Strike as Force Majeure under Indian Contract Law

Strike as Force Majeure under Indian Contract Law: Doctrinal Foundations, Contractual Allocation, and Judicial Treatment

1. Introduction

“Force majeure” clauses operate as risk-allocation devices that excuse or suspend contractual performance when events beyond the parties’ reasonable control intervene. Among the catalogued events, strike occupies a particularly contentious space, lying at the intersection of labour law, economic hardship, and contractual autonomy. This article critically analyses how Indian courts have approached strikes as force majeure events, distinguishing statutory frustration under Section 56 of the Indian Contract Act, 1872 (“ICA”) from contractual risk allocation under Section 32, and tracing doctrinal evolution from Dhanrajamal Gobindram to Energy Watchdog.

2. Normative Framework

2.1 Statutory Frustration (Section 56, ICA)

Section 56 renders a contract void when, after formation, an act becomes “impossible” or “unlawful”. The Supreme Court in Satyabrata Ghose v. Mugneeram Bangur[1] adopted a broad reading of “impossible”, encompassing impracticability provided the foundation of the venture is destroyed. However, mere commercial adversity, including cost escalation due to strike, will not suffice[2].

2.2 Contractual Force Majeure (Section 32, ICA)

Where parties expressly stipulate contingencies (e.g., “industry-wide strike”), the contract is contingent; rights and liabilities flow from the clause itself, not from Section 56. The Supreme Court in Energy Watchdog v. CERC[3] reiterated that once a force majeure clause exists, courts must first construe the bargain under Section 32 before resorting to Section 56.

2.3 Interface with Labour Legislations

The constitutional and statutory framework recognises a regulated right to strike[4]; yet, its exercise by workmen is external to the promisee–promisor relationship in most commercial contracts. Accordingly, Indian courts consider strike a paradigmatic force majeure event only when:

  • the clause expressly lists “strike”, or
  • the language (“events beyond reasonable control”) is wide enough to subsume it.
Absent such phrasing, performance remains obligatory unless frustration is otherwise established.

3. Early Jurisprudence: From Dhanrajamal Gobindram to Alopi Parshad

3.1 Recognition of Strike within Force Majeure

The locus classicus is Dhanrajamal Gobindram v. Shamji Kalidas[5], where the Supreme Court, approving Justice McCardie’s exposition, held that “strikes, breakdown of machinery … though normally not included in vis major, are included in force majeure”. The decision firmly distinguished the wider French phrase from the narrower Roman concept, broadening Indian contractual drafting practice.

3.2 Commercial Hardship Not Equivalent to Impossibility

In Alopi Parshad v. Union of India[6], wartime price escalation and supply difficulties (akin to labour unrest) did not discharge performance. The Court emphasised sanctity of contract, foreshadowing later scepticism towards invoking strike-induced hardship absent an enabling clause.

4. Elaborating the Contours: High-Court and Arbitral Perspectives

4.1 Madras High Court: Edmund Bendit (1924)

The Court refused a plea of force majeure based on commandeering of a ship, holding that alternative performance was contractually possible even if expensive[7]. Though predating the ICA’s modern interpretation, the judgment signalled judicial reluctance to excuse parties merely because strike or related events increased costs.

4.2 Orissa High Court: Md. Serajuddin (1969)

Strikes were explicitly enumerated within the mining lease’s force majeure clause. The Court held that the lessee could not seek shelter unless the Government (designated as “sole judge”) acknowledged the event[8]. The decision underscores that contractual mechanics—designation of a certifying authority, notice, and causal nexus—govern relief.

5. Contemporary Supreme Court Approach

5.1 Energy Watchdog v. CERC (2017)

The Court dissected intricate PPAs. Clause 12.4 expressly excluded “increase in fuel cost” from force majeure, even though the same clause recognised “strikes”. By enforcing the bargain, the Court held that Indonesian law–driven coal price escalation was not a force majeure event, reaffirming that:

“When the contract expressly provides that certain events are not force majeure, Section 56 cannot be invoked to expand the list.”[3]
Although the case did not turn on strike, its ratio—strict textualism—directly informs future strike-related claims.

5.2 Interface with Arbitrability and Public Policy: ONGC v. Saw Pipes (2003)

While the dispute revolved around liquidated damages, the Court used Section 34 of the Arbitration and Conciliation Act, 1996 to set aside an award inconsistent with contractual terms. By implication, arbitral leniency towards strike-induced delays, contrary to the contract, risks being labelled “patently illegal”[9].

6. Sector-Specific Instruments: Power, Infrastructure, and Trade

6.1 Power Purchase Agreements

Regulatory instruments (e.g., CERC’s GMR-Kamalanga order)[10] typically classify “industry-wide strikes” as non-natural force majeure, subject to exclusions (events within reasonable control). Parties must:

  • serve contemporaneous notice, and
  • demonstrate causal nexus between the strike and non-performance.
Failure attracts denial of compensatory tariff—consistent with Energy Watchdog.

6.2 International Sales & Trade

The Delhi High Court in Global Steel Philippines v. STC[11] upheld a clause releasing parties when “strike” directly affected execution, provided a Certificate from the Chamber of Commerce was produced. The decision illustrates evidentiary burdens attached to invoking strike force majeure in international trade contracts.

6.3 Upstream Energy Contracts

Model Production-Sharing Agreements (PSAs) and service contracts—illustrated by Haliburton Offshore v. Vedanta[12]—typically include “nation-wide or political strikes” but exclude strikes “caused by the affected party”. The Delhi High Court preserved the textual differentiation, echoing Supreme Court orthodoxy.

7. Analytical Themes

7.1 Textualism vs Commercial Equity

Indian courts consistently privilege text over perceived fairness. Where “strike” is absent or expressly excluded, hardship arguments fail (Alopi Parshad, Energy Watchdog). Conversely, explicit inclusion coupled with compliance conditions (notice, mitigation) yields relief (Dhanrajamal Gobindram, Global Steel).

7.2 Strike and Frustration: Convergence or Divergence?

A widespread, protracted strike may conceptually frustrate a contract (if it destroys the venture’s foundation), yet judicial experience shows Section 56 is seldom applied where the contract is silent. Parties are expected to negotiate force majeure clauses; courts then confine themselves to Section 32 analysis. This preserves contractual certainty and aligns with commercial expectations.

7.3 Procedural Obligations

Relief is contingent upon:

  • Prompt notice of strike and anticipated impact.
  • Demonstration of due diligence and reasonable mitigation (e.g., alternative sourcing).
  • Evidentiary certification where required (e.g., Chamber of Commerce certificate in Global Steel).
Non-compliance disentitles the party even if the strike is genuine.

8. Comparative Note: Banking and Construction Contracts

Syndicate Bank v. R. Veeranna[13] and Continental Construction v. State of MP[14] demonstrate that Indian courts uphold interest escalation and reject additional cost claims where the contract empowers one party or limits arbitrator discretion. Analogously, strike-related claims will be honoured only within contractual contours.

9. Conclusion

The Indian jurisprudence on strike as force majeure reflects a deliberate judicial commitment to contractual certainty. Key takeaways are:

  1. Section 56 operates residually; primary analysis is contractual (Section 32).
  2. Strikes are accepted force majeure events only if the clause so provides, and relief is conditioned on strict compliance with procedural and evidentiary requirements.
  3. Commercial hardship, including cost escalation or market imbalance due to strike, is not frustration unless the strike obliterates the contract’s foundation.
  4. Arbitral or judicial deviation from unambiguous contractual allocation invites correction on grounds of patent illegality or public policy.
Accordingly, parties should draft force majeure clauses with precision, clearly delineating the scope, exclusions, notice regime, and consequences of strikes to minimise litigation and preserve commercial efficacy.

Footnotes

  1. Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44.
  2. Id., at 50 (impracticability distinguished from impossibility).
  3. Energy Watchdog v. CERC, (2017) 14 SCC 80.
  4. Syndicate Bank v. K. Umesh Nayak, (1994) 2 SCC 563 (nature of strike as economic weapon).
  5. Dhanrajamal Gobindram v. Shamji Kalidas, AIR 1961 SC 1285.
  6. Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588.
  7. Edmund Bendit v. Edgar Raphael Prudhomme, AIR 1925 Mad 40.
  8. Md. Serajuddin v. State of Orissa, 36 (1969) CLT 780.
  9. Oil & Natural Gas Corp. Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705.
  10. GMR-Kamalanga Energy Ltd. v. Dakshin Haryana Bijli Vitran Nigam Ltd., Petition No. 79/MP/2013, CERC Order (2016).
  11. Global Steel Philippines (SPV-AMC) v. STC of India Ltd., 162 (2009) DLT 390.
  12. Halliburton Offshore Services Inc. v. Vedanta Ltd., 2020 SCC OnLine Del 542.
  13. Syndicate Bank v. R. Veeranna, (2003) 2 SCC 15.
  14. Continental Construction Co. Ltd. v. State of M.P., (1988) 3 SCC 82.