Satyabrata Ghose v/s Mugneeram Bangur - 1954 AIR 44, 1954 SCR 310

This case is related to sale of land and the question before the court was certain supervening events which affected the material part of it and would those events lead to its discharge. The doctrine of frustration of contracts when an act becomes impossible to perform or unlawful comes under the purview of Section 56 of Indian Contract Act, 1872. By Satyabrata v Mugneeram, [1] the Supreme Court established the scope of Section 56 of ICA [2] that impossibility as mentioned in the said Section is used in a practical and not in literal sense [3]. It also held that it is not permissible to import English law to the statutory provisions of ICA.

Facts:
The Respondent's company owned a large tract of land in Calcutta. It started a scheme for the development of the land for residential purposes and divided land into different plots. The company entered into agreements with purchasers for the sale of the different plots and accepted a small amount of earnest money at the time of sale of land. The company undertook the job of constructing roads and drains, necessary for the residential purposes. The plots would be given after the construction and payment of balance amount by the buyers.

Bejoy Krishna Roy entered into the agreement with the company and paid the earnest money deposit of Rs. 101 on 5th August, 1941. On 30th November 1941, the appellant was made the nominee of the above land. It so happened that subsequently the land was requisitioned by the Collector, 24 - Paragnas under Defence of India rules for military purposes. As a consequence, in November 1943, the company decided to treat the agreement cancelled but gave the appellant the option of either taking the earnest money back or paying the balance money and the company would continue its work after the termination of war.

The appellant refused both the options. He filed a suit on 18th January 1946 and claimed that the company was bound to the terms of agreement.

Issues:

1. Did the plaintiff have a locus standi for instituting the suit?
2. Did the contract become frustrated under the Section 56 of ICA?
3. Does English law of frustration apply in India?

Judicial History:
The trial court passed its judgement in the favour of Appellant (then plaintiff). The respondents filed for an appeal in the District court which was dismissed. A second appeal was filed in the High Court which gave its judgment in the favour of the respondent. The appellant therefore filed for an appeal in the Supreme Court of India under Article 133 [4] of the Indian Constitution.

Judgment:
The Supreme Court stated that English principles of Frustration of Contract on basis of which the judgement of the High Court was passed is not applicable in the statutory provisions of Indian Contract Act. It also said that the performance of the contract has not become impossible. The Court pointed out, the company had not commenced its work when the land was requisitioned, therefore, there was no interruption of work. Secondly, there was no time limit implied in the contract for the completion of construction of the roads and drains.

It was laid by the trial court as well as the lower appellate court that the appellant was a real assignee of Bejoy Krishna Roy on the issue of latter's rights on filing the suit.
Appeal allowed.

Principles:

1. English laws only have a persuasive value in India.
2. A contract becomes frustrated when the very foundation gets disturbed.
3. Section 56 of ICA [2] takes the word impossibility' in a practical sense and not literal sense. 

Critical Analysis:
The doctrine of frustration was first dealt in modern times in Taylor v. Caldwell [5]. A music hall was burnt down in which concerts were supposed to be performed by the plaintiff on certain specific days. The court held that the defendant (the music hall co.) was excused as its performance became impossible. 

Over the time, English law has pronounced many theories and principles relating to the law of frustration. However, it was made clear by this case that in India we have statutory provisions to be followed under Section 56 of Indian Contract Act [2]. 

It has 3 provisions. First says, An agreement to do an act impossible in itself is void.  
Second says contracts to do an act which afterwards become impossible or unlawful are void. So when do contracts become impossible? First, impossibility does not apply to the cases where the contract contains an implied term which discharges them from the performance of contract.

In Smt. Sushila Devi v. Hari Singh [6] the Supreme Court said, Section 56 lays down a positive law and doesn't leave the matter determined according to the intention of parties.

Section 56 [2] is dealt with when matter is not determined to the intention of parties. It is applied when parties did not have an intention regarding the supervening event and when there is no implied term in the contract. Another important aspect to check for the application of impossibility is that the foundation of the contract gets upset.

In this case of Satyabrat Ghose v. Mugneeram Bangur [1], though the land gets requisitioned by the government, impossibility does not apply because:
They did not start their work when the land got requisitioned. Therefore, there was no interruption in the work.

As the defendant pleads there would be an indefinite delay in performance of the contract so the impossibility should be applied. But there was no time limit described in the contract and the requisition was only temporary. So there was no indefinite delay.

Third provision of Section 56 [2] says when a person while signing the contract has reasonable diligence which the other party didn't know must compensate for the loss faced by the other party.

Conclusion:
It can be concluded stating that though theories of law of frustration of England are not applicable in India, the matter is always determined to the court which analyzes the contract as presented by the parties and considers the circumstances around the contract. 

End-Notes:

1. 1954 AIR 44 : 1954 SCR 310
2. ... A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
3. In deciding cases in India, the only doctrine that we have to go by is that of supervening impossibility as laid down in Section 56 of the Contract Act, taking the word impossible' in its practical and not literal sense. Supreme Court marked in Satyabrata v. Mugneeram (AIR 1954 SC 44 at p. 48)
4. An appeal shall lie to the Supreme Court from any judgment, decree or final order in a civil proceeding of a High Court in the territory of India if the High Court certifies under Article 134A
5. (1863) 3B and D 826 : 122 ER 309 : 32 LJ(QB) 164
6. AIR 1971 SC 1756 at p. 1759