Force Majeure Clause- Impacted by COVID-19?

Blog authored by V. Krishna Laasya, a law student from School of Excellence in Law, Tamilnadu Dr. Ambedkar Law UniversityChennai

Preface (Abstract)

Force Majeure clause is that which discharges the liability of a party from any obligations that require to be fulfilled. S. 32[1] and 56[2] of the Indian Contract Act, 1872 deal with the intricacies of the Force Majeure clause and its impact on the Current Pandemic.

The Pandemic in full force today is termed as COVID-19, which is said to have originated in Wuhan, China. It has been declared a global pandemic by the World Health Organisation and has impacted both human personal and professional law.

This article seeks to analyse the impact of COVID-19, through the lens of S.32 and 56 of the Indian Contract Act and the current impact of fulfillment of contractual obligations.

Introduction

Force Majeure clause is that which comes into effect from the existence of a contract and contractual obligations and it builds in an instance where the fulfillment and discharge of a contractual obligations may be hindered due to non-possibility of the performance and the operation of the contract is no longer a possible event.

Impact and Ramifications of the Clause

The Force Majeure clause requires impact assessment as a stringent factor in analysing whether the contract is liable to be fulfilled or not. In overcoming the change of the impact caused by an unforeseen event, the concept of force majeure clause is very much material in effect.

After the onset of the Pandemic, the Force Majeure clause makes it either detrimental or a benefit to the parties, depending on the facts and circumstances of the case. This means that in a particular contractual obligation, the party that ought to fulfill the obligation may have an advantage of more time to fulfill or the discretion to not fulfill the obligations of the contract. This is however, subject to the fulfillment of obligations set forth at the discretion of the Judiciary.

It is to be analysed that if there is no force majeure clause, the concept of frustration of contract comes into effect and this in turn would lead to high structural impacts on contractual obligations and this is required to be done in an efficient manner.   

Force majeure clause includes, more often than not, a ‘Pandemic’, an ‘epidemic’ etc. The current situation thus fits into the shoes of Covid-19 and thus, the clauses that are presented and regulated can qualify as force majeure events[3].

It is not important that the contract must contain specific and explicit provisions of the force majeure clause and so, the courts take their discretion and interpret the contracts in a narrow perspective and construe it beyond the provisions stipulated in the contractual agreement.

Applicability and the enforceability of the clause depend upon the relevancy of the court which depends on specific analysis of the same.

In Alopi Parshad & Sons Ltd v. Union of India[4], the Supreme Court analysed S. 56 and decided that the Act by itself does not generate a contract to not oay heed to express convenants and to claim consideration, if at all the Parties are faced with inexplicable situations they did not anticipate, performance of the contract does not get discharged merely because it becomes onerous to any one party.

Conclusion

Force majeure clause will decide on the remedies to the parties. It has manifold effects which include: some parties may require performance of the contract despite force majeure clause and the pandemic, few require temporary suspension and some require the contract be terminated as a whole.

More often than not, the force majeure clauses are indicative of the fact that there might not always be possibility of the contractual fulfillment and so, parties must try their level best to reach a consensus and push through in such difficult times.


[1] For Verbatim Reading of S. 56 of the Indian Contract Act, 1872, see the Central Government Act at < https://indiankanoon.org/doc/648614/>. Last accessed on 22 Sep 2020

[2] For Verbatim Reading of S. 32 of the Indian Contract Act, 1872, see < https://indiankanoon.org/doc/124768/>. Last accessed on 22 Sep 2020

[3] For the impact of Covid-19 and the Force Majeure event, see Covid-19 Impact of Force Majeure in Indian Commercial Contracts by Preetam D’ Souza and Ranjit Mahishi on 30 Apr 2020. Last accessed on 22 Sep 2020

[4] Alopi Parshad & Sons Ltd v. Union of India (1960) 2 SCR 793

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