Post-graduation Program in Management

(2020-2022)

Assignment report
On
“Legal Environment of Business”

Topic- Cases on Force Majeure

Submitted to:

Dr. Ranika Chaudhury

Submitted by:

Raghav Jalan

Enrollment Number – 20BSP1768

 ASSIGNMENT

Take two cases and write the parties involve, issues, facts, justification given by the parties,
meaning of force majeure in the context of case and your opinion as well.

Force majeure refers to the law of insurance and is frequently used in construction contracts to
protect the parties in the event that a segment of the contract cannot be performed due to causes
that are outside the control of the parties, such as natural disasters, that could not be evaded
through the exercise of due care.

CASE 1

Parties: Standard Retail Pvt. Ltd vs Gs Global Corp

Issue:
In a departure from its 3 April 2020 Order, the Bombay High Court refused to grant interim
measures to the Petitioner observing that the commodity in question was an essential item and
lockdown is only for a limited period. Consequently, Petitioner cannot resile from its contractual
obligation of making payments to the Respondents.

Facts:  
In this suit, the petitioners had a contract to deliver specific steel goods to respondent No. 1's head
office in South Korea. The petitioners in Mumbai were to receive the shipment from South Korea.
Petitioners were importing steel from South Korean businesses G. S. Global Corp and Hyundai Corp,
according to the petitions filed under Section 9 of the Arbitration and Conciliation Act. The
petitioners seek direction restraining the respondent bank (Wells Fargo Bank) from negotiating or
encashing the letters of credit.
The petitioners in these petitions claim that due to COVID-19 pandemic and lockdown situations,
the contracts with respondent number 1 were terminated as it is unenforceable on account of
frustration, impossibility and impracticability as per Section 56 of Indian Contract Act.The contracts
were subject to general terms and conditions including force majeure clause, which gave the
Respondent No. 1 the right to terminate the contract or part of thereof by way of a written notice in
the event of an act of God including epidemics, other natural calamities, war or armed conflict etc.
for a reasonable time.

Decision:
The petitioner's plea for ad-interim relief was denied by the court, which argued the following:
  Letters of credit are a separate transaction with the bank that is unaffected by buyer-seller
disagreements.
 Only the Respondent No. 1 is covered by the contract's force majeure clause (Seller).
 Only Respondent No. 1 is covered by the contract's force majeure clause (Seller).
 The transportation of commodities is unrestricted, and all ports and port-related operations
have been designated as essential services. There would be no container detention costs on
import and export, according to the Director General of Shipping in Mumbai.

Definition:
The force majeure clause, which allows one party to terminate the contract at their discretion,
cannot be raised by the other party and cannot be enforced against a third party.

Opinion: Yes, I agree with the decision of the court regarding the denial of the petitioner’s plea.
Since the commodity in question was an essential item and lockdown is only for a limited period.

CASE 2

Parties: Indrajit Power Private Limited v. UOI & Ors

Issue: The Petitioner sought interdiction of the Bank Guarantee inter-alia on account of the
lockdown in the country due to spread of COVID-19 pandemic, which could drive the Petitioner
towards being declared an NPA.
The Court while observing the Petitioner’s conduct i.e., despite the extension of 12 months, could
not fulfil its obligation under the Contract, refused to grant relief to the Petitioner. The Court
observed that Petitioner’s position under the contract was unaffected by the imposition of the
lockdown.

Facts:  
Indrajit Power had inter-alia moved the Delhi High court thereby seeking following reliefs:
 Directing Central Government, from appropriating the bank guarantee which was given to
them for an amount of over Rs 30 crores pursuant to a mining auction.
 Extension of time to complete the pending project after renewal of the bank guarantee
above and
 Seeking to quash an email of April 4, 2020, which was sent to Indrajit, where the Central
Government conveyed its decision to appropriate the bank guarantee in its favour.
Decision:
The Court's Order was based on the basis that numerous lockdown orders issued by various Indian
courts and relied on by Indrajit were not applicable to the current case since the lockdown was
imposed on March 24, 2020, and the lockdown was imposed with effect from March 24, 2020, and
despite a twelve-month extension granted by the government, Indrajit was unable to meet its
payments and remained in default. The mere fact that the invocation would cause financial hardship
could not be used as a basis for a delay, except for irreversible harm, which was not present in this
case.

Justification given by the parties:

Indrajit's broad arguments before the Court were (i) company's power plant was closed because of
lockdown thereby having no immediate source of revenue; (ii) invocation of the bank guarantee was
unfair and inequitable and barred in view of the prevailing situation of COVID-19 pandemic and the
stipulation of Force Majeure shall apply and (iii) as such due to non-payments Indrajit shall be
pushed into default and effectively towards being declared as NPA.
The Central Government, on the other hand, broadly argued that despite an extension of twelve
months granted to Indrajit under the Agreement to meet their parameters, Indrajit had failed to
complete their milestones and were in default, since April-June 2018. Further, it was argued that the
bank guarantee invocation decision was taken after due compliance of natural justice and under the
provisions of Agreement. The bank guarantee being unconditional and irrevocable there could be no
fetters upon encashment of the same, unless in exceptional cases of irretrievable injustice or fraud
which was absent in the present case.

Definition:
The force majeure clause cannot be applied here, since Indrajit were not applicable to the current
case since the lockdown was imposed on March 24, 2020, and the lockdown was imposed with
effect from March 24, 2020, and despite a twelve-month extension granted by the government.

Opinion:
The Order appears to suggest, in my opinion, that the defence of force majeure in relation to Covid-
19 cannot be used in every situation and will be dependent on the language of such elements in the
contract; the party's incapacity to perform the contract during Covid-19 is also significant.