Force Majeure Restraint

Companies invoking the clause must remember that it does not ensure guaranteed protection from contractual obligations

- DIPAK MONDAL

Last month, the Bombay High Court dismissed a plea by Standard Retail, which invoked the Force Majeure clause against GS Global, a South Korea-based steel trading company from which it bought steel. The petitioner, a Mumbai-based steel importer, invoked the clause claiming inability to pay GS Global, saying it could not sell the steel due to the lockdown, and asked the court to restrain Wells Fargo Bank from encashing letters of credit. The court, however, held that the relevant clause in the contract was applicable only to the supplier of steel (GS Global) and not the petitioner.

Businesses have been finding it tough to fulfill contractual obligations since the coronavirus outbreak. While in normal circumstances, this would have led to penalties, litigations or termination of contracts, given the enormity of the current pandemic, companies can invoke the Force Majeure clause to defer or forego certain obligations. Force Majeure is a French term which means “Act of God”. The clause, a part of commercial contracts, lists events – natural calamity, disaster, war or epidemic – that may exempt a party to a contract from fulfilling certain obligations. These may include supply of goods or services, purchase of goods or services, lending or payment for goods and services.