Doctrine of Subsequent Impossibility-The second paragraph of Section 56 lays down the

effect of subsequent impossibility of performance. Sometimes the performance of a contract

is quite possible when it is made by the parties. But some event subsequently happens which
renders its renders its performance impossible or unlawful. In either case the contract
becomes void. Where, for example after making a contract of marriage, one of the parties
goes mad, or where the contract is made for the import of goods and the import is thereafter
forbidden by the Government, or where the singer contracts to sing and becomes too ill to do
so, the contract in each case becomes void.[1]

Section 56 of the Indian Contract Act- Agreement to do impossible act-An agreement to an

act impossible in itself is void.

Contract to do 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.

Frustration of Contract: A contract may be frustrated where there exists a change in

circumstances, after the contract was made, which is not the fault of either of the parties,
which renders the contract either impossible to perform or deprives the contract of its
commercial purpose. Where a contract is found to be frustrated, each party is discharged from
future obligations under the contract and neither party may sue for breach

Thus the doctrine of frustration comes into play in two types of situations-

First: where the performance is physically cut off and second: where the object has failed.

The Supreme Court of India has held that Section 56 will apply in both kinds of frustrations.

Supreme Court in the case of Satyabrata Ghose v. Mugneeram Bangur & Co 1 [4].observed
“This much is clear that the word ‘impossible’ has not been used here in the sense
of physical or literal impossibility. The performance of the 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; and if an untoward event or change of circumstances totally

1
Satyabharata Ghose v. Mugneeram Bangur,AIR (1954) SC 44.
upsets the very foundation upon which the parties rested their bargain, it can very well be
said that the promisor finds it impossible to do the act which he promises to do.”.

Grounds for Frustration:

b. Change of circumstances-A contract will frustrate “where circumstances arise which

make the performance of the contract impossible in the manner and at the time contemplated.
Just Kapur of the Punjab and Haryana High Court inPameshwari Das Mehra v. Ram Chand
Om Prakash[8]2 explained the principle thus: It is clear that if there is entirely unanticipated
change of circumstances the question will have to be considered whetherthis change of
circumstances has affected the performance of the contract to such an extent as to make it
virtually impossible or extremely difficult or hazardous. If that be the case, the change of
circumstances not having been brought about by the fault of either party, the courts will not
enforce the contract.

e. Government, administration or legislation intervention-A contract will be dissolved when

legislative or “administrative intervention has so directly operated upon the fulfillment of
the contract for a specific work as to transform the contemplated conditions for a specific
work as to transform the contemplated conditions of performance.” Thus, where a vendor
of land could not execute the sale-deed because he ceased to be the owner by operation of
law, it was held that contract had become impossible of performance.[11]3

The term 'force majeur' has been defined in Black's Law Dictionary, as 'an event or effect
that can be neither anticipated nor controlled .It is a contractual provision allocating the risk
of loss if performance becomes impossible or impracticable, especially as a result of an event
that the parties could not have anticipated or controlled.' While force majeure has neither
been defined nor specifically dealt with, in Indian statutes, some reference can be found in
Section 32 of the Indian Contract Act, 1872 (the "Contract Act") envisages that if a contract
is contingent on the happening of an event which event becomes impossible, then the contract
becomes void.

Frustration of a contract to be invoked and applied requires that the entire subject matter or
underlying rationale for the contract be destroyed. Doctrine of Frustration renders the
contract void and consequently all contractual obligations of the parties cease to exist.

2
Herne Bay Steam Boat Co. Ltd. v. Hutton(1903) 2 KB 683 (CA).
3
Naihati Jute Mills Ltd. v. Khyaliram JagannathAIR 1968 SC 528; (1968) 1 SCR 821,830
Frustration of a Contract is a test dehors of contractual provisions and is the end result of
events arising after the contract was executed

The entire jurisprudence on the Frustration has been stated by Justice RF Nariman of the
Supreme Court in the case of Energy Watchdog vs. CERC4.

„Impossibility‟ under S.56 doesn‟t mean literal impossibility to perform (owing to strikes,
commercial hardships, etc.) but refers to those cases where a supervening event beyond the
contemplation and control of the parties (like the change of circumstances) destroys the very
foundation upon which the contract rests, thereby rendering the contract „impracticable‟ to
perform, and substantially „useless‟ in view of the object and purpose which the parties
intended to achieve through the contract

. At the same time, courts cannot shut their eyes to harshness of the situation in cases where
performance becomes impossible by causes which could not have been foreseen and which
were beyond the control of the parties.205

Causal test or ‘but for’ test – The event shall have occurred not by default of the party but
only as a result of the supervening event. This is referred to as the “causal test” where the
Court examines whether the non-performance is a direct result of a supervening event; and
“but for” such supervening event, the contract would have otherwise been performed. This
causal test is the most crucial test which shall be satisfied by adducing evidence. In a
situation where Force Majeure event has indeed occurred, and if such event did not preclude
the party from performing the contract, such party cannot take benefit of Force Majeure
clause. 

1. e)  Conditions precedent must be fulfilled – Most Force Majeure clauses provide that
a non- performing party seeking benefit of Force Majeure clause in the contract, shall
put the other party to such notice. These terms are conditions precedent for
invocation, failing compliance of such clauses, a party may not be able to take shelter
under Force Majeure.

2. f)  Duty to mitigate – A party relying on Force Majeure clause is supposed to take all
the necessary measures to mitigate the loss caused due to its non-performance.
4
3 Supreme Court of India: Civil Appeal Nos.5399-5400 of 2016
5
Naihati Jute Mills Ltd. v. Khyaliram Jagannath, AIR 1968 SC
 3. g)  The Supreme Court in Industrial Finance Corporation of India Ltd. v. Cannanore
Spinning and Weaving Mills Ltd.,21 held that there are three conditions are required
to trigger off doctrine of frustration under section 56 of the Contract Act - firstly,
there should be a subsisting contract; secondly, some part of the contract is still to be
performed; and thirdly, after the contract is entered into it becomes impossible of
performance.

In contrast to this, the North Dakota Supreme Court in Sandry v. Brooklyn School District
No. 78 of Williams County25 held that a school district was excused from paying a driver for
his services during the school closure, by determining that the pandemic was an Act of God
and that non-payment be exempted.266

Ministry of Finance has recently issued a clarification to all central Government Ministries
that any disruption caused in supply chains due to the spread of Coronavirus will be
considered as a ‘natural calamity’ under extent Force Majeure clauses.34 Although this is in
nature of a direction to the governmental ministry and departments. It may also give a relief
to various institutions and industries working in close partnership with government. The
Ministry of Finance also reiterated that Force Majeure clause shall not be defense to non-
performance in the entirety but can only suspend performance during the duration of the
Force Majeure event.357

Most importantly, parties need to determine whether the events associated with COVID-19
prompt the ‘material adverse event’ term in the contract. Meaning, that subsequently, post
execution of the contract between the parties, the events took an ‘unexpected turn’. This
could be a valid line of argument, although it will again depend on the language as well as
specifics of the case.

6
25 Sandry v. Brooklyn Sch. Dist. No. 78 of Williams Cty., 182 N.W. 689, 690-91 (N.D. 1921); Farris, A. and
Chee, H., 2020. Contract Performance During Pandemic: Lessons From 1918 - Law360. [online] Law360.com.
Available at: <https://www.law360.com/articles/1264775/contract-performance-during-pandemic-lessons-
from-1918> [Accessed 19 April 2020].
26 Ibid; Phelps v. Sch. Dist. No. 109, Wayne Cty., 134 N.E. 312, 312 (Ill. 1922)
7
Para 9.7.7. of ‘Manual for Procurement of Goods, 2017 –
available at: Page 6 of 8 Mumbai
https://doe.gov.in/sites/default/files/Manual%20for%20Procurement
%20of%20Goods%202017_0_0.pdf
However, the Indian Supreme Court (principally, in Mugneeram Bangur case [3], and
several other judgments, such as Raja Dhruv Dev Chand [4], Naihati Jute
Mills [5] and Ganga Saran  [6]) has construed this provision to include three critical aspects:8

– in one English case, Channel Island Ferries [8], it covered “disease”), and is typically

concluded by generic language seeking to include by reference, any incident or event beyond
the control of the relevant affected party or parties.9

Mitigating the effects of a force majeure event

The party claiming force majeure must establish that it used reasonable efforts to mitigate the
effects of the excluded event. The burden is cast on the party seeking to be relieved to
establish that the excluded event actually and fully prevented it from performing its
obligations under the contract. If alternative modes of performance were available (though
strictly not as per the contract), this would be a factor the court would take into account when
deciding whether to uphold that party’s reliance on the force majeure clause

In Esjay International (P) Ltd. v. Union of India 4 , the Court stated that the  force majeure
condition is something which is unforeseen, unexpected and which happens suddenly and
over which a person has no control. Thus, where reference to force majeure is made, the
intention is to save the performing party from the consequences of anything over which he
has no control

In Peter Dixon & Sons Ltd. v. Henderson, Craig & Co. Ltd. 10, the Courts of Appeal held
that the expression "hinders the delivery" in a contract would only be attracted if there was
not merely a question of rise in price, but a serious hindrance in performance of the contract
as a whole.

Interestingly, prior to this decision, the law of contracts in England was too rigid. In the year
1954, the Supreme Court of India in a landmark case of Satyabrata Ghose vs.
Mugneeram Bangur & Co. and Anr (1954 SCR 310) laid down that the word "impossible"
used in Section 56 does not mean physical or literal impossibility but much wider than that
8
.
[3]. Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310 : AIR 1954 SC 44.
[4]. Raja Dhruv Dev Chand v. Raja Harmohinder Singh, (1968) 3 SCR 339 : AIR 1968 SC 1024.
[5]. Naihati Jute Mills Ltd. v. Khyaliram Jagannath, (1968) 1 SCR 821 : AIR 1968 SC 522.
[6]. Ganga Saran v. Firm Ram Charan Ram Gopal, 1952 SCR 36 : AIR 1952 SC 9.
9
Channel Island Ferries Ltd. v. Sealink UK Ltd. [1988] 1 Lloyd’s Rep. 323.
10
1919(2) KB 778
and if the untoward event upsets the very foundation upon which the parties entered into the
agreement, the contract can be held to be frustrated.

In Sushila Devi vs. Hari Singh (AIR 1971 SC 1756), the applicability of the doctrine of
frustration in a lease was examined and concluded that the supervening events should take
away the basis of the contract and it should be of such a character that it strikes at the root of
the contract

While the term ‘force majeure’ has not been defined under the Act, the Supreme Court of
India has provided the following succinct definition of force majeure in the case
of Dhanrajamal Gobindram v. Shamji Kalidas and Co.[3], approving the view taken by Mr.
Justice McCardie in Lebeaupin v. Crispin[4]:

“The expression "force majeure" is not a mere French version of the Latin expression "vis
major". It is undoubtedly a term of wider import. Difficulties have arisen in the past as to
what could legitimately be included in "force majeure". Judges have agreed that strikes,
breakdown of machinery, which, though normally not included in "vis major" are included in
"force majeure". An analysis of rulings on the subject into which it is not necessary in this
case to go, shows that  where reference is made to "force majeure", the intention is to save
the performing party from the consequences of anything over which he has no control.”
(emphasis supplied)11

With respect to the scope of such generic language in a force majeure clause, the Orissa High
Court in Md. Serajuddin v. State of Orissa[6], has held that:

“Therefore the words "any other happening" must be given Ejusdem generis construction so
as to engulf within its fold only such happenings and eventualities which are of the nature
and type illustrated above in the same clause with close attention to the nature and terms of
the lease, and would not reasonably be within the power and control of the lessee.”
(emphasis supplied)12

Fundamental Changes

11
[3] AIR 1961 SC 1285.
[4] (1920) 2 KB 714
12
[6] AIR 1969 Ori 152. Also see TGV Projects & Investments Pvt. Ltd. v. National Highways Authority of
India [2019 (173) DRJ 717], and Simplex Concrete Piles (India) Ltd. v. Union of India [(2010) ILR 2 Delhi
699].
In order to succeed in a plea under Section 56 of the Act, the underlying event causing the
impossibility or illegality should be an intervening event or change in circumstance which is
so fundamental as to be regarded by law striking at the root of the agreement and beyond
what was considered by the parties when they entered into the agreement.[14] Therefore the
party must prove that the situation has been ‘so radically changed subsequently that the very
foundation which subsisted underneath the contract as it were gets shaken’[15]. If the said
event does not dislodge the fundamental basis of the contract, there is no frustration.[16] For
instance, in the context of the Covid-19 situation, the lockdowns imposed by governments
may be considered as fundamental changes in manufacturing or construction contracts, as all
work has ceased under the orders of the government. Similarly, for supply contracts, since all
railway and flight operations have been suspended during the period of the pandemic, a plea
of fundamental change in the contract may be taken13.

The Supreme Court of India in the matter of National Agricultural Co-opeartive

Marketing Federation of India(NAFED) vs Alimenta SA Ci, put forth the grounds on which
Section 32 (Contingent contract”) and Section 56 (Agreement to do impossible act) of the
Indian Contract Act, 1872 may be invoked in the scenario of non-performance of obligation
under the commercial contract by the party obligated to perform for the benefit of other Party.

Ram Kumar v. P.C. Roy & Co. (India) Ltd., AIR 1952 Cal. 335 (338), the High Court held:

“20. Frustration depends on what has actually happened & its effect on the possibility of
performing the contract. Where one party claims that there has been frustration & the other
party contests it, the Court has got to decide the issue ‘ex post facto’ on the actual
circumstances of the case

Sushila Devi vs. Hari Singh AIR 1971 SC 1756

The case concerned the lease of a property, which went to Pakistan after partition.

"The impossibility contemplated by Section 56 of the Contract Act is not confined to

something which is not humanly possible., If the performance, of a contract becomes im-

13
[14] Satyabrata Ghose v. Mugneeram Bangur and Company and Ors. [AIR 1954 SC 44], Energy Watchdog
and Ors. v. Central Electricity Regulatory Commission & Ors. [(2017) 14 SCC 80], Naihati Jute Mills Ltd. v.
Khyaliram Jagannath, [AIR 1968 SC 522], and Hari Singh and others v. Dewani Vidyawati [AIR 1960 J&K
91].
[15] Hamara Radio and General Industries Ltd. Co. v. State of Rajasthan [AIR 1964 Raj 205].
[16] Energy Watchdog and Ors. v. Central Electricity Regulatory Commission & Ors. [ (2017) 14 SCC 80].
practicable or useless having regard to the object and purpose the parties had in view then it
must be held that the performance of the contract has become, impossible", the Court
observed, holding the lease agreement as frustrated.

Bombay High Court’s Order passed in Rural Fairprice Wholesale Ltd. & Anr. vs IDBI
Trusteeship Services Ltd. & Ors. on 3 April 2020

In this case the Bombay High Court recognized the market situation pursuant to the COVID-
19 and observed that the share market had collapsed due to COVID-19, therefore, it was a fit
case to restrain the bank from acting upon the sale notices and a direction to withdraw any
pending sale orders for the pledged shares.