Disruption of supply chains due to Coronavirus to be covered in ‘Force Majeure Clause’ — Case of Natural Calamity

Ministry of Finance through an Office Memorandum dated 19-02-2020, clarified with regard to the ‘Force Majeure Clause’, which means:

A Force Majeure means extraordinary events or circumstance beyond human control such as an event described as an act of God (like a natural calamity) or events such as war, strike, riots, crimes (but not including negligence or wrong-doing, predictable or seasonal rain and any other events specifically excluded in the clause). An FM clause in the contract, frees both parties from contractual liability or obligation when prevented by such events from fulfilling their obligations under the contract. An FM Clause does not excuse a party’s non-performance entirely, but only suspends it for the duration of the FM. The firm has to give notice of FM as soon as it occurs and it cannot be claimed ex-post facto. There may be a FM situation affecting the purchase organisation only. In such a situation, the purchase organisation is to communicate with the supplier along similar lines as above for further necessary action. If the performance in whole or in part or in any obligation under this contract is prevented or delayed by any reason of FM for a period exceeding 90 days, either party may at its option terminate the contract without any financial repercussion on either side.

Doubt arisen is the disruption of supply chains due to spread of coronavirus in China or any other country will be covered in the Force Majeure Clause.

In the above regard it was clarified that it should be considered a case of natural calamity and FMC may be invoked, wherever considered appropriate.

Ministry of Finance

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