Contractual Relief under the Disaster Management Act, 2005?

[Bhavin Gada is a Partner at Economic Laws Practice, Advocates and Solicitors (“ELP”), and Manendra Singh is a Senior Associate at ELP]

The Disaster Management Act, 2005 (DMA) was enacted by the Parliament of India to provide for the effective management of disasters and for matters connected therewith or incidental thereto. DMA, in a nutshell, empowers the Central Government, State Governments and other designated authorities to plan, formulate and implement, amongst others,policies or schemes for disaster management and addressing the aftereffects of a disaster.

In India, the Central Government and State Governments have announced various preventive measures by invoking powers under applicable laws, including the DMA and the Epidemic Diseases Act, 1897, as applicable. In order to address the delays in compliances and fulfilment of obligations (specifically towards loans availed from banks) pursuant to the current lock-down, the authorities have extended timelines for such compliances and fulfilment of obligations. However, neither has the Central Government nor any State Government yet provided any cogent relief to the delay in fulfilment of obligations in private commercial arrangements. Although the Government has alluded to expecting a stimulus package, it is not clear if such a package will aim to provide any reliefs around private commercial arrangements.

In the absence of any relief from the Governments, contracting parties are facing difficulties in being able to excuse themselves from performance of their obligations under private commercial arrangements. In such a scenario, they are left with no option but to interpret force majeure clauses in agreements or, in the absence of such clauses, apply the principles of section 56 of the Indian Contract Act, 1872. In some cases, parties are seeking to amicably negotiate terms that are not detrimental to either. However, failure of parties to amicably agree to the deferment or exemption of obligations or interpret the force majeure clauses to their mutual benefit would result in a spate of litigation, which would add to the already over-burdened judicial system. 

In such a scenario, it would be interesting to consider how the DMA can step in. The Supreme Court in Swaraj Abhiyan – (I) v. Union of India (UOI), AIR 2016 SC 2929, held that the DMA is not only to draw up, monitor and implement disaster management plans, but also prevent and mitigate the effects of a disaster. While the nation is already grappling with and facing challenges to contain COVID-19, the Governments can evaluate options to provide reliefs to parties to a private commercial arrangement utilising the provisions of DMA or enact a new law (which is a very tedious and cumbersome process), whichever may provide a speedier relief. Although it can be argued that enough powers are available with the Government to take actions to mitigate the repercussions of a disaster in private commercial arrangements, the exercise of power needs to be tested in the absence of a precedent.

In the aforementioned context, section 72 of DMA states that the DMA will supersede any other law for the time being in force. It also states that the DMA will have effect notwithstanding anything inconsistent therewith contained in any instrument (emphasis supplied) having effect by virtue of any law other than DMA.

One may argue that section 72 can be used by the Governments to provide temporary reliefs to private commercial contracts since contracts are generally understood to be treated as instruments. Even though the Indian Contract Act, 1872 governs contracts, it can be argued that section 72 of DMA empowers the Governments to alter private commercial arrangements in furtherance of actions required to be taken pursuant to a disaster. It is well settled that the special law overrides the general law, and it can be argued that DMA is a special statute which will prevail over other laws.

Section 72, though intending to give an overriding effect to DMA over other laws, is subject to the provisions of the relevant enactment in question. As an illustration, a similar question had arisen in The Mormugao Port Trust v. Om Prakash Kanoongo (RP), MANU/NC/4390/2018. In this case, the National Company Law Tribunal, Bench at Mumbai (NCLT) dealt with the issue as to what will prevail between the Insolvency and Bankruptcy Code, 2016 (IBC) and the DMA, since both are central legislation and both have non-obstante provisions (section 238 in the case of IBC). In this matter, the NCLT observed that normally a later enactment prevails over prior enactment, provided both are pari passu (on an equal footing) to each other. However, after perusing the language of certain provisions of both enactments, observed that just because IBC is a later statute, it will not prevail over DMA.

Recently, Singapore enacted the COVID-19 (Temporary Measures) Act, 2020 (Singapore COVID Act), which aims to suspend parties’ performance obligations in relation to certain contracts (referred to as ‘scheduled contracts’ in the Singapore COVID-19 Act, which include contracts such as leases or licenses of non-residential immovable properties, construction or supply contracts, performance bonds, event contracts and tourism-related contracts). The benefits are initially intended for six months, although they may be extended to 12 months if the need so arises. The Singapore COVID-19 Act also provides array of temporary reliefs for financially distressed individuals, firms and other businesses, conduct of meetings, court proceedings and remission of property tax. Similarly, Germany has enacted a COVID-19 Relief Act to provide certain reliefs to private transactions.

One hopes that in India too, pursuant to the present state of affairs, the Governments may consider invoking its powers under section 72 of the DMA or enact a new legislation to provide reliefs to parties in a private commercial arrangement to avoid burdening the already over-burdened judicial system. In the similar way that the Supreme Court of India is exercising its jurisdiction under Article 142 of the Constitution of India to pronounce law to deal with COVID-19 (e.g. Shashank Deo Sudhi vs Union of India, dated 8 April 2020, the Supreme Court held that the tests relating to COVID-19 whether in approved government laboratories or approved private laboratories shall be free of cost), the Governments should also aim to time their measures to effectively tackle two critical needs of the hour – relief to industry on the contractual side and minimizing potential private and commercial disputes in post COVID times.

Bhavin Gada & Manendra Singh

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