Allowed

M/S Sathya Granites v. New Mangalore Port Trust

Karnataka HC3 Dec 2024WP/7743/2021

Case brief

AI extract

What is this about?

A writ petition challenging a port authority's demand for penal license fee and estate dues after a Karnataka export ban frustrated an iron ore allotment contract. The court quashed the demand, allowed export without penalty, exempted the prohibition-period dues, and directed recomputation per Clause 18(b).

What did the court decide?

Demand notice dated 15.03.2021 quashed; export of 11,000 MT iron ore fines permitted on payment of normal license fee only; exemption from dues for first allotment and prohibition period; fresh audit

M/S Sathya Granites Vs New Mangalore Port… — Contract and Commercial Disputes | Karnataka HC (2024)

¶1

1 - NC: 2024:KHC:49719 WP No. 7743 of 2021

¶2

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3^RD DAY OF DECEMBER, 2024

¶3

BEFORE

¶4

THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR WRIT PETITION NO. 7743 OF 2021 (GM-RES)

¶5

BETWEEN:

¶6

M/S SATHYA GRANITES A PROPRIETORSHIP CONCERN BY ITS PROPRIETOR SHRI P.K. POUN RAJ S/O KUPPUSWAY DEVAR AGED ABOUT 55 YEARS NO.69, ADHIYAMAN BYPASS ROAD DHARMAPURI-636 701 TAMIL NADU.

¶7

…PETITIONER

¶8

(BY SRI. L.M. CHIDANANDAYYA, ADVOCATE)

¶9

AND:

¶10

Digitally signed by R HEMALATHA Location: HIGH COURT OF KARNATAKA

¶11

NEW MANGALORE PORT TRUST GOVT. OF INDIA MINISTRY OF PORTS, SHIPPING AND WATERWAYS, PANAMBUR MANGALORE-575 010.

¶12

TRAFFIC MANAGER NEW MANGALORE PORT TRUST GOVT. OF INDIA MINISTRY OF PORTS, SHIPPING AND WATERWAYS, PANAMBUR MANGALORE-575 010.

¶13

CHIEF ENGINEER (CIVIL) NEW MANGALORE PORT TRUST GOVT. OF INDIA MINISTRY OF PORTS SHIPPING, AND

¶14

¶15

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶16

WATERWAYS, PANAMBUR MANGALORE-575 010.

¶17

…RESPONDENTS

¶18

(BY SRI. RAYAPPA Y. HADAGALI, ADVOCATE FOR SRI. GANAPATHI HEGDE, ADVOCATE)

¶19

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO CALL FOR THE RECORDS WHICH ULTIMATELY RESULTED IN ISSUING COMMUNICATION VIDE ANNEXURE-A DTD 15.03.2021 CALLING UPON THE PETITIONER TO PAY A SUM OF RS.5,48,55,237/- AND QUASH THE COMMUNICATION VIDE ANNEXURE-A DATED 15.03.2021 ISSUED BY THE R-1 TO THE EXTENT OF CALLING UPON THE PETITIONER TO PAY RS.5,48,55,237/- CLAIMING PENAL LICENSE FEES AND ETC.

¶20

THIS PETITION, COMING ON FOR FURTHER DICTATION, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

¶21

CORAM: HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR

¶22

ORAL ORDER

¶23

The petitioner seeks a writ of certiorari to quash the order dated 15.03.2021 passed by respondent No. 1, which demands payment of Rs.5,48,55,237/- as penal license fee for failing to export or remove iron ore fines, as per Clause 18 of the letter of allotment dated 14.05.2010. The petitioner also seeks a writ of mandamus to allow export of the existing stock of 11,000 metric tons of iron ore fines stored at New Mangalore Port, upon payment of the normal license fee, without any penal interest.

¶24

¶25

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶26

The petitioner is a business involved in buying, selling, and exporting iron ore from Karnataka. The petitioner was allotted a 2500 square meter plot inside the security area of New Mangalore Port for stacking iron ore fines.

¶27

Clause 13 of the letter of allotment requires iron ore to be shipped every 75 days. If this is not done, a penal license fee will be charged, as per the rate set by the Tariff Authority for Major Ports (TAMP).

¶28

Clause 18 of the allotment allows for penalties if shipment is delayed. These penalties are two times the normal fee for up to three months, four times the normal fee for three to seven months, and ten times the normal fee for delays over seven months.

¶29

The Karnataka Government issued a ban on iron ore transport for export on 28.07.2010, which led to the cancellation of the petitioner’s plot allotment on 28.01.2011. The Supreme Court reviewed the ban in SLP No. 33522/2010 and clarified on 11.02.2011 that the ban did not apply to iron ore already at major ports for export. The Court allowed the export of iron ore already at ports, but banned mining and transport.

¶30

¶31

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶32

On 06.09.2011, the respondents asked the petitioner to vacate the plot immediately, or continue paying the license fee until it was vacated.

¶33

The petitioner challenged the cancellation of the allotment and the penal license fee in WP No. 6725/2011. The Court ruled on 29.05.2012 that the penal fee should be limited to four times the normal fee, for up to seven months. The petitioner would be allowed to export iron ore once the penal fee was paid, following the Supreme Court’s terms.

¶34

The petitioner claims to have submitted a representation for payment and requested permission to export the 11,000 metric tons of iron ore. However, the respondent issued an order on 03.04.2014 demanding a penal license fee of Rs.79,03,118/-.

¶35

On 15.03.2021, the respondent issued another order demanding Rs.5,48,55,237/- as the license fee and GST, claiming the petitioner had not exported or removed the iron ore fines from the port despite being allowed to do so.

¶36

The petitioner’s learned counsel argues that the iron ore stacked on the plot was not exported due to a government order on 28.07.2010 that prohibited its export.

¶37

¶38

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶39

The Supreme Court, on 11.02.2011, clarified that the government’s prohibition did not apply to iron ore already at major ports for export. As a result, the iron ore could not be exported because of this order.

¶40

10.1. The counsel further argues that the respondent was only entitled to collect a penal license fee for up to seven months, as directed by this Court in W.P. No. 6725/2011 on 29.05.2012. However, the respondents have demanded payment for not exporting the iron ore within 75 days, as per Clause 13 of the allotment letter, which goes against the Court’s order. Therefore, the demand for payment is legally invalid, as the inability to export was due to legal restrictions.

¶41

In support, he places reliance upon the following:

¶42

i. Boothalinga Agencies v. VTC Poriaswami Nadar, AIR 1969 SC 110 ii. Basavalingappa Mamle Desai v. Siddalingappa, 1973 3 SCC 180 iii. Shanti Vijay and Co. v. Princess Fatima Fouzia, 1979 4 SCC 602 iv. MD, Army welfare Housing Organization .v. Sumangal Services (P) Ltd, (2004) 9 SCC 619

¶43

v. Rozan Mian .v. Tahera Begum and Others, (2007) 12 SCC 175 vi. Thiriveedi Channaiah v. Gudipudi Venkata Subba Rao, (2009) 17 SCC 341

¶44

vii. State of M.P. v . Narmada Bachao Andolan, (2011) 7 SCC 639 viii. Delhi Development Authority v. Kenneth Builders and Developers Pvt. Ltd., (2016) 13 SCC 561.

¶45

¶46

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶47

The respondent’s learned counsel argues that the petitioner has violated the terms of the letter of allotment dated 14.05.2010 by failing to export the iron ore fines within the required 75 days. As a result, the petitioner must pay a penal fee at ten times the normal rate, as stated in Clause 18(c) of the allotment letter. However, according to a previous court order in W.P. No. 6725/2011, dated 29.05.2012, the petitioner is only liable for a penalty of four times the normal license fee for delays of three to seven months, as per Clause 18(b). In a similar case (W.P. No. 39414-415/2012, dated 28.06.2013), the Court also directed the NMPT to charge a penalty of four times the normal fee.

¶48

11.1. The learned counsel further explains that despite repeated requests, the petitioner has not exported the cargo or moved it out of the customs-bound area to avoid paying the penalty. The petitioner admitted to owing Rs.2,35,41,518/- in a letter dated 06.03.2021. However, the respondents issued a demand of Rs.5,48,55,237/- on 15.03.2021, including the penal fee and interest, based on TAMP-approved rates and the terms of the allotment.

¶49

11.2. The learned counsel also argues that there was no legal impediment preventing the petitioner from exporting the cargo. The delay is due to a lack of buyers, not any legal

¶50

¶51

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶52

barriers. The respondent port has suffered losses because of the petitioner’s failure to export the cargo and refusal to pay the penalty. Therefore, the respondent requests that the petition be dismissed.

¶53

In support, he places reliance upon the following:

¶54

i. M/s. KGC Enterprises … v. The New Mangalore Trust, W.P. No. 39414-415/2012 : DD 28.06.2013; 2013 SCC OnLine Kar 5200

¶55

Upon hearing the learned counsels for the parties and perusing the materials on record, the issue that arises for consideration is whether the penal license fee Rs.5,48,55,237/- imposed on the petitioner by the respondents through letters dated 15.03.2021 and 06.04.2021, for nonperformance of shipment, is arbitrary and irrational.

¶56

¶57

Certain relevant facts are recorded, as hereunder:

¶58

i. The petitioner was first allotted land by the respondents on 19.10.2006, which was legally closed on 25.01.2010.

¶59

ii. On 19.10.2006, the plot was allotted by Respondent No. 1 for stocking, storing, and exporting iron ore mineral, and the petitioner paid a caution deposit of Rs.50 lakhs.

¶60

iii. On 21.01.2010, the petitioner requested cancellation of the allotment, and the Deputy Traffic Manager passed an order for a refund of the caution deposit.

¶61

¶62

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶63

iv. On 25.01.2010, the Senior Accounts Officer (Revenue) refunded Rs.48,59,825/- (via DD No. 972570 dated 22.01.2010 drawn on Syndicate Bank, Kumarasamy Pettai Branch).

¶64

v. A fresh allotment of a 2500 sq.m land inside the security compound for stacking iron ore fines was made by letter dated 14.05.2010.

¶65

vi. Clause 13 of the allotment letter stipulates that iron ore shipments must occur every 75 days, with a penal license fee charged at the TAMP-approved rate if missed.

¶66

vii. Clause 18 specifies the penalty for non-performance of shipment:

¶67

Two times the normal license fee for up to 3 months.

¶68

Four times the normal license fee for 3 to 7 months.

¶69

Ten times the normal license fee thereafter.

¶70

viii. The Government of Karnataka issued an order on 28.07.2010 temporarily prohibiting the issuance of Mineral Despatch Permits for the export of iron ore to prevent illegal mining and transportation.

¶71

¶72

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶73

ix. Around 11,000 Mts of iron ore fines (IOFs) were stocked in the allotted plot at New Mangalore Port when the prohibitive order was issued. The petitioner contends that the minimum quantity of IOFs needed for export via charter ship in normal business practice is 50,000 to 60,000 Mts, and the prohibitive order, along with the ceiling limits set by the Apex Court, prevented him from increasing stockpile or exporting the existing stock.

¶74

x. The Hon’ble Supreme Court clarified on 11.02.2011 in SLP (C) No. 33522/2010 that iron ore already at major ports for export is excluded from the prohibition. The concerned authorities were permitted to take inventory of the quantities at the major ports.

¶75

xi. Meanwhile, the respondents revoked the allotment on 28.01.2011, citing failure to ship iron ore every 75 days.

¶76

xii. In response, the petitioner filed a writ petition. A coordinate bench of this Court in W.P. No. 6725/2011, by order dated 29.05.2012, held that with the removal of the export ban, the petitioner was not responsible for the delay. The Court ruled that the penal license fee should be calculated as per Clause 18(b) of the allotment letter, and the petitioner was allowed to export the iron ore, subject to payment of the penalty in accordance with the terms of the Apex Court’s order.

¶77

10 -

¶78

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶79

xiii. Following the Apex Court’s clarification, the Department of Mines and Geology granted permission to export 10,528 Metric Tons of iron ore on 03.06.2011, which was reaffirmed on 15.07.2014.

¶80

xiv. On 03.04.2014, the respondents informed the petitioner that the port dues, including the penal license fees up to 31.03.2014, amounted to Rs.72,22,446/-.

¶81

xv. In response to the petitioner’s representations, the respondents issued a letter on 20.02.2021, permitting the export of IOF, subject to the production of necessary clearance from the Department of Mines and Geology and payment of pending dues of Rs.2,98,27,304/- plus applicable GST and penal interest.

¶82

xvi. The petitioner disputed the computed amount and proposed that the payable penal license fee was Rs.2,35,41,518/-, as stated in his letter dated 06.03.2021.

¶83

xvii. The respondents issued two letters dated 15.03.2021 and 06.04.2021, rejecting the petitioner’s computation and demanding payment Rs.5,48,55,237/- as penal port dues for the periods 29.09.2006 to 26.10.2009 (Rs.16,21,006/-) and 12.05.2010 to 28.02.2021 (Rs.5,32,34,231/-).

¶84

11 -

¶85

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶86

xviii. Aggrieved, the petitioner has filed the current petition.

¶87

The petitioner is primarily aggrieved by the imposition of penal fees for non-performance of the export shipment of iron ore fines (IOFs) within 75 days, claiming that the performance of the contract (Letter of Allotment dated 14.05.2010) was rendered impossible due to the operation of law. Additionally, the petitioner disputes the respondents’ calculation of estate dues, including penal license fees, for two periods—29.09.2006 to 26.10.2009 and 12.05.2010 to 28.02.2021—arguing that the first allotment (2006 to 2009) had ended on 25.01.2010, prior to the issuance of the new allotment letter.

¶88

A review of the respondents’ letters dated 15.03.2021 and 06.04.2021 indicates that the export of IOFs required clearance from the Department of Mines and Geology, certifying the quality and legitimate origin of the iron ore. Therefore, the Letter of Allotment, along with communications between the petitioner and respondents, suggests that the issuance of Mineral Despatch Permits by the Department of Mines and Geology and payment of pending estate dues were conditions for the grant of permission to export the IOFs stored at New Mangalore Port.

¶89

12 -

¶90

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶91

It is clear from the petitioner’s letters (Annexures Q and T) that the petitioner was first cleared to export IOFs on 03.06.2011, but the respondents again sought a report from the Department of Mines and Geology regarding the legitimacy of the ore’s origin. This delayed the shipment. More than three years later, the department reaffirmed its earlier report vide letter dated 15.07.2014. Therefore, the petitioner was prevented from exporting the IOFs due to the operation of law until the issuance of the 15.07.2014 letter from the respondents.

¶92

The petitioner’s counsel refers to the applicable case law on the frustration of contract. Section 56 of the Indian Contract Act, 1872, deals with the impossibility of performance, and reads as follows:

¶93

“56. Agreement to do an impossible act.— An agreement to do an act impossible in itself is void.

¶94

Contract to do an act afterwards becoming impossible or unlawful.— A contract to do an act which, after the contract is made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

¶95

Compensation for loss through non-performance of act known to be impossible or unlawful.— Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such

¶96

13 -

¶97

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶98

promisor must make compensation to the promisee for any loss sustained through the non-performance of the promise.”

¶99

In Boothalinga Agencies v. VTC Poriaswami Nadar (AIR 1969 SC 110) , the Hon’ble Supreme Court of India held that when a positive prohibition was imposed by law after the contract was executed, rendering the contract’s performance impossible or unlawful, the contract became void. The Court emphasized that the doctrine of frustration applies in cases of supervening impossibility or illegality, and Section 56 of the Indian Contract Act lays down a clear rule, without leaving it to the parties’ intentions. However, it was also noted that Section 56 does not apply to cases of selfinduced frustration.

¶100

In Malikarjunappa Basavalingappa Mamle Desai v. Siddalingappa and Ors. (1973) 3 SCC 180 , the appellants were in possession of certain lands under a compromise decree dated 11.01.1913, in lieu of maintenance payable by the respondents. The respondents retained ownership rights based on primogeniture, and it was their responsibility to pay government dues, including government Judi and local fund cess. Following the enactment of the Watan (Abolition) Act, 1950, the lands were regranted to the appellants after paying the necessary occupancy price, sometime after July 1956, subject to the payment of an assessment price. When the

¶101

14 -

¶102

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶103

respondents sought maintenance under the 1913 decree to cover the government dues, the Hon’ble Supreme Court dismissed their petition, ruling that the right to claim maintenance under the decree was extinguished. This was because the lands had permanently changed from Watan property to Ryotwari tenure due to the operation of law. The Court applied Section 56 of the Indian Contract Act, 1872, which provides that a contract becomes void when its performance becomes impossible or unlawful due to an event the promisor could not prevent.

¶104

In M/s. Shanti Vijay and Co. v. Princess Fatima Fouzia (1979) 4 SCC 602 , the Supreme Court held that where a contract for the sale of a trust estate was not executed in good faith or according to the Trust Deed, and where an injunction had prevented tender bidders from paying the balance of the tender amount during its subsistence, the contracts were frustrated. The Court noted that the bidders had not attempted to perform the contract by paying the balance amount.

¶105

In MD, Army Welfare Housing Organization v. Sumangal Services (P) Ltd. (2004) 9 SCC 619 , the Supreme Court ruled that the party raising the allegation of frustration has the burden of proving that the frustration was not self-

¶106

15 - NC: 2024:KHC:49719 WP No. 7743 of 2021

¶107

induced. In this case, the appellant failed to provide evidence that the respondent builder’s inability to proceed with construction, due to the municipal authorities’ order stopping the construction, was self-induced. The Court found that the contract was frustrated due to the impossibility of performance. Furthermore, the Court discussed the law on damages, stating that liability for non-performance arises only when the contract is absolute and unrestricted by any condition, and that difficulties may not always amount to impossibility. If they do not, the terms and conditions of the contract may still stand.

¶108

In Rozan Mian v. Tahera Begum and Others (2007) 12 SCC 175 , the Supreme Court applied Section 56 of the Indian Contract Act, 1872, when the Calcutta Thika Tenancy (Acquisition and Regulation) Act, 1981, prohibited the transfer of thika tenancy rights. The Court ruled that the promulgation of the 1981 Act rendered the contract transferring thika tenancy rights void, as it explicitly barred such transfers and rendered any in contravention of the Act void.

¶109

In Delhi Development Authority v. Kenneth Builders and Developers Pvt. Ltd. (2016) 13 SCC 561 , the Supreme Court held that where a project development required permissions from certain governmental bodies due to

¶110

16 -

¶111

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶112

the land’s proximity to the Ridge area, the failure of the petitioner authority to obtain these permissions made it impractical for the respondent-builders to proceed with the construction. The Court found that after more than eight years, the parties’ contract had become impractical and useless due to a total change in circumstances. The Court concluded that the petitioner was liable to return the entire bid amount, with interest at 12% per annum.

¶113

In Energy Watchdog v. CERC (2017) 14 SCC 80, the Hon’ble Supreme Court summarized the principles of the doctrine of frustration of contract, as follows:

¶114

24.1 If the performance of an act becomes impracticable and useless due to a change in circumstances, which disrupts the very foundation of the contract, the contract shall be deemed frustrated (Satyabrata Ghose v. Mugneeram Bangur & Co., 1953 2 SCC 437).

¶115

24.2. Frustration occurring outside the contract is governed by Section 56 of the Indian Contract Act, 1872, rendering the contract void if it becomes impossible or unlawful to perform (Satyabrata Ghose v. Mugneeram Bangur & Co., 1953 2 SCC 437).

¶116

24.3. If the contract explicitly or implicitly refers to circumstances under which it stands discharged, such discharge is

¶117

17 -

¶118

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶119

governed by Section 32 of the Indian Contract Act, 1872 (Satyabrata Ghose v. Mugneeram Bangur & Co., 1953 2 SCC 437).

¶120

24.4. A contract cannot be discharged based on a vague plea of equity. Performance may only be discharged if it is reasonably inferred that the parties never intended to be bound under fundamentally different circumstances that arose after the contract was executed (Alopi Parshad & Sons Ltd. v. Union of India, 1960 2 SCR 793).

¶121

24.5. Courts do not have the general power to relieve a party from a contractual obligation merely due to changed circumstances or unforeseen events that make performance more burdensome (Naihati Jute Mills Ltd. v. Khyaliram Jagannath, 1968 1 SCR 821).

¶122

24.6. The doctrine of frustration must be narrowly interpreted. A price escalation, for example, does not render a contract impossible to perform if an alternative, more expensive method of performance is available (Tsakiroglou & Co. Ltd. v. Nobli Thori GmbH, 1961 2 All ER 179 (HL)).

¶123

24.7. The doctrine of frustration requires a multi-factorial approach, considering the contract terms, factual circumstances, mutual assumptions at the time of execution, the nature of the supervening event, and the capacity of the parties to perform under changed conditions. The doctrine should not be invoked lightly and must involve a change so radical that it imposes a risk on the

¶124

18 - NC: 2024:KHC:49719 WP No. 7743 of 2021

¶125

promisor beyond what was contemplated in the contract. If the change in circumstances allocates risks beyond the parties’ expectations at the time of the contract, the contract may be deemed frustrated (Edwinton Commercial Corporation v. Tsavliris Russ (Worldwide Salvage & Towage) Ltd. - The Sea Angel), 2007 EWCA Civ 547).

¶126

In light of the above principles, it is clear that the circumstances from 28.07.2010 (when the prohibitive order was issued) to 15.07.2014 (when the Mineral Despatch Permits were issued) made it impossible and impracticable for the petitioner to fulfill export obligations under the Letter of Allotment dated 15.04.2010, due to unforeseen events beyond their control. This radical change in circumstances, caused by the operation of law, rendered performance of export shipment impossible.

¶127

The impugned letters from the respondents dated 15.03.2021 show that the respondents have calculated port dues, including penal license fees, for two periods:29.09.2006 to 26.10.2009 and 12.05.2010 to 28.02.2021. The earlier period (2006–2009) relates to a previous allotment, which had ended, as evidenced by the letter dated 25.01.2010. Therefore, the petitioner cannot be held responsible for dues related to the first allotment, as the

¶128

19 -

¶129

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶130

contract ended four months before the issuance of the second Letter of Allotment.

¶131

Upon reviewing the documents, it is certain that there was no barrier preventing the petitioner from performing the export shipment once the Mineral Despatch Permit was issued on 15.07.2014. The petitioner has not provided any evidence to suggest that any government action delayed or hindered the export performance.

¶132

However, this Court recognizes the challenging and uncertain conditions in the mining industry, at least until the Supreme Court’s order in W.P. (C) No. 529/2009 on 20.05.2022, which relaxed the restrictive measures on production, sale, and export from Karnataka. The prohibitive order of 28.07.2010 remained in place until modified by the Supreme Court on 11.02.2011, indicating that miners and related businesses were often under an eye of suspicion, which impacted business operations and finding of the buyers for the ores. Additionally, the petitioners had to face multiple rounds of litigation, including a successful challenge to the revocation of the plot in W.P. No. 6725/2011 : D.D. 29.05.2012.

¶133

20 -

¶134

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶135

At this stage, it is pertinent to examine the nature of the dues claimed by the respondents. A breach of the terms of the Letter of Allotment (such as failure to export IOFs every 75 days) results in a penal license fee being imposed, as outlined in Clause 18 of the Letter of Allotment.

¶136

30. The dues may be classified as follows:

¶137

30.1. License fee payable under Clause 1 of the Letter of Allotment dated 15.04.2010 and the Memo dated 18.07.2024, as per the TAMP guidelines for NMPT land allocation.

¶138

30.2. Penal license fee for non-performance of export shipments once in 75 days, as per Clause 18 of the Letter of Allotment, which sets the TAMP conditions for imposing penalties.

¶139

30.3. Any accumulated interest.

¶140

Upon reviewing the Letter of Allotment dated 14.05.2010 and Clause 18 thereof, it is clear that the penal license fee for non-performance relates to a single isolated breach, and not a continuing breach. The penalty is applied based on the duration of the breach, with different levels of penalties based on how much time has passed without

¶141

21 -

¶142

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶143

rectification. Therefore, the penalty will be calculated from the expiry of the 75-day period after the Mineral Despatch Permit was issued on 15.07.2014, based on a single breach.

¶144

It is well-established that penal provisions must be strictly interpreted. However, where a reasonable interpretation can avoid a penalty, such as in this case where the contract was frustrated due to the operation of law, courts should adopt a lenient approach and exempt the penalty. This principle has been affirmed in cases like Tuck and Sons v. Priester (1887) 19 QBD 629, London and North Eastern Railway v. Berriman (1946) 1 All ER 255, and Krishi Utpadan Mandi Samiti v. Pilibheet Pantnagar Beej Ltd. (2004) 1 SCC 391.

¶145

Furthermore, reliance is placed on this Court’s decision in W.P. 6725/2011:D.D. 29.05.2012, and on the observations of a coordinate Bench in M/s. KGC Enterprises v. New Mangalore Port Trust, W.P. No. 39414/2012 and connected matters : D.D. 28.06.2013. The latter was a case concerning the renewal of land leases for major ports at an enhanced fee, wherein it was observed, by relying on the decision in the case of W.P. No. 6725/2011 that given the prohibitive order dated 28.07.2010 and its subsequent modification by the Supreme Court on 11.02.2011, it would be

¶146

22 -

¶147

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶148

in the interest of justice to reduce the penal license fee for the non-lifting of minerals from the port for up to seven months, in accordance with sub-clause (b) of Clause 18 of the Letter of Allotment. It was further noted that imposing a higher penal fee beyond what is allowed in Clause 18(b) would unfairly burden the petitioners, who were not at fault.

¶149

It may be further relevant to note that the petitioner’s conduct does not suggest any intention to violate the terms of the contract, and the respondents have not made any specific allegations of mala fides against the petitioner.

¶150

It is now a well settled rule of interpretation that courts must not rewrite a contract, but only interpret its explicit terms. Courts should not find ambiguity in a penal provision if a plain reading does not reveal any. However, in its extraordinary jurisdiction under Article 226 of the Constitution, a writ Court can justly interpret a penal contractual term and avoid imposing a penalty when unforeseen circumstances have occurred since the execution of the contract.

¶151

Regarding the estate dues, these are payments from the petitioner to the port authorities for the uninterrupted occupation of the allotment of land in the port area. Typically, non-payment of such dues may lead to action for recovery of

¶152

23 -

¶153

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶154

damages. However, in this case, where the non-performance of the contract was caused by the operation of law, any action to recover such dues should not be entertained.

¶155

Where estate dues are calculated for the entire period of occupation, it would be fair to exclude interest, especially considering that the petitioner was unjustly burdened with payments related to the first allotment (which had already expired), penal license fees for the period until 15.07.2014 (when export was prohibited by law), and the inability to lift the IOFs due to non payment of dues for the duration of the first allotment and for the period until 15.07.2014.

¶156

It is therefore reasonable to hold the petitioner liable for estate dues without interest, for the period of occupation from 15.07.2014 to the date of filing this petition. The respondents should not impose any interest on the estate dues during this period, particularly as the petitioner could not lift the IOFs until the dues related to the earlier allotment and the period of frustration were resolved.

¶157

A writ Court, in its judicial review capacity, must balance the interests of the parties. In this case, a private enterprise was affected by conditions beyond its control,

¶158

24 -

¶159

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶160

leading to the frustration of the contract, which continued for several years. It would not be fair or lawful to allow the respondent-government to impose a penal license fee or estate dues for the entire period when the contract was frustrated on account of operation of law.

¶161

As this Court cannot adjudicate on disputed factual issues regarding the exact amount of penal license fees and estate dues, it is directed that the respondents conduct a fresh inquiry and audit to recompute these amounts in accordance with the observations made in this order.

¶162

41. Accordingly, I passed the following:

¶163

ORDER

¶164

i. The petition is allowed and the impugned demand notice dated 15.03.2021 (bearing No. 3/44/2021/IOFs/EBL/01) issued by respondent No. 1 is hereby quashed.

¶165

ii. In light of the hardship caused to the petitioner due to the prolonged delay in resolving the grievances, the respondents are hereby directed to allow the petitioner to export the existing stock of 11,000 metric tons of IOFs from New Mangalore Port,

¶166

25 -

¶167

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶168

subject to payment of the license fee as per the Letter of Allotment dated 14.05.2010, without requiring payment of any penal license fee.

¶169

iii. The respondents are at liberty to conduct an inquiry and audit to re-compute the penal license fee and estate dues, strictly following the observations made herein.

¶170

iv. It is clarified that the petitioner shall not be liable for any dues raised against the first allotment, covering the period from 19.10.2006 to 25.01.2010, as the first allotment had ended before the issue of the second Letter of Allotment on 14.05.2010.

¶171

v. The petitioner shall not be liable for any penal license fees or estate dues for the period from 28.07.2010 (the date of the prohibitive order) to 15.07.2014 (the date the Mineral Despatch Permits were issued), during which time the petitioner was prohibited from performing the export shipment.

¶172

vi. The respondents are directed to compute the penal license fee in accordance with Clause 18(b)

¶173

26 -

¶174

NC: 2024:KHC:49719 WP No. 7743 of 2021

¶175

of the Letter of Allotment, based on the single instance of breach for the non-performance of the export shipment within 75 days after 15.07.2014. However, consideration should be given to whether any penal fee is due, given that even if the penal license fee were to have been paid on time, the petitioner would not have been allowed to lift the IOFs until the dues raised against the first allotment, and the dues computed for the period of frustration were resolved.

¶176

vii. The respondents are directed to compute the estate dues payable by the petitioner, free from any interest, for the period from 16.07.2014 until the filing of this petition.

¶177

Sd/(HEMANT CHANDANGOUDAR) JUDGE

¶178

BKM

M/S Sathya Granites v. New Mangalore Port Trust

Case brief

What is this about?

What did the court decide?

M/S Sathya Granites v. New Mangalore Port Trust

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

Case details

Similar cases

M/S Megha Services Pvt. Ltd. Vs State of Karnataka

Sri v T Dinesh Kumar Vs State of Karnataka

Smt Kalamma Vs Can Fin Homes Ltd, Bidadi Branch

Sri. J. C. Rudra Sharma Vs J. C. Visweswara

Shri K.G. Srinivas, Vs Smt Mangalamma

Surendra Babu J, Vs M/S Gundu Muneshwara Swamy Devastana Trust (R)