Contract Law Case: Nepal recreation Center Pvt. Ltd. V. Soaltee Hotel Ltd, NKP,2080 BS., Vol. 3, D.No. 11044.
Case: Termination Of Contract
Plaintiff: Nepal Recreation Center Pvt. Ltd.
Defendant: Soaltee Hotel Ltd.
Decision Number: 11044
This case is related with Application for Appropriate Order & Termination of Contract
Facts of the Case:
Nepal Recreation Center Pvt. Ltd. entered into a contract with Soaltee Hotel to operate a casino inside the hotel premises. The original agreement was signed in 1993, and a replacement agreement was signed on 26 May 1998, effective from 1 May 1993 for a period of 30 years, ending on 30 April 2023. Under that agreement, Nepal Recreation Center invested a large amount of money to construct the casino building, install gaming equipment, furniture, and other infrastructure, and continuously operated the casino. The contract also prohibited Soaltee Hotel from allowing any third party to operate the casino without the company’s written consent. Afterwards Nepal Recreation Center learned from a newspaper notice that Soaltee Hotel had entered into an agreement with another party to operate the casino. Fearing that it would be removed from the premises and deprived of its property before the contract expired, it filed an application under Section 87(2) of the Contract Act seeking an order to stop Soaltee Hotel from interfering with its contractual rights. However, before this dispute, Nepal Recreation Center had failed to pay the government royalty required for casino operation from FY 2062/63 BS. onward because of this default, the Ministry of Tourism cancelled its permission to operate the casino, and public notices were issued prohibiting the company from operating any casino in Nepal.
Plaintiff’s Claim:
The casino operation agreement was valid until 30 April 2023. Soaltee Hotel had violated the contract by negotiating with another casino operator during the contract period. Plaintiff had invested heavily in constructing the casino building and purchasing equipment. Soaltee Hotel should be prohibited from handing over the casino premises and plaintiff’s property to any third party. It argued that court should issue an appropriate order under Section 87(2) of the Contract Act to protect the contract until its expiry.
Defendant’s Arguments:
Nepal Recreation Center had failed to pay government royalty and other dues. Due to non-payment, the Ministry of Tourism had cancelled its permission to operate the casino. Since the company no longer had legal authority to operate a casino, the contract had become ineffective and unenforceable. The contract had effectively come to an end (terminated), so Section 87 of the Contract Act could not be applied. Therefore, the application should be dismissed.
Legal Issues:
- Was the application under Section 87 of the Contract Act, 2056 legally maintainable?
- Could the court issue an order under Section 87 when the casino operation licence had already been cancelled?
- Was the casino operation agreement still legally effective?
- Was the Patan Appellate Court’s decision dismissing the application legally correct?
Decisions of the Courts:
Patan Appellate Court:
Court held that the conditions for granting an order under Section 87(2) of the Contract Act were not satisfied and dismissed the application.
Supreme Court:
Court found that Nepal Recreation Center had failed to pay the required government royalty, And held that its casino operating permission had been cancelled and that no court order had restored that permission. Concluded that the casino operation contract was no longer legally effective for the purpose of Section 87. Ruled that Section 87 applies only to existing and subsisting contracts, not to contracts that have already become inactive, terminated, or cancelled. Also observed that the appointment of a representative (waris) was not legally valid because the company had outstanding government dues. Dismissed the appeal and upheld the decision of the Patan Appellate Court.
Established Principles:
- Failure to obtain or maintain the legal licence necessary to perform the contract may make contractual performance impossible.
- A person or company having outstanding government dues cannot validly appoint a representative (waris) under the then applicable procedural law.
