IMPACT OF COVID-19 ON CONTRACTS

A contract is a coalescence of various provisions relevant for the type of contract and drafted for the benefit of which party that is enforceable on the breach of any provision of the contract.

Does this pandemic constitute a Force Majeure event?

Article7.1.7 under UNIDROIT Principles of International Commercial Contract as defines Force Majeure as a temporary impediment which is beyond control, unreasonable and unexpected at the time of conclusion of the contract which could have been avoided or had overcome its consequences.

As per this article and in sections 32 and 56 of the ICA, 1872, it can be an excuse for non – performance of the contract but a party can terminate the contract or withhold performance or request interest on money due.

COVID-19 is an unforeseen event which is beyond the control of relevant parties, therefore most likely to be interpreted as force majeure.

If a contract includes Force Majeure clause, scrutinise the whole contract and comply with any procedural requirements to invoke the clause by notifying the party either for non- performance of the contract or for re-negotiating the T&C of the Contract. The burden of proof lies on the party asserting the defence.

If contract excludes the clause it cannot be implied therefore the distressed party shall have to rely upon other contractual clauses for any potential aid. If the same is not possible, then the only remedy available is to plead frustration of contract and/or impossibility of performance of contractual obligations under 56 of ICA, 1872. In this event performance of a contract is rendered impossible.

Amendments are made and circulars are issued for extension of the time period for completion of a contractual obligation under Aatma Nirbhar Package which has rendered the effects of a contract made during the lockdown as ineffective. Few amendments are mentioned below:

IBC (Amendment) Ordinance. 2020

If any Corporate disregards its contractual obligations or corporate guarantees due to the COVID 19 force majeure, shall be safeguarded under section 10A and be exempted from IBC perpetually.

Support to Real Estate Sector

Any corporate if fails to register or complete the registered project is given an extension for 3-6 months i.e. failure to comply with contracts entered does not make the party liable for non-performance, and thus protected by this relaxation.

Relief to Contractors

Finance Minister proclaimed that all central agencies like Railways, Ministry of Road Transport and Highways and CPWD will give an extension of up to 6 months for completion of contractual obligations, including in respect of Engineering Procurement Construction and concession agreements.

Conclusion

Since the pandemic has created a monstrous effect on business and commerce industry, it could not have been foreseen and therefore Government also has tried to reduce the loss and give vendors a chance of survival and revival.