M/S Sathya Granites vs. New Mangalore Port Trust

Held

The Court held that the penal license fee of Rs. 5,48,55,237/- imposed by the respondents was arbitrary and irrational. The Court reasoned that the petitioner's inability to export iron ore fines was due to the government's prohibitive order dated 28.07.2010, which was a supervening event beyond the petitioner's control, leading to the frustration of the contract. The Court noted that a previous order had limited the penal fee to four times the normal fee for delays up to seven months, and imposing a higher penalty for the period of frustration would unfairly burden the petitioner. The Court also found that the petitioner's conduct did not suggest an intention to violate the contract and that the respondents had not alleged mala fides. Regarding estate dues, the Court held that it would be fair to exclude interest for the period the contract was frustrated due to the operation of law. The Court directed the respondents to conduct a fresh inquiry and audit to recompute the penal license fee and estate dues in accordance with the observations made. The impugned demand notice was quashed, and the petitioner was allowed to export the existing stock of 11,000 metric tons of iron ore fines upon payment of the normal license fee without any penal charges. The petitioner was clarified not to be liable for dues from the first allotment or for the period from 28.07.2010 to 15.07.2014. Penal license fee was to be computed as per Clause 18(b) for the period after 15.07.2014, considering whether any fee was due given the prior unresolved dues. Estate dues were to be computed free of interest for the period from 16.07.2014 until the petition filing.

Facts

The petitioner, M/s Sathya Granites, was allotted a plot at New Mangalore Port for stacking and exporting iron ore fines. Clause 13 of the allotment letter required shipment every 75 days, with penal license fees applicable for delays as per Clause 18. A government ban on iron ore transport for export was issued on 28.07.2010, leading to the cancellation of the petitioner's plot. The Supreme Court later clarified that the ban did not apply to iron ore already at major ports for export. The petitioner challenged the cancellation and penal fees, and a previous court order limited the penal fee to four times the normal fee for delays up to seven months. The respondent issued a demand notice on 15.03.2021 for Rs. 5,48,55,237/- as penal license fee and GST, claiming the petitioner failed to export iron ore fines despite being allowed to do so.

Key Issues

1. Whether the penal license fee of Rs. 5,48,55,237/- imposed on the petitioner by the respondents is arbitrary and irrational, considering the government's export prohibition order and the subsequent Supreme Court clarification. The petitioner argued that the inability to export was due to legal restrictions and that the respondents were only entitled to collect a penal license fee for up to seven months as per a previous court order, making the current demand legally invalid. The respondents contended that the petitioner violated the allotment terms by failing to export within 75 days and should pay a penal fee at ten times the normal rate as per Clause 18(c), or at least four times the normal fee as per Clause 18(b) and previous court orders. They also argued there was no legal impediment to export, only a lack of buyers, and the port suffered losses. 2. Whether the petitioner is liable for estate dues and interest for the period the contract was frustrated due to operation of law. The petitioner argued that any action to recover dues should not be entertained when non-performance was caused by law, and it would be unfair to impose penalties for the period of frustration. The respondents did not explicitly address this issue in the provided text, but their overall argument implies a claim for dues for the entire period of occupation.