The unforeseen and unpredictable Covid-19 pandemic has adversely impacted the
performance of a contract and has made it impossible for the parties to the
contract to act as per its provisions all across the world. Companies and
businesses would be under the impression that these hopeless situations need
some desperate solutions; well it may be the case or may be not! As the legal
cliché says, it depends
In any case of some obligation to perform under a contract, it will completely
be contingent on an accurate analysis of the facts and principle related to the
underlying contract. Through the medium of the essay I made an attempt to
emphasis on the impact of Covid -19 on the performance of contracts which are
governed by Indian laws and suggest the probable solution to the situation.
The day is gone
the learned Judge of the Court of Appeal went on to
when we can excuse an unforeseen injustice by saying to the sufferer 'it is your
own folly, you ought to have put in a clause to protect yourself. We no longer
credit a party with the foresight of a Prophet or his lawyer with the draftsman
ship of a Chalmers. We realise that they have their limitations and make
allowances accordingly. The old maxim reminds us that he who clings to the
letter clings to the dry and barren shell and misses the truth and substance of
the matter. We have of late paid heed to this warning, and we must pay like heed
And even then, the House of Lords articulated and showed condemnation of the way
in which the law was stated above with respect to unforeseen, unpredictable
events and contractual obligations, and stated that, “it is a matter of
construction of the contract”
The unanticipated corona virus pandemic has broken up our lives to a great
extent. It has proved to be powerful impedance to personal, professional,
financial and commercial activities of homo sapiens.
Such conditions are not only preventing best performance of contracts at all
levels but also making performance impossible. This article focuses on impact of
Covid-19 on performance of contracts, underlying Indian law. In the reference of
lines quoted above from an English judgment, the question which must be
addressed is that whether non - performance of a contract due to impossibility
purely depends on clauses and construction of respective contracts, and if its
true then can companies and businesses rescue their obligations and save their
Companies need to keenly and carefully observe their contracts in order to
calculate the risk of being liable due to the impossibility of performance in
Impossibility To Perform The Contract After Execution
As already stated this corona virus has just made the performance of contract
either difficult or impossible, it has added on to the difficulties and
hardships of the parties to the contract in fulfilment of the contractual
obligations and in some cases caused complete in capability of performance.
Section 56 of Indian contract act, 1872 (ICA) talks about the Impossibility of
performance after execution of a contract. Section 56 is in Chapter IV of the
ICA which creates a nexus to performance of contracts and provides the basis to
deal with one category of circumstances under which performance of a contract
can be dispensed with. As per section 56 of ICA,
“Section 56 . Agreement to do impossible act —an agreement to do an act
impossible in itself is void.
Contract to do act afterwards becoming impossible or unlawful—A contract to do
an act which, after the contract is made, becomes impossible, or, by reason of
some event which the promisor could not prevent, unlawful, becomes void when the
act becomes impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or
Where one person has promised to do something which he knew, or, with
reasonable diligence, might have known, and which the promisee did not know, to
be impossible or unlawful, such promisor must make compensation to such promisee
for any loss which such promisee sustains through the non-performance of the
At first look, the provision of law focused upon in 2nd paragraph of Section 56
would appear to deem fit and come into play fully in the current scenario of
- But is it the only possible way to look at it
- Would this ‘impossibility’ of performance straight away make all the
contracts void under Indian law, from the very date of the occurrence of
- What’s the scope of ‘impossibility?
- Who is best one to determine it?
- How the risk will be calculated in such situations?
- Is there any provision in the Indian contract act
which save the contracts from becoming void in such circumstances?
To understand the nuance remedies available to parties to the contracts in
current circumstances, its important to understand the concepts of force majeure
Impossibility & Force Majeure
Maximum number of contracts expressly have clauses and terms within it as
per which the contract would stand suspended or discharged if such
circumstances come into being. In such situations, the contract would be
dissolved according to the terms of the contract itself. In India such cases
would be dealt with according to the section 32 of the Indian Contract Act
which talks about contingent contracts or similar other provisions contained
in the Act, whereas in English laws these cases will come under the cases of
frustration and will be dealt according to it.
Section 32 of the Indian Contract Act is stated below:
“32. Enforcement of Contracts contingent on an event happening - Contingent
contracts to do or not to do anything if an uncertain future event happens,
cannot be enforced by law unless and until that event has happened. If the event
becomes impossible, such contracts become void.”
There is a possibility that a circumstance arises where an unpredictable and
unforeseen event happens which makes the performance of the contract impossible
for a certain period of time in which the event is active, thereby providing a
chance of resuming the performance of contractual obligations after the event
becomes inactive. In such situations the concept of force majeure comes into
As per Black’s Law Dictionary, the term force majeure means an effect that
can’t be controlled and anticipated. It is used in reference of all
situations independent of the will of man and it is not in his capacity to
control and such force majeure is adequate to rationalize the non-execution of a
contract. A force majeure clause in contracts reads as below:
“None of the Parties shall be liable for any delay, failure in performance, loss
or damage due to Force Majeure events. During the performance of the Agreement
events of Force Majeure may occur, such as, but not limited to, war, fire,
flood, earthquake, accident, riot, strike, explosion, lockout, act of God, act
of Government authority, accidents and/or damage, decisions from the Customer,
or any event beyond the reasonable control of any of the Parties, which by their
effects render impossible or hinder the performance of any obligation or the
exercise of any rights under this Agreement or the normal operation of the
Company’s industrial installations, or cause the failure or omission to comply
with this Agreement.”
As per English law, force majeure is a contractual stipulation according to
which a party to the contract is obliged to terminate the contract or is
exempted from performance upon the occurrence of specified events which is not
in the control of the party to the contract. To prove that the event was the one
and only reason due to which the party is incapable to perform the contractual
obligations it is vital to establish a nexus of causation between the
impossibility of performance and the event.
As per Indian law, analogous to English law, force majeure comes into existence
from the contract law. This clause is incorporated to save the suffering party
from result of breach which happens due to the event over which the party has no
control. So the accurate analysis of all, the character and general terms, the
events which precede or succeed, and the facts of each case will decide that
force majeure can come into force in order to excuse liability for no
performance. It depends on the party to the contract to bring the force majeure
clause into force to save itself from performance of any contractual obligation,
in circumstances envisaging force majeure.
On 19th February 2020, the Ministry of Finance issued an Office Memorandum, with
reference to Covid-19, on ‘Force Majeure Clause’ providing that “coronavirus
should be considered as a case of natural calamity and force majeure may be
invoked, wherever considered appropriate, following the due procedure (in the
Office Memorandum)”. It also provides that “a force majeure clause does not
excuse a party’s non-performance entirely, but only suspends it for the duration
of the force majeure.
The firm has to give notice of force majeure as soon as it
occurs and it cannot be claimed ex-post facto…If the performance in whole or in
part or any obligation under the contract is prevented or delayed by any reason
of force majeure for a period exceeding ninety days, either party may at its
option terminate the contract without any financial repercussion on either
Parties to abovementioned contracts should obey the Memorandum but it may not
serve as a binding document. In case a dispute arises with the acceptance and
rejection of the Office Memorandum, it will completely depend on the Courts or
arbitral tribunals to understand the force majeure clause and declare if it
covers any stipulation for evidence in terms of office memoranda as above in
order to prove a case of force majeure.
- Impossibility & Frustration
Impossibility and frustration are very often used as interchangeable
expressions. However, it's necessary to know that the common law
philosophical system of frustration as propounded in English law is distinct
from the statutory provision of supervening impossibility and unlawfulness under
Indian law. This affects the way during which contracts are going to be taken
clearly below English law and Indian law.
Under English law, frustration is so
much concerned with the change in circumstances that it cancels the base of the
contract as a whole or in case of performance makes it different with that which
was in consideration by the parties in the beginning and is concluded by the
In order to defend oneself from impossibility of performance as per a English
law governed contract on account of Covid-19, the party will have to prove
frustration. Does a specific contract make lobby for the doctrine of frustration
to be applied, solely depends on legal theories and reasoning given by English
- terms implied in the contract;
- vesting court with all the power to decide what is right and reasonable
under such situations;
- engaging in formation of the contract depending on intention of parties
to the contract.
However, as per Indian contract law, the legal provision under Section 56 states
a positive rule of law on supervening impossibility or illegality that makes
performance impossible not literally but practically.
Here the party is
excused by the court on the basis of impossibility when it concludes that the
whole and sole purpose was frustrated due to the occurrence or intrusion of an
unanticipated event or alteration in the situation which is so fundamental that
law regards it to be affecting the root of a contract because of which the
contract comes to an end automatically.
The court beyond question would examine the contract and the situations under
which it came into existence. The belief and intention of the parties to the
contract are evidence, however evidence solely on which the court reached a
conclusion whether or not the altered circumstances destroyed the very basis of
the contract. In this way, frustration can be a mere subset under the wider
doctrine of impossibility. But the Indian courts will apply Section 56 in an
objective manner to calculate whether a specific situation has made the
performance impossible and frustrated such contract, without questioning the
reasonableness and intention of the parties to the contract.
According to Indian law, frustration is a part of the law of discharge of
contract coming under Section 56 due to the reason of impossibility of the act
contracted to be done. While Section 56 contemplate or conceive of as a
possibility of impossibility of performance of contractual obligations
resulting into avoidance of the same, it does not express the essential
features of the concept of unforeseen events due to which there may arise a
possibility of momentary suspension and resumption of the performance of the
Force majeure comes into scene in such circumstances. On one hand
frustration of contract under Section 56 comes into play automatically from the
date of the impossibility and puts the contract to an end whereas on the other
hand under the concept of force majeure the party which is not able to perform
has to decide to invoke the clause by some means.
As Under Indian law, the doctrine of frustration is an aspect or part of the law
of discharge of contract under Section 56 by reason of supervening impossibility
or illegality of the act agreed to be done. While Section 56 envisages
impossibility of performance leading to avoidance of the contract, it does not
statutorily encapsulate the concept of unforeseen contingencies which result in
temporary suspension of performance and resumption of the contract.
of force majeure comes into play in such situations. Unlike a force majeure
clause where the non-performing party needs to elect or choose to invoke the
clause, either by means of a notice or otherwise, frustration of contract under
Section 56 operates automatically from the date of the impossibility and puts
the contract to an end.
As the Indian Contract Act is completely comprehensive on impossibility of
performance under Section 56, it wouldn’t be fine to bring in the provisions of
English law on doctrine of frustration outside the scope of these statutory
provisions. The decision of English law will have only persuasive value on the
contracts and disputes governed under ICA and may be helpful in giving the way
of how the English courts have come to decision in the case whose facts are same
as the case before the Indian court of law.
- Estimation of impact of Covid-19
It is important to calculate the extent to which Covid -19 has affected the
performances of contractual obligations before evaluating the remedy to it. Has
Covid-19 resulted in temporary failure of performance, complete incapability to
perform the obligation? What if Covid 19 has created delays which if extended
beyond a certain limit could hinder the root cause of the contract, or just
Parties to a contract may be faced abnormal rise or fall in prices
which is an unanticipated obstacle to execution. This doesn’t in itself get free
of the bargain they made. It is only when the terms of the contract, in the
light of the situation existing when it came into existence, tell that the
parties never agreed to be bound in a completely different circumstance which
had emerged unexpectedly, that the contract cannot be binding. A party to the
contract may not be set free from the obligations of its part merely due to the
reason that its performance has become typical and onerous because of an
unforeseen event. Therefore, frustration can’t be claims in all the cases of
In accordance with force majeure clause, the clause of the contract could
consist of words that specify the extent of effect on performance to invoke the
very clause, such as ‘prevent’, ‘hinder’. The Courts have distinguished between
the words ‘prevent’ and ‘hinder’ well. In addition, Courts have also construed
words which precede or follow words such as ‘hinder’ or ‘prevent’ in the clause,
as well as construed the nature and general terms of the contract to determine
if the impact as claimed by a party enables it to invoke the agreed force
majeure clause. In order to understand whether a party to the contract can
invoke the force majeure clause ,its necessary to understand the meaning of
- Does your contract offer a remedy?
If the contract does not does not include in it a clause which deals with a
circumstance which would make the performance of the contract impossible the
party make seek for the remedy under section 56 of the ICA. Whereas when the
parties have already contemplated a clause in the clause then section 56 will
have an iota of application. . To decide whether Covid-19 could invoke the force
majeure clause, or in that case frustrate the contract, it will be critical and
crucial to calculate and the operational sides of the relevant commercial
transaction in such circumstances and the type of force majeure clause in the
- Other Terms of Contract
Any Contracts , along with the force majeure clause, may constitute of different
provisions dealing with the non-performance of the contractual obligations. For
example, a contract may include a stipulations on liability due to price
escalation, delayed performance, etc.
If there happens price escalation or any
sort of delay due to an unforeseen force majeure event one needs to thoroughly
understand what the language force majeure clause suggests in that situation
along with the other provisions related to price escalation an delayed event in
order to invoke any of these and get the best possible and appropriate remedy.
In these cases, its mandatory to understand if the result of non-performance
because of the unforeseen event was contemplated by the parties to the contract
or the risk was taken by the parties and covered under the scope of the
- Formal requirements
In a probable case of force majeure, a contract may need to meet of formal
necessities by a party to the contract suggesting to excuse itself of
non-performance. For example, there is a contract between two parties and an
unforeseen event takes place in that situation the non performing party meet to
notify the other party about happening of such event covered under the provision
of force majeure. Also party may be needed to show that it is working on
reduction of loss and time required for dealing with the event of force majeure.
The Party facing a Force Majeure event should:
- Notify without delay the other Party to the contract by notice, giving
information of the event;
- Also inform the other Party about the resumption of the performance when
the Force Majeure event has come to an end unless and until the parties have
decided to take a alternative path or have terminated the contract.
- Should impossible performance resulting from the Force Majeure event stay
beyond a period of ninety days, and if the Parties have failed to find an
alternative to deal with the force majeure, then any the Party to the contract
may ask for the termination of the contract through a notice.”
- Will the “Covid -19 pandemic” come under the ambit of Force Majeure?
In contracts the act of God comes within the ambit of the Force majeure clause.
Act of God is defined as an extraordinary interruption by a natural cause (such
as a flood or earthquake) of the usual course of events that experience,
prescience, or care cannot reasonably foresee or prevent.
This may include
earthquake, floods, etc. Whereas events such as strikes, riots, wars, breakdown
of administrative machinery, lockdowns, and effects of such events such as
shortage of supply owing to war, war-time difficulty in shipping, refusal of
export license etc also come in the ambit if Force Majeure.
Now ,the question that whether or not the lockdowns and curfews due to this
Covid -19 pandemic which is in action right now will depend on the legal
interpretation and the language used in the force majeure clause of a
- Best actions to mitigate
In order to mitigate the losses and effects of non-performance of a contractual
obligation on the other party to the contract the drafter of the contract may
add a clause into it which would address the best possible endeavours. The ‘best
endeavour’ clause would ensure that the party under contractual liability makes
best efforts to reduce the effect of impact due to non-performance and notifies
the suffering party.
Here is an example of force majeure clause consisting of
“The Party to the contract suffering due to the Force Majeure circumstance shall
compensate the situation, with best possible actions and efforts to reduce the
effects the event , to the extent it is possible.”
- The contract is terminated or not?
The companies, businesses and the parties to the contract need to understand the
terms of the contract to get the remedy available. To what extent has the force
majeure event affected the contract, has it made it completely impossible or has
just raise a situation of hardship, and the action to mitigate really mitigate
the effect of such hindrance, what situation will result in suspension of the
performance to the level of termination – would completely depend on the nature
and the clauses a contract constitutes of.
If there arises a case in which the unforeseen has just made the performance
commercially difficult and not impossible then he parties to the contract can
renegotiate upon the alternatives, other than suspension or termination of the
contract due to delay, if commercially viable.
Almost in every cases where non-performance of a contract takes place and one
party has received some benefit under the contract when it is declared to be
void then the party is required to restore all advantages to the party from
which it was received. Section 65 of the ICA deals with this provision which is
not absolute. The extent to which a party will be resituated will vary from
case to case depending on the facts of each case.
Parties are free and can provide that the risk of the following events shall be
redeemed by any one of them, or divide it in some proportion, or they may
suspend the contract, or compensate the loses.
This could be clearly noticed in the abovementioned facts and principles that a
what will be the result of non-performance of contractual liabilities is highly
contract-specific, clause-specific and fact-specific, therefore desperate
situations such as that of the Covid-19 pandemic may not justify immediate
measures by parties.
Parties to the contract need to closely scrutinise the clauses while forming the
contract. Also, how the Indian judiciary system interprets the contracts and the
disputes arising due to the unanticipated events can’t be anticipated as this
would be done with a very nuance approach, keeping in mind all he diverse
circumstances, language of the clauses and provisions and thereafter drawing a
nexus among the entire thing.
Therefore the parties should be highly prudent while forming a contract and
should take the best legal advice and go through their contracts very thoroughly
in order to save and prepare themselves from the upcoming liabilities which
could arise in near future. The parties must form the contracts with utmost care
keeping in mind all the things aforesaid.
- British Movieto-news Ltd. v. London and District Cinemas Ltd. L.R.,
(1951) 1 K.B. 190, Court of Appeal decision; reversed in appeal by the House
- Indian contract act 1872.
- Ib., § 2.
- Edition 11 Black’s Law Dictionary, (2019).
- Office Memorandum No.F. 18/4/2020-PPD titled ‘Force Majeure Clause’,
issued by Department of Expenditure, Procurement Policy Division,
Ministry of Finance.
- Satyabrata Ghose vs. Mugneeram Bangur and Others, AIR 1954 SC 44, ¶ 10
- Chitty on Contracts, Volume I, (31st Edition), Sweet & Maxwell
- Satyabrata Ghose vs. Mugneeram Bangur and Others, AIR 1954 SC 44, ¶ 17
- Energy Watchdog vs. Central Electricity Regulatory Commission and
Others, 2017 (4) SCALE 580.
- Mulla & Pollock on Indian Contract Act, 1872 & Specific Relief Act,
1967, page 1181