OBJECTIVE In this webinar, we will understand the meaning and legal basis of a force majeure event. We shall discuss if COVID-19 will trigger a force majeure clause and whether this outbreak is considered by Indian Government as force majeure. Further, statutory relaxations announced by the Government of India in the light of COVID-19 outbreak will be discussed. Finally, the webinar will also cover the practical suggestions if force majeure event is attracted.

1. Is COVID-19 a force majeure event?
–
Legal & Statutory position
CA Divakar Vijayasarathy
&
CS Meenakshi Jayaraman

2. Research Credits
CS Meenakshi Jayaraman
Bharathi Priya R D

3. Legends used in the Presentation
CSR Corporate Social Responsibility
CARO Companies (Auditor’s Report) Order, 2020
GST Goods and Service Tax
LLP Limited Liability Partnership
MCA Ministry of Corporate Affairs
SEBI Securities Exchange Board of India
SME Small and Medium Enterprises
TDS Tax Deducted at Source

4. Presentation Schema
Part I – Legal Position
Force Majeure Event and its
Legal Provision
Events Capable of
Constituting Force Majeure
Event
Is Covid-19 a Force Majeure
Event?
Consequences of Force
Majeure Event
Part II - Practical Suggestions

5. Part I – Legal Position

6. What is a Force Majeure Event?

7. What is a Force Majeure Event?
A party’s ability to claim relief for a force majeure event therefore depends upon the terms of
the contract and the force majeure provision in particular
These unforeseeable events are called “force majeure” or “acts of God”
A force majeure event refers to
occurrence of an event
which is outside the
reasonable control of a party
and
which prevents that party
from performing its
obligations under a contract

8. What is the legal basis for Force Majeure?

9. What is the legal basis for Force Majeure?
Law relating to Force Majeure is embodied under Sections 32 and 56 of the Indian Contract
Act, 1872
• Section 32 – Enforcement of contracts contingent on an event happening
• Section 56 – Agreement to do impossible act
Section 32 provides the basis for discharge of obligations due to an impossibility
• If the event becomes impossible, such contracts become void.
Section 56 provides remedy for an agreement to do impossible act - Doctrine of frustration
• If the contract does not have a force majeure clause, the affected party could rely on the
doctrine of frustration under Section 56 of the Indian Contract Act, 1872
• In order to claim that the contract is frustrated, it must be shown that the performance of
the contract is entirely impossible and the parties are absolved from further performance of
it as they did not promise to perform impossibility

10. What are the general provisions in a Force
Majeure Clause of a contract?

11. What are the general provisions in a Force
Majeure Clause of a contract?
Force majeure Clause (FMC) are contractual provisions agreed upon between the parties. FMC
generally contains the following:
• What constitutes a force majeure? (e.g. Act of God, war, epidemics, etc.)
• What happens when a force majeure event occurs and what are the remedies available to
the parties (e.g. whether the obligations will be delayed until the event ends)
• Obligation of the parties to take advantage of these remedies (e.g. reviewing the contract,
serving notices, etc.)

12. What are the events capable of constituting
Force Majeure?

13. What are the events capable of constituting
Force Majeure?
The “test” for force majeure
usually requires the
satisfaction of three distinct
criteria:
the event must be beyond the
reasonable control of the affected
party
the affected party’s ability to
perform its obligations under the
contract must have been
prevented, impeded or hindered
by the event and
the affected party must have
taken all reasonable steps to seek
to avoid or mitigate the event or
its consequences

14. Will COVID-19 trigger force majeure?

15. Will COVID-19 trigger force majeure?
Where the contractual definition expressly covers “pandemic”:
• Inclusion of “pandemic” to the list of force majeure events will trigger force majeure
clause to be invoked for COVID-19
Where the force majeure provisions contain “catch-all” language:
• For events which are “outside the reasonable control of the party affected”, it seems
fairly clear that a pandemic such as COVID-19 would qualify as force majeure

16. Whether performance of a contract will be
affected due to COVID-19?

17. Whether performance of a contract will be
affected due to COVID-19?
Party to a contractual obligation
must prove that performance of
obligation has been prevented
by the outbreak of COVID-19
A disruption that merely impacts
the profitability of a contract
may not be sufficient for a force
majeure claim unless there is
express contractual provision
for such a situation

18. How to mitigate the event and its
consequence?

19. How to mitigate the event and its
consequence?
A party seeking to rely upon a force majeure provision to prove that it has taken reasonable
steps to mitigate the event and its consequence and that there are no alternate means for
performing under the contract
Copies of all communications shall be maintained to establish sufficient proof for the
same
What constitutes a reasonable mitigation measure is fact-specific and depends upon
the nature and subject matter of the contract in question
Given the continued impact that the spread of COVID-19 is having upon global
businesses, it is possible that there may be fewer mitigation measures available to
parties than in other potential events of force majeure
However, it will be important for employers to follow all relevant official guidelines and to
consider all reasonable measures to contain or limit the spread of the virus in the work
place so as to allow contractual performance to continue

20. Whether issuance of notice is required?

21. Whether issuance of notice is required?
Affected party’s right to relief for
force majeure under the contract will
be conditional upon:
a. issuance of a notice to the other
party,
b. supported by required evidence
The contract may additionally require
the notice to state:
a. anticipated consequences and
b. duration of the force majeure
event

22. What will be the consequences of Force
Majeure Claims?

23. What will be the consequences of Force
Majeure Claims?
The consequences for the parties where a valid force majeure event has occurred will
depend on the nature of the affected party’s obligations under the contract, as well as the
consequences and remedies expressly contemplated by the force majeure provision
Contractual remedies for force majeure typically include an extension of time to
perform those obligations or suspension of contractual performance for the duration
of the force majeure event
If the force majeure event extends over a longer period, some provisions may entitle the
parties to terminate the contract

24. What should the parties do while making
Force Majeure Claims?

25. What should the parties do while making Force
Majeure Claims?
A party affected by COVID-19 outbreak shall:
• take steps to record and document the steps taken to prevent or mitigate the impact of
COVID-19 outbreak on its ability to perform its obligations under the contract
• consider carefully how the force majeure event is framed and the consequences that are
said to flow from that event
• make a force majeure claim with care, because a wrongful claim could have serious
consequences, including amounting to a breach of contract or a repudiation of the contract
In such circumstances, the other party may be entitled to claim damages or to terminate the
contract
Burden of Proof
• Generally, the party that relies upon the force majeure event has the burden of proof

26. Whether outbreak of COVID-19 is considered
as force majeure by Indian Government?

27. Whether outbreak of COVID-19 is
considered as force majeure by Indian
Government?
Corona virus will be covered in the Force Majeure Clause (FMC) and should be considered as a
case of natural calamity.
Ministry has clarified that FMC may be invoked, wherever considered appropriate, following the
due procedure.
FMC does not excuse a party’s non-performance entirely, but only suspends it for duration of
Force Majeure.
Firm to give notice of FMC as soon as it occurs and it cannot be claimed ex-post facto.
Yes, Ministry of Finance, Govt. of India notified vide office
memorandum no.F.18/4/2020-PPD dated 19th Feb, 2020

28. Part II - Practical
Suggestions

29. Whether your contract includes force
majeure provision?

30. 1.Whether your contract includes force majeure
provision?
Consider whether there are any notice requirements to trigger entitlement to relief, including what
type of supporting documents must be provided and whether there is any time limit for that notice to
be issued
Consider and review what possible steps you are taking as a business to avoid or at least reduce the
effects of COVID-19 upon your work force and your ability to continue to perform contracts. It will be
important to be able to show that you have taken all reasonable measures and followed all official
guidance
Consider those aspects of the relevant contract that you are not able to perform and satisfy yourself
that the inability to perform is due to the consequences (direct or indirect) of COVID-19 and not a
different reason
Carefully review the definition of force majeure in that contract to determine whether there is any
specific clause incorporating events such as COVID-19 and, if not, whether the general language is
sufficient to include COVID-19 and its consequences. If in doubt, it may be helpful to seek legal advice.
Review your contract to determine whether the contract includes a force majeure provision and, if so:

31. How M&A transactions should be
approached in the current situation?

32. 2. M&A transactions
To review the transaction documents and to consult the counter-parties to address the
challenges due to COVID-19
Whether the impact of COVID-19 would trigger a Material Adverse Change
To check if the covenants in the transaction documents could be complied with or to
consider the need for specific disclosures
To check if COVID-19 would cause a delayed closing and necessitates modification to
the transaction documents (e.g. extending closing date / long-stop date)
To examine if this triggers the occurrence of a termination event

33. What are the regulatory and legal
measures to be taken by an entity?

34. 3.Review of covenants in loan agreements
To review the covenants in the loan agreements (event of default)
To assess the need for changing or re-negotiating the loan terms with lenders
4.Review of insurance contracts
Determine whether insurances, such as business interruption insurance or force majeure
insurance, may cover any of the expected losses
5.Regulatory disclosures
Listed entities to report to stock exchange if there is a material effect on the business

35. What are the steps taken by entity for its
stakeholders?

36. 6.Employer’s obligations
7.Customer connect
To have constant communication with customers
8.Information to Board, Shareholders &
Creditors
To be well informed about the management’s plans to mitigate the material risks
To ensure safe and healthy working environment to employees, temporary staff, trainees
To inform the employees about the precautionary measures to be taken
To communicate to the staff with factual information
To allow an employee to work from home

37. Whether going concern status of the
entity will be affected?

38. 9.Insolvency
Outbreak of COVID-19 has resulted in financial distress and companies may thus seek protection
from their creditors
With more distressed cases, insolvency is expected to increase
10.Business Continuity Plan
Enterprise Risk Management Team / management team to evaluate and apprise the Board on
the business continuity plan

39. Thank You!
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