Section 56

In its recent judgment in Mary v State of Kerala, the Supreme Court has considered the scope of section 56 of the Contract Act, 1872, and its relationship with statutory contracts. The appellant responded to an invitation to tender for the right to vend arrack in certain shops in Kalady in Kerala. Her bid of approximately Rs. 25.6 lakhs was successful and she deposited 30 percent (Rs. 7.68 lakhs) in accordance with Rule 5(10) of the Kerala Abkari Shops (Disposal in Auction) Rules 1974 (‘the Rules’). Soon after, it emerged that the residents of Kalady were strongly opposed to an arrack shop in the vicinity for religious reasons and staged violent protests. The authorities were unable to assure the appellant that they would guarantee the safety of the shop and its employees. So the appellant claimed that the contract was frustrated, refused to pay the balance and sought to recover the deposit already paid. The Excise Department declined to refund the deposit claiming that it was empowered to forfeit it under Rule 5(15) of the Rules. The appellant filed two writ petitions, one challenging the provisions of the Rules that allowed the State to make a demand for the remainder of the purchase price and the other challenging its refusal to refund the deposit. In 1995, a single judge of the Kerala High Court allowed both writ petitions. In 2003, a Division Bench, however, held that while the State was not entitled to call upon the appellant to pay the balance, it was not obliged to refund because it was empowered to forfeit the deposit under the Rules. It held that the appellant could not invoke section 56 of the Contract Act to have a statutory contract declared void. From this order the appellant obtained leave to appeal to the Supreme