2018 (8) TMI 830 - HC - Indian Laws

Frustation of contract - Force Majeure - economic loss and un-viability of the contract due to loss in profit margins as a result of change in the policy - Net Trading Margin on Sale of Gold by PEC to be imported - 20 80 scheme of RB - whether with the change in the policy as made by the RBI circular dated 21st May, 2014, there is a cause of frustration of contract as contemplated in clause 7 of the tender document and/or Section 56 of the Contract Act? Held that - In Naihati Jute Mills Ltd. vs. Khyaliram Jagannath, 1967 (10) TMI 66 - SUPREME COURT , it was held that a contract is not frustrated merely because the circumstances in which it was made are altered. The Courts have no general power to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events. There is no merit in the petition - petition dismissed.

Summary

Issues:
Challenge to Arbitral Award under Section 34 of the Arbitration and Conciliation Act, 1996. Dispute arising from a tender regarding Net Trading Margin on Sale of Gold under the 20:80 scheme of RBI. Interpretation of Force Majeure clause in the tender document. Application of Section 56 of the Indian Contract Act, 1872 in cases of economic loss due to policy changes.

Analysis:
The petitioner challenged an Arbitral Award dismissing their claim under Section 34 of the Arbitration and Conciliation Act, 1996. The dispute stemmed from a tender floated by the respondent regarding the Net Trading Margin on the sale of gold under the 20:80 scheme of RBI. The petitioner submitted a bid for the import of gold, which was accepted, leading to a contractual relationship between the parties. However, the petitioner claimed Force Majeure due to a policy change by RBI, citing economic loss and unviability of the contract.

The key issue revolved around the interpretation of the Force Majeure clause in the tender document, specifically clause 7, which outlined circumstances like Government/RBI/DGFT policy restrictions as triggers for Force Majeure. The petitioner argued that the change in policy led to a frustration of contract under this clause and Section 56 of the Indian Contract Act, 1872. However, the court noted that the petitioner was not wholly or partially prevented from fulfilling their obligations but faced economic loss due to policy changes.

The court referred to legal precedents to clarify the application of Section 56 of the Contract Act in cases of unexpected obstacles or economic hardships. It emphasized that a mere rise or fall in prices, making performance onerous, does not automatically discharge contractual obligations. The court highlighted that Force Majeure clauses should be narrowly construed, and a change in economic conditions alone does not constitute a frustrating event.

Ultimately, the court found no merit in the petitioner's claim, dismissing the petition with no order as to costs. The judgment underscored the importance of upholding contractual obligations even in the face of economic challenges unless there is a fundamental change in circumstances that both parties did not anticipate when entering into the contract.