Force Majeure – Meaning

The term ‘force majeure’ translates literally from French as superior force. It is also generally defined
in the Merriam Webster dictionary as ‘an event or effect that cannot be reasonably anticipated or
controlled’. The reference to "force majeure" is meant to describe events beyond the reasonable
control of contracting parties and could include uncontrollable events (such as war, labour stoppages,
or extreme weather) that are not the fault of any party and that make it difficult or impossible to carry
out normal business. A provision of force majeure in a contract is intended to absolve a party or waive
its obligations absolutely or suspend it temporarily for reasons which cannot be construed to be a
breach of contract by the defaulting party.
Section 56 and 32
In India, the law on force majeure is embodied under sections 32 and 56 of the Indian Contract Act,
1872 (“Contract Act”). Section 32 of the Contract Act provides that ‘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.’ Section 56 of the
Contract Act enshrines the ‘doctrine of impossibility’, which provides that ‘a contract to do an act
which, after the contract is made, becomes impossible or unlawful or, by reason of some event which
the promisor could not prevent, becomes void when the act becomes impossible or unlawful.’ Under
the aforesaid provisions, contracting parties can plead impossibility of performance and consequently
frustration of a contract on account of a particular event, unforeseen previously and beyond the
control of the parties.
Contract
Commercial contracts almost always include a force majeure clause. The circumstances in which the
provision may be invoked are generally limited to common events which may be construed to be
‘Acts of God’ and are usually not negotiated vigorously, except for specific situations such as ‘strikes,
lock outs, shortage of material, etc’, which are the parties anticipate are likely to occur and have a
direct bearing on the performance of the contract. 2 In certain instances, the provision may be
triggered by an ‘Act of God’ and may not specifically enumerate the specific situations, such as the
current pandemic. Most commercial contracts nevertheless include certain catch-all provisions having
language such as – ‘any other cause whatsoever beyond the control of the respective party’.
Section 56 of the Contract Act and Doctrine of frustration –
Impossibility Prior to the Common Law decision in Taylor vs. Caldwell, (1861-73) All ER Rep 24,
the law in England was extremely rigid. A contract had to be performed, notwithstanding the fact that
it had become impossible of performance, owing to some unforeseen event, after it was made, which
was not the fault of either of the parties to the contract. This rigidity of the common law in which the
absolute sanctity of contract was upheld was loosened somewhat by the decision in Taylor vs.
Caldwell in which it was held that if some unforeseen event occurs during the performance of a
contract which makes it impossible of performance, in the sense that the fundamental basis of the
contract goes, it need not be further performed, as insisting upon such performance would be unjust.
The law on the ‘doctrine of frustration’ has been laid down in India by the Supreme Court in the
seminal decision of Satyabrata Ghose v. Mugneeram Bangur & Co. [1954 SCR 310]. The word
“impossible” has not been used in the section [Section 56 of the Contract Act] in the sense of a
physical or literal impossibility. 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 of the parties. If an
untoward event or change of circumstance totally upsets the very foundation upon which the parties
entered their agreement, it can be said that the promisor finds it impossible to do the act which he had
promised to do. It was further held that where the court finds that the contract itself either impliedly or
expressly contains a term, according to which performance would stand discharged under certain
circumstances, the dissolution of the contract would take place under the terms of the contract itself
and such cases would be dealt with under section 32 of the Contract Act. If, however, frustration is to
take place de hors the contract, it will be governed by Section 56 of the Contract Act.
In M/s Alopi Parshad & Sons Ltd. v. Union of India [1960 (2) SCR 793], the Supreme Court, after
setting out section 56 of the Contract Act, held that the statute does not enable a party to a contract to
ignore the express covenants thereof and to claim payment of consideration, for performance of the
contract at rates different from the stipulated rates, on a vague plea of equity. Parties to an executable
contract are often faced, in the course of carrying it out, with a turn of events which they did not at all
anticipate, for example, a wholly abnormal rise or fall in prices which is an unexpected obstacle to
execution. This does not in itself get rid of the bargain they have made. It is only when a consideration
of the terms of the contract, in the light of the circumstances existing when it was made, showed that
they never agreed to be bound in a fundamentally different situation which had unexpectedly
emerged, that the contract ceases to bind. It was further held that the performance of a contract is
never discharged merely because it may become onerous to one of the parties.
Similarly, in Naihati Jute Mills Ltd. v. Hyaliram Jagannath [1968 (1) SCR 821], the Supreme Court
went into the English law on frustration in some detail and then cited the celebrated judgment of
Satyabrata Ghose v. Mugneeram Bangur & Co. Ultimately, the Court concluded that a contract is not
frustrated merely because the circumstances in which it was made are altered. The Courts have no
general power to absolve a party from the performance of its 3 part of the contract merely because its
performance has become onerous on account of an unforeseen turn of events.
It has also been held that applying the doctrine of frustration must always be within narrow limits. In
an instructive English judgment namely, Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH [1961 (2) All
ER 179], despite the closure of the Suez canal and despite the fact that the customary route for
shipping the goods was only through the Suez canal, it was held that the contract of sale of groundnuts
in that case was not frustrated, even though it would have to be performed by an alternative mode of
performance which was much more expensive, namely, that the ship would now have to go around the
Cape of Good Hope, which is three times the distance from Hamburg to Port Sudan. The freight for
such journey was also double. Despite this, the House of Lords held that even though the contract had
become more onerous to perform, it was not fundamentally altered. Where performance is otherwise
possible, it is clear that a mere rise in freight price would not allow one of the parties to say that the
contract was discharged by impossibility of performance.
Non application if contract provides for force majeure which applies
As has been held in particular, in the Satyabrata Ghose case, when a contract contains a force majeure
clause which on construction by the court is held attracted to the facts of the case, Section 56 of the
Contract Act can have no application. The Supreme Court in its latest judgment in Energy Watchdog
vs. Central Electricity Regulatory Commission and Others [(2017) 14 SCC 80] dated April 11, 2017
laid down the guidelines with respect to applicability of sections 32 and 56 of Contract Act to a
contract. In the said judgment, the Supreme Court also made references to previous landmark
judgments of the Supreme Court of India and also drew references from common law judgments and
held that in so far as it is relatable to an express or implied clause in a contract, it is governed by
Chapter III dealing with contingent contracts and more particularly, Section 32 thereof. In so far as a
force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under Section
56 of the Contract Act.
Finance and renewal energy ministry orders on force majeure
The Ministry of Finance recently issued an office memorandum dated February 19, 2020 (“OM”)
which states that the force majeure clause can be invoked in Government contracts under the Manual
for Procurement of Goods, 2017 if there is a “disruption in supply chain due to spread of corona virus
in China or any other country”. The OM further states that is should be considered as a case of
“natural calamity”. Pursuant to the aforesaid memorandum, the Ministry of New & Renewable
Energy issued an Office Memorandum dated March 20, 2020 which directed all renewable energy
implementing agencies of the Ministry of New & Renewable Energy (MNRE) to treat delay on
account of disruption of the supply chains due to spread of coronavirus in China or any other country,
as force majeure. In case of a litigation, where the contractual provisions are not specific or have
general language, such as ‘events beyond the control of the performing party’, the above-mentioned
Government memorandums may help in supporting the interpretation that the situation amounts to a
force majeure event. Further, it could be covered under ‘natural calamity’ (as stated in OM) if the
clause does not use the words ‘epidemic’ or ‘pandemic’.
Conclusion – The concept of ‘one size fits all’ would be anathema in the invocation of the force
majeure provision under Indian law or under the relevant contract. The local practices, usage, orders
by the statutory bodies, the specific language of the contract, facts in relation to the pandemic
affecting the parties, etc have a bearing on the analysis of applicability and enforceability of the
provisions of the contract.