In 1647, a question arose as to whether a tenant was bound to pay rent even after being expelled from the property by an invading enemy force. The English court ruled that if the parties had not provided for such a contingency in their agreement, the liability to pay rent was absolute. The rigour of this harsh rule requiring absolute performance of what had been contracted was softened in 1863 when the music hall hired for a concert was destroyed by a fire before the event. This time around the English court decided differently — when the fundamental basis of the contract ceased to exist without fault of either party, the parties were released from their respective obligations.

The Indian Contract Act (ICA) expressly provides that if the contract becomes impossible of performance, the contract would be treated as void, it would cease to be enforceable by law.

Ever since Covid-19 became a pandemic, its impact on contractual obligations has been a cause for concern. Can the law provide the wide range of responses necessary to deal with the myriad disruptions caused so that hapless persons who could not perform their obligations for no fault of theirs, will get a breather is a question that does not admit of easy answers.

Force majeure clauses

While the general rule in ICA is that performance of the contract should be exact and in terms of the contract, the Act also recognises through two provisions that under certain circumstances, it may become impossible for the parties to perform the contract. If the contract itself provides for the untoward events, upon the happening of which performance would become impossible, the contract would stand dissolved in terms of that term. These are called force majeure clauses.

Force majeure in French commercial law was used with reference to all circumstances beyond the control of the parties that were adequate enough to justify non-performance. Apart from natural calamities, force majeure recognised in legal systems can extend to epidemics, wars, strikes and such other events.

Even where the contract does not contain any force majeure clause, the performance may become subsequently impossible due to unforeseen extraneous reasons. If that untoward event shakes the very foundation of the contract, the contract is said to be frustrated and in this case also, parties are excused from performing their obligations.

In both the scenarios set out above, the only relief provided by law is to declare the contract as void. This one-size-fits-all response may help for instance, the person who is seeking refund in respect of the booking for travel by air/train or a marriage or conference hall. The ICA provides that upon a contract becoming void, the party who has received any advantage under the contract is required to restore it. But to a franchisee, cancellation of the contract would add to its woes, it is waiver of the royalty for the lockdown period that it would need.

Even under the Transfer of Property Act that governs leases, the relief is no different than ICA. If the property becomes permanently unfit for use due to fire or other irresistible force, the lessee is only entitled to terminate the contract. The law does not grant any other remedy.

For a contractor working on a large project with a predominantly migrant labour force, the problem would be of a different nature. Extension of time even longer than the period of lockdown may be required to resume the operations. If time for completion of the project were to restart immediately upon lifting of the lockdown, the consequences would be grave.

Singapore has a law, the COVID 19 (Temporary Measures ) Act 2020, providing more specific temporary relief from actions arising out of inability to perform caused to a material extent by a Covid-19 event. Initiation of arbitration, bankruptcy or eviction proceedings, distraint actions, etc., have all been suspended temporarily.

The Central Government and the Reserve Bank of India, by invoking powers under enactments such as the Insolvency and Bankruptcy Code, Companies Act, Major Port Trusts Act and Reserve Bank of India Act, have extended relief to the affected persons. But India is not a city-state like Singapore.

Under the Indian Constitution, Parliament and State Legislatures have exclusive powers to legislate over specific matters; the Concurrent List enumerates matters over which both Parliament and State Legislatures can legislate, primacy being normally accorded to Parliamentary law. While public health, hospitals and dispensaries feature in the State List, matters relating to prevention of the extension from one State to another of infectious or contagious diseases find a place in the Concurrent List.

Disaster Management Act

The invocation of the powers under the Disaster Management Act, 2005 by the Central Government was thus apt and judicious. The Act vests the Central Government with seemingly sweeping powers to take such measures as are necessary or expedient for the purpose of disaster management. But can this power under the Disaster Management Act extend to making laws that may trench upon other specific laws is a moot question.

This pandemic underscores the need for having carefully crafted clauses to address situations not provided for under the ICA. A Latin maxim cautions that laws are so worded as to deal with cases that occur most frequently and not every case that may arise. A pandemic of the magnitude of Covid-19 had last occurred in 1918.

The ICA does not profess to be a complete code on the subject of contracts and cannot provide nuanced solutions to deal with the various problems caused by Covid-19. If the Central Government does not come out with an Ordinance and bridge the gaps in the law, what are we left with. In an old case, a Judge observed sagaciously: “In administering the law, it is the duty of the Judge to amplify its remedies and without usurping jurisdiction, to apply its rules to the advancement of substantial justice.”

Yashod Vardhan is a Senior Advocate and Vinod Kumar an advocate and Partner, J Sagar Associates

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