Export Ban, Force Majeure Clause and Liquidated Damages
On 10 January 2023 Deccan Alloys Pvt. Ltd. agreed to supply 50,000 metric tonnes of steel billets to Kalinga Traders at ₹48,000 per tonne, delivery in four monthly lots of 12,500 tonnes, FOB Visakhapatnam, with an advance of ₹2 crore payable on signing. Clause 14 read: "Neither party shall be liable for failure to perform caused by acts of God, war, civil commotion, strikes, or any other cause beyond the reasonable control of the parties; provided that changes in law, regulatory action and changes in government policy shall not excuse performance." Clause 15 provided liquidated damages of 2 per cent of the value of delayed goods per week, capped at 10 per cent. Kalinga paid ₹2 crore on 12 January 2023. Deccan supplied only the first lot. On 5 March 2023 the Director General of Foreign Trade restricted export of billets; Deccan stopped supplies and invoked Clause 14. The restriction was lifted on 30 June 2023. Deccan neither resumed supply nor refunded the advance, and sold the remaining billets domestically at ₹56,000 per tonne. Kalinga served notice in August 2024 and sued in December 2025 for refund, the price difference, and interest.
1. Is Deccan discharged from performance by frustration under Section 56 of the Indian Contract Act, or is it liable for breach?
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Two questions must be separated: whether the force majeure clause applies, and whether Section 56 operates despite it.
First, Clause 14. The export restriction was a regulatory act, and the proviso expressly carves out "changes in law, regulatory action and changes in government policy" from the excuses listed. The parties therefore allocated the risk of exactly this event to Deccan. A party cannot invoke frustration for an event that the contract itself has provided for; where a force majeure clause governs the situation, Section 56 is not the applicable route.
Second, even without the proviso, Section 56 requires an event that renders performance impossible or radically different from what was promised, occurring without the default of either party. A temporary export restriction of under four months does not render a four-lot contract of this kind impossible; it suspends performance, and supply should have resumed on 30 June 2023. Impossibility must also be distinguished from mere commercial hardship - the fact that Deccan could sell at ₹56,000 domestically makes performance not more, but less, onerous.
There is a further and independent difficulty: Deccan had already defaulted on the second lot before 5 March 2023, and a party in antecedent breach cannot rely on a later supervening event. Deccan is liable.
2. What sums is Kalinga entitled to recover, and how do Sections 73, 74 and 64 of the Contract Act interact here?
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Kalinga has three heads of claim.
Refund of the advance. The advance was paid for a consideration that wholly failed. Section 64 requires a party rescinding a voidable contract to restore benefits received, and Section 65 obliges a person who has received money under a contract discovered to be void, or which becomes void, to restore it. Kalinga is entitled to the unadjusted balance of ₹2 crore, less the price of the first lot actually delivered and accepted.
Price difference under Section 73. Section 73 compensates the party who has suffered loss which naturally arose in the usual course of things from the breach, or which the parties knew would likely result. Kalinga must cover its requirement in the market; its loss is the difference between the contract rate of ₹48,000 and the price at which it reasonably bought in, or the market price on the date of breach, together with incidental expenses. This is not a penalty and is not capped by Clause 15, because Clause 15 addresses delay in delivery, not total non-supply.
Liquidated damages. If Clause 15 is invoked for the delayed lots, Section 74 makes the stipulated sum the ceiling of reasonable compensation, not an automatic entitlement. Following Kailash Nath Associates v. DDA, compensation under Section 74 still requires proof of loss; the ceiling is a maximum, not a minimum. Whether the 10 per cent cap is exhausted depends on the weeks of delay proved.
3. Deccan argues that because the contract was divisible into four lots, each lot is a separate contract and its liability is confined to the second lot only. How should the court approach this?
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Divisibility is a question of construction, not of the number of deliveries. The test is whether the parties intended a single indivisible bargain or a series of independent transactions: the language of the document, the price structure, whether the quantity is a single commitment, and whether payment and delivery are interlinked.
Here the indicia favour a single contract. There was one agreement, one negotiated rate for a total committed quantity of 50,000 tonnes, one advance of ₹2 crore calculated on the whole, and no clause permitting either party to terminate after any lot. A default in an intermediate lot ordinarily entitled the buyer either to terminate the whole contract or to treat it as subsisting and claim damages for the shortfall, but it did not split the bargain into four independent contracts. The correct analysis is that Deccan repudiated the contract by refusing to perform the remaining lots, and Kalinga accepted that repudiation.
There is a practical consequence in Deccan's favour: Kalinga cannot recover twice. Damages must be assessed once, on the total shortfall of 37,500 tonnes, and the refund of the advance is credited against the total award. Deccan's argument would become tenable only if the contract had fixed separate prices, separate delivery obligations and an express option to each party not to proceed after each lot - the classic indicia of a divisible contract.