As the number of Covid-19 cases in India increase, the ensuing negative economic impact intensifies. For non-essential businesses, lockdown has meant ceased operations and shrunken revenues. Household incomes, in turn, have dwindled. Reduced cash flows coupled with much uncertainty, have led to further unwillingness to part with limited cash resources. This has adversely impacted the cycle of payments. Despite the shrunken revenues, contractual obligations persist. From households to businesses, all are endeavoring to suspend, delay and quash these payments. Companies (from hospitality to auto) are halting contractual payments. Both commercial tenants (such as multiplexes, retail chains) and resident tenants, are looking to suspend rent payments.
In the coming months, many parties will negotiate out-of-court settlements to recoup fractions of the amounts due to them. Some may choose to forego these amounts all together. However, those who rely on these payments for survival; businesses that cannot afford piling of bad debt and those who simply refuse to forego amounts accrued to them; would inevitably want to (and need to) knock at the Courts’ doors for recourse.
Alas, civil litigation has always been a costly process riddled with delays. Smaller businesses and strapped individuals have an averse view of it. These parties may be forced to forgo amounts due to them instead of embarking on protracted legal battles. A number of commercial parties are unilaterally invoking force majeure to avoid payment obligations under contracts, even for contracts where such arguments are prima facie untenable. In this article, I argue that championing the use of summary procedure under CPC (in conjunction with online dispute resolution) could be the answer that alleviates hurdles and ensures efficient recompense to litigants.
As opposed to standard civil suits that are required to follow all stages of suits – from presentation of plaint, filing of written statement, trial and arguments – summary suits follow abridged procedures and timelines given under Order 37 of the Code of Civil Procedure (CPC).
Order 37 enables certain special suits to recover money in cases where the defendant has admitted liability for a liquidated sum, which can be through bills of exchange, promissory notes, written contract, enactment or guarantee. For this reason, summary suits are also referred to as recovery suits. Summary suits can be instituted before High Courts/ City Civil Courts/ Courts of Small Causes (depending on pecuniary value of the claim), by filing a plaint with specific averment that it has been filed under Order 37.
Regular civil suits allow the defendant to file a Written Statement within thirty to ninety days and set out their defence. However, summary procedures do not provide such an opportunity for defence. To avail an opportunity for defence, the defendant must within 10 days of the summons, apply for a leave to defend. The Court must be prima facie satisfied that the defendant has a substantial defence that they wish to argue in their favor. Where the Court believes that leave to defend is a frivolous and untenable attempt at prolonging the litigation, the plaintiff would be entitled to judgment in the form of decree of sum immediately. In Raj Duggal v. Ramesh Kumar Bansal the Supreme Court clarified that before leave to defend is allowed, the Court must be satisfied that a ‘triable issue’, which goes to the meaning and/or correctness of the document underlying the claim, must be at dispute. Hence, only where there is uncertainty in amount due or disputed facts with respect to the document in question, leave must be granted.
To be clear, summary procedures will only be allowed in cases where (1) the debt is for a liquidated amount (2) validated in a written contract (which is produced before the court) (3) no other claim than that for recovery of amount is made (4) there does not exist any triable issue. The idea behind summary suits is that the claim is based on admitted liability and the defendant has no defence in their favour. Most non-payments of contractual dues resulting from Covid-19 are a fall-out of abated economic activity and not from the disputed nature of the contracts. Therefore, summary procedures could emerge as an efficient means of ensuring reduced bad debts and quick recovery for those who rely on these unpaid amounts for survival.
Force Majeure: a Potential Defence?
As mentioned above, if the court is convinced that the defendant may have a substantial defence, leave to defend is granted and the case proceeds as an ordinary trial. Force majeure is the ‘defence‘ that is primarily being unilaterally ‘invoked’ by commercial parties to relieve themselves from contractual obligations.
Force majeure is a contractual clause that allows for parties to alter their contractual obligations when extraordinary events or unforeseen circumstances prevent them from fulfilling their obligations. Generally, only events specifically mentioned in the clause constitute force majeure. However certain contracts contain clauses that are drafted broadly and ambiguously covering “all circumstances beyond the control of the parties” as force majeure events. These cases warrant an assessment by the Courts on whether force majeure clause would be triggered.
The Courts’ stance on force majeure arguments – whether or not these would be considered ‘triable issues’ and therefore, merit leave to defend, would affect summary suits’ position as the device for quick recourse.
This week the Bombay High Court, while dismissing an interim application to restrict encashment of Letter of Credit by the bank invoking force majeure to terminate contract, in Standard Retail Pvt Ltd v. Gs Global Corp clarified the following:
(1) force majeure only applies to obligations under the contract and would not affect related transactions such as letters of credit (Court held Letter of Credit to be an independent transaction from the underlying contract);
(2) force majeure clauses would be read strictly and literally (Court observed that only the seller could invoke force majeure under the contract);
(3) force majeure would not be triggered in contracts relating to essential services (the present application related to contract for steel import, which has been declared an essential service).
In conclusion, the Courts’ stance on force majeure is still inconclusive. Whether the clause is applicable in the contract will likely be a case-to-case analysis by the Court. Though cases where force majeure arguments would be outright untenable (and therefore wouldn’t qualify as a triable issue) is also becoming clearer and narrower with every judgment.
Kamakshi Puri is a final year student at Jindal Global Law School.