WHO BEARS THE LOSS?

THE CENTRES NOTIFICATION ON FEB. 19 EXEMPTS ITS CONTRACTORS FROM PENALTIES IF THEY FAIL TO MEET OBLIGATIONS DUE TO COVID-19, BUT ITS SILENT ON WHETHER THIS APPLIES TO PRIVATE BUSINESS DEALS AS WELL

- Shubham Shankdhar

The owners of Magneto The Mall, a major commercial centre in Raipur, are in a peculiar bind during this lockdown. Four or five big firms occupying floor space in the mall have defaulted on payment of rent and maintenance expenses, citing losses from shutdown of business. Pleading helplessness in the current circumstances, the firms have all invoked the ‘force majeure’ clause in their contracts, which is legalese for a provision that gives parties to a contract temporary reprieve from fulfilling contractual obligations.

While the typical scope of force majeure does include ‘act of God’ events, such as wars and riots and epidemics such as the current one, the Indian government has yet to notify COVID-19 as a force majeure event. Anand Singhania, managing director of Magneto mall, maybe clutching at straws, but he is quick to point out this all-important detail: “Their (the renting firms) notices mention force majeure even though the government has not declared COVID-19 a natural disaster. If the government does so, even we will be able to make insurance claims to recover losses.” He is worried about his company’s ability to repay its bank loans if this ambiguity persists. “If nothing works out, we will have to take legal recourse,” he says.

This is not even an isolated case. Across the country, the crippling impact of the lockdown is seeing businesses increasingly invoke the force majeure clause—to either get a reprieve or even a waiver of contractual commitments. Consider these: