New Delhi, March 22 (SocialNews.XYZ) The government has given relief to companies from facing penalties over non-fulfilment of their contractual obligation with business partners because of disruption in supply lines in COVID-19 affected countries including China.
An office memorandum issued by the finance ministry has clarified that COVID-19-related disruptions should be considered as a case of natural calamity to herefore 'force majeure' clause could be invoked for non-performance of contractual obligations.
Force majeure means extraordinary events or circumstances beyond human control such as act of god, war, riot, etc. A force majeure clause in a contract frees both parties from contractual obligation when prevented by such events.
Finance ministry had directed all ministries to treat disruptions due to the virus outbreak as case of natural calamity, providing relief to government contractors in February. The rule also applied to private contracts. But there were doubts whether force majeure clause could be invoked, if the disruption in supply chains was due to spread of coronavirus in China or any other country.
With 80 districts with confirmed cases of coronavirus announcing lockdown till March 31 most establishments and companies will have to shut their operations that could result in businesses not fulfilling their contractual obligations. Unless force majeure clause is invoked, such non-performance is penalised.
The disruption in business operations is not the only issue now as several suppliers are also facing delays in getting shipments from countries such as China. This open gates for penalties that would be avoided now by invoking force majeure clause.
Force majeure clause does not give a blanket protection against any non-fulfillment of contractual terms. It also depends on the mutually agreed upon events and obligations to be covered by this clause. But with Covid-19 outbreak being considered a natural calamity, the clause can be legally invoked.
Force majeure does not absolve a party's non-performance entirely but only suspends it for the duration of the FM. The firm has to give notice of force majeure as soon as it occurs and it cannot be claimed ex-post facto. If the performance of a contractual obligation under force majeure is delayed for a period exceeding 90 days, either party can terminate the contract without any financial repercussions.
Source: IANS
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