UNION OF INDIA versus COL. L.S.N. MURTHY & ANR.

Citation: [2011] 13 S.C.R. 295 · Decided: 23-11-2011 · Supreme Court of India · Bench: P. SATHASIVAM · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2011] 13 (ADDL.) S.C.R. 295 
UNION OF INDIA 
v. 
COL. L.S.N. MURTHY & ANR. 
(Civil Appeal No. 2755 of 2007) 
NOVEMBER 23, 2011 
[P. SATHASIVAM AND A.K. PATNAIK, JJ.] 
A 
B 
Constitution of India, 1950: Arlie/es 13(2), 13(3)(a) -
Agreement between Union of India and respondent no.2 for 
supply of fruit - Dispute arose between them and matter C 
referred to arbitrator - Arbitrator held that the said agreement 
was void and not enforceable as the consideration of the 
agreement was hit by letter dated 31.08.1990 of the 
Government of India, Ministry of Defence (GO/) - As per the 
letter issued by GO/, if the rate quoted by a tenderor was lower o 
than 20% of the reasonable rates, the rate would be treated 
as fictitious and the tender would be rejected by a panel of 
officers - Whether the agreement is hit by the said letter -
Held: Article 13(2) prohibits the State from making any law 
which takes away or abridges the fundamental rights conferred 
E 
by Parl-111 bf the Constitution - The word "law" is defined in 
clause (3)(a) of Article 13 to include any Ordinance order, bye-
/aw, rule, regulation, notification, custom or usage having in 
the territory of India the force of law - The said clause, 
therefore, makes it clear that not only law made by the F 
legislature but also an order or notification which takes away 
or abridges the fundamental rights conferred by Parl-111 of the 
Constitution would be void - Thus, clause (3)(a) of Article 13 
is relevant, where an order or notification of the Government 
attempts to take away or abridge the fundamental rights 
conferred by Parl-111 of the Constitution and this provision of G 
the Constitution has no relevance in deciding a question 
whether an agreement is void and is not enforceable in law -
s.23 of the Contract Act states that the consideration or object 
295 
H 
296 
SUPREME COURT REPORTS [2011) 13 (ADDL.) S.C.R. 
A of an agreement is lawful, unless the consideration or object 
of an agreement is of such a nature that, if permitted, it would 
defeat the provision of law and in such a case the 
consideration or object is unlawful and the agreement is void 
- It is thus clear that the word "law" in the expression "defeat 
B the provisions of any law" in s. 23 of the Contract Act is limited 
to the expressed terms of an Act of the legislature - Unless 
the effect of an agreement results in performance of an 
unlawful act, an agreement which is otherwise legal cannot be 
held to be void and if the effect of an agreement did not result 
c in performance of an unlawful act, as a matter of public policy, 
the court should refuse to declare the contract void with a view 
to save the bargain entered into by the parties and the 
solemn promises made thereunder - The arbitrator was, 
therefore, not right in law in coming to the conclusion that the 
0 
agreement between the appellant and the respondent No.2 
was void and not enforceable as the consideration or object 
of the agreement was hit by the letter dated 31.08.1990 of the 
Government of India, Ministry of Defence - This letter may 
be an instruction to the officers of the Defence Department 
E to reject a tender where the rate quoted by the tenderor is more 
than 20% below the reasonable rates but the letter was not 
an Act of the legislature declaring that any supply made at a 
rate below 20% of the reasonable rates was unlawful - The 
finding of the arbitrator on Issue No. 4 was thus patently illegal 
and opposed to public policy- The Award of the arbitrator as 
F upheld by the courts below is set aside and the matter remitted 
to arbitrator for deciding the claims of the appellant and the 
respondent No.2 - Contract Act, 1872 - s.23. 
The appellant invited tenders for supply of fresh fruits 
G for its troops for the period 1.10.1999 to 30.9.2000. The 
tender of respondent no.2 was accepted. Respondent 
no.2 started the supply of fresh fruits on 1.10.1999. 
However, the supply was stopped on 6.6.2000. In reply 
to the show cause notice issued by the appellant, 
H respondent no.2 stated that the price of all variety of 
UNION OF INDIA v. COL. L.S.N. MURTHY & ANR. 
297 
fruits had increased and, therefore, it was not possible A 
for him to perform his part of the contract. The appellant 
then rescinded the contract and informed respondent 
no.2 about forfeiture of its security deposit and that the 
appellant would recover from him the expenditures made 
by it for purchase of fruits from elsewhere during the 
B 
cont

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