Cancellation of contract

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Question asked on: 19/11/2015

My company had signed a contract with another company for digging the land for construction of railway lines and rail bridges. At the time of contract all the terms and conditions were finalised by the other company. Other company published a tender for the construction work.

My company was the only one company selected for that work through tender. It is mandatory for the company to take permission of the forest department which was refused by the said department.

So i want cancellation of contract on the ground that when permission is rejected by the government so work cannot be initiated but the other company file a suit for breach of contract and compensation for cancellation of contract. What should I do?

Advised by: Shivendra Pratap Singh,

According to your case you have right to cancel this agreement because performance of the contract is based upon permission of the forest department for initiation of work. However tender is issued and completed according to law but at that time it might be presumed that forest department may give permission so no saving clause was included in the contract.

This contract is frustrated because not getting permission from forest department. Section 56 of the Indian Contract provides a right to cancellation of contract on the ground of frustration. Frustration is an act outside the contract due to which the completion of a contract becomes impossible.

After the parties have concluded a contract, events beyond their control may occur which frustrate the purpose of their agreement, or render it very difficult or impossible, or as even illegal, to perform. You should take plea of frustration because permission from the forest department is an event which is out of your control. And permission was sine quo non for the performance of contract.

In Nirmala Anand vs. Advent Corporation Pvt. Ltd AIR 2002 SC : it is held by the supreme court that the competent authority has been moved and application for consent or sanction have been rejected once and for all and such rejection renders  impossible the performance of the contract due to frustration under section 56 contract act. The relief must be given to the party and keep them in the same position as they were be before the contract.

When a contract becomes impossible to perform due to its frustration then it cannot be enforced by the court. You shall not be liable to pay any compensation.

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