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In the current time with the COVID-19 pandemic and consequent commercial hardship, it is almost a reflex action to look for force majeure provisions under contracts to seek relief. However, when analysed carefully, contracts have other provisions, which could also be relied on for seeking relief, especially for cost compensation. These provisions could also be looked at to claim relief under contracts which do not have a force majeure provision.

While these provisions may not directly deal with the occurrence of a pandemic, they do allow for claiming cost compensation and other relief on account of a change in circumstances under a contract. Additionally, recourse to these provisions allows an affected party to avoid termination of the contract and allows for the continuation of a contract with amended provisions that account for such change in circumstances.

Given the unprecedented nature of the current events, it is the need of the hour that contractual provisions are interpreted in novel ways and the intent of the parties is given full effect while seeking and granting relief. Courts in India should adopt an innovative approach while deciding cases arising out of the present situation. However, for this to happen, it is imperative that innovative arguments, based on contractual jurisprudence and principles of equitable relief, are put forth before courts.

Set out below is an analysis of the typical provisions in a contract (other than the force majeure clause) which could be relied to seek relief on account of the COVID-19 pandemic.

Change in Law

Commercial contracts often have change in law provisions, which typically allow for cost claims on account of any change in legislation, their interpretation, change in rates of taxes etc. Such provisions are included to provide flexibility in contracts on account of future legislative changes and to guard against re-negotiation of contracts should changes occur. Often, a change in law is defined under contracts to include the following events:

(a)  enactment of any new Indian law as applicable to the project or the business activity envisaged under the contract;

(b)  repeal, modification or re-enactment of any existing Indian law;

(c)   commencement of any Indian law which has not entered into effect until the date of execution of the contract;

(d)  change in the interpretation or application of any Indian law by a judgement of a court of record which has become final, conclusive and binding, as compared to such interpretation or application by a court of record prior to the date of execution of the contract; or

(e)   any change in the rates of any of the taxes that have a direct effect on the project or the business activity envisaged under the contract.

Upon occurrence of a change in law, the contract price is permitted to be adjusted to account for an increase or decrease in costs resulting from such change which affects the performance of obligations under the contract. The clauses sometimes also provide for extension of time for performance of obligations.

Could prohibition orders qualify as a change in law?

To deal with pandemic COVID-19, almost all countries and states in such countries have sealed their borders and have issued intra-country lock-down orders. In India, such prohibition orders have been issued pursuant to exercise of power by the Central Government primarily under the Epidemic Diseases Act, 1897 (EDA). These prohibition orders have essentially stalled any kind of movement of persons and the effect on industrial and business activities, on account of such prohibition, is quite evident.

Given how change in law is typically defined, upon a simplistic reading, the prohibition orders themselves are unlikely to qualify as change in law. However, to give adequate and equitable relief in these extraordinary times, the intent of change in law provisions should ideally be revisited.

Based on the abovementioned list of events that often qualify as change in law, it can be said that the provision intends to cover any legislative change that adversely affects or disrupts the manner in which the business activity/commercial purpose under the contract was envisaged to be carried out by the parties. In the present circumstances, if this intent is to be upheld, then it could be reasonably argued that exercise of powers by the government under emergency laws or legislation dealing with extra-ordinary situations such as the EDA, amounts to, even if temporarily, a change in the regulatory or legislative environment in which the business activity was envisaged by the parties to be performed. Thus, the prohibition orders issued by the Government of India and the various ministries would amount to a change in law and consequently, relief by the affected party under change in law provisions would not be unreasonable to seek.

Carrying costs and idling charges

Most supply and works contracts include provisions setting out the procedure for claiming carrying costs (costs incurred for holding inventory) and idling charges (costs incurred on account of non-use of labour and machinery). On account of the prohibition orders, an affected party could consider claiming such carrying costs and idling charges.

Suspension of performance of obligations

Suspension of the performance of obligations under a contract is a right available to parties allowing them to require suspension of performance of obligation by the other party upon default and also in the case of an emergency which may affect persons or property. The risk of spreading of COVID-19 cases and requirement for social distancing as a preventive measure could be argued as emergency situations meriting suspension of performance of obligations under a contract.


Insurance policies that are required to be taken under a contract may cover business interruption, occurrence of force majeure events, health emergencies etc. An affected party could claim under such insurance policies to minimise losses.

Variation or amendment

A variation clause typically kicks in upon a change in the scope of work by either party and allows the party required to implement the variation to seek an adjustment in the contract price and timelines necessitated due to such variation. In the current circumstances, if a party’s ability to perform the contract is severely restricted, whether physically or financially, it could consider having discussions with the counter-party to vary, amend or reduce the scope of the contract to an extent where the affected party is able to perform it. While this may result in a reduction in the contract price, it might also prevent the party from facing claims for damages, indemnity or otherwise for non-performance in the future.

In addition, a review of contracts for any provisions pertaining to price variation and the circumstances in which these provisions can be invoked is also recommended. If the contract allows for claiming price variation then relief may also be sought through a revision of the contract price, on the basis of the change in circumstances.

Any decision with respect to exercising rights or seeking remedy under the above discussed provisions should be taken upon commercial evaluation of risks and after seeking legal advice on provisions of the relevant contract.


Authored by :- Ms. Anuja Tiwari, Partner and Mr. Aman Raj, Associate 

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