Force majeure clauses are contractual clauses which alter parties’ obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations. Depending on their drafting, such clauses may have a variety of consequences, including:
- Excusing the affected party from performing the contract in whole or in part
- Excusing that party from delay in performance
- Entitling them to suspend or claim an extension of time for performance
- Giving that party a right to terminate.
Force majeure can encompass an act of god for which no person can be held accountable. It includes:
- Act of God or natural disasters
- War or war-like situations
- Labour unrest or strikes
- Epidemics, pandemics
- Human actions such as armed conflict.
For a force majeure clause to be invoked, they must be unforeseeable, external to the parties of the contract, and unavoidable. The law relating to Force Majeure is given under Sections 32 and 56 of the Indian Contract Act, 1872.
Whether a contractual obligation can be avoided on the grounds of force majeure is a factual determination based on the specific terms of the contract. The courts would examine, whether in each case, the impact of Covid-19 pandemic prevented the party from performing its contractual obligation. Indian courts have generally recognised this concept and have enforced it where appropriate. A force majeure clause cannot be implied under Indian law. It must be expressly provided for under the contract and protection afforded will depend on the language of the clause.
The Government of India has taken the following measures to prevent further disruption in international trade and commerce by declaring outbreak of COVID-19 as a force majeure event.
- The Ministry of Finance issued an office memorandum dated February 19, 2020 which states that Force Majeure clauses can be invoked in Government contracts if there is a “disruption in supply chain due to spread of coronavirus in China or any other country”. The Memorandum further states that COVID-19 should be considered as a case of “natural calamity”.
- Ministry of New & Renewable Energy has issued an Office Memorandum dated March 20, 2020 which directs all Renewable Energy implementing agencies of the Ministry of New & Renewable Energy (MNRE) to treat delay on account of disruption of the supply chains due to spread of COVID-19 in China or any other country, as Force Majeure event.
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