Sathish Ninan, J.

1. The suit for damages was decreed by the Trial Court. The defendants are in appeal.

2. The plaintiff is a company engaged in the business of manufacture and sale of newsprint. The first defendant is a company registered in Switzerland, engaged in the business of exporting coal. The second defendant is the Indian agent of the first defendant.

3. For the manufacturing process of the plaintiff, they require coal. On 12.04.2007, the plaintiff floated a tender for supply of coal. The first defendant was the successful tenderer. As per Ext.A1, purchase order dated 06.06.2007, was placed for the supply of 45,000 MT of coal. The defendant failed to supply. The plaintiff was constrained to purchase coal from alternate sources. The consequent loss suffered is sought to be realised.

4. The defendants contended that the contract was frustrated due to force majeure. The inability to perform was due to heavy floods and strike at the sites of the coal mines. It was also contended that the defendant was not put on notice with regard to the proposal to procure coal from alternate sources and that the defendant is not liable for damages.

5. The trial court negatived the plea of force majeure and frustration. Decree was granted for the damages suffered consequent to the alternate purchase made at a higher rate.

6. We have heard Sri.Madhu Radhakrishnan on behalf of the appellants and Sri.P.U.Shailajan on behalf of the respondent.

7. The points that arises for determination in this appeal are: -

                  (i) Is the defendant's plea of frustration of Ext.A1 contract sustainable ?

                  (ii) As the plaintiff established damages and if so what is the quantum ?

8. As per Ext.A1 purchase order dated 06.06.2007, the defendant was to supply 45,000 MT of coal. Clause-8 of Ext.A1 provided that the coal shall be shipped within 21-28 days from the date of issue of workable Letter of credit. That, after amendments to the letter of credit, it translated into a full workable letter of credit was acknowledged by the defendant as per Ext.B4 letter dated 30.07.2007. Till October 2007 the defendants failed to supply the coal. The supply was to be from Indonesia. According to the defendants, there occurred unprecedented rains and floods at the mines, disabling procurement of coal. Since the situation did not change over months, the defendants attempted to procure coal from another supplier situated at another part of Indonesia. However, due to strike in the mines at the alternate supplier's site, the defendant was unable to procure coal from there also. The contract between the parties provides for flood and strike as force majeure conditions. Thus there has been frustration of the contract. Hence the defendants are not liable for any damages, is the contention.

9. Clause 15 of Ext.A1 reads thus: -

                  “15.0 FORCE MAJEURE CLAUSE:—

                  Delivery date will be extended to the supplier without being subject to liquidated damages in the event of causes of force majeure within the contractual periods. Only the following will be considered cause of force majeure:-

                  Acts of God (Earth quake, flood, storm etc.) acts of States, direct and indirect consequences of wars (declared and undeclared) hostilities, National emergencies, Civil commotion, and strikes (only those exceeding duration of 10 continuous days) or any other reasons beyond the control of the supplier and if accepted by the purchaser. The supplier shall immediately inform the purchaser by registered and detailed letter supported by documentary proof at the beginning and end of such impediments. It is understood that delivery date will be extended only for the duration of the above mentioned impediments.”

                  As could be seen therefrom, flood, and strikes exceeding ten continuous days, are agreed to be treated as force majeure conditions.

10. Initially what needs to be considered is whether the claim of flood and strike have been established by the defendants. Ext.B5 is the communication dated 31.07.2007 from the defendant intimating the plaintiff about the floods. Along with the said letter is attached a letter of the defendant’s supplier to the defendant, intimating about the severe floods. Ext.B6 is the e-mail communication by the defendant, dated 02.08.2007, further pointing out the unprecedented rains. Along with the mail they attached reports dated 18.05.2007, 29.06.2007 and 27.07.2007 published in McCloskey's CoalReport with regard to the heavy rain fall affecting the operation of coal mines in Indonesia. Ext.B7=A4 is an e-mail dated 04.08.2007 issued by the defendant to the plaintiff pointing out the rain and the floods and seeking for extension of time till 30th August for shipment without attracting liquidated damages. Along with the said communication also, the defendant attached a report regarding coal market and the unprecedented rains in Indonesia. To the said communication the plaintiff issued Ext.A5 reply stating that the Bankers will be advised to accept the shipping documents ignoring the discrepancy regarding the latest date of shipment as per LC.

11. With regard to the rain and floods, the documents relied on by the defendants are the reports in a weekly publication and also a letter stated to be from its supplier at Indonesia. The said documents remain unproved. However, the genuineness of the same are not seen disputed by the plaintiff, either in its evidence or in the cross-examination of the defendant's witnesses.

12. Coupled with the same is the fact that as per Ext.A6 the defendant requested the plaintiff for extension of shipping date without levy of liquidated damages or other penalties. It was duly replied by the plaintiff as per Ext.B8 stating that on proof of the force majeure condition liquidated damages will not be levied in terms of clause-15 of the purchase order condition. To the said communication the defendant issued a reply attaching the reports dated 03/08/2007 and 10/08/2007 published in McCloskey's CoalReport. The plaintiff did not send any reply to the same. It suggests that they were satisfied about the genuineness of the claim.

13. With regard to the claim of the defendant that strike prevented them from providing coal from the alternate site, the defendants relied on Ext.B10 e-mail communication with which attached are four photographs showing a gathering of few people. It cannot be made out therefrom that there was any strike or riot as claimed by them. Though attached to the e-mail is a letter stated to be from the supplier informing about the strike, in the light of what is revealed from the photographs mentioned above and the absence of any other material in corroboration, we do not consider it appropriate to rely on the letter without its formal proof.

14. Be that as it may, clause-15 of Ext.A1, which is extracted supra, only provides for extension of delivery date upon the happening of force majeure conditions of flood and strike. Therefore, even if there had occurred some force majeure conditions, the defendants were bound to perform the contract. However, on the contrary, on 22.10.2007 the defendants issued Ext.A10=B14 notice, terminating the contract. In Ext.A10 notice, after referring to the force majeure conditions it is claimed that, by the passage of time the market conditions have changed and hence the contract has become frustrated.

15. Frustration of contract, is the discharge of a contract because of impossibility of performance caused from an unforeseen supervening event. The doctrine of frustration is incorporated in Section 56 of the Indian Contract Act.

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

                  Contract to do 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.

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

                  It speaks about a contract becoming impossible of performance consequent on the occurrence of some event, which the parties did not contemplate. In Satyabrata Ghose v. Mugneeram Bangur and Company and Ors. (AIR 1954 SC 44), explaining the doctrine of frustration it was held:-

                  “The doctrine of frustration is really an aspect or part of the law of discharge of contract by the reason of supervening impossibility or illegality of the act agreed to be done.”

                  The Apex Court held that the word “impossible” occurring in the Section is not confined to physical or literal impossibility and that the very alteration of the substratum upon which the contract was entered into, would also fall within the meaning of the term. The Apex Court held: -

                  “... The word “impossible” has not been used here in the sense of physical or literal impossibility. The performance of an act may not be literally impossible but it may be impracticable and unless from the point of view of the object and purpose which the parties had in view; and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do.”

                  Relying on the above, the learned counsel for the appellants argued that, due to passage of time there has been radical change in the market conditions from which prevailed at the time when the contract was entered into. Thus there has been alteration in the very foundational facts upon which the parties had entered into the contract. In the circumstances, the contract has become frustrated, it is argued.

16. To buttress his arguments, the learned counsel would further rely on the judgment of the Apex Court in Sushila Devi and Ors. v. Hari Singh and Ors. (AIR 1971 SC 1756) which held:-

                  “ The impossibility contemplated by Section 56 of the Contract Act is not confined to something which is not humanly possible. If the performance of a contract becomes impracticable or useless having regard to the object and purpose the parties had in view then it must be held that the performance of the contract has become impossible ”

17. We are unable to agree with the contention. With regard to flood and strike, as is evident from clause-15 of Ext.A1 agreement extracted supra, the parties contemplated them to be force majeure conditions and had provided its consequence viz. extension of time for performance. When the parties had contemplated the event and provided for its consequence, either of them cannot resort to Section 56 to contend that the contract has been frustrated. In South East Asia Marine Engineering and Constructions Ltd. v. Oil India Limited (AIR 2020 SC 2323) the Apex Court held,

                  “When the parties have not provided for what would take place when an event which renders the performance of the contract impossible, then Section 56 of the Contract Act applies.”….“However, there is no doubt that the parties may instead choose the consequences that would flow on the happening of an uncertain future event, under Section 32 of the Contract Act.”

                  Therein, the contract had explicitly provided for certain force majeure events and provided for payment of force majeure rate to tide over such event which is temporarily in nature. The Apex Court observed,

                  “In order to mitigate the harsh consequences of frustration and to uphold the sanctity of the contract, the parties with their commercial wisdom, chose to mitigate the risk under Clause

                  23 of the contract.”

                  Therefore, under Ext.A1, the parties having provided for the consequence of the force majeure conditions mentioned therein, the defendants cannot now fall back upon Section 56 to contend that the contract has been frustrated.

18. Now coming to the contention that due to change in market conditions the contract has been frustrated, what the defendant intend is that, there has been increase in the prices due to lapse of time and they cannot be compelled to perform at the original rate fixed. Therefore, due to change in the market conditions, the contract has frustrated, is the contention.

19. In Sushila Devi's case (supra) the Apex Court held that the supervening event should take away the foundation of the contract. It was held,

                  “But the supervening events should take away the basis of the contract and it should be of such a character that it strikes at the root of the contract.”

                  20. In Satyabratha Ghose (supra), the Apex Court held:-

                  “ The relief is given by the court on the ground of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event of change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement.”……“It must be pointed out here that if the parties do contemplate the possibility of an intervening circumstance which might affect the performance of the contract, but expressly stipulate that the contract would stand despite such circumstance, there can be no case of frustration because the basis of the contract being to demand performance despite the happening of a particular event, it cannot disappear when that event happens.”

21. It is well settled that “Commercial Impossibility” resulting from instances like variation in prices, do not fall within the scope of the doctrine of “frustration”. In Sri.Amuruvi Perumal Devasthanam v. K.R.Sabapathi Pillai & anr. (AIR 1962 Mad.132), a Division Bench of the Madras High Court held,

                  “There is no frustration where performance of the contract remains physically and legally possible though commercially unprofitable…….Mere commercial impossibility will not excuse a party from performing the contract. Mere increased cost of performance or losing in a transaction does not make the contract impossible. A man is not prevented from performing his contract by mere economic unprofitableness.”

                  The same view was expressed in Sri.Mahalingaswami Devasthanam v. A.T.Sambanda Mudaliar (AIR 1962 Mad.122). In Energy Watchdog v. Central Electricity Regulatory Commission & Ors. (2017 (14) SCC 80), the Apex Court held that an abnormal rise or fall in prices, which is an obstacle to performance of the obligation of the contract, cannot entitle a party to get rid of his bargain, as it was a risk that the party knowingly took while submitting the bid. In Alopi Parshad and Sons. Ltd. v. Union of India (AIR 1960 SC 588), the Apex Court held that a wholly abnormal rise or fall in prices does not frustrate a contract. Such change of circumstances do not result in alteration of the substratum of the contract, but only affects the parties' own purposes in contracting. Thus the contention of the appellants that there has been frustration of contract on the grounds urged, fails.

22. Under Ext.A10=B14 notice dated 22.10.2007, the defendants have terminated the contract on the alleged grounds of frustration. Having negatived the plea of frustration and found that the defendants are bound by the contract, we hold that the termination of the contract was illegal and that the defendants committed breach of the contract.

23. Now the next question to be considered is, whether the plaintiff sustained damages consequent on the breach of contract. It is the plaintiff's claim that, consequent on the failure of the defendants to supply coal, they were constrained to procure the same from other sources at a higher rate. It is the difference in the value that is being claimed as damages. At paragraph 11 of the plaint, six purchase orders under which alternate purchases were made, are narrated. They are dated 14.07.2007, 25.09.2007, 19.10.2007, 19.10.2007 and 27.12.2007 respectively. Learned counsel for the appellants point out that, of the five purchase orders above, four of them were issued by the plaintiff well within the currency of the agreement with the defendants. As evidenced by the communications from the plaintiff the period for supply was extended without being subjected to levy of any liquidated damages stipulated for in the agreement. Therefore, the procurement of coal from other sources made by the plaintiff under the purchase orders referred to in the plaint cannot by any stretch of imagination be claimed to be an alternate purchase consequent on the failure of the defendant to supply. Such purchases during the currency of the contract does not entitle the plaintiff to raise a claim for damages, it is argued.

24. We do find some force in the contention. Clause 16 of Ext.A1 purchase order provides for liquidated damages in case of delay in performance. The conduct of the parties indicate that the time for performance stood extended till the agreement was terminated by the defendants as per Ext.A10 notice. Ext.A8, the copy of the minutes of the joint meeting fortifies the same. Noticeably, except the purchase order No.5, the other four purchase orders were issued by the plaintiff to a third party during the currency of the contract. The first purchase order is dated 14.07.2007 ie. even well within the original date for performance of the agreement with the defendants. Therefore, the plaintiff cannot be heard to say that they were constrained to procure coal from other sources as per purchase orders No.1 to 4 consequent on the breach of contract by the defendants.

25. Now coming to the purchase order No.5, it was issued on 27.12.2007 after the breach by the defendants. Exts.A25 to A30 are the invoices relating to the said purchase order. The total quantity under the said purchase order is 18090.94 MT (3671.62+ 3644.24 + 3462.73 + 3648.150 + 3594.600 + 69.60 = 18090.94 MT). The earlier four purchase orders were only regarding approximately 3500 MT. The fact that after the termination of the contract on 22.10.2007 the plaintiffs were required to purchase a large quantity of 18090.94 MT indicates that such alternate purchase had to be made consequent on the breach. As evidenced by Exts.A25 to A30 the plaintiff had to pay a higher value for the said quantity. The plaintiff is justified in claiming the difference in the purchase price for the said quantity under purchase order no.5 as damages, though not for the other purchase orders.

26. The additional cost suffered by the plaintiff is claimed to be Rs.3,27,90,798/-, incurred for the purchase of 38195 MT (under the five purchase orders) from other sources. At paragraph 14 of the plaint it is pleaded thus:-

                  “The plaintiff had purchased a quantity of 38195 MT incurring a cost of Rs.17,12,31,007/-. The plaintiff would have got the same quantity for a price of Rs.13,84,40,209/- if the defendants had supplied it as per the purchase order dated 6.6.2007. Thus the plaintiff incurred additional cost of Rs.3,27,90,798/- because of the failure of the defendants to supply the material pursuant to the purchase order dated 6.6.2007.”

                  We have already noted that the alternate purchase remains proved. Therefore, the extra cost incurred for one MT is Rs.858.5 (32790798 ÷ 38195 = 858.5). The plaintiff has purchased only 14419.32 MT (purchase order no.5) from other sources after the breach. Therefore, the extra cost incurred for the purchase of 18090.94 MT is Rs.1,55,31,071.99/- (18090.94 MT x 858.50). Plaintiff had incurred expenses for opening a letter of credit and also for processing the new contract. The same is evidenced by Exts.A43 to Ext.45 and Exts.A14 to A16 documents. The plaintiff is also entitled for the letter of credit expenses of Rs.1,70,259/- incurred for the contract with the defendants and also the processing costs of Rs.2,94,268/- incurred for the alternate procurement. Thus the total additional expenditure incurred by them is Rs.1,59,95,599/-. The plaintiff is entitled for a decree for the said amount.

27. It is seen that the trial court has granted interest at the rate of 9% per annum from the date of suit till realisation. Considering the entire facts and circumstances, we are of the opinion that grant of interest at the rate of 6% per annum will be just and proper. The decree and judgment of the trial court is liable to be modified to the above extent.

                  In the result, the appeal is allowed in part. The decree and judgment of the trial court will stand modified re-fixing the amount at Rs.1,59,95,599/- and interest at 6%. The plaintiff shall be entitled for proportionate costs throughout. In all other respects the decree and judgment of the trial court will stand affirmed.