- Many Indian companies have used Force Majeure recently
- Businesses can use ‘Force Majeure’ as an exemption for non-performance of the contract
- This concept was originated from French law
The massive spread of novel coronavirus (COVID-19) has forced many industries to shut down their business operations, resulting in loss of business and disturbing the normal course of working. Industries involved in manufacturing or supply of non-essential goods have witnessed the hardest hit due to this pandemic. India has also been put under lockdown and due to which many manufacturing companies and organizations may not be able to fulfill their part of their obligations under the contract. The non-performance of a contract can be a big problem. It is very important for businesses to know what they can do in such a critical situation and how they can avoid legal actions by using Force Majeure.
What is the Issue?
Business contracts are legally binding agreements entered between two or more parties. Many manufacturing companies and organization in their normal course of businesses enter into various contracts which have obligations/promises and liabilities for each party.
‘Non-Performance' of a contract is a situation wherein a party is not able to fulfill its obligations/promises under a legally binding contract. Such Non-Performance generally binds the defaulting party to compensate/pay damages to the other party for any loss suffered due to the default in performing the contract.
What is Force Majeure?
Force Majeure is a French term which means ‘greater force’, this concept was originated in French law. It is a well-accepted principle around the world. This clause gives contractual exemption to the liability if parties entering into a contract include this clause in their agreement. Force Majeure events include natural calamity, war-like situation, political unrest in the country or any other event which is not in control of the contracting parties.
Force Majeure and Indian Law?
Though the current situation is a prime example of a situation wherein things are beyond the control of any company or organization but still, Force Majeure cannot be claimed for each and every non-performance. Its enforceability will be governed by various other facts and circumstances. In India, Section 32 and 56 of the Indian Contract Act, 1872 covers the essence of the Force Majeure clause. However, the Indian courts by way of judgments have laid that the Force Majeure cannot be implied under the Indian Law.
Indian Courts also laid that the clause should explicitly be agreed upon by the parties. The enforceability of the clause is dependent upon the language of the clause. The language of the clause may cover a blanket situation wherein parties are at liberty to invoke Force Majeure.
In India using Force Majeureis completely dependent on bipartisan contracts.
How it can Help Companies?
So if you are worried that you will not able to fulfill the obligations under a contract so, it is very important for companies and organizations to pull out their contracts and look into the clause pertaining to Force Majeure. Companies may be exempted from the contractual liability if they invoke the clause of Force Majeure.
Are any Indian Firms Using it?
Recently, Gateway Terminals India Private Limited has invoked the same clause. In a March 27 notice to trade regarding it Amit Bhardwaj, Chief Commercial Officer of GTI, said “GTI hereby declares the COVID-19 pandemic as an event of Force Majeure in accordance with the Terms of Business (TOB) and that this declaration should be considered as a notice of Force Majeure as per the TOB. As such, we hereby record that our obligations to perform certain services as stated herein cannot be fulfilled as a result of the event of Force Majeure.”
In addition to GTI, many petrochemical industry players have issued the Force Majeure notices. Hindustan Petroleum Corp Ltd has issued a force majeure notice to Iraq's Oil Marketing Company (SOMO). Royal Enfield which has invoked Force Majeure but on a case to case basis. Others in the list are ports like Adani Ports and Special Economic Zone Ltd (APSEZ), Hero Moto Corp, Petronet LNG, Gail (India) Limited (GAIL).
