What is a Force Majeure?
Force Majeure (meaning 'superior force') is a clause that frees both parties from liability or obligation when an extraordinary event or circumstance beyond their control occurs.
Deep Dive: The Force Majeure
It prevents a party from being penalized for a breach of contract resulting from acts of God, war, pandemics, or government mandates. However, asserting Force Majeure requires specific criteria to be met: the event must be unforeseeable, external, and make the performance of the contract impossible (not just difficult).
Hidden Risks for Founders
Many Force Majeure clauses exclude specific events (like economic downturns). Additionally, some clauses only allow one party to declare it, not both. If your client can suspend payment during a crisis but you still have to deliver, you have a major risk on your hands.
Example in a Contract
Neither party shall be liable for any failure or delay in performance under this Agreement (other than for delay in the payment of money due and payable hereunder) to the extent said failures or delays are proximately caused by causes beyond that party's reasonable control and occurring without its fault or negligence.
Legal Enforceability in India
Enforceable under Section 56 of the Indian Contract Act (Doctrine of Frustration). However, if an event is explicitly listed in the contract, it is treated as a contractual right rather than an implied frustration.