The Doctrine of Frustration in Indian Law

Why it matters here. It is the case that separates Indian from English law on frustration, and it does so in a single proposition that can be quoted. It also decides the subsidiary point that section 56 is not confined to physical impossibility: impossibility in the section means impracticability from the point of view of the object of the contract, not merely literal physical impossibility.

A detail of citation. The case was decided in 1953 and reported in 1954. The report year is not the decision year, and the same trap appears elsewhere in this paper.

India and England compared

Taylor v. Caldwell is the English case in which a music hall hired for concerts burnt down and the court excused both parties by implying a term that the contract was subject to the continued existence of the hall. It is worth naming as the origin of the implied term theory that India does not follow, and it should be described in exactly those terms rather than cited as Indian authority.

Frustration and its neighbours

Three distinctions decide problem questions, and they are commonly muddled.

Frustration under section 56 against a contingent contract under section 32

The organising idea: where the parties have provided for the event, the contract governs and section 32 applies. Section 56 is for events nobody provided for. This is why a force majeure clause ordinarily displaces section 56: the parties have allocated the risk themselves.

Frustration against breach

Frustration is nobody's fault and discharges both parties automatically. Breach is somebody's fault and gives the innocent party a remedy. The dividing line is self induced impossibility, which is a breach and not a frustration.

Frustration against initial impossibility

Frustration operates on a contract that was good when made. Initial impossibility means there never was a contract, and the first paragraph of section 56 voids the agreement.

A worked example

Devika agrees in January to lease her banquet hall to Eshan for a wedding reception on 20 December, at a rent of eight lakh rupees, three lakh paid in advance.

• The hall is destroyed by fire in June. The subject matter essential to performance has ceased to exist, and the contract becomes void under the second paragraph of section 56 from the date of the fire. Under section 65 Devika must restore the three lakh rupees. The court does not ask what the parties would have agreed; the statute settles it, on Satyabrata Ghose.
• Eshan's wedding is called off because the engagement is broken. The hall is available and the lease can be performed. No frustration: the disappointment of Eshan's private purpose is not an impossibility, and this is his own risk.
• A Government order requisitions the hall for six months from November. Whether this frustrates depends on whether it strikes at the root of the contract. On the reasoning in Satyabrata Ghose, where the requisition of part of the land did not frustrate a scheme with no fixed time for completion, a court asks about the object of the contract. Here the whole object was a reception on a fixed date, so the requisition covering that date would frustrate it.
• The contract contains a clause providing that if the hall becomes unavailable for reasons beyond Devika's control the advance is refunded in full. The parties have provided for the event. The clause governs, the contract is performed according to its own terms, and section 56 does not arise.
• Devika lets the hall to somebody else for 20 December. Self induced. This is a breach, not a frustration, and Eshan's remedies are those in sections 39, 73 and 75.

What it does NOT mean

"India follows Taylor v. Caldwell." It does not. Satyabrata Ghose holds that section 56 lays down a rule of positive law and that the matter is not determined according to the intention of the parties. English cases are persuasive only.

"Section 56 applies only to physical impossibility." Satyabrata Ghose rejected that view expressly. Impossibility means impracticability having regard to the object of the contract.

"A frustrated contract is voidable." It becomes void automatically when the act becomes impossible or unlawful.

"The court must consider what the parties would have intended." That is the English implied term approach, and it is the very thing the Supreme Court declined to adopt.

"Frustration and a contingent contract are the same." Frustration is for events nobody provided for; a contingent contract is built around an event the parties did provide for.

"A force majeure clause is unnecessary because section 56 covers everything." A clause allocates the risk on the parties' own terms and displaces the statutory rule, which is often exactly what commercial parties want.

Quick revision

• Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44 (decided 1953): frustration is an aspect of discharge by supervening impossibility or illegality and comes within s.56; s.56 lays down a rule of POSITIVE LAW; it is not confined to physical impossibility; English cases are persuasive only.
• England: frustration rested on an implied term, Taylor v. Caldwell, so the court asks what the parties would have agreed. India: the court asks only whether the act has become impossible or unlawful.
• Impossibility in s.56 means impracticability having regard to the object of the contract.
• Consequences in India are s.65, not judge made restitution; England has the Law Reform (Frustrated Contracts) Act 1943.
• s.32 against s.56: the parties provided for the event, or they did not. A force majeure clause displaces s.56.
• Self induced impossibility is a breach, not a frustration.

Test yourself

1. On what basis does frustration rest in India? On section 56, which the Supreme Court in Satyabrata Ghose v. Mugneeram Bangur and Co., AIR 1954 SC 44, held to lay down a rule of positive law. Frustration is an aspect of the law of discharge by supervening impossibility or illegality and comes within that section, and the matter is not to be determined according to the intention of the parties.

2. How does that differ from English law? English law developed frustration as a judge made doctrine originally rested on an implied term, the theory of Taylor v. Caldwell, so that the court asked what the parties must have intended had they contemplated the event. In India the question is simply whether the act has become impossible or unlawful, the parties' probable intention is not determinative, and English decisions have persuasive value only.

3. Is section 56 confined to physical impossibility? No. Satyabrata Ghose expressly rejected the view that section 56 applies only to physical impossibility and that English principles may be resorted to elsewhere. Impossibility in the section means impracticability having regard to the object the parties had in view, not merely literal physical impossibility.

4. Distinguish frustration from a contingent contract. Frustration operates where an event nobody provided for makes performance impossible or unlawful, and the contract becomes void by operation of law under section 56, with restitution under section 65. A contingent contract under sections 31 to 36 is built around an event the parties did provide for, and it becomes void or enforceable according to its own terms. Where a contract contains a force majeure clause the parties have allocated the risk themselves, so the clause governs rather than section 56.

5. Why does it matter whether frustration rests on an implied term or on a statute? Because it changes the question the court asks and what may be argued. On the implied term theory a party may contend about what the parties would have agreed, so the doctrine turns on construction. Under section 56 the court asks only whether the act has become impossible or unlawful, the discharge follows automatically, and the consequences are fixed by section 65 rather than by judge made rules.