ABSTRACT
The COVID-19 pandemic has unleashed a catena of contractual disputes. Several companies and firms have cited COVID-19 as force majeure to suspend the promised supply of goods or services, triggering legal claims of compensation from the counterparties. Employers have refused the promised employment, borrowers have expressed their inability to service debt contracts, and insurance companies have denied compensation for business income losses.
In this article, we synthesise the Indian Contract Act and relevant case laws to present a legal position on issues concerning force majeure, frustration of contract and contractual gaps. By drawing up the economic analysis of law, we examine contractual disputes from various sectors – including power-purchase agreements, construction and transportation contracts, rental contracts, and event and hospitality contracts. We analyse these disputes from a legal and economic-efficiency point of view. We categorise contractual disputes where the use of force majeure or frustration of contract is justified – from the cases where it is not. We have used economic analysis to draw the attention of courts and policymakers towards the economic implication of their decisions. Our analysis of the recent court orders on Covid-related-disputes suggests that in some cases, courts seem to under-appreciate the long-term economic consequences of their rulings. Finally, we argue that public policy, rather than judicial remedies, is better suited to address issues arising from disputes over debt contracts, employment and insurance contracts.
Leo, Utkarsh and Singh, Ram, COVID-19 and Contractual Disputes in India: A Law and Economics Perspective (October 28, 2020).
First posted 2020-11-02 11:19:08
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