Frustration Isn’t Breach: The Clause Too Many Infra Contracts Misuse

If I had Rs 100 for every infrastructure dispute that starts with: “They didn’t deliver on time so we’re terminating under frustration,” I’d have a fund.

The frustration doctrine under Section 56 of the Indian Contract Act is one of the most misunderstood escape hatches in infra contract disputes. It is used where it doesn’t apply, and ignored where it might have helped.

Let’s walk through how this one clause, when misunderstood, can derail a resolution and land both sides in a prolonged arbitration with crores at stake.

First, What Is Frustration of Contract?

Section 56 says a contract becomes void when:

•It becomes impossible to perform after it is made, or

•The performance becomes unlawful or radically different from what was originally agreed.

This is not the same as:

• It got delayed.

• It became expensive.

• It was inconvenient to continue.

It is a legal doctrine of impossibility, not discomfort.

The Classic Test: Has the Performance Become Radically Different?

The courts have applied a narrow standard. A few case illustrations:

1. Satyabrata Ghose v Mugneeram Bangur (1954 SC)

The court ruled that mere delay due to requisitioning of land by the government was not frustration, as performance was still possible later.

2. Energy Watchdog v CERC (2017 SC)

Price escalation due to changes in coal export policy was held to not frustrate a power purchase agreement.

3. Naihati Jute Mills v Khyaliram Jagannath (1968 SC)

Increase in price of imported jute due to export restrictions did not amount to frustration.

The courts repeatedly stress that frustration doesn’t apply when the difficulty was foreseeable, or when an alternative mode of performance exists.

Infra Businesses Often Misuse This

In several infrastructure arbitrations I’ve advised on, the invocation of frustration often appeared when:

• One party had already defaulted on a milestone

• The commercial viability of continuing changed mid-way

• One partner wanted to exit, but without invoking a breach

A classic recent example: In an EPC (Engineering, Procurement, Construction) dispute involving a warehousing logistics park, the developer invoked frustration claiming that the reclassification of land under new urban zoning made the project unviable.

But evidence showed:

• The change was notified 6 months earlier

• No attempts were made to seek conversion permissions

• The risk clause in the JV clearly put land risk on the developer

The arbitrator ruled against frustration. Instead, a breach was found for failure to take reasonable steps to preserve feasibility.

Why This Misuse Happens

1. Trying to avoid liquidated damages

Claiming frustration is often a way to avoid default liability.

2. In-house counsel pressure

Teams may push for quick legal exits — especially if the vendor is small or on politically sensitive terrain.

3. Lack of risk allocation awareness

Many EPC and PPP contracts do not clearly assign macro risks — making parties assume courts/arbitrators will “balance equities.”

4. Mixing up with force majeure

Many clients confuse force majeure (temporary impossibility) with frustration (permanent impossibility).

Frustration: That’s not the Same as Getting a Free Pass to a Clean Exit

What parties often don’t realise is that invoking frustration can:

• Destroy contract continuity: it renders the contract void

• Remove access to specific remedies like damages or performance-linked adjustments

• Complicate arbitration strategy, especially if later retraction is attempted

In fact, I’ve advised parties not to plead frustration, because doing so meant losing the right to seek compliance.

The Better Strategy

If you’re a government contractor, developer, or infra project owner:

1. Don’t plead frustration unless you’re sure no remedy, workaround, or performance mode exists.

2. Review your risk allocation and force majeure clause before assuming frustration applies.

3. Use contractual negotiation. E.g., invoking reversion clauses, invoking expert determination to avoid a “frustration or breach” binary.

4. Keep correspondence records — courts and arbitrators look for how parties behaved before the conflict escalated.

Arbitrators Are Watching

Arbitrators today are particularly unimpressed by casual use of frustration.

In one recent logistics EPC matter I observed, the respondent invoked frustration citing increased steel prices and delay in municipal approvals. The arbitrator, however, noted that:

• The steel volatility was known since pre-COVID contract signing

• The approval timeline had been factored into risk-adjusted pricing

• No alternate sourcing or extensions had been pursued

The claim was dismissed as strategic avoidance rather than genuine impossibility.

Use the Right Door

Frustration is a doctrine of last resort. Not a negotiating tool.

If your infrastructure contract hits a roadblock, the better response is:

• Review commercial viability

• Seek legal strategy (breach, force majeure, or restructuring?)

• Reposition through legal counsel, not panic pleas

And remember: The arbitrator isn’t just listening for facts. They’re watching your tone, your history, and how well you prepared for risk, before claiming you couldn’t.