NTPC Limited vs.

Voith Hydro Joint Venture, (2019) 263 DLT 1

Facts
NTPC and Government of Uttarakhand entered into an agreement for execution of a Hydro Electric
Project. NTPC called for a bid for electro mechanical package, which was won by an unincorporated
Joint Venture named as Voith Siemens Joint Venture. The constituent entities of Voith Siemens Joint
Venture entered into three separate contracts, i.e.
(I) On-shore supplies contract
(II) Off-shore supplies contract
(III) On-shore services contract
Now, some environmental activists protested against the said hydro project, and PILs were filed in the
Uttarakhand High Court. The work of the project was suspended till further directions, by the court.
While the matter related to the environmental issue was being decided, NTPC sent a letter to the joint
venture parties stating that in view of project being suspended, their contracts stood frustrated. NTPC
even demanded them to return the outstanding advances. The joint venture entities claimed that they
had incurred costs which needed to be settled and thus, the parties then went into arbitration. The
arbitration tribunal rejected the contentions of NTPC and awarded in favour of NTPC.
Delhi High Court – Observations
The central controversy in the present case is whether Section 56 of the Contract Act would be
applicable even in cases where the parties had contemplated the effect of supervening event, which
renders it impossible to perform the contract. NTPC contended that notwithstanding the terms of a
contract between the parties, any act that had rendered it impossible to perform the contract would
render the contract as void and thus, absolve the parties from discharging any of their contractual
obligations. According to him, all that the parties are required to do in such cases is to restore any
advantage received under the contract in terms of Section 65 of the Contract Act.
Discussing the case of Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44, the
Hon’ble Delhi HC observed that the Supreme Court had addressed the development of the law of
frustration of a contract in England in that case and had noted that the law of frustration in England
had developed under the guise of reading terms into the contract. Further, it also said that various
legal theories were followed by the courts in the United Kingdom as there was no provision in the
applicable laws similar to Section 56 of the Contract Act.
Thus, in cases where parties do not contemplate the occurrence of an event that renders the
performance of the contract impossible or illegal, the provisions of Section 56 of the Contract Act
would be applicable. In such cases, it is not necessary for courts in India to read any implied condition
in the contract or to speculate what the parties to the contract would have agreed had they
contemplated the unforeseen, unexpected event or change in circumstances that had occurred
subsequently. Section 56 would have little application where the parties expressly contemplate the
recourse to be adopted by them in the event, there is any change in circumstances or an occurrence of
an event that renders it impossible for the parties or anyone of them to perform the contract.
The Hon’ble Delhi High Court further held that if the parties do contemplate the possibility of an
intervening circumstance which might affect the performance of the contract, but expressly stipulate
that the contract would stand despite such circumstances, there can be no case of frustration because
the basis of the contract being to demand performance despite the happening of a particular event, it
cannot disappear when that event happens.
Further, it was held that NTPC had the option to invoke the force majeure clause. However, NTPC
had refrained from taking any decision as required under the terms of the Contract and had
procrastinated in issuing any notices under the Contract.