INTRODUCTION
The Indian Contract Act of 1872 governs contracts and related related issues. The Act defines a contract as “an agreement that is legally enforceable.”[1] However, Section 2(g) of the Act states that “agreements that cannot be enforced by law will be void.” For a contract to be enforceable by law, it must be capable of being performed.[2] When a party to a contract fails to perform its duties, it is said to have breached the contract. However, suppose a particular circumstance renders it impossible for the parties to perform their duties, and such situations are out of the control of the parties. In that case, the contracts are said to be ‘frustrated’. On the other hand, we can neither predict nor control a force majeure event. It is a clause in the contract that distributes the risk of loss if the execution of a contract becomes impossible or impracticable, particularly because of an unforeseen or uncontrollable event. ‘Force Majeure’ is not explicitly stated anywhere, but it stems from the Indian Contract Act of 1872, which specifies that if a contract is predicated on the occurrence of an event that becomes impossible, the contract is void. The Indian Contract Act controls the use of the phrase “force majeure.” Section 32 governs contracts that contain explicit or implicit wording determining ‘Force Majeure’ events.[3]
FRUSTRATION OF CONTRACT
The doctrine of frustration, a fundamental principle in contract law, has evolved within the framework of Indian jurisprudence, primarily governed by the Indian Contract Act of 1872. Even though the Act itself has not made any express provision for the doctrine, it has its basis in common law principles and has been extensively moulded by landmark English cases like Krell v. Henry (1903) [4].
The doctrine of frustration has been incorporated under Section 56 of the Indian Contract Act, which renders agreements impossible to perform and void upon the happening of unforeseen contingencies or events that were not the fault of either party. Grounds on which this provision stands reflect the reason, “les non-cogit ad impossible,” meaning the law does not compel a person to do a thing that he cannot possibly perform.
The principle of frustration has been recognized in the Indian courts and has specifically been addressed in judgments such as Satyabrata Ghose v. Mugneeram (1954)[5] and Sushila Devi v. Hari Singh (1971)[6]. The judgments point out the element of impossibility in an objective way to perform a contract, which goes beyond mere human possibility. Various grounds for frustration are laid down in Indian contract law:
- Death or Incapacity of a Party: If the contract is dependent on the existence or capacity of any definite person and such a person passed away or became incapacitated, then the contract would be frustrated.
- Government intervention: This is likely to happen when the legislature or executive authorities after the contract is made, perform acts that make the performance of the contract impossible or illegal.
- Non-occurrence of Key Events: Contracts related to the occurrence or non-occurrence of certain performances or ceremonies will be frustrated by the non-occurrence of the events in the way that was intended or understood.
- Unforeseeable Change of Circumstances: Unforeseen and extreme circumstances that make the contract impossible to execute include such conditions as massive price rises because of war or natural catastrophes.
Indian law makes a distinction between initial impossibility which makes the contract void ab initio and subsequent impossibility, which makes performance impossible after the formation of the contract. The principle of frustration in Indian contract law seeks to balance the interest and expectations of the parties who would have contracted with the practical realities that will flow from the occurrence of such an unforeseen eventuality. It allows parties to exit their contractual obligations in cases of objectively impossible performance and ensures fairness and equitableness in contractual relationships. [7]
FORCE MAJEURE
The term ‘force majeure’ literally in French means ‘those cases which cannot be foreseen and which disable the parties to perform their side of the contract’. It is not used or defined explicitly in the Indian Contract Act of 1872. Nevertheless, its applicability has been read by courts through judicial interpretation, and it is generally included in the contract to indemnify the parties against liability in the event of circumstances beyond their control.
In the case of Energy Watchdog v. Central Electricity Regulatory Commission & Ors. (2017)[8], the Supreme Court of India laid down certain principles relating to the invocation of force majeure, the essence of which is that events must be beyond parties’ reasonable control, making performance impossible or illegal despite best efforts.
In recent times, force majeure clauses have become increasingly important, especially due to the COVID-19 pandemic. Parties to contracts may be excused from specific performance under the contract during the pendency of these events to avert damage and losses. If there is no mention of a force majeure clause, then Section 56 of the Contract Act may help a party to get rid of their duties under a contract. All agreements, including those on supply, manufacturing, and real estate, will usually include a force majeure clause to cover the general business protection from any unforeseen event.
COMPARATIVE ANALYSIS
Force majeure and frustration of contract, two very important areas of any study of Indian contract law, are more misunderstood than not. It is contract frustration when, after the formation of a contract, the performance of an act is prevented, or it becomes impossible or illegal by an unforeseen event over which the party has no control. This then renders the contract void, since the purpose of the contract becomes radically frustrated after the date of execution. In contrast to this, force majeure events are usually foreseen and defined within the very agreement, which may include a specific clause listing triggering events, such as, for example, acts of God, wars, and epidemics. Depending on the terms, once a force majeure event happens, it might affect the enforcement of contractual obligations, but it cannot void them. the doctrine of frustration applies where a supervening event, after contract formation, undermines the very foundation of the contract, resulting in the contract potentially being declared unenforceable and the parties released from their obligations. While force majeure clauses aim to address foreseeable disruptions, contract frustration happens as a result of an unanticipated event post-contract execution, which goes to the root of the contract. Proper appreciation of these distinctions will indeed be most useful to the parties who have to navigate their way through responsibilities under contracts in a changing world. [9] [10]
CONCLUSION
Force Majeure and the concept of contract frustration have long been regarded as separate safeguards in the case of complete impossibility. While the standard of evidence remains high, courts will be more actively assessing the claims’ practicability. Nonetheless, it is best left to the parties to draft Force Majeure provisions that cover occurrences preventing them from carrying out commitments. Consequently, an increase in the number of commercial contracts with Force Majeure provisions covering specific scenarios such as government-enforced lockdowns, epidemics, and pandemics, as well as common events like acts of God, natural disasters, and so on, is highly likely. In the absence of a force majeure provision, the parties may alternatively invoke Section 56 of the Indian Contract Act of 1872. To invoke the contract, the parties must demonstrate that the contract’s performance has become impossible and that the conditions and circumstances have changed substantially from those indicated in the contract. Additionally, to restrict liability for non-performance or partial performance of contractual obligations, the parties must invoke other terms such as price fluctuation clauses, limitation or exclusion clauses, substantial adverse change clauses, and countless other clauses. There is a high threshold for proving a violation of the contract. To mitigate this risk, be as proactive and cautious as possible from the outset. Section 56 of the Contract Act does not apply when a contract contains a force majeure clause, and the court determines that the force majeure provision will apply in the facts of the case. Contract frustration cannot be prolonged when the occurrence alleged to have exacerbated the contract occurred as a result of a party’s act.
Author(s) Name: Aryan Gupta (Rajiv Gandhi National University of Law, Punjab (RGNUL)
Reference(s):
[1] Indian Contract Act, 1872, s 2(h)
[2] Indian Contract Act, 1872, s 56
[3] Indian Contract Act, 1872, s 32
[4] Krell v. Henry, [1903] K.B. 740.
[5] Satyabrata Ghose vs Mugneeram Bangur, 1954 AIR 44
[6] Sushila Devi v. Hari Singh, AIR 1971 SC 1756
[7] VALENTINE PALMER, “Excused Performances: Force Majeure, Impracticability, and Frustration of Contracts” (2022) 70 The American Journal of Comparative Law 70 <https://shorturl.at/duN47>
[8] Energy Watchdog v. Central Electricity Regulatory Commission & ors., (2017) 14 SCC 80.
[9] Saxena A, Sikka A and Das D, “FORCE MAJEURE IN THE TIMES OF COVID -19 | India Corporate Law” (Cyril Amarchand Blogs, January 25, 2022) <https://corporate.cyrilamarchandblogs.com/2020/04/force-majeure-in-the-times-of-covid-19/> accessed April 23, 2024.
[10] Azfar F, ‘The Force Majeure “Excuse”’ (2012) 26 Arab Law Quarterly 249 <https://www.jstor.org/stable/23234657> accessed 23 April 2023
