Introduction
The country is facing a humanitarian as well as an economic crisis due to the onset of the Covid-19 Pandemic at an unprecedented level, bringing all the activities of natural course at a complete halt. The economic, political, and social activities are completely suspended due to the total lockdown disrupting the natural functioning of the economy.
With the imposition of restrictions on the movement of persons and goods, suspension of services. The questions regarding the legal implications of the pandemic on various domains are raise. Performance of contracts, initiation of proceedings under Section 7 and 9 of Insolvency and Bankruptcy Code; company’s liability to discharge services; all matters of utmost importance that shall be address in light of the recent events.
Hence, the scope and applicability of a Force Majeure comes into the picture as it is the most relevant clause. Or legal concept capable of addressing the issues at hand. The author shall attempt to analyze the functioning and validity of Force Majeure. While delving into various case laws and addressing questions of primary importance through this article.
Understanding Force Majeure in context to Indian Law
Contractual Liability
Force majeure implied any occurrence of extraordinary events or circumstances which are beyond the control of human power and intelligence. It can also be term as an act of God or superior force. They can be referr to as such conditions under which the performance or continuation of a contract amidst the parties. Becomes its impossible.
Usually a force majeure clause is include in the contracts during drafting, recognizing such circumstances. Or defining situations under which performance by either one or both the parties can become impossible. The parties while entering into the contract mutually create an extensive list of events. That shall be consider as a force majeure event, usually including basic unprecedent and unforeseen acts. Such as riots, wars, explosions, state of anarchy, shortage of food supplies or enforcement of any government policy. That prevents the discharge of obligations.
A “catch-all” phrase is also recommend to be add in a contract which makes the list open-end. Implying that the invoking of the force majeure is not limit to the conditions penn down in the contract. Ideally, such catch-all language is construed ejusdem generis[1] depending on the language of the catch-all phrase, the current pandemic and lockdown creates an ideal scenario for invoking the clause as all the economic, social and political activities are at a halt in most of the countries of the world.
The author impresses upon the fact that a Force Majeure clause is not a permanent or total release from the contractual obligation. But a mere suspension of performance for the time the clause is invoked. However, it provides for termination of the contract at the will of the parties. In case the suspension period is prolong. This is the stark difference between the
It is pertinent to note that a force majeure clause does not excuse a party’s performance entirely. But only suspends it for the duration of the force majeure. However, if the force majeure clause provides that where force majeure continues for more than a stipulated period. Then either party may at its option terminate the contract without any financial repercussion on either side.
In light of the recent events Justice Hari Shankar in the Delhi High Court case of Haliburton Offshore Services vs. Vedanta Ltd. held that prima facie holding that COVID 19 lockdown is in the course of nature of Force Majeure. And allowed the appellant to invoke it in their respective contract. However, it was also declare that the right to invoke a Force Majeure is a right in persona and not a right in rem. Hence, every independent contractor shall be adduce before the prescribe legal forum. It is to ascertain the invoking of the Force Majeure clause.
The process of invoking a force majeure can however, be complex times as presented in the case of Bombay High Court[2] where the court refused the grant of injunction as the clause of Force Majeure was not included in the letters of credit. This case simply represents the difficulties that can arise owing to the nature of complex or inter-dependent contracts.
Force Majeure implications on Insolvency and Bankruptcy Code, 2016
The current lockdown in the country has also initiate certain necessary changes in the IBC code. Pertaining to the initiation of proceedings under Section 7, 9, and 12 of the Code. The author aims to summarise and present all the important updates facilitating any changes in the IBC matters. Due to the imposition of Force Majeure. With the insertion of 40C, the lockdown period shall be exclud for the purpose of computation of the time frame for completion of the various activities forming a part of the CIRP. While regulation 40A presents a comprehensive list of the activities require to be undertaken to complete the CIRP along with timelines.
NCLAT vide its order dated 30th March, 2020 exclude the time period of lockdown from the limitation bar on the filing of CIRP proceedings. It is usually of 180 days with an extend limit of 330 days as per the provisions of the Code. This applies to all the cases pending before the NCLT where the proceedings have already been initiated.
Further, the Supreme Court of India exercising its power under Article 142 of the Indian Constitution, extend the limitation period irrespective of the period mentione under any local or special laws. Of filing any application, petition, appeal, before the respective tribunals, excluding the time of lockdown as per the orders of the government. Thus, the period of lockdown shall not form a part of the period of 180 days contemplate for the completion of CIRP.
However, every extension is only provide for the on-going proceedings. Implying that in cases where the Resolution Plan is already pass and approve by the forum, the RP is expect to conform to the stipulate time period mention in the various provisions of the Code. To take all necessary actions for the company in the pertaining matter. There is also a clause under 40C providing an extension to all activities. That are impossible to be carry out during the lockdown. But again revolve around the ongoing matters and not for the approved ones.
Owing to the absence of Force Majeure clause in many approved plans and lack of notice in the matter, it is interpreted that the relief under the clause would rely on the ability of the applicant to prove before the Hon’ble Court under Section 56 of the Indian Contract Act,1872. The applicant is required to demonstrate before the court that the purpose and essence of the plan lies frustrated or suspended due to the inability of performance owing to the lockdown.
Lastly, one of the significant changes made in the code is the increment in the threshold requirement of the value of debt to Rs. 1 crore from standard Rs. 1 Lakh, to initiate the proceedings vide an order dated March 24, 2020.
Conclusion
The concept of Force Majeure becomes extremely relevant in today’s time as the world is facing an unprecedented crisis and it is a rare occurrence where the entire country is under lockdown with a complete suspension of economic, social, and political activities. While the high courts and apex courts have taken the initiative to hear the important matters through the e-court mechanism, the functioning of it is quite limited. Hence, the courts have taken the onus to address all matters of urgent importance and clear the hue regarding the legal position and implication of various contracts and commercial matters amidst the total halt in the country.
References:
[1] Md. Serajuddin v. State of Orissa AIR 1969 ORI 152.
[2] Standard Retail Pvt Ltd V. M/s G.S. Global Corp & Ors, Order dated April 8, 2020 passed by the Bombay High Court in Commercial Arbitration Petition No. 404 of 2020.
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