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Indeed, in England, in the celebrated Sea Angel case, 2013 (1) Lloyds Law Report 569, the modern approach to frustration is well put, and the same reads as under: “In my judgment, the application of the doctrine of frustration requires a multi-factorial approach. Among the factors that have to be considered are the terms of the contract itself, its matrix or context, the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances. Since the subject matter of the doctrine of frustration is contract, and contracts are about the allocation of risk, and since the allocation and assumption of risk is not simply a matter of express or implied provision but may also depend on less easily defined matters such as “the contemplation of the parties”, the application of the doctrine can often be a difficult one. In such circumstances, the test of “radically different” is important: it tells us that the doctrine is not to be lightly invoked; that mere incidence of expense or delay or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances.”
“… It is clear from the above that the doctrine of frustration cannot apply to these cases as the fundamental basis of the PPAs remains unaltered. Nowhere do the PPAs state that coal is to be procured only from Indonesia at a particular price. In fact, it is clear on a reading of the PPA as a whole that the price payable for the supply of coal is entirely for the person who sets up the power plant to bear. The fact that the fuel supply agreement has to be appended to the PPA is only to indicate that the raw material for the working of the plant is there and is in order. It is clear that an unexpected rise in the price of coal will not absolve the generating companies from performing their part of the contract for the very good reason that when they submitted their bids, this was a risk they knowingly took. We are of the view that the mere fact that the bid may be non-escalable does not mean that the respondents are precluded from raising the plea of frustration, if otherwise it is available in law and can be pleaded by them. But the fact that a non-escalable tariff has been paid for, for example, in the Adani case, is a factor which may be taken into account only to show that the risk of supplying electricity at the tariff indicated was upon the generating company”.
[Extracted from Energy Watchdog v. Central Electricity Regulatory Commission (2017) 14 SCC 80].
“… It is clear from the above that the doctrine of frustration cannot apply to these cases as the fundamental basis of the PPAs remains unaltered. Nowhere do the PPAs state that coal is to be procured only from Indonesia at a particular price. In fact, it is clear on a reading of the PPA as a whole that the price payable for the supply of coal is entirely for the person who sets up the power plant to bear. The fact that the fuel supply agreement has to be appended to the PPA is only to indicate that the raw material for the working of the plant is there and is in order. It is clear that an unexpected rise in the price of coal will not absolve the generating companies from performing their part of the contract for the very good reason that when they submitted their bids, this was a risk they knowingly took. We are of the view that the mere fact that the bid may be non-escalable does not mean that the respondents are precluded from raising the plea of frustration, if otherwise it is available in law and can be pleaded by them. But the fact that a non-escalable tariff has been paid for, for example, in the Adani case, is a factor which may be taken into account only to show that the risk of supplying electricity at the tariff indicated was upon the generating company”.
[Extracted from Energy Watchdog v. Central Electricity Regulatory Commission (2017) 14 SCC 80].
Question: 1
Which of the following is incorrect about a force majeure clause?
Which of the following is incorrect about a force majeure clause?
Updated On: Nov 7, 2024
- The burden of proving the applicability of a force majeure clause rests on the party seeking to invoke it.
- A force majeure clause ensures that non-performance is no breach because no performance was due in the circumstances which have occurred.
- ‘Frustration of contract’ and ‘force majeure’ are indeed one and the same concept.
- Force majeure clauses come in many shapes and sizes, ranging from the simple clause providing for cancellation/termination of the contract in the event that performance is prevented by circumstances comprehended within the term force majeure, to clauses of immense complexity containing, inter alia, a list of excusing events, provisions for notices to be issued to the promisee and detailing the consequences of the force majeure event
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The Correct Option is C
Solution and Explanation
Frustration of contract and force majeure are distinct concepts; while both relate to
impossibility of performance, frustration operates by law, whereas force majeure is contractual.
The correct option is (C): ‘Frustration of contract’ and ‘force majeure’ are indeed one and the same concept.
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Question: 2
Which of the following is a leading judgement on ‘frustration of contract’?
Which of the following is a leading judgement on ‘frustration of contract’?
Updated On: Nov 7, 2024
- Central Inland Water Transport Corporation v. Brojo Nath Ganguly, (1986) 3 SCC 156
- Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310.
- Fateh Chand v. Balkishan Dass, (1964) 1 SCR 515
- Thornton v. Shoe Lane Parking Ltd., (1971) 2 QB 163 (CA).
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The Correct Option is B
Solution and Explanation
Satyabrata Ghose v. Mugneeram Bangur Co. is a landmark case on the doctrine
of frustration under Indian law, setting the precedent for contracts becoming impossible to
perform.
The correct option is (B): Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310.
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Question: 3
Which of the following is an incorrect proposition as regards frustration of contract?
Which of the following is an incorrect proposition as regards frustration of contract?
Updated On: Nov 7, 2024
- The courts have the general power to absolve a party from the performance of its part of the contract if its performance has become onerous on account of an unforeseen turn of event
- If a contract contains a term according to which it would stand discharged on the happening of certain contingencies, dissolution of the contract would take place under the terms of the contract itself and such cases would be outside the purview of section 56 of the Indian Contract Act; such cases have to be dealt with under section 32 of the Indian Contract Ac
- The application of the doctrine of frustration must always be within narrow limits
- Section 56 of the Indian Contract Act does not apply to lease (completed conveyance
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The Correct Option is A
Solution and Explanation
The courts do not have the general power to absolve a party from performance
merely because it has become onerous; frustration requires impossibility or illegality.
The correct option is (A): The courts have the general power to absolve a party from the performance of its part of the contract if its performance has become onerous on account of an unforeseen turn of event
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Question: 4
In Energy Watchdog v. Central Electricity Regulatory Commission, the Supreme Court found that the fundamental basis of the power purchase agreements (PPAs) between the parties was not premised on the price of coal imported from Indonesia. In fact, in the PPAs, there was a clause providing that changes in the cost of fuel, or the agreement becoming onerous to perform, are not treated as force majeure. Therefore, on the ground of the rise in price of Indonesian coal, the Court held that:
In Energy Watchdog v. Central Electricity Regulatory Commission, the Supreme Court found that the fundamental basis of the power purchase agreements (PPAs) between the parties was not premised on the price of coal imported from Indonesia. In fact, in the PPAs, there was a clause providing that changes in the cost of fuel, or the agreement becoming onerous to perform, are not treated as force majeure. Therefore, on the ground of the rise in price of Indonesian coal, the Court held that:
Updated On: Nov 7, 2024
- Alternative modes of performance were available, albeit at a higher price; and that alone could not lead to the contract, as a whole, being frustrated.
- The contract was frustrated on account of an unexpected rise in the price of Indonesian coal excusing the generating company from performing its part of the contract
- The contract was frustrated on account of an unexpected rise in the price of Indonesian coal excusing the generating company from performing its part of the contract
- The contract was frustrated on account of an unexpected rise in the price of Indonesian coal because the performance of an act might not be literally impossible, but it may be impracticable and useless from the point of view of the object and purpose of the contract.
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The Correct Option is A
Solution and Explanation
The Court in Energy Watchdog held that mere increase in cost does not frustrate a
contract, as performance at a higher cost is still feasible.
The correct option is (A): Alternative modes of performance were available, albeit at a higher price; and that alone could not lead to the contract, as a whole, being frustrated.
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Question: 5
The maxim lex non cogit ad impossibilia means:
The maxim lex non cogit ad impossibilia means:
Updated On: Nov 7, 2024
- A personal right of action dies with the person
- The burden of proof lies upon him who asserts and not upon him who denies
- No person can claim any right arising out of his own wrongdoing.
- The law does not compel a promisor to do that which is impossible to perform.
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The Correct Option is D
Solution and Explanation
The maxim lex non cogit ad impossibilia translates to ”the law does not compel a
promisor to do that which is impossible to perform,” emphasizing that the law does not require
fulfillment of impossible obligations.
The correct option is (D): The law does not compel a promisor to do that which is impossible to perform.
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Questions Asked in CLAT PG exam
- An unpleasant tussle ensured between the TATA Sons and Cyrus Pallonji Mistry (“CPM”) in October 2016, when Mistry, who was the sixth chairman of Tata Sons, was ousted from the position of Executive Chairman of Tata Sons Limited. CPM took over as the chairman in 2012 after Ratan Tata announced his retirement. Tata Group patriarch Ratan Tata had personally asked Cyrus Mistry to resign as chairman of Tata Sons as the board had lost faith in him, but his refusal led to the removal via majority vote. Cyrus Investments Private limited and Sterling Investment Corporation Private Limited belonged to the Shapoorji Palloni Group in which CPM held a controlling interest (about 2% of the issued share capital of Tata Sons). Seven out of the nine directors of Tata Sons voted for CPM’s replacement after Farida Khambata abstained and Mistry was declared ineligible to vote as he was an interested director. Mistry challenged his removal, accusing the board of mismanagement and of oppressing minority shareholders. however, the National Company Law Tribunal (NCLT) rejected his petition. After this Mistry challenged his removal in National Company Law Appellate Tribunal (NCLAT). In 2018, NCLAT order restored Mistry as the group’s executive chairman. Tata Sons challenged that NCLAT order in Supreme Court. CPM also challenged the order for few more relief. Supreme Court stayed NCLAT’s order reinstating Cyrus Mistry as the executive chairman of Tata Sons and restoring his directorships in the holding company as well as three group companies, with a preliminary observation that the first impression of the order was “not good” and that the tribunal ‘could’ not have given consequential relief that had not been sought in the first place. Ultimately, the Supreme Court decided the case in favour of Tata Sons. One of the issues decided by Supreme Court was that “whether the case was fit to be qualified as a situation of ‘Oppression and Mismanagement’ under Section 241 of the Companies Act, 2013?”. On this issue, the Supreme Court observed that “unless the removal of a person as a chairman of a company is oppressive or mismanaged or done in a prejudicial manner damaging the interests of the company, its members or the public at large, the NCLT cannot interfere with the removal of a person as a Chairman of a Company in a petition under Section 241 of the Companies Act, 2013.” This case highlighted the point that “an executive chairman does not have sovereign authority over the company. In corporate democracy, decision making always remains with the Board as long as they enjoy the pleasure of the shareholders. Likewise, an executive chairman will continue as long as he/she enjoys the pleasure of the Board. An assumption by the executive chairman that he/she would have a free hand in running the affairs of the company is incongruous to corporate governance and corporate democracy. The Tribunal held that the concept of ‘free hand rule’ is antithesis to collective responsibility and collective decision making”.
[Based on Tata Consultancy Services Ltd. v. Cyrus Investment Pvt. Ltd., 2021 SCC 122].- CLAT PG - 2024
- Company Law
- Alastair Hudson in his book ‘Securities Law’ First Edition (Sweet & Maxwell), 2008 at page 342, refers to ‘Restricted Offers’ and noticed that there is no contravention of Section 85 of FSMA 2000, if: “(b) the offer is made to or directed at fewer than 100 persons, other than qualified investors, per EEA State”. The purpose underlying that exemption, the author says, is mainly the fact that the offer is not being made to an appreciable section of “the public” such that the policy of the prospectus rules generally is not affected. Further, the author says that “Self-evidently, while an offer to 99 ordinary members of the public would be within the literal terms of the exemption, it would not be the sort of activity anticipated by the legislation. Moreover, if a marketing campaign were arranged such that ordinary members of the people were approached in groups of 99 people at a time in an effort to avoid the prospectus rules, then that would not appear to be within the spirit of the regulations and might be held to contravene the core principle that a regulated person must act with integrity.”
I may, therefore, indicate, subject to what has been stated above, in India that any share or debenture issue beyond forty-nine persons, would be a public issue attracting all the relevant provisions of the SEBI Act, regulations framed thereunder, the Companies Act, pertaining to the public issue. Facts clearly reveal that Saharas have issued securities to the public more than the threshold limit statutorily fixed under the first proviso to Section 67(3) and hence violated the listing provisions which may attract civil and criminal liabilities. Principles of listing, which I may later on discuss, is intended to assist public companies in identifying their obligations and responsibilities, which are continuing in nature, transparent in content and call for high degree of integrity. Obligations are imposed on the issuer on an ongoing basis. Public companies who are legally obliged to list their securities are deemed to accept the continuing obligations, by virtue of their application, prospectus and the subsequent maintenance of listing on a recognized stock exchange. Disclosure is the rule, there is no exception. Misleading public is a serious crime, which may attract civil and criminal liability. Listing of securities depends not upon one’s volition, but on statutory mandate.
[Extract from Sahara India Real Estate Corporation Limited v. Securities and Exchange Board of India (SEBI), Para 89-91, Civil Appeal No. 9833/2011 (SC)]- CLAT PG - 2024
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- The aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words, they do not supplant the law of the land but supplement it. The concept of natural justice has undergone a great deal of change in recent years. In the past, it was thought that it included just two rules namely: (1) no one shall be a judge in his own case (Nemo debet esse judex propria causa) and (2) no decision shall be given against a party without affording him a reasonable hearing (audi alteram partem).
Very soon thereafter a third rule was envisaged and that is that quasi-judicial enquiries must be held in good faith, without bias and not arbitrarily or unreasonably. But in the course of years many more subsidiary rules came to be added to the rules of natural justice. Till very recently it was the opinion of the courts that unless the authority concerned was required by the law under which it functioned to act judicially there was no room for the application of the rules of natural justice. The validity of that limitation is not questioned.
If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Often times it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far reaching effect than a decision in a quasi-judicial enquiry as observed by this Court in Suresh Koshy George v. University of Kerala [Civil Appeal No. 990/68, decided on 15-07- 1968], the rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of that case, the framework of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose. Whenever a complaint is made before a court that some principle of natural justice had been contravened the court has to decide whether the observance of that rule was necessary for a just decision on the facts of that case.
[Extract from the judgment of the Supreme Court in A.K. Kraipak v. Union of India, (1969) 2 SCC 262, decided on April 29, 1969, hereafter ‘A.K. Kraipak’].- CLAT PG - 2024
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- In its second preliminary objection, Myanmar submits that The Gambia’s Application is inadmissible because The Gambia lacks standing to bring this case before the Court. In particular, Myanmar considers that only “injured States”, which Myanmar defines as States “adversely affected by an internationally wrongful act”, have standing to present a claim before the Court. In Myanmar’s view, The Gambia is not an “injured State” (a term that Myanmar appears to use interchangeably with the term “specially affected State”) and has failed to demonstrate an individual legal interest. Therefore, according to Myanmar, The Gambia lacks standing under Article IX of the Genocide Convention.
Myanmar draws a distinction between the right to invoke State responsibility under general international law and standing before the Court. It argues that, even if it were established that a “non-injured” Contracting Party to the Genocide Convention has the right to invoke another State’s responsibility for violations of the Convention, this would not necessarily entail the right to bring a case before the Court. To this end, Myanmar contends that there exists a difference between the common interest in the accomplishment of the purposes of the Genocide Convention and a State’s individual legal interest that may be enforce through the institution of proceedings before the Court. In Myanmar’s view, only States “specially affected” by an internationally wrongful act have standing to bring a claim before the Court.
Myanmar further submits that The Gambia’s claims are inadmissible in so far as they are not brought before the Court in accordance with the rule concerning the nationality of claims which, according to Myanmar, is reflected in Article 44 (a) of the International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts. Myanmar asserts that the rule concerning the nationality of claims applies to the invocation of responsibility by both “injured” and “non injured” States and irrespective of whether the obligation breached is an erga omnes partes or erga omnes obligation. Consequently, in Myanmar’s view, The Gambia lacks standing to invoke Myanmar’s responsibility.- CLAT PG - 2024
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- The consensual structure of the international legal order, with its strong emphasis on the sovereign equality of states, has always been somewhat precarious. In different waves over the centuries, it has been attacked for its incongruence with the realities of inequality in international politics, for its tension with ideals of democracy and human rights, and for standing in the way of more effective problem-solving in the international community. While surprisingly resilient in the face of such challenges, the consensual structure has seen renewed attacks in recent years. In the 1990s, those attacks were mainly “moral” in character. They were related to the liberal turn in international law, and some of them, under the banner of human rights, aimed at weakening principles of nonintervention and immunity. Others, starting from the idea of an emerging “international community,” questioned the prevailing contractual models of international law and emphasised the rise of norms and processes reflecting community values rather than individual state interests. Since the beginning of the new millennium, the focus has shifted, and attacks are more often framed in terms of effectiveness or global public goods. Classical international law is regarded as increasingly incapable of providing much-needed solutions for the challenges of a globalized world; as countries become ever more interdependent and vulnerable to global challenges, an order that safeguards states’ freedoms at the cost of common policies is often seen as anachronistic. According to this view, what is needed-and what we are likely to see-is a turn to nonconsensual lawmaking mechanisms, especially through powerful international institutions with majoritarian voting rules.
[The extract is part of the article “The Decay of Consent: International Law in an Age of Global Public Goods” by Krisch N, in the American Journal of International Law].- CLAT PG - 2024
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