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IMPACT OF THE COVID-19 PANDEMIC ON COMMERCIAL AGREEMENTS AND LATEST GOVERNMENT NOTIFICATIONS RELATING THERETO
As you are all aware, the world has been gripped by the outbreak of the COVID-19 epidemic which has been declared by the World Health Organization as a global pandemic. This has drastically affected the performance of many commercial contracts and resulted in many infrastructure projects coming to a sudden halt. In the present economic scenario, the concepts of force majeure and frustration of contract have gained significant importance.
Force Majeure clauses and their application
- Force Majeure clauses are provisions inserted by parties in contracts which exempt a performing party from its obligations upon the happening of certain events provided for in the clause itself. The occurrence of a force majeure event protects a party from liability for its failure to perform a contractual obligation. These events are usually events over which a party has no control or events which could not have been reasonably foreseen by the parties at the time of entering into the contract. Force majeure events are generally in the nature of acts of god i.e. natural calamities or man-made events i.e. wars, strikes, lock outs, change in government policy, political events etc. Whether or not a particular event can be classified as a force majeure event will depend on the terms of the force majeure clause and its interpretation.
2) A force majeure clause is generally invoked by notifying the other party as soon as the concerned event has taken place or as soon as the performance of the obligations under the contract become impossible. The party claiming force majeure is usually under a duty to show that it has taken all reasonable endeavours to avoid or mitigate the event and its effects. This would also largely depend on the contract between the parties and the interpretation thereof.
Consequences of invocation of Force Majeure
3) Once a contracting party invokes the force majeure clause, the obligations of the parties under the contract will generally stand suspended entirely or partly till the event continues and a party cannot be held liable for the non-performance of its part of the contract during such period. As a result of such suspension, the timelines under the contract or the term of the contract may stand extended as required or as agreed between the parties. Many force majeure clauses also provide for termination of the contract if the force majeure event does not conclude within a period of time mentioned in the contract. Further consequences of the invocation of a force majeure clause will be subject to the contract between the parties.
Steps taken by the Government and various authorities
- The Ministry of Finance, Government of India has issued an Office Memorandum on February 19, 2020, in relation to the Government’s ‘Manual for Procurement of Goods, 2017’, which serves as a guideline for procurement by the Government. The Office Memorandum effectively states that the Covid-19 outbreak should be considered as a natural calamity and may be invoked as a force majeure.
- Similarly, Ministry of Shipping by its memorandum dated March 24, 2020, addressed to all major ports in India has ordered, that the COVID-19 pandemic may be considered as a valid ground for invoking force majeure clause on port activities and operations. Pursuant to this, various major ports have further issued notifications in relation to the port operations.
- The Hon’ble Supreme Court by its order dated March 23, 2020 in exercise of its powers under Article 142 of the Constitution of India has directed all Courts, Tribunals and Authorities that the period of limitation prescribed under the various laws shall stand extended from March 15, 2020 till further orders. The order was passed taking cognizance of the peculiar situation arising out of the challenge faced by the country on account of COVID-19.
- SEBI also vide it’s circular dated March 19, 2020 extended the timelines for certain filings as required under the provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (‘LODR’) to listed entities. Further, by the said circular SEBI has exempted the Board of Directors and Audit Committee of the listed entities from observing the maximum stipulated time gap of 120 days under the LODR, between two meetings for the meetings held or proposed to be held between the period December 01, 2019 and June 30, 2020.
Frustration under Section 56 of the Indian Contract Act, 1956 (Contract Act)
8) The concept for force majeure is not defined in any statute under the Indian Law. Force Majeure is a contractual remedy and can be invoked if a contract provides for the same. The Contract Act recognises the doctrine of frustration of contract under Section 56 which may also be relevant in the present context. Even in cases where a contract does not contain a force majeure clause, the performing party can claim for a discharge from performance of its obligations under the doctrine of frustration of contract under the section 56 if subsequent events make the contract impossible or impracticable to perform. Section 56 provides that an agreement to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
9) It is a settled position of law that in order to claim termination of a contract on the grounds of frustration, the party seeking reliefs must show that the events or circumstances due to which the contract has become impossible, must be so fundamental as to be regarded by law as striking at the root of the contract. The following well settled principles need to be borne in mind while claiming relief of frustration under Section 56 of the Contract Act:
(a) The party claiming frustration must show that concerned event or change of circumstance totally upsets the very foundation upon which the parties rested their bargain such that the promisor finds it impossible to do the act which he promised to do.
(b) The term “impossible” used in Section 56 of the Contract Act has not been used in the sense of physical or literal impossibility but also includes situations where it becomes impracticable to perform the contract.
(c) Once it is proved that there is frustration, a dissolution of a contract occurs and both parties are discharged from their future obligations under the contract.
(d) If the intervening change or circumstance was contemplated by the parties at the time of entering into the contract, then the contract would stand despite the occurrence of such circumstance and no relief of frustration will apply.
10) In view of the prevailing situation, it is important for companies to carry out a detailed review of its contracts and analyse the rights and obligations of the parties, performance of which is likely to be affected. The review must specifically include (but not limited to) analysis of the clauses on termination, force majeure, compensation, governing law and dispute resolution. A detailed review of its operations and the likely effects and risks attached to suspension of its operations must be undertaken.
We trust that the above analysis is helpful for you to assess the legal impact of the current scenario on your business and operations and accordingly, enable you to take appropriate commercial decisions. If you require any further clarifications, please feel free to contact us. We will update you in case of any further decisions, measures, notifications by the Government and other authorities in this regard.
Zerick Dastur, Advocates and Solicitors
Zerick Dastur, Advocates & Solicitors
15, Manek Mahal 5th Floor,
Veer Nariman Road, Churchgate, Mumbai 400 020
M: +91 98207 92004 | E: email@example.com
The court considered the objects and reasons for enacting the Consumer Protection Act, which mention the Act was for providing speedy and simple redressal for consumer disputes by setting up a quasi-judicial mechanism for better protection of consumers. It also considered the provisions of the Act which stipulate that the complaint would have to be decided ex parte if no reply is filed to contest it.
The court noted that the legislative intent was to get the dispute expeditiously resolved, by proceeding ex parte if no reply was filed. Also,
Regulation 10 of the Consumer Protection Regulations provides for grant of shorter period to file a reply, while there is no provision for grant of additional time.
The court observed the legislature had vested the consumer fora with the discretionary power to accept appeals filed beyond the limitation period; however, for replies to a complaint, discretion was limited to an extension of 15 days only. So a proceeding could not be challenged simply because adhering to the statutory period may cause hardship or might violate the principles of natural justice.
The SC also observed that legal provisions have to be strictly followed to achieve the objective of speedy and simple justice. It pointed out that it was well settled that law would prevail over equity. So the court concluded that the provision of the CPA was mandatory, and the fora could not grant any extension beyond 15 days.
The court observed that the law provided that the starting point for computing the period to file the reply as the date when notice was received by the party. Since it would not be possible to file a reply unless the complaint is served along with the notice, the court held that the date of notice must be interpreted to mean the date of service of notice along with a copy of the complaint. Any grievance about non-receipt of the complaint with the notice must be raised on the very first date, and not thereafter.
By its order of March 4, the Supreme Court held it was mandatory to file a reply within 45 days (30 + 15 days extension), after which the complaint would be proceeded ex parte.
(The author is a consumer activist and has won the Govt.of India’s National Youth Award for Consumer Protection. His email is firstname.lastname@example.org)
Here is an interesting Synopsis of Exemptions of GST for Educational Institutions, including latest Notifications and exemptions:
- Services provided to staff and students
- Executive Development Programs for IIMs
- Entrance Exam Fees
- Approved Vocational Courses
and much more
Click Here for the full details shared by GSTCORNOR
The Supreme Court has said that service tax need not be charged by clubs for services to its members. The same should hold true for the GST, which replaced service tax
Under tax laws, every now and then, a decision is delivered which gets the “landmark” prefix. Names such as BC Srinivasa Shetty, Bacha F Guzdar and the Azadi Bachao Andolan became familiar because of landmark judgments. The features of landmark decisions are that they resolve an issue in a critical area of the law which has been litigated for ages, are decisive judgments and are invariably given by the Supreme Court.
Recently, the Supreme Court pronounced a landmark judgment under service tax laws in the Calcutta Club case. The decision was that clubs are not entitled to charge, collect and pay service tax on any services made to members. The rationale for the decision was that if there are no members, there is no club and vice-versa. A few years earlier, the Jharkhand High Court gave a similar ruling in a case involving the Ranchi Club.
The Supreme Court followed its earlier decision on the same topic in the case of CTO versus Young Men’s Indian Association, (1970) 1 SCC 462. The necessity for the Supreme Court to rule on this matter arose because of the insertion of Clause (e) in Article 366 (29-A) in the Constitution of India through the 46th Amendment. This clause stated that tax on purchase or sale of goods includes a tax on the supply of goods by any unincorporated association or body of persons to a member for cash, deferred payment or another valuable consideration.
The Supreme Court needed to decide whether the doctrine of mutuality has been done away with by Article 366 (29-A) (e), and whether the ratio of Young Men’s Indian Association would continue to operate even after the 46th Amendment.
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