This Article is written by Rohit Raj, a student currently pursuing B.A.LLB.(Hons.) from Lloyd Law College. This article talks about the current problem of COVID-19 and its impact on the economy and also deals with whether COVID-19 falls within the ambit of Force majeure.
“The biggest COVID-19 pandemic is hunger, starvation, fear, and uncertainty. It is not the virus itself.”
Coronavirus was first reported in the Hubei province of Wuhan in China in the month of December 2019. Many scientists think and discuss the origin of COVID-19 but after scientific research, it has been found that this virus is seen in bats and this disease spreads to the human body from the bats.
Coronavirus spreading across the world started from China and started affecting people at larger mass and due to this situation, the World Health Organization declared COVID-19 as a pandemic and public health emergency.
The deadly coronavirus till now has caused the death of more than 1 lakh people worldwide and this is increasing day to day. It forces people to maintain social distancing and to be in isolation and survive on some essential goods only. One thing which every country is facing currently two situations i.e. economic crisis and Pandemic and the problem of economic crisis continuing from last some months and this COVID-19 Pandemic makes the economic crisis worst and many think that or estimate that this crisis will even be worse than the Great Economic Depression in the year 1930.
Due to these unforeseeable and uncontrollable circumstances, people lose their job for the temporary period and people sit ideally without performing any activities which can contribute to the GDP’s downfall and this finally leads to the burden on the whole economy.
Whether COVID-19 Comes under the Ambit of Force Majeure?
First, we should understand the concept of Force Majeure. According to the Black’s Law Dictionary, Force majeure is considered as an event that can neither be anticipated nor controlled by an individual. Force majeure is a common clause under the legal contracts that helps parties in making excuses from performing the contractual obligation. Force majeure contains events like natural calamities i.e. earthquakes, volcanic eruptions, or any other type of natural calamities.
The essential ingredients that are required for any event to qualify as a force majeure are that it should be unforeseeable, and uncontrollable. And this is a clause in the legal contract and if any contract is not fulfilled due to any such circumstances which is unforeseeable and uncontrollable then Force majeure gives parties an excuse from the performance of the contractual obligation. If we see in the context of the contract validation if the party fails to fulfil their contractual obligation due to the unforeseeability of COVID-19 then, in that case, the party is not liable for non-fulfilment of their obligation.
Currently, the Indian government has issued an order under Section 6(2)(i) and laid down guidelines under Section 10(2)(1) of the Disaster Management Act, 2005 which ensures that the commercial activities and offices closed and social distancing should be maintained for now till 3rd May and any person who found violating the rules maintained under these both above-mentioned sections of Disaster Management Act, 2005 will be booked for punishment prescribed.
As above mentioned, Force majeure is a clause in a legal contract and if there is no existence of force majeure clause in the contract, then parties can refer to Section 56 of the Indian Contract Act, 1872 which talks about ‘Doctrine of Frustration’ and it says in order to invoke this section and concept of ‘Doctrine of Frustration’ it must be proved first that the event has frustrated the base of the contract.
In the case of Matsoukis vs. Priestman and Co., 1915 the definition of ‘Force majeure’ has been propounded and is defined as “Causes you cannot prevent and for which you are not responsible.” and this principle of force Majeure has been followed in the Indian case which has been laid down by Madras High Court.
In the case of M/s Halliburton Offshore Service Inc. v. Vedanta Ltd., 2020 The Hon’ble High Court of Delhi had considered this outbreak of COVID-19 under force majeure. The Delhi High Court has restrained Vedanta Ltd from invoking eight bank guarantees extended by Halliburton Offshore Services in connection with a development contract for certain blocks in Rajasthan.
If we talk in the context of the contract, then a contract just executed before this coronavirus outbreak all over the world, Parties involved in this contract have no knowledge of this coronavirus outbreak and this will be considered as a pandemic. And in absence of knowledge of this COVID-19 pandemic gives a right to either party of the contract to prevent himself from being held liable for non-fulfilment of contractual obligation. And to prevent himself a concept of force majeure is used.
In the case of Energy Watchdog vs. CERC, 2017 Justice R.F. Nariman of the Hon’ble Supreme Court of India has clearly stated “Force Majeure”, a clause in the legal contract that is governed by the Indian Contract Act, 1872. It is considered a clause in the legal contract and it is governed by Chapter III that talks about the contingent contract. It also expressed that the Force Majeure event dehors the contract, and it is dealt with by a rule of positive law under Section 56 of the Contract.
In the case of Dhanrajamal Gobindram v. Shamji Kalidas & Co., 1961 it is a force majeure event that makes the execution of a contract impossible and not just mere difficulty in carrying out the performance of the Contract. Hence, monetary difficulties won’t be subject to coverage.
In the case of Edmund Bendit and Anr. vs. Edgar Raphael Prudhomme, 1925 definition of Force majeure has been mentioned or given and according to the definition propounded Force majeure “causes you cannot prevent and for which you are not responsible”.
Impact of COVID-19 on Economy
The outbreak of COVID-19 originated in China and now in other countries also which leads to the closing of commercial activities and all types of other activities that directly put a lot of burden on the economy. Many countries lost their people due to this COVID-19 pandemic and a mass of people are being infected with it. Countries are spending a large sum on the treatment of infected people and on testing different kits and doing research to bring vaccines to cure the patients of COVID-19.
This heavy investment in all these things affects the economic condition of many countries which is affected by COVID-19. Many countries have been devastated totally and bring the economy into recession. According to the UN Conference on Trade and Development, this outbreak will cause the global economy to incur a loss of around $1-2 trillion in the year 2020, and the same applies in the case of the Indian economy.
The Indian economy was already in the state of recession before spreading COVID-19 from China to India and after spreading and closing all commercial activities and offices this recession is worse.
Some say that this recession will be greater and worse than the Great Economic Depression in the year 1930. With the spread of this coronavirus pandemic, the impact of it is clearly visible in the financial market, and in the case of the organized sector but the detailed impact on different sectors is not analyzed.
Overall, this pandemic situation creates the scene of financial emergency in the country but the government is silent on introducing a Financial emergency.
Impact on Different Industries
This COVID-19 pandemic has a different impact on different industries whether it is professional or non-professional. This event impacted legal contracts also and some industries which were largely affected by the occurrence of the pandemic.
- Construction Sector,
- Real Estates,
- Entertainment and Sports,
The Legal Industry
It is considered as an affected industry from the COVID-19 pandemic and its condition becomes worse. If we look from the perspective of the legal industry, the question arises of how supply chains properly handled the disruption caused by the Pandemic. We have earlier dealt with how force majeure plays a significant role in the context of contracts but there are some other alternatives which are used to tackle the situation of the legal industry.
During these days in lockdown all over the country due to COVID-19 all the courts are closed and all courtroom proceedings are now initiated in online mode and all the cases were heard in online mode so that social distancing should be maintained. Many companies and organizations opt for the Alternative Dispute Resolution method and also Online Dispute Resolution which gives people the hope to get their dispute resolved without going to any courtroom in this lockdown. But if the legal industry faces certain negative effects on the economy then it has some positive effect also and due to this a new era overcomes in the legal industry and now the courtrooms can deal with the proceedings in a digital way.
The Technology Industry
It is the area on which COVID-19 has a positive and negative impact. If we look at both separately, then the positive impact of this COVID-19 on this industry is that industry with the help of remote work facilities boosts up its demand by increasing their working capacities from remote facilities.
Its negative impact is that many big company conferences get canceled due to the misuse of data for the wrong person by any person or other entities like Zoom app.
Whereas, its positive impact is that many companies or apps like- Zoom, G Pay, Skype, and many other applications makes people work much easier and students attend their classes and companies organize their meetings. Everything has two aspects negative as well as positive and this industry shows both aspects due to this pandemic.
It is the industry that is the most affected and worst affected sector among all the industries. Due to the spread of coronavirus from China to many other countries, many countries put a ban on the movement of people from one country to another through the medium of the aviation industry. And this total ban on the movement of people from one country to another leads to a decline in the revenues of this Industry.
If we look at the report of the CII then according to the CII report, almost 28 million Indians are estimated to travel outside India in the year 2019. Many airlines suspended their airline’s services temporarily which puts a heavy burden on the economy.
The Tourism Industry
It is also impacted badly due to the Coronavirus and is considered worse than the aviation industry due to this pandemic outbreak in many countries. And most affected countries have the worst revenue generation from this sector. The tourism industry contributes 10% in the total GDP and due to a temporary break in the tourism industry contribution to the GDP declines.
According to the World Travel and Tourism Organization, COVID-19 cuts about 50 million jobs all over the world in the travel and tourism sector and it is continuing for the temporary period when the country is going towards the direction of recession.
At the time of COVID-19 pandemic was largely affected due to the ban on international trade and investment. All Foreign direct investment was stopped and delayed in all activities which increases the value of the Real estate. During the coronavirus outbreak and lockdown, real estate faces many consequences. Advertisers of the real estate are not able to comply with the venture time constraints and this largely affects this real estate industry. Every nation during the festive session earns a huge amount and contributes to the GDP by the new ventures and purchasing of different properties.
But, during this amidst lockdown the festive season in the year 2020 is not fruitful from the perspective of the real estate industry as all the purchases of land have been stopped, and neither any ventures occurred in this lockdown.
This COVID-19 pandemic is a pandemic that has a very serious ill effect on everything from life to property. It totally devastated the economy and social conditions of many countries. The impact and its ambit of impact are so large that the World Health Organization has declared Coronavirus as a pandemic and many nations declared total lockdown and stopped all the commercial activities for the temporary period and many countries clearly explicit their intention of giving more priority to save a life than the conducting of commercial activities.
The COVID-19 shows a worse impact on the economy and many people lost their jobs and many lost their lives but the government is putting all its effort in order to come out of this worst condition and this condition shows unity among the people and police and government showing their full support to the common people. And the launching of new phones is deferred due to which the supply chain of smartphones is affected and this puts a burden on the economy on a different level as in the whole world most people use smartphones and the break of supply chain brings the economy into recession.
From the medical point of view, the COVID-19 is at a peak and its impact on the economy will lead to a recession in the near future. From the last few years, it is seen that corporate sector of India has a lower financial capacity to absorb losses incurred and due to COVID-19 the losses incurred this time is huge and after the end of the coronavirus pandemic, the inability of the corporate sector to absorb losses may lead to a recession in the economy.
The Asian Development Bank estimated that the lockdown will cause a loss of 2.3% in the Gross Domestic Product. From the beginning of lockdown all the major companies temporarily shut down, all inter and intra movement banned, schools and colleges closed and all auto-mobile manufacturing companies closed for a temporary period and all this jointly affects the economy so badly that it leads to recession in the economy.
In the aftermath of the pandemic and the impending economic disadvantages, it will lead to the emergence of a new world and many countries will emerge as a prosperous nation and a strong nation.
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