During the COVID-19 pandemic the Government of India was forced to consider a contract of indemnity for international manufacturers like Moderna & Pfizer. This consideration resulted from an anxiety that the nation suffered from a lack of vaccination supply. The vaccine manufacturers sought this indemnity contract from the Government of India to shield themselves from the adverse effects of negligent manufacturing.

This paper examines the legal validity of such an indemnity and its potential to be used as a shield against any liability. It discusses the enforceability of such an indemnity while defends the vulnerable position of a consumer. This paper evaluates the legal validity of such a contract in light of public policy in consideration of public health. Furthermore, the paper compares the policies of the Indian Health Ministry and other common-law and civil law nations.

Introduction
The COVID-19 pandemic has significantly impacted our society, affecting each sector in unique ways. The virus was first identified in Wuhan in December 2019, initially classified by the WHO as pneumonia with an unknown cause. The chaos caused by the virus led to its official declaration as a pandemic in March, 2020. The havoc stirred was paralleled with a sense of adaptation owing to a preparation for adverse situations. On the contrary, contract law is based on the principle of certainty.

It assumes that individuals will fulfil their voluntarily formed contractual obligations. The pharmaceutical industry faced tremendous pressure to produce a vast volume of vaccines with high precision to safeguard human health. However, balancing precision and volumes was a challenge. Competing nations offered vaccine manufacturers a protection against legal action as per their private production policy. "Pfizer got indemnity from a number of nations, notably the United Kingdom, from which it had purchased supplies. It has, however, declined to speak publicly about the subject."[1]

The lack of an indemnity would require foreign manufacturers to increase the cost of the vaccinations to make provisions for possible litigation expenses. In hindsight, the Government of India would be able to bargain for lower rates and greater quantities by indemnifying the businesses with regard to these vaccinations. This would have hastened India's nationwide immunization campaign. On the other hand, by providing indemnity to local manufacturers, the government was compelled to create a level playing field for them to take on itself the full risk of administering more than a billion vaccines.[2] While the government did not provide an indemnity to any company, we will see what it lost and what it gained in the process.

Methodology
The paper evaluates the validity and enforceability of such a contract. In this evaluation, the researcher discusses the claims of the vaccine manufacturers and the Government's stance in that regard.

While it is argued that an indemnity contract which risks public health goes against public policy, the justification lies in the fact that vaccine production in common law and civil law jurisdictions often hinges on them. The absence of this assurance will result in manufacturers refusing to produce vaccinations, exacerbating the COVID-19 crisis. The potential loss of life due to insufficient vaccination supply, hindered by manufacturers' reluctance to scale up production without indemnity, would be detrimental to the populace.

The decision to provide for such an indemnity cannot be under compulsion, as a result of unprecedented demand or stringent executive policy to protect human rights. The paper seeks to understand the problems for the government on signing such an agreement and then legality of such a contractual obligation in a Court of Law.

The Enforceability of Such a Contract

The scope of such a contract of indemnity lies with the interpreting of the nature of the loss incurred. Indemnity, as mentioned in S.125[3] covers all forms of damages, costs and sums into a contract to transit liability to another party. The Court in Gajanan Moreshwar v. Moreshwar Madan[4] widen indemnity and interpreted it to involve an absolute transfer of liability express or implied.

The objective of an indemnity is to hold the indemnified harmless. Indemnity extends to losses which may not be incurred yet; however, they suffocate the rights of indemnified. The indemnifier is also liable for losses to protect the indemnified from the consequences of an event contingent. If a situation arises where the Government becomes liable to grant compensation to aggrieved parties then the manufacturers would be extinguished from losses incurred. This transaction would not simply work on a reimbursement, but a transfer of liability altogether.

The Government maintains a strict policy of not providing indemnity to vaccine manufacturer. They understand that the liability involved ensure the quality of the vaccinations manufactured. The transfer of liability would be counterproductive and would abase the quality of vaccine provided.[5] The Government's firm stance does not intent on excusing the vaccine manufacturers of any liability.

The Government's firm stance may superficially appear equitable. It holds a private profit-making conglomerate liable for any adverse effects resulting from their transactions. However, a broader examination of the facts changes the contractual relationship and the position of law. Vaccine manufacturers primarily contribute their research facilities and working capital for vaccine production, whereas the Government provides the raw materials, transportation and storage facilities.

The Government holds a high stake in production and profits of the vaccine.[6] Accordingly, the Central Government earns profits under the ostensible cloak and protection of 'sovereign immunity'.[7] Therefore, holistic scenario is such that where the Government cannot be sued for a 'sovereign function to protect their citizens' the aggrieved consumer litigates the vaccine manufacturer who holds a minor shareholding.

S. 23 of ICA, voids contracts opposed to public policy.[8] S.124 of the ICA defines a contact of indemnity[9] and Art. 294 authorizes the Government to enter into contractual agreements.[10] This is the juncture at which contradiction lies where transiting the liability of loss of lives at a large scale can potentially be against public policy and executive policy. Alternatively, the nature of loss under S. 124 can root out of a criminal breach of trust to endanger a life thus attracting S. 23 of public policy.

The Nature of Damages

The Ganjan Moreshwar[11] case interprets the nature of loss when it comes to the liability of the indemnified.[12] However, the indemnifier in this case remains obligated to compensate for the losses incurred.

Firstly, the 'loss' in cases of vaccine liability need to be interpreted as mentioned in S125 [13] including all damages, sums and costs, Secondly the loss of health on a mass scale in case of a faulty dosage does not make it opposed to public policy as insurance and indemnification in cases of medical negligence have been formed by medical practitioners. Doctors have transferred their liability in cases of medical negligence under circumstances where reasonable care was taken. The nature of loss can be compared to cases of wavering the right to litigate in case of loss of life during life threatening activities. In such cases the court accepts such waivers for four reasons:

1. It is the person who himself is volunteering to waive off their right.
2. The object of the contract is based on an individual and not on the general public.
3. The private companies can still be held liable if their negligence in ensuring the safety of the signatory is established.
4. The object of such a waiver is consensual and not contradictory to the activity itself.

But no such similarities are in this case. [14]In the case of vaccine manufacturing, providing such indemnity would be counter-productive. Private manufacturers could exploit such indemnity and compromise the production of the vaccines, therefore putting the life of the populus at a risk. The medicine which was aimed to save their lives would ironically hinder it itself. The magnitude of the lives involved acts as a clarion call for a concern of public health therefore attracts public policy under S.23.[15] On the contrary the Supreme Court has acknowledge the transfer of such liability in a limited sense to dispose claims and uphold quality as held in the case of Nagarmal Modi Sewa Sadan v. Prem Prakash Rajagaria & Ors.[16]

Public Policy and Contractual Relationship

Public Policy has a much wider ambit in Indian Jurisprudence as compared to other common law jurisdictions. Its interpretation is constrained by judicial discretion. It remains a sword to not only void contracts but also restrict fundamental rights.

Public policy as an instrument of law is as dynamic as society. It is interpreted by the Courts as certain ethical, cultural, social and moral standards of society. Therefore, enforcing a contract holding the potential to be hazardous public health is against it.[17] In India, the general consensus is more inclined towards security than individual rights, therefore even though other common law jurisdictions permit it, Indian legal structure does not permit a compromise upon the safety of the consumer.[18]

The ratio of Laxman Balkrishna Joshi Vs. Trimbak Bapu Godbole and Ors.[19] establishes the position of law. Vaccine manufacturers owe a duty of care towards their patients, such liability arises out of the standard of trust medicine practitioners uphold. This medical liability is not transitive in nature and hence cannot be transferred on to a third party in ordinary course However, if reasonable care is taken then then a medical practitioner can be excused from this liability. Hence, absolute indemnity contracts would be void, however a conditional one which remains contingent on reasonable person standards is permitted.

The liability involved hinges upon the relationship between the Government and vaccine manufacturers. This relationship must be established to understand the nature of the contract and the position of law on it. The doctrine of pith and substance states that a contractual relationship is established upon the substance of the document rather than its form. Consequently, though the contract between the Government may be termed as an indemnity, it can be another kind of a contract as well.[20]

If we expand the horizon of facts and inculcate that the Government is not only providing for the raw materials but also obtaining profits from this transaction[21], the legal scenarios change. The Government does not only provide for indemnity and shields itself from liability by exercising the power of sovereign immunity. According to the principal of sovereign immunity, the State cannot be sued for any of its functions and decisions either civil or criminal nature from anyone.[22]

We must change the relationship between the Government and the vaccine manufacturers from an indemnity to a partnership. The State shares profits in the vaccine transactions.[23] Art 294[24] entails that the State can be held liable for its actions if they are financial in nature. The State immunity ceases to exist as the transactions involve an element of profit. The unambiguous words "contract or otherwise"[25] of the Article sanction this claim.

Furthermore, the case law Deviprasad Khandelwal & sons v Union of India[26] clearly established that where the state is performing a duty but also obtaining transactional or financial benefits from a contract, such a transaction creates a liability on part of the state and restricts the doctrine of sovereign immunity. The Supreme Court eloquently laid down in the case of Kasturi Lal Ralia Ram Jain v State of Uttar Pradesh[27], that the Secretary of State would only be held accountable for its economic motivation and not the sovereign function.

As we expand the scope of facts involved, the grounds for public policy change as well. As in the case of Jindal Stainless Steel Ltd v State of Haryana[28], 'public policy' does not include only 'public interest' and 'public good' it also includes 'fairness, equity and morality'. It would be unfair to hold only one partner liable for an entire transaction and to exempt the majority owner from any and all liability. Therefore, even though the nature of the loss prohibits a contract to be formed between parties being against public policy, the situation changes as the role of the government changes making both the vaccine manufacturer and the Government liable for damages.

Companies like Pfizer and Moderna are merely manufacturers, and since the state regulates the supply and distribution of these vaccines, the state will be held vicariously liable. The case of State of Rajasthan v. Vidhyawati was a landmark judgement in which the Supreme Court determined that since the wrongdoer being the State was not exercising a sovereign function in the strict welfare sense, it was required to pay the damages.[29]

Reiterating the landmark case of Gajanan Moreshwar Parelkar v. Moreshwar Madan.[30] The facts at hand are drastically different but the ratio indicates us the direction of the judicial intent which was laid to prevent a technicality to be exploited leading to unfairness and injustice on the burden of one party. In this case the technicality lies upon the vaccine manufacture, not in terms of indemnity, but between minimal profits and sovereign immunity, which could be waived off by indemnity.

Critique
S. 125 extinguishes civil liability in terms of damages, costs and sums. It has no effect on criminal liability in terms of criminal breach of trust. The Central Government contends about the liability acting as deterrence to ensure quality; however, the purpose of death or hurt by negligence in the Indian Penal Code provides for the same thus making their contentions.

In scenarios where the manufacturing company does not obtain an indemnity from the Government, they will either self-insure or purchase product liability insurance to defend against claims made in India. It is the handling of risks which demands experience insuring against product liability lawsuits, particularly in the pharmaceutical industry. The cost of such insurance does not fluctuate the profit margin of the vaccine and the insurance firm transfers cost to its current basket of insured risks.[31] Following all this, companies like Pfizer & Moderna can self-insure if the Government does not provide them an indemnity.

It is also argued that the insurance will not increase the price of the vaccine, however it is likely to delay claims and procedural hinderances for any company as a result of their offshore base. These factors discouraged companies like Moderna and Pfizer from providing vaccines in India conducing a new organizational and financial framework to settle of claims and compensation. On the contrary, numerous other nations are eager to purchase vaccinations on indemnification terms.[32]

Conspicuous capitalization of the State

State capture is the ability, politics and phenomenon through which private individuals and companies bend state policies, laws and regulations to advantage their capitalist benefits. It is often committed through corrupt transactions with public officers and politicians.[33] The phenomenon results in a direct impact upon the consumer and competitions.

This phenomenon was exacerbated by the COVID-19 pandemic. Pharmaceutical manufacturers seek indemnity from Governments across the globe to minimize their financial risks and maximize their profits. The Government's precarious position arms the pharmaceutical sector with high risks to public health. This indemnity in other common law jurisdictions was a result of a capitalized state. This state capitalization was a result of the lack of state involvement in capital or revenue. In India, the revenue generated by the government alters the landscape, attaching liability on the State.

The Indian Council of Medical Research (ICMR), as a governmental organization, developed BBV152 (commonly known as Covaxin) independent of profit motives, thereby serving as a counterbalance against the monopolistic tendencies of the private pharmaceutical vaccine manufacturers.

Other Jurisdictions
Common law jurisdictions such as The United States provide immunity to its manufacturers like Pfizer & Moderna from liability which results from unintended adverse effects of COVID-19 vaccinations. This liability is covered within the Public Readiness and Emergency Preparedness Act of 2005. It enables the Government to limit the liability to adverse effects resulting from vaccinations. Additionally, it provides for treatment and other medicinal countermeasures as well.

Similar to this, the Human Medicine Regulations, 2012 in the UK have barred civil liabilities against Pfizer and other vaccine manufacturers to better facilitate the development of COVID vaccinations. In South Africa, the vaccine manufacturers are indemnified from accountability as their government has established its own compensation fund. The fund follows a no-fault compensation policy which covers for the damages in the event a causal link is established with a manufacturer.

India could also reflect from the United States, the United Kingdom, and a few other nations that have no-fault vaccination compensation schemes in place to preserve vaccines and compensate victims. [34] The European Union has gone beyond the traditional form of indemnification to cover for any specific protection by an advance purchase agreement with member states to incentivize production.

Conclusion
For India, the solution depends upon the relationship between the Government and the vaccine manufacturers. The crisis at hand can be solved in two ways. The end result in both the methods would be the same, the immunity of the state would cease to exist in this matter. Firstly, a partial indemnity contract can be formed between the parties thus making the state indirectly liable for any negligence on their part or the manufacturer's part.

Whereas secondly, and judicially the court needs to interpret Art 294[35] in such a method as to incorporate and restrict state immunity as soon as any profit or consideration is involved. The transaction becoming a bilateral contract reduces the moral high ground of the state and therefore their immunity which is based on such a moral high ground should also cease to exist.

Therefore, though the interpretation of public policy in India is wide and restrictive, a conditional indemnity contingent upon the reasonable care test proves to be well within its ambits. In fact, public policy is in favor of such a contract as it makes the relationship between the manufacturer just and fair, rather than burdening the liability upon just one private entity. The situation must be analyzed in depth rather than just prima facie and thus corrected by Courts.

Indemnity under S. 124 and S. 125 of ICA is inexhaustive, as a result of which courts often rely upon the object and purpose of the consensus of the minds involved to identify the nature of the contract formed. Similarly, public policy is also not defined in statutory provisions. Hence, we have relied upon case laws instead of a strict and restrictive literal statutory interpretation. This study dissipates upon the legal vacuum between public policy, health and liability in the realm of contract law by defining the relationship between the parties as an indemnifier-indemnified on one hand and partners on another.

Bibliography:

1. Venkataramanan, K. Explained | What is indemnity, and how will it affect COVID-19 vaccine pricing and availability in India? The Hindu, 30 Nov. 2021. URL: https://www.thehindu.com/news/national/explained-what-is-indemnity-and-how-will-it-affect-covid-19-vaccine-pricing-and-availability-in-india/article37701615.ece
2. Explained: What is indemnity for vaccine makers? What Pfizer, Govt say about it. Hindustan Times, 2 June 2021. URL: https://www.hindustantimes.com/india-news/explained-what-is-indemnity-for-vaccine-makers-what-pfizer-govt-say-about-it-101622631317343.html
3. India and Pfizer at impasse over vaccine indemnity demand: Sources. The Times of India, 21 May 2021. URL: https://timesofindia.indiatimes.com/india/india-and-pfizer-at-impasse-over-vaccine-indemnity-demand-sources/articleshow/82827757.cms
4. Thacker, Divya Rajagopal and Teena. Covid vaccines: Indemnity Issue, here's everything to know about it. The Economic Times, 17 May 2021. URL: https://economictimes.indiatimes.com/industry/healthcare/biotech/pharmaceuticals/covid-vaccines-indemnity-issue-heres-everything-to-know-about-it/articleshow/82689817.cms
5. Priyanshi Bhageria & Khushboo Sharma. Liability or Indemnity: The New Debate In India's Vaccination Program. Bar And Bench - Indian Legal News, 1 June 2021. URL: https://www.barandbench.com/columns/liability-or-indemnity-the-new-debate-in-indias-vaccination-program
6. Gorodensky1 A. & Kohler J., 'State capture through indemnification demands? Effects on equity in the global distribution of COVID-19 vaccine.' Journal of Pharmaceutical Policy and Practice (2022). URL: https://joppp.biomedcentral.com/counter/pdf/10.1186/s40545-022-00442-y.pdf
7. Editorial, The Reuters, The Times of India, 21 May 2021. URL: https://timesofindia.indiatimes.com/india/india-and-pfizer-at-impasse-over-vaccine-indemnity-demand-sources/amp_articleshow/82827757.cms
8. Perappadan, Bindu Shajan. ICMR got ₹171.74 crore in royalty from Covaxin sale, Rajya Sabha told. The Hindu, 8 Feb. 2022. URL: https://www.thehindu.com/news/national/icmr-got-17174-crore-in-royalty-from-covaxin-sale-rajya-sabha-told/article38396618.ece
9. Pti. ICMR has collected over Rs 171 crore as royalty from Covaxin's sales: Govt. The Economic Times, 8 Feb. 2022. URL: https://economictimes.indiatimes.com/news/india/icmr-has-collected-over-rs-171-crore-as-royalty-from-covaxins-sales-govt/articleshow/89455802.cms
10. Sheriff K. Explained: Covid-19 vaccine makers and indemnity. The Indian Express, 25 June 2021. URL: https://indianexpress.com/article/explained/explained-vaccine-makers-and-indemnity-7374643/
11. Pti. Govt Kept Same Rules for Indian, Foreign Firms While Procuring Covid Vaccines: Mandaviya. The Economic Times, 25 June 2023. URL: https://economictimes.indiatimes.com/news/india/govt-kept-same-rules-for-indian-foreign-firms-while-procuring-covid-vaccines-mandaviya/articleshow/92930820.cms
12. Avtar Singh, Contract And Specific Relief, 13th Edn (Lucknow Eastern Book Company).

End Notes:

1. K. V., 'Explained: What Is Indemnity, and How Will It Affect COVID-19 Vaccine Pricing and Availability in India?' The Hindu (Chennai, 30 November 2021).
2. Poulomi G. (editorial), 'Explained: What Is Indemnity for Vaccine Makers? What Pfizer, Govt Say About It' Hindustan Times (New Delhi, 2 June 2021).
3. The Indian Contract Act 1872, S 125.
4. AIR 1942 Bombay 302.
5. Reuters, 'India and Pfizer at impasse over vaccine indemnity demand', The Times of India (Delhi, 21 May 2021).
6. Divya Rajagopal & Teena Thacker, 'Covid vaccines: Indemnity Issue, here's everything to know about it' Economic Times (17 May, 2021).
7. Priyansh Bhageria, Khushbo Sharma 'Liability or Indemnity: The New Debate In India's Vaccination Program' Bar and Bench (Lucknow, 01 June 2021).
8. The Indian Contract Act 1872, S. 23.
9. ibid.
10. The Constitution of India 1950, Art. 294.
11. AIR 1942 Bom 302.
12. AIR 1942 Bom 302.
13. The Indian Contract Act 1872, S. 125.
14. Campbell v Baer.
15. The Indian Contract Act 1872, s 23.
16. Civil Appeal No. 6224 of 2013.
17. Shekhawat, V. S. 'JUDICIAL REVIEW IN INDIA: MAXIMS AND LIMITATIONS'. The Indian Journal of Political Science, (1994). p. 177–182.
18. B.V.R. Sarma, Lawful objects and considerations under Section 23 of Indian Contract Act 1872- An Analysis, MANUPATRA (Jan, 2017).
19. Laxman Balkrishna Joshi v Trimbak Bapu Godbole and Ors AIR 1969 SC 128.
20. Associated Hotels of India Ltd vs R. N. Kapoor AIR 1959 SC 1262 [26]; Sivayogeshwaara Cotton Press v. M. Panchaksharappa AIR 1962 SC 413 [14].
21. Priyansh Bhageria, Khushbo Sharma 'Liability or Indemnity: The New Debate In India's Vaccination Program' Bar and Bench (Lucknow, 01 June 2021).
22. Blackshield, A. R. (1966). TORTIOUS LIABILITY OF GOVERNMENT: A JURISPRUDENTIAL CASE NOTE. Journal of the Indian Law Institute, 8(4), 643–659.
23. Bindu Shajan Perappadan, 'ICMR got ₹171.74 crore in royalty from Covaxin sale' The Hindu (New Delhi, 08 February 2022); Editorial 'ICMR has collected over Rs 171 crore as royalty from Covaxin's sales: Govt' The Economic Times (New Delhi, 08 February 2022).
24. The Constitution of India 1950, Art. 294 [b].
25. ibid.
26. AIR 1969 Bom 163.
27. AIR 1965 SC 1039 [14], Peninsular and Oriental Steam Navigation Co v Secretary of State for India 5 BOM HCR 1868-1869.
28. AIR 2006 SC 2550.
29. AIR 1962 SC 933.
30. AIR 1942 Bombay 302.
31. Murali N & Ashish K, 'thewire.in' (The Wire, 1 June 2021).
32. ibid.
33. Ariel Gorodensky1 and Jillian C. Kohler, 'State capture through indemnification demands? Effects on equity in the global distribution of COVID-19 vaccine' Journal of Pharmaceutical Policy and Practice (2022).
34. John D. Winter, 'Toward a Global Solution on Vaccine Liability and Compensation', Food and Drug Law Journal (2019) VL. 74.
35. The Constitution of India 1950, Art. 294 [b].

Written By: Dhruv Madan, 3rd Year Student At Jindal Global Law School, Sonipat