Covid-19 trains global focus on ‘force majeure’ clause

Our Bureau Hyderabad | Updated on April 28, 2020

Businesses raise concerns at webinar organised by FTCCI

Covid-19 has brought to the forefront the force majeure clause in contracts, which has turned a major issue for businesses and trades of all sizes.

The focus on this provision is unprecedented and most business and trade establishments are now reading their contracts to see if they have a force majeure clause and if the clause would safeguard their business interests in the wake of Covid-19 and the lockdown.

Their views iwere aired during an interactive webinar organised by The Federation of Telangana Chambers of Commerce and Industries (FTCCI) titled “Force Majeure & its impact in view of Covid-19 Lockdown”.

Employee salaries, power usage, rentals, which make up close to 40 per cent of operating capital of establishments, were major issues that were discussed. Participants, sharing key industry and employee concerns, raised pertinent points.

These included posers like: “My contract does not have a force majeure clause, do I have any other remedy,”; “Power tariffs should be variable and not fixed during this time and we should be charged according to use. Do I have any contractual remedy under my HT Agreement,” and, “With zero business activity and no use of our premises, can we forgo payments on rents invoking the force majeure clause in our contract.”

Avoiding litigation

“My customers are cancelling contracts citing force majeure, what can I do?; Can essential services which are exempt from the lockdown also claim force majeure?,” the participants wanted to know.

Retired High Court Judge TN Rangarajan was of the view that the current scenario would impact all parties to a contract and to preserve relationships and continuity, it would be beneficial if parties of a contract tried to settle issues rather than to litigate.

Advocate Challa Gunaranjan cited Section 56 of the Indian Contract Act, which deals with frustration with regard to contracts; there would be a remedy available under the same. He also highlighted that where a force majeure clause exists in a contract, the Supreme Court has held that S 56 of the Indian Contract Act would not be applicable.

If parties are looking at exercising their rights under a force majeure clause or their rights under S. 56 of the Indian Contract Act, the panellists expressed the view that such a right should be triggered soon after the occurrence of an event and not after the event has passed.

The panellists also said that parties should understand the implications of exercising their rights whether under a force majeure clause or under S. 56 of the Indian Contract Act.

Published on April 28, 2020

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