Whether contractual obligation can be excused during lockdown?

Due to the supply chain disruptions caused by the lockdown, it is likely that the performances under many contracts will be delayed, interrupted or even cancelled. Parties to a contract may seek to delay or avoid their responsibilities under the contract, either because the lockdown has legitimately prevented them from performing their contractual obligations, or because they are seeking to use it as an excuse to free themselves from an unfavorable deal. They may also cite COVID-19 as a basis for renegotiation of the cost or other key contractual provisions. This is why it is important to determine whether COVID-19 will be considered as a ‘Force Majeure’ event.

In India, the Department of Expenditure, Procurement Policy Division, Ministry of Finance issued an Office Memorandum on February 19, 2020, in relation to the government’s ‘Manual for Procurement of Goods, 2017’, which serves as a guideline for procurement by the government. In the Memorandum, the ministry has stated that the COVID-19 outbreak could be covered by a force majeure clause on the basis that it is a natural calamity. Therefore, parties to a contract can take defence under force majeure for not performing their contractual obligations during lockdown.

Some of the contracts contain provisions stating that it can be put on hold until the force majeure event is resolved. Moreover, some contracts also provide for limitations in time after which either party may cancel the agreement with written notice to the other. However, if a contract does not contain provisions especially stating any of these situations, the contract will remain in effect until the force majeure event is resolved.