COVID-19 and Contractual Disputes in India

The COVID-19 pandemic has unleashed a catena of contractual disputes. The paper synthesises the Indian Contract Act and relevant case laws to present a legal position on force majeure, frustration of contract and contractual gaps, in the context of COVID-19. Using the economic analysis of law, it examines contractual disputes from various sectors, including power, construction and real estate, rental, event management and hospitality, and analyses these disputes from legal- and economic-efficiency points of view. Where contracts are not a good instrument for achieving equitable distribution of economic gains and losses, public policy is better suited to address equity and other related issues arising from long-term contracts.

The authors have benefited from useful comments and helpful suggestions from the reviewer, Subhash C Pandey and Shakti Singh and interactions with Hans-Bernd Schäfer. They thank Aarti Malik and Samridh Sindhu for providing excellent research support. Institutional and research support by the Centre for Development Economics at the Delhi School of Economics and the University of Delhi are gratefully acknowledged.

People enter into legal agreements guided by various considerations. Employment contracts are signed to secure supply of labour to the employer and income to the employee. Debt contracts provide purchasing power to the borrowers. Insurance contracts shift the burden of risk from the insured to the insurer. Contracts serve as the bedrock for exchanges related to production, commerce, and trade.

However, the COVID-19 pandemic has unleashed a catena of contractual disputes. Lockdowns, widely adopted to contain the pandemic, have made it costly for many companies and enterprises to meet their contractual obligations. Many of them find it impossible to meet the terms of the contract. Borrowers have failed to service debts; contractors have not delivered projects on schedule; employers have refused the promised employment benefits—consequently triggering legal claims of compensation from the counterparties.