Whether contractual obligations can be excused during the lockdown?

Sometimes, the performance of a contract is possible when the contract is made but becomes impossible or unlawful upon happening of an event which could not have been prevented. This phenomenon is referred to as the ‘Doctrine of Frustration’. Therefore, in case the contract does not include a force majeure clause, the parties who are unable to carry out their contractual obligations can ask for relief under the doctrine of frustration under Section 56 of the Indian Contract Act, 1872.

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.