“Force Majeure Clause” In Contract Is Generally An Exception Or Eclipse Provision: Delhi High Court
The Delhi High Court dismissed a Petition of the Airports Authority of India under Section 34 of the Arbitration and Conciliation Act, 1996 against an Arbitral Award of the Arbitral Tribunal.
The Delhi High Court observed that a “force majeure clause” in a contract is generally an exception or an eclipse provision.
A force majeure clause is a contractual provision that relieves parties from fulfilling their contractual obligations when certain unforeseen events occur, which are beyond their control.
The Court was deciding a Petition filed by the Airports Authority of India (AAI) under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), challenging an Arbitral Award passed by the Arbitral Tribunal.
A Single Bench of Justice Dinesh Kumar Sharma remarked, “It is a settled proposition that the force majeure clause will not generally be invoked, if the contract provides for an alternative mode of performance. Reliance can be placed upon Treitel on Frustration and Force Majeure, 3rd Edition. The Court is of the considered view that ‘a force majeure clause’ in a contract is generally an exception or an eclipse provision, meaning thereby if a force majeure is enforced the performance as mandated in the other terms of the contract will remain eclipsed till the force majeure event persists.”
The Bench added that whether the force majeure has taken place or not or it exists or not or the time till when it exists is a question of fact to be determined by the Arbitral Tribunal.
Solicitor General Tushar Mehta appeared for the Petitioner while Senior Advocates Parag Tripathi and Raj Shekhar Rao appeared for the Respondents.
Facts of the Case
In March 2020, upon the outbreak of the COVID-19 pandemic and subsequent governmental restrictions, aviation operations were severely disrupted. Consequently, the Respondent i.e., Delhi International Airport Limited (DIAL) sought relief under Article 16 of the Operation, Management and Development Agreement (OMDA), citing Force Majeure vide email and requested the Petitioner i.e., AAI to refrain from instructing the escrow bank regarding the Monthly Annual Fee (MAF) for April 2020, contending that existing business plan was no longer applicable. DIAL committed to submitting a provisional business plan for Financial Year (FY) 2020-21, taking into account the economic impact of the pandemic.
The said request was acknowledged by AAI and consequently, DIAL submitted an interim business plan and sought a three-month waiver up to June 2020 on MAF payments due to the nationwide lockdown. Thereafter, DIAL invoked the Force Majeure clause, seeking relief from paying the Annual Fee. AAI rejected this claim and the dispute led to arbitration, with DIAL seeking exemption from paying the annual fee, and AAI filing counterclaims. The Arbitral Tribunal ruled in favour of DIAL and rejected the counterclaims of AAI. Resultantly, the AAI challenged the arbitral award before the High Court, arguing that the Tribunal’s reliance on AAI granting relief to concessionaires was patently illegal.
Reasoning
The High Court in view of the above facts, said, “The question is whether the finding of the arbitrator in such a situation can be considered to be perverse. It is a settled proposition that the interpretation of the contract must be in sync with the test of business efficacy and should be responsive to the facilitation of business. Any interpretation which may generate any sense of uncertainty for the parties, who choose arbitration as a mode of adjudication, should be avoided.”
The Court noted that this world had never expected the pandemic like COVID to happen and it may be recalled in March, 2020 when it started, nobody knew its ramifications.
“It was impossible to imagine its effects and the period during which it will continue. Initially, everybody was under impression that it may last for few days then few weeks then few weeks and then few months. But it is a matter of the record that after causing havoc in the first wave, it returned back in 2021 with the second wave and caused unimaginable damages in the terms of loss of human life and economy. God forbids such an event happen again, the Court considers that the learned Tribunal has rightly taken into account the commercial sense and extended the terms of the contract”, it further remarked.
The Court said that even the best scientists and economists were uncertain about the pandemic’s long-term effects and the world was in the early stages of trying to manage the situation, and it was unimaginable that its effects would last as long as they did.
“At the time, AAI reasonably assumed that the impact would be short-lived, likely continuing only until June 2020, and thus accommodated the DIAL. However, it is now widely recognized that the pandemic lasted far longer than anticipated. … It is a matter of common acknowledgement that during Covid, it had materially and adversely effected the function of the business”, it added.
The Court observed that the Arbitral Tribunal taking into account the terms of the contract and the trade and usages along with the commercial sense has taken a holistic view in extending the tenure of the contract.
“The findings of the learned AT are based on these facts, and the Court does not find any perversity in them. It is also important to note that just because another view might have been possible, the Court cannot substitute its own opinion”, it also emphasised.
The Court reiterated that the interpretation of the terms of the contract falls within the domain of the Arbitrator.
“… AT had passed a speaking order after taking into account the material and the evidence available on the record. The perusal of the award makes it clear that it cannot be said that the view taken by the Arbitrator is not a possible and plausible view”, it said.
The Court also reiterated that even if the alternative view is available, the Court cannot substitute its own.
Accordingly, the High Court dismissed the Petition and upheld the Arbitral Tribunal’s award.
Cause Title- Airports Authority of India v. Delhi International Airport Limited & Anr. (Neutral Citation: 2025:DHC:1523)
Appearance:
Petitioner: Solicitor General Tushar Mehta, ASG Raghavendra P Shankar, Advocates Karan Lahiri, Prateek Arora, Neelabh Bist, Rishieka Ray, and Pallavi Misra.
Respondents: Senior Advocates Parag Tripathi, Raj Shekhar Rao, Advocates Rishi Agarwala, Apoorv P. Tripathi, Dheeresh Kumar Dwivedi, Manu Krishnan, Daksh Arora, and Nikhil.
