AUTHOR- Vidit Amit Lohia
According to Black’s Law Dictionary, ‘Force Majeure’, is an ‘event or effect that can neither be anticipated nor controlled…and it includes both acts of nature and acts of people’. The term, Force Majeure has been derived from ‘clausula rebus sic standibus’, which is a principle originating under Roman Law, which provides that the contract is binding so long as the conditions which existed, when the contract was entered remain fundamentally the same. Force Majeure does not refer to an event or circumstance which is within the reasonable control of the contracting parties.
Novel Corona Virus or COVID-19 was officially declared to be a pandemic by World Health Organization on 11-3-2020. Due to this extraordinary outbreak and its ghastly effect, a nationwide lockdown was declared due to which manufacturing, transportation and distribution of goods and services in the country were disrupted. This caused disruption of supply chain due to which it may not be possible for the parties to complete their contractual obligations.
The provisions of Indian Contract Act, 1872 do not contain the definition of the term force majeure, nor do they specify the specific circumstances and events which would be considered as force majeure events. However, it is possible to make certain references from certain specific provisions of the act.
If the contract which was entered between the parties, specifically contains explicitly or by implication, a clause, incorporating force majeure and including within its ambit, some events such as war, earthquakes, tsunamis, epidemics etc., then the contract will be the dissolved, according to the terms of the contact itself and Section 32 of the Contract Act, 1872 becomes applicable. If the force majeure clause specifically includes pandemics or epidemics, then the situation becomes fairly simple as compared to another contract, where a general phrase such as ‘an act beyond the control of either of the parties’ is used.
In a case, where such clause incorporating, a specific event is not included in the contract, rule of law as contained in section 56 of the Act embodying “doctrine of frustration” comes into play. Under section 56, the courts can grant relief only when the very foundation of the contract is disturbed because of the happening of an unforeseen event, which was not predicted by the parties at the time, the contract was entered into by them. Such event must strike the root of the contract as a whole.
The word “impossible”, has not been used with respect to physical or literal impossibility. In case of unexpected occurrence or change in circumstances, decimating the very objective of the contract, it may be regarded as impossible to do as agreed.
However, the parties must make all the genuine and diligent efforts to fulfill their part of the contract and the agreement shall not bind the parties only when such a situation exists, when existing circumstances show that, there was no agreement to be bound in a fundamentally different and unexpected situation.
As per the office memorandum issued by the Ministry of Finance, Government of India, the disruption of supply chains caused due to rapid spread of corona virus, may be considered as natural calamity and force majeure clause may be invoked, wherever considered appropriate, after following due procedures. The notification further also mentions that in case, the performance wholly or in part or any obligation under the contract is prevented or delayed due to any force majeure for more than ninety days, either party may, terminate the contract without any financial effects on either side. The notification also mentions that the force majeure does not excuse a party’s non performance entirely, but only suspends it for the duration of the force majeure. However, this office memorandum does not necessarily serve as a binding document, being largely in the form of an advice.
Another Office Memorandum was issued by the Ministry of Finance on 13th May, 2020 which further stated that “Invocation of FMC would not be held valid, if the parties were in default of contractual obligations as on 19th February, 2020.” Application of force majeure clause does not apply in respect of all non-performances, but only in respect of those, which effect due to lockdown or restrictions imposed under any legislation or any order of any executive.”
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