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December 2020

Dec 18
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force majeure under rera

COVID-19: The Rising Prominence of Force Majeure Under RERA

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The Rising Prominence of Force Majeure Under RERA

The slowbalisation of world economies due to the COVID-19 outbreak has frozen funds, immobilized citizens, and put a halt to the growth of several industries. The real estate sector has not been spared, owing to lack of labor availability due to vast numbers of the same migrating back to their hometowns, and declining asset prices, thus decreasing the purchasing power of customers.

The resilience of this sector shall be put through a test as projects, most of which might get delayed with construction activities stopping during the lockdown period. In such a scenario, when developers and other real estate players are desperately reviewing their contracts to invoke a provision that absolves them legally from non-performance of their obligations under the same contract, the provision of Force Majeure gains prominence.

Under the Real Estate (Regulation and Development) Act, 2016 (RERA Act), section-6 describes the force majeure condition and explains that the registration is given by the concerned Real Estate Regulatory Authority (RERA), could be extended, in case a promoter applies for the same purpose, albeit backed by a Force Majeure event.

Force majeure, under RERA Act, means an instance of a flood, war, fire, cyclone, drought, earthquake, or any other nature-caused calamity, which affected the regular operation of a real estate project. The point to be noted is the ‘any other nature-caused calamity’.

In the cases, where an agreement includes the clause of Force Majeure, the promoter has to make clear the scope of the same clause, to ascertain, if the term pandemic/epidemic or something alike, is included therein. After the promoter triggers the clause of Force Majeure, if included in the agreement with an allottee, the current crisis would not frustrate the entire contract or absolve the promoter of delivering the promised units.

Still, it will only grant the promoter some extra time to fulfill the agreement. Therefore, the duration of such an extension would depend upon the impact of the novel Coronavirus on the real estate project.

Once a promoter achieves the milestones of construction which are linked with payments, an allottee shall not be asked to pay any more installments. For the milestones which have been completed, it is not likely that an allottee would be granted an exemption by the promoter.

Whereas, if such an agreement does not include the Force Majeure provision and there arises a failure to deliver possession by the promoter, the respective allottee has the right to withdraw from the real estate project, under section-18 of the RERA Act.

In cases like these, the promoter has to return the capital received by him/her with respect to the concerned property in addition to interest and suitable compensation. On the other hand, if the allottee does not intend to withdraw from the real estate project, then the promoter has to pay interest to the allottee for each month that the respective property gets delivered to the said allottee.

In such instances, where a contract does not include provisions dealing with the results of certain supervening events, the doctrine of frustration, as given in section-56 of the Indian Contract Act, 1872, could be applied. The same section, among other things, provides that a contract to do an act if after the contract is already made, becomes impossible to do, due to an event over which the promisor had no control and could not prevent the same, the contract becomes void.

Nevertheless, in the present circumstances, parties might not be keen to go down this path, as the route of frustration ultimately leads to the termination of the contract in its entirety, and the promoter may instead be wanting temporary relief, from the performance of their obligations under the concerned contract.

Usually, the invocation of section-6 of the RERA Act is not automatic, and promoters have to submit an application for the same purpose to the concerned Real Estate Regulatory Authority. However, the Ministry of Finance, Government of India, has taken cognizance of the novel Coronavirus as an event of Force Majeure, thus providing much-needed relief to real estate companies in India.

The ministry also gave an extension to the validity of the registration and the completion date, suo-moto, by six months, for all real estate projects registered under RERA Act, which were expiring on March 25, 2020.

Even if this announcement may not wholly save the real estate sector from the financial distress it currently finds itself in, the said sector will be able to gather up some resources for the much bigger battles that wait going forward, since the purchasing power of homebuyers is hit severely by the viral outbreak, and purchasing a home has dropped to a lower point on their list of priorities.

Given the ongoing crisis, which none of the contracting parties could have predicted, the Central Government considering COVID-19 as a Force Majeure event, is a step in the right direction.

Along similar lines, the Singapore Government had, on April 7, 2020, cleared the COVID-19 (Temporary Measures) Act 2020, to provide measures of a temporary nature, as well as to deal with any other matters with regards to the COVID-19 outbreak.

This Act, coming into force on April 8, 2020, provides for among other things temporary relief in case of the inability to perform a contract, in addition to extra relief, if unable to complete a supply or a construction contract.

 

Tags: majeure, force majeure under rera, majeure meaning, define force majeure, force de majeure, force majeure, real estate sector

Dec 17
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future of msmes in india

COVID-19: Future of MSMEs in India Post-Pandemic

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Future of MSMEs in India Post Pandemic

The Small and Medium Enterprises (“MSMEs” hereafter) sector plays a central role in the global economy. MSME creates a lot of jobs, drives innovation and acts as an incubator for tomorrow’s multinational corporations.

MSMEs that contribute to almost 45 per cent of India’s gross domestic product (GDP) are suffering because of both supply and demand issues and are quickly losing their small reserves and cannot expect to survive this crisis unless substantive support is immediately available. 

The sector has added some significant power to the overall business, contributing a whopping 40 per cent to the country’s GDP through its 200,000 kroner goods and services. It is also the engine of life for millions of people.

India has registered an 11-year low economic growth of 4.2 per cent in FY20, and many sources forecast a negative growth rate for FY21 as we stare at a recession after almost four decades. Across various horizons, many sectors will experience a contraction in demand and job opportunities, and be contingent upon the performance of multiple factors. 

MSMEs have no easy path to prosperity. The problems that harangue the industry and reduce margins range across infrastructural deficiency including lack of adequate capital, infrastructural hurdles, inadequate digitalisation, scattered markets, absence of compatible financial partners and final and the biggest behemoth of statutory clearances dealing with the ‘Babus’, the political stooges, gangs and goons, cartels etc. 

Alongside all the pre-existing problems, MSMEs were already in a weaker phase owing to the policies like demonetisation and the haphazard implementation of GST, which cornered this sector in a vulnerable position.

Accumulated distress over various policies undertaken was enough to bog down the growth rate for this highly potent sector when COVID-19 came as a watershed moment and has grounded this sector’s independence to sever dependence upon the government’s ability to prevent the death knell of bankruptcy. However, even if MSMEs go bankrupt in the current period, its oblivion for them as IBC de-facto stands suspended. 

There is a certainty about contraction and estimates range from 30-35 per cent of MSME operations are deploying on standby or even shutting down. In such a precarious situation, it is of utmost importance to determine the future path for the MSMEs, and its prediction has to be determined by factoring the history and the developing scenario.

Despite contributing to over 40 per cent of the economy, the percentage of lending to this sector is comparatively low at only 16 per cent. This in itself is an entity large enough to determine the rebound of economic growth and will only spring back into action, once the demand normalises.

MSMEs in India produce around 6,000 types of products; lockdown and the subsequent fear in the populace, lower liquidity and job cuts will alter the demand for products other than those necessary for living consumption of products. Even if the best is assumed and the vaccine comes within the next six months, it is yet to imply the participation of the workers would institute a pre-COVID level of productivity. 

There are primers and hints as to the oncoming situation with the gloomy news. The revival of demand in rural areas, various moves by the States to deregulate labour laws and efforts to woo investment under the new reforms of equity are to help the MSMEs.

It would be more on the lines of re-location of production and demand capacities rather than a fresh generation but would act as a shock-absorbing pad for the poorer States as richer ones would be able to withstand the shock much more easily. 

MSMEs located near a city will take a higher time to recover; the sudden paucity of the workforce will pinch the labour and skill availability of the states. However, the generation of local labour capacity could fulfil labour demand and might as well boost the local economy. 

There could be an increase in MSMEs coming under the risk of becoming NPA’s during the next 12 months. The way out for the MSMEs revival in the short term is rapid liquidity injection, collateral-free loans, low-interest rate subordinated debts and revised definitions, and bringing wider firms under the government benefits bracket.

The government has appropriately responded to realising the current crisis with programs like ‘Equity Support to the MSMEs’. However, the suspension of the IBC might be a downer. An emergency fund for distressed firms to support the MSMEs in times of significant stress has been established, and direct action should be increased by increasing the corpus within this fund. 

Several negatives are countered by the fact that the threshold for migration of businesses from China has reduced, and the democratic setup of the country has ensured better confidence with investors and peers across the world. It has provided the onus entirely upon the government to rein in the economic engines and work onward reducing the complications of running a business.

The contraptions of inadequate and outdated infrastructure and complex and weird tendencies of government officials act as an impediment to the delimitation of the economic forces and commercial creativity.

In conclusion, the short term losses might be immense, wiping out a chunk of the MSMEs from the ecosystem.  However, the incentives of withstanding these exceptionally insane times may provide rewards of equivalent nature. 

 

Tags: global economy, gross domestic product, future of msmes in india, economic globalization, gdp full form, msme future in india, small and medium enterprises

Dec 16
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commercial disputes

How to Deal With Commercial and Construction Disputes Due to COVID-19

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How to Deal with Commercial Disputes and Construction Disputes

Commercial disputes will be inevitable in the post-COVID-19 world. Sonam Chandwani, Managing Partner at KS Legal & Associates and head of its Corporate Litigation Practice, specialises in commercial structures, litigation and mergers & acquisitions. She details the best way to resolve any commercial disputes in the ‘new normal’:

One of the unintended consequences of the stringent COVID-19 lockdown could be a jump in the number of commercial disputes, especially in the construction and real estate sectors. The lockdown led to an unexpected disruption in commercial activities threatening firms’ abilities to fulfill their contractual obligations.

The primary dispute could arise in terms of fulfilling contractual obligations. Each party has its pre-decided terms of the contract. There is a probability of a party being in breach of the contract if they fail to perform the conditions, warranties and other terms promised to perform.

The companies could suffer from delays when a product or a project is not delivered within the time frame of the contract. Lastly, there could be complete non-performance of the contractual obligations due to the Coronavirus crisis.

Commercial disputes can be messy and financially expensive for the parties involved.

This makes it important for companies and their management to get a firm grip on the various nuances of contract enforcement and the dispute resolution mechanism. 

The first step would be to understand the laws governing contracts in India. It will determine the course of law available as a remedy. Many of the disputes are likely to be around the invocation of ‘force Majeure which literally refers to unforeseeable circumstances that prevent someone from fulfilling a contract. The Indian Contract Act, 1872 provides for a statutory provision of Force Majeure.

The government also has memorandums that declared force majeure and issued directions to agencies and departments. Force majeure could be a feasible option for a distressed party failing to comply with the terms of the contract leading to a dispute between the parties.

Another important source of dispute could be the triggering of the material adverse clause (MAC) of a contract. MAC clause confers the parties with a right to terminate the contract upon the occurrence of any event which affects materially the viability of the transaction. However, to agree on the materiality of an event by both parties should be on the same terms.

Along with commercial transactions, another area of business that is facing significant disruption from COVID-19 is the construction industry. Many countries rely on imported labor for construction projects. With governments tightening immigration controls and closing their borders, the workforce has come under significant strain in the industry.

Contractors and employers, therefore, need to understand their contractual rights and act accordingly. It is important to ensure that the right contractual clauses are used when making claims for additional time and/or money to complete the contract.

For instance, whilst a Force Majeure clause will potentially provide the contractor with recourse in relation to time, it will not usually give entitlement to recovery of additional costs. However, a clause for adjustments to changes in legislation could potentially provide entitlement to both time and costs if the government has changed the laws as part of their measures to combat COVID-19.

But a major consideration is that whilst a contract may give potential entitlements, the parties would still have an obligation to demonstrate that the claimed events actually caused the delay, disruption, or additional expenditure. To do this effectively, the contractor will need to show the effects of delaying events through critical path analysis and possibly measured mile analysis.

It is therefore essential that such records are kept in sufficient detail.

In the given scenarios, every company impacted by the COVID19 outbreak would need to consider if adverse financial consequences of business interruption can be claimed under the insurance policy. There will be a need to review their existing business interruption insurance policies to protect themselves against any losses sustained from exposure to the epidemic.

In order to minimize the disputes, all formal notices and other written and verbal communications among the parties should be precise, factual, and without emotion or hyperbole. The point is to inform while also satisfying technical notice requirements.

The fact to be kept in mind is that currently, the Courts are easily accessible to sort disputes, which itself is unprecedented in nature. Thus, attempts should be made to amicably solve the disputes arising from the COVID-19 pandemic.

Tags: construction litigation, commercial dispute resolution, commercial disputes, construction claims, construction dispute resolution, commercial litigation lawyers, construction disputes, commercial litigation, business litigation

Dec 14
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FAQs on Employment and Termination: COVID-19

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FAQs on Employment Termination: COVID-19

The world is in stasis with the Novel Coronavirus (COVID-19) infecting millions of people the world over. The slow-balization of economies under the pretext of COVID-19 has immobilized citizens, and frozen funds thereby arresting growth across industries.

News of employees being terminated or laid off are common-stance with plummeting business sales and tanking asset prices in the economy.

In response to the pandemic, employers across industry verticals have altered traditional working methods to limit contact between employees. Embracing remote working methodologies, bonus and salary cuts, and mass layoffs, yet oblivious to the depth of its impact, one thing is abundantly clear – the workplace will never be the same again!

Here we have envisaged different scenarios pertaining to employment and termination considerations keeping in mind the interests of both employer, and employees, and analyze them through the lens of applicable laws and advisory. 

Employer Perspective:

Can employees be terminated? 

As per the Ministry of Labour & Employment (“MLE”) Advisory, employers are advised against termination of employment during the lockdown. It further states that if any establishment is non-operational, it must deem its employees on duty.

Thus, while termination can be carried out as per employment terms and applicable law (such as the Industrial Disputes Act for workman termination), it is advisable that employers do not terminate employment during the lockdown.

Specific care should be taken where the employer contemplates termination of workman or where the workforce is unionized, as a termination in the given circumstances is very likely to be questioned as an illegal termination resulting in potential industrial dispute under the Industrial Disputes Act.

Non-permanent employees must be laid off in the following order: Emergency, Temporary, Provisional, and Probationary. If additional reductions are necessary, permanent employees must be laid off on the basis of seniority.

Can an organization postpone payment for employee bonuses or payroll changes?

Yes, organizations can postpone or decline bonus/incentive payments and payment modifications. These are usually at the discretion of the administrator. On a revenue basis, for the commissions mentioned in the employment contract, the organization is responsible for fulfilling its contractual obligations.

However, if your organization has employees who are “qualified” under the bonus payment method (income is less than INR 21,000 / $ 280 / month), you cannot refuse to pay the “bonus”. In this case, the employer is legally obligated to pay 8.33% to 20% of salary to all qualified staff within eight months of the end of the accounting period.

What options do employers need to reduce labor costs?

The Department of Labour and the state government have issued several recommendations to public and private institutions to refrain from headcount and salary cuts during these difficult times.

The MHA (Ministry of Home Affairs) issues notices aimed at keeping salaries and ensuring that wages are paid on time. But in a directional move, the central government recently announced that it will cut salaries/welfare benefits for cabinet and parliamentarians by up to 30%. Some of the measures an organization can take are:

  • Option 1 – Reduce leadership/advance level salaries to ensure all lower-level jobs are retained.
  • Option 2 – Utilization of paid leave – For many employees with overlapping telecommunication roles, employers can evaluate the use of the leave / annual leave balance. This allows employees to get paid and keep their jobs.
  • Option 3 – Sabbatical – For employees with duplicate work in a telecommuting situation, if there is no annual leave balance, such an employee should go on sabbatical leave until the situation improves. You may be asked. Their work is restored to full functionality. In this scenario, employees must continue to derive benefits from the insurance scheme and other benefits provided by the organization. If these employees sign up for the organization’s PF scheme, the company must continue to make minimal PF contributions during the sabbatical period.
  • Option 4 – Work Readjustment – ​​Some roles have work that needs to be completed, but not at 100% utilization. In all such cases, the organization can evaluate the options to reduce working hours and thereby readjust accordingly.
  • Option 5 – Temporary Payroll Reduction – Some organizations evaluate the option of exercising payroll cuts above the level and position this as a temporary move to business recovery (former salary. If the level is restored).
  • Option 6 – Dismissal / Layoff – In the extreme case where companies are fighting for survival, organizations are forced to dismiss staff. In such cases, it is advisable to make every effort to alleviate staff distress by complying with the terms and conditions and creating a cancellation package with minimal impact on staff.

Can employers calculate Indian unused hours by deducting Indian salaries/wages?

Working hours need to be modified to reflect the level of support required, and salaries adjusted (reduced) accordingly. This also applies to white-collar staff. As the national lockdown continues to be valid, that is, with order number 40-3 / 2020-DM-I, the Indian Government directs all employers to pay wages to workers (especially in the “workers” category). No dates and deductions.

Therefore, the employer can carry out wage cuts by exercising force majeure under certain circumstances in such cases. The use of force majeure is a legitimate process. It is recommended that you go through legal proceedings and documentation before officially doing so. It affects the overall business reputation, customers, and suppliers.

Is the employer obliged to pay during a lockdown?

Teleworking employees must be paid by applicable law and employment contracts. The question is only relevant if the organization does not allow it or if the employee does not WFH. The CG notice makes no mention of the employer’s obligation to pay. Blockade orders in some states, such as Delhi, Tamil Nadu, Uttar Pradesh, and Telangana, require employers to pay compensation without deductions.

Also, the Ministry of Labor and Employment issued a recommendation (“MLE Recommendation”) to all private employers on 20 March 2020. The facility is non-operational, where core activities cannot be performed remotely and include all shops, commercial facilities, and manufacturing departments engaged in non-essential merchandise.

It also states that employees who take leave during lockdown must be considered on duty without wage deductions. Similarly, the Chief Cabinet Secretary issued a recommendation (“CG Recommendation”) to the state government on March 22, 2020, demanding that the state government provide compensation to employers during the lockdown.

In light of these, there is no legal obligation in India for employers to pay during the lockdown. Therefore, the employer is not obliged to pay employees who refuse WFH, unless restricted under state order.

Such specific cases can be handled by company policy and applicable laws regarding leave, loss of salary, and disciplinary action. Nevertheless, if the employer is non-operating and the reason cannot be attributed to the employee, it is advisable to pay as if the employee was on duty.

Employee Perspective:

What is a layoff? Is it different from suspension?

Layoff means termination of employment by the employer or management (with or without notice). Layoffs are not due to the negligence of employees, but due to lack of work, cash, or supplies. Permanent termination is called termination.

However, given the Labour Dispute Act of 1947 (India), a layoff means the layoff of an employee due to lack of input or lack of input related to productivity, mechanical failure, or the effects of natural disasters.

To do so. The dismissal of employees does not mean that they have left the job, and if the situation improves, such employees can return to work. Layoffs apply to workers and suspensions apply to all other employees of the company, including managers.

Is it mandatory for employers to pay their employees during a lockdown even when it is not possible to continue job responsibilities in a lockdown?

Employees may not be able to perform their jobs for two reasons: Illness-self or family or, due to the nature of work not supported at home. Due to illness-self or family: There are various possibilities to participate: First if an employee is ill, sick leave will be applied by statutory store and establishment laws in each state.

Second, if an employee is tested but not positive, he/she can use sick leave to recover from the illness. Moreover, if an employee is tested positive for COVID-19 after returning from an official trip, the organization is obliged to provide 28 days of paid leave for quarantine and full recovery.

However, organizations are not required to provide paid leave for recovery, except in Karnataka, if an employee tests positive for COVID-19 after a personal trip. If an employee needs to take a leave to care for a sick family diagnosed with COVID-19 positives, the employee will carry out a self-isolation for 28 days and apply for the leave for yearly leave. 

In light of these, there is no pan-India legal mandate for employers to pay during the lockdown. Thus, employers are not obligated to pay employees who refuse to WFH, provided there is no restriction under state orders. Such specific cases can be dealt with in accordance with the company’s policies and applicable law on leaves, loss of pay, and disciplinary action. Nonetheless, where the employer is non-operational and no reason can be attributed to the employee, it is advisable to pay as if the employee is on-duty.

What if my employer has to dismiss some staff? Is layoff legal in India?

As specified in the previous section, layoff or reduction is a process defined in India. It is subject to the terms of the employment contract and certain laws under state law and may apply to certain sectors/industries. There is also the notion of a “retirement allowance” that has no legal basis. However, it is a rule to reduce employee distress. Again, it’s a good idea to make staff transparent across all levels, to understand the distress/business situation, and to find solutions that are as friendly as possible.

Can Indian employers suspend their employees temporarily without pay?

If you do not have explicit contract rights to terminate your contract in these circumstances, there is no clear way to terminate your employment. Imposing a forced suspension without your consent may result in claims to your employer and you must seek your consent.

What are the options for full-time employees who may be laid off?

Instead of being dismissed, full-time employees can choose one of three options:

  1. The entire state within departments, classes, and options can be moved to a position held by the youngest and least employee.
  2. You may be allowed to voluntarily demote to another position in the next lower level class of the current Class Series within your department and geographical location.
    1. Layoff and displacement are by department
    2. Employees cannot transfer employees from another department
    3. Senior class employees cannot replace lower class employees with higher seniority
    4. Employees must meet minimum qualifications for classes and options
    5. Always downward movement
    6. Full-time and part-time should be treated separately
  3. If no one in the current class series has poor seniority, employees can return to their latest previous class.

If an employee has COVID-19, what are the implications?

Any employee who had exposure or may have symptoms or has contracted COVID-19 should be prevented from working at the employer’s premises in order to protect the health and safety of other employees. Employers must strongly recommend the employee to self-quarantine and isolate at home, circulate a suo moto report as required under state-specific orders and access healthcare services immediately.

With respect to the employer’s liability for compensation or bearing medical expenses, it will be important to determine if the transmission occurred at the workplace where the employer will be solely liable. For other situations where transmission has been in relation to employment, there is ample subjectivity and it will be difficult to substantiate and prove such claims.

Crashing economies, plummeting sales figures coupled with the uncertainty of business redemption is prompting many companies to terminate employment so as to save themselves from running out of business! Employees scarred by the unemployment in the wake of this crisis are asking themselves, “What now?” Job loss can be a disturbing, and difficult time – psychologically and financially – particularly with so many unknowns in our world right now.

But professionals terminated by their employers must be abreast with the key developments introduced by the government, as in the case of Karnataka, and navigate the upcoming chapter in their career with confidence! The key to navigating the rough waters of COVID-19 is to remember that this is temporary and we are in this together!

Tags: employment, frozen funds, employment termination, asset prices, notice of termination of employment, termination of employment contract

Dec 11
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Force Majeure Invoked! What Happens to Real Estate Now?

By Real Estate No Comments

Force Majeure Invoked

The world is in stasis with the Novel Coronavirus (COVID-19) infecting millions of people the world over. Industries have come to a standstill and likewise, the land business is not saved either. Resources and incomes fall faster than expenditures in a crisis.

The slow-balisation of economies under the COVID-19 pretext has immobilized citizens, and frozen funds, thus arresting industry growth. It has adversely affected real estate project completion due to lack of labor availability on account of mass migration and plummeting asset prices thereby depressing purchasing power across the real estate sector and its customers.

Therefore, its resilience will be put through a litmus test in times where even banks and financial institutions, a monetary cushion for other industries, are under immense pressure for survival. In times when real estate players are frantically reviewing their contracts to invoke a clause that legally absolves them from non-performance of their contractual obligations, the force majeure clause gains utmost prominence.

Section 6 of the Real Estate (Regulation and Development) Act, 2016 (RERA Act) has envisaged the force majeure condition and states that the registration granted may be extended by the Authority on an application made by the promoter in that regard due to force majeure.

The Explanation provided in this section states that the expression “force majeure” shall mean a case of war, flood, drought, fire, cyclone, earthquake, or any other calamity caused by nature affecting the regular development of the real estate project. Therefore, the explanation of Section 6 which defines Force Majeure includes “any other calamity caused by nature”.

In instances where the agreement contains a ‘Force Majeure’ clause, the promoter has to ascertain the scope of the force majeure clause to ascertain whether the terms epidemic/ pandemic or the like are specifically stated therein. Once the promoter triggers the force majeure clause in the agreement with the allottee, the present crisis will not frustrate the entire contract or absolve the promoter of delivery of units but it will merely give the promoter an extension of time to perform the agreement.

Hence, the promoter of a real estate project will get an extension of time to hand over the possession of the units forming part of the real estate project if so provided by the contract. The duration of such an extension will depend on the impact of COVID-19 on the project.

Consequently, until construction milestones linked to payments are achieved by the promoter, the allottee will also not be called upon to pay further installments. However, for achieved construction milestones that trigger a payment installment by the allottee, it is highly unlikely that any sort of extension will be granted by the promoter.

On the other hand, if the agreement does not contain a ‘Force Majeure’ clause and there rises a failure to hand over possession on the part of the promoter, the allottee has the right to withdraw from the project under Section 18 of the RERA Act.

In such cases, the promoter is bound to return the amount received by him in respect of that apartment with interest at such rate as may be prescribed including compensation. However, if the allottee does not wish to withdraw from the project, the allottee shall be paid interest for every month of the delay till the handing over of the possession of the apartment.

In cases where a contract does not incorporate provisions dealing with the consequences of certain supervening events, the doctrine of frustration as embodied in Section 56 of the Indian Contract Act, 1872 may apply. Section 56 of the Contract Act inter alia provides that a contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

However, given the present circumstances and the impact of the global crisis, a party may not be keen to go down the route of frustration which ultimately causes termination of the contract in its entirety, and may at best want temporary relief from the performance of its obligations under the contract.

Generally, invocation of Section 6 of the Act is not automatic and the promoters will have to make an application to the Authority for an extension. However, the Ministry of Finance of India has considered the COVID- 19 as a natural calamity and a Force Majeure event giving a breather to the real estate players in India, along with an extension of the registration and completion date suo-moto by 6 months for all registered real estate projects expiring on March 25, 2020, to infuse growth into the country’s ailing real estate industry.

Although this move may not fully save the industry from the economic shocks it is in, it is likely to provide the real estate industry with resilience and resources to survive and take on the bigger battles that lie ahead as consumer buying power would be severely hit by the pandemic, with real estate dropping low on their priority list.

The real estate industry has been struggling with a sluggish trajectory of development that came to a complete standstill during the pandemic. Supporting real estate players to survive the bear-run, the Ministry of Finance announced a 6-month extension of the suo-moto registration and completion date for all registered projects which expire on or after March 25, 2020.

Given the fact that the present global crisis has brought a lot of economic activities to a grinding halt and is unprecedented and one which no average contracting party could have foreseen, the government move is a step in the right direction in recognizing the Force Majeure clause.

Similarly, Singapore has in 7th April 2020 passed the COVID-19 (TEMPORARY MEASURES) ACT 2020 (ACT 14 OF 2020), to provide temporary measures, and deal with other matters, relating to the COVID-19 pandemic. This Act which comes into force on 8th April 2020 provides for inter alia temporary relief from actions for inability to perform the scheduled contract as well as additional relief for inability to perform construction contract or supply contract.

Although victory over the Indian economy’s pandemic and reopening remains elusive, deadline relaxation coupled with liquidity infusions may help the real estate industry see some light at the end of the tunnel.

The Force Majeure clause has the power to sustain an entire industry and keep it afloat while the COVID-19 dust settles, and not jeopardize the sustenance of real estate players by leaving a lot at the discretion of judicial interpretation where words of a contract are sacrosanct.

The regulatory relaxations and economic relief packages announced in the light of the pandemic may support the demand for housing and help to achieve the government’s objective of ‘Housing for All’.

Tags: force majeure clause in contract, define force majeure, litigation mediation, force majeure event, force majeure clause, force majeure, pre litigation mediation