COVID-19 & Force Majeure in India: Case Laws & Drafting Tips

Introduction

COVID-19 was one of the biggest challenges faced by businesses in India. The lockdowns disrupted factories, transport, construction, supply chains and other business activities, making it difficult for many parties to fulfil their contractual promises. This brought Force Majeure into focus. A force majeure clause is a contract provision that may protect a party when an unexpected event, beyond its control, prevents it from performing the contract. During the pandemic, Indian courts had to decide an important question: Can COVID-19 and lockdowns excuse a party from its contractual obligations? Cases such as Halliburton Offshore Services Inc. v. Vedanta Ltd. and Standard Retail Pvt. Ltd. v. G.S. Global Corp. helped clarify how courts approach such situations.

Which Contracts Were Most Affected by COVID-19?

• Construction Contracts – Lockdowns and labour movement restrictions stopped workers from reaching project sites, causing delays.
• Import-Export Contracts – Port closures, shipping delays and customs restrictions disrupted the supply of goods.
• Lease & Rental Agreements – Closed shops, restaurants and hotels faced difficulty paying rent due to loss of income.
• Loan Agreements – Businesses facing financial difficulties sought relief from repayment obligations.
• Bank Guarantees & Letters of Credit – Parties tried to stop or delay encashment, but courts generally treated these as independent financial obligations.

Did COVID-19 Automatically Trigger Force Majeure?

Why is causation important in invoking Force Majeure?

The main lesson from Halliburton and Standard Retail is that COVID-19 alone was not enough to claim force majeure. The party had to show that the pandemic or lockdown actually stopped or seriously affected its ability to perform the contract. In Halliburton, lockdown restrictions stopped workers from reaching the project, so the connection was clear. In Standard Retail, steel movement was not completely stopped, so the buyers could not prove that COVID-19 had made their performance impossible.

When Can COVID-19 Excuse Contractual Performance?

COVID-19 is more likely to excuse a contract when the force majeure clause clearly covers pandemics, epidemics, lockdowns or government restrictions, and the party can show that the pandemic actually stopped or seriously affected performance. For example, travel bans, government shutdowns or shortage of essential materials may support a claim. The party must also be covered by the clause, and the problem should have started because of COVID-19. On the other hand, relief is less likely when the business was allowed to continue because it was an essential activity, the force majeure clause protects only the other party, or the problem is simply financial loss or reduced profits. A party also cannot use COVID-19 to justify delays or defaults that had already occurred before the pandemic.

 Can Force Majeure Excuse Payment Obligations?

Indian courts are generally reluctant to excuse payment obligations because of COVID-19. While the pandemic may make physical work, travel, or supply of goods difficult, financial problems or lack of funds usually do not excuse payment. Bank guarantees and Letters of Credit are treated as independent obligations, so courts normally allow banks to honour them despite disputes in the main contract. In simple words, COVID-19 may make business difficult, but financial hardship alone is usually not enough to avoid payment.

Who bears the burden of proof and what evidence is required?

A party claiming force majeure has the burden of proving that COVID-19 actually affected its ability to perform the contract. Courts expect the party to give timely notice, provide documents and evidence showing how the pandemic or government restrictions affected performance, and establish a clear connection between the disruption and the contractual obligation. Mere statements that “COVID-19 made business difficult” are not enough. The party must prove, with evidence, that the pandemic directly caused the non-performance.

Why is proper drafting of a Force Majeure clause important?

A force majeure clause should be clear, specific and easy to understand. It should mention events such as pandemics, epidemics, lockdowns, government restrictions, travel bans and supply-chain disruptions. The clause should clearly state which party can use it and whether the event must make performance impossible, delayed or seriously difficult. It should also include notice requirements, explain the steps the affected party must take, and specify how long the contract can remain suspended. Businesses should regularly review and update old contracts instead of relying on vague terms like “Act of God.”

What events should be covered in a modern Force Majeure clause?

How have Force Majeure clauses changed after COVID-19?

After COVID-19, businesses in India started using more detailed force majeure clauses instead of relying on general terms like “Act of God.” Modern contracts specifically cover pandemics, epidemics, lockdowns, government restrictions, travel bans, supply-chain disruptions, labour shortages and transport problems. They also clearly mention whether payment obligations are covered, as courts have generally been reluctant to excuse payment due to financial hardship. Contracts now commonly include notice requirements, mitigation duties and evidence requirements, such as government orders or official notifications. The pandemic showed that force majeure clauses must be clear, specific and carefully drafted to avoid future disputes.

What practical lessons can businesses learn from Force Majeure clauses?

Businesses should carefully check who is protected by the force majeure clause and what events are covered. For example, if a clause protects only the seller, the buyer may not be able to rely on it, as seen in Standard Retail. Pandemics, lockdowns and government restrictions should be specifically mentioned; for example, a manufacturer may rely on the clause if a government lockdown legally stops its factory from operating. Businesses should also give timely notice and keep proper records of government orders, travel restrictions, labour shortages, etc. For example, a company unable to complete a project because workers cannot travel should preserve travel restrictions and official notifications as evidence. Finally, businesses should remember that financial difficulty alone usually does not excuse payment, such as a buyer being unable to pay simply because its sales fell during COVID-19. Therefore, force majeure clauses should be carefully reviewed and negotiated rather than treated as standard boilerplate.

CASE LAWS

HALLIBURTON OFFSHORE SERVICES INC. V. VEDANTA LTD. (2020)

Facts of the Case

• Vedanta Ltd. had entered into a contract with Halliburton Offshore Services Inc. worth approximately USD 197 million for oil-well construction and related work in Rajasthan.
• The project was already facing delays before the COVID-19 pandemic. In March 2020, the Government imposed a nationwide lockdown, which restricted the movement of workers and personnel.
• Halliburton invoked the force majeure clause of the contract, stating that the COVID-19 pandemic and lockdown made it difficult/impossible to perform its obligations.
• Vedanta rejected this argument and terminated the contract. It also attempted to invoke and encash eight bank guarantees given by Halliburton.
• Halliburton therefore approached the Delhi High Court under Section 9 of the Arbitration and Conciliation Act, 1996, seeking protection against the encashment of the bank guarantees.

Issues Before the Court

1. Whether COVID-19 and the nationwide lockdown could be treated as a force majeure event?
2. Whether Halliburton was entitled to protection under the force majeure clause?
3. Whether Vedanta could invoke and encash the bank guarantees during the lockdown?
4. Whether the existing delays before COVID-19 prevented Halliburton from claiming force majeure relief.

Judgment

The Delhi High Court held that COVID-19 and the lockdown could qualify as a force majeure event, especially because the contract covered such events. However, Halliburton had already faced delays before COVID-19. Therefore, the pandemic could not excuse its pre-existing defaults. The Court clarified that force majeure relief depends on the contract terms and the actual impact of COVID-19 on performance.

Court’s Reasoning

The Court considered several important factors:

1. First, the contract itself contained a force majeure clause covering pandemics. Therefore, the Court did not have to create a new legal excuse outside the contract.
2. Second, the lockdown created serious restrictions on the movement of workers and personnel required for the project.
3. Third, the Court also considered that Halliburton had experienced delays before COVID-19. Therefore, COVID-19 could not simply be used to excuse all earlier defaults.
4. Fourth, the Court emphasised that force majeure relief must be connected to the actual effect of the event on contractual performance.

Whether COVID-19 and the nationwide lockdown constituted a force majeure event in Halliburton Offshore Services Inc. v. Vedanta Ltd.?

In Halliburton Offshore Services Inc. v. Vedanta Ltd., Halliburton argued that the COVID-19 pandemic and nationwide lockdown prevented it from performing its contractual obligations. The Delhi High Court accepted that COVID-19 could constitute a force majeure event, particularly because the contract covered such events. However, the Court noted that Halliburton had already been delayed before the pandemic. Therefore, COVID-19 could not excuse earlier delays. The case established that COVID-19 is not an automatic excuse for non-performance; its actual impact on the contract must be proved.

STANDARD RETAIL PVT. LTD. V. G.S. GLOBAL CORP. (2020)

Facts

• Standard Retail and other Indian companies entered into contracts with South Korean companies for the supply of steel.
• Payment was to be made through Letters of Credit (LCs).
• During the COVID-19 lockdown, the buyers claimed that they could not perform their contractual obligations.
• They argued that the pandemic had made performance impossible.
• The buyers approached the Bombay High Court seeking to stop the bank from making payment under the Letters of Credit.

Issues

• Whether COVID-19 and the lockdown frustrated the contracts under Section 56 of the Indian Contract Act, 1872.
• Whether the buyers could rely on the force majeure clause.
• Whether the Court could stop the bank from making payment under the Letters of Credit.

Judgment

The Bombay High Court rejected the buyers’ petitions and refused to stop payment under the Letters of Credit. The Court held that COVID-19 and the lockdown did not automatically frustrate the contracts. The force majeure clause mainly protected the sellers, not the buyers. Further, steel was treated as an essential commodity, and its movement was not completely prohibited during the lockdown. The sellers had already shipped the goods, and the Letters of Credit were independent of the main contract. Therefore, the buyers could not use COVID-19 as a general excuse to stop payment.

Reasoning

The Court observed that the force majeure clause was mainly for the benefit of the sellers, not the buyers. Therefore, the buyers could not use that clause to avoid their own obligations. Further, the sellers had already shipped the goods before the dispute arose. The Court also held that a Letter of Credit is independent of the underlying sale contract, so a dispute between the buyer and seller was not enough to stop the bank from making payment.

Conclusion

COVID-19 did not fundamentally change India’s force majeure law; it showed the importance of clear contract drafting and strong evidence. Halliburton and Standard Retail had different outcomes because their contract clauses and facts were different. The main lesson is simple: force majeure protection is only as strong as the clause that provides it, and businesses must draft these clauses carefully for future disruptions. For expert drafting or review of any commercial contract, including a carefully tailored force majeure clause, contact Contract CorpBuddy, Raipur.

REFRENCES
1. https://www.britannica.com/topic/force-majeure

2. https://www.investopedia.com/terms/f/forcemajeure.asp