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The covid-19 pandemic has impacted every human being in some way or the other, it has caused nation-wide lockdowns worldwide, shut down markets, affected health of the people and also restricted movement in many countries.
Along the covid-19 period, people has started using the term ‘Force Majeure’ progressively in their contracts. This term has found its way in the number of business contracts after the lockdown.
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.’, the term force majeure has neither been defined nor specifically dealt with, in Indian statutes, but some reference can be found in Section 32 of the Indian Contract Act" envisages that if a contract is dependent on the happening of an event which due to sone unforeseen event becomes impossible, then the contract becomes void.
This provision is important for businesses contracts such as supply contracts, manufacturing contracts, because it relieves the parties from performing their respective obligations and which are to be undertaken under the contract, and consequential liabilities, during the period that force majeure events continues.
Now the covid-19 has impacted the ability of the parties to meet the requirements of the contract due to the restrictions in the movement, stoppage of production, disruptions in supply chain and shortage of labour, many of the big companies have already declared force majeure including Indian Oil, Adani ports in Gujarat, Ashoka Buildcon and Hero Motor Corp, while many more are expected to join the list.
The Ministry of Finance on 20th February’ 2020 has issued an office memorandum, clarifying that due to the disruption in supply chain due to spread of corona virus should be considered as a case of natural calamity and the clause of ‘force majeure’ may be invoked following the due procedure.
In the cases of contract not having an explicit clause of force majeure, there can be scenarios where the parties may try to seek frustration of contract under section 56 of the Indian Contract Act.
In such events the courts will have to decide each and every case on the basis of the individual merits, terms of the contract and intent of the parties. Also, the courts will have to ascertain whether the contract has become impossible to perform and whether the doctrine of frustration of contract could be applied.
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