The Doctrine of Frustration in Indian Law

In one line

England reasons that the parties must have meant the contract to end; India does not reason at all, because a statute says it ends, and that single difference decides several examination questions.

In the words a student can write in an exam: in India the doctrine of frustration is an aspect of the law of discharge by supervening impossibility or illegality and comes within section 56 of the Indian Contract Act 1872, which lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties. That was settled by the Supreme Court in Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44, which also held that English cases have persuasive value only.

Why the theoretical basis matters in practice

It is tempting to treat this as a debate for textbooks. It is not, and the reason is worth stating at the top of any answer.

If frustration rests on an implied term, as English law long held, then the court's question is: what would these parties have agreed, had they thought about this event? That makes the doctrine part of the construction of the contract, and it means a court can be argued out of it by pointing to what the parties would probably have said.

If frustration rests on a rule of positive law, as section 56 does, the court's question is simply: has the act become impossible or unlawful? The parties' probable intention is beside the point.

Three consequences follow from the Indian position and each is examinable.

1. The court does not search for an implied term.
2. A party cannot resist discharge by arguing about what the parties would have wanted.
3. The consequences of frustration are governed by section 65, and not by any judge made rules of restitution.

The leading case

Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44, decided 16 November 1953.

Facts. An agreement for the sale of land in a development scheme, under which the company had undertaken to construct roads and drains before calling for the balance of the price. Part of the land was requisitioned for military purposes during the war. The company claimed that the contract had become impossible of performance, and treated it as cancelled.

Held. The doctrine of frustration is an aspect of the law of discharge of contract by reason of supervening impossibility or illegality, and it comes within the purview of section 56. The view that section 56 applies only to cases of physical impossibility, and that where it does not apply the English principles of frustration may be resorted to, is not correct. English cases have persuasive value only. Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.