RESEARCH PAPER
TITLE: DOCTRINE OF FRUSTRATION AND IMPOSSIBILITY UNDER INDIAN
CONTRACTS, ACT 1872.
DOCTRINT OPIC: T HE NECESSITY FOR A UNIFORM CIVIL CODE
SUBMISSION FOR: CONTINUOUS EVALUATION OF SEMESTER III
SUBMITTED BY: SUBMITTED
TO:
1. RADHIKA BIHANI M S. NIYATI
PANDEY
REG NO. 19B132 A SSISTANT
PROFESSOR
2ND YEAR - B.B.A LLB O F LAW,
GNLU
radhikabihani18@gmail.com
2. SANJALI RAJENDRA RUPNAWAR
REG NO. 19B138
2ND YEAR - BA. LLB
sun.sanjali3@gmail.com
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ABSTRACT
Impossibility and Frustration of contract serve as defenses to performance of Contract. They
are often seen to be overlapping and used as interchangeable expressions. Under the Indian
Contracts Act, two sections lay down provisions for impossibility. Sec. 32 and 56. However,
both the sections are applicable in different scenarios. Through the means of this paper, we
seek to examine the legal evolution of the doctrine of impossibility and frustration in the
English legal system, its importation, interpretation and construction in the Indian legal
system by placing reliance on English and Indian case laws. We also seek to understand the
nuances of both the sections; their similarities and differences and the approach adopted by
the Supreme Court to determine the applicability of a particular section to a particular
situation.
ACKNOWLEDGMENT
We would like to express our gratitude to our professor, Ms. Niyati Pandey for her support
and motivation to complete this research paper.
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TABLE OF CONTENTS
INTRODUCTION.....................................................................................................................................4
CONTINGENT CONTRACTS AND IMPOSSIBILITY UNDER S.32 OF THE CONTRACTS ACT...................5
IMPOSSIBILITY UNDER S.56 OF THE CONTRACTS ACT........................................................................6
THE DISTINCTION BETWEEN APPLICABILITY OF SEC. 32 AND 56. OF THE CONTRACTS ACT............7
Genesis of Frustration of contract......................................................................................7
Position of Law in India.......................................................................................................8
Liberal Interpretation of ‘impossibility’ under Section. 56 of the Contract Act............................8
Impossibility under Sec 32 of Contracts Act......................................................................9
CONCLUSION.......................................................................................................................................11
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INTRODUCTION.
The Indian Contract act, 1872 (herein referred as ICA) is a product of the legislation made
during the colonial times.1 The code was found important as the transactions and business
grew in India. The then system of dealing with contractual obligation was to implement
Hindu Contract Law on Hindus and Muslim Contract Laws on Muslims 2. This gave rise to
unnecessary complications as the Moffussil courts were finding it more and more difficult to
adjudicate disputes where the parties belonged to different religion whereas the maxims
maxim of justice, equity and good conscience courts could apply to personal laws of contract,
or any relevant customs, or English law of contract to the parties concerned.
Due to this chaotic judicial standard, the British parliament instituted the First Law
commission in 1833 so as to take a first step towards the codification of laws in India. This
Law Commission was followed by a Second Law Commission which submitted its first draft
of the provisions of Contractual Obligation in 1866. This draft was modified and altered and
and was finally passed as The Indian Contract Act, 1872.
Being the oldest mercantile law of the country, the law provides with a range of remedies that
are can be availed under the act. The law has never become obsolete based on the fact that it
was promulgated long back when the commercial transaction was of different nature, this is
due to the fact that judiciary in the country has constantly tried to strike a nexus between the
facts of the situation and how the provisions of law can be interpreted in order to ensure
justice. This flexible system of adjudication though has ensured justice but has also raised
some substantial questions on the application of the provisions made in the statute. This has
not only given rise to litigation but has also raised a substantial question of uniformity of
application of statute throughout the nation. One such disputed area is the difference between
Section 32 and Section 56 of ICA.
From S.31 to S. 33 the ICA provides with the provisions of a contingent contract and where
they become impossible and hence would render a contract null and void 3 whereas S. 56 of
ICA states that an agreement to do an impossible act is in itself is void. There is a need to
understand the principals that they are based on in order to under the difference and
similarities between these sections.
1
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CONTINGENT CONTRACTS AND IMPOSSIBILITY UNDER S.32 OF THE CONTRACTS ACT.
The word contingent used in the Indian Contract Act 1872 has the same meaning as the word
conditional in common law. A conditional obligation, in other words, is a quasi-obligation
consisting in the chance or possibility that a real obligation may already exist or may come
into existence in the future. The fulfilment of the condition is the transformation of this
potentiality into actuality. Conversely, the failure of the condition is the failure of this chance
to become a fact.4 Contingent contracts are contracts which have been duly formed, but
provide that the performance of obligations under the contract is conditional on the
happening or not happening of an event. The event or contingency provided for may be an
objective event, or the discretionary act of a third party or a party to the contract. Contracts of
insurance, indemnity and guarantee are contingent contracts5.
S.31 defines contingent contracts as ‘a contract to do or not to do something, if some event
collateral to such contract does or does not happen’ which means that a contingent contract is
a contract where the promisor performs his part of the obligation only when certain
conditions are met.6 Whereas S32 deals with the enforcement of contracts contingent on an
event happening7. It states that contingent contracts cannot be enforced by law unless and
until the event has happened. If the event becomes impossible then the contract becomes
void. The event as mentioned in S31 and S32 must be of uncertain nature and then only a
contract can be regarded as contingent. SC has stated that due to the requisite condition of an
uncertain event all the insurance contracts are contingent contracts. 8Where the contract is
contingent upon the happening of an event, there is no undertaking by either party that the
event shall occur, but a term may also be implied that one of the parties will use all
reasonable efforts to secure the fulfilment of the condition or bring about the event, 9 without
any absolute undertaking that the efforts would succeed.
If the event on the happening of which the contract is contingent becomes impossible, the
contract becomes void.10All the parties to the contract are discharged of any liability of
10
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performance, or of payment of damages. A contract becomes void only if the contingency
becomes impossible.11 Where the contract itself, as a matter of construction, contains
impliedly or expressly a term according to which it would stand discharged on the happening
of certain circumstances, the question of dissolution of the contract according to its terms
falls to be determined under S.32.12
IMPOSSIBILITY UNDER S.56 OF THE CONTRACTS ACT.
S.56 of ICA states that “an agreement to do an impossible act is in itself void” and that “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.13 This provision is based on the Doctrine of Frustration, the
origin of the same is closely related to the English Rule that a subsequent impossibility of
performance cannot be a valid defense by the defendant in cases of breach of an obligation
under the contract.14
S.56 states two types of Impossibilities, first Initial Impossibility and second subsequent
impossibility. SC observed in Satyabrata Ghose v Mugneeram Bangur and Company & Anr
that impossibility referred in S.56 should not be taken as literal impossibility but rather
should be based on the change of circumstances which completely upsets the foundation on
which the bargain has been made.15SC expanded the scope of doctrine of frustration by
incorporating humanely possible situations in the same.16
It should be understood that the doctrine of frustration in India can be used subject to some
limits. One important limitation is ‘Commercial Hardship or Bad Bargain’ 17 Commercial
hardship in a contract cannot render a contract frustrated merely because the contract might.
Strikes are also a limitation to the doctrine of frustration and it has been held by the SC that
due to strikes the difficulty to perform contractual obligation is not frustration and hence
cannot be remedied under S56.18
11
12
13
14
Paradine vs Jane, 1647 (82) ER 897: 1647 Alyen 26.
15
16
Sushila Devi v Hari Singh
17
Davis Contractors Ltd v Fareham UDC
18
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THE DISTINCTION BETWEEN APPLICABILITY OF SEC. 32 AND 56. OF THE CONTRACTS ACT.
Sec 32 and 56 of the contracts Act, both, deal with the element of impossibility. However,
19
they are mutually exclusive. To draw the distinction between the two, it is important to
understand the evolution of doctrine of impossibility and its judicial interpretation in English
as well as Indian legal context.
Genesis of Frustration of contract.
“Impossibility” of the performance of a contact and “Doctrine of Frustration” are expressions
used interchangeably, however there exists a fine line of distinction between the two. The
Indian Contract law explicitly incorporates doctrine of frustration under section 56 of the
contract which finds it basis in English Law. 20 Thus, to understand the evolution doctrine of
impossibility and doctrine of frustration, it is pertinent to examine the position of law In
England.
In England, the distinction between the two doctrines is drawn on the grounds that
impossibility concerns the duties specified in the contract, but frustration concerns the reason
a party entered into the contract. 21
The English case of Taylor v Caldwell 22laid down the foundation of the doctrine of
frustration. In this case, two parties entered into a contract to hire a music hall, for the
performance of concerts. But, before the date on which the concert was going to take place,
the music hall burned down. The claimant brought an action for breach of contract for failing
to provide the hall and claimed damages. The court held; the contract has been frustrated as
the contract was impossible to perform now.
The case of Krell v. Henry23, modified the requirement of "impossibility" as mentioned in the
above case. In the present case, the parties entered into a contract to rent a room for the
purpose of watching the coronation procession of the King. The procession, however stood
indefinitely postponed on the account of king`s illness. The plaintiff refused to pay for the
and demanded for the return of his deposit. So, the owner sued for breach of contract.
19
Lakshmikumaran, C., 2020. Revisiting Contractual Theory and Obligations in Times of COVID-19.
[Blog] Lakshmikumaran and Sridharan Attorneys,
20
The Indian Contracts Act, 1872, § 56, No. 09, Acts of Parliament, 1872 (India).
21
Melvin Eisenberg, Impossibility, Impracticality and Frustration,1, JOURNAL OF LEGAL ANALYSIS, 207,
(2009).
22
Taylor v. Caldwell, EWHC QB J1, 1863.
23
Krell v. Henry, 2 KB 740, 1902.
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The court adjudged that the doctrine of impossibility is inapplicable to this situation as it is
still technically possible for the hirer to take possession of the flat, however the underlying
purpose of the contract i.e to watch the coronation procession has been ‘frustrated’. Thus, the
termination of the contract was justified and not its rescission as the underlying purpose of
the contract is frustrated
Thus, when the object of the contract ceases to exist it can be said to be “impossible”.
However, when the contract in its literal can still be executed but the substantial purpose for
which it was entered into is radically different from due to unforeseen circumstances, the
contract is “frustrated”.
Position of Law in India.
In India, the position of law differs. The doctrine of frustration is constructed narrowly under
Section 56 of Indian contracts act. Section 56 deals with performance of impossible contracts
whereas Section 32 contains provisions for contingent contracts which become impossible on
24
the non-occurrence of an event. Time and again, it has been subject to judicial
interpretation.
Liberal Interpretation of ‘impossibility’ under Section. 56 of the Contract Act.
The case of Satyabrata Ghose v. Mugneeram Bangur25, is authoritative on the interpretation
of Sec 56 of the Contracts Act. Sec 56 lays the doctrines of frustration. In this case, the
Supreme Court made a similar interpretation as to that of English law insofar as it held the
word impossible is not confined to physical or literal impossibility. It is to be construed as
“impracticable and useless” from the perspective of the object and purpose the contracting
parties had in mind. If due to the occurrence of a “supervening circumstance” or intervening
event, which the parties had not contemplated, the purpose of the contract is radically altered
then it is said to be frustrated and falls within the purview of Sec 56.
Thus, there are 2 aspects to this ratio; firstly, the scope of impossibility is interpreted liberally
in a manner similar to England. Secondly; the parties to the contract are discharged from
performance of the contract in the event the supervening circumstance frustrates the purpose
of the contract and the supervening circumstance not contemplated by the parties.
24
The Indian Contracts Act, 1872, § 33 & 56, No. 09, Acts of Parliament, 1872 (India).
25
Satyabrata Ghose v. Mugneeram Bangur, 1954 AIR 44.
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Section 56 as a rule of positive law as opposed to English law.
The Supreme court, in Smt. Sushila Devi v. Hari Singh 26(“Sushila Devi case”) stated Sec 56.
lays down a positive law and it need not be construed on the basis of the intention of the
parties in contrast to English law. In England, contracts are interpreted using the tool of “rule
of construction” 27where the intention, belief and knowledge of the parties are relied upon to
understand the essence of Contract.
However, in the Sushila Devi case, the court held the circumstances surrounding the contract
and the intention of the parties form the basis upon which the judges have to arrive at the
conclusion whether the changed circumstances constitute impossibility. This principle does
not give effect to the intention of parties as rules of construction normally does, rather only
takes into consideration to determine whether the foundation of the contract is destroyed,
thereby frustrating the contract. Thus, it is the rule of positive law.
Thus, Section 56 of the Indian Contract Act has explicitly incorporated doctrine of frustration
thereby taking one step ahead of English law. While the scope of impossibility is similar to
that of English law, the method of construction differs, with Indian law deeming Sec 56. to be
a rule of positive law.
Impossibility under Sec 32 of Contracts Act
In instances where the parties contemplate an intervening circumstance or do not speculate
the possibility of an intervening circumstance but expressly mentions that the contract will
stand valid despite the intervening circumstance cannot be said to be frustrated. This is so,
because the very basis of the Contract demands the performance of the contract despite the
happening of a particular event. As Lord Atkinson said, “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 King’s enemies … or vis major.” 28
In English law, it is considered to be an extreme form of doctrine of frustration where as in
Indian law, it falls beyond the purview of Section 56 and within Sec 32. Which Deals with
contingent contracts.
26
Sushila Devi And Anr v. Hari Singh And Ors, 1971 AIR 1756.
27
G.M. Sen, Doctrine of Frustration in the law of contract, JOURNAL OF INDIAN LAW INSTITUTE, (1972).
28
Bharat Heavy Chemicals Ltd. v. G+ H Schallschutz GMBH, MANU/DE/2425/2018.
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The Supreme Court has held that if the grounds of dissolution of the contract are envisaged
by the Contract itself whether impliedly or expressly, then Sec 32 of the Contract Act will be
held to be applicable in such a case. When it comes to Section 56, the courts have to only
29
take into account the doctrine of intervening impossibility or illegality. If a contract is
rendered impossible due to a circumstance completely unforeseen and strikes at the root
cause of the essence of the contract then Sec 56, is attracted.
The difference between the two sections also lies in the fact, Sec 56 provides for a liability
clause in the event the promisor may have used his reasonable diligence to ascertain the
impossibility of an event. In such a case, the promisor is liable to pay for damages. It is to be
noted the compensation clause is applicable when the promise could not have known the
known the act to be impossible or unlawful. Whereas no such compensation clause is
applicable under Sec 32.
Doctrine of frustration is related to discharge of the contract by an impossibility of
performance arising after the contract was made whereas 32 deals with the duties laid down
in the contract which are rendered impossible on the occurrence of events contemplated.30
Recently, this question had resurfaced in the case of NAEFD v. Ailementa S. A31, the facts
involved a contract to export groundnuts between NAEFD the canalizing agency of
government of India and Ailmenta, a company based in the U.S.A for shipment in 1979. By
the virtue of being a government agency, NAEFD could not export the said consignment
without the permission f Government. NAEFD could only ship a part of the consignment and
the remaining part was to be shipped in 1980. However, the government refused permission
to do so due to the rise in prices by thrice in the U.S. Ailementa viewed this as a breach of
contract. The case was brought before the Supreme Court to determine the liability of
NAEFD which section was applicable i.e 56 or 32 of Contracts Act.
The supreme court held although the permission by the Government was denied due to the
rise in prices which was a supervening event completely unforeseen by the parties, the
contract contemplated denial of permission by the government and therefore Sec 32 was
attracted. As a result of which the contract was merely rendered impossible and NAEFD was
not liable to pay damages.
29
Satyabrata Ghose v. Mugneeram Bangur, 1954 AIR 44.
30
G.M. Sen, Doctrine of Frustration in the law of contract, JOURNAL OF INDIAN LAW INSTITUTE, (1972).
31
National Agricultural Co-Operative Marketing Federation of India v. Alimenta S.A., MANU/SC/0382/2020.
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CONCLUSION
The law relating to frustration of contract in India is better enclosed statutorily than that of
English law because it is just possible that under the English law there is no concurrence
among judges on the reasons behind the frustration of a given contract. But in India as the
provisions are couched in well-defined terms, the chances of prevarication or conflicting
opinions are minimal. Under the Indian law, the doctrine of frustration is an aspect of the law
of discharge of contract by reason of supervening impossibility or illegality of the contract to
be done and hence comes within the purview of section 56 of the Act. The position in effect,
therefore, is that in Indian law, because of the farsighted provisions of the Act, it is not
necessary to have any resort to any legal fiction or theory for application of the doctrine of
frustration. Section 32 and Section 56 states impossibility in two very different yet similar
ways. Today a lot of contractual obligations are rendered frustrated due to the acts which are
unforeseeable in nature and hence it becomes pertinent to understand the remedy one can
seek from ICA. Lockdown imposed due to the pandemic has raised important questions
around which section is to be invoked in order to seek remedy for the contracts that are
rendered frustrated. The doctrine of frustration practiced in India through S56 is very
different from the practiced in other common law countries. Hence it becomes pertinent to
understand the meaning of impossibility and frustration through various interpretations by the
courts of India.
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