Supervening illegality under contract law rendered the chicory sale agreement unenforceable after an import control order

A contract for sale of imported chicory was not void when made merely because it breached administrative licence conditions; that breach did not itself amount to a statutory contravention under the import control law then in force. However, once the Imports (Control) Order, 1955 came into force, the licence condition prohibiting sale made performance unlawful, and section 56 of the Indian Contract Act rendered the contract void for supervening illegality. The agreement could not be enforced because it related to specific goods and the seller could not bypass the prohibition by treating the contract as still performable. The appeal succeeded and the suit failed.

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Issues: (i) Whether the contract for sale of imported chicory was void as being prohibited by the imports control law and the conditions of the import licence; and (ii) whether the contract, though valid when made, became unenforceable because performance was rendered unlawful by the Imports (Control) Order, 1955.

Issue (i): Whether the contract for sale of imported chicory was void as being prohibited by the imports control law and the conditions of the import licence.

Analysis: A mere breach of the conditions attached to the import licence, as they stood before the 1955 Order, was not equivalent to a contravention of the statutory order so as to attract penal consequences under section 5 of the Imports and Exports (Control) Act, 1947. The conditions imposed on the licence were administrative conditions; their breach did not, by itself, make the underlying agreement unlawful at the date it was made.

Conclusion: The contract was not void or illegal on the ground that its formation itself offended the import control law then in force.

Issue (ii): Whether the contract, though valid when made, became unenforceable because performance was rendered unlawful by the Imports (Control) Order, 1955.

Analysis: Once the Imports (Control) Order, 1955 came into force, the licence-holder was bound to comply with the licence condition that the imported goods would be used only in the holder's factory and would not be sold to any party. Sale to the respondent would therefore have violated the licence condition and exposed the appellant to statutory penalty. Under section 56 of the Indian Contract Act, 1872, a contract becomes void when, after it is made, its performance becomes unlawful by reason of a supervening event. The argument that the appellant could have obtained permission or supplied other chicory was rejected because the contract related to specific goods and the licence imposed a positive prohibition against sale.

Conclusion: The contract became void after the 1955 Order because performance turned unlawful, and the respondent could not enforce it.

Final Conclusion: The appeal succeeded, the decree against the appellant was set aside, and the suit was dismissed in its entirety.

Ratio Decidendi: A contract, though valid when entered into, becomes void under section 56 of the Indian Contract Act, 1872 if a supervening statutory prohibition makes its performance unlawful, and a licence condition expressly forbidding sale cannot be bypassed by treating the agreement as still enforceable.

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