Essential Clauses In A Contract – Force Majeure In Light Of Regulatory Shifts And Contractual Resilience.

Introduction

In August 2025, Dream11, an Indian fantasy sports platform, terminated its Rs. 358 Crore sponsorship agreement with the Board of Control for Cricket in India ("BCCI"). Ordinarily, such an abrupt withdrawal from a high value contract would attract allegations of breach and invite claims for damages. However, this instance unfolded no disputes, arbitration or litigation.

The explanation for the above lies in the contractual architecture, specifically, the presence of a 'force majeure' or 'change in law' clause. This Article seeks to address how contractual foresight can mitigate risks, particularly in sectors exposed to regulatory volatility.

The Trigger: The Promotion and Regulation of Online Gaming Act, 2025 (the "Act")

The Act introduced sweeping restrictions, including a ban on all real money games, that is Dream11's core business and puts a prohibition on the advertisement or promotion of such gaming platforms.

For Dream11, whose brand visibility relied heavily on cricket sponsorships, the Act rendered the performance of the sponsorship agreement with the BCCI not only commercially futile but unlawful. Exiting the sponsorship agreement was the only commercially rational option. The ability to do so without liability suggests that the sponsorship agreement contained a clause expressly covering "change in law" or "governmental action", permitting termination without penalty.

Legal Framework: Frustration vs. Force Majeure

It is important to highlight the distinction between the statutory doctrine of frustration under Section 56 of the Indian Contract Act, 1872 ("ICA") and contractual force majeure provisions.

Frustration under Section 56 of the ICA

Section 56 of the ICA provides that a contract becomes void if its performance is rendered impossible or unlawful after it is entered into. However, the Indian courts have consistently adopted a narrow interpretation of the term "impossibility".

• In Satyabrata Ghose v. Mugneeram Bangur & Co.¹, the Supreme Court clarified that "impossibility" under Section 56 does not mean literal impossibility alone but also covers impracticability when an unforeseen event strikes at the root of the contract. However, the Court emphasised that the threshold remains high.
• In Alopi Parshad & Sons Ltd. v. Union of India², the Supreme Court rejected the argument that a contract could be discharged merely because its performance had become more onerous or unprofitable due to economic changes.

Thus, frustration operates only in exceptional circumstances where performance is rendered objectively impossible or illegal, not merely difficult or commercially undesirable.

Force Majeure as a Contractual Mechanism

Unlike frustration, force majeure arises from the contract itself. Parties are free to allocate risks in agreement and define what events could excuse performance.

• The Supreme Court in Energy Watchdog v. CERC³ drew a clear distinction between Section 56 and contractual force majeure. The Court held that if a contract contains a force majeure clause, the scope of relief must be determined within its four corners, not by invoking frustration under Section 56 of ICA.

Accordingly, where a contract expressly covers "change in law" as a force majeure event, parties may lawfully suspend or terminate obligations without invoking Section 56 of the ICA.

In Dream11's case, reliance on Section 56 of the ICA alone may have been uncertain, since courts could argue that sponsorship was still possible, even if commercially irrational. The decisive factor, therefore, was contractual foresight, a negotiated clause, recognising regulatory change as a valid ground for termination.

Common gaps in drafting a force majeure clause.

Despite its importance, force majeure drafting in Indian contracts often suffers from shortcomings, including the following:

1. Generic language: Clauses often recite boilerplate terms like "acts of God" or "governmental action" without tailoring to industry risks.
2. Ambiguity on consequences: Clauses fail to specify whether the effect of force majeure is suspension, renegotiation, or termination.
3. No distinction between impossibility and impracticability: Many clauses do not address situations where performance is technically possible but commercially or legally impracticable.
4. No reference to duration: Clauses often fail to address what happens if the force majeure event is prolonged. For example, what happens beyond a period of 30, 60 or 90 days from the occurrence of a force majeure event. This can result in the contracts being stuck in a prolonged standstill.

Accordingly, the drafting of force majeure clauses should be industry specific and one that anticipates regulatory volatility, particularly critical in sectors like gaming, fintech, and healthcare. The Dream11 case illustrates that legislative change can be as disruptive as natural disasters or pandemics, a reminder that contracts must anticipate not just physical contingencies but also policy driven upheavals.

Lessons for Contracting Parties

For both legal counsel and commercial stakeholders, the Dream11 case provides clear guidance, as following:

1. Treat force majeure as central, not peripheral – Force majeure clauses should be carefully negotiated, not buried as boilerplate.
2. Incorporate "change in law" explicitly – Particularly in regulated industries, this is a non-negotiable safeguard.
3. Define consequences with precision – Contracts should distinguish between temporary suspension and permanent discharge of obligations.
4. Recognise the limits of Section 56 of the ICA – Judicial relief under frustration is narrow; contractual drafting offers a broader shield.
5. Plan for policy risk – India's regulatory environment is dynamic, making legislative change one of the most foreseeable risks.

Conclusion

Dream11's seamless exit from a Rs. 358 crore sponsorship deal exemplifies how foresight in drafting can shield parties from protracted disputes. While doctrines like frustration under Section 56 of the ICA provide a limited statutory safeguard, contractual provisions, particularly force majeure and change in law clauses offer a more reliable mechanism for risk allocation.

As the Supreme Court observed in Energy Watchdog v. CERC⁴, parties are bound by the bargain they strike. The Dream11 case reaffirms this principle – the law may provide narrow relief, but a well drafted contract can provide certainty, flexibility as well as protection.

Footnotes

1. AIR 1954 SC 44

2. AIR 1960 SC 588

3. (2017) 14 SCC 80

4. id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.