Article written by: Anmol Singhal, Bharati Vidyapeeth (Deemed to be University) New Law College, Pune, B.A LL.B, 4th Year
This article is written during his internship at LeDroit India
KEYWORDS
Force Majeure, Commercial Contracts, COVID-19, Contractual Interpretation, Frustration of Contract, Section 56 Indian Contract Act, Hardship Clauses, Pandemic Relief
ABSTRACT
The COVID-19 pandemic fundamentally altered the landscape of force majeure clauses in commercial contracts, necessitating a critical re-examination of their drafting and judicial interpretation. This paper explores how courts across India and internationally have engaged with force majeure provisions post-pandemic, revealing a marked shift toward stricter scrutiny, greater emphasis on contractual foreseeability, and a clear distinction between temporary suspension of obligations and permanent discharge. Through comprehensive analysis of landmark cases including Energy Watchdog v. CERC, Halliburton v. Vedanta, and Standard Retail v. GS Global, this research demonstrates that the pandemic has catalyzed judicial innovation in force majeure jurisprudence while simultaneously reinforcing the doctrine of party autonomy. The paper further examines contemporary drafting frameworks, including the International Chamber of Commerce’s 2020 Force Majeure and Hardship Clauses, and advances practical recommendations for contractual frameworks operating in an era of heightened uncertainty. Post-pandemic jurisprudence reveals that successful force majeure invocation now requires demonstrable proof of impossibility rather than mere hardship, adherence to strict notification protocols, and genuine mitigation efforts.
SCOPE OF THE ARTICLE
1. Evolution of Force Majeure Doctrine in Indian Jurisprudence
- 1.1 The Constitutional Framework: Sections 32 and 56 of the Indian Contract Act
- 1.2 Pre-Pandemic Jurisprudence and Landmark Decisions
- 1.3 Foundational Principles Established in Seminal Cases
2. Force Majeure During the Pandemic: Judicial Responses and Shifting Standards
- 2.1 The Halliburton Decision: Recognition and Special Equities
- 2.2 The Standard Retail Decision: Rejecting Broad Invocation
- 2.3 Post-Pandemic Shifts in Judicial Interpretation
3. Comparative Framework: International Perspectives
- 3.1 Common Law Jurisdictions (United Kingdom, United States)
- 3.2 International Commercial Law Standards (ICC Clauses, UNIDROIT Principles)
- 3.3 Comparative Analysis of Burden of Proof
4. Drafting Force Majeure Clauses: Post-Pandemic Best Practices
- 4.1 Essential Elements and Structural Components
- 4.2 Specific Event Enumeration vs. General Formulations
- 4.3 Notification, Mitigation, and Procedural Requirements
- 4.4 Distinguishing Force Majeure from Hardship Provisions
5. Interpretation Challenges and Disputed Scenarios
- 5.1 The Impossibility vs. Commercial Impracticability Distinction
- 5.2 Foreseeability Post-Pandemic: Higher Threshold for Recent Contracts
- 5.3 Asymmetrical Clauses and Unilateral Application
6. Remedial Frameworks: From Traditional Suspension to Renegotiation
- 6.1 Temporary Suspension vs. Permanent Discharge
- 6.2 Hardship Clauses and Contract Adaptation Models
- 6.3 Termination Rights and Exit Provisions
7. Institutional and Statutory Guidance in India
- 7.1 Ministry of Finance Memoranda and Official Recognition
- 7.2 Sector-Specific Guidance and Regulatory Framework
- 7.3 Interaction with Other Statutory Regimes
1. EVOLUTION OF FORCE MAJEURE DOCTRINE IN INDIAN JURISPRUDENCE
1.1 The Constitutional Framework: Sections 32 and 56 of the Indian Contract Act
The legal foundation for force majeure in India derives from two distinct provisions within the Indian Contract Act, 1872. Section 32 addresses contingent contracts- agreements whose performance depends upon the occurrence or non-occurrence of specified events. Section 56, conversely, addresses the doctrine of frustration, permitting discharge of contractual obligations when performance becomes impossible due to supervening events. The Supreme Court’s jurisprudence has consistently clarified that these provisions operate in distinct spheres: Section 32 applies when parties have explicitly contemplated the contingency within the contract, while Section 56 operates as a default rule where no contractual provision addresses the supervening event.
The Indian Contract Act does not employ the term “force majeure” explicitly, nor does it define frustration in technical terms. Instead, it uses the phrase “makes performance of the act so dependent on the continued existence of a particular state of things, which ceases to exist.” This nomenclature has generated considerable jurisprudential complexity, requiring Indian courts to synthesize common law doctrines with statutory formulations.
1.2 Pre-Pandemic Jurisprudence and Landmark Decisions
The Supreme Court’s decision in Satyabrata Ghose v. Mugneeram Bangur & Co. [1954 SCR 310] established the foundational principle that “impossibility” within Section 56 encompasses not merely physical impossibility but practical impossibility. The Court observed that if the fundamental basis of the contract is destroyed by supervening events, and the object of the parties is defeated, the contract stands frustrated. This interpretation significantly expanded the scope of force majeure beyond literal, physical impossibility to encompass situations where performance becomes impractical or defeats the essential purpose of the contract.
In Nirmala Anand v. Advent Corporation Pvt. Ltd., the Supreme Court articulated that frustration operates automatically to discharge contractual obligations- the contract ceases upon the occurrence of the frustrating event without requiring notice or formal declaration. This principle underscores the objective nature of frustration: it is not a remedy parties invoke at discretion but rather an automatic legal consequence.
The watershed moment in modern force majeure jurisprudence arrived with Energy Watchdog v. Central Electricity Regulatory Commission [2017 (14) SCC 80]. The Supreme Court, through Justice R.F. Nariman, articulated a decisive principle: where a contract contains an express force majeure clause, that clause becomes the exclusive mechanism for addressing supervening events, and Section 56 does not apply as an alternative remedy. The Court stated unequivocally that “if a contract provides for the force majeure clause, the parties must rely on it and cannot fall back on Section 56 of the Indian Contract Act.”
The implications were profound. The Court further held that a “mere increase in cost or expense” does not constitute force majeure unless the clause expressly incorporates such grounds. In the context of that case, involving a substantial increase in fuel prices- the Court maintained that price fluctuations represent precisely the type of business risk that fixed-price contracts allocate to the performing party. This principle established a critical distinction: force majeure concerns impossibility, not economic hardship.
1.3 Foundational Principles Established in Seminal Cases
Prior jurisprudence established several foundational principles that remain controlling post-pandemic. First, the doctrine of party autonomy prevails in Indian contract law. Parties retain the right to allocate contractual risks through explicit provisions. Where parties have negotiated force majeure clauses, their contractual arrangement supersedes the statutory default mechanism of Section 56.
Second, Indian courts apply a strict construction principle to force majeure clauses. Ambiguities are interpreted against the beneficiary- the party seeking to invoke the clause. This reflects the broader common law principle that exceptions to absolute contractual obligations receive narrow interpretation.
Third, causation must be directly established. The supervening event must constitute the direct cause of non-performance, not merely a circumstance coinciding with it. A party cannot invoke force majeure if alternative means of performance remained available, albeit at increased cost.
Fourth, the doctrine of mitigation applies with considerable force. Even where force majeure may be invoked, the party claiming protection must demonstrate reasonable efforts to mitigate the impact and continue performance to the maximum extent practicable.
2. FORCE MAJEURE DURING THE PANDEMIC: JUDICIAL RESPONSES AND SHIFTING STANDARDS
2.1 The Halliburton Decision: Recognition and Special Equities
The Halliburton Offshore Services Inc. v. Vedanta Limited [2020 order dated April 20, 2020] represents a watershed judicial moment in pandemic-era force majeure jurisprudence. Halliburton held contracts to drill three onshore oil and gas wells in Rajasthan. By March 2020, the project had progressed substantially, but the nationwide lockdown rendered further performance impossible-Halliburton could not mobilize overseas personnel or coordinate workmen across India due to government-imposed restrictions.
The Delhi High Court, through Justice Hari Shankar, articulated a judgment of considerable sensitivity to pandemic-induced hardship. The Court observed that the countrywide lockdown constituted prima facie a force majeure event, describing it as “unprecedented, and incapable of having been predicted” by either contracting party. Critically, the Court invoked the concept of “special equities”- a principle permitting equitable relief beyond the literal scope of contractual provisions or establi-hed legal rules.
The significance of this decision transcends the specific holding. The Court recognized that if bank guarantees were permitted to be called during the lockdown despite force majeure protection, “irretrievable injury and prejudice” would be caused to the performing party. This represented a departure from the rigid stance that bank guarantees constitute independent transactions, wholly divorced from underlying contract disputes. While English law permits such rigid separation, the Delhi High Court perceived circumstances sufficiently extraordinary to warrant protective intervention.
However, the Halliburton decision’s scope requires careful delimitation. The Court did not establish that every COVID-19-related delay constitutes force majeure. Rather, it recognized that unprecedented disruption creating special equities might justify interim protection of bank guarantees. The decision operates within a narrow, fact-specific domain rather than establishing broad immunity for pandemic-related defaults.
2.2 The Standard Retail Decision: Rejecting Broad Invocation
In stark contrast, the Bombay High Court in Standard Retail Pvt. Ltd. v. G.S. Global Corp [Commercial Arbitration Petition (L) No. 404 of 2020, decided April 8, 2020] rejected force majeure invocation by steel importers who sought to avoid paying letters of credit established in their favor.
The facts presented a paradigmatic scenario of pandemic-era commercial disruption. Standard Retail and co-petitioners had imported steel from Korean exporters under letters of credit established through Wells Fargo Bank. Following the lockdown, the petitioners sought to restrain bank encashment, arguing that the lockdown rendered performance impossible under Section 56 of the Indian Contract Act.
Justice A.A. Sayed’s judgment articulated several critical distinctions. First, the force majeure clause itself applied only to the sellers (respondents) and not the buyers (petitioners). The Court held unambiguously: “The force majeure clause cannot come to the aid of the Petitioners.” This principle reflects a fundamental distinction in contractual allocation- where parties have negotiated asymmetrical force majeure coverage, courts will enforce the negotiated allocation, even if circumstances appear equitable relief warranted.
Second, the Court noted that steel distribution had been declared an essential service under lockdown guidelines. Restrictions on movement and port operations did not apply universally; steel remained accessible. This underscored the requirement for direct causation: the lockdown did not render all commercial transactions impossible; rather, it rendered certain specific transactions impracticable.
Third, and most significantly, the Court held that the lockdown constituted a temporary suspension, “only for a limited period.” The Court opined: “The lockdown was temporary and only for a limited period, making it a bad excuse for the Petitioners so as to resile from their contractual obligations.” This principle introduced a critical temporal dimension: even force majeure events do not eliminate contractual obligations indefinitely if the supervening circumstance remains temporary.
The Court further emphasized that the petitioners’ financial hardship- diminished demand for steel, cash flow constraints—did not constitute force majeure. The doctrine does not excuse performance merely because it becomes economically burdensome. Downstream economic consequences do not trigger force majeure protection absent direct impossibility.
2.3 Post-Pandemic Shifts in Judicial Interpretation
The divergent approaches in Halliburton and Standard Retail illuminate a nuanced post-pandemic judicial landscape. Courts have not adopted uniform standards; rather, they assess force majeure through fact-specific, context-sensitive inquiry.
Several clear trends have emerged in the two years following the pandemic’s initial shock:
- Temporal Foreseeability Doctrine: Contracts concluded after the pandemic became known face stricter force majeure standards. Courts reason that parties entering into contracts in 2021 or thereafter possessed knowledge of pandemic risk. The unforeseeability doctrine, central to force majeure, loses force when circumstances have become foreseeable. Rohit Ferro-Tech Ltd. [2022 SCC Online Cal 1503], the Calcutta High Court applied heightened scrutiny to post-pandemic contracts, holding that parties should have incorporated pandemic-related contingencies explicitly. Conversely, contracts predating the pandemic received greater interpretive leniency.
- Impossibility vs. Impracticability Redux: Courts have reinforced Energy Watchdog’s distinction between impossibility and mere commercial hardship. However, they have increasingly engaged the broader doctrine of commercial impracticability- recognized in international law and the UNIDROIT Principles, alongside traditional impossibility frameworks. This creates a layered analysis: temporary impracticability may warrant suspension of obligations even where impossibility cannot be established.
- Procedural Stringency: Post-pandemic litigation has established that force majeure invocation requires meticulous adherence to contractual procedures. Failure to provide timely notice, inadequate documentation of the supervening event’s causal nexus to non-performance, or failure to demonstrate mitigation efforts each independently defeat force majeure claims, even where the underlying event arguably qualifies.
- Burden of Proof Fortification: The burden of establishing force majeure has become substantially heavier. Invoking parties must prove (1) the occurrence of an event beyond their reasonable control; (2) the event’s unforeseeability at the time of contracting; (3) direct causation between the event and non-performance; (4) absence of reasonable mitigation alternatives; and (5) compliance with contractual notification and procedural requirements. Courts have established that mere assertion of force majeure, unsupported by documentary evidence and causal nexus, does not suffice.
3. COMPARATIVE FRAMEWORK: INTERNATIONAL PERSPECTIVES
3.1 Common Law Jurisdictions (United Kingdom, United States)
English contract law has historically operated within a dualistic framework addressing supervening events. The doctrine of frustration permits discharge where “the consequence of the contract cannot reasonably be regarded as a matter which parties could, as reasonable men, regard as contemplated by the contract; on the true construction of the contract they are discharged from further performance.”
Critically, English law does not impose frustration automatically. Rather, parties must establish that the supervening event has rendered performance impossible or fundamentally transformed the contract’s essential nature. Courts have consistently held that mere economic hardship, even substantial, does not trigger frustration. In National Carriers Ltd v. Panalpina (Northern) Ltd, the House of Lords articulated that increased costs or diminished profitability do not justify contractual discharge.
The United Kingdom’s approach differs markedly from statutory regimes like India’s Section 56. English courts decline to imply hardship clauses or renegotiation duties absent explicit contractual language. The principle of pacta sunt servanda- agreements must be honored- operates with considerable force, permitting discharge only in the most extraordinary circumstances.
American jurisprudence, conversely, has evolved a more expansive doctrine of commercial impracticability through the Uniform Commercial Code § 2-615. This provision excuses a seller from timely delivery where “performance has become commercially impracticable because of unforeseen supervening circumstances not within the contemplation of the parties at the time of contracting.” Critically, the UCC commentary clarifies that “increased cost alone does not excuse performance,” mirroring the English approach. However, American courts have occasionally extended relief beyond literal impossibility to situations involving severe shortage or unforeseen disruption rendering performance commercially impracticable.
The divergence between English and American approaches illustrates a fundamental tension in common law jurisdictions: should contractual discharge require absolute impossibility, or should it encompass situations where performance becomes commercially impracticable despite remaining technically possible?
3.2 International Commercial Law Standards (ICC Clauses, UNIDROIT Principles)
The International Chamber of Commerce updated its Force Majeure and Hardship Clauses in 2020, providing model provisions explicitly addressing pandemic contingencies. The ICC Force Majeure Clause establishes that an affected party may be excused from performance where:
(a) The impediment is beyond reasonable control;
(b) The impediment could not have been reasonably foreseen at the time of contract conclusion;
(c) The effects of the impediment could not have been reasonably avoided or overcome.
Notably, the 2020 revision introduced a “Short Form Force Majeure Clause” suited to SMEs and lower-value transactions. It retains core elements while simplifying procedural requirements, reflecting recognition that exhaustive force majeure provisions impose administrative burdens inappropriate for smaller commercial transactions.
The ICC Hardship Clause introduces a critical distinction absent from many domestic regimes. Hardship is distinguished from force majeure: while force majeure excuses performance entirely, hardship entitles a party to renegotiate contract terms when supervening events render performance excessively onerous. This framework acknowledges that not all contractual disruptions constitute impossibility; some merely upset the economic equilibrium initially negotiated.
The UNIDROIT Principles of International Commercial Contracts articulate a comprehensive hardship framework (Articles 6.2.1-6.2.4). Under these principles, a party may request contract renegotiation where “a fundamental alteration of the equilibrium of the contract” occurs due to events:
(a) Occurring after conclusion of the contract;
(b) Not reasonably foreseeable by the disadvantaged party;
(c) Beyond the disadvantaged party’s control;
(d) Not assumed as risks by the disadvantaged party.
Critically, hardship requires that “the alteration of equilibrium is fundamental” and that performance becomes “excessively onerous” rather than merely difficult or expensive. The UNIDROIT framework reflects sophisticated commercial practice: sophisticated parties recognize that supervening events may render strict performance economically irrational while not rendering it literally impossible.
3.3 Comparative Analysis of Burden of Proof
Jurisdictional divergence in burden allocation affects force majeure litigation substantively. In American jurisprudence, the party invoking commercial impracticability bears the burden of proof, consistent with exception doctrine. Indian courts similarly place the burden upon the party claiming force majeure protection.
English law operates within a distinct framework: where frustration is alleged, the party asserting it must prove that performance has become impossible or fundamentally altered in nature. However, English courts employ strict interpretation against the beneficiary- the party invoking frustration bears a heavier evidentiary burden than might apply in other contexts.
Post-pandemic developments reveal that most jurisdictions have fortified evidentiary requirements for force majeure invocation. Courts have become skeptical of broad, generalized assertions that COVID-19 disrupted performance without specific, documented evidence of direct causation. The pandemic’s ubiquity created judicial concern that force majeure might become a catch-all defense for ordinary commercial difficulties; consequently, courts have demanded granular factual demonstration of the nexus between the supervening event and particular non-performance.
4. DRAFTING FORCE MAJEURE CLAUSES: POST-PANDEMIC BEST PRACTICES
4.1 Essential Elements and Structural Components
Modern force majeure clauses require several essential structural components to ensure enforceability and predictability. First, a definition of “force majeure” itself establishes the boundaries of applicability. General formulations stating “events beyond the reasonable control of the parties” provide flexibility but risk interpretive disputes. Specific enumeration combined with general language offers superior precision.
An exemplary formulation might read: “Force Majeure Events shall mean any act or circumstance beyond reasonable control, including but not limited to: (a) acts of God; (b) natural disasters; (c) epidemics, pandemics, or public health crises; (d) wars, invasions, or terrorism; (e) governmental action or prohibition; (f) strikes or labor disputes; (g) transportation disruptions; or (h) events of similar nature and magnitude which could not have been reasonably foreseen.”
This formulation combines specificity with flexibility. The inclusion of “epidemics, pandemics, or public health crises” addresses pandemic-derived lessons; the phrase “similar nature and magnitude which could not have been reasonably foreseen” incorporates a general formula capturing unforeseen circumstances.
The critical pedagogical advance since 2020 involves explicitly addressing pandemic contingencies. Pre-pandemic clauses frequently omitted pandemic reference, relying upon general language. Post-pandemic best practices incorporate explicit pandemic acknowledgment, clarifying parties’ intent regarding such events. This serves multiple functions: it evidences sophisticated awareness of pandemic risk; it minimizes interpretive disputes; and it demonstrates that parties consciously allocated pandemic risk through negotiation.
4.2 Specific Event Enumeration vs. General Formulations
Drafting strategy requires calibration between specificity and generality. Overly specific enumeration risks excluding unforeseen events falling outside listed categories; excessively general language creates interpretive ambiguity.
The “balancing approach” adopted by modern international practice- exemplified in the 2020 ICC clauses- lists common force majeure events while incorporating a residual general formula. This architecture preserves enforceability for specifically listed events (avoiding causation disputes through explicit acknowledgment) while retaining flexibility for novel contingencies.
However, post-pandemic jurisprudence reveals a critical limitation of general formulations: courts construe them narrowly when specific enumeration could have been employed. The principle expressio unius exclusio alterius (expressing one thing excludes others) receives careful application in force majeure interpretation. If parties enumerated certain events but omitted others, courts infer deliberate exclusion.
Consider a clause stating “Force Majeure Events include: (a) acts of God; (b) natural disasters; (c) governmental restrictions on transportation; or (d) events beyond reasonable control.” Should this protect a party from pandemic-induced supply disruptions where governmental action was addressed but pandemic was not? Indian courts have increasingly suggested that if parties contemplated governmental action as a force majeure event, they necessarily contemplated its consequences, including pandemic-driven lockdowns. However, this represents a generous interpretation not uniformly adopted.
Post-pandemic best practice dictates explicit enumeration of pandemics, epidemics, and public health crises. This eliminates interpretive debates regarding whether COVID-19 falls within “natural disasters” or “acts of God”- categories with debatable applicability to biological phenomena.
4.3 Notification, Mitigation, and Procedural Requirements
Force majeure clauses often succeed or fail based upon procedural compliance, not substantive qualification. An exemplary procedural framework requires:
Notification Requirement: The performing party must notify the non-performing party “as soon as practicable” or within a specified period (commonly 5-10 business days) of discovering that force majeure prevents or impairs performance. Clauses should specify required notification content: identification of the force majeure event; anticipated duration; likely impact on contractual performance; and proposed remedial steps.
Failure to provide timely notice frequently vitiates force majeure claims even where the underlying event qualifies. Courts reason that notice enables the receiving party to mitigate its own exposure, arrange alternative suppliers, or pursue insurance claims. Inadequate notice deprives the counterparty of remedial opportunities, justifying claim denial.
Mitigation Obligation: The clause should explicitly impose a duty upon the affected party to “take all reasonable steps to minimize the impact of the force majeure event and resume performance as expeditiously as practicable.” This obligation reflects fundamental principle: force majeure excuses performance it does not eliminate the duty to mitigate losses.
The intensity of mitigation obligations merits careful calibration. Requiring extraordinary efforts or expenditures effectively nullifies force majeure protection. However, requiring minimal mitigation efforts incentivizes performance avoidance. Post-pandemic jurisprudence favors middle-ground approaches: reasonable mitigation efforts, measured against industry practice and the specific transaction’s character.
Continuation Clause: Force majeure clauses benefit from specifying whether they suspend or terminate obligations. Many clauses state that force majeure “suspends” obligations temporarily, resuming upon the event’s cessation. Others provide for termination if the force majeure event persists beyond a specified period (commonly 60-90 days).
The temporal threshold affects whether parties continue indefinite suspension or receive termination rights. Lengthy suspension periods may exceed contract values, rendering continued performance uneconomical. Conversely, short suspension periods may fail to accommodate genuinely extended disruptions. Sophisticated drafting specifies tiered consequences: suspension for 0-60 days; extended suspension with renegotiation rights for 60-120 days; and termination rights if disruption exceeds 120 days.
4.4 Distinguishing Force Majeure from Hardship Provisions
Force majeure and hardship represent distinct contractual mechanisms addressing supervening events. Force majeure concerns impossibility- events rendering performance impossible or unlawful. Hardship concerns extreme economic dislocation- events rendering performance so onerous as to make continued contract existence inequitable.
Sophisticated commercial contracts increasingly incorporate both provisions, allocating distinct remedies to distinct problems. An exemplary hardship clause might read:
“If any supervening event substantially increases the cost of performance or substantially diminishes the value received by the non-performing party, thereby upsetting the fundamental economic equilibrium initially negotiated, the affected party may request renegotiation of contract terms. The parties shall meet within 30 days to negotiate adjusted terms reasonably allowing the affected party to overcome the event’s consequences. Should renegotiation fail within 60 days, either party may refer the dispute to arbitration, wherein the arbitrator may adjust the contract or, as appropriate, terminate it.”
This framework differs fundamentally from force majeure. Hardship does not excuse performance; rather, it triggers renegotiation obligation. It applies where performance remains technically possible but has become economically irrational. The UNIDROIT Principles and 2020 ICC Hardship Clause exemplify this sophisticated approach.
Post-pandemic practice reveals that many commercial disputes fell into the hardship category rather than force majeure. Parties could technically perform; performance merely required absorbing substantial additional costs. Traditional force majeure analysis failed because impossibility was absent. However, traditional hardship analysis revealed inadequacies: many contracts included no hardship clause. The vacuum between impossibility (triggering force majeure) and mere inconvenience (requiring contractual renegotiation) created litigation explosions as parties contested whether marginal impossibility thresholds had been met.
5. INTERPRETATION CHALLENGES AND DISPUTED SCENARIOS
5.1 The Impossibility vs. Commercial Impracticability Distinction
Indian courts have grappled with the distinction between absolute impossibility and commercial impracticability since Satyabrata Ghose. That foundational decision clarified that “impossibility” encompasses practical impossibility, not merely literal, physical impossibility. However, subsequent jurisprudence has struggled to delineate where impracticability ends and hardship begins.
Consider a supply contract for automotive components from Asia. A pandemic-driven port closure renders the supplier unable to access ports for 60 days. Is this “impossible” performance or “impracticable” performance?
Literally, the supplier can perform: alternative shipping routes exist, albeit at substantially higher cost and longer lead times. The goods can be transported via air freight or rerouted through alternate ports, increasing delivery costs by 40-60%. Technically, performance remains possible; practically, the additional cost fundamentally alters the contract’s economics.
Pre-pandemic jurisprudence treated such scenarios as insufficient for force majeure invocation. Increased cost alone did not render performance impossible. However, pandemic-era disruptions frequently involved substantial cost increases coupled with delivery delays threatening the contract’s purpose.
Energy Watchdog established that increase in costs does not constitute force majeure. However, that case involved a commodity price increase, precisely the type of business risk fixed-price contracts allocate to the performing party. The principle extends cautiously to pandemic scenarios: if parties are sophisticated and could have negotiated force majeure protection for increased-cost scenarios, their failure to do so suggests conscious risk allocation.
However, Indian courts have shown increasing sophistication in distinguishing between anticipated business risks (e.g., commodity price fluctuation) and genuinely supervening circumstances (e.g., government-ordered port closures). In Rohit Ferro-Tech, the Calcutta High Court upheld force majeure protection where governmental lockdown orders rendered specific performance modes impossible, even though alternative performance modes remained theoretically available. The Court reasoned that where a contract contemplates a specific performance mechanism (e.g., delivery via specified port), governmental prohibition of that mechanism constitutes force majeure even if alternative mechanisms exist.
This represents a thoughtful middle path: impossibility is assessed contextually, considering the specific performance modes contemplated by the contract, not purely theoretical alternatives. A contract specifying “delivery FOB Shanghai Port” contemplates performance through that specific mechanism. Prohibition of that mechanism constitutes partial impossibility of the contemplated performance, triggering force majeure even if alternative shipping routes exist.
5.2 Foreseeability Post-Pandemic: Higher Threshold for Recent Contracts
Post-pandemic jurisprudence has developed an important temporal dimension: foreseeability standards operate differently for contracts concluded before versus after the pandemic became widely known.
Contracts concluded in early 2020, prior to March 11, 2020 (WHO’s official pandemic declaration), were negotiated under circumstances where pandemic risk was not reasonably foreseeable. Courts applying Energy Watchdog’s unforeseeability requirement have granted considerable deference to such contracts, recognizing that parties could not have anticipated or allocated pandemic risk consciously.
Conversely, contracts concluded after the pandemic became established- say, from June 2020 onward, operate under different foreseeability calculus. By mid-2020, pandemic risk was not merely known; it was extensively documented. Parties negotiating contracts in late 2020 or 2021 presumably possessed knowledge of pandemic potential. Courts have reasoned that such parties should have incorporated pandemic-specific force majeure language explicitly.
Rohit Ferro-Tech exemplifies this approach. The court held that parties concluding contracts post-pandemic bore heightened responsibility for explicit pandemic-related contingency planning. Failure to incorporate pandemic references suggested that parties either (a) did not regard pandemic risk as material, or (b) consciously allocated pandemic risk to the performing party.
This creates a sophisticated but potentially problematic framework. Knowledge of pandemic risk does not necessarily translate into parties’ ability to allocate pandemic-specific contingencies. Complex commercial transactions involve numerous counterparties and sophisticated negotiations; adding pandemic-specific provisions creates coordination complexity.
However, the underlying principle reflects sound jurisprudential reasoning: if parties possessed knowledge of a risk, and possessed opportunity to allocate that risk explicitly, their failure to do so suggests conscious allocation. The courts’ role is interpreting parties’ intent through their contractual language; if parties omitted pandemic provisions despite possessing knowledge, courts should respect that omission as reflecting conscious choice.
5.3 Asymmetrical Clauses and Unilateral Application
A frequently litigated scenario involves force majeure clauses protecting only one party- typically the supplier. Standard Retail v. GS Global exemplifies this issue. The contract’s force majeure clause protected the seller (GS Global) but not the buyer (Standard Retail). When the buyer sought force majeure protection, the Court held that the clause “cannot come to the aid of the Petitioners.”
This principle reflects fundamental autonomy doctrine: parties negotiate contractual asymmetry deliberately. Courts will not rewrite negotiated allocations merely because circumstances seem inequitable. If the buyer failed to negotiate bilateral force majeure protection, that represents its negotiating failure, not a circumstance justifying judicial intervention.
However, this creates potential inequities. Asymmetrical force majeure clauses appear frequently in contracts between sophisticated enterprises and SMEs, or between multinational suppliers and local distributors. A multinational supplier might negotiate force majeure protection unilaterally, placing all risk upon smaller counterparties.
Indian courts have shown reluctance to overturn such asymmetries through §§ 23-27 of the Indian Contract Act (provisions addressing unconscionable or immoral contracts). While force majeure clauses allocating risk asymmetrically are not per se unconscionable, courts occasionally invoke unconscionability doctrine where asymmetry appears extreme.
In Halliburton, the Delhi High Court implicitly recognized this principle through “special equities” doctrine. While not overturning the asymmetrical force majeure clause, the Court recognized that extraordinary circumstances (unprecedented pandemic lockdown) might warrant equitable intervention despite contractual asymmetry.
Post-pandemic best practice favors negotiating bilateral force majeure provisions, with balanced allocation of force majeure risks. Where parties cannot negotiate balanced provisions, drafting should explicitly recognize the asymmetry, ensuring clarity regarding which party bears force majeure risk.
6. REMEDIAL FRAMEWORKS: FROM TRADITIONAL SUSPENSION TO RENEGOTIATION
6.1 Temporary Suspension vs. Permanent Discharge
Force majeure clauses operate through various remedial frameworks, each reflecting distinct assumptions about supervening events’ duration and character. The foundational distinction separates temporary suspension from permanent discharge.
Suspension frameworks assume force majeure events remain temporary- disruption eventually resolves, and contractual performance resumes. Under suspension logic, a pandemic-driven port closure suspends delivery obligations temporarily; once ports reopen, performance obligations revive. The contract remains alive; performance merely postpones.
Suspension frameworks typically include temporal thresholds specifying when suspension converts to termination. A clause might provide: “Force majeure shall suspend performance obligations temporarily; provided that if the force majeure event continues for 90 consecutive days, either party may terminate the contract upon 30 days’ written notice.”
Termination frameworks, conversely, permit contractual discharge upon force majeure occurrence. These frameworks assume force majeure events may render continued contract performance impossible or unreasonable even after the immediate disruption ceases. A force majeure event might so transform the contract’s essential nature that continued performance becomes economically irrational.
Post-pandemic jurisprudence reveals nuanced judicial treatment of suspension versus termination. Courts have generally favored suspension frameworks over termination, reasoning that temporary disruptions do not justify absolute contract termination. Standard Retail’s emphasis on the lockdown’s temporary nature- “only for a limited period”- reflects this preference.
However, courts recognize that genuinely extended disruptions may render continued suspension inequitable. If a force majeure event prevents performance for 200+ days, requiring indefinite suspension obligations burdens the non-performing party excessively. Temporal thresholds allocating suspension duration reasonably (commonly 60-120 days) reflect sound commercial judgment.
The interaction between suspension and mitigation obligations merits careful attention. During suspension periods, obligations to continue performing (while technically suspended) remain important. A supplier whose delivery is “suspended” due to port closure should actively explore alternative shipping routes, notify the buyer of anticipated resumption, and arrange expedited shipment upon suspension’s termination. Passive suspension- merely awaiting event resolution without mitigation efforts- fails force majeure doctrine’s implicit mitigation requirement.
6.2 Hardship Clauses and Contract Adaptation Models
As discussed in Section 4.4, sophisticated commercial practice increasingly incorporates hardship clauses alongside force majeure provisions. These provide remedial frameworks where performance remains technically possible but has become economically irrational due to supervening events.
The ICC 2020 Hardship Clause provides three alternative remedial pathways:
- Renegotiation-focused approach: Parties obligate themselves to renegotiate contract terms, with the affected party triggering negotiation and proposing adjusted terms. If negotiation succeeds within 60 days, adjusted terms replace original terms. If negotiation fails, disputes proceed to dispute resolution.
- Judicial/Arbitral adaptation approach: Upon failed renegotiation, either party may refer the matter to a designated judge or arbitrator empowered to adjust the contract to re-establish the negotiated equilibrium or, as appropriate, terminate the contract.
- Termination-focused approach: If negotiation fails within the specified period, either party may terminate the contract upon written notice.
Each pathway reflects distinct policy choices. The renegotiation-focused approach presumes parties possess incentives to preserve beneficial relationships and can negotiate mutually acceptable adjustments. The judicial adaptation approach assumes impartial decision-makers can objectively assess appropriate contract adjustments restoring equilibrium. The termination-focused approach permits clean exit, avoiding extended disputes over contract adjustment.
Post-pandemic practice reveals that many disputes fell within hardship categories despite absence of hardship clauses. Parties could perform; performance merely required absorbing substantial cost increases. Traditional force majeure analysis failed because impossibility was absent. However, traditional hardship analysis revealed inadequacies: many contracts included no hardship clause, no renegotiation obligation, and no judicial adaptation mechanism.
The conceptual vacuum between force majeure (excusing impossible performance) and ordinary breach (penalizing unjustified performance failure) created extensive litigation. Parties contested whether marginal impossibility thresholds had been met when, in reality, the dispute concerned whether cost increases warranted contract adjustment.
Forward-looking commercial practice addresses this through explicit hardship clauses. The UNIDROIT Principles provide an excellent model. Even absent express hardship clauses, parties might reference “fundamental alteration of equilibrium” language suggesting hardship recognition.
6.3 Termination Rights and Exit Provisions
Force majeure clauses frequently address termination rights- circumstances and procedures permitting affected parties to exit contracts when force majeure persists beyond specified thresholds.
Exemplary termination provisions provide: “If the force majeure event continues for 120 consecutive days, either party may terminate the contract upon 30 days’ written notice to the other party. Upon termination, each party shall be released from further obligations except payment obligations accrued prior to the termination notice.”
This framework includes several important elements. First, a temporal threshold (120 days) specifies suspension duration before termination becomes available. This permits extended suspension while preventing indefinite obligation continuation.
Second, notice requirements (30 days) provide the counterparty opportunity to seek alternative suppliers or adjust its operations. Termination occurring immediately upon threshold achievement might leave the counterparty with inadequate alternative sourcing.
Third, exception for accrued obligations clarifies that termination discharges only future obligations, not past performance compensation. The performing party remains liable for amounts due for services already rendered or goods already delivered.
Fourth, provisions addressing partial termination merit consideration. A multi-item contract might permit force majeure to affect certain items’ delivery while not affecting others. A clause might provide: “If the force majeure event prevents delivery of any item for 120 consecutive days, the buyer may terminate its obligations regarding that specific item without affecting obligations regarding unaffected items.”
Post-pandemic litigation revealed disputes regarding termination scope- whether termination of one supply item justified termination of the entire contract, or whether termination remained limited to affected items. Express provisions addressing partial termination prevent such disputes.
7. INSTITUTIONAL AND STATUTORY GUIDANCE IN INDIA
7.1 Ministry of Finance Memoranda and Official Recognition
On February 19, 2020, and reinforced through subsequent memoranda, India’s Ministry of Finance issued official guidance recognizing COVID-19 as a natural calamity permitting force majeure invocation in government contracts. The memorandum stated that “disruption in supply chain due to spread of corona virus” should be treated as a “natural calamity” permitting force majeure relief.
Subsequently, on March 20, 2020, the Ministry of New & Renewable Energy directed all renewable energy implementing agencies to “treat delay on account of disruption to the supply chain due to COVID-19” as a force majeure event. The Ministry of Shipping similarly issued advisories recognizing force majeure applicability to port operations.
These official pronouncements created important precedential value. Courts recognized governmental acknowledgment of force majeure applicability as evidence that COVID-19 constituted unforeseeability-satisfying events. Official recognition reduced parties’ burdens in establishing that the supervening event qualified as force majeure, since governmental acknowledgment provided objective evidence of event severity.
However, official memoranda possessed limited legal force. They guided governmental contracting but did not mandate private sector application of identical standards. Nevertheless, courts frequently cited official memoranda as evidence of governmental consensus regarding force majeure applicability, implicitly influencing judicial decisions.
The Disaster Management Act, 2005 amplified official recognition. Section 6(2)(i) authorized the National Disaster Management Authority to declare disasters and issue necessary preventive measures. In the COVID-19 context, this framework permitted government orders restricting movement and commercial activities to invoke Disaster Management Act authority.
Courts recognized that if governmental restrictions issued under statutory disaster authority fell within force majeure definitions, the statutory authority basis strengthened force majeure invocation. The circular reference- governmental restrictions justified by statutory disaster powers, with force majeure clauses covering such restrictions—created enforceability pathways.
7.2 Sector-Specific Guidance and Regulatory Framework
Sector-specific regulators issued guidance recognizing force majeure applicability across industries. The Karnataka Real Estate Regulatory Authority, for example, issued Circular dated April 4, 2020, recognizing force majeure as applicable to real estate projects. The circular extended project completion dates by three months for projects with March-onwards scheduled completion dates, effectively treating COVID-19 lockdown as force majeure justifying delivery delays.
The Maharashtra Maritime Board issued similar advisories recognizing force majeure for port-related delays. The Petroleum & Natural Gas Ministry recognized force majeure for drilling projects experiencing lockdown-related disruptions.
These sector-specific recognitions created important precedent. They evidenced official consensus within specific industries that COVID-19 constituted force majeure. Courts, particularly High Courts hearing disputes within specific sectors, frequently referenced sector-specific guidance as reflecting informed industry consensus.
However, sector guidance created potential disparities. Real estate projects received formal force majeure recognition, while manufacturing enterprises’ force majeure claims received more skeptical treatment. This reflected regulatory pragmatism: real estate projects’ long completion timelines and government-regulated character enabled official recognition, while manufacturing enterprises’ diverse circumstances resisted uniform treatment.
7.3 Interaction with Other Statutory Regimes
Force majeure interaction with other statutory regimes- notably the Insolvency and Bankruptcy Code, 2016 and consumer protection legislation- created complexities post-pandemic.
Under the Insolvency and Bankruptcy Code, non-performance triggering default might activate insolvency procedures unless force majeure excuses the default. Parties invoking force majeure sought protection from insolvency initiation based upon pandemic-related defaults. However, courts generally held that force majeure excusing contractual performance does not automatically excuse statutory defaults under the Code. The Code’s remedial mechanisms operate independently of contract-specific force majeure allocations.
Consumer protection regimes similarly treated force majeure cautiously. Where consumers sought refunds for pandemic-disrupted services, sellers invoked force majeure. However, consumer protection legislation’s consumer-protective orientation occasionally overrode force majeure claims. Courts recognized consumer protection statutes as reflecting legislative policy of consumer protection, limiting force majeure’s application in consumer contexts.
These interactions illustrate a fundamental principle: force majeure operates contextually, within specific contractual relationships. Its invocation does not automatically override other statutory regimes’ distinct objectives and remedial schemes.
CONCLUSION
The COVID-19 pandemic fundamentally transformed force majeure jurisprudence and commercial contracting practice. Force majeure clauses, previously considered boilerplate provisions warranting minimal negotiation, became central to commercial disputes and contractual planning. The pandemic revealed that force majeure doctrine, developed through pre-pandemic jurisprudence emphasizing absolute impossibility and strict construction, required refinement to address genuinely unprecedented circumstances rendering performance impracticable rather than impossible.
Indian courts developed nuanced post-pandemic approaches balancing competing principles. Energy Watchdog’s principle of party autonomy retained controlling force: where contracts explicitly contemplated force majeure clauses, those clauses remained the exclusive mechanism for addressing supervening events. However, courts simultaneously recognized that unprecedented, unforeseeably severe circumstances might warrant equitable intervention through “special equities” doctrines, as demonstrated in Halliburton.
The distinction between force majeure and hardship emerged as critical. Force majeure addresses impossibility; hardship addresses extreme economic dislocation. Sophisticated commercial practice increasingly incorporates both provisions, recognizing that supervening events may render performance simultaneously possible but economically irrational. The UNIDROIT Principles and ICC Hardship Clauses exemplify this sophisticated architecture.
Post-pandemic best practices emphasize several essential elements. First, explicit pandemic reference in force majeure definitions eliminates interpretive disputes regarding whether COVID-19 qualifies as a covered event. Second, rigorous procedural requirements- notification, mitigation obligations, temporal thresholds- provide clarity and predictability. Third, temporal foreseeability analysis recognizes that contracts concluded after pandemic knowledge became widespread face stricter force majeure standards. Fourth, hardship provisions complement force majeure clauses, providing remedial pathways where performance remains technically possible but economically irrational.
The divergence between courts’ approaches- Halliburton’s equity-sensitive framework versus Standard Retail’s strict contractual allocation respect- illustrates that force majeure jurisprudence remains contextual, fact-specific inquiry rather than uniform doctrine. Courts balance multiple considerations: contractual language, parties’ sophistication, event severity and duration, mitigation efforts, and broader equitable principles.
Looking forward, the pandemic experience establishes that force majeure remains essential for commercial contracts. However, minimum thresholds for acceptable drafting have risen substantially. Vague references to acts of God or natural disasters no longer suffice. Sophisticated contracting requires explicit enumeration of force majeure events, rigorous notification and mitigation procedures, temporal thresholds converting suspension to termination rights, hardship provisions addressing impracticability scenarios, and explicit recognition of parties’ respective risk allocations.
Commercial parties must undertake serious force majeure planning during contract negotiation, recognizing that this previously-overlooked provision may prove decisive during extraordinary circumstances. By incorporating post-pandemic best practices, parties can minimize litigation risk while allocating supervening event risk through negotiation rather than judicial dispute resolution.
