Corona virus: A Deadly Beast

The world is taking steps to contain Corona virus, a deadly virus which has not only taken human lives, but also has played a pivotal role in bringing many economies to a standstill. Majorly, China has been the epicenter of the attack. However, the countries surrounding China have not been left untouched. India, amongst other countries, has taken steps to ensure that the progress of the virus could be stopped. The steps taken by India include restriction on movement from China to India of people and goods. Since, India has been a big market for the Chinese goods, a downward trend could be noticed in the import of such goods.

Generally, movement of goods and services are governed by contractual obligations between the parties. Since, the outbreak has brought contractual obligations between the parties to a halt, the question which needs to be addressed is how the contracts between Indian and Chinese parties will be governed. The purpose of this piece is to chalk out in succinct manner impact of Corona virus on contracts made by Indian parties.

Commercial contracts, majorly, provide for force majeure clauses which are mostly provided keeping in mind eventualities which might occur during the term of the contract and are based on supervening events. When the operation of a force majeure clause clicks, the contract is either suspended or terminated with imposition of no liability on either of the parties. A force majeure clause should be construed with a close attention to words which precede or follow it, and with regard to the nature and general terms of the contract. The requirements of force majeure event are, firstly, it must proceed from a cause not brought about by the defaulting party’s default; Secondly, the cause must be inevitable and unforeseeable; and thirdly, the cause must make execution of the contract wholly impossible.

In India, force majeure is embodied in the doctrine of frustration in Section 56 of the Indian Contract Act, 1872. It is the essence of frustration that the event which causes frustration must have occurred without the fault of either party. Frustration brings the contract to an end forthwith, without more and automatically. The essence of frustration is that it should not be due to the act or election of the party seeking to rely on it.

The test for frustration is an objective one, since frustration is automatic on the happening of the frustrating event and does not depend upon any repudiation or other act of violation on the part of either party. When an unexpected event or change of circumstances occurs, the possibility of which the parties did not contemplate, the meaning of the contract is taken to be not what the parties actually intended, but how they as fair reasonable parties, would presumably had intended and agreed upon, if having such possibility in view, they had made express provision as to their rights and liabilities in the event of such occurrence.

As performance of the contract between Indian and their Chinese counterparts has become impossible because of Corona virus, which is a supervening event, it is suggested that Indian parties read their contracts to fathom the force majeure clause. In any event, the Indian Contract Act, 1872 will come to the rescue of the Indian parties, depending upon facts of each case.

It is too early to feel the effects of Corona virus on the contractual obligations between the parties. However, it is never late to raise an alarm for possible consequences and impact of Corona virus on contracts and India.