Satyabrata Ghose v. Mugneeram Bangur and Co.

Facts

The defendant company sold residential plots in a Calcutta development scheme, undertaking to build roads and drains before the buyer completed conveyance, taking only small earnest money. During World War II the land was requisitioned by the government for military purposes. The company sought to treat the contracts as discharged by frustration; the plaintiff buyer sued to enforce the subsisting contract.

Issues

• Whether the doctrine of frustration in India rests on the intention of the parties or on a positive rule of statute (S56)
• Whether requisition of the land during the war rendered performance impossible so as to frustrate the contract

Arguments

The company argued the requisition made performance of its road/drain obligations impossible, frustrating the contract under English principles. The buyer argued no time was fixed for the work, the war was already on when the contract was made, requisition was temporary, and the basis of the bargain was not destroyed.

Held

The Supreme Court held that S56 lays down a positive rule of law and does not leave frustration to be determined by the supposed intention of the parties; the word 'impossible' is used in a practical sense, covering performance that becomes impracticable or useless given the object of the contract. Frustration arises where a supervening event so fundamental as to strike at the root of the contract upsets the very foundation of the bargain, and the court decides this ex post facto. On the facts, no time-frame had been fixed, the war was already in progress at contracting, requisition orders were temporary and normal, and no work had even commenced; therefore the requisition did not affect the fundamental basis of the agreement. The contract was not frustrated and remained enforceable.

Ratio decidendi

Section 56 is a positive rule of law; a contract is frustrated where a supervening event strikes at the root of the contract and renders performance impossible or impracticable in the practical sense, but supervening difficulty or delay that does not destroy the foundation of the bargain does not frustrate it.

Significance

The leading and most-cited Indian authority establishing that Indian frustration law derives from S56 as a statutory positive rule, distinct from the English 'implied term' theory, and defining 'impossible' practically. Consistently followed, including in Naihati Jute Mills and Easun Engineering.

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