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What is Force Majeure in Indian Contract Act ?

Updated: Mar 27

In the Indian Contract Act, 1872, the term "force majeure" is not explicitly defined. Nevertheless, the principles associated with force majeure are implicitly encompassed within the doctrines of frustration and impossibility as outlined in Sections 56 and 32 of the Act, respectively. Section 56 of the Indian Contract Act pertains to agreements that become impossible to perform after they are made, rendering them void. This section addresses situations where unforeseen events occur, making it impracticable for the parties to fulfill their contractual obligations. These events are akin to force majeure circumstances.

Section 32 of the Indian Contract Act deals with contingent contracts and the impact of uncertainty on contract performance. If the occurrence of an uncertain event becomes impossible, the contract becomes void. This section aligns with the concept of force majeure in situations where events beyond the control of the parties hinder contract fulfillment.

Force majeure events are considered to be unpredictable and unavoidable, rendering it impractical or impossible for parties to adhere to the terms of the contract. Although the Act does not explicitly use the term "force majeure," its principles are embedded in the doctrines of frustration and impossibility. Essentially, force majeure serves as a safeguard against circumstances that are beyond the control of the parties and could not have been reasonably anticipated at the time of contract formation. It allows parties to temporarily suspend their contractual obligations or seek renegotiation without being held liable for breach of contract.

Force Majeure in Indian Contract Act

Judgments where the judiciary has referenced certain sections for cases dealing with Force Majeure:

In the case of Energy Watchdog and Ors. v/s Central Electricity Regulatory Commission and Ors, April 2017, the Supreme Court observed that "Force majeure" is governed by the Indian Contract Act, 1872. Insofar as it is relatable to an express or implied clause in a contract, such as the Power Purchase Agreements (PPAs) before us, it is governed by Chapter III dealing with contingent contracts, and more particularly, Section 32 thereof. Insofar as a force majeure event occurs de hors (outside of the agreement) the contract, it is dealt with by a rule of positive law under Section 56 of the Indian Contract Act. In short, events that have been mentioned as part of the agreement can be referred to Section 32, and events that are outside the agreement can be referred to Section 56 of the Contract Act.


Section 32: 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.


A contingent contract is defined in Section 31 as a contract to do or not to do something if some event, collateral to such contract, does or does not happen.

Example:

  • A makes a contract with B to buy B's horse if A survives C. This contract cannot be enforced by law unless and until C dies in A's lifetime.

  • A makes a contract with B to sell a horse to B at a specified price if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse.

Section 56: Agreement to do an impossible act - An agreement to do an act impossible in itself is void. Contract to do an act afterward becoming impossible or unlawful. A contract to do an act which, after the contract 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 the non-performance of an act known to be impossible or unlawful. Where one person has promised to do something 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 promise for any loss which such promise sustains through the non-performance of the promise.


Example:

  • B contracts to take in cargo for C at a foreign port. B's Government afterward declares war against the country in which the port is situated. The contract becomes void when war is declared.

  • X contracts to act at a theater for six months in consideration of a sum paid in advance by Z. On several occasions, X is too ill to act. The contract to act on those occasions becomes void.

 

Reference:

Energy Watchdog vs Central Electricity Regulatory ... on 11 April, 2017: https://indiankanoon.org/doc/29719380/

M/S Haliburton Offshore Services ... vs Vedanta Limited & Anr. on 29 May, 2020: https://indiankanoon.org/doc/123403504/


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