[This guest post dated 14 May, 2020 is authored by Kanchana Patil, Advocate Bangalore. Any query regarding this article can be addressed to her at email@example.com]
COVID- 19 Impact on Contractual Performance Issues: Indian Perspective*
Managing contractual obligations during the COVID-19 pandemic is cumbersome & challenging. Many businesses and organisations across the globe are struggling to deal with contract performance issues. Contracts and arrangements governed by the Indian Laws are also part of this struggle. This article revolves around the contractual performance issues from Indian Laws perspective.
Trigger a Force Majeure Clause
Dealing with unforeseen events under commercial contracts triggers force majeure clause which temporarily suspends or prevent either party from fulfilling their contractual obligations.
Especially when either party to the contract are no longer able to fully comply or delay in performance with regards to contractual obligations under the contract.
Under Indian Law the word Force Majeure is not defined and its contract creation. Contracts which are having force majeure clauses &details about the rights and obligations of the parties in unforeseen situations will be governed by contract as force majeure is contract creation.
Pre-emptive Step Prior Invoking Force Majeure
It is always advisable as part of best practice to the contracting parties, mutually analyse the impact of COVID-19 on the contract and its performance. In case of any hindrance consider re – negotiation of the contract on the ground of unforeseen event/s. Upon mutually agreed terms amend the terms of the contract and get that formalised via written amendment to the contract. The parties review the contract upon assessing the COVID -19 impact and re-assess the situation in line with force majeure clause in the existing contract.
However, if contract is not having express provision for force majeure clause then it cannot be considered as implied term in the contract. In the absence of force majeure clause in the contract the partiesare required to take shelter underlaw to invoke force majeure.
Indian Law on Force Majeure
Though the word force majeure is not defined but it can be inferred that Section 56 of Indian Contract Act, 1872 deals with Doctrine of Frustration basing on which performance of obligations under the contract will be excused or suspended temporarily.
In simple terms when the circumstances are beyond the control of a Party to perform the contractual obligations due to which performance of contractual obligation subsequently impossible to perform. So, it can be said that Doctrine of Frustration is applicable only in cases of subsequent impossibility and not to the contract where performance was impossible from the very beginning. Applicability of the force majeure clause in this scenario to the contract depends upon case to case basis and it is always subjective considering the facts and situations of each case. Judicial interpretation is based on the common law principles and doctrine of frustration if any matter goes to court.
Whether the current pandemic situation due to COVID -19 has can be considered as Force Majeure as per Indian Laws. Indian Govt. has declared pandemic COVID -19 as Force Majeure via office memorandum vide F.18/4/2020 issued by Ministry of Finance. But its applicability to the private arrangements is not very clear.
In order to have business continuity it is imperative to manage the contracts in this pandemic crisis and avoid contractual performance issues before it crops up with pre-emptive measures. For example, re negotiation of the contract after re- assessing the situation as it may worst if negotiation becomes litigation so focus needs to be on solution & continuing the business relation of the parties via setting amicable deal.
In nutshell, first & foremost is to check the provision/s of the contract for force majeure. If no provision for force majeure in the contract and its unavoidable dispute, various factors play role whether the obligations were impossible to be performed and could not be prevented and the steps are taken and required for mitigation before invoking force majeure.
Hence take care and if required take professional help before invoking a force majeure clause in any contract.
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