A pandemic is a rare event as it ought to be. However, we are sometimes not fully aware of certain nuances in law that affect our decisions during such times simply because they do not occur when we do our business in the normal course. Given below are two such situations post Covid-19. Hope clarifications given below on payment of wages during the closure period and the effect of force majeure clause found in lease deeds of commercial premises are of use to those who are looking for answers to these issues.
LOCKDOWN WAGES
The Ministry of Home Affairs (MHA) of Government of India issued an order on 29″ March which, inter alia, makes it mandatory for the employers to pay wages to their workers on due dates without making any deduction for the closure of their units consequent to the lockdown. This Order has been issued by invoking Section 10(2)(I) of the Disaster Management Act 2005. The impugned Section gives powers to the Central Government to “(I) lay down guidelines for, or give directions to, the concerned Ministries or Departments of the Government of India, the State Governments and the State Authorities regarding measures to be taken by them in response to any threatening disaster situation or disaster”. No amount of legal ingenuity can take the above clause to mean that the MHA can advise the private sector industries and commercial establishments to pay wages during the closure period. The stated objective of the Act is to “to provide for the effective management of disasters and for matters connected therewith or incidental thereto”. The only conclusion that one can draw is that this Order has been issued more as a means to project the government as the guardian of the poor who would suffer extreme hardships because of the lockdown. At best it can be considered as an effort on the part of the government to nudge those industries who are unsure about the liability to pay wages to err on the generous side. Considering the nature and extent of the calamity it is possible that there may be more industries willing to pay than not, especially on the first pay-day post lockdown. The State governments on its part have also issued a number of notifications of their own invoking The Epidemic Diseases Act 1897 to deal with Covid-19. Every state has imposed its own restrictions on movement of people and goods as they deemed fit. However, there is no provision to be found even in this Act to force the industry to pay full wages to the workmen during the closure period. However, Section 25C of the Industrial Disputes Act 1947 comes to the rescue of the workmen in the case of natural calamities. It permits the employer to lay off workmen by paying 50% of the wages. The government is on the horns of a dilemma despite their noble intentions. This compensation for lay-off benefits only those employees working in large firms in the organised sector whereas the worst hit among the working class are those poor migrant workers from other states. In a manner of speaking, when the calamity struck, they took to the streets — not to protest but to flee thereby denying themselves even a remote chance to claim any compensation from their employers who were already reluctant pay their legitimate dues. Only a miniscule percentage of workmen are employed in the organised sector in India. I must add a caveat here. The above commentary is not to find a valid argument to deny wages to the poorer sections in the society. Good intentions must be backed up by robust legal framework to ensure equitable delivery. An Order that cannot stand legal scrutiny, that too focused on a small percentage of the affected people, raises questions about the sincerity of the government’s intentions through these notifications.
FORCE MAJEURE
Some words not only are difficult to pronounce but also are difficult to comprehend. The Latin word force majeure is one such. In the wake of the pandemic suddenly you find everyone scurrying to the Dictionary to find out a term that one has seen a number of times in the past but never bothered to understand. Practically every contract we sign has this clause which we are only eager to ignore. Roughly translated this phrase means “Acts of God” covering calamities like fire, floods, earthquake, etc. A pandemic like Covid-19 is also one of them. This term in a contract is normally inserted to inform parties to the contract that if such events take place there accrue no liability to pay any compensation as performance of the contract becomes impossible on the happening of certain developments. Section 56 of the Indian Contract Act deals with this force majeure. According to this Section an agreement to do an impossible act is void. Suddenly in India many a commercial establishment is trying figure out if they are protected by this clause when commercial premises are taken on lease. There is this fallacy that as the premises are taken on rent for undertaking commercial activities, the lessor is absolved of the responsibility to pay rent during a lockdown, as is happening today. This stand, by a lessee is legally not tenable. The logic is that the closure of a unit on account of the lockdown is a business exigency that has no relevance to the lease deed. Force Majeure can be invoked only if either of the parties are frustrated by acts of God while executing the lease deed itself and not thereafter. The legal position regarding applicability of force majeure got settled early in India. The Supreme Court in the case of Raja Dhruv v Raja Harmohinder Singh decided in 1968 that force majeure does not apply to lease deeds as they are concluded contracts. Moreover, rights under lease are also covered by the Transfer of Property Act and not only by the Indian Contract Act. This position was later reaffirmed by the apex court in the case of Sushila Devi v Hari Singh. To understand this position better you only need to compare the position of a loan taken to run a business. You cannot go tell the banker that you are unable to repay the loan as your unit is closed because of a virus.
Thank you.
Venkat R Venkitachalam
