Covid 19 is the best example to understand Doctrine of Force Majeure. Covid19 has
either made performance difficult or impossible. It has caused commercial
hardship to many parties in performance of their contracts, while rendering
others completely impossible of performance of contractual obligation. So to
perform contractual obligations one needs to enter into an contract first.
contract is said to be an agreement when two or more parties agreed to create
obligations that are either enforceable or recognizable at law. So when
execution of these obligations may be affected by unforeseen or supervening
events, i.e., events which are unexpected or incapable of being known in advance
by either of the parties and which ultimately discharge the parties from their
contractual obligations by Force majeure which is a French term that means
Ordinarily, this implies a severe or a fundamental change to the
substance of the contract that is brought about by an event that cannot be
anticipated by the parties and beyond to control, that results in
non-performance of their contractual obligations. The COVID-19 pandemic or the
resultant lockdown, won't be treated as force majeure
, if there are different
methods of performing the terms of the contract. The performance of the contract
actual obligation might be suspended or extended during the operation of 'force majeure' event.
Parties have the option of renegotiating and modifying the
written agreement terms, termination is the last step if the force majeure event
continues beyond the time prescribed under the contract.
Therefore, considering COVID-19 lockdown a 'force majeure' event will depend on
the contractual obligations binding the parties and the manner of its
Legal Provision in India
In India, the belief of force majeure is not codified into law, it is necessary
to coin this as a part of the contract. Scores of precedents have address that
the contract overrides the regulation and therefore 'force majeure' clauses are
now part of the standard clauses in any contract along with confidentiality and
dispute clauses. Several examples of force majeure clauses exist. One such
instance is as under:
- The event of 'force majeure' such as an act of God, fire, earthquake,
flood, accident, an act of governmental authority, lockdown or any event
which is beyond the reasonable control for any of the parties that hinder
the performance or render it incapable to perform it.
- The duration of force majeure event should be between 15-60 days.
- The way during which this clause must be invoked as well as notices etc.
- Suspension or termination of contract in case the event continues beyond
the stipulated time period.
Majority of the 'force majeure'
clauses, do not specifically mention 'pandemic'
or perhaps 'epidemic'
for that matter, as an event. Essentially, COVID-19 will
find a mention in contracts in the form of epidemic, pandemic, or perhaps
natural calamity. However, it is noteworthy that wherever the failure to perform
an obligation is primarily due to lockdown implemented by the Government, the
force majeure clause must also contain term 'lockdown', for it to be invoked.
According to Indian statutes the concept of force majeure has not been defined,
but this concept has been dealt below the Section thirty two of the Indian
Contract Act, 1872 managing contingent contracts it refers to:
contracts dependant on an event happening Contingent contracts to do or not to
do something if any unsure future event happens, can't be implemented by law
unless and till that event has happened. If the event becomes beyond reasonable
control, such contracts become void.”
In the written agreement read, the belief
provides a temporary escape to the parties under the contract, to perform the
contractual obligations on the occurrence of a inevitable accident event, that
renders a contract void once an occasion upon that performance of contract is
contingent becomes not possible.
Does your Force Majure contract offer a remedy?
- An unexpected/unforeseen intervening event occurred;
- The parties to the agreement assumed that such an occurrence won't
- Such an occurrence has created the performance of the obligations below
the contract impossible or impracticable;
- The parties have taken all such measures to perform the obligations
below the agreement or at least to mitigate the damage; and
- The affected party claiming relief below cataclysm, can have the burden
of proof to point out that the inevitable accident event has affected such
party's performance of the contract.
If your contract does not contemplate the occurrence of an event that renders
the performance of the contract not possible or felonious, and therefore the
event happens, the remedy would possibly consist section fifty six of the
Contract Act. However, a claim of frustration it'll be useful for parties to
hunt legal recommendation on establishing or defensive a claim supported
frustration of contract, as this can involve an analysis of things like the
impact of the event, the thing of the contract etc.[i]
In distinction, Section
fifty six may have very little application wherever parties expressly ponder
within the contract, the recourse to be adopted by them within the event there's
any amendment in circumstances or an incident of an occasion that renders it not
possible for the parties to perform the contract. To the extent that the parties
have already contemplated the implications of a supervening event in their
contract, identical would stay binding on the parties.
For example, it's open
for the parties to agree that if on account of any cataclysm condition it's not
possible to perform a contract, a celebration would compensate the opposite for
the efforts created even so that it's not possible to completely perform
identical. In such Nishith Desai Associates 2020 Impact of Covid-19 on Contracts
Indian Law necessities seven cases, the written agreement provisions would
prevail over the plain language of Section 56 of the Contract Act.
claims will be defended on many counts, one being failure to satisfy the notice
demand. Similarly, if the parties have contemplated the chance of AN intervening
circumstance which could have an effect on the performance of the contract,
however have expressly stipulated that the contract would stand despite such
circumstances, there will be no case of frustration as a result of the premise
of the contract would be to demand performance despite the happening of a
selected event. It can be tough to make a case for performance in such cases.
However, defences square measure accessible to parties seeking to make a case
for non-performance, one in every of them being unequal talks powers between the
parties to the contract. In some cases, wherever parties could have expressly
provided for the case of a restricted interruption through cataclysm, however a
supervening event renders performance indefinitely not possible for an
indefinite amount a celebration may build a claim for frustration of the
To assess whether or not Covid-19 may trigger the relevant force majeure clause, or frustrate the contract, it'll be vital to gauge the
operational aspects of the relevant industrial dealing and therefore the sort of
force majeure clause within the contract
Formal requirements in a very potential case of inevitable accident, contracts
could need fulfilment of formal necessities by a party proposing to justify
itself from non-performance. For example, a contract could need a party to issue
a notice informing the opposite party that a inevitable accident has been
triggered by the prevalence of an occasion coated below the cataclysm clause.
Throughout the operation of the inevitable accident event, a celebration may be
needed to report or consult frequently with the opposite party. A celebration
can also be needed to point out proof of mitigation and calculable timings for
managing the actual event of cataclysm.
AN instance of a cataclysm clause with
notice necessities is provided below:
The Party suffering a cataclysm event
shall: a. inform at once the opposite Party by notice, giving details of the
cataclysm event; b. inform the opposite Party once the cataclysm event is at an
finish and resume performance of this agreement immediately thenceforth unless
the Parties have determined otherwise. Ought to the hindrance, impossible
performance, or delay resulting from such force majeure event persists beyond a
period of ninety (90) calendar days, and therefore the Parties have didn't reach
an agreement or notice means that to overcome the force majeure event, then any
of the Parties could request the termination of the agreement by means of a
- Bombay High Court: Invocation of LC's: Standard Retail Pvt. Ltd. V.
G.S. Global Corp April 8, 2020
- Steel importers appeared in Apex Court seeking restraint of encashment
of letters credit provided to Korean based exporters claimed because of lock
down performance of contract become impossible;
- Bombay High Court refused the injunction: letters of credit are
independent contracts with the bank; distribution of steel was recognised by
government advisories as an essential service no restriction on movement and the
lockdown was for from limited period;
- The clause of force majeure was only to aid exporters, this clause
is not for importers. [ii]
- Bombay High Court: Transcon Iconica Pvt Ltd. v. ICICI Bank April 11,
- Writ petitions filed by Transcon Sky City and Trancscon Iconica
which had availed financing facilities from ICICI Bank defaulted on payments due
on January 15, 2020 and February 15, 2020;
- Determination of whether the moratorium is excluded for NPA
- Bombay High Court held that period from March 01, 2020 to May 31, 2020
during which there is a lockdown will stand excluded until the lockdown is