Contract not violated when terms become impossible to service

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Delhi High Court recently held that when a party is obligated to perform an act which becomes impossible, there is no breach of contract.

In New Delhi Municipal Council v Manohar Stone Crushing Co & Anr, a contract for supply of stone grit and stone dust was entered into between the parties on 11 May 1992 where the respondent had to supply stone grit and stone dust to the appellant for a period of six months for a specified amount. Because the respondent failed to supply the contracted quantity of 11,760 cubic meters and could only supply only 47 cubic meters of stone dust, it was served various letters and show cause notices to resume supply. The contract was eventually rescinded by the appellant. For the supply of the balance quantity, the appellant entered into another contract with supplier, resulting in a loss of ₹1.1 million (US$15,492) on account of the difference in price. The appellant then filed an application before Delhi District Court for recovery of damages of ₹1.9 million against the respondent. The respondent argued that the contract was frustrated by an order of the Supreme Court, which halted all stone crushing activities with effect from 15 August 1992, and therefore, the respondent’s stone crusher was closed and could not supply the contracted quantity. The district court dismissed the application for recovery of damages, which was challenged before Delhi High Court.

The high court, in dismissing the appeal, held that since it was mandatory for a supplier to have its own stone crusher and due to the prohibition on all stone crushing activity as directed by the Supreme Court, the contract for supply of stone grit and stone dust stood frustrated as per section 56 of the Indian Contract Act, 1872, i.e. agreement to do an impossible act. The breach of contract was analysed by the high court in two parts – firstly, whether there was a breach in the period leading up to 15 August 1992, and secondly, whether there was any breach after 15 August 1992. In answer to the first part, it was held that in the absence of any specified contracted quantity, which the respondent was obligated to supply before 15 August 1992 according to the contract, there was no breach of contract. In the second part, the contract between the parties stood frustrated. The appeal was dismissed, being devoid of merit.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.