Force Majeure

Force Majeure

Subject – Economy

Context – Investigations must be carried out against former top officials at the Department of Space (DoS) who suppressed crucial information related to the Devas-Antrix deal which led the Cabinet to cancel the agreement in 2011 citing force majeure instead of fraud, a key official who was entrusted with the investigation of transaction has said

Concept –

• The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled.
• From a contractual perspective, a force majeure clause provides temporary reprieve to a party from performing its obligations under a contract upon occurrence of a force majeure event.
• While force majeure has neither been defined nor specifically dealt with, in Indian statutes, some reference can be found in Section 32 of the Indian Contract Act, 1872 (the “Contract Act”) envisages that if a contract is contingent on the happening of an event which event becomes impossible, then the contract becomes void.
• Force majeure clauses can usually be found in various contracts such as power purchase agreements, supply contracts, manufacturing contracts, distribution agreements, project finance agreements, agreements between real estate developers and home buyers, etc.
• FMC is a clause that is present in most commercial contracts and is a carefully drafted legal arrangement in the event of a crisis. When the clause is triggered, parties can decide to break from their obligations temporarily or permanently without necessarily breaching the contract. Companies in such situations use the clause as a safe exit route, sometimes in opportunistic ways, without having to incur the penalty of breaching the contract.
• Generally, an “Act of God” is understood to include only natural unforeseen circumstances, whereas force majeure is wider in its ambit and includes both naturally occurring events and events that occur due to human intervention. However, both concepts elicit the same consequences in law.
• War, riots, natural disasters or acts of God, strikes, introduction of new government policy imposing an embargo, boycotts, outbreak of epidemics and such situations are generally listed. If an event is not described, then it is interpreted in a way that it falls in the same category of events that are described.
• Indian Contract Act, 1872 provides that a contract becomes void if it becomes impossible due to an event after the contract was signed that the party could not prevent.