November 2019, the first case of the COVID-19 was traced in China. The virus soon found its root in the economic city of Wuhan. The sudden increase in the number of cases led to the closing of various important manufacturing industries. In the time gap of about a month, the number of cases crossed 50,000 mark, however, the world was still not concerned.
Slowly and gradually the cases started to flew out of the PRC. Till January 2020, the world was at ease and unbothered about what it was going to witness. The origin of the virus in the city of Wuhan, China which had a large base for electronic device market means it would have a rapid impact on the other parts of the world as well. This caused rapid disturbance on the Supply- Demand market. However, the real impact started to be seen when the impact of the virus started to lay its leg outside of China. The sudden increase in the number of deaths due to COVID-19 in countries like Iran and Italy and later in other western European countries caused huge panic in the international market.
From 100’s to 1000’s and 1000’s to a million suddenly affecting the major economies of the world were impacted. The world is witnessing something which was not seen in almost in entire last millennium. People started to compare the situation from that of the epidemic of 1918, however, the current development in the field of medical science cannot be compared to that of 1918s. It was definitely a matter of time that the deadly virus was to knock the Indian doors as it was for when and not if. The sudden growth of the deadly virus meant that we are going to witness something that will put a break not only to the Indian market but to the entire International market.
Sudden increase in the number of cases meant rapid decrease in the demand, people have stopped getting out of their houses, flights have been cancelled (first international and then the domestic ones), inter-city trains have stopped its passenger trains which has never happened in the last 150 years of history (not even during the time of 1918’s epidemic or either of the World Wars), the lifeline of cities like Mumbai and Delhi local trains and metros were stopped, shops started to shut down and then the national lockdown, the Stock Market started to fall rapidly, to name a few.
However, the main question before us is, are we prepared for its impact once this epidemic is over? Do we have the resources to bear its impact? Can we see over the consequences? If not entirely, then to what extent?
The Supply-Demand market has been rapidly destroyed, no goods other than the necessities are available in the market. The impact of the virus can be easily seen on the stock market. The real estate market has been come to a standstill. Thousands of daily wage workers who were working in the metropolitan have left with no other option than that of fleeing these cities. The loss to the railways, aviation, tourism markets to name a few is unbearable. Entertainment industries especially the Film Industry has been impacted, release date of number of movies has postponed. Malls, Cinema halls, parks, and other public places had already been lockdown. The events of large scale like the IPL, Olympics and EPL have already been postponed. The IMF has already stated that situation is worse than the 2008-09 recession. The RBI governor has also stated that the heat will be felt by India too. The situation is so critical that the Government of India has to invoke The Epidemic Disease Act, 1897.
What would be the Impact on the existing contracts? The market has been substantially disturbed if not destroyed. No goods are available to complete the supply. Factories have stopped production. No manufacturing at all. Clause of Force Majeure has become the most important clause as in any contract.
What does it mean? Force Majeure is a French Phase that means a “superior force”. The concept of Force Majeure has not been defined anywhere under the Indian Contract Act, 1872. The closest relevance of the same can be drawn to Section 32 and Section 56 of the Indian Contract Act, 1872. Force Majeure protects a party for its liability to perform a contractual obligation. Typically, it includes an Act of God or natural disasters, wars, war like situations, labour unrest or strikes, epidemic, pandemic etc. The intention behind this is to protect the performing party from consequences of something which is beyond its control. It is an exception to what otherwise would amount to breach of contract.
In the present situation, the court would examine that whether COVID-19 has prevented the performing parties to perform its contractual obligation. The concept of Force Majeure cannot be implied under the Indian law as the term is not mentioned under the Contract Act. It has to be specifically inserted under any contract. In the absence of the Force Majeure clause the nearest remedy available would be that to invoke the Doctrine of Frustration mentioned under Section 56 of the Indian Contract Act which would be even more difficult to prove. Party claiming the force majeure clause will have a duty to show that it has taken all reasonable step to avoid the event and its effect. However, this would be dependent on case to case basis. It would also be important to be seen that what consequences are to be followed in case of force majeure clause is to be applied. As such there are some contracts where there is immediate termination and other where there is putting the contract on hold until the situation is resolved.
This outbreak of the virus has created a huge amount of uncertainty in relation to economic activity. Especially in a country like India where the population is so high and the per capita income is so less that the containment of COVID 19 is the primary concern. We have such a huge number of people dependent on the free flow of these contracts, it will be only the time which would tell the consequences of this pandemic via the international and domestic markets in India. It is hoped that India would be able to minimize the impact of the pandemic to the lowest in terms of both economy and the life loss.
About the Author of this Post:
Shaishav Manu is an Advocate practicing in the Hon'ble Delhi High Court and has a great interest in Criminal Law & Constitution Law.Click here for more information.