Cabinet DecisionsCOVID 19Legislation Updates

The Union Cabinet has given its approval for extending the contribution both 12% employees’ share and 12% employers’ share under Employees Provident Fund, totaling 24% for another 3 months from June to August, 2020, as part of the package announced by the Government under Pradhan Mantri Garib Kalyan Yojana (PMGKY)/ Aatmanirbhar Bharat in the light of COVID-19, a Pandemic.

This approval is in addition to the existing scheme for the wage months of March to May, 2020 approved on 15.04.2020.  The total estimated expenditure is of Rs.4,860 crore.  Over 72 lakh employees in 3.67 lakh establishments will be benefitted.

Salient Features:

The salient features of the proposal are as under:

  1. For the wage months of June, July and August, 2020, the scheme will cover all the establishments having upto 100 employees and 90% of such employees earning less than Rs. 15,000 monthly wage.
  2. About 72.22 lakh workers working in 3.67 lakh establishments will be benefited and would likely to continue on their payrolls despite disruptions.
  3. Government will provide Budgetary Support of Rs.4800 crore for the year 2020-21 for this purpose.
  4. The beneficiaries entitled for 12% employers’ contribution for the months of June to August, 2020 under Pradhan Mantri Rozgar Protsahan Yojana (PMRPY) will be excluded to prevent overlapping benefit.
  5. Due to prolonged lockdown, it was felt that businesses continue to face financial crisis as they get back to work. Therefore, the  FM, as part of Aatmanirbhar Bharat, announced on 13.5.2020 that the EPF support for business and workers will be extended by another 3 months viz. for the wage months of June, July, and August, 2020.

     The steps taken by the Government from time to time to ameliorate the hardships faced by the low paid workers are well accepted by the stakeholders.

COVID 19Hot Off The PressNews

During the 44th session of the Human Rights Council, UN High Commissioner for Human Rights — Michelle Bachelet issued a statement where it was pointed that,

In Sri Lanka and India, members of the Muslim minority are being targeted by stigma and hate speech associating them with COVID-19.

Expressing her dismay by reports indicating that in many countries, members of minority communities and migrants face increasing stigmatisation – including, in some cases, by officials, she also added that,

 In Bulgaria, Roma people have been stigmatised as a public health threat, with some local authorities setting up checkpoints around Roma settlements to enforce lockdowns. In Pakistan, hate speech against religious minorities remains virulent. Stigmatization and threats against people presumed to be infected by COVID-19 have also been reported in Haiti, Iraq and many other countries.

In a debate, Council rightly highlighted the importance of principled and non-discriminatory policing in upholding human rights.

Discrimination kills. Depriving people of their social and economic rights, kills. And these deaths and harms damage all of society. COVID-19 is like a heat-seeking device that exposes, and is fuelled by, systemic failures to uphold human rights.


To read the full statement issued by UN High Commissioner for Human Rights, please follow the link below:

https://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=26015&LangID=E

COVID 19Op EdsOP. ED.

COVID -19 dropped itself like a bomb on industries, consumers and economies. The world is still putting itself together from this crisis. The business fraternity however, has never really anticipated any sort of complication or even for that matter, viewed their ‘force majeure’ clauses seriously. Now, that many contracts hinge on ‘force majeure’, a series of questions arise on its invocation. This article looks to condense available material on ‘force majeure’ and looks at the steps ahead.

Force Majeure and general clause:

The term ‘force majeure’ originates from the Code Napoléon of France, that translates to mean ‘superior force’ or ‘greater force’. Ordinarily, this means a drastic or a fundamental change to the substance of the contract that is brought about by an event that was neither anticipated by the parties nor under their control, resulting in non-performance of their contractual obligations. 

In India, since the concept of force majeure is not codified into law, it would be necessary to coin this as part of the contract. Scores of precedents have held that the contract overrides the law and therefore ‘force majeure’ clauses are now part of the standard clauses in any contract along with confidentiality and dispute clauses.

Several examples of force majeure clauses exist. One such instance is as under:

a. The event of ‘force majeure’ such as an act of God, fire, earthquake, flood, accident, an act of governmental authority, lockout or any event beyond the reasonable control of any of the parties that hinder the performance or render it impossible;

b. The duration of force majeure event – typically between 15-60 days;

c. The manner in which this clause needs to be invoked including notices etc.;

d. Suspension or termination of agreement in case the event continues beyond the stipulated period.

Most often, drafting a ‘force majeure’ clause lacks inclusion of details. For instance, majority of the ‘force majeure’ clauses, do not specifically mention ‘pandemic’ or even ‘epidemic’ for that matter, as an event.

Indian Contract Act & Force Majeure:

Although the term ‘force majeure’ finds no presence under the Contract Act, 1872 (“the Act”), its doctrine can be found embodied under Section 32[1] of the Act which renders a contract void when an event upon which performance of contract is contingent becomes impossible.

Essentially, COVID-19 will find a mention in contracts in the form of epidemic, pandemic, or even natural calamity. However, it is noteworthy that where the failure to perform an obligation is primarily due to lockdown implemented by the Government, the force majeure clause must also contain term ‘lockdown’, for it to be invoked. One can also argue that since the lockdown is a result of COVID- 19 and the pandemic, reliance can be placed on the term pandemic in a ‘force majeure’ clause.

The COVID-19 pandemic or the resultant lockdown, will not be treated as ‘force majeure’, if there are other methods of performing the terms of the contract. Having said that, performance of the contract may be suspended during the operation of ‘force majeure’ event and performance may be suitably extended. Parties have the option of renegotiating and modifying the contractual terms, termination is the last step if the force majeure event continues beyond the time prescribed under the contract.

Therefore, construing COVID-19 lockdown a ‘force majeure’ event will depend on the contractual obligations binding the parties and the manner of its performance. 

Several questions have been raised on the fact that some contracts do not stress on ‘pandemic’, ‘epidemic’, ‘disease’ etc. While some parties may rely on the general phrase ‘any other unforeseeable event, not under the control of either of the parties’, a reference may be drawn to some Government notifications and departmental circulars across board, which have declared COVID- 19 and the lockdown as a natural calamity/disaster.

The Ministry of Finance has for instance, by way of an office memorandum dated February 19, 2020[2] with respect to ‘Manual for Procurement of Goods, 2017’, clarified and declared the disruption in supply chains which is a result of COVID-19 from China or any other country, such a disruption will be covered as ‘force majeure’.

The Ministry of New & Renewable Energy with respect to solar project developers, vide office memorandum dated March 20, 2020[3] has declared that parties can invoke the force majeure clause to avoid financial penalties if they miss the contractual obligations on account of COVID-19.

The Karnataka RERA Authority, through its Circular dated April 06, 2020 extended the registration of all real estate projects by a period of three months, in cases where registration is expiring after March 15, 2020 and has also extended the timelines for compliance of the RERA Act by a period of three months.

The Ministry of Electronics and Information Technology[4] has decided to provide rental waiver to small housed in STPI premises (MSMEs, Start-ups) in the country from March 1, 2020 till June 30, 2020 i.e. for 4 months period as of now.

While these notifications, memorandums and circulars do not have a binding effect for all contracts, these will have some persuasive value to bring COVID- 19 and the lockdown under the ambit of force majeure, if there are specific terms in the clause.

Doctrine of Frustration under Indian Law

Where a contract does not feature a ‘force majeure’ clause, Section 56[5] of the Act in the context of doctrine of frustration will be examined. Section 56 creates 2 kinds of impossibilities: (1) Impossibility existing at the time of the making of the contract, and (2) A contract, which is possible and lawful when made, but becomes impossible and unlawful thereafter due to some supervening event. Para 2 of Section 56 above, will have a relevance given the pandemic and lockdown.

For such a clause to be invoked, the following are the requirements:

a. a valid and subsisting contract between the parties;

b. there must be some part of the contract yet to be performed; and

c. the contract becomes impossible of perform.

The consequences of the ‘force majeure’ event will have to be assessed to determine whether it renders the contract impossible, unlawful, or impractical to perform and thereby frustrate its performance. Where it is established that the conditions have materially affected the parties and their obligations and where there is no way to perform the contract during the existence of such conditions, the contract is annulled and both contracting parties are discharged of their subsequent obligations. Under these circumstances, neither party has the right to sue the other party for breach of such contract.

The Supreme Court had interpreted the concept of ‘force majeure’, in Satyabrata Ghose v. Mugneeram Bangur & Co.[6], under Section 56 of the Contract Act. The Supreme Court in this case held that the word “impossible” ‘has not been used here in the sense of physical or literal impossibility’[7]. The determination of whether a ‘force majeure’ event has actually occurred, does not centre around its impossibility alone – a mere ‘impracticality of performance’ (given the subject-matter of the contract), will also suffice. When an ‘untoward event’ or ‘unanticipated change of circumstance’ changes the very foundation of the contract between the parties, this event will be considered a ‘force majeure’ and the contract therefore impossible to perform.

While there have been many judgments on this issue and scores of articles on this topic, we look at one recent decision of the Supreme Court in  Energy Watch Dog v. CERC[8] to buttress the fact that “economic hardship” cannot be considered a ‘force majeure’ event. The judgment also has various other aspects, which are extracted as under:

“37. It has also been held that applying the doctrine of frustration must always be within narrow limits. In an instructive English judgment namely, Tsakiroglou & Co. Ltd. v. Noblee Thorl GmbH[9], despite the closure of the Suez canal, and despite the fact that the customary route for shipping the goods was only through the Suez canal, it was held that the contract of sale of groundnuts in that case was not frustrated, even though it would have to be performed by an alternative mode of performance which was much more expensive, namely, that the ship would now have to go around the Cape of Good Hope, which is three times the distance from Hamburg to Port Sudan. The freight for such journey was also double. Despite this, the House of Lords held that even though the contract had become more onerous to perform, it was not fundamentally altered. Where performance is otherwise possible, it is clear that a mere rise in freight price would not allow one of the parties to say that the contract was discharged by impossibility of performance.

38. This view of the law has been echoed in ‘Chitty on Contracts’, 31st Edition. In paragraph 14-151 a rise in cost or expense has been stated not to frustrate a contract. Similarly, in ‘Treitel on Frustration and Force Majeure’, 3rd Edition, the learned author has opined, at paragraph 12-034, that the cases provide many illustrations of the principle that a ‘force majeure’ clause will not normally be construed to apply where the contract provides for an alternative mode of performance. A more onerous method of performance by itself would not amount to a frustrating event. The same learned author also states that a mere rise in price rendering the contract more expensive to perform does not constitute frustration.”

The term impossibility and frustration are often used interchangeably. In a situation where there is no force majeure clause, Section 56 and doctrine of frustration comes to rescue. Frustration is a common law doctrine. It is concerned with the change in circumstances that can wholly destroy the object or foundation of the contract or make performance fundamentally different from what the parties contemplated in the beginning. Hence under English Law, one needs to establish functions by the English Code and under Indian Law, impossibility or frustration has been statutorily covered under Section 56 of the Act. If a party can prove that an unforeseen event has destroyed the object of the contract, or fundamentally changed the nature of performance, then the contract would be said to be frustrated and it would automatically come to an end. 

Evidence of force majeure:

It should be noted that the Courts in India follow the contract strictly in terms of force majeure clauses. In a case where the contract must be rescinded on account of a force majeure event, the burden to prove is on the party claiming force majeure. Unless there is compelling evidence that a contract cannot be performed under any circumstance, the Courts do not favour parties resorting to frustration of contract and termination.

The following may form as evidence for invoking force majeure:

  1. National and State Government notice and guideline imposing restriction of trade,
  2. News articles related to COVID-19 outbreak, quarantines, restricted travel and mandatory shutdown of airports, trains stations and seaports,
  3. Cargo booking and freight agency agreement,
  4. Cancelled flight or train ticket or anything other documents relating to travel itinerary, and
  5. Cancelled visa or rejected visa application.

Judicial Precedents during Lockdown

Bombay High Court – Pledge of Shares: Rural Fairprice Wholesale Ltd.  v. IDBI[10], March 30, 2020

Rural Fairprice Wholesale Limited (RFWL) has raised INR 670 crores in debt via insurance of NCDs – secured by shares held by Future Corporation Resources Private Limited (FCRPL)  in future retail limited (pledged shares):

  • Due to COVID-19 pandemic and the subsequent fall in the stock market, the value of the pledged shares fell – debenture trustees accelerated payments and invoked the pledged shares;
  • RFWL approached the Court seeking restraint of sale of pledged shares – contented fall in value of the pledged shares caused by COVID-19 pandemic and fall in stock market;
  • Bombay High Court granted interim relief restraining action in furtherance of the sale notice issued by debenture trustee.

Delhi High Court – Classification of NPA: Anant Raj Ltd v. Yes Bank[11], April 6, 2020

  • Borrower approached the court seeking restraint against lender from downgrading its asset classifications from SM A – 2 to NPA, on the basis of RBI’s COVID-19 regulator package;
  • Defaulting instalment fell due January 01, 2020;
  • Delhi High Court held statement of development and regulatory policies issued by RBI on March 27, 2020 along with regulatory package intended to maintain status quo as on March 01, 2020;
  • Asset classifications can be altered – status code to be maintained;
  • Time granted for payment of January instalment.

Bombay High Court – Invocation of LC’s: STANDARD RETAIL PVT. LTD. V. G.S. GLOBAL CORP[12]. , APRIL 8, 2020

  • Steel importers approached Court seeking restraint of encashment of letters of credit provided to Korean based exporters – claimed lock down hand rendered performance of contract impossible;
  • Bombay High Court refused the injunction:
  1. letters of credit are independent contracts with the bank;
  2. distribution of steel was recognised by government advisories as an essential service no restriction on movement;
  3. the lockdown was for from limited period;
  • The force majeure clause was only to aid exporters and not importers.

Bombay High Court — Transcon Iconica Pvt Ltd.  v. ICICI Bank[13] , April 11, 2020

  • Writ petitions filed by Transcon Sky City and Trancscon Iconica which had availed financing facilities from ICICI Bank defaulted on payments due on January 15, 2020 and February 15, 2020;
  • Determination of whether the moratorium is excluded for NPA classification;
  • Bombay High Court held (i) the period from March 01, 2020 to May 31, 2020 during which there is a lockdown will stand excluded until the lockdown is lifted, (ii) the reprieve is predicated on the lock down and not RBI moratorium, (iii) the borrower was put to terms as a consequences for non-compliance.

Delhi High Court: Invocation of Bank Guarantees: Halliburton Offshore Services Inc. v. Vedanta Ltd.[14] , April 20, 2020:

On an application filed by Halliburton Offshore Services Inc., which sought to restrain Vedanta Ltd. from encashing 8 bank guarantees issued in its favour to secure performance of obligations under a contract to drill petroleum wells, the Delhi High Court granted interim relief observing that the petitioner is not engaged in, stricto sensu, in the production of petroleum, but is, rather, engaged in drilling of wells, which activity is substantially impeded by the imposition of the lockdown and thereby an ad interim injunction, restraining  invocation or encashment of the bank guarantees, till the expiry of exactly one week from May 3, 2020 was granted.

Delhi High Court: Ramanand  v. Dr. Girish Soni[15], May 21, 2020

Application made by the petitioner (tenant), seeking suspension of rent on account of ’force majeure’ due to COVID-19 lockdown, the Single Judge observed that:

  • There is no rent agreement or lease deed between the parties, Section 32 of the Contract Act has no applicability.
  • The subject premises is governed by the provisions of the Delhi Rent Control Act, 1958 hence, Section 56 of the Contract Act does not apply to tenancies.
  • The petitioners have not urged that the tenancy is void under Section 108 (B)(e) of the TPA.
  • Considering factors such as nature of the property, financial and social status of the parties, amount of rent, any contractual condition(s) (relating to non-payment or suspension of rent), protection under any executive order(s) by the MHA, the application of the petitioners was rejected while granting postponement or relaxation in the schedule of payment of rent. However, it was clarified by the court that doctrine of frustration of contract or impossibility of performance does not apply to lease agreements.

**Authors are Founder and Senior Associate respectively with Shivadass & Shivadass (Law Chambers). The contents and comments of this document do not necessarily reflect the views/position of  Shivadass and Shivadass (Law Chambers) but remain solely of the author(s). For any further queries or follow up, please contact admin@sdlaw.co.in.

[1] Section 32, Contract Act, 1872  

[2] Noti. No. F.18/4/2020-PPD

[3] Noti. No. 283A8/2020-GRID SOLAR 

[4] Months’ Rental Waiver to the IT Companies Operating from (STPI) dt. 16-4-2020 

[5] Section 56, Contract Act, 1872  

[6] 1954 SCR 310

[7] See, para 9 of Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310

[8] (2017) 14 SCC 80

[9] [1961] 2 WLR 633 : 1961 (2) All ER 179 

[10].Rural Fairprice Wholesale Ltd.  v. IDBI, 2020 SCC OnLine Bom 518

[11] Anant Raj Limited v. Yes Bank Limited, 2020 SCC OnLine Del 543

[12] Commercial Arbitration Petitions Nos. 404 to 408 of 2020, judgment dated 08.04.2020

[13] 2020 SCC OnLine Bom 626

[14] 2020 SCCOnLine Del 542

[15] RC. REV447/2017, order dated 21-5-2020

Case BriefsHigh Courts

Bombay High Court: While deciding the instant custody matter, S.C. Gupte, J., held that as per the provisions of Section 6 of Hindu Minority and Guardianship Act, 1956, it is a mother who is the natural guardian of an illegitimate child (whether boy or girl) and a father’s claim only comes in second to mother’s.

As per the facts of the instant case, the dispute revolved around the custody of a minor son of the petitioner and the respondent, born out of wedlock. The petitioner (biological father) via his counsel Aditya Pratap, challenged the Order passed by the Family Court, Pune which had awarded the custody to the respondent (biological mother). The petitioner contended that the respondent has cut-off his access to the child and that she is mentally and emotionally unfit to take custody of the child. The petitioner further submitted that the respondent intends to take away the boy to New Zealand; hence she has applied for visa. The respondent via her counsel Abhishek Pungliya, contended that the petitioner had abandoned her during her pregnancy; refused to acknowledge their marriage which allegedly took place in 2009. The respondent also claimed that the petitioner inflicted physical and mental torture upon her so that the child may get miscarried. The respondent further submitted that since his birth and till date, it is the respondent alone who has brought up the child. It was pointed out that the child suffers from autism spectrum disorder; hence he has always been under exclusive care of the respondent whereas the petitioner never had any affection or association with the child. Regarding the respondent’s relocation to New Zealand, it was submitted that both the mother and the child are the citizens of New Zealand and since the country is free from the current Covid-19 pandemic, hence it is a safe haven for her son.

Perusing the contentions of the parties and the Order given by the Family Court, the Court observed that the petitioner could not sufficiently establish the mental instability of the respondent, as the materials presented by him does not establish the respondent’s unsoundness of mind, prima facie. Deliberating upon the validity of the Order passed by the Family Court, the Bench noted that the Family Court had correctly taken into account all the relevant circumstances and materials on record; its view is certainly a possible view, which a Court of law might well take.

The impugned Order has fairly and adequately addressed prima facie merits of the case as also the question of balance of convenience. Regarding the petitioner’s claims, the Court noted that he denied any matrimonial relationship between himself and the respondent, and thereby, legitimacy to the minor child. The child, who is a special child, has been taken care of and looked after by the respondent mother ever since his birth. It is therefore the mother who has an indefeasible legal right to his natural guardianship over the petitioner. [Dharmesh Vasantrai Shah v. Renuka Prakash Tiwari, 2020 SCC OnLine Bom 697 , decided on 09-06-2020]

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When the existence of the novel Coronavirus started featuring in the news space following China’s confirmation of its spread in the month of January, 2020, it was considered a novel, elusive actuality. It did not qualify as sufficient cause for concern and alarm which could have potentially sparked much needed preparations. However, in the past three months, the number of confirmed cases and resultant deaths due to Covid-19 (the disease caused by Coronavirus) has risen exponentially across the globe leading the World Health Organisation (WHO) to officially declare the corona virus outbreak as a “pandemic” on 11-3-2020[1].

In such persisting circumstances, the Government of India, in its endeavour to contain the extraordinary outbreak of the Coronavirus and its staggering effects, declared a nationwide lockdown. In the face of the unprecedented situations which have arisen as a result of the complete lockdown, many facets of our system find themselves temporarily inoperative. The disruption of the supply chain is one such inevitable corollary. Given this context, it is likely that performances under many existing contracts will be interrupted, postponed or cancelled. Such state of affairs then throws open many questions viz: Can the present day situation posed by COVID-19 pandemic qualify as “Force Majeure”, whether or not parties to the contracts/agreements can plead for being excused from performing their part of the contract citing force majeure and how will the contracts/agreements wherein, there is no specific force majeure clause would be governed in situation of supervening impossibility etc. This article would attempt to cover answers to all the afore-mentioned questions in light of the existing statutory provisions and the law laid down by the various courts of law in form of case laws.

Meaning of Force Majeure

The concept of force majeure[2] owes its origin to Roman Law which recognised the principle of “clausula rebus sic stantibus” which provides that obligations under a contract are binding so long as the situation existing at the time the contract was entered into fundamentally remains the same. The term force majeure refers to an event or effect that can be neither anticipated nor controlled. To put it differently, any event or circumstance which is within the reasonable control of the contracting parties does not qualify as force majeure. Legally, 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[3]. From a contractual perspective, the concept gains significance in as much as it provides protection to contracting parties in cases of virtual and actual impossibility of performance of contract. Hence, where reference is made to force majeure, the intention is to save the performing party from consequences of anything over which he has no control[4].

Force Majeure and Contract Act, 1872

While the provisions contained in the Contract Act, 1872 neither define the term ‘force majeure’ nor do they typically spell out the specific circumstances and events which would qualify as ‘force majeure events’, nevertheless the references to the same may be gathered from certain specific provisions laid therein.

In cases where the contract entered into between the parties contains an express or implied force majeure clause, defining the type of events, such as war, terrorism, earthquakes, hurricanes, acts of government, plagues or epidemics etc., the dissolution of the contract would take place under the terms of the contract itself and such cases would be dealt with under Section 32 of the Contract Act, 1872[5]. A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with due regard to the nature and general terms of the contract. The effect of the clause may vary with each instrument[6]. The relevant provision as contained in Section 32 of the Contract Act, 1872 is as follows:

32. Enforcement of Contracts contingent on an event happening.- Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void.

However, when no relevant event is mentioned in a contract, the occurrence of which frustrates the very purpose of the contract, the provision contained in Section 56 of the Act comes into play. Section 56 of the  Contract Act, 1872 embodies the “doctrine of frustration”. Briefly, “frustration” is an English contract law doctrine that acts as a device which serves to dissolve a contract when, as a result of an unforeseen instance, the obligations covered by it are rendered impossible to fulfil or the principal purpose for entering into the contact on the part of either party is fundamentally altered[7]. Generally speaking, the doctrine of frustration as embodied in Section 56 is relied upon for termination of contract. Section 56 of the  Contract Act, 1872 reads as follows:

56. Agreement to do impossible act.- An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful. A contract to do an act which, after the contract made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful. Where one person has promised to do something which he knew or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promise for any loss which such promisee sustains through the non-performance of the promise.

As is manifest from the perusal of the aforementioned provision, the first paragraph of Section 56 provides that an agreement to do an act impossible in itself is voidwhile the second paragraph of the same lays that a contract to do an act becomes void when such an act becomes: (a) impossible; or (b) unlawful by reason of some event which the promisor could not prevent. Under Section 56, the court can proceed to grant relief on the ground of subsequent impossibility when the very foundation of the contract becomes upset by the happening of an unforeseen event which was not anticipated by the parties at the time when the contract was entered into by them[8]. Such event or change must be so fundamental as to be regarded by law as striking at the root of contract as a whole[9]. Therefore, where performance is rendered invalid by intervention of law, or where the subject-matter assumed by the contracting parties to continue to exist is destroyed or a state of thing assumed to be the foundation of the contract fails, or does not happen, or where the performance is to be rendered personally by a person who dies or is disabled, the contract stands discharged[10]. Thus, in a nutshell, it can be said that where there is clear stipulation in the terms of the contract upon which the performance of the contract is dependant, such contracts would be governed by Section 32 of the Contract Act, 1872 and wherever, there is no such stipulation in the contract, such contracts would be governed by Section 56 of the  Contract Act, 1872 in cases a supervening impossibility arises. The said applicability of Section 32 vis-à-vis Section 56 of the Contract Act, 1872 has recently been delved into by the  Supreme Court of India as an ancillary issue in  National Agricultural Cooperative Marketing Federation of India v. Alimenta S.A.[11]

Whether situation posed by COVID-19 pandemic qualifies as Force Majeure event?

In response to the potential ramifications of the Covid-19 pandemic in the functioning of the economic and industrial machinery, notifications and advisories have been issued by the Government of India in an attempt to bring in some semblance of stability.

For instance, on 19-2-2020, the Ministry of Finance, Government of India issued a notification[12] clarifying that the disruption of supply chains due to the spread of coronavirus should be considered as a case of natural calamity and force majeure clause may be invoked, wherever considered appropriate, following due procedures. The aforementioned notification further stipulates that “coronavirus should be considered as a case of natural calamity and force majeure may be invoked, wherever considered appropriate, following the due procedure…a force majeure clause does not excuse a party’s non performance entirely, but only suspends it for the duration of the force majeure. The firm has to give notice of force majeure as soon as it occurs and it cannot be claimed ex-post facto…If the performance in whole or in part or any obligation under the contract is prevented or delayed by any reason of force majeure for a period exceeding ninety days, either party may at its option terminate the contract without any financial repercussion on either side”. However, the aforesaid Office Memorandum may not necessarily or implicitly serve as binding document for the contracting parties, being more in the form of an advisory or recommendation. 

In addition to the above, the question as to whether COVID-19 outbreak along with its consequential restrictions including the quarantines, travel restrictions or other related limitations on normal business imposed by government would qualify as force majeure, would depend on the language of the clause and the rules of legal interpretation of force majeure clauses[13]. Hence, the wordings used in different clauses of the contract assume salience in order to find out as to whether or not parties to the contracts/agreements can plead for being excused from performing their part of the contract citing force majeure given the situation posed by the COVID-19 pandemic. For the aforesaid purpose, further discussion in this article is broadly categorised into two headings — (i) Firstly, cases where force majeure clause is enshrined in the contract itself, and (ii) Secondly, cases where force majeure clause is not enshrined in the contract.

1. If Force Majeure Clause is enshrined in the Contract

Pertinently, if the force majeure clause in the contract refers to a pandemic or an epidemic, the same may be pleaded and urged by contracting parties where performance of the contract entered between them has become practically and commercially impracticable on account of COVID-19 outbreak. Where a contracting party seeks to claim relief under the force majeure clause, the occurrence of one of the events set out in the force majeure clause is needed to be proved and the burden of proof lies on the party which invokes the force majeure clause.

Now, in contracts where the force majeure clause explicitly covers pandemics and epidemics or situations arisen by responses to the pandemic or epidemic, the discharge of the aforementioned burden remains fairly uncomplicated. However, complications arise in a scenario where a force majeure clause simply uses the phrase ‘event beyond the reasonable control of parties’. Here, to facilitate swift and favourable discernment of disputes, it becomes vitally important for the party invoking the force majeure clause to maintain any and all documents related to the event in question which may prove to be consequential in the ascertaining process. In regard to this discussion, the said documents may include (i) any notification and/or guideline issued by the national and/or state governments imposing restrictions on trade, (ii) definite forms of information from reliable media sources related to COVID-19 outbreak, restrictions on public movement and/or mandatory shutdown of modes of travel (iii) documents revealing any cancellations disrupting travel itinerary, such as cancelled/rejected visa et al.

2. If Force Majeure Clause is not enshrined in the Contract

As has been discussed earlier, when an event which is not mentioned in the contract takes place which frustrates the very purpose thereof, the provision contained in Section 56 of the Contract Act, 1872 shall come into play. The  Supreme Court of India, while explaining the concept of frustration in contract law in Satyabrata Ghosh v. Mugneeram Bangur & Amp; Co.[14] has held that the word “impossible” has not been used with respect to physical or literal impossibility. Where an unexpected occurrence or change in circumstances decimates the very objective of the contract the same may be considered as “impossibility” to do as agreed.

A study of the landmark judgments rendered by the  Supreme Court of India over the course of time showcases a very high threshold to apply the concept of force majeure which requires the entire foundation of the contract to be shown to be obliterated. An existing contract shall cease to bind the contracting parties only when consideration of the terms of the contract, in light of the circumstances existing when it was entered into, shows that there was no agreement to be bound in a fundamentally different and unexpected situation. The performance of a contract is never discharged merely on the ground that the same may become onerous to one of the parties[15]. In order elucidate and highlight the threshold defined by the Indian courts for citing force majeure by contracting parties, certain celebrated judgments rendered by the Supreme Court are discussed below:

In Satyabhrata Ghose case (supra), it was held by the Supreme Court of India that the contract of sale for a chunk of land was not frustrated and performance thereunder could not be said to be rendered impossible under Section 56 of the Contract Act, 1872 merely because the said land had been requisitioned by the Government for military purposes during the Second World War. The Supreme Court even went ahead to observe that during the war, the parties could naturally anticipate restrictions of various kinds which would make performance under contracts more difficult than in times of peace and therefore, the requisitioning of the land which formed the subject matter of the contract of sale could not be said to affect the fundamental basis upon which the agreement rested or strike at the roots of the adventure.

Likewise, in Alopi Parshad & Sons Ltd. v. Union of India[16], the claim of the appellant for enhanced prices for supply of ghee for Army personnel during the second world war was rejected by the Supreme Court despite enormous scarcity and enhanced procurement expenses owing to conditions of war and it was categorically held by the court that the parties to an executory contract are often faced with a turn of events which they did not at all anticipate, such as, an abnormal rise or fall in prices, a sudden depreciation of currency etc. However, the same does not per se affect the bargain they have made.

In Naihati Jute Mills Ltd v. Hyaliram Jagannath[17] while observing that it is not hardship or inconvenience or material loss which brings about the principle of frustration into play, the Supreme Court held that rejection of an import licence to a jute supplier sourcing Pakistani jute could not be said to have rendered performance under the contract entered into between the parties as impossible.

More recently, in Energy Watchdog v. Central Electricity Regulatory Commission[18] the rise in price of coal consequent to change in Indonesian Law, which though admittedly rendered the contract commercially impossible, was not treated as a force majeure event by the Supreme Court as neither was the fundamental basis of the contract, which in this case was to generate and supply energy from coal, was shown to be dislodged nor was any frustrating event, except for a rise in the price of coal, pointed out. On the contrary, the Court observed that where alternative modes of performance of obligations under the contract were available, albeit at a higher price, the same could not be treated to have been frustrated.

Conclusion

There is no gainsaying that the behemoth of COVID-19 has inter alia virtually brought economic activity to a halt and has disturbed the chain of production, supply and distribution. However, it would be extremely difficult, if not impossible; to prove beyond reasonable doubt that disruptions qua unprecedented outbreak of COVID-19 pandemic have radically and irreversibly dislodged the very bargain contemplated in a contract, particularly in view of the temporariness of such disruptions or for that matter the full probability of resumption of the “pre-Corona” times. Mere inconveniences, difficulty, pause or delay in performance of obligations under a contract owing to COVID-19 pandemic and its consequential restrictions would not hold ground to treat the same as a force majeure event given the little judicial importance offered by the courts of law to such parameters while defining the high benchmark for force majeure to apply. However, given that the Courts would assess the application of concept of force majeure in light of the facts and circumstances of each case presented before them, by either resorting to principle of equity or by adopting a more technical approach, it would be imperative for the contracting parties be thorough with the terms and clauses incorporated in the contract as well as their contractual rights and obligations thereunder.


*Author is a graduate of University of Cambridge (United Kingdom) with a specialisation in Commercial Laws. Currently practicing law before the Lucknow Bench of Allahabad High Court.

**Co-Author is a gold medallist in law from Unity Post Graduate and Law College Lucknow (affiliated to Lucknow University, Lucknow). Currently practicing law before the Lucknow Bench of  Allahabad High Court.

The authors deeply acknowledge the guidance of Mr. Gaurav Mehrotra, Advocate

[1] See World Health Organisation Virtual Press Conference on Covid-19, 11th March 2020 available at https://www.who.int/docs/default-source/coronaviruse/transcripts/who-audio-emergencies-coronavirus-press-conference-full-and-final-11mar2020.pdf?sfvrsn=cb432bb3_2

[2] The term force majeure has been borrowed from French, the literal translation whereof is “superior force” in English.

[3] Black’s Law Dictionary, 11th Edition, at page 788.

[4] Dhanrajamal Gobindram v. Shamji Kalidas & Co., (1961) 3 SCR 1020

[5] Satyabrata Ghose v. Mugneeram Bangur & Co., 1954 SCR 310

[6] Lebeeaupin v. Crispin, (1920) 2 K.B. 714 

[7] Taylor v. Caldwell , (1863) 3 B & S 826

[8] Naihati Jute Mills Ltd. v. Khyaliram, (1968) 1 SCR 821 

[9] Satyabhrata Ghose v. Mugneeram Bangur, 1954 SCR 310

[10] Raja Dhruv Dev Chand v. Harmohinder Singh, (1968) 3 SCR 339 

[11] 2020 SCC OnLine SC 381  

[12] Office Memorandum No.F. 18/4/2020-PPD titled ‘Force Majeure Clause’, issued by Department of    Expenditure, Procurement Policy Division, Ministry of Finance, Government of India

[13] Mulla & Pollock on Indian Contract Act, 1872 & Specific Relief Act, 1967, page 1181.

[14] 1954 SCR 310 (12) 

[15] Alopi Parshad & Sons Ltd. v. Union of India, 1960 (2) SCR 793

[16] 1960 (2) SCR 793

[17] (1968) 1 SCR 821

[18] (2017) 14 SCC 80

Case BriefsCOVID 19High Courts

Delhi High Court: C. Hari Shankar, J., addressed a petition with regard to quashing of FIR wherein petitioner was in custody for loitering around without wearing mask and assaulting a police constable, and held that,

charges against the petitioners are unquestionably serious.

Petitioner sought quashing of FIR for offences committed under Sections 188/269/186/353/332/506 read with Section 34 of penal Code, 1860.

Rahul (Petitioner 2) was seen loitering without wearing a mask in violation of Compliance Advisory issued by Centre in the wake of COVID-19 pandemic.

On the complainant intercepting Rahul and querying him in that regard, Rahul retorted that the complainant had no right to stop him from walking in the area without a mask.

Further when the complainant with the help of a constable tried to control Rahul, he caught hold of the collar of the shirt being worn by the complainant and tore the shirt. Rahul also assaulted the constable by kicking him.

Rahul’s brother Petitioner 1 also joined him and started assaulting the complainant. Later both of them were take into custody and FIR was lodged.

Quashing of criminal proceedings by eviscerating them from their very inception, is an extreme step, to be taken with due circumspection.

Progress of the criminal law, once legitimately set in motion, should not be halted by judicial diktat, save in exceptional circumstances and with due cause.

Bench stated that, charges against the petitioners are unquestionably serious.

Breach of the lockdown restrictions, imposed by the Government, which, if permitted unchecked, may result in loss of lives of millions, and cannot be tolerated.

Court also added that the acts of petitioners are inherently inimical to public interest and may have catastrophic consequences and in these cases Courts cannot permit themselves to be carried away by the physical nature of the act as committed, unmindful of the results that would ensue, were such acts to be tolerated. [Sunder Kumar v. State, WP (Crl) No. 787 of 2020, decided on 06-05-2020]

COVID 19Hot Off The PressNews

Chief Justice of the Bombay High Court and the Administrative Judges of the Bombay High Court have decided that the High Court of Bombay and Courts subordinate to it shall not avail Summer Vacation, if after 3rd May, 2020 and before 7th June, 2020, the normal Court working is restored by lifting the lock-down.

During the period of Summer vacation if normal Court working is restored

The working hours for the Subordinate Courts during the said period, if normal court working starts, shall be as in force prior to Covid-19 pandemic.

The modified working hours for the High Court, if any, from 08th June, 2020 onwards shall be notified separately.

Access the Circular here: CIRCULAR 


Bombay High Court

[Circular dt. 21-04-2020]

COVID 19Legislation UpdatesNotifications

Government of India has reviewed the extant Foreign Direct Investment(FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic and amended para 3.1.1 of extant FDI policy as contained in Consolidated FDI Policy, 2017. Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry has issued Press Note No. 3(2020 Series) in this regard.

The present position and revised position in the matters will be as under:

Present Position 

Para 3.1.1: A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

Revised Position 

Para 3.1.1:

3.1.1(a) A non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. However, an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defence, space, atomic energy and sectors/activities prohibited for foreign investment.

3.1.1(b) In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview of the para 3.1.1(a), such subsequent change in beneficial ownership will also require Government approval.

The above decision will take effect from the date of FEMA notification.


Ministry of Commerce & Industry

[Press Release dt. 18-04-2020]

[Source: PIB]

COVID 19Hot Off The PressNews

The Ministry of Tourism, Govt. of India has launched portal www.strandedinindia.com on 31st March 2020, with a view to identify, assist and facilitate foreign tourists who are stranded in various parts of India due to the lockdown situation necessitated by the COVID-19 global pandemic.

Such tourists would need to log on to the portal, provide some basic contact information and narrate the nature of issues being faced by them, if any.

In the first 5 days of its operation, 769 foreign tourists from all over the country registered on the portal.

Every State Government and Union Territory Administration has identified a Nodal Officer for assisting such foreign tourists.

The 5 Regional Offices of the Ministry of Tourism are constantly coordinating with the Nodal Officers regarding the Support Requests logged on the portal, for facilitating ground support to the foreigners, if so required. The Tourism Ministry Regional Offices are also coordinating with the Bureau of Immigration and FRROs regarding Visa issues being faced by stranded foreigners. Requests for movement within the country/ state and for transfer to home country of such tourists are also being coordinated with the Ministry of External Affairs, Ministry of Home Affairs and with the respective Embassy/ High Commission/ Consulate.

The utility and efficacy of the portal has led to stranded foreign tourists being contacted over e-mails, telephones and also in person depending on the nature of support required by them. They have been connected with the relevant foreign office of their home country in India and provided various information updates on flights out of India to their home countries. Wherever required, they have been provided medical assistance, food and accommodation.

A lady, who is an American citizen, was stranded in Supaul district of Bihar amidst the COVID19 lockdown, while her son was undergoing a surgery at Delhi. The portal facilitated the required inter-ministerial, inter-departmental and State-Centre coordination and secured her a special transit-permit to travel to Delhi. She has safely reached her destination and expressed her gratitude for the efforts put in by all the concerned agencies.

Two Costa Rican citizens, who had come to Chennai for a surgery (medical tourism), were stranded at Chennai after the surgery. Close coordination with the State Government, the Costa Rican Embassy and the hotel in which the tourists were staying helped in soothing the frayed and panicked nerves of the tourists. They are now safe and well.

An Australian tourist with his family was stranded in Ahmedabad. The tourist has epilepsy and ran out of medication prescribed by Australian doctors due to the lockdown. The portal led to the tourist being reached through the office of the District Collector. He was provided with sufficient medication and was also offered food and local transportation. Now, they are comfortable and safe.

The above are just a few of the many occasions in which the portal helped many foreigners in getting critical assistance at a crucial time. In the coming days, the portal will continue to serve its purpose and the Government are committed to the cause of ensuring the comfort and well being of our foreign guests during their stay in India.

That is the spirit of “Atithi Devo Bhava”, the mantra that drives Incredible India!


Ministry of Tourism

[Press Release dt. 06-04-2020]

[Source: PIB]

COVID 19Hot Off The PressNews

Chewing Smokeless Tobacco products (Gutkha, Paan masala with tobacco, Paan and other chewing tobacco products) and areca nut (supari) increases the production of saliva followed by a very strong urge to spit. Spitting in public places could enhance the spread of the COVID19 virus.

In view of the increasing danger of COVID-19 pandemic, it is an appeal to the general public to refrain from consuming the smokeless tobacco products and spitting in public places during the COVID epidemic.


Indian Council of Medical Research

 

Legislation UpdatesNotifications

In a move to extend the availability and reach of online services in the wake of the COVID-19 pandemic, EPFO has issued revised instructions to its field offices to facilitate PF members to rectify their date of birth in EPFO records, thus ensuring that their UAN is KYC compliant.

The date of birth recorded in ‘Aadhaar’ will now be accepted as valid proof of date of birth for the purpose of rectification, provided that the difference in the two dates is less than 3 years. The PF subscribers can submit the correction requests online.

This will enable EPFO to validate the date of birth of members online with UIDAI instantaneously, thus authenticating and reducing the processing time of change requests.

EPFO has instructed field offices to expedite disposal of online requests, enabling PF members in financial distress, to apply online for availing non refundable advance from their PF accumulations to tide over the COVID-19 pandemic.


Ministry of Labour and Employment

[Press Release dt. 05-04-2020]

[Source: PIB]

COVID 19Hot Off The PressNews

The Income Tax Appellate Tribunal (ITAT) has commenced today a series of Video Conferences involving regular interactive sessions to productively utilise the time available during the 21-day lockdown to tackle the COVID-19 pandemic. ITAT President, Justice P.P. Bhatt, in a communication to Vice Presidents and Members of the Tribunal, said such meetings can be utilized for exchanging views and formulating strategies as to how to improve the rate of disposal of cases as well as quality of judicial orders.

Reiterating that the lockdown announced by the Government of India be strictly complied with by practising social distancing and self-quarantine, Justice Bhatt said it has become practically difficult to work from offices and retain the same productivity levels as of normal working days. Nevertheless, it is important that we utilize this period to enhance our skills and capabilities, he added.

“In our daily routine of attending to judicial workload, sufficient time is not available to address issues of administrative, infrastructure, employees disciplining etc. Therefore, such interactions would help in achieving efficiency in our administrative working also,” said Mr. Justice Bhatt.

The topics of the seven interactive sessions on all working days till Monday, 13th April, include domain as well as non-domain subjects and will have different sessions at the National and Zonal levels, including amongst Members of bigger multiple Bench stations. Domain topics include Income Tax and allied laws, while non-domain subjects relate to better living viz., health, meditation, holistic wellness etc. Members of each station have been asked to have meetings amongst themselves on local issues relating to infrastructure and administrative problems.

Emerging issues scheduled to be deliberated upon include:

(i) General Anti Avoidance Rule (GAAR) – likely issues arising from application of GAAR in assessments.

(ii) The Direct Tax Vivad Se Vishwas Act, 2020 – expectations of and from ITAT.

(iii) Amendments in Finance Act, 2020.

(iv) Changing concept of Permanent Establishment and Business Connection and taxation of digital economy in the light of BEPS and legal amendments.

(v) Impact of ICDS in the assessments and issues arising thereof.

Fundamental issues to be discussed during the Interactions include:

(i) Business connection.

(ii) Deemed Incomes under Section 9, FTS and Royalties.

(iii) Permanent Establishment and Profit Attribution.

(iv) Case studies – the impact of some important judicial precedents – key takeaways.

(v) Reopening of assessment and revision of assessment.

Non-domain subjects lined up for the Interactions include:

(i) Art of Living – facing pandemic lockdown with positivity.

(ii) Work from Home (WFH) – an opportunity to maintain work-life balance.

(iii) Yoga tips.

Addressing the Inaugural Session today, Mr. Justice Bhatt said he has requested the Chief Justice of India, Mr. Justice Sharad Arvind Bobde to address one of the Interactive Sessions with the ITAT Vice Presidents and Members. Eminent jurists will also address various sessions and participate in the interactions, he added.


Ministry of Law and Justice

[Press Release dt. 03-04-2020]

[Source: PIB]

COVID 19Legislation UpdatesNotifications

With respect to COVID 19 pandemic, Department of Rural Development, GoI in close collaboration with State Governments has taken various initiatives. Mahatma Gandhi NREGS wages have been revised by Department of Rural Development, GoI with effect from 1st April, 2020. The average national increase is Rs 20.

Focus of Mahatma Gandhi NREGS may be on individual beneficiary-oriented works which directly benefit SC, ST and women headed households as well as small & marginal farmers and other poor households. However, close consultation and guidance of the State as well as district authorities would be necessary to ensure that lock down conditions are not violated and norms of social distancing are scrupulously followed.

Ministry of Rural Development is according top priority to liquidate the wage and material arrears. An amount of Rs. 4,431 crore has been released in this week to various States/UTs to liquidate these liabilities of current fiscal year and the remaining such liabilities along with 1st tranche for the year 2020-21 will be released before 15th April, 2020. An amount of Rs. 721 crore has been released to State Government of Andhra Pradesh.


Ministry of Rural Development

[Press Release dt. 31-03-2020]

[Source: PIB]