The COVID 19 pandemic is a ‘force majeure’ event owing to the disruption of supply chains worldwide and consequently the disruption of business, thus offering relief to several companies with central government contracts or otherwise who have been forced to suspend operations. Force Majeure (“FM”) encompasses a variety of events including Acts of God, wars, riots, and the current pandemic, etc. FM is a contractual feature and is not defined under the Indian Contract Act, and thus the language of the specific contract in question is of absolute importance, as some contracts give a narrower, restrictive interpretation of the clause as it permits contractual non-performance.
Impact on construction and insurance:
The impact of FM in the present circumstances is that developers and builders now have legal sanction to delay the completion of their projects. Finance minister, Nirmala Sitharaman recently announced that under construction, real estate projects can invoke the FM clause and postpone project completion by a period of 6 months. With delays in construction projects being a persistent problem to homebuyers, FM now gives the delay a legal backing, and would thus affect buyers. People with an under-construction house, and who are discharging EMIs will not be given any leeway with this official sanction.
The Insurance Regulatory and Development Authority of India (“IRDAI”) has directed health insurance companies to settle COVID 19 related claims quickly, and health policyholders won’t be affected by the FM clause unless a pandemic is specifically mentioned as an exclusion to the contract. Further, it has been clarified that FM will not apply to COVID 19 death claims much to the relief of insurance holders.
Thus, the FM clause has an impact on contracts in every sector, and while homebuyers (with an under-construction project) would be negatively affected, there seems to be a respite for policyholders. It remains to be seen, what the future holds in store.
Arbitration- Not a one-man show? Neither is it a show of the times of today! The legendary Gary Born calls it the ‘Game of Tribunals’;