INDIA: COVID-19 AND FORCE MAJEURE

The unforeseen outbreak of COVID-19 pandemic has a devastating impact on not just human beings and countries worldwide but also continues to unleash its out reach on businesses and the commercial world at large. COVID-19 has resulted in nationwide lockdowns and restrictions on movement across countries as a step to contain this pandemic. The onset of this unanticipated coronavirus pandemic in India has not only proven to result in a humanitarian crisis, but also an economic crisis at an astounding rate.

The restrictions on the movement of goods and people,  except for those protected under the garb of‘essential services’, have raised serious and ambiguous issues on the ability of the parties to perform their obligations under the contracts they have entered into. On the other hand, businesses have been majorly impacted; their operations and contracts are being revisited to measure and assess the impact of COVID-19 on them. The parties are trying to seek permissible refuge under the ‘force majeure’ clause to avoid the liability that may result from breach of contract whilst also saving the non- performing party from the consequence of something over which it has no control.

Force Majeure

‘Force Majeure’ has its origin from a French word, which means “superior force”.The term ‘force majeure’ means an “event or effect that can be neither anticipated nor controlled.” It may also be defined as ‘events outside the control of the parties and which prevents one or both the parties from performing their contractual obligations.’

Commercial agreements generally include a force majeure clause,  which includes several events such as wars,terrorism, riots, embargos, an order of government, labor strikes, epidemic,pandemic, plague, quarantine, boycotts etc. which may be either artificial or natural such as ‘Vis Major’ or Act of God. Vis Major is defined as an “overwhelming, unpreventable event cause exclusively by forces of nature, such as an earthquake, flood or tornado.” It is to be noted that in fact, Vis Major/Act of God is a sub-set of force majeure, and therefore such a provision protects the non-performing party from the liability of non-performance or breach of contract in case of such an event.

Contracts often with the force majeure clause may include a list of events but may also state that such a list of events is not exhaustive or limited, in the sense that the parties may thereafter add “such other acts or events that are beyond the control of parties.”  Although there has been no direct ruling by the Indian courts that COVID-19 can be considered as an Act of God on the ground of argument which can be supported from the decision of the Supreme Court of India in the case of The Divisional Controller, KSRTC v.Mahadeva Shetty. In this case, the Hon’ble court held that the expression ‘Act of God’ signifies the operation of natural forces free from human intervention with the caveat that every unexpected natural event does not operate as an excuse from liability if there is a reasonable possibility of anticipating their happening

Statutory Provision of Force Majeure in India

The spirit of force majeure has been highlighted under Section 56 and Section 32 of the Indian Contract Act, 1872.  Section 32 of the Act deals with contingent contracts and inter alia provides that if a contract is based on the happening of a future event and such event becomes impossible, the contract becomes void.On the other hand, Section 56 of the Act deals with the frustration of a contract and provides that a contract becomes void inter alia if it becomes impossible, because of an event which the promisor could not prevent, after the contract is made and therefore if a contract does include a force majeure clause in a restricted form or omits to mention, then the court in a situation like this consider the applicability of Section 56.

The Central Government has also issued notifications wherein it has declared Covid-19 as a natural calamity and accordingly has declared it as a “Force Majeure Event”. It is now important to consider that a pandemic like COVID-19 falls within the ambit of a force majeure clause otherwise it would not relieve a party from the performance of their respective obligations.

In order to make the force majeure clause applicable, the ‘event’ should have a direct impact on the non- performance and thereby the party that is seeking non-performance by relying on force majeure clause has the duty to take all possible actions to mitigate and/or take any other alternate means of performance. The force majeure clause requires the parties to make reasonable efforts to perform the contract by alternative means and even in the absence of any express provision, it is implied that the party seeking to rely upon the force majeure event to exempt its non-performance will have to demonstrate in detail that it was unable to perform its contractual obligations despite having taken steps to mitigate the effect of such force majeure event.

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