Introduction

• Under Indian Contract Act, 1872, (ICA) Chapter IV of the performance of contract contains the provisions based on the time is the essence of contract.
• The effect of performance and non-performance of a contract where time is the essence is briefly explained under Reciprocal Promises (Section 51 to Section 58 of ICA) under Chapter IV itself.

What does “Time is the Essence” Mean in a Contract?

• Time is the essence' is a notable principle in contract law that emphasizes situations where a contract may fail if the parties have expressed the intention that performance must occur at or before a specific time, but that deadline is not met.
• It creates an obligation on the parties to complete their obligations based on the stipulated time in a contract.

What is the Provision Related to Contract Where Time Is the Essence?

• Section 55 of the ICA is divided into three Parts
  • Effect of failure to perform at fixed time, in contract in which time is essential
    • When parties contract to do certain thing or things at a particular time or before a particular time and the promisor fails to do so.
    • The Promisee can make the contract voidable if time is the contract's essence.
  • Effect of such failure when time is not essential
    • When time is not the essence of contract then Promisee shall not be at option to make the contract voidable.
    • The Promisee however shall be entitled for the compensation if any loss is incurred by him due to the Promisor.
  • Effect of acceptance of performance at time other than that agreed upon
    • When the Promisee accepts the performance of the contract other than the agreed time then he shall not be entitled for the compensation.
    • Unless he has given notice to the Promisor indicating his intention for accepting such performance.

What are the Contracts where Time is the Essence?

• Business contracts
• Construction contracts
• Sale transactions
• Land and Property Dealing
• Allotment of plots
• Renewal rights
• Carriage by air
• Sale of shares

What is the Importance of Intention of the Parties?

• Mere mentioning clause related to time is an essence shall not amount a contract where time is an essence.
• The nature of Property, Contract, other terms of the contract and surrounding circumstances need to be determined to understand the intention of the parties.
• The burden of proof that the contract has the time as essence is upon the party claiming it.

What are Landmark Judgements Related to “Time as the Essence of Contract”?

• Bhudra Chand v. Betts (1915): In this case the defendant requested for extension of time for performance of the contract and even after extension of time he failed to perform his promise. The Court held that the plaintiff is entitled for the compensation as in this case, time is the essence because the defendant would have not requested for extension of time if it was not a kind a contract which needed to be performed in the stipulated time.
• McDermott International Inc v. Burn Standard Co. Ltd. (2006): In this case the Supreme Court held that in construction contracts time is the essence to complete the work when special features exist.
• Kochappu v. Somasundaram Chettiar (1991): In this case it was held that in an agreement to sell immovable property where certain conditions have to be fulfilled within a stipulated time then such contracts have time as the essence.
• Welspun Specialty Solutions Ltd. v. ONGC (2022): In this case the Supreme court held that merely mentioning the clause that time is an essence would not amount to a contract having time as its essence.
  • Certain Criteria to be determined before considering a contract where the time is an essence as:
    • The nature of Property
    • The nature of the Contract
    • Other terms of the contract and surrounding circumstances
    • Intention of the parties

Conclusion

In the contracts where time is an essence the intention of the parties holds greater importance. It is expected that either party will perform its obligation at the stipulated time. If any of the parties fail to do so, then the effect shall be determined based on Section 55 of ICA.