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MHA Order for extension of Lockdown

The Ministry of Home Affairs, Government of India (“MHA”) has issued an updated order dated May 01, 2020 bearing No. 40-3/2020-DM-I(A) (“Order”) with the new guidelines on the measures to be taken by Ministries / Department of Government of India / States and State authorities for containing the spread of COVID-19. The Order and the new guidelines will come into effect from May 04, 2020 and will be valid for a period of two weeks i.e. till May 17, 2020.

Classification of Zones

As per the Order, the easing of the lockdown restrictions in the country will be applicable based on the risk profiling of the districts into red, orange and green zones (as defined in the Order and explained below).

A) Green zones: A green zone is a zone where there are no confirmed cases till date, or districts with no confirmed case in the last 21 days.

B) Red zones or hotspots: A red zone will be defined by Ministry of Health and Family Welfare, Government of India (“MHFW”) taking into account total number of active cases, doubling rate of confirmed cases, extent of testing and surveillance feedback.

C) Orange zones: all zone that are neither red zones nor green zones will be classified as orange zones.

The classification of the zones will be updated by the MHFW on a weekly basis. The Order specifically states that each State/Union Territory may classify additional districts as red or orange zones but cannot lower the classification of any district. In red zones and orange zones, containment zones will be demarcated by states and district administrations where strict lockdown restrictions will apply.

As per the Order, within containment zones, there will be strict perimeter control and no movement of population in and out of containment zones, will be permitted except for medical emergencies and for the supply of essential goods and services. The Order requires 100% implementation of the Aarogya Setu application in containment zones.

Common Central Restrictions

Irrespective of the zone, as per the Order, the following activities continue to be prohibited:

  • All domestic and international air travel except for medical or security purposes;

  • Passenger movement by trains except security purposes or as permitted by MHA;

  • Interstate bus transport except as permitted by MHA;

  • Metro rail services;

  • Interstate movement of individuals except for medical reasons or activities permitted by MHA;

  • All educational institutions;

  • Hospitality services other than those needed for frontline workers or stranded persons, or for quarantine;

  • All cinema halls, shopping malls, gyms, sports complexes, swimming pools, assembly halls and similar places;

  • All social, political and religious gatherings (please note that the annexure indicates that marriages and funerals can be held with limited participants and with social distancing);

  • Religious places of worship will not be open to public and religious congregations remain prohibited.

The Order additionally imposes the following conditions irrespective of the zone:

Imposition of a curfew and prohibition of movement of individuals for non-essential activities from 7 pm to 7 am;

Condition that persons above 65 years of age, persons with co-morbidities, pregnant women and children below 10 years are required to stay at home, unless there is a health-related issue or to meet essential requirements;

Opening of outpatient departments and medical clinics (except in containment zones) is permitted with social distancing norms.

Activities in Red Zones

As per the Order, the following activities are permitted in the red zones (outside containment zones) with restrictions as imposed by the authorities:

  • Movement of individuals and vehicles for permitted activities. Four wheelers will have a maximum of 2 passengers besides the vehicle driver and two wheelers will be permitted to ply with only one rider with no pillion.

  • Industrial establishments in urban areas: only the following are permitted – SEZs, EOUs, industrial estates and industrial townships with access control; manufacturing units of essential goods including drugs, pharmaceuticals, medical devices, their raw materials and intermediates, production units which require continuous process and their supply chain, manufacturing of IT hardware, jute industry, manufacturing units of packaging material.

  • All industrial activities permitted in rural areas.

  • Construction in urban areas – only in situ construction and construction of renewable energy projects. All construction activities are permitted in rural areas.

  • Shops selling essential goods in markets and market complexes permitted to be operational. All standalone shops permitted for both essential and non-essential goods.

  • E-commerce activities will be permitted only for essential goods.

  • Private offices can operate with 33% strength as per requirement, with remaining persons working from home.

The following activities are prohibited in red zones: Cycle rickshaws, auto rickshaws, taxis and cab aggregators, intra district and inter district buses, barber shops, spas and salons.

Activities in Orange Zones

As per the Order, inter district and intra district plying of buses will not be permitted in orange zones.

In orange zones, cabs and cab aggregators will be permitted to operate with one driver and two passengers. Inter district movement of individuals and vehicles will be permitted for permitted activities with four wheeler vehicles having a maximum two passengers besides the driver.

Activities in Green Zones

All activities will be permitted except those prohibited in all zones. Buses may operate with 50% seating and bus stations will be permitted to operate at 50% capacity.

The Order permits inter-state movement of goods/cargo, including empty trucks.

All other activities will be permitted, which are not specifically prohibited/permitted with restrictions in the various zones. However, the concerned State/Union Territories may allow only select activities from out of the permitted activities with restrictions as necessary based on their assessment of the situation.

The State/ Union Territories are not permitted to dilute the guidelines issued and are required to strictly enforce the same.

In addition to the standard operating procedures issued by the MHA earlier, Annexure I of the Order sets out certain directives which are required to be followed in public places and in workplaces for reducing the spread of COVID-19. Some of the directives are set out below:

  • All persons are compulsorily required to wear face masks in public places and in all workplaces which are permitted to re-open their office premises.

  • Employers are required to ensure that adequate supply of face masks is available to accommodate all employees and workers who are present in the workplace. Employers are required to ensure that social distancing as per the guidelines of the MHFW is strictly followed at all times at the workplace and in company transport. Employers may implement these norms by ensuring adequate gaps between shifts; and by staggering lunch breaks of staff.

  • All areas in the premises of the workplace which come into human contact (ex. door handles) are required to be frequently sanitized/ disinfected.

  • Employers are required to ensure that persons above 65 years of age, persons with co-morbidities, and pregnant women opt in for work from home policies and are not required to physically report to the workplace.

  • Employers (public or private) are required to ensure that all employees and workers of their establishment are using the Arogya Setu app.

  • Employers are required to avoid large physical meetings.

  • A list of hospitals/ clinics in the vicinity of the workplace is required to be displayed at the workplace at all times. Any employee who is showing symptoms of COVID-19 is required to be immediately sent to such facilities for a medical check-up. Employers are required to earmark designated quarantine areas in the workplace for isolating employees who are showing symptoms of COVID-19 till they are safely moved to the medical facilities.

  • Special transportation facility is required to be arranged for employees/ workers wherever the commute by personal/ public transport system is not feasible. Such special transportation facility is required to ensure compliance with the social distancing guidelines.

  • Employers are required to take up intensive communication and training on good hygiene practices.

Extension of Lockdown – Order dated 03 May 2020 issued by the State Government of Tamil Nadu

The State Government of Tamil Nadu has vide notification no. G.O.(Ms)No.217 dated 03 May 2020, issued the following orders for the effective containment of COVID-19:

  1. The lockdown period has been extended from 00.00hrs of 04.05.2020 to 24:00hrs of 17.05.2020.
  2. Agricultural and other activities already permitted, would continue to be permitted during the lock-down period.
  3. Existing restrictions for the below mentioned operations shall stand unaltered until further notification:

    a. Schools, colleges, training centers, research institutions and all other educational institutions;

    b. Public gatherings at place of worship and religious centers;

    c. Theaters, shopping malls, gymnasiums, swimming pools, sports complexes, assembly halls and similar places;

    d. Gatherings and processions of all nature including religious functions, social, political, sports, entertainment, academic and cultural and other gatherings;

    e. Air, rail and public bus transport for passenger movement (except dedicated staff buss/Vans used by industries and establishments);

    f. Taxi, auto, cycle rickshaw;

    g. Metro rail services;

    h. Inter-state public movement;

    i. Hotels (excluding the employees’ accommodation), lodges and resorts;

    j. Mall, barber shop, salon, spa, & beauty parlor;

    k. Air-conditioned showrooms selling jewels, clothes and departmental stores will not be permitted;

    l. Funeral procession with not more than 20 persons; and

    m. Marriages upon adherence to existing restrictions.
  4. No activity shall be permitted in the containment zones.
  5. Strict surveillance will be done on gathering of more than 5 people.
  6. The following activities are allowed in all areas falling under the jurisdiction of Greater Chennai Police (excluding containment zones):

    a. Construction works, provided the workers reside in the place where the construction work is carried on. Workers from outside should be brought on a one time basis.

    b. Construction works (including laying of roads) undertaken by Government and Public Sector Undertakings.

    c. Undertakings functioning in SEZ, EOU and Export Units: provided that 25% workers alone (minimum 20 workers) shall be permitted upon such undertakings allowed after due inspection and assessment by Commissioner, GCC / District Collector. Strict access control must be ensured. Employees shall travel only in vehicles operated by the respective Organisation.

    d. IT and ITes services, provided that 10% workers alone (minimum 20 workers) shall be permitted. Employees shall travel only in vehicles operated by the respective Organisation.

    e. Shops selling essential commodities from 6.00 A.M till 5.00 P.M. shall be permitted.

    f. E- Commerce services providers, handling food and essential commodities; shall be permitted based on the already permitted timings.

    g. Restaurants shall be permitted from 6.00 A.M till 9.00 P.M. Parcels alone shall be permitted.

    h. All Standalone and neighborhood shops (except saloons, spa and beauty parlours); construction hardware, cement, construction materials, sanitaryware, electrical items, mobile phone, computers, household appliances, electric motor and spectacles stores sold by standalone shops shall be permitted from 11.00 A.M till 5.00 P.M.

    i. Self-employed workers such as plumber, electrician, air conditioner mechanics, carpenter, home care providers for persons with special needs and household workers shall be permitted after obtaining necessary permission received from Chennai Corporation Commissioner/ District Collector.
  7. The following activities are allowed in all areas across the states (except for areas under the jurisdiction of Greater Chennai Police and containment zones)

    a. All industries, including the textile industries, located outside the Corporation/Municipal limits of the state (except in containment zones) shall be allowed to function with 50% workers (minimum 20 persons). All industrial activities across the village and town panchayat areas shall be allowed.

    b. However, in town panchayat having a population of more than 15,000, the District Collector should permit the operations of textile industries with 50% workers based on the local conditions.

    c. Functioning of SEZ, EOU, industrial estates, industrial townships in rural and urban areas shall be allowed with 50 % workers.

    d. Spinning Mills located in village and town panchayat area shall be permitted to operate with 50% workers on a shift basis by adhering to physical distancing norms.

    e. The operations of leather and textile industries dealing with designing and sampling for export purposes shall be allowed in the Municipalities and Corporations with the District Collectors’ permission and with 30% workers after accessing the local situation.
    f. Further, the District Collector may permit all export units in urban areas to operate with 50% workers, based on accessing the local condition.

    g. IT hardware manufacturing unit are permitted to operate with 50% workers.

    h. IT and ITeS services are permitted to operate with 50% employees (minimum 20 persons).

    i. Construction works carried in urban areas; provided the workers reside in the place where the construction work is carried on.

    j. Construction works (including laying of roads) undertaken by Government and Public Sector Undertakings;

    k. Self-employed workers such as plumber, electrician, air conditioner mechanics, carpenter, shall be permitted to work upon permission received from District Collector.

    l. Care givers for persons with special needs, physically challenged, elderly and sick patients, domestic helpers shall be permitted upon obtaining permission from the District Collector.

    m. Printing press operations shall be permitted.

    n. Shops selling construction hardware, cement, construction materials, sanitaryware, electrical equipment for enabling construction work shall be permitted to operate between 9.00 A.M. to 5.00 P.M. both in urban and rural area. There shall be no restriction on transportation of construction materials.

    o. Standalone establishments including those for mobile phones, computers, home appliances, electric motor repair, spectacles sale and repair shall be permitted to operate between 10.00 A.M. to 5.00 P.M.

    p. All the standalone establishments situated in rural areas shall be permitted to operate from 9.00 A.M. to 5.00 P.M.

    q. Restaurants shall operate between 6 A.M. to 9.00 P.M. for takeaway only.

    r. E-Commerce establishments shall operate as permitted earlier.

    s. District Collectors may upon circumstances permit the operation of all the standalone shops shall operate between 10 A.M. to 5 P.M. except malls and market complexes located in municipalities and corporations (Salon, spa and beauty parlour are not permitted).
  8. All industrial establishments shall strictly adhere to the SOPs listed out in Para VIII (Strict adherence to SOPs), Annexure I (SOP to be adhered with while restarting industries), Annexure II (SOP for construction industry) and Annexure III (SOP and measures to be taken if a COVID-19 positive is identified in a facility) of the notification.
  9. All activities mentioned below shall be permitted to function along with those activities that were already permitted:

    a. Agricultural and allied activities, plantation (including agro processing);

    b. Marine and inland fishing subject to the instructions issued by the fisheries department;

    c. Animal husbandry, milk, milk processing and poultry;

    d. Healthcare institution including AYUSH centers, pharmacies, laboratories and diagnostics;

    e. All manufacturing of essentials;

    f. All continuous process industries;

    g. In case of industries that are not permitted to operate – essential maintenance activities shall be carried on for safety purposes with minimal skeletal staff;

    h. Manufacture and sale of agricultural implements, fertilizers, insecticides, pesticides, etc.;

    i. Financial institutions like RBI, SEBI, Banks, NBFCs, ATMs and related services;

    j. All media, postal services, telecom services;

    k. Public utility services;

    l. Social sector activities like home for senior citizens, etc.;

    m. All goods carriers;

    n. Logistics, warehousing and cold chain;

    o. All seaports, airports and railways stations for cargo/goods movement, etc.;

    p. Construction activities;

    q. Mining activities and mineral production;

    r. Amma canteens;

    s. Hotels, e-commerce and shops selling food, grocery, and essential commodities;

    t. MGNREGS activities
  10. If it becomes difficult to ensure safety, shops/markets selling meat, fish, vegetables, etc. can be shifted to larger spaces;
  11. Major industries, IT and ITes establishments, and construction activities shall be permitted after obtaining passes for the vehicles used for transportation of vehicles; Only 50% of the seating capacity shall be occupied;
  12. No separate passes shall be required for MSME located in the specified areas. However, MSME employees should carry the ID card issued by the company.
  13. All state government and central government offices shall function with 33% staff strength. However, all essential government services (including registration department) shall function with full strength; No separate pass shall be required while moving on duty.

The Tamil Nadu State Government has ordered the Greater Chennai Corporation and District Collectors to follow the above guidelines and accord necessary permissions to all permitted industries, enabling then to start their operations from 06 May 2020 onwards.

Violation of these measures shall be liable to be proceeded under Section 51 to 60 of the Disaster Management Act, 2005 besides legal action under Section 188 of Indian Penal Code and other relevant provisions

This notification is accessible at: https://cms.tn.gov.in/sites/default/files/go/revenue_e_217_2020_0.pdf

Impact of COVID-19 on Leasehold Arrangements

Force Majeure is a French term and is commonly traced to French law. It denotes any event which is beyond the control of the parties. Force Majeure would include natural calamities like flood, earthquake, hurricanes, volcanic eruption etc., civil strife, military actions, health emergencies in the nature of epidemics.

While the expression force majeure is not explicitly used in the Indian Contract Act, 1872 (“ICA”), the ICA recognizes that an uncertain event on which the contract is dependent may become impossible (Section 32) and also that the act agreed to be done by the parties may become impossible or illegal (second para of Section 56). In the eventuality of Sections 32 and 56, the contract becomes void at the option of the party whose performance has been rendered impossible or frustrated.

The purpose of this article is to analyze the operability of force majeure in a lease agreement. Lease agreements are governed by the specific legislation, the Transfer of Property Act, 1882 (“TPA”).

The right of lease has been defined to mean among others, the right to enjoy an immovable property[1]. Hence the TPA recognizes the lessee’s right to avoid the lease if the property has been destroyed or rendered substantially and permanently unfit for the purposes for which it was let, by fire, tempest or flood, or violence of an army or of a mob, or other “irresistible force”[2].

Since the avoidance of lease on account of events impairing the property is at the option of the lessee, Courts have held that if the lessee does not exercise the option to treat the lease to be void after the property is rendered substantially unfit by fire, he will remain liable to pay rent[3]. Other than the aforementioned, the TPA does not recognise any other force majeure affecting the rights and obligations under a lease agreement.

The COVID-19 situation has caused the temporary vacation of leased premises across the nation, thereby creating a wave of requests from lessees for the exemption of the requirement of payment of rent for the period the premises was not occupied. The TPA does not recognize suspension of rental payment by the lessee on account of any grounds as already pointed out above.

It is not uncommon for lease deeds to have force majeure clauses. Such clauses typically absolve the parties from performing their respective obligations during the continuance existence of force majeure events. While such a clause will exempt the lessee from the consequence on non-performance of its obligation to keep the property in good condition, it is doubtful if such a clause would suffice to exempt payment of rent during the period of lockdown announced by the Government due to COVID-19. The obligation of a lessee to pay rent to the lessor, is not similar to his obligation to maintain the property in good condition. A lessee who has been put in possession of the property before COVID-19, continues to be in possession and occupation of the property, even if the lessee, his employees, customers or anyone else is unable to physically visit the property due to the restrictions imposed due to COVID-19. The lessee whose belongings are housed at the leased premises cannot say that he is not in possession and occupation of the premises. The obligation to pay rent is the consequence of being in possession of the premises.

Even in the context of executory contracts, it has been held that the performance of a contract is never discharged merely because it may become onerous to one of the parties[4]. Therefore, the fact that the lessee has not been able to carry out his business from the premises, may not be enough to be entitled to exemption from paying the rentals by relying on the force majeure clause in the lease deed. One has to remember that the COVID-19 has not rendered the property unfit for use as the lockdown is not on account of the property. Further, the party whose obligations are indeed put to immediate recusal on account of the lockdown are that of the lessor as he has been unable to make available the property. The inability of the lessor to perform his obligations should ideally therefore recuse the lessee from performing their obligations.

It will also have to be seen if the Courts will recognize the ancillary and long-term economic repercussions created by the COVID-19 pandemic as an economic force majeure exempting lessees from the obligation to pay rent during the period of lock-down. It is to be noted that while the Central Government has issued orders to protect migrant workers from demands for rent, no such protection has been extended to commercial leases[5].

Can lessees invoke the provisions of Sections 32 and 56 of the ICA? The answer is no, on account of the well settled position of law that since lease involves a transfer of interest in immovable property, a lease agreement is not an executory contract and therefore the provisions of the ICA will not be applicable over an executed contract[6].

In light of the above, lessees can evaluate the possibilities of termination of lease contracts and the commercial re-negotiation of the terms based on the requirements of the future, post the pandemic related lockdown.

[1] Section 105 of TPA.
[2] Section 108 (B) (e) of TPA.
[3] Sri Amuruvi Preumal Devasthanam v. KR Sabapathi Pillai and Ors (1962) 2 MLJ 452.
[4] Alopi Prasad & Sons vs. UOI, 1960 (2) SCR 793.
[5]https://mha.gov.in/sites/default/files/MHA%20Order%20restricting%20movement%20of%20migrants%20and%20strict%20enforement%20of%20lockdown%20measures%20%2029.03.2020.pdf
[6] Raja Dhruv Dev Chand vs Harmohinder Singh & Anr, AIR 1968 SC 1024; Lakshmipathi vs. Nithyananda Reddy, AIR 2003 SC 2427; Saha Ratansi Khimji v. Kumbhar Sons Hotel Pvt. Ltd, AIR2014SC2895.

Consolidated list of permitted activities allowed by the Ministry of Home Affairs (MHA) during COVID-19 and lockdown period

The Ministry of Home Affairs (MHA) vide order dated April 15 2020 ( Here) laid out the list of permitted activities allowed during the lockdown period and these have been amended from time to time. More recently, the MHA order on May 1, 2020 extended the lockdown for a period of two weeks with effect from May 4, 2020 and issued new guidelines based on risk profiling of the districts into Red (Hotspot) , Green and Orange Zones (MHA Order). It is to be noted that all activities that have not been expressly prohibited/permitted with restrictions in the various zones as under shall be considered as permitted activities.Enumerated below are the consolidated list of activities permitted as on May 5 2020.

I. Permitted Movement of Transport and Persons (Irrespective of the Zones)

1. Domestic and International Air Travel of passengers only for security purposes

2. Passenger movement by trains only for security purposes

3. Inter District and Inter State movement of individuals for medical reasons

4. Inter State buses for public transport, if permitted by the Ministry of Home Affairs

5. Sign on and Sign off of Indian Sea farers at Indian Ports and their movement for the aforesaid purposes under the Standard Operating Protocol (SOP)

6. Funerals[1], congregation of upto 20 persons and movements pertaining to the same.

7. Movement of individuals for all non essential activities except between 7pm to 7 am

8. All States/UTs shall allow inter-state movement of goods/cargo including empty trucks

9. No State/UT shall stop the movement of cargo for cross land border trade under Treaties with Neighboring countries

10. Due to lockdown, migrant workers, pilgrims, tourists, students and other persons are stranded at different places. They would be allowed to move as under:

  • All States/ UTs should designate nodal authorities and develop standard protocols for receiving and sending and registering such stranded persons.

  • In case a group of stranded persons wish to move between one State/ UT and another State/ UT, the sending and receiving States may consult each other and mutually agree to the movement by road. The moving person (s) would be screened and those found asymptomatic would be allowed to proceed.

  • Buses shall be used for transport of groups of persons.

  • The States/ UTs falling on the transit route will allow the passage of such persons to the receiving State/ UT. On arrival at their destination, such person(s) would be assessed by the local health authorities, and kept in home quarantine, unless the assessment requires keeping the person(s) in institutional quarantine.

  • They would be kept under watch with periodic health check-ups.

  • This facilitation is meant for such distressed persons who had moved from their native places/workplaces just before the lockdown period but could not return to their native places/workplaces on account of restrictions placed on movement of persons and vehicles as part of lockdown but does not extend to those categories of persons who are otherwise normally at places, other than native places for purposes of work, etc., and who wish to visit their native place in normal course.

II. Activities in Containment Zones

  1. Movement of persons is allowed only for maintaining supply of goods and services and for medical emergencies
  2. Out- Patient Departments and Medical Clinics shall not be permitted to operate.

III. Activities in Red Zone (Outside Containment Zones)

(a) List of Permitted Activities under Red Zone

  1. Movement of individuals and vehicles for only for permitted activities. Four wheelers will have maximum two passengers besides the vehicle driver; for two wheelers, pillion rider is not allowed
  2. Industrial Establishments in Urban Areas: Only Special Economic Zones (SEZs) , Export Oriented Units (EOUs), industrial estates and industrial townships, with access control. Manufacturing units of essential goods, including drugs, pharmaceuticals, medial devices, their raw material and intermediaries; Production Units, which require continuous process and their supply chain; Manufacturing of IT hardware, Jute industry with staggered shifts and social distancing and Manufacturing Units of packaging material are permitted . All industrial activities in rural areas are permitted
  3. Construction Activities in urban areas: Only in site construction (where workers are available on site and no workers are required to be brought in from outside ) and construction of renewable energy projects are permitted. All construction activities in rural areas are permitted
  4. All malls, market complexes and markets shall remain closed in urban areas i.e, areas within the limits of municipal corporations and municipalities. However, shops selling essential goods in markets and market complexes are permitted.
  5. All standalone (single) shops, neighborhood (colony) shops and shops in residential complexes are permitted to remain open without any distinction of essential and non-essential . Social Distancing shall be maintained in all cases
  6. E Commerce activities will be permitted only in respect of essential goods
  7. Private offices can operate with up to 33% strength as per requirement, with the remaining persons working from home.
  8. All Government offices shall function with officers of the level of Deputy Secretary and above the of 100% strength. The remaining staff will attend upto 33% as per requirement. However Defense and Security services, Health and Family Welfare, Police, Prisons, Home Guards, Civil defence, Fire and emergency services, Disaster management and related services, NIC, Customs, FCI, NCC, NYK and Municipal Services shall function without any restrictions; Delivery of public services shall be ensured and necessary staff will be deployed for such purpose.

(b) Exclusive prohibitions in Red Zone (Apart from common prohibitions)

  1. Cycle rickshaws and auto rickshaws
  2. Taxis and cab aggregators
  3. Inter-District and Inter district plying of buses
  4. Barber shops, spas and salons

IV. Activities in Orange Zone (outside containment zones)

(a) List of Permitted Activities

  1. Taxis and Cab Aggregators are permitted, with 1 driver and 2 passengers only.
  2. Inter-District movement of individuals and vehicles, only for permitted activities. Four Wheeler vehicles will have maximum two passengers besides the driver.

(b) Exclusive Prohibition in Orange Zone

  1. Inter-district and intra-district plying of buses shall be prohibited in the orange zone

V. Activities in Green Zone

  1. All activities are permitted in the Green Zone, except the general prohibitions.
  2. Buses can operate with 50% seating capacity
  3. Bus depots can operate with 50 % seating capacity

VI. The following Standard Operating protocols (SOP) will continue to operate

  1. SOP on Transit arrangement for foreign national(s) in India and release of Quarantine Persons vide order dated April 02,2020 [Accessible Here]
  2. SOP on movement of stranded labour within States/UTs issued vide order dated April 19, 2020 [Accessible Here]
  3. SOP on sign on and sign-off Indian Sea farers, issued vide order dated April 21, 2020 [ Accessible Here]
  4. SOP on movement of stranded migrant workers, pilgrims, tourists, students and other persons issued vide order dated April 29,2020 [Accessible Here]
  5. SOP on movement of stranded migrant workers, pilgrims, tourists, students, and other persons by train issued vide order dated May 01,2020

[1] Gatherings such as marriages and funerals shall be regulated by the District Magistrate

Reduction by SEBI in broker turnover fees and filing fees on offer documents for Public issue, Rights issue and Buyback of shares

In view of the COVID-19 pandemic, the Securities and Exchange Board of India (SEBI), vide its press release no. 24/2020 dated April 27, 2020, (Press Release), has decided to reduce broker turnover fees and filing fees on offer documents for Public issue, Rights issue and Buyback of shares.

By way of this Press Release, SEBI has decided that the broker turnover fee will be reduced to 50% of the existing fee structure for the period June 2020 to March 2021. The benefit of this reduction in fees will automatically be passed on to the investors as well. Further, filing fees on offer documents for Public issue, Rights issue and Buyback of shares will be reduced to 50% of the existing fee structure. This will be effective for documents filed from June 1, 2020 to December 31, 2020.

While the above development is based on a press release issued by SEBI, we anticipate that in due course of time, a detailed circular may be issued by SEBI for amending the relevant provisions of the applicable regulations including but not limited to the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended, the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 2018, and the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992.

Please refer to the Press Release dated April 27, 2020 (no.: 24/2020) for more details.

Competition Commission of India issues an advisory to businesses in times of COVID-19

In a welcome move, on 19 April 2020 the Competition Commission of India (CCI), issued an Advisory to businesses operating in the times of COVID-19 (Advisory). Taking cognizance of the disruption in supply chains caused by the pandemic, especially in healthcare and essential products/ services, the CCI acknowledged that there is a legitimate reason for businesses to collaborate and coordinate to ensure supply and fair distribution of products/ services including medical and healthcare products such as ventilators, face masks, gloves, vaccines, etc. and essential commodities. Such collaboration includes sharing data on stock levels, timings of operations, sharing distribution networks, transport logistics, research and development, production, etc.

Without committing to any specific relaxations or providing additional safe harbour, the CCI has stressed upon the fact that the Competition Act, 2002 (Act) already has in-built safeguards to protect businesses from sanctions for certain types of collaborations, such as:

  • Joint ventures resulting in increased efficiencies in the production and distribution of products/ services in the market[1].

  • While doing the competition assessment, the CCI would consider whether a particular conduct/ collaboration leads to (i) an increase in efficiencies in production and distribution of products/ services in the market (ii) benefits the consumer and/ or (iii) promotes technical, scientific and economic development[2].

The CCI, however, noted that it would consider the constraints of the current prevailing circumstances while assessing anti-competitive behaviour, as long as the measures taken by businesses are restricted to only what is necessary and proportionate to cope with the crisis. Further, it warned businesses that crisis should not become a “cover” for non-essential collaborations to obtain economic benefits.

Given that the Advisory lacks specifics, we set out some practical considerations for businesses in order to avoid violating competition law:

Do’s

  1. Collaborations: Ensure that the joint ventures/ collaborations are in fact efficiency-enhancing and that the benefits outweigh the harm to customers. For example, R&D collaborations with the objective of treating COVID-19 patients.
  2. Necessary and proportionate conduct: Be careful to limit the collaboration in terms of time and / or scope only to what is required to cope with COVID-19 pandemic.
  3. Documentation: Ensure that all collaboration activities are properly recorded and documented to safeguard the interest of the businesses as well as decision-makers if the conduct is flagged for assessment by the CCI.
  4. Sound justifications Ensure that all activities that may be viewed as “anti-competitive” by the CCI are backed by sound economic justifications and social motives during the current crisis.
  5. Call from Government: Companies to specifically consider competition law when being asked by the Government to collaborate with competitors or when approached by competitors to collaborate – even if these are to meet public health objectives or for providing essential services.
  6. Legal advice: Take legal advice if any kind of collaboration with competitors is contemplated or in case of any deviation from existing business practices.

Don’ts

  1. Anti-competitive behaviour: Avoiding any activities with competitors which may lead to (i) fixing prices, (ii) restricting output or technical development, (iii) sharing markets or customers, or (iv) rigging bids.
  2. Dominant businesses: Companies in a position of market power or dominance, even if temporary, need to be alert to their special responsibilities while dealing with customers and suppliers. For example, price gouging, illegal tying/ bundling and refusal to deal, etc.
  3. Benefit from the pandemic: Refrain from exploiting the current situation for unscrupulous economic benefits.

(Source: CCI Advisory dated 19 April 2020)

[1] Proviso to Section 3(3) of the Act.
[2] Factors mentioned under Section 19(3) of the Act.

Circular issued by Tamil Nadu’s Hon’ble Chief Minister Edappadi Palanisamy – English Translation

Today, I had enquired about the status of Coronavirus in Tamil Nadu. In villages, the spread of Coronavirus has been controlled to a certain extent. However, in urban areas especially which are densely populated, the chances of the virus spread are high. On having discussions with doctors and experts from the public health department, I have been informed that stringent lockdown measures are required in urban areas (namely Chennai, Coimbatore and Madurai). So, the Tamil Nadu Government has taken the following decisions by exercising its powers under Disaster Management Act, 2005.

There shall be complete lockdown:

a. In Chennai, Coimbatore and Madurai corporation limits from 26.04.2020 – 6.00 AM to 29.04.2020 – 9.00PM

b. In Tiruppur and Salem corporation limits from 26.04.2020 – 6.00 AM to 28.04.2020 – 9.00PM (Lockdown Period)

In the aforesaid Lockdown Period, the following essentials service shall alone be permitted:

  • Hospitals, medical research centers, and service relating to the medical department such as ambulance and funeral services;

  • Persons delivering essential services in secretariat, health and family welfare department, police department, revenue department, disaster management department, electricity department, aavin, local body offices, and metro water department;

  • Other central government departments, 33% staffs of the banks employees;

  • Amma canteens and ATM’s;

  • Hotels which are ready to provide home delivery;

  • Homes for old age, physically challenged and homes providing assistance to the senior citizens;

  • Community kitchens functioning for the destitute in every district, social welfare department and local bodies;

  • NGO’s working for the poor having due permission from the Government; and

  • Whole vegetable market like Koyambedu including mobile vegetable markets.

Any previous permission held by any person to open shops will not be applicable during the Lockdown Period in the aforesaid days. All other services shall be closed. Other government services such as registration department services will not be functioning. IT employees can work from home. Other private organizations shall not function.

The guidelines issued for other areas shall continue to remain implemented.

In the aforesaid Lockdown Period, strict measures shall be implemented in Containment Zones (“CZ”). The CZ shall be sanitized twice with disinfectants. If anyone violates the aforesaid rules, the vehicle shall be ceased and stringent actions shall be taken.

SEBI’s measures to facilitate fund raising from capital markets in the current COVID-19 scenario

In view of the COVID-19 pandemic and nation-wide lockdown and with a view to improving access to funding to corporates through capital markets, the Securities and Exchange Board of India (SEBI), by way of press release dated April 21, 2020, bearing no. PR No.23/2020, has granted certain temporary relaxations from compliance with certain provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended, (SEBI ICDR Regulations) related to rights / public issuances by listed entities.

Pursuant to the press release, SEBI has notified two circulars dated April 21, 2020, each for (i) relaxations to issuers from certain provisions of the SEBI ICDR Regulations in respect of rights issue; and (ii) one-time relaxation to issuers with respect to validity of SEBI observations. The contents of the circulars are as follows:

(i) Relaxations to issuers from certain provisions of the SEBI ICDR Regulations in respect of rights issue

SEBI, vide its circular dated April 21, 2020, (circular no. SEBI/HO/CFD/CIR/CFD/DIL/67/2020) has granted temporary relaxation to the (a) minimum subscription requirements for rights issues; (b) threshold for not filing the draft letter of offer; and (c) eligibility conditions related to fast track rights issues. These relaxations are applicable to right issues that open on or before March 31, 2021 and are not applicable for issuance of warrants.

(a) Eligibility conditions related to fast track rights issues

SEBI has granted the following temporary compliance relaxations with respect to the eligibility conditions related to fast track rights issues:

  • The eligibility requirement related to period of listing of equity shares of the issuer on any stock exchange and compliance with the equity listing agreement or the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as applicable, has been reduced from 3 years to 18 months;

  • The requirement of average market capitalisation of public shareholding of INR 250 crores has been reduced to INR 100 crores; The condition related to no audit qualifications on issuer’s audited accounts has been replaced with the requirement to disclose the impact of audit qualifications on issuer’s financials; The condition related to suspension from trading of equity shares of issuer as a disciplinary measure has been reduced from 3 years to 18 months; and Certain other eligibility conditions with respect to period of compliance with the provisions of the listing regulations, ongoing action initiated by SEBI against the issuer / promoters / directors and settlement of violation of securities laws have also been relaxed.

(b) Minimum subscription requirements for rights issues

The existing minimum subscription to be received in a rights issue shall be at least 90% of the offer through the letter of offer. However, in order to provide greater flexibility in fund raising, this threshold for minimum subscription requirements for a rights issue has been reduced from existing 90% to 75% of the offer size, subject to the condition that if the rights issue is subscribed between 75% to 90%, issue will be considered successful subject to the condition that out of the funds raised, at least 75% of the rights issue size shall be utilized for the objects of the issue other than general corporate purpose.

(c) Threshold for not filing the draft letter of offer with SEBI

An issuer in case of rights issue of size less than INR 10 crores shall prepare the letter of offer in accordance with SEBI ICDR Regulations. However, in order to reduce the time involved in fund raising and for easing the compliance requirements due to the COVID-19 pandemic, the threshold for not filing the draft letter of offer has been increased from INR 10 crores to INR 25 crores in a rights issue.

Please refer to the SEBI circular dated April 21, 2020, (circular no. SEBI/HO/CFD/CIR/CFD/DIL/67/2020) for more details.

(ii) One-time relaxation to issuers with respect to validity of SEBI observations

In view of representations from various industry bodies, SEBI, vide its circular dated April 21, 2020, (circular no. SEBI/HO/CFD/DIL1/CIR/P/2020/66) has provided one-time relaxation with respect to validity of SEBI observations.

As per SEBI ICDR Regulations, any public issue/rights issue may be opened within 12 months from the date of issuance of the observations by SEBI. However, due to the prevailing COVID-19 pandemic, for all public/rights issuers whose SEBI observations have expired or shall expire between March 1, 2020, and September 30, 2020, SEBI has extended the validity of those observations by 6 months from the date of its expiry, subject to an undertaking from the lead manager of the issue confirming compliance with the SEBI ICDR Regulations.

Further, an issuer, whose offer document is pending receipt of SEBI observations and whose estimated issue size is increasing or decreasing by more than 20% shall be required to file a fresh offer document. However, SEBI has relaxed this requirement and permitted to increase or decrease the fresh issue size by up to 50% of the estimated issue size (instead of the present limit of 20%) without requiring to file fresh draft offer document with SEBI. This relaxation shall be applicable for all issues (i.e. IPOs, rights issues and FPOs) opening before December 31, 2020, subject to the following conditions:

  • there has been no change in the objects of the issue;

  • the lead manager undertakes that the draft offer document is in compliance with provisions of the SEBI ICDR Regulations;

  • and the lead manager shall ensure that all appropriate changes are made to the relevant section of draft offer document and an addendum, in this regard, shall be made public.

Please refer to the dated April 21, 2020, SEBI circular (circular no. SEBI/HO/CFD/DIL1/CIR/P/2020/66) for more details.

Continuation of Phase II of Unified Payments Interface with Application Supported by Block Amount

Official Advisory
Breakup marriage couple with divorce certification

Given the prevailing uncertainty due to the COVID-19 pandemic and the nation-wide lockdown, it has been represented by various stakeholders to the Securities and Exchange Board of India (SEBI) that the timelines of Phase II of Unified Payments Interface with Application Supported by Blocked Amount (UPI ASBA), which was originally only until March 31, 2020, as mentioned by SEBI in its circular dated November 8, 2019, (circular no. SEBI/HO/CFD/DCR2/CIR/P/2019/133) may be continued at present.

It has been stated by the stakeholders that the systems and processes for achieving Phase III timelines of T+3 need to be further deliberated and finalized in light of the experience gained during one of the major IPOs that opened and closed in the first week of March 2020.

Therefore, taking into account the representations made by the stakeholders and challenges that may be faced by them due prevailing COVID-19 pandemic, SEBI, vide its circular dated March 30, 2020, (circular no. SEBI/HO/CFD/DIL2/CIR/P/2020/50) has decided to continue with the current Phase II of the UPI ASBA until further notice. The modalities for the implementation of the Phase III of the UPI ASBA shall be notified later after deliberations with stakeholders.

Please refer to the SEBI circular dated March 30, 2020, (circular no. SEBI/HO/CFD/DIL2/CIR/P/2020/50) for more details.

The Force Majeure Clause is not a Free-for-All Protection

The impact of COVID-19 on domestic and international industries is severe, across all sectors. There are several legal issues that a company must face during the COVID-19 outbreak. One such legal issue is the occurrence of a force majeure event. A force majeure claim may protect a party from liability for its failure to perform its contractual obligation(s).

Manual for Procurement of Goods 2017 – Office Memorandum dated 19 February 2020

The Ministry of Finance (Department of Expenditure), vide its office memorandum (No. F.18/4/2020-PPD dated 19 February 2020), clarified that disruption of supply chains due to the spread of Coronavirus in China or any other country will be covered under the Force Majeure Clause (as defined in the Manual for Procurement of Goods, 2017).

Para 9.7.7 of the Manual for Procurement of Goods 2017 states the following with regard to the ‘Force Majeure Clause’:

  1. Force majeure is an extraordinary event/circumstance that is beyond human control and has been described as an act of God, natural disasters, war, strikes, riots, crimes (but it does not include negligence or wrong-doing, predictable/seasonal rain or any other event specifically excluded in the clause).
  2. Such a clause in the contract frees both parties from liability when prevented by such event from fulfilling their contractual obligations.
  3. A Force majeure clause is not an excuse for the parties’ non-performance entirely, and only suspends it for the duration of the force majeure event.
  4. If a force majeure clause is triggered, a notice of force majeure should be given to the other party as soon as such event occurs. Protection cannot be claimed ex-post facto.
  5. Where a force majeure event affects only the purchase organization, the purchase organization is to communicate with the supplier along similar lines as above for further necessary action.
  6. If the performance of the contract is prevented or delayed as a whole or in part for a period exceeding 90 days, either party may terminate the contract without any financial repercussion on either side.

This Office Memorandum essentially suggests that COVID-19 could be construed as a natural calamity which would excuse non-performance of contractual obligations, although certain prescribed procedural safeguards must be followed by the party seeking to invoke the clause.

However, it must be noted that the office memorandum does, to a large extent, over-simplify the grounds on which force majeure protection can be claimed by a party. Further, this office memorandum does not automatically assure the success of a party invoking such a claim, even on the grounds of COVID-19.

To appreciate the nuances relating to Force Majeure, it is important to understand the jurisprudence of the concept under the Indian Contract Act, 1872.

What is Force Majeure?

Force majeure is a French expression which translates, literally, to “superior force”.

In the context of law and business, the Merriam Webster dictionary states that force majeure usually refers to “those uncontrollable events (such as war, labor stoppages, or extreme weather) that are not the fault of any party and that make it difficult or impossible to carry out normal business. A company may insert a force majeure clause into a contract to absolve itself from liability in the event it cannot fulfill the terms of a contract (or if attempting to do so will result in loss or damage of goods) for reasons beyond its control”[1].

Black’s Law Dictionary defines Force Majeure as follows, “In the law of insurance, superior or irresistible force. Such clause is common in construction contracts to protect the parties in the event a part of the contract cannot be performed due to causes which are outside the control of the parties and could not be avoided by exercise of due care… Typically, such clauses specifically indicate problems beyond the reasonable control of the lessee that will excuse performance.”[2]

In India, it is often referred to as an “act of God”. However, the term “force majeure” has not been defined in any Indian statute. Various courts have, over time, held that the term force majeure covers not merely acts of God, but may include acts of humans as well.

The concept of Force Majeure is straightforward – in every contract in which parties undertake to fulfill obligations in the future (called an “executory contract”), the failure to perform such obligations will give the aggrieved party the right to claim damages from the defaulting party. However, if such failure to perform is due to events beyond the defaulting party’s control, then the defaulting party must not be held liable. The force majeure clause, therefore, allows one or more parties to a contract to avoid, suspend or postpone its performance, in whole or in part, on account of events beyond their control. The devil, as always, lies in the details.

Impossibility v. Frustration

The term “Force Majeure” is based on the concept of the Doctrine of Frustration under the Indian Contract Act, 1872 (particularly Sections 32 and 56, discussed in greater detail below); and has been developed through decades of judicial interpretation. The law uses the term “impossible” while discussing the frustration of a contract, i.e., a contract which becomes impossible has been frustrated. In this context, “impossibility” refers to an unexpected subsequent event or change of circumstance which fundamentally strikes at the root of the contract. This is construed in a practical, and not a literal, sense.

In a large body of cases, including Alopi Parshad and Sons Ltd vs Union of India, AIR 1960 SC 588 and the landmark Energy Watchdog and Ors. Vs. Central Electricity Regulatory Commission and Ors (2017) – 2017 3 AWC 2692 SC, the Supreme Court of India has categorically stated that mere commercial onerousness, hardship, material loss, or inconvenience cannot constitute frustration of a contract.

Furthermore, if it remains possible to fulfill the contract through alternate means, then a mere intervening difficulty will not constitute frustration. It is only in the absence of such alternate means that the contract may be considered frustrated.

Force Majeure under Indian Law

The two key sections of the Indian Contract Act, 1872 which are relevant for this discussion are:

Section 32 (Enforcement of contracts contingent on an event happening), which states that “Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened…”

The impossibility of a performing a contract under Section 32 may arise not only due to a force majeure event but also due to the non-occurrence of any underlying condition in the contract. For instance, illustration (b) of Section 32 under the Contract Act states: “A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse”.

In Energy Watchdog and Ors. Vs. Central Electricity Regulatory Commission and Ors (2017) – 2017 3 AWC 2692 SC (paragraph 34), the Supreme Court observed, “where the Court finds that the contract itself either impliedly or expressly contains a term, according to which performance would stand discharged under certain circumstances, the dissolution of the contract would take place under the terms of the contract itself and such cases would be dealt with under Section 32 of the Act. If, however, frustration is to take place de hors the contract, it will be governed by Section 56.”

Section 56 (Agreement to do impossible act) states 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.”

It must be noted that for a contract to be frustrated under Section 56, it is the performance of contractual obligations that must become unlawful/impossible, not the ability to enjoy benefits under the contract.

Section 56 will govern frustration of contract where the such frustration is not contemplated in the contract itself. In the absence of a force majeure clause in the contract, it must be shown by the party seeking protection that it has become impossible for such party to perform its contractual obligations, and that the intent of the parties in entering into the agreement has been so entirely frustrated, that the contract’s fundamentals have irreversibly changed. In such a case, the parties can seek to invoke section 56 of the Indian Contracts Act.

If Section 56 applies to a contract, then parties will be discharged from their obligation to perform a part of the contract, or the entirety of the contract.

The Supreme Court in Boothalinga Agencies v. V.T.C. Poriaswami Nadar (1968) [AIR 1969 SC 110] observed that, “The doctrine of frustration of contract is really an aspect or part of the law of discharge of contract by reason of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of Section 56 of the Indian Contract Act. It should be noticed that Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties.” The Court continued and stated that while the English Law treated frustration of contracts as a question of construction; depending upon the true intention of the parties, the Indian Contract Act lays it down a positive rule of law.

The Supreme Court in Energy Watchdog and Ors. Vs. Central Electricity Regulatory Commission and Ors (2017) – 2017 3 AWC 2692 SC lent further insight into interpreting a Force Majeure situation:

  • Events beyond the reasonable control of one party should not render that party liable under a contract for performance, if that event prevents the party’s performance;

  • The language of the agreement relating to duty to mitigate, best efforts, prudent man obligations to nevertheless perform etc., will all be taken into consideration in understanding the parties’ intent;

  • Force majeure events must be unforeseeable by both parties;

  • The requirement to put the other party on notice must be met with if the contract provides for notice requirements; and

  • Burden of proof rests with the party relying on the defense of force majeure for its inability to perform the obligation.

Express Exclusions

It is crucial to note that where events or circumstances are expressly excluded from the definition of force majeure under a contract, there can be no frustration on the occurrence of such an event (Satyabrata Ghose vs. Mugneeram Bangur et.al., AIR 1954 SC 44).

Therefore, the definition of “Force Majeure” under a contract becomes critical.

Consequence of Force Majeure

Most commercial agreements contain a clause on force majeure, which provides protection to the parties to the agreement, against claims and liabilities arising out of non-performance or breach of the contract due to certain specified force majeure events.

If the force majeure clause in an agreement contains specific consequences, then it is those consequences that will apply, irrespective of the provisions of Section 32/Section 56. If no alternate consequence is provided for under the agreement, then the provisions of Section 32/56 will apply. Therefore, it becomes pertinent to carefully consider the language of the force majeure clause in the contract in question.

Temporary Suspension of Contract

The texts of Section 32 and Section 56 do not explicitly contemplate a situation where the contract remains valid although a party’s obligations are suspended or postponed due to force majeure.

Although Section 56, illustration (e), does discuss a situation of partial discharge of a contract, it may not be wise to place too much reliance on it, as the Supreme Court in Satyabrata Ghose vs. Mugneeram Bangur et.al., AIR 1954 SC 44 has noted that the illustrations to Section 56 are flawed in their wordings and, “cannot derogate from the general words used in the enactment”.

Additionally, Section 56 illustration (e) only envisages the partial discharge of a severable contract and does not envisage a temporary suspension of obligations under a contract.

There are no precedents for this concept and the manner in which various courts will interpret this aspect remains to be seen.

However, nothing prevents parties from contractually agreeing that the occurrence of certain events shall only cause temporary/partial suspension of obligations under a contract.

Burden of Proof

The onus of proving the existence of a force majeure event lies on the party claiming benefit under it. This includes the burden of proving that the non-performance was caused due to force majeure, that steps were taken to mitigate the loss, that the procedural requirements (if any) under the contract were observed etc.

Once the existence of a force majeure is proved, the burden of proving the existence of alternate means of fulfilling the contract will fall on the counterparty/counterparties.

The Court will, of course, carry out its own examinations to arrive at its conclusion.

Force Majeure in the time of COVID

COVID-19 may, at most, constitute a temporary impossibility in the fulfillment of a contract.

If time is of the essence in a contract, COVID-19 may result in the contract being frustrated. However, this is purely a question of fact and depends on the specific circumstances of each case. In all other contracts, unless COVID-19 renders a contract impossible, the obligations continue to persist.

Whether or not a Force Majeure clause, which permits temporary suspension of obligations, covers the COVID pandemic is a question of interpretation. The terms “pandemic” or “epidemic” may be expressly defined as forming part of Force Majeure, or it may be possible to argue that such terms are included by implication. However, if the clause expressly excludes such events, then COVID-19 will not constitute a force majeure event.

Therefore, the applicability of Force Majeure protection to COVID is a question of fact and interpretation and has no direct precedent in Indian jurisprudence.

[1] https://www.merriam-webster.com/dictionary/force%20majeure
[2] https://blacks_law.enacademic.com/11167/force_majeure

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