File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Case Analysis of Satyabrata Ghose v/s Mugneeram Bangur-1954 SCR 310

The outbreak of the Covid-19 epidemic in India has proven to be not only a humanitarian disaster, but also a massive economic disaster. Restrictions on the movement of people and products, except for those engaged in vital services, have cast severe doubt on the ability of parties to fulfill their contractual duties when they are not defined as essential services. Uncertainty about contract fulfilment has led to parties imagining contract breaches and analyzing their rights and remedies in response.

The Covid-19 pandemic has unquestionably been a long era of suffering. This loss has taken on a humanitarian as well as a business and economic dimension. The restriction of travel, combined with the loss of lives, is the primary impediment to the fulfilment of economic commitments in the pandemic period.

It is not only harmful to the breaching party's financial and moral well-being, but it is also dangerous to the party on the opposite side of the contract Nonetheless, given the ambitious nature of legal professionals and scholars, the principles of Force Majeure and Frustration of Contracts in the Indian Contract Act,1872 provide much-needed relief.

In the event of Force Majeure or contract frustration, unlike solitary and temporary events, COVID-19 is still going on and is unprecedented in terms of instances that the legal sector has been aware of in the past. To put it another way, a tsunami or earthquake is an event that occurs just once in most cases, disrupting legally required operations. However, the epidemic continues to elicit government-sanctioned limits and general precautions, which may hinder transportation and full-time work, so breaching contract obligations.

Due to the COVID-19 pandemic, the concept of force majeure has become a contentious matter. Due to delays in payments, completion of conditions precedent, or any other requirements agreed upon by the parties to contracts, the pandemic has resulted in the breaking of many contracts. Due to COVID-19, contracting parties have been unable to fulfil their contractual commitments, despite their best efforts, and have attempted to rely on force majeure to protect their own interests.

The federal government released an office memorandum on February 19, 2020, stating that supply chain disruptions caused by COVID-19 should be considered a natural calamity, and force majeure clauses may be implemented in such cases. Force majeure may be declared in cases where it is regarded suitable, according to the office memorandum; nevertheless, it does not apply in all scenarios and will only apply on a conditional basis.

The doctrine of frustration in section 56 of the Indian Evidence Act, 1872 and the paragraph two of the said section enumerates the law relating to contract termination due to the impossibility or illegality of the act agreed to be performed. The phrasing of this paragraph is extremely generic, and even though the visuals accompanying it aren't particularly cheerful, they can't be said to contradict the general phrases used in the enactment. It is apparent that the word impossible was not used in the sense of physical or literal impossibility in this context.

The performance of an act may not be physically impossible, but it may be impracticable and useless in terms of the object and purpose that the parties had in mind; and if an unfavourable event or change of circumstances completely upends the very foundation upon which the parties had built their relationship, the parties relationship will be irreversibly shattered. Based on their agreement, it is reasonable to conclude that the promisor finds it difficult to perform the act that he pledged to perform. This has been the main point to be decided in the case of Satyabrata Ghose vs. Mugneeram Bangur and Company and ors.

Facts Of The Case
The facts giving rise to this appeal are largely undisputed, and the dispute between the parties revolves around whether a contract for the sale of land to which this litigation relates was discharged and came to an end due to certain supervening circumstances that affected the performance of a material part of it. It will be required to provide a brief narrative of the material facts to grasp the merits of the debate.

The Defendant firm, which is the principal Respondent in this appeal, is the owner of a huge plot of property in Greater Calcutta, near the Dhakuria Lakes. The firm began a project known as Lake Colony Scheme No. 1 for the development of this land for residential uses, and as part of the scheme, the entire area was divided into many plots for sale, with offers from prospective buyers being sought. The company's strategy appeared to be to enter into agreements with several buyers for the sale of these plots of property and at the time of the agreement, they received only a small amount of the consideration money as an earnest deposit. The corporation agreed to install the toads and drains required to make the lands fit for building and residential use, and the purchaser would be required to complete the conveyance by paying the remainder of the consideration money as soon as they were done.

One of the purchasers who entered a contract with the corporation for the purchase of a plot of land covered by the scheme was Bejoy Krishna Roy, who was Defendant No. 2 in the litigation and features as a pro forma Respondent in this appeal. Also, the plaintiff appellant was made a nominee by the purchaser for the purposes of the contract. By December 1941, three big chunks of the land were requisitioned by the government for military purposes as part of the requirement for the war.

As a result, the projected roads and sewers could not be built while the war was still going on, and probably for many years after it was over. In these conditions, the company decided to treat the sale agreement with the addressee as cancelled and offer him one month from the date of receipt of the letter to return the earnest money.

If the purchaser refused to treat the contract as cancelled, he could, if he so desired, complete the conveyance within one month of receiving the letter by paying the balance of the consideration money and taking the land in the condition in which it existed at the time, the alternative offer. The company promised to construct the roads and drains after the termination of the war. The letter concluded by stating that if the addressee did not select one of the two options, the agreement would be considered void, and the earnest money would be forfeited.

The plaintiff refused to accept either of the two alternatives offered by the company and brought a suit against the defendant company to which Bejoy was made a party defendant. There was placed a two-fold declaration in which the plaintiff asked firstly to make the contract between the two defendants subsist and secondly, on payment of the consideration money stipulated in the agreement, and in the manner and under the terms specified therein, the Plaintiff was entitled to have a conveyance executed and registered by the defendant. Bejoy did not file any written statement and was examined by the plaintiff as his witness.

Under a certificate granted by the High Court under article 133(1)(c) of the Constitution of India, the plaintiff has approached the Supreme Court of India. The learned attorney general on behalf of the plaintiff has put forward a three-fold contention in the plaintiff's support which form the basis of our research questions.

Brief Of The Judgement
Section 56 is found in Chapter IV of the Indian Contract Act, which deals with contract performance, and it is intended to deal with one type of circumstances in which contract performance is excused or dispensed with due to the contract being void. Paragraph two of the section reads as a contract to do an act after which the contract is made, becomes impossible or by some reason of some event which the promisor could not prevent unlawful, becomes void when the act becomes impossible or unlawful.

The phrasing of this paragraph is extremely generic, and even though the visuals accompanying it aren't particularly cheerful, they can't be said to contradict the general phrases used in the enactment. It is apparent that the word "impossible" was not used in the sense of physical or literal impossibility in this context. The performance of an act may not be literally impossible, but it may be impracticable, and unless from the standpoint of the object and purpose that the parties had in mind; and if an untoward event or change of circumstances completely upends the very foundation upon which the parties rested their bargain, it is very likely that the promisor finds it impossible to perform the act that he promised.

When a contract becomes impossible to perform after it has been made due to circumstances beyond the parties' control, the theory of frustration kicks in. As a special case of impossibility, the doctrine is covered by Section 56 of the Indian Contract Act. We conclude that the theory of frustration is a subset of the law of contract discharge arising from the inability or illegality of the conduct agreed to be performed, and hence falls under the ambit of Section 56 of the Indian Contract Act.

It would be inaccurate to suggest that Clause 56 of the Contract Act only applies in circumstances of physical impossibility, and that when this section does not apply, English law rules on frustration can be applied. It must also be ruled that, to the degree that the Indian Contract Act deals with a specific issue, it is exhaustive on that subject, and it is impermissible to import the principles contained therein. The decisions of the English Courts have merely a persuasive value and may be useful in demonstrating how the English Courts have determined cases in comparable circumstances to those before our Courts.

The second contention raised by the Attorney-General can be disposed of in few words. In English Law, the doctrine of frustration does not operate in cases of contracts for sale of land. A contract for the sale of land does not constitute any interest in the property that is the subject-matter of the contract, according to Indian law, which is codified in Section 54 of the Transfer of Property Act. As a result, the parties' obligations in a contract for the sale of land are the same as in other regular transactions, and there is no reason why the law of frustration should not apply to contracts for the sale of land in India. As a result, the Attorney General's argument must be rejected.

As for the third issue raised by the attorney general, the contract in question cannot be said to be an ordinary contract for sale, it was an integral part of the development scheme started by the defendant company and is one of the many contracts entered into with many different purchasers.

The background against which the facts and circumstances of the case must be examined becomes extremely important in the sense that because of the war in progress, firstly requisition orders must be considered normal events and secondly, there were a lot of risks and difficulties involved in carrying out the construction of drains and roads because of which there wasn't any time limit fixed for the completion of the same.

The time factor becomes the crux of this issue as if there was a definite time limit fixed in the contract for the completion of the construction activities, then we could say that an indefinite delay would hamper the object of the said contract.

Thus, the fundamental basis on which the contract rests is not affected by the requisitioning orders. In conclusion, the events which have happened doesn't make the contract impossible and it is not frustrated at all. The judgement is passed in favour of the plaintiff and the appeal is allowed thereof.

Relevance Of The Judgement
Satyabrata Ghose vs Mugneeram Bangur and company and ors. is a landmark and the first judgement to discuss force majeure and frustration of contracts. This case was related to a contract for sale of land and the main point of dispute before the court was if there existed certain supervening events that affected the substance of the contract and if those conditions would lead to its discharge.

The Supreme Court decided the meaning of the word "impossible" in this case, ruling that a performance does not have to be literally or physically impossible to be considered impossible. Even if the occurrence of the event disrupts the contract's core foundation, rendering the contract's object or purpose meaningless, the performance will be judged impossible. However, opposite to the reasoning the court in the said case held that this standard of impossibility will not apply, and the appeal was allowed.

One more clarification was given by the court on the application of English rule of frustration in India. According to the Supreme Court, the concepts of contract frustration in English law, as articulated in the High Court's decision, were not applicable to the statutory provisions of the Indian Contract Act.

This decision established the standard of impossibility of performance, and the decision has its implications even in the present times in the sense that even if the circumstances created by the pandemic make contract performance possible in some way but prevent the parties from achieving the contract's object, it will still be considered a breach. For example, performance is not difficult in a door-to-door sales service contract with a salesman under lockdown with limited movement limitations because the salesmen can go door-to-door. However, because he is a door-to-door salesman, people are unlikely to engage the salesman to prevent catching COVID-19. In these cases, the court will rule that the contract has been frustrated.

Critique And Analysis
Satyabrata Ghose vs Mugneeram Bangur and company and ors was a crucial case in the history of the Indian Contract Act, 1872, particularly section 56 of the said act and the doctrine of frustration or force majeure. This case that has been commented upon in this project was done based on three research questions chalked out at the start. The first of them that related to if the word impossible in the second paragraph of section 56 can be said to only meaning physical impossibility has been completely disregarded by the court in this case where it said that this paragraph's terminology is quite broad, and while the accompanying pictures aren't particularly cheery, they can't be considered to contradict the enactment's basic terms.

In this context, the word "impossible" was not meant in the sense of physical or literal impossibility. The performance of an act may not be literally impossible, but it may be impracticable, and unless from the standpoint of the object and purpose that the parties had in mind; and if an untoward event or change of circumstances completely upends the very foundation on which the parties rested their bargain, the promisor is very likely to find it impossible to perform the act that he promised.

As for the second question that related to if English law of frustration caan be applied in India, the court clarified that the principles of contract frustration in English law, as stated in the High Court's ruling, were not applicable to the statutory provisions of the Indian Contract Act, according to the Supreme Court and that they only carry a persuasive value.

As for analysing our final and last research question in this commentary that is if the contract of sale between the defendant's company and the plaintiff's predecessor stands dissolved by frustration, the court ruled in the opposite and said that the fundamental basis on which the said contract rests cannot be said to be disturbed by the requisitioning orders passed by the government as these were normal events in times of a war and that too there wasn't any definite time limit fixed by the defendant to complete the construction activities so it can't be said that there was any indefinite delay hampering the progression of the contract.

References:

  • Force Majeure in times of Covid-19 - Adarsh Saxena et al.
  • The Doctrine of Frustration and Force Majeure: Covid 19 - Vijay Pal Dalmia
  • Satyabrata Ghose vs Mugneeram Bangur and Co., 1954 SCR 310
  • Case Analysis: Satyabrata Ghose v/s Mugneeram Bangur - Garima

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers



Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


LawArticles

Section 482 CrPc - Quashing Of FIR: Guid...

Titile

The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of th...

How To File For Mutual Divorce In Delhi

Titile

How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Whether Caveat Application is legally pe...

Titile

Whether in a criminal proceeding a Caveat Application is legally permissible to be filed as pro...

The Factories Act,1948

Titile

There has been rise of large scale factory/ industry in India in the later half of nineteenth ce...

Constitution of India-Freedom of speech ...

Titile

Explain The Right To Freedom of Speech and Expression Under The Article 19 With The Help of Dec...

Copyright: An important element of Intel...

Titile

The Intellectual Property Rights (IPR) has its own economic value when it puts into any market ...

Lawyers Registration
Lawyers Membership - Get Clients Online


File caveat In Supreme Court Instantly