COVID-19 has been declared a public health emergency of International Concern by
the World Health Organization on January 30, 2020. Subsequently on 11th March
2020, COVID-19 has been assessed to be a pandemic by WHO. To curb the effects of
the contagious virus, India has imposed a lockdown across the country. India has
constrained the fundamental right to movement available to all the citizens
under Article 19(1) (d) by imposing reasonable restrictions by virtue of Article
The outbreak of the corona virus has social and economic impacts. The
immediate results are supply-chain disruptions, unwanted delay in performance
and carrying out of the ‘contractual’ obligations. From construction contracts
to manufacturing and supply agreements, the variety of contracts which are
likely to be affected by the spread of COVID-19 is undoubtedly humongous. The
paper intends to discuss about its impact on commercial contracts disrupting the
performance of the contractual obligations.
Performance of the contractual obligations is the best way to discharge a
contract. By default, the defaulting party has to pay damages to the aggrieved
party for non-performance of the contract.
However, the defaulting party may be relived in certain situations where default
has taken place due to some unavoidable circumstances beyond the control of the
parties. The outbreak of the pandemic COVID-19 is such a situation where the
parties can be exculpated from their contractual obligations either by including
a contingent clause of Force Majeure by virtue of Section 32 of Indian Contract
Act, 1872[i]or by virtue of Section 56 of the Indian Contract Act, 1872[ii].
Situations where the defaulting party is absolved for non performance of
Non Performance of contract can be excused in two situations by virtue
of Section 32 and Section 56 of Indian Contract Act:
- Contracts where the arising of such situation was anticipated and
reasonable measures were taken to allocate the risks by including a force majeure clause.
- Situations where it is not possible for the parties to anticipate due to
its uncertainty and hence allocate the back-end risks. Doctrine of
frustration comes to the rescue in such situations.
Section 56 of Indian Contract Act, 1872 covers Doctrine of frustration and
contracts embodying a Force Majeure clause to an extent is governed by Section
32 of Indian Contract Act, 1872[iii] which provides for Enforcement of contracts
contingent on an event happening.
In non-legal terms the effect of both are somewhat similar. But it is actually
different when it is looked at in terms of formation of an agreement regarding
allocation of risks. Also the implications of both are different in terms of
labilities. Doctrine of frustation is more restrictive in nature comparatively.
- Force Majeure is a specific contract clause in which ex-ante risks has been
allocated. It only applies where the parties have elected to include it within
the contract. A force majeure clause cannot be implied under Indian law. It is
strictly construed according to the words drafted in a contract and has nothing
to do with the intention of the parties.
- Doctrine of Frustration applies where the performance of a contract
which was initially possible but becomes impossible or impracticable by
reason of subsequent events. This doctrine applies in situations where risks
are not been allocated regarding a particular situation.
Force majeure clause encompassing a pandemic
The expression force
majeure is borne out from the Code Napoleon
and has a
wider meaning than act of God
. Force majeure, a French term which means
is a contractual clause which absolves a party from something
it promised in a contract because of reasons beyond its control. Contracts
encompassing such clause can be termed as a contingent contract by virtue
of Section 32 of Indian Contract Act, 1872. There is a certain list of events
which the Force Majeure clause can cover. What all events are covered by this
clause depends on the negotiation done by the parties based on their
There are two types of Force Majeure events:
- Natural Force Majeure events:
Act of God, including, but not limited to lightning, drought, fire and explosion
(to the extent originating from a source external to the Site), earthquake,
volcanic eruption, landslide, food, cyclone, typhoon, tornado, or exceptionally
adverse weather conditions which are in excess of the statistical measures for
the last hundred (100) years.
- Non-Natural Force Majeure events:
Any act of war (whether declared or undeclared), invasion, armed conflict or act
of foreign enemy, blockade, embargo, revolution, riot, insurrection, terrorist
or military action; or Radioactive contamination or ionizing radiation
originating from a source in India or resulting from another, lockouts,
slowdowns, prolonged shortage of energy supplies, and acts of state or
governmental action prohibiting or impeding any party from performing its
respective obligations under the contract.[iv]
Force Majeure clause should include four sine qua non factors in order to
absolve the parties for non-performance of the contractual obligations due to
- Definitive part of the force majeure clause should cover:
# What happens when a pandemic occurs
# Who can suspend the performance; and
# What happens if the pandemic continues for more than a specified period of
- Evidence that the pandemic and its subsequent effect was unforeseeable
at the time of execution of the contract.
- The party claiming force majeure is usually under a duty to show that it
has taken all reasonable endeavors to avoid or mitigate the impact of COVID-19
on the performance of the contract.
- Proof of causation between the outbreak of COVID-19 and the resultant
non- performance of the contract.
- Evidence that the effects of the pandemic are so substantial that it
affects the root of contract in query.
The mere presence of Force Majeure clause does not give a blanket protection
against any non fulfillment of contractual terms.
Situations where Force Majeure clause
will not be attracted and parties will not be exonerated from the liabilities:
Effect of Force Majeure clause when invoked:
- Contracts where the event has rendered performance relatively more
financially burdensome or more expensive.
- Where time is not the essence of contract, hence it won’t be majorly
affected in case obligations are performed after the outbreak ceases to exist.
- Contracts where the outbreak of COVID 19 is not the sole reason of
non-performance and there are some other events which do not attract the force
- Where there is some other possible ways of performing the liabilities
arising out of the contract.
- Relieves the party from performing the contractual obligation subsequent
to the happening of such event, or
- Temporarily suspends the party from performing the contractual
obligation until the situation prevalent due to the pandemic ceases to
If Force Majeure clause encompasses the happening of the following events, the
parties may be absolved from their liabilities due to non-performance of the
contract because of the COVID-19 outbreak:
- Pandemic alike situation: WHO has declared the coronavirus disease as a
Even if a Force majeure clause lists act of god, a court may or may not agree
that COVID-19 is a covered event; an Act of God alone may be too broad to
excuse a party from performance.
- Governmental actions or actions taken by public authority: Due to this
outbreak, government has imposed a lockdown across the country, thereby has
put a reasonable restriction on the fundamental right to movement. Also,
Section 144 CrPC[v] has been enforced in the country prohibiting public gathering.
If the contract requires supplies to be obtained from a high-risk area that
is currently subject to shut-down or travel restrictions, and no alternatives
are available, the requisite level of impact and causation are more likely to be
View of Supreme Court on invocation of Force Majeure clause in a contract:
In a very recent case, Energy Watchdog v CERC
[vi], the honorable Supreme Court
has held that:
force majeure clauses are to be narrowly construed. On a
construction of the force majeure clause in the PPA, Hindrance
could mean an
event wholly or partly preventing performance. Since the fundamental basis of
the contract in this case was never dislodged and since alternative modes of
performance were available even though at a higher price, there was no force majeure. Further, since there was a specific clause addressing force majeure,
Section 56 did not have any application.
Application of Force Majeure clause in Commercial contracts in present day
- The Ministry of Finance, Government of India vide an office memorandum
dated 19.02.2020 recently clarified with respect to Manual for
Procurement of Goods, 2017, and declared that in the event of any
disruption in the supply chains due to spread of corona virus in China or
any other country, such situation will be covered in the Force majeure Clause (FMC) in the contract. It is further
clarified that such a situation should be considered as a natural calamity
and Force Majeure clause may be invoked, wherever considered appropriate[vii]
- Similar initiative was taken by the Ministry of New & Renewable Energy
with respect to ‘solar project developers’. The Ministry vide an Office
memorandum dated 20.03.2020, recently declared that whoever failed to meet
contractual obligation deadlines on account of COVID -19, can invoke the force majeure clauses
to avoid any financial penalties.[viii]
- Force Majeure clause in Life insurance policies:
The Life Insurance Council of India has announced that all life insurance
companies, both public and private, will process all coronavirus-related death
claims. According to a press release from the Life Insurance Council, The
Council also confirmed that the clause of Force Majeure will not apply in case
of COVID-19 death claims. [ix]
- Eicher Motors, the maker of Royal Enfield brand motorcycles, has suspended
payments to a few of its suppliers, invoking is the force majeure clause[x].
Application of doctrine of frustration in contracts due to the apocalyptic
spread of the lethal Corona virus
Although principle of frustration is subject to a very high threshold, it is
possible to envisage a range of factual circumstances in which COVID-19 and the
governmental measures taken in response could be construed as a frustrating
event, provided it fulfills all the criterion discussed below. Section 56 of
Indian Contract Act, 1872 deals with Doctrine of frustration. Doctrine of
frustration is also known as:
- Positive law
- Doctrine of narrow limits:
This doctrine can be applied in the following cases:
- If the object of the contract has become impossible to perform due to
the unforeseen event (Covid-19).
- Purpose of the contract has been frustrated because of the outbreak of
the lethal coronavirus.
- The focus is on the parties’ specific contractual obligations and
whether they have ‘radically changed’ as a result of the spread of Covid-19
to the extent that requiring a party to comply with its strict contractual
obligations would mean requiring it to do something fundamentally different
from that which it originally promised to do.
- If the contract becomes illegal as a result of emergency legislation
introduced to deal with the pandemic (COVID-19).
Section 56 will come into the picture only when:
- a force majeure clause is not introduced in a contract. Hence the
parties to the contract are left to the mercy of the narrow common law
contract doctrines of impracticability and frustration of purpose, which rarely
result in excuse of performance.
- a force majeure clause is included but it does not cover a pandemic and
the subsequent restrictions imposed by the government.
Doctrine of Frustration as per section 56 of Indian Contract Act does not apply
in the following situations:
- Where impossibility is self-induced.
- Where impossibility is due to certain act of the parties.
- Where there is some other possible ways of performing the contract.
- Where the occurrence of the event (pandemic) does not substantially
affect the roots of the contract.
- Commercial impossibility:
Contract cannot be frustrated because of:
- Exorbitant price
- Failure to yield profit or financial gain
- Performance becoming onerous or burdensome
Effect of Doctrine of Frustration when invoked:
- Contract becomes unenforceable or void by virtue of Section 56 of Indian
- It is not possible to suspend the performance of a frustrated contract
only for the duration of the frustrating event (unlike some force majeure clauses).
Indian case laws clarifying the concept of frustation:
- The basis of the doctrine of frustration was explained by Supreme Court
in the case of Satyabrata Ghose v. Mugneeram[xi]:
When a contract contains a force majeure clause which on construction by the
Court is held attracted to the facts of the case, Section 56 can have no
Justice Mukherjee held that the basic idea upon which doctrine of frustration is
based is that of the impossibility of performance of the contract and the
expression frustration and impossibility can also be used as synonyms.
The court further clarified that Impossibility u/s 56 doesn’t mean
literal impossibility to perform (like strikes, commercial hardships, etc.)
but refers to those cases where a supervening event beyond the contemplation
and control of the parties (like the change of circumstances) destroys the
very foundation upon which the contract rests, thereby rendering the
contract impracticable to perform, and substantially useless
in view of object and purpose which the parties intended to achieve through
- M/s Alopi Parsad and sons v Union of India[xii]
It was held that:
The courts have no general power to absolve a party from the performance of
his part of the contract merely because his performance has become onerous
due to the occurrence of unforeseen events.
- Naihati Jute Mills Ltd v Hyaliram Jagannath[xiii]
To hold a contract to be frustrated, the change in events or circumstances
must be so fundamental as to be regarded by law as striking at the root of
- Energy Watchdog v CERC [xiv]
This case summarizes the concept of frustration:
- If contract includes a force majeure clause, Doctrine of frustration
will not be applicable.
- Application of Doctrine of Frustration must be within narrow limits.
- Rise in expense will not frustrate the contract
- Doctrine of frustration will not be applicable so long as the
fundamental basis of contract remains the same.
Although principle of frustration is subject to a very high threshold, and is
invoked very rarely, it is possible to envisage a range of factual circumstances
in which COVID-19 and the governmental measures taken in response could be
construed as a frustrating event, provided it fulfills the entire criterion
discussed above. A contract will not normally be frustrated if the relevant
event was foreseen at the time that the parties entered into their contract.
Given the rapid spread of Covid-19, it is unlikely to have been foreseen by the
parties other than in very recently concluded agreements.
Lauritzen AS v. Wijsmuller BV[xv]:
It has been held that the ‘object of the doctrine of frustration was to give
effect to the demands of justice, to achieve a just and equitable result, to do
what is reasonable and fair, as an expedient to escape from injustice where such
would result from enforcement of a contract in its literal terms after a
significant change in circumstances.'
This indicates that in times of crisis the doctrine of frustration may be
applied, but only in cases where it is almost impossible to fulfill the
Non-performing parties may seek to rely on contractual force majeure provisions
or the common law rules on frustration so as to avoid liability for what would
otherwise be a breach of contract by virtue of Section 32 and Section 56 of
Indian Contract Act, 1872.
The impact of the COVID-19 outbreak on contracts largely depends on the term of
the contract. In particular, whether the contract contains a force majeure clause
and if it does, whether the COVID-19 outbreak could fall within the terms of
that clause. Performance of the contract, including payments under the
contract, is usually suspended during the period of the force majeure event. The
ability to terminate the contract for a force majeure event may depend on the
length of time that the event persists. At this stage it is unknown how long the
current circumstances arising from the COVID-19 outbreak will last.
If a contract does not contain a force majeure clause covering a pandemic and
subsequent governmental orders, doctrine of frustration of contract can be
applied however its application is quite limited. For invoking Doctrine of
Frustration, the event must be unforeseen and must make performance of the
contract impossible, or it must radically change the principal purpose of
entering into the contract. Whether the doctrine can be invoked depends on how
the COVID-19 outbreak has affected the performance of the contractual obligation
and therefore has to be construed according to the facts of each case.
Frustration of contract results in the termination of the contract.
By Poulomi Sen
- Section 32, Indian Contract Act, available
- Section 56, Indian Contract Act, available at, https://indiankanoon.org/doc/171398/
- Section 32, Indian Contract Act, available at, https://indiankanoon.org/doc/124768/
- Energy Watchdog v Central Electricity Regulatory commission and ors, ,
(2017)14 SCC 80
- Section 144 Code of Criminal Procedure, available at, https://www.oecd.org/site/adboecdanti-corruptioninitiative/46814340.pdf
- Energy Watchdog v Central Electricity Regulatory commission and ors,
available at, , (2017)14 SCC 80
- No. F18/4/2020-PPD, Ministry of Finance
- No. 283/18/2020-GRID SOLAR, Ministry of New & Renewable Energy (MNRE)
- Force majeure clause won't apply to coronavirus death claims in life
insurance policies, available at, https://economictimes.indiatimes.com/wealth/insure/life-insurance/force-majeure-clause-wont-apply-to-coronavirus-death-claims-in-life-insurance-policies/articleshow/75004294.cms
- Eicher Motors' Royal Enfield invokes force majeure clause to select
vendors, available at, https://economictimes.indiatimes.com/industry/auto/auto-news/eicher-motors-royal-enfield-invokes-force-majeure-clause-to-select-vendors/articleshow/74902387.cms?from=mdr
- Satyabrata Ghose vs. Mugneeram Bangur & Co, 1954 AIR 44
- M/s Alopi Parshad & Sons Ltd. v. Union of India, 1960 (2) SCR 793
- Naihati Jute Mills Ltd v Hyaliram Jagannath, 1968 (1)SCR 821
- Energy Watchdog v Central Electricity Regulatory commission and ors,
(2017)14 SCC 80
- Lauritzen AS v. Wijsmuller BV, The Super Servant Two  1 Lloyd's LR 1 at 8
, student of Rajiv Gandhi School of Intellectual Property Law, IIT