SECTION 55

Section 55. Effect of failure to perform at fixed time, in contract in which time is essential
Effect of failure to perform at fixed time, in contract in which time is essential.—When a party
to a contract promises to do a certain thing at or before a specified time, or certain things at or
before specified times, and fails to do any such thing at or before the specified time, the
contract, or so much of it as has not been performed, becomes voidable at the option of the
promisee, if the intention of the parties was that time should be of the essence of the contract.

Effect of such failure when time is not essential— If it was not the intention of the parties that
time should be of the essence of the contract, the contract does not become voidable by the
failure to do such thing at or before the specified time; but the promisee is entitled to
compensation from the promisor for any loss occasioned to him by such failure.

Effect of acceptance of performance at time other than that agreed upon.— If, in case of a
contract voidable on account of the promisor's failure to perform his promise at the time agreed,
the promisee accepts performance of such promise at any time other than that agreed, the
promisee cannot claim compensation for any loss occasioned by the non-performance of the
promise at the time agreed, unless, at the time of such acceptance, he gives notice to the
promisor of his intention to do so

Basically, this section provides that if someone promises something to be done at a specified
time and it is not performed at the same time, the contract becomes voidable if it was the
intention of the parties to make time the essence of the contract. Further, it says that if the
parties did not have the intention to make time the essence of the contract, the promisee should
be entitled to claim compensation for any loss incurred. Finally, this section says that if time is
intended to be of essence but performance is accepted in some way other than what had been
agreed on, compensation cannot be claimed unless he gives notice to the promisor.

1. State of Kerala v. M.A Mathai

PARA 7- In this case, it was held that if there are any delays in the performance of
reciprocal obligations by an employer, the contractor gets the right to avoid the contract
but if he does not avoid the contract and accepts the belated performance, he cannot
claim compensation for any loss sustained to him due to delay in performance, unless
he gives a notice of the same to the delaying party.

2. Bhagwandas Metals Ltd vs M/[Link] Agencies

“PARA 88. The learned counsel for the defendants has also maintained that in the light
of Section 55 of the Indian Contract Act, 1872 read with the aforesaid Judgments, the
plaintiff, having failed to issue notice to claim compensation at the time of delivery of
the BOCBs on 16.08.1995 is barred in law from claiming any compensation for alleged
delay in delivery. He has also maintained that the alleged damages claimed in the suit
is unliquidated damages for a sum of Rs.61,48,000/- in terms of Section 73 of the Indian
Contract Act and is not a claim for liquidated damages or penalty under Section 74 of
the Contract Act. He has also adverted to that any claim for compensation for loss
production is treated as a remote damages and the Contract Act does not provide for
any damages to be paid for such losses which are too remote.”
3. [Link] and Company vs. M/[Link] Sons (Manufacturing) Ltd., 1983
MLJR 525
PARA 6 -it is held that under Section 55 of the Contract Act, if, in case of a contract
voidable on account of the promisor's failure to perform his promise at the time agreed,
the promisee accepts performance of such promise at any time other than that agreed,
the promisee cannot claim, compensation of the promise at the time agreed unless, at
the time of such acceptance, he gives notice to the promisor of his intention to do so.
The essential requirement of section 55 of the Contract Act is, if the appellant wants
to claim compensation for any loss occasioned by the non-performance of the contract
within the stipulated time and if the appellant accepts performance of the contract, he
must issue notice to the respondent of his intention to claim damages. It is therefore
clear that if the appellant wants to claim damages by resorting to Section 55 of the
Contract Act he must issue a notice to the respondent of his intention
to claim damages at the time when he accepts performance of the contract. In the
instant case, the goods were delivered to the appellant only on 30th January, 1972.
Notice was issued on 08th December, 1971, which is long prior to the date when the
goods were supplied to it and the performance of the contract was accepted by the
appellant. Since the notice was not issued at the time when the appellant accepted the
performance of the contract, the appellant cannot resort to Section 55 of the Contract
Act to sustain a claim for damages against the respondent.

4. General Manager, Northern Railway and another v. Sarvesh Chopra [2002 (4)
SCC 45]
PARA 15- "In our country question of delay in performance of the contract is governed by
Sections 55 and 56 of the Indian Contract Act, 1872. If there is an abnormal rise in prices
of material and labour, it may frustrate the contract and then the innocent party need not
perform the contract. So also, if time is of the essence of the contract, failure of the
employer to perform a mutual obligation would enable the contractor to avoid the
contract as the contract becomes voidable at his option. Where time is "of the essence" of
an obligation, Chitty on Contracts (28th Edn., 1999, at p. 1106, para 22-015) states "a
failure to perform by the stipulated time will entitle the innocent party to (a) terminate
performance of the contract and thereby put an end to all the primary obligations of both
parties remaining unperformed; and (b) claim damages from the contract-breaker on the
basis that he has committed a fundamental breach of the contract ('a breach going to the
root of the contract') depriving the innocent party of the benefit of the contract ('damages
for loss of the whole transaction')".

If, instead of avoiding the contract, the contractor accepts the belated performance of
reciprocal obligation on the part of the employer, the innocent party i.e. the contractor,
cannot claim compensation for any loss occasioned by the non- performance of the
reciprocal promise by the employer at the time agreed, "unless, at the time of such
acceptance, he gives notice to the promisor of his intention to do so". Thus, it appears that
under the Indian law, in spite of there being a contract between the parties hereunder the
contractor has undertaken not to make any claim for delay in performance of the contract
occasioned by an act of the employer, still a claim would be entertainable in one of the
following situations: (i) if the contractor repudiates the contract exercising his right to do
so under Section 55 of the Contract Act, (ii) the employer gives an extension of time
either by entering into supplemental agreement or by making it clear that escalation of
rates or compensation for delay would be permissible, (iii) if the contractor makes it clear
that escalation of rates or compensation for delay shall have to be made by the employer
and the employer accepts performance by the contractor in spite of delay and such notice
by the contractor putting the employer on terms."

5. Muhammad Habidullah vs. Bird and Company, AIR 1922 PC 178

PARA 6- the effect of Section 55 of the Act is, where the party having the option elects not
to avoid, to put the agreement after the original date on the same footing as an agreement
just before the original date. Where a specific time is stated, then that substituted date must
hold. If there is a simple waiver of the right to extension of the original time, then a
reasonable time will be the proper time for delivery. Section 55, Para 3 means that the
promisee cannot claim damages for non-performance at the original agreed time, not that
he cannot claim damages for non-performance at the extended time. In an action for non-
delivery or non-acceptance of goods under a contract of sale the law does not take into
account in estimating the damages anything that is accidental as between the plaintiff and
the defendant, as for instance, an intermediate contract entered into with a third party for
the purchase or sale of goods.

6. In State of Andhra Pradesh v. M/[Link] Engineering Enterprises, AIR 1990

AP 294
PARA 20. The first aspect to be noticed in this behalf is that the contractor did not choose
to terminate the contract on account of the Government's delay in handing over the sites.
He requested for, and agreed to extension of the period of contract, and completed the work.
It is not the respondent's case that while agreeing to extension of the period of the period
of contract he put the Government on notice of his intention to claim compensation on that
account. Section 55 of the Contract Act

PARA 21. According to this Section, it was open to the respondent to avoid the contract
on account of the Government's breach of promise to deliver the sites at a particular
time; but, he did not choose to do so, and accepted the delivery of sites at a time other
than what was agreed upon between them earlier. If so, he is precluded from claiming
compensation for any loss occasioned by such delay, unless, of course, at the time of
such delayed acceptance of the sites, he had given notice to the Government of his
intention to claim compensation on that account. It must be remembered that this
provision of law was specifically referred to, and relied upon in the counter filed by the
Government to the respondent's claim before the arbitrator. But, it is not brought to our
notice that the contractor had given such a notice (contemplated by the last sentence
in Section 55). We must make it clear that we are not entering into the merits of the
decision of the arbitrator. What we are saying is that such a claim for compensation is
barred by law, except in a particular specified situation and inasmuch as such a
particular specified situation is not present in this case, the claim for compensation is
barred. It is well settled that an arbitrator, while making his award, has to act in
accordance with law of the land, except in a case where a specific question of law is
referred for his decision."
7. M/[Link] Enterprises Ltd., vs. Union of India and another, AIR 1999 SC 3804
PARA 13& 14- it has been held that in the event the time is the essence of the contract,
question of their being any presumption or presumed extension or presumed acceptance
of a renewed date would not arise. The extension if there by any, should and ought to
be categorical in nature rather than being vague or in the anvil of presumptions. In the
event of the parties knowingly give a go-by to the stipulation as regards the time-the
time may have two several effects: (a) parties name a future specific date for delivery
and (b) parties may also agree to the abandonment of the contract-as regards (a) above,
there must be a specific date within which delivery has to be effected and in the event
there is no such specific date available in the course of conduct of the parties, then and
in that event, the Courts are not left with any other conclusion but a finding that the
parties themselves by their conduct have given a go-by to the original term of the
contract as regards the time being the essence of the contract. Further, it has also been
held that when the contract itself provides for extension of time, the same cannot be
termed to be the essence of the contract and default however, in such a case does not
make the contract voidable either. It becomes voidable provided the matter in issue can
be brought within the ambit of the first paragraph of Section 55 and it is only in that
event that the Government would be entitled to claim damages and not otherwise.