Covid Positive = Economy Negative

It supposedly originated in a sea food market in a 2-tier city in China. It is now a WHO declared pandemic that has affected 150 countries (and counting).

The novel coronavirus aka Covid-19 has not only disrupted normal lives of humans and animals, but also the growth and economy of countries and the world itself.

Now that it has reared its head in India, let us understand its impact on the economy and how it is affecting the various documentation, contracts and other legal transactions based on which the economy is built:

1. One of the major setbacks has been in the smooth functioning of, apart from the day-to- day life, is the supply chain management. Supply chain management means the movement / flow of goods and services from its origin point to its consumption point. Now, this can be within a town, city, state or between countries. The movement of such goods and services is understandably governed by contracts, agreements and other legal documentation. Such contracts define the timelines, conditions and obligations governing the performance.

With lockdown and isolation measures to check the spread of the virus, the supply chain has been disrupted. As a result, the obligations, conditions contained in the performance of the contract is either delayed or not complied at all. Parties could cancel the existing agreements and enter fresh ones with revised prices and conditions. Suppliers, vendors, Customers and other parties may seek to be pardoned from the liability of non-performance of contractual obligations. Else they could simply terminate the contracts / agreements on grounds that the non-performance was due to reasons beyond their control.

In legal parlance, it is called “force majeure”. A French phrase that means a “superior force”. Legally it means unforeseeable circumstances that prevent someone from fulfilling a contract.

Force Majeure or “act of God” is normally included in all major contracts and agreements especially in all supply chain management agreements. It is a clause that frees both parties from fulfilling their respective obligations due to occurrence of an extraordinary event or situation which is beyond their control like war, floods, earthquakes, fires, tsunamis etc. Such natural occurrences prevent parties from performing their obligations.  In most Force majeure cases, the suspension of performance of contract is only during the period such force majeure condition persists. It now remains to be seen whether Covid19 will be considered as a “Force Majeure” event to invoke delay or suspension of performance of contractual obligations. In this context, the Office Memorandum dated 19th February, 2020 issued by Government of India, Ministry of Finance assumes relevance which reads: “it is clarified that it (spread of corona virus) should be considered as a case of natural calamity and FMC may be invoked, wherever considered appropriate.”

2. Another potential area is the day to day management of company affairs by the Board of directors. With increasing number of Indian companies especially public companies declaring interim dividends, approving financials and other related statutory activities, the onslaught of Covid 19 has put companies in a quandary. With government enforcing work from home directions and requirement of social distancing, conducting physical board meetings has become a major issue. Several companies having announced meetings have either postponed or cancelled them. Physical board meetings are mandatory to conduct in agenda such as approving financial statements. The Government has proactively taken a practical call and has exempted the maximum stipulated time gap between two meetings for the meetings held or proposed to be between the period December 1, 2019 and June 30, 2020 for listed companies. Other audio /visual modes of conducting meetings have been approved during the said period.

It is pertinent to note here that the Hon’ble Supreme Court has passed an Order dated 23rd March 2020 in exercise of the power under Article 142 read with 141 of the Constitution of India in Suo Moto Writ Petition (Civil) No. 3/2020. Accordingly, the period of limitation in all proceedings viz., petitions/applications/suits/appeals/all proceedings irrespective of the limitation prescribed under the General law of limitation  or Special Laws (both Central and/State) whether condonable or not shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court. This order is binding on all Courts/Tribunals and authorities.

The Ministry of Corporate Affairs vide notification dated 23rd March 2020 stated that funds spent towards tackling Covid 19 would be counted towards Corporate Social Responsibility (CSR) activities of companies.

It is also important for the corporates to evaluate from time to time the practicality of continuing the business in the face of supply chain disruption and no manpower at work. It is good to be ready to execute business continuity plan. Several multinational banks worldwide have already invoked their BCP’s. Listed companies are duty bound to disclose any material changes in their businesses to the stock exchanges where their securities are traded. Good corporate governance practices are to be put in place.

3. Another key area that requires attention are employee issues. Several Tech giants and multinational companies both in India world over are falling in line with their regulatory authorities. From nationwide lockdown and social distancing to quarantine and isolation, employees are bound to follow the law as citizens of the country. This throws up a host of employment related issues. Corporates are duty bound to ensure the health and safety of all employees and staff at the workplace. Hygienic conditions, proper sanitation, immediate medical help is a must in any situation (not just covid-19). Corporates are bound to ensure the safety of those employees who travel on account of work and are caught in this pandemic. They must work in tandem with the government and health officials to either repatriate them back to the country or provide a safe quarantine zone in the place they visited. Regular communication of correct and credible information becomes crucial. This situation also puts focus on the employee / travel insurance. With almost all major corporates announcing work from home (WFH) instructions to their employees, tech giants are bound to ensure that the such employees have remote access(or access from home) to their systems in office. This may in turn pose a data security challenge and hence corporates must decide before hand the level and volume of accessibility by their employees. Corporates and data security teams must clearly communicate the level and volume of access to information by employees. Even under normal circumstances, when work from home option is provided to employees, it is prudent to execute confidentiality agreements / NDAs with them.

The above aspects or industry and economy have been glaringly impacted since the onset of Covid19 and its rapid spread to the rest of the world. With industry leaders foreseeing a global recession as a direct outcome of this zoonotic virus, it is up to us as individuals, citizens, employees, nations and the world to stay safe, cooperate with the government and brace ourselves for the onslaught.

Let us cope with Covid.


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