Force Majeure and its importance during a pandemic explained by Justice Pratibha Singh
New Delhi, July 17: As the entire nation continues to battle this deadly pandemic called COVID-19, everything remains restricted. Businesses are facing losses, tenants are unable to pay rents owing to lockdowns and finances becoming scarce.
As per Section 37 of the Indian Contract Act of 1872, parties to a contract must either perform or offer to perform their respective promises, unless such performance is such performance is dispensed with or excused under the provisions of this Act or any other law.
In view of this situation, Justice Pratibha M Singh, judge, Delhi High Court spoke at a webinar organised by advocate J Ravindran on the subject, "Force Majeure in Commercial and Tenancy Disputes."
Force majeure a French term means superior force. Black's Law Dictionary defines it as an event or effect that can be neither anticipated nor controlled. The term includes both acts of nature such as floods and also acts of people such as war or strikes.
Justice Singh said that the legal profession has seen a lot of changes owing to this pandemic. Many have started thinking of drawing up a will even. We see people being more introspective and are even valuing the time spent with their families.
Let us only not think of the negatives of the pandemic. Let us think of the positives as well as it has given us an opportunity to sit and think about what we want from our lives, Justice Singh also said.
In these times, Force Majeure plays an important part. Questions about whether a tenant should be made to pay or not will arise. In these times, the tenant and the landlord should sit and talk and resolve the problem. There are also bigger issues in commercial contracts and in such times, the Force Majeure plays a big role, Justice Singh also said.
Why Force Majeure plays a big role in these times is because there are very many issues that are not in control of the parties.
In the malls there are many who have taken shops on lease. There are minimum gurantees these people have to pay. In such cases, the mall owners and the tenant should negotiate if there is no Force Majeure clause in the contract, the Delhi High Court judge also said.
If there is no Force Majeure clause, can the courts step in. If the tenancy is based on an oral contract, then he can go away. But as long as the tenant is in occupation, then the payment has to be done.
We also need to look at the contractual provision. Section 32 of the Indian Contract Act provides, if there is an impossibility or contingency, then that cannot be enforced until the event has happened. If, the event has happened, then the contract becomes void. If he cannot pay, then he cannot keep the contract, Justice Singh also explained. She further said that the tenant cannot continue to retain the premises and then evoke the Force Majeure clause.
In commercial establishments, if a tenant cannot use a property, he cannot enjoy the property and also seek suspension of the property. Justice Singh cited a Delhi High Court judgment, where the tenant moved the court stating that owing to the pandemic, he cannot pay rent as he was not using the property. The court observed that rent has to be paid as long as the property has not been given up.
However Justice Singh continued to emphasise that there would be several challenges during these times and both the owner and tenant must negotiate and sort out the issues.
In the Energy Watchdog vs CERC, the Supreme Court had held that the force majeure clause does not exhaust the possibility of unforeseen events occurring outside natural and/or non - natural events. But the thrust of their argument was really that so long as their performance is hindered by an unforeseen event, the clause applies.
In this case, the court stated the following:
-When the contract contains an express or implied term according to which the performance of the contract would stand discharged in certain circumstances (force majeure clause), the dissolution of the contract would take place under the terms of the contract itself and it shall be covered under Section 32 of the Indian Contract Act, 1872.
-When the contract does not contain a clause as referred to in point i) above, frustration of the contract shall take place de hors the contract and shall be governed by Section 56 of the Indian Contract Act, 1872.
-The word "impossible" has not been used in Section 56 in the sense of physical or literal impossibility. The performance of act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose of the parties.
Justice Singh also spoke about the recent judgment of the Delhi High Court in the M/s Halliburton Offshore Services Inc. v. Vedanta Limited. The court said in this case, "the country wide lockdown, which came into place on 24th March 2020, was, in my opinion, prima facie in the nature of force majeure. Such a lockdown is unprecedented, and was incapable of having been predicted, either by the respondent or the petitioner."
The court said that the below factors are to be taken into consideration to determine, whether Force Majeure clause is attracted or not.
Whether a contract contains force majeure clause or not?
-If the contract contains Force Majeure clause, Section 32 of the Indian Contract Act, 1872 is attracted. A party which successfully establishes the force majeure clause is relieved of its obligations to perform its obligations under the contract during the time the supervening Force Majeure event subsists, the performance of the obligations under the contract are suspended and is relieved of its liability to pay damages for breach of contract.
Invoking Force Majeure clause could result in the right to the other party to terminate a contract if the Force Majeure event lasts longer than a particular period as stipulated in the contract.
-If the contract does not contain Force Majeure clause, Section 56 of the Indian Contract Act, 1872 is attracted.
During the webinar, Justice Singh was asked what a tenant would have to do if he or she is temporarily disposed owing to the lockdown, which was enforced by the authorities. Justice Singh said if there is no provision in the contract, he has to give up the shop. When a person is running a shop, he knows there are risks. In such a situation, it would be better for the party and owner to negotiate. Justice Pratibha Singh also said that in contractual law, the contract is supreme.