TIME AS AN ESSENCE OF CONTRACT

This rough draft is submitted in partial fulfillment of the project in “Law of contract”for the
requirement of the degree of B.A. LL.B.(Hons.)

Submitted to:

Ms. Sushmita Singh

(Associate Teacher of Law of
Contract)

Submitted by:

Ashish Ranjan (2721)

B.A. L.L.B (Hons.)

Semester: 2nd

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

JANUARY, 2023

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 TIME AS AN ESSENCE OF CONTRACT

INTRODUCTION

Section 55 of the Contract Act deals with failure to perform a contract within the agreed time. In the
event, time is of the essence, failure to perform an obligation within the stipulated time renders the
contract voidable at the option of the innocent party. In such cases, the innocent party is entitled to
either (a) terminate performance of the contract; and (b) claim damages from the breaching party on
the basis that it has committed a fundamental breach of the contract. However, instead of avoiding the
contract, if the innocent party accepts belated performance of the contract, it cannot claim
compensation for any loss occasioned by non-performance of the contract at the agreed time, unless at
the time of such acceptance, it gives notice to the breaching party of its intention to do so.

However, the second paragraph of Section 55 provides for a situation where the parties do not intend
time to be of the essence of the contract. In such cases, the contract is not voidable, but the innocent
party is entitled to compensation for the loss occasioned, without the requirement of service of any
notice upon the breaching party. Therefore, in order to substantiate a claim for damages and/ or lawful
or unlawful termination of the contract, it is necessary to first adjudicate upon whether time was the
essence of the contract.

In the present case, the Court has reiterated the law settled by it in Hind Construction
Contractors vs. State of Maharashtar, wherein it had held that whether or not time is the essence of the
contract is essentially a question of the intention of the parties, to be gathered from the terms of the
contract. In contracts providing for an explicit clause in this regard, such a stipulation will have to be
read along with other provisions of the contract, which may upon construction exclude any inference
that time being of the essence was fundamental to the contract. The Court also observed that the
presence of clauses in the contract providing for extension of time in certain contingencies or for
payment of fine/ penalty for delay may be the cause to repel an argument that time was of the essence
or fundamental to the contract.

• Extension of Time

In the event a contract provides for extension of time, generally timely performance of the contract
may not be termed to be fundamental thereto. In order to signify time as the essence of the contract,
there must be a specific and immoveable date within which the extended performance of the obligation
has to be affected, failing which it may be held that the parties themselves by their conduct have
waived the original terms of the contract, more particularly in respect to time being the essence of the
contract. The extension, if there be any, should and ought to be categorical in nature rather than being
vague or on the anvil of presumptions.

For instance, the Bombay High Court in the case of Oil & Natural Gas Corporation Limited vs. M/s.
Soconord OCTG upheld an arbitral award, holding time as the essence of the contract, despite the
existence of extension of time clause as well as the provision for compensation for delays under the
contract, in light of the fact that the extended performance date was specifically agreed upon between
the parties with a mutual understanding that the same was material/ fundamental to the contract.

• Imposition of Damages

Under Section 55 of the Contract Act, the innocent party is nevertheless entitled to compensation for
the loss caused by the breaching party by failure to perform within time. However, in the scenario
wherein time is of the essence and the innocent party accepts belated performance, damages shall be
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 TIME AS AN ESSENCE OF CONTRACT

payable only upon notice. In such cases, there must be a clear and discernible stand on behalf of either
of the parties that any extension granted and/or accepted is without prejudice to the claim of actual
damages/ liquidated damages, as the case may be, instead of awaiting the end of the contract to lodge
any such claim.

The Contract Act, under Sections 73 and 74 thereof, deals with the law of damages in India. Section 73
provides for actual damages suffered by a party in the usual course of things, upon a proof of breach,
as also the extent of the loss suffered. Section 74, dealing with liquidated damages is an exception to
Section 73, wherein the requirement of proof of loss has been dispensed with. Section 74 applies
wherein a sum has been specified in the contract as damages, which is a genuine pre-estimate of the
loss agreed between the parties.

All the claims for damages must satisfy the conditions stipulated under Section 73, i.e., burden of
proof of breach of the contract (delayed performance) and proof of loss accrued as a result thereof.

Considering the above, it may be concluded that in each case, it is necessary to ascertain the intention
of the parties from all the relevant provisions of the contract, their conduct and the surrounding
circumstances. There exists no straight jacket formula to gauge as to whether time is the essence of a
contract and certainly an explicit clause to this effect is not, in itself, sufficient.

Lastly but pertinently, the present case is yet another example of the Court’s pro-arbitration approach,
wherein basis the principal of minimal court inference in a challenge to an award under Section 34 of
the Arbitration Act, it refused to interfere with the Award. The Court has reiterated the settled legal
principal that the arbitral awards should not be interfered with in a casual manner, unless the perversity
of the award goes to the root of the matter without there being a possibility of an alternative
interpretation, which may sustain the arbitral award.

RESEARCH OBJECTIVES: -

The aim of this project is to:

1. Importance of time in contract

2. Legal provisions

HYPOTHESIS

The hypothesis of this project is to prove that Time is very essential and importance aspects
related to the each valid contract. It is the basic and importance ingredients of valid contracts and
Contracts of all sorts specify date for performance various obligation and even an some absent of
some specify date there is some usually an implied term calling for performance within a
reasonable time.

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RESEARCH METHDOLOGY

In this project only ‘DOCTRINAL METHOD’ of research is used. The writer has referred only
library research, books, articles as well as some online datain making of this project.

SOURCES OF DATA

The sources of data used by the researcher are both Primary and Secondary. Primary sources include
legal propositions and Doctrines, Articles, Books as well as Online Research and Journals relating to
the subject. The secondary sources include the field work done by the researcher.

MODE OF CITATION

The researcher has hewn to the Blue Book Citation (20th edition) in thisproject report.

LIMITATIONS OF STUDY

The researcher had monetary and time limitations while completing thisproject. Many of the
doctrinal sources were beyond the access of the researcher too. Furthermore, the topic had little
scope of empirical studywhich added to limitation involved in the making of this project.

RESEARCH QUESTIONS

What is importance of time in contract act?

What are legal provisions for it?
What consequences are faced when not operated accordingly to it?

TENTATIVE CHAPTERISATION

• Introduction
• Scope and importance
• Legal provision
• Case study
• Present scenario
• Conclusion

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