COVID-19: What Will It Take to Flatten the Curve of Commercial Disputes in India?
With the novel coronavirus ripping across borders at an alarming pace, governments world-over have been forced to step up containment measures ranging from travel bans to full or partial lockdowns.
In India, much like elsewhere, these efforts have inevitably culminated in a domino effect on businesses with a shortage of labour, closure of factories and disruptions in supply chain and cashflows, among others looming large.
While the priority is and should be on winning this uphill battle against COVID-19, it is equally important, if not more, to safeguard the businesses, large and small, from impending ‘black swan’ risks (a phrase that gained popularity during the Great Recession and its aftermath) posed by this virus and not deny it.
This grave scenario threatens a meltdown unless the state machinery in countries like India swiftly, but thoughtfully, conceives tailor-made legal and commercial solutions aimed at erecting necessary firewalls for protecting businesses from impending shadows of bankruptcy.
Battle lines are already being drawn in industries across India Inc over cancelled contracts, rent agreements, pledge invocations and encashment of letters of credit.
In the corporate realm, the focal point of discussions during these unforeseen times has been on the ways to prepare for impending disputes rather than adopting the traditional wisdom of evaluating ways to avoid them. Availing the safeguards under force majeure provisions – which are meticulously threaded into contracts in India – has overshadowed the necessity to avoid putting cash-strapped businesses into litigation in the first place. This becomes all the more relevant when it is not viable either for such businesses to sustain the costs of litigation or for the courts of the land to accommodate the matters while battling ever burgeoning caseload and budgetary constraints. That said, our courts have to discharge their constitutional responsibility of delivering justice and that is what everyone is banking upon.
Also Read: Will 'Act of God' Clauses in India Inc's Contracts Help Restart the Economy?
Going back to the basics, it is for our legislators to take responsibility to devise measures for vaccinating India Inc. against the aftermath of COVID-19. Simply because, these are unusual times and India needs unusual legislation to sail through it. Alas, the fate of obligations of businesses towards counterparties cannot and should neither hinge upon the existence of force majeure provision in their contract nor on taking recourse to doctrine of frustration under a 148-year old legislation governing contracts.
There are lessons to learn from the bold initiatives taken by coronavirus-hit nations such as Germany, Singapore and many others for managing the foreseeable increase in contractual disputes in these unprecedented times. Take for instance Singapore which has enacted the COVID-19 (Temporary Measures) Act, 2020 to grant temporary and targeted protection to businesses and individuals from their contractual obligations.
An empty shopping mall in Ahmedabad, March 16, 2020. Photo: REUTERS/Amit Dave/File Photo
Similarly, the German Bundestag (Parliament) has passed the ‘Act on mitigation of the consequences of the COVID-19 pandemic in civil, insolvency and criminal procedure law’ which amongst others, suspends the rights of landlords of business and residential premises to terminate the lease on grounds of non-payment of rent due to temporary loss of income caused by the COVID-19 pandemic.
This pandemic has undoubtedly ripped apart the fabric of normalcy for all. In the face of such calamitous times, the classic concept of contractual bargains and their enforcement by the courts will no longer remain the same as we have understood them. India needs to think more broadly, innovatively, and quickly so, because imagining that the real economy will easily overcome the devastation raked by COVID-19 is no more a foreseeable reality. Historically, times of upheaval have served as a powerful impetus for radical change and this pandemic could very well be that moment for legislative uptakes in India.
Jitendra Soni is a corporate lawyer at a leading law firm of India. Views are strictly personal.
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