Holding

Condition 8 bars telegraphic withdrawal of bids, oral retraction to an unauthorized officer is ineffective, and Condition 6 implicitly authorises the Board to accept lower bids, making the Board entitled to recover damages for the resale loss.

Summary

The Coffee Board conducts pool auctions for coffee where bids are submitted in sealed forms and the Sale Conducting Officer (the Chief Marketing Officer) decides the successful bidders. M. L. Lachia Setty & Sons Ltd. and Giri Coffee Works had their bids accepted despite not being the highest, but later failed to take delivery and pay. They claimed the contracts were void because they withdrew their bids by telegram and orally before the results were announced, and argued that the Board could not accept lower bids nor claim damages for the loss incurred on resale. The Supreme Court held that Condition 8 of the Board’s Conditions of Sale expressly prohibited telegraphic withdrawal or retraction of bids, and the oral retraction was ineffective as it was made to an unauthorized officer. Condition 6 was interpreted to give the Board power to accept any lower bid in preference to higher ones. The Board’s resale was deemed reasonable and the loss recoverable. Consequently, the appeals were dismissed and the Board’s claim upheld.

Issues considered

The effect of Condition 8 on telegraphic withdrawal or retraction of bids in a pool auction.
The validity of oral retraction of bids made to an officer without authority.
Whether Condition 6 confers power on the auctioneer to accept lower bids over higher ones.
The applicability of the doctrine of mitigation of loss to the Board’s resale and the reasonableness of the resale timing.
The entitlement of the Board to claim damages for loss arising from resale of defaulted coffee.

Legislation cited

Coffee Act

Subjects

auctionbid withdrawaltelegraphic bidscontract formationmitigation of lossauctioneer discretionstatutory bodycoffee boardresaledamages

Judgment

88~1

A M. LACHIA SETTY & SONS LTD. ETC. ETC. --- •,

V'.

THE COFFEE BOARD, BANGALORE

B October 9, 1980
[V: D. TULZAPURKAR AND R. S. PATHAK, JJ)
Auction sales-Auctioneer, if competent to impose his ·own terms for hold·
ing a11ctions-Mitigat1'on of loss in resale of goods 'not taken delivery of-Right~
of defaulting and non-defaulting parties.
c One of the three methods followed by the respondent, IThe Coffee Board),
for releasing raw coffee seeds to the trade for internal consumption was by
"pool auctions" in wbich only dealers registered with the Board were permitted
to participate. · The pool auction was conducted by a Sale Conducting Officer
(who was Chief Marketing Officer of the Board). Condition 8 of the Condi:
tions of Sale provides, "telegraphic bids or telegraphic instructions regarding
bidding will not be considered." Condition 6 provides, "the seller does not
D bind himself to accept the high'est or any bid. He is not bound to assigll
any reasons for his decision and his d<~cision shall be final and conclusive." ,
The bi~s offered by the two appell'ants, who were registered dealers, at a
pool auction were accepted by the Sale Conducting Officer, even though the
bids were not the highest. On their failure to take' delivery of the stocks and
to pay the bid money wiihin the stipulated period, the Board, after giving due
E notice to the appellants re-sold the stocks two months later at another pool
auction. The prices realised at the re-auction being much lower than the
appellant's bids, the Board sought to realise the differences by way of suits.
The appellants disclaimed liability to make good the loss to the Board
mainly on the ground that there was no concluded contract between the parties
in that the appellants had sent telegrams to the Board revoking their bids
before the declaration of the results of the auction; that in one case in regard
to five Jots there was no concluded contract as the Board ev'cn under clause 6
had no power to accept a lower bid on receipt of a higher bid which it did.;
and that the appellan,ts were not. responsible for th~ loss which the
Board had claimed as having arisen out of the resale of the stocks bid by them
in that the Joss was the result of deliberate bringing down of prices by the
Board and further there was inordinal<l delay in holding the re-sale.

G The Board, on the other hand, alileged that Condition s· did not permit
telegraphic withdrawal or retraction of any bid and since the oral retraction
had not been properly done to the. officer concerned there was a concluded
contract; Condition 6 was framed to prevent the. mal-practice among dealers
by cornering stocks by forming rings among themselves and puffing up prices
to make unlawful gains to the detriment of the consumer and that lastly the
Joss which resulted in the resale of stocks was the. result of fall in prices at
H the time of resale and therefore, was not unreal.
M. L. SETTY v. COFFEE BOARD ·sss
Accepting the appellants' contention the trial court dismissed the Board's A.
suit for recovery of loss. On appeal by the 'Board the High Court substantially
upheld its contentions and decreed the suits.
Dismissing the appeals,
HELD: 1. (a) Conditi~n No. 8. was wide enough to bar withdrawal or
retraction of bids by telegrams: [891H]
B
(b) Oo: the face of it "instructions regarding bidding" would mean any
instructions, not merely instructions by way of clarification, modification, ampli-
fication of bids but also withdrawal or .retraction of bids. Such instructions
by telegram would be impermissible. Having regard to the solemn procedure
·prescribed and followed by the Board any instructions by telegram which more
often are cryptic and lack in authenticity on their face are rightly prohibited .
.The fact that nowhere else in the Conditions of Sale is the withdrawal or retrac-
,tion of bids dealt with. would precisely be the reason why this Condition should
c
be 'Yidely construed as including the topic of. instructions regarding withdrawal
.•or retraction of bids. [891E-G] '
2. There is no force in the contention that there were no concluded. con-
tracts between the parties on account of oral withdrawal of the bids. Assuming
that the oral retraction was made as claimed by the appellants, the fact that
it was made to the Assistant Coffee Marketing Officer who had no authority D
·to accept it (instead of to the Sale Conducting Officer who was in charge of
the. pool auctjon) made the. retraction ineffective . and of no consequence,
[892C-DJ
3. (a) An auctioneer can set hk own terms and conditions for ·holding an
.auction. If he does so, it is these ·conditions that would govern the rights of
the parties. [893G]
E
(b) The Chief Marketing Officer was well within his rights in accepting
the lower bids. When Condition 6 says that the seller is not bound to accept
the highest bids, it necessarily implies that he can accept any lower bids. The,
( words, "or any bid" after the· words· "the highest" are used not for emphasis-
ing that even the highest bid need not be accepted. The use of the words
"or any bid" would be superfluous if the same consequence of holding a fresh
auction was to ensure in the event of the highest bid being declined. By p
necessary implication power had been conferred on the Board or its Chief
Marketing Officer to accept a lower bid in preference to any higher bid.
[894E-H]
, (c) The practice followed by the Board over a period long before the
disputes arose showed that the parties to the pool auctions understood Condi-
tion No. 6 as conferring power on the Board or its Chief Marketing Officer to
accept lower bids in preference to higher bids. More than all, the Condition G
was devi~ to put an ·end to the mal-practice· of the dealers cornering stocks,
puffing up prices and so on to the detriment of the consumer. [895A]
4. (a) The well accepted position in law on the question of mitigation of
loss is that it does not give any right to the party in breach of the contract
a
but is ·concept to be borne in mind by the Court wbile awarding damages.
The non-defaulting party is not expected to take steps which would ·injure in-
nocent persons. Steps taken by him in performance or discharge of his .statu·
H
tory duties cannot be weighed against him. The question in each case would
be one of reasonableness of action taken by the non-defaulting party. [897C]
\
886 SUPREME COURT REPORTS [1981] 1 S.C.R.

A In the instant case the various measures taken by the Board were to
prevent mal-practice by dealers and to protect the interest of the consumers.
In any event they were not directed against the defaulting dealers at the pool
auction. At the earlier auction the Sa le Conducting Officer decided to accept
the lower bids in preference to the higher bi'ds offered by the dealers who
despite the oral warning issued by him agains! such a method, offered higher
bids exceeding the average prices for the month. It was for this reason that
B at the re-sale the prices realised were .lower than those offered by the appellants
at the earlier pool auction. At the re-sale at any rate, only the highest bids
were accepted and therefore, the loss arising from the re-sale was not unreal
as claimed by the appellants. [898A-C]
(b) On the facts of this case the re·sale had been held within a reasonable
time. [898G]

CNIL APPELLATE JURISDICTION: Civil Appeal Nos. 2567-2568
of 1969.
From the Judgment and Order dated 19-7-1963 of the Madras
High Court in Appeal Nos. 260/58 and 165/60.
S. V. Gupte, S. S. Javali and M. Veerappa for the Appellant.
·D
Sundran Swami, Ravindra Swami and K. J. John for the
Respondent.
The Judgment of the Court was. delivered.by
TULZAPURKAR, J.-These appeals by certificates granted by the
High Court of Judicature at Madras are directed against its common
judgment and two decrees dated July 19, 1963 in AS. No. 260 of
1958 and AS. No. 165 of 1960 respectively whereby the High Court
decreed the respondent suits (O.S. No. 319/1955 and 0. S. No. 316/
1955) in damages against the two appe:llants (M. Lachia Setty &
Sons Ltd. and Giri Coffee Work:;) respectively.
F
The respondent (the Coffee Board, Bangalore) is a statutory
body incorporated under the Coffee Act, 1942 having complete
control-almost monopolistic-over the coffee trade, internal and
external. Its functions and dutic:s require it· to ke·ep a control over
coffee prices regard being had to the interest of all concerned, the
G grower, planter, licensed curer, 1trader and consumer. Inter alia, it
is entrusted with a duty of marketing coffee d_elivered to it by all
owners of coffee estates and for that purpose it is empowered to
make allotments of coffee between export and internal trade and in
regard to the coffee allotment made to the latter category at the
material time it adopted three methods for releasing the coffee to
H the trade for internal consumption : (l) by sales called "pool
auctions" (wholesale) held at Bangalore, Coimbatore and certain
other centres in Madras and Mysore States, (2) by retail sales known
M. L. SETTY v. COFFEE·BOARD (Tulzapurkar, J.) 887

as "local auctions" and ( 3) by sales to cooperative societies and at .. A
propaganda centres established by it. In these appeals we are
concerned with internal sales falling under the first category, namely,
sales effected periodically through "pool auctions". Admittedly, at
such "pool auctions" only dealers . registered with the respondent
Board to whom permits are issued are entitled to participate and
such "pool auctions" are inter alia governed by special conditions
prescribed by the respondent Board generally for regulating such
sales which are termed as 'Conditions of §ale' (copy produced at
Ex. A-3).

l On October 7, 1952 various quantities of coffee (of various
grades and quality) comprised in 315 lots were put up for sale by
the respondent at its "pool auction" held at Coimbatore, the auction
being conducted by the Chief Coffee Marketh!g Officer himself as
the Sale Conducting Officer. In that auction several registered
dealers including the two appellants (M: Lachia Setty & SollS' Ltd.
and Mis Giri Coffee Works) participated and lodged their bids in
the prescribed forms for certain lots in the Bid Boxes maintained ·D
for the purpose. · The result of the auction was announced some
time after 2 P.M. on October 8, 1952 and inter alia, the bids of the
· two appellants in respect -of the quantities of the lots for which they
·had submitted their bids were accepted by the Chief Marketing
Officer, though some of the bids in respect of five lots were not the
highest, and they were declared to be the successful bidders. On E
the appellants' failure to pay for and take delivery of the lots either
within the stipulated period of 17 days or the extended period the
respondent Board after issuing a notice of re-sale dated December
18, 1952 to the appellants and others, who had similarly defaulted,
held a re-sale (another pool auction) on December 23, 1932 at
· which considerably lower price wa.s realised and . the respondent . F
a
. Board filed batch of 15 suits against the defaulting bidders including
.the two appellants. In suit No. 319/1955 which was filed against
the appellant M. Lachia Setty & Sons Ltd., the loss incurred as a
result of the re-sale was claimed at Rs. 34,570-6-6 as and by way
.of damages and in suit No. 316/1955 filed against appellant Mis·
G
Giri CoJiee Works a loss of Rs. 5,917 was claimed. .

··~
By their written statements !he appellants, inter ali•a, raised
three principal defences. First, the appellants contended that in
their case they had revoked their bids orally as well as bf a
telegram dated October 7, 1952 before the declaration of the results
and hence there were no concluded. contracts between them and ·H
the Coffee Board and, therefore, they could :Qot be made liable for
the loss arising on re-sale. Secondly, it was contended that at an
888 SUPREME COURT REPORTS [1981] 1 S.C.R.

A auction a lower bid always lapses on receipt. of a higher bid and
as such the lower bid becomes incapable of acceptance and that
even under condition No. 6 of the 'Conditions of Sale' the Board
or its Chief Coffee Marketing Officer had no power to accept their
lower bids (in respect of 5 lots in the case of Giri Coffee Works)
as those were not the highest bids for the lots concerned. Thirdly,
B it was contended that the Coffee Board having deliberately depressed
or brought down the ·prices of the coffee had disentitled i:tself to
claim damages in as much as the loss arising on such re-sale was
unreal and in any event the re-sak having been held after an inordi-
nate delay the appellants were not liable for the quantum of loss
claimed. It is unnecessary to set out the other defences raised in the
c suits srnce in these appeals only the aforesaid three contentions were
pressed by 'counsel for the appellants for our acceptance.
The respondent in its replications refuted the aforesaid comen-
tions of the appellants. It was pointed out that under condition
No. 8 governing the ''pool auctions" telegraphic withdrawal or
D retraction of any bid was not permissible and the oral retraction had
not been made to the proper officer and, therefore, there being no
valid retraction the appellants' bids had been proper.Jy accepted
resulting in concluded coritracts. It was denied that in "pool auction"
sales respondent Board was obliged to accept only the hig~st bid :
on the other hand, it was contended that power to accept any
E lower bid in preference to the highest bid was implied in condition
No. 6, especially having regard to duty owed by the respondent
Board to maintain the coffee prices at proper level in the interest

F
of all concerned. The respondent further denied that it had disentitled
itself from · claiming the loss arising on :re-sale because of the fall
in prices at the time of such re-sale or that the loss sustamed was
unreal. It pointed out that the measures taken by it in regulating
coffee prices had become necessary as some of the reghtered dealers
and a few of their friends had formed themselves into a ring and
1
had cornered coffee by puffing up prices with a view to make
unlawful gains for themselves to the detriment of the consumer. It
also denied that there was any delay in holding the re-sale.
G
Parties led oral as well as documentary evidence and on an
appreciation of the entire material the trial court accepted the
aforesaid defences raised by the appellants and by a common
. judgment dated March 31, 195 8 dismissed the suits with costs. The
respondent Coffee Board preferrc:d appeals to the High Court and
H by its common judgment dated July 19, 1963 the High Court
allowed the appeals and decreed the respondent's claims against
, the appellants. The High Court took the view that under Condition
M. L. SETTY. v. COFFEE BOARD (Tulzapurkar, J.) 889

No. 8 telegraphic withdrawal or retraction of bids was barred and A
the oral retraction made by M. L. Gopal Setty on: behalf of both
the appellants (as the Managing Director of M. Lachia Setty &
Sons Ltd. and as a partner of M/s Giri Coffee Works) to the
Assistant Officer was of no avail and, therefore, the appellants' bids
had been properly accepted resulting in concluded contracts. It
further took the view that condition No. 6 of Conditions of Sale B
conferred an implied power on the Board to accept any lower bid
in preference to the highest one and having regard to the facts and
circumstances obtaining in the instant case the Chief Coffee Marketing
Officer was justified in accepting the lower bids in preference to the
highest bids. The High Court negatived the appellants' contentions
in regard to the loss claimed by the respondent Board and decreed
the amounts claimed by it from the appellants. It is these decrees
passed by the High Court in favour of the respondent that are being
challenged by the appellants before us in these appeals. .

The first contention raised by counsel for the appellants in
support of the appeals was that before the results of the' auction D
' were announced a little after 2 P.M. on October 8, 1952, the
appellants had retracted their bids orally as· well as by a telegram
and, therefore, their bids could not be accepted thereafter .and no
concluded contracts resulted between the appellants on the one hand
and the Coffee Board on the other. In this behalf reliance was
E
placed by counsel on two factual aspects emerging from the record.
He pointed out that M. L. Gopal Setty (D.W.1) as the Managing
Director of M. Lachia Setty & Sons Ltd. and as the partner of M/s
Giri Coffee Works had despatched a telegram on October 7, 1952
(Ex. B-22) addressed to the Chief Coffee Marketing Officer, Coffee
Board, Coimbatore to the effect "Hereby withdraw all bids given F
today on behalf of Giri Coffee Works artd l\fysore Lachia Setty &
·Sons Limited." It was initially received by F. M. Saldhana (PWl),
the Assistant Coffee Marketing Officer, in his office at about
12.30 A.M. (midnight) on October· 8, 1952 and thereafter was
received by Shri Kuttalalingam Pillai, the Chief Coffee Marketing
Officer (PW3), at about 12.30 P.M. on October 8, 1952 which G
was long before the declaration of the results. Secondly, he pointed
out that Saldhana (PWl) admitted in his evidence that on October
8, 1952 before the results were announce.d several dealers including
M. L. Gopal Setty were present waiting in the office and at that
time Gopal Setty asked him whether his telegram to Chief Coffee
Marketing Officer had been received to which he replied in the H
affirmative but told Gopal Setty that the Board could · not take
cognizance of telegrams regarding .bids whereupon Gopal Setty said
15-645 S. C. India/SO
890 SUPREME COURT REPORTS [1981] 1 S.C.R.

A that he was giving him ( Saldhana) oral instructions then in
confirmation of the telegram to which Saldhana replied that he
(Saldhana) was not the Sale Conducting Officer and that it was too
late to withdraw or retract as the bids had been accepted by the
Sale Conducting Officer, meaning the Chief Coffee Marketing Officer.
It is in this manner that the appellants contended that they had
B retracted their bids before the declaration of the results of the
auction. On the other hand, ·counsel for the respondent Board
relied upon Condition No. 8 of the Conditions of Sale under which
he urged telegraphic withdrawal or retraction of bids was impermissible
and as regards the oral retraction it was contended that same .not
having been made to the· proper officer, namely, the Chief Coffee
c Marketing Officer, was of no avail.
It would, therefore, be necessary to consider Condition No. 8
as on its proper construction will depend the question whether
telegraphic withdrawal or retraction of bids was prohibited or not ?
A copy of the Conditions of Sale governing 'pool aucti:ons1 was
D produced at Ex. A-3. At the outset it must be observed that "pool
auctions" conducted by the Coffee Board are very much unlike the
usual public auctions where competitive bids are usually given openly
within the hearing of all the bidders so that any bidder after knowing
what the earlier bid is can improve upon the same by giving a higher
bid. At the "pool auctions" conducted by the Coffee Board only
E registered dealers holding the requisite permits from the Board are
allowed to participate and some solemnity is attached to the act of
giving the bid in as m'uch as Condition No. 1 provides that the

F
participants shall submit their quotations (bids) in the form prescribed
by the Board and the bids in the prescribed form are required to be
lodged in the closed and sealed bid boxes maintained for the purpose,
and at the close of the bidding, the boxes are opened and record
thereof is made by the Sale Conducting Officer under his signature
which is also attested by a repr1esentative of the bidders; the bids
1
are then tabulated and the Sale Conducting Officer selects the bids
and makes the allotments to the successful bidders and a declaration
containing the names of the successful bidders a\ongwith the lots and
G quantities allotted to them is put up on the notice board in the
office of the Board. In reality the "pool auctions" resemble or are
more akin to sales by inviting tenders. It is ,in the context of such
undisputed procedure that is solemnly followed in the matter of
conducting the "pool auctions" that Condition No. 8 will have to be
· considered. It runs thus :
H
"8. Telegraphic bids or telegraphic instructions regarding
bidding will not be considered."
M. L. SETTY·V. COFFEE BOARD (Tulzapurkar, J.) 891

The question is whether the phrase "telegraphic instructi9ns regarding A
bidding" occurring in the above condition is wide enough to include
instructions pertaining to withdrawal or retraction of bids ? According
to counsel for the appellants the phrase refers only to instructions
regarding the making or giving of bids or at the highest would
include ins~ructions by way of clarification or modification of bids
already given which is impermissible by tefegraphic communications. B
He urged that the topic of w1thdrawal or retraction or cancellation
·of bids has not been dealt with anywhere else in !he Conditions of
.Sale nor by Condition No. 8 at all and, therefore, in the absence of any
specific or express. bar against withdrawal or retraction by telegrams,
the normal mode under the general law of communicating a with-
drawal or retraction by a telegram would . be and was ·available to c
the appellants. According to him the curtailment of t,he normal
mode of communicating a retraction which is open to an offerer
.under the general law must be by some express provision or must
arise by necessary implication. It is not possible to accept the
·construction that is sought to be placed by counsel for the appellants D
on the concerned phrase occurring in Condition No. 8. In the
'first place giving of telegraphic bids having been expressly barred in
the earlier part of the· Condition the phrase "telegraphic instructions
-regarding bidding" cannot again refer to instructions regarding the act
·of giving or making bids. Secondly, on the face of it "instructions
·regarding bidding" would mean any instructions, not merely instruc- E
tions by way of clarification, modification, amplification of bids but
also withdrawal or retraction of the bids and such instructions by
telegrams would be impermissible. Moreover having regard to the
solemn procedure prescribed and followed by the Coffee Board in
the matter of conducting its "pool auctions" submission of bids is
required to be done in prescribed forms and telegraphic bids are F
:prohibited it stands to reason that any instructions concerning such.
bids whether by way of clarification, amplification, modification,
cancellation 01: retraction should not be permissible by telegrams
which are more oft,en cryptic and do not possess authenticity on their
face. Further, the fact that nowhere else in the Conditron~· of Sale
is the topic of withdrawal or retraction of bids dealt with would G
precisely be the reason why Condition No. 8 should be widely
construed as including the topic of instructions regarding the with-
drawal or retraction of bids. In our view, the High Court was right
in coming to the conclusion that Condition No. 8 was wide enough
to bar withdrawal or retraction of bids by telegrame.
H
Turning to the oral retraction made by M. L. Gopal Setty on
'°ctober 8, 1952, the High Court has taken the view that the case
892 SUPREME COURT REPORTS [1981] 1 S.C.R.

A of oral retraction before the results were announced was not true,.
which may be difficul~ to sustain. But, even if the evidence about
such oral retraction which consists of the testimony of Gopal Setty
(D.W. 1) and Saldhana (PW I) were to be accepted at its face
value, the same would be of no avail to the appellants because, such
,.,
oral retraction was made to Saldhana, the Assistant Coffee Marketing
B Officer, who had no authority in the matter. Under the procedure it
is the Sale Conducting Officer who is in charge of the pool auctions.
Therefore, retractions had to be made to either the Sale Conducting
Officer or the Chief Coffee Marketing Offic:er, the executive head of
the Board, and that is why the telegram Ex. B-22 was addressed on
behalf of the appellants to the Chief Coffee Marketing Officer. In
c this case the Chief Coffee Marketing Officer himself was the
Sale Conducting Officer and the oral r~raction was not made to him
but it was made to Saldhana, who had 1110 authority. The oral
retraction was, therefore, ineffective and of no consequence. In our
view, therefore, it is not possible to accept the contention of the
appellants that there were no concluded contracts between them on
D
the one hand and the Coffee Board on the other on account of with-
drawal or retraction of t;heir bids.
The next contention urged by counsel for the appellants was that
the Chief Coffee Marketing Officer had no power to accept lower
bids when higher bids had been submitted by other participants as,
E according to him, the normal established rule at auction sales has
been that a lower bid lapses on receipt of a higher bid with the
result that the lower bid becomes incapa:ble of acceptance. He-
further urged that even under Condition No. 6 of the Conditions of
Sale, on which the respondent Board sought to rely, confers no power
on the Boarq or its Chief Coffee Marketing Officer to accept lower
F bids, for, all that Condition No. 6 does is that it frees the Board
from the obligation to accept the highest or any bid and the Board
need not assign any reasons for doing so. Counsel fairly stated that
so far as the appellants are concerned this contention was available
to Giri Coffee Works and that too regarding its bids only in respect
of 5 lots, for, in the case of otheT bids given by Giri Coffee Works
G and all bids given by M. Lachia Setty & Sons Ltd. that were accepted
were the highest bids. In support of this contention counsel relied
upon the following statement of law occurring in Halsbury's Laws
of·England (4th Edn.) Vol. 9, para 231 at page 102:
"231 Auctions.-At aucticm sales, it is a long-established
H rule ·that prima facie the auctioneer's ri~quest for bids is a mere
invitation to treat, and th~ each bid constitutes an offer which
is accepted on behalf of the seller by !he auctioneer when;
M. L. SETTY v. COFF~E BOARD (Tulzapurkar, J.) . 893

he signifies his acceptance in the usual manner. It would seem, A
moreover, that each bid · lapses as soon as a higher bid is .
made .............•••.• • ••• "
It will appear clear that the underlined portion of the statement of
law is supportted by the case of Blackbeard v. Limligren referred to
at footnote 3. [ (1786) 1 Cox Eq Cas 205 = 29 English Reports·
B
Chancery) 1130]. It was a case where an Estate was sold before
the Master for payment of debts and A was reported to be the
best bidder a~ the sum of £13,000 but before the report was
confirmed it was discovered that A was insane at the time of the
bidding. The Court was moved on behalf of all the parties in the
cause that B the next best bidder might be reported to be the c
purchaser at the sum bidden by him. To this motion B consented
but the Court thought it was irregular and directed the estate to be
r • re-sold generally. Relying on this decision counsel for the appellants
contenaed that the normal. rule was that a lower bid lapses on the
receipt of a higher bid, and if the highest bid was not to be
accepted for any reason, the auction must be abandoned and D
fresh auction would be required to be held and, therefore, in the
instant case the Chief Coffee Marketing Officer could ll0t accept
the lower bids of Giri Coffee Works in respect of five lots.
Counsel for the respondent Board did not cavil at the aforesaid
statement of law but he urged that the same was applicable to
auctions generally in the absence of special conditions prescribed by E
the auctioneer governing the auction. According to him it was
well-settled that an auctioneer can prescribe his own terms and
conditions on ~e basis of which property is exposed to sale by
auction, and in that event, the special conditions so prescribed by
him would govern· the position. He strongly relied upon Condition
No. 6~ as being a special condition prescribed by the Board governing F
the "pool auctions" conducted by it and the said condition impliedly
confers power upon the Board or its Chief Coffee Marketing Officer
to accept a lower bid in preference to any higher bid that might
be received. It cannot be disputed that an auctioneer can set his
own terms and conditions for holding an auction and if he does
so those conditions would govern the rights of the parties. The G
short question which arises for our consideration is whether
Condition No. 6 includes a power to accept a lower bid in preference
to any higher bid ?
Condition No. 6 runs thus :
" ( 6) The seller does not bind himself to accept the highest H
or any bid. He is not bound to assign any reasons for his
decision, and his decision shall be final and conclusive."
894 SUPREME COURT REPORTS · [1981] 1 S.C.R.

A Counsel for the appellant urged that the language of Condition
No. 6 does not show that any power was intended to be conferred
· on the seller i.e. the respondent Board but it is concerned with
freeing the Board from the obligatio~ t~ accept the highest bid by
stating that the seller does not bind himself .to accept highest bid •
and for such non-acceptance he is not obliged to give any reasons.
B Secondly, all that the condition says is that the seller is not bound
to accept the highest or any bid but does not say that the seller can
accept that lower bid. According to him, the words "or any bid"
which follow the words "the highest" merely emphasize the aspect
that even the h.ighest bid need not be accepted. He, therefore, urged
that in the absence of any power being conferred on the Board or
c its Chief Coffee Marketing Officer to accept any lower bid in
preference to a higher bid the normal rule applied and the five
lots should have been withdrawn from that auction and put up for
fresh auction. We are not impressed by the submissions made by
counsel for the appellants on the question of proper construction
of Condition No. 6. It is true that Condition No. 6 is couched in
D a peculiar way but when it states that the seller is not bound to
accept the highest bid it necessarily implies that he can accept any
lower bid. The addition of the words "or any bid" after the:
words "the highest" seems to us to be of some significance. We
do not agree that these words are used merely for the purpose of
emphasising the aspect that ·even the highest, bid need not be
E
accepted. We are of the view that two separate powers-power to
decline the highest bid and power to decline any bid-with different
consequences ensuing are intended to be conferred on the seller
by this condition. The addition of the word "or any bid" would
be superfluous if the sarne conseqm:nce (of holding a fresh auction}
F was to ensue in the event the highest bid being declined. Therefore,
on construction of the condition it is clear that by necessary
implication power had been conferred on Board· or its Chief Coffee
Marketing Officer to accept a lower bid in preference to any higher
bid. Besides, at Ex. A-275 the respondent Board has produced a
tabulated statement showing a number of instances where the highest
G bids were rejected and lower bids accepted at "pool auctions"
conducted by it from 1949 to 19.52-a period long before the
inst.ant dispute arose which clearly shows that the parties to the
pool auctions also understood Condition No. 6 as conferring a
power on the Board or its Chief Coffee Marketing Officer to
accept lower bids in preference to higher bids. Moreover, such1
H construction of Condition No. 6 would accord with the accomplish-
ment of the main function of the Board to control coffee prices
by maintaining them at proper kvel as the power to accept
M. L. SETTY v. COFFEE BOARD (Tulzapurkar, !.) 895

a lower bid in preference to any higher or the highest bid helps A
avoiding malpractices such as formation of rings or syndicates by
coffee dealers, cornering of coffee by a few dealers, puffing up of
prices by them, etc. In the view which we are taking of Condition
No. 6, it is clear that the Chief Coffee Marketing Officer in the
instant case was within his rights when he accepted the Iower bids
received from Giri Coffee Works. in respect of 5 lots. The appellants' B
contention in this behalf, therefore, must fail.

The last contention urged by counsel. for the appellants on
the quantum of loss claimed by the respondent comprised a two-
pronged attack against the' re-sale held in respect of the defaulted
lots of ,coffee. First, the Board was under an obligati:on to mitigate c
or minimise the loss arising from the failure on the part of the
appellants to pay for and take delivery of tbe coffee allotted to them
at the pool auction, but instead deliberate mea~ures were taken by
the Board to bring down the prices of coffee and then effected a
re-sale on December 23, 1952 resulting in the alleged loss of
Rs. 34,570-6-6 and Rs. 5,917 respectively, which could not be D
regarded as a loss directly and naturally arising from the breach
in the ordinary course of events, but' was unreal, created and
brought about by the respondent and, therefore, the same was not
recoverable from the appellants. Secondly, the re-sale was not held
within reasonable time of breach but was inordinately delayed and,
E
therefore, the appellants were not liable for the quantum claimed.
It may be stated that the contention that the defaulted coffee ought
to have been put up for sale at Export Auction and not at Pool
Auction, though urged in the lower Courts, was not pressed before
us. For the reasons which we sha.Jl indicate presently, we do not
find substance in either of these two grounds of attack. F
At the outset i~ must be observed that the principle of mitigation
of loss· does not give any right to the party who is in breach of the
contract but it· is a concept that has to be borne in mind by the
Court while awarding damages. The correct statement of law in
this behalf is to be found in' Halsbury's Laws of England (4th Edn.)
Vol. 12, para 1193 at page 477 which runs thus : G
"1193. Plaintiff's duty to mitigate loss. The plaintiff
mmt take all reasonable steps to mitigate the loss which he
has sustained consequent upon the defendant's wrong, and, if
hec fails to do so, he cannot claim damages for any such loss
which he ought reasonably to have avoided." H
Again, in para 1194 at page 478 the following statement occurs
unCler 1he heading 'Standard of conduct required of the plaintiff' :
SUPREME COURT REPORTS - [1981] 1 S.C.R.

A "The plaintiff is only required to act reasonably, and
whether he has done so is a question of fact in the circumstances
of each particular case, and not a question of law. He must
act not only in his own interests but also in the interests of
the defendant and keep down the damages, so far as it is
reasonable and proper, by acting reasonably in the matter ....
B In cases of breach of contract the plaintiff is under no obligation
to do anything other than in the ordinary course of business,
and where he has been placed in a position of embarrassment
the measures which he may be driven to adopt in order to
extricate himself ought not to be weighed in nice scales at the
instance of the defendant[_ whose breach of contract has occa-
c sioned the ·difficulty ......... .

The plaintiff is under no obligation to destroy his own
property, or to injure himself or his commercial reputation, to
reduce the damages payable by the defendant. Furthermore,
the plaintiff need not take steps which would- injure innocent
D persons." (Emphasis supplied!).

In Banca·De Portugal v. Waterlaw & Sons, Ltd.,(1) Lord Shankey,
LC., quoted with approval the slatement of Jaw enunciated in
James Finlay & Co. v. N. V. Kwik Hoo Tong, Mandel Maatchap-
pij, ( 2 ) to the effect "In England the. Jaw is that a person is not
E obliged to minimise damages on IJ,ehalf of another who has broken
a contract if by doing so he would have injured his commercial
reputation by ge~ting a bad name in the trade." In American
Jurisprudence 2d, Vol. 22 para 33 (at pp. 55-56) contains the
following statement of law

F "33. The general doctrine of avoidable consequences
applies to the measure of damages in actions for breach of
·contract. Thus, the damages awarded to the non-defaulting
party to a contract will be determined and measured as though
that party had made reasonable efforts to avoid the losses
resulting from the default. Some courts have stated this
G doctrine in terms of a duty owing by the innocent party to the
one in default; that is, that t.,he person who is seeking damages
for breach of contract has a duty to minimise those damages.
However, on analysis, it is clear that in contract cases as well
as generally, there is no duty to minimize damages, because no
one has a right of action against the non-defaulting party if he
H
(!) [1932] All England Law Reports 181.
(2) [1929] 1 K.B. 400.
M. L. SETTY v. COFFEE BOARD (Tulzapurkar, J.) 897

does not repsonably avoid certain consequences .arising from the A
default. Such a failure does not make !he non~defaulting party
liable to suit; it only indicates that the damages actually suffered
are greater than the law will compensate. Therefore, in contract
actions, the doctrine of avoidable consequences is only a
statement about how damages will be measured." (Emphasis
supplied). · B

From the above statement of law it wm appear clear that the
non-defaulting party is not expected to take steps which would injure
innocent persons. If so, then steps taken by him in performance
or discharge of his statutory duty also .cannot be weighed against
him. In substance the question in each case would be on~ of the c
reasonableness c-f action taken by the non-defaulting party.

Here the material on record clearly shows that internal coffee
prices in the year 1952, particularly from March to October 1952,
had soared very high on account of malpractices indulged in by
coffee dealers and even the Government of India felt itself very much D
concerned about it and suggestions had been made by Government
·officials as well as by the Members of the Coffee Board to take
steps to bring down the coffee prices at reasonable level in the
interest of both the trade as well as the consumer and, in fact, several
1
measures, including the step of accepting lower bids in preference
E
to the higher bids, with a view to regulate coffee prices were taken
.by the Coffee Board pursuant to the Government's directive in t]lat
behalf. Clearly, the,se measures were being taken by the Board in
·discharge of their main function and duty to maintain the coffee
prices at proper level in the interest of all concerned, particularly
the consumer and were no~ directed against the defaulting dealers at
F
the concerned pool auction. In fact, the evidence of Kuttalaingam
Pillai (PW3), the Chief Coffee Marketing Officer, has been that
before the commencement of the "pool auction" on that day he
had issued oral warning to ithe bidders that Government of India
was concerned about the increase in coffee prices and that they
should not try to push up prices ~nd corner stocks and M. L. Gopal G
Setty (D.W. 1) has admitted that Chief Coffee Marketing Officer
had given a warning that the higher bids will not be accepted.
t Therefore, when in spite of such warning being issued unnecessarily
higher bids were given exceeding the average prices prevailing in the
month of September 1952, (which themselves were high), the Chief
Coffee Marketing Officer decided to accept lower bids in preference H
to the higher ones. It was in these circumstances that at the re-sale
held on December 23, 1952 the prices realised were lower than the
898 SUPREME COllRT REPORTS [1981] 1 S.C.R.

A appe.Jlants' bids which had been accepted at the "pool auction"
held on October 7, 1952. It must be stated here that at the
re-sale admittedly only the highest bids were accepted. So it is
not as if at the re-sale lower bids were deliberately accepted to
enhance the loss. It is impossible to subscribe to the proposition
that the Board should have maintained the high price level at the
B cost of the consumers merely with a view to see that the defaulting
bidders did not suffer any loss on re-sale. The loss arising on the
re-sale, therefore, cannot be regarded as "unreal" loss. The attack
of the appellants against the grant of damages to the respondent
on this ground is clearly unsustainable.
I /
c As regards the alleged delay in holding the re-sale it must be
observed that both the trial court as well as the High Court have
taken the view that the same was held within reasonable time at the
next "pool· auction" conducted ,in the normal course. The results
of the concerned "pool auction" were declared some time after
2 P.M. on October 8, 1952. The period of 17 days ( 14 days
D initial period plus 3 days of grace for taking delivery) expired on
October 26, 1952, but the evidence on record shows that there was
a general request on behalf of the successful bidders for extension of
. time for making payment and taking delivery and such extension
had been granted by the Board upto November 10, 1952 by issuing
a circular. We have already held that there was no valid retraction
E of bids by the appellants and to their knowledge their retraction
had been rejected by the Board on October 8, 1952 itself. That
the appellants were interested in the extension granted by the Board
becomes evident from their telegram dated October 22, 1952 (Ex. A-
129) seeking confirmation of the extensron. After November 10, 1952
some reasonable notice of re-sale would have to be issued, so the
F defaulted coffee could not be put up for sale in the pool auction
that was held in the month of November, 1952. The next pool
auction was to be held in December, 1952 and, therefore, after
issuing notice of re-sale on December 18, 1952 the re-sale was
held by conducting a pool auction on December 23, 1952. In
our view, both the Courts were right in takii1g the view that the
G
re-sale had been held within the reasonable time.
Since all the contentions urged by counsel for the appellants
have failed, the appeals are dismissed with costs.
I
P.B.R. . Appeals dismil'>sed.