THE DOCTRINE OF FRUSTRATION UNDER THE INDIAN CONTRACT ACT,1872

INTRODUCTION
The Black’s Law Dictionary defines frustration in relation to contracts as “the doctrine that if
a party’s principal purpose is substantially frustrated by unanticipated changed circumstances,
that party’s duties are discharged and the contract is considered terminated,” also termed as
the frustration of purpose. This doctrine is a device to reconcile the rule of absolute contracts
with a special exception which is demanded in certain circumstances in the name of justice.
The origin of the 'Doctrine of Frustration' as many other laws has been from the Roman laws.
It was part of the Roman contract law which extinguished obligations of innocent parties
where the 'thing is destroyed without the debtor's act or default', and the contract purpose has
"ceased to be attainable".Unlike common law, the Indian Contract law explicitly incorporates
the doctrine of frustration under section 56 of the Contract Act The word “impossible” in
section 56 has been interpreted as “impracticable”, which impracticability may emanate
owing to a “fundamental” or “radical” change in circumstances, taking place after the
conclusion of the contract. Thus, the doctrine of frustration is a common law tool providing
for the discharge of parties, resulting from the occurrence of an unforeseen event. However,
the evolution of this doctrine in India has been greatly influenced by English law. Coming
within the purview of section 56 of the Contract Act it discharges the contract by reason of
supervening impossibility or illegality of the act agreed to be done. Frustration is an act
outside the contract due to which the completion of a contract becomes impossible. After the
parties have concluded a contract, events beyond their control may occur which frustrate the
purpose of their agreement, or render it very difficult or impossible, or as even illegal, to
perform. It is well settled that frustration automatically brings the contract to an end at the
time of the frustrating event. This is in contrast to discharge by breach of contract where the
innocent party can choose whether to treat the contract as repudiated.
GROUNDS OF FRUSTRATION
The principle of frustration of contract, or of impossibility of performance is applicable to a
great variety of contracts. It is, therefore, not possible to lay down an exhaustive list of
situations in which the doctrine is going to be applied so as to excuse performance. The law
upon the matter is undoubtedly in process of evolution. Yet the following grounds of
frustration have become well-established.

1. Destruction of subject-matter
The doctrine of impossibility applies with full force "where the actual and specific
subject-matter of the contract has ceased to exist". Taylor v Caldwell 1In this case, the
defendants had agreed to let the plaintiffs the use of their music hall between certain
dates for the purpose of holding a con cert there. But before that first day on which a
concert was to be given, the hall was destroyed by fire without the fault of either
party. The plaintiffs sued the defendants for their loss. It was held that the contract
was not absolute, as its performance depended upon the continued existence of the
hall. It was, therefore, "subject to an implied condition that the parties shall be
excused in case, before breach, performance becomes impossible from the perishing
of thing without default of the contractor". Another illustration is Howell v Coupland
2
The defendant contracted to sell a specified quantity of potatoes to be grown on his
farm, but failed to supply them as the crop was destroyed by a disease. Delivering the
judgment of the Court of Appeal, Mellish LJ said: "Suppose the potatoes had been
fully grown at the time of the contract, and afterwards the disease had come and
destroyed them; according to the authorities it is clear that the performance would
have been excused; and I cannot think it makes any difference that the potatoes were
not then in existence. Here there was an agreement to sell and buy two hundred tons
out of a crop to be grown on a specific land, that it is an agreement to sell what may
be called specific things; therefore neither party is liable if the performance becomes
impossible." A parallel decision under Section 56 is that of the Madras High Court in
V.L. Narasu v P.S.V. lyer3 where a contract to exhibit a film in a cinema hall was held
to have become impossible of performance when on account of heavy rains the rear
wall of the hall collapsed killing three persons and its hcence was cancelled until the
building was reconstructed to the satisfaction of the chief engineer. The owner was

1
(1863) 3 B&S 826: 122 ER 309.
2
(1876) 1 QBD 258
3
AIR 1953 Mad 300.
 under no liability to reconstruct the hall and even if he did reconstruct and it took him
some time, by that time the film would have lost its appeal.
2. Change of circumstances
This situation occurs when there is no physical impossibility of performance of the
contract, but due to change in circumstances, the main reason for which the contract
was formed is defeated. The changed circumstances dissolve the contract and the
parties are absolved from the performance of the contract. A contract will frustrate
"where circumstances arise which make the performance of the contract impossible in
the manner and at the time contemplated." This happens when the change of
circumstances has affected the performance of the contract to such an extent as to
make it virtually impossible or even extremely difficult or hazardous. The Supreme
Court laid down this principle in Alopi Prashad v. Union of India4. In this case, the
plaintiffs were acting as the agents to the Government of India for purchasing ghee for
the use of army personnel. They were to be paid on cost basis for different items of
work involved. The performance was in progress when the Second World War
intervened and the rates fixed in peace time were entirely superseded by the totally
altered conditions obtaining in war time. The agents demanded revision of rates but
received no replies. They kept up the supplies. The Government terminated the
contract in 1945 and the agents claimed payment on enhanced rates. They could not
succeed. The contract was held not frustrated.

3. Non-Occurrence of Contemplated Events

Sometimes the performance of a contract remains entirely possible, but owing to the
nonoccurrence of an event contemplated by both parties as the reason for the contract,
the value of the performance is destroyed. Krell v. Henry 5involved a situation of this
kind. There, a contract to hire a room to view a proposed coronation procession was
held to have frustrated when the procession was postponed. For this result to follow it
is necessary that the happening of the event should be the foundation of the contract.
This is shown by Berne Bay Steam Boat Co v. Hutton6, 4 which also arose from the
postponement of the coronation. The Royal Naval Review was proposed to be held on
the occasion. The defendant chartered a steamboat for two days "to take out a party of

4
AIR 1960 SC 588
5
(1903) 2 KB 740
6
(1903) 2 KB 683 (CA)
 paying passengers for the purpose of viewing the naval review and for a day's cruise
round the fleet". But the review was cancelled and the defendant had no use of the
ship. Yet he was held liable to pay the unpaid balance of the hire less the profit which
the plaintiff had made by the use of the ship in the ordinary course.

4. Death or incapacity of party

A party to a contract is excused from performance if it depends upon the existence of
a given person, if that person perishes" or becomes too ill to perform. Robinson v.
Davison 7is the well-known illustration. There was a contract between the plaintiff
and the defendant's wife (who was an eminent pianist) that she should play the piano
at a concert to be given by the plaintiff on a specified day. On the morning of the day
in question she informed the plaintiff that she was too ill to attend the concert. The
concert had to be postponed and the plaintiff lost a sum of money. The court said that
the contract has become frustrated. The plaintiff's action for breach of contract failed.
The court said that under the circumstances she was not merely excused from playing,
but she was also not at liberty to play, if she was unfit to do so.

5. Government, administrative or legislative intervention

A contract will be dissolved when legislative or administrative intervention has so
directly operated upon the fulfillment of the contract for a specific work as to
transform the contemplated conditions for a specific work as to transform the
contemplated conditions of performance. In Man Singh v. Khajan Singh 8, a contract
between certain parties for the sale of the trees of a forest was discharged when the
state of Rajasthan forbade the cutting of trees in the area. In case an intervention is not
of permanent character which does not uproot the foundation of the contract, it will be
having no such effect of frustration. In the Satyabrata Ghose v. Mugneeram Bangur &
Co.9, In this case, the defendant company promised to sell the plaintiff a plot of land
after developing it by constructing the roads and drains. However, some portion of the
area comprised in the scheme was requisitioned for military purposes. The Supreme
Court, while applying the doctrine, held that the requisitioning of the area had not

7
(1871) LR 6 Exch 269
8
AIR 1961Raj 277
9
AIR 1954 SC 44
 substantially prevented the performance of the contract as a whole and therefore, the
contract had not become impossible within the meaning of section 56.
6. The Intervention of War
War or War like situations has often raised difficult questions for the courts. In
Tsakiroglou & Co. Ltd. v. Noblee Thorl G. m. b. H10, appellants had agreed to sell to
the respondents three hundred tons of groundnuts. The usual route at the date of the
contract was via Suez Canal. The shipment was to be in November/December, but due
to certain geopolitical development the canal was closed until April next year. It was
stated that the appellants could have shipped through the alternate route which was
Cape of Good Hope. Appellants refused to ship goods via Cape. The appellant’s
argument was that it was a tacit understanding between the parties in the contract that
the shipment should be via Suez. It was held that such an understanding was wrong.
What the appellants could have done was shipped the shipment through Cape route,
and they were bound by law (Sale of Goods Act, 1893) to do this. Although this
would have been more expensive for the appellants, but it didn’t render the contract
fundamentally or radically different, hence there was no frustration of contract.

10
(1961) 2 All ER 179
Cases Exempt from the Frustration Doctrine
1. Failure of one of the objects
When there are several purposes for which the contract is entered into, failure of one
of the objects does not terminate the contract. This principle was established in Herne
Bay Steam Boat Co. v. Hutton 11. In this case, a ship was chartered by the defendant
for two days for the purpose of viewing the naval review and for a day’s cruise round
the fleet, but the review was cancelled. The defendant was held liable to pay the hire
amount.

2. Self-induced frustration
In Maritime National Fish Ltd. v. Ocean Trawlers Ltd12., Lord WRIGHT said that the
essence of 'frustration' is that it should not be due to the act or election of the parties.
Frustration should arise without blame or fault on either side. Reliance cannot be
placed on a self-induced frustration. In this case, the appellants hired the respondents'
trawler, called 'the St Cuthberf to be employed in fishing industry only. Both parties
knew that the trawler could be used for that purpose only under a license from the
Canadian Government. The appellants were using five trawlers and, therefore, applied
for five licenses. Only three were granted and the Government asked the appellants to
name the three trawlers and they named trawlers other than the St Cuthbert. They then
repudiated the charter and pleaded frustration in response to the respondents' action
for the hire. The Judicial Committee of the Privy Council held that the frustration in
this case was the result of the appellants' own choice of excluding the respondents'
ship from the license and, therefore, they were not discharged from the contract.

3. Failure of third party

Business contract or rather any contract involves not just the contracting parties but
rather many auxiliaries which work in the background of those parties which are
referred to as the third parties. The contract of the main contracting parties depends on
those third parties which generally supply raw material to the contracting parties.
Sometimes the contract is not performed by the main contracting parties because of

11
(1903) 2 KB 683
12
AIR 1935 PC 128
 the fault of those third parties, but that does not render the contract as frustrated
because the contracting parties were not at fault.
4. Executed
When an obligation that has yet to be completed becomes impossible or impractical to
perform, the theory of frustration comes into play. The theory can only apply to
executory contracts, not performed contracts or transactions that resulted in a demise
in praesenti. To illustrate, a division bench of the Delhi High Court used the example
of a shop purchasing products from a manufacturer and delivering agreed-upon
amounts with partial payment. If the market was saturated with cheaper imported
products as a result of the change in import policy, the retailer could not allege
frustration, asking the Court to lower the price and release him from the responsibility
to pay the rest of the sale consideration to the wholesaler. A completed conveyance is
distinct from an executory contract, and a concluded transfer cannot be nullified by
subsequent circumstances. Section 56 can apply to a lease agreement but not to the
lease deed since the lease deed is a completed transaction. When a lease deed is
signed, it replaces the lease agreement.

Frustration and Its Consequences

It is a well-established legal concept that if a contract is frustrated, the principle of restitution
under Section 65 of the Indian Contract Act applies, and the consideration received must be
reimbursed. Any party who has benefited from a frustrated or void agreement or contract is
obligated to return it to the person from whom he benefited. In addition, any consideration,
part-payment, or earnest money provided in advance for the execution of the contract that has
now become void must be repaid. For example, when a building contract was terminated due
to a limitation, the Supreme Court ordered a return of the deposit plus interest. Similarly,
when the property was transferred to the state with the passage of the Calcutta Thika Tenancy
Act in 1949, the Supreme Court ordered a return of the consideration already paid, plus
interest. If a party expended expenditures that it was not required to incur under the contract,
it is not entitled to reimbursement for those expenses. In India, the notion of restitution has
been explicitly stated in Section 65 as a rule of law that regulates courts in deciding cases
based on the principles of unjust enrichment and justice. It provides for two reliefs, i.e. (i)
restitution and (ii) compensation for the benefit received. Applying the common law principle
to illustration (e) in section 56, if the actor had taken an advance for say 20 shows in six
months but was only able to perform 18 shows, the application to principles of restitution
demand that he repay the theatre owner, the money received for the remaining two shows.
This is an example of 13restitution. Similarly, if no advance had been paid, the theatre owner
would have been required to pay for the 18 shows, that is compensate the actor. This is
evident from illustrations (b) and (d) to section 65 of the Indian Contract Act. 

CONCLUSION
When an unanticipated occurrence happens that makes contract fulfilment impossible, the
theory of frustration comes into play. The contract becomes null and invalid when it is
frustrated, and the parties are released from any obligation as a result. This idea is an
exception to the standard contract principles that govern when compensation is generally
granted for breach of contract. However, when the theory of frustration is applied, there is no
wrongdoing on the side of the parties, and so the party should not be forced to recompense in
such a circumstance. The doctrine of frustration, which is integrated into Section 56 14of the
Indian Contract Act, provides an escape route for a party whose performance has become
impossible owing to a supervening event that is not their fault. Under specific changing
conditions, the theory's application throws the contract's integrity into question. English
courts established several theories to explain the doctrine's use in certain contexts; however,
by codifying this notion in section 56, Indian law avoided the need for establishing and
applying theories to justify the doctrine's usage. Conversely, when the risk is inherent in the
contract; frustration is self-inflicted; the contract is an executed contract; the contract can still
be performed; or the foundation of the contract is not substantially destroyed; are examples of
factors that would not attract the provisions of section 56. While there have been several
instances of Indian courts incorrectly applying section 56 to cases of contingent contract, if
the factors and circumstances amounting to contract frustration are dealt with in a contract,
such a contract should attract the provisions of section 32 rather than section 56. However, if
the contract's provisions did not anticipate the degree of the factor and circumstances that
really interfere with the execution of the relevant contract, then such intervening factors and
circumstances may discharge the contract despite the express clause under section 56.

13
Parakh, Kritika. “The Doctrine of Frustration under Section 56 of the Indian Contract Act.” Indian Law
Review, 2020.
14
Section 56 of the Indian Contract Act, 1872