The Concept Of Force Majeure

As the world is put together intermeshed in fighting the coronavirus, economies around the world face several hardships, and businesses globally are no exception. More are left with uncertainty and anticipation over the ‘new normal’ with no predictable end to the lockdown. This situation has compelled many companies to raise severe doubts on the ability of parties to perform their obligations agreed underneath the contracts.

The unpredictability concerning whether the parties can envisage breach of contract and assess remedies for non-performance has stumped businesses around the world. Although the principle of ‘Lex non cogit ad impossibilia’ sets out, the law cannot compel a person to do what he perhaps cannot perform, but there still exists a confusion if COVID can excuse people from their contractual liabilities. In this article, we shall see if any statutory provision protects the contracting parties from the implications of non-performance of the contract under such a situation and if the present juncture qualifies as one. 

What Is The Meaning Of Force Majeure? 

The concept of force majeure owes its origin to the philosophy of ‘clausula rebus sic stantibus’ that states contractual obligations are binding only as long as matters remain the same as they were at the time of getting in the contract. According to Merriam-Webster’s Dictionary, force majeure event is “(1) A superior or irresistible force. (2) An event or effect that cannot be reasonably anticipated or controlled.”[1] A force majeure clause acts as a statutory bulwark in circumstances within which the performance under the contract becomes impossible to hold out. Amid situations which include acts of war, lockouts, explosions, acts of God, prolonged shortage of supplies, and governmental action outlawing any party from performing their obligations, a force majeure clause can free both parties from the agreed liability without any financial repercussions. However, it is material to note that the force majeure clause does not excuse the parties wholly from their obligations and only suspend it for the time unless the contract has lapsed the stipulated time before termination.[2]

What is the Statutory Provision For Force Majeure?

One can find the law on the contractual impossibility under two provisions of the Indian Contract Act, 1872, in section 32 and 56. Section 32 addresses contingent contracts and explains that a contract is rendered void if the occurrence of a future event it was based on becomes impossible. Section 56 talks about the frustration of a contract and explain that a contract becomes void if the promisor cannot execute its promise due to an unforeseeable event after the contract is made. [3]  The apex court, in a line of decisions, has upheld that if a force majeure event is related to a clause in a contract, then it should be ruled by Sec. 32 of the Act, whereas if an even occurs dehors the ambit of the contract, Sec. 56 of the said Act is applied.  

What Are Requisites for Invoking Force Majeure?

A/ the event must render the contract impossible to perform:

The premise and the contract’s underlying object must be wrecked for an event to qualify to invoke a force majeure clause. [4] The parties cannot absolve themselves from the obligations merely because the conditions in which it was made are altered. [5] However, it is not required for the act to become impossible; a mere impracticality of performance is sufficient. In the case of Satyabrata Ghose v. Mugneeram Bangur[6], the apex court held that the court should interpret the word ‘impossible’ in Sec. 56 of the Contract Act in “its practical and not literal sense.” An unanticipated modification of circumstances or an untoward event that upsets the foundation upon which the parties entered into the contract, is sufficient to be considered as “impossibility,” the court elaborated. In such a situation of the impracticality of the contract, the court may settle for that such a contract is ex facie unenforceable.  

B/ the event must be unavoidable and economic hardship alone cannot lead to force majeure:

Even though the coronavirus pandemic has forced several to enforce harsher than regular economic reforms, but it alone cannot be thought of as a force majeure event. Mere economic hardships such as an unexpected abnormal rise or fall in prices[7], a little obstacle in the execution of the contract, a sudden depreciation of the currency, or the like cannot alone affect the bargain agreed by the parties. [8] In the case of Alopi Parshad & Sons Ltd. v. Union of India[9], the Supreme Court observed that “Parties to an executable contract often faced a turn of events which they did not anticipate. [but] this does not in itself [allow the parties to] get rid of the bargain they have made.” Such circumstances alone do not absolve the party with the right to performance unless it is unavoidable and absolutely beyond control. A force majeure clause is usually not applicable if an alternative mode of performance can be enforced, and the event is unconditionally inevitable. [10]

C/ the event shall be unforeseeable:

Foreseeability of an abrupt and unavoidable event is one of the pivotal tests to induce force majeure clause. A beforehand injunction about an expected force majeure event cannot trigger the non-performance clause. For instance, a contract formulated amid or just before the outset of the war with the knowledge of it happening cannot plead for the invocation of force majeure clause as the consequences were foreseeable. [11] An event must be wholly unforeseeable by the parties, and a warning may affect the bargain of parties to adduce to terminate the contract. However, the courts would not shut their eyes to the harshness of the situation in cases where performance becomes impossible due to an unforeseeable and uncontrollable situation. [12]

D/ Parties must stand the causal test or ‘but for’ test:

Even if the essentials mentioned above are satisfied unless the parties prove that the force majeure event has indeed precluded the contract’s performance, they cannot enjoy the benefits of the clause. Following the “causal test,” Courts assess if the non-execution of the obligation is a direct result of a specific unforeseeable event, “but for” such an event, the contract would have been performed. [13] In Classic Maritime Inc v Limbungan Makmur SDN BHD & Anor[14] England and Wales court of appeal said, “What matters is not the label, but the content of the tin.” The court held that the event must “directly affect the performance of either party,” and the onus is on the parties to prove the same. 

Is COVID-19 A Force Majeure Event?

As the economy grapples the catastrophic COVID-19 event, most of the businesses have incurred huge losses, and some have even declared bankruptcy. The shield of force majeure appears as the only statutory bulwark to save from the deteriorating conditions. However, even though the unprecedented pandemic of coronavirus and government-imposed lockdowns is unforeseeable, can it be considered an act of God to save businesses from financial recursions?  

Although the mere existence of the virus cannot be considered as a force majeure event, there is no doubt that the binding administrative decisions taken in recent times to curb its spread and the resulting suspension or hindrance to the economic activity of the stakeholders could serve as a force majeure event. Due to the exceptional and imperative nature of the pandemic, many nations have already started to take considerate measures. The government of China clarified that considering the disruption of the supply chain, all the countries should consider COVID as a ‘natural calamity’ and must excuse the contractual obligations. Consequently, The China Council for the Promotion of International Trade issued over 5,600 “force majeure certificates” to firms in various sectors and has already covered contracts estimated at over $72bn. [15] Similarly, The Russian Chamber of Commerce and Industry issued force majeure certificates to Russian entities declaring COVID-19 as a force majeure event. [16]

Subsequently, the Ministry of Finance of India issued a clarification regarding all the disruptions a force majeure clause can cover, saying, ” COVID should be considered a natural calamity and force majeure clause may be invoked whenever considered appropriate, following due procedure.” [17] Further, The Ministry of New and Renewable Energy had reiterated the same and declared to treat “all the Renewable Energy implementing agencies of the Ministry of New & Renewable Energy (MNRE) as Force Majeure.” [18] Similarly, other ministries have also issued such order. However, such notifications are restrictive and apply to government contracts only. 

However, recently, the Bombay High Court held, “The lockdown was only for a limited period, making it a bad excuse for the Petitioners to resile from their contractual obligations.” In the case of Standard Retail Pvt. Ltd. and Ors. V. M/s. G. S. Global Corp & Ors.[19]Mere hardship in executing one’s contractual obligations due to the COVID pandemic is not a valid objection that a seller can use. Nevertheless, the Delhi High Court in M/s Halliburton Offshore Services Inc. v. Vedanta Limited[20] considering the situation took a liberal view and granted an ad-interim injunction. The court observed that the government imposed lockdown because of the coronavirus outbreak was prima facie like a force majeure event. 

The bottom line as to whether COVID can be considered as a force majeure event wholly depends on the contractual provisions. Many businesses might hide under the cloak of force majeure, to avoid financial loss, even though the current scenario is not the reason for their non-performance. Hence the contracting parties must determine that the hindrance in executing the obligations is a result of the pandemic and not any other ulterior motive.

Concluding Observations

On account of the current COVID situation, a crippling economy, and the subsequent lockdowns imposed by the government is unforeseeable and renders most of the contracts impossible to perform. In light of this catastrophe, many contracting parties will seek to resile from the obligations and count on the force majeure clause to avoid financial backlash.

Rooting on the present jurisprudence as it stands, this exceptional circumstance will only result in litigation in a catena of contractual disputes. It is now only a matter of interpretation by the courts and whether the COVID situation is the bonafide reason for the non-performance of the contract. While the onus lies heavily on the parties to have their non-performance excused, requisites like the duty to mitigate and drawing the causal link need to be proved to assess the party’s stance. However, the need of the hour is an elaborate and scrupulous order, rather than inchmeal notifications.


[1] Webster’s Third New International Dictionary (1961).

[2] Naihati Jute Mills Ltd v. Hyaliram Jagannath, (1968) SCR (1) 821.

[3] Indian Contract Act, 1872.

[4] Smt. Sharda Mahajan v. Maple Leaf Trading International (P) Ltd., (2007) 78 SCL 367.

[5] Supra note. 2

[6] Satyabrata Ghose v. Mugneeram Bangur & Co., (1954) SCR 310; (1954) AIR 44.

[7] Alopi Parshad & Sons Ltd. V. Union of India, 1960 (2) SCR 793.

[8] Dhanrajamal Gobindram v. Shamji Khalidas & Co., (1961) 3 SCR 1020.

[9] Supra note. 7

[10] Treitel on Frustration and Force Majeure, 12-034 (3rd ed., 2014).

[11] China CIETAC Arbitration proceeding, L-Lysine case available at http://cisgw3.law.pace.edu/cases/050305c1.html.

[12] Supra note. 2

[13] Indus Law, A Closer Look At Force Majeure during COVID-19, Mondaq available at https://www.mondaq.com/india/litigation-contracts-and-force-majeure/928048/a-closer-look-at-force-majeure-frustration-of-contract-and-impossibility-to-perform-contracts-during-the-covid-19-pandemic 

[14] Classic Maritime Inc v. Limbungan Makmur SDN BHD, (2019) EWCA Civ. 1102.

[15] T. Daly, China force majeure certificate issuance pass 5600 amid virus outbreak, Reuters, available at https://www.reuters.com/article/health-coronavirus-china-forcemajeure/china-force-majeure-certificate-issuance-pass-5600-amid-virus-outbreak-trade-body-idUSL4N2B43CK

[16] E. Pannebakker, Force Majeure certificates issued by the Russian Chamber of Commerce and Industry, Conflict of Laws, available at https://conflictoflaws.net/2020/force-majeure-certificates-by-the-russian-chamber-of-commerce-and-industry/

[17] Ministry of Finance, Office Memorandum on Force Majeure Clause, available at https://doe.gov.in/sites/default/files/Force%20Majeure%20Clause%20-FMC.pdf 

[18] Ministry of New & Renewable Energy, Office Memorandum, available at https://mnre.gov.in/img/documents/uploads/file_f-1587398024891.pdf  

[19] Standard Retail Pvt. Ltd.. V. M/s. G. S. Global Corp., Commercial Arbitration Petition (L) No. 404 of 2020.

[20] M/s Halliburton Offshore Services Inc. v. Vedanta Limited, O.M.P. (I) (COMM) & I.A. 3297/2020.

Khushi Totla from NMIMS Kirit P. Mehta School of Law

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