The Global Covid-19 pandemic has disturbed all industries and have put almost the entire country under a lockdown impacting the efficient working of business and thus disrupting the economy of the country. One of the legal issues which gains prime importance today in these times of Covid is the operations of already existing contracts Considering the current situation and the disruption caused in the market by the pandemic , many contracts will be delayed, interrupted, or even cancelled and it would be right for many of the business to invoke the Force Majeure Clauses in their contracts.
The law defines Force Majeure as an extra ordinary situation which is beyond human control and such event is defined as an act of God or such as war, strikes, riot and crimes . Generally force majeure clauses are included in a contract to free both the parties from legal obligations of performance of promise under the contract. There can be a flip side to the issue to examine a situation where the contract does not contain a force majeure clause. In such cases the general law contained in the Contract act under Section 56 of the Indian Contract Act, 1872 would come to the rescue. Under the Contract Act, the doctrine of frustration of contract is contained in Section 56, which states that an agreement to do an act impossible in itself is void. It is evident on perusal of the section that the section envisages some impossibility or unlawfulness of the performance of the act, which the parties had not contemplated at the time when they entered into the contract.
The issue whether Covid-19 is a force majeure event has been clarified by the Ministry of Finance by its notification dated 19th February, 2020 with respect to supply chain services wherein the ministry has clarified that the disruptions of supply chain services should be considered as a natural calamity and hence to be further considered as an event of Force Majeure under the Indian Laws .
COVID-19 would have an effect on cross-border trade, the real estate market , all agreements and would affect all big and small business in the span of next six months wherein the courts would see a number of companies invoking these clauses under the agreement or force majeure clauses and claim a benefit under law for non-performance of contract. The interpretation of courts to such a situation would be an important aspect to look forward to in the individual cases and situation and each case would have to be decided in the ambit of its own facts but as far as common legal knowledge goes the event of lockdown should be considered as a force majeure under law and therefore it should come to the rescue of business.
The author is a practicing advocate and partner at SS Global Law Firm. The article above should be taken as a legal opinion on the matter discussed.