Contracts amidst COVID-19

The race of our endurance with the virus has brought challenges in almost every sector of the world. Doctors, nurses and other frontline workers are on the battlefield since months being the most vulnerable to this phenomenon. However, the basic fabric of any physical interaction is on the trial especially those which are in the form of contracts across the globe.

As per Section 2(h) of the Indian Contract Act, 1872, contract is an agreement enforceable by law. These agreements as per Section 10 of the Act have to qualify themselves up to the parameters prescribed in order to be turned into contracts. In the current scenario, force majeure and doctrine of frustration have become relevant and talk of the town due to impossibility of performance of contracts. Both the terms are related to one another yet there stands a thin line of difference between them.

Force majeure is french term which literary means ‘superior force’. It refers to the event which was not in the purview of happening. Parties, who are binding themselves in contracts, generally use this clause in order to prevent any loss on their account. It is not directly mentioned in the Act though it has some essence in Section 32 which is related to contingent contracts. These types of contracts are executed either on happening of the prescribed event in the contract or not happening of certain situations. To invoke the clause, the parties must have entered into contracts which have not concluded due to an unforeseen event and the very basic foundation of the contract must have turned upset. In the case M/s. Alopi Prashad and Sons Limited vs. Union of India AIR 1960 SC 588 in May, 1937 the Petitioner entered into an agreement with the Government to purchase ghee for the Army personnel. In September, 1939, World War II broke out which resulted in an increased demand of ghee. After almost three years of the break out of war, with mutual consent, the agreement was revised. The prices increased and the contractor claimed that the rates were not as per the agreement made in 1942. However, the Court rejected the claim as the contract was revised after three years of commencement of hostilities and the parties was conscious of circumstances.

Doctrine of frustration is within the ambit of the Act under Section 56. It refers to the impossibility of performance in the contract after it has been executed turning the contract voidable at the option of the aggrieved party. If the aggrieved party wants, it can turn down the contract converting it void. Further, according to Section 65, the obligation of the party who has received an advantage under the void agreement or the contract turned void must restore it or to make compensation for it to the other party.

The latest judgement of the Supreme Court in South East Asia Marine Engineering and Constructions Limited vs. Oil India Limited held that when the force majeure clause is absent in the contract, the doctrine of frustration can come in to rescue but its presence cannot take the advantage of the frustration. The judgement was given in the light of the case Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44 where it was held, these differences in the way of formulating legal theories really do not concern us so long as we have a statutory provision in the Indian Contract Act. In deciding cases in India the only doctrine we have to go by is that of supervening impossibility or illegality as laid down in Section 56 of the Contract Act, taking the word “impossible” in its practical and not literal sense. It must be borne in mind, however, that Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.

The aforementioned court trial has ended settling the case, the virus has still not settled yet. Contracts made prior the announcement of pandemic we know and contracts amidst COVID-19 we have to know.

Nabia Fatima is a student pursuing B.Com Hons. from Jamia Millia Islamia.

edited by: Yusuf Aziz