Force Majeure, about it and Recent Judgments

The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.’

While force majeure has neither been defined nor specifically dealt with, in Indian statutes, some reference can be found in Section 32 of the Indian Contract Act, 1872 (the "Contract Act") envisages that if a contract is contingent on the happening of an event which event becomes impossible, then the contract becomes void. From a contractual perspective, a force majeure clause provides temporary reprieve to a party from performing its obligations under a contract upon occurrence of a force majeure event.

COVID-19 TREATED AS FORCE MAJEURE

Union Finance Minister Nirmala Sitharaman explained the details of Rs. 20 Lakh crores economic stimulus announced by PM Modi. She said COVID-19 will be treated as force majeure for real state projects. The registration and completion date for all registered projects expiring on or after March 25, 2020 could be suo moto extended by 6 months even without any individual applications. Fresh projects registration would be issued automatically with revised timelines.

A case dealing with aspects of force majeure on whether the lockdown would entitle the tenants to claim waiver or exemption from payment of rent or suspension of rent? The court dealt with section 32 and 56 of the ICA and held: “The fundamental principle would be that if the contract contains a clause providing for some sort of waiver or suspension of rent, only then the tenant could claim the same.

The force majeure clause in the contract could also be a contingency under Section 32 which may allow the tenant to claim that the contract has become void and surrender the premises. However, if the tenant wishes to retain the premises and there is no clause giving any respite to the tenant, the rent or the monthly charges would be payable.”

The court also held that it is clear that Section 56 of the ICA would not apply to a lease agreement and other similarly situated contracts which are `executed contracts’ and not `executory contracts’.

The court then considered the doctrine of force majeure as recognised in Section 108(B)(e) of the TPA and held “A perusal of the above shows that the provision itself would apply only in the absence of a contractual stipulation.” The court concluded this issue by holding “In view of the above settled legal position, temporary non-use of premises due to the lockdown which was announced due to the COVID-19 outbreak cannot be construed as rendering the lease void under Section 108(B)(e) of the TPA.” The tenants request for suspension of rent was also rejected but was allowed to be postponed owing to the lockdown.

STATUS OF CONTRACT OBLIGATIONS IN THE TIME OF COVID-19 ACCORDING TO INDIAN CONTRACT ACT

A contract places an obligation on both parties to perform their respective obligations, failure of which would result into claim of damages. However, there are few circumstances in which the parties can be prevented from penalising without performing the obligations which is dealt by Section 32 and Section 56 of the Contract Act.

Section 32 states that a contract have to be performed only upon the occurrence of a particular event (also known as contingent contract).

While Section 56 state the circumstances in which performance of a contract can be avoided.

Now, Factors which render a performance of a contract impossible due to acts which are beyond the control of the parties are known as Force Majeure or Act of God. The option is then left in the parties i.e. they can either exercise any other option available to them under Force Majeure clause in their contract or terminate the contract. Force Majeure clauses are those clauses which decide the obligations of parties during event in the Act of God. The Usual options left with the parties in such cases is to suspend or put on hold the obligations of both the parties respectively. While, if party do not have such clause in their contract, they can simply follow the conditions under Section 56 of the Act. All the above sections and clauses can be used in the time of the novel “COVID-19” as it happened to be a Force Majeure or an Act of God.

CASE STUDY- STANDARD RETAIL PRIVATE LIMITED V. M/S G.S. GLOBAL CORP. & ORS.

According to the facts of the case, the petitioner contracted with a steel importer situated in South Korea. The steel was dispatched from the office, but the petitioner could not fulfil his obligation due to his own purchasers. Thus, asked the court to give him some ad-interim relief since it is all because of lockdown in the country due to COVID-19 which is a force Majeure as given under the above article. The petitioner also used some of the circumstances given under Section 56 of the Indian Contract Act. According to the court, the relief is denied for two reasons.

1. The lock down is for limited period.

2. The Steel comes under essential services and cannot be stopped in any case.

Thus, even though there is a lockdown, the petitioner has full means to performing his obligations