The COVID-19 pandemic, one of the most profound global crises in recent history, has significantly impacted the legal landscape, particularly in the realm of contract law. As businesses, governments, and individuals grappled with lockdowns, supply chain disruptions, and widespread uncertainty, the application of contract law in India evolved in unprecedented ways. The pandemic brought to the forefront the complexities surrounding the invocation of force majeure clauses and the application of the doctrine of frustration, central tenets of the Indian Contract Act, 1872.

This article delves into how COVID-19 has transformed contract law in India, particularly focusing on how courts have interpreted these doctrines, the key judicial decisions post-pandemic, and the broader trends shaping commercial contracts in India today.

Background: Contract Drafting Before COVID-19

Before the pandemic, contracts in India typically included general clauses to deal with unforeseen events, such as natural disasters or "acts of God." However, these provisions were often broadly worded and lacked specificity for events like pandemics or government-imposed lockdowns.

In practice, businesses rarely accounted for disruptions on a global scale, and force majeure clauses primarily focused on events like earthquakes, floods, or wars. Courts were also relatively conservative in applying the doctrine of frustration, strictly limiting it to situations where contract performance became absolutely impossible.

For example, in pre-pandemic judgments like Satyabrata Ghose v. Mugneeram Bangur & Co. [1], the Supreme Court held that frustration applied only when an event entirely destroyed the foundation of a contract. This restrictive approach reflected the predictable nature of contract disputes before the COVID-19 era, where disruptions were often localized and manageable.

The Concept of Force Majeure

The concept of force majeure owes its origin to Roman Law which recognised the principle of "clausula rebus sic stantibus" which provides that obligations under a contract are binding so long as the situation existing at the time the contract was entered into fundamentally remains the same.[2]

Force majeure, a French term meaning "superior force," refers to unforeseen events or circumstances that prevent a party from fulfilling their contractual obligations. Historically, the doctrine was applied to extraordinary events such as natural disasters, wars, and political upheavals. However, the COVID-19 pandemic introduced a new category of force majeure events—global health crises.

Under Section 32 of the Indian Contract Act, 1872, a contract becomes void when its performance is made impossible due to an event not anticipated by the parties at the time of execution. In typical contract law, parties negotiate force majeure clauses to allocate the risk of such unforeseeable events.[3]

The advent of the pandemic raised several issues regarding the interpretation of force majeure clauses, especially in contracts that did not explicitly consider pandemics. The courts were faced with the task of interpreting whether COVID-19 could be classified as a force majeure event in the absence of clear contractual language.

Post-COVID Developments in Force Majeure

In the aftermath of the pandemic, there has been a notable shift in how force majeure clauses are understood and implemented in India. Indian courts have increasingly broadened the interpretation of force majeure events, recognizing pandemics and government-imposed lockdowns as valid reasons for suspending contractual obligations. This trend aligns with global practices, but with notable differences in its application within the Indian legal system.

For instance, in Pioneer Urban Land and Infrastructure Ltd. v. Govindan Raghavan [4] the Supreme Court observed that a force majeure clause should be interpreted broadly to reflect the realities of the situation at hand. The judgment laid the foundation for recognizing broader interpretations of force majeure clauses, especially in the wake of the COVID-19 pandemic.

However, subsequent cases clarified that mere inconvenience or economic hardship would not suffice as grounds for invoking force majeure, reinforcing the importance of clear contractual language [5].In Standard Retail Pvt. Ltd. v. G.S. Global Corp. [6], the Bombay High Court ruled that the COVID-19 lockdown could qualify as a force majeure event. The Court acknowledged that the pandemic created a significant and unforeseen disruption in the performance of contractual obligations, especially in light of nationwide restrictions that impeded the parties ability to execute contracts as initially intended. This judgment underscored the evolving judicial understanding of the pandemic's impact on commercial contracts.[7]

The Doctrine of Frustration

In addition to force majeure, the doctrine of frustration under Section 56 of the Indian Contract Act has played a crucial role in addressing contract performance disruptions due to COVID-19. The doctrine provides relief when a contract becomes impossible to perform, or when its performance is drastically different from what was initially agreed upon. In the context of the pandemic, parties sought to invoke frustration to be relieved of their obligations due to the significant obstacles imposed by the virus and government restrictions.

This "supervening impossibility of performance" defence mentioner under Section 56 is not applicable, when non-performance is due to party's own negligence and also in cases, where performance isimpossible due to mere temporary circumstances.[8]

However, the Indian judiciary has maintained a strict interpretation of the doctrine of frustration, ruling that merely economic hardship or delays will not suffice to invoke it. In Ramanand v. Dr. Girish Soni (2020), the Delhi High Court emphasized that frustration applies only when performance is rendered physically or legally impossible. Courts have resisted claims of frustration based on economic difficulty alone, underscoring the importance of proving that the contract's performance has been rendered fundamentally different due to an unforeseen event [9]

Similarly, in Murlidhar Chiranjilal v. Harishchandra Dwarkadas & Ors. [10] the Supreme Court reiterated that the doctrine of frustration could not be invoked unless the event in question made performance physically or legally impossible, thereby reaffirming the stringent application of this principle. The case highlighted the difficulty in invoking frustration for mere delays or increased costs, reinforcing the judiciary's cautious approach in applying this doctrine [11]

Impact on Commercial Contracts

The COVID-19 pandemic has significantly impacted how commercial contracts are drafted and executed. Before the pandemic, force majeure clauses were often general in nature, addressing events like natural disasters and strikes. However, the unprecedented scale of the COVID-19 crisis has led to a revision of contract drafting practices, with businesses now incorporating specific language that anticipates pandemics, health crises, and government-imposed restrictions.

The M/s Halliburton Offshore Services Inc. v. Vedanta Ltd. [12] case in the Delhi High Court exemplified this shift. In this case, the court allowed parties to renegotiate the terms of their contract in light of the disruptions caused by the pandemic, providing a measure of flexibility to parties unable to fulfill their obligations due to COVID-19-related restrictions. The court acknowledged that these exceptional circumstances warranted a departure from the usual approach to force majeure, reinforcing the trend toward adaptability in commercial contracts

Additionally, in MEP Infrastructure Developers Ltd vs. South Delhi Municipal Corporation and Ors [13] the Supreme Court ruled that force majeure could be invoked in cases where the pandemic caused supply chain disruptions that affected the execution of contracts. This judgment highlighted the need for businesses to adapt their contractual terms to accommodate unforeseen events, including global health crises.

Government Intervention and Relief Measures

In response to the economic challenges faced by businesses, the Indian government introduced various relief measures under the Atmanirbhar Bharat Abhiyan (Self-Reliant India Mission). While the government did not amend the Indian Contract Act, it did issue notifications designating COVID-19 as a force majeure event in public contracts. These measures allowed businesses, particularly in the construction and infrastructure sectors, to temporarily suspend performance without facing penalties. The government's interventions served as a stopgap measure to mitigate the financial strain caused by the pandemic.

Moreover, the government introduced financial support packages for small and medium-sized enterprises (SMEs) to help them navigate the challenges posed by COVID-19 restrictions. These measures alleviated some of the economic burdens on businesses, facilitating more flexible contractual relationships in the short term.

Judicial Responses and Recent Supreme Court Developments

The Supreme Court has played an instrumental role in shaping the post-pandemic landscape of contract law.The validity of force majeure clauses in the context of global supply chain disruptions. The Court emphasized that force majeure clauses must clearly define pandemics and similar events to qualify for invocation under the clause, underscoring the need for clarity in contractual drafting.

Similarly, in M/s Infrastructure Leasing & Financial Services Ltd. v. M/s HDFC Bank Ltd.[14], the Supreme Court examined whether the COVID-19 pandemic could trigger the doctrine of frustration for financial contracts. The Court ruled that frustration could apply in instances where the pandemic resulted in legal impossibility or extreme financial hardship, but only if the event was unforeseen and had a profound impact on contract performance.

Global Comparisons
Globally, the pandemic has similarly altered the application of contract law. In the United States, force majeure clauses were widely invoked in the wake of the pandemic, with courts often ruling in favor of the party invoking the clause, especially in the context of government restrictions and business closures. Similarly, in the United Kingdom, courts have emphasized the importance of clear contractual language in defining the scope of force majeure events, particularly as they relate to health crises.

Indian courts, however, have adopted a more cautious approach, focusing on the specificity of the clauses in each case. This reflects the Indian judiciary's preference for not extending the scope of force majeure without clear contractual justification.

Key Changes in Contract Law Post-Pandemic

Key changes that have emerged in Indian contract law post-COVID include:

• Specific Pandemic Clauses: Contracts now often include clauses that specifically address pandemics, public health crises, and similar disruptive events.
• Expanded Force Majeure Clauses: Businesses have revised their force majeure clauses to cover not only natural disasters but also global health crises, government restrictions, and supply chain disruptions.
• Increased Use of Renegotiation Provisions: There is a greater emphasis on including provisions for renegotiating contracts in light of unforeseen events, rather than automatically invoking force majeure or frustration.

Conclusion
The COVID-19 pandemic has indelibly altered the framework of contract law in India, challenging existing norms and sparking a reevaluation of doctrines like force majeure and the doctrine of frustration. Indian courts have responded with a greater emphasis on clarity in contractual terms and have been increasingly willing to acknowledge the unique challenges posed by pandemics and government restrictions. The post-pandemic era has witnessed a shift towards more flexible and adaptive contract structures, reflecting the ongoing unpredictability of global events.

While the judicial response has been cautious and measured, with an emphasis on adhering to traditional principles, it is clear that the legal landscape in India has evolved. In response to the unprecedented challenges posed by the pandemic, Indian law has embraced a more pragmatic and contextual approach to force majeure and frustration. This evolution, combined with greater government intervention and relief measures, has reshaped the legal infrastructure in a way that accommodates future uncertainties.

In light of these lessons, it is critical for businesses, contractors, and legal professionals to review and strengthen their contracts' force majeure clauses to ensure they are prepared for future disruptions. Understanding and utilizing this provision can make the difference between weathering a disaster and suffering unnecessary losses.[15]

The lessons from COVID-19 will likely continue to influence the way businesses in India draft contracts, with an increasing focus on resilience, adaptability, and specificity. As the world moves beyond the immediate impact of the pandemic, the legal implications will persist, ensuring that the ripple effects of COVID-19 will be felt in contract law for years to come.

End Notes:

1. Satyabrata Ghose v. Mugneeram Bangur & Co. (1954) AIR 44
2. SCC Online Blog. (2020). COVID-19 Pandemic: Whether a Force Majeure Event? A Legal Analysis. Available at: https://www.scconline.com/blog/post/2020/05/23/covid-19-pandemic-whether-a-force-majeure-event-a-legal-analysis/ (Last viewed on 19/11/24)
3. Indian Contract Act, 1872, Section 32.
4. Pioneer Urban Land and Infrastructure Ltd. v. Govindan Raghavan, (2019) (5) SCC 725
5. Economic Times. Force Majeure Clauses and COVID-19 Implications. Available at: https://economictimes.indiatimes.com/news/company/ (Last viewed on 20/11/24)
6. Standard Retail Pvt. Ltd. v. G.S. Global Corp., (2020) COMMERCIAL ARBITRATION PETITION (L) NO. 404 OF 2020 (Bombay)
7. MacMillan, C. (2021). Covid-19 and the Problem of Frustrated Contracts. King's Law Journal, 32(1), 60–70. Available at: https://doi.org/10.1080/09615768.2021.1885328 (Last viewed on 18/11/24)
8. CMR University, Bangalore. (2022). Implications of COVID-19 Pandemic on the Contractual Obligations in India. Available at: https://www.cmr.edu.in/school-of-legal-studies/journal/wp-content/uploads/2022/02/10-Implications-of-Covid-19-Pandemic-on-the-Contractual-Obligations-in-India.pdf (Last viewed on 20/11/24)
9. MacMillan, C. (2021). Covid-19 and the Problem of Frustrated Contracts. King's Law Journal, 32(1), 60–70. Available at: https://doi.org/10.1080/09615768.2021.1885328/ (Last viewed on 20/11/24)
10. Murlidhar Chiranjilal v. Harishchandra Dwarkadas & Ors. (1962) AIR 366
11. Rödl & Partner. (2020). Force Majeure Clauses and the Impact of COVID-19 in India. Available at: https://www.roedl.com/insights/covid-19/corona-india-force-majeure-pandemic/ (Last viewed on 20/11/24)
12. M/s Halliburton Offshore Services Inc. v. Vedanta Ltd., (2020) O.M.P (I) (COMM.) No. 88/2020 & I.As. 3696-3697/2020
13. MEP Infrastructure Developers Ltd vs. South Delhi Municipal Corporation and Ors W.P.(C) 2241/2020
14. M/s Infrastructure Leasing & Financial Services Ltd. v. M/s HDFC Bank Ltd. 2023 INSC 929
15. Lexology(2024) The Importance of Understanding Force Majeure Clauses in Contracts Amid Recent Disasters. Available at: https://www.lexology.com/library/detail.aspx?g=1b1767a2-c3db-4613-91e7-54c6a610e7fc/ (Last viewed on 20/11/24)

Written By:

• A.S. Chundawat, Students of BALLB 7th Semester, University College Of Law, MLSU,Udaipur.
• C.S. Chundawat, Students of BALLB 7th Semester, University College Of Law, MLSU,Udaipur.
• D.S. Deora, Students of BALLB 7th Semester, University College Of Law, MLSU,Udaipur.