Naihati Jute Mills Limited v. Khyaliram Jagannath

Facts

Naihati Jute Mills agreed to buy 2,000 bales of Pakistani jute from the seller on a standard Indian Jute Mills Association form, the buyer being obliged to obtain and furnish an import licence. The contract expressly provided for the contingency of the buyer failing to provide the licence, including price adjustment and settlement clauses, plus a force majeure clause. The licensing authority refused the licence on the ground the mill already held sufficient stock; the seller claimed damages and the mill pleaded impossibility.

Issues

• Whether the contract was discharged by supervening impossibility under S56 when the import licence was refused
• Whether, the parties having expressly provided for the contingency of non-grant of the licence, the matter fell under S32 rather than S56

Arguments

The mill argued performance became impossible because the import licence was refused, frustrating the contract under S56. The seller argued the contract itself had expressly provided for the contingency of the licence not being obtained, so the agreed terms (under S32) governed and the buyer remained liable.

Held

The Supreme Court reaffirmed Satyabrata Ghose that in India courts must look primarily to Sections 32 and 56, S56 being a positive rule of law not dependent on the parties' intention. Where the court finds, as a matter of construction, that the contract itself expressly or impliedly provides for discharge on certain circumstances, the case falls outside S56 and within S32. Here the parties had expressly provided for the contingency of the buyer failing to furnish the licence, so the agreed contractual terms governed. Moreover, the licence was refused because of the mill's personal disqualification (adequate existing stock), not any unforeseeable change in government policy, so no frustrating event occurred. The mill was held liable.

Ratio decidendi

If the contract itself provides for the supervening event, the contract governs under S32 and S56 is excluded; frustration requires a fundamental supervening event not provided for and not attributable to a party's own position, and S56 is a positive rule of law independent of the parties' intention.

Significance

Described in the source as the last landmark Supreme Court decision on frustration; authoritatively demarcates S32 (provided-for contingencies) from S56 (unprovided-for supervening impossibility) and confirms the positive-law character of Indian frustration doctrine.

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