SHORT NOTE ON LEGAL OPINION
FACTS:
M/S INDIA CHEMICAL is a supplier of xyz chemical to suncare pharma, which
is used to make certain medicines. My client had an agreement for the timely
supply of the said chemical. The said agreement has a clause if your client fail to
supply the chemical in time, Suncare will suffer huge lose & as such on this
account my client undertook to compensate Rs 50 lakhs. During the National
Lockdown in March 2020, labourers working at my client left the factory &
further, the raw material chain was disrupted & as such my client failed to supply
chemical to Suncare Pharma. There was huge demand for medicines during that
period. Suncare Pharma could also not produce & thereby suffered huge loss in
crores. Now Sun Pharma has demanded Rs 10 lakh from my client in term of the
agreement.
ISSUE:
Is it possible to get out from contractual obligation that arises in the contract.
LAW:
A contract is a private legislation between the parties. Parties can decide
obligation, terms, condition, etc. Contract is a legally binding agreement
enforceable by law. There are issues arises when parties want to dissolve their
legal contractual obligation in the contract. Doctrine of Frustration is a way out to
dissolve their contractual obligation. The Doctrine of Frustration applied on the
following conditions:
Unforeseeable supervening events
The performance of the contract is impossible
No fault of the parties concerned
ORIGIN OF DOCTRINE OF FRUSTRATION:
The genesis of the doctrine of frustration dated back in 1861 in the Court of
England in the case of Taylor V. Caldwell (1861-1873) where the English Court
provide relief by discharging parties from the contractual obligation. The court also
stated that express condition not mention in the contract, Court can implied
inference and provide relief to the aggrieved party in the contract. There is also a
clause name Force Majure where parties can be absolved from the contractual
obligation when circumstances are beyond control or unforeseeable.
JUDGEMENTS:
In the case of Satyabarat Ghose V. Mugneeram Bangur (1954) & Mugneeram
Bangur V. Gurbachan Singh (1954) court stated that in India, no such express
clause of Force Majeure is required as is done by the counts in England. The court
held that if change in circumstances & performance in contract is impossible,
aggrieved person can discharge from contractual obligation. Section 56 of Indian
Contract Act provided that if subsequent act become impossible or unlawful in
performance, there is no obligation upon parties to perform the contract. Section 32
of the Indian Contract Act, contingent contract to do or not to do anything if an
uncertain future event happen cannot be enforced by law unless & until that event
has happened.
SUPREME COURT RULING:
In the case of Ganga Saran V. Firm Ram Charan (1952) the Supreme court held
that subsequent event performance of contract become onerous, but parties are
responsible for it. They cannot take the benefit of section 56 of Indian Contract
Act. In the case of Satyabhrata V. Mugneeram (1954) the court held that the law
of frustration as developed in England not applicable in India. Section applicable
only in case of supervening impossibility of performance or illegality of the act.
Section 56 of Indian Contract act is a positive law and applicable only in case of
supervening impossibility of performance or illegality of the act. In the judgements
the court also highlight the major difference between India Law & English Law.
English law look after intention of the parties whereas Indian Law look after
change in circumstance which lead to the impossibility of the performance of the
contract. In the case of MS Alopi Prasad & Sons LTD. V. Union of India (1960)
the Supreme Court held that change in circumstances that impacted on price
increase or decrease, in these cases dissolution from the obligation were not
allowed. In these type of contracts, only consideration in whether parties never
agreed to be bound in fundamentally different situation which had unexpectedly
emerged. In the case of Naihati Jute Mills LTD. V. Hyaliram Jaganath (1968),
the court has no general power to absolve a party from the performance merely
because the performance has become onerous on account of an unforeseeable
event. In the case of Energy watchdog V. CERC (2017) the court held that when
the parties submitted their bids, this was a risk they knowingly took and cannot
take the plea of section 56 under Indian Contract Act. In the case of M.P. Power
Management Company V. Renew Clean Energy PVT. LTD. (2018), the delay
in commissioning the project due to unavoidable circumstances or subsequent
unforeseen reason such as change in location of the project is not Force Majeure
event. The delay can be considered & condoned keeping in view other factors such
as construction of the plant, investment of huge amount in purchasing the land and
development of plant.
OPINION:
In my opinion, contract is a private legislation between the parties & they are
bound by the term of the contracts. Section 56 can be invoked only if there is no
force majeure clause. Mere the contact had become more onerous to perform but
not fundamentally altered, one cannot be absolved from their responsibility to
perform.
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