COVID-19 pandemic – legal implications and future

Introduction

Pandemics are large-scale outbreaks of infectious disease that can greatly increase morbidity and mortality over a wide geographic area and cause significant economic, social and political disruption. The COVID-19 virus was declared as a pandemic on March 11, 2020 by the World Health Organization (WHO). It is an infectious disease caused by a newly discovered Novel Coronavirus.

Government measures

In order to implement social distancing, the Ministry of Home Affairs (“MHA”) through Order No. 40-3/2020-D, dated 24th March, 2020 (“MHA Order”) implemented a national lockdown and issued guidelines under the Disaster Management Act, 2005 (“DM Act”) with a view to maintain consistency in application and implementation of various measures for preventing the spread of COVID-19 in India with effect from 25th March, 2020 for a period of 21 days till 15th April, 2020. This lockdown was further extended upto 3rd May, 2020.

The MHA Order stated that the National Disaster Management Authority (NDMA) declared COVID-19 as “Notified Disaster” under the DM Act. Section 2A of the Epidemic Diseases Act, 1897 (“Act”) empowers the Central Government to take necessary measures and prescribe regulations to deal with dangerous epidemic diseases at ports of entry and exit. Under Section 2 of the Act, states are empowered to take special measures or promulgate regulations to deal with epidemics within their jurisdictions. Thus, any state government, when satisfied that any part of its territory is threatened with an outbreak of a dangerous disease, and upon determination that the ordinary provisions of the law are insufficient for the purpose, may adopt or authorize all measures, including inspection of travelling persons and quarantine, to prevent the outbreak of the disease.The Ministry of Health and Family Welfare (“MoHFW”) in order to mitigate the impact of the outbreak in India had all states and union territories invoke Section 2 of the Act so that all advisories issued were enforceable. The Central Government invoked Section 69 of the DM Act to delegate powers of the chairman of the National Executive Committee (“NEC”), which is a coordinating and monitoring body for disaster management, to the secretary of the MoHFW as the DM Act provided for an exhaustive administrative set up for disaster preparedness which was a required to deal with the COVID-19 pandemic.

Business impact of COVID-19

Business and financial implications

The impact of the lockdown due to COVID-19 pandemic on domestic and international businesses is severe, across countries and sectors. The Ministry of Finance via notification No.F.18/4/2020-PPD dated February 19, 2020 stated that the COVID 19 pandemic is considered as a natural calamity and the Force Majeure clause should be invoked in following the due procedure under the Manual for Procurement of Goods, 2017. The central board of the Reserve Bank of India (RBI) via notification RBI/2019-20/173 DGBA.GBD.No.1744/42.01.029/2019-20 announced that the fiscal year 2019-20 will end on June 30, 2020 while fiscal year 2020-21 will begin on July 1, 2020 but end on March 31, 2021.

Other affected industries

The disruption in global automotive supply chain has caused heavy losses for the automotive industry. Even after the lockdown ends, it is expected that there will be a decline in purchase of new automobiles due to increased cost from BS-VI and decreased spending from the public. The pandemic is expected to impact all stakeholders from the suppliers to the dealers. Another sector which is heavily impacted by the COVID-19 pandemic is the real estate sector. All stakeholders from the builders to the lessees are affected from the pandemic and the resultant lockdown. A major impact has been felt by the already loss-making aviation sector. The existing low-availability of credit to maintain day to day operations coupled with the lockdown is going to have a magnanimous destructive effect on the aviation sector with the travel ban that has been imposed by the government. Due to the travel ban having been imposed and tourism shut, the hospitality sector has experienced a complete shutdown in its economic activities whereby leading to magnanimous losses in its revenue. Oyo Homes and Hotels, one of the country’s largest chains in the hospitality sector has already suspended payments to its partners owing to unprecedented losses in its revenue.

Possible solutions

In order to cope with the resultant losses, the parties to the contract seemed to have invoked the ‘Force Majeure’ clause or the ‘Doctrine of Frustration’ as per under Section 56 of the Indian Contract Act, 1872. However, in situations where the same cannot be done and an obligation is required to be fulfilled, the same can be suspended by mutual consent of the parties.

India and “India Inc.” should also gear up for some form of foreign investment as it is a large possibility that manufacturers may try to move their hubs from China to India. According to news reports Taipei-listed Wistron is targeting India where it’s already making some iPhones and is setting aside $1 billion to fund the expansion this year and next year for some part manufacturers. Already India tweaked its extant FDI policy to allow 100% foreign direct investment through the automatic route in contract manufacturing to attract more investment and companies to set up their manufacturing bases in India. The corporate tax rates have also been reduced to 15% for new manufacturing plants in a bid to attract companies looking to migrate production out of China.

This update is by Shambhavi Singh, Advocate & Associate at Agarwal Jetley & Co., Advocates & Solicitors. Contact: Email: shambhavisingh@agarwaljetley.com or Mob: (+91) - 9650424966