COVID-19: A HINDRANCE IN PERFORMANCE OF CONTRACTUAL OBLIGATION BY KRISHNA NIGAM

INTRODUCTION

Today, the entire world is fighting with the unseen enemy (Covid-19) which has affected a large number of people in every country as on 1 May 2019 there were around 31,75,207 people were affected. Most of the countries have declared total shutdown in their respective country in order to avoid gathering to prevent the spread of the communicable coronavirus.  This lockdown causes the total closer of every economic activity in the country like all the industries are close, import-export of the raw materials are not possible, the entire supply chain is totally disturbed and close down. This situation has created a problem for corporation and business entities to fulfilling their contractual obligation and therefore most of the contract is being reviewed to invoke the force majeure clause to suspend these obligations for some time.

In this article, we will understand the concept of force majeure and the doctrine of frustration and how the doctrine of frustration is different from force majeure  and why these concepts are essential in present situation.

 FORCE MAJEURE

The concept of force majeure is originated from French civil law and finds its root in “code Napoleon”.  According to the Black law dictionary, the term Force majeure means “an event or effect that can neither be anticipated nor be control”. In simple words, it means that any such event which one cannot predict or one cannot control it occurrences so in that situation a party to contract can get excused from the performance of the contract and its obligation can be suspended. During the formation of the commercial contract, the parties use this clause to suspend their obligation in case of any unforeseeable or uncontrollable event. Besides French civil law, the common law system also recognized the concept of Force majeure in its jurisdiction. The use force majeure provides certain limited remedies that would otherwise provide by the doctrine of frustration.

Generally, in commercial contracts, this force majeure clause is added just because of uncertainty of the future event. This clause provides an exhaustive list of all the circumstances like the term normally use are “act of god”, “Change in government policy”, “war”, and “National emergency”, Et cetera. But in order to make this clause applicable, the event has to be uncontrollable and unpredictable and the party to contract must have acted in a reasonable manner to mitigate the losses that the other would suffer by the non -performance of contract then only the obligation of the party to perform the contract will be suspended till the continuance of the event. In some contract where an exhaustive list of the events are provided and limited only to few or no such clause is given, in that case, only two are available first that the parties through much understanding can declare the contract suspended till the time event remains in the continuance, or second they can declare the contract as impossible to perform or by invoking the doctrine of frustration.

In the Indian Contract Act 1872, there is no such specific section providing for force majeure but it can infer from section 32 where enforcement of the contingent contract is given. Even Hon’ble Supreme Court in the case of Dhanrajmal Gobindram vs. Shamji Kalidas, (1961) 3 SCR 1020 consider the term force majeure is of wider import and where the reference is made to force majeure, the intention is to save the performing party from the consequences from the anything over which he has no control.

DOCTRINE OF FRUSTRATION      

 This doctrine comes into the role when the contract becomes impossible to perform because of any uncontrollable event. It led to the termination of the contract. This is a common law doctrine established in the case of Taylor v. Caldwell. The court provides relief under this ground only when it finds the whole purpose of the contract is get frustrated by the occurrence of the event.

Under Indian Contract Act 1872, Section 56 provides for the provision of the doctrine of frustration which state that “A contract to do an act which, after the contract is made, becomes impossible or become unlawful by reason of some event which the promisor could not prevent, becomes void when the act becomes impossible or unlawful.”  It must be noted that in order to claim the relief under this section 56 , there shouldn’t be the fault of any party to contract  and he must have taken reasonable steps to mitigate the loss that might occurs due to non-performance. The Hon’ble Supreme Court of India in Satyabrata Ghosh Vs. Mugneeram Bangur & Co. [1954 SCR 310(12)], held that “the word “impossible” has not been used with respect to physical or literal impossibility. To determine whether the contract is frustrated, it is not necessary that the performance of an act should literally become impossible, a mere impracticality of performance, from the point of view of the parties, and considering the object of the agreement, will also be covered. 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.”

The basic difference between the doctrine of frustration and force majeure are that:

  1. Under the frustration of contract, the parties have not contemplated any event which would lead to the impossibility of the contract whereas, under force majeure, the parties already added a list of exhaustive events that might affect the performance of the contract.
  2. Under the frustration of Contract, the performance of contract gets terminated and parties get free from their obligation whereas under force majeure, the performance of contract gets suspended till the times the event remains in continuance, and parties have to perform their obligation once it gets over.
RELEVANCY OF THESE TWO CONCEPTS IN CURRENT SITUATION

These concepts become more important in the current time because of the Covid-19 pandemic due to which the entire country is under lockdown and every activates in the country are also stopped until the future. The government of India (Finance ministry) has declared by the way of office memorandum dated 20 February 2020 that the disruption of Supply chains due to the spread of Covid-19 should be considered as a case of natural calamity and “force majeure clause” may be invoked. Similarly, other ministries have also issued the notification to treat this pandemic as natural calamity and invoke force majeure clause.

Interestingly, the force majeure clause would only be invoked in such commercial contract where parties have mentioned but in the contracts where this clause is absent then, in that case, it depends upon the mutual understanding of the parties whether they want to keep the contract alive by treating it as a force majeure or they want to terminate the contract by using frustration of the contract.  Moreover, where the date of performance was essential, they have only option to treat that contract as frustrated contract and where the date of performance was not essential, the parties can suspend the obligation for some time, just because this pandemic distrusted entire supply and cause temporary stopped in the movement of vehicle and human. Therefore, it is not possible for anyone to perform their obligation.

CONCLUSION

The outbreak of coronavirus in the entire world affected economic activities so badly that even the world’s strongest economy cannot save them from falling. The total shutdown step which the government has taken to prevent the spread of coronavirus is no doubt it is a good decision but it has caused the various problem to commercial units and making their contractual obligation impossible to perform for some-time. The complete shutdown has worstly affected the economy and caused huge losses to every sector of the economy.

But the non -performance of the obligation of contract cannot lead legal proceeding against him because Section 4 of the Epidemic Disease Act, 1897 provided that “no suit or legal proceedings can be made against any person for anything done by them under the Epidemic Disease Act” and Section 73 of the Disaster Management Act, 2005 states that no proceedings can be initiated against any person acting in good faith in pursuance of the regulations framed under it. Since Covid-19 is a pandemic and lockdown are declared by the government which is sufficient to declare that impossibility to perform the obligation is beyond the control of the party. Therefore, all the contractual contracts must be reviewed and force majeure must be revoked to suspend the obligation for time being.

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