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EFFECTS ON COMMERCIAL CONTRACTS DUE TO COVID -19 (Force Majeure & Frustration of Contract)

As Legal practitioners we have drafted so many Commercial Contracts and have added the Force Majeure clause number of times, fortunately, without having much opportunity to face the real life action of this clause so far! This is definitely the most overlooked clause by most of the contracting parties during negotiations. However, COVID-19 situation has made all of us to rethink on the gravity of this NOT-SO- GLAMAROUS CLAUSE. According to “The Guardian”, the first case of Covid-19 was traced back to 17th November, 2019 which was weeks before the announcement of this newly discovered virus in China. The Chinese government was broadly criticized for failing to break the news globally regarding the seriousness of this virus, and it was too late to stop the multiplying effect of the deadly contagious virus. On 11th March, 2020, WHO(World HealthOrganization) declared Covid-19 as a pandemic after carefully assessing the threat it contains globally. The Covid-19 is malevolence in the eyes of the global economy as it severely threatens the health and economic wellbeing of populations across the globe. The world economy fuels on trade and commerce between countries.. The commercial contracts are drafted in a manner to suit the nature of business and efficient enforcement of such obligations in a time bound manner while also keeping in mind, the contingencies which  are beyond the control of the parties to the contract. Insertion of a Force Majeure clause gives a way out from such unpredictable occurrence of any such devastating events that frustrates the parties from performing the contract on time. “Force Majeure” or “vis major” (Latin) means superior force. The term is similar to Act of God and widely applied to commercial contracts by way of insertion of a Force Majeure Clause. Force Majeure is an exception to what would otherwise result in a breach of contract. Such a clause, allows a party to a contract to take a defense for non-performance or delay in performing contractual obligation due to unanticipated circumstances which the parties have no control over, such as strike, crime, riots, war, pandemic or an event of Act of God (uncontrollable natural forces like earthquake, volcano eruption, flood, hurricane. These clauses are often mis-used by parties to refrain from performing undesirable obligations for which the Court scrutinizes such cases to examine if such event prevented the party from performing its obligations and if any other preventive and cautious measures were adopted. Basically, the willingness and the efforts made by the party to deliver what is promised under the contract needs to be scrutinized to ascertain the applicability of the Force Majeure clause Covid-19 is a situation which has impacted the globe at a very fast pace due to its contagious nature and currently India also like many other countries is at its crucial juncture in the fight against Covid-19. Due to disruption in the supply chain and many other restrictions on movement of the citizens,  caused by the “pandemic”, there have been rising concerns about performing contractual obligations existing between parties to a contract. Most of the parties to contracts  are increasingly getting affected by this Act of God and “Force Majeure” and are contemplating to invoke the provisions for non-performance or  inability to perform contractual obligation due to the pandemic. GLOBAL SCENARIO: – China has also invoked “Force Majeure” to protect businesses by issuing force majeure certificates due to the epidemic. UK is applying the Doctrine of Frustration. Where frustration is applied, the parties are excused from all further performance and are not liable for damages for non-performance. The contract is permanently set aside. INDIAN SCENARIO: – A. The Concept of Force Majeure 1.    Force Majeureconcept is not specifically provided under the Indian Contract Act, 1872. It is a contractual term which is interpreted based on the manner it is drafted and embodied by the parties to the Contract. 2.    Force Majeure instances are governed by the Indian Contract Act, 1872 under Chapter III, Section 32 dealing with Contingent Contracts. The word “contingent” means occurring or existing only if (certain circumstances) are the case. Section 32 defines enforcement of contracts contingent on an event happening. 3.    Exhaustive or Inclusive contents of the Force Majeure clauses: – The contents arranged in an Force Majeure clause are significant when it is required to be invoked. A Force Majeure clause generally covers situations like the invocation of a war, an epidemic, a terrorist strike, floods, fire, lightning strikes, earthquakes, governmental action & embargoes etc….. the list may be  very long sometimes; which impede the performance of contractual obligations. However, in a situation where the Force Majeure clause is not very exhaustively drafted and crafted and in case the same needs to be invoked the aggrieved party would run the risk of burden of proof in case of a dispute on interpretation of the same, the recourse to an aggrieved party is litigation. However, COVID-19 is an unprecedent situation and one need not be worried about the burden of proof with respect to the incapability to perform due to various Lock Down notifications by the Government of India. 4.    A party having a force majeure clause in a contract, needs to prove before the Court, the happening of such an unprecedented event. If such an event makes it impossible for the party to perform its obligation/ the parties’ inability to perform for a particular period due to the intervening circumstances, such contract becomes voidable. 5.    Thus, the contract may be temporarily suspended or in case the intervening circumstances continue for more than reasonable period and causes hardship, the contract may be repudiated by the parties to contract. But what happens when a Contract does not have a force majeure clause? In such cases the party can invoke Section 56 of the Indian Contract Act, 1872 which enunciates the Doctrine of Frustration. Section 56 is based on the maxim “les non cogit ad impossibilia” which means the law does not compel a man to do that which he cannot possibly perform. The Doctrine of Frustration is greatly influenced by the English law and paves the way for parties to seek relief in cases of unprecedented supervening event which hinders performance

Title to be clear of any Encumbrances

When purchasing a property, it’s important to ensure that the title is clear of any encumbrances. Encumbrances are any claims or liabilities that affect the property’s title and can include mortgages, liens, easements, and judgments. These encumbrances can impact the property’s value and the ability to sell or transfer the property in the future. In this article, we’ll discuss the importance of checking for encumbrances on properties and the steps to take to do so. Why Checking for Encumbrances is Important There are several reasons why checking for encumbrances is important when buying a property: Protecting Your Investment: Purchasing a property is a significant investment, and any encumbrances on the title can impact its value. It’s essential to ensure that the title is clear of any encumbrances that may affect the property’s value or future transferability. Avoiding Legal Issues: If there are any encumbrances on the property, it may result in legal issues that can be time-consuming and costly to resolve. By checking for encumbrances, you can avoid these issues altogether. Future Transferability: If you plan to sell or transfer the property in the future, any encumbrances on the title can make it difficult to do so. It’s important to ensure that the property’s title is clear of any encumbrances to maintain its transferability. Steps to Check for Encumbrances The process of checking for encumbrances on a property can be complex, but there are several steps you can take to ensure that you’re conducting a thorough search: Hire a Title Company: A title company can conduct a thorough search of the property’s title to identify any encumbrances. They can also provide title insurance to protect you against any potential issues that may arise in the future. Conduct a Public Records Search: You can also conduct a public records search to identify any encumbrances on the property. This can include searching for liens, mortgages, easements, and judgments. Review the Property Deed: The property deed can also provide valuable information about any encumbrances on the property. Reviewing the deed can help you identify any existing liens or restrictions on the property. Consult with an Attorney: Consulting with an attorney who specializes in real estate law can also provide valuable guidance in identifying any encumbrances on the property. In conclusion, checking for encumbrances on a property is an essential step in the property buying process. By identifying any potential issues upfront, you can avoid legal issues, protect your investment, and ensure the property’s future transferability. Taking the necessary steps to conduct a thorough search can provide you with peace of mind when purchasing a property.

Interview with Muneesh Dhawan, Co-Founder & Managing Partner at Law Veritas

Mr. Muneesh Dhawan is the co-founder and managing partner at Law Veritas which is a full-service law firm and it offers a comprehensive range of legal services in civil, corporate, and criminal law. He has previously worked as a Legal Officer in Standard Chartered Bank, BSES Delhi, and was the Zonal Legal Manager in ICICI Bank. He graduated from Delhi University and has done his Masters in Law from Kurukshetra University. Below is an excerpt from the conversation we had with Mr. Dhawan. Akanksha: The legal field has recently flourished and more students are voluntarily taking up law as their career. What motivated you to take law as your career? Please share your experience. Muneesh Dhawan: Legal Career is one of the prestigious professions which offers a huge amount of opportunities & job satisfaction. My motivation to take up law as a career comes from challenges this field offer & variety that fulfill one’s personal aspirations. In my personal view, this profession gives a sense of personal achievement with meaningful & satisfying work. What excites me most about this career is that it empowers one to have an ability to make changes in people’s lives meaning thereby those who cannot help themselves or even those who want a guiding hand through difficult times in their lives. Akanksha: You have ample experience in the legal field. From working with ICICI Bank to working with Capri Global Capital Ltd, and now being the co-managing partner of Law Veritas, you’ve achieved a lot. Out of all your achievements, which ones do you consider as milestones, and why? Muneesh Dhawan: I have seen & analyzed the corporate legal sector to a great extent in my stint spanning more than twenty years as an advocate & as in-house legal counsel in leading corporates. There is one famous quote that reads as “Life is not a matter of milestones but of moments” hence I have enjoyed every single moment in my career & continues to do the same. When I along with my partners started this law firm it was the turning point in my career which may be termed as ‘Milestone’, a kind of a celebration to prepare for the road ahead with many more Milestones to come. Our law firm in this short span has more than sixty leading corporate clients to whom we provide a variety of legal services as a full-service law firm which is evidence of the fact that my work in the past have been acknowledged by most of the corporates/clients I had worked with. Akanksha: You have worked with corporates, like ICICI Bank, Fullerton India Credit Company Ltd, etc and now you are the Co-founder and managing partner of Law Veritas. Yet despite all this, you might have faced setbacks in your career. How did you deal with such downfalls and how do you suggest others to deal with them? Muneesh Dhawan: Shocks, denials & self-doubt are forms of setbacks that are part & parcel of every person’s career. However important thing here is to stop bargaining on fate but think of failures simply as an opportunity to begin again & yes, this time more intelligently with the focus of what caused such failures/setbacks so that same are avoidable in future. Further, my suggestion to overcome such failures or setbacks as we may call is to chart out a fresh plan or future course of action. Here I would also like to suggest that not all failures are to be dealt solely who has suffered such failure/setback or facing such failure & rather than retracting from the world itself, face reality & in such crisis situation one should seek direction, insight & support from family or a mentor. People around us make us stronger, wiser, better person hence seek their help/support rather than pushing oneself to extremes. Akanksha: In order to protect the interest of depositors, the union cabinet has made an amendment in the Banking Regulation Act. The amendment proposes to raise the insurance cover on saving deposits, five times, to Rs 5 lakh. This will help to avoid PMC Bank like a crisis. What is your opinion on this? Please share your views. Muneesh Dhawan: Union Finance Minister Ms. Nirmala Sitharaman in February this year announced the Government’s decision to raise Rs. 1 lac insurance cover limit to Rs. 5 lacs for greater protection of depositors’ money in banks. This was a long-awaited revision since the last revision was done in the year 1993 when the limit was increased from Rs. 30000/- to Rs. 1 lacs. This move has come after there was a lot of criticism over the handling of PMC Bank in September last year leaving thousands of people helpless & unable to withdraw their own hard-earned money. As per RBI guidelines, deposits with all commercial banks & cooperative banks are insured under the Deposit Insurance & Credit Guarantee Corporation (DICGC). Each depositor in a bank is now insured up to a maximum of ₹ 5,00,000 (Rupees Five Lakhs) for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank’s license or the date on which the scheme of amalgamation/ merger/ reconstruction comes into force. Raising of insurance cover to Rs. 5 lacs will give a big comfort to depositors which have become more significant in these Covid-19 times. This will surely help to boost the confidence of people in the banking system. Akanksha: As mentioned earlier, you have gained a lot of experience by working with corporates and now you have co-founded a law firm. What, in your opinion, are the skill sets that are necessary for one to set foot in the corporate industry? Muneesh Dhawan: With the growth of the Indian economy growing steadily over the last few years (*discounting the brakes put on growth due to Covid-19 situation), more & more corporates are expanding their horizons. With such an expansion, legal professionals are required to advise corporates on navigating the legal system as prevalent in India. Corporate lawyers are nowadays

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