The law of contracts is built on a foundational principle: pacta sunt servanda — agreements must be kept. Yet the law has never treated this principle as absolute. From the earliest days of common law, courts have recognised that circumstances can arise which make rigid enforcement of a promise unjust or impossible. Doctrines such as frustration, force majeure, and rescission developed to address these issues— to draw a line between genuine impossibility, which the law will excuse, and mere inconvenience or loss, which it will not.

The Statutory Framework

Force majeure in Indian law operates on two tracks. Where a contract contains an express force majeure clause, Section 32¹ of the Indian Contract Act, 1872 governs — the clause is a contingent condition, and its scope depends entirely on its drafted language. Where no such clause exists, Section 56² supplies the doctrine of frustration: an agreement to do an act that becomes impossible, or unlawful by a supervening event, becomes void. Crucially, Section 56 does not extend to acts that have merely become expensive.

Hardship Is Not Frustration

The Supreme Court’s in Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 443³, that the doctrine of frustration applies only when the very foundation of the contract is destroyed, not when performance merely becomes more burdensome. This was reaffirmed in Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588⁴, where the Court refused to allow a party to escape a fixed-rate contract merely because wartime conditions made performance costlier than anticipated — parties who fix prices are taken to have assumed the risk of future fluctuation.

The modern authority is Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 805⁵. Though arising from power purchase agreements, its reasoning applies to construction disputes. The Court ruled that force majeure does not excuse performance merely because it has become more expensive or difficult, but only when it has become genuinely impossible or unlawful. Power producers who had quoted non-escalable tariffs, knowing the risk of coal price volatility, could not later invoke force majeure to renegotiate that bargain. The Court further clarified that force majeure must be construed narrowly, and that mere cost escalation arising from a contingent event does not amount to a “hindrance” under Section 56. Read together, these cases establish a clear proposition: unless a construction contract’s force majeure clause expressly covers price escalation, or the escalation is so extreme that it destroys the contract’s commercial identity altogether, courts will not permit rescission on cost grounds alone.

• ¹S 32, Indian Contract Act 1872
  ² S 56, Indian Contract Act 1872
  ³ Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44
  ⁴ Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588
  ⁵ Energy Watchdog v. Central Electricity Regulatory Commission, AIR 2017 SC (SUPP) 43

Delay Caused by Unforeseen Circumstances

Delay stands on a slightly different footing. Where delay arises from events within a contract’s force majeure clause — natural disasters, government-imposed restrictions, statutory bans on material transport — the affected party may claim extension of time or suspension of obligations, rather than outright rescission. During pandemic-related disruptions, Indian tribunals generally treated COVID-19 as triggering force majeure clauses that referenced epidemics or government orders, permitting extensions rather than termination. This distinction matters: force majeure ordinarily suspends performance and tolls time, while rescission is the far more drastic remedy, reserved for situations where the contract’s foundation is genuinely destroyed.

Contractual Drafting

Because Section 32 governs express clauses, the practical outcome of most disputes turns on drafting. Well-drafted construction contracts, particularly under FIDIC-based standard forms used in Indian infrastructure projects, include price-escalation formulae and defined force majeure events, reducing reliance on the residuary doctrine of frustration altogether. Where such clauses are silent or narrowly worded, contractors bear the commercial risk of escalation, however unforeseen.

CONCLUSION

Contract law tries to strike a fair balance: promises must be honoured, but the law also recognises that some circumstances make performance genuinely impossible through no fault of either party. Courts remain cautious about letting parties escape a bad bargain too easily, while still allowing relief in truly exceptional situations.