GANDHINAGAR: India, grappling with the Covid-19 pandemic, is beginning to feel the first tremors of the economic shakeup caused by the 21-day shutdown as corporates, business, trade and industry, even public sector undertakings, are burning midnight oil to wriggle out of prior commitments.
The restriction on movement has had a spiralling effect on every aspect of human life, whether it is business or manufacturing, commerce or construction, trade or transport.
Once focus shifts from the control of the virus, a swarm of issues is expected to occupy attention for some time to come. A major one - amongst the lot of them - will be the delays caused in meeting contractual obligations.
These will be spread over a huge canvas from construction contracts to manufacturing and supply agreements and from professional service providers to engineering contractors and their suppliers and even financiers who will be grappling with financial overflows due to time slippages as well as those who will be seeking re-negotiations of prices and terms of contract. This will bring force majeure into play. Force Majeure translates literally from French as superior force.
In business, force majeure describes those uncontrollable events (such as war or natural disasters, even pandemics) that are not the fault of any party and that make it difficult to carry out normal business. A company may insert a force majeure clause into a contract to absolve itself from liability in the event it cannot fulfil the terms of a contract for reasons beyond its control.
Legal firms are under pressure as many Indian businesses are reviewing old contracts to see whether Force Majeure can be invoked to find a way out of old agreements. More so, as manufacturing sector is hit, recovery cycles are stretched, and raw material shortage is hitting consumption.
Even Indian Liquefied Natural Gas (LNG) importers have issued force majeure notices to suppliers as domestic gas demand and port operations are hit by the countrywide lockdown, industry sources said. In short, a welter of legal wrangles awaits corporate India and by implication all other facets of life in the days to come.
According to an international financial news daily, signs of acute corporate stress is seeing big Indian companies invoking force majeure clauses to halt payment to suppliers and these include Indian Oil Corporation, Adani Ports and Royal Enfield, among others. Renewable energy developers and their bodies facing supply chain disruptions have also urged the Centre to invoke the clause for time extensions on projects.
The Ministry of New and Renewable Energy is reported to have agreed to time extensions subject to the condition that evidence is produced to prove supply chain disruption due to virus spread in China or any other country.
A case in point is corporate entities involved in infrastructure development, particularly road construction. Application of the force majeure clause may give them temporary respite but will only add to their woes in the long run.
The Union ministry of road transport, in a notification issued on March 25, has urged the National Highway Authority of India to stop levying toll charges for the period of the 21-day lockdown. It has stated that this period would be classified as a Force Majeure of concession contracts.
This implies that global infrastructure funds, which have invested heavily in India’s road assets, are going to be facing heavy losses due to the toll collection slump.
Most Indian toll roads are owned by private foreign investors. This in turn is set to hit the country’s road monetization plan with investors turning wary and adopting a wait and watch approach.