Force Majeure Clause 'Eclipses' Contractual Terms, Existence And Duration Of Force Majeure Event To Be Determined By Arbitral Tribunal: Delhi HC

The Delhi High Court Bench of Justice Dinesh Kumar Sharma has held that while deciding a petition under Section 34 of the Arbitration & Conciliation Act, 1996, courts cannot adopt the approach of one-size-fit-for-all. Courts can interfere into the award only if it shocks the conscience of the court and is prone to adversely affect the administration of justice. The court held that a force majeure clause' in a contract is generally an exception or an eclipse provision, meaning thereby if a force majeure is enforced the performance as mandated in the other terms of the contract will remain eclipsed till the force majeure event persists. Whether the force majeure has taken place or not or it exists or not or the time till when it exists is a question of fact to be determined by the Arbitral Tribunal. Brief Facts of the case: The present dispute arose with respect to an Operation, Management and Development Agreement (“OMDA”) executed between Airports Authority of India and Delhi International Airport Ltd. for the operation, management, and development of Indira Gandhi International Airport, Mumbai. Due to the outbreak of the COVID-19 pandemic and subsequent governmental restrictions in March 2020 there was a disruption in the operation of aviation. So, the respondent invoked the Force Majeure clause present in the Article 16 of the OMDA and sought a waiver of Monthly Annual Fee (“MAF”) for April to June 2020. The petitioner asked the respondent to submit the Board resolution confirming the invocation of Force Majeure. Then, problem arose regarding the payment of MAF, and the respondent continued to sought relief against the MAF payments using the Force Majeure clause. But the petitioner rejected the claims of the respondent related to Force Majeure clause. The respondent sought adjustments for an alleged excess Annual Fee payment from the previous financial year. In a response, the petitioner informed that any adjustments would be made as per the OMDA after verification by the Independent Auditor. The petitioner also reminded the respondent that the Board resolution approving the invocation of Force Majeure had not yet been submitted and that the respondent as per its own proposal, was continuing MAF payments until such approval was granted. Then, the respondent requested to permit MAF payments for FY 2020-21 to be based on cash receipts rather than the accrual basis. And the respondent requested various proposals to the Board and the Board accepted the proposals. However, the petitioner rejected the request of the respondent and reiterated that MAF payments must continue as per the approved plan from July 2020 onwards and called upon the respondent to submit the Business plan for financial year 2020- 2021. Later, the petitioner rejected the request of the respondent for an interest-free deferral of MAF payments for Q2. Also, the respondent formally sought to be excused from MAF payments and invoked Article 15.1.1 of the OMDA, seeking resolution within 60 days, failing which the respondent would initiate arbitration under Clause 15.2. The petitioner rejected respondent's Force Majeure claim. Then, the respondent invoked arbitration to adjudicate the dispute, and the Arbitral Tribunal passed an award in favour of the respondent. Aggrieved by this, the petitioner challenged the award passed by the Arbitral Tribunal under Section 34 of the Arbitration & Conciliation Act, 1996. Observation of the Court: The court held that there is no perversity in the order of the Arbitral Tribunal. There is no finding which can be said to have been rejected without any evidence, nor is there any material on record to suggest that any extraneous material has been considered, or any relevant material has not been considered. The court affirmed that it is no longer res integra that the Arbitrator is final Arbiter of the disputed facts between the parties. The question of “inability” is predominantly a question of fact, which has been determined by the Arbitral Tribunal based on the evidence produced by the parties. Therefore, it would be difficult for the court to interfere into such findings within the domain of section 34 of the Arbitration & Conciliation Act, 1996. The interpretation of terms of the contract by the Arbitrator can only be interfered if the findings are perverse. Additionally, the court held that a force majeure clause' in a contract is generally an exception or an eclipse provision, meaning thereby if a force majeure is enforced the performance as mandated in the other terms of the contract will remain eclipsed till the force majeure event persists. Whether the force majeure has taken place or not or it exists or not or the time till when it exists is a question of fact to be determined by the Arbitral Tribunal. Further, the Court noted that the purpose of the force majeure clause in any contract, is to prevent the...

Force Majeure Clause 'Eclipses' Contractual Terms, Existence And Duration Of Force Majeure Event To Be Determined By Arbitral Tribunal: Delhi HC

Soumya Chakrabarti

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