The finance ministry has stated that the West Asia conflict should be treated as a 'war' to invoke the 'force majeure' clause in public contracts where obligations have been impacted by disruptions. This decision allows government entities to extend contractual timelines by two to four months without penalties in cases where supply chain disruptions have affected execution.
Relief for Industries
Industry executives have noted that this move provides significant relief for companies and contractors in sectors such as defence, drone manufacturing, fertiliser, and chemicals. The office memorandum issued by the department of expenditure clarifies that in cases where disruptions arising from the prevailing West Asia situation have directly or consequentially impacted contractual obligations for goods and services contracts, as well as construction or works contracts with government agencies, the procuring entities may invoke 'force majeure'.
Understanding Force Majeure
The force majeure clause allows relief in extraordinary circumstances beyond human control, such as war. Once invoked, it frees parties from contractual liability and obligation. The ministry specified that relief can be provided only in cases where companies or contractors had to complete obligations on or after February 27. The invocation of force majeure would be considered valid only where parties were not in default as of that date. The department also stated that the clause would not absolve non-performance that was not directly attributable to the West Asia situation.
Case-by-Case Evaluation
The period of extension will be granted on a case-by-case basis by the procuring entity. Welcoming the decision, Smit Shah, president of the Drone Federation India, expressed on social media that many Indian drone companies with government contracts have had their supplies and deliveries badly affected due to the ongoing conflict in West Asia. They were worried about heavy penalties for delays that were not their fault. The government decision provides relief to member companies and sends a strong message that the government stands with the Indian industry during difficult times.
