While the question, is ‘Covid-19 a force majeure event?’ has been discussed several times, it hasn’t been detailed concerning different countries. In the absence of a legislative definition and evolved jurisprudence regarding the application of the force majeure clause, it only makes sense to analyse its operation compared with other countries. The piece also answers how the covid-19 as a force majeure event affected the real estate sector in India. Saradha Devi writes a compelling analysis of the application of the force majeure clause in India and elsewhere. Through specific examples, Saradha also draws its impact on housing and real estate.
By Saradha Devi A, a fourth-year student of BBA, LL B. (Hons.), School of Excellence in Law, The Tamil Nadu Dr Ambedkar Law University.
The Covid-19 pandemic claimed millions of lives across the world. The outbreak of the novel coronavirus was declared a pandemic by the World Health Organisation in March 2020. Following its outbreak, like several governments across the world, India too imposed a lockdown.
The ongoing pandemic, its casualties and subsequent lockdowns impacted the economy, leaving several operations at a standstill. The supply chain got disrupted, thus making it harder to fulfil various contractual obligations inter alia. As a result, several existing contracts got nullified, interrupted and postponed.
The unforeseeable circumstances begged the question: whether the covid-19 pandemic could be treated as ‘force majeure event’. In addition, failing contractual obligations amid the pandemic offered ambiguities as to what extent must protection be granted when a force majeure clause is present or absent from contracts.
This piece will try to unravel these ambiguities by explaining the meaning of ‘force majeure’ in India, England and the United States. It will also discuss situations where ‘force majeure’ is mentioned explicitly or implicitly or has no mention whatsoever. The article will then question: is Covid-19 a force majeure event? In answering the same, the article will understand the Indian and international interpretation of the same. And finally, the later part of the piece will discuss the Covid-19 as a force majeure event and its impact on real estate in India.
Force Majeure: Defined
The term ‘vis-major’, in common parlance, means an ‘act of god’. It encompasses only unforeseen events that occur naturally. But the scope of ‘force majeure’ is broader. Within its ambit falls unforeseen events that are both natural and artificial.
‘Force majeure’ can be defined as:
“an event or effect that can neither be anticipated nor be controlled…[and] includes both acts of nature and acts of people.”
Therefore, it should be beyond the parties’ reasonable control for an act or event to fall under the scope of ‘force majeure’ within a contract.
The origin of the ‘force majeure’ theory can be traced back to the Roman Law principle ‘clausula rebus sic stantibus’. The principle states that contractual obligations are binding only so long as there is no fundamental change in the situation that persisted while entering into the contract.
Therefore, ‘force majeure’ is nothing but a contractual provision that confers or grants protection to the parties involved in a contract if any uncontainable event occurs that could deter the fulfilment of the contractual obligation.
Force Majeure Under The Indian Contract Act, 1872
The Indian Contract Act,1872 does not contain any provision that directly deals with or defines the term ‘force majeure’. The Act also doesn’t specify the circumstances and events that could classify as ‘force majeure event’.
Although the Indian Contract Act, 1872 does not expressly deal with the theory of ‘force majeure’, the principle is very much embedded in the Act, which can be gathered from the following provisions of the Act.
Section 32 of the Indian Contract Act, 1872 enforces a contract that depends on the event’s occurrence. Thus, this Section comes into play when a ‘force Majeure clause’ is present in the contract entered into by the parties. To be invoked, the clause may be either express or implied and must also define/specify the variety of events that could be construed as ‘force majeure’, such as natural disasters, acts of government, war, terrorism etc.
The Section runs as follows:
“Section 32. Enforcement of contracts contingent on an event happening. – Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void.”
There are two aspects to this Section. First, a contract cannot be enforced until a contingent event occurs on which the contract’s performance depends. Second, the contract becomes void if it is impossible to counter or mitigate the contingent event from happening. The contract would also not be enforceable where the event does not occur in a way contemplated by the contract.
Vide Section 32 of the Act, the contract is dissolved under the terms of the contract itself. In addition, the force majeure clause should be interpreted carefully by rendering close attention to the words preceding and following it, also duly regarding the nature and general terms of the contract.
In the absence of an express or implied mention of a force majeure clause, the occurrence of an event that renders the performance impossible would frustrate the contract.
Section 56 of the Indian Contract Act, 1872 deals with the doctrine of frustration.
“Section 56. Agreement to do an impossible act. – An agreement to do an act impossible in itself is void.
Contract to do Act afterwards becoming impossible or unlawful. A contract to do an act which, after the contract made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the Act becomes impossible or unlawful.” 
The doctrine of frustration is primarily a principle of English contract law. And if a contract is dissolved due to unanticipated events, the doctrine renders the performance of the contractual obligations impossible or impractical. Accordingly, Section 56 allows the termination of a contract.
Furthermore, in Naihati Jute Mills Ltd. V. Khyaliram, the Court said that when the very foundation of the contract is disturbed due to an unexpected event, the Court may grant relief on the ground of subsequent impossibility.
Therefore, the doctrine of force majeure can be invoked either through Section 32 of the Indian Contract Act, 1872 or through Section 56.
Application of Force Majeure Clause In Other Countries
The concept of force majeure is not fully recognised in the English Common Law as it is essentially a concept derived from civil law. It is merely regarded as creating a contract and is not included in the corpus of general common law. Therefore, to apply force majeure, it has to be fully defined in a contract. Furthermore, for an occurrence to be a force majeure event, it has to be beyond a party’s reasonable control, and the same varies from contract to contract.
Not all contracts would contain a force majeure clause, and some contracts might also exclude it by stating that the contract would not be affected regardless of any force majeure occurrence. Therefore, a force majeure clause will be interpreted in relation to the usual contractual interpretation principles under the applicable law of the contract.
However, it is important to note that the common law of England recognises the doctrine of frustration. It is the closest equivalent to a non-contractual concept of force majeure.
The United States Of America
In the US, unlike many civil law countries, the force majeure clause is not implied in contracts. Thus, an express force majeure clause or provision is necessary to claim the defence of force majeure. In the United States, force majeure is governed by state law. Therefore, the parties to a contract are free to negotiate and include force majeure clauses that could be broad or narrow.
While considering if a force majeure clause excuses performance, the courts in the United States examine and delve into several factors as follows:
- If an occurrence qualifies as force majeure under the contract?
- Whether the risk of non-performance was foreseeable?
- Whether the risk was capable of being mitigated?
- Whether performance or fulfilment of the obligations is truly impossible?
- Whether the performance was rendered impossible by the force majeure event? 
Therefore, where the parties to a contract include force majeure clauses intending to protect themselves from unforeseeable or uncontrollable events that prevent or delay performance, non-performance in such cases can be excused by the presence of such force majeure clauses in their agreement.
Is Covid-19 a Force Majeure Event?
The jurisprudence and legislation concerning the doctrine of force majeure are still evolving. Thus, the pandemic, lockdowns and non-completion of contracts add to the developing understanding of the doctrine of force majeure.
Since the covid pandemic and the resultant lockdowns severely impacted the economic and industrial machinery, the government of India has thus issued notices and advisories attempting to bring about some stability.
For the same reason, the Ministry of Finance, in its notification, stated that the disruption of supply chains due to lockdowns should be treated as a natural calamity. Hence allowing the invocation of force majeure, following due process, wherever deemed necessary and appropriate.
Force Majeure Clause When Present in the Contract
As stated before, contracts may contain a force-majeure clause as negotiated between the parties to the agreement. These clauses often specify the events that may qualify as force majeure events, such as the acts of God, acts of the government, wars, terrorism and epidemics etc.
Therefore, when an epidemic is categorically mentioned in the force-majeure clause of the contract, and it renders the performance impossible, the affected parties may be relieved from their contractual obligations. The burden of proof, however, would lie on the party invoking the clause.
Generally, in the presence of force-majeure clauses, the Court construes them narrowly and conforms with the ‘contra preferentem‘ rule.A ‘contra preferentem‘ rule implies that when the language of the clause is ambiguous, it is usually interpreted against the interests of the party that created, introduced, persuaded or requested that the clause be included. However, there is no uniform or generally accepted rule for the interpretation of force-majeure clauses, and the same depends on the facts of each case at hand.
Where the contracts expressly lay down conditions that are to be satisfied for the declaration of force majeure, it will mainly depend on how the Court regard the conduct of the party seeking to rely on the force-majeure event. Therefore, the court will ensure whether the clause is being invoked to prevent such performance genuinely or is being relied upon with ill-intent as an excuse to falter from the performance.
Whether the travel restrictions, quarantine and other related restrictions imposed as a result of the COVID-19 would qualify as force majeure would depend on the rules of legal interpretation and language of the force majeure clause.
Furthermore, although the event might not be explicitly mentioned in the clause, the presence of a catch-all phrase, that is, words meaning ‘including, but not limited to or any cause/ event outside the reasonable control of the parties’ would allow such an event to fall under the ambit of the clause.
However, even though such language is construed as ‘ejusdem generis‘ (‘of the same kind’), depending on how broad is the language of the catch-all phrase, it could be argued that Covid-19 falls under the force majeure clause. Also, covid-19 can undoubtedly be regarded as an ‘act of God’ where vis major has explicitly been included in the force majeure clause.
The notification above issued in early 2020 by the Ministry of Finance also laid down that the presence of a force majeure clause would not entirely excuse a party’s non-performance and that it would remain suspended only for the duration of the force-majeure.
In addition, a notice of force majeure has to be given by the firm as soon as it occurs without any unreasonable delay, and the same cannot be claimed ex-post facto. Vide the notice, either party at its option, may terminate the contract without any financial repercussion on either side in the case,
“the performance in whole or in part or any obligation under the contract is prevented or delayed by any reason of force majeure for a period exceeding ninety days.”
A party invoking the force majeure clause must maintain relevant documents to prove that the Covid-19 pandemic rendered their performance impossible. Such documents may include:
- information relating to the covid-19 outbreak, restrictions imposed in that regard, mandatory shutdowns etc., from reliable media sources;
- notifications or guidelines issued by the national/state governments;
- other documents that would be imperative in proving the impossibility of performance due to the force majeure such as cancellations disrupting travel itinerary etc.
It is to be noted that there is no direct ruling of Indian courts upholding an epidemic/pandemic such as covid-19 as an ‘act of God’. However, in a similar vein, in The Divisional Controller, KSRTC v. Mahadava Shetty,  the Supreme Court held that the expression ‘ act of God’ denoted natural forces free from human intervention.
Furthermore, when such an event can be anticipated reasonably, the Court laid down that the unexpected natural event does not act as an excuse.
Force Majeure Clause When Absent in the Contract
In the absence of a force majeure clause, a very high threshold can be observed on the part of the Supreme Court of India in its application, using the landmark judgements, as it requires the evidencing of the obliteration of the entire foundation of the contract.
In the absence of a force majeure clause or the occurrence of an event not specified by which the performance is obstructed or rendered impossible, the very purpose of the contract stands frustrated. Hence, Section 56 of the Indian Contract Act comes into play.
In Alopi Parshad & Sons Ltd. V. Union of India, the Court held that a contract might not get discharged because performance has become burdensome to one of the parties in the contract.
Further, the Court observed that upon the occurrence of an unexpected event or a change of circumstances, the very objective purpose of the contract stands defeated. Thus, the same may be construed as an impossibility to perform.
When restrictions of various kinds that would render performance difficult could be anticipated naturally, for instance, during the times of war, the fundamental basis of the agreement would not be considered frustrated.
In a more recent judgement, Energy Watchdog v. Central Electricity Regulatory Commission, the Court held that in circumstances where an event occurs which hinder performance, but the same can be fulfilled using alternative modes, even if the latter is difficult, the contract is not frustrated
Force Majeure and Covid-19: Situation in Other Countries
Covid 19 a Force Majeure Event in England
In England, the issue of whether the covid-19 pandemic is a force-majeure event or not relies on the wording and the scope of the force majeure provision present in a contract. However, as Covid-19 was declared a pandemic by the World Health Organisation, it is most likely to fall under the ambit of force majeure clauses that specifically mention or include epidemics, diseases and public health emergencies.
Furthermore, where a force majeure clause includes an act of government, which means the government’s restrictions and lockdowns due to Covid-19 could also amount to a force majeure event. Nevertheless, even where specific events are not mentioned in a force majeure clause, the covid-19 pandemic may fall within the general scope of force majeure. Thus, provided that a force majeure clause is present in the contract and the event was unforeseeable. Outside the parties’ reasonable control, it will be regarded as a force majeure event.
However, it is important to note that even in England, a party couldn’t invoke the force majeure clause merely because performance has become expensive, onerous or time-consuming due to the Covid-19 pandemic. Therefore, the contract’s wording and the impact on parties’ ability to fulfil their contractual obligations, including the effect of the government’s most recent policies or directions, would be carefully scrutinised before applying the force majeure clause.
Finally, the covid-19 pandemic suggests that it would be prudent to include a force majeure clause that specifically includes epidemics or public health emergencies in new contracts to be made in the days to come.
Covid 19 a Force Majeure Event in the US
Over the years, the US courts have established a clear set of rules regarding the doctrines of ‘impossibility’ and ‘restitution’. Furthermore, the parties to a contract may also include a force majeure clause. Where a party is excused from the contract based on the impossibility of performance, under the doctrine of restitution, the party excused must return any payments or benefits attained under the contract. 
In the US, impossibility is generally interpreted narrowly. However, Covid-19 is certainly a force majeure event. Moreover, whether the pandemic was foreseeable is not as important since it is an extraordinary event irrespective.
However, it is to be noted that not every state in the US follows the same approach in interpreting force majeure clauses. Thus, the decision of a court on whether the force majeure clause covers the covid-19 pandemic in the contract depends largely on the governing law of the contract. Nevertheless, approaches taken by some courts in the US are listed below for better understanding:
- The New York courts usually require that an event, if not listed in the force majeure provision, must be similar to the listed events to qualify as a force majeure event.
- A court in Alabama also took a view similar to that taken in New York in Drummond Coal Sales, Inc. v. Kinder Morgan Operating LP. In this case, the Court stated that although the provision contained a broad and inclusive ‘catch-all’ language, ‘the language is qualified by the surrounding terms’.
- The courts in California also require that an event be unforeseeable and similar to those explicitly listed in the force majeure provision.
- On the other hand, the Texas courts broadly interpret the force majeure clauses related to the entire contract, its purpose, and the parties’ expectations.
Covid-19 As Force Majeure Under The Real Estate (Regulation And Development) Act, 2016
In addition to the contractual obligations, when it comes to real estate promoters, there are certain statutory obligations laid down by the Real Estate (Regulation and Development) Act, 2016. The performance and fulfilment of these contractual obligations are supervised and administered by the real estate regulatory authority of each state. Due to the adverse impact of the Covid-19 outbreak and lockdowns being in place, several projects stood the risk of defaulting on the timelines under the Real Estate (Regulation and Development) Act, 2016 (hereinafter referred to as ‘RERA’) as the prevailing situation had posed many difficulties.
Section 6 of the RERA specifically deals with ‘force majeure’. This Section states that on an application made by the promoter requesting an extension in the registration granted due to a force majeure occurrence, the request may be validated, and the same may be extended. Furthermore, the explanation to the Section provides:
“For the purposes of this Section, the expression ‘force majeure’ shall mean a case of war, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the regular development of the real estate project.”
Although the RERA fails to define ‘calamity’, Covid-19 has been regarded as a natural calamity and a force majeure event by the Ministry of Finance.
The RERA contains provisions allowing the extension of registration in the case of a force majeure event. However, it neither has any provision extending the timelines committed to an allottee for handing over possession nor the payment of the purchase price by an allottee.
In addition, the extension of registration under Section 6 does not affect the terms and commitments made by the parties, and the same continues to be binding on both parties.
Following the same, on May 13, 2020, the Ministry of Housing and Urban Affairs had issued an advisory to states and their regulatory authorities. The advisory declared Covid-19 a force majeure event. It also advised all authorities to extend the registration and completion date by six months for all projects registered on or after March 25, 2020.  The advice rendered by the housing Ministry included the following points:
- Covid-19 is to be treated as a ‘Force Majeure’ event under RERA
- Where necessary, the regulatory authorities may further extend the timelines for another three months.
- Fresh “project Registration Certificates” were to be issued with revised timelines automatically.
- Timelines were to be extended concurrently for the various other statutory compliances under RERA.
In addition, certain states, taking cognisance of the fact that the lockdowns imposed had affected the construction work in real estate projects severely, made some allowances as stated below:
The completion period and the validity of registration of all the registered projects got extended by five months. Further, in its circular dated April 6, 2020, the Tamil Nadu Real Estate Regulatory Authority extended the timelines for statutory compliances due in March to June 2020 to September 2020.
The Karnataka Real Estate Authority passed similar orders. It extended the validity of registration of the projects by three months, where the revised and extended completion dates expired on or after March 15, 2020. In its order dated April 4, 2020, it also extended the time limits of all the statutory compliances due in March/April /May to June 30, 2020.
The other states whose regulatory authorities took similar measures include Maharashtra, Gujarat and Uttar Pradesh.
Section 18 of the Real Estate (Regulation And Development) Act, 2016
Section 18 of the Real Estate (Regulation and Development) Act, 2016 subjects a promoter to liability in the event of non-completion or failure to transfer/deliver possession due to their inability to follow the terms of the sale agreement or where the business is discontinued.
It is important to note that the temporary suspension of the construction activities due to the covid-19 pandemic cannot be regarded as discontinuing business under Section 18 of the RERA. The terms of the agreement would continue to bind the promoters/developers in the absence of an express extension of delivery dates. The provisions agreed by the parties would regulate any default in that regard.
However, there is no uniform rule of interpretation of Section 18 of the Act, and different state regulatory authorities have conferred different interpretations.
In some instances, on the ground that a refund may in itself undermine the potential completion of a project, some authorities have not granted refunds. While others, literally interpreting the provision, have given refunds where there is a delay of transfer or in the delivery of possession.
Due to such divergent views, the question of liability owing to the delay in delivery caused due to a force majeure event renders it difficult to entrust such determination to the RERA authorities.
The applicability of the covid-19 as a force majeure event is confined under Section 6 of the RERA. Therefore, the allottees may aspire to withdraw from real estate projects and resort to the right of refund granted by Section 18 of the RERA for a delay in the transfer or delivery of possession.
Read more on the force majeure clause, here
Several parties may seek to end their contractual obligations owing to the Covid-19 pandemic. Alternatively, there is a possibility that several parties may misuse the force majeure clause even when the event did not hinder or obstruct the performance of their obligations. Thus, difficulty, inconveniences or delay in the performance of contractual obligations due to the covid-19 pandemic and restrictions imposed owing to the pandemic alone does not excuse a party.
Therefore, when a party seeks relief during the pandemic, either on the force majeure clause of Section 56 of the Act, it falls on them to prove that Covid-19 has hindered their contractual obligation.
A good place to start would be to assess whether the covid-19 outbreak and the resultant situation (including the acts of authorities and the government in response to the pandemic) falls within the ambit of the force majeure clause. Thus, it’s also vital to examine the strengths and weaknesses of the party’s excuse based on which it seeks non-performance.
Furthermore, the evidence collected, such as the relevant notices, letters and correspondence, must elucidate that a force majeure event has occurred and its effect on the performance of the contractual obligation from which the party seeks relief.
Further, Section 18 of the RERA 2016 grants the statutory right to refund the allottees in case of delay. Therefore, while providing relief to the real estate sector, delay in the transfer or delivery of possession in light of Section 18 is relevant.
Due to the non-uniformity of the force majeure clauses in the real estate agreements, relief under covid-19 a force majeure event could be potentially restricted. Furthermore, the failure to consider the non-suspension of the statutory right granted by Section 18 could lead to a catastrophic result. The right to refund may jeopardise the completion of the projects.
Therefore, the need for a legislative clarification concerning the rights available to the allottees and a legislative action regulating the delays and other effects in the transfer/ delivery of possession due to the pandemic becomes evident. Moreover, the same should be a factor while facilitating any relief measures.
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