- (1.) On October 9, 1950, a deed styled an "indenture of mortgage" was executed by the Cochin Chemicals and Refineries Ltd. - hereinafter called 'the Company', and N. C. John, a Director of the Company, in favour of the State of Travancore-Cochin. The relevant terms of the indenture were : "In consideration of the sum of Rupees 2.5 lakhs (2,50,000) borrowed by the mortgagor No. 1 from the mortgagee (the receipt of which sum mortgagor No. 1 cloth hereby admit and acknowledge) mortgagor No. 1 hereby covenants with the mortgagee us follows : "(a) That the mortgagor No. 1 shall supply to the mortgagee 3,000 tons of ground-nut cake at the rate of 600 tons per month within a period of five months commencing with the first day of November 1950 and ending with the last day of March 1951. (b) That the account for the groundnut cakes supplied by mortgagor No. 1 to the mortgagee will be settled and adjusted against the loan amount of Rs. 2.5 lakhs and interest thereon at 41/2 per cent per annum at the end of March 1951, the groundnut cakes supplied being valued at the average price fixed by the Government during the period for purchases from other sources. If on such adjustment any amount is found due to the mortgagor No. 1 the same will be paid by the mortgagee. If however it is found that the price of the groundout cakes supplied is not sufficient to make up the loan amount with the interest thereon, mortgagor No. 1 shall pay the deficit amount to the mortgagee immediately after the settlement of account. (c) That mortgagor No. 1 shall deliver the groundout cakes at any depot in the Travancore-Cochin State as may from time to time be required by the Director of Agriculture from the mortgagee free of transport charges." II. "For the consideration aforesaid the mortgagor No. 1 hereby transfers by way of simple mortgage to the mortgagee" all the assets described in Sch. I, and mortgagor No. 2 hereby transfers by way of simple mortgage to the mortgagee" the assets described in Sch. II, "to the intent that the said premises shall remain and be charged as security for the payment to the mortgagee of the said principal money, interest and costs in accordance with the covenants hereinbefore contained." III. "The mortgagors hereby covenant with the mortgagee as follows :- * * * * *" The indenture was executed by the Company and N. C. John and also by the Secretary to the Government of Travancore-Cochin on behalf of His Highness the Rajpramukh. A supplementary deed was executed on November 7, 1950, whereby it was agreed that without prejudice to the right to recover the amount secured or any portion thereof as stipulated, it shall also be recoverable under the Revenue Recovery Act for the time being in force or in other manner as the mortgagee may deem fit.
(2.) It is common ground that the amount acknowledged in the indenture was not advanced at the date of the indenture and was never advanced thereafter. The Company arranged for the supply of goods agreed to be sold under the terms of paragraph I (a) and wrote from time to time letters to the appropriate officers of the State asking them to give instructions about the depots where the supplies were to be made. In reply to the letter Ext. H. the Assistant Director of Agriculture by Ext. M dated January 3, 1951, replied that: "I write to invite your attention to my letter of even No, dated 12-12-1950 and to inform you that I shall be placing orders for the supply of groundnut cake as soon as I get orders from Government providing the necessary funds for paying you the advance of Rs. 21/2 lakhs." No instructions for supply were however given to the Company to supply the goods agreed to be purchased by the State. The Company instituted on March 9, 1953, an action against the State of Travancore-Cochin for a decree for Rs. 3,600 being damages for failure to advance the loan of Rs. 2,50,000, and Rs. 1,68,600 as damages for breach of contract to purchase 3,000 tons of groundnut cake under the indenture. The Trial Court decreed the suit for Rs. 3,600 being damages for failure to advance the loan, and for Rs. 1,23,000 being damages for breech of contract to purchase groundnut cake. In appeal to the High Court the liability of the State to Compensate the Company for failure to take delivery of the goods offered to be delivered alone was challenged. The High Court confirmed the decree passed by the Trial Court negativing the contention raised on behalf of the State that the obligation to take delivery of the goods agreed to be purchased was contingent on the Government's advancing Rs. 2,50,000. The State has appealed to this Court with special leave.
(3.) Two questions arise for determination in this appeal: (1) Whether under the terms of the indenture the State by refusing to advance the loan of Rs. 2,50,000 was absolved from the obligation to purchase the gods referred to in paragraph I (a) of the indenture, and (2) Whether in the circumstances of the case, the Company was not entitled to claim damages for breach by the State to purchase the goods agreed to be purchased.;