Force Majeure: A contractual provision of allocating the risk, if the performance or an act becomes impossible or impracticable due to a result of an event or consequence that could not be controlled or anticipated by the parties. The intention of this clause is to save the performing party from the consequences of anything over which he has no control.
Doctrine Of Frustration: As defined under section 56 of Indian Contract Act, 1872. Frustration signifies a certain set of circumstances or event, which may arise after the formation of a contract, the occurrence of such is due to “no fault” of either parties and which render the performance of the contract reasonably impossible. The doctrine of frustration dissolves such contract and makes it void, where the performance of a contract becomes substantially impossible without any fault on either side, of the parties.
Applicability of Force Majeure Clause and Section 56 of Indian Contract Act When Covid-19 Being Declared a Pandemic?
Force Majeure: The courts have construed the Force Majeure Clause narrowly i.e. unless a particular event clearly falling under the ambit of the clauses of “force majeure”, courts may not accept such event as triggering the consequences of Force Majeure.
The Government of India generally includes natural force majeure events in Force Majeure Clause and so the spread of COVID-19 falls within the
“Act of God” and is a epidemic as spreading widely by affecting large number of people at a same time by reason of its wide diffusion.
Invocation of Section 56: Though, in situations where an agreement does not falls within the ambit of “force-majeure” clause, a party may have to look beyond the clause. In such situation one may consider invoking section 56 of Indian Contract Act, 1982 but one would have to show that the event i.e. COVID-19 has changed the circumstances in such a manner that the performance under the contract has become substantially impossible to perform. It is to be noted that mere economic difficulty or loss may not be sufficient to invoke 56 of the Contract Act. Party in such cases may not be excused for their performance under a contract.
Thus, it shall be left open to the courts that whether the impact of COVID-19 and its consequences is likely to affect the ability of a party to perform its obligation under a contract, and falling it to be under the clause of “force-majeure”
Landmark judgements under Section 56 of Indian Contract Act:-
Satyabrata Ghose vs. Mugneeram Bangur and Comapny and Ors. (16.11.1953 – SC): MANU/SC/0131/1953
In this case, the defendant company promised to sell the plaintiff a plot of land after developing it by constructing the roads and drains. However, some portion of the area comprised in the scheme was requisitioned for military purposes. The Supreme Court, while applying the doctrine, held that the requisitioning of the area had not substantially prevented the performance of the contract as a whole and therefore, the contract had not become impossible within the meaning of section 56 of the Contract Act.The Supreme Court has observed that various theories have been propounded regarding the juridical basis of the doctrine of frustration yet the essential idea upon which the doctrine is based is that of the impossibility of performance of the contract. In fact the impossibility of performance and frustration are often interchangeable expression. Also the meaning of the term ‘impossible’ was explained u/s 56. The Supreme Court made it clear that unlike English law the word impossible has not been used in the sense of physical or literal impossibility. The performance of an act may be impracticable and useless from the point of view of the object and whether it forms the basis of the contract rightfully has to be decided by the courts.
Sushila Devi and Ors. vs. Hari Singh and Ors. (05.05.1971 – SC) : MANU/SC/0025/1971
In this case the court observed that Section 56 of the Contract Act is not confined to something which is not humanely possible. As it was a case of lease of property, which after the unfortunate partition, the property in dispute which was situated in Gujranwala, went onto the side of Pakistan, hence making the terms of the agreement impossible.
Nirmala Anand vs. Advent Corporation Pvt. Ltd. and Ors. (10.05.2002 – SC) : MANU/SC/0455/2002
This case related to suit for specific performance of agreement for purchase of a flat in a building construction on plot leased out by municipality. The court held that unless the competent authorities have been moved and application for consent or sanction have been rejected once and for all and such rejection made finally became irresolutely binding and rendered impossible the performance of the contract resulting in frustration u/s 56 the relief cannot be refused for the pointing out of some obstacles.