanks to wild variations in Indian and inter national prices. Of course, there are also
the high hazards of heavy fluctuations and sharp speculations, added to the risks of
trans-national adjudications implicit in international trade and private international
law. Damani has been in the bullion business, and when silver export came to be
canalised from August 1976, trade adjusted Itself to the new realities and a flexible
arrangement was evolved whereby the STC enjoyed a monopoly of export business

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but the bullion sup-lies were fed into the stream by private dealers like Damani. Law
is the handmaid of economics and when the economics of Trade suffers a radical
change Law helps the process without hampering the flow. The flexible form of the
contracts which emerged on canalisation of silver export is relevant for us because
the bone of contention between Damani and the STC, apart from the challenge to the
vires of the Exports (Control) Fifteenth Amendment Order, 1979 in so far as it
prohibits pre-ban commitments (or the exclusion of such contracts from its
operation, by way of interpretation), is about the efficacy of an indemnity clause in
the contract between the two.
8. The nation lives not for the benefit of Big Business but for conservation of Its own
resources, and export policy is dictated by a host of considerations ordinarily
imponderable for the Court. Although its reasonableness is not beyond the power of
this Court to examine when constitutionality is in issue, the zone is so sensitive, the
subject is so strategic and the import and impact so intricate that judges do not rush
in where administrators fear to tread. The reasons for the ban on sliver exports
brought about in February 1979 are explained briefly by the Union of India in its
affidavit:
Such a step became necessary on account of the depletion of the availability
of silver in the country. The Export (Control) Fifteenth Amendment Order was
passed by the Central Government in exercise of its power under Section 3 of
the Act after a full review of the prevailing conditions in the country, in the
public interest, for the conservation of national resources and to meet the
internal demand in the country itself All the relevant facts were tab n into
account by the Central Government before issuing the order.
The reasons are set our more convincingly in another affidavit as the seed of the
national economy:
Due to export of silver on large scale since 1974, its availability in the
country became considerably reduced giving rise to an increase in price of
silver. The impugned order and impugned notice Ex. C and D to the petition
were therefore issued by the Government after review of prevailing
conditions in the country and in public interest and impugned action was
taken by the Government in the interest of National Economy and for
conservation of national resources and to meet the local demand for silver.
I submit that the policy decision of the Govt. to ban export of silver was
taken by the appropriate authority after taking in consideration all the
relevant factors in exercise of powers vested in the Central Government
under the law. I submit that in the very nature of thinks such a decision had
to be taken suddenly and there can be no prior notice or intimation about the
same I submit that the impugned decision is taken in larger national interest
and certain amount alleged inconvenience or hardship to the parties in the
trade cannot be helped and this is the normal incident of some risk in the
trade which a trader has got to take.
9 . We see no ground to discredit this policy nor demolish this prohibition. Courts
cannot deal cavalierly with administrative policy where the judicial process is
functionally under a handicap a facet not fully appreciated by the Bombay High Court
in its order under appeal here. Indeed, Damani limits his attack on the vires of the
ban order to its operation on contracts already completed before the ban was
clamped down and all that remained was shipping the bullion, failure to do which
would unjustly and unreasonably expose the innocent supplier of the STC, for no

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fault of his, to the unforeseeable risk of a heavy liability in a foreign jurisdiction This
contention may have to be considered here or else where, but, if we may anticipate
our conclusion even here, this question is being skirted by us because the kismet of
this case can be settled on other principles. The discipline of the judicial process
forbids decisional adventures not necessary even if desirable.
The canalisation programme has for its raison d'etre many purposes including
policing and servicing foreign trade and, hopefully, making some profit for the
benefit of the nation, apart from stablising the country's foreign trade on a sound and
credible basis, pledging the credit worthiness of the State.
11. Now we will move on to the events which escalated to a crisis resulting in these
proceedings (one of many in the Bombay and Delhi High Courts), We are dealing
with an interlocutory order but really we are disposing of the writ petition.
Respondent No. 1 (Damani), as per the practice involved between the STC and the
Trade, had registered itself for export trade in silver with the STC, The press note
issued by Government on 26th August, 1976, reads thus:
Government has decided that with immediate effect export of silver will not
be allowed through private parties. Instead, export of silver will be allowed
only through the State Trading Corporation of India.
12. Thereafter, silver exports were canalised through the STC, the fifth respondent,
which, in turn, entered into contracts in its own name with foreign buyers. To fulfil
those contracts, the STC entered into contracts with indigenous suppliers Technically,
there is no contractual relationship between the foreign buyer and the indigenous
supplier like Damani. As stated earlier, the amendment to the exports (Control) Order
dated February 20, 1979 barred all silver exports, including by the STC. Of course,
Government had a residua) power to permit exports although normally and in the
absence of such special permission, silver was a banned item. Pursuant to the
prohibition, a trade notice of February 27, 1979 was published for the benefit of the
commercial community. It is indispusable, on account of the amendment of the law
on February 20, 1979, that export of silver became impossible for the STC or for that
matter for anyone else.
13. We have stated earlier that Government is in the best position to take a policy
decision on total or conditional ban of exports of commodities like gold and silver. Of
course, the Union of India has taken the extreme stand that there is a ban on judicial
review of the administrative policy behind the band by the Central Government. We
do not agree with this tall proposition in the light of Article 19 of the Constitution.
The sovereign power is in the Constitution, not the Administration and the Court is
the sentinel .
14. The larger question of the vires of the ban does not arise for our consideration.
The narrow issue that we propose to examine first is as to whether Damani, the
indigenous supplier, is not entitled to insulation from the indemnity clause, in the
special circumstances of the case. Counsel for the Damani, Shri Anil Divan, conceded
that if the liability to indemnify the STG as against any claim the foreign buyer may
make is held unenforceable, his clients are willing to give up the other submission.
What are those circumstances ? During the period prior to 20 2-1979 when silver was
part of part B to the First Schedule as Entry No. 77, export was permitted through the
STC, subject to some conditions with which we are concerned The first respondent,
being one of the registered suppliers of silver for export, had an agreement of 1st
October, 1976 with the STC. The said agreement is still extant. Pursuant to Clause
2(a) thereof Damani has furnished a bank guarantee to the STC as a pre condition to

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supply of silver for export as per the agreement The integral link and intimate
relationship between Damani's agreement with the STC and the STC's contracts with
the foreign buyers is obvious. The most important provision with which we are
concerned is Clause 9(a) which runs thus:
(a). Any cess, duty, rate or tax whatsoever, payable in respect of any
transaction covered by this contract shall be borne by the supplier. The
supplier hereby indemnifies the STC and shall always keep it indemnified
against all claims including claims for sales/purchase tax action, losses,
damages, expenses etc arising out of or relating to or in respect of this
contract and/or the export contract, and STC shall be free to invoke the Bank
Guarantee and/or for felt the cash security deposit for the same.
16. Although many contentions have been canvassed before us, the battle of legal
wits has been fought on Clause 9(a) which may, therefore, be treated as decisive of
the present forensic adventure.
1 7 . The key circumstances we must notice before formulating of discussing the
points arising in the case are (a) that the consignments of silver we are concerned
with relate to contracts concluded between the STC and foreign buyers and
corresponding contracts concluded between Damani and the STC before the legal ban
on export of silver on February 20, 1979; and (b) that Damani had, within the time
fixed in the contract, offered delivery of the silver covered by the contract to STC,
and (c) that the STC had refused to accept performance of the contract from Damani
on account of the Order forbidding the former's export of silver and lastly (d) that the
stand of the STC and the Central Government, has been that the contracts between
the STC and the foreign buyers (who are not parties before us) are not enforceable
due to the doctrine of frustration. Perspicacious understanding of the contours of the
dispute debated before us is possible only if we further remember that the Central
Govt.'s stance before us, in acquiescence of the view upheld by the Delhi High Court
where a similar 'silver' litigation came up for adjudication involving the same triangle
of the STC, foreign buyer and indigenous supplier and similar contracts concluded
before February 20, 1979, The Delhi High Court held that the export contract was
frustrated by the ban order and consequently the indemnity clause in the contract
between the Indian supplier and the STC stood inoperative. Indeed, the scenario, as
it developed before us, was quite piquant, if pot bathetic. In Sheer logic and law is
not hostile to logic the functional survival of the clause of indemnity postulated the
potential operation of the principal contract, the liability flowing from which was to
be indemnified Therefore, if the basic foreign contract failed because of frustration it
followed that there was nothing to indemnify and Clause 9(a) would die a natural
death Damani and the Central Government struck to this view which appealed to the
Delhi High Court but the STC pleaded that the eventuality of a foreign tribunal
holding the STC liable for breach was still on the cards and this was no theoretical
possibility since a notice of demand for damages had already been received. The law
in the books or in the Courts of one country offered no immunity in a foreign
jurisdiction; what the judges say it is and judges do speak in diverse and so the need
to keep alive the indemnity clause as against Damani was an economic cecessity of
legal tenability. We do not discuss further or express our view because the Delhi
Judgment is now pending in appeal and we propose to bypass this issue for the
nonce.
18. Nobody questioned before us the power of parliament to make a law banning or
regulating export and import of essential commodities, subject, of course, to the
fundamental rights of citizens. But as earlier stated, the contesting respondent
challenged as unreasonable and arbitrary the application of a total ban, all of a

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sudden, on contracts for export which had become complete and concluded before
the ban. In short, it was unreasonable and, therefore invalid vis a vis pre ban
commitments otherwise ready for performance. Secondly, Shri Diwan for the
respondent argued that the indemnity in the amulliary contract with the STC had
become non east from the point of view of performance because the principal
contract had become frustrated. He was ready to perform the contract, but the STC
was not ready to receive the silver for export since the latter suffered from legal
handicap imposed on February 20, 1979. Lastly, Counsel submitted that even without
deciding these issues, the Court could still intervene in its equitable jurisdiction and
relieve the indigenous supplier from the obligation to indemnify , having regard to
the fact that the stand of the Government of India was that the foreign contract was
frustrated and the obligation for indemnity in the Indian contract was consequently
absolved and the STC was itself a State instrumentality of the Central Government
and was subject 10 its statutory directives. More than all, the case of the STC itself
has been that the foreign contract is frustrated and, in that view, it is inequitable to
keep the indemnity clause in the Indian contract alive, thus holding over his head the
Democles sword of an uncertain litigation abroad and its chancy consequences.
19. There is much to be said on the question of frustration of the foreign contract
and its impact on the indemnity Clause (Clause 9(a)). Anson, on the Law of
Contracts, notes :
Most legal systems make provision for the discharge of a contract where,
subsequent to its formation, a change of circumstances renders the contract
legally or physically impossible of performance.
And indeed, it is part of the statutory law of India. Of course,
...Where a man specifically undertakes an absolute obligation , he cannot
claim to be absolved from liability by the fact that his failure to perform the
obligation is due to the occurrence of an event over which he has no control.
(Anson's Law of Contract 24th Edn. p. 477)
Thus, there is an implied condition in ordinary contracts that the parties shall be
executed in case, before the breach, the performance becomes impossible on account
of physical causes or legal prohibitions. The juridical basis of the doctrine of
frustration need not be explored in depth nor its implications projected with precision
in the present case for the simple reason that the rival contentions urged with
plausibility do not call for a pronouncement in the special facts of this case. Mr. Anil
Diwan broadly suggested, but did not develop the submission of 'frustration' since we
thought we would give him a fresh opportunity to do it if it became necessary to rest
the conclusion on that doctrine. Shri Watal for the STC, forcefully contended that the
indemnity clause had an independent existence and embraced all possibilities so that
any manner of liability flowing from the foreign contract would bring to life the
indemnity clause in the Indian contract.
The implied term cannot be set up in opposition to the express terms:
Where the contract (said Lord Summer) makes provision (that is, full and
complete provision, so intended) for a given contingency it is not for the
Court to import into the contract some other and different provision for the
same contingency called by a different name. (Anson's Law of Contract 24th
Edn. p. 490)
20. The thorny issue being by passed for the while, the next question is whether the
constitutionality of the Export (control) Fifteenth Amendment Order, 1979 should be

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examined closely vis-a-vis pre-ban contracts. Constitutional questions should be
considered by Courts only when it is absolutely necessary, not otherwise. In the
present case, broadly speaking, we are not inclined to stand in the way of the full
operation of a policy decision by the Central Government in regard to export of silver
Prima Facie, national policy in this area should not be interfered with by Courts
unless compelled by glaring unconstitutionally. Shri Diwan, taking sensitive note of
our approach, readily agreed that his client would be satisfied even if the silver which
he had collected at great expense and trouble and on the export of which he
legitimately expected a large profit, were not allowed to be exported, provided the
Court would give him relief against the inequitable enforcement of the indemnity
clause in the contract with the STC.
21. This takes us to the circumstances which were high lighted by Shri Diwan and
countered by Shri Watal. The Central Government was somewhat neutral, once our
inclination was made clear that we were not disposes to permit export of silver even
regarding pre-ban commitments.
22. The Bombay High Court discussed at great length in its interlocutory order under
challenge the permissibility of export of silver in respect of which commitments had
been made prior to February 20, 1971. Indeed, this High Court allowed the pre-ban
commitments to be honoured because it was not impressed by the argument of
reasonable restriction based upon national interests. The Judges observed :
All that we heard was that it was a matter of policy. Catch-words like
'National interest' and 'governmental policy' have little relevance and cannot
be regarded as conclusive of the right of the parties
Comity between instrumentalities is the culture of our Constitution. The High Court
allowed export regarding the two 'deeds or contracts' in which the quantity involved
was 800 kg. of silver. Regarding another 3 contracts for 1200 kg, of silver, the Court
was inclined to permit expert subject to certain safeguards. Thus, the order was
adverse to the Union of India in that it made a dent in its policy of blanket ban of
export of silver after February 20, 1971. For the sake of convenience, we may
reproduce the actual direction of the High Court.
23. That pending the hearing and final disposal of the petition as the respondents,
their servants and agents be restricted by an order and injunction of this Hon'ble
Court from taking any steps or action in furtherance or implementation of the
decision dated 20th February, 1979 or in any event in so far as the said decision is
applicable to the contracts/licences mentioned in Ex. 'A' hereto and/or in so far as the
said decision is made applicable to the petitioners and/or in implementation of the
decision not to allow the petitioners to export silver pursuant to the said
contracts/licences, and further directing the Respondents, their officers, servants and
agents by an order and injunction of this. Court to allow the petitioners to export
silver pursuant to the licences/contracts mentioned in Exhibit 'A' here to and to do all
export silver including the grant of licences in respect of the contracts in Exhibit 'A'
here to.
24. This Court, was moved under Article 136 for leave to appeal against this order
and, when leave was granted, an application was moved for stay of operation of the
judgment and order of the High Court. Upon hearing Counsel this Court passed the
following order:
Special leave to appeal granted There will be a partial stay of the operation
of the injunction granted by the High Court subject to the following condition
:

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 1. The respondents shall be at liberty to export 5.1 tons of silver in
pursuant to given contracts entered into with foreign buyers through
State Trading Corporation in respect of which licensing
endorsements have been made on or before 20th February, 1979.
2 . In respect of the remaining six tons of silver intended to be
exported the operation of the injunction granted by the High Court
will be stayed.
3 . In the event this petition is dismissed the Court deposing of the
appeal should consider in equity giving a direction that if the foreign
buyer claim damages for breach of contracts from State Trading
Corporation whether STC should at all be permitted to enforce
indemnity given by the intending exporters. Subject to this equity
being decided at the time of decision of this appeal the injunction
granted by the High Court permitting such export will be stayed till
the decision of this Court in respect of six tons of silver referred to
in para 2.
Liberty to the respondents to file additional Memo because the matter is
being treated for final hearing and not merely against the interim order made
by the High Court.
The printing and filing of statements of cases dispensed with. Liberty to file
additional documents from record during vacation. Appeal to be heard on
17th July, 1979 as 1st item.
25. It is significant that there is a specific provision in the aforesaid Order in Clause
(3) which is the foundation of the equitable jurisdiction that we propose to exercise
in the present case, It is noteworthy that the STC has, at no stage, moved for
modification of this order and has acquiesced in it. Thus, now when the appeal itself
is being disposed of, it becomes our obligation, in conformity with the ad Interim
order, to consider whether, in equity, we should give a 'direction that if the foreign
buyer damages for breach of contracts from STC should at all be permitted to enforce
indemnity given by the intending exporters.'
26. Indeed, there is an express indication in the order that this question of equity
will be decided at the time of the disposal of the appeal. It is also made clear in the
said order that what will be disposed of by this Court will not be the interlocutory
matter only but the entire subject matter connected with the silver export pending
before the Bombay High Court.
27. Let us recapitulate the facts relevant to the equities of the situation. The High
Court had pasted an ad interim order which, if carried out, would have facilitated the
expert of large quantities of silver Naturally, the Union of India would have been
adversely affected if this relief had not been negated by an interim stay by this Court.
In this context, the significance of the direction by our learned brother, Desai J.
cannot be missed. As we have indicated earlier, we are inclined to agree tentatively
with the larger relief that the Union of India has claimed, namely, a prohibition of the
export of silver pursuant even to pre-ban commitments. It must be remembered that
even the STC pleaded with the Union of India for permission to export silver in
pursuance of contracts concluded prior to the ban. We must also notice that the
indigenous supplier Damani, had collected a huge quantity of silver and offered
delivery to the STC in full compliance with the contract. The first respondent had
done all it could to fulfil the contract. Once the embargo on the export is upheld by
us, the consequent financial loss of the first respondent must be considered from an

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equitable angle. It is iniquitous that on top of that it should be exposed to the risks,
perhaps remote yet real, of the foreign buyer involving the STC in a long drawn out
;litigation fought on foreign soil. The would be double injury. (Daughter gone and
ducats too) Of course, if the legal consequence resulted in double damage, Oamani
would have had to bear it in the normal circumstances. However, in the present case,
this Court, while granting leave and ad interim stay, had put a condition in its order
contained in Clause (3) thereof. Justice and equity have been made a component of
the final disposal and we cannot forsake that direction
28. The jurisdiction under Article 136 has extra ordinary amplitude and abundant
ambience. Its reach and range are regulated by correction of injustice and the
rainbow of colours shaping the final direction may also depend as much on justice as
on law. Giving realistic consideration to the many equitable facets of the facts
present in the case to which we have made reference, we are satisfied that the
Central Government must be content with the larger victory of total ban even on
concluded contracts. The STC, notwithstanding Its independent personality, is an
instrumentality of the State and must be satisfied that the policy of the State is up
held by this Court, although confined only to this case. We do not unravel the
intricate folds of the law bearing on the position of the STC vis-a-vis the Central
Government In an appropriate case that question may have to be investigated. So far
as the present appeal is concerned, the least that justice demands is not expose the
first respondent to the liabilities under the Indemnity clause. We expressly leave
open as a general proposition of law the question of automatic absolution from the
indemnity clause so far as indigenous suppliers are concerned. The present case need
not rest on the larger proposition but can be disposed of on the special situation and
the narrow jurisdiction founded on equitable considerations springing from the ad
interim order made by this Court.
29. Counsel for the STC, it is apt to state, did represent that the chances are remote
of the foreign buyer being able to establish damages for breach of contract in so
clear a case of frustration as the present one. Even so, he did not want to take the
risk of being made liable if that liability was not available to be passed on under the
indemnity clause to Damani. We have given enough reasons to hold why this
recondite liability apprehended by the STC should not weigh against equity which
includes us to release Damani from the indemnity obligation.
30. We bold, confined to the facts and circumstances of this case, that Clause 9(a)
which creates the indemnity clause shall not be enforced by the STC against Damani
even if the unlikely event of the former being made liable by the foreign buyer takes
place. Subject to this direction, we allow the appeal but make it dear that in the view
we have taken, a final pronouncement on the other issues has become otiose. The
Writ Petition pending in the Bombay High Court must necessarily and in keeping with
the final direction we have issued now.
31. Each party will, by their voluntary gesture, pay a sun of Rs. 2,000/- each to the
Legal Aid Society (Supreme Court) but otherwise will bear their respective costs.
1. Anson's Law of Contract 24th Edn. p. 476.

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