Legal Remedies available after the Invocation of Force Majeure clause in a Contract: Lawyers Advice

The Black’s Law Dictionary defines the term Force Majeure as an event or effect that can be neither anticipated nor controlled. Such incidents happen independently without the will of human beings. Due to the happening of such events, enforcement of the contracts get affected. English law provides after the execution of the provision of force majeure, the other party can cancel the contract and the execution of the same if any such events occurs which is beyond their control. Under Indian law, like English Law, force majeure descends its existence from the contract. This clause is inserted in the contract to save the performing party from any costs or consequences of breach of the contract which arises from the events, where both the parties don’t have any control. This concept of Force Majeure comes out as an exception for breach of contract.

Whether force majeure can be invoked to excuse liability for non-performance of the contract would be contingent on the nature and general terms of the contract, the events which precede the formation or follow it, and the factual situation of the case. In the time of pandemic many parties have invoked the provision of Force Majeure for the purpose of getting away from the performance of the contract as this pandemic had made it impossible to perform the contract.

Considering the situation of COVID- 19, the Ministry pf Finance issued a notice on the Force Majeure clause and provided that situation of COVID-19 should be considered as natural calamity and this clause can be invoked by the parties whenever the same is considered as appropriate, after following the due procedure. It further provides that force majeure clause does not exclude any party’s non-performance of the contract, but the performance is only suspended till the time of force majeure.

One of the remedy available with the parties is the right of termination of the contact. The parties has the right to terminate the performance of the contract if the period of force majeure is exceeding ninety days. This might not cause financial repercussion on the other side. If there are any termination requirements, they should also be taken into consideration. Under the Indian Contract Act of 1872, the provisions is available for the bailment and agency. Section 153 of the Indian Contract Act of 1872 provides that the contract of bailment can be avoided at the option of the bailor, if the act of the bailee is inconsistent with the conditions of the bailment.

Another common remedy which is invoked by the parties is the right of suspension of the contract. The rights and obligations of both the parties gets suspended during this period of time. However this practices also provides an extension to the party to resume the performance until the event impacting its ability to do so concludes.

Generally the main thing which is the basis of contract between the two parties is the agreement and the consideration. Section 2(d) of the Indian Contract Act of 1872 defines consideration. It is defined as
(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;”

The parties before entering into the contract make certain terms and for the settlement of the consideration on occurrence of such events. If the contract does not consider the incidence of such event that makes the performance of the contract impossible or illegal, and any such event occurs, the remedy might be available under Section 56 of the Contract Act of 1872. Having said that, whenever there is claim of frustration, it will be useful for parties to seek legal advice on founding or protecting of the claim based on frustration of contract, as this will include an analysis of factors such as the impact of the event, the object of the contract etc. But if the parties has already decide the consequences of the terms of contract, then the same will be binding on them. For example, it is open for the parties to settle that if on account of any condition of force majeure, if it is impossible to execute a contract, the party would pay the compensation to the opposite party for the all efforts made notwithstanding that it is not possible to perform the terms of the contract fully. In such case exist than the contractual provisions would prevail over the provisions of Section 56 of the Act.

The final alternative can be the negotiation between the parties. The parties can negotiate the terms of the contract among themselves depending all terms and conditions of the contract. If the performance of the contract has not become impossible, but has become commercially difficult to perform, then the parties can go for re-negotiation. The parties can go for the settlement outside the court or they can invoke the clause of Arbitration or Dispute Resolution, if the other party has invoked the Force Majeure clause and fail to comply with the provision of the contract. The parties can meet and discuss the risks and remedies which could arise after the invocation of such contract and how they can reach to the agreement which will be favourable for both the parties.

However, the judiciary is making an effort to protect the party against revoking the provision of impossibility to perform the terms of the contract due to the application of Force Majeure. The recent order passed by the Bombay High Court in the case of Standard Retail Pvt. Ltd. v. M/s. G. S. Global Corp & Ors Case No. 404 of 2020 pronounced on April 8, 2020, can be considered as the first case where the Court had dismissed a Commercial Arbitration petition and held that the “lockdown cannot come to the rescue of the Petitioners so as to obstruct them from their respective contractual obligations.” They held that a lockdown in these extraordinary times, cannot be considered as a legal basis for termination or repudiation of a contract.

In another case of Indrajth Power Private Limited v. Union of India, the petitioner wanted to interdict the Bank Guarantee inter-alia on the account of the pandemic in the country because of COVID-19. This could lead to the Petitioner being affirmed as Non-Performing Asset. The court held that the petitioner, even after the extension of a year, could not fulfil any obligations under the Contract. Therefore the court could not grant relief to the petitioner. Also the position of the petitioner was not affected after the imposition of the lockdown. Therefore due to the imposition of the lockdown many parties have invoked the clause of Force Majeure which has led to losses both on the commercial as well as personal front. Hence, it is responsibility of both parties to reach to a basis which is favourable for both of them. Also the court during the time of pandemic has adopted the approach to solve the cases only after looking into facts and circumstances of the case.
Authored By: Adv. Anant Sharma & Bheeni Goyal