Akansha Chopra
On 31st December 2019 China reported to WHO about the number of cases of pneumonia of unknown cause detected in Wuhan City, China. On 11th March, 2020 WHO indicated that Covid-19 virus as a “pandemic”. The Covid- 19 has spread across the globe in the past couple of months. Almost all the countries and other territories across the globe confirmed huge number of cases of Covid-19 and thousands of people are died due to Covid-19, it is the most crucial time witnessed by the whole world. In such circumstances, the whole world takes some measure steps to protect their citizens from Covid-19.
- Restrictions from moving country to countries
- Restrictions on entry of foreign nationals
- Maintain social distancing
On 25th March 2020 India was officialy ordered by our Prime Minister, Mr. Narendra Modi to be on a ‘complete national lockdown’till 15th April, 2020. Further, numerous countires have implemented travel bans restricting local movements within the regions. The number of cases of Covid-19 is increasing day by day in the Country. According to the sources, the lockdown will be increase due to the increasing number of cases day by day in the country. Covid-19 has had a direct impact on the economic across the world. The restriction on the cosntructional and commercial activites, decreased workforce will have a cascading impact on contractual obligations.
According to the study, the outbreak may result in hillarious fall in the world Gross Domestic Product (GDP) and all sectors of industry may be impacted. Due to the outbreak of the Covid-19, performances under many contracts will be delayed, interrupted or will be cancelled. Further, companies may not be able to perform their obligations under the contracts. On 19th February 2020 the Department of Expenditure, Ministry of Finance has issued an office memorandum stating that COVID-19 should be consider as a ‘natural calamity’ and force majeure may be invoked wherever considered appropriate. The Covid-19 poses several challenges to the global economic and commercial market. Some have had commercial impacts on specific sectors with interruption to supply chains, challenges in meeting contractual obligations and implications under funding arrangements etc.
Companies should carefully review and understand their contracts and the potential applicability of “Force Majeure”. Force Majeure Clause events are those, which are beyond the control of a human being or any company. The intention of the Force Majeure Clause is to save the performing party from consequnces of something, which is not in control. In Indian context, the “force majeure” is contained under the Section 32 and 56 of the Indian Contract Act, 1872. Most force majeure includes “acts of god, pandemics, epidemics, illness, disease, war, disaster, government regulations”. It is clear that the force majeure applied on the standard agreements, generally include natural events such as “Act of God” which may be extended to epidemic and pandemics. The Supreme Court of India laid down their decision in the case of Energy Watchdog v. Central Electricity Regulatory Commission and Anr. The Supreme Court also observed that the Regulatory Powers of the Commission come into play when the guidelines issues in this regard are silent. “Force majeure” is governed by the Indian Contract Act, 1872. The Supreme Court held: “In so far as a force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Contract. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose of the parties.” Covid-19 is pandemic has already started affecting the business all across the world. The impact of Covid-19 causes on the ability of parties to perform their obligations. In situations where an agreement does not provide for “force majeure” or one does not fall within the “force majuere” clause, a party may have to look beyond the clause. In such situation, one may consider invoking Section 56 of the Contract Act. However, in such a case, one party would have to show that the event, i.e. Covid-19 has changed the conditions totally. It may be suitable to ensure that the impacts of Covid-19 on the ability to perform their obligations under the agreements are clearly identified and all efforts are taken to moderate the loss/ damage/delay caused in performing the obligations.
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