Common Legal Issues due to Corona Virus (COVID-19)

The outbreak of novel Corona Virus (COVID-19) was declared a pandemic by W.H.O. on March 11^th, 2020. The Virus is highly contagious and has resulted in shutdown of major businesses across the globe. The World economy has crashed over all and is facing financial paralysis which will take some time to revive.

In the process of shut down are also resulting in lot of legal disputes and business issues as follows:-

1. Employment Issues – Employers have been advised Work from Home, the employers have not paid travel allowance for the period. Employees’ salaries have been reduced by 25% drastically in some Companies. In some companies, the employees are not going to be paid for the period of shut down and the businesses are claiming losses during the shut down period. Company Sales has hit drastically and the Employers have asked the employees to take a cut in their wages/ salaries. Employers are also imposing temporary unpaid furloughs as some employees cannot perform any work without being physically present in office. Employers have been given direction to not perform any work during this sabbatical and have been restrained from responding e-mails, taking calls, etc. Employers have asked employees to take compulsory leave/ mandated vacation. Some Employers are facing an uphill task to retain employees and have sought to sack employees despite the government directions.

2. Cancellation of Events – Several events like weddings, music shows, functions, sports events and events of all kinds have been postponed or cancelled due to Corona Virus. Therefore, resulting in huge business losses to event organizers, food catering, decoration, etc. In situations where payment has already been made to the the Event contractors, obtaining a refund for the Amount paid remains a challenge as most contractors have taken defence that it has resulted a huge loss to them and the amount paid cannot be refunded. The Organizers are claiming “force majeure” stating that they did not cancel deliberately, however due to force majeure events.

3. Rental Issues –Tenants in commercial properties have issued notices to their landlords stating they will not pay rent for the shut down period and have claimed force majeure event for the same. The Lessees have claimed that business has been drastically hit and therefore, they will not be able to make payment for the period of shut down. In cases where the Lessors are understanding, the Lessors have exempted payment of rent. While other Lessors are claiming rentals for the entire period.

4. Delay in manufacturing – The shutdown of manufacturing is likely to have an impact on the supply chain along with a consequential impact on downstream industries. Disruption of supply will affect commodity markets and other markets indirectly.

5. Delay in Completion of projects – Construction projects and other and assignments having deadline will claim force majeure events. As cash flows are affected because buyers cannot fulfil commitments due to the financial meltdown, additional funds from financial institutions are needed to meet increased costs on the same terms as existing loans and without additional collaterals- newspaper quoted a CREDAI body. COVID-19 must be part of force majeure provision.

6. Delay in payment of EMI and loans – Several borrowers are facing issues due to delay in remittance of EMIs. The Banks/ NBFC may declare their Loan account as Non- Performing Asset (NPA). Insurance Companies relaxed norms on payment of premiums.

7. Refund on Cancellation of Travel Plans – Airlines and Hotels are not willing to refund the amount paid to them. Although some airlines have offered postponement/ rescheduling of tickets once without charging any rescheduling fees. The passengers are unsure whether the pandemic cases will reduce to fix a date for rescheduling of tickets. Many flights have been cancelled, delayed, postponed, indefinitely. Can the airlines take shelter under force majeure for cancellation of domestic and international flights will be tested in Courts?

Companies may face financial penalties due to their inability to fulfil contractual obligations due to disruption in the supply chain are taking shelter under ‘Force Majeure’ clause. Force Majeure clause protects a party from any financial liability for its failure to perform a contractual obligation. Every case must be analysed individually whether the contracts provide a force majeure clause and whether the outbreak falls within the meaning of force majeure event. Struggling Companies may take advantage of the Force Majeure Clause. The contracts will be put to test before the Courts/ad-hoc bodies and it will be upon their judges to decide it on a case- to-case basis.%MCEPASTEBIN%