Is Covid-19 covered under the force majeure clause in contracts?

Force majeure(( Sections 32 and 56 of the Indian Contract Act, 1872)) clauses are contractual clauses which can change or excuse the parties’ obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations. For example, if a construction company had to do work for a private company, they can use the force majeure clause in their contract from stopping the work in case of a disaster like an earthquake etc. 

Depending on how the contract is drafted, such clauses may have a variety of consequences, including: 

• Excusing the affected party from performing the contract partially or fully .
• Excusing that party from delay in performance.
• Allowing them to suspend or claim an extension of time for performance.
• Giving that party a right to terminate the contract.

Force majeure can include events for which no person can be held accountable. Some examples include Act of God or natural disasters, war or war-like situations, human actions such as armed conflict etc. For a force majeure clause to be invoked, the acts must be unforeseeable, external to the parties of the contract, and unavoidable. The law relating to Force Majeure is given under Sections 32 and 56 of the Indian Contract Act, 1872. 

Covid-19 and Force Majure

Whether a contractual obligation can be avoided on the grounds of force majeure is a factual determination based on the specific terms of the contract. The courts will examine,  in each case, whether the impact of the Covid-19 pandemic prevented the party from performing its contractual obligation. Indian courts(( Energy Watchdog v. Central Electricity Regulatory Commission (2017)14 SCC 80; Naihati Jute Mills Ltd. v. Hyaliram Jaganath AIR 1968 SC 522.)) have generally recognised this concept and have enforced it where appropriate. 

Directions by Government of India

The Government of India has taken the following measures to prevent further disruption in international trade and commerce by declaring the outbreak of Covid-19 as a force majeure event. 

• The Ministry of Finance issued an office memorandum dated February 19, 2020 which states that Force Majeure clauses can be invoked in Government contracts if there is a “disruption in supply chain due to spread of coronavirus in China or any other country”. The Memorandum further states that COVID-19 should be considered as a case of “natural calamity”. On May 13, 2020, the Ministry of Finance issued another memorandum stating that under contracts for construction/works, goods and services and PPP (Public-Private Partnership) with Government Agencies, parties can invoke the force majeure clause ‘after fulfilling due procedure‘ and ‘wherever applicable’.
• Ministry of New & Renewable Energy has issued an Office Memorandum dated March 20, 2020 which directs all Renewable Energy implementing agencies of the Ministry of New & Renewable Energy (MNRE) to treat delay on account of disruption of the supply chains due to spread of Covid-19 in China or any other country, as Force Majeure event.