Satyabrata Ghose v. Mugneeram Bangur & Co. (1953) Case Analysis – Section 56 & Doctrine of Frustration under Indian Contract Act

Satyabrata Ghose v. Mugneeram Bangur & Co., (1953) 2 S.C.R. 377

Introduction and Facts of the Case

The Defendant’s firm, Mugneeram Bangur & Co., is the principal respondent in this appeal and owner of huge tracts of land in Calcutta, near Dhakuria. The firm started a scheme, Lake Colony Scheme No. 1, for development of the land for residential purposes. For the same, it divided the land into various small plots and started to sell them.

Under the scheme, the company entered into agreements with purchasers of different plots and accepted a small amount of consideration as an earnest deposit. The company agreed to install roads and drainage required to make the land fit for residential purposes, and the plots would be given after completion of construction and payment of the balance amount by purchasers. For the completion of the work, no time was promised.

One of the purchasers who agreed to enter into an agreement with the company for the purchase of the said plot covered under the scheme was Bejoy Krishna Roy, i.e., Defendant No. 2. Bejoy Krishna Roy entered into an agreement and paid the earnest deposit of INR 101 on 5 August 1941. On 30 November 1941, the appellant, Satyabrata Ghose, was made the nominee of the above land.

By December 1941, the land was requisitioned by the Collector, 24-Pragnas, under Defence of India Rules as part of the requirement for the war. Due to such a situation, the construction of roads and drainage could not be carried out. The company decided to treat the sale agreement as canceled due to the impossibility of further construction.

The company came with two options for the buyers:

• To take back the earnest money; or
• To pay the entire amount to the company, and once the war was terminated, the company would continue and complete the construction work.

The appellant, Satyabrata Ghose, denied both options given by the construction company and filed a suit on 18 January 1946, claiming that the company was bound to the terms of the agreement.

Issues Adjudged

• Does the appellant have a locus standi for instituting a suit?
• Did the contract become frustrated under Section 56 of the Indian Contract Act, 1872?
• Do the English laws of frustration apply in India?

Legal Principles

• Laws of England only have a persuasive value in India.
• A contract becomes frustrated when the very foundation gets affected.
• Section 56 of the Indian Contract Act takes the word ‘impossibility’ in a practical sense and not in a literal sense.

Judicial History

Critical Analysis

Section 56 of the Indian Contract Act, 1872, deals with frustration of contract, referring to a way in which the parties in an agreement can escape from contractual obligation. The Doctrine of Frustration was first dealt with in Taylor v. Caldwell (1863) 122 Eng. Rep. 309 (K.B.), where a music hall rented for a concert was destroyed by fire before the event, making performance impossible. The court held that the defendant was excused as he was not at fault, thereby recognizing the principle of frustration.

Many theories have been introduced in English law relating to frustration; however, in India, Section 56 provides a statutory basis. Section 56 has three parts:

• An agreement to do an impossible act is itself void.
• A contract to do an act which becomes impossible or unlawful afterward is void.
• Compensation must be made for loss due to non-performance of an act known to be impossible or unlawful.

Impossibility does not apply where there is an implied term discharging the parties from their obligations. In Smt. Sushila Devi v. Hari Singh (1971) 2 S.C.R. 288, the Supreme Court held that Section 56 lays down positive law and does not leave matters to party intention.

Section 56(2) applies when parties have no intention regarding the supervening event and no implied term in the contract. The key test is whether the foundation of the contract is affected.

In the instant case, although the land was requisitioned by the government, impossibility did not apply because the defendant’s firm had not started construction when the requisition occurred; hence there was no interruption in the work.

The claim that indefinite delay made performance impossible was rejected, as no time limit was specified in the contract, and the requisition was temporary. Section 56(3) further provides that a party with reasonable diligence who knew of an impossibility must compensate the other party for resulting loss.

Judgment

It was already established by the trial and lower appellate courts that the appellant was a real assignee of Bejoy Krishna Roy and had the right to file the suit.

The Supreme Court of India held that:

• The English law of frustration, on which the Calcutta High Court relied, was not applicable under the Indian Contract Act, 1872.
• The performance of the contract had not become impossible since the government’s requisition of land was temporary.
• The defendant’s firm had not initiated construction work before requisition, so no interruption occurred.
• No time limit was fixed for completion, and considering wartime conditions, reasonable delay was acceptable.

Therefore, the Supreme Court concluded that the contract had not become incapable of performance under Section 56 and ruled in favor of the appellant.

Conclusion

The Satyabrata Ghose case clarified the scope and application of Section 56 of the Indian Contract Act, 1872. The Supreme Court separated the Indian doctrine of frustration from English law, holding that the latter only has persuasive value. “Impossibility” under Section 56 should be understood practically—not only as physical impossibility but also as situations where the contract’s foundation is destroyed.

The Court reaffirmed that temporary obstacles like government requisition during wartime do not render a contract void. Since no time limit was fixed and the war was a known factor, the delay did not frustrate the agreement. Thus, the contract remained capable of performance, and the doctrine of frustration was not applicable.

This judgment remains crucial in Indian contract law, reinforcing that frustration cannot be invoked merely due to inconvenience or delay. It applies only when an unforeseen event completely destroys the purpose or makes performance impracticable in a real and lasting way.

References

1. Taylor v. Caldwell, (1863) 122 Eng. Rep. 309 (K.B.).
2. Smt. Sushila Devi v. Hari Singh, (1971) 2 S.C.R. 288.
3. Satyabrata Ghose v. Mugneeram Bangur & Co., (1953) 2 S.C.R. 377.