Covid 19 Lockdown & Force Majeure Clause

Company Law
Force Majeure

Covid-19 – How To Invoke Force Majeure Clause To Keep Your Business And Contract Alive

Force Majeure Is Commonly Defined And Widely Known As An Act Of God. A Party Facing Force Majeure Situation Which Made It Impossible To Execute His Part On The Contracts. Almost All The Contracts Shall Include Invoke Force Majeure Clause, Which Permits A Party To Temporarily Suspend Its Performance Under The Contract While Facing A Force Majeure Situation. In A Nutshell, Exempts The Party To Suspend All His Action For A Period Of Time From Performing Its Obligations Under The Contract And It Resumes Once The Force Majeure Situation Subsides.

Force Majeure – Indian Law Perspective 

Although The Invoke Force Majeure Clauses Are Seen Under Different Contracts And Agreements, Ironically, the Indian Contract Act, 1970 Does Not Define “Force Majeure” In Such Case, The Force Majeure Situations Are Identified And Cited In Most Of The Contracts Which Specifically Illustrate “Force Majeure Events” By Using The Words Like “War”, “Natural Calamities”, “Epidemic”, “Government Ordinance” And Etc., Or Any Other Situation Making The Conduct Of Business Impossible As Examples Of Force Majeure Situations. The Present Lockdown Due To COVID-19Spread Would Squarely Applicable As A Force Majeure Event In Such Cases.

Force Majeure – Exemptions And Actions 

The Exemption To Perform Citing Force Majeure Is Not A Matter Of Inherent Right Since The Obligation To Perform Under The Contract Is Not Suspended Automatically. It Is Required That The Party Who Would Like To Enforce The Force Majeure Clause To Issue A Written Notice To The Other Party, Invoking The Force Majeure Clause And Notifying Suspension Of Your Obligations Under The Contract. Sometimes, The Obligation To Perform Is Not Suspended Just Because Of A Force Majeure Situation Unless It Significantly Affects The Performance Capabilities. The Party Citing A Force Majeure Clause Should Also Prepare To Demonstrate Why Such Force Majeure Situation Prevented Such Party From Performing Their Obligation. In Circumstances, Where The Force Majeure Situation Does Not Impact Your Contractual Obligations Then It Would Not Entitle you To Suspend The Performance Under The Contract.

What If Your Contract Does Not Have Force Majeure Clause, Can You Still Claim Relief Due To COVID-19 Lockdown? 

Yes… You Still Can. Though the Indian Contract Act, 1872 Is Silent On Force Majeure There Is Another Clause Known As the Doctrine Of Frustration Of Contracts, Which Means That The Contracts May be Declared As Void, If One Of The Party Is Unable To Perform If It Is Impossible Or Unlawful During The Performance Of The Contract. In Such Scenario Is Established Then No Contracts Can Render A Party Liable For Their Non-Performance. So, If The COVID-19, Being The Case In Hand Has Made Performance By Such Party “Impossible” Or “Unlawful” Then You Still Can Validate Your Non-Performance. However, Unlike Force Majeure, Frustration Of A Contract Renders It Void With Immediate Effect, And The Law Does Not Provide For Suspension Of Such A Contract. Yet, If Both The Parties Willing To Suspend The Contract, They Can Contractually Agree To A Suspension And Shall Resume Once The Situation Eases In The Future.

Alternate Performance During Force Majeure Periods 

Though There Is A Force Majeure Situation The Party Shall Also Explore All Available Options Within The Control To Mitigate The Loss To The Other Party By Proposing And Performing Reduced/Alternative Performance During Force Majeure Period. In Situations, When Other Party Does Not Agree To Such Reduced/Alternative Performance Then The Other Party Can Revert To Full Suspension Of Performance. Having Said That, It Is Advisable To Assess The Issue On Hand Carefully Before Reduced/Alternative Performance Is Proposed. Force Majeure, Is A Contractually Enforceable Suspension Right Agree Bilaterally And Unilateral Amendment Is Ordinarily Never Enforceable. Either It Is Force Majeure Clauses Or Citing Frustration Of Contracts As Legally Viable Options To Provide A Real Possibility To The Businesses To Deal With The Current Situation. However, It Does Not Have a Universal Application But A Case To Case Assessment Is However Needed Before Implementation Of These Options.

Legal Disclaimer: The information contained in this blog post is for general information and educational purposes only. Nothing contained in this blog post should be construed as legal advice from The Aran Law Firm or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.

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