Laws involved: Contract Act,1872 and Transfer of Property Act,1882
Contract Act, 1872
S.32 ENFORCEMENT OF CONTRACTS CONTINGENT ON AN EVENT HAPPENING.—Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void.
Section: 56
Agreement to do impossible act.—An agreement to do an act impossible in itself is void.
Contract to do an act afterwards becoming impossible or unlawful.—A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or unlawful.—Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.
Section: 62
EFFECT OF NOVATION, RESCISSION, AND ALTERATION OF CONTRACT.—If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
CONSEQUENCES OF RESCISSION OF A VOIDABLE CONTRACT.—When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he had received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.
Sale of Goods Act ,1930
S.57 DAMAGES FOR NON-DELIVERY.—Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.
58. SPECIFIC PERFORMANCE.—Subject to the provisions of Chapter II of the Specific Relief Act, 1877 (1 of 1877), in any suit for breach of contract to deliver specific or ascertained goods, the Court may, if it thinks fit, on the application of the plaintiff, by its decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The decree may be unconditional, or upon such terms and conditions as to damages, payment of the price, or otherwise, as the Court may deem just, and the application of the plaintiff may be made at any time before the decree.
(1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may—
(a) set up against the seller the breach of warranty in diminution or extinction of the price; or
(b) sue the seller for damages for breach of warranty.
(2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage.
60. REPUDIATION OF CONTRACT BEFORE DUE DATE.—Where either party to a contract of sale repudiates the contract before the date of delivery, the other may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.
(1) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover the money paid where the consideration for the payment of it has failed.
(2) In the absence of a contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of the price—
(a) to the seller in a suit by him for the amount of the price—from the date of the tender of the goods or from the date on which the price was payable;
(b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller—from the date on which the payment was made.
62. EXCLUSION OF IMPLIED TERMS AND CONDITIONS.—Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.
63. REASONABLE TIME A QUESTION OF FACT.—Where in this Act any reference is made to a reasonable time, the question what is a reasonable time is a question of fact
International Contracts:
They are governed by subject to terms of Agreement by United Nations Convention on Contracts for the International Sale of Goods
Section IV. Exemptions
Article 79
(1) A party is not liable for a failure to perform any of his obligationsif he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the
contract or to have avoided  or overcome it, or its consequences.
(2) If the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is  exempt from liability only if:
(a)  he is exempt under the preceding paragraph; and
(b)the person whom he has so engaged would be so exempt if the  provisions of that paragraph were applied to him.
(3) The exemption provided by this article has effect for the period  during which the impediment exists.
(4) The party who fails to perform must give notice to the other pary of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt
Frustration of Contract:
It is well settled that where there is frustration a dissolution of a contract occurs automatically. It does not depend, as does rescission of a contract on the ground of repudiation or breach, on the choice or election of either party.
In English Law the question of frustration of contract has been treated by courts as a question of construction depending upon the true intention of the parties. In contrast, the statutory provisions contained in S. 56 of the Indian Contract Act lay down a positive rule of law and English authorities cannot therefore be of direct assistance, though they have persuasive value in showing how English courts have approached and decided cases under similar circumstances.
English Law a case of supervening illegality is treated as an instance of frustration of contract. In Metropolitan Water Board v. Dick, Kerr & Co., Ltd, The House of Lords held that the contract was frustrated by supervening impossibility, and that the provision for extending the time did not apply to the prohibition by the Ministry. Lord Finlay, L.C. said that the interruption was of such a character and duration that it vitally and fundamentally changed the conditions of the contract, and could not possibly have been in the, contemplation of the parties to the contract when it was made.
Lord Sumners pregnant statement (loc. cit.) that the doctrine of frustration is really a device by which the rules as to absolute contracts are reconciled with the special exception which justice demands. Though it has been constantly said by high authority, including Lord Sumner,, that the explanation of the rule is to be found in the theory that it depends on an implied condition of the contract, that is really no explanation. It only pushes back the problem a single stage. It leaves the question what is the reason for implying a term.
See also Boothalinga Agencies vs V. T. C. Poriaswami Nadar on 22 April, 1968
According to the Indian Contract Act, a promise may be express or implied. In cases, where the court gathers as a matter of construction that the contract itself contained impliedly or expressly a term, according to which it would stand discharged on the happening of certain circumstances the dissolution on of the contract would take place under the terms of the contract itself and such cases would be outside the purview of section 56 altogether. In English law these cases are treated as cases of frustration, in India they would be dealt with under section 32 of the Indian Contract Act which deals with contingent contracts or similar other provisions contained in the Act. In the large majority of cases however the doctrine of frustration is applied not on the ground that the parties themselves agreed to an implied term which operated to release them from the performance of the contract. The relief is given by the court on the ground of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement.
When such an event or change of circumstance occurs which is so fundamental as to be regarded by law as striking at the root of the contract as a whole, it is the court which can pronounce the contract to be frustrated and at an end. The court undoubtedly has to examine the contract and the circumstances under which it was made.
Lord Atkinson said in Matthey v. Curling, `a person who expressly contracts absolutely to do a thing not naturally impossible is not excused for non-performance because of being prevented by the act of God or the Kings enemies… or viz major`. This being the legal position, a contention in the extreme form that the doctrine of frustration as recognised in English law does no come at all within the purview of section 56 of the Indian Contract Act cannot be accepted..
According to the Indian law, which is embodied in section 54 of the Transfer of Property Act, a contract for sale of land does not of itself create any interest in the property which is the subject-matter of the contract. The obligations of the parties to a contract for sale of land are, therefore, the same as in other ordinary contracts and consequently there is no conceivable reason why the doctrine of frustration should not be applicable to contracts for sale of land in India
In Satyabrata Ghose Versus Mugneeram Bangur and Company there was requisition order during war time and there was no time limit provided in the contract. But when there is no time limit whatsoever in the contract, nor even an understanding between the parties on that point and when during the war the parties could naturally anticipate restrictions of various kinds which would make the carrying on of these operations more tardy and difficult than in times of peace, and therefor held that, the events which have happened here cannot be said to have made the performance of the contract impossible and the contract has not been frustrated at all.
Carriage of Good by Sea:
Halsbury, Vol. 30, para. 582, at p. 414, states: “As between the shipowner and the charterer the contract of carriage is contained in the charter-party in the absence of an agreement to vary it by the bill of lading or otherwise; as regards other persons, it is to be found in the bill of lading.”
Where bills of lading are-issued, either under or in pursuance of a charter party, there may be different periods of time from which such bills of lading may become effective as regulating the relations between the carrier and the holder. But the position is entirely different where there is no charter party and the shipper obtains a bill of lading. A bill of lading is in that case a repository of the rights between the carrier and the shipper and it cannot be said that it becomes effective as between them at any moment other than the one when the bill of lading has been given.
Indian Shipping Industry Limited Vs. Dominion of India even assuming that this contract was a receipt, it is further necessary that such receipt should be a non-negotiable document and should be marked as such. It is in any event abundantly plain that neither this contract, if it is to be construed as a receipt, nor the bills of lading if they are to be construed as receipts, have been marked as non-negotiable, with the result that it is impossible to uphold the contention that the parties have contracted themselves out of the rules under Article 6 of the schedule to the Act.
Supreme Court in Shri Sitaram Sugar Co. Ltd. v. Union of India AIR 1990 SC 1277 : (1990) 3 SCC 223 : LNIND 1990 SC 152 explained the scope of judicial review in economic policies in the following terms:- “57. Judicial review is not concerned with matters of economic policy. The Court does not substitute its judgment for that of the legislature or its agents as to matters within the province of either. The Court does not supplant the “feel of the expert” by its own view.”
Regional Director, Reserve Bank of India, Department of Non-Banking Supervision and Others Versus Nahar Finance and Leasing Limited, represented by its Managing Director, Navratnmull Nahar and Others If it had been a case where technical issues were involved on account of Court orders or any other circumstances or vis majeure or force majeure conditions prevailed, then probably, such persons would be in a position to explain better the factual matrix in a personal hearing. The cases before us cannot be placed in the said pedestal, since the respondents / writ petitioners have admitted non-compliance. The respondents should bear in mind that they are engaged in the business of financing. Therefore, it would be not acceptable for such a finance company to plead that they are unable to achieve the NOF. It may be a different matter, if the line of business was something other than financing. Thus, the very right of the respondents / writ petitions to operate is based on a licence issued under Section 45-IA of the Act. The licence comes with conditions. In terms of Section 45-IA of the RBI Act, it is the duty of the respondents to furnish the statements, information or particulars called for and to comply with any direction given to it under the provisions of Chapter III- B of the RBI Act. Therefore, there is no escape from the statutory requirement. The respondents can claim no vested right to carry on business without complying with the condition of licence or the directions issued by RBI.
Supreme Court in the case of Pioneer Urban Land and Infrastructure Limited Vs. Union of India (2019) 8 SCC 416 (para 36 of this Judgment) it is held that the Adjudicating Authority has to see whether the delay is due to the Corporate Debtor and in case the delay is not due to the Corporate Debtor, but force majeure
In Muhammad Rabid Ullah v. Bird & Co. (1922) L.R. 48 I.A. 175 : S.C. 24 Bom. L.R. 687 In that case their Lordships of the Privy Council referred to the first paragraph of Section 55 of the Indian Contract Act, 1872, which is as follows :- When a party to contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the opinion of the promisee, if the intention of the parties was that time would be of the essence of the contract. Their Lordships said that the respondents in that case did not elect to avoid the contract, but held it as subsisting, and agreed to prorogue the time of performance as they were entitled to do by virtue of Section 63 of the Indian Contract Act, 1872, which is as follows :- Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. Their Lordships held that there was a breach at the extended time and that damages were calculable in the ordinary way.
In the case of Taylor v. Caldwell (1853) 3 B & S. 826 : 11 W.R. 726 we first come in sight of what, no doubt, underlies Section 56 of the Indian Contract Act, But- the reasoning upon which that decision is based might, for all that I can see to the contrary, have been just as well and logically applied in all the earlier cases in which, as I have said, impossibility was never allowed as an excuse for non-performance of an absolute contract. The very much later and more subtle extensions given to the gradually developing doctrine in the group of cases called the Coronation cases still appear to me to require very critical examination, and to leave the law in England open, in large measure, to the application by Judges of what they may consider in the circumstances of each case to be its own justice. The principle indeed upon which Krell v. Henry [1908] 2 K.B. 740 was decided may be thought to have been anticipated by Sir Charles Sargent in the case of Goculdas Madhavji v. Narsu Yenkuji (1889) I.L.R. 13 Bom. 630, where the question was whether a contract ought to be enforced against a defendant who refused to perform it, because he had been unable to obtain a licence authorising him to carry on operations, profit from which had constituted the main, if not the only, motive of his contract. Such a decision is clearly not referable to any ground of impossibility or unlawfulness, or to any principle up to that time recognized either in the English or the Indian Courts. The case of Taylor v. Caldwell rests no doubt indirectly upon considerations of impossibility in this sense, that where the subject of a contract has been destroyed before the time of the fulfilment of the contract, the Courts held that the party injured could not recover.
Karl Ettlinger Vs. Chagandas and Co 1915 BCI (0) 106
It should be borne in mind that no restraints of Princes prevented sea communication with Antwerp throughout the month of September. Although war conditions prevailed on land and by sea, the commerce of the sea under the English flag had not then been, and never has since been, interrupted. No blockade of the port of Antwerp had then, or has ever since, unless now we can consider that it has been blockaded by the Allies, been established. But doubtless after the town had fallen into the hands of the Germans it would have been insanity to despatch British ships and British cargo to it.
In Satyabrata Ghose v. Mugneeram Bangur & Co. and Anr. Mukherjea, J., observed at p. 319 : “…….. the doctrine of frustration is really an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of section 56 of the Indian Contract Act. It would be incorrect to say that section 56 of the Contract Act applies only to cases of physical impossibility and that where this section is not applicable, recourse can be had to the principles of English law on the subject of frustration. It must be held also that to the extent that the Indian Contract Act deals with a particular subject, it is exhaustive upon the same and it is not permissible to import the principles of English law dehors these statutory provisions.”

Gurdarshan Singh and Anr. v. Bishen Singh. In that case a lease was executed on January 8, 1947 in respect of agricultural land situated in an area which on partition of India fell within West Pakistan. The Court found that possession of the demised land was not given to the lessee, and the landlord was on account of riots unable to deliver possession. Obviously on that finding the tenant was entitled to claim refund of the rent paid. But the Court proceeded to consider the question “whether the doctrine of frustration applies to a contract of lease of agricultural lands” and recorded an answer that the doctrine of frustration applies to leases. The Court observed at P. 13- “that the doctrine of frustration does apply to leases, but even if it does not apply in terms to a contract of lease of agricultural land the broad principle of frustration of contract applies to leases”. We are unable to agree with that observation, and the observation at p. 11 that “According to Indian law, sales of land as also leases are contracts”. Under a lease of law there is a transfer of right to enjoy that land. If any material part of the property be wholly destroyed or rendered substantially and permanently unfit for the purpose for which it was let out, because of fire, tempest, flood, violence of an army or a mob, or other irresistible force, the lease may, at the option of the lessee, be avoided. This rule is incorporated in s. 108(e) of the Transfer of Property Act and applies to leases of land, to which the Transfer of Property Act applies, and the principle thereof to agricultural leases and to leases in areas where , the Transfer of Property Act is not extended. Where the property leased is not destroyed or substantially and permanently unfit, the lessee cannot avoid the lease because he does not or is unable to use the land for purposes for which it is let to him.
In Alanduraiappar Koil Chithakkadu by its Trustee M. Rama- nanda Nainar and Ors. v. T. S. A. Hamid and Another, a lessee of a shandy tope agreeing to pay an annual rent for a period of five years was held not to be entitled to remission merely for the reason that the shandy was hit by two cyclones during the period of lease and that for some period on account of the cyclone, “the shandy did not form properly or regularly and the lessee did not get any income”. The Court held in that case that in the absence of any provision for remission on account of losses, no such remission can be granted by the Courts.

Shruti Desai

10th April.2020

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