We all are aware of the present situation we are living in i.e., the coronavirus. This COVID-19 is affecting the whole world, and has taken a disastrous turn on human life and endangering human life. This unanticipated situation has also made most of the industries to avoid fulfilling the obligations specified in their commercial contracts or make delayed performance to minimize their risks and losses. This right is made available to the contracting parties through a clause known as Force Majeure.
First of all, what is Force Majeure Clause?
An unexpected event such as war, crime, or an earthquake that prevents someone from doing something that is written in a legal agreement. There are numerous circumstances that we class as examples of force majeure. War, riots, earthquakes, hurricanes, lightning, and explosions, are some examples of force majeure events.
The main purpose beyond the force majeure is to save the performing party from the consequence of events that are beyond its control. Although all events cannot be force majeure events. It has to gratify the crucial for the discharge of contractual obligations.
The Ministry of Finance clarifies that the spread of Corona should be treated as natural calamity and force majeure wherever consider appropriate, following due procedures,
Invocation of Force Majeure clause in Indian contracts
Several contracts may not contain the Force Majeure clause explicitly to define clear procedures to be conducted to claim benefits under the clause due to the COVID-19 outbreak. If the contract does not include a Force Majeure clause, the affected party could claim relief under the ‘Doctrine of Frustration’ under Section 56 of the Indian Contract Act, 1872.
The doctrine of Frustration talks about the impossibility of performance of the contract.
It means a contract cannot be executed because of an incident beyond the control of parties. The performance of such a contract becomes frustrated i.e. it becomes complicated, impossible, or even illegal. The frustration of the contract can be due to any unforeseen, impossible events, and events out of control of the parties.
All contractual obligations cannot be frustrated by the application of the force majeure clause. Courts don't exercise an arbitrary power to absolve a party from a contractual obligation due to temporary impracticality. The doctrine of frustration is not a straight jacket formula and has to be applied differently on case to case basis. There may be commercial deprivation that cannot be described, prima facie, as an impossibility.
Parties to such contracts, in these tiring times, should also look around them to find those amenities to facilitate the performance of the contract rather than blindly relying on the situation to supplicate the force majeure clause. Force majeure clause is just a temporary suspension of contractual obligation due to impossibility but not a defense to escape liability due to impracticality. The courts should apply its discretion whether a contractual obligation is still subsisting on the parties or has been discharged from the obligation on the application of the doctrine of frustration.
BY: Sheetal Kaushik