Force majeure and frustration are narrowly construed; policy change and lower profits did not justify setting aside the arbitral award.

A change in RBI policy and the resulting fall in profit margin did not amount to force majeure or frustration of contract. The Court applied a narrow construction of the force majeure clause, which covered policy restrictions only if they prevented performance of contractual obligations, and held that Section 56 of the Indian Contract Act was not attracted because the contract had not become impossible or unlawful to perform. Economic loss, reduced profitability, or commercial unviability alone do not discharge contractual obligations or justify interference with an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.

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Issues: Whether the change in RBI policy and consequent fall in profit margin constituted force majeure or frustration of contract so as to warrant interference with the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996.

Analysis: The force majeure clause covered policy restrictions only where they prevented the seller or buyer from wholly or partially carrying out contractual obligations. The petitioner did not show that performance became impossible or unlawful within the meaning of Section 56 of the Indian Contract Act, 1872; its case rested only on economic loss and reduced profitability. The Court applied the settled principle that a contract is not frustrated merely because performance becomes more onerous, commercially unviable, or less profitable, and that force majeure clauses must be construed narrowly. A change in market conditions or a fall in price does not by itself discharge contractual obligations where the fundamental basis of the bargain remains intact.

Conclusion: The policy change did not amount to force majeure or frustration of contract, and no ground was made out to interfere with the arbitral award. The petition was rightly rejected.

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