Supervening illegality frustrates forward contracts, discharging obligations and defeating cancellation charges where export becomes banned.

A bank's pleadings were held to be properly signed and the suit validly instituted by an authorised officer under the bank's regulations. The defendants were found to have contracted on their own account, not merely as agents for exporting concerns. On the substantive contract issue, a government ban on export of rayon filament was treated as a supervening illegality under Section 56 of the Indian Contract Act, so the forward contracts stood discharged by frustration and cancellation charges or interest could not be claimed under provisions meant for cancelled contracts. The cause of action arose on the ban date, and the suit filed more than three years later was time-barred.

---

---

Issues: (i) Whether the plaint was duly signed, verified and the suit instituted by an authorised officer of the bank; (ii) Whether the defendants executed the forward contracts on their own account or as agents of the exporting concerns; (iii) Whether the ban on export of rayon filament frustrated the forward contracts and rendered the defendants liable to pay cancellation charges or interest; (iv) Whether the suit was barred by limitation.

Issue (i): Whether the plaint was duly signed, verified and the suit instituted by an authorised officer of the bank.

Analysis: The bank's regulations empowered specified officers, including officers authorised under Regulation 76, to sign pleadings and institute proceedings on behalf of the bank. The evidence showed that the manager signing the plaint was covered by the authority structure created under Regulations 76 and 77, as supplemented by the relevant notification redesignating and authorising branch managers.

Conclusion: The plaint was duly signed, verified and the suit was validly instituted on behalf of the bank.

Issue (ii): Whether the defendants executed the forward contracts on their own account or as agents of the exporting concerns.

Analysis: The defendants sought to show that they were only commission agents for the exporting concerns, but the admission of the partner in cross-examination that he dealt with the bank on his own account was decisive. On that evidence, the contracts were entered into by the defendants themselves and not as agents of the named exporting companies.

Conclusion: The defendants contracted on their own account, not as agents of the exporting concerns.

Issue (iii): Whether the ban on export of rayon filament frustrated the forward contracts and rendered the defendants liable to pay cancellation charges or interest.

Analysis: Section 56 of the Indian Contract Act, 1872 embodies the doctrine of supervening impossibility and illegality. Once the export of rayon filament was banned, the foundation of the bargain failed and the contracts stood discharged automatically by frustration. The contractual clauses and the foreign exchange rules dealing with cancellation could operate only where a contract was cancelled, not where it had already been discharged by operation of law. A discharged contract could not be kept alive by requests for extension, nor could cancellation charges or interest be fastened on the defendants on that basis.

Conclusion: The contracts were frustrated by the ban and the defendants were not liable for cancellation charges or interest.

Issue (iv): Whether the suit was barred by limitation.

Analysis: The cause of action arose when the contracts stood discharged on the date the ban came into force. The suit was instituted more than three years thereafter, and the subsequent correspondence seeking extension did not postpone the accrual of limitation.

Conclusion: The suit was barred by limitation.

Final Conclusion: The bank's claim failed because the contracts were discharged by frustration on the coming into force of the export ban, the defendants incurred no liability under the cancellation regime, and the action was instituted beyond time.

Ratio Decidendi: Where a supervening governmental ban makes performance of a contract illegal or impossible, the contract is frustrated and stands discharged automatically under Section 56 of the Indian Contract Act, 1872, so contractual provisions applicable only to cancellation do not apply.

---