Force majeure has become a fairly common ground to avoid the performance of contractual obligations in a post-Covid-19 world. This presentation will cover the definitions of force majeure, statutory provisions governing the doctrine; Landmark judgments; GOs on Covid-19 and force majeure and take away from the same.

1. Impact of Force Majeure in
Commercial Contracts
Pooja.P
Advocate
M/s. Giridhar & Sai
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2. GOs on COVID-19 as
Force Majeure
Are we prepared for
potential disputes?
Introduction
Force Majeure –meaning
statutory provision
Landmark Judgments
01
02
03
04
05
Scope and
limitation
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3. Introduction
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 The unforeseen corona virus pandemic has interrupted
our personal, professional, financial and commercial
lives, to a point of preventing best performance at all
levels;
 Legal profession has also seen a lot of changes owing to
this pandemic;
 There are bigger issues in commercial contracts and in
such times, the Force Majeure (FM) clause plays a big
role.
 Why Force Majeure plays a big role in these times is
because there are very many issues that are not in control
of the parties.

4. Significance of Force Majeure in Covid-19
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 A provision of force majeure in a contract is intended to
absolve a party or waive its obligations absolutely or
suspend it temporarily for reasons which cannot be
construed to be a breach of contract by the defaulting
party.
 It squarely forms a defense against the grund norm
of pacta sunt servanda (latin term for “agreements must
be kept”).
 A typical force majeure clause would first define the
events that would constitute a ‘force majeure’ and would
then specify what consequences would follow if such an
event occurred.

5. Force Majeure and Covid-19
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 Force Majeure (FM) as per Black's Law Dictionary -'any event
or effect that can neither be anticipated nor controlled.'
 FM, is a French term equivalent to "Vis majeure“ means
"superior force".
Will Covid-19 trigger FM clause?
 If the definition of force majeure specifically includes an
‘epidemic’, ‘pandemic’, ‘disease outbreak’, or even ‘public
health crisis’, the current situation relating to COVID-19 may
fit within that clause.
 The provision may also include a reference to government
action as a force majeure event, including ‘acts, orders,
regulations, or laws of any government’, or ‘government order
or regulation’.

6. Force Majeure and Contract Act, 1872
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 No definition of FM under
the Indian Contract Act
 In cases where the contract
entered into between the
parties contains an express
or implied FM clause,
defining the type of events
then such a contract would
be governed by S.32 of the
Indian Contract Act(ICA) –
contingent contracts
 If the contract does not
contain a FM clause then it
would be governed by S.56
of the ICA – also known as
Doctrine of Frustration

7. Force Majeure and Contract Act, 1872
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S.31
• Contingent
contract
defined - A
Contingent
contract is a
contract to do
or not to do
something, if
some event.
Collateral to
such contract,
does or does
not happen.
S.32
• Enforcement of
contracts contingent
on an event
happening-
Contingent contracts
to do or not to
anything if an
uncertain future
event happens cannot
be enforced by law
unless and untill that
event has happened.
• If that event becomes
impossible, such
contracts become
void.
S.56
• Agreement to do
impossible act. – An
agreement to do an act
impossible in itself is
void.
• Contracts to do an act
afterwards becoming
impossible or unlawful.
– A contract to do an
act which, after the
contract is 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....

8. Force Majeure and lease agreement
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 Lease agreement is
governed primarily by
the Transfer of Property
Act, 1882, which is
special statue, and it is
settled law that a special
statute would trump a
general statute.
 S. 4 - The Chapters and
sections of TP Act which
relate to contracts shall
be taken as part of the
ICA, 1872
 The doctrine of Force
Majeure is recognised
in Section
108(B)(e) of the
Transfer of Property Act.

9. Force Majeure and lease agreement
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 Section 108(B)(e) of the TP Act:
S.108 - Rights and liabilities of lessor and lessee -In the absence
of a contract or local usage to the contrary, the lessor and the
lessee of immoveable property, as against one another,
respectively, possess the rights and are subject to the
liabilities mentioned in the rules next following:
(B) Rights and Liabilities of the Lessee:
(a).......
(e) if by fire, tempest or flood, or violence of an army or of a
mob, or other irresistible force, any material part of the
property be wholly destroyed or rendered substantially and
permanently unfit for the purposes for which it was let, the
lease shall, at the option of the lessee, be void…..

10. Landmark Judgements
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11. Raja Dhruv Dev Chand v. Raja
Harmohinder Singh,1968 AIR 1024
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 Partition case - S.108 of the TP Act
 By s. 4 of the Transfer of Property Act the chapters and sections of
the TP Act which relate to contracts are to be taken as part of the
ICA. That section however does not enact and cannot be read as
enacting that the provisions of the ICA are to be read into the TP
Act.
 There is a clear distinction between a completed
conveyance(executed contract) and an executory contract.
 Section. 56 of the Contract Act does not apply to cases in which
there is a completed transfer”
 “Where the property leased is not destroyed or substantially and
permanently unfit, the lessee cannot avoid the lease because he
does not or is unable to use the land for purposes for which it is let
to him
 Temporary non-use by the tenant due to any factors would not
entitle the tenant to invoke S.56

12. Doctrine of frustration not applicable to lease
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 In Shaha Ratansi Khimji and Sons vs. Proposed
Kumbhar Sons Hotel P. Ltd. (2014)14SCC1 and
Lakshmipathi and Ors. v. R. Nithyananda
Reddy and Ors. (2003) 5 SCC 150 (Co-owner’s case-
substantially and permanently unfit)
 Supreme Court held that lease of a building includes, the
land on which the building stands. So even if the
building is destroyed or demolished, the lease is not
determined as long as the land beneath it continues to
exist. Doctrine of frustration cannot be invoked on
destruction or demolition of a building under lease
where not only privity of contract but privity of estate is
also created. Section 56 cannot be invoked to claim
waiver, suspension or exemption from payment of rent.

13. Ramanand and Others v. Dr. Girish Soni and
Another
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 Citation: (RC. Rev. 447/2017)
 Court: High Court of Delhi
 Coram: Justice Prathiba M. Singh
 Date of Order – 21.05.20
 Case discussed and upheld – Raja Dhruv’s case,
Laxmipathy case and Shaha Ratansi Case – all 3
Supreme Court cases discussed in previous slides.
 Issue in the present case pertains to suspension of
payment of rent owing to the COVID-19 lockdown
crisis

14. Ramanand and Others v. Dr. Girish Soni and
Another
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 Revision petition by the Appellants/Tenants
 Challenging order of Rent Controller dt. 18.03.17
Court granting a decree of eviction in respect of
Shop in Khan Market Delhi
 25.09.17 – case was first listed and Single Judge
stayed the order of eviction subject to the petitioners,
with effect from the month of October, 2017, paying
to the respondents a sum of Rs.3.5 lakhs per month.
 Following the outbreak of COVID-19, an application
for suspension of rent was moved.

15. Ramanand and Others v. Dr. Girish Soni and
Another
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Arguments of the Appellant/Tenant:
 Due to the lockdown, there has been complete
disruption of all business activities.
 Circumstances are due to force majeure and beyond
the control of the Tenants.
 Thus, it is claimed that the Tenants are entitled to
waiver of the monthly payment directed, or at least
some partial relief in terms of suspension,
postponement or part-payment of the said amount.

16. Ramanand and Others v. Dr. Girish Soni and
Another
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Para 25:
For a lessee to seek protection under sub-section
108(B)(e), there has to be complete destruction of the
property, which is permanent in nature due to the force
majeure event. Until and unless there is a complete
destruction of the property, Section 108(B)(e) of the TPA
cannot be invoked. 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 tenant cannot
also avoid payment of rent in view of Section 108(B)(l).

17. Ramanand and Others v. Dr. Girish
Soni and Another
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Suspension of rent - equitable jurisdiction
(Para 31)
Factors as necessary for determining the question as
to whether the Tenants are entitled to any relief of
suspension of rent:
 Nature of property
 Financial and social status of the parties
 Amount of rent
 Protection under executive orders
 Other factors

18. Ramanand and Others v. Dr. Girish
Soni and Another
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Order - Para 32:
“The Tenants' application for suspension of rent is
thus liable to be rejected inasmuch as while
invoking the doctrine of suspension of rent on the
basis of a force majeure event, it is clear from the
submissions made that the Tenants do not intend to
surrender the tenanted premises. While holding that
suspension of rent is not permissible in these facts,
some postponement or relaxation in the schedule of
payment can be granted owing to the lockdown.”

19. Energy Watchdog v. CERC & Ors., (2017)
14 SCC 80
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The law regarding Force Majeure has been laid down in this judgment
in Para 28 to 40 as follows:
 Force Majeure would operate as part of a contract as a
contingency under section 32 of the ICA.
 Independent of the contract sometimes, the doctrine of
frustration could be invoked by a party as per Section 56, ICA.
 If an untoward event or change of circumstance totally upsets the
very foundation upon which the parties entered their agreement it
can be said that the promisor finds it impossible to do the act
which he had promised to do.
 Express terms of a contract cannot be ignored on a vague plea of
equity.
 Performance is not discharged simply if it becomes onerous
between the parties.
 Alteration of circumstances does not lead to frustration of a
contract

20. Energy Watchdog v. CERC & Ors., (2017)
14 SCC 80
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 Courts cannot generally absolve performance of a contract
either because it has become onerous or due to an
unforeseen turn of events.
 Doctrine of frustration has to be applied narrowly.
 A mere rise in cost or expense does not lead to frustration.
 f there is an alternative mode of performance, the Force
Majeure clause will not apply.
 The terms of the contract, its matrix or context, the
knowledge, expectation, assumptions and the nature of the
supervening events have to be considered.
 Unless there was a break in identity between the contract as
envisioned originally and its performance in the altered
circumstances, doctrine of frustration would not apply.

21. Rural Fairprice Wholesale Ltd. & Anr. vs
IDBI Trusteeship Services Ltd. & Ors.
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 Citation - Interim Application No. 1 of 2020 in
Commercial Suit (L) 307 of 2020
 Court – Bombay High Court
 Order date – 03.04.2020
 In this case the Bombay High Court recognized the
market situation pursuant to the COVID-19 and
observed that the share market had collapsed due to
COVID-19, therefore, it was a fit case to restrain the
bank from acting upon the sale notices for the
pledged shares

22. Standard Retail Pvt. Ltd vs Gs Global Corp
And Ors
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 Citation –
 Court – Bombay High Court
 Order date – 08.04.20
 S.9 application under the A&C Act seeking injunction
from encashment of LC by the Respondent
 Respondent No. 1 -office at South Korea was to supply
certain steel products to the Petitioners at Mumbai
 In view of the COVID-19 pandemic and the lockdown
declared by the Government, Petitioner terminated
contract as unenforceable on account of frustration,
impossibility and impracticability.

23. Standard Retail Pvt. Ltd vs Gs Global Corp
And Ors
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Court did not grant ad-interim injunction on the following
grounds:
 LC independent transaction with the bank and the bank
is not concerned about the dispute between the parties
 Respondent has shipped the goods and has complied
with its part of obligation.
 The fact that the Petitioners would not be able to perform
its obligations so far as its own purchasers are concerned
is not a factor which can be considered and held against
Respondent
 The commodity in question was an essential item and
lockdown is only for a limited period.

24. M/s. Halliburton Offshore Services Inc. vs
Vedanta Limited & Anr
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 Citation: O.M.P. (I) (COMM) and I.A. 3697/2020
 Court – Delhi High Court
 Order date – 29.05.20 and 20.04.2020
 S.9 application under the A&C Act seeking injunction from
encashment of LC by the Respondent
 Contract involving construction of integrated oil wells and
development of certain surface facilities.
 Court held that the countrywide lockdown was prima facie in
the nature of force majeure.
 Special equities do exist, as would justify grant of the prayer,
of the petitioner, to injunct the respondent from invoking the
bank guarantees of the petitioner
 29.05.20 – vacated the injunction

25. Government Orders on Force Majeure
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 19.02.20 - Ministry of Finance – under Manual for
Procurement of Goods, 2017 - Force Majeure clause
can be invoked in Government contracts if there is a
disruption in supply chain due to spread of corona
 20.02.20 - Ministry of New & Renewable
Energy(MNRE) -directs all Renewable Energy
implementing agencies of the MNRE to treat delay
on account of disruption of the supply chains due to
spread of COVID-19 as Force Majeure event.

26. Government Orders on Force Majeure
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 29.03.20 – Ministry of Home Affairs - protection to
some classes of tenants such as migrants, labourers,
students, etc from landlord to demand rent for a
period one month
 If any landlord is forcing labourers and students
from vacating the premise they will be liable under
the Disaster Management Act
 Such initiative by the Government of India is a big
reprise in such tough times. Though the memoranda
do not bind parties to private commercial contracts,
but may be of persuasive value.

27. Are we prepared for potential dispute?
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 Review whether the contracts of the clients have a
force majeure clause and if so, whether it covers
epidemic or pandemic i.e. Covid-19
 In case the contracts do not have force majeure
clause, then to exhaust the remedies available to
client
 Draft templates for communication for delays in
supplies, payments, deferment of contractual
obligations, revised timelines or on invocation of
FMC

28. Are we prepared for potential dispute?
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 Promptly notify the counterparty regarding the
occurrence of a force majeure event, in the manner
provided under the contract.
 Collate all documents related to the force majeure event,
as the same would serve as a vital evidence at the time of
dispute resolution.
 Trace and keep a record of the various notifications and
orders by government.
 Assist clients in the following:
a. Re-negotiate the terms and amendment of contract
b. Dispute Resolution/Litigation

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