18/12/2020 DOCTRINE OF FORCE MAJEURE AND IT’S RELEVANCE IN INDIA - Lawjure

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DOCTRINE OF FORCE MAJEURE AND IT’S

RELEVANCE IN INDIA
by Lawjure  December 18, 2020< http://www.lawjure.com/2020/12/18/>
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The term Force Majeure is derived from the French term which means “greater

force”. It is related to the concept of act of God, an event for which no party can

be held accountable, such as a hurricane or a tornado.[1] The term “force

j ” h b d fi d i Bl k’ L Di ti ‘ t ff t th t

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majeure” has been defined in Black’s Law Dictionary as ‘an event or effect that

can be neither anticipated nor controlled’. The term includes both acts of nature

(e.g., floods and hurricanes) and acts of people (e.g., riots, strikes and wars).[2]

There is no general concept of force majeure in English Law, its provisions are in

expressed terms and generally will not have implied significance into contracts

governed by English Law. The party who is affected under force majeure, will be

typically relieved from performing the obligation and will be awarded with

compensation.

Force Majeure vs Act of God

Generally, an “Act of God” is understood to include only natural unforeseen

circumstances, whereas force majeure is wider in its ambit and includes both

naturally occurring events and events that occur due to human intervention.

However, both concepts elicit the same consequences in law.[3]

Concept of Force Majeure in Indian Jurisprudence.

Often the Doctrine of Force Majeure is overlapped with the Doctrine of

Frustration of Contract. These are completely different concepts. A contract is

typically said to have been frustrated if the performance of contract becomes

impossible. The performance of an act may not be literally impossible, but it

may be impracticable and useless from the point of view of the object and

purpose which the parties had in view.[4] Frustration of contract or impossibility

to perform is statutorily provided under Section 56 of the Indian Contract

Act. However, force majeure clause is typically in the form of contractual

provisions.

The concept of force majeure has not been defined under the Indian statutes.

This concept has been dealt with the Section 32 of the Indian Contract Act,

1872 dealing with contingent contracts Section 32 of the Indian Contract Act

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1872 dealing with contingent contracts. Section 32 of the Indian Contract Act,

1872 says that “Enforcement of contracts contingent on an event happening –

Contingent contracts to do or not to do anything if an uncertain future event

happens, cannot be enforced by law unless and until that event has happened.

If the event becomes impossible, such contracts become void.” In the

contractual view, the doctrine provides a temporary escape to a party under the

contract, to perform the contractual obligations on the occurrence of a force

majeure event.

The essentials of force majeure clauses are as follows:

1. An unexpected/unforeseen intervening event occurred;

2. The parties to the agreement assumed that such an event will not occur;

3. Such an event has made the performance of the obligations under the

contract impossible or impracticable;

4. The parties have taken all such measures to perform the obligations under

the agreement or at least to mitigate the damage; and

5. The affected party claiming relief under force majeure, will have the burden of

proof to show that the force majeure event has affected such party’s

performance of the contract.[5]

Section 56 of the Indian Contract Act, 1872 reads as follows:

1. “Agreement to do impossible act. Contract to do an act afterwards becoming

impossible or unlawful. —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. Compensation for loss through non-performance of act known to be

impossible or unlawful. —Where one person has promised to do something

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which he knew, or, with reasonable diligence, might have known, and which the

promisee did not know, to be impossible or unlawful, such promisor must make

compensation to such promisee for any loss which such promisee sustains

through the non-performance of the promise.” Section 56 says that all the

agreements which are impossible to perform are void. It envisages a situation

wherein a lawful act has subsequently become impossible or unlawful to

perform.[6]

Essentials of Section 56 of the Indian Contract Act, 1872:

1. The contract must be valid

2. The performance of the contract is yet to be completed or it is ongoing

3. The mentioned performance becomes impossible due to the facts or laws

4. Destruction of subject matter[7]

5. Death or incapacity for personal service[8]

6. Non- existence or non- occurrence of a particular state of things[9]

7. Intervention by legislative or executive authority

8. Intervention of war[10] and

9. Change of circumstances of particular state of things

After reading the Section 32 and Section 56 of the Indian Contract Act, where

the contract itself has express or implied term according to which it would stand

discharged on the happening of certain circumstances, the question of

dissolution of the contract according to its term falls to be determined under

Section 32 and not under Section 56 of the Indian Contract Act, 1872. They all

are treated as cases of frustration under the English Law, but such cases fall

under Section 32 of the Indian Contract Act, 1872, which deals with the

contingent contracts.

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Judicial Precedents

1. Satyabrata Ghose v. Mugneeram Bangur & Co[11]: in this case, Justice

Mukherjee held that, The Indian Law of frustration which term is interchangeable

with supervening impossibility is embodied in Section 56 of Indian Contract Act,

1872 as a positive rule of law which does not leave the matter to the intention of

the parties and casts the duty on the court to decide whether the contract is

ended by frustration. To the extent the Indian Contract Act deals with a

particular matter, it is exhaustive and it is not permissible to import English

principles de hors the provisions in the Act. The English Law of frustration do not

bind us. it is the duty of the court to give relief and hold the contract frustrated

and ended as it is really a rule of positive law under Section 56 of the Indian

Contract Act, 1872. When there is frustration, the contract is dissolved

automatically and does not depend on rescission or repudiation or breach or

choice or election of either party, and the court has to decide expost facto.

2. Alopi Parshad & Sons Ltd. v. Union of India[12]: in this case, M/s Alopi

Parshad and Sons Ltd, were the agents of the Government of India. These

agents use to purchase ghee for the army. Later, the second World War took

place. On June 20, 1942, the original agreement was, by mutual consent,

revised. The rates fixed in peace time were totally altered by the war time

conditions. The agents demanded revision of rates, but they received no reply.

The Government terminated the contract in 1945. The agents claimed payment

at enhanced rates. The Hon’ble Court observed that the contract is not

frustrated merely because the circumstances, in which the contract was made,

are altered. The performance of the contract had not become impossible or

unlawful. The contract was in fact performed by the agents and they received

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remuneration expressly stipulated to be paid.

3. Naihati Jute Mills Ltd. v. Hyaliram Jaganath[13]: there was a contract of

sale and purchase between Naihati jute mills(buyer) and Hyaliram

Jaganath(seller). The seller agreed to sell 2000 bales of Sadipur N.C. Cuttings.

One of the printed terms provided –“Buyers shall not however be held

responsible for delay in delivering letters of authority or opening letters of credit

where such delay is directly or indirectly caused by god or due to act of God,

war, mobilization, demobilization, breaking off trade relations between

Governments, requisition by or inference from Government or force majeure….”

the buyer could not perform the obligation due to change in government policy,

imposing total restraint on the import of Pakistan jute. The contention advanced

on behalf of the buyer that the performance of the contract in question has

become impossible, it therefore stands frustrated in the light of Section 56 of the

Indian Contract Act, 1872 and is void, was rejected by the Hon’ble Court. The

Court observed that it is clear from the circulars produced that as early as March

1958 the Government of India had issued warnings that import of Pakistan jute

would be permitted to the absolute minimum and the jute mills should satisfy

their needs by purchasing Indian jute. The buyer was very much aware that the

licenses are not freely issued. The application of import license by the buyer was

refused on account of personal disqualification and not by reason of any force

majeure. Therefore, it was held by the Hon’ble Supreme Court that there

therefore, lies no question of the performance of the contract becoming

impossible by reason of the change of policy of the Government.

After looking into the judicial precedents, the response of the judiciary to force

majeure has been rigid. The courts have not allowed economic inability,

inconvenience, difficulty in performance, onerousness etc. as grounds of force

j f t t t i t t ti f t t

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majeure for a party to terminate or get exemption from a contract.

In a 2017 case, the Supreme Court cited a 1961 House of Lords decision that

ruled that the closure of Suez Canal, although unforeseen, had not rendered a

contract to ship goods from Africa impossible since a longer route around the

Cape of Good Hope existed.[14] In April 2020, the Bombay High Court did not

accept the argument of the petitioner who argued that Covid-19-related

lockdowns had frustrated a contract for supply of steel. Although the decision

factored in other arguments, the vague construction of the pandemic reason did

not cut ice with the court.

Whether the other countries are implementing the doctrine of force majeure in

this pandemic?

• Singapore enacted the Covid-19 (Temporary Measures) Act in April to provide

relief to businesses that could not perform their contractual obligations due to

the pandemic.

• China’s Supreme People’s Court had recognised the 2002 SARS outbreak as a

force majeure event.

• The Paris Commercial Court in July ruled that the pandemic could be equated

to a force majeure event.

The International Chamber of Commerce had developed a model code on the

force majeure clause on the current international practices. The Code states that

“the impediment triggering the operation of the force majeure clause must be

beyond the party’s reasonable control; and that it could not reasonably have

been foreseen at the time of the conclusion of the contract; and that the effects

of the impediment could not reasonably have been avoided or overcome by the

affected party”.

In conclusion India needs to have a codified law which exempts an affected

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In conclusion, India needs to have a codified law. which exempts an affected

party from performing its obligations under the contract during the period of

such lock downs and such lock downs have to be considered as force majeure.

1 https://www.investopedia.com/terms/f/forcemajeure.asp

2 Black's Law Dictionary Eighth Edition, First South Asian Edition 2015

3 https://indianexpress.com/article/explained/act-of-god-covid-19-lockdown-

economy-impact-6583530/

4 Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 S.C.R. 310: AIR 1954 SC

44

5 https://www.mondaq.com/

6 https://www.mondaq.com/india/litigation-contracts-and-force-majeure

7 Taylor v. Caldwell (1863) 3 B & S 826

8 Stubbs v. Holywel Railway Co. (L.R. 2 Exch 311

9 Krell v. Henry (1903) 2 KB 740

10 Metropolitan Water Board v. Dick Kerr & Co. Ltd. (1918) AC 119

11 AIR 1954 SC 44

12 AIR 1960 SC 588

13 AIR 1968 SC 522

14 https://indianexpress.com/article/explained/act-of-god-covid-19

About author –

This article is authored by Riddhi Kapadni, First year student of 3-year

LLB at MIT WPU FACULTY OF LAW, PUNE.

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