No frustration of contract if parties agree that force majeure condition would not operate, Delhi HC

The Delhi High Court this week reiterated that if parties to a contract agree to fulfil their obligations despite an intervening circumstance, there can be no frustration of contract..The Single Judge Bench of Justice Navin Chawla held as much while setting aside a challenge to an award given in an international arbitration..By way of background, the petitioner, Bharat Heavy Electricals Limited (BHEL) was charged with the construction of a power plant in Marib, Yemen by the Public Electric Company of Yemen (PEC). BHEL issued a Purchase Order in favour of the respondent, G+H Schallschutz GMBH (G+H), for supply of four identical Exhaust Gas Systems along with supervision for erection and commissioning of the same for the project. The total value of the contract was almost 8 million Euros..As the political scenario in Yemen deteriorated in 2015, the Government of India had put a travel advisory asking Indians to leave Yemen and to avoid all travel to the country. Subsequently, BHEL wrote to G+H to put on hold the Purchase Order, and eventually invoked a force majeure clause. G+H then invoked arbitration and filed a claim for damages against BHEL for breach of the contract..It is pertinent to note that the parties had agreed on a clause (Clause 25) according to which in case of a force majeure condition, the respondent could deliver the components in India instead of Yemen and claim the price of the goods..In October 2017, the Arbitral Tribunal held that Clause 25 would come into effect in the event of force majeure impacting the supply of the components, even though the performance of the contract would be rendered impossible. BHEL challenged this award before the Delhi High Court..Appearing for the petitioner, Senior Advocate Ciccu Mukhopadhyay argued that the Purchase Order stood frustrated with effect from March 27, 2015, as things deteriorated in Yemen. Once the contract becomes impossible of performance, he argued, there is an automatic discharge of contract under Section 56 of the Indian Contract Act..However, Justice Chawla did not agree with the same, relying on the Supreme Court’s judgment in Satyabrata Ghose v. Mugneeram Bangur & Co. and Anr..“In Satyabrata Ghose (supra) the Supreme Court further reiterated that if the parties had contemplated the possibility of an intervening circumstance affecting the performance of the contract but expressly stipulate that the contract would stand despite such circumstance, there can be no case of frustration.”.The Court held that as per Clause 25, the parties had agreed that the force majeure condition would not operate to discharge them of their contractual obligation as far as supply of material and payment thereof is concerned. Therefore, Section 56 of the Contract Act would not apply in this case..With this observation, the Court refused to interfere with the Tribunal’s decision, and dismissed the petition..Advocates Abhimanyu Bhandari and Roohina Dua appeared for the respondent company..Read the order: