Moving Beyond Force Majeure Under Contracts: What Happens To Obligations Under Other Statutes?

  • Moving Beyond Force Majeure Under Contracts: What Happens To Obligations Under Other Statutes?

    In this time of panic created by the coronavirus, there have been many discussions about the virus constituting a force majeure under contracts. According to the Black's Law Dictionary, force majeure is defined as "An event or effect that can be neither anticipated nor controlled." This clause excuses the parties from performing their obligations under the contract if the impossibility of performance arises due to a force majeure. However, this force majeure clause will only protect the parties from the performance of obligations if such obligations arise out of a contract. A question then arises as to what will happen to the obligations of the companies under the statutes other than the contract law. Would a full compliance of these laws be expected from the companies or is there any provision in the law that allows an exemption from the performance of obligations other than the contractual obligations under the law?

    While the government has announced some relaxations from certain regulatory compliances, there are many other compliances which the companies might find difficult or impossible to fulfill in the situation of lockdown. The principle of 'lex non cogit ad impossibilia' which means, law does not compel a man to do that which cannot possibly be performed, can come to the rescue of the companies during this time. While it has become impossible for the companies to comply with the statutory provisions, the application of this principle would help them to avoid litigation despite such non-compliance. The Supreme Court in Re Presidential Pool has observed that another Latin maxim 'impotentia excusat legem' is closely connected to the abovementioned impossibility maxim. It translates to mean that a law will excuse a default if a party is unable to perform the duty created by law without any fault of his own. These principles acting together can help the companies in these uncertain times of pandemic.

    These maxims have been applied by the Indian courts since long now and the apex court has also upheld the application of these doctrines. In the case of Industrial Finance corporation v Cannore Spinning and Weaving Mills the court has held that "there is a general rule for the practical application of law that where the law creates a duty of charge and the party is disabled to perform it, without any fault of his own, and has no remedy over it, there is a general excuse to him from the compliance of such obligation under law". The court held that when the obligation is implied by a statute, impossibility of performance is a good excuse.

    One can expect the application of these principles to be in full force once the lockdown is revoked and the businesses resume their normal operations. However, it will be interesting to look at the contours of the application of these maxims by the Indian courts. The jurisprudence on the principles suggests that the cases in which they have been applied can be broadly classified into two categories. First, where the compliance of law has been made impossible by an act of God and second, where the cause of impossibility is not an act of God but is a factor out of the control of the parties and without any fault of their own.

    In the first class of cases, an act of God forms the reason why the companies are unable to fulfil their statutory obligations. These principles have been affirmed by the courts in cases like Rolcon Engineering Ltd. v State of Gujarat and M/s. CSL Securities Pvt. Ltd. v Securities and Exchange Board of India. In the latter, the court had to decide if the company would get the benefit of the fee paid by their managing director prior to corporatization. Under the SEBI (stock brokers and sub-brokers) Regulations, 1992, such a benefit could only be availed by the company if the director acted in this capacity for a minimum of three years. However, due to the death of the director, this statutory obligation could not be complied with. The court held that the death of the director was an act of God and it is a general rule that when the fulfilment of a condition prescribed by law becomes impossible due of an act of God, the law will excuse the fulfilment of that condition. Thus, the court granted the company benefit whilst stating that law can never insist upon the performance of an act which has otherwise become impossible to perform and in these circumstances, 'lex non cogit ad impossibilia' apply with full force.

    Under the second class of cases, the companies, despite no fault of their own, are not able to fulfil their obligation under law. The reason of impossibility here is not an act of God but is a factor which the companies could simply neither contemplate nor control. The doctrine has been upheld by the courts in cases like Poona Supply Co. Ltd v State, Fenner India ltd v Joint Regional Director, etc. In the latter, the respondent was a company registered in Bombay stock exchange. Under the Employees State Insurance Act, 1948 the company had to pay a certain amount of money to the employees regularly. Two of the company's employees filed a suit against the company regarding the amount proposed to be remitted to them under the Act. The court dismissed the suit filed by the employees after three years and the employees subsequently demanded interest on the amount due to them for said duration. The court applied the principle of 'lex non cogit ad impossibilia' to hold that the company could not have contemplated a suit being filed by the employees against it and once the case has been taken to the court there was nothing that the company could do to discharge its liability under the act. In light of this, the company should not be held liable under the statute for non-payment of the amount to the employees for three years and therefore should not be bound to pay interest thereon. The courts have given some pre-conditions which have to be fulfilled in these types of cases for the legal maxims to apply. Firstly, the nature of the necessity pleaded before the court should be one which is respected by the law. A necessity that arises out of the acts of the plaintiff itself with previous knowledge of the consequences would not attract the application of the principles. Secondly, before pleading impossibility, every possible endeavour should have been made to comply with the statutory provision. The court in the case of DSJ Communications v. Union of India has also emphasised the difference between inability and impossibility of performance by stating that a mere hardship in the performance of the duty due to an external circumstance would not mean the impossibility of performance and hence would not attract the application of these rescue doctrines.

    Thus, the interpretations of the courts mean that they will only apply these principles in cases where they find that the duty is impossible to perform and is beyond the capacity of a reasonable or prudent man because of the change in circumstances and without any fault of the parties themselves.

    The principles of 'lex non cogit ad impossibilia' and 'impotentia excusat legem' have been applied by the courts in various cases. However, the niche aspects of their application are still to be evolved through jurisprudence. After revocation of the lockdown it would not be wrong to expect from the courts, a creative application of these principles whilst differentiating it from the application of the force majeure doctrine under contract law. However, the lockdown cannot be expected to automatically waive off all the regulatory obligations of the entities, as this would be resolved on a case to case basis and hence shall be a subjective assessment.

    The authors are the students of NALSAR University of Law. Views are personal.

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