SCHOOL OF LAW, NARSEE MONJEE INSTITUTE OF

MANAGEMENT STUDIES, BANGALORE

Project for Contract II Submitted by:

Name: Ashish Kumar

Course: BA LLB
3rd Semester

Submitted to:
Mr. Pritam Ghosh
Assistant Professor
School of Law, NMIMS Bangalore
The Novel Coronavirus (COVID-19) has hit populations around the world and has resulted in
many restrictions, including free movement of people. It has brought the world to a grinding halt
and has severely impacted the ability of businesses throughout the world to fulfil contractual
obligations and sustain operations.
The World Health Organization has declared COVID-19 a pandemic on 11th March 20201.
In light of this pandemic, it is important to understand the impact on performance of various
contracts and statutory obligations and the applicability of the Force Majeure clauses.
Typically, a force majeure event is one which is an unavoidable event such as "act of God,"
notably weather conditions including hurricanes, floods, tornadoes, earthquakes, landslides, and
wildfires, as well as certain man-made events like riots, wars, terrorism etc.
For real estate promoters, in addition to their contractual obligations vis-à-vis their allottees,
there are certain statutory obligations imposed by the Real Estate (Regulation and Development)
Act, 2016 ("Act") which are overseen by the Real Estate Regulatory Authority of each state.
We analyse first whether the Act itself allows any relief in the present scenario for such statutory
obligations and then examine the impact of the pandemic on the obligations owed by a promoter
and allottee to each other.
FM in a construction contract
A well-defined FM clause in a construction contract can protect the contractor from unexpected
circumstances by specifying various uncertain events and situations in which the contractor will
be unable to perform contractual obligations, such as inability to have sufficient resources
including manpower at site, material delivery, access to site, procurement of plant and machinery
and its maintenance and implications, or procuring approvals and sanctions from the competent
authorities. In some contracts, FM can also be covered under a clause for adverse material
changes.
Depending on the terms of the agreement, on account of a FM provision, either an extension may
be sought or the performance of a particular obligation may be excused or the agreement may
thereafter be terminated. Normally, a notice invoking the FM clause is to be given by the party
who is aggrieved by such an event and the period for which the effect of a FM event is expected
to continue. In the absence of a specific FM clause, a party may consider an alternative for
frustration of contract.
Challenges faced by contractors in times of COVID-19
The pandemic and government-imposed lockdown are events beyond the control of any party
and have caused tremendous disruptions to a running economy. The challenges that may be

1
1 WHO. (2020, March 11). WHO Director-General's opening remarks at the media briefing on COVID-19 – 11
March 2020. Retrieved from who.int: https://www.who.int/dg/speeches/detail/who-director-general-s-opening-
remarks-at-the-media-briefing-on-covid-19—11-march-2020
faced by contractors in the current situation can involve delay in completion of a project,
imposition of penalties owing to delay, invocation of bank guarantees, interest servicing on debts
without receipt of any payments for work performed in accordance with the contract, cost
escalation and increase in expenses, etc. The bigger challenge is the ambit of the FM clause
covered in the majority of existing contracts that has limited the definition of FM events to
natural calamities, thus making it worse for contractors to expect a reprieve under such a
definition, which is too narrow to take in its fold the pandemic and lockdown.
The purpose of a FM clause is to suspend performance in certain situations, mitigate losses,
modify milestones, and avoid disputes going to court. It generally specifies the intimation period
and waiver or suspension of performance under the agreement to mitigate the damage that may
be caused and bearing of losses and, at the option of the party, may also lead to termination of
the agreement.
How can an FM clause come to the rescue to contractors?
A well-defined FM clause comes to the rescue of the contractors in case of unanticipated events
or situations beyond their control and can provide a reprieve from payments and respite from
performance of obligations and penalties for the period of such adversities.
For instance, in a well-defined FM clause in a development agreement for constructing flats, a
situation like COVID-19 is considered a FM event and the developer is able to obtain an
extension for completion of the project; thus, no penalties will be levied for the entire period of
lockdown. Owners will not be able to seek termination of a contract or levy penalties.
In fact, in these trying times and unprecedented situation, the Government of India has taken
upon itself to safeguard the interest of various stakeholders in commercial contracts and
ministries have issued circulars/office memoranda to grant a reprieve to certain industries. For
instance, the Ministry of Finance recently declared that any disruption in supply chains owing to
the spread of Coronavirus will be covered in the FM clause in the contract; this may be invoked,
wherever considered appropriate, following due procedure. The Ministry of Road Transport and
Highways, among other relief measures, has permitted the release of retention money (forming
part of the bank guarantee) in proportion to the work completed, based on certain criteria. The
Government has also advised real-estate regulatory authorities to extend the project completion
date by a few months for ongoing projects.
Important legal aspects to consider
It is important to determine which types of circumstances will be covered in the FM clause. The
clause should distinctly specify the three elements: a list of types of events that are deemed to be
triggering events of the clause; events identifying the party bearing the risk of such triggering
events; and statements identifying the effect of such an event on the obligations of parties. It may
specify performance or non-performance in case of triggering events by waiver, rescue, reprieve
and, if no resolution is possible, a mutually agreed upon dispute resolution mechanism.
Depending upon the nature of the specific contracts, it may also be advisable to include
circumstances that do not prevent or affect and impair the performance of a contract, available
remedies, and the option for termination as a last resort because of the FM. Particularly after
COVID-19, it may also include health and safety norms to be adhered to at the project site by the
staff and other personnel. As contracts for ongoing projects can only be modified on mutual
agreement, going forward FM clauses will be relooked atfor the government-imposed lockdown
and complete stoppage of all activities on a global scale.

IS THE COVID-19 PANDEMIC A FORCE MAJEURE EVENT UNDER RERA?

Section 6 of the 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 to 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. [Emphasis
supplied]
Therefore, the explanation to Section 6 which defines Force Majeure includes "any other
calamity caused by nature". Calamity has not been defined under the Act.
However, the Ministry of Finance of India has considered the COVID- 19 as a natural calamity
and a force majeure event2. 
Invoking Section 6 of the Act is not automatic, and the promoters will have to make an
application to the Authority for extension.
However, certain states as listed below have taken cognizance of the fact that the lockdown has
severely affected the construction work in real estate projects and have made certain allowances.
MAHARASHTRA
In order to aid the government efforts in controlling the damage of COVID-19 and ensure that
completion of MahaRERA registered projects does not get adversely affected, the MahaRERA
by its order dated 2nd April 20203 decided that:
for all MahaRERA Registered projects where completion date, revised completion date or
extended completion date expires on or after 15th March 2020, the period of validity for
registration of such projects shall be extended by three months.
Further, the time limits of all statutory compliances in accordance with the Real Estate
(Regulation and Development) Act, 2016 and the rules and regulations made thereunder, which
were due in March / April / May are extended to 30th June 2020.

2
Office Memorandum No.F. 18/4/2020-PPD dated 19th February 2020 titled 'Force Majeure Clause', issued by
Department of Expenditure, Procurement Policy Division, Ministry of Finance, Government of India
3
MahaRERA Order 13 /2020: MahaRERA/Secy/25/2020: Revision of Project Registration Validity and Extended
Timeline for Statutory Compliances, in view of COVID 19 Pandemic
KARNATAKA
The Karnataka Real Estate Authority has vide its circular dated 4th April, 42020 passed similar
orders and extended the period of validity for registration of such projects by three months where
completion date, revised completion date or extended completion date expires on or after 15th
March 2020 and has also extended the time limits of all statutory compliances which were due in
March / April / May to 30th June 2020.
TAMIL NADU
By its circular dated 6th April 2020, the Tamil Nadu Real Estate Regulatory Authority has
extended the completion period (and as such the validity of registration) of all registered projects
by five months. The time limits of all statutory compliances due in March-June 2020 have also
been extended to September 2020.
GUJARAT
By Order No. 33/2020 dated 13th April 2020, the Gujarat Real Estate Authority has permitted
promoters of projects having their project end dates between 1st April 2020 and 31st March
2021, to apply for a one-time extension of their project end dates. The application fee for such
registration extension due to the COVID-19 outbreak has also been waived.
Timelines for submission of quarterly project reports and project end compliance have also been
extended by the Gujarat RERA till 7th May 2020.
UTTAR PRADESH
The Uttar Pradesh Real Estate Regulatory Authority has issued a press release dated 14th April
2020 communicating its decision of extending by three months the date of completion of the
projects which have its date of completion between 15th March 2020 and 31st December 2020.
In addition to the automatic extension of registration (where granted), it would be open for the
Promoter to thereafter apply for further extension under Section 6 of the RERA Act. However,
each such application would be considered on merits and the reasoning of the request for
extension.
INVOKING THE FORCE MAJEURE PROVISION IN A CONTRACT: PROMOTER
AND ALLOTTEE
While the Act itself makes provisions for extension of registration in case of a force majeure
event, there is no such provision in the Act extending the timelines committed to an allottee for
handing over possession of a unit or extending timelines for payment of purchase price by an
allottee. Further, extension of registration in terms of Section 6 of the Act does not affect the
terms of the agreement entered into by the Promoter and the Allottee and the commitments made
in such agreements continue to bind both parties.
WHERE THE AGREEMENT CONTAINS A FORCE MAJEURE CLAUSE

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KRera No.Sec.CR. 04/2019-20
In such cases 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.
The model form of agreement contained in Annexure 'A' of the Rules5 in Maharashtra, provides
for a model construction of the clause dealing with delay in possession. The proviso to this
clause states that the promoter is entitled to reasonable extension of time for giving delivery of
apartment, if the completion is delayed on account of inter alia any notice, order, rule,
notification of the Government and/or other public or competent authority/court.
In exercise of powers conferred under Section 10(2)(l) of the Disaster Management Act, 2005,
vide Order dated 24.03.20206, the Ministry of Home Affairs, Government of India issued
guidelines under which all commercial and private establishments except for essential services
listed therein were asked to remain closed for a period of 21 days with effect from 25.03.2020.
This list of exceptions did not include construction services and hence all construction activities
in respect of real estate projects have come to a grinding halt from that date. Hence contractually,
if the force majeure clause similar to the model agreement as stated aforesaid has been adopted
by the promoter then such a force majeure provision can be triggered by the promoter under Part
(ii) of the said clause being "any notice, order, rule, notification of the Government and/or other
public or competent authority/court".
Since this model agreement can be modified as stated aforesaid, each agreement should be
looked into separately and the clauses set out therein must be analysed.
However, by an order dated 14th April, 20207, National Disaster Management Authority directed
the Ministries/Departments of Government of India to continue the same measures for social
distancing upto 3rd May 2020. By and under an order dated 15th April, 20208, the Ministry of
Home Affairs, has issued revised consolidated guidelines. Under these guidelines, from 20th
April, 2020, work in construction projects, within the limits of municipal corporations and
municipalities , where workers are available on site and no workers are required to be brought in
from outside are allowed to be continued and construction of renewable energy projects,
construction of roads, irrigation projects, buildings and all kinds of industrial projects, including
MSMEs in rural areas and all kinds of projects in industrial estates are allowed to operate.
Accordingly, by and under an order dated 17th April 2020, the Government of Maharashtra, has
issued Consolidated Revised Guidelines, inter-alia, permitting carrying on of certain select
permitted activities with effect from 20th April 2020. Under these Guidelines, continuation of
works in construction projects has been permitted.
However, in view of the large number of people commuting because of the relaxation issued vide
order dated 17th April, 2020, the Government of Maharashtra has passed an order dated 21st

5
Maharashtra Real Estate (Regulation and Development) (Registration of real estate projects, Registration of real
estate agents, rates of interest and disclosures on website) Rules, 2017
6
Order No 40-3/2020-DM-I(A) dated 24.03.2020
7
No.1-137/2018-Mit-II(FTS-10548)
8
No. 40-3/2020-DM-I(A)
April, 20209 directing that so far as Mumbai Metropolitan Region (MMR) and Pune
Metropolitan Region (PMR) area is concerned, the said order shall not apply and the position
prevailing prior to the issuance of the order dated 17th April 2020 shall be reinstated. These
guidelines are operative in other parts of the state.
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 extension of time to handover the possession of the units
forming part of the real estate project if so, provided by the contract. The duration of such
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 instalments. However, for achieved
construction milestones which trigger a payment instalment by the allottee, it is highly unlikely
that any sort of extension will be granted by the promoter.
WHERE THE AGREEMENT DOES NOT CONTAIN A FORCE MAJEURE CLAUSE
In all such cases, if there is a failure to handover possession on the part of the promoter, the
allottee has the right to withdraw from the project under Section 18 of the 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 maybe 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 performance of its
obligations under the contract.
CONCLUSION: WHAT NEXT?
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, it
would be most ideal if the government brings in a rule/notification to excuse performance of
contracts during the duration of the lockdown, for certain classes of contracts.
For instance, Singapore has on 7th April 2020 passed the COVID-19 (TEMPORARY
MEASURES) ACT 2020 (ACT 14 OF 2020), to provide temporary measures, and deal with
9
Maharashtra Real Estate (Regulation and Development) (Registration of real estate projects, Registration of real
estate agents, rates of interest and disclosures on website) Rules, 2017
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 scheduled
contract as well as additional relief for inability to perform construction contract or supply
contract.
It may come as a relief to various contracting parties if the Government of India comes up with
an act in this regard which freezes the rights to enforce obligations for a specific period of time
and which would apply to various classes of contracts.