SC on whether Section 32 or Section 56 of Indian Contract Act would apply

The Hon’ble Supreme Court, on 22nd April 2020, in the matter of National Agricultural Cooperative Marketing Federation Of India v. Alimenta S.A. observed that if a contract contains impliedly or expressly a stipulation, according to which it would stand discharged on happening of particular circumstances. The dissolution of the agreement would take place under the terms of the contract itself. Such cases would be outside the purview of section 56 of the Indian Contract Act altogether. They would be dealt with under section 32 of the Contract Act, which deals with contingent contracts.

The Hon’ble Supreme Court observed that:

Section 32 of the Indian Contract Act applies in case the agreement itself provides for contingencies upon happening of which contract cannot be carried out and provide the consequences. In case an act becomes impossible at a future date, and that exigency is not provided in the agreement on the happening of which exigency, impossible or unlawful, the promisor had no control which he could not have prevented, the contract becomes void as provided in section 56. However, section 56 also provides liability for a cause where the promisor has agreed to do something which he knew or with reasonable diligence might have known and which the promisee did not know to be impossible or unlawful. Such a promisor must make compensation to such promise and is liable to pay damages. The latter part of section 56 is applicable when promisee did not know the act to be impossible or unlawful and that it was not known to the promisor; the action was impossible or unlawful or with reasonable diligence might have known. (Para 47)

Impossibility and frustration are used as interchangeable expressions. The principle of frustration is an aspect of the discharge of a contract. In India, the only doctrine the courts have to go by is that of intervening impossibility or illegality as laid down in section 56, and the English decisions in this regard may have persuasive value but are not binding. (Para 49)

If the contract contained impliedly or expressly a stipulation, according to which it would stand discharged on happening of particular circumstances. The dissolution of the agreement would take place under the terms of the contract itself. Such cases would be outside the purview of section 56 of the Contract Act altogether. They would be dealt with under section 32 of the Contract Act, which deals with contingent contracts. (Para 49)

Copy of judgement: Judgement_22-Apr-2020

-Adv. Tushar Kaushik

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